SouthState Bank Corporation

Question and answer session. If you would like to ask a question during this time, simply press the star key, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Will Matthews, Chief Financial Officer. Please go ahead.

Good morning, and welcome to South State's third quarter 2023 earnings call. This is Will Matthews. I'm here with John Corbett, Steve Young, and Jeremy Lucas. John and I will make some brief prepared remarks, and then we'll open it up for questions. As always, a copy of our earnings release and presentation slides are on our investor relations website. Before we begin our remarks, I want to remind you 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 John Corbett, our CEO.

Thank you, Will. Good morning, everybody. Thanks for joining us. In the earnings release last night, you can see that South State delivered a solid quarter that was right in line with our previous guidance. Will can cover the details, but high level, we continue to see steady growth in loans and customer deposits, liquidity is stable, capital ratios are growing, deposit funding is best in class, and our net interest margin is settling in at a pretty good spot. One of the core values that we continually preach to our team is to keep our eye on the long-term horizon. So we spent a lot of time talking about the big picture, talking about the economic cycle and where we have risks and where we have advantages. The stages of a banking cycle are simple and predictable. The cycle risks move from liquidity, then to earnings, then to credit, and then finally to capital. But while the stages are easy to predict, Predicting the speed and the severity of the cycle, that's the tough part. Since March, we've clearly moved through the first phase, the liquidity tightening phase, as deposits left the banking system for money market funds. Now, the predictable and necessary response is that the industry trades away future earnings power as deposit costs rise. Now, for South State, our granular deposit base has served as a ballast for our franchise, and we've been able to continue to grow our deposits with a cumulative deposit beta of only 27% and a total cost of deposits of 1.44% for the quarter. Over on the asset side, we're also about to benefit from a tail end of loan repricing. 70% of our loans are based on a fixed or adjustable rate, so we're going to see a significant portion of our loan portfolio repriced by more than 300 basis points as they renew, and that should help offset any additional drift in deposit costs. It feels like the velocity of change for deposits is moderating, and we're now shifting to the credit risk portion of the cycle. In the last year, we've set aside $151 million in reserves, with only $18 million in charge-offs. And as a result, we've built our reserves up by 28 basis points to 1.59%. Now if the cycle is more severe than many are predicting, those reserves plus our excess capital will allow South State to be opportunistic on the back side of the cycle, where the opportunities to create shareholder value are the greatest. So we're cautious now. The lag effects of the rapid rise in rates are only just beginning to work their way through the system. But at the same time, we're excited. We think that there is a tremendous opportunity on the horizon for a bank of our size and our geography and with our deposit franchise. So I want to close by thanking our team for keeping their eye on the long-term horizon and building a franchise that can weather the storm and come out stronger on the other side. I'll pass it back to Will now to provide some color on the quarter.