0000764038us-gaap:ConsumerPortfolioSegmentMemberssb:CommercialAndIndustrialLoansMemberus-gaap:ExtendedMaturityMember2023-09-30

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, 2023March 31, 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 Nasdaq Global Select MarketNew 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 NovemberMay 1, 20232024

Common Stock, $2.50 par value

76,065,25876,188,904

Table of Contents 

SouthState Corporation and Subsidiaries

September 30, 2023March 31, 2024 Form 10-Q

INDEX

Page

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets at September 30, 2023March 31, 2024 and December 31, 20222023

3

Consolidated Statements of Income for the Three and Nine Months Ended September 30,March 31, 2024 and 2023 and 2022

4

Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended September 30,March 31, 2024 and 2023 and 2022

5

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended September 30,March 31, 2024 and 2023 and 2022

6

Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2023 and 2022

7

Consolidated Statements of Cash Flows for the NineThree Months Ended September 30,March 31, 2024 and 2023 and 2022

87

Notes to consolidatedConsolidated Financial Statements

98

Item 2.

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

4745

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

8173

Item 4.

Controls and Procedures

8174

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

8174

Item 1A.

Risk Factors

8274

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

8275

Item 3.

Defaults Upon Senior Securities

8275

Item 4.

Mine Safety Disclosures

8275

Item 5.

Other Information

8375

Item 6.

Exhibits

8376

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,

March 31,

December 31,

 

    

2023

    

2022

    

    

2024

    

2023

 

(Unaudited)

(Unaudited)

ASSETS

    

    

    

    

    

    

    

Cash and cash equivalents:

Cash and due from banks

$

514,917

$

548,387

$

478,271

$

510,922

Federal funds sold and interest-earning deposits with banks

587,626

580,491

493,378

236,435

Deposits in other financial institutions (restricted cash)

 

226,594

 

183,685

 

237,808

 

251,520

Total cash and cash equivalents

 

1,329,137

 

1,312,563

 

1,209,457

 

998,877

Trading securities, at fair value

114,154

31,263

66,188

31,321

Investment securities:

Securities held to maturity (fair value of $2,012,400 and $2,250,168)

 

2,533,713

 

2,683,241

Securities held to maturity (fair value of $2,016,567 and $2,084,736)

 

2,446,589

 

2,487,440

Securities available for sale, at fair value

 

4,623,618

 

5,326,822

 

4,598,400

 

4,784,388

Other investments

 

187,152

 

179,717

 

187,285

 

192,043

Total investment securities

 

7,344,483

 

8,189,780

 

7,232,274

 

7,463,871

Loans held for sale

 

27,443

 

28,968

 

56,553

 

50,888

Loans:

Acquired - non-purchased credit deteriorated loans

5,064,254

5,943,092

4,534,583

4,796,913

Acquired - purchased credit deteriorated loans

1,171,543

1,429,731

1,031,283

1,108,813

Non-acquired loans

 

25,780,875

 

22,805,039

 

27,101,444

 

26,482,763

Less allowance for credit losses

 

(447,956)

 

(356,444)

 

(469,654)

 

(456,573)

Loans, net

 

31,568,716

 

29,821,418

 

32,197,656

 

31,931,916

Other real estate owned

 

434

 

1,023

Bank property held for sale

15,251

17,754

Premises and equipment, net

516,583

520,635

512,635

519,197

Bank owned life insurance ("BOLI")

984,881

964,708

Bank owned life insurance (“BOLI”)

997,562

991,454

Deferred tax assets

150,422

177,801

170,818

164,354

Derivatives assets

212,345

211,016

176,784

172,939

Mortgage servicing rights

89,476

86,610

87,970

85,164

Core deposit and other intangibles

 

95,094

 

116,450

 

83,193

 

88,776

Goodwill

1,923,106

1,923,106

1,923,106

1,923,106

Other assets

 

617,603

 

515,601

 

430,642

 

480,161

Total assets

$

44,989,128

$

43,918,696

$

45,144,838

$

44,902,024

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits:

Noninterest-bearing

$

11,158,431

$

13,168,656

$

10,546,410

$

10,649,274

Interest-bearing

 

25,776,767

 

23,181,967

 

26,632,024

 

26,399,635

Total deposits

 

36,935,198

 

36,350,623

 

37,178,434

 

37,048,909

Federal funds purchased

253,486

213,597

273,367

248,162

Securities sold under agreements to repurchase

 

259,818

 

342,820

 

281,324

 

241,023

Corporate and subordinated debentures

391,997

392,275

391,812

391,904

Other borrowings

 

 

100,000

Reserve for unfunded commitments

62,347

67,215

53,229

56,303

Derivative liabilities

1,251,878

1,034,143

954,788

804,486

Other liabilities

 

603,417

 

443,096

 

464,875

 

478,139

Total liabilities

 

39,758,141

 

38,843,769

 

39,597,829

 

39,368,926

Shareholders’ equity:

Common stock - $2.50 par value; authorized 160,000,000 shares; 76,017,366 and 75,704,563 shares issued and outstanding, respectively

 

190,043

 

189,261

Common stock - $2.50 par value; authorized 160,000,000 shares; 76,177,163 and 76,022,039 shares issued and outstanding, respectively

 

190,443

 

190,055

Surplus

 

4,238,753

 

4,215,712

 

4,230,345

 

4,240,413

Retained earnings

 

1,618,080

 

1,347,042

 

1,749,215

 

1,685,166

Accumulated other comprehensive loss

 

(815,889)

 

(677,088)

 

(622,994)

 

(582,536)

Total shareholders’ equity

 

5,230,987

 

5,074,927

 

5,547,009

 

5,533,098

Total liabilities and shareholders’ equity

$

44,989,128

$

43,918,696

$

45,144,838

$

44,902,024

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

3

Table of Contents 

SouthState Corporation and Subsidiaries

Consolidated Statements of Income (unaudited)

(In thousands, except per share data)

Three Months Ended

Nine Months Ended

Three Months Ended

September 30,

September 30,

 

March 31,

 

    

2023

    

2022

    

2023

    

2022

 

    

2024

    

2023

 

Interest income:

Loans, including fees

$

443,805

$

312,856

$

1,256,525

$

818,473

$

463,688

$

393,366

Investment securities:

Taxable

 

40,330

 

39,300

 

123,149

 

108,368

 

39,745

 

41,565

Tax-exempt

 

5,543

 

5,986

 

17,687

 

15,937

 

5,568

 

6,557

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

 

10,831

 

18,190

 

31,610

 

30,359

 

8,254

 

8,921

Total interest income

 

500,509

 

376,332

 

1,428,971

 

973,137

 

517,255

 

450,409

Interest expense:

Deposits

 

133,944

 

7,534

 

290,673

 

17,040

 

160,162

 

55,942

Federal funds purchased and securities sold under agreements to repurchase

 

4,291

 

1,506

 

10,679

 

2,556

 

4,727

 

2,853

Corporate and subordinated debentures

6,014

4,958

17,572

13,874

6,009

5,735

Other borrowings

 

889

 

 

11,670

 

 

2,421

 

4,616

Total interest expense

 

145,138

 

13,998

 

330,594

 

33,470

 

173,319

 

69,146

Net interest income

 

355,371

 

362,334

 

1,098,377

 

939,667

 

343,936

 

381,263

Provision for credit losses

 

32,709

 

23,876

 

104,189

 

34,713

 

12,686

 

33,091

Net interest income after provision for credit losses

 

322,662

 

338,458

 

994,188

 

904,954

 

331,250

 

348,172

Noninterest income:

Fees on deposit accounts

 

32,830

 

30,326

 

95,790

 

91,198

 

33,145

 

29,859

Mortgage banking income

 

2,478

 

2,262

 

11,164

 

18,336

 

6,169

 

4,332

Trust and investment services income

 

9,556

 

9,603

 

29,316

 

29,152

 

10,391

 

9,937

Correspondent banking and capital markets income

12,916

16,427

45,697

70,445

4,311

13,594

SBA income

3,033

6,401

9,640

13,924

4,363

3,722

Securities gains, net

 

 

30

 

45

 

30

 

 

45

Other income

 

12,035

 

8,004

 

29,765

 

22,770

 

13,179

 

9,866

Total noninterest income

 

72,848

 

73,053

 

221,417

 

245,855

 

71,558

 

71,355

Noninterest expense:

Salaries and employee benefits

 

146,146

 

139,554

 

437,548

 

414,264

 

150,453

 

144,060

Occupancy expense

 

22,251

 

22,490

 

65,980

 

67,089

 

22,577

 

21,533

Information services expense

 

21,428

 

20,714

 

62,472

 

59,854

 

22,353

 

19,925

OREO and loan related expense

 

613

 

532

 

768

 

291

 

606

 

169

Amortization of intangibles

 

6,616

 

7,837

 

20,943

 

25,178

 

5,998

 

7,299

Supplies, printing and postage expense

2,623

2,621

7,817

7,210

2,540

2,640

Professional fees

 

3,456

 

3,495

 

11,522

 

11,575

 

3,115

 

3,702

FDIC assessment and other regulatory charges

 

8,632

 

6,300

 

24,745

 

16,444

 

8,534

 

6,294

FDIC special assessment

3,854

Advertising and marketing

 

3,009

 

2,170

 

6,648

 

6,219

 

1,984

 

2,118

Merger, branch consolidation and severance related expense

 

164

 

13,679

 

11,384

 

29,345

Merger, branch consolidation, severance related and other expense

 

4,513

 

9,412

Other expense

 

23,268

 

21,041

 

71,510

 

62,733

 

22,763

 

23,353

Total noninterest expense

 

238,206

 

240,433

 

721,337

 

700,202

 

249,290

 

240,505

Earnings:

Income before provision for income taxes

 

157,304

 

171,078

 

494,268

 

450,607

 

153,518

 

179,022

Provision for income taxes

 

33,160

 

38,035

 

106,751

 

98,060

 

38,462

 

39,096

Net income

$

124,144

$

133,043

$

387,517

$

352,547

$

115,056

$

139,926

Earnings per common share:

Basic

$

1.63

$

1.76

$

5.10

$

4.75

$

1.51

$

1.84

Diluted

$

1.62

$

1.75

$

5.07

$

4.71

$

1.50

$

1.83

Weighted average common shares outstanding:

Basic

 

76,139

 

75,606

 

76,034

 

74,185

 

76,301

 

75,902

Diluted

 

76,571

 

76,182

 

76,446

 

74,791

 

76,660

 

76,389

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

4

Table of Contents 

SouthState Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited)

(Dollars in thousands)

Three Months Ended

Nine Months Ended

Three Months Ended

September 30,

September 30,

March 31,

    

2023

    

2022

    

2023

    

2022

 

    

2024

    

2023

 

Net income

    

$

124,144

    

$

133,043

    

$

387,517

    

$

352,547

    

$

115,056

    

$

139,926

Other comprehensive (loss) income:

Unrealized holding losses on available for sale securities:

Unrealized holding losses arising during period

 

(204,409)

 

(299,139)

 

(196,289)

 

(922,437)

Other comprehensive income:

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

Unrealized holding (losses) gains arising during period

 

(53,576)

 

72,772

Tax effect

 

50,918

 

73,588

 

57,521

 

227,148

 

13,118

 

(9,501)

Reclassification adjustment for gains included in net income

 

 

(30)

 

(45)

 

(30)

 

 

45

Tax effect

 

 

7

 

12

 

7

 

 

(12)

Net of tax amount

 

(153,491)

 

(225,574)

 

(138,801)

 

(695,312)

 

(40,458)

 

63,304

Other comprehensive loss, net of tax

 

(153,491)

 

(225,574)

 

(138,801)

 

(695,312)

Comprehensive (loss) income

$

(29,347)

$

(92,531)

$

248,716

$

(342,765)

Other comprehensive (loss) income, net of tax

 

(40,458)

 

63,304

Comprehensive income

$

74,598

$

203,230

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

5

Table of Contents 

SouthState Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

Three months ended September 30,March 31, 2024 and 2023 and 2022

(Dollars in thousands, except for share data)

Accumulated

 

Other

 

Common Stock

Retained

Comprehensive

 

    

Shares

    

Amount

    

Surplus

    

Earnings

    

Loss

    

Total

 

Balance, June 30, 2022

    

75,641,322

$

189,103

$

4,195,976

$

1,146,230

$

(490,884)

$

5,040,425

Comprehensive loss:

Net income

 

 

 

133,043

 

 

133,043

Other comprehensive loss, net of tax effects

 

 

 

 

(225,574)

(225,574)

Total comprehensive loss

 

(92,531)

Cash dividends declared on common stock at $0.50 per share

 

 

 

(37,834)

 

 

(37,834)

Cash dividend equivalents paid on restricted stock units

 

 

 

(26)

 

(26)

Employee stock purchases

10,084

 

25

 

714

 

 

739

Stock options exercised

18,980

 

47

 

732

 

 

 

779

Restricted stock awards (forfeits)

(1,550)

 

(3)

 

3

 

 

 

Stock issued pursuant to restricted stock units

18,560

 

46

 

(46)

 

 

Common stock repurchased

(10,951)

 

(27)

 

(851)

 

 

 

(878)

Share-based compensation expense

 

 

10,512

 

 

 

10,512

Balance, September 30, 2022

75,676,445

$

189,191

$

4,207,040

$

1,241,413

$

(716,458)

$

4,921,186

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

6

Table of Contents

SouthState Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

Nine months ended September 30, 2023 and 2022

(Dollars in thousands, except for share data)

Accumulated Other

Accumulated Other

Common Stock

Retained

Comprehensive

 

Common Stock

Retained

Comprehensive

 

    

Shares

    

Amount

    

Surplus

    

Earnings

    

Loss

    

Total

 

    

Shares

    

Amount

    

Surplus

    

Earnings

    

Loss

    

Total

 

Balance, December 31, 2021

    

69,332,297

$

173,331

$

3,653,098

$

997,657

$

(21,146)

$

4,802,940

Comprehensive loss:

Balance, December 31, 2022

    

75,704,563

$

189,261

$

4,215,712

$

1,347,042

$

(677,088)

$

5,074,927

Comprehensive income:

Net income

139,926

139,926

Other comprehensive income, net of tax effects

63,304

63,304

Total comprehensive income

203,230

Cash dividends declared on common stock at $0.50 per share

 

 

 

(37,912)

 

 

(37,912)

Cash dividend equivalents paid on restricted stock units

 

 

(420)

(420)

Stock options exercised

23,516

 

59

 

1,114

 

 

 

1,173

Restricted stock awards (forfeits)

(2,233)

 

(5)

 

5

 

 

 

Stock issued pursuant to restricted stock units

177,708

444

(444)

 

Common stock repurchased

(43,889)

 

(110)

 

(3,306)

 

 

 

(3,416)

Share-based compensation expense

 

 

11,422

 

 

 

11,422

Balance, March 31, 2023

75,859,665

$

189,649

$

4,224,503

$

1,448,636

$

(613,784)

$

5,249,004

Balance, December 31, 2023

76,022,039

$

190,055

$

4,240,413

$

1,685,166

$

(582,536)

$

5,533,098

Comprehensive income:

Net income

 

 

 

352,547

 

352,547

115,056

115,056

Other comprehensive loss, net of tax effects

 

 

 

 

(695,312)

(695,312)

(40,458)

(40,458)

Total comprehensive loss

(342,765)

Cash dividends declared on common stock at $1.48 per share

 

 

 

(108,639)

 

 

(108,639)

Total comprehensive income

74,598

Cash dividends declared on common stock at $0.52 per share

 

 

 

(39,598)

 

 

(39,598)

Cash dividend equivalents paid on restricted stock units

 

(152)

 

(152)

 

 

(1,163)

(1,163)

Employee stock purchases

19,162

48

1,395

 

1,443

Stock options exercised

37,236

 

92

 

1,424

 

 

 

1,516

6,349

 

16

 

375

 

 

 

391

Restricted stock awards (forfeits)

(2,816)

 

(6)

 

6

 

 

 

(64)

 

(1)

 

1

 

 

 

Stock issued pursuant to restricted stock units

383,369

958

(957)

 

1

344,376

861

(861)

 

Common stock repurchased - buyback plan

(1,312,038)

 

(3,280)

 

(106,924)

 

(110,204)

(100,000)

 

(250)

 

(7,735)

(7,985)

Common stock repurchased

(111,568)

 

(279)

 

(8,778)

 

 

 

(9,057)

(95,537)

 

(238)

 

(7,715)

 

 

 

(7,953)

Share-based compensation expense

 

 

28,311

 

 

 

28,311

 

 

5,867

 

 

5,867

Common stock issued for Atlantic Capital merger

7,330,803

18,327

641,445

 

 

659,772

Net fair value of unvested equity awards assumed in the Atlantic Capital acquisition

(1,980)

(1,980)

Balance, September 30, 2022

75,676,445

$

189,191

$

4,207,040

$

1,241,413

$

(716,458)

$

4,921,186

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

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

(10,246)

(10,246)

Balance, March 31, 2024

76,177,163

$

190,443

$

4,230,345

$

1,749,215

$

(622,994)

$

5,547,009

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

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SouthState Corporation and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(Dollars in thousands)

Nine Months Ended

September 30,

    

2023

    

2022

 

Cash flows from operating activities:

Net income

$

387,517

$

352,547

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

Depreciation and amortization

 

44,365

 

48,765

Provision for credit losses

 

104,189

 

34,713

Deferred income taxes

 

72,680

 

123,905

Gains on sale of securities, net

 

(45)

 

(30)

Share-based compensation expense

 

28,484

 

28,311

Accretion of discount related to acquired loans

 

(16,931)

 

(29,061)

Losses on disposal of premises and equipment

 

27

 

3,483

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

 

(1,454)

 

(787)

Net amortization of premiums on investment securities

 

15,181

 

21,528

Bank properties held for sale and repossessed real estate write downs

 

1,525

 

226

Fair value adjustment for loans held for sale

 

508

 

7,604

Originations and purchases of loans held for sale

 

(666,880)

 

(1,273,659)

Proceeds from sales of loans held for sale

 

670,223

 

1,421,238

(Gains) losses on sales of loans held for sale

(2,327)

2,062

Increase in cash surrender value of BOLI

(18,573)

(17,188)

Net change in:

Accrued interest receivable

 

(16,665)

 

(22,788)

Prepaid assets

 

(4,178)

 

(1,180)

Operating leases

 

231

 

245

Bank owned life insurance

(1,589)

(423)

Trading securities

(82,891)

25,749

Derivative assets

(1,329)

205,641

Miscellaneous other assets

 

(41,921)

 

(6,642)

Accrued interest payable

 

38,945

 

2,745

Accrued income taxes

 

(31,740)

 

(54,219)

Derivative liabilities

217,735

790,388

Miscellaneous other liabilities

 

125,989

 

(86,653)

Net cash provided by operating activities

 

821,076

 

1,576,520

Cash flows from investing activities:

Proceeds from sales of investment securities available for sale

 

125,298

 

482,028

Proceeds from maturities and calls of investment securities held to maturity

 

145,751

 

176,401

Proceeds from maturities and calls of investment securities available for sale

 

404,718

 

460,910

Proceeds from sales and redemptions of other investment securities

 

185,875

 

13,216

Purchases of investment securities available for sale

 

(34,505)

 

(1,366,327)

Purchases of investment securities held to maturity

(1,099,691)

Purchases of other investment securities

 

(193,310)

 

(20,387)

Net increase in loans

 

(1,855,352)

 

(2,516,308)

Net cash received from acquisitions

 

 

250,115

Recoveries of loans previously charged off

12,630

15,381

Purchase of bank owned life insurance

(5,966)

(85,966)

Purchases of premises and equipment

 

(26,372)

 

(13,781)

Proceeds from redemption and payout of bank owned life insurance policies

5,956

1,188

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

 

8,392

 

8,564

Proceeds from sale of premises and equipment

 

850

 

3,772

Net cash used in investing activities

 

(1,226,035)

 

(3,690,885)

Cash flows from financing activities:

Net increase (decrease) in deposits

 

585,786

 

(1,221,468)

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

 

(43,113)

 

(223,437)

Proceeds from FHLB borrowings

5,350,200

Repayment of FHLB borrowings

 

(5,350,200)

 

(13,000)

Common stock issuance

1,356

1,444

Common stock repurchases

 

(7,409)

 

(119,261)

Dividends paid

 

(116,479)

 

(108,791)

Stock options exercised

 

1,392

 

1,516

Net cash provided by (used in) financing activities

 

421,533

 

(1,682,997)

Net increase (decrease) in cash and cash equivalents

 

16,574

 

(3,797,362)

Cash and cash equivalents at beginning of period

 

1,312,563

 

6,721,571

Cash and cash equivalents at end of period

$

1,329,137

$

2,924,209

Supplemental Disclosures:

\

Cash Flow Information:

Cash paid for:

Interest

$

291,649

$

34,227

Income taxes

$

68,672

$

31,611

Recognition of operating lease assets in exchange for lease liabilities

$

701

$

12,616

Schedule of Noncash Investing Transactions:

Acquisitions:

Fair value of tangible assets acquired

$

$

3,501,273

Other intangible assets acquired

 

 

20,791

Liabilities assumed

 

 

3,205,694

Net identifiable assets acquired over liabilities assumed

 

 

341,440

Common stock issued in acquisition

 

 

659,772

Real estate acquired in full or in partial settlement of loans

$

3,298

$

1,151

Three Months Ended

March 31,

    

2024

    

2023

 

Cash flows from operating activities:

Net income

$

115,056

$

139,926

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

Depreciation and amortization

 

14,079

 

15,015

Provision for credit losses

 

12,686

 

33,091

Deferred income taxes

 

2,137

 

3,127

Gains on sale of securities, net

 

 

(45)

Share-based compensation expense

 

5,867

 

11,422

Accretion of discount related to acquired loans

 

(4,287)

 

(7,398)

Gains on disposal of premises and equipment

 

(8)

 

(65)

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

 

(155)

 

(514)

Net amortization of premiums and discounts on investment securities

 

4,816

 

5,358

Bank properties held for sale and repossessed real estate write downs

 

18

 

410

Fair value adjustment for loans held for sale

 

144

 

9

Originations and purchases of loans held for sale

 

(228,440)

 

(157,683)

Proceeds from sales of loans held for sale

 

225,355

 

160,808

Gains on sales of loans held for sale

(2,724)

(1,456)

Increase in cash surrender value of BOLI

(6,700)

(5,906)

Net change in:

Accrued interest receivable

 

(6,120)

 

(3,921)

Prepaid assets

 

(115)

 

2,406

Operating leases

 

80

 

72

Bank owned life insurance

(200)

(930)

Trading securities

(34,868)

15,225

Derivative assets

(3,844)

51,729

Miscellaneous other assets

 

14,427

 

(115,557)

Accrued interest payable

 

(11,935)

 

14,193

Accrued income taxes

 

32,734

 

36,423

Derivative liabilities

150,302

(227,559)

Miscellaneous other liabilities

 

(646)

 

91,201

Net cash provided by operating activities

 

277,659

 

59,381

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

 

39,811

 

45,308

Proceeds from maturities and calls of investment securities available for sale

 

128,636

 

110,287

Proceeds from sales and redemptions of other investment securities

 

59,375

 

25,500

Purchases of other investment securities

 

(54,616)

 

(63,773)

Net increase in loans

 

(283,413)

 

(518,335)

Recoveries of loans previously charged off

5,261

3,589

Purchases of premises and equipment

 

(5,511)

 

(7,642)

Proceeds from redemption and payout of bank owned life insurance policies

792

3,794

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

 

3,698

 

1,511

Proceeds from sale of premises and equipment

 

12

 

616

Net cash used in investing activities

 

(105,955)

 

(273,847)

Cash flows from financing activities:

Net increase in deposits

 

129,678

 

51,450

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

 

65,506

 

(12,309)

Proceeds from borrowings

1,150,000

2,150,000

Repayment of borrowings

 

(1,250,000)

 

(1,250,000)

Common stock repurchases

 

(15,938)

 

(3,416)

Dividends paid

 

(40,761)

 

(38,333)

Stock options exercised

 

391

 

1,173

Net cash provided by financing activities

 

38,876

 

898,565

Net increase in cash and cash equivalents

 

210,580

 

684,099

Cash and cash equivalents at beginning of period

 

998,877

 

1,312,563

Cash and cash equivalents at end of period

$

1,209,457

$

1,996,662

Supplemental Disclosures:

Cash Flow Information:

Cash paid for:

Interest

$

185,254

$

54,953

Income taxes

$

147

$

2,400

Recognition of operating lease assets in exchange for lease liabilities

$

2,544

$

Schedule of Noncash Investing Transactions:

Real estate acquired in full or in partial settlement of loans

$

940

$

2,826

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

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SouthState Corporation and Subsidiaries

NotesNotes 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, 2023March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.2024.

The consolidated balance sheet at December 31, 20222023 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, 2022,2023, as filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2023,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”“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.

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 non-acquired loans and acquired 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 90 days past due from the invoice due date and the non-recourse receivables when they become 120 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 on Form 10-K for the year ended December 31, 2022.2023. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company had $2.52.4 billion and $2.7$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, 2023March 31, 2024 and December 31, 2022,2023, the accrued interest receivables for all investment securities recorded in Other Assets were $25.625.8 million and $28.2$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 uses systematic methodologies to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. 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. The Company’s ACL recorded in 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.

The Company’s ACL is calculated using collectively evaluated and individually evaluated loans. The Company’s methodology on how the ACL is calculated is disclosed in 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, 2022.2023.

As of January 1, 2023, the Company adopted and applied prospectively ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, that requires the elimination of designation of loans as TDRs. 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. Longstanding TDR accounting rules were replaced as of January 1, 2023 with ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (See Note 3Recent Accounting and Regulatory Pronouncements). In accordance with the adoption of ASU 2022-02, any loansLoans 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.

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Table of Contents

Effective January 1, 2023, theThe 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. The effects of reasonably expected TDRs are no longer considered in the measurement of expected credit losses. Prior to the adoption of ASU No. 2022-02, when determining the contractual term, the Company considered expected prepayments but was precluded from considering expected extensions, renewals, or modifications, unless the Company reasonably expected it would execute a TDR with a borrower. In the event of a reasonably expected TDR, the Company factored the reasonably-expected TDR into the expected credit losses estimate. For consumer loans, the point at which a TDR was reasonably expected was when the Company approved the borrower’s application for a modification (i.e., the borrower qualifies for the TDR) or when the Credit Administration department approved loan concessions on substandard loans. For commercial loans, the point at which a TDR was reasonably expected was when the Company approved the loan for modification or when the Credit Administration department approved loan concessions on substandard loans. The Company used a discounted cash flow methodology for a TDR to calculate the effect of the concession provided to the borrower within the ACL.

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Table of Contents

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 Net 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, 2023March 31, 2024 and December 31, 2022,2023, the accrued interest receivables for loans recorded in Other Assets were $123.1$131.0 million and $105.4$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 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, 2023March 31, 2024 and December 31, 2022,2023, the liabilities recorded for expected credit losses on unfunded commitments were $62.353.2 million and $67.2$56.3 million, respectively. The current adjustment to the ACLreserve for unfunded commitments is recognized through the Provision for Credit Losses in the Consolidated Statements of Net Income.

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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Table of Contents

During 2022, the Company determined the variation margin payments for its interest rate swaps centrally cleared through London Clearing House (“LCH”) and Chicago Mercantile Exchange (“CME”) meet the legal characteristics of daily settlements of the derivatives (settle-to-market) rather than collateral (collateralize-to-market). As a result, the variation margin payment and the related derivative instruments centrally cleared through LCH and CME are considered a single unit of account for accounting and financial reporting purposes. Depending on the net position, the fair value is reported in Derivative Assets or Derivative Liabilities on the Consolidated Balance Sheets, as opposed to interest-earning deposits (restricted cash) within Cash and Cash Equivalents or interest-bearing deposits within Total Deposits. In addition, the expense or income attributable to the variation margin payments for the centrally cleared swaps is reported in Noninterest Income, specifically within Correspondent and Capital Markets Income, as opposed to Interest Income or Interest Expense. The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument. As a result of the correction from collateralize-to-market accounting treatment previously applied by the Company to settle-to-market accounting treatment, the prior periods presented herein have been corrected, for what management has concluded to be an immaterial correction.

The table below discloses the net change (increase or (decrease)) included in all the Consolidated Statements of Net Income line items in this Form 10-Q, as a result of the change in accounting treatment. There was no impact to Net Income or Shareholders’ Equity as previously reported.

(Dollars in thousands)

Three Months Ended

Nine Months Ended

INCOME STATEMENT

September 30, 2022

September 30, 2022

Interest income:

Effect to interest income on federal funds sold and interest-earning

deposits with banks

$

1,522

$

2,203

Net effect to interest income

1,522

2,203

Effect to interest expense on deposits

(2,603)

(3,502)

Net effect to interest expense

(2,603)

(3,502)

Net effect to net interest income

    

$

4,125

    

$

5,705

Noninterest Income:

Effect to correspondent banking and capital markets income

$

(4,125)

$

(5,705)

Net effect to noninterest income

$

(4,125)

$

(5,705)

Net effect to net income

$

$

Note 3 — Recent Accounting and Regulatory Pronouncements

Accounting Standards Adopted

In March 2022,2023, the FASB issued ASU No. 2022-02,2023-02, Financial Instruments –Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage DisclosuresStructures Using the Proportional Amortization Method. The amendments in this ASU eliminateupdate allow the long-standing accounting guidanceoption for Troubled Debt Restructurings (“TDRs”) by creditors in Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, as it is no longer meaningful due to the introduction of Topic 326, which requires an entity to consider lifetime expectedapply the proportional amortization method of accounting to other equity investments, in addition to the previously permitted low-income housing tax credit losses(“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 loans when establishinga 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 allowanceentity 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 credit losses. Thus, most losses that would have been realizedwhich the proportional amortization method is not applied can no longer be accounted for a TDR under Subtopic 310-40 are now captured byusing the accounting required under Topic 326.delayed equity contribution guidance. The amendments in this ASUupdate also require that an entity disclose current-period gross write offs by yearadditional disclosures in interim and annual periods concerning investments for which the proportional amortization method is applied, including the nature of origination for financing receivablestax equity investments, the effect of tax equity investments and net investments in leases within the scope of Subtopic 326-20, Financial Instruments – Credit Losses Measured at Amortized Cost. The Company adopted ASU No. 2022-02 effective January 1, 2023. We elected to apply a prospective transition method, which applies only to modifications occurring after the adoption date. For loans meeting the Bank’s materiality criteria, which includes loans in excess of $250,000, an assessment of whether a borrower is experiencing financial difficulty is maderelated income tax credits and other income tax benefits on the datefinancial position and results of the modification. On the transition date, the former TDR loans as of December 31, 2022 were designated as individually evaluated loans on January 1, 2023 and retained the allowance for credit losses allocated to these loans at the adoption date as the credit risk of these did not change. Aside from the changes to the disclosures required by ASU No. 2022-02, the ASU did not have a material impact on our consolidated financial statements.

operations.

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In March 2020, FASB issuedThe Company adopted ASU No. 2020-04, Reference Rate Reform (Topic 848 – Facilitation2023-02 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 Effectsdate 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 Reference Rate Reformthe 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 Financial Reporting and subsequently expandeda life-to-date basis of all LIHTCs as of December 31, 2023. Additionally, the scope of ASU No. 2020-04proportional amortization method does not require deferred taxes be tracked as was the case with the issuanceequity method; therefore, deferred taxes of ASU No. 2021-01 and extended the sunset date$836,000 were written-off as an additional reduction to December 31, 2024 with ASU No. 2022-06. This update provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that will be discontinued. The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The main provisions for contract modifications include optional relief by allowing the modification as a continuation of the existing contract without additional analysis and other optional expedients regarding embedded features. The amendments in this update wereretained earnings effective for all entities as of March 12, 2020 and may be applied through December 31, 2022. In January 2021, the FASB issued ASU 2021-01 which clarified that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2022-06 extended the effective date through December 31,1, 2024. The amendments are effective as of March 12, 2020 through December 31, 2024 and can be adopted at the instrument level on an ongoing basis. Management adopted these optional expedients beginning April 1, 2023 to coincide with the transition and modification of our LIBOR-exposed instruments. Most of the loan modifications met the requirements of these practical expedients, as most were subject to the Adjustable Interest Rate (LIBOR) Act which permits a replacement index with a spread adjustment. These modifications did not have a material impact on the consolidated financial statements.

Issued But Not Yet Adopted Accounting Standards

In MarchNovember 2023, the FASB issued ASU No. 2023-02,2023-07, Investments—Equity MethodSegment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve disclosures about a public entity’s reportable segments and Joint Ventures (Topic 323): Accountingaddress requests from investors and other allocators of capital for Investmentsadditional, 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 Tax Credit Structures Usingan 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 Proportional Amortization Method. The Proportional Amortization method was introduced bychief 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 No. 2014-01, but limited this amortization methodalso requires disclosure of key profitability measures used in assessing performance and how to investments in low-income housing tax credit structures.allocate resources. The amendments in this ASU 2023-02 will allow entities the option to elect whether they account for tax equity investments using the proportional amortization method if certain conditions are met, regardless of the program from which the income tax credits are received. The election would be on a program-by-program basis. The ASU would also require disclosures to be transparent about an entity’s investments that generate income tax credits and other income tax benefits. The amendments are effective for fiscal years beginning after December 15, 2023, includingand for interim periods within those fiscal years beginning after December 15, 2024, with early adoption permitted. The Company maintains investments in low-income housing tax structures and will evaluate whether it will change its current accounting treatment for low-income housing tax credits. The Company does not anticipate this ASU will have a material impact on its financial statements.

Note 4 — MergersIn 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 Acquisitions

Atlantic Capital Bancshares, Inc. (“Atlantic Capital” or “ACBI”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.

On March 1, 2022, the Company acquired all of the outstanding common stock of Atlantic Capital in a stock transaction. Upon the terms and subject to the conditions set forth therein, Atlantic Capital merged with and into the Company, with the Company continuing as the surviving corporation in the merger. Immediately following the merger, Atlantic Capital’s wholly owned banking subsidiary, Atlantic Capital Bank, N.A. (“ACB”) merged with and into the Bank, which continues as the surviving bank. Shareholders of Atlantic Capital received 0.36 shares of the Company’s common stock for each share of Atlantic Capital common stock they owned. In total, the purchase price for Atlantic Capital was $657.8 million.

In the acquisition, the Company acquired $2.4 billion of loans, including PPP loans, at fair value, net of $54.3 million, or 2.24%, estimated discount to the outstanding principal balance, representing 10.0% of the Company’s total loans at December 31, 2021. Of the total loans acquired, management identified $137.9 million that had more than insignificantly deteriorated since origination and were thus determined to be PCD loans.

During the nine months ended September 30, 2023, the Company incurred approximately $2.4 million of acquisition costs related to this transaction. The Company did not incur acquisition cost related to this transaction during the three months ended September 30, 2023. During the three and nine months ended September 30, 2022, the Company incurred approximately $7.1 million and $15.0 million, respectively, of acquisition costs related to this transaction. These acquisition costs are reported in Merger and Branch Consolidation Related Expenses on the Company’s Consolidated Statements of Net Income.

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Note 4 — Securities

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

 

March 31, 2024:

U.S. Government agencies

$

197,269

$

$

(25,821)

$

171,448

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

agencies or sponsored enterprises

1,406,440

(246,764)

1,159,676

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

agencies or sponsored enterprises

437,718

(72,593)

365,125

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

agencies or sponsored enterprises

352,399

(73,294)

279,105

Small Business Administration loan-backed securities

52,763

(11,550)

41,213

$

2,446,589

$

$

(430,022)

$

2,016,567

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

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

 

March 31, 2024:

U.S. Treasuries

$

24,920

$

$

(333)

$

24,587

U.S. Government agencies

246,118

(22,313)

223,805

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

agencies or sponsored enterprises

 

1,780,838

 

161

 

(288,576)

 

1,492,423

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

agencies or sponsored enterprises

611,044

4

(102,936)

508,112

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

agencies or sponsored enterprises

1,213,549

767

(202,099)

1,012,217

State and municipal obligations

 

1,127,834

 

2

 

(167,477)

 

960,359

Small Business Administration loan-backed securities

 

393,770

 

52

 

(43,779)

 

350,043

Corporate securities

30,521

(3,667)

26,854

$

5,428,594

$

986

$

(831,180)

$

4,598,400

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

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

Carrying

 

(Dollars in thousands)

    

Value

 

March 31, 2024:

Federal Home Loan Bank stock

$

18,086

Federal Reserve Bank stock

150,261

Investment in unconsolidated subsidiaries

 

3,563

Other nonmarketable investment securities

 

15,375

$

187,285

December 31, 2023:

Federal Home Loan Bank stock

$

22,836

Federal Reserve Bank stock

150,261

Investment in unconsolidated subsidiaries

 

3,563

Other nonmarketable investment securities

 

15,383

$

192,043

The acquisition was accountedCompany’s other investment securities consist of non-marketable equity securities that have no readily determinable market value. Accordingly, when evaluating these securities for underimpairment, management considers the acquisition method of accounting in accordance with ASC Topic 805. The Company recognized goodwill on this acquisition of $342.0 million. The goodwill was calculated based on the fair valuesultimate recoverability of the assets acquiredpar value rather than recognizing temporary declines in value. As of March 31, 2024, we determined that there was no impairment on other investment securities.

The amortized cost and liabilities assumed asfair value of debt securities at March 31, 2024 by contractual maturity are detailed below. Expected maturities will differ from contractual maturities because borrowers may have the acquisition date.right to call or prepay obligations with or without prepayment penalties.

Initial

Subsequent

As Recorded

Fair Value

Fair Value

As Recorded by

(Dollars in thousands)

    

by Atlantic Capital

    

Adjustments

    

Adjustments

the Company

 

Assets

    

    

    

Cash and cash equivalents

$

250,134

$

24

(a)

$

$

250,158

Investment securities

717,332

(13,622)

(b)

703,710

Loans, net of allowance and mark

 

2,394,256

 

(18,964)

(c)

(5,614)

(c)

 

2,369,678

Premises and equipment

 

16,892

 

2,608

(d)

 

19,500

Intangible assets

22,572

(1,781)

(e)

20,791

Bank owned life insurance

74,613

74,613

Deferred tax asset

30,231

2,273

(f)

(1,025)

(f)

31,479

Other assets

 

45,274

 

(1,277)

(g)

7,557

(g)

 

51,554

Total assets

$

3,551,304

$

(30,739)

$

918

$

3,521,483

Liabilities

 

 

 

Deposits:

 

 

 

Noninterest-bearing

$

1,411,671

$

$

$

1,411,671

Interest-bearing

 

1,616,970

 

 

1,616,970

Total deposits

 

3,028,641

 

 

3,028,641

Federal funds purchased and securities sold under agreements to repurchase

50,000

50,000

Other borrowings

74,131

4,286

(h)

78,417

Other liabilities

 

50,711

 

(2,075)

(i)

 

48,636

Total liabilities

3,203,483

2,211

3,205,694

Net identifiable assets acquired over (under) liabilities assumed

347,821

(32,950)

918

315,789

Goodwill

 

 

342,939

(918)

 

342,021

Net assets acquired over liabilities assumed

$

347,821

$

309,989

$

$

657,810

Consideration:

SouthState Corporation common shares issued

7,330,803

Purchase price per share of the Company's common stock

$

90.00

Company common stock issued ($659,772) and cash exchanged for fractional shares ($19)

$

659,791

Stock option conversion

1,135

Restricted stock unit conversion

2,870

Restricted stock awards conversion (unvested awards)

(5,986)

Fair value of total consideration transferred

$

657,810

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

    

$

64,365

$

63,576

    

$

157,891

    

$

155,556

Due after one year through five years

 

36,550

 

32,413

 

262,765

 

246,685

Due after five years through ten years

 

468,529

 

399,174

 

1,295,555

 

1,111,329

Due after ten years

 

1,877,145

 

1,521,404

 

3,712,383

 

3,084,830

$

2,446,589

$

2,016,567

$

5,428,594

$

4,598,400

Explanation of fair value adjustments

(a)— Represents an adjustment to record time deposits with financial institutions at fair value (premium).

(b)— RepresentsDuring the reversalthree months ended March 31, 2024, there were no sales of Atlantic Capital's existing fair value adjustmentssecurities available for sale and therefore, there were no gains or losses on sale securities available for sale. During the three months ended March 31, 2023, there were gross gains of $17.2$1.3 million and gross losses of $1.3 million realized from the adjustment to record securities at fair value (discount) totaling $30.9 million (includes reclassificationsale of all securities held as HTM to AFS totaling $237.6 million).

(c)— Represents approximately 1.40%, or $34.0 million, net credit discount of the loan portfolio and 2.24% total net discount, or $54.3 million, including non-credit discount, based on a third-party valuation. Also, includes a reversal of Atlantic Capital's ending ACL of $22.1 million and $7.6 million of existing Atlantic Capital’s deferred fees and costs.

(d)— Represents the preliminary fair value adjustments of $2.6 million on fixed assets and leased assets.

(e)— Represents approximately $17.5 million, or 0.63%, of CDI amount and $3.2 millionavailable for SBA servicing asset based on a third-party valuation. Atlantic Capital’s pre-merger goodwill and servicing asset of $19.9 million and $2.6 million, respectively, were written-off.

(f)— Represents deferred tax asset related to fair value adjustments with marginal tax rate of 23.9%, which includes an adjustment from Atlantic Capital’s effective tax rate to the Company’s effective tax rate. The difference in effective tax rates relates to state income taxes.

(g)— Represents the fair value adjustment (decrease) for low-income housing investments of $1.1 million, write-off of prepaid assets of $233,000, adjustments to receivables of $154,000 and fair value adjustment for Small Business Investment Company (“SBIC”) investments of $7.4 million.

(h)— Represents the reversal of the existing Atlantic Capital’s issuance costs on subordinated debt of $0.9 million and recording the fair value adjustment (premium) of $3.4 million, based on a third-party valuation.

(i)— Represents the reversal of $2.8 million of unfunded commitment liability at purchase date and the fair value adjustment to increase lease liabilities associated with rental facilities totaling $1.4 million. Also includes the reversal of uncertain tax liability of $0.7 million.sale securities.

There were no sales of held to maturity securities during the three months ended March 31, 2024 or March 31, 2023.

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Information pertaining to our securities with gross unrealized losses at March 31, 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

 

March 31, 2024:

Securities Held to Maturity

U.S. Government agencies

$

$

$

25,821

$

171,448

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

agencies or sponsored enterprises

246,764

1,159,676

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

agencies or sponsored enterprises

 

 

72,593

 

365,125

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

agencies or sponsored enterprises

73,294

279,105

Small Business Administration loan-backed securities

11,550

41,213

$

$

$

430,022

$

2,016,567

Securities Available for Sale

U.S. Treasuries

$

$

$

333

$

24,597

U.S. Government agencies

22,313

223,805

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

agencies or sponsored enterprises

135

8,878

288,441

1,473,944

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

agencies or sponsored enterprises

 

 

102,936

 

506,900

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

agencies or sponsored enterprises

 

63

14,929

202,036

932,902

State and municipal obligations

 

1,981

19,989

165,496

936,573

Small Business Administration loan-backed securities

 

62

16,734

43,717

317,469

Corporate securities

10

489

3,657

26,366

$

2,251

$

61,019

$

828,929

$

4,442,556

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

The Company’s valuation methodology for securities impairment is disclosed in Note 51—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 March 31, 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 2Investment SecuritiesSummary of Significant Accounting Policies for further discussion.

The following is

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At March 31, 2024, investment securities with a market value of $2.2 billion and a carrying value of $2.4 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 19 — Short-Term Borrowings, under the amortized cost and fair“Securities Sold Under Agreements to Repurchase (“Repurchase agreements”)” section). Of the $2.4 billion carrying value of investment securities heldpledged, $2.2 billion were pledged to maturity:

secure public funds deposits, $145.4 million were pledged to secure FHLB advances and $111.2 million were pledged to secure interest rate swap positions with correspondent banks. At December 31, 2023, investment securities with a market value of

Gross

    

Gross

 

Amortized

Unrealized

Unrealized

Fair

 

(Dollars in thousands)

    

Cost

    

Gains

    

Losses

    

Value

 

September 30, 2023:

U.S. Government agencies

$

197,266

$

$

(33,016)

$

164,250

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

agencies or sponsored enterprises

1,474,360

(303,022)

1,171,338

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

agencies or sponsored enterprises

451,928

(85,938)

365,990

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

agencies or sponsored enterprises

355,664

(85,773)

269,891

Small Business Administration loan-backed securities

54,495

(13,564)

40,931

$

2,533,713

$

$

(521,313)

$

2,012,400

December 31, 2022:

U.S. Government agencies

$

197,262

$

$

(29,787)

$

167,475

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

agencies or sponsored enterprises

1,591,646

(255,093)

1,336,553

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

agencies or sponsored enterprises

474,660

(69,664)

404,996

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

agencies or sponsored enterprises

362,586

(66,304)

296,282

Small Business Administration loan-backed securities

57,087

(12,225)

44,862

$

2,683,241

$

$

(433,073)

$

2,250,168

$3.0 billion and a carrying value of $3.2

The following is billion were pledged to secure public funds deposits and for other purposes required and permitted by law. Of the amortized cost and fair$3.2 billion carrying value of investment securities available for sale: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 March 31, 2024 and December 31, 2023, trading securities, at estimated fair value, were as follows:

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

 

    

March 31,

December 31,

(Dollars in thousands)

    

Cost

    

Gains

    

Losses

    

Value

 

    

2024

 

2023

September 30, 2023:

U.S. Treasuries

$

174,322

$

$

(2,063)

$

172,259

U.S. Government agencies

246,059

(29,305)

216,754

$

10,352

$

1,537

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

agencies or sponsored enterprises

 

1,851,803

 

 

(363,097)

 

1,488,706

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

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

government agencies or sponsored enterprises

11,383

14,461

Other residential mortgage issued or guaranteed by U.S. government

 

 

agencies or sponsored enterprises

644,581

(125,154)

519,427

 

1,148

 

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

agencies or sponsored enterprises

1,199,936

3

(250,407)

949,532

8,467

State and municipal obligations

 

1,132,238

 

1

 

(259,232)

 

873,007

31,263

14,620

Small Business Administration loan-backed securities

 

429,785

 

120

 

(52,435)

 

377,470

Corporate securities

30,546

1

(4,084)

26,463

Other debt securities

3,575

703

$

5,709,270

$

125

$

(1,085,777)

$

4,623,618

$

66,188

$

31,321

December 31, 2022:

U.S. Treasuries

$

272,416

$

$

(6,778)

$

265,638

U.S. Government agencies

245,972

(26,884)

219,088

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

 

agencies or sponsored enterprises

1,996,405

 

 

(298,052)

 

1,698,353

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

agencies or sponsored enterprises

708,337

(107,292)

601,045

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

agencies or sponsored enterprises

1,196,700

2,542

(198,844)

1,000,398

State and municipal obligations

1,269,525

 

1,210

 

(205,883)

 

1,064,852

Small Business Administration loan-backed securities

 

491,203

 

302

 

(46,695)

 

444,810

Corporate securities

 

35,583

(2,945)

32,638

$

6,216,141

$

4,054

$

(893,373)

$

5,326,822

During the nine months ended September 30, 2023, there were grossNet gains of $1.3 million and gross losses of $1.3 million, a net gain of $45,000, realized from the sale of available(losses) on trading securities for sale securities. There were no sales during the three months ended September 30, 2023. During the three and nine months ended September 30, 2022, there were gains of $103,000 and losses of $73,000, a net gain of $30,000, realized from the sale of available for sale securities. During the three months ended March 31, 2022, the Company sold securities totaling $414.4 million that2024 and 2023 were legacy Atlantic Capital securities. These securities were marked to fair value at merger and therefore resulted in as follows:no

gain or loss on sale.

    

Three Months Ended

March 31,

(Dollars in thousands)

    

2024

 

2023

Net gains (losses) on sales transaction

$

54

$

(139)

Net mark to mark gains (losses)

12

(6)

Net gains (losses) on trading securities

$

66

$

(145)

15

Table of Contents 

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

Carrying

 

(Dollars in thousands)

    

Value

 

September 30, 2023:

Federal Home Loan Bank stock

$

18,085

Federal Reserve Bank stock

150,261

Investment in unconsolidated subsidiaries

 

3,563

Other nonmarketable investment securities

 

15,243

$

187,152

December 31, 2022:

Federal Home Loan Bank stock

$

15,085

Federal Reserve Bank stock

150,261

Investment in unconsolidated subsidiaries

 

3,563

Other nonmarketable investment securities

 

10,808

$

179,717

Our other investment securities consist of non-marketable equity securities that have 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, 2023, we determined that there was no impairment on other investment securities.

The amortized cost and fair value of debt securities at September 30, 2023, 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

    

$

50,000

$

48,682

    

$

234,334

    

$

231,348

Due after one year through five years

 

50,994

 

44,922

 

256,202

 

239,370

Due after five years through ten years

 

407,416

 

341,124

 

1,342,414

 

1,104,205

Due after ten years

 

2,025,303

 

1,577,672

 

3,876,320

 

3,048,695

$

2,533,713

$

2,012,400

$

5,709,270

$

4,623,618

16

Table of Contents

Information pertaining to our securities with gross unrealized losses at September 30, 2023 and December 31, 2022, 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, 2023:

Securities Held to Maturity

U.S. Government agencies

$

$

$

33,016

$

164,250

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

agencies or sponsored enterprises

303,022

1,171,338

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

agencies or sponsored enterprises

 

 

85,938

 

365,990

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

agencies or sponsored enterprises

85,773

269,891

Small Business Administration loan-backed securities

13,564

40,931

$

$

$

521,313

$

2,012,400

Securities Available for Sale

U.S. Treasuries

$

$

$

2,063

$

172,259

U.S. Government agencies

29,305

216,754

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

agencies or sponsored enterprises

1

94

363,096

1,488,330

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

agencies or sponsored enterprises

 

 

125,154

 

519,427

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

agencies or sponsored enterprises

 

8,606

64,756

241,801

879,801

State and municipal obligations

 

705

9,860

258,527

860,725

Small Business Administration loan-backed securities

 

163

67,609

52,272

284,393

Corporate securities

4,084

25,963

$

9,475

$

142,319

$

1,076,302

$

4,447,652

December 31, 2022:

Securities Held to Maturity

U.S. Government agencies

$

5,514

$

78,833

$

24,273

$

88,642

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

agencies or sponsored enterprises

65,181

513,086

189,912

823,467

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

agencies or sponsored enterprises

30,284

 

277,868

 

39,380

 

127,128

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

agencies or sponsored enterprises

14,318

82,895

51,986

213,387

Small Business Administration loan-backed securities

12,225

44,862

$

115,297

$

952,682

$

317,776

$

1,297,486

Securities Available for Sale

U.S. Treasuries

$

6,778

$

265,638

$

$

U.S. Government agencies

8,193

138,807

18,691

80,281

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

agencies or sponsored enterprises

42,767

459,773

255,285

1,238,580

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

agencies or sponsored enterprises

21,450

 

274,082

 

85,842

 

326,963

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

agencies or sponsored enterprises

17,156

206,228

181,688

767,002

State and municipal obligations

97,084

616,631

108,799

391,848

Small Business Administration loan-backed securities

2,152

92,535

44,543

264,933

Corporate securities

 

2,209

28,374

736

4,264

$

197,789

$

2,082,068

$

695,584

$

3,073,871

The Company’s evaluation methodology for securities impairment is disclosed in Note 3 — Securities, under “Investment Securities” section, of our Annual Report on Form 10-K for the year ended December 31, 2022. All debt securities in an unrealized loss position as of September 30, 2023 continue to perform as scheduled and we do not believe there is a credit loss or a provision for credit losses is necessary. We do not currently intend to sell the securities within the portfolio and it is not more-likely-than-not that we will be required to sell the debt securities. See Note 2 — Summary of Significant Accounting Policies for further discussion.

Management continues 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 its securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.

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Table of Contents

At September 30, 2023, investment securities with a market value of $2.5 billion and a carrying value of $2.8 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 21 — Short-Term Borrowings, under the “Securities Sold Under Agreements to Repurchase (“Repurchase agreements”)” section). Of the $2.8 million carrying value of investment securities pledged, $2.0 billion were pledged to secure public funds deposits, $651.9 million were pledged to secure FHLB advances and $133.5 million were pledged to secure interest rate swap positions with correspondents. At December 31, 2022, investment securities with a market value of $2.7 billion and a carrying value of $2.9 billion were pledged to secure public funds deposits and for other purposes required and permitted by law. Of the $2.9 million carrying value of investment securities pledged, $2.1 billion were pledged to secure public funds deposits, $630.0 million were pledged to secure FHLB advances and $149.2 million were pledged to secure interest rate swap positions with correspondents.

At September 30, 2023 and December 31, 2022, trading securities, at estimated fair value, were as follows:

    

September 30,

December 31,

(Dollars in thousands)

    

2023

 

2022

U.S. Government agencies

$

9,945

$

11,190

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

government agencies or sponsored enterprises

21,399

Other residential mortgage issued or guaranteed by U.S. government

 

 

agencies or sponsored enterprises

 

13,590

 

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

agencies or sponsored enterprises

44,910

4,589

State and municipal obligations

16,059

13,993

Other debt securities

8,251

1,491

$

114,154

$

31,263

Net gains (losses) on trading securities for the three and nine months ended September 30, 2023 and 2022 were as follows:

    

Three Months Ended September 30,

Nine Months Ended September 30,

(Dollars in thousands)

    

2023

 

2022

2023

2022

Net (losses) gains on sales transaction

$

(76)

$

76

$

(116)

$

(1,544)

Net mark to mark gains (losses)

176

465

(25)

(1,969)

Net gains (losses) on trading securities

$

100

$

541

$

(141)

$

(3,513)

Note 65 — Loans

The following is a summary of total loans:

September 30,

December 31,

March 31,

December 31,

(Dollars in thousands)

    

2023

    

2022

    

    

2024

    

2023

    

Loans:

    

    

    

    

Construction and land development (1)

$

2,776,241

$

2,860,360

$

2,437,343

$

2,923,514

Commercial non-owner occupied

 

8,702,352

 

8,072,959

 

9,112,474

 

8,571,634

Commercial owner occupied real estate

 

5,539,097

 

5,460,193

 

5,511,855

 

5,497,671

Consumer owner occupied (2)

 

6,259,048

 

5,162,042

 

6,814,472

 

6,595,005

Home equity loans

 

1,349,097

 

1,313,168

 

1,408,594

 

1,398,445

Commercial and industrial

 

5,458,229

 

5,313,483

 

5,544,131

 

5,504,539

Other income producing property

 

670,331

 

696,242

 

640,055

 

656,334

Consumer

 

1,258,078

 

1,278,426

 

1,196,895

 

1,233,650

Other loans

 

4,199

 

20,989

 

1,491

 

7,697

Total loans

 

32,016,672

 

30,177,862

 

32,667,310

 

32,388,489

Less allowance for credit losses

 

(447,956)

 

(356,444)

 

(469,654)

 

(456,573)

Loans, net

$

31,568,716

$

29,821,418

$

32,197,656

$

31,931,916

(1)Construction and land development includes loans for both commercial construction and development, as well as loans for 1-4 family residential 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 propertyproperties with a business intent.

The above table reflects the loan portfolio at the amortized cost basis for the periods September 30, 2023March 31, 2024 and December 31, 2022,2023, to include net deferred costs of $64.7$73.5 million compared to net deferred costs of $49.7and $68.0 million, respectively, and unamortized discount total related to loans acquired of $55.2$47.0 million and $72.1$51.3 million, respectively. Accrued interest receivables of $123.1131.0 million and $105.4$127.0 million, respectively, are accounted for separately and

18

Table of Contents

reported in other assets for the periods September 30, 2023March 31, 2024 and December 31, 2022.

The Company purchased loans through its acquisition of Atlantic Capital, for which there was, at acquisition, evidence of more than an insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows:

(Dollars in thousands)

March 1, 2022

Book value of acquired loans at acquisition

$

137,874

Allowance for credit losses at acquisition

 

(13,758)

Non-credit discount at acquisition

 

(5,943)

Carrying value or book value of acquired loans at acquisition

$

118,173

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 of 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, are still an acceptable credit risk.
Special mention—A special mention loan has potential weaknesses that deserve Management’smanagement’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’sBank’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 propertyproperties with a business intent.

1916

Table of Contents 

The following tables presenttable presents the credit risk profile by risk grade of commercial loans by origination year as of September 30, 2023 and Decemberfor the period ending March 31, 2022:

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

As of September 30, 2023

2023

2022

2021

2020

2019

Prior

Revolving

Total

Construction and land development

Risk rating:

Pass

$

342,418

$

920,495

$

502,988

$

24,380

$

10,853

$

27,023

$

60,848

$

1,889,005

Special mention

11,530

1,040

9

817

473

13,869

Substandard

394

1,019

251

1,289

7,327

10,280

Doubtful

2

5

7

Total Construction and land development

$

342,812

$

933,044

$

504,028

$

24,642

$

12,959

$

34,828

$

60,848

$

1,913,161

Construction and land development

Current-period gross charge-offs

$

$

$

$

$

$

2

$

$

2

Commercial non-owner occupied

Risk rating:

Pass

$

627,660

$

2,535,022

$

2,036,897

$

704,631

$

791,932

$

1,629,748

$

94,728

$

8,420,618

Special mention

24,499

6,089

4,074

33,091

9,935

13,889

95

91,672

Substandard

31,826

10,487

15,880

19,511

34,121

78,236

190,061

Doubtful

1

1

Total Commercial non-owner occupied

$

683,985

$

2,551,598

$

2,056,852

$

757,233

$

835,988

$

1,721,873

$

94,823

$

8,702,352

Commercial non-owner occupied

Current-period gross charge-offs

$

$

$

51

$

$

$

$

$

51

Commercial Owner Occupied

Risk rating:

Pass

$

428,352

$

1,074,223

$

1,125,327

$

653,996

$

674,921

$

1,239,235

$

80,845

$

5,276,899

Special mention

1,560

33,594

22,258

12,318

9,581

27,864

8,595

115,770

Substandard

14,967

12,326

24,269

15,448

18,648

60,762

146,420

Doubtful

3

1

4

8

Total commercial owner occupied

$

444,882

$

1,120,143

$

1,171,854

$

681,763

$

703,150

$

1,327,865

$

89,440

$

5,539,097

Commercial owner occupied

Current-period gross charge-offs

$

$

126

$

$

$

$

$

$

126

Commercial and industrial

Risk rating:

Pass

$

921,531

$

1,225,758

$

728,158

$

399,814

$

197,974

$

454,648

$

1,343,128

$

5,271,011

Special mention

8,950

12,662

10,435

3,032

4,310

1,307

14,455

55,151

Substandard

12,335

12,175

16,513

4,362

6,531

13,661

66,433

132,010

Doubtful

3

9

29

13

3

57

Total commercial and industrial

$

942,819

$

1,250,604

$

755,135

$

407,208

$

208,815

$

469,629

$

1,424,019

$

5,458,229

Commercial and industrial

Current-period gross charge-offs

$

3,551

$

2,169

$

12,798

$

381

$

765

$

831

$

395

$

20,890

Other income producing property

Risk rating:

Pass

$

49,793

$

138,439

$

100,992

$

54,040

$

43,035

$

115,214

$

37,516

$

539,029

Special mention

75

275

707

69

293

2,604

1,415

5,438

Substandard

744

632

1,776

476

546

6,430

483

11,087

Doubtful

Total other income producing property

$

50,612

$

139,346

$

103,475

$

54,585

$

43,874

$

124,248

$

39,414

$

555,554

Other income producing property

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Consumer owner occupied

Risk rating:

Pass

$

8,825

$

4,588

$

2,985

$

1,423

$

312

$

386

$

27,885

$

46,404

Special mention

239

345

19

66

274

943

Substandard

1

928

1,574

184

150

2,837

Doubtful

2

2

Total Consumer owner occupied

$

9,064

$

4,934

$

3,004

$

2,417

$

2,160

$

572

$

28,035

$

50,186

Consumer owner occupied

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Other loans

Risk rating:

Pass

$

4,199

$

$

$

$

$

$

$

4,199

Special mention

Substandard

Doubtful

Total other loans

$

4,199

$

$

$

$

$

$

$

4,199

Other loans

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Total Commercial Loans

Risk rating:

Pass

$

2,382,778

$

5,898,525

$

4,497,347

$

1,838,284

$

1,719,027

$

3,466,254

$

1,644,950

$

21,447,165

Special mention

35,323

64,495

38,533

48,585

25,210

46,137

24,560

282,843

Substandard

60,266

36,640

58,438

40,976

62,709

166,600

67,066

492,695

Doubtful

6

9

30

3

24

3

75

Total Commercial Loans

$

2,478,373

$

5,999,669

$

4,594,348

$

1,927,848

$

1,806,946

$

3,679,015

$

1,736,579

$

22,222,778

Total Commercial Loans

Current-period gross charge-offs

$

3,551

$

2,295

$

12,849

$

381

$

765

$

833

$

395

$

21,069

2024:

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

As of March 31, 2024

2024

2023

2022

2021

2020

Prior

Revolving

Total

Construction and land development

Risk rating:

Pass

$

35,066

$

473,874

$

1,000,523

$

180,743

$

10,816

$

19,062

$

50,450

$

1,770,534

Special mention

745

1,682

9,808

16,397

444

29,076

Substandard

140

12,825

252

625

13,842

Doubtful

1

5

6

Total Construction and land development

$

35,811

$

475,696

$

1,023,156

$

197,392

$

10,817

$

20,136

$

50,450

$

1,813,458

Construction and land development

Current-period gross charge-offs

$

$

$

$

$

$

1,475

$

$

1,475

Commercial non-owner occupied

Risk rating:

Pass

$

107,887

$

868,623

$

2,517,853

$

2,096,226

$

638,979

$

2,146,534

$

88,091

$

8,464,193

Special mention

251

18,178

113,268

51,150

11,975

24,327

92

219,241

Substandard

9,421

68,144

94,125

46,638

75,312

132,713

426,353

Doubtful

1

2,686

2,687

Total Commercial non-owner occupied

$

117,559

$

954,945

$

2,725,246

$

2,194,015

$

726,266

$

2,306,260

$

88,183

$

9,112,474

Commercial non-owner occupied

Current-period gross charge-offs

$

$

$

$

$

$

71

$

$

71

Commercial Owner Occupied

Risk rating:

Pass

$

109,773

$

567,722

$

1,014,720

$

1,064,707

$

625,627

$

1,736,191

$

80,895

$

5,199,635

Special mention

546

1,916

50,708

18,272

1,124

16,233

6,530

95,329

Substandard

6,055

27,372

36,626

31,846

27,093

80,001

7,890

216,883

Doubtful

3

1

4

8

Total commercial owner occupied

$

116,374

$

597,013

$

1,102,054

$

1,114,825

$

653,845

$

1,832,429

$

95,315

$

5,511,855

Commercial owner occupied

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Commercial and industrial

Risk rating:

Pass

$

724,949

$

877,565

$

1,069,116

$

618,382

$

345,615

$

553,640

$

1,104,937

$

5,294,204

Special mention

590

2,281

9,120

3,476

626

4,397

17,388

37,878

Substandard

13,723

35,119

28,743

24,535

4,334

20,473

85,001

211,928

Doubtful

2

19

65

1

28

6

121

Total commercial and industrial

$

739,262

$

914,967

$

1,106,998

$

646,458

$

350,576

$

578,538

$

1,207,332

$

5,544,131

Commercial and industrial

Current-period gross charge-offs

$

$

515

$

966

$

126

$

7

$

1,106

$

420

$

3,140

Other income producing property

Risk rating:

Pass

$

12,698

$

55,905

$

125,282

$

93,363

$

49,758

$

132,751

$

41,024

$

510,781

Special mention

91

512

257

161

825

2,408

266

4,520

Substandard

615

686

3,818

2,370

401

5,511

1,570

14,971

Doubtful

Total other income producing property

$

13,404

$

57,103

$

129,357

$

95,894

$

50,984

$

140,670

$

42,860

$

530,272

Other income producing property

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Consumer owner occupied

Risk rating:

Pass

$

1,274

$

18,235

$

4,270

$

3,798

$

556

$

267

$

26,917

$

55,317

Special mention

21

232

332

15

268

868

Substandard

923

24

6

1,724

150

2,827

Doubtful

1

1

Total Consumer owner occupied

$

2,218

$

18,491

$

4,602

$

3,798

$

577

$

2,260

$

27,067

$

59,013

Consumer owner occupied

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Other loans

Risk rating:

Pass

$

1,491

$

$

$

$

$

$

$

1,491

Special mention

Substandard

Doubtful

Total other loans

$

1,491

$

$

$

$

$

$

$

1,491

Other loans

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Total Commercial Loans

Risk rating:

Pass

$

993,138

$

2,861,924

$

5,731,764

$

4,057,219

$

1,671,351

$

4,588,445

$

1,392,314

$

21,296,155

Special mention

2,244

24,801

183,493

89,456

14,565

48,077

24,276

386,912

Substandard

30,737

131,485

176,137

105,641

107,146

241,047

94,611

886,804

Doubtful

5

19

66

3

2,724

6

2,823

Total Commercial Loans

$

1,026,119

$

3,018,215

$

6,091,413

$

4,252,382

$

1,793,065

$

4,880,293

$

1,511,207

$

22,572,694

Commercial Loans

Current-period gross charge-offs

$

$

515

$

966

$

126

$

7

$

2,652

$

420

$

4,686

2017

Table of Contents 

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

As of December 31, 2022

2022

2021

2020

2019

2018

Prior

Revolving

Total

Construction and land development

Risk rating:

Pass

$

875,751

$

742,985

$

134,996

$

63,439

$

14,521

$

29,442

$

65,656

$

1,926,790

Special mention

1,643

988

268

76

7,219

2,068

12,262

Substandard

214

10,409

11

2,326

4,282

17,242

Doubtful

6

6

Total Construction and land development

$

877,608

$

754,382

$

135,275

$

65,841

$

21,740

$

35,798

$

65,656

$

1,956,300

Construction and land development

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Commercial non-owner occupied

Risk rating:

Pass

$

2,245,943

$

1,849,079

$

816,791

$

959,707

$

506,350

$

1,417,397

$

108,759

$

7,904,026

Special mention

7,579

4,225

936

11,036

24,067

32,110

5,000

84,953

Substandard

13,256

25,557

609

9,383

6,472

26,366

2,257

83,900

Doubtful

1

79

80

Total Commercial non-owner occupied

$

2,266,778

$

1,878,862

$

818,336

$

980,205

$

536,889

$

1,475,873

$

116,016

$

8,072,959

Commercial non-owner occupied

Current-period gross charge-offs

$

8

$

$

$

$

$

360

$

$

368

Commercial Owner Occupied

Risk rating:

Pass

$

1,046,562

$

1,136,289

$

725,040

$

709,669

$

446,497

$

1,080,522

$

75,506

$

5,220,085

Special mention

3,620

25,263

3,383

7,934

7,160

34,724

1,294

83,378

Substandard

12,861

34,210

19,962

16,502

9,487

62,808

895

156,725

Doubtful

1

4

5

Total commercial owner occupied

$

1,063,043

$

1,195,762

$

748,386

$

734,105

$

463,144

$

1,178,058

$

77,695

$

5,460,193

Commercial owner occupied

Current-period gross charge-offs

$

$

$

$

1,143

$

$

833

$

$

1,976

Commercial and industrial

Risk rating:

Pass

$

1,566,203

$

895,368

$

506,655

$

274,446

$

212,522

$

333,286

$

1,386,678

$

5,175,158

Special mention

5,885

3,782

3,401

1,859

3,378

1,316

24,347

43,968

Substandard

6,308

27,974

4,770

6,591

6,783

8,476

32,876

93,778

Doubtful

155

422

2

579

Total commercial and industrial

$

1,578,396

$

927,124

$

514,826

$

282,896

$

222,838

$

343,500

$

1,443,903

$

5,313,483

Commercial and industrial

Current-period gross charge-offs

$

4

$

2,825

$

198

$

630

$

2,214

$

2,589

$

1,742

$

10,202

Other income producing property

Risk rating:

Pass

$

149,793

$

92,887

$

60,473

$

46,189

$

47,155

$

107,436

$

46,179

$

550,112

Special mention

952

957

1,257

378

190

3,652

2,328

9,714

Substandard

876

359

1,281

300

214

11,214

1,065

15,309

Doubtful

401

136

537

Total other income producing property

$

152,022

$

94,203

$

63,011

$

46,867

$

47,559

$

122,438

$

49,572

$

575,672

Other income producing property

Current-period gross charge-offs

$

$

$

$

$

$

46

$

50

$

96

Consumer owner occupied

Risk rating:

Pass

$

5,947

$

3,124

$

1,811

$

418

$

68

$

332

$

15,910

$

27,610

Special mention

537

20

136

284

66

1,043

Substandard

13

95

12

1,614

202

151

2,087

Doubtful

1

1

Total Consumer owner occupied

$

6,497

$

3,239

$

1,959

$

2,316

$

69

$

534

$

16,127

$

30,741

Consumer owner occupied

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Other loans

Risk rating:

Pass

$

20,989

$

$

$

$

$

$

$

20,989

Special mention

Substandard

Doubtful

Total other loans

$

20,989

$

$

$

$

$

$

$

20,989

Other loans

Current-period gross charge-offs

$

$

$

$

$

$

$

$

Total Commercial Loans

Risk rating:

Pass

$

5,911,188

$

4,719,732

$

2,245,766

$

2,053,868

$

1,227,113

$

2,968,415

$

1,698,688

$

20,824,770

Special mention

20,216

35,235

9,381

21,567

42,014

73,870

33,035

235,318

Substandard

33,528

98,604

26,645

36,716

22,956

113,348

37,244

369,041

Doubtful

401

1

1

79

156

568

2

1,208

Total Commercial Loans

$

5,965,333

$

4,853,572

$

2,281,793

$

2,112,230

$

1,292,239

$

3,156,201

$

1,768,969

$

21,430,337

Total Commercial Loans

Current-period gross charge-offs

$

12

$

2,825

$

198

$

1,773

$

2,214

$

3,828

$

1,792

$

12,642

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

2118

Table of Contents 

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 family residential properties and lots.

The following table presents the credit risk profile by past due status of consumer loans by origination year as of September 30, 2023:and for the period ending March 31, 2024:

Term Loans

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

Amortized Cost Basis by Origination Year

As of September 30, 2023

2023

2022

2021

2020

2019

Prior

Revolving

Total

As of March 31, 2024

2024

2023

2022

2021

2020

Prior

Revolving

Total

Consumer owner occupied

Days past due:

���

Current

$

828,826

$

1,968,603

$

1,618,466

$

630,494

$

297,347

$

847,666

$

$

6,191,402

$

179,144

$

1,025,871

$

2,226,767

$

1,626,546

$

616,378

$

1,059,905

$

$

6,734,611

30 days past due

515

1,396

1,665

657

239

1,914

6,386

1,471

3,070

1,617

402

3,234

9,794

60 days past due

597

1,047

493

143

202

1,239

3,721

195

160

328

224

339

1,246

90 days past due

1,970

565

1,099

316

3,403

7,353

1,156

2,916

975

1,495

3,266

9,808

Total Consumer owner occupied

$

829,938

$

1,973,016

$

1,621,189

$

632,393

$

298,104

$

854,222

$

$

6,208,862

$

179,144

$

1,028,693

$

2,232,913

$

1,629,466

$

618,499

$

1,066,744

$

$

6,755,459

Consumer owner occupied

Current-period gross charge-offs

$

18

$

49

$

27

$

$

$

2

$

$

96

$

$

108

$

182

$

$

12

$

41

$

$

343

Home equity loans

Days past due:

Current

$

5,918

$

6,092

$

3,941

$

2,250

$

553

$

12,740

$

1,311,305

$

1,342,799

$

2,263

$

6,032

$

5,453

$

2,604

$

1,420

$

12,653

$

1,371,195

$

1,401,620

30 days past due

119

47

177

205

733

2,708

3,989

147

11

174

983

1,481

2,796

60 days past due

20

87

543

688

1,338

69

53

216

1,482

1,820

90 days past due

49

192

1

376

353

971

71

302

283

427

709

566

2,358

Total Home equity loans

$

6,037

$

6,188

$

4,138

$

2,442

$

846

$

14,392

$

1,315,054

$

1,349,097

$

2,263

$

6,319

$

5,766

$

3,114

$

1,847

$

14,561

$

1,374,724

$

1,408,594

Home equity loans

Current-period gross charge-offs

$

$

$

$

39

$

$

29

$

59

$

127

$

$

$

$

$

$

110

$

$

110

Consumer

Days past due:

Current

$

260,764

$

328,849

$

155,263

$

82,260

$

65,734

$

152,306

$

186,659

$

1,231,835

$

46,549

$

277,649

$

279,610

$

128,520

$

68,194

$

191,345

$

186,563

$

1,178,430

30 days past due

192

262

199

273

170

1,313

12,262

14,671

6

523

447

30

157

1,568

6,751

9,482

60 days past due

68

270

65

84

3

1,054

6,724

8,268

188

159

74

8

512

4,138

5,079

90 days past due

3

236

156

18

127

1,241

1,523

3,304

323

164

45

161

1,057

2,154

3,904

Total consumer

$

261,027

$

329,617

$

155,683

$

82,635

$

66,034

$

155,914

$

207,168

$

1,258,078

$

46,555

$

278,683

$

280,380

$

128,669

$

68,520

$

194,482

$

199,606

$

1,196,895

Consumer

Current-period gross charge-offs

$

213

$

1,190

$

379

$

250

$

162

$

403

$

6,278

$

8,875

$

$

279

$

547

$

86

$

10

$

210

$

1,365

$

2,497

Construction and land development

Days past due:

Current

$

104,143

$

548,493

$

159,300

$

26,240

$

9,188

$

15,415

$

$

862,779

$

8,360

$

150,103

$

338,834

$

89,736

$

16,412

$

20,306

$

$

623,751

30 days past due

59

59

60 days past due

11

11

47

63

110

90 days past due

3

211

17

231

1

23

24

Total Construction and land development

$

104,146

$

548,704

$

159,300

$

26,240

$

9,188

$

15,502

$

$

863,080

$

8,360

$

150,103

$

338,881

$

89,736

$

16,413

$

20,392

$

$

623,885

Construction and land development

Current-period gross charge-offs

$

$

$

$

$

$

8

$

$

8

$

$

$

304

$

$

$

$

$

304

Other income producing property

Days past due:

Current

$

6,329

$

43,588

$

18,825

$

4,435

$

2,558

$

38,139

$

281

$

114,155

$

1,119

$

6,292

$

42,762

$

17,490

$

4,119

$

37,399

$

197

$

109,378

30 days past due

313

313

271

271

60 days past due

188

188

13

13

90 days past due

121

121

121

121

Total other income producing property

$

6,329

$

43,588

$

19,013

$

4,435

$

2,558

$

38,573

$

281

$

114,777

$

1,119

$

6,292

$

42,762

$

17,490

$

4,119

$

37,804

$

197

$

109,783

Other income producing property

Current-period gross charge-offs

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

Total Consumer Loans

Days past due:

Current

$

1,205,980

$

2,895,625

$

1,955,795

$

745,679

$

375,380

$

1,066,266

$

1,498,245

$

9,742,970

$

237,435

$

1,465,947

$

2,893,426

$

1,864,896

$

706,523

$

1,321,608

$

1,557,955

$

10,047,790

30 days past due

826

1,705

2,041

930

614

4,332

14,970

25,418

6

2,141

3,528

1,821

559

6,056

8,232

22,343

60 days past due

665

1,317

766

227

292

2,847

7,412

13,526

452

366

455

232

1,143

5,620

8,268

90 days past due

6

2,466

721

1,309

444

5,158

1,876

11,980

1,550

3,382

1,303

2,084

5,176

2,720

16,215

Total Consumer Loans

$

1,207,477

$

2,901,113

$

1,959,323

$

748,145

$

376,730

$

1,078,603

$

1,522,503

$

9,793,894

$

237,441

$

1,470,090

$

2,900,702

$

1,868,475

$

709,398

$

1,333,983

$

1,574,527

$

10,094,616

Consumer Loans

Current-period gross charge-offs

$

231

$

1,239

$

406

$

289

$

162

$

442

$

6,337

$

9,106

$

$

387

$

1,033

$

86

$

22

$

361

$

1,365

$

3,254

The following table presents the credit risk profile by past due status of total loans by origination year as of September 30, 2023:and for the period ending March 31, 2024:

Term Loans

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

Amortized Cost Basis by Origination Year

As of September 30, 2023

2023

2022

2021

2020

2019

Prior

Revolving

Total

As of March 31, 2024

2024

2023

2022

2021

2020

Prior

Revolving

Total

Total Loans

$

3,685,850

$

8,900,782

$

6,553,671

$

2,675,993

$

2,183,676

$

4,757,618

$

3,259,082

$

32,016,672

$

1,263,560

$

4,488,305

$

8,992,115

$

6,120,857

$

2,502,463

$

6,214,276

$

3,085,734

$

32,667,310

Current-period gross charge-offs

$

3,782

$

3,534

$

13,255

$

670

$

927

$

1,275

$

6,732

$

30,175

$

$

902

$

1,999

$

212

$

29

$

3,013

$

1,785

$

7,940

2219

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, 2022:2023:

Term Loans

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

Amortized Cost Basis by Origination Year

As of December 31, 2022

2022

2021

2020

2019

2018

Prior

Revolving

Total

As of December 31, 2023

2023

2022

2021

2020

2019

Prior

Revolving

Total

Consumer owner occupied

Days past due:

Current

$

1,695,454

$

1,467,080

$

657,005

$

315,458

$

187,580

$

792,572

$

$

5,115,149

$

1,019,956

$

2,125,156

$

1,641,518

$

628,107

$

288,304

$

809,419

$

$

6,512,460

30 days past due

1,316

1,254

1,681

664

272

2,028

7,215

1,589

2,268

1,524

654

707

4,012

10,754

60 days past due

255

337

579

242

1,650

3,063

766

528

680

813

2,787

90 days past due

944

776

454

664

3,036

5,874

1,280

2,538

1,089

1,689

315

4,650

11,561

Total Consumer owner occupied

$

1,697,025

$

1,469,615

$

660,041

$

316,576

$

188,758

$

799,286

$

$

5,131,301

$

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

$

25

$

$

$

6

$

23

$

66

$

$

120

$

68

$

90

$

27

$

$

$

2

$

$

187

Home equity loans

Days past due:

Current

$

5,921

$

5,231

$

3,282

$

1,560

$

1,955

$

17,941

$

1,272,848

$

1,308,738

$

6,551

$

6,454

$

2,887

$

1,396

$

1,003

$

11,518

$

1,358,829

$

1,388,638

30 days past due

155

77

418

422

1,586

2,658

60

132

21

44

539

5,860

6,656

60 days past due

19

36

70

26

540

691

12

104

458

1,268

1,842

90 days past due

60

87

611

323

1,081

117

27

194

1

672

298

1,309

Total Home equity loans

$

5,921

$

5,231

$

3,516

$

1,760

$

2,443

$

19,000

$

1,275,297

$

1,313,168

$

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

$

$

$

$

19

$

$

280

$

146

$

445

$

$

$

$

64

$

$

29

$

84

$

177

Consumer

Days past due:

Current

$

407,825

$

206,003

$

111,210

$

86,008

$

44,303

$

141,053

$

248,314

$

1,244,716

$

299,871

$

305,283

$

141,369

$

75,213

$

60,265

$

143,725

$

182,608

$

1,208,334

30 days past due

718

194

78

174

63

1,255

17,471

19,953

443

321

247

142

137

1,384

10,757

13,431

60 days past due

55

103

107

36

144

557

9,836

10,838

64

254

152

4

4

973

6,420

7,871

90 days past due

126

60

58

66

165

1,660

784

2,919

93

395

174

196

110

1,108

1,938

4,014

Total consumer

$

408,724

$

206,360

$

111,453

$

86,284

$

44,675

$

144,525

$

276,405

$

1,278,426

$

300,471

$

306,253

$

141,942

$

75,555

$

60,516

$

147,190

$

201,723

$

1,233,650

Consumer

Current-period gross charge-offs

$

254

$

653

$

337

$

265

$

62

$

664

$

7,979

$

10,214

$

373

$

1,586

$

571

$

280

$

217

$

537

$

8,478

$

12,042

Construction and land development

Days past due:

Current

$

466,475

$

351,485

$

50,472

$

14,053

$

7,006

$

13,588

$

379

$

903,458

$

135,739

$

425,276

$

111,205

$

20,322

$

8,555

$

14,265

$

$

715,362

30 days past due

2

57

23

43

125

111

111

60 days past due

90 days past due

436

41

477

1

75

76

Total Construction and land development

$

466,477

$

351,485

$

50,908

$

14,110

$

7,029

$

13,672

$

379

$

904,060

$

135,739

$

425,276

$

111,205

$

20,434

$

8,555

$

14,340

$

$

715,549

Construction and land development

Current-period gross charge-offs

$

$

$

21

$

$

$

4

$

$

25

$

$

$

$

$

$

19

$

$

19

Other income producing property

Days past due:

Current

$

45,717

$

21,421

$

4,937

$

2,663

$

4,322

$

40,680

$

624

$

120,364

$

6,310

$

43,022

$

18,536

$

4,331

$

2,537

$

36,911

$

280

$

111,927

30 days past due

62

62

67

67

60 days past due

23

23

90 days past due

121

121

127

127

Total other income producing property

$

45,717

$

21,421

$

4,937

$

2,663

$

4,322

$

40,886

$

624

$

120,570

$

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

$

2,621,392

$

2,051,220

$

826,906

$

419,742

$

245,166

$

1,005,834

$

1,522,165

$

8,692,425

$

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

2,036

1,448

1,914

972

776

3,810

19,057

30,013

2,092

2,589

1,903

928

888

6,002

16,617

31,019

60 days past due

310

440

705

72

456

2,256

10,376

14,615

64

1,020

692

788

4

2,244

7,688

12,500

90 days past due

126

1,004

1,330

607

829

5,469

1,107

10,472

1,490

2,933

1,290

2,080

426

6,632

2,236

17,087

Total Consumer Loans

$

2,623,864

$

2,054,112

$

830,855

$

421,393

$

247,227

$

1,017,369

$

1,552,705

$

8,747,525

$

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

$

279

$

653

$

358

$

290

$

85

$

1,014

$

8,125

$

10,804

$

441

$

1,676

$

598

$

344

$

217

$

587

$

8,562

$

12,425

The following table presents the credit risk profile by past due status of total loans by origination year as of and for the period ending December 31, 2022:2023:

Term Loans

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

Amortized Cost Basis by Origination Year

As of December 31, 2022

2022

2021

2020

2019

2018

Prior

Revolving

Total

As of December 31, 2023

2023

2022

2021

2020

2019

Prior

Revolving

Total

Total Loans

$

8,589,197

$

6,907,684

$

3,112,648

$

2,533,623

$

1,539,466

$

4,173,570

$

3,321,674

$

30,177,862

$

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

$

291

$

3,478

$

556

$

2,063

$

2,299

$

4,842

$

9,917

$

23,446

$

7,713

$

4,973

$

13,818

$

977

$

982

$

2,479

$

9,706

$

40,648

2320

Table of Contents 

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

30 - 59 Days

    

60 - 89 Days

    

90+ Days

    

Total

    

    

Non-

Total

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

Past Due

Past Due

Past Due

Past Due

Current

Accruing

Loans

September 30, 2023

March 31, 2024

Construction and land development

$

1,272

$

474

$

46

$

1,792

$

2,773,766

$

683

$

2,776,241

$

45

$

63

$

$

108

$

2,435,673

$

1,562

$

2,437,343

Commercial non-owner occupied

 

4,922

 

1,378

 

 

6,300

 

8,672,765

 

23,287

 

8,702,352

 

4,175

 

7,895

 

70

 

12,140

 

9,092,461

 

7,873

 

9,112,474

Commercial owner occupied

 

3,973

1,498

 

1,701

 

7,172

 

5,497,065

 

34,860

 

5,539,097

 

9,183

1,252

 

80

 

10,515

 

5,446,445

 

54,895

 

5,511,855

Consumer owner occupied

 

5,145

 

1,595

 

26

 

6,766

 

6,229,717

 

22,565

 

6,259,048

 

6,682

 

80

 

 

6,762

 

6,782,182

 

25,528

 

6,814,472

Home equity loans

 

3,221

 

949

 

1

 

4,171

 

1,340,574

 

4,352

 

1,349,097

 

2,106

 

1,226

 

 

3,332

 

1,398,638

 

6,624

 

1,408,594

Commercial and industrial

 

27,715

 

14,819

 

806

 

43,340

 

5,345,740

 

69,149

 

5,458,229

 

22,510

 

7,243

 

2,482

 

32,235

 

5,447,024

 

64,872

 

5,544,131

Other income producing property

 

301

 

288

 

 

589

 

666,059

 

3,683

 

670,331

 

313

 

52

 

 

365

 

636,958

 

2,732

 

640,055

Consumer

 

14,522

 

7,965

 

24

 

22,511

 

1,230,826

 

4,741

 

1,258,078

 

9,253

 

4,776

 

 

14,029

 

1,177,312

 

5,554

 

1,196,895

Other loans

 

 

 

 

 

4,199

 

 

4,199

 

 

 

 

 

1,491

 

 

1,491

$

61,071

$

28,966

$

2,604

$

92,641

$

31,760,711

$

163,320

$

32,016,672

$

54,267

$

22,587

$

2,632

$

79,486

$

32,418,184

$

169,640

$

32,667,310

December 31, 2022

December 31, 2023

Construction and land development

$

2,146

$

3,653

$

$

5,799

$

2,853,734

$

827

$

2,860,360

$

624

$

$

$

624

$

2,921,457

$

1,433

$

2,923,514

Commercial non-owner occupied

 

1,158

 

978

 

77

 

2,213

 

8,050,321

 

20,425

 

8,072,959

 

2,194

 

123

 

1,378

 

3,695

 

8,546,630

 

21,309

 

8,571,634

Commercial owner occupied

 

10,748

2,059

 

2,231

 

15,038

 

5,410,066

 

35,089

 

5,460,193

 

3,852

1,141

 

988

 

5,981

 

5,446,803

 

44,887

 

5,497,671

Consumer owner occupied

6,001

 

744

 

40

 

6,785

 

5,137,950

 

17,307

 

5,162,042

7,903

 

552

 

920

 

9,375

 

6,560,359

 

25,271

 

6,595,005

Home equity loans

 

2,527

 

361

 

 

2,888

 

1,303,964

 

6,316

 

1,313,168

 

6,500

 

1,326

 

 

7,826

 

1,385,687

 

4,932

 

1,398,445

Commercial and industrial

 

24,500

 

11,677

 

1,704

 

37,881

 

5,258,473

 

17,129

 

5,313,483

 

25,231

 

7,194

 

9,193

 

41,618

 

5,399,390

 

63,531

 

5,504,539

Other income producing property

 

1,623

 

1,480

 

298

 

3,401

 

690,107

 

2,734

 

696,242

 

569

 

570

 

 

1,139

 

651,993

 

3,202

 

656,334

Consumer

 

19,713

 

10,655

 

 

30,368

 

1,243,660

 

4,398

 

1,278,426

 

13,212

 

7,370

 

 

20,582

 

1,207,411

 

5,657

 

1,233,650

Other loans

 

 

 

 

 

20,989

 

 

20,989

 

 

 

 

 

7,697

 

 

7,697

$

68,416

$

31,607

$

4,350

$

104,373

$

29,969,264

$

104,225

$

30,177,862

$

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, 2023March 31, 2024 and the information pertaining to nonaccrual loans by class, including restructured loans as of December 31, 2022:2023:

September 30,

Greater than

Non-accrual

December 31,

March 31,

Greater than

Non-accrual

December 31,

(Dollars in thousands)

2023

90 Days Accruing(1)

    

with no allowance(1)

 

2022

    

    

2024

90 Days Accruing(1)

    

with no allowance(1)

 

2023

    

Construction and land development

$

683

$

46

$

5

$

827

$

1,562

$

$

$

1,433

Commercial non-owner occupied

 

23,287

 

14,066

 

20,425

 

7,873

70

 

2,799

 

21,309

Commercial owner occupied real estate

 

34,860

1,701

 

18,344

 

35,089

 

54,895

80

 

20,675

 

44,887

Consumer owner occupied

 

22,565

26

 

 

17,307

 

25,528

 

 

25,271

Home equity loans

 

4,352

1

 

 

6,316

 

6,624

 

 

4,932

Commercial and industrial

 

69,149

806

 

33,632

 

17,129

 

64,872

2,482

 

27,065

 

63,531

Other income producing property

 

3,683

 

 

2,734

 

2,732

 

 

3,202

Consumer

 

4,741

24

 

 

4,398

 

5,554

 

 

5,657

Total loans on nonaccrual status

$

163,320

$

2,604

$

66,047

$

104,225

$

169,640

$

2,632

$

50,539

$

170,222

(1)Greater than 90 days accruing and non-accrual with no allowance loans at September 30, 2023.March 31, 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 2Summary of Significant Accounting Policies for further detailed discussiondescriptions on individually evaluated loans.

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

March 31,

Collateral

December 31,

Collateral

(Dollars in thousands)

2023

    

Coverage

%

2022

    

Coverage

%

2024

    

Coverage

%

2023

    

Coverage

%

Commercial owner occupied real estate

 

 

 

 

 

Church

$

3,581

$

7,533

210%

$

$

$

4,671

$

8,391

180%

$

3,537

$

6,705

190%

Industrial

4,388

11,331

258%

7,049

13,950

198%

7,172

15,273

213%

Other

10,374

19,985

193%

14,638

38,900

266%

16,032

29,202

182%

12,231

23,747

194%

Commercial non-owner occupied real estate

 

 

Retail

3,327

4,950

149%

3,216

4,208

131%

Other

13,039

27,922

214%

6,450

10,900

169%

12,607

29,182

231%

Office

2,799

2,799

100%

Commercial and industrial

Other

50,378

70,035

139%

4,808

5,591

116%

43,289

54,810

127%

44,116

46,114

105%

Home equity loans

Residential 1-4 family dwelling

1,523

1,671

110%

Total collateral dependent loans

$

85,087

$

141,756

$

27,419

$

57,062

$

73,840

$

109,152

$

82,879

$

125,229

2421

Table of Contents 

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 significant 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 increaseddecreased $57.79.0 million during the ninethree months ended September 30, 2023.March 31, 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). Refer to See Note 2 — Summary of Significant Accounting Policies for further detailed discussion on loan modified to a borrower experiencing financial difficulty andhow such modifications are factored into the losses from modificationsdetermination of receivables to borrowers experiencing financial difficulty.the ACL for the periods presented above.

The following tables present loans designated as modifications made to borrowers experiencing financial difficulty during the ninethree months ended September 30,March 31, 2024 and 2023, resulting from the adoption of ASU 2022-02,respectively. The loans are segregated by type of modification and asset class, and indicating the financial effect of the modifications. There were no modifications of this nature for the three months ended September 30, 2023. The amortized cost balance for the modified loans presented below exclude accrued interest receivable of approximately $54,00016,000 and $12,000 as of September 30, 2023.March 31, 2024 and 2023, respectively.

Nine Months Ended September 30,

Three Months Ended March 31,

2023

2024

2023

Increase in

Reduction in Weighted

Reduction in Weighted

Amortized

% of Total

Weighted Average

Amortized

% of Total

Average Contractual

Amortized

% of Total

Average Contractual

(Dollars in thousands)

Cost

Asset Class

Life of Loan

Cost

Asset Class

Interest Rate

Cost

Asset Class

Interest Rate

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

7,591

0.14%

23 months

Interest rate reduction

Consumer owner occupied

277

0.00%

6 months

$

923

0.01%

9.00 to 5.00%

$

Commercial and industrial

1,207

0.02%

6 months

Other income producing property

342

0.05%

60 months

Total term extensions

$

10,921

Total interest rate reductions

$

923

$

Nine Months Ended September 30,

Three Months Ended March 31,

2023

2024

2023

Reduction in Weighted

Increase in

Increase in

Increase in

Amortized

Average Contractual

Weighted Average

Amortized

% of Total

Weighted Average

Amortized

% of Total

Weighted Average

(Dollars in thousands)

Cost

Interest Rate

Life of Loan

Cost

Asset Class

Life of Loan

Cost

Asset Class

Life of Loan

Combination- Term Extension and Interest Rate Reduction

Consumer owner occupied

$

259

3.63 to 3.00%

20 months

Total

$

259

Term extension

Construction and land development

$

$

260

0.04%

12 months

Commercial non-owner occupied

Commercial owner occupied real estate

2,105

0.02%

8 months

Commercial and industrial

1,145

0.02%

10 months

Consumer

282

0.02%

6 months

Total term extensions

$

$

3,792

The Bank on occasion will enter into modification agreements which extend the maturity payoff on a loan or reduce the interest rate, for borrowers willing to continue to pay, to minimize losses for the Bank. At September 30, 2023,March 31, 2024, the Company had $3.3 millionno remaining in commitments to lend additional funds on loans to borrowers experiencing financial difficulty and modified during the current reporting period.

2522

Table of Contents 

The following table presents loans designated as TDRs segregated by class and type of concession that were restructured, for the comparative period, prior to the adoption of ASU 2022-02.

���

Three Months Ended September 30,

2022

Pre-Modification

Post-Modification

Number

Amortized

Amortized

(Dollars in thousands)

of loans

Cost

Cost

Interest rate modification

Commercial non-owner occupied

2

$

2,321

$

2,321

Commercial owner occupied

2

2,629

2,629

Commercial and industrial

1

535

535

Total interest rate modifications

5

$

5,485

$

5,485

Term modification

Commercial non-owner occupied

1

$

375

$

375

Commercial owner occupied

2

1,042

1,042

Commercial and industrial

3

3,097

3,097

Total term modifications

6

4,514

4,514

11

$

9,999

$

9,999

Nine Months Ended September 30,

2022

Pre-Modification

Post-Modification

Number

Amortized

Amortized

(Dollars in thousands)

of loans

Cost

Cost

Interest rate modification

Commercial non-owner occupied

3

$

2,498

$

2,498

Commercial owner occupied

3

2,855

2,855

Consumer owner occupied

1

96

96

Commercial and industrial

5

905

905

Other income producing property

2

111

111

Total interest rate modifications

14

$

6,465

$

6,465

Term modification

Construction and land development

1

$

133

$

133

Commercial non-owner occupied

1

375

375

Commercial owner occupied

3

1,451

1,451

Commercial and industrial

3

3,097

3,097

Total term modifications

8

$

5,056

$

5,056

22

$

11,521

$

11,521

At September 30, 2022, the balance of accruing TDRs was $12.2 million. The Company had $599,000 remaining availability under commitments to lend additional funds on restructured loans at September 30, 2022. The amount of specific reserve associated with restructured loans was $12.3 million at September 30, 2022.

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

Paying Under

Converted to

Foreclosures

Restructured Terms

Nonaccrual

and Defaults

Amortized

Amortized

Amortized

(Dollars in thousands)

Cost

Cost

Cost

Term extension

Construction and land development

$

254

$

$

Commercial non-owner occupied

1,250

Commercial owner occupied real estate

7,591

Consumer owner occupied

277

Commercial and industrial

1,207

Other income producing property

342

Total term extensions

$

10,921

$

$

Term Extension and Interest Rate Reduction

Consumer owner occupied

259

Total combinations

$

259

$

$

$

11,180

$

$

26

Table of Contents

The following table presents the changes in status of TDR loans within the previous twelve months as of September 30, 2022 by type of concession, for the comparative period, prior to the adoption of ASU 2022-02. There were no subsequent defaults that resulted in a change to reserves on the individually evaluated loan.

Paying Under

Converted to

Foreclosures and

 

Restructured Terms

Nonaccrual

Defaults

 

Number

Recorded

Number

Recorded

Number

Recorded

 

(Dollars in thousands)

of Loans

Investment

of Loans

Investment

of Loans

Investment

 

Interest rate modification

    

16

    

$

6,747

    

    

$

    

    

$

Term modification

 

9

 

5,354

 

 

 

 

 

25

$

12,101

 

$

 

$

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

Payment Status (Amortized Cost Basis)

30-89 Days

90+ Days

(Dollars in thousands)

Current

Past Due

Past Due

Construction and land development

$

254

$

$

Commercial non-owner occupied

1,250

Commercial owner occupied real estate

7,591

Consumer owner occupied

536

Commercial and industrial

1,207

Other income producing property

342

Total

$

11,180

$

$

Note 7 — Allowance for Credit Losses (ACL)

See Note 2 — SummaryThe following table presents the changes in status of Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptionsloans modified within the previous twelve months to borrowers experiencing financial difficulty, as of our estimation processMarch 31, 2024 and methodology related to the allowance for credit losses.2023, by type of modification. There were no subsequent defaults.

March 31,

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

Commercial owner occupied real estate

$

839

$

$

$

$

$

Consumer owner occupied

923

Total interest rate reductions

$

1,762

$

$

$

$

$

Term extension

Construction and land development

$

$

$

$

260

$

$

Commercial non-owner occupied

1,241

Commercial owner occupied real estate

7,075

2,105

Consumer owner occupied

282

Commercial and industrial

1,596

1,145

Other income producing property

337

Total term extensions

$

10,249

$

$

$

3,792

$

$

Term Extension and Interest Rate Reduction

Consumer owner occupied

$

258

$

$

$

$

$

Total combinations

$

258

$

$

$

$

$

$

12,269

$

$

$

3,792

$

$

The following tables present a disaggregated analysistable depicts the performance of activity inloans modified within the allowance for credit losses.previous twelve months to borrowers experiencing financial difficulty, as of March 31, 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, 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

Three Months Ended September 30, 2022

Allowance for credit losses:

Balance at end of period June 30, 2022

$

55,707

$

533

$

16,918

$

7,565

$

27,730

$

24,752

$

2,458

$

703

$

64,688

$

85,169

$

33,485

$

319,708

Charge-offs

 

(50)

 

 

(23)

 

 

 

(2,742)

 

 

 

(1,353)

(8)

(2,950)

 

(7,126)

Recoveries

 

376

 

30

 

3,151

 

2

 

280

 

573

 

 

 

569

29

3,378

 

8,388

Net (charge offs) recoveries

326

30

3,128

2

280

(2,169)

(784)

21

428

1,262

Provision (recovery) (1)

 

11,987

 

(40)

 

(3,980)

 

763

 

3,798

 

4,221

 

666

 

(1)

 

(9,745)

(8,937)

4,696

 

3,428

Balance at end of period September 30, 2022

$

68,020

$

523

$

16,066

$

8,330

$

31,808

$

26,804

$

3,124

$

702

$

54,159

$

76,253

$

38,609

$

324,398

(1)A negative provision for credit losses of $1.1 million was recorded during the third quarter of 2023, compared to a provision for credit losses of $20.0 million recorded during the third quarter of 2022 for the allowance for credit losses for unfunded commitments that is not included in the above table.

March 31, 2024

March 31, 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

$

$

$

$

260

$

$

Commercial non-owner occupied

1,241

Commercial owner occupied real estate

7,914

2,105

Consumer owner occupied

923

258

282

Commercial and industrial

1,596

1,145

Other income producing property

337

Total

$

12,011

$

258

$

$

3,792

$

$

2723

Table of Contents 

Note 6 — 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.

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, 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 (charge offs) recoveries

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

Nine Months Ended September 30, 2022

Allowance for credit losses:

Balance at end of period December 31, 2021

$

47,036

$

611

$

13,325

$

4,997

$

37,593

$

23,149

$

4,921

$

565

$

61,794

$

79,649

$

28,167

$

301,807

Initial Allowance for PCD loans acquired during period

811

86

2,409

10,452

13,758

Initial Allowance for Non PCD loans acquired during period

352

26

132

2

1,887

51

426

2,519

2,697

5,605

13,697

Charge-offs

 

(169)

 

(19)

 

(444)

 

 

(4)

 

(7,527)

 

 

 

(1,802)

(368)

(8,446)

 

(18,779)

Recoveries

 

1,131

 

195

 

3,803

 

7

 

924

 

1,765

 

 

 

977

402

6,175

 

15,379

Net (charge offs) recoveries

962

176

3,359

7

920

(5,762)

(825)

34

(2,271)

(3,400)

Provision (benefit) (1)

 

18,859

 

(290)

 

(750)

 

3,324

 

(8,678)

 

9,366

 

(2,223)

 

137

 

(11,738)

(6,127)

(3,344)

 

(1,464)

Balance at end of period September 30, 2022

$

68,020

$

523

$

16,066

$

8,330

$

31,808

$

26,804

$

3,124

$

702

$

54,159

$

76,253

$

38,609

$

324,398

The following table presents a disaggregated analysis of activity in the allowance for credit losses for the three months ended March 31, 2024 and 2023, as follows:

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 March 31, 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

 

(343)

 

 

(110)

 

(304)

 

(1,475)

 

(2,497)

 

 

 

(71)

(3,140)

 

(7,940)

Recoveries

 

123

 

39

 

292

 

7

 

1,007

 

1,125

 

25

 

 

103

10

2,530

 

5,261

Net (charge offs) recoveries

(220)

 

39

 

182

 

(297)

 

(468)

 

(1,372)

 

25

 

 

103

(61)

(610)

(2,679)

Provision (recovery) (1)

 

9,652

 

446

 

600

 

(175)

 

(4,444)

 

1,394

 

3,221

 

(24)

 

914

(2,296)

6,472

 

15,760

Balance at end of period March 31, 2024

$

87,484

$

1,230

$

11,724

$

4,552

$

60,860

$

23,353

$

17,012

$

876

$

72,597

$

134,698

$

55,268

$

469,654

Three Months Ended March 31, 2023

Allowance for credit losses:

Balance at end of period December 31, 2023

$

72,188

$

405

$

14,886

$

8,974

$

45,410

$

22,767

$

3,684

$

849

$

58,083

$

78,485

$

50,713

$

356,444

Charge-offs

 

(2)

 

 

(39)

 

 

 

(2,729)

 

 

 

(51)

(1,806)

 

(4,627)

Recoveries

 

294

 

5

 

245

 

72

 

258

 

584

 

 

 

293

106

1,732

 

3,589

Net (charge offs) recoveries

292

5

206

72

258

(2,145)

293

55

(74)

(1,038)

Provision (recovery) (1)

 

4,871

 

(61)

 

(774)

 

130

 

9,401

 

2,697

 

1,823

 

30

 

(835)

3,933

(5,976)

 

15,239

Balance at end of period March 31, 2023

$

77,351

$

349

$

14,318

$

9,176

$

55,069

$

23,319

$

5,507

$

879

$

57,541

$

82,473

$

44,663

$

370,645

(1)A negative provision (recovery) for credit losses for unfunded commitments of $4.9($3.1) million was recorded during the first nine monthsquarter of 2023,2024, compared to a provision for credit losses of $22.5$17.9 million recorded during the first nine monthsquarter of 2022 for the allowance for credit losses for unfunded commitments2023, that is not included in the above table.table.

Note 8 — Other Real Estate Owned and Bank Premises Held for Sale

The following is a summary of information pertaining to OREO and Bank Premises Held for Sale:

(Dollars in thousands)

OREO

Bank Properties Held for Sale

Total

Balance, December 31, 2022

    

$

1,023

$

17,754

$

18,777

Additions, net

3,298

2,073

5,371

Write-downs

(1,525)

(1,525)

Sold

(3,887)

(3,051)

(6,938)

Balance, September 30, 2023

$

434

$

15,251

$

15,685

At September 30, 2023, there were a total of five properties included in OREOcompared to six properties at December 31, 2022. At September 30, 2023, there were a total of 14 properties included in bank premises held for sale which compares to 17 properties included in premises held for sale, at December 31, 2022. At September 30, 2023, we had $416,000 in residential real estate included in OREO and $4.1 million in residential real estate consumer mortgage loans in the process of foreclosure.

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Note 97 — Leases

As of September 30, 2023March 31, 2024 and December 31, 2022,2023, we had operating right-of-use (“ROU”) assets of $103.1$99.7 million and $108.0$100.3 million, respectively, and operating lease liabilities of $111.0$107.7 million and $115.6$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 2120 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 ratesrate 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

Three Months Ended

Nine Months Ended

March 31,

(Dollars in thousands)

September 30,

September 30,

 

    

2024

2023

 

    

2023

2022

    

2023

2022

 

 

Lease Cost Components:

Amortization of ROU assets – finance leases

$

117

$

117

$

350

$

350

$

117

$

117

Interest on lease liabilities – finance leases

10

12

31

37

9

11

Operating lease cost (cost resulting from lease payments)

4,296

4,550

12,814

13,419

4,277

4,240

Short-term lease cost

104

218

318

592

139

109

Variable lease cost (cost excluded from lease payments)

 

852

 

615

 

2,327

 

1,813

 

797

 

634

Total lease cost

$

5,379

$

5,512

$

15,840

$

16,211

$

5,339

$

5,111

Supplemental Cash Flow and Other Information Related to Leases:

Finance lease – operating cash flows

$

10

$

12

$

31

$

37

$

9

$

11

Finance lease – financing cash flows

111

109

331

325

119

110

Operating lease – operating cash flows (fixed payments)

4,233

4,356

12,483

12,982

4,193

4,097

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

(3,400)

(3,466)

(10,008)

(10,313)

(3,367)

(3,287)

New ROU assets – operating leases

701

12,616

2,544

New ROU assets – finance leases

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

4.68

5.67

4.18

5.18

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

 

 

9.47

 

10.13

 

9.09

9.88

Weighted – average discount rate - finance leases

1.7%

1.7%

1.7%

1.7%

Weighted – average discount rate - operating leases

 

 

 

3.1%

 

3.0%

 

3.2%

 

3.0%

 

 

 

 

 

 

Operating lease payments due:

2023 (excluding 9 months ended September 30, 2023)

$

4,187

2024

15,799

2024 (excluding 3 months ended March 31, 2024)

$

12,323

2025

14,450

 

15,057

2026

14,058

 

14,594

2027

13,080

 

13,532

2028

12,891

Thereafter

68,542

 

57,389

Total undiscounted cash flows

130,116

 

125,786

Discount on cash flows

(19,118)

(18,051)

Total operating lease liabilities

$

110,998

$

107,735

As of September 30, 2023,March 31, 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. As of September 30, 2023,At March 31, 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, 2023,March 31, 2024, we had no additional operating leases that have not yet commenced.

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Equipment Lessor

SouthState has an Equipment Finance Group which goes to market through intermediaries. The Equipment Finance Group is primarily focused on serving the construction and utility segments. Leaseterms 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 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.

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

March 31,

 

(Dollars in thousands)

    

2024

 

 

Direct financing leases:

Lease receivables

$

14,161

Guaranteed residual values

1,057

Unguaranteed residual values

1,997

Initial direct costs

544

Unearned income

 

3,087

Total net investment in direct financing leases

$

20,846

Direct financing lease income

Interest income

$

163

 

Remaining lease payments receivable:

2024 (excluding 3 months ended March 31, 2024)

$

2,321

2025

3,094

2026

3,094

2027

3,107

2028

3,579

Thereafter

2,053

Total undiscounted cash flows

17,248

Less: unearned interest income

(3,087)

Total operating lease liabilities

$

14,161

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 108 — Deposits

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

September 30,

December 31,

March 31,

December 31,

(Dollars in thousands)

    

2023

    

2022

    

    

2024

    

2023

    

Noninterest-bearing checking

$

11,158,431

$

13,168,656

$

10,546,410

$

10,649,274

Interest-bearing checking

 

7,806,243

 

8,955,519

 

7,898,835

 

7,978,799

Savings

 

2,760,166

 

3,464,351

 

2,557,203

 

2,632,212

Money market

 

10,756,431

 

8,342,111

 

11,895,385

 

11,538,671

Time deposits

4,453,927

2,419,986

4,280,601

4,249,953

Total deposits

$

36,935,198

$

36,350,623

$

37,178,434

$

37,048,909

At September 30, 2023March 31, 2024 and December 31, 2022,2023, we had $875.0$946.1 million and $464.9$927.2 million in certificates of deposits greater than $250,000, respectively.

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Note 119 — 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 211.8. Plan participants elect to contribute portions of their annual base compensation as a before tax contribution. Employer contributions may be made from current or accumulated net profits. Participants may elect to contribute 1% to 50% of annual base compensation as a before tax contribution. Employees participating in the plan receivedreceive a 100% match of their 401(k) plan contribution from the Company, up to 4% of their salary. We expensed $4.04.6 million and $12.7 million, respectively, for the three and nine months ended September 30, 2023March 31, 2024 and $3.9$4.5 million and $12.0 million, respectively, for the three and nine months ended September 30, 2022March 31, 2023 related to the Company’s employees’ savings plan.

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 1210 — 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:

Three Months Ended

Nine Months Ended

Three Months Ended

September 30,

September 30,

March 31,

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

    

2023

    

2022

    

2023

    

2022

 

    

2024

    

2023

 

Basic earnings per common share:

    

    

    

    

    

    

Net income

$

124,144

$

133,043

$

387,517

$

352,547

$

115,056

$

139,926

Weighted-average basic common shares

76,139

75,606

76,034

74,185

76,301

75,902

Basic earnings per common share

$

1.63

$

1.76

$

5.10

$

4.75

$

1.51

$

1.84

Diluted earnings per common share:

Net income

$

124,144

$

133,043

$

387,517

$

352,547

$

115,056

$

139,926

Weighted-average basic common shares

76,139

75,606

76,034

74,185

76,301

75,902

Effect of dilutive securities

432

576

412

606

359

487

Weighted-average dilutive shares

76,571

76,182

76,446

74,791

76,660

76,389

Diluted earnings per common share

$

1.62

$

1.75

$

5.07

$

4.71

$

1.50

$

1.83

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

Three Months Ended March 31,

    

2024

    

2023

 

Number of shares

57,169

57,169

    

Range of exercise prices

$

87.30

to

$

91.35

$

87.30

to

$

91.35

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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,

    

2023

    

2022

    

2023

    

2022

 

Number of shares

57,169

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

$

87.30

to

$

91.35

Note 1311 — 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 Company also assumed the obligations of ACBIAtlantic 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 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 2,072,245 shares registered under the 2020 plan.

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

Weighted

Weighted

Weighted

Average

Aggregate

Weighted

Average

Aggregate

Average

Remaining

Intrinsic

Average

Remaining

Intrinsic

    

Shares

    

Price

    

(Yrs.)

    

(000’s)

 

    

Shares

    

Price

    

(Yrs.)

    

(000’s)

 

Outstanding at January 1, 2023

161,832

$

66.20

Outstanding at January 1, 2024

107,592

$

72.60

Exercised

(22,651)

 

52.50

 

(6,320)

 

6,171

 

Expired

(5,491)

32.25

 

(29)

39.12

 

Outstanding at September 30, 2023

133,690

 

69.91

2.67

$

1,019

Exercisable at September 30, 2023

133,690

69.91

2.67

$

1,019

Outstanding at March 31, 2024

101,243

 

73.29

2.56

$

1,536

Exercisable at March 31, 2024

101,243

73.29

2.56

$

1,536

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 ninethree months of 2023.2024. Because all outstanding stock options had vested as of December 31, 2022,2023, there was no unrecognized compensation cost related to nonvested stock option grants under the plans or fair value of shares vested duringfor the nine three months ended September 30, 2023.March 31, 2024. The intrinsic value of stock option shares exercised for the ninethree months ended September 30, 2023March 31, 2024 was $573,000.107,000.

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.

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Table of Contents

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.

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Table of Contents

Nonvested restricted stock for 20232024 is summarized in the following table.

    

    

Weighted-

 

    

    

Weighted-

 

Average

 

Average

 

Grant-Date

 

Grant-Date

 

Restricted Stock

Shares

Fair Value

 

Shares

Fair Value

 

Nonvested at January 1, 2023

 

50,506

$

89.12

Nonvested at January 1, 2024

 

16,248

$

88.63

Vested

 

(30,609)

 

90.00

 

(10,115)

 

90.00

Forfeited

 

(2,559)

 

90.00

 

(64)

 

90.00

Nonvested at September 30, 2023

 

17,338

$

87.43

Nonvested at March 31, 2024

 

6,069

$

86.32

As of September 30, 2023,March 31, 2024, there was $858,000$409,000 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 1.010.78 years as of September 30, 2023.March 31, 2024. The total fair value of shares vested during the ninethree months ended September 30, 2023March 31, 2024 was $2.4 million.852,000.

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 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 ninethree months ended September 30, 2023March 31, 2024 is summarized in the following table.

    

    

Weighted-

 

    

    

Weighted-

 

Average

 

Average

 

Grant-Date

 

Grant-Date

 

Restricted Stock Units

Shares

Fair Value

 

Shares

Fair Value

 

Outstanding at January 1, 2023

 

940,512

$

73.82

Outstanding at January 1, 2024

 

873,048

$

75.22

Granted

 

386,987

 

74.59

 

353,490

 

80.87

Vested

(370,493)

71.78

(344,376)

77.67

Forfeited

(10,052)

76.02

(5,210)

75.44

Outstanding at September 30, 2023

 

946,954

$

74.91

Outstanding at March 31, 2024

 

876,952

$

76.53

The nonvested shares of 946,954876,952 at September 30, 2023March 31, 2024 includes 147,95565,307 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 2021, 2022, 2023 and 20232024 Long Term Incentive performance-based RSU grants, an additional 148,756134,079 shares in total may be issued by the Company at the end of the three-year performance periods.

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Table of Contents

As of September 30, 2023,March 31, 2024, there was $30.7$41.7 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 1.061.54 years as of September 30, 2023.March 31, 2024. The total fair value of RSUs vested and released during the ninethree months ended September 30, 2023March 31, 2024 was $26.628.5 million.

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Table of Contents

Note 1412 — 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, 2023,March 31, 2024, commitments to extend credit and standby letters of credit totaled $10.69.5 billion. As of September 30, 2023,March 31, 2024, the liability recorded for expected credit losses on unfunded commitments, excluding unconditionally cancellable exposures and letters of credit, was $62.3$53.2 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.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, 2023,March 31, 2024, any such liability is not expected to have a material effect on our consolidated financial statements.

In Mayresponse to the bank failures in early 2023, the Federal Deposit Insurance Corporation (“FDIC”) approved a notice of proposed rulemaking to implementFDIC implemented a special assessment in connection with the systemic risk determination announced in March 2023, to recover the cost associated with protecting uninsured depositors followinglosses to the recent bank failures. The FDIC is proposing to collect the special assessmentFDIC’s Deposit Insurance Fund at the base an annual rate of approximately 12.513.4 basis points over eight quarterly assessment periods beginning with the first quarterly assessment period of 2024. The base for the Company’sspecial 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, over eight quarterlybillion. As a result, approximately $25.7 million was recognized by the Bank as of December 31, 2023 for the two-year special assessment periods, beginning afterperiod. Due to additional losses to the Deposit Insurance Fund resulting from the 2023 bank failures reported by the FDIC in February 2024, an additional $3.9 million was accrued by the Bank during the first quarter 2024. We expectof 2024, bringing the total estimated FDIC special assessment allocable to the Bank to approximately $29.5 million. The FDIC may impose additional special assessments from time to time based on the actual losses incurred by the FDIC will enactas a special deposit insurance assessmentresult of the March 2023 bank failures or future failures.

Cyber Incident Litigation.  On April 3, 2024, a putative class action lawsuit was filed against the Bank in the second halfU.S. District Court for the Middle District of 2023Florida, 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 will significantly increase our FDIC deposit insurance costs. The total costwas detected on February 6, 2024 (the “Cyber Incident”), asserts a variety of common law and timing is subject to change prior to any final rule depending on any adjustmentsstatutory claims seeking monetary damages, injunctive relief and other related relief related to the potential unauthorized access by third parties to personal identifiable information. Since April 3, 2024, additional putative class action lawsuits have been filed and are currently pending against the Bank, including nine additional cases pending in the U.S. District Court for the Middle District of Florida, one case pending in the U.S. District Court for the District of South Carolina, two cases pending in the U.S. District Court for the Northern District of Georgia, and one case pending in the Circuit Court for Polk County, Florida. (each, a “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 Suits. However, the Bank believes that it has defenses to the claims and intends to vigorously defend against the Cyber Incident Suits. Accordingly, no amounts have been recorded in the unaudited condensed consolidated financial statements for the Cyber Incident Suits. The Company will continue to evaluate information as it becomes known and will record an estimate mergersfor losses at the time or failures,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 amendments to reported estimateson behalf of uninsured deposits.customers, stockholders, 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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Note 1513 — 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, 2022.2023.

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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

    

    

    

    

Quoted Prices

    

    

In Active

Significant

In Active

Significant

Markets

Other

Significant

Markets

Other

Significant

for Identical

Observable

Unobservable

for Identical

Observable

Unobservable

Assets

Inputs

Inputs

Assets

Inputs

Inputs

(Dollars in thousands)

Fair Value

(Level 1)

(Level 2)

(Level 3)

Fair Value

(Level 1)

(Level 2)

(Level 3)

September 30, 2023:

March 31, 2024:

Assets

Derivative financial instruments

$

212,345

$

$

212,345

$

$

176,784

$

$

176,784

$

Loans held for sale

 

27,443

 

 

27,443

 

 

56,553

 

 

56,553

 

Trading securities

 

114,154

 

 

114,154

 

 

66,188

 

 

66,188

 

Securities available for sale:

U.S. Treasuries

172,259

172,259

24,587

24,587

U.S. Government agencies

216,754

216,754

223,805

223,805

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

agencies or sponsored enterprises

1,488,706

1,488,706

1,492,423

1,492,423

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

agencies or sponsored enterprises

519,427

519,427

508,112

508,112

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

agencies or sponsored enterprises

949,532

949,532

1,012,217

1,012,217

State and municipal obligations

 

873,007

 

 

873,007

 

 

960,359

 

 

960,359

 

Small Business Administration loan-backed securities

 

377,470

 

 

377,470

 

 

350,043

 

 

350,043

 

Corporate securities

26,463

26,463

26,854

26,854

Total securities available for sale

 

4,623,618

 

 

4,623,618

 

 

4,598,400

 

 

4,598,400

 

Mortgage servicing rights

 

89,476

 

 

 

89,476

 

87,970

 

 

 

87,970

SBA servicing asset

5,654

5,654

6,367

6,367

$

5,072,690

$

$

4,977,560

$

95,130

$

4,992,262

$

$

4,897,925

$

94,337

Liabilities

Derivative financial instruments

$

1,251,878

$

$

1,251,878

$

$

954,788

$

$

954,788

$

December 31, 2022:

December 31, 2023:

Assets

Derivative financial instruments

$

211,016

$

$

211,016

$

$

172,939

$

$

172,939

$

Loans held for sale

 

28,968

 

 

28,968

 

 

50,888

 

 

50,888

 

Trading securities

 

31,263

 

 

31,263

 

 

31,321

 

 

31,321

 

Securities available for sale:

U.S. Treasuries

265,638

265,638

73,890

73,890

U.S. Government agencies

219,088

219,088

224,706

224,706

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

agencies or sponsored enterprises

1,698,353

1,698,353

1,558,306

1,558,306

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

agencies or sponsored enterprises

601,045

601,045

527,422

527,422

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

agencies or sponsored enterprises

1,000,398

1,000,398

1,024,170

1,024,170

State and municipal obligations

 

1,064,852

 

 

1,064,852

 

 

977,461

 

 

977,461

 

Small Business Administration loan-backed securities

 

444,810

 

 

444,810

 

 

371,686

 

 

371,686

 

Corporate securities

 

32,638

 

 

32,638

 

 

26,747

 

 

26,747

 

Total securities available for sale

 

5,326,822

 

 

5,326,822

 

 

4,784,388

 

 

4,784,388

 

Mortgage servicing rights

 

86,610

 

 

 

86,610

 

85,164

 

 

 

85,164

SBA servicing asset

6,068

6,068

5,952

5,952

$

5,690,747

$

$

5,598,069

$

92,678

$

5,130,652

$

$

5,039,536

$

91,116

Liabilities

Derivative financial instruments

$

1,034,143

$

$

1,034,143

$

$

804,486

$

$

804,486

$

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.

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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 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,

    

March 31,

December 31,

(Dollars in thousands)

    

2023

 

2022

    

2024

 

2023

Fair value

$

27,443

$

28,968

$

56,553

$

50,888

Unpaid principal balance

26,921

27,937

54,834

49,025

Fair value less aggregated unpaid principal balance

$

522

$

1,031

$

1,719

$

1,863

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in thousands)

2023

2022

    

2023

2022

Income Statement Location

2024

2023

Income Statement Location

Mortgage loans held for sale

$

(574)

$

(2,149)

$

(508)

$

(7,604)

Mortgage banking income

$

(144)

$

(9)

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 ninethree months ended September 30, 2023.March 31, 2024. A reconciliation of the beginning and ending balances of the MSR, a Level 3 assets and liabilitiesasset recorded at fair value on a recurring basis, for the ninethree months ended September 30, 2023March 31, 2024 is as follows:follows. The changes in fair value of the MSRs are recorded in Mortgage Banking Income on the Consolidated Statements of Income.

(Dollars in thousands)

    

MSRs

 

    

MSRs

 

Fair value, January 1, 2023

$

86,610

Fair value, January 1, 2024

$

85,164

Servicing assets that resulted from transfers of financial assets

 

6,752

 

1,864

Changes in fair value due to valuation inputs or assumptions

 

2,450

 

2,384

Changes in fair value due to decay

 

(6,336)

 

(1,442)

Fair value, September 30, 2023

$

89,476

Fair value, March 31, 2024

$

87,970

In 2022, the Company elected to prospectively apply 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, a Level 3, asset recorded at fair value on a recurring basis for the period ending September 30, 2023March 31, 2024 is as follows:follows. The changes in fair value of the SBA servicing asset are recorded in in SBA Income on the Consolidated Statements of Income.

(Dollars in thousands)

    

SBA Servicing Asset

 

    

SBA Servicing Asset

 

Fair value, January 1, 2023

$

6,068

Fair value, January 1, 2024

$

5,952

Servicing assets that resulted from transfers of financial assets

1,103

581

Changes in fair value due to decay

(1,951)

(364)

Changes in fair value due to valuation inputs or assumptions

434

198

Fair value, September 30, 2023

$

5,654

Fair value, March 31, 2024

$

6,367

There were no unrealized losses included in accumulated other comprehensive income related to Level 3 financial assets and liabilities at September 30, 2023.

March 31, 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

    

    

 

    

    

Quoted Prices

    

    

 

In Active

Significant

 

In Active

Significant

 

Markets

Other

Significant

 

Markets

Other

Significant

 

for Identical

Observable

Unobservable

 

for Identical

Observable

Unobservable

 

Assets

Inputs

Inputs

 

Assets

Inputs

Inputs

 

(Dollars in thousands)

Fair Value

(Level 1)

(Level 2)

(Level 3)

 

Fair Value

(Level 1)

(Level 2)

(Level 3)

 

September 30, 2023:

March 31, 2024:

OREO

$

434

$

$

$

434

$

1,644

$

$

$

1,644

Bank properties held for sale

15,251

 

15,251

8,973

 

8,973

Individually evaluated loans

 

76,890

 

 

 

76,890

 

64,191

 

 

 

64,191

December 31, 2022:

December 31, 2023:

OREO

$

1,023

$

$

$

1,023

$

837

$

$

$

837

Bank properties held for sale

17,754

 

17,754

12,401

 

12,401

Individually evaluated loans

 

20,802

 

 

 

20,802

 

73,518

 

 

 

73,518

Quantitative Information about Level 3 Fair Value Measurement

Weighted Average Discount

Weighted Average Discount

September 30,

December 31,

March 31,

December 31,

    

Valuation Technique

    

Unobservable Input

    

2023

    

2022

    

Valuation Technique

    

Unobservable Input

    

2024

    

2023

Nonrecurring measurements:

Individually evaluated loans

 

Discounted appraisals and discounted cash flows

 

Collateral discounts

26

%

31

%

 

Discounted appraisals and discounted cash flows

 

Collateral discounts

15

%

13

%

OREO and Bank properties held for sale

 

Discounted appraisals

 

Collateral discounts and estimated costs to sell

22

%

16

%

 

Discounted appraisals

 

Collateral discounts and estimated costs to sell

6

%

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 hereinin the table below are based on pertinent information available to management as of September 30, 2023March 31, 2024 and December 31, 2022.2023. 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, 2022.2023.

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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, 2023

Financial assets:

Cash and cash equivalents

$

1,329,137

$

1,329,137

$

1,329,137

$

$

Trading securities

114,154

114,154

114,154

Investment securities

 

7,344,483

 

6,823,170

 

187,152

 

6,636,018

 

Loans held for sale

27,443

27,443

27,443

Loans, net of allowance for credit losses

 

31,568,716

 

29,773,087

 

 

 

29,773,087

Accrued interest receivable

 

151,259

 

151,259

 

 

26,561

 

124,698

Mortgage servicing rights

 

89,476

 

89,476

 

 

 

89,476

SBA servicing asset

5,654

5,654

5,654

Interest rate swap – non-designated hedge

 

211,109

 

211,109

 

 

211,109

 

Other derivative financial instruments (mortgage banking related)

 

1,236

 

1,236

 

 

1,236

 

Financial liabilities:

Deposits

 

Noninterest-bearing

11,158,431

 

11,158,431

 

 

11,158,431

 

Interest-bearing other than time deposits

21,322,840

21,322,840

21,322,840

Time deposits

4,453,927

4,391,875

4,391,875

Federal funds purchased and securities sold under agreements to repurchase

 

513,304

 

513,304

 

 

513,304

 

Corporate and subordinated debentures

391,997

376,373

 

376,373

 

Other borrowings

 

 

 

 

 

Accrued interest payable

 

45,163

 

45,163

 

 

45,163

 

Interest rate swap – non-designated hedge

 

1,251,059

 

1,251,059

 

 

1,251,059

 

Other derivative financial instruments (mortgage banking related)

 

819

 

819

 

 

819

 

Off balance sheet financial instruments:

Commitments to extend credit

 

 

(604,493)

 

 

(604,493)

 

December 31, 2022

Financial assets:

Cash and cash equivalents

$

1,312,563

$

1,312,563

$

1,312,563

$

$

Trading securities

31,263

31,263

31,263

Investment securities

 

8,189,780

 

7,756,707

 

179,717

 

7,576,990

 

Loans held for sale

28,968

28,968

28,968

Loans, net of allowance for credit losses

 

29,821,418

 

29,329,499

 

 

 

29,329,499

Accrued interest receivable

 

134,594

 

134,594

 

 

28,449

 

106,145

Mortgage servicing rights

 

86,610

 

86,610

 

 

 

86,610

SBA servicing asset

6,068

6,068

Interest rate swap – non-designated hedge

 

210,216

 

210,216

 

 

210,216

 

Other derivative financial instruments (mortgage banking related)

 

800

 

800

 

 

800

 

Financial liabilities:

Deposits

 

Noninterest-bearing

13,168,656

 

13,168,656

 

 

13,168,656

 

Interest-bearing other than time deposits

20,761,981

20,761,981

20,761,981

Time deposits

2,419,986

2,333,764

2,333,764

Federal funds purchased and securities sold under agreements to repurchase

 

556,417

 

556,417

 

 

556,417

 

Corporate and subordinated debentures

 

392,275

 

377,360

 

 

377,360

 

Accrued interest payable

 

6,218

 

6,218

 

 

3,345

 

Interest rate swap – non-designated hedge

 

1,033,980

 

1,033,980

 

 

1,033,980

 

Other derivative financial instruments (mortgage banking related)

163

163

 

 

163

 

Off balance sheet financial instruments:

 

 

Commitments to extend credit

 

(184,801)

 

 

(184,801)

 

    

Carrying

    

Fair

    

    

    

 

(Dollars in thousands)

Amount

Value

Level 1

Level 2

Level 3

 

March 31, 2024

Financial assets:

Cash and cash equivalents

$

1,209,457

$

1,209,457

$

1,209,457

$

$

Trading securities

66,188

66,188

66,188

Investment securities

 

7,232,274

 

6,802,252

 

187,285

 

6,614,967

 

Loans held for sale

56,553

56,553

56,553

Loans, net of allowance for credit losses

 

32,197,656

 

31,124,727

 

 

 

31,124,727

Accrued interest receivable

 

160,519

 

160,519

 

 

25,665

 

134,854

Mortgage servicing rights

 

87,970

 

87,970

 

 

 

87,970

SBA servicing asset

6,367

6,367

6,367

Interest rate swap – non-designated hedge

 

174,373

 

174,373

 

 

174,373

 

Other derivative financial instruments (mortgage banking related)

 

2,411

 

2,411

 

 

2,411

 

Financial liabilities:

��

Deposits

 

Noninterest-bearing

10,546,410

 

10,546,410

 

 

10,546,410

 

Interest-bearing other than time deposits

22,351,423

22,351,423

22,351,423

Time deposits

4,280,601

4,238,055

4,238,055

Federal funds purchased and securities sold under agreements to repurchase

 

554,691

 

554,691

 

 

554,691

 

Corporate and subordinated debentures

391,812

385,574

 

385,574

 

Other borrowings

 

 

 

 

 

Accrued interest payable

 

44,873

 

44,873

 

 

44,873

 

Interest rate swap – non-designated hedge

 

954,297

 

954,297

 

 

954,297

 

Other derivative financial instruments (mortgage banking related)

 

491

 

491

 

 

491

 

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 1614 — Accumulated Other Comprehensive LossIncome (Loss)

The changes in each component of accumulated other comprehensive loss,income (losses), net of tax, for the three months ended March 31, 2024 and 2023, were as follows:

Unrealized Losses

Unrealized Losses

Benefit

on Securities

Benefit

on Securities

(Dollars in thousands)

Plans

Available for Sale

Total

Plans

Available for Sale

Total

Three Months Ended September 30, 2023

Balance at June 30, 2023

$

(673)

$

(661,725)

$

(662,398)

Three Months Ended March 31, 2024

Balance at December 31, 2023

$

627

$

(583,163)

$

(582,536)

Other comprehensive loss before reclassifications

 

 

(153,491)

 

(153,491)

 

 

(40,458)

 

(40,458)

Net comprehensive loss

 

 

(40,458)

 

(40,458)

Balance at March 31, 2024

$

627

$

(623,621)

$

(622,994)

Three Months Ended March 31, 2023

Balance at December 31, 2022

$

(673)

$

(676,415)

$

(677,088)

Other comprehensive income before reclassifications

 

 

63,271

63,271

Amounts reclassified from accumulated other comprehensive loss

 

 

 

 

 

33

 

33

Net comprehensive loss

 

 

(153,491)

 

(153,491)

Balance at September 30, 2023

$

(673)

$

(815,216)

$

(815,889)

Three Months Ended September 30, 2022

Balance at June 30, 2022

$

57

$

(490,941)

$

(490,884)

Other comprehensive loss before reclassifications

 

 

(225,551)

(225,551)

Amounts reclassified from accumulated other comprehensive loss

 

 

(23)

 

(23)

Net comprehensive loss

 

 

(225,574)

 

(225,574)

Balance at September 30, 2022

$

57

$

(716,515)

$

(716,458)

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)

Nine Months Ended September 30, 2022

Balance at December 31, 2021

$

57

$

(21,203)

$

(21,146)

Other comprehensive loss before reclassifications

 

 

(695,289)

 

(695,289)

Amounts reclassified from accumulated other comprehensive loss

 

 

(23)

 

(23)

Net comprehensive loss

 

 

(695,312)

 

(695,312)

Balance at September 30, 2022

$

57

$

(716,515)

$

(716,458)

Net comprehensive income

 

 

63,304

 

63,304

Balance at March 31, 2023

$

(673)

$

(613,111)

$

(613,784)

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

Amount Reclassified from Accumulated Other Comprehensive Income (Loss)

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,

For the Three Months Ended March 31,

Accumulated Other Comprehensive Income (Loss) Component

    

2023

    

2022

    

2023

    

2022

    

Income Statement
Line Item Affected

    

2024

    

2023

    

Income Statement
Line Item Affected

Gains on sales of available for sale securities:

$

$

(30)

$

(45)

$

(30)

Securities gains, net

$

$

45

Securities gains, net

7

12

7

Provision for income taxes

(12)

Provision for income taxes

(23)

(33)

(23)

Net income

33

Net income

Total reclassifications for the period

$

$

(23)

$

(33)

$

(23)

$

$

33

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Table of Contents

Note 1715 — 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:Company as of March 31, 2024 and December 31, 2023:

September 30, 2023

December 31, 2022

March 31, 2024

December 31, 2023

Balance Sheet

Notional

Estimated Fair Value

Notional

Estimated Fair Value

Balance Sheet

Notional

Estimated Fair Value

Notional

Estimated Fair Value

(Dollars in thousands)

  

Location

  

Amount

  

Gain

  

Loss

  

Amount

  

Gain

  

Loss

  

Location

  

Amount

  

Gain

  

Loss

  

Amount

  

Gain

  

Loss

Fair value hedge of interest rate risk:

Pay fixed rate swap with counterparty

Other Assets

$

9,480

$

600

$

$

12,289

$

414

$

Other Assets

$

9,099

$

373

$

$

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

11,182,309

5,078

1,251,059

10,480,171

8,539

1,033,980

Other Assets and Other Liabilities

11,513,291

29,960

954,297

11,327,419

60,145

803,539

Matched interest rate swaps with counterparty (1)

Other Assets

11,091,592

205,429

10,400,733

201,263

Other Assets

11,422,100

144,041

11,235,952

108,820

Economic hedges of interest rate risk:

Pay floating rate swap with counterparty

Other Assets

1,200,000

2

Other Assets

1,760,000

(1)

1,660,000

(5)

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

Contracts used to hedge mortgage servicing rights

Other Liabilities

44,000

819

35,000

163

Other Assets

107,000

381

142,000

2,605

Contracts used to hedge mortgage pipeline

Other Assets

89,500

1,236

51,000

800

Other Assets and Other Liabilities

123,000

2,030

491

77,500

1,154

947

Total derivatives

$

23,616,881

$

212,345

$

1,251,878

$

20,979,193

$

211,016

$

1,034,143

$

24,934,490

$

176,784

$

954,788

$

24,452,059

$

172,939

$

804,486

(1)The fair value of the interest rate swap derivative assets was reduced by $1.0 billion$781.1 million in variation margin payments applicable to swaps centrally cleared through LCH and CME.

Cash Flow Hedge

36

Table of Interest Rate RiskContents

The Company is exposed to interest rate risk in the course of its business operations and manages a portion of this risk through the use of derivative financial instruments, in the form of interest rate swaps. We account for interest rate swaps that are classified as cash flow hedges on the balance sheet at fair value. We had no cash flow hedges as of September 30, 2023 and December 31, 2022. For more information regarding the fair value of our derivative financial instruments, see Note 15 — Fair Value to these financial statements.

The Company did not maintain any cash flow hedges on the balance sheet throughout the nine months ended September 30, 2023 and year ended December 31, 2022 (See Note 16—Accumulated Other Comprehensive Income (Loss) for activity in accumulated comprehensive income (loss) and the amounts reclassified into earnings). With the Company not maintaining any cash flow hedges at September 30, 2023 and December 31, 2022, there was no collateral pledged.

Balance Sheet Fair Value Hedge

As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company maintained loan swaps, with an aggregate notional amount of $9.5$9.1 million and $12.3$9.2 million, respectively, accounted for as fair value hedges. The amortized cost basis of the loans being hedged were $9.6 million and $9.7 million, respectively, as of March 31, 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.

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Table of Contents

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 customer’s 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. During the second quarter of 2023, the Company transitioned the majority of these interest rate swap contracts to SOFR as the reference rate. For discussion related to reference rate reform, please refer to Accounting Standards Adopted within Note 3— Recent Accounting and Regulatory Pronouncements. The interest rate swaps are settled monthly with varying maturities.

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.

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, 2023March 31, 2024 and December 31, 2022,2023, the interest rate swaps had an aggregate notional amount of approximately $22.322.9 billion and $20.9$22.6 billion, respectively. At September 30, 2023,March 31, 2024, the fair value of the interest rate swap derivatives is recorded in Other Assetsother assets at $210.5174.0 million and in Other Liabilitiesother liabilities at $1.3$954.3 billion. The fair value of derivative assets at September 30, 2023March 31, 2024 was reduced by $1.0$781.1 billionmillion in variation margin payments applicable to swaps centrally cleared through LCH and CME. At December 31, 2022,2023, the fair value of the interest rate swap derivatives was recorded in Other Assetsother assets at $209.8169.0 million and Other Liabilitiesother liabilities at $1.0$803.5 billion. The fair value of derivative assets at December 31, 20222023 was reduced by $$824.3635.3 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 Net Income.There was a net gain of $113,000 recorded on these derivatives for the year ended March 31, 2024. There was a net gain of $587,000 and $599,00096,000 recorded on these derivatives for the three and nine monthsquarter ended September 30, 2023, respectively. There was a net loss of $3,000 and a net gain of $107,000 recorded on these derivatives for the three and nine months ended September 30, 2022, respectively. March 31, 2023. As of September 30, 2023,March 31, 2024, we provided $226.6$237.8 million of cash collateral on the counterparty,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 $100.199.5 million in investment securities at market value as collateral on the counterparty,customer swaps which is included in Investment Securities – Availableavailable for Sale.sale on the Consolidated Balance Sheets. Counterparties provided $102.453.7 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.

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Table of Contents

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.

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Table of Contents

As of September 30, 2023,March 31, 2024, the Company maintained an aggregate notional amount of $1.2$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 Net Income. There was a net gain lossof $1,000$2,000 for these derivatives for the three and nine months ended September 30, 2023. The Company did not have anyMarch 31, 2024. There was a net loss of $5,000 for these short-term interest rate hedges atderivatives for the year ended December 31, 2022.2023.

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. At September 30, 2023 and December 31, 2022, there were no outstanding contracts or agreements related to foreign currency. If there were foreign currency contracts outstanding at September 30, 2023,March 31, 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, 2023March 31, 2024 and 2022.2023.

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 Net Income in Mortgage Banking Income.

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, 2023,March 31, 2024, we had derivative financial instruments outstanding with notional amounts totaling $44.0107.0 million related to MSRs, compared to $35.0$142.0 million on December 31, 2022.2023. The estimated net fair value of the open contracts related to the MSRs was recorded as a lossgain of $819,000381,000 at September 30, 2023,March 31, 2024, compared to a lossgain of $163,000$2.6 million at December 31, 2022.2023.

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Table of Contents

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:portfolio.

(Dollars in thousands)

    

September 30, 2023

    

December 31, 2022

 

    

March 31, 2024

    

December 31, 2023

    

Mortgage loan pipeline

$

91,885

$

40,850

$

117,590

$

65,051

Expected closures

 

83,475

 

37,210

 

102,911

 

54,993

Fair value of mortgage loan pipeline commitments

 

621

 

524

 

2,030

 

1,154

Forward sales commitments

 

89,500

 

51,000

 

123,000

 

77,500

Fair value of forward commitments

 

615

 

276

 

(491)

 

(947)

Note 1816 — 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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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%.

In order to avoid restrictions on capital distributions and discretionary bonus payments to executives, under the new rules 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 became fully phased-in on January 1, 2019 and 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.

The following table presents actual and required capital ratios as of September 30, 2023March 31, 2024 and December 31, 20222023 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

 

 

Required to be

 

Minimum Capital

 

Considered Well

 

Minimum Capital

 

Considered Well

 

Actual

Required – Basel III

Capitalized

Actual

Required – Basel III

Capitalized

(Dollars in thousands)

    

Amount

    

Ratio

    

Capital Amount

    

Ratio

    

Capital Amount

    

Ratio

 

    

Amount

    

Ratio

    

Capital Amount

    

Ratio

    

Capital Amount

    

Ratio

 

September 30, 2023:

    

    

    

    

    

    

March 31, 2024:

    

    

    

    

    

    

Common equity Tier 1 to risk-weighted assets:

Consolidated

$

4,089,424

 

11.47

%  

$

2,495,806

7.00

%  

$

2,317,534

 

6.50

%  

$

4,203,524

 

11.95

%  

$

2,461,344

7.00

%  

$

2,285,534

 

6.50

%  

SouthState Bank (the Bank)

 

4,360,670

 

12.25

%  

 

2,492,670

7.00

%  

 

2,314,622

 

6.50

%  

 

4,447,788

 

12.67

%  

 

2,458,057

7.00

%  

 

2,282,481

 

6.50

%  

Tier 1 capital to risk-weighted assets:

Consolidated

 

4,089,424

 

11.47

%  

 

3,030,621

8.50

%  

 

2,852,349

 

8.00

%  

 

4,203,524

 

11.95

%  

 

2,988,775

8.50

%  

 

2,812,965

 

8.00

%  

SouthState Bank (the Bank)

 

4,360,670

 

12.25

%  

 

3,026,814

8.50

%  

 

2,848,766

 

8.00

%  

 

4,447,788

 

12.67

%  

 

2,984,783

8.50

%  

 

2,809,208

 

8.00

%  

Total capital to risk-weighted assets:

Consolidated

 

4,905,268

 

13.76

%  

 

3,743,709

10.50

%  

 

3,565,437

 

10.00

%  

 

5,036,477

 

14.32

%  

 

3,692,016

10.50

%  

 

3,516,206

 

10.00

%  

SouthState Bank (the Bank)

 

4,786,514

 

13.44

%  

 

3,739,005

10.50

%  

 

3,560,957

 

10.00

%  

 

4,890,571

 

13.93

%  

 

3,687,085

10.50

%  

 

3,511,510

 

10.00

%  

Tier 1 capital to average assets (leverage ratio):

Consolidated

 

4,089,424

 

9.34

%  

 

1,751,637

4.00

%  

 

2,189,546

 

5.00

%  

 

4,203,524

 

9.58

%  

 

1,754,572

4.00

%  

 

2,193,216

 

5.00

%  

SouthState Bank (the Bank)

 

4,360,670

 

9.96

%  

 

1,751,135

4.00

%  

 

2,188,919

 

5.00

%  

 

4,447,788

 

10.14

%  

 

1,753,939

4.00

%  

 

2,192,423

 

5.00

%  

December 31, 2022:

    

    

    

    

    

    

December 31, 2023:

    

    

    

    

    

    

Common equity Tier 1 to risk-weighted assets:

Consolidated

$

3,788,106

 

10.96

%  

$

2,420,417

7.00

%  

$

2,247,530

 

6.50

%  

$

4,159,187

 

11.75

%  

$

2,476,926

7.00

%  

$

2,300,003

 

6.50

%  

SouthState Bank (the Bank)

 

4,074,045

 

11.80

%  

 

2,417,133

7.00

%  

 

2,244,481

 

6.50

%  

 

4,424,466

 

12.52

%  

 

2,473,961

7.00

%  

 

2,297,250

 

6.50

%  

Tier 1 capital to risk-weighted assets:

Consolidated

 

3,788,106

 

10.96

%  

 

2,939,077

8.50

%  

 

2,766,190

 

8.00

%  

 

4,159,187

 

11.75

%  

 

3,007,696

8.50

%  

 

2,830,773

 

8.00

%  

SouthState Bank (the Bank)

 

4,074,045

 

11.80

%  

 

2,935,090

8.50

%  

 

2,762,438

 

8.00

%  

 

4,424,466

 

12.52

%  

 

3,004,096

8.50

%  

 

2,827,384

 

8.00

%  

Total capital to risk-weighted assets:

Consolidated

 

4,485,397

 

12.97

%  

 

3,630,625

10.50

%  

 

3,457,738

 

10.00

%  

 

4,983,012

 

14.08

%  

 

3,715,389

10.50

%  

 

3,538,466

 

10.00

%  

SouthState Bank (the Bank)

 

4,381,336

 

12.69

%  

 

3,625,700

10.50

%  

 

3,453,047

 

10.00

%  

 

4,858,292

 

13.75

%  

 

3,710,942

10.50

%  

 

3,534,230

 

10.00

%  

Tier 1 capital to average assets (leverage ratio):

Consolidated

 

3,788,106

 

8.72

%  

 

1,736,991

4.00

%  

 

2,171,239

 

5.00

%  

 

4,159,187

 

9.42

%  

 

1,765,295

4.00

%  

 

2,206,619

 

5.00

%  

SouthState Bank (the Bank)

 

4,074,045

 

9.39

%  

 

1,736,330

4.00

%  

 

2,170,412

 

5.00

%  

 

4,424,466

 

10.03

%  

 

1,764,736

4.00

%  

 

2,205,921

 

5.00

%  

As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the capital ratios of the Company and the Bank were well in excess of the minimum regulatory requirements and exceeded the thresholds for the “well capitalized” regulatory classification.

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Table of Contents

In accordance with ASU No. 2016-13, the Company applied the provisions of the standard using the modified retrospective method as a cumulative-effect adjustment to retained earnings. Related toWith the implementation of ASU 2016-13 in January 2020, the Company recorded additional allowance for credit losses for loans of $54.4$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 50%25% being phased out in 20232024.

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Table of Contents

Note 1917 — Goodwill and Other Intangible Assets

The carrying amount of goodwill was $1.9 billion at September 30, 2023March 31, 2024 and December 31, 2022. 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.

The Company last completed its annual valuation of the carrying value of its goodwill as of October 31, 20222023 and determined there was no goodwill impairment. In between annual impairment analyses, we monitor for any triggering events that may impactof the Company’s goodwillgoodwill. 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,

March 31,

December 31,

(Dollars in thousands)

    

2023

    

2022

 

    

2024

    

2023

    

Gross carrying amount

$

274,455

$

274,869

$

275,168

$

274,753

Accumulated amortization

 

(179,361)

 

(158,419)

 

(191,975)

 

(185,977)

$

95,094

$

116,450

$

83,193

$

88,776

Amortization expense totaled $6.6 million and $20.9$6.0 million for the three and nine monthsquarter ended September 30, 2023,March 31, 2024, compared to $7.8 million and $25.2$7.3 million for the three and nine monthsquarter ended September 30, 2022.March 31, 2023.  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 elected to applyapplies 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 excludedexcludes the SBA servicing asset from the future amortization expense table presented below.  The fair value of the SBA servicing asset was $5.7$6.4 million and $6.1$6.0 million, respectively, at September 30, 2023March 31, 2024 and December 31, 2022.

2023.  The fair value of the SBA servicing asset is included in Core Deposit and Other Intangibles on the Consolidated Balance Sheets.

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Table of Contents

Estimated amortization expense for other intangibles excluding the SBA servicing assets, for each of the next five quarters and thereafter is as follows:

(Dollars in thousands)

Quarter ending:

    

    

 

    

    

 

December 31, 2023

$

6,615

March 31, 2024

 

6,003

June 30, 2024

 

5,739

$

5,744

September 30, 2024

 

5,327

 

5,327

December 31, 2024

5,326

 

5,326

March 31, 2025

 

5,100

June 30, 2025

4,836

Thereafter

 

60,429

 

50,493

$

89,439

$

76,826

Note 2018 — 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 the portfolio of residential mortgages serviced for others, was $6.6 billion as of September 30, 2023March 31, 2024 and December 31, 2022.2023. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts and disbursing payments to investors. The amountamounts of contractually specified servicing fees we earned during the three and nine months ended September 30,March 31, 2024 and March 31, 2023 and September 30, 2022 were $4.1 million, $12.4 million, $4.24.2 million and $12.1$4.1 million, respectively. Servicing fees are recorded in Mortgage Banking Income in our Consolidated Statements of Income.

At September 30, 2023March 31, 2024 and December 31, 2022,2023, MSRs were $89.5$88.0 million and $86.6$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 Net Income. The market value adjustments related to MSRs recorded in Mortgage Banking Income for the three and nine months ended September 30,March 31, 2024 and March 31, 2023 and September 30, 2022 were gains of $1.8 million and $2.52.4 million, compared with gainslosses of $2.7 million and $18.3$1.3 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 1513 — 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

    

Three Months Ended

(Dollars in thousands)

    

September 30, 2023

    

September 30, 2022

    

September 30, 2023

    

September 30, 2022

 

    

March 31, 2024

    

March 31, 2023

 

Increase in fair value of MSRs

$

1,762

$

2,661

$

2,450

$

18,274

Increase/(decrease) in fair value of MSRs

$

2,384

$

(1,290)

Decay of MSRs

 

(2,543)

 

(2,530)

 

(6,336)

 

(8,052)

 

(1,442)

 

(1,409)

Loss related to derivatives

(2,170)

(3,572)

(4,288)

(17,963)

Net effect on Consolidated Statements of Net Income

$

(2,951)

$

(3,441)

$

(8,174)

$

(7,741)

(Loss) gain related to derivatives

(2,580)

145

Net effect on Consolidated Statements of Income

$

(1,638)

$

(2,554)

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 1513 — Fair Value for additional information regarding fair value.

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

��

September 30,

December 31,

March 31,

December 31,

(Dollars in thousands)

    

2023

   

    

2022

   

    

2024

   

    

2023

   

   

Composition of residential loans serviced for others

Fixed-rate mortgage loans

100.0

%  

100.0

%  

100.0

%  

100.0

%  

Adjustable-rate mortgage loans

%  

%  

%  

%  

Total

100.0

%  

100.0

%  

100.0

%  

100.0

%  

Weighted average life

8.26

years

8.37

years  

8.04

years

8.03

years  

Constant Prepayment rate (CPR)

6.6

%  

6.4

%  

7.0

%  

7.0

%  

Estimated impact on fair value of a 10% increase

$

(528)

$

(522)

Estimated impact on fair value of a 20% increase

(1,037)

(1,014)

Estimated impact on fair value of a 10% decrease

546

551

Estimated impact on fair value of a 20% decrease

1,106

1,128

Weighted average discount rate

10.6

%  

10.0

%  

10.8

%  

10.7

%  

Estimated impact on fair value of a 10% increase

$

(3,192)

$

(3,270)

Estimated impact on fair value of a 20% increase

(6,377)

(6,458)

Estimated impact on fair value of a 10% decrease

3,061

3,242

Estimated impact on fair value of a 20% decrease

5,804

6,283

Effect on fair value due to change in interest rates

25 basis point increase

$

686

$

774

$

1,595

$

1,647

50 basis point increase

1,231

1,428

3,044

3,189

25 basis point decrease

(848)

(902)

(1,729)

(1,723)

50 basis point decrease

(1,877)

(1,938)

(3,548)

(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 adverse changes in assumptions generally cannot be extrapolated because the relationship of the changeschange in assumptionsassumption to the change in fair value may not be linear. The effectsAlso, the effect of an adversea variation in a particular assumption on the fair value of the residential MSRs as disclosed in the table above is calculated without changing any other assumptions. Inassumption, while in reality changes in one factor may result in adjusting other factors,changes in another, which may either magnify or contractcounteract the effectseffect 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 $259.2 million and $667.9$222.6 million for the three and nine months ended September 30, 2023,March 31, 2024, compared to $272.8$159.4 million and $1.4 billion for the three and nine months ended September 30, 2022.March 31, 2023. For the three and nine months ended September 30, 2023,March 31, 2024, $210.2 million and $534.3160.7 million, or 81.1% and 80.0%72.2%, respectively, were sold with the servicing rights retained by the Company, compared to $216.1$123.0 million, and $1.1 billion, or 79.2% and 77.2%, respectively, for the three and nine months ended September 30, 2022.March 31, 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, 2022.2023. 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 ninethree months ended September 30,March 31, 2024 and March 31, 2023 and 2022 were approximately $975,000$117,000 and $6,708,000$345,000, respectively. There were approximately $6,000$9,000 and $73,000$11,000 in loss reimbursement and settlement claims paid induring the ninethree months ended September 30,March 31, 2024 and 2023, and 2022.respectively.

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. Loans held for sale were $27.456.6 million and $29.0$50.9 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. Please see Note 1513 — 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.

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Note 2119 — 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 federal funds purchased and securities sold under agreementsSecurities Sold Under Agreements to repurchaseRepurchase on the consolidated balance sheets.Consolidated Balance Sheets. At September 30, 2023March 31, 2024 and December 31, 2022,2023, our repurchase agreements totaled $259.8281.3 million and $342.8$241.0 million, respectively. All of our repurchase agreements were overnight or continuous (until-further-notice) agreements at September 30, 2023March 31, 2024 and December 31, 2022.2023. These borrowings were collateralized with government, government-sponsored enterprise, or state and political subdivision-issued securities with a marketcarrying value of $404.3397.7 million and $443.2$410.4 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, 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, 2023March 31, 2024 and December 31, 2022,2023, our federal funds purchased totaled $253.5273.4 million and $213.6$248.2 million, respectively.

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

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, 2023March 31, 2024 and December 31, 2022,2023, the Company had no$0 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, 2023,March 31, 2024, were approximately $11.211.3 billion (collateral value of $7.2$6.5 billion) and investment securities and cash pledged were approximately $651.9$145.4 million (collateral value of $552.2$122.9 million). This allows the Company a total borrowing capacity at the FHLB of approximately $7.86.6 billion. After accounting for letters of credit totaling $2.12.9 million, the Company had unused net credit available with the FHLB in the amount of approximately $7.8$6.6 billion at September 30, 2023.March 31, 2024. The Company also has a total borrowing capacity at the FRB of $1.91.8 billion at September 30, 2023March 31, 2024 secured by a blanket lien on $2.8$2.6 billion (collateral value of $1.9$1.8 billion) in net eligible loans of the Company. The Company had no outstanding borrowings with the FRB at September 30, 2023March 31, 2024 or December 31, 2022.2023.

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Note 2220 — 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 through the 2022 Stock Repurchase Program during 2022 or during the nine months ended September 30, 2023. For the three and nine months ended September 30, 2023, a total of 5,097 and 103,190 shares, respectively, were repurchased under arrangements authorized by our stock-based compensation plans and Board of Directors, whereby officers or directors may sell shares to the Company 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 purchased under the 2022 Stock Repurchase Plan. During the nine months ended September 30, 2022, before the approvalfirst quarter of the 2022 Stock Repurchase Program,2024, the Company repurchased a total of 1,312,038100,000 shares at a weighted average price of $83.99$79.85 per share pursuant to the 20212022 Stock Repurchase Plan.Program. 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.

The Company repurchased 95,537 and 43,889 shares at a cost of $8.0 million and $3.4 million, respectively, during the first quarter of March 31, 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 2321 — 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 months ended March 31, 2024, the Company recorded $3.8 million in tax credits and other tax benefits and $3.4 million of amortization attributable to the QAHPs within Provision for Income Taxes on its Consolidated Statement of Income. For the three months ended March 31, 2023, the Company recorded $3.6 million of tax credits and other tax benefits within Provision for Income Taxes and amortization of $2.0 million within Other Noninterest Expense on the Consolidated Statement of Income. At March 31, 2024 and December 31, 2023, the Company’s carrying value of QAHPs was $88.5 million and $101.8 million, respectively, recorded in Other Assets on the Consolidated Balance Sheet. The Company had $11.9 million and $12.5 million in remaining funding obligations related to these QAHPs recorded in Other Liabilities on the Consolidated Balance Sheets at March 31, 2024 and December 31, 2023, respectively. For the remaining funding obligations at March 31, 2024, approximately 92% 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 22 — Subsequent Events

On October 26, 2023,April 25, 2024, the Company announced the declaration of a quarterly cash dividend on its common stock at $0.52 per share. The dividend is payable on NovemberMay 17, 20232024 to shareholders of record as of NovemberMay 10, 2023.2024.

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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, 2022.2023. Results for the three and nine months ended September 30, 2023March 31, 2024 are not necessarily indicative of the results for the year ending December 31, 20232024 or any future period.

Unless otherwise mentioned or unless the context requires otherwise, references to “SouthState,” the “Company”“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|Duncan-Williams, 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, and CBI Holding Company, LLC (“CBI”), which in turn ownsadvisor. Corporate Billing, a transaction-based finance companydivision headquartered in Decatur, Alabama, that provides factoring, invoicing, collection and accounts receivable management services to transportation companies and automotive parts and service providers nationwide.nationwide, merged into the Bank in March 2024 and now operates as a division of the Bank. The Bank formed SSB First Street Corporation, an investment subsidiary headquartered in Wilmington, Delaware, to hold 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, 2023,March 31, 2024, we had approximately $45.0$45.1 billion in assets and 5,1565,179 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 its capital markets division, which includes commissions earned on fixed income security sales, fees from hedging services, loan brokerage fees and consulting fees for services related to these activities; and 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 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.

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The following discussion describes our results of operations for the three and nine monthsquarter ended September 30, 2023March 31, 2024 compared to the three and nine monthsquarter ended September 30, 2022March 31, 2023 and also analyzes our financial condition as of September 30, 2023March 31, 2024 as compared to December 31, 20222023. 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.

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

Regulatory Considerations

In response to the recent bank failures, the FDIC approved a notice of proposed rulemaking to implement a special assessment to recover the losses to the FDIC’s Deposit Insurance Fund. The FDIC is proposing to collect the special assessment at an annual rate of approximately 12.5 basis points over eight quarterly assessment periods beginning with the first quarterly assessment period of 2024. Under the proposal, the base for the special assessment will be equal to an insured depository institution’s (IDI’s) estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion. Under the current FDIC proposal, the Company estimates the special assessment will equate to a quarterly special assessment of $3.0 million, or $23.9 million for the two-year special assessment period, which would be recognized at the time the final rule is adopted. The special assessment rate is subject to change prior to any final rule depending on any adjustments to the loss estimate, mergers or failures, or amendments to reported estimates of uninsured deposits.

On October 25, 2023, the Federal Reserve released a notice of proposed rulemaking that would lower the maximum interchange fee that a large debit card issuer can receive on a debit card transaction. Under the proposal, initially the base component would decrease from 21.0 cents to 14.4 cents, the ad valorem component would decrease from 5.0 basis points to 4 basis points multiplied by the value of the transaction, and the fraud-prevention adjustment would increase from 1.0 cents to 1.3 cents for debit card transactions performed from the effective date of the final rule to June 30, 2025. In addition, the proposal would adopt an approach for future adjustments to the interchange fee cap, which would occur every other year based on issuer cost data gathered from large debit card issuers. We will continue to monitor the status of the proposed rule and are in the process of evaluating this proposed rulemaking and assessing the scale of its adverse impact on the Company and Bank if adopted as proposed.

Liquidity and Capital

During 2023, the financial markets experienced some volatility in response to a small number of regional bank failures resulting from deposit runs generally related to high concentrations in particular customer segments, high levels of uninsured deposits and failures in interest rate risk management.

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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. At September 30, 2023, we had $36.9 billion in total deposits, of which approximately 70% were insured or collateralized. Our deposit base is comprised of 1.4 million accounts with an average deposit size of $26,000. Our top 10 and 20 deposit relationships represent 3% and 4%, respectively, of total deposits.

In addition to deposits, we have other contingency funding sources available to the Bank. At September 30, 2023, our Bank had a total FHLB credit facility of $7.8 billion, $2.1 million in FHLB letters of credit outstanding at quarter-end, leaving $7.8 billion in availability on the FHLB credit facility. In addition, our Bank had $1.9 billion of credit available at the Federal Reserve Bank’s discount window and total federal funds credit lines of $300.0 million with no balances outstanding at quarter-end. The Bank also has an internal limit on brokered deposits of 15% of total deposits which would allow capacity of $5.5 billion as of September 30, 2023. The Bank had $1.1 billion of outstanding brokered deposits at the end of the quarter leaving $4.4 billion in available capacity. All of these resources would provide an additional $14.4 billion in funding if the Bank needed additional liquidity. In addition, the Bank also has $3.7 billion in market value of unpledged securities at September 30, 2023 that can be pledged to obtain additional funds, if necessary. The Company has a $100.0 million unsecured line of credit with U.S. Bank National Association with no balance outstanding at September 30, 2023. 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 it was significantly above the required capital levels as of September 30, 2023. The Company’s tier 1 leverage ratio, CET 1 risk-based capital ratio and total risk-based capital ratio were 9.34%, 11.47% and 13.76%, respectively, at September 30, 2023. The Bank’s Tier 1 leverage ratio, CET 1 risk-based capital ratio and total risk-based capital ratio were 9.96%, 12.25% and 13.44%, respectively, at September 30, 2023. 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, 2023 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.

Critical Accounting Policies

Our consolidated financial statements are prepared based on the application of accounting policies in accordance with Generally Accepted Accounting Principles (“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, 2022.2023.

Results of Operations

Overview

We reported consolidated net income of $124.1 million, or diluted earnings per share (“EPS”) of $1.62, for the third quarter of 2023 as compared to consolidated net income of $133.0 million, or diluted EPS of $1.75, in the comparable period of 2022, a 6.7% decrease in consolidated net income and a 7.4% decrease in diluted EPS. During the nine months ended September 30, 2023, we reported consolidated net income of $387.5 million, or diluted EPS of $5.07, as compared to consolidated net income of $352.5 million, or diluted EPS of $4.71, in the comparable period of 2022, a 9.9% increase in consolidated net income and a 7.6% increase in diluted EPS.

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Results of Operations

Overview

We reported consolidated net income of $115.1 million, or diluted earnings per share (“EPS”) of $1.50, for the first quarter of 2024 as compared to consolidated net income of $139.9 million, or diluted earnings of $1.83, in the comparable period of 2023, a 17.8% decrease in consolidated net income and a 18.0% decrease in diluted EPS. The $8.9$24.9 million decrease in consolidated net income for the third quarter of 2023 compared to the same period of 2022 was the net result of the following items:

A $124.2$66.8 million increase in interest income, resulting from a $131.1$70.3 million increase in interest income from loans and loans held for sale partially offset by a $7.4$2.8 million decrease in interest income from investment securities, and a $667,000 decrease in interest income on federal funds sold, and securities purchased under agreementsagreement to resell and interest-bearing deposits. The increase in interest income from loans was mainly due to thean increase in the yield inas loans continued to reprice higher from the current rising rate environment in 2022 and in 2023 as the Federal Reserve Bank has raised itits federal funds rate by 525 basis points in 2022 and the first nine months of 2023.points. The increase in interest income from loans iswas also due to thean increase in the average balance of loans of $3.5$2.1 billion through organic loan growth. The decline in interest income from federal funds sold, securities purchased under agreements to resell and interest-bearing deposits was due to a decline in average balance of $2.6 billion as liquidity tightened in 2023 with a more competitive deposit market in the rising rate environment;growth;
A $131.1$104.2 million increase in interest expense, which resulted from a $126.4$104.2 million increase in interest expense from deposits, a $2.8$1.9 million increase in interest expense in federal funds purchased and securities sold under agreements to repurchase andpartially offset by a $1.9 million increasedecrease in interest expense from corporate and subordinated debentures and other borrowings. These increasesThe increase in interest expense from deposits resulted mainly from an increase in costs of all categories of interest-bearing liabilities asdue to the higher interest rate environment with the increase in interest rates have increased in 2022 and 2023. TheThis increase in average cost of interest-bearing liabilitiesdeposits was particularly felt inthroughout 2023 starting with the stress in the financial markets and liquidity asthat occurred in March 2023 with the closure of a few failed financial institutions. The average cost of interest-bearing liabilitiesdeposits, excluding non-interest bearing deposits, increased 171by 147 basis points compared to the fourthfirst quarter of 2022;2023;
An $8.8A $20.4 million increasedecrease in the provision for allowance for credit losses, as the Company recorded a provision for credit losses of $32.7$12.7 million duringin the thirdfirst quarter of 20232024 while recording a provision for credit losses of $23.9$33.1 million in the thirdfirst quarter of 2022. In2023. During the thirdfirst quarter of 2023,2024, we recorded a higherlower provision for credit losses as economic forecasts reflectedimproved since the continued stressfirst quarter of 2023, with inflation falling and rising interest rates that began in 2022stabilizing, along with tight labor markets and global uncertainty;lower new loan growth in the first quarter of 2024 compared to the same period in 2023;
A $0.2 million decrease$203,000 increase in noninterest income, primarily from an increase in service charges on deposit accounts of $2.0 million, in debit prepaid, ATM and merchant card related income of $1.2 million, in mortgage banking income of $1.8 million and in other noninterest income of $3.3 million. The increase in other noninterest income is mainly attributable to the recognition of credit from an external vendor of $2.5 million during the first quarter of 2024. These increases were mostly offset by a decline in correspondent banking and capital marketsmarket income of $3.5 million and SBA income of $3.4 million partially offset by an increase in other noninterest income of $3.1 million, in service charges on deposit accounts of $2.3 million and in bank owned life insurance income of $1.0 million (See$9.3 million. See Noninterest Income section on page 5752 for further discussion);discussion;
A $2.2An $8.8 million decreaseincrease in noninterest expense, which resulted primarily from a decrease in merger, branch consolidation and severance related expense of $13.5 million and amortization of intangibles of $1.2 million. These decreases were offset by increasesan increase in salaries and employee benefits of $6.6$6.4 million, an accrual for the FDIC special assessment of $3.9 million, in FDIC assessment and other regulatory charges of $2.3 million and in other noninterest expense of $2.5 million which was driven by an increase in business development and staff related expense of $0.9 million, an increase in expense related to our earnings credit program for certain deposit accounts of $2.4$2.2 million, and an increase in donationinformation services expense of $1.9 million$2.4 million. These increases were partially offset by a declinedeclines in checkmerger, branch consolidation, severance related and digital fraud chargesother expense of $4.9 million and amortization of intangibles of $1.3 million and loan expenses of $1.4 million. (SeeSee Noninterest Expense section on page 5954 for further discussion; and
A $4.9 million decrease in theLower income tax provision for income taxesof $634,000 primarily due to the change inlower pretax book income between the two quarters.  The Company recorded pretax book income of $157.3$153.5 million in the thirdfirst quarter of 20232024 compared to pretax book income of $171.1$179.0 million in the thirdfirst quarter of 2022.2023.  The effects of the lower pretax book income were mostly offset by 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 $3.5 million during the first 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 first quarter in 2024 compared to the same period in 2023.  Our effective tax rate was 21.08%25.05% for the three months ended September 30, 2023March 31, 2024 compared to 22.23%21.84% for the three months ended September 30, 2022.March 31, 2023.  See Income Tax Expense section on page 55 for further discussion.

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Our quarterly efficiency ratio increased to 54.0%58.5% in the thirdfirst quarter of 20232024 compared to 53.1%51.4% in the thirdfirst quarter of 2022.2023. The increase in the efficiency ratio compared to the thirdfirst quarter of 20222023 was the result of the 2.0%an 8.3% decrease in the total of tax-equivalent net interest income and noninterest income being greater than the decreasealong with a 4.3% increase in noninterest expense (excluding amortization of intangibles). This decrease was reflective of 0.4%. The decrease in income was mainly attributable to a 2.4% decrease in tax-equivalent net interest income due to an150.7% increase in interest expense onas the repricing of interest-bearing liabilities duringcaught up with the repricing of interest-earning assets in 2023 and into the first quarter of 2024 resulting from the rising rate environment.

Basic and diluted EPS were $1.63$1.51 and $1.62,$1.50, respectively, for the thirdfirst quarter of 2023,2024, compared to $1.76$1.84 and $1.75,$1.83, respectively for the thirdfirst quarter of 2022.2023. The decrease in basic and diluted EPS was due to a 6.7%17.8% decrease in net income in the thirdfirst quarter of 20232024 compared to the same period in 2022, partially offset by2023 along with an increase in average basic common shares of 0.7%0.5%. The decrease in net income in the thirdfirst quarter of 2023 was mainly attributable to lower net interest income resulting from an increase in interest expense onpertaining to interest-bearing liabilities due toresulting from the rising rate environment along with higher provision for credit losses compared to the third quarter of 2022.as noted above.

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Table of Contents

Selected Figures and Ratios

Three Months Ended

Nine Months Ended

 

Three Months Ended

September 30,

September 30,

 

March 31,

(Dollars in thousands)

    

2023

    

2022

2023

    

2022

 

    

2024

    

2023

Return on average assets (annualized)

 

1.10

%  

1.17

%

1.16

%  

1.06

%

 

1.03

%  

1.29

%

Return on average equity (annualized)

 

9.24

%  

10.31

%

9.83

%  

9.32

%

 

8.36

%  

10.96

%

Return on average tangible equity (annualized)*

 

15.52

%  

17.99

%

16.67

%  

16.19

%

 

13.63

%  

18.81

%

Dividend payout ratio

 

31.84

%

28.44

%

29.78

%

30.82

%

 

34.42

%

27.09

%

Equity to assets ratio

 

11.63

%  

11.08

%

11.63

%  

11.08

%

 

12.29

%  

11.68

%

Average shareholders’ equity

$

5,328,912

$

5,121,560

$

5,269,775

$

5,056,692

$

5,536,551

$

5,177,048

*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.

*

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, 2023,March 31, 2024, the return on average assets declined compared to the same period in 2022.2023. This decrease was primarily due to the decrease in net income of $8.9$24.9 million, or 6.7%17.8%, which was attributable to lower net interest income of $7.0 million due to an increase in the cost of interest-bearing liabilities resulting from the rising rate environment, and higher provision for credit losses of $8.8 million as economic forecasts continueenvironment. The decline in the return on average assets was also due to reflect the continued stress from inflation and tightening of labor markets.  Averagean increase in average assets decreased for the three months ended September 30, 2023 fromMarch 31, 2024 of $906.7 million, or 2.1%, compared to the same period in 2022 or 0.3%, as interest-earning cash and cash equivalents declined $2.62023, mainly due to an increase in loans of $2.1 billion and investment securities declined $991.6 million as liquidity has tightened in 2023.  For the nine months ended September 30, 2023, the return on average assets increased as net income was higher by $35.0 million, or 9.9%, compared to the nine months ended September 30, 2022.through organic growth.
For the three months ended September 30, 2023,March 31, 2024, the return on average equity and the return on average tangible equity declined compared to the same periodsperiod in 2022.2023. These decreases were primarily due to lower net income of 6.7% and net income adjusted for the amortization of intangibles of 7.0%17.8%, along with an increase in average equity of 4.0%6.9% and tangible equity of 7.7%.  For the nine months ended September 30, 2023, the return on average equity and the return on average tangible equity increased primarily due to higher net income of $35.0 million, or 9.9%, being greater than the increase in average tangible equity of $165.6 million, or 5.4%12.3%.
Equity to assets ratiosThe equity-to-assets ratio was 11.63%12.29% for the quarterthree months ended September 30, 2023,March 31, 2024, an increase of 0.55%0.61% from September 30, 2022, which was due to theMarch 31, 2023. This increase in total equity of 6.3% resultingresulted from the net income earned during the last twelve months being greater than the increase in total assets of 1.3%0.5% from September 30, 2022.March 31, 2023.
Dividend payout ratios were 31.84% and 29.78%34.42% for the three-three-month period ending March 31, 2024 and nine-month periods ending September 30, 2023, respectively, and 28.44% and 30.82%27.09% for the three- and nine-month periodsthree-month period ending September 30, 2022, respectively.March 31, 2023. The increase in the dividend payout ratio for the three months period ending September 30, 2023ended March 31, 2024 was due to the 6.7%17.8% decrease in net income along with total dividends paid during the currentfirst quarter of 2024 increasing 4.5%4.4% compared to the same period in 2022. The dividend payout ratio for the nine months period ending September 30, 2023 decreased due to a higher increase in net income of 9.9% compared to an increase in total dividends paid of 6.2% when compared to the same period in 2022.2023.

Net Interest Income and Margin

Non-Tax Equivalent (“TE”) net interest income decreased $7.0$37.3 million, or 1.9%9.8%, to $355.4$343.9 million in the thirdfirst quarter of 20232024 compared to $362.3$381.3 million in the same period in 2022. Interest-earning2023. Interest earning assets averaged $40.4$40.7 billion during the three months period ended September 30, 2023March 31, 2024 compared to $40.5$39.4 billion for the same period in 2022, a decrease2023, an increase of $74.8 million,$1.2 billion, or 0.2%3.2%. Interest-bearingInterest bearing liabilities averaged $26.5$27.5 billion during the three months period ended September 30, 2023March 31, 2024 compared to $24.8$24.6 billion for the same period in 2022,2023, an increase of $1.8$2.9 billion, or 7.2%11.7%. Non-TE net interest income increased $158.7 million, or 16.9%, to $1.1 billion in the nine months ended September 30, 2023 compared to $939.7 million in the same period in 2022. Interest-earning assets averaged $40.0 billion during the nine months ended September 30, 2023 and 2022. Interest-bearing liabilities averaged $25.7 billion during the nine months ended September 30, 2023 compared to $25.0 billion for the same period in 2022, an increase of $683.8 million, or 2.7%.

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The Federal Reserve made four 25 basis-point rate increases induring 2023, starting early February 2023 with the most recent increase in late July 2023, resulting in a range of 5.25% to 5.50% at September 30, 2023.March 31, 2024. As a result, the Company operated under an increasinga higher rate environment for the first nine monthsquarter of 20232024 while it operated under a comparatively lower rate environment in the first nine monthsquarter of 2022. 2023. Some key highlights are outlined below:

Both the non-TE and TE net interest margin decreased by 652 basis points and 8 basis points, respectively, in the thirdfirst quarter of 20232024 compared to the same quarter of 2022. In2023 due to the rising rate environment in 2022 and 2023, the net interest margin decreased as the cost of funds rose faster than the yield on interest-earning assets. The 195 basis points increase in the average cost of interest-bearing liabilities outpaced the 123of 139 basis points outweighing the increase in the average earnings from interest-earning assets. This was due to a $1.8 billionyield on interest earning assets of 48 basis points. The increase in the average balancecost of interest-bearing liabilities whilelagged the average balance ofincrease in yield on interest-earning assets remained relatively constant at $40.4 billion during this rising interest rate cycle and has caught up in the thirdlatter half of 2023 and into the first quarter of 2023 compared to $40.5 billion during the same period in 2022.2024.
oNon-TE yield on interest-earning assets for the thirdfirst quarter of 20232024 increased 123by 48 basis points to 4.92%5.12% from the comparable period in 2022, primarily2023 due to an increase inhigher yields on allthe majority of interest-earning assets, including loans held for investment, investments securities, and federal funds sold and interest-earning deposits with banks, as the Federal Reserve Bank raised interest rates 525 basis points starting late in first quarter of 2022.during 2023. The increases in interest rates, in combination with the increase in the average balance of the higher yielding loan portfolio of $3.5$2.1 billion, along with the decline in the average balances of lower yielding interest-earning depositsinvestment securities of $766.8 million and federal funds sold and interest-earning deposits with banks of $2.6 billion and investment securities of $991.6$90.9 million, affected the overall yield increase between the comparable periods.
oThe average cost of interest-bearing liabilities for the thirdfirst quarter of 20232024 increased 195by 139 basis points to 2.53% from the same period in 2022.2023. This increase was driven by the effects from the risinghigher rate environment on the repricing of all deposit accounts, federal funds purchased, and securities purchased with agreement to repurchase, trust preferred corporate debt, and other borrowings. The average cost of interest-bearing deposits increased 195by 147 basis points as the increase occurred in all deposit categories.categories and was a result of the rising rate environment and a change in the deposit mix. Our deposits have shifted from lower-costing savings and transaction deposit accounts to higher-costing certificates and other time deposits and money market accountsas customers have sought higher yields during the rising rate environment. The average cost of federal funds purchased and securities purchasedsold with agreements to repurchase and federal funds purchased increased 308123 by basis points and 13269 basis points, respectively, while the average cost of corporate and subordinated debentures increased 108by 24 basis points. Other borrowings, consisting of FHLB advances had an average cost of 5.50%5.66% during the thirdfirst quarter of 2023. The increase in overall average cost of interest-bearing liabilities2024 compared to 4.76% for the third quarter of 2023 from the samecompared period in 2022 was also a result of the change in deposit balances, shifting from lower-costing savings deposit accounts to higher-costing certificates and other time deposits and transaction and money market accounts.2023. Our overall cost of funds, including noninterest-bearing deposits, was 1.52%1.83% for the three months ended September 30, 2023March 31, 2024 compared to 0.14%0.75% for the three months ended September 30, 2022.March 31, 2023.

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The tables below summarize the analysis of changes in interest income and interest expense for the threequarter ended March 31, 2024 and nine months ended September 30, 2023 and 2022 and net interest margin on a tax equivalent basis:basis.

Three Months Ended

September 30, 2023

September 30, 2022

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

$

822,805

$

10,831

5.22

%

$

3,403,421

$

18,190

2.12

%

Investment securities (taxable) (1)

6,925,643

40,330

2.31

%

7,793,046

39,300

2.00

%

Investment securities (tax-exempt) (1)

788,436

5,543

2.79

%

912,611

5,986

2.60

%

Loans held for sale

34,736

517

5.90

%

47,119

620

5.22

%

Acquired loans, net

6,384,627

99,021

6.15

%

8,302,410

104,334

4.99

%

Non-acquired loans

25,420,133

344,267

5.37

%

19,992,567

207,902

4.13

%

Total interest-earning assets

40,376,380

500,509

4.92

%

40,451,174

376,332

3.69

%

Noninterest-Earning Assets:

Cash and due from banks

456,107

476,034

Other assets

4,434,147

4,380,894

Allowance for credit losses

(425,315)

(322,389)

Total noninterest-earning assets

4,464,939

4,534,539

Total Assets

$

44,841,319

$

44,985,713

Interest-Bearing Liabilities:

Transaction and money market accounts

$

18,291,300

$

93,465

2.03

%

$

17,503,416

$

5,353

0.12

%

Savings deposits

2,845,250

1,919

0.27

%

3,621,493

488

0.05

%

Certificates and other time deposits

4,413,855

38,560

3.47

%

2,627,280

1,693

0.26

%

Federal funds purchased

236,732

3,128

5.24

%

240,814

1,312

2.16

%

Securities sold with agreements to repurchase

303,339

1,163

1.52

%

376,985

194

0.20

%

Corporate and subordinated debentures

392,054

6,014

6.09

%

392,427

4,958

5.01

%

Other borrowings

64,133

889

5.50

%

%

Total interest-bearing liabilities

26,546,663

145,138

2.17

%

24,762,415

13,998

0.22

%

Noninterest-Bearing Liabilities:

Demand deposits

11,362,233

13,942,163

Other liabilities

1,603,511

1,159,575

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

12,965,744

15,101,738

Shareholders’ equity

5,328,912

5,121,560

Total Non-IBL and shareholders’ equity

18,294,656

20,223,298

Total Liabilities and Shareholders’ Equity

$

44,841,319

$

44,985,713

Net Interest Income and Margin (Non-Tax Equivalent)

$

355,371

3.49

%

$

362,334

3.55

%

Net Interest Margin (Tax Equivalent)

3.50

%

3.58

%

Total Deposit Cost (without debt and other borrowings)

1.44

%

0.08

%

Overall Cost of Funds (including demand deposits)

1.52

%

0.14

%

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Table of Contents

Nine Months Ended

Three Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

Average

Interest

Average

Average

Interest

Average

Average

Interest

Average

Average

Interest

Average

(Dollars in thousands)

Balance

Earned/Paid

Yield/Rate

Balance

Earned/Paid

Yield/Rate

Balance

Earned/Paid

Yield/Rate

Balance

Earned/Paid

Yield/Rate

Interest-Earning Assets:

Federal funds sold and interest-earning deposits with banks

$

843,423

$

31,610

5.01

%

$

4,634,439

$

30,359

0.88

%

$

668,349

$

8,254

4.97

%

$

759,239

$

8,921

4.77

%

Investment securities (taxable) (1)

7,141,552

123,149

2.31

%

7,622,425

108,368

1.90

%

6,652,981

39,745

2.40

%

7,315,911

41,565

2.30

%

Investment securities (tax-exempt) (1)

836,879

17,687

2.83

%

874,329

15,937

2.44

%

812,754

5,568

2.76

%

916,671

6,557

2.90

%

Loans held for sale

31,367

1,487

6.34

%

77,844

2,281

3.92

%

42,872

681

6.39

%

23,123

402

7.05

%

Acquired loans, net

6,765,169

306,873

6.06

%

8,603,467

300,847

4.68

%

5,758,426

89,563

6.26

%

7,159,538

105,405

5.97

%

Non-acquired loans

24,356,337

948,165

5.20

%

18,166,138

515,345

3.79

%

26,721,794

373,444

5.62

%

23,234,858

287,559

5.02

%

Total interest-earning assets

39,974,727

1,428,971

4.78

%

39,978,642

973,137

3.25

%

40,657,176

517,255

5.12

%

39,409,340

450,409

4.64

%

Noninterest-Earning Assets:

Cash and due from banks

479,715

552,513

458,837

513,460

Other assets

4,457,343

4,277,065

4,352,024

4,538,020

Allowance for credit losses

(384,446)

(310,699)

(456,874)

(356,342)

Total noninterest-earning assets

4,552,612

4,518,879

4,353,987

4,695,138

Total Assets

$

44,527,339

$

44,497,521

$

45,011,163

$

44,104,478

Interest-Bearing Liabilities:

Transaction and money market accounts

$

17,468,145

$

199,697

1.53

%

$

17,673,804

$

10,507

0.08

%

$

19,544,019

$

117,292

2.41

%

$

16,874,909

$

40,516

0.97

%

Savings deposits

3,056,549

5,626

0.25

%

3,526,720

761

0.03

%

2,589,251

1,818

0.28

%

3,298,221

1,756

0.22

%

Certificates and other time deposits

3,956,959

85,350

2.88

%

2,750,051

5,772

0.28

%

4,282,749

41,052

3.86

%

3,114,354

13,670

1.78

%

Federal funds purchased

215,184

8,005

4.97

%

309,262

2,051

0.89

%

256,506

3,369

5.28

%

193,259

2,187

4.59

%

Securities sold with agreements to repurchase

335,416

2,674

1.07

%

405,859

505

0.17

%

280,674

1,358

1.95

%

373,563

666

0.72

%

Corporate and subordinated debentures

392,145

17,572

5.99

%

384,074

13,874

4.83

%

391,870

6,009

6.17

%

392,238

5,735

5.93

%

Other borrowings

309,158

11,670

5.05

%

%

171,978

2,421

5.66

%

393,333

4,616

4.76

%

Total interest-bearing liabilities

25,733,556

330,594

1.72

%

25,049,770

33,470

0.18

%

27,517,047

173,319

2.53

%

24,639,877

69,146

1.14

%

Noninterest-Bearing Liabilities:

Demand deposits

12,018,931

13,369,638

10,530,597

12,771,019

Other liabilities

1,505,077

1,021,421

1,426,968

1,516,534

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

13,524,008

14,391,059

11,957,565

14,287,553

Shareholders’ equity

5,269,775

5,056,692

5,536,551

5,177,048

Total Non-IBL and shareholders’ equity

18,793,783

19,447,751

17,494,116

19,464,601

Total Liabilities and Shareholders’ Equity

$

44,527,339

$

44,497,521

$

45,011,163

$

44,104,478

Net Interest Income and Margin (Non-Tax Equivalent)

$

1,098,377

3.67

%

$

939,667

3.14

%

$

343,936

3.40

%

$

381,263

3.92

%

Net Interest Margin (Tax Equivalent)

3.68

%

3.16

%

3.41

%

3.93

%

Total deposit cost (without debt and other borrowings)

1.06

%

0.06

%

Total Deposit Cost (without debt and other borrowings)

1.74

%

0.63

%

Overall Cost of Funds (including demand deposits)

1.17

%

0.12

%

1.83

%

0.75

%

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

Investment Securities

The yield and interest earned on investment securities increaseddecreased by $2.8 million in the three and nine months ended September 30, 2023 March 31, 2024 compared to the three and nine months ended September 30, 2022.March 31, 2023. This is a result of the Bank carrying a lower average balance in investment securities in 2024 compared to the same period in 2023. The average balance of investment securities decreased $991.6 million and $518.3 million, respectively, for the three and nine months ended September 30, 2023March 31, 2024 decreased by $766.8 million from the comparable periodsperiod in 2022.2023. This decrease was due to maturities, mortgage paydowns and sales within the AFS and HTM investment portfolios being greater than the purchases of these securities as the Company has only purchased $80.4 million in AFS and HTM securities since March 31, 2023. The effects from the decline in average balance were partially offset by the increase in yield. The yield on the total investment securities increased 30by 7 basis points and 40 basis points, respectively, during the three and nine months ended September 30, 2023March 31, 2024 compared to the same periods in 2022. While2023 due to the Bank decreased the size of its investment securities portfolio, the yield on the investment securities increased as a result of the higher interest rates during the three and nine months ended September 30, 2023, leading to higher interest income in 2023.rising rate environment.

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Loans

Interest earned on loans held for investment increased $131.1by $70.0 million to $443.3$463.0 million and increased $438.8 million to $1.3 billion, respectively, duringin the three and nine monthsfirst quarter ended September 30, 2023March 31, 2024 from the comparable periodsperiod in 2022.2023. Interest earned on loans held for investment included loan accretion income recognized during the threequarters ended March 31, 2024 and nine months ended September 30, 2023 and 2022 of $4.1 million, $16.9 million, $9.6$4.3 million and $29.1$7.4 million, respectively, a decrease of $5.5 million and $12.1 million, respectively.$3.1 million. Some key highlights for the quarter ended September 30, 2023March 31, 2024 are outlined below:

Our non-TE yield on total loans increased 115by 49 basis points in the thirdfirst quarter of 20232024 compared to the same period in 20222023 due to a 12460 basis-point increase in the yield on the non-acquired loan portfolio and a 11629 basis-point increase in the yield on the acquired loan portfolio. These increases in both portfolios were due to the rising rate environment.
oThe yield on the non-acquiredacquired loan portfolio increased 124by 29 basis points to 5.37%6.26% in the thirdfirst quarter of 2023 compared to 4.13%2024 from 5.97% in the same period in 2022. Interest2023, while interest income on the non-acquiredacquired loan portfolio increased $136.4decreased by $15.8 million during the same period.
The yield and interest income on non-acquiredacquired loans increaseddecreased due to the rising rate environment during 2022 and 2023. Both new loans and renewals have repriceda $1.4 billion decrease in a higher rate environment resulting in a higher yield overall.average balance
For the non-acquired loans, interest income also increased due to an increase in the average loan balance of $5.4 billion during the thirdfirst quarter of 20232024 compared to the same period in 2022, primarily through organic loan growth2023. 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 29 basis points.
oThe yield on the acquirednon-acquired loan portfolio increased from 4.99%by 60 basis points to 5.62% in the thirdfirst quarter of 20222024 compared to 6.15%5.02% in the same period in 2023. Interest income on the acquirednon-acquired loan portfolio declined $5.3 million.increased by $85.9 million during the same period.
The increases in both yield increased 116 basis points from the third quarter of 2022 due to the rising rate environment during 2022 and 2023 as the Federal Reserve increased interest rates 525 basis points.
Interest income on acquirednon-acquired loans decreased by $5.3 million, duewere attributable to both a decrease in thehigher average balance of $1.9 billion. The decrease in average balance was mainly related to the impact from the paydowns$3.5 billion through organic loan growth and pay-offsrenewals of loans along with renewals ofmatured acquired loans that wereare moved to our non-acquired loan portfolio.portfolio, along with a higher yield of 60 basis points due to the higher rate environment.

Interest-Bearing Liabilities

The quarter-to-date average balance of interest-bearing liabilities increased $1.8by $2.9 billion, or 7.2%11.7%, in the thirdfirst quarter of 20232024 compared to the same period in 2022. Overall2023. The cost of interest-bearing liabilities increased by 139 basis points to 2.53% and the overall cost of funds, including demand deposits, increased by 138108 basis points to 1.52%1.83% in the thirdfirst quarter of 2023,2024 compared to the same period in 2022.2023. Some key highlights for the quarter ended September 30, 2023March 31, 2024 compared to the same period in 20222023 include:

The cost of interest-bearing deposits was 2.08%2.44% for the thirdfirst quarter of 20232024 compared to 0.13%0.97% for the same period in 2022.2023.
oInterest expense on interest-bearing deposits increased by $126.4$104.2 million in the thirdfirst quarter of 20232024 compared to the same period in 20222023 as interest expense on all interest-bearing deposit accounts increased. Interest expense on transaction and money market accounts, savings, and certificates and other time deposits increased $88.1by $76.8 million, $1.4 million,$62,000, and $36.9$27.4 million, respectively. TheOne factor driving the increase in theaverage cost and interest expense was due to the repricing of deposits in the higher rate environment in 2024 compared to the first quarter of 2023. The increase in the cost of interest-bearing deposits lagged the increase in the yield on interest-earning assets during this rising interest rate cycle and has caught up in the latter half of 2023 and into the first quarter of 2024.
oThe average balance of interest-bearing deposits increased by $3.1 million, driving up interest expense. The increase in average balance of interest-bearing deposit was due to an increase in the average balance of transaction and money market accounts of $2.7 billion, along with an increase in the average balance of higher costing time deposits of $1.2 billion,partially offset by a decrease in average saving deposits of $709.0 million. The increase in average cost and interest expense was also due to a change in deposit mix. During the rising rate environment, our deposits have shifted from lower-costing savings and transaction deposit accounts to higher-costing certificates and other time deposits and money market accounts with customers seeking higher yields.
The cost of federal funds purchased increased by 69 basis points in 2022 and 2023 and the overallfirst quarter of 2024 due to the rising rate environment. This increase in cost along with the increase in the average balance.balance of $63.2 million drove the $1.2 million increase in interest expense compared to the same period in 2023.

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oThe average balancecost of interest-bearing deposits increasedrepurchase agreements was 1.95% for the first quarter of 2024 compared to 0.72% for the same period in 2023 driven by $1.8 billion as certificate and other time deposits and interest-bearing transaction accounts and money market accounts increased by $2.6 billion. This wasthe effects from the higher interest environment. The effects from the increase in the cost of repurchase agreements, partially offset by the effects from a decreasedecline in savings accounts of $776.2 million. During the third quarter of 2023, the average balance of brokered deposits was $1.1 billion compared to $150.0$92.9 million, fordrove the same quarter in 2022. As customers moved funds from lower costing interest-bearing transaction accounts (excluding money market accounts) and savings accounts, seeking higher yieldsincrease in the rising rate environment, the Company increased its balance in higher costing brokered time deposits, in-market time deposits and money market accounts starting ininterest expense of $692,000 during the first quarter of 2023. This shift from the lower costing interest-bearing transaction accounts and savings accounts2024 compared to the higher costing time deposits and money market accounts increased both the overall cost of deposits and interest expense. Overall, interest-bearing deposits had been slower to repricesame period in the rising rate environment, however, the cost increased significantly in the first nine months of 2023 as competition for deposits increased.2023.
The cost onof the corporate and subordinated debt increased by 10824 basis points to 6.09%6.17% for the three months ended September 30, 2023March 31, 2024 compared to the same period in 2022,2023, also driven by the effects from the rising rate environment on the repricing of variable rate trust preferred corporate debt, even though the average balance slightly decreased.
odebentures. The interest expense from corporate and subordinated debtdebentures increased $1.1 millionby $274,000 during the thirdfirst quarter of 20232024 compared to the same period in 2022.2023 due to the increase in average cost.
oThe average balance of corporate and subordinated debt decreased slightly by $373,000 due to the amortization of purchase accounting adjustment and debt issuance costs.
The cost of repurchase agreements was 1.52% for the third quarter of 2023 compared to 0.20% for the same period in 2022. The increase in cost was due to the rising interest rate environment.
The cost of federal funds purchased increased 308 basis points due to the rising rate environment. Although the average balance decreased by $4.1 million, the interest expense increased $1.8 million as the rates increased.
The cost of other borrowings, consisting of FHLB advances, for the three months ended September 30, 2023March 31, 2024 was 5.50%5.66% and interest expense was $889,000. The Bank paid-off $400$2.4 million of FHLB advancescompared to 4.76% and $4.6 million during the thirdfirst quarter of 2023. The decline in interest expense was due to a decline in the average balance of other borrowings of $221.4 million from $393.3 million during the first quarter of 2023 and had no outstanding balances as of September 30, 2023. There were no outstanding balances in other borrowingscompared to $172.0 million during the thirdsame period in 2024. The Bank used FHLB advances in the first quarter of 2022.2023 to provide excess liquidity during the financial turmoil from the closures of failed banks in 2023, having $900 million in outstanding advances at March 31, 2023.

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, IOLTA,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 $2.6by $2.2 billion, or 18.5%17.5%, to $11.4$10.5 billion in the thirdfirst quarter of 20232024 compared to $13.9$12.8 billion during the same period in 2022. Actual noninterest-bearing2023. The decrease in the average balance of noninterest bearing deposits declined $2.0 billion from December 31, 2022. This decline was due to bothcustomers moving funds from noninterest bearing checking accounts to seek higher yields resulting from the rising rate environment, along with customers having less excess cash as customers sought higher yields, in additionfunds from government support programs related to some customers spreading deposit funds amongst institutionsthe COVID-19 pandemic began to achieve full deposit insurance coverage.decline.

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Noninterest Income

Noninterest income provides us with additional revenues that are significant sources of income. For the three months ended September 30,March 31, 2024 and 2023, and 2022, noninterest income comprised 17.0%,17.2% and 16.8%, respectively, of total net interest income and noninterest income. For the nine months ended September 30, 2023 and 2022, noninterest income comprised 16.8%, and 20.7%15.8%, respectively, of total net interest income and noninterest income.

Three Months Ended

Nine Months Ended

Three Months Ended

September 30,

September 30,

March 31,

(Dollars in thousands)

    

2023

    

2022

    

2023

    

2022

 

    

2024

    

2023

 

Service charges on deposit accounts

$

22,657

$

20,313

$

65,525

$

60,349

$

22,670

$

20,611

Debit, prepaid, ATM and merchant card related income

 

10,173

 

10,014

 

30,265

 

30,849

 

10,475

 

9,248

Mortgage banking income

 

2,478

 

2,262

 

11,164

 

18,336

 

6,169

 

4,332

Trust and investment services income

 

9,556

 

9,603

 

29,316

 

29,152

 

10,391

 

9,937

Correspondent banking and capital markets income

12,916

16,427

45,697

70,445

4,311

13,594

Securities gains, net

 

 

30

 

45

 

30

 

 

45

SBA income

 

3,033

 

6,401

 

9,640

 

13,924

 

4,363

 

3,722

Bank owned life insurance income

7,039

6,082

20,123

17,588

6,892

6,813

Other

 

4,996

 

1,921

 

9,642

 

5,182

 

6,287

 

3,053

Total noninterest income

$

72,848

$

73,053

$

221,417

$

245,855

$

71,558

$

71,355

Noninterest income decreased slightlyincreased by $205,000,$203,000, or 0.3%, during the thirdfirst quarter of 20232024 compared to the same period in 2022.2023. This quarterly change in total noninterest income resulted from the following:

Correspondent banking and capital markets income in the third quarter of 2023 decreased by $3.5 million, or 21.4%, compared to the same quarter in 2022. The decline was mainly due to lower commissions and fees earned on fixed income security sales of $3.5 million during the third quarter of 2023 as the volume in sales declined compared to the same quarter of 2022.
SBA income decreased by $3.4 million, or 52.6% compared to the third quarter of 2022.  SBA income includes changes in fair value of the servicing asset, loan servicing fees and gains on sale of SBA loans.  The decrease in the third quarter of 2023 compared to the comparable period in 2022 was attributable to decreases in the net gain on sale of SBA loans, fair value of the SBA servicing asset and loan servicing fee income of $2.1 million, $1.1 million, and $220,000, respectively.  
Other income increased by $3.1 million, or 160.1%, in the third quarter of 2023 compared to the same period in 2022, primarily due to approximately $2.9 million income recorded for tax refunds during the third quarter of 2023.
Service charges on deposit accounts were higher by $2.3$2.1 million, or 11.5%10.0%, in the thirdfirst quarter of 20232024 compared to the same period in 2022. This2023. The increase was mainly consistedattributable to a $1.2 million increase in Non-Sufficient Fund (“NSF”) fees, a $674,000 increase in account maintenance fees, and approximately $209,000 increase in other services charges during the first quarter of 2024 compared to the same period in 2023.

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Debit, prepaid, ATM and merchant card related income increased by $1.2 million, or 13.3%, during the first quarter of 2024 compared to the same period in 2023. The increase was primarily driven by an increase in deposit account maintenance feesdebit/ATM fee income, net of $2.1 million and in other retail fees of $290,000 including wire transfer fees and check sales commissions.card expense.
Mortgage banking income increased by $216,000,$1.8 million, or 9.5%42.4%, during the currentfirst quarter of 2024 compared to the same period of the prior year,2023, which was comprised of a $442,000,$950,000, or 60.6%60.7%, increase in mortgage servicing related income slightly offset byand a $225,000,$887,000, or 14.7%32.1%, decreaseincrease in secondary market mortgage income net of the hedge.income. Mortgage production declined from $1.1 billion in the third quarter of 2022 to $521$556.0 million in the thirdfirst quarter of 2023, while to $428.8 million in the Companyfirst quarter of 2024 with higher mortgage rates continuing during 2024. We allocated a higher percentage of its mortgage production to the secondary market compared to the same quarter in 2022. The allocation of mortgage production to the secondary market in the first quarter of 2024 compared to the same period in 2023 as the percentage allocated increased from 22% in the third quarter of 202228% to 47% in the third quarter of 2023.53%. 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 quarteryear to quarter. The decline in mortgage production in 2023 was mainly due to the rise in interest rates, which resulted in an overall decrease in mortgage banking income.year.
oThe increase in mortgage servicing related income, net of the hedge, in the thirdfirst quarter of 20232024 was primarily due to a $491,000$916,000 increase in the change in fair value of the MSR including decay, net of a $49,000 decrease in servicing fee income.decay. The increase in fair value of the MSR between the comparable periods was primarily due to an increase in gains on the MSR hedge of $1.4 million, offset by a decrease in the change in fair value from interest rates of $898,000$3.7 million, offset by a decrease from gains/losses on the MSR hedge of $2.7 million and a $13,000 increase$33,000 decline in MSR decay.

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oThe decrease in mortgageMortgage income from the secondary market was comprisedincreased by $887,000 between the comparable periods resulting from decreases in the change in fair value of the pipeline of $449,000 and loans held for sale of $135,000, offset by an increase in the fair value of MBS forward trades of $1.5 million and a $1.6 million decline$5,000 increase in the gain on sale of mortgage loans, which is net of the commission expense related to mortgage production, offset by a $1.4 million increase in the change in fair value of the pipeline, loans held for sale and MBS forward trades.production. Mortgage commission expense was $2.9$2.2 million during the thirdfirst quarter of 20232024 compared to $2.4$1.3 million during the comparable period in 2022.2023.

Noninterest income decreased by $24.4 million, or 9.9%, during the nine months ended September 30, 2023 compared to the same period in 2022. This change in total noninterest income resulted from the following:

Trust and investment services income for the first quarter of 2024 increased by $454,000, or 4.6%, from the first quarter of 2023 as assets under management have increased by $881.5 million, or 11.9%, in that same time frame.
Correspondent banking and capital markets income for 2023in the first quarter of 2024 decreased by $24.7$9.3 million, or 35.1%68.3%, compared to 2022the same period 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 first quarter of 2024 compared to the first quarter of 2023 resulting from the higher interest rate environment in 2024. The decline was also due to the expense attributable to the variation margin payments for centrally cleared swaps along with lowerwhere we recorded an expense of $10.3 million related to variation margin payments in the first quarter of 2024 compared to an expense of $8.4 million in the first quarter of 2023. In addition, commissions and fees earned on fixed income security sales were lower by $917,000 in the first quarter of $12.4 million during 2023 as the volume in sales declined2024 compared to the same period in 2022. We recorded an expense of $28.8 million related to variation margin payments in 2023 compared to an expense of $5.7 million in 2022.2023.
Mortgage bankingSBA income decreasedincreased by $7.2 million,$641,000, or 39.1%17.2%, which was comprised of a $7.1 million, or 50.5%, decrease in secondary market mortgage income and a $111,000, or 2.6%, decrease in mortgage servicing related income. Mortgage production declined from $3.8 billion induring the first nine monthsquarter of 2022 to $1.8 billion in the first nine months of 2023 with the rise in mortgage rates accelerating during 2023, while allocating a higher percentage of its mortgage production and pipeline2024 compared to the secondary market compared to 2022. The reduction in mortgage production resulted in lower mortgage income from the secondary marketsame period in 2023. The allocation of mortgage production between portfolio and secondary market depends on the Company’s liquidity, market spreads and rateSBA income includes changes during each period and will fluctuate quarter to quarter.
oDuring the first nine months of 2023, mortgage income from the secondary market comprised of a $17.3 million decline in gain on sale of mortgage loans, which is net of the commission expense related to mortgage production, offset by a $10.2 million increase in the change in fair value of the pipeline, loans held for saleservicing asset, loan servicing fees and MBS forward trades. Mortgage commission expense was $6.5 million during the nine months ended September 30, 2023 compared to $11.3 million during the comparable period in 2022.
oThe decrease in mortgage servicing related income, net of the hedge, in the nine months ended September 30, 2023 was due to a $434,000 decrease in the change in fair value of the MSR, including decay, offset by a $323,000 increase in servicing fee income. The decrease in fair value of the MSR was primarily due to a decrease in the change in fair value from interest rates of $15.8 million, offset by an increase in gains on the MSR hedgesale of $13.7 million and a $1.7 million decrease in MSR decay.
SBA income, including the impact from the change to fair value accounting, decreased by $4.3 million, or 30.8% in 2023 compared to 2022.loans. The decreaseincrease was attributable to a decrease inhigher gains on sale of SBA loans of $2.3 million$802,000, partially offset by declines in SBA servicing fee income and a decrease in the change in fair value of the SBA servicing asset of $2.1 million, partially offset by an increase in SBA servicing fee income of $146,000.  $123,000 and $38,000, respectively.
Debit, prepaid, ATM and merchant card related income was lower by $584,000, or 1.9%, in 2023 compared to 2022. The decrease in debit, ATM, prepaid and merchant card related income was driven by a decrease in debit/ATM fee income, net of card expense, of $665,000 due mainly to higher card expense of $1.9 million.
Service charges on deposit accounts were higher in 2023 by $5.2 million, or 8.6%, compared to 2022. The increase was mainly attributable to a $3.8 million increase in service charge account maintenance fees, a $967,000 increase in Non-Sufficient Fund (“NSF”) fees, and approximately $364,000 increase in other services charges in 2023 compared to 2022.
Other income increased by $4.5$3.2 million, or 86.1%105.9%, in 2023the first quarter of 2024 compared to 2022.the same quarter in 2023. This increase was primarily due to the Bank recognizing approximately $2.9$2.5 million in income recorded for tax refunds during the third quarter of 2023, income of $960,000credits from a legal settlement recordedan external vendor during the first quarter of 2023, and an increase in income from prepaid cards of $608,000.2024.
Bank owned life insurance income increased $2.5 million, or 14.4%, in 2023 compared to 2022. This increase was due to the purchase of $91.9 million of new policies since March of 2022 and the addition of $74.6 million in BOLI resulting from the acquisition of Atlantic Capital in the first quarter of 2022. In addition, the Company received approximately $573,000 proceeds on a BOLI policy during the third quarter of 2023.

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Noninterest Expense

Three Months Ended

Nine Months Ended

Three Months Ended

September 30,

September 30,

March 31,

(Dollars in thousands)

    

2023

    

2022

    

2023

    

2022

    

    

2024

    

2023

    

    

Salaries and employee benefits

$

146,146

$

139,554

$

437,548

$

414,264

$

150,453

$

144,060

Occupancy expense

 

22,251

 

22,490

 

65,980

 

67,089

 

22,577

 

21,533

Information services expense

 

21,428

 

20,714

 

62,472

 

59,854

 

22,353

 

19,925

OREO expense and loan related expense

 

613

 

532

 

768

 

291

OREO and loan related expense

 

606

 

169

Amortization of intangibles

 

6,616

 

7,837

 

20,943

 

25,178

 

5,998

 

7,299

Business development and staff related expense

 

5,995

 

5,090

 

18,624

 

14,282

 

5,799

 

5,957

Supplies and printing

 

876

 

758

 

2,613

 

2,036

 

909

 

884

Postage expense

1,747

1,863

5,204

5,174

1,631

1,756

Professional fees

 

3,456

 

3,495

 

11,522

 

11,575

 

3,115

 

3,702

FDIC assessment and other regulatory charges

 

8,632

 

6,300

 

24,745

 

16,444

 

8,534

 

6,294

FDIC special assessment

3,854

Advertising and marketing

 

3,009

 

2,170

 

6,648

 

6,219

 

1,984

 

2,118

Merger, branch consolidation and severance related expense

 

164

 

13,679

 

11,384

 

29,345

Merger, branch consolidation, severance related and other expense

 

4,513

 

9,412

Other

 

17,273

 

15,951

 

52,886

 

48,451

 

16,964

 

17,396

Total noninterest expense

$

238,206

$

240,433

$

721,337

$

700,202

$

249,290

$

240,505

Noninterest expense decreasedincreased by $2.2$8.8 million, or 0.9%3.7%, in the thirdfirst quarter of 2023 as2024 compared to the same period in 2022.2023. The quarterly decreaseincrease in total noninterest expense primarily resulted from the following:

Salaries and employee benefits increased $6.6by $6.4 million, or 4.7%4.4%, in the thirdfirst quarter of 20232024 compared to the same period in 2022.2023. The increase was primarily due to an increase in salaries of $13.5$6.6 million which included annual salaryresulting from merit increases of approximately $7.3 million and a decline in total deferred loan costs of $6.2 million. The reduction in deferred loan costs was driven by lower loan production. The overall increase in salaries and employee benefits was also due to an increase in commissionsthe number of $1.3employees, along with higher employee benefits of $2.2 million mainly attributable tofrom higher commissions on loan sales related to ARC hedging.FICA tax paid and medical insurance expense. These increases were partially offset by declinesa decrease in employee benefitscommissions of $5.0$2.2 million, and incentives of $2.4 million. The reduction in employee benefits waswhich is mainly dueattributable to a $5.5 million reduction in liabilitylower commissions related to our supplemental executive retirementthe correspondent banking division resulting from lower bond sales and split dollar plans as higher interest rates drove uplower income from the discount rate used to value the liability.ARC hedging program.
Information services expense increased by $2.4 million, or 12.2% in the first quarter of 2024 compared to the same period in 2023.The increase was due to additional cost associated with the Company updating systems and software as it grows in size and complexity.
Amortization of intangibles, which is related to the Company’s prior mergers, decreased by $1.3 million, or 17.8%.
Professional fees decreased by $587,000, or 15.9%, primarily due to lower legal and other general business consulting expenses incurred in the first quarter of 2024 compared to the same period in 2023.
FDIC assessment and other regulatory charges increased $2.3by $2.2 million, or 37.0%35.6%, in the thirdfirst quarter of 20232024 compared to the same period in 2022. This2023. The increase in the FDIC assessment was primarily due to an increase in the FDIC assessment rate in 2023 to bring the overall FDIC fund to 1.35x total depositdeposits by the end of 2028. The increase also reflects changes in the Company’s size and complexity along with the resulting effects from the increase in the Company’s liquidityclassified assets.
The Company accrued an additional $3.9 million 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 FDIC notified banks in the first quarter of 2024 the estimate of the losses expected from the bank failures were larger than originally estimated. As a result, the Bank increased its accrual of the FDIC special assessment in anticipation of the higher assessment that may be allocated to the Bank.
Merger, branch consolidation, severance related and other expense decreased by $4.9 million, or 52.1%, to $4.5 million in the first quarter of 2024 compared to the secondsame period in 2023. Of the $4.5 million in 2024, approximately $4.4 million pertains to one-time costs associated with the cybersecurity incident, which was identified as an isolated event as previously disclosed by the Company. The Company did not incur any merger expense pertaining to prior acquisitions during the first quarter of 2022.2024, while it had a total of $1.3 million merger expense associated with the Atlantic Capital acquisition during the comparative period in 2023. In the first quarter of 2023, the Company also recorded $8.1 million in restructuring costs. The restructuring costs included approximately $7.0 million of severance related expense pertaining to the elimination of the Company’s executive officer position and approximately $1.1 million of severance related expense pertaining to the reduction in force of the Company’s mortgage division.

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Other noninterest expense increased $1.3 million,decreased by $432,000, or 8.3%2.5%, in the first quarter of 2024 compared to the nine months ended September 30,same period in 2023. This increasedecrease primarily resulted from a $2.1 million decline in amortization expenses related to the adoption of ASU 2023-02 effective January 1, 2024, which changed the accounting method of the Company’s LIHTC structured investments. Starting in the first quarter of 2024, the amortization expense related to the Company’s LIHTC investments is being recorded within Provision for Income Taxes on the Consolidated Statement of Income. Additionally, there was mainly attributablea $1.2 million decrease in tax payments due to higher other franchise taxes incurred during the first quarter of 2023, and a $2.4$642,000 decrease in incurred but not reported insurance loss reserves. These decreases were offset by a $3.3 million increase in earnings credit expense to Homeowners Association (“HOA”) customers and a $1.9 million increase in donations.customers. The Bank provides a credit to HOA customers based on the average deposit balances held that reduces fees for other services provided. These increases were partially offset by approximately a $1.9 million decrease in fraud charge-offs and a $1.3 million decrease in tax penalties. The Company accrued tax penalty expenses related to information return reporting in late 2022. Some of the penalties have since been abated by the Internal Revenue Service (“IRS”), resulting the decrease in expense in 2023.
Business development and staff related expense increased $905,000, or 17.8%, in the third quarter of 2023 compared to the same period in 2022. This increase was mainly due to an increase in employee expenses including employee travel expense, convention and meeting expense, recruitment and relocation costs associated with the Company investing in new talent and employee education and training related costs.
Advertising and marketing expense increased $839,000, or 38.7%, in the third quarter 2023 compared to the same period in 2022, primarily due to media advertising production and placement related costs incurred in the third quarter of 2023.
Information services expense increased $714,000, or 3.4%, in the third quarter of 2023 compared to the same period in 2022.The increase was due to additional cost associated with the Company updating systems as it grows in size and complexity.
Merger, branch consolidation and severance related expense decreased $13.5 million, or 98.8%, in the third quarter of 2023 compared to the same period in 2022. The Company did not incur any merger expense pertaining to prior acquisitions during the third quarter of 2023, while it had a total of $7.5 million merger expense during the comparative period in 2022. The decrease also was due to lower branch consolidation related expense of $6.0 million.
Amortization of intangibles, which is related to the Company’s prior mergers, decreased $1.2 million, or 15.6%.

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Noninterest expense increased by $21.1 million, or 3.0%, during the nine months ended September 30, 2023 compared to the same period in 2022. 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.

Merger, branch consolidation and severance related expense decreased by $18.0 million, or 61.2%, compared to the nine months ended September 30, 2022. The decrease was primarily due to a $18.3 million decrease in merger expense pertaining to expenses related to the Atlantic Capital and CenterState mergers and a $7.3 million decrease in branch consolidation related expense in 2023 compared to 2022. These decreases were offset by severance related payments totaling $8.1 million related to restructuring costs recorded in March 2023.
Other noninterest expense increased $4.4 million, or 9.2%, compared to the nine months ended September 30, 2022. This increase was mainly attributable to a $6.2 million increase in earnings credit expense to HOA customers, a $2.6 million increase in state franchise and occupation tax payments, a $2.5 million increase in donations, and a $1.9 million increase due to a new subscription to a system that provides real-time financial market data analysis services.These increases were partially offset by a decrease in fraud charge-offs, tax penalties, digital banking losses, force placed insurance and miscellaneous operational charge-off related expenses totaling approximately $8.8 million.

Income Tax Expense

Our effective tax rate was 21.08%25.05% for the three months ended September 30, 2023March 31, 2024 compared to 22.23%21.84% for the three months ended September 30, 2022.March 31, 2023.  The decreaseincrease in the effective rate for the quarter, when compared to the same period in the prior year, is mostly driven by amortization of LIHTCs as a decrease in pretax income, disallowed interest expense, disallowed executive compensation, and an increase in the cash surrender value of BOLI policies, partially offset by an increase in tax-exempt interest income and non-deductible FDIC premiums.

Our effective tax rate for the first nine monthsresult of the year was 21.60% compared to 21.76% foradoption of the first nine months of 2022. The decrease in the year-to-dateproportional amortization under ASU 2023-02 effective tax rate compared to the same period of 2022 was primarily driven byJanuary 1, 2024, as well as an increase in non-deductible FDIC premiums recorded during the current period. This was partially offset by a decrease in disallowed executive compensation and disallowed interest expense, partially offset by an increaseexpense. In addition, the Company recorded approximately $2.8 million in tax-exempt interest income tax provision related to the revaluations of its deferred income taxes and an increase in federalother tax credits available.adjustments during the current period.

Analysis of Financial Condition

Summary

Our total assets increased by approximately $1.1 billion,$242.8 million, or 2.4%0.5%, from December 31, 2022 to September 30, 2023 to approximately $45.0 billion.$45.1 billion at March 31, 2024. Within total assets, cash and cash equivalents increased by $210.6 million, or 21.1% and loans increased $1.8 billion,by $278.8 million or 6.1%,0.9% during the period, while investment securities decreased $845.3by $231.6 million, or 10.3%, during the period.3.1%. Within total liabilities, deposit growth was $584.6deposits grew $129.5 million, or 1.6%0.3%, and derivative liabilitiesfederal funds purchased and securities sold under agreements to repurchase increased $217.7by $65.5 million, or 21.1%13.4%. Total borrowings decreased by $100.1 million, or 20.3%. Total shareholder’s equity increased $156.1by $13.9 million, or 3.1%0.3%. The increase in cash and cash equivalents was primarily due to the increase in deposits of $129.5 million along with decline in investments of $231.6 million from maturities and pay downs of mortgage-backed securities. The increase in deposits was mainly from the increase in money market accounts of $356.7 million during the quarter. The increase in loans was due to normal organic growth. Deposit increase was due to growth in money market accounts of $2.4 billion, including $1.1 billion in reciprocal insured money market deposits and time deposits of $2.0 billion, including an increase in brokered time deposits of $908.9 million. These increases were offset by declines in noninterest-bearing, interest-bearing checking and savings accounts of $2.0 billion, $1.1 billion and $704.2 million, respectively. Our loan to deposit ratio was 88% and 87% and 83% at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, while our percentage of noninterest-bearing non-interest bearing deposit accounts to total deposits was 30%28% and 36%, respectively29% at September 30, 2023March 31, 2024 and December 31, 2022.2023, respectively.

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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 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, 2023,March 31, 2024, investment securities totaled $7.3$7.2 billion, compared to $8.2$7.5 billion at December 31, 2022,2023, a decrease of $845.3$231.6 million, or 10.3%3.1%. At September 30, 2023,March 31, 2024, approximately 63.0%63.6% of the investment portfolio was classified as available for sale, approximately 34.5%33.8% was classified as held to maturity and approximately 2.5%2.6% was classified as other investments. During the ninethree months ended September 30, 2023,March 31, 2024, we purchased $188.9$54.6 million of capital stock with the Federal Home Loan Bank classified as other investment securities on the balance sheet of which we sold back $185.9$59.4 million. The net increasedecrease to the capital stock holding for the Federal Home Loan Bank of Atlanta of $3.0$4.8 million during the first quarter of 2024 was due to the increasedecrease in Federal Home Loan Bank borrowings. During the nine months ended September 30, 2023, we purchased $34.5 millionfirst quarter of 2024, the Bank did not purchase any securities available for sale securities.or held to maturity. There were no purchases of held to maturity securities during 2023. These purchases were offset by maturities, paydowns, sales and calls of investment securities totaling $861.6 million.$168.4 million during the first quarter of 2024. Net amortization of premiums was $15.2$4.8 million in the first ninethree months of 2023.2024.

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At September 30, 2023,March 31, 2024, the unrealized net loss of the available for sale securities portfolio was $1.1 billion,$830.2 million, or 19.0%15.3%, below its amortized cost basis, compared to an unrealized net loss of $889.3$776.6 million, or 14.3%14.0%, at December 31, 2022.2023. At September 30, 2023,March 31, 2024, the unrealized net losslosses of the held to maturity securities portfolio was $521.3$430.0 million, or 20.6%17.6%, below its amortized cost basis, compared to an unrealized net losslosses of $433.1$402.7 million, or 16.1%16.2%, at December 31, 2022.2023. The increase in the unrealized net loss in the available for sale investment portfolio of $53.6 and the increase in the unrealized net losses for the held to maturity portfolio of $27.3 during the first three months of 2024 was mainly due to the expectation that interest rates will remain higher in 2024 as inflation continues to remain higher than the Federal Reserve Bank target of 2.0%.

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

 

Amortized

Fair

Unrealized

 

(Dollars in thousands)

Cost

Value

Net Loss

AAA – A

Not Rated

 

Cost

Value

Net Loss

AAA – A

Not Rated

 

September 30, 2023

March 31, 2024

U.S. Treasuries

$

174,322

$

172,259

$

(2,063)

$

174,322

$

$

24,920

$

24,587

$

(333)

$

24,920

$

U.S. Government agencies

443,325

381,004

(62,321)

443,325

443,387

395,253

(48,134)

443,387

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

agencies or sponsored enterprises*

3,326,163

2,660,044

(666,119)

94

3,326,069

3,187,278

2,652,099

(535,179)

94

3,187,184

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

agencies or sponsored enterprises*

1,096,509

885,417

(211,092)

1,096,509

1,048,762

873,237

(175,525)

1,048,762

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

agencies or sponsored enterprises*

 

1,555,600

1,219,423

(336,177)

16,756

 

1,538,844

 

1,565,948

1,291,322

(274,626)

20,887

 

1,545,061

State and municipal obligations

 

1,132,238

873,007

(259,231)

1,131,562

 

676

 

1,127,834

960,359

(167,475)

1,125,663

 

2,171

Small Business Administration loan-backed securities

 

484,280

418,401

(65,879)

484,280

 

 

446,533

391,256

(55,277)

446,533

 

Corporate securities

30,546

26,463

(4,083)

30,546

30,521

26,854

(3,667)

30,521

$

8,242,983

$

6,636,018

$

(1,606,965)

$

2,250,339

$

5,992,644

$

7,875,183

$

6,614,967

$

(1,260,216)

$

2,061,484

$

5,813,699

* 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, 2023March 31, 2024, we had 1,2491,236 investment securities, (includingincluding both available for sale and held to maturity)maturity, which totaled $1.3 billion unrealized loss position. 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 $1.6 billion. At December 31, 2022, we had 1,311 investment securities (including both available for sale and held to maturity) in an unrealized loss position, which totaled $1.3$1.2 billion. The total number of investment securities with an unrealized loss position decreasedincreased by 624 securities, while the total dollar amount of the unrealized loss increased by $280.6$80.0 million. The level of unrealized losses within the Company available for sale and held to maturity securities portfolioseach period is due to thean overall increase in shortshort- and long-term interest rates in 2023.2022 and 2023 and the expectation that interest rates will not fall until late 2024 or 2025.

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All investment securities in an unrealized loss position as of September 30, 2023March 31, 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 not more likely than not that we will 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 54 — 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.

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Table of Contents

The following table presents a summary of our investment portfolio by contractual maturity and related yield as of September 30, 2023:March 31, 2024:

Due In

Due After

Due After

Due After

 

Due In

Due After

Due After

Due After

 

1 Year or Less

1 Thru 5 Years

5 Thru 10 Years

10 Years

Total

 

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

 

    

Amount

    

Yield

    

Amount

    

Yield

    

Amount

    

Yield

    

Amount

    

Yield

    

Amount

    

Yield

 

Held to Maturity (amortized cost)

U.S. Government agencies

$

50,000

2.05

%  

$

14,365

2.32

$

107,901

1.62

%  

$

25,000

2.20

%  

$

197,266

1.86

%  

$

64,365

2.11

%  

$

$

132,904

1.73

%  

$

%  

$

197,269

1.86

%  

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

agencies or sponsored enterprises

188,332

1.99

1,286,028

1.78

1,474,360

1.81

165,509

1.97

1,240,931

1.84

1,406,440

1.86

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

agencies or sponsored enterprises

451,928

2.49

451,928

2.49

437,718

2.49

437,718

2.49

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

agencies or sponsored enterprises

36,629

0.94

111,183

1.35

207,852

1.54

355,664

1.42

36,550

0.94

170,117

1.48

145,732

1.58

352,399

1.47

Small Business Administration loan-backed securities

54,495

1.20

54,495

 

1.20

52,763

1.20

52,763

 

1.20

Total held to maturity

$

50,000

 

2.05

%  

$

50,994

 

1.33

%  

$

407,416

 

1.72

%  

$

2,025,303

 

1.91

%  

$

2,533,713

 

1.87

%

$

64,365

 

2.11

%  

$

36,550

 

0.94

%  

$

468,530

 

1.72

%  

$

1,877,144

 

1.95

%  

$

2,446,589

 

1.90

%

Available for Sale (fair value)

U.S. Government treasuries

$

172,259

1.80

%  

$

%  

$

%  

$

%  

$

172,259

1.80

%

$

24,587

2.04

%  

$

%  

$

%  

$

%  

$

24,587

2.04

%

U.S. Government agencies

54,090

3.06

68,832

2.31

93,833

1.68

216,754

 

2.17

125,021

2.63

98,784

1.68

223,805

 

2.17

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

agencies or sponsored enterprises

2,559

2.33

148,316

2.28

1,337,831

1.85

1,488,706

1.89

3,361

2.06

148,341

2.39

1,340,721

1.97

1,492,423

2.01

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

agencies or sponsored enterprises

8,921

2.54

13,059

2.24

497,448

2.18

519,427

2.19

6,867

2.50

11,213

2.29

490,032

2.19

508,112

2.20

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

agencies or sponsored enterprises

109

5.83

111,483

2.70

596,851

1.94

241,090

1.81

949,532

1.99

76

5.93

187,784

2.86

580,436

1.94

243,921

1.82

1,012,217

2.06

State and municipal obligations

 

500

3.15

 

28,722

3.03

 

95,590

2.39

 

748,196

2.29

 

873,007

 

2.33

 

2,258

3.76

 

30,703

3.26

 

128,842

2.53

 

798,556

2.79

 

960,359

 

2.77

Small Business Administration loan-backed securities

 

4,107

1.86

 

19,137

3.89

 

130,790

4.07

 

223,437

2.76

 

377,470

 

3.32

 

3,426

0.35

 

17,668

4.51

 

118,037

3.91

 

210,912

2.79

 

350,043

 

3.21

Corporate securities

 

 

 

25,767

3.98

 

696

4.50

 

26,463

 

4.00

 

 

489

8.22

 

25,676

3.96

 

689

4.50

 

26,854

 

4.05

Total available for sale

$

231,065

2.11

%  

$

239,653

2.71

%  

$

1,104,205

2.27

%  

$

3,048,697

2.07

%  

$

4,623,620

2.15

%

$

155,368

2.51

%  

$

246,872

3.02

%  

$

1,111,329

2.30

%  

$

3,084,831

2.26

%  

$

4,598,400

2.31

%

Total other investments

$

%  

$

%  

$

%  

$

187,152

3.65

%  

$

187,152

 

3.65

%

$

%  

$

%  

$

%  

$

187,185

3.77

%  

$

187,185

 

3.77

%

Total investment securities

$

281,065

 

2.10

%  

$

290,647

 

2.47

%  

$

1,511,621

 

2.12

%  

$

5,261,152

 

2.06

%  

$

7,344,485

 

2.09

%

$

219,733

 

2.39

%  

$

283,422

 

2.75

%  

$

1,579,859

 

2.13

%  

$

5,149,160

 

2.20

%  

$

7,232,174

 

2.21

%

Percent of total

 

4

%  

 

4

%  

 

21

%  

 

71

%  

 

3

%  

 

4

%  

 

22

%  

 

71

%  

Cumulative percent of total

 

4

%  

 

8

%  

 

29

%  

 

100

%  

 

3

%  

 

7

%  

 

29

%  

 

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.”
(3)The total values presented in the table above represent total fair value for available for sale and amortized cost for held to maturity.

(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.”

(3)The total values presented in the table above represent total fair value for available for sale and amortized cost for held to maturity.

Approximately 85.9%86.0% 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 or Bank Term Funding Program.Window. Approximately 13.7%13.6% 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 94%98% of the municipal bond portfolio has ratings in the Double A or Triple A category.

Through September 30, 2023, we sold approximately $125.3 millionDuring the first quarter of municipal2024, the Company did not sell any securities given advantageous market conditions. The primary rationalethat are available for the sale wasor held to reduce municipal and portfolio duration/price risk at an opportune moment in fixed income markets.maturity. As of September 30, 2023,March 31, 2024, the portfolio had an effective duration of 5.435.89 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, 2023

December 31, 2022

March 31, 2024

December 31, 2023

(Dollars in thousands, duration in years)

    

Amount

    

Duration

    

Amount

    

Duration

    

Amount

    

Duration

    

Amount

    

Duration

Held to Maturity (amortized cost)

U.S. Government agencies

$

197,266

5.18

$

197,262

5.81

$

197,269

4.76

$

197,267

5.03

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

agencies or sponsored enterprises

1,474,360

6.14

1,591,646

6.13

1,406,440

6.34

1,438,102

6.40

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

agencies or sponsored enterprises

451,928

5.32

474,660

6.52

437,718

5.72

444,883

6.24

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

agencies or sponsored enterprises

355,664

3.89

362,586

5.00

352,399

3.55

354,055

4.06

Small Business Administration loan-backed securities

54,495

6.69

57,087

6.76

52,763

6.83

53,133

6.95

Total held to maturity

$

2,533,713

5.61

$

2,683,241

6.04

$

2,446,589

5.71

$

2,487,440

5.94

Available for Sale (fair value)

U.S. Treasuries

$

172,259

0.33

$

265,638

0.87

$

24,587

0.41

$

73,890

0.35

U.S. Government agencies

216,754

3.63

219,088

4.27

223,805

3.17

224,706

3.41

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

agencies or sponsored enterprises

1,488,706

5.82

1,698,353

5.80

1,492,423

6.05

1,558,306

6.12

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

agencies or sponsored enterprises

519,427

4.89

601,045

5.95

508,112

5.46

527,422

5.69

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

agencies or sponsored enterprises

949,532

3.53

1,000,398

4.34

1,012,217

3.60

1,024,170

3.73

State and municipal obligations

 

873,007

 

8.71

 

1,064,852

8.74

 

960,359

 

10.35

 

977,461

 

8.62

Small Business Administration loan-backed securities

 

377,470

3.57

 

444,810

3.55

 

350,043

3.73

 

371,686

3.81

Corporate securities

 

26,463

2.72

 

32,638

2.94

 

26,854

2.18

 

26,747

2.45

Total available for sale

$

4,623,618

5.35

$

5,326,822

5.66

$

4,598,400

5.98

$

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, 2023,March 31, 2024, we determined that there was no impairment on our other investment securities. As of September 30, 2023,March 31, 2024, other investment securities represented approximately $187.2roximately $187.3 million, or 0.42%0.41% of total assets, and primarily consists of FHLB and FRB stock which totals to approximately $168.3 million, or 0.37% of total assets.assets. There were no gains or losses on the sales of these securities for three and nine months ended September 30,March 31, 2024 and 2023, and 2022, respectively.

Trading Securities

We have a trading portfolio associated with our Correspondent BankBanking Division and its subsidiary SouthState|Duncan-Williams. 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 Net 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 $114.2$66.2 million and $31.3 million respectively, at September 30, 2023March 31, 2024 and December 31, 2022.2023, respectively.

Loans Held for Sale

The balance of mortgage loans held for sale decreased $1.5increased $5.7 million from December 31, 20222023 to $27.4$56.6 million at September 30, 2023. MortgageMarch 31, 2024. Total mortgage production was $429 million in the thirdfirst quarter of $5212024. This compares to $436 million declined when compared toin the fourth quarter of 2022 mortgage production of $693 million.2023. Mortgage production has declined as mortgage rates have increased.continued to remain high. The percentage of mortgage production sold into the secondary market increased in the third quarter of 2023 to 47% from 19%53% at March 31, 2024 compared to 49% in the fourth quarter of 2022.2023. 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.

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Loans

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

LOAN PORTFOLIO (ENDING BALANCE)

September 30,

% of

December 31,

% of

LOAN PORTFOLIO

March 31,

% of

December 31,

% of

(Dollars in thousands)

2023

    

Total

2022

    

Total

2024

    

Total

2023

    

Total

Acquired loans:

Acquired - non-purchased credit deteriorated loans:

Construction and land development

$

166,758

0.5

%  

$

258,481

0.9

%  

$

79,796

0.2

%  

$

135,819

0.4

%  

Commercial non-owner occupied

1,810,082

5.7

%  

1,991,947

6.6

%  

1,673,833

5.1

%  

1,730,990

5.4

%  

Commercial owner occupied real estate

1,161,892

3.6

%  

1,332,942

4.4

%  

1,079,710

3.3

%  

1,115,539

3.4

%  

Consumer owner occupied

515,836

1.6

%  

586,252

1.9

%  

478,388

1.5

%  

496,674

1.5

%  

Home equity loans

239,369

0.7

%  

316,019

1.1

%  

214,078

0.7

%  

227,789

0.7

%  

Commercial and industrial

927,491

2.9

%  

1,128,280

3.7

%  

797,388

2.4

%  

863,584

2.7

%  

Other income producing property

159,652

0.5

%  

195,265

0.7

%  

138,049

0.4

%  

148,361

0.5

%  

Consumer non real estate

82,947

0.3

%  

133,679

0.4

%  

73,135

0.2

%  

77,930

0.2

%  

Other

227

%  

227

%  

206

%  

227

%  

Total acquired - non-purchased credit deteriorated loans

5,064,254

15.8

%  

5,943,092

19.7

%  

4,534,583

13.8

%  

4,796,913

14.8

%  

Acquired - purchased credit deteriorated loans (PCD):

Construction and land development

19,393

0.1

%  

46,464

0.2

%  

6,380

%  

9,506

%  

Commercial non-owner occupied

475,488

1.5

%  

553,058

1.8

%  

421,636

1.3

%  

445,270

1.4

%  

Commercial owner occupied real estate

361,157

1.1

%  

435,650

1.4

%  

318,860

1.0

%  

349,755

1.1

%  

Consumer owner occupied

176,628

0.6

%  

194,779

0.7

%  

163,356

0.5

%  

169,923

0.5

%  

Home equity loans

28,516

0.1

%  

38,961

0.1

%  

26,038

0.1

%  

27,239

0.1

%  

Commercial and industrial

40,076

0.1

%  

66,891

0.2

%  

33,163

0.1

%  

39,951

0.1

%  

Other income producing property

36,700

0.1

%  

52,827

0.2

%  

31,661

0.1

%  

35,358

0.1

%  

Consumer non real estate

33,585

0.1

%  

41,101

0.1

%  

30,189

0.1

%  

31,811

0.1

%  

Total acquired - purchased credit deteriorated loans (PCD)

1,171,543

3.7

%  

1,429,731

4.7

%  

1,031,283

3.2

%  

1,108,813

3.4

%  

Total acquired loans

6,235,797

19.5

%  

7,372,823

24.4

%  

5,565,866

17.0

%  

5,905,726

18.2

%  

Non-acquired loans:

Construction and land development

2,590,090

8.1

%  

2,555,415

8.5

%  

2,351,167

7.2

%  

2,778,189

8.6

%  

Commercial non-owner occupied

6,416,782

20.0

%  

5,527,954

18.3

%  

7,017,005

21.5

%  

6,395,374

19.7

%  

Commercial owner occupied real estate

4,016,048

12.5

%  

3,691,601

12.2

%  

4,113,285

12.6

%  

4,032,377

12.5

%  

Consumer owner occupied

5,566,584

17.4

%  

4,381,011

14.5

%  

6,172,728

19.0

%  

5,928,408

18.3

%  

Home equity loans

1,081,212

3.4

%  

958,188

3.2

%  

1,168,478

3.6

%  

1,143,417

3.5

%  

Commercial and industrial

4,490,662

14.0

%  

4,118,312

13.6

%  

4,713,580

14.4

%  

4,601,004

14.2

%  

Other income producing property

473,979

1.5

%  

448,150

1.5

%  

470,345

1.4

%  

472,615

1.5

%  

Consumer non real estate

1,141,546

3.6

%  

1,103,646

3.7

%  

1,093,571

3.3

%  

1,123,909

3.5

%  

Other

3,972

%  

20,762

0.1

%  

1,285

%  

7,470

%  

Total non-acquired loans

25,780,875

80.5

%  

22,805,039

75.6

%  

27,101,444

83.0

%  

26,482,763

81.8

%  

Total loans (net of unearned income)

$

32,016,672

100.0

%  

$

30,177,862

100.0

%  

$

32,667,310

100.0

%  

$

32,388,489

100.0

%  

Total loans, net of deferred loan costs and fees (excluding mortgage loans held for sale), increased by $1.8 billion,$278.8 million, or 8.1%3.5% annualized, to $32.0$32.7 billion at September 30, 2023 compared to December March 31, 2022.2024. Our non-acquired loan portfolio increased by $3.0 billion,$618.7 million, or 17.4%9.4% annualized, mainly driven by organic growth. ConsumerCommercial non-owner occupied loans, consumer owner occupied loans, commercial non-owner occupiedand industrial loans, commercial owner occupied real estate, commercial and industrial loans and home equity loans led the way with $1.2 billion, $888.8$621.6 million, $324.4$244.3 million, $372.4$112.6 million, $80.9 million and $123.0$25.1 million in year-to-date loan growth, respectively, or 36.2%39.1%, 21.5%16.6%, 11.8%9.8%, 12.1%8.1% and 17.2%8.8% annualized growth, respectively. The acquired loan portfolio decreased by $1.1 billion,$339.9 million, or 20.6%23.1% 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, commercial and industrial loans and construction and developmentcommercial owner occupied loans, with $259.4which decreased by $80.8 million, $245.5 million, $227.6$73.0 million and $118.8$66.7 million, in year-to-date loan decrease.respectively, during the quarter. Acquired loans as a percentage of total loans decreased to 19.5%17.0% and non-acquired loans as a percentage of the overall portfolio increased to 80.5%83.0% at September 30, 2023.March 31, 2024. This compares to acquired loans as a percentage of total loans of 24.4%18.2% and non-acquired loans as a percentage of total loans of 75.6%81.8% at December 31, 2022.2023.

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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, 20222023 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 a four-quarter forecast and a four-quarter reversion period.

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, 2023,March 31, 2024, management selected a baseline weighting of 50%, a 25% weighting for an upside scenario and a 25% weighting for the more severe scenario. The scenario weightings were unchanged fromconsistent with the secondfirst quarter of 2023. The scenario weightings reflect continued recognition of downside risks in the economic forecast from persistent levels of inflation, rising interest rates, and tightening credit conditions conducive of a mild recession. While employment figures and recent commercial real estate market sales data still showedshow resilience and actual loan losses remain at low levels, continued downward shiftsprojected weakness in the forecasted commercial real estate price index elevatedcontinues to elevate modeled expected losses for the Commercial Real Estate and Commercial Construction and Land Development, which excludes Residential Construction, loan segments. The resulting provision was approximately $32.7$12.7 million during the thirdfirst quarter of 2023.2024.

Longstanding TDR accounting rules were replaced with ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (See Note 3 — Recent Accounting and Regulatory Pronouncements). The Company adopted the retirement of TDR guidance, effective January 1, 2023. Please see Note 2 — Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of how we determine expected losses from modifications of receivables to borrowers experiencing financial difficulty.

Atlantic Capital was acquired and merged with and into the Bank on March 1, 2022, requiring that a closing date ACL be prepared for Atlantic Capital on a standalone basis and that the acquired portfolio be included in the Bank’s first quarter ACL. Atlantic Capital’s loans represented approximately 8% of the total Bank’s portfolio at March 31, 2022. Given the relative size and complexity of the acquired portfolio, similarities of the loan characteristics, and similar loss history to the existing portfolio, reserve calculations were performed using the Bank's existing CECL model, loan segmentation, and forecast weighting as the first quarter end reserve. As a result of the merger with Atlantic Capital on March 1, 2022, the Company identified approximately $137.9 million of loans as PCD. The acquisition date ACL totaled $27.5 million, consisting of a non-PCD pooled reserve of $13.7 million, PCD pooled reserve of $5.7 million, and PCD individually evaluated reserve of $8.1 million. It represented about 8% of the combined Bank’s ACL reserve at March 31, 2022. The acquisition date reserve for unfunded commitments totaled $3.4 million, or 11% of the combined Bank’s total at March 31, 2022.

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Table of Contents

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, 20222023 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, 2023,March 31, 2024, the balance of the ACL was $448.0$469.7 million or 1.40%1.44% of total loans. The ACL increased $20.6$13.1 million from the balance of $427.4$456.6 million recorded at June 30,December 31, 2023. ThisThe net increase during the thirdfirst quarter of 20232024 included $33.8a $15.8 million of provision for credit losses, in addition to $13.2and $2.7 million in net charge-offs. During the first nine months of 2023, the Company recorded $109.1 million of provision for credit losses along with net charge-offs of $17.5 million. The increase in net charge-offs during the third quarter of 2023 was due to one commercial and industrial loan relationship where we charged off $11.6 million. During the three and nine months ended September 30, 2023,March 31, 2024, the Company recorded a provision for credit losses based on loan growth and continued uncertainty aroundcurrent forecasts applied to our modeling to adequately capture potential economic recessionary risks.

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Table of Contents

At September 30, 2023,March 31, 2024, the Company had a reserve on unfunded commitments of $62.3$53.2 million, which was recorded as a liability on the Balance Sheet, compared to $63.4 million at June 30, 2023 and $67.2$56.3 million at December 31, 2022.2023. During the three and nine months ended September 30, 2023,March 31, 2024, the Company recorded a decrease in the reserve for unfunded commitments of $1.1 million and $4.9 million, respectively.$3.1 million. This amount was recorded in Provision (Recovery) for Credit Losses on the Consolidated Statements of Income. For the prior comparative period in 2023, the Company recordedhad a provision for credit lossesreserve on unfunded commitments of $20.5$85.1 million and $22.5 million, respectively, during three and nine months ended September 30, 2022. The year-to-date provision in 2022 of $22.5 million included the initial provision for credit losses for unfunded commitments acquired from Atlantic Capital, which the Company recorded during the first quarter of 2022.at March 31, 2023. The Company did not have an allowance for credit losses or record a provision for credit losses on investment securities or other financial assetassets during the first ninethree months of 2023.2024.

The ACL provides 2.702.73 times coverage of nonperforming loans at September 30, 2023.March 31, 2024. Net charge-offs to the total average loans during the three and nine months ended September 30, 2023March 31, 2024 were 0.16% and 0.08%0.03%, respectively, compared to net recoveries of (0.02)% and net charge-offs of 0.02%, respectively,0.01% during the three and nine months ended September 30, 2022.March 31, 2023. We continued to showexperience solid and stable asset quality numbers and ratios as of September 30, 2023. March 31, 2024.

The following table presents a summary ofprovides the allowanceallocation, by segment, for expected credit losses by loan segment, for the nine months ended September 30, 2023.as of March 31, 2024:

September 30, 2023

March 31, 2024

(Dollars in thousands)

    

Amount

    

%*

    

    

Amount

    

%*

    

Residential Mortgage Senior

$

77,051

 

21.1

%  

$

87,484

 

22.2

%  

Residential Mortgage Junior

 

494

 

0.0

%  

 

1,230

 

0.1

%  

Revolving Mortgage

 

13,314

 

4.5

%  

 

11,724

 

4.6

%  

Residential Construction

 

7,229

 

2.6

%  

 

4,552

 

1.8

%  

Other Construction and Development

 

64,472

 

6.1

%  

 

60,860

 

5.5

%  

Consumer

 

22,755

 

3.9

%  

 

23,353

 

3.6

%  

Multifamily

12,592

3.1

%  

17,012

3.6

%  

Municipal

801

2.3

%  

876

2.3

%  

Owner Occupied Commercial Real Estate

73,015

17.4

%  

72,597

16.9

%  

Non-Owner Occupied Commercial Real Estate

124,529

24.2

%  

134,698

24.4

%  

Commercial and Industrial

 

51,704

 

14.9

%  

 

55,268

 

15.0

%  

Total

$

447,956

 

100.0

%  

    

$

469,654

 

100.0

%  

    

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

The following table presents a summary of net charge off ratios (annualized) by loan segment, for the quarters ended March 31, 2024 and 2023:

Three Months Ended

March 31, 2024

March 31, 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

$

(220)

$

7,142,755

(0.01)

%  

$

292

$

5,851,428

0.02

%  

Residential Mortgage Junior

 

39

 

14,639

1.07

%  

 

5

 

12,186

0.17

%  

Revolving Mortgage

 

182

 

1,487,324

0.05

%  

 

206

 

1,387,299

0.06

%  

Residential Construction

 

(297)

 

634,180

(0.19)

%  

 

72

 

866,661

0.03

%  

Other Construction and Development

 

(468)

 

2,009,144

(0.09)

%  

 

258

 

1,912,705

0.05

%  

Consumer

 

(1,372)

 

1,199,449

(0.46)

%  

 

(2,145)

 

1,262,393

(0.69)

%  

Multifamily

25

1,033,034

0.01

%  

760,375

%  

Municipal

741,355

%  

719,003

%  

Owner Occupied Commercial Real Estate

103

5,488,913

0.01

%  

293

5,485,976

0.02

%  

Non-Owner Occupied Commercial Real Estate

(61)

7,839,935

(0.00)

%  

55

7,418,486

0.00

%  

Commercial and Industrial

 

(610)

 

4,889,492

(0.05)

%  

 

(74)

 

4,717,885

(0.01)

%  

Total

$

(2,679)

$

32,480,220

(0.03)

%  

    

$

(1,038)

$

30,394,397

(0.01)

%  

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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, 2023 and 2022:

Three Months Ended

September 30, 2023

September 30, 2022

(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

$

183

$

6,599,684

0.01

%  

$

326

$

4,969,293

0.03

%  

Residential Mortgage Junior

 

28

 

11,393

0.98

%  

 

30

 

13,463

0.88

%  

Revolving Mortgage

 

138

 

1,422,385

0.04

%  

 

3,128

 

1,294,266

0.96

%  

Residential Construction

 

3

 

850,598

0.00

%  

 

2

 

803,546

0.00

%  

Other Construction and Development

 

59

 

1,926,448

0.01

%  

 

280

 

1,686,262

0.07

%  

Consumer

 

(2,478)

 

1,257,109

(0.78)

%  

 

(2,169)

 

1,235,652

(0.70)

%  

Multifamily

935,274

%  

632,806

%  

Municipal

742,210

%  

703,028

%  

Owner Occupied Commercial Real Estate

324

5,580,497

0.02

%  

(784)

5,415,587

(0.06)

%  

Non-Owner Occupied Commercial Real Estate

511

7,713,488

0.03

%  

21

7,202,177

0.00

%  

Commercial and Industrial

 

(11,965)

 

4,765,674

(1.00)

%  

 

428

 

4,338,897

0.04

%  

Total

$

(13,197)

$

31,804,760

(0.16)

%  

    

$

1,262

$

28,294,977

0.02

%  

Nine Months Ended

September 30, 2023

September 30, 2022

(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

$

740

$

6,229,619

0.02

%  

$

962

$

4,575,374

0.03

%  

Residential Mortgage Junior

 

36

 

11,799

0.41

%  

 

176

 

14,070

1.67

%  

Revolving Mortgage

 

876

 

1,405,853

0.08

%  

 

3,359

 

1,272,764

0.35

%  

Residential Construction

 

97

 

859,274

0.02

%  

 

7

 

727,940

0.00

%  

Other Construction and Development

 

513

 

1,920,982

0.04

%  

 

920

 

1,594,965

0.08

%  

Consumer

 

(7,120)

 

1,260,683

(0.76)

%  

 

(5,762)

 

1,123,007

(0.69)

%  

Multifamily

848,326

%  

557,788

%  

Municipal

731,129

%  

678,523

%  

Owner Occupied Commercial Real Estate

675

5,537,247

0.02

%  

(825)

5,296,105

(0.02)

%  

Non-Owner Occupied Commercial Real Estate

900

7,571,356

0.02

%  

34

6,897,624

0.00

%  

Commercial and Industrial

 

(14,262)

 

4,745,240

(0.40)

%  

 

(2,271)

 

4,031,447

(0.08)

%  

Total

$

(17,545)

$

31,121,508

(0.08)

%  

    

$

(3,400)

$

26,769,607

(0.02)

%  

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Table of Contents

The following tables present summary ofchanges in the ACL, for the three and nine months ended September 30, 2023March 31, 2024 and 2022:2023:

Three Months Ended September 30,

 

2023

2022

 

    

Non-PCD

PCD

    

Non-PCD

PCD

    

 

(Dollars in thousands)

    

Loans

Loans

    

Total

Loans

Loans

    

Total

 

Balance at beginning of period

$

384,296

$

43,096

$

427,392

$

257,428

$

62,280

$

319,708

ACL - PCD loans for ACBI merger

Loans charged-off

 

(17,340)

 

(630)

 

(17,970)

 

(5,242)

 

(1,884)

 

(7,126)

Recoveries of loans previously charged off

 

2,606

 

2,167

 

4,773

 

4,380

 

4,008

 

8,388

Net (charge-offs) recoveries

 

(14,734)

 

1,537

 

(13,197)

 

(862)

 

2,124

 

1,262

(Recovery) provision for credit losses

 

40,288

 

(6,527)

 

33,761

 

14,353

 

(10,925)

 

3,428

Balance at end of period

$

409,850

$

38,106

$

447,956

$

270,919

$

53,479

$

324,398

Total loans, net of unearned income:

At period end

$

32,016,672

$

28,836,303

Average

 

31,804,760

 

28,294,977

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

 

0.16

%  

 

(0.02)

%  

Allowance for credit losses as a percentage of period end loans

 

1.40

%  

 

1.12

%  

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

 

269.98

%  

 

324.30

%  

Nine Months Ended September 30,

 

2023

2022

 

    

Non-PCD

PCD

    

Non-PCD

PCD

    

 

(Dollars in thousands)

    

Loans

Loans

    

Total

Loans

Loans

    

Total

 

Allowance for credit losses at January 1

$

309,606

$

46,838

$

356,444

$

225,227

$

76,580

$

301,807

ACL - PCD loans for ACBI merger

13,758

13,758

Loans charged-off

 

(29,372)

 

(803)

 

(30,175)

 

(13,218)

 

(5,561)

 

(18,779)

Recoveries of loans previously charged off

 

7,783

 

4,847

 

12,630

 

9,023

 

6,356

 

15,379

Net (charge-offs) recoveries

 

(21,589)

 

4,044

 

(17,545)

 

(4,195)

 

795

 

(3,400)

Initial provision for credit losses - ACBI

13,697

13,697

(Recovery) provision for credit losses

 

121,833

 

(12,776)

 

109,057

 

36,190

 

(37,654)

 

(1,464)

Balance at end of period

$

409,850

$

38,106

$

447,956

$

270,919

$

53,479

$

324,398

Total loans, net of unearned income:

At period end

$

32,016,672

$

28,836,303

Average

 

31,121,506

 

26,769,605

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

 

0.08

%  

 

0.02

%  

Allowance for credit losses as a percentage of period end loans

 

1.40

%  

 

1.12

%  

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

 

269.98

%  

 

324.30

%  

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Table of Contents

Three Months Ended March 31,

 

2024

2023

 

    

Non-PCD

PCD

    

Non-PCD

PCD

    

 

(Dollars in thousands)

    

Loans

Loans

    

Total

Loans

Loans

    

Total

 

Balance at beginning of period

$

423,876

$

32,697

$

456,573

$

309,606

$

46,838

$

356,444

Loans charged-off

 

(7,718)

 

(222)

 

(7,940)

 

(4,516)

 

(111)

 

(4,627)

Recoveries of loans previously charged off

 

2,975

 

2,286

 

5,261

 

2,327

 

1,262

 

3,589

Net (charge-offs) recoveries

 

(4,743)

 

2,064

 

(2,679)

 

(2,189)

 

1,151

 

(1,038)

Provision (recovery) for credit losses

 

20,055

 

(4,295)

 

15,760

 

20,498

 

(5,259)

 

15,239

Balance at end of period

$

439,188

$

30,466

$

469,654

$

327,915

$

42,730

$

370,645

Total loans, net of unearned income:

At period end

$

32,667,310

$

30,696,142

Average

 

32,480,220

 

30,394,397

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

 

0.03

%  

 

0.01

%  

Allowance for credit losses as a percentage of period end loans

 

1.44

%  

 

1.21

%  

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

 

272.62

%  

 

297.42

%  

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,

    

    

March 31,

 

December 31,

    

September 30,

    

June 30,

    

March 31,

    

(Dollars in thousands)

2023

 

2023

2022

2022

2022

2024

 

2023

2023

2023

2023

Non-acquired:

Nonaccrual loans

$

105,579

$

104,491

$

67,894

$

40,517

$

30,076

$

106,189

$

110,467

$

105,579

$

104,491

$

67,894

Accruing loans past due 90 days or more

 

783

 

3,620

 

2,667

 

2,358

 

2,358

 

2,497

 

11,305

 

783

 

3,620

 

2,667

Restructured loans - nonaccrual

 

277

 

281

 

282

 

4,154

 

4,298

 

 

 

277

 

281

 

282

Total non-acquired nonperforming loans

 

106,639

 

108,392

 

70,843

 

47,029

 

36,732

 

108,686

 

121,772

 

106,639

 

108,392

 

70,843

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

 

118

 

118

 

58

 

141

 

58

 

1,035

 

228

 

118

 

118

 

58

Other nonperforming assets (2)

 

331

 

109

 

129

 

104

 

56

 

554

 

483

 

331

 

109

 

129

Total non-acquired nonperforming assets

 

107,088

 

108,619

 

71,030

 

47,274

 

36,846

 

110,275

 

122,483

 

107,088

 

108,619

 

71,030

Acquired:

Nonaccrual loans (3)

 

57,464

 

59,821

 

51,650

 

55,808

 

58,064

 

62,612

 

58,916

 

57,464

 

59,821

 

51,650

Accruing loans past due 90 days or more

 

1,821

 

571

 

983

 

1,992

 

1,430

 

135

 

1,174

 

1,821

 

571

 

983

Restructured loans - nonaccrual

913

1,144

3,746

3,802

839

839

913

1,144

Total acquired nonperforming loans

 

59,285

 

61,305

 

53,777

 

61,546

 

63,296

 

63,586

 

60,929

 

59,285

 

61,305

 

53,777

Acquired OREO (1) (7)

 

316

 

962

 

3,415

 

882

 

2,102

 

609

 

609

 

316

 

962

 

3,415

Other acquired nonperforming assets (2)

 

62

 

19

 

31

 

40

 

132

 

46

 

103

 

62

 

19

 

31

Total acquired nonperforming assets

 

59,663

 

62,286

 

57,223

 

62,468

 

65,530

 

64,241

 

61,641

 

59,663

 

62,286

 

57,223

Total nonperforming assets

$

166,751

$

170,905

$

128,253

$

109,742

$

102,376

$

174,516

$

184,124

$

166,751

$

170,905

$

128,253

Excluding Acquired Assets

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

 

0.42

 

0.43

 

0.30

 

0.21

 

0.18

 

0.41

 

0.46

 

0.42

 

0.43

 

0.30

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

 

0.24

 

0.24

 

0.16

 

0.11

 

0.08

 

0.24

 

0.27

 

0.24

 

0.24

 

0.16

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

 

0.41

 

0.43

 

0.30

 

0.21

 

0.18

 

0.40

 

0.46

 

0.41

 

0.43

 

0.30

Including Acquired Assets

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

 

0.52

 

0.54

 

0.42

 

0.36

 

0.35

 

0.53

 

0.57

 

0.52

 

0.54

 

0.42

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

 

0.37

 

0.38

 

0.29

 

0.25

 

0.23

 

0.39

 

0.41

 

0.37

 

0.38

 

0.29

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

 

0.52

 

0.54

 

0.41

 

0.36

 

0.35

 

0.53

 

0.56

 

0.52

 

0.54

 

0.41

(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 premisesproperties held for sale of $9.0 million, $9.0 million, $11.8 million, $10.0 million, $13.3 million, $14.3 million, and $21.2$13.3 million as of March 31, 2024, December 31, 2023, September 30, 2023, June 30, 2023 and March 31, 2023, December 31, 2022, and September 30, 2022, respectively, that is now separately disclosed on the balance sheet.
(7)Excludes acquired bank premisesproperties held for sale of $3.4 million,$0, $3.4 million, $3.4 million, $3.4 million, and $3.9$3.4 million as of March 31, 2024, December 31, 2023, September 30, 2023, June 30, 2023 and March 31, 2023, December 31, 2022, and September 30, 2022, respectively, that is now separately disclosed on the balance sheet.

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Total nonperforming assets were $166.8$174.5 million, or 0.52%0.53% of total loans and repossessed assets, at September 30, 2023, an increaseMarch 31, 2024, a decrease of $57.0$9.6 million, or 51.9%5.2%, from December 31, 2022.2023. Total nonperforming loans were $165.9$172.3 million, or 0.52%0.53%, of total loans, at September 30, 2023, an increaseMarch 31, 2024, a decrease of $57.3$10.4 million, or 52.8%5.7%, from December 31, 2022.2023. Non-acquired nonperforming loans increaseddecreased by $59.6$13.1 million from December 31, 2022. 2023. The increasedecrease in non-acquired nonperforming loans was driven primarily by an increasea decrease in commercial nonaccrual loans of $57.1$7.2 million, an increase in consumer nonaccrual loans of $8.0 million, offset by a decrease in accruing loans past due 90 days or more of $1.6$8.8 million, and restructuredoffset by an increase in consumer nonaccrual loans of $3.9 million. $2.9 million. The increaseaccruing loans past due 90 days or more decreased by $8.8 million at March 31, 2024 compared to December 31, 2023, due primarily to a decrease in commercial nonaccrualaccruing loans at September 30, 2023,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. Acquired nonperforming loans increased $2.7 million from December 31, 2022, was primarily due to five commercial and industrial relationships totaling $47.1 million, one commercial and industrial loan totaling $2.3 million, three commercial owner occupied real estate loans totaling $4.9 million and one commercial non owner occupied loan totaling $3.3 million. Acquired nonperforming loans decreased $2.3 million from December 31, 2022.2023. The decreaseincrease in the acquired nonperforming loan balances was due primarily to an increase in commercial nonaccrual loans of $4.6 million, offset by a decrease in consumer nonaccrual loans of $4.8$1.0 million and a decrease in restructured nonaccrual loans of $3.8 million, offset by an increase in commercial nonaccrual loans of $6.4 million. The decline in restructured nonaccrualaccruing loans over both the nonacquired and acquired loan portfolios waspast due to the adoption90 days or more of ASU 2022-02 effective January 1, 2023, which extinguishes the former troubled debt restructuring (TDR) guidance and issues new requirements for determining modified loans to borrowers experiencing financial difficulty.$1.0 million.

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.

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Table of Contents

Total interest-bearing deposits increased $2.6 billionby $232.4 million, or 15.0%3.5% annualized, to $25.8$26.6 billion at September 30, 2023March 31, 2024 from $23.2$26.4 billion at December 31, 2022.2023. This increase was mainly driven by growth in money market accountaccounts of $2.4 billion,$356.7 million, including $1.1 billion$167.1 million in reciprocal insured money market depositsdeposits. This increase was partially offset by declines in interest-bearing checking accounts of $80.0 million and timesavings deposits of $2.0 billion, including an increase$75.0 million. Customers continue to move funds from lower yielding deposit products seeking higher yields in brokered time deposits of $908.9 million. During the nine months ended September 30, 2023, core deposits decreased $1.4 billion. These funds exclude certificates of deposits and other time deposits and are normally lower cost funds. Core deposits declined as customers moved their funds into higher yielding time deposits as interest rates have risen along with some business customers moving funds for deposit insurance purposes.money market accounts. Federal funds purchasedpurchases related to the Correspondent Banking Division and securities sold under agreements to repurchase agreements were $513.3$554.7 million at September 30, 2023,March 31, 2024, a $43.1$65.5 million declineincrease from December 31, 2022. The Company had no other2023. Other borrowings, outstanding at September 30, 2023 or December 31, 2022. The Company paid off the $400.0 million inconsisting of FHLB borrowings, outstandingdecreased to $0 at June 30, 2023 as pressure on liquidity subsidedMarch 31, 2024 from the first and second quarter of$100 million at December 31, 2023. Corporate and subordinated debentures declined by $278,000$92,000 to $392.0$391.8 million. Some key highlights are outlined below:

The increase in interest-bearing deposits from December 31, 2022 was driven by an increase in time deposits of $2.0 billion, including an increase in brokered time deposits of $908.9 million and an increase in money market accounts of $2.4 billion, including $1.1 billion in reciprocal insured money market deposits. These increases were partially offset by declines in interest-bearing checking deposits of $1.1 billion and savings deposits of $704.2 million. As customers moved funds from interest-bearing checking and savings accounts, seeking higher yields innoted above, the rising rate environment, the Company increased its balance in brokered time deposits and in-market time deposits along withCompany’s higher yielding money market accounts increased during the first nine monthsquarter of 2023.2024. The Company raised interest rates on most interest-bearing deposit products (in particular money market accounts and time deposit specials) during 2023 due to competitive pressures to retain deposits. Average interest-bearing deposits increased $1.8 millionby $3.1 billion to $25.6$26.4 billion duringin the quarter ended September 30, 2023March 31, 2024 compared to the same period in 2022.2023. For more information on the composition of our total deposits, see Note 108Deposits in this Quarterly Report on Form 10-Q.Deposits.
Other borrowings, consisting of FHLB borrowings, decreased $400.0to $0 at March 31, 2024 from $100 million during the three months period ended Septemberat December 30, 2023. The Company borrowed funds from the FHLB to provide excess liquidity in the first and second quarter of31, 2023. The Company paid down $400 million, on a net basis,its FHLB borrowings in FHLB borrowing during the thirdfirst quarter of 2023 from $400 million at June 30, 2023 as2024 with the financial markets stabilizedgrowth in deposits and the stress on liquidity declined.maturities and pay downs in investment securities providing liquidity.

Noninterest-Bearing Deposits

Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. At September 30, 2023,March 31, 2024, the period end balance of noninterest-bearing deposits was $11.2of $10.5 billion remained fairly stable compared to $13.2 billionthe balance at December 31, 2022.2023 of $10.6 billion. Average noninterest-bearing deposits were $11.4$10.5 billion for the thirdfirst quarter of 20232024 compared to $13.9$12.8 billion for the thirdfirst quarter of 2022. The2023. This decrease in period end andthe average noninterest bearing deposits from the quarter ended March 31, 2023 was mainly due to customers seeking higher yields in the rising rate environment. Also, customers have less excess cash as funds from government support programs related to the COVID-19 pandemic began to decline, and due toas well as the resulting effects of higher costs related to inflation.

Uninsured Deposits

At September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company had approximately $13.0$13.3 billion and $14.6$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.

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Table of Contents

Capital Resources

Our ongoing capital requirements have been met primarily through retained earnings, less the payment of cash dividends. As of September 30, 2023,March 31, 2024, shareholders’ equity was $5.2$5.5 billion, an increase of $156.1$13.9 million, or 3.1%0.3%, from December 31, 2022.2023.

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The following table shows the changes in shareholders’ equity during 2023:2024.

(Dollars in thousands)

Total shareholders' equity at December 31, 2022

    

$

5,074,927

Total shareholders' equity at December 31, 2023

    

$

5,533,098

Net income

387,517

115,056

Dividends paid on common shares ($1.52 per share)

(115,400)

Cumulative adjustment pursuant to adoption of ASU 2023-02

(10,246)

Dividends paid on common shares ($0.52 per share)

(39,598)

Dividends paid on restricted stock units

(1,079)

(1,163)

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

(138,801)

(40,458)

Stock options exercised

1,392

391

Employee stock purchases

1,356

Equity based compensation

28,484

5,867

Common stock repurchased pursuant to stock repurchase plan

(7,985)

Common stock repurchased - equity plans

(7,409)

(7,953)

Total shareholders' equity at September 30, 2023

$

5,230,987

Total shareholders' equity at March 31, 2024

$

5,547,009

In January 2021, the Board of Directors of theThe Company approved the 2021 Stock Repurchase Plan, which authorized the Company to repurchase 3,500,000 common shares. During the first quarter of 2022, we repurchased 1,012,038100,000 shares, at an average price of $85.43$79.85 per share (excluding cost of commissions) for a total of $86.5$8.0 million under the 2021 Stock Repurchase Plan.

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 did not repurchase any shares through the 2022 Stock Repurchase ProgramPlan during 2023 or 2022.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.

We are subject to regulations with respect to certain risk-based capital ratios. These risk-based capital ratios measure the relationship As of capital toMarch 31, 2024, a combinationtotal 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 ratio3,920,021 authorized shares remainavailable 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.repurchase.

Specifically, weUnder current regulations, the Company and the Bank are requiredsubject to maintain the followinga minimum capital ratios:

a CET1, risk-based capital ratio of 4.5%;
a Tier 1 risk-based capital ratio of 6%;
a total risk-based capital ratio of 8%; and
a leverage ratio of 4%.

Under the current capital rules,ratio of common equity Tier 1 capital includes two components: CET1 capital(“CET1”) to risk-weighted assets of 4.5% and additional Tier 1 capital. The highest forma minimum required ratio of capital, CET1 capital, consists solely of common stock (plus related surplus), retained earnings, accumulated other comprehensive income, otherwise referred to as AOCI, and limited amounts of minority interests that are in the form of common stock. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock and Tier 1 minority interests. Tier 2 capital generally includes the allowance for loan losses up to 1.25% of risk-weighted assets qualifying preferred stock, subordinated debt, trust preferred securitiesof 6%. The minimum required leverage ratio is 4%. The minimum required total capital to risk-weighted assets ratio is 8%. Refer to Note 16 — Capital Ratios for more information regarding Company and qualifying tier 2 minority interests, less any deductions in Tier 2 instruments of an unconsolidated financial institution. AOCI is presumptively included in CET1 capital and often would operate to reduce this category of capital. When the current capital rules were first implemented, the Bank exercised its one-time opportunity at the end of the first quarter of 2015 for covered banking organizations to opt out of much of this treatment of AOCI, allowing us to retain our pre-existing treatment for AOCI.

In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a banking organization must maintain a “capital conservation buffer” on top of its minimum risk-based capital requirements. This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital), resulting in the following effective minimum capital plus capital conservation buffer ratios: (i) a CET1 capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%.

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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-basedBank’s regulatory capital ratios (CET1, Tier 1 capital and total capital) and for the leverage ratio.

The federal banking agencies revised their regulatory capital rules to (i) address the implementation of CECL; (ii) provide an optional three-year phase-in period for the adoption date adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (iii) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations that are subject to stress testing. CECL became effective for us on January 1, 2020 and the Company applied the provisions of the standard using the modified retrospective method as a cumulative-effect adjustment to retained earnings. Related to the implementation of ASU 2016-13, we 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 on regulatory capital from ASU 2016-13 at adoption, the Company initially elected the option for recognizing the adoption date effects on the Company’s regulatory capital calculations over a three-year phase-in.

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 50% being25% phased out in 2023.2024. At March 31, 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 March 31, 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,

Well-Capitalized

March 31,

December 31,

Minimums

2023

2022

Minimums

2024

2023

SouthState Corporation:

Common equity Tier 1 risk-based capital

N/A

11.47

%  

10.96

%  

N/A

11.95

%  

11.75

%  

Tier 1 risk-based capital

   

6.00

%  

  

11.47

%  

  

10.96

%  

   

6.00

%  

  

11.95

%  

  

11.75

%  

Total risk-based capital

10.00

%  

13.76

%  

12.97

%  

10.00

%  

14.32

%  

14.08

%  

Tier 1 leverage

N/A

9.34

%  

8.72

%  

N/A

9.58

%  

9.42

%  

SouthState Bank:

Common equity Tier 1 risk-based capital

6.50

%  

12.25

%  

11.80

%  

6.50

%  

12.67

%  

12.52

%  

Tier 1 risk-based capital

8.00

%  

12.25

%  

11.80

%  

8.00

%  

12.67

%  

12.52

%  

Total risk-based capital

10.00

%  

13.44

%  

12.69

%  

10.00

%  

13.93

%  

13.75

%  

Tier 1 leverage

5.00

%  

9.96

%  

9.39

%  

5.00

%  

10.14

%  

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 increasedimproved compared to December 31, 2022. These2023. All of these ratios increased mainly improved due to net income recognized during 2023the first quarter of $387.52024 of $115.1 million. Tier 1 capital increased 7.9%by 1.1% and 7.0%0.5% at both the Company and Bank, respectively, with the increase in equity from the net income recognized. Total risk-based capital increased by 1.1% and 0.7% at both the Company and Bank, respectively, with the increase in equity resulting from the net income recognized during the current period. Total risk-based capital increased 9.4% and 9.3% at both the Company and Bank, respectively, with the increase in equity resulting from the net income recognized during the current period, 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 with average assets for both the Company and Bank increasing 0.8%decreasing by 0.6% and risk-based assets increasing 3.1%decreasing by 0.6%. Our capital ratios are currently well in excess of the minimum standards and continue to be in the “well capitalized” regulatory classification. Should the Company need to sell its available for sale and held to maturity securities for liquidity purposes and recognize the unrealized losses as of September 30, 2023 through earnings, all else equal, our capital ratios would remain well in excess of the minimum standards and continue to be in the “well capitalized” regulatory classification.

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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 March 31, 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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Our non-acquired loan portfolio increased by approximately $3.0 billion,$618.7 million, or approximately 17.4%9.4% annualized, compared to the balance at December 31, 2022.2023. The increase from December 31, 20222023 was mainly related to organic growth and renewals onof acquired loans.loans that are moved to our non-acquired loan portfolio. The acquired loan portfolio decreased by $1.1 billion$339.9 million from the balance at December 31, 20222023 through principal paydowns, charge-offs, foreclosures and renewals of acquired loans.

Our investment securities portfolio (excluding trading securities) decreased $845.3by $231.6 million compared to the balance at December 31, 2022.2023. The decrease in investment securities from December 31, 20222023 was a result of maturities, calls, sales and paydowns of investment securities totaling $861.6$227.8 million, a reduction from the net amortization of premiums of $15.2$4.8 million and aas well as decrease in the market value of the available for sale investment securities portfolio of $196.3$53.6 million. This decrease wasThese decreases were partially offset by purchases of available for saleother investment securities totaling $34.5 million and other investment securities of $193.3$54.6 million. There were no purchases of available for sale or held to maturity securities during the quarter. The purchases of other investment securities were related to capital stock with the Federal Home Loan Bank of which we sold back $59.4 million during the first quarter of 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 March 31, 2024, the bank pledged 39.5% of the market value of its investment portfolio. As of March 31, 2024, the Bank had unpledged securities with a market value of $4.0 billion. These securities included Treasury, Agency, Agency MBS, Municipals and Corporate securities.

Total cash and cash equivalents were $1.3$1.2 billion at September 30, 2023March 31, 2024 as compared to $1.3$1.0 billion at December 31, 2022.2023. Liquidity has 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 CompanyBank has increased its usea policy limit for brokered time deposits of no more than 15% of total deposits, it has operated well below this policy limit. At March 31, 2024, the percentage of brokered deposits since December 31, 2022, the ratio of brokeredtime deposits to total deposits at September 30, 2023 was 2.9%2.0% compared to 1.9% at December 31, 2023. During the Company’s internal limitfirst quarter of 15%. During 2023,2024, the Company hasalso borrowed funds from the FHLB on a short-term basis,basis; however, thereno FHLB advances were nooutstanding at March 31, 2024. The outstanding borrowings from the FHLB at September 30, 2023.

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At September 30, 2023 and December 31, 2022, we had $1.1 billion and $150.0were $100.0 million of traditional, out–of-market brokered deposits, respectively. At September 30, 2023 and December 31, 2022, we had $2.0 billion and $637.0 million, respectively, of reciprocal deposits.Total deposits were $36.9 billion at September 30, 2023, an increase of $584.6 million from $36.4 billion at December 31, 2022. This increase was driven by growth in money market accounts of $2.4 million, including $1.1 billion in reciprocal insured money market2023. See below for further discussion around brokered deposits and time deposits of $2.0 billion, including an increase in brokered time deposits of $908.9 million. These increases were offset by declines in noninterest-bearing, interest-bearing checking and savings accounts of $2.0 billion, $1.1 billion and $704.2 million, respectively. As customers moved funds from noninterest bearing checking, interest bearing checking and savings accounts, seeking higher yields in the rising rate environment along with insurance coverage, the Company’s balance in higher costing in-market time deposits and brokered time deposits and in money market deposit accounts including reciprocal insured money market accounts has increased. The Company raised interest rates on most interest-bearing deposit products (in particular time deposit specials and money market accounts) during 2023 due to competitive pressures to retain deposits. Total corporate and subordinated debentures and other borrowings at September 30, 2023 were $392.0 million and consisted of trust preferred securities and subordinated debentures. The Company had other borrowings consisting of FHLB borrowings during 2023 to increase liquidity but has since repaid in full the FHLB borrowings as of September 30, 2023 as the financial markets stabilized and the stress on liquidity declined. Total short-term borrowings at September 30, 2023 were $513.3 million, consisting of $253.5 million in federal funds purchased and $259.8 million in securities sold under agreements to repurchase. 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.

Through the operations of our Bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. We manage the credit risk on these commitments by subjecting them to normal underwriting and risk management processes. We believe that we have adequate sources of liquidity to fund commitments that are drawn upon by the borrowers. In addition to commitments to extend credit, we also issue standby letters of credit, which are assurances to third parties that they will not suffer a loss if our customer fails to meet its contractual obligation to the third-party. Although our experience indicates that many of these standby letters of credit will expire unused, through our various sources of liquidity, we believe that we will have the resources to meet these obligations should the need arise.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. 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 $37.2 billion in total deposits at March 31, 2024, approximately 70% 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, and approximately 28% of total deposits are non-interest bearing. The Bank’s deposit beta, which represents the change in the Bank’s cost of deposits over the change in the federal funds target rate, during this cycle (from March 2022 through March 2024) is approximately 33%.

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At March 31, 2024 and December 31, 2023, we had $728.8 million and $719.7 million of traditional, out–of–market brokered time deposits, respectively. At March 31, 2024 and December 31, 2023, we had $2.3 billion and $2.2 billion, respectively, of reciprocal brokered deposits.Total deposits were $37.2 billion at March 31, 2024, an increase of $129.5 million from $37.0 billion at December 31, 2023. This increase in deposits from December 31, 2023 was driven by an increase in money market accounts of $356.7 million, including $167.1 million in reciprocal insured money market deposits along with a $30.6 million increase in time deposits. These increases were partially offset by declines in noninterest-bearing deposits of $102.9 million, interest-bearing checking deposits of $80.0 million and savings deposits of $75.0 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 the first quarter 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.

Total short-term borrowings at March 31, 2024 were $554.7 million, consisting of $273.4 million in federal funds purchased and $281.3 million in securities sold under agreements to repurchase. Total long-term borrowing at March 31, 2024 were $391.8 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 accessincrease our cost of funds throughif interest rates rise.

In addition to deposits, we have other contingency funding sources available to the Federal Reserve Bank Term Funding Program.Bank. At September 30, 2023,March 31, 2024, our Bank had a total FHLB credit facility of $7.8$6.6 billion, with $2.1$2.9 million in FHLB letters of credit outstanding at quarter-end, leaving $7.8$6.6 billion in availability on the FHLB credit facility. At September 30, 2023,In addition, our Bank had $1.9$1.8 billion of credit available at the Federal Reserve Bank’s discount window and total federal funds credit lines of $300.0 million with no balances outstanding at quarter-end. The Bank also has an internal limit on brokered deposits of 15% of total deposits which would allow capacity of $5.5$5.6 billion at September 30, 2023.as of March 31, 2024. The Bank had $1.1 billion$728.8 million of outstanding brokered deposits at the end of the quarter leaving $4.4$4.8 billion in available capacity. All of these resources would provide an$13.5 billion of additional $14.4 billion in funding if we needed additional liquidity. Thefor the Bank. In addition, the Bank also has $3.7$3.1 billion in market value of unpledged securities at September 30, 2023March 31, 2024 that can be pledged to attainobtain additional funds, if necessary. We can also consider actions such as deposit promotions to increase core deposits. The Company has a $100.0 million unsecured line of credit with U.S. Bank National Association with no balance outstanding at September 30, 2023.March 31, 2024. We believe that our liquidity position continues to be adequate and readily available.

As discussed previously and presented below, the Bank maintains credit facilities with the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank of Atlanta. The table below compares Primary Funding Sources to uninsured deposits as of March 31, 2024.

(Dollars in millions)

Available Capacity

Federal Home Loan Bank of Atlanta

$

6,594

Federal Reserve Bank of Atlanta Discount Window

1,770

Cash and cash equivalents

1,209

Fair value of securities that can be pledged

3,046

Total primary sources

$

12,619

Uninsured deposits, excluding collateralized deposits

$

11,182

Uninsured and collateralized deposits

$

13,341

Coverage ratio, uninsured deposits

112.9

%

Coverage ratio, uninsured and collateralized deposits

94.6

%

Ratio of uninsured and collateralized deposits to total deposits

35.9

%

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 March 31, 2024. The Company’s tier 1 leverage ratio, CET 1 risk-based capital ratio and total risk-based capital ratio were 9.58%, 11.95% and 14.39%, respectively, at March 31, 2024. The Bank’s Tier 1 leverage ratio, CET 1 risk-based capital ratio and total risk-based capital ratio were 10.14%, 12.66% and 13.99%, respectively, at March 31, 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 March 31, 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.

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Through the operations of our Bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. We manage the credit risk on these commitments by subjecting them to normal underwriting and risk management processes. We believe that we have adequate sources of liquidity to fund commitments that are drawn upon by the borrowers. In addition to commitments to extend credit, we also issue standby letters of credit, which are assurances to third parties that they will not suffer a loss if our customer fails to meet its contractual obligation to the third-party. Although our experience indicates that many of these standby letters of credit will expire unused, through our various sources of liquidity, we believe that we will have the resources to meet these obligations should the need arise.

Our contingency funding plan describes several potential stages based on stressed liquidity levels. Liquidity key risk indicators are reported to the Board of Directors on a quarterly basis. WeAs noted previously, we maintain various wholesale sources of funding. If our deposit retention efforts were to be unsuccessful, we would use these alternative sources of funding. Under such circumstances, depending on the external source of funds, our interest cost would vary based on the range of interest rates charged. This could increase our cost of funds, impacting our net interest margin and net interest spreadspread..

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.

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 the past two 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.

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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 take into accountconsider 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 28—15 — Derivative Financial Instruments in the consolidated financial statements.

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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, 2023,March 31, 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 28—15 — 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.

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 March 31, 2024, the Company was operating within its interest rate key risk indicator policy limits.

During 2023 and the thirdfirst quarter of 2023,2024, 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 fifty-threeand seventy-four basis points. During this period, the federal funds rate has increased 525 basis points. Accordingly, our cycle to date beta has been approximately 27%33%. Management recognizes the difficulty in using historical data to forecast deposit betas in the current environment. For internal purposes, we are assuming a cumulative upward rate cycleand based on the deposit mix as of March 31, 2024, the total deposit beta assumption was 35.0%. 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 34.0% with a terminal federal funds rate of 5.50% and a corresponding cumulative rate increase of 525 basis points.

time.

The following interest rate risk metrics are derived from analysis using the Moody’s ConsensusBaseline Scenario published in October 2023April 2024 as the Base Case. Case Scenario. As of September 30, 2023,March 31, 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 1.3%1.1% increase (up 100) and 1.9%1.8% decrease (down 100) in net interest income.income.

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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, 2023,March 31, 2024, the percentage change in EVE due to a 100-basis point increase or decrease in interest rates was 2.4% decrease and 0.1%0.7% increase, respectively. The percentage changes in EVE due to a 200-basis point increase or decrease in interest rates were 5.6%5.9% decrease and 0.9%0.4% decrease, respectively. The interest rate shock analysis results for EVE sensitivities are unusual as the benefits of repricing assets are mitigated by increasing deposit costs, and 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, 2023.

March 31, 2024.

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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, except for PPP loans that are not assumed to be replaced.levels. Base Case assumes new and repricing volumes reference forward rates derived from the Moody’s ConsensusBaseline 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

1.3%1.1

%

Up 200 basis points

2.2%1.8

%

Up 300 basis points

2.1

%

Up 400 basis points

2.3

%

Down 100 basis points

(1.9%)(1.8)

%

Down 200 basis points

(4.5%)(4.4)

%

Down 300 basis points

(8.6)

%

Down 400 basis points

(13.2)

%

LIBOR Transition

The publication of all tenors of U.S. dollar LIBOR on a representative basis ceased as of September 30, 2023. As previously noted, we established a cross-functional LIBOR transition working group that (1) assessed the Company's exposure to LIBOR indexed instruments and the data, systems and processes that were impacted; (2) established a detailed implementation plan; and (3) developed a formal governance structure for the transition. The Company developed and implemented various proactive steps to facilitate the transition on behalf of customers up through September 30, 2023, which included:

The adoption and implementation of fallback provisions that provided for the determination of replacement rates for LIBOR-linked financial products.
The adoption of new products linked to alternative reference rates, such as adjustable-rate mortgages, consistent with guidance provided by the U.S. regulators, the Alternative Reference Rates Committee, and GSEs.
The selection of SOFR indices as the replacement indices, and successful completion of systems testing using the SOFR replacement indices.
Successful transition of Libor-exposed instruments to SOFR and other indices as appropriate for contracts that provided for a specific replacement index other than SOFR.

We utilized the provisions of the Adjustable Interest Rate (LIBOR) Act passed by Congress and signed into law by the President in March 2022 for certain contracts referencing LIBOR. The Act provides for the use of SOFR as the replacement index with a spread adjustment when the remaining LIBOR indices are discontinued. The Act applies when there is no contract provision addressing the loss of LIBOR and may be used otherwise as well, provided the contract does not provide for a specific replacement index.

In addition, the Company developed and implemented processes to educate client-facing associates and coordinate communications with customers regarding the transition.

As of September 30, 2023, the Company’s LIBOR-indexed loans, derivatives, and trust preferred securities have migrated to SOFR and other indices and will reprice by reference to such replacement indices at the next scheduled repricing date. Final validations and other verification tasks have been complete.

Deposit and Loan Concentrations

WeAt March 31, 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 loansdeposits concentrated within a single industry or group of related industries. Furthermore, we attempt to avoid making loans that, in an aggregate amount, exceed 10% of total loans to a multiple number of borrowers engaged in similar business activities. As of September 30, 2023, there were no aggregated loan concentrations of this type. 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 10 and 20 deposit holders were below 5% of the Company’s average total deposit balances at March 31, 2024. We do not have any foreign loans or 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 $1.1$1.2 billion at September 30, 2023.March 31, 2024. Based on this criteria, we had eight such credit concentrations at September 30, 2023,March 31, 2024, including loans to lessors of nonresidential buildings (except mini-warehouses) of $6.9$6.1 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 $2.3$2.5 billion, loans secured by 1st mortgage 1-4 family owner occupied residential property (including condos and home equity lines) of $8.4$9.0 billion, loans secured by jumbo (original loans greater than $548,250) of $2.5 billion, loans secured by business assets including accounts receivable, inventory and equipment of $2.2 billion and loans to consumers secured by non-real estate of $1.2 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.

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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, 2023March 31, 2024 and December 31, 2022,2023, the Bank’s CDL concentration ratio was 57.6%48.9% and 64.8%59.7%, respectively, and its CRE concentration ratio was 240.2%235.1% and 249.0%236.5%, respectively. As of September 30, 2023,March 31, 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 Bankbank management. Therefore, we monitor these two ratios as part of our concentration management processes.

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ReconciliationReconciliation 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

March 31,

(Dollars in thousands)

    

2024

    

2023

Return on average equity (GAAP)

 

8.36

%  

10.96

%

Effect to adjust for intangible assets

 

5.27

%  

7.85

%

Return on average tangible equity (non-GAAP)

 

13.63

%  

18.81

%

Average shareholders’ equity (GAAP)

$

5,536,551

$

5,177,048

Average intangible assets

 

(2,009,649)

 

(2,036,661)

Adjusted average shareholders’ equity (non-GAAP)

$

3,526,902

$

3,140,387

Net income (GAAP)

$

115,056

$

139,926

Amortization of intangibles

 

5,998

 

7,299

Tax effect

 

(1,503)

 

(1,594)

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

$

119,551

$

145,631

Three Months Ended

Nine Months Ended

 

September 30,

September 30,

 

(Dollars in thousands)

    

2023

    

2022

2023

    

2022

 

Return on average equity (GAAP)

 

9.24

%  

10.31

%

9.83

%  

9.32

%

Effect to adjust for intangible assets

 

6.28

%  

7.68

%

6.84

%  

6.87

%

Return on average tangible equity (non-GAAP)

 

15.52

%  

17.99

%

16.67

%  

16.19

%

Average shareholders’ equity (GAAP)

$

5,328,912

$

5,121,560

$

5,269,775

$

5,056,692

Average intangible assets

 

(2,022,810)

 

(2,052,463)

 

(2,029,689)

 

(1,982,227)

Adjusted average shareholders’ equity (non-GAAP)

$

3,306,102

$

3,069,097

$

3,240,086

$

3,074,465

Net income (GAAP)

$

124,144

$

133,043

$

387,517

$

352,547

Amortization of intangibles

 

6,616

 

7,837

 

20,943

 

25,178

Tax effect

 

(1,395)

 

(1,742)

 

(4,524)

 

(5,479)

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

$

129,365

$

139,138

$

403,936

$

372,246

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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 acquisition of Atlantic Capital. 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:following:

Risks relating to our Business and Business Strategy

FailureEconomic 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 realize cost savingsthe 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 any revenue synergiesattract and retain qualified people, which could be exacerbated by the continuing work from and to limit liabilitiesremote environment;
Credit risks associated with mergersan 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 acquisitions withintheir impact on the expected time frame,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 acquisitionnet 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 Atlantic Capital;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;

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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.

Deposit attrition, client loss or revenue loss following completed mergers or acquisitions may be greater than anticipated;Risks relating to the Regulatory Environment

Risk relatedCompliance risk involving risk to volatilityearnings 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 and including the impact of special FDIC assessments, the Consumer Financial Protection Bureau regulations or other guidance, and the possibility of changes in accounting standards, policies, principles and practices.

Risks relating to our Common Stock

The risks of fluctuations in market prices for SouthState common stock that may or may not reflect economic condition or performance of SouthState;
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; and
Ownership dilution risk associated with potential acquisitions in which SouthState’s stock may be issued as consideration for an acquired company.

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;
Economic downturn risk, potentially resulting in deterioration in the credit markets, greater than expected noninterest expenses, excessive loan losses and other negative consequences, which risks could be exacerbated by potential negative economic developments resulting from inflation, interest rate increases, government or regulatory responses to the current global events, federal spending or spending cuts and/or one or more federal budget-related impasses or actions;

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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;
Potential deterioration in real estate values;
Interest risk involving the effect of a change in interest rates on our earnings, the market value of our loan and securities portfolios, and the market value of our equity;
Risks associated with a potential increase in our investment securities portfolio, including risks associated with acquiring and holding investment securities or potentially determining that the amount of investment securities we desire to acquire are not available on terms acceptable to us;
Risk associated with unexpected outflows of uninsured deposits may require us to sell investment securities at a loss;
Risk that 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;
Liquidity risk affecting our ability to meet our obligations when they come due;
The risks of fluctuations in the market price of our common stock that may or may not reflect our economic condition or performance;
Personnel risk, including our inability to attract and retain consumer and commercial bankers to execute on our client-centered, relationship driven banking model;
Potential deposit attrition, higher than expected costs, customer loss and business disruption associated with merger and acquisition integration, including, without limitation, potential difficulties in maintaining relationships with key personnel;
Strategic risk resulting from adverse business decisions or improper implementation of business decisions;
Risks associated with our reliance on models and future updates we make to our models, including the assumptions used by these models;
Environmental, Social and Governance (“ESG”) risks that could adversely affect our reputation, the trading price of our common stock and/or our business, operations, and earnings;
Cybersecurity risk related to our dependence on internal computer systems and the technology of outside service providers, as well as the potential impacts of third party security breaches, which subject us to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events;
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;
The payment of dividends on our common stock is subject to regulatory supervision as well as the discretion of our Board of Directors, our performance and other factors;
Compliance and litigation risk involving risk to earnings or capital resulting from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards;
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 and the possibility of changes in accounting standards, policies, principles and practices, including changes in accounting principles relating to loan loss recognition (2016-13 - CECL);
Risks associated with actual or potential information requesting, investigations or legal proceedings by customers, regulatory agencies or others;
Reputation risk that adversely affects our earnings or capital arising from negative public opinion including the effects of social media on market perceptions of us and banks generally;
Noninterest income risk resulting from the effect of regulations that prohibit or restrict the charging of fees on paying overdrafts on ATM and one-time debit card transactions;
Greater than expected noninterest expenses;
Operational, technological, cultural, regulatory, legal, credit and other risks associated with the exploration, consummation and integration of potential future acquisition, whether involving stock or cash consideration;
Ownership dilution risk associated with potential mergers and acquisitions in which our stock may be issued as consideration for an acquired company;
The impact of competition with other financial service businessesinstitutions, including deposit and from nontraditional financial technology companies, includingloan pricing pressures and the resulting impact, including as a result of compression to net interest margin;

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Current or anticipated impact of military conflict, including escalating military tension between Russia and Ukraine, the terrorist attack by Hamas in Israel, and other civil unrest, terrorism or geopolitical events, and related risks that result in loss of consumer confidence and economic disruptions; and
Transaction risk arising from problems with serviceCatastrophic events such as hurricanes, tornados, earthquakes, floods or product delivery.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, 2023March 31, 2024 from those disclosures presented in our Annual Report on Form 10-K for the year ended 2022.2023.

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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, 2023,March 31, 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, 2023,March 31, 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, 2023,March 31, 2024, that has materially affected, or is likely to materially affect, our internal control over financial reporting.

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 March 31, 2024, the Company had not incurred material 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. As of September the date of this Quarterly Report on Form 10-Q, 14 putative class action lawsuits, including the Original Suit, are pending. For more information about the Original Suit and other litigations filed in connection with the Cyber Incident, please refer to Note 12 — 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.

30, 2023

Other than the Cyber Incident Suits (as defined in Note 12 — Commitments and Contingent Liabilities), as of March 31, 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.

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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, 2022,2023, 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.

There have been no material changes to the risk factors disclosed in Item 1A. of Part I in our Annual Report on Form 10-K for the year ended December 31, 2022.2023.

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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 did not repurchase anyrepurchased a total of 100,000 shares at a weighted average price of $79.85 per share shares through the 2022 Stock Repurchase Program during 2022 or 2023. Of the 4,120,021first quarter of 2024. During 2023, the Company repurchased a total of 100,000 shares authorized underat a weighted average price of $67.48 per share pursuant to the 2022 Stock Repurchase Program, we may repurchase upProgram. As of March 31, 2024, there is a total of 3,920,021 shares authorized to 4,120,021 shares of common stock.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 thirdfirst quarter of 2023:2024:

    

    

    

    

(d) Maximum

 

    

    

    

    

(d) Maximum

 

(c) Total

Number (or

 

(c) Total

Number (or

 

Number of

Approximate

 

Number of

Approximate

 

Shares (or

Dollar Value) of

 

Shares (or

Dollar Value) of

 

Units)

Shares (or

 

Units)

Shares (or

 

(a) Total

Purchased as

Units) that May

 

(a) Total

Purchased as

Units) that May

 

Number of

Part of Publicly

Yet Be

 

Number of

Part of Publicly

Yet Be

 

Shares (or

(b) Average

Announced

Purchased

 

Shares (or

(b) Average

Announced

Purchased

 

Units)

Price Paid per

Plans or

Under the Plans

 

Units)

Price Paid per

Plans or

Under the Plans

 

Period

Purchased

Share (or Unit)

Programs

or Programs

 

Purchased

Share (or Unit)

Programs

or Programs

 

July 1 ‑ July 31

 

3,444

*

$

76.64

 

 

4,120,021

August 1 - August 31

 

834

*

 

78.73

 

 

4,120,021

September 1 - September 30

 

819

*

 

69.93

 

 

4,120,021

January 1 ‑ January 31

 

27,743

*

$

83.72

 

 

4,020,021

February 1 - February 29

 

63,024

*

 

83.11

 

 

4,020,021

March 1 - March 31

 

104,770

*

 

79.96

 

100,000

 

3,920,021

Total

 

5,097

 

 

4,120,021

 

195,537

 

100,000

 

3,920,021

*

For the three months ended JulyMarch 31, 2023, August 31, 2023 and September 30, 2023,2024, totals include 3,444, 834,27,743, 63,024, and 8194,770 shares, respectively, that were repurchased under arrangements, authorized by our stock-basedstock based compensation plans and Board of Directors, whereby officers or directors may sell previously owned shares to the CompanySouthState 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 purchasedrepurchased under the 2022 Stock Repurchase Plan to repurchase sharesProgram.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

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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, 2023, 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

*     Denotes a management compensatory plan or arrangement.

Exhibit No.

Description of Exhibit

Incorporated by Reference

Form

Commission File No.

Exhibit

Filing Date

Filed

Herewith

3.1

Amended and Restated Bylaws of SouthState Corporation dated April 26, 2023

10-Q

001-12669

3.1

8/4/2023

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 March 31, 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

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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: NovemberMay 3, 20232024

/s/ John C. Corbett

John C. Corbett

President and Chief Executive Officer

(Principal Executive Officer)

Date: NovemberMay 3, 20232024

/s/ William E. Matthews, V

William E. Matthews, V

Senior Executive Vice President,

Chief Financial Officer

(Principal Financial Officer)

Date: NovemberMay 3, 20232024

/s/ Sara G. Arana

Sara G. Arana

Executive Vice President and

Principal Accounting Officer

8477