SouthState Bank Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
July 24, 2026

Key Takeaways

  • Positive Sentiment: SouthState reported another strong quarter with ROA of 1.36% and ROTCE of 17.6%, supported by solid balance sheet growth, stable margins, improving efficiency, and strong credit quality.
  • Positive Sentiment: Loan and deposit growth remained healthy, with loans up 8% and deposits up 5% over the last year; management said loan growth could stay in the mid- to upper-single-digit range and remains broad-based across markets.
  • Positive Sentiment: Credit metrics improved further, as non-performing assets fell 14% and net charge-offs stayed exceptionally low at 6 bps, reinforcing management’s view that underwriting remains disciplined.
  • Neutral Sentiment: Net interest margin guidance was maintained at 3.75%-3.80%, with management expecting only modest deposit-cost increases and saying the company is asset-sensitive if rates move higher.
  • Positive Sentiment: Capital returns remain a priority, with nearly 5% of shares repurchased over the last year, a dividend increase, and CET1 still above 11%; management expects to keep returning capital within a 40%-60% long-term payout framework.
AI Generated. May Contain Errors.
Earnings Conference Call
SouthState Bank Q2 2026
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Hello, everyone. Thank you for joining us, and welcome to the SouthState Bank Corporation second quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference call over to Will Matthews, Chief Financial Officer. Mr. Matthews, please go ahead.

Will Matthews
Senior EVP and CFO at SouthState Bank

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. 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.

John Corbett
John Corbett
CEO at SouthState Bank

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 four 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.

John Corbett
John Corbett
CEO at SouthState Bank

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 three 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.

John Corbett
John Corbett
CEO at SouthState Bank

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 three objectives simultaneously: soundness, profitability, and growth. We don't optimize for one 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.

John Corbett
John Corbett
CEO at SouthState Bank

Asset quality improved during the quarter, with non-performing assets declining 14% and net charge-offs remaining exceptionally low at just six 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. 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.

John Corbett
John Corbett
CEO at SouthState Bank

We expect to continue returning capital in a disciplined manner, likely at a pace more consistent with our previously communicated, the 40%-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.

John Corbett
John Corbett
CEO at SouthState Bank

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.

Will Matthews
Senior EVP and CFO at SouthState Bank

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

Will Matthews
Senior EVP and CFO at SouthState Bank

Additionally, I'll point out that our Q2 2026 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. In 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 31st levels. They remain well above other recent quarters.

Will Matthews
Senior EVP and CFO at SouthState Bank

Non-interest income of $97 million or 57 basis points of average assets was within our guidance range of 55 basis points-60 basis points and $3 million below Q1's levels, as higher deposit fees were offset by lower mortgage revenue. Non-interest 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.

Will Matthews
Senior EVP and CFO at SouthState Bank

This quarter's six basis points makes eight out of the last nine 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 non-performing 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%-60% range, as John stated.

Will Matthews
Senior EVP and CFO at SouthState Bank

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 will now take questions.

Operator

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the roster. Your first question comes from Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.

Stephen Scouten
Stephen Scouten
Analyst at Piper Sandler

Yeah, good morning. Thank you. 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 are seeing on deposit costs specifically within that dynamic.

Stephen Young
Chief Strategy Officer at SouthState Bank

Sure. Good morning, Stephen. This is Steve. Yeah. Just a reminder, net interest margin this quarter was 3.78% versus our guide last quarter of 3.75%, 3.80%, kind of right in line. Last quarter, we grew $900 million of interest-earning assets with only one basis point of contraction. I think that was a real win going forward. Deposit costs were flat at 1.76% and within that our guidance. Really, as we think about going forward, really nothing has changed in our guidance. Our guidance going forward is stable and we are going to continue to grow. The format we usually use around interest-earning assets is the same as last quarter. We see the growth that John talked about continuing on in that mid to upper single digit range.

Stephen Young
Chief Strategy Officer at SouthState Bank

We have no rate cuts nor rate hikes in our forecast. We sort of see a stable NIM. We have some dynamics that are working there. Some of it is the repricing of our existing book that is for loans and securities, then on the new production rates. 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%-3.80% range.

Stephen Scouten
Stephen Scouten
Analyst at Piper Sandler

Okay. Helpful. I know you guys talked about this ongoing conversation industry wide and internally, the push-pull between growth and NII and NIM. 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?

John Corbett
John Corbett
CEO at SouthState Bank

Yeah, that's exactly right, Stephen. We set out a plan for this year that we're going to expand the team. 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. They got a nice big $1.5 billion Pipeline coming behind that. We've got lots of opportunities to grow. Every day when we make loan decisions, we're doing it based upon risk-adjusted return on capital. We see opportunities continue to grow, and we'll make those trade-offs that make sense to us from a capital management standpoint.

Stephen Scouten
Stephen Scouten
Analyst at Piper Sandler

Got it. Then just last for me, from a deposit growth standpoint, 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 the deposit growth would more closely match loan growth in the back half of the year? Just how do you think about the pressure on deposit costs as you manage that balance?

Stephen Young
Chief Strategy Officer at SouthState Bank

Sure. Yeah. That's right. Obviously, there's seasonality that goes on in our book. Typically second quarter because of tax payments, third quarter is just the rest of the public fund stuff kind of comes out before it starts moving back up. Underlying all those trends, there's a lot of good deposit activity going on. From our perspective, as we think about that mid-to-upper single-digit loan growth, yeah, 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 digits over the next quarter or so, then kind of move up towards the upper-single digits probably in the last part of the year based on the seasonality.

Stephen Scouten
Stephen Scouten
Analyst at Piper Sandler

Okay, great. Thanks for all the color. Appreciate it, guys. Congrats on a great quarter.

John Corbett
John Corbett
CEO at SouthState Bank

Thank you, Stephen.

Operator

Your next question comes from the line of John McDonald with Truist Securities. Your line is open. Please go ahead.

John McDonald
John McDonald
Analyst at Truist Securities

Good morning. Thanks. I was hoping to follow up on the last question around deposits. Inside of that outlook for the back half of the year, Steve, what do you see in terms of deposit mix, in terms of non-interest-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. Just a little bit of color maybe what happened this quarter on that mix and what you see for the back half. Thanks.

Stephen Young
Chief Strategy Officer at SouthState Bank

Sure, John. Yeah. As you mentioned, this quarter we had 5% average deposit growth quarter-over-quarter. That's sort of how we get paid as we all know. We also had 5% non-interest-bearing deposit growth quarter-over-quarter. From time to time, there's seasonality things that happen on the last day of quarter or whatever. We don't see that as a trend in a negative way. I just think that's a particular day. As we think about deposit mix, clearly 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.

Stephen Young
Chief Strategy Officer at SouthState Bank

It's really just about if we grow in that kind of mid-single-digit range over the next quarter or two, we should be able to keep those pretty contained. That's all part of our guide and margin coming forward. I think non-interest-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. Our year-to-date balances annualized have grown 8%. Underneath all the things that you all don't get to see, there's a lot of good growth going on in those areas.

John McDonald
John McDonald
Analyst at Truist Securities

Great. Maybe you 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, whether new markets, legacy markets. Any color on that would be helpful.

John Corbett
John Corbett
CEO at SouthState Bank

John, we've guided this year to mid-to-high single digits, 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. 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'd think, the greatest contributors are the states where we have the largest presence, which is Florida, Texas, and South Carolina from a dollar standpoint. From a percentage standpoint, Atlanta saw really nice growth in C&I in the second quarter. So did Virginia and so did Alabama.

John Corbett
John Corbett
CEO at SouthState Bank

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. That's kind of the underlying mix shift that we see in our pipelines.

John McDonald
John McDonald
Analyst at Truist Securities

Great. Thank you.

Operator

Your next question comes from the line of Hannah Nguyen with Keefe, Bruyette & Woods. Your line is open. Please go ahead.

Hannah Nguyen
Hannah Nguyen
Analyst at Keefe, Bruyette & Woods

Hi, good morning. Stepping in for Catherine Mealor. I wanted to start off on expenses. Your expenses came in strong this quarter. 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.

Will Matthews
Senior EVP and CFO at SouthState Bank

Yeah, Hannah, good morning. It's Will. Yeah, you're right. We have, as John said, had success in recruiting folks, 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 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 is then amortized over the life of that loan. As production picks up, that offset to comp expense increases.

Will Matthews
Senior EVP and CFO at SouthState Bank

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. We also have these folks that we've hired throughout the first and second quarter that'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. That's an inflationary number there for the comp expense. 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 it, I think, in the mid 4.60%, mid 4.65% range. We still feel good with that guide.

Will Matthews
Senior EVP and CFO at SouthState Bank

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, and the loan production numbers that can cause it to vary a little bit. That's sort of how we think about it.

Hannah Nguyen
Hannah Nguyen
Analyst at Keefe, Bruyette & Woods

Great. Thank you. My other question is on, I know you mentioned in your opening remarks keeping capital return in the 40%-60% range. 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.

Will Matthews
Senior EVP and CFO at SouthState Bank

Yeah, that's a good question. I'm going to stick with our 40%-60% guide. We have to make decisions as we surf by the environment from 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. The last three quarters, the trailing nine months, payout ratio is much higher. That's not sustainable if we want to maintain CET1 in an 11%-12% range and still expect mid to high single-digit loan growth. Other than that's about as specific as we can get.

Hannah Nguyen
Hannah Nguyen
Analyst at Keefe, Bruyette & Woods

Okay, great. Sounds good. Thank you so much.

Operator

Your next question comes from Michael Rose with Raymond James. Your line is open. Please go ahead.

Michael Rose
Michael Rose
Analyst at Raymond James

Hey, good morning, guys. Thanks for taking my questions. Maybe just on the loan pipeline and growth in generation. Can you just talk about how some of the newer bankers that you've hired Over the past year or two have performed versus expectations. Just trying to get a sense of the momentum levels and how that translates or compares to what's going on in your legacy markets versus the expansionary markets. Thanks.

John Corbett
John Corbett
CEO at SouthState Bank

Yeah. Michael, I go back to the goal to 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%-20% and be opportunistic over the next couple of years. We're up now over 10% in just three quarters. As I think I mentioned earlier, we're tracking the loan production and pipelines of those specific hires. In three 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.

John Corbett
John Corbett
CEO at SouthState Bank

As we work through the next few quarters, we look for the Southeast to continue to pick up on the hiring front. To be able to produce $600 million for that new team, I feel like they've hit the ground running.

Michael Rose
Michael Rose
Analyst at Raymond James

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

Stephen Young
Chief Strategy Officer at SouthState Bank

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

John Corbett
John Corbett
CEO at SouthState Bank

Cash is not a component of that decision-making process.

Stephen Young
Chief Strategy Officer at SouthState Bank

No.

Michael Rose
Michael Rose
Analyst at Raymond James

All right. I'll step back. Thanks, guys.

Operator

Your next question comes from the line of Janet Lee with TD Cowen. Your line is open. Please go ahead.

Janet Lee
Janet Lee
Analyst at TD Cowen

Good morning.

Stephen Young
Chief Strategy Officer at SouthState Bank

Morning.

Janet Lee
Janet Lee
Analyst at TD Cowen

So good to see your deposit costing relatively stable. 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? Just want to clarify your comments there.

Stephen Young
Chief Strategy Officer at SouthState Bank

Sure. Yeah. No, this is Steve. Yeah, 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. 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. As you look at what happened this past quarter, we also have repricing of the old book. Yeah, I would expect it to move up a little bit. 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 NIMs.

Janet Lee
Janet Lee
Analyst at TD Cowen

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

Stephen Young
Chief Strategy Officer at SouthState Bank

Yeah, no, it's a really good question. If you think about it really depends upon the curve. The way we 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. 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. We still continue to get the asset repricing, which is very beneficial. At the same time, we get a better curve. If it's the way I would characterize it, we're pretty stable around whether rates go up or rates go down. If there's a bear flattener, it's probably pretty much a wash.

Stephen Young
Chief Strategy Officer at SouthState Bank

If it's a shock up, that would be positive to the NIM.

Janet Lee
Janet Lee
Analyst at TD Cowen

Thank you. 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 a good growth rate for fee income in 2026 and perhaps beyond 2026?

Stephen Young
Chief Strategy Officer at SouthState Bank

Sure. Yeah. On page 12, we have a summary of our non-interest income over the last four quarters. 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 basis points-60 basis points. If you look at it a year ago, second quarter a year ago, we're up 11%. A lot of that is because of the correspondent revenue. On the right-hand side of that page, you'll see that that gross revenue has increased about $5 million. How we look at it, really nothing's changed on that guidance. 55 basis points-60 basis points is the right number. As we grow assets

Stephen Young
Chief Strategy Officer at SouthState Bank

We're trying to continue to, there's going to be continued growth, from a percentage perspective, I'd see us somewhere in the middle of that range. No change there.

Janet Lee
Janet Lee
Analyst at TD Cowen

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

Stephen Young
Chief Strategy Officer at SouthState Bank

Yeah, that's right. We kind of guided to $25 million gross a quarter. Last quarter was $24.4 million. This quarter is $24.8 million. Obviously, things change in that business relative to the curve. 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. Right now, we have a pretty good run rate going on and feel pretty good about that.

Janet Lee
Janet Lee
Analyst at TD Cowen

Got it. Thank you.

Operator

Your next question comes from Gary Tenner with D.A. Davidson. Your line is open. Please go ahead.

Gary Tenner
Gary Tenner
Analyst at D.A. Davidson

Thanks. Good morning. 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 to construction that are going to continue to fund up and drive net growth there for the next several quarters?

John Corbett
John Corbett
CEO at SouthState Bank

Yeah, Gary. If you step back and look at the big picture, that construction category is down about 10% from this time last year. 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. 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. We're going to see more of that in the second half, but we see a pickup in the C&I areas. The C&I areas, a number of these are seasonal kind of pay downs, number one, that we've seen in the last couple quarters. One is the energy book.

John Corbett
John Corbett
CEO at SouthState Bank

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. 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. Really, one goes up if the other goes down. 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.

Gary Tenner
Gary Tenner
Analyst at D.A. Davidson

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

Will Matthews
Senior EVP and CFO at SouthState Bank

Sure, Gary. It's Will. I'd 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 prepaid models show a slowing down there, and that impacts reserve holds up a little bit. Overall, some downward pressure. Our provisioning really 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 three scenarios and weight them.

Will Matthews
Senior EVP and CFO at SouthState Bank

The baseline the S1, which is more optimistic, and the S3, which is more pessimistic. Our traditional weighting is 40%, 30%. 40 baseline, 30% for each of those two. 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%. 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%. 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.

Will Matthews
Senior EVP and CFO at SouthState Bank

Anyway, that's again, absent a big change in the economic forecast, we think we're still in a slight downward pressure from here.

Gary Tenner
Gary Tenner
Analyst at D.A. Davidson

Thanks. Appreciate it.

Operator

Your next question comes from the line of Anthony Elian with JPMorgan. Your line is open. Please go ahead.

Anthony Elian
Anthony Elian
Analyst at JPMorgan

Hi, everyone. 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 the dynamic you're seeing?

Stephen Young
Chief Strategy Officer at SouthState Bank

Yeah, sure, Anthony. Yeah, this is Steve. Actually, yeah, just to give you an update on some of those stats.

Stephen Young
Chief Strategy Officer at SouthState Bank

Our new money market rates referenced last quarter. This quarter, we raised a little over $470 million out of $268 million. I think last quarter the average was $268 million. I think about roughly a little bit lower of a number. That trends toward the end of the quarter sort of died down and sort of where we are now is at $268 million. We also had about $1.1 billion in new and renewed CDs last quarter on the retail side. The average rate it renewed at was at 3.52%, and from the first quarter last, it was at 3.69%. 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. That's kind of how that's played out.

Anthony Elian
Anthony Elian
Analyst at JPMorgan

Okay. 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 a timing of when you could see a lift? I think you've guided to $25 million per quarter. Thank you.

Stephen Young
Chief Strategy Officer at SouthState Bank

Sure. Yeah, that's a good point. Yeah, there's a few things that we have been working on and are continuing to work on that we just have got an update on. One is relative to commodity hedging, which is an extension of our energy business that we already do. 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. I think right now there's not going to be any significant change to our guidance this year.

Stephen Young
Chief Strategy Officer at SouthState Bank

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.

Anthony Elian
Anthony Elian
Analyst at JPMorgan

Thank you.

Operator

Your next question comes from the line of Ben Gerlinger with Citigroup. Your line is open. Please go ahead.

Ben Gerlinger
Ben Gerlinger
Analyst at Citi

Hi. I know you guys have had really good loan growth production and from the hirings and also just legacy team members as well. I was just kind of curious, have payouts slowed more than what you were anticipating just largely from the merger or in Texas? Just trying to think about 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 has that emptying part trended relative to past expectations?

John Corbett
John Corbett
CEO at SouthState Bank

The Texas Colorado franchise went through the conversion a year ago. Naturally, they're inwardly focused and distracted. 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 these 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.

Ben Gerlinger
Ben Gerlinger
Analyst at Citi

Got it. Okay. That's helpful. 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 if that grows, should we expect a higher pace of expenses, albeit equal?

Stephen Young
Chief Strategy Officer at SouthState Bank

This is Steve. 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. Some of our other products, it's closer to 40% or 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.

John Corbett
John Corbett
CEO at SouthState Bank

As you know, Ben, it's not a capital intensive business, a higher efficiency ratio in that business still makes it very attractive.

Ben Gerlinger
Ben Gerlinger
Analyst at Citi

Right. Yeah. No issues there. I just wanted to double-check considering your initiatives are 2027 growth. I just wanted to make sure I had it squared away, but I appreciate the time. Thank you, guys.

Stephen Young
Chief Strategy Officer at SouthState Bank

Thank you.

Operator

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

David Chiaverini
David Chiaverini
Analyst at Jefferies

Hi. Thanks for taking the questions. I have a follow-up on NIM. 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%-3.80%, it implies the core NIM should show a nice increase. Can you talk about the drivers behind that core NIM expansion?

Stephen Young
Chief Strategy Officer at SouthState Bank

Sure. Yeah, no, happy to. 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. The staff 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 give it four or five 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.

Stephen Young
Chief Strategy Officer at SouthState Bank

Also we have about $1 billion of securities that'll come cashflow back to us that will give us about a 1%, of course, depending on the curve. Those things are going to create as we run off, when I run off, when the legacy Independent loans pay off as they should, particularly the vintage in 2021 and 2022 that were five-year loans, and they roll off at coupons that are 3% and 4% and we reprice them in the 6%, that's going to shift that bucket from less accretion and more core as we reprice those loans.

David Chiaverini
David Chiaverini
Analyst at Jefferies

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

Stephen Young
Chief Strategy Officer at SouthState Bank

Yeah. That's right. Part of it has to do with the floating fixed rate mix, I think Will mentioned it 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. This quarter, our loan production was 76% floating, 24% fixed. If you look at the overall loan portfolio now, we've made a lot of progress on that front. That last year, in June 30th of last year, 32% of our loans were in the floating rate bucket. Now we've improved that to 38%.

Stephen Young
Chief Strategy Officer at SouthState Bank

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. I think that's an appropriate way to think about it.

David Chiaverini
David Chiaverini
Analyst at Jefferies

Very helpful. Thank you.

Operator

Your next question comes from the line of David Bishop with Hovde Group. Your line is open. Please go ahead.

David Bishop
David Bishop
Analyst at Hovde Group

Good morning. Following up the comments in the preamble about some of the strongest growth, I think you mentioned Virginia, Alabama. As I 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.

John Corbett
John Corbett
CEO at SouthState Bank

We love the markets we're in. We really just want depth and density in those markets. 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 two or three years ago and have had a lot of success there. Really no new markets on the horizon. We really just want depth and density. We did expand to Nashville in a loan production office, I guess it's been about a 1.5 year ago with Cameron Wells, and he's doing a great job. No expansion markets on the horizon right now.

David Bishop
David Bishop
Analyst at Hovde Group

Got it. Appreciate the call.

Operator

Your next question comes from the line of Samuel Varga with UBS. Your line is open. Please go ahead.

Samuel Varga
Samuel Varga
Analyst at UBS

Hey, good morning. Just wanted to go back to the balance sheet discussion a little bit 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. In case loan growth outpaces deposits, where can that loan to deposit ratio go? What sort of governor do you have on that?

Stephen Young
Chief Strategy Officer at SouthState Bank

We've typically been pretty conservative on that loan to deposit ratio. Typically, the way we think about it is at the beginning of a cycle, you typically start that loan to deposit ratio at a little less so-called, I think in the mid-70s or so, 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. That's all part of the guide. If you think about our interest earning assets, we're going to fund the loans portfolio with the deposit portfolio.

Stephen Young
Chief Strategy Officer at SouthState Bank

As John talked about the new bankers, some of this is as we continue to put new bankers on the ground, as they bring on their new customers, over time, it'll continue to grow that deposit book as we continue to mature those things. I would just look at it in terms of the same guide on our interest earning assets. That's how we're going to fund the loan growth.

Samuel Varga
Samuel Varga
Analyst at UBS

Great. Thanks, Jesse. Then just on the competitive landscape, we've touched a bunch on this the last couple of quarters on 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?

Stephen Young
Chief Strategy Officer at SouthState Bank

I think it's similar to what it's been. 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. I think it's probably more so on the deposit side is where we feel a little bit more of the pressure, that's probably just market to those markets.

Samuel Varga
Samuel Varga
Analyst at UBS

Great. Thanks for taking my questions.

Operator

We have reached the end of the question-and-answer session. I will now turn the call back over to John Corbett for closing remarks.

John Corbett
John Corbett
CEO at SouthState Bank

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

Operator

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

Executives
    • Will Matthews
      Senior EVP and CFO
    • John Corbett
      John Corbett
      CEO
    • Stephen Young
      Chief Strategy Officer
Analysts
Powered by Quartr