10-K: Southern States Bancshares, Inc. 2023 Annual Report: Solid Growth Amidst Regulatory Scrutiny

Southern States Bancshares reports a strong year with increased net income, loan growth, and deposit growth, while navigating a complex regulatory landscape.

Summary

• Southern States Bancshares, Inc. reported a net income of $32.0 million for 2023, an increase from $27.1 million in 2022.
• The company's return on average assets was 1.44% and return on average equity was 16.16% for 2023.
• Basic earnings per common share were $3.63 for 2023, compared to $3.08 in the previous year.
• Net interest income increased by $8.8 million, or 12.3%, year-over-year.
• Loans, net of unearned income, reached $1.9 billion, an 18.7% increase from 2022.
• Deposits grew to $2.0 billion, a 17.3% increase, with non-brokered deposits increasing by 11.0%.
• The company is set to acquire Century Bank of Georgia in the third quarter of 2024, pending regulatory and shareholder approvals.
• The net interest margin was 3.81% for 2023, compared to 3.99% in 2022.
• The provision for credit losses was $6.1 million for 2023, compared to $5.6 million in 2022.
• Noninterest income was $8.9 million, a slight increase from $8.7 million in 2022.
• Noninterest expense increased to $41.9 million from $39.6 million in the previous year.
• The company had 185 employees as of December 31, 2023, with 181 classified as full-time.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and strategic growth initiatives. However, it also acknowledges potential risks and challenges, which tempers the overall sentiment.

Positives

• The company experienced significant growth in loans and deposits.
• The company's profitability metrics, such as ROAA and ROAE, remained strong.
• The company's capital ratios exceeded regulatory requirements.
• The company is expanding its market presence through the acquisition of Century Bank.
• The company has a strong focus on diversity and inclusion in its workforce.
• The company has a strong liquidity position with access to various funding sources.

Negatives

• The net interest margin decreased from 3.99% in 2022 to 3.81% in 2023.
• Noninterest expenses increased by 5.7% year-over-year.
• The company's allowance for credit losses increased to $24.4 million from $20.2 million in 2022.
• The company's net charge offs increased to $583,000 from $293,000 in 2022.
• The company's nonperforming loans decreased by $1.1 million from December 31, 2022 to December 31, 2023.

Risks

• The company's profitability is vulnerable to interest rate fluctuations.
• The company's business is concentrated in specific geographic markets.
• The company could suffer losses from a decline in the credit quality of its assets.
• A significant portion of the company's loan portfolio is secured by real estate.
• The company's allowance for estimated credit losses may not be adequate.
• Acquisitions may disrupt the company's business and dilute stockholder value.
• The company's financial performance will be negatively impacted if it is unable to execute its growth strategy.
• The company's liquidity needs might adversely affect its financial condition and results of operations.
• The company may not be able to adequately measure and limit the credit risks associated with its loan portfolio.
• The company is subject to extensive regulation in the conduct of its business.
• FDIC deposit insurance assessments may materially increase in the future.
• The company may need to raise additional capital in the future.
• An active, liquid market for the company's common stock may not be sustained.
• The market price of the company's common stock may be subject to substantial fluctuations.
• The company is subject to risk due to increasing interest rates.
• The company is subject to information technology and cybersecurity risk.
• The accuracy of the company's financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in its critical accounting policies are inaccurate.
• The company is subject to risk from lawsuits and changing laws and regulations.
• The company's profitability and liquidity may be affected by changes in interest rates and interest rate levels, the shape of the yield curve and economic conditions.
• The company is subject to numerous laws designed to protect consumers, including the CRA and fair lending laws.
• The company is subject to the Bank Secrecy Act and other anti-money laundering statutes and regulations.
• The obligations associated with being a public company require significant resources and management attention.

Future Outlook

The company expects to close the merger with Century Bank in the third quarter of 2024, subject to regulatory and shareholder approvals. The company will continue to focus on organic growth, supplemented with select acquisitions.

Management Comments

• Management believes that its allowance for estimated loan losses is adequate to absorb probable losses on existing loans that may become uncollectible.
• Management believes that the experience of its executive management will assist it in its continuing efforts to achieve the requisite level of compliance.
• Management believes that its banking and other offices are in good condition and are suitable and adequate to its needs.
• Management believes that its broad suite of financial solutions, its high-quality client service culture, its positive reputation and its longstanding community relationships will enable it to compete successfully within its markets and enhance its ability to attract and retain clients.

Industry Context

The company operates in a highly competitive banking and financial services industry, facing competition from local, regional, and national banks, as well as credit unions, mortgage companies, and other financial intermediaries. The company's growth strategy includes both organic expansion and strategic acquisitions, which is a common trend in the industry.

Comparison to Industry Standards

• The company's return on average assets (ROAA) of 1.44% is comparable to the average ROAA of community banks, which typically range from 1.0% to 1.5%.
• The company's return on average equity (ROAE) of 16.16% is above the average ROAE of community banks, which typically range from 8% to 12%.
• The company's net interest margin of 3.81% is within the typical range for community banks, which generally falls between 3.0% and 4.0%.
• The company's loan growth of 18.7% is higher than the average loan growth rate for community banks, which is typically in the single digits.
• The company's deposit growth of 17.3% is also higher than the average deposit growth rate for community banks, which is typically in the single digits.
• The company's nonperforming assets to gross loans and OREO of 0.06% is significantly lower than the industry average, which is typically around 0.5% to 1.0%.
• The company's regulatory concentration ratio of commercial real estate loans to total risk-based Bank capital of 296.8% is below the 300% regulatory guideline.

Legal Proceedings

• Southern States and Southern States Bank are parties to various legal proceedings in the ordinary course of their respective businesses, including proceedings to collect loans or enforce security interests.
• In the opinion of management, none of these legal proceedings currently pending will, when resolved, have a material adverse effect on the financial condition or the results of operations of Southern States or Southern States Bank.

Related Party Transactions

• The company conducts transactions with its directors and executive officers, including companies in which such directors and executive officers have a beneficial interest.
• It is the company's policy to comply with federal regulations that require that loan and deposit transactions with directors and executive officers be made on substantially the same terms as those prevailing at the time for comparable loans and deposits to other persons.

Stakeholder Impact

• Shareholders will benefit from the company's strong financial performance and growth.
• Employees will benefit from the company's commitment to diversity and inclusion and competitive compensation.
• Customers will benefit from the company's broad suite of financial solutions and high-quality client service.
• The company's suppliers and creditors will benefit from the company's strong financial position.

Next Steps

• The company will focus on completing the acquisition of Century Bank in the third quarter of 2024.
• The company will continue to execute its growth strategy, including organic expansion and select acquisitions.
• The company will continue to monitor and manage its credit risk and interest rate risk.
• The company will continue to comply with all applicable laws and regulations.

Key Dates

Keywords

community banking, financial services, loan portfolio, deposit growth, net interest income, regulatory compliance, capital adequacy, asset quality, merger acquisition, interest rate risk