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South State Corporation (SSB) reported stronger-than-expected earnings for the second quarter of 2025, with earnings per share (EPS) of $2.30, surpassing the forecasted $1.85. The company’s revenue also exceeded expectations, reaching $664.77 million against a forecast of $645.54 million. Following the announcement, South State’s stock saw a modest increase of 0.61%, closing at $97.90. With a market capitalization of $10 billion, InvestingPro analysis suggests the stock is currently undervalued, supported by strong financial health metrics and consistent dividend growth over 13 consecutive years.
Key Takeaways
- South State’s EPS of $2.30 exceeded forecasts by 24.32%.
- Revenue for Q2 2025 was $664.77 million, a 2.98% surprise over estimates.
- Stock price increased by 0.61% in post-earnings trading.
- Loan yields and net interest margin showed significant improvements.
- The company completed strategic integrations and expansions in Texas and Colorado.
Company Performance
South State Corporation demonstrated robust performance in Q2 2025, building on its strategic focus in high-growth markets like Texas and Colorado. The company successfully integrated Independent Financial with minimal disruption, contributing to its operational efficiency and market strength. Loan yields improved to 6.33%, and the net interest margin increased to 4.02%, reflecting effective interest rate management.
Financial Highlights
- Revenue: $664.77 million, exceeding forecasts by 2.98%.
- Earnings per share: $2.30, a 24.32% surprise over the expected $1.85.
- Pretax Pre-Provision Net Revenue (PPNR): $314 million.
- Net Interest Income: Increased by $33 million from Q1.
- Non-Interest Income: $87 million.
- Non-Interest Expense: $351 million, aligning with the lower end of guidance.
Earnings vs. Forecast
South State’s Q2 2025 EPS of $2.30 significantly surpassed the forecasted $1.85, marking a 24.32% surprise. This positive result highlights the company’s effective cost management and strategic market positioning. The revenue of $664.77 million also exceeded expectations by 2.98%, underscoring strong operational performance.
Market Reaction
Following the earnings announcement, South State’s stock price rose by 0.61%, closing at $97.90. This movement reflects investor optimism, driven by the company’s earnings beat and strategic growth initiatives. The stock remains within its 52-week range, with a high of $114.27 and a low of $77.74, indicating stability amidst broader market trends.
Outlook & Guidance
Looking ahead, South State anticipates continued growth, with expectations of mid-single digit loan growth and no rate cuts in 2025. The company forecasts an average earning asset base of $58 billion for the year and aims for a net interest margin between 3.8% and 3.9%. Projections for 2026 include potential upper single-digit growth, driven by strategic expansions and product enhancements. Analyst consensus remains bullish, with price targets ranging from $105 to $120, suggesting potential upside. InvestingPro analysis reveals the company’s 5-year revenue CAGR of 22%, indicating strong historical execution of growth strategies.
Executive Commentary
CEO John Corbett emphasized the company’s strategic positioning, stating, "Our goal has always been to build the company in the best geography in the country with the best scale and to build the best business model." He highlighted the successful integration into fast-growing markets, asserting, "We’re now firmly established in the fastest growing markets in the country."
Risks and Challenges
- Economic fluctuations could impact interest rates and loan demand.
- Integration challenges from recent acquisitions may arise.
- Competition in high-growth markets like Texas and Colorado remains intense.
- Regulatory changes could affect operational strategies.
- Potential macroeconomic pressures, such as inflation, could influence cost structures.
Q&A
During the earnings call, analysts inquired about deposit cost stabilization, with executives projecting costs to stabilize around $375,000. The company also addressed its positive interest rate sensitivity and continued focus on organic growth and talent acquisition, signaling potential for opportunistic share buybacks.
Full transcript - South State Corp (SSB) Q2 2025:
Eric, Conference Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the South State Corporation Q2 twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.
I would now like to turn the call over to Will Matthews. Please go ahead.
Will Matthews, Executive, South State Corporation: Good morning, and welcome to South State’s second quarter twenty twenty five earnings call. This is Will Matthews, and I’m here with John Corbett, Steve Young and Jeremy Lucas. We’ll follow our typical pattern of brief remarks followed by Q and A. I’ll refer you to the earnings release and 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 risks and uncertainties, which may affect us. Now I’ll turn the call over to you, John.
John Corbett, CEO, South State Corporation: Thank you, Will. Good morning, everybody. As always, thank you for joining us. In January, we closed the Independent Financial transaction, a deal that we projected to be 27% accretive to our earnings per share. In the first quarter, the bank’s earnings accelerated just as we forecast, but loan growth stalled with all the economic uncertainty.
Remember though, we mentioned in April that our loan pipelines were growing significantly in the spring. As you can see in the deck, the pipeline growth in the first quarter led to a 57% increase in loan production from around $2,000,000,000 a quarter to over $3,000,000,000 in the second quarter and that led to solid loan growth. In Texas and Colorado specifically, loan production increased 35% and non PCD loans grew by about $200,000,000 The loan momentum in Texas and Colorado occurred in the same quarter that we successfully completed the conversion of the computer systems. I’d be remiss if I didn’t recognize and thank our Texas and Colorado team for their great work navigating through the conversion. It was tremendous teamwork all around, including 400 people who left the Southeast for three weeks to serve as ambassadors to help with the transition.
And a special thank you to all the operations, IT, risk, finance and HR teams that numbered over 1,000 people who made this conversion one of the best we’ve ever done. Now that the independent financial integration is complete, we’ve had some time to reflect on the progress that we’ve made. Our goal has always been to build the company in the best geography in the country with the best scale and to build the best business model. We believe that those three priorities will ultimately yield the best shareholder value. By adding Texas and Colorado to the franchise, we’re now firmly established in the fastest growing markets in the country.
And at $66,000,000,000 in assets, we’ve achieved a scale that’s enabled us to make the necessary investments in technology and risk management, while simultaneously producing top quartile financial returns. Just look at the second quarter. Adjusted for merger costs, South State’s return on assets was 1.45 and our return on tangible common equity was nearly 20%. And finally, entrepreneurial business model is producing a superior customer experience and a superior employee experience. Our retail bank ranks in the top quartile of J.
D. Power’s Net Promoter Score and the scores are improving every year. Our commercial and middle market bank collectively ranked in the top 5% for award recognition in 2025 of the 600 banks tracked by Coalition Greenwich. And our level of employee engagement ranks in the top 10% of financial institutions in America according to this year’s employee surveys. So we built a team of professionals that is talented and engaged with a heart for serving each other and serving our clients.
And it’s a team that’s delivering top financial returns for our shareholders. We’ve now put the independent financial conversion in the rearview mirror. And as we look ahead to the prospects of an improving yield curve, we’re in a great position to focus on and accelerate the bank’s organic growth. Given the strength of our earnings growth and our capital levels, the Board of Directors felt comfortable this week to increase our dividend by 11. Will, I’ll turn it back to you to walk through the moving parts on the balance sheet and income statement.
Will Matthews, Executive, South State Corporation: Thank you, John. As always, I’ll hit a few highlights focused on operating performance and adjusted metrics, and then we’ll move into Q and A. We had another good quarter with PPNR of $314,000,000 and $2.3 in EPS. Net interest income grew by $33,000,000 over Q1, only $2,000,000 of which was due to higher accretion. We continued to perform well in cost of deposits, which came in at 1.84%, a five basis point improvement from Q1.
Our loan yields of 6.33% improved eight basis points from Q1 and were approximately 22 basis points below our new origination rate for the second quarter. Loan yields in the quarter also benefited from early payoff on acquired loans, including some PCD loans. Excluding $14,000,000 in early payoff accretion, loan yields of $620,000,000 were one basis point higher than Q1. And loan yields excluding all accretion were up seven basis points from Q1. Additionally, the second quarter had a full quarter’s benefit of the Q1 securities portfolio restructuring, driving the yield on securities 51 basis points higher.
So to recap, and you can see this in the waterfall slide in the deck, of the 17 basis points improvement in the NIM, approximately five basis points of NIM improvement was due to lower cost of deposits, six basis points was due to loan coupon yields, and seven basis points was due to a full quarter of the securities portfolio restructuring. As always, Steve will give some updated margin guidance in our Q and A. Non interest income of $87,000,000 was similar to Q1 levels with improvement in our correspondent business offset by a slight decline in our mortgage revenue. On the expense side, NIE of $351,000,000 was at the low end of our guidance, and our second quarter efficiency ratio of 49.1% brought the six month year to date ratio below 50%. Credit costs remain low with a $7,500,000 provision expense essentially matching our six basis points in net charge offs.
We had one additional day one PCD charge off of 17,000,000 on an acquired independent relationship. This is an as of acquisition date impairment where there were conditions in existence at the January 1 closing date that we became aware of during the quarter. We continue to have strong loss absorption capacity. Asset quality remains stable and payment performance remains very good. Our capital position improved again with CET1 and TBV per share growing nicely.
It’s worth noting that tangible book value per share of $51.96 is up 8.5% from the year ago level, even with the dilutive impacts of the IBTX merger. Our TCE ratio is also higher than its June 2024 level. Additionally, our strong capital and reserve position and the rate at which we’re growing capital continues to provide us with good capital optionality. That includes this quarter’s 11% dividend increase and other options, including the potential to repurchase shares opportunistically should we choose to do so. Operator, we’ll now take questions.
Eric, Conference Operator: Your first question comes from the line of Catherine Mealor with KBW. Please go ahead.
Catherine Mealor, Analyst, KBW: Thanks. Good morning.
Steve Young, CFO, South State Corporation: Good morning.
Catherine Mealor, Analyst, KBW: Thought we could just start on your outlook for the margin. Cash, it was just really great across the board on securities, loan yields, deposits. We kinda got everything all at once. So just, you know, curious if you think there’s still upward momentum. We’re now at the kind of the top end of of the range that I would have expected.
Is is there the ability to still expand the margin from here? And just curious for your outlook for the margin in back half of the year. Thanks.
Steve Young, CFO, South State Corporation: Yes. Sure, Catherine. This is Steve. Yes, like
Steve, CFO, South State Corporation: you mentioned, net interest margin this quarter is very strong at four zero two. I think we have a slide on page 12 that talks about that. Our guidance this last quarter was between $380,000,000 and $390,000,000 so significant beat. Approximately half of that beat related to our expectations of loan coupon securities deposit costs as you mentioned that is higher than better than we thought. And then half of it related to our expectation of loan accretion which was a little bit higher than we thought due to some higher PCD accretion from early payoffs and you can see that in our PCD balances.
Page 13, as Will mentioned in his opening comments, describes the change quarter over quarter in NIM. And just I think the highlight are all the loan coupon increase, security coupon increase and the cost of deposits. So that makes up the 17 basis points quarter to quarter. As we think about the guidance to be just simply there’s really no significant change to the guidance as we see it. Sometimes as we look at these quarter to quarters and as it relates to accretion sometimes it’s looking at the portrait versus looking at the movie.
And I think the portrait from quarter to quarter can get a little noisy. But the movie is kind of where we’re going to continue to guide you towards and that’s over the next eighteen to twenty four months. But as we think about the assumptions, the main assumptions around that are the size of interest earning assets, the rate forecast and then lastly the loan accretion. For us, the interest earning assets, we reiterate our guide from last quarter that we would have average earning assets to be roughly $58,000,000,000 for the full year in 2025. And then in the fourth quarter average, we’d exit somewhere in the $59,000,000,000 That’s a mid single digit growth rate and we sort of see that going into 2026.
But as John mentioned in his prepared remarks, we’ll see how the growth outlook evolves over time. So really no change in guidance to the interest earning assets. On the rate forecast, we just we don’t see rate cuts this year, so we’re trying to keep it simple and then we can talk later about interest sensitivity. And then accretion, loan accretion based on our models, we would expect loan rate accretion to total approximately $200,000,000 maybe slightly higher than that for 2025, of which we’ve recognized about 120 we’ve recognized 125 so far this year. So 200,000,000 in total for 2025, but we recognize 125,000,000 So that indicates we have, I don’t know, 75,000,000 $165,000,000 left or so for this year.
And then we expect in our models based on prepayments and others, we expect about $150,000,000 in 2026 of accretion. So as a reminder, we have about $393,000,000 left of the discount. So anyway, based on all those assumptions, we’d continue to expect NIM to be between 3.8 and 3.9 for the remainder of the year and to drift higher in 2026 as the combination of the legacy South State loan book continues to reprice up. So no change to any of the guidance that we talked about, except that if, obviously, if rates or if our growth rate got higher, then certainly net interest income would move higher.
Catherine Mealor, Analyst, KBW: That makes sense. Okay. And so and within that, so it seems I guess within that 75,000,000 to $80,000,000 of accretion left in the back half of the year, I guess that’s just your base level. So it doesn’t assume any accelerated accretion, but we’ve gotten that the past two quarters. So we may hit that, but that’s just kind of your base levels.
Steve, CFO, South State Corporation: Yeah. Our our base level, you know, it’s hard to tell some of these things. Like last quarter, there was a fair amount of PCD. You know, if you look at our PCD loans, they were down 225,000,000. That was higher than we expected, which, you know, it’s a good thing.
It affects accretion, certainly affects the allowance too. But ultimately, we would not expect those PCDs. Some of that is just our people resolving some of those as we get our hands around the iBTx portfolio.
Catherine Mealor, Analyst, KBW: Great. That makes sense. Okay. And maybe one more just on the growth outlook. The origination, the slide that you where you show originations, it seems like you’ve really got some momentum in the origination volume, which is so great to see.
So just curious if for your growth outlook, I I know mean, you said average earning assets are still kind of heading towards $59,000,000,000 but is it fair to assume an improvement in the bottom line organic growth rate in the back half of the year, maybe kind of closer towards that kind of mid to high single digit levels?
John Corbett, CEO, South State Corporation: Hey, Kevin, it’s John. I think we’ve guided to mid single digits for the remainder of the year and that’s kind of where we wound up in the second quarter in the mid single digit range. But this kind of played out the way we talked about in April with that pipeline increasing as much as it did. It translated into a really big spike in production and that led to the loan growth. And I’d say going forward, we’re getting more bullish, but we don’t know for sure.
The pipeline loan pipeline increased 45% in the first quarter, but then in the second quarter, the pipelines increased another 31% on top of what it grew in the first quarter. So that tends to make us feel a little more bullish that mid single digits is probably still appropriate for the next couple of quarters. But if the yield curve becomes more favorable, I think it’s likely we could move to the mid to upper single digits growth probably next year.
Catherine Mealor, Analyst, KBW: Great. Makes sense. Thanks. Great quarter. Appreciate it.
Will Matthews, Executive, South State Corporation: Thank you.
Eric, Conference Operator: Your next question comes from the line of John McDonald with Truist Securities. Please go ahead.
John McDonald, Analyst, Truist Securities: Hi, good morning. Just wanted to follow-up on Steve’s comments there on the NIM and the NII. Inside of that, what surprised you about deposit costs which were very strong this quarter? And what’s your outlook for the deposit costs inside that NIM guidance?
Eric, Conference Operator: Yes, that’s a good question, John.
Will Matthews, Executive, South State Corporation: This is
Steve Young, CFO, South State Corporation: Steve. Just to kind
Steve, CFO, South State Corporation: of take you back up to the movie versus the portrait or Polaroid, I think if we go back a couple of quarters, if you looked at IBTX and us together, the peak cost of deposits was in the third quarter at $2.29. And and, of course, last quarter, it was $1.84, so a 45 basis point improvement. So 45, you know, percent beta on a 100 basis points. And, you know, we only modeled 27%, just because we thought it would be a bit different. Having said all that, I think we’ve optimized the deposit base, and I would kinda look at it that as we continue to grow loans if we’re in a situation where we’re in the mid single digit maybe even a little higher than that, those deposit costs on an incremental basis will go up a little bit.
So our forecast is that those deposit costs to be in the 375,000,000 range over the next few quarters just as we continue to kind of grow on that. But even at that, that would be a 40% beta or something like that, which is better than we thought.
John McDonald, Analyst, Truist Securities: Thanks. And then just on the loan growth another follow-up. In terms of the pull through of the strong production to net loan growth, what are you seeing on pay downs? Any change in the pay down pace and activity that’s affecting the difference between the gross production and what you’re seeing in terms of net loan growth?
John Corbett, CEO, South State Corporation: Yes. The paydowns in the first quarter were actually lower than normal. We went back and looked at independent and South State combined for the last four or five quarters even before we closed, the second quarter paydowns returned to a little more normal. It was a little more elevated than the last five quarter run rate. So I think that the level of pay downs in the second quarter is probably appropriate for where we go from here.
A lot of this has to do with not just pay downs, but how much the loan originations fund initially versus over time. And we’re funding around about 60% of that production. So there is some additional funding that will occur over time. Got it. Okay, great.
Thank you.
Eric, Conference Operator: Your next question comes from the line of Stephen Scouten with Piper Sandler. Please go ahead.
Stephen Scouten, Analyst, Piper Sandler: Hey, thanks. Good morning, everyone. Steve, if you could maybe talk a little bit about the interest rate sensitivity as well as you noted. Just kinda wanna make sure that’s still the way I think about it. And I think you said you you see the NIM going higher in in in ’26, assuming that has some cuts baked in and that you guys are still kind of a net beneficiary if we get a little bit of rate cuts on the lower end but steepness of the curve?
Steve, CFO, South State Corporation: Sure. No. Good question. As it relates to the interest rate sensitivity, I think we talked about it last quarter, but really no change from our guidance as we model it and our team models it. We expect somewhere in the one to two basis point improvement to overall margin for every 25 basis point cut.
So I guess if the Fed ends up cutting rates 100 basis points, maybe that’s four, five, six basis points on the run rate when all that’s finished. And sort of the math behind that is we have about 30% of our portfolio loan portfolio is a floating rate portfolio. So, that’s 14,600,000,000 Of course, that gets cut immediately. We have about a little over $14,000,000,000 in exception price deposits that we think that over time we get about 80% of the beta on that. And then we have CD book, which is 7.7.
We think we get 75% of that. So, you know, that’s sort of been our history. We’ll we’ll we’ll to see. But that’s sort of the math behind, that one to two basis points. And then on the loan repricing piece, without any rate cuts, we should continue, as I mentioned in my remarks, that margin should continue to increase.
Really, math behind that is the fixed rate loan repricing of the legacy South State. So if you think about over the if you kind of look at the eighteen month period from here to the end of twenty twenty six, the legacy South State, the unmarked book, has about $6,600,000,000 of loans repricing that, on average over that period of eighteen months is about 5%. The coupon is about 5%. And we think, obviously, our new loan production this past quarter was six fifty four. But yes, we’re modeling sort of a 6.25% over that period of time.
So you pick up percent in the quarter on that. And then of course on the independent portfolio, we have about $3,000,000,000 over the next eighteen months that will mature reprice on the fixed book. And of course that discount rate is somewhere in
John Corbett, CEO, South State Corporation: the 7.25%
Steve, CFO, South State Corporation: range. So if that’s true, that would be negative by about if we want to use the same number 6.5% by one percent. So the positive would be, you know, dollars 6,600,000,000.0 repricing up 1.25% and the negative would be $3,000,000,000 pricing down at 1%. The net of all that is about $50 ish million or about 10 basis points positive on loan yields. So that’s how we’re kind of thinking about the moving parts from here.
A lot of the sensitivity of the interest rates have already been taken out because of the independent marks. What’s left is the legacy South State repricing book and then any rate cuts on top of that. So hopefully, that’s helpful if you think about it.
Stephen Scouten, Analyst, Piper Sandler: Yeah. No. That’s great detail, especially about the the puts and takes on legacy SaaS state versus ibtx. Appreciate that. I guess, you know, maybe if we could touch on the the deal that was announced last night, maybe not that specifically, but just m and a in your markets even.
How do you think about, how this location could benefit you all? Would you have any governor to adding people and talent if if they, become available? Just kind of how you think about the dynamics of the market and your ability to take advantage of that moving forward?
John Corbett, CEO, South State Corporation: Yes. I mean, look about where we are. I’m really glad we made our move in Texas when we did in early twenty twenty four. That was really before the competition heated up and I think that timing gave us an early mover advantage. For us, we’re not pursuing anything now.
The way the bank is performing, the bar is high for us and we can afford to be patient and selective on M and A plus we think our multiple is cheap. But our top priority now is that we’re firing on all cylinders in Texas and Colorado. The conversion went great and the organic pipelines in Texas and Colorado grew by 31% last quarter. That’s what we’re focused on. And with all the disruption of M and A in the Southeast and Texas, that always creates opportunities and South State’s positioned in the right spot.
Stephen Scouten, Analyst, Piper Sandler: Got it. But nothing that would deter you from adding, you know, if a team of, let’s just say, 10 or 20 people came around, you’d go ahead
Steve, CFO, South State Corporation: and do that if it was right.
John Corbett, CEO, South State Corporation: I mean, yeah, absolutely. We added 47 revenue producers in the second quarter. So that’s part of our DNA is constantly recruiting. And with all the disruption in Texas and Southeast, we’ll continue to do that.
Steve Young, CFO, South State Corporation: Perfect. Thanks for
Jared Shaw, Analyst, Barclays: the color. Great quarter.
Eric, Conference Operator: Your next question comes from the line of Jared Shaw with Barclays. Please go ahead.
Jared Shaw, Analyst, Barclays: Hey, good morning.
Steve, CFO, South State Corporation: I guess just looking at you call out the regulatory sweet spot of 60,000,000,000 to $80,000,000,000 How do you see that trending? You’re in there right now. How do you see that trending over time? Do you think if we see some concrete change in regulation for $100,000,000,000 that your platform can naturally grow above that without any more big investments? Or how should we think about that regulatory sweet spot changing over time for you and scale?
John Corbett, CEO, South State Corporation: Yes. I mean, it’s in the news every day. You’ve got new regulators in place. They’re making changes.
Jared Shaw, Analyst, Barclays: But I mean, way I
John Corbett, CEO, South State Corporation: think about it, we’re a long way from $100,000,000,000 at $66,000,000,000 in size. So we’ve got a long time to continue building the infrastructure. Our Chief Risk Officer, Beth D. Simone, has done a fabulous job managing the heightened expectations over the last four or five years as we cross 50. We’ve got great relationships with our regulators.
We’ll just have to watch and see how the regulation evolves, but we’ve got a long time before we’re faced with that. Okay. Thanks.
Eric, Conference Operator: Your next question comes from the line of Michael Rose with Raymond James. Please go ahead.
Steve Young, CFO, South State Corporation: Hey, good morning, guys. Thanks for taking my questions. Will or Steve, just any updates on the expense outlook? Looks like you were at the lower end of the range for for this quarter. Maybe just some color on on what drove you to the lower end of the range and any updates as we kind of think about what you previously said around the back half of the year just as a starting point?
Thanks.
Will Matthews, Executive, South State Corporation: Yes, Michael. And I guess the short answer is really no change to our prior guidance. I mean, looking at consensus, you guys have we think a good number in there for the remainder of this year and 2026. So I’d say really no change to our guidance. There are always some moving pieces as you well know relative to revenue based compensation, some of the business lines.
You’ve got loan origination volumes that impact your deferred loan costs, all those kind of things that move in and out. You’ve got incentive comp, all that sort of stuff. But so any variability between what I last time I think I said between $350,000,000 and $360,000,000 this quarter. So we were at the low end of that range. But all those kinds of things can factor in.
We’ve done a good job in executing on the cost saves, so we still feel very good about that part of the integration with independent and really sticking with our guidance on NIE.
Steve Young, CFO, South State Corporation: Perfect. Then maybe just
Will Matthews, Executive, South State Corporation: One comment I forgot to mention. Just a reminder, I’ve said it before, but July 1 is when much of our team across the company gets their merit increases. So that’s also factored into my guidance as well that the third quarter will be will reflect that too.
Steve Young, CFO, South State Corporation: Perfect. Appreciate it. And maybe just as my follow-up. You know, I know it’s still early days, but anything on the on the revenue synergy front, that we should be contemplating now that we’re another ninety days past, the the deal? And then, just from a retention standpoint, how has that held up relative to kind of your original expectations?
Thanks.
John Corbett, CEO, South State Corporation: Yeah. It’s held up great. As I’ve mentioned previously on these calls, we went to all the geographic leaders before the announcement, and they all signed up with employment agreements before the announcement. And then we went to the it was the top 47 revenue producers with retention kind of packages, and and all of them joined up and and did that. So we’ve been very, pleased and and the leader we’ve got in Texas and Colorado, Dan Stroedel, highly respected in the bank with that team and he’s done a great job and the bankers are doing a good job.
So, and we’re hiring. I think in I mentioned those revenue producers we’ve added. We added two in Houston. We added two in Colorado. We added one in Dallas.
So they’re out recruiting.
Steve Young, CFO, South State Corporation: And then just on the fee side, the synergy side, anything that should be contemplated?
John Corbett, CEO, South State Corporation: One thing that’s been a real positive, Independent was a really good CRE lender and we’ve got the interest rate swap product, Michael, the capital markets product where we make a fees and they’ve been quick adopters to that. So that’s been a nice source of fee revenue.
Steve Young, CFO, South State Corporation: All right. I’ll step back. Thanks for taking my questions.
Eric, Conference Operator: Your next question comes from the line of Gary Tenner with D. A. Davidson. Please go ahead.
Steve Young, CFO, South State Corporation: Thanks. Good morning. I wanted to just ask a question about kind of deposit rates. I know you gave kind of a 185 to 190 range for the back half of the year. But on the CD side, guess I’m curious, a, the amount of growth there this quarter was pretty notable just from a sequential quarter comparison.
So wondering about kind of the push there. And then the the rate paid didn’t come down maybe quite as much as I would have assumed. So I’m just wondering kind of how that market is shaping up from a pricing perspective. Yeah. No, Gary.
This is Steve. You know,
Steve, CFO, South State Corporation: when we closed and you didn’t have the benefit of seeing this, but when we closed the, independent transaction, if you looked at our twelvethirty one numbers, I think our CD balances would have been a little over $7,500,000,000 or so. And a lot of that has to do with, you know, we’re trying to balance sheet manage this. Of course, there’s a lot of moving parts and putting it together. And so in the first quarter, even though I think we grew it grew deposits a little bit, our our CDs actually shrunk, although that was the first time we reported together, so you didn’t see that. What, you know, what is happening now is just the growth rate, you know, phenomenon, you know, and and in the first quarter, we didn’t, as we mentioned before, didn’t grow loans.
This quarter, we did, and we think we will. And so, you know, it’s going to be on the incremental, you know, new deposit side. It’s just going to be at a higher funded rate until they cut rates. And so that’s all I would say about that. I think, you know, if our balance sheet was flat, we would probably stay here.
But on the incremental growth as we record 6.5 loans and we’re going to have to fund those incremental loans with incremental deposits and those rates will be a little bit higher on the incremental margin.
Steve Young, CFO, South State Corporation: Okay. Appreciate it. And then follow-up question just on the loan yields, the seven basis points expansion kind of ex accretion. I know, I think, Will, you kind of offered some reasons why that moves around. But was the normalization of prepays this quarter a notable driver of that expansion?
Or is it more mix and production yields? Yes. This is Steve. I guess if you
Steve, CFO, South State Corporation: take all accretion out and we show this on the waterfall, our loan yield went from 5.71% last quarter to 5.78%. So or 5.7%, yes, something like that, seven basis points or so on the loan yield. And so there’s a repricing component to that. But obviously, as we mentioned on the accretion and a lot some of that was the PCD accretion, it was higher than we thought and that’s because I think we worked some of those relationships out or did. So, you know, anytime you accelerate some of that back to the individual quarters, there’s gonna be some noise in that.
But if I had to kind of, you know, kind of bring you back to what we said last quarter and thinking about total loan yield, we we sort of said, you know, it should range this year in the six fifteen to six and a quarter range. And then if you kind of think about the comments I just made in a flat rate environment and the repricing of our loans from legacy South State as well as legacy independent, you know, you would see another, you know, 10 basis points higher over, you know, now almost kinda in the eight to 10 basis points a year range. So I know one of the research analysts put out a report a few weeks ago just trying to, you know, show the total loan yield, which is kinda how we think about it. You know, in a flat rate environment, you know, our total loan yield in the in the next, you know, two years would be, you know, call it 20 basis points higher than it is today. But I doubt we’ll be in flat rate environment and I doubt everything will be similar.
But that’s kind of how we’re thinking about loan yield. This year six fifteen to six in the quarter, we’ve little over performed a little bit and because of some of the PCD and other things. But long term it continues to march higher in a flat environment.
Eric, Conference Operator: Thank you. Your next question comes from the line of Samuel Varga with UBS. Please go ahead.
Jared Shaw, Analyst, Barclays: Hey, good morning. I just wanted to ask a question on the allowance. Well, you gave some great color last quarter around not shifting the scenario weightings, but having a Q factor adjustment in there for tariffs. Can you touch on where that adjustment is today and sort of how you’re trying to bake that in moving forward and where the allowance might go as a result?
Will Matthews, Executive, South State Corporation: Sure, sure, Sam. Good question. I’d say this about the reserve level. A couple of things. One, if you look at Slide 21 on deck, can see obviously our charge off history is very low, 51 basis points cumulatively over ten years plus a quarter.
So at some point, data seeps its way into the regression analysis that drives loss estimates and reserve balances. We’ve been through a pretty uncertain period in the economy these first couple of quarters obviously with the tariff uncertainty, etcetera, which has driven some of those Q factor items that we mentioned last quarter. Those continued this quarter. We did actually adjust our scenario winning this quarter a little bit more pessimistically than it was in the first quarter. But I’d say stepping back, if you look at the reserve level, if we see stability in the economy and the economic forecast, I think it is reasonable to say that we could see reserve levels decline as a percentage of loans.
If you look back when we adopted CECL, of course, the company was smaller then, but the reserve was down 115, 120 basis point range. Other thing to keep in mind too, Steve referenced that the PC loans declined at a more rapid rate in the second quarter. That’s really like a 25% annualized decline rate. PCD loans, not only are they marked in a little bit higher interest rate, but they carry a higher reserve. So reduction in PC loans is also going to put downward pressure on reserve levels.
So all that being said, it’s always difficult to predict, but I think it’s reasonable to expect that over time with a stable economy, you see our reserve levels probably move down.
Jared Shaw, Analyst, Barclays: Great. Thanks for that. And then John, could you just touch on capital allocation from here? The buyback word came up. Just curious on how you think about it over the next eighteen months.
John Corbett, CEO, South State Corporation: Yeah. With the with the earnings improving the way they have, you saw our PPNR per share increasing substantially in the last year. The board felt comfortable to move the dividend rate up. We moved the rate up, 11%, and we think we’re in a position to annually consistently see that dividend rate increase. So that’s naturally a priority.
We do believe there’s opportunities on the buyback. I mentioned that I feel like our currency is cheap right now, so there could be some opportunities there. And then we’re watching these loan pipelines continue to grow and opportunities to recruit. So that would be the other main priority as well as organic growth.
Will Matthews, Executive, South State Corporation: Yes. And I’ll just layer in Sam a couple of comments. One, I think I previously said that we saw our CET1 growing twenty, twenty five basis points a quarter. So if we do some buyback maybe that number drops down to the 10%, 15%, 15 to 20% range. We in the first quarter did some capital actions with respect to the sale leaseback and then restructuring the bond portfolio, which as we saw with the impact of that on the margin.
But if you look at our CET1 today with AOCI included in the calculation, we’re actually above the level we were a year ago. We were at almost 10.5 at the end of the second quarter on CET1 with AOCI. So a healthy position for CET1 as calculated and if you calculate it with AOCI included, that’s about 12 basis points above where we were a year ago. So that does give us some good optionality and some opportunity to think about different options.
Jared Shaw, Analyst, Barclays: Great. Thanks for taking my questions.
Eric, Conference Operator: I will now turn the call back over to John Corbett for closing remarks. Please go ahead.
John Corbett, CEO, South State Corporation: All right. Well, thank you guys for spending some time with us this morning. As always, if you have any follow-up questions, feel free to give Will and Steve a ring, I hope you have a great weekend.
Eric, Conference Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining, and you may now disconnect.
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