SouthState Bank Corporation

Good morning and welcome to South State Bank Corporation's Q4 2025 earnings conference call. All participants are in a listen-only mode. After the speaker's remarks, we'll conduct a question and answer session. To ask a question at this time, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Will Matthews. Will Matthews, thank you. Please go ahead.

Good morning. This is Will Matthews, and welcome to South State's fourth quarter 2025 earnings call. I'm here with John Corbett, Steve Young, and Jeremy Lucas. We'll make some brief prepared remarks and then move into Q&A. I'll also refer you to the earnings release investor presentation under the investor relations tab of our website. 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 risk and uncertainties which may affect us. Now I'll turn the call over to you, John.

Thank you, Will. Good morning, everybody. Thanks for joining us. As we wrap up the year, I'm really proud of what the South State team accomplished in 2025. Two years ago, we were deep into the due diligence phase of the independent financial deal. And it was a big transformational move for us to do a deal that size and expand westward into new markets in Texas and Colorado. Now, over a several-year period, I developed a friendship with David Brooks, independent CEO, It felt good about the chemistry between our companies, but in a deal that size, there's always a gut check moment when you weigh all the potential risks, all the things that can potentially go wrong and compare that with the rewards of moving forward. Now, ultimately we did move forward and announced the deal in May of 2024. And during this past year of 2025, the South State team successfully navigated through that initial period of high risks. the regulatory approvals and the systems conversions. And now we're on the other side, enjoying the rewards of a well-choreographed integration. And in that regard, a special recognition and thanks goes to Mark Thompson. Mark's been working with us for over 20 years and will be retiring soon. But his last assignment was to move to Dallas with his wife and help us build personal friendships with our new partners in Texas and Colorado. And Mark did a great job leading the integration And we're going to miss his leadership when he hangs up his jersey later this year. In addition to the social success, the deal paid off financially. Excluding merger costs, earnings per share in 2025 are up over 30%. And it's not just EPS growth. We also experienced double-digit growth in tangible book value per share. And that's including the day one dilution from the deal, raising the dividend by 11% and share repurchases. So double digit growth in both earnings per share and double digit growth in tangible book value per share in 2025. And even though organic growth started slow at the beginning of the year, pipelines were building throughout the year and many of those deals hit the books in the fourth quarter. We ended with 8% loan growth and 8% deposit growth during the quarter. Now, as investors, you know that it's typical for bank valuations to lag in the first year of an integration. But with our confidence in how well things were going, we decided to be opportunistic and get more aggressive with our share repurchase plan. We purchased 2 million shares of SouthState stock, or roughly 2% of the company, in the fourth quarter. And our board authorized a new share repurchase plan adding an additional 5 million shares to the 560,000 shares remaining in the old plan. We didn't want to miss the opportunity to retire shares when there was such a disconnect between the fundamental performance of the bank and the valuation. When you take a step back, things are playing out right in line with our strategic plan. Our goal for 2025 was to have a clean conversion, achieve our cost-save mandate, and get the organization growing at historical levels by the fourth quarter. And the team accomplished those goals. The integration's now in the rear view mirror, the risk profile of the company is reduced, the fundamentals of the company are as good as they've ever been, and we're carrying that momentum into 2026. Will, I'll turn it back to you to walk through the moving parts on the balance sheet and the income statement.

Thank you, John. I'll hit a few highlights on our operating performance and adjusted metrics, and then we'll move into Q&A. We had a good quarter to close out a very good year, with PPNR of $323 million and $2.47 in EPS, resulting in a full-year PPNR of $1.27 billion and EPS of $9.50. Our return on tangible common equity for the year was approximately 20%. I'll focus most of my remaining comments on the fourth quarter in comparison with Q3. High level, it was a good quarter for balance sheet growth and non-interest income, offset by higher non-interest expenses, much of which was driven by performance. Our margin and deposit costs were in line with our guidance, with a 386 tax equivalent NIM and a 182 cost of deposits. As expected, accretion income of $50 million was down $33 million from the high we saw in Q3. And I'll note that we have approximately $260 million of remaining loan discount yet to be accreted into income. Our NIM excluding accretion was up two basis points. That produced net interest income of $581 million, which was down $19 million from Q3, or up $14 million excluding accretion. Cost of deposits and total cost of funds were down 9 and 14 basis points, respectively. With the reduced accretion and the decline in rates, our loan yields of 613 were down 35 basis points, close to our new loan origination coupons of 6.06% for the quarter. As John said, we had good balance sheet growth in the quarter, with loans and deposits growing at an 8% annualized rate. We also carried higher cash and fed funds sold levels in the quarter, up almost half a billion dollars. Steve will give updated margin guidance in our Q&A. Non-interest income of $106 million was up $7 million, largely driven by performance in our correspondent capital markets division. This group's $31 million in revenue was one of our better quarters in that business. Although full-year NIE was better than guided and modeled, Q4 NIE was higher than expected, partially due to higher performance and commission-based compensation, which were up a combined $6 million from Q3 levels. Fourth quarter performance in non-interest income businesses and the 8% annualized loan growth in the quarter led to higher expense in commissions and incentives. Additionally, marketing and business development spending was up a combined $6 million for the quarter. Even with these higher fourth quarter expenses coming through, our efficiency ratio remained below 50% for the quarter and the year. As we've previously stated, our expectations for 2026 NIE are that we lean into our initiative to expand revenue producers. which likely adds approximately 1% to an inflationary type 3% NIE increase for an estimated 4% increase over 2025 NIE levels of $1.407 billion. Of course, this is subject to variability, as always, in certain performance compensation and loan origination expense offsets. NPAs declined slightly, and credit costs remained low with a $6.6 million provision expense. Our nine basis points of Q4 net charge-offs brought the full year number to 11 basis points. We believe our reserve levels are adequate and future provision expense is likely to be primarily a function of loan growth and net charge-offs, as we see a slowing of the rotation from PCD to non-PCD and the resultant downward pressure on the ACL. This, of course, assumes no significant changes in expectations for economic and credit conditions. John noted our capital return activity in the quarter, with us repurchasing 2 million shares at an average price of $90.65. Combined with our dividend, our total payout ratio was just shy of 100% for the quarter. Even with the higher balance sheet growth and higher share repurchase activity, our capital ratios remained very healthy. Our TCE ratio remained at 8.8%. and our CET1 ended the year at 11.4%. Looking back at the year in terms of capital, we closed the sizable acquisition January 1st. We increased our dividend 11% in July. We repurchased 2.4% of the company, and yet we still grew TBV per share by 10%. Looking ahead, we believe we have the ability to continue to fund our growth and grow our capital levels while also being active in share repurchases, particularly when we believe there would be an inherent disconnect between our fundamentals and the share price. Operator, we'll now take questions.

Thank you. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. Our first question comes from John McDonald from Truist Securities. Please go ahead. Your line is open.

Hi, good morning. I thought I would just ask Steve to give the thoughts on the net interest margin for the year, and how are you thinking about deposit costs and growing deposits to fund the loan growth you expect?

Sure. Thanks, Sean. Yeah, there's really not a lot of change from last quarter's guidance. You know, we, as Will mentioned on the call, you know, our NIM was right at 386, which was right in line with our guidance, 380 to 390. Our deposit costs were down nine. So, as we think about go-forward assumptions, it's really, Four things, interest earning assets, rate forecast, our loan accretion, and our deposit data. And really on our interest earning assets, last quarter we talked that 2026 would average somewhere in the $61 to $62 billion range. We still reiterate that guidance. No change there. We think that it'll start off first quarter somewhere in the $60 to $60.5 billion range. We have some seasonal municipal deposits the fourth quarter that sort of roll over in the first quarter. The rate forecast, three rate cuts, so there's really no change there. Loan accretion, we're forecasting $125 million for next year, so that's no change. And then the last is just our deposit beta. And last quarter we talked about 27% being the number that we think to grow deposits or to fund loans would be the right number. We still think that's the right number. So as we think about um you know going into next into 2026 um we see there's always a little bit of a lag but by the end of the first quarter we should be in a good shape to hit that for the last three rate cuts and maybe average in the 175 rates for the first quarter for deposit costs so based on all those assumptions we would expect them to continue to be between 380 and 390 in 2026 we might see it start a little bit lower in the year coming out as we get the positive cost in, and then higher in the year as hopefully we get the positive cost and growth in the back end.

Okay, thanks. And inside of that earning asset outlook, could you talk about your loan growth expectations? You ended the year with good momentum with the 8% you cited. How are you feeling about the loan growth outlook for this year?

Yes, this is John here. You know, we communicated throughout the year that we saw the pipeline building and growing. Early in the spring last year was about a $3.4 billion pipeline. We ended the year at about a $5 billion pipeline. It's kind of leveled off at that level for the last few months, but that growth in pipeline led to production growth. So in the fourth quarter, production was up 16% versus the third quarter, a record for us of $3.9 billion. And that kind of gave us the mid single Our guidance previously for 2026 was mid to upper single-digit loan growth. We still think that that is appropriate as we see these pipelines build and hold.

Okay.

And what would get you to the upper end, John, of the loan growth? You know, one of the things that we're seeing in the pipeline, John, is some growth in investor commercial real estate, which really lagged last year. And we're seeing really nice pipeline built in Texas and Colorado. And if that momentum continues, they had a pipeline of $800 million after the conversion this summer. Now it's up to $1.2 billion. So if they can keep that momentum, that would be the tail end.

Okay. Thank you.

Our next question comes from Steven Scouten from Piper Sandler. Please go ahead. Your line is open.

Yeah, thanks, guys. So I'm just curious on the hiring activity. Obviously, you had a pretty significant announcement back in third quarter and then the announcement this week. Do you guys think about, especially maybe within that expense guidance, a number, a target that you hope to hit in terms of new hires? Or is it really just about being opportunistic across the platform and really just leaning into the opportunity set?

Yeah, I mean, it's a pretty historic time here with the amount of destruction that is going on in our markets. I think I communicated before, we've calculated in our MSAs that we operate in, there's $118 billion of bank deposits that are going to go through a conversion in the next year or so, so that's a lot of creative destruction that's going to go on. We run, Stephen, in the neighborhood of 550 to 600 commercial RMs, and I've told our team

two that'd be perfectly fine to kind of build a base to continue uh seeing this organic growth plumb growth okay great and that that growth of 10 to 15 is kind of contained within that expense guide already those those sort of roundabout expectations it is great Great. And then I guess my follow-up question would be kind of around correspondent banking and the strength there. Do you think the strength we've seen, especially the last couple of quarters, is sustainable, or is there anything more episodic that's led to the strength there?

Yeah, thank you, Stephen. Yeah, it's been really great back half the year for the correspondent capital markets and really driven by two things. I mean, we've had change in rates. We had 75 basis point decrease in rates before. helpful for that business. The interest rate swaps were up $4 million quarter over quarter, fixed incomes up a million dollars. But I would say, you know, if you kind of look at the actual quarter and then kind of look at maybe more of the movie, you know, as we think about, you know, those businesses from quarter to quarter move up and down, I would look at that business kind of on the average of the year, because typically in the first quarters or two, it's not quite as robust unless there's huge interest rate changes. And then toward the back half of the year, loan production picks up and we get more. So I would say, you know, for Correspondent, what we're looking for next year is somewhere in the, you know, $25 million a quarter. Maybe it starts out a little lower, ends up a little higher, somewhere in there, $100 million business. That probably makes sense based on what we know right now. And if you kind of just look at non-interest income in total, you know, this quarter, we were at 63 basis points of assets. But if you look at the year, we started out much lower than that. For the year, we were at 50, I think 56 or 57 basis points of assets. So I would kind of look at that and kind of use that forecast somewhere in that 55 to 60 basis point range for next year on a growing asset base as we talked about. So I think let's see how it goes. But I think looking at a full year picture, it's probably a better way to look at it. And let's see if the momentum continues.

Yeah, that makes a lot of sense. And just when you guys talk about all the hiring activity, are some of those hires contained within that kind of corresponding banking division, any product expansions, or is it mostly just more like commercial RMs?

The way that I'm talking about it is more the commercial RM space, Stephen. But I would opportunistic everywhere in all business lines. For instance, about a year ago, we hired a team that's really helped us the past year at Houston on the SBA securitization business, and that's been a really great business and has really added to profitability. I think we hired that team in February of 2024, and that's really kind of come through opportunistic hiring we're doing. We're trying to build out different products in the capital market space. So we're leaning into foreign exchange more, and we've made some key hires there. So what John's talking about is generally general bank, but we are opportunistic. And from an expense standpoint, in the capital markets area, those are typically commission-based businesses. So it's really not an expense drag initially like there is in the commercial hiring side.

Fantastic. It sounds like a lot of good things going on across the bank. Appreciate the color.

Our next question comes from Anthony Elian from JP Morgan. Please go ahead. Your line is open.

Good morning. This is Mike on for Tony. So I guess I'll start on expenses. You saw a little of an uptick in 4Q sequentially. Anything that we should back out to get a good run rate for 2026? And does expense growth of mid-single digits that you guys guided previously. Does that still feel appropriate for 2026?

Yeah, Mike, hey, it's Will. Yeah, Q4 was really, I'd say, impacted by three things. One, performance. We had good performance in non-interest income businesses. We also had a pickup in loan growth, which feeds its way through in some of the incentive-based compensation for relationship managers. Secondly, there's always a bit of Q4 seasonality uh in an expense space that can sometimes cause the uh fourth quarter numbers to pick up a little bit we did experience that this year and then thirdly i'd say just the we the more the greater focus and lean into our growth initiative uh on hiring and some of the expenses you saw you know business development advertising things like that move up a bit So really a combination of those factors for people. My guidance that I gave in the prepared remarks does incorporate all of those things. And I'd say too, when you're in the hiring of relationship managers, you can't always plan exactly when they become available. And because you want quality folks, you grab them when you can. And so you plan out when you hope to hire them and when you think they might come in, but it's, It's a case-by-case basis as to when they're actually brought on board.

Great. That makes sense. And then as a follow-up on the buyback, how quickly do you guys anticipate using that new authorization? I think you're at about 5.5 million shares now authorized. And is there price sensitivity at a certain level? I guess any commentary on that would be great.

Sure, sure. Yeah, I mean, I think we would all acknowledge that capital return thoughts should be flexible, and that depends upon a number of factors, you know, where the share price relative to intrinsic value. Obviously, in the fourth quarter, we thought there was a pretty big disconnect. What's the economic outlook? What's your growth look like? And then, of course, earnings and capital ratios feed into it as well. So it's really a quarter by quarter decision. You know, you look at the fourth quarter, our total payout ratio when you put dividends and sharing purchases was, you know, the 97% range. But we did see a big disconnect in our minds between the share price and the intrinsic value. But that's a higher than is really sustainable long-term for a growing company like ours. So it's unlikely we'd be that active going forward, you know, without having a payout ratio. But I'd say with all of those caveats, you know, growth, share price, economic output, other factors that impact your appetite, you can see a total payout ratio of dividends plus repurchases somewhere in that 40 to 60% range, but of course it could be higher or lower than that, depending upon the circumstance.

Great, thank you.

Our next question comes from Kathleen Miller from KPW. Please go ahead, your line is open.

Thanks, I just wanted to do one follow up on expenses, and I know you said this in the beginning, Will, but what was the base at which you're growing expenses by a 4% level? That was on operating expenses, right?

Yeah, I was using the BN407 for 2025, growing that by 4% as our guidance.

Okay, perfect. I just wanted to confirm that. Awesome. And then maybe one thing back to the margin. Can you talk a little bit about the deposit data commentary was great. It was good to see that come down. Just on loan yields, maybe talk a little bit about loan pricing and where you're seeing that. And I feel like you still have a really big back book loan repricing story from your fixed rate book. And Steve, you've given us some commentary in the past about the kind of balance between marked loans repricing lower and then your fixed rate loans repricing higher. And so you just kind of update on that balance and what we should expect to see there would be helpful.

Sure. No, I'll just update you on, on the repricing schedule. So we've been the legacy, um, bank, um, fixed rate, uh, loans. We have about $4.3 billion repricing in the next 12 months. And it's right around 5%. I think the coupon is 506, but somewhere in there. Um, you know, last quarter, our new loan ridge origination rate was 606. Um, uh, so that's, you know, call it a percent higher, maybe something like that. So you've got a positive there. And then on the independent, um, like the independent book, you have about $2 billion come in due over the next, uh, four quarters and it'll reprice down, uh, from about seven and a quarter, which is the discount rate to around six and a quarter, uh, because the inherent loan yields are higher out of Texas, Colorado. So, you know, there's a positive net. If you look at that, that's a roughly, you know, uh, 2.3 billion, um, at a 1% positive. Um, you know, we'll have to see where the yield curve is up, you know, because depending on where the five-year treasury is, that will determine what that repricing is. If it gets steeper, it'll be better. If it gets, you know, more flat, it will be worse. But what we saw last quarter was a total loan, new loan production rate of $6.06, and in Texas and Colorado, the new loan production rate was $6.35. Great.

So, I mean, all else equal in an environment where the curve remains cheaper. Let's just, I know you've got three cuts in your numbers, so let's just kind of take that out. If we're in a kind of a stable rate environment, there's enough momentum with the fixed rate repricing being higher than your independent repricing down where the low yields should continue to move higher as we move through the year.

Yeah, I would say that, you know, yes, the answer is I think we have a sustainable NIM and that 380 to 390 range. And the way I would kind of characterize it on the NIM versus volume question is, you know, if we grow closer to 10%, then, you know, probably the margin will come down a little bit because we have to fund it on an incremental dollars, but we'll have higher NII. If we have lower growth, then, you know, it'll be a little more margin and a little, you know, less volume. So I think that the range is about right, and then it'll be driven by how fast

That makes sense.

All right, thank you, appreciate it. Our next question comes from Jared Shaw from Barclays. Please go ahead, your line is open.

Hi, this is John Rowan for Jared. Maybe just thinking a little bigger picture about investments outside of hiring this year, are there any projects planned on the tech side in like correspondent banking or anything else across the business that you're looking into?

Sure. Yeah. Of course, every year we go through a very intensive strategic planning process. And we have different investments that we're taking on this year. I think part of the investment relates to some commercial loan servicing platform that we are working on with our syndication business. And that's an important piece from a back office perspective in order to grow on the front office middle market. We have investments in AI. We have investments in our FX platform. All of those are included in Will's numbers, but definitely we're always investing in the tech platform and the other platforms. I'd say what's different this year and was part of Will's guidance is that we are very intentional about investing in revenue producers. We've got a lot of the platforms already built. This is some finishing off the platforms, but it's really a focus on revenue for your subsidy.

Okay, great. And then maybe on the deposit pricing side, starting the year at like $175, is that to migrate lower throughout the year? And I guess does the beta move lower as we get further cuts and you get to a lower and lower deposit rate?

Yeah, it's very similar to what we said last quarter. I think our view is the same. We're thinking that we start off around the 27% range, which is what we were in 2018-19 when we were growing at this pace. Let me say that there's always a little bit of a lag with that because of CD pricing, which true to all your banks, but, you know, hopefully by, you know, March, early April, kind of get all that. If there's no more cuts, we'll get all that in there. And then, you know, hopefully over time, we can move that over and towards a 30% beta. But if we grow at the higher, you know, mid to higher single digits, you know, we're not sure about that. It could be 27, could be 28. But that'll be the difference. It'll be about how fast we grow will determine how much data we'll get.

Okay, thanks. And then if I can just have one more. It looks like there's some increase in substance loans this quarter. Just any color on what drove that?

Yeah, overall credit-wise, John, We had a decline in past dues, a decline in NPAs, and a decline in charge. All that stuff trended down. There was an increase in substandard. You take out the NPAs, 99% of the substandards are current. And the increase was due to a handful of multifamily properties that are in lease up. The credit team's not concerned about those. In fact, they've got a weighted average loan to value of 52%. So really, tons of equity. It's just a timing issue in lease up.

Okay, great. Thank you.

Our next question comes from Gary Tenner from DA Davidson. Please go ahead. Your line is open.

Thanks. Good morning, everybody. Just wanted to ask a little bit about the loan production side. I know the $3.9 billion was a great number. Just curious if you could tell us how much was in Texas, or if you want to combine Texas and Colorado, and then what the comparative third quarter levels were for the same market?

Yeah, so in Texas and Colorado, their production was 888. Texas and Colorado combined, $888 million. So that's 15% higher than the third quarter, which was $775 million. If you take those markets for the entire year of 2025 versus 2024, production's up 10%. So we're continuing to see the pipelines build and our recruiting. Dan Strudel, who's our president out there, has been very successful. Of the 26 commercial RMs that we added in the fourth quarter, 17 of those were in Texas and Colorado. So those guys have kind of weathered through the conversion and have got a lot of momentum headed into 2026. Thanks.

Appreciate that. Within that same footprint, in terms of the type of production you're getting, does it remain real estate heavy, and would they move to shift it towards more traditional CNI, or what's the mix that you're seeing there?

Historically, they've been a great mix. CRE lender, and we want them to continue to do exactly what they've been doing historically. But we see an opportunity with some of the tech platform, the treasury management platform, the capital market platform that SouthState is introducing to layer on top of their commercial real estate business with C&I bankers. And that's where a lot of Dan's recruiting activity is occurring. So we'll see that.

in 2026 but we don't want them to stop what they're so good at have been so good at all right thanks again for any additional questions please press star followed by the number one our next question comes from david bishop from hovde group please go ahead your line is open yeah good morning gentlemen hey and just in terms of the hiring efforts you mentioned there um you've

Richard Murray, You mentioned the disruption, I think over, I think it was close to 120 billion in terms of bank deposits going through the conversions and such. Richard Murray, You know, as we look out into the year, you know, you mentioned the 26th year, you know, are there, you know, sort of calling efforts, do you have like list of bankers, list of, you know, list of clients you're looking to target? Do we see something similar to that, maybe in the latter half of the year in terms of lift-up?

David Morgan, Yeah, Richard Murray, President of our bank kind of leads that effort with the group presidents, and they've got a very formal pipeline process of onboarding new bankers, just as we do with new clients. In the third quarter, there were 200 bankers that were on our list that we were having conversations with. In the fourth quarter, it grew to 237. And we're going to hire a small percentage of those But those conversations are very, very active.

Perfect. All my other questions, we'll ask the answers.

Thanks. And we have no further questions. I would like to turn the call back over to John Corbett for closing remarks.

All right. Well, thank you again for joining us this morning on our call. Thank you for your interest in following our company. And if you have any follow-up questions about your models, don't hesitate to contact Will and Steve. Hope you have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.