10-Q: SouthState Corporation Reports First Quarter 2024 Results

SouthState Corporation's first quarter 2024 net income decreased to $115.1 million, or $1.50 per diluted share, compared to $139.9 million, or $1.83 per diluted share, in the same period last year.

Summary

• SouthState Corporation reported a net income of $115.1 million for the first quarter of 2024, a decrease from $139.9 million in the same period of 2023.
• Diluted earnings per share were $1.50, down from $1.83 in the first quarter of 2023.
• Net interest income decreased to $343.9 million, compared to $381.3 million in the first quarter of 2023.
• The provision for credit losses was $12.7 million, a decrease from $33.1 million in the first quarter of 2023.
• Noninterest income was $71.6 million, slightly up from $71.4 million in the first quarter of 2023.
• Noninterest expense increased to $249.3 million, compared to $240.5 million in the first quarter of 2023.
• The company's efficiency ratio increased to 58.5% from 51.4% in the first quarter of 2023.
• Total assets reached $45.1 billion, a slight increase from $44.9 billion at the end of 2023.
• Total deposits were $37.2 billion, a slight increase from $37.0 billion at the end of 2023.
• The company repurchased 100,000 shares of its common stock at a weighted average price of $79.85 per share during the first quarter of 2024.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some positive aspects like loan growth and deposit increases, but the overall tone is negative due to decreased profitability and increased expenses. The cybersecurity incident and related litigation add to the negative sentiment.

Positives

• The company experienced organic loan growth of $2.1 billion.
• The company's total deposits increased by $129.5 million.
• The company's cash and cash equivalents increased by $210.6 million.
• The company's provision for credit losses decreased by $20.4 million.
• The company's mortgage banking income increased by $1.8 million.
• The company's trust and investment services income increased by $454,000.
• The company's SBA income increased by $641,000.
• The company's other income increased by $3.2 million.

Negatives

• Net interest income decreased by $37.3 million.
• Interest expense increased by $104.2 million.
• Noninterest expense increased by $8.8 million.
• Correspondent banking and capital markets income decreased by $9.3 million.
• The company's efficiency ratio increased to 58.5% from 51.4% in the first quarter of 2023.
• The company's return on average assets decreased to 1.03% from 1.29% in the first quarter of 2023.
• The company's return on average equity decreased to 8.36% from 10.96% in the first quarter of 2023.
• The company's return on average tangible equity decreased to 13.63% from 18.81% in the first quarter of 2023.

Risks

• The company is exposed to interest rate risk, which could impact earnings and the value of assets.
• The company faces credit risk from borrowers who may not be able to repay their loans.
• The company is subject to cybersecurity risks, as evidenced by a recent incident.
• The company is subject to regulatory risks, including potential changes in capital requirements and accounting standards.
• The company is exposed to economic downturn risk, which could lead to loan losses and other negative consequences.
• The company is exposed to liquidity risk, which could affect its ability to meet its obligations.
• The company is exposed to reputational risk, which could affect its earnings and capital.
• The company is exposed to operational risk, which could result from problems with service or product delivery.
• The company is exposed to strategic risk, which could result from adverse business decisions or improper implementation of business decisions.
• The company is exposed to compliance risk, which could result from violations of laws, rules, regulations, or ethical standards.

Future Outlook

The company continues to pursue a growth strategy that focuses on organic growth, supplemented by acquisitions of select financial institutions or branches in certain market areas. The company will continue to monitor and adjust rates paid on deposit products as part of its strategy to manage its net interest margin.

Management Comments

• Management believes that the company's liquidity position continues to be adequate and readily available.
• Management continues to monitor all of the securities with a high degree of scrutiny.
• Management uses the results of its various simulation analyses in combination with other data and observations to formulate strategies designed to maintain interest rate risk within risk tolerances.

Industry Context

The results reflect the challenges faced by many financial institutions in the current environment of rising interest rates and increased competition for deposits. The company's performance is also impacted by the broader economic conditions and the regulatory landscape.

Comparison to Industry Standards

• The company's net interest margin decreased by 52 basis points, reflecting the industry-wide trend of rising funding costs outpacing asset yield increases.
• The company's efficiency ratio of 58.5% is higher than some of its peers, indicating a need for improved cost management.
• The company's return on average assets of 1.03% is lower than some of its peers, indicating a need for improved profitability.
• The company's loan to deposit ratio of 88% is within the range of many regional banks.
• The company's capital ratios are well above regulatory minimums, which is consistent with industry standards for well-capitalized institutions.
• The company's deposit beta of 33% is within the range of many regional banks, reflecting the sensitivity of deposit costs to changes in the federal funds rate.
• The company's reliance on brokered deposits is relatively low at 2% of total deposits, which is a positive sign compared to some peers that rely more heavily on this funding source.

Legal Proceedings

• The company is facing multiple putative class action lawsuits related to a cybersecurity incident detected on February 6, 2024.

Stakeholder Impact

• Shareholders are impacted by the decrease in net income and diluted earnings per share.
• Employees are impacted by the increase in salaries and employee benefits.
• Customers are impacted by changes in deposit rates and service charges.
• Creditors are impacted by the company's ability to meet its obligations.
• Suppliers are impacted by the company's operational and financial performance.

Next Steps

• The company will continue to monitor and adjust rates paid on deposit products as part of its strategy to manage its net interest margin.
• The company will continue to pursue a growth strategy that focuses on organic growth, supplemented by acquisitions of select financial institutions or branches in certain market areas.
• The company will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable related to the cybersecurity incident.

Key Dates

Keywords

net interest income, credit losses, noninterest income, noninterest expense, loans, deposits, capital ratios, interest rate risk, cybersecurity, financial results