Earnings Call Transcript - SSB Q4 2025

Operator, Operator

Good morning, and welcome to SouthState Bank Corporation Q4 2025 Earnings Conference Call. 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.

William Matthews, CEO

Good morning. This is Will Matthews, and welcome to SouthState'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 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 that may affect us. Now I'll turn the call over to you, John.

John Corbett, CEO

Thank you, Will. Good morning, everybody. Thanks for joining us. As we wrap up the year, I'm really proud of what the SouthState 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 of 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. Ultimately, we did move forward and announced the deal in May of 2024. During this past year of 2025, the SouthState team successfully navigated through that initial period of high risks, the regulatory approvals, and the systems conversions. Now we're on the other side, enjoying the rewards of a well-choreographed integration. In that regard, a special recognition and thanks go to Mark Thompson. Mark's been working with us for over 20 years and will be retiring soon. 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. 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%. It's not just EPS growth; we also experienced double-digit growth in tangible book value per share, and that's including the Day 1 dilution from the deal, raising the dividend by 11% and share repurchases. So, we had double-digit growth in both earnings per share and tangible book value per share in 2025. Even though organic growth started slow at the beginning of the year, pipelines were building throughout the year, and many of those deals hit the books in the fourth quarter. We ended with 8% loan growth and 8% deposit growth during the quarter. As investors, you know that it's typical for bank valuations to lag in the first year of an integration. However, with our confidence in how well things were going, we decided to be opportunistic and more aggressive with our share repurchase plan. We purchased 2 million shares of SouthState stock or roughly 2% of the company in the fourth quarter. Our Board authorized a new share repurchase plan, adding an additional 5.56 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 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. 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.

William Matthews, CEO

Thank you, John. I'll hit a few highlights on our operating performance and adjusted metrics, and then we'll move into Q&A. We had a good quarter to close out a very good year with PPNR of $323 million and $2.47 in EPS, resulting in a full year PPNR of $1.27 billion and EPS of $9.50. Our return on tangible common equity for the year was approximately 20%. I'll focus most of my remaining comments on the fourth quarter in comparison with Q3. High level, it was a good quarter for balance sheet growth and noninterest income, offset by higher noninterest expenses, much of which was driven by performance. Our margin and deposit costs were in line with our guidance with a 3.86% tax equivalent NIM and a 1.82% cost of deposits. As expected, accretion income of $50 million was down $33 million from the high we saw in Q3. 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 2 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 6.13% 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 $0.5 billion. Steve will give updated margin guidance in our Q&A. Noninterest 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 noninterest income was better than guided and modeled, Q4 noninterest income 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 noninterest income businesses and the 8% annualized loan growth in the quarter led to higher expense in commissions and incentives. Additionally, marketing and business development spending was up a combined $6 million for the quarter. Even with these higher fourth quarter expenses coming through, our efficiency ratio remained below 50% for the quarter and the year. As we've previously stated, our expectations for 2026 noninterest expenses are that we lean into our initiative to expand revenue producers, which likely adds approximately 1% to a 3% inflationary-type increase for an estimated 4% increase over 2025 noninterest expense 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 billion provision expense. Our 9 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 subsequent downward pressure on the ACL. This, of course, assumes no significant changes in expectations for economic and credit conditions. John noted our capital return activity in the quarter with us repurchasing 2 million shares at an average price of $90.65. Combined with our dividend, our total payout ratio was just shy of 100% for the quarter. Even with the higher balance sheet growth and higher share repurchase activity, our capital ratios 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 on January 1. We increased our dividend 11% in July. We repurchased 2.4% of the company, and yet we still grew tangible book value per share by 10%. Looking ahead, we believe we have the ability to continue to fund our growth and grow our capital levels while also being active in share repurchases, particularly when we believe there will be an inherent disconnect between our fundamentals and the share price. Operator, we'll now take questions.

Operator, Operator

Our first question comes from John McDonald from Truist Securities.

John McDonald, Analyst

I thought I would just ask Steve to give his 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?

Stephen Young, CFO

Sure. Thanks, John. Yes, really not a lot of change from last quarter's guidance. As Will mentioned on the call, our NIM was right at 3.86%, which is right in line with our guidance of 3.80% to 3.90%. Our deposit costs were down 9%. As we think about the going forward assumptions, it's really four things: the interest-earning assets, rate forecast, our loan accretion, and our deposit beta. Last quarter, we discussed that 2026 would average somewhere in the $61 billion to $62 billion range. We still reiterate that guidance, so no change there. We think that it will start off the first quarter somewhere in the $60 billion to $60.5 billion range as we had some seasonal municipal deposits in the fourth quarter that sort of roll over in the first quarter. The rate forecast is three rate cuts, so there's really no change there. Loan accretion, we're forecasting $125 million for next year, so that's no change. The last is just our deposit beta. Last quarter, we talked about 27% being the number that we think to grow deposits or to fund loans would be the right number, and we still think that's correct. As we think about going into 2026, we recognize there's always a little bit of a lag, but by the end of the first quarter, we should be in good shape to hit that for the last three rate cuts and maybe average in the 1.75% range for the first quarter for deposit costs. Based on all those assumptions, we would expect NIM to continue to be between 3.80% to 3.90% in 2026. We might see it start a little bit lower in the year coming out as we get the deposit cost in, and then higher in the year as we hopefully get the deposit costs and growth in the back half.

John McDonald, Analyst

Okay. 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?

John Corbett, CEO

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

John McDonald, Analyst

Okay. And what would get you to the upper end, John, of the loan growth?

John Corbett, CEO

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. We're seeing nice pipeline builds in Texas and Colorado. If that momentum continues, they had a pipeline of $800 million after the conversion this summer. Now it's up to $1.2 billion. If they can keep that momentum, that would be the tailwind.

Operator, Operator

Our next question comes from Stephen Scouten from Piper Sandler.

Stephen Scouten, Analyst

So I'm just curious about the hiring activity. Obviously, you had a significant announcement back in the 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 leaning into the opportunity set?

John Corbett, CEO

Yes. I mean, it's a pretty historic time here with the amount of disruption that is going on in our markets. I think I communicated before that we've calculated in our MSAs that we operate in, there's $118 billion of bank deposits that are going to go through a conversion in the next year or so. So that's a lot of creative destruction. We brought in, Stephen, in the neighborhood of 550 to 600 commercial relationship managers, and I've told our team that if we increase that 10% or 15% in the next year or two, that would be perfectly fine to build a base to continue seeing this organic loan growth.

Stephen Scouten, Analyst

Okay. Great. And that growth of 10% to 15% is kind of contained within that expense guide already, those sort of roundabout expectations?

John Corbett, CEO

It is.

Stephen Scouten, Analyst

Great. And then I guess my follow-up question would be kind of around correspondent banking and the strength there. Do you think the strength we've seen, especially in the last couple of quarters, is sustainable? Or is there anything more episodic that's led to that strength?

Stephen Young, CFO

Yes. Thank you, Stephen. Yes, it's been a great back half of the year for the correspondent Capital Markets, driven by two things. We had a 75 basis point decrease in rates that was helpful for that business. The interest rate swaps were up $4 million quarter-over-quarter; fixed income is up $1 million. But I would say, as you look at the actual quarter and then think about those businesses from quarter to quarter, it's better to look at that business kind of on the average of the year because typically, in the first quarter or two, it's not quite as robust unless there’s huge interest rate changes. What we're looking for next year is somewhere in the $25 million a quarter; maybe it starts out a little lower and ends up a little higher for a total of around $100 million for the business. Let's see how it goes, but looking at a full year picture is probably a better way to approach it.

Stephen Scouten, Analyst

Yes, that makes a lot of sense. And just when you talk about all the hiring activity, are some of those hires contained within that correspondent banking division? Or is it mostly just more like commercial RMs?

Stephen Young, CFO

The way that I'm talking about it is more the commercial RM space, Stephen. However, we are opportunistic everywhere in all business lines. For instance, about a year ago, we hired a team that has really helped us this past year in Houston on the SBA securitization business, and that's been a great business that has contributed to profitability. We hired that team in February of 2024, and that's really come through. So there is always opportunistic hiring we're doing. We're trying to build out different products in the capital market space. So we're leaning into foreign exchange more, and we've made some key hires there. What John is talking about is generally general banking, but we are opportunistic.

Operator, Operator

Our next question comes from Anthony Elian from JPMorgan.

Michael Pietrini, Analyst

This is Mike on for Tony. I guess I'll start on expenses. You saw a little bit of an uptick in Q4 sequentially. Is there anything that we should back out to get a good run rate for 2026? Does expense growth of mid-single digits that you guys guided previously still feel appropriate for 2026?

William Matthews, CEO

Yes, Mike. It's Will. Yes, Q4 was impacted by three things: One, performance. We had good performance in noninterest income businesses. Second, there's always a bit of Q4 seasonality in the expense base that can cause the fourth quarter numbers to pick up a little. Third, there's just a greater focus and lean into our growth initiative on hiring and some of the expenses you saw in business development, advertising, things like that increasing a bit. So my guidance incorporates all of these factors. And hiring relationship managers can be unpredictable; you can't always plan exactly when they become available, because you want quality folks. You grab them when you can.

Michael Pietrini, Analyst

Great. That makes sense. As a follow-up on the buyback, how quickly do you anticipate using that new authorization? You're at about 5.5 million shares authorized now. Is there price sensitivity at a certain level? Any commentary on that would be great.

William Matthews, CEO

Sure. Yes. I think we all acknowledge that capital return thoughts should be flexible, depending on a number of factors: where the share price is relative to intrinsic value, the economic outlook, and earnings and capital ratios. It's really a quarter-by-quarter decision. Looking at the fourth quarter, our total payout ratio, when you include dividends and share repurchases, was in the 97% range. We did see a large disconnect in our minds between the share price and intrinsic value. That's higher than is really sustainable long term for a growing company like ours. So, it's unlikely we'd be that active going forward with that high of a payout ratio. With all the caveats, including growth, share price, economic outlook, and other factors, you could see our total payout ratio of dividends plus repurchases somewhere in the 40% to 60% range.

Operator, Operator

Our next question comes from Catherine Mealor from KBW.

Catherine Mealor, Analyst

I just wanted 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?

William Matthews, CEO

Yes. I was using the $1.407 billion for 2025, growing that by 4% was our guidance.

Catherine Mealor, Analyst

Okay. Perfect. I just wanted to confirm that. Awesome. Then maybe one thing back to the margin: can you talk a little bit about the deposit beta commentary? It was good to see it come down. Just on loan yields, can you talk about loan pricing and where you're seeing that? I feel like you still have a really big back book loan repricing story from your fixed-rate book. Can you provide an update on that balance and what we should expect to see?

Stephen Young, CFO

Sure. I'll just update you on the repricing schedule. In the legacy bank fixed-rate loans, we have about $4.3 billion repricing in the next 12 months. It's around 5%, I believe around 5.06%. Last quarter, our new loan origination rate was 6.06%. That's about 1% higher. On the independent legacy book, we have about $2 billion coming due over the next four quarters, and it will reprice down from about 7.25% to around 6.25%, because the inherent loan yields are higher out in Texas and Colorado. There’s a positive net there; roughly $2.3 billion at a 1% positive. We'll have to see where the yield curve ends up because it will determine what the repricing is. If the yield curve steepens, it will be better; if it flattens, it will be worse. Last quarter, we had a total loan production rate of 6.06%, in Texas and Colorado, the new loan production rates were 6.31%.

Catherine Mealor, Analyst

Great. All else equal, if we're in an environment where the curve remains steeper, let's just assume no more cuts, but if we're in a stable rate environment, do you believe there is enough momentum with the fixed-rate repricing being higher than your independent repricing down? Should loan yields continue to move higher?

Stephen Young, CFO

Yes, I would say we have a sustainable NIM in that 3.80% to 3.90% range. The way I would characterize it, if we grow closer to 10%, the margin may come down a little bit because we have to fund it on incremental dollars, but we'll have higher net interest income. If we have lower growth, it will be a little more margin and a little less volume. The range seems appropriate, and it will be driven by growth speed.

Operator, Operator

Our next question comes from Jared Shaw from Barclays.

Jonathan Rau, Analyst

This is Jon Rau on for Jared. Maybe just thinking bigger picture about investments outside of hiring this year. Are there any projects planned on the tech side in correspondent banking or anything else across the business that you're looking into?

Stephen Young, CFO

Sure. Yes. Every year, we go through a very intensive strategic planning process, and we have different investments this year. Part of the investment relates to some commercial loan servicing platform we're working on for our syndication business, which is crucial from a back office perspective to grow in the front office, middle market. We have investments in AI and our FX platform. All of those are included in Will's numbers, and we are always investing in tech platforms and other areas. However, what's different this year, and is part of Will's guidance, is that we are very intentional about investing in revenue producers. We've got many of the platforms built, and this is some finishing off the platforms, but it's really focusing on revenue producers.

Jonathan Rau, Analyst

Okay, great. On the deposit pricing side, starting the year at 1.75%, is that expected to migrate lower throughout the year? Is the beta expected to move lower as we get further cuts and go to lower deposit rates?

Stephen Young, CFO

Yes, it's very similar to what we said last quarter. Our view remains the same; we think we start off around the 27% range, which is what we were in 2018, 2019 when we were growing at this pace. There’s always a lag with that due to CD pricing, true for all banks. However, hopefully, by March, early April, we can get all that in there. Over time, we can migrate towards that 30% beta, but growth will impact how fast we see that.

Jonathan Rau, Analyst

Okay. Lastly, I noticed some increases in substandard loans this quarter. Any color on what drove that?

Stephen Young, CFO

Overall, credit-wise, John, we had declines in past dues, NPAs, and charge-offs—all trending down. The increase in substandard was due to a handful of multifamily properties that are in lease-up. Our credit team is not concerned about those; they have a weighted average loan-to-value of 52%. It's just a timing issue in lease-up.

Operator, Operator

Our next question comes from Gary Tenner from D.A. Davidson.

Gary Tenner, Analyst

Just wanted to ask a little bit about the loan production side. I know the $3.9 billion was a great number. How much was in Texas? Or if you want to combine Texas and Colorado, what were the comparative third quarter levels for the same market?

William Matthews, CEO

In Texas and Colorado, their production was $888 million combined. That's 15% higher than the third quarter, which was $775 million. For the entire year of 2025 versus 2024, production is up 10%. We're continuing to see the pipelines build, and our recruiting is strong; Dan Strodel, our President out there, has been very successful. Of the 26 commercial RMs added in the fourth quarter, 17 were in Texas and Colorado. They have weathered through the conversion and have a lot of momentum heading into 2026.

Gary Tenner, Analyst

Appreciate that. Within that same footprint, in terms of the type of production you're getting, does it remain real estate-heavy with a shift towards more traditional commercial and industrial loans? What does the mix look like?

William Matthews, CEO

Historically, they've been great CRE lenders, and we want them to continue doing what they have traditionally done. But we see an opportunity with some of the tech and treasury management platforms, and we will layer on top of their commercial real estate business with C&I bankers. That's where a lot of Dan's recruiting activity is occurring, so you'll see that finish in 2026, but we don't want them to stop what they're good at.

Operator, Operator

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

John Corbett, CEO

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

Operator, Operator

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