Southern States Bancshares(SSBK) - 2024 Q1 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements The report contains forward-looking statements that are inherently uncertain and subject to risks that could cause actual results to differ materially - The report contains forward-looking statements regarding future events and financial performance, which are based on current expectations, estimates, and projections. These statements are inherently uncertain and subject to risks that could cause actual results to differ materially[9][10] - Key risk factors include the ability to manage growth, credit risk, general economic conditions, compliance with regulations (Dodd-Frank Act, Bank Secrecy Act), governmental policies, effectiveness of risk management, changes in management, geographic concentration, interest rate changes, availability and cost of credit, real estate values, competition, and risks related to mergers and acquisitions (e.g., CBB Bancorp)[11][14] Part I. Financial Information Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for Southern States Bancshares, Inc. and its subsidiary, Southern States Bank, for the period ended March 31, 2024, including balance sheets, income statements, comprehensive income, changes in stockholders' equity, cash flows, and detailed notes on significant accounting policies, securities, loans, deposits, and regulatory matters Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Consolidated Balance Sheet Highlights (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Total Assets | $2,510,975 | $2,446,663 | | Total Liabilities | $2,288,094 | $2,231,699 | | Total Stockholders' Equity | $222,881 | $214,964 | | Loans, net | $1,940,005 | $1,860,130 | | Total Deposits | $2,109,798 | $2,018,189 | | Cash and cash equivalents | $237,123 | $250,651 | - Total assets increased by $64.3 million (2.6%) from December 31, 2023, to March 31, 2024, driven primarily by an $80.6 million increase in loans, net of unearned income, and a $91.6 million increase in total deposits[16][17] Consolidated Statements of Income This section outlines the company's financial performance over a period, showing revenues, expenses, and net income Consolidated Statements of Income Highlights (in thousands, except per share amounts) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total interest income | $38,736 | $28,699 | | Total interest expense | $17,897 | $9,153 | | Net interest income | $20,839 | $19,546 | | Provision for credit losses | $1,236 | $1,181 | | Total noninterest income | $1,268 | $1,786 | | Total noninterest expenses | $10,375 | $10,158 | | Net income | $8,119 | $7,671 | | Basic earnings per share | $0.91 | $0.87 | | Diluted earnings per share | $0.90 | $0.85 | - Net income increased by $448,000 (5.8%) year-over-year, primarily due to a $1.3 million increase in net interest income, partially offset by a decrease in noninterest income and an increase in noninterest expense[20][193] Consolidated Statements of Comprehensive Income This section details the company's comprehensive income, including net income and other comprehensive income or loss items Consolidated Statements of Comprehensive Income (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $8,119 | $7,671 | | Other comprehensive (loss) income | $(22) | $1,202 | | Comprehensive income | $8,097 | $8,873 | - Comprehensive income decreased from $8,873 thousand in Q1 2023 to $8,097 thousand in Q1 2024, mainly due to a shift from other comprehensive income to a loss, driven by unrealized holding losses on available-for-sale securities[22] Consolidated Statements of Changes in Stockholders' Equity This section tracks changes in the company's equity, reflecting net income, dividends, and stock-related transactions Changes in Stockholders' Equity (in thousands, except share amounts) | Item | Balance, December 31, 2023 | Net Income | Issuance of Common Stock | Exercise of Stock Options | Issuance of Restricted Stock | Forfeiture of Restricted Stock | Stock-based Compensation | Common Stock Dividends | Other Comprehensive Loss | Balance, March 31, 2024 | | :-------------------------------- | :------------------------- | :--------- | :----------------------- | :---------------------- | :--------------------------- | :--------------------------- | :----------------------- | :--------------------- | :----------------------- | :---------------------- | | Total Stockholders' Equity | $214,964 | $8,119 | $31 | $354 | $0 | $0 | $239 | $(804) | $(22) | $222,881 | | Common Stock Shares Outstanding | 8,841,349 | — | 1,237 | 25,771 | 26,812 | (375) | — | — | — | 8,894,794 | - Total stockholders' equity increased by $7.9 million (3.7%) from December 31, 2023, to March 31, 2024, primarily due to net income and stock-based activities, partially offset by common stock dividends and other comprehensive loss[25][220] Consolidated Statements of Cash Flows This section reports the company's cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $11,396 | $8,939 | | Net cash used in investing activities | $(79,214) | $(66,299) | | Net cash provided by financing activities | $54,290 | $81,657 | | Net (decrease) increase in cash and cash equivalents | $(13,528) | $24,297 | | Cash and cash equivalents at end of period | $237,123 | $192,796 | - Cash and cash equivalents decreased by $13.5 million in Q1 2024, a reversal from a $24.3 million increase in Q1 2023. This was driven by higher net cash used in investing activities, primarily due to a significant increase in net loans, and a decrease in net cash provided by financing activities, mainly from FHLB advance repayments[28] Notes to Condensed Consolidated Financial Statements NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note describes the fundamental accounting principles and estimation methods used in preparing the financial statements - The Company is a bank holding company operating Southern States Bank, a commercial bank with branches in Alabama and Georgia, offering a full range of banking services[30] - The financial statements are prepared using GAAP, requiring management estimates for items like allowance for credit losses, valuation of foreclosed assets, financial instruments, deferred taxes, and investment securities[32][33] - The Company adopted ASU 2016-13 (CECL) on January 1, 2023, which requires earlier recognition of expected credit losses for financial assets and off-balance sheet exposures, with no material impact on consolidated financial statements[48][74] NOTE 2. EARNINGS PER SHARE This note provides details on the calculation of basic and diluted earnings per share for the reporting periods Earnings Per Share (EPS) (except per share amounts) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Basic earnings per share | $0.91 | $0.87 | | Diluted earnings per share | $0.90 | $0.85 | | Weighted average common shares outstanding (Basic) | 8,913,477 | 8,762,450 | | Weighted average common shares outstanding (Diluted) | 9,043,122 | 9,044,490 | - Basic EPS increased to $0.91 in Q1 2024 from $0.87 in Q1 2023, while diluted EPS increased to $0.90 from $0.85, reflecting higher net income and a slight increase in weighted average common shares outstanding[77] NOTE 3. SECURITIES This note details the composition and fair value of the company's investment securities portfolio Securities Portfolio (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Total securities available for sale (Fair Value) | $177,379 | $179,000 | | Total securities held to maturity (Fair Value) | $16,098 | $16,233 | | Total securities (Fair Value) | $193,477 | $195,233 | | Total Gross Unrealized Losses | $(15,204) | $(14,997) | - The total securities portfolio decreased slightly from $195.2 million at December 31, 2023, to $193.5 million at March 31, 2024. Unrealized losses on securities are primarily due to interest rate changes, and the Company does not consider these credit impaired as there is no intent or requirement to sell before recovery at maturity[78][79][84] NOTE 4. LOANS This note provides a detailed breakdown of the loan portfolio, including its composition, credit quality, and allowance for credit losses Loan Portfolio Composition (in thousands) | Loan Type | March 31, 2024 (Amount) | March 31, 2024 (% of Total) | December 31, 2023 (Amount) | December 31, 2023 (% of Total) | | :-------------------------------- | :------------------------ | :-------------------------- | :------------------------- | :--------------------------- | | Construction and development | $252,934 | 12.8% | $242,960 | 12.9% | | Residential | $238,702 | 12.1% | $224,603 | 11.9% | | Commercial | $1,182,634 | 60.0% | $1,144,867 | 60.5% | | Commercial and industrial | $288,701 | 14.7% | $269,961 | 14.3% | | Consumer and other | $8,425 | 0.4% | $8,286 | 0.4% | | Gross Loans | $1,971,396 | 100.0% | $1,890,677 | 100.0% | | Allowance for credit losses | $(25,144) | | $(24,378) | | - Gross loans increased by $80.7 million (4.3%) to $2.0 billion at March 31, 2024, with commercial real estate loans remaining the largest segment at 60.0% of total gross loans[86][227] Allowance for Credit Losses (ACL) Activity (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Balance at beginning of period | $24,378 | $20,156 | | Provision for credit losses | $1,236 | $1,181 | | Total charge offs | $495 | $224 | | Total recoveries | $25 | $27 | | Net charge offs | $470 | $197 | | Balance at end of period | $25,144 | $19,855 | | Ratio of ACL to end of period loans | 1.28% | 1.21% | | Ratio of net charge offs to average loans | 0.10% | 0.05% | - The allowance for credit losses increased to $25.1 million at March 31, 2024, from $24.4 million at December 31, 2023, driven by loan growth and increases for individually analyzed loans. Net charge-offs increased to $470,000 in Q1 2024 from $197,000 in Q1 2023[102][254][257] Nonaccrual Loans by Category (in thousands) | Loan Type | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Commercial | $2,422 | $765 | | Commercial and industrial | $778 | $0 | | Residential | $246 | $252 | | Total Nonaccrual Loans | $3,446 | $1,017 | - Total nonperforming loans increased significantly to $3.4 million at March 31, 2024, from $1.0 million at December 31, 2023, primarily due to one significant commercial real estate loan and one commercial and industrial loan being placed on nonaccrual status[264][266] NOTE 5. DEPOSITS This note outlines the composition of the company's deposit base, including interest-bearing and noninterest-bearing accounts Deposit Composition (in thousands) | Deposit Type | March 31, 2024 (Amount) | March 31, 2024 (% of Total) | December 31, 2023 (Amount) | December 31, 2023 (% of Total) | | :-------------------------------- | :------------------------ | :-------------------------- | :------------------------- | :--------------------------- | | Noninterest-bearing transaction | $416,704 | 19.7% | $437,959 | 21.7% | | Interest-bearing transaction | $974,079 | 46.2% | $946,347 | 46.9% | | Savings | $33,909 | 1.6% | $35,412 | 1.7% | | Time deposits, $250,000 and under | $584,658 | 27.7% | $500,406 | 24.8% | | Time deposits, over $250,000 | $100,448 | 4.8% | $98,065 | 4.9% | | Total deposits | $2,109,798 | 100.0% | $2,018,189 | 100.0% | | Brokered deposits | $291,017 | 13.8% | $230,858 | 11.4% | - Total deposits increased by $91.6 million (4.5%) to $2.1 billion at March 31, 2024, primarily driven by a $112.9 million increase in interest-bearing accounts, including a $60.2 million increase in brokered deposits[113][219] - Uninsured deposits, exceeding the FDIC limit of $250,000, were $610.1 million at March 31, 2024, representing 28.9% of total deposits, which is considered below peer average[279][293] NOTE 6. SUBORDINATED NOTES This note describes the terms and conditions of the company's outstanding subordinated debt securities - The Company has two series of Fixed-to-Floating Rate Subordinated Notes: $48.0 million due February 2032 (3.5% fixed, then SOFR + 205 bps) and $40.0 million due October 2032 (7.0% fixed, then SOFR + 306 bps)[115][116] - Issuance costs for these notes are amortized over sixty months and recorded as interest expense[115][116] NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES This note explains the company's use of derivative instruments to manage interest rate risk and their fair value - The Company uses derivative financial instruments, primarily interest rate swaps, to manage interest rate risk, often in back-to-back arrangements with customers and third parties to minimize net risk exposure[118][119] Fair Value of Derivative Instruments (in thousands) | Item | March 31, 2024 (Fair Value) | December 31, 2023 (Fair Value) | | :-------------------------------- | :-------------------------- | :--------------------------- | | Interest Rate Products - asset | $7,810 | $7,691 | | Interest Rate Products - liabilities | $(7,830) | $(7,726) | | Net liability position (including accrued interest) | $7,984 | N/A | - As of March 31, 2024, the Company had a net liability position of $7,984 thousand for derivatives, with $7,360 thousand in cash collateral posted[124] NOTE 8. COMMITMENTS AND CONTINGENCIES This note discloses the company's off-balance sheet commitments and potential liabilities from legal proceedings Commitments (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Commitments to extend credit | $422,436 | $501,935 | | Standby letters of credit | $4,728 | $2,846 | | Total | $427,164 | $504,781 | - Total commitments decreased from $504.8 million at December 31, 2023, to $427.2 million at March 31, 2024, primarily due to a reduction in commitments to extend credit[126][309] - The Company is involved in various legal proceedings, but management believes any resulting liability would not materially affect financial statements[129][336] NOTE 9. CONCENTRATIONS OF CREDIT This note identifies significant concentrations of credit risk within the loan portfolio, primarily in real estate - The Company's loan portfolio is highly concentrated in real estate (85%), primarily in Alabama and Georgia, making its collectibility susceptible to local market conditions[130][131] - Regulatory restrictions limit credit extension to a single borrower to 20% of capital on a secured basis (approx. $61.6 million) and 10% on an unsecured basis (approx. $30.8 million)[132] NOTE 10. STOCKHOLDERS' EQUITY This note provides details on the components of stockholders' equity, including common stock and retained earnings - As of March 31, 2024, the Company had 8,894,794 shares of common stock issued and outstanding, an increase from 8,841,349 shares at December 31, 2023[133] NOTE 11. REGULATORY MATTERS This note outlines the company's compliance with regulatory capital requirements and its 'well capitalized' status - The Bank is subject to various regulatory capital requirements, including minimum ratios for total capital, Tier 1 capital, and common equity Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets, plus a 2.50% capital conservation buffer[135][136] Regulatory Capital Ratios (as of March 31, 2024) | Capital Ratio | Company (Actual) | Bank (Actual) | Required for Capital Adequacy | Minimums To Be "Well Capitalized" (Bank) | | :-------------------------------- | :--------------- | :-------------- | :---------------------------- | :--------------------------------------- | | Tier 1 capital (to average assets) | 8.79% | 11.67% | 4.00% | 5.00% | | CET 1 capital (to risk-weighted assets) | 9.39% | 12.47% | 7.00% | 6.50% | | Tier 1 capital (to risk-weighted assets) | 9.39% | 12.47% | 8.50% | 8.00% | | Total capital (to risk-weighted assets) | 14.42% | 13.63% | 10.50% | 10.00% | - Both the Company and the Bank exceeded all minimum capital adequacy requirements and were considered 'well capitalized' as of March 31, 2024[137][138][141] NOTE 12. FAIR VALUE OF ASSETS AND LIABILITIES This note explains the methodologies and categorization of fair value measurements for various assets and liabilities - Fair value measurements are categorized into three levels based on input observability: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[146][147][148][149] Assets Measured at Fair Value on a Recurring Basis (in thousands) | Item | March 31, 2024 (Fair Value) | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :-------------------------- | :------ | :------ | :------ | | U.S. Treasury securities | $8,688 | $0 | $8,688 | $0 | | State and municipal securities | $40,486 | $0 | $40,486 | $0 | | Mortgage-backed GSE residential/multifamily and non-GSE | $97,078 | $0 | $97,078 | $0 | | Other equity securities | $3,638 | $3,638 | $0 | $0 | | Interest Rate Products - asset | $7,810 | $0 | $7,810 | $0 | | Interest Rate Products - liabilities | $(7,830) | $0 | $(7,830) | $0 | Assets Measured at Fair Value on a Nonrecurring Basis (in thousands) | Item | March 31, 2024 (Fair Value) | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :-------------------------- | :------ | :------ | :------ | | Individually analyzed loans | $4,162 | $0 | $0 | $4,162 | | Foreclosed assets | $33 | $0 | $0 | $33 | - Individually analyzed loans and foreclosed assets are primarily measured at fair value based on collateral value, often using independent appraisals with management discounts, classifying them as Level 3 due to significant unobservable inputs[165][166][167] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting key performance indicators, recent acquisition activities, and detailed analysis of interest income, noninterest income, expenses, loan portfolio quality, liquidity, and capital adequacy for the three months ended March 31, 2024, compared to prior periods Overview - Southern States Bancshares, Inc. is a bank holding company operating Southern States Bank, a full-service community banking institution with 13 offices in Alabama and Georgia, and two loan production offices in Georgia[176] - Net income for Q1 2024 was $8.1 million, an increase from $7.7 million in Q1 2023, but a decrease from $8.9 million in Q4 2023[179] Key Performance Indicators (Q1 2024 vs. Q4 2023 vs. Q1 2023) | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :-------------------------------- | :------ | :------ | :------ | | Net income (in millions) | $8.1 | $8.9 | $7.7 | | Annualized return on average assets (ROAA) | 1.33% | 1.53% | 1.51% | | Annualized return on average equity (ROAE) | 14.87% | 17.02% | 16.67% | | Basic earnings per common share | $0.91 | $1.00 | $0.87 | | Net interest margin | 3.59% | 3.69% | 4.07% | | Loans, net of unearned income (QoQ growth) | 4.3% | N/A | N/A | | Deposits (QoQ growth) | 4.5% | N/A | N/A | - The Company entered into an agreement on February 27, 2024, to acquire Century Bank of Georgia, with the merger expected to close in Q3 or Q4 2024, subject to regulatory and shareholder approvals[179][180][181] Primary Factors Used to Evaluate Our Business This section outlines the key financial and operational metrics management uses to assess the company's performance and condition - The Company evaluates its business based on net income, return on average assets, return on average equity, net interest income, noninterest income, and noninterest expense[183] - Financial condition is assessed using asset quality (delinquency, nonperforming assets, credit concentrations), capital (regulatory ratios, earnings quality, growth), and liquidity (core deposits, non-customer deposits, funding sources)[189][190][191][192] Results of Operations for the Three Months Ended March 31, 2024 and 2023 Net Interest Income This section analyzes the company's primary source of earnings, derived from the difference between interest earned and interest paid Net Interest Income Analysis (in thousands, except percentages) | Item | Q1 2024 | Q1 2023 | Change (Amount) | Change (%) | | :-------------------------------- | :------ | :------ | :-------------- | :--------- | | Net interest income | $20,839 | $19,546 | $1,293 | 6.6% | | Total interest income | $38,736 | $28,699 | $10,037 | 35.0% | | Total interest expense | $17,897 | $9,153 | $8,744 | 95.5% | | Net interest spread | 2.63% | 3.33% | (0.70%) | | | Net interest margin | 3.59% | 4.07% | (0.48%) | | - Net interest income increased by $1.3 million (6.6%) year-over-year, driven by a $10.0 million increase in interest income from higher average loan balances and yields, partially offset by an $8.7 million increase in interest expense due to higher costs and volumes of interest-bearing liabilities[198] - Net interest margin decreased to 3.59% in Q1 2024 from 4.07% in Q1 2023, and net interest spread decreased to 2.63% from 3.33%, reflecting competitive rate pressures on deposit costs[198] Provision for Credit Losses This section details the expense recognized for potential loan losses, reflecting changes in credit quality and loan growth Provision for Credit Losses (in thousands) | Item | Q1 2024 | Q1 2023 | | :-------------------------------- | :------ | :------ | | Provision for credit losses | $1,236 | $1,181 | | Net charge offs | $470 | $197 | | Allowance for credit losses as % of gross loans | 1.28% | 1.20% | - The provision for credit losses was $1.2 million for both Q1 2024 and Q1 2023, primarily based on loan growth and increases for individually analyzed loans. Net charge-offs increased to $470,000 in Q1 2024 from $197,000 in Q1 2023[199][257] Noninterest Income This section examines income generated from sources other than interest, such as fees, service charges, and securities gains or losses Noninterest Income Components (in thousands) | Item | Q1 2024 | Q1 2023 | Change (Amount) | Change (%) | | :-------------------------------- | :------ | :------ | :-------------- | :--------- | | Total noninterest income | $1,268 | $1,786 | $(518) | (29.0%) | | Net (loss) gain on securities | $(12) | $514 | $(526) | (102.3%) | | SBA/USDA fees | $64 | $134 | $(70) | (52.2%) | | Bank card services and interchange fees | $397 | $375 | $22 | 5.9% | | Other operating income | $245 | $217 | $28 | 12.9% | - Total noninterest income decreased by $518,000 (29.0%) year-over-year, primarily due to a net loss on securities in Q1 2024 compared to a net gain in Q1 2023, and a decrease in SBA/USDA fees[201][205][208] - Offsetting declines, bank card services and interchange fees increased due to higher transactional volume, and other operating income increased due to higher cash surrender value on Bank Owned Life Insurance (BOLI)[206][209] Noninterest Expense This section reviews the company's operating expenses, including salaries, benefits, and other administrative costs Noninterest Expense Components (in thousands) | Item | Q1 2024 | Q1 2023 | Change (Amount) | Change (%) | | :-------------------------------- | :------ | :------ | :-------------- | :--------- | | Total noninterest expenses | $10,375 | $10,158 | $217 | 2.1% | | Other operating expenses | $2,273 | $2,121 | $152 | 7.2% | | Other real estate expense (income) | $9 | $(49) | $58 | 118.4% | | Data processing fees | $643 | $593 | $50 | 8.4% | | Salaries and employee benefits | $6,231 | $6,311 | $(80) | (1.3%) | - Total noninterest expense increased by $217,000 (2.1%) year-over-year, primarily due to increases in other operating expenses (tax credit, uninsured deposit program, unfunded loan commitments), other real estate expense, and data processing fees[210][214][215][216] - Salaries and employee benefits decreased by $80,000 (1.3%) due to a reduction in incentive expense, employees, and restricted stock unit expenses[211] Financial Condition Loan Portfolio This section provides an in-depth analysis of the company's loan portfolio, including its growth, composition, and concentrations - Loans, net of unearned income, increased by $80.6 million (4.3%) to $2.0 billion at March 31, 2024, representing an annualized growth rate of 17.2%[217] - The loan portfolio is primarily concentrated in real estate (84.9% of gross loans), with commercial real estate being the largest component (60.0%). Construction and development loans increased by $10.0 million (4.1%), residential multi-family loans increased by $14.1 million (6.3%), and commercial real estate loans increased by $37.8 million (3.3%)[227][229][234][236][239] - The regulatory concentration ratios for commercial real estate loans (298.9%) and C&D loans (81.6%) to total risk-based Bank capital remain below the 300%/100% guidelines[230] Allowance for Credit Losses This section details the methodology and changes in the allowance for credit losses, a reserve for potential loan defaults - The allowance for credit losses (ACL) increased by $766,000 (3.1%) to $25.1 million at March 31, 2024, driven by overall loan growth and increases for individually analyzed loans[254] - The ACL for off-balance sheet financial instruments (unfunded credit commitments and letters of credit) was $1.3 million at March 31, 2024, an increase from $1.2 million at December 31, 2023[253] Allowance for Credit Losses by Portfolio Segment (in thousands) | Loan Category | March 31, 2024 (Amount) | March 31, 2024 (% of Gross Loans) | | :-------------------------------- | :------------------------ | :-------------------------------- | | Real estate mortgages: Construction and development | $5,681 | 12.8% | | Real estate mortgages: Residential | $3,241 | 12.1% | | Real estate mortgages: Commercial | $12,047 | 60.0% | | Commercial and industrial | $4,088 | 14.7% | | Consumer and other | $87 | 0.4% | | Total | $25,144 | 100.0% | Nonperforming Loans This section defines and reports on loans that are not accruing interest or are significantly past due, indicating credit quality issues - Nonperforming loans include nonaccrual loans and loans 90 days or more past due. Interest accrual is typically discontinued when payments are 90 days past due or collectability is doubtful[260] - Loans are individually evaluated for impairment based on expected cash flows, market price, or collateral fair value, especially for collateral-dependent loans[261] Nonperforming Assets This section presents a comprehensive view of assets that are not generating income or are impaired, including nonaccrual loans and OREO Nonperforming Assets (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Nonaccrual loans | $3,446 | $1,017 | | Past due loans 90 days or more and still accruing interest | $0 | $160 | | Total nonperforming loans | $3,446 | $1,177 | | OREO | $33 | $33 | | Total nonperforming assets | $3,479 | $1,210 | | Allowance for credit losses to nonperforming loans | 729.66% | 2071.20% | | Nonperforming loans to gross loans | 0.17% | 0.06% | | Nonperforming assets to gross loans and OREO | 0.18% | 0.06% | - Total nonperforming assets increased to $3.5 million at March 31, 2024, from $1.2 million at December 31, 2023, primarily due to a significant increase in nonaccrual loans, particularly in commercial real estate and commercial and industrial categories[264][266] Securities Portfolio This section describes the company's investment securities, their purpose, and fair value, including unrealized gains or losses - The securities portfolio provides liquidity, manages interest rate risk, serves as an alternative interest-earning asset, and secures deposits/borrowed funds[267] Securities Portfolio Fair Value (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Total securities available for sale | $177,379 | $179,000 | | Total securities held to maturity | $16,098 | $16,233 | | Total securities | $193,477 | $195,233 | | Total Gross Unrealized Losses | $(15,204) | $(14,997) | - The Company evaluated securities with unrealized losses for credit impairment and determined all declines were temporary, expecting full recovery by maturity, as there is no intent or probability of selling them prematurely[269] Bank Owned Life Insurance This section details the company's investment in BOLI policies, used for employee benefits and tax planning Bank Owned Life Insurance (BOLI) (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | BOLI Total | $30,075 | $29,884 | - Investments in BOLI policies increased to $30.1 million at March 31, 2024, from $29.9 million at December 31, 2023, reflecting an increase in cash surrender value, used to control employee benefit costs and for tax planning[272] Deposits This section analyzes the company's deposit base, its primary funding source, including composition and growth trends - Deposits are the Company's primary funding source, offering various products including demand, interest-bearing, savings, and certificates of deposit, supplemented by brokered, QwickRate, and IntraFi network deposits[273][274] Deposit Balances (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Total deposits | $2,109,798 | $2,018,189 | | Noninterest-bearing transaction | $416,704 | $437,959 | | Interest-bearing non-maturity accounts | $1,007,988 | $981,759 | | Time deposits | $685,106 | $598,471 | | Brokered deposits | $291,017 | $230,858 | | Uninsured deposits | $610,100 | $615,700 | - Total deposits increased by $91.6 million (4.5%) to $2.1 billion at March 31, 2024, with brokered deposits increasing by $60.2 million. Noninterest-bearing deposits decreased, while interest-bearing deposits and time deposits increased[219][276][277] Borrowed Funds This section outlines the company's supplementary funding sources, such as FHLB advances and lines of credit - The Company uses FHLB advances, lines of credit with other banks, and the Federal Reserve Bank Discount Window as supplementary funding sources[280][281][282][283] Borrowed Funds (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | FHLB advances outstanding | $52,000 | $70,000 | | FHLB borrowing capacity | $168,300 | $162,700 | | Federal funds lines of credit available | $99,200 | $89,200 | | Federal Reserve Bank Discount Window capacity | $334,300 | $295,700 | | BTFP outstanding | $8,000 | $7,000 | | First Horizon Line of Credit outstanding | $0 | $0 | - FHLB advances decreased to $52.0 million at March 31, 2024, from $70.0 million at December 31, 2023. The Federal Reserve Bank Term Funding Program (BTFP) ended on March 11, 2024, with $8.0 million outstanding[281][284] Subordinated Debt Securities This section describes the company's long-term subordinated debt, including terms and interest rate characteristics - The Company has $48.0 million in Fixed-to-Floating Rate Subordinated Notes due February 2032 (3.5% fixed) and $40.0 million due October 2032 (7.0% fixed), with interest rates resetting quarterly to SOFR plus a spread after their respective fixed periods[286][287] Liquidity and Capital Resources Liquidity This section discusses the company's ability to meet short-term cash flow needs through liquid assets and funding sources - Liquidity is managed to meet cash flow requirements of depositors, borrowers, and operational needs at a reasonable cost, supported by liquid assets (cash, interest-bearing deposits, federal funds sold, unpledged securities) and alternative funding sources (wholesale deposits, FHLB, Federal Reserve)[288][290] - The Company's liquidity position is strengthened by a lower percentage of uninsured deposits (28.9% at March 31, 2024) compared to peers, attributed to its focus on banking small businesses[293] Capital Requirements This section details the company's compliance with regulatory capital standards and its capital adequacy status - Both the Company and the Bank exceeded all minimum regulatory capital requirements under Basel III and were considered 'well capitalized' for prompt corrective action purposes as of March 31, 2024[295][299] Regulatory Capital Ratios (as of March 31, 2024) | Capital Ratio | Company (Actual) | Bank (Actual) | Required for Capital Adequacy | Minimums To Be "Well Capitalized" (Bank) | | :-------------------------------- | :--------------- | :-------------- | :---------------------------- | :--------------------------------------- | | Tier 1 capital (to average assets) | 8.79% | 11.67% | 4.00% | 5.00% | | CET 1 capital (to risk-weighted assets) | 9.39% | 12.47% | 7.00% | 6.50% | | Tier 1 capital (to risk-weighted assets) | 9.39% | 12.47% | 8.50% | 8.00% | | Total capital (to risk-weighted assets) | 14.42% | 13.63% | 10.50% | 10.00% | - The Company, as a small bank holding company, is evaluated at the bank level and on a parent-only basis, and is not subject to consolidated capital standards for regulatory purposes[299] Off-Balance Sheet Arrangements This section discloses the company's commitments and contingent liabilities not recorded on the balance sheet - The Company engages in off-balance sheet financial instruments, including commitments to extend credit and standby letters of credit, which involve credit and interest rate risk[305] Off-Balance Sheet Commitments (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Commitments to extend credit | $422,436 | $501,935 | | Standby letters of credit | $4,728 | $2,846 | | Total | $427,164 | $504,781 | - Total off-balance sheet commitments decreased from $504.8 million at December 31, 2023, to $427.2 million at March 31, 2024, primarily due to a reduction in commitments to extend credit[309] Interest Rate Sensitivity and Market Risk This section assesses the company's exposure to interest rate fluctuations and its strategies for managing this market risk - The Company's primary market risk is interest rate volatility, managed by the Asset Liability Committee (ALCO) through guidelines for funds management and a measurement system for net interest rate sensitivity[310][314] Simulated Change in Net Interest Income (12-month horizon) | Change in Interest Rates (Basis Points) | Percent Change in Net Interest Income (March 31, 2024) | Percent Change in Net Interest Income (March 31, 2023) | | :-------------------------------- | :----------------------------------------------------- | :----------------------------------------------------- | | +400 | 9.10 | 22.21 | | +300 | 7.30 | 16.86 | | +200 | 5.20 | 11.29 | | +100 | 2.80 | 5.82 | | -100 | (4.70) | (6.73) | | -200 | (8.40) | (13.78) | | -300 | (12.20) | (22.07) | | -400 | (17.20) | (29.10) | - The Company's internal policy limits estimated net interest income at risk for a one-year period to a maximum decline of 10% for a 100 basis point shift, 15% for 200 bps, 20% for 300 bps, and 25% for 400 bps[317] Impact of Inflation This section discusses how inflation and changing interest rates can affect the company's funding costs, loan demand, and asset values - Inflation and rising interest rates can lead to increased funding costs as consumers shift to higher interest-bearing instruments, potentially reducing loan originations and growth[320] - Higher interest rates may decrease demand for loans and reduce the value of existing fixed-rate securities, while increasing rates on variable-rate loans could positively impact net interest margin[320] Critical Accounting Policies and Estimates Allowance for Credit Losses on Loans This critical accounting policy explains the estimation process for the allowance for credit losses on the loan portfolio - The ACL for loans is a critical estimate based on portfolio evaluation, past loss experience, asset quality trends, borrower repayment ability, collateral value, economic conditions, and regulatory recommendations, making it inherently subjective[324] - The CECL methodology involves evaluating loans with similar risk characteristics in pools, adjusting historical loss experience with forecast factors (e.g., unemployment, GDP), and applying qualitative adjustments for factors not captured quantitatively[325][326] Allowance for Credit Losses on Securities This critical accounting policy details the assessment of credit impairment and allowance for credit losses on debt securities - For held-to-maturity debt securities, the Company estimates an ACL based on amortized cost and expected credit losses, with a zero-loss expectation for most, except U.S. State and Municipal securities[329] - For available-for-sale debt securities with fair value below amortized cost, credit impairment is assessed by considering factors like fair value extent, credit ratings, and economic conditions. An ACL is recorded if the decline is credit-related and the Company intends or is required to sell[329] Valuation of Foreclosed Assets This critical accounting policy describes the valuation methods for foreclosed assets, including initial recording and subsequent adjustments - Foreclosed assets are initially recorded at fair value less selling costs upon transfer and subsequently carried at the lower of carrying value or fair value less estimated costs to sell[330] - Valuations are based on periodic independent appraisals, adjusted for management's historical knowledge, market conditions, and expertise, making it a significant and potentially volatile estimate[330] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the market risk disclosures provided in the Annual Report on Form 10-K and additional information within Item 2 of this Quarterly Report, specifically concerning interest rate sensitivity and market risk - Quantitative and qualitative disclosures about market risk are cross-referenced to the Annual Report on Form 10-K and the 'Liquidity and Capital Resources — Interest Rate Sensitivity and Market Risk' section within Item 2 of this 10-Q[332] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures, concluding they were effective as of March 31, 2024. No material changes to internal control over financial reporting occurred during the first quarter of 2024 - The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024, by the CEO and CFO[333] - There were no material changes in the Company's internal control over financial reporting during Q1 2024[334] Part II. Other Information Item 1. Legal Proceedings The Company and its subsidiary are involved in various legal proceedings in the ordinary course of business, but management believes none will have a material adverse effect on their financial condition or results of operations - Southern States and Southern States Bank are parties to various legal proceedings, including loan collection and security interest enforcement[336] - Management believes that current legal proceedings will not have a material adverse effect on the Company's financial condition or results of operations[336] Item 1A. Risk Factors This section refers to the risk factors detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, noting no material changes to these factors - For information on risk factors, refer to the Annual Report on Form 10-K for the year ended December 31, 2023[337] - There have been no material changes to the risk factors disclosed in the Annual Report on Form 10-K[337] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company did not repurchase any shares of common stock under its publicly announced share repurchase program during the first quarter of 2024, with $10.0 million remaining authorized for repurchase until December 31, 2024 Share Repurchase Program Activity (in thousands) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Program | Dollar Value of Shares that May Yet Be Purchased Under Program | | :-------------------------------- | :----------------------------- | :--------------------------- | :-------------------------------------------------- | :------------------------------------------------------------- | | January 1 - March 31, 2024 | — | $0 | — | $10,000 | - No shares were repurchased under the $10.0 million share repurchase program during Q1 2024. The program was extended until December 31, 2024[339] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[340] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the Company - Mine Safety Disclosures are not applicable[341] Item 5. Other Information This section indicates that there is no other information to report under this item Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including merger agreements, organizational documents, specimen stock certificates, indentures for subordinated notes, and certifications - The exhibits include the Agreement and Plan of Merger with CBB Bancorp, Certificate of Incorporation, Amended and Restated Bylaws, Specimen common stock certificate, Indentures for Subordinated Notes, and Certifications of Principal Executive and Financial Officers[342] Signatures The report is duly signed on behalf of Southern States Bancshares, Inc. by Mark A. Chambers, Chief Executive Officer, President and Director, and Lynn J. Joyce, Senior Executive Vice President and Chief Financial Officer, on May 14, 2024 - The report was signed by Mark A. Chambers, CEO, President and Director, and Lynn J. Joyce, Senior Executive Vice President and CFO, on May 14, 2024[348]