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 March 31, 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 May 5, 2022
Common Stock, $2.50 par value		75,475,551

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SouthState Corporation and Subsidiaries

March 31, 2022 Form 10-Q

INDEX

		Page

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements

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

	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2022 and 2021	4

	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended March 31, 2022 and 2021	5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2022 and 2021	6

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	77

Item 4.	Controls and Procedures	77

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	78

Item 1A.	Risk Factors	78

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78

Item 3.	Defaults Upon Senior Securities	79

Item 4.	Mine Safety Disclosures	79

Item 5.	Other Information	79

Item 6.	Exhibits	79

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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)


	March 31,		December 31,
	2022		2021
		(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	588,372	$	476,653
Federal funds sold and interest-earning deposits with banks		5,414,420		6,018,915
Deposits in other financial institutions (restricted cash)		29,814		347,579
Total cash and cash equivalents		6,032,606		6,843,147
Trading securities, at fair value		74,234		77,689
Investment securities:
Securities held to maturity (fair value of $2,630,495 and $1,778,064)		2,827,769		1,819,901
Securities available for sale, at fair value		5,924,206		5,193,478
Other investments		179,258		160,568
Total investment securities		8,931,233		7,173,947
Loans held for sale		130,376		191,723
Loans:
Acquired - non-purchased credit deteriorated loans		7,633,824		5,890,069
Acquired - purchased credit deteriorated loans		1,939,033		1,987,322
Non-acquired loans		16,983,570		16,050,775
Less allowance for credit losses		(300,396)		(301,807)
Loans, net		26,256,031		23,626,359
Other real estate owned		3,290		2,736
Bank property held for sale		6,417		9,578
Premises and equipment, net		568,332		558,499
Bank owned life insurance ("BOLI")		942,922		783,049
Deferred tax assets		136,078		64,964
Derivatives assets		412,815		414,742
Mortgage servicing rights		83,339		65,620
Core deposit and other intangibles		140,364		128,067
Goodwill		1,924,024		1,581,085
Other assets		559,480		438,827
Total assets	$	46,201,541	$	41,960,032
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	14,052,332	$	11,498,840
Interest-bearing		24,723,498		23,555,989
Total deposits		38,775,830		35,054,829
Federal funds purchased		343,819		381,195
Securities sold under agreements to repurchase		426,590		400,044
Corporate and subordinated debentures		405,553		327,066
Reserve for unfunded commitments		30,368		30,510
Derivative liabilities		412,168		410,137
Other liabilities		632,805		553,311
Total liabilities		41,027,133		37,157,092
Shareholders’ equity:
Common stock - $2.50 par value; authorized 160,000,000 shares; 75,761,018 and 69,332,297 shares issued and outstanding, respectively		189,403		173,331
Surplus		4,214,897		3,653,098
Retained earnings		1,064,064		997,657
Accumulated other comprehensive loss		(293,956)		(21,146)
Total shareholders’ equity		5,174,408		4,802,940
Total liabilities and shareholders’ equity	$	46,201,541	$	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 Net Income (unaudited)

(In thousands, except per share data)


	Three Months Ended
	March 31,
	2022		2021
Interest income:
Loans, including fees	$	233,617	$	259,967
Investment securities:
Taxable		30,120		15,425
Tax-exempt		3,875		2,095
Federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with banks		2,852		989
Total interest income		270,464		278,476
Interest expense:
Deposits		4,628		11,257
Federal funds purchased and securities sold under agreements to repurchase		269		351
Corporate and subordinated debentures		4,093		4,870
Total interest expense		8,990		16,478
Net interest income		261,474		261,998
Recovery for credit losses		(8,449)		(58,420)
Net interest income after recovery for credit losses		269,923		320,418
Noninterest income:
Fees on deposit accounts		28,902		25,282
Mortgage banking income		10,594		26,880
Trust and investment services income		9,718		8,578
Correspondent banking and capital market income		27,994		28,748
Other income		8,882		6,797
Total noninterest income		86,090		96,285
Noninterest expense:
Salaries and employee benefits		137,673		140,361
Occupancy expense		21,840		23,331
Information services expense		19,193		18,789
OREO and loan related (gain) expense		(238)		1,002
Amortization of intangibles		8,494		9,164
Supplies, printing and postage expense		2,189		2,670
Professional fees		3,749		3,274
FDIC assessment and other regulatory charges		4,812		3,841
Advertising and marketing		1,763		1,740
Merger and branch consolidation related expense		10,276		10,009
Other expense		18,849		14,530
Total noninterest expense		228,600		228,711
Earnings:
Income before provision for income taxes		127,413		187,992
Provision for income taxes		27,084		41,043
Net income	$	100,329	$	146,949
Earnings per common share:
Basic	$	1.40	$	2.07
Diluted	$	1.39	$	2.06
Weighted average common shares outstanding:
Basic		71,447		71,009
Diluted		72,111		71,484

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

(Dollars in thousands)


	Three Months Ended
	March 31,
	2022		2021
Net income	$	100,329	$	146,949
Other comprehensive loss:
Unrealized holding losses on available for sale securities:
Unrealized holding losses arising during period		(362,120)		(63,790)
Tax effect		89,310		15,170
Net of tax amount		(272,810)		(48,620)
Other comprehensive loss, net of tax		(272,810)		(48,620)
Comprehensive (loss) income	$	(172,481)	$	98,329

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 March 31, 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	—		—		—		146,949		—		146,949
Other comprehensive loss, net of tax effects	—		—		—		—		(48,620)		(48,620)
Total comprehensive income											98,329
Cash dividends declared on common stock at $0.47 per share	—		—		—		(33,380)		—		(33,380)
Cash dividends equivalents paid on restricted stock units	—		—		—		(68)		—		(68)
Stock options exercised	37,854		94		1,677		—		—		1,771
Stock issued pursuant to restricted stock units	59,462		149		(149)		—		—		—
Common stock repurchased	(10,347)		(26)		(778)		—		—		(804)
Share-based compensation expense	—		—		6,092		—		—		6,092
Balance, March 31, 2021	71,060,446	$	177,651	$	3,772,248	$	770,952	$	(1,031)	$	4,719,820
Balance, December 31, 2021	69,332,297	$	173,331	$	3,653,098	$	997,657	$	(21,146)	$	4,802,940
Comprehensive loss:
Net income	—		—		—		100,329		—		100,329
Other comprehensive loss, net of tax effects	—		—		—		—		(272,810)		(272,810)
Total comprehensive loss											(172,481)
Cash dividends declared on common stock at $0.49 per share	—		—		—		(33,822)		—		(33,822)
Cash dividend equivalents paid on restricted stock units	—		—		—		(100)		—		(100)
Stock options exercised	9,703		24		384		—		—		408
Stock issued pursuant to restricted stock units	128,302		321		(321)		—		—		—
Common stock repurchased - buyback plan	(1,012,038)		(2,530)		(83,928)		—		—		(86,458)
Common stock repurchased	(28,049)		(70)		(2,287)		—		—		(2,357)
Share-based compensation expense	—		—		8,486		—		—		8,486
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, March 31, 2022	75,761,018	$	189,403	$	4,214,897	$	1,064,064	$	(293,956)	$	5,174,408

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)


	Three Months Ended
	March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	100,329	$	146,949
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		16,178		15,475
Recovery from credit losses		(8,449)		(58,420)
Deferred income taxes		49,073		21,037
Share-based compensation expense		8,486		6,092
Accretion of discount related to acquired loans		(6,741)		(10,416)
Losses on disposal of premises and equipment		812		753
(Gains) losses on sale of bank properties held for sale and repossessed real estate		(624)		2,349
Net amortization of premiums on investment securities		7,767		9,481
Bank properties held for sale and repossessed real estate write downs		195		469
Fair value adjustment for loans held for sale		6,026		5,852
Originations and purchases of loans held for sale		(645,339)		(842,796)
Proceeds from sales of loans held for sale		702,505		795,124
Gains on sales of loans held for sale		(1,845)		(20,709)
Increase in cash surrender value of BOLI		(5,260)		(3,280)
Net change in:
Accrued interest receivable		(4,630)		4,169
Prepaid assets		3,309		1,685
Operating leases		33		1,638
Bank owned life insurance		—		24
Trading securities		3,455		(41,412)
Derivative assets		5,882		397,570
Miscellaneous other assets		(75,613)		(172,197)
Accrued interest payable		3,035		1,394
Accrued income taxes		(20,188)		19,436
Derivative liabilities		(1,968)		(402,575)
Miscellaneous other liabilities		35,761		421,343
Net cash provided by operating activities		172,189		299,035
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale		414,438		—
Proceeds from maturities and calls of investment securities held to maturity		40,152		16,746
Proceeds from maturities and calls of investment securities available for sale		158,642		217,712
Proceeds from sales and redemptions of other investment securities		13,216		155
Purchases of investment securities available for sale		(980,298)		(850,593)
Purchases of investment securities held to maturity		(1,049,722)		(276,725)
Purchases of other investment securities		(19,890)		(1,181)
Net (increase) decrease in loans		(243,652)		178,078
Net cash received from (paid in) acquisitions		250,115		(39,929)
Recoveries of loans previously charged off		3,168		3,396
Purchase of bank owned life insurance		(80,000)		—
Purchases of premises and equipment		(4,983)		(5,580)
Proceeds from sale of bank properties held for sale and repossessed real estate		5,449		6,599
Proceeds from sale of premises and equipment		453		952
Net cash used in investing activities		(1,492,912)		(750,370)
Cash flows from financing activities:
Net increase in deposits		693,341		1,749,783
Net (decrease) increase in federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings		(60,830)		98,915
Common stock repurchases		(88,815)		(804)
Dividends paid		(33,922)		(33,448)
Stock options exercised		408		1,771
Net cash provided by financing activities		510,182		1,816,217
Net increase (decrease) in cash and cash equivalents		(810,541)		1,364,882
Cash and cash equivalents at beginning of period		6,843,147		4,609,255
Cash and cash equivalents at end of period	$	6,032,606	$	5,974,137
Supplemental Disclosures:
Cash Flow Information:
Cash paid for:
Interest	$	5,956	$	15,083
Income taxes	$	1,231	$	2,072
Recognition of operating lease assets in exchange for lease liabilities	$	12,428	$	1,298
Schedule of Noncash Investing Transactions:
Acquisitions:
Fair value of tangible assets acquired	$	3,499,774	$	34,838
Other intangible assets acquired		20,791		—
Liabilities assumed		3,205,694		2,343
Net identifiable assets acquired over liabilities assumed		342,939		15,816
Common stock issued in acquisition		659,772		—
Real estate acquired in full or in partial settlement of loans	$	1,151	$	1,631

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 months ended March 31, 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, South State 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 March 31, 2022 and December 31, 2021, the Company had $2.8 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 March 31, 2022 and December 31, 2021, the accrued interest receivables for all investment securities recorded in Other Assets were $25.4 million and $19.2 million, respectively.

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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 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 utilized 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. It therefore utilized 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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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.

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.

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.

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 March 31, 2022 and December 31, 2021, the accrued interest receivables for loans recorded in Other Assets were $80.6 million and $70.6 million, respectively.

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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 March 31, 2022 and December 31, 2021, the liabilities recorded for expected credit losses on unfunded commitments were $30.4 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 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 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.

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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 $48.7 million, or 2.01%, 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 $112.7 million that had more than insignificantly deteriorated since origination and were thus determined to be PCD loans.

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 $342.9 million. The goodwill was calculated based on the fair values of the assets acquired and liabilities assumed as of the acquisition date.

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During three month ended March 31, 2022, the Company incurred approximately $5.6 million of acquisition costs related to this transaction. These acquisition costs are reported in merger and branch consolidation related expenses on the Company’s 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
	As Recorded		Fair Value			As Recorded by
(Dollars in thousands)	by Atlantic Capital		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)		2,375,292
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)		32,504
Other assets		45,274		(1,277)	(g)		43,997
Total assets	$	3,551,304	$	(30,739)		$	3,520,565

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)			314,871
Goodwill		—		342,939			342,939
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 and time deposits 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 1.23%, or $29.7 million, credit mark of the loan portfolio and 2.01% total mark, or $48.7 million, including 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. Prior to the 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 the Atlantic Capital rate to the Company’s rate. The difference in rates relates to state income

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taxes.

(g)— Represents the fair value adjustment (decrease) for Investment in low income housing investment of $1.1 million and write-off of prepaid assets.

(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.

Comparative and Pro Forma Financial Information for the Atlantic Capital Acquisition

Pro-forma data for the three months ended March 31, 2022 and March 31, 2021 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 $5.6 million from the Atlantic Capital acquisition were incurred during 2022 and were 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. Expenses related to systems conversions and other costs of integration are expected to be recorded during 2022 for the Atlantic Capital transaction. 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
	Three Months Ended		Three Months Ended
(Dollars in thousands)	March 31, 2022		March 31, 2021
Total revenues (net interest income plus noninterest income)	$	367,675	$	391,080
Net interest income	$	278,056	$	291,233
Net adjusted income available to the common shareholder	$	124,685	$	147,366
EPS - basic	$	1.64	$	1.88
EPS - diluted	$	1.62	$	1.87

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. Although the Company has not converted Atlantic Capital’s core system, 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.

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Note 5 —Securities

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
March 31, 2022:
U.S. Government agencies	$	197,259	$	—	$	(12,318)	$	184,941
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,740,217		—		(125,037)		1,615,180
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		455,180		—		(24,951)		430,229
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		373,100		108		(28,673)		344,535
Small Business Administration loan-backed securities		62,013		—		(6,403)		55,610
	$	2,827,769	$	108	$	(197,382)	$	2,630,495
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

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
March 31, 2022:
U.S. Treasuries	$	270,547	$	—	$	(1,966)	$	268,581
U.S. Government agencies		190,899		—		(10,957)		179,942
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		2,156,635		48		(142,779)		2,013,904
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		739,068		167		(44,530)		694,705
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,247,034		301		(95,475)		1,151,860
State and municipal obligations		1,201,639		1,884		(75,826)		1,127,697
Small Business Administration loan-backed securities		477,702		551		(20,896)		457,357
Corporate securities		30,619		34		(493)		30,160
	$	6,314,143	$	2,985	$	(392,922)	$	5,924,206
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 months ended March 31, 2022 and 2021, there were no realized gains or losses 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 ACBI securities. These securities were marked to fair value at merger and therefore resulted in no gain or loss on sale.

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


	Carrying
(Dollars in thousands)	Value
March 31, 2022:
Federal Home Loan Bank stock	$	15,095
Federal Reserve Bank stock		149,659
Investment in unconsolidated subsidiaries		3,563
Other nonmarketable investment securities		10,941
	$	179,258
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 March 31, 2022, we determined that there was no impairment on other investment securities.

The amortized cost and fair value of debt securities at March 31, 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

—

7,567

7,590

Due after one year through five years

64,365

64,002

477,415

471,472

Due after five years through ten years

433,463

411,807

1,098,144

1,034,518

Due after ten years

2,329,941

2,154,686

4,731,017

4,410,626

2,827,769

2,630,495

6,314,143

5,924,206

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Information pertaining to our securities with gross unrealized losses at March 31, 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
March 31, 2022:
Securities Held to Maturity
U.S. Government agencies	$	6,624	$	140,646	$	5,694	$	44,295
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		67,934		1,058,367		57,103		556,812
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		17,920		273,429		7,031		55,589
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		13,930		140,104		14,743		129,759
Small Business Administration loan-backed securities		—		—		6,403		55,610
	$	106,408	$	1,612,546	$	90,974	$	842,065
Securities Available for Sale
U.S. Treasuries	$	1,966	$	268,581	$	—	$	—
U.S. Government agencies		8,124		157,776		2,833		22,166
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		98,405		1,607,878		44,374		398,080
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		32,801		562,732		11,729		90,910
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		79,666		876,459		15,809		171,206
State and municipal obligations		71,078		960,986		4,748		29,605
Small Business Administration loan-backed securities		13,526		247,135		7,370		141,086
Corporate securities		493		23,628		—		—
	$	306,059	$	4,705,175	$	86,863	$	853,053
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

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

Trading Securities


	March 31,		December 31,
(Dollars in thousands)	2022		2021
U.S. Government agencies	$	14,801	$	5,154
Residential mortgage pass-through securities issued or guaranteed by U.S.
government agencies or sponsored enterprises		26,484		6,853
Other residential mortgage issued or guaranteed by U.S. government
agencies or sponsored enterprises		7,634		12,315
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		10,973		29,667
State and municipal obligations		12,078		20,798
Other debt securities		2,264		2,902
	$	74,234	$	77,689

Net gains and losses on trading securities for the three months ended March 31, 2022 and 2021 were as follows:


	Three Months Ended March 31,
(Dollars in thousands)	2022		2021
Net (losses) gain on sales transaction	$	(1,239)	$	119
Net mark to mark losses		(1,976)		(726)
Net losses on trading securities	$	(3,215)	$	(607)

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Note 6 — Loans

The following is a summary of total loans:


	March 31,		December 31,
(Dollars in thousands)	2022		2021
Loans:
Construction and land development ⁽¹⁾	$	2,316,313	$	2,029,216
Commercial non-owner occupied		7,478,115		6,735,699
Commercial owner occupied real estate		5,346,583		4,970,116
Consumer owner occupied ⁽²⁾		3,813,163		3,638,364
Home equity loans		1,175,573		1,168,594
Commercial and industrial		4,566,641		3,761,133
Other income producing property		680,342		696,804
Consumer		1,167,720		904,657
Other loans		11,977		23,583
Total loans		26,556,427		23,928,166
Less allowance for credit losses		(300,396)		(301,807)
Loans, net	$	26,256,031	$	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 March 31, 2022 and December 31, 2021, to include net deferred costs of $27.9 million compared to net deferred fees of $15.9 million, respectively, and unamortized discount total related to loans acquired of $100.7 million and $68.0 million, respectively. Accrued interest receivables of $80.6 million and $70.6 million, respectively, are accounted for separately and reported in other assets for the periods March 31, 2022 and December 31, 2021.

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


(Dollars in thousands)	March 1, 2022
Book value of acquired loans at acquisition	$	112,737
Allowance for credit losses at acquisition		(9,218)
Non-credit discount at acquisition		(4,509)
Carrying value or book value of acquired loans at acquisition	$	99,010

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 utilize 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.

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●

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 table presents the credit risk profile by risk grade of commercial loans by origination year as of March 31, 2022 and 2021:


		Term Loans
(Dollars in thousands)		Amortized Cost Basis by Origination Year
As of March 31, 2022	2022		2021		2020		2019		2018		Prior		Revolving		Total
Construction and land development
Risk rating:
Pass	$	145,489	$	684,487	$	324,454	$	231,128	$	26,470	$	56,994	$	100,945	$	1,569,967
Special mention		283		2,320		133		181		17		2,731		—		5,665
Substandard		223		732		166		3,153		147		2,524		—		6,945
Doubtful		—		—		—		—		—		7		—		7
Total Construction and land development	$	145,995	$	687,539	$	324,753	$	234,462	$	26,634	$	62,256	$	100,945	$	1,582,584

Commercial non-owner occupied
Risk rating:
Pass	$	456,600	$	1,908,997	$	853,208	$	1,081,774	$	730,349	$	1,912,737	$	112,369	$	7,056,034
Special mention		11,291		15,647		12,714		19,857		36,557		122,637		401		219,104
Substandard		525		25,258		151		63,578		30,546		80,700		2,137		202,895
Doubtful		—		1		—		81		—		—		—		82
Total Commercial non-owner occupied	$	468,416	$	1,949,903	$	866,073	$	1,165,290	$	797,452	$	2,116,074	$	114,907	$	7,478,115

Commercial Owner Occupied
Risk rating:
Pass	$	274,999	$	1,232,157	$	785,579	$	827,228	$	533,651	$	1,407,248	$	74,914	$	5,135,776
Special mention		30		9,014		6,055		16,248		14,731		77,511		62		123,651
Substandard		2,040		6,040		2,464		10,658		5,327		59,816		786		87,131
Doubtful		—		—		1		—		—		24		—		25
Total commercial owner occupied	$	277,069	$	1,247,211	$	794,099	$	854,134	$	553,709	$	1,544,599	$	75,762	$	5,346,583

Commercial and industrial
Risk rating:
Pass	$	210,266	$	1,299,047	$	652,273	$	384,480	$	287,788	$	459,668	$	1,181,161	$	4,474,683
Special mention		268		3,068		741		5,192		2,061		8,374		10,254		29,958
Substandard		488		451		6,446		12,189		15,122		7,713		19,558		61,967
Doubtful		—		—		—		5		3		24		1		33
Total commercial and industrial	$	211,022	$	1,302,566	$	659,460	$	401,866	$	304,974	$	475,779	$	1,210,974	$	4,566,641

Other income producing property
Risk rating:
Pass	$	32,022	$	104,526	$	69,075	$	56,526	$	64,745	$	171,033	$	59,947	$	557,874
Special mention		258		1,460		1,579		1,073		200		9,940		89		14,599
Substandard		447		1,219		465		442		2,195		13,767		240		18,775
Doubtful		—		—		—		—		—		5		—		5
Total other income producing property	$	32,727	$	107,205	$	71,119	$	58,041	$	67,140	$	194,745	$	60,276	$	591,253

Consumer owner occupied
Risk rating:
Pass	$	392	$	3,456	$	2,637	$	1,051	$	81	$	582	$	17,371	$	25,570
Special mention		505		1,208		175		1,946		—		1		6		3,841
Substandard		—		99		15		236		—		221		—		571
Doubtful		—		—		—		—		—		145		—		145
Total Consumer owner occupied	$	897	$	4,763	$	2,827	$	3,233	$	81	$	949	$	17,377	$	30,127

Other loans
Risk rating:
Pass	$	11,977	$	—	$	—	$	—	$	—	$	—	$	—	$	11,977
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total other loans	$	11,977	$	—	$	—	$	—	$	—	$	—	$	—	$	11,977

Total Commercial Loans
Risk rating:
Pass	$	1,131,745	$	5,232,670	$	2,687,226	$	2,582,187	$	1,643,084	$	4,008,262	$	1,546,707	$	18,831,881
Special mention		12,635		32,717		21,397		44,497		53,566		221,194		10,812		396,818
Substandard		3,723		33,799		9,707		90,256		53,337		164,741		22,721		378,284
Doubtful		—		1		1		86		3		205		1		297
Total Commercial Loans	$	1,148,103	$	5,299,187	$	2,718,331	$	2,717,026	$	1,749,990	$	4,394,402	$	1,580,241	$	19,607,280

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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

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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.

The following table presents the credit risk profile by past due status of consumer loans by origination year as of March 31, 2022:


	Term Loans
(Dollars in thousands)	Amortized Cost Basis by Origination Year
As of March 31, 2022	2022		2021		2020		2019		2018		Prior		Revolving		Total
Consumer owner occupied
Days past due:
Current	$	357,337	$	1,197,029	$	660,950	$	376,955	$	229,942	$	948,311	$	66	$	3,770,590
30 days past due		—		241		750		564		206		1,531		—		3,292
60 days past due		—		—		—		—		129		786		—		915
90 days past due		—		234		642		975		808		5,580		—		8,239
Total Consumer owner occupied	$	357,337	$	1,197,504	$	662,342	$	378,494	$	231,085	$	956,208	$	66	$	3,783,036

Home equity loans
Days past due:
Current	$	1,388	$	6,287	$	4,538	$	3,889	$	2,283	$	25,090	$	1,127,814	$	1,171,289
30 days past due		—		5		72		—		—		280		1,515		1,872
60 days past due		—		117		—		112		—		118		80		427
90 days past due		—		75		40		25		—		1,663		182		1,985
Total Home equity loans	$	1,388	$	6,484	$	4,650	$	4,026	$	2,283	$	27,151	$	1,129,591	$	1,175,573

Consumer
Days past due:
Current	$	203,365	$	383,890	$	162,172	$	114,271	$	62,668	$	177,289	$	40,100	$	1,143,755
30 days past due		—		12,622		830		46		115		1,171		549		15,333
60 days past due		—		5,953		465		13		12		379		177		6,999
90 days past due		—		69		84		114		115		1,218		33		1,633
Total consumer	$	203,365	$	402,534	$	163,551	$	114,444	$	62,910	$	180,057	$	40,859	$	1,167,720

Construction and land development
Days past due:
Current	$	58,048	$	479,616	$	141,951	$	24,361	$	9,745	$	19,470	$	162	$	733,353
30 days past due		—		2		—		—		—		1		—		3
60 days past due		—		—		371		—		—		—		—		371
90 days past due		—		—		—		—		—		2		—		2
Total Construction and land development	$	58,048	$	479,618	$	142,322	$	24,361	$	9,745	$	19,473	$	162	$	733,729

Other income producing property
Days past due:
Current	$	9,101	$	22,809	$	5,360	$	4,073	$	4,755	$	41,108	$	1,422	$	88,628
30 days past due		—		—		—		—		—		335		—		335
60 days past due		—		—		—		—		—		—		—		—
90 days past due		—		—		—		—		—		126		—		126
Total other income producing property	$	9,101	$	22,809	$	5,360	$	4,073	$	4,755	$	41,569	$	1,422	$	89,089

Total Consumer Loans
Days past due:
Current	$	629,239	$	2,089,631	$	974,971	$	523,549	$	309,393	$	1,211,268	$	1,169,564	$	6,907,615
30 days past due		—		12,870		1,652		610		321		3,318		2,064		20,835
60 days past due		—		6,070		836		125		141		1,283		257		8,712
90 days past due		—		378		766		1,114		923		8,589		215		11,985
Total Consumer Loans	$	629,239	$	2,108,949	$	978,225	$	525,398	$	310,778	$	1,224,458	$	1,172,100	$	6,949,147

The following table presents the credit risk profile by past due status of total loans by origination year as of March 31, 2022:

Term Loans

(Dollars in thousands)

Amortized Cost Basis by Origination Year

As of March 31, 2022

2022

2021

2020

2019

2018

Prior

Revolving

Total

Total Loans

1,777,342

7,408,136

3,696,556

3,242,424

2,060,768

5,618,860

2,752,341

26,556,427

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The following table presents the credit risk profile by past due status of consumer loans by origination year as of March 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	$	314,475	$	169,443	$	127,757	$	69,892	$	36,304	$	151,948	$	29,168	$	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	$	314,923	$	170,010	$	128,236	$	70,316	$	36,555	$	155,295	$	29,322	$	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 the credit risk profile by past due status of total loans by origination year as of March 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
March 31, 2022
Construction and land development	$	765	$	1,721	$	25	$	2,511	$	2,312,463	$	1,339	$	2,316,313
Commercial non-owner occupied		5,488		1,251		9,793		16,532		7,442,210		19,373		7,478,115
Commercial owner occupied		4,357		4,515		2,547		11,419		5,319,799		15,365		5,346,583
Consumer owner occupied		3,060		312		—		3,372		3,791,711		18,080		3,813,163
Home equity loans		1,339		217		—		1,556		1,167,547		6,470		1,175,573
Commercial and industrial		20,528		12,035		22,984		55,547		4,501,169		9,925		4,566,641
Other income producing property		1,543		2,400		236		4,179		671,254		4,909		680,342
Consumer		15,074		6,866		1		21,941		1,142,391		3,388		1,167,720
Other loans		—		—		—		—		11,977		—		11,977
	$	52,154	$	29,317	$	35,586	$	117,057	$	26,360,521	$	78,849	$	26,556,427
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.


	March 31,		Greater than		Non-accrual		December 31,
(Dollars in thousands)	2022		90 Days Accruing⁽¹⁾		with no allowance⁽¹⁾		2021
Construction and land development	$	1,339	$	25	$	15	$	1,567
Commercial non-owner occupied		19,373		9,793		9,432		19,909
Commercial owner occupied real estate		15,365		2,547		6,474		14,532
Consumer owner occupied		18,080		—		—		18,183
Home equity loans		6,470		—		48		6,255
Commercial and industrial		9,925		22,984		423		7,441
Other income producing property		4,909		236		892		4,075
Consumer		3,388		1		—		3,456
Total loans on nonaccrual status	$	78,849	$	35,586	$	17,284	$	75,418

(1)

– Greater than 90 days accruing and non-accrual with no allowance loans at March 31, 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:


	March 31,		Collateral			December 31,		Collateral
(Dollars in thousands)	2022		Coverage		%	2021		Coverage		%
Commercial owner occupied real estate
Church	$	—	$	—		$	1,953	$	2,308	118%
Other		4,556		4,643	102%		4,656		12,200	262%
Commercial non-owner occupied real estate
Hotel		—		—			1,822		4,100	225%
Other		6,823		9,810	144%		6,949		9,630	139%
Total collateral dependent loans	$	11,379	$	14,453		$	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

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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 costs, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. During the second quarter of 2020, the Bank increased the threshold limit for loans individually evaluated from $500,000 to $1.0 million. 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 decreased $4.0 million during the three months ended March 31, 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 regards 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.

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The following table presents loans designated as TDRs segregated by class and type of concession that were restructured during the quarter ended March 31, 2022 and 2021.


	Three Months Ended March 31,
	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
Construction and land development	1	$	120	$	120	—	$	—	$	—
Commercial non-owner occupied	1		187		187	—		—		—
Commercial owner occupied	2		268		268	—		—		—
Consumer owner occupied	1		99		99	—		—		—
Commercial and industrial	4		497		497	—		—		—
Other income producing property	2		119		119	1		298		298
Total interest rate modifications	11	$	1,290	$	1,290	1	$	298	$	298
Term modification
Construction and land development	1		141		141	—	$	—	$	—
Commercial non-owner occupied	—	$	—	$	—	—		—		—
Commercial owner occupied	2		2,356		2,356	—		—		—
Consumer owner occupied	—		—		—	—		—		—
Home equity loans	—		—		—	—		—		—
Commercial and industrial	—		—		—	1		40		40
Other income producing property	—		—		—	—		—		—
Consumer	—		—		—	—		—		—
Other loans	—		—		—	—		—		—
Total term modifications	3	$	2,497	$	2,497	1	$	40	$	40
	14	$	3,787	$	3,787	2	$	338	$	338

At March 31, 2022 and 2021, the balance of accruing TDRs was $12.4 million and $14.5 million, respectively. The Company had $768,000 and $791,000 remaining availability under commitments to lend additional funds on restructured loans at March 31, 2022 and 2021, respectively. The amount of specific reserve associated with restructured loans was $4.2 million and $2.4 million at March 31, 2022 and 2021, respectively.

The following table presents the changes in status of loans restructured within the previous 12 months as of March 31, 2022 by type of concession. There were no subsequent defaults that resulted in a change to reserves on the individually evaluated loan .


	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	14	$	1,783	—	$	—	—	$	—
Term modification	4		2,806	—		—	—		—
	18	$	4,589	—	$	—	—	$	—

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.

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The following table presents a disaggregated analysis of activity in the allowance for credit losses as follows:


	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 March 31, 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		84		—		—		—		86		—		—		—		1,479		—		7,569		9,218
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		(58)		(19)		(218)		—		(4)		(2,661)		—		—		(371)		—		(2,159)		(5,490)
Recoveries		394		55		257		3		234		532		—		—		314		69		1,309		3,167
Net (charge offs) recoveries		336		36		39		3		230		(2,129)		—		—		(57)		69		(850)		(2,323)
(Recovery) provision⁽¹⁾		(1,806)		(87)		175		614		(14,438)		828		(1,444)		42		(16,641)		13,945		(3,191)		(22,003)
Balance at end of period March 31, 2022	$	46,002	$	586	$	13,671	$	5,616	$	25,358	$	21,899	$	3,903	$	607	$	49,094	$	96,360	$	37,300	$	300,396

Allowance for credit losses:
Quantitative allowance
Collectively evaluated	$	45,805	$	586	$	12,301	$	5,616	$	24,770	$	21,899	$	3,903	$	607	$	45,302	$	95,051	$	32,476	$	288,316
Individually evaluated		168		—		1,357		—		588		—		—		—		2,960		—		3,358		8,431
Total quantitative allowance		45,973		586		13,658		5,616		25,358		21,899		3,903		607		48,262		95,051		35,834		296,747
Qualitative allowance		29		—		13		—		—		—		—		—		832		1,309		1,466		3,649
Balance at end of period March 31, 2022	$	46,002	$	586	$	13,671	$	5,616	$	25,358	$	21,899	$	3,903	$	607	$	49,094	$	96,360	$	37,300	$	300,396

Three Months Ended March 31, 2021
Allowance for loan 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		(120)		—		(169)		—		(10)		(2,149)		—		—		(27)		(194)		(705)		(3,374)
Recoveries		428		33		417		1		201		510		—		—		333		321		1,151		3,395
Net (charge offs) recoveries		308		33		248		1		191		(1,639)		—		—		306		127		446		21
Provision (recovery) ⁽¹⁾		(827)		(81)		(943)		(1,023)		(12,051)		2,960		(2,003)		34		(6,750)		(16,989)		(13,197)		(50,870)
Balance at end of period March 31, 2021	$	63,042	$	1,190	$	16,003	$	3,892	$	55,337	$	27,883	$	5,884	$	1,544	$	90,660	$	107,559	$	33,466	$	406,460

Allowance for credit losses:
Quantitative allowance
Collectively evaluated	$	55,336	$	1,190	$	14,210	$	3,830	$	55,234	$	21,334	$	5,884	$	817	$	83,115	$	100,267	$	26,673	$	367,890
Individually evaluated		378		—		165		—		103		—		—		—		3,315		35		399		4,395
Total quantitative allowance		55,714		1,190		14,375		3,830		55,337		21,334		5,884		817		86,430		100,302		27,072		372,285
Qualitative allowance		7,328		—		1,628		62		—		6,549		—		727		4,230		7,257		6,394		34,175
Balance at end of period March 31, 2021	$	63,042	$	1,190	$	16,003	$	3,892	$	55,337	$	27,883	$	5,884	$	1,544	$	90,660	$	107,559	$	33,466	$	406,460

(1)

A negative provision (recovery) for credit losses of ($142,000), net of the provision for $3.4 million recorded for the unfunded commitments acquired from ACBI, was recorded during the first quarter of 2022, compared to a negative provision (recovery) for credit losses of $7.5 million recorded during the first quarter of 2021 for the allowance for credit losses for unfunded commitments that is not included in the above table.

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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		1,151		1,260		2,411
Write-downs		(67)		(128)		(195)
Sold		(530)		(4,293)		(4,823)
Balance, March 31, 2022	$	3,290	$	6,417	$	9,707

At March 31, 2022, there were a total of 15 properties included in OREO compared to 12 properties at December 31, 2021. At March 31, 2022, there were a total of 8 properties included in bank premises held for sale which compares to 9 properties included in premises held for sale, at December 31, 2021. At March 31, 2022, we had $717,000 in residential real estate included in OREO and $4.6 million in residential real estate consumer mortgage loans in the process of foreclosure.

Note 9 — Leases

As of March 31, 2022 and December 31, 2021, we had operating right-of-use (“ROU”) assets of $118.4 million and $110.3 million, respectively, and operating lease liabilities of $125.9 million and $115.9 million, respectively. We maintain operating leases on land and buildings for some of 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 CSFL 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
(Dollars in thousands)	March 31,
	2022		2021
Lease Cost Components:
Amortization of ROU assets - finance leases	$	117	$	117
Interest on lease liabilities - finance leases		13		15
Operating lease cost (cost resulting from lease payments)		4,333		4,343
Short-term lease cost		143		135
Variable lease cost (cost excluded from lease payments)		437		648
Total lease cost	$	5,043	$	5,258
Supplemental Cash Flow and Other Information Related to Leases:
Finance lease - operating cash flows	$	13	$	15
Finance lease - financing cash flows		108		106
Operating lease - operating cash flows (fixed payments)		4,181		4,140
Operating lease - operating cash flows (net change asset/liability)		(3,303)		(3,220)
New ROU assets - operating leases		12,428		1,298
New ROU assets - finance leases		—		—
Weighted - average remaining lease term (years) - finance leases		6.17		7.16
Weighted - average remaining lease term (years) - operating leases		10.47		11.30
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 quarter ended March 31, 2022)	$	12,844
2023		16,367
2024		14,987
2025		13,559
2026		12,997
Thereafter		79,262
Total undiscounted cash flows		150,016
Discount on cash flows		(24,097)
Total operating lease liabilities	$	125,919

As of March 31, 2022, we determined that the number and dollar amount of our equipment leases was immaterial. As of March 31, 2022, we have no additional operating leases that have not yet commenced.

Note 10 — Deposits

Our total deposits are comprised of the following:


	March 31,		December 31,
(Dollars in thousands)	2022		2021
Non-interest bearing checking	$	14,052,332	$	11,498,840
Interest-bearing checking		9,275,208		9,018,987
Savings		3,479,743		3,350,547
Money market		9,140,005		8,376,380
Time deposits		2,828,542		2,810,075
Total deposits	$	38,775,830	$	35,054,829

At March 31, 2022 and December 31, 2021, we had $576.5 million and $603.2 million in certificates of deposits of $250,000 and greater, respectively. At March 31, 2022 and December 31, 2021, the Company held $150.1 million and $325.0 in traditional, out-of-market brokered deposits, respectively.

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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 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 ACBI acquisition, all former ACBI employees became eligible to participate in the Company’s 401(k) plan as of legal close in March 2022. We expensed $4.0 million for the three months ended March 31, 2022 and $4.3 million for the three months ended March 31, 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
	March 31,
(Dollars and shares in thousands, except for per share amounts)	2022		2021
Basic earnings per common share:
Net income	$	100,329	$	146,949
Weighted-average basic common shares		71,447		71,009
Basic earnings per common share	$	1.40	$	2.07
Diluted earnings per common share:
Net income	$	100,329	$	146,949
Weighted-average basic common shares		71,447		71,009
Effect of dilutive securities		664		475
Weighted-average dilutive shares		72,111		71,484
Diluted earnings per common share	$	1.39	$	2.06

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 March 31,

(Dollars in thousands)

2022

2021

Number of shares

57,169

62,235

Range of exercise prices

87.30

91.35

87.30

91.35

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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 ACBI under various equity incentive plans pursuant to the acquisition of ACBI 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 some cases may be exercised at any time prior to expiration and in some 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	(9,703)		42.25
Expired	(14)		33.02
Outstanding at March 31, 2022	198,818		61.42	3.78	$	4,554
Exercisable at March 31, 2022	198,818		61.42	3.78	$	4,554

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 three 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 quarter ended March 31, 2022. The intrinsic value of stock option shares exercised for the three months ended March 31, 2022 was $418,000.

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. Grants to non-employee directors typically vest within a 12-month period.

All restricted stock agreements are conditioned upon continued employment, or service in the case of directors. 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.

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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	(1,916)		90.00
Nonvested at March 31, 2022	85,374	$	89.19

As of March 31, 2022, there was $5.7 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 1.70 years as of March 31, 2022. The total fair value of shares vested during the three months ended March 31, 2022 was $172,440.

Restricted Stock Units (“RSUs”)

We, from time-to-time, also grant performance RSUs and time-vested RSUs to key employees. 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). 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 CSFL, 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 for the three months ended March 31, 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	282,952		83.50
Vested	(128,302)		67.46
Forfeited	(1,464)		87.88
Outstanding at March 31, 2022	1,157,135	$	71.88

The nonvested shares of 1,157,135 at March 31, 2022 includes 55,246 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.

As of March 31, 2022, there was $43.7 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 1.3 years as of March 31, 2022. The total fair value of RSUs vested and released during the three months ended March 31, 2022 was $8.7 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 March 31, 2022, commitments to extend credit and standby letters of credit totaled $9.3 billion. As of March 31, 2022, the liability recorded for expected credit losses on unfunded commitments, excluding unconditionally cancellable exposures and letters of credit, was $30.4

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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 March 31, 2022, any such liability is not expected to have a material effect on our consolidated financial statements.

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 utilizes 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, 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

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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, 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 March 31, 2022, approximately three fourths 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).

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Mortgage Servicing Rights (“MSRs”)

The estimated fair value of MSRs is obtained through an independent derivatives dealer analysis of future cash flows. The evaluation utilizes 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 are classified as Level 3.

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)
March 31, 2022:
Assets
Derivative financial instruments	$	412,815	$	—	$	412,815	$	—
Loans held for sale		130,376		—		130,376		—
Trading securities		74,234		—		74,234		—
Securities available for sale:
U.S. Treasuries		268,581		—		268,581		—
U.S. Government agencies		179,942		—		179,942		—
Residential mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		2,013,904		—		2,013,904		—
Residential collateralized mortgage-obligations issued by U.S. government
agencies or sponsored enterprises		694,705		—		694,705		—
Commercial mortgage-backed securities issued by U.S. government
agencies or sponsored enterprises		1,151,860		—		1,151,860		—
State and municipal obligations		1,127,697		—		1,127,697		—
Small Business Administration loan-backed securities		457,357		—		457,357		—
Corporate securities		30,160		—		30,160		—
Total securities available for sale		5,924,206		—		5,924,206		—
Mortgage servicing rights		83,339		—		—		83,339
	$	6,624,970	$	—	$	6,541,631	$	83,339
Liabilities
Derivative financial instruments	$	412,168	$	—	$	412,168	$	—

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.

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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.

There were no changes in hierarchy classifications of Level 3 assets or liabilities for the three months ended March 31, 2022. A reconciliation of the beginning and ending balances of Level 3 assets and liabilities recorded at fair value on a recurring basis for the three months ended March 31, 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		7,122		—
Changes in fair value due to valuation inputs or assumptions		12,827		—
Changes in fair value due to decay		(2,230)		—
Fair value , March 31, 2022	$	83,339	$	—

There were no unrealized losses included in accumulated other comprehensive income related to Level 3 financial assets and liabilities at March 31, 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)
March 31, 2022:
OREO	$	3,290	$	—	$	—	$	3,290
Bank property held for sale		6,417		—		—		6,417
Individually evaluated loans		4,527		—		—		4,527
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
			March 31,		December 31,
	Valuation Technique	Unobservable Input	2022		2021
Nonrecurring measurements:
Individually evaluated loans	Discounted appraisals and discounted cash flows	Collateral discounts	13	%	9	%
OREO and premises held for sale	Discounted appraisals	Collateral discounts and estimated costs to sell	19	%	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 March 31, 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.

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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 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 34 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
March 31, 2022
Financial assets:
Cash and cash equivalents	$	6,032,606	$	6,032,606	$	6,032,606	$	—	$	—
Trading securities		74,234		74,234		—		74,234		—
Investment securities		8,931,233		8,733,959		179,258		8,554,701		—
Loans held for sale		130,376		130,376		—		130,376		—
Loans, net of allowance for credit losses		26,256,031		26,434,330		—		—		26,434,330
Accrued interest receivable		106,396		106,396		—		25,425		80,971
Mortgage servicing rights		83,339		83,339		—		—		83,339
Interest rate swap - non-designated hedge		408,434		408,434		—		408,434		—
Other derivative financial instruments (mortgage banking related)		4,381		4,381		—		4,381		—
Financial liabilities:
Deposits		38,775,830		38,737,371		—		38,737,371		—
Federal funds purchased and securities sold under agreements to repurchase		770,409		770,409		—		770,409		—
Other borrowings		405,553		399,125		—		399,125		—
Accrued interest payable		6,644		6,644		—		6,644		—
Interest rate swap - non-designated hedge		409,084		409,084		—		409,084		—
Other derivative financial instruments (mortgage banking related)		3,084		3,084		—		3,084		—
Off balance sheet financial instruments:
Commitments to extend credit		—		63,247		—		63,247		—
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		—

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Note 16 — Accumulated Other Comprehensive (Loss) Income

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


			Unrealized Gains
			and Losses
			on Securities
	Benefit		Available
(Dollars in thousands)	Plans		for Sale		Total
Three Months Ended March 31, 2022
Balance at December 31, 2021	$	57	$	(21,203)	$	(21,146)
Other comprehensive loss before reclassifications		—		(272,810)		(272,810)
Amounts reclassified from accumulated other comprehensive loss		—		—		—
Net comprehensive loss		—		(272,810)		(272,810)
Balance at March 31, 2022	$	57	$	(294,013)	$	(293,956)

Three Months Ended March 31, 2021
Balance at December 31, 2020	$	(151)	$	47,740	$	47,589
Other comprehensive loss before reclassifications		—		(48,620)		(48,620)
Amounts reclassified from accumulated other comprehensive loss		—		—		—
Net comprehensive loss		—		(48,620)		(48,620)
Balance at March 31, 2021	$	(151)	$	(880)	$	(1,031)

There were no reclassifications out of accumulated other comprehensive income for either of the three-month periods ended March 31, 2022 and 2021.

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 utilized by the Company:


				March 31, 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 Liabilities	$	18,078	$	—	$	645	$	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		10,706,435		106,122		363,248		10,404,605		408,776		69,998
Matched interest rate swaps with counterparty	Other Assets and Other Liabilities		10,704,249		302,885		45,763		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		85,000		—		3,084		205,000		1,228		—
Contracts used to hedge mortgage pipeline	Other Assets		277,500		4,381		—		324,000		4,738		—
Total derivatives		$	21,791,262	$	413,388	$	412,740	$	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 March 31, 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.

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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 March 31, 2022 and December 31, 2021, the Company maintained loan swaps, with an aggregate notional amount of $18.1 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 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. There was a gain of $41,000 recorded on these derivatives for the quarter ended March 31, 2022. There was no gain or loss recorded on these derivatives for the quarter ended March 31, 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 March 31, 2022 and December 31, 2021, the interest rate swaps had an aggregate notional amount of approximately $21.4 billion and $20.8 billion, respectively. At March 31, 2022 the fair value of the interest rate swap derivatives is recorded in other assets at $409.0 million and in other liabilities at $409.0 million for a net liability position of $4,000. 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 March 31, 2022, we provided $29.8 million of cash collateral on the customer swaps which is included in cash and cash equivalents on the balance sheet as deposits in other financial institutions (restricted cash). We also provided $262.1 million in investment securities at market value as collateral on the customer swaps which is included in investment securities – available for sale. Counterparties provided $124.8 million of cash collateral to the Company to secure swap asset positions which is included in interest-bearing deposits (Liability) on the 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 March 31, 2022 and December 31, 2021, there were no outstanding contracts or agreements related to foreign currency. If there were foreign currency contracts outstanding at March 31, 2022, the fair value of these contracts would be included in

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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 months ended March 31, 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.

Mortgage Servicing Rights (“MSRs”)

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 March 31, 2022, we had derivative financial instruments outstanding with notional amounts totaling $85.0 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 $3.1 million at March 31, 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)	March 31, 2022		December 31, 2021
Mortgage loan pipeline	$	263,976	$	264,000
Expected closures		241,672		233,265
Fair value of mortgage loan pipeline commitments		256		4,759
Forward sales commitments		277,500		324,000
Fair value of forward commitments		4,124		(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.

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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.

The following table presents actual and required capital ratios as of March 31, 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
March 31, 2022:
Common equity Tier 1 to risk-weighted assets:
Consolidated	$	3,472,948	11.37	%	$	2,138,431	7.00	%	$	1,985,686	6.50	%
SouthState Bank (the Bank)		3,773,163	12.37	%		2,134,908	7.00	%		1,982,415	6.50	%
Tier 1 capital to risk-weighted assets:
Consolidated		3,472,948	11.37	%		2,596,666	8.50	%		2,443,921	8.00	%
SouthState Bank (the Bank)		3,773,163	12.37	%		2,592,389	8.50	%		2,439,895	8.00	%
Total capital to risk-weighted assets:
Consolidated		4,064,615	13.31	%		3,207,647	10.50	%		3,054,902	10.00	%
SouthState Bank (the Bank)		3,961,830	12.99	%		3,202,362	10.50	%		3,049,869	10.00	%
Tier 1 capital to average assets (leverage ratio):
Consolidated		3,472,948	8.45	%		1,643,247	4.00	%		2,054,058	5.00	%
SouthState Bank (the Bank)		3,773,163	9.19	%		1,642,556	4.00	%		2,053,196	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 March 31, 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 utilize 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 Day 1 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.

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Note 19 — Goodwill and Other Intangible Assets

The carrying amount of goodwill was $1.9 billion and $1.6 billion, respectively, at March 31, 2022 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’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 added $17.5 million in core deposit intangibles related to the Atlantic Capital transaction during the first quarter of 2022.

The Company last completed its annual valuation of the carrying value of its goodwill as of October 31, 2021. During the second quarter of 2021, the Company implemented the change in its annual goodwill valuation date to October 31 each year in order for the valuation to be closer to our year end audit date. We determined that no impairment charge was necessary for each period end. We will continue to monitor the impact of the COVID-19 pandemic 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:


	March 31,		December 31,
(Dollars in thousands)	2022		2021
Gross carrying amount	$	278,368	$	257,874
Accumulated amortization		(138,004)		(129,807)
	$	140,364	$	128,067

Amortization expense totaled $8.5 million for the quarter ended March 31, 2022, compared to $9.2 million for the quarter ended March 31, 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. Estimated amortization expense for other intangibles for each of the next five quarters is as follows:


(Dollars in thousands)
Quarter ending:
June 30, 2022	$	8,463
September 30, 2022		8,027
December 31, 2022		8,027
March 31, 2023		7,299
June 30, 2023		7,028
Thereafter		101,520
	$	140,364

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

As of March 31, 2022 and December 31, 2021, the portfolio of residential mortgages serviced for others, which is not included in the accompanying balance sheets, was $6.5 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 quarter ended March 31, 2022 and March 31, 2021 were $3.8 million and $3.2 million, respectively. Servicing fees are recorded in mortgage banking income in our Condensed Consolidated Statements of Income.

At March 31, 2022 and December 31, 2021, MSRs were $83.3 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 related to MSRs recorded in mortgage banking income for the quarter ended March 31, 2022 and March 31, 2021 were gains of $12.8 million, compared with gains of $8.1 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
(Dollars in thousands)	March 31, 2022		March 31, 2021
Increase in fair value of MSRs	$	12,827	$	8,076
Decay of MSRs		(2,230)		(4,561)
Loss related to derivatives		(11,838)		(6,404)
Net effect on statements of income	$	(1,241)	$	(2,889)

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 utilized 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.


	March 31,			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		8.42	years		7.35	years
Constant Prepayment rate (CPR)		6.5	%		8.4	%
Weighted average discount rate		9.4	%		9.0	%
Effect on fair value due to change in interest rates
25 basis point increase	$	1,337		$	3,961
50 basis point increase		2,316			7,261
25 basis point decrease		(1,934)			(4,371)
50 basis point decrease		(4,793)			(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 $44.6 million and $29.6 million at March 31, 2022 and December 31, 2021, respectively.

Whole loan sales were $700.7 million for the quarter ended March 31, 2022, compared to $774.4 million for the quarter ended March 31, 2021. For the quarter ended March 31, 2022, $530.5 million, or 75.7%, were sold with the servicing rights retained by the Company, compared to $621.7 million, or 80.3%, for the quarter ended March 31, 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 $130.4 million and $191.7 million at March 31, 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

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master repurchase agreements between the Company and the client and are accounted for as secured borrowings. Repurchase agreements are included in federal funds purchased and securities sold under agreements to repurchase on the condensed consolidated balance sheets.

At March 31, 2022 and December 31, 2021, our repurchase agreements totaled $426.6 million and $400.0 million, respectively. All of our repurchase agreements were overnight or continuous (until-further-notice) agreements at March 31, 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 $519.0 million and $471.3 million at March 31, 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 first quarter of 2022, the Company repurchased a total of 1,012,038 shares at a weighted average price of $85.43 per share pursuant to the 2021 Stock Repurchase Plan. Life-to-date as of March 31, 2022, the Company has repurchased a total of 2,829,979 shares at a weighted average price of $82.27 per share, leaving 670,021 shares remaining that may be repurchased under the 2021 Stock Repurchase Plan.

Note 23 — Subsequent Events

On April 28, 2022, the Company announced the declaration of a quarterly cash dividend on its common stock at $0.49 per share. The dividend is payable on May 20, 2022 to shareholders of record as of May 13, 2022.

As of May 5, 2022, the Company repurchased an additional 300,000 shares of the Company’s common stock pursuant to the 2021 Stock Repurchase Plan at a weighted average price of $79.15 per share after March 31, 2022. Total stock repurchases year-to-date equal 1,312,038 shares at a weighted average price of $83.99 per share, bringing life-to-date repurchases to 3,129,979 at a weighted average price of $81.97 per share. The Company may repurchase up to an additional 370,021 shares of common stock under the 2021 Stock Repurchase Plan.

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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 quarter ended March 31, 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. The Bank also operates Duncan-Williams, Inc. (“Duncan-Williams”), which it acquired on February 1, 2021. Duncan-Williams is a registered broker-dealer, headquartered in Memphis, Tennessee, that serves primarily institutional clients across the U.S. in the fixed income business. The Bank also 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 March 31, 2022, we had approximately $46.2 billion in assets and 5,182 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. The correspondent banking and capital markets division was further expanded with the addition of Duncan-Williams on February 1, 2021.

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.

The following discussion describes our results of operations for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 and also analyzes our financial condition as of March 31, 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 investments, and the expense on our

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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

Although the economy has been recovering from the COVID-19 pandemic and vaccine distributions and

treatments are generally available, businesses throughout the United States and our customers are still being affected by the COVID-19 pandemic. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations will depend on various developments and other factors, including, among others, an increase in cases as a result of new waves of the pandemic or as new variants of the disease begin to circulate, how federal, state and local governments and the private sector respond, and the associated impacts on the economy, financial markets and our customers, employees and vendors.

We are continuously monitoring the impact of the COVID-19 pandemic on our results of operations and financial condition. While there have been improvements in the economic forecasts starting in 2021, resulting in a recovery for credit losses of $8.4 million during the first quarter of 2022 and $165.3 million year-to-date in 2021, there is continued uncertainty around the COVID-19 pandemic and its latest Omicron variants, as well as other global events, that may result in additional provision for credit losses in the future.

In addition, 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 has begun raising interest rates and signaled that it will continue to raise rates and taper its purchase of mortgage and other bonds. The timing and impact of inflation and rising interest rates on our business, financial and results of operations will depend on future developments, which are highly uncertain and difficult to predict.

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

On March 1, 2022, the Company acquired all of the outstanding common stock of Atlantic Capital, the holding company for Atlantic Capital Bank (“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, SouthState Bank N.A. (“SSB”) merged with and into ACB, 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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Overdraft Program

In April 2022, the Company announced it will be modifying its consumer overdraft program to eliminate NSF fees as well as transfer fees to cover overdrafts. It will also offer a deposit product with no overdraft fees. The changes will be implemented starting in the third quarter of 2022 and are estimated to reduce diluted annual earnings per share by approximately 8 to 10 cents.

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; therefore, Management’s process for determining expected credit losses may result in a range of expected credit losses. 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 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 March 31, 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 $342.9 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.

We changed the annual impairment date to October 31 during the second quarter of 2021 in order for the valuation to be closer to our year-end audit date. 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 three months of 2022. Our stock price closed on March 31, 2022 at $81.59, which was above book value of $68.30 and tangible book value of $41.05. We will continue to monitor the impact of 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.

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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 March 31, 2022 were $136.1 million which was up from $65.0 million as of December 31, 2021. The increase in deferred tax assets during the first three months of 2022 was mostly attributable to an increase in the fair value of loans, as well as the addition of deferred taxes from Atlantic Capital.

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 March 31, 2022 or December 31, 2021.

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 Statements of Net 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 utilize 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 Statements of Net 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 Statements of Net Income.

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Results of Operations

Overview

We reported consolidated net income of $100.3 million, or diluted earnings per share (“EPS”) of $1.39, for the first quarter of 2022 as compared to consolidated net income of $146.9 million, or diluted EPS of $2.06, in the comparable period of 2021, a 31.7% decrease in consolidated net income and a 32.3% decrease in diluted EPS. The $46.6 million decrease in consolidated net income was the net result of the following items:

●

Decreased interest income of $8.0 million, resulting from a $26.4 million decrease in interest income from loans and loans held for sale, partially offset by a $16.5 million increase in interest income from investment securities and a $1.9 million increase in interest income on federal funds sold, securities purchased under agreements to resell and interest-bearing deposits;

●

Decreased interest expense of $7.5 million, which resulted from a decline in the cost of interest-bearing liabilities of 15 basis points. The decrease in the cost of interest-bearing liabilities was due to the Company continuing to lower interest-bearing deposit rates as the interest rate environment remained low during 2021;

●

A $50.0 million reduction in the release of the allowance for credit losses, as the Company recorded a release of the allowance for credit losses of $8.4 million in the first quarter of 2022 while recording a release of the allowance for credit losses of $58.4 million in the first quarter of 2021. In the first quarter of 2021, with the continued stabilization in the economy from the COVID-19 pandemic and increased availability of the vaccine, the Company started to release some of the allowance built in 2020 based on improvements in economic forecasts. The economy and economic forecasts have continued to improve throughout 2021 and the first quarter of 2022 and we have continued to release the allowance for credit losses;

●

Decreased noninterest income of $10.2 million was primarily from a decline in mortgage banking income of $16.3 million. This decrease was partially offset by increases of $3.6 million in fees on deposit accounts, $1.2 million in trust and investment services income and a $2.1 million increase in other noninterest income driven by an increase of $2.0 million in income from bank owned life insurance. (See Noninterest Income section on page 56 for further discussion);

●

Decreased noninterest expense of $111,000, which resulted primarily from a decline in salaries and employee benefits of $2.7 million, in OREO and loan related expense of $1.2 million and occupancy expense of $1.5 million. These decreases were partially offset by an increase in other noninterest expense of $4.4 million and in FDIC assessment and other regulatory charges of $1.0 million (See Noninterest Expense section on page 57 for further discussion); and

●

Lower income tax provision of $14.0 million primarily due to lower pretax book income between the two quarters. The Company recorded pretax book income of $127.4 million in the first quarter of 2022 compared to pretax book income of $188.0 million in the first quarter of 2021. Our effective tax rate was 21.26% for the three months ended March 31, 2022 compared to 21.83% for the three months ended March 31, 2021.

Our quarterly efficiency ratio increased to 63.0% in the first quarter of 2022 compared to 61.1% in the first quarter of 2021. The increase in the efficiency ratio compared to the first quarter of 2021 was the result of the 0.3% increase in noninterest expense (excluding amortization of intangibles) along with a 2.8% decrease in the total of tax-equivalent (“TE”) net interest income and noninterest income. The reduction in income was mainly due to a $16.3 million decline in mortgage banking income.

Basic and diluted EPS were $1.40 and $1.39, respectively, for the first quarter of 2022, compared to $2.07 and $2.06, respectively, for the first quarter of 2021. The decrease in basic and diluted EPS was due to a 31.7% decrease in net income in the first quarter of 2022 compared to the same period in 2021 partially offset by an increase in average basic common shares of 0.6%. 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 2.8 million of stock repurchases completed by the Company between March 31, 2021 and March 31, 2022.

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Selected Figures and Ratios


	Three Months Ended
	March 31,
(Dollars in thousands)	2022			2021
Return on average assets (annualized)		0.95	%		1.56	%
Return on average equity (annualized)		8.24	%		12.71	%
Return on average tangible equity (annualized)*		13.97	%		21.16	%
Dividend payout ratio		33.71	%		22.72	%
Equity to assets ratio		11.20	%		11.88	%
Average shareholders’ equity	$	4,937,165		$	4,687,149

* - 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 months ended March 31, 2022, the return on average assets, the return on average equity and the return on average tangible equity decreased compared to the same periods in 2021. These decreases were primarily due to the decrease in net income of $46.6 million, or 31.7%, which was mainly attributable to the lower amount of releases in the allowance for credit losses in the first quarter of 2022 compared to the releases for credit losses in the first quarter of 2021 along with the reduction in noninterest income due to a decline in mortgage banking income. The decline in the return on average assets was the result of average assets increasing $4.7 billion in 2022 compared to 2021 due to both the assets acquired in the merger with Atlantic Capital on March 1, 2022 and the increase in cash and cash equivalents resulting from the growth in deposits in the second half of 2021 and into 2022. The return on average equity and the return on average tangible equity declined due to the increase in average equity of $250.0 million in 2022 compared to 2021 as a result of the equity issued for the acquisition of Atlantic Capital on March 1, 2022, which was partially offset by the stock repurchases completed by the Company through March 31, 2022.

●

The equity-to-assets ratio was 11.20% for the quarter ended March 31, 2022, a decrease of 0.68% from March 31, 2021, which was mainly due to the increase in total assets resulting from higher levels of cash and cash equivalents and investment securities as our liquidity has increased through the growth in deposits, and the assets acquired through the Atlantic Capital transaction completed on March 1, 2022.

●

Dividend payout ratios were 33.71% for the three-month period ending March 31, 2022 and 22.72% for the three-month period ending March 31, 2021. The increase in the dividend payout ratio is due to lower net income in the current quarter compared to the same period in the prior year, while the amount of the dividend paid per share increased to $0.49 in the first quarter of 2022 compared to $0.47 in the first quarter of 2021.

Net Interest Income and Margin

Non-TE net interest income decreased $524,000, or 0.2%, to $261.5 million in the first quarter of 2022 compared to $262.0 million in the same period in 2021. Interest earning assets averaged $38.5 billion during the three months period ended March 31, 2022 compared to $34.2 billion for the same period in 2021, an increase of $4.3 billion, or 12.5%. Interest bearing liabilities averaged $24.9 billion during the three months period ended March 31, 2022 compared to $22.4 billion for the same period in 2021, an increase of $2.5 billion, or 11.2%. 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%. However, even with the rate increase this quarter, the Company operated under the lower rate environment for the majority of the first quarter of 2022. Some key highlights are outlined below:

●

Both the non-TE and TE net interest margin decreased by 35 basis points in the first quarter of 2022 compared to the same quarter of 2021 due to the decline in the yield on interest earning assets of 45 basis points, which was only partially offset by the lower cost of interest-bearing liabilities of 15 basis points. The decline in the net interest margin was also due to the increase in average balance of the lower yielding federal funds sold and interest-bearing deposits with banks and investment securities as a percentage of the average balance of total interest-earning assets.

●

Non-TE yield on interest-earning assets for the first quarter of 2022 decreased 45 basis points to 2.85% from the comparable period in 2021. The decline in yield on interest-earning assets was primarily due to a decrease

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in yield on both acquired and non-acquired loans as we continued to operate in a low interest rate environment in 2021 and the first quarter of 2022. In addition, the asset mix changed as lower yielding federal funds sold and interest-earning deposits with banks increased $920.4 million in the first quarter of 2022 to $5.7 billion compared to the same period in 2021 of $4.8 billion, and investment securities increased $3.2 billion in the first quarter of 2022 to $7.9 billion compared to $4.7 billion in the same period in 2021.

●

The average cost of interest-bearing liabilities for the first quarter of 2022 decreased 15 basis points from the same period in 2021. Our overall cost of funds, including noninterest-bearing deposits, was 0.10% for the three months ended March 31, 2022 compared to 0.21% for the three months ended March 31, 2021. These decreases were due to both the Company operating under a continued low interest rate environment for the majority of the first quarter of 2022, along with the reduction in the average balance of the higher costing corporate and subordinated debentures. The average cost of interest-bearing deposits declined 14 basis points as the decrease occurred in all deposit categories. The overall cost of funds also declined due to a $2.2 billion increase in our noninterest-bearing deposits from the first quarter in 2021.

The tables below summarize the analysis of changes in interest income and interest expense for the quarter ended March 31, 2022 and 2021 and net interest margin on a tax equivalent basis.

Three Months Ended

March 31, 2022

March 31, 2021

Average

Interest

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

$ 5,678,147

$ 2,852

0.20%

$ 4,757,717

$ 989

0.08%

Investment securities (taxable)⁽¹⁾

7,115,894

30,120

1.72%

4,215,560

15,425

1.48%

Investment securities (tax-exempt)⁽¹⁾

779,387

3,875

2.02%

467,592

2,095

1.82%

Loans held for sale

110,542

869

3.19%

298,970

1,991

2.70%

Acquired loans, net

8,429,730

90,562

4.36%

11,768,952

134,762

4.64%

Non-acquired loans

16,413,323

142,186

3.51%

12,723,137

123,214

3.93%

Total interest-earning assets

38,527,023

270,464

2.85%

34,231,928

278,476

3.30%

Noninterest-Earning Assets:

Cash and due from banks

572,765

379,675

Other assets

4,155,174

4,090,738

Allowance for credit losses

(308,630)

(456,931)

Total noninterest-earning assets

4,419,309

4,013,482

Total Assets

$ 42,946,332

$ 38,245,410

Interest-Bearing Liabilities:

Transaction and money market accounts

$ 17,473,192

$ 2,217

0.05%

$ 14,678,248

$ 5,387

0.15%

Savings deposits

3,408,129

130

0.02%

2,780,361

434

0.06%

Certificates and other time deposits

2,848,829

2,281

0.32%

3,672,818

5,436

0.60%

Federal funds purchased

354,899

111

0.13%

434,943

0.09%

Securities sold with agreements to repurchase

438,258

158

0.15%

417,334

259

0.25%

Corporate and subordinated debentures

354,133

4,093

4.69%

390,043

4,870

5.06%

Total interest-bearing liabilities

24,877,440

8,990

0.15%

22,373,747

16,478

0.30%

Noninterest-Bearing Liabilities:

Demand deposits

12,266,028

10,044,102

Other liabilities

865,699

1,140,412

Total noninterest-bearing liabilities ("Non-IBL")

13,131,727

11,184,514

Shareholders' equity

4,937,165

4,687,149

Total Non-IBL and shareholders' equity

18,068,892

15,871,663

Total Liabilities and Shareholders' Equity

$ 42,946,332

$ 38,245,410

Net Interest Income and Margin (Non-Tax Equivalent)

$ 261,474

2.75%

$ 261,998

3.10%

Net Interest Margin (Tax Equivalent)

2.77%

3.12%

Total Deposit Cost (without debt and other borrowings)

0.05%

0.15%

Overall Cost of Funds (including demand deposits)

0.10%

0.21%

(1)

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

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Investment Securities

Interest earned on investment securities increased $16.5 million in the three months ended March 31, 2022 compared to the three months ended March 31, 2021. This is a result of the Bank carrying a higher average balance in investment securities in 2022 compared to the same periods in 2021. The average balance of investment securities for the three months ended March 31, 2022 increased $3.2 billion from the comparable periods in 2021. The yield on the investment securities increased 23 basis points during the three months ended March 31, 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 long-term interest rates increased in the first quarter of 2022. The excess liquidity was from the continuous growth in deposits since 2021 and in the first three months of 2022.

Loans

Interest earned on loans held for investment decreased $25.2 million to $232.7 million in the quarter ended March 31, 2022 from the comparable periods in 2021. Interest earned on loans held for investment included loan accretion income recognized during the quarters ended March 31, 2022 and 2021 of $6.7 million and $10.4 million, respectively, a decrease of $3.7 million. Some key highlights for the quarter ended March 31, 2022 are outlined below:

●

Our non-TE yield on total loans decreased 47 basis points in the first quarter of 2022 compared to the same period in 2021, due to a 28 basis point decline in the yield on the acquired loan portfolio as well as a decline in the average balance of the acquired loan portfolio, which has a higher yield than the non-acquired loan portfolio.

o

The yield on the acquired loan portfolio decreased 28 basis points from 4.64% in the first quarter of 2021 to 4.36% in the same period in 2022.

◾

Interest income on acquired loans decreased by $44.2 million, primarily due to a decrease in the average balance. Also, the Bank was operating under a lower rate environment for the last three quarters of 2021 and for most of the first quarter of 2022 as the federal funds rate increase was not effective until mid-March 2022. This caused the acquired loan portfolio yield to decrease. Further, the loan accretion income declined by $3.7 million during the first quarter of 2022 compared to the same period in 2021.

◾

For the acquired loans, the average balance decreased by $3.3 billion from the first quarter of 2021. This decrease was mainly related to the impact from the paydowns, pay-offs and renewals of acquired loans that were moved to our non-acquired loan portfolio. This impact had a greater effect than the increase in the acquired loan balance from the Atlantic Capital merger, as the merger closed on March 1, 2022.

o

The yield on the non-acquired loan portfolio decreased 42 basis points to 3.51% in the first quarter of 2022 compared to 3.93% in the same period in 2021.

◾

Interest income on non-acquired loans increased by $19.0 million, due to an increase in the average balance. The effects from the increase in the average balance were partially offset by the decline in average rate.

◾

For the non-acquired loans, the average balance increased by $3.7 billion primarily through organic loan growth and renewals of acquired loans that are moved to our non-acquired loan portfolio. Although the Company saw growth in non-acquired loans, due to the current interest rate environment, the rate used in pricing a majority of our new originated loans remained low and below the interest rate on the existing loan portfolio causing the average rate to decline.

Interest-Bearing Liabilities

The quarter-to-date average balance of interest-bearing liabilities increased $2.5 billion, or 11.2%, in the first quarter of 2022 compared to the same period in 2021. The cost on interest-bearing liabilities decreased by 15 basis points to 0.15% and the overall cost of funds, including demand deposits, decreased by 11 basis points to 0.10% in the first quarter of 2022, compared to the same period in 2021. Some key highlights for the quarter ended March 31, 2022 compared to the same period in 2021 include:

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●

The cost of interest-bearing deposits was 0.08% for the first quarter of 2022 compared to 0.22% for the same period in 2021, while the cost of repurchase agreements was 0.15% for the first quarter of 2022 compared to 0.25% for the same period in 2021. The cost on the corporate and subordinated debt also declined by 37 basis points for the three months ended March 31, 2022 compared to the same period in 2021. The declines in cost related to interest-bearing deposits, repurchase agreements and corporate and subordinated debt were due to the Bank operating under a lower rate environment for the last three quarters of 2021 and for most of the first quarter of 2022, as well as the reduction in the average balance of the higher costing corporate and subordinated debentures. These changes resulted in a 15 basis point decrease in the average rate on all interest-bearing liabilities from 0.30% to 0.15% for the three months ended March 31, 2022 compared to the same period in 2021.

o

The average balance of interest-bearing deposits increased by $2.6 billion and the average balance of repurchase agreements increased by $20.9 million. These increases were offset by decreases in the average balances of federal funds purchased and corporate and subordinated debt of $80.0 million and $35.9 million, respectively.

◾

The increase in average interest-bearing deposits is primarily due to excess deposits maintained in customer deposit accounts and the interest-bearing deposits of $1.6 billion assumed from the Atlantic Capital acquisition on March 1, 2022. Core interest-bearing deposits, which excludes timed deposits, increased $3.7 billion as of March 31, 2022, including the core interest-bearing deposits assumed from Atlantic Capital, compared to a year ago and the average balance increased $3.4 billion for the quarter ended March 31, 2022 compared to the same period in 2021. These core funds are normally lower cost funds.

◾

The decline in average corporate and subordinated debt was due to the redemption of $63.5 million in corporate and subordinated debentures in June 2021. The Company assumed subordinated debt of approximately $78.4 million from Atlantic Capital on the acquisition date of March 1, 2022. However, as the merger closed in the later part of the first quarter of 2022, the impact of the acquired balance to the average was less than the impact of the redemption of $63.5 million that occurred in June 2021. The interest expense from corporate and subordinated debt decreased $777,000 during the first quarter of 2022 compared to the same period in 2021.

o

The decline in interest expense of $7.5 million in the first quarter of 2022 compared to the same period in 2021 was driven by lower costs on interest-bearing deposits, repurchase agreements and corporate and subordinated debentures, along with the average balance reductions in federal funds purchased and corporate and subordinated debentures.

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 $2.2 billion (including the noninterest-bearing deposits assumed from Atlantic Capital), or 22.1%, to $12.3 billion in the first quarter of 2022 compared to $10.0 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 banking system. The Company also acquired noninterest-bearing deposit balances from Atlantic Capital which affected the average balance for the last 30 days of the first quarter of 2022. The noninterest-bearing deposit balances from Atlantic Capital on the acquisition date were approximately $1.4 billion in total.

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Noninterest Income

Noninterest income provides us with additional revenues that are significant sources of income. For the three months ended March 31, 2022 and 2021, noninterest income comprised 24.8% and 26.9%, respectively, of total net interest income and noninterest income.


	Three Months Ended
	March 31,
(Dollars in thousands)	2022		2021
Service charges on deposit accounts	$	18,894	$	16,094
Debit, prepaid, ATM and merchant card related income		10,008		9,188
Mortgage banking income		10,594		26,880
Trust and investment services income		9,718		8,578
Correspondent banking and capital market income		27,994		28,748
Bank owned life insurance income		5,260		3,300
Other		3,622		3,497
Total noninterest income	$	86,090	$	96,285

Noninterest income decreased by $10.2 million, or 10.6%, during the first quarter of 2022 compared to the same period in 2021. This quarterly change in total noninterest income resulted from the following:

●

Service charges on deposit accounts was higher by $2.8 million, or 17.4%, in the first quarter of 2022 compared to the same period in 2021. The increase was mainly due to an increase in service charge account maintenance fees of $945,000, in NSF and AOP charges of $1.2 million and in wire transfer fees of $472,000.

●

Debit, prepaid, ATM and merchant card related income was higher by $820,000, or 8.9%, in the first 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 of $382,000, credit card sales incentive of $424,000 and foreign ATM fee income of $418,000.

●

Mortgage banking income decreased by $16.3 million, or 60.6%, during the current quarter compared to the same period of the prior year, which was comprised of $18.6 million, or 69.9%, decrease from mortgage income in the secondary market and a $2.3 million, or 742.5%, increase 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. During the first quarter of 2022, mortgage income from the secondary market comprised of a $6.4 million decline in the change in fair value of the pipeline, loans held for sale and MBS forward trades and a $14.4 million gain on sale of mortgage loans, which is net of the commission expense related to mortgage production. Mortgage commission expense was $5.7 million during the first quarter of 2022 compared to $6.8 million during the comparable period in 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 quarter to quarter. The increase in mortgage servicing related income, net of the hedge, in the first quarter of 2022 was due to a $1.6 million increase in the change in fair value of the MSR including decay along with a $640,000 increase from servicing fee income. The increase in fair value of the MSR is due to a decrease in MSR decay as interest rates have increased since the first quarter of 2021 and the increase in the servicing fee income is due to the increase in size of the servicing portfolio.

●

Trust and investment services income for the first quarter of 2022 increased by $1.1 million from the first quarter of 2021 as assets under management have increased $636.1 million or 10.1% in that same time frame.

●

Bank owned life insurance income increased $2.0 million, or 59.4%, in the first quarter of 2022 compared to the same quarter in 2021. This increase was due the purchase of $286.0 million of new policies since March 2021 and the addition of $74.6 million in BOLI through the acquisition of Atlantic Capital in the first quarter of 2022.

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Noninterest Expense


	Three Months Ended
	March 31,
(Dollars in thousands)	2022		2021
Salaries and employee benefits	$	137,673	$	140,361
Occupancy expense		21,840		23,331
Information services expense		19,193		18,789
OREO expense and loan related expense		(238)		1,002
Amortization of intangibles		8,494		9,164
Business development and staff related expense		4,276		3,371
Supplies and printing		602		1,099
Postage expense		1,587		1,571
Professional fees		3,749		3,274
FDIC assessment and other regulatory charges		4,812		3,841
Advertising and marketing		1,763		1,740
Merger and branch consolidation related expense		10,276		10,009
Other		14,573		11,159
Total noninterest expense	$	228,600	$	228,711

Noninterest expense decreased by $111,000, or 0.05%, in the first quarter of 2022 as compared to the same period in 2021. The quarterly decrease in total noninterest expense primarily resulted from the following:

●

A decrease in salaries and employee benefits of $2.7 million, or 1.9%, in the first quarter of 2022 compared to the same period in 2021. The decrease was primarily due to an increase in 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. This reduction in salaries and benefits was partially offset by increases associated with the addition of Atlantic Capital employees for the month of March 2022. In addition, we recorded a total of $10.8 million in commission and $12.8 million in retail and loan incentives expenses during the current quarter, compared to $11.3 million and $10.1 million, respectively, during the first quarter of 2021.

●

A decrease in occupancy expense of $1.5 million, or 6.4%, in the first quarter of 2022 compared to the same period in 2021. This decrease was mainly attributable to the Company realizing more cost savings and efficiencies from the CSFL merger completed in June 2020, partially offset by costs associated with Atlantic Capital acquired on March 1, 2022.

●

A decrease in OREO and loan related expense of $1.2 million in the first quarter of 2022 compared to the same period in 2021. This decrease was mainly due to the Company experiencing gains on the sale of OREO and other acquired assets along with having several large recoveries from older losses in the first quarter of 2022 compared to the same period in 2021.

●

An increase in FDIC assessment and other regulatory charges of $971,000, or 25.3%, in the first quarter of 2022 compared to the same period in 2021. This increase was mainly due to an increase in the OCC examination fee of $598,000 and FDIC assessment of $335,000 as the Company continues to grow in size and complexity.

●

An increase in business development and staff related expense of $905,000, or 26.8%, in the first quarter of 2022 compared to the same period in 2021. This increase was mainly due to the limited expense in the first quarter of 2021 due to the COVID-19 pandemic as vaccines were just becoming widely available.

●

An increase in other noninterest expense of $3.4 million, or 30.6%, in the first quarter of 2022 compared to the same period in 2021. This increase was mainly attributable to the cost associated with the settlement of two lawsuits in the first quarter of 2022 of $1.8 million along with an increase in fraud and operational charge-offs of $1.7 million during 2022.

Income Tax Expense

Our effective tax rate was 21.26% for the three months ended March 31, 2022 compared to 21.83% for the three months ended March 31, 2021. The decrease in the effective rate for the quarter, when compared to the same period in the prior year, is driven by a decrease in pretax income, an increase in federal tax credits available, and an increase in tax exempt income, offset slightly by an increase in non-deductible executive compensation and non-deductible merger expenses associated with the Atlantic Capital transaction that closed during the current quarter.

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Analysis of Financial Condition

Summary

Our total assets increased approximately $4.2 billion, or 10.1%, from December 31, 2021 to March 31, 2022, to approximately $46.2 billion. Within total assets, cash and cash equivalents decreased $810.5 million, or 11.8%, investment securities increased $1.8 billion, or 24.5%, and loans increased $2.6 billion, or 11.0%, during the period. Within total liabilities, deposits grew $3.7 billion, or 10.6%, and federal funds purchased and securities sold under agreements to repurchase decreased $10.8 million, or 1.4%. Total borrowings increased $78.5 million, or 24.0%. Total shareholder’s equity increased $371.5 million, or 7.7%. The increases in investment securities, loans, deposits, borrowings and shareholder’s equity were mainly due to the acquisition of Atlantic Capital during the first quarter of 2022. Our loan to deposit ratio was 68% at both March 31, 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 as collateral for derivative exposure. At March 31, 2022, investment securities totaled $8.9 billion, compared to $7.2 billion at December 31, 2021, an increase of $1.8 billion, or 24.5%. The ACBI acquisition added $691.7 million of investment securities available for sale to our portfolio. We immediately sold $414.4 million, after principal paydowns, and retained $273.7 million in our portfolio. The Atlantic Capital securities retained were mostly state and municipal obligations. We continue to increase our investment securities strategically primarily with excess funds due to continued deposit growth. During the three months ended March 31, 2022, we purchased $2.0 billion of securities, $1.0 billion classified as held to maturity, $980.3 million classified as available for sale and $19.9 million classified as other investment securities. These purchases were partially offset by maturities, paydowns, sales and calls of investment securities totaling $626.5 million. Net amortization of premiums was $7.8 million in the first three months of 2022. The decrease in fair value in the available for sale investment portfolio of $362.1 million in the first three months of 2022 compared to December 31, 2021 was mainly due to an increase in long term interest rates during the three months ending March 31, 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:

Unrealized

Amortized

Fair

Net Gain

BB or

(Dollars in thousands)

Cost

Value

(Loss)

AAA - A

BBB

Lower

Not Rated

March 31, 2022

U.S. Treasuries

270,547

268,581

(1,966)

270,547

—

U.S. Government agencies

388,158

364,883

(23,275)

388,158

—

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

agencies or sponsored enterprises*

3,896,852

3,629,084

(267,768)

—

3,896,755

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

agencies or sponsored enterprises*

1,194,248

1,124,934

(69,314)

—

1,194,248

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

agencies or sponsored enterprises*

1,620,134

1,496,395

(123,739)

17,214

—

1,602,920

State and municipal obligations

1,201,639

1,127,697

(73,942)

1,201,584

—

Small Business Administration loan-backed securities

539,715

512,967

(26,748)

539,715

—

Corporate securities

30,619

30,160

(459)

—

30,619

9,141,912

8,554,701

(587,211)

2,417,315

—

6,724,597

* 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 March 31, 2022, we had 1,133 investment securities (including both available for sale and held to maturity) in an unrealized loss position, which totaled $590.3 million. 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 837 securities, while the total dollar amount of the unrealized loss increased by $484.3 million. 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 long term interest rates during the first three months of 2022.

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All investment securities in an unrealized loss position as of March 31, 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 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 March 31, 2022, we determined that there was no impairment on our other investment securities. As of March 31, 2022, other investment securities represented approximately $179.3 million, or 0.39% of total assets, and primarily consists of FHLB and FRB stock which totals $164.8 million, or 0.36% of total assets. There were no gains or losses on the sales of these securities for three months ended March 31, 2022 and 2021, respectively.

Trading Securities

We have a trading portfolio associated with our Correspondent Bank Division and its 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 Consolidated Statements of Net 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 $74.2 million and $77.7 million, respectively, at March 31, 2022 and December 31, 2021.

Loans Held for Sale

The balance of mortgage loans held for sale decreased $61.3 million from December 31, 2021 to $130.4 million at March 31, 2022. Total mortgage production remained strong at $1.3 billion, of which approximately $600 million were originations for mortgage loans held for sale during the first quarter of 2022, but did decline slightly from $1.4 billion, of which approximately $700 million were originations for mortgage loans held for sale in the fourth quarter of 2021. The percentage of mortgage production booked to portfolio instead of being sold into the secondary market increased to 53% compared 46% in the prior quarter. 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. The secondary pipeline remained steady at $260 million at March 31, 2022 compared to $254 million at the end of last quarter.

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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)	March 31,		% of		December 31,		% of
(Dollars in thousands)	2022		Total		2021		Total
Acquired loans:
Acquired - non-purchased credit deteriorated loans:
Construction and land development	$	328,594	1.2	%	$	180,449	0.8	%
Commercial non-owner occupied		2,473,882	9.3	%		2,048,952	8.6	%
Commercial owner occupied real estate		1,614,183	6.1	%		1,325,412	5.5	%
Consumer owner occupied		711,053	2.7	%		733,662	3.1	%
Home equity loans		392,076	1.5	%		405,241	1.7	%
Commercial and industrial		1,540,025	5.8	%		770,133	3.2	%
Other income producing property		257,912	1.0	%		286,566	1.2	%
Consumer non real estate		316,066	1.2	%		139,470	0.6	%
Other		33	—	%		184	—	%
Total acquired - non-purchased credit deteriorated loans		7,633,824	28.8	%		5,890,069	24.7	%
Acquired - purchased credit deteriorated loans (PCD):
Construction and land development		53,057	0.2	%		59,683	0.2	%
Commercial non-owner occupied		827,185	3.1	%		859,687	3.5	%
Commercial owner occupied real estate		541,474	2.0	%		542,602	2.3	%
Consumer owner occupied		230,604	0.9	%		243,645	1.0	%
Home equity loans		47,341	0.2	%		53,037	0.2	%
Commercial and industrial		110,781	0.4	%		85,380	0.4	%
Other income producing property		77,857	0.3	%		88,093	0.4	%
Consumer non real estate		50,734	0.2	%		55,195	0.2	%
Other		—	—	%		—	—	%
Total acquired - purchased credit deteriorated loans (PCD)		1,939,033	7.3	%		1,987,322	8.2	%
Total acquired loans		9,572,857	36.1	%		7,877,391	32.9	%
Non-acquired loans:
Construction and land development		1,934,662	7.3	%		1,789,084	7.5	%
Commercial non-owner occupied		4,177,048	15.7	%		3,827,060	16.0	%
Commercial owner occupied real estate		3,190,926	12.0	%		3,102,102	13.0	%
Consumer owner occupied		2,871,506	10.8	%		2,661,057	11.1	%
Home equity loans		736,156	2.8	%		710,316	3.0	%
Commercial and industrial		2,915,835	11.0	%		2,905,620	12.1	%
Other income producing property		344,573	1.3	%		322,145	1.3	%
Consumer non real estate		800,920	3.0	%		709,992	3.0	%
Other		11,944	—	%		23,399	0.1	%
Total non-acquired loans		16,983,570	63.9	%		16,050,775	67.1	%
Total loans (net of unearned income)	$	26,556,427	100.0	%	$	23,928,166	100.0	%

Total loans, net of deferred loan costs and fees (excluding mortgage loans held for sale), increased by $2.6 billion, or 44.5% annualized, to $26.6 billion at March 31, 2022. This increase included a $125.3 million decline in total PPP loans from December 31, 2021 and the addition of $2.4 billion in total loans resulting from the merger with Atlantic Capital. Excluding the effects from PPP loans and the acquisition date loan balances from the Atlantic Capital merger, total loans increased $381.3 million, or 6.3% annualized in the first three months of 2022. Our non-acquired loan portfolio increased by $932.8 million, or 23.6% annualized, driven by growth in all categories. Commercial non-owner occupied loans, construction and land development loans and consumer owner occupied loans led the way with $350.0 million, $145.6 million and $210.5 million in year-to-date loan growth, respectively, or 37.1%, 33.0%, and 32.1% annualized growth, respectively. The non-acquired loan growth was offset by a $130.3 million decline in non-acquired PPP loans from December 31, 2021. The acquired loan portfolio increased by $1.7 billion, or 87.3% annualized. This increase in acquired loans was due to the addition of $2.4 billion due to the merger with ACBI, 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, commercial non-owner occupied loans and commercial owner occupied loans with $795.3 million, $392.4 million and $287.6 million in year-to-date loan growth. Acquired loans as a percentage of total loans increased to 36.1% and non-acquired loans as a percentage of the overall portfolio decreased to 63.9% at March 31, 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 utilized 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 has evaluated the appropriateness of the reasonable and supportable forecast scenarios and has made adjustments as needed. 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 COVID-19 epidemiological data and federal stimulus), 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 weighed 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 utilizes a four-quarter forecast and a four-quarter reversion period.

The COVID-19 pandemic and ensuing recovery have created increased volatility and uncertainties within the economy and economic forecasts. Accordingly, Management has used a blended forecast scenario of the baseline and more severe scenario ranging between two-thirds baseline and one-third more severe scenario to an equal weight between the baseline and more severe scenario since December 31, 2020, depending on the circumstances and economic outlook. As of March 31, 2022, Management selected a baseline weighting of 50%, down from 55% in the fourth quarter of 2021, and increased the more severe scenario to 50%. Neither scenario approximates Management’s view of the economy. While the current economy appears to have momentum, the baseline minimizes many of the identified

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headwinds that could become a factor, including the duration and depth of inflation and the duration and impact of the Russian invasion of Ukraine. The resulting release was approximately $8.4 million during the first quarter of 2022, which included the Day 1 provision related to the Atlantic Capital acquisition of $17.1 million, including the provision for unfunded commitments. Excluding the day 1 provision related to the Atlantic Capital acquisition, the resulting quarter end release was $25.6 million in total for both the allowance for credit losses and reserve for unfunded commitments. If the economic forecast weighting had not been adjusted from the fourth quarter of 2021, this would have resulted in a higher release of approximately $12 million, which Management deemed inappropriate given the underlying economic conditions as compared with assumptions in the baseline scenario.

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.

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.

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. 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

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Impaired) were treated as PCD loans. As a result of the merger with Atlantic Capital, the Company identified approximately $112 million of loans as PCD and recorded an allowance for credit losses of $9.2 million on acquisition date.

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 March 31, 2022, the accrued interest receivable for loans recorded in Other Assets was $80.6 million.

ACB was acquired and merged with and into the Bank on March 1, 2022, requiring that a closing date ACL be prepared for ACB on a standalone basis and that the acquired portfolio be included in SSB’s first quarter ACL. ACB’s loans represent roughly 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 Day 1 ACL totaled $22.9 million, consisting of a non-PCD pooled reserve of $13.7 million, PCD pooled reserve of $5.0 million, and PCD individually evaluated reserve of $4.1 million. It represented about 8% of the combined Bank’s ACL reserve at quarter end. The Day 1 reserve for unfunded commitments totaled $3.4 million, or 11% of the combined Bank’s total at March 31, 2022.

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 March 31, 2022, the liability recorded for expected credit losses on unfunded commitments was $30.4 million. The current adjustment to the ACL for unfunded commitments is recognized through the Provision for Credit Losses in the Condensed Consolidated Statements of Net Income.

As of March 31, 2022, the balance of the ACL was $300.4 million or 1.13% of total loans. The ACL decreased $1.4 million from the balance of $301.8 million recorded at December 31, 2021. This decrease during the first quarter of 2022 included a $8.3 million negative provision, net of the initial provision for credit losses recorded for the nonPCD loans acquired from ACB, in addition to $2.3 million in net charge-offs. These decreases were partially offset by the Day 1 ACL of $9.2 million for the PCD loans acquired in the Atlantic Capital acquisition in the first quarter of 2022. For the three months ended March 31, 2022, the Company has released allowance for credit losses based on improvements in the economic forecasts that drive our CECL models with the improvement in the economy and the increased availability of the COVID-19 vaccine.

At March 31, 2022, the Company had a reserve on unfunded commitments of $30.4 million which was recorded as a liability on the balance sheet, compared to $30.5 million at December 31, 2021. During three months ended March 31, 2022, the Company recorded a release of the reserve for unfunded commitments, or negative provision for credit losses, on unfunded commitments of $142,000, net of the initial provision for credit losses recorded for unfunded commitments acquired from Atlantic Capital, compared to a release of allowance or negative provision for credit losses on unfunded commitments of $7.6 million during the three months ended March 31, 2021. With the improvement in the economy and the increased availability of the COVID-19 vaccine, the Company began to release some of this reserve for unfunded commitments based on improvements in economic forecasts. This amount was recorded in (Recovery) Provision for Credit Losses on the Condensed Consolidated Statements of Net Income. For the prior comparative period, the Company had a reserve on unfunded commitments of $35.8 million recorded at March 31, 2021. The Company did not have an allowance for credit losses or record a provision for credit losses on investment securities or other financials asset during the first three months of 2022.

At March 31, 2022, the allowance for credit losses was $300.4 million, or 1.13%, of period-end loans. The ACL provides 2.63 times coverage of nonperforming loans at March 31, 2022. Net charge-offs to the total average loans during three months ended March 31, 2022 were 0.04%. The decrease in the ACL coverage ratio over nonperforming loans was driven primarily by an increase in accruing loans past due 90 days or more. The increase in the accruing loans

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past due 90 days or more at March 31, 2022 was due to a group of factoring receivables that are deemed to be low risk in nature. Although past due, these factoring receivables are performing as they are expected and are historically brought current during the following quarter. We continued to show solid and stable asset quality numbers and ratios as of March 31, 2022. The following table provides the allocation, by segment, for expected credit losses. 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.

The following table presents a summary of net charge off ratios by loan segment, for the three months ended March 31,2022:

The following table provides the allocation, by segment, for expected credit losses.
	March 31, 2022
(Dollars in thousands)	Amount		%*
Residential Mortgage Senior	$	46,002	16.0	%
Residential Mortgage Junior		586	0.1	%
Revolving Mortgage		13,671	4.8	%
Residential Construction		5,616	2.5	%
Other Construction and Development		25,358	6.2	%
Consumer		21,899	4.3	%
Multifamily		3,903	2.0	%
Municipal		607	2.5	%
Owner Occupied Commercial Real Estate		49,094	20.5	%
Non-Owner Occupied Commercial Real Estate		96,360	26.2	%
Commercial and Industrial		37,300	15.1	%
Total	$	300,396	100.0	%

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

The following table presents a summary of net charge off ratios by loan segment, the quarter ended March 31, 2022 and 2021:


	Three Months Ended March 31, 2022						Three Months Ended March 31, 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	$	336	$	4,114,487	0.01	%	$	308	$	4,200,244	0.01	%
Residential Mortgage Junior		36		14,450	0.25	%		33		29,449	0.11	%
Revolving Mortgage		39		1,231,574	—	%		248		1,342,529	0.02	%
Residential Construction		3		641,834	—	%		1		545,432	—	%
Other Construction and Development		230		1,479,769	0.02	%		191		1,332,843	0.01	%
Consumer		(2,129)		994,117	(0.21)	%		(1,639)		873,699	(0.19)	%
Multifamily		—		474,929	—	%		—		371,497	—	%
Municipal		—		643,679	—	%		—		623,028	—	%
Owner Occupied Commercial Real Estate		(57)		5,095,063	—	%		306		4,801,322	0.01	%
Non-Owner Occupied Commercial Real Estate		69		6,488,637	—	%		127		5,794,861	—	%
Commercial and Industrial		(850)		3,664,514	(0.02)	%		446		4,577,185	0.01	%
Total	$	(2,323)	$	24,843,053			$	21	$	24,492,089

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The following tables present a summary of ACL for the quarter ended March 31, 2022 and 2021:


	Three Months Ended March 31,
	2022						2021
	Non-PCD		PCD				Non-PCD		PCD
(Dollars in thousands)	Loans		Loans		Total		Loans		Loans		Total
Balance at beginning of period	$	225,227	$	76,580	$	301,807	$	315,470	$	141,839	$	457,309
ACL - PCD loans for ACBI merger		—		9,218		9,218		—		—		—
Loans charged-off		(4,124)		(1,366)		(5,490)		(2,517)		(857)		(3,374)
Recoveries of loans previously charged off		2,289		878		3,167		1,980		1,415		3,395
Net (charge-offs) recoveries		(1,835)		(488)		(2,323)		(537)		558		21
Initial provision for credit losses - ACBI		13,697		—		13,697		—		—		—
(Recovery) provision for credit losses		(9,260)		(12,743)		(22,003)		(30,676)		(20,194)		(50,870)
Balance at end of period	$	227,829	$	72,567	$	300,396	$	284,257	$	122,203	$	406,460

Total loans, net of unearned income:
At period end	$	26,556,427					$	24,491,465
Average		24,843,053						24,492,089
Net charge-offs as a percentage of average loans (annualized)		0.04	%					(0.00)	%
Allowance for credit losses as a percentage of period end loans		1.13	%					1.66	%
Allowance for credit losses as a percentage of period end non-performing loans (“NPLs”)		262.50	%					402.20	%

Nonperforming Assets (“NPAs”)

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


	March 31,			December 31,			September 30,			June 30,			March 31,
(Dollars in thousands)	2022			2021			2021			2021			2021
Non-acquired:
Nonaccrual loans	$	19,174		$	18,201		$	22,087		$	14,221		$	16,956
Accruing loans past due 90 days or more		22,818			4,612			1,729			559			853
Restructured loans - nonaccrual		408			499			1,713			1,844			3,225
Total non-acquired nonperforming loans		42,400			23,312			25,529			16,624			21,034
Other real estate owned (“OREO”) ^{(1) (6)}		252			252			92			444			490
Other nonperforming assets ⁽²⁾		212			338			273			251			164
Total non-acquired nonperforming assets		42,864			23,902			25,894			17,319			21,688
Acquired:
Nonaccrual loans ⁽³⁾		59,267			56,718			64,583			69,053			79,919
Accruing loans past due 90 days or more		12,768			251			89			—			105
Total acquired nonperforming loans		72,035			56,969			64,672			69,053			80,024
Acquired OREO and other nonperforming assets:
Acquired OREO^{(1) (7)}		3,038			2,484			3,595			4,595			10,981
Other acquired nonperforming assets ⁽²⁾		80			391			209			182			311
Total acquired nonperforming assets		75,153			59,844			68,476			73,830			91,316
Total nonperforming assets	$	118,017		$	83,746		$	94,370		$	91,149		$	113,004

Excluding Acquired Assets
Total nonperforming assets as a percentage of total loans and repossessed assets ⁽⁴⁾		0.25	%		0.15	%		0.17	%		0.12	%		0.16	%
Total nonperforming assets as a percentage of total assets ⁽⁵⁾		0.09	%		0.06	%		0.06	%		0.04	%		0.05	%
Nonperforming loans as a percentage of period end loans⁽⁴⁾		0.25	%		0.15	%		0.17	%		0.12	%		0.16	%

Including Acquired Assets
Total nonperforming assets as a percentage of total loans and repossessed assets⁽⁴⁾		0.44	%		0.35	%		0.40	%		0.38	%		0.46	%
Total nonperforming assets as a percentage of total assets		0.26	%		0.20	%		0.23	%		0.23	%		0.28	%
Nonperforming loans as a percentage of period end loans ⁽⁴⁾		0.43	%		0.34	%		0.38	%		0.36	%		0.41	%

(1)

Consists of real estate acquired as a result of foreclosure.

(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 $893,000, $1.0 million, $1.0 million, $443,000 and $1.9 million as of March 31, 2022, December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021, respectively, that is now separately disclosed on the balance sheet.

(7)

Excludes acquired bank premises held for sale of $5.5 million, $8.6 million, $14.1 million, $19.8 million and $29.3 million as of March 31, 2022, December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021, respectively, that is now separately disclosed on the balance sheet.

Total nonperforming assets were $118.0 million, or 0.44% of total loans and repossessed assets, at March 31, 2022, an increase of $34.3 million, or 41.0%, from December 31, 2021. Total nonperforming loans were $114.4 million, or 0.43%, of total loans, at March 31, 2022, an increase of $34.1 million, or 42.5%, from December 31, 2021. Non-acquired nonperforming loans increased by $19.1 million from December 31, 2021. The increase in non-acquired-nonperforming loans was driven primarily by an increase in accruing loans past due 90 days or more of $18.2 million, an

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increase in commercial nonaccrual loans of $1.4 million, offset by a combined decline in restructured nonaccrual loans and consumer nonaccrual loans of $527,000. The accruing loans past due 90 days or more at March 31, 2022 mainly consisted of a group of factoring receivables totaling $22.6 million that were deemed to be low risk in nature. Although past due, these factoring receivables are performing as they are expected and are historically brought current during the following quarter. After the first quarter-end 2022, over 50% of these factoring receivables have since been collected. Acquired nonperforming loans increased $15.1 million from December 31, 2021. The increase in the acquired nonperforming loan balances was due to an increase in accruing loans past due 90 days or more of $12.5 million, an increase in commercial nonaccruing loans of $2.3 million and an increase in consumer nonaccruing loans of approximately $291,000. The majority of the increase in acquired accruing loans past due 90 days or more at March 31, 2022 was due to the addition of $11.3 million in loans acquired in the transaction with ACBI in the first quarter of 2022. The $11.3 million loans from the ACBI merger are United States Department of Agriculture (“USDA”) guaranteed, therefore, we expect no losses.

At March 31, 2022, OREO totaled $3.3 million, which included $252,000 in non-acquired OREO and $3.0 million in acquired OREO. Total OREO increased $0.6 from December 31, 2021. At March 31, 2022, non-acquired OREO consisted of 1 property with an average value of $252,000 which was the same property held at December 31, 2021. During the first quarter of 2022, we added 1 property into non-acquired OREO with an aggregate value of $14,000 and subsequently sold that property during the quarter for a gain of $3,000. At March 31, 2022, acquired OREO consisted of 14 properties with an average value of $217,000. This is compared to 11 properties with an average value of $226,000 at December 31, 2021. In the first quarter of 2022, we added 6 new properties into acquired OREO, while selling 3 properties with an aggregate value of $516,000 during the current quarter. On the properties sold, we recorded a net gain of $465,000.

Potential Problem Loans

Potential problem loans, which are not included in nonperforming loans, related to non-acquired loans were approximately $9.7 million, or 0.06%, of total non-acquired loans outstanding, at March 31, 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 $39.9 million, or 0.42%, of total acquired loans outstanding, at March 31, 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 $1.2 billion or 20.1% annualized to $24.7 billion at March 31, 2022 from $23.6 billion at December 31, 2021. This increase was mainly driven by interest-bearing deposits acquired in the Atlantic Capital transaction in the first quarter of 2022 of $1.3 billion (balance of deposits at March 31, 2022). During the three months ended March 31, 2022, core deposits increased $1.1 billion. 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 $770.4 million at March 31, 2022 down $10.8 million from December 31, 2021. Corporate and subordinated debentures increased by $78.5 million to $405.6 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 $1.0 billion, savings of $129.2 million, and time deposits of $18.5 million. Excluding deposits held by legacy Atlantic Capital as of March 31, 2022, interest-bearing deposits declined $148.9 million. Interest-bearing transactional accounts including money markets increased $17.3 million, savings increased $128.3 million, and time deposits decreased $294.5 million. Average interest-bearing deposits increased $2.6 billion to $23.7 billion in the quarter ended March 31, 2022 compared to the same period in 2021.

●

Corporate and subordinated debentures increased $78.5 million from the period end balance at December 31, 2021. This increase was due to the assumption of $78.4 million in subordinated debt resulted from the Atlantic Capital transaction completed in the first quarter of 2022.

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Noninterest-Bearing Deposits

Noninterest-bearing deposits are transaction accounts that provide our Bank with “interest-free” sources of funds. At March 31, 2022, the period end balance of noninterest-bearing deposits was $14.1 billion exceeding the December 31, 2021 balance by $2.6 billion. The increase was mainly due to the noninterest-bearing deposits assumed from the merger with ACBI in March 2022. The acquisition date noninterest-bearing deposits balances acquired from ACBI totaled $1.4 billion and the balance of ACBI deposits at March 31, 2022 was $1.8 billion. Average noninterest-bearing deposits were $12.3 billion for the first quarter of 2022 compared to $10.0 billion for the first quarter of 2021. This increase was related to organic growth and deposits acquired through the ACBI transaction. The ACBI acquisition was completed on March 1, 2022, therefore the acquired noninterest-bearing deposits were only outstanding for 30 days during the quarter which resulted in a lower effect on the average balance.

Capital Resources

Our ongoing capital requirements have been met primarily through retained earnings, less the payment of cash dividends. As of March 31, 2022, shareholders’ equity was $5.2 billion, an increase of $371.5 million, or 7.7%, 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		100,329
Dividends paid on common shares ($0.49 per share)		(33,822)
Dividends paid on restricted stock units		(100)
Net decrease in market value of securities available for sale, net of deferred taxes		(272,810)
Stock options exercised		408
Equity based compensation		8,486
Common stock repurchased pursuant to stock repurchase plan		(86,458)
Common stock repurchased - equity plans		(2,357)
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 March 31, 2022	$	5,174,408

In January 2021, the Board of Directors of the Company approved the authorization of a 3,5000,000 share Company stock repurchase plan (the “2021 Stock Repurchase Plan”). Our Board of Directors approved the plan after considering, among other things, our liquidity needs and capital resources as well as the estimated current value of our net assets. The number of shares to be purchased and 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. During 2021 and through March 31, 2022, we repurchased 2,829,979 shares, at an average price of $82.27 per share (excluding cost of commissions) for a total of $232.8 million. Of this amount, we have repurchased 1,012,038 shares, at an average price of $85.43 per share (excluding cost of commissions) for a total of $86.5 million during the first quarter of 2022. Of the 3,500,000 shares authorized under the 2021 Stock Repurchase Plan, 670,021 shares of common stock remain to be repurchased.

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%.

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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 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.

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


	Well-Capitalized		March 31,		December 31,
	Minimums		2022		2021
SouthState Corporation:
Common equity Tier 1 risk-based capital	N/A		11.37	%	11.75	%
Tier 1 risk-based capital	6.00	%	11.37	%	11.75	%
Total risk-based capital	10.00	%	13.31	%	13.56	%
Tier 1 leverage	N/A		8.45	%	8.05	%

SouthState Bank:
Common equity Tier 1 risk-based capital	6.50	%	12.37	%	12.62	%
Tier 1 risk-based capital	8.00	%	12.37	%	12.62	%
Total risk-based capital	10.00	%	12.99	%	13.22	%
Tier 1 leverage	5.00	%	9.19	%	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-based assets acquired through the acquisition of Atlantic Capital in the first quarter of 2022, which on average, had a higher risk weighting, and the reduction in cash and cash equivalents during the quarter, which are lower risk weighted assets. Risk-based capital increased due to net income recognized for the first quarter of 2022, in 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 Tier 2 capital. This increase in capital was partially offset by the $86.5 million of stock repurchases completed during the quarter. The Tier 1 leverage ratio increased both at the Company and Bank due to the Company recording the full effect of the additional equity resulting from the acquisition of Atlantic Capital, as noted above, while the increase in total assets of $3.5 billion acquired from the acquisition were only included in the calculation of average assets for 30 days since the acquisition was completed on March 1, 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 utilized for day-to-day corporate liquidity needs.

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:

●

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

●

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

●

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.

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Our non-acquired loan portfolio increased by approximately $932.8 million, or approximately 23.57% 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 $1.7 billion from the balance at December 31, 2021 through the addition of $2.4 billion in loans acquired in the Atlantic Capital transaction on March 31, 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 $1.8 billion compared to the balance at December 31, 2021. The increase in investment securities from December 31, 2021 was a result of purchases of $2.0 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 $626.5 million as well as a decrease in the market value of the available for sale investment securities portfolio of $362.1 million. Net amortization of premiums was $7.8 million in the first three 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 $6.0 billion at March 31, 2022 as compared to $6.8 billion at December 31, 2021 as funds were used to fund loan growth and purchase securities during the three months ended March 31, 2022.

At March 31, 2022 and December 31, 2021, we had $150.1 million and $325.0 million of traditional, out–of-market brokered deposits. At March 31, 2022 and December 31, 2021, we had $826.5 million and $900.1 million, respectively, of reciprocal brokered deposits. Total deposits were $38.8 billion at March 31, 2022, an increase of $3.7 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 $2.6 billion, including $1.4 billion of demand deposits assumed from Atlantic Capital on March 1, 2022. Total borrowings at March 31, 2022 were $405.6 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 March 31, 2022 were $770.4 million, consisting of $343.8 million in federal funds purchased and $426.6 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 past 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 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 March 31, 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 March 31, 2022, our Bank had $956.1 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 March 31, 2022, our Bank had a total FHLB credit facility of $3.1 billion with total outstanding FHLB letters of credit consuming $12.1 million leaving $3.1 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 March 31, 2022. We believe that our liquidity position continues to be adequate and readily available.

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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 utilize 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 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 stress testing 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 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

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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. 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 current market prices consistent with maintaining a stable balance sheet. 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 stress testing 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.

As of March 31, 2022, the earnings simulations indicated that the impact of an instantaneous 100 basis point increase / decrease in rates would result in an estimated 8.0% increase (up 100) and 9.2% 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 March 31, 2022, the percentage change in EVE due to a 100 basis point increase or decrease in interest rates was 1.9% increase and 3.3% decrease, respectively. The percentage changes in EVE due to a 200 basis point increase or decrease in interest rates were 3.8% increase and 8.0% decrease, respectively.

Simulation analysis involves the use of several assumptions including, but not limited to, the timing of cash flows such as 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. Furthermore, 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. For example, higher levels of interest rate sensitivity of deposits to upward movements in interest rates may adversely impact net interest income. Additionally, slower prepayment speeds of loans may adversely impact the economic value of equity in a rising interest rate environment. Key simulation assumptions are subject to stress testing to assess the impact of assumption changes on earnings at risk and equity at risk.

The analysis provided below assumes the base case reflects Moody’s Baseline forecast as described above. Parallel and sustained interest rate shocks are applied over a one-year time horizon on an instantaneous and ramped basis. Instantaneous shocks assume immediate, sustained interest rate shocks, whereas ramped shocks distribute the assumed change in rates attributable to the shock evenly across the one-year time horizon. This analysis is applied to a static balance sheet that assumes maturing or repricing assets and liabilities are replaced at current market prices and volumes consistent with maintaining a stable balance sheet, with the exception of PPP loans that are not assumed to be replaced. The downward rate shock is subject to product floors and a zero-interest rate.


Percentage Change in Net Interest Income over One Year
	March 31, 2022
Interest Rate Shock Increment	Instantaneous Shock	Ramped Shock
Up 100 basis points	8.0%	4.7%
Up 200 basis points	15.6%	9.1%
Down 100 basis points	(9.2%)	(5.1%)
Down 200 basis points	(17.2%)	(10.8%)

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Percentage Change in Economic Value of Equity
Shock		March 31, 2022
Up 100 basis points		1.9%
Up 200 basis points		3.8%
Down 100 basis points		(3.3%)
Down 200 basis points		(8.0%)

LIBOR Transition

In July 2017, the Financial Conduct Authority (FCA), which regulates LIBOR, announced that it intends 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 will 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 has proposed Secured Overnight Financing Rate (“SOFR”) as its preferred rate as an alternative to LIBOR and has 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 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 GSEs.

●

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 utilize 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.

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 March 31, 2022, the Company had the following exposures to LIBOR:

●

Approximately $7.2 billion of total outstanding loans reference LIBOR. Of this amount, $6.5 billion have maturities occurring after the LIBOR discontinuation date of June 30, 2023.

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●

Approximately $21.4 billion in interest rate swaps that are indexed to LIBOR with a gross positive fair value of $408.4 million and a gross negative fair value of $409.1 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.

●

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.

●

Subordinated debt that references LIBOR with a principal balance of $13 million. This debt matures June 30, 2027 and has an initial call date of June 30, 2022.

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 March 31, 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 loan losses of the Company, or $931.9 million at March 31, 2022. Based on this criteria, we had seven such credit concentrations at March 31, 2022, including loans on hotels and motels of $1.0 billion, loans to lessors of nonresidential buildings (except mini-warehouses) of $5.3 billion, loans secured by owner occupied office buildings (including medical office buildings) of $1.8 billion, loans secured by owner occupied nonresidential buildings (excluding office buildings) of $1.8 billion, loans to lessors of residential buildings (investment properties and multi-family) of $1.4 billion, loans secured by 1^st mortgage 1-4 family owner occupied residential property (including condos and home equity lines) of $4.2 billion and loans secured by jumbo (original loans greater than $548,250) 1^st mortgage 1-4 family owner occupied residential property of $1.5 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 March 31, 2022 and December 31, 2021, the Bank’s CDL concentration ratio was 57.5% and 55.2%, respectively, and its CRE concentration ratio was 243.0% and 238.5%, respectively. As of March 31, 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.

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

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of performance or financial condition as promulgated under GAAP, and investors should consider SouthState’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of SouthState. 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 SouthState’s results or financial condition as reported under GAAP.


	Three Months Ended
	March 31,
(Dollars in thousands)	2022			2021
Return on average equity (GAAP)		8.24	%		12.71	%
Effect to adjust for intangible assets		5.73	%		8.45	%
Return on average tangible equity (non-GAAP)		13.97	%		21.16	%

Average shareholders’ equity (GAAP)	$	4,937,165		$	4,687,149
Average intangible assets		(1,831,250)			(1,733,522)
Adjusted average shareholders’ equity (non-GAAP)	$	3,105,915		$	2,953,627

Net income (GAAP)	$	100,329		$	146,949
Amortization of intangibles		8,494			9,164
Tax effect		(1,806)			(2,001)
Net income excluding the after-tax effect of amortization of intangibles (non-GAAP)	$	107,017		$	154,112

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:

●

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, the COVID-19 pandemic or government or regulatory responses thereto, federal spending cuts and/or one or more federal budget-related impasses or actions;

●

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

●

Risks and uncertainties relating to the acquisition of Atlantic Capital, including the ability to successfully integrate the companies or to realize the anticipated benefits of the merger;

●

Expenses relating to the acquisition of Atlantic Capital and integration of legacy Atlantic Capital;

●

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

●

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;

●

Risks related to the acquisition of Atlantic Capital, including:

o

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

o

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

o

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;

●

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

●

Potential deterioration in real estate values;

●

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;

●

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;

●

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;

●

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

●

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;

●

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

●

Transaction risk arising from problems with service or product delivery;

●

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

●

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);

●

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

●

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

●

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;

●

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;

●

Greater than expected noninterest expenses;

●

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;

●

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;

●

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

●

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;

●

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

●

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;

●

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

●

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

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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 March 31, 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 March 31, 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 March 31, 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 March 31, 2022, we excluded the operations of ACB 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 March 31, 2022, we excluded those disclosure controls and procedures of ACB that are subsumed by internal control over financial reporting. The merger was completed on March 1, 2022. As of and for the quarter ended March 31, 2022, ACB’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, ACB merged into SouthState Corporation. We are working to integrate ACB into our overall internal control over financial reporting processes. Except for changes made in connection with this integration of ACB, there has been no change in our internal control over financial reporting during the three months ended March 31, 2022, that has materially affected, or is likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

As of March 31, 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 March 31, 2022, we repurchased 2,829,979 shares, at an average price of $82.27 per share (excluding cost of commissions) for a total of $232.8 million. Of this amount, during the first quarter of 2022, we repurchased 1,012,038 shares, at an average price of $85.43 per share (excluding cost of commissions) for a total of $86.5 million. Of the 3,500,000 shares authorized under the 2021 Stock Repurchase Plan, we may repurchase up to 670,021 shares of common stock under the program.

The following table reflects share repurchase activity during the first 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

January 1 ‑ January 31	94,492	*	$	83.19	81,005	1,601,054
February 1 - February 28	633,803	*		86.06	624,293	976,761
March 1 - March 31	311,792	*		84.69	306,740	670,021
Total	1,040,087				1,012,038	670,021

For the months ended January 31, 2022, February 28, 2022 and March 31, 2022, totals include 13,487, 9,510 and 5,052 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 2021 Stock Repurchase Plan to repurchase shares.

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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.

Exhibit Index


Exhibit No.		Description

Exhibit 31.1		Rule 13a-14(a) Certification of Principal Executive Officer

Exhibit 31.2		Rule 13a-14(a) Certification of Principal Financial Officer

Exhibit 32		Section 1350 Certifications of Principal Executive Officer and Principal Financial Officer

Exhibit 101		The following financial statements from the Quarterly Report on Form 10-Q of SouthState Corporation for the quarter ended March 31, 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.

Exhibit 104		Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).

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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: May 6, 2022	/s/ John C. Corbett
	John C. Corbett
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: May 6, 2022	/s/ William E. Matthews, V
	William E. Matthews, V
	Senior Executive Vice President,
	Chief Financial Officer
	(Principal Financial Officer)

Date: May 6, 2022	/s/ Sara G. Arana
	Sara G. Arana
	Senior Vice President and
	Principal Accounting Officer