South State (SSB)2024-04-27 15:44Financial Data and Key Metrics Changes - The net interest margin (NIM) decreased to 3.41%, at the lower end of guidance, while non-interest income to average assets was 64 basis points, exceeding guidance [89] - Deposit costs increased by 14 basis points to 1.74%, which was 2 basis points less than the previous quarter's increase [89] - Loan yields increased by 8 basis points, with cumulative deposit beta at 33% and cumulative loan beta at 37% [89] Business Line Data and Key Metrics Changes - Non-interest income increased by $6 million, driven by better mortgage revenue and lower interest on swap variation margin collateral [91] - The provision for credit losses was $12.7 million, with net charge-offs at $2.7 million, leading to a total reserve growth to 1.6% [94] - The construction development portfolio decreased significantly by approximately $500 million, with unfunded commitments around $2 billion [44][46] Market Data and Key Metrics Changes - Rental rates in the company's markets increased significantly: 16% for office, 21% for multifamily, and 38% for industrial, compared to lower increases outside these markets [83] - The commercial loan pipeline grew by 33% since November, primarily in the C&I sector, indicating a recovery from previous declines [20][81] Company Strategy and Development Direction - The company aims for flexibility and optionality in capital management, maintaining a strong capital position to be opportunistic in various economic scenarios [87] - The correspondent division expanded with a new team specializing in the packaging and sale of government-guaranteed portions of SBA loans, indicating a strategic focus on enhancing fee income [85] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the economic environment, noting that while rising interest rates are pressuring debt service coverage ratios, the Southeast market is benefiting from net migration [83][84] - The company does not foresee significant losses in the loan portfolio based on current forecasts, despite some migration into substandard categories [95] Other Important Information - The company repurchased 100,000 shares during the quarter, maintaining healthy capital ratios [96] - The CET1 capital ratio is approximately 12%, indicating a strong capital position relative to peers [86] Q&A Session Summary Question: What are the expectations for NIM given the recent rate cut forecasts? - Management indicated that NIM for 2024 is expected to range between 3.40% and 3.50%, with adjustments based on the revised rate cut forecast [102] Question: How is the competitive landscape affecting borrower demand? - Borrower demand has increased, with a notable recovery in the commercial loan pipeline, particularly in the C&I sector [20] Question: What is the outlook for fee income in the mortgage and correspondent banking sectors? - Fee income was strong in the last quarter, and management expects continued improvement, particularly in mortgage revenue [40]