South State Bank: Not Cheap On The Multiples, But The GARP Case Is Interesting

Last year, two of my preferred smaller banks, South State Bank (SSB) and CenterState, got together in a merger of equals that combined two active acquirers with attractive footprints in growing Southeast U.S. markets into a much larger bank with an excellent growth footprint, a strong core deposit base, good fee-generating businesses, and a lot of options to deploy capital. While credit was a risk going into this down-cycle, the combined entity has acquitted itself well so far.

Valuation for South State isn't as straightforward as you might like. It's not cheap on conventional multiple-based approaches, and the growth expectations are not conservative. Still, given the opportunity to leverage a low-cost deposit base, outmaneuver larger rivals, squeeze out smaller sub-scale players, and deploy more capital toward M&A, I think South State could generate high single-digit to low double-digit core growth and drive double-digit annualized long-term total returns from here.

 

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South State Bank: Not Cheap On The Multiples, But The GARP Case Is Interesting