SouthState Bank (SSB) Q2 2026 earnings call transcript

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 will follow our typical pattern of brief prepared remarks and then move into Q&A. And I will 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%. 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've 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 discipline 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. And 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 to 60 percent 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 six million from Q1. Excluding accretion, loan yields were up a basis point, and NEM 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 will 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 will point out that our Q2 26 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, We have a lot of money, including 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 to 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. Consistence 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. The 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 waiter average price of $97.62 For a 68% total payout ratio, including dividends. This brings our year-to-date total to 2.5 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.

Sure. Good morning, Stephen. This is Steve. Yeah, just a reminder, you know, net interest margin this quarter was $378 versus our guide last quarter, the $375, $380, so kind of right in line. And you know last quarter we grew million of interest earning assets with only one basis point of contraction So I think that was a real win going forward Deposit costs were flat at 176 and within our guidance So really as we think about going forward really nothing has changed in our guidance Our guidance going forward is stable and we going to continue to grow So the format we usually use around interest earning assets is the same as last quarter. We see the growth that John talked about continuing on in that mid- to upper single-digit range.

We have no rate cuts nor rate hikes in our forecast, and we sort of see a stable NIM, and we have some dynamics that are working there. Some of it is the repricing of our existing book that is for loans and securities, and then on the new production rates. But all of that to say that we continue to expect NIM, if we have flat rates through 2027, just to continue to be in that 375 to 380 range.

Yeah, that's exactly right, Stephen. We set out a plan for this year that we're going to expand the team, and we're successfully doing that, and they're producing for us. New hires that we've had have so far contributed $600 million of new loan production, and they've got a nice big billion-and-a-half-dollar pipeline coming behind that. So we've got lots of opportunities to grow, and every day when we make loan decisions, we're doing it based upon a risk-adjusted return on capital. And we see opportunities continue to grow, and we'll make those tradeoffs that make sense to us from a capital management standpoint.

Sure. Yeah, no, and that's right. Obviously there's seasonality that goes on in our book and typically second and third quarter, second quarter because of tax payments. Just the rest of the public fund stuff kind of comes out before it starts moving back up. But underlying all those trends, there's a lot of good deposit activity going on. So from our perspective, as we think about that mid to upper single digit loan growth, we're going to fund it for the rest of the year somewhere in that mid to upper single digit. I would say that probably as we continue to remix the deposits, it's probably going to be in the mid-single digit over the next quarter or so, and then kind of move up towards the upper single digits probably in the last part of the year based on the seasonality.

Sure, John. Yeah, as you mentioned, this quarter we had 5% average deposit growth quarter over quarter, so that's sort of how we get paid, as we all know. And then we also had 5% non-interest-bearing deposit growth quarter over quarter. And so, you know, from time to time, there's, you know, I don't know, seasonality things that happen on the last day of the quarter or whatever. We don't see that as a trend in a negative way. I just think that's a particular day. But as we think about deposit mix, clearly as we think about deposit costs and all within our guidance, and then we were able to keep deposit costs flat this quarter. Obviously, if we continue to grow loans at this pace, they'll move up a little bit.

But it's really just about if we grow in that kind of mid-single-digit range over the next quarter or two, we should be able to keep those pretty contained. And that's all part of our guide of margin coming forward. So I think non-interest bearing deposits, if you look at our treasury management kind of underneath the noise, we've grown treasury management accounts this year about 16% annualized year-to-date, and our year-to-date balances annualized have grown 8%. So underneath all the things that you all don't get to see, there's a lot of good growth going on in those areas.

Yeah, John, you know, we've guided this year to mid to high single digits, and we kind of communicated last quarter that we thought, based on the pipeline strength, that we could wind up on the higher end of that guide, and we did. We've grown 8% year over year. This year, we've grown 9% annualized, so I just feel like we're on track for the prior guidance we gave you. The growth is really broad-based across all of our markets. From a dollar standpoint, naturally, as you'd think, the greatest contributors are the states where we have the largest presence, which is Florida, Texas, and South Carolina from a dollar standpoint. But from a percentage standpoint, Atlanta saw really nice growth, and C&I in the second quarter, and so did Virginia, and so did Alabama.

As we think about the first half of the year, John, versus the back half of the year, we saw a little higher and more elevated C&I seasonal paydowns in the first half and saw more CRE growth. So if we look for that possibly to shift in the second half where we would have more of a pickup in C&I, and we've got more planned CRE payoffs on the back half. So that's kind of the underlying mix shift that we see in our pipelines.

Yeah, Hannah, good morning. It's Will. Yeah, you're right. We have, as John said, had success in recruiting folks, and of course, it's a competitive market in which we operate. We do think we offer a value proposition beyond just the compensation package in terms of our culture, our operating structure, the ownership culture, et cetera, which is helpful in our recruiting efforts with some of the disruption we see. You know, in terms of the NIE itself, as I mentioned in my prepared remarks, the one factor that did help on the compensation line is, you know, with loan production, you, of course, have a deferred origination cost offset you book that is then amortized over the life of that loan.

And so as production picks up, that offset to comp expense increases. That was a help in the second quarter, somewhat offset by, you know, incentive accruals and a little bit higher commission expense in the quarter, too. You know, we do expect good production in the back half of the year, but we also have these folks that we've hired throughout the first and second quarter that will be in the run rate for full quarters. We also have in the third quarter, beginning July 1, is when our merit increases for most of the company beyond the executive staff kick in. So that's an inflationary number there for the comp expense. So all that baked in is why, in my prepared remarks, I was sort of holding steady with the 4% year-over-year, which is pretty much where consensus has it, I think, in the $1.460, $1.465 range.

So we still feel good with that guide. There are obviously a lot of factors that change as you get near the end of the year, you know, in terms of, you know, incentives and other things like that that can – and the loan production number that can cause it to vary a little bit, but that's sort of how we think about it.

Yeah, that's a good question. I'm going to stick with our 40 to 60% guy. You know, we have to make decisions as we survey the environment from us. We do think we're blessed to have the ability to invest in growth, and we expect to continue to be able to do that. But, you know, we have taken advantage of weaker share prices over the last year and been more active. You know, if you look back over the last year, trailing 12, our payout ratio is 75%. And that includes the third quarter of last year where we only bought back 440,000 shares. So the last three quarters, the trailing nine months payout ratio is much higher.

That's not sustainable if we want to maintain CAP CET1 in that 11 to 12% range and still expect high single-digit, you know, Mid to high single-digit loan growth. But other than that, that's about as specific as we can get.

Yeah, Michael, I go back to kind of the goal to kind of take advantage of some of this disruption occurring in our markets. We laid out the opportunity for our division presidents to increase the commercial relationship manager specifically team by 15 to 20 percent and be opportunistic over the next couple of years We up now over 10 in just three quarters And as I think I mentioned earlier we tracking the loan production and pipelines of those specific hires And through three quarters they contributed million of loan production They got a billion pipeline You know, the most success we've seen, and we're very pleased with the team in Texas, led by Dan Strodel, they've had the most success as far as expanding the sales force.

They're actually up 25% as far as the number of commercial RMs in Texas. And as we work through the next few quarters, we look for the Southeast to continue to kind of pick up on the hiring front. But, you know, to be able to produce $600 million for that new team, I feel like they've hit the ground running.

Yeah, Michael, this is Steve. No, there's nothing around that. We typically, if you looked over our history, we run somewhere in that 2% to 3% range on the cashed assets, so that's normal. So as it relates to the buyback, that's not a limiting factor. Cash is not a component of that decision-making process.

Sure. Yeah, this is Steve. Yeah, we think that, you know, deposit costs would move up, you know, a little bit here over the rest of the year, depending on how long, you know, rates stay flat. And, you know, as we think about the opportunity of growth, you know, your incremental deposit cost is going to be marginally higher, which is going to, over time, add to it. But as you kind of look at what happened this past quarter, we also have repricing the old book. So, yeah, I would expect it to move up a little bit. But from a standpoint of it's well within the guidance of being able to reprice some of the other assets on our balance sheet, and that's why we get stable NIM.

Yeah, no, it's a really good question. So if you think about it, it really depends upon the curve. But if, you know, the way we kind of characterize our interest rate position is we are asset sensitive. If, you know, they hike rates, let's say, you know, every 25 basis points, but the curve doesn't change, then it's probably reasonably neutral. But if, you know, there's an upward, if everything goes up 25 basis points or everything goes up 50 basis points, then it is very accretive to our NIM. That's the asset sensitivity. So, you know, we still continue to get the asset repricing, which is very beneficial. At the same time, we get to, you know, get a better curve.

So, if it's the way I would kind of characterize it, we're pretty stable around whether rates go up or rates go down. If there's a bear flattener, it's probably pretty much a wash, but if it's a shock up, then that would be positive to the NIM.

Sure. On page 12, we have a summary of our non-interest income over the last four quarters, and you can kind of see it's a little bit bumpy. The $97 million this quarter was 57 basis points of assets. Our guide has continued to be 55 to 60 basis points. And if you look at it a year ago, second quarter year ago, we're up 11%. And a lot of that is because of the correspondent revenue on the right-hand side of that page. You'll see that gross revenue has increased, you know, about $5 million. So how we kind of look at it, really nothing's changed on that guidance. 55 to 60 basis points is the right number. And as we grow assets, we're trying to continue to, you know, there's going to be continued growth, but from a percentage perspective, I'd see us somewhere in the middle of that range.

So no change there.

Yeah, that's right. We've kind of guided to $25 million gross a quarter, and last quarter was 24-4, this quarter was 24-8. Obviously, things change in that business relative to the curve, so I guess if interest rates got out of whack one way or the other, it could materially affect that a little bit in the short run, but right now we have a pretty good run rate going on and feel pretty good about that.

Yeah, Gary. So, if you step back and look at the big picture, that construction category is down about 10% from this time last year. But we did see a move up this particular quarter, and it was due, there was a fair amount of owner-occupied construction projects for C&I clients, multifamily construction. But to my comment earlier about the back half of 2026, we do have a number of planned payoffs of multifamily. That's just part of their normal cycle that will be paying off on schedule. So we're going to see more of that in the second half, but we see a pickup in the C&I areas. The C&I areas, a number of these are seasonal kind of paydowns.

Number one that we've seen in the last couple of quarters, one is the energy book. With oil prices as high as they are, our clients are experiencing really strong cash flows, and they're paying down their lines. We saw a reduction in capital call lines. So as we move into the back half of the year, we see some of that business picking back up while we're also faced with the planned payoffs of multifamily. But really, one goes up, the other goes down. But really, the guidance still, we still feel pretty confident that we're in that mid to high single digit range and could very well be on the higher end of that range.

Sure, Gary, it's Will. I'd say overall, we would expect the recent trend we've seen to continue absent significant changes in the Moody's expectations for unemployment, CRE price index, and other loss drivers that impact the model more significantly. You know, we've seen some downward pressure on the level of reserves from the migration of loans from PCD to non-PCD, the PCD loans carrying a higher reserve.

You know, on the other side, you had some small upward pressure as rates have moved up because prepaid models show a slowing down there, and that impacts reserve levels up a little bit, but overall, some downward pressure. Our provisioning really is, this quarter was really for growth. Another comment I'll make too is, you know, if you look at our scenario weightings, as you know, Moody's has various different scenarios, and we model three scenarios and weight them. The baseline, the S1, which is more optimistic, and the S3, which is more pessimistic.

Our traditional weighting is 40-30-30, 40 baseline 30 for each of those two. We moved to a more pessimistic weighting about probably a year or so ago. I can't remember exactly, but we have for the last few quarters been weighting 40-20-40. So we have 40% in S3 rather than 30, and 20% in S1 rather than 30. Obviously, over time, we would expect to go back to 40, 30, 40, 40, 30, 30, but there is enough uncertainty out there in the economy with what we've been through the last year with tariffs and the conflict in the Middle East that we have elected to be a little more conservative in that regard. But anyway, that's sort of, you know, again, absent a big change in the economic forecast, we think we're still in that slight downward pressure from here.

Yeah, sure, Anthony. Yeah, this is Steve. Actually, yeah, just to give you an update on some of those stats, our new money market rates referenced last quarter, this quarter we raised a little over $470 million out of $268. I think last quarter the average was $268, I think about roughly a little bit lower of a number. So that trend toward the end of the quarter sort of died down, and sort of where we are now is at 268. We also had about a billion one in new and renewed CDs last quarter on the retail side. The average rate it renewed at was at 352, and from the first quarter it was at 369. So I say that on the retail side that has sort of calmed down a little bit on the new money market and CD rate form So that kind of how that played out Okay and then on correspondent I think in the past you talked about some initiatives and products in the pipeline that at some point could drive an increase in that stream of revenue Could you give us an update on those products and a timing of when you could see a lift from the I think you got it to million per quarter Thank you Sure.

Yeah, you know, with the Texas Colorado franchise went through the conversion a year ago, and so naturally they're inwardly focused and distracted, and so their production and their payoffs, you know, weren't providing much growth. Now they're growing at exactly the same rate as the rest of the Southeast franchise, up around, you know, 10%, 11% if you exclude the specialty lines. You know, this particular quarter, we actually saw more payoffs than we had in the prior quarters, and it was tied to what I mentioned earlier, some of these C&I businesses, energy and capital call lines that we don't think is a trend. We think that that business ticks back up in the back half of the year.

Yeah, that's correct. The efficiency ratio on maybe the fixed income portion is a little bit higher, maybe more like a wealth management, maybe in the 70% range. And then some of our other products, it's closer to 40 or so. So I would kind of just, as we grow that revenue base, I would grow the expense base by, you know, I don't know. I'd call it half just to, you know, make a simple math statement there.

Yeah, and, you know, as you know, Ben, it's not a capital-intensive business, so a higher efficiency ratio in that business still makes it very attractive.

Sure. Yeah, no, happy to. And yes, your point is well taken, and it's really sort of the same thesis we had a couple of years ago when we did the independent deal, is that as the accretion moves out, the loan repricing moves in, and we move it from reported NIM to core NIM. But, you know, the staff on sort of the NIM and the repricing there as accretion comes down is we have about $6 billion of loans that we'll reprice within the next year or so.

Depending on, you know, whether they're floating or fixed, we sort of give it four or five basis or 50 basis points of, you know, repricing. Some will be higher than that. Some will be lower than that, but about 50 basis points of hikes. And then also we have about a billion dollars of securities that will come, you know, cash flow back to us that will give us about a 1%, you know, of course, depending on the curve. So those things are going to create, as we run off some of the, when I run off, when the legacy independent loans pay off as they should, particularly the vintage in 21 and 22, the five-year loans, and they roll off at coupons that are 3% and 4%, and we reprice them in the sixes, that's going to shift that bucket from less accretion and more core.

As we reprice those loans.

And part of it has to do with the floating fixed rate mix. And I think Will mentioned it in our prepared remarks that we've been really working on the balance sheet mix to get more of the In a certain rate environment, we want to get more of our loan book to floating. And so this quarter, our loan production was 76% floating, 24% fixed. And so if you kind of look at the overall loan portfolio now, we've made a lot of progress on that front. So that last year, and June 30th of last year, 32% of our loans were in the floating rate bucket. Now we've improved that to 38%. And so as we think about new loans and interest rate sensitivity and durability of NIM, we think we've got the balance sheet and the earnings stream in a much more stable position if rates go up because we've gotten more floating rate loans.

So I think that's an appropriate way to think about it.

Yeah, we love the markets we're in. We really just want depth and density in those markets. So to the extent Bobby Calgill that runs Virginia Forest has opportunities to expand and recruit commercial RMs, we're going to do that. We built out Hampton Roads maybe two or three years ago and have had a lot of success there. But really, really no new markets on the horizon. We really just want depth and density. We did expand to Nashville in a loan production office, I guess it's been about a year, year and a half ago with Cameron Wells, and he's doing a great job. But no expansion markets on the horizon right now.

Yeah, we've typically been pretty conservative on that loan-to-deposit ratio. Typically, the way we think about it is at the beginning of a cycle, you typically start that loan-to-deposit ratio at a little less so-called, I think, in the mid-70s or so. And then later in the cycle, you probably want to be in the 90% range. We probably would let it go as high as maybe 92, but probably not much higher than that is our thinking today. And that's all part of the guide. If you think about our interest earning assets, we're going to fund the loan portfolio with the deposit portfolio. And, you know, as John talked about the new bankers, you know, some of this is, you know, as we continue to put new bankers on the ground and as they bring on, you know, their new customers, over time, it'll, you know, continue to grow that deposit book as we continue to, you know, mature those things.

So I would kind of just look at it in terms of, you know, the same guide on our interest earning assets. That's kind of how we're going to fund the loan growth.

Yeah, I think it's similar to what it's been. You know, like for instance, in Texas and Colorado, our CD rate is a little higher over in that market than it is over in the Southeast markets, about 25 basis points. So I think it's probably more so on the deposit side is where we feel a little bit more of the pressure, but that's probably just marketing to those markets.

All right. Thank you, Jesse. I just want to end by thanking our team. You know, we're executing successfully on the four goals we laid out last year. SouthState's financial performance is among the top quartile in our peer group. The plan's working, and as you've heard throughout the call today, our guidance from prior quarters is basically unchanged. So I want to thank you for joining us this morning, and feel free to reach out with any follow-up questions, and I hope you have a great day.