SouthState Corporation 2024 Q3 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2024. SouthState Corporation is a financial holding company headquartered in Winter Haven, Florida, operating a six-state footprint. The Company is a large accelerated filer. A significant recent event is the announced merger with Independent Bank Group, Inc., approved by shareholders in August 2024, with closing expected in Q1 2025.
Key Financial Metrics
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Net Income | $143.2 million | $124.1 million | $390.6 million | $387.5 million |
| Diluted EPS | $1.86 | $1.62 | $5.09 | $5.07 |
| Total Assets | $46.1 billion | $44.8 billion (Q3 2023) | N/A | N/A |
| Total Loans (Net) | $33.1 billion | $31.9 billion (Dec 2023) | N/A | N/A |
| Total Deposits | $37.6 billion | $37.0 billion (Dec 2023) | N/A | N/A |
| Net Interest Income | $351.5 million | $355.4 million | $1.05 billion | $1.10 billion |
| Provision for Credit Losses | ($7.0) million (Recovery) | $32.7 million | $9.6 million | $104.2 million |
| Noninterest Expense | $246.8 million | $238.2 million | $744.9 million | $721.3 million |
| Return on Average Assets (Annualized) | 1.25% | 1.10% | 1.15% | 1.16% |
| Return on Average Equity (Annualized) | 9.91% | 9.24% | 9.29% | 9.83% |
Material Changes vs. Prior Period
- Profitability: Q3 2024 net income increased 15.3% year-over-year, driven primarily by a $39.7 million decrease in the provision for credit losses (shifting from a $32.7M charge in 2023 to a $7.0M recovery in 2024) and higher interest income from loans.
- Net Interest Margin (NIM): Non-tax equivalent NIM decreased 10 basis points to 3.39% in Q3 2024 compared to 3.49% in Q3 2023. This compression was due to a 56 basis point increase in the cost of interest-bearing liabilities outpacing the 33 basis point increase in yield on interest-earning assets.
- Asset Quality: Nonperforming assets totaled $191.0 million (0.57% of total loans) at September 30, 2024, an increase from $184.1 million at December 31, 2023. The Allowance for Credit Losses (ACL) was $468.0 million, or 1.39% of total loans.
- Balance Sheet: Total assets grew 2.6% from year-end 2023. Loans increased by $1.2 billion, while investment securities decreased by $386.7 million due to maturities and paydowns. Deposits grew by $589.3 million, driven by money market and time deposits.
Guidance, Outlook, and Risks
- Merger Activity: The Company is proceeding with the acquisition of Independent Bank Group. Costs related to the merger and branch consolidation increased noninterest expenses by $3.1 million in Q3 2024.
- Cybersecurity Incident: Following a cybersecurity incident detected in February 2024, a consolidated putative class action lawsuit is pending. Management believes it has defenses and has not recorded a loss estimate as the amount is not reasonably estimable.
- Interest Rate Environment: The Federal Reserve cut rates by 50 basis points in mid-September 2024. Management notes that deposit costs have caught up to asset yields, compressing margins. The Company expects to continue monitoring the rate environment and deposit mix.
- Regulatory Capital: The Company and its subsidiary bank remain "well capitalized," exceeding all regulatory minimums. The Common Equity Tier 1 ratio was 12.37% for the consolidated entity.
- Accounting Changes: The adoption of ASU 2023-02 in Q1 2024 changed the accounting for Low-Income Housing Tax Credits (LIHTC) to the proportional amortization method, impacting the effective tax rate and the classification of amortization expense.
Investor Verification Checklist
- Merger Closing: Verify the status of regulatory approvals (OCC, Federal Reserve) required for the Independent Bank Group merger to close in Q1 2025.
- Cyber Incident Litigation: Monitor developments in the pending class action lawsuit regarding the February 2024 cybersecurity incident for potential liability estimates.
- Deposit Mix Stability: Assess the sustainability of the shift from noninterest-bearing to higher-cost money market and time deposits, which is driving NIM compression.
- Commercial Real Estate (CRE) Exposure: Review the concentration of non-owner-occupied CRE loans ($9.2 billion), particularly the office segment, for potential credit deterioration in a higher-rate environment.
- Investment Portfolio Valuation: Note the $980.6 million in unrealized losses on investment securities; verify management's intent and ability to hold these securities to maturity to avoid realizing losses.