South State [SSB] Conference call transcript for 2023 q3
2023-10-27 15:45:11
Fiscal: 2023 q3
Operator: 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 Corporation Q3 2023 Earnings Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Will Matthews, Chief Financial Officer. Please go ahead.
William Matthews: Good morning, and welcome to SouthState'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 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 will turn the call over to John Corbett, our CEO.
John Corbett: Thank you, Will. Good morning everybody. Thanks for joining us. In the earnings release last night, you can see that SouthState 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 SouthState, 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% at a total cost of deposits of 1.44% for the quarter. Over on the asset side, we're also about to benefit from a tailwind of loan repricing; 70% of our loans are based on a fixed or adjustable-rates. 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 deposit is moderating and we're now shifting to the credit risk portion of the cycle. In the last year, we set aside $151 million of 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%. That the cycle is more severe than many are predicting, those reserves plus our excess capital will allow SouthState 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 in 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 of 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.
William Matthews: Thank you, John. We had another solid quarter with deposit costs, margin and noninterest income ending up in-line with our expectations, solid PPNR and good credit costs outside of the one sizable charge-off that impacted us and some of our peers. I'll touch on a few details before we move on to Q&A. On the balance sheet, our 6% annualized loan growth moderated from the first-half of the year in-line with our expectations. Deposits grew at a 2% annualized rate or 4% if you exclude the approximately $130 million in brokered CD maturities, we allowed to run-off without replacing. Though we continue to see a mixed shift in our deposits from DDA into money market accounts, the pace of the DDA shift moderated a bit this quarter. DDAs represent 30% of total deposits at quarter-end, down from 31% last quarter. And as we mentioned previously, this figure was 28% to 29% before the pandemic. So, it continues to appear as if we're moving towards those pre pandemic levels for DDA as a percentage of deposits. Turning to the income statement, our 3.50% NIM was down 12 basis points from Q2. Loan yields were up 14 basis points, but deposits were up 33 basis points, which was in-line with our 30-basis point to 35-basis point guidance bringing our cycle to date deposit beta to 27%. Our net interest income of $355 million was down $7 million from Q2 on one more day. Noninterest income of $73 million was down $4 million from Q2, though still a solid quarter. Correspondent revenue was $13 million after $12 million in interest expense on swap collateral for $25 million in gross revenue, down approximately $3 million from Q2. Wealth had another solid quarter, but mortgage revenue of $2.5 million was down $1.9 million from Q2. We had another good quarter in deposit fees similar to Q2. Expenses came in a bit lower-than-expected this quarter largely due to a revaluation of SERP retirement plan liabilities due to higher interest rates reducing NIE by $5.9 million. We also made a $1 million donation during the quarter for which we received a dollar-for-dollar tax credit. So, NIE was higher by $1 million in the quarter and income tax was lower by the same amount. Excluding that, NIE was in-line with our expectations. Looking ahead, we expect NIE for Q4 in the mid-240s range subject to the normal variations in expense categories impacted by noninterest income and performance. With respect to credit, we recognized the $13 million in net charge-offs in the quarter, bringing our year-to-date total to $17.5 million or 8 basis points annualized year-to-date. The one sizable [indiscernible] loan charge-offs that received a lot of attention earlier in the quarter accounted for all of the loan net charge-offs as we experienced net loan recoveries before overdraft losses absent that credit both for the quarter and year-to-date. We continue to build loan loss reserves with a $33 million provision, bringing the total reserve to 159 basis points of loans. For overall asset quality trends, NPAs were down slightly. Past dues were flat. Substandard loans increased and special mentioned loans declined. Line utilization continues to be flat, except on construction loans as we are not originating many new construction loans and existing projects moved towards completion. We continue to have very strong capital ratios with CE Tier-1 of 11.5%, were 9.25% if AOCI were included in the calculation. TCE ended the quarter at 7.5%. With loan growth expectations continuing to moderate, risk-weighted asset growth should be in a range that allows us to continue to grow our regulatory capital ratios and provide us with flexibility. Operator, we'll now take questions.
Operator: Thank you. [Operator Instructions] We'll go first to Stephen Scouten at Piper Sandler.
Stephen Scouten: Hi, good morning, everyone. I was curious if you could talk a little bit about what you're expecting on the NIM side moving forward in deposit trends from a cost perspective. Obviously it's catching-up a little bit, but still extremely, extremely strong. So just kind of wondering what you're expecting in the months ahead?
Steven Young: Sure, Stephen, this is Steve. We, as Page 12 shows kind of a summary of our NIM over the last four quarters and you can see it 3.5% this past quarter, which was within our guidance and our deposit costs were up 33 basis points this past quarter, which was in that 30 basis points to 35 basis points guidance. So, we've so far sort of been where we thought we were. As we look-forward, our guidance really is around three things; interest earning assets, the rate forecast and deposit beta and really our interest-earning assets are, well, pretty flat, I would expect going into the fourth quarter. As we think about Moody's consensus forecast, the only change, it really forecasts no new rate hikes, but then has four cuts starting in the late second quarter and for the Fed funds rate to end at 4.5% at the end of 2024. And so with all that, our deposit beta, the third component Page 18 shows our cycle to date deposit beta is 27%, we continue to expect the high-20s total beta by the end-of-the year. So, with that, we would expect deposit costs to increase 15 basis points to 20 basis points in the fourth quarter. And so with all of that kind of all those assumptions baked together, we'd expect NIM to bottom in the fourth quarter somewhere in the 5 basis points lower, maybe, maybe around 3%, 3.45% to 3.50%, somewhere in there. So that's sort of what we're looking for in the fourth quarter. As we look into 2024 on based on the Moody's forecast and our growth assumptions, we would expect our interest-earning assets averaged $41 billion and that our NIM would stabilize in the 3.50% to 3.60% range, which is really no change to our guidance. If I take a step back and thinking about 2023 versus 2024, it's been such a volatile year relative to rates in NIMs and deposit betas and so on, but it looks like our NIM for the full year 2023 will be in the low 3.60% if -- and 2024 it is in the mid 3.50%. And we'll just have a little bit more growth offset it. So, anyway those are kind of the ways we're thinking about NIM one quarter out and sort of how we're thinking about it for next year with these assumptions.
Stephen Scouten: Yes, that's helpful. And, and the stability that's created there, and I know John, John spoke to this a little bit, is that, lot of that come in from the asset side re-pricing on that 70% of loans and have you guys given any detail around the pace of those re-pricings and kind of when we can kind of ratably see that benefit?
John Corbett: Sure. I think the last quarter we talked about on the call, but it's roughly about $1 billion a quarter in loan re-pricings. So, whether that $4 billion a year and, and that step-up is around 300 basis points or so. And then of course, we have some securities come in -- coming in. That's probably $700 million, $800 million but we will likely use that to fund loan growth. So maybe that helps you kind of just frame-up, it's about $1 billion a quarter over the next I don't know five, six quarters and it's roughly a 300-basis point to pick up, the yields are somewhere in the 4.25% to 4.5% range.
William Matthews: And that's the adjustable and fixed repricings.
Stephen Scouten: Right, yes, understood. Okay, great and then, I guess, lastly from me, any sort of, as you think about that Moody's expectation, we start thinking about the presumably some rate cuts any kind of higher arching balance sheet strategies to protect the NIM when rates presumably do go down and anything around a potential bond restructuring. I think the ACLs maybe near $816 million year-to-date. So I'm just kind of wondering with the capital build, is that something you guys are thinking more about?
Steven Young: What maybe I will just, NIM strategy is maybe, Will or John can address capital and bond restructure. As we think about the NIM moving forward, we had an investor recently asked us, if Fed funds went down to 3%, what was your -- what was your NIM back when fed funds was 3%, and we did some, we barely remember, but we looked back at it and it was in the 3.75% to 4% range. So, it's just we're waiting for the re-pricing strategy of all these fixed-rate type loans if, if our deposit paying in and so as we think about -- we'll do things around the margin around hedging and those kinds of things, that won't be a huge strategy for us, but I think the opportunity will be, as rates, if rates do fall. If we have four rate cuts next year, money markets and those types of things on the incremental margin would fall a little bit and then our fixed-rate re-pricings of our loans would continue to continue to reprice up and so as we think about the modeling and as we think about NIM, that's why we are sort of guiding in that range, but why don't I turn it over to Will and just maybe talk about bond restructuring capital.
William Matthews: Yes, yes, Stephen, good morning. I'd say we, we have flexibility, which we like. We've got a strong capital position, we got a strong reserve, we've got a good capital formation rate and so it gives us a lot of things to think about with respect to, to capital deployment. I mean at current prices, our stock is pretty attractive. So certainly repurchases of some, some degree is on the table. Additionally, with bond portfolio restructure while we're not likely to engage in a wholesale kitchen sink type thing there is certainly the ability to nibble around the edges. So, we continue to think about all of those options as well as some of the growth opportunities afforded us by terminal markets and the good, good economy, in which we operate. So, we, we like that flexibility.
Stephen Scouten: Fantastic. Thanks for all the color. I appreciate the time.
Steven Young: Thanks, Steve.
Operator: We'll take our next question from Catherine Mealor at KBW.
Catherine Mealor: Thanks, good morning.
William Matthews: Good morning.
Catherine Mealor: With a few couple of smaller M&A transactions in the Southeast over the past few months, just curious your updated thoughts on, on M&A and how you're thinking about how you're positioned there into next year?
John Corbett: Catherine, it's John, good morning.
Catherine Mealor: Hi, good morning.
John Corbett: I'm really -- no change from our prior guidance. We've seen a couple of these deals happen, but it's still really-really challenging to get the math to work with the AOCI and the regulatory delay risks. So, our assumption is that, that things are going to pick-up probably the back-half of 2024 as we get closer to the election and there is more certainty in the economy. Clearly the, the logic is there for M&A given the revenue pressures in the industry and we're just going to stay out on the street visiting peer banks that possibly could be partners in the future, but it's challenging in the short-run.
Catherine Mealor: And then just the big picture, earnings question, as we think about next year, as you look at, we've got a little bit, it was called stabilization in the margin after we kind of come off fourth quarter, it seems like you still expect for there to be a little bit of balance sheet growth, but as you look at revenue growth as compared to expense growth, how do you think those two marry each other in 2024? Do you think this is a year where you can still create positive operating leverage or do you see this as a year where we'll really kind of fee revenue and expense growth kind of be at the same pace or maybe even a little bit more expense growth relative to revenue, just curious how you're thinking about that into next year?
Steven Young: Catherine, this is Steve, if you can tell us what the yield curve would look like, that helps. I'm not sure that we got that, but I do think in the, in the immediate environment, our -- as we think about, we talked about NIM, if we talk about fee income that's going to be a bit more challenging I think in the, in the next quarter or so, just with the 10-year treasury rising up one of the businesses that were added, the correspondent division and we see with the ten-year rising, some of the swap opportunities probably aren't there, at least in this quarter and it bounces around from time-to-time and, and so on, so I, I'd imagine that won't eventually come up, but our range of, of non-interest income to assets I think this, if you look-back at this quarter, we guided to 55 basis points to 65 basis points. This quarter we were at 64 basis points, so I would call it at the high-end. If I look forward into the next quarter, I would think we'd be closer to the lower-end of that and then as we think about kind of a full-year picture of noninterest income, I would expect, I think we've been guiding that 55 basis points to 65 basis points range. We'll probably end-up in the low 60s as a basis points to average assets and as we think about 2024, I would expect we would probably start a little lower and then end higher as the -- if the Moody's consensus is right and the 10-year treasury goes back towards 4%, we'll start seeing more capital market activity. So, kind of the way I think about it probably won't be a lot of growth in the, in the noninterest income year-over-year assuming this Moody's rate forecast and I would expect that based on the NIM forecast, we just kind of went through, dollar growth is probably not going to be less, plus the revenue picture, as I just talked to the expense picture.
John Corbett: Yes, and so obviously with that revenue picture, our, our goal for next year is to be very controlled in our expense growth, and we're still deep in the planning and budgeting processes, as most people are at this point. At this stage, they don't have any, any precise guidance to give, but we would hope and expect to be in the low-to-mid single-digit range on expense growth and try to control as tightly as we can.
Catherine Mealor: All right. Thank you. Appreciate it.
John Corbett: All right. Thanks, Catherine.
Operator: We'll go next to Michael Rose at Raymond James.
Michael Rose: Hi, good morning guys, thanks for taking my questions. Just wanted to follow up on that last point on expenses, you guys are in a pretty enviable, enviable position from a fundamental standpoint. You guys have been very conservative, built reserves. I think that's really well taken from my vantage point, you got capital growing, I mean, why not be more aggressive on the expense side now, while revenues are under pressure. So you better position yourself, you just talked about john at the outset for what will be brighter days at some point, I know there's a lot of dislocations in the market, I assume there's a lot of good lenders out there that you guys can go after. Why not actually be more aggressive here on the hiring and organic growth front while you have many competitors that are capital and liquidity constraint? Thanks.
John Corbett: Yes, okay. I heard you say to be aggressive on the expense, but I wasn't sure whether you were cutting expenses or adding expenses, Michael, but I think you're saying be opportunistic, is what you're saying.
Michael Rose: Correct, yes, yes, yes.
John Corbett: Yes, and, and we would agree with that and I would tell you that really we're, we're opportunistic all the time. We, we never stop recruiting and building the bench strength. I think about our management associate program we've had going for years where we bring in 35 college interns every summer, we convert 15 to 20 into management associates every year to build that bench strength on the credit team and on the lending team. We're always out recruiting. Last night, my wife and I had dinner with a prospect -- a veteran prospect banker and so, we're out talking to folks all the time and so we're not going to put a number out there on the expense growth side that would keep us from being opportunistic, if that helps.
Michael Rose: All right guys, now makes, makes complete sense. Just, just a few smaller ones. I noticed that the FHLB was essentially paid down, looks like brokered deposits came down a little bit, what other, I assume brokered deposits will come down as you grow core deposits. What's kind of a right level to think about that and is there any other tools or actions you can take on the liability side to kind of contain the creep in interest-bearing liability costs? Thanks.
Steven Young: Yes, Michael, it is Steve. You'll remember, in March when we had sort of the banking turmoil, we, we went ahead and, and did a brokered CD offering. I think it was $1.2 billion or so and then we also borrowed $900 million of Federal Home Loan Bank and that was just sort of an abundance of caution with all the turmoil going on and what you've seen over the last couple of quarters is; one, we paid-off the $900 million of Federal Home Loan Bank as worries have died down and then the brokered CDs are starting to roll-off. So, we typically right now I think our brokered CD is at around 3% of our deposits, give or take. I could see that coming down a little bit but it, I wouldn't be at an abnormal level for us to be around 3% brokered deposits, it could go lower, but it wouldn't be an unusual event for us to stay, hang out in that general range.
John Corbett: And I would say, and echoing comments that I think some of our peers have made in their calls, we're seeing the -- while there's still deposit cost pressure, the rate of change has slowed a bit in the -- it looks like the heaviest competition in that regard is behind us.
Michael Rose: Okay, great. Maybe just finally for me, do you have a sense for what the new loan production yield was and maybe what the margin was for September? Thanks.
John Corbett: Yes, so our new loan production yield for the third quarter was around 740. I think it is a little over that, 742 on the new funded yield, it is a little higher than that for September. I don't think we just have the September margin numbers, but I think it was for the most of the quarter, it was not all that far different from our ending quarter. But a few basis points here or there. The margin moves obviously a few basis points on 30 days versus 31 and so on, but it was reasonably stable most of the quarter.
Michael Rose: All right. Thanks for taking my questions guys.
John Corbett: Thanks. Michael.
Operator: We will move next to David Bishop at Hovde Group.
David Bishop: Yes, good morning gentlemen.
William Matthews: Good morning.
David Bishop: I'm curious, circling back to the preamble, you mentioned sort of a lifecycle that the banking industry and paying attention to the credit cycle here we saw them, the one-off, net credit you alluded to in the charge-off, but maybe peeling back the onion, just curious your recent reviews of our financials, anything that's standing out from a credit deterioration perspective that maybe not be, not showing up in the numbers, but areas where you are pulling back from or are being a little bit more cautious on these days?
John Corbett: Yes, I mean, David, the pipelines are, are, are trending down. I mean, I think the, the Fed is getting what they wanted with liquidity being tight. I think, borrowers are more cautious, banks are more cautious. So, so we anticipate for the industry that, that pipelines will shrink. Now, the interesting part is I think the loan growth will be a little bit disconnected from the pipeline trends. While pipeline trends will be going down and probably new loan production will be going down. Payoffs have screeched to a halt. And there still some funding of the loan production that we did the last couple of years, so, I think that we're going to see probably mid-single-digit kind of loan growth continue, but it will be on lower production levels than we've had in the past, but from a credit standpoint, we've talked about in the past, the areas that we see having the most stress in the short-term is probably a small-business, SBA kind of loans. The assisted-living space just never really recovered from COVID and they continue to face labor pressures and everybody is talking about office. We think we're going-in and our loan review team is being very conservative and forward-looking on how we're looking at grading loans. And so, I think it's forcing the conversations with borrowers in advance of maturities, which is the way it should work. So, anyway, that gives you some picture of our sense of where the credit risks are and where the production trends are headed.
David Bishop: Great. Appreciate the color.
Operator: And we'll go next to Brody Preston at UBS.
Brody Preston: Hi guys, how are you this morning?
John Corbett: Good morning, we are doing well.
Brody Preston: I just wanted to clarify something on the expenses, real quick. Will, did you say, you said mid-240s, is that accurate?
William Matthews: Yes, mid -- the exact middle pointed out would be $245 million, that's the mid-240s I was referencing. Sorry, that one more clear.
Brody Preston: No, no. I just wanted to make sure because the live trends were picked-up mid-220s which [Multiple Speakers]
William Matthews: And let me also clarify, I should point out that it does not include, of course, the FDIC special assessment, which has not, if it gets finalized this quarter, we'll all be booking it in Q4. And for us, it's around $25 million. But that's not in those numbers obviously.
Brody Preston: Got it, okay. On the, on the portfolio restructure, you said that you're not going to do the whole kitchen sink maybe nibble around the edges I guess. What, what does nibbling around the edges look like in terms of size and I guess maybe the securities that are coming due, more near-term that maybe have lower loss content to them like -- are there -- is there a sizable portion of the portfolio that's may be lower-yielding that's maybe coming due at some point in the next 12 months that you could look to punt on that could generate some reasonable EPS accretion?
Steven Young: Sure, Brody, this is Steve. As we have thought about it and continue to monitor and think about it, yes, I think, yes, we are thinking about like size, I don't think it would be certainly not more than 15%, probably 10% or so of the available, excuse me, of the investment portfolio book would be something to look at and then I guess as we think about EPS accretion, earn-back, all that would be anything else we do on the capital side. We would want that earn-back to come within three years. So, I think as we think about the whole options on the table relative to capital whether, as Will mentioned, the buyback, whether it's bond restructuring, whether it's growth, whether it's M&A, we're thinking about them and inside the same lens of course on bond restructure, you have less execution risk, but at the same time, there is other, other pieces and parts that we're looking at from a capital management. And I'm really glad that we're in a position where capital has grown over the last year, the earnings, the PPNR earnings have been really good and, and the loan-loss provisions have been stocked away, so I think we're in a good position to have some flexibility.
Brody Preston: Got it, okay. I appreciate that. And then on the buyback I am just trying to think about willingness to be maybe more aggressive just given where the share prices, it wasn't that long ago, and I think it was last year, you bought back some pretty decent slug of stock were pretty well below -- you were pretty well below where that was and so just given the capital generation and the stock price today, I guess, what would you think would be the right level of buybacks to think about moving forward?
John Corbett: Yes, look, there is no gun to our head to do anything immediately, but the stock price we think is attractive and we are generating capital. So, it's -- stock buybacks are a day-by day thing where you're looking at the economy and you're looking at credit potential risks. But right now the price looks pretty attractive to us, I don't think it's the time in the cycle to do any kind of wholesale major move. But back to nibbling around the edges, it looks okay where it is.
Brody Preston: Got it, okay. I think you gave this [indiscernible] portfolio percentage in the deck, I think, I thought it was like 2%, do you happen to have what the, of that, what you guys are -- lead on?
John Corbett: Yes, Brody, I mean, just not a meaningful part of what we do at 2% of our portfolio, but we typically did not lead, typically when we're in these credits, these are credits that follow middle-market bankers that we've hired from Bank of America, Wells and Truist. So, in many cases, the banker that works for us usually the credit but because we're trying to manage hold limits, normally we're just taking a piece of the credit. So, so I think out of 39 relationships, we are going to lead one.
Brody Preston: Got it, okay. And then I did just want to clarify, I'm sorry if I missed this earlier in the call. Just on the swap revenue, I think you guys have been pretty clear that you shouldn't to expect correspondent to have some kind of ups and downs, up-and-down quarters here, but the swap income, is this more on the level that you would expect in the current interest-rate environment and going-forward?
Steven Young: Yes, Brody, this is Steve. It does bounce around a lot and you can see that in the quarterly numbers. A lot of times in the correspondent division we will have other things that offset it. But just to frame that up on Page 32 of our deck is our noninterest income kind of trend over the last I don't know, I guess, it's five quarters and you can kind of see it our noninterest income to asset sort of bounces around, it has got -- it has been as high as 69 basis points, it has been low as 57 basis points of assets. So, as the 10-year treasury from June 30th to call it now, the 10-year treasury is not quite up 1% to close. That has an effect on our capital markets teams at least in the short-run, in the pipelines until everybody kind of gets used to it, so, I would expect, like I said that our non-interest income to assets this next quarter would still be 64 basis points, will be closer down to the lower-end of the guide 55 basis points. We've been guiding 55 basis points to 65 basis points, that is going to be short and a little bit lower. And then as you think about next year and you look at the Moody's consensus, it looks like the 10-year treasury starts coming down towards 4% towards the end of next year. My sense would be that those quarters would get more favorable towards that particular division and we can't rebound. So, it kind of looks, it will get a little lumpy from quarter-to-quarter sometimes, but from a standpoint of looking at the overall picture that would be how I'd look at it.
Brody Preston: Thank you for that. And maybe for John, just a follow up on Catherine's question on the M&A. ONB bought CapStar or announced they're buying CapStar last night and it seems like a. pretty reasonable well-priced deal, some solid accretion and the stock is actually mildly outperforming today, which is nice to see. So, when you kind of see investors may be happy about a well-priced acquisition that doesn't come with too much dilution, does that maybe make you think about wanting to do something sooner rather than later despite the current rate environment?
John Corbett: I mean it's a case-by-case basis, Brody. So, we're, we're, we're open for business and if the right opportunity came along sooner rather than later we would pursue it. I think it's just going to be few and far between over the next couple of quarters, anything is possible, so, I wouldn't rule it out. I just think it's -- if I was forecasting, I think, I think activity for the industry is going to be more robust second-half of 2024, but, but we are not opposed to it, it's something attractive and accretive to our franchise came along.
Brody Preston: Got it and then just, just my last one, we talked about this I think on the first-quarter call and I know again it's a very small loan portfolio for you guys. So, I'm more interested in it just from a commentary perspective than I am necessarily a SouthState specific perspective. But the substandard and accruing portion of the nursing home portfolio keeps going up. Is there anything different than what we talked about last time, which I think was costs keep going up, maybe some of the third-party payers aren't paying out as much of it. I'm just trying to think is there anything kind of unique to senior housing right there -- right now that's kind of driving some of that weakness because you're seeing it elsewhere and other banks as well?
John Corbett: Yes, I have talked to our credit team specifically about that. But as you point out, it's less than 1% of our loan portfolio, but, but really it comes down to the labor. I think that's the biggest issue right now probably labor, the nursing shortage you hear about some of the rates the traveling nurses get and then interest costs going up and so you've got two major expense headwinds. And then, you still got the revenue headwind following COVID about people's desire to be in a nursing home post COVID. So, but the main issue, Brody, is the nursing shortage and labor cost.
Brody Preston: Awesome. Thank you very much for the color. I appreciate it guys. Have a good rest of the day.
John Corbett: Thank you.
Operator: And that does conclude the question-and-answer session. I would like to turn the conference back over to John Corbett for closing remarks.
John Corbett: Right, Audra, thank you. Thanks everybody for joining us this morning. We know it's busy with all the earnings calls. If we can provide any other clarity don't hesitate to give us a ring. Have a great day.
Operator: And this concludes today's conference call. Thank you for your participation, you may now disconnect.
