SouthState Corporation (SSB): A High-Conviction Buy Amid Strong Earnings, Margin Expansion, and Strategic Growth in High-Growth Markets

In the second quarter of 2025, SouthState Corporation (SSB) delivered a performance that defies the cautious tone of the broader banking sector. With revenue surging 56.2% year-over-year to $664.8 million, a net interest margin (NIM) expanding to 4.02% (up 58 basis points from the prior-year period), and adjusted earnings per share (EPS) of $2.30—28.5% higher than the prior-year quarter—SSB has positioned itself as a standout in a market still grappling with interest rate uncertainty and margin compression. For investors seeking a high-conviction buy, SSB's combination of earnings resilience, margin expansion, and strategic growth in high-growth markets like Texas and Colorado creates a compelling case for undervaluation and superior capital allocation.

Q2 2025: A Masterclass in Earnings and Margin Expansion

SSB's Q2 results were driven by a 65% year-over-year increase in net interest income (NII) to $577.9 million, fueled by a disciplined approach to loan pricing and deposit cost management. The 4.02% NIM, a 58-basis-point improvement from 3.44% in Q2 2024, highlights the company's ability to navigate the post-pandemic interest rate environment with agility. This margin expansion outpaced peers, many of whom are still struggling to stabilize their NIMs after years of low rates.

Non-interest income also contributed meaningfully, rising 15.4% to $86.8 million, despite a slight drag from mortgage-related declines. Meanwhile, the efficiency ratio improved to 52.75% from 57.03% in Q2 2024, a testament to cost discipline and operational refinement. Even with a 50.8% spike in non-interest expenses—largely due to merger and restructuring costs—SSB's ability to reduce its efficiency ratio underscores its commitment to balancing growth with profitability.

Strategic Growth in High-Growth Markets: Texas and Colorado

SSB's geographic expansion into Texas and Colorado has been a key differentiator. Loan production in these regions surged 35% in Q2, with non-PCD (non-prime credit demand) loans rising by $200 million. The integration of Independent Financial, a regional bank with a strong presence in these markets, has amplified SSB's scale and operational efficiency. Texas and Colorado now account for over 40% of SSB's total loan growth, reflecting a strategic pivot toward markets with robust population growth, high-income potential, and low credit risk.

This focus on high-growth markets has also strengthened SSB's deposit franchise. The cost of deposits improved to 1.84% in Q2, a 5-basis-point reduction from Q1, while loan yields climbed to 6.33%—8 basis points higher than the prior quarter. The bank's ability to fund growth with low-cost deposits while maintaining high-yield loans has created a virtuous cycle of margin expansion and asset quality.

Undervaluation and Capital Allocation: A Conviction Play

Despite these strengths, SSB trades at a P/E of 14.09 and a price-to-tangible-book ratio of 1.87, well below its historical averages and those of regional peers. Analysts, however, see significant upside. A consensus of 11 Wall Street analysts rates the stock as a “Buy,” with an average price target of $116.45—18.79% above the current price of $98.04. This disconnect between fundamentals and valuation is partly due to SSB's recent merger-related expenses, which temporarily cloud its earnings. But with these costs expected to normalize in 2026, the path to re-rating is clear.

SSB's capital allocation strategy further strengthens the case. The board recently increased the quarterly dividend by 11% to $0.60 per share, a move that underscores confidence in earnings durability. Meanwhile, the company's tangible book value per share has grown 8.5% year-over-year to $51.96, and its return on tangible common equity (ROTCE) of nearly 20%—adjusted for merger costs—positions it among the industry's most efficient capital users.

Risks and the Road Ahead

SSB is not without risks. Rising deposit costs—projected to reach 1.85%–1.90% in 2026—as it funds continued loan growth could pressure margins. Additionally, a flattening yield curve might limit NIM expansion if short-term rates rise faster than long-term rates. However, management's guidance for mid-single-digit loan growth in 2025 and mid- to upper-single-digit growth in 2026, coupled with a 1- to 2-basis-point NIM improvement per 25-basis-point Fed rate cut, provides a buffer.

Investment Thesis: Buy and Hold for Margin and Growth

For investors with a medium-term horizon, SSB offers a rare combination of earnings resilience, margin expansion, and strategic growth. Its disciplined approach to capital allocation—highlighted by the dividend hike and potential for share buybacks—further enhances shareholder value. At current levels, SSB trades at a discount to its intrinsic value, with analysts projecting 18% upside.

Action Plan:
1. Buy SSB at current levels to capture the undervaluation and benefit from margin expansion in 2025–2026.
2. Monitor deposit cost trends and NIM guidance for signs of margin stabilization.
3. Revisit the position in late 2026 after merger-related expenses normalize and the yield curve shifts.

In a market where many banks are struggling to adapt to a higher-rate environment, SouthState Corporation stands out as a high-conviction buy. Its Q2 results, strategic execution, and disciplined capital allocation make it a compelling long-term investment.