SouthState Corp - Quarter Report: 2022 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-12669

SOUTHSTATE CORPORATION

(Exact name of registrant as specified in its charter)

South Carolina		57-0799315
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)


1101 First Street South, Suite 202
Winter Haven, Florida		33880
(Address of principal executive offices)		(Zip Code)

(863) 293-4710

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common Stock, $2.50 par value	SSB	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer ☒		Accelerated Filer ☐

Non-Accelerated Filer ☐		Smaller Reporting Company ☐

		Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of issuer’s classes of common stock, as of the latest practicable date:



Class		Outstanding as of November 3, 2022
Common Stock, $2.50 par value		75,695,550

Table of Contents

SouthState Corporation and Subsidiaries

September 30, 2022 Form 10-Q

INDEX

		Page

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021	3

	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021	4

	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2022 and 2021	5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended September 30, 2022 and 2021	6

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2022 and 2021	7

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	80

Item 4.	Controls and Procedures	80

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	81

Item 1A.	Risk Factors	81

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	81

Item 3.	Defaults Upon Senior Securities	82

Item 4.	Mine Safety Disclosures	82

Item 5.	Other Information	82

Item 6.	Exhibits	82

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PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

SouthState Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in thousands, except par value)


	September 30,		December 31,
	2022		2021
		(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	394,794	$	476,653
Federal funds sold and interest-earning deposits with banks		2,342,389		6,018,915
Deposits in other financial institutions (restricted cash)		72,512		347,579
Total cash and cash equivalents		2,809,695		6,843,147
Trading securities, at fair value		51,940		77,689
Investment securities:
Securities held to maturity (fair value of $2,299,162 and $1,778,064)		2,738,178		1,819,901
Securities available for sale, at fair value		5,369,610		5,193,478
Other investments		179,755		160,568
Total investment securities		8,287,543		7,173,947
Loans held for sale		34,477		191,723
Loans:
Acquired - non-purchased credit deteriorated loans		6,365,175		5,890,069
Acquired - purchased credit deteriorated loans		1,544,562		1,987,322
Non-acquired loans		20,926,566		16,050,775
Less allowance for credit losses		(324,398)		(301,807)
Loans, net		28,511,905		23,626,359
Other real estate owned		2,160		2,736
Bank property held for sale		25,043		9,578
Premises and equipment, net		531,160		558,499
Bank owned life insurance ("BOLI")		960,052		783,049
Deferred tax assets		198,647		64,964
Derivatives assets		1,083,803		414,742
Mortgage servicing rights		90,459		65,620
Core deposit and other intangibles		125,390		128,067
Goodwill		1,922,525		1,581,085
Other assets		543,810		438,827
Total assets	$	45,178,609	$	41,960,032
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	13,660,244	$	11,498,840
Interest-bearing		24,005,777		23,555,989
Total deposits		37,666,021		35,054,829
Federal funds purchased		213,773		381,195
Securities sold under agreements to repurchase		344,029		400,044
Corporate and subordinated debentures		392,368		327,066
Reserve for unfunded commitments		52,991		30,510
Derivative liabilities		1,082,948		410,137
Other liabilities		505,293		553,311
Total liabilities		40,257,423		37,157,092
Shareholders’ equity:
Common stock - $2.50 par value; authorized 160,000,000 shares; 75,676,445 and 69,332,297 shares issued and outstanding, respectively		189,191		173,331
Surplus		4,207,040		3,653,098
Retained earnings		1,241,413		997,657
Accumulated other comprehensive loss		(716,458)		(21,146)
Total shareholders’ equity		4,921,186		4,802,940
Total liabilities and shareholders’ equity	$	45,178,609	$	41,960,032

The Accompanying Notes are an Integral Part of the Financial Statements.

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SouthState Corporation and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)

(In thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Interest income:
Loans, including fees	$	312,856	$	246,065	$	818,473	$	752,209
Investment securities:
Taxable		39,300		20,410		108,368		53,165
Tax-exempt		5,986		2,775		15,937		7,554
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with banks		16,668		2,199		28,155		4,538
Total interest income		374,810		271,449		970,933		817,466
Interest expense:
Deposits		10,137		7,267		20,541		28,061
Federal funds purchased and securities sold under agreements to repurchase		1,506		259		2,556		933
Corporate and subordinated debentures		4,958		3,896		13,874		13,314
Other borrowings		—		41		—		44
Total interest expense		16,601		11,463		36,971		42,352
Net interest income		358,209		259,986		933,962		775,114
Provision (recovery) for credit losses		23,876		(38,903)		34,713		(156,116)
Net interest income after provision (recovery) for credit losses		334,333		298,889		899,249		931,230
Noninterest income:
Fees on deposit accounts		31,188		26,130		93,748		75,348
Mortgage banking income		2,262		15,560		18,336		52,555
Trust and investment services income		9,603		9,150		29,152		27,461
Correspondent banking and capital market income		20,552		25,164		76,150		79,789
SBA income		6,401		4,009		13,924		9,417
Securities gains, net		30		64		30		100
Other income		7,142		6,933		20,220		17,645
Total noninterest income		77,178		87,010		251,560		262,315
Noninterest expense:
Salaries and employee benefits		139,554		136,969		414,264		414,709
Occupancy expense		22,490		23,135		67,089		69,310
Information services expense		20,714		18,061		59,854		55,928
OREO and loan related expense		532		1,527		291		2,769
Amortization of intangibles		7,837		8,543		25,178		26,675
Supplies, printing and postage expense		2,621		2,310		7,210		7,480
Professional fees		3,495		2,415		11,575		7,990
FDIC assessment and other regulatory charges		6,300		4,245		16,444		13,017
Advertising and marketing		2,170		2,185		6,219		5,584
Extinguishment of debt cost		—		—		—		11,706
Merger and branch consolidation related expense		13,679		17,618		29,345		60,598
Other expense		21,041		15,282		62,733		48,618
Total noninterest expense		240,433		232,290		700,202		724,384
Earnings:
Income before provision for income taxes		171,078		153,609		450,607		469,161
Provision for income taxes		38,035		30,821		98,060		100,464
Net income	$	133,043	$	122,788	$	352,547	$	368,697
Earnings per common share:
Basic	$	1.76	$	1.75	$	4.75	$	5.22
Diluted	$	1.75	$	1.74	$	4.71	$	5.19
Weighted average common shares outstanding:
Basic		75,606		70,066		74,185		70,643
Diluted		76,182		70,576		74,791		71,108

The Accompanying Notes are an Integral Part of the Financial Statements.

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SouthState Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss) Income (unaudited)

(Dollars in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net income	$	133,043	$	122,788	$	352,547	$	368,697
Other comprehensive (loss) income:
Unrealized holding losses on available for sale securities:
Unrealized holding losses arising during period		(299,139)		(32,284)		(922,437)		(63,019)
Tax effect		73,588		7,677		227,148		14,986
Reclassification adjustment for gains included in net income		(30)		(64)		(30)		(100)
Tax effect		7		15		7		24
Net of tax amount		(225,574)		(24,656)		(695,312)		(48,109)
Other comprehensive loss, net of tax		(225,574)		(24,656)		(695,312)		(48,109)
Comprehensive (loss) income	$	(92,531)	$	98,132	$	(342,765)	$	320,588

The Accompanying Notes are an Integral Part of the Financial Statements.

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SouthState Corporation and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

Three months ended September 30, 2022 and 2021

(Dollars in thousands, except for share data)


								Accumulated
								Other
	Common Stock					Retained		Comprehensive
	Shares	Amount		Surplus		Earnings		Loss		Total
Balance, June 30, 2021	70,382,728	$	175,957	$	3,720,946	$	836,584	$	24,136	$	4,757,623
Comprehensive income:
Net income	—		—		—		122,788		—		122,788
Other comprehensive loss, net of tax effects	—		—		—		—		(24,656)		(24,656)
Total comprehensive income											98,132
Cash dividends declared on common stock at $0.49 per share	—		—		—		(34,305)		—		(34,305)
Cash dividends equivalents paid on restricted stock units	—		—		—		(23)		—		(23)
Employee stock purchases	8,823		22		645		—		—		667
Stock options exercised	8,923		22		451		—		—		473
Stock issued pursuant to restricted stock units	3,108		8		(8)		—		—		—
Common stock repurchased - buyback plan	(485,491)		(1,214)		(34,805)		—		—		(36,019)
Common stock repurchased	(54)		—		(3)		—		—		(3)
Share-based compensation expense	—		—		6,396		—		—		6,396
Balance, September 30, 2021	69,918,037	$	174,795	$	3,693,622	$	925,044	$	(520)	$	4,792,941

Balance, June 30, 2022	75,641,322	$	189,103	$	4,195,976	$	1,146,230	$	(490,884)	$	5,040,425
Comprehensive income:
Net income	—		—		—		133,043		—		133,043
Other comprehensive loss, net of tax effects	—		—		—		—		(225,574)		(225,574)
Total comprehensive loss											(92,531)
Cash dividends declared on common stock at $0.50 per share	—		—		—		(37,834)		—		(37,834)
Cash dividend equivalents paid on restricted stock units	—		—		—		(26)		—		(26)
Employee stock purchases	10,084		25		714		—		—		739
Stock options exercised	18,980		47		732		—		—		779
Restricted stock awards	(1,550)		(3)		3		—		—		—
Stock issued pursuant to restricted stock units	18,560		46		(46)		—		—		—
Common stock repurchased - buyback plan	—		—		—		—		—		—
Common stock repurchased	(10,951)		(27)		(851)		—		—		(878)
Share-based compensation expense	—		—		10,512		—		—		10,512
Balance, September 30, 2022	75,676,445	$	189,191	$	4,207,040	$	1,241,413	$	(716,458)	$	4,921,186

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SouthState Corporation and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

Nine months ended September 30, 2022 and 2021

(Dollars in thousands, except for share data)


								Accumulated Other
	Common Stock					Retained		Comprehensive
	Shares	Amount		Surplus		Earnings		Loss		Total
Balance, December 31, 2020	70,973,477	$	177,434	$	3,765,406	$	657,451	$	47,589	$	4,647,880
Comprehensive income:
Net income	—		—		—		368,697		—		368,697
Other comprehensive loss, net of tax effects	—		—		—		—		(48,109)		(48,109)
Total comprehensive income											320,588
Cash dividends declared on common stock at $1.43 per share	—		—		—		(100,990)		—		(100,990)
Cash dividends equivalents paid on restricted stock units	—		—		—		(114)		—		(114)
Employee stock purchases	15,920		40		1,111		—		—		1,151
Stock options exercised	51,620		129		2,251		—		—		2,380
Stock issued pursuant to restricted stock units	74,878		187		(187)		—		—		—
Common stock repurchased - buyback plan	(1,185,491)		(2,964)		(93,216)		—		—		(96,180)
Common stock repurchased	(12,367)		(31)		(938)		—		—		(969)
Share-based compensation expense	—		—		19,195		—		—		19,195
Balance, September 30, 2021	69,918,037	$	174,795	$	3,693,622	$	925,044	$	(520)	$	4,792,941

Balance, December 31, 2021	69,332,297	$	173,331	$	3,653,098	$	997,657	$	(21,146)	$	4,802,940
Comprehensive loss:
Net income	—		—		—		352,547		—		352,547
Other comprehensive loss, net of tax effects	—		—		—		—		(695,312)		(695,312)
Total comprehensive loss											(342,765)
Cash dividends declared on common stock at $1.48 per share	—		—		—		(108,639)		—		(108,639)
Cash dividend equivalents paid on restricted stock units	—		—		—		(152)		—		(152)
Employee stock purchases	19,162		48		1,395		—		—		1,443
Stock options exercised	37,236		92		1,424		—		—		1,516
Restricted stock awards (forfeitures)	(2,816)		(6)		6		—		—		—
Stock issued pursuant to restricted stock units	383,369		958		(957)		—		—		1
Common stock repurchased - buyback plan	(1,312,038)		(3,280)		(106,924)		—		—		(110,204)
Common stock repurchased	(111,568)		(279)		(8,778)		—		—		(9,057)
Share-based compensation expense	—		—		28,311		—		—		28,311
Common stock issued for Atlantic Capital merger	7,330,803		18,327		641,445		—		—		659,772
Net fair value of unvested equity awards assumed in the Atlantic Capital acquisition	—		—		(1,980)		—		—		(1,980)
Balance, September 30, 2022	75,676,445	$	189,191	$	4,207,040	$	1,241,413	$	(716,458)	$	4,921,186

The Accompanying Notes are an Integral Part of the Financial Statements.

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SouthState Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(Dollars in thousands)


	Nine Months Ended
	September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	352,547	$	368,697
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		48,765		47,104
(Recovery) provision for credit losses		34,713		(156,116)
Deferred income taxes		123,905		106,696
Gains on sale of securities, net		(30)		(100)
Share-based compensation expense		28,311		19,195
Accretion of discount related to acquired loans		(29,061)		(21,951)
Extinguishment of debt cost - fair value marks		—		11,706
Losses on disposal of premises and equipment		3,483		749
Gains on sale of bank properties held for sale and repossessed real estate		(787)		(1,767)
Net amortization of premiums on investment securities		21,528		28,994
Bank properties held for sale and repossessed real estate write downs		226		1,741
Fair value adjustment for loans held for sale		7,604		5,586
Originations and purchases of loans held for sale		(1,273,659)		(2,319,690)
Proceeds from sales of loans held for sale		1,421,238		2,425,783
Losses (gains) on sales of loans held for sale		2,062		(64,025)
Increase in cash surrender value of BOLI		(17,188)		(13,289)
Net change in:
Accrued interest receivable		(22,788)		13,629
Prepaid assets		(1,180)		(2,113)
Operating leases		245		1,943
Bank owned life insurance		(423)		(202)
Trading securities		25,749		(18,759)
Derivative assets		(665,105)		324,814
Miscellaneous other assets		(6,642)		(305,354)
Accrued interest payable		2,745		(575)
Accrued income taxes		(54,219)		(117,138)
Derivative liabilities		668,812		(319,824)
Miscellaneous other liabilities		(86,653)		412,277
Net cash provided by operating activities		584,198		428,011
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale		482,028		150,602
Proceeds from maturities and calls of investment securities held to maturity		176,401		67,117
Proceeds from maturities and calls of investment securities available for sale		460,910		616,178
Proceeds from sales and redemptions of other investment securities		13,216		1,533
Purchases of investment securities available for sale		(1,366,327)		(2,155,507)
Purchases of investment securities held to maturity		(1,099,691)		(757,228)
Purchases of other investment securities		(20,387)		(1,683)
Net (increase) decrease in loans		(2,516,308)		881,736
Net cash received from (paid in) acquisitions		250,115		(39,929)
Recoveries of loans previously charged off		15,381		10,744
Purchase of bank owned life insurance		(85,966)		(206,000)
Purchases of premises and equipment		(13,781)		(25,405)
Proceeds from redemption and payout of bank owned life insurance policies		1,188		307
Proceeds from sale of bank properties held for sale and repossessed real estate		8,564		33,003
Proceeds from sale of premises and equipment		3,772		3,909
Net cash used in investing activities		(3,690,885)		(1,420,623)
Cash flows from financing activities:
Net (decrease) increase in deposits		(415,236)		2,872,210
Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings		(273,437)		80,070
Proceeds from borrowings		—		25,000
Repayment of borrowings		(13,000)		(100,878)
Common stock issuance		1,444		1,151
Common stock repurchases		(119,261)		(97,149)
Dividends paid		(108,791)		(101,104)
Stock options exercised		1,516		2,380
Net cash (used in) provided by financing activities		(926,765)		2,681,680
Net increase (decrease) in cash and cash equivalents		(4,033,452)		1,689,068
Cash and cash equivalents at beginning of period		6,843,147		4,609,255
Cash and cash equivalents at end of period	$	2,809,695	$	6,298,323
Supplemental Disclosures:
Cash Flow Information:
Cash paid for:
Interest	$	34,227	$	42,925
Income taxes	$	31,611	$	115,034
Recognition of operating lease assets in exchange for lease liabilities	$	12,616	$	5,494
Schedule of Noncash Investing Transactions:
Acquisitions:
Fair value of tangible assets acquired	$	3,501,273	$	34,838
Other intangible assets acquired		20,791		—
Liabilities assumed		3,205,694		2,343
Net identifiable assets acquired over liabilities assumed		341,440		15,816
Common stock issued in acquisition		659,772		—
Real estate acquired in full or in partial settlement of loans	$	1,151	$	2,516

The Accompanying Notes are an Integral Part of the Financial Statements.

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SouthState Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, otherwise referred to as GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required for complete financial statements. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period information has been reclassified to conform to the current period presentation, and these reclassifications had no impact on net income or equity as previously reported. Operating results for the three and nine months ended September 30, 2022 and 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by GAAP for complete financial statements.

Note 2 — Summary of Significant Accounting Policies

The information contained in the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2022, should be referenced when reading these unaudited condensed consolidated financial statements. Unless otherwise mentioned or unless the context requires otherwise, references herein to “SouthState,” the “Company” “we,” “us,” “our” or similar references mean SouthState Corporation and its consolidated subsidiaries. References to the “Bank” or “SouthState Bank” means SouthState Corporation’s wholly owned subsidiary, SouthState Bank, National Association, a national banking association.

Allowance for Credit Losses (“ACL”)

On January 1, 2020, we adopted the requirements of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, sometimes referred to herein as ASU 2016-13. Topic 326 was subsequently amended by ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses; ASU No. 2019-05, Codification Improvements to Topic 326, Financial Instruments-Credit Losses; and ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This standard applies to all financial assets measured at amortized cost and off-balance sheet credit exposures, including loans, investment securities and unfunded commitments. We applied the standard’s provisions using the modified retrospective method as a cumulative-effect adjustment to retained earnings as of January 1, 2020.

ACL – Investment Securities

Management uses a systematic methodology to determine its ACL for investment securities held to maturity. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the held to maturity portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, Management’s process for determining expected credit losses may result in a range of expected credit losses. Management monitors the held to maturity portfolio to determine whether a valuation account should be recorded. As of September 30, 2022 and December 31, 2021, the Company had $2.7 billion and $1.8 billion, respectively, of held to maturity securities and no related valuation account.

Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the investment securities and does not record an allowance for credit losses on accrued interest receivable. As of September 30, 2022 and December 31, 2021, the accrued interest receivables for all investment

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securities recorded in Other Assets were $28.4 million and $19.2 million, respectively.

Management no longer evaluates securities for other-than-temporary impairment, otherwise referred to herein as OTTI, as ASC Subtopic 326-30, Financial Instruments—Credit Losses—Available for Sale Debt Securities, changes the accounting for recognizing impairment on available for sale debt securities. Each quarter, Management evaluates impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value. Management considers the nature of the collateral, potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase, volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral among other factors. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the Provision for Credit Losses in the Condensed Consolidated Statements of Income.

ACL - Loans

The ACL for loans held for investment reflects Management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. The Company established the incremental increase in the ACL at adoption through equity and subsequent adjustments through a provision for or recovery of credit losses recorded to earnings. The Company records loans charged off against the ACL and subsequent recoveries, if any, increase the ACL when they are recognized.

Management uses systematic methodologies to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, Management’s process for determining expected credit losses may result in a range of expected credit losses. The Company’s ACL recorded in the balance sheet reflects Management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for Management’s current estimate of expected credit losses. The Company’s ACL is calculated using collectively evaluated and individually evaluated loans.

The allowance for credit losses is measured on a collective pool basis when similar risk characteristics exist. Loans with similar risk characteristics are grouped into homogenous segments, or pools, for analysis. The Discounted Cash Flow (“DCF”) method is used for each loan in a pool, and the results are aggregated at the pool level. A periodic tendency to default and absolute loss given default are applied to a projective model of the loan’s cash flow while considering prepayment and principal curtailment effects. The analysis produces expected cash flows for each instrument in the pool by pairing loan-level term information (e.g., maturity date, payment amount, interest rate, etc.) with top-down pool assumptions (e.g., default rates and prepayment speeds). The Company has identified the following portfolio segments: Owner-Occupied Commercial Real Estate, Non-Owner Occupied Commercial Real Estate, Multifamily, Municipal, Commercial and Industrial, Commercial Construction and Land Development, Residential Construction, Residential Senior Mortgage, Residential Junior Mortgage, Revolving Mortgage, and Consumer and Other.

In determining the proper level of the ACL, Management has determined that the loss experience of the Bank provides the best basis for its assessment of expected credit losses. The Company therefore used its own historical credit loss experience by each loan segment over an economic cycle, while excluding loss experience from certain acquired institutions (i.e., failed banks). For most of the segment models for collectively evaluated loans, the Company incorporated two or more macroeconomic drivers using a statistical regression modeling methodology.

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four-quarter reversion period.

When a loan no longer shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included in another pool or should be individually evaluated. The Company’s threshold for individually evaluated loans includes all non-accrual loans with a net book balance in excess of $1.0 million. Management will monitor the credit environment and make adjustments to this threshold in the future if warranted. Based on the threshold above, consumer financial assets will generally remain in pools unless they meet the dollar threshold. The expected credit losses on individually evaluated loans will be estimated based on discounted cash flow analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral-dependent. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.

Management measures expected credit losses over the contractual term of a loan. When determining the contractual term, the Company considers expected prepayments but is precluded from considering expected extensions, renewals, or modifications, unless the Company reasonably expects it will execute a TDR with a borrower. In the event of a reasonably expected TDR, the Company factors the reasonably-expected TDR into the current expected credit losses estimate. For consumer loans, the point at which a TDR is reasonably expected is when the Company approves the borrower’s application for a modification (i.e., the borrower qualifies for the TDR) or when the Credit Administration department approves loan concessions on substandard loans. For commercial loans, the point at which a TDR is reasonably expected is when the Company approves the loan for modification or when the Credit Administration department approves loan concessions on substandard loans. The Company uses a discounted cash flow methodology for a TDR to calculate the effect of the concession provided to the borrower within the ACL. The Company has not chosen to early adopt ASU No. 2020-04, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, that allows for the retirement of TDR guidance, which does not go into effect until early 2023.

A restructuring that results in only a delay in payments that is insignificant is not considered an economic concession. In accordance with the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, the Company implemented loan modification programs in response to the COVID-19 pandemic in order to provide borrowers with flexibility with respect to repayment terms. The Company’s payment relief assistance includes forbearance, deferrals, extension and re-aging programs, along with certain other modification strategies. The Company elected the accounting policy in the CARES Act to not apply TDR accounting to loans modified for borrowers impacted by the COVID-19 pandemic if the concession met the criteria as defined under the CARES Act.

For purchased credit-deteriorated, otherwise referred to herein as PCD, assets are defined as acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The Company records acquired PCD loans by adding the expected credit losses (i.e., allowance for credit losses) to the purchase price of the financial assets rather than recording through the provision for credit losses in the income statement. The expected credit loss, as of the acquisition day, of a PCD loan is added to the allowance for credit losses. The non-credit discount or premium is the difference between the unpaid principal balance and the amortized cost basis as of the acquisition date. Subsequent to the acquisition date, the change in the ACL on PCD loans is recognized through the Provision for Credit Losses in the Condensed Consolidated Statements of Income. The non-credit discount or premium is accreted or amortized, respectively, into interest income over the remaining life of the PCD loan on a level-yield basis. In accordance with the transition requirements within the standard, the Company’s acquired credit-impaired loans (i.e., ACI or Purchased Credit Impaired) were treated as PCD loans.

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balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an allowance for credit losses on accrued interest receivable. As of September 30, 2022 and December 31, 2021, the accrued interest receivables for loans recorded in Other Assets were $93.7 million and $70.6 million, respectively.

The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the expected credit loss will be recorded as a liability on the balance sheet. Management has determined that a majority of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable. Management completes funding studies based on historical data to estimate the percentage of unfunded loan commitments that will ultimately be funded to calculate the reserve for unfunded commitments. Management applies this funding rate, along with the loss factor rate determined for each pooled loan segment, to unfunded loan commitments, excluding unconditionally cancellable exposures and letters of credit, to arrive at the reserve for unfunded loan commitments. As of September 30, 2022 and December 31, 2021, the liabilities recorded for expected credit losses on unfunded commitments were $53.0 million and $30.5 million, respectively. The current adjustment to the ACL for unfunded commitments is recognized through the Provision for Credit Losses in the Condensed Consolidated Statements of Income.

Note 3 — Recent Accounting and Regulatory Pronouncements

Accounting Standards Adopted

In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (Subtopic 715-20. ASU 2018-14 amends ASC 715-20 to add, remove, and clarify disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. For public business entities, ASU 2018-14 is effective for fiscal years ending after December 15, 2020 and requires entities to apply the amendment on a retrospective basis. Early adoption is permitted. The Company adopted ASU No. 2018-14 on January 1, 2021 but it did not have a material impact on our consolidated financial statements.

Issued But Not Yet Adopted Accounting Standards

In March 2022, FASB issued ASU No. 2020-04, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU eliminate the long-standing accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, as it is no longer meaningful due to the introduction of Topic 326, which requires an entity to consider lifetime expected credit losses on loans when establishing an allowance for credit losses. Thus, most losses that would have been realized for a TDR under Subtopic 310-40 are now captured by the accounting required under Topic 326. The amendments in this ASU also require that an entity disclose current-period gross write offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments – Credit Losses Measured at Amortized Cost. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Aside from the changes to the disclosures required by this ASU, this ASU is not expected to have a material impact on our consolidated financial statements.

In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848 – Facilitation of the Effects of Reference Rate Reform on Financial Reporting and subsequently expanded the scope of ASU No. 2020-04 with the issuance of ASU No. 2021-01. This update provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that will be discontinued. The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The main provisions for contract modifications include optional relief by allowing the modification as a continuation of the existing contract without additional analysis and other optional expedients regarding embedded features. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate that will be discontinued because of reference rate reform. The amendments in this update were effective for all entities as of March 12, 2020 and may be applied through December 31, 2022. An entity may elect to apply the amendments in this update to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is

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subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected, the amendments in this update must be applied prospectively for all eligible contract modifications and hedging relationships.

The Company has established a LIBOR Committee and various subcommittees, which have evaluated the impact of adopting and implementing ASU 2020-04 on the consolidated financial statements, including the evaluation of all of the Company’s contracts, hedging relationships and other transactions that will be affected by reference rates that are being discontinued. The cross-functional LIBOR Committee and subcommittees have (1) assessed the Company's current exposure to LIBOR indexed instruments and the data, systems and processes that will be impacted; (2) established a detailed implementation plan; and (3) developed a formal governance structure for the transition. The Company is in the process of developing and implementing various proactive steps to facilitate the transition on behalf of customers, which include the adoption and ongoing implementation of fallback provisions that provide for the determination of replacement rates for LIBOR-linked financial products; the adoption of new products linked to alternative reference rates, such as adjustable-rate mortgages, consistent with guidance provided by the U.S. regulators, the Alternative Reference Rates Committee, and government sponsored entities; the cessation of quoting LIBOR and originating new products linked to LIBOR by December 31, 2021; and the selection of SOFR indices as the replacement indices, and successful completion of systems testing using the SOFR replacement indices.

As a result of the implementation plan, the Company discontinued quoting LIBOR on September 30, 2021 and discontinued originating new products linked to LIBOR on December 31, 2021. The Company continues to evaluate its financial and operational infrastructure in its effort to transition all financial and strategic processes, systems, and models to reference rates other than LIBOR. The Company is in the process of developing and implementing processes to educate all client-facing associates and coordinate communications with customers regarding the transition. In addition, the Company expects to adopt the LIBOR transition relief allowed under ASU No. 2020-04.

Note 4 — Mergers and Acquisitions

Duncan-Williams, Inc. (“Duncan-Williams”)

On February 1, 2021, the Company completed its acquisition of Duncan-Williams, a 52-year-old family- and employee-owned registered broker-dealer, headquartered in Memphis, Tennessee, serving primarily institutional clients across the U.S. in the fixed income business. Duncan-Williams firm became an operating subsidiary of the Bank immediately following the transaction.

In total, the purchase price for Duncan-Williams was $48.3 million, including an additional premium of $8.0 million that is payable after three years from the date of acquisition. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805. The Company recognized goodwill on this acquisition of $15.8 million. The goodwill was calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date.

Atlantic Capital Bancshares, Inc. (“Atlantic Capital” or “ACBI”)

On March 1, 2022, the Company acquired all of the outstanding common stock of Atlantic Capital Bancshares, Inc., a Georgia corporation (“Atlantic Capital” or “ACBI”), in a stock transaction. Upon the terms and subject to the conditions set forth therein, Atlantic Capital merged with and into the Company, with the Company continuing as the surviving corporation in the merger. Immediately following the merger, Atlantic Capital’s wholly owned banking subsidiary, Atlantic Capital Bank, N.A. (“ACB”) merged with and into the Company’s wholly owned banking subsidiary, SouthState Bank, National Association, which continues as the surviving bank in the bank merger by and between SouthState and Atlantic Capital. Shareholders of Atlantic Capital received 0.36 shares of the Company’s common stock for each share of Atlantic Capital common stock they owned. In total, the purchase price for Atlantic Capital was $657.8 million.

In the acquisition, the Company acquired $2.4 billion of loans, including PPP loans, at fair value, net of $54.3 million, or 2.24%, estimated discount to the outstanding principal balance, representing 10.0% of the Company’s total loans at December 31, 2021. Of the total loans acquired, Management identified $137.9 million that had more than insignificantly deteriorated since origination and were thus determined to be PCD loans.

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The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805. The Company recognized goodwill on this acquisition of $341.4 million. The goodwill was calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date.

During the three and nine months ended September 30, 2022, the Company incurred approximately $7.1 million and $15.0 million, respectively, of acquisition costs related to this transaction. During the three and nine months ended September 30, 2021, the Company incurred approximately $925,000 of acquisition costs related to this transaction. These acquisition costs are reported in merger and branch consolidation related expenses on the Company’s Condensed Consolidated Statements of Income.

The Atlantic Capital transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date. Fair values are preliminary and subject to refinement for up to a year after the closing date of the acquisition.


			Initial			Subsequent
	As Recorded		Fair Value			Fair Value			As Recorded by
(Dollars in thousands)	by Atlantic Capital		Adjustments			Adjustments			the Company
Assets
Cash and cash equivalents	$	250,134	$	24	(a)	$	—		$	250,158
Investment securities		717,332		(13,622)	(b)		—			703,710
Loans, net of allowance and mark		2,394,256		(18,964)	(c)		(5,614)	(c)		2,369,678
Premises and equipment		16,892		2,608	(d)		—			19,500
Intangible assets		22,572		(1,781)	(e)		—			20,791
Bank owned life insurance		74,613		—			—			74,613
Deferred tax asset		30,231		2,273	(f)		(444)	(f)		32,060
Other assets		45,274		(1,277)	(g)		7,557	(g)		51,554
Total assets	$	3,551,304	$	(30,739)		$	1,499		$	3,522,064

Liabilities
Deposits:
Noninterest-bearing	$	1,411,671	$	—		$	—		$	1,411,671
Interest-bearing		1,616,970		—			—			1,616,970
Total deposits		3,028,641		—			—			3,028,641
Federal funds purchased and securities sold under agreements to repurchase		50,000		—			—			50,000
Other borrowings		74,131		4,286	(h)		—			78,417
Other liabilities		50,711		(2,075)	(i)		—			48,636
Total liabilities		3,203,483		2,211			—			3,205,694
Net identifiable assets acquired over (under) liabilities assumed		347,821		(32,950)			1,499			316,370
Goodwill		—		342,939			(1,499)			341,440
Net assets acquired over liabilities assumed	$	347,821	$	309,989		$	—		$	657,810

Consideration:
South State Corporation common shares issued										7,330,803
Purchase price per share of the Company's common stock									$	90.00

Company common stock issued ($659,772) and cash exchanged for fractional shares ($19)									$	659,791
Stock option conversion										1,135
Restricted stock unit conversion										2,870
Restricted stock awards conversion (unvested awards)										(5,986)
Fair value of total consideration transferred									$	657,810

Explanation of fair value adjustments

(a)— Represents an adjustment to record time deposits with financial institutions at fair value (premium).

(b)— Represents the reversal of Atlantic Capital 's existing fair value adjustments of $17.2 million and the adjustment to record securities at fair value (discount) totaling $30.9 million (includes reclassification of all securities held as HTM to AFS totaling $237.6 million).

(c)— Represents approximately 1.40%, or $34.0 million, net credit discount of the loan portfolio and 2.24% total net discount, or $54.3 million, including non-credit discount, based on a third-party valuation. Also, includes a reversal of Atlantic Capital's ending allowance for credit losses of $22.1 million and $7.6 million of existing Atlantic Capital’s deferred fees and costs.

(d)— Represents the preliminary fair value adjustments of $2.6 million on fixed assets and leased assets.

(e)— Represents approximately $17.5 million, or 0.63%, of CDI amount and $3.2 million for SBA servicing asset based on a third-party valuation. Atlantic Capital’s pre-merger goodwill and servicing asset of $19.9 million and $2.6 million, respectively, were written-off.

(f)— Represents deferred tax asset related to fair value adjustments with effective tax rate of 24.6%, which includes an adjustment from Atlantic Capital’s effective tax rate to the Company’s effective tax rate. The difference in effective tax rates relates to state income taxes.

(g)— Represents the fair value adjustment (decrease) for low-income housing investments of $1.1 million, write-off of prepaid assets of $233,000, adjustments to receivables of $154,000 and fair value adjustment for Small Business Investment Company (“SBIC”) investments of $7.4 million.

(h)— Represents the reversal of the existing Atlantic Capital’s issuance costs on subordinated debt of $0.9 million and recording the fair value adjustment (premium) of $3.4 million, based on a third-party valuation.

(i)— Represents the reversal of $2.8 million of unfunded commitment liability at purchase date and the fair value adjustment to increase lease liabilities associated with rental facilities totaling $1.4 million. Also includes the reversal of uncertain tax liability of $0.7 million.

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Comparative and Pro Forma Financial Information for the Atlantic Capital Acquisition

Pro-forma data for the three- and nine-month periods ending September 30, 2021 and nine-month period ending September 30, 2022 listed in the table below presents pro-forma information as if the Atlantic Capital acquisition occurred at the beginning of 2021. These results combine the historical results of Atlantic Capital in the Company’s Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2021.

Merger-related costs of $15.0 million from the Atlantic Capital acquisition were incurred during 2022 and were excluded from pro forma information below. Merger-related costs of $925,000 incurred during three and nine months ended September 30, 2021 were also excluded from pro forma information below. No adjustments have been made to reduce the impact of any OREO write downs, investment securities sold or repayment of borrowings recognized by Atlantic Capital in either 2022 or 2021. The core system conversion for the Atlantic Capital merger was completed during third quarter of 2022. The Company expects to achieve further operating cost savings and other business synergies as a result of the acquisition, which are not reflected in the pro forma amounts below. The total revenues presented below represent pro-forma net interest income plus pro-forma noninterest income:


	Pro Forma		Pro Forma		Pro Forma
	Three Months Ended		Nine Months Ended		Nine Months Ended
(Dollars in thousands)	September 30, 2021		September 30, 2022		September 30, 2021
Total revenues (net interest income plus noninterest income)	$	380,736	$	1,200,879	$	1,139,741
Net interest income	$	289,117	$	945,790	$	865,671
Net adjusted income available to the common shareholder	$	140,076	$	380,588	$	401,853
EPS - basic	$	1.81	$	5.02	$	5.15
EPS - diluted	$	1.80	$	4.98	$	5.12

The disclosures regarding the results of operations for Atlantic Capital subsequent to the acquisition date are omitted as this information is not practical to obtain. The majority of the fixed costs and purchase accounting entries were booked on the Company’s core system making it impractical to determine Atlantic Capital’s results of operation on a stand-alone basis.

Note 5 — Investment Securities

The following is the amortized cost and fair value of investment securities held to maturity:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
September 30, 2022:
U.S. Government agencies	$	197,261	$	—	$	(30,091)	$	167,170
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,632,761		—		(267,505)		1,365,256
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		483,436		691		(64,602)		419,525
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		366,227		—		(66,366)		299,861
Small Business Administration loan-backed securities		58,493		—		(11,143)		47,350
	$	2,738,178	$	691	$	(439,707)	$	2,299,162
December 31, 2021:
U.S. Government agencies	$	112,913	$	—	$	(2,627)	$	110,286
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,120,104		14		(24,278)		1,095,840
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		174,178		—		(4,937)		169,241
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		350,116		304		(8,021)		342,399
Small Business Administration loan-backed securities		62,590		—		(2,292)		60,298
	$	1,819,901	$	318	$	(42,155)	$	1,778,064

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The following is the amortized cost and fair value of investment securities available for sale:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
September 30, 2022:
U.S. Treasuries	$	271,783	$	—	$	(7,358)	$	264,425
U.S. Government agencies		245,943		—		(27,320)		218,623
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		2,048,537		—		(318,470)		1,730,067
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		729,712		6		(101,906)		627,812
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,224,869		2,551		(199,644)		1,027,776
State and municipal obligations		1,256,045		23		(252,750)		1,003,318
Small Business Administration loan-backed securities		507,412		546		(43,722)		464,236
Corporate securities		35,595		10		(2,252)		33,353
	$	6,319,896	$	3,136	$	(953,422)	$	5,369,610
December 31, 2021:
U.S. Government agencies	$	98,882	$	—	$	(1,765)	$	97,117
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,851,700		5,324		(25,985)		1,831,039
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		730,949		5,957		(10,911)		725,995
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,220,233		5,438		(18,430)		1,207,241
State and municipal obligations		798,211		16,697		(2,219)		812,689
Small Business Administration loan-backed securities		502,812		2,330		(4,479)		500,663
Corporate securities		18,509		234		(9)		18,734
	$	5,221,296	$	35,980	$	(63,798)	$	5,193,478

During the three and nine months ended September 30, 2022, there were gains of $103,000 and losses of $73,000, a net gain of $30,000, realized from the sale of available for sale securities. During the three months ended March 31, 2022, the Company sold securities totaling $414.4 million that were legacy Atlantic Capital securities. These securities were marked to fair value at merger and therefore resulted in no gain or loss on sale. During the three months ended September 30, 2021, there were gains of $680,000 and losses of $616,000 and for the nine months ended September 30, 2021, there were gains of $748,000 and losses of $648,000, a net gain of $64,000 and $100,000, respectively, from the sale of available for sale securities.

The following is the amortized cost and carrying value of other investment securities:


	Carrying
(Dollars in thousands)	Value
September 30, 2022:
Federal Home Loan Bank stock	$	15,095
Federal Reserve Bank stock		150,261
Investment in unconsolidated subsidiaries		3,563
Other nonmarketable investment securities		10,836
	$	179,755
December 31, 2021:
Federal Home Loan Bank stock	$	16,283
Federal Reserve Bank stock		129,716
Investment in unconsolidated subsidiaries		3,563
Other nonmarketable investment securities		11,006
	$	160,568

Our other investment securities consist of non-marketable equity securities that have no readily determinable market value. Accordingly, when evaluating these securities for impairment, Management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of September 30, 2022, we determined that there was no impairment on other investment securities.

The amortized cost and fair value of debt securities at September 30, 2022, by contractual maturity are detailed below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

Securities

Held to Maturity

Available for Sale

Amortized

Fair

Amortized

Fair

(Dollars in thousands)

Cost

Value

Cost

Value

Due in one year or less

—

107,230

105,253

Due after one year through five years

101,152

92,747

487,512

466,754

Due after five years through ten years

359,629

321,679

1,149,845

999,829

Due after ten years

2,277,397

1,884,736

4,575,309

3,797,774

2,738,178

2,299,162

6,319,896

5,369,610

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Information pertaining to our securities with gross unrealized losses at September 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position is as follows:


	Less Than				Twelve Months
	Twelve Months				or More
	Gross Unrealized		Fair		Gross Unrealized		Fair
(Dollars in thousands)	Losses		Value		Losses		Value
September 30, 2022:
Securities Held to Maturity
U.S. Government agencies	$	10,903	$	98,443	$	19,188	$	68,727
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		90,161		627,193		177,344		738,063
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		34,942		265,792		29,660		104,370
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		21,199		113,354		45,167		186,507
Small Business Administration loan-backed securities		—		—		11,143		47,350
	$	157,205	$	1,104,782	$	282,502	$	1,145,017
Securities Available for Sale
U.S. Treasuries	$	7,358	$	264,425	$	—	$	—
U.S. Government agencies		12,248		159,395		15,072		59,228
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		122,435		874,957		196,035		854,926
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		35,684		368,713		66,222		257,017
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		66,849		463,425		132,795		528,853
State and municipal obligations		223,328		917,487		29,422		75,275
Small Business Administration loan-backed securities		18,118		167,715		25,604		178,604
Corporate securities		2,252		28,343		—		—
	$	488,272	$	3,244,460	$	465,150	$	1,953,903
December 31, 2021:
Securities Held to Maturity
U.S. Government agencies	$	1,745	$	86,168	$	882	$	24,118
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		18,768		868,327		5,510		184,819
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		4,937		169,240		—		—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		4,902		154,963		3,119		75,450
Small Business Administration loan-backed securities		1,281		37,408		1,011		22,890
	$	31,633	$	1,316,106	$	10,522	$	307,277
Securities Available for Sale
U.S. Government agencies	$	529	$	73,353	$	1,236	$	23,763
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		17,381		1,274,934		8,604		221,435
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		10,911		432,300		—		—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		13,120		846,581		5,310		98,106
State and municipal obligations		1,867		123,987		352		8,579
Small Business Administration loan-backed securities		2,720		179,168		1,759		110,309
Corporate securities		9		4,991		—		—
	$	46,537	$	2,935,314	$	17,261	$	462,192

Management evaluates securities for impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses. Consideration is given to (1) the financial condition and near-term prospects of the issuer including looking at default and delinquency rates, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third-party guarantees, and (8) collateral values. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the investments. The Company performed an analysis that determined that the following securities have a zero expected credit loss: U.S. Treasury Securities, Agency-Backed Securities including securities issued by Ginnie Mae, Fannie Mae, FHLB, FFCB and SBA. All of the U.S. Treasury and

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Agency-Backed Securities have the full faith and credit backing of the United States Government or one of its agencies. Municipal securities and all other securities that do not have a zero expected credit loss are evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value. All debt securities in an unrealized loss position as of September 30, 2022 continue to perform as scheduled and we do not believe there is a credit loss or a provision for credit losses is necessary.

Also, as part of our evaluation of our intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, we consider our investment strategy, cash flow needs, liquidity position, capital adequacy and interest rate risk position. We do not currently intend to sell the securities within the portfolio and it is not more-likely-than-not that we will be required to sell the debt securities. See Note 2 — Summary of Significant Account Policies for further discussion.

Management continues to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.

At September 30, 2022 and December 31, 2021, trading securities, at estimated fair value, were as follows:


	September 30,		December 31,
(Dollars in thousands)	2022		2021
U.S. Government agencies	$	12,017	$	5,154
Residential mortgage pass-through securities issued or guaranteed by U.S.
government agencies or sponsored enterprises		11,556		6,853
Other residential mortgage issued or guaranteed by U.S. government
agencies or sponsored enterprises		5,921		12,315
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		3,116		29,667
State and municipal obligations		18,060		20,798
Other debt securities		1,270		2,902
	$	51,940	$	77,689

Net gains (losses) on trading securities for the three and nine months ended September 30, 2022 and 2021 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Net gains (losses) on sales transaction	$	76	$	489	$	(1,544)	$	944
Net mark to mark gains (losses)		465		(693)		(1,969)		(882)
Net gains (losses) on trading securities	$	541	$	(204)	$	(3,513)	$	62

Note 6 — Loans

The following is a summary of total loans:


	September 30,		December 31,
(Dollars in thousands)	2022		2021
Loans:
Construction and land development ⁽¹⁾	$	2,550,552	$	2,029,216
Commercial non-owner occupied		7,964,470		6,735,699
Commercial owner occupied real estate		5,426,216		4,970,116
Consumer owner occupied ⁽²⁾		4,729,790		3,638,364
Home equity loans		1,247,330		1,168,594
Commercial and industrial		4,977,737		3,761,133
Other income producing property		676,846		696,804
Consumer		1,259,846		904,657
Other loans		3,516		23,583
Total loans		28,836,303		23,928,166
Less allowance for credit losses		(324,398)		(301,807)
Loans, net	$	28,511,905	$	23,626,359

(1)

Construction and land development includes loans for both commercial construction and development, as well as loans for 1-4 family construction and lot loans.

(2)

Consumer owner occupied real estate includes loans on both 1-4 family owner occupied property, as well as loans collateralized by 1-4 family owner occupied property with a business intent.

In accordance with the adoption of ASU 2016-13, the above table reflects the loan portfolio at the amortized cost basis for the periods September 30, 2022 and December 31, 2021, to include net deferred costs of $45.9 million

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compared to net deferred fees of $15.9 million, respectively, and unamortized discount total related to loans acquired of $79.5 million and $68.0 million, respectively.

The Company purchased loans through its acquisition of Atlantic Capital in the first quarter, for which there was, at acquisition, evidence of more than an insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows:


(Dollars in thousands)	March 1, 2022
Book value of acquired loans at acquisition	$	137,874
Allowance for credit losses at acquisition		(13,758)
Non-credit discount at acquisition		(5,943)
Carrying value or book value of acquired loans at acquisition	$	118,173

As part of the ongoing monitoring of the credit quality of our loan portfolio, Management tracks certain credit quality indicators, including trends related to (i) the level of classified loans, (ii) net charge-offs, (iii) non-performing loans (see details below), and (iv) the general economic conditions of the markets that we serve.

We use a risk grading matrix to assign a risk grade to each commercial loan. Classified loans are assessed at a minimum every six months. A description of the general characteristics of the risk grades is as follows:

●

Pass—These loans range from minimal credit risk to average, however, still acceptable credit risk.

●

Special mention—A special mention loan has potential weaknesses that deserve Management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

●

Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

●

Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

Construction and land development loans in the following table are on commercial and speculative real estate. Consumer owner occupied loans are collateralized by 1-4 family owner occupied property with a business intent.

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The following tables present the credit risk profile by risk grade of commercial loans by origination year as of September 30, 2022 and December 31, 2021:


		Term Loans
(Dollars in thousands)		Amortized Cost Basis by Origination Year
As of September 30, 2022	2022		2021		2020		2019		2018		Prior		Revolving		Total
Construction and land development
Risk rating:
Pass	$	584,646	$	688,921	$	177,223	$	77,949	$	15,244	$	35,460	$	71,362	$	1,650,805
Special mention		561		2,258		26		87		7,263		556		—		10,751
Substandard		349		652		13		2,345		—		4,345		—		7,704
Doubtful		—		—		—		—		—		6		—		6
Total Construction and land development	$	585,556	$	691,831	$	177,262	$	80,381	$	22,507	$	40,367	$	71,362	$	1,669,266

Commercial non-owner occupied
Risk rating:
Pass	$	1,768,208	$	1,912,649	$	771,153	$	1,002,194	$	553,378	$	1,567,763	$	128,190	$	7,703,535
Special mention		14,054		6,914		42,841		6,277		28,528		27,283		—		125,897
Substandard		8,890		24,968		620		40,807		7,966		49,054		2,653		134,958
Doubtful		—		1		—		79		—		—		—		80
Total Commercial non-owner occupied	$	1,791,152	$	1,944,532	$	814,614	$	1,049,357	$	589,872	$	1,644,100	$	130,843	$	7,964,470

Commercial Owner Occupied
Risk rating:
Pass	$	838,791	$	1,167,238	$	743,632	$	737,627	$	476,813	$	1,134,341	$	72,065	$	5,170,507
Special mention		11,866		25,820		6,032		11,305		8,907		60,034		2,281		126,245
Substandard		6,545		21,691		17,877		19,406		6,456		56,461		1,003		129,439
Doubtful		—		—		1		—		—		24		—		25
Total commercial owner occupied	$	857,202	$	1,214,749	$	767,542	$	768,338	$	492,176	$	1,250,860	$	75,349	$	5,426,216

Commercial and industrial
Risk rating:
Pass	$	1,224,618	$	941,383	$	577,778	$	304,904	$	231,177	$	373,938	$	1,186,170	$	4,839,968
Special mention		5,790		4,034		1,013		2,949		4,893		5,266		22,222		46,167
Substandard		6,154		28,588		2,127		5,746		6,965		7,460		34,288		91,328
Doubtful		—		—		—		—		155		69		50		274
Total commercial and industrial	$	1,236,562	$	974,005	$	580,918	$	313,599	$	243,190	$	386,733	$	1,242,730	$	4,977,737

Other income producing property
Risk rating:
Pass	$	111,929	$	96,377	$	62,628	$	48,310	$	52,095	$	121,664	$	47,962	$	540,965
Special mention		968		1,331		1,295		317		193		4,463		173		8,740
Substandard		648		472		1,325		301		223		12,911		1,342		17,222
Doubtful		—		—		—		—		—		5		131		136
Total other income producing property	$	113,545	$	98,180	$	65,248	$	48,928	$	52,511	$	139,043	$	49,608	$	567,063

Consumer owner occupied
Risk rating:
Pass	$	5,281	$	3,507	$	1,983	$	778	$	72	$	354	$	15,331	$	27,306
Special mention		545		21		165		287		—		—		266		1,284
Substandard		—		96		13		1,632		—		212		151		2,104
Doubtful		—		—		—		—		—		145		—		145
Total Consumer owner occupied	$	5,826	$	3,624	$	2,161	$	2,697	$	72	$	711	$	15,748	$	30,839

Other loans
Risk rating:
Pass	$	3,516	$	—	$	—	$	—	$	—	$	—	$	—	$	3,516
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total other loans	$	3,516	$	—	$	—	$	—	$	—	$	—	$	—	$	3,516

Total Commercial Loans
Risk rating:
Pass	$	4,536,989	$	4,810,075	$	2,334,397	$	2,171,762	$	1,328,779	$	3,233,520	$	1,521,080	$	19,936,602
Special mention		33,784		40,378		51,372		21,222		49,784		97,602		24,942		319,084
Substandard		22,586		76,467		21,975		70,237		21,610		130,443		39,437		382,755
Doubtful		—		1		1		79		155		249		181		666
Total Commercial Loans	$	4,593,359	$	4,926,921	$	2,407,745	$	2,263,300	$	1,400,328	$	3,461,814	$	1,585,640	$	20,639,107

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		Term Loans
(Dollars in thousands)		Amortized Cost Basis by Origination Year
As of December 31, 2021	2021		2020		2019		2018		2017		Prior		Revolving		Total
Construction and land development
Risk rating:
Pass	$	570,166	$	360,488	$	206,586	$	38,866	$	24,728	$	49,321	$	76,680	$	1,326,835
Special mention		2,347		3,067		186		—		1,557		1,715		487		9,359
Substandard		960		210		2,304		326		543		2,209		—		6,552
Doubtful		1		—		—		—		—		8		—		9
Total Construction and land development	$	573,474	$	363,765	$	209,076	$	39,192	$	26,828	$	53,253	$	77,167	$	1,342,755

Commercial non-owner occupied
Risk rating:
Pass	$	1,812,512	$	798,171	$	1,061,021	$	676,803	$	494,618	$	1,371,729	$	102,763	$	6,317,617
Special mention		16,683		12,985		14,138		36,875		25,729		110,109		—		216,519
Substandard		23,035		160		64,408		23,346		31,952		56,477		2,139		201,517
Doubtful		—		—		—		—		—		46		—		46
Total Commercial non-owner occupied	$	1,852,230	$	811,316	$	1,139,567	$	737,024	$	552,299	$	1,538,361	$	104,902	$	6,735,699

Commercial Owner Occupied
Risk rating:
Pass	$	1,182,722	$	780,339	$	801,162	$	549,642	$	428,163	$	980,701	$	69,739	$	4,792,468
Special mention		9,152		4,257		7,331		10,860		22,792		49,083		115		103,590
Substandard		7,375		2,907		8,587		2,053		18,600		34,431		80		74,033
Doubtful		—		1		—		—		—		24		—		25
Total commercial owner occupied	$	1,199,249	$	787,504	$	817,080	$	562,555	$	469,555	$	1,064,239	$	69,934	$	4,970,116

Commercial and industrial
Risk rating:
Pass	$	1,198,849	$	618,676	$	360,551	$	267,772	$	178,538	$	219,339	$	860,134	$	3,703,859
Special mention		2,759		1,519		2,434		1,268		3,224		3,871		3,281		18,356
Substandard		738		5,965		8,212		2,653		3,438		5,183		12,701		38,890
Doubtful		—		—		5		3		2		16		2		28
Total commercial and industrial	$	1,202,346	$	626,160	$	371,202	$	271,696	$	185,202	$	228,409	$	876,118	$	3,761,133

Other income producing property
Risk rating:
Pass	$	105,533	$	73,583	$	67,173	$	76,971	$	56,343	$	142,183	$	56,190	$	577,976
Special mention		1,580		1,851		1,063		232		1,381		13,526		424		20,057
Substandard		1,304		482		298		166		787		12,531		46		15,614
Doubtful		—		—		—		—		—		6		—		6
Total other income producing property	$	108,417	$	75,916	$	68,534	$	77,369	$	58,511	$	168,246	$	56,660	$	613,653

Consumer owner occupied
Risk rating:
Pass	$	3,513	$	2,874	$	1,099	$	85	$	139	$	820	$	16,977	$	25,507
Special mention		1,219		180		2,430		81		—		3		—		3,913
Substandard		—		16		238		—		—		223		—		477
Doubtful		—		—		—		1		—		145		—		146
Total Consumer owner occupied	$	4,732	$	3,070	$	3,767	$	167	$	139	$	1,191	$	16,977	$	30,043

Other loans
Risk rating:
Pass	$	23,583	$	—	$	—	$	—	$	—	$	—	$	—	$	23,583
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total other loans	$	23,583	$	—	$	—	$	—	$	—	$	—	$	—	$	23,583

Total Commercial Loans
Risk rating:
Pass	$	4,896,878	$	2,634,131	$	2,497,592	$	1,610,139	$	1,182,529	$	2,764,093	$	1,182,483	$	16,767,845
Special mention		33,740		23,859		27,582		49,316		54,683		178,307		4,307		371,794
Substandard		33,412		9,740		84,047		28,544		55,320		111,054		14,966		337,083
Doubtful		1		1		5		4		2		245		2		260
Total Commercial Loans	$	4,964,031	$	2,667,731	$	2,609,226	$	1,688,003	$	1,292,534	$	3,053,699	$	1,201,758	$	17,476,982

For the consumer segment, delinquency of a loan is determined by past due status. Consumer loans are automatically placed on nonaccrual status once the loan is 90 days past due. Construction and land development loans are on 1-4 properties and lots.

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The following table presents the credit risk profile by past due status of consumer loans by origination year as of September 30, 2022:


	Term Loans
(Dollars in thousands)	Amortized Cost Basis by Origination Year
As of September 30, 2022	2022		2021		2020		2019		2018		Prior		Revolving		Total
Consumer owner occupied
Days past due:
Current	$	1,351,309	$	1,335,059	$	650,548	$	327,852	$	193,413	$	824,959	$	1,227	$	4,684,367
30 days past due		178		1,247		432		786		99		2,753		—		5,495
60 days past due		—		240		462		314		194		1,105		—		2,315
90 days past due		—		433		451		913		772		4,205		—		6,774
Total Consumer owner occupied	$	1,351,487	$	1,336,979	$	651,893	$	329,865	$	194,478	$	833,022	$	1,227	$	4,698,951

Home equity loans
Days past due:
Current	$	4,837	$	5,303	$	3,803	$	2,257	$	1,881	$	20,142	$	1,203,325	$	1,241,548
30 days past due		—		—		155		170		250		36		3,009		3,620
60 days past due		—		—		—		195		—		313		347		855
90 days past due		—		60		40		54		—		942		211		1,307
Total Home equity loans	$	4,837	$	5,363	$	3,998	$	2,676	$	2,131	$	21,433	$	1,206,892	$	1,247,330

Consumer
Days past due:
Current	$	327,444	$	225,458	$	123,591	$	94,584	$	49,018	$	149,297	$	258,354	$	1,227,746
30 days past due		134		311		178		234		154		1,325		16,509		18,845
60 days past due		154		85		37		10		110		891		9,880		11,167
90 days past due		1		21		20		25		35		1,399		587		2,088
Total consumer	$	327,733	$	225,875	$	123,826	$	94,853	$	49,317	$	152,912	$	285,330	$	1,259,846

Construction and land development
Days past due:
Current	$	320,794	$	446,805	$	74,247	$	14,872	$	7,608	$	16,011	$	355	$	880,692
30 days past due		—		—		24		20		69		24		—		137
60 days past due		—		—		300		—		—		—		—		300
90 days past due		—		—		157		—		—		—		—		157
Total Construction and land development	$	320,794	$	446,805	$	74,728	$	14,892	$	7,677	$	16,035	$	355	$	881,286

Other income producing property
Days past due:
Current	$	32,433	$	21,664	$	4,989	$	2,819	$	4,580	$	42,373	$	634	$	109,492
30 days past due		—		—		—		—		—		165		—		165
60 days past due		—		—		—		—		—		—		—		—
90 days past due		—		—		—		—		—		126		—		126
Total other income producing property	$	32,433	$	21,664	$	4,989	$	2,819	$	4,580	$	42,664	$	634	$	109,783

Total Consumer Loans
Days past due:
Current	$	2,036,817	$	2,034,289	$	857,178	$	442,384	$	256,500	$	1,052,782	$	1,463,895	$	8,143,845
30 days past due		312		1,558		789		1,210		572		4,303		19,518		28,262
60 days past due		154		325		799		519		304		2,309		10,227		14,637
90 days past due		1		514		668		992		807		6,672		798		10,452
Total Consumer Loans	$	2,037,284	$	2,036,686	$	859,434	$	445,105	$	258,183	$	1,066,066	$	1,494,438	$	8,197,196

The following table presents total loans by origination year as of September 30, 2022:

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

As of September 30, 2022

2022

2021

2020

2019

2018

Prior

Revolving

Total

Total Loans

6,630,643

6,963,607

3,267,179

2,708,405

1,658,511

4,527,880

3,080,078

28,836,303

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The following table presents the credit risk profile by past due status of consumer loans by origination year as of December 31, 2021:


	Term Loans
(Dollars in thousands)	Amortized Cost Basis by Origination Year
As of December 31, 2021	2021		2020		2019		2018		2017		Prior		Revolving		Total
Consumer owner occupied
Days past due:
Current	$	1,192,449	$	710,828	$	405,138	$	246,487	$	228,876	$	810,605	$	4	$	3,594,387
30 days past due		354		666		234		472		1,068		2,230		—		5,024
60 days past due		—		330		218		254		111		928		—		1,841
90 days past due		235		574		691		549		274		4,746		—		7,069
Total Consumer owner occupied	$	1,193,038	$	712,398	$	406,281	$	247,762	$	230,329	$	818,509	$	4	$	3,608,321

Home equity loans
Days past due:
Current	$	7,128	$	5,648	$	4,745	$	2,180	$	993	$	24,716	$	1,116,621	$	1,162,031
30 days past due		6		49		68		71		24		491		2,200		2,909
60 days past due		—		—		—		—		—		603		339		942
90 days past due		75		65		172		180		22		1,548		650		2,712
Total Home equity loans	$	7,209	$	5,762	$	4,985	$	2,431	$	1,039	$	27,358	$	1,119,810	$	1,168,594

Consumer
Days past due:
Current	$	298,779	$	169,443	$	127,757	$	69,892	$	36,304	$	151,948	$	44,864	$	898,987
30 days past due		229		364		208		191		132		1,570		137		2,831
60 days past due		145		82		90		124		90		658		17		1,206
90 days past due		74		121		181		109		29		1,119		—		1,633
Total consumer	$	299,227	$	170,010	$	128,236	$	70,316	$	36,555	$	155,295	$	45,018	$	904,657

Construction and land development
Days past due:
Current	$	411,728	$	204,368	$	33,965	$	13,429	$	8,484	$	14,185	$	162	$	686,321
30 days past due		—		24		—		—		—		—		—		24
60 days past due		—		—		—		—		—		12		—		12
90 days past due		—		—		—		—		—		104		—		104
Total Construction and land development	$	411,728	$	204,392	$	33,965	$	13,429	$	8,484	$	14,301	$	162	$	686,461

Other income producing property
Days past due:
Current	$	22,131	$	5,620	$	4,906	$	4,977	$	6,303	$	37,575	$	1,379	$	82,891
30 days past due		—		—		—		—		—		90		—		90
60 days past due		—		—		—		—		—		156		—		156
90 days past due		—		—		—		—		—		14		—		14
Total other income producing property	$	22,131	$	5,620	$	4,906	$	4,977	$	6,303	$	37,835	$	1,379	$	83,151

Total Consumer Loans
Days past due:
Current	$	1,947,911	$	1,095,907	$	576,511	$	336,965	$	280,960	$	1,039,029	$	1,147,334	$	6,424,617
30 days past due		589		1,103		510		734		1,224		4,381		2,337		10,878
60 days past due		145		412		308		378		201		2,357		356		4,157
90 days past due		384		760		1,044		838		325		7,531		650		11,532
Total Consumer Loans	$	1,949,029	$	1,098,182	$	578,373	$	338,915	$	282,710	$	1,053,298	$	1,150,677	$	6,451,184

The following table presents total loans by origination year as of December 31, 2021:


	Term Loans
(Dollars in thousands)	Amortized Cost Basis by Origination Year
As of December 31, 2021	2021		2020		2019		2018		2017		Prior		Revolving		Total
Total Loans	$	6,913,060	$	3,765,913	$	3,187,599	$	2,026,918	$	1,575,244	$	4,106,997	$	2,352,435	$	23,928,166

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The following table presents an aging analysis of past due accruing loans, segregated by class:


	30 - 59 Days		60 - 89 Days		90+ Days		Total				Non-		Total
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Accruing		Loans
September 30, 2022
Construction and land development	$	843	$	464	$	21	$	1,328	$	2,548,764	$	460	$	2,550,552
Commercial non-owner occupied		10,035		586		—		10,621		7,932,535		21,314		7,964,470
Commercial owner occupied		2,901		1,318		294		4,513		5,390,789		30,914		5,426,216
Consumer owner occupied		4,740		368		—		5,108		4,707,496		17,186		4,729,790
Home equity loans		3,104		659		—		3,763		1,237,245		6,322		1,247,330
Commercial and industrial		29,527		9,036		3,211		41,774		4,922,124		13,839		4,977,737
Other income producing property		2,191		1,110		262		3,563		670,821		2,462		676,846
Consumer		18,488		10,963		—		29,451		1,226,652		3,743		1,259,846
Other loans		—		—		—		—		3,516		—		3,516
	$	71,829	$	24,504	$	3,788	$	100,121	$	28,639,942	$	96,240	$	28,836,303
December 31, 2021
Construction and land development	$	1,176	$	59	$	43	$	1,278	$	2,026,371	$	1,567	$	2,029,216
Commercial non-owner occupied		3,591		2,110		96		5,797		6,709,993		19,909		6,735,699
Commercial owner occupied		2,756		1,732		626		5,114		4,950,470		14,532		4,970,116
Consumer owner occupied		4,046		533		—		4,579		3,615,602		18,183		3,638,364
Home equity loans		2,565		913		—		3,478		1,158,861		6,255		1,168,594
Commercial and industrial		50,451		26,639		3,991		81,081		3,672,611		7,441		3,761,133
Other income producing property		879		424		106		1,409		691,320		4,075		696,804
Consumer		2,672		840		1		3,513		897,688		3,456		904,657
Other loans		—		—		—		—		23,583		—		23,583
	$	68,136	$	33,250	$	4,863	$	106,249	$	23,746,499	$	75,418	$	23,928,166

The following table is a summary of information pertaining to nonaccrual loans by class, including restructured loans:


	September 30,		Greater than		Non-accrual		December 31,
(Dollars in thousands)	2022		90 Days Accruing⁽¹⁾		with no allowance⁽¹⁾		2021
Construction and land development	$	460	$	21	$	145	$	1,567
Commercial non-owner occupied		21,314		—		6,574		19,909
Commercial owner occupied real estate		30,914		294		15,578		14,532
Consumer owner occupied		17,186		—		—		18,183
Home equity loans		6,322		—		1,597		6,255
Commercial and industrial		13,839		3,211		5,796		7,441
Other income producing property		2,462		262		—		4,075
Consumer		3,743		—		—		3,456
Total loans on nonaccrual status	$	96,240	$	3,788	$	29,690	$	75,418

(1)

Greater than 90 days accruing and non-accrual with no allowance loans at September 30, 2022.

There is no interest income recognized during the period on nonaccrual loans. The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Loans on nonaccrual status in which there is no allowance assigned are individually evaluated loans that do not carry a specific reserve. See Note 2 — Summary of Significant Accounting Policies for further detailed on individually evaluated loans.

The following is a summary of collateral dependent loans, by type of collateral, and the extent to which they are collateralized during the period:


	September 30,		Collateral			December 31,		Collateral
(Dollars in thousands)	2022		Coverage		%	2021		Coverage		%
Commercial owner occupied real estate
Church	$	—	$	—		$	1,953	$	2,308	118%
Other		15,578		23,135	149%		4,656		12,200	262%
Commercial non-owner occupied real estate
Hotel		—		—			1,822		4,100	225%
Other		6,574		10,900	166%		6,949		9,630	139%
Commercial and industrial
Other		5,163		5,446	105%		—		—
Home equity loans
Residential 1-4 family dwelling		1,552		1,671	108%		—		—
Total collateral dependent loans	$	28,867	$	41,152		$	15,380	$	28,238

The Bank designates individually evaluated loans (excluding TDRs) on non-accrual with a net book balance exceeding the designated threshold as collateral dependent loans. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining ACL. Under ASC 326-20-35-6, the Bank has adopted the collateral maintenance practical expedient to measure the ACL based on the fair value of collateral. The ACL is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for selling

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costs, and amortized cost. The significant changes above in collateral percentage are due to appraisal value updates or changes in the number of loans within the asset class and collateral type. Overall collateral dependent loans increased $13.5 million during the nine months ended September 30, 2022.

In the course of resolving delinquent loans, the Bank may choose to restructure the contractual terms of certain loans. Any loans that are modified are reviewed by the Bank to determine if a TDR, sometimes referred to herein as a restructured loan, has occurred. The Bank designates loan modifications as TDRs when it grants a concession to a borrower that it would not otherwise consider due to the borrower experiencing financial difficulty (FASB ASC Topic 310-40). The concessions granted on TDRs generally include terms to reduce the interest rate, extend the term of the debt obligation, or modify the payment structure on the debt obligation. See Note 2 — Summary of Significant Accounting Policies for how such modifications are factored into the determination of the ACL.

Loans on nonaccrual status at the date of modification are initially classified as nonaccrual TDRs. Loans on accruing status at the date of concession are initially classified as accruing TDRs if the note is reasonably assured of repayment and performance is expected in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequent to the concession date if reasonable doubt exists as to the collection of interest or principal under the restructuring agreement. Nonaccrual TDRs are returned to accruing status when there is economic substance to the restructuring, there is documented credit evaluation of the borrower’s financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated sustained repayment performance in accordance with the modified terms for a reasonable period of time (generally a minimum of six months).

The Company elected the accounting policy in the CARES Act to not apply TDR accounting to loans modified for borrowers impacted by the COVID-19 pandemic if the concession met the criteria stipulated in the CARES Act. Details in regard to the Company’s implemented loan modification programs in response to the COVID-19 pandemic under the CARES Act is disclosed under the Note 2 – Summary of Significant Accounting Policies.

The following tables present loans designated as TDRs segregated by class and type of concession that were restructured during the three months ended September 30, 2022 and during the nine months ended September 30, 2022 and 2021. There were no loans restructured as TDRs during the three months ended September 30, 2021.


	Three Months Ended September 30,
	2022					2021
		Pre-Modification		Post-Modification			Pre-Modification		Post-Modification
	Number	Amortized		Amortized		Number	Amortized		Amortized
(Dollars in thousands)	of loans	Cost		Cost		of loans	Cost		Cost
Interest rate modification
Commercial non-owner occupied	2	$	2,321	$	2,321	—	$	—	$	—
Commercial owner occupied	2		2,629		2,629	—		—		—
Commercial and industrial	1		535		535	—		—		—
Total interest rate modifications	5	$	5,485	$	5,485	—	$	—	$	—
Term modification
Commercial non-owner occupied	1	$	375	$	375	—	$	—	$	—
Commercial owner occupied	2		1,042		1,042	—		—		—
Commercial and industrial	3		3,097		3,097	—		—		—
Total term modifications	6		4,514		4,514	—		—		—
	11	$	9,999	$	9,999	—	$	—	$	—


	Nine Months Ended September 30,
	2022					2021
		Pre-Modification		Post-Modification			Pre-Modification		Post-Modification
	Number	Amortized		Amortized		Number	Amortized		Amortized
(Dollars in thousands)	of loans	Cost		Cost		of loans	Cost		Cost
Interest rate modification
Commercial non-owner occupied	3	$	2,498	$	2,498	—	$	—	$	—
Commercial owner occupied	3		2,855		2,855	—		—		—
Consumer owner occupied	1		96		96	—		—		—
Commercial and industrial	5		905		905	—		—		—
Other income producing property	2		111		111	1		212		212
Total interest rate modifications	14	$	6,465	$	6,465	1	$	212	$	212
Term modification
Construction and land development	1	$	133	$	133	—	$	—	$	—
Commercial non-owner occupied	1		375		375	—		—		—
Commercial owner occupied	3		1,451		1,451	—		—		—
Commercial and industrial	3		3,097		3,097	1		38		38
Total term modifications	8	$	5,056	$	5,056	1	$	38	$	38
	22	$	11,521	$	11,521	2	$	250	$	250

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At September 30, 2022 and 2021, the balance of accruing TDRs was $12.2 million and $14.4 million, respectively. The Company had $599,000 and $447,000 remaining availability under commitments to lend additional funds on restructured loans at September 30, 2022 and 2021. The amount of specific reserve associated with restructured loans was $12.3 million and $1.7 million at September 30, 2022 and 2021, respectively.

The following table presents the changes in status of loans restructured within the previous 12 months as of September 30, 2022 by type of concession. There were no subsequent defaults.


	Paying Under
	Restructured Terms			Converted to Nonaccrual			Foreclosures and Defaults
	Number	Amortized		Number	Amortized		Number	Amortized
(Dollars in thousands)	of Loans	Cost		of Loans	Cost		of Loans	Cost
Interest rate modification	16	$	6,747	—	$	—	—	$	—
Term modification	9		5,354	—		—	—		—
	25	$	12,101	—	$	—	—	$	—

Note 7 — Allowance for Credit Losses (ACL)

See Note 2 - Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the allowance for credit losses.

The following tables present a disaggregated analysis of activity in the allowance for credit losses.


	Residential		Residential				Residential		Other								CRE Owner		Non-Owner
(Dollars in thousands)	Mortgage Sr.		Mortgage Jr.		HELOC		Construction		C&D		Consumer		Multifamily		Municipal		Occupied		Occupied CRE		C & I		Total
Three Months Ended September 30, 2022
Allowance for credit losses:
Balance at end of period June 30, 2022	$	55,707	$	533	$	16,918	$	7,565	$	27,730	$	24,752	$	2,458	$	703	$	64,688	$	85,169	$	33,485	$	319,708
Charge-offs		(50)		—		(23)		—		—		(2,742)		—		—		(1,353)		(8)		(2,950)		(7,126)
Recoveries		376		30		3,151		2		280		573		—		—		569		29		3,378		8,388
Net (charge offs) recoveries		326		30		3,128		2		280		(2,169)		—		—		(784)		21		428		1,262
(Recovery) provision⁽¹⁾		11,987		(40)		(3,980)		763		3,798		4,221		666		(1)		(9,745)		(8,937)		4,696		3,428
Balance at end of period September 30, 2022	$	68,020	$	523	$	16,066	$	8,330	$	31,808	$	26,804	$	3,124	$	702	$	54,159	$	76,253	$	38,609	$	324,398

Allowance for credit losses:
Quantitative allowance
Collectively evaluated	$	67,765	$	523	$	13,402	$	8,330	$	31,524	$	26,804	$	3,124	$	702	$	46,443	$	74,978	$	35,650	$	309,245
Individually evaluated		233		—		2,654		—		284		—		—		—		7,102		765		2,240		13,278
Total quantitative allowance		67,998		523		16,056		8,330		31,808		26,804		3,124		702		53,545		75,743		37,890		322,523
Qualitative allowance		22		—		10		—		—		—		—		—		614		510		719		1,875
Balance at end of period September 30, 2022	$	68,020	$	523	$	16,066	$	8,330	$	31,808	$	26,804	$	3,124	$	702	$	54,159	$	76,253	$	38,609	$	324,398

Three Months Ended September 30, 2021
Allowance for loan losses:
Balance at end of period June 30, 2021	$	55,820	$	825	$	14,550	$	4,488	$	45,488	$	25,697	$	5,883	$	1,063	$	75,492	$	90,404	$	30,691	$	350,401
Charge-offs		(15)		—		(149)		—		—		(2,366)		—		—		(4)		(241)		(1,072)		(3,847)
Recoveries		332		48		720		2		748		577		—		—		332		173		869		3,801
Net (charge offs) recoveries		317		48		571		2		748		(1,789)		—		—		328		(68)		(203)		(46)
Provision (recovery) ⁽¹⁾		(4,587)		(174)		(204)		295		(10,337)		332		(1,299)		(554)		(10,611)		(7,458)		(1,614)		(36,211)
Balance at end of period September 30, 2021	$	51,550	$	699	$	14,917	$	4,785	$	35,899	$	24,240	$	4,584	$	509	$	65,209	$	82,878	$	28,874	$	314,144

Allowance for credit losses:
Quantitative allowance
Collectively evaluated	$	48,411	$	699	$	13,307	$	4,756	$	35,893	$	21,509	$	4,584	$	509	$	62,969	$	79,302	$	25,789	$	297,728
Individually evaluated		77		—		959		—		6		—		—		—		377		—		307		1,726
Total quantitative allowance		48,488		699		14,266		4,756		35,899		21,509		4,584		509		63,346		79,302		26,096		299,454
Qualitative allowance		3,062		—		651		29		—		2,731		—		—		1,863		3,576		2,778		14,690
Balance at end of period September 30, 2021	$	51,550	$	699	$	14,917	$	4,785	$	35,899	$	24,240	$	4,584	$	509	$	65,209	$	82,878	$	28,874	$	314,144

(1)

A provision for credit losses of $20.0 million was recorded during the third quarter of 2022, compared to a negative provision (recovery) for credit losses of $(2.7) million recorded during the third quarter of 2021 for the allowance for credit losses for unfunded commitments that is not included in the above table.

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	Residential		Residential				Residential		Other								CRE Owner		Non Owner
(Dollars in thousands)	Mortgage Sr.		Mortgage Jr.		HELOC		Construction		C&D		Consumer		Multifamily		Municipal		Occupied		Occupied CRE		C & I		Total
Nine Months Ended September 30, 2022
Allowance for credit losses:
Balance at end of period December 31, 2021	$	47,036	$	611	$	13,325	$	4,997	$	37,593	$	23,149	$	4,921	$	565	$	61,794	$	79,649	$	28,167	$	301,807
Initial Allowance for PCD loans acquired during period		811		—		—		—		86		—		—		—		2,409		—		10,452		13,758
Initial Allowance for Non PCD loans acquired during period		352		26		132		2		1,887		51		426		—		2,519		2,697		5,605		13,697
Charge-offs		(169)		(19)		(444)		—		(4)		(7,527)		—		—		(1,802)		(368)		(8,446)		(18,779)
Recoveries		1,131		195		3,803		7		924		1,765		—		—		977		402		6,175		15,379
Net recoveries (charge offs)		962		176		3,359		7		920		(5,762)		—		—		(825)		34		(2,271)		(3,400)
Provision (benefit) ⁽¹⁾		18,859		(290)		(750)		3,324		(8,678)		9,366		(2,223)		137		(11,738)		(6,127)		(3,344)		(1,464)
Balance at end of period September 30, 2022	$	68,020	$	523	$	16,066	$	8,330	$	31,808	$	26,804	$	3,124	$	702	$	54,159	$	76,253	$	38,609	$	324,398

Nine Months Ended September 30, 2021
Allowance for credit losses:
Balance at end of period December 31, 2020	$	63,561	$	1,238	$	16,698	$	4,914	$	67,197	$	26,562	$	7,887	$	1,510	$	97,104	$	124,421	$	46,217	$	457,309
Charge-offs		(204)		—		(835)		—		(87)		(6,001)		—		—		(2,052)		(776)		(2,928)		(12,883)
Recoveries		1,103		131		1,903		3		1,178		1,618		3		—		796		905		3,104		10,744
Net charge offs		899		131		1,068		3		1,091		(4,383)		3		—		(1,256)		129		176		(2,139)
Provision (benefit) ⁽¹⁾		(12,910)		(670)		(2,849)		(132)		(32,389)		2,061		(3,306)		(1,001)		(30,639)		(41,672)		(17,519)		(141,026)
Balance at end of period September 30, 2021	$	51,550	$	699	$	14,917	$	4,785	$	35,899	$	24,240	$	4,584	$	509	$	65,209	$	82,878	$	28,874	$	314,144

(1)

A provision for credit losses of $22.5 million was recorded during the first nine months of 2022, compared to a negative provision (recovery) for credit losses of $(15.1) million during the first nine months of 2021 for the allowance for credit losses for unfunded commitments that is not included in the above table.

Note 8 — Other Real Estate Owned and Bank Premises Held for Sale

The following is a summary of information pertaining to OREO and Bank Premises Held for Sale:


(Dollars in thousands)	OREO		Bank Premises Held For Sale		Total
Balance, December 31, 2021	$	2,736	$	9,578	$	12,314
Additions, net		1,889		21,003		22,892
Write-downs		(115)		(111)		(226)
Sold		(2,350)		(5,427)		(7,777)
Balance, September 30, 2022	$	2,160	$	25,043	$	27,203

At September 30, 2022, there were a total of 12 properties included in OREO compared to 12 properties at December 31, 2021. At September 30, 2022, there were a total of 28 properties included in bank premises held for sale which compares to 9 properties included in premises held for sale, at December 31, 2021. At September 30, 2022, we had $311,000 in residential real estate included in OREO and $4.0 million in residential real estate consumer mortgage loans in the process of foreclosure.

Note 9 — Leases

As of September 30, 2022 and December 31, 2021, we had operating right-of-use (“ROU”) assets of $113.4 million and $110.3 million, respectively, and operating lease liabilities of $121.1 million and $115.9 million, respectively. We maintain operating leases on land and buildings for our operating centers, branch facilities and ATM locations. Most leases include one or more options to renew, with renewal terms extending up to 22 years. The exercise of renewal options is based on the sole judgment of management and what they consider to be reasonably certain given the environment today. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to us if the option is not exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet and instead are recognized in lease expense on a straight-line basis over the lease term.

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The Company also holds a small number of finance leases assumed in connection to the CenterState Bank Corporation (“CenterState”) merger. These leases are all real estate leases. Terms and conditions are similar to those real estate operating leases described above. Lease classifications from the acquired institutions were retained.


	Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30,				September 30,
	2022		2021		2022		2021
Lease Cost Components:
Amortization of ROU assets - finance leases	$	117	$	117	$	350	$	350
Interest on lease liabilities - finance leases		12		14		37		43
Operating lease cost (cost resulting from lease payments)		4,550		4,292		13,419		12,977
Short-term lease cost		218		116		592		327
Variable lease cost (cost excluded from lease payments)		615		783		1,813		2,073
Total lease cost	$	5,512	$	5,322	$	16,211	$	15,770
Supplemental Cash Flow and Other Information Related to Leases:
Finance lease - operating cash flows	$	12	$	14	$	37	$	43
Finance lease - financing cash flows		109		107		325		320
Operating lease - operating cash flows (fixed payments)		4,356		4,127		12,982		12,440
Operating lease - operating cash flows (net change asset/liability)		(3,466)		(3,215)		(10,313)		(9,691)
New ROU assets - operating leases		—		4,196		12,616		5,494
New ROU assets - finance leases		—		—		—		—
Weighted - average remaining lease term (years) - finance leases						5.67		6.66
Weighted - average remaining lease term (years) - operating leases						10.13		10.96
Weighted - average discount rate - finance leases						1.7%		1.7%
Weighted - average discount rate - operating leases						3.0%		3.3%

Operating lease payments due:
2022 (excluding the nine months ended September 30, 2022)					$	4,303
2023						16,727
2024						15,343
2025						13,902
2026						13,246
Thereafter						79,764
Total undiscounted cash flows						143,285
Discount on cash flows						(22,174)
Total operating lease liabilities					$	121,111

As of September 30, 2022, we determined that the number and dollar amount of our equipment leases was immaterial. As of September 30, 2022, we have no additional operating leases that have not yet commenced.

Note 10 — Deposits

Our total deposits are comprised of the following:


	September 30,		December 31,
(Dollars in thousands)	2022		2021
Non-interest bearing checking	$	13,660,244	$	11,498,840
Interest-bearing checking		8,741,447		9,018,987
Savings		3,602,560		3,350,547
Money market		9,126,058		8,376,380
Time deposits		2,535,712		2,810,075
Total deposits	$	37,666,021	$	35,054,829

At September 30, 2022 and December 31, 2021, we had $505.8 million and $603.2 million in certificates of deposits of $250,000 and greater, respectively. At September 30, 2022 and December 31, 2021, the Company held $150.1 million and $325.0 in traditional, out-of-market brokered deposits, respectively.

Note 11 — Retirement Plans

The Company sponsors an employees’ savings plan under the provisions of the Internal Revenue Code Section 401(k). Electing employees are eligible to participate in the employees’ savings plan after attaining age 21. Plan participants elect to contribute portions of their annual base compensation as a before tax contribution. Employer contributions may be made from current or accumulated net profits. Participants may elect to contribute 1% to 50% of annual base compensation as a before tax contribution. Employees participating in the plan received a 100% match of

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their 401(k) plan contribution from the Company, up to 4% of their salary. The employees were also eligible for an additional 2% discretionary matching contribution contingent upon certain of our annual financial goals which would be paid in the first quarter of the following year. Based on our financial performance in 2021, we did not pay a discretionary matching contribution in the first quarter of 2022. Currently, we expect the same terms in the employees’ savings plan for 2022. As a result of the recent Atlantic Capital acquisition, all former Atlantic Capital employees became eligible to participate in the Company’s 401(k) plan as of legal close in March 2022. We expensed $3.9 million and $12.0 million, respectively, for the three and nine months ended September 30, 2022 and $3.7 million and $11.8 million, respectively, for the three and nine months ended September 30, 2021 related to the Company’s savings plan.

Employees can enter the savings plan on or after the first day of each month. The employee may enter into a salary deferral agreement at any time to select an alternative deferral amount or to elect not to defer in the plan. If the employee does not elect an investment allocation, the plan administrator will select a retirement-based portfolio according to the employee’s number of years until normal retirement age. The plan’s investment valuations are generally provided on a daily basis.

Note 12 — Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted-average shares of common stock outstanding during each period, excluding non-vested restricted shares. Our diluted earnings per share is based on the weighted-average shares of common stock outstanding during each period plus the maximum dilutive effect of common stock issuable upon exercise of stock options or vesting of restricted stock units. Stock options and unvested restricted stock units are considered common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive.

The following table sets forth the computation of basic and diluted earnings per common share:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars and shares in thousands, except for per share amounts)	2022		2021		2022		2021
Basic earnings per common share:
Net income	$	133,043	$	122,788	$	352,547	$	368,697
Weighted-average basic common shares		75,606		70,066		74,185		70,643
Basic earnings per common share	$	1.76	$	1.75	$	4.75	$	5.22
Diluted earnings per common share:
Net income	$	133,043	$	122,788	$	352,547	$	368,697
Weighted-average basic common shares		75,606		70,066		74,185		70,643
Effect of dilutive securities		576		510		606		465
Weighted-average dilutive shares		76,182		70,576		74,791		71,108
Diluted earnings per common share	$	1.75	$	1.74	$	4.71	$	5.19

The calculation of diluted earnings per common share excludes outstanding stock options for which the results would have been anti-dilutive under the treasury stock method as follows:


	Three Months Ended September 30,										Nine Months Ended September 30,
(Dollars in thousands)	2022					2021					2022					2021
Number of shares					57,169					57,169					57,169					60,546
Range of exercise prices	$	87.30	to	$	91.35	$	87.30	to	$	91.35	$	87.30	to	$	91.35	$	87.30	to	$	91.35

Note 13 — Share-Based Compensation

Our 2004, 2012, 2019 and 2020 share-based compensation plans are long-term retention plans intended to attract, retain, and provide incentives for key employees and non-employee directors in the form of incentive and non-qualified stock options, restricted stock, and restricted stock units (“RSUs”). Our 2020 plan was adopted by our shareholders at our annual meeting on October 29, 2020. The Company also assumed the obligations of Atlantic Capital under various equity incentive plans pursuant to the acquisition of Atlantic Capital on March 1, 2022.

Stock Options

With the exception of non-qualified stock options granted to directors under the 2004 and 2012 plans, which in

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some cases may be exercised at any time prior to expiration and in other cases may be exercised at intervals less than a year following the grant date, incentive stock options granted under our 2004, 2012, 2019 and 2020 plans may not be exercised in whole or in part within a year following the date of the grant, as these incentive stock options become exercisable in 25% increments pro ratably over the four-year period following the grant date. The options are granted at an exercise price at least equal to the fair value of the common stock at the date of grant and expire ten years from the date of grant. No options were granted under the 2004, 2012 or 2019 plans after January 26, 2012, February 1, 2019, and October 29, 2020, respectively, and the plans are closed other than for any options still unexercised and outstanding. The 2020 plan is the only plan from which new share-based compensation grants may be issued. It is the Company’s policy to grant options out of the 2,072,245 shares registered under the 2020 plan.

Activity in the Company’s stock option plans is summarized in the following table.




				Weighted
		Weighted		Average	Aggregate
		Average		Remaining	Intrinsic
	Shares	Price		(Yrs.)	(000's)
Outstanding at January 1, 2022	185,125	$	63.03
Assumed stock options and warrants from ACBI merger	23,410		40.73
Exercised	(37,236)		40.78
Expired	(2,638)		40.29
Outstanding at September 30, 2022	168,661		65.20	3.31	$	3,033
Exercisable at September 30, 2022	168,661		65.20	3.31	$	3,033

The fair value of options is estimated at the date of grant using the Black-Scholes option pricing model and expensed over the options’ vesting periods. There have been no stock options issued during the first nine months of 2022. Because all outstanding stock options had vested as of December 31, 2021, there was no unrecognized compensation cost related to nonvested stock option grants under the plans or fair value of shares vested for the nine months ended September 30, 2022. The intrinsic value of stock option shares exercised for the nine months ended September 30, 2022 was $1,507,000.

Restricted Stock

We, from time-to-time, grant shares of restricted stock to key employees and non-employee directors. These awards help align the interests of these employees and directors with the interests of our shareholders by providing economic value directly related to increases in the value of our stock. The value of the stock awarded is established as the fair market value of the stock at the time of the grant. We recognize expenses, equal to the total value of such awards, ratably over the vesting period of the stock grants. Restricted stock grants to employees typically “cliff vest” after four years.

All restricted stock agreements are conditioned upon continued employment. Termination of employment prior to a vesting date, as described below, would terminate any interest in non-vested shares. Prior to vesting of the shares, as long as employed by the Company, the key employees and non-employee directors will have the right to vote such shares and to receive dividends paid with respect to such shares. All restricted shares will fully vest in the event of change in control of the Company or upon the death of the recipient.

Nonvested restricted stock for 2022 is summarized in the following table.


		Weighted-
		Average
		Grant-Date
Restricted Stock	Shares	Fair Value
Nonvested at January 1, 2022	3,066	$	67.31
Assumed restricted stock shares from ACBI merger	84,224		90.00
Vested	(29,220)		89.91
Forfeited	(2,816)		90.00
Nonvested at September 30, 2022	55,254	$	88.79

As of September 30, 2022, there was $3.4 million of total unrecognized compensation cost related to nonvested restricted stock granted under the plans. This cost is expected to be recognized over a weighted-average period of 1.48 years as of September 30, 2022. The total fair value of shares vested during the nine months ended September 30, 2022 was $2,321,000.

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Restricted Stock Units (“RSUs”)

We, from time-to-time, also grant performance RSUs and time-vested RSUs to key employees, and time-vested RSUs and non-employee directors. These awards help align the interests of these employees with the interests of our shareholders by providing economic value directly related to our performance. Some performance RSU grants contain a three-year performance period while others contain a one to two-year performance period and a time-vested requirement (generally two to four years from the grant date). Grants to non-employee directors typically vest within a 12-month period. We communicate threshold, target, and maximum performance RSU awards and performance targets to the applicable key employees at the beginning of a performance period. Due to the merger with CenterState, all legacy and assumed performance based restricted stock units converted to a time-vesting requirement. With respect to some long-term incentive awards, dividend equivalents are accrued at the same rate as cash dividends paid for each share of the Company’s common stock during the performance or time-vested period, and subsequently paid when the shares are issued on the vesting or settlement date. The value of the RSUs awarded is established as the fair market value of the stock at the time of the grant. We recognize expenses on a straight-line basis typically over the performance and vesting/or time-vesting periods based upon the probable performance target, as applicable, that will be met.

Outstanding RSUs at target for the nine months ended September 30, 2022 is summarized in the following table.


		Weighted-
		Average
		Grant-Date
Restricted Stock Units	Shares	Fair Value
Outstanding at January 1, 2022	948,213	$	67.01
Assumed restricted stock units from ACBI merger	55,736		87.94
Granted	333,116		82.34
Vested	(383,352)		66.25
Forfeited	(7,287)		84.07
Outstanding at September 30, 2022	946,426	$	73.81

The nonvested shares of 946,426 at September 30, 2022 includes 54,687 shares that have fully vested but are subject to a two-year holding period, which commenced at the end of their respective vesting period. These vested shares will be released and issued into shares of common stock at the end of their respective two-year holding period, the last of which will end by March 31, 2024. If maximum performance is achieved pursuant to the 2021 and 2022 LTI performance-based RSU grants, an additional 104,160 shares in total may be issued by the Company at the end of the three-year performance periods.

As of September 30, 2022, there was $33.6 million of total unrecognized compensation cost related to nonvested RSUs granted under the plan. This cost is expected to be recognized over a weighted-average period of 1.20 years as of September 30, 2022. The total fair value of RSUs vested and released during the nine months ended September 30, 2022 was $29.1 million.

Note 14 — Commitments and Contingent Liabilities

In the normal course of business, we make various commitments and incur certain contingent liabilities, which are not reflected in the accompanying financial statements. The commitments and contingent liabilities include guarantees, commitments to extend credit, and standby letters of credit. At September 30, 2022, commitments to extend credit and standby letters of credit totaled $10.9 billion. As of September 30, 2022, the liability recorded for expected credit losses on unfunded commitments, excluding unconditionally cancellable exposures and letters of credit, was $53.0 million and recorded on the Balance Sheet. See Note 2 – Summary of Significant Accounting Policies for discussion of liability recorded for expected credit losses on unfunded commitments.

We have been named as defendant in various legal actions, arising from its normal business activities, in which damages in various amounts are claimed. We are also exposed to litigation risk related to the prior business activities of banks acquired through whole bank acquisitions. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of Management, as of September 30, 2022, any such liability is not expected to have a material effect on our consolidated financial statements.

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Note 15 — Fair Value

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States, and enhances disclosures about fair value measurements. FASB ASC 820 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale and trading securities, derivative contracts, mortgage loans held for sale, SBA servicing rights, and mortgage servicing rights (“MSRs”) are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, OREO, bank properties held for sale, and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

FASB ASC Topic 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1	Observable inputs such as quoted prices in active markets;
Level 2	Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3	Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following is a description of valuation methodologies used for assets recorded at fair value.

Trading Securities

The fair values of trading securities are determined as follows: (1) for those securities that have traded prior to the date of the consolidated balance sheet but have not settled (date of sale) until after such date, the sales price is used as the fair value; and, (2) for those securities which have not traded as of the date of the consolidated balance sheet, the fair value was determined by broker price indications of similar or same securities.

Investment Securities

Securities available for sale are valued on a recurring basis at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and The NASDAQ Stock Market. Level 2 securities include mortgage-backed securities and debentures issued by government agencies or sponsored entities, municipal bonds and corporate debt securities, or U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Securities held to maturity are valued at quoted market prices or dealer quotes similar to securities available for sale. The carrying value of FHLB and FRB stock approximates fair value based on the redemption provisions.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at fair value with changes in fair value recognized in current period earnings. The fair values of mortgage loans held for sale are based on commitments on hand from investors within the secondary market for loans with similar characteristics. As such, the fair value adjustments for mortgage loans held for sale are recurring Level 2.

Loans

We do not record loans at fair value on a recurring basis. However, from time to time, a loan may be individually evaluated for expected credit losses if it no longer shares similar risk characteristics with other pooled loans. Once a loan is identified as an individually evaluated loan, Management measures expected credit losses using estimated fair value methodologies. The fair value of the individually evaluated loans is estimated using one of several methods,

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including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those individually evaluated loans not requiring an ACL represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At September 30, 2022, approximately 60% of the individually evaluated loans were evaluated based on the fair value of the collateral because such loans were considered collateral dependent. Individually evaluated loans, where an allowance is established based on the fair value of collateral; require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, we consider the impaired loan as nonrecurring Level 2. When an appraised value is not available or Management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, we consider the individually evaluated loan as nonrecurring Level 3.

Other Real Estate Owned (“OREO”)

OREO, consisting of properties obtained through foreclosure or in satisfaction of loans, is typically reported at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, and adjusted for estimated selling costs (Level 2). However, OREO is considered Level 3 in the fair value hierarchy because Management has qualitatively applied a discount due to the size, supply of inventory, and the incremental discounts applied to the appraisals. Management also considers other factors, including changes in absorption rates, length of time the property has been on the market and anticipated sales values, which have resulted in adjustments to the collateral value estimates indicated in certain appraisals. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the ACL. Gains or losses on sale and generally any subsequent adjustments to the value are recorded as a component of OREO Expense and Loan Related Expense in the Condensed Consolidated Statements of Income.

Bank Property Held for Sale

Bank property held for sale consists of locations that Management has identified as no longer needed and reclassified from bank premises. These properties are typically reported at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, and adjusted for estimated selling costs (Level 2). However, bank property held for sale is considered Level 3 in the fair value hierarchy because Management has qualitatively applied a discount due to the size, supply of inventory, restrictions and the incremental discounts applied to the appraisals. Management also considers other factors, including changes in absorption rates, length of time the property has been on the market and anticipated sales values, which have resulted in adjustments to the collateral value estimates indicated in certain appraisals. At the time a property is identified as held for sale, any excess of the book balance over the fair value of the real estate is treated as a charge against earnings. Gains or losses on sale and generally any subsequent write-downs to the value are recorded as a component in Other Expense in the Condensed Consolidated Statements of Income.

Derivative Financial Instruments

Fair value is estimated using pricing models of derivatives with similar characteristics or discounted cash flow models where future floating cash flows are projected and discounted back; and accordingly, these derivatives are classified within Level 2 of the fair value hierarchy. (See Note 17 — Derivative Financial Instruments for additional information).

Mortgage Servicing Rights (“MSRs”) and SBA Servicing Asset

The estimated fair value of MSRs and SBA servicing assets are obtained through a third-party vendor analysis of future cash flows. For the SBA servicing assets, the Company began using the third-party vendor analysis of future cash flows to determine the fair value of the servicing asset during the second quarter of 2022. In prior periods, the SBA servicing asset was recorded at amortized cost. The evaluations for the servicing assets use assumptions market participants would use in determining fair value including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market driven data, as well as the market’s perception of future interest rate movements. MSRs and SBA servicing assets are classified as Level 3.

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Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis:


			Quoted Prices
			In Active		Significant
			Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2022:
Assets
Derivative financial instruments	$	1,083,803	$	—	$	1,083,803	$	—
Loans held for sale		34,477		—		34,477		—
Trading securities		51,940		—		51,940		—
Securities available for sale:
U.S. Treasuries		264,425		—		264,425		—
U.S. Government agencies		218,623		—		218,623		—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,730,067		—		1,730,067		—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		627,812		—		627,812		—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,027,776		—		1,027,776		—
State and municipal obligations		1,003,318		—		1,003,318		—
Small Business Administration loan-backed securities		464,236		—		464,236		—
Corporate securities		33,353		—		33,353		—
Total securities available for sale		5,369,610		—		5,369,610		—
Mortgage servicing rights		90,459		—		—		90,459
SBA servicing assets		6,981		—		—		6,981
	$	6,637,270	$	—	$	6,539,830	$	97,440
Liabilities
Derivative financial instruments	$	1,082,948	$	—	$	1,082,948	$	—

December 31, 2021:
Assets
Derivative financial instruments	$	414,742	$	—	$	414,742	$	—
Loans held for sale		191,723		—		191,723		—
Trading securities		77,689		—		77,689		—
Securities available for sale:
U.S. Government agencies		97,117		—		97,117		—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,831,039		—		1,831,039		—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		725,995		—		725,995		—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,207,241		—		1,207,241		—
State and municipal obligations		812,689		—		812,689		—
Small Business Administration loan-backed securities		500,663		—		500,663		—
Corporate securities		18,734		—		18,734		—
Total securities available for sale		5,193,478		—		5,193,478		—
Mortgage servicing rights		65,620		—		—		65,620
	$	5,943,252	$	—	$	5,877,632	$	65,620
Liabilities
Derivative financial instruments	$	410,137	$	—	$	410,137	$	—

Changes in Level 1, 2 and 3 Fair Value Measurements

When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses below include changes in fair value due in part to observable factors that are part of the valuation methodology.

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There were no changes in hierarchy classifications of Level 3 assets or liabilities for the nine months ended September 30, 2022. A reconciliation of the beginning and ending balances of Level 3 assets, comprised of Mortgage Servicing Rights, and liabilities recorded at fair value on a recurring basis for the nine months ended September 30, 2022 is as follows:


(Dollars in thousands)	Assets		Liabilities
Fair value, January 1, 2022	$	65,620	$	—
Servicing assets that resulted from transfers of financial assets		14,617		—
Changes in fair value due to valuation inputs or assumptions		18,274		—
Changes in fair value due to decay		(8,052)		—
Fair value, September 30, 2022	$	90,459	$	—

There were no unrealized losses included in accumulated other comprehensive income related to Level 3 financial assets and liabilities at September 30, 2022.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis:


			Quoted Prices
			In Active		Significant
			Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2022:
OREO	$	2,160	$	—	$	—	$	2,160
Bank property held for sale		25,043		—		—		25,043
Individually evaluated loans		52,368		—		—		52,368
December 31, 2021:
OREO	$	2,736	$	—	$	—	$	2,736
Bank property held for sale		9,578		—		—		9,578
Individually evaluated loans		20,802		—		—		20,802

Quantitative Information about Level 3 Fair Value Measurement


			Weighted Average
			September 30,		December 31,
	Valuation Technique	Unobservable Input	2022		2021
Nonrecurring measurements:
Individually evaluated loans	Discounted appraisals and discounted cash flows	Collateral discounts	25	%	9	%
OREO and premises held for sale	Discounted appraisals	Collateral discounts and estimated costs to sell	15	%	24	%

Fair Value of Financial Instruments

We used the following methods and assumptions in estimating our fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those models are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different methodologies may have a material effect on the estimated fair value amounts. The fair value estimates presented herein are based on pertinent information available to Management as of September 30, 2022 and December 31, 2021. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents — The carrying amount is a reasonable estimate of fair value.

Trading Securities — The fair values of trading securities are determined as follows: (1) for those securities that have traded prior to the date of the consolidated balance sheet but have not settled (date of sale) until after such date, the

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sales price is used as the fair value; and, (2) for those securities which have not traded as of the date of the consolidated balance sheet, the fair value was determined by broker price indications of similar or same securities.

Investment Securities — Securities available for sale are valued at quoted market prices or dealer quotes. Securities held to maturity are valued at quoted market prices or dealer quotes similar to securities available for sale. The carrying value of FHLB and FRB stock approximates fair value based on the redemption provisions. The carrying value of our investment in unconsolidated subsidiaries approximates fair value. See Note 5 — Investment Securities for additional information, as well as page 32 regarding fair value.

Loans held for sale — The fair values disclosed for loans held for sale are based on commitments from investors for loans with similar characteristics.

Loans — The fair value of loans is based on an exit price. To estimate an exit price, all loans (fixed and variable) are being valued with a discounted cash flow analyses for loans that includes our estimate of future credit losses expected to be incurred over the life of the loans. Fair values for certain mortgage loans (e.g., one-to-four family residential) and other consumer loans are estimated using discounted cash flow analyses based on our current rates offered for new loans of the same type, structure and credit quality. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans) are estimated using discounted cash flow analyses-using interest rates we currently offer for loans with similar terms to borrowers of similar credit quality. Fair values for non-performing loans are estimated using a discounted cash flow analysis.

Deposit Liabilities — The fair values disclosed for demand deposits (e.g., interest and non-interest bearing checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts, and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase — The carrying amount of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days approximate their fair values.

Other Borrowings — The fair value of other borrowings is estimated using discounted cash flow analysis on our current incremental borrowing rates for similar types of instruments.

Accrued Interest — The carrying amounts of accrued interest approximate fair value.

Derivative Financial Instruments — The fair value of derivative financial instruments (including interest rate swaps) is estimated using pricing models of derivatives with similar characteristics or discounted cash flow models where future floating cash flows are projected and discounted back.

Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees — The fair values of commitments to extend credit are estimated taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of guarantees and letters of credit are based on fees currently charged for similar agreements or on the estimated costs to terminate them or otherwise settle the obligations with the counterparties at the reporting date.

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The estimated fair value, and related carrying amount, of our financial instruments are as follows:


	Carrying		Fair
(Dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
September 30, 2022
Financial assets:
Cash and cash equivalents	$	2,809,695	$	2,809,695	$	2,809,695	$	—	$	—
Trading securities		51,940		51,940		—		51,940		—
Investment securities		8,287,543		7,848,527		179,755		7,668,772		—
Loans held for sale		34,477		34,477		—		34,477		—
Loans, net of allowance for credit losses		28,511,905		28,271,062		—		—		28,271,062
Accrued interest receivable		124,553		124,553		—		28,508		96,045
Mortgage servicing rights		90,459		90,459		—		—		90,459
SBA servicing assets		6,981		—		—		—		6,981
Interest rate swap - non-designated hedge		1,081,768		1,081,768		—		1,081,768		—
Other derivative financial instruments (mortgage banking related)		2,035		2,035		—		2,035		—
Financial liabilities:
Deposits		37,666,021		37,578,773		—		37,578,773		—
Federal funds purchased and securities sold under agreements to repurchase		557,802		557,802		—		557,802		—
Other borrowings		392,368		379,992		—		379,992		—
Accrued interest payable		6,354		6,354		—		6,354		—
Interest rate swap - non-designated hedge		1,081,267		1,081,267		—		1,081,267		—
Other derivative financial instruments (mortgage banking related)		1,681		1,681		—		1,681		—
Off balance sheet financial instruments:
Commitments to extend credit		—		(92,429)		—		(92,429)		—
December 31, 2021
Financial assets:
Cash and cash equivalents	$	6,843,147	$	6,843,147	$	6,843,147	$	—	$	—
Trading securities		77,689		77,689		—		77,689		—
Investment securities		7,173,947		7,132,110		160,568		6,971,542		—
Loans held for sale		191,723		191,723		—		191,723		—
Loans, net of allowance for credit losses		23,626,359		23,921,372		—		—		23,921,372
Accrued interest receivable		90,069		90,069		—		19,241		70,828
Mortgage servicing rights		65,620		65,620		—		—		65,620
Interest rate swap - non-designated hedge		408,776		408,776		—		408,776		—
Other derivative financial instruments (mortgage banking related)		5,966		5,966		—		5,966		—
Financial liabilities:
Deposits		35,054,829		35,050,516		—		35,050,516		—
Federal funds purchased and securities sold under agreements to repurchase		781,239		781,239		—		781,239		—
Other borrowings		327,066		334,640		—		334,640		—
Accrued interest payable		3,345		3,345		—		3,345		—
Interest rate swap - non-designated hedge		410,137		410,137		—		410,137		—
Off balance sheet financial instruments:
Commitments to extend credit		—		93,501		—		93,501		—

Note 16 — Accumulated Other Comprehensive Income (Loss)

The changes in each component of accumulated other comprehensive loss, net of tax, were as follows:



			Unrealized Gains and
	Benefit		(Losses) on Securities
(Dollars in thousands)	Plans		Available for Sale		Total
Three Months Ended September 30, 2022
Balance at June 30, 2022	$	57	$	(490,941)	$	(490,884)
Other comprehensive loss before reclassifications		—		(225,551)		(225,551)
Amounts reclassified from accumulated other comprehensive loss		—		(23)		(23)
Net comprehensive loss		—		(225,574)		(225,574)
Balance at September 30, 2022	$	57	$	(716,515)	$	(716,458)

Three Months Ended September 30, 2021
Balance at June 30, 2021	$	(151)	$	24,287	$	24,136
Other comprehensive loss before reclassifications		—		(24,607)		(24,607)
Amounts reclassified from accumulated other comprehensive loss		—		(49)		(49)
Net comprehensive loss		—		(24,656)		(24,656)
Balance at September 30, 2021	$	(151)	$	(369)	$	(520)

Nine Months Ended September 30, 2022
Balance at December 31, 2021	$	57	$	(21,203)	$	(21,146)
Other comprehensive loss before reclassifications		—		(695,289)		(695,289)
Amounts reclassified from accumulated other comprehensive loss		—		(23)		(23)
Net comprehensive loss		—		(695,312)		(695,312)
Balance at September 30, 2022	$	57	$	(716,515)	$	(716,458)

Nine Months Ended September 30, 2021
Balance at December 31, 2020	$	(151)	$	47,740	$	47,589
Other comprehensive loss before reclassifications		—		(48,033)		(48,033)
Amounts reclassified from accumulated other comprehensive loss		—		(76)		(76)
Net comprehensive loss		—		(48,109)		(48,109)
Balance at September 30, 2021	$	(151)	$	(369)	$	(520)

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The table below presents the reclassifications out of accumulated other comprehensive loss, net of tax:


	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
(Dollars in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Accumulated Other Comprehensive Income (Loss) Component	2022		2021		2022		2021		Income Statement Line Item Affected
Gains on sales of available for sale securities:
	$	(30)	$	(64)	$	(30)	$	(100)	Securities gains, net
		7		15		7		24	Provision for income taxes
		(23)		(49)		(23)		(76)	Net income
Total reclassifications for the period	$	(23)	$	(49)	$	(23)	$	(76)

Note 17 — Derivative Financial Instruments

We use certain derivative instruments to meet the needs of customers as well as to manage the interest rate risk associated with certain transactions. The following table summarizes the derivative financial instruments used by the Company:


				September 30, 2022						December 31, 2021
	Balance Sheet	Notional		Estimated Fair Value				Notional		Estimated Fair Value
(Dollars in thousands)	Location	Amount		Gain		Loss		Amount		Gain		Loss

Fair value hedge of interest rate risk:
Pay fixed rate swap with counterparty	Other Assets and Other Liabilities	$	17,800	$	514	$	—	$	15,716	$	—	$	1,355

Not designated hedges of interest rate risk:
Customer related interest rate contracts:
Matched interest rate swaps with borrowers	Other Assets and Other Liabilities		10,587,773		2,079		1,081,267		10,404,605		408,776		69,998
Matched interest rate swaps with counterparty	Other Assets and Other Liabilities		10,588,670		1,079,175		—		10,402,394		—		338,784

Not designated hedges of interest rate risk - mortgage banking activities:
Contracts used to hedge mortgage servicing rights	Other Assets and Other Liabilities		27,000		—		1,681		205,000		1,228		—
Contracts used to hedge mortgage pipeline	Other Assets		83,500		2,035		—		324,000		4,738		—
Total derivatives		$	21,304,743	$	1,083,803	$	1,082,948	$	21,351,715	$	414,742	$	410,137

Cash Flow Hedge of Interest Rate Risk

The Company is exposed to interest rate risk in the course of its business operations and manages a portion of this risk through the use of derivative financial instruments, in the form of interest rate swaps. We account for interest rate swaps that are classified as cash flow hedges in accordance with FASB ASC 815, Derivatives and Hedging, which requires that all derivatives be recognized as assets or liabilities on the balance sheet at fair value. We had no cash flow hedges as of September 30, 2022 and December 31, 2021. For more information regarding the fair value of our derivative financial instruments, see Note 15 — Fair Value to these financial statements.

For derivatives designated as hedging exposure to variable cash flows of a forecasted transaction (cash flow hedge), the derivative’s entire gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings or when the hedge is terminated. For derivatives that are not designated as hedging instruments, changes in the fair value of the derivatives are recognized in earnings immediately.

For designated hedging relationships, we have a third party perform retrospective and prospective effectiveness testing on a quarterly basis using quantitative methods to determine if the hedge is still highly effective. Hedge accounting ceases on transactions that are no longer deemed highly effective, or for which the derivative has been terminated or de-designated.

Balance Sheet Fair Value Hedge

As of September 30, 2022 and December 31, 2021, the Company maintained loan swaps, with an aggregate notional amount of $17.8 million and $15.7 million, respectively, accounted for as fair value hedges in accordance with ASC 815, Derivatives and Hedging. This derivative protects us from interest rate risk caused by changes in the LIBOR curve in relation to a certain designated fixed rate loan. The derivative converts the fixed rate loan to a floating rate. Settlement occurs in any given period where there is a difference in the stated fixed rate and variable rate and the

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difference is recorded in net interest income. The fair value of this hedge is recorded in either other assets or in other liabilities depending on the position of the hedge with the offset recorded in loans. For the three and nine months ended September 30, 2022, a loss of $3,000 and a gain of $107,000 was recorded, respectively. There was no gain or loss recorded on these derivatives for the three and nine months ended September 30, 2021.

Non-designated Hedges of Interest Rate Risk

Customer Swap

We maintain interest rate swap contracts with customers that are classified as non-designated hedges and are not speculative in nature. These agreements are designed to convert customer’s variable rate loans with the Company to fixed rate. These interest rate swaps are executed with loan customers to facilitate a respective risk management strategy and allow the customer to pay a fixed rate of interest to the Company. These interest rate swaps are simultaneously hedged by executing offsetting interest rate swaps with unrelated market counterparties to minimize the net risk exposure to the Company resulting from the transactions and allow the Company to receive a variable rate of interest. The interest rate swaps pay and receive interest based on a floating rate based on one month LIBOR plus credit spread, with payments being calculated on the notional amount. The Company is in the process of implementing a plan to transition these interest rate swap contracts to a reference rate other than LIBOR. For discussion related to reference rate reform, please refer to Issued But Not Yet Adopted Accounting Standards within Note 2—Summary of Significant Accounting Policies. The interest rate swaps are settled monthly with varying maturities.

As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of September 30, 2022 and December 31, 2021, the interest rate swaps had an aggregate notional amount of approximately $21.2 billion and $20.8 billion, respectively. At September 30, 2022, the fair value of the interest rate swap derivatives are recorded in other assets at $1.1 billion and in other liabilities at $1.1 billion for a net liability position of $13,000. At December 31, 2021, the fair value of the interest rate swap derivatives was recorded in other assets at $408.8 million and other liabilities at $408.8 million for a net liability position of $5,000. Changes in the fair market value of these interest rate swaps is recorded through earnings. As of September 30, 2022, we provided $72.5 million of cash collateral on the counterparty, which is included in Cash and Cash Equivalents on the Condensed Consolidated Balance Sheet as Deposits in Other Financial Institutions (restricted cash). We also provided $116.8 million in investment securities at market value as collateral on the counterparty, which is included in Investment Securities – Available for Sale. Counterparties provided $926.0 million of cash collateral to the Company to secure swap asset positions, which is included in Interest-bearing Deposits (Liability) on the Condensed Consolidated Balance Sheet.

Foreign Exchange

We also enter into foreign exchange contracts with customers to accommodate their need to convert certain foreign currencies into U.S. Dollars. To offset the foreign exchange risk, the Company has entered into substantially identical agreements with an unrelated market counterparty to hedge these foreign exchange contracts. At September 30, 2022 and December 31, 2021, there were no outstanding contracts or agreements related to foreign currency. If there were foreign currency contracts outstanding at September 30, 2022, the fair value of these contracts would be included in other assets and other liabilities in the accompanying balance sheet. All changes in fair value are recorded as other noninterest income. There was no gain or loss recorded related to the foreign exchange derivative for the three and nine months ended September 30, 2022 and 2021.

Mortgage Banking

We also have derivatives contracts that are not classified as accounting hedges to mitigate risks related to the Company’s mortgage banking activities. These instruments may include financial forwards, futures contracts, and options written and purchased, which are used to hedge MSRs; while forward sales commitments are typically used to hedge the mortgage pipeline. Such instruments derive their cash flows, and therefore their values, by reference to an underlying instrument, index or referenced interest rate. The Company does not elect hedge accounting treatment for any of these derivative instruments and as a result, changes in fair value of the instruments (both gains and losses) are recorded in the Company’s consolidated statements of income in mortgage banking income.

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Mortgage Servicing Rights

Derivatives contracts related to MSRs are used to help offset changes in fair value and are written in amounts referred to as notional amounts. Notional amounts provide a basis for calculating payments between counterparties but do not represent amounts to be exchanged between the parties and are not a measure of financial risk. On September 30, 2022, we had derivative financial instruments outstanding with notional amounts totaling $27.0 million related to MSRs, compared to $205.0 million on December 31, 2021. The estimated net fair value of the open contracts related to the MSRs was recorded as a loss of $1.7 million at September 30, 2022, compared to a gain of $1.2 million at December 31, 2021.

Mortgage Pipeline

The following table presents our notional value of forward sale commitments and the fair value of those obligations along with the fair value of the mortgage pipeline related to the held for sale portfolio:


(Dollars in thousands)	September 30, 2022		December 31, 2021
Mortgage loan pipeline	$	77,530	$	264,000
Expected closures		70,833		233,265
Fair value of mortgage loan pipeline commitments		(646)		4,759
Forward sales commitments		83,500		324,000
Fair value of forward commitments		2,681		(21)

Note 18 — Capital Ratios

We are subject to regulations with respect to certain risk-based capital ratios. These risk-based capital ratios measure the relationship of capital to a combination of balance sheet and off-balance sheet risks. The values of both balance sheet and off-balance sheet items are adjusted based on the rules to reflect categorical credit risk. In addition to the risk-based capital ratios, the regulatory agencies have also established a leverage ratio for assessing capital adequacy. The leverage ratio is equal to Tier 1 capital divided by total consolidated on-balance sheet assets (minus amounts deducted from Tier 1 capital). The leverage ratio does not involve assigning risk weights to assets.

Under current regulations, the Company and the Bank are subject to a minimum ratio of common equity Tier 1 capital (“CET1”) to risk-weighted assets of 4.5%. and a minimum required ratio of Tier 1 capital to risk-weighted assets of 6%. The minimum required leverage ratio is 4%. The minimum required total capital to risk-weighted assets ratio is 8%.

In order to avoid restrictions on capital distributions and discretionary bonus payments to executives, under the new rules a covered banking organization is also required to maintain a “capital conservation buffer” in addition to its minimum risk-based capital requirements. This buffer is required to consist solely of CET1, and the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital). The capital conservation buffer became fully phased-in on January 1, 2019 and consists of an additional amount of Tier 1 common equity equal to 2.5% of risk-weighted assets.

The Bank is also subject to the regulatory framework for prompt corrective action, which identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized) and is based on specified thresholds for each of the three risk-based regulatory capital ratios (CET1, Tier 1 capital and total capital) and for the leverage ratio.

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The following table presents actual and required capital ratios as of September 30, 2022 and December 31, 2021 for the Company and the Bank under the current capital rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations.


									Required to be
					Minimum Capital				Considered Well
	Actual				Required - Basel III				Capitalized
(Dollars in thousands)	Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
September 30, 2022:
Common equity Tier 1 to risk-weighted assets:
Consolidated	$	3,666,829	11.02	%	$	2,328,284	7.00	%	$	2,161,978	6.50	%
SouthState Bank (the Bank)		3,956,892	11.91	%		2,325,129	7.00	%		2,159,049	6.50	%
Tier 1 capital to risk-weighted assets:
Consolidated		3,666,829	11.02	%		2,827,202	8.50	%		2,660,896	8.00	%
SouthState Bank (the Bank)		3,956,892	11.91	%		2,823,371	8.50	%		2,657,291	8.00	%
Total capital to risk-weighted assets:
Consolidated		4,311,208	12.96	%		3,492,427	10.50	%		3,326,121	10.00	%
SouthState Bank (the Bank)		4,211,272	12.68	%		3,487,694	10.50	%		3,321,613	10.00	%
Tier 1 capital to average assets (leverage ratio):
Consolidated		3,666,829	8.33	%		1,760,176	4.00	%		2,200,220	5.00	%
SouthState Bank (the Bank)		3,956,892	9.00	%		1,759,585	4.00	%		2,199,481	5.00	%
December 31, 2021:
Common equity Tier 1 to risk-weighted assets:
Consolidated	$	3,201,644	11.75	%	$	1,906,831	7.00	%	$	1,770,629	6.50	%
SouthState Bank (the Bank)		3,431,069	12.62	%		1,902,954	7.00	%		1,767,029	6.50	%
Tier 1 capital to risk-weighted assets:
Consolidated		3,201,644	11.75	%		2,315,438	8.50	%		2,179,236	8.00	%
SouthState Bank (the Bank)		3,431,069	12.62	%		2,310,730	8.50	%		2,174,804	8.00	%
Total capital to risk-weighted assets:
Consolidated		3,692,674	13.56	%		2,860,247	10.50	%		2,724,045	10.00	%
SouthState Bank (the Bank)		3,594,099	13.22	%		2,854,431	10.50	%		2,718,505	10.00	%
Tier 1 capital to average assets (leverage ratio):
Consolidated		3,201,644	8.05	%		1,590,045	4.00	%		1,987,556	5.00	%
SouthState Bank (the Bank)		3,431,069	8.65	%		1,587,212	4.00	%		1,984,015	5.00	%

As of September 30, 2022 and December 31, 2021, the capital ratios of the Company and the Bank were well in excess of the minimum regulatory requirements and exceeded the thresholds for the “well capitalized” regulatory classification.

In June 2016, the FASB issued ASU No. 2016-13 which required an entity to use a new impairment model known as the CECL model to estimate its lifetime “expected credit loss.” This standard was adopted and became effective on January 1, 2020 and the Company applied the provisions of the standard using the modified retrospective method as a cumulative-effect adjustment to retained earnings. Related to the implementation of ASU 2016-13, we recorded additional allowance for credit losses for loans of $54.4 million, deferred tax assets of $12.6 million, an additional reserve for unfunded commitments of $6.4 million and an adjustment to retained earnings of $44.8 million. Instead of recognizing the effects from ASU 2016-13 at adoption, the standard included a transitional method option for recognizing the adoption date effects on the Company’s regulatory capital calculations over a three-year phase-in. In March 2020, in response to the COVID-19 pandemic, the regulatory agencies provided an additional transitional method option of a two-year deferral for the start of the three-year phase-in of the recognition of the adoption date effects of ASU 2016-13 along with an option to defer the current impact on regulatory capital calculations of ASU 2016-13 during the first two years (“5-year method”). Under this 5-year method, the Company would recognize an estimate of the previous incurred loss method for determining the allowance for credit losses in regulatory capital calculations and the difference from the CECL method would be deferred for two years. After two years, the effects from adoption date and the deferral difference from the first two years of applying CECL would be phased-in over three years using the straight-line method. The regulatory rules provided a one-time opportunity at the end of the first quarter of 2020 for covered banking organizations to choose its transition option for CECL. The Company chose the 5-year method and is deferring the recognition of the effects from adoption date and the CECL difference from the first two years of application. This amount was fixed as of December 31, 2021, and that amount began the three-year phase out in the first quarter of 2022 with 25% being phased out in 2022.

During the second quarter of 2022, the Company redeemed $13.0 million of subordinated debentures, with a first call date of June 30, 2022, resulting in a reduction in total risk-based capital of $13.0 million.

Note 19 — Goodwill and Other Intangible Assets

The carrying amount of goodwill was $1.9 billion and $1.6 billion, respectively billion at September 30, 2022

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and December 31, 2021. The Company added $342.9 million in goodwill related to the Atlantic Capital acquisition in the first quarter of 2022. The Company made subsequent fair value adjustments related to the Atlantic Capital merger in the second quarter of 2022 that decreased goodwill by $1.5 million. The Company also added $17.5 million in core deposit intangibles related to the Atlantic Capital transaction during the first quarter of 2022. The Company’s other intangible assets, consisting of core deposit intangibles, noncompete intangibles, and client list intangibles are included on the face of the balance sheet.

The Company last completed its annual valuation of the carrying value of its goodwill as of October 31, 2021. We determined that no impairment charge was necessary as of the impairment testing period. We will continue to monitor the impact of current economic conditions and other events on the Company’s business, operating results, cash flows and/or financial condition.

The following is a summary of gross carrying amounts and accumulated amortization of other intangible assets:


	September 30,		December 31,
(Dollars in thousands)	2022		2021
Gross carrying amount	$	279,884	$	257,874
Accumulated amortization		(154,494)		(129,807)
	$	125,390	$	128,067

Amortization expense totaled $7.8 million and $25.2 million, for the three and nine months ended September 30, 2022, compared to $8.5 million and $26.7 million for the three and nine months ended September 30, 2021. Other intangibles are amortized using either the straight-line method or an accelerated basis over their estimated useful lives, with lives generally between two and 15 years. During the second quarter of 2022, the Company elected to prospectively apply fair value accounting for the SBA servicing assets beginning with the period ending June 30, 2022, with changes in fair value of the SBA servicing assets recorded in earnings during each applicable reporting period. As a result, the Company will no longer amortize the SBA servicing assets and therefore excluded the SBA servicing assets from the future amortization expense table presented below. The fair value of the SBA servicing assets as of September 30, 2022 was $7.0 million. Estimated amortization expense for other intangibles, excluding the SBA servicing assets, for each of the next five quarters and thereafter is as follows:


(Dollars in thousands)
Quarter ending:
December 31, 2022	$	8,027
March 31, 2023		7,299
June 30, 2023		7,028
September 30, 2023		6,616
December 31, 2023		6,615
Thereafter		82,824
	$	118,409

Note 20 — Loan Servicing, Mortgage Origination, and Loans Held for Sale

As of September 30, 2022 and December 31, 2021, the portfolio of residential mortgages serviced for others, which is not included in the accompanying balance sheets, was $6.6 billion and $6.1 billion, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts and disbursing payments to investors. The amount of contractually specified servicing fees we earned during the three and nine months ended September 30, 2022 and September 30, 2021 were $4.2 million, $12.1 million, $3.8 million and $10.5 million, respectively. Servicing fees are recorded in mortgage banking income in our Condensed Consolidated Statements of Income.

At September 30, 2022 and December 31, 2021, MSRs were $90.5 million and $65.6 million on our consolidated balance sheets, respectively. MSRs are recorded at fair value with changes in fair value recorded as a component of mortgage banking income in the Condensed Consolidated Statements of Income. The market value adjustments due to interest rates related to MSRs recorded in mortgage banking income for the three and nine months ended September 30, 2022 and September 30, 2021 were gains of $2.7 million and $18.3 million, compared with gains of $1.7 million and $7.5 million, respectively. We used various free-standing derivative instruments to mitigate the income statement effect of changes in fair value due to changes in market value adjustments and to changes in valuation inputs and assumptions related to MSRs.

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See Note 15 — Fair Value for the changes in fair value of MSRs. The following table presents the changes in the fair value of the MSR and offsetting hedge.


	Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Increase in fair value of MSRs	$	2,661	$	1,659	$	18,274	$	7,543
Decay of MSRs		(2,530)		(3,427)		(8,052)		(11,276)
Loss related to derivatives		(3,572)		(577)		(17,963)		(4,178)
Net effect on statements of income	$	(3,441)	$	(2,345)	$	(7,741)	$	(7,911)

The fair value of MSRs is highly sensitive to changes in assumptions and fair value is determined by estimating the present value of the asset’s future cash flows utilizing market-based prepayment rates, discount rates and other assumptions validated through comparison to trade information, industry surveys and with the use of independent third-party appraisals. Changes in prepayment speed assumptions have the most significant impact on the fair value of MSRs. Generally, as interest rates decline, mortgage loan prepayments accelerate due to increased refinance activity, which results in a decrease in the fair value of the MSR. Measurement of fair value is limited to the conditions existing, and the assumptions used as of a particular point in time, and those assumptions may not be appropriate if they are applied at a different time. See Note 15 — Fair Value for additional information regarding fair value.

The characteristics and sensitivity analysis of the MSRs are included in the following table:


	September 30,			December 31,
(Dollars in thousands)	2022			2021
Composition of residential loans serviced for others
Fixed-rate mortgage loans		100.0	%		99.9	%
Adjustable-rate mortgage loans		—	%		0.1	%
Total		100.0	%		100.0	%
Weighted average life		8.43	years		7.35	years
Constant Prepayment rate (CPR)		6.4	%		8.4	%
Weighted average discount rate		10.2	%		9.0	%
Effect on fair value due to change in interest rates
25 basis point increase	$	510		$	3,961
50 basis point increase		925			7,261
25 basis point decrease		(628)			(4,371)
50 basis point decrease		(1,389)			(8,966)

The sensitivity calculations in the previous table are hypothetical and should not be considered to be predictive of future performance. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the changes in assumptions to fair value may not be linear. Also, the effects of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumptions, while in reality, changes in one factor may result in changing another, which may magnify or contract the effect of the change.

Custodial escrow balances maintained in connection with the loan servicing were $74.7 million and $29.6 million at September 30, 2022 and December 31, 2021, respectively.

Whole loan sales were $272.8 million and $1.4 billion for the three and nine months ended September 30, 2022, compared to $612.5 million and $2.4 billion for the three and nine months ended September 30, 2021. For the three and nine months ended September 30, 2022, $216.1 million and $1.1 billion, or 79.2% and 77.2%, respectively, were sold with the servicing rights retained by the Company, compared to $489.8 million and $1.9 billion, or 80.0% and 79.5%, respectively, for the three and nine months ended September 30, 2021.

Loans held for sale have historically been comprised of residential mortgage loans awaiting sale in the secondary market, which generally settle in 15 to 45 days. Loans held for sale were $34.5 million and $191.7 million at September 30, 2022 and December 31, 2021, respectively.

Note 21 — Repurchase Agreements

Securities sold under agreements to repurchase (“repurchase agreements”) represent funds received from customers, generally on an overnight or continuous basis, which are collateralized by investment securities owned or, at times, borrowed and re-hypothecated by the Company. Repurchase agreements are subject to terms and conditions of the master repurchase agreements between the Company and the client and are accounted for as secured borrowings.

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Repurchase agreements are included in federal funds purchased and securities sold under agreements to repurchase on the condensed consolidated balance sheets.

At September 30, 2022 and December 31, 2021, our repurchase agreements totaled $344.0 million and $400.0 million, respectively. All of our repurchase agreements were overnight or continuous (until-further-notice) agreements at September 30, 2022 and December 31, 2021. These borrowings were collateralized with government, government-sponsored enterprise, or state and political subdivision-issued securities with a carrying value of $438.5 million and $471.3 million at September 30, 2022 and December 31, 2021, respectively. Declines in the value of the collateral would require us to increase the amounts of securities pledged.

Note 22 — Stock Repurchase Program

On January 27, 2021, the Company’s Board of Directors approved a stock repurchase program (“2021 Stock Repurchase Plan”) authorizing the Company to repurchase up to 3,500,000 of the Company’s common shares. During the nine months ended September 30, 2022, the Company repurchased a total of 1,312,038 shares at a weighted average price of $83.99 per share pursuant to the 2021 Stock Repurchase Plan. Life-to-date as of September 30, 2022, the Company has repurchased a total of 3,129,979 shares at a weighted average price of $81.97 per share, leaving 370,021 shares remaining that may be repurchased under the 2021 Stock Repurchase.

On April 27, 2022, the Company’s Board of Directors approved a new stock repurchase program (“2022 Stock Repurchase Program”) authorizing the Company to repurchase up to 3,750,000 of the Company’s common shares along with the remaining authorized shares of 370,021 from the 2021 Stock Repurchase Plan for a total authorization of 4,120,021 shares. On June 7, 2022, the Company received Federal Reserve Board’s supervisory nonobjection on the 2022 Stock Repurchase Program. The Company did not repurchase any shares through the 2022 Stock Repurchase Program during the three or nine months ended September 30, 2022. As of September 30, 2022, there is a total of 4,120,021 shares authorized to be repurchased.

Note 23 — Subsequent Events

On October 24, 2022, the Company announced the declaration of a quarterly cash dividend on its common stock at $0.50 per share. The dividend is payable on November 18, 2022 to shareholders of record as of November 11, 2022.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) relates to the financial statements contained in this Quarterly Report beginning on page 3. For further information, refer to the MD&A appearing in the Annual Report on Form 10-K for the year ended December 31, 2021. Results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the year ending December 31, 2022 or any future period.

Unless otherwise mentioned or unless the context requires otherwise, references to “SouthState,” the “Company” “we,” “us,” “our” or similar references mean SouthState Corporation and its consolidated subsidiaries. References to the “Bank” means SouthState Corporation’s wholly owned subsidiary, SouthState Bank, National Association, a national banking association.

Overview

SouthState Corporation is a financial holding company headquartered in Winter Haven, Florida, and was incorporated under the laws of South Carolina in 1985. We provide a wide range of banking services and products to our customers through our Bank. The Bank operates SouthState Advisory, Inc., a wholly owned registered investment advisor and SouthState/Duncan-Williams Securities Corp. (“Duncan-Williams”), a registered broker-dealer acquired on February 1, 2021 serving primarily institutional clients across the U.S. in the fixed income business from its headquartered in Memphis, Tennessee. The Bank also owns CBI Holding Company, LLC (“CBI”), which in turn owns Corporate Billing, LLC (“Corporate Billing”), a transaction-based finance company headquartered in Decatur, Alabama that provides factoring, invoicing, collection and accounts receivable management services to transportation companies, automotive parts and service providers nationwide. The holding company owns SSB Insurance Corp., a captive insurance subsidiary pursuant to Section 831(b) of the U.S. Tax Code.

At September 30, 2022, we had approximately $45.2 billion in assets and 5,074 full-time equivalent employees. Through our Bank branches, ATMs and online banking platforms, we provide our customers with a wide range of financial products and services, through a six (6) state footprint in Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia. These financial products and services include deposit accounts such as checking accounts, savings and time deposits of various types, safe deposit boxes, bank money orders, wire transfer and ACH services, brokerage services and alternative investment products such as annuities and mutual funds, trust and asset management services, loans of all types, including business loans, agriculture loans, real estate-secured (mortgage) loans, personal use loans, home improvement loans, automobile loans, manufactured housing loans, boat loans, credit cards, letters of credit, home equity lines of credit, treasury management services, and merchant services.

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

We have pursued, and continue to pursue, a growth strategy that focuses on organic growth, supplemented by acquisitions of select financial institutions, or branches in certain market areas or nonbanks that engage in financial services businesses complementary to the Bank’s business.

The following discussion describes our results of operations for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 and also analyzes our financial condition as of September 30, 2022 as compared to December 31, 2021. Like most financial institutions, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we may pay interest. Consequently, one of the key measures of our success is the amount of our net interest income, or the difference between the income on our interest-earning assets, such as loans and

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investments, and the expense on our interest-bearing liabilities, such as deposits. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities.

Of course, there are risks inherent in all loans, as such, we maintain an allowance for credit losses, otherwise referred to herein as ACL, to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for credit losses against our operating earnings. In the following discussion, we have included a detailed discussion of this process.

In addition to earning interest on our loans and investments, we earn income through fees and other services we charge to our customers. We incur costs in addition to interest expense on deposits and other borrowings, the largest of which is salaries and employee benefits. We describe the various components of this noninterest income and noninterest expense in the following discussion.

The following sections also identify significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.

Recent Events

We are continuously monitoring the impact of various global and national events on our results of operation and financial conditions, including inflation, and rising interest rates to combat elevated inflation, elevated gas and oil prices, continued supply chain disruptions, as a result of, among other factors, the Russian Ukraine conflict, and continued COVID-19 pandemic, and other global events. In particular, growth in economic activity and demand for goods and services, alongside labor shortages and supply chain complications, has contributed to rising inflation. In response, the Federal Reserve is raising interest rates and signaled that it will continue to raise rates and taper its purchase of mortgage and other bonds. While employment figures show resilience, it is widely acknowledged that the chances of recession have increased. During the third quarter of 2022, we recorded provision for credit losses of approximately $23.9 million, including the provision for unfunded commitments. The continued impacts from the various global and national events listed above, may result in additional provision for credit losses in the future. Please see “Allowance for Credit Losses” in this MD&A for more information on the Company’s analysis of expected credit losses.

Nevertheless, the timing and impact of inflation and rising interest rates on our business, financial statements and results of operations will depend on future developments, which are highly uncertain and difficult to predict.

Atlantic Capital Bancshares, Inc. (“Atlantic Capital” or “ACBI”) Merger

On March 1, 2022, the Company acquired all of the outstanding common stock of Atlantic Capital, the holding company for Atlantic Capital Bank, N.A. (“ACB”), in a stock transaction. Pursuant to the merger agreement, (i) Atlantic Capital merged with and into the Company, with the Company continuing as the surviving corporation in the merger, and (ii) immediately following the merger, ACB merged with and into SouthState Bank, N.A. (“SSB”), with SSB continuing as the surviving bank in the bank merger.

Under the terms of the merger agreement, shareholders of Atlantic Capital received 0.36 shares of the Company’s common stock for each share of Atlantic Capital common stock they owned. In total, the purchase price for Atlantic Capital was $657.8 million.

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Branch Consolidation and Other Cost Initiatives

During the third quarter of 2022, the Company consolidated thirty-one branches across its branch footprint into nearby existing Bank branches. Through September 30, 2022, the cost associated with these branch closures was approximately $8.0 million, which primarily includes personnel, facilities and equipment cost.

Debit Card Transaction Processing Update

On October 3, 2022, the Federal Reserve finalized a rule that amends Regulation II to, among other things, specify that debit card issuers should enable all debit card transactions, including card-not-present transactions such as online payments, to be processed on at least two unaffiliated payment card networks. The final rule becomes effective July 1, 2023. As an issuer with over $10 billion in assets, we are subject to Regulation II and will work to implement these new requirements.

Deposit Insurance Assessments

On October 18, 2022, the FDIC finalized a rule that would increase initial base deposit insurance assessment rates by 2 basis points, beginning with the first quarterly assessment period of 2023. The FDIC, as required under the Federal Deposit Insurance Act, established a plan in September 2020 to restore the Deposit Insurance Fund (“DIF”) reserve ratio to meet or exceed the statutory minimum of 1.35 percent within eight years. This plan did not include an increase in the deposit insurance assessment rate. Based on the FDIC’s recent projections, however, the FDIC determined that the DIF reserve ratio is at risk of not reaching the statutory minimum by the statutory deadline of September 30, 2028 without increasing the deposit insurance assessment rates. The increased assessment would improve the likelihood that the DIF reserve ratio would reach the required minimum by the statutory deadline, consistent with the FDIC’s Amended Restoration Plan. The rule will become effective as of January 1, 2023.

Critical Accounting Policies

Our consolidated financial statements are prepared based on the application of accounting policies in accordance with GAAP and follow general practices within the banking industry. Our financial position and results of operations are affected by Management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Differences in the application of these policies could result in material changes in our consolidated financial position and consolidated results of operations and related disclosures. Understanding our accounting policies is fundamental to understanding our consolidated financial position and consolidated results of operations. Accordingly, our significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in Note 2 — Summary of Significant Accounting Policies and Note 3 — Recent Accounting and Regulatory Pronouncements of our consolidated financial statements in this Quarterly Report on Form 10-Q and in Note 1 — Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the year ended December 31, 2021.

The following is a summary of our critical accounting policies that are highly dependent on estimates, assumptions and judgments.

Allowance for Credit Losses or ACL

The ACL reflects Management’s estimate of expected credit losses that will result from the inability of our borrowers to make required loan payments. Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment, which includes the evaluation of baseline and alternative scenarios, as well as other current economic data, to determine the best estimate within the range of expected credit losses during each reporting period. Management evaluates the appropriateness of the reasonable and supportable forecast scenarios and makes adjustments, as needed, during each period end. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects Management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for Management’s current estimate of expected credit losses. See

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Note 2 — Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the ACL. See also Note 7 — Allowance for Credit Losses in this Quarterly Report on Form 10-Q, and “Allowance for Credit Losses” in this MD&A.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed in a business combination. As of September 30, 2022 and December 31, 2021, the balance of goodwill was $1.9 billion and $1.6 billion, respectively. As a result of the Atlantic Capital merger on March 1, 2022, the Company recognized additional goodwill of $341.4 million. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.

Our most recent evaluation of goodwill was performed as of October 31, 2021, and we determined that no impairment charge was necessary. Our stock price has traded above book value and tangible book value in the first nine months of 2022. Our stock price closed on September 30, 2022 at $79.12, which was above book value of $65.03 and tangible book value of $37.97. We will continue to monitor the impact of inflation, COVID-19 and other global events on the Company’s business, operating results, cash flows and financial condition. If the economy deteriorates and our stock price falls below current levels, we will have to reevaluate the impact on our financial condition and potential impairment of goodwill.

Core deposit intangibles and client list intangibles consist primarily of amortizing assets established during the acquisition of other banks. This includes whole bank acquisitions and the acquisition of certain assets and liabilities from other financial institutions. Core deposit intangibles represent the estimated value of long-term deposit relationships acquired in these transactions. Client list intangibles represent the value of long-term client relationships for the correspondent banking, wealth and trust management businesses. These costs are amortized over the estimated useful lives, such as deposit accounts in the case of core deposit intangible, on a method that we believe reasonably approximates the anticipated benefit stream from this intangible. The estimated useful lives are periodically reviewed for reasonableness.

Income Taxes and Deferred Tax Assets

Income taxes are provided for the tax effects of the transactions reported in our consolidated financial statements and consist of taxes currently due plus deferred taxes related to differences between the tax basis and accounting basis of certain assets and liabilities, including loans, available for sale securities, ACL, write downs of OREO properties and bank properties held for sale, accumulated depreciation, net operating loss carry forwards, accretion income, deferred compensation, intangible assets, mortgage servicing rights, and post-retirement benefits. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. A valuation allowance is recorded in situations where it is “more likely than not” that a deferred tax asset is not realizable. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Deferred tax assets as of September 30, 2022 were $198.7 million, an increase of approximately $133.7 million compared to $65.0 million as of December 31, 2021. The increase in deferred tax assets during the first nine months of 2022 was mostly attributable to a $227.2 million increase in unrealized losses from the available for sale securities portfolio, as well as the addition of $30.4 million of net deferred tax assets acquired from Atlantic Capital, offset by a $109.4 million decrease in the mark-to-market adjustment pertaining to loans with the remaining difference due to other temporary differences.

The Company and its subsidiaries file a consolidated federal income tax return. Additionally, income tax returns are filed by the Company or its subsidiaries in the states of Alabama, California, Colorado, Florida, Georgia, Mississippi, Missouri, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, and Virginia and in New York City. We evaluate the need for income tax reserves related to uncertain income tax positions but had no material reserves at September 30, 2022 or December 31, 2021.

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Other Real Estate Owned and Bank Property Held For Sale

Other real estate owned (“OREO”) consists of properties obtained through foreclosure or through a deed in lieu of foreclosure in satisfaction of loans. Both OREO and bank property held for sale are recorded at the lower of cost or fair value and the fair value was determined on the basis of current valuations obtained principally from independent sources and adjusted for estimated selling costs. For OREO, at the time of foreclosure or initial possession of collateral, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the ACL. At the time a bank property is no longer in service and is moved to held for sale, any excess of the current book value over fair value is recorded as an expense in the Condensed Consolidated Statements of Income. Subsequent adjustments to this value are described below in the following paragraph.

We report subsequent declines in the fair value of OREO and bank properties held for sale below the new cost basis through valuation adjustments. Significant judgments and complex estimates are required in estimating the fair value of these properties, and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility. In response to market conditions and other economic factors, Management may use liquidation sales as part of its problem asset disposition strategy. As a result of the significant judgments required in estimating fair value and the variables involved in different methods of disposition, the net proceeds realized from sales transactions could differ significantly from the current valuations used to determine the fair value of these properties. Management reviews the value of these properties periodically and adjusts the values as appropriate. Revenue and expenses from OREO operations, as well as gains or losses on sales and any subsequent adjustments to the value, are recorded as OREO and Loan Related expense, a component of Noninterest Expense on the Condensed Consolidated Statements of Income. For bank property held for sale, any adjustments to fair value, as well as gains or losses on sales, are recorded in Other Expense, a component of Noninterest Expense on the Condensed Consolidated Statements of Income.

Results of Operations

Overview

We reported consolidated net income of $133.0 million, or diluted earnings per share (“EPS”) of $1.75, for the third quarter of 2022 as compared to consolidated net income of $122.8 million, or diluted EPS of $1.74, in the comparable period of 2021, an 8.4% increase in consolidated net income and a 0.4% increase in diluted EPS. The $10.3 million increase in consolidated net income was the net result of the following items:

●

A $103.4 million increase in interest income, resulting from a $66.8 million increase in interest income from loans, a $22.1 million increase in interest income from investment securities and a $14.5 million increase in interest income from federal funds sold and securities purchased under agreements to resell. These increases were mainly due to the increase in yields in the current rising rate environment in all categories of interest-earning assets along with the increase in the average balance of both loans and investment securities;

●

A $5.1 million increase in interest expense, which resulted from a $2.9 million increase in interest expense from deposits, $1.2 million increase in interest expense in federal funds purchased and securities sold under agreements to repurchase and a $1.1 million increase in interest expense from corporate and subordinated debentures. These increases were primarily due to an increase in average costs in the current rising rate environment;

●

A $9.8 million decrease in noninterest income, which resulted primarily from a decrease in mortgage banking income of $13.3 million and a decrease in correspondent banking and capital market income of $4.6 million. These decreases were partially offset by increases in service charges on deposits accounts and deposit, prepaid, ATM and merchant card related income of $4.2 million and $0.9 million, respectively. In addition, SBA income, bank owned life insurance income and trust and investment services income increased by $2.4 million, $1.0 million and by $0.5 million, respectively. (See Noninterest Income section on page 56 for further discussion);

●

An $8.1 million increase in noninterest expense, which resulted primarily from an increase in other noninterest expense of $5.7 million, an increase in salary and employee benefits of $2.6 million, an increase in FDIC assessment and other regulatory charges of $2.1 million and an increase in information services expense of $2.7 million. These increases were partially offset by a decrease in merger and branch consolidation related expense of $3.9 million. (See Noninterest Expense section on page 58 for further discussion);

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●

A $62.8 million increase in the provision for allowance for credit losses, as the Company recorded provision for credit losses of $23.9 million during the third quarter of 2022 while recording a release of the allowance for credit losses of $38.9 million in the third quarter of 2021; and

●

A $7.2 million increase in the provision for income taxes primarily due to the change in pretax book income between the two quarters. The Company recorded pretax book income of $171.1 million in the third quarter of 2022 compared to pretax book income of $153.6 million in the third quarter of 2021. Our effective tax rate was 22.23% for the three months ended September 30, 2022 compared to 20.06% for the three months ended September 30, 2021.

Our quarterly efficiency ratio declined to 53.1% in the third quarter of 2022 compared to 64.2% in the third quarter of 2021. The improvement in the efficiency ratio compared to the third quarter of 2021 was the result of the 25.5% increase in the total of tax-equivalent (“TE”) net interest income and noninterest income partially offset by the effects of a 4.0% increase in noninterest expense (excluding amortization of intangibles). The improvement in the efficiency ratio this quarter was mainly due to the $98.2 million increase in net interest income as interest income has increased significantly in the current rising rate environment.

Basic and diluted EPS were $1.76 and $1.75, respectively, for the third quarter of 2022, compared to $1.75 and $1.74, respectively for the third quarter of 2021. The increase in basic and diluted EPS was due to a 8.4% increase in net income in the third quarter of 2022 compared to the same period in 2021, partially offset by an increase in average common shares. The increase in average basic common shares was due to the Company issuing 7.3 million shares on March 1, 2022 with the Atlantic Capital acquisition, less the 2.1 million of stock repurchases completed by the Company between September 30, 2021 and September 30, 2022.

Selected Figures and Ratios


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2022			2021			2022			2021
Return on average assets (annualized)		1.16	%		1.20	%		1.05	%		1.25	%
Return on average equity (annualized)		10.31	%		10.21	%		9.32	%		10.41	%
Return on average tangible equity (annualized)*		17.99	%		16.86	%		16.19	%		17.34	%
Dividend payout ratio		28.44	%		27.94	%		30.82	%		27.39	%
Equity to assets ratio		10.89	%		11.72	%		10.89	%		11.72	%
Average shareholders’ equity	$	5,121,560		$	4,773,451		$	5,056,692		$	4,733,597

* Denotes a non-GAAP financial measure. The section titled “Reconciliation of GAAP to non-GAAP” below provides a table that reconciles GAAP measures to non-GAAP measures.

●

For the three and nine months ended September 30, 2022, the return on average assets declined for both periods compared to 2021. The return on average equity and the return on average tangible equity increased for the three months ended September 30, 2022 while for the nine months ended September 30, 2022, both ratios decreased compared to the same period in 2021.

The decrease in the return on average assets for both the three and nine months ended September 30, 2022 was due to the percentage increase in average assets being greater than the percentage increase in net income. For the third quarter of 2022 compared to the third quarter of 2021, average assets increased 11.7% while net income increased 8.4%. The increase in average assets was mainly due to both increases in loans and investment securities through both the ACBI acquisition and organic growth.

The increases in the return on average equity and the return on average tangible equity for the three months ended September 30, 2022 compared to the same period in 2021 were primarily due to the percentage increase in net income of 8.4% being greater than the increases in average equity or tangible equity of 7.3% and 0.6%, respectively. The increase in net income was mainly due to an increase in net interest income of $98.2 million, partially offset by an increase in the provision for credit losses of $62.8 million, a decrease in non-interest income of $9.8 million, and an increase in non-interest expense of $8.1 million.

For the nine months ended September 30, 2022, the decreases in the return on average equity and the return on average tangible equity were due to the decrease in net income of $16.2 million, or 4.4%. The decrease in net income was mainly attributable to the provision for credit losses of $34.7 million recorded during the first nine months of 2022 compared to a negative provision (recovery) for credit

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losses of $156.1 million recorded during the first nine months of 2021. The average equity and the average tangible equity increased $323.1 million and $69.8 million, respectively, in 2022 compared to 2021 as a result of the equity issued for the acquisition of Atlantic Capital on March 1, 2022 and the net income of the company, which was partially offset by the stock repurchases completed by the Company through September 30, 2022.

●

Equity to assets ratios for the quarter ended September 30, 2022 was 10.89%, a decrease of 0.83% from September 30, 2021, which was mainly due to the increase in total assets resulting from higher levels of investment securities and loans acquired through the Atlantic Capital transaction completed on March 1, 2022 and through organic growth. In addition, the decrease was due to the impact from the change in accumulated other comprehensive loss.

●

Dividend payout ratios were 28.44% and 30.82% for the three and nine month periods ending September 30, 2022, respectively, and 27.94% and 27.39% for the three and nine month periods ending September 30, 2021, respectively. The increase in the dividend payout ratio for the three months period ending September 30, 2022 was due the 8.4% increase in net income while total dividends paid during the current quarter increased 10.3% compared to the same period in 2021. The dividend payout ratio for the nine months period ending September 30, 2022 increased due to lower net income and higher dividend paid per share compared to the same period in 2021. The dividend paid per share was $0.50 per share during the third quarter of 2022 and $1.48 for the first nine months of 2022 compared to $0.49 per share during the third quarter of 2021 and $1.43 for the first nine months of 2021.

Net Interest Income and Margin

Non-TE net interest income increased $98.2 million, or 37.8%, to $358.2 million in the third quarter of 2022 compared to $260.0 million in the same period in 2021. Interest-earning assets averaged $40.2 billion during the three months period ended September 30, 2022 compared to $36.2 billion for the same period in 2021, an increase of $4.0 billion, or 11.1% which was in part due to the acquisition of Atlantic Capital completed on March 1, 2022 and organic growth. Interest-bearing liabilities averaged $25.1 billion during the three months period ended September 30, 2022 compared to $23.5 billion for the same period in 2021, an increase of $1.6 billion, or 7.0%, which was also partly due to the interest-bearing liabilities assumed from the acquisition of Atlantic Capital.

In March of 2020, the Federal Reserve dropped the federal funds target rate 150 basis points to a range of 0.00% to 0.25% in reaction to the COVID-19 pandemic. Rates remained at this low level until mid-March 2022, when the Federal Reserve approved its first federal funds target rate increase in more than three years to a range of 0.25% to 0.50%. In early May 2022, the Federal Reserve approved a 50 basis points rate increase and later a 75 basis points increase in June 2022. The Federal Reserve subsequently approved two 75 basis points increases, first increase in late July 2022 and the most recent increase effective late September 2022, resulting a range of 3.00% to 3.25%. As a result, the Company operated under an increasing rate environment for the entire third quarter of 2022. Some key highlights are outlined below:

●

Both the non-TE and TE net interest margin increased by 68 basis points and 69 basis points, respectively, in the third quarter of 2022 compared to the same quarter of 2021. While the yield on interest-earning assets increased 73 basis points, the cost of interest-bearing liabilities marginally increased 7 basis points compared to the same period in 2021. The increase in the net interest margin was primarily due to the rising rate environment in effect during the third quarter of 2022 and changes in the interest earning asset mix. During the current quarter, the average balance of higher yielding non-acquired loans increased by $5.5 billion while the average balance of lower yielding federal fund sold, reverse repos and other interest-earning declined by $2.9 billion compared to the third quarter of 2021. The cost of interest-bearing liabilities increased only 7 basis points in the rising rate environment as interest-bearing liabilities have been slower to reprice. The cost of interest-bearing deposits increased 4 basis points to 0.17% during the third quarter of 2022 compared to the same period in 2021.

●

Non-TE yield on interest-earning assets for the third quarter of 2022 increased 73 basis points to 3.70% from the comparable period in 2021. The yield on all interest-earning assets increased as the Federal Reserve Bank began to raise interest rates late in the first quarter of 2022. The increase in interest rates, in combination with the increase in higher yielding non-acquired loans of $5.5 billion, affected the overall yield increase between the comparable periods.

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●

The average cost of interest-bearing liabilities for the third quarter of 2022 increased 7 basis points from the same period in 2021. Our overall cost of funds, including noninterest-bearing deposits, was 0.17% for the three months ended September 30, 2022 compared to 0.13% for the three months ended September 30, 2021. The average cost of interest-bearing deposits increased 4 basis points as the cost of interest-bearing transaction accounts, money market accounts and savings accounts increased 9 basis points. These increases were partially offset as the cost of time deposits declined 22 basis points compared to the same period in 2021 as these interest-bearing deposits are slower to reprice in a rising rate environment. The overall cost of funds also increased due to a $65.8 million average balance increase in corporate and subordinated debentures, which generally carry a higher interest rate, compared to the third quarter of 2021. The Company assumed $78.4 million in subordinated debentures with the acquisition of ACBI , which it closed on March 1, 2022, and subsequently redeemed $13.0 million of subordinated debentures on June 30, 2022. The net increase in corporate and subordinated debentures, along with the effect of the rising rate environment, resulted in an increase in the cost of corporate debt.

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The tables below summarize the analysis of changes in interest income and interest expense for the three and nine months ended September 30, 2022 and 2021 and net interest margin on a tax equivalent basis:


	Three Months Ended
	September 30, 2022						September 30, 2021
	Average		Interest		Average		Average		Interest		Average
	Balance		Earned/Paid		Yield/Rate		Balance		Earned/Paid		Yield/Rate
Interest-Earning Assets:
Federal funds sold and interest-earning deposits with banks	$	3,193,313	$	16,668	2.07	%	$	6,072,760	$	2,199	0.14	%
Investment securities (taxable)⁽¹⁾		7,793,046		39,300	2.00	%		5,481,510		20,410	1.48	%
Investment securities (tax-exempt)⁽¹⁾		912,611		5,986	2.60	%		603,302		2,775	1.82	%
Loans held for sale		47,119		620	5.22	%		184,547		1,307	2.81	%
Acquired loans, net		8,302,410		104,334	4.99	%		9,349,423		104,463	4.43	%
Non-acquired loans		19,992,567		207,902	4.13	%		14,526,895		140,295	3.83	%
Total interest-earning assets		40,241,066		374,810	3.70	%		36,218,437		271,449	2.97	%
Noninterest-Earning Assets:
Cash and due from banks		476,034						533,105
Other assets		4,950,224						4,192,610
Allowance for credit losses		(322,389)						(350,386)
Total noninterest-earning assets		5,103,869						4,375,329
Total Assets	$	45,344,935					$	40,593,766

Interest-Bearing Liabilities:
Transaction and money market accounts	$	17,862,637	$	7,956	0.18	%	$	15,908,784	$	3,110	0.08	%
Savings deposits		3,621,493		488	0.05	%		3,126,055		241	0.03	%
Certificates and other time deposits		2,627,280		1,693	0.26	%		3,256,488		3,916	0.48	%
Federal funds purchased		240,814		1,312	2.16	%		479,960		101	0.08	%
Securities sold with agreements to repurchase		376,985		194	0.20	%		380,850		158	0.16	%
Corporate and subordinated debentures		392,427		4,958	5.01	%		326,647		3,896	4.73	%
Other borrowings		—		—	—	%		7,609		41	2.14	%
Total interest-bearing liabilities		25,121,636		16,601	0.26	%		23,486,393		11,463	0.19	%
Noninterest-Bearing Liabilities:
Demand deposits		13,942,163						11,302,376
Other liabilities		1,159,576						1,031,546
Total noninterest-bearing liabilities ("Non-IBL")		15,101,739						12,333,922
Shareholders' equity		5,121,560						4,773,451
Total Non-IBL and shareholders' equity		20,223,299						17,107,373
Total Liabilities and Shareholders' Equity	$	45,344,935					$	40,593,766

Net Interest Income and Margin (Non-Tax Equivalent)			$	358,209	3.53	%			$	259,986	2.85	%
Net Interest Margin (Tax Equivalent)					3.55	%					2.86	%

Total Deposit Cost (without debt and other borrowings)					0.11	%					0.09	%
Overall Cost of Funds (including demand deposits)					0.17	%					0.13	%

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	Nine Months Ended
	September 30, 2022						September 30, 2021
	Average		Interest		Average		Average		Interest		Average
	Balance		Earned/Paid		Yield/Rate		Balance		Earned/Paid		Yield/Rate
Interest-Earning Assets:
Federal funds sold and interest-earning deposits with banks	$	4,480,569	$	28,155	0.84	%	$	5,505,201	$	4,538	0.11	%
Investment securities (taxable)⁽¹⁾		7,622,425		108,368	1.90	%		4,843,011		53,165	1.47	%
Investment securities (tax-exempt)⁽¹⁾		874,329		15,937	2.44	%		542,106		7,554	1.86	%
Loans held for sale		77,844		2,281	3.92	%		254,602		5,276	2.77	%
Acquired loans, net		8,603,467		300,847	4.68	%		10,552,174		355,161	4.50	%
Non-acquired loans		18,166,138		515,345	3.79	%		13,670,839		391,772	3.83	%
Total interest-earning assets		39,824,772		970,933	3.26	%		35,367,933		817,466	3.09	%
Noninterest-Earning Assets:
Cash and due from banks		552,513						464,255
Other assets		4,655,219						4,137,683
Allowance for credit losses		(310,699)						(403,960)
Total noninterest-earning assets		4,897,033						4,197,978
Total Assets	$	44,721,805					$	39,565,911

Interest-Bearing Liabilities:
Transaction and money market accounts	$	17,885,666	$	14,008	0.10	%	$	15,351,498	$	13,011	0.11	%
Savings deposits		3,526,720		761	0.03	%		2,968,695		1,127	0.05	%
Certificates and other time deposits		2,750,051		5,772	0.28	%		3,444,503		13,923	0.54	%
Federal funds purchased		309,262		2,051	0.89	%		525,693		305	0.08	%
Securities sold with agreements to repurchase		405,859		505	0.17	%		350,248		628	0.24	%
Corporate and subordinated debentures		384,074		13,874	4.83	%		361,538		13,314	4.92	%
Other borrowings		—		—	—	%		2,656		44	2.21	%
Total interest-bearing liabilities		25,261,632		36,971	0.20	%		23,004,831		42,352	0.25	%
Noninterest-Bearing Liabilities:
Demand deposits		13,369,638						10,799,307
Other liabilities		1,033,843						1,028,176
Total noninterest-bearing liabilities ("Non-IBL")		14,403,481						11,827,483
Shareholders' equity		5,056,692						4,733,597
Total Non-IBL and shareholders' equity		19,460,173						16,561,080
Total Liabilities and Shareholders' Equity	$	44,721,805					$	39,565,911

Net Interest Income and Margin (Non-Tax Equivalent)			$	933,962	3.14	%			$	775,114	2.93	%
Net Interest Margin (Tax Equivalent)					3.16	%					2.94	%

Total deposit cost (without debt and other borrowings)					0.07	%					0.12	%
Overall Cost of Funds (including demand deposits)					0.13	%					0.17	%

(1)

Investment securities (taxable) and (tax-exempt) include trading securities.

Investment Securities

Interest earned on investment securities was higher in the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021. The average balance of investment securities increased $2.6 billion and $3.1 billion, respectively, for the three and nine months ended September 30, 2022 from the comparable periods in 2021. The yield on the investment securities increased 55 basis points and 45 basis points, respectively, during the three and nine months ended September 30, 2022 compared to the same periods in 2021. Both the average balance and the yield on the investment securities increased as the Bank used a portion of the excess funds to strategically increase the size of its investment securities, along with the Bank’s strategy on replacing lower yielding securities with higher yielding securities as interest rates started to increase in the first quarter of 2022, in addition to retaining a portion of the investment securities acquired from Atlantic Capital on March 1, 2022. The excess liquidity was from the continuous growth in deposits since 2021 and in the first nine months of 2022.

Loans

Interest earned on loans held for investment increased $67.5 million, to $312.2 million and increased $69.3 million to $816.2 million, respectively, in the three and nine months ended September 30, 2022 from the comparable periods in 2021. Interest earned on loans held for investment included loan accretion income recognized during the three and nine months ended September 30, 2022 and 2021 of $9.6 million, $29.1 million, $5.2 million, and $22.0 million, respectively, an increase of $4.3 million and $7.1 million, respectively. Some key highlights for the quarter ended September 30, 2022 are outlined below:

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●

Our non-TE yield on total loans increased 31 basis points in the third quarter of 2022 compared to the same period in 2021 due to the effects from the rising rate environment in 2022. The yields on both the acquired and the non-acquired loan portfolios increased 56 basis points and 30 basis points, respectively. The average balance of the lower yielding non-acquired loan portfolio increased $5.5 billion in the third quarter of 2022 compared to the same period in 2021 while the average balance of the higher yielding acquired loan portfolio declined by $1.0 billion.

The yield on the acquired loan portfolio increased from 4.43% in the third quarter of 2021 to 4.99% in the same period in 2022.

◾

Interest income on acquired loans slightly decreased by $129,000, primarily due to a decrease in the average balance. The effects from the decrease in average balance were offset by an increase in yield of 56 basis points mainly due to an increase in accretion income of $4.3 million to $9.6 million in the third quarter of 2022 compared to the third quarter of 2021. This increase was mainly attributable to accretion income recognized for the Atlantic Capital transaction.

◾

For the acquired loans, the average balance decreased by $1.0 billion. The decrease in the average balance in the acquired loan portfolio was due to paydowns, pay-offs and renewals of acquired loans that are moved to our non-acquired loan portfolio.

The yield on the non-acquired loan portfolio increased to 4.13% in the third quarter of 2022 compared to 3.83% in the same period in 2021.

◾

Interest income increased by $67.6 million, due to an increase in the average balance of $5.5 billion compared to the same period in 2021.

◾

The average balance of non-acquired loans increased primarily through organic loan growth and renewals of acquired loans that are moved to our non-acquired loan portfolio.

With the rise in interest rates starting late in March 2022, we continued to see an increase in the yield on loans during the third quarter of 2022 compared to the previous quarter.

Interest-Bearing Liabilities

The quarter-to-date average balance of interest-bearing liabilities increased $1.6 billion, or 7.0%, in the third quarter of 2022 compared to the same period in 2021. Overall cost of funds, including demand deposits, increased by 4 basis points to 0.17% in the third quarter of 2022, compared to the same period in 2021. Some key highlights for the quarter ended September 30, 2022 compared to the same period in 2021 include:

●

The cost of interest-bearing deposits was 0.17% for the third quarter of 2022 compared to 0.13% for the same period in 2021.

Interest expense on interest-bearing deposits increased by $2.9 million in the third quarter of 2022 compared to the same period in 2021 as interest expense on interest-bearing transaction accounts, money market accounts and savings accounts increased $5.1 million while interest expense on time deposits declined $2.2 million, as these deposits are slower to reprice in a rising rate environment.

The average balance of interest-bearing deposits increased by $1.8 billion, primarily due to the interest-bearing deposits of $1.6 billion assumed from the Atlantic Capital acquisition on March 1, 2022. The average balance of lower costing interest-bearing transaction accounts, money market accounts and savings accounts increased $2.4 billion while the average balance of higher costing time deposits declined $629.2 million in the third quarter of 2022 compared to the same period in 2021. Overall, interest-bearing deposits have been slower to reprice in the rising rate environment.

●

The cost on the corporate and subordinated debt increased by 28 basis points to 5.01% for the three months ended September 30, 2022 driven by the effects from the rising rate environment on the repricing of variable rate trust preferred corporate debt.

The interest expense from corporate and subordinated debt increased $1.1 million during the third quarter of 2022 compared to the same period in 2021.

The average balance of corporate and subordinated debt increased by $65.8 million due to the $78.4 million of subordinated debentures assumed from Atlantic Capital on March 1, 2022, partially offset by the redemption of $13.0 million of subordinated debentures in late June 2022.

●

The cost of federal funds purchased increased 208 basis points due to the rising rate environment in the third quarter of 2022. Although the average balance decreased by $239.1 million, the increase of $1.2 million in the interest expense was due to increase in average cost.

●

There were no outstanding balances in other borrowings during 2022. The $25.0 million borrowed on a line of

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credit in June 2021 was repaid in July of 2021.

We continue to monitor and adjust rates paid on deposit products as part of our strategy to manage our net interest margin. Interest-bearing liabilities include interest-bearing transaction accounts, savings deposits, CDs, other time deposits, federal funds purchased, and other borrowings. Interest-bearing transaction accounts include NOW, HSA, IOLTA, and Market Rate checking accounts.

Noninterest-Bearing Deposits

Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. Average noninterest-bearing deposits increased $2.6 billion, or 23.4%, to $13.9 billion in the third quarter of 2022 compared to $11.3 billion during the same period in 2021. The increase in average noninterest-bearing deposits was primarily due to our focus on relationship banking and the overall liquidity in the banking system. The Company also acquired noninterest-bearing deposit balances from Atlantic Capital during the first quarter of 2022, which affected the average balance for the third quarter of 2022. The noninterest-bearing deposit balances from Atlantic Capital on the acquisition date were approximately $1.4 billion in total.

Noninterest Income

Noninterest income provides us with additional revenues that are significant sources of income. For the three months ended September 30, 2022 and 2021, noninterest income comprised 17.7%, and 25.1%, respectively, of total net interest income and noninterest income. For the nine months ended September 30, 2022 and 2021, noninterest income comprised 21.2%, and 25.3%, respectively, of total net interest income and noninterest income.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Service charges on deposit accounts	$	20,313	$	16,098	$	60,349	$	46,998
Debit, prepaid, ATM and merchant card related income		10,875		10,032		33,399		28,350
Mortgage banking income		2,262		15,560		18,336		52,555
Trust and investment services income		9,603		9,150		29,152		27,461
Correspondent banking and capital market income		20,552		25,164		76,150		79,789
Securities gains, net		30		64		30		100
SBA income		6,401		4,009		13,924		9,417
Bank owned life insurance income		6,082		5,132		17,588		13,479
Other		1,060		1,801		2,632		4,166
Total noninterest income	$	77,178	$	87,010	$	251,560	$	262,315

Noninterest income decreased by $9.8 million, or 11.3%, during the third quarter of 2022 compared to the same period in 2021. This quarterly change in total noninterest income resulted from the following:

●

Mortgage banking income decreased by $13.3 million, or 85.5%, during the current quarter compared to the same period prior year, which was comprised of $12.6 million, or 89.1%, decrease from mortgage income in the secondary market and a $708,000, or 49.3%, decrease from mortgage servicing related income, net of the hedge. During the current quarter, the Company allocated a lower percentage of its mortgage production and pipeline to the secondary market compared to the same quarter in 2021, which resulted in a decrease in mortgage income from the secondary market. The allocation of mortgage production between portfolio and secondary market depends on the Company’s liquidity, market spreads and rate changes during each period and will fluctuate quarter to quarter.

During the third quarter of 2022, mortgage income from the secondary market comprised of a $3.6 million decrease in the change in fair value of the pipeline, loans held for sale and MBS forward trades and a $9.0 million decrease in gain on sale of mortgage loans, which is net of the commission expense related to mortgage production. Mortgage commission expense was $2.4 million during the three months ended September 30, 2022 compared to $6.5 million during the comparable period in 2021.

The decrease in mortgage servicing related income, net of the hedge, in the three months ended September 30, 2022 was due to a $1.1 million decrease in the change in fair value of the MSR, including decay, offset by a $388,000 increase in mortgage servicing fee income. The decrease in the change in fair value of the MSR was primarily due to an increase in losses on the MSR hedge of $3.0 million, offset by an increase in the change in fair value from interest rates of $1.0 million and a $897,000 decline in MSR

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decay as interest rates have increased since the third quarter of 2021. The increase in servicing fee resulted from the increase in size of the servicing portfolio.

●

Correspondent banking and capital markets income for the third quarter of 2022 decreased by $4.6 million from the third quarter of 2021. The decline was due to lower commissions and fees earned on fixed income security sales during the third quarter as the volume in sales declined from the prior period. The income from this business includes commissions earned on fixed income security sales, fees from hedging services, loan brokerage fees and consulting fees for services related to these activities.

●

Service charges on deposit accounts was higher by $4.2 million, or 26.2%, in the third quarter of 2022 compared to the same period in 2021, mainly due to the increase in customers and activity through the Atlantic Capital merger completed during the first quarter of 2022. The total increase primarily consists of increases in service charge account maintenance fees of $3.4 million and in NSF and Automated Overdraft Privilege (“AOP”) charges of $637,000.

●

Debit, prepaid, ATM and merchant card related income was higher by $843,000, or 8.4%, in the third quarter of 2022 compared to the same quarter in 2021. The increase in debit, prepaid, ATM and merchant card related income was mainly driven by higher debit card income, credit card sales incentive, and merchant card income resulting from the increase in activity related to the acquisition of Atlantic Capital completed in the first quarter of 2022. Debit card income, credit card sales incentive, and merchant card related increased by $221,000, $431,000, and by $215,000, respectively.

●

Bank owned life insurance income increased $950,000, or 18.5%, in the third quarter of 2022 compared to the same quarter in 2021. This increase was due to the purchase of $86.0 million of new policies since March 2022 and the addition of $74.6 million in BOLI through the acquisition of Atlantic Capital completed in the first quarter of 2022.

●

SBA income, including the impact from the change to fair value accounting during 2022, increased by $2.4 million, or 59.7% compared to the third quarter of 2021. SBA income includes changes in fair value of the servicing asset, loan servicing fees and gains on sale of SBA loans. The increase is mainly attributable to additional business resulting from the acquisition of Atlantic Capital.

Noninterest income decreased by $10.8 million, or 4.1%, during the nine months ended September 30, 2022 compared to the same period in 2021. This change in total noninterest income resulted from the following:

●

Mortgage banking income decreased by $34.2 million, or 65.1%, which was comprised of $36.0 million, or 72.0%, decrease from mortgage income in the secondary market, offset by a $1.7 million, or 66.4%, increase from mortgage servicing related income, net of the hedge. During the current year, the Company allocated a lower percentage of its mortgage production and pipeline to the secondary market compared to 2021, which resulted in a decrease in mortgage income from the secondary market. The allocation of mortgage production between portfolio and secondary market depends on the Company’s liquidity, market spreads and rate changes during each period and will fluctuate quarter to quarter.

During the first nine months of 2022, mortgage income from the secondary market comprised of a $0.6 million decrease in the change in fair value of the pipeline, loans held for sale and MBS forward trades and a $35.4 million decrease in gain on sale of mortgage loans, which is net of the commission expense related to mortgage production. Mortgage commission expense was $11.3 million during the nine months ended September 30, 2022 compared to $22.4 million during the comparable period in 2021.

The increase in mortgage servicing related income, net of the hedge, in the nine months ended September 30, 2022 was due to a $171,000 increase in the change in fair value of the MSR, including decay, and a $1.6 million increase from servicing fee income. The fair value from interest rates increased $10.7 million as interest rates have increased starting March 2022 and the decrease in the change in fair value of the MSR was due to an increase in losses on the MSR hedge, including decay, of $10.5 million. The increase in servicing fee resulted from the increase in size of the servicing portfolio.

●

Correspondent banking and capital markets income for 2022 decreased by $3.6 million compared to 2021. The decline was due to lower commissions and fees earned on fixed income security sales during 2022 as the volume in sales declined from 2021, partially offset by an increase in adjustable rate credit loan hedging income.

●

Service charges on deposit accounts were higher in 2022 by $13.4 million, or 28.4%, compared to 2021, due primarily to the increase in customers and activity through the Atlantic Capital merger completed during the first quarter of 2022. The increase includes service charge account maintenance fees of $7.7 million, in NSF and AOP charges of $4.0 million and in other retail fees including wire transfer fees of $1.7 million.

●

Debit, prepaid, ATM and merchant card related income was higher by $5.0 million, or 17.8%, in 2022

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compared to 2021. The increase in debit, prepaid, ATM and merchant card related income was mainly driven by higher debit card, credit card sales incentive, ATM and merchant card income due to the increase in activity related to the merger with Atlantic Capital completed in the first quarter of 2022. The nine months ended September 30, 2022 included activity from Atlantic Capital from March 1, 2022 through September 30, 2022. Debit card income, credit card sales incentive, and foreign ATM fee income increased by $3.2 million, $1.3 million, and by $668,000, respectively.

●

Bank owned life insurance income increased $4.1 million, or 30.5%, in 2022 compared to 2021. This increase was due to the purchase of $86.0 million of new policies since March 2022 and the addition of $74.6 million in BOLI resulting from the acquisition of Atlantic Capital in the first quarter of 2022.

●

SBA income, including the impact from the change to fair value accounting, increased by $4.5 million, or 47.9% in 2022 compared to 2021. The increase is mainly due to additional business resulting from the acquisition of Atlantic Capital.

Noninterest Expense


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands)	2022		2021		2022		2021
Salaries and employee benefits	$	139,554	$	136,969	$	414,264	$	414,709
Occupancy expense		22,490		23,135		67,089		69,310
Information services expense		20,714		18,061		59,854		55,928
OREO expense and loan related (income) expense		532		1,527		291		2,769
Amortization of intangibles		7,837		8,543		25,178		26,675
Business development and staff related expense		5,090		4,424		14,282		12,100
Supplies and printing		758		664		2,036		2,734
Postage expense		1,863		1,646		5,174		4,746
Professional fees		3,495		2,415		11,575		7,990
FDIC assessment and other regulatory charges		6,300		4,245		16,444		13,017
Advertising and marketing		2,170		2,185		6,219		5,584
Merger and branch consolidation related expense		13,679		17,618		29,345		60,598
Extinguishment of debt cost		—		—		—		11,706
Other		15,951		10,858		48,451		36,518
Total noninterest expense	$	240,433	$	232,290	$	700,202	$	724,384

Noninterest expense increased by $8.1 million, or 3.5%, in the third quarter of 2022 as compared to the same period in 2021. The quarterly increase in total noninterest expense primarily resulted from the following:

●

An increase in salaries and employee benefits of $2.6 million, or 1.9%, in the three months period ending September 30, 2022 compared to the same period in 2021. The increase was primarily due to higher base salaries and wages resulting from the addition of Atlantic Capital employees and normal raises and salary increases during the year, in addition to an increase in incentive expenses resulting from the addition of Atlantic Capital employees in March 2022, higher loan production volumes and the Company’s strong performance during the current period, which led to higher incentive accruals. This was partially offset by higher deferred loan costs, which are applied against salaries and employee benefits, caused by higher loan production volumes and an update in the Company’s standard loan costs during 2022. Also, commissions expense declined in the third quarter of 2022 compared to the same period in 2021 by $1.3 million mainly due to a decline of $1.5 million in commission expense related to bond sales as the volume in bond sales declined in 2022. During the current quarter, we recorded a total of $7.8 million in commission and $15.8 million in retail and loan incentives expenses compared to $10.1 million and $11.2 million, respectively, during the comparable period in 2021.

●

An increase in information services expense of $2.7 million, or 14.7%, due to additional cost associated with systems added through our acquisition of Atlantic Capital along with the cost of the Company updating systems as it grows in size and complexity.

●

An increase in FDIC assessment and other regulatory charges of $2.0 million, or 48.4%, in the third quarter of 2022 compared to the same period in 2021. This increase was mainly due to an increase in the FDIC assessment of $2.0 million as the Company continues to grow in size and complexity.

●

An increase in other noninterest expense of $5.1 million, or 46.9%, compared to the third quarter of 2021. This increase was primarily due to increases in fraud, digital banking and miscellaneous operational charge-off related expenses of $2.4 million, increases in incurred but not reported insurance loss reserves of $894,000 and increases in donations of $587,000. During the third quarter of 2022, the Company contributed $250,000 to charities to help those impacted by Hurricane Ian.

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●

A decrease in merger and branch consolidation related expense of $3.9 million compared to the third quarter of 2021. The expense in the third quarter of 2022 consists of branch consolidations and the merger related costs pertaining to the Atlantic Capital merger. The expense in the third quarter of 2021 mainly consisted of costs related to the merger with CenterState.

Noninterest expense decreased by $24.2 million, or 3.3%, during the nine months ended September 30, 2022 compared to the same period in 2021. The categories and explanations for the increases year-to-date, except the items discussed below, are similar to the ones noted above in the quarterly comparison.

●

A decrease in extinguishment of debt cost of $11.7 million in the third quarter of 2022. The cost incurred in the second quarter of 2021 was from the write-off of the unamortized purchase accounting adjustment recorded on the trust preferred securities assumed in the CenterState merger. All of the trust preferred securities assumed in the CenterState merger were redeemed in June 2021.

●

A decrease in merger and branch consolidation related expense of $31.3 million, or 51.6%, compared to the nine months ended September 30, 2021. The expense in 2022 consists mainly of costs associated with branch consolidations and the merger related costs pertaining to the Atlantic Capital acquisition. The expense in 2021 mainly consisted of costs related to the merger with CenterState.

●

An increase in other noninterest expense of $11.9 million, or 32.7%, compared to the nine months ended September 30, 2021. This increase was due to increases in fraud, digital banking and miscellaneous operational charge-off related expenses of $5.6 million, increases on loan production expenses of $2.0 million, expense related to the settlement of a lawsuit of $2.6 million, increases in tax penalties of $635,000, increases in incurred but not reported insurance loss reserves of $663,000 and increases in donations of $648,000.

●

An increase in professional fees of $3.6 million, or 44.9%, in the nine months period ending September 30, 2022 compared to the same period in 2021. This increase was primarily due to increases in non-legal and advisory and committee related fees.

●

An increase in FDIC assessment and other regulatory charges of $3.4 million, or 26.3%, in the nine months period ending September 30, 2022 compared to the same period in 2021. This increase was mainly due to an increase in the FDIC assessment of $2.7 million and OCC examination fee of $670,000 as the Company continues to grow in size and complexity.

●

An increase in information services expense of $3.9 million, or 7.0%, due to additional cost associated with systems added through our acquisition of Atlantic Capital, along with the cost of the Company updating systems as it grows in size and complexity.

Income Tax Expense

Our effective tax rate was 22.23% and 21.76% for the three and nine months ended September 30, 2022 compared to 20.06% and 21.41% for the three and nine months ended September 30, 2021. The increase in the effective tax rate for the quarter was driven by an increase in pre-tax book income, an increase in non-deductible executive compensation, and additional expense related to return to provision items recorded during the quarter. These balances were partially offset by an increase in federal tax credits available, an increase in tax-exempt income and an increase in the cash surrender value of BOLI policies held.

The increase in the year-to-date effective tax rate compared to the same period of 2021 was driven by the increase in non-deductible executive compensation, an increase in non-deductible FDIC premiums, and additional expense related to return to provision items recorded during the quarter. The increase was partially offset by an increase in tax-exempt income and an increase in the cash surrender value of BOLI policies held, and an increase in federal tax credits available in the current year compared to the same period in 2021.

Analysis of Financial Condition

Summary

Our total assets increased approximately $3.2 billion, or 7.7%, from December 31, 2021 to September 30, 2022, to approximately $45.2 billion. Within total assets, loans increased $4.9 billion, or 20.5%, investment securities increased $1.1 billion, or 15.5%, while cash and cash equivalents decreased $4.0 billion, or 58.9% during the period. Within total liabilities, deposit growth was $2.6 billion, or 7.4%, corporate and subordinated debentures increased $65.3

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million, or 20.0%, while federal funds purchased and securities sold under agreements to repurchased decreased $223.4 million, or 28.6%. Total shareholder’s equity increased $118.2 million, or 2.5%. The increases in loans, investments, total assets, deposits, borrowings and shareholder’s equity were mainly attributable to the acquisition of Atlantic Capital on March 1, 2022 in addition to organic growth. Our loan to deposit ratio was 77% and 68% at September 30, 2022 and December 31, 2021, respectively.

Investment Securities

We use investment securities, our second largest category of earning assets, to generate interest income through the deployment of excess funds, provide liquidity, fund loan demand or deposit liquidation, and pledge as collateral for public funds deposits, repurchase agreements and derivative exposure. At September 30, 2022, investment securities totaled $8.3 billion, compared to $7.2 billion at December 31, 2021, an increase of $1.1 billion, or 15.5%. The Atlantic Capital acquisition added $691.7 million of investment securities available for sale to our portfolio. We immediately sold $414.4 million in securities, after principal paydowns, and retained $273.7 million in our portfolio. The Atlantic Capital securities retained were mostly state and municipal obligations. During the nine months ended September 30, 2022, we purchased $2.5 billion of securities, $1.1 billion classified as held to maturity, $1.4 billion classified as available for sale and $20.4 million classified as other investment securities. These purchases were partially offset by maturities, paydowns, sales and calls of investment securities totaling $1.1 billion. Net amortization of premiums was $21.5 million in the first nine months of 2022. The decrease in fair value in the available for sale investment portfolio of $922.5 million in the first nine months of 2022 compared to December 31, 2021 was mainly due to an increase in both short term and long term interest rates during the nine months period ending September 30, 2022.

The following is the combined amortized cost and fair value of investment securities available for sale and held for maturity, aggregated by credit quality indicator:

Amortized

Fair

Unrealized

BB or

(Dollars in thousands)

Cost

Value

Net Loss

AAA - A

BBB

Lower

Not Rated

September 30, 2022

U.S. Treasuries

271,783

264,425

(7,358)

271,783

—

U.S. Government agencies

443,204

385,793

(57,411)

443,204

—

Residential mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises*

3,681,298

3,095,323

(585,975)

—

3,681,202

Residential collateralized mortgage-obligations issued by U.S. government

agencies or sponsored enterprises*

1,213,148

1,047,337

(165,811)

—

1,213,148

Commercial mortgage-backed securities issued by U.S. government

agencies or sponsored enterprises*

1,591,096

1,327,637

(263,459)

17,073

—

1,574,023

State and municipal obligations

1,256,045

1,003,318

(252,727)

1,255,990

—

Small Business Administration loan-backed securities

565,905

511,586

(54,319)

516,617

—

49,288

Corporate securities

35,595

33,353

(2,242)

—

35,595

9,058,074

7,668,772

(1,389,302)

2,504,763

—

6,553,311

* Agency mortgage-backed securities (“MBS”), agency collateralized mortgage-obligations (CMO) and agency commercial mortgage-backed securities (“CMBS”) are guaranteed by the issuing government-sponsored enterprise (“GSE”) as to the timely payments of principal and interest. Except for Government National Mortgage Association securities, which have the full faith and credit backing of the United States Government, the GSE alone is responsible for making payments on this guaranty. While the rating agencies have not rated any of the MBS, CMO and CMBS issued, senior debt securities issued by GSEs are rated consistently as “Triple-A.” Most market participants consider agency MBS, CMOs and CMBSs as carrying an implied Aaa rating (S&P rating of AA+) because of the guarantees of timely payments and selection criteria of mortgages backing the securities. We do not own any private label mortgage-backed securities. The balances presented under the ratings above reflect the amortized cost of the investment securities.

At September 30, 2022, we had 1,326 investment securities (including both available for sale and held to maturity) in an unrealized loss position, which totaled $1.4 billion. At December 31, 2021, we had 296 investment securities (including both available for sale and held to maturity) in an unrealized loss position, which totaled $106.0 million. The total number of investment securities with an unrealized loss position increased by 1,030 securities, while the total dollar amount of the unrealized loss increased by $1.3 billion. The increase in both the number of investment securities in a loss position and the total unrealized loss from December 31, 2021 is due to an increase in short term and long term interest rates during the first nine months of 2022.

All investment securities in an unrealized loss position as of September 30, 2022 continue to perform as scheduled. We have evaluated the securities and have determined that the decline in fair value, relative to its amortized cost, is not due to credit-related factors. In addition, we have the ability to hold these securities within the portfolio until maturity or until the value recovers, and we believe that it is not likely that we will be required to sell these securities prior to recovery. We continue to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of our securities may be sold or would require a charge to earnings as a provision for credit losses in such periods. Any charges as a provision for credit losses related to investment securities could impact cash flow, tangible capital or liquidity. See Note 2 — Summary of Significant Account Policies and Note 5 — Investment Securities for further discussion on the application

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of ASU 2016-13 on the investment securities portfolio.

As securities held for investment are purchased, they are designated as held to maturity or available for sale based upon our intent, which incorporates liquidity needs, interest rate expectations, asset/liability management strategies, and capital requirements. Although securities classified as available for sale may be sold from time to time to meet liquidity or other needs, it is not our normal practice to trade this segment of the investment securities portfolio. While Management generally holds these assets on a long-term basis or until maturity, any short-term investments or securities available for sale could be converted at an earlier point, depending partly on changes in interest rates and alternative investment opportunities.

Other Investments

Other investment securities include primarily our investments in FHLB and FRB stock with no readily determinable market value. Accordingly, when evaluating these securities for impairment, Management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value. As of September 30, 2022, we determined that there was no impairment on our other investment securities. As of September 30, 2022, other investment securities represented approximately $179.8 million, or 0.40% of total assets, and primarily consists of FHLB and FRB stock which totals $165.4 million, or 0.37% of total assets. There were no gains or losses on the sales of these securities for three and nine months ended September 30, 2022 and 2021, respectively.

Trading Securities

We have a trading portfolio associated with our Correspondent Bank Division and the Bank’s subsidiary Duncan-Williams. This portfolio is carried at fair value and realized and unrealized gains and losses are included in trading securities revenue, a component of Correspondent Banking and Capital Market Income in our Condensed Consolidated Statements of Income. Securities purchased for this portfolio have primarily been municipal bonds, treasuries and mortgage-backed agency securities, which are held for short periods of time and totaled $51.9 million and $77.7 million, respectively, at September 30, 2022 and December 31, 2021.

Loans Held for Sale

The balance of mortgage loans held for sale decreased $157.2 million from December 31, 2021 to $34.5 million at September 30, 2022. Total mortgage production remained strong at $1.1 billion during the third quarter of 2022, however, a significantly higher percentage of mortgage production was booked to portfolio instead of being sold into the secondary market, 78% for the third quarter of 2022 compared to 73% in the previous quarter and 46% during the fourth quarter of 2021. The secondary pipeline decreased to $76 million at September 30, 2022 compared to $254 million at December 31, 2021. The allocation of mortgage production between portfolio and secondary market depends on the Company’s liquidity, market spreads and rate changes during each period and will fluctuate over time.

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Loans

The following table presents a summary of the loan portfolio by category (excludes loans held for sale):



LOAN PORTFOLIO (ENDING BALANCE)	September 30,		% of		December 31,		% of
(Dollars in thousands)	2022		Total		2021		Total
Acquired loans:
Acquired - non-purchased credit deteriorated loans:
Construction and land development	$	263,658	0.9	%	$	180,449	0.8	%
Commercial non-owner occupied		2,105,164	7.3	%		2,048,952	8.6	%
Commercial owner occupied real estate		1,409,183	4.9	%		1,325,412	5.5	%
Consumer owner occupied		612,776	2.1	%		733,662	3.1	%
Home equity loans		328,699	1.1	%		405,241	1.7	%
Commercial and industrial		1,265,635	4.4	%		770,133	3.2	%
Other income producing property		210,744	0.7	%		286,566	1.2	%
Consumer non real estate		169,089	0.6	%		139,470	0.6	%
Other		227	—	%		184	—	%
Total acquired - non-purchased credit deteriorated loans		6,365,175	22.0	%		5,890,069	24.7	%
Acquired - purchased credit deteriorated loans (PCD):
Construction and land development		51,637	0.2	%		59,683	0.2	%
Commercial non-owner occupied		612,387	2.1	%		859,687	3.5	%
Commercial owner occupied real estate		463,104	1.6	%		542,602	2.3	%
Consumer owner occupied		202,043	0.7	%		243,645	1.0	%
Home equity loans		40,570	0.1	%		53,037	0.2	%
Commercial and industrial		74,516	0.3	%		85,380	0.4	%
Other income producing property		56,678	0.2	%		88,093	0.4	%
Consumer non real estate		43,627	0.2	%		55,195	0.2	%
Total acquired - purchased credit deteriorated loans (PCD)		1,544,562	5.4	%		1,987,322	8.2	%
Total acquired loans		7,909,737	27.4	%		7,877,391	32.9	%
Non-acquired loans:
Construction and land development		2,235,257	7.8	%		1,789,084	7.5	%
Commercial non-owner occupied		5,246,919	18.2	%		3,827,060	16.0	%
Commercial owner occupied real estate		3,553,929	12.3	%		3,102,102	13.0	%
Consumer owner occupied		3,914,971	13.6	%		2,661,057	11.1	%
Home equity loans		878,061	3.0	%		710,316	3.0	%
Commercial and industrial		3,637,586	12.6	%		2,905,620	12.1	%
Other income producing property		409,424	1.4	%		322,145	1.3	%
Consumer non real estate		1,047,130	3.6	%		709,992	3.0	%
Other		3,289	0.1	%		23,399	0.1	%
Total non-acquired loans		20,926,566	72.6	%		16,050,775	67.1	%
Total loans (net of unearned income)	$	28,836,303	100.0	%	$	23,928,166	100.0	%

Total loans, net of deferred loan costs and fees (excluding mortgage loans held for sale), increased by $4.9 billion, or 27.4% annualized, to $28.8 billion at September 30, 2022. This increase included a $229.5 million decline in total PPP loans from December 31, 2021. Excluding the effects from PPP loans, total loans increased $5.1 billion, or 29.0% annualized in the first nine months of 2022. Our non-acquired loan portfolio increased by $4.9 billion, or 40.6% annualized, driven by growth in all categories. Commercial non-owner occupied loans, consumer owner occupied loans, commercial and industrial loans, commercial owner occupied real estate and construction and land development loans led the way with $1.4 billion, $1.3 billion, $732.0 million, $451.8 million and $446.2 million in year-to-date loan growth, respectively, or 49.6%, 63.0%, 33.7%, 19.5% and 33.3% annualized growth, respectively. The non-acquired loan growth was offset by a $215.8 million decline in non-acquired PPP loans from December 31, 2021. The acquired loan portfolio increased by $32.3 million, or 0.5% annualized, due to the addition of $2.4 billion from the merger with Atlantic Capital, net of offsets from paydowns and payoffs in both the PCD and Non-PCD loan categories, along with renewals of acquired loans that were moved to our non-acquired loan portfolio. The main categories that increased were commercial and industrial loans and construction and land development loans with $484.6 million and $75.2 million in year-to-date loan growth as most other categories of acquired loans declined. Acquired loans as a percentage of total loans decreased to 27.4% and non-acquired loans as a percentage of the overall portfolio increased to 72.6% at September 30, 2022. This compares to acquired loans as a percentage of total loans of 32.9% and non-acquired loans as a percentage of total loans of 67.1% at December 31, 2021.

Allowance for Credit Losses (“ACL”)

The ACL reflects Management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. The Company established the incremental increase in the ACL at adoption through equity and

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subsequent adjustments through a provision for credit losses charged to earnings. The Company records loans charged off against the ACL and subsequent recoveries, if any, increase the ACL when they are recognized. Please see Note 2 — Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the ACL.

As stated in Note 2 – Significant Accounting Policies under the caption Allowance for Credit Losses, Management uses systematic methodologies to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, Management’s process for determining expected credit losses may result in a range of expected credit losses. The Company’s ACL recorded in the balance sheet reflects Management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for Management’s current estimate of expected credit losses. The Company’s ACL is calculated using collectively evaluated and individually evaluated loans.

The allowance for credit losses is measured on a collective pool basis when similar risk characteristics exist. Loans with similar risk characteristics are grouped into homogenous segments, or pools, for analysis. The Discounted Cash Flow (“DCF”) method is used for each loan in a pool, and the results are aggregated at the pool level. A periodic tendency to default and absolute loss given default are applied to a projective model of the loan’s cash flow while considering prepayment and principal curtailment effects. The analysis produces expected cash flows for each instrument in the pool by pairing loan-level term information (e.g., maturity date, payment amount, interest rate, etc.) with top-down pool assumptions (e.g., default rates and prepayment speeds). The Company has identified the following portfolio segments: Owner-Occupied Commercial Real Estate, Non Owner-Occupied Commercial Real Estate, Multifamily, Municipal, Commercial and Industrial, Commercial Construction and Land Development, Residential Construction, Residential Senior Mortgage, Residential Junior Mortgage, Revolving Mortgage, and Consumer and Other.

Management considers forward-looking information in estimating expected credit losses. The Company subscribes to a third-party service which provides a quarterly macroeconomic baseline outlook and alternative scenarios for the United States economy. The baseline, along with the evaluation of alternative scenarios, is used by Management to determine the best estimate within the range of expected credit losses. Management evaluates the appropriateness of the reasonable and supportable forecast scenarios and takes into consideration the scenarios in relation to actual economic and other data, such as gross domestic product growth, monetary and fiscal policy, inflation, supply chain issues and global events like the Russian/Ukraine conflict, as well as the volatility and magnitude of changes within those scenarios quarter over quarter, and consideration of conditions within the bank’s operating environment and geographic area. Additional forecast scenarios may be weighted along with the baseline forecast to arrive at the final reserve estimate. While periods of relative economic stability should generally lead to stability in forecast scenarios and weightings to estimate credit losses, periods of instability can likewise require Management to adjust the selection of scenarios and weightings, in accordance with the accounting standards. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to the long term mean of historical factors within four quarters using a straight-line approach. The Company generally uses a four-quarter forecast and a four-quarter reversion period.

The Russian invasion of Ukraine, global supply chain, energy and commodity issues, and persistent elevated levels of inflation have increased volatility and uncertainties within the economy and economic forecasts. It is widely acknowledged that the chances of recession have increased over the last two quarters. Accordingly, Management continues to use a blended forecast scenario of the baseline and more severe scenario, depending on the circumstances and economic outlook. As of September 30, 2022, Management selected a baseline weighting of 60%, up from 40% in the second quarter of 2022, and decreased the more severe scenario to 40%, down from 60% in the previous quarter. The change in weighting from the second to third quarter is more reflective of changes in the baseline forecast than of a

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material change in Management’s outlook, which has remained consistent with prior quarters. Specifically, Management observed the September baseline scenario captured more appropriately the growing recessionary risks first considered by Management in the prior quarter. While employment figures show resilience, the downward shifts in commercial real estate price index and national house price index and GDP were more closely aligned with current economic conditions observed by Management. The resulting provision was approximately $23.9 million during the third quarter of 2022, including the provision for unfunded commitments.

Included in its systematic methodology to determine its ACL, Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process. These qualitative adjustments either increase or decrease the quantitative model estimation (i.e., formulaic model results). Each period the Company considers qualitative factors that are relevant within the qualitative framework that includes the following: (1) lending policy; (2) economic conditions not captured in models; (3) volume and mix of loan portfolio; (4) past due trends; (5) concentration risk; (6) external factors; and (7) model limitations. During the third quarter of 2022, we included a $1.9 million qualitative adjustment for model limitations pertaining to the PCD loan portfolio acquired through the Atlantic Capital merger. In the prior quarter, we made a qualitative adjustment of $42.2 million, or 15 basis points, for economic conditions based on an analysis that forecasts of commercial real estate indices and the unemployment rate did not fully reflect the risks of recession. However, with the downward shifts observed during the third quarter of 2022 in the baseline and more adverse forecast scenarios, Management determined the shifts in the weighting of the scenarios sufficiently captured the expected credit losses of the loan portfolio; therefore, a qualitative adjustment for economic conditions was no longer necessary for the current period end.

When a loan no longer shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included in another pool or should be individually evaluated. The Company’s threshold for individually evaluated loans includes all non-accrual loans with a net book balance in excess of $1.0 million. Management will monitor the credit environment and make adjustments to this threshold in the future if warranted. Based on the threshold above, consumer financial assets will generally remain in pools unless they meet the dollar threshold. The expected credit losses on individually evaluated loans will be estimated based on discounted cash flow analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral-dependent. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and the repayment terms were not considered to be unique to the asset.

Management measures expected credit losses over the contractual term of a loan. When determining the contractual term, the Company considers expected prepayments but is precluded from considering expected extensions, renewals, or modifications, unless the Company reasonably expects it will execute a troubled debt restructuring (“TDR”) with a borrower. In the event of a reasonably expected TDR, the Company factors the reasonably-expected TDR into the current expected credit losses estimate. For consumer loans, the point at which a TDR is reasonably expected is when the Company approves the borrower’s application for a modification (i.e., the borrower qualifies for the TDR) or when the Credit Administration department approves loan concessions on substandard loans. For commercial loans, the point at which a TDR is reasonably expected is when the Company approves the loan for modification or when the Credit Administration department approves loan concessions on substandard loans. The Company uses a discounted cash flow methodology for a TDR to calculate the effect of the concession provided to the borrower within the ACL. The Company has not chosen to early adopt the retirement of TDR guidance, which will be adopted effective January 1, 2023.

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for credit losses) to the purchase price of the financial assets rather than recording through the provision for credit losses in the income statement. The expected credit loss, as of the acquisition day, of a PCD loan is added to the allowance for credit losses. The non-credit discount or premium is the difference between the unpaid principal balance and the amortized cost basis as of the acquisition date. Subsequent to the acquisition date, the change in the ACL on PCD loans is recognized through the provision for credit losses. The non-credit discount or premium is accreted or amortized, respectively, into interest income over the remaining life of the PCD loan on a level-yield basis. In accordance with the transition requirements within the standard, the Company’s acquired credit-impaired loans (i.e., ACI or Purchased Credit Impaired) were treated as PCD loans. As a result of the merger with Atlantic Capital, the Company identified approximately $137.9 million of loans as PCD and recorded an allowance for credit losses of $13.8 million on acquisition date.

Atlantic Capital was acquired and merged with and into the Bank on March 1, 2022, requiring that a closing date ACL be prepared for Atlantic Capital on a standalone basis and that the acquired portfolio be included in the Bank’s first quarter ACL. Atlantic Capital’s loans represented approximately 8% of the total Bank’s portfolio at March 31, 2022. Given the relative size and complexity of the acquired portfolio, similarities of the loan characteristics, and similar loss history to the existing portfolio, reserve calculations were performed using the Bank's existing CECL model, loan segmentation, and forecast weighting as the first quarter end reserve. The acquisition date ACL totaled $27.5 million, consisting of a non-PCD pooled reserve of $13.7 million, PCD pooled reserve of $5.7 million, and PCD individually evaluated reserve of $8.1 million. It represented about 8% of the combined Bank’s ACL reserve at March 31, 2022. The acquisition date reserve for unfunded commitments totaled $3.4 million, or 11% of the combined Bank’s total at March 31, 2022.

The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an allowance for credit losses on accrued interest receivable. As of September 30, 2022, the accrued interest receivable for loans recorded in Other Assets was $93.7 million.

The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the expected credit loss will be recorded as a liability on the balance sheet. Management has determined that a majority of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable. Management completes funding studies based on historical data to estimate the percentage of unfunded loan commitments that will ultimately be funded to calculate the reserve for unfunded commitments. Management applies this funding rate, along with the loss factor rate determined for each pooled loan segment, to unfunded loan commitments, excluding unconditionally cancellable exposures and letters of credit, to arrive at the reserve for unfunded loan commitments. As of September 30, 2022, the liability recorded for expected credit losses on unfunded commitments was $53.0 million. The current adjustment to the ACL for unfunded commitments is recognized through the Provision for Credit Losses in the Condensed Consolidated Statements of Income.

As of September 30, 2022, the balance of the ACL was $324.4 million or 1.12% of total loans. The ACL increased $4.7 million from the balance of $319.7 million recorded at June 30, 2022. This increase during the third quarter of 2022 included $3.4 million of provision for credit losses, in addition to $1.3 million in net recoveries. During the first nine months of 2022, the Company released $1.5 million of its allowance for credit losses along with net charge-offs of $3.4 million. For both the three and nine months ended September 30, 2022, the Company recorded a provision for credit losses based on loan growth and adjusted the weighting of the baseline and more severe forecast scenarios in our modeling to adequately capture growing economic recessionary risks.

At September 30, 2022, the Company had a reserve on unfunded commitments of $53.0 million, which was recorded as a liability on the Balance Sheet, compared to $32.5 million at June 30, 2022 and $30.5 million at December 31, 2021. During the three and nine months ended September 30, 2022, the Company recorded a provision for credit losses on unfunded commitments of $20.5 million and $22.5 million, respectively. The year-to-date provision of $22.5 million includes the initial provision for credit losses for unfunded commitments acquired from Atlantic Capital, which the Company recorded during the first quarter of 2022. The provision for credit losses is based on the growth in unfunded loan commitments and the adjustment in the weighting of the baseline and more severe forecast scenarios in our modeling to adequately capture growing economic recessionary risks. This amount was recorded in Provision (Recovery) for Credit Losses on the Condensed Consolidated Statements of Income. The Company did not have an

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allowance for credit losses or record a provision for credit losses on investment securities or other financials asset during the first nine months of 2022.

At September 30, 2022, the allowance for credit losses was $324.4 million, or 1.12%, of period-end loans. The ACL provides 3.24 times coverage of nonperforming loans at September 30, 2022. Net recoveries and net charge-offs to total average loans during three and nine months ended September 30, 2022 were (0.02)% and 0.02%, respectively. We continued to show solid and stable asset quality numbers and ratios as of September 30, 2022.

The following table provides the allocation, by segment, for expected credit losses for the nine months ended September 30, 2022 .Because PPP loans are government guaranteed and Management implemented additional reviews and procedures to help mitigate potential losses, Management does not expect to recognize credit losses on this loan portfolio and as a result, did not record an ACL for PPP loans within the C&I loan segment presented in the table below.


	September 30, 2022
(Dollars in thousands)	Amount		%*
Residential Mortgage Senior	$	68,020	18.1	%
Residential Mortgage Junior		523	0.1	%
Revolving Mortgage		16,066	4.6	%
Residential Construction		8,330	2.9	%
Other Construction and Development		31,808	5.7	%
Consumer		26,804	4.3	%
Multifamily		3,124	2.2	%
Municipal		702	2.5	%
Owner Occupied Commercial Real Estate		54,159	18.9	%
Non-Owner Occupied Commercial Real Estate		76,253	25.5	%
Commercial and Industrial		38,609	15.2	%
Total	$	324,398	100.0	%

* Loan balance in each category expressed as a percentage of total loans, excluding PPP loans.

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The following tables present a summary of net charge off ratios by loan segment for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended
	September 30, 2022						September 30, 2021
(Dollars in thousands)	Net Recovery (Charge Off)		Average Balance		Net Recovery (Charge Off) Ratio		Net Recovery (Charge Off)		Average Balance		Net Recovery (Charge Off) Ratio
Residential Mortgage Senior	$	326	$	4,969,293	0.01	%	$	317	$	4,091,350	0.01	%
Residential Mortgage Junior		30		13,463	0.22	%		48		17,232	0.28	%
Revolving Mortgage		3,128		1,294,266	0.24	%		571		1,270,134	0.04	%
Residential Construction		2		803,546	—	%		2		586,292	—	%
Other Construction and Development		280		1,686,262	0.02	%		748		1,392,018	0.05	%
Consumer		(2,169)		1,235,652	(0.18)	%		(1,789)		894,088	(0.20)	%
Multifamily		—		632,806	—	%		—		370,940	—	%
Municipal		—		703,028	—	%		—		626,733	—	%
Owner Occupied Commercial Real Estate		(784)		5,415,587	(0.01)	%		328		4,904,524	0.01	%
Non-Owner Occupied Commercial Real Estate		21		7,202,177	—	%		(68)		5,932,387	—	%
Commercial and Industrial		428		4,338,897	0.01	%		(203)		3,790,620	(0.01)	%
Total	$	1,262	$	28,294,977			$	(46)	$	23,876,318


	Nine Months Ended
	September 30, 2022						September 30, 2021
(Dollars in thousands)	Net Recovery (Charge Off)		Average Balance		Net Recovery (Charge Off) Ratio		Net Recovery (Charge Off)		Average Balance		Net Recovery (Charge Off) Ratio
Residential Mortgage Senior	$	962	$	4,575,374	0.02	%	$	899	$	4,152,453	0.02	%
Residential Mortgage Junior		176		14,070	1.25	%		131		23,388	0.56	%
Revolving Mortgage		3,359		1,272,764	0.26	%		1,068		1,308,461	0.08	%
Residential Construction		7		727,940	—	%		3		566,723	—	%
Other Construction and Development		920		1,594,965	0.06	%		1,091		1,364,538	0.08	%
Consumer		(5,762)		1,123,007	(0.51)	%		(4,383)		885,276	(0.50)	%
Multifamily		—		557,788	—	%		3		371,807	—	%
Municipal		—		678,523	—	%		—		625,867	—	%
Owner Occupied Commercial Real Estate		(825)		5,296,105	(0.02)	%		(1,256)		4,860,520	(0.03)	%
Non-Owner Occupied Commercial Real Estate		34		6,897,624	—	%		129		5,872,792	—	%
Commercial and Industrial		(2,271)		4,031,447	(0.06)	%		176		4,191,190	—	%
Total	$	(3,400)	$	26,769,607			$	(2,139)	$	24,223,015

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The following tables present summary of ACL for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30,
	2022						2021
	Non-PCD		PCD				Non-PCD		PCD
(Dollars in thousands)	Loans		Loans		Total		Loans		Loans		Total
Balance at beginning of period	$	257,428	$	62,280	$	319,708	$	245,368	$	105,033	$	350,401
ACL - PCD loans for ACBI merger		—		—		—		—		—		—
Loans charged-off		(5,242)		(1,884)		(7,126)		(3,280)		(567)		(3,847)
Recoveries of loans previously charged off		4,380		4,008		8,388		2,052		1,749		3,801
Net (charge-offs) recoveries		(862)		2,124		1,262		(1,228)		1,182		(46)
(Recovery) provision for credit losses		14,353		(10,925)		3,428		(22,759)		(13,452)		(36,211)
Balance at end of period	$	270,919	$	53,479	$	324,398	$	221,381	$	92,763	$	314,144

Total loans, net of unearned income:
At period end	$	28,836,303					$	23,788,949
Average		28,294,977						23,876,318
Net charge-offs as a percentage of average loans (annualized)		(0.02)	%					0.00	%
Allowance for credit losses as a percentage of period end loans		1.12	%					1.32	%
Allowance for credit losses as a percentage of period end non-performing loans (“NPLs”)		324.30	%					348.27	%


	Nine Months Ended September 30,
	2022						2021
	Non-PCD		PCD				Non-PCD		PCD
(Dollars in thousands)	Loans		Loans		Total		Loans		Loans		Total
Allowance for credit losses at January 1	$	225,227	$	76,580	$	301,807	$	315,470	$	141,839	$	457,309
ACL - PCD loans for ACBI merger		—		13,758		13,758		—		—		—
Loans charged-off		(13,218)		(5,561)		(18,779)		(10,873)		(2,010)		(12,883)
Recoveries of loans previously charged off		9,023		6,356		15,379		5,933		4,811		10,744
Net (charge-offs) recoveries		(4,195)		795		(3,400)		(4,940)		2,801		(2,139)
Initial provision for credit losses - ACBI		13,697		—		13,697		—		—		—
(Recovery) provision for credit losses		36,190		(37,654)		(1,464)		(89,149)		(51,877)		(141,026)
Balance at end of period	$	270,919	$	53,479	$	324,398	$	221,381	$	92,763	$	314,144

Total loans, net of unearned income:
At period end	$	28,836,303					$	23,788,949
Average		26,769,605						24,223,013
Net charge-offs as a percentage of average loans (annualized)		0.02	%					0.01	%
Allowance for credit losses as a percentage of period end loans		1.12	%					1.32	%
Allowance for credit losses as a percentage of period end non-performing loans (“NPLs”)		324.30	%					348.27	%

Nonperforming Assets (“NPAs”)

The following table summarizes our nonperforming assets for the past five quarters:


	September 30,			June 30,			March 31,			December 31,			September 30,
(Dollars in thousands)	2022			2022			2022			2021			2021
Non-acquired:
Nonaccrual loans	$	30,076		$	20,383		$	19,174		$	18,201		$	22,087
Accruing loans past due 90 days or more		2,358			1,371			22,818			4,612			1,729
Restructured loans - nonaccrual		4,298			333			408			499			1,713
Total non-acquired nonperforming loans		36,732			22,087			42,400			23,312			25,529
Other real estate owned (“OREO”) ^{(1) (6)}		58			—			252			252			92
Other nonperforming assets ⁽²⁾		56			93			212			338			273
Total non-acquired nonperforming assets		36,846			22,180			42,864			23,902			25,894
Acquired:
Nonaccrual loans ⁽³⁾		61,866			63,526			59,267			56,718			64,583
Accruing loans past due 90 days or more		1,430			4,418			12,768			251			89
Total acquired nonperforming loans		63,296			67,944			72,035			56,969			64,672
Acquired OREO^{(1) (7)}		2,102			1,431			3,038			2,484			3,595
Other acquired nonperforming assets ⁽²⁾		132			146			80			391			209
Total acquired nonperforming assets		65,530			69,521			75,153			59,844			68,476
Total nonperforming assets	$	102,376		$	91,701		$	118,017		$	83,746		$	94,370

Excluding Acquired Assets
Total nonperforming assets as a percentage of total loans and repossessed assets ⁽⁴⁾		0.18	%		0.11	%		0.25	%		0.15	%		0.17	%
Total nonperforming assets as a percentage of total assets ⁽⁵⁾		0.08	%		0.05	%		0.09	%		0.06	%		0.06	%
Nonperforming loans as a percentage of period end loans⁽⁴⁾		0.18	%		0.11	%		0.25	%		0.15	%		0.17	%

Including Acquired Assets
Total nonperforming assets as a percentage of total loans and repossessed assets⁽⁴⁾		0.35	%		0.33	%		0.44	%		0.35	%		0.40	%
Total nonperforming assets as a percentage of total assets		0.23	%		0.20	%		0.26	%		0.20	%		0.23	%
Nonperforming loans as a percentage of period end loans ⁽⁴⁾		0.35	%		0.32	%		0.43	%		0.34	%		0.38	%

(1)

Consists of real estate acquired as a result of foreclosure.

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(2)

Consists of non-real estate foreclosed assets, such as repossessed vehicles.

(3)

Includes nonaccrual loans that are purchase credit deteriorated (PCD loans).

(4)

Loan data excludes mortgage loans held for sale.

(5)

For purposes of this calculation, total assets include all assets (both acquired and non-acquired).

(6)

Excludes non-acquired bank premises held for sale of $21.2 million, $1.4 million, $893,000, $1.0 million and $1.0 million as of September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021 and September 30, 2021, respectively, that is now separately disclosed on the balance sheet.

(7)

Excludes acquired bank premises held for sale of $3.9 million, $4.2 million, $5.5 million, $8.6 million and $14.1 million as of September 30, 2022, June 30, 2022, March 31, 2022, December 31, 2021 and September 30, 2021, respectively, that is now separately disclosed on the balance sheet.

Total nonperforming assets were $102.4 million, or 0.35% of total loans and repossessed assets, at September 30, 2022, an increase of $18.6 million, or 22.3%, from December 31, 2021. Total nonperforming loans were $100.0 million, or 0.35%, of total loans, at September 30, 2022, an increase of $19.7 million, or 24.6%, from December 31, 2021. Non-acquired nonperforming loans increased by $13.4 million from December 31, 2021. The increase in non-acquired nonperforming loans was driven primarily by an increase in commercial nonaccrual loans of $12.0 million, an increase in restructured nonaccrual loans of $3.8 million, offset by a decrease in accruing loans past due 90 days or more of $2.3 million. The increase in commercial nonaccrual loans at September 30, 2022 was primarily due to one commercial owner occupied loan totaling $11.1 million. Acquired nonperforming loans increased $6.3 million from December 31, 2021. The increase in the acquired nonperforming loan balances was due to an increase in commercial nonaccruing loans of $6.5 million, an increase in accruing loans past due 90 days or more of $1.2 million, offset by a decrease in consumer nonaccruing loans of $1.4 million.

At September 30, 2022, OREO totaled $2.2 million, which included $58,000 in non-acquired OREO and $2.1 million in acquired OREO. Total OREO decreased $324,000 million from December 31, 2021. At September 30, 2022, non-acquired OREO consisted of two properties with an average value of $29,000. This compared to one property with an average value of $252,000 at December 31, 2021. In the third quarter of 2022, we added two new properties into non-acquired OREO, while there were no sales during the period. At September 30, 2022, acquired OREO consisted of ten properties with an average value of $210,200, compared to eleven properties with an average value of $226,000 at December 31, 2021. In the third quarter of 2022, two new properties were transferred to acquired OREO, while selling one property with no aggregate value.

Potential Problem Loans

Potential problem loans, which are not included in nonperforming loans, related to non-acquired loans were approximately $19.5 million, or 0.09%, of total non-acquired loans outstanding, at September 30, 2022, compared to $6.9 million, or 0.04%, of total non-acquired loans outstanding, at December 31, 2021. Potential problem loans related to acquired loans totaled $23.8 million, or 0.30%, of total acquired loans outstanding, at September 30, 2022, compared to $19.3 million, or 0.24% of total acquired loans outstanding, at December 31, 2021. All potential problem loans represent those loans where information about possible credit problems of the borrowers has caused Management to have concern about the borrower’s ability to comply with present repayment terms.

Interest-Bearing Liabilities

Interest-bearing liabilities include interest-bearing transaction accounts, savings deposits, CDs, other time deposits, federal funds purchased, securities sold under agreements to repurchase and other borrowings. Interest-bearing transaction accounts include NOW, HSA, IOLTA, and Market Rate checking accounts.

Total interest-bearing deposits increased $449.8 million or 2.6% annualized to $24.0 billion at September 30, 2022 from $23.6 billion at December 31, 2021. This increase was driven by interest-bearing deposits assumed from Atlantic Capital of $1.1 billion (balance of deposits at September 30, 2022). During the nine months ended September 30, 2022, core deposits increased $724.2 million, excluding the balance of core deposits assumed in the Atlantic Capital transaction during the first quarter of 2022. These funds exclude certificates of deposits and other time deposits and are normally lower cost funds. Federal funds purchased related to the Correspondent Bank division and repurchase agreements were $557.8 million at September 30, 2022, down $223.4 million from December 31, 2021. Corporate and subordinated debentures increased by $65.3 million to $392.4 million. Some key highlights are outlined below:

●

The increase in interest-bearing deposits from December 31, 2021 was driven by an increase in interest-bearing transactional accounts including money markets of $472.1 million, and savings of $252.0 million, partially offset by a decline in time deposits of $274.4 million. Excluding deposits held by legacy Atlantic Capital as of September 30, 2022, interest-bearing deposits declined $664.3 million. Interest-bearing transactional accounts,

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including money market accounts, decreased $335.7 million, savings increased $250.9 million, and time deposits decreased $579.5 million. Deposits declined during the third quarter of 2022 due mainly to the timing of ACH payments for the payroll business which resulted in a temporary decline of $457 million at the end of the quarter. Average interest-bearing deposits increased $1.8 billion to $24.1 billion compared to the same period in 2021.

●

Corporate and subordinated debentures increased $65.3 million from the period end balance at December 31, 2021. The increase was due to the assumption of $78.4 million in subordinated debt resulting from the Atlantic Capital transaction completed during the first quarter of 2022, which was partially offset by the redemption of $13.0 million of subordinated debt on June 30, 2022.

Noninterest-Bearing Deposits

Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. At September 30, 2022, the period end balance of noninterest-bearing deposits was $13.7 billion, exceeding the December 31, 2021 balance by $2.2 billion. The increase was mainly due to the noninterest-bearing deposits assumed from the merger with Atlantic Capital in March 2022 along with organic growth. The acquisition date noninterest-bearing deposits balances assumed from Atlantic Capital totaled $1.4 billion and approximately $1.4 billion at September 30, 2022. Average noninterest-bearing deposits were $13.9 billion for the third quarter of 2022 compared to $11.3 billion for the third quarter of 2021. This increase was related to both organic growth and deposits assumed through the Atlantic Capital transaction.

Capital Resources

Our ongoing capital requirements have been met primarily through retained earnings, less the payment of cash dividends. As of September 30, 2022, shareholders’ equity was $4.9 billion, an increase of $118.2 million, or 2.5%, from December 31, 2021.

The following table shows the changes in shareholders’ equity during 2022:


Total shareholders' equity at December 31, 2021	$	4,802,940
Net income		352,547
Dividends paid on common shares ($1.48 per share)		(108,639)
Dividends paid on restricted stock units		(152)
Net decrease in market value of securities available for sale, net of deferred taxes		(695,312)
Stock options exercised		1,516
Stock issued pursuant to restricted stock units		1
Employee stock purchases		1,443
Equity based compensation		28,311
Common stock repurchased pursuant to stock repurchase plan		(110,204)
Common stock repurchased - equity plans		(9,057)
Stock issued pursuant to the acquisition of Atlantic Capital		659,772
Net fair value of unvested equity awards assumed in the Atlantic Capital acquisition		(1,980)
Total shareholders' equity at September 30, 2022	$	4,921,186

In January 2021, the Board of Directors of the Company approved the authorization of a 3,500,000 share Company stock repurchase plan (the “2021 Stock Repurchase Plan”). During 2021 and through September 30, 2022, we repurchased 3,129,979 shares, at an average price of $81.97 per share (excluding cost of commissions) for a total of $256.6 million. Of this amount, we repurchased 1,312,038 shares, at an average price of $83.99 per share (excluding cost of commissions) for a total of $110.2 million during 2022. The Company did not repurchase any shares during the third quarter of 2022.

On June 7, 2022, the Company received Federal Reserve Board’s supervisory nonobjection on the 2022 Stock Repurchase Program, which was previously approved by the Board of Directors of the Company on April 27, 2022, contingent upon receipt of such supervisory nonobjection. The 2022 Stock Repurchase Program authorizes the Company to repurchase up to 3.75 million shares, or up to approximately 5 percent, of the Company’s outstanding shares of common stock as of March 31, 2022. Our Board of Directors approved the program after considering, among other things, our liquidity needs and capital resources as well as the estimated current value of our net assets. The aggregate number of shares of common stocks authorized to be repurchased totals 4.12 million shares, which includes 370,021 shares remaining from the Company’s 2021 Stock Repurchase Plan. The number of shares to be purchased and

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the timing of the purchases are based on a variety of factors, including, but not limited to, the level of cash balances, general business conditions, regulatory requirements, the market price of our common stock, and the availability of alternative investment opportunities.

Specifically, we are required to maintain the following minimum capital ratios:

●

a CET1, risk-based capital ratio of 4.5%;

●

a Tier 1 risk-based capital ratio of 6%;

●

a total risk-based capital ratio of 8%; and

●

a leverage ratio of 4%.

Under the current capital rules, Tier 1 capital includes two components: CET1 capital and additional Tier 1 capital. The highest form of capital, CET1 capital, consists solely of common stock (plus related surplus), retained earnings, accumulated other comprehensive income, otherwise referred to as AOCI, and limited amounts of minority interests that are in the form of common stock. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock and Tier 1 minority interests. Tier 2 capital generally includes the allowance for loan losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt, trust preferred securities and qualifying tier 2 minority interests, less any deductions in Tier 2 instruments of an unconsolidated financial institution. AOCI is presumptively included in CET1 capital and often would operate to reduce this category of capital. When the current capital rules were first implemented, the Bank exercised its one-time opportunity at the end of the first quarter of 2015 for covered banking organizations to opt out of much of this treatment of AOCI, allowing us to retain our pre-existing treatment for AOCI.

In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a banking organization must maintain a “capital conservation buffer” on top of its minimum risk-based capital requirements. This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital), resulting in the following effective minimum capital plus capital conservation buffer ratios: (i) a CET1 capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%.

The federal banking agencies revised their regulatory capital rules to (i) address the implementation of CECL; (ii) provide an optional three-year phase-in period for the adoption date adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (iii) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations that are subject to stress testing. CECL became effective for us on January 1, 2020 and the Company applied the provisions of the standard using the modified retrospective method as a cumulative-effect adjustment to retained earnings. Related to the implementation of ASU 2016-13, we recorded additional allowance for credit losses for loans of $54.4 million, deferred tax assets of $12.6 million, an additional reserve for unfunded commitments of $6.4 million and an adjustment to retained earnings of $44.8 million. Instead of recognizing the effects on regulatory capital from ASU 2016-13 at adoption, the Company initially elected the option for recognizing the adoption date effects on the Company’s regulatory capital calculations over a three-year phase-in.

In 2020, in response to the COVID-19 pandemic, the federal banking agencies issued a final rule for additional transitional relief to regulatory capital related to the impact of the adoption of CECL. The final rule provides banking organizations that adopt CECL in the 2020 calendar year with the option to delay for two years the estimated impact of

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CECL on regulatory capital, followed by the aforementioned three-year transition period to phase out the aggregate amount of benefit during the initial two-year delay for a total five-year transition. The estimated impact of CECL on regulatory capital (modified CECL transitional amount) is calculated as the sum of the adoption date impact on retained earnings upon adoption of CECL (CECL transitional amount) and the calculated change in the ACL relative to the adoption date ACL upon adoption of CECL multiplied by a scaling factor of 25%. The scaling factor is used to approximate the difference in the ACL under CECL relative to the incurred loss methodology. The Company chose the five-year transition method and is deferring the recognition of the effects from the adoption date and the CECL difference for the first two years of application. The modified CECL transitional amount was calculated each quarter for the first two years of the five-year transition. The amount of the modified CECL transition amount was fixed as of December 31, 2021, and that amount is subject to the three-year phase out, which began in the first quarter of 2022.

The well-capitalized minimums and the Company’s and the Bank’s regulatory capital ratios for the following periods are reflected below:


	Well-Capitalized		September 30,		December 31,
	Minimums		2022		2021
SouthState Corporation:
Common equity Tier 1 risk-based capital	N/A		11.02	%	11.75	%
Tier 1 risk-based capital	6.00	%	11.02	%	11.75	%
Total risk-based capital	10.00	%	12.96	%	13.56	%
Tier 1 leverage	N/A		8.33	%	8.05	%

SouthState Bank:
Common equity Tier 1 risk-based capital	6.50	%	11.91	%	12.62	%
Tier 1 risk-based capital	8.00	%	11.91	%	12.62	%
Total risk-based capital	10.00	%	12.68	%	13.22	%
Tier 1 leverage	5.00	%	9.00	%	8.65	%

The Company’s and Bank’s Common equity Tier 1 risk-based capital, Tier 1 risk-based capital and total risk-based capital ratios decreased compared to December 31, 2021. These ratios decreased due to the additional risk-weighted assets acquired through the acquisition of Atlantic Capital in the first quarter of 2022, which on average, had a higher risk weighting, the reduction in cash and cash equivalents during the quarter, which are lower risk weighted assets, and due to the organic growth in loans during 2022, which have a higher risk weighting. The effects on our ratios from the increase in risk-weighted assets were partially offset by an increase in Tier 1 and total risk-based capital due to net income recognized in 2022, the addition to the net equity of $658.8 million issued for the Atlantic Capital acquisition and the $75.0 million in subordinated debt, also assumed from Atlantic Capital, that qualifies as total risk-based capital. These increases in capital were partially offset by the $119.3 million of stock repurchases completed during 2022, including shares withheld for taxes pertaining to the vesting of equity awards, along with the dividend paid to shareholders of $108.6 million and the redemption of $13 million of subordinated debentures on June 30, 2022. The Tier 1 leverage ratios for both the Company and Bank increased slightly compared to December 31, 2021, as the percentage increase in Tier 1 capital was greater than the percentage increase in average assets during 2022. Our capital ratios are currently well in excess of the minimum standards and continue to be in the “well capitalized” regulatory classification.

Liquidity

Liquidity refers to our ability to generate sufficient cash to meet our financial obligations, which arise primarily from the withdrawal of deposits, extension of credit and payment of operating expenses. Liquidity risk is the risk that the Bank’s financial condition or overall safety and soundness is adversely affected by an inability (or perceived inability) to meet its obligations. Our Asset Liability Management Committee (“ALCO”) is charged with the responsibility of monitoring policies designed to ensure acceptable composition of our asset/liability mix. Two critical areas of focus for ALCO are interest rate sensitivity and liquidity risk management. We have employed our funds in a manner to provide liquidity from both assets and liabilities sufficient to meet our cash needs.

Asset liquidity is maintained by the maturity structure of loans, investment securities and other short-term investments. Management has policies and procedures governing the length of time to maturity on loans and investments. Normally, changes in the earning asset mix are of a longer-term nature and are not used for day-to-day corporate liquidity needs.

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Our liabilities provide liquidity on a day-to-day basis. Daily liquidity needs are met from deposit levels or from our use of federal funds purchased, securities sold under agreements to repurchase, interest-bearing deposits at other banks and other short-term borrowings. We engage in routine activities to retain deposits intended to enhance our liquidity position. These routine activities include various measures, such as the following:

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Emphasizing relationship banking to new and existing customers, where borrowers are encouraged and normally expected to maintain deposit accounts with our Bank;

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Pricing deposits, including certificates of deposit, at rate levels that will attract and /or retain balances of deposits that will enhance our Bank’s asset/liability management and net interest margin requirements; and

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Continually working to identify and introduce new products that will attract customers or enhance our Bank’s appeal as a primary provider of financial services.

Our non-acquired loan portfolio increased by approximately $4.9 billion, or approximately 40.6% annualized, compared to the balance at December 31, 2021. The increase from December 31, 2021 was mainly related to organic growth and renewals on acquired loans. The acquired loan portfolio increased by $32.3 million from the balance at December 31, 2021 through the addition of $2.4 billion in loans acquired in the Atlantic Capital transaction on March 1, 2022. This increase was partially offset through principal paydowns, charge-offs, foreclosures, and renewals of acquired loans.

Our investment securities portfolio (excluding trading securities) increased $1.1 billion compared to the balance at December 31, 2021. The increase in investment securities from December 31, 2021 was a result of purchases of $2.5 billion, along with $703.7 million in investment securities acquired in the Atlantic Capital transaction. This increase was partially offset by maturities, calls, sales and paydowns of investment securities totaling $1.1 billion, as well as decrease in the market value of the available for sale investment securities portfolio of $922.5 million. Net amortization of premiums was $21.5 million in the first nine months of 2022. The increase in investment securities was due to the Company making the strategic decision to increase the size of the portfolio with the excess funds from deposit growth. Total cash and cash equivalents were $2.8 billion at September 30, 2022 as compared to $6.8 billion at December 31, 2021 as funds were used to fund loan growth and purchase securities during the nine months ended September 30, 2022.

At September 30, 2022 and December 31, 2021, we had $150.1 million and $325.0 million of traditional, out–of-market brokered deposits. At September 30, 2022 and December 31, 2021, we had $826.5 million and $900.1 million, respectively, of reciprocal brokered deposits. Total deposits were $37.7 billion at September 30, 2022, an increase of $2.6 billion from $35.1 billion at December 31, 2021. This increase was mainly due to the $3.0 billion in deposits assumed in the Atlantic Capital transaction on March 1, 2022. Our deposit growth since December 31, 2021 included an increase in demand deposit accounts of $2.2 billion, as well as an increase in savings and money market accounts of $1.0 billion, partially offset by a decline in interest-bearing transaction accounts of $277.5 million and time deposits of $274.4 million. Total borrowings at September 30, 2022 were $392.4 million and consisted of trust preferred securities and subordinated debentures, which includes $78.5 million of subordinated debt assumed from Atlantic Capital on March 1, 2022. Total short-term borrowings at September 30, 2022 were $557.8 million, consisting of $213.8 million in federal funds purchased and $344.0 million in securities sold under agreements to repurchase. To the extent that we employ other types of non-deposit funding sources, typically to accommodate retail and correspondent customers, we continue to take in shorter maturities of such funds. Our current approach may provide an opportunity to sustain a low funding rate or possibly lower our cost of funds but could also increase our cost of funds if interest rates rise.

Through the operations of our Bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. We manage the credit risk on these commitments by subjecting them to normal underwriting and risk management processes. We believe that we have adequate sources of liquidity to fund commitments that are drawn upon by the borrowers. In addition to commitments to extend credit, we also issue standby letters of credit, which are assurances to third parties that they will not suffer a loss if our customer fails to meet its contractual obligation to the third-party. Although our experience indicates that many of these standby letters of credit will expire unused, through our various sources of liquidity, we believe that we will have the necessary resources to meet these obligations should the need arise.

Our ongoing philosophy is to remain in a liquid position, as reflected by such indicators as the composition of our earning assets, typically including some level of reverse repurchase agreements, federal funds sold, balances at the

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Federal Reserve Bank, and/or other short-term investments; asset quality; well-capitalized position; and profitable operating results. Cyclical and other economic trends and conditions can disrupt our desired liquidity position at any time. We expect that these conditions would generally be of a short-term nature. Under such circumstances, we expect our reverse repurchase agreements and federal funds sold positions, or balances at the Federal Reserve Bank, if any, to serve as the primary source of immediate liquidity. At September 30, 2022, our Bank had total federal funds credit lines of $300.0 million with no balance outstanding. If we needed additional liquidity, we would turn to short-term borrowings as an alternative immediate funding source and would consider other appropriate actions such as promotions to increase core deposits or the use of the brokered deposit markets. At September 30, 2022, our Bank had $839.2 million of credit available at the Federal Reserve Bank’s Discount Window and had no balance outstanding. In addition, we could draw on additional alternative immediate funding sources from lines of credit extended to us from our correspondent banks and/or the FHLB. At September 30, 2022, our Bank had a total FHLB credit facility of $3.4 billion with total outstanding FHLB letters of credit consuming $1.6 million leaving $3.4 billion in availability on the FHLB credit facility. The holding company has a $100.0 million unsecured line of credit with U.S. Bank National Association with no balance outstanding at September 30, 2022. We believe that our liquidity position continues to be adequate and readily available.

Our contingency funding plan describes several potential stages based on stressed liquidity levels. Liquidity key risk indicators are reported to the Board of Directors on a quarterly basis. We maintain various wholesale sources of funding. If our deposit retention efforts were to be unsuccessful, we would use these alternative sources of funding. Under such circumstances, depending on the external source of funds, our interest cost would vary based on the range of interest rates charged. This could increase our cost of funds, impacting our net interest margin and net interest spread.

Asset-Liability Management and Market Risk Sensitivity

Our earnings and the economic value of equity vary in relation to the behavior of interest rates and the accompanying fluctuations in market prices of certain of our financial instruments. We define interest rate risk as the risk to earnings and equity arising from the behavior of interest rates. These behaviors include increases and decreases in interest rates as well as continuation of the current interest rate environment.

Our interest rate risk principally consists of reprice, option, basis, and yield curve risk. Reprice risk results from differences in the maturity or repricing characteristics of asset and liability portfolios. Option risk arises from embedded options in the investment and loan portfolios such as investment securities calls and loan prepayment options. Option risk also exists since deposit customers may withdraw funds at their discretion in response to general market conditions, competitive alternatives to existing accounts or other factors. The exercise of such options may result in higher costs or lower revenue. Basis risk refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in narrowing spreads on interest-earning assets and interest-bearing liabilities. Basis risk also exists in administered rate liabilities, such as interest-bearing checking accounts, savings accounts, and money market accounts where the price sensitivity of such products may vary relative to general markets rates. Yield curve risk refers to adverse consequences of nonparallel shifts in the yield curves of various market indices that impact our assets and liabilities.

We use simulation analysis as a primary method to assess earnings at risk and equity at risk due to assumed changes in interest rates. Management uses the results of its various simulation analyses in combination with other data and observations to formulate strategies designed to maintain interest rate risk within risk tolerances.

Simulation analysis involves the use of several assumptions including, but not limited to, the timing of cash flows such as the terms of contractual agreements, investment security calls, loan prepayment speeds, deposit attrition rates, the interest rate sensitivity of loans and deposits relative to general market rates, and the behavior of interest rates and spreads. Equity at risk simulation uses assumptions regarding discount rates that value cash flows. Simulation analysis is highly dependent on model assumptions that may vary from actual outcomes. Key simulation assumptions are subject to sensitivity analysis to assess the impact of assumption changes on earnings at risk and equity at risk. Model assumptions are reviewed by our Assumptions Committee.

Earnings at risk is defined as the percentage change in net interest income due to assumed changes in interest rates. Earnings at risk is generally used to assess interest rate risk over relatively short time horizons.

Equity at risk is defined as the percentage change in the net economic value of assets and liabilities due to

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changes in interest rates compared to a base net economic value. The discounted present value of all cash flows represents our economic value of equity. Equity at risk is generally considered a measure of the long-term interest rate exposures of the balance sheet at a point in time.

The earnings simulation models take into account our contractual agreements with regard to investments, loans, deposits, borrowings, and derivatives as well as a number of behavioral assumptions applied to certain assets and liabilities.

Mortgage banking derivatives used in the ordinary course of business consist of forward sales contracts and interest rate lock commitments on residential mortgage loans. These derivatives involve underlying items, such as interest rates, and are designed to mitigate risk. Derivatives are also used to hedge mortgage servicing rights.

From time to time, we execute interest rate swaps to hedge some of our interest rate risks. Under these arrangements, the Company enters into a variable rate loan with a client in addition to a swap agreement. The swap agreement effectively converts the client’s variable rate loan into a fixed rate loan. The Company then enters into a matching swap agreement with a third-party dealer to offset its exposure on the customer swap. The Company may also execute interest rate swap agreements that are not specific to client loans. As of the reporting date, the Company did not have such agreements.

Our interest rate risk key indicators are applied to a static balance sheet using forward rates from the Moody’s Baseline Scenario. The Company will also use other rate forecasts, including, but not limited to, Moody’s Consensus Scenario. This Base Case Scenario assumes the maturity composition of asset and liability rollover volumes is modeled to approximately replicate current consolidated balance sheet characteristics throughout the simulation. These treatments are consistent with the Company’s goal of assessing current interest rate risk embedded in its current balance sheet. The Base Case Scenario assumes that maturing or repricing assets and liabilities are replaced at prices referencing forward rates derived from the selected rate forecast consistent with current balance sheet pricing characteristics. Key rate drivers are used to price assets and liabilities with sensitivity assumptions used to price non-maturity deposits. The sensitivity assumptions for the pricing of non-maturity deposits are subjected to sensitivity analysis no less frequently than on an annual basis.

Interest rate shocks are applied to the Base Case on an instantaneous basis. The range of interest rate shocks will include upward and downward movements of rates through 400 basis points in 100 basis point increments. At times, market conditions may result in assumed rate movements that will be deemphasized. For example, during a period of ultra-low interest rates, certain downward rate shocks may be impractical. The model simulation results produced from the Base Case Scenario and related instantaneous shocks for changes in net interest income and instantaneous rate shocks for changes in the economic value of equity are referred to as the Core Scenario Analysis and constitute the policy key risk indicators for interest rate risk when compared to risk tolerances.

Relative to prior modeling and disclosures, Management revised its deposit beta assumptions higher due to the rapid increase in interest rates and expected further increases. Previous beta assumptions reflected sensitivities across full interest rate cycles. The beta assumptions were revised during the second quarter of 2022 to recognize that interest rates have risen while the Company’s cost of deposits have increased slightly. During the third quarter of 2022, the federal funds target rate increased 150 basis points while the Company’s total deposit cost increased 5 basis points. The revised beta assumptions reflect the acceleration of deposit cost increases associated with the expected increase in short term rates after September 30, 2022. These beta assumptions, when combined with the minimal increase in deposit costs since the federal funds rate began to rise in March 2022, reflect Management’s estimates across the entire current rising rate cycle.

The following interest rate risk metrics are derived from analysis using the Moody’s Consensus Scenario published in October 2022 as the Base Case. The consensus forecast projects an inverted yield curve. As of September 30, 2022, the earnings simulations indicated that the year 1 impact of an instantaneous 100 basis point increase / decrease in rates would result in an estimated 2.5% increase (up 100) and 4.1% decrease (down 100) in net interest income.

We use Economic Value of Equity (“EVE”) analysis as an indicator of the extent to which the present value of our capital could change, given potential changes in interest rates. This measure also assumes a static balance sheet (Base Case Scenario) with rate shocks applied as described above. At September 30, 2022, the percentage change in

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EVE due to a 100-basis point increase or decrease in interest rates was 0.6% decrease and 3.1% decrease, respectively. The percentage changes in EVE due to a 200-basis point increase or decrease in interest rates were 1.7% decrease and 7.7% decrease, respectively. The interest rate shock analysis results for EVE sensitivities are unusual as the benefits of repricing assets are mitigated by increasing deposit costs. Downward shocks are constrained on various balance sheet categories due to the inability to price products below floors or zero. This is particularly meaningful given the cost of deposits as of September 30, 2022.

The analysis below reflects a Base Case and shocked scenarios that assume a static balance sheet projection where volume is added to maintain balances consistent with current levels, except for PPP loans that are not assumed to be replaced. Base Case assumes new and repricing volumes reference forward rates derived from the Moody’s Consensus rate forecast. Instantaneous, parallel, and sustained interest rate shocks are applied to the Base Case scenario over a one-year time horizon.


Percentage Change in Net Interest Income over One Year
Up 100 basis points		2.5%
Up 200 basis points		4.9%
Down 100 basis points		(4.1%)
Down 200 basis points		(12.7%)

LIBOR Transition

In July 2017, the Financial Conduct Authority (FCA), in the United Kingdom, which regulates LIBOR, announced that it intended to stop persuading or compelling banks to submit rates for the calculation of LIBOR at the end of 2021. On March 5, 2021, the FCA confirmed that all LIBOR settings would either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021 for the one-week and two-month US dollar settings and immediately after June 30, 2023 for all remaining US dollar settings.

The Alternative Reference Rates Committee proposed Secured Overnight Financing Rate (“SOFR”) as its preferred rate as an alternative to LIBOR and proposed a paced market transition plan to SOFR from LIBOR. Organizations are currently working on industry-wide and company-specific transition plans related to derivatives and cash markets exposed to LIBOR. As noted within Part I - Item 1A. Risk Factors presented in our Annual Report on Form 10-K for the year ended 2021, we hold instruments that may be impacted by the discontinuance of LIBOR including floating rate obligations, loans, deposits, derivatives and hedges, and other financial instruments but is not able to currently predict the associated financial impact of the transition to an alternative reference rate.

We have established a cross-functional LIBOR transition working group that has (1) assessed the Company's current exposure to LIBOR indexed instruments and the data, systems and processes that will be impacted; (2) established a detailed implementation plan; and (3) developed a formal governance structure for the transition. The Company has developed and continues to implement various proactive steps to facilitate the transition on behalf of customers, which include:

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The adoption and ongoing implementation of fallback provisions that provide for the determination of replacement rates for LIBOR-linked financial products.

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The adoption of new products linked to alternative reference rates, such as adjustable-rate mortgages, consistent with guidance provided by the U.S. regulators, the Alternative Reference Rates Committee, and GSEs.

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The selection of SOFR indices as the replacement indices, and successful completion of systems testing using the SOFR replacement indices.

The Company discontinued quoting LIBOR on September 30, 2021 and discontinued originating new products linked to LIBOR on December 31, 2021.

We intend to use the provisions of the Adjustable Interest Rate (LIBOR) Act passed by Congress and signed in to law by the President in March 2022 for certain contracts referencing LIBOR. The Act provides for the use of SOFR as the replacement index with a spread adjustment when the remaining LIBOR indices are discontinued. The Act applies when there is no contract provision addressing the loss of LIBOR and may be used otherwise as well, provided the contract does not provide for a specific replacement index. This aligns with the plan of action currently under implementation by the Company.

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The Company continues to evaluate its financial and operational infrastructure in its effort to transition all financial and strategic processes, systems, and models to reference rates other than LIBOR. The Company is in the process of developing and implementing processes to educate client-facing associates and coordinate communications with customers regarding the transition.

As of September 30, 2022, the Company had the following exposures to LIBOR:

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Approximately $5.4 billion of total outstanding loans referencing LIBOR. Of this amount, $5.1 billion have maturities occurring after the LIBOR discontinuation date of June 30, 2023.

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Approximately $17.4 billion in interest rate swaps that are indexed to LIBOR with a gross positive fair value of $141.4 million and a gross negative fair value of $141.4 million. However, the interest rate swaps associated with this program do not meet the strict hedge accounting requirements. Therefore, the transition to LIBOR will have no hedge accounting impact as changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. Moreover, the exposure of both sides of these swaps is presented in these figures. These exposures are intended to offset each other.

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Trust preferred securities that reference LIBOR and had a total principal balance of $118.6 million. These securities have maturities ranging from October 7, 2033 through March 14, 2037.

Deposit and Loan Concentrations

We have no material concentration of deposits from any single customer or group of customers. We have no significant portion of our loans concentrated within a single industry or group of related industries. Furthermore, we attempt to avoid making loans that, in an aggregate amount, exceed 10% of total loans to a multiple number of borrowers engaged in similar business activities. As of September 30, 2022, there were no aggregated loan concentrations of this type. We do not believe there are any material seasonal factors that would have a material adverse effect on us. We do not have any foreign loans or deposits.

Concentration of Credit Risk

We consider concentrations of credit to exist when, pursuant to regulatory guidelines, the amounts loaned to a multiple number of borrowers engaged in similar business activities which would cause them to be similarly impacted by general economic conditions represents 25% of total Tier 1 capital plus regulatory adjusted allowance for credit losses of the Company, or $986.4 million at September 30, 2022. Based on this criteria, we had six such credit concentrations at September 30, 2022, including loans to lessors of nonresidential buildings (except mini-warehouses) of $5.6 billion, loans secured by owner occupied office buildings (including medical office buildings) of $1.9 billion, loans secured by owner occupied nonresidential buildings (excluding office buildings) of $1.7 billion, loans to lessors of residential buildings (investment properties and multi-family) of $1.6 billion, loans secured by 1st mortgage 1-4 family owner occupied residential property (including condos and home equity lines) of $5.1 billion and loans secured by jumbo (original loans greater than $548,250) 1st mortgage 1-4 family owner occupied residential property of $2.1 billion. The risk for these loans and for all loans is managed collectively through the use of credit underwriting practices developed and updated over time. The loss estimate for these loans is determined using our standard ACL methodology.

With some financial institutions adopting CECL in the first quarter of 2020, banking regulators established new guidelines for calculating credit concentrations. Banking regulators set the guidelines for construction, land development and other land loans to total less than 100% of total Tier 1 capital less modified CECL transitional amount plus ACL (CDL concentration ratio) and for total commercial real estate loans (construction, land development and other land loans along with other non-owner occupied commercial real estate and multifamily loans) to total less than 300% of total Tier 1 capital less modified CECL transitional amount plus ACL (CRE concentration ratio). Both ratios are calculated by dividing certain types of loan balances for each of the two categories by the Bank’s total Tier 1 capital less modified CECL transitional amount plus ACL. At September 30, 2022 and December 31, 2021, the Bank’s CDL concentration ratio was 59.7% and 55.2%, respectively, and its CRE concentration ratio was 247.9% and 238.5%, respectively. As of September 30, 2022, the Bank was below the established regulatory guidelines. When a bank’s ratios are in excess of one or both of these loan concentration ratios guidelines, banking regulators generally require an increased level of monitoring in these lending areas by bank Management. Therefore, we monitor these two ratios as part of our concentration management processes.

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Reconciliation of GAAP to Non-GAAP

The return on average tangible equity is a non-GAAP financial measure that excludes the effect of the average balance of intangible assets and adds back the after-tax amortization of intangibles to GAAP basis net income. Management believes these non-GAAP financial measures provide additional information that is useful to investors in evaluating our performance and capital and may facilitate comparisons with other institutions in the banking industry as well as period-to-period comparisons. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, are not audited, and may not be comparable to other similarly titled financial measures used by other companies. Investors should not consider non-GAAP measures in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2022			2021			2022			2021
Return on average equity (GAAP)		10.31	%		10.21	%		9.32	%		10.41	%
Effect to adjust for intangible assets		7.68	%		6.65	%		6.87	%		6.93	%
Return on average tangible equity (non-GAAP)		17.99	%		16.86	%		16.19	%		17.34	%

Average shareholders’ equity (GAAP)	$	5,121,560		$	4,773,451		$	5,056,692		$	4,733,597
Average intangible assets		(2,052,463)			(1,722,915)			(1,982,227)			(1,728,964)
Adjusted average shareholders’ equity (non-GAAP)	$	3,069,097		$	3,050,536		$	3,074,465		$	3,004,633

Net income (GAAP)	$	133,043		$	122,788		$	352,547		$	368,697
Amortization of intangibles		7,837			8,543			25,178			26,675
Tax effect		(1,742)			(1,714)			(5,479)			(5,711)
Net income excluding the after-tax effect of amortization of intangibles (non-GAAP)	$	139,138		$	129,617		$	372,246		$	389,661

Cautionary Note Regarding Any Forward-Looking Statements

Statements included in this report, which are not historical in nature are intended to be, and are hereby identified as, forward-looking statements for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements are based on, among other things, Management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and the acquisition of Atlantic Capital. Words and phrases such as “may,” “approximately,” “continue,” “should,” “expects,” “projects,” “anticipates,” “is likely,” “look ahead,” “look forward,” “believes,” “will,” “intends,” “estimates,” “strategy,” “plan,” “could,” “potential,” “possible” and variations of such words and similar expressions are intended to identify such forward-looking statements. We caution readers that forward-looking statements are subject to certain risks, uncertainties and assumptions that are difficult to predict with regard to, among other things, timing, extent, likelihood and degree of occurrence, which could cause actual results to differ materially from anticipated results. Such risks, uncertainties and assumptions, include, among others, the following:

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Economic downturn risk, potentially resulting in deterioration in the credit markets, greater than expected noninterest expenses, excessive loan losses and other negative consequences, which risks could be exacerbated by potential negative economic developments resulting from inflation, interest rate increases, government or regulatory responses to the COVID-19 pandemic, federal spending or spending cuts and/or one or more federal budget-related impasses or actions;

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Personnel risk, including our inability to attract and retain consumer and commercial bankers to execute on our client-centered, relationship driven banking model;

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Deposit attrition, client loss or revenue loss following completed mergers or acquisitions may be greater than anticipated;

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Failure to realize cost savings and any revenue synergies from, and to limit liabilities associated with, mergers and acquisitions within the expected time frame, including our acquisition of Atlantic Capital;

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Risks related to the acquisition of Atlantic Capital, including:

potential difficulty in maintaining relationships with clients, employees or business partners as a result of the acquisition of Atlantic Capital;

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the amount of the costs, fees, expenses and charges related to the acquisition; and

problems arising from the integration of the two companies, including the risk that the integration will be materially delayed or will be more costly or difficult than expected;

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Controls and procedures risk, including the potential failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures;

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Ownership dilution risk associated with potential mergers and acquisitions in which our stock may be issued as consideration for an acquired company;

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Potential deterioration in real estate values;

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The impact of competition with other financial service businesses and from nontraditional financial technology companies, including pricing pressures and the resulting impact, including as a result of compression to net interest margin;

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Credit risks associated with an obligor’s failure to meet the terms of any contract with the Bank or otherwise fail to perform as agreed under the terms of any loan-related document;

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Interest risk involving the effect of a change in interest rates on our earnings, the market value of our loan and securities portfolios, and the market value of our equity;

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Liquidity risk affecting our ability to meet our obligations when they come due;

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Risks associated with an anticipated increase in our investment securities portfolio, including risks associated with acquiring and holding investment securities or potentially determining that the amount of investment securities we desire to acquire are not available on terms acceptable to us;

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Price risk focusing on changes in market factors that may affect the value of traded instruments in “mark-to-market” portfolios;

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Transaction risk arising from problems with service or product delivery;

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Compliance risk involving risk to earnings or capital resulting from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards;

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Regulatory change risk resulting from new laws, rules, regulations, accounting principles, proscribed practices or ethical standards, including, without limitation, the possibility that regulatory agencies may require higher levels of capital above the current regulatory-mandated minimums and the possibility of changes in accounting standards, policies, principles and practices, including changes in accounting principles relating to loan loss recognition (2016-13 - CECL);

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Strategic risk resulting from adverse business decisions or improper implementation of business decisions;

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Reputation risk that adversely affects our earnings or capital arising from negative public opinion;

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Current or anticipated impact of military conflict, including escalating military tension between Russia and Ukraine, civil unrest, terrorism or other geopolitical events, and related risks that result in loss of consumer confidence and economic disruptions;

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Cybersecurity risk related to our dependence on internal computer systems and the technology of outside service providers, as well as the potential impacts of third party security breaches, which subject us to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events;

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Greater than expected noninterest expenses;

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Noninterest income risk resulting from the effect of regulations that prohibit or restrict the charging of fees on paying overdrafts on ATM and one-time debit card transactions;

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Potential deposit attrition, higher than expected costs, customer loss and business disruption associated with merger and acquisition integration, including, without limitation, and potential difficulties in maintaining relationships with key personnel;

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The risks of fluctuations in the market price of our common stock that may or may not reflect our economic condition or performance;

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The payment of dividends on our common stock is subject to regulatory supervision as well as the discretion of our Board of Directors, our performance and other factors;

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Risks associated with actual or potential information requests, investigations or legal proceedings by customers, regulatory agencies or others;

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Operational, technological, cultural, regulatory, legal, credit and other risks associated with the exploration, consummation and integration of potential future acquisition, whether involving stock or cash consideration;

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Risks associated with our reliance on models and future updates we make to our models, including the assumptions used by these models;

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Environmental, Social and Governance (“ESG”) risks that could adversely affect our reputation, the trading price of our common stock and/or our business, operations, and earnings; and

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Other risks and uncertainties disclosed in our most recent Annual Report on Form 10-K filed with the SEC,

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including the factors discussed in Item 1A, Risk Factors, or disclosed in documents filed or furnished by us with or to the SEC after the filing of such Annual Reports on Form 10-K, including risks and uncertainties disclosed in Part II, Item 1A. Risk Factors, of this Quarterly Report on Form 10-Q, any of which could cause actual results to differ materially from future results expressed, implied or otherwise anticipated by such forward-looking statements.

For any forward-looking statements made in this report or in any documents incorporated by reference into this Report, we claim the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. All forward-looking statements speak only as of the date they are made and are based on information available at that time. We do not undertake any obligation to update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements. All subsequent written and oral forward-looking statements by us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

Additional information with respect to factors that may cause actual results to differ materially from those contemplated by our forward-looking statements may also be included in other reports that we file with the SEC. We caution that the foregoing list of risk factors is not exclusive and not to place undue reliance on forward-looking statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our quantitative and qualitative disclosures about market risk as of September 30, 2022 from those disclosures presented in our Annual Report on Form 10-K for the year ended 2021.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

SouthState’s Management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of SouthState’s disclosure controls and procedures as of September 30, 2022, in accordance with Rule 13a-15 of the Securities Exchange Act of 1934. We applied our judgment in the process of reviewing these controls and procedures, which, by their nature, can provide only reasonable assurance regarding our control objectives. Based upon that evaluation, our Chief Executive Officer and the Chief Financial Officer concluded that SouthState’s disclosure controls and procedures as of September 30, 2022, were effective to provide reasonable assurance regarding our control objectives.

In conducting the evaluation of the effectiveness of our internal controls over financial reporting as of September 30, 2022, we excluded the operations of Atlantic Capital as permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission (not to extend more than one year beyond the date of the acquisition or for more than one annual reporting period). In conducting the evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2022, we excluded those disclosure controls and procedures of Atlantic Capital that are subsumed by internal control over financial reporting. The merger was completed on March 1, 2022. As of and for the quarter ended September 30, 2022, Atlantic Capital’s assets represented approximately 8 percent of our consolidated assets. See Note 4 — Mergers and Acquisitions for further discussion of the merger and its impact on our consolidated financial statements.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control over Financial Reporting

During the first quarter of 2022, Atlantic Capital merged into SouthState Corporation. We are working to

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integrate Atlantic Capital into our overall internal control over financial reporting processes. Except for changes made in connection with this integration of Atlantic Capital, there has been no change in our internal control over financial reporting during the three months ended September 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

As of September 30, 2022 and the date of this Quarterly Report on Form 10-Q, we believe that we are not party to, nor is any or our property the subject of, any pending material legal proceeding other than those that may occur in the ordinary course of our business.

Item 1A. RISK FACTORS

Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as well as cautionary statements contained in this Quarterly Report on Form 10-Q, including those under the caption “Cautionary Note Regarding Any Forward-Looking Statements” set forth in Part I, Item 2. of this Quarterly Report on Form 10-Q, risks and matters described elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.

There have been no material changes to the risk factors disclosed in Item 1A. of Part I in our Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)

Not applicable

(b)

Not applicable

(c)

Issuer Purchases of Registered Equity Securities:

In January 2021, the Board of Directors of the Company approved the authorization of a 3,500,000 share Company stock repurchase plan (the “2021 Stock Repurchase Plan”). During 2021 and through September 30, 2022, we repurchased 3,129,979 shares under the 2021 Stock Repurchase Plan, at an average price of $81.97 per share (excluding cost of commissions) for a total of $256.6 million. Of this amount, we repurchased 1,312,038 shares, at an average price of $83.99 per share (excluding cost of commissions) for a total of $110.2 million during 2022. Of the 3,500,000 shares authorized under the 2021 Stock Repurchase Plan, 370,021 shares of common stock remain to be repurchased under the program.

On June 7, 2022, the Company received Federal Reserve Board’s supervisory nonobjection on the 2022 Stock Repurchase Program, which was previously approved by the Board of Directors of the Company in April 2022, contingent upon receipt of such supervisory nonobjection. The aggregate number of shares of common stock the Company is authorized to repurchase totals 4,120,021 million shares, which includes 370,021 shares remaining from the Company’s 2021 Stock Repurchase Plan. The Company did not repurchase any shares pursuant to the 2022 Stock Repurchase Program during the three or nine months ended September 30, 2022. Of the 4,120,021 shares authorized under the 2022 Stock Repurchase Program, we may repurchase up to 4,120,021 shares of common stock.

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The following table reflects share repurchase activity during the third quarter of 2022:


						(d) Maximum
					(c) Total	Number (or
					Number of	Approximate
					Shares (or	Dollar Value) of
					Units)	Shares (or
	(a) Total				Purchased as	Units) that May
	Number of				Part of Publicly	Yet Be
	Shares (or		(b) Average		Announced	Purchased
	Units)		Price Paid per		Plans or	Under the Plans
Period	Purchased		Share (or Unit)		Programs	or Programs

July 1 ‑ July 31	4,413	*	$	78.88	—	4,120,021
August 1 - August 31	6,452	*		81.18	—	4,120,021
September 1 - September 30	86	*		79.37	—	4,120,021
Total	10,951				—	4,120,021

For the months ended July 31, 2022, August, 31, 2022, and September 30, 2022, totals include 4,413 shares, 6,452 shares and 86 shares, respectively, that were repurchased under arrangements, authorized by our stock-based compensation plans and Board of Directors, whereby officers or directors may sell previously owned shares to the Company in order to pay for the exercises of stock options or for income taxes owed on vesting shares of restricted stock. These shares were not purchased under the 2022 Stock Repurchase Program to repurchase shares.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS

The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated by reference.

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Exhibit Index

Incorporated by Reference

Exhibit No.

Description

Form

Commission File No.

Exhibit

Filing Date

Filed Herewith

10.1

First Amendment to Employment Agreement between SouthState Bank, N.A. and Greg A. Lapointe, dated as of October 3, 2022

31.1

Rule 13a-14(a) Certification of Principal Executive Officer

31.2

Rule 13a-14(a) Certification of Principal Financial Officer

Section 1350 Certifications of Principal Executive Officer and Principal Financial Officer

101

The following financial statements from the Quarterly Report on Form 10-Q of SouthState Corporation for the quarter ended September 30, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) Condensed Consolidated Statement of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements.

104

Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).

* Denotes a management compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SOUTHSTATE CORPORATION
	(Registrant)


Date: November 4, 2022	/s/ John C. Corbett
	John C. Corbett
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: November 4, 2022	/s/ William E. Matthews, V
	William E. Matthews, V
	Senior Executive Vice President,
	Chief Financial Officer
	(Principal Financial Officer)

Date: November 4, 2022	/s/ Sara G. Arana
	Sara G. Arana
	Senior Vice President and
	Principal Accounting Officer