Earnings call transcript: South State Corp Q1 2025 beats EPS forecast

Published 25/04/2025, 15:12
Earnings call transcript: South State Corp Q1 2025 beats EPS forecast

South State Corp (SSB), a regional bank with a market capitalization of $9 billion, reported its Q1 2025 earnings, surpassing expectations with an EPS of $2.15, significantly higher than the forecasted $0.88. The company also reported revenues of $630.64 million, exceeding the anticipated $611.62 million. Despite these strong results, the stock price saw a decline of 1.39% in after-hours trading, closing at $89.75, reflecting a complex market reaction. According to InvestingPro analysis, the stock currently trades below its Fair Value, suggesting potential upside opportunity. InvestingPro subscribers have access to detailed valuation metrics and 6 additional key insights about SSB.

Key Takeaways

  • South State Corp’s EPS of $2.15 significantly outperformed the forecast of $0.88.
  • Revenue reached $630.64 million, beating expectations by $19.02 million.
  • The stock price fell by 1.39% despite strong earnings, closing at $89.75.
  • Net Interest Margin (NIM) was reported at 3.85%, above the guided range.
  • The company completed a significant integration with Independent Bank.

Company Performance

South State Corp demonstrated robust performance in Q1 2025, with its earnings reflecting strong operational efficiency and strategic growth initiatives. The company’s net interest margin of 3.85% exceeded its guidance and highlighted its effective interest rate management. With a P/E ratio of 13 and revenue growth of 4.7% over the last twelve months, the company maintains solid fundamentals. The integration of Independent Bank was completed, indicating progress in its expansion strategy. InvestingPro data reveals the company has maintained dividend payments for 29 consecutive years, demonstrating consistent shareholder returns.

Financial Highlights

  • Revenue: $630.64 million, up from the forecasted $611.62 million.
  • Earnings per share: $2.15, significantly above the forecast of $0.88.
  • Return on tangible common equity: Approximately 20%.
  • Non-interest income: $86 million.
  • Efficiency ratio: 50%.

Earnings vs. Forecast

South State Corp’s Q1 2025 earnings per share of $2.15 marked a substantial beat over the forecasted $0.88, representing a surprise percentage of approximately 144%. This performance is notable compared to previous quarters and indicates strong earnings power as highlighted by the CEO.

Market Reaction

Despite the earnings beat, South State Corp’s stock fell by 1.39% in after-hours trading. The stock’s decline, closing at $89.75, suggests a cautious investor sentiment possibly influenced by broader market conditions or future growth concerns. The stock remains within its 52-week range of $70.68 to $114.27. Analyst consensus from InvestingPro shows strong buy recommendations, with price targets ranging from $95 to $130, suggesting potential upside. For comprehensive analysis including Fair Value calculations and growth projections, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

Looking ahead, South State Corp expects low to mid-single-digit loan growth and projects its Net Interest Margin to remain steady between 3.8% to 3.9%. The company is considering potential capital deployment options in the latter half of the year and does not anticipate rate cuts in its current model.

Executive Commentary

CEO John Corbett remarked, "The earnings power of the bank is running better than we expected," highlighting the strong financial performance. He also noted, "We’re not getting paid to grow, so we didn’t," reflecting a cautious approach to expansion amidst economic uncertainties.

Risks and Challenges

  • Economic slowdown and competitive pricing dynamics may impact loan growth.
  • Potential tariff impacts and recession risks are being closely monitored.
  • The company remains cautious about industrial warehouse and port city exposures.

Q&A

During the earnings call, analysts focused on the company’s loan accretion methodology and net interest margin drivers. Questions also addressed the minimal expected deposit attrition post-conversion and the company’s strategic approach to credit and rate marks.

Full transcript - South State Corp (SSB) Q1 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 Self State Corporation Q1 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, Chief Financial Officer. Please go ahead.

Will Matthews, Chief Financial Officer, South State Corporation: Good morning, and welcome to South State’s first 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, and 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 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. Thanks for joining us. For over a year, we’ve been working on three strategic capital management moves that all culminated in the first quarter. The first and the most significant was the closing of the independent financial transaction.

The second was the sale leaseback of bank branches. And the third was the securities restructure that Steve will discuss. So it was a big balance sheet reset that brought our balance sheet closer to current market rates. The result is a materially higher net interest margin of 3.85%. Taken together, these three moves propelled South State’s earnings to an adjusted return on assets of 1.38% and return on tangible common equity of approximately 20%.

So the earnings power of the bank is running better than we expected and PPNR per share has grown by 25% in the last year. So that’s the bright spot. On the other hand, balance sheet growth slowed after good growth last year. Some of the slowdown this quarter was normal seasonality, some was the general economy slowing down, and some was just the result of stiff competition on loan pricing. We’re encouraged though that our pipelines have grown considerably in the last few months and the growth prospects look better in the second quarter.

Asset quality remains fine. Excluding day one acquisition adjustments, non accruals and substandard loans were stable and we only had four basis points in charge offs. Now like all of you, we’re trying to figure out the impact of tariffs on the growth trajectory for the rest of the year. And it’s going to be a progressive revelation over the next few months. Meanwhile, our credit team is working on a top down and a bottoms up analysis by looking at impacted loan segments and by meeting with and listening to our clients.

And our clients are not panicking, but many of them wisely are taking a pause on capital projects. Following the independent closing, we’re fortunate to be starting with higher capital ratios than we modeled. So between a better starting point and industry leading returns, we’re going to be accumulating capital at a rapid pace. So regardless of the tariff impact, we’re going to have flexibility to use the excess capital for either defense or for offense as we progress through the year. The South State teams in Texas and Colorado are doing a great job.

We’ve only been working together for about a year, but it feels like we’ve been partners for much longer. They’re an exceptional team, and they’re going to be a major driver of South State’s performance in the years to come. Everybody is ready to get the conversion in the rearview mirror next month, so we can hit the ground running in the back half of ’20 ’20 ’5. I’ll turn it over to Will to walk you through the details of what was a noisy quarter of balance sheet marks and one timers tied to these three strategic moves. Will?

Will Matthews, Chief Financial Officer, South State Corporation: Thanks, John. I’ll hit a few highlights and make some explanatory comments before we move to Q and A. The quarter had a lot of moving parts with the closing of the acquisition, the sale leaseback and the securities portfolio restructuring. We added Slide 10 to this quarter’s deck, which should help you assess our operating performance versus the impact of each of these items on the quarter. For the remainder of my comments, I’ll address our operating performance and the adjusted metrics, excluding the unusual items.

We had good revenue in Q1, led by the net interest margin. Our tax equivalent NIM improved 37 basis points from the fourth quarter, a bit better than we modeled. A big part of the outperformance was our cost of deposits, which came in at 1.89% when we were modeling closer to 2%. Additionally, we benefited from bringing the independent assets to market rates through the acquisition with earning asset yields of 5.7% leading to a first quarter NIM of 3.85%. Our loan yield improved to 6.25%, approximately 65 basis points below our new origination rate for the first quarter and very close to peer median loan yields as noted on Slide 19.

Loan yield in the quarter also benefited from early payoff on a couple of acquired loans, increasing loan yields by six basis points. Steve will give updated margin guidance in our Q and A. Non interest income of $86,000,000 was slightly below, but generally in line with expectations, giving us total revenue of $630,000,000 On the expense side, NIE of $341,000,000 was lower than anticipated in spite of the CDI valuation coming in higher than modeled and driving amortization expense $3,000,000 higher than we had budgeted. I’d attribute this Q1 outperformance to a couple of primary factors. Delays in hiring budgeted staff and implementation of budgeted projects, which is not necessarily atypical in the first quarter of the year, but also earlier than planned realization of some cost saves from the merger.

Strong revenue and cost saves caused our efficiency ratio to drop to 50% for the first quarter. As John noted, credit costs excluding the non PCD double count provision and acquired PCD charge offs at closing remained low with only four basis points in net charge offs and an $8,000,000 provision. The day one PCD charge offs of $39,000,000 were to bring these acquired loans into compliance with our charge off policy. For the acquired loans, accretable marks were 482000020% of which was a non PCD credit mark, with the remaining 80% being rate marks to bring the independent earning assets to market yields as of the acquisition date. The marks and double count PCL combined with our existing allowance solidified our strong loss absorption capacity.

NPAs were 60 basis points of loans and ORE, down three basis points from year end. Substandard and special mention loans were down 5% to 6% from combined year end levels using our loan grading methodology. As you’ll note on Slide 11, with a CET1 of 11% and TBV of just above $50 our capital position remains very healthy and above the 10.4% level we modeled at the time of deal announcement. Additionally, as John noted, our returns on capital were also strong and higher than our original modeling. This healthy capital and reserve position and strong capital formation rate should allow us to maintain a position of strength and optionality, which is of course valuable in uncertain times such as these.

Operator, we’ll now take questions.

Eric, Conference Operator: Your first question comes from the line of Michael Rose with Raymond James. Please go ahead.

Michael Rose, Analyst, Raymond James: Hey, good morning, guys. Thanks for taking my questions. Morning. Well, can you just give us some color on what drove the accretion income so high this quarter? It was just much higher than kind of I was expecting, I think, where consensus was.

And just given how much accretable yield you have left, it seems like there’ll be a bigger step down as we kind of contemplate the rest of the year. So we just love some color there. Thanks.

Will Matthews, Chief Financial Officer, South State Corporation: Yeah. I mentioned in my comments, we had a component related to some early payoff that drove it up about six basis points in the yield. And I’ll remind you that as you know, in purchase accounting, you’re taking the loan book that was originated in different rate environment and bringing it to current market rates. In bringing the independent loans to that rate. You saw in our Slide 19, we tried to show sort of where our total loan portfolio yield is versus where we’re originating new loans.

It’s still a little bit below. The yield as those loans move towards maturity, the component of the yield that’s represented by accretion, of course, goes down over time. And so we had a little bit of that early payoff and then the rest has been the traditional accretion.

Steve Young, Executive, South State Corporation: Yes. I guess just to chime in, this is Steve. We put in Slide 19 to sort of show what we believe this to look like. And so if you think about the loan yield this quarter for the total loan yield is kind of how we think about it. It’s 6.25% versus our peers this quarter so far.

They’re up 6.1%, which makes sense because we’ve marked more to market than some of our peers, so period might be slightly higher. But we’re putting on new loan production at six ninety because I reflect upon our experience during the great financial crisis and and how we marked credit. There were times that we marked credit 25%, and then we would outperform credit, and then we would have these huge yields going forward at 20%, but we were only putting on loans at 5%. And so there was this idea that there was a clip that was back in the 02/2010 to 02/2017, ’2 thousand ’18 range. In this environment, what we’re trying to show on this slide is, number one, the the marks are much lower.

So the rate mark in this case is about 2.9%, so not anywhere near the other. But what what’s go what’s happening is our portfolio yield is six and a quarter, but our actual new production yield is higher than that. And therefore, there should not be a cliff assuming rate stays, you know, similar. So that that’s kinda how we’re thinking about it. So the idea of accretable is really the concept of PCI accounting and big credit marks.

The way we’re thinking about it is it’s just like our investment portfolio. What we did this quarter was we took the independent investment portfolio that was yielding roughly two fifty basis points. We sold it, and now it’s yielding five. That two fifty basis points, difference is the same thing that really happened to the fixed loan portfolio of independent. And so anyway, that’s I know that we’re probably one of the first ones into the larger discussion here, but the total loan yield should not change.

The accretion part might go down, but the coupon will go up as you reprice.

Will Matthews, Chief Financial Officer, South State Corporation: Yeah. And one more point maybe to clarify too. Of total accretable yield, Michael, about just under 20% of it represents non PCD credit mark. So that’s the only component of the accretable yield that is credit related.

Michael Rose, Analyst, Raymond James: Okay. Helpful. So I think if I’m looking at this right, I think the core margin was down about five basis points. So Steve, based on what you just said, how should we think about the core margin, know, the $3.41 assuming that’s the right number, moving forward just given, you know, some of the dynamics you just spoke about? Thanks.

Steve Young, Executive, South State Corporation: Yeah. So, the core margin to us is the reported margin from here on. And and the reason for that is because just like the securities book, we could have marked that book at 2% and accreted it up to a 5% book. But in in actuality, what we did is we sold it at a 5% coupon, and now we don’t call it accretion. So so just to just to be clear on reported versus core reported is gonna be our core.

And and so maybe to your question, your probably your real question is just around how solid is this NIM going forward. And and so if if that’s your question, I’m happy to answer it if that’s your question.

Michael Rose, Analyst, Raymond James: Yeah. Correct.

Steve Young, Executive, South State Corporation: Okay. All right. Great. All right. So can I maybe I’ll just take a step back, and I know we spent a lot of time on it, but it’s significant piece of the quarter?

Will talked about the NIM in the first quarter was $3.85 versus our guide of $3.60 to $3.70 and say, okay, well, what’s the main difference in that guide, the difference of, call it, roughly 20 basis points? So the main drivers, there’s really four that happened in the quarter. Number one, Will mentioned it, was the deposit costs were 11 basis points lower than our expectation. So that was a significant piece of it. We had a a a better ex a better execution on the deposit strategy.

Number two was the accelerated accretion on early payouts, which was about five basis points to NIM. It was six basis points to loan yield, five basis points to NIM. So those two add up to be, you know, 16 basis points. And then the other two was, the effect of the sale leaseback and the securities restructure we did on our own book. That was about that happened February first of March.

That was two to three basis points this quarter. And then we have a bit of a smaller balance sheet. We thought it would be earning assets would be around 58%, fifty seven point five So those are kind of the four the differences in where our guidance was and where it ended up and a lot of it was deposit outperformance. But as we think about the guidance going forward on NIM, there’s really two big things maybe that would be changing. One is the interest earning asset size.

So in our call last quarter, we originally expected our average interest earning assets to be $59,000,000,000 for the year and to exit the fourth quarter this year in 2025 at around $60,000,000,000 But based on our lower starting point in the first quarter at 57.5% and then slower growth projection of low to mid single digit growth for the remainder of $2,025,000,000,000 We expect our average interest earning assets to be 58,000,000,000 or so for the year and to exit 2025 around 59,000,000,000 So those are that’s the change. But relative to the forecast, we’re forecasting no rate cuts, we can talk about that if somebody wants a follow-up. But based on all those assumptions, we’d expect the NIM to be pretty steady between 3.8 and $3.9 for the rest of the year. And that it would continue to drift a little higher into 2026 as we continue to reprice assets. But to summarize all of that, in our guide last quarter, we expected the fourth quarter twenty twenty five NIM to be in the $3.75 to $3.85 range.

We now expect that NIM in the fourth quarter of twenty five to be $3.80 to $3.90 with a smaller earning asset base, but, you know, essentially with a higher margin, but essentially the same net interest income dollars in the fourth quarter. So I know that’s a lot to say, but there’s a lot of noise around the quarter. I wanted to kind of just clarify it. Really, the only change is higher margin, a little bit less interest earning assets, same, net interest income dollars as we see it today.

Michael Rose, Analyst, Raymond James: Very helpful. Appreciate all the color guys. Thanks a lot. I’ll step back. Thanks.

Steve Young, Executive, South State Corporation: Thank you, Mike.

Eric, Conference Operator: Your next question comes from the line of Catherine Mealor with KBW. Please go ahead.

Catherine Mealor, Analyst, KBW: Thanks. Good morning.

John Corbett, CEO, South State Corporation: Hey, good morning.

Catherine Mealor, Analyst, KBW: Miss, Christian, on expenses, that came in also lower, at least for me this quarter. Just curious, maybe if or some of the cost savings came in earlier or and and then I know conversion is in May. So, Will, if you could just kinda help us think about what a good pro form a expense base is once we get all the cost savings in.

Will Matthews, Chief Financial Officer, South State Corporation: Yeah, Catherine. Last quarter’s call, I laid out an expected NIE range of $355,000,000 to $365,000,000 for the first few quarters, then dropping into the $3.40 to $3.50 range in Q4. And as I said in my comments, we did exceed our expectations in terms of NII in the first quarter for two factors. One, if you look back at last year and other years, we do have a tendency sometimes for hires and projects that are in the budget for first quarter starts to get pushed back a little bit. And that was part of the outperformance in Q1.

That often catches up later in the year. If you look last year from Q1 to Q4, saw our NIE move up about $10,000,000 from Q1 to Q4. That was part of that effect. I’d say the other factor though was we did achieve some of the cost saves earlier than anticipated. We’ve had some support positions leave earlier than anticipated.

So we got some of those cost saves a little ahead of schedule. All that to be said, I don’t think the guide for the rest of the year is that different from what I said three months ago. I think right now, we would say for Q2 and Q3, it’s in the $350,000,000 to $360,000,000 range. And then we get more of the cost saves in Q4, so it’s in the $345,000,000 to $350,000,000 range. It will be our guide today.

Also keep in mind, July 1 is when most of our team is up for a merit increase, so that factors in between the delta. When you get some of the cost more of the cost saves in from q two to q three. You also have that that factored in as well. But, anyway, that that’s where we are on our NIA guidance.

Steve Young, Executive, South State Corporation: And and maybe just to

Catherine Mealor, Analyst, KBW: add one

Steve Young, Executive, South State Corporation: other thing to what Will said, we, and, of course, we talked about the sale leaseback in in in February or at the February. So we’ll have two month three months of that versus one month of additional expense, which

Will Matthews, Chief Financial Officer, South State Corporation: Yes. So that’s about an incremental versus q one incremental roughly 6,000,000 a quarter that’s in there too. Thanks, Steve, for that reminder.

Catherine Mealor, Analyst, KBW: K. So that that incremental 6,000,000 adds in the extra two months?

Steven Skogun, Analyst, Piper Sandler: Yes. Yes. Exactly.

Will Matthews, Chief Financial Officer, South State Corporation: It’s roughly 3,000,000.

Russell Gunther, Analyst, Stephens: A little

Eric, Conference Operator: less than three months for about that.

Will Matthews, Chief Financial Officer, South State Corporation: And as you know, Catherine, there’s also a lot of variable things that are harder to predict that that fluctuate with revenue in terms of incentive compensation or loan origination volume might increase your FAS 91 cost deferral offset. So there’s things like that that, of course, you understand move around quarter to quarter, but but that should give you a good guide.

Catherine Mealor, Analyst, KBW: Yeah. No. That’s something that’s what I was thinking because of of the loan origination was stronger, but the the net loan growth was a little bit slower. So was wondering if that was part of what was going on, you know, in that number. But but that guidance is

Will Matthews, Chief Financial Officer, South State Corporation: really helpful. Pretty close to what we were expecting.

Catherine Mealor, Analyst, KBW: Okay. Okay. Great. And then maybe just one back to just the, fair value accretion question. Did, if I if I look at where your loan discount is plus the accretion that we already saw this quarter, it looks like the loan mark on, IBEX was a little bit higher, whereas I was thinking it was gonna come in a little bit lower with the moving rates.

Am I doing that math right, or is there any way you can just kinda update us on what the loan mark ended up being on that book?

Steve Young, Executive, South State Corporation: I I think the total mark, for non PCD and and, on the credit side as well as the rate mark ended up, what, $4.82 or $4.80 something.

Will Matthews, Chief Financial Officer, South State Corporation: Total equivalent marks $482.83. Right?

Steve Young, Executive, South State Corporation: Yeah. And of the so the rate mark, our portion of that was roughly 80%, of that. So I don’t know. Was it $3.80 something? I I don’t have it in front of me, but Yeah.

In the three eighties, I think.

Catherine Mealor, Analyst, KBW: Okay. And that was the that’s the rate mark versus the credit mark, you’re saying?

Steve Young, Executive, South State Corporation: Yeah. The yes. Yeah. The credit mark would be the non PCD double count, which was with 96,000,000, I believe. Something like that.

Yeah.

Catherine Mealor, Analyst, KBW: Yep. Got it. Okay. That yeah. That’s the same.

But, okay. Yeah. Looks like the rate is a little bit higher. Okay. Great.

So then just to just to kind of recap this this accretion, question earlier for Michael. So if we’re so the way to think if if we were just to kind of forecast just the accretion piece, really, all you wanna do is just take the the level of accretion we had this quarter back out the accelerated piece, and that should be kind of I mean, you’re doing this over a straight line over the life of loans. Like, that should be kind of baked in for the next three years, and then it may fluctuate up if we have accelerated pay downs. But there’s no reason to really assume that we’re coming down significantly again versus this kind of, I think I I calculated the accelerated piece was about 7,000,000. So we’re kinda good at accretion income being about 55,000,000 a quarter for the rest of the year and maybe up if we get accelerated pay downs.

Steve Young, Executive, South State Corporation: Yeah. The way the way I would describe it, you’re looking at it from the bottoms up. We’re looking at it from the top down, just like we would do investment yield this quarter. So, we’re looking at it from a total loan yield perspective. And so that loan yield has two components.

Most of it’s coupon and some of it is accretion. So this quarter, whatever the the loan income was, was, you know, 800,000,000 or whatever the number was, a portion of that was accretion. Over time, what will happen as every month goes by, we will reprice those coupons up as they mature and the accretion part will come down. But if rates didn’t move, that total loan yield shouldn’t move from a perspective of the acquisition, if that makes sense.

Will Matthews, Chief Financial Officer, South State Corporation: And and it’s effective yield method as opposed to straight line, Catherine. So yeah. So yeah.

Catherine Mealor, Analyst, KBW: Got it. Okay. That’s very helpful. Alright. Thank you.

Eric, Conference Operator: Next question comes from the line of Steven Skogun with Piper Sandler. Please go ahead.

Steven Skogun, Analyst, Piper Sandler: Hey. Good morning, everyone. Maybe one more follow-up on the NIM. I think

Steve Young, Executive, South State Corporation: it makes a lot of sense. I think we all have, like, PTSD from the old legacy, credit accretion back in the 2010. But

Steven Skogun, Analyst, Piper Sandler: you you mentioned that your your guide has no no cuts in there. Is it fair to assume that the NIM would, accelerate a little more beyond what you’re assuming if if we get a couple of cuts, you know, once once the cuts move through and stabilize?

Steve Young, Executive, South State Corporation: Yeah. That’s a good question, Steven. And and, you know, clearly, this whole balance sheet reset, we’ve looked at it, modeled it. And, you know, now that we have all the data together, we’ve we’ve seen it a little different. The way I would kind of describe our balance sheet today, our balance sheet positioning is much more neutral to rates.

And and here is is not the first reason why is in the first quarter, you know, we accelerated the deposit rate improvement from independent. And and so, you know, we ended up 11 basis points better than we expected. And if you kinda look at it, if we were a combined company, from the time they started lowering rates, to now, you know, our deposit beta down would be 40%. That’s 40 basis points on, you know, hundred basis points of cuts, which is much higher than we modeled. We don’t expect from here to get that 40%.

We expect it to be much more muted in that 25, 20 six, 20 seven percent range. And so as we think about kind of the there’s puts and takes to all of this, but, you know, the the three things I would say that are moving. Number one, we have the legacy South State billion dollars a quarter loans that are moving up every quarter as we reprice them because the yields are higher than our coupon. We have the legacy independent loans that will because rates have come down 50 basis points since the mark, when they mature, they’ll likely come down a little bit from that perspective. And then we have the floating, you know, floating rate loans versus floating rate deposits.

All that being said, when we run the math on the new balance sheet, we think we’re pretty neutral, maybe a basis point or two increase, on the, you know, on a 25 basis point cut. But we’ve sort of hit a pretty, we think, a reasonably steady state at this level. Okay. That that makes sense. Think it’s it’s it’s almost like you’ve already extracted a lot of that asset sensitivity just obviously with marketing the balance sheet and then being ahead of schedule on the on the deposit cost.

Is that That’s just kinda fair. That’s that’s fair to say it. Yeah.

Steven Skogun, Analyst, Piper Sandler: Okay. Great. That’s fantastic.

Steve Young, Executive, South State Corporation: And I guess maybe at

Steven Skogun, Analyst, Piper Sandler: a very high level, is there anything you guys could speak to either positively or negatively kind of development since the close of the iBTX transaction surprises or or or learnings or anything that would, you know, give us some visibility into how the combination is is going, especially from a production standpoint and and what that potential of the combined franchise really looks like?

John Corbett, CEO, South State Corporation: Yeah. The the social blend of these two organizations has gone as well as any that I’ve ever been involved with, Steven. So we think alike. We’re both aiming for the same goals. We just got to get this conversion behind us.

But, know, IBTX was in the same kind of growth markets. We were a very entrepreneurial approach to their business model. So, you know, David and I spent five years talking about this, working about this, learning about each other’s company. So there there really are not a lot of surprises because we spent so much time, building that relationship for years ahead of time.

Steven Skogun, Analyst, Piper Sandler: Yeah. That makes sense, John. Appreciate that. And then as I think about kind of the potential to do this, you know, low mid single digit growth after, as you noted, a quarter that was kind of, you know, obviously, lighter on growth this time around, What do you need to do from an origin a production origination standpoint to kind of get the growth you need? Because, actually, the balance sheet is a lot bigger.

So I mean, production was up this quarter, but but not enough on the larger balance sheet. So does that need to be, you know, 3,000,000,000 to 4,000,000,000 a quarter in in new loan production? Or how do you think about that ramp up? And do you need to hire more people in those new markets to kind of hit whatever target that is?

John Corbett, CEO, South State Corporation: Yeah. And the production that you see in that chart on the slide there includes

Eric, Conference Operator: gentlemen, the conference will resume in just a moment. Please remain on the line. We thank you for your patience. Ladies and gentlemen, we thank you for your patience. We will now resume the conference.

John Corbett, CEO, South State Corporation: Steve, are you in there? Hello, Steven? Are you in there? Steven, you there?

Steven Skogun, Analyst, Piper Sandler: Can you hear me?

John Corbett, CEO, South State Corporation: Yeah. Hey, Steven, you there?

Steven Skogun, Analyst, Piper Sandler: I am. Yes, sir.

John Corbett, CEO, South State Corporation: Yeah. Have no idea what happened. We got a gremlin on the phone. Anyway, we were talking about the growth dynamic and talking about some of the competitive pricing dynamics. So we had some deals high quality medical deals, ten and fifteen years that the competition was pricing at $4.99 fixed on balance sheet.

We just saw that as capital destructive kind of pricing. So we weren’t going to getting paid to grow, we didn’t. Good news, Stephen, is that our pipeline is up 44% since the beginning of the year, which is kind of surprising given all the tariff noise. And our loan portfolios are growing in April. So we’ve had $173,000,000 of loan growth in the first few weeks.

So we’re optimistic. But we’re continuing to hire. We had a lot of hirings in the first quarter. So I don’t know that we need to change a whole lot about how we’re thinking about the business to continue to get back to normal growth rates when the economy settles down.

Steven Skogun, Analyst, Piper Sandler: Okay. That’s really helpful. And just to clarify, I think you had said, think it kind of cut out as you were saying this, but maybe $500,000,000 of that $2,100,000,000 in production was kind of legacy iBTX footprint?

John Corbett, CEO, South State Corporation: Yeah. Was $550,000,005 50,000,000

Steven Skogun, Analyst, Piper Sandler: Great. Fantastic. Thanks for all the color. Congrats on another great You bet.

Eric, Conference Operator: Your next question comes from the line of Russell Gunther with Stephens. Please go ahead.

Russell Gunther, Analyst, Stephens: Hey. Good morning, guys. Wanted to ask on capital. You know, CET 111% came in better than the original guide. You mentioned the flexibility it gives you from both the defensive and offensive situation.

I guess just thinking about, the ability to go on offense if the macro environment would allow, how are you thinking about, capital deployment from here?

John Corbett, CEO, South State Corporation: Yes. So we’ve got a little bit of uncertainty right now with the economy. So I think first and foremost, we need to kind of plot through the next two or three months and make sure that things settle down from a loan portfolio asset quality standpoint. But then we’re going to have options. We’re going to have options to potentially look at our dividend, to look at the buyback.

We could look at M and A in the back half of the year. So right now, we don’t have any clear direction on how we’re going to deploy the capital. We wanted to stick the landing on the closing of IBTX and make sure that our capital position was what we forecast. We wound up a little bit better. So I think we’re going to have a better, clearer view in the back half of the year versus what we do today.

Will Matthews, Chief Financial Officer, South State Corporation: Yeah. And Russell, it’s Will. I’ll just add a couple of things. One, as John said, we do expect to see growth resume. Although we didn’t grow in Q1, pipelines were up, you know, materially from end of the year.

So we expect to grow and use some of the capital for that. We also, though, are in a position where we would see our CET one creating probably 20 to 25 basis points a quarter from here through the rest of the year. So, that, you know, that optionality John referenced should continue to build.

Russell Gunther, Analyst, Stephens: That’s very helpful. Thank you, guys. And then maybe just the other side of that question, should defense be required? You mentioned taking a look at your portfolio in some particular sectors. Maybe you can just share where, you’re taking a closer kind of incremental look today.

John Corbett, CEO, South State Corporation: Yes. Sure. We’ve had a lot of conversations with our clients, and we’re trying to learn from them. They’re trying to learn from us. And at the end the day, the customers, as I said, are not panicking, but some of them are putting a pause on some of these capital projects.

On our first pass from the credit team, we don’t see a lot of direct exposure to importers from China in our portfolio, just a handful. So we think the risks of the C and I portfolio are probably more second order effects. On the CRE side, we’re taking a hard look at the industrial warehouse exposure, particularly in the port cities. And I think we’ve identified about $200,000,000 of exposure specifically near the ports. We got about $50,000,000 in spec industrial, which is pretty small in Jacksonville, Savannah and Charleston, so it’s not that much.

Our credit folks today think the biggest risk is just a widespread recession rather than a specific segment of our portfolio. So we’ve got more work to do, and we’ll be in a better position to assess the risk in the next quarter.

Russell Gunther, Analyst, Stephens: Okay. Great. That’s really helpful. And then just last one for me, switching gears, would be on your fee income expectations. Just how you’d expect that to trend relative to the first quarter and any change to your guide relative to the average assets?

Steve Young, Executive, South State Corporation: Yes. Thanks, Russell. This is Steve. Yes, the noninterest income was $86,000,000.54 basis points of assets. Our guide was between 50,000,000 and 55,000,000 on the higher end.

So pretty close to where we thought 54,000,000 was within the guidance. The main as we kind of look forward there, correspondent was down a little bit on the capital market side on the interest rate swap. That’s just because of less volume going through the tube on loan growth and so on. So there was that effect. On the other side of that, wealth management had a really great quarter.

Some of our new partners, private capital management, had a great quarter and all the teams. And so that really grew this quarter. But if I kind of take it on balance, our guidance really hasn’t changed, and it’s kind of flat. We think it’s going to be flat until we sort of see the loan volume and capital markets and other things come back. So I don’t know when that is, but clearly with the tariff and net talk, it’s probably going push it out a little bit.

Eric, Conference Operator: Understood. Okay,

Russell Gunther, Analyst, Stephens: guys. That’s it for me. Thanks so much for taking my questions.

John Corbett, CEO, South State Corporation: You bet, Russell.

Eric, Conference Operator: Your next question comes from the line of Jared Shaw with Barclays. Please go ahead.

Jared Shaw, Analyst, Barclays: Hey, everybody. Good morning.

Will Matthews, Chief Financial Officer, South State Corporation: Hey. Good morning.

Jared Shaw, Analyst, Barclays: I don’t know. Not to to beat a dead horse with the accretion, but just as we’re trying to build out NII guide going forward, is there sort of a dollar of accretion that we can be basing it on? I think, Catherine, trying to get to the $385,000,000 gross number from the deal and then we take out the $61,000,000 60 1 point 8 million dollars from this quarter, is like that $50,000,000 a quarter a good run rate or good range to assume apart from accelerated accretion or any any benefit from accelerated accretion?

Steve Young, Executive, South State Corporation: Sure. So let maybe let me say it another way. So if if you take out the accelerated accretion, our loan yields this quarter would have been six nineteen versus six and a quarter is what you reported. So as we think about total loan yield, we think it’s, you know, in the forward sale feature, the puts and takes are between six fifteen and six and a quarter, and that the the accretion in the early stages are gonna be higher. So if you pull out that 7,000,000 that we talked about early, pay off and, you know, that’s gonna continue to decrease over time.

But you to your point, it’s pretty steady for a while. And and then the coupon’s gonna re you know, replace that accretion. And so that that total loan yield somewhere in that $6.15 to six and a quarter range is kind of the way I the the the way we’re modeling internally based on what we see in a flat rate environment. And and then, of course, in the early years or in the early periods of time, the accretion, you know, I think schedule would’ve been probably in the $50,000,000 range, give or take. That’s probably not a bad place to start.

But if you’re to kind of land it, I look at total loan yield.

Jared Shaw, Analyst, Barclays: Okay. All right. Thanks. And then maybe shifting a little bit just to credit. Clearly a lot of noise in the provision and allowance with the deal.

But as we go forward from here, is there any what’s the sensitivity, I guess, to a weakening Moody’s baseline? Or are you internally using more of an adverse scenario at all in your CECL calculation? As we go forward from here, how should we be thinking about the movement of allowances ratio and sort of provisioning?

Will Matthews, Chief Financial Officer, South State Corporation: Yeah, Jared. It’s Will. We hold our scenario weightings constant. Our belief that’s a little better statistically in terms of modeling. But what we did do this quarter was to add in a Q factor associated with business conditions, external factors, etcetera, associated with the tariffs.

That kind of that combined with the weightings we have incorporates forecast uncertainty. I’d say a couple of things on on the reserve level. So weighing that in, that allowed our provision to be 8,000,000 for the quarter. Absent that, we would have had a provision that would have been negative. So we that didn’t seem appropriate.

You know, I guess a couple of things. One, if you think back to when we adopted CECL back in 2020, our reserve level would have been about 30 basis points below where we are today at that time frame. You know, a lot of calls for other banks have have focused on their unemployment rate assumption. If you look at the scenarios and our weightings of them, you know, baseline s one, s three, the average unemployment rate weighted average unemployment rate for 2026 would be about 5.2 on those. But I’ll also caution you there are a lot of other factors that are loss drivers that are important in our CECL model, you know, commercial real estate price index, housing price index, things like that in addition to unemployment that that help drive the level of the required reserve.

If we get a serious change to the negative and expectations for all those loss drivers, then you will see our and other banks’ provisions need to go up. But if things are pretty stable, I don’t see our provision moving up at this level. Conceivably, it could move down from here if things improve a little bit because, as you know, it’s forward looking life of loan loss model. And generally, the provision expense is gonna precede the charge off experience.

Jared Shaw, Analyst, Barclays: Great. Thanks for that. Appreciate it.

Steven Skogun, Analyst, Piper Sandler: Sure.

Eric, Conference Operator: Your next question comes from the line of David Bishop with Hub Group. Please go ahead.

John, Analyst, Hub Group: Hi, gentlemen. Good morning. This is actually John on for Dave.

John Corbett, CEO, South State Corporation: Hey, John.

John, Analyst, Hub Group: So I appreciate the color on the conversion. Just to confirm, is that still slated for Memorial Day weekend? It is. Wonderful. And I guess just ahead of that date, I’m curious as to how you’re thinking about any potential deposit attrition within the iBTX depositor base.

Steve Young, Executive, South State Corporation: John, this is Steve. You know, from a standpoint of movement within that book, we’re we’re really not thinking there’s gonna be much in the in the conversion. I mean, main the main reason for that, of course, is, you know, hopefully, we’re given better technology. But more importantly, we’re keeping all the frontline bankers who deal with the clients. So in our our model, it’s local market driven.

So I would think our commercial and treasury and others should be good, and our platforms, you know, from what we’re hearing from the independent folks on average is getting better. Of course, there’s always turmoil in that first few months afterwards. And so we have roughly 500 legacy South State people going to the independent markets during May and June to help out the teammates there to make sure that this transition is as seamless as it can be. But to your point, you know, these things are always hard. It’s a heavy lift, but we believe we’ve got everything we can we’re doing in place to get this done well.

So we don’t we are not modeling any. We don’t expect it, but we’ll see.

John Corbett, CEO, South State Corporation: And we we’ve done we’ve done three practice mock conversions already and Renee Brooks leads this effort for us. She’s done a ton of these conversions. So everything appears to be on track, but it’s a lot of change for the bankers and their experience. They’ve done this as buyers, so we’ll get through it in a couple of months.

John, Analyst, Hub Group: Fantastic. Great to hear. And maybe just to follow back up on Stephen’s questions on loan growth. And I appreciate the specifics on the pipeline progression since the beginning of the year. I guess I’m just curious if there’s any color around or if there were any discernible changes in size or complexion in the pipeline immediately before and immediately after Tariff Day earlier this month.

John Corbett, CEO, South State Corporation: Yeah. Again, I was kind of surprised that the pipeline was building during all of this turmoil over the last few months, but it’s up 44%. You look at where it’s growing, we’ve seen a 55% increase in our CRE pipeline, a 43% increase in our C and I

Steve Young, Executive, South State Corporation: pipeline, only about

John Corbett, CEO, South State Corporation: a 2% increase in our owner occupied CRE. The biggest growth markets in the pipeline are Atlanta. They’re up 46% since the beginning of the year. And Florida. Florida is up 28%.

So that’s kind of where we’re seeing the growth.

Steve Young, Executive, South State Corporation: But some of the stuff is

John Corbett, CEO, South State Corporation: in the pipeline and some of it will be kind of tariff dependent whether it pulls through or not.

John, Analyst, Hub Group: Fantastic. That’s all I had. Appreciate you guys taking my questions and congrats on a great quarter.

John Corbett, CEO, South State Corporation: Thank you, John.

Eric, Conference Operator: Your next question comes from the line of Chris Merignac with Janney Montgomery Scott. Please go ahead.

Russell Gunther, Analyst, Stephens: Thanks. Good morning. John, just curious on new hires in Texas and Colorado and where that falls on both timing and priority for you.

John Corbett, CEO, South State Corporation: Yes. We had a great recruiting quarter here and we’re open for business to recruit great bankers in Texas and Colorado. I think we want to get through the conversion, Chris, and implement the new treasury management software and get the bankers used to that. And then we look to layer on some additional middle market bankers once we put that in the rearview mirror. We had a big quarter starting with an addition in Nashville, Tennessee.

We were able to recruit the market president of Truist Bank in Nashville, Cameron Wells, and we’re building a team around him and starting a loan production office in Nashville. We’ve hired commercial and middle market bankers this quarter in Tampa, Jacksonville, Athens, Georgia, Raleigh, North Carolina, big adds to the wealth area in Atlanta, Jacksonville, Hilton Head, Charleston. So anyway, we had a great, great recruiting quarter. But as far as adding the middle market team in the new markets, we’d like to get the treasury piece in place first.

Russell Gunther, Analyst, Stephens: Great. That helps a lot, and thanks for sharing all the other background. It’s super. Thank you.

Steve Young, Executive, South State Corporation: Sure.

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. Thank you, Eric, and thank you all for calling in. And some moving parts here during the quarter, and you had great questions, and hopefully, we’ve provided some clarity for you. But we’re real pleased that we’ve kind of stuck the landing as it relates to the closing of IBTX. We feel like the balance sheet is in great spot.

The earnings profile is in a great spot. But if you’re building your models and you’ve some extra questions, just don’t hesitate to reach out to Will or Steve. Hope you guys have a great day, and this will end the call.

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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