KBRA Affirms Ratings for SouthState Corporation

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Winter Haven, FL-based SouthState Corporation (NYSE: SSB or “the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for its subsidiary, SouthState Bank, National Association. The Outlook for all long-term ratings is Positive.

Key Credit Considerations

The Positive Outlook continues to be supported, in part, by what we view as a near peer leading funding profile, which includes a deposit base that reflects favorable characteristics in terms of both composition and cost. Regarding the former, SSB's granular deposit base is comprised of a proportionally large amount of of small dollar, retail balances as well as noninterest-bearing accounts (34% of total deposits) serviced through a broad based branch network. This favorable mix unsuprisingly lends to overall deposit costs that are traditionally well below peer averages, and SSB's 1Q23 cost of deposits was a low 0.63%. Furthermore, the company has achieved a 14% cumulative deposit beta through 1Q23 despite over 500 bps of Fed rate hikes. We would expect the company’s strong funding profile to prove beneficial in an increasingly competitive deposit market market facing U.S. banks. Also supporting the positive view is SSB’s liquidity profile which is evidenced by the company’s ability to navigate the market volatility centered in March 2023. Specifically, deposits rose in 1Q23 (though mostly due to the addition of brokered CDs). Uninsured deposits represented 30% of total deposits at 1Q23 but, when accounting for primary and secondary liquidity sources, SSB's uninsured deposit coverage is ~180%.

We also maintain a favorable view of the company's expansive footprint across six economically vibrant states in the Southeast combined with a national correspondent banking division and a payments platform acquired with the Atlantic Capital BancShares, Inc. acquisition plus a solid funding and credit performance post MOE. The company’s solid earnings profile as reflected by a 5-year adjusted average ROA of 1.24% is supported by historically low credit costs with average NCOs of 3 bps for the last five years which have been enhanced by a strong NIM that benefits from a low cost funding base. Further supporting the ratings is SSB’s revenue diversification with its relatively durable, broad-based noninterest income sources that includes deposit fee income, correspondent banking and capital markets and trust and investment services which have partially offset the significant decline in mortgage banking revenue following the 2020 and 2021 peak mortgage banking activity.

Rating Sensitivities

A rating upgrade is possible in the near-term given the Positive Outlook if SSB demonstrates continued strong core earnings and credit performance amid a monetary tightening cycle. KBRA notes that SSB has experienced significant growth via acquisitions and that both legacy SouthState Corporation and CenterState Bank Corporation (merged in 2020) were significantly smaller banks in 2019. The Outlook could revert to Stable if earnings performance is not maintained at a level consistent with higher rated peers or if capital ratios were to be pressured from negative credit trends.

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