SouthState Corporation (SSB) Q4 2025 Earnings Report, Transcript and Summary

Good morning, and welcome to SouthState Bank Corporation Q4 2025 Earnings Conference Call. [Operator Instructions] 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 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 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 SouthState team accomplished in 2025. Two years ago, we were deep into the due diligence phase of the independent financial deal. And it was 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. And ultimately, we did move forward and announced the deal in May of 2024. And 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, 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 1 dilution from the deal, raising the dividend by 11% and share repurchases. So double-digit growth in both earnings per share and double-digit growth in tangible book value per share in 2025. And even though organic growth started slow at the beginning of the year, pipelines were building throughout the year, and many of those deals hit the books in the fourth quarter. We ended with 8% loan growth and 8% deposit growth during the quarter. Now as investors, you know that it's typical for bank valuations to lag in the first year of an integration. But with our confidence in how well things were going, we decided to be opportunistic and get more aggressive with our share repurchase plan. We purchased 2 million shares of SouthState stock or roughly 2% of the company in the fourth quarter. And our Board authorized a new share repurchase plan, adding an additional 5 million (sic) [ 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 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 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. 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 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 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 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 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 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 resultant downward pressure on the ACL. This, of course, assumes no significant changes in expectations for economic and credit conditions. John noted our capital return activity in the quarter with us repurchasing 2 million shares at an average price of [ $90.65 ]. Combined with our dividend, our total payout ratio was just shy of 100% for the quarter. Even with the higher balance sheet growth and higher share repurchase activity, our capital ratios 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 1. We increased our dividend 11% in July. We repurchased 2.4% of the company, and yet we still grew TBV per share by 10%. Looking ahead, we believe we have the ability to continue to fund our growth and grow our capital levels while also being active in share repurchases, particularly when we believe there will be an inherent disconnect between our fundamentals and the share price. Operator, we'll now take questions.

[Operator Instructions] Our first question comes from John McDonald from Truist Securities.

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?

Sure. Thanks, John. Yes, really not a lot of change from last quarter's guidance. We -- 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%. So as we think about the going forward assumptions, it's really 4 things: the interest-earning assets, rate forecast, our loan accretion and our deposit beta. And really, on our interest-earning assets last quarter, we talked 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 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, three rate cuts, so there's really no change there. Loan accretion, we're forecasting $125 million for next year. So that's no change. And then the last is just our deposit beta. And last quarter, we talked about 27% being the number that we think to grow deposits or to fund loans would be the right number, and we still think that's the right number. So as we think about going into next -- into 2026, we see there's always a little bit of a lag, but by the end of the first quarter, we should be in a good shape to hit that for the last three rate cuts and maybe average in the 1.75% range for the first quarter for deposit costs. So 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 hopefully, we get the deposit costs and growth in the back-half.

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?

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. So 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, that is appropriate as we see these pipelines build and hold.

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

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 after the conversion this summer. Now it's up to $1.2 billion. So if they can keep that momentum, that would be the tailwind.

Our next question comes from Stephen Scouten from Piper Sandler.

So I'm just curious on the hiring activity. Obviously, you had a pretty 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 really just leaning into the opportunity set?

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, we've calculated in our MSAs that we operate in, there's $118 billion of bank deposits that are going to go through a conversion in the next year or so. So that's a lot of creative destruction that's going to go on. We brought in, Stephen, in the neighborhood of 550 to 600 commercial RMs and I've told our team, if we increase that 10% or 15% in the next year or two, that would be perfectly fine to kind of build the base to continue seeing this organic growth -- loan growth.

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

It is.

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

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

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

The way that I'm talking about it is more the commercial RM space, Stephen. But I would say that, obviously, we're opportunistic everywhere in all business lines. For instance, about a year ago, we hired a team that's really helped us this past year in Houston on the SBA securitization business, and that's been a really great business and has really added to profitability. I think we hired that team in February of 2024, and that's really kind of come through. 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. So what John is talking about is generally general bank, but we are opportunistic and very [indiscernible]. And from an expense standpoint, in the capital markets area, those are typically commission-based businesses, so it's really not an expense drag initially like there is in the commercial hiring side.

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

Our next question comes from Anthony Elian from JPMorgan.

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?

Yes, Mike, it's Will. Yes, Q4 was really, I'd say, impacted by three things: One, performance. We had good performance in noninterest income businesses. We also had a pickup in loan growth, which feeds its way through in some of the incentive-based compensation for relationship managers. Secondly, there's always a bit of Q4 seasonality in an expense base that can sometimes cause the fourth quarter numbers to pick up a little bit. We did experience that this year. And then thirdly, I'd say just the more -- the greater focus and lean into our growth initiative on hiring and some of the expenses you saw, business development, advertising, things like that move up a bit. So really a combination of those factors for Q4. 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 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 as to when they're actually brought on board.

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

Sure, sure. Yes. I mean I think we would all acknowledge that capital return thoughts should be flexible, and that depend upon a number of factors, where the share price is relative to intrinsic value. Obviously, in the fourth quarter, we thought there was a pretty big disconnect. What's the economic outlook? What's your growth looking like? And then, of course, earnings and capital ratios feed into it as well. So it's really a quarter-by-quarter decision. You look at the fourth quarter, our total payout ratio when you include dividends and share repurchases was in the 97% range. But we did see a big disconnect in our minds between the share price and intrinsic value. But 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. But I'd say with all of those caveats, growth, share price, economic outlook, other factors that impact your appetite, you could see our total payout ratio of dividends plus repurchases somewhere in that 40% to 60% range. But of course, it could be higher or lower than that depending upon the circumstance.

Our next question comes from Catherine Mealor from KBW.

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

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

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

Sure. No, that's -- I'll just update you on the repricing schedule. So we -- in the legacy bank fixed rate loans, we have about $4.3 billion repricing in the next 12 months. And it's right around 5% and I think the coupon is 5.06%, but somewhere in there. Last quarter, our new loan origination rate was 6.06%. So that's, call it, 1% higher, maybe something like that. So you've got a positive there. And then on the independent -- legacy independent book, you have about $2 billion coming due over the next 4 quarters, and it will reprice down from about 7.25%, which is the discount rate to around 6.25% because the inherent loan yields are higher out in Texas and Colorado. So -- yes, there's a positive net. If you look at that, that's roughly $2.3 billion at a 1% positive. We'll have to see where the yield curve ends up because just depending on where the 5-year treasury is, that will determine what that repricing is. If it gets steeper, it will be better. If it gets more flat, it will be worse. But what we saw last quarter was a total loan -- new loan production rate of 6.06% and in Texas and Colorado, the new loan production rate was 6.31%.

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

Yes. I would say that yes, the answer is I think we have a sustainable NIM in that 3.80% to 3.90% range. And the way I would kind of characterize it on the NIM versus volume question is if we grow closer to 10%, then probably the margin will come down a little bit because we have to fund it on an incremental dollars, but we'll have higher NII. If we have lower growth, then it will be a little more margin and a little less volume. So I think the range is about right, and then it will be driven by how fast the growth is.

Our next question comes from Jared Shaw from Barclays.

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

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

Okay. Great. And then maybe on the deposit pricing side, starting the year at like 1.75%. Is that [Technical Difficulty] 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?

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

Okay. And then if I could just ask one more. It looks like there was some increase in substandard loans this quarter. Just any color on what drove that?

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

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

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

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

Appreciate that. And just within that same footprint, in terms of the type of production you're getting, is it -- does it remain real estate heavy with a move to shift it towards more traditional C&I? Or what's the kind of the mix that you're seeing there?

Yes. Historically, they've been a great CRE lender, and we want them to continue to do exactly what they've been doing historically, but we see an opportunity with some of the tech platform, the treasury management platform, the capital market platform that SouthState is introducing to layer on top of their commercial real estate business with C&I bankers, and that's where a lot of Dan's recruiting activity is occurring. So we'll see that finish [ economy ] in 2026, but we don't want them to stop what they're so good at and have been so good at.

[Operator Instructions] Our next question comes from David Bishop from Hovde Group.

Just in terms of the hiring efforts you mentioned there, you mentioned the disruption, I think over -- I think it was close to $120 billion in terms of bank deposits going through the conversions and such. As we look out into the year, you mentioned the '26 here. Are there sort of calling efforts you have like list of bankers, 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 outs?

Yes. 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 on-boarding new bankers just as we do with new clients in the third quarter, there were 200 bankers that were on our list that we were having conversations with. In the fourth quarter, it grew to 237. So it's -- and we're going to hire a small percentage of those, but those conversations are very, very active.

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

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

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