SouthState Bank Has The Growth Potential, But Improved Profitability Would Be A Big Help

 

The past year was a challenging one for SouthState Bank (SSB), and that's reflected in a share price that has lagged its peers by 10%-25% over the past year (depending upon how you define the peer group). A big second quarter pre-provision miss spooked a lot of investors, and the subsequent announcement of its intent to acquire Atlantic Capital (ACBI), while consistent with the long-term strategy, seemed to fuel some questions about whether SouthState management needs to hit pause on inorganic growth for a bit and improve internal metrics.

I do think SouthState's lagging return metrics (below-average ROA, for instance) are a fair point of criticism, but I'd also note that this is a highly rate-sensitive bank with a meaningful drag at present from excess liquidity. Moreover, I think the bank has also been building itself to be a bigger bank over the longer term - trading some nearer-term inefficiencies for longer-term benefits.

I believe SouthState is set for strong mid-single-digit long-term core earnings growth, and I do think the company's leverage to growing Southeastern markets and rate sensitivity give it beat-and-raise upside. That said, it's a stretch for me to call this a bargain at today's price even with the relative underperformance.

 

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SouthState Bank Has The Growth Potential, But Improved Profitability Would Be A Big Help