South State (US:SSB)2025-05-02 15:14Financial Performance - Consolidated net income for Q1 2025 was $89.1 million, a 22.6% decrease from $115.1 million in Q1 2024, with diluted EPS dropping 42.0% to $0.87 [218]. - Interest income increased by $291.3 million, driven by a $14.4 billion rise in average loan balances and a 52 basis point increase in yield [218]. - Interest expense rose by $90.7 million, primarily due to an increase in average interest-bearing deposits of $12.9 billion and a 10 basis point rise in average cost [219]. - Noninterest income grew by $14.5 million, mainly from service charges and investment services, attributed to the Independent acquisition [222]. - Noninterest expense surged by $159.5 million, with a significant portion due to merger-related costs and restructuring expenses from the Independent acquisition [222]. - The efficiency ratio increased to 61.0% in Q1 2025 from 58.5% in Q1 2024, reflecting a 58.2% rise in noninterest expenses [219]. - Return on average assets declined to 0.56% in Q1 2025 from 1.03% in Q1 2024, primarily due to a 22.6% decrease in net income [223]. - The return on average tangible equity (non-GAAP) for the three months ended March 31, 2025, was 8.99%, down from 13.63% in the same period of 2024 [329]. - The net income (GAAP) for the three months ended March 31, 2025, was $89,080 thousand, a decrease from $115,056 thousand in 2024 [329]. Asset and Liability Management - As of March 31, 2025, SouthState Corporation had total assets of $65.1 billion and employed 6,405 full-time equivalent employees [202]. - Total assets increased by approximately $18.8 billion, or 40.4%, to approximately $65.1 billion at March 31, 2025, largely due to the acquisition of Independent [245]. - Total deposits reached $53.3 billion at March 31, 2025, an increase of $15.3 million from $38.1 billion at December 31, 2024, largely attributed to the $15.2 billion in deposits acquired from Independent [300]. - Interest-bearing deposits surged by $11.7 billion, or 170.4% annualized, to $39.6 billion at March 31, 2025, primarily due to the acquisition of Independent [283]. - Noninterest-bearing deposits increased to $13.8 billion at March 31, 2025, up from $10.2 billion at December 31, 2024, with $3.9 billion attributed to the Independent acquisition [285]. - The loan to deposit ratio was 88% at March 31, 2025, down from 89% at December 31, 2024 [245]. - Total loans increased by $12.9 billion to $46.8 billion as of March 31, 2025, with non-acquired loans growing by $642.4 million, or 8.9% annualized [264]. - The acquired loan portfolio rose by $12.2 billion, primarily due to the acquisition of Independent, contributing $13.1 billion [264]. - The average balance of interest-bearing deposits increased by $12.9 billion, contributing to an increase in interest expense by $85.8 million [232]. Credit Quality and Allowance for Credit Losses - The allowance for credit losses (ACL) reflects management's estimate of uncollectible loans, with significant judgments influenced by macroeconomic forecasts [216]. - As of March 31, 2025, the Allowance for Credit Losses (ACL) was $623.7 million, representing 1.33% of total loans, an increase of $158.4 million from $465.3 million at December 31, 2024 [272]. - The Company recorded a total provision for credit losses of $100.6 million for Q1 2025, including an initial provision of $80.0 million for Non-PCD loans acquired from Independent [270]. - The net charge-offs to total average loans for the three months ended March 31, 2025, were 0.38%, compared to 0.03% for the same period in 2024 [274]. - The ACL provides 2.29 times coverage of nonperforming loans as of March 31, 2025 [274]. - Total nonperforming assets increased to $280.4 million, or 0.60% of total loans and repossessed assets, as of March 31, 2025, representing a 31.4% increase from December 31, 2024 [280]. - Total nonperforming loans rose to $272.2 million, or 0.58% of total loans, marking a 31.4% increase from December 31, 2024 [280]. Acquisition and Integration - The Company completed the acquisition of Independent Bank Group, Inc. on January 1, 2025, in an all-stock transaction valued at $2.5 billion, issuing 24,858,731 shares of its common stock [209]. - The Company has pursued a growth strategy focusing on organic growth and selective acquisitions of financial institutions [204]. - The Company issued $2.5 billion in stock related to the acquisition of Independent during the first quarter of 2025 [287]. - The integration of Independent's operations into SouthState's may be delayed or more costly than expected, with risks of deposit attrition and client loss [330]. - The Company is pursuing an all-stock merger with Independent, which may face risks related to cost savings and revenue synergies not being fully realized [330]. Regulatory and Economic Environment - The Company is evaluating the potential impacts of new regulatory rules from the CFPB, which may affect its operations and data management practices [213]. - Economic volatility risks include potential higher rates and inflation, which could negatively impact credit markets and noninterest expenses [330]. - Regulatory changes may require higher capital levels, impacting the company's ability to pursue acquisition opportunities [334]. - Geopolitical and economic uncertainties could affect consumer confidence and loan payment patterns, potentially leading to increased charge-offs [339]. Investment Portfolio - Investment securities totaled $8.4 billion at March 31, 2025, an increase of $1.6 billion, or 23.5%, with $1.6 billion acquired through the Independent acquisition [246]. - The investment securities portfolio (excluding trading securities) rose by $1.6 billion during the first quarter of 2025, with $1.6 billion acquired through the Independent acquisition [298]. - The company conducted a securities repositioning, selling approximately $1.8 billion in investment securities at a loss of $228.8 million [229]. - The total investment securities amounted to $8.395 billion, with a yield of 3.25% [253]. - Approximately 83.6% of the investment portfolio is comprised of U.S. Treasury securities, U.S. Government agency securities, and U.S. Government Agency Mortgage-backed securities [255]. Risks and Challenges - The company faces interest rate risks that could decrease net interest income, affecting earnings from correspondent and mortgage divisions [330]. - Inflationary pressures may negatively impact profitability and demand for the company's products and services [330]. - The company is exposed to cybersecurity risks due to reliance on internal systems and third-party technology, which could lead to financial losses [333]. - The company is at risk from competition in the financial services industry, which may compress net interest margins [339]. - Catastrophic events and public health crises could disrupt economic activity and impact the company's operations and customer base [339].