Q3 2025 SouthState Corp Earnings Call
Speaker #2: Hello . And thank you for standing by . My name is Bella , and I will be your conference operator today . At this time , I would like to welcome everyone to SouthState Bank Corporation , Q3 2020 Earnings Conference Call .
Speaker #2: All lines have been placed on mute to prevent any background noise . After the speaker's remarks , there will be a question and answer session .
Speaker #2: If you would like to ask a question during this time , simply press star . Then the number one on your telephone keypad to withdraw your question , press star one again .
Speaker #2: I would now like to turn the conference over to William Matthews . You may begin .
Speaker #3: Thank you . Good morning and welcome to SouthState Third quarter 2020 Earnings Call . This is William Matthews , and I'm here with John Corbett , Steve Young and Jeremy Lucas .
Speaker #3: As always , we'll make a few brief prepared remarks and then move into questions . I'll refer you to the earnings release and investor presentation under the Investor Relations tab of our website .
Speaker #3: Before we begin our remarks , I want to remind you the comments we make may include forward looking statements within the meaning of the federal securities laws and regulations .
Speaker #3: 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 .
Speaker #3: For more information about our forward looking statements and risks and uncertainties that may affect us . Now , I'll turn the call over to you .
Speaker #3: John .
Speaker #4: Thank you . Will . Good morning , everybody . Thanks for joining us . We're pleased to report a strong third quarter for SouthState earnings per share are up 30% in the last year .
Speaker #4: And the company generated a return on tangible equity of 20% . If you recall , we closed on the Independent Financial transaction in January .
Speaker #4: We converted the computer systems in May and now we're beginning to realize the full earnings power of the combined company . Loan production was up a little in the third quarter to nearly $3.4 billion .
Speaker #4: And we saw moderate growth in both loans and deposits . Payoffs were about $100 million higher in the quarter . Loan production in Texas and Colorado is up 67% since the first quarter of the year .
Speaker #4: And loan pipelines across the company continue to grow . And we feel like net loan growth will accelerate over the next few quarters .
Speaker #4: Our charge offs were 27 basis points for the quarter , primarily due to one larger CNI credit . Acquired with Atlantic Capital that has been in the bank a number of years .
Speaker #4: Stepping back , however , the credit metrics in the bank are stable . Payment performance is good . Non-accruals are down slightly , and we've only experienced 12 basis points of charge offs year to date .
Speaker #4: Our credit team is forecasting that we're going to land in the neighborhood of ten basis points of charge offs for the year . We're currently in the middle of strategic planning this time of year , and thinking about the banking landscape , deregulation and the opportunities in front of us .
Speaker #4: Over the last 15 years , we've built the company in the best markets with good scale and an entrepreneurial business model , and we've done the heavy lifting to build out the infrastructure of the bank .
Speaker #4: We're now in a perfect position to capitalize on the disruption occurring in our markets . We've calculated that there are about $90 billion of overlapping deposits with SouthState that are in the midst of consolidation in the southeast Texas and Colorado .
Speaker #4: Our regional presidents understand the opportunity , and they're laser focused on recruiting great bankers and organically growing the bank . In 2026 , we'll all turn it back to you to provide additional color on the numbers .
Speaker #3: Thanks , John . I'll hit a few highlights focused on our operating performance and adjusted metrics , and make some explanatory comments . And then we'll move into Q&A .
Speaker #3: We had another good quarter with Ppnr of $347,000,002.58 in EPs , driven by 34 million in revenue growth and solid expense control . Our 406 tax equivalent margin drove net interest income of 600 million , up 22 million over Q2 , 19 million of that growth was due to higher accretion cost of deposits of 191 were up seven basis points from the prior quarter , and were in line with our expectations .
Speaker #3: In addition to the cost of deposit increase , overall cost of funds was impacted by the larger amount of sub debt outstanding for much of the quarter .
Speaker #3: We redeemed 405 million in sub debt late in the quarter . Going forward , that redemption will have a net positive impact on our Nim of approximately four basis points .
Speaker #3: All else equal , our loan yields of 648 improved by 15 basis points from Q2 and were approximately eight basis points below our new origination rate .
Speaker #3: For the second quarter . And loan yields excluding all accretion , were up a basis point from Q2 . Steve will give updated margin guidance in our Q&A .
Speaker #3: Non-interest income of 99 million was up 12 million , driven by performance in our correspondent capital markets division . And deposit fees . On the expense side , any of 351 million was unchanged from Q2 and was at the low end of our guidance and our third quarter efficiency ratio of 46.9% brought the nine month year to date ratio to 48.7% .
Speaker #3: Credit costs remain low , with a $5 million provision expense . As John noted , though , we did experience $121 million loan charge off during the quarter , which is an abnormally large charge off for us .
Speaker #3: This brings our year to date net charge offs to 12 basis points . Absent that loss , net charge offs would have been nine basis points for the quarter .
Speaker #3: Asset quality remains stable, and payment performance remains good. Our capital position continues to grow, with CET1 at 11.5% and TBV per share growing nicely.
Speaker #3: As you'll recall , we closed the Independent financial acquisition on January 1st of this year . Our Tbv per share of $54.48 is now more than $3 above the year end 2024 level .
Speaker #3: Even with the dilutive impact of the Independent financial merger , our TCE ratio is also back to its year end 24 level . As we've noted before , our strong capital levels and healthy capital formation rate provide us with good capital optionality .
Speaker #3: Operator we'll now take questions .
Speaker #2: At this time , I would like to remind everyone , in order to ask a question , press star . Then the number one on your telephone keypad .
Speaker #2: We will pause for just a moment to compile the Q&A roster . Your first question comes from the line of Michael Rose with Raymond James .
Speaker #2: Your line is now open . Please go ahead .
Speaker #5: Hey . Good morning guys . Thanks for taking my questions . I guess I'll hit the the margin question since you brought it up .
Speaker #5: Well , Steve , can you kind of walk us through , you know , the excess accretion . You know , this quarter looks like the core margin Execretion was was down kind of high single digit basis points .
Speaker #5: Can you just give some some puts and takes here as we think about the contemplation of a couple rate cuts this quarter . You know near term .
Speaker #5: And then if you can talk about some of the pricing dynamics both on the loan and deposit side , new production yields , things like that , just trying to better frame up the the core versus the reported margin as we move forward .
Speaker #5: Thanks .
Speaker #6: Sure . Michael . Yeah . I just , you know , maybe , maybe kind of give you some explanation of where where we think we're headed on margin and maybe I can answer some of those questions in the middle of that .
Speaker #6: You know , as you mentioned , we had higher accretion than we expected . And really , you know , a couple of things around that .
Speaker #6: We saw the highest accretion in July and then and then then August and September . It kind of tailed off a little bit .
Speaker #6: And really due to some early payoffs of 2020 and 2021 , vintage loans that had , you know , kind of three handle coupons with these big discounts that sold .
Speaker #6: So those are , you know , not economic decisions , but they're I mean , there are economic decisions . The fact that they sold .
Speaker #6: But , you know , typically you'd keep those coupons also , we had a 29% decline in PKD loans . This this quarter .
Speaker #6: And of course those have larger marks . So anyway , all of that , we look at prepayments . They're really not outside of our scope of what we thought .
Speaker #6: It's just some of the vintages were different than we thought . And therefore had bigger discounts . So having said all that , you know , as we think about the guidance for Nim going forward , you know , really not a lot of change , a little bit of change , but not a lot .
Speaker #6: You know , we talk about the size , the assumptions or the interest earning assets , size . The second is our interest rate forecast .
Speaker #6: The third is loan accretion . And the fourth is deposit beta . And environment where rates are going down . Interest earning assets .
Speaker #6: We we've been saying 59 billion for quarter four average . That's no change . You know for full year 2026 we're looking somewhere between 61 and 62 billion .
Speaker #6: So that's kind of a mid-single digit growth rate forecast . Last quarter we had no rate cuts in our model . This quarter .
Speaker #6: We're thinking we get three rate cuts in 25 . And quarterly rate rate cuts . Three more in 2026 . So that we would get 150 basis point cut in total and get the fed funds up 3% by the end of 26 .
Speaker #6: That seems to be somewhere where the market is , you know , as it relates to the third assumption , loan accretion , you know , based on our models , we expect loan accretion .
Speaker #6: This quarter for the fourth quarter to be somewhere in the 40 to $50 million . As expected , prepayments fall , you know , our October accretion so far is in line with these expectations .
Speaker #6: And as I mentioned , August and September came down pretty rapidly . So I think I think that's a good run rate to use for 2026 .
Speaker #6: We do you know , we did certainly pull some forward in 2025 . So we'd expect instead of 150 million of accretion , we're looking at about 125 million based on our prepayment forecast .
Speaker #6: But of course it can be lumpy based on these vintage loans . The last part is deposit beta . You know , for the first 100 basis points of cuts , our deposit costs came down about 38 basis points from 229 to 191 .
Speaker #6: So, 38% beta. You know, in our 2019 to 2020 easing cycle, our deposit beta was around 27%. So, our expectation is that with growth plans, our deposit beta would look a little similarly to 2019 and 2020.
Speaker #6: So 27 maybe we get to 30 over time with a lag . But I don't think it'll be as high as 38% . So based on all those , those those assumptions , we'd expect them to continue to be in the 380 to 390 range with the step down and accretion this quarter and fourth quarter .
Speaker #6: And for 2026 for it to be in that range , 380 to 390 . As we kind of move forward , the one of the questions you asked was , our , you know , pricing dynamics , you know , our new loan production rate for the total company , this quarter was 656 .
Speaker #6: If you look at Texas and Colorado , that new loan rate was 679 . So it's a little bit higher in Texas and Colorado , but it's in total at 656 .
Speaker #6: So I know you had a few questions a few puts and takes , but that's some guidance for you .
Speaker #5: Know , it's really helpful . Steve I appreciate it . And then maybe just a broader one for John , I think you mentioned that loan production was was up a little bit in the third quarter .
Speaker #5: I think there's there's clearly going to be some some dislocation in some of your markets from , you know , some of the deals that have been announced .
Speaker #5: I know you guys are obviously leaning a little bit more into Texas and maybe Colorado as well with some of that . Can you just kind of walk us through the , the , the loan growth environment ?
Speaker #5: You know , at this point , given the fact that , you know , I think a lot of banks are , you know , kind of upping their hiring plans for , for loan officers , the pricing dynamics and kind of maybe what we should expect as we move forward .
Speaker #5: Thanks .
Speaker #6: Yeah , sure . Michael . Good morning . You know , we kind of guided to mid-single digit growth for the remainder . of 2025 .
Speaker #6: I think we came in at .
Speaker #4: 3.4% for the quarter . So a .
Speaker #6: Little bit less than mid-single .
Speaker #4: But we still think mid-single digit growth for the remainder of the year .
Speaker #6: Feels about .
Speaker #4: Right. As I said, we had about $100 million more in.
Speaker #6: Paydowns in the third .
Speaker #4: Quarter than .
Speaker #6: We did in the second . You know , if we move into 2026 , it could move higher . Maybe the mid to upper single digits , but I have a .
Speaker #4: Better feel .
Speaker #6: For that .
Speaker #4: In January .
Speaker #6: But most of the loan growth is coming in in the area of CNI for the quarter .
Speaker #4: We had 9% .
Speaker #6: Linked quarter annualized growth in CNI .
Speaker #4: Resi growth was about 6% .
Speaker #6: And then if you combine .
Speaker #4: C and .
Speaker #6: D and CRE , really we were flat for the quarter .
Speaker #4: There was a migration .
Speaker #6: Of construction loans .
Speaker #4: That . just migrated into CRE upon completion .
Speaker #6: Of construction . You know , our biggest pipeline build is , in Texas . We had an $800 million pipeline there in the second quarter , and the second quarter .
Speaker #6: Now it's up to $1.2 billion . So we kind of got past the conversion there . And now we're starting to see the pipelines and the activity building .
Speaker #6: Florida's got $1 billion pipeline . Atlanta's got a $900 million pipeline . So those are our three probably largest markets . And as I said on the call with that dislocation and really all the .
Speaker #6: states we're in , we are kind of . leaning in on the hiring front . And we see opportunities to recruit bankers . I yesterday morning I was interviewing one from a from another .
Speaker #4: Bank .
Speaker #6: So that is where a lot .
Speaker #4: Of our .
Speaker #6: Focus and effort are right now.
Speaker #5: All right . Great . I appreciate you guys taking my questions . Thanks .
Speaker #2: Your next question comes from the line of Jared Shore with Barclays . Please go ahead .
Speaker #7: Hey good morning everybody .
Speaker #6: Hi , Jared .
Speaker #7: Maybe just if we could hit on on credit , you know , you were listed as as a creditor to First Brands . I'm guessing that's what the the large charge was .
Speaker #7: Was there for , for that charge . Was there a prior . It looks like there was a prior reserve . Was there also a prior charge taken against that ?
Speaker #7: And I guess how do you feel about the rest of the portfolio , you know , apart from , apart from that .
Speaker #6: Yeah , you're correct . That's that's what that charge was . There was not a prior reserve . I mean that that news happened pretty , pretty fast .
Speaker #6: But that was our only supply chain finance credit . So as we examine the portfolio .
Speaker #4: We don't have .
Speaker #6: Any more of that type of lending? So, you know, unfortunately, we're going to use it as a learning lesson for our credit team.
Speaker #4: And .
Speaker #6: Management associates .
Speaker #3: Yeah . And I'd say , Jared , on the reserve question , you know , based on what John just said , we would have had a reserve release .
Speaker #3: But for that charge off in the quarter i.e a negative provision just based on the underlying economic loss , drivers and we just to be clear , we did charge off the full amount of that balance in the third quarter .
Speaker #7: Okay , all right . Thanks for that . And then I guess , you know , looking at capital , you know , you just gave some great color on on sort of really good growth opportunities over the coming years .
Speaker #7: But, you know, we're still seeing growth in capital. And with, like you said, we'll just have an improving backdrop on credit.
Speaker #7: Where do you feel like you would like to see seat one optimally . And how should we think about the buyback and capital management in general from here ?
Speaker #6: Yeah , Jared , it's .
Speaker #3: A good question . You know , we we you know , we're obviously 11.5 on set one about ten eight . If you were to incorporate Aoci .
Speaker #3: So very healthy capital ratios . And I'd say we don't articulate a particular target out there . But we do like this 11 to 12% range .
Speaker #3: We're in . And we do like the optionality we've got with the ratios being strong and with the formation rate being so , so good .
Speaker #3: So we are we are hopeful . As John said , to take advantage of some of the disruption in the market through growth .
Speaker #3: But we also have the ability to use some of that capital to repurchase our shares is sort of a quarter to quarter decision will be making .
Speaker #7: Okay , great . Thank you .
Speaker #2: Your next question comes from the line of Catherine Miller with KBW . Please go ahead .
Speaker #8: Thanks . Just one follow up . Back on the margin . The it was helpful to have your guidance for next quarter . And is it fair to assume that for actually , this is the way to ask the question , is there a way to quantify how much of the accretion this quarter was just accelerated versus just helping , just to kind of model what a normal kind of base level would be for accretion going forward , versus how much is accelerated from Paydowns .
Speaker #6: Yeah . Catherine , you know , there's a couple of things that I don't want to overcomplicate . Your answer , but it's complicated .
Speaker #6: There's a few things that go into it . One is full payoff . Like we talked about . And then there's partial prepayments .
Speaker #6: So based on our models , when we were looking at it . And to give you that forecast in the last quarter , it was based on our expected prepayments and our expected prepayments , actually came in reasonably well .
Speaker #6: What we didn't get right was the vintage part of it, as well as other partial prepayments. So the bottom line is, what we saw in July and early August was a little bit outsized.
Speaker #6: What we saw in , you know , end of August , September is much more run rate type of thing . So I think , you know , this 40 to 50 , you know , that's kind of what we expected in the fourth .
Speaker #6: You know , fourth quarter , the back half of the year . That's sort of what we're that's what we're seeing . So that's sort of informs us going into 2026 okay .
Speaker #8: Got it . That's helpful . And then and then on fees any any outlook into how you're thinking about fees moving into the fourth quarter .
Speaker #8: And then into next year . It was really nice to see another quarter of higher correspondent and service charges .
Speaker #6: Sure . No . It was it was a really good quarter . You know , noninterest income was 99 versus 87 . So a nice pickup 60 basis points of average assets a little bit higher than our guide .
Speaker #6: Around 5055 . You know two thirds of that was capital markets . You know a couple of things happened in correspondent number one .
Speaker #6: You know , we had you know , we had changes in interest rates . And so when you have changes in interest rates that business typically does a little bit better .
Speaker #6: It was sort of broad based . A couple of million dollars was due to fixed income , maybe three $4 million was higher interest rate swaps .
Speaker #6: Another million and a half in sort of other trading . So I think , you know , we had a you know , I don't I don't see that , you know , that that number is around 25 million .
Speaker #6: So that's a $100 million run rate. To put it in context, our best year ever was $110 million in revenue.
Speaker #6: Last year was 70 . So this quarter was a really good quarter . So I don't expect that to we'll see . You know , to continue to repeat .
Speaker #6: But clearly we had a good quarter . We'll see what the run rate I think we get a couple of quarters behind us .
Speaker #6: We'll have a better view . But clearly it's higher than our run rate of 87 . I'm not sure we're as high as 99 , so I'd say it's probably , you know , as we kind of think about 2026 , you know , somewhere in that 370 , $380 million run rate , that's probably not a bad place to start .
Speaker #6: And then we'll just see how it progresses is the way I would think about it .
Speaker #8: Okay. That's helpful. Thank you.
Speaker #2: Your next question comes from the line of Janet Lee with TD Cowan . Please go ahead .
Speaker #9: Good morning .
Speaker #6: Good morning .
Speaker #9: Good morning . On a core basis I believe from your second quarter earnings call , you talked about how every 25 basis point cut would be a 1 to 2 basis point improvement overall margin .
Speaker #9: Is there any change in thoughts on on that or was that guidance or or was that guidance based on the core Nim or was that including any accretion ?
Speaker #6: No . Great question , and thanks for asking it . You know , a couple of things there . So , you know , if we get back to six cuts and we get 1 to 2 , that would be , you know , call it , let's just take the midpoint .
Speaker #6: That'd be nine basis points . So I think our core Nim is somewhere , as I think about core Nim , somewhere in the mid three 80s .
Speaker #6: So what's changed there ? Number one is the loan accretion forecast . So if we next year we're 125 versus 150 , just because we pull forward that's that's about four basis points of , you know decrease .
Speaker #6: And then the other is just on the deposit data , you know , in the lag thereof kind of where you know , like I mentioned in our other question , our deposit beta so far through the first hundred was 38% .
Speaker #6: But on the other hand , we we didn't grow deposits more than , you know , call it two , 2.5% . So as we contemplate the future and we look back at history , at 2019 and 20 , during that easing cycle , when we were growing a little bit faster , more mid-single digit ish , you know , our deposit beta was more like 27% .
Speaker #6: So , you know , we're taking that model back down to 27 . We hope to outperform that , you know , call it you know , there's a lag .
Speaker #6: The CDs and pricing and all that . But you know , by the beginning of 27 , you know , our hope would be we'd be in that 30% range .
Speaker #6: But for right now , what we're seeing in front of us , we don't see that really . We see that more of a lag and we're modeling 27 in our numbers .
Speaker #6: So , Steve , when you translate what you're saying , there to Janet's question about 1 to 2 basis points with each cut , that may that may take that away .
Speaker #6: If the deposit beta .
Speaker #4: Is not .
Speaker #6: As good on the way down . Right . And yeah , to finish that thought to your point , John , to finish that thought , if our deposit beta .
Speaker #6: So we're guidance sort of in the mid range of 380 to 390 . And and so to the extent that the end of the year next year we go through the cuts and we start moving our deposit beta from 27 closer to 30 , 31 , you know , that would get us in the high three 80s , maybe 390 at the end of the year of 2026 .
Speaker #6: That's how we're thinking about modeling it .
Speaker #9: Got it . Thanks for the color . And just to follow up , if I , if I am not making this up , hopefully I believe that the it bankers that group will start adopting SouthState business model .
Speaker #9: And in a way what would be the implication on or any implication on the expenses or or their incentive to bringing like prioritize , you know , lower deposit costs or loans or is there any sort of change that could be coming or whether an implication on on growth profile , there ?
Speaker #9: Could you explain , could you give us any color on what that could mean for , for SouthState that transition ?
Speaker #10: Yeah , sure .
Speaker #6: Janet , it's John . So we went through this transition year in 25 .
Speaker #4: When .
Speaker #6: We did the conversion . and we kind of kept the incentive system .
Speaker #4: At about .
Speaker #6: The same as it had . been in prior years . In 2026 , it'll move to the more of the SouthState . approach where .
Speaker #4: We .
Speaker #6: We allocate .
Speaker #4: Panels to the regional .
Speaker #6: Presidents . So they're .
Speaker #4: Incentive will be based on .
Speaker #6: Both loan growth . But but predominantly on their ppnr growth .
Speaker #4: One of the things that we're contemplating making an adjustment .
Speaker #6: For to incent additional recruiting and hiring is not to penalize . those regional presidents for the first .
Speaker #4: Year , compensation .
Speaker #6: Of new hires .
Speaker #4: To encourage recruiting .
Speaker #6: Efforts into .
Speaker #4: 2026 , both .
Speaker #6: With the existing . SouthState plan .
Speaker #4: And the .
Speaker #6: Plan . But good question . Hope that helps you .
Speaker #9: Thank you .
Speaker #2: Go ahead .
Speaker #6: Is there another question ?
Speaker #2: Yes . One moment please . Mr. MacDonald , your line is now open .
Speaker #11: Okay . Thank you . Sorry , I didn't hear anything . Hey , guys . Sorry . Just one more follow up . Steve , on the margin .
Speaker #11: I think your prior outlook was , you know , to be in the three , 83 , 90 and then drift higher in 2026 .
Speaker #11: Just want to make sure that the 26 outlook three 8390 includes the rate cuts and about 125 million of accretion . If I heard that right , anything has changed from , prior .
Speaker #11: What are some of the puts and takes ?
Speaker #6: Yeah . No , I think I was trying to answer that in the prior question . It's really the accretion number that from 150 , that was what we thought at 2026 last quarter to 125 .
Speaker #6: That's about four basis points of decrease. And then the rate, and then on the deposit beta, you know, we have 38%. In 2019, it was 27.
Speaker #6: You know , we were thinking we think ultimately we'll get somewhere in the low 30s . But it just is probably a bit of a lag .
Speaker #6: So , you know , it's probably not going to we're going to be very diligent on growing , you know , for the loan growth .
Speaker #6: We think is coming . And so we think we should in 2026 model more in the 27% range . And then hopefully as the CDs reprice and all those kind of things through 2027 , we could see it uptick .
Speaker #6: So I think , you know , back to the the the guidepost or how this would work is you start out in the mid three 80s and then move higher into 2020 .
Speaker #6: You know, the end of Q2, early Q3.
Speaker #3: And John , this will I would add , you know , our margin position is as neutral as we've seen it in in years , just based upon the actions we took in 2025 .
Speaker #3: The , the number one , the merger and marketing , that balance sheet properly . And then two , you know , the portfolio restructuring we did in connection with the sale leaseback .
Speaker #3: So you know, we have a relatively stable looking margin under most reasonable scenarios.
Speaker #11: Got it . And the delta between having a four handle this quarter and moving into three 80s next quarter is really accretion going from 80 this quarter and cut in half to 40 next quarter .
Speaker #11: In your outlook .
Speaker #6: Yes , that's right . . And that's what we're currently seeing .
Speaker #11: Yeah okay . And then one just follow up again on the on the next quarter's average earning assets in the 59 . It seems like that's kind of where you were this quarter .
Speaker #11: Are there some kind of puts and takes of what you expect in terms of growth in the fourth quarter ?
Speaker #6: Yeah , typically in the fourth quarter , we have some seasonal deposit growth and some of we let depending on how we manage it , we get some of the seasonal wholesale stuff out of the bank .
Speaker #6: At the same time . So we sort of Yep . But you know , kind of year over year , I'd call it mid-single digit growth is is kind of how we're thinking about it from an average earning asset .
Speaker #11: Okay . Thank you .
Speaker #2: Your next question comes from the line of Ben Gerlinger with Citi . Please go ahead .
Speaker #12: Hi . Good morning . Hi . I was wondering if we kind of stepping back to correspondent banking . I understand that a rate cut or rate movement kind of sparked it , but we're kind of , I don't know , three .
Speaker #12: You said roughly 3 to 6 cuts over the next 12 ish months . How long is the tail for that kind of tail wind ?
Speaker #12: I guess you could say so . If there's two cuts in December or , excuse me , two cuts in the fourth quarter , would the first quarter also see a benefit , or is it fairly short lived ?
Speaker #6: Yeah , there's like trying to explain before , you know , as you kind of think about that business , the put the highs and lows of it back in 2020 when things went , you know , crazy on on rates .
Speaker #6: I think our best year was 110 . I think we did that in 2020 , 2021 . Last year was our worst when rates were the highest and sort of out there .
Speaker #6: So that was about 70 million . You know , as I kind of think about that business , you know , you're going to have fixed income will do better in rate cuts , lower because particularly for our bank clients , they'll want to take their excess cash and borrow and buy bonds because there'll be a yield curve , you know , on an interest rate swap side , depending on the shape of the yield curve , it may not be as good as it is today .
Speaker #6: Today , it's deeply inverted . That's really good for that business . So I kind of see those businesses sort of offsetting each other , but maybe creating some stability , you know , at that level .
Speaker #12: Gotcha . Okay . That's helpful . And then from a follow up perspective , it seems like you have a lot of opportunity in front of you .
Speaker #12: I think that's it'd be hard to disagree , especially with a other disruption in the markets that you operate in . Is it fair to think you're going to think organically , like you're hiring individuals ?
Speaker #12: Obviously , and growing loans , or could you potentially see a small bolt on deal or something like that ?
Speaker #6: Yeah , man , it's John , you know , with our particular fact pattern .
Speaker #4: , kind of our .
Speaker #6: View is to invest .
Speaker #4: In in South .
Speaker #6: More interesting .
Speaker #4: Right now than , than doing an M&A deal . And that investment in SouthState comes in two forms . The first way is just to increase our sales force .
Speaker #4: And accelerate our organic .
Speaker #6: Growth .
Speaker #4: Because of all this dislocation that's going on in .
Speaker #6: The markets .
Speaker #4: The second way , as we'll described , is in purchasing SouthState shares through our buyback authorization , the capital formation rates pretty strong right now .
Speaker #4: And the valuation is pretty attractive . So that's kind of how we're thinking about priorities on capital .
Speaker #12: Gotcha . I appreciate it . Thank you .
Speaker #2: Your next question comes from the line of Gary Tenner with Da Davidson . Please go ahead .
Speaker #13: Thanks . Good morning . Just wanted to go back to the Nim related discussion for a minute . You know , the big Delta as I look at the average balance sheet , was really the cost on the transaction .
Speaker #13: And money market accounts . Up , up 11 basis points quarter over quarter . Can you kind of talk about the dynamics around that ?
Speaker #13: Is it an effort to , you know , bring in some new deposits with the anticipation of stronger growth over the next year or just , you know , maybe comment on on kind of the driver there ?
Speaker #6: Yeah . And , you know , back in July when we had the call , Gary , we talked about the our expectation of deposit costs and , and we talked about , you know , the range this next quarter , you know , for the third quarter was 185 to 190 .
Speaker #6: So we were it was 191 . So we were on the higher end of the range . Missed it by a basis point .
Speaker #6: But you know really what drove that was . And our expectation was that particularly in the in the CD book , we if you looked at the second quarter to third quarter , excuse me , the first quarter , the second quarter , our CDs went from , I don't know , 7.1 or 2 or something to 7.7 .
Speaker #6: I think . And and that was , you know , back to funding and loan growth and getting the balance sheet where it needed to be .
Speaker #6: And and so , you know , those obviously transacted at a higher rate level than , you know , others . So as we kind of think about that's kind of was part of our guidance .
Speaker #6: It's , you know , frankly a tough environment right now with deposits . But , you know , we expect that as we get rate cuts in , the curve gets a little bit more steady .
Speaker #6: We could continue to see better . That's why a little bit why we're guiding down on the , you know , guiding on the 27% deposit data .
Speaker #6: Because ultimately we need to fund the loan growth that we think is in front of us.
Speaker #13: Right . And then as a follow up on that beta , since you just mentioned it as well , to be clear , that 27 to 30% beta is relative to the next phase of easing , as opposed to cumulative , including last year's .
Speaker #13: .
Speaker #6: Right ? Correct . Yeah , yeah . The next . That's right . That's a great way to say it . Yeah . So you're right .
Speaker #6: If we had to average them it'd probably be somewhere in the , you know , whatever low to mid 30s . But yes that's right .
Speaker #6: It's the it's the next incremental . Yes .
Speaker #13: Okay . Great . And if I could sneak in a last question just on the knee , I think you guided previously to a bit of a step down in the fourth quarter .
Speaker #13: I think , to the three 4350 range . Any change to that , to that outlook for the fourth quarter ?
Speaker #3: Yeah . Gary , I think our our guidance for Q4 is still in that 345 to 350 range . You know , there's always some variability that that's hard to predict with respect to how some of the commission compensation businesses perform , you know , a loan origination volume can impact your your 91 cost deferral .
Speaker #3: But somewhere in that , you know , in that roughly 350 , $350 million range , we're pretty clean now in terms of recognizing the the cost savings on independent .
Speaker #3: You know , our if you look at Q3 to Q2 was flat , even though we had the annual merit increases for most of the company , except for executives .
Speaker #3: July 1st. And yet, things were flat. So we've done a good job of getting costs out and getting them out pretty early.
Speaker #3: You know , looking ahead to 26 , we haven't talked about that , but it might , might , might as well address that .
Speaker #3: You know , our planning is obviously still underway . We still think for for 26 that mid-single digits is a good guide . Maybe it's an inflationary sort of 3% plus another percent or so for some of the investments in organic growth initiatives like the John John addressed .
Speaker #3: So , you know , maybe maybe that that's what 26 will look like . We're still , as I said , finalizing our planning there .
Speaker #3: But that's kind of what we're thinking right now.
Speaker #13: Thank you .
Speaker #2: Your next question comes from the line of Gary Tenner with Davidson . Please go ahead .
Speaker #3: That was Gary . We just spoke with .
Speaker #2: Oh, I'm so sorry. That concludes the Q&A session. I will now turn the call back over to John Corbett for closing remarks.
Speaker #6: All right. Thank you, Bella. Thank you all for.
Speaker #4: Calling in this morning . We as always appreciate your interest in our company . And if you have any follow up questions on your models , don't hesitate to give us a ring .
Speaker #4: Have a great day . Thank you .
Speaker #2: Ladies and gentlemen , that concludes today's call . Thank you all for joining . And you may now disconnect . Everyone have a great day .