SouthState Corporation — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023; comparisons are primarily with FY2022. This is an annual filing, not a standalone fourth-quarter earnings report. SouthState is a regional bank holding company operating 251 branches across six southeastern states, alongside correspondent banking, capital markets, wealth, mortgage and specialty finance businesses.
Financial performance and condition
| Metric | FY2023 / year-end | FY2022 / prior year-end |
|---|---|---|
| Net income | $494.3 million | $496.0 million |
| Diluted EPS | $6.46 | $6.60 |
| Net interest income | $1.453 billion; up 8.8% | $1.336 billion |
| Net interest margin, non-tax-equivalent | 3.62% | 3.35% |
| Noninterest income | $286.9 million; down 7.2% | $309.2 million |
| Noninterest expense | $994.6 million; up 7.0% | $929.7 million |
| Efficiency ratio | 55.5% | 54.2% |
| Total assets | $44.9 billion | $43.9 billion |
| Total loans, before allowance | $32.4 billion | $30.2 billion |
| Total deposits | $37.0 billion | $36.4 billion |
| Shareholders’ equity | $5.53 billion | $5.07 billion |
| Cash and cash equivalents | $999 million | $1.313 billion |
- Earnings and margins: Higher asset yields lifted interest income by $547.4 million, but interest expense rose $430.4 million as deposit costs increased and deposit mix shifted toward higher-rate products. Average cost of interest-bearing liabilities increased 164 basis points; average yield on interest-earning assets rose 135 basis points. Pretax income was $630.9 million and the effective tax rate was 21.64%.
- Credit: Provision for credit losses was $114.1 million, versus $81.9 million in 2022. The year-end loan allowance was $456.6 million, or 1.41% of loans, compared with $356.4 million, or 1.18%. Net charge-offs were $24.9 million (0.08% of average loans), up from $4.3 million (0.02%). Nonperforming assets rose to $184.1 million, or 0.41% of assets, from $109.7 million, or 0.25%.
- Cash flow: Operating cash flow was $546.8 million, down from $1.731 billion; investing activities used $1.426 billion, principally reflecting loan growth; financing activities provided $566.0 million. Cash and cash equivalents declined $313.7 million during the year. Bank cash flows include substantial derivative and other working-capital movements, so operating cash flow should be read with the cash-flow statement detail.
- Debt and capital: Year-end short- and long-term borrowings totaled about $981 million, including $589.2 million of short-term borrowings and $391.9 million of long-term debt. Total risk-based capital was 14.08% at the holding company and 13.75% at the Bank; the holding-company Tier 1 leverage ratio was 9.42%. Both entities exceeded applicable well-capitalized standards.
- Liquidity and deposits: Noninterest-bearing deposits fell 19.1% to $10.65 billion, while total deposits increased 1.9%; noninterest-bearing deposits were 29% of deposits at year-end. Estimated uninsured deposits were $14.2 billion. Management reported $13.5 billion of primary liquidity sources, equal to 114.3% of uninsured deposits excluding collateralized deposits; the broader uninsured-and-collateralized coverage ratio was 94.8%. Brokered time deposits were $719.7 million, or 1.9% of deposits.
Material changes versus FY2022
- Net income was nearly flat, but diluted EPS declined 2.1%; return on average assets was 1.11% versus 1.12%, and return on average common equity was 9.37% versus 9.84%.
- Loan balances grew 7.3%, led by organic growth in non-acquired loans; acquired loans declined as they paid down or were renewed into the non-acquired portfolio.
- Noninterest income fell chiefly because correspondent banking and capital markets income declined $29.7 million, including higher centrally cleared swap variation-margin expense, and mortgage banking income declined $4.4 million as production fell.
- Expenses included a $25.7 million FDIC special assessment recognized in 2023. Salaries and benefits and ordinary FDIC/regulatory charges also increased, partly offset by lower merger-related expense.
- Available-for-sale securities had a $776.6 million unrealized net loss against amortized cost; held-to-maturity securities had a $402.7 million unrealized loss. These are distinct accounting categories. The available-for-sale portfolio’s loss position improved from $889.3 million in 2022.
Outlook, risks and unusual items
- The filing gives no numerical earnings, revenue, margin or credit-loss guidance. Management says capital supports organic growth and selected strategic opportunities, while continuing investment in technology, digital banking, payments, talent and risk management.
- Management cites higher deposit competition and funding costs, interest-rate sensitivity, inflation, weaker loan demand, and possible recession as pressures on margins and performance. The Federal Reserve’s target rate was 5.25%–5.50% at year-end.
- Credit risks include the concentration in real estate: commercial real estate was 54% of loans, and approximately 79.2% of loans had real estate as a primary or secondary collateral component. Management reported CRE concentration measures below cited regulatory indicators, but noted sensitivity to property-market and economic deterioration.
- Management’s year-end CECL forecast used 60% baseline, 20% upside and 20% adverse scenario weights. Its sensitivity analysis says weighting the adverse scenario at 100% would increase the allowance by about $263.8 million; this is hypothetical, not management’s forecast.
- Investment securities remain exposed to interest-rate-driven fair-value changes. Management said it did not intend to sell the debt securities and did not consider a sale more likely than not at year-end; forced sales could crystallize losses.
- Other notable exposures include the $25.7 million FDIC special assessment, $41.5 million of 2023 variation-margin expense in correspondent banking and capital markets income, proposed or changing regulatory requirements, and cybersecurity, operational, climate and litigation risks. Management reported no pending or threatened ordinary-course litigation expected to materially affect consolidated results or financial position.
- The quarterly common dividend was $0.52 per share, declared in January 2024. The company said it intended to continue comparable dividends, subject to Board approval, financial condition and regulatory constraints.
Important facts for investors to verify
- Whether deposit retention, deposit mix and funding costs stabilize, and how these affect net interest margin.
- Whether nonperforming loans, commercial real estate performance, charge-offs and the allowance evolve as economic conditions and property values change.
- How much of the securities’ unrealized losses could affect liquidity or capital under a stressed funding scenario; review pledged and unpledged collateral and the assumptions behind liquidity coverage.
- Whether capital and liquidity remain comfortably above regulatory requirements after dividends, repurchases, loan growth and any future regulatory changes.
- How recurring earnings compare with reported earnings after the FDIC assessment, swap variation-margin costs, restructuring items and other unusual or volatile income and expenses.
The filing reports unqualified independent auditor opinions on the FY2023 financial statements and internal control over financial reporting; management also concluded disclosure controls were effective as of December 31, 2023.