KBRA Upgrades Ratings for SouthState Corporation

KBRA upgrades the senior unsecured debt rating to A- from BBB+, upgrades the subordinated debt rating to BBB+ from BBB, and affirms the short-term debt rating of K2 for Winter Haven, Florida-based SouthState Corporation (NASDAQ: SSB) ("the company"). In addition, KBRA upgrades the deposit and senior unsecured debt ratings to A from A-, upgrades the subordinated debt rating to A- from BBB+, and upgrades the short-term deposit and debt ratings to K1 from K2 for its main subsidiary, SouthState Bank, National Association. The Outlook for all long-term ratings is revised to Stable from Positive following the upgrade.

Key Credit Considerations

SSB has grown meaningfully over the past 15 years via whole bank M&A, with the company being particularly active in the years following the global financial crisis. However, the company’s recent acquisitions have been significantly larger and transformational in nature, including the 2020 MOE with CenterState Bank Corporation that roughly doubled the size of the company. Most recently, in 1Q25, SSB completed its acquisition of McKinney, Texas-based Independent Bank Group, Inc. (“IBTX”), adding an additional $19 billion of assets to the combined institution. The transaction marked SSB’s physical expansion westward, with the company acquiring IBTX’s operations in Texas and Colorado, while also importantly maintaining SSB’s presence in high growth, economically vibrant markets. The upgrade of SSB’s ratings reflect its multi-year evolution into one of the largest regional bank franchises in the Southeastern U.S. featuring significant density and scale in desirable markets. Importantly, SSB’s growth trajectory over the years has coincided with a responsible and favorable financial profile, with the company historically maintained an attractive, low-cost deposit base, strong asset quality, solid core earnings (enhanced by relatively durable, broad-based fee income sources), and appropriate liquidity.

While certain aspects of SSB’s acquisition of IBTX gave us pause at deal announcement (core capital depletion, potential dilution of SSB’s peer leading deposit franchise, and greater CRE concentration), we were pleased to see the combined company’s financial profile come in materially stronger in 1Q25 than initially expected. Most importantly, the combined company’s core capital measures came in solidly above initial guidance, with 1Q25’s CET1 ratio of 11.0% 60 bps higher than originally forecasted, and we add that SSB expects its core capital metrics to continue to climb. Additionally, the dilution of SSB’s deposit base appears less impactful than anticipated, with the company still reflecting strong levels of noninterest-bearing balances (26% of total) and deposit costs that remain noticeably below peer (albeit at a smaller delta than SSB on a standalone basis).

Though the sample size in which to evaluate the combined company’s earnings profile is admittedly limited to only a single quarter of data (1Q25), management expects the IBTX acquisition to enhance SSB’s earnings (assuming a successful integration and the full achievement of anticipated cost saves), with the company modeling a 1.34% FY25 ROA. We would note that, if consistently achieved, such a level of returns would screen as comparably strong vs. peers. The SSB/IBTX deal combines two organizations with exceptional contemporary asset quality track records, recognizing that the elongated period of benign economic conditions has made it challenging to evaluate bank credit quality “report cards”. Like essentially all peers, SSB’s asset quality metrics have normalized in recent periods from their historical lows recorded in the pandemic era. That said, NPAs remain generally contained (related ratio of 0.49% in 1Q25).

Rating Sensitivities

Given the level of the existing ratings, we do not anticipate further ratings momentum for SSB over the medium term. The failure to rebuild core capital ratios higher as indicated by management could cause us to revisit SSB’s ratings. Additionally, greater than peer credit degradation and/or the failure to successfully integrate IBTX and achieve expected cost savings/synergies would be viewed negatively.

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Methodologies