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DATE
Friday, July 25, 2025 at 1:00 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer — John Corbett
Chief Financial Officer — William Matthews
Chief Operating Officer — Stephen Young
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TAKEAWAYS
Independent Financial Transaction Integration-- Completed successfully in the quarter, establishing $66 billion in assets as of the quarter and full operational entry into Texas and Colorado, with specific recognition of 400 staff redeployed for system conversion support.
Loan Production-- Increased 57% sequentially from around $2 billion to over $3 billion, with Texas and Colorado loan production up 35% and non-PCD loans rose by roughly $200 million.
Return on Assets (adjusted for merger costs)-- Achieved an adjusted return on assets of 1.45%.
Return on Tangible Common Equity-- Reached nearly 20% on an adjusted basis.
Net Interest Income-- Net interest income grew by $33 million from Q1, of which only $2 million was due to higher accretion.
Cost of Deposits-- Declined to $1.84, improving by five basis points from Q1, with a projected range of $1.85-$1.90 for deposit costs over the next few quarters.
Loan Yields-- Loan yields improved eight basis points to $6.33 from Q1. Excluding early payoff accretion, loan yields were $6.20. Excluding $14 million in early payoff accretion, loan yields were one basis point higher than Q1.
Net Interest Margin (NIM)-- Improved by 17 basis points quarter over quarter, with drivers attributed to lower deposit costs (five basis points), increased loan coupon yields (six basis points), and full-quarter benefit of securities portfolio restructuring (seven basis points).
Noninterest Income-- Reported noninterest income was $87 million, with gains in correspondent business offset by a slight decline in mortgage revenue.
Noninterest Expense (NIE)-- Noninterest expense totaled $351 million, at the low end of management guidance, with an efficiency ratio of 49.1%, pushing the six-month, year-to-date efficiency ratio below 50%.
Credit Costs-- Provision expense was $7.5 million, aligning with six basis points in net charge-offs; included a $17 million day one PCD loan charge-off from the Independent acquisition.
Tangible Book Value Per Share-- Tangible book value per share of $51.96 as of the quarter, up 8.5% from the year-ago level, despite merger dilution effects.
Capital Position-- CET1 ratio improved, reaching nearly 10.5% including AOCI at quarter end, about 12 basis points above the level at the end of Q2 2024.
Dividend Increase-- Board authorized an 11% increase in the quarterly dividend in July 2025.
Loan Pipeline Momentum-- Pipeline increased 45% in Q1, then another 31% in Q2, supporting continued mid-single-digit loan growth guidance for the rest of the year.
Guidance on Net Interest Margin-- Management reiterated NIM guidance of 3.80%-3.90% for the rest of 2025, with expectations to drift higher in 2026 due to legacy fixed-rate loan repricing.
Loan Accretion Outlook-- Expected approximately $200 million in total loan accretion for the year, with $125 million recognized through Q2 and roughly $75 million-$85 million in loan accretion anticipated for the second half of the year.
Interest Rate Sensitivity-- For every 25 basis point Fed rate cut, NIM is projected to improve by one to two basis points due to asset-liability structure.
Expense Guidance-- Management expects ongoing NIE in the $350 million-$360 million range for the rest of 2025, with annual merit increases affecting Q3 as previously planned.
Revenue Synergies-- Adoption of capital markets swap products by legacy Independent bankers cited as an incremental source of fee income.
Reserve Levels and Allowance Outlook-- Management indicated stable asset quality, with possible gradual reserve ratio decline if current economic conditions persist and PCD loan balances continue to amortize.
Share Repurchase Optionality-- Company noted "good capital optionality." allowing for potential opportunistic buybacks should valuation remain attractive.
Recruiting and Revenue Producer Growth-- Hired 47 revenue producers in Q2, specifically in major Texas and Colorado markets, with retention measures in place post-acquisition.
M&A Stance-- No active M&A discussions underway; management stated "the bar is high" for any new transactions, citing current performance and integration priorities.
SUMMARY
SouthState Corporation (SSB 0.90%) completed its major Independent Financial integration, resulting in tangible asset scale, expanded footprint, and sequentially higher loan production. Capital ratios and book value per share improved, and the board increased the dividend by 11% in July 2025, citing earnings growth and capital levels. Management maintained guidance for NIM to be between 3.80% and 3.90% for the rest of the year and for expenses to remain in line with prior guidance, while reaffirming strong credit quality and signaling capacity for selective share buybacks as loan pipelines and organic hiring momentum persist.
Chief Operating Officer Stephen Young said, "basis points, you know, maybe that is four, five, six basis points, you know, on the run rate when all that is finished."
Chief Executive Officer John Corbett stated, "We added 47 revenue producers in Q2." and emphasized ongoing recruiting in Texas and Colorado.
Chief Executive Officer John Corbett said, "We moved the rate up 11% in July 2025, and we think we are in a position to consistently see that dividend rate increase annually."
Chief Financial Officer William Matthews noted, "tangible book value per share of $51.96 is up 8.5% from the year-ago level even with the dilutive impacts of the iBTX merger."
Management reported $7.5 million in provision expense, consistent with six basis points in net charge-offs, indicating persistently low credit costs without evidence of emerging credit deterioration.
Chief Executive Officer John Corbett stated there is a "long time to continue building the infrastructure" before regulatory demands increase at the $100 billion asset threshold, reducing near-term regulatory risk pressure.
INDUSTRY GLOSSARY
PPNR (Pre-Provision Net Revenue): Net revenue before provisions for credit losses, used to assess core operating performance of banks.
PCD Loans (Purchased Credit Deteriorated Loans): Acquired loans considered to have a significant, identifiable deterioration in credit quality as of acquisition date.
AOCI (Accumulated Other Comprehensive Income): Component of equity reflecting unrealized gains or losses on certain assets, commonly used in calculating regulatory capital ratios.
CET1 (Common Equity Tier 1): A regulatory capital ratio measuring a bank's core equity capital compared to its risk-weighted assets.
CDs (Certificates of Deposit): Time deposit accounts issued by banks with a fixed term and interest rate, commonly used as a stable funding source.
Net Interest Margin (NIM): Metric representing the difference between interest income earned and interest paid, divided by average earning assets.
Loan Accretion: Accounting recognition of the difference between discounted acquired loan values and their contractual balances over time, which boosts net interest income.
Full Conference Call Transcript
John Corbett: Thank you, William. Good morning, everybody. As always, thank you for joining us. In January, we closed the Independent Financial transaction, a deal that we projected to be 27% accretive to our earnings per share. In the first quarter, the bank's earnings accelerated just as we forecast, but loan growth stalled with all the economic uncertainty. Remember, though, we mentioned in April that our loan pipelines were growing significantly in the spring. As you can see in the deck, the pipeline growth in the first quarter led to a 57% increase in loan production, from around $2 billion a quarter to over $3 billion in the second quarter. And that led to solid loan growth.
In Texas and Colorado, specifically, loan production increased 35%, and non-PCD loans grew by about $200 million. The loan momentum in Texas and Colorado occurred in the same quarter that we successfully completed the conversion of the computer systems. I would be remiss if I did not recognize and thank our Texas and Colorado team for their great work navigating through the conversion. It was tremendous teamwork all around, including 400 people who left Southeast for three weeks to serve as ambassadors to help with the transition. And a special thank you to all the operations, IT, risk, finance, and HR teams that numbered over a thousand people who made this conversion one of the best we have ever done.
Now that the independent financial integration is complete, we have had some time to reflect on the progress that we have made. Our goal has always been to build the company in the best geography in the country, with the best scale, and to build the best business model. We believe that those three priorities will ultimately yield the best shareholder value. By adding Texas and Colorado to the franchise, we are now firmly established in the fastest-growing markets in the country. And at $66 billion in assets, we have achieved a scale that has enabled us to make the necessary investments in technology and risk management while simultaneously producing top quartile financial returns. Look at the second quarter.
Adjusted for merger costs, SouthState's return on assets was 1.45%, and our return on tangible common equity was nearly 20%. And finally, our entrepreneurial business model is producing a superior customer experience and a superior employee experience. Our retail bank ranks in the top quartile of J.D. Power's Net Promoter score, and the scores are improving every year. Our commercial and middle market bank collectively ranked in the top 5% for award recognition in 2025 of the 600 banks tracked by Coalition Greenwich. And our level of employee engagement ranks in the top 10% of financial institutions in America according to this year's employee surveys.
So we built a team of professionals that is talented and engaged with a heart for serving each other and serving our clients, and it is a team that is delivering top financial returns for our shareholders. We have now put the independent financial conversion in the rearview mirror. And as we look ahead to the prospects of an improving yield curve, we are in a great position to focus on and accelerate the bank's organic growth. Given the strength of our earnings growth and our capital levels, the board of directors felt comfortable this week to increase our dividend by 11%.
William, I will turn it back to you to walk through the moving parts on the balance sheet and income statement.
William Matthews: Thank you, John. As always, I will hit a few highlights focused on operating performance and adjusted metrics, and then we will move into Q&A. We had another good quarter with PPNR of $314 million and $2.3 in EPS. Net interest income grew by $33 million over Q1, only $2 million of which was due to higher accretion. We continued to perform well in the cost of deposits, which came in at $1.84, a five basis point improvement from Q1. Our loan yields of $6.33 improved eight basis points from Q1 and were approximately 22 basis points below our new origination rate for the second quarter.
Loan yields in the quarter also benefited from early payoff on loans, including some PCD loans. Excluding $14 million in early payoff accretion, loan yields of $6.20 were one basis point higher than Q1. And loan yields excluding all accretion were up seven basis points from Q1. Additionally, the second quarter had a full quarter's benefit of the Q1 securities portfolio restructuring driving the yield on securities 51 basis points higher.
To recap, you can see this in the waterfall slide in the deck, of the 17 basis points improvement in the NIM, approximately five basis points of NIM improvement was due to lower cost of deposits, six basis points was due to loan coupon yields, and seven basis points was due to a full quarter of the securities portfolio restructuring. As always, Stephen will give some updated margin guidance in our Q&A. Noninterest income of $87 million was similar to Q1 levels, with improvement in our correspondent business offset by a slight decline in our mortgage revenue. On the expense side, NIE of $351 million was at the low end of our guidance.
And our second quarter efficiency ratio of 49.1% brought the six-month year-to-date ratio below 50%. Credit costs remain low with a $7.5 million provision expense, essentially matching our six basis points in net charge-offs. We had one additional day one PCD charge-off of $17 million on an acquired independent relationship. This is an as-of-acquisition date impairment where there were conditions in existence at the January 1 closing date that we became aware of during the quarter. We continue to have strong loss absorption capacity. Asset quality remains stable and payment performance remains very good. Our capital position improved again with CET1 and TBV per share growing nicely.
It is worth noting that tangible book value per share of $51.96 is up 8.5% from the year-ago level even with the dilutive impacts of the iBTX merger. Our TCE ratio is also higher than its June 2024 level. Additionally, our strong capital and reserve position, the rate at which we are growing capital continues to provide us with good capital optionality. That includes this quarter's 11% dividend increase and other options, including the potential to repurchase shares opportunistically should we choose to do so. Operator, we will now take questions.
Eric: At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Catherine Mealor with KBW. Please go ahead.
Catherine Mealor: Thanks. Good morning. Morning. Thought we could just start on your outlook for the margin. The gosh. It was just really great across the board on securities, loan yield deposits. We kinda got everything all at once. So just, you know, curious if you think there is still upward momentum. We are now at the kind of the top end of the range that I would have expected. Is there the ability to still expand the margin from here? And just yeah. Just curious for your outlook for the margin in the back half of the year. Thanks.
Stephen Young: Yeah. Sure, Catherine. This is Stephen. Yeah. Like you mentioned, you know, net interest this quarter is very strong at four zero two. I think we have a slide on page 12 that talks about that. Our guidance this last quarter was between three eighty and three ninety. So significant beat. Approximately half of that beat related to our expectations of loan coupons securities, deposit costs, as you mentioned, that is higher than better than we thought. And then half of it related to our expectation of loan accretion, which was a little bit higher than we thought due to some higher PCD accretion from early payoff, and you can see that in our PCD balances.
You know, page 13, as William mentioned in his opening comments, describes the change quarter over quarter in 17 basis points quarter to quarter. You know, as we think about the guidance to be, you know, just simply, there is really no significant change to the guidance, as we see it. You know, sometimes as we look at these quarter to quarters and as it relates to accretion, sometimes it is, looking at the portrait versus looking at the movie, and I think portrait from core to core can get a little noisy. But the movie is kinda where we are going to continue to guide you towards, and that is over the next eighteen to twenty-four months.
But as we think about the assumptions, the main assumptions around that, are the size of interest-earning assets, the rate forecast, and then lastly, the loan accretion. You know, for us, the interest-earning assets, we, you know, we reiterate our guide from last quarter that we would have average earning assets to be roughly $58 billion for the full year in 2025. And then in the fourth quarter average, we would exit somewhere in the $59 billion. That is mid-single-digit growth rate, and we sort of see that going into 2026. But, you know, as John mentioned in his prepared remarks, we will see how the growth outlook evolves over time.
So really no change in guidance to the interest-earning assets. You know, on the rate forecast, we just we do not see rate cuts this year, so we are, you know, trying to keep it simple. Then we can talk later about interest sensitivity. And then accretion, loan accretion based on our models, we would expect loan rate accretion to total approximately $200 million, maybe slightly higher than that for 2025. Of which we have recognized about a 120 we have recognized a 125 so far this year. So 200 in total for 2025, but we recognize a 125. So that indicates we have, you know, I know, between 75, 80, 85 left or so, for this year.
And then we expect in our models based on prepayments and others we expect about a $150 million in 2026 of accretion. So as a reminder, we have about $393 million left of the discount. So, anyway, based on all those assumptions, we would continue to expect NIM to be between $3.80 and $3.90 for the remainder of the year, and to drift higher in 2026. As the combination of the legacy SouthState loan book continues to reprice up. So no change to any of the guidance that we talked about, except that if, obviously, if rates or if our growth rate got higher, then certainly, net interest income would move higher.
Catherine Mealor: That makes sense. K. And so and within that, so it seems I guess within that 75 to 80 million of accretion left, in the back half of the year, I guess that is just your base level. So it does not assume any accelerated accretion, but we have gotten that in the past two quarters. So, you know, we may get that, but that is just kinda your base level.
Stephen Young: Yeah. Our base level you know, it is hard to tell some of these things. Like, last quarter, there was a fair amount of PCD. You know, if you look at our PCD loans, they were down 225 million. Was higher than we expected, which, you know, it is a good thing. It affects accretion, certainly affects the allowance. Too. But Mhmm. You know, ultimately, we would not expect those PCD. Some of that is just our people resolving some of those, you know, as we get our hands around the IPTX portfolio.
Catherine Mealor: Great. That makes sense. Okay. And maybe one more just on the growth outlook. The origination, the slide that you where you show originations, it seems like you have really got some momentum in the origination volume, which is so great to see. So just curious if for your growth out I mean, I know you said average earning assets are still kind of heading towards $59 billion but is it fair to assume an improvement in the bottom line organic growth rate in the back half of the year, maybe kind of closer towards that kind of mid to high single digit levels.
John Corbett: Hey, Kevin. It is John. I think we guided to mid-single digits for the remainder of the year and that is kind of where we wound up in the second quarter. The mid-single-digit range. But this kind of played out the way we talked about in April with that pipeline increasing as much as it did. It translated into a really big spike in production, and that led to the loan growth and say going forward, we are getting more bullish, but we do not know for sure. The pipeline loan pipeline increased 45% in the first quarter. But then in the second quarter, the pipelines increased another 31%. On top of what it grew in the first quarter.
So that tends to make us feel a little more bullish that mid-single digits is probably still appropriate for the next couple quarters, but if the yield curve becomes more favorable, I think it is likely we could move to the mid to upper single digits growth probably next year.
Catherine Mealor: Great. Makes sense. Alright. Thanks. Great quarter. Appreciate it.
Eric: Thank you. Your next question comes from the line of John McDonald with Truist Securities. Please go ahead.
John McDonald: Hi. Good morning. Just wanted to follow-up on Stephen's comments there on the NIM and the NII. Inside of that, what surprised you about deposit costs, which were very strong this quarter? And what is your outlook for the deposit costs inside that NIM guidance?
Stephen Young: Yeah. That is a good question, John. This is Stephen. You know, just to kinda take you back up to the to the movie versus the portrait or Polaroid, I think we go back a couple of quarters, if you looked at IVTX and us together, the peak cost of deposits was in the third quarter at $2.29. And, of course, last quarter, it was $1.84, so a 45 basis point improvement. So 45, you know, percent beta on a 100 basis points. And, you know, we only modeled 27% just because we thought it would be a bit different.
Having said all that, I think we have optimized the deposit base, and I would kinda look at it that as we continue to grow loans if we you know, if we are in a situation where we are in the mid-single digit, maybe even a little higher than that, you know, those deposit costs on an incremental basis will go up a little bit. So our forecast is that those deposit costs to be in the $1.85, $1.90 range. Over the next few quarters just as we continue to kinda grow on that. But even at that, that would be a 40% beta or, you know, something like that, which is better than we thought. Thanks.
And then just on the loan growth, another follow-up. In terms of the pull-through of the strong production to net loan growth, what are you seeing on pay downs? Any change in the paydown pace and activity that is you know, the difference between the gross production and what you are seeing in terms of net loan growth?
Stephen Young: Yeah. The pay downs in the first quarter were actually lower than normal. We went back and looked at independent and SouthState combined for the last four or five quarters even before we closed. The second quarter pay downs returned to a little more normal. It was a little more elevated than the last five-quarter run rate. So I think that the level of pay downs in the second quarter is probably appropriate to where we go from here. You know, a lot of this has to do with not just pay downs, but how much the loan originations fund initially versus over time. And we are funding around about 60% of that production.
So there is some additional funding that will occur over time.
John McDonald: Got it. Okay. Great. Thank you.
Eric: Your next question comes from the line of Stephen Scouten with Piper Sandler. Please go ahead.
Stephen Scouten: Hey. Thanks. Good morning, everyone. Stephen, if you could maybe talk a little bit about the interest rate sensitivity as well as you noted, just kinda want to make sure that is still the way I think about it and, I think you said you see the NIM going higher in '26, assuming that has some cuts baked in and that you guys are still kind of a net beneficiary if we get a little bit of rate cuts on the lower end but steepness to the curve?
Stephen Young: Sure. No. That is a good question. As it relates to the interest sensitivity, I think we talked about it last quarter. But really no change from our guidance as we model it and our team models it. We expect, you know, somewhere in the one to two basis point improvement to overall margin for every 25 basis point cut. So I guess if, you know, the Fed ends up cutting rates a 100 basis points, you know, maybe that is four, five, six basis points, you know, on the run rate when all that is finished. And sort of the math behind that is we have about 30% of our portfolio, loan portfolio is a floating rate portfolio.
So, that is $14.6 billion. Of course, all that gets cut immediately. We have about a little over $14 billion in exception price deposits that we think that over time, we get about 80% of the beta on that. And then we have CD book which is 7.7. We think we get 75% of that. So you know, that is sort of been our history. We will have to see. But that is sort of the math behind you know, behind that one to two basis points. And then, you know, on the loan repricing piece, without any rate cuts, we should continue, as I mentioned, in my remarks, that, you know, margin should continue to increase.
And really the math behind that is the fixed rate loan repricing of the legacy SouthState. So you know, those if you think about over the if you kinda look at the eighteen-month period from here to the end of 2026, the legacy SouthState, the unmarked book, has about $6.6 billion of loans repricing that on average, over that period of eighteen months is about five. The coupon is about 5%. And we think, you know, obviously, our newer new loan production this past quarter was six fifty-four. But we are modeling sort of a six and a quarter over that period of time. So you pick up you know, percent and a quarter on that.
And then, of course, on the independent portfolio, we have about $3 billion over the next eighteen months that will mature reprice on the fixed book. And, of course, that discount rate is somewhere in the seven and a quarter range. So if that is true, that would be negative. By about you know, if we want to use the same number, six and a quarter by 1%. So the positive would be, you know, $6.6 billion repricing up one and a quarter percent. And the negative would be $3 billion pricing down at 1%. The net of all that is about 50, you know, 50-ish million dollars or about 10 basis points positive on loan yield.
So that is how we are kinda thinking about the moving parts from here. Yeah. A lot of the sensitivity of the interest rates have already been taken out because of the independent marks. What is left is the legacy SouthState repricing book. And then any rate cuts on top of that. So, hopefully, that is helpful if you think about it.
Stephen Scouten: Yeah. No. That is great detail, especially about the puts and takes on legacy SouthState. Appreciate that. I guess you know, maybe if we could touch on this the deal that was announced last night, maybe not that specifically, but just M&A in your markets even how do you think about how this location could benefit you all? Would you have any governor to adding people and talent if they become available? Just kinda how you think about the dynamics of the market and your ability to take advantage of that moving forward?
John Corbett: I mean, I look about where we are. I am really glad we made our move in Texas. When we did in early 2024. That was really before the competition heated up, and I think that timing gave us an early mover advantage. You know, for us, we are not pursuing anything now. The way the bank is performing, the bar is high for us, and we can afford to be patient selective on M&A. Plus, we think our multiple is cheap. But our top priority now is that we are firing on all cylinders in Texas and Colorado. The conversion went great. And the organic pipelines in Texas and Colorado grew by 31% last quarter.
That is what we are focused on. And, you know, with all the disruption of M&A in the Southeast and Texas, that always creates opportunities, and SouthState is positioned in the right spot.
Stephen Scouten: Got it. But nothing that would deter you from adding you know, if a team of, let us just say, 10 or 20 people came around, you would go ahead and do that if this is right. I mean,
John Corbett: yeah. Absolutely. We added 47 revenue producers in the second quarter. So that is part of our DNA is constantly recruiting. And you know, with all the disruption in Texas and Southeast, we will continue to do that.
Stephen Scouten: Perfect. Thanks for the color. Great quarter.
Eric: Your next question comes from the line of Jared Shaw with Barclays. Please go ahead.
Jared Shaw: Hey. Good morning. I guess just looking at, you know, you call out the regulatory sweet spot of 60 billion to 80 billion. How do you see that trending? You are in there right now. How do you see that trending over time? You think if we see some concrete change in regulation for a 100 billion that your platform can naturally grow above that without any more big investments? Or how should we think about that regulatory sweet spot changing over time for you in scale?
John Corbett: Yeah. I mean, you know, it is in the news every day. You got new regulators in place. They are making changes. But, I mean, the way I think about it, we are a long way from a $100 billion and $66 billion in size. So got a long time to continue building the infrastructure. Our chief risk officer, Betsy Simone, has done a fabulous job. Managing the heightened expectations over the last four or five years. As we cross 50, we got great relationships with our regulators. We will just have to watch and see how the regulation evolves, but we got a long time before we are faced with that.
Jared Shaw: Okay. Thanks.
Eric: Your next question comes from the line of Michael Rose with Raymond James. Please go ahead.
Michael Rose: Hey. Good morning, guys. Thanks for taking my questions. Will or Stephen, just any updates on the expense outlook? Looks like you were at the lower end of the range for this quarter. Maybe just some color on what drove you to the lower end of the range and any updates as we kind of think about what you had previously set around you know, the back half of the year, just as a starting point? Thanks.
William Matthews: Yeah, Michael. And, the I guess, the short answer is really no change to our prior guidance. I mean, honestly, looking at consensus, you guys have a we think a good number in there for the remainder of this year and 2026. So I would say really no change to our guidance. There are always some moving pieces as you well know relative to revenue-based compensation, some of the business lines. You know, you have got loan origination bonds that impact your deferred loan costs, all those kind of things that move in and out. You have got incentive comp, all that sort of stuff.
But you know so any variability between what I last time, I think I said between three fifty and three sixty this quarter. So we were, you know, at the low end of that range. But those kinds of things can factor in. You know, we have done a good job in executing on the cost saves, so we still feel very good about that part of the integration with Independent. And really sticking with our guidance on NIE.
Michael Rose: Perfect. And then maybe just one comment I forgot to mention. You know, just remind her, said it before, but July 1 is when much of our team across the company gets their merit increases. So that is also factored into my guidance as well. That the third quarter will be will reflect that too.
Michael Rose: Perfect. Appreciate it. And maybe just as my follow-up, you know, I know it is still early days, but anything on the revenue synergy front? That we should be contemplating now that we are another ninety days past, the deal. And then, from a retention standpoint, how is that held up relative to kind of your original expectations? Thanks.
John Corbett: Yeah. It is held up great. As I have mentioned previously on these calls, we went to all the geographic leaders before the announcement and they all signed up with employment agreements before the announcement. And then we went to the it was the top 47 revenue producers with kind of packages. And all of them joined up and did that. So we have been very, very pleased and the leader we have got in Texas and Colorado, Dan Stroedel, highly respected in the bank with that team, and he has done a great job. And the bankers are doing a good job. So and we are hiring. I think in I mentioned those revenue producers we have added.
We added two in Houston. We added two in Colorado. We added one in Dallas, so they are out recruiting.
Michael Rose: And then just on the on the fee side, the synergy side? Anything that should be contemplated?
John Corbett: One thing that has been a real positive, you know, independent was a really good CRE lender, and we have got the interest rate swap product, Michael, the capital markets product where we make a fees. And they have been quick adopters to that. So that has been a nice source of fee revenue.
Michael Rose: Alright. I will step back. Thanks for taking my questions.
Eric: Your next question comes from the line of Gary Tenner with D.A. Davidson. Please go ahead.
Gary Tenner: Thanks. Good morning. Wanted to just ask a question about kind of the deposit rates. I know you gave kind of a 185 to 190 range for the back half of the year, but the CD side, I guess I am curious, a, the amount of growth there this quarter was pretty notable. Just from a, you know, sequential quarter comparison. So wondering about kind of the push there and then the rate paid come down maybe quite as much as I would have assumed. So I am just wondering kinda how that market is shaping up from a pricing perspective.
Stephen Young: Yeah. No. This is Stephen. You know, when we closed and you did not have the benefit of seeing this, but when we closed the independent transaction, if you looked at our twelve thirty-one numbers, I think our CD balances would have been a little over 7 and a half billion or so, and a lot of that has to do with you know, we are trying to balance sheet manage this. Of course, there is a lot of moving parts in putting it together.
And so in the first quarter, even though I think we grew we grew deposits a little bit, our CDs actually shrunk, although that was the first time we reported together, so you did not see that. What is happening now is just the growth rate you know, phenomenon, you know, and in the first quarter, we did not as we mentioned before, did not grow loans. This quarter, we did, and we think we will. And so know, it is going to be on the incremental you know, new deposit. Side. It is just going to be at a higher funded rate until they cut rates. And so that is all I would say about that.
I think you know, if our balance sheet was flat, we would probably stay here. But on the incremental growth, we you know, record six and a half percent loans, and we are going to have to fund those incremental loans or with incremental deposits, and those rates will be a little bit higher on the incremental margin.
Gary Tenner: K. Appreciate it. And then follow-up question just on the loan yields. I the seven basis points expansion kind of ex accretion. I know, I think, William, you kinda offered some reasons why that moves around, but was the normalization of prepays this quarter a notable driver of that expansion, or is it more mix and production yields?
Stephen Young: Yeah. This is Stephen. I guess, if you take all accretion out and we show this on the waterfall, our, you know, loan yield went from five seventy-one last quarter to five seventy-eight. So or five seven yeah. Something like that. Seven basis points or so. On the loan yield. And so there is a repricing component to that. But, obviously, as we mentioned on the accretion and a lot you know, some of that was the PCD accretion. It was higher than we thought, and that is because I think we worked some of those relationships out or did.
So, you know, anytime you accelerate some of that back to the individual quarters, it is going to be some noise in that. But if I had to kinda you know, kinda bring you back to what we said last quarter and thinking about total loan yield. We sort of said, you know, it should range this year and this six fifteen to six and a quarter range. And then if you kinda think about those comments I just made in a flat rate environment and the repricing of our loans, from legacy SouthState as well as Legacy Independent.
You know, you would see another, you know, 10 basis points higher over, you know, almost kinda in the eight to 10 basis points a year range. So I know one of the research analysts put out a report a few weeks ago just trying to, you know, show the total loan yield, which kinda how we think about it. You know, in a flat rate environment, you know, our total loan yield in the next, you know, two years would be, you know, call it 20 basis points higher than it is you know, today. But I doubt we will be in flat rate environment, and I doubt everything will be similar.
But that is kinda how we are thinking about loan yield this year. Six and six fifteen to six and a quarter, we have little over performed a little bit and because of some of the PCD and other things. But long term, it continues to march higher in a flat environment.
Eric: Thank you. The next question comes from the line of Samuel Varga with UBS. Please go ahead.
Samuel Varga: Good morning. I just wanted to ask a question on the allowance. Well, you gave some great color last quarter around, you know, not shifting the scenario weightings, but having a Q factor adjustment in there for tariffs. Can you touch on where that adjustment is today and sort of how you how you are trying to bake that in moving forward and where the allowance might go as a result?
William Matthews: Sure. Sure, Sam. Good question. You know, I would say this about the reserve level. A couple of things. One, if you look at slide 21 in the deck, you can see, obviously, our charge-off history is you know, very low. You know, 51 basis points cumulatively over ten years plus a quarter. So at some point, that, you know, that data seeps its way into the regression analysis that drives you know, loss estimates and reserve balances. You know, we have been through a pretty, you know, uncertain period in the economy these first couple of quarters, obviously, with the tariff uncertainty, etcetera, etcetera, which has driven some of those Q factor items that we mentioned last quarter.
Those continued this quarter. We did actually adjust our scenario waiting this quarter a little bit more pessimistically. Than it was in the first quarter. But I would say, you know, stepping back, if you look at the reserve level, know, if we see stability in the economy and the economic forecast, I think it is reasonable to say that we could see reserve levels decline as a percentage of loans. You know, if you look back when we adopted CECL, of course, the company was smaller then, but the reserve was down a 115, 120 basis point range.
Other thing to keep in mind too, you know, Stephen referenced that the PC loans declined at a more rapid rate in the second quarter. That is really, like, 25% annualized decline rate. You know, PCD loans, not only are they marked a little bit higher interest rate, but they carry a higher reserve. So reduction in PC loans is also going to put downward pressure on reserve levels. So you know, all that being said, it is always difficult to predict, but I think it is reasonable to expect that over time with a stable economy, you see our reserve levels probably move down.
Samuel Varga: Great. Thanks for that. And then, John, could you just touch on capital allocation from here? The buyback word came up. Just curious on how you think about it over the next eighteen months.
John Corbett: Yeah. With the earnings improving the way they have, you saw our PPNR per share increasing substantially in the last year. The board felt comfortable to move the dividend rate up. We moved the rate up 11% and we think we are in a position to annually consistently see that dividend rate increase. So that is naturally a priority. We do believe there are opportunities on the buyback. I mentioned that I feel like our currency is cheap right now, so there could be some opportunities there. And then we are watching these loan pipelines continue to grow and opportunities to recruit. So that would be the other, main priority as well as organic growth.
William Matthews: Yeah. And I will just layer in, Sam, a couple comments. One, I think I previously said that we saw our CET one growing, you know, 20, 25 basis points a quarter. Yeah. So if we do some buyback, maybe that number drops down to the you know, ten fifteen, 15 to 20. Range. You know, we, in the first quarter, did, you know, some capital actions in with respect to the sale leaseback. And then restructuring the bond portfolio, which as we saw with the impact of that on the margin. But if you look at our CET one today, with AOCI included in the calculation, we are actually above the level we were a year ago.
We were at 10 you know, almost 10 and a half at the end of the second quarter. On CET one with AOCI. So a healthy position for CET one as calculated and if you calculate it with AOCI included. That is about 12 basis points above where we were a year ago. So that does give us some good optionality and some opportunity to think about different options.
Samuel Varga: Great. Thanks for taking my questions.
Eric: I will now turn the call back over to John Corbett for closing remarks. Please go ahead.
John Corbett: All right. Well, thank you guys for spending some time with us this morning. As always, if you have any follow-up questions, feel free to give William and Stephen a ring, and I hope you have a great weekend.
Eric: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.