Bank merger-and-acquisition activity, which slowed dramatically in 2022, will likely remain muted in 2023, SouthState CEO John Corbett said Friday on a conference call with investment analysts.
"Right now, there's just not a lot of clarity as it relates to the regulatory approval process, and there's not a lot of clarity as it relates to potential recession risk," said Corbett, who made more than a dozen acquisitions at a predecessor company of SouthState, which is based in Winter Haven, Florida. However, he thinks the pace of dealmaking may quicken toward the end of the year and into 2024, as bankers turn to M&A to compensate for a more challenging earnings environment.
According to Compass Point analyst Laurie Havener Hunsicker, 168 bank deals were announced in 2022 with a total deal volume of $22.7 billion, down from $76.6 billion in 2021.
With a presence in some of the country's fastest-growing markets, the $44 billion-asset SouthState has "a lot of opportunities to fish where we're at," Corbett said, though he did not rule out a resumption of M&A by SouthState, which was
According to Corbett, targets that would be potentially attractive for SouthState would have balance sheets of about 10% to 33% of its size and would operate within its six-state territory of Virginia, the Carolinas, Georgia, Florida and Alabama. "If you look at the gross domestic product of the six states we're in, it would represent the fourth-largest GDP in the world," Corbett said.
Since the 2020 merger of equals, SouthState has completed one acquisition,
SouthState reported fourth-quarter net income totaling $143.5 million, powered by strong loan growth. The company's portfolio totaled $29.8 billion on Dec. 31, up 5% linked-quarter. Deposits of $36.4 billion were down 1.5% from the total on Sept. 30, but with 36% in non-interest-bearing accounts, SouthState's cost of deposits was 21 basis points — a number Hovde analyst David Bishop termed "ultralow" in a research note Thursday.
"This was a very strong quarter, in our view," Bishop wrote.
SouthState expects to pay more for its funding in 2023, as costs for money-market and time deposits increase. "We certainly are feeling the pressure on the money market [and certificate of deposit] side," Chief Strategy Officer Steve Young said on the conference call, adding that SouthState raised deposit rates "across the board" earlier this month.
"Our job is to continue to grow core clients to protect the deposit franchise, which is the most important part of our balance sheet," Young said.
SouthState is expecting deposits to remain relatively flat in 2023 while loans grow in the mid-single-digit range, Young said.
