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    SouthState Bank (SSB)

    SSB Q4 2024: NIM to rise to ~3.85% by year-end

    Reported on Jan 24, 2025 (After Market Close)
    Pre-Earnings Price$103.67Last close (Jan 24, 2025)
    Post-Earnings Price$103.67Last close (Jan 24, 2025)
    Price Change
    $0.00(0.00%)

    What went well

    • Margin Expansion Potential: The Q&A highlighted a robust outlook for margin expansion driven by disciplined deposit cost management and significant legacy loan repricing (≈200 basis point pickup per quarter), with additional upside from potential securities restructuring that could further offset incremental lease costs and boost NIM to as high as 3.75% to 3.85% by year-end.
    • Strong Deposit and Loan Growth: Executives noted customer deposit growth of approximately 9% on an annualized basis (ex-brokered) along with mid-single-digit (≈5%) overall loan growth, underpinned by strong seasonal originations and well-managed credit performance.
    • Strategic Capital Management Initiatives: The management’s proactive approach—evidenced by the sale–leaseback transaction to harvest about $225 million of off-balance sheet capital—provides enhanced balance sheet flexibility and opportunities to deploy excess capital for future revenue expansion.

    What went wrong

    • Margin pressures: If the planned securities restructure does not occur or if deposit costs remain higher than expected (despite some deposit growth), the additional $30–$35 million annual lease expense from the sale-leaseback may not be fully offset, thereby compressing margins.
    • Credit quality risks: Although Q4 performance was strong, there are concerns that the SBA and small business (C&I) loan segments could face higher charge-offs in a sustained high-rate environment with rising costs, potentially leading to deteriorating asset quality.
    • Integration challenges: The ongoing integration of the IBTX acquisition—evidenced by a $1 billion decline in IBTX loans following the wind-down of the mortgage warehouse business and accelerated paydowns—raises concerns over operational continuity and sustained revenue growth.

    Q&A Summary

    1. Margin Outlook
      Q: What margin guidance is provided?
      A: Management expects margins to start at 3.60–3.70% in Q1 and tighten to 3.75–3.85% by Q4 as legacy loan repricing and potential securities restructuring help offset higher sale leaseback costs.

    2. Deposit Costs
      Q: What deposit cost target is projected?
      A: The combined company is guiding for a pro forma deposit cost around 2%, with opportunities in CD repricing enhancing their overall margin profile.

    3. Lending Pipeline
      Q: How is the loan pipeline trending?
      A: Loan growth is expected to be in the mid-single digits, with 5% growth for the year and seasonal pickup, despite a roughly 10% softer Q1 pipeline that should improve later, especially in key markets like Texas and Colorado.

    4. Sale Leaseback
      Q: Why pursue sale leaseback now?
      A: The sale leaseback is aimed at harvesting approximately $225 million in off-balance-sheet capital, providing a low-cost funding source to deploy into future revenue growth.

    5. Credit Quality
      Q: How is credit performance holding up?
      A: Credit metrics remain strong with charge-offs at roughly 6 basis points and low nonperforming rates, though caution remains for SBA exposures due to ongoing rate impacts.

    6. M&A Appetite
      Q: Is further acquisition activity expected?
      A: While integration remains the focus, management is open to attractive opportunities—even a deal as small as $5 billion could be considered in premium markets as the target size is $60–80 billion.

    7. Revenue Synergy
      Q: Will fee income improve through integration?
      A: Revenue synergies, particularly in cross-selling and capital markets products, are anticipated to boost fee income, as evidenced by a $3.5 million lift in correspondent business revenue.

    8. IBTX Loan Book
      Q: Why did the IBTX loan book decline?
      A: The reduction, nearing $1 billion, resulted from a planned wind-down of the mortgage warehouse business and some voluntary paydowns, aligning with earlier expectations.

    9. Expense Outlook
      Q: What are the expense trends?
      A: Early in the year, expenses are projected in the $355–365 million NIE range, easing to $340–350 million later as cost-saving measures begin to offset higher initial conversion and lease costs.

    10. Tax and Deposit Pricing
      Q: Any changes to tax rate or deposit pricing strategy?
      A: No significant changes are expected in the effective tax rate, and deposit pricing will continue to be managed locally without major adjustments from corporate.

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