SouthState Bank Corporation Q2 2026 Earnings Call

Hello, everyone. Thank you for joining us, and welcome to the SouthState Bank Corporation second quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference call over to Will Matthews, Chief Financial Officer. Mr. Matthews, please go ahead.

Good morning. This is Will Matthews, and welcome to SouthState's second quarter 2026 earnings call. I'm here with John Corbett, Steve Young, and Jeremy Lucas. We'll follow our typical pattern of brief prepared remarks and then move into Q&A. I'll refer you to the investor relations tab of our website for the earnings materials. 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.

Thanks, Will. Good morning, everyone, and thank you for joining us. SouthState delivered another strong quarter. We generated a return on assets of 1.36% and a return on tangible common equity of 17.6%, which extends the consistent high performance over the last several quarters. Our results reflect solid balance sheet growth, stable margins, improving efficiency, and continued strength in credit quality. As we reach the midpoint of 2026, I'm encouraged by the progress we're making against the four priorities we outlined at the beginning of the year: attracting top talent, growing the balance sheet, creating value through disciplined capital allocation, and building artificial intelligence capabilities throughout the company. Starting with talent, SouthState's culture continues to be a differentiator.

In a period of meaningful disruption across many of our markets, bankers are looking for a platform that empowers local decision-making, values long-term relationships, and creates opportunities for growth. Our division presidents have successfully expanded our commercial banking sales force by more than 10% in just the last three quarters, and we continue to be impressed by both the quality and diversity of talent joining the franchise. These are experienced Relationship Managers who understand our markets, fit our culture, and position us for future growth. That recruiting success is an investment in the company's future, and it's directly supporting our second priority, meaningful balance sheet growth. Over the last year, loans have grown 8% and deposits have grown 5%, both within the range of guidance we provided.

There's been considerable discussion this quarter around the balance between growth and incremental profitability, and that's an important conversation, and frankly, it's one that we have every quarter. Our responsibility as capital managers is to balance three objectives simultaneously: soundness, profitability, and growth. We don't optimize for one quarter. We optimize for long-term shareholder value. That requires discipline, judgment, particularly when opportunities are abundant. One thing we're confident in is that we'd rather operate in vibrant, growing markets than be forced to manufacture growth where it doesn't naturally exist. Strong markets give us options. They allow us to be selective, compete where we have advantages, and build profitable relationships that create value over many years. Our bankers and our footprint continue to provide those opportunities. Equally important, we're maintaining our commitment to soundness.

Asset quality improved during the quarter, with non-performing assets declining 14% and net charge-offs remaining exceptionally low at just six basis points. Credit metrics continue to reflect the disciplined underwriting culture that has long been a hallmark of SouthState. Turning to capital allocation, we remain confident that SouthState represents an attractive investment at today's valuations. Over the last year, we've repurchased nearly 5% of our shares outstanding while also increasing the dividend and maintaining a CET1 capital ratio above 11%. We view share repurchases as one of several tools available to create shareholder value. When our stock trades at levels that we consider attractive relative to the long-term earnings power of the franchise, we intend to be opportunistic. While repurchase activity slowed a little during the second quarter, our philosophy hasn't changed.

We expect to continue returning capital in a disciplined manner, likely at a pace more consistent with our previously communicated, the 40%-60% capital return framework. Finally, artificial intelligence remains an area of significant focus and opportunity. Our objective is to empower every department to identify opportunities where this technology can improve speed, quality, and scale. Today, we're already seeing productivity gains in areas such as credit operations, fraud management, call center support, and through the continued adoption of our internally developed small language model. When I step back and I look at the quarter, I see a team that's aligned and it's executing. We're growing. We're maintaining strong credit quality. We're investing in talent and technology, and we're continuing to allocate capital in ways that we believe will create long-term shareholder value.

I want to thank our teammates for what they accomplished this quarter, and I'm optimistic about the opportunities ahead. With that, I'll turn it back over to you, Will, to walk through the quarter in more detail.

Thanks, John. Our net interest margin of 378 was down a basis point from Q1 and in line with our 375 to 380 guidance. Deposit costs were unchanged at 176, also in line with our guidance. Loan yields of 591 were down five basis points from Q1, and accretion of $33 million was down $6 million from Q1. Excluding accretion, loan yields were up a basis point and NIM was up four basis points. One side note about accretion. We often get questions about that number, but rarely about core deposit intangible amortization, a non-cash expense resulting from purchase accounting rules. Slide 11 in our deck shows quarterly margin, accretion income, and CDI amortization expense. I'll note that our quarterly CDI amortization number of $21 million is getting close to our quarterly accretion number, and I expect those lines to cross in the next four to five quarters.

Additionally, I'll point out that our Q2 2026 EPS, excluding both accretion income and CDI amortization expense, was up 13% versus the second quarter of 2025. Net interest income of $576 million was up $14 million from Q1. In comparing to Q1, the $6 million positive impact of the extra day in the quarter matched the $6 million decline in accretion income. As John noted, we had a record quarter for loan growth and loan production, with loan growth of $1.35 billion equating to an 11% annualized rate, matching the growth rate in average loans. Over 76% of our loan production in the quarter had a floating rate. Our Florida banking group led the company in loan growth dollars this quarter, and every one of our banking groups had good growth. Pipelines continue to be strong, though down slightly from March 31st levels. They remain well above other recent quarters.

Non-interest income of $97 million or 57 basis points of average assets was within our guidance range of 55-60 basis points and $3 million below Q1's levels, as higher deposit fees were offset by lower mortgage revenue. Non-interest expenses of $358 million were slightly better than guided. We had higher deferred loan origination costs offset due to the record quarter for loan production, but this was offset by higher incentive accruals and commission expenses, holding compensation costs flat with Q1 levels. Looking to the remainder of the year, we have no changes to our 2026 NIE guidance for the year. Consensus estimates for NIE are a bit above $1.46 billion, and this is in line with our 2026 guidance of 4% growth over 2025 levels. John noted the continuation of our successful record of low net charge-offs.

This quarter's six basis points makes eight out of the last nine quarters where our net charge-offs have been below 10 basis points. Provision expense of $16 million was primarily driven by the quarter's loan growth. We had a nice reduction in non-performing assets and in our classified loans, and payment performance remains very good. We continue to feel good about our credit quality. Turning to capital, we repurchased 1 million shares in the quarter at a weighted average price of $97.62 for a 68% total payout ratio including dividends. This brings our year-to-date total to two and a half million shares repurchased for an 80% total payout ratio year-to-date. We continue to expect to generate solid growth, so our longer-term total payout ratio guidance remains in the 40%-60% range, as John stated.

Even with a higher capital return posture and 11% loan growth in the quarter, capital levels remained very healthy. CET1 ended at 11.1%, TCE was 8.7%, and our TBV per share ended at $58.72, which is up 13% from the year ago level, a period in which we repurchased over 4.9 million shares, or approximately 5% of the company. Operator, we will now take questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the roster. Your first question comes from Stephen Scouten with Piper Sandler. Your line is open. Please go ahead.

Yeah, good morning. Thank you. Maybe if I could start on NIM trends moving forward, if you continue to grow loans at this kind of high single digit, low double digit pace, and what you are seeing on deposit costs specifically within that dynamic.

Sure. Good morning, Stephen. This is Steve. Yeah. Just a reminder, net interest margin this quarter was 378 versus our guide last quarter of 375, 380, kind of right in line. Last quarter, we grew $900 million of interest-earning assets with only one basis point of contraction. I think that was a real win going forward. Deposit costs were flat at 176 and within that our guidance. Really, as we think about going forward, really nothing has changed in our guidance.