Executive Summary / Key Takeaways

• Strategic Transformation Complete: SouthState Corporation has successfully executed a pivotal balance sheet reset through the Independent Financial (IBTX) acquisition, a strategic sale-leaseback, and a securities restructuring, significantly enhancing its scale to $66 billion in assets and firmly establishing its presence in the high-growth Texas and Colorado markets.
• Robust Financial Performance: The company delivered strong Q2 2025 results, with consolidated net income up 62.6% year-over-year, a 59 basis point NIM expansion to 4.02%, and an efficiency ratio improvement to 52.7%, demonstrating impressive operating leverage and earnings power.
• Disciplined Growth & Capital Strength: Loan pipelines are robust, supporting a mid-single-digit growth outlook, while capital levels remain well above regulatory minimums, providing significant optionality for organic expansion, opportunistic share repurchases, and consistent dividend increases, including the recent 11% hike.
• Technological & Service Edge: SouthState leverages strategic technology investments and operational excellence, particularly in its treasury management platform and seamless system integrations, to drive superior customer experience (top quartile NPS, top 5% industry awards) and efficient growth.
• Resilient Asset Quality: Despite macroeconomic uncertainties and an increase in nonperforming assets due to the Independent acquisition, asset quality metrics remain stable, with low net charge-offs and a strong allowance for credit losses, underpinned by a conservative risk management philosophy.

The Southern Ascent: Forging a Regional Banking Powerhouse

SouthState Corporation, rooted in a history stretching back to 1933, has strategically evolved into a formidable regional banking force. Headquartered in Winter Haven, Florida, the company has meticulously built its footprint across the rapidly expanding Sunbelt states, including Florida, Texas, the Carolinas, Georgia, Colorado, Alabama, and Virginia. This geographic focus underpins its core strategy: to establish the "best scale" within the "best geographies" and cultivate the "best business model and culture" to drive long-term shareholder value.

The company's business model is comprehensive, encompassing retail and commercial banking, mortgage services, wealth management, and a robust correspondent banking and capital markets division. This diversified approach allows SouthState to cater to a broad spectrum of clients, from individuals to large corporations. Its competitive positioning is anchored in a high-touch, community-oriented service model that fosters deep customer relationships. This approach has earned the retail bank a top-quartile J.D. Power Net Promoter Score and positioned its commercial and middle market bank in the top 5% for award recognition among 600 banks tracked by Coalition Greenwich in 2025. This contrasts with larger national competitors like Bank of America (BAC) and Truist Financial (TFC), which, while offering extensive product suites and advanced digital tools, may struggle to replicate SouthState's localized, personalized service. Regional peers such as Regions Financial (RF) and Fifth Third Bancorp (FITB) also vie for market share, but SouthState's consistent industry accolades for customer satisfaction underscore its differentiated service quality.

Central to SouthState's competitive advantage is its strategic commitment to technology and operational excellence. While not a software developer, the company's technological prowess lies in its ability to effectively implement and integrate advanced banking solutions that enhance efficiency and customer experience. This includes significant investments in updating systems and streamlining data processing, crucial as the company grows in size and complexity. A prime example is the successful computer system conversion following the Independent acquisition in Q2 2025, which involved over 1,000 personnel and 400 ambassadors, described by management as "one of the best we've ever done." This operational feat minimized post-merger disruption, a common vulnerability for banks undergoing significant integrations.

Furthermore, SouthState's sophisticated treasury management platform serves as a foundational technology for its commercial and industrial (C&I) and middle market banking segments. This platform is a key enabler for attracting and serving larger business clients, providing them with essential cash management and payment solutions. The company's SBA securitization business, launched in Q3 2024, also leverages technology to efficiently pool and sell guaranteed portions of SBA loans, generating valuable fee income. These technological capabilities, coupled with its high-touch service model, allow SouthState to compete effectively against larger, more digitally advanced rivals by offering a compelling blend of personalized service and modern banking tools. This strategic blend supports sustained profitability and market share gains, particularly in its high-growth geographic markets.

Strategic Momentum and Financial Strength

The first half of 2025 marked a transformative period for SouthState, characterized by three pivotal strategic capital moves. The most significant was the all-stock merger with Independent Financial, which closed on January 1, 2025, for a purchase price of $2.5 billion. This acquisition was a game-changer, adding $13.0 billion in loans and $15.2 billion in deposits, propelling SouthState's total assets to approximately $66 billion. Concurrently, the company executed a sale-leaseback transaction of 165 bank branches on February 28, 2025, generating $467.2 million in sales proceeds and a net gain of $229.3 million. This move strategically harvested off-balance sheet capital at an attractive cost, providing significant financial flexibility. Complementing these initiatives, SouthState undertook a securities portfolio restructuring in Q1 2025, selling $1.8 billion of available-for-sale securities at a loss of $228.8 million to reinvest proceeds at current market rates, thereby improving portfolio yield, risk weightings, and duration.

These strategic maneuvers immediately translated into robust financial performance. For the six months ended June 30, 2025, SouthState reported consolidated net income of $304.30 million, a 23.0% increase year-over-year. Net interest income surged by 61.8% to $1.12 billion, driven by a 51 basis point expansion in the non-tax equivalent Net Interest Margin (NIM) to 3.93%. This NIM improvement was notably influenced by a 63 basis point rise in interest-earning asset yields, while the average cost of interest-bearing deposits remained stable, decreasing slightly by 1 basis point. The company's efficiency ratio improved to 52.7% in Q2 2025 from 57.0% in Q2 2024, reflecting strong operating leverage as revenue growth outpaced expense increases.

Loan growth has been a significant driver, with total loans increasing by $13.4 billion (79.5% annualized) to $47.3 billion at June 30, 2025. This growth was fueled by the $11.4 billion increase from the Independent acquisition and a healthy $2.0 billion (13.4% annualized) organic growth in the non-acquired loan portfolio. Loan production in Q2 2025 jumped 57% quarter-over-quarter to over $3 billion, supported by a 31% increase in loan pipelines from Q1. Deposit growth was equally impressive, with total deposits rising by $15.6 billion (41.1%) to $53.7 billion, largely due to the Independent acquisition. The average cost of interest-bearing deposits improved by 5 basis points in Q2 2025, demonstrating effective deposit pricing strategies.

Noninterest income saw a 17.8% increase to $172.91 million for the first half of 2025. This was primarily driven by a 36.6% increase in trust and investment services income, benefiting from higher assets under management and new clients from the acquired Private Capital Management. Correspondent banking and capital markets income soared by 154.2%, attributed to lower variation margin payments on centrally cleared swaps and increased income from customer swap hedges in a lower interest rate environment. Noninterest expenses, while increasing by 57.4% to $783.89 million due to Independent acquisition-related employee additions, merger costs, and amortization of intangibles, were managed effectively relative to revenue growth.

Asset Quality, Capital, and Liquidity: Pillars of Stability

SouthState maintains a conservative and disciplined approach to asset quality and risk management. As of June 30, 2025, net charge-offs remained low at 0.06% annualized for Q2 2025. While total nonperforming assets (NPAs) increased by $110.5 million (51.8%) to $323.8 million, or 0.68% of total loans and repossessed assets, this rise was primarily attributed to the addition of acquired nonperforming loans from the Independent merger. Management views a significant portion of criticized assets, particularly in commercial real estate (CRE), as "transitional" due to rising interest rates on floating-rate loans rather than indicative of expected losses. For instance, 64% of CRE loans have floating rates, and while some may show negative debt service coverage at current rates, they are expected to perform positively in a normalized permanent market. The company's industrial warehouse exposure near port cities is limited, and the primary credit risk is seen as a widespread recession rather than specific portfolio segments. The allowance for credit losses (ACL) stood at $621.0 million, or 1.31% of total loans, providing 2.09 times coverage of nonperforming loans. Management's ACL estimation incorporates a blended macroeconomic forecast, acknowledging downside risks from persistent inflation and high interest rates, but anticipates potential reserve level declines with economic stability.

The company's capital position is robust, with shareholders' equity increasing by $2.9 billion (49.4%) to $8.8 billion at June 30, 2025. This growth was driven by strong retained earnings and the common stock issued for the Independent acquisition. Despite the dilutive impacts of the merger, tangible book value per share increased by 8.5% year-over-year. SouthState's capital ratios, including Common Equity Tier 1 (CET1) at 11.21% and Tier 1 Leverage at 9.21%, remain well above regulatory minimums and exceed "well capitalized" thresholds. The recent issuance of $350 million in fixed-to-floating rate subordinated notes further bolstered Tier 2 capital. Management expects CET1 to grow by 20-25 basis points per quarter, providing substantial capital optionality for future growth and shareholder returns.

Liquidity is actively managed by the Asset Liability Management Committee (ALCO), ensuring adequate cash to meet financial obligations. The company operates well within its liquidity policy limits, including a loan-to-deposit ratio of 88.0% and a noncore funding dependence ratio below 30%. Deposits are granular, with over 1.4 million accounts and an average size of $38,000, and 26% are noninterest-bearing. While brokered deposits increased to $2.2 billion, they remain within the internal limit of 15% of total bank deposits, providing $4.9 billion in available capacity. SouthState also maintains significant borrowing capacity, with $5.6 billion available from the FHLB and $10.2 billion from the Federal Reserve Bank's discount window, alongside $2.4 billion in unpledged securities. This strong liquidity profile ensures the company is well-positioned to fund growth and manage potential market disruptions.

Outlook: Growth Trajectory and Shareholder Returns

SouthState's outlook is characterized by a confident pursuit of organic growth and a commitment to enhanced shareholder returns, underpinned by a stable economic forecast and a balance sheet optimized for the current rate environment. Management anticipates average interest-earning assets to reach approximately $58 billion for the full year 2025, growing to around $59 billion by year-end, reflecting a mid-single-digit loan growth rate that is expected to extend into 2026. This growth is supported by robust loan pipelines, which increased by 31% in Q2 2025, indicating strong demand.

The Net Interest Margin (NIM) is projected to remain between 3.80% and 3.90% for the remainder of 2025, with a further upward drift into 2026. This stability is driven by the continued repricing of the legacy SouthState loan book and a disciplined approach to deposit costs, which are forecasted to stay in the 1.85%-1.90% range. The combined balance sheet is now considered "much more neutral to rates," with a projected 1-2 basis point NIM improvement for every 25 basis point rate cut, as the impact of Independent's acquisition marks has reduced prior interest rate sensitivity.

The Board's recent 11% increase in the quarterly cash dividend, from $0.54 to $0.60 per share, underscores management's confidence in the company's strong earnings growth and capital levels. This move signals an expectation for consistent annual dividend increases, supported by a healthy capital formation rate. SouthState also sees opportunities for opportunistic share repurchases, believing its stock is currently undervalued. Noninterest expense is expected to be in the $350 million-$360 million range for Q3 2025, declining to $345 million-$350 million in Q4 2025, as cost saves from the Independent integration are fully realized.

Conclusion

SouthState Corporation stands at an inflection point, having successfully executed a series of strategic maneuvers that have fundamentally reshaped its scale, market presence, and financial profile. The seamless integration of Independent Financial, coupled with proactive balance sheet management through the sale-leaseback and securities restructuring, has created a more efficient, higher-margin enterprise. The company's commitment to technological excellence, manifested in its robust treasury management platform and seamless system conversions, provides a tangible competitive edge, enhancing customer experience and driving organic growth.

With a strong capital base, disciplined asset quality, and a clear growth trajectory in the nation's fastest-growing markets, SouthState is well-positioned to deliver sustained shareholder value. The recent dividend increase and the optionality for share repurchases reflect management's confidence in the company's earnings power and capital generation. While macroeconomic uncertainties and competitive pressures persist, SouthState's strategic focus on scale, technology-enabled service, and organic expansion in attractive geographies positions it as a compelling investment in the regional banking sector.