SouthState Bank Corporation

Hello, everyone, and welcome to the South State Corporation Q1 2023 Earnings Conference Call. My name is Charlie, and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register your question, please press star followed by one on your telephone keypads. I want to hand over to our host, Will Matthews, CFO, to begin. Will, please go ahead.

Good morning. Welcome to South State's first quarter 2023 earnings call. This is Will Matthews. I'm here with John Corbett, Steve Young, and Jeremy Lucas. John and I will make a few brief prepared remarks before we open it up for questions. As always, a copy of our earnings release and our investor deck are located on our investor relations website. Before we begin our remarks, let me 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 let me turn the call over to John Corbett, our CEO. All right.

Thank you, Will. Good morning, everybody. Thank you for making time to join us. In March, we passed the third anniversary of the pandemic shutdown of the economy. It also marked the third anniversary of the Fed's massive quantitative easing response. Last year, however, the Fed made a hard pivot from fighting the pandemic economy to fighting the inflation economy. And intuitively, we've all been worried that the speed and scale of that pivot would result in casualties. Well, those casualties showed up in the banking system on March 8th. In spite of the recent turmoil, the South State team delivered results that were right in line with our previous guidance. During the quarter, we produced growth in loans, deposits, liquidity, and our capital ratios. Earnings per share of $1.83 increased 32% from the same period last year, and that yielded a return on tangible common equity of about 19%. In the weeks following March 8, the market identified two immediate risks, liquidity, and capital, and also two longer-term risks, earnings and credit. I'll briefly touch on each. On liquidity, we've been building a diversified and granular deposit base for decades, and we came into this rate-hiking cycle with $6 billion in cash a year ago. South State manages 1.5 million deposit accounts with an average deposit size that is the lowest of our peer groups. at only $24,000 per account. So that granularity adds stability and a lower percentage of uninsured deposits. On page 26, we've itemized $19 billion of available liquidity sources to cover less than $11 billion of uninsured and uncollateralized deposits. And that provides a 176% coverage ratio. So there's ample liquidity. On capital, In the weeks following March 8th, there's been speculation about the regulatory response and whether unrealized losses will eventually be reflected in regulatory capital ratios. On page 27, we show a waterfall to illustrate that South State remains well capitalized on all regulatory ratios if you include the impact of AOCI. Additionally, we calculated it to include the impact of both available for sale securities and held to maturity securities and all of our regulatory ratios still exceed well-capitalized requirements. Those capital ratios should continue to build as the balance sheet grows at a more moderate pace. In fact, tangible book value per share increased 6% during the first quarter. On earnings, like most banks, the biggest risk to our earnings forecast are deposit costs. We finished the first quarter with a cumulative deposit beta of only 13%, and a total cost of deposits of 63 basis points, which came in right in line with our prior guidance. And that low beta helped our PPNR per share to grow 62% over the last year. Given the events in March 8, that earnings growth ramp will moderate, and Steve can share some updated thoughts in the Q&A on potential deposit betas moving forward. And finally, on credit, Asset quality metrics remain excellent and stable. However, we are conservatively building reserves. Over the last four quarters, we added $123 million in loan loss reserves compared to just $3 million in charge-offs. And with the increasing focus on the office segment, we added a new slide in the deck that Will can touch on in his remarks. Stepping back from current events, every shakeup like this presents new challenges and new opportunities. And this management team has been involved in nine FDIC transactions and knows what it's like to manage through a cycle. That's why our guiding principles of soundness, profitability, and growth start with soundness. We will continue to have opportunities to recruit new bankers, and we're already seeing opportunities to command higher loan spreads as industry liquidity is becoming scarce. And it doesn't hurt to be located in the most vibrant markets in the country. The Southeast is known for its friendly business climate and capital flows where capital is treated well. It seems like every month there's an announcement of a new multi-billion dollar manufacturing facility with thousands of new jobs in the Southeast. And those job opportunities are leading to population migration. Based on the latest census report, South State operates in four of the six fastest growing states in the country. I'll conclude my remarks by thanking our team. You can never predict when a black swan event will occur. But those are the times when long-term client relationships matter the most, and South States relationships run long and deep. And now I'll turn it over to Will to walk you through details on the quarter.