SouthState Bank Corporation 2026 Q3 Earnings Call

Good morning, and welcome to SouthState's third quarter 2026 earnings call. This is Will Matthews, and I'm here with John Corbett, Steve Young, and Jeremy Lucas. We'll follow our typical pattern of brief remarks followed by Q&A. I'll refer you to the earnings release and investor presentation under the investor relations tab of our website. Before we begin our remarks, I want to remind you that the comments we make may include forward-looking statements within the meaning of the federal securities laws and regulations. Any such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in the press release and presentation for more information about our forward-looking statements and risks and uncertainties which may affect us. Now I'll turn the call over to you, John.

Good morning, everyone. Thank you for joining us. SouthState delivered another quarter of healthy growth, strong profitability, and stable credit. There's an ongoing debate about the trade-offs between growing the balance sheet versus protecting the margin. I'm pleased to report that in the third quarter, SouthState did both. Loans grew 9% annualized with growth broad-based across our footprint and led by C&I up 12%. The Southeast and Texas are among the most vibrant markets in the country, and we're benefiting from strong underlying market growth. As planned, we've grown our commercial relationship bankers by 10% over the last year. These bankers have already originated about $1 billion in new loans and have a healthy pipeline. Deposits also grew 9% and without sacrificing margin, which held flat with the second quarter at 3.78%.

That net interest margin stability reflects a deliberate shift over the last couple of years towards more floating-rate loans. When we announced the Independent Financial deal in 2024, the percentage of floating-rate loans in the combined portfolio was only 28%. Today, we've moved the floating-rate loan percentage up to 39% of the portfolio. Recently, about 55%-60% of new loans are being originated with a floating rate. This strategy will help provide net interest margin stability, assuming the Fed continues its rate hiking path. Credit continues to remain solid with net charge-offs of only nine basis points. Capital markets activity, however, pulled back as treasury rates moved higher during the quarter. Steve will give you an update on that business going forward. We continue to see SouthState shares as a compelling value, and we're going to stay opportunistic with buybacks, as we were this quarter.

Over the last year, we've repurchased roughly 5% of our shares outstanding. Before I turn it back to Will, I want to thank our bankers for focusing on the fundamentals, growing loans, growing core relationship deposits, deepening client relationships, and staying disciplined on credit.

Will? Thanks, John. Our net interest margin of 378 basis points continued to be in line with our 375 basis points to 380 basis points guidance and was flat with Q2.

Our cost of deposits increased by 4 basis points to 180 basis points, reflecting the quarter's rate hike. Loan yields of 592 basis points were up 1 basis point with accretion of $27 million, down $6 million. Accretion income exceeded CDI amortization expense by $6 million in the quarter, further narrowing the gap between the two purchase accounting items. This is illustrated on the NIM slide in our deck. Excluding accretion, loan yields were up 7 basis points, and NIM was up 4 basis points to 361 basis points.

Additionally, I only reference this because we've gotten so many questions about accretion income over the last couple of years, I'll point out that our third quarter PPNR per share, excluding all accretion income and CDI amortization expense, was up 10.5% versus the third quarter of 2025. The 9 months year-to-date comparison of the same metric versus 2025 was up 13.9% to $9.10 for the first three quarters of 2026. Net interest income of $592 million was up $16 million from Q1. The impact of the extra day in the quarter was approximately equal to the decline in the accretion income versus Q2. As John noted, we had another good quarter for growth, both in loans and deposits, each up 9% annualized. Noninterest income of $94 million was down $3 million from Q2 due to a decline in our capital markets businesses.

NIE of $375 million was $17 million above Q2's levels, primarily due to employee compensation expense. Some factors in that increase include, one, higher incentive accruals, including for growth and production. Two, higher salaries with a July 1 merit increase date for much of the employee base. And three, lower deferred loan costs in the quarter. I'll note that our revenue producer hiring initiative has been very successful with the addition of some great talent and some great wins in terms of production. The total cost of this group of employees, including not just compensation, but also recruiting and business development expenses, is approximately $15 million year to date.

Looking to the fourth quarter, with qualifiers around variable expenses that are hard to predict, such as commissions, deferred loan costs, et cetera, we expect Q4 NIE to approximate or perhaps be slightly above Q3 levels, bringing the full year NIE pretty close to the level we got it to at the beginning of the year. Recall that we got it to 2026 NIE growth of approximately 4% over 2025 levels, with approximately 100 basis points of that increase due to our revenue producer hiring initiative. We've enjoyed more recruiting success than we expected, so that component will be higher than the 1% impact, but we should basically be in line with the approximate 4% increase guidance we gave for the year.

Looking ahead to 2027, we're still early in our budgeting process and these thoughts could change, but we'd estimate an increase to NIE in the 3.5%-4% range at this stage. As always, our commission-based businesses and our recruiting success could cause their increase to be slightly higher. We'll refine our modeling through the fourth quarter and provide further 2027 expense guidance in the January earnings call. The third quarter's nine basis points of net charge-offs makes nine out of the last 10 quarters at a level below 10 basis points. Our provision expense of $20 million was primarily driven by the quarter's loan growth. Asset quality trends remain stable to improving, and we continue to feel good about our credit quality. Turning to capital, we repurchased 250,000 shares in the quarter for a 40% total payout ratio, including dividends.

This brings our year-to-date total to 2.75 million shares repurchased for a 67% total payout ratio year to date, and a trailing 12 months total payout ratio of 75%, both of which are slightly above our longer-term guidance of 40%-60% for a total payout ratio. Capital levels remain very healthy. CET1 ended at 11.1%. TCE of 8.4% and TBV per share of $58.19 were both reduced slightly by the impact of the move in treasury yields on AOCI. Operator, we'll now take questions.