Operator: Hello, everyone. Thank you for joining us, and welcome to the SouthState Bank Corporation Q3 2026 earnings conference call. After today's prepared remarks, we will host a Q&A session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I would now like to hand the conference over to Will Matthews, Chief Financial Officer. Mr. Matthews, please go ahead.
Will Matthews: Good morning, and welcome to SouthState's Q3 2026 earnings call. This is Will Matthews, and I am here with John Corbett, Steve Young, and Jeremy Lucas. We will follow our typical pattern of brief remarks, followed by Q&A. I will refer you to the earnings release and investor presentation under the investor relations tab of our website. Before we begin our remarks, I want to remind you that the comments we make may include forward-looking statements within the meaning of the federal securities laws and regulations. Any such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in the press release and presentation for more information about our forward-looking statements and risks and uncertainties which may affect us. Now I will turn the call over to you, John.
John Corbett: Good morning, everyone. Thank you for joining us. SouthState delivered another quarter of healthy growth, strong profitability, and stable credit. There is an ongoing debate about the trade-offs between growing the balance sheet versus protecting the margin. I am pleased to report that in Q3, SouthState did both. Loans grew 9% annualized with growth broad-based across our footprint and led by C&I up 12%. the Southeast and Texas are among the most vibrant markets in the country, and we are benefiting from strong underlying market growth. As planned, we have grown our commercial relationship bankers by 10% over the last year. These bankers have already originated about $1 billion in new loans and have a healthy pipeline. Deposits also grew 9% and without sacrificing margin, which held flat with Q2 at 3.78%.
John Corbett: That net interest margin stability reflects a deliberate shift over the last couple of years towards more floating rate loans. When we announced the Independent Financial deal in 2024, the percentage of floating rate loans in the combined portfolio was only 28%. Today, we have moved the floating rate loan percentage up to 39% of the portfolio. Recently, about 55% to 60% of new loans are being originated with a floating rate. This strategy will help provide net interest margin stability, assuming the Fed continues its rate hiking path. Credit continues to remain solid with net charge-offs of only 9 basis points. Capital markets activity, however, pulled back as treasury rates moved higher during the quarter. Steve will give you an update on that business going forward.
John Corbett: We continue to see SouthState shares as a compelling value, and we are going to stay opportunistic with buybacks as we were this quarter. Over the last year, we have repurchased roughly 5% of our shares outstanding. Before I turn it back to Will, I want to thank our bankers for focusing on the fundamentals, growing loans, growing core relationship deposits, deepening client relationships, and staying disciplined on credit. Will?
Will Matthews: Thanks, John. Our net interest margin of 378 continues to be in line with our 375 to 380 guidance and was flat with Q2. Our cost of deposits increased by 4 basis points to 180, reflecting the quarter's rate hike. Loan yields of 592 were up a basis point with accretion of $27 million, down $6 million. Accretion income exceeded CDI amortization expense by $6 million in the quarter, further narrowing the gap between the two purchase accounting items. This is illustrated on the NIM slide in our deck. Excluding accretion, loan yields were up 7 basis points and NIM was up 4 basis points to 361.
Will Matthews: Additionally, I only reference this because we have gotten so many questions about accretion income over the last couple of years. I will point out that our Q3 PPNR per share, excluding all accretion income and CDI amortization expense, was up 10.5% versus the Q3 2025. The 9 months year-to-date comparison of the same metric versus 2025 was up 13.9% to $9.10 for the first three quarters of 2026. Net interest income of $592 million was up $16 million from Q2. The impact of the extra day in the quarter was approximately equal to the decline in the accretion income versus Q2. As John noted, we had another good quarter for growth, both in loans and deposits, each up 9% annualized. Non-interest income of $94 million was down $3 million from Q2 due to a decline in our capital markets businesses.
Will Matthews: NIE of $375 million was $17 million above Q2's levels, primarily due to employee compensation expense. Some factors in that increase include: one, higher incentive accruals, including for growth and production; two, higher salaries with a 1 July merit increase date for much of the employee base; and three, lower deferred loan costs in the quarter. I will note that our revenue producer hiring initiative has been very successful with the addition of some great talent and some great wins in terms of production. The total cost of this group of employees, including not just compensation, but also recruiting and business development expenses, is approximately $15 million year-to-date.
Will Matthews: Looking to the Q4, with qualifiers around variable expenses that are hard to predict, such as commissions, deferred loan costs, et cetera, we expect Q4 NIE to approximate or perhaps be slightly above Q3 levels, bringing the full year NIE pretty close to the level we got it to at the beginning of the year. Recall that we got it to 2026 NIE growth of approximately 4% over 2025 levels, with approximately 100 basis points of that increase due to our revenue producer hiring initiative. We have enjoyed more recruiting success than we expected, so that component will be higher than the 1% impact. We should basically be in line with the approximate 4% increase guidance we gave for the year.
Will Matthews: Looking ahead to 2027, we are still early in our budgeting process and these thoughts could change, but we would estimate an increase to NIE in the 3.5% to 4% range at this stage. As always, our commission-based businesses and our recruiting success could cause their increase to be slightly higher. We will refine our modeling through Q4 and provide further 2027 expense guidance in the January earnings call. The Q3's 9 basis points of net charge-offs makes 9 out of the last 10 quarters at a level below 10 basis points. Our provision expense of $20 million was primarily driven by the quarter's loan growth. Asset quality trends remain stable to improving, and we continue to feel good about our credit quality. Turning to capital, we repurchased 250,000 shares in the quarter for a 40% total payout ratio, including dividends.
Will Matthews: This brings our year-to-date total to 2.75 million shares repurchased for a 67% total payout ratio year-to-date, and a trailing 12 months total payout ratio of 75%, both of which are slightly above our longer-term guidance of 40% to 60% for a total payout ratio. Capital levels remain very healthy. CET1 ended at 11.1%. TCE of 8.4% and TBV per share of $58.19 were both reduced slightly by the impact of the move in treasury yields on AOCI. Operator, we will now take questions.
Operator: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star and the number 1 on your telephone keypad to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by for a moment while we compile the Q&A roster. Your first question comes from the line of John McDonald from Truist Securities. Your line is open. Please go ahead.
John McDonald: Great. Thank you. Good morning. I was hoping Steve could give a little bit of color on the correspondent capital markets income this quarter. What drove that down, and then also whether you can get back to that $25 million guidance range you talked about previously.
Steve Young: Sure. John, good morning. As you mentioned, if you look on page 12, correspondent income this quarter was $20.1 million versus $24.8 million on our $25 million guide. I think I mentioned on the call last quarter, we were thinking that $25 million would be the number absent a wacky, I think what I said, wacky rate scenario, and I guess that is what we got in Q4. The five-year treasury went up 87 basis points in a quarter, and 60 basis points of that was in September. It did move a lot.
Steve Young: I think based on that shock in rates in Q3, I think what I would expect for the next quarter or so is more in line with where we were in Q3 before at some point rates will settle back down, and then we will head back toward $25 million. I think that is probably where we are for the next quarter or so, is that that will be a little bit more muted until rates settle down a little bit.
John McDonald: Sorry, Steve, so that is kind of between where you were this quarter on the $20 and the $25. Is that what you are pointing to?
Steve Young: That is right. That is our expectation.
John McDonald: Okay. Then maybe any updated thoughts.
Steve Young: Just to further that comment, there are two businesses that really make up most of that income. One is the fixed income business and one is the interest rate swap business. So when the curve gets steeper, the interest rate swap business has a little bit more of a challenge, whereas the fixed income business does a little bit better. So we are seeing the handoff from the swap business to the fixed income business, and that is not always exactly linear, but eventually it happens, and should happen this quarter.
John McDonald: Okay, great. Then maybe just to follow up on Will's comments on the expense front. Sounds like something in the $375 million ballpark in Q4, Will, and then growing 3.5% to 4% next year. That is inclusive of kind of your hiring plans next year and everything else? I know it is an early look. Just the thoughts behind that.
Will Matthews: Yeah, John, if you look back to the beginning of the year, we did guide to the 4% increase for the year, and that was a normal 3% inflationary type growth plus an estimate of 100 basis points for the new hires. It is hard to predict, of course, the level of your success and the timing of your success when you are hiring new revenue producers. We are pleased that we are ahead of pace there. As I mentioned in my prepared remarks, we have spent $15 million year to date on that, and that is on an annual budget of about $14 million. So for the full year, that number is probably $21 million, $22 million attributable to that effort. We would not call that a miss, though. We would call that we were more successful in that.
Will Matthews: As those folks have been productive as some of their non-solicits burn off, I think they will continue to be productive and maybe even more so. So that is a little bit on this year. For next year, it looks like consensus right now is in that being 525 to being 530 range, which would be right in there with that 3.5% to 4% range that I gave you. We are still finalizing budgets, of course, and there could be some slight tweaks here or there, but that feels like a pretty good number sitting from where we sit today.
John McDonald: Okay, understood. Thank you.
Operator: Your next question comes from the line of Jared Shaw with Barclays Capital. Your line is open. Please go ahead.
Jared Shaw: Hey, thanks. Good morning. I guess maybe just sticking with the relationship manager hiring, you called out the $1 billion of growth from that team. How should we be thinking about loan growth going into the beginning of the year? Could that accelerate as more of those new hires, like you said, start hitting their stride?
John Corbett: Hey, Jared, it is John. Good morning. It was a great quarter for loan production and loan growth in Q3. We had nearly $5 billion of production. That is up 45% from a year ago, and a decent amount of that is attributable to these new hires that we have joined our team. Last quarter, we mentioned we thought we would see strength in the C&I category for the back H2 of the year, and we have. C&I category is up 13% year over year. As we are heading into next year, we are looking at the pipeline has backed off just a little bit when the rates came up. Our full-year guidance for 2026 was mid to high single digits. Last few quarters, it has felt like we would be in the high end of that based on the pipeline. We have grown 9.5% year to date.
John Corbett: I would imagine with the spike in rates and the pipeline dipping a little bit, we are probably more like the mid-single digits in Q4. Still, for the year, I think we would be in the high single-digit range. Next year, I think our guidance is pretty much the same in that mid to high single-digit range. You really cannot tell quarter to quarter, but I feel like the current pace and current guide stays with us into 2027.
Jared Shaw: Okay, thanks. I guess just sticking with that theme, what has been the client sentiment as you have been out there speaking with commercial borrowers? How are they feeling with the rate environment and the macro backdrop?
John Corbett: Yeah. If you are in a real estate-oriented business, the rate increase has a little bit more impact on your business. We are seeing some pullback in those areas. The pipeline is down about 14%. We started the year with a $5 billion pipeline. It shot up to about $6.4 billion in Q1. A lot of that is getting pulled through into closings, and now we are right back to about the $5 billion range. The C&I activity still feels good, feels strong. CRE is a little bit weaker.
Jared Shaw: Thanks.
Operator: Your next question comes from the line of Will Jones with KBW. Your line is open. Please go ahead.
Will Jones: Yeah. Hey, great. Good morning, guys.
Steve Young: Morning.
Will Matthews: Morning.
Will Jones: Hey, John, I wanted to go back to a comment you made initially in your prepared remarks. Just your ability to protect NIM while still showing an attractive level of loan growth. That is frankly quite a differentiating trend when compared to some of the other results we have seen with some of the higher growth Southeast banks out there. I guess the question, though, is do you feel like this trend is durable in this kind of higher for longer rate environment where we kind of live in this high single digit or high 370s NIM range, but can still show high single-digit growth? Maybe if you could just give us your high-level views on maybe those two dynamics.
Steve Young: Will, this is Steve. I will just talk a little bit about NIM. As you mentioned, it was stable in this quarter at 378, and we grew our interest earning assets $1.1 billion, which is in that mid to upper single digit range. So really happy with that. Deposit costs increased 4 basis points, which was within our expectations. As we think about going forward, I will lay out where we see the pluses and minuses there to NIM. If you look at, think about the four different areas, it is interest earning assets.
Steve Young: For us, John just mentioned it, we think mid to upper single digits all the way through 2027. Best we can tell, that is where we think that will be. If you look at the average for 2027, that would be around $66 billion. That is how we are thinking about it today. The rate forecast changed from June.
Steve Young: We had no rate hikes. Now in our models, we have 2 total Fed rate hikes, 1 that is already in September and then 1 more in December. We are using the same yield curve that we had at 9/30. The 5-year is roughly about 5%, which is where we do a lot of our fixed pricing off of. As it relates to deposit costs, we have 40% of the existing beta of the book on the up beta. Of course, we have new deposits that will be on a little higher. We use a 50% total beta on the growth and the existing book. Loan accretion really has been pretty steady over the last year. I think we said at the beginning of the year, $125 million for 2026.
Steve Young: That seems about where we are going to be, maybe half of that for next year. Based on all those assumptions, we expect NIM to be between 3.75% and 3.85%. This range is 5 basis points higher than last quarter. It is really due, to your question, to a couple different things. It is due to the Fed rate hikes. We are a little bit asset sensitive when we have the floating rate loans that John mentioned in his prepared remarks versus our exception price deposits. The second is the higher yield curve for fixed asset repricing. The third is just new production on the steeper yield curve. Based on all those assumptions in our models, we expect this range to stay in effect through 2027. It is a positive story for us.
Steve Young: A lot of that is driven by our asset sensitivity and really the fixed asset repricing that we have talked about last quarter.
Will Jones: Great. That is very helpful, Steve. I appreciate all that color. Maybe just to dig a little deeper into deposit costs this quarter. Obviously, a really great result there. Again, very differentiating relative to some other high growth names out there. Could you talk just a little bit about your deposit strategy in the quarter? Maybe just how you were able to achieve 9% growth while balancing and managing cost of funds so well. Are you incentivizing differently? Are you looking and tapping some of your less expensive markets for deposits? Just how are you attacking deposit growth in this environment?
Steve Young: Well, it is really no new strategy here. It is a continuation of existing strategy. Certainly, the focus has changed and gotten more precise. But we are seeing a lot of really good wins this quarter. We saw a lot going on in the treasury management area. I think we opened up new accounts for new clients to the bank, new treasury management accounts. That was a little over $700 million. But in the middle of that, we had quarterly tax payments go out for half a billion dollars, and we had public funds down 250. So it sort of wiped out the temporary parts of that. But what is going on in the underlying bank is we are growing real relationships with new money at great rates.
Steve Young: If you look at sort of our new money, if you look at all the money that is new to the bank from a customer perspective, we are raising money somewhere. If you look at CDs, money markets, DDA all together, it is a little less than 3%. So that is where the new money is coming in. But I would say no huge change in strategy. I just think we are seeing a lot of momentum, particularly on the treasury management side. But we are also seeing it throughout the bank, and we are also seeing new geographies like Texas and Colorado, where they did not have that product a year ago. We are starting to see some momentum there.
Will Matthews: Will, you did ask about incentives, and that is to say that we did tweak a little bit our intercompany crediting to maybe re-emphasize the importance of deposits, so that there is a little bit of an incentive change in that regard, too.
Will Jones: Yeah. Okay. That is helpful, guys. Thank you. Maybe just one clarification on the margin, that kind of increased guide there, Steve. Is it really a steeper curve that kind of gets us to the upside case there, the 385?
Steve Young: Sure. Yeah, no, it is. It is both. Obviously, treasury, I just mentioned it is the negative to the fee income side on correspondent. So we got an 80 basis point shock in the five-year, but it is a positive to NIM. As I mentioned last quarter, we have about $1 billion a month over the next five, or excuse me, $1 billion a quarter over the next five quarters through the end of 2027 that will reprice on the SouthState legacy loan book, and those are fixed rate repricings, and they come in around 5.15%. That is about where the coupon is. And we think those will move up somewhere around 150 basis points if rates do not move a whole lot. And that is a significant tailwind to fixed rate repricing into NIM.
Steve Young: We also have securities that will reprice that are maturing, that are about $1 billion, a little over $1 billion over the next five quarters. That probably will have an increase of about 2%. So that fixed asset repricing is significant. But I would also say it is a combination of that, it is a combination of the Fed rate hikes where our floating rate loans are outpacing the margin increase. That is probably 1 to 2 basis points versus our deposits. And then we also have new production that in theory will be a little bit higher. But those three things kind of make up that guide.
Will Jones: Got it. Okay. Excellent. I appreciate that color, Steve Young. I will step back. Thanks for the questions.
Operator: Your next question comes from the line of Michael Rose with Raymond James. Your line is open. Please go ahead.
Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Just wanted to get a thought on buybacks here. Obviously, you guys bought back a decent amount this quarter, but a little bit less than in prior quarters. Can you just talk about kind of the thought process here and capital levels and maybe what the tailoring rules will do for CET1? Thanks.
Will Matthews: Sure, Michael. It's Will. We have, in the last year, as we said, been above our expectations for the long-term total payout ratio, which we've said is 40% to 60%. If you look back, Q3 was at 40%. Year-to-date, it's been 67%. Trailing 12 months been 75%. So we've been more active over the past year. I'd say we still think that 40% to 60% makes sense for a growth company in growth markets like ours. Given that we've been more active in repurchasing over the last year, I'd say looking ahead to 2027, without the benefit of a crystal ball, we're likely at the lower end of that payout ratio range in 2027. So we were 40% in Q4, so we're probably the lower end of the 40% to 60% in 2027, recognizing that in 2026, we've been north of the top end of that range.
Will Matthews: With respect to the tailoring rules and whatnot, while that will benefit our CET1 if it becomes finalized by reducing the risk-weighted assets, today, we don't see us changing our capital risk appetite, if you will, in light of that. So we still think that CET1 in the 11% to 12% range makes sense for us for all the reasons about growth and just being a company with a bit of a margin of safety sort of philosophy. But if those did pass, you'd see our CET1 improve probably by about 85 basis points or so.
Michael Rose: Very helpful, Will. Then maybe just one follow-up for Steve. Just as we think about kind of the 3.5% to 4% expense growth, how should we think about that toggle with kind of the fees to average assets? I would assume if we get another rate hike or two, that the correspondent will continue to be a little bit depressed here. So kind of the way to think about it is you would kind of be towards the lower end of that expense growth if the fees to average assets kind of are at the lower end and then would scale upward if that were to kind of revert higher. Is that the toggle we should kind of contemplate as we're thinking about fees and expenses? Thanks.
Steve Young: Yeah. I think generally, Michael Rose, this quarter we did $94 million of fee income. That was 54 basis points of assets. Our guide has been 55 to 60, but like I said, in the next quarter or two, that is probably going to be on the lower end of that, maybe similar to where we were in Q4, or excuse me, in Q3. So that is probably accurate. As I mentioned, the NIM guide has gone up. As we kind of think about the balance of the two, total revenue really does not change in this environment. We are headed towards 10% PPNR growth year-over-year. If you kind of think about just big picture, how we are thinking about it, that is how we are trying to land all of those moving parts.
Michael Rose: Totally get it. Thanks, guys. I will step back.
Operator: Your next call comes from the line of Janet Lee with TD Cowen. Your line is open. Please go ahead.
Janet Lee: Good morning.
Steve Young: Good morning.
Janet Lee: Looks like you obviously raised the NIM guide, which is positive, and seems like you held the line pretty well on deposit costs this quarter as well. You are pointing to, if I heard it correctly, 50% total deposit beta through the cycle. Are you able to share where those new deposits are coming into the bank as it stands? Just a follow-up question to what was asked earlier, how you are able to bring in those deposits at such low cost. Are you able to share where these new deposits, which seem to be coming in at a slightly higher price versus before?
Steve Young: Sure. Yeah. Janet, Steve, the new customer money when you include all, so if you just look at new non-CD money, which would be DDAs, money markets, savings accounts, I think those came in around 230 this quarter. But if you add the CDs, which is a real part of what we are doing, as you know, that moves the new customer money up in the 295 range for the quarter. That was for Q3. If you add any wholesale, that could be closer in the 330 to 340 range. If you kind of peel back the onion, that is the way the pricing for Q3 went. Of course, most of the quarter, there was not a Fed rate hike until the very end.
Steve Young: My guess is it will go up a little bit, and that is part of the guide of the betas and all the stuff. That is sort of where Q3 fell out at. I think if you looked at our new money markets accounts, if you just look at that granularity, we raised new money about $670 million at 3.12% for the quarter. If you look at new and renewed CDs, I think it was $1.65 billion at 3.62%. So that kind of gives you more color behind that new customer money. Those are kind of the parts of the pieces. If you kind of summarize all that new customer money at 295 is where we saw that come in.
Janet Lee: Got it. Thanks for all the color. In terms of capital deployment, can you give us an update that stands on M&A? Is this something that is still on the cards, or is it not an attractive option in a current environment?
John Corbett: Hey, Janet Lee, it's John Corbett. Nothing has changed on our thinking there. The bank is performing great. We are growing talent. The balance sheet is really growing well. We have strong earnings. So as we think about capital priorities, the first priority is keep growing our dividend alongside of earnings growth. That would be one. Number two is the organic balance sheet growth in the fastest markets in the country. So we are blessed with a great pipeline. Number three would be share repurchases as long as the valuations are as attractive as they are now, and M&A would be the lowest priority.
Janet Lee: Got it. If I could squeeze one more. Are there any certain markets or categories within your lending? Is there any spread compression that you are seeing in any one particular area? Depending on who you talk to, some people are pointing to some multifamily spread compression in Texas. Wondering if that is something that you are seeing in any particular ways.
John Corbett: Yeah, Janet Lee, where we have seen spread compression is probably a result of the yield curve moving up as quickly as it is. Unlike the capital markets business, a lot of these loans come with a fixed rate commitment, from the time of the commitment to the time of the closing, which might be 45 days or so. If the rates move up significantly, sometimes the competition, sometimes we do not raise the rate as quickly as the yield curve, so you do wind up seeing some spread compression. My guess is most of it is tied to the fact of how rapidly the yield curves moved up. If the yield curve stabilizes, I still think there is attractive spreads in the markets that we are lending into.
Janet Lee: Got it. Thank you.
Operator: Your next question comes from the line of Gary Tenner with D.A. Davidson. Your line is open. Please go ahead.
Gary Tenner: Thanks. Good morning. You have talked a little bit about kind of the beta assumption on the deposit side with high rates. I am just curious, the last hiking cycle, you were not in Texas yet. I am just wondering if you are contemplating any differences through that franchise on a combined basis going forward.
Steve Young: Yeah, sure, Gary, this is Steve. Yeah. That is all included in that guide. I think if you remember before the merger with Independent, I think SouthState legacy was somewhere around 30%, maybe 32%, 33% up betas, and then Texas and Colorado were in the mid-50s. So that combined was about 40% on the existing. So that is sort of part of that guide just for the existing book. Then if you kind of play that out over a couple of rate hikes, we were around a 175 cost of deposits maybe the Q2, somewhere in there. So if you use 50% over the next couple of quarters, you get to maybe by the end of the Q1, if those rate hikes come through, you are close to two. That is kind of how we are thinking about modeling it.
Gary Tenner: Thanks. I appreciate that. On the correspondent banking business, just thinking of the kind of the variation margin. Obviously, the gross number was lower this quarter, but the variation margin increased as well. Just wondering how to think of that more from a net basis. You have talked about the gross a little bit, but just thinking about the net.
Steve Young: Yep. No, that is good. We look at that number. It is sort of, I guess, somewhat related to that income, but really not a lot, and we can talk about that offline. Basically, that number tracks two things: the rate of the 10-year Treasury and also the Fed funds rate. So it moves around with that. I think in Q3, the average 10-year Treasury rate was up from 4.42% to 4.75%, so it was up 33 basis points. Of course, it really spiked at the end of the quarter. So that is where you see the variation margin times the Fed funds, which also went up at the end of the quarter, come up. Our expectation, I think this quarter, it was in the -$5.5 million range.
Steve Young: I would think it is probably, if things go as we think for Q4, maybe it is in the -$6.5 million, -$7 million range. Somewhere in there would be our expectation on a negative basis, just for the variation margin.
Gary Tenner: Thank you.
Operator: Your next question comes from the line of Anthony Elian with J.P. Morgan. Your line is open. Please go ahead.
Anthony Elian: Hi, everyone. On correspondent, earlier this year, you talked about some new products that could provide a lift of fee income. Has the timing on rolling out some of those new products changed given the higher rate backdrop? When we could potentially see that $25 million of income turn into $30 million?
Steve Young: Sure. No, great question. Yes, we are moving forward on those projects, really a couple of different products that we are offering out. One is a new FX platform, one is a commodities platform. We are doing some test trades on commodities now, and we see that to be rolled out probably on a real basis in Q1. Then also on the FX side, I think that project has gotten delayed a little bit, maybe to 1 April. So we will see some benefit to both of those. I think that both of those, if you add them together, probably on a full run rate basis at $10 million and the $15 million range in year one, once they are fully established. So maybe it is a couple million dollars a quarter or something like that once they are fully instituted.
Anthony Elian: Thank you. Then on capital, what exactly is driving the expectation for 2027 total payout ratio to be at the lower end of your 40% to 60% guide? I get that this year will be above that range, but you still have a lot of buyback remaining. Your CET1 is within the 11% to 12% range you provided, and you potentially have tailoring coming. Thank you.
Will Matthews: Yeah. Tony, I would say two things. One, the tailoring today is not part of the equation for us. It may become as we study it further, but today it is not. We do not have firm plans we put in place and say, lock and load, that is where we are going to go with buybacks for the next 12 months. But looking at, again, the long-term total payout ratio and where we have been the last year, we think it makes sense to be at the lower end of the range this year. Our CET1 appetite is to be in the 11% to 12% range. We are just shy of 11.15 to end this quarter. We have, we think, good growth prospects ahead of us.
Will Matthews: From a priority standpoint, while capital return through repurchases is certainly on the list, we think growth at appropriate returns on capital levels is superior in terms of long-term shareholder value to share purchases. Right now, we think that is probably where we will be investing more capital next year.
Anthony Elian: Okay. Thank you.
Operator: Your next question comes from the line of David Chiaverini with Jefferies. Your line is open. Please go ahead.
Brian Blevins: Hi, good morning. This is Brian Vielino on for Dave. Thanks for taking the question. Just on credit, obviously, it has been fairly strong, at least over the past few quarters. Just wondering, with the 5-year up as much as it is, if you are foreseeing any potential incremental stress on CRE borrowers as they come to their resets or maturities next year.
Will Matthews: We are not at this point, Brian. You are seeing the classified, criticized asset trends are all kind of improving. We are talking to our credit folks. We do not really see any material changes to the charge-offs in the near term. And those CRE loans that you are referencing, a lot of these were originated coming out of COVID in 2021, 2022, and the weighted average loan to values are around 55%. So there is just a lot of margin in those deals, and they are either right-sized at maturity or if the cash flow is a little less, or they are able to move it to another lender, permanent lender. So, so far, we are not seeing issues. Naturally, if the long-term Treasuries continue to move up materially from here, that could create issues, but right now we are not experiencing that.
Brian Blevins: Great. Thanks for that. And just on the loan-to-deposit ratio, I think in the past you have quoted looking to stick no higher than 92%. I guess, just wanted to see if that is still the same focus going into next year or if there is some potential wiggle room around that number.
Steve Young: Yeah, no, that is right. I think for us, sort of target is around 90%. There might be a quarter or two that move higher than that for a little bit, but not much higher than 92% in any particular quarter. But the target would be 90%. That is how I would model it. And you saw that this quarter. You saw that in Q2, we grew loans, I think 11%, deposits 3%, and that got us to 90%, and this quarter is 9% and 9%. And I would expect, as we continue to grow loans mid to upper single digits, that deposit growth would stay in check there to keep that 90% over the- Great. Thank you.
Operator: Your next question comes from the line of Timur Braziler from UBS. Your line is open. Please go ahead.
Timur Braziler: Hi. Good morning. Just a couple follow-up questions from me. On the deposit side, do you have the spot rate at the end of the quarter?
Steve Young: I do not have it in front of me. We typically do not disclose it. It was not dramatic. I do not remember the quarter exactly where we started, where we ended. We were only up 4 basis points, so it was a kind of a ratable thing as I recall, but I do not have the number in front of me.
Timur Braziler: Okay. I have been getting some questions, some investor kind of pushback over the course of the quarter on correspondent banking and looking at where those levels were during the last hiking cycle versus where they are now still implies some downside. Maybe just talk us through what has changed in that business and why the levels that you saw in end of 2023, early 2024, why that is kind of off the table here in this rate hiking cycle.
Steve Young: Yeah. I think a couple things. One is, in 2024, there was a bit of a liquidity situation going on in the banking industry. Of course, we serve a lot of bank clients. So loan growth really went down to very little in that environment. Remember, we do interest rate swaps on particular loans. There is a lot more volume going through the pipe. So even if the yield curve is not perfect for that business, there is still volume. As it relates to fixed income, same issue. Remember in 2024, everybody was talking about AOCI and how significant it was, and it was because rates shocked up so significantly. This certainly was a bit of a rate shock, but not anywhere near a 3,000 basis point shock. So what we are seeing clients do now is clients are investing.
Steve Young: People look at this opportunity, and they see 3 and 4-year duration paper, in the 5.5%, sometimes as high as 6% range, which is a lot steeper and a better place to invest than a few years ago.
Timur Braziler: Great. Then just last from me, you brought up the success you are having hiring. Just any color you can provide on which institutions you are having most success hiring from?
John Corbett: Yeah, it is very diverse based upon the market, but we are getting a lot of bankers out of the regional banks and some out of the money center banks. Where we are having the most success, I think I mentioned before, is in Texas. The total relationship management sales force in Texas is up 22% from the same period last year. So that just pleases us as we have integrated that bank over the last couple of years. Dan Strodel leads it for us. They have not only just drank the Kool-Aid of the SouthState culture, they are out selling the SouthState Kool-Aid. North Carolina is up 19% year over year. Atlanta is up 16%. So in the geographies overall, we have increased the sales force by 13%.
Timur Braziler: Great color. Thank you.
Operator: Your next question comes from the line of Christopher Marinac of Brean Capital. Your line is open. Please go ahead.
Christopher Marinac: Hey, good morning. Thanks for hosting us today. Steve, just want to go back to the deposit comment you made a little while ago about the near 3% all-in. Does that number go up further from here this quarter, or can you manage it to be about the same?
Steve Young: Yeah, it's a good question, Chris. If you looked at the last several quarters and you looked at that number, it ticked up. I do not have the all-in number from last quarter, but I am thinking about the money market rates were up maybe 20 basis points or so from last quarter, but that does not reflect the whole thing. My expectation is rates are up, so I would expect it to come up some. I just do not have a great prediction on what that would be in the next quarter. But I do think based on our modeling, that beta is probably pretty accurate. If you think about it, there is the new money part, which is what you are referencing, and then there is the existing book.
Steve Young: The existing book, the way we manage that is mainly through exception pricing, and we have already, for the September rate hike, already factored that into the Q4 guidance. But I would expect it to probably be somewhere in that 3% range. But it is a little early to be able to tell that going into the next quarter.
Christopher Marinac: As you have success on the Treasury side, particularly in your new markets, that is also going to drive that new money or hold back the new money rate as well.
Steve Young: It should. Our job is to grow Treasury Management accounts, Treasury Management balances, small business accounts, small business balances, and retail and checking. So our focus in the way the incentives are set up in the offices as well as in the RM level is very much pro checking, and that is where we believe the relationship exists, and that is where we are focused.
Christopher Marinac: Sounds great. Thanks for the additional color. I appreciate it.
John Corbett: Sure.
John Corbett: Thanks, Chris.
Operator: We have reached the end of the Q&A session. I would now turn the call back to John Corbett for closing remarks.
John Corbett: All right. Thank you, Tracy. I just wrap up by saying that we are in the middle of the budget season now, and so far, we are liking what we are seeing for 2027. For several years, we have been focused on investing in technology and infrastructure, but now we are investing in people and expanding the sales team, and that is a lot more fun and rewarding. As you have seen in our balance sheet growth, it is working, and our net interest margin is stable, and it is headed in the right direction with the back book repricing, more floating rate assets, which gives us confidence headed into 2027. So I want to thank you for joining us this morning. If you have any follow-up questions, don't hesitate to reach out. Have a great day.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
John Corbett: We're disconnected.
