SouthState Corporation Q2 FY2025 earnings call

• In January, closed an independent financial transaction projected to be 27% accretive to EPS. First quarter earnings accelerated as forecast, but loan growth stalled; however, loan pipelines grew significantly in spring, leading to a 57% jump in loan production in Q2. • Successfully completed computer system conversion in Texas and Colorado, with teamwork from various teams including 400 people from the Southeast assisting. • Return on assets was 1.45% and return on tangible common equity nearly 20% adjusted for merger costs. Retail bank ranks in top quartile of J.D. Power's Net Promoter Score, commercial and middle market bank in top 5%, and employee engagement in top 10%. • Board increased dividend by 11% due to strong earnings growth and capital levels.

SouthState reported PPNR of $314 million and EPS of $2.30. Net interest income grew by $33 million from Q1, with cost of deposits at $1.84, a 5 basis point improvement. Loan yields improved, with a 57% increase in loan production from ~$2 billion per quarter to over $3 billion in Q2, driven by strong pipeline growth in Texas and Colorado where loan production increased 35% and non-PCD loans grew by ~$200 million. The yield on securities was 51 basis points higher due to the Q1 securities portfolio restructuring.

• NIM guidance remains between 380 and 390 for the remainder of 2025, with expectation of drifting higher in 2026. • Average earning assets are expected to be roughly $58 billion for the full year 2025, exiting ~$59 billion in Q4, representing mid-single-digit growth. • Loan accretion is projected to total ~$200 million in 2025 (with $125 million recognized so far) and ~$150 million in 2026. • Loan growth is expected to be mid-single digits for the remainder of 2025, with potential to move to mid- to upper single digits next year if the yield curve improves.

• Economic uncertainty could impact loan growth and the economic forecast. • Regulatory changes may affect the company's operations and scale. • Fluctuations in interest rates and deposit costs can influence margin and earnings performance.

Q: Outlook for margin and if there's still room to expand?

A: Steve Young stated NIM guidance remains between 380-390, with assumptions around interest-earning assets, rate forecast, and loan accretion, noting no significant change in guidance.

Q: What surprised about deposit costs and outlook?

A: Steve Young mentioned deposit costs improved more than modeled, with a forecast that incremental deposit costs will increase slightly as loans grow.

Q: Interest rate sensitivity and NIM trend in 2026?

A: Steve Young explained the interest rate sensitivity model, expecting 1-2 basis point improvement in margin for every 25 basis point rate cut, and NIM to increase due to legacy loan repricing.

Q: M&A dynamics and talent recruitment?

A: John Corbett said they made an early move in Texas, currently focused on organic growth but open to recruiting if opportunities arise.

Q: Expense outlook and revenue synergy?

A: William E. Matthews said there's no change to expense guidance, and revenue synergy has held up well with key teams retained.

Q: Allowance and capital allocation?

A: William E. Matthews discussed reserve levels and potential decline with a stable economy, while John Corbett mentioned capital allocation including dividend increase, potential buybacks, and focus on organic growth.