Good morning and welcome to South State Bank Corporation Q4 2025 Earnings Conference Call. All participants are in a listen-only mode. After the speaker's remarks, we will 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. 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, and 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, and 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 percent, 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 percent loan growth and 8 percent 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 South State 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 is now in the rearview 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 cents 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 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 remain low with a 6.6% 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 Our capital ratios remain 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%. event. 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 will be an inherent disconnect between our fundamentals and the share price. Operator will 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. I thought I would just ask Steve to give the thoughts on the net interest margin for the year and how you're thinking about deposit costs and growing deposits to fund the loan growth you expect.

Thanks, John. Yeah, really, you know, we, as Will mentioned on the rate forecast, loan accretion, no change being the number that we think. So as we think up then to continue to be between lower in the year coming out as we go.

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, it's John here. You know, we communicated throughout the pipeline building and growing. Early in the spring, 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, in the fourth quarter, production was up 60 to the upper end, John, of the loan 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 builds in Texas and Colorado, and if that momentum continues, they had a pipeline of 800 million dollars after the conversion the summer now it's up to a billion two so if they can keep that momentum that would be okay thank you 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 had the 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 pretty high communicated, but 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 So it's a lot of creative destruction that's going to go on. You know, we run a Stephen in the neighborhood of 550 to 600 commercial RMs, and I've told our team if we increase that 10 or 15 percent in the next year or two, that'd be perfectly fine to kind of build a base to continue seeing this organic growth, loan growth.

Okay, great. And that growth of 10 to 15 percent is kind of contained within that expense guide already, those sort of roundabout expectations? It is. and then I guess my follow-up question would be kind of around correspondent banking and the strength there do you think the the strength we've seen especially the last couple of quarters is it's sustainable or is there anything more episodic that's led to the strength there yeah thanks Steven yeah it's been a really a lot of sense and and just when you guys talk about the all the hiring activity or are some of those hires contained within that kind of course bank correspondent banking division any product expansions or is but mostly it's more like commercial RMs.

Obviously we're opportunistic everywhere and all business lines. For instance, about a year ago, we hired a team that's really helped us business.

Fantastic, sounds like a lot of good things going on across the bank, appreciate the color.

Question comes from Anthony Elian from JPMorgan. 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 bit 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, my case will. Yeah, Q4 was really, I'd say, impacted about three things. One, performance. You know, we had good performance in non-interest income businesses. We also had a pick-up 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 in an expense base that can sometimes cause the fourth quarter numbers to pick up a little bit, and we did experience that this year. And then thirdly, I'd say just the greater focus and lean into our growth initiative 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 know, you don't, 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 a case-by-case basis.

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 five and a half million shares now authorized. And is there price sensitivity at a certain level? I guess any commentary on that would be great.

Actually, in the fourth quarter, we thought there was a pretty big disconnect. what's the economic outlook, what's your growth look at 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 include dividends and sharing purchases was you know the 97% range, but we did see a you know 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 So, it's unlikely we'd be that your appetite. You could 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.

Our next question comes from Kathleen Mueller from KPW. Please go ahead. Your line is open.

I'm just going to do one follow-up on expenses. 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. Yeah, I was using the BN407.

Okay, perfect. I just wanted to confirm that. And then maybe one thing back to the margin. Can you talk a little bit about the deposit data commentary was great and good to see that come down. Just on loan yields, maybe talk a little bit about loan pricing and where you're seeing 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 right around five, you know. And then on the independent, like the independent book, but what we saw…

So, I mean, I'll allow SQL for an environment where the curve remains steeper. Let's just – I know you get three cuts in your numbers, so let's just kind of take 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 loan yields should continue to move higher as it moves through the year.

Yeah, I would – and I'm a NIM versus – Thank you.

Appreciate it. Question comes from Jared Shaw from Barclays. Please go ahead. Your line is open.

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 and like correspondent making or anything else across the business that you're looking into?

Sure. Of course, every year we go through investments that we're doing.

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. We're thinking that we start offering around the 27% range, which is what we were in 2018.

And then if I can just add one more, it looks like there's some increase in substance loans this quarter, just any color on, we'll drove that.

You take out the NPAs, 99% and the increase, Becky's not concerned about those, in fact they've got a weighted...

Next question comes from Gary Tenner from DA Davidson, please go ahead, your line is Thanks, good morning everybody.

Just wanted to ask a little bit about the loan production side, I know the 3.9, but 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 the same markets yeah so so in the third quarter if you take those markets for the entire year of 2025 versus 2024 continuing to see

the pipelines build, and our recruiting RMs that we added in the fourth quarter, 17 of those guys have kind of weathered through the conversion and have got a lot of momentum headed in.

Appreciate that. And just 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 what's the kind of the mix that you're saying back yeah historically they've been a great CRE lender and we want to continue to do exactly what they've been doing historically but we see an opportunity management platform the capital market platform at South State is introducing to layer on top of their CNI bankers and that's where a lot of dance recruiting activity is

So, let's see that in 2026, both are so good at it.

For any additional questions, please press star followed by the number one. Our next question comes from David Bishop from Hopey Group. Please go ahead. Your line is open.

Yeah. Good morning, gentlemen. And just in terms of the hiring efforts you mentioned there, you mentioned the disruption and I think over, I think it was close to $120 billion in terms of bank deposits going through the conversions and such 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 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

we're having conversations small percentage 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 this concludes today's conference call thank you for your participation you may now