SouthState Bank Corporation earnings calls

Why correspondent fees fell

Q (John McDonald · Truist): He asked what caused correspondent capital markets income to fall this quarter and whether the firm can return to the prior $25 million guide. He also asked how fixed income versus interest rate swap businesses contributed and about expense growth guidance.

A: Management said correspondent income was lower because of a sharp rate shock this quarter, and they expect levels to move back toward $25 million once rates settle. They noted a handoff from the swap business to the fixed income business as the curve steepened. On expenses, they said hiring costs have been higher but productive and they expect expense growth in the 3.5% to 4% range next year.

"As you mentioned, you look on page 12, corresponding income this quarter was $20.1 million, $24.8 million in our $25 million guide." — Stephen Dean Young

Will new hires boost loan growth?

Q (Jared David Shaw · Barclays Capital): He asked whether the recent relationship manager hiring should accelerate loan growth next year and whether loan production could pick up. He also asked about client sentiment among commercial borrowers.

A: Management said third-quarter loan production was strong, with nearly $5 billion of production and that a decent amount of the increase is attributable to new hires. They said C&I activity remains strong (up 13% year over year) while CRE is a bit weaker, the pipeline pulled back when rates rose, and they expect full-year loan growth to finish in the high single digits with guidance for next year in the mid to high single digit range.

"that is up 45% from a year ago, and a decent amount of that is attributable to these new hires that we have joined our team." — John C. Corbett

NIM durability and deposit strategy

Q (Will): He asked whether the bank can keep protecting NIM while still showing high single-digit loan growth in a higher-for-longer rate environment. He also asked how they achieved low deposit costs while growing deposits 9%.

A: They said NIM was stable at 3.78% while interest earning assets grew 1.11, and based on their models they expect NIM to be between 3.75% and 3.85% through 2027. On deposits, they said the strategy is a continuation of prior work with stronger treasury management wins (about $700 million in new accounts) and modest tweaks to internal incentives; new customer money came in at around 2.95% when CDs are included. John also noted they adjusted intercompany crediting to emphasize deposits.

"Based on all those assumptions, we expect NIM to be between 3.75% and 3.85%, and this range is 5 basis points higher than last quarter." — Stephen Dean Young

Buybacks and capital rules effect

Q (Michael Rose · Raymond James): He asked about the thought process on buybacks given recent activity and what the tailoring rules could do for CET1. He also asked how expense growth should toggle with fee income.

A: They said the long-term total payout ratio target remains 40% to 60%, but given recent activity they expect to be at the lower end of that range in 2027 and will keep CET1 appetite around 11% to 12% today. They said tailoring, if finalized, would improve CET1 by roughly 85 basis points but they are not changing capital risk appetite now. On fees and expenses, they noted fee income this quarter was $94 million (54 basis points of assets) and that near-term fee levels may be on the lower end of their 55 to 60 basis point guide while total revenue and PPNR growth remain intact.

"So we have been more active you know, over the past year. I would say we still think that 40% to 60% makes sense for a company that is a growth company and growth markets like ours." — William E. Matthews (CFO)

Where new deposits come from

Q (Janet Lee · TD Cowen): She asked where the new deposits are coming from and how the bank is bringing them in at relatively low cost. She also asked about M&A priority and any spread compression in lending categories.

A: They said new non-CD customer money (DDAs, money markets, savings) came in around 2.30% this quarter, and including CDs moved new customer money to about 2.95%; adding wholesale would push it toward 3.30% to 3.40%. On capital uses, they reiterated priorities: grow the dividend with earnings, organic balance sheet growth, share repurchases, and then M&A as the lowest priority. On spread compression, they said rapid yield curve moves can compress spreads on committed loans, but if the curve stabilizes spreads should remain attractive in their markets.

"But if you add the CDs, which is a real part of what we are doing, as you know, that moves new customer money up in the 2.95% range for the quarter." — Stephen Dean Young

Deposit beta and variation margin

Q (Gary Tenner · D.A. Davidson): He asked whether the franchise mix implies different deposit betas going forward and how to think about correspondent variation margin on a net basis.

A: They said the different legacy franchises are included in their guide: South State legacy had around 30% up beta and Texas/Colorado mid fifties, combining to about 40% on the existing book, and using a 50% beta over a couple rate hikes gets modeled to deposit costs around the low 2s. On variation margin, they said it tracks the 10 year treasury and Fed funds; given recent moves they expect a negative variation margin this quarter in the $5.5 million range and maybe negative $6.5 million to $7 million for 4Q if rates follow their view.

"I would think it is probably if things kind of go as we think for 4 q, maybe it is in the $6.5 million to $7 million range, somewhere in there." — Stephen Dean Young

New correspondent products and capital plans

Q (Anthony Elian · JPMorgan): He asked when new correspondent products (that could lift fee income) will roll out and whether that could push correspondent income from $25 million to $30 million. He also asked what drives the expectation for a lower 2027 payout ratio.

A: They said they are rolling out a commodities platform (test trades now) on a real basis in the first quarter and an FX platform that may delay to about April 1, with both products together possibly adding $10 million to $15 million on a full run-rate basis in year one. On capital, they said tailoring is not part of the current equation, CET1 appetite remains 11% to 12%, CET1 is just shy of 11.15% this quarter, and they expect to invest more capital into growth while repurchases remain on the list.

"And those were doing some test trades on commodities now, and we see that to be rolled out probably on a real basis in the first quarter." — Stephen Dean Young

CRE stress and loan/deposit target

Q (David Chiaverini · Jefferies): He asked whether higher 5 year rates raise the risk of CRE borrower stress at upcoming resets and whether the bank still targets no higher than about 92% loan-to-deposit.

A: They said they are not seeing material stress now: classified and criticized assets are improving, charge-offs show no material change, and many CRE loans have weighted average loan-to-value around 55%, providing margin in deals. They reiterated a target loan-to-deposit around 90%, allowing a quarter or two to be a bit higher but not much above 92% in any quarter.

"And the weighted average loan-to-value is around 55%." — John C. Corbett

Deposit spot rate and correspondent changes

Q (Timur Braziler · UBS): He asked for the end-of-quarter spot deposit rate and why correspondent levels differ from the prior hiking cycle. He also asked where recent hires are coming from.

A: They said they do not disclose the exact spot rate, but it was not dramatic and deposit cost was only up 4 basis points in the quarter. On correspondent, they said 2024 had a liquidity-driven increase in swap and fixed-income activity and a larger rate shock then; today clients are investing in 3- and 4-year duration paper at roughly 5.5% to 6%, which changes volume and mix. On hiring, they said recruits come from regional and money center banks, with strong growth in Texas (salesforce up 22%), North Carolina (up 19%), and Atlanta (up 16%), and overall salesforce up 13%.

"People look at this opportunity and they see, you know, 3 and 4 year duration paper in the 5.5 sometimes as high as the 6% range." — Stephen Dean Young

Will new deposit all-in rate rise?

Q (Christopher Marinac · Janney Montgomery Scott): He asked whether the near 3% all-in rate for new deposits will rise further next quarter or can be managed at about the same level.

A: They said they expect the all-in new deposit rate to come up somewhat as market rates climbed, and their modeling supports the beta assumptions used in guidance. They noted they already factored the September rate hike into fourth-quarter guidance, but it is a bit early to predict the exact next-quarter level; success on growing treasury management balances also affects new-money pricing.