SouthState Bank Corporation

Thank you for standing by. My name is Kathleen. I will be your conference operator today. At this time, I would like to welcome everyone to the South State Corporation second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, Simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mr. Will Matthews, Chief Financial Officer. Please go ahead.

Good morning, and welcome to South State's second quarter 2024 earnings call. This is Will Matthews, and I'm here with John Corbett, Steve Young, and Jeremy Lucas. As always, John and I will make some brief remarks and then move into questions. We understand you can all read our earnings release and investor presentation, copies of which are on our investor relations website. We thus won't regurgitate all the information, but try to make a few comments and point out a few highlights on items of interest before moving to Q&A. Before we begin our remarks, I want to remind you that 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. It felt like South State was firing on nearly all cylinders in the second quarter. We saw the long-anticipated inflection of our net interest margin. Non-interest income was up. Expenses were well-controlled. And earnings per share were up 15% from last quarter. On the balance sheet, deposits are still a challenge, but loans grew better than forecast. and asset quality is in good shape with only five basis points in charge-offs. The most impactful event of the second quarter was obviously the announcement of the independent financial transaction. We spent the month of June in town hall meetings with employees in Dallas, Denver, Austin, and Houston, and David and his team were incredibly welcoming and hospitable. They're all terrific. With no branch overlap and no change to the geographic leadership structure, It makes this much easier to integrate and for our bankers to keep their focus on serving their clients and building the bank. We've already filed the proxy and we've scheduled for the shareholder vote for next month. We also filed the regulatory applications on July 1st, so things are progressing on schedule. We walked through the strategic rationale when we announced the deal in May. We're expanding into great markets. In fact, they're some of the only markets in the country that match the demographic growth profile of our current markets, both from people migration and income migration. We also talked about the financial power with 27% earnings per share accretion. But I want to take a minute and drill down on how we're thinking about the deal from a capital management perspective. As an industry, we're on the back end of the fastest increase of interest rates in decades. Our industry currently suffers from loans and investments that are under-earning their potential because they're not yielding current market rates. That's a negative overhang that will last for years. But the positive is the industry enjoys the benefit of strong capital ratios. So the question for every bank management team is how to utilize surplus capital to to reposition the balance sheet and unlock the earnings potential of these assets rather than waiting years. Many of our peers have chosen to execute a bond swap, and that's fine, but a bond swap never got us particularly excited as a capital management strategy. We looked at it as a dollar-for-dollar trade. You invest a dollar of capital and you get a dollar of earnings, but you accelerate the timing of the cash flows. Again, that's fine from a financial engineering perspective, but it feels to us like a dollar-for-dollar trade. What we're doing with independent is a more powerful use of capital. Just like a bond swap, we're unlocking the earnings power of the bonds at independent financial, but it's not just the bonds. We're unlocking the earnings potential of their entire loan portfolio. So including both loans and investments, It's about a $17 billion interest rate swap on all earning assets. But here's the key. Rather than a dollar-for-dollar trade, the thing that makes this different is that we're utilizing the South State valuation and currency advantage simultaneously with the investment of capital, which makes the swap much more powerful as a capital management approach. Layer in both the normal economies of scale we gain in a transaction plus the currency advantage, and we see this as a far, far better use of capital than a vanilla bond swap. All $17 billion of earning assets moves to market rates, and the rates are instantly locked in. Independent's net interest margin opens wide, and the only rate movement going forward will be deposit rates. As we move into a period of likely lower rates, South State should benefit as a more liability-sensitive balance sheet with Independent. I want to thank David and Dan Brooks, Dan Strodle, and the entire independent team for making us feel so welcome and for their enthusiasm of what we're building together. I'll turn it back over to Will to provide more color on the court.