South State Corporation Aktie

Hello, everyone. Thank you for joining us, and welcome to the SouthState Bank Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference call over to Will Matthews, Chief Financial Officer. Mr. Matthews, please go ahead.

Good morning. This is Will Matthews, and welcome to SouthState's Second Quarter 2026 Earnings Call.

I'm here with John Corbett, Steve Young and Jeremy Lucas. We'll follow our typical pattern of brief prepared remarks and then move into Q&A. And I'll refer you to the Investor Relations tab of our website for the earnings materials.

Before we begin our remarks, I want to remind you that 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.

Thanks, Will. Good morning, everyone, and thank you for joining us. SouthState delivered another strong quarter. We generated a return on assets of 1.36% and a return on tangible common equity of 17.6%, which extends the consistent high performance over the last several quarters. Our results reflect solid balance sheet growth, stable margins, improving efficiency and continued strength in credit quality. As we reach the midpoint of 2026, I'm encouraged by the progress we're making against the 4 priorities we outlined at the beginning of the year: attracting top talent, growing the balance sheet, creating value through disciplined capital allocation and building artificial intelligence capabilities throughout the company.

Starting with talent. SouthState's culture continues to be a differentiator. In a period of meaningful disruption across many of our markets, bankers are looking for a platform that empowers local decision-making, values long-term relationships and creates opportunities for growth. Our division presidents have successfully expanded our commercial banking sales force by more than 10% in just the last 3 quarters, and we continue to be impressed by both the quality and diversity of talent joining the franchise. These are experienced relationship managers who understand our markets, fit our culture and position us for future growth. That recruiting success is an investment in the company's future, and it's directly supporting our second priority, meaningful balance sheet growth.

Over the last year, loans have grown 8% and deposits have grown 5%, both within the range of guidance we provided. There's been considerable discussion this quarter around the balance between growth and incremental profitability. And that's an important conversation. And frankly, it's one that we have every quarter. Our responsibility as capital managers is to balance 3 objectives simultaneously: soundness, profitability and growth. We don't optimize for 1 quarter. We optimize for long-term shareholder value. That requires discipline, judgment, particularly when opportunities are abundant. One thing we're confident in is that we'd rather operate in vibrant growing markets than be forced to manufacture growth where it doesn't naturally exist.

Strong markets give us options. They allow us to be selective, compete where we have advantages and build profitable relationships that create value over many years. Our bankers and our footprint continue to provide those opportunities. Equally important, we're maintaining our commitment to soundness. Asset quality improved during the quarter with nonperforming assets declining 14% and net charge-offs remaining exceptionally low at just 6 basis points. Credit metrics continue to reflect the disciplined underwriting culture that has long been a hallmark of SouthState.

Turning to capital allocation. We remain confident that SouthState represents an attractive investment at today's valuations. Over the last year, we've repurchased nearly 5% of our shares outstanding while also increasing the dividend and maintaining a CET1 capital ratio above 11%. We view share repurchases as one of several tools available to create shareholder value. And when our stock trades at levels that we consider attractive relative to the long-term earnings power of the franchise, we intend to be opportunistic. While repurchase activity slowed a little during the second quarter, our philosophy hasn't changed. We expect to continue returning capital in a disciplined manner, likely at a pace more consistent with our previously communicated the 40% to 60% capital return framework.

Finally, artificial intelligence remains an area of significant focus and opportunity. Our objective is to empower every department to identify opportunities where this technology can improve speed, quality and scale. Today, we're already seeing productivity gains in areas such as credit operations, fraud management, call center support and through the continued adoption of our internally developed small language model.

When I step back and I look at the quarter, I see a team that's aligned and it's executing. We're growing. We're maintaining strong credit quality. We're investing in talent and technology, and we're continuing to allocate capital in ways that we believe will create long-term shareholder value. I want to thank our teammates for what they accomplished this quarter, and I'm optimistic about the opportunities ahead.

With that, I'll turn it back over to you, Will, to walk through the quarter in more detail.

Thanks, John. Our net interest margin of 3.78% was down 1 basis point from Q1 and in line with our 3.75% to 3.80% guidance. Deposit costs were unchanged at 1.76%, also in line with our guidance. Loan yields of 5.91% were down 5 basis points from Q1 and accretion of $33 million was down $6 million from Q1. Excluding accretion, loan yields were up 1 basis point and NIM was up 4 basis points. One side note about accretion. We often get questions about that number, but rarely about core deposit intangible amortization, a noncash expense resulting from purchase accounting rules.

Slide 11 in our deck shows quarterly margin, accretion income and CDI amortization expense. I'll note that our quarterly CDI amortization number of $21 million is getting close to our quarterly accretion number, and I expect those lines to cross in the next 4 to 5 quarters. Additionally, I'll point out that our Q2 '26 EPS, excluding both accretion income and CDI amortization expense, was up 13% versus the second quarter of 2025. Net interest income of $576 million was up $14 million from Q1. And comparing to Q1, the $6 million positive impact of the extra day in the quarter matched the $6 million decline in accretion income.

As John noted, we had a record quarter for loan growth and loan production with loan growth of $1.35 billion, equating to an 11% annualized rate, matching the growth rate in average loans. Over 76% of our loan production in the quarter had a floating rate. Our Florida banking group led the company in loan growth dollars this quarter, and every one of our banking groups had good growth. Pipelines continue to be strong, though down slightly from March 31 levels. They remain well above other recent quarters.

Noninterest income of $97 million or 57 basis points of average assets was within our guidance range of 55 to 60 basis points and $3 million below Q1's levels as higher deposit fees were offset by lower mortgage revenue. Noninterest expenses of $358 million were slightly better than guided. We had higher deferred loan origination costs offset due to the record quarter for loan production, but this was offset by higher incentive accruals and commission expenses, holding compensation costs flat with Q1 levels.

Looking to the remainder of the year, we have no changes to our 2026 NIE guidance for the year. Consensus estimates for NIE are a bit above $1.46 billion, and this is in line with our 2026 guidance of 4% growth over 2025 levels. John noted the continuation of our successful record of low net charge-offs. This quarter's 6 basis points makes 8 out of the last 9 quarters where our net charge-offs have been below 10 basis points. Provision expense of $16 million was primarily driven by the quarter's loan growth. We had a nice reduction in nonperforming assets and in our classified loans and payment performance remains very good. We continue to feel good about our credit quality.

Turning to capital. We repurchased 1 million shares in the quarter at a weighted average price of $97.62 for a 68% total payout ratio, including dividends. This brings our year-to-date total to 2.5 million shares repurchased for an 80% total payout ratio year-to-date. We continue to expect to generate solid growth. So our longer-term total payout ratio guidance remains in the 40% to 60% range, as John stated. Even with a higher capital return posture and 11% loan growth in the quarter, capital levels remained very healthy. CET1 ended at 11.1%, TCE was 8.7% and our TBV per share ended at $58.72, which is up 13% from the year ago level, a period in which we repurchased over 4.9 million shares or approximately 5% of the company.

Operator, we'll now take questions.

[Operator Instructions] Your first question comes from Stephen Scouten with Piper Sandler.

Maybe if I could start on NIM trends moving forward if you continue to grow loans at this kind of high single-digit, low double-digit pace and what you're seeing on deposit costs specifically within that dynamic?

Sure. Stephen, this is Steve. Yes, just a reminder, net interest margin this quarter was 3.78% versus our guide last quarter of 3.75% to 3.80%, so kind of right in line. And last quarter, we grew $900 million of interest-earning assets with only 1 basis point of contraction. So I think that was a real win going forward. Deposit costs were flat at 1.76% and within our guidance. So really, as we think about going forward, really nothing has changed in our guidance. Our guidance going forward is stable and we continue to grow.

So our -- the format we usually use around interest-earning assets, same as last quarter. We see the growth that John talked about continuing on in that mid- to upper single-digit range. We have no rate cuts, nor rate hikes in our forecast, and we sort of see a stable NIM, and we have some dynamics that are working there. Some of it is the repricing of our existing book that is for loans and securities and then on the new production rates. But all of that to say that we continue to expect NIM if we have flat rates through 2027, just to continue to be in that 3.75% to 3.80% range.

Okay. Helpful. And I know you guys talked about this ongoing conversation industry-wide and internally, the push-pull between growth in NII and NIM. And given your kind of 2026 focus of driving meaningful balance sheet growth, I would presume that you guys, if you had to weight one more to the other, would say a couple of basis points of NIM compression would be okay as long as you're growing good customers, loans and NII. Is that fair in terms of your mindset?

Yes, that's exactly right, Stephen. We set out a plan for this year that we're going to expand the team, and we're successfully doing that, and they're producing for us. That new hires that we've had have so far contributed $600 million of new loan production, and we got a nice big $1.5 billion pipeline coming behind that. So we've got lots of opportunities to grow. And every day when we make loan decisions, we're doing it based upon a risk-adjusted return on capital. And we see opportunities to continue to grow, and we'll make those trade-offs that make sense to us from a capital management standpoint.

Got it. And then just last for me, like from a deposit growth standpoint, do you think -- it seems like traditionally, there's a little bit more of a pickup in the back half of the year seasonally in terms of deposit growth. Would you expect that deposit growth would more closely match loan growth in the back half of the year? And just kind of how do you think about the pressure on deposit costs as you manage that balance?

Sure. Yes. And that's right. There's -- obviously, there's seasonality that goes on in our book. And typically, second and third quarter, second quarter because of tax payments, third quarter is just the rest of the public fund stuff kind of comes up before it starts moving back up. But underlying all those trends, there's a lot of good deposit activity going on. So from our perspective, as we think about that mid- to upper single-digit loan growth, we're going to fund it for the rest of the year somewhere in that mid- to upper single digits. I would say that probably as we continue to remix the deposits, it's probably going to be in the mid-single digit over the next quarter or so and then kind of move up towards the upper single digits probably in the last part of the year based on the seasonality.

Your next question comes from the line of John McDonald with Truist Securities.

I was hoping to follow up on the last question around deposits. So inside of that outlook for the back half of the year, Steve, what do you see in terms of deposit mix in terms of noninterest-bearing versus interest-bearing? There were some different dynamics between kind of the end of period and average this quarter that I assume was kind of some seasonality. So just a little bit of color, maybe what happened this quarter on that mix and what you see for the back half.

Sure, John. Yes, as you mentioned, this quarter, we had 5% average deposit growth quarter-over-quarter. So that's sort of how we get paid as we all know. And then we also had 5% noninterest-bearing deposit growth quarter-over-quarter. And so from time to time, there's the seasonality things that happen on the last day of the quarter or whatever. We don't see that as a trend in a negative way. I just think that's a particular day. But as we think about deposit mix, clearly, the -- as we think about deposit costs and all within our guidance and NIM, we were able to keep deposit costs flat this quarter.

Obviously, if we continue to grow loans at this pace, they'll move up a little bit. But it's really just about if we grow in that kind of mid-single-digit range over the next quarter or 2, we should be able to keep those pretty contained, and that's all part of our guide of margin coming forward.

So I think noninterest-bearing deposits, if you look at our treasury management kind of underneath the noise, we've grown treasury management accounts this year about 16% annualized year-to-date and our year-to-date balances annualized have grown 8%. So underneath all the things that you all don't get to see, there's a lot of good growth going on in those areas.

Great. Then maybe I could ask John for some color on loan growth. Maybe speak a little bit to the sustainability of the strength you saw this quarter and where it's coming from, are the new markets, legacy markets? Any color on that would be helpful.

Yes, John, we've guided this year to mid- to high single digits, and we kind of communicated last quarter that we thought based on the pipeline strength that we could wind up on the higher end of that guide, and we did. We've grown 8% year-over-year. This year, we've grown 9% annualized. So I just feel like we're on track for the prior guidance we gave you. The growth is really broad-based across all of our markets. From a dollar standpoint, naturally, as you think, the greatest contributors are the states where we have the largest presence, which is Florida, Texas and South Carolina from a dollar standpoint. But from a percentage standpoint, Atlanta saw really nice growth in C&I in the second quarter, so did Virginia and so did Alabama.

As we think about the first half of the year, John, versus the back half of the year, we saw a little higher and more elevated C&I seasonal paydowns in the first half and saw more CRE growth. We look for that possibly to shift in the second half where we would have more of a pickup in C&I, and we've got more planned CRE payoffs in the back half. So that's kind of the underlying mix shift that we see in our pipelines.

Your next question comes from the line of Hannah Wynn with KBW.

Stepping in for Catherine Mealor. I wanted to start off on expenses. Your expenses came in strong this quarter. And I know you guys are working on hiring initiatives as well and kept your guide at 4%. I was wondering where you're seeing the pricing of these new hires as markets become more competitive and where you expect expenses to trend for the back half of the year as you guys have been relatively flat so far in the first half, so 4% for the full year would be a pretty big ramp.

Yes, Hannah, it's Will. Yes, you're right. We have, as John said, had success in recruiting folks. And of course, it's a competitive market in which we operate. We do think we offer a value proposition beyond just the compensation package in terms of our culture, our operating structure, the ownership culture, et cetera, which is helpful in our recruiting efforts with some of the disruption we see.

In terms of the NIE itself, as I mentioned in my prepared remarks, the one factor that did help on the compensation line is with loan production, you, of course, have a deferred origination cost offset you book that has been amortized over the life of that loan. So as production picks up, that offset to comp expense increases. That was a help in the second quarter, somewhat offset by incentive accruals and a little bit higher commission expense in the quarter, too. We do expect good production in the back half of the year, but we also have these folks that we've hired throughout the first and second quarter, they'll be in the run rate for full quarters.

We also have in the third quarter, beginning July 1 is when our merit increases for most of the company beyond the executive staff kick in. So that's an inflationary number there for the comp expense. So all that baked in is why in my prepared remarks, I was sort of holding steady with the 4% year-over-year, which is pretty much where consensus has been, I think, in the $1.460 billion to $1.465 billion range. So we still feel good with that guide. There are obviously a lot of factors that change as you get near the end of the year in terms of incentives and other things like that, that can -- and the loan production number that can cause it to vary a little bit, but that's sort of how we think about it.

Great. And then my other question is on -- I know you mentioned in your opening remarks, keeping capital return in the 40% to 60% range. And I was just wondering if you could give a little more color on the timing and expectations for share repurchases that you see for the rest of the year.

Yes, that's a good question. I'm going to stick with our 40% to 60% guide. We have to make decisions as we're served by the environment around us. We do think we're blessed to have the ability to invest in growth, and we expect to continue to be able to do that. We have taken advantage of weaker share prices over the last year and been more active. If you look back over the last year, trailing 12, our payout ratio is 75%. And that includes the third quarter of last year where we only bought back 440,000 shares. So the last 3 quarters, the trailing 9 months payout ratio is much higher. That's not sustainable if we want to maintain CET1 in the 11% to 12% range and still expect high single digit -- mid- to high single-digit loan growth. So -- but other than that, that's about as specific as we can get.

Next question comes from Michael Rose with Raymond James.

Maybe just on the loan pipeline and growth and generation. Can you just talk about how some of the newer bankers that you've hired over the past year or 2 have performed versus expectations? Just trying to get a sense of the momentum levels and how that translates or compares to kind of what's going on in your legacy markets versus the expansionary markets?

Yes, Michael, I go back to kind of the goal to kind of take advantage of some of this disruption occurring in our markets. We laid out the opportunity for our division presidents to increase the commercial relationship manager specifically team by 15% to 20% and be opportunistic over the next couple of years. We're up now over 10% in just 3 quarters. And as I think I mentioned earlier, we're tracking the loan production and pipelines of those specific hires. And through 3 quarters, they've contributed $600 million of loan production. They've got a $1.5 billion pipeline.

The most success we've seen, and we're very pleased with the team in Texas, led by Dan Strodel, they've had the most success as far as expanding the sales force. They're actually up 25% as far as the number of commercial RMs in Texas. And as we work through the next few quarters, we look for the Southeast to continue to kind of pick up on the hiring front. But to be able to produce $600 million for that new team, I feel like they've hit the ground running.

Okay. Very helpful. And then maybe just one. I hear you on the return of the 40% to 60% total payout ratio. I did notice that the cash to assets is kind of low. I think it's like 2.5%. Any concerns around the ability to fund ongoing buybacks? And obviously, nice to see the dividend increase.

Yes, Michael, this is Steve. No, that's -- there's nothing around that. We've typically -- if you look over our history, we've run somewhere in that 2% to 3% range on the cash to assets. So that's normal. So as it relates to the buyback, that's not a limiting factor.

Yes, cash is not a component of that decision-making process.

No.

Your next question comes from the line of Janet Lee with TD Cowen.

Good to see your deposit costs being relatively stable. So are you suggesting that your NIM guide is assuming deposit costs increase a little bit from here or stay relatively stable through the year-end? I just want to clarify your comments there.

Sure. Yes, this is Steve. Yes, we think that deposit costs would move up a little bit here over the rest of the year, depending on how long rates stay flat. And we're -- as we think about the opportunity of growth, your incremental deposit cost is going to be marginally higher, which is going to, over time, add to it. But as you kind of look at what happened this past quarter, we also had repricing of the old book. So yes, I would expect it to move up a little bit. But from a standpoint of -- it's well within the guidance of being able to reprice some of the other assets on our balance sheet, and that's why we get stable NIM.

Right. And is NIM having an upward bias or could come in at the high end if we get a hike? Is that a fair assumption?

Yes. No, it's a great -- really good question. So if you think about it, it really depends upon the curve. But if -- the way we kind of characterize our interest rate position is we are asset sensitive. If they hike rates, let's say, every 25 basis points, but the curve doesn't change, then it's probably reasonably neutral. But if there's an upward -- if everything goes up 25 basis points or everything goes up 50 basis points, then it is very accretive to our NIM. That's the asset sensitivity.

So we still continue to get the asset repricing, which is very beneficial. At the same time, we get to get a better curve. So if it's the way I would kind of characterize it, we're pretty stable around whether rates go up or rates go down. If there is a bear flattener, it's probably pretty much a wash. But if it's a shock up, then that would be positive to the NIM.

And if I could just squeeze in one more. Fee income trajectory, it's been down the past couple of quarters. How should we think about the growth trajectory here? And where do you see the most upside in terms of growth? What's like a good growth rate for fee income in '26 and perhaps beyond '26?

Sure. Yes. On Page 12, we have a summary of our noninterest income over the last 4 quarters. And you can kind of see it's a little bit bumpy. The $97 million this quarter was 57 basis points of assets. Our guide has continued to be 55 to 60 basis points. And if you look at it a year ago, second quarter a year ago, we're up 11%. And a lot of that is because of the correspondent revenue on the right-hand side of that page, you'll see that gross revenue has increased about $5 million.

So I would kind of look at it, really nothing's changed on that guidance. 55 to 60 basis points is the right number. And as we grow assets, we're trying to continue to -- there's going to be continued growth. But from a percentage perspective, I'd see us somewhere in the middle of that range. So no change there.

Right. So correspondent banking, is it relatively stable based on what you're seeing in the markets?

That's right. We kind of guided to $25 million gross a quarter. And last quarter it was $24.4 million. This quarter, it's $24.8 million. Obviously, things change in that business relative to the curve. So I guess if interest rates got out of whack, one way or the other, it could materially affect that a little bit in the short run. But right now, we have a pretty good run rate going on and feel pretty good about that.

Your next question comes from Gary Tenner with D.A. Davidson.

I wanted to ask a follow-up on the kind of conversation about the components of loan growth in the back half of the year, particularly in the construction segment, which was obviously a pretty significant contributor. Does the comment about commercial real estate payoffs extend to construction? Or should we assume that we're kind of in a phase right now where you have this build of commitments in construction that are going to continue to fund up and drive net growth there for the next several quarters?

Yes, Gary. So if you step back and look at the big picture, that construction category is down about 10% from this time last year, but we did see a move up this particular quarter, and it was due -- there was a fair amount of owner-occupied construction projects for C&I clients, multifamily construction. But to my comment earlier about the back half of 2026, we do have a number of planned payoffs of multifamily. That's just part of their normal cycle that will be paying off on schedule. So we're going to see more of that in the second half, but we see a pickup in the C&I areas.

And the C&I areas, a number of these are seasonal kind of paydowns, number one, that we've seen in the last couple of quarters. One is the energy book. And with oil prices as high as they are, our clients are experiencing really strong cash flows and they're paying down their lines. We saw a reduction in capital call lines. So as we move into the back half of the year, we see some of that business picking back up while we're also faced with the planned payoffs of multifamily. But really, one goes up, the other goes down. But really, the guidance still -- we still feel pretty confident that we're in that mid- to high single-digit range and could very well be on the higher end of that range.

Got it. And then just a question about the allowance. If you look over the past 5 quarters, really, since the first quarter last year, the ALLL is down 32 basis points. The allowance for credit losses overall is down 30 bps to 130. What's the kind of glide path, if you will, to where this could go given a positive economic environment just -- I guess the question is where do you see this trending in the next few quarters?

Sure, Gary. It's Will. I would say, overall, we would expect the recent trend we've seen to continue, absent significant changes in the Moody's expectations for unemployment, CRE price index and other loss drivers that impact the model more significantly. We've seen some downward pressure on the level of reserves from the migration of loans from PCD to non-PCD, the PCD loans carrying a higher reserve. On the other side, you had some small upward pressure as rates have moved up because prepay models show a slowing down there, and that impacts reserve levels up a little bit. But overall, some downward pressure. Our provisioning really is -- this quarter was really for growth.

The other comment I'll make, too, is if you look at our scenario weightings. As you know, Moody's has various different scenarios. And we model 3 scenarios and weight them. The baseline, the S1, which is more optimistic and the S3, which is more pessimistic. Our traditional weighting is 40-30-30. 40 baseline, 30 for each of those 2. We moved to a more pessimistic weighting about probably a year or so ago. I can't remember exactly, but we have, for the last few quarters, been weighting 40-20-40. So we have 40% in S3 rather than 30% and 20% in S1 rather than 30%.

Over time, we would expect to go back to 40-30-30, but there is enough uncertainty out there in the economy with what we've been through the last year with tariffs and the conflict in the Middle East that we have elected to be a little more conservative in that regard. But anyway, that's sort of -- again, absent a big change in the economic forecast, we think we're still in that slight downward pressure from here.

Your next question comes from the line of Anthony Elian with JPMorgan.

On deposit costs, can you give us a bit more color on what you're seeing on competition? I think, last quarter, you mentioned you saw more competition towards the end of the quarter and that new money rates started in the 2.40% range and ended at 3%. Is that still a dynamic you're seeing?

Yes, sure, Anthony. Yes, this is Steve. Actually, yes, just to give you an update on some of those stats. Our new money market rates that I referenced last quarter, this quarter, we raised a little over $470 million at 2.68%. I think last quarter, the average was 2.68%, I think about roughly a little bit lower of a number. So that trend toward the end of the quarter sort of died down and sort of where we are now is at 2.68%. We also had about $1.1 billion in new and renewed CDs last quarter on the retail side that the average rate it renewed at was at 3.52%. And from the first quarter, it was at 3.69%. So I'd say that on the retail side, that has sort of calmed down a little bit on the new money market and CD rate form. So that's kind of how that's played out.

Okay. And then on correspondent, I think in the past, you've talked about some initiatives and products in the pipeline that at some point could drive an increase in that stream of revenue. Could you give us an update on those products and the timing of when you could see a lift from the -- I think you guided to $25 million per quarter?

Sure. Yes, that's a good point. And yes, there's a few things that we have been working on and are continuing to work on that we just had got an update on. So one is relative to commodity hedging, which is an extension of our energy business that we already do. That's -- we're in the testing phase of that to make sure that we've got all the risk controls on that.

I would say that's probably a 2027 event as well as some of our -- on our commercial clients, we have some FX initiatives that we're working on, and that is also a 2027 go-live. We're testing some things, but really a 2027 go-live area. So I think right now, there's not going to be any significant change to our guidance this year. And then as we get into the fourth quarter, I'd probably be able to give you a better sense on where the timing of those initiatives are for 2027.

Your next question comes from the line of Ben Gerlinger with Citigroup.

I know you guys have had really good loan growth production from the hirings and also just legacy team members as well. But I was just kind of curious, have payoffs slowed more than what you were anticipating, just largely from the merger in Texas? Just trying to think about like the pace of growth or kind of the dynamics considering one is filling the bucket and one is just kind of a natural emptying. How is that emptying part trended relative to past expectations?

Yes. With -- the Texas, Colorado franchise went through the conversion a year ago. And so naturally, they're inwardly focused and distracted. And so their production and their payoffs weren't providing much growth. Now they're growing at exactly the same rate as the rest of the Southeast franchise, up around 10%, 11% if you exclude the specialty lines. This particular quarter, we actually saw more payoffs than we had in the prior quarters, and it was tied to what I mentioned earlier, some of the C&I businesses, energy and capital call lines that we don't think is a trend. We think that business picks back up in the back half of the year.

Got it. Okay. That's helpful. And I just wanted to dovetail off of Tony's question within the correspondent banking. Is the payout ratio -- or sorry, not payout, but efficiency ratio for that business uniquely different than the bank? Or like if that grows, should we expect a higher pace of expenses, albeit equal?

Yes, this is Steve. Yes, that's correct. The efficiency ratio on maybe the fixed income portion is a little bit higher, maybe in the more like a wealth management, maybe in the 70% range. And then some of our other products, it's closer to 40% or so. So I would kind of just -- as we grow that revenue base, I would grow the expense base by, I don't know, I'd call it half just to make a simple math statement there.

Yes. And as you know, Ben, it's not a capital-intensive business. So a higher efficiency ratio in that business still makes it very attractive.

Right. No issues there. Just wanted to double-check, considering your initiatives are '27 growth. I just wanted to make sure I have it squared away. I appreciate the time.

Your next question comes from the line of David Chiaverini with Jefferies.

So I have a follow-up on NIM. I appreciate Slide 11 laying out the accretion income. With the downward trend in accretion income and you're holding the NIM guide flat at 3.75% to 3.80%, it implies the core NIM should show a nice increase. Can you talk about the drivers behind that core NIM expansion?

Sure. Yes. No, happy to. And yes, your point is well taken, and it's really sort of the same thesis we had a couple of years ago when we did the independent deal is that as the accretion moves out, the loan repricing moves in, and we move it from reported NIM to core NIM. But the stat on sort of the NIM and the repricing there as accretion comes down is we have about $6 billion of loans that will reprice within the next year or so. Depending on whether they're floating or fixed, we sort of give it 4 or 5 basis -- or 50 basis points of repricing. Some will be higher than that, some will be lower than that, but about 50 basis points of hikes.

And then also, we have about $1 billion of securities that will come cash flow back to us that will give us about a 1%, of course, depending on the curve. So those things are going to create as we run off some of the -- when I point off, when the legacy independent loans pay off as they should, those particularly the vintage in '21 and '22 that were 5-year loans, and they roll off at coupons that are 3% and 4%, and we reprice them in the 6s, that's going to shift that bucket from less accretion and more core as we reprice those loans.

Very helpful. And you touched on my follow-up, I was going to ask about the rate on new production. It sounds like it's in the 6s.

Yes, that's right. And part of it has to do with the floating fixed rate mix. And I think, Will mentioned it in our -- in his prepared remarks that we've been really working on the balance sheet mix to get more -- in an uncertain rate environment, we want to get more of our loan book to floating. And so this quarter, our loan production was 76% floating, 24% fixed. And so if you kind of look at the overall loan portfolio now, we've made a lot of progress on that front so that last year in June 30 of last year, 32% of our loans were in the floating rate bucket.

Now we've improved that to 38%. And so as we think about new loans and interest rate sensitivity and durability of NIM, we think we've got the balance sheet and the earnings stream in a much more stable position if rates go up because we've gotten more floating rate loans. So I think that's an appropriate way to think about it.

Your next question comes from the line of Dave Bishop with Hovde Group.

Following up the comments in the preamble about some of the strongest growth, I think you mentioned Virginia, Alabama. And as I sort of look at the branch map, maybe not as much critical mass there. Are those regions where you may target or circle back for additional banker lift-outs? Just curious maybe any sort of new markets you might be targeting for additional expansion?

Yes. We love the markets we're in. We really just want depth and density in those markets. So to the extent Bobby Cowgill that runs Virginia for us has opportunities to expand and recruit commercial RMs, we're going to do that. We built out Hampton Roads maybe 2 or 3 years ago and have had a lot of success there. But really no new markets on the horizon. We really just want depth and density. We did expand to Nashville and a loan production office, I guess it's been about 1 year, 1.5 years ago with Cameron Wells, and he's doing a great job. But no expansion markets on the horizon right now.

Your next question comes from the line of Samuel Varga with UBS.

Just wanted to go back to the balance sheet discussion a little bit in this quarter with the loan growth you had, the loan-to-deposit ratio went up just north of 90%. Obviously, with cash down, there's a little bit of a less of an opportunity to not [ pair fund ] it with deposits. But in case loan growth outpaces deposits, where can that loan-to-deposit ratio go? What sort of governor do you have on that?

Yes. We've typically been pretty conservative on that loan-to-deposit ratio. Typically, the way we think about it is at the beginning of the cycle, you typically start that loan-to-deposit ratio at a little less, so call it, I think, in the mid-70s or so. And then later in the cycle, you probably want to be in the 90% range. We probably would let it go as high as maybe 92%, but probably not much higher than that is our thinking today. And that's all part of the guide.

If you think about our interest-earning assets, we're going to fund the loan portfolio with the deposit portfolio. And as John talked about the new bankers, some of this is -- as we continue to put new bankers on the ground and as they bring on their new customers, over time, it will continue to grow that deposit book as we continue to mature those things. So I would kind of just look at it in terms of the same guide on our interest-earning assets, that's kind of how we're going to fund the loan growth.

Great. And then just on the competitive landscape, we've touched a bunch on this last couple of quarters in the Southeast versus Texas and Colorado. In the Texas, Colorado markets, are you seeing more pressure from the deposit side or the loan spread side? How would you say that?

Yes. I think it's similar to what it's been. Like, for instance, in Texas and Colorado both our CD rate is a little higher over in that market than it is over in the Southeast markets, about 25 basis points. So I think it's probably more so on the deposit side is where we feel a little bit more of the pressure, but that's probably just market to those markets.

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

All right. Thank you, Jesse. I just want to end by thanking our team. We're executing successfully on the 4 goals we laid out last year. SouthState's financial performance is among the top quartile in our peer group. The plan is working. And as you've heard throughout the call today, our guidance from prior quarters is basically unchanged.

So I want to thank you for joining us this morning and feel free to reach out with any follow-up questions, and I hope you have a great day.

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

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the SouthState Bank Corporation First Quarter 2026 Earnings Conference Call. Today's conference is being recorded.

[Operator Instructions]

At this time, I would like to turn the conference over to William Matthews, Chief Financial Officer. Please go ahead.

Good morning. Welcome to SouthState's First Quarter 2026 Earnings Call. This is Will Matthews, and I'm here with John Corbett, Steve Young and Jeremy Lucas. We'll follow our 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 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.

Thank you, Will. Good morning, everybody. Thanks for joining us.

For the quarter, SouthState delivered a return on assets of 1.37% and a return on tangible common equity of 17.6%. As we progress through 2026, our 4 main priorities are: first, to expand our commercial banking sales force; second, to deliver meaningful organic growth; third, to systematically retire shares at an attractive valuation; and fourth, to learn how to leverage the benefits of artificial intelligence and implemented throughout the company. We're making good progress on all 4 fronts. As far as recruiting, we're now in a yield curve environment that is more favorable to balance sheet growth. And with the consolidation disruption occurring throughout our markets, we see an opportunity to expand our commercial banking team by 10% to 15% in the next couple of years. In the last 6 months alone, our division presidents were successful in attracting and growing our commercial banking team by about 7%. We're going to continue to be opportunistic, but based upon the rapid success we may slow the pace of hiring in the next few months.

Second, for organic loan growth, loan pipelines have grown 50% since last summer, and that's resulted in solid annualized loan growth of 8% in the fourth quarter and then another 7.5% loan growth in the first quarter. Pipelines grew significantly again in the first quarter, which gives us confidence moving forward. Our previous loan growth guidance for 2026 called for mid- to upper single-digit growth this year. There's a decent chance that we could end up on the higher end of our guidance. The biggest highlight by far has been the success in Texas and Colorado. On a year-over-year comparison, loan production in those 2 states have more than doubled from $500 million in the first quarter of '25 to $1.1 billion in the first quarter of '26. And Houston, specifically, experienced the highest loan growth of any market in the entire company this quarter.

Third, on stock buybacks. We've repurchased nearly 4% of our shares outstanding since the beginning of the third quarter at an average price of $95.28. We continue to see this as an attractive use of excess capital at a time when bank valuations seem, at least to us, disconnected from fundamental performance and intrinsic value.

And then fourth, we're enthusiastically embracing the potential for artificial intelligence. We're deploying more and more Copilot licenses and training our bankers at the individual user level. We're researching and beginning to deploy AI tools from our major software providers at the department level. And we're looking for ways to reengineer processes between departments at the enterprise level.

More to come, but we're pleased with the way the entire organization is embracing these new tools with the goal of improving our speed and scalability, speed for improved customer service and then scalability for efficiency and shareholder returns.

Before I turn it over to Will, I'll point out that we've refreshed some of the slides in our deck to highlight the value proposition of being a SouthState shareholder. Our story hasn't changed and it isn't complicated. We're building a premier deposit franchise and we're doing it in the fastest-growing markets in the United States. We adhere to a geographic and local market leadership business model. It's a model that empowers our division presidents to tailor their team, products and pricing to deliver remarkable service to their unique local community. And at the same time, an incentive system built on geographic profitability that instills a CEO and shareholder mindset. This is a model that produces durable results that have outperformed our peers on deposit cost, asset quality and overall returns.

And the outperformance is consistent and durable over the last year, over the last 5 years, and over the last 20 years, ultimately leading to a top quartile shareholder return over multiple cycles. Will, I'll turn it back over to you to walk through the details on the quarter.

Thanks, John. Our net interest margin of 3.79% was just below our guidance of 3.80% to 3.90%. The slight miss was primarily a result of deposit costs being a few basis points above our expectation in spite of the 6 basis point improvement from the prior quarter. Loan yields of [ 5 96 ] were slightly below our new loan production coupons of [ 6 09 ] for the quarter and accretion of $38.8 million was in line with expectations and $11.5 million below Q4 levels. Excluding accretion, our NIM was up 1 basis point. Net interest income of $562 million was down $19 million from Q4 with the day count impact being $12.6 million of that difference. As John noted, we had another good loan growth quarter with loans growing $896 million, a 7.5% annualized growth rate. Average loans grew at a 6.5% annualized rate. Our Texas and Colorado team led the company in loan growth, and every banking group within the company grew loans in the first quarter.

We have some optimism about continuing loan growth as our pipeline at quarter end was up 33% compared with year-end. Noninterest income of $100 million was at the high end of our range of 55 to 60 basis points guidance. We had a solid quarter in capital markets and wealth with seasonally lighter deposit fees, offset by stronger mortgage revenue, which was aided by an increase in the MSR asset value net of the hedge.

NIE of $359.5 million was in line with expectations. Looking ahead, we have no changes to our NIE guidance for the remainder of the year. But if we have greater success in our recruiting efforts and we've been pleased with our success thus far, NIE could, of course, move up somewhat. Net charge-offs of $10 million represented a 9 basis point annualized rate for the quarter, and this amount was matched by our provision for credit losses. Nonaccrual and substandard loans were down slightly. Payment performance remains very good, and we continue to feel good about our credit quality.

Turning to capital. We repurchased 1.5 million shares in the quarter at a weighted average price of [ $100.84 ]. This makes a total of 3.5 million shares repurchased in the last 2 quarters. And our share count was 97.9 million shares at quarter end, down from 101.5 million shares a year prior. Like last year's fourth quarter, the first quarter payout ratio was higher than we expect to maintain over the long term, but we thought it is an opportune time to be more active.

Our strong loan pipeline and recruiting success give us some optimism, we'll need to retain capital to support healthy growth. Even with a higher capital return posture and a 7.5% annualized loan growth in the quarter, capital levels remained very healthy. CET1 ended at 11.3%. Our TCE was 8.64%, and our tangible book value per share ended at $56.90. I'll point out that our TBV per share is up almost $7 or 14% and above the year ago levels, and our TCE ratio is up 39 basis points from March 2025, even with our higher capital return activity over the last couple of quarters. Operator, we'll now take questions.

[Operator Instructions]

We'll go first to Catherine Mealor at KBW.

I wanted if you could start on the margin. Will, you talked about how the margins fell a little bit below the range just on deposit costs. Curious if you still think that 3.80% to 3.90% range is fair for the year or if deposit pressures are bringing that a little bit lower than the range?

Sure. Thanks, Catherine. This is Steve. Let me kind of walk through our various assumptions and kind of update them versus last quarter. So to your point, yes, we were -- we thought that the margin would start out in the low 3.80s for the first quarter and trend higher during the year, it looks like we missed that by a couple of basis points at the start of the year. If you look at the 4 things that really make up that guidance and our forecast or the level of interest-earning assets, the rate forecast what our loan accretion forecast is in deposit costs. So those 4 things. And if you look at the interest-earning assets, I think we forecasted for the first quarter, we'd be between [ $60 billion and $60.5 billion ]. I think we ended up at [ $60.2 billion ] so right in the middle of that. We said for the year that our interest-earning assets would average somewhere in the $61 billion to $62 billion range.

And I think where we are with that, we think that it's a potential -- we're kind of reiterating that, but we do think that the loan growth might drive that slightly higher. A little bit too early to tell, but that it could -- interest-earning assets could end the year in the $63 billion, $64 billion range relative to the fourth quarter, but the average is probably going to be more on the high end of what we were thinking.

As it relates to rate forecast, last quarter, we thought that there would be 3 rate cuts coming into 2026. And it looks like right now, the market is [ sub-0 ] relative to the conflict and so on. I think the 2-year and the 5-year treasury rates were up 40 basis points from the lows earlier this quarter. So we've now taken out the rate cuts in our forecast. On loan accretion, which is our third one, is we forecasted $125 million for the full year of '26, and there's really no change to that coming in line with what we had expected.

And then the last one was on deposit costs and our original deposit beta forecast was 27%. And then for -- it looks like we came in around 20% for the quarter. So if you kind of go back and look at the movie, I think for the first 100 basis points of cuts, we got 24, we had a 38% beta. And then the last 75 basis points, we had a 20% beta. So you combine it all together, we've had a 30% beta on 175 basis points. But as we look forward and think about the deposit environment that we're at in the flat environment with our growth trajectory, we think that the deposit cost will be in the mid-170s versus our early forecast to be in the low mid-170s. So based on all these assumptions, we'd expect NIM to be in the 3.75% to 3.80% range. If the mid -- if growth is in the mid-single digits, we would expect NIM to be on the high end of the range. And if growth is as we expect, a little bit higher in the high single digit, we'd expect the NIM to be on the lower end of the range with net interest income higher. So hopefully, that helps tell you all the different assumptions.

Yes, that's great. And then just kind of take us in big picture. I mean it feels like this is growth related, right? So as you just kind of think about your model and your forecast, is there a big change in NII dollars? Or is it more of earning assets, it's higher and that's coming with a little bit of a lower margin, but that you're at the same place in terms of dollars?

Yes. I think if you look at our models in 2026 because growth takes a while to accelerate and get into the budget '26, the NIM is, if you have lower NIM in the short run, it gets you lower NII dollars to '26. But if you look at 2027, it all sort of catches up with higher growth. So that's kind of the way I would describe the net interest income dollars.

We'll move next to John McDonald at Truist Securities.

Great. I was hoping you could drill down a little bit in terms of what you're seeing on the loan growth front? What gives you confidence that you might be able to see the high end there? And kind of just drill down a little bit more in terms of kind of gross production versus payoffs and utilization.

John, it's John Corbett. The production -- loan production that we had in the first quarter was very similar to the fourth quarter, which that was a record for us, almost $4 billion. But a lot of the growth came in the latter part of the quarter. We wound up at 7.5% loan growth. Last quarter was 8%. And really, the growth was broad-based, both from the type of loan we are doing and also the geography. I mean, investor CRE was up 9%, C&I is up 9%, single-family residential owner occupied, up mid-single digits. And from a geography standpoint, I think Will said in his opening remarks, every single geography grew led by Texas and Colorado, which was the thing that puts a smile on our face as we worked through the integration last year. Following Texas and Colorado at $1.1 billion, Florida and South Carolina each did about $640 million of production. Greenville was the strongest in South Carolina and as I mentioned earlier, Houston had the highest production in the entire company.

But winding the clock forward even with the $3.8 billion in production, we did not drain the pipeline. The pipeline stayed full, and we actually grew the pipeline 33%. So it went up to $6.4 billion from the end of the year was at $4.8 billion. A lot of that's happening in Florida and Texas. So just with the momentum we're seeing with the pipeline growth, we think we can keep this momentum going, and we think we could be in the upper end of our guidance that we gave you previously.

Okay. Great. And then just a follow-up on the deposit costs. Can you give us a little more color on what you're seeing in terms of competitive dynamics and maybe what you're doing in terms of deposit mix any promotional strategies? And just what are the wildcards around the deposit cost for this year?

Sure. Yes, John, this is Steve. Yes, a couple of things on that. We look at how we -- the new money that we raised during the quarter and we look at the money market rates as well as the CD rates. And so this quarter, we raised about $400 million in new money at the new money market rate at 2.68%. And our new and renewed CDs came in at 3.69%. So that's sort of where money is coming in. We also if you exclude the seasonal runoff of public funds, our customer deposits actually grew at 7%, about $850 million. And most of that was in the business area, it was up 10%.

So a lot of treasury management and so on. So I think that's probably where we're continuing to lean in. From a geography perspective, if you look at our deposit franchise, because we run a decentralized P&L model, we track all of the different divisions and banking groups together. And the deposit cost in the legacy Southeast footprint that we've had is in the mid-140s and then in Texas and Colorado, obviously had a great quarter relative to growth. But the deposit costs are in around the 210 range. And so we think over time, there's going to be an opportunity to lower these with the addition of treasury management, retail and small business products, but that just takes time, but we think there is some opportunity there over time. And the balancing act is deposit growth versus profitability. And so we're tweaking dials around that.

The last thing I would say about deposits -- I will tell you that back to the way that the interest rate curve increased during the quarter. We did see more competition towards the end of the quarter. And so our new money market rates started the quarter in the 240 range and ended somewhere in the 3% range. So I think what that's telling you until we can sort of get a little pat on rates to come back down, I think we'll have opportunity on the deposit side. But right now, I think it's just a tough environment, as you know.

We'll move next to Stephen Scouten at Piper Sandler.

One other question maybe on the NIM front. It's just -- the change in the guidance, how much of that would you say is related to that last comment you made about the progression of deposit competition versus removing that 3 cuts. I think at 1 point, it was maybe 1 to 2 basis points of help for every 25 bps, but I think that had been diminished over time. So just kind of wondering the puts and takes...

Yes, I think it's probably half and half. So I mean, I think the 2 things driving a little bit the NIM lower between 3.75% and 3.80% versus 3.80%, 3.90%. There's probably things intact. One is, I think, our view of growth versus what we originally given you. So that's probably half of it. And probably the other half is the deposit competition higher than we -- is what we expected. And so the question is, when we got down to the final mile on the deposit beta getting from 20% to 27%, rate went up toward the end of the quarter. And so I would assume at some point when we get back to a rate cutting cycle, that will ease off and we'll be able to get some of that, particularly in some of the new markets. But that would be kind of how I would characterize it, if that's helpful.

Extremely helpful. And then maybe digging into the hiring plans and activity a little bit more. Obviously, you put that as your kind of #1 strategic goal, I think, in the presentation. So can we get an update on what that number was this quarter? I think it was [ 26 ] last quarter? And then kind of if you continue to be focused more on Texas, Colorado, maybe the newer IBTX markets and maybe even the Nashville market, which I think was a newer entrants for you guys?

Yes, we kind of kicked off the initiatives, Stephen, at the beginning of the third quarter to expand the commercial banking sales force by like 10% to 15% in the next couple of years. And this is the kind of thing you just got to be opportunistic about it. It's not going to happen on a straight line. But the team geared up. They built a recruiting pipeline with a couple of hundred folks in there. And we've grown the commercial banking team specifically by 7% from October 1 to March 31.

Most of that growth, the net growth of the team occurred in Texas and Colorado. Dan Strodl and the team have done a great job carrying the brand and the flag out there. That's an area I'd probably look to them to integrate, assimilate the team and maybe not grow too far too fast. But I would like to see our team in the legacy Southeast markets continue to take advantage of that growth. So I think maybe by the end of the year, when we end the -- I guess, it would be the third quarter for 4 straight quarters, maybe we're in the 10% net growth rate.

Okay. If I could sneak in one more. Just kind of wondering how you're thinking about the total payout ratio. Obviously, the last couple of quarters have been extremely aggressive, but I know Will said you might need to hold more capital for growth. So how can we think about what you might be from a total [indiscernible]?

Stephen, really, our guidance of 40% to 60% over the medium to long term still holds. And I think that makes sense. If you think about it at a -- call it, a 17% return on tangible common equity, if we're growing at the 8% to 10% range, then a 46% payout ratio would essentially hold our capital levels pretty constant. We did exceed that not only in the fourth quarter, but also here in the first quarter. I think first quarter is around 93%, but we thought it was an opportune time given where the share price dislocation was in our minds and we're more active. But we -- I'll also say too, our capital policy and thoughts about capital in addition to the growth, we have, I think, a pretty sophisticated capital stress testing framework, and that informs our capital thoughts as well. So we integrate that, and we like to travel in that 11% to 12% CET1 range.

We'll move next to Anthony Elian at JPMorgan.

Will, you reiterate the expense outlook from the 4% you gave us last quarter. Just thinking about the cadence of quarterly expenses. Is it pretty consistent with each remaining quarter or anything you'd call out for the pattern of expenses by quarter?

Yes. I'll call it a couple of things and say, of course, there are things that vary with revenue. You've got some revenue-based expenses, but just sort of some general trends we've seen over the years, and some of the embedded structural things. So our -- generally, most of our staff's annual -- I mean, annual base pay increase typically occurs in July 1. So that gets you -- that kicks in the third quarter. That's 1 thing to keep in mind. Our ownership model incents people both support and in running a business with revenue to think about how they spend money.

And sometimes you see more conservatism earlier in the year and sometimes -- last year, if you look at our fourth quarter, you saw less conservatism with respect to NIE spend. So that's a little bit in there too. First quarter, you've got normal things like the higher FICA expense to be a little higher 401(k) match those kind of things.

So anyway, but we're still sticking with our guidance that we gave heading into the year in that roughly 4% range and we'll continue to address that update as the year goes along. And some of that will, of course, depend on, as John said, the opportunistic nature of our hiring initiatives you can't necessarily time that exactly when you want it when good people become available.

And then, John, you made a comment in your prepared remarks that you may slow the pace of hiring in the next few months given the success you've seen. It just seems like you have a lot of room across your footprint to keep making hires. Is the potential for a slowdown of hiring due to keeping a closer eye on what expenses could do over the short term? Or -- just walk us through that, please.

Anthony, it's less about the expense growth. I mean this expense that you have hiring folks is really an investment in the long-term growth of the bank. You look at our core values of our company, it's all about the long-term horizon, the compounding effects of that. So really, it's less about that and it's more just about the assimilation process. We've hired 75 or 80 commercial bankers in 6 months. A lot of that occurred in Texas and Colorado. And you just want to make sure folks are assimilating well into the credit culture of the bank there. So I'd probably look to slow a little bit in Texas, Colorado and continue to be opportunistic in the Southeast.

We'll go next to Michael Rose at Raymond James.

Steve, the fees to average assets were a little bit above the target this quarter. I think it was 61 basis points. Obviously, some good momentum there. Any change in thoughts to that? And can we get an update on the correspondent business just given the changing rate curve in your view?

Sure. Thanks, Michael. Yes, sure. On noninterest income, to your point, I think our guidance for the full year average assets was -- noninterest income to average assets was between 55 basis points and 60 basis points. We ended up at 61 basis points. We put a new slide on Page 12 in the deck that you can kind of look at the trend. The good news is if you kind of look at it year-over-year, we're up from $86 million in the first quarter of 2025 and now we're at $100 million. So that's really healthy growth year-over-year. I would say that as you think about the correspondent revenue. You can look at that graph on Page 12. That really has driven almost half of it. We were at $16.7 million a year ago now around $24.4 million. So I think in our earlier call in January, we mentioned that we probably thought we would average somewhere in the $25 million a quarter on correspondent revenue.

Really, there's no change to that. We were $24.4 million so basically right in line. I don't think there's much of a change. There might be 1 quarter is a little better, 1 quarter is a little worse, but I think that's generally good. And I think our general tone relative to noninterest income to average assets continues to hold kind of in the middle of that range between 55 and 60 basis points. We're going to be growing the asset base as we're growing.

I appreciate it. Maybe just as a follow-up, just as it relates to kind of the commentary, John, around pipelines. I think you said they're still strong and robust. Can you size that for us? And maybe just given the success that you've had hiring kind of in the Texas and Colorado markets, what that could contribute to growth for the franchise over time. I would expect that it would grow at an increasing rate. So the mix would be weighted towards those 2 markets given some of the success and obviously some of the merger disruption?

Yes. Just to kind of frame up the size of the pipeline. A year ago, the pipeline at the beginning of the year was $3.2 billion. Right now, it's $6.4 billion. So it's doubled. And 2/3s of that growth has occurred in Florida, Texas and Colorado, those states. There is a little bit of a mix shift change. Last year, we really saw all the growth was in C&I and very, very little in commercial real estate. The commercial real estate portion of the pipeline has picked up from 35% of the pipeline a year ago. Now it's about 45% of the pipeline. Still C&I is the majority of it.

We'll move next to Janet Lee at TD Bank.

This is Noah [indiscernible] on for Janet Lee. First question, with the investment securities portfolio moving a bit higher, can you walk through how you're thinking about the trade-off between deploying into securities versus loans?

Sure. I think for us, as we think about balance sheet growth, we're mainly looking at it relative to loan growth. I think we're pretty comfortable. I think our securities, the assets is around 13%. I think in this environment, unless we got a few more rate cuts and there was a bit more of a carry trade there. That is probably not something that we're going to be trying to fund new security purchases. I don't expect the securities book to really move. I will tell you that we have about $900 million the rest of the year that's maturing, about $900 million in 2027, and that weighted average rate is around [ 3 60 ]. So we probably get about 100 basis points on just keeping that book reinvested, but I don't expect us to expand the book significantly.

Got it. That's helpful. And then a follow-up. I appreciate the AI slide in the deck. I'm wondering from a cost perspective, is there anything quantifiable that you're seeing in terms of expense saves and then when we would begin to see that flowing through to the bottom line?

Yes. The incremental cost and expense of AI on the margin is not that high. What we're seeing is that a lot of the major software providers that we currently have in place, they're embedding these AI tools and software that already exists. And then on the individual user level, the Copilot licenses, it's an expense, but it's relatively small. The fun thing about this is learning about individual use cases and the power of this. We were in a meeting this week, and we own a factoring company where it takes an individual about 2.5 minutes to load in an invoice, and there's always some human error in that. So 2.5 minutes per invoice, we've employed an AI tool that can do 1,000 invoices in 2.5 minutes with 100% accuracy.

So these are small use cases, but it's sort of getting everybody excited. But as far as the expense run rate, I don't see a big build in the expense run rate. A lot of this is embedded in software we currently utilize.

I think just a follow-up on that. I think the success that we're thinking long term, and it's not any time in the next year, but maybe the next 18 to 24 months is one of the things that we are measuring and monitoring is our number of revenue producers versus the number of our support personnel. And so for us, what we should think that should happen out of this AI boom and the efficiency is that as we increase revenue producers, our support personnel should stay relatively flat, and that should open up sort of the margin in that. So that's kind of how we're thinking about monitoring it

Next, we'll move to Gary Tenner at D.A. Davidson.

A couple of questions. First, just a follow-up on the capital commentary and the kind of payout ratio questions from earlier. Any preliminary calculation on the potential impact of new capital rules on your capital levels?

Yes, Gary, we have run some math on that. And it's roughly 7% reduction in our risk-weighted assets. And that would be roughly an 85 basis point positive impact on our CET1 levels. Now I'll say that we don't run the company currently where the regulatory limit is our controlling factor. There are a lot of other factors, including as I said, our capital stress testing as well as ensuring we maintain the confidence of the rating agencies and whatnot. So I don't know that that necessarily changes our thoughts a whole lot, but certainly something that's new, and we have to study a lot further.

Appreciate that. And then a follow-up on the fee side of things. Just curious about the deposit account fee line. Obviously, you had a really sizable ramp over the course of 2025, and this quarter seemed a little more of a seasonal dip than typical. So I'm just curious kind of how you see that line trend either full year-over-year or just over the course of the year?

Sure. This is Steve. Yes, typically, in the fourth quarter, that usually hits the highs of the year because of the seasonal debit card and fees that happen towards the Christmas season and so on. I think from our perspective, I would think that the trend year-over-year would be in the -- I think in in our modeling, it's somewhere in the 3%, 4% range year-over-year. So if you kind of look at that and trended it higher, I think that would probably be the way to think about it. But I think all of that is within -- as we model it, that's all within that 55 to 60 basis points guidance.

We'll go next to Ben Gerlinger at Citi.

I just wanted to kind of follow up on correspondent banking. I know you guys said 25-ish per quarter, 100 for the year. I know there's a little bit of kind of sensitivity to rates. So is it just more business activity and then kind of thinking longer term, if we do get a couple of more cuts, could that 25 turn into 30? Or how should we think about just the business operations overall?

Sure. No, that's -- it's a good question. Let me just kind of frame it up and one of the things I think there was a bit of confusion last quarter is just this whole gross versus net. So when I speak about correspondent revenue, I'm speaking to the growth. So you have that graph on Page 12. The $24.4 million is the gross revenue. The other -- the minus 3 is the variation margin, which is really kind of an interest margin. But really what the fees that were produced were $24.4 million. So that's kind of how I think about the business and how we communicate.

I guess, looking at the ranges of that business. So in our best years, that business did about $110 million of revenue. The worst year did about $70 million. So we're kind of towards the higher end of that. But of course, we're growing the business organically. So I think the upside to it, where there's some new products that we're rolling out really won't have much of an impact in '26, but probably more '27, which would be around commodities to support our energy business would be some of our FX. We do FX, but we're doing a little bit more hedging. That should add a few million dollars.

So on the margin, there's probably some reasonable upside to it. But I would -- I wouldn't -- I don't think $30 million is a good run rate in '27, for instance. I just -- I don't know that we know that yet. But as we get further into the year and as we roll out these products and see how they go, I think that would give us more confidence maybe in the -- by October to be able to give you a better forecast. But for right now, there's a lot of volatility, of course, our ARC business is doing really good. Our bond and trading business is really starting to do well as well.

So these things are coming together. The question is with all the volatility how that's going to play out the next quarter or 2. But I would just expect, as we see it and as we forecast, it's pretty sturdy and steady for a while before we have the next leg up.

Got you. Okay. That's great color. And then just a follow-up on mortgage. Is there a fair value mark or anything that's in there. Just it seems large.

Ben, it's Will. As I mentioned in my prepared remarks, we had our normal practice reviewing our MSR valuation, and we had a positive impact this quarter of about $4.5 million net on the MSR valuation. Some quarters has moved against this, some quarters moved it to a positive. This quarter was a positive.

We'll go next to David Chiaverini at Jefferies.

I wanted to drill into the deposit growth outlook. So with your strong loan growth, and following the first quarter on the deposit side was very strong, but what's your sense of your ability to sustain that level of growth, again, given the strong growth outlook on the loan side?

David, it's a good question. I think it's the part that is the hardest at this point. I think you saw cost in the yield curve move up during the quarter, you saw short-term funding costs move up during the quarter. So it's obviously, at this point in time, it's different than it would have been maybe in January. My guess is it will get a little easier as we get some of the volatility out. Like as I mentioned earlier, our customer deposits grew at 7% this quarter. Obviously, we had the seasonal public funds thing that usually runs around a little bit. We are off $400 million there. But our business accounts, our business was up 10% and a lot of that was treasury management. So hard to forecast here because as I mentioned, the rates on our money market new openings moved up during the quarter from 2.40 to close to 3. So I guess, I think we can obviously generate deposits. The question is at what cost.

And if we can have the funding market move down a little bit, that would be helpful. But generally, the business is growing. The question is at what cost.

And then shifting over to credit quality. Looking at nonperforming assets, within the 5-quarter trend. So it looks very stable there. But some of your peers in the Southeast and Texas are showing some upticks. Curious about your view if you -- if there's any areas you're watching more closely?

We went through this period, David, where rates spiked up 5%, and we underwrote a lot of the commercial real estate with a 3% rate shock. So that's why we saw a lot of reclassing into special mention and classified of the commercial real estate portfolio. And we inserted a new slide on Page 18. I don't know if you saw it or not, we broke out that investor commercial real estate portfolio. And really, there's little to no concern about the loss content in that portfolio given the loan to values and the payment performance. We broke it out by every category, and we're at a weighted average loan-to-value of these problem loans of 56%. The -- 98% of them are current. That includes non-accruals. So that's really not an area of concern. The areas would be the normal areas that generally in the economy where we're seeing a weaker consumer on the lower income range of the consumer. And then on some of the small business, particularly SBA loans because a lot of those are floating rates and they had to deal with a 5% rate shock as well. But we've got naturally, the government guarantee on 75% of that.

So anyway, that's a rough overview of kind of our view on credit, but it feels pretty stable right now. Special mentions are coming down. Classifieds to tick down a little on a percentage basis, charge-offs continue to remain low.

And we'll go next to Dave Bishop at Hovde Group.

Yes, maybe stay on the credit topic. I appreciate [indiscernible] the NDF lending segment. Are you seeing any sort of credit stress within that -- those buckets. Any note you're well below peers, any appetite to even grow some of the exposure to some of those segments.

Yes, we're not. The credit team, when all this hit the news, I spent a lot of time with Dan Bockhorst and the credit team analyzing and digging deep in this portfolio. And as you pointed out, it's really an area that we don't have much exposure to. It's the third lowest NDFI exposure amongst our peers, 1.7%. And the biggest piece of that is capital call lines, which our advance rate averages like 50%. So the 1 thing if you step back and think about this pressure on that market, there's been a lot of growth in it over the last few years. So if you think that there's pressure on it, it's probably going to enhance the underwriting standards, which may -- some of that business may shift back to the banking industry on a high-level viewpoint.

Got it. And one follow-up in terms of the comments regarding the assimilation of some of the New York bankers in the Texas, Colorado markets. Just curious in terms of those hires are those bankers sort of through noncompete and nonsolicit agreements. I'm curious if they're sort of generating load in the loan pipeline at this point?

Yes. It's a case-by-case basis. But I want to say that Dan Strodl told me that the loan pipeline was up to $400 million for the new folks he brought on in the last 6 months. So there's good production early on. A handful of them will have some kind of employment agreement we'll work through. So he's off to a great start. To be able to double your production and go through an integration conversion, take it from $500 million to $1.1 billion. That team has done a fantastic job.

And that concludes our Q&A session. I will now turn the conference back over to John Corbett for closing remarks.

All right. Audra, thank you. And as always, we want to thank all of you all for your interest and support of the company. If you have any follow-up questions, feel free to reach out. We'll be available today. And I hope you have a great day.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, and welcome to SouthState Bank Corporation's Q4 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the call over to Will Matthews. Thank you. Please go ahead.

Good morning. This is Will Matthews, and welcome to SouthState's fourth quarter 2025 earnings call. I'm here with John Corbett, Steve Young and Jeremy Lucas. We'll make some brief prepared remarks and then move into Q&A. I'll also 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.

Thank you, Will. Good morning, everybody. Thanks for joining us. As we wrap up the year, I'm really proud of what the SouthState team accomplished in 2025. Two years ago, we were deep into the due diligence phase of the independent financial deal. And it was big transformational move for us to do a deal at size and expand westward into new markets in Texas and Colorado. Now over a several year period, I developed a friendship with David Brooks, independent CEO and felt good about the chemistry between our companies. But in a deal of that size, there's always a gut check moment when you weigh all the potential risks, all the things that can potentially go wrong and compare that with the rewards of moving forward. Now ultimately, we did move forward and announced the deal in May of 2024. And during this past year of 2025, the SouthState team successfully navigated through that initial period of high risks and the regulatory approvals and the systems conversions. And now we're on the other side, enjoying the rewards of a well choreographed integration. And in that regard, a special recognition and thanks goes to Mark Thompson. Mark's been working with us for over 20 years and will be retiring soon. But his last assignment was to move to Dallas with his wife and help us build personal friendships with our new partners in Texas and Colorado. And Mark did a great job leading the integration, and we're going to miss his leadership when he hangs up his jersey later this year.

In addition to the social success, the deal paid off financially. Excluding merger costs, earnings per share in 2025 are up over 30%. And it's not just EPS growth. We also experienced double-digit growth in tangible book value per share, and that's including the day 1 dilution from the deal, raising the dividend by 11% and share repurchases. So double-digit growth in both earnings per share and double-digit growth in tangible book value per share in 2025. And even though organic growth started slow at the beginning of the year, pipelines we're building throughout the year and many of those deals hit the books in the fourth quarter. We ended with 8% loan growth and 8% deposit growth during the quarter.

Now as investors, you know that it's typical for bank valuations to lag in the first year of an integration. But with our confidence in how well things were going, we decided to be opportunistic and get more aggressive with our share repurchase plan. We purchased 2 million shares of SouthState stock or roughly 2% of the company in the fourth quarter. And our Board authorized a new share repurchase plan adding an additional 5 million shares to the 560,000 shares remaining in the old plan. We didn't want to miss the opportunity to retire shares when there was such a disconnect between the fundamental performance of the bank and the valuation. When you take a step back, things are playing out right in line with our strategic plan. Our goal for 2025 was to have a clean conversion, achieve our cost save mandate and get the organization growing at historical levels by the fourth quarter. And the team accomplished those goals. The integration is now in the rearview mirror, the risk profile of the company is reduced. The fundamentals of the company are as good as they've ever been, and we're carrying that momentum into 2026.

Will, I'll turn it back to you to walk through the moving parts on the balance sheet and the income statement.

Thank you, John. I'll hit a few highlights on our operating performance and adjusted metrics, and then we'll move into Q&A. We had a good quarter to close out a very good year with PPNR of $323 million and $2.47 in EPS, resulting in a full year PPNR of $1.27 billion and EPS of $9.50. Our return on tangible common equity for the year was approximately 20%. I'll focus most of my remaining comments on the fourth quarter in comparison with Q3. High level, it was a good quarter for balance sheet growth and noninterest income, offset by higher noninterest expenses, much of which was driven by performance. Our margin and deposit costs were in line with our guidance with a 386 tax equivalent NIM and a 182 cost of deposits. As expected, accretion income of $50 million was down $33 million from the high we saw in Q3. And I'll note that we have approximately $260 million of remaining loan discount yet to be accreted into income. Our NIM, excluding accretion, was up 2 basis points. That produced net interest income of $581 million, which was down $19 million from Q3 or up $14 million, excluding accretion.

Cost of deposits and total cost of funds were down 9 and 14 basis points, respectively. With the reduced accretion and the decline in rates, our loan yields of 613 were down 35 basis points, close to our new loan origination coupons of 6.06% for the quarter. As John said, we had good balance sheet growth in the quarter with loans and deposits growing at an 8% annualized rate. We also carried higher cash and Fed funds sold levels in the quarter, up almost $0.5 billion. Steve will give updated margin guidance in our Q&A.

Noninterest income of $106 million was up $7 million, largely driven by performance in our correspondent Capital Markets division. This group's $31 million in revenue was one of our better quarters in that business. Although full year NIE was better than guided and modeled, Q4 NIE was higher than expected, partially due to higher performance and commission-based compensation, which were up a combined $6 million from Q3 levels. Fourth quarter performance in noninterest income businesses and the 8% annualized loan growth in the quarter led to higher expenses and commissions and incentives.

Additionally, marketing and business development spending was up a combined $6 million for the quarter. Even with these higher fourth quarter expenses coming through, our efficiency ratio remained below 50% for the quarter and the year. As we've previously stated, our expectations for 2026 NIE are that we lean into our initiative to expand revenue producers which likely add approximately 1% to an inflationary type 3% NIE increase for an estimated 4% increase over 2025 NIE levels of $1.407 billion. Of course, this is subject to variability, as always, in certain performance compensation and loan origination expense offsets. NPAs declined slightly and credit costs remain low with a $6.6 million provision expense. Our 9 basis points of Q4 net charge-offs brought the full year number to 11 basis points. We believe our reserve levels are adequate, and future provision expense is likely to be primarily a function of loan growth and net charge-offs. As we see a slowing of the rotation from PCD to non-PCD and the resulted downward pressure on the ACL. This, of course, assumes no significant changes in expectations for economic and credit conditions.

John noted our capital return activity in the quarter with us repurchasing 2 million shares at an average price of [ $90.65. ] Combined with our dividend, our total payout ratio was just shy of 100% for the quarter. Even with the higher balance sheet growth and higher share repurchase activity, our capital ratio has remained very healthy. Our TCE ratio remained at 8.8%, and our CET1 ended the year at 11.4%.

Looking back at the year in terms of capital, we closed a sizable acquisition January 1. We increased our dividend 11% in July. We repurchased 2.4% of the company, and yet we still grew TBV per share by 10%. Looking ahead, we believe we have the ability to continue to fund our growth and grow our capital levels while also being active in share repurchases, particularly when we believe there will be an inherent disconnect between our fundamentals and the share price.

Operator, we'll now take questions.

[Operator Instructions] Our first question comes from John McDonald from Truist Securities.

I thought I would just ask Steve to give the thoughts on the net interest margin for the year, and how you're thinking about deposit costs and growing deposits to fund the loan growth you expect?

Sure. Thanks, John. Yes, really not a lot of change from last quarter's guidance. We -- as Will mentioned on the call, our NIM was right at [ 3.86%, which are right in line with our guidance of $3.80 to $3.90 and our deposit costs were down 9%. ] So as we think about the go-forward assumptions, it's really for things that interest-earning assets, rate forecast, our loan accretion and our deposit beta and really on our interest rating assets last quarter, we talked that 2026 would average somewhere in the $61 billion to $62 billion rate. We still reiterate that guidance. So no change there. We think that it will start off first quarter, somewhere in the $60 billion to $60.5 billion range as we had some seasonal municipal deposits in the fourth quarter that sort of roll over in the first quarter. The rate forecast three rate cuts, so there's really no change there. Loan accretion, we're forecasting $125 million for next year. So that's no change. And then the last is just our deposit beta. And last quarter, we talked about 27% being the number that we think to grow deposits to fund loans would be the right number. We still think that's the right number. So as we think about going into in 2026, we see there's always a little bit of a lag. But by the end of the first quarter, we should be in a good shape is that for the last three rate cuts and maybe average in the 1.75 rate for the first quarter for deposit costs. So based on all these assumptions, we would expect NIM to continue to be between [ $380 and $390 ] in 2026. We might see it start a little bit lower in the year coming out as we get the deposit up in and then higher in the years, hopefully, we get the deposit cost and growth in the back half.

Okay. And inside of that earning asset outlook, could you talk about your loan growth expectations. You ended the year with good momentum with the 8% you cited. How are you feeling about the loan growth outlook for this year?

Yes, it's John here. We communicated throughout the year that we saw the pipeline building to grow. Early in the spring last year was about a $3.4 billion pipeline. We ended the year at about a $5 billion pipeline. It's kind of leveled off at that level for the last few months. But that growth in pipeline led to production growth. So in the fourth quarter, production was up 16% versus the third quarter, a record for us at $3.9 billion, and that kind of gave us the mid-single-digit growth in the back half of the year that we guided to. Our guidance previously for 2026 was mid- to upper single-digit loan growth. We still think that, that is appropriate as we see these pipelines build at both.

Okay. And what would get you to the upper end, John, on growth?

One of the things that we're seeing in the pipeline, John, is some growth in investor commercial real estate, which really lagged last year. And we're seeing really nice pipeline builds in Texas and Colorado. And if that momentum continues, they had a pipeline of $800 million after the conversion in the summer now, it's up to $1.2 billion. So if they can keep that momentum, that would be the tailwind.

Our next question comes from Stephen Scouten from Piper Sandler.

So just curious on the hiring activity. Obviously, you had a pretty significant announcement back in third quarter and then the announcement this week. Do you guys think about, especially maybe within that expense guidance a number, a target that you hope to hit in terms of new hires? Or is it really just about being opportunistic across the platform and really just leaning into the opportunity set?

Yes. I mean it's a pretty historic time here with the amount of disruption that is going on in our markets. I think I communicated before, we've calculated in our MSAs that we operate in, there's $118 billion of bank deposits that are going to go through a conversion in the next year. So that's a lot of redo destruction that's going to go on. We run, Stephen, in the neighborhood of 550 to 600 commercial RMs, and I've told our team, if we increased that 10% or 15% in the next year or two, that would be perfectly fine to kind of build the base seeing this organic loan growth.

Okay. Great. And that growth of 10% to 15% is kind of contained within that expense guide already, those sort of roundabout expectations?

It its.

Great. And then I guess my follow-up question would be come around correspondent banking and the strength there. Do you think the strength we've seen, especially the last couple of quarters is is sustainable? Or is there anything more episodic that's led to the strength there?

Yes. Thank you, Stephen. Yes, it's been a really great back half of the year for the corresponding capital markets and really driven by two things. I mean, we've had change in rates. We had a 75 basis point decrease in the rate helpful for that business. The interest rate swaps were up $4 million quarter-over-quarter fixed income is up $1 million. So -- but I would say, as you kind of look at the actual quarter and then kind of look at maybe more of the movie, as we think about those businesses from quarter-to-quarter move up and down, I would look at that business kind of on the average of the year because typically, in the first quarter or two, it's not quite as robust unless there's huge interest rate changes and then towards the back half of the year, loan production picks up when we get more. So I would say, correspondent, what we're looking for next year is somewhere in the $25 million of the quarter, maybe start a little lower is a little higher, somewhere in the $100 million business, that probably makes sense based on what we know right now. And if you kind of just look at noninterest income in total, this quarter, we were at 63 basis points of assets, but if you look at the year, we started out much lower than that. We were -- for the year, we were 50 -- I think, 56 or 57 basis points of assets. So I would kind of look at that and kind of use that forecast somewhere in that 55 to 60 basis point range for next year on a growing asset base as we talked about. So I think the let's see how it goes. But I think looking at a full year picture, it's probably a better way to look at it, and let's see if the momentum continues.

Yes, that makes a lot of sense. And just when you guys talk about all the hiring activity, are some of those hires contained within that kind of correspondent banking division, any product expansions? Or is it mostly just more like commercial RMs?

The way that I'm talking about it is more the commercial space, Stephen. And -- but I would say that, obviously, we're opportunistic everywhere in all business lines. For instance, about a year ago, we hired a team that's really helped us in the past year on the SBA securitization business, and that's been a really great business and has really added to profitability. I think we hired that team in February of 2024. And that's really kind of come through. So there is always opportunity to the scoring we're doing. We're trying to build out different products in the Capital Markets pace. So we're leaning into foreign exchange more, and we've made some key hires there. So what John is talking about is generally General Bank, but we are opportunistic and very -- and from an expense standpoint, in the capital markets area, those are typically commission-based business, so it's really not an expense drag initially like there is in the commercial hiring side.

Our next question comes from Anthony Elian from JPMorgan.

This is Mike on for Tony. So I guess I'll start on expenses. You saw a little bit of an uptick in 4Q sequentially. Anything that we should back out to get a good run rate for 2026? And does expense growth of mid-single digits that you guys guided previously. Does that still feel appropriate for 2026?

Yes. Mike, hey, it's Will. Yes, Q4 was really a tally impacted by 3 things. One, performance. We had good performance in noninterest income businesses. We also had a pickup in loan growth, which feeds its way through and some of the incentive compensation for relationship managers. Secondly, there's always a bit of Q4 seasonality in an expense that can sometimes cause the fourth quarter numbers to pick up a little bit. We did experience that this year. And then thirdly, I'd say just the more -- the greater focus and lean into our growth initiative on hiring in some of the expenses you saw business development and advertise things like that move up a bit. So really a combination of those factors for Q4. My guidance that I gave in the prepared remarks does core all of those things. And I'd say, too, when you're in the hiring of relationship managers, you don't -- you can't always plan exactly when they become available because you want quality folks, you grab them when you can. And so you're playing out when you hope to hire them and when you think they might come in, but it's a case-by-case basis as to when they're actually brought on board.

Great. That makes sense. And then as a follow-up on the buyback, how quickly do you guys anticipate using that new authorization. I think you're at about 5.5 million shares now authorized. And is there a price sensitivity at a certain level? I guess any commentary on that would be great.

Sure, sure. Yes. I mean I think we would all acknowledge that capital return thoughts should be flexible and that depends upon a number of factories where is the share price relative to intrinsic value. Obviously, in the fourth quarter, we thought there was a pretty big disconnect what's the economic outlook, what's your growth look at line? And then, of course, earnings and capital ratios feed into as well. So it's really a quarter-by-quarter decision. You look at the fourth quarter, our total PAT ratio when you include dividends, and share repurchases was the 97% range. But we did see a big disconnect in our minds between the share price and the intrinsic value. But that's a higher then it's really sustainable long term for a growing company like ours. So it's unlikely we'd be that active going forward with that had ratio. But I'd say with all of those caveats, growth share price, economic outlook, the other factors that impact your appetite, you could see our total payout ratio of dividends plus repurchases somewhere in that 40% to 60% range. But of course, it could be higher, a little lower than that depending on the circumstance.

Next question comes from Cathlin Mealor from KBW.

I just wanted to do one follow-up on expenses. I know you said this in the beginning, well, but what was the base that was your growing expenses by a 4% level that was on operating expenses, right?

Yes, yes. I was using the Band-407 for 2025 growing that by 4% was our guidance.

Okay. Perfect. Just wanted to confirm that. Awesome. And then maybe one thing back to the margin. Can you talk a little bit about the deposit data commentary was great as good as it come down. Just on loan yields, maybe talk a little bit about loan pricing and where you're seeing that. And I feel like you still have a really big back book loan repricing stray from your fixed rate book. And Steve, you've given us some commentary in the past about kind of balance between mark loans repricing lower and then your fixed rate loans repricing higher. And so maybe just kind of update on that balance and what we should expect to see there would be helpful.

Sure. No, I'll just update you on the repricing schedule. So we -- in the legacy bank fixed rate loans, we have about $4.3 billion repricing in the next 12 months. And it's right around 5%. I think if you coupons 506, but somewhere in there. Last quarter, our new loan origination rate was 606. So that's, call it, a 1% higher, maybe something like that. So you've got a positive there. And then on the independent like the independent book, you have about $2 billion coming due over the next 4 quarters, and it will reprice down from about 7% in the quarter, which is the discount rate to around 6.25% because the inherent loan yields are higher out of Texas, Colorado. So there's a positive net if you look at that, that's roughly $2.3 billion at a 1% positive. We'll have to see where the yield curve ends up because depending on where the 5-year treasury is, that will determine what that repricing is if it gets deeper, it will be better. If it gets more flat, it will be worse. But what we saw last quarter was a total new loan production rate in 606 and in Texas and Colorado, the new loan production rate was [ 630. ]

Great. Great. So I mean, I will ask equal for an environment where the curve remains super -- let's just -- I know you get three cuts in your numbers. So let's just kind of take that out. If we're in a kind of a stable rate environment, there's enough momentum with the fixed rate repricing being higher than your independent repricing down where loan yields should continue to move higher as we move through the year?

Yes, I would say that, yes, the answer is, I think we have a sustainable that 380 to 390 range. And the way I would kind of characterize it on the NIM versus volume question is if we grow closer to 10% then probably the margin will come down a little bit because we have to fund it on an incremental dollars, but we'll have higher NII if we have lower growth, then it will be a little more margin than the lot less volume. So I think the range is about right and did it be driven by how fast.

Next question comes from Jared Shaw from Barclays.

This is John on for Jared. Maybe just thinking a little bigger picture about investments outside of hiring this year. Are there any projects planned on the tech side in like correspondent can you or anything else across the business that you're looking into?

Sure. Yes. Of course, every year, we go through a very intensive strategic planning process, and we have different investments that we're taking on this year. I think part of the investment relates to some commercial loan servicing platform that we are working on relocation business. And that's an important piece for us back off as perspective in order to grow in the front office middle market. We have investments in AI. We have investments in our FX platform. So all of those are included at Will's numbers, but there are -- definitely, we're always investing in the tech platform and the other platforms. But I'd say what's different this year and was part of Will's guidance is that we are very intentional about investing in revenue producers, and that's -- we've got a lot of the platforms already built. This is some finishing off the platforms, but it's really a focus on revenue for our subsidy.

Okay. Great. And then maybe on the deposit pricing side, starting the year at like [ 1.75. ] Is that to migrate lower throughout the year? And I guess, does the beta move lower as we get further cuts and you get to a lever in the work deposit area?

Yes, it's very similar to what we said last quarter. I think our view is the same. We're thinking that we start offering around the 27% range, which is what we were in 2018, '19 when we were growing at this pace. Yes, growth -- and let me say that there's always a little bit of a lag with that because of the CD pricing is just true for all of your banks. But hopefully, by March, early April, kind of get all that. If there's no more cuts, we get all that in there. And then hopefully, over time, we can move that over towards a 30% beta. But if we grow at the higher -- mid- to higher single digits, we're not sure about that. It could be 27%, it could be 28%, but that will be the difference. It will be about how fast we grow will determine how much data will get.

Okay. And then if I can just have one more. It looks like there was some increase in substance loans this quarter. Just any color on what drove that?

Yes. Overall, credit-wise, John, we had a decline and past dues a decline in NPAs and a decline in charge of all that stuff trended down. There was an increase in substandard. If you take out the FDA, 99% of the substandards occurrent, and the increase was due to a handful of multifamily properties that are leased up. The Credit team is not concerned about those. In fact, they've got a weighted average loan-to-value of 52%. So really tons of equity. It's just a timing issue of lease.

Our next question comes from Gary Tenner from D.A. Davidson.

Just wanted to ask a little bit about the loan production side. I know the $3.9 billion was a great number. Just curious if you could tell us how much was in Texas or if you want to combine Texas and Colorado and then what the comparative third quarter levels were the same market?

Yes. So in Texas and Colorado, their production was 888 -- fixed Colorado-combined $888 million. So that's 15% higher than the third quarter, which was $775 million. If you take those markets for the entire year of 2025 versus 2024, production is up 10%. So we're continuing to see the pipelines build. And our recruiting is Dan Stroll, who's our President out there who's been very successful of the 26 commercial RMs that we added in the fourth quarter, 17 of those were in Texas and Colorado. So those guys have kind of weathered through the conversion and have got a lot of momentum headed to 2026.

Appreciate that. And just within the same footprint, in terms of the type of production you're getting, is it -- does it remain real estate heavy and with the move to shift it towards more traditional C&I, or what's the kind of the mix that you're seeing there?

Yes. Historically, they've been a great CRE lender, and we wanted to continue to do exactly what they've been doing historically. But we see an opportunity with some of the tech platform, the treasury management platform, the capital market platform in SouthState is introducing to layer on top of their commercial real estate business with C&I bankers, and that's where a lot of Dan's recruiting activity is occurring. So we'll see that in time in 2026, but we don't want them to stop at what we're so good at and have been so good at.

Our next question comes from David Bishop from Hoffe Group.

And just in terms of the hiring efforts you mentioned there, you mentioned the disruption, I think over -- I think it was close to $120 billion in terms of bank deposits going through the conversions and such. As we look out into the year, you mentioned the '26 here. Are there -- the calling efforts do you have like a list of bankers, list of clients you're looking to target -- do we see something similar to that maybe in the latter half of the year in terms of lift-outs.

Yes. Richard Barry, President of our bank kind of leads that effort with the group presidents, and they've got a very formal pipeline process of on 40 new bankers just as we do with new clients. In the third quarter, there were bankers that were on our list that we were having conversations with in the fourth quarter grew 237. So it's -- and we're going to hire a small percentage of those, but those conversations are very, very active.

And We have no further questions. I would like to turn the call back over to John Corbett for closing remarks.

All right. Well, thank you again for joining us this morning on our call. Thank you for your interest in following our company. And if you have any follow-up questions about your models, don't hesitate to contact Will or Steve. Hope you have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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 2025 Earnings Conference Call. I would now like to turn the conference over to Will Matthews. You may begin.

Thank you. Good morning, and welcome to SouthState's Third Quarter 2025 Earnings Call. This is Will Matthews, and I'm here with John Corbett, Steve Young and Jeremy Lucas. 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.

Before we begin our remarks, I want to remind you that 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 that may affect us.

Now I'll turn the call over to you, John.

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, and the company generated a return on tangible equity of 20%. If you recall, we closed on the Independent financial transaction in January. 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, 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. And loan pipelines across the company continue to grow, and we feel like net loan growth will accelerate over the next few quarters. Our charge-offs were 27 basis points for the quarter, primarily due to one larger C&I credit acquired with Atlantic Capital that has been in the bank a number of years. Stepping back, however, the credit metrics in the bank are stable. Payment performance is good. Nonaccruals are down slightly, and we've only experienced 12 basis points of charge-offs year-to-date. Our credit team is forecasting that we're going to land in the neighborhood of 10 basis points of charge-offs for the year.

We're currently in the middle of strategic planning this time of the year and thinking about the banking landscape, deregulation and the opportunities in front of us. 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. 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 South State that are in the midst of consolidation in the Southeast, Texas and Colorado. Our regional presidents understand the opportunity, and they're laser-focused on recruiting great bankers and organically growing the bank in 2026.

Will, I'll turn it back to you to provide additional color on the numbers.

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. We had another good quarter with PPNR of $347 million and $2.58 in EPS, driven by $34 million in revenue growth and solid expense control. Our 4.06% 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 1.91% were up 7 basis points from the prior quarter and were in line with our expectations. 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. 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 4 basis points, all else equal. Our loan yields of 6.48% improved by 15 basis points from Q2 and were approximately 8 basis points below our new origination rate for the second quarter. And loan yields, excluding all accretion, were up 1 basis point from Q2. Steve will give updated margin guidance in our Q&A.

Noninterest income of $99 million was up $12 million, driven by performance in our correspondent Capital Markets division and deposit fees. On the expense side, NIE 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 9-month year-to-date ratio to 48.7%. Credit costs remained low with a $5 million provision expense. As John noted, though, we did experience one $21 million loan charge-off during the quarter, which is an abnormally large charge-off for us. This brings our year-to-date net charge-offs to 12 basis points. Absent that loss, net charge-offs would have been 9 basis points for the quarter.

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. As you'll recall, we closed the Independent Financial acquisition on January 1 of this year. Our TBV per share of $54.48 is now more than $3 above the year-end 2024 level, 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.

Operator, we'll now take questions.

[Operator Instructions] Your first question comes from the line of Michael Rose with Raymond James.

I guess I'll hit the margin question since you brought it up, Will. Steve, can you kind of walk us through the excess accretion this quarter? It looks like the core margin ex accretion was down kind of high single-digit basis points. Can you just give some puts and takes here as we think about the contemplation of a couple of rate cuts this quarter near term? 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 core versus the reported margin as we move forward.

Sure. Michael, yes, just 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. As you mentioned, we had higher accretion than we expected. And really, a couple of things around that. We saw the highest accretion in July and then August and September, it kind of tailed off a little bit and really due to some early payoffs of 2020 and 2021 vintage loans that had kind of 3 handle coupons with these big discounts that sold. So those are not economic decisions, but there -- I mean, there are economic decisions in the fact that they sold, but typically, you keep those coupons.

Also, we had a 29% decline in PCD loans this quarter. And of course, those have larger marks. So anyway, all of that, we look at prepayments are really not outside of our scope of what we thought. It's just that some of the vintages were different than we thought and therefore, had bigger discounts. So having said all that, as we think about the guidance for NIM going forward, really not a lot of change, a little bit of change, but not a lot. We talk about the size, the assumptions of the interest-earning asset size. The second is our interest rate forecast. The third is loan accretion and the fourth is deposit beta in an environment where rates are going down.

Interest-earning assets, we've been saying $59 billion for quarter 4 average. That's no change. For full year 2026, we're looking somewhere between $61 billion and $62 billion. So that's kind of a mid-single-digit growth. Rate forecast, last quarter, we had no rate cuts in our model. This quarter, we're thinking we get 3 rate cuts in '25 and quarterly rate cuts, 3 more in 2026, so that we would get 150 basis point cut in total and get the Fed funds at 3% by the end of '26. That seems to be somewhere where the market is. As it relates to the third assumption, loan accretion, based on our models, we expect loan accretion this quarter for the fourth quarter to be somewhere in the $40 million to $50 million as expected prepayments fall. Our October accretion so far is in line with these expectations. And as I mentioned, August and September came down pretty ratably. So I think -- I think that's a good run rate to use.

For 2026, we did certainly pull some forward in 2025. So we expect instead of $150 million of accretion, we're looking at about $125 million based on our prepayment forecast. But of course, it can be lumpy based on these vintage loans. The last part is deposit beta. For the first 100 basis points of cuts, our deposit costs came down about 38 basis points from 2.29% to 1.91%, so 38% beta. In our 2019 to 2020 easing cycle, our deposit beta was around 27%. So our expectation is with the growth plans that our deposit beta would look a little similarly to 2019, 2020 to 27%. Maybe we get to 30% over time with a lag, but I don't think it will be as high as 38%.

So based on all those assumptions, we'd expect NIM to continue to be in the [ 3 80 ] to [ 3 90 ] range with the step down in accretion this quarter in fourth quarter and for 2026 for to be in that range, [ 3 80 ] to [ 3 90 ] as we kind of move forward. But one of the questions you asked was our pricing dynamics. Our new loan production rate for the total company this quarter was [ 6 56 ]. If you look at Texas and Colorado, that new loan rate was [ 6 79 ]. So it's a little bit higher in Texas and Colorado, but it's in total, it [ 6 56 ]. So I know you have a few questions, a few puts and takes, but that's some guidance for you.

No, that's really helpful, Steve. I appreciate it. And then maybe just a broader one for John. I think you mentioned that loan production was up a little bit in the third quarter. I think there's clearly going to be some dislocation in some of your markets from some of the deals that have been announced. 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 loan growth environment at this point, given the fact that I think a lot of banks are kind of upping the hiring plans for loan officers, the pricing dynamics and kind of maybe what we should expect as we move forward?

Yes. Sure, Michael. We kind of guided to mid-single-digit growth for the remainder of 2025. I think we came in at 3.4% for the quarter, so a little bit less than mid-single, but we still think mid-single-digit growth for the remainder of the year feels about right. As I said, we had about $100 million more in paydowns in the third quarter than we did in the second. If we move into 2026, it could move higher, maybe in the mid- to upper single digits, but we have a better feel for that in January. But most of the loan growth is coming in the area of C&I. For the quarter, we had 9% linked quarter annualized growth in C&I. Resi growth was about 6%. And then if you combine C&D and CRE, really, we were flat for the quarter. There was a migration of construction loans that just migrated into CRE upon completion of construction.

Our biggest pipeline build is in Texas. We had an $800 million pipeline there in the second quarter -- in the second quarter. 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. Florida has got a $1 billion pipeline. Atlanta has got a $900 million pipeline. So those are our 3 probably largest markets. And as I said on the call, with that dislocation in really all the states we're in, we are kind of leaning in on the hiring front, and we see opportunities to recruit bankers. Yesterday morning, I was interviewing one from another bank. So that is where a lot of our focus and effort is right now.

Your next question comes from the line of Jared Shaw with Barclays.

Maybe just if we could hit on credit. You were listed as a creditor to First Brands. I'm guessing that's what the large charge was. Was there -- for that charge, was there a prior -- it looks like there was a prior reserve. Was there also a prior charge taken against that? And I guess, how do you feel about the rest of the portfolio apart from that?

Yes, you're correct. That's what that charge was. There was not a prior reserve. I mean that news happened pretty fast. But that was our only supply chain finance credit. So as we examine the portfolio, we don't have any more of that type of lending. So unfortunate, we're going to use it as a learning lesson for our credit team and management associates.

And I'd say, Jerry, on the reserve question, based on what John just said, we would have had a reserve release, but for that charge-off in the quarter, i.e., a negative provision just based on the underlying economic loss drivers. And just to be clear, we did charge off the full amount of that balance in the third quarter.

Okay. All right. And then I guess looking at capital, you just gave some great color on sort of really good growth opportunities over the coming years, but still seeing growth in capital and like you said, Will, just that improving backdrop on credit. Where do you feel like you would like to see CET1 optimally? And how should we think about the buyback and capital management in general from here?

Yes, Jared, it's a good question. We're obviously 11.5% on CET1, about 10.8% if you were to incorporate AOCI. So very healthy capital ratio. Not to say we don't articulate a particular target out there, but we do like this 11% to 12% range we're in. And we do like the optionality we've got with the ratios being strong and with the formation rate being so good. So we are hopeful, as John said, to take advantage of some of the disruption in the market through growth, but we also have the ability to use some of that capital to repurchase our shares. It's sort of a quarter-to-quarter decision we'll be making.

Your next question comes from the line of Catherine Mealor with KBW.

Just one follow-up back on the margin. It was helpful to have your guidance for next quarter. And is it fair to assume that -- 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 us to kind of model what a normal kind of base level would be for accretion going forward versus how much is accelerated from paydowns?

Yes, Kevin, there's a couple of things that I don't want to overcomplicate your answer, but it's complicated. There's a few things that go into it. One is full payoffs. We talked about and there's partial prepayments. 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. 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. What we saw in end of August, September is much more run rate type of thing. So I think this [ 40 ] to [ 50 ], that's kind of what we expected in the fourth quarter, the back half of the year. That's sort of what we're -- that's what we're seeing. So that sort of informs us going into 2026.

Okay. Got it. That's helpful. And then any outlook into how you're thinking about fees moving into the fourth quarter and then into next year, it was really nice to see another quarter of higher correspondent and service charges.

Sure. No, it was a really good quarter. Noninterest income was $99 million versus $87 million, so it's nice to pick up 50 basis points on average assets, a little bit higher than our guide of around [ 50 ], [ 55 ]. 2/3 of that was capital markets. A couple of things happened in correspondent. Number one, we have changes in interest rates. And so when you have changes in interest rates, that business typically does a little bit better. It was sort of broad-based. A couple of million dollars was due to fixed income, maybe $3 million, $4 million with higher interest rate swaps, another $1.5 million in sort of other trading. So I think we had -- I don't see that -- that number was around $25 million. So that's a $100 million run rate. So to put it in context, our best year ever was $110 million in revenue. Last year was $70 million. So this quarter was a really good quarter. So I don't expect that to -- we'll see to continue to repeat. But clearly, we had a good quarter we'll see with the run rate. I think we get a couple of quarters behind us, we'll have a better view. But clearly, it's higher than our run rate of $87 million. I'm not sure we're as high as $99 million. So I'd say it's probably as we kind of think about 2026, somewhere in that $370 million, $380 million run rate, that's probably not a bad place to start, and then we'll just see how it progresses is the way I would think about it.

Your next question comes from the line of Janet Lee with TD Cowen.

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. Is there any change in thoughts on that? Or was that guidance? Or what was that guidance based on the core NIM? Or was that including any accretion?

No. Great question, and thanks for asking it. A couple of things there. So if we get back to 6 cuts and we get 1 to 2, that would be, call it, let's just take the midpoint, that would be 9 basis points. So I think our core NIM is somewhat -- as I think about core NIM somewhere in the [ mid-30s ]. So what's changed there? Number one is the loan accretion forecast. So if we -- next year, we are $125 million versus $150 million just because we pulled forward that that's about 4 basis points of decrease. And then the other is just on the deposit beta and the lag there of kind of where -- like I mentioned in our other question, our deposit beta so far to the first [ 100 ] was 38%. But on the other hand, we didn't grow deposits more than, call it, 2%, 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 our deposit beta was more like 27%. So we're taking that model back down to [ 27 ]. We hope to outperform that, call it, there's a lag to CDs and pricing and all that. But by the beginning of [ 27 ], our hope would be we'd be in that 30% range. 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.

So Steve, when you translate what you're saying there, to Janet's question about 1 to 2 basis points with each cut may take that away if the deposit beta is not as good in a way down.

Right. And yes, to finish that thought to your point, John, to finish that thought, if our deposit beta -- so we're guiding sort of in the midrange of [ 380 ] to [ 390 ]. 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 ], that would get us in the high [ 380 ], maybe [ 390 ] at the end of the year of 2026. That's how we're thinking about modeling it.

Got it. And just a follow-up. If I -- I'm not making this of, hopefully, I believe that the IBTX bankers that group will start adopting South State's business model and in a way, what would be the implication on -- or any implication on the expenses or their incentive to bringing like prioritized lower deposit cost or loans? Or is there any sort of change that could be coming or whether an implication on growth profile there? Could you explain -- could you give us any color on what that could mean for South State, that transition?

Yes, sure. Janet, it's John. So we went through this transition year in '25 when we did the conversion, and we kind of kept the incentive system at IBTX the same as it had been in prior years. In 2026, it will move to the more of the South State approach where we allocate P&Ls to the regional presidents. So their incentive will be based on both loan growth but predominantly on their PPNR growth. One of the things that we're contemplating, making an adjustment for to incent additional recruiting and hiring is not to penalize those regional presidents for the first year compensation of new hires to encourage recruiting efforts into 2026, both with the existing South State plant and the IBTX plan. A good question. Hope that helps you.

Is there another question?

Yes, one moment please. Mr. McDonald, your line is open.

Sorry, I didn't hear anything. Sorry, just one more follow-up, Steve, on the margin. I think your prior outlook was to be in the [ 380 ], [ 390 ] and then drift higher in 2026. Just want to make sure that the '26 outlook [ 380 ], [ 390 ] includes the rate cuts and about $125 million of accretion, if I heard that right. Anything has changed from prior? What are some of the puts and takes?

Yes. No, I think I was trying to answer that in the prior question. It's really the accretion number that from $150 million, it was what we thought in 2026 last quarter to $125 million. That's about 4 basis points. decrease. And then the rate and then on the deposit beta, we have 38%, 2019 was 27% million we were thinking -- we think ultimately, we'll get to somewhere in the low 30s but it just is probably a bit of a lag. So it's probably not going to -- we're going to be very diligent on growing the loan growth we think is coming. And so we think we should, in 2026, model more in the 27% range. And then hopefully, as the CD3 price, all those kind of things through 2027. We could see an uptick. So I think back to the guidepost to how this would work is you start out in the mid-380s and then move higher into 2020 -- the end of '26, early '27.

And John, this is Will. I would add our margin position is as neutral as we've seen it in years, just based upon the actions we took in 2025, the number one, the merger and marketing that balance sheet properly. And then two, the portfolio restructuring we did in connection with the sale leaseback. So we have a relatively stable looking margin under most reasonable scenarios.

Got it. And the delta between having a 4 handle this quarter and move into 380s next quarter is really accretion going from this quarter and cutting half to [ 40 ] next quarter in your outlook?

Yes, that's -- yes. And that's what we're currently seeing. Yes.

Okay. And then one just follow-up again on the next quarter's average earning assets in the [ 59 ]. It seems like that's kind of where you were this quarter. Are there some kind of puts and takes of what you expect in terms of growth in the fourth quarter?

Yes. Typically, in the fourth quarter, we had some seasonal deposit growth and some of -- depending on how we manage it, we get some of the seasonal wholesale stuff out of the bank at the same time. So we sort of manage it towards that level. But kind of year-over-year, I'd call it mid-single-digit growth is kind of how we're thinking about it from an average earning asset.

Your next question comes from the line of Ben Gerlinger with Citi.

I was wondering if we -- kind of stepping back to correspondent banking, I understand that a rate card or rate movement kind of sparks it. But we're looking kind of -- I don't know 3 -- you said roughly 3 to 6 cuts over the next 12-ish months. How long is the tail for that kind of tailwind, I guess, you could say. So there's 2 cuts in December -- or excuse me, 2 cuts in the fourth quarter, would the first quarter also see a benefit? Or is it fairly short-lived?

Yes. I tried to explain before, as you kind of think about that business that put the highs and lows of it, back in 2020 when things went crazy on rates. I think our best year was $110 million. I think we did that in 2020, 2021. And last year was our worst when rates were the highest and sort of out there. So that was about $70 million. As I kind of think about that business, you're going to have fixed income, we'll do better in rate cuts lower because, particularly for our bank clients, they'll want to take their excess cash and buy bonds because there'll be a yield curve on the interest rate swap side depending on the shape of the yield curve, it may not be as good as it is today. 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 trading stability at that level.

Got you. Okay. That's helpful. And then from a follow-up perspective, it seems like you have a lot of opportunity in front of you. I think that's -- that would be hard to disagree, especially with the 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, obviously, in growing loans? Or could you potentially see a small bolt-on deal or something like that?

Yes, Ben, it's John. With our particular fact pattern, kind of our view is to invest in South States more interesting right now than doing an M&A deal. And that investment in South State comes in 2 forms. The first way is just to increase our sales force and accelerate our organic growth because of all this dislocation that's going on in the markets. The second way as Will described, is in purchasing South State shares through our buyback of position. The capital formation rate is pretty strong right now and the valuation is pretty attractive. So that's kind of how we're thinking about priorities on capital.

Your next question comes from the line of Gary Tenner with D.A. Davidson.

I just wanted to go back to the NIM-related discussion for it. The big delta as I look at the average balance sheet was really the cost on the transaction and money market accounts, up 11 basis points quarter-over-quarter. Can you kind of talk about the dynamics around that? Is it an effort to bring in some new deposits with the anticipation of stronger growth over the next year? Or just maybe comment on kind of the driver there?

Yes. Back in July, when we had the call, Gary, we've talked about the -- our expectation of deposit costs. And we talked about the range this next quarter for the third quarter is [ 185 ] to [ 190 ]. So we were -- it was [ 191 ], so we were on the higher end of the range, a basis point. But really what drove that was in our expectation was that particularly in the CD book, we -- if you look at the second quarter to the third quarter -- or excuse me, the first quarter, second quarter, our CDs went from, I don't know, 7.1 or 7.2 or something to 7.7, I think. And that was back to funding and loan growth and get the balance sheet where it needed to be. And so those obviously transacted at a higher rate level than others. So as we kind of think about -- that's kind of what's part of our guidance. It's frankly, a tough environment right now with deposits, but we expect that as we get rate cuts and the curve gets a little bit more steady, we could continue to see better. That's why it's a little bit why we're guiding down on the guiding on the 27% deposit beta because ultimately, we need to fund the loan growth that we think is in front of us.

Great. And then as a follow-up on that beta since you just mentioned as well, to be clear that 27% to 30% beta is most to the next phase of easing as opposed to cumulative, including last year's?

Right, that's right. That's a great way to say it. Yes. So you're right. If we had to average them, it'd probably be somewhere in the, whatever, low to mid-30s, but yes, that's right. It's the next incremental. Yes.

Okay. Great. And if I could sneak in a last question. Just on the NIE, I think you had guided previously to a bit of a step down in the fourth quarter, I think, to the [ 340 ], [ 350 ] range. Any change to that outlook for the fourth quarter?

Yes, Gary, I think our guidance for Q4 is still in that [ 345 ] to [ 350 ] range. There's always some variability that's hard to predict with respect to how some of the commission compensation businesses perform loan origination volume could impact your FAS 91 cost deferral. But similar in that roughly $350 million range. We're pretty clean now in terms of recognizing the cost saves on independent. 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 July 1, but yes, things were flat. So we've done a good job of getting costs out, getting them out pretty early. Looking ahead to '26, we haven't talked about that, but I must will address that. Our planning is obviously still underway. We still think for '26 that [indiscernible] is a good guy. Maybe it's an inflationary sort of 3% plus another 1% or so for some of the investments in organic growth initiatives like John addressed. So maybe that's what '26 will look like. We're still, as I said, finalizing our planning there, but that's kind of what we're thinking right now.

Your next question comes from the line of Gary Tenner. Davidson.

That was Gary we just spoke with.

That concludes the Q&A session. I will now turn the call back over to John Corbett for closing remarks.

Sorry. Thank you, Bella. Thank you all for 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. Have a great day. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you for joining, and you may now disconnect. Everyone, have a great day.