SouthState Corp
For the period ended Jun 30, 2024. Filed Aug 2, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 2, 2024
SSB$104.11-0.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-03.
0001558370-24-006602
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-02.
0001558370-24-010655
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 143 previous paragraphs and 159 current paragraphs.
81 unchanged; 59 reworded; 16 added; 3 removed; 0 previous and 3 current paragraphs rearranged.
Tables are not compared: 106 previous and 130 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (16)
Current report
Recent Events
Current report
Independent Bank Group, Inc. (“Independent”) Proposed Merger
Current report
On May 20, 2024, SouthState and Independent announced that the two companies had entered into a Merger Agreement, which provides that upon the terms and subject to the conditions set forth in the Merger Agreement, Independent will merge with and into SouthState, with SouthState continuing as the surviving corporation in the merger and immediately following the merger, Independent’s wholly owned banking subsidiary, Independent Bank, will merge with and into the SouthState’s wholly owned banking subsidiary, SouthState Bank, National Association, which will continue as the surviving bank in the bank merger. The Merger Agreement was approved by the Boards of Directors of the Company and Independent by the unanimous vote of directors present at the applicable meetings and is subject to approval by SouthState’s and Independent’s shareholders, as well as regulatory approvals and other customary closing conditions.
Current report
Under the terms of the Merger Agreement, shareholders of Independent will receive 0.60 shares of SouthState’s common stock for each share of Independent common stock they own. The transaction is expected to close during the first quarter of 2025, subject to the satisfaction of customary closing conditions, including receipt of required statutory approvals and approval by the shareholders of each of the Company and Independent. At June 30, 2024, Independent reported $18.4 billion in total assets, $14.6 billion in loans and $15.8 billion in deposits.
Current report
The following is a summary of our ACL critical accounting policy, which is highly dependent on estimates, assumptions and judgments.
Current report
The ACL reflects management’s estimate of the portion of the amortized cost of loans and unfunded commitments that it does not expect to collect. Management has a methodology determining its ACL for loans held for investment and certain off-balance-sheet credit exposures. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded on the balance sheet reflects management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. See Note 2—Summary of Significant Accounting Policies for further detailed descriptions of our estimation process and methodology related to the ACL. See also Note 7—Allowance for Credit Losses and “Allowance for Credit Losses (“ACL”) on Loans and Certain Off-Balance-Sheet Credit Exposures” in this MD&A.
Current report
One of the most significant judgments influencing the ACL is the macroeconomic forecasts from the third-party service provider. Changes in the economic forecasts may significantly affect the estimated credit losses which may potentially lead to materially different quantitatively modeled allowance levels from one reporting period to the next. Given the dynamic relationship between macroeconomic variables, it is difficult to estimate the impact of a change in any one individual variable on the ACL. SouthState uses a third-party service provider to support the economic forecast assumptions under CECL forecast by providing various levels of economic scenarios. These scenarios are weighted in accordance with management assessment of scenarios as well as expectations of the general market and industry conditions. To illustrate the sensitivity of these scenarios, if a 100% probability weighting was applied to the adverse scenario rather than using the probability-weighted three scenario approach, this would result in an increase in the ACL by approximately $213.9 million (all other things equal, including no compensating adjustments to qualitative factor adjustments). Conversely, if a 100% probability weighting was applied to the upside scenario, this would result in a decrease in the ACL by approximately $98.2 million. The adverse scenario includes assumptions including, but not limited to, elevated interest rates weakening consumers and public confidence, inflation, the Russian invasion of Ukraine persisting longer than expected and conflict in the Middle East leading to a wider war, tensions between China and Taiwan interrupt trade, political risks, increased unemployment and the U.S. economy falling into recession in 2024. Conversely, the upside scenario includes assumptions such as a swift resolution of international conflicts, stabilization of consumer confidence, more than full employment, reduced political tensions, and other favorable assumptions. This sensitivity analysis and related impact on the ACL is a hypothetical analysis and is not intended to represent management’s judgments or assumptions of qualitative loss factors that were utilized at June 30, 2024.
Current report
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.
Current report
Noninterest income decreased by $1.8 million, or 1.2%, during the six months ended June 30, 2024, compared to the same period in 2023. The categories and explanations for the fluctuations year-to-date, except the items discussed below, are similar to the ones noted above in the quarterly comparison.
Current report
Noninterest expense increased by $14.9 million, or 3.1%, during the six months ended June 30, 2024, compared to the same period in 2023. The categories and explanations for the fluctuations year-to-date, except the items discussed below, are similar to the ones noted above in the quarterly comparison.
Current report
Our effective tax rate for the first six months of the year was 24.19% compared to 21.84% for the first six months of 2023. The increase in the year-to-date effective tax rate compared to the same period of 2023 was primarily driven by amortization of LIHTC investments, an increase in disallowed interest expense, partially offset by an increase in tax-exempt interest income and an increase in federal tax credits available. In addition, the Company recorded approximately $2.8 million in income tax provision during the first quarter of 2024 related to the revaluation of its deferred income taxes and other tax adjustments.
Current report
Total commercial non-owner-occupied loans of $9.1 billion, approximately 27.4% of the total loans held for investment, was the largest category of the loan portfolio as of June 30, 2024. As of June 30, 2024, approximately 94% of the commercial non-owner-occupied portfolio was located within the Company’s footprint. Of the $9.1 billion, approximately $1.3 billion, or 4% of the total loans, represented our office segment. Approximately 95% of the office segment was located in the Company’s footprint and approximately 10% was located within the metropolitan or central business district. The weighted average Debt Service Coverage (“DSC”) was 1.47x and the loan-to-value was 58%. For additional discussion around classified commercial non-owner-occupied loans, refer to the “Nonperforming Assets” section in this MD&A.
Current report
The following table presents the top eight loan segments of the commercial non-owner-occupied loan category (excluding loans held for sale). The loan segments in the table below are determined by the call code, used for the Bank’s regulatory reporting requirements issued by the FDIC for the FFIEC 041, also referred to as the Call Report.
Current report
As discussed in Note 1 - Summary of Significant Accounting Policies, in the second quarter of 2024, updates were made to certain estimates used in the Company’s current expected credit loss model. While the total allowance and coverage of total loans remain the same, reserves at the loan segment level were updated due the expansion of macroeconomic variables. Although portions of the allowance may be allocated to specific loans or pools of loans, the entire allowance is available for any credit that, in management’s judgment, should be charged off.
Current report
The following tables present summary of ACL for the three and six months ended June 30, 2024, and 2023:
Current report
As discussed previously under the “Loans” section in this MD&A, commercial non-owner-occupied loans represented the largest category of the loan portfolio as of June 30, 2024. We continued to experience solid and stable asset quality for these loans as of June 30, 2024 as approximately 0.2% of the total commercial non-owner-occupied loans were on non-accrual. In addition, approximately 5.4% and 2.0% of the total commercial non-owner-occupied loans were classified as substandard and still accruing, and special mention, respectively. Majority of these classified assets are mainly related to debt service coverage policy violations as interest rates have risen. However, most of these loans are still performing, are strongly collateralized and have strong borrowers supporting the loans. For additional information on the Company’s monitoring process for classified loans and a description of the general characteristics of the risk grades, refer to Note 6 — Loans in this Quarterly Report on Form 10-Q.
Removed paragraphs (3)
Previous report
The following table presents a summary of the changes in the ACL, for the three months ended March 31, 2024 and 2023:
Previous report
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.
Previous report
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. As 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 spread.
Reworded paragraphs (59)
Previous wording
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) relates to the financial statements contained in this Quarterly Report beginning on page 3. For further information, refer to the MD&A appearing in the Annual Report on Form 10-K for the year ended December 31, 2023. Results for the three months ended March 31, 2024 are not necessarily indicative of the results for the year ending December 31, 2024 or any future period.
Current wording
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) relates to the financial statements contained in this Quarterly Report beginning on page 3. For further information, refer to the MD&A appearing in the Annual Report on Form 10-K for the year ended December 31, 2023. Results for the three and six months ended June 30, 2024, are not necessarily indicative of the results for the year ending December 31, 2024, or any future period.
Previous wording
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. Corporate Billing, a transaction-based division headquartered in Decatur, Alabama, that provides factoring, invoicing, collection and accounts receivable management services to transportation companies and automotive parts and service providers 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.
Current wording
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 Securities Corp., a registered broker-dealer headquartered in Memphis, Tennessee that serves primarily institutional clients across the U.S. in the fixed income business. The Bank also operates SouthState Advisory, Inc., a wholly owned registered investment advisor. SSB First Street Corporation, an investment subsidiary of the Bank headquartered in Wilmington, Delaware, holds tax-exempt municipal investment securities as part of the Bank’s investment portfolio. The holding company also owns SSB Insurance Corp., a captive insurance subsidiary pursuant to Section 831(b) of the U.S. Tax Code.
Previous wording
At March 31, 2024, we had approximately $45.1 billion in assets and 5,179 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.
Current wording
At June 30, 2024, we had approximately $45.5 billion in assets and 5,189 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.
Previous wording
The following discussion describes our results of operations for the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023 and also analyzes our financial condition as of March 31, 2024 as compared to December 31, 2023. Like most financial institutions, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we may pay interest. Consequently, one of the key measures of our success is the amount of our net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.
Current wording
The following discussion describes our results of operations for the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023, and also analyzes our financial condition as of June 30, 2024, as compared to December 31, 2023. Like most financial institutions, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we may pay interest. Consequently, one of the key measures of our success is the amount of our net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.
Previous wording
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, 2023.
Current wording
Our consolidated financial statements are prepared based on the application of accounting policies in accordance with GAAP and follow general practices within the banking industry. Our financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Differences in the application of these policies could result in material changes in our consolidated financial position and consolidated results of operations and related disclosures. Understanding our accounting policies is fundamental to understanding our consolidated financial position and consolidated results of operations. Accordingly, our significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in Note 2 — Summary of Significant Accounting Policies and Note 3 — Recent Accounting and Regulatory Pronouncements of our consolidated financial statements in this Quarterly Report on Form 10-Q and in Note 1 — Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the year ended December 31, 2023.
Previous wording
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 $24.9 million decrease in consolidated net income was the net result of the following items:
Current wording
We reported consolidated net income of $132.4 million, or diluted earnings per share (“EPS”) of $1.73, for the second quarter of 2024 as compared to consolidated net income of $123.4 million, or diluted EPS of $1.62, in the comparable period of 2023, a 7.2% increase in consolidated net income and a 6.8% increase in diluted EPS. During the six months ended June 30, 2024, we reported consolidated net income of $247.4 million, or diluted EPS of $3.23, as compared to consolidated net income of $263.4 million, or diluted EPS of $3.45, in the comparable period of 2023, a 6.1% decrease in consolidated net income and a 6.4% decrease in diluted EPS. The $8.9 million increase in consolidated net income for the second quarter of 2024 compared to the same period of 2023 was the net result of the following items:
Previous wording
Our quarterly efficiency ratio increased to 58.5% in the first quarter of 2024 compared to 51.4% in the first quarter of 2023. The increase in the efficiency ratio compared to the first quarter of 2023 was the result of an 8.3% decrease in the total of tax-equivalent net interest income and noninterest income along with a 4.3% increase in noninterest expense (excluding amortization of intangibles). This decrease was reflective of a 150.7% increase in interest expense as the repricing of interest-bearing liabilities caught up with the repricing of interest-earning assets in 2023 and into the first quarter of 2024 resulting from the rising rate environment.
Current wording
Our quarterly efficiency ratio increased to 57.0% in the second quarter of 2024 compared to 53.6% in the second quarter of 2023. The increase in the efficiency ratio compared to the second quarter of 2023 was the result of an 3.1% decrease in the total of tax-equivalent net interest income and noninterest income along with a 3.0% increase in noninterest expense (excluding amortization of intangibles). This decrease was reflective of a 55.5% increase in interest expense as the repricing of interest-bearing liabilities caught up with the repricing of interest-earning assets in 2023 and 2024 resulting from the rising rate environment. The increase in noninterest expense was reflective of a 2.8% increase in salaries and employee benefits and a 220.0% increase in merger and branch consolidation related expense mostly related to the proposed merger with Independent.
Previous wording
Basic and diluted EPS were $1.51 and $1.50, respectively, for the first quarter of 2024, compared to $1.84 and $1.83, respectively for the first quarter of 2023. The decrease in basic and diluted EPS was due to a 17.8% decrease in net income in the first quarter of 2024 compared to the same period in 2023 along with an increase in average basic common shares of 0.5%. The decrease in net income in the first quarter of 2023 was mainly attributable to an increase in interest expense pertaining to interest-bearing liabilities resulting from the rising rate environmentas noted above.
Current wording
Basic and diluted EPS were $1.74 and $1.73, respectively for the second quarter of 2024, compared to $1.62 for the second quarter of 2023. The increase in basic and diluted EPS was due to a 7.2% increase in net income in the second quarter of 2024 compared to the same period in 2023. The effects from the increase in net income were partially offset by an increase in average basic common shares of 0.3%. The increase in net income in the second quarter of 2024 was mainly attributable to a decrease in provision for credit losses during the second quarter of 2024.
Previous wording
Non-Tax Equivalent (“TE”) net interest income decreased $37.3 million, or 9.8%, to $343.9 million in the first quarter of 2024 compared to $381.3 million in the same period in 2023. Interest earning assets averaged $40.7 billion during the three months period ended March 31, 2024 compared to $39.4 billion for the same period in 2023, an increase of $1.2 billion, or 3.2%. Interest bearing liabilities averaged $27.5 billion during the three months period ended March 31, 2024 compared to $24.6 billion for the same period in 2023, an increase of $2.9 billion, or 11.7%.
Current wording
Non-Tax Equivalent (“TE”) net interest income decreased $11.5 million, or 3.2%, to $350.3 million in the second quarter of 2024 compared to $361.7 million in the same period in 2023. Interest-earning assets averaged $41.0 billion during the three months period ended June 30, 2024, compared to $40.1 billion for the same period in 2023, an increase of $883.8 million, or 2.2%. Interest-bearing liabilities averaged $27.7 billion during the three months period ended June 30, 2024, compared to $26.0 billion for the same period in 2023, an increase of $1.7 billion, or 6.6%. Non-TE net interest income decreased $48.8 million, or 6.6%, to $694.2 million in the six months ended June 30, 2024, compared to $743.0 million in the same period in 2023. Interest-earning assets averaged $40.8 billion during the six months ended June 30, 2024, compared to $39.8 billion during the same period in 2023. Interest-bearing liabilities averaged $27.6 billion during the six months ended June 30, 2024, compared to $25.3 billion for the same period in 2023, an increase of $2.3 billion, or 9.0%.
Previous wording
The Federal Reserve made four 25 basis-point rate increases during 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 March 31, 2024. As a result, the Company operated under a higher rate environment for the first quarter of 2024 while it operated under a comparatively lower rate environment in the first quarter of 2023. Some key highlights are outlined below:
Current wording
The Federal Reserve made four 25 basis-point rate increases during 2023, starting early February 2023 with the last increase in late July 2023, resulting in a range of 5.25% to 5.50% at June 30, 2024. As a result, the Company operated under a higher rate environment for the three and six months ended June 30, 2024, while it operated under a comparatively lower rate environment in the same time periods in 2023. Some key highlights are outlined below:
Previous wording
The tables below summarize the analysis of changes in interest income and interest expense for the quarter ended March 31, 2024 and 2023 and net interest margin on a tax equivalent basis.
Current wording
The tables below summarize the analysis of changes in interest income and interest expense for the three and six months ended June 30, 2024, and 2023 and net interest margin on a tax equivalent basis:
Previous wording
The interest earned on investment securities decreased by $2.8 million in the three months ended March 31, 2024 compared to the three months ended 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 for the three months ended March 31, 2024 decreased by $766.8 million from the comparable period in 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 by 7 basis points during the three months ended March 31, 2024 compared to the same periods in 2023 due to the rising rate environment.
Current wording
The interest earned on investment securities decreased by $2.3 million and $5.1 million, respectively, in the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023. The average balance of investment securities decreased $767.7 million and $766.6 million, respectively, for the three and six months ended June 30, 2024, from the comparable periods in 2023. The yield on the investment securities increased 13 basis points and 10 basis points, respectively, during the three and six months ended June 30, 2024, compared to the same periods in 2023 due to the rising rate environment. While the Bank reduced the size of its investment securities portfolio, the yield on the investment securities increased due to higher interest rates in the three and six months ended June 30, 2024, compared to the same periods in 2023, resulting in higher interest income earned in 2024.
Previous wording
Interest earned on loans held for investment increased by $70.0 million to $463.0 million in the first quarter ended March 31, 2024 from the comparable period in 2023. Interest earned on loans held for investment included loan accretion income recognized during the quarters ended March 31, 2024 and 2023 of $4.3 million and $7.4 million, respectively, a decrease of $3.1 million. Some key highlights for the quarter ended March 31, 2024 are outlined below:
Current wording
Interest earned on loans held for investment increased $58.6 million to $477.3 million and increased $128.6 million to $940.3 million, respectively, during the three and six months ended June 30, 2024, from the comparable periods in 2023. Interest earned on loans held for investment included loan accretion income recognized during the three and six months ended June 30, 2024, and 2023 of $4.4 million, $8.7 million, $5.5 million and $12.9 million, respectively, a decrease of $1.1 million and $4.2 million, respectively. Some key highlights for the quarter ended June 30, 2024, are outlined below:
Previous wording
The quarter-to-date average balance of interest-bearing liabilities increased by $2.9 billion, or 11.7%, in the first quarter of 2024 compared to the same period in 2023. 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 108 basis points to 1.83% in the first quarter of 2024 compared to the same period in 2023. Some key highlights for the quarter ended March 31, 2024 compared to the same period in 2023 include:
Current wording
The quarter-to-date average balance of interest-bearing liabilities increased by $1.7 billion, or 6.6%, in the second quarter of 2024 compared to the same period in 2023. The cost of interest-bearing liabilities increased by 84 basis points to 2.63% and the overall cost of funds, including demand deposits, increased by 67 basis points to 1.90% in the second quarter of 2024, compared to the same period in 2023. Some key highlights for the quarter ended June 30, 2024, compared to the same period in 2023 include:
Previous wording
Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. Average noninterest-bearing deposits decreased by $2.2 billion, or 17.5%, to $10.5 billion in the first quarter of 2024 compared to $12.8 billion during the same period in 2023. The decrease in the average balance of noninterest bearing deposits was due to customers moving funds from noninterest bearing checking accounts to seek higher yields resulting from the rising rate environment, along with customers having less excess cash as funds from government support programs related to the COVID-19 pandemic began to decline.
Current wording
Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. Average noninterest-bearing deposits decreased $1.4 billion, or 11.5%, to $10.6 billion in the second quarter of 2024 compared to $11.9 billion during the same period in 2023. The decrease in the average balance of noninterest bearing deposits was due to customers moving funds from noninterest bearing checking accounts to interest bearing checking accounts seeking higher yields resulting from the rising rate environment, along with customers having less excess cash as funds from government support programs related to the COVID-19 pandemic began to decline.
Previous wording
Noninterest income provides us with additional revenues that are significant sources of income. For the three months ended March 31, 2024 and 2023, noninterest income comprised 17.2% and 15.8%, respectively, of total net interest income and noninterest income.
Current wording
Noninterest income provides us with additional revenues that are significant sources of income. For the three months ended June 30, 2024, and 2023, noninterest income comprised 17.7%, and 17.6%, respectively, of total net interest income and noninterest income. For the six months ended June 30, 2024, and 2023, noninterest income comprised 17.5%, and 16.7%, respectively, of total net interest income and noninterest income.
Previous wording
Noninterest income increased by $203,000, or 0.3%, during the first quarter of 2024 compared to the same period in 2023. This quarterly change in total noninterest income resulted from the following:
Current wording
Noninterest income decreased slightly by $2.0 million, or 2.6%, during the second quarter of 2024 compared to the same period in 2023. This quarterly change in total noninterest income resulted from the following:
Previous wording
Noninterest expense increased by $8.8 million, or 3.7%, in the first quarter of 2024 compared to the same period in 2023. The quarterly increase in total noninterest expense primarily resulted from the following:
Current wording
Noninterest expense increased by $6.1 million, or 2.5%, in the second quarter of 2024 as compared to the same period in 2023. The quarterly increase in total noninterest expense primarily resulted from the following:
Previous wording
Our effective tax rate was 25.05% for the three months ended March 31, 2024 compared to 21.84% for the three months ended March 31, 2023. The increase in the effective rate for the quarter, when compared to the same period in the prior year, is driven by amortization of LIHTCs as a result of the adoption of the proportional amortization under ASU 2023-02 effective January 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. In addition, the Company recorded approximately $2.8 million in income tax provision related to the revaluations of its deferred income taxes and other tax adjustments during the current period.
Current wording
Our effective tax rate was 23.42% for the three months ended June 30, 2024, compared to 21.84% for the three months ended June 30, 2023. The increase in the effective rate for the quarter, when compared to the same period in the prior year, is driven by amortization of LIHTCs as a result of the adoption of the proportional amortization under ASU 2023-02 effective January 1, 2024, as well as an increase in disallowed interest expense, and non-deductible merger expenses recorded during the current period. This was partially offset by a decrease in disallowed executive compensation.
Previous wording
Our total assets increased by approximately $242.8 million, or 0.5%, from December 31, 2023 to approximately $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 by $278.8 million or 0.9% during the period, while investment securities decreased by $231.6 million, or 3.1%. Within total liabilities, deposits grew $129.5 million, or 0.3%, and federal funds purchased and securities sold under agreements to repurchase increased by $65.5 million, or 13.4%. Total borrowings decreased by $100.1 million, or 20.3%. Total shareholder’s equity increased by $13.9 million, or 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. Our loan to deposit ratio was 88% and 87% at March 31, 2024 and December 31, 2023, respectively, while our percentage of non-interest bearing deposit accounts to total deposits was 28% and 29% at March 31, 2024 and December 31, 2023, respectively.
Current wording
Our total assets increased approximately $591.9 million, or 1.3%, from December 31, 2023 to June 30, 2024, to approximately $45.5 billion. Within total assets, cash and cash equivalents increased by $118.3 million, or 11.8% and loans increased $846.1 million, or 2.6%, while investment securities decreased $415.6 million, or 5.6%, during the period. Within total liabilities, deposit grew $49.5 million, or 0.1%, and federal funds purchased and securities sold under agreements to repurchase increased by $53.2 million, or 10.9%. Total borrowings increased by $199.8 million, or 40.6%. Total shareholder’s equity increased $117.3 million, or 2.1%. The increase in cash and cash equivalents was primarily due to the increase in borrowings of $199.8 million along with decline in investments of $415.6 million from maturities and pay downs of mortgage-backed securities. The increase in borrowings was due to a net increase in FHLB advances of $200.0 million from December 31, 2023. These increases in funding sources were mostly offset by the increase in loans which was due to normal organic growth. Our loan to deposit ratio was 90% and 87% at June 30, 2024 and December 31, 2023, respectively, while our percentage of noninterest-bearing deposit accounts to total deposits was 28% and 29%, respectively at June 30, 2024, and December 31, 2023.
Previous wording
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 March 31, 2024, investment securities totaled $7.2 billion, compared to $7.5 billion at December 31, 2023, a decrease of $231.6 million, or 3.1%. At March 31, 2024, approximately 63.6% of the investment portfolio was classified as available for sale, approximately 33.8% was classified as held to maturity and 2.6% was classified as other investments. During the three months ended March 31, 2024, we purchased $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 $59.4 million. The net decrease to the capital stock holding for the Federal Home Loan Bank of Atlanta of $4.8 million during the first quarter of 2024 was due to the decrease in Federal Home Loan Bank borrowings. During the first quarter of 2024, the Bank did not purchase any securities available for sale or held to maturity. There were maturities, paydowns, and calls of investment securities totaling $168.4 million during the first quarter of 2024. Net amortization of premiums was $4.8 million in the first three months of 2024.
Current wording
We use investment securities, our second largest category of earning assets, to generate interest income, provide liquidity, fund loan demand or deposit liquidation, and to pledge as collateral for public funds deposits, repurchase agreements, derivative exposures and to augment borrowing capacity at the Federal Reserve Bank of Atlanta, and the Federal Home Loan Bank of Atlanta. At June 30, 2024, investment securities totaled $7.0 billion, compared to $7.5 billion at December 31, 2023, a decrease of $415.6 million, or 5.6%. At June 30, 2024, approximately 63.8% of the investment portfolio was classified as available for sale, approximately 33.3% was classified as held to maturity and approximately 2.9% was classified as other investments. During the six months ended June 30, 2024, we purchased $95.0 million of capital stock of the Federal Home Loan Bank of Atlanta classified as other investment securities on the balance sheet of which we sold back $85.5 million. The net decrease to the capital stock holding for the Federal Home Loan Bank of Atlanta of $9.5 million during the six months of 2024 was due to the decrease in Federal Home Loan Bank borrowings. During the six months ended June 30, 2024, the Bank purchased $13.0 million of available for sale securities. There were maturities, paydowns, and calls of investment securities totaling $378.6 million during the six months of 2024. Net amortization of premiums was $9.7 million in the first six months of 2024.
Previous wording
At March 31, 2024, the unrealized net loss of the available for sale securities portfolio was $830.2 million, or 15.3%, below its amortized cost basis, compared to an unrealized net loss of $776.6 million, or 14.0%, at December 31, 2023. At March 31, 2024, the unrealized net losses of the held to maturity securities portfolio was $430.0 million, or 17.6%, below its amortized cost basis, compared to an unrealized net losses of $402.7 million, or 16.2%, at December 31, 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%.
Current wording
At June 30, 2024, the unrealized net losses of the available for sale securities portfolio was $826.4 million, or 15.5%, below its amortized cost basis, compared to an unrealized net loss of $776.6 million, or 14.0%, at December 31, 2023. At June 30, 2024, the unrealized net losses of the held to maturity securities portfolio was $427.6 million, or 18.2%, below its amortized cost basis, compared to an unrealized net loss of $402.7 million, or 16.2%, at December 31, 2023.
Previous wording
At March 31, 2024, we had 1,236 investment securities, including both available for sale and held to 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 $1.2 billion. The total number of investment securities with an unrealized loss position increased by 4 securities, while the total dollar amount of the unrealized loss increased by $80.0 million. The level of unrealized losses for each period is due to an overall increase in short- and long-term interest rates in 2022 and 2023 and the expectation that interest rates will not fall until late 2024 or 2025.
Current wording
At June 30, 2024, we had 1,232 investment securities including both available for sale and held to maturity, in an unrealized loss position, which totaled $1.3 billion. At December 31, 2023, we had 1,232 investment securities, including both available for sale and held to maturity, in an unrealized loss position, which totaled $1.2 billion. The total number of investment securities with an unrealized loss position remained unchanged, while the total dollar amount of the unrealized loss increased by $73.5 million. The level of unrealized losses for each period is due to an overall increase in short- and long-term interest rates in 2022 and 2023 and the expectation that interest rates will not fall until late 2024 or 2025.
Previous wording
All investment securities in an unrealized loss position as of March 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 4 — Investment Securities for further discussion on the application of ASU 2016-13 on the investment securities portfolio.
Current wording
All investment securities in an unrealized loss position as of June 30, 2024, continue to perform as scheduled. We have evaluated the securities and have determined that the decline in fair value, relative to its amortized cost, is not due to credit-related factors. In addition, we have the ability and intent to hold these securities within the portfolio until maturity or until the value recovers, and we believe that it is more likely than not that we will not be required to sell these securities prior to recovery. We continue to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of our securities may be sold or would require a charge to earnings as a provision for credit losses in such periods. Any charges as a provision for credit losses related to investment securities could impact cash flow, tangible capital or liquidity. See Note 2 — Summary of Significant Accounting Policies and Note 5 — Investment Securities for further discussion on the application of ASU 2016-13 on the investment securities portfolio.
Previous wording
Approximately 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. Approximately 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 98% of the municipal bond portfolio has ratings in the Double A or Triple A category.
Current wording
Approximately 85.6% of the investment portfolio is comprised of U.S. Treasury securities, U.S. Government agency securities, and U.S. Government Agency Mortgage-backed securities. These securities may be pledged to the Federal Home Loan Bank of Atlanta or the Federal Reserve Bank of Atlanta Discount Window. Approximately 13.9% of the investment portfolio is comprised of municipal securities. A portion of the municipal bond portfolio may be pledged to the Federal Home Loan Bank of Atlanta subject to their credit approval. Approximately 98% of the municipal bond portfolio has ratings in the Double A or Triple A category.
Previous wording
During the first quarter of 2024, the Company did not sell any securities that are available for sale or held to maturity. As of March 31, 2024, the portfolio had an effective duration of 5.89 years. We continue to monitor duration risk and seek to align actual duration with the target range.
Current wording
Through June 30, 2024, the Company did not sell any securities that are available for sale or held to maturity. As of June 30, 2024, the portfolio had an effective duration of 5.89 years. We continue to monitor duration risk and seek to align actual duration with the target range.
Previous wording
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 March 31, 2024, we determined that there was no impairment on our other investment securities. As of March 31, 2024, other investment securities represented approximately $187.3 million, or 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. There were no gains or losses on the sales of these securities for three months ended March 31, 2024 and 2023, respectively.
Current wording
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 June 30, 2024, we determined that there was no impairment on our other investment securities. As of June 30, 2024, other investment securities represented approx imately $201.5 million, or 0.44% of total assets, and primarily consists of FHLB and FRB stock which totals $182.6 million, or 0.40% of total assets. There were no gains or losses on the sales of these securities for three and six months ended June 30, 2024, and 2023, respectively.
Previous wording
We have a trading portfolio associated with our Correspondent Banking 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 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$66.2 million and $31.3 million at March 31, 2024 and December 31, 2023, respectively.
Current wording
We have a trading portfolio associated with our Correspondent Banking Division and the Bank’s 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 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 $92.2 million and $31.3 million, respectively, at June 30, 2024, and December 31, 2023.
Previous wording
The balance of mortgage loans held for sale increased $5.7 million from December 31, 2023 to $56.6 million at March 31, 2024. Total mortgage production was $429 million in the first quarter of 2024. This compares to $436 million in the fourth quarter of 2023. Mortgage production has declined as mortgage rates have continued to remain high. The percentage of mortgage production sold into the secondary market increased to 53% at March 31, 2024 compared to 49% in the fourth quarter of 2023. The allocation of mortgage production between portfolio and secondary market depends on the Company’s liquidity, market spreads and rate changes during each period and will fluctuate over time.
Current wording
The balance of mortgage loans held for sale increased $49.1 million from December 31, 2023, to $100.0 million on June 30, 2024. Total mortgage production was $552 million in the second quarter of 2024. This compares to $429 million in the first quarter of 2024 and $696 million in the second quarter of 2023. Mortgage production has declined in 2024 as mortgage rates have continued to remain high. The percentage of mortgage production sold into the secondary market increased in the second quarter of 2024 to 59% from 53% in the first quarter of 2024. 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.
Previous wording
Total loans, net of deferred loan costs and fees (excluding mortgage loans held for sale), increased by $278.8 million, or 3.5% annualized, to $32.7 billion at March 31, 2024. Our non-acquired loan portfolio increased by $618.7 million, or 9.4% annualized, mainly driven by organic growth. Commercial non-owner occupied loans, consumer owner occupied loans, commercial and industrial loans, commercial owner occupied real estate, and home equity loans led the way with $621.6 million, $244.3 million, $112.6 million, $80.9 million and $25.1 million in year-to-date loan growth, respectively, or 39.1%, 16.6%, 9.8%, 8.1% and 8.8% annualized growth, respectively. The acquired loan portfolio decreased by $339.9 million, or 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 and industrial loans and commercial owner occupied loans, which decreased by $80.8 million, $73.0 million and $66.7 million, respectively, during the quarter. Acquired loans as a percentage of total loans decreased to 17.0% and non-acquired loans as a percentage of the overall portfolio increased to 83.0% at March 31, 2024. This compares to acquired loans as a percentage of total loans of 18.2% and non-acquired loans as a percentage of total loans of 81.8% at December 31, 2023.
Current wording
Total loans, net of deferred loan costs and fees (excluding mortgage loans held for sale), increased by $846.1 million, or 5.3% annualized, to $33.2 billion at June 30, 2024. Our non-acquired loan portfolio increased by $1.5 billion, or 11.7% annualized, mainly driven by organic growth. Commercial non-owner-occupied loans, consumer owner-occupied loans, commercial and industrial loans, commercial owner-occupied real estate, and home equity loans led the way with $772.5 million, $414.5 million, $414.0 million, $172.2 million and $99.0 million in year-to-date loan growth, respectively, or 24.3%, 14.1%, 18.1%, 8.6% and 17.4% annualized growth, respectively. The acquired loan portfolio decreased by $695.1 million, or 23.7% 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 and industrial loans and commercial owner-occupied loans, which decreased by $237.4 million, $148.7 million and $146.9 million, respectively, year-to-date. Acquired loans as a percentage of total loans decreased to 15.7% and non-acquired loans as a percentage of the overall portfolio increased to 84.3% at June 30, 2024. This compares to acquired loans as a percentage of total loans of 18.2% and non-acquired loans as a percentage of total loans of 81.8% at December 31, 2023.
Previous wording
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.
Current wording
Management considers forward-looking information in estimating expected credit losses. The Company subscribes to a third-party service which provides a quarterly macroeconomic baseline outlook and alternative scenarios for the United States economy. The baseline, along with the evaluation of alternative scenarios, is used by management to determine the best estimate within the range of expected credit losses. Management evaluates the appropriateness of the reasonable and supportable forecast scenarios and takes into consideration the scenarios in relation to actual economic and other data, such as gross domestic product growth, monetary and fiscal policy, inflation, supply chain issues and global events like the Russian/Ukraine conflict and unrest in middle east, as well as the volatility and magnitude of changes within those scenarios quarter over quarter, and consideration of conditions within the Bank’s operating environment and geographic area. Additional forecast scenarios may be weighted along with the baseline forecast to arrive at the final reserve estimate. While periods of relative economic stability should generally lead to stability in forecast scenarios and weightings to estimate credit losses, periods of instability can likewise require management to adjust the selection of scenarios and weightings, in accordance with the accounting standards. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to the long term mean of historical factors within four quarters using a straight-line approach. The Company generally uses an eight-quarter forecast and a four-quarter reversion period.
Previous wording
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 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 consistent with the first 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 show resilience and actual loan losses remain at low levels, continued projected weakness in the forecasted commercial real estate price index continues 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 $12.7 million during the first quarter of 2024.
Current wording
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 June 30, 2024, management selected a baseline weighting of 40%, a 30% weighting for an upside scenario and a 30% weighting for the more severe scenario. In the prior quarter, scenario weightings were 50% on baseline and 25% each on the upside and downside scenarios. The scenario weightings were changed to align to best practices for probability weighted forecast scenarios and do not represent a significant shift in management’s economic outlook. Scenario weightings are generally expected to remain stable but are reviewed on a quarterly basis. The scenario weightings reflect continued recognition of downside risks in the economic forecast from persistent levels of inflation, high interest rates, and tightening credit conditions conducive of a mild recession. While employment figures still show resilience and actual loan losses remain at low levels, continued projected borrower weakness related to high interest rates result in elevated modeled expected losses. The resulting provision was approximately $3.9 million during the second quarter of 2024.
Previous wording
As of March 31, 2024, the balance of the ACL was $469.7 million or 1.44% of total loans. The ACL increased $13.1 million from the balance of $456.6 million recorded at December 31, 2023. The net increase during the first quarter of 2024 included a $15.8 million provision and $2.7 million in net charge-offs. During the three months ended March 31, 2024, the Company recorded a provision for credit losses based on loan growth and current forecasts applied to our modeling to adequately capture potential economic recessionary risks.
Current wording
As of June 30, 2024, the balance of the ACL was $472.3 million or 1.42% of total loans. The ACL increased $2.6 million from the balance of $469.7 million recorded at March 31, 2024. This increase during the second quarter of 2024 included $6.9 million provision and $4.2 million net charge-offs. During the first six monthsof 2024, the Company recorded a provision for credit losses based on loan growth and current forecasts applied to our modeling to adequately capture potential economic recessionary risks.
Previous wording
At March 31, 2024, the Company had a reserve on unfunded commitments of $53.2 million, which was recorded as a liability on the Balance Sheet, compared to $56.3 million at December 31, 2023. During the three months ended March 31, 2024, the Company recorded a decrease in the reserve for unfunded commitments of $3.1 million. This amount was recorded in Provision (Recovery) for Credit Losses on the Consolidated Statements of Income. For the comparative period in 2023, the Company had a reserve on unfunded commitments of $85.1 million recorded 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 assets during the first three months of 2024.
Current wording
At June 30, 2024, the Company had a reserve on unfunded commitments of $50.2 million, which was recorded as a liability on the Consolidated Balance Sheet, compared to $53.2 million at March 31, 2024, and $56.3 million at December 31, 2023. During the three and six months ended June 30, 2024, the Company recorded a decrease in the reserve for unfunded commitments of $3.0 million and $6.1 million, respectively. For the prior comparative period, the Company recorded a decrease in the reserve for unfunded commitments of $21.7 million and $3.8 million, respectively, during three and six months ended June 30, 2023. The Company did not have an allowance for credit losses or record a provision for credit losses on investment securities or other financial asset during the first six months of 2024.
Previous wording
The ACL provides 2.73 times coverage of nonperforming loans at March 31, 2024. Net charge-offs to the total average loans during the three months ended March 31, 2024 were 0.03%, compared to 0.01% during the three months ended March 31, 2023. We continued to experience solid and stable asset quality numbers and ratios as of March 31, 2024.
Current wording
The ACL provides 2.41 times coverage of nonperforming loans at June 30, 2024. Net charge-offs to total average loans during three and six months ended June 30, 2024, were 0.05% and 0.04%, respectively, compared to net charge-offs to total average loans of 0.04% and 0.03%, respectively, during the three and six months ended June 30, 2023. We continued to experience solid and stable asset quality numbers and ratios as of June 30, 2024.
Previous wording
The following table presents a summary of net charge off ratios (annualized) by loan segment, for the quarters ended March 31, 2024 and 2023:
Current wording
The following table presents a summary of net charge off ratios (annualized) by loan segment, for the three and six months ended June 30, 2024, and 2023:
Previous wording
Total nonperforming assets were $174.5 million, or 0.53% of total loans and repossessed assets, at March 31, 2024, a decrease of $9.6 million, or 5.2%, from December 31, 2023. Total nonperforming loans were $172.3 million, or 0.53%, of total loans, at March 31, 2024, a decrease of $10.4 million, or 5.7%, from December 31, 2023. Non-acquired nonperforming loans decreased by $13.1 million from December 31, 2023. The decrease in non-acquired nonperforming loans was driven primarily by a decrease in commercial nonaccrual loans of $7.2 million, a decrease in accruing loans past due 90 days or more of $8.8 million, offset by an increase in consumer nonaccrual loans of $2.9 million. Theaccruing 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 accruing loans past due 90 days or more of factored receivables, which are trade credits rather than promissory notes loans thatare deemed to be low risk. Acquired nonperforming loans increased $2.7 million from December 31, 2023. The increase in the acquired nonperforming loan balances was due primarily to an increase in commercial nonaccrual loans of $4.6 million, offset by a decrease in consumer nonaccrual loans of $1.0 million and a decline in accruing loans past due 90 days or more of $1.0 million.
Current wording
Total nonperforming assets were $199.3 million, or 0.60% of total loans and repossessed assets, at June 30, 2024, an increase of $15.2 million, or 8.2%, from December 31, 2023. Total nonperforming loans were $195.8 million, or 0.59%, of total loans, at June 30, 2024, an increase of $13.1 million, or 7.2%, from December 31, 2023. Non-acquired nonperforming loans decreased by $5.2 million from December 31, 2023. The decrease in non-acquired nonperforming loans was driven primarily by a decrease in commercial nonaccrual loans of $16.1 million, a decrease in accruing loans past due 90 days or more of $5.5 million, offset by an increase in consumer nonaccrual loans of $7.9 million and restructured nonaccrual loans of $8.5 million. The accruing loans past due 90 days or more decreased by $5.5 million at June 30, 2024, compared to December 31, 2023, due primarily to a decrease in accruing loans past due 90 days or more of factored receivables, which are trade credits rather than promissory notes loans that are deemed to be low risk. The increase in restructured nonaccrual loans of $8.5 million was due to one commercial loan that was modified under a term extension agreement. Acquired nonperforming loans increased $18.3 million from December 31, 2023. The increase in the acquired nonperforming loan balances was due primarily to an increase in commercial nonaccrual loans of $13.9 million, an increase in restructured nonaccrual loans of $5.9 million, offset by a decrease in consumer nonaccrual loans of $1.3 million and a decline in accruing loans past due 90 days or more of $300,000. The increase in commercial nonaccrual loans of $13.9 million was primarily due to one commercial non-owner-occupied real estate loan for $12.5 million.
Previous wording
Total interest-bearing deposits increased by $232.4 million, or 3.5% annualized, to $26.6 billion at March 31, 2024 from $26.4 billion at December 31, 2023. This increase was mainly driven by growth in money market accounts of $356.7 million, including $167.1 million in reciprocal insured money market deposits. This increase was partially offset by declines in interest-bearing checking accounts of $80.0 million and savings deposits of $75.0 million. Customers continue to move funds from lower yielding deposit products seeking higher yields in money market accounts. Federal funds purchases related to the Correspondent Banking Division and securities sold under agreements to repurchase were $554.7 million at March 31, 2024, a $65.5 million increase from December 31, 2023. Other borrowings, consisting of FHLB borrowings, decreased to $0 at March 31, 2024 from $100 million at December 31, 2023. Corporate and subordinated debentures declined by $92,000 to $391.8 million. Some key highlights are outlined below:
Current wording
Total interest-bearing deposits increased $324.3 million, or 2.5% annualized, to $26.7 billion at June 30, 2024, from $26.4 billion at December 31, 2023. This increase mainly driven by growth in money market accounts of $583.7 million, including $189.7 million in reciprocal insured money market deposits and in time deposits of $329.1 million. This increase was partially offset by declines in interest-bearing checking accounts of $431.4 million and savings deposits of $157.1 million. Customers continue to move funds from lower yielding deposit products seeking higher yields in money market accounts and time deposits. Federal funds purchased related to the Correspondent Banking Division and securities sold under agreements to repurchase were $542.4 million at June 30, 2024, a $53.2 million increase from December 31, 2023. Other borrowings, consisting of FHLB borrowings, increased to $300.0 million at June 30, 2024 from $100.0 million at December 31, 2023. Corporate and subordinated debentures declined by $185,000 to $391.7 million. Some key highlights are outlined below:
Previous wording
Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. At March 31, 2024, the period end balance of noninterest-bearing deposits of $10.5 billion remained fairly stable compared to the balance at December 31, 2023 of $10.6 billion. Average noninterest-bearing deposits were $10.5 billion for the first quarter of 2024 compared to $12.8 billion for the first quarter of 2023. This decrease in the 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, as well as the resulting effects of higher costs related to inflation.
Current wording
Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. At June 30, 2024, the period end balance of noninterest-bearing deposits of $10.4 billion declined slightly compared to the balance at December 31, 2023, of $10.6 billion. Average noninterest-bearing deposits were $10.6 billion for the second quarter of 2024 compared to $11.9 billion for the second quarter of 2023. This decrease in the average noninterest bearing deposits from the quarter ended June 30, 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, as well as the resulting effects of higher costs related to inflation.
Previous wording
At March 31, 2024 and December 31, 2023, the Company had approximately $13.3 billion and $14.2 billion, respectively, in estimated uninsured deposits. The amounts above are estimates and are based on the same methodologies and assumptions used for the Bank’s regulatory reporting requirements issued by the FDIC for the FFIEC 041, also referred to as the Call Report.
Current wording
At June 30, 2024, and December 31, 2023, the Company had approximately $13.2 billion and $14.2 billion, respectively, in estimated uninsured deposits. The amounts above are estimates and are based on the same methodologies and assumptions used for the Bank’s regulatory reporting requirements issued by the FDIC for the FFIEC 041, also referred to as the Call Report.
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Current report — wording carried from elsewhere
We also operate Corporate Billing, a transaction-based division of the Bank headquartered in Decatur, Alabama, that provides factoring, invoicing, collection and accounts receivable management services to transportation companies and automotive parts and service providers nationwide.
Current report — wording carried from elsewhere
Allowance for Credit Losses or ACL
Current report — wording carried from elsewhere
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 June 30, 2024. The Bank had $991.4 million of outstanding brokered deposits at the end of the quarter leaving $4.6 billion in available capacity. The Bank has federal funds credit lines of $300.0 million with no balances outstanding at quarter-end and the holding company has a $100.0 million unsecured line of credit with U.S. Bank National Association with no balance outstanding at June 30, 2024. We believe that our liquidity position continues to be adequate and readily available.