South State (SSB)2023-07-28 19:34Financial Data and Key Metrics Changes - The company set aside $142 million in loan loss reserves, resulting in a total reserve of approximately $500 million, or 156 basis points of loans, up 30 basis points from a year ago [23][45][56] - Net interest income was $362 million, approximately equal to the reported figure for the third quarter of 2022, with a net interest margin (NIM) of 3.62%, down 31 basis points from Q1 [27][36] - The annualized loan growth rate for the first half of 2023 was 9%, with deposits growing at a 3.6% annualized rate [33][57] Business Line Data and Key Metrics Changes - Mortgage and wealth management segments performed solidly, maintaining levels similar to Q1, while non-interest income increased to $77 million, the best quarter since last year's second quarter [28][38] - The company observed a shift in deposits from demand deposit accounts (DDA) to money market accounts and CDs, with DDAs representing 31% of total deposits, down from 34% last quarter [26] Market Data and Key Metrics Changes - The Southeast region continues to show strong population and job growth, driving real estate values and new home construction, with SouthState operating in four of the six fastest-growing states in the country [24][35] - The company noted a mixed shift in deposits, with DDA levels moving towards pre-pandemic levels [26] Company Strategy and Development Direction - The company aims to maintain a conservative approach to loan growth, projecting slower growth in the back half of the year, particularly in residential loans due to higher mortgage rates [9][10][33] - The management emphasized a focus on relationship-based deposit funding and disciplined underwriting in high-growth markets as key strategies for success [44][86] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strong capital position and reserves, which provide optionality as the economic cycle evolves [23][45] - The company anticipates that loan yields will continue to increase, driven by the Federal Reserve's rate policies and new loan production [13][14] Other Important Information - The company expects to see slower loan growth in the next couple of quarters, with risk-weighted asset growth anticipated to be lower than in Q2 [51] - Non-interest income was positively impacted by the interest rate swap business, which performed well despite a challenging fixed income environment [38] Q&A Session Summary Question: What are the expectations for loan yields moving into next year? - Management expects loan yields for the total portfolio to end between 5.5% and 5.75% by the end of Q4 2023, with no significant changes to NIM guidance [13][108] Question: How is the company managing deposit costs amid competition? - Management noted that deposit costs have increased but are in line with expectations, with a cumulative deposit beta of 22% this cycle [56][71] Question: What is the outlook for non-interest income? - Non-interest income is expected to stabilize at levels similar to Q1, with the second quarter's performance driven by interest rate swaps [38][76] Question: How does the company view potential M&A opportunities? - Management indicated a preference for partnering with banks that are 10% to one-third of SouthState's size, focusing on high-growth markets [86][96]