SouthState Corp

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 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.

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 nine months ended September 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 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.

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|DuncanWilliams Securities Corp. (“SouthState|DuncanWilliams”), a registered broker-dealer headquartered in Memphis, Tennessee that serves primarily institutional clients across the U.S. in the fixed income business. The Bank also operates SouthState Advisory, Inc., a wholly-owned registered investment advisor. SSB First Street Corporation, an investment subsidiary of the Bank headquartered in Wilmington, Delaware, holds tax-exempt municipal investment securities as part of the Bank’s investment portfolio. The holding company also owns SSB Insurance Corp., a captive insurance subsidiary pursuant to Section 831(b) of the U.S. Tax Code.

Previous 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.

Current wording

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

Previous wording

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.

Current wording

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

Previous 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.

Current wording

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

Previous wording

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 wording

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

Previous wording

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 wording

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

Previous wording

The following is a summary of our ACL critical accounting policy, which is highly dependent on estimates, assumptions and judgments.

Current wording

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

Previous wording

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 wording

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

Previous 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:

Current wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous 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%.

Current wording

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

Previous 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:

Current wording

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

Previous 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:

Current wording

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

Previous 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.

Current wording

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

Previous 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:

Current wording

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

Previous 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:

Current wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous 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:

Current wording

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

Previous 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:

Current wording

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

Previous wording

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 wording

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

Previous 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.

Current wording

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

Previous wording

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 wording

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

Previous 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.

Current wording

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

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 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.

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 September 30, 2024, investment securities totaled $7.1 billion, compared to $7.5 billion at December 31, 2023, a decrease of $386.7 million, or 5.2%. At September 30, 2024, approximately 64.5% of the investment portfolio was classified as available for sale, approximately 32.5% was classified as held to maturity and approximately 3.0% was classified as other investments. During the nine months ended September 30, 2024, we purchased $140.1 million of capital stock of the Federal Home Loan Bank of Atlanta classified as other investment securities on the balance sheet of which we sold back $130.6 million. The net increase to the capital stock holding for the Federal Home Loan Bank of Atlanta of $9.5 million during the nine months of 2024 was due to the increase in Federal Home Loan Bank borrowings. During the nine months ended September 30, 2024, the Bank purchased $60.7 million of available for sale securities. There were maturities, paydowns, and calls of investment securities totaling $589.1 million during the nine months ended September 30, 2024. Net amortization of premiums was $14.6 million during the nine months ended September 30, 2024.

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

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

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 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.

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 September 30, 2024, we determined that there was no impairment on our other investment securities. As of September 30, 2024, other investment securities represented approx imately $211.5 million, or 0.46% of total assets, and primarily consists of FHLB and FRB stock which totals $182.6 million, or 0.40% of total assets. There were no gains or losses on the sales of these securities for three and nine months ended September 30, 2024, and 2023, respectively.

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous wording

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 wording

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

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 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.

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 September 30, 2024, as well as the prior quarter, management selected a baseline weighting of 40%, a 30% weighting for an upside scenario and a 30% weighting for the more severe scenario. The scenario weightings were unchanged from the prior quarter. Scenario weightings are generally expected to remain stable but are reviewed on a quarterly basis. The scenario weightings reflect continued recognition of downside risks in the economic forecast from persistent levels of inflation, high interest rates, and tightening credit conditions conducive of a mild recession. While employment figures still show resilience and actual loan losses remain at low levels, continued projected borrower weakness related to high interest rates, uncertainty, and lingering chances of an economic downturn continue to moderate optimism in the path of the forecast and kept expected losses mostly flat. A decrease in unfunded commitments primarily in commercial construction drove a provision release of approximately $7.0 million during the third quarter of 2024.

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

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