Headline: Earnings Call: SouthState Corp Reports Growth Amid Economic Challenges

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Headline: Earnings Call: SouthState Corp Reports Growth Amid Economic Challenges

During its 2024 Q3 Earnings Call, SouthState Corporation (SSB) demonstrated strong financial performance with growth in key areas such as loans, deposits, income, and earnings per share. Led by CFO Will Matthews and CEO John Corbett, the bank also shared a positive outlook for 2025, forecasting mid-single-digit growth and an improving yield curve. The executives highlighted the bank's robust asset quality, controlled expenses, and the ongoing merger with Independent Financial (IBTX), expected to complete by the summer of 2025. Despite a slight decrease in net interest margin (NIM) due to rising deposit costs, the bank expects NIM expansion in the fourth quarter and a stable to decreasing trend in deposit costs.

Key Points

  • SouthState Corporation reported a 6% growth in total deposits, alongside increases in loans and deposits.
  • The Q3 net interest margin (NIM) slightly decreased to 3.40% due to high deposit costs.
  • Non-interest income was $75 million, slightly surpassing expectations.
  • A net release of $7 million in loan loss provisions indicates strong asset quality.
  • The bank is preparing for its merger with Independent Financial, expected by summer 2025.
  • Mid-single-digit growth is forecasted for 2025, contingent on yield curve normalization.
  • The bank plans to reduce the percentage of residential mortgages on its balance sheet post-merger.

Company Outlook

  • SouthState forecasts a balance sheet with approximately $50 billion in loans and $55 billion in deposits by Q4 2025.
  • Non-interest income is expected to be about 65 basis points pre-IBTX, with post-IBTX guidance moving towards the upper range of 50 to 55 basis points.
  • Mid-single-digit growth for 2025 is anticipated, dependent on yield curve normalization.

Challenges

  • The bank's net interest margin (NIM) slightly decreased to 3.40% in Q3.
  • Commercial real estate (CRE) activity slowed, with a pipeline decline in 2023.

Positive Developments

  • Year-to-date growth in commercial and industrial (C&I) loans reached 13%.
  • Optimism remains high for multifamily portfolio and overall credit portfolio performance.

Shortcomings

  • The bank's CD rates are uncompetitive, impacting a $4 billion CD book.

Q&A Highlights

  • Assuming steady Treasury rates, NIM is expected to expand by about 4 to 5 basis points in Q4.
  • A 3% to 4% increase in non-interest expenses (NIE) is projected for 2025 due to inflation and the IBTX merger.
  • Annualized run-rate for expenses is estimated at approximately 2% of assets or about $1.4 billion.

In summary, SouthState Corporation navigates the current economic landscape with a focus on strategic growth and the upcoming merger with Independent Financial. The bank's financial results and forward-looking statements demonstrate resilience against market challenges and a commitment to enhancing shareholder value.

InvestingPro Forecasts SouthState Corporation's strong financial performance in Q3 2024 is supported by recent data from InvestingPro. With a market capitalization of $7.37 billion, the company reflects a significant presence in the banking sector. Boasting a P/E ratio of 15.59, SSB appears to be reasonably valued compared to industry peers.

InvestingPro tips emphasize SSB's commitment to shareholder returns, highlighting that the company has "increased its dividend for 12 consecutive years" and "maintained dividend payments for 28 consecutive years." This aligns with the bank's focus on enhancing shareholder value as mentioned in the earnings call. A current dividend yield of 2.2% and an 8.0% dividend growth over the last twelve months further underscore this commitment.

The company's profitability is indicated by an operating income margin of 44.45% for the twelve months ending Q2 2024, supporting its ability to manage challenges related to rising deposit costs and slight NIM declines as discussed in the earnings call.

SSB's (quarterly) revenue growth of 5.25% in Q2 2024 aligns with the mid-single-digit growth projections for 2025 discussed by management. The bank's asset return of 1.06% for the twelve months ending Q2 2024 shows efficient asset utilization, crucial as the bank prepares for the merger with Independent Financial.

It is noteworthy that InvestingPro offers 7 additional tips for SSB on the InvestingPro platform, providing further context on its financial health and future prospects as the company moves forward with the merger amid changing economic conditions.