South State (SSB) - 2024 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements The company's total assets increased slightly to $45.1 billion as of March 31, 2024, with net income for Q1 2024 at $115.1 million, a decrease from the prior year due to higher interest expense, while cash flows from operations remained positive at $277.7 million Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $45,144,838 | $44,902,024 | | Total cash and cash equivalents | $1,209,457 | $998,877 | | Total investment securities | $7,232,274 | $7,463,871 | | Loans, net | $32,197,656 | $31,931,916 | | Goodwill | $1,923,106 | $1,923,106 | | Total Liabilities | $39,597,829 | $39,368,926 | | Total deposits | $37,178,434 | $37,048,909 | | Total Shareholders' Equity | $5,547,009 | $5,533,098 | - Total assets increased by $242.8 million, or 0.5%, from December 31, 2023, primarily driven by an increase in net loans of $265.7 million[7] - Total deposits saw a modest increase of $129.5 million, or 0.3%, during the first quarter of 2024[7] Consolidated Statements of Income Consolidated Income Statement Summary (in thousands, except per share data) | Account | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net interest income | $343,936 | $381,263 | | Provision for credit losses | $12,686 | $33,091 | | Noninterest income | $71,558 | $71,355 | | Noninterest expense | $249,290 | $240,505 | | Net income | $115,056 | $139,926 | | Diluted earnings per share | $1.50 | $1.83 | - Net income decreased by 17.8% year-over-year, primarily due to a 9.8% decline in net interest income as interest expense more than doubled from $69.1 million to $173.3 million[10] - The provision for credit losses was significantly lower at $12.7 million compared to $33.1 million in the prior-year quarter, partially offsetting the decline in net interest income[10] Consolidated Statements of Cash Flows Consolidated Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $277,659 | $59,381 | | Net cash used in investing activities | ($105,955) | ($273,847) | | Net cash provided by financing activities | $38,876 | $898,565 | | Net increase in cash and cash equivalents | $210,580 | $684,099 | - Cash and cash equivalents increased by $210.6 million in Q1 2024, ending the period at $1.21 billion[18] - The net increase in loans was a primary use of cash in investing activities, amounting to $283.4 million for the quarter[18] Notes to Consolidated Financial Statements - Effective January 1, 2024, the Company adopted ASU 2023-02, changing the accounting method for its Low-Income Housing Tax Credit (LIHTC) investments to the proportional amortization method, resulting in a one-time net reduction to retained earnings of $10.2 million[40][15] - The company's total loan portfolio at amortized cost basis was $32.67 billion as of March 31, 2024, up from $32.39 billion at year-end 2023[54] - The Allowance for Credit Losses (ACL) increased to $469.7 million as of March 31, 2024, from $456.6 million at December 31, 2023, with a provision of $15.8 million recorded for the quarter[80][243] - The company detected a cybersecurity incident on February 6, 2024, which has led to 14 putative class action lawsuits, with the company currently unable to reasonably estimate the amount of possible loss[110][111][323] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The company's net income for Q1 2024 was $115.1 million, a 17.8% decrease from Q1 2023, primarily due to a significant increase in interest expense that compressed the net interest margin, while total assets grew modestly to $45.1 billion, supported by organic loan growth and stable asset quality, maintaining strong capital and liquidity positions Results of Operations Q1 2024 Performance vs. Q1 2023 | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Income | $115.1 million | $139.9 million | | Diluted EPS | $1.50 | $1.83 | | Net Interest Income | $343.9 million | $381.3 million | | Provision for Credit Losses | $12.7 million | $33.1 million | | Noninterest Income | $71.6 million | $71.4 million | | Noninterest Expense | $249.3 million | $240.5 million | - The $24.9 million decrease in net income was primarily driven by a $104.2 million increase in interest expense, which outpaced the $66.8 million increase in interest income[190] - Net interest margin (tax-equivalent) decreased by 52 basis points to 3.41% in Q1 2024 from 3.93% in Q1 2023, as the cost of interest-bearing liabilities rose 139 basis points, outpacing the 48 basis point increase in the yield on interest-earning assets[198][200] - Noninterest expense increased by $8.8 million, driven by higher salaries ($6.4M), an additional FDIC special assessment accrual ($3.9M), and increased information services costs ($2.4M)[190][215] Analysis of Financial Condition - Total assets increased by $242.8 million (0.5%) to $45.1 billion at March 31, 2024, driven by a $278.8 million increase in loans, while investment securities decreased by $231.6 million[219] - The investment portfolio had a total unrealized net loss of $1.26 billion at March 31, 2024, an increase from $1.18 billion at year-end 2023, primarily due to interest rate expectations[222][223] - Total loans increased by $278.8 million (3.5% annualized) during Q1 2024, with the non-acquired portfolio growing by $618.7 million (9.4% annualized) through organic growth[237] - The Allowance for Credit Losses (ACL) increased to $469.7 million, or 1.44% of total loans, up from 1.41% at year-end 2023, providing 2.73 times coverage of nonperforming loans[243][246] - Total nonperforming assets decreased by $9.6 million to $174.5 million, representing 0.53% of total loans and repossessed assets at March 31, 2024[253] - Total deposits increased by $129.5 million, driven by growth in money market accounts ($356.7 million), while noninterest-bearing deposits declined by $102.9 million as customers sought higher yields[277] Capital Resources and Liquidity Regulatory Capital Ratios (Consolidated) | Ratio | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Common equity Tier 1 risk-based capital | 11.95% | 11.75% | | Tier 1 risk-based capital | 11.95% | 11.75% | | Total risk-based capital | 14.32% | 14.08% | | Tier 1 leverage | 9.58% | 9.42% | - Shareholders' equity increased by $13.9 million to $5.5 billion in Q1 2024, with the company repurchasing 100,000 shares for $8.0 million under its stock repurchase plan[260][261] - The company and the Bank remain 'well capitalized' with all regulatory capital ratios well in excess of minimum requirements[265] - The company has significant available liquidity, including $6.6 billion in FHLB availability, $1.8 billion at the FRB discount window, and $4.8 billion in brokered deposit capacity, totaling $13.5 billion in additional funding sources[279] - Estimated uninsured deposits were approximately $13.3 billion, with primary funding sources providing 112.9% coverage for uninsured deposits (excluding collateralized deposits)[259][281] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk disclosures have not materially changed from the 2023 Annual Report, with interest rate risk being the primary market risk managed through simulation analysis, projecting a +100 basis point rate shock to increase net interest income by 1.1% over one year, while a -100 basis point shock would decrease it by 1.8% - There have been no material changes in quantitative and qualitative disclosures about market risk from the 2023 Form 10-K[318] Net Interest Income Sensitivity (Year 1) | Rate Shock | % Change in NII | | :--- | :--- | | +100 bps | +1.1% | | +200 bps | +1.8% | | -100 bps | -1.8% | | -200 bps | -4.4% | Economic Value of Equity (EVE) Sensitivity | Rate Shock | % Change in EVE | | :--- | :--- | | +100 bps | -2.4% | | +200 bps | -5.9% | | -100 bps | +0.7% | | -200 bps | -0.4% | Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024, with no material changes to the internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[319] - No changes in internal control over financial reporting occurred during the first quarter of 2024 that materially affected, or are likely to materially affect, internal controls[321] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is facing 14 putative class action lawsuits following a cybersecurity incident detected on February 6, 2024, and cannot currently estimate the potential loss but intends to defend itself vigorously, with no other material legal proceedings pending outside the ordinary course of business - Following a cybersecurity incident detected on February 6, 2024, 14 putative class action lawsuits have been filed against the Bank as of the report date[322][323] - The company is currently unable to estimate the total cost or potential loss from these lawsuits but has not incurred material costs as of March 31, 2024[322][111] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2024, the company repurchased 100,000 shares at a weighted average price of $79.85 per share as part of its 2022 Stock Repurchase Program, with 3,920,021 shares remaining authorized for repurchase as of March 31, 2024 - In Q1 2024, the company repurchased 100,000 shares at a weighted average price of $79.85 per share under its publicly announced stock repurchase program[327][328] - An additional 95,537 shares were repurchased from officers and directors to cover taxes and option costs related to equity compensation, separate from the public buyback plan[175][328] - As of March 31, 2024, 3,920,021 shares remained available for repurchase under the authorized plan[327][328]