SouthState Corp

NYSE:SSB

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, and welcome to the South State Corporation Quarterly Earnings Conference Call. Today's call is being recorded. Later we will open the line for questions with the research analyst community.

I will now turn the call over to Jim Mabry, South State Corporation Executive Vice President, in charge of Investor Relations and M&A.

[Jim Mabry, IR]

Thank you for calling in today to the South State Corporation Earnings Conference Call. Before beginning, I want to remind listeners that the discussion contains forward-looking statements regarding our financial condition and results. Please refer to Slide number 2 for cautions regarding forward-looking statements and discussion regarding the use of non-GAAP measures.

I would now like to introduce Robert Hill, our Chief Executive Officer, who will begin the call.

[Robert Hill, CEO]

Good morning, and thank you for joining us. I'll begin the call with summary comments about the third quarter and observations on our overall performance. John Pollok will review the quarter in more detail, and we will then conclude the call with questions from the research analyst community.

The first 9 months of 2019 have been very solid as we produced record earnings in the third quarter. Net income for the quarter totaled $51.5 million or $1.50 per diluted share. This represents a 1.31% return on assets and a 16.62% return on tangible equity. In the fourth quarter of 2018, we updated you on our areas of focus for the company and also announced our longer term financial targets. Our team has made significant progress in the execution of our strategic objectives and this is clear in the financial performance in the third quarter. A year ago, we previewed with you the ability to create operating leverage due to our large and granular customer base. I am pleased with this progress as we have created efficiencies, reduced expenses and made significant investments in people, technology and systems. We continue to see opportunities to enhance the customer experience, drive operating leverage and create a simplified and more efficient process in many areas.

I'm also pleased with the sound balance sheet and loan portfolio that we have. As we move into periods of more uncertainty, soundness continues to be a key strength of South State Bank. With moderate loan growth and excellent asset quality, we continue using excess capital to invest in the company. Since embarking on our stock buyback program in the third quarter of 2018, we have repurchased approximately 8% of outstanding shares and still maintain considerable levels of capital, the vast majority of which is common equity. The Board of Directors has declared a cash dividend of $0.46, this is an increase of $0.03 from last quarter and a 27.8% increase from the same quarter a year ago.

I will now turn the call over to John Pollok for more detail on the financial performance for the quarter.

[John Pollok, CFO]

Thank you, Robert. My comments this morning will focus on our margin, noninterest income and expense, capital management and some thoughts on the estimated impact of the adoption of the current expected credit loss model.

For the second consecutive quarter, we showed improvements in adjusted operating leverage with increases in both net interest income and noninterest income and a reduction in expenses this quarter. On Slide number 5, you can see the small improvement in net interest income this quarter up to $127.4 million as interest income was flat and interest expense decreased $200,000.

Net interest income, excluding acquired loan accretion, increased $1.3 million linked quarter as loan accretion continued to become a smaller portion of our earnings stream. Our net interest margin declined 9 basis points as yields on interest-earning assets declined by 10 basis points impacted by 2 rate cuts during the quarter and lower acquired loan accretion. Our cost of interest-bearing liabilities declined 3 basis points and our total cost of funds declined 2 basis points this quarter to 69 basis points. We were able to bring down the cost of all funding categories during the quarter with the exception of certificates of deposits. We also have annualized growth of over 6% in noninterest-bearing checking accounts with quarter end balances increasing by $52 million.

Slide number 6 shows the composition of our interest-earning assets and the change in mix during the quarter. In total, our average interest-earning assets increased $181 million with an increase in our investment portfolio and growth in our loan portfolio. Loan growth was somewhat muted by refinance activity in the residential book, but of course we had good mortgage banking fee income as a result.

Average loans increased by $67 million or 2.4% with a $291 million increase in the non-acquired loans and a $224 million decrease in acquired loans. Acquired loans now represent 18% of interest-earning assets and accretion income on these loans now represents only 5.4% of net interest income as shown on Slide number 7. You can see those balances and the discount remaining on the portfolio on Slide number 8. We had very strong improvement in adjusted noninterest income this quarter as shown on Slide number 9, with a $1 million increase in fees on deposit accounts and a $800,000 increase in mortgage banking income. Mortgage banking income totaled $6.1 million on record levels of secondary market activity.

Slide number 10 shows our linked quarter expense detail. Adjusted noninterest expense totaled $96.4 million, which was down $1.4 million linked quarter on good expense management in almost all categories and the benefit of a $1.6 million credit on our FDIC insurance assessment. The credit was triggered by the deposit insurance fund exceeding its targeted level, and we anticipate receiving approximately $800,000 and additional credits in the fourth quarter. We have now achieved the majority of the previously announced branch closure and cost initiatives on a run rate basis and remain focused on holding expense growth within our 0 to 3% long-term target.

On Slide number 11, you can see the end result of revenue growth and lower expenses in our efficiency ratio improvement, down to 58.4% this quarter. Tangible book value increased by $0.35 per share to $38.20 as shown on Slide number 12. This is a growth rate of 8% from a year ago despite being active in the share repurchases during this period. Our cash dividend also increased 7% compared to last quarter and over 27% from a year ago.

On Slide number 13, you can see the repurchase activity by quarter, which totals 2,165,000 shares for a total of $157 million. We currently have 835,000 shares available for repurchase under our existing plan.

From a capital management standpoint, our tangible common equity to tangible assets ratio is 8.8% and within our long-term target, and the dividend declared by our Board this quarter represents roughly 30% of earnings. These capital management efforts and operating leverage improvements this quarter resulted in a 16.6% return on tangible common equity within our long-term goal of 16% to 18%.

And finally, CECL will become effective on January 1, 2020. The standard will require estimating projected lifetime credit losses based on macroeconomic forecast assumptions and certain management judgments over the life of the loans. Under our baseline scenario, we estimate that our allowance under CECL will be in a range of $105 million to $120 million. This increase is roughly $35 million to $50 million, and we estimate the initial capital charge required to reach this CECL level will reduce our tangible common equity ratio by 20 basis points to 30 basis points.

I will now turn the call over to Robert for some summary comments.

[Robert Hill, CEO]

As we near year-end, our attention toward the years ahead. Our goal is to build upon recent results and continue to create value for our customers, shareholders and our team. With very good progress in 2019, we look forward to the opportunities ahead of us.

This concludes our prepared remarks, and I would like to ask the operator to open the call for questions.

[Operator]

[Operator Instructions] And today's first question comes from Catherine Mealor of KBW.

[Catherine Mealor, KBW]

I might start with growth. You still have your target of growth of 5% to 10% and the non-acquired growth was really strong this quarter, over 15%, but it feels like the acquired runoff continues to keep the net growth below that 5% range. Is there -- can you talk a little bit about your outlook there? And is there an inflection point in the near-term or you think the acquired runoff will slow and we really are going to start to see the benefit of that non-acquired book growth falling to the bottom line?

[Robert Hill, CEO]

Catherine, this is Robert. Overall, we continue to feel really good about our 5% to 7% range. I mean, I think in terms of our team, our markets the way we're structured, certainly, I think have the ability to operate comfortably within our risk parameters inside that range. I think it's -- each quarter has been something a little different, this quarter mortgage was down, so that certainly hit overall net loan growth. But we had really good growth income in commercial owner occupied, 9%, and some slight growth in CRE about 3%. So the pipeline has been strong. We've had a strong pipeline all year, but Q2 to Q3, our pipeline grew 19%. And in Q3, our production was right at $1 billion, which was a record for us and that was up nicely over Q2 and most of the pipeline is in inter-occupied and C&I.

So the components of the growth that we're seeing and nice areas of growth, we feel really good because they are relationship-driven. And in the markets, Charlotte was where we saw the most the most churn in the acquired book as we kind of repositioned Park and got kind of remix some of our team members, added some new talent there. The Charlotte in Q3 was up 14%. Greenville was up 19%. So it's -- there's not a kind of one-size-fits-all answer. We continue to see really healthy volume pipeline production levels in most of our markets. But we also -- some of the churn we're seeing, I think, is a result of some of our customers who have just been deleveraging, and we've seen it for about a year and we continue to see some of that.

I mentioned the mortgage and the secondary market as more going secondary. And then we're continuing to see some what we perceive is risk build in certain segments of the market, just terms and conditions on credit being stretched pass levels that we're comfortable with. So Catherine, there is not a one-size-fit-all answer, but to summarize, we feel very good about our 5% to 7% range that we can operate there, that the markets are going to provide us that level of opportunity and the components underneath the net number we continue to feel very good about.

[Catherine Mealor, KBW]

Okay, that's really helpful. And then on pricing, if I back out, I appreciate, it looks like your legacy loan yields are actually really stable this quarter. We've seen that, I think, fall more at some of your peers. Can you talk a little bit about maybe one just the dynamics within your core portfolio? And how much is variable versus fixed and tied to LIBOR, and how much of that's repricing immediately with fed rates coming down? And then also where you're seeing new pricing today on your new production?

[John Pollok, CFO]

Catherine, this is John. So new product pricing, I'll start with the last part of your question first, we're in that kind of 4.35% range. Our pricing never got really up in the high 5s. So we, as you know, focus on the A credit. So I feel like from a pricing perspective, even as rates have moved back down, we've just had -- we've had more stability. When you peel apart our $11 billion portfolio right at $6.3 billion is fixed, about $4.9 billion is variable. When you peel back the variable even further, 22% of that is hybrid arms, 21% is floaters and then we got a small part that is adjustable -- is on the adjustable-rate side. So when you look and you kind of go a little bit deeper inside the floaters, so the floaters are roughly $2.3 billion and you want to peel that back a little bit more, we've got prom-based loans in that bucket that are little over a $1 billion, and then LIBOR, we have about $1.3 billion tied to LIBOR.

[Catherine Mealor, KBW]

Okay, that's great. And maybe if you look at that mix with only $1.3 billion tied to LIBOR or maybe could you argue that, while there is downside to your core loan yields, it's not going to be as maybe draconian as it has been to some of your peers, which gives you the opportunity to really bring the funding down at a more measured pace?

[John Pollok, CFO]

Yes, I think that's fair. I think we had a bigger residential mortgage book, and so we had more fixed rates or hybrid arms. Clearly, when you go down in the detail on our margin table, you're seeing the decrease from the mortgage side, but the yields in there are holding up. So having a little bit more fix rates helped us. But our view, I think, on net interest margin really hadn't changed much as we're trying to manage more toward neutral. We saw some nice opportunities, we talked about trying to do that as rates came back down. So we are trying to really get more balanced there and it's a great opportunity really to do that. It was nice to see kind of flipping over on the funding side a little bit, Catherine. The last quarter, we mentioned, we started seeing stability in the pricing on funding, and now we're seeing decreases. In fact all our categories on the deposit side went down except for CDs, and we think those are going to begin to trend down. So really feel good about the position. We take a long-term look at margin. Clearly, where we're sitting here this time last year and rates were on their way up, and now they're on the way back down. So you're going to have from a quarter-to-quarter basis when they jerk the steering wheel like this on rates, you're going to have some noise in there, but really feel good it gives us a good opportunity as we build back commercial bank more to maybe get a little bit more balanced on the variable side.

[Operator]

Our next question today comes from Jennifer Demba of SunTrust.

[Jennifer Demba, SunTrust]

Two questions, first on expenses. You said most of the cost savings, cost reductions rather, you've made have been taken out. Can you kind of give us, John, a good sense of where fourth quarter expenses may land with all the puts and takes? You said you are going to get another rebate from the FDIC?

[John Pollok, CFO]

That's correct. We'll get another rebate there. I think as we said on expenses before, we're trying to stay in that kind of 0 to 3% range on expense growth. I think when you look at this quarter, you can see salaries and benefits were up about $1 million. We funded some incentive plans. Clearly when rates go down, we had a few SERPs, we took the discount rate up on a little bit. So probably had a little bit of noise in that salary and benefit line. So I'd say, first of all, feel good that we're going to be in that range. Fourth quarters are always kind of different at year-end depending on kind of what you do, but feel good about really where we are long-term. And I think one of the pieces that look at on the expense side is really when you look at kind of the digital side of our company. And think about the cost of really servicing our customers. It's kind of hard to believe, but you look year-over-year, our mobile users are up 15%, our bill pay users are up another 10%. We put in Zelle, so our person to person payments were up 40%. So I'd say, Jennifer, what we're seeing is we're really being able to squeeze out the cost longer term in the company especially on the amount of volume that we have with our customers. So I feel like it's all headed in the right direction. We're continuing to build out our delivery channels and so we've got little a bit more work to do there. But Jennifer, I really feel comfortable we can say within our range.

[Jennifer Demba, SunTrust]

Okay. And can you talk about M&A interest today, Robert and John, and what kind of targets you might be seeking right now?

[Robert Hill, CEO]

Yes. I don't think it has really changed from where we've always been, Jennifer is, I think what has changed is we're really well positioned. The last year, we've kind of laid out our financial targets. We laid out what we wanted to accomplish in '19 to get those in line and to provide more clarity, both internally and externally with our numbers. And I think we've made a lot of progress in that this year. And so now if you look at our team, our capital position, our infrastructure, we're just in a really good place. So M&A is really for us driven mostly by the right people at the right company at the right time. And I think we continue to evaluate it that way as we always have.

[Jennifer Demba, SunTrust]

Would you consider doing a transaction with a company of a similar size?

[Robert Hill, CEO]

I would say right now we would keep all options on the table. We've always tried to keep plenty of optionality in terms of strategically the direction of the company. And if that was -- if that type of company met those parameters, yes, that is something we would consider as we do downstream as well.

[Operator]

Our next question comes from Tyler Stafford of Stephens Inc.

[Tyler Stafford, Stephens Inc]

I just wanted to start on deposits. So total deposits are up, call it, 3% on average year-over-year, obviously nice. NIB growth this quarter and over the last year with savings down -- savings and CDs down 7%-or-so. So I was just hoping you could talk about deposit growth expectations as you look out over the next year or so?

[Robert Hill, CEO]

Let me start, and then I'll turn it over to John. I think what we feel good about -- it's kind of similar, I guess, to Catherine's question on the loan growth side is the components of deposit growth because we can go get deposit growth. But just like 9% growth in inter-occupied is the same kind of dynamic on the treasury front is we've added 278 new treasury relationships this year, which you mentioned the noninterest DDA growth about 6% in that category and $150 million of that growth came from the treasury effort. So feel really good about that. And then we'll hit 500,000 checking accounts probably in the fourth quarter or maybe the first quarter of next year. So the activity levels overall in terms of just core relationships overall feel pretty good and feel like we're on a really good with the pipeline that's still at a pretty sustainable pace. John, any other...

[John Pollok, CFO]

The only thing I would add, as you know, in the Park, the Park merger that we did wasn't a big retail bank, and we're really starting to see those branches really do extremely well on the retail side. So we're -- our checking account growth numbers are up there, so that's clearly beginning to yield and give us more fire power in those offices. So I really feel good that we can continue to get nice deposits. Our focus is always on that noninterest DDA. We measure checking account growth weekly. That's how Robert and I were brought up. If you want to work here, you got to be excited about opening a checking account. So we try to get as much of that as we can.

[Tyler Stafford, Stephens Inc]

Okay. And maybe John, I appreciate the details around the CECL impact. Can you talk about just how we should think about the pace of any amount of future buybacks, given the capital impact you mentioned? And then just any framework to think about accretion for 2020 under CECL?

[John Pollok, CFO]

So on the capital side, I'd say a couple of things. I think as we mentioned really a year ago at the Investor Day, we didn't really know the impact of CECL then. We got a range out there now. I think back then we talked about maybe bringing the TCE range down a tad. I'm sure that's something we'll think about as we get into our capital planning at the end of the year, but we just got within that range. We still love the value of our company. We're going to continue to look at buybacks.

From a dividend perspective, we're at the low end of our range, the 30% payout. So I think we can continue to focus on our new payout range, which, as you know, is 30% to 35%. So I think, we're in really good shape from a capital management standpoint. We have really haven't tapped the sub-debt market. Clearly, those prices out there today, Tyler, look very attractive. That's something we have in our tool if we wanted to do that.

Next year from an accretion standpoint, the story has really hadn't changed a whole lot. And if you kind of go back and look at our slides, on Page 8, I think, we've tried to use this slide a lot, and this is kind of how we think about accretion going forward. Of course, this is based on September 30, these numbers will change at year-end, but Slide number 8 is a really good place to look at that. In fact, I use the slide countless times with investors to try to walk through that.

So when you think about our noncredit impaired book, we've got a $24.2 million discount, that will continue to accrete through the income statement, that's a pretty easy one to see there. And then if you go back up on the credit impaired book, you can see our noncredit discount today is about $32.9 million. So assuming that our credit mark or our reserve is correct on the credit impaired, you would continue to see that accrete in.

The next thing I would mention, as you know, today in our acquired loan book, we have everything set up in pools. And so we have to measure the weighted average life. So we've talked about it before, I still have loans in pools from our CBT transaction that we did back in 2010. So we have to remeasure the cash flows and kind of extend the accretion out. Well, we're going to burst our pools up. We're going to go more to a FAS 91 approach. And so as we do that, I think, our view today is you're going to see an acceleration of those accretion -- of that credit impaired accretion book to kind of come through in the income statement. So I think our view at the beginning is all things being equal today kind of where prepayment speeds, Tyler, I won't have to extend those weighted average lives out. So we think more accretion income will kind of flow through the income statement.

[Tyler Stafford, Stephens Inc]

Okay, very helpful. I appreciate that. And then do you have what the loan prepayment fees were this quarter?

[John Pollok, CFO]

I'm sorry, I didn't hear you.

[Tyler Stafford, Stephens Inc]

The loan prepayment fees, do you have those handy?

[John Pollok, CFO]

I do not. I can get that for you, I don't have that.

[Operator]

The next question for today comes from Stephen Scouten of Sandler O'Neill.

[Stephen Scouten, Sandler O'Neill]

As you all had some nice movements within the average earning asset balances and yields here, and I am wondering if you could give a little more detail, one, specifically around the new tax exempt securities yields, what you're investing in there from a duration standpoint and so forth? And then just kind of if you think there is incremental mix shift to be had there within the balance sheet that would be beneficial moving forward?

[John Pollok, CFO]

Stephen, I think as we talk, as we kind of went into the leverage transaction, I think we tried to telegraph you assuming loan growth didn't pick up a great deal, we would make more purchases in the investment portfolio. See, our portfolio grew a little over $92 million for the quarter, we had $234 million in purchases, $71 million in pay downs, we actually sold $42 million. We just didn't like some of the structure of those credits and a falling rate environments. So we sold those, took some gains, and reinvested there, and then we had about $29 million in maturities. Our blended kind of tax equivalent yield on what we purchased was right at $271 million, and so felt really good about that. I think, as you know, there is so much volatility out there in the market today. Little different for us trying to grow the investment portfolio some, but feel good about what we were able to purchase. If you kind of drill in there a little bit further, 39% of the purchases were kind of normal stuff that we've done on mortgage backs. We had some SBA prom floating rate bonds that we got. We like those. They're 0 risk-weighted, so we kind of took those on, and then some miscellaneous others that we were able to get. If we look at our weighted average life, it kind of stayed roughly the same as about 4.3 years.

[Stephen Scouten, Sandler O'Neill]

Okay. Okay. So you got some better yields maybe with some different product mix, but no real extension of risk or duration or something?

[John Pollok, CFO]

That is correct.

[Stephen Scouten, Sandler O'Neill]

Perfect. And then maybe just going back to kind of trends in your market loan growth and so forth, it sounded like in one of the answers to Catherine's question, I believe it was, that you're seeing some maybe increased risk-taking from some participants in your market and maybe thinking about that may constrain growth. Are there any specifics you can learn to that in terms of where you're seeing people push the envelope, if it's any particular asset classes? And if you're seeing any real changes in consumer behavior or if it's just more -- and customer behavior or if it's more just a level of cautiousness?

[Robert Hill, CEO]

Stephen, this is Robert. What I'd say overall is load demand is pretty good, pipeline is good, volume is good. So it's not like we're at a tipping point where it's all pull the horns in. Overall, we feel our markets are pretty healthy and robust, but around the edges you are seeing it, and I'd say mostly it's in CRE, and mostly it's around the terms and conditions and structure of CRE. And that's what we're seeing more take risk and we're letting more of those deals just walk away.

[Operator]

[Operator Instructions] Today's next question comes from Christopher Marinac of FIG Partners.

[Christopher Marinac, FIG Partners]

Wanted just to ask about the accretable or -- excuse me, non-accretable difference that you outlined, I think it's on Page 8 of the release. I know it was a small number this quarter, John and Robert, but are there opportunities for more reclassifications there or is a lot of those major shifts behind you?

[John Pollok, CFO]

Chris, this is John. We look at it every quarter. So some quarters are better than others. The fourth quarter is a little unusual, right? We're kind of the last quarter before CECL and implementation of that. As you can tell, the number just keeps get smaller and smaller. And if you look at Page 7 and you think about our accretable yield, I think this is a great chart to look at. It only represents about 5.4% of total interest income today. And so it just kind of gets smaller and smaller. So if we do have some releases, it's not going to have some major impact on that accretion number. I do like the contractual yields that we're seeing in that acquired book. And if you look at that page, those are -- those have held up pretty nicely. But Chris, really not -- I wouldn't see some big release coming out of that, it's just kind of gotten pretty small.

[Christopher Marinac, FIG Partners]

Okay. Great. Just wanted to verify that. And then when you talk about the digital build-out and expenses related to that, how much goes towards the digital on the commercial side versus on the retail side? Is that going to be split? Or what is the emphasis on those 2?

[John Pollok, CFO]

I'll start, Chris. I think on the digital side, let's just think about commercial. We rolled out this year our relationship with nCino. And so when I think about the commercial side, I kind of think about that piece first that we're kind of going through that. When I think about commercial from the digital side more, I kind of really go back to really treasury. We spend a lot of time making sure we got on the right system. As you all know, we took Park system. We did not get our customers converted on that system until April. You're starting to see our service charge line move. In fact, this quarter, some of that increase from the service charges line was due to the treasury, due to our treasury area. So really seeing great adoption. We have a $500 million pipeline in treasury today. I mean that is an enormous pipeline. And I think the reason is people like treasury, like the digital side, really like the digital side of that.

[Robert Hill, CEO]

This is Robert. The only thing I would add is I don't know that it's 50-50 from an expense standpoint. But let me address more the prioritization of our digital road map is, it was kind of -- several years ago, we laid out a digital road map. And first, it was kind of what we called T2 or technology transformation of basically removing all the technology components that don't really directly impact our revenue streams and customer base or make us more operationally efficient. And so that was -- step one was really, it was kind of moving the things that aren't important off the play. And then it became the commercial bank. It was -- as John said, it was treasury. It's on the LOS system. It's purchase cards. It's getting all the products and services and getting that delivery channel build out. And that is not fully complete, but we're a long way down that path. And then the last piece we have moved towards really is the consumer piece. Mortgage volume has doubled online in the last year. Our consumer volume continues to double. Our online checking account continues to double, and now we're looking at kind of our mobile platforms and the technology around that. So obviously, the technology enhancements and things you need to do never really come to an end. But I think we've come up -- we've taken the road map from kind of being conceptual 3 years ago to clearly driving business today.

[Christopher Marinac, FIG Partners]

That's great. Just a quick final comment on the wealth management business. I presume that you're seeing kind of net positive flows there, just in general, in that business line.

[Robert Hill, CEO]

We've had some institutional money that's kind of rolled out, kind of turned out. But overall, I think business there continues to be strong. We've added teams in Raleigh. We've added teams in the upstate of South Carolina. Our investment services group had their best production growth -- production quarter ever in Q3. So overall, I feel -- continue to be very pleased with our progress in wealth.

[Operator]

Our next question comes from Nancy Bush of NAB Research.

[Nancy Bush, NAB Research]

I'm going to ask you a big hypothetical here. You know 0 rates or negative rates are still a remote possibility, but they're not a 0 possibility anymore, given what's going on in the world and given what's going on at the Fed. Is that a scenario that you have to look at seriously at this point? Is it something that the regulators are talking to you about? If you could just give me your sort of initial thoughts around that whole subject.

[John Pollok, CFO]

Nancy, this is John, I'll start. We went down this path a couple of years ago. I thought they were going to go negative and everybody went and looked at their core system to see if they can handle a negative rate. So I remember all, but I was panicked about that. But I think, in general, I don't feel that today. Lower rates longer, to me, what it means is you got to go get more noninterest DDA. We got to continue to build more in the low-cost funding side. So I think that's how we are viewing it is, is keep trying to go out and get those really, really good core deposits.

[Robert Hill, CEO]

Nancy, I think -- to me, it all goes back to relationships, and that starts with funding is, I think the banks that are core -- regardless of what the rate environment is and none of us know, right, so we thought we'd be going up this time and this time a year ago, now we're moving backwards and kind of almost a race to 0, which doesn't seem real logical, but that's kind of where we are is the -- but the funding side, I think, that's where our balance sheet is just different than a lot is our -- it's the core funding that we have and the company is just going to be more stable regardless of the rate environment. I think less -- there's just going to be less opportunity to drive earnings through financial engineering. And it's going to be more just based on core customer relationships.

[Nancy Bush, NAB Research]

Okay. If I could also just build on Chris' question for a minute, in the wealth management business, I mean, it's not a new business for you certainly, but with the additions you've had over the couple of -- last couple of years, it's a bigger business and it's somewhat of a different business. How are you trying to position your fiduciary, wealth management, et cetera, relative to some of your competitors? Is there a core customer that you're looking for?

[Robert Hill, CEO]

Yes, there really is. And it's really different. So I mean we do some transactional business but not a ton. So we're not competing really kind of what the Schwab's of the world. For us, it's mostly people who have built a level of wealth that we can help them with retirement planning for where they are today, but where they're going down the road. But mostly, it's people who have built some financial wealth, but want to hang on to it. And it's not I've got to be in the top quartile of high performance, it's more about the preservation of that wealth and the growth of that wealth at a reasonable risk parameter. So that's where we've had good success. And it tends to be, from a range standpoint, it's on the lower end, it's $1 million to $20 million. And so -- but it's people who've build that wealth want to preserve that and grow that wealth, but not necessarily be too far out on the risk curve, and we can help them accomplish that.

[Operator]

This concludes our question-and-answer session. I'd like to turn the conference back over to John Pollok for any closing remarks.

[John Pollok, CFO]

Thanks, everyone, for your time today. We will be participating in the Sandler O'Neil East Coast Financial Services Conference in Maples, Florida, beginning on the 13th of November. We look forward to reporting to you again soon.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.