SouthState Q3 2026 Earnings Call Transcript

SouthState (NASDAQ:SSB) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

SouthState reported strong financial performance with 9% annualized loan and deposit growth, maintaining a stable net interest margin of 3.78%.

The company increased its percentage of floating rate loans to 39%, aiming to stabilize net interest margin amidst potential Fed rate hikes.

Credit quality remains robust with net charge-offs at 9 basis points, and the company plans to continue opportunistic share buybacks.

Non-interest income declined due to capital markets activity, while expenses rose due to hiring and compensation increases.

Looking ahead, SouthState expects continued mid- to high-single-digit loan growth and anticipates net interest margin stability, with 2027 expenses projected to grow 3.5% to 4%.

Full Transcript

OPERATOR

After today’s prepared remarks, we will host a question-and-answer 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 (Chief Financial Officer)

Good morning and welcome to SouthState’s third quarter 2026 earnings call. This is Will Matthews and I’m here with John Corbett, Steve Young and Jeremy Lucas. We’ll follow our typical pattern of brief remarks followed by Q&A. I’ll 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’ll turn the call over to you.

John Corbett (Chief Executive Officer)

Good morning everyone. Thank you for joining us. SouthState delivered another quarter of healthy growth, strong profitability and stable credit. There’s an ongoing debate about the trade-offs between growing the balance sheet versus protecting the margin and I’m pleased to report that in the third quarter 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’re benefiting from strong underlying market growth.

As planned, we’ve grown our commercial relationship bankers by 10% over the last year. These bankers have already originated about a billion dollars in new loans and have a healthy pipeline. Deposits also grew 9% and without sacrificing margin which held flat with the second quarter at 3.78%. That net interest margin stability reflects a deliberate shift over the last couple years towards more floating rate loans. When we announced the Independent Financial deal in 2024, the percentage of floating rate loans in the combined portfolio was only 28%. Today we’ve moved the floating rate loan percentage up to 39% of the portfolio and recently about 55 to 60% of new loans are being originated with a floating rate.

This strategy will help provide net interest margin stability assuming the Fed continues its rate hiking path. Credit continues to remain solid with net charge-offs of only 9 basis points. Capital markets activity, however, pulled back as treasury rates moved higher during the quarter. Steve will give you an update on that business going forward. We continue to see SouthState shares as a compelling value and we’re going to stay opportunistic with buybacks as we were this quarter. Over the last year we’ve 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 Matthews (Chief Financial Officer)

Thanks, John. Our net interest margin of 3.78% continued to be in line with our 3.75% to 3.80% guidance and was flat with Q2. Our cost of deposits increased by 4 basis points to 1.80%, reflecting the quarter’s rate hike. Loan yields of 5.92% were up a basis point with accretion of $27 million down $6 million. Accretion income exceeded CDI amortization expense by $6 million in the quarter, further narrowing the gap between the 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 3.61%. Additionally, and I only reference this because we’ve gotten so many questions about accretion income over the last couple of years, I’ll point out that our third quarter PPNR per share excluding all accretion income and CDI amortization expense was up 10.5% versus the third quarter of 2025, and the nine months year-to-date comparison of the same metric versus ’25 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 Q1.

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

I’ll note that our revenue producer hiring initiative has been very successful with the addition of some great talent and some great wins in terms of production. The total cost of this group of employees, including not just compensation but also recruiting and business development expenses, is approximately $15 million year-to-date. Looking to the fourth quarter, with qualifiers around variable expenses that are hard to predict such as commissions, deferred loan costs, 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 guided to at the beginning of the year. Recall that we guided to 2026 NIE growth of approximately 4% over 2025 levels with approximately 100 basis points of that increase due to our revenue producer hiring initiative.

We’ve enjoyed more recruiting success than we expected, so that component will be higher than the 1% impact, but we should basically be in line with the approximate 4% increase guidance we gave for the year. Looking ahead to 2027, we’re still early in our budgeting process and these thoughts could change, but we’d 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 that increase to be slightly higher. We’ll refine our modeling through the fourth quarter and provide further 2027 expense guidance in the January earnings call.

The third quarter’s 9 basis points of net charge-offs makes 9 out of the last 10 quarters at a level below 10 basis points. Our provision expense of $20 million was primarily driven by the quarter’s loan growth. Asset quality trends remain stable to improving 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. 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 twelve 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 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’ll 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 one on your telephone keypad to raise your hand. To withdraw your question, press star one 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 (Analyst at Truist Securities)

Great. Thank you. Good morning. I was hoping Steve could give a little bit of color on the correspondent capital markets income this quarter, you know, kind of what drove that down and then also whether you can get back to kind of that $25 million guidance range you talked about previously.

Steve Young

Sure. John, good morning. Yeah, as you mentioned, if you look on page 12, correspondent income this quarter was $20.1 million versus $24.8 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’s what we got in the fourth quarter. The five-year treasury went up 87 basis points in a quarter and 60 basis points of that was in September.

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

John McDonald (Analyst at Truist Securities)

Right. So that’s kind of between the, you know, where you were this quarter on the 20 and the 25. Is that what you’re pointing to?

Steve Young

That’s right, yeah, that’s what—that’s our expectation right now.

John McDonald (Analyst at Truist Securities)

Okay. And then maybe any updated thoughts just

Steve Young

To further that comment, you know, there’s two businesses that really sort of make up most of that income. One is the fixed income business and one is the interest rate swap business. And 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. And so we’re seeing the handoff from the swap business to the fixed income business. And that’s not always exactly linear, but eventually it happens and should happen this quarter.

John McDonald (Analyst at Truist Securities)

Okay, great. And then maybe just to follow up on Will’s comments on the expense front, sounds like something in the 375 ballpark in the fourth quarter, Will, and then growing 3.5% to 4% next year. And that’s inclusive of kind of your hiring plans next year and everything else. I know it’s an early look. Just the thoughts behind that.

Will Matthews (Chief Financial Officer)

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

So for the full year we’re probably, that number’s probably $21, $22 million attributable to that effort. You know, we would not call that a miss though. We would call that we were more successful in that. And I think, you know, those folks have been productive as some of their non-solicits burn off. I think they’ll continue to be productive and maybe even more so. So that’s a little bit on this year. For next year, you know, it looks like consensus right now is in that being 525 to being 530 range, which would be right in there with that, that 3.5% to 4% range that I gave you. We’re 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 (Analyst at Truist Securities)

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 (Analyst at Barclays Capital)

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

John Corbett (Chief Executive Officer)

Jared, it’s John. Good morning. You know, it was a great quarter for loan production and loan growth. In the third quarter we had nearly $5 billion of production. That’s up 45% from a year ago, and a decent amount of that’s attributable to these new hires that have joined our team. You know, last quarter we mentioned we thought we’d see strength in the C&I category for the back half of the year, and we have. C&I is up 13% year over year. So as we’re heading into next year, we’re looking at the pipeline. It has backed off just a little bit when rates came up. Our full-year guidance for 2026 was mid- to high-single digits. The last few quarters it’s felt like we’d be on the high end of that based on the pipeline, and so we’ve grown 9.5% year to date.

I would imagine with the spike in rates and the pipeline dipping a little bit, we’re probably more like mid-single digits in the fourth quarter. Still, for the year I think we’d 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 can’t tell quarter to quarter, but I feel like the current pace and current guide stays with us into 2027.

Jared Shaw (Analyst at Barclays Capital)

Okay, thanks. And I guess just sticking with that theme, what’s been the client sentiment as you’ve been out there speaking with commercial borrowers? How are they feeling with the rate environment and the macro backdrop?

John Corbett (Chief Executive Officer)

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

CRE’s a little bit weaker.

OPERATOR

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

Will (Analyst)

Yeah. Hey, great. Good morning, guys.

John Corbett (Chief Executive Officer)

Morning. Morning.

Will (Analyst)

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’s frankly quite a differentiator, you know, when compared to some of the other results we’ve 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, you know, kind of higher-for-longer rate environment where we kind of live in this 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

Sure will. This is Steve. I’ll just kind of talk a little bit about NIM as you mentioned. I mean, it was stable this quarter at 3.78%, and we grew our interest-earning assets a billion one, which is sort of in that mid- to upper-single-digit range, so really happy with that. You know, deposit costs increased 4 basis points, which was within our expectations. And so, you know, as we think about going forward, I’ll kind of lay out where we see the pluses and minuses there to NIM. You know, if you think about the four different areas, it’s interest-earning assets and, you know, for us, John just mentioned it, we think mid- to upper-single digits all the way through 2027. Best we can tell, that’s sort of where we think that’ll be. You know, if you look at the average for 2027, that would be around $66 billion.

That’s sort of how we’re thinking about it today. You know, the rate forecast changed. From June we had no rate hikes, and now we have, in our models, two total Fed rate hikes: one that’s already in September and then one more in December, and then we’re using the same yield curve that we had at 9/30. So, you know, the five-year is roughly about 5%, which is where we do a lot of our fixed pricing off of. And then, you know, as it relates to deposit costs, we have, you know, 40% of the existing beta of the book on the up beta, and then of course we have new deposits that will be on a little higher.

So we kind of use a 50% total beta on the growth and the existing book. And then, you know, 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. That seems about where we’re going to be, maybe half of that for next year. But based on all those assumptions we expect NIM to be between 3.75% and 3.85%, and this range is 5 basis points higher than last quarter. And it’s really due to your question to a couple different things: it’s due to the Fed rate hikes, and we are a little bit asset sensitive when we have the floating-rate loans that John mentioned in his prepared remarks versus our exception-priced deposits.

The second is the higher yield curve for fixed-asset repricing. And then the third is just new production on the steeper yield curve. So based on all those assumptions, our models, we expect this range to stay in effect through 2027. So it’s a positive story for us. A lot of that’s driven by our asset sensitivity and really the fixed-asset repricing that we’ve talked about last quarter.

Will (Analyst)

Great. That’s 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 bank 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 kind of balancing and managing cost of funds so well? Are you incentivizing differently?

Are you looking and tapping some of your, you know, less expensive markets for deposits? Just kind of how are you attacking deposit growth in this environment?

Steve Young

Well, you know, it’s really no new strategy here. It’s a continuation of existing strategies. Certainly the focus has changed and gotten more precise. But, I mean, where we’re 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 about $700, 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’s going on in the underlying bank is we’re growing real relationships with new money at great rates. And if you look at sort of our new money, if you look at all the money that’s new to the bank from a customer perspective, we’re raising money somewhere—if you look at CDs, money markets, DDA altogether—it’s a little less than 3%.

So that’s where the new money’s coming in. But I would say no huge change in strategy. I just think we’re seeing a lot of momentum, particularly on the treasury management side. But we’re also seeing it throughout the bank. And we’re also seeing new geographies like Texas and Colorado, where they didn’t have that product a year ago. We’re starting to see some momentum there.

Will Matthews (Chief Financial Officer)

And Will, you did ask about incentives. Not to say that we didn’t tweak a little bit sort of our intercompany crediting to maybe reemphasize the importance of deposits, so there’s a little bit of an incentive change in that regard too.

Will (Analyst)

Yeah, okay, that’s helpful, guys. Thank you. And 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 3.85%, or…?

Steve Young

Sure, yeah, no, it is. It’s both. You know, obviously, as I just mentioned, it’s a negative to the fee income side on correspondent. So we got an 80-basis-point shock in the five-year, but it’s a positive to NIM. You know, we have—as I mentioned last quarter—we have about a billion dollars 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’s about where the coupon is, and we think those will move up, you know, somewhere around 150 basis points if rates don’t move a whole lot. And that’s a significant tailwind to fixed-rate repricing into NIM. We also have securities that will reprice that are maturing—about a billion dollars, a little over a billion dollars over the next five quarters—that probably will have an increase. So that fixed-asset repricing is significant, but I’d also say it’s a combination of that, it’s a combination of the Fed rate hikes where our floating-rate loans are outpacing the margin increase—that’s probably one to two 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 (Analyst)

Got it. Okay, excellent. I appreciate that color. I’ll 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 (Analyst at Raymond James)

Hey, good morning, guys. Thanks for taking my questions. Just wanted to get a thought on buybacks here. Obviously you guys bought back, you know, a decent amount this quarter, but a little bit less than in prior quarters. Can you just talk about kind of the thought process here in capital levels and maybe what the tailoring rules will do for CET1? Thanks.

Will Matthews (Chief Financial Officer)

Sure. 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%. You know, if you look back, Q3 was at 40%; year to date it’s been 67%; trailing 12 months has 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 company that’s 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 the fourth quarter, so we’re probably at 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.

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 (Analyst at Raymond James)

Very helpful, Will. And then maybe just one follow-up for Steve. Just as we think about kind of the 3.5% to 4% expense growth, you know, how should we think about that toggle with, you know, 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 is the way to think about it that you would be towards the lower end of that expense growth if the fees to average assets are at the lower end and then would scale upward if that were to revert higher?

Is that the toggle we should contemplate as we’re thinking about fees and expenses? Thanks.

Steve Young

Yeah, I think generally, Michael, you know, I think this quarter we did $94 million in fee income. That was 54 basis points of assets. So our guide’s been 55 to 60. But like I said, in the next quarter or two, that’s probably going to be on the lower end of that, maybe similar to where we were in the fourth quarter or, excuse me, in the third quarter. So that’s probably accurate. And then, as I mentioned, the NIM guide has gone up. And so as we kind of think about the balance of the two, total revenue really doesn’t change in this environment. And we’re headed towards 10% PP&R growth year over year. So if you kind of think about just big picture, how we’re thinking about it, that’s how we’re trying to land all of those moving parts.

Michael Rose (Analyst at Raymond James)

Totally get it. Thanks, guys. I’ll 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 (Analyst at TD Cowen)

Good morning. Obviously raised the NIM guide, which is positive, and it seems like you held the line pretty well on deposit costs this quarter as well. And you’re pointing to, if I heard it correctly, 50% total deposit beta through the cycle. Are you able to share where those new deposits are coming into the bank as it stands and, just kind of a follow-up question to what was asked earlier, how you’re 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?

Will Matthews (Chief Financial Officer)

Sure, yeah. You know, 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’re doing, as you know, that moves the new customer money up in the 295 range for the quarter that was for the third quarter. And then if you add any wholesale, you know, that could be closer in the 330 to 340 range.

So if you kind of peel back the onions, that’s the way the pricing for the third quarter went. Of course most of the quarter there was not a Fed rate hike until the very end. So, you know, my guess is it’ll go up a little bit. And that’s part of the guide of the betas and all the stuff. But that’s sort of where the third quarter fell out. I think in the new—if you looked at our new money market accounts, if you just look at that granularity, you know, we raised new money about $670 million at a 3.12% for the quarter. If you look at new and renewed CDs, I think it was a billion 6, 53, 62. So that kind of gives you more color behind that new customer money. But those are kind of the parts and pieces. But if you kind of summarize, all that new customer money at 295 is where we saw that come in.

Janet Lee (Analyst at TD Cowen)

Got it. Thanks for all the color. In terms of capital deployment, what’s your stance? Can you give us an updated stance on M&A? Is this something that’s still on the cards or is it not an attractive option in the current environment?

John Corbett (Chief Executive Officer)

Hey, Janet, it’s John. I mean, nothing’s changed on our thinking there. The bank’s performing great. We were growing talent. The balance sheet’s really growing well. We’ve got strong earnings. So as we think about capital priorities, the first priority is keep growing our dividend alongside of earnings growth. That’d be one. Number two is the organic balance sheet growth in the fastest markets in the country. So we’re 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 (Analyst at TD Cowen)

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’re 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’s something that you’re seeing in any particular ways.

John Corbett (Chief Executive Officer)

Yeah, Janet, where we’ve seen spread compression is probably a result of the yield curve moving up as quickly as it is. Unlike the capital markets business, a lot of these loans come with a fixed-rate commitment from the time of the commitment to the time of the closing, which might be 45 days or so. And if the rates move up significantly, sometimes the competition, sometimes we don’t raise the rate as quickly as the yield curve. So you do wind up seeing some spread compression.

My guess is most of it’s tied to the fact of how rapidly the yield curve’s moved up. If the yield curve stabilizes, I still think there’s attractive spreads in the markets that we’re lending into.

Janet Lee (Analyst at TD Cowen)

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 (Analyst at D.A. Davidson)

Thanks. Good morning. You’ve talked a little bit about kind of the beta assumption on the deposit side with high rates. I’m just curious, you know, the last hiking cycle you weren’t in Texas yet, and just wondering if you’re contemplating any differences through that franchise on a combined basis going forward?

Steve Young

Yeah, sure. Gary, this is Steve. Yeah, that’s 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% betas, and then Texas and Colorado were in the mid-50s, and so that combined was about 40% on the existing. So that’s sort of part of that guide just for the existing book. And then, you know, if you kind of play that out over a couple rate hikes, we were around a 1.75% cost of deposits, maybe the second quarter, somewhere in there.

So if you use 50% over the next couple of quarters, you get to maybe by the end of the first quarter, if those rate hikes come through, you’re close to 2%. That’s kind of how we’re thinking about modeling it.

Gary Tenner (Analyst at D.A. Davidson)

Thanks, I appreciate that. And then on the correspondent banking business, just thinking of the kind of the variation margin—you know, obviously the gross number was lower this quarter but the ratio margin increased as well. So just wondering how to think of that more from a net basis. You’ve talked about the gross a little bit, but just thinking about the net.

Steve Young

Yep, no, that’s good. And we look at that number. It’s sort of, I guess, somewhat related to net income but really, really not a lot, and we can talk about that offline. But basically that number tracks two things: it’s the rate of the 10-year Treasury and then also the Fed funds rate. So it moves around with that. But I think in the third quarter the average 10-year Treasury rate was up from 4.42% to 4.75%, so it was up 33 basis points, and of course it really spiked at the end of the quarter.

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

Gary Tenner (Analyst at D.A. Davidson)

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 (Analyst at J.P. Morgan)

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

Steve Young

Sure, no, great question. And yes, we are moving forward on those projects. Really, a couple of different products that we’re offering out: one is a new FX platform, one is a commodities platform. And we’re doing some test trades on commodities now, and we see that to be rolled out probably on a real basis in the first quarter. And then also on the FX side, I think that project’s gotten delayed a little bit, maybe to the—maybe April 1st. So we’ll see some benefit to both of those, but I don’t think—I think that both of those, if you kind of add them together, probably on a full run-rate basis at, you know, $10 and $15 million range in year one once they’re fully established. So, you know, maybe it’s a couple million dollars a quarter or something like that once they’re fully instituted.

Anthony Elian (Analyst at J.P. Morgan)

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

John Corbett (Chief Executive Officer)

Yeah, yeah. Tony, I’d 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’s not. And we don’t have firm plans we put in place and say lock and load, that’s the way we’re going to go with buybacks for the next 12 months. But looking at, again, the long-term total payout ratio and where we’ve 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’re just shy of 11.15% to end this quarter. We’ve got, we think, good growth prospects ahead of us. So 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 repurchases. And right now we think that’s probably where we’ll be investing more capital next year.

Anthony Elian (Analyst at J.P. Morgan)

Okay, thank you.

OPERATOR

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

Brian Vilino (Analyst at Jefferies)

Good morning, this is Brian Vilino on for Dave. Thanks for taking the question. Just on credit—obviously it’s been fairly strong at least over the past few quarters. Just wondering, with the five-year up as much as it is, if you’re foreseeing any potential incremental stress on CRE borrowers as they come to their resets or maturities next year.

Steve Young

You know, we’re not at this point, Brian. You know, you’re seeing the classified criticized asset trends are all kind of improving. We’re talking to our credit folks. We don’t really see any material changes to the charge-offs in the near term. And those CRE loans that you’re referencing, you know, a lot of these were originated coming out of COVID in 21–22 and the weighted average loan-to-values are around 55%. So there’s just a lot of margin in those deals and they’re either right-sized at maturity or, if the cash flow is a little less, they’re able to move it to another lender, permanent lender.

So, so far we’re not seeing issues, and naturally if the long-term Treasuries continue to move up materially from here, that could create issues. But right now we’re not experiencing that.

Brian Vilino (Analyst at Jefferies)

Great, thanks for that. And just on the loan-to-deposit ratio, I think in the past you’ve quoted looking to stick, you know, no higher than 92%. I guess just wanted to see if that’s still the same focus going into next year or if there’s some, you know, potential wiggle room around that number.

Will Matthews (Chief Financial Officer)

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

And I would expect, you know, 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 medium term.

Brian Vilino (Analyst at Jefferies)

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 (Analyst at UBS)

Hi, good morning. Just a couple follow-up questions for me on the deposit side. Do you have the spot rate at the end of the quarter?

Will Matthews (Chief Financial Officer)

You know, I don’t have it in front of me, and we typically don’t disclose it, but, you know, it wasn’t a dramatic— I don’t remember the quarter exactly where we started, where we ended, but it wasn’t— I mean we were only up 4 basis points. So it was a kind of a ratable thing as I recall. But I don’t have the number in front of me.

Timur Braziler (Analyst at UBS)

Okay. And then, you know, I’ve been getting some questions, some investor kind of pushback over the course of the quarter on correspondent banking. Looking at where those levels were during the last hiking cycle versus where they are now still implies some downside. Maybe just talk us through what’s changed in that business and why the levels that you saw in, in 2024, end of ’23, early ’24, why that’s kind of off the table here in this rate hiking cycle.

Steve Young

Yeah, I think a couple things. One is, you know, in 2024 there was a bit of a liquidity situation going on in the banking industry. Of course we serve a lot of bank clients and so loan growth really went down to very little in that environment. And remember we do interest rate swaps on particular loans, so there’s a lot more volume going through the pipe. And so even if the yield curve’s not perfect for that business, there’s still volume. As it relates to fixed income, same issue. Remember 2024, everybody was talking about AOCI and how significant it was. And it was because rates shocked up so significantly. This certainly was a bit of a rate shock, but not anywhere near a 3,000 basis point shock. So what we’re seeing clients do now is clients are investing. You know, people look at this opportunity and they see, you know, three- and four-year duration paper in the five and a half, sometimes as high as 6% range, which is a lot steeper and a better place to invest than, you know, a few years ago.

Timur Braziler (Analyst at UBS)

Great. And then just last for me, you brought up the success you’re having hiring—just any color you can provide on which institutions you’re having most success hiring from.

Steve Young

Yeah, it’s very diverse based upon the market, but we’re getting a lot of bankers out of the regional banks and some out of the money center banks. You know, where we’re 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 integrated that bank over the last couple years. Dan Strodel leads it for us. They’ve not only just drunk the Kool-Aid of the SouthState culture, they’re outselling the SouthState Kool-Aid.

North Carolina is up 19% year over year. Atlanta is up 16%. So in the geographies overall, we’ve increased the sales force by 13%.

Timur Braziler (Analyst at UBS)

Great color. Thank you.

OPERATOR

Your next question comes from the line of Christopher Maranak of Breen Capital. Your line is open. Please go ahead.

Christopher Maranak (Analyst at Breen Capital)

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

Will Matthews (Chief Financial Officer)

Yeah, it’s a good question, Chris. You know, if you looked at the last several quarters and you looked at that number, it ticked up. You know, I don’t have the number, the all-in number from last quarter, but I’m thinking about the money market rates were up maybe 20 basis points or so from last quarter, but that doesn’t reflect the whole thing. So my expectation is, you know, rates are up, so I would expect it to come up some. I just don’t 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 there’s the new money part, which is what you’re referencing, and then there’s the existing book. And the existing book, the way we manage that, is mainly through exception pricing. And we have already, you know, for the September rate hike, already factored that into the fourth quarter guidance. But, you know, I would expect it to probably be somewhere in that 3% range.

But, you know, it’s a little early to be able to tell that going into the next quarter. And as you have success on the treasury side, particularly in your new markets, that’s also going to drive that new money or hold back the new money rate as well it should. I mean that’s, you know, our job is to grow treasury management accounts, treasury management balances, small business accounts, small business balances, and retail and checking. So, I mean, you know, our focus and the way the incentives are set up in the offices as well as at the RM level is very much pro checking, and that’s where we believe the relationship exists and that’s where we’re focused.

Christopher Maranak (Analyst at Breen Capital)

Sounds great. Thanks for that additional color. I appreciate it.

Will Matthews (Chief Financial Officer)

Thanks, Chris.

OPERATOR

We’ve reached the end of the Q and A session. I would now turn the call back to John Corbett for closing remarks.

John Corbett (Chief Executive Officer)

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

So 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.

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