SouthState Bank Corp Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Felt effects of Fed rate cut in September; deposit growth in Q4 despite cutting deposit rates, with excess liquidity used to pay down brokered CDs.
• 9% pickup in PP&R led by 6% revenue increase. Regional presidents managed inverted yield curve for mid-single-digit growth.
• Announced sale-leaseback transaction on 170 branches, harvesting $225 million off-balance sheet capital.
• Regulatory approval of Independent Financial in December, closing on January 1, conversion scheduled for Memorial Day.
• Wealth had record year with 15% growth in revenue.

Segment Performance

• Loans: Up 4.2% annualized in Q4, 5% for the year.
• Deposits: Up 4.5% annualized in Q4, 3% for the year; excluding brokered CDs, customer deposits grew 9% annualized.
• Net Interest Income: Grew by $18 million over Q3 on the same day count.
• Non-Interest Income: $80 million, up almost $6 million from Q3, with correspondent up $3.7 million, mortgage up $1.6 million, wealth up $800,000 (wealth had record year with $45.5 million revenue, up 15% year-over-year), deposit service charge income up $1.1 million.
• Non-Interest Expenses: Up $7 million to $250.7 million, efficiency ratio improved to 54.4%.
• Credit: $5 million in net charge-offs for Q4, $18 million for the year; provision expense $6 million, reserve levels flat, allowance to loans over 1.5%.

Guidance

• For 2025, expected average earning assets $59 billion based on mid-single-digit loan growth.
• Rate forecast holds rates flat from 12/31/24 yield curve.
• Legacy loan repricing of ~$1 billion per quarter from high fours to high sixes/early sevens, expected to increase margin by ~3 basis points.
• Merger marks to be finalized by March 31, expecting margin between 3.60% and 3.70% in Q1 2025, exiting 2025 between 3.70% and 3.80% due to legacy loan repricing.
• Potential securities restructure to offset lease expense.

Risks

• Credit risks, including transitional substandard loans due to interest rates, not indicative of expected losses.
• Regulatory changes under Trump administration could impact $100 billion asset size hurdles.
• Uncertainty around rate cuts and their impact on margin, as well as potential impact of rate hikes.

Question and Answer

Q: Thoughts on margin moving forward, updated thoughts on marks?

A: Steve Young discussed assumptions for 2025, including average earning assets, rate forecast, legacy loan repricing, and merger marks.

Q: Sale-leaseback decision and securities restructure?

A: John Corbett and Steve Young discussed sale-leaseback as capital management exercise, potential securities restructure to offset lease expense.

Q: Lending environment and loan growth?

A: John Corbett mentioned mid-single-digit loan growth, client sentiment adjusting to higher rates.

Q: Deposit cost trends and brokered deposits?

A: Steve Young discussed deposit cost around 2% pro forma, using brokered as lever for loan growth.

Q: Credit loss rate and combined revenue synergy?

A: John Corbett and William Matthews discussed credit loss rate and revenue synergy opportunities, including treasury management and capital markets.