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Table of Contents 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission file number 001-12669

Graphic

SOUTHSTATE CORPORATION

(Exact name of registrant as specified in its charter)

South Carolina

57-0799315

(State or other jurisdiction of incorporation)

(I.R.S. Employer Identification No.)

1101 First Street South, Suite 202

Winter Haven, Florida

33880

(Address of principal executive offices)

(Zip Code)

(863) 293-4710

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, $2.50 par value

SSB

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No  

Indicate the number of shares outstanding of each of issuer’s classes of common stock, as of the latest practicable date:

Class

Outstanding as of October 31, 2024

Common Stock, $2.50 par value

76,292,522

Table of Contents 

SouthState Corporation and Subsidiaries

September 30, 2024 Form 10-Q

INDEX

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets at September 30, 2024 and December 31, 2023

3

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2024 and 2023

4

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2024 and 2023

5

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended September 30, 2024 and 2023

6

Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2024 and 2023

7

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023

8

Notes to consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

47

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

79

Item 4.

Controls and Procedures

79

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

80

Item 1A.

Risk Factors

80

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

82

Item 3.

Defaults Upon Senior Securities

82

Item 4.

Mine Safety Disclosures

82

Item 5.

Other Information

83

Item 6.

Exhibits

83

2

Table of Contents 

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

SouthState Corporation and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except par value)

September 30,

December 31,

 

    

2024

    

2023

 

(Unaudited)

ASSETS

    

    

    

Cash and cash equivalents:

Cash and due from banks

$

563,887

$

510,922

Federal funds sold and interest-earning deposits with banks

384,853

236,435

Deposits in other financial institutions (restricted cash)

 

263,939

 

251,520

Total cash and cash equivalents

 

1,212,679

 

998,877

Trading securities, at fair value

87,103

31,321

Investment securities:

Securities held to maturity (fair value of $1,963,746 and $2,084,736)

 

2,301,307

 

2,487,440

Securities available for sale, at fair value

 

4,564,363

 

4,784,388

Other investments

 

211,458

 

192,043

Total investment securities

 

7,077,128

 

7,463,871

Loans held for sale

 

287,043

 

50,888

Loans:

Acquired - non-purchased credit deteriorated loans

3,959,028

4,796,913

Acquired - purchased credit deteriorated loans

913,342

1,108,813

Non-acquired loans

 

28,675,822

 

26,482,763

Less allowance for credit losses

 

(467,981)

 

(456,573)

Loans, net

 

33,080,211

 

31,931,916

Premises and equipment, net

507,452

519,197

Bank owned life insurance (“BOLI”)

1,007,275

991,454

Deferred tax assets

122,384

164,354

Derivatives assets

195,722

172,939

Mortgage servicing rights

83,512

85,164

Core deposit and other intangibles

 

71,835

 

88,776

Goodwill

1,923,106

1,923,106

Other assets

 

427,197

 

480,161

Total assets

$

46,082,647

$

44,902,024

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits:

Noninterest-bearing

$

10,376,531

$

10,649,274

Interest-bearing

 

27,261,664

 

26,399,635

Total deposits

 

37,638,195

 

37,048,909

Federal funds purchased

290,429

248,162

Securities sold under agreements to repurchase

 

247,893

 

241,023

Corporate and subordinated debentures

391,626

391,904

Other borrowings

 

300,000

 

100,000

Reserve for unfunded commitments

41,515

56,303

Derivative liabilities

606,194

804,486

Other liabilities

 

662,215

 

478,139

Total liabilities

 

40,178,067

 

39,368,926

Shareholders’ equity:

Common stock - $2.50 par value; authorized 160,000,000 shares; 76,269,577 and 76,022,039 shares issued and outstanding, respectively

 

190,674

 

190,055

Surplus

 

4,249,672

 

4,240,413

Retained earnings

 

1,943,874

 

1,685,166

Accumulated other comprehensive loss

 

(479,640)

 

(582,536)

Total shareholders’ equity

 

5,904,580

 

5,533,098

Total liabilities and shareholders’ equity

$

46,082,647

$

44,902,024

The Accompanying Notes are an Integral Part of the Financial Statements.

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Table of Contents 

SouthState Corporation and Subsidiaries

Consolidated Statements of Income (unaudited)

(In thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

 

    

2024

    

2023

    

2024

    

2023

 

Interest income:

Loans, including fees

$

494,082

$

443,805

$

1,436,130

$

1,256,525

Investment securities:

Taxable

 

37,900

 

40,330

 

116,391

 

123,149

Tax-exempt

 

5,734

 

5,543

 

17,072

 

17,687

Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with banks

 

6,462

 

10,831

 

22,964

 

31,610

Total interest income

 

544,178

 

500,509

 

1,592,557

 

1,428,971

Interest expense:

Deposits

 

177,919

 

133,944

 

503,562

 

290,673

Federal funds purchased and securities sold under agreements to repurchase

 

5,697

 

4,291

 

15,407

 

10,679

Corporate and subordinated debentures

6,007

6,014

18,014

17,572

Other borrowings

 

3,075

 

889

 

9,899

 

11,670

Total interest expense

 

192,698

 

145,138

 

546,882

 

330,594

Net interest income

 

351,480

 

355,371

 

1,045,675

 

1,098,377

(Recovery) provision for credit losses

 

(6,971)

 

32,709

 

9,604

 

104,189

Net interest income after (recovery) provision for credit losses

 

358,451

 

322,662

 

1,036,071

 

994,188

Noninterest income:

Fees on deposit accounts

 

33,986

 

32,830

 

100,973

 

95,790

Mortgage banking income

 

3,189

 

2,478

 

15,270

 

11,164

Trust and investment services income

 

11,578

 

9,556

 

33,060

 

29,316

Correspondent banking and capital markets income

9,893

12,916

19,064

45,697

SBA income

3,875

3,033

12,193

9,640

Securities gains, net

 

 

 

 

45

Other income

 

12,413

 

12,035

 

41,157

 

29,765

Total noninterest income

 

74,934

 

72,848

 

221,717

 

221,417

Noninterest expense:

Salaries and employee benefits

 

150,865

 

146,146

 

452,753

 

437,548

Occupancy expense

 

22,242

 

22,251

 

67,272

 

65,980

Information services expense

 

23,280

 

21,428

 

68,777

 

62,472

OREO and loan related expense

 

1,358

 

613

 

3,271

 

768

Amortization of intangibles

 

5,327

 

6,616

 

17,069

 

20,943

Supplies, printing and postage expense

2,762

2,623

7,828

7,817

Professional fees

 

4,017

 

3,456

 

11,038

 

11,522

FDIC assessment and other regulatory charges

 

7,482

 

8,632

 

23,787

 

24,745

FDIC special assessment

4,473

Advertising and marketing

 

2,296

 

3,009

 

6,874

 

6,648

Merger, branch consolidation, severance related and other expense

 

3,303

 

164

 

13,602

 

11,384

Other expense

 

23,915

 

23,268

 

68,140

 

71,510

Total noninterest expense

 

246,847

 

238,206

 

744,884

 

721,337

Earnings:

Income before provision for income taxes

 

186,538

 

157,304

 

512,904

 

494,268

Provision for income taxes

 

43,359

 

33,160

 

122,299

 

106,751

Net income

$

143,179

$

124,144

$

390,605

$

387,517

Earnings per common share:

Basic

$

1.88

$

1.63

$

5.12

$

5.10

Diluted

$

1.86

$

1.62

$

5.09

$

5.07

Weighted average common shares outstanding:

Basic

 

76,299

 

76,139

 

76,284

 

76,034

Diluted

 

76,805

 

76,571

 

76,691

 

76,446

The Accompanying Notes are an Integral Part of the Financial Statements.

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SouthState Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

(Dollars in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2024

    

2023

    

2024

    

2023

 

Net income

    

$

143,179

    

$

124,144

    

$

390,605

    

$

387,517

Other comprehensive income (loss):

Unrealized holding gains (losses) on available for sale securities:

Unrealized holding gains (losses) arising during period

 

186,520

 

(204,409)

 

136,782

 

(196,289)

Tax effect

 

(45,949)

 

50,918

 

(33,886)

 

57,521

Reclassification adjustment for gains included in net income

 

 

 

 

(45)

Tax effect

 

 

 

 

12

Net of tax amount

 

140,571

 

(153,491)

 

102,896

 

(138,801)

Other comprehensive income (loss), net of tax

 

140,571

 

(153,491)

 

102,896

 

(138,801)

Comprehensive income (loss)

$

283,750

$

(29,347)

$

493,501

$

248,716

The Accompanying Notes are an Integral Part of the Financial Statements.

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Table of Contents 

SouthState Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

Three months ended September 30, 2024 and 2023

(Dollars in thousands, except for share data)

Accumulated

 

Other

 

Common Stock

Retained

Comprehensive

 

    

Shares

    

Amount

    

Surplus

    

Earnings

    

Loss

    

Total

 

Balance, June 30, 2023

    

75,995,979

$

189,990

$

4,228,910

$

1,533,508

$

(662,398)

$

5,290,010

Comprehensive loss:

Net income

 

 

 

124,144

 

 

124,144

Other comprehensive loss, net of tax effects

 

 

 

 

(153,491)

(153,491)

Total comprehensive loss

 

(29,347)

Cash dividends declared on common stock at $0.52 per share

 

 

 

(39,526)

 

 

(39,526)

Cash dividend equivalents paid on restricted stock units

 

 

 

(46)

 

(46)

Employee stock purchases

11,341

 

28

 

681

 

 

709

Stock options exercised

3,640

 

9

 

210

 

 

 

219

Restricted stock awards (forfeits)

(206)

 

(1)

 

1

 

 

 

Stock issued pursuant to restricted stock units

11,709

 

30

 

(30)

 

 

Common stock repurchased

(5,097)

 

(13)

 

(374)

 

 

 

(387)

Share-based compensation expense

 

 

9,355

 

 

 

9,355

Balance, September 30, 2023

76,017,366

$

190,043

$

4,238,753

$

1,618,080

$

(815,889)

$

5,230,987

Balance, June 30, 2024

76,195,723

$

190,489

$

4,238,192

$

1,841,933

$

(620,211)

$

5,650,403

Comprehensive loss:

Net income

 

 

 

143,179

 

 

143,179

Other comprehensive loss, net of tax effects

 

 

 

 

140,571

 

140,571

Total comprehensive income

 

283,750

Cash dividends declared on common stock at $0.54 per share

 

 

 

(41,174)

 

 

(41,174)

Cash dividend equivalents paid on restricted stock units

 

 

 

(64)

 

 

(64)

Employee stock purchases

10,392

 

26

 

728

 

 

754

Stock options exercised

42,707

 

107

 

3,445

 

 

 

3,552

Stock issued pursuant to restricted stock units

26,476

 

66

 

(66)

 

 

 

Stock issued in lieu of cash - directors fees

1,063

3

90

 

93

Common stock repurchased

(6,784)

 

(17)

 

(588)

 

 

 

(605)

Share-based compensation expense

 

 

7,871

 

 

 

7,871

Balance, September 30, 2024

76,269,577

$

190,674

$

4,249,672

$

1,943,874

$

(479,640)

$

5,904,580

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SouthState Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

Nine months ended September 30, 2024 and 2023

(Dollars in thousands, except for share data)

Accumulated Other

Common Stock

Retained

Comprehensive

 

    

Shares

    

Amount

    

Surplus

    

Earnings

    

Loss

    

Total

 

Balance, December 31, 2022

    

75,704,563

$

189,261

$

4,215,712

$

1,347,042

$

(677,088)

$

5,074,927

Comprehensive income:

Net income

387,517

387,517

Other comprehensive loss, net of tax effects

(138,801)

(138,801)

Total comprehensive income

248,716

Cash dividends declared on common stock at $1.52 per share

 

 

 

(115,400)

 

 

(115,400)

Cash dividend equivalents paid on restricted stock units

 

 

(1,079)

(1,079)

Employee stock purchases

20,903

 

52

 

1,304

 

1,356

Stock options exercised

27,156

 

68

 

1,324

 

 

 

1,392

Restricted stock awards (forfeits)

(2,559)

 

(7)

 

7

 

 

 

Stock issued pursuant to restricted stock units

370,493

927

(927)

 

Common stock repurchased

(103,190)

 

(258)

 

(7,151)

 

 

 

(7,409)

Share-based compensation expense

 

 

28,484

 

 

 

28,484

Balance, September 30, 2023

76,017,366

$

190,043

$

4,238,753

$

1,618,080

$

(815,889)

$

5,230,987

Balance, December 31, 2023

76,022,039

$

190,055

$

4,240,413

$

1,685,166

$

(582,536)

$

5,533,098

Comprehensive income:

Net income

390,605

390,605

Other comprehensive income, net of tax effects

102,896

102,896

Total comprehensive income

493,501

Cash dividends declared on common stock at $1.58 per share

 

 

 

(120,391)

 

 

(120,391)

Cash dividend equivalents paid on restricted stock units

 

 

(1,260)

(1,260)

Employee stock purchases

19,484

49

1,435

 

1,484

Stock options exercised

50,155

 

126

 

3,867

 

 

 

3,993

Restricted stock awards (forfeits)

(316)

 

(2)

 

2

 

 

 

Stock issued pursuant to restricted stock units

380,151

950

(950)

 

Stock issued in lieu of cash - directors fees

2,211

6

180

 

186

Common stock repurchased - buyback plan

(100,000)

 

(250)

 

(7,735)

(7,985)

Common stock repurchased

(104,147)

 

(260)

 

(8,438)

 

 

 

(8,698)

Share-based compensation expense

 

 

20,898

 

 

20,898

Cumulative change in accounting principle due to the adoption of ASU 2023-02

(10,246)

(10,246)

Balance, September 30, 2024

76,269,577

$

190,674

$

4,249,672

$

1,943,874

$

(479,640)

$

5,904,580

The Accompanying Notes are an Integral Part of the Financial Statements.

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Table of Contents 

SouthState Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(Dollars in thousands)

Nine Months Ended

September 30,

    

2024

    

2023

 

Cash flows from operating activities:

Net income

$

390,605

$

387,517

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

41,547

 

44,365

Provision for credit losses

 

9,604

 

104,189

Deferred income taxes

 

17,335

 

72,680

Gains on sale of securities, net

 

 

(45)

Share-based compensation expense

 

20,898

 

28,484

Accretion of discount related to acquired loans

 

(11,531)

 

(16,931)

(Gains) losses on disposal of premises and equipment

 

(19)

 

27

Gains on sale of bank properties held for sale and repossessed real estate

 

(938)

 

(1,454)

Net amortization of premiums and discounts on investment securities

 

14,559

 

15,181

Bank properties held for sale and repossessed real estate write downs

 

246

 

1,525

Fair value adjustment for loans held for sale

 

(232)

 

508

Originations and purchases of mortgage loans held for sale

 

(848,574)

 

(666,880)

Proceeds from sales of mortgage loans held for sale

 

846,859

 

670,223

Gains on sales of mortgage loans held for sale

(12,030)

(2,327)

Originations and purchases of SBA loans held for sale

(420,403)

(73,512)

Proceeds from sales of SBA loans held for sale

106,222

80,104

Gains on sales of SBA loans held for sale

(8,781)

(6,592)

Increase in cash surrender value of BOLI

(20,572)

(18,573)

Net change in:

Accrued interest receivable

 

(11,133)

 

(16,665)

Prepaid assets

 

(1,473)

 

(4,178)

Operating leases

 

144

 

231

Bank owned life insurance

(1,989)

(1,589)

Trading securities

35,111

(82,891)

Derivative assets

(22,783)

(1,329)

Miscellaneous other assets

 

16,409

 

(41,921)

Accrued interest payable

 

(4,183)

 

38,945

Accrued income taxes

 

32,916

 

(31,740)

Derivative liabilities

(198,292)

217,735

Miscellaneous other liabilities

 

188,146

 

125,989

Net cash provided by operating activities

 

157,668

 

821,076

Cash flows from investing activities:

Proceeds from sales of investment securities available for sale

 

 

125,298

Proceeds from maturities and calls of investment securities held to maturity

 

182,902

 

145,751

Proceeds from maturities and calls of investment securities available for sale

 

406,148

 

404,718

Proceeds from sales and redemptions of other investment securities

 

130,642

 

185,875

Purchases of investment securities available for sale

 

(60,668)

 

(34,505)

Purchases of other investment securities

 

(140,168)

 

(193,310)

Net increase in loans

 

(1,177,079)

 

(1,855,352)

Recoveries of loans previously charged off

12,149

12,630

Purchase of bank owned life insurance

(5,966)

Purchases of premises and equipment

 

(22,391)

 

(26,372)

Proceeds from redemption and payout of bank owned life insurance policies

6,739

5,956

Proceeds from sale of bank properties held for sale and repossessed real estate

 

11,277

 

8,392

Proceeds from sale of premises and equipment

 

373

 

850

Net cash used in investing activities

 

(650,076)

 

(1,226,035)

Cash flows from financing activities:

Net increase in deposits

 

589,744

 

585,786

Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings

 

49,137

 

(43,113)

Proceeds from borrowings

4,000,000

5,350,200

Repayment of borrowings

 

(3,800,000)

 

(5,350,200)

Common stock issuance

1,670

1,356

Common stock repurchases

 

(16,683)

 

(7,409)

Dividends paid

 

(121,651)

 

(116,479)

Stock options exercised

 

3,993

 

1,392

Net cash provided by financing activities

 

706,210

 

421,533

Net increase in cash and cash equivalents

 

213,802

 

16,574

Cash and cash equivalents at beginning of period

 

998,877

 

1,312,563

Cash and cash equivalents at end of period

$

1,212,679

$

1,329,137

Supplemental Disclosures:

Cash Flow Information:

Cash paid for:

Interest

$

551,066

$

291,649

Income taxes

$

61,511

$

68,672

Recognition of operating lease assets in exchange for lease liabilities

$

9,093

$

701

Schedule of Noncash Investing Transactions:

Real estate acquired in full or in partial settlement of loans

$

3,774

$

3,298

The Accompanying Notes are an Integral Part of the Financial Statements.

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SouthState Corporation and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, otherwise referred to as GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period information has been reclassified to conform to the current period presentation, and these reclassifications had no impact on net income or equity as previously reported. Operating results for the three and nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

The consolidated balance sheet at December 31, 2023, has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by GAAP for complete financial statements.

Note 2 — Summary of Significant Accounting Policies

The information contained in the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2024, should be referenced when reading these unaudited consolidated financial statements. Unless otherwise mentioned or unless the context requires otherwise, references herein to “SouthState,” the “Company,” “we,” “us,” “our” or similar references mean SouthState Corporation and its consolidated subsidiaries. References to the “Bank” or “SouthState Bank” means SouthState Corporation’s wholly owned subsidiary, South State Bank, National Association, a national banking association.

In the second quarter of 2024, updates were made to certain estimates used in the Company’s current expected credit loss model, the most significant of which include expanding the number of macroeconomic variables used in the quantitative models, incorporating more granular loss data, and adjusting the reasonable and supportable forecast period from one to two years. We continue to update and expand our qualitative framework to further address factors not captured in the quantitative process.

Loans

Loans that management has originated and has the intent and ability to hold for the foreseeable future or until maturity or pay off generally are reported at their unpaid principal balances, less unearned income and net of any deferred loan fees and costs, including unamortized fair value discount or premium. Unearned income on installment loans is recognized as income over the terms of the loans by methods that generally approximate the interest method. Interest on other loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. If the loan is prepaid, the remaining unamortized fees and costs are charged or credited to interest income. Amortization ceases for non-accrual loans.

We place loans on nonaccrual once reasonable doubt exists about the collectability of all principal and interest due. Generally, this occurs when principal or interest is 90 days or more past due, unless the loan is well secured and in the process of collection and excludes factored receivables. For factored receivables, which are commercial trade credits rather than promissory notes, the Company’s practice, in most cases, is to charge-off unpaid recourse receivables when they become 240 days past due from the invoice due date and the non-recourse receivables when they become 240 days past due from the statement due date. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

A loan is evaluated individually for loss when it is on nonaccrual and has a net book balance over $1 million. Large pools of homogeneous loans are collectively evaluated for loss and reserved at the pool level. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as nonaccrual, provided that management expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay.

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Allowance for Credit Losses (“ACL”) – Investment Securities

Management monitors the held to maturity securities portfolio to determine whether a valuation account should be recorded. Management evaluates impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value at least quarterly, and more frequently when economic or market concerns warrant such evaluation. The Company’s methodology on how the ACL is calculated is disclosed in Note 1 — Summary of Significant Accounting Policies, under the “ACL – Investment Securities” section, of our Annual Report for the year ended December 31, 2023. As of September 30, 2024, and December 31, 2023, the Company had $2.3 billion and $2.5 billion, respectively, of held to maturity securities and no related valuation account.

The Company follows its nonaccrual policy by reversing interest income in the income statement when the Company determines the interest for held to maturity securities is uncollectible. Therefore, management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the investment securities and does not record an allowance for credit losses on accrued interest receivable. As of September 30, 2024, and December 31, 2023, the accrued interest receivables for all investment securities recorded in Other Assets were $24.8 million and $26.5 million, respectively.

ACL – Loans and Certain Off-Balance-Sheet Credit Exposures

The ACL for loans held for investment reflects management’s estimate of credit losses that will result from the inability of our borrowers to make required loan payments. The Company makes adjustments to the ACL by recording a provision for or recovery of credit losses through earnings. Loans charged off are recorded as reductions to the ACL on the balance sheet and subsequent recoveries of loan charge-offs are recorded as increases to the ACL when they are received.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, credit quality, or term, as well as for changes in macroeconomic conditions, such as changes in unemployment rates, gross domestic product, property values, or other relevant factors. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected losses may result in a range of expected losses. The Company’s ACL recorded in the balance sheet reflects management’s best estimate within the range of expected losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected losses.

The Company generally uses an eight-quarter forecast period, based on a single forecast scenario or a blend of multiple forecast scenarios, using variables management believes are most relevant to each portfolio segment. For periods beyond which management is able to develop reasonable and supportable forecasts, the Company reverts to the average historical loss rate, reflecting historical default probabilities and loss severities, using a reversion speed that approximates four quarters. The forecast period and scenarios used are reviewed on a quarterly basis and may be adjusted based on management's view of the current economic conditions and level of predictability the forecast can provide.

While quantitative allowance methodologies strive to reflect all risk factors, any estimate involves assumptions and uncertainties resulting in some level of imprecision. Imprecision exists in the estimation process due to the inherent time lag between obtaining information, performing the calculation, as well as variations between estimates and actual outcomes. As a result, amounts determined under the methodologies described above are adjusted by management to consider the potential impact of other qualitative factors not captured in the quantitative model adjustments which include, but are not limited to, the following: imprecision or conditions not captured in economic scenario assumptions, emerging risks related to either changes in the internal or external environment that are affecting specific portfolios, trends in loan or portfolio level credit metrics not captured in quantitative modeling, or model imprecision adjustments. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each loan portfolio.

The Company’s ACL is calculated using collectively evaluated and individually evaluated loans. Even though portions of the allowance may be allocated to specific loans or pools of loans, the entire allowance is available for any credit that, in management’s judgment, should be charged off.

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Management measures expected credit losses over the contractual term of a loan. When determining the contractual term, the Company considers expected prepayments but is precluded from considering expected extensions, renewals, or modifications. Loans modified to a borrower experiencing financial difficulty are reviewed by the Bank to determine if an interest rate reduction, a term extension, an other-than-insignificant payment delay, a principal forgiveness, or any combination of these has occurred.

The ACL includes expected losses from modifications of receivables to borrowers experiencing financial difficulty. Losses on modifications of non-accrual loans over $1 million to borrowers experiencing financial difficulty are estimated on an individual basis. Because the effect of the remainder of modifications made to borrowers experiencing financial difficulty is already incorporated into the measurement methodologies used to estimate the allowance, they are accounted for as pooled loans.

For purchased credit-deteriorated, otherwise referred to herein as PCD, assets are defined as acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The Company records acquired PCD loans by adding the expected credit losses (i.e., allowance for credit losses) to the purchase price of the financial assets rather than recording through the provision for credit losses in the income statement. The expected credit loss, as of the acquisition day, of a PCD loan is added to the allowance for credit losses. The non-credit discount or premium is the difference between the unpaid principal balance and the amortized cost basis as of the acquisition date. Subsequent to the acquisition date, the change in the ACL on PCD loans is recognized through the Provision for Credit Losses in the Consolidated Statements of Income. The non-credit discount or premium is accreted or amortized, respectively, into interest income over the remaining life of the PCD loan on a level-yield basis.

The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an allowance for credit losses on accrued interest receivable. As of September 30, 2024, and December 31, 2023, the accrued interest receivables for loans recorded in Other Assets were $137.7 million and $127.0 million, respectively.

The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the expected credit loss are recorded as a liability on the balance sheet. Management has determined that a majority of the Company’s off-balance sheet credit exposures are not unconditionally cancellable. Management completes funding studies based on internal historical data to estimate the percentage of unfunded loan commitments that will ultimately be funded to calculate the reserve for unfunded commitments. Management applies this funding rate, along with the loss factor rate determined for each pooled loan segment, to unfunded loan commitments, excluding unconditionally cancellable exposures and letters of credit, to arrive at the reserve for unfunded loan commitments. As of September 30, 2024, and December 31, 2023, the liabilities recorded for expected credit losses on unfunded commitments were $41.5 million and $56.3 million, respectively. The current adjustment to the reserve for unfunded commitments is recognized through the Provision for Credit Losses in the Consolidated Statements of Income.

The methodology used in the estimation of the allowance, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions. Changes are reflected in the pool-basis allowance and in reserves assigned on an individual basis as the collectability of classified loans is evaluated with new information. As the Company’s portfolio has matured, historical loss ratios have been closely monitored. The review of the appropriateness of the allowance is performed by executive management and presented to the Audit and Risk Committees of the Board of Directors for their review. The committees report to the board as part of the board's quarterly review of the Company’s consolidated financial statements.

Reclassification and Correction

Certain amounts previously reported have been reclassified to conform to the current quarter’s presentation. Such reclassifications had no effect on net income and shareholders’ equity.

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Note 3 — Recent Accounting and Regulatory Pronouncements

Accounting Standards Adopted

In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The amendments in this update allow the option for an entity to apply the proportional amortization method of accounting to other equity investments, in addition to the previously permitted low-income housing tax credit (“LIHTC”) structured investments, that are made for the primary purpose of receiving tax credits or other income tax benefits, if certain conditions are met. The proportional amortization method of accounting results in the amortization of applicable investments, as well as the related income tax credits or other income tax benefits received, being presented on a single line within income tax expense on the consolidated statements of income. Prior to this update, the application of the proportional amortization method of accounting was limited to LIHTC structured investments. Under this update, an entity has the option to apply the proportional amortization method of accounting to applicable investments on a tax-credit-program-by-tax-credit-program basis. Also under this update, LIHTC structured investments for which the proportional amortization method is not applied can no longer be accounted for using the delayed equity contribution guidance. The amendments in this update also require additional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including the nature of tax equity investments, the effect of tax equity investments and related income tax credits and other income tax benefits on the financial position and results of operations.

The Company adopted ASU 2023-02 effective January 1, 2024, and changed the accounting method of its LIHTC structured investments from the equity method to the proportional amortization method. The Company adopted ASU 2023-02 using the modified retrospective approach. Under this adoption approach, management was required to verify the LIHTCs met the conditions for proportional amortization method as of the date the investments were originally made by the Bank. In addition, management evaluated the actual tax credits and other income tax benefits received, as well as the remaining benefits expected to be received, as of the adoption date. The cumulative difference between the equity method and proportional amortization method resulted in a one-time cumulative effect adjustment recorded through retained earnings as of January 1, 2024. The cumulative effect resulting from the adoption of proportional amortization method was a net reduction to retained earnings of $9.4 million, which reflects the amortization expense in proportion to the tax credits and benefits realized on a life-to-date basis of all LIHTCs as of December 31, 2023. Additionally, the proportional amortization method does not require deferred taxes be tracked as was the case with the equity method; therefore, deferred taxes of $836,000 were written-off as an additional reduction to retained earnings effective January 1, 2024.

Issued But Not Yet Adopted Accounting Standards

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve disclosures about a public entity’s reportable segments and address requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses. Segment information gives investors an understanding of overall performance and is key to assessing potential future cash flows. In addition, although information about a segment’s revenue and measure of profit or loss is disclosed in an entity’s financial statements, there is limited information disclosed about a segment’s expenses. The key amendments include annual and interim disclosures of significant expenses and other segment items that are regularly provided to the chief operating decision maker and included within each reported measure of profit or loss, as well as any other key measure of performance used for segment management decisions. This ASU also requires disclosure of key profitability measures used in assessing performance and how to allocate resources. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not anticipate this ASU will have a material impact on its financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which aims to address requests for improved income tax disclosures from investors, lenders, creditors and other allocators of capital (collectively, “investors”) that use the financial statements to make capital allocation decisions. The amendments in this ASU address investor requests for more transparency about income tax information, including jurisdictional information, by requiring consistent categories and greater disaggregation of information in both the rate reconciliation and income taxes paid disaggregated by jurisdiction. The amendments are effective for annual periods beginning after December 15, 2024. The Company does not anticipate this ASU will have a material impact on its financial statements.

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Note 4 — Mergers and Acquisitions

Announcement of Merger between SouthState and Independent Bank Group, Inc. (“Independent”)

On May 20, 2024, the Company and Independent, a Texas-based corporation, announced that the companies have entered into an Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Independent will merge with and into the Company, with the Company continuing as the surviving corporation in the merger. Immediately following the merger, Independent’s wholly owned banking subsidiary, Independent Bank, will merge with and into the Company’s wholly owned banking subsidiary, SouthState Bank, National Association, which will continue as the surviving bank in the bank merger. The Merger Agreement was approved by the Boards of Directors of the Company and Independent by the unanimous vote of the directors present at the applicable meeting, and subsequently approved by the Company’s and Independent’s respective shareholders on August 14, 2024. The merger remains subject to approvals by the Office of the Comptroller of the Currency (“OCC”) and the Board of Governors of the Federal Reserve System (“Federal Reserve”) and other customary closing conditions. Under the terms of the Merger Agreement, shareholders of Independent will receive 0.60 shares of the Company’s common stock for each share of Independent common stock they own. The transaction is expected to close during the first quarter of 2025. At September 30, 2024, Independent reported $18.6 billion in total assets, $14.3 billion in loans and $16.0 billion in deposits.

Note 5 — Investment Securities

The following is the amortized cost and fair value of investment securities held to maturity:

Gross

    

Gross

 

Amortized

Unrealized

Unrealized

Fair

 

(Dollars in thousands)

    

Cost

    

Gains

    

Losses

    

Value

 

September 30, 2024:

U.S. Government agencies

$

147,271

$

$

(19,271)

$

128,000

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

1,333,263

(188,925)

1,144,338

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

419,838

(58,371)

361,467

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

349,860

(61,691)

288,169

Small Business Administration loan-backed securities

51,075

(9,303)

41,772

$

2,301,307

$

$

(337,561)

$

1,963,746

December 31, 2023:

U.S. Government agencies

$

197,267

$

$

(24,607)

$

172,660

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

1,438,102

(227,312)

1,210,790

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

444,883

(68,139)

376,744

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

354,055

(71,327)

282,728

Small Business Administration loan-backed securities

53,133

(11,319)

41,814

$

2,487,440

$

$

(402,704)

$

2,084,736

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The following is the amortized cost and fair value of investment securities available for sale:

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

 

(Dollars in thousands)

    

Cost

    

Gains

    

Losses

    

Value

 

September 30, 2024:

U.S. Treasuries

$

2,684

$

1

$

$

2,685

U.S. Government agencies

191,177

(15,453)

175,724

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

 

1,702,457

 

491

 

(216,862)

 

1,486,086

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

574,447

49

(82,254)

492,242

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

1,215,415

2,545

(157,131)

1,060,829

State and municipal obligations

 

1,123,634

 

63

 

(134,394)

 

989,303

Small Business Administration loan-backed securities

 

363,885

 

57

 

(34,432)

 

329,510

Corporate securities

30,499

(2,515)

27,984

$

5,204,198

$

3,206

$

(643,041)

$

4,564,363

December 31, 2023:

U.S. Treasuries

$

74,720

$

$

(830)

$

73,890

U.S. Government agencies

246,089

(21,383)

224,706

Residential mortgage-backed securities issued by U.S. government

 

agencies or sponsored enterprises

1,822,104

 

294

 

(264,092)

 

1,558,306

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

626,735

(99,313)

527,422

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

1,217,125

1,516

(194,471)

1,024,170

State and municipal obligations

1,129,750

 

2

 

(152,291)

 

977,461

Small Business Administration loan-backed securities

 

413,950

 

86

 

(42,350)

 

371,686

Corporate securities

 

30,533

(3,786)

26,747

$

5,561,006

$

1,898

$

(778,516)

$

4,784,388

The following is the amortized cost and carrying value of other investment securities:

Carrying

 

(Dollars in thousands)

    

Value

 

September 30, 2024:

Federal Home Loan Bank stock

$

32,336

Federal Reserve Bank stock

150,261

Investment in unconsolidated subsidiaries

 

3,563

Other investment securities

 

25,298

$

211,458

December 31, 2023:

Federal Home Loan Bank stock

$

22,836

Federal Reserve Bank stock

150,261

Investment in unconsolidated subsidiaries

 

3,563

Other investment securities

 

15,383

$

192,043

The Company’s other investment securities primarily consist of non-marketable equity securities that have no readily determinable market value. When evaluating the non-marketable equity securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of September 30, 2024, we determined that there was no impairment on other investment securities.

The amortized cost and fair value of debt securities at September 30, 2024, by contractual maturity are detailed below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

Securities

Securities

 

Held to Maturity

Available for Sale

 

Amortized

Fair

Amortized

Fair

 

(Dollars in thousands)

    

Cost

    

Value

    

Cost

    

Value

 

Due in one year or less

    

$

14,365

$

14,222

    

$

84,976

    

$

84,297

Due after one year through five years

 

36,471

 

33,648

 

341,428

 

327,521

Due after five years through ten years

 

444,858

 

393,780

 

1,217,855

 

1,084,899

Due after ten years

 

1,805,613

 

1,522,096

 

3,559,939

 

3,067,646

$

2,301,307

$

1,963,746

$

5,204,198

$

4,564,363

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During the three and nine months ended September 30, 2024, there were no sales of securities available for sale and therefore, there were no gains or losses on sales of securities available for sale. During the three and nine months ended September 30, 2023, there were gross gains of $1.3 million and gross losses of $1.3 million, a net gain of $45,000, realized from the sale of available for sale securities.

There were no sales of held to maturity securities during the three and nine months ended September 30, 2024, or September 30, 2023.

Information pertaining to our securities with gross unrealized losses at September 30, 2024, and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is as follows:

Less Than

Twelve Months

 

Twelve Months

or More

 

Gross Unrealized

Fair

Gross Unrealized

Fair

 

(Dollars in thousands)

    

Losses

    

Value

    

Losses

    

Value

 

September 30, 2024:

Securities Held to Maturity

U.S. Government agencies

$

$

$

19,271

$

128,000

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

188,925

1,144,338

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

 

 

58,371

 

361,467

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

61,691

288,169

Small Business Administration loan-backed securities

9,303

41,772

$

$

$

337,561

$

1,963,746

Securities Available for Sale

U.S. Treasuries (1)

$

$

696

$

$

U.S. Government agencies

15,453

175,724

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

80

17,925

216,781

1,452,928

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

 

 

82,254

 

487,928

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

 

157,131

958,412

State and municipal obligations

 

1,259

17,464

133,136

960,941

Small Business Administration loan-backed securities

 

2

684

34,430

311,253

Corporate securities

2,515

27,984

$

1,341

$

36,769

$

641,700

$

4,375,170

December 31, 2023:

Securities Held to Maturity

U.S. Government agencies

$

$

$

24,607

$

172,660

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

227,312

1,210,790

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

 

 

68,139

 

376,745

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

71,327

282,728

Small Business Administration loan-backed securities

11,319

41,814

$

$

$

402,704

$

2,084,737

Securities Available for Sale

U.S. Treasuries

$

$

$

830

$

73,890

U.S. Government agencies

21,383

224,706

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

122

9,358

263,970

1,539,208

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

 

 

99,313

 

527,422

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

91

7,959

194,380

955,059

State and municipal obligations

177

6,340

152,114

967,305

Small Business Administration loan-backed securities

128

42,447

42,222

304,770

Corporate securities

 

18

480

3,768

26,267

$

536

$

66,584

$

777,980

$

4,618,627

(1)The U.S. Treasury securities in a continuous unrealized losses position for less than twelve months at September 30, 2024, had a combined gross unrealized loss total of less than $1,000.

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The Company’s valuation methodology for securities impairment is disclosed in Note 1—Summary of Significant Accounting Policies, under “Investment Securities” section, of our Annual Report on Form 10-K for the year ended December 31, 2023. All debt securities in an unrealized loss position as of September 30, 2024, continue to perform as scheduled and management does not believe there is a credit loss or a provision for credit losses is necessary. Management does not currently intend to sell the securities within the portfolio, and it is not more-likely-than-not that the Company will be required to sell the debt securities. Management continues to monitor all of the securities with a high degree of scrutiny. See Note 2 — Summary of Significant Accounting Policies for further discussion.

At September 30, 2024, investment securities with a market value of $2.3 billion and a carrying value of $2.5 billion were pledged to secure public funds deposits and for other purposes required and permitted by law (excluding securities pledged to secure repurchase agreement disclosed in Note 20 — Short-Term Borrowings, under the “Securities Sold Under Agreements to Repurchase (“Repurchase agreements”)” section). Of the $2.5 billion carrying value of investment securities pledged, $2.2 billion were pledged to secure public funds deposits, $207.5 million were pledged to secure FHLB advances and $106.9 million were pledged to secure interest rate swap positions with correspondent banks. At December 31, 2023, investment securities with a market value of $3.0 billion and a carrying value of $3.2 billion were pledged to secure public funds deposits and for other purposes required and permitted by law. Of the $3.2 billion carrying value of investment securities pledged, $2.4 billion were pledged to secure public funds deposits, $729.4 million were pledged to secure FHLB advances and $115.0 million were pledged to secure interest rate swap positions with correspondent banks.

Trading Securities

At September 30, 2024, and December 31, 2023, trading securities, at estimated fair value, were as follows:

    

September 30,

December 31,

(Dollars in thousands)

    

2024

 

2023

U.S. Government agencies

$

10,730

$

1,537

Residential mortgage pass-through securities issued or guaranteed by U.S.

government agencies or sponsored enterprises

15,969

14,461

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

24,344

State and municipal obligations

26,347

14,620

Small Business Administration loan-backed securities

8,552

Other debt securities

1,161

703

$

87,103

$

31,321

Net losses on trading securities for the three and nine months ended September 30, 2024, and 2023 were as follows:

    

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

    

2024

 

2023

2024

2023

Net gains (losses) on sales transaction

$

533

$

(76)

$

757

$

(116)

Net mark to mark (losses) gains

(167)

176

(478)

(25)

Net gains (losses) on trading securities

$

366

$

100

$

279

$

(141)

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Note 6 — Loans

The following is a summary of total loans:

September 30,

December 31,

(Dollars in thousands)

    

2024

    

2023

    

Loans:

    

    

Construction and land development (1)

$

2,458,151

$

2,923,514

Commercial non-owner-occupied

 

9,246,423

 

8,571,634

Commercial owner-occupied real estate

 

5,544,716

 

5,497,671

Consumer owner-occupied (2)

 

7,133,748

 

6,595,005

Home equity loans

 

1,515,966

 

1,398,445

Commercial and industrial

 

5,931,187

 

5,504,539

Other income producing property

 

610,286

 

656,334

Consumer

 

1,106,382

 

1,233,650

Other loans

 

1,333

 

7,697

Total loans

 

33,548,192

 

32,388,489

Less: allowance for credit losses

 

(467,981)

 

(456,573)

Loans, net

$

33,080,211

$

31,931,916

(1)Construction and land development includes loans for both commercial construction and development, as well as loans for 1-4 family construction and lot loans.
(2)Consumer owner-occupied real estate includes loans on both 1-4 family owner-occupied property, as well as loans collateralized by 1-4 family owner-occupied property with a business intent.

The above table reflects the loan portfolio at the amortized cost basis for the periods September 30, 2024, and December 31, 2023, to include net deferred costs of $82.5 million compared to net deferred costs of $68.0 million, respectively, and unamortized discount related to loans acquired of $39.8 million and $51.3 million, respectively. Accrued interest receivables of $137.7 million and $127.0 million, respectively, are accounted for separately and reported in other assets for the periods September 30, 2024, and December 31, 2023.

As part of the ongoing monitoring of the credit quality of our loan portfolio, management tracks certain credit quality indicators, including trends related to (i) the level of classified loans, (ii) net charge-offs, (iii) non-performing loans (see details below), and (iv) the general economic conditions of the markets that we serve.

The Company utilizes a risk grading matrix to assign a risk grade to each commercial loan. Classified loans are assessed at a minimum every six months. A description of the general characteristics of the risk grades is as follows:

Pass—These loans range from minimal credit risk to average, however, still acceptable credit risk.
Special mention—A special mention loan has potential weaknesses that deserve Management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.
Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

Construction and land development loans in the following table are on commercial and speculative real estate. Consumer owner-occupied loans are collateralized by 1-4 family owner-occupied property with a business intent.

17

Table of Contents 

The following tables present the credit risk profile by risk grade of commercial loans by origination year as of and for the period ending September 30, 2024:

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

As of September 30, 2024

2024

2023

2022

2021

2020

Prior

Revolving

Total

Construction and land development

Risk rating:

Pass

$

227,952

$

556,458

$

1,025,504

$

100,373

$

9,564

$

14,907

$

36,231

$

1,970,989

Special mention

718

1,682

15,277

22,032

330

40,039

Substandard

43

15,967

750

594

17,354

Doubtful

1

4

5

Total Construction and land development

$

228,713

$

558,140

$

1,056,748

$

123,155

$

9,565

$

15,835

$

36,231

$

2,028,387

Construction and land development

Current-period gross charge-offs

$

$

$

$

$

74

$

2,088

$

$

2,162

Commercial non-owner-occupied

Risk rating:

Pass

$

511,466

$

813,994

$

2,712,005

$

1,887,883

$

597,254

$

1,889,760

$

103,873

$

8,516,235

Special mention

5,766

33,631

61,647

109,730

10,297

19,029

246

240,346

Substandard

35,806

43,447

143,405

62,116

81,990

123,077

489,841

Doubtful

1

1

Total Commercial non-owner-occupied

$

553,038

$

891,072

$

2,917,057

$

2,059,730

$

689,541

$

2,031,866

$

104,119

$

9,246,423

Commercial non-owner-occupied

Current-period gross charge-offs

$

$

$

$

176

$

$

100

$

$

276

Commercial Owner-Occupied

Risk rating:

Pass

$

429,050

$

567,678

$

1,013,018

$

1,026,303

$

589,745

$

1,530,647

$

72,070

$

5,228,511

Special mention

3,130

13,786

43,742

6,626

1,256

25,061

5,197

98,798

Substandard

13,629

35,521

41,973

34,345

22,313

59,966

9,649

217,396

Doubtful

4

3

4

11

Total commercial owner-occupied

$

445,813

$

616,988

$

1,098,733

$

1,067,274

$

613,314

$

1,615,678

$

86,916

$

5,544,716

Commercial owner-occupied

Current-period gross charge-offs

$

$

298

$

$

91

$

227

$

335

$

$

951

Commercial and industrial

Risk rating:

Pass

$

1,522,569

$

731,427

$

951,522

$

537,749

$

312,513

$

460,084

$

1,147,720

$

5,663,584

Special mention

2,199

2,517

7,273

1,588

775

2,961

20,400

37,713

Substandard

20,449

38,816

34,519

25,580

2,582

18,968

88,864

229,778

Doubtful

4

13

28

60

1

1

5

112

Total commercial and industrial

$

1,545,221

$

772,773

$

993,342

$

564,977

$

315,871

$

482,014

$

1,256,989

$

5,931,187

Commercial and industrial

Current-period gross charge-offs

$

1,528

$

2,169

$

4,337

$

612

$

95

$

3,588

$

1,510

$

13,839

Other income producing property

Risk rating:

Pass

$

44,109

$

54,815

$

116,411

$

84,664

$

46,716

$

106,813

$

31,394

$

484,922

Special mention

460

820

121

569

901

2,119

1,093

6,083

Substandard

959

718

2,934

2,262

328

6,466

1,444

15,111

Doubtful

Total other income producing property

$

45,528

$

56,353

$

119,466

$

87,495

$

47,945

$

115,398

$

33,931

$

506,116

Other income producing property

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Consumer owner-occupied

Risk rating:

Pass

$

3,120

$

18,036

$

6,430

$

3,735

$

622

$

640

$

29,523

$

62,106

Special mention

20

226

56

14

37

489

842

Substandard

921

307

4

207

817

2,256

Doubtful

1

1

Total Consumer owner-occupied

$

4,061

$

18,569

$

6,486

$

3,735

$

640

$

885

$

30,829

$

65,205

Consumer owner-occupied

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Other loans

Risk rating:

Pass

$

1,333

$

$

$

$

$

$

$

1,333

Special mention

Substandard

Doubtful

Total other loans

$

1,333

$

$

$

$

$

$

$

1,333

Other loans

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Total Commercial Loans

Risk rating:

Pass

$

2,739,599

$

2,742,408

$

5,824,890

$

3,640,707

$

1,556,414

$

4,002,851

$

1,420,811

$

21,927,680

Special mention

12,293

52,662

128,116

140,545

13,243

49,537

27,425

423,821

Substandard

71,807

118,809

238,798

125,053

107,217

209,278

100,774

971,736

Doubtful

8

16

28

61

2

10

5

130

Total Commercial Loans

$

2,823,707

$

2,913,895

$

6,191,832

$

3,906,366

$

1,676,876

$

4,261,676

$

1,549,015

$

23,323,367

Commercial Loans

Current-period gross charge-offs

$

1,528

$

2,467

$

4,337

$

879

$

396

$

6,111

$

1,510

$

17,228

18

Table of Contents 

The following table presents the credit risk profile by risk grade of commercial loans by origination year as of and for the period ending December 31, 2023:

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

As of December 31, 2023

2023

2022

2021

2020

2019

Prior

Revolving

Total

Construction and land development

Risk rating:

Pass

$

480,860

$

1,036,691

$

503,433

$

19,626

$

5,585

$

19,200

$

49,191

$

2,114,586

Special mention

1,683

35,790

2,922

458

40,853

Substandard

390

46,311

765

4,285

767

52,518

Doubtful

3

5

8

Total Construction and land development

$

482,933

$

1,118,792

$

507,120

$

19,629

$

9,870

$

20,430

$

49,191

$

2,207,965

Construction and land development

Current-period gross charge-offs

$

$

$

$

204

$

$

2

$

$

206

Commercial non-owner-occupied

Risk rating:

Pass

$

759,501

$

2,501,611

$

1,878,889

$

674,470

$

706,794

$

1,535,248

$

104,698

$

8,161,211

Special mention

3,376

38,854

19,899

10,044

9,872

12,976

93

95,114

Substandard

73,282

11,928

35,692

61,893

78,976

53,388

149

315,308

Doubtful

1

1

Total Commercial non-owner-occupied

$

836,159

$

2,552,393

$

1,934,481

$

746,407

$

795,642

$

1,601,612

$

104,940

$

8,571,634

Commercial non-owner-occupied

Current-period gross charge-offs

$

$

$

51

$

$

$

253

$

$

304

Commercial Owner-Occupied

Risk rating:

Pass

$

556,192

$

1,015,236

$

1,088,976

$

635,694

$

648,082

$

1,176,796

$

88,298

$

5,209,274

Special mention

1,976

31,484

15,777

1,435

7,776

22,551

690

81,689

Substandard

24,240

37,922

26,810

26,308

20,310

63,220

7,890

206,700

Doubtful

3

1

4

8

Total commercial owner-occupied

$

582,411

$

1,084,642

$

1,131,563

$

663,438

$

676,168

$

1,262,571

$

96,878

$

5,497,671

Commercial owner-occupied

Current-period gross charge-offs

$

$

126

$

$

$

$

$

$

126

Commercial and industrial

Risk rating:

Pass

$

1,187,836

$

1,140,702

$

669,188

$

367,668

$

182,519

$

413,271

$

1,313,978

$

5,275,162

Special mention

2,395

7,624

3,604

2,762

3,870

898

18,300

39,453

Substandard

26,780

29,515

23,423

4,001

5,472

15,226

85,409

189,826

Doubtful

2

11

68

1

13

3

98

Total commercial and industrial

$

1,217,013

$

1,177,852

$

696,283

$

374,432

$

191,861

$

429,408

$

1,417,690

$

5,504,539

Commercial and industrial

Current-period gross charge-offs

$

7,272

$

3,171

$

13,169

$

429

$

765

$

1,637

$

1,144

$

27,587

Other income producing property

Risk rating:

Pass

$

58,012

$

129,858

$

96,743

$

51,615

$

40,988

$

105,810

$

39,701

$

522,727

Special mention

517

266

347

69

288

2,296

203

3,986

Substandard

693

5,062

2,634

588

630

5,772

2,121

17,500

Doubtful

Total other income producing property

$

59,222

$

135,186

$

99,724

$

52,272

$

41,906

$

113,878

$

42,025

$

544,213

Other income producing property

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Consumer owner-occupied

Risk rating:

Pass

$

18,908

$

4,509

$

2,746

$

1,293

$

287

$

315

$

25,635

$

53,693

Special mention

236

339

18

41

271

905

Substandard

24

927

1,560

182

150

2,843

Doubtful

1

1

2

Total Consumer owner-occupied

$

19,168

$

4,848

$

2,764

$

2,261

$

2,118

$

498

$

25,786

$

57,443

Consumer owner-occupied

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Other loans

Risk rating:

Pass

$

7,697

$

$

$

$

$

$

$

7,697

Special mention

Substandard

Doubtful

Total other loans

$

7,697

$

$

$

$

$

$

$

7,697

Other loans

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Total Commercial Loans

Risk rating:

Pass

$

3,069,006

$

5,828,607

$

4,239,975

$

1,750,366

$

1,584,255

$

3,250,640

$

1,621,501

$

21,344,350

Special mention

10,183

114,357

42,567

14,351

22,077

39,179

19,286

262,000

Substandard

125,409

130,738

89,324

93,717

111,233

138,555

95,719

784,695

Doubtful

5

11

69

5

23

4

117

Total Commercial Loans

$

3,204,603

$

6,073,713

$

4,371,935

$

1,858,439

$

1,717,565

$

3,428,397

$

1,736,510

$

22,391,162

Commercial Loans

Current-period gross charge-offs

$

7,272

$

3,297

$

13,220

$

633

$

765

$

1,892

$

1,144

$

28,223

For the consumer segment, delinquency of a loan is determined by past due status. Consumer loans are automatically placed on nonaccrual status once the loan is 90 days past due. Construction and land development loans are on 1-4 properties and lots.

19

Table of Contents 

The following table presents the credit risk profile by past due status of consumer loans by origination year as of and for the period ending September 30, 2024:

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

As of September 30, 2024

2024

2023

2022

2021

2020

Prior

Revolving

Total

Consumer owner-occupied

Days past due:

Current

$

496,815

$

1,056,053

$

2,330,214

$

1,599,643

$

590,786

$

958,189

$

$

7,031,700

30 days past due

211

3,812

4,013

2,380

1,019

5,405

16,840

60 days past due

277

807

1,128

908

413

1,515

5,048

90 days past due

1,499

3,987

4,542

1,344

571

3,012

14,955

Total Consumer owner-occupied

$

498,802

$

1,064,659

$

2,339,897

$

1,604,275

$

592,789

$

968,121

$

$

7,068,543

Consumer owner-occupied

Current-period gross charge-offs

$

10

$

252

$

231

$

$

12

$

43

$

$

548

Home equity loans

Days past due:

Current

$

6,216

$

6,464

$

3,391

$

1,609

$

1,519

$

11,628

$

1,475,491

$

1,506,318

30 days past due

164

108

40

426

620

3,166

4,524

60 days past due

51

39

2,746

2,836

90 days past due

38

575

36

164

692

783

2,288

Total Home equity loans

$

6,431

$

6,610

$

4,005

$

1,685

$

2,109

$

12,940

$

1,482,186

$

1,515,966

Home equity loans

Current-period gross charge-offs

$

$

$

$

$

$

110

$

$

110

Consumer

Days past due:

Current

$

160,020

$

237,479

$

237,332

$

104,617

$

55,715

$

167,005

$

125,709

$

1,087,877

30 days past due

69

181

535

241

66

1,004

7,388

9,484

60 days past due

16

356

92

103

15

547

4,232

5,361

90 days past due

13

270

185

116

195

1,382

1,499

3,660

Total consumer

$

160,118

$

238,286

$

238,144

$

105,077

$

55,991

$

169,938

$

138,828

$

1,106,382

Consumer

Current-period gross charge-offs

$

101

$

1,364

$

1,156

$

171

$

30

$

351

$

3,770

$

6,943

Construction and land development

Days past due:

Current

$

48,205

$

108,267

$

186,765

$

55,050

$

14,076

$

17,081

$

$

429,444

30 days past due

60 days past due

90 days past due

320

320

Total Construction and land development

$

48,205

$

108,267

$

187,085

$

55,050

$

14,076

$

17,081

$

$

429,764

Construction and land development

Current-period gross charge-offs

$

$

$

304

$

$

$

$

$

304

Other income producing property

Days past due:

Current

$

1,914

$

6,087

$

40,322

$

16,920

$

3,557

$

34,697

$

289

$

103,786

30 days past due

100

100

60 days past due

154

154

90 days past due

130

130

Total other income producing property

$

1,914

$

6,087

$

40,322

$

16,920

$

3,557

$

35,081

$

289

$

104,170

Other income producing property

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Total Consumer Loans

Days past due:

Current

$

713,170

$

1,414,350

$

2,798,024

$

1,777,839

$

665,653

$

1,188,600

$

1,601,489

$

10,159,125

30 days past due

444

4,101

4,548

2,661

1,511

7,129

10,554

30,948

60 days past due

344

1,163

1,259

1,011

428

2,216

6,978

13,399

90 days past due

1,512

4,295

5,622

1,496

930

5,216

2,282

21,353

Total Consumer Loans

$

715,470

$

1,423,909

$

2,809,453

$

1,783,007

$

668,522

$

1,203,161

$

1,621,303

$

10,224,825

Consumer Loans

Current-period gross charge-offs

$

111

$

1,616

$

1,691

$

171

$

42

$

504

$

3,770

$

7,905

The following table presents total loans by origination year as of and for the period ending September 30, 2024:

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

As of September 30, 2024

2024

2023

2022

2021

2020

Prior

Revolving

Total

Total Loans

$

3,539,177

$

4,337,804

$

9,001,285

$

5,689,373

$

2,345,398

$

5,464,837

$

3,170,318

$

33,548,192

Current-period gross charge-offs

$

1,639

$

4,083

$

6,028

$

1,050

$

438

$

6,615

$

5,280

$

25,133

20

Table of Contents 

The following table presents the credit risk profile by past due status of consumer loans by origination year as of and for the period ending December 31, 2023:

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

As of December 31, 2023

2023

2022

2021

2020

2019

Prior

Revolving

Total

Consumer owner-occupied

Days past due:

Current

$

1,019,956

$

2,125,156

$

1,641,518

$

628,107

$

288,304

$

809,419

$

$

6,512,460

30 days past due

1,589

2,268

1,524

654

707

4,012

10,754

60 days past due

766

528

680

813

2,787

90 days past due

1,280

2,538

1,089

1,689

315

4,650

11,561

Total Consumer owner-occupied

$

1,022,825

$

2,130,728

$

1,644,659

$

631,130

$

289,326

$

818,894

$

$

6,537,562

Consumer owner-occupied

Current-period gross charge-offs

$

68

$

90

$

27

$

$

$

2

$

$

187

Home equity loans

Days past due:

Current

$

6,551

$

6,454

$

2,887

$

1,396

$

1,003

$

11,518

$

1,358,829

$

1,388,638

30 days past due

60

132

21

44

539

5,860

6,656

60 days past due

12

104

458

1,268

1,842

90 days past due

117

27

194

1

672

298

1,309

Total Home equity loans

$

6,728

$

6,454

$

3,058

$

1,715

$

1,048

$

13,187

$

1,366,255

$

1,398,445

Home equity loans

Current-period gross charge-offs

$

$

$

$

64

$

$

29

$

84

$

177

Consumer

Days past due:

Current

$

299,871

$

305,283

$

141,369

$

75,213

$

60,265

$

143,725

$

182,608

$

1,208,334

30 days past due

443

321

247

142

137

1,384

10,757

13,431

60 days past due

64

254

152

4

4

973

6,420

7,871

90 days past due

93

395

174

196

110

1,108

1,938

4,014

Total consumer

$

300,471

$

306,253

$

141,942

$

75,555

$

60,516

$

147,190

$

201,723

$

1,233,650

Consumer

Current-period gross charge-offs

$

373

$

1,586

$

571

$

280

$

217

$

537

$

8,478

$

12,042

Construction and land development

Days past due:

Current

$

135,739

$

425,276

$

111,205

$

20,322

$

8,555

$

14,265

$

$

715,362

30 days past due

111

111

60 days past due

90 days past due

1

75

76

Total Construction and land development

$

135,739

$

425,276

$

111,205

$

20,434

$

8,555

$

14,340

$

$

715,549

Construction and land development

Current-period gross charge-offs

$

$

$

$

$

$

19

$

$

19

Other income producing property

Days past due:

Current

$

6,310

$

43,022

$

18,536

$

4,331

$

2,537

$

36,911

$

280

$

111,927

30 days past due

67

67

60 days past due

90 days past due

127

127

Total other income producing property

$

6,310

$

43,022

$

18,536

$

4,331

$

2,537

$

37,105

$

280

$

112,121

Other income producing property

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Total Consumer Loans

Days past due:

Current

$

1,468,427

$

2,905,191

$

1,915,515

$

729,369

$

360,664

$

1,015,838

$

1,541,717

$

9,936,721

30 days past due

2,092

2,589

1,903

928

888

6,002

16,617

31,019

60 days past due

64

1,020

692

788

4

2,244

7,688

12,500

90 days past due

1,490

2,933

1,290

2,080

426

6,632

2,236

17,087

Total Consumer Loans

$

1,472,073

$

2,911,733

$

1,919,400

$

733,165

$

361,982

$

1,030,716

$

1,568,258

$

9,997,327

Consumer Loans

Current-period gross charge-offs

$

441

$

1,676

$

598

$

344

$

217

$

587

$

8,562

$

12,425

The following table presents total loans by origination year as of and for the period ending December 31, 2023:

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

As of December 31, 2023

2023

2022

2021

2020

2019

Prior

Revolving

Total

Total Loans

$

4,676,676

$

8,985,446

$

6,291,335

$

2,591,604

$

2,079,547

$

4,459,113

$

3,304,768

$

32,388,489

Current-period gross charge-offs

$

7,713

$

4,973

$

13,818

$

977

$

982

$

2,479

$

9,706

$

40,648

21

Table of Contents 

The following table presents an aging analysis of past due accruing loans, segregated by class:

30 - 59 Days

    

60 - 89 Days

    

90+ Days

    

Total

    

    

Non-

Total

(Dollars in thousands)

Past Due

Past Due

Past Due

Past Due

Current

Accruing

Loans

September 30, 2024

Construction and land development

$

652

$

$

$

652

$

2,456,317

$

1,182

$

2,458,151

Commercial non-owner-occupied

 

1,205

 

270

 

2,711

 

4,186

 

9,223,546

 

18,691

 

9,246,423

Commercial owner-occupied

 

2,922

2,323

 

190

 

5,435

 

5,497,580

 

41,701

 

5,544,716

Consumer owner-occupied

 

13,639

 

201

 

 

13,840

 

7,083,621

 

36,287

 

7,133,748

Home equity loans

 

3,083

 

2,091

 

 

5,174

 

1,502,167

 

8,625

 

1,515,966

Commercial and industrial

 

33,834

 

12,392

 

4,378

 

50,604

 

5,813,907

 

66,676

 

5,931,187

Other income producing property

 

847

 

149

 

 

996

 

605,991

 

3,299

 

610,286

Consumer

 

9,226

 

4,804

 

 

14,030

 

1,086,842

 

5,510

 

1,106,382

Other loans

 

 

 

 

 

1,333

 

 

1,333

$

65,408

$

22,230

$

7,279

$

94,917

$

33,271,304

$

181,971

$

33,548,192

December 31, 2023

Construction and land development

$

624

$

$

$

624

$

2,921,457

$

1,433

$

2,923,514

Commercial non-owner-occupied

 

2,194

 

123

 

1,378

 

3,695

 

8,546,630

 

21,309

 

8,571,634

Commercial owner-occupied

 

3,852

1,141

 

988

 

5,981

 

5,446,803

 

44,887

 

5,497,671

Consumer owner-occupied

7,903

 

552

 

920

 

9,375

 

6,560,359

 

25,271

 

6,595,005

Home equity loans

 

6,500

 

1,326

 

 

7,826

 

1,385,687

 

4,932

 

1,398,445

Commercial and industrial

 

25,231

 

7,194

 

9,193

 

41,618

 

5,399,390

 

63,531

 

5,504,539

Other income producing property

 

569

 

570

 

 

1,139

 

651,993

 

3,202

 

656,334

Consumer

 

13,212

 

7,370

 

 

20,582

 

1,207,411

 

5,657

 

1,233,650

Other loans

 

 

 

 

 

7,697

 

 

7,697

$

60,085

$

18,276

$

12,479

$

90,840

$

32,127,427

$

170,222

$

32,388,489

The following table is a summary of information pertaining to nonaccrual loans by class, including loans modified for borrowers with financial difficulty as of September 30, 2024, and December 31, 2023:

September 30,

Greater than

Non-accrual

December 31,

(Dollars in thousands)

2024

90 Days Accruing(1)

    

with no allowance(1)

 

2023

    

Construction and land development

$

1,182

$

$

$

1,433

Commercial non-owner-occupied

 

18,691

2,711

 

17,381

 

21,309

Commercial owner-occupied real estate

 

41,701

190

 

16,716

 

44,887

Consumer owner-occupied

 

36,287

 

 

25,271

Home equity loans

 

8,625

 

1,190

 

4,932

Commercial and industrial

 

66,676

4,378

 

8,054

 

63,531

Other income producing property

 

3,299

 

1,265

 

3,202

Consumer

 

5,510

 

 

5,657

Total loans on nonaccrual status

$

181,971

$

7,279

$

44,606

$

170,222

(1)Greater than 90 days accruing and non-accrual with no allowance loans at September 30, 2024.

There is no interest income recognized during the period on nonaccrual loans. The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Loans on nonaccrual status in which there is no allowance assigned are individually evaluated loans that do not carry a specific reserve. See Note 2 — Summary of Significant Accounting Policies for further detailed descriptions on individually evaluated loans.

22

Table of Contents 

The following is a summary of collateral dependent loans, by type of collateral, and the extent to which they are collateralized during the period:

September 30,

Collateral

December 31,

Collateral

(Dollars in thousands)

2024

    

Coverage

%

2023

    

Coverage

%

Commercial owner-occupied real estate

 

 

Church

$

$

$

3,537

$

6,705

190%

Industrial

3,905

11,331

290%

7,172

15,273

213%

Other

14,645

27,428

187%

12,231

23,747

194%

Commercial non-owner-occupied real estate

 

Retail

3,216

4,208

131%

Other

12,607

29,182

231%

Office

17,381

19,095

110%

Commercial and industrial

Other

39,149

57,358

147%

44,116

46,114

105%

Other income producing property

1-4 family investment property

1,265

3,286

260%

Home equity loans

Residential 1-4 family dwelling

1,190

2,250

189%

Total collateral dependent loans

$

77,535

$

120,748

$

82,879

$

125,229

The Bank designates individually evaluated loans on non-accrual with a net book balance exceeding the designated threshold as collateral dependent loans. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the ACL. Under ASC 326-20-35-6, the Bank has adopted the collateral maintenance practical expedient to measure the ACL based on the fair value of collateral. The ACL is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for selling costs, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. The Bank’s threshold for individually evaluated loans is $1.0 million. The changes above in collateral percentage are due to appraisal value updates or changes in the number of loans within the asset class and collateral type. Overall collateral dependent loans decreased $5.3 million during the nine months ended September 30, 2024.

Loans on nonaccrual status at the date of modification are initially classified as nonaccrual. Loans on accruing status at the date of modification are initially classified as accruing if the note is reasonably assured of repayment and performance is expected in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequent to the modification date if reasonable doubt exists as to the collection of interest or principal under the modification agreement. Nonaccrual loans are returned to accruing status when there is economic substance to the modification, there is documented credit evaluation of the borrower’s financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months). See Note 2 — Summary of Significant Accounting Policies for how such modifications are factored into the determination of the ACL for the periods presented above.

23

Table of Contents 

The following tables present loans designated as modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2024, and 2023, respectively. The loans are segregated by type of modification and asset class, indicating the financial effect of the modifications. The amortized cost balance for the modified loans presented below exclude accrued interest receivable of approximately $145,000 and $54,000 as of September 30, 2024 and 2023, respectively.

Three Months Ended September 30,

2024

2023

Reduction in Weighted

Reduction in Weighted

Amortized

% of Total

Average Contractual

Amortized

% of Total

Average Contractual

(Dollars in thousands)

Cost

Asset Class

Interest Rate

Cost

Asset Class

Interest Rate

Interest rate reduction

Consumer owner-occupied

$

498

0.01%

2.75%

$

Total interest rate reductions

$

498

$

Nine Months Ended September 30,

2024

2023

Reduction in Weighted

Reduction in Weighted

Amortized

% of Total

Average Contractual

Amortized

% of Total

Average Contractual

(Dollars in thousands)

Cost

Asset Class

Interest Rate

Cost

Asset Class

Interest Rate

Interest rate reduction

Consumer owner occupied

$

896

0.01%

2.04%

$

Total interest rate reductions

$

896

$

Three Months Ended September 30,

2024

2023

Increase in

Increase in

Amortized

% of Total

Weighted Average

Amortized

% of Total

Weighted Average

(Dollars in thousands)

Cost

Asset Class

Life of Loan

Cost

Asset Class

Life of Loan

Term extension

Commercial owner-occupied real estate

$

2,625

0.05%

8 months

$

Consumer owner-occupied

298

0.00%

3 months

Total term extensions

$

2,923

$

Nine Months Ended September 30,

2024

2023

Increase in

Increase in

Amortized

% of Total

Weighted Average

Amortized

% of Total

Weighted Average

(Dollars in thousands)

Cost

Asset Class

Life of Loan

Cost

Asset Class

Life of Loan

Term extension

Construction and land development

$

$

254

0.01%

12 months

Commercial non-owner-occupied

1,250

0.01%

24 months

Commercial owner-occupied real estate

13,461

0.24%

27 months

7,591

0.14%

23 months

Consumer owner-occupied

1,345

0.02%

5 months

277

0.00%

6 months

Commercial and industrial

19,553

0.33%

38 months

1,207

0.02%

6 months

Other income producing property

342

0.05%

60 months

Total term extensions

$

34,359

$

10,921

24

Table of Contents 

There were no combination – term extension and interest rate reduction loans during 2024 or for the three months ended September 30, 2023.

Three and Nine Months Ended September 30,

2024

2023

Reduction in Weighted

Increase in

Reduction in Weighted

Increase in

Amortized

Average Contractual

Weighted Average

Amortized

Average Contractual

Weighted Average

(Dollars in thousands)

Cost

Interest Rate

Life of Loan

Cost

Interest Rate

Life of Loan

Combination- Term Extension and Interest Rate Reduction

Consumer owner-occupied

$

$

259

3.63 to 3.00%

20 months

Total

$

$

259

There were no combination – term extension and payment delay loans during 2023.

Three and Nine Months Ended September 30,

2024

2023

Increase in

Increase in

Amortized

Weighted Average

Amortized

Weighted Average

(Dollars in thousands)

Cost

Amortization Term

Cost

Amortization Term

Combination- Term Extension and Payment Delay

Commercial and industrial

$

266

15 months

$

Total

$

266

$

The Bank on occasion will enter into modification agreements which extend the maturity payoff on a loan, reduce the interest rate, or extended the payment amortization significantly, for borrowers willing to continue to pay, to minimize losses for the Bank. At September 30, 2024, the Company had $85,000 in remaining commitments to lend additional funds on loans to borrowers experiencing financial difficulty and modified during the current reporting period.

The following table presents the changes in status of loans modified within the previous twelve months to borrowers experiencing financial difficulty, as of September 30, 2024 and 2023, by type of modification. There were no subsequent defaults.

September 30,

2024

2023

Paying Under

Paying Under

Restructured

Converted to

Foreclosures

Restructured

Converted to

Foreclosures

Terms

Nonaccrual

and Defaults

Terms

Nonaccrual

and Defaults

Amortized

Amortized

Amortized

Amortized

Amortized

Amortized

(Dollars in thousands)

Cost

Cost

Cost

Cost

Cost

Cost

Interest rate reduction

Consumer owner-occupied

$

896

$

$

$

$

$

Total interest rate reductions

$

896

$

$

$

$

$

Term extension

Construction and land development

$

$

$

$

254

$

$

Commercial non-owner-occupied

1,250

Commercial owner-occupied real estate

13,461

7,591

Consumer owner-occupied

1,345

277

Commercial and industrial

19,553

1,207

Other income producing property

342

Total term extensions

$

34,359

$

$

$

10,921

$

$

Term Extension and Interest Rate Reduction

Consumer owner occupied

$

$

$

$

259

$

$

Total term extension and interest rate combinations

$

$

$

$

259

$

$

Term Extension and Payment Delay

Commercial and industrial

$

266

$

$

$

$

$

Total term extension and payment delay combinations

$

266

$

$

$

$

$

$

35,521

$

$

$

11,180

$

$

25

Table of Contents 

The following table depicts the performance of loans modified to borrowers experiencing financial difficulty within the previous twelve months, as of September 30, 2024 and 2023:

September 30, 2024

September 30, 2023

Payment Status (Amortized Cost Basis)

Payment Status (Amortized Cost Basis)

30-89 Days

90+ Days

30-89 Days

90+ Days

(Dollars in thousands)

Current

Past Due

Past Due

Current

Past Due

Past Due

Construction and land development

$

$

$

$

254

$

$

Commercial non-owner-occupied

1,250

Commercial owner-occupied real estate

13,461

7,591

Consumer owner-occupied

2,241

536

Commercial and industrial

19,819

1,207

Other income producing property

342

Total

$

35,521

$

$

$

11,180

$

$

Note 7 — Allowance for Credit Losses (ACL)

See Note 2 — Summary of Significant Accounting Policies for further detailed descriptions of our estimation process and methodology related to the allowance for credit losses.

The following tables present a disaggregated analysis of activity in the allowance for credit losses for the three and nine months ended September 30, 2024 and 2023:

Residential

Residential

Residential

Comm Constr.

CRE Owner-

Non-Owner-

(Dollars in thousands)

Mortgage Sr.

Mortgage Jr.

HELOC

Construction

& Dev.

Consumer

Multifamily

Municipal

Occupied

Occupied CRE

C & I

Total

Three Months Ended September 30, 2024

Allowance for credit losses:

Balance at end of period June 30, 2024

$

59,552

$

428

$

18,929

$

10,025

$

77,219

$

12,228

$

19,761

$

1,779

$

91,423

$

99,015

$

81,939

$

472,298

Charge-offs

 

(169)

 

 

 

 

 

(2,248)

 

 

 

(558)

(29)

(5,599)

 

(8,603)

Recoveries

 

37

 

8

 

175

 

9

 

57

 

517

 

 

 

26

247

1,447

 

2,523

Net (charge offs) recoveries

(132)

 

8

 

175

 

9

 

57

 

(1,731)

 

 

 

(532)

218

(4,152)

(6,080)

Provision (recovery) (1)

 

(6,725)

 

65

 

(272)

 

(2,552)

 

(8,611)

 

8,902

 

(2,637)

 

240

 

(6,670)

23,134

(3,111)

 

1,763

Balance at end of period September 30, 2024

$

52,695

$

501

$

18,832

$

7,482

$

68,665

$

19,399

$

17,124

$

2,019

$

84,221

$

122,367

$

74,676

$

467,981

Three Months Ended September 30, 2023

Allowance for credit losses:

Balance at end of period June 30, 2023

$

81,469

$

392

$

14,212

$

8,869

$

55,314

$

24,577

$

9,767

$

745

$

70,759

$

115,269

$

46,019

$

427,392

Charge-offs

 

(57)

 

 

(88)

 

 

(8)

 

(3,129)

 

 

 

(91)

(14,597)

 

(17,970)

Recoveries

 

240

 

28

 

226

 

3

 

67

 

651

 

 

 

415

511

2,632

 

4,773

Net (charge offs) recoveries

183

28

138

3

59

(2,478)

324

511

(11,965)

(13,197)

Provision (recovery) (1)

 

(4,601)

 

74

 

(1,036)

 

(1,643)

 

9,099

 

656

 

2,825

 

56

 

1,932

8,749

17,650

 

33,761

Balance at end of period September 30, 2023

$

77,051

$

494

$

13,314

$

7,229

$

64,472

$

22,755

$

12,592

$

801

$

73,015

$

124,529

$

51,704

$

447,956

(1)A negative provision for credit losses of ($8.7) million was recorded during the third quarter of 2024, compared to a negative provision for credit losses of ($1.1) million recorded during the third quarter of 2023 for the allowance for credit losses for unfunded commitments that is not included in the above table.

Residential

Residential

Residential

Comm Constr.

CRE Owner-

Non-Owner-

(Dollars in thousands)

Mortgage Sr.

Mortgage Jr.

HELOC

Construction

& Dev.

Consumer

Multifamily

Municipal

Occupied

Occupied CRE

C & I

Total

Nine Months Ended September 30, 2024

Allowance for credit losses:

Balance at end of period December 31, 2023

$

78,052

$

745

$

10,942

$

5,024

$

65,772

$

23,331

$

13,766

$

900

$

71,580

$

137,055

$

49,406

$

456,573

Charge-offs

 

(548)

 

 

(110)

 

(304)

 

(2,162)

 

(6,943)

 

 

 

(951)

(276)

(13,839)

 

(25,133)

Recoveries

 

252

 

97

 

744

 

31

 

1,208

 

2,467

 

66

 

 

537

346

6,401

 

12,149

Net (charge offs) recoveries

(296)

97

634

(273)

(954)

(4,476)

66

(414)

70

(7,438)

(12,984)

Provision (benefit) (1)

 

(25,061)

 

(341)

 

7,256

 

2,731

 

3,847

 

544

 

3,292

 

1,119

 

13,055

(14,758)

32,708

 

24,392

Balance at end of period September 30, 2024

$

52,695

$

501

$

18,832

$

7,482

$

68,665

$

19,399

$

17,124

$

2,019

$

84,221

$

122,367

$

74,676

$

467,981

Nine Months Ended September 30, 2023

Allowance for credit losses:

Balance at end of period December 31, 2022

$

72,188

$

405

$

14,886

$

8,974

$

45,410

$

22,767

$

3,684

$

849

$

58,083

$

78,485

$

50,713

$

356,444

Charge-offs

 

(96)

 

 

(127)

 

 

(10)

 

(8,875)

 

 

 

(126)

(51)

(20,890)

 

(30,175)

Recoveries

 

836

 

36

 

1,003

 

97

 

523

 

1,755

 

 

 

801

951

6,628

 

12,630

Net recoveries (charge offs)

740

36

876

97

513

(7,120)

675

900

(14,262)

(17,545)

Provision (benefit) (1)

 

4,123

 

53

 

(2,448)

 

(1,842)

 

18,549

 

7,108

 

8,908

 

(48)

 

14,257

45,144

15,253

 

109,057

Balance at end of period September 30, 2023

$

77,051

$

494

$

13,314

$

7,229

$

64,472

$

22,755

$

12,592

$

801

$

73,015

$

124,529

$

51,704

$

447,956

(1)A negative provision for credit losses of ($14.8) million was recorded during the first nine months of 2024, compared to a negative provision for credit losses of ($4.9) million during the first nine months of 2023 for the allowance for credit losses for unfunded commitments that is not included in the above table.

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Note 8 — Leases

As of September 30, 2024, and December 31, 2023, we had operating right-of-use (“ROU”) assets of $100.4 million and $100.3 million, respectively, and operating lease liabilities of $108.5 million and $108.3 million, respectively. We maintain operating leases on land and buildings for some of our operating centers, branch facilities and ATM locations. Most leases include one or more options to renew, with renewal terms extending up to 20 years. The exercise of renewal options is based on the sole judgment of management and what they consider to be reasonably certain given the environment today. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to us if the option is not exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet and instead are recognized in lease expense on a straight-line basis over the lease term.

Three Months Ended

Nine Months Ended

September 30,

September 30,

 

(Dollars in thousands)

    

2024

2023

    

2024

2023

 

Lease Cost Components:

Amortization of ROU assets – finance leases

$

117

$

117

$

350

$

350

Interest on lease liabilities – finance leases

8

10

26

31

Operating lease cost (cost resulting from lease payments)

4,025

4,296

12,658

12,814

Short-term lease cost

144

104

467

318

Variable lease cost (cost excluded from lease payments)

 

704

 

852

 

2,457

 

2,327

Total lease cost

$

4,998

$

5,379

$

15,958

$

15,840

Supplemental Cash Flow and Other Information Related to Leases:

Finance lease – operating cash flows

$

8

$

10

$

26

$

31

Finance lease – financing cash flows

120

111

357

331

Operating lease – operating cash flows (fixed payments)

4,450

4,233

12,862

12,483

Operating lease – operating cash flows (net change asset/liability)

(3,436)

(3,400)

(10,103)

(10,008)

New ROU assets – operating leases

9,093

701

Weighted – average remaining lease term (years) – finance leases

3.69

3.69

4.68

Weighted – average remaining lease term (years) – operating leases

 

8.63

 

8.63

 

9.47

Weighted – average discount rate - finance leases

1.7%

1.7%

1.7%

Weighted – average discount rate - operating leases

 

3.4%

 

 

3.4%

 

3.1%

 

 

 

 

Operating lease payments due:

2024 (excluding 9 months ended September 30, 2024)

$

4,300

2025

16,467

2026

15,964

2027

14,797

2028

14,138

Thereafter

61,258

Total undiscounted cash flows

126,924

Discount on cash flows

(18,392)

Total operating lease liabilities

$

108,532

As of September 30, 2024, the Company held a small number of finance leases assumed in connection to the CenterState merger completed in 2020. These leases are all real estate leases. Terms and conditions are similar to those real estate operating leases described above. Lease classifications from the acquired institutions were retained. At September 30, 2024, we did not maintain any leases with related parties, and determined that the number and dollar amount of our equipment leases was immaterial. As of September 30, 2024, we had no additional operating leases that have not yet commenced.

Equipment Lessor

SouthState has an Equipment Finance Group which goes to market through intermediaries. The Equipment Finance Group primarily focuses on serving the construction and utility segments. Lease terms typically range from 24 months to 120 months. At the end of the lease term, the lessee has the option to renew the lease, return the equipment, or purchase the equipment. In the event the equipment is returned, there is a remarketing agreement with the intermediary to sell the equipment. The Equipment Finance Group offers the following lease products: TRAC Leases, Split-TRAC Leases, and FMV Leases. Direct finance equipment leases are included in commercial and industrial loans on the Consolidated Balance Sheets.

The estimated residual values for direct finance leases are established by an approved intermediary who utilizes internally developed analyses, external studies, and/or third-party appraisals to establish a residual position. FMV and Split-TRAC leases have residual risk due to their unguaranteed residual value whereas TRAC leases have a guaranteed residual value. Expected credit losses on direct financing leases and the related estimated residual values are included in the Commercial and Industrial loan segment for the ACL.

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The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location at September 30, 2024, and December 31, 2023:

September 30,

December 31,

 

(Dollars in thousands)

    

2024

    

2023

 

Direct financing leases:

Lease receivables

$

19,423

$

5,503

Unguaranteed residual values

3,723

501

Initial direct costs

903

155

Less: Unearned income

 

(4,761)

 

(1,165)

Total net investment in direct financing leases

$

19,288

$

4,994

The following table summarizes direct financing lease income recorded for the three and nine months ended September 30, 2024, and remaining lease payment receivable for each of the next five years:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2024

2024

Direct financing lease income

Interest income

$

260

$

652

 

 

Remaining lease payments receivable:

2024 (excluding 9 months ended September 30, 2024)

$

889

2025

4,365

2026

4,376

2027

4,384

2028

3,340

Thereafter

2,069

Total undiscounted lease receivable

19,423

Less: unearned interest income

(4,761)

Net lease receivables

$

14,662

See Note 1 — Summary of Significant Accounting Policies, under the “Leases” section, of our Annual Report on Form 10-K for the year ended December 31, 2023, on accounting for leases.

Note 9 — Deposits

Our total deposits as of September 30, 2024, and December 31, 2023, are comprised of the following:

September 30,

December 31,

(Dollars in thousands)

    

2024

    

2023

    

Noninterest-bearing checking

$

10,376,531

$

10,649,274

Interest-bearing checking

 

7,550,392

 

7,978,799

Savings

 

2,442,584

 

2,632,212

Money market

 

12,614,046

 

11,538,671

Time deposits

4,654,642

4,249,953

Total deposits

$

37,638,195

$

37,048,909

At September 30, 2024, and December 31, 2023, we had $1.0 billion and $927.2 million in certificates of deposits greater than $250,000, respectively.

Note 10 — Retirement Plans

The Company sponsors an employees’ savings plan under the provisions of the Internal Revenue Code Section 401(k). Electing employees are eligible to participate in the employees’ savings plan after attaining age 18. Plan participants elect to contribute portions of their annual base compensation as a before or after tax contribution. Employer contributions may be made from current or accumulated net profits. Participants may elect to contribute 1% to 85% of annual base compensation as a before or after tax contribution. Employees participating in the plan receive a 100% match of their 401(k) plan contribution from the Company, up to 4% of their salary. We expensed $4.3 million and $13.3 million, respectively, for the three and nine months ended September 30, 2024, and $4.0 million and $12.7 million, respectively, for the three and nine months ended September 30, 2023, related to the Company’s savings plan.

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Employees can enter the savings plan on or after the first day of each month. The employee may enter into a salary deferral agreement at any time to select an alternative deferral amount or to elect not to defer in the plan. If the employee does not elect an investment allocation, the plan administrator will select a retirement-based portfolio according to the employee’s number of years until normal retirement age. The plan’s investment valuations are generally provided on a daily basis.

Note 11 — Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted-average shares of common stock outstanding during each period, excluding non-vested restricted shares. Our diluted earnings per share is based on the weighted-average shares of common stock outstanding during each period plus the maximum dilutive effect of common stock issuable upon exercise of stock options or vesting of restricted stock units. Stock options and unvested restricted stock units are considered common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive.

The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars and shares in thousands, except for per share amounts)

    

2024

    

2023

    

2024

    

2023

 

Basic earnings per common share:

    

    

    

    

Net income

$

143,179

$

124,144

$

390,605

$

387,517

Weighted-average basic common shares

76,299

76,139

76,284

76,034

Basic earnings per common share

$

1.88

$

1.63

$

5.12

$

5.10

Diluted earnings per common share:

Net income

$

143,179

$

124,144

$

390,605

$

387,517

Weighted-average basic common shares

76,299

76,139

76,284

76,034

Effect of dilutive securities

506

432

407

412

Weighted-average dilutive shares

76,805

76,571

76,691

76,446

Diluted earnings per common share

$

1.86

$

1.62

$

5.09

$

5.07

The calculation of diluted earnings per common share excludes outstanding stock options for which the results would have been anti-dilutive under the treasury stock method, as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

    

2024

    

2023

    

2024

    

2023

 

Number of shares

57,169

57,169

57,169

    

Range of exercise prices

$

87.30

to

$

91.35

$

87.30

to

$

91.35

$

87.30

to

$

91.35

Note 12 — Share-Based Compensation

Our 2004, 2012, 2019 and 2020 share-based compensation plans are long-term retention plans intended to attract, retain, and provide incentives for key employees and non-employee directors in the form of incentive and non-qualified stock options, restricted stock, and restricted stock units (“RSUs”). Our 2020 plan was adopted by our shareholders at our annual meeting on October 29, 2020. The 2020 plan was subsequently amended and restated during our annual meeting on April 24, 2024 to increase the number of shares of common stock available for future grants. The Company also assumed the obligations of Atlantic Capital Bancshares, Inc. (“ACBI”) under various equity incentive plans pursuant to the acquisition of ACBI on March 1, 2022, and the obligations of CenterState under various equity incentive plans pursuant to the merger with CenterState on June 7, 2020.

Stock Options

With the exception of non-qualified stock options granted to directors under the 2004 and 2012 plans, which in some cases may be exercised at any time prior to expiration and in some other cases may be exercised at intervals less than a year following the grant date, incentive stock options granted under our 2004, 2012, 2019 and 2020 plans may not be exercised in whole or in part within a year following the date of the grant, as these incentive stock options become exercisable in 25% increments pro ratably over the four-year period following the grant date. The options are granted at an exercise price at least equal to the fair value of the common stock at the date of grant and expire ten years from the date of grant. No options were granted under the 2004, 2012 or 2019 plans after January 26, 2012, February 1, 2019, and October 29, 2020, respectively, and the plans are closed other than for any options still unexercised and outstanding. The 2020 amended and restated plan is the only plan from which new share-based compensation grants may be issued. It is the Company’s policy to grant options out of the 2,451,634 shares registered under the 2020 amended and restated plan.

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Activity in the Company’s stock option plans is summarized in the following table.

Weighted

Weighted

Average

Aggregate

Average

Remaining

Intrinsic

    

Shares

    

Price

    

(Yrs.)

    

(000’s)

 

Outstanding at January 1, 2024

107,592

$

72.60

Exercised

(50,155)

 

79.62

 

Expired

 

Outstanding at September 30, 2024

57,437

 

66.48

2.04

$

1,763

Exercisable at September 30, 2024

57,437

66.48

2.04

$

1,763

The fair value of options is estimated at the date of grant using the Black-Scholes option pricing model and expensed over the options’ vesting periods. There have been no stock options issued during the first nine months of 2024. Because all outstanding stock options had vested as of December 31, 2023, there was no unrecognized compensation cost related to nonvested stock option grants under the plans or fair value of shares vested during the nine months ended September 30, 2024. The intrinsic value of stock option shares exercised for the nine months ended September 30, 2024, was $724,000.

Restricted Stock

From time-to-time, we grant shares of restricted stock to key employees. These awards help align the interests of these employees with the interests of our shareholders by providing economic value directly related to increases in the value of our stock. The value of the stock awarded is established as the fair market value of the stock at the time of the grant. We recognize expenses equal to the total value of such awards, ratably over the vesting period of the stock grants. Restricted stock grants to employees generally vest ratably over a two to four-year vesting period.

All restricted stock agreements are conditioned upon continued employment. Termination of employment prior to a vesting date, as described below, would terminate any interest in non-vested shares. Prior to vesting of the shares, as long as employed by the Company, the employees will have the right to vote such shares and to receive dividends paid with respect to such shares. All restricted shares will fully vest in the event of change in control of the Company or upon the death of the recipient.

Nonvested restricted stock for 2024 is summarized in the following table.

    

    

Weighted-

 

Average

 

Grant-Date

 

Restricted Stock

Shares

Fair Value

 

Nonvested at January 1, 2024

 

16,248

$

88.63

Vested

 

(10,462)

 

90.00

Forfeited

 

(316)

 

90.00

Nonvested at September 30, 2024

 

5,470

$

85.92

As of September 30, 2024, there was $147,000 of total unrecognized compensation cost related to nonvested restricted stock granted under the plans. This cost is expected to be recognized over a weighted-average period of 0.31 years as of September 30, 2024. The total fair value of shares vested during the nine months ended September 30, 2024, was $942,000.

Restricted Stock Units (“RSUs”)

From time-to-time, we also grant performance RSUs and time-vested RSUs to key employees, and time-vested RSUs to non-employee directors. These awards help align the interests of these employees with the interests of our shareholders by providing economic value directly related to our performance. Some performance RSU grants contain a three-year performance period while others contain a one to two-year performance period and a time-vested requirement (generally two to four years from the grant date). The performance-based awards for our long-term incentive plans are dependent on the achievement of tangible book value growth and return on average tangible common equity relative to the Company’s peer group during each three-year performance period. Grants to non-employee directors typically vest within a 12-month period. We communicate threshold, target, and maximum performance RSU awards and performance targets to the applicable key employees at the beginning of a performance period. Due to the merger with CenterState on June 7, 2020, all legacy and assumed performance-based restricted stock units converted to a time-vesting requirement. With respect to some long-term incentive awards, dividend equivalents are accrued at the same rate as cash dividends paid for each share of the Company’s common stock during the performance or time-vested period, and subsequently paid when the shares are issued on the vesting or settlement date. The value of the RSUs awarded is established as the fair market value

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of the stock at the time of the grant. We recognize expense on a straight-line basis typically over the performance or time-vesting periods based upon the probable performance target, as applicable, that will be met.

Outstanding RSUs at target for the nine months ended September 30, 2024, is summarized in the following table.

    

    

Weighted-

 

Average

 

Grant-Date

 

Restricted Stock Units

Shares

Fair Value

 

Outstanding at January 1, 2024

 

873,048

$

75.22

Granted

 

372,271

 

80.74

Vested

(380,151)

77.34

Forfeited

(15,213)

77.10

Outstanding at September 30, 2024

 

849,955

$

76.65

The nonvested shares of 849,955 at September 30, 2024, includes 61,863 shares that have fully vested but are subject to a two-year holding period, which commenced at the end of their respective vesting period. These vested shares will be released and issued into shares of common stock at the end of their respective two-year holding period, the last of which will end by March 31, 2025. If maximum performance is achieved pursuant to the 2022, 2023 and 2024 Long Term Incentive performance-based RSUs grants, an additional 131,839 shares in total may be issued by the Company at the end of the three-year performance periods.

As of September 30, 2024, there was $28.7 million of total unrecognized compensation cost at target related to nonvested RSUs granted under the plan. This cost is expected to be recognized over a weighted-average period of 1.09 years as of September 30, 2024. The total fair value of RSUs vested and released during the nine months ended September 30, 2024, was $31.6 million.

Note 13 — Commitments and Contingent Liabilities

In the normal course of business, we make various commitments and incur certain contingent liabilities, which are not reflected in the accompanying financial statements. The commitments and contingent liabilities include guarantees, commitments to extend credit, and standby letters of credit. At September 30, 2024, commitments to extend credit and standby letters of credit totaled $9.0 billion. As of September 30, 2024, the liability recorded for expected credit losses on unfunded commitments, excluding unconditionally cancellable exposures and letters of credit, was $41.5 million and recorded on the Balance Sheet. See Note 2 — Summary of Significant Accounting Policies for discussion of liability recorded for expected credit losses on unfunded commitments.

We have been named as defendant in various legal actions, arising from its normal business activities, in which damages in various amounts are claimed. We are also exposed to litigation risk related to the prior business activities of banks acquired through whole bank acquisitions. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, as of September 30, 2024, any such liability is not expected to have a material effect on our consolidated financial statements.

Cyber Incident Litigation.  On April 3, 2024, a putative class action lawsuit was filed against the Bank in the U.S. District Court for the Middle District of Florida, Tampa Division (the “Original Suit”). The plaintiff, who purports to represent the class of individuals harmed by alleged actions and/or omissions by the Bank in connection with the cybersecurity incident that was detected on February 6, 2024 (the “Cyber Incident”), asserts a variety of common law and statutory claims seeking monetary damages, injunctive relief and other related relief related to the potential unauthorized access by third parties to personal identifiable information. While the Original Suit has been voluntarily dismissed, additional plaintiffs have initiated litigation that names the Bank as a defendant. As of September 30, 2024, one consolidated putative class action is pending against the Bank in the Circuit Court for Polk County, Florida (the “Cyber Incident Suit”).

At this time, neither the Bank nor the Company is able to reasonably estimate the amount or range of reasonably possible loss, if any, that might result from the Cyber Incident Suit. However, the Bank believes that it has defenses to the claims and intends to vigorously defend against the Cyber Incident Suit. Accordingly, no amounts have been recorded in the unaudited condensed consolidated financial statements for the Cyber Incident Suit. The Company will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable. Additional lawsuits and claims related to the Cyber Incident may be asserted by or on behalf of customers, shareholders, or others seeking damages or other related relief and additional inquiries from governmental agencies may be received or investigations by governmental agencies commenced.

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FDIC Special Assessment.  In response to the bank failures in early 2023, the FDIC implemented a special assessment to recover the losses to the FDIC’s Deposit Insurance Fund at an annual rate of approximately 13.4 basis points over eight quarterly assessment periods beginning with the first quarterly assessment period of 2024. The base for the special assessment is equal to an insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion. As a result, approximately $25.7 million was recognized by the Bank as of December 31, 2023, for the two-year special assessment period. Due to additional losses to the Deposit Insurance Fund resulting from the 2023 bank failures reported by the FDIC in February 2024, an additional $4.5 million was accrued by the Bank during 2024, bringing the total estimated FDIC special assessment allocable to the Bank to approximately $30.2 million. The additional $4.5 million will be paid over two quarters after the initial two-year assessment period. The FDIC may adjust the special assessments from time to time based on the actual losses incurred by the FDIC as a result of the March 2023 bank failures or future failures.

Note 14 — Fair Value

GAAP defines fair value and establishes a framework for measuring and disclosing fair value. Fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale and trading securities, derivative contracts, mortgage loans held for sale, SBA servicing rights, and mortgage servicing rights (“MSRs”) are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, OREO, bank properties held for sale, and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

FASB ASC Topic 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1

Observable inputs such as quoted prices in active markets;

Level 2

Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

A description of valuation methodologies used for assets recorded at fair value is disclosed in Note 25 — Fair Value of our Annual Report on Form 10-K for the year ended December 31, 2023.

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Table of Contents 

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis:

 

    

    

Quoted Prices

    

    

In Active

Significant

Markets

Other

Significant

for Identical

Observable

Unobservable

Assets

Inputs

Inputs

(Dollars in thousands)

Fair Value

(Level 1)

(Level 2)

(Level 3)

September 30, 2024:

Assets

Derivative financial instruments

$

195,722

$

$

195,722

$

Mortgage loans held for sale

 

64,865

 

 

64,865

 

Trading securities

 

87,103

 

 

87,103

 

Securities available for sale:

U.S. Treasuries

2,685

2,685

U.S. Government agencies

175,724

175,724

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

1,486,086

1,486,086

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

492,242

492,242

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

1,060,829

1,060,829

State and municipal obligations

 

989,303

 

 

989,303

 

Small Business Administration loan-backed securities

 

329,510

 

 

329,510

 

Corporate securities

27,984

27,984

Total securities available for sale

 

4,564,363

 

 

4,564,363

 

Mortgage servicing rights

 

83,512

 

 

 

83,512

SBA servicing asset

6,079

6,079

$

5,001,644

$

$

4,912,053

$

89,591

Liabilities

Derivative financial instruments

$

606,194

$

$

606,194

$

December 31, 2023:

Assets

Derivative financial instruments

$

172,939

$

$

172,939

$

Mortgage loans held for sale

 

50,888

 

 

50,888

 

Trading securities

 

31,321

 

 

31,321

 

Securities available for sale:

U.S. Treasuries

73,890

73,890

U.S. Government agencies

224,706

224,706

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

1,558,306

1,558,306

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

527,422

527,422

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

1,024,170

1,024,170

State and municipal obligations

 

977,461

 

 

977,461

 

Small Business Administration loan-backed securities

 

371,686

 

 

371,686

 

Corporate securities

 

26,747

 

 

26,747

 

Total securities available for sale

 

4,784,388

 

 

4,784,388

 

Mortgage servicing rights

 

85,164

 

 

 

85,164

SBA servicing asset

5,952

5,952

$

5,130,652

$

$

5,039,536

$

91,116

Liabilities

Derivative financial instruments

$

804,486

$

$

804,486

$

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Fair Value Option

The Company has elected the fair value option for mortgage loans held for sale primarily to ease the operational burden required to maintain hedge accounting for these loans. The Company also has opted for the fair value option for the SBA servicing asset, as it is the industry-preferred method for valuing such assets.

The following table summarizes the difference between the fair value and the unpaid principal balance of mortgage loans held for sale and the changes in fair value of these loans:

    

September 30,

December 31,

(Dollars in thousands)

    

2024

 

2023

Fair value

$

64,865

$

50,888

Unpaid principal balance

62,770

49,025

Fair value less aggregated unpaid principal balance

$

2,095

$

1,863

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

2024

2023

    

2024

2023

Income Statement Location

Mortgage loans held for sale

$

(776)

$

(574)

$

232

$

(508)

Mortgage banking income

Changes in Level 1, 2 and 3 Fair Value Measurements

When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses below include changes in fair value due in part to observable factors that are part of the valuation methodology.

There were no changes in hierarchy classifications of Level 3 assets or liabilities for the nine months ended September 30, 2024. A reconciliation of the beginning and ending balances of Level 3 assets and liabilities recorded at fair value on a recurring basis for the nine months ended September 30, 2024, is as follows:

(Dollars in thousands)

    

MSRs

 

Fair value, January 1, 2024

$

85,164

Servicing assets that resulted from transfers of financial assets

 

7,209

Changes in fair value due to valuation inputs or assumptions

 

(2,346)

Changes in fair value due to decay

 

(6,515)

Fair value, September 30, 2024

$

83,512

The Company applies fair value accounting to the Company’s SBA servicing asset, which is considered a Level 3 asset. A reconciliation of the beginning and ending balances of the SBA servicing asset recorded at fair value on a recurring basis for the period ending September 30, 2024, is as follows:

(Dollars in thousands)

    

SBA Servicing Asset

 

Fair value, January 1, 2024

$

5,952

Servicing assets that resulted from transfers of financial assets

1,612

Changes in fair value due to decay

(1,686)

Changes in fair value due to valuation inputs or assumptions

201

Fair value, September 30, 2024

$

6,079

There were no unrealized losses included in accumulated other comprehensive income related to Level 3 financial assets and liabilities at September 30, 2024.

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Table of Contents 

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis:

    

    

Quoted Prices

    

    

 

In Active

Significant

 

Markets

Other

Significant

 

for Identical

Observable

Unobservable

 

Assets

Inputs

Inputs

 

(Dollars in thousands)

Fair Value

(Level 1)

(Level 2)

(Level 3)

 

September 30, 2024:

OREO

$

1,199

$

$

$

1,199

Bank properties held for sale

5,227

 

5,227

Individually evaluated loans

 

63,415

 

 

 

63,415

December 31, 2023:

OREO

$

837

$

$

$

837

Bank properties held for sale

12,401

 

12,401

Individually evaluated loans

 

73,518

 

 

 

73,518

For an individually evaluated loan, the fair value of collateral is measured based on appraisal or third-party valuation when the loan is placed on nonaccrual. For OREO and bank properties held for sale, the fair value is initially recorded based on external appraisals at the time of transfer. These assets recorded at fair value on a nonrecurring basis are updated on at least an annual basis.

Quantitative Information about Level 3 Fair Value Measurement

Weighted Average Discount

September 30,

December 31,

    

Valuation Technique

    

Unobservable Input

    

2024

    

2023

Nonrecurring measurements:

Individually evaluated loans

 

Discounted appraisals and discounted cash flows

 

Collateral discounts

22

%

13

%

OREO and Bank properties held for sale

 

Discounted appraisals

 

Collateral discounts and estimated costs to sell

9

%

12

%

Fair Value of Financial Instruments

We used the following methods and assumptions in estimating our fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those models are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different methodologies may have a material effect on the estimated fair value amounts. The fair value estimates presented in the table below are based on pertinent information available to management as of September 30, 2024 and December 31, 2023. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

Methods and assumptions used to estimate the fair value of each class of financial instruments are disclosed in Note 25 — Fair Value of our Annual Report on Form 10-K for the year ended December 31, 2023.

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Table of Contents 

The estimated fair value, and related carrying amount, of our financial instruments are as follows:

    

Carrying

    

Fair

    

    

    

 

(Dollars in thousands)

Amount

Value

Level 1

Level 2

Level 3

 

September 30, 2024

Financial assets:

Cash and cash equivalents

$

1,212,679

$

1,212,679

$

1,212,679

$

$

Trading securities

87,103

87,103

87,103

Investment securities

 

7,077,128

 

6,739,567

 

201,569

 

6,528,109

 

9,889

Loans held for sale

287,043

287,043

287,043

Loans, net of allowance for credit losses

 

33,080,211

 

31,879,975

 

 

 

31,879,975

Accrued interest receivable

 

165,533

 

165,533

 

 

24,818

 

140,715

Mortgage servicing rights

 

83,512

 

83,512

 

 

 

83,512

SBA servicing asset

6,079

6,079

6,079

Interest rate swap – non-designated hedge

 

194,037

 

194,037

 

 

194,037

 

Other derivative financial instruments (mortgage banking related)

 

1,685

 

1,685

 

 

1,685

 

Financial liabilities:

Deposits

 

Noninterest-bearing

10,376,531

 

10,376,531

 

 

10,376,531

 

Interest-bearing other than time deposits

22,607,022

22,607,022

22,607,022

Time deposits

4,654,642

4,636,870

4,636,870

Federal funds purchased and securities sold under agreements to repurchase

 

538,322

 

538,322

 

 

538,322

 

Corporate and subordinated debentures

391,626

390,833

 

390,833

 

Other borrowings

 

300,000

 

300,000

 

 

300,000

 

Accrued interest payable

 

52,625

 

52,625

 

 

52,625

 

Interest rate swap – non-designated hedge

 

605,918

 

605,918

 

 

605,918

 

Other derivative financial instruments (mortgage banking related)

 

276

 

276

 

 

276

 

December 31, 2023

Financial assets:

Cash and cash equivalents

$

998,877

$

998,877

$

998,877

$

$

Trading securities

31,321

31,321

31,321

Investment securities

 

7,463,871

 

7,061,167

 

192,043

 

6,869,124

 

Loans held for sale

50,888

50,888

50,888

Loans, net of allowance for credit losses

 

31,931,916

 

30,709,513

 

 

 

30,709,513

Accrued interest receivable

 

154,400

 

154,400

 

 

26,706

 

127,694

Mortgage servicing rights

 

85,164

 

85,164

 

 

 

85,164

SBA servicing asset

5,952

5,952

5,952

Interest rate swap – non-designated hedge

 

169,180

 

169,180

 

 

169,180

 

Other derivative financial instruments (mortgage banking related)

 

3,759

 

3,759

 

 

3,759

 

Financial liabilities:

Deposits

 

Noninterest-bearing

10,649,274

 

10,649,274

 

 

10,649,274

 

Interest-bearing other than time deposits

22,149,682

22,149,682

22,149,682

Time deposits

4,249,953

4,208,498

4,208,498

Federal funds purchased and securities sold under agreements to repurchase

 

489,185

 

489,185

 

 

489,185

 

Corporate and subordinated debentures

 

391,904

 

388,909

 

 

388,909

 

Other borrowings

100,000

100,000

100,000

Accrued interest payable

 

56,808

 

56,808

 

 

56,808

 

Interest rate swap – non-designated hedge

 

803,539

 

803,539

 

 

803,539

 

Other derivative financial instruments (mortgage banking related)

947

947

 

 

947

 

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Table of Contents 

Note 15 — Accumulated Other Comprehensive Income (Loss)

The changes in each component of accumulated other comprehensive loss, net of tax, were as follows:

Unrealized Losses

Benefit

on Securities

(Dollars in thousands)

Plans

Available for Sale

Total

Three Months Ended September 30, 2024

Balance at June 30, 2024

$

627

$

(620,838)

$

(620,211)

Other comprehensive income before reclassifications

 

 

140,571

 

140,571

Net comprehensive income

 

 

140,571

 

140,571

Balance at September 30, 2024

$

627

$

(480,267)

$

(479,640)

Three Months Ended September 30, 2023

Balance at June 30, 2023

$

(673)

$

(661,725)

$

(662,398)

Other comprehensive loss before reclassifications

 

 

(153,491)

(153,491)

Net comprehensive loss

 

 

(153,491)

 

(153,491)

Balance at September 30, 2023

$

(673)

$

(815,216)

$

(815,889)

Nine Months Ended September 30, 2024

Balance at December 31, 2023

$

627

$

(583,163)

$

(582,536)

Other comprehensive income before reclassifications

102,896

102,896

Net comprehensive income

 

 

102,896

 

102,896

Balance at September 30, 2024

$

627

$

(480,267)

$

(479,640)

Nine Months Ended September 30, 2023

Balance at December 31, 2022

$

(673)

$

(676,415)

$

(677,088)

Other comprehensive loss before reclassifications

 

 

(138,768)

 

(138,768)

Amounts reclassified from accumulated other comprehensive loss

 

 

(33)

 

(33)

Net comprehensive loss

 

 

(138,801)

 

(138,801)

Balance at September 30, 2023

$

(673)

$

(815,216)

$

(815,889)

The table below presents the reclassifications out of accumulated other comprehensive income (loss), net of tax:

Amount Reclassified from Accumulated Other Comprehensive Income (Loss)

(Dollars in thousands)

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Accumulated Other Comprehensive Income (Loss) Component

    

2024

    

2023

    

2024

    

2023

    

Income Statement
Line Item Affected

Gains on sales of available for sale securities:

$

$

$

$

(45)

Securities gains, net

12

Provision for income taxes

(33)

Net income

Total reclassifications for the period

$

$

$

$

(33)

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Table of Contents 

Note 16 — Derivative Financial Instruments

The Company uses certain derivative instruments to meet the needs of customers as well as to manage the interest rate risk associated with certain transactions. The following table summarizes the derivative financial instruments used by the Company:

September 30, 2024

December 31, 2023

Balance Sheet

Notional

Estimated Fair Value

Notional

Estimated Fair Value

(Dollars in thousands)

  

Location

  

Amount

  

Gain

  

Loss

  

Amount

  

Gain

  

Loss

Fair value hedge of interest rate risk:

Pay fixed rate swap with counterparty

Other Assets

$

4,200

$

81

$

$

9,188

$

220

$

Not designated hedges of interest rate risk:

Customer related interest rate contracts:

Matched interest rate swaps with borrowers

Other Assets and Other Liabilities

12,184,085

133,461

605,734

11,327,419

60,145

803,539

Matched interest rate swaps with counterparty (1)

Other Assets and Other Liabilities

12,093,484

60,467

184

11,235,952

108,820

Economic hedges of interest rate risk:

Pay floating rate swap with counterparty

Other Assets

1,824,400

28

1,660,000

(5)

Not designated hedges of interest rate risk – mortgage banking activities:

Contracts used to hedge mortgage servicing rights

Other Assets and Other Liabilities

146,000

5

142,000

2,605

Contracts used to hedge mortgage pipeline

Other Assets and Other Liabilities

126,000

1,685

271

77,500

1,154

947

Total derivatives

$

26,378,169

$

195,722

$

606,194

$

24,452,059

$

172,939

$

804,486

(1)The fair value of the interest rate swap derivative assets was reduced by $412.5 million in variation margin payments applicable to swaps centrally cleared through LCH and CME.

Balance Sheet Fair Value Hedge

As of September 30, 2024, and December 31, 2023, the Company maintained loan swaps, with an aggregate notional amount of $4.2 million and $9.2 million, respectively, accounted for as fair value hedges. The amortized cost basis of the loans being hedged were $4.0 million and $9.7 million, respectively, as of September 30, 2024, and December 31, 2023. This derivative protects us from interest rate risk caused by changes in the SOFR curve in relation to a certain designated fixed rate loan. The derivative converts the fixed rate loan to a floating rate. Settlement occurs in any given period where there is a difference in the stated fixed rate and variable rate and the difference is recorded in net interest income. The fair value of this hedge is recorded in either other assets or in other liabilities depending on the position of the hedge with the offset recorded in loans.

Non-designated Hedges of Interest Rate Risk

Customer Swap

The Company maintains interest rate swap contracts with loan customers of respondent bank customers of the Correspondent Banking Division, in addition to loan customers of the Bank, that are classified as non-designated hedges and are not speculative in nature. These agreements are designed to convert customers’ variable rate loans with the Company and respondent bank customers to fixed rate. These interest rate swaps are executed with loan customers to facilitate a respective risk management strategy and allow the customer to pay a fixed rate of interest to the Company. These interest rate swaps are simultaneously hedged by executing offsetting interest rate swaps with unrelated market counterparties to minimize the net risk exposure to the Company resulting from the transactions and allow the Company to receive a variable rate of interest. The interest rate swaps pay and receive interest based on a one-month SOFR floating rate plus a credit spread, with payments being calculated on the notional amount.

The variation margin settlement payment and the related derivative instruments fair value are considered a single unit of account for accounting and financial reporting purposes. Depending on the net position of the swaps with LCH and CME, the fair value, net of the variation margin, is reported in Derivative Assets or Derivative Liabilities on the Consolidated Balance Sheets. In addition, the expense or income attributable to the variation margin for the centrally cleared swaps with LCH and CME is reported in Noninterest Income, specifically within Correspondent and Capital Markets Income. The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument.

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Table of Contents 

As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of September 30, 2024, and December 31, 2023, the interest rate swaps had an aggregate notional amount of approximately $24.3 billion and $22.6 billion, respectively. At September 30, 2024, the fair value of the interest rate swap derivatives is recorded in Other Assets at $193.9 million and in Other Liabilities at $605.9 million. The fair value of derivative assets at September 30, 2024, was reduced by $412.5 million in variation margin payments applicable to swaps centrally cleared through LCH and CME. At December 31, 2023, the fair value of the interest rate swap derivatives was recorded in Other Assets at $169.0 million and Other Liabilities at $803.5 million. The fair value of derivative assets at December 31, 2023, was reduced by $635.3 million in variation margin payments applicable to swaps centrally cleared through LCH and CME. All changes in fair value are recorded through earnings within Correspondent and Capital Markets Income, a component of Noninterest Income on the Consolidated Statements of Income. There was a net loss of $621,000 and $235,000 recorded on these derivatives for the three and nine months ended September 30, 2024, respectively. There was a net gain of $587,000 and $599,000 recorded on these derivatives for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, we provided $263.4 million of cash collateral on the customer swaps, which is included in Cash and Cash Equivalents on the Consolidated Balance Sheets as Deposits in Other Financial Institutions (Restricted Cash). We also provided $98.1 million in investment securities at market value as collateral on the customer swaps which is included in Investment Securities – available for sale on the Consolidated Balance Sheets. Counterparties provided $19.9 million of cash collateral to the Company to secure swap asset positions that were not centrally cleared, which is included in Interest-bearing Deposits within Total Liabilities on the Consolidated Balance Sheets.

Balance Sheet Economic Hedge

During the third quarter of 2023, management began executing a series of short-term interest rate hedges to address monthly accrual mismatches related to the Company’s Assumable Rate Conversion (“ARC”) program and its transition from LIBOR to SOFR after June 30, 2023. The Company is required to execute the correspondent side of its back-to-back swaps with customers with the central clearinghouses (CME or LCH). Term SOFR was not available to execute through CME and LCH, and therefore, management elected to convert to the CME-eligible daily SOFR. Because many of the respondent bank customers converted to Term SOFR, this created interest rate basis risk. To address this risk, monthly interest rate hedges were executed to minimize the impact of accrual mismatches between the monthly Term SOFR used by the customer and the daily SOFR rates used by the central clearinghouses.

As of September 30, 2024, the Company maintained an aggregate notional amount of $1.8 billion short-term interest rate hedges that were accounted for as economic hedges. As noted above, the derivatives protect the Company from interest rate risk caused by changes in the term and daily SOFR accrual mismatches. The fair value of these hedges is recorded in either Other Assets or in Other Liabilities depending on the position of the hedge with the offset recorded in Correspondent Banking and Capital Market Income, a component of Noninterest Income on the Consolidated Statements of Income. There was a net gain of $27,000 and $28,000 for these derivatives for the three and nine months ended September 30, 2024. There was a net loss of $5,000 for these derivatives for the year ended December 31, 2023.

Foreign Exchange

The Company may enter into foreign exchange contracts with customers to accommodate their need to convert certain foreign currencies into U.S. Dollars. To offset the foreign exchange risk, the Company may enter into substantially identical agreements with an unrelated market counterparty to hedge these foreign exchange contracts. If there were foreign currency contracts outstanding at September 30, 2024, the fair value of these contracts would be included in Other Assets and Other Liabilities in the accompanying Consolidated Balance Sheets. All changes in fair value are recorded as other noninterest income. There was no gain or loss recorded related to the foreign exchange derivative for the three and nine months ended September 30, 2024, and 2023.

Mortgage Banking

The Company also has derivatives contracts that are not classified as accounting hedges to mitigate risks related to the Company’s mortgage banking activities. These instruments may include financial forwards, futures contracts, and options written and purchased, which are used to hedge MSRs; while forward sales commitments are typically used to hedge the mortgage pipeline. Such instruments derive their cash flows, and therefore their values, by reference to an underlying instrument, index or referenced interest rate. The Company does not elect hedge accounting treatment for any of these derivative instruments and as a result, changes in fair value of the instruments (both gains and losses) are recorded in the Company’s Consolidated Statements of Income in Mortgage Banking Income.

39

Table of Contents 

Mortgage Servicing Rights (“MSRs”)

Derivatives contracts related to MSRs are used to help offset changes in fair value and are written in amounts referred to as notional amounts. Notional amounts provide a basis for calculating payments between counterparties but do not represent amounts to be exchanged between the parties and are not a measure of financial risk. On September 30, 2024, we had derivative financial instruments outstanding with notional amounts totaling $146.0 million related to MSRs, compared to $142.0 million on December 31, 2023. The estimated net fair value of the open contracts related to the MSRs was recorded as a loss of $5,000 at September 30, 2024, compared to a gain of $2.6 million at December 31, 2023.

Mortgage Pipeline

The following table presents our notional value of forward sale commitments and the fair value of those obligations along with the fair value of the mortgage pipeline related to the held for sale portfolio:

(Dollars in thousands)

    

September 30, 2024

    

December 31, 2023

    

Mortgage loan pipeline

$

109,071

$

65,051

Expected closures

 

96,462

 

54,993

Fair value of mortgage loan pipeline commitments

 

1,685

 

1,154

Forward sales commitments

 

126,000

 

77,500

Fair value of forward commitments

 

(271)

 

(947)

Note 17 — Capital Ratios

The Company is subject to regulations with respect to certain risk-based capital ratios. These risk-based capital ratios measure the relationship of capital to a combination of balance sheet and off-balance sheet risks. The values of both balance sheet and off-balance sheet items are adjusted based on the rules to reflect categorical credit risk. In addition to the risk-based capital ratios, the regulatory agencies have also established a leverage ratio for assessing capital adequacy. The leverage ratio is equal to Tier 1 capital divided by total consolidated on-balance sheet assets (minus amounts deducted from Tier 1 capital). The leverage ratio does not involve assigning risk weights to assets.

Under current regulations, the Company and the Bank are subject to a minimum required ratio of common equity Tier 1 capital (“CET1”) to risk-weighted assets of 4.5% and a minimum required ratio of Tier 1 capital to risk-weighted assets of 6%. The minimum required leverage ratio is 4%. The minimum required total capital to risk-weighted assets ratio is 8%.

In order to avoid restrictions on capital distributions and discretionary bonus payments to executives, a covered banking organization is also required to maintain a “capital conservation buffer” in addition to its minimum risk-based capital requirements. This buffer is required to consist solely of CET1, and the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). The capital conservation buffer consists of an additional amount of Tier 1 common equity equal to 2.5% of risk-weighted assets.

The Bank is also subject to the regulatory framework for prompt corrective action, which identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized) and is based on specified thresholds for each of the three risk-based regulatory capital ratios (CET1, Tier 1 capital and total capital) and for the leverage ratio.

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Table of Contents 

The following table presents actual and required capital ratios as of September 30, 2024, and December 31, 2023, for the Company and the Bank under the current capital rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations.

 

Required to be

 

Minimum Capital

 

Considered Well

 

Actual

Required – Basel III

Capitalized

(Dollars in thousands)

    

Amount

    

Ratio

    

Capital Amount

    

Ratio

    

Capital Amount

    

Ratio

 

September 30, 2024:

    

    

    

    

    

    

Common equity Tier 1 to risk-weighted assets:

Consolidated

$

4,430,297

 

12.37

%  

$

2,506,088

7.00

%  

$

2,327,081

 

6.50

%  

SouthState Bank (the Bank)

 

4,702,224

 

13.15

%  

 

2,503,356

7.00

%  

 

2,324,544

 

6.50

%  

Tier 1 capital to risk-weighted assets:

Consolidated

 

4,430,297

 

12.37

%  

 

3,043,106

8.50

%  

 

2,864,100

 

8.00

%  

SouthState Bank (the Bank)

 

4,702,224

 

13.15

%  

 

3,039,789

8.50

%  

 

2,860,978

 

8.00

%  

Total capital to risk-weighted assets:

Consolidated

 

5,271,150

 

14.72

%  

 

3,759,131

10.50

%  

 

3,580,125

 

10.00

%  

SouthState Bank (the Bank)

 

5,152,981

 

14.41

%  

 

3,755,033

10.50

%  

 

3,576,222

 

10.00

%  

Tier 1 capital to average assets (leverage ratio):

Consolidated

 

4,430,297

 

9.98

%  

 

1,776,398

4.00

%  

 

2,220,497

 

5.00

%  

SouthState Bank (the Bank)

 

4,702,224

 

10.59

%  

 

1,775,892

4.00

%  

 

2,219,865

 

5.00

%  

December 31, 2023:

    

    

    

    

    

    

Common equity Tier 1 to risk-weighted assets:

Consolidated

$

4,159,187

 

11.75

%  

$

2,476,926

7.00

%  

$

2,300,003

 

6.50

%  

SouthState Bank (the Bank)

 

4,424,466

 

12.52

%  

 

2,473,961

7.00

%  

 

2,297,250

 

6.50

%  

Tier 1 capital to risk-weighted assets:

Consolidated

 

4,159,187

 

11.75

%  

 

3,007,696

8.50

%  

 

2,830,773

 

8.00

%  

SouthState Bank (the Bank)

 

4,424,466

 

12.52

%  

 

3,004,096

8.50

%  

 

2,827,384

 

8.00

%  

Total capital to risk-weighted assets:

Consolidated

 

4,983,012

 

14.08

%  

 

3,715,389

10.50

%  

 

3,538,466

 

10.00

%  

SouthState Bank (the Bank)

 

4,858,292

 

13.75

%  

 

3,710,942

10.50

%  

 

3,534,230

 

10.00

%  

Tier 1 capital to average assets (leverage ratio):

Consolidated

 

4,159,187

 

9.42

%  

 

1,765,295

4.00

%  

 

2,206,619

 

5.00

%  

SouthState Bank (the Bank)

 

4,424,466

 

10.03

%  

 

1,764,736

4.00

%  

 

2,205,921

 

5.00

%  

As of September 30, 2024, and December 31, 2023, the capital ratios of the Company and the Bank were in excess of the minimum regulatory requirements and exceeded the thresholds for the “well capitalized” regulatory classification.

With the implementation of ASU 2016-13 in January 2020, the Company recorded additional allowance for credit losses for loans of $54.4 million, deferred tax assets of $12.6 million, an additional reserve for unfunded commitments of $6.4 million and an adjustment to retained earnings of $44.8 million. Instead of recognizing the effects from ASU 2016-13 at adoption, the standard included a transitional method option for recognizing the adoption date effects on the Company’s regulatory capital calculations over a three-year phase-in. In March 2020, in response to the COVID-19 pandemic, the regulatory agencies provided an additional transitional method option of a two-year deferral for the start of the three-year phase-in of the recognition of the adoption date effects of ASU 2016-13 along with an option to defer the current impact on regulatory capital calculations of ASU 2016-13 during the first two years (“5-year method”). Under this 5-year method, the Company would recognize an estimate of the previous incurred loss method for determining the allowance for credit losses in regulatory capital calculations and the difference from the CECL method would be deferred for two years. After two years, the effects from adoption date and the deferral difference from the first two years of applying CECL would be phased-in over three years using the straight-line method. The regulatory rules provided a one-time opportunity at the end of the first quarter of 2020 for covered banking organizations to choose its transition option for CECL. The Company chose the 5-year method and is deferring the recognition of the effects from adoption date and the CECL difference from the first two years of application. This amount was fixed as of December 31, 2021, and that amount began the three-year phase out in the first quarter of 2022 with the final 25% being phased out in 2024.

Note 18 — Goodwill and Other Intangible Assets

The carrying amount of goodwill was $1.9 billion at September 30, 2024, and December 31, 2023. The Company’s other intangible assets, consisting of core deposit intangibles, noncompete intangibles, and client list intangibles are included on the face of the balance sheet.

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The Company last completed its annual valuation of the carrying value of its goodwill as of October 31, 2023, and determined there was no impairment of the Company’s goodwill. Management continues to monitor the impact of market conditions on the Company’s business, operating results, cash flows and/or financial condition.

The following is a summary of gross carrying amounts and accumulated amortization of other intangible assets:

September 30,

December 31,

(Dollars in thousands)

    

2024

    

2023

    

Gross carrying amount

$

274,880

$

274,753

Accumulated amortization

 

(203,045)

 

(185,977)

$

71,835

$

88,776

Amortization expense totaled $5.3 million and $17.1 million, for the three and nine months ended September 30, 2024, respectively, compared to $6.6 million and $20.9 million for the three and nine months ended September 30, 2023, respectively.  Other intangibles are amortized using either the straight-line method or an accelerated basis over their estimated useful lives, with lives generally between two and 15 years.  

The Company applies fair value accounting to the Company’s SBA servicing asset. The change in fair value of the SBA servicing asset is recorded in SBA Income, a component of Noninterest Income on the Consolidated Statements of Income, during each applicable reporting period.  As a result of the fair value accounting treatment, the Company does not amortize the SBA servicing asset and therefore excludes the SBA servicing asset from the future amortization expense table presented below.  The fair value of the SBA servicing asset was $6.1 million and $6.0 million, respectively, at September 30, 2024, and December 31, 2023.  The fair value of the SBA servicing asset is included in Core Deposit and Other Intangibles on the Consolidated Balance Sheets.

 

Estimated amortization expense for other intangibles for each of the next five quarters is as follows:

(Dollars in thousands)

Quarter ending:

    

    

 

December 31, 2024

$

5,326

March 31, 2025

 

5,100

June 30, 2025

 

4,836

September 30, 2025

 

4,419

December 31, 2025

4,411

Thereafter

 

41,664

$

65,756

Note 19 — Mortgage Loan Servicing, Origination, and Loans Held for Sale

The portfolio of residential mortgages serviced for others, which is not included in the accompanying Consolidated Balance Sheets, was $6.7 billion and $6.6 billion, respectively, as of September 30, 2024, and December 31, 2023. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts and disbursing payments to investors. The amounts of contractually specified servicing fees we earned during the three and nine months ended September 30, 2024, and September 30, 2023, were $4.2 million, $12.6 million, $4.1 million, and $12.4 million, respectively. Servicing fees are recorded in Mortgage Banking Income in our Consolidated Statements of Income.

At September 30, 2024, and December 31, 2023, MSRs were $83.5 million and $85.2 million on our Consolidated Balance Sheets, respectively. MSRs are recorded at fair value with changes in fair value recorded as a component of Mortgage Banking Income in the Consolidated Statements of Income. The market value adjustments related to MSRs recorded in Mortgage Banking Income for the three and nine months ended September 30, 2024, and September 30, 2023, were losses of $5.6 million and $2.3 million compared with gains of $1.8 million and $2.5 million, respectively. The Company has used various free standing derivative instruments to mitigate the income statement effect of changes in fair value resulting from changes in market value adjustments, in addition to changes in valuation inputs and assumptions related to MSRs.

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See Note 14 — Fair Value for the changes in fair value of MSRs. The following table presents the changes in the fair value of the MSR and offsetting hedge.

Three Months Ended

    

Nine Months Ended

(Dollars in thousands)

    

September 30, 2024

    

September 30, 2023

    

September 30, 2024

    

September 30, 2023

 

(Decrease)/increase in fair value of MSRs

$

(5,560)

$

1,762

$

(2,346)

$

2,450

Decay of MSRs

 

(2,508)

 

(2,543)

 

(6,515)

 

(6,336)

Gain (loss) related to derivatives

3,815

(2,170)

(189)

(4,288)

Net effect on Consolidated Statements of Income

$

(4,253)

$

(2,951)

$

(9,050)

$

(8,174)

The fair value of MSRs is highly sensitive to changes in assumptions and is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and with the use of independent third-party appraisals. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of the MSR. Measurement of fair value is limited to the conditions existing, and the assumptions utilized as of a particular point in time, and those assumptions may not be appropriate if applied at a different time. See Note 14 — Fair Value for additional information regarding fair value.

The characteristics and sensitivity analysis of the MSRs are included in the following table:

September 30,

December 31,

(Dollars in thousands)

    

2024

   

    

2023

   

   

Composition of residential loans serviced for others

Fixed-rate mortgage loans

100.0

%  

100.0

%  

Adjustable-rate mortgage loans

%  

%  

Total

100.0

%  

100.0

%  

Weighted average life

7.64

years

8.03

years  

Constant Prepayment rate (CPR)

7.8

%  

7.0

%  

Estimated impact on fair value of a 10% increase

$

(875)

$

(522)

Estimated impact on fair value of a 20% increase

(1,705)

(1,014)

Estimated impact on fair value of a 10% decrease

943

551

Estimated impact on fair value of a 20% decrease

1,957

1,128

Weighted average discount rate

10.6

%  

10.7

%  

Estimated impact on fair value of a 10% increase

$

(3,230)

$

(3,270)

Estimated impact on fair value of a 20% increase

(6,340)

(6,458)

Estimated impact on fair value of a 10% decrease

3,243

3,242

Estimated impact on fair value of a 20% decrease

6,338

6,283

Effect on fair value due to change in interest rates

25 basis point increase

$

2,110

$

1,647

50 basis point increase

4,156

3,189

25 basis point decrease

(2,160)

(1,723)

50 basis point decrease

(4,266)

(3,501)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the residential MSRs is calculated without changing any other assumption, while in reality changes in one factor may result in changes in another, which may either magnify or counteract the effect of the change. The derivative instruments utilized by the Company would serve to reduce the estimated impacts to fair value included in the table above.

Whole loan sales were $329.6 million and $834.8 million for the three and nine months ended September 30, 2024, respectively, compared to $259.2 million and $667.9 million for the three and nine months ended September 30, 2023, respectively. For the three and nine months ended September 30, 2024, $240.3 million and $607 million, or 72.9% and 72.7%, respectively, were sold with the servicing rights retained by the Company, compared to $210.2 million and $534.3 million, or 81.1% and 80.0%, respectively, for the three and nine months ended September 30, 2023.

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The Company retains no beneficial interests in these sales but may retain the servicing rights for the loans sold. The risks related to the sold loans with the retained servicing rights due to a representation or warranty violation such as noncompliance with eligibility or servicing requirements, or customer fraud, that should have been identified in a loan file review are disclosed in Note 1 — Summary of Significant Accounting Policies, under the “Loans Held for Sale” section, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The Company is obligated to subsequently repurchase a loan if such representation or warranty violation is identified by the purchaser. The aggregated principal balances of loans repurchased for the nine months ended September 30, 2024, and 2023 were approximately $1.9 million and $975,000 respectively. There were approximately $93,000 and $6,000, respectively, in loss reimbursement and settlement claims paid in the nine months ended September 30, 2024 and 2023.

Loans held for sale have historically been comprised of residential mortgage loans awaiting sale in the secondary market, which generally settle in 15 to 45 days. Mortgage loans held for sale were $64.9 million and $50.9 million at September 30, 2024, and December 31, 2023, respectively. Please see Note 14 — Fair Value, under the “Fair Value Option”, section in this Quarterly Report on Form 10-Q for summary of the fair value and the unpaid principal balance of loans held for sale and the changes in fair value of these loans.

Note 20 — Small Business Administration (“SBA”) Loans Held for Sale

During the third quarter of 2024, the Company began purchasing the guaranteed portions of SBA loans from third-party originators. The guaranteed portions of SBA loans purchased by the Company are aggregated into pools with similar characteristics to create a security representing an interest in those pools through the SBA’s fiscal transfer agent (“FTA”). The individual guaranteed portions of the SBA loans may also be sold prior to pooling into a security. Once the guaranteed portion of the SBA loans are pooled and securities representing interests in that pool are issued, the Company intends to sell those securities into the secondary market. These securities are carried at fair value and classified as trading instruments. Gains or losses on the sale of the securities and individual guaranteed portions of loans are both recorded in Correspondent Banking and Capital Markets Income in Noninterest Income on the Consolidated Statements of Income. Sales of the securities are accounted for as of the settlement date, which is the date the Company surrenders control over the transferred assets. The Company does not retain any interest in the securities once sold. The guaranteed portion of the SBA loans that have not been pooled or sold, are reported as Loans Held for Sale on the Consolidated Balance Sheet and recorded at the lower of cost or estimated fair value. The fair value of the purchased guaranteed portion of the SBA loans is determined based upon their committed sales price, and actual observable market color provided to secondary market participants from the originating banks who are selling their guaranteed portions of loans. These nonrecurring fair value measurements for purchased guaranteed portion of SBA loans are classified within Level 2 of the fair value hierarchy.

During the third quarter of 2024, the Company purchased approximately $331.8 million in guaranteed portions of SBA loans. During the third quarter of 2024, the Company pooled approximately $90.9 million of the guaranteed portions of SBA loans into securities selling approximately $82.3 million into the secondary market. The Company also sold approximately $8.8 million in individual loans during the quarter. The Company held approximately $222.2 million in the guaranteed portion of SBA loans for sale at September 30, 2024.

The Company also separately originates SBA loans and sells the guaranteed portions of these loans into the secondary market. During the three months ended September 30, 2024, and 2023, the Company sold approximately $29.4 and $28.5 million, respectively, in guaranteed portions of SBA loans originated at the Bank and recognized gains of $3.0 million and $2.5 million, respectively. During the nine months ended September 30, 2024, and 2023, the Company sold approximately $88.6 and $73.5 million, respectively, in guaranteed portions of SBA loans originated at the Bank and recognized gains of $8.8 million and $6.6 million, respectively.

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Note 21 — Short-Term Borrowings

Securities Sold Under Agreements to Repurchase (“Repurchase agreements”)

Repurchase agreements represent funds received from customers, generally on an overnight or continuous basis, which are collateralized by investment securities owned or, at times, borrowed and re-hypothecated by the Company. Repurchase agreements are subject to terms and conditions of the master repurchase agreements between the Company and the client and are accounted for as secured borrowings. Repurchase agreements are included in Securities Sold Under Agreements to Repurchase on the Consolidated Balance Sheets. At September 30, 2024, and December 31, 2023, our repurchase agreements totaled $247.9 million and $241.0 million, respectively. All of our repurchase agreements were overnight or continuous (until-further-notice) agreements at September 30, 2024, and December 31, 2023. These borrowings were collateralized with government, government-sponsored enterprise, or state and political subdivision-issued securities with a carrying value of $392.7 million and $410.4 million at September 30, 2024, and December 31, 2023, respectively. Declines in the value of the collateral would require us to increase the amounts of securities pledged.

Federal Funds Purchased

Federal funds purchased are generally overnight daily borrowings with no defined maturity date. At September 30, 2024, and December 31, 2023, our federal funds purchased totaled $290.4 million and $248.2 million, respectively.

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) Borrowing

The Company has from time-to-time entered into borrowing agreements with the FHLB and FRB. Borrowings under these agreements are collateralized by stock in the FHLB, qualifying first and second mortgage residential loans, investment securities, and commercial real estate loans under a blanket-floating lien.

As of September 30, 2024, and December 31, 2023, the Company had $300.0 million and $100.0 million, respectively, of outstanding FHLB borrowings. Net eligible loans of the Company pledged via a blanket lien to the FHLB for advances and letters of credit at September 30, 2024, were approximately $11.7 billion (collateral value of $6.3 billion) and investment securities and cash pledged were approximately $207.5 million (collateral value of $176.0 million). This allows the Company a total borrowing capacity at the FHLB of approximately $6.5 billion. After accounting for letters of credit totaling $2.9 million and short-term FHLB borrowings of $300.0 million outstanding, the Company had unused net credit available with the FHLB in the amount of approximately $6.2 billion at September 30, 2024. The Company also has a total borrowing capacity at the FRB of $1.7 billion at September 30, 2024, secured by a blanket lien on $2.6 billion (collateral value of $1.7 billion) in net eligible loans of the Company. The Company had no outstanding borrowings with the FRB at September 30, 2024, or December 31, 2023.

Note 22 — Stock Repurchase Program

On April 27, 2022, the Company’s Board of Directors approved a stock repurchase program (“2022 Stock Repurchase Program”) authorizing the Company to repurchase up to 3,750,000 of the Company’s common shares along with the remaining authorized shares of 370,021 from the Company’s 2021 stock repurchase program (“2021 Stock Repurchase Plan”) for a total authorization of 4,120,021 shares. The Company did not repurchase any shares pursuant to the 2022 Stock Repurchase Program during the third quarter of 2024. During the nine months ended September 30, 2024, the Company repurchased a total of 100,000 shares at a weighted average price of $79.85 per share. During the three and nine months ended September 30, 2023, the Company did not repurchase any shares pursuant to the 2022 Stock Repurchase Program.

The Company repurchased 104,147 and 103,190 shares at a cost of $8.7 million and $7.4 million, respectively, during the nine months ended September 30, 2024, and 2023 under other arrangements whereby directors or officers surrender shares to the Company to cover the option cost for stock option exercises or tax liabilities resulting from the vesting of restricted stock awards or restricted stock units.

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Note 23 — Investments in Qualified Affordable Housing Projects

The Company has investments in qualified affordable housing projects (“QAHPs”) that provide low-income housing tax credits (“LIHTC”) and operating loss benefits over an extended period. Effective January 1, 2024, the Company adopted ASU No. 2023-02 and began to apply the proportional amortization method of accounting for its QAHPs. Prior to the adoption of ASU No. 2023-02, the Company applied the equity method of accounting for its QAHPs. For the three and nine months ended September 30, 2024, the Company recorded $3.8 million and $11.5 million, respectively, in tax credits and other tax benefits and $3.6 million and $10.5 million, respectively, of amortization attributable to the QAHPs within Provision for Income Taxes on its Consolidated Statement of Income. For the three and nine months ended September 30, 2023, the Company recorded $3.6 million and $10.9 million, respectively, of tax credits and other tax benefits within Provision for Income Taxes and amortization of $2.1 million and $6.2 million, respectively, within Other Noninterest Expense on the Consolidated Statement of Income. At September 30, 2024, and December 31, 2023, the Company’s carrying value of QAHPs was $81.6 million and $101.8 million, respectively, recorded in Other Assets on the Consolidated Balance Sheet. The Company had $10.7 million and $12.5 million in remaining funding obligations related to these QAHPs recorded in Other Liabilities on the Consolidated Balance Sheets at September 30, 2024, and December 31, 2023, respectively. For the remaining funding obligations at September 30, 2024, approximately 90% are expected to be funded by 2026. For more information on the adoption of ASU 2023-02, refer to Recent Accounting and Regulatory Pronouncements under Note 3 — Recent Accounting and Regulatory Pronouncements.

Note 24 — Subsequent Events

On October 23, 2024, the Company announced the declaration of a quarterly cash dividend on its common stock at $0.54 per share. The dividend is payable on November 15, 2024, to shareholders of record as of November 8, 2024.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) relates to the financial statements contained in this Quarterly Report beginning on page 3. For further information, refer to the MD&A appearing in the Annual Report on Form 10-K for the year ended December 31, 2023. Results for the three and nine months ended September 30, 2024, are not necessarily indicative of the results for the year ending December 31, 2024, or any future period.

Unless otherwise mentioned or unless the context requires otherwise, references to “SouthState,” the “Company,” “we,” “us,” “our” or similar references mean SouthState Corporation and its consolidated subsidiaries. References to the “Bank” means SouthState Corporation’s wholly owned subsidiary, SouthState Bank, National Association, a national banking association.

Overview

SouthState is a financial holding company headquartered in Winter Haven, Florida, and was incorporated under the laws of South Carolina in 1985. We provide a wide range of banking services and products to our customers through our Bank. The Bank operates SouthState|DuncanWilliams Securities Corp. (“SouthState|DuncanWilliams”), a registered broker-dealer headquartered in Memphis, Tennessee that serves primarily institutional clients across the U.S. in the fixed income business. The Bank also operates SouthState Advisory, Inc., a wholly-owned registered investment advisor. SSB First Street Corporation, an investment subsidiary of the Bank headquartered in Wilmington, Delaware, holds tax-exempt municipal investment securities as part of the Bank’s investment portfolio. The holding company also owns SSB Insurance Corp., a captive insurance subsidiary pursuant to Section 831(b) of the U.S. Tax Code.

At September 30, 2024, we had approximately $46.1 billion in assets and 5,144 full-time equivalent employees. Through our Bank branches, ATMs and online banking platforms, we provide our customers with a wide range of financial products and services through a six (6) state footprint in Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia. These financial products and services include deposit accounts such as checking accounts, savings and time deposits of various types, safe deposit boxes, bank money orders, wire transfer and ACH services, brokerage services and alternative investment products such as annuities and mutual funds, trust and asset management services, loans of all types, including business loans, agriculture loans, real estate-secured (mortgage) loans, personal use loans, home improvement loans, automobile loans, manufactured housing loans, boat loans, credit cards, letters of credit, home equity lines of credit, treasury management services, and merchant services.

We also operate a correspondent banking and capital markets division within our national bank subsidiary, of which the majority of its bond salesmen, traders and operational personnel are housed in facilities located in Atlanta, Georgia, Memphis, Tennessee, Walnut Creek, California, and Birmingham, Alabama. This division’s primary revenue generating activities are related to (i) its capital markets division, which includes commissions earned on fixed income security sales, fees from hedging services, loan brokerage fees, income generated from the purchase of government guaranteed loans and sale of pooled loans, and consulting fees for services related to these activities, and (ii) its correspondent banking division, which includes spread income earned on correspondent bank deposits (i.e., federal funds purchased) and correspondent bank checking account deposits and fees from safe-keeping activities, bond accounting services for correspondents, asset/liability consulting related activities, international wires, and other clearing and corporate checking account services.

We also operate Corporate Billing, a transaction-based division of the Bank headquartered in Decatur, Alabama, that provides factoring, invoicing, collection and accounts receivable management services to transportation companies and automotive parts and service providers nationwide.

We have pursued, and continue to pursue, a growth strategy that focuses on organic growth, supplemented by acquisitions of select financial institutions, or branches in certain market areas.

The following discussion describes our results of operations for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, and also analyzes our financial condition as of September 30, 2024, as compared to December 31, 2023. Like most financial institutions, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we may pay interest. Consequently, one of the key measures of our success is the amount of our net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.

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Of course, there are risks inherent in all loans, as such, we maintain an allowance for credit losses, otherwise referred to herein as ACL, to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for credit losses against our operating earnings. In the following discussion, we have included a detailed discussion of this process.

In addition to earning interest on our loans and investments, we earn income through fees and other services we charge to our customers. We incur costs in addition to interest expense on deposits and other borrowings, the largest of which is salaries and employee benefits. We describe the various components of this noninterest income and noninterest expense in the following discussion.

The following sections also identify significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.

Recent Events

Independent Bank Group, Inc. (“Independent”) Proposed Merger

On May 20, 2024, SouthState and Independent announced that the two companies had entered into an Agreement and Plan of Merger dated May 17, 2024 (“Merger Agreement”), which provides that upon the terms and subject to the conditions set forth in the Merger Agreement, Independent will merge with and into SouthState, with SouthState continuing as the surviving corporation in the merger. Immediately following the merger, Independent’s wholly-owned banking subsidiary, Independent Bank, will merge with and into the Bank, which will continue as the surviving bank in the bank merger. The Merger Agreement was approved by the Boards of Directors of the Company and Independent by the unanimous vote of directors present at the applicable meetings and the shareholders of each of SouthState and Independent. The Merger Agreement is still subject to regulatory approvals and other customary closing conditions.

Under the terms of the Merger Agreement, shareholders of Independent will receive 0.60 shares of SouthState’s common stock for each share of Independent common stock they own. The transaction is expected to close during the first quarter of 2025, subject to the satisfaction of customary closing conditions, including receipt of required statutory approvals. At September 30, 2024, Independent reported $18.6 billion in total assets, $14.3 billion in loans and $16.0 billion in deposits.

OCC Merger Policy Statement

The OCC adopted a final rule amending its procedures for reviewing applications under the Bank Merger Act (“BMA”) and adding a policy statement on the OCC’s substantive approach to evaluating bank mergers under the BMA. The policy statement outlines the general principles the OCC will apply when reviewing bank merger applications and clarifies how the OCC would consider the statutory factors under the BMA. The policy statement identifies certain indicators that are more likely to withstand scrutiny and be approved expeditiously and those that would raise supervisory or regulatory concerns. Indicators generally consistent with timely approval, include, among others, appropriate capital and supervisory ratings, lack of enforcement or fair lending actions, lack of significant CRA or consumer compliance concerns or significant adverse effect on competition, and that the resulting institution would have total assets less than $50 billion. The final rule becomes effective on January 1, 2025. The Company is assessing the rule and its possible impact on the Company’s strategy.

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CFPB Open Banking Rule

In October 2024, the CFPB finalized a rule to implement Section 1033 of the Dodd-Frank Act, which would require certain entities, including the Company and the Bank, to, among other things, make available to a consumer, upon request, information in its control or possession concerning the consumer financial product or service that the consumer obtained from that entity. In general, the rule also requires, among other things, data providers holding a consumer account, such as the Bank, to establish a developer interface satisfying certain data security specifications and other standards, through which the data provider can receive requests for, and provide, specific types of data covered by the rule in electronic, usable form to authorized third parties, including data aggregators. Under the rule, data providers are prohibited from, among other things, charging consumers or third parties fees for processing these consumer data requests. The rule also places certain data security, authorization and other obligations on third parties accessing covered data from data providers, which could include the Company and the Bank when acting in certain capacities. The rule requires third parties to limit their collection, use, and retention of the data received to only what is reasonably necessary to provide the consumers’ requested product or service. The compliance date for a depository institution data provider that holds at least $10 billion in total assets but less than $250 billion in total assets is April 1, 2027; however, the final rule is subject to ongoing litigation that could impact whether and when the Company and the Bank are required to comply with the rule. We continue to evaluate the final rule and the potential impacts on the Company and the Bank.

Critical Accounting Policies

Our consolidated financial statements are prepared based on the application of accounting policies in accordance with GAAP and follow general practices within the banking industry. Our financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Differences in the application of these policies could result in material changes in our consolidated financial position and consolidated results of operations and related disclosures. Understanding our accounting policies is fundamental to understanding our consolidated financial position and consolidated results of operations. Accordingly, our significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in Note 2 — Summary of Significant Accounting Policies and Note 3 — Recent Accounting and Regulatory Pronouncements of our consolidated financial statements in this Quarterly Report on Form 10-Q and in Note 1 — Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the year ended December 31, 2023.

The following is a summary of our allowance for credit losses (“ACL”) critical accounting policy, which is highly dependent on estimates, assumptions and judgments.

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Allowance for Credit Losses (ACL)

The ACL reflects management’s estimate of the portion of the amortized cost of loans and unfunded commitments that it does not expect to collect. Management has a methodology determining its ACL for loans held for investment and certain off-balance-sheet credit exposures. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded on the balance sheet reflects management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. See Note 2—Summary of Significant Accounting Policies for further detailed descriptions of our estimation process and methodology related to the ACL. See also Note 7—Allowance for Credit Losses and “Allowance for Credit Losses (ACL) on Loans and Certain Off-Balance-Sheet Credit Exposures” in this MD&A.

One of the most significant judgments influencing the ACL is the macroeconomic forecasts from the third-party service provider. Changes in the economic forecasts may significantly affect the estimated credit losses which may potentially lead to materially different quantitatively modeled allowance levels from one reporting period to the next. Given the dynamic relationship between macroeconomic variables, it is difficult to estimate the impact of a change in any one individual variable on the ACL. SouthState uses a third-party service provider to support the economic forecast assumptions under CECL forecast by providing various levels of economic scenarios. These scenarios are weighted in accordance with management assessment of scenarios as well as expectations of the general market and industry conditions. To illustrate the sensitivity of these scenarios, if a 100% probability weighting was applied to the adverse scenario rather than using the probability-weighted three scenario approach, this would result in an increase in the ACL by approximately $206.9 million (all other things equal, including no compensating adjustments to qualitative factor adjustments). Conversely, if a 100% probability weighting was applied to the upside scenario, this would result in a decrease in the ACL by approximately $95.8 million. The adverse scenario includes assumptions including, but not limited to, elevated interest rates weakening consumers and public confidence, inflation, the conflict in the Middle East leading to a wider war, tensions between China and Taiwan interrupt trade, political risks, increased unemployment and the U.S. economy falling into recession in 2024. Conversely, the upside scenario includes assumptions such as a swift resolution of international conflicts, stabilization of consumer confidence, more than full employment, reduced political tensions, and other favorable assumptions. This sensitivity analysis and related impact on the ACL is a hypothetical analysis and is not intended to represent management’s judgments or assumptions of qualitative loss factors that were utilized at September 30, 2024.

Results of Operations

Overview

We reported consolidated net income of $143.2 million, or diluted earnings per share (“EPS”) of $1.86, for the third quarter of 2024 as compared to consolidated net income of $124.1 million, or diluted EPS of $1.62, in the comparable period of 2023, a 15.3% increase in consolidated net income and a 14.8% increase in diluted EPS. During the nine months ended September 30, 2024, we reported consolidated net income of $390.6 million, or diluted EPS of $5.09, as compared to consolidated net income of $387.5 million, or diluted EPS of $5.07, in the comparable period of 2023, a 0.8% increase in consolidated net income and a 0.4% increase in diluted EPS. The $19.0 million increase in consolidated net income for the third quarter of 2024 compared to the same period of 2023 was the net result of the following items:

A $43.7 million increase in interest income, resulting from a $50.3 million increase in interest income from loans and loans held for sale partially offset by a $2.2 million decrease in interest income from investment securities, and a $4.4 million decrease in interest income on federal funds sold, securities purchased under agreement to resell and interest-bearing deposits. The increase in interest income from loans was due to an increase in the yield of 34 basis points as loans continued to reprice higher from the comparatively higher rate environment in 2022 and in 2023. The Federal Reserve Bank decreased its federal funds rate by 50 basis points for the first time since early 2022, however, the rate cut took place in mid-September 2024. The increase in interest income in loans was also due to an increase in the average balance of $1.7 billion mainly through organic growth of loans held for investment. The decline in interest income from investment securities and federal funds sold, securities purchased under agreement to resell and interest-bearing deposits was mainly due to the decline in average balance of $550.1 million and $262.9 million, respectively;

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A $47.6 million increase in interest expense, which mainly resulted from a $44.0 million increase in interest expense from deposits, a $1.4 million increase in interest expense in federal funds purchased and securities sold under agreements to repurchase, and $2.2 million increase in interest in other borrowings. The increase in interest expense from deposits resulted from an increase in costs due to deposits repricing in the higher interest rate environment along with growth in higher costing money market and time deposits since the third quarter of 2023. The average cost of deposits, excluding noninterest-bearing deposits, increased by 55 basis points compared to the third quarter of 2023;
A $39.7 million decrease in the provision for credit losses, as the Company released provision for credit losses of ($7.0) million in the third quarter of 2024 while recording a provision for credit losses of $32.7 million in the third quarter of 2023. During the third quarter of 2024, we released provision for credit losses mainly due to a decline in unfunded commitments leading to a release of provision of $(8.7) million. The provision for credit losses also declined due to lower net loan growth in the third quarter of 2024 compared to the same period in 2023 as well as improvement in economic forecasts with inflation falling and interest rates beginning to decline in the third quarter of 2024;
A $2.1 million increase in noninterest income due to an increase in trust and investment services income of $2.0 million, an increase in bank owned life insurance of $1.2 million, and an increase in fees on deposit accounts of $1.1 million. These increases were offset by a decline in correspondent banking and capital market income of $3.0 million. See Noninterest Income section on page 57 for further discussion;
An $8.6 million increase in noninterest expense, which resulted primarily from an increase in salaries and employee benefits of $4.7 million, in merger, branch consolidation, severance related and other expense of $3.1 million, and an information services expense of $1.9 million. These increases were partially offset by declines in FDIC assessment and other regulatory charges of $1.2 million, and amortization of intangibles of $1.3 million. See Noninterest Expense section on page 59 for further discussion; and
Higher income tax provision of $10.2 million due to higher pretax book income between the two quarters. The Company recorded pretax book income of $186.5 million in the third quarter of 2024 compared to pretax book income of $157.3 million in the third quarter of 2023. The increase was also due to the effects of the Company adopting ASU 2023-02 in the first quarter of 2024 whereby it applied the proportional amortization method of accounting related to its low-income housing tax credits partnerships (“LIHTC”). With the adoption of ASU 2023-02, the amortization of the LIHTCs is now recorded within Provision for Income Taxes rather than Other Noninterest Expense on the Statement of Income. The amortization for the Company’s LIHTCs totaled $3.6 million during the third quarter of 2024. The change in the accounting method, in addition to other items recorded during the current quarter, increased our effective tax rate for the third quarter in 2024 compared to the same period in 2023. Our effective tax rate was 23.24% for the three months ended September 30, 2024, compared to 21.08% for the three months ended September 30, 2023. See Income Tax Expense section on page 60 for further discussion.

Our quarterly efficiency ratio increased to 56.6% in the third quarter of 2024 compared to 54.0% in the third quarter of 2023. The increase in the efficiency ratio compared to the third quarter of 2023 was the result of a 0.5% decrease in the total of tax-equivalent net interest income and noninterest income along with a 4.3% increase in noninterest expense (excluding amortization of intangibles). This decrease was reflective of a 32.8% increase in interest expense as the repricing of interest-bearing liabilities caught up with the repricing of interest-earning assets in 2023 and 2024 resulting from the rising rate environment. The increase in noninterest expense was reflective of a 3.2% increase in salaries and employee benefits, an 8.6% increase in information services expense, and a 1,914.6% increase in merger and branch consolidation related expense mostly related to the proposed merger with Independent.

Basic and diluted EPS were $1.88 and $1.86, respectively, for the third quarter of 2024, compared to $1.63 and $1.62, respectively, for the third quarter of 2023. The increase in basic and diluted EPS was due to a 15.3% increase in net income in the third quarter of 2024 compared to the same period in 2023. The effects from the increase in net income were partially offset by an increase in average basic common shares of 0.2%. The increase in net income in the third quarter of 2024 was mainly attributable to a decrease in provision for credit losses during the third quarter of 2024.

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Selected Figures and Ratios

Three Months Ended

Nine Months Ended

 

September 30,

September 30,

 

(Dollars in thousands)

    

2024

    

2023

2024

    

2023

 

Return on average assets (annualized)

 

1.25

%  

1.10

%

1.15

%  

1.16

%

Return on average equity (annualized)

 

9.91

%  

9.24

%

9.29

%  

9.83

%

Return on average tangible equity (annualized)*

 

15.63

%  

15.52

%

14.94

%  

16.67

%

Dividend payout ratio

 

28.76

%

31.84

%

30.82

%

29.78

%

Equity to assets ratio

 

12.81

%  

11.63

%

12.81

%  

11.63

%

Average shareholders’ equity

$

5,748,170

$

5,328,912

$

5,613,557

$

5,269,775

*   Denotes a non-GAAP financial measure.  The section titled “Reconciliation of GAAP to non-GAAP” below provides a table that reconciles GAAP measures to non-GAAP measures.

For the three months ended September 30, 2024, the return on average assets increased compared to the same period in 2023.  This increase was primarily due to the increase in net income of $19.0 million, or 15.3%, which was mainly attributable to a decline in the provision for credit losses due to lower new loan growth in the third quarter of 2024 compared to the same period in 2023, a decline in unfunded commitments, as well as improvement in economic forecasts with inflation falling and interest rates beginning to decline in the third quarter of 2024.  The effects on the return on average assets from the increase in net income were partially offset by an increase in average assets of 1.7% for the three months ended September 30, 2024, from the same period in 2023 mainly due to an increase in average loans of $1.6 billion through organic growth.  For the nine months ended September 30, 2024, the return on average assets declined slightly as average assets increased 1.8% while net income only increased 0.8% compared to the same period in 2023.  
For the three months ended September 30, 2024, the return on average equity increased compared to the same period in 2023.  This increase was primarily due to higher net income of 15.3% partially offset by the effects from an increase in average equity of 7.9%.  The increase in net income was mainly attributable to lower provision for credit losses.  For the nine months ended September 30, 2024, the return on average equity decreased due to a 6.5% increase in average equity or $343.8 million while net income only increased 0.8% or $3.1 million.  The increase in average equity was due to net income earned and a reduction in accumulated other comprehensive loss.
For the three months ended September 30, 2024, the return on average tangible equity increased compared to the same period in 2023.  This increase was due to the increase in net income adjusted for amortization of intangibles of 13.8%, or $17.9 million, being greater than the increase in average tangible equity of 13.4%, or $443.5 million.  For the nine months ended September 30, 2024, the return on average tangible equity decreased due to lower net income adjusted for amortization of intangibles of $333,000, or 0.1% along with an increase in average tangible equity of $369.4 million, or 11.4%.
The equity to assets ratios was 12.81% for the quarter ended September 30, 2024, an increase of 1.18% from September 30, 2023. This increase resulted from the effects of the net income earned during the last twelve months being greater than the increase in total assets of 2.4% from September 30, 2023.
Dividend payout ratios were 28.76% and 30.82% for the three and nine month periods ending September 30, 2024, respectively, and 31.84% and 29.78% for the three and nine month periods ending September 30, 2023, respectively. The decrease in the dividend payout ratio for the three months period ending September 30, 2024, was due to the 15.3% increase in net income being greater than the increase in dividends paid during the current quarter of 4.2% compared to the same period in 2023. The dividend payout ratio for the nine months period ending September 30, 2024, increased due to a net income increase of 0.8% compared to an increase in total dividends paid of 4.3% when compared to the same period in 2023.

Net Interest Income and Margin

Non-Tax Equivalent (“TE”) net interest income decreased $3.9 million, or 1.1%, to $351.5 million in the third quarter of 2024 compared to $355.4 million in the same period in 2023. Interest-earning assets averaged $41.2 billion during the three months period ended September 30, 2024, compared to $40.4 billion for the same period in 2023, an increase of $847.6 million, or 2.1%. Interest-bearing liabilities averaged $28.1 billion during the three months period ended September 30, 2024, compared to $26.5 billion for the same period in 2023, an increase of $1.5 billion, or 5.7%. Non-TE net interest income decreased $52.7 million, or 4.8%, to $1.0 billion in the nine months ended September 30, 2024, compared to $1.1 billion in the same period in 2023. Interest-earning assets averaged $41.0 billion during the nine months ended September 30, 2024, compared to $40.0 billion during the same period in 2023. Interest-bearing liabilities averaged $27.8 billion during the nine months ended September 30, 2024, compared to $25.7 billion for the same period in 2023, an increase of $2.0 billion, or 7.9%.

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The Federal Reserve implemented a 50 basis-point rate cut in mid-September 2024, following a series of rate hikes that began in March 2022, resulting in a target range of 4.75% to 5.00% at September 30, 2024. As the rate reduction occurred toward the end of the third quarter of 2024, the Company operated in a comparatively higher rate environment for majority of the three and nine months ended September 30, 2024, while it operated under a comparatively lower rate environment in the same time periods in 2023. Some key highlights are outlined below:

Both the non-TE and TE net interest margin decreased by 10 basis points in the third quarter of 2024 compared to the same quarter of 2023 due to the increase in the cost of interest-bearing liabilities of 56 basis points outweighing the increase in the yield on interest earning assets of 33 basis points. The increase in the cost of interest-bearing liabilities lagged the increase in yield on interest-earning assets during the rising interest rate cycle prior to the recent rate cut and has caught up in the latter half of 2023 and into 2024.
oNon-TE yield on interest-earning assets for the third quarter of 2024 increased 33 basis points to 5.25% from the comparable period in 2023 due to higher yields on the majority of interest-earning assets, including loans held for investment, investments securities, and loans held for sale, as the Federal Reserve Bank interest rate hikes during 2023 and a majority of the first nine months of 2024 continue to impact these rates. Yields on loans held for sale increased due to new Small Business Administration (“SBA”) loan purchases that generally earn higher yields compared to mortgage loans. The interest rate impact, in combination with the increases in the average balance of the higher yielding loan held for investment portfolio of $1.6 billion, and the decline in the average balances of lower yielding investment securities of $550.1 million, affected the overall yield increase between the comparable periods.
oThe average cost of interest-bearing liabilities for the third quarter of 2024 increased 56 basis points from the same period in 2023. This increase was driven by the effects from the relatively higher rate environment on the repricing of all deposit accounts, federal funds purchased, securities purchased with agreement to repurchase, and trust preferred corporate debt. The average cost of interest-bearing deposits increased 55 basis points as the cost increase occurred across all deposit categories as a result of the comparatively higher rate environment and a change in the deposit mix. Our deposits have shifted from lower-costing savings and transaction accounts to higher-costing money market accounts as the customers have sought higher yields during the current rate environment. The average balance of transaction deposit accounts decreased by $502.4 million, and savings accounts decreased by $391.4 million, while average balance of money market account increased by $2.1 billion for the third quarter of 2024 compared to the same period in 2023. The average cost of federal funds purchased and securities sold with agreements to repurchase increased by 92 basis points and 71 basis points, respectively, while the average cost of corporate and subordinated debentures increased by 1 basis point. Other borrowings, consisting of FHLB advances had an average cost of 3.78% during the third quarter of 2024 compared to 5.50% for the compared period in 2023. Our overall cost of funds, including noninterest-bearing deposits, was 1.99% for the three months ended September 30, 2024, compared to 1.52% for the three months ended September 30, 2023.

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The tables below summarize the analysis of changes in interest income and interest expense for the three and nine months ended September 30, 2024, and 2023 and net interest margin on a tax equivalent basis:

Three Months Ended

September 30, 2024

September 30, 2023

Average

Interest

Average

Average

Interest

Average

(Dollars in thousands)

Balance

Earned/Paid

Yield/Rate

Balance

Earned/Paid

Yield/Rate

Interest-Earning Assets:

Federal funds sold and interest-earning deposits with banks

$

559,942

$

6,462

4.59

%

$

822,805

$

10,831

5.22

%

Investment securities (taxable) (1)

6,346,110

37,900

2.38

%

6,925,643

40,330

2.31

%

Investment securities (tax-exempt) (1)

817,824

5,734

2.79

%

788,436

5,543

2.79

%

Loans held for sale

112,429

2,694

9.53

%

34,736

517

5.90

%

Acquired loans, net

5,055,838

78,394

6.17

%

6,384,627

99,021

6.15

%

Non-acquired loans

28,331,837

412,994

5.80

%

25,420,133

344,267

5.37

%

Total interest-earning assets

41,223,980

544,178

5.25

%

40,376,380

500,509

4.92

%

Noninterest-Earning Assets:

Cash and due from banks

416,107

456,107

Other assets

4,427,837

4,434,147

Allowance for credit losses

(470,694)

(425,315)

Total noninterest-earning assets

4,373,250

4,464,939

Total Assets

$

45,597,230

$

44,841,319

Interest-Bearing Liabilities:

Transaction and money market accounts

$

19,936,966

$

129,613

2.59

%

$

18,291,300

$

93,465

2.03

%

Savings deposits

2,453,886

1,893

0.31

%

2,845,250

1,919

0.27

%

Certificates and other time deposits

4,489,441

46,413

4.11

%

4,413,855

38,560

3.47

%

Federal funds purchased

304,582

4,178

5.46

%

236,732

3,128

5.24

%

Securities sold with agreements to repurchase

258,166

1,519

2.34

%

303,339

1,163

1.52

%

Corporate and subordinated debentures

391,681

6,007

6.10

%

392,054

6,014

6.09

%

Other borrowings

219,566

3,075

5.57

%

64,133

889

5.50

%

Total interest-bearing liabilities

28,054,288

192,698

2.73

%

26,546,663

145,138

2.17

%

Noninterest-Bearing Liabilities:

Demand deposits

10,412,512

11,362,233

Other liabilities

1,382,260

1,603,511

Total noninterest-bearing liabilities (“Non-IBL”)

11,794,772

12,965,744

Shareholders’ equity

5,748,170

5,328,912

Total Non-IBL and shareholders’ equity

17,542,942

18,294,656

Total Liabilities and Shareholders’ Equity

$

45,597,230

$

44,841,319

Net Interest Income and Margin (Non-Tax Equivalent)

$

351,480

3.39

%

$

355,371

3.49

%

Net Interest Margin (Tax Equivalent)

3.40

%

3.50

%

Total Deposit Cost (without debt and other borrowings)

1.90

%

1.44

%

Overall Cost of Funds (including demand deposits)

1.99

%

1.52

%

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Nine Months Ended

September 30, 2024

September 30, 2023

Average

Interest

Average

Average

Interest

Average

(Dollars in thousands)

Balance

Earned/Paid

Yield/Rate

Balance

Earned/Paid

Yield/Rate

Interest-Earning Assets:

Federal funds sold and interest-earning deposits with banks

$

653,173

$

22,964

4.70

%

$

843,423

$

31,610

5.01

%

Investment securities (taxable) (1)

6,474,629

116,391

2.40

%

7,141,552

123,149

2.31

%

Investment securities (tax-exempt) (1)

810,345

17,072

2.81

%

836,879

17,687

2.83

%

Loans held for sale

73,013

4,393

8.04

%

31,367

1,487

6.34

%

Acquired loans, net

5,394,641

252,221

6.25

%

6,765,169

306,873

6.06

%

Non-acquired loans

27,559,419

1,179,516

5.72

%

24,356,337

948,165

5.20

%

Total interest-earning assets

40,965,220

1,592,557

5.19

%

39,974,727

1,428,971

4.78

%

Noninterest-Earning Assets:

Cash and due from banks

437,146

479,715

Other assets

4,407,017

4,457,343

Allowance for credit losses

(465,400)

(384,446)

Total noninterest-earning assets

4,378,763

4,552,612

Total Assets

$

45,343,983

$

44,527,339

Interest-Bearing Liabilities:

Transaction and money market accounts

$

19,712,296

$

367,626

2.49

%

$

17,468,145

$

199,697

1.53

%

Savings deposits

2,515,755

5,541

0.29

%

3,056,549

5,626

0.25

%

Certificates and other time deposits

4,353,545

130,395

4.00

%

3,956,959

85,350

2.88

%

Federal funds purchased

277,139

11,168

5.38

%

215,184

8,005

4.97

%

Securities sold with agreements to repurchase

269,842

4,239

2.10

%

335,416

2,674

1.07

%

Corporate and subordinated debentures

391,775

18,014

6.14

%

392,145

17,572

5.99

%

Other borrowings

238,321

9,899

5.55

%

309,158

11,670

5.05

%

Total interest-bearing liabilities

27,758,673

546,882

2.63

%

25,733,556

330,594

1.72

%

Noninterest-Bearing Liabilities:

Demand deposits

10,500,570

12,018,931

Other liabilities

1,471,183

1,505,077

Total noninterest-bearing liabilities (“Non-IBL”)

11,971,753

13,524,008

Shareholders’ equity

5,613,557

5,269,775

Total Non-IBL and shareholders’ equity

17,585,310

18,793,783

Total Liabilities and Shareholders’ Equity

$

45,343,983

$

44,527,339

Net Interest Income and Margin (Non-Tax Equivalent)

$

1,045,675

3.41

%

$

1,098,377

3.67

%

Net Interest Margin (Tax Equivalent)

3.42

%

3.68

%

Total deposit cost (without debt and other borrowings)

1.81

%

1.06

%

Overall Cost of Funds (including demand deposits)

1.91

%

1.17

%

(1)Investment securities (taxable) and (tax-exempt) include trading securities.

Investment Securities

The interest earned on investment securities decreased by $2.2 million and $7.4 million, respectively, in the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023. The average balance of investment securities decreased $550.1 million and $693.5 million, respectively, for the three and nine months ended September 30, 2024, from the comparable periods in 2023. The yield on the investment securities increased 6 basis points and 9 basis points, respectively, during the three and nine months ended September 30, 2024, compared to the same periods in 2023 due to the rising rate environment. While the Bank reduced the size of its investment securities portfolio, the yield on the investment securities increased as the Company reinvested cash flows from securities in a higher interest rates environment in the three and nine months ended September 30, 2024, compared to the same periods in 2023, resulting in a higher yield in 2024.

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Loans

Interest earned on loans held for investment increased $48.1 million to $491.4 million and increased $176.7 million to $1.4 billion, respectively, during the three and nine months ended September 30, 2024, from the comparable periods in 2023. Interest earned on loans held for investment included loan accretion income recognized during the three and nine months ended September 30, 2024, and 2023 of $2.9 million, $11.5 million, $4.1 million and $16.9 million, respectively, a decrease of $1.2 million and $5.4 million, respectively. Some key highlights for the quarter ended September 30, 2024, are outlined below:

Our non-TE yield on total loans increased 33 basis points in the third quarter of 2024 compared to the same period in 2023 due to a 43 basis-point increase in the yield on the non-acquired loan portfolio and a 2 basis-point increase in the yield on the acquired loan portfolio.
oThe yield on the acquired loan portfolio increased slightly from 6.15% in the third quarter of 2023 to 6.17% in the same period in 2024, while interest income on the acquired loan portfolio declined by $20.6 million during the same period.
The interest income on acquired loans decreased by $20.6 million, due to a $1.3 billion decrease in average balance during the third quarter of 2024 compared to the same period in 2023. The average balance decreased due to paydowns, pay-offs and renewals of acquired loans that are moved to our non-acquired loan portfolio. The effect from the decline in average acquired loans balance was partially offset by the increase in yield of 2 basis points.
oThe yield on the non-acquired loan portfolio increased 43 basis points to 5.80% in the third quarter of 2024 compared to 5.37% in the same period in 2023. Interest income on the non-acquired loan portfolio increased $68.7 million during the same period.
The increases in both yield and interest income on non-acquired loans were attributable to both an increase in the average loan balance of $2.9 billion during the third quarter of 2024 compared to the same period in 2023, primarily through organic loan growth and renewals of acquired loans that are moved to our non-acquired loan portfolio, along with a higher yield of 43 basis points due to the higher rate environment.

Interest-Bearing Liabilities

The quarter-to-date average balance of interest-bearing liabilities increased by $1.5 billion, or 5.7%, in the third quarter of 2024 compared to the same period in 2023. The cost of interest-bearing liabilities increased by 56 basis points to 2.73% and the overall cost of funds, including demand deposits, increased by 47 basis points to 1.99% in the third quarter of 2024, compared to the same period in 2023. Some key highlights for the quarter ended September 30, 2024, compared to the same period in 2023 include:

The cost of interest-bearing deposits was 2.63% for the third quarter of 2024 compared to 2.08% for the same period in 2023.
oInterest expense on interest-bearing deposits increased by $44.0 million in the third quarter of 2024 compared to the same period in 2023 primarily due to interest expense on transaction and money market accounts and certificate and other time deposits increased. Interest expense on transaction and money market accounts and certificates and other time deposits increased by $36.1 million and $7.9 million, respectively, while interest expense on savings declined by $26,000. One factor driving the increase in average cost and interest expense was the repricing of deposits in the higher rate environment in 2024 compared to the second quarter of 2023. The increase in the cost of interest-bearing deposits lagged the increase in the yield on interest-earning assets during this higher interest rate cycle and has caught up in the latter half of 2023 and into the first half of 2024.
oThe average balance of interest-bearing deposits increased by $1.3 billion, primarily due to a $1.6 billion average balance increase of transaction and money market accounts and a $75.6 million average balance increase of certificates and other time deposits, which drove up interest expense. The increase in the average balance of transaction and money market accounts was partially offset by a decrease in the average saving deposits of $391.4 million.
The cost of federal funds purchased increased 22 basis points while the average balance increased $67.9 million in the third quarter of 2024, which drove the $1.1 million increase in interest expense compared to the same period in 2023.
The cost of repurchase agreements was 2.34% for the third quarter of 2024 compared to 1.52% for the same period in 2023. The effects from the increase in the cost of repurchase agreements, partially offset by the effects from a decline in the average balance of $45.2 million, drove the increase in the interest expense of $356,000 during the third quarter of 2024 compared to the same period in 2023.
The cost on the corporate and subordinated debt remained flat increasing only by 1 basis point to 6.10% for the three months ended September 30, 2024, compared to the same period in 2023, while the average balance decreased by $373,000. Interest expense from corporate and subordinated debentures decreased by $7,000 during the third quarter of 2024 compared to the same period in 2023 due to the decrease in average balance.

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The cost of other borrowings, consisting of FHLB advances, for the three months ended September 30, 2024, was 5.57% and interest expense was $3.1 million compared to 5.50% and $889,000 during the third quarter of 2023. The increase in interest expense was due to an increase in the average balance of other borrowings of $155.4 million to $219.6 million during the third quarter of 2024 compared to $64.1 million during the same period in 2023. The Company used FHLB advances in 2024 to provide additional liquidity as the competition for deposits increased during the year.

We continue to monitor and adjust rates paid on deposit products as part of our strategy to manage our net interest margin. Interest-bearing liabilities include interest-bearing transaction accounts, savings deposits, CDs, other time deposits, federal funds purchased, and other borrowings. Interest-bearing transaction accounts include NOW, HSA, Interest on Lawyers’ Trust Accounts (“IOLTA”), and Market Rate checking accounts.

Noninterest-Bearing Deposits

Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. Average noninterest-bearing deposits decreased $0.9 billion, or 8.4%, to $10.4 billion in the third quarter of 2024 compared to $11.4 billion during the same period in 2023. The decrease in the average balance of noninterest bearing deposits was due to customers moving funds from noninterest bearing checking accounts to interest bearing checking accounts such as money market and time deposits, seeking higher yields.

Noninterest Income

Noninterest income provides us with additional revenues that are significant sources of income. For the three months ended September 30, 2024, and 2023, noninterest income comprised 17.6%, and 17.0%, respectively, of total net interest income and noninterest income. For the nine months ended September 30, 2024, and 2023, noninterest income comprised 17.5%, and 16.8%, respectively, of total net interest income and noninterest income.

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

    

2024

    

2023

    

2024

    

2023

 

Service charges on deposit accounts

$

23,712

$

22,657

$

69,271

$

65,525

Debit, prepaid, ATM and merchant card related income

 

10,274

 

10,173

 

31,702

 

30,265

Mortgage banking income

 

3,189

 

2,478

 

15,270

 

11,164

Trust and investment services income

 

11,578

 

9,556

 

33,060

 

29,316

Correspondent banking and capital markets income

9,893

12,916

19,064

45,697

Securities gains, net

 

 

 

 

45

SBA income

 

3,875

 

3,033

 

12,193

 

9,640

Bank owned life insurance income

8,276

7,039

22,540

20,123

Other

 

4,137

 

4,996

 

18,617

 

9,642

Total noninterest income

$

74,934

$

72,848

$

221,717

$

221,417

Noninterest income increased slightly by $2.1 million, or 2.9%, during the third quarter of 2024 compared to the same period in 2023. This quarterly change in total noninterest income resulted from the following:

Service charges on deposit accounts were higher by $1.1 million, or 4.7%, during the current quarter compared to the same period of the prior year. The increase was mainly attributable to a $973,000 increase in overdraft fees in the third quarter of 2024 compared to the same period in 2023.
Trust and investment services income for the third quarter of 2024 increased by $2.0 million, or 21.2%, from the third quarter of 2023, as assets under management have increased by $1.5 billion, or 19.8%.
Correspondent banking and capital markets income in the third quarter of 2024 decreased by $3.0 million, or 23.4%, compared to the same quarter in 2023. The decline was primarily related to a decrease of $6.3 million in income generated from the sale of customer swap ARC hedges during the third quarter of 2024 compared to the third quarter of 2023 resulting from the comparatively higher interest rate environment in 2024. The decline was offset by a $4.4 million decrease in the expense attributable to the variation margin payments for centrally cleared swaps where we recorded an expense of $7.5 million related to variation margin payments in the third quarter of 2024 compared to an expense of $11.9 million in the third quarter of 2023.
Bank owned life insurance income increased $1.2 million, or 17.6%, during the third quarter of 2024 compared to the same period in 2023. This increase was primarily due to higher death proceeds on BOLI policies received during the third quarter of 2024 compared to the same period in 2023.

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Noninterest income increased by $300,000, or 0.1%, during the nine months ended September 30, 2024, compared to the same period in 2023. This year-to-date change in total noninterest income resulted from the following:

Service charges on deposit accounts were higher in 2024 by $3.7 million, or 5.7%, compared to 2023. The increase was mainly attributable to a $3.0 million increase in overdraft fees and a $849,000 increase in service charge account maintenance fees in 2024 compared to 2023.
Debit, prepaid, ATM and merchant card related income was higher by $1.4 million, or 4.7%, in 2024 compared to 2023. The increase in debit, ATM, prepaid and merchant card related income was primarily due to lower card and ATM system related expense of $1.1 million.
Mortgage banking income increased by $4.1 million, or 36.8%, in 2024 compared to 2023, which comprised of a $4.8 million, or 69.2%, increase in secondary market mortgage income and a decrease of $694,000, or 16.4%, in mortgage servicing related income. Mortgage production declined from $1.8 billion in the first nine months of 2023 to $1.5 billion in the first nine months of 2024 with relatively higher mortgage rates continuing during 2024, however we allocated a higher percentage of mortgage production to the secondary market in 2024 compared to 2023 from 38% to 57%.
oMortgage income from the secondary market increased by $4.8 million between the comparable periods resulting from a $3.3 million increase in the gain on sale of mortgage loans, which is net of the commission expense related to mortgage production, a $740,000 increase in the fair value of loans held for sale, the change in fair value of the pipeline of $434,000, and a $337,000 increase in the fair value of MBS forward trades. Mortgage commission expense was $8.7 million in 2024 compared to $6.5 million in 2023.
oThe decrease in mortgage servicing related income, net of the hedge, in 2024 was due to a $876,000 decrease in the change in fair value of the MSR including decay, offset by a $182,000 increase in service fee income. The decrease in fair value of the MSR between the comparable periods was primarily due to a decrease in the change in fair value from interest rates of $4.8 million and a $179,000 decline in MSR decay, offset by a $4.1 million increase from gains/losses on the MSR hedge.
Correspondent banking and capital markets income for 2024 decreased by $26.6 million, or 58.3%, compared to 2023. The decline was primarily related to a decrease of $24.1 million in income generated from the sale of customer swap ARC hedges in 2024 compared to 2023 resulting from the comparatively higher interest rate environment in 2024. The decline was also due to fixed income revenue being lower by $981,000 in 2024 compared to 2023. In addition, the expense attributable to the variation margin payments for centrally cleared swaps increased where we recorded an expense of $29.2 million related to variation margin payments in the 2024 compared to an expense of $28.8 million in 2023.
SBA income increased by $2.6 million, or 26.5% in 2024 compared to 2023.  The increase was primarily attributable to an increase in gains on sale of SBA loans of $2.1 million due to an increase in the balances of loans sold of 21% in 2024.  
Other income increased by $9.0 million, or 93.1%, in 2024 compared to 2023. This increase was due to approximately $5.2 million in income recognized on federal tax refunds received during the second quarter of 2024 for net operating loss carrybacks filed in 2021, the Bank recognizing approximately $3.0 million in credits from an external vendor in 2024, and approximately $876,000 resulting from the release of accrued expense attributable to UTPs. Income from VISA merchant sponsorship program, in which the Bank earns fees by aiding merchants in processing transactions through VISA, also increased $651,000.

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Noninterest Expense

Three Months Ended

Nine Months Ended

September 30,

September 30,

(Dollars in thousands)

    

2024

    

2023

    

2024

    

2023

    

Salaries and employee benefits

$

150,865

$

146,146

$

452,753

$

437,548

Occupancy expense

 

22,242

 

22,251

 

67,272

 

65,980

Information services expense

 

23,280

 

21,428

 

68,777

 

62,472

OREO and loan related expense

 

1,358

 

613

 

3,271

 

768

Amortization of intangibles

 

5,327

 

6,616

 

17,069

 

20,943

Business development and staff related expense

 

5,797

 

5,995

 

17,816

 

18,624

Supplies and printing

 

960

 

876

 

2,628

 

2,613

Postage expense

1,802

1,747

5,200

5,204

Professional fees

 

4,017

 

3,456

 

11,038

 

11,522

FDIC assessment and other regulatory charges

 

7,482

 

8,632

 

23,787

 

24,745

FDIC special assessment

4,473

Advertising and marketing

 

2,296

 

3,009

 

6,874

 

6,648

Merger, branch consolidation, severance related and other expense

 

3,303

 

164

 

13,602

 

11,384

Other

 

18,118

 

17,273

 

50,324

 

52,886

Total noninterest expense

$

246,847

$

238,206

$

744,884

$

721,337

Noninterest expense increased by $8.6 million, or 3.6%, in the third quarter of 2024 as compared to the same period in 2023. The quarterly increase in total noninterest expense primarily resulted from the following:

Salaries and employee benefits increased $4.7 million, or 3.2%, in the third quarter of 2024 compared to the same period in 2023. The increase was primarily driven by higher employee benefit costs of $7.0 million, resulting from higher Supplemental Executive Retirement Plans (“SERP”) related expense. The lower SERP costs in the third quarter of 2023 was associated with prior year’s annual SERP liability adjustment due to increases in interest rates. In addition, salaries increased approximately $1.2 million resulting from merit increases. These increases were partially offset by a decrease in commissions of $2.3 million, which is mainly attributable to lower commissions related to the correspondent banking division resulting from lower bond sales and lower income from the ARC hedging program. Incentive expense also declined by $1.2 million during 2024.
Information services expense increased $1.9 million, or 8.6%, in the third quarter of 2024 compared to the same period in 2023.  The increase was due to additional costs associated with the Company updating systems and expenses associated with transferring, managing, and processing data as it grows in size and complexity.
Amortization of intangibles, which is related to the Company’s prior mergers, decreased $1.3 million, or 19.5%.
FDIC assessment and other regulatory charges decreased $1.2 million, or 13.3%, in the third quarter of 2024 compared to the same period in 2023. The decrease was primarily attributed to a lower assessment rate, reflecting the Bank’s strengthened capital position year-over-year.
Merger, branch consolidation and severance related expense increased $3.1 million in the third quarter of 2024 compared to the same period in 2023. Of the $3.1 million increase in 2024, approximately $1.8 million pertains to costs associated with the previously announced acquisition of Independent and $1.3 million in the restructuring costs.

Noninterest expense increased by $23.5 million, or 3.3%, during the nine months ended September 30, 2024, compared to the same period in 2023. The categories and explanations for the fluctuations year-to-date, except the items discussed below, are similar to the ones noted above in the quarterly comparison.

Occupancy expense increased $1.3 million, or 2.0%. The increase was primarily due to increases in branch maintenance and repair and lease related expenses.
OREO and loan related expense increased to $2.5 million, or 325.9%, in 2024 compared to the same period in 2023. The increase was primarily due to a $1.5 million increase in Special Assets Management (“SAM”) related expenses including legal, tax and other costs and a $1.2 million increase in losses from the sales of OREO and other repossessed assets.
The Company accrued a total of $4.5 million in 2024 related to the FDIC’s special assessment introduced in 2023 to recover losses to the FDIC’s Deposit Insurance Fund resulting from the bank failures that occurred in early 2023. The Bank increased its accrual of the FDIC special assessment during the first and second quarter of 2024 based upon estimates of losses provided by the FDIC.
Merger, branch consolidation and severance related expense increased by $2.2 million, or 19.5%, for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase was primarily due to approximately $8.0 million increase in one-time costs associated with the cybersecurity incident, along with approximately $1.8 million increase in merger costs. These increases were offset by a decrease in restructuring costs of $7.7 million.

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Other noninterest expense decreased $2.6 million, or 4.8% in 2024 compared to the same period in 2023. This decrease was primarily driven by a $6.3 million reduction due to the amortization of LIHTCs being recorded in income tax expense, effective January 1, 2024, following the adoption of ASU 2023-02, a $2.3 million decrease in donations, a $2.2 million decrease in miscellaneous expense which was mainly related to a release in accrued expense for an uncertain tax position (“UTP”) of $2.0 million in the second quarter of 2024, and a $1.9 million decrease in other operational expenses. These decreases were offset by a $10.8 million increase in earnings credit expense to Homeowners Association (“HOA”) customers. The Bank provides a credit to HOA customers based on the average deposit balances held that reduces fees for other services provided.

Income Tax Expense

Our effective tax rate was 23.24% for the three months ended September 30, 2024, compared to 21.08% for the three months ended September 30, 2023. The increase in the effective rate for the quarter, when compared to the same period in the prior year, is driven primarily by amortization of LIHTCs now being recorded as part of income tax expense as a result of the adoption of the proportional amortization under ASU 2023-02 effective January 1, 2024, as well as an increase in pre-tax book income and a decrease in disallowed interest expense. This was partially offset by a decrease in disallowed FDIC premiums and an increase in non-deductible merger expenses recorded during the current period.

Our effective tax rate for the first nine months of the year was 23.84% compared to 21.60% for the first nine months of 2023. The increase in the year-to-date effective tax rate compared to the same period of 2023 was primarily driven by amortization of LIHTC investments, an increase in pre-tax book income, a decrease in federal tax credits available in the current period, partially offset by a decrease in disallowed executive compensation and a decrease in disallowed interest expense. In addition, the Company recorded approximately $2.8 million in income tax provision during the first quarter of 2024 related to the revaluation of its deferred income taxes and other tax adjustments.

Analysis of Financial Condition

Summary

Our total assets increased approximately $1.2 billion, or 2.6%, from December 31, 2023, to September 30, 2024, to approximately $46.1 billion. Within total assets, cash and cash equivalents increased by $213.8 million, or 21.4% and net loans increased $1.1 billion, or 3.6%, while investment securities decreased $386.7 million, or 5.2%, during the period. Within total liabilities, deposits grew $589.3 million, or 1.6%, and federal funds purchased and securities sold under agreements to repurchase increased by $49.1 million, or 10.0%. Total borrowings increased by $199.7 million, or 40.6%. Total shareholder’s equity increased $371.5 million, or 6.7%. The increase in cash and cash equivalents was primarily due to the increase in deposits of $589.3 million, and other borrowings of $199.7 million along with the decline in investments of $386.7 million resulting from maturities and pay downs of mortgage-backed securities. The increase in deposits was mainly attributable to an increase in money market accounts and certificate of deposits. The increase in borrowings was due to a net increase in FHLB advances of $200.0 million compared to December 31, 2023. The increases in funding sources were mostly offset by the increase in loans of $1.2 billion, which was due to normal organic growth. Our loan to deposit ratio was 89% and 87% at September 30, 2024 and December 31, 2023, respectively, while our percentage of noninterest-bearing deposit accounts to total deposits was 28% and 29%, respectively at September 30, 2024, and December 31, 2023.

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Investment Securities

We use investment securities, our second largest category of earning assets, to generate interest income, provide liquidity, fund loan demand or deposit liquidation, and to pledge as collateral for public funds deposits, repurchase agreements, derivative exposures and to augment borrowing capacity at the Federal Reserve Bank of Atlanta, and the Federal Home Loan Bank of Atlanta.  At September 30, 2024, investment securities totaled $7.1 billion, compared to $7.5 billion at December 31, 2023, a decrease of $386.7 million, or 5.2%. At September 30, 2024, approximately 64.5% of the investment portfolio was classified as available for sale, approximately 32.5% was classified as held to maturity and approximately 3.0% was classified as other investments. During the nine months ended September 30, 2024, we purchased $140.1 million of capital stock of the Federal Home Loan Bank of Atlanta classified as other investment securities on the balance sheet of which we sold back $130.6 million. The net increase to the capital stock holding for the Federal Home Loan Bank of Atlanta of $9.5 million during the nine months of 2024 was due to the increase in Federal Home Loan Bank borrowings. During the nine months ended September 30, 2024, the Bank purchased $60.7 million of available for sale securities. There were maturities, paydowns, and calls of investment securities totaling $589.1 million during the nine months ended September 30, 2024. Net amortization of premiums was $14.6 million during the nine months ended September 30, 2024.

At September 30, 2024, the unrealized net losses of the available for sale securities portfolio was $639.8 million, or 12.3%, below its amortized cost basis, compared to an unrealized net loss of $776.6 million, or 14.0%, at December 31, 2023. At September 30, 2024, the unrealized net loss of the held to maturity securities portfolio was $337.6 million, or 14.7%, below its amortized cost basis, compared to an unrealized net loss of $402.7 million, or 16.2%, at December 31, 2023.

The following is the combined amortized cost and fair value of investment securities available for sale and held for maturity, aggregated by credit quality indicator:

    

    

    

    

    

    

    

    

    

 

Amortized

Fair

Unrealized

 

(Dollars in thousands)

Cost

Value

Net Loss

AAA – A

Not Rated

 

September 30, 2024

U.S. Treasuries

$

2,684

$

2,685

$

1

$

2,684

$

U.S. Government agencies

338,448

303,724

(34,724)

338,448

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises*

3,035,720

2,630,424

(405,296)

93

3,035,627

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises*

994,285

853,709

(140,576)

994,285

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises*

 

1,565,275

1,348,998

(216,277)

20,621

 

1,544,654

State and municipal obligations

 

1,123,634

989,303

(134,331)

1,121,091

 

2,543

Small Business Administration loan-backed securities

 

414,960

371,282

(43,678)

414,960

 

Corporate securities

30,499

27,984

(2,515)

30,499

$

7,505,505

$

6,528,109

$

(977,396)

$

1,897,897

$

5,607,608

* Agency mortgage-backed securities (“MBS”), agency collateralized mortgage-obligations (“CMO”) and agency commercial mortgage-backed securities (“CMBS”) are guaranteed by the issuing government-sponsored enterprise (“GSE”) as to the timely payments of principal and interest. Except for Government National Mortgage Association securities, which have the full faith and credit backing of the United States Government, the GSE alone is responsible for making payments on this guaranty. While the rating agencies have not rated any of the MBS, CMO and CMBS issued, senior debt securities issued by GSEs are rated consistently as “Triple-A.” Most market participants consider agency MBS, CMOs and CMBSs as carrying an implied Aaa rating (S&P rating of AA+) because of the guarantees of timely payments and selection criteria of mortgages backing the securities. We do not own any private label mortgage-backed securities. The balances presented under the ratings above reflect the amortized cost of the investment securities.

At September 30, 2024, we had 1,204 investment securities including both available for sale and held to maturity, in an unrealized loss position, which totaled $980.6 million. At December 31, 2023, we had 1,232 investment securities, including both available for sale and held to maturity, in an unrealized loss position, which totaled $1.2 billion. The total number of investment securities with an unrealized loss position decreased, while the total dollar amount of the unrealized loss decreased by $200.6 million. The level of unrealized losses for each period is due to an overall increase in short- and long-term interest rates in 2022 and 2023. The reduction in the unrealized losses in the third quarter of 2024 was due to the Federal Reserve Bank dropping interest rates by 50 basis points during the quarter and the expectation that further rate cuts could come in the fourth quarter of 2024 and into 2025.

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All investment securities in an unrealized loss position as of September 30, 2024, continue to perform as scheduled. We have evaluated the securities and have determined that the decline in fair value, relative to its amortized cost, is not due to credit-related factors. In addition, we have the ability and intent to hold these securities within the portfolio until maturity or until the value recovers, and we believe that it is more likely than not that we will not be required to sell these securities prior to recovery. We continue to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of our securities may be sold or would require a charge to earnings as a provision for credit losses in such periods. Any charges as a provision for credit losses related to investment securities could impact cash flow, tangible capital or liquidity. See Note 2 — Summary of Significant Accounting Policies and Note 5 — Investment Securities for further discussion on the application of ASU 2016-13 on the investment securities portfolio.

As securities held for investment are purchased, they are designated as held to maturity or available for sale based upon our intent, which incorporates liquidity needs, interest rate expectations, asset/liability management strategies, and capital requirements. Although securities classified as available for sale may be sold from time to time to meet liquidity or other needs, it is not our normal practice to trade this segment of the investment securities portfolio. From time to time, the Bank may execute transactions to reposition the investment portfolio. Such activity has not expanded the broad asset classes used by the Bank. While management generally holds these assets on a long-term basis or until maturity, any short-term investments or securities available for sale could be converted at an earlier point, depending partly on changes in interest rates and alternative investment opportunities.

The following table presents a summary of our investment portfolio by contractual maturity and related yield as of September 30, 2024:

Due In

Due After

Due After

Due After

 

1 Year or Less

1 Thru 5 Years

5 Thru 10 Years

10 Years

Total

 

(Dollars in thousands)

    

Amount

    

Yield

    

Amount

    

Yield

    

Amount

    

Yield

    

Amount

    

Yield

    

Amount

    

Yield

 

Held to Maturity (amortized cost)

U.S. Government agencies

$

14,365

2.32

%  

$

%  

$

132,906

1.73

%  

$

%  

$

147,271

1.79

%  

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

142,554

1.97

1,190,709

1.81

1,333,263

1.83

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

419,838

2.56

419,838

2.56

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

36,471

0.94

169,398

1.49

143,991

1.58

349,860

1.47

Small Business Administration loan-backed securities

51,075

1.20

51,075

 

1.20

Total held to maturity

$

14,365

 

2.32

%  

$

36,471

 

0.94

%  

$

444,858

 

1.72

%  

$

1,805,613

 

1.95

%  

$

2,301,307

 

1.89

%

Available for Sale (fair value)

U.S. Government treasuries

$

2,685

4.79

%  

$

%  

$

%  

$

%  

$

2,685

4.79

%

U.S. Government agencies

71,380

2.31

22,646

1.63

81,698

1.69

175,724

 

1.89

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

168

2.77

4,160

2.24

141,728

2.37

1,340,030

1.99

1,486,086

2.02

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

122

2.47

6,022

2.44

8,164

2.27

477,934

2.15

492,242

2.16

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

589

2.89

220,027

2.88

590,534

1.94

249,679

1.78

1,060,829

2.08

State and municipal obligations (1)

 

4,989

3.54

 

31,120

3.17

 

156,977

2.52

 

796,217

2.81

 

989,303

 

2.78

Small Business Administration loan-backed securities

 

4,364

2.71

 

33,224

3.09

 

88,896

4.20

 

203,026

2.76

 

329,510

 

3.16

Corporate securities

 

 

10,323

5.94

 

16,901

4.14

 

760

4.50

 

27,984

 

4.81

Total available for sale

$

84,297

2.49

%  

$

327,522

2.92

%  

$

1,084,898

2.28

%  

$

3,067,646

2.26

%  

$

4,564,363

2.31

%

Total other investments (2)

$

%  

$

%  

$

%  

$

211,458

4.42

%  

$

211,458

 

4.42

%

Total investment securities

$

98,662

 

2.46

%  

$

363,993

 

2.72

%  

$

1,529,756

 

2.12

%  

$

5,084,717

 

2.24

%  

$

7,077,128

 

2.24

%

Percent of total

 

2

%  

 

5

%  

 

22

%  

 

72

%  

Cumulative percent of total

 

2

%  

 

7

%  

 

28

%  

 

100

%  

(1)

Yields on tax exempt income have been presented on a taxable equivalent basis in the table above.

(2)

FRB, FHLB and other non-marketable equity securities have no set maturity date and are classified in “Due after 10 Years.”

Approximately 85.2% of the investment portfolio is comprised of U.S. Treasury securities, U.S. Government agency securities, and U.S. Government Agency Mortgage-backed securities. These securities may be pledged to the Federal Home Loan Bank of Atlanta or the Federal Reserve Bank of Atlanta Discount Window. Approximately 14.4% of the investment portfolio is comprised of municipal securities. A portion of the municipal bond portfolio may be pledged to the Federal Home Loan Bank of Atlanta subject to their credit approval. Approximately 98% of the municipal bond portfolio has ratings in the Double A or Triple A category.

The Company did not sell any securities that are available for sale or held to maturity during the nine months ended September 30, 2024. As of September 30, 2024, the portfolio had an effective duration of 5.89 years. We continue to monitor duration risk and seek to align actual duration with the target range.

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The following table presents a summary of our investment portfolio duration for the periods presented:

September 30, 2024

December 31, 2023

(Dollars in thousands, duration in years)

    

Amount

    

Duration

    

Amount

    

Duration

Held to Maturity (amortized cost)

U.S. Government agencies

$

147,271

5.62

$

197,267

5.03

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

1,333,263

5.57

1,438,102

6.40

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

419,838

6.09

444,883

6.24

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

349,860

5.77

354,055

4.06

Small Business Administration loan-backed securities

51,075

4.12

53,133

6.95

Total held to maturity

$

2,301,307

5.67

$

2,487,440

5.94

Available for Sale (fair value)

U.S. Treasuries

$

2,685

0.12

$

73,890

0.35

U.S. Government agencies

175,724

3.51

224,706

3.41

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

1,486,086

5.27

1,558,306

6.12

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises

492,242

5.37

527,422

5.69

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises

1,060,829

5.50

1,024,170

3.73

State and municipal obligations

 

989,303

 

8.01

 

977,461

 

8.62

Small Business Administration loan-backed securities

 

329,510

2.82

 

371,686

3.81

Corporate securities

 

27,984

1.87

 

26,747

2.45

Total available for sale

$

4,564,363

5.67

$

4,784,388

5.65

Other Investments

Other investment securities include primarily our investments in FHLB and FRB stock with no readily determinable market value. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of September 30, 2024, we determined that there was no impairment on our other investment securities. As of September 30, 2024, other investment securities represented approximately $211.5 million, or 0.46% of total assets, and primarily consists of FHLB and FRB stock which totals $182.6 million, or 0.40% of total assets. There were no gains or losses on the sales of these securities for three and nine months ended September 30, 2024, and 2023, respectively.

Trading Securities

We have a trading portfolio associated with our Correspondent Banking Division and the Bank’s subsidiary, SouthState|DuncanWilliams. This portfolio is carried at fair value and realized and unrealized gains and losses are included in trading securities revenue, a component of Correspondent Banking and Capital Markets Income in our Consolidated Statements of Income. Securities purchased for this portfolio have primarily been municipal bonds, treasuries and mortgage-backed agency securities, which are held for short periods of time and totaled $87.1 million and $31.3 million, respectively, at September 30, 2024, and December 31, 2023.

Loans Held for Sale

The balance of loans held for sale increased $236.2 million from December 31, 2023, to $287.0 million on September 30, 2024. Loans held for sale at September 30, 2024 consisted of mortgage and SBA loans held for sale. At December 31, 2023 loans held for sale consisted only of mortgage loans held for sale.

During the third quarter of 2024, the Company began purchasing the guaranteed portions of SBA loans from third-party originators with the intent to aggregate the guaranteed portion of the SBA loans into pools with similar characteristics to create a security representing an interest in those pools through the SBA’s fiscal transfer agent. SBA loans held for sale totaled $222.1 million at September 30, 2024. See Note – 20 – SBA Loans Held for Sale for more information. This new activity in SBA loans held for sale was the main reason for the significant increase in loans held for sale during the current period.

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Mortgage loans held for sale totaled $64.9 million at September 30, 2024, an increase from $50.9 million at December 31, 2023. Total mortgage production was $506 million in the third quarter of 2024. This compares to $552 million in the second quarter of 2024 and $521 million in the third quarter of 2023. Mortgage production has remained flat in 2024 as mortgage rates have continued to remain high and housing inventory has remained low. The percentage of mortgage production sold into the secondary market decreased slightly in the third quarter of 2024 to 58% from 59% in the second quarter of 2024 but increased from 47% in the third quarter of 2023. The allocation of mortgage production between portfolio and secondary market depends on the Company’s liquidity, market spreads and rate changes during each period and will fluctuate over time.

Loans

The following table presents a summary of the loan portfolio by category (excludes loans held for sale):

LOAN PORTFOLIO

September 30,

% of

December 31,

% of

(Dollars in thousands)

2024

    

Total

2023

    

Total

Acquired loans:

Acquired - non-purchased credit deteriorated loans:

Construction and land development

$

61,158

0.2

%  

$

135,819

0.4

%  

Commercial non-owner-occupied

1,444,916

4.3

%  

1,730,990

5.4

%  

Commercial owner-occupied real estate

958,716

2.9

%  

1,115,539

3.4

%  

Consumer owner-occupied

447,841

1.3

%  

496,674

1.5

%  

Home equity loans

193,941

0.6

%  

227,789

0.7

%  

Commercial and industrial

668,444

1.9

%  

863,584

2.7

%  

Other income producing property

120,697

0.3

%  

148,361

0.5

%  

Consumer non real estate

63,108

0.2

%  

77,930

0.2

%  

Other

207

%  

227

%  

Total acquired - non-purchased credit deteriorated loans

3,959,028

11.7

%  

4,796,913

14.8

%  

Acquired - purchased credit deteriorated loans (PCD):

Construction and land development

6,086

%  

9,506

%  

Commercial non-owner-occupied

368,732

1.1

%  

445,270

1.4

%  

Commercial owner-occupied real estate

283,410

0.8

%  

349,755

1.1

%  

Consumer owner-occupied

151,986

0.5

%  

169,923

0.5

%  

Home equity loans

23,970

0.1

%  

27,239

0.1

%  

Commercial and industrial

24,736

0.1

%  

39,951

0.1

%  

Other income producing property

27,219

0.1

%  

35,358

0.1

%  

Consumer non real estate

27,203

0.1

%  

31,811

0.1

%  

Total acquired - purchased credit deteriorated loans (PCD)

913,342

2.8

%  

1,108,813

3.4

%  

Total acquired loans

4,872,370

14.5

%  

5,905,726

18.2

%  

Non-acquired loans:

Construction and land development

2,390,907

7.1

%  

2,778,189

8.6

%  

Commercial non-owner-occupied

7,432,775

22.2

%  

6,395,374

19.7

%  

Commercial owner-occupied real estate

4,302,590

12.8

%  

4,032,377

12.5

%  

Consumer owner-occupied

6,533,921

19.5

%  

5,928,408

18.3

%  

Home equity loans

1,298,055

3.9

%  

1,143,417

3.5

%  

Commercial and industrial

5,238,007

15.6

%  

4,601,004

14.2

%  

Other income producing property

462,370

1.4

%  

472,615

1.5

%  

Consumer non real estate

1,016,071

3.0

%  

1,123,909

3.5

%  

Other

1,126

%  

7,470

%  

Total non-acquired loans

28,675,822

85.5

%  

26,482,763

81.8

%  

Total loans (net of unearned income)

$

33,548,192

100.0

%  

$

32,388,489

100.0

%  

Total loans, net of deferred loan costs and fees (excluding loans held for sale), increased by $1.2 billion, or 4.8% annualized, to $33.5 billion at September 30, 2024. Our non-acquired loan portfolio increased by $2.2 billion, or 11.1% annualized, mainly driven by organic growth. Commercial non-owner-occupied loans, commercial and industrial loans, consumer owner-occupied loans, commercial owner-occupied real estate, and home equity loans led the way with $1.0 billion, $637.0 million, $605.5 million, $270.2 million and $154.6 million in year-to-date loan growth, respectively, or 21.7%, 18.5%, 13.6%, 9.0% and 18.1% annualized growth, respectively. The acquired loan portfolio decreased by $1.0 billion, or 23.4% annualized. This decline in acquired loans was due to paydowns and payoffs in both the PCD and Non-PCD loan categories along with renewals of acquired loans that were moved to our non-acquired loan portfolio. The main categories that declined were commercial non-owner-occupied loans, commercial owner-occupied loans and commercial and industrial loans, which decreased by $362.6 million, $223.2 million and $210.4 million, respectively, year-to-date. Acquired loans as a percentage of total loans decreased to 14.5% and non-acquired loans as a percentage of the overall portfolio increased to 85.5% at September 30, 2024. This compares to acquired loans as a percentage of total loans of 18.2% and non-acquired loans as a percentage of total loans of 81.8% at December 31, 2023.

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Total commercial non-owner-occupied loans of $9.2 billion, approximately 27.6% of the total loans held for investment, was the largest category of the loan portfolio as of September 30, 2024. As of September 30, 2024, approximately 95% of the commercial non-owner-occupied portfolio was located within the Company’s footprint. Of the $9.2 billion, approximately $1.3 billion, or 4% of the total loans, represented our office segment. Approximately 95% of the office segment was located in the Company’s footprint and approximately 10% was located within the metropolitan or central business district. The weighted average Debt Service Coverage (“DSC”) was 1.62x and the loan-to-value was 57%. For additional discussion around classified commercial non-owner-occupied loans, refer to the “Nonperforming Assets” section in this MD&A.

The following table presents the top eight loan segments of the commercial non-owner-occupied loan category (excluding loans held for sale). The loan segments in the table below are determined by the call code, used for the Bank’s regulatory reporting requirements issued by the FDIC for the FFIEC 041, also referred to as the Call Report.

Commercial Non-Owner-Occupied Loans

Net Book

Average

Weighted-

Weighted-Average

% of

% of Substandard &

% of

(Dollars in thousands)

Balance (1)

    

Loan Size

Average DSC (2)

Loan-to-Value (3)

Non-Accrual

Accruing

Special Mention

September 30, 2024

Loan Type:

Retail

$

2,098,257

$

1,694

1.76

53

%  

%  

0.56

%  

0.37

%  

Multifamily

1,383,067

3,129

1.46

52

%  

%  

7.27

%  

4.50

%  

Warehouse/Industrial

1,271,271

1,734

1.66

57

%  

%  

3.18

%  

0.32

%  

Office

1,261,833

1,436

1.62

57

%  

1.40

%  

8.68

%  

4.84

%  

Hotel

978,454

4,637

2.07

55

%  

%  

6.51

%  

3.13

%  

Medical

617,960

1,884

1.69

56

%  

%  

1.37

%  

1.11

%  

Other

521,344

1,244

1.55

56

%  

%  

1.15

%  

9.71

%  

Self Storage

451,315

3,640

1.47

56

%  

%  

11.97

%  

1.04

%  

Special Use

191,454

1,679

1.58

56

%  

%  

%  

4.64

%  

(1)Net book balance in each segment that represents 2% or more of commercial non-owner-occupied portfolio as of September 30, 2024.
(2)Weighted average DSC information from the Company’s December 31, 2023 stress test using commitment balances, totaling approximately $6.2 billion. The Weighted average DSC information excludes loans below $1.5 million, unless part of a larger relationship.
(3)Weighted-average Loan-to-Value as of September 30, 2024.

Allowance for Credit Losses (ACL) on Loans and Certain Off-Balance-Sheet Credit Exposures

The ACL reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. The Company records loans charged off against the ACL and subsequent recoveries, if any, increase the ACL when they are recognized. Please see Note 1 — Summary of Significant Accounting Policies, under the “ACL – Loans” section, of our Annual Report on Form 10-K for the year ended December 31, 2023, and Note 2 — Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the ACL on loans.

Management considers forward-looking information in estimating expected credit losses. The Company subscribes to a third-party service which provides a quarterly macroeconomic baseline outlook and alternative scenarios for the United States economy. The baseline, along with the evaluation of alternative scenarios, is used by management to determine the best estimate within the range of expected credit losses. Management evaluates the appropriateness of the reasonable and supportable forecast scenarios and takes into consideration the scenarios in relation to actual economic and other data, such as gross domestic product growth, monetary and fiscal policy, inflation, supply chain issues and global events like the Russian/Ukraine conflict and unrest in middle east, as well as the volatility and magnitude of changes within those scenarios quarter over quarter, and consideration of conditions within the Bank’s operating environment and geographic area. Additional forecast scenarios may be weighted along with the baseline forecast to arrive at the final reserve estimate. While periods of relative economic stability should generally lead to stability in forecast scenarios and weightings to estimate credit losses, periods of instability can likewise require management to adjust the selection of scenarios and weightings, in accordance with the accounting standards. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to the long term mean of historical factors within four quarters using a straight-line approach. The Company generally uses an eight-quarter forecast and a four-quarter reversion period.

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In spite of the rapid interest rate hikes experienced cycle-to-date, the U.S. has thus far avoided a recession, although an inverted yield curve such as observed in the current interest rate environment often portends a coming recession. Management continues to use a blended forecast scenario of the baseline, upside, and more severe scenario, depending on the circumstances and economic outlook. For the quarter ending September 30, 2024, as well as the prior quarter, management selected a baseline weighting of 40%, a 30% weighting for an upside scenario and a 30% weighting for the more severe scenario. The scenario weightings were unchanged from the prior quarter. Scenario weightings are generally expected to remain stable but are reviewed on a quarterly basis. The scenario weightings reflect continued recognition of downside risks in the economic forecast from persistent levels of inflation, high interest rates, and tightening credit conditions conducive of a mild recession. While employment figures still show resilience and actual loan losses remain at low levels, continued projected borrower weakness related to high interest rates, uncertainty, and lingering chances of an economic downturn continue to moderate optimism in the path of the forecast and kept expected losses mostly flat. A decrease in unfunded commitments primarily in commercial construction drove a provision release of approximately $7.0 million during the third quarter of 2024.

The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. Please see MD&A, under the “Financial Condition”, “Allowance for Credit Losses (“ACL”)” section, of our Annual Report on Form 10-K for the year ended December 31, 2023, and Note 2 — Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the ACL on certain off-balance-sheet credit exposures.

As of September 30, 2024, the balance of the ACL was $468.0 million or 1.39% of total loans. The ACL decreased $4.3 million from the balance of $472.3 million recorded at June 30, 2024. This decrease during the third quarter of 2024 included $1.8 million in provision for credit losses and $6.1 million in net charge-offs. During the nine months ended September 30, 2024, the Company recorded a provision for credit losses based on loan growth and current forecasts applied to our modeling to adequately capture potential economic recessionary risks.

As discussed in Note 1 - Summary of Significant Accounting Policies, in the second quarter of 2024, updates were made to certain estimates used in the Company’s current expected credit loss model. While the total allowance and coverage of total loans remain the same, reserves at the loan segment level were updated due the expansion of macroeconomic variables. Although portions of the allowance may be allocated to specific loans or pools of loans, the entire allowance is available for any credit that, in management’s judgment, should be charged off.

At September 30, 2024, the Company had a reserve on unfunded commitments of $41.5 million, which was recorded as a liability on the Consolidated Balance Sheet, compared to $50.3 million at June 30, 2024, and $56.3 million at December 31, 2023. During the three and nine months ended September 30, 2024, the Company recorded a decrease in the reserve for unfunded commitments of $8.7 million and $14.8 million, respectively. For the prior comparative period, the Company recorded a decrease in the reserve for unfunded commitments of $1.1 million and $4.9 million, respectively, during three and nine months ended September 30, 2023. The Company did not have an allowance for credit losses or record a provision for credit losses on investment securities or other financial asset during the nine months ended September 30, 2024.

The ACL provides 2.47 times coverage of nonperforming loans at September 30, 2024. Net charge-offs to total average loans during three and nine months ended September 30, 2024, were 0.07% and 0.05%, respectively, compared to net charge-offs to total average loans of 0.16% and 0.08%, respectively, during the three and nine months ended September 30, 2023. We continued to experience solid and stable asset quality numbers and ratios as of September 30, 2024.

The following table provides the allocation, by segment, for expected credit losses as of September 30, 2024:

September 30, 2024

(Dollars in thousands)

    

Amount

    

%*

    

Residential Mortgage Senior

$

52,695

 

22.6

%  

Residential Mortgage Junior

 

501

 

0.1

%  

Revolving Mortgage

 

18,832

 

4.7

%  

Residential Construction

 

7,482

 

1.2

%  

Other Construction and Development

 

68,665

 

6.0

%  

Consumer

 

19,399

 

3.3

%  

Multifamily

17,124

4.1

%  

Municipal

2,019

2.3

%  

Owner-Occupied Commercial Real Estate

84,221

16.5

%  

Non-Owner-Occupied Commercial Real Estate

122,367

23.6

%  

Commercial and Industrial

 

74,676

 

15.6

%  

Total

$

467,981

 

100.0

%  

    

*     Loan balance in each category expressed as a percentage of total loans.

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The following table presents a summary of net charge off ratios (annualized) by loan segment, for the three and nine months ended September 30, 2024, and 2023:

Three Months Ended

September 30, 2024

September 30, 2023

(Dollars in thousands)

    

Net Recovery (Charge Off)

Average Balance

Net Recovery (Charge Off) Ratio

    

Net Recovery (Charge Off)

Average Balance

Net Recovery (Charge Off) Ratio

Residential Mortgage Senior

$

(132)

$

7,487,639

(0.01)

%  

$

183

$

6,599,684

0.01

%  

Residential Mortgage Junior

 

8

 

20,384

0.16

%  

 

28

 

11,393

0.98

%  

Revolving Mortgage

 

175

 

1,564,733

0.04

%  

 

138

 

1,422,385

0.04

%  

Residential Construction

 

9

 

470,045

0.01

%  

 

3

 

850,598

0.00

%  

Other Construction and Development

 

57

 

2,028,932

0.01

%  

 

59

 

1,926,448

0.01

%  

Consumer

 

(1,731)

 

1,125,897

(0.61)

%  

 

(2,478)

 

1,257,109

(0.78)

%  

Multifamily

1,257,500

%  

935,274

%  

Municipal

765,245

%  

742,210

%  

Owner-Occupied Commercial Real Estate

(532)

5,536,233

(0.04)

%  

324

5,580,497

0.02

%  

Non-Owner-Occupied Commercial Real Estate

218

7,960,917

0.01

%  

511

7,713,488

0.03

%  

Commercial and Industrial

 

(4,152)

 

5,170,150

(0.32)

%  

 

(11,965)

 

4,765,674

(1.00)

%  

Total

$

(6,080)

$

33,387,675

(0.07)

%  

    

$

(13,197)

$

31,804,760

(0.16)

%  

Nine Months Ended

September 30, 2024

September 30, 2023

(Dollars in thousands)

Net Recovery (Charge Off)

Average Balance

Net Recovery (Charge Off) Ratio

    

Net Recovery (Charge Off)

Average Balance

Net Recovery (Charge Off) Ratio

Residential Mortgage Senior

$

(296)

$

7,319,600

(0.01)

%  

$

740

$

6,229,619

0.02

%  

Residential Mortgage Junior

 

97

 

17,520

0.74

%  

 

36

 

11,799

0.41

%  

Revolving Mortgage

 

634

 

1,526,945

0.06

%  

 

876

 

1,405,853

0.08

%  

Residential Construction

 

(273)

 

552,530

(0.07)

%  

 

97

 

859,274

0.02

%  

Other Construction and Development

 

(954)

 

2,020,287

(0.06)

%  

 

513

 

1,920,982

0.04

%  

Consumer

 

(4,476)

 

1,163,430

(0.51)

%  

 

(7,120)

 

1,260,683

(0.76)

%  

Multifamily

66

1,145,881

0.01

%  

848,326

%  

Municipal

753,758

%  

731,129

%  

Owner-Occupied Commercial Real Estate

(414)

5,515,986

(0.01)

%  

675

5,537,247

0.02

%  

Non-Owner-Occupied Commercial Real Estate

70

7,905,294

%  

900

7,571,356

0.02

%  

Commercial and Industrial

 

(7,438)

 

5,032,829

(0.20)

%  

 

(14,262)

 

4,745,240

(0.40)

%  

Total

$

(12,984)

$

32,954,060

(0.05)

%  

    

$

(17,545)

$

31,121,508

(0.08)

%  

The following tables present summary of ACL for the three and nine months ended September 30, 2024, and 2023:

Three Months Ended September 30,

 

2024

2023

 

    

Non-PCD

PCD

    

Non-PCD

PCD

    

 

(Dollars in thousands)

    

Loans

Loans

    

Total

Loans

Loans

    

Total

 

Balance at beginning of period

$

447,628

$

24,670

$

472,298

$

384,296

$

43,096

$

427,392

Loans charged-off

 

(7,717)

 

(886)

 

(8,603)

 

(17,340)

 

(630)

 

(17,970)

Recoveries of loans previously charged off

 

2,148

 

375

 

2,523

 

2,606

 

2,167

 

4,773

Net (charge-offs) recoveries

 

(5,569)

 

(511)

 

(6,080)

 

(14,734)

 

1,537

 

(13,197)

Provision (recovery) for credit losses

 

2,563

 

(800)

 

1,763

 

40,288

 

(6,527)

 

33,761

Balance at end of period

$

444,622

$

23,359

$

467,981

$

409,850

$

38,106

$

447,956

Total loans, net of unearned income:

At period end

$

33,548,192

$

32,016,672

Average

 

33,387,675

 

31,804,760

Net charge-offs as a percentage of average loans (annualized)

 

0.07

%  

 

0.16

%  

Allowance for credit losses as a percentage of period end loans

 

1.39

%  

 

1.40

%  

Allowance for credit losses as a percentage of period end non-performing loans (“NPLs”)

 

247.28

%  

 

269.98

%  

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Table of Contents 

Nine Months Ended September 30,

 

2024

2023

 

    

Non-PCD

PCD

    

Non-PCD

PCD

    

 

(Dollars in thousands)

    

Loans

Loans

    

Total

Loans

Loans

    

Total

 

Allowance for credit losses at January 1

$

423,876

$

32,697

$

456,573

$

309,606

$

46,838

$

356,444

Loans charged-off

 

(21,767)

 

(3,366)

 

(25,133)

 

(29,372)

 

(803)

 

(30,175)

Recoveries of loans previously charged off

 

8,534

 

3,615

 

12,149

 

7,783

 

4,847

 

12,630

Net (charge-offs) recoveries

 

(13,233)

 

249

 

(12,984)

 

(21,589)

 

4,044

 

(17,545)

(Recovery) provision for credit losses

 

33,979

 

(9,587)

 

24,392

 

121,833

 

(12,776)

 

109,057

Balance at end of period

$

444,622

$

23,359

$

467,981

$

409,850

$

38,106

$

447,956

Total loans, net of unearned income:

At period end

$

33,548,192

$

32,016,672

Average

 

32,954,060

 

31,121,506

Net charge-offs as a percentage of average loans (annualized)

 

0.05

%  

 

0.08

%  

Allowance for credit losses as a percentage of period end loans

 

1.39

%  

 

1.40

%  

Allowance for credit losses as a percentage of period end non-performing loans (“NPLs”)

 

247.28

%  

 

269.98

%  

Nonperforming Assets (“NPAs”)

The following table summarizes our nonperforming assets for the past five quarters:

    

September 30,

 

June 30,

    

March 31,

    

December 31,

    

September 30,

    

(Dollars in thousands)

2024

 

2024

2023

2023

2023

Non-acquired:

Nonaccrual loans

$

101,438

$

102,295

$

106,189

$

110,467

$

105,579

Accruing loans past due 90 days or more

 

6,890

 

5,843

 

2,497

 

11,305

 

783

Restructured loans - nonaccrual

 

9,802

 

8,479

 

 

 

277

Total non-acquired nonperforming loans

 

118,130

 

116,617

 

108,686

 

121,772

 

106,639

Other real estate owned (“OREO”) (1) (6)

 

751

 

2,555

 

1,035

 

228

 

118

Other nonperforming assets (2)

 

466

 

321

 

554

 

483

 

331

Total non-acquired nonperforming assets

 

119,347

 

119,493

 

110,275

 

122,483

 

107,088

Acquired:

Nonaccrual loans (3)

 

64,167

 

71,549

 

62,612

 

58,916

 

57,464

Accruing loans past due 90 days or more

 

389

 

916

 

135

 

1,174

 

1,821

Restructured loans - nonaccrual

6,564

6,738

839

839

Total acquired nonperforming loans

 

71,120

 

79,203

 

63,586

 

60,929

 

59,285

Acquired OREO (1) (7)

 

448

 

502

 

609

 

609

 

316

Other acquired nonperforming assets (2)

 

45

 

96

 

46

 

103

 

62

Total acquired nonperforming assets

 

71,613

 

79,801

 

64,241

 

61,641

 

59,663

Total nonperforming assets

$

190,960

$

199,294

$

174,516

$

184,124

$

166,751

Excluding Acquired Assets

Total nonperforming assets as a percentage of total loans and repossessed assets (4)

 

0.42

 

0.43

 

0.41

 

0.46

 

0.42

Total nonperforming assets as a percentage of total assets (5)

 

0.26

 

0.26

 

0.24

 

0.27

 

0.24

Nonperforming loans as a percentage of period end loans (4)

 

0.41

 

0.42

 

0.40

 

0.46

 

0.41

Including Acquired Assets

Total nonperforming assets as a percentage of total loans and repossessed assets (4)

 

0.57

 

0.60

 

0.53

 

0.57

 

0.52

Total nonperforming assets as a percentage of total assets (5)

 

0.41

 

0.44

 

0.39

 

0.41

 

0.37

Nonperforming loans as a percentage of period end loans (4)

 

0.56

 

0.59

 

0.53

 

0.56

 

0.52

(1)Consists of real estate acquired as a result of foreclosure.
(2)Consists of non-real estate foreclosed assets, such as repossessed vehicles.
(3)Includes nonaccrual loans that are purchase credit deteriorated (PCD loans).
(4)Loan data excludes mortgage loans held for sale.
(5)For purposes of this calculation, total assets include all assets (both acquired and non-acquired).
(6)Excludes non-acquired bank premises held for sale of $5.2 million, $6.1 million, $9.0 million, $9.0 million, and $11.8 million as of September 30, 2024, June 30, 2024, March 31, 2024, December 31, 2023, and September 30, 2023, respectively, that is now separately disclosed on the balance sheet.
(7)Excludes acquired bank premises held for sale of $0, $0, $0, $3.4 million, and $3.4 million as of September 30, 2024, June 30, 2024, March 31, 2024, December 31, 2023, and September 30, 2023, respectively, that is now separately disclosed on the balance sheet.

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Total nonperforming assets were $191.0 million, or 0.57% of total loans and repossessed assets, at September 30, 2024, an increase of $6.8 million, or 3.7%, from December 31, 2023. Total nonperforming loans were $189.3 million, or 0.56%, of total loans, at September 30, 2024, an increase of $6.5 million, or 3.6%, from December 31, 2023. Non-acquired nonperforming loans decreased by $3.6 million from December 31, 2023. The decrease in non-acquired nonperforming loans was driven primarily by a decrease in commercial nonaccrual loans of $22.2 million, a decrease in accruing loans past due 90 days or more of $4.4 million, offset by an increase in consumer nonaccrual loans of $13.2 million and restructured nonaccrual loans of $9.8 million. The accruing loans past due 90 days or more decreased by $4.4 million at September 30, 2024, compared to December 31, 2023, due primarily to a decrease in accruing loans past due 90 days or more of factored receivables, which are trade credits rather than promissory notes loans that are deemed to be low risk. The increase in restructured nonaccrual loans of $9.8 million was primarily due to two commercial loans that were modified under a term extension agreement. Acquired nonperforming loans increased $10.2 million from December 31, 2023. The increase in the acquired nonperforming loan balances was due primarily to an increase in commercial nonaccrual loans of $4.7 million, an increase in restructured nonaccrual loans of $5.7 million, an increase in consumer nonaccrual loans of $600,000, offset by a decline in accruing loans past due 90 days or more of $800,000.

As discussed previously under the “Loans” section in this MD&A, commercial non-owner-occupied loans represented the largest category of the loan portfolio as of September 30, 2024. We continued to experience solid and stable asset quality for these loans as of September 30, 2024, as approximately 0.2% of the total commercial non-owner-occupied loans were on non-accrual. In addition, approximately 5.1% and 2.6% of the total commercial non-owner-occupied loans were classified as substandard and still accruing, and special mention, respectively. The majority of these classified assets are mainly related to debt service coverage policy violations as interest rates have risen. However, most of these loans are still performing, are strongly collateralized and have strong borrowers supporting the loans. For additional information on the Company’s monitoring process for classified loans and a description of the general characteristics of the risk grades, refer to Note 6 — Loans in this Quarterly Report on Form 10-Q.

Interest-Bearing Liabilities

Interest-bearing liabilities include interest-bearing transaction accounts, savings deposits, CDs, other time deposits, federal funds purchased, securities sold under agreements to repurchase and other borrowings. Interest-bearing transaction accounts include NOW, HSA, Interest on Layers’ Trust Accounts (“IOLTA”), and Market Rate checking accounts.

Total interest-bearing deposits increased $862.0 million, or 4.4% annualized, to $27.3 billion at September 30, 2024, from $26.4 billion at December 31, 2023. This increase mainly driven by growth in money market accounts of $1.1 billion, including $174.3 million in reciprocal insured money market deposits and time deposits of $404.7 million. This increase was partially offset by declines in interest-bearing checking accounts of $428.4 million and savings deposits of $189.6 million. Customers continue to move funds from lower yielding deposit products seeking higher yields in money market accounts and time deposits. Federal funds purchased related to the Correspondent Banking Division and securities sold under agreements to repurchase were $538.3 million at September 30, 2024, a $49.1 million increase from December 31, 2023. Other borrowings, consisting of FHLB borrowings, increased to $300.0 million at September 30, 2024 from $100.0 million at December 31, 2023. Corporate and subordinated debentures declined by $278,000 to $391.7 million. Some key highlights are outlined below:

As noted above, the Company’s higher costing money market accounts and time deposits increased during the first nine months of 2024. The Company raised interest rates on most interest-bearing deposit products (in particular money market accounts and time deposit specials) due to competitive pressures to retain deposits. Average interest-bearing deposits increased by $1.3 billion to $26.9 billion for the quarter ended September 30, 2024, compared to the same period in 2023. For more information on the composition of our total deposits, see Note 9 – Deposits.
Other borrowings, consisting of FHLB borrowings, increased $200.0 million to $300.0 million at September 30, 2024, from $100.0 million at December 31, 2023. The Company borrowed additional FHLB borrowings in the first nine months of 2024 to provide additional liquidity.

Noninterest-Bearing Deposits

Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. At September 30, 2024, the period end balance of noninterest-bearing deposits of $10.4 billion declined slightly compared to the balance at December 31, 2023 of $10.6 billion. Average noninterest-bearing deposits were $10.4 billion for the third quarter of 2024 compared to $11.4 billion for the third quarter of 2023. This decrease in the average noninterest bearing deposits from the quarter ended September 30, 2023, was mainly due to customers seeking higher yields in the comparatively higher rate environment. Also, customers have less excess cash as funds from government support programs related to the COVID-19 pandemic have declined, as well as the resulting effects of higher costs related to inflation.

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Uninsured Deposits

At September 30, 2024, and December 31, 2023, the Company had approximately $13.9 billion and $14.2 billion, respectively, in estimated uninsured deposits. The amounts above are estimates and are based on the same methodologies and assumptions used for the Bank’s regulatory reporting requirements issued by the FDIC for the FFIEC 041, also referred to as the Call Report.

Capital Resources

Our ongoing capital requirements have been met primarily through retained earnings, less the payment of cash dividends. As of September 30, 2024, shareholders’ equity was $5.9 billion, an increase of $371.5 million, or 6.7%, from December 31, 2023.

The following table shows the changes in shareholders’ equity during 2024:

(Dollars in thousands)

Total shareholders' equity at December 31, 2023

    

$

5,533,098

Net income

390,605

Cumulative adjustment pursuant to adoption of ASU 2023-02

(10,246)

Dividends paid on common shares ($1.58 per share)

(120,391)

Dividends paid on restricted stock units

(1,260)

Net increase in market value of securities available for sale, net of deferred taxes

102,896

Stock options exercised

3,993

Employee stock purchases

1,484

Equity based compensation

20,898

Common stock repurchased pursuant to stock repurchase plan

(7,985)

Common stock repurchased - equity plans

(8,698)

Stock issued in lieu of cash - directors fees

186

Total shareholders' equity at September 30, 2024

$

5,904,580

The Company did not repurchase any shares under the 2022 Stock Repurchase Plan in the third or second quarter of 2024. The Company repurchased 100,000 shares, at an average price of $79.85 per share for a total of $8.0 million under the 2022 Stock Repurchase Plan during the first quarter of 2024. The number of shares to be purchased and the timing of the purchases are based on a variety of factors, including, but not limited to, the level of cash balances, general business conditions, regulatory requirements, the market price of our common stock, and the availability of alternative investment opportunities. As of September 30, 2024, a total of 3,920,021 authorized shares remains available for repurchase.

Under current regulations, the Company and the Bank are subject to a minimum ratio of common equity Tier 1 capital (“CET1”) to risk-weighted assets of 4.5% and a minimum required ratio of Tier 1 capital to risk-weighted assets of 6%. The minimum required leverage ratio is 4%. The minimum required total capital to risk-weighted assets ratio is 8%. Refer to Note 17 — Capital Ratios for more information regarding Company and Bank’s regulatory capital compliance requirements.

In response to the COVID-19 pandemic in 2020, the federal banking agencies issued a final rule for additional transitional relief to regulatory capital related to the impact of the adoption of CECL. The Company chose the five-year transition method and is deferring the recognition of the effects from the adoption date and the CECL difference for the first two years of application. The modified CECL transitional amount was fixed as of December 31, 2021, and that amount began the three-year phase out in the first quarter of 2022 with 25% phased out in 2024. At September 30, 2024, approximately $15.3 million was added to Tier 1 capital at the Company and Bank as a result of the modified CECL transition. Had the Company elected not to apply the modified CECL transitional amount to its Tier 1 capital, the Company and Bank would have still been considered well capitalized as of September 30, 2024.

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The well-capitalized minimums and the Company’s and the Bank’s regulatory capital ratios for the following periods are reflected below:

Well-Capitalized

September 30,

December 31,

Minimums

2024

2023

SouthState Corporation:

Common equity Tier 1 risk-based capital

N/A

12.37

%  

11.75

%  

Tier 1 risk-based capital

   

6.00

%  

  

12.37

%  

  

11.75

%  

Total risk-based capital

10.00

%  

14.72

%  

14.08

%  

Tier 1 leverage

N/A

9.98

%  

9.42

%  

SouthState Bank:

Common equity Tier 1 risk-based capital

6.50

%  

13.15

%  

12.52

%  

Tier 1 risk-based capital

8.00

%  

13.15

%  

12.52

%  

Total risk-based capital

10.00

%  

14.41

%  

13.75

%  

Tier 1 leverage

5.00

%  

10.59

%  

10.03

%  

The Company’s and Bank’s Common equity Tier 1 risk-based capital, Tier 1 risk-based capital and total risk-based capital and Tier 1 leverage ratios all improved compared to December 31, 2023. All of these ratios mainly improved due to net income recognized during the nine months ended September 30, 2024 of $390.6 million. Tier 1 capital increased by 6.5% and 6.3% at both the Company and Bank, respectively, with the increase in equity from the net income recognized. Total risk-based capital increased by 5.8% and 6.1% at both the Company and Bank, respectively, with the increase in equity resulting from net income along with the increase in the allowance for credit losses and unfunded commitments includable in Tier 2 capital. Both regulatory risk-based assets and quarterly average assets remained reasonably flat compared to the fourth quarter of 2023 with average assets for both the Company and Bank increasing by 0.6% and risk-based assets increasing by 1.2%. Our capital ratios are currently well in excess of the minimum standards and continue to be in the “well capitalized” regulatory classification.

Liquidity

Liquidity refers to our ability to generate sufficient cash to meet our financial obligations, which arise primarily from the withdrawal of deposits, extension of credit and payment of operating expenses. Liquidity risk is the risk that the Bank’s financial condition or overall safety and soundness is adversely affected by an inability (or perceived inability) to meet its obligations. Our Asset Liability Management Committee (“ALCO”) is charged with the responsibility of monitoring policies designed to ensure acceptable composition of our asset/liability mix. Two critical areas of focus for ALCO are interest rate sensitivity and liquidity risk management. We have employed our funds in a manner to provide liquidity from both assets and liabilities sufficient to meet our cash needs.

The ALCO has established key risk indicators to monitor liquidity and interest rate risk. The key risk indicators are reviewed and approved by the ALCO on an annual basis. The liquidity key risk indicators include the loan to deposit ratio, net noncore funding dependence ratio, On-hand liquidity to total liabilities ratio, the percentage of securities pledged to total securities, and the ratio of brokered deposits to total deposits. As of September 30, 2024, the Company was operating within its liquidity policy limits.

Asset liquidity is maintained by the maturity structure of loans, investment securities and other short-term investments. Management has policies and procedures governing the length of time to maturity on loans and investments. Normally, changes in the earning asset mix are of a longer-term nature and are not used for day-to-day corporate liquidity needs.

Our liabilities provide liquidity on a day-to-day basis. Daily liquidity needs are met from deposit levels or from our use of federal funds purchased, securities sold under agreements to repurchase, interest-bearing deposits at other banks and other short-term borrowings. We engage in routine activities to retain deposits intended to enhance our liquidity position. These routine activities include various measures, such as the following:

Emphasizing relationship banking to new and existing customers, where borrowers are encouraged and normally expected to maintain deposit accounts with our Bank;
Pricing deposits, including certificates of deposit, at rate levels that will attract and /or retain balances of deposits that will enhance our Bank’s asset/liability management and net interest margin requirements; and
Continually working to identify and introduce new products that will attract customers or enhance our Bank’s appeal as a primary provider of financial services.

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Overall, total loans increased $1.2 billion, or 4.8% annualized in first nine months of 2024. Our non-acquired loan portfolio increased by approximately $2.2 billion, or approximately 11.1% annualized, compared to the balance at December 31, 2023. The increase from December 31, 2023 was mainly related to organic growth and renewals on acquired loans that are moved to our non-acquired loan portfolio. The acquired loan portfolio decreased by $1.0 billion from the balance on December 31, 2023, through principal paydowns, charge-offs, foreclosures and renewals of acquired loans.

Our investment securities portfolio (excluding trading securities) decreased by approximately $386.7 million compared to the balance at December 31, 2023. The decrease in investment securities from December 31, 2023, was a result of maturities, calls, sales and paydowns of investment securities totaling $719.7 million and a reduction from the net amortization of premiums of $14.6 million. This decrease was partially offset by an increase in the market value of the available for sale investment securities portfolio of $136.8 million and purchases of investment securities of $200.8 million. Purchases of available for sale investment securities and other investment securities totaled $60.7 million and $140.2 million, respectively. There were no purchases of held to maturity securities during 2024. The purchases of other investment securities were related to capital stock with the Federal Home Loan Bank of which we sold back $130.6 million during 2024. The activity in the purchases and sales of the Federal Home Loan Bank Capital Stock was due to activity with FHLB borrowings during the year. The Bank pledges a portion of its investment portfolio for a variety of purposes, including, but not limited to, collateral for public funds and credit with the Federal Home Loan Bank of Atlanta. As of September 30, 2024, the bank pledged 41.5% of the market value of its available-for-sale and held-to-maturity investment portfolios. As of September 30, 2024, the Bank had unpledged securities with a market value of $3.8 billion. These securities included Treasury, Agency, Agency MBS, Municipals and Corporate securities.

Total cash and cash equivalents were $1.2 billion at September 30, 2024, as compared to $1.0 billion at December 31, 2023. Liquidity tightened starting in 2023 with the rising rate environment and turmoil in the financial markets occurring in early 2023. Competition for in-market deposits has increased throughout 2023 and 2024 resulting in increases in deposit rates to retain local deposits. The Bank supplements its in-market deposits with brokered deposits. While the Bank has a policy limit for brokered time deposits of no more than 15% of total deposits, it has operated well below this policy limit. At September 30, 2024, the percentage of brokered time deposits to total deposits was 2.8% compared to 1.9% at December 31, 2023. During the third quarter of 2024, the Company also borrowed funds from the FHLB on a short-term basis of $300.0 million. The outstanding borrowings from the FHLB were $100.0 million at December 31, 2023. See below for further discussion around brokered deposits and FHLB borrowings.

Our ongoing philosophy is to remain in a liquid position, as reflected by such indicators as the composition of our earning assets, typically including some level of reverse repurchase agreements; federal funds sold; balances at the Federal Reserve Bank; and/or other short-term investments; asset quality; well-capitalized position; and profitable operating results. Cyclical and other economic trends and conditions can disrupt our desired liquidity position at any time. We expect that these conditions would generally be of a short-term nature. Under such circumstances, we expect our reverse repurchase agreements and federal funds sold positions, or balances at the Federal Reserve Bank, if any, to serve as the primary source of immediate liquidity. We could draw on additional alternative immediate funding sources from lines of credit extended to us from our correspondent banks. The Bank may also access funds from borrowing facilities established with the Federal Home Loan Bank of Atlanta and the discount window of the Federal Reserve Bank of Atlanta.

Deposit flows are significantly influenced by general and local economic conditions, changes in prevailing interest rates, internal pricing decisions and competition. Our deposits are primarily obtained from depositors located around our branch footprint, and we believe that we have attractive opportunities to capture additional retail and commercial deposits in our markets, in addition to having access to brokered deposits. Of the $37.6 billion in total deposits at September 30, 2024, approximately 69% were insured or collateralized. The Bank has a granular deposit base comprised of over 1.4 million accounts, with an average deposit size of $27,000. The top ten and twenty deposit relationships comprise approximately 2% and 4% of total deposits, respectively, and approximately 28% of total deposits are non-interest bearing.

At September 30, 2024, and December 31, 2023, we had $1.1 billion and $719.7 million of traditional, out–of–market brokered time deposits, respectively.  At September 30, 2024, and December 31, 2023, we had $2.4 billion and $2.2 billion, respectively, of reciprocal deposits. Total deposits were $37.6 billion at September 30, 2024, an increase of $589.3 million from $37.0 billion at December 31, 2023. This change in deposits from December 31, 2023, was driven by an increase in money market accounts of $1.1 billion, including $174.3 million in reciprocal insured money market deposits and in time deposits of $404.7 million. This increase was partially offset by declines in interest-bearing checking accounts of $428.4 million and savings deposits of $189.6 million. As customers moved funds from noninterest-bearing deposits, interest-bearing checking and savings accounts, seeking higher yields in the rising rate environment, the Company has seen an increase in its balance of higher yielding money market accounts and time deposits during 2024. The Company raised interest rates on most interest-bearing deposit products (in particular money market accounts and time deposit specials) due to competitive pressures to retain deposits.

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Total short-term borrowings at September 30, 2024, were $538.3 million, consisting of $290.4 million in federal funds purchased and $247.9 million in securities sold under agreements to repurchase. The Company also held $300.0 million in short term daily rate FHLB advances at September 30, 2024. Total long-term borrowing at September 30, 2024, were $391.6 million and consisted of trust preferred securities and subordinated debentures. To the extent that we employ other types of non-deposit funding sources, typically to accommodate retail and correspondent customers, we continue to take in shorter maturities of such funds. Our current approach may provide an opportunity to sustain a low funding rate or possibly lower our cost of funds but could also increase our cost of funds if interest rates rise.

In addition to deposits, we have other primary contingency funding sources available to the Bank. At September 30, 2024, our Bank had a total FHLB credit facility of $6.5 billion, with $300.0 million in FHLB advance outstanding and $2.9 million in FHLB letters of credit outstanding at quarter-end, leaving $6.2 billion in availability on the FHLB credit facility. In addition, our Bank had $1.7 billion of credit available at the Federal Reserve Bank’s discount window and had $2.9 billion in market value of unpledged securities at September 30, 2024, that can be pledged to obtain additional funds, if necessary. All of these resources provide $12.0 billion of additional funding for the Bank.

As discussed previously and presented below, the table below compares Primary Funding Sources to uninsured deposits as of September 30, 2024.

(Dollars in millions)

Available Capacity

Federal Home Loan Bank of Atlanta

$

6,167

Federal Reserve Bank of Atlanta Discount Window

1,720

Cash and cash equivalents

1,213

Fair value of securities that can be pledged

2,895

Total primary sources

$

11,995

Uninsured deposits, excluding collateralized deposits

$

11,748

Uninsured and collateralized deposits

$

13,856

Coverage ratio, uninsured deposits

102.1

%

Coverage ratio, uninsured and collateralized deposits

86.6

%

Ratio of uninsured and collateralized deposits to total deposits

36.8

%

The Bank also has an internal limit on brokered deposits of 15% of total deposits which would allow capacity of $5.6 billion as of September 30, 2024. The Bank had $1.1 billion of outstanding brokered deposits at the end of the quarter leaving $4.6 billion in available capacity. The Bank has federal funds credit lines of $275.0 million with no balances outstanding at quarter-end and the holding company has a $100.0 million unsecured line of credit with U.S. Bank National Association with no balance outstanding at September 30, 2024. We believe that our liquidity position continues to be adequate and readily available.

In addition to adequate liquidity, the Company and Bank are considered well capitalized by all regulatory capital standards as the Company and the Bank were significantly above the required capital levels as of September 30, 2024. The Company’s tier 1 leverage ratio, CET 1 risk-based capital ratio and total risk-based capital ratio were 9.98%, 12.49% and 14.85%, respectively, at September 30, 2024. The Bank’s Tier 1 leverage ratio, CET 1 risk-based capital ratio and total risk-based capital ratio were 10.59%, 13.27% and 14.54%, respectively, at September 30, 2024. As permitted, we elected to exclude accumulated other comprehensive income related to available for sale securities from Tier 1, CET 1 and total risk-based capital; however, even if our unrealized losses as of September 30, 2024 in our available for sale and held to maturity investment portfolios were recognized by selling the portfolios for liquidity purposes, all else being equal, our regulatory capital ratios would remain well in excess of the minimum standards and continue to be in the “well capitalized” regulatory classification.

Asset-Liability Management and Market Risk Sensitivity

Our earnings and the economic value of equity vary in relation to the behavior of interest rates and the accompanying fluctuations in market prices of certain of our financial instruments. We define interest rate risk as the risk to earnings and equity arising from the behavior of interest rates. These behaviors include increases and decreases in interest rates as well as continuation of the current interest rate environment.

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Our interest rate risk principally consists of reprice, option, basis, and yield curve risk. Reprice risk results from differences in the maturity or repricing characteristics of asset and liability portfolios. Option risk arises from embedded options in the investment and loan portfolios such as investment securities calls and loan prepayment options. Option risk also exists since deposit customers may withdraw funds at their discretion in response to general market conditions, competitive alternatives to existing accounts or other factors. The exercise of such options may result in higher costs or lower revenue. Basis risk refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in narrowing spreads on interest-earning assets and interest-bearing liabilities. Basis risk also exists in administered rate liabilities, such as interest-bearing checking accounts, savings accounts, and money market accounts where the price sensitivity of such products may vary relative to general markets rates. Yield curve risk refers to adverse consequences of nonparallel shifts in the yield curves of various market indices that impact our assets and liabilities.

We use simulation analysis as a primary method to assess earnings at risk and equity at risk due to assumed changes in interest rates. Management uses the results of its various simulation analyses in combination with other data and observations to formulate strategies designed to maintain interest rate risk within risk tolerances.

Simulation analysis involves the use of several assumptions including, but not limited to, the timing of cash flows such as the terms of contractual agreements, investment security calls, loan prepayment speeds, deposit attrition rates, the interest rate sensitivity of loans and deposits relative to general market rates, and the behavior of interest rates and spreads. The assumptions for loan prepayments, deposit decay, and nonstable deposit balances are derived from models that use historical bank data. These models are independently validated. Equity at risk simulation uses assumptions regarding discount rates that value cash flows. Simulation analysis is highly dependent on model assumptions that may vary from actual outcomes. Key simulation assumptions are subject to sensitivity analysis to assess the impact of assumption changes on earnings at risk and equity at risk. Model assumptions are reviewed by our Assumptions Committee. While the Bank is continuously refining its modeling methodology, the core principles of the methodology have remained stable over for several years.

Earnings at risk is defined as the percentage change in net interest income due to assumed changes in interest rates. Earnings at risk is generally used to assess interest rate risk over relatively short time horizons.

Equity at risk is defined as the percentage change in the net economic value of assets and liabilities due to changes in interest rates compared to a base net economic value. The discounted present value of all cash flows represents our economic value of equity. Equity at risk is generally considered a measure of the long-term interest rate exposures of the balance sheet at a point in time.

The earnings simulation models consider our contractual agreements with regard to investments, loans, deposits, borrowings, and derivatives as well as a number of behavioral assumptions applied to certain assets and liabilities.

Mortgage banking derivatives used in the ordinary course of business consist of forward sales contracts and interest rate lock commitments on residential mortgage loans. These derivatives involve underlying items, such as interest rates, and are designed to mitigate risk. Derivatives are also used to hedge mortgage servicing rights. For additional information see Note 16 — Derivative Financial Instruments in the consolidated financial statements.

From time to time, we execute interest rate swaps to hedge some of our interest rate risks. Under these arrangements, the Company enters into a variable rate loan with a client in addition to a swap agreement. The swap agreement effectively converts the client’s variable rate loan into a fixed rate loan. The Company then enters into a matching swap agreement with a third-party dealer to offset its exposure on the customer swap. The Company may also execute interest rate swap agreements that are not specific to client loans. As of September 30, 2024, the Company had a series of short-term interest rate hedges to address monthly accrual mismatches related to the Company’s ARC program and its transition from LIBOR to SOFR after June 30, 2023. For additional information on these derivatives refer to Note 16 — Derivative Financial Instruments in the consolidated financial statements.

Our interest rate risk key indicators are applied to a static balance sheet using forward rates from the Moody’s Baseline Scenario. The Company will also use other rate forecasts, including, but not limited to, Moody’s Consensus Scenario. This Base Case Scenario assumes the maturity composition of asset and liability rollover volumes is modeled to approximately replicate current consolidated balance sheet characteristics throughout the simulation. These treatments are consistent with the Company’s goal of assessing current interest rate risk embedded in its current balance sheet. The Base Case Scenario assumes that maturing or repricing assets and liabilities are replaced at prices referencing forward rates derived from the selected rate forecast consistent with current balance sheet pricing characteristics. Key rate drivers are used to price assets and liabilities with sensitivity assumptions used to price non-maturity deposits. The sensitivity assumptions for the pricing of non-maturity deposits are subjected to sensitivity analysis no less frequently than on an annual basis.

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Interest rate shocks are applied to the Base Case on an instantaneous basis. Our policy establishes the use of upward and downward interest rate shocks applied in 100 basis point increments through 400 basis points. We calculate smaller rate shocks as needed. At times, market conditions may result in assumed rate movements that will be deemphasized. For example, during a period of ultra-low interest rates, certain downward rate shocks may be impractical. The model simulation results produced from the Base Case Scenario and related instantaneous shocks for changes in net interest income and changes in the economic value of equity are referred to as the Core Scenario Analysis and constitute the policy key risk indicators for interest rate risk when compared to risk tolerances. As of September 30, 2024, the Company was operating within its interest rate key risk indicator policy limits.

During 2023 and for the nine months ended September 30, 2024, the beta assumption applied to total deposits increased to reflect changes in deposit mix. From the beginning of the upward rate cycle, our deposit costs have increased from five basis points to one hundred and ninety basis points. During this period, the federal funds rate has increased 525 basis points. Accordingly, our cycle to date beta has been approximately 36%. Management recognizes the difficulty in using historical data to forecast deposit betas in the current environment. For internal purposes, and based on the deposit mix as of September 30, 2024, the total deposit beta assumption was 36.7%. For internal forecasting, management will apply overlays to certain assumptions to adjust for current market conditions rather than use assumptions modeled over longer periods of time.

The following interest rate risk metrics are derived from analysis using the Moody’s Baseline Scenario published in October 2024 as the Base Case Scenario. As of September 30, 2024, the earnings simulations indicated that the year 1 impact of an instantaneous 100 basis point parallel increase / decrease in rates would result in an estimated 1.2% increase (up 100) and 1.9% decrease (down 100) in net interest income.

We use Economic Value of Equity (“EVE”) analysis as an indicator of the extent to which the present value of our capital could change, given potential changes in interest rates. This measure also assumes a static balance sheet (Base Case Scenario) with rate shocks applied as described above. At September 30, 2024, the percentage change in EVE due to a 100-basis point increase or decrease in interest rates was 2.1% decrease and 1.2% increase, respectively. The percentage changes in EVE due to a 200-basis point increase or decrease in interest rates were 5.1% decrease and 0.7% decrease, respectively. Downward shocks are constrained on various balance sheet categories due to the inability to price products below floors or zero. This is particularly meaningful given the cost of deposits as of September 30, 2024.

The analysis below reflects a Base Case and shocked scenarios that assume a static balance sheet projection where volume is added to maintain balances consistent with current levels. Base Case assumes new and repricing volumes reference forward rates derived from the Moody’s Baseline rate forecast. Instantaneous, parallel, and sustained interest rate shocks are applied to the Base Case scenario over a one-year time horizon.

Percentage Change in Net Interest Income over One Year

Up 100 basis points

1.2

%

Down 100 basis points

(1.9)

%

Down 200 basis points

(5.3)

%

Down 300 basis points

(9.8)

%

Down 400 basis points

(12.8)

%

Deposit Concentrations

As of September 30, 2024, and December 31, 2023, we have no material concentration of deposits from any single customer or group of customers. We have no significant portion of our deposits concentrated within a single industry or group of related industries. We do not believe there are any material seasonal factors that would have a material adverse effect on us. The total deposit balances held by top ten and 20 deposit holders were below 5% of the Company’s average total deposit balances at September 30, 2024. We do not have any foreign deposits.

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Concentration of Credit Risk

Each category of earning assets has a certain degree of credit risk. We use various techniques to measure credit risk. Credit risk in the investment portfolio can be measured through bond ratings published by independent agencies. In the investment securities portfolio, the investments consist of U.S. government-sponsored entity securities, tax-free securities, or other securities having ratings of “AAA” to “Not Rated”. All securities, with the exception of those that are not rated, were rated by at least one of the nationally recognized statistical rating organizations. The credit risk of the loan portfolio can be measured by historical experience. We maintain our loan portfolio in accordance with credit policies that we have established. Although the Bank has a diversified loan portfolio, a substantial portion of our borrowers’ abilities to honor their contracts is dependent upon economic conditions within our geographic footprint and the surrounding regions.

We consider concentrations of credit to exist when, pursuant to regulatory guidelines, the amounts loaned to a multiple number of borrowers engaged in similar business activities which would cause them to be similarly impacted by general economic conditions represents 25% of total Tier 1 capital plus regulatory adjusted allowance for credit losses of the Company, or $1.2 billion at September 30, 2024. Based on this criteria, we had seven such credit concentrations at September 30, 2024, including loans to lessors of nonresidential buildings (except mini-warehouses) of $5.7 billion, loans secured by owner-occupied office buildings (including medical office buildings) of $1.9 billion, loans secured by owner-occupied nonresidential buildings (excluding office buildings) of $1.8 billion, loans to lessors of residential buildings (investment properties and multi-family) of $2.8 billion, loans secured by 1st mortgage 1-4 family owner-occupied residential property (including condos and home equity lines) of $9.5 billion, loans secured by jumbo (original loans greater than $548,250) of $2.7 billion, and loans secured by business assets including accounts receivable, inventory and equipment of $2.9 billion. The risk for these loans and for all loans is managed collectively through the use of credit underwriting practices developed and updated over time. The loss estimate for these loans is determined using our standard ACL methodology.

After the adoption of CECL in the first quarter of 2020, banking regulators established guidelines for calculating credit concentrations. Banking regulators set the guidelines for construction, land development and other land loans to total less than 100% of total Tier 1 capital less modified CECL transitional amount plus ACL (CDL concentration ratio) and for total commercial real estate loans (construction, land development and other land loans along with other non-owner-occupied commercial real estate and multifamily loans) to total less than 300% of total Tier 1 capital less modified CECL transitional amount plus ACL (CRE concentration ratio). Both ratios are calculated by dividing certain types of loan balances for each of the two categories by the Bank’s total Tier 1 capital less modified CECL transitional amount plus ACL. At September 30, 2024, and December 31, 2023, the Bank’s CDL concentration ratio was 47.4% and 59.7%, respectively, and its CRE concentration ratio was 227.1% and 236.5%, respectively. As of September 30, 2024, the Bank was below the established regulatory guidelines. When a bank’s ratios are in excess of one or both of these loan concentration ratios guidelines, banking regulators generally require an increased level of monitoring in these lending areas by bank management. Therefore, we monitor these two ratios as part of our concentration management processes.

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Reconciliation of GAAP to Non-GAAP

The return on average tangible equity is a non-GAAP financial measure that excludes the effect of the average balance of intangible assets and adds back the after-tax amortization of intangibles to GAAP basis net income. Management believes these non-GAAP financial measures provide additional information that is useful to investors in evaluating our performance and capital and may facilitate comparisons with other institutions in the banking industry as well as period-to-period comparisons. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, are not audited, and may not be comparable to other similarly titled financial measures used by other companies. Investors should not consider non-GAAP measures in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP.

Three Months Ended

Nine Months Ended

 

September 30,

September 30,

 

(Dollars in thousands)

    

2024

    

2023

2024

    

2023

 

Return on average equity (GAAP)

 

9.91

%  

9.24

%

9.29

%  

9.83

%

Effect to adjust for intangible assets

 

5.72

%  

6.28

%

5.65

%  

6.84

%

Return on average tangible equity (non-GAAP)

 

15.63

%  

15.52

%

14.94

%  

16.67

%

Average shareholders’ equity (GAAP)

$

5,748,170

$

5,328,912

$

5,613,557

$

5,269,775

Average intangible assets

 

(1,998,618)

 

(2,022,810)

 

(2,004,046)

 

(2,029,689)

Adjusted average shareholders’ equity (non-GAAP)

$

3,749,552

$

3,306,102

$

3,609,511

$

3,240,086

Net income (GAAP)

$

143,179

$

124,144

$

390,605

$

387,517

Amortization of intangibles

 

5,327

 

6,616

 

17,069

 

20,943

Tax effect

 

(1,238)

 

(1,395)

 

(4,069)

 

(4,524)

Net income excluding the after-tax effect of amortization of intangibles (non-GAAP)

$

147,268

$

129,365

$

403,605

$

403,936

Cautionary Note Regarding Any Forward-Looking Statements

Statements included in this report, which are not historical in nature are intended to be, and are hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements are based on, among other things, management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and the proposed acquisition of Independent. Words and phrases such as “may,” “approximately,” “continue,” “should,” “expects,” “projects,” “anticipates,” “is likely,” “look ahead,” “look forward,” “believes,” “will,” “intends,” “estimates,” “strategy,” “plan,” “could,” “potential,” “possible” and variations of such words and similar expressions are intended to identify such forward-looking statements. We caution readers that forward-looking statements are subject to certain risks, uncertainties and assumptions that are difficult to predict with regard to, among other things, timing, extent, likelihood and degree of occurrence, which could cause actual results to differ materially from anticipated results. Such risks, uncertainties and assumptions, include, among others, the following:

Risks relating to our Business and Business Strategy

Economic downturn risk, potentially resulting in deterioration in the credit markets, inflation, greater than expected noninterest expenses, excessive loan losses and other negative consequences, which risks could be exacerbated by potential negative economic developments resulting from federal spending cuts and/or one or more federal budget-related impasses or actions;
Risks related to the ability of the Company to pursue its strategic plans which depend upon certain growth goals in our lines of business;
Risks relating to the ability to retain our culture and attract and retain qualified people, which could be exacerbated by the continuing work from remote environment;
Risks related to the proposed acquisition of Independent, including:
othe possibility that the merger does not close when expected or at all because required regulatory or other approvals and other conditions are not received or satisfied on a timely basis;
othe occurrence of any event, charge or other circumstances which could give rise to the termination of the Merger Agreement;
opotential difficulty in maintaining relationships with clients, employees, or business partners as a result of the proposed acquisition of Independent;
othe amount of the costs, fees, expenses, and charges related to the merger;

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oproblems arising from the integration of the two companies, including the risk that integration will be materially delayed or will be more costly or difficult than expected; and
othe failure to realize cost savings and any revenue synergies from, and to limit liabilities associated with, the merger during the expected time game;
Deposit attrition, client loss or revenue loss following completed mergers or acquisitions that may be greater than anticipated;
Credit risks associated with an obligor’s failure to meet the terms of any contract with the Bank or otherwise fail to perform as agreed under the terms of any loan-related document;
Interest rate risk primarily resulting from our inability to effectively manage the risk, and their impact on the Bank’s earnings, including from the correspondent and mortgage divisions, housing demand, the market value of the Bank’s loan and securities portfolios, and the market value of SouthState’s equity;
A decrease in our net interest income due to the interest rate environment;
Liquidity risk affecting the Bank’s ability to meet its obligations when they come due;
Unexpected outflows of uninsured deposits may require us to sell investment securities at a loss;
Potential deterioration in real estate values;
The loss of value of our investment portfolio could negatively impact market perceptions of us and could lead to deposit withdrawals;
Price risk focusing on changes in market factors that may affect the value of traded instruments in “mark-to-market” portfolios;
Transaction risk arising from problems with service or product delivery;
The impact of increasing digitization of the banking industry and movement of customers to on-line platforms, and the possible impact on the Bank’s results of operations, customer base, expenses, suppliers and operations;
Controls and procedures risk, including the potential failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures;
Strategic risk resulting from adverse business decisions or improper implementation of business decisions;
Reputation risk that adversely affects earnings or capital arising from negative public opinion including the effects of social media on market perceptions of us and banks generally;
Cybersecurity risk related to the dependence of SouthState on internal computer systems and the technology of outside service providers, as well as the potential impacts of internal or external security breaches, which may subject the Company to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events;
Reputational and operational risks associated with environment, social and governance (ESG) matters, including the impact of recently passed state legislation and proposed federal and state regulatory guidance and regulation relating to climate change;
Excessive loan losses;
Reputational risk and possible higher than estimated reduced revenue from previously announced or proposed regulatory changes in the Bank’s consumer programs and products;
Operational, technological, cultural, regulatory, legal, credit and other risks associated with the exploration, consummation and integration of potential future acquisitions, whether involving stock or cash consideration; and
Geopolitical risk from terrorist activities and armed conflicts that may result in economic and supply disruptions, and loss of market and consumer confidence.

Risks relating to the Regulatory Environment

Compliance risk involving risk to earnings or capital resulting from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards, and contractual obligations regarding data privacy and cybersecurity; and
Regulatory change risk resulting from new laws, rules, regulations, accounting principles, proscribed practices or ethical standards, including, without limitation, the possibility that regulatory agencies may require higher levels of capital above the current regulatory-mandated minimums the impact of special FDIC assessments, the Consumer Financial Protection Bureau regulations or other guidance, changes in policies and standards for regulatory review of bank mergers, and the possibility of changes in accounting standards, policies, principles and practices.

Risks relating to our Common Stock

Ownership dilution risk associated with potential mergers and acquisitions in which SouthState’s stock may be issued as consideration for an acquired company;

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The risks of fluctuations in market prices for SouthState common stock that may or may not reflect economic condition or performance of SouthState; and
The payment of dividends on SouthState common stock, which is subject to legal and regulatory limitations as well as the discretion of the board of directors of SouthState, SouthState’s performance and other factors.

Risks relating to Economic Conditions and Other Outside Forces

Volatility in the financial services industry (including failures or rumors of failures of other depository institutions), along with actions taken by governmental agencies to address such turmoil, could affect the ability of depository institutions, including us, to attract and retain depositors and to borrow or raise capital;
The impact of competition with other financial institutions, including deposit and loan pricing pressures and the resulting impact, including as a result of compression to net interest margin; and
Catastrophic events such as hurricanes, tornados, earthquakes, floods or other natural or human disasters, including public health crises and infectious disease outbreaks, as well as any government actions in response to such events, and the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on SouthState and its customers and other constituencies.

For any forward-looking statements made in this report or in any documents incorporated by reference into this Report, we claim the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. All forward-looking statements speak only as of the date they are made and are based on information available at that time. We do not undertake any obligation to update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements. All subsequent written and oral forward-looking statements by us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

Additional information with respect to factors that may cause actual results to differ materially from those contemplated by our forward-looking statements may also be included in other reports that we file with the SEC. We caution that the foregoing list of risk factors is not exclusive and not to place undue reliance on forward-looking statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our quantitative and qualitative disclosures about market risk as of September 30, 2024, from those disclosures presented in our Annual Report on Form 10-K for the year ended 2023.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

SouthState’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of SouthState’s disclosure controls and procedures as of September 30, 2024, in accordance with Rule 13a-15 of the Securities Exchange Act of 1934. We applied our judgment in the process of reviewing these controls and procedures, which, by their nature, can provide only reasonable assurance regarding our control objectives. Based upon that evaluation, our Chief Executive Officer and the Chief Financial Officer concluded that SouthState’s disclosure controls and procedures as of September 30, 2024, were effective to provide reasonable assurance regarding our control objectives.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the three months ended September 30, 2024, that has materially affected, or is likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

On February 9, 2024, the Company disclosed that it detected what was determined to be a cybersecurity incident on February 6, 2024 (the “Cyber Incident”). The Bank notified banking regulators and law enforcement and, based on its investigation and findings, notified individuals whose personal information may have been compromised in the Cyber Incident. Further, the Bank has taken other actions, such as offering credit monitoring services. While the Company is unable to estimate the total cost of any remediation that may be required, as of September 30, 2024, the Company has not incurred material litigation costs as a result of the Cyber Incident.

On April 3, 2024, a putative class action lawsuit (the “Original Suit”) was filed against the Bank purportedly on behalf of a class consisting of those persons impacted by the Cyber Incident. While the Original Suit was voluntarily dismissed, as of the date of this Quarterly Report on Form 10-Q, one putative class action lawsuit is pending. For more information about the Original Suit and other litigations filed in connection with the Cyber Incident, please refer to Note 13 — Commitments and Contingent Liabilities, in the Notes to Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Other than the Cyber Incident Suit (as defined in Note 13 — Commitments and Contingent Liabilities), as of September 30, 2024, and the date of this Quarterly Report on Form 10-Q, we believe that we are not party to, nor is any of our property the subject of, any pending material legal proceeding other than those that may occur in the ordinary course of our business.

Item 1A. RISK FACTORS

Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as well as cautionary statements contained in this Quarterly Report on Form 10-Q, including those under the caption “Cautionary Note Regarding Any Forward-Looking Statements” set forth in Part I, Item 2. of this Quarterly Report on Form 10-Q, risks and matters described elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.

The Company is providing this additional risk factor to supplement the risk factors contained in Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2023.

We may face risks with respect to future expansion, including our proposed acquisition of Independent.

Our business growth, profitability and market share have been enhanced by us engaging in strategic mergers and acquisitions and de novo branching either within or contiguous to our existing footprint. We have entered into a Merger Agreement with Independent, and we may acquire other financial institutions or parts of those institutions in the future and engage in additional de novo branching. We may also consider and enter into or acquire new lines of business or offer new products or services. As part of our acquisition strategy, we seek companies that are culturally similar to us, have experienced management and are in markets in which we operate or close to those markets so we can achieve economies of scale. We also may receive future inquiries and have discussions with potential acquirers of us or potential companies in which we may engage in a so-called “merger of equals.” Acquisitions and mergers, including our proposed acquisition of Independent, involve a number of risks, including:

the time and costs associated with identifying and evaluating potential acquisitions and merger partners;
inaccurate estimates and judgments regarding credit, operations, management and market risks of the target institution;
the time and costs of evaluating new markets, hiring experienced local management and opening new offices, and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion;
our ability to receive regulatory approvals on the timeline and terms that are acceptable to us;
the adverse consequences (including applicable termination fees and negative reactions from the financial markets and our customers and employees) we may experience if a merger is terminated under certain circumstances;
the business uncertainties and contractual restrictions while a merger is pending;
the limitation on our ability to pursue alternative acquisitions and mergers and the hinderance of other companies’ interest in trying to acquire us;
our potential inability to satisfy certain conditions to the merger;
our ability to finance an acquisition and possible dilution to our existing shareholders;

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potential deposit attrition, higher than expected costs, customer loss and business disruption associated with merger and acquisition integration, including, without limitation, and potential difficulties in maintaining relationships with key personnel;
our ability to manage the expanded business and operations post-merger;
the diversion of our management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining businesses;
entry into new markets where we lack experience;
the strain of growth on our infrastructure, staff, internal controls and management, which may require additional personnel, time and expenditures;
exposure to potential asset quality issues with acquired institutions;
the introduction of new products and services into our business;
the possibility of unknown or contingent liabilities;
the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations;
the risk of loss of key employees and customers; and
fluctuations in the market price of SouthState common stock pre- and post-merger.

We also face litigation risks with respect to potential mergers and acquisitions, and such litigation is common.

We expect to continue to evaluate merger and acquisition opportunities that are presented to us in our current and expected markets and conduct due diligence related to those opportunities, as well as negotiate to acquire or merge with other institutions. If we announce a transaction, we may issue equity securities, including common stock and securities convertible into shares of our common stock in connection with future acquisitions. As a result, holders of our common stock may have a reduced ownership and voting interest in the Company after a transaction and may exercise less influence over management.

We also may issue debt to finance one or more transactions, including subordinated debt issuances. Generally, acquisitions of financial institution involve the payment of a premium over book and market values, resulting in dilution of our book value and fully diluted earnings per share, as well as dilution to our existing shareholders. We may incur substantial costs to expand, and we can give no assurance such expansion will result in the levels of profits we seek. There is no assurance that, following any future mergers or acquisitions, including our proposed acquisition of Independent, that our integration efforts will be successful or our Company, after giving effect to the acquisition, will achieve increased revenues comparable to or better than our historical experience, and failure to realize such expected revenue increases, cost savings, increases in market presence or other benefits could have a material adverse effect on our financial conditions and results of operations.

We may not be able to successfully integrate Independent or to realize the anticipated benefits of the merger with Independent.

We entered into a Merger Agreement with Independent on May 17, 2024. If the proposed acquisition of Independent is completed, we will also integrate the systems and operations of Independent.

A successful integration of Independent’s operations with our operations so that the Company operates as one entity depends substantially on our ability to successfully consolidate operations, management teams, corporate cultures, systems and procedures and to eliminate redundancies and costs. While we have substantial experience in successfully integrating institutions we have acquired, we may encounter difficulties during integration, such as:

the loss of key employees and customers;
the disruption of operations and businesses;
inability to maintain and increase competitive presence;
loan, deposit, and revenue attrition;
inconsistencies in standards, control procedures and policies;
unexpected issues with costs, operations, personnel, and technology; and
problems with the assimilation of new operations, sites or personnel.

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Integration activities could divert resources from regular operations. In addition, general market and economic conditions, governmental actions, natural and human disasters or other international or domestic calamities affecting the financial industry generally may inhibit the Company’s successful integration of these Independent. In connection with the proposed acquisition of Independent, we will assume Independent’s outstanding debt obligations, and the surviving corporation’s level of indebtedness following the completion of the merger could adversely affect the Company’s ability to raise additional capital and to meet its obligations under existing indebtedness.

In addition, we have proposed to acquire Independent with the expectation that this merger will result in various benefits including, among other things, benefits relating to enhanced revenues, a strengthened and expanded market position for the combined company, technology efficiencies, cost savings and operating efficiencies. Achieving the anticipated benefits of these mergers is subject to a number of uncertainties, including whether we integrate the institution in an efficient and effective manner, and general competitive factors in the marketplace. Failure to achieve these anticipated benefits could result in a reduction in the price of our shares as well as in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy and could materially and adversely affect the Company’s financial condition, results of operations, business and prospects.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)Not applicable
(b)Not applicable
(c)Issuer Purchases of Registered Equity Securities:

In April 2022, the Company’s Board of Directors approved a new stock repurchase program (“2022 Stock Repurchase Program”) authorizing the Company to repurchase up to 3,750,000 of the Company’s common shares along with the remaining authorized shares of 370,021 from the 2021 Stock Repurchase Program for a total authorization of 4,120,021 shares. The Company repurchased a total of 100,000 shares at a weighted average price of $79.85 per share shares through the 2022 Stock Repurchase Program during the first nine months of 2024. During 2023, the Company repurchased a total of 100,000 shares at a weighted average price of $67.48 per share pursuant to the 2022 Stock Repurchase Program. As of September 30, 2024, there is a total of 3,920,021 shares authorized to be repurchased. The number of shares to be purchased and the timing of the purchases are based on a variety of factors, including, but not limited to, the level of cash balances, general business conditions, regulatory requirements, the market price of our common stock, and the availability of alternative investment opportunities.

The following table reflects share repurchase activity during the third quarter of 2024:

    

    

    

    

(d) Maximum

 

(c) Total

Number (or

 

Number of

Approximate

 

Shares (or

Dollar Value) of

 

Units)

Shares (or

 

(a) Total

Purchased as

Units) that May

 

Number of

Part of Publicly

Yet Be

 

Shares (or

(b) Average

Announced

Purchased

 

Units)

Price Paid per

Plans or

Under the Plans

 

Period

Purchased

Share (or Unit)

Programs

or Programs

 

July 1 ‑ July 31

 

5,053

*

$

87.83

 

 

3,920,021

August 1 - August 31

 

651

*

 

88.91

 

 

3,920,021

September 1 - September 30

 

1,080

*

 

95.58

 

 

3,920,021

Total

 

6,784

 

 

3,920,021

*

For the months ended July 31, 2024, August 31, 2024 and September 30, 2024, totals include 5,053, 651, and 1,080 shares, respectively, that were repurchased under arrangements, authorized by our stock based compensation plans and Board of Directors, whereby officers or directors may sell previously owned shares to SouthState in order to pay for the exercises of stock options or for income taxes owed on vesting shares of restricted stock. These shares were not repurchased under the 2022 Stock Repurchase Program.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

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Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS

The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated by reference.

Exhibit Index

Incorporated by Reference

Exhibit No.

Description

Form

Commission File No.

Exhibit

Filing Date

Filed Herewith

31.1

Rule 13a-14(a) Certification of Principal Executive Officer

X

31.2

Rule 13a-14(a) Certification of Principal Financial Officer

X

32

Section 1350 Certifications of Principal Executive Officer and Principal Financial Officer

X

101

The following financial statements from the Quarterly Report on Form 10-Q of SouthState Corporation for the quarter ended September 30, 2024, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statement of Cash Flows and (vi) Notes to consolidated Financial Statements.

X

104

Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).

X

   Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments have been omitted. The registrant hereby agrees to furnish supplementally a copy of any omitted schedule or similar attachment to the SEC upon request.  

* Denotes a management compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SOUTHSTATE CORPORATION

(Registrant)

Date: November 1, 2024

/s/ John C. Corbett

John C. Corbett

President and Chief Executive Officer

(Principal Executive Officer)

Date: November 1, 2024

/s/ William E. Matthews, V

William E. Matthews, V

Senior Executive Vice President,

Chief Financial Officer

(Principal Financial Officer)

Date: November 1, 2024

/s/ Sara G. Arana

Sara G. Arana

Executive Vice President and

Principal Accounting Officer

84