Q3 2024 SouthState Corp Earnings Call
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Speaker Change: I would now like to turn the call over to will Matthews Chief Financial Officer of South State Corporation will please go ahead.
Will Matthews: Good morning, and welcome to <unk> third quarter 2024 earnings call. This.
Thank you for standing by my name is Mark and I would be a conference operator today at this time I would like to welcome everyone to South State Corporation, and <unk> Street 324 earnings Conference call.
Will Matthews: This is will Matthews I'm here with John Corbett, Steve Young and Jeremy Lucas.
Will Matthews: We will follow our normal format, where John and I will make a few brief remarks, and then turn it over for Q&A.
Lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time CECO breast star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again, thank you.
Will Matthews: 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 regulations.
Will Matthews: 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.
Speaker Change: Now I will turn the call over to John Corbett our CEO.
John Corbett: Thank you will.
John Corbett: Good morning, everybody. Thanks for joining us for soundstage third quarter results.
John Corbett: For the quarter, we generated broad based growth in loans deposits revenue and earnings per share.
John Corbett: Asset quality metrics remained stable and expenses are in check.
John Corbett: And with the backdrop of an improving yield curve.
John Corbett: Setup is looking pretty good for 2025.
John Corbett: A positive GDP forecast and low unemployment so it feels like we're transitioning to a period of expanding margins and accelerating growth.
John Corbett: Two ingredients that are good for any business.
John Corbett: It's also been a quarter that presented the challenge of the hurricane season.
John Corbett: Our hearts go out to our teammates and clients that endured the worst of the storms.
For the most part the severe damage you see on the news is isolated to specific areas and not reflective of the broader geography.
John Corbett: However, power outages cell phone disruption in gasoline shortages were widespread for a week or more.
John Corbett: Our business continuity team kept the bank running without disruption. So it really wasn't as much of an operational challenge since we've been through this before.
John Corbett: But it was a chance to pull together as a community bank and for Nabors to help neighbors and for our team members to help one another.
John Corbett: At South State, we have an employee funded foundation called the Sunshine Fund.
John Corbett: And that foundation provided generators groceries and needed supplies to fellow employees that were impacted by the storm.
John Corbett: Several of you reached out with notes a concern and we appreciate that.
John Corbett: We continue to be excited about our partnership with independent financial.
John Corbett: Everything appears to be on track, we received shareholder approval in August.
John Corbett: And things are progressing as planned with the regulatory approval process.
John Corbett: Rather than waiting until closing both the independent and South state teams are traveling together now throughout Texas, Colorado and throughout the southeast we're building new friendships long before we get to the closing and a conversion next summer.
John Corbett: All in all things are looking pretty good.
John Corbett: Our strategy is to build our firm in the best markets with the best scale and the best business model and culture.
John Corbett: Our colleagues from independent share that vision and together, we're working towards that goal, which we believe will drive long term shareholder value.
Speaker Change: Well why don't you go ahead and walk us through the moving parts on the balance sheet and the income statement.
Thank you John.
Speaker Change: High level, the third quarter core profitability was consistent with the second quarter with total revenue up $1 million and noninterest expenses up $1 million for another quarter of <unk> of $183 million.
Speaker Change: Net interest income was up $1 million on an additional day count in noninterest income was flat.
Speaker Change: Our NIM of $3 40 was down four basis points from Q2.
Speaker Change: Loan yields increased four basis points or five basis points, excluding accretion with that difference due to the early payoff of an acquired loan with the premium.
Speaker Change: Loans grew 4% annualized in the quarter consistent with our mid single digit expectation for the year with.
Speaker Change: With single family residential and C&I loans experiencing the highest growth.
The single family growth was mostly a result of construction loans moving into the residential portfolio upon completion.
Speaker Change: You may notice a sizeable increase in our yield on loans held for sale.
Speaker Change: That is due to our SBA securitization business, which obtained its pooling license and is now up and running.
Those loans are on our balance sheet, while pools are being created and they carry higher yields than the single family residential loans that have historically made up that line item.
Speaker Change: Deposit cost increased 10 basis points to 190.
Speaker Change: Total deposits grew 6% during the quarter with customer deposits up $470 million on an ending basis and up approximately $90 million on average.
Speaker Change: Customer deposit growth was predominantly in money market accounts with DDA is flat.
Speaker Change: We also elected to issue some brokerage Cds to replace <unk> overnight advances.
Speaker Change: Both of these areas of deposit growth caused the overall cost of total deposits to increase a few basis points above our mid <unk> guidance.
Speaker Change: I will note that we did lower our deposit cost effective October one, including an exception priced accounts and alignment with our previous execution plan.
Speaker Change: Steve will give some color on our future margin guidance in the Q&A.
Speaker Change: Noninterest income of $75 million was slightly above expectations with correspondent up $5 million or $1 million, excluding the expense on variation margin collateral.
Speaker Change: This was offset by a $3 million decline in mortgage and a $4 million decline in other noninterest income.
Speaker Change: And I E. Excluding nonrecurring items of $244 million was up $1 2 million from Q2 <unk>.
Speaker Change: Higher salary expense due to July one merit increases was offset by lower incentives and commissions.
Speaker Change: Looking ahead to Q4, we expect NII to fall in the $245 million to $250 million range, depending upon some variable expense items.
One note I'll make about NII with the upcoming merger with independent several positions that are open or that were budgeted to be filled this year are being held open with plans for independent team members to fill those roles as such we're seeing some reduced NII. This year, while we wait to close the merger and welcome.
Speaker Change: Independent employees to the team.
Our provision for credit losses was $2 million for funded loans offset by a release of $9 million for unfunded commitments for a total release of $7 million.
Speaker Change: Unfunded commitment level declines continued strong asset quality and economic data and forecast drove this result.
Speaker Change: Net charge offs remained low at $6 million or seven basis points annualized.
Speaker Change: Total reserve levels ended the quarter at one 5% to 2% down five basis points from Q2.
Speaker Change: NPA declined $8 million with substandard and special mention loans essentially flat.
Employees to the team.
Speaker Change: Our provision for credit losses was $2 million for funded loans offset by a release of $9 million for unfunded commitments for a total release of $7 million.
Past dues and payment performance continued to be strong and line of credit utilization rate continued to remain flat except for the funding of construction loans as projects move towards completion.
Speaker Change: Unfunded commitment level declines continued strong asset quality and economic data and forecast drove this result.
Speaker Change: <unk> improved again with our TCE ratio growing to eight 9% our CET one to 12, 5%.
Speaker Change: Net charge offs remained low at $6 million or seven basis points annualized.
Speaker Change: And our <unk> per share growing $3 36.
Speaker Change: Total reserve levels ended the quarter at 1.52% down five basis points from Q2.
Speaker Change: To end at $51 26.
Speaker Change: Operator, we'll now take questions.
Speaker Change: Okay.
Speaker Change: N P a declined $8 million with substandard and special mention loans essentially flat.
Speaker Change: Thank you well begin the question and answer session.
Speaker Change: That Ian would like to ask a question. Please press star one on your telephone keypad Teresa Hannan joined the queue. If you would like.
Speaker Change: Past dues and payment performance continued to be strong and line of credit utilization rates continued to remain flat except for the funding of construction loans as projects move towards completion.
Speaker Change: To withdraw your question CPA Press Star one again.
Speaker Change: Well pause for IPR, Amit to compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: And your first question comes from the line of Catherine Mealor Ww Catherine Your line is now open.
Speaker Change: Capital improved again with our TCE ratio growing to eight 9% our CET one to 12, 5%.
Thanks, Good morning good.
Speaker Change: Alright.
Speaker Change: And our T B V per share growing $3 36.
Catherine Mealor: I thought I could just start on the margin.
Speaker Change: To end at $51 26.
Catherine Mealor: If you could provide us with your updated outlook on how you see the margin.
Speaker Change: Operator, we'll now take questions.
Catherine Mealor: Moving towards the towards the next quarter and then into next year, just with the updated moving rates you've talked about how you're better positioned for rate cuts I think before you said that.
Speaker Change: Okay.
Speaker Change: Thank you well begin the question and answer session. If you have that you know we'd like to ask a question. Please press star one on your telephone keypad Teresa Hannan joined the queue if.
Catherine Mealor: And every rate cuts about three to five basis points and then treat it and then just curious if that still stands and how you think about the NIM moving forward. Thanks.
Speaker Change: I would like to withdraw your question CPA Press Star, one again, possibly Australia moment to compile the Q&A roster.
Speaker Change: Yes sure Catharine.
Speaker Change: Yeah.
Speaker Change: And your first question comes from the line of Catherine Mealor BBW Catherine Your line is now open.
Speaker Change: I'll try to.
Speaker Change: Got it right the third quarter, where we were and then kind of go from there on forward. So.
Catherine Mealor: Thanks, Good morning.
Speaker Change: You look at page 27 on the review of our quarter three results.
Catherine Mealor: Morning.
I thought I could just start on the margin.
Catherine Mealor: Dave if you could provide us with your updated outlook on how you see the margin.
Speaker Change: Total revenue was right in line with our guidance.
Speaker Change: NIM was down four basis points this quarter from $3 44 to $3 40.
Catherine Mealor: Moving towards the towards the next quarter and then into next year, just with the updated move in rates you've talked about how you're better positioned for rate cuts I think before you said that.
Speaker Change: But mainly that was due to the increase in deposit costs of about 10 basis points.
Speaker Change: And for NIM, we forecast to be flat in the last call. It so.
Catherine Mealor: Every rate cuts about three to five basis points NIM improvement just curious if that still stands and how you think about the NIM moving forward. Thanks.
Speaker Change: The cost to be up five to six basis points.
Speaker Change: But on the other side noninterest income we had forecasted noninterest income to average assets to be five five to six five and it ended up on the higher end 0.665, so a little long on NIM, a little high on noninterest income so what.
Speaker Change: Sure Kathryn.
Speaker Change: I'll try to.
Speaker Change: Got it right the third quarter, where we were and then kind of go from there.
Speaker Change: On forward so.
Speaker Change: You look at page 27 on the review of our quarter three results total revenue was right in line with our guidance.
Speaker Change: What happened.
Speaker Change: June 30 to September.
Speaker Change: September 30 at the 10 year Treasury fell about 60 basis points, which caused us to have less cash collateral from our counterparties.
Speaker Change: NIM was down four basis points this quarter from $3 44 to $3 40, but mainly that was due to the increase in deposit costs of about 10 basis points and for NIM, we forecast to be flat in the last call. It so.
Speaker Change: In order to compensate for the decrease in cash we raised more higher cost deposits and funding throughout the quarter.
Speaker Change: The effects of this where it moved our noninterest income up $3 9 million versus the second quarter.
Part of that cost to be up 5% to six basis points.
Speaker Change: But on the other side noninterest income, we had forecasted noninterest income to average assets to be.
Speaker Change: <unk> interests are principally cleared margin line on page 29, it shows up.
Speaker Change: Five five to six five and it ended up on the higher end 0.665, so a little low on NIM, a little high on noninterest income so you.
Speaker Change: Under the correspondent bank Thats related interest expense.
Speaker Change: Moved our interest expense on deposits.
Speaker Change: What happened.
Speaker Change: Claim amount.
Speaker Change: So in summary, without that movement between the line items, and then would've been $3 44, which would have been flat cost of deposits would have been 186.
Speaker Change: Non interest income to average assets would've been about quickbooks too so.
Total revenue didn't change rather than a few different buckets. So I thought I would just kind of start out in kind of right, where we are because we believe that the 10 year, but to your question as we think about guidance for next year.
Speaker Change: We're really just reiterating.
Speaker Change: Last quarter's guidance for.
Speaker Change: For every rate cut we're looking to three to five basis points for each rate cut which is what we've said before and it's consistent with our modeling.
Speaker Change: The timing of such.
Speaker Change: I think that you get the three to five basis points within the first.
Speaker Change: Three to six months roughly two thirds of that will be within the first quarter and then the.
Speaker Change: The rest of it will happen as you reprice the CD book that it all happened within a pretty short period of time, but do you have a mid quarter, its probably not going to be much in that quarter, but more in the next quarter, but I think thats the normal lag.
Speaker Change: One of the things that we mentioned on last call was $3 75 to 385 exit NIM in the fourth quarter with fourth quarter of 2025, I'm, sorry, with <unk> and we continue to see that we also looked at our balance sheet.
Speaker Change: Fourth quarter would be about roughly $50 billion in loans $55 billion of deposits they have.
Speaker Change: 2025.
Speaker Change: And then the other guidance that we've given maybe just a little bit of an update as you know <unk> for noninterest income.
Speaker Change: I think it will be around 65 basis points, a little bit on the high end just because of the drop in rates.
Speaker Change: Post <unk>.
Speaker Change: Last quarter, we said yes.
Speaker Change: Non interest income to average assets would be in the $50 to 55 basis points. We think now that will be on the high end of that range because of that movement.
Speaker Change: So anyway, I guess the point of all that just to reiterate let me let me just kind of outline a couple of factors that we're thinking through if we model.
Speaker Change: Number one.
Speaker Change: There's really four of them one is the level of the 10 year Treasury. So.
Speaker Change: Yes.
Speaker Change: For some reason the 10 year Treasury went lower than 4%, but you really have no effect on the revenue, but it would help lower NIM higher non interest income so really that's not a real revenue item.
Speaker Change: One is the level of the five year Treasury.
Speaker Change: That affects our loans and securities repricing, we have about between now and this is just us on a standalone basis between now for the fourth quarter. This year at all four quarters of next year, we have about $1 billion a quarter in loans.
Speaker Change: $5 billion in total by the end of next year of loans and about $1 billion in total securities maturing by the end of 'twenty five.
Speaker Change: Dave's rates, we pick up about 200 basis points over what the coupon is today, yes.
Speaker Change: The five year treasury moves higher or lower it would move that spread.
There the third one is the fed rate cuts last quarter, we talked about fixed rate cuts, what's factored into the end of 'twenty five now.
Speaker Change: Now it looks like seven or eight.
Speaker Change: Things that would affect would be floating rate loans and deposits.
Speaker Change: I kind of look at the level, two and three less probably offset each other a little bit.
Speaker Change: The last one is just our IV TX day one marks.
Speaker Change: As we contemplate clothing that in the first quarter.
Speaker Change: When we announced the deal with a five year treasury with.
Speaker Change: Around four 5% today, it's about 4% a 50 basis points lower.
Speaker Change: To his left day one dilution.
Speaker Change: More capital.
Speaker Change: And less Etfs accretion maybe NIM.
Speaker Change: However, as we think about that extra capital the question for us going forward, if we did close on today.
Speaker Change: Do we take that excess capital and restructure our bond Buck with that capital that we already have those are the things that we're thinking about but the bottom line is yes. There is some pluses or minuses on all of that but our guidance.
Speaker Change: Based on what we model is the same.
Speaker Change: Okay, that's really comprehensive and helpful.
Speaker Change: You bet.
Speaker Change: Quarter is do you believe that right can.
Speaker Change: Can you talk a little about what youre seeing in deposit costs with just curious 58 basis points.
Speaker Change: I know deposit cost increase this quarter, but.
Speaker Change: As we look towards the back part of the quarter.
Speaker Change: You're seeing an inflection to when we can actually see deposit cost decline next quarter or do you still think were stable to up a little bit of time periods.
Speaker Change: Yes, no. That's a good question and yes, Theyre just as will mentioned in the call you know I think they cut rates in the middle of September we did not cut our deposit rates until October one, but we did cut them.
Speaker Change: If youll recall, we have about.
Speaker Change: $10 billion of.
Speaker Change: No exception priced deposits and about $4 5 billion.
Speaker Change: T D.
Speaker Change: As we thought about it we are trying to get about 80%.
Speaker Change: The rate cuts on the exception price deposits and then of course about 75% on the Cds and of course, the Cds kind of rollout over the first six months. So we did see that we did execute it so we would expect that.
Speaker Change: That would happen in the fourth quarter and we also expect that over time that will get a 20% beta over time in deposits, but we did execute October 1st though.
Speaker Change: I have no issue with that.
Speaker Change: Okay, great very helpful. Thank you.
Speaker Change: Thank you Kevin.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Stephen Scouten with Piper Sandler Steven Your line is now open.
Stephen Scouten: Yes. Thanks.
Stephen Scouten: You guys talked I think you spoke briefly on the growth in consumer.
Stephen Scouten: Ramsey and a lot of that being from construction.
Stephen Scouten: Migrating over to permanent but I think I heard you also say the yields were better than traditional resi can you give us a feel for that and kind of how you think about balance sheeting consumer resi at this point given the rate environment, just kind of strategically there.
Speaker Change: Yes, what I was talking about Stephen I think sorry for the lack of clarity I'll apologize for my voice I'm Valerie coal, but also.
Speaker Change: And also about the loans held for sale we.
Speaker Change: We announced earlier this year.
Speaker Change: <unk>.
Speaker Change: In Houston that buys and pool of SBA loans.
And then sales and securities and so the loans held for sale bucket in Q3 included SBA loans and of course, those larger prime plus type.
Speaker Change: So all of the guaranteed portion.
Speaker Change: With that as a higher yield than what you see in the loans held for sale traditionally which is made up of single family residential so that was that comment there really wasn't related to.
Speaker Change: Kind of strategically there.
Speaker Change: Yeah, what I was talking about Stephen I think sorry for the lack of clarity and I'll apologize for my voice I'm battling a cold but.
Speaker Change: The balance sheet portfolio of consumer real estate with the loans held for sale line item. If you look at the yield table Youll see that that yield went up pretty markedly from Q2 to Q3.
Speaker Change: Also about the loans held for sale, we we announced earlier this year a team.
Speaker Change: In Houston that buys and pool of SBA loans.
Speaker Change: Item and Stephen I would just say, there's a little bit of noise in that line just because of the average balances versus ending but the bottom line is they are a little bit higher yielding loans that are floating and then eventually that team will.
Speaker Change: And then sales and securities and so the loans held for sale bucket in Q3 included some SBA loans and of course, those larger prime plus type.
Speaker Change: Turn them in the securities.
Speaker Change: Net fee income from them. So that's that's a group that we're really excited about and just started.
Speaker Change: So all of the guaranteed portion.
Speaker Change: With that as a higher yield than what you see in the loans held for sale traditionally which is made up of single family residential. So that was that comment there really wasn't related to sort of the balance sheet portfolio of consumer real estate with the loans held for sale line item. If you look at the yield table Youll see that that yield went up pretty markedly from Q2 to Q3 in that.
Speaker Change: This quarter in and doing some production.
Speaker Change: Got it got it thanks for the clarification, there sorry, I misunderstood that and then just maybe to.
Speaker Change: To follow up on that I guess residential real estate. The question would you.
Speaker Change: As you see spreads on that portfolio do you want that.
Speaker Change: Item.
Speaker Change: That percentage of loans to kind of remain in this 26% or or has that become a less viable or less beneficial component of the balance sheet. In this rate environment, just kind of how do you think about that percentage of loans and growing or shrinking.
Speaker Change: I would just say, there's a little bit of noise in that line, just because of the average balances versus ending but.
Speaker Change: <unk> line is there a little bit higher yielding loans that are floating and then eventually that team will.
Speaker Change: Turn them into securities and.
Sure Stephen this is Steve.
Speaker Change: The income from them. So that's that's a group that we're really excited about and just started.
Speaker Change: What will naturally happen and when we.
Steve Young: Merge with independent that percentage of loans will decrease I can't remember exactly how far but I want to say, it's 21 or 22% and then I would think that we would kind of hold it pretty constant from there, yes, it might grow a percent or two but I would expect that as we continue to grow and grow our C&I and other businesses that the balance sheet.
Speaker Change: This quarter in and doing some production.
Speaker Change: Got it got it thanks for the clarification, there sorry, I misunderstood that and then just maybe to.
Speaker Change: To follow up on that I guess residential real estate. The question that I mean would you.
Speaker Change: As you see spreads on that portfolio do you want that.
Speaker Change: That percentage of loans to kind of remain in this 26% or when does that become a less viable or less beneficial component of the balance sheet in this rate environment or just kind of how do you think about that percentage of loans and growing or shrinking.
Steve Young: Particularly be used there and in fee income.
Steve Young: We'll be more on the residential side I think.
Steve Young: This quarter, our residential production was about 60% secondary 40% portfolio. Our goal would be over time to get that closer to 70 30 and to use the balance sheet for both.
Speaker Change: Sure Steven this is Steve.
Speaker Change: What will naturally happen and when we.
Speaker Change: Merge with independent that percentage of loans will decrease I can't remember exactly how far but I want to say, it's 21 or 22% and then I would think that we would kind of hold it pretty.
Steve Young: Our private banking clients as well as some of our.
Steve Young: Low demand.
Steve Young: Our portfolio of products.
Speaker Change: Okay helpful. And then just last one for me I know Johnny.
Speaker Change: Constant from there yeah, it might grow a percent or two but I would expect that as we continue to grow and grow our C&I and other businesses that the balance sheet will probably particularly be used there and in fee income.
Speaker Change: <unk> talked about the overall strategy of building the best team in the best markets and obviously, great trajectory there with the IV TX deal pending.
Speaker Change: Think about it.
Speaker Change: Indeed, it slowdown potential hiring your existing markets do you kind of pull.
Speaker Change: We'll be more on the residential side I think.
Speaker Change: This quarter, our residential production was about 60% secondary 40% portfolio. Our goal would be over time to get that closer to 70 30 and to use the balance sheet for both.
Speaker Change: Pulled back capital and resources to think more about new hires and those those new markets and 25% or kind of how do you think about that that build out moving forward and where you want to allocate resources to talent.
Speaker Change: Yes.
Speaker Change: You know, our private banking clients as well as some of our.
Speaker Change: Nathan.
We joined with independence, one of the things the team out there is excited about is the treasury management platform that we're going to bring to bear for them that we've worked on for a number of years here at South State. If you think about C&I and middle market banking having.
Speaker Change: Low demand.
Speaker Change: Our portfolio of products.
Speaker Change: Okay helpful. And then just last one for me I know John you kind of talked about the overall strategy of building the best team in the best markets and obviously, great trajectory there with that.
Speaker Change: Having that sophisticated treasury management tool really is the foundation of that so once we get that in place we envision.
Speaker Change: <unk> deal pending do you guys think about.
Speaker Change: Does it slow down potential hiring your existing markets do you kind of.
Speaker Change: Back capital and resources to think more about new hires and those those new markets in 25 or kind of how do you think about that that build out moving forward and where you want to allocate resources to talent.
Speaker Change: Habit, our Texas team, Colorado team continue to recruit but maybe a little bit more of a C&I area at layer that on top of the great to see our <unk> work that they do and we're just going to continue to be opportunistic just like we always are in our existing markets to hire great teams and not be feel constrained.
Speaker Change: Yeah Steven.
Speaker Change: As we join with independents are one of the things the team out. There is excited about is the treasury management platform that we're going to bring to bear for them, but we've worked on for a number of years here at South State. If you think about C&I and middle market banking.
Speaker Change: But from that standpoint, we're going to remain optimistic.
Speaker Change: Perfect very helpful guys. Thanks, so much for the time.
Speaker Change: Having that sophisticated treasury management tool really is the foundation of that so once we get that in place we envision.
Speaker Change: Your next question comes from the line of Michael Rose with Raymond James Michael Your line is now open.
Michael Rose: Hey, good morning, everyone. Thanks for taking my questions.
Speaker Change: Habit, our Texas team, Colorado team continue to recruit but maybe a little bit more in the C&I area and layer that on top of the great to see our work that they do and we're just going to continue to be opportunistic just like we always are in our existing markets to hire great teams and not be feel constrained during the <unk>.
Wanted to touch on the.
Michael Rose: Reserve release this quarter, you guys have been understandably cautious and have built the reserve.
Michael Rose: Meaningfully over the past couple of years and it seems like the environment is now improving.
Michael Rose: Obviously there'll be some accounting gymnastics with the.
Speaker Change: From that standpoint, we're going to remain optimistic.
Michael Rose: With the acquisition, but could we expect to see either further releases as rates come down.
Speaker Change: Perfect very helpful guys. Thanks, so much for the time.
Michael Rose: Or just very low levels of provisioning as we move forward just hopefully the environment remain steady to improved thanks.
Speaker Change: Your next question comes from the line of Michael Rose with Raymond James Michael Your line is now open.
Will Matthews: Yes, Michael its will and obviously, that's a that's a difficult question.
Hey, good morning, everyone. Thanks for taking my questions just wanted to touch on the.
Michael Rose: <unk>, we've talked about before.
Michael Rose: I think what I'd say is that the loss drivers economic forecasts that are correlated with wassa historically in the various portfolios.
Reserve release this quarter, you guys had been understandably cautious and built the reserve.
Speaker Change: Pretty meaningfully over the past couple of years and it seems like the environment is now improving.
What they projected at the end of the third quarter running the model generated the result that we had which was that the reserve level needed to come down a little bit as it did.
Obviously there'll be some accounting gymnastics with the.
Speaker Change: With the acquisition, but could we expect to see either further releases as rates come down.
Michael Rose: And as we've talked about seasonal of course.
Speaker Change: Or just very low levels of provisioning as we move forward just hopefully as the environment remain steady to improved thanks.
Michael Rose: It is a forward looking model so.
Michael Rose: In theory and practice I guess, you should see reserve builds well in advance of charge offs.
Speaker Change: Yeah, Michael it's well and obviously that's a that's a difficult question as we've talked about before.
Michael Rose: And you could see reserve releases season, even if it's a bank were to see some charge offs pick up but.
Speaker Change: You know what I'd say is that the you know the loss drivers economic forecast at all.
Michael Rose: I think to answer your question one would answer would be yes, I think you could see.
Speaker Change: Correlated with losses historically in the various portfolios.
Michael Rose: Reserve releases from here from Us and others, you can see reserve levels come down, but it all will be driven by number one the economics loss drivers and be the argument to the.
Speaker Change: What they projected at the end of the third quarter run the model generated the result that we had which was that the reserve level needed to come down a little bit as it did.
Michael Rose: The characteristics of the portfolio highlights performing what banks you are seeing in their own portfolio. So it's hard to predict anything looking forward, but it's not unlikely that you could see that going forward I wouldn't necessarily build that in your model.
Speaker Change: And as you know and as we've talked about seasonal of course.
It is a forward looking model so.
Speaker Change: In theory and practice I guess, you should see reserve builds well in advance of charge offs.
Michael Rose: But it will it will it could come to pass.
Speaker Change: And you could see reserve releases, even if it is a bank where does see some charge offs pick up but I.
Speaker Change: Yes totally understand just wanted to understand conceptually just guidance.
Speaker Change: The forward looking indicators now criticized classified being kind of flat Q on Q and again rates coming down.
Speaker Change: I think to answer your question with a one word answer would be yes, I think you could see.
Speaker Change: Reserve releases from here from Us and others, you can see reserve levels come down.
Speaker Change: Just just separately just wanted to touch on kind of the growth outlook I think what we said.
Speaker Change: But it all will be driven by number one the economics loss drivers and be the argument to the.
Speaker Change: A lot of banks this quarter as you have some some near term trepidation, but pipelines still remains strong and I think people are optimistic once we get through the election and kind of figure out what the rules of the game or you could potentially see some some acceleration next year. So just wanted to get a sense from you guys. What youre seeing in your markets, which are obviously very strong in.
Speaker Change: Characteristics of the portfolio, how it's performing what banks you are seeing in their own portfolio. So it's hard to predict anything looking forward, but it's not unlikely that you could see that going forward I wouldn't necessarily build out in your model.
Speaker Change: But it will it will it could come to pass.
Speaker Change: Then just follow on that I saw that <unk> exiting the warehouse business. So that's one vertical but youre not going to have on a pro forma basis is there anything else that you're looking to bolster or maybe.
Speaker Change: Yes totally understand I just wanted to understand conceptually just guidance.
Speaker Change: All the forward looking indicators criticized classified being kind of flat Q on Q and again rates coming down.
Speaker Change: Just just separately just wanted to touch on kind of the growth outlook I think will be coming from.
Speaker Change: That's shuttered, but just.
Speaker Change: Reduce in terms of our focus.
Speaker Change: A lot of banks this quarter as you know.
John Corbett: Yes, Michael its John.
Speaker Change: Some some near term trepidation, but pipelines still remain strong and I think people are optimistic once we get through the election and kind of figure out what the rules of the game or you could potentially see some some acceleration next year. So I just wanted to get a sense from you guys. What youre seeing in your markets, which are obviously very strong and then just follow on that I saw.
John Corbett: In our markets the pipelines are steady.
John Corbett: They dipped in 2023 after Silicon Valley picked up in the fall of last year, they've really been steady at about $4 billion for the last three or four quarters.
John Corbett: And we guided.
John Corbett: Late last year that we thought this year would be kind of a mid single digit growth year and the primary factor driving and controlling that is the shape of the yield curve.
Speaker Change: That ITC actions exiting the warehouse business. So that's one vertical but youre not going to have on a pro forma basis is there anything else that you're looking to bolster or maybe.
John Corbett: It's just not as attractive to step on the gas right now and an inverted yield curve.
Speaker Change: Not sure, but just the reduce in terms of our focus.
John Corbett: And it looks like that inversion last if you believe the forecast probably through mid next year, but as the yield curve shape begins to normalize and begins to steepen. We think there will be an acceleration in growth.
John: Yeah, Michael it's John.
Speaker Change: In our markets the pipelines are steady.
Speaker Change: They dipped in 2023 after Silicon Valley picked up in the fall of last year, and they've really been steady at about $4 billion for the last three or four quarters and we guided lately.
Michael Rose: Opponents of growth Michael if you look at this year.
Michael Rose: <unk> had been more C&I oriented.
We've done about 13% C&I growth year to date to 10% this past quarter, but CRE activity has slowed down largely because we believe the funding of construction loans largely multifamily is beginning to wane and just less appetite for CRE with the shape of that.
Speaker Change: Late last year that we thought this year would be kind of a mid single digit growth year and the primary factor driving and controlling that is the shape of the yield curve.
Speaker Change: It's just not as attractive to step on the gas right now and an inverted yield curve and it looks like that inversion last if you believe the forecast property through mid next year, but it would be.
Michael Rose: Yield curve, so anyway, I think going into 2025, our guidance probably remains in that mid single digit range and when that yield curve starts to take a more normal shape. It probably picks up from there given the strength of our markets.
Speaker Change: Yield curve shape begins to normalize and begins to steepen, we think there will be an acceleration in growth there.
Speaker Change: The components of growth Michael if you look at this year.
Speaker Change: And I'll just follow up Michael on your mortgage warehouse question from independent and.
Speaker Change: <unk> had been more C&I oriented.
Speaker Change: Done about 13% C&I growth year to date to 10% this past quarter, but CRE activity has slowed down largely because we believe the funding of construction loans largely multifamily is beginning to wane and just less appetite for CRE with the shape of the yogurt.
Speaker Change: Our merger model the way, we contemplated that originally is that that those balances would not be there.
Speaker Change: And that they would be in the cash balances and Thats part of our $50 billion at the end of next year guide at 5%. So that was always contemplated because of our conversations with independent in there.
Speaker Change: So anyway, I think going into 2025, our guidance probably remains in that mid single digit range and when the yield curve starts to take a more normal shape. It probably picks up from there given the strength of our markets.
Speaker Change: Thought of exiting that business. So there's nothing new we just didnt werent able to publicly say that.
Speaker Change: At this time.
Speaker Change: Okay.
Alright, great color. Thank you for taking my questions.
Speaker Change: And I'll just follow up Michael on your mortgage warehouse question from Independents, and you know our merger model. The way we contemplated that originally is that that would those balances would not be there and.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Dave Bishop, We top daycare David Your line is now open.
Speaker Change: Okay.
Speaker Change: Good morning, Justin after days.
Speaker Change: And that they would be in the cash balances and that's part of our $50 billion at the end of next year guide at 5%. So that was always contemplated because of our conversations with independent and there.
Dave Bishop: Question on credit quality in the multifamily and office portfolios.
Dave Bishop: If you have any line of sight into potential upgrades there.
Dave Bishop: And given the recent increases in criticized assets.
Speaker Change: Thought of exiting that business. So that there's nothing new we just didn't weren't able to publicly say that.
Dave Bishop: Is there any in any way related to rent abatements or lease up issues. Thanks.
You know at this time.
Dave Bishop: Yes.
Speaker Change: Yes.
Speaker Change: Alright, great color. Thank you for taking my questions.
Dave Bishop: So we're pretty pleased with that.
Dave Bishop: Asset quality trends this quarter in the.
Dave Bishop: Past dues are still low by 26 basis points only seven basis points of charge offs independent actually had zero charge offs during the quarter and NPA trended down so specifically as it relates to office and multifamily what we're hearing from our credit team on office.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Dave Bishop we topped it.
Speaker Change: David Your line is now open.
Speaker Change: Good morning.
Speaker Change: And after days.
David Bishop: Question on credit quality in the multifamily and office portfolios.
David Bishop: Curious if you have any line of sight into potential upgrades there.
Dave Bishop: Nick.
Dave Bishop: From the properties that we're invested in that the work from home trend has bottomed youre seeing Amazon and other companies.
David Bishop: And given the recent increases in criticized assets.
David Bishop: Any in any way related to rent abatements or at least some issues. Thanks.
Require employees back to the office now will there continue to be some issues over the next couple of years sure, but I think as we show in our deck were concentrated in more small offices under 50000 square feet not the over 500000 square feet.
David Bishop: Yes.
Speaker Change: Just that we're pretty pleased with the asset quality trends this quarter.
Speaker Change: <unk> are still low about 26 basis points only seven basis points of charge offs independent actually had zero charge offs during the quarter and npa's have trended down.
Dave Bishop: Kansas City said things there'll be most of the most of the issues on multifamily.
Speaker Change: Specifically as it relates to office and multifamily what we're hearing from our credit team on office.
Dave Bishop: As we look at that portfolio. The substandard increase that we've seen is is really more about rising interest rates on floating rate loans.
Speaker Change: Like.
Speaker Change: From the properties that we're invested in that the work from home trend has bottomed.
Dave Bishop: We continue to see absorption of those properties, it's happening a little bit slower I think when we went back and analyzed on the construction loans multifamily. We've got 70% of them are performing exactly as we planned as it relates to rental rates and vacancy the other ones that are behind Theyre not big.
Speaker Change: And Amazon and other companies require employees back to the office now will there continue to be some issues over the next couple of years sure, but I think as we show in our deck were concentrated in more small offices under 50000 square feet not the over 500000 square feet where the.
Dave Bishop: And by much the rental rates are off by maybe about 5%.
Speaker Change: Kansas City said things there'll be most of the most of the issues on multifamily.
Field.
Dave Bishop: Good that with the in migration and the lack of housing supply, but those properties are going to fill up they'll just take about a year longer than maybe we plan on that portion. So hopefully that gives you some.
Speaker Change: As we look at that portfolio. The substandard increase that we've seen is is really more about rising interest rates on floating rate loans.
Dave Bishop: Color on what we're seeing in those properties, but but right now in CRE they are performing great.
Speaker Change: We continue to see absorption of those properties, it's happening a little bit slower I think when we went back and analyzed on the construction loans multifamily. We've got 70% of them are performing exactly as we planned as it relates to rental rates and vacancy. The other ones that are that are behind theyre not big.
Dave Bishop: Past due ratio of series only seven basis points, yes, and I'll just add just from the standpoint of timing of downgrades upgrades. Our general posture is to be quick to downgrade and slower upgrade so if rates.
Dave Bishop: Stay lower move lower it doesn't mean that next quarter, we're going to start upgrading things right away, we generally like to see some some trending and some sustained improvement. So we think that's a good conservative philosophy to have.
Speaker Change: And by much the rental rates are off by maybe about 5%.
Speaker Change: Our field.
Speaker Change: Pretty good that with the in migration and the lack of housing supply, but those properties are going to fill up they'll just take about a year longer than maybe we plan on that portion. So hopefully that gives you. Some some color on what we're seeing in those properties, but but right now in theory, they are performing great.
Dave Bishop: Okay.
Speaker Change: Great. Thanks for taking my question.
Speaker Change: Your next question comes from the lineup journey, Jerry with CD Ben Your line is now open.
Speaker Change: Past due ratio of series only seven basis points, Yeah, and I'll just add just from the standpoint of timing of downgrades upgrades.
Speaker Change: Hi, good morning, guys.
Speaker Change: Good morning.
So I know you talked through with the rate movement, and three Q10 year kind of impacting the NII and cash balances.
Speaker Change: Our general posture is to be quick to downgrade and slower to upgrade so if rates.
Speaker Change: Stay low or move lower it doesn't mean that the next quarter, we're going to start upgrading things right away, we generally like to see some some trending and some sustained improvement. So we think that's a good conservative philosophy to have.
I mean, if we're kind of mark to market here, what are you kind of reverse with tenure up as much as it is in this quarter or is there a lag effect I'm just kind of thing in harvest a bit specific whole conversation about be futile.
Speaker Change: If the 10 year goes back down, but I'm just kind of curious.
Yeah.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Fast that changes everything.
Speaker Change: Sure you know it had been the Steve you really probably the best way to think about it is based on the average yield of the 10 year in any particular period of time, that's what really what drives it.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of fan journey, Jerry with CD Ben Your line is now open.
Speaker Change: Hi, good morning, guys.
Speaker Change: But I think in that.
Speaker Change: Good morning.
Speaker Change: In the second quarter, the average yield on the tenure Treasury I think around $4 45 or 50.
Speaker Change: So I know you talked through with the rate movement, and <unk> 10 year kind of impacting the NII and cash balances.
Speaker Change: And the average of the.
Speaker Change: Third quarter was about 4%, so I would kind of use kind of I think it was maybe 395, 4%. So I would kind of use the average 10 year treasury in a quarter as sort of a.
Speaker Change: I mean, if we're kind of mark to market here, what are you kind of reverse when the 10 year up as much as it is in this quarter or is there a lag effect I'm just kind of a thing have you seen a bit specific this whole conversation about be futile.
Benchmark and then.
Speaker Change: If the 10 year goes back down, but I'm just kind of curious.
Speaker Change: Because I think the 10 year actually even went down to maybe 360 or so I mean, it's been kind of wild wild ride $360 for the quarter I look at the average and assuming that most forecasts have the 10 year Treasury is somewhere in the 4% range give or take I would use our run rate and third excuse me the third quarter as kind of that interest on.
Speaker Change: How fast that changes everything.
Speaker Change: Sure you know it.
Speaker Change: Steve you really probably the best way to think about it is based on the average yield of the 10 year in any particular period of time, that's what really what drives it.
Speaker Change: But you know I think in the <unk>.
Speaker Change: Second quarter, the average yield of our senior Treasury, but I think what's at around $4 45 for 50 and in the average of the the third.
Speaker Change: Variation margin sort of use that same same number.
Speaker Change: Third quarter was about 4%, so I'm kind of use kind of I think it was maybe 395, 4%. So I would kind of use the average 10 year treasury in a quarter as sort of a you know.
Speaker Change: As expense there.
Speaker Change: Got it okay. That's helpful.
Speaker Change: And I know you gave some updated thoughts on the margin.
Especially in the next year I mean, it was high level, obviously, but does that marketing to market both sides of the transaction or is that just yours.
<unk> Mark and then.
Speaker Change: Because I think the 10 year actually even went down to maybe $3 60, or so I mean, it's been kind of wild wild ride $360 for the quarter I look at the average and assuming that you know most forecasts have the 10 year treasuries somewhere in the 4% range give or take I would use our run rate and third excuse me the third quarter as kind of that interest on.
Speaker Change: Okay.
Speaker Change: You are speaking to the independent transaction as well is that what Youre speaking about.
Speaker Change: And you talked about <unk>.
Speaker Change: It included Avi yes.
Speaker Change: Yes. It did include IGT X I'm, sorry, so the fourth quarter exit rate would include first quarter closing plus our three to five basis points for each cut plus diabetes. All of that included $50 billion in loans $55 billion in deposits fourth quarter exit rate and that $3 75 to 385 range yet.
Speaker Change: Variation margin sort of use that same same number.
Speaker Change: As expense there.
Speaker Change: Got you. Okay. That's helpful. And then I know you gave some updated thoughts on the margin.
Speaker Change: Gotcha, Okay, and then just kind of higher level here when you think about.
Speaker Change: Especially in the next year I mean, it was high level, obviously, but does that marketing to market both sides of the transaction or is that just yours.
Speaker Change: You talked to deposit pricing you trimmed it on.
Speaker Change: Okay.
The first of October here.
Speaker Change: You are speaking to the independent transaction as well is that what Youre speaking about.
Speaker Change: Can you can you kind of give a sense of the response.
Speaker Change: People.
Speaker Change: I mean, you talked about included included I've been basically yes. It did include IGT X I'm sorry, so the fourth quarter exit rate would include you know first quarter closing plus our three to five basis points for each cut plus IV T X. All of that included $50 billion, a month $55 billion in deposits fourth quarter exit rate and that $3 75.
Speaker Change: Looked to shop for higher rates potentially I know you haven't really well diversified deposit cost and slow, which I think is great, but the problem with being kind of the lowest deposit franchise.
Speaker Change: You kind of more at risk when things are still stay elevated just kind of curious.
Speaker Change: Any kind of anecdotal response, you might be seeing from clients.
Speaker Change: Five to 385 range, yes mhm.
Speaker Change: Sure Yeah, so far we're through three weeks into it and really nothing notable I will say that if you kind of think about we have 38 roughly $1 billion in deposits.
Speaker Change: Gotcha, Okay, and then just kind of higher level here and when you think about.
Speaker Change: You talked to deposit pricing you trimmed it on <unk>.
Speaker Change: What I would describe to you was about $10 billion of it is exception priced.
Speaker Change: First of October here.
Speaker Change: Can you kind of give a sense of the response.
Speaker Change: So it's a really maybe not a quarter, maybe it's 30% or so that's really the sensitive interest rate piece of it to the other.
Speaker Change: People.
Speaker Change: Looked to shop for higher rates potentially I know you haven't really well diversified deposit cost and slow, which I think is great, but the problem with being the kind of the lowest deposit franchise.
Speaker Change: <unk>.
Speaker Change: 23% or whatever it is $1 billion is not all that sense of $28 billion is not all that sensitive because they weren't so to begin with because they're checking accounts relationship accounts. So it's really the $10 billion you're talking about.
Speaker Change: Or are you kind of more at risk when things are still stay elevated just kind of curious on.
Speaker Change: Any kind of anecdotal response, you might be seeing from clients.
Speaker Change: In those cases, we exception price those closer to market and so when the fed moves it would make sense that those rates could come down. So it doesn't surprise me on that $10 billion. We haven't had a ton of pushback, we'll continue to monitor of course.
Speaker Change: Sure Yeah, so far we're through three weeks into it and really nothing notable I will say that if you kind of think about we have 38 roughly $1 billion in deposits.
Speaker Change: What I would describe to you was about 10 billion of it is exception priced.
Speaker Change: But thats, where the sensitivity is not on the other piece of the business and that's why our checking account franchises so valuable with the <unk>.
Speaker Change: So it's a really you know maybe not a quarter, maybe it's 30% or so that's really the sensitive interest rate piece of it to the other you know 2020.
Speaker Change: And with our retail small business and commercial account and then went to four of our CD book.
Speaker Change: <unk> 23 to or whatever there's 1 billion is not all that sensitive $28 billion is not all that sensitive because they weren't sensitive to begin with because they're checking accounts relationship accounts. So it's really the $10 billion you're talking about.
Speaker Change: Our CD rates are never top of the market. So somebody shopping to get the best CD and the market's not going to come into south state because of those rates and then the.
Speaker Change: In those cases, we exception prices closer to market and so when the fed moves it would make sense that those rates would come down. So it doesn't surprise me on that $10 billion, we haven't had.
Speaker Change: The brokerage CD book of course is that the marginal market cost.
Speaker Change: Got you Okay. That's helpful. I appreciate it I guess.
Speaker Change: Excellent.
Speaker Change: Non of pushback, which will continue to monitor of course.
Speaker Change: Your next question comes from the line of Gary Tenner with da Davidson Gary Your line is now open.
Speaker Change: But that's where the sensitivity is not on the other piece of the business and that's why the our checking account franchises. So valuable with the granular retail small business and commercial accounts and then went to $4 billion CD book.
Gary Tenner: Thanks, Good morning, everybody.
Gary Tenner: Just wanted to ask one more NIM question.
Gary Tenner: If you assume that 4% 10 year and that the income statement geography of the variation margin piece does not change this quarter does the 50 basis point cut in September as opposed to 25 kind of push out.
Speaker Change: Our CD rates are never top of the market. So somebody shopping to get the best C D and E and the market's not going to come into south state because of those rates and then the brokerage CD book of course as you know.
Speaker Change: The marginal market cost.
Gary Tenner: The ability to show NIM expansion all else equal.
Speaker Change: Got you Okay. That's helpful. I appreciate it I guess.
Speaker Change: No no I would expect all of that sort of was the third quarter of event as I was talking about kind of the third quarter 10 year treasuries, assuming fourth quarter. The 10 year Treasury is roughly the same or cost of deposits have now been fully baked in the third quarter, we did.
Speaker Change: Thanks Ben.
Speaker Change: Your next question comes from the line of Gary Tenner with D. A Davidson Gary Your line is now open.
Gary Tenner: Thanks, Good morning, everybody.
Gary Tenner: Just wanted to ask one more NIM question.
Speaker Change: October one cut deposit rates. So I would expect you'd have NIM expansion 45 basis points something like that.
Gary Tenner: You know if you assume that 4% 10 year and that the income statement geography of the variation margin piece does not change this quarter does the 50 basis point cut in September as opposed to 25 kind of push out.
Speaker Change: In the fourth quarter, because with all sort of right at a $3 40, and then you move up from there.
Speaker Change: Okay I appreciate that and I know you gave.
Gary Tenner: The ability to show NIM expansion all else equal.
Speaker Change: Kind of the outlook loaded for IV, TX on fees to average assets, just kind of thinking through the year on the expense side when the dust settles.
Speaker Change: No no I would expect you know all of that sort of was the third quarter of event as I was talking about kind of a third quarter 10 year treasuries, assuming fourth quarter. The 10 year Treasury is roughly the same or cost of deposits have now been fully baked in the third quarter. We did on October one cut deposit rates, So I would.
Speaker Change: As you enter 2025 do you have a kind.
Speaker Change: Kind of a bogey.
Speaker Change: Ore expense to average assets kind of exiting 'twenty into 'twenty six.
Speaker Change: Again, I don't have that.
Speaker Change: Net debt terms I guess looking at the various components.
Speaker Change: You'd have NIM expansion, you know four or five basis points something like that in the in the fourth quarter, because it's all sort of rights that at $3 40, and then you move up from there.
Speaker Change: We are still of course.
Speaker Change: And our final planning for 2025, I'm trying to say like everybody else not ready to give real precise guidance on 2025, but in general since our own legacy South state expense base, you should see sort of inflationary type.
Speaker Change: Okay appreciate that and I know you gave.
Speaker Change: Kind of the outlook loaded for IBD Exxon fees to average assets, just kind of thinking through the year on the expense side when the dust settles.
Speaker Change: Let's call it 3% to 4% type Nia on our books and then we got the <unk>.
Speaker Change: You know towards the end of 2025 do you have a.
Speaker Change: Merger occurring and with their with their <unk> base.
Speaker Change: Kind of a bogey for expense to average assets kind of exiting 'twenty five 'twenty six.
Speaker Change: Still confident that we will achieve the cost saves we announced.
Speaker Change: Again, I don't have that I don't have it not that terms.
Speaker Change: On that merger.
Speaker Change: Looking at the various components.
Speaker Change: And so if.
Speaker Change: If you take those components.
Speaker Change: We were still of course.
Speaker Change: Kind of where how we think we see.
Speaker Change: During our final planning for 2025, I'm trying to say like like everybody else not ready to give real precise guidance on 2025, but in general since our own legacy South state expense base, you should see sort of inflationary type.
Speaker Change: AIA shaping up for next year that obviously would be a lot of noise in the quarter, we close and then the quarter the conversion, which is scheduled for the memorial day weekend. So in the second quarter and then after that the third quarter should be a pretty clean NII.
Speaker Change: Let's call it 3% to 4% type N E on our books and then we got the <unk> Tx.
Speaker Change: And certainly the fourth quarter, even more so.
Speaker Change: For next year, and I would just add that I think.
Speaker Change: Merger occurring and with their with their ebay, we're still confident that we will achieve the cost saves we announced.
Speaker Change: You know as you think about the fourth quarter most of the cost will probably be out of the cost saves and if you kind of take our run rate their run rate added together make the changes for CVI and get the cost saves.
Speaker Change: On that merger.
Speaker Change: And so if you take those components and that's kind of where how do we think we see it.
Speaker Change: <unk>.
Speaker Change: Sure.
Speaker Change: It's roughly around 2% of assets you know for kind of a $1 billion for run rate give or take.
Speaker Change: It is shaping up for next year that obviously can be a lot of noise in the quarter, we close and then the quarter of the conversion, which is scheduled for the memorial day weekend. So in the second quarter.
Speaker Change: On an annualized run rate, so I think thats about.
Speaker Change: Where we think that'll be but could be.
Speaker Change: Could be in that general range, 2% of assets, probably a good way to think about it.
Speaker Change: And then after that the third quarter should be a pretty clean quarter and certainly the fourth quarter, even more so for.
Speaker Change: Got it thank you.
Speaker Change: For next year, Yeah, and I would just add I think.
Speaker Change: Okay.
Speaker Change: There is no further question at this time I will now turn the conference back over to Jim <unk> for closing remarks John.
Speaker Change: You know as you think about the fourth quarter most of the cost will probably be out of the cost saves and if you kind of take our run rate their run rate added together make the changes for CDI and get the cost saves.
Jim: Alright, Thanks, a lot. Thanks for joining us. This morning, we know you guys are jumping around on a bunch of different calls if you need any other information don't hesitate to give us a ring and I hope you have a great day.
Speaker Change: <unk>.
Speaker Change: It's roughly around 2% of assets, you know kind of a $1 billion for run rate give or take.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: You know on a on a annualized run rate. So I think that's about.
Speaker Change: Where we think that'll be but you know could be.
Speaker Change: You could be in that general range, 2% of assets, probably a good way to think about it.
Speaker Change: Got it thank you.
Speaker Change: Okay.
Speaker Change: There is no further question at this time I will now turn the conference back over to John <unk> for closing remarks John.
John: Alright, Thanks, a lot. Thanks for joining us. This morning, we know you guys are jumping around on a bunch of different calls if you need any other information don't hesitate to give us a ring and I hope you have a great day.
Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
John: [music].