Southern States Bancshares(SSBK) - 2023 Q3 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements Forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from expectations - Forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from expectations[8][12] - Key risk factors include the ability to manage growth, credit risk, general economic conditions, regulatory compliance, interest rate changes, and competition[10][13] Part I. Financial Information Item 1. Financial Statements This item provides the unaudited condensed consolidated financial statements, including the balance sheets, statements of income, comprehensive income (loss), changes in stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies and specific financial line items Consolidated Balance Sheets Presents the Company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :----------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Assets | $2,296,527 | $2,045,204 | $251,323 | 12.3% | | Total Liabilities | $2,094,603 | $1,863,485 | $231,118 | 12.4% | | Total Stockholders' Equity | $201,924 | $181,719 | $20,205 | 11.1% | Consolidated Statements of Income Details the Company's revenues, expenses, and net income over specific reporting periods, including interest income and expense | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :---------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :--------- | | Total Interest Income | $35,204 | $22,520 | $12,684 | 56.3% | | Total Interest Expense | $14,473 | $3,085 | $11,388 | 369.1% | | Net Interest Income | $20,731 | $19,435 | $1,296 | 6.7% | | Provision for Credit Losses | $773 | $1,663 | $(890) | -53.5% | | Total Noninterest Income | $(2,894) | $1,339 | $(4,233) | -316.1% | | Total Noninterest Expenses | $8,569 | $10,237 | $(1,668) | -16.3% | | Net Income | $6,629 | $6,700 | $(71) | -1.1% | | Basic EPS | $0.75 | $0.77 | $(0.02) | -2.6% | | Diluted EPS | $0.73 | $0.75 | $(0.02) | -2.7% | | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :---------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :--------- | | Total Interest Income | $96,088 | $56,144 | $39,944 | 71.1% | | Total Interest Expense | $36,379 | $5,690 | $30,689 | 539.3% | | Net Interest Income | $59,709 | $50,454 | $9,255 | 18.3% | | Provision for Credit Losses | $3,511 | $3,667 | $(156) | -4.3% | | Total Noninterest Income | $5,755 | $4,074 | $1,681 | 41.3% | | Total Noninterest Expenses | $32,159 | $29,178 | $2,981 | 10.2% | | Net Income | $23,056 | $16,479 | $6,577 | 39.9% | | Basic EPS | $2.62 | $1.87 | $0.75 | 40.1% | | Diluted EPS | $2.56 | $1.84 | $0.72 | 39.1% | Consolidated Statements of Comprehensive Income (Loss) Reports net income and other comprehensive income (loss) components, reflecting changes in equity not from net income | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :--------- | | Net Income | $6,629 | $6,700 | $(71) | -1.1% | | Other Comprehensive Loss | $(2,327) | $(3,964) | $1,637 | -41.3% | | Comprehensive Income | $4,302 | $2,736 | $1,566 | 57.2% | | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :--------- | | Net Income | $23,056 | $16,479 | $6,577 | 39.9% | | Other Comprehensive Loss | $(2,078) | $(14,516) | $12,438 | -85.7% | | Comprehensive Income | $20,978 | $1,963 | $19,015 | 968.7% | Consolidated Statements of Changes in Stockholders' Equity Outlines the changes in stockholders' equity, including net income, dividends, and other comprehensive income (loss) | Metric | Dec 31, 2022 (in thousands) | Sep 30, 2023 (in thousands) | Change (in thousands) | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Total Stockholders' Equity | $181,719 | $201,924 | $20,205 | | Net Income | N/A | $23,056 | $23,056 | | Common Stock Dividends | N/A | $(2,391) | $(2,391) | | Other Comprehensive Loss | N/A | $(2,078) | $(2,078) | Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :---------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Net Cash Provided by Operating Activities | $31,486 | $29,384 | $2,102 | | Net Cash Used in Investing Activities | $(207,300) | $(322,961) | $115,661 | | Net Cash Provided by Financing Activities | $223,495 | $255,683 | $(32,188) | | Net Increase (Decrease) in Cash and Cash Equivalents | $47,681 | $(37,894) | $85,575 | | Cash and Cash Equivalents at End of Year | $216,180 | $246,062 | $(29,882) | Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures for the condensed consolidated financial statements, clarifying accounting policies and specific line items NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the Company's nature of business, basis of financial statement presentation, key accounting estimates, and significant accounting policies for various financial instruments and activities, including the adoption of CECL - 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 Company adopted ASU 2016-13 (CECL) on January 1, 2023, which requires earlier recognition of expected credit losses over the lifetime of financial assets, replacing the incurred loss methodology[48][72] - Securities are classified as held to maturity (amortized cost) or available for sale (fair value with unrealized gains/losses in OCI) Other equity securities are at fair value through income, and restricted equity securities are at cost[39][43][44] NOTE 2. EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per share, considering net income available to common shareholders and the dilutive effect of potential common shares from stock options and restricted stock units | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $0.75 | $0.77 | $2.62 | $1.87 | | Diluted EPS | $0.73 | $0.75 | $2.56 | $1.84 | NOTE 3. SECURITIES This note provides a detailed breakdown of the Company's securities portfolio, including available-for-sale and held-to-maturity securities, their amortized cost, fair value, and unrealized gains/losses, along with an assessment of credit impairment | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Securities Available for Sale (Fair Value) | $169,859 | $155,544 | $14,315 | 9.2% | | Total Securities Held to Maturity (Amortized Cost) | $19,637 | $19,652 | $(15) | -0.1% | | Total Securities (Fair Value) | $184,803 | $170,909 | $13,894 | 8.1% | | Gross Unrealized Losses (Total Securities) | $(22,559) | $(19,320) | $(3,239) | 16.8% | - Unrealized losses on 236 securities at September 30, 2023, were due to interest rate changes, not credit impairment, as the Company does not intend to sell them before recovery of amortized cost[81][82] NOTE 4. LOANS This note details the composition of the loan portfolio, risk characteristics, credit risk management practices, classification of loans by risk category, collateral-dependent loans, past due status, and the allowance for credit losses, including the impact of CECL adoption | Loan Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Construction and development | $229,188 | $255,736 | $(26,548) | -10.4% | | Residential | $224,499 | $167,891 | $56,608 | 33.7% | | Commercial | $1,049,545 | $904,872 | $144,673 | 16.0% | | Commercial and industrial | $268,283 | $256,553 | $11,730 | 4.6% | | Consumer and other | $8,331 | $7,655 | $676 | 8.8% | | Gross Loans | $1,779,846 | $1,592,707 | $187,139 | 11.7% | | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Allowance for Credit Losses | $22,181 | $20,156 | $2,025 | 10.0% | | Nonaccrual Loans | $1,082 | $2,245 | $(1,163) | -51.8% | | Total Nonperforming Loans | $1,082 | $2,245 | $(1,163) | -51.8% | | Total Nonperforming Assets | $3,985 | $5,175 | $(1,190) | -23.0% | - The Company adopted CECL on January 1, 2023, resulting in a $1.285 million reduction in the allowance for credit losses at adoption[98][100] NOTE 5. DEPOSITS This note provides a breakdown of deposit classifications, including noninterest-bearing, interest-bearing transaction, savings, and time deposits, along with information on brokered deposits and the scheduled maturities of time deposits | Deposit Type | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Noninterest-bearing | $418,125 | $460,977 | $(42,852) | -9.3% | | Interest-bearing | $1,498,276 | $1,259,766 | $238,510 | 18.9% | | Total Deposits | $1,916,401 | $1,720,743 | $195,658 | 11.4% | | Brokered Deposits | $168,348 | $110,503 | $57,845 | 52.3% | - As of September 30, 2023, 78.2% of total deposits were interest-bearing, and 27.4% were time deposits[108] NOTE 6. SUBORDINATED NOTES This note details the two series of fixed-to-floating rate subordinated notes issued in February and October 2022, including their principal amounts, interest rates, reset dates, and redemption terms - The Company issued $48 million of Fixed-to-Floating Rate Subordinated Notes in February 2022, bearing interest at 3.5% per annum, resetting quarterly to Three-Month Term SOFR plus 205 basis points from February 2027[111] - An additional $40 million of Fixed-to-Floating Rate Subordinated Notes were issued in October 2022, bearing interest at 7.0% per annum, resetting quarterly to Three-Month Term SOFR plus 306 basis points from October 2027[112] NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES This note explains the Company's use of derivative financial instruments, primarily non-designated interest rate swaps with commercial banking customers, which are simultaneously hedged by offsetting derivatives to minimize net risk exposure - The Company uses non-designated interest rate swaps to manage interest rate risk for customers, simultaneously hedging with offsetting derivatives to minimize its own net risk exposure[113][114] | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Notional Amount (Interest Rate Products) | $93,354 | $73,631 | | Fair Value (Other Assets) | $9,596 | $8,870 | | Fair Value (Other Liabilities) | $(9,614) | $(8,882) | NOTE 8. COMMITMENTS AND CONTINGENCIES This note discloses the Company's off-balance sheet financial instruments, including commitments to extend credit and standby letters of credit, and notes that any liability from legal proceedings is not expected to have a material effect | Commitment Type | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Commitments to extend credit | $525,402 | $550,315 | $(24,913) | -4.5% | | Standby letters of credit | $3,582 | $5,632 | $(2,050) | -36.4% | | Total Commitments | $528,984 | $555,947 | $(26,963) | -4.8% | - Management believes that any liability from current legal proceedings will not have a material adverse effect on the Company's financial statements[124] NOTE 9. CONCENTRATIONS OF CREDIT This note highlights the Company's credit concentrations, primarily in real estate loans within its Alabama and Georgia markets, and confirms adherence to regulatory lending limits - 85% of the Company's loan portfolio is concentrated in real estate, primarily in Alabama and Georgia, making collectibility susceptible to local market conditions[125][126] - The Company's credit extensions to any single borrower are within regulatory limits (20% of capital secured, 10% unsecured)[128] NOTE 10. STOCKHOLDERS' EQUITY This note provides the number of common stock shares issued and outstanding as of September 30, 2023, and December 31, 2022 | Metric | Sep 30, 2023 | Dec 31, 2022 | Change | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Common Stock Shares Issued and Outstanding | 8,834,168 | 8,706,920 | 127,248 | 1.5% | NOTE 11. REGULATORY MATTERS This note details the regulatory capital requirements for the Company and the Bank, including dividend restrictions, Basel III guidelines, and prompt corrective action framework, confirming that both entities met all capital adequacy requirements and the Bank was 'well capitalized' as of September 30, 2023 - The Bank is subject to dividend restrictions, with $79.355 million of retained earnings available for dividend declaration without regulatory approval as of September 30, 2023[130] - Both the Company and the Bank met all capital adequacy requirements as of September 30, 2023, with the Bank being 'well capitalized' under the prompt corrective action framework[132][134] | Capital Ratio (Bank) | Sep 30, 2023 (Actual Ratio) | Dec 31, 2022 (Actual Ratio) | Required for Capital Adequacy | Minimum for "Well Capitalized" | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Tier 1 capital (to average assets) | 11.71% | 12.17% | 4.00% | 5.00% | | CET 1 capital (to risk-weighted assets) | 12.55% | 12.21% | 7.00% | 6.50% | | Tier 1 capital (to risk-weighted assets) | 12.55% | 12.21% | 8.50% | 8.00% | | Total capital (to risk-weighted assets) | 13.67% | 13.24% | 10.50% | 10.00% | NOTE 12. FAIR VALUE OF ASSETS AND LIABILITIES This note describes the Company's methodology for determining fair value measurements, categorizing financial instruments into a three-level hierarchy based on input observability, and provides detailed fair value disclosures for various assets and liabilities - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[144][145][146] | Financial Asset | Sep 30, 2023 (Carrying Amount, in thousands) | Dec 31, 2022 (Carrying Amount, in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | | Cash and cash equivalents | $216,180 | $168,499 | | Securities available for sale | $169,859 | $155,544 | | Loans, net | $1,751,967 | $1,567,008 | | Deposits | $1,916,401 | $1,720,743 | - Impaired loans and foreclosed assets are measured at fair value on a nonrecurring basis, primarily using collateral appraisals with subjective management discounts, classifying them within Level 3 of the fair value hierarchy[162][163][165] 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, including an overview of performance, detailed analysis of net interest income, noninterest income, noninterest expense, asset quality, capital, liquidity, and critical accounting policies Overview This overview introduces Southern States Bancshares, Inc. as a bank holding company operating Southern States Bank, providing commercial and retail banking services across Alabama and Georgia It highlights key financial performance metrics for Q3 2023 and the impact of the Employee Retention Credit (ERC) reversal - Net income for Q3 2023 was $6.6 million, a slight decrease from $6.7 million in Q3 2022, primarily due to a $5.1 million reduction in noninterest income from the return of the Employee Retention Credit (ERC)[177][178][189] | Metric (Q3 2023) | Value | Q3 2022 Value | Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Annualized ROAA | 1.15% | 1.35% | -0.20% | | Annualized ROAE | 12.96% | 15.42% | -2.46% | | Basic EPS | $0.75 | $0.77 | -$0.02 | | Net Interest Margin | 3.78% | 4.15% | -0.37% | | Loans, net of unearned income (Sep 30, 2023) | $1.8 billion | $1.587 billion (Dec 31, 2022) | +$213 million | | Deposits (Sep 30, 2023) | $1.9 billion | $1.721 billion (Dec 31, 2022) | +$179 million | Results of Operations for the Three Months Ended September 30, 2023 and 2022 This section analyzes the Company's financial performance for the third quarter of 2023 compared to the same period in 2022, focusing on changes in net interest income, provision for credit losses, noninterest income, and noninterest expenses Net Interest Income Details the Company's net interest income, total interest income, total interest expense, net interest margin, and net interest spread for the three months ended September 30, 2023 and 2022 | Metric | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Net Interest Income | $20,731 | $19,435 | $1,296 | 6.7% | | Total Interest Income | $35,204 | $22,520 | $12,684 | 56.3% | | Total Interest Expense | $14,473 | $3,085 | $11,388 | 369.1% | | Net Interest Margin | 3.78% | 4.15% | -0.37% | -8.9% | | Net Interest Spread | 2.84% | 3.86% | -1.02% | -26.4% | - The increase in interest income was primarily due to a 1.49% increase in yield earned on average loans and a $259.8 million (17.5%) increase in average loans outstanding[196] - The significant increase in interest expense was due to a 2.63% increase in the rate paid on interest-bearing liabilities and a $319.1 million (24.9%) increase in average interest-bearing liabilities[196] Provision for Credit Losses Analyzes the provision for credit losses, net charge-offs (recoveries), and the allowance for credit losses as a percentage of gross loans for the three months ended September 30, 2023 and 2022 | Metric | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Provision for Credit Losses | $773 | $1,663 | $(890) | -53.5% | | Net Charge-offs (Recoveries) | $(23) (Net Recoveries) | $47 (Net Charge-offs) | $(70) | -148.9% | | Allowance for Credit Losses to Gross Loans | 1.25% | 1.20% | +0.05% | 4.2% | Noninterest Income Examines the components of noninterest income, including the impact of the Employee Retention Credit (ERC), swap fees, and other operating income for the three months ended September 30, 2023 and 2022 | Noninterest Income Component | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Change (in thousands) | % Change | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Noninterest Income | $(2,894) | $1,339 | $(4,233) | -316.1% | | ERC | $(5,100) | $0 | $(5,100) | N/A | | Swap Fees | $453 | $11 | $442 | 4018.2% | | Other Operating Income | $702 | $207 | $495 | 239.1% | | Service Charges on Deposit Accounts | $442 | $508 | $(66) | -13.0% | | Mortgage Banking Activities | $158 | $218 | $(60) | -27.5% | Noninterest Expense Reviews the breakdown of noninterest expenses, including salaries and employee benefits, professional fees, and equipment and occupancy expenses for the three months ended September 30, 2023 and 2022 | Noninterest Expense Component | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Change (in thousands) | % Change | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Noninterest Expense | $8,569 | $10,237 | $(1,668) | -16.3% | | Professional Fees Related to ERC | $(1,243) | $0 | $(1,243) | N/A | | Salaries and Employee Benefits | $5,752 | $6,152 | $(400) | -6.5% | | Equipment and Occupancy Expenses | $718 | $764 | $(46) | -6.0% | | Professional Services | $581 | $421 | $160 | 38.0% | Results of Operations for the Nine Months Ended September 30, 2023 and 2022 This section analyzes the Company's financial performance for the first nine months of 2023 compared to the same period in 2022, highlighting significant increases in net income, net interest income, and noninterest income, partially offset by higher noninterest expenses and income taxes Net Interest Income Details the Company's net interest income, total interest income, total interest expense, net interest margin, and net interest spread for the nine months ended September 30, 2023 and 2022 | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :--------- | | Net Interest Income | $59,709 | $50,454 | $9,255 | 18.3% | | Total Interest Income | $96,088 | $56,144 | $39,944 | 71.1% | | Total Interest Expense | $36,379 | $5,690 | $30,689 | 539.3% | | Net Interest Margin | 3.85% | 3.85% | 0.00% | 0.0% | | Net Interest Spread | 3.00% | 3.64% | -0.64% | -17.6% | - Interest income growth was driven by a 1.65% increase in yield earned on average loans and a $302.6 million (22.0%) increase in average loans outstanding[223] - Interest expense surged due to a 2.55% increase in the rate paid on interest-bearing liabilities and a $351.3 million (30.1%) increase in average interest-bearing liabilities[223] Provision for Credit Losses Analyzes the provision for credit losses, net charge-offs (recoveries), and the allowance for credit losses as a percentage of gross loans for the nine months ended September 30, 2023 and 2022 | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :--------- | | Provision for Credit Losses | $3,511 | $3,667 | $(156) | -4.3% | | Net Charge-offs (Recoveries) | $201 (Net Charge-offs) | $88 (Net Charge-offs) | $113 | 128.4% | | Allowance for Credit Losses to Gross Loans | 1.25% | 1.20% | +0.05% | 4.2% | Noninterest Income Examines the components of noninterest income, including net gain (loss) on securities, swap fees, and other operating income for the nine months ended September 30, 2023 and 2022 | Noninterest Income Component | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :---------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :--------- | | Total Noninterest Income | $5,755 | $4,074 | $1,681 | 41.3% | | Net Gain (Loss) on Securities | $457 (Gain) | $(546) (Loss) | $1,003 | -183.7% | | Swap Fees | $622 | $48 | $574 | 1195.8% | | Other Operating Income | $1,448 | $545 | $903 | 165.7% | | SBA/USDA Fees | $274 | $575 | $(301) | -52.3% | | Mortgage Banking Activities | $446 | $717 | $(271) | -37.8% | Noninterest Expense Reviews the breakdown of noninterest expenses, including salaries and employee benefits, professional services, and other operating expenses for the nine months ended September 30, 2023 and 2022 | Noninterest Expense Component | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | % Change | | :---------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :--------- | | Total Noninterest Expense | $32,159 | $29,178 | $2,981 | 10.2% | | Salaries and Employee Benefits | $19,926 | $17,859 | $2,067 | 11.6% | | Professional Services | $1,606 | $1,298 | $308 | 23.7% | | Other Operating Expenses | $6,750 | $6,191 | $559 | 9.0% | - Salaries and employee benefits included $1.6 million in one-time retirement-related expenses for the former CEO and increases in equity-related expenses[236] - Other operating expenses increased due to provisioning for credit losses on unfunded commitments (ASC 326 adoption) and expenses from tax credit and fintech fund investments[241] Financial Condition This section reviews the Company's financial position, detailing changes in assets (loans, securities, cash), liabilities (deposits), and stockholders' equity, along with an in-depth analysis of the loan portfolio, allowance for credit losses, nonperforming assets, and the securities portfolio Total Assets, Loans, Securities, and Cash & Equivalents Summarizes the Company's total assets, loans, securities portfolio, and cash and cash equivalents as of September 30, 2023, and December 31, 2022 | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Assets | $2,296,527 | $2,045,204 | $251,323 | 12.3% | | Loans, net of unearned income | $1,774,148 | $1,587,164 | $186,984 | 11.8% | | Securities Portfolio | $189,496 | $175,196 | $14,300 | 8.2% | | Cash and Cash Equivalents | $216,180 | $168,499 | $47,681 | 28.3% | Deposits Provides a summary of total deposits, interest-bearing deposits, noninterest-bearing deposits, and brokered deposits as of September 30, 2023, and December 31, 2022 | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Deposits | $1,916,401 | $1,720,743 | $195,658 | 11.4% | | Interest-bearing Deposits | $1,498,276 | $1,259,766 | $238,510 | 18.9% | | Noninterest-bearing Deposits | $418,125 | $460,977 | $(42,852) | -9.3% | | Brokered Deposits | $168,348 | $110,503 | $57,845 | 52.3% | Stockholders' Equity Summarizes the Company's total stockholders' equity as of September 30, 2023, and December 31, 2022 | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Stockholders' Equity | $201,924 | $181,719 | $20,205 | 11.1% | Loan Portfolio Details the composition of the loan portfolio by category, including construction and development, residential, commercial, and commercial and industrial loans, as of September 30, 2023, and December 31, 2022 | Loan Category | Sep 30, 2023 (in thousands) | % of Total Loans | Dec 31, 2022 (in thousands) | % of Total Loans | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Construction and development | $229,188 | 12.9% | $255,736 | 16.1% | $(26,548) | -10.4% | | Residential | $224,499 | 12.6% | $167,891 | 10.5% | $56,608 | 33.7% | | Commercial | $1,049,545 | 59.0% | $904,872 | 56.8% | $144,673 | 16.0% | | Commercial and industrial | $268,283 | 15.0% | $256,553 | 16.1% | $11,730 | 4.6% | | Consumer and other | $8,331 | 0.5% | $7,655 | 0.5% | $676 | 8.8% | | Gross Loans | $1,779,846 | 100.0% | $1,592,707 | 100.0% | $187,139 | 11.7% | - Approximately 84.5% of gross loans were secured by real property as of September 30, 2023, geographically dispersed across Alabama and Georgia markets[255] - The regulatory concentration ratios for commercial real estate loans (288.2%) and C&D loans (79.3%) to total risk-based Bank capital were below the 300%/100% limits[256][257] Loan Participations Summarizes the Company's loan participations sold and purchased as of September 30, 2023, and December 31, 2022 | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Loan Participations Sold | $118,700 | $107,900 | $10,800 | 10.0% | | Loan Participations Purchased | $123,900 | $114,600 | $9,300 | 8.1% | Allowance for Credit Losses Provides an overview of the allowance for credit losses (ACL), including the impact of CECL adoption, provision for credit losses, net charge-offs, and ACL as a percentage of gross loans | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Allowance for Credit Losses (ACL) | $22,181 | $20,156 | $2,025 | 10.0% | | Impact of CECL Adoption (Jan 1, 2023) | $(1,285) | N/A | N/A | N/A | | Provision for Credit Losses (9M 2023) | $3,511 | $3,667 (9M 2022) | $(156) | -4.3% | | Net Charge-offs (9M 2023) | $201 | $88 (9M 2022) | $113 | 128.4% | | ACL as % of Gross Loans | 1.25% | 1.27% | -0.02% | -1.6% | - The allowance for credit losses on unfunded commitments was $1.5 million at September 30, 2023, with a $1.3 million impact from CECL adoption[99][279][283] Nonperforming Loans and Assets Details nonaccrual loans, total nonperforming loans, OREO, total nonperforming assets, and nonperforming loans as a percentage of gross loans | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Nonaccrual Loans | $1,082 | $2,245 | $(1,163) | -51.8% | | Total Nonperforming Loans | $1,082 | $2,245 | $(1,163) | -51.8% | | OREO | $2,903 | $2,930 | $(27) | -0.9% | | Total Nonperforming Assets | $3,985 | $5,175 | $(1,190) | -23.0% | | Nonperforming Loans to Gross Loans | 0.06% | 0.14% | -0.08% | -57.1% | - Foreclosed assets totaled $2.9 million at September 30, 2023, consisting primarily of one property, with no anticipated loss[289] Securities Portfolio Summarizes the Company's total securities (fair value), available-for-sale securities, held-to-maturity securities, and gross unrealized losses as of September 30, 2023, and December 31, 2022 | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Securities (Fair Value) | $184,803 | $170,909 | $13,894 | 8.1% | | Total Securities Available for Sale (Fair Value) | $169,859 | $155,544 | $14,315 | 9.2% | | Total Securities Held to Maturity (Amortized Cost) | $19,637 | $19,652 | $(15) | -0.1% | | Gross Unrealized Losses (Total Securities) | $(22,559) | $(19,320) | $(3,239) | 16.8% | - The Company does not intend to sell securities with unrealized losses before recovery of amortized cost, as declines are considered temporary and due to interest rate changes, not credit impairment[295] Bank Owned Life Insurance (BOLI) Summarizes the total value of Bank Owned Life Insurance (BOLI) as of September 30, 2023, and December 31, 2022 | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | BOLI Total | $29,697 | $29,186 | $511 | 1.8% | Deposits Provides a detailed breakdown of deposit types, including noninterest-bearing, interest-bearing transaction, savings, and time deposits, along with brokered deposits, as of September 30, 2023, and December 31, 2022 | Deposit Type | Sep 30, 2023 (in thousands) | % of Total | Dec 31, 2022 (in thousands) | % of Total | Change (in thousands) | % Change | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Deposits | $1,916,401 | 100.0% | $1,720,743 | 100.0% | $195,658 | 11.4% | | Noninterest-bearing transaction | $418,125 | 21.8% | $460,977 | 26.8% | $(42,852) | -9.3% | | Interest-bearing transaction | $934,383 | 48.8% | $837,127 | 48.6% | $97,256 | 11.6% | | Savings | $38,518 | 2.0% | $49,235 | 2.9% | $(10,717) | -21.8% | | Time deposits | $525,375 | 27.4% | $373,404 | 21.7% | $151,971 | 40.7% | | Brokered Deposits | $168,348 | 8.8% | $110,503 | 6.4% | $57,845 | 52.3% | - The average rate paid on total deposits increased significantly from 0.36% in Q3 2022 to 2.29% in Q3 2023[304] Borrowed Funds This section details the Company's supplementary funding sources, including FHLB advances, uncollateralized federal funds lines of credit, and subordinated debt securities, outlining their amounts, interest rates, and terms FHLB Advances Summarizes the outstanding amount, weighted average interest rate, and borrowing capacity of FHLB advances as of September 30, 2023, and December 31, 2022 | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Amount Outstanding | $55,000 | $31,000 | $24,000 | 77.4% | | Weighted Average Interest Rate | 4.88% | 3.43% | +1.45% | 42.3% | | Borrowing Capacity | $203,900 | $99,500 | $104,400 | 104.9% | Lines of Credit Details the Bank's uncollateralized federal funds lines of credit and a collateralized line of credit with First Horizon, including outstanding balances and repayment information - The Bank has $99.2 million in uncollateralized federal funds lines of credit, with $5.0 million outstanding at September 30, 2023, which was repaid on October 1, 2023[308] - A $25.0 million Line of Credit with First Horizon, collateralized by 100% of the Bank's capital stock, had a $0 balance outstanding at September 30, 2023[309] Subordinated Debt Securities Provides information on the two series of Fixed-to-Floating Rate Subordinated Notes issued in February and October 2022, including their principal amounts, initial interest rates, and reset terms - $48.0 million Fixed-to-Floating Rate Subordinated Notes issued in Feb 2022, with a 3.50% initial interest rate, resetting in Feb 2027 to Three-Month Term SOFR + 205 bps[310] - $40.0 million Fixed-to-Floating Rate Subordinated Notes issued in Oct 2022, with a 7.00% initial interest rate, resetting in Oct 2027 to Three-Month Term SOFR + 306 bps[311] Liquidity and Capital Resources This section discusses the Company's liquidity management strategies, including liquid assets and alternative funding sources, and its adherence to regulatory capital requirements, confirming both the Company and the Bank are well-capitalized Liquidity Describes the Company's liquidity sources, including cash, deposits, investment securities, and borrowings, and discusses the proportion of uninsured deposits - The Company's liquidity is supported by cash, interest-bearing deposits, federal funds sold, unpledged investment securities, wholesale deposits, and borrowings from correspondent banks and FHLB[314] - Uninsured deposits were approximately 29.7% of total deposits at September 30, 2023, which is believed to be below peer average due to a focus on small business banking[317] Capital Requirements Details the regulatory capital requirements for the Company and the Bank, confirming their compliance with minimum capital adequacy standards and the Bank's 'well capitalized' status - As of September 30, 2023, both the Company and the Bank exceeded all minimum bank regulatory capital requirements, and the Bank was considered "well capitalized"[319][322] | Capital Ratio (Bank) | Sep 30, 2023 (Actual Ratio) | Dec 31, 2022 (Actual Ratio) | Required for Capital Adequacy | Minimum for "Well Capitalized" | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Tier 1 capital (to average assets) | 11.71% | 12.17% | 4.00% | 5.00% | | CET 1 capital (to risk-weighted assets) | 12.55% | 12.21% | 7.00% | 6.50% | | Tier 1 capital (to risk-weighted assets) | 12.55% | 12.21% | 8.50% | 8.00% | | Total capital (to risk-weighted assets) | 13.67% | 13.24% | 10.50% | 10.00% | Contractual Obligations Presents a table summarizing the Company's contractual obligations, including time deposits, FHLB advances, subordinated debt, and other borrowings, categorized by maturity periods | Obligation Type | Within One Year (in thousands) | One to Five Years (in thousands) | After Five Years (in thousands) | Total (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | :---------------------------- | :------------------- | | Time deposits | $413,265 | $112,083 | $27 | $525,375 | | FHLB advances | $43,000 | $12,000 | $0 | $55,000 | | Subordinated debt borrowings | $0 | $0 | $86,582 | $86,582 | | Other borrowings | $4,991 | $0 | $0 | $4,991 | | Total Contractual Obligations | $461,256 | $124,083 | $86,609 | $671,948 | Off-Balance Sheet Arrangements The Company engages in off-balance sheet arrangements, including commitments to extend credit ($525.4 million) and standby letters of credit ($3.6 million) as of September 30, 2023, which involve credit and interest rate risk | Commitment Type | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Commitments to extend credit | $525,402 | $550,315 | $(24,913) | -4.5% | | Standby letters of credit | $3,582 | $5,632 | $(2,050) | -36.4% | | Total Off-Balance Sheet Commitments | $528,984 | $555,947 | $(26,963) | -4.8% | Interest Rate Sensitivity and Market Risk The Company actively manages its interest rate risk through its ALCO, using simulation models and shock analyses to assess the impact of interest rate fluctuations on net interest income and fair value of equity, aiming to stay within established policy guidelines - The Company manages interest rate risk through its Asset Liability Committee (ALCO), using simulation models and shock analyses to test the impact on net interest income and fair value of equity[338][339] - Internal policy specifies that estimated net interest income at risk for the subsequent one-year period should not decline by more than 10% for a 100 basis point shift, 15% for 200 bps, 20% for 300 bps, and 25% for 400 bps[341] | Change in Interest Rates (Basis Points) | Percent Change in Net Interest Income (Sep 30, 2023) | Percent Change in Net Interest Income (Sep 30, 2022) | | :-------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | +400 | 4.30% | 23.59% | | +300 | 3.70% | 17.63% | | +200 | 2.70% | 11.71% | | +100 | 1.50% | 5.88% | | -100 | (4.40%) | (6.68%) | | -200 | (7.50%) | (14.17%) | | -300 | (10.80%) | (22.85%) | | -400 | (14.40%) | (34.47%) | Impact of Inflation This section notes that interest rates have a more significant impact on a financial institution's performance than general inflation, and rising rates can increase funding costs and potentially reduce loan demand - Interest rates have a more significant impact on a financial institution's performance than general inflation due to the monetary nature of assets and liabilities[343][344] - Increases in interest rates can lead to higher funding costs, a shift to higher interest-bearing deposits, and potentially lower loan originations[342] Critical Accounting Policies and Estimates This section highlights the critical accounting policies and significant estimates that require complex judgments, including those related to the basis of presentation, cash and cash equivalents, securities classification, loans held for sale, loans, and the allowance for credit losses - Critical accounting policies involve significant management estimates and judgments, particularly for the allowance for credit losses, valuation of financial instruments, and deferred taxes[345][346][352] - The allowance for credit losses is a highly subjective estimate based on loan portfolio evaluation, past loss experience, asset quality trends, economic conditions, and regulatory recommendations, with CECL methodology applied[352][353][354][355][356] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item refers to the market risk disclosures provided in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, and additional information within Item 2 of this Quarterly Report - Quantitative and qualitative disclosures about market risk are cross-referenced to the Annual Report on Form 10-K and Item 2 of this Quarterly Report[358] Item 4. Controls and Procedures The Company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of September 30, 2023, and reported no material changes in internal control over financial reporting during Q3 2023 - The Company's disclosure controls and procedures were deemed effective as of September 30, 2023, following an evaluation by management, including the CEO and CFO[359] - There were no material changes in the Company's internal control over financial reporting during the third quarter of 2023[360] Part II. Other Information Item 1. Legal Proceedings The Company and Southern States Bank are involved in routine legal proceedings, primarily for loan collection, and management believes these will not have a material adverse effect on their financial condition or results of operations - The Company is involved in various legal proceedings in the ordinary course of business, primarily to collect loans or enforce security interests[362] - Management believes that none of the pending legal proceedings will have a material adverse effect on the Company's financial condition or results of operations[362] Item 1A. Risk Factors This item refers to the risk factors detailed in the Annual Report on Form 10-K and highlights new or materially changed risks related to liquidity impairment, the soundness of other financial institutions, and potential increases in FDIC insurance premiums - New or materially changed risk factors include potential liquidity impairment due to deposit withdrawals or inability to raise funds, the impact of the soundness of other financial institutions, and potential increases in FDIC insurance premiums[363][364][367][368] - The Company's access to funding could be impaired by factors affecting the financial services industry or the economy, such as disruptions in financial markets or negative expectations[366] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities This item reports on the Company's share repurchase program, which was extended in February 2023 to authorize repurchases of up to $10.0 million of common stock until December 31, 2023 No shares were repurchased during Q3 2023 - The Company's share repurchase program, extended in February 2023, authorizes repurchases of up to $10.0 million of common stock until December 31, 2023[369][370] | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of the Publicly Announced Program | Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) | | :-------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :------------------------------------------------------------------------------ | | July 1 - Sep 30, 2023 | 0 | $0 | 0 | $9,021 | Item 3. Defaults Upon Senior Securities This item states that there were no defaults upon senior securities - There were no defaults upon senior securities[371] Item 4. Mine Safety Disclosures This item states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[372] Item 5. Other Information This item states that there is no other information to report - No other information to report[373] Item 6. Exhibits This item provides a comprehensive list of exhibits filed with the Form 10-Q, including agreements, corporate documents, certifications, and XBRL-related documents - The report includes various exhibits such as the Agreement and Plan of Merger, Certificate of Incorporation, Bylaws, Indentures for Subordinated Notes, and certifications from executive officers[374][376] Signatures Confirms the official submission of the report with signatures from the Chief Executive Officer and Chief Financial Officer - The report is signed by Mark A. Chambers, Chief Executive Officer and Director, and Lynn Joyce, Senior Executive Vice President and Chief Financial Officer, on November 14, 2023[380]