Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net interest margin saw a long-anticipated inflection.
- Non-interest income increased, and expenses were well controlled.
- Earnings per share rose by 15% from the previous quarter.
- Loan growth exceeded forecasts, with a 50% increase in loan production.
- Asset quality remains strong with only 5 basis points in charge-offs.
Negative Points
- Deposits remain a challenge, with flat growth compared to Q1.
- Provision expense matched net charge-offs, leaving total reserve levels flat.
- Non-performing loans increased by $21 million, centered in one loan.
- Compensation expenses are expected to rise due to merit increases effective July 1st.
- Future non-interest expenses are projected to be in the $250 million range due to upcoming projects and related expenses.
Q & A Highlights
SouthState Corp (SSB, Financial) Q2 2024 Earnings Call Highlights
Q: Can you provide an update on loan growth expectations and customer activity?
A: John Corbett, CEO: We are tracking mid-single-digit loan growth, with a 5% annualized rate so far. Loan production increased by 50% from Q1 to Q2, driven by C&I credits and strong growth in the Carolinas. While construction loan tailwinds may abate, pipelines are stable, and current guidance remains appropriate.
Q: Can you discuss the credit environment and the factors influencing reserve levels?
A: John Corbett, CEO: Rising rates have led to some migration in commercial real estate loans, but we don't see significant loss content. Payment performance is strong, with low past dues. William Matthews, CFO: CECL provisioning is forward-looking, and if economic forecasts improve, reserve levels may come down even as charge-offs tick up.
Q: What are your expectations for the net interest margin (NIM) in the back half of the year and beyond?
A: Stephen Young, Chief Strategy Officer: No change to our guidance of 340 to 350 basis points for the full year. We expect NIM to be flat in Q3 and improve by 3-5 basis points in Q4 if there is a rate cut. Post-IBTX merger, we anticipate a 10-15 basis point increase in NIM, with further improvements in 2025 and 2026 as rate cuts occur.
Q: Can you elaborate on the deposit environment and expectations for growth?
A: Stephen Young, Chief Strategy Officer: The deposit environment remains challenging, but we are managing deposit costs and growth effectively. We expect liquidity to improve in a rate-cutting environment, with money market funds and other alternatives flowing back into bank deposits.
Q: What are your expectations for non-interest income (NII) going forward?
A: Stephen Young, Chief Strategy Officer: We expect NII to average 55-65 basis points on assets, with potential increases as rate cuts occur and capital markets activity picks up. Post-IBTX merger, we anticipate NII to average 50-55 basis points combined.
Q: Are there any specific commercial real estate (CRE) segments you are cautious about or see opportunities in?
A: John Corbett, CEO: We are cautious on office and assisted living but bullish on granular retail CRE. We aim to manage our total CRE ratio below 300% and see it decline over time.
Q: How should we think about the go-forward tax rate post-merger?
A: William Matthews, CFO: We do not anticipate a significant change from the current tax rate. More refined estimates will be provided as we move closer to closing the merger.
Q: Can you clarify the impact of the cyber event on non-interest expenses?
A: William Matthews, CFO: The cyber event cost about $8 million year-to-date, with $2 million not covered by insurance. We expect to be reimbursed for the remaining costs, and this should be considered when modeling operating expenses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
