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SouthState Corp 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

SouthState Corporation

Filing date:

02/21/2025

TLDR:

SouthState Corp’s 2024 10-K filing reveals increased net income and strong capital ratios, but also highlights challenges in integrating IBTX and managing economic uncertainties. A hold recommendation is appropriate.

ELI5:

SouthState, a bank, made more money this year, but they have some challenges ahead with a recent merger and potential economic problems. It’s best to wait and see how things go before investing.

Accession #:

0001558370-25-001274

Published on

Analyst Summary

  • Net Interest Margin (NIM) decreased from 3.63% to 3.43%.
  • Efficiency Ratio increased from 55.5% to 56.9%.
  • Return on Average Assets (ROA) increased slightly from 1.11% to 1.17%.
  • Return on Average Equity (ROE) increased slightly from 9.37% to 9.41%.
  • Total Assets increased from $44.9 billion to $46.4 billion.
  • Net Income increased from $494.3 million to $534.8 million.
  • Commercial Real Estate (CRE) concentration remains high.
  • FDIC special assessment is a significant expense.
  • Operating Profit Margin increased from 36.27% to 40.77%.
  • Net Profit Margin increased from 28.42% to 31.13%.
  • Basic EPS increased from $6.50 to $7.01.
  • Current Ratio increased from 0.029 to 0.046.
  • Quick Ratio increased from 0.027 to 0.039.
  • Cash Ratio increased from 0.027 to 0.036.
  • Debt-to-Equity Ratio decreased from 7.11 to 6.87.
  • Debt-to-Assets Ratio decreased from 0.88 to 0.87.
  • Interest Coverage Ratio decreased from 2.28 to 1.96.
  • Asset Turnover decreased from 0.039 to 0.038.
  • P/E Ratio increased from 13.07 to 14.27.
  • P/B Ratio increased from 1.16 to 1.29.
  • P/S Ratio increased from 3.69 to 4.42.

Opportunities and Risks

  • Integration Risk: Challenges in integrating IBTX’s operations and systems.
  • Interest Rate Risk: Vulnerability to changes in market interest rates.
  • Economic Conditions: Potential slowdown in economic growth or recessionary conditions.
  • Regulatory Risk: Increased regulatory scrutiny and compliance costs.
  • Cybersecurity Risk: Threats from cyber-attacks and data breaches.
  • IBTX Merger Synergies: Potential for enhanced revenues, cost savings, and market expansion.
  • Sale-Leaseback Transaction: Opportunity to unlock capital and improve efficiency.
  • Strategic Initiatives: Potential for growth and improved profitability through digital banking, corporate banking, and wealth management.

Potential Implications

Stock Price

  • Monitor the successful integration of IBTX.
  • Monitor the execution of the sale-leaseback transaction.
  • Monitor the company’s ability to manage its CRE exposure and regulatory compliance.

SouthState Corp (SSB) 2024 10-K Filing Report

Executive Summary

This report analyzes SouthState Corp’s 2024 10-K filing, focusing on financial performance, risk factors, and key strategic initiatives. SouthState reported increased net income and maintained strong capital ratios. The IBTX merger closed January 1, 2025, and a sale-leaseback transaction is pending. However, several risk factors, including interest rate volatility, economic conditions, and regulatory changes, warrant careful consideration. Overall, a Hold recommendation is appropriate, pending further observation of the integration of IBTX and the impact of the pending sale-leaseback transaction.

Company Overview

SouthState Corporation (SSB) is a financial holding company headquartered in Winter Haven, Florida, operating primarily through its subsidiary, SouthState Bank, N.A. The bank provides a range of banking services across Florida, South Carolina, Alabama, Georgia, North Carolina, and Virginia. It also operates a correspondent banking and capital markets service division, a registered broker-dealer (SouthState|DuncanWilliams), and a registered investment advisor (SouthState Advisory, Inc.). A significant recent development is the merger with Independent Bank Group (IBTX), which closed on January 1, 2025, expanding SouthState’s presence into Texas and Colorado.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights the increase in net income and EPS, attributing it to growth in interest income and a decrease in the provision for credit losses. They also emphasize the strategic importance of the IBTX merger and ongoing strategic initiatives. However, the MD&A also acknowledges the impact of interest rate volatility and inflationary pressures. The tone is generally optimistic, but with a clear awareness of the challenges ahead.

Financial Statement Analysis

Key Ratios and Trends

  • Net Interest Margin (NIM): Decreased from 3.63% to 3.43%, indicating increased funding costs.
  • Efficiency Ratio: Increased from 55.5% to 56.9%, suggesting higher operating expenses relative to revenue.
  • Return on Average Assets (ROA): Increased slightly from 1.11% to 1.17%.
  • Return on Average Equity (ROE): Increased slightly from 9.37% to 9.41%.
  • Capital Ratios: Remained strong, exceeding regulatory requirements for “well-capitalized” status.

Balance Sheet Highlights

  • Total Assets: Increased from $44.9 billion to $46.4 billion.
  • Total Loans: Increased from $32.4 billion to $33.9 billion.
  • Total Deposits: Increased from $37.0 billion to $38.1 billion.
  • Shareholders’ Equity: Increased from $5.5 billion to $5.9 billion.

Income Statement Highlights

  • Net Interest Income: Decreased from $1.45 billion to $1.42 billion.
  • Noninterest Income: Increased from $286.9 million to $302.3 million.
  • Net Income: Increased from $494.3 million to $534.8 million.

Asset Quality

  • Net Charge-Offs: Decreased slightly as a percentage of average loans.
  • Nonperforming Assets (NPAs): Increased, primarily due to an increase in nonperforming loans.
  • Allowance for Credit Losses (ACL): Increased slightly, reflecting continued economic uncertainty.

Red Flags and Uncommon Metrics

  • Commercial Real Estate (CRE) Concentration: The bank’s CRE concentration remains high, requiring heightened risk management practices.
  • FDIC Special Assessment: The FDIC special assessment related to the 2023 bank failures is a significant expense.

Risk and Opportunity Assessment

Risks

  • Integration Risk: Challenges in integrating IBTX’s operations and systems.
  • Interest Rate Risk: Vulnerability to changes in market interest rates.
  • Economic Conditions: Potential slowdown in economic growth or recessionary conditions.
  • Regulatory Risk: Increased regulatory scrutiny and compliance costs.
  • Cybersecurity Risk: Threats from cyber-attacks and data breaches.

Opportunities

  • IBTX Merger Synergies: Potential for enhanced revenues, cost savings, and market expansion.
  • Sale-Leaseback Transaction: Opportunity to unlock capital and improve efficiency.
  • Strategic Initiatives: Potential for growth and improved profitability through digital banking, corporate banking, and wealth management.

Conclusion and Actionable Insights

SouthState Corp demonstrated solid financial performance in 2024, but faces integration challenges and economic uncertainties. The IBTX merger and pending sale-leaseback transaction present both opportunities and risks. The high CRE concentration and potential for increased regulatory scrutiny are areas of concern. Given these factors, a Hold recommendation is warranted. Investors should monitor the successful integration of IBTX, the execution of the sale-leaseback transaction, and the company’s ability to manage its CRE exposure and regulatory compliance.

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin: Not applicable for a financial institution.
  • Operating Profit Margin:

    • Ratio/Metric: Operating Income / Total Revenue = (Net Income + Income Tax Provision) / (Net Interest Income + Noninterest Income) = (534,783 + 165,465) / (1,415,454 + 302,262) = 700,248 / 1,717,716 = 40.77%
    • Trend: Previous year operating profit margin = (494,308 + 136,544) / (1,452,608 + 286,906) = 630,852 / 1,739,514 = 36.27%. Percentage change = (40.77 – 36.27) / 36.27 = 12.41%
    • Industry: The industry average operating profit margin for banks is around 35%. SouthState’s operating profit margin is above the industry average.
  • Net Profit Margin:

    • Ratio/Metric: Net Income / Total Revenue = 534,783 / 1,717,716 = 31.13%
    • Trend: Previous year net profit margin = 494,308 / 1,739,514 = 28.42%. Percentage change = (31.13 – 28.42) / 28.42 = 9.53%
    • Industry: The industry average net profit margin for banks is around 25%. SouthState’s net profit margin is above the industry average.
  • Return on Assets (ROA):

    • Ratio/Metric: Net Income / Average Total Assets = 534,783 / 45,637,021 = 1.17%
    • Trend: Previous year ROA = 494,308 / 44,655,961 = 1.11%. Percentage change = (1.17 – 1.11) / 1.11 = 5.41%
    • Industry: The industry average ROA for banks is around 1%. SouthState’s ROA is slightly above the industry average.
  • Return on Equity (ROE):

    • Ratio/Metric: Net Income / Average Shareholders’ Equity = 534,783 / 5,685,968 = 9.41%
    • Trend: Previous year ROE = 494,308 / 5,277,366 = 9.37%. Percentage change = (9.41 – 9.37) / 9.37 = 0.43%
    • Industry: The industry average ROE for banks is around 10%. SouthState’s ROE is slightly below the industry average.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Ratio/Metric: Basic EPS = 534,783 / 76,303 = $7.01; Diluted EPS = 534,783 / 76,762 = $6.97
    • Trend: Previous year Basic EPS = $6.50, Diluted EPS = $6.46. Percentage change Basic EPS = (7.01 – 6.50) / 6.50 = 7.85%, Diluted EPS = (6.97 – 6.46) / 6.46 = 7.89%
    • Industry: EPS varies widely.

Liquidity

  • Current Ratio:

    • Ratio/Metric: Current Assets / Current Liabilities. Need to calculate current assets and liabilities from balance sheet. Current Assets = Cash and cash equivalents + Trading securities + Loans held for sale = 1,392,067 + 102,932 + 279,426 = 1,774,425. Current Liabilities = Deposits + Federal funds purchased + Securities sold under agreements to repurchase = 38,060,866 + 260,191 + 254,721 = 38,575,778. Current Ratio = 1,774,425 / 38,575,778 = 0.046
    • Trend: Previous year Current Assets = 998,877 + 31,321 + 50,888 = 1,081,086. Previous year Current Liabilities = 37,048,909 + 248,162 + 241,023 = 37,538,094. Previous year Current Ratio = 1,081,086 / 37,538,094 = 0.029. Percentage change = (0.046 – 0.029) / 0.029 = 58.62%
    • Industry: A current ratio above 1 is generally considered healthy. SouthState’s current ratio is very low, indicating potential liquidity concerns.
  • Quick Ratio (Acid-Test Ratio):

    • Ratio/Metric: (Current Assets – Inventory) / Current Liabilities. Since this is a bank, we will assume loans held for sale are similar to inventory and remove them. (Cash and cash equivalents + Trading securities) / Current Liabilities = (1,392,067 + 102,932) / 38,575,778 = 1,494,999 / 38,575,778 = 0.039
    • Trend: Previous year Quick Ratio = (998,877 + 31,321) / 37,538,094 = 1,030,198 / 37,538,094 = 0.027. Percentage change = (0.039 – 0.027) / 0.027 = 44.44%
    • Industry: A quick ratio above 1 is generally considered healthy. SouthState’s quick ratio is very low, indicating potential liquidity concerns.
  • Cash Ratio:

    • Ratio/Metric: Cash and Cash Equivalents / Current Liabilities = 1,392,067 / 38,575,778 = 0.036
    • Trend: Previous year Cash Ratio = 998,877 / 37,538,094 = 0.027. Percentage change = (0.036 – 0.027) / 0.027 = 33.33%
    • Industry: A cash ratio of 0.2 or higher is generally considered good. SouthState’s cash ratio is low, indicating potential liquidity concerns.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Ratio/Metric: Total Liabilities / Shareholders’ Equity = 40,490,789 / 5,890,415 = 6.87
    • Trend: Previous year Debt-to-Equity Ratio = 39,368,926 / 5,533,098 = 7.11. Percentage change = (6.87 – 7.11) / 7.11 = -3.37%
    • Industry: The industry average debt-to-equity ratio for banks is around 7. SouthState’s debt-to-equity ratio is slightly below the industry average.
  • Debt-to-Assets Ratio:

    • Ratio/Metric: Total Liabilities / Total Assets = 40,490,789 / 46,381,204 = 0.87
    • Trend: Previous year Debt-to-Assets Ratio = 39,368,926 / 44,902,024 = 0.88. Percentage change = (0.87 – 0.88) / 0.88 = -1.14%
    • Industry: The industry average debt-to-assets ratio for banks is around 0.9. SouthState’s debt-to-assets ratio is below the industry average.
  • Interest Coverage Ratio (Times Interest Earned):

    • Ratio/Metric: EBIT / Interest Expense = (Net Income + Income Tax Provision + Interest Expense) / Interest Expense = (534,783 + 165,465 + 725,908) / 725,908 = 1,426,156 / 725,908 = 1.96
    • Trend: Previous year Interest Coverage Ratio = (494,308 + 136,544 + 491,798) / 491,798 = 1,122,650 / 491,798 = 2.28. Percentage change = (1.96 – 2.28) / 2.28 = -13.95%
    • Industry: An interest coverage ratio above 1.5 is generally considered safe. SouthState’s interest coverage ratio is above 1.5, but has decreased.

Activity/Efficiency

  • Inventory Turnover: Not applicable for a financial institution.
  • Days Sales Outstanding (DSO): Not directly applicable, as revenue is primarily interest income.
  • Days Payable Outstanding (DPO): Not directly applicable, as expenses are not directly tied to sales in the same way as a retail or manufacturing company.
  • Asset Turnover:

    • Ratio/Metric: Total Revenue / Average Total Assets = 1,717,716 / 45,637,021 = 0.038
    • Trend: Previous year Asset Turnover = 1,739,514 / 44,655,961 = 0.039. Percentage change = (0.038 – 0.039) / 0.039 = -2.56%
    • Industry: The industry average asset turnover for banks is around 0.05. SouthState’s asset turnover is below the industry average.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Ratio/Metric: Stock Price / EPS = 99.48 / 6.97 = 14.27
    • Trend: Previous year P/E Ratio = 84.45 / 6.46 = 13.07. Percentage change = (14.27 – 13.07) / 13.07 = 9.18%
    • Industry: The industry average P/E ratio for banks is around 12. SouthState’s P/E ratio is above the industry average.
  • Price-to-Book Ratio (P/B):

    • Ratio/Metric: Stock Price / Book Value per Share = 99.48 / 77.18 = 1.29
    • Trend: Previous year P/B Ratio = 84.45 / 72.78 = 1.16. Percentage change = (1.29 – 1.16) / 1.16 = 11.21%
    • Industry: The industry average P/B ratio for banks is around 1. SouthState’s P/B ratio is above the industry average.
  • Price-to-Sales Ratio (P/S):

    • Ratio/Metric: Market Cap / Total Revenue. Market Cap = Shares Outstanding * Stock Price = 76,322,206 * 99.48 = 7,593,048,559. Total Revenue = 1,717,716. P/S Ratio = 7,593,048,559 / 1,717,716 = 4.42
    • Trend: Previous year Market Cap = 76,022,039 * 84.45 = 6,420,468,294. Total Revenue = 1,739,514. Previous year P/S Ratio = 6,420,468,294 / 1,739,514 = 3.69. Percentage change = (4.42 – 3.69) / 3.69 = 19.78%
    • Industry: The industry average P/S ratio for banks is around 2. SouthState’s P/S ratio is above the industry average.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Ratio/Metric: (Market Cap + Total Debt – Cash) / EBITDA. Market Cap = 7,593,048,559. Total Debt = Corporate and Subordinated Debentures + Other Borrowings = 391,534 + 0 = 391,534. Cash = 1,392,067. EBITDA = Net Income + Interest Expense + Taxes + Depreciation & Amortization = 534,783 + 725,908 + 165,465 + 56,697 = 1,482,853. EV = 7,593,048,559 + 391,534,000 – 1,392,067,000 = 6,592,515,559. EV/EBITDA = 6,592,515,559 / 1,482,853,000 = 4.45

Growth Rates

  • Revenue Growth:

    • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = (1,717,716 – 1,739,514) / 1,739,514 = -1.25%
  • Net Income Growth:

    • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = (534,783 – 494,308) / 494,308 = 8.19%
  • EPS Growth:

    • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = (6.97 – 6.46) / 6.46 = 7.89%

Other Relevant Metrics

  • Non-GAAP Metrics: The filing presents adjusted revenue and PPNR (Pre-Provision Net Revenue), along with a tax-equivalent net interest margin. These metrics exclude certain items like securities gains/losses and merger-related expenses. While these adjustments can provide insights into core performance, it’s important to scrutinize their rationale. For example, excluding merger expenses might mask the true cost of acquisitions.
  • Capital Ratios: SouthState’s capital ratios (Tier 1 leverage, CET1 risk-based capital, Tier 1 risk-based capital, and Total risk-based capital) are all well above the regulatory minimums for both the consolidated entity and the bank. These ratios have generally improved from 2023 to 2024, indicating a stronger capital position.

Commentary

SouthState Corporation’s financial performance in 2024 shows a mixed picture. While profitability metrics like ROA, ROE, and EPS have improved, revenue growth is slightly negative, and liquidity ratios are concerningly low. The company maintains a strong capital position, exceeding regulatory requirements. The decrease in net interest margin is a negative trend, while the increase in noninterest income is a positive sign. Overall, SouthState appears to be managing its capital effectively but needs to address its liquidity and revenue generation strategies.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️