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September 30, 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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
_____________________________
☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: September 30, 2022
or
☐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: 001-40727
_____________________________
https://cdn.kscope.io/5944f9b49a3febc7eecd5d7325fa1866-ssbk-20220930_g1.jpg
Southern States Bancshares, Inc.
(Exact name of registrant as specified in its charter)
_____________________________
Alabama
26-2518085
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
615 Quintard Ave., Anniston, AL
36201
(Address of Principal Executive Offices)(Zip Code)
Registrant’s telephone number, including area code: (256) 241-1092
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $5.00 par value per shareSSBKThe Nasdaq Stock Market, LLC
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 x    No  o
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 (§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  x   No  o
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 oAccelerated filero
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  x
As of November 10, 2022, the registrant had 8,706,920 shares of common stock, $5 par value per share, issued and outstanding. 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of Southern States Bancshares, Inc. (“Southern States” or the “Company”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which reflect our current expectations and beliefs with respect to, among other things, future events and our financial performance. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. This may be especially true given the current COVID-19 pandemic and uncertainty about its continuation. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the dates made, we cannot give any assurance that such expectations will prove correct and actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict.
These statements are often, but not always, made through the use of words or phrases such as “may,” “can,” “should,” “could,” “to be,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “likely,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “target,” “project,” “would” and “outlook,” or the negative version of those words or other similar words or phrases of a future or forward-looking nature. Forward-looking statements appear in a number of places in this Quarterly Report on Form 10-Q and may include statements about business strategy and prospects for growth, operations, ability to pay dividends, competition, regulation and general economic conditions.
There are or may be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:
•potential risks and uncertainties relating to the effects of COVID-19, including the duration of the COVID-19 outbreak, actions that have been and will be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact, and the potential negative impacts of COVID-19 on the global economy and financial markets, including U.S. GDP decreases and increases in unemployment;
•our ability to execute and prudently manage our growth and execute our strategy, including expansion activities;
•our ability to adequately measure and limit our credit risk;
•business, market and economic conditions generally and in the financial services industry, nationally and within our local markets;
•factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our markets and the financial health of our commercial borrowers;
•the failure of assumptions and estimates, as well as differences in, and changes to, economic, market, and credit conditions, including changes in borrowers’ credit risks and payment behaviors;
•compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities and tax matters, and our ability to maintain licenses required in connection with mortgage origination, sale and servicing operations;
•compliance with the Bank Secrecy Act, OFAC rules and anti-money laundering laws and regulations;
•governmental monetary and fiscal policies;
•the effectiveness of our risk management framework, including internal controls;
•the composition of and future changes in our management team and our ability to attract and retain key personnel;
•geographic concentration of our business in certain Alabama and Georgia markets;
•our ability to attract and retain customers;
•the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand, and the values and liquidity of loan collateral, securities, and interest-sensitive assets and liabilities, and the risks and uncertainty of the amounts realizable;
•changes in the availability and cost of credit and capital in the financial markets, and the types of instruments that may be included as capital for regulatory purposes;

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•changes in the prices, values and sales volumes of residential and commercial real estate;
•the effects of competition from a wide variety of local, regional, national and other providers of financial, investment, trust and other wealth management services and insurance services, including the disruption effects of financial technology and other competitors who are not subject to the same regulations as the Company and Southern States Bank (“the Bank”);
•the failure of assumptions and estimates underlying the establishment of allowances for possible loan losses and other asset impairments, losses, valuations of assets and liabilities and other estimates;
•the risks of any mergers, acquisitions and divestitures, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions;
•changes in technology or products that may be more difficult, costly, or less effective than anticipated;
•systems failures or interruptions involving our risk management framework, our information technology and telecommunications systems or third-party servicers;
•unauthorized data access, cyber-crime and other threats to data security and customer privacy;
•our ability to maintain our historical rate of growth;
•our ability to identify potential candidates for, consummate, and achieve synergies resulting from, potential future acquisitions;
•deterioration of our asset quality or the value of collateral securing loans;
•changes in the laws, rules, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters and appropriate compliance with applicable law and regulation;
•operational risks associated with our business;
•volatility and direction of market interest rates and the shape of the yield curve;
•our ability to maintain important deposit customer relationships, maintain our reputation or otherwise avoid liquidity risks;
•the obligations associated with being a public company;
•the commencement and outcome of litigation and other legal proceedings against us or to which we may become subject;
•natural disasters and adverse weather, acts of terrorism, an outbreak of hostilities (such as the conflict between Russia and Ukraine) or other international or domestic calamities as well as national and international economic conditions and health issues, such as COVID-19, and other matters beyond our control; and
•the “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, and in our other public filings and press releases.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements and the “Risk Factors” included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share amounts)
September 30, 2022
(Unaudited)
December 31, 2021
(Audited)
Assets
Cash and due from banks$17,394 $6,397 
Interest-bearing deposits in banks165,637 203,537 
Federal funds sold63,031 74,022 
Total cash and cash equivalents246,062 283,956 
Securities available for sale, at fair value150,718 132,172 
Securities held to maturity, at amortized cost19,657 19,672 
Other equity securities, at fair value5,694 9,232 
Restricted equity securities, at cost2,791 2,600 
Loans held for sale1,643 2,400 
Loans, net of unearned income1,524,990 1,250,300 
Less allowance for loan losses18,423 14,844 
Loans, net1,506,567 1,235,456 
Premises and equipment, net28,585 27,044 
Accrued interest receivable5,699 4,170 
Bank owned life insurance29,677 22,201 
Annuities15,564 12,888 
Foreclosed assets2,930 2,930 
Goodwill16,862 16,862 
Core deposit intangible1,302 1,500 
Other assets18,974 9,509 
Total assets$2,052,725 $1,782,592 
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing$499,613 $541,546 
Interest-bearing1,267,479 1,014,905 
Total deposits1,767,092 1,556,451 
Other borrowings19,978 12,498 
FHLB advances26,000 25,950 
Subordinated notes47,042 — 
Accrued interest payable359 132 
Other liabilities21,929 10,363 
Total liabilities1,882,400 1,605,394 

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Stockholders' equity:
Preferred stock, $0.01 par value, 2,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2022 and December 31, 2021
— — 
Common stock, $5 par value, 30,000,000 shares authorized; 8,705,920 and 9,012,857 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
43,529 45,064 
Capital surplus75,835 80,640 
Retained earnings63,956 49,858 
Accumulated other comprehensive (loss) income(12,403)2,113 
Unvested restricted stock(592)(477)
Total stockholders' equity170,325 177,198 
Total liabilities and stockholders' equity$2,052,725 $1,782,592 
See Notes to Consolidated Financial Statements.

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
For the Three Months Ended
For the Nine Months Ended
September 30,
2022		September 30,
2021		September 30,
2022		September 30,
2021
Interest income:
Loans, including fees$20,052 $13,923 $51,083 $40,429 
Taxable securities1,010 402 2,417 1,134 
Nontaxable securities323 266 931 729 
Other interest and dividends1,135 143 1,713 315 
Total interest income22,520 14,734 56,144 42,607 
Interest expense:
Deposits2,489 1,034 4,251 3,355 
Other borrowings596 60 1,439 435 
Total interest expense3,085 1,094 5,690 3,790 
Net interest income19,435 13,640 50,454 38,817 
Provision for loan losses1,663 750 3,667 2,250 
Net interest income after provision for loan losses17,772 12,890 46,787 36,567 
Noninterest income:
Service charges on deposit accounts508 403 1,433 1,101 
Swap fees11 101 48 938 
SBA/USDA fees95 130 575 3,434 
Mortgage origination fees218 393 717 1,196 
Net gain (loss) on securities(143)189 (546)(17)
Other operating income650 1,293 1,847 2,399 
Total noninterest income1,339 2,509 4,074 9,051 
Noninterest expenses:
Salaries and employee benefits6,152 5,517 17,859 16,104 
Equipment and occupancy expenses764 908 2,188 2,697 
Data processing fees599 524 1,733 1,565 
Regulatory assessments235 248 760 689 
     Other operating expenses2,487 1,988 6,638 5,768 
Total noninterest expenses10,237 9,185 29,178 26,823 
Income before income taxes8,874 6,214 21,683 18,795 
Income tax expense2,174 1,293 5,204 4,287 
Net income$6,700 $4,921 $16,479 $14,508 
Basic earnings per share$0.77 $0.59 $1.87 $1.84 
Diluted earnings per share$0.75 $0.58 $1.84 $1.82 
See Notes to Consolidated Financial Statements.

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)
For the Three Months Ended
September 30,
2022		September 30,
2021
Net income$6,700 $4,921 
Other comprehensive loss:
Unrealized holding losses on securities available for sale arising during the period, net of benefit of $1,393 and $29, respectively
(3,964)(84)
Reclassification adjustment for gains on securities available for sale realized in net income, net of tax of $0
— — 
Other comprehensive loss(3,964)(84)
Comprehensive income$2,736 $4,837 
For the Nine Months Ended
September 30,
2022		September 30,
2021
Net income$16,479 $14,508 
Other comprehensive loss:
Unrealized holding losses on securities available for sale arising during the period, net of benefit of $5,100 and $255, respectively
(14,516)(727)
Reclassification adjustment for losses on securities available for sale realized in net income, net of benefit of $0 and $47, respectively
— 133 
Other comprehensive loss(14,516)(594)
Comprehensive income$1,963 $13,914 
See Notes to Consolidated Financial Statements.

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(In thousands, except share amounts)
Preferred StockCommon StockCapital
Surplus		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Unvested
Restricted
Stock		Total
Stockholders'
Equity
SharesPar ValueSharesPar Value
Balance, December 31, 2021
— $— 9,012,857 $45,064 $80,640 $49,858 $2,113 $(477)$177,198 
Net income— — — — — 16,479 — — 16,479 
Exercise of common stock options— — 14,300 71 135 — — — 206 
Issuance of restricted stock— — 24,265 121 379 — — (500)— 
Repurchase of common stock under the stock repurchase program— — (345,502)(1,727)(5,629)— — — (7,356)
Stock-based compensation— — — — 310 — — 385 695 
Common stock dividends paid— — — — — (2,381)— — (2,381)
Other comprehensive loss— — — — — — (14,516)— (14,516)
Balance, September 30, 2022
— $— 8,705,920 $43,529 $75,835 $63,956 $(12,403)$(592)$170,325 

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)


For the Nine Months Ended September 30,
20222021
OPERATING ACTIVITIES
Net income$16,479 $14,508 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and software amortization953 1,422 
Net loss on securities546 17 
Net amortization of securities699 696 
Amortization of core deposit intangible198 198 
Provision for loan losses3,667 2,250 
Gain on sale of foreclosed assets— (10)
Stock-based compensation695 607 
Net decrease in loans held for sale757 3,599 
Income from bank owned life insurance(455)(378)
(Increase) decrease in interest receivable(1,529)310 
Increase (decrease) in interest payable227 (153)
Net other operating activities 7,147 (376)
Net cash provided by operating activities29,384 22,690 
INVESTING ACTIVITIES
Purchase of securities available for sale(46,508)(44,479)
Purchase of other equity securities— (9,000)
Proceeds from sale of securities available for sale— 15,759 
Proceeds from sale of other equity securities3,129 4,995 
Proceeds from maturities, calls, and paydowns of securities available for sale7,524 8,005 
Net (purchase) redemption of restricted equity securities(191)624 
Purchase of annuities(2,622)— 
Purchase of bank owned life insurance(7,021)— 
Net increase in loans (274,778)(115,444)
Proceeds from sale of foreclosed assets— 188 
Proceeds from bank owned life insurance— 755 
Purchase of premises, equipment and software(2,494)(2,912)
Net cash used in investing activities(322,961)(141,509)
FINANCING ACTIVITIES
Net increase in deposits210,641 196,661 
Net proceeds from issuance of common stock in connection with IPO— 20,959 
Proceeds from issuance of common stock206 165 
Repurchase of common stock(7,356)— 
Proceeds of FHLB advances50 — 
Repayment of other borrowings— (3,971)
Net proceeds of note payable7,481 4,500 
Net proceeds (repayment) of subordinated notes47,042 (4,500)
Common stock dividends paid(2,381)(2,080)
Net cash provided by financing activities255,683 211,734 
Net (decrease) increase in cash and cash equivalents(37,894)92,915 
Cash and cash equivalents at beginning of year283,956 84,907 
Cash and cash equivalents at end of year$246,062 $177,822 
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for:
Interest$5,463 $3,943 
Income taxes$5,901 $5,367 
NONCASH TRANSACTIONS
Transfers of loans to foreclosed assets$— $100 
Internally financed sale of foreclosed assets$— $— 
See Notes to Consolidated Financial Statements.

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)

NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business
Southern States Bancshares, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary, Southern States Bank (the “Bank”). The Bank is a commercial bank headquartered in Anniston, Calhoun County, Alabama. The Bank also operates branch offices in Birmingham, Opelika, Auburn, Huntsville, Sylacauga, Wedowee, and Roanoke, Alabama as well as Columbus, Carrollton, Dallas, and Newnan, Georgia. The Bank also has two loan production offices (LPO) located in Atlanta, Georgia. The Bank provides a full range of banking services in its primary market areas and the surrounding areas.
Basis of Presentation and Accounting Estimates
The unaudited consolidated financial statements include the accounts of the Company and its subsidiary. Significant intercompany transactions and balances have been eliminated in consolidation.
In preparing the unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed assets, financial instruments, deferred taxes, and other-than-temporary impairment of securities. In connection with the determination of the estimated losses on loans and the valuation of foreclosed assets, management obtains independent appraisals for significant collateral.
The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.
The Company’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Company has a diversified loan portfolio, a substantial portion of its borrowers’ ability to honor their contracts is dependent on local economic conditions.
While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions.
In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Company to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
Cash, Cash Equivalents and Cash Flows
For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, cash items in process of collection, amounts due from banks, interest-bearing deposits in banks and federal funds sold. Cash flows from loans held for sale, loans, restricted equity securities, and deposits are reported net.
The Company maintains amounts due from banks which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.
The Bank may be required to maintain reserve balances in cash or on deposit with a correspondent bank for the Federal Reserve Bank, based on a percentage of deposits. The total of those reserve balances was $0 at September 30, 2022 and December 31, 2021.

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


Securities
The Company classifies its securities into one of two categories based upon management’s intent and ability to hold the securities: (i) securities held to maturity or (ii) securities available for sale. Securities classified as held to maturity are stated at cost adjusted for amortization of premiums and accretion of discounts. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. The Company has the ability, and it is management’s intention, to hold such securities to maturity. Securities classified as available for sale are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive loss. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities available for sale are recorded on the trade date and are determined using the specific identification method.
The Company evaluates investment securities for other-than-temporary impairment (OTTI) using relevant accounting guidance on a regular basis. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer including an evaluation of credit ratings, (3) the impact of changes in market interest rates, (4) the intent of the Company to sell a security, and (5) whether it is more likely than not the Company will have to sell the security before recovery of its cost basis. If the Company intends to sell an impaired security, or if it is more likely than not the Company will have to sell the security before recovery of its cost basis, the Company records an other-than-temporary loss in an amount equal to the entire difference between fair value and amortized cost. Otherwise, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss is recognized in other comprehensive loss.
Other Equity Securities
The mutual funds owned by the Company are classified as equity securities and are carried at fair value with any periodic changes in value recorded through the statement of income.
Restricted Equity Securities
Restricted equity securities are investments that are restricted in marketability. The Company, as a member of the Federal Home Loan Bank (FHLB) system, is required to maintain an investment in capital stock of the FHLB based upon its assets or outstanding advances. The Company has also purchased stock in First National Banker’s Bankshares, Inc. (FNBB), and Pacific Coast Banker’s Bank (PCBB), both correspondent banks. These securities are carried at cost and periodically evaluated for impairment based on ultimate recoverability of par value.
Loans Held For Sale
Loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value (LOCOM). For loans carried at LOCOM, gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan. The estimated fair value of loans held for sale is based on independent third party quoted prices.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balances less deferred fees and costs on originated loans and the allowance for loan losses. Interest income is accrued on the outstanding principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield over the life of the loan, using the straight-line method without anticipating prepayments.






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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


Loans (Continued)
The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due, or at the time the loan is 90 days past due, unless the loan is well-secured and in the process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal and interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income or charged to the allowance; unless management believes that the accrual of interest is recoverable through the liquidation of collateral. Interest income on nonaccrual loans is recognized on the cash basis, until the loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and the loan has been performing according to the contractual terms generally for a period of not less than six months.
Certain Purchased Loans
Purchased loans are recorded at their fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased impaired or purchased non-impaired. Purchased impaired loans reflect credit deterioration since origination such that it is probable at acquisition that the Company will be unable to collect all contractually required payments. The purchased impaired loans acquired are subject to the Company’s internal and external credit review and monitoring. If credit deterioration is experienced subsequent to the initial acquisition fair value amount, such deterioration will be measured, and a provision for credit losses will be charged to earnings.
Such purchased loans are accounted for individually. The Company estimates the amount and timing of expected cash flows for each purchased loan, and the expected cash flows in excess of the amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). Over the life of the loan, expected cash flows will continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income. Purchased impaired loans at the time of acquisition are accounted for under ASC 310-30.
Purchased non-impaired loans are accounted for under ASC 310-20, with the difference between the fair value and unpaid principal balance of the loan at the acquisition date amortized or accreted to interest income over the estimated life of the loans.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Confirmed losses are charged off immediately. Subsequent recoveries, if any, are credited to the allowance.
The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of loans in light of historical experience, the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, current economic conditions that may affect the borrower’s ability to pay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions.






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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


Allowance for Loan Losses (Continued)
The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when it is probable, based on current information and events, the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Loans, for which the terms have been modified at the borrower’s request, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.
Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. Loans that experience insignificant payment delays and payment shortfalls are not generally classified as impaired. Impaired loans are measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Interest on accruing impaired loans is recognized as long as such loans do not meet the criteria for nonaccrual status. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
The Company’s allowance is allocated among commercial real estate loans, real estate construction and development loans, residential real estate loans, commercial and industrial loans, and consumer loans. The general allocations to these loan pools are based on the historical loss rates for specific loan types and the internal risk grade, if applicable, adjusted for both internal and external qualitative risk factors. The qualitative factors considered by management include, among other factors, (1) changes in local and national economic conditions; (2) changes in asset quality and foreclosure rates; (3) changes in loan portfolio volume; (4) the composition and concentrations of credit; (5) the impact of competition on loan structuring and pricing; (6) the experience and ability of lending personnel and management; (7) effectiveness of the Company’s loan policies, procedures and internal controls; (8) current conditions in the real estate and construction markets; (9) the effect of entrance into new markets or the offering of a new product; (10) the loan review system and oversight of the Board of Directors. The total allowance established for each homogeneous loan pool represents the product of the historical loss ratio adjusted for internal and external factors and the total dollar amount of the loans in the pool.
Troubled Debt Restructurings
A loan is considered a troubled debt restructuring (TDR) based on individual facts and circumstances. The Company designates loan modifications as TDRs when for economic or legal reasons related to the borrower’s financial difficulties, it grants a concession to the borrower that it would not otherwise consider. These concessions may include rate reductions, principal forgiveness, extension of maturity date and other actions intended to minimize potential losses.
In determining whether a borrower is experiencing financial difficulties, the Company considers if the borrower is in payment default or would be in payment default in the foreseeable future without the modification, the borrower declared or is in the process of declaring bankruptcy, the borrower’s projected cash flows will not be sufficient to service any of its debt, or the borrower cannot obtain funds from sources other than the Company at a market rate for debt with similar risk characteristics.
In determining whether the Company has granted a concession, the Company assesses, if it does not expect to collect all amounts due, whether the current value of the collateral will satisfy the amounts owed, whether additional collateral or guarantees from the borrower will serve as adequate compensation for other terms of the restructuring, and whether the borrower otherwise has access to funds at a market rate for debt with similar risk characteristics.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


Premises and Equipment
Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets or the expected terms of the leases, if shorter. Expected terms include lease option periods to the extent that the exercise of such options is reasonably assured. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are reflected in income. The estimated useful lives are as follows:
Years
Buildings
10-39
Furniture and equipment
3-7
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company - put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated selling costs. Any write-down to fair value at the time of transfer to foreclosed assets is charged to the allowance for loan losses. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell. Costs of improvements are capitalized, whereas costs related to holding foreclosed assets and subsequent write-downs to the value are expensed. Any gains and losses realized at the time of disposal are reflected in income.
Goodwill
Goodwill represents the excess of the amount paid over the fair value of the net assets at the date of acquisition. Goodwill is subject to an annual evaluation of impairment. If desired, the Company can assess qualitative factors to determine if comparing the carrying value of the reporting unit to its fair value is necessary. Should the fair value be less than the carrying value, an impairment write-down would be taken. Based on its assessment of qualitative factors, the Company determined that no impairment exists at September 30, 2022.
Goodwill is not amortized but is evaluated for impairment on an annual basis or whenever an event occurs or circumstances change to indicate that it is more likely than not that an impairment loss has been incurred (i.e., a triggering event). The Company performed a goodwill impairment test in September 2022. The qualitative factors considered in determining if fair value of the unit was less than the carrying amount were economic conditions related to the COVID-19 virus and the change in the interest rate environment. A quantitative assessment of goodwill impairment included determining the estimated fair value of Company using a market-based approach. It was determined there was no impairment.
Core Deposit Intangible
A core deposit intangible is initially recognized based on a valuation, of acquired deposits, performed as of the acquisition date. The core deposit intangible is amortized over the average remaining life of the acquired customer deposits, or approximately 7 years. The intangible asset is reviewed annually for events or circumstances that could negatively impact the recoverability of the intangible. These events could include loss of core deposits, increased competition, or adverse changes in the economy.

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


Core Deposit Intangible (Continued)
To the extent this intangible asset is deemed unrecoverable, an impairment charge would be recorded. The Company maintains steady deposit growth across our markets and continues to attract new customer deposits. The intangible asset was evaluated for impairment as of September 30, 2022 and based on that evaluation there was no impairment.
Accounting Policy for Derivative Instruments and Hedging Activities
FASB ASC 815, Derivatives and Hedging (ASC 815), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
In accordance with the FASB’s fair value measurement guidance in ASU 2011-04, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Income Taxes
Income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more likely than not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more likely than not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets may be reduced by deferred tax liabilities and a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. Management believes that the Company will generate sufficient operating earnings to realize the deferred tax benefits.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


Stock Compensation Plans
Stock compensation accounting guidance requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock options and warrants, restricted stock plans, performance-based awards, share appreciation rights, and employee share purchase plans.
The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees’ service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Scholes model is used to estimate the fair value of stock options, while the estimated market price of the Company’s common stock at the date of grant is used for restricted stock awards and stock grants.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.
Fair Value of Financial Instruments
Fair values of financial instruments are estimates using relevant market information and other assumptions, as more fully disclosed in Note 12. Fair value estimates involve uncertainties and matters of significant judgment. Changes in assumptions or in market conditions could significantly affect the estimates.
Revenue Recognition
On January 1, 2019, the Company adopted ASC 606 and all subsequent amendments (collectively ASC 606) which (1) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (2) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as foreclosed assets. The majority of the Company’s revenues come from interest income and other sources, including loans and securities that are outside the scope of ASC 606. With the exception of gains/losses on sale of foreclosed assets, the Company’s services that fall within the scope of ASC 606 are presented within noninterest income and are recognized as revenue as the Company satisfies its obligations to the customer. Services within the scope of ASC 606 reported in noninterest income include service charges on deposit accounts, bank card services and interchange fees, and ATM fees.
Recent Accounting Pronouncements
In February 2016 the Financial Accounting Standards Board (FASB) issued ASU 2016-02, “Leases (Topic 842)” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU 2016-02 requires organizations that lease assets (lessees) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by the lease for all operating leases under current U.S. GAAP with a term of more than 12 months. The ASU is effective for non-public business entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. The ASU should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted ASU 2016-02 on June 30, 2021 and there was no material impact on the Company’s consolidated financial statements.





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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In July 2018 the FASB issued ASU 2018-11, “Leases – Targeted Improvements” to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU 2016-02. Specifically, under the amendments in ASU 2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments have the same effective date as ASU 2016-02 (January 1, 2022 for the Company). The Company adopted ASU 2018-11 on June 30, 2021 and there was no material impact on the Company’s consolidated financial statements.
In June 2016 the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The new guidance will apply to most financial assets measured at amortized cost and certain other instruments including loans, debt securities held to maturity, net investments in leases and off-balance sheet credit exposures. The guidance will replace the current incurred loss accounting model that delays recognition of a loss until it is probable a loss has been incurred with an expected loss model that reflects expected credit losses based upon a broader range of estimates including consideration of past events, current conditions and supportable forecasts. The guidance also eliminates the current accounting model for purchased credit impaired loans and debt securities, which will require re-measurement of the related allowance at each reporting period. The guidance includes enhanced disclosure requirements intended to help financial statement users better understand estimates and judgement used in estimating credit losses. As originally issued, ASU 2016-13 was effective for financial statements issued for fiscal years and for interim periods within those fiscal years beginning after December 15, 2020, with institutions required to apply the changes through a cumulative-effect adjustment to their retained earnings balance as of the beginning of the first reporting period in which the guidance is effective. On October 16, 2019, the FASB approved a delay in the implementation of ASU 2016-13 by two years for non-public business entities and SEC filers that qualify as smaller reporting companies, including the Company. Management has been in the process of developing a revised model to calculate the allowance for loan and leases losses upon implementation of ASU 2016-13 in order to determine the impact on the Company’s consolidated financial statements and, at this time, expects to recognize a one-time cumulative effect adjustment to the allowance for loan and lease losses as of the beginning of the first reporting period in which the new standard is effective. The magnitude of any such one-time adjustments is not yet known but is not anticipated to be material.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for other than public business entities for fiscal years beginning after December 15, 2020, with early adoption, including adoption in an interim period, permitted. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The amended presentation and disclosure guidance is required only prospectively. The Company did not experience any impact on the Company’s consolidated financial position, results of operations or cash flows as a result of ASU 2017-12.
NOTE 2.    EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share reflect additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options.







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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)

NOTE 2.    EARNINGS PER SHARE (Continued)







For the Three Months Ended
September 30,
For the Nine Months Ended September 30,
2022202120222021
Basic Earnings Per Share:
Net Income$6,700 $4,921 $16,479 $14,508 
Weighted average common shares outstanding8,693,745 8,354,860 8,797,720 7,861,780 
Basic earnings per share$0.77 $0.59 $1.87 $1.84 
Diluted Earnings Per Share:
Net income allocated to common shareholders$6,693 $4,914 $16,465 $14,487 
Weighted average common shares outstanding8,693,745 8,354,860 8,797,720 7,861,780 
Net dilutive effect of:
Assumed exercises of stock options177,371 112,600 154,880 118,379 
Average shares and dilutive potential common shares8,871,116 8,467,460 8,952,600 7,980,159 
Dilutive earnings per share$0.75 $0.58 $1.84 $1.82 
NOTE 3.    SECURITIES
The amortized cost and fair value of securities at September 30, 2022 and December 31, 2021 are summarized as follows:
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
September 30, 2022
Securities Available for Sale
U.S. Treasury securities$9,775 $— $(1,250)$8,525 
U.S. Government Sponsored Enterprises (GSEs)2,133 — (229)1,904 
State and municipal securities56,399 29 (8,547)47,881 
Corporate debt securities12,529 — (721)11,808 
Asset based securities14,698 4 (701)14,001 
 Mortgage-backed GSE residential/multifamily and non-GSE71,945 1 (5,347)66,599 
Total securities available for sale$167,479 $34 $(16,795)$150,718 
Securities Held to Maturity
State and municipal securities19,657 — (4,362)15,295 
Total securities held to maturity$19,657 $— $(4,362)$15,295 
Total securities$187,136 $34 $(21,157)$166,013 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 3.    SECURITIES (Continued)
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
December 31, 2021
Securities Available for Sale
U.S. Treasury securities$7,820 $22 $(20)$7,822 
U.S. Government Sponsored Enterprises (GSEs)9,228 68 (103)9,193 
State and municipal securities54,236 2,611 (66)56,781 
Corporate debt securities10,530 289 (35)10,784 
Asset based securities10,380 116 (24)10,472 
 Mortgage-backed GSE residential/multifamily and non-GSE37,123 185 (188)37,120 
Total securities available for sale$129,317 $3,291 $(436)$132,172 
Securities Held to Maturity
State and municipal securities19,672 364 (126)19,910 
Total securities held to maturity$19,672 $364 $(126)$19,910 
Total securities$148,989 $3,655 $(562)$152,082 
Securities with a carrying value of $35,322 and $46,263 at September 30, 2022 and December 31, 2021, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.
The amortized cost and fair value of securities available for sale and securities held to maturity as of September 30, 2022 and December 31, 2021 by contractual maturity are shown below. Actual maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid with or without penalty. Therefore, these securities are not included by maturity in the following summary:
September 30, 2022December 31, 2021
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Securities Available for Sale
Due in less than one year$— $— $302$302
Due from one year to five years8,343 7,802 2,7662,790
Due after five to ten years23,658 21,248 26,47526,764
Due after ten years63,533 55,069 62,65165,196
Mortgage-backed securities71,945 66,599 37,12337,120
Total securities available for sale$167,479 $150,718 $129,317 $132,172 
Securities Held to Maturity
Due in less than one year$— $— $—$—
Due from one year to five years— — ——
Due after five to ten years3,022 2,429 1,1001,115
Due after ten years16,635 12,866 18,57218,795
Mortgage-backed securities— — ——
Total securities held to maturity$19,657 $15,295 $19,672 $19,910 
Total securities$187,136 $166,013 $148,989 $152,082 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 3.    SECURITIES (Continued)
Restricted equity securities as of September 30, 2022 and December 31, 2021 consist of the following:
September 30,
2022		December 31,
2021
Federal Home Loan Bank stock$1,866 $1,675 
First National Banker’s Bankshares, Inc. stock675 675 
Pacific Coast Banker’s Bank stock250 250 
Total restricted equity securities$2,791 $2,600 
Temporarily Impaired Securities
The following table shows the gross unrealized losses and fair value of securities, aggregated by category and length of time that securities have been in a continuous unrealized loss position at September 30, 2022 and December 31, 2021.
Less Than Twelve MonthsOver Twelve Months
Gross
Unrealized
Losses		Fair ValueGross
Unrealized
Losses		Fair ValueTotal
Unrealized
Losses
September 30, 2022
Securities Available for Sale
U.S. Treasury securities$(507)$3,941 $(743)$4,584 $(1,250)
U.S. Government Sponsored Enterprises (GSEs)— — (229)1,904 (229)
State and municipal securities(7,382)41,783 (1,165)3,928 (8,547)
Corporate debt securities(436)9,069 (285)2,489 (721)
Asset based securities(491)10,043 (210)3,231 (701)
Mortgage-backed GSE residential/multifamily and non-GSE(4,947)59,984 (400)4,670 (5,347)
Total securities available for sale$(13,763)$124,820 $(3,032)$20,806 $(16,795)
Securities Held to Maturity
State and municipal securities(3,177)11,660 (1,185)3,634 (4,362)
Total securities held to maturity$(3,177)$11,660 $(1,185)$3,634 $(4,362)
Total securities$(16,940)$136,480 $(4,217)$24,440 $(21,157)

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 3.    SECURITIES (Continued)
Temporarily Impaired Securities (Continued)
Less Than Twelve MonthsOver Twelve Months
Gross
Unrealized
Losses		Fair ValueGross
Unrealized
Losses		Fair ValueTotal
Unrealized
Losses
December 31, 2021
Securities Available for Sale
U.S. Treasury securities$(20)$5,347 $— $— $(20)
U.S. Government Sponsored Enterprises (GSEs)(57)1,946 (46)1,899 (103)
State and municipal securities(66)6,270 — — (66)
Corporate debt securities(35)2,995 — — (35)
Asset based securities(21)2,842 (3)879 (24)
Mortgage-backed GSE residential/multifamily and non-GSE(158)16,226 (30)2,749 (188)
Total securities available for sale$(357)$35,626 $(79)$5,527 $(436)
Securities Held to Maturity
State and municipal securities(126)6,450 — — (126)
Total securities held to maturity$(126)$6,450 $— $— $(126)
Total securities$(483)$42,076 $(79)$5,527 $(562)
The unrealized losses on 219 securities at September 30, 2022 were caused by interest rate changes. Because the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before recovery of the amortized cost bases, at maturity, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2022.
Other-Than-Temporary Impairment
The Company routinely conducts periodic reviews to identify and evaluate each investment security to determine whether an other-than-temporary impairment has occurred. Factors included in the evaluation process may include geographic concentrations, credit ratings, and other performance indicators of the underlying asset. As of September 30, 2022 and December 31, 2021, no securities within the Company’s investment securities portfolio was considered other-than-temporarily impaired.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)

NOTE 4.    LOANS


Portfolio Segments and Classes
The composition of loans, excluding loans held for sale, is summarized as follows:
September 30, 2022December 31, 2021
Amount% of
Total		Amount% of
Total
(in thousands, except percentages)
Real estate mortgages:
Construction and development$222,15914.5%$174,48013.9%
Residential164,29610.7%147,49011.8%
Commercial889,94258.2%716,54157.1%
Commercial and industrial243,57715.9%206,89716.5%
Consumer and other10,1550.7%8,7090.7%
Gross Loans1,530,129100.0%1,254,117100.0%
Deferred loan fees(5,139)(3,817)
Allowance for loan losses(18,423)(14,844)
Loans, net$1,506,567$1,235,456
For purposes of the disclosures required pursuant to ASC 310, the loan portfolio was disaggregated into segments and then further disaggregated into classes for certain disclosures. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. There are three loan portfolio segments that include real estate, commercial and industrial, and consumer and other. A class is generally determined based on the initial measurement attribute, risk characteristic of the loan, and an entity’s method for monitoring and assessing credit risk. Commercial and industrial is a separate commercial loan class. Classes within the real estate portfolio segment include construction and development, residential mortgages, and commercial mortgages. Consumer loans and other are a class in itself.
In light of the U.S. and global economic crisis brought about by the COVID-19 pandemic, the Company has prioritized assisting its clients through this troubled time. The CARES Act provides for Paycheck Protection Plan (PPP) loans to be made by banks to employers with less than 500 employees if they continue to employ their existing workers. As of September 30, 2022, the Company does not have any loans outstanding under the PPP program. PPP loan origination fees recorded as an adjustment to loan yield for the three and nine months ended were $0 and $298, respectively. These PPP loans are included within the commercial and industrial loan category in the table above.
The following describe risk characteristics relevant to each of the portfolio segments and classes:
Real estate - As discussed below, the Company offers various types of real estate loan products. All loans within this portfolio segment are particularly sensitive to the valuation of real estate:
•Loans for real estate construction and development are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio class includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral.
•Residential mortgages include 1-4 family first mortgage loans which are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property. Also included in residential mortgages are real estate loans secured by farmland, second liens, or open end real estate loans, such as home equity lines. These loans are typically repaid in the same means as 1-4 family first mortgages.







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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 4.    LOANS (Continued)

Portfolio Segments and Classes (Continued)
•Commercial real estate mortgage loans include both owner-occupied commercial real estate loans and other commercial real estate loans such as commercial loans secured by income producing properties. Owner-occupied commercial real estate loans made to operating businesses are long-term financing of land and buildings and are repaid by cash flows generated from business operations. Real estate loans for income-producing properties such as apartment buildings, hotels, office and industrial buildings, and retail shopping centers are repaid by cash flows from rent income derived from the properties.
Commercial and industrial - The commercial loan portfolio segment includes commercial and industrial loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, leases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the borrowers’ business operations.
Consumer and other - The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures which affects borrowers’ incomes and cash for repayment.
Credit Risk Management
The Chief Credit Officer, Officers Loan Committee and Directors Loan Committee are each involved in the credit risk management process and assess the accuracy of risk ratings, the quality of the portfolio and the estimation of inherent credit losses in the loan portfolio. This comprehensive process also assists in the prompt identification of problem credits. The Company has taken a number of measures to manage the portfolios and reduce risk, particularly in the more problematic portfolios.
The Company employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan portfolio segments. Credit risk management is guided by a comprehensive Loan Policy that provides for a consistent and prudent approach to underwriting and approvals of credits. Within the Board approved Loan Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. All loans are individually underwritten, risk-rated, approved, and monitored.
Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment. For the consumer portfolio segment, the risk management process focuses on managing customers who become delinquent in their payments. For the commercial and real estate portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit of the portfolios. To ensure problem credits are identified on a timely basis, several specific portfolio reviews occur each year to assess the larger adversely rated credits for proper risk rating and accrual status.
Credit quality and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, etc., are reviewed by the Chief Credit Officer and reported to the Board of Directors.
A description of the general characteristics of the risk categories used by the Company is as follows:
•Pass - A pass loan is a strong credit with no existing or known potential weaknesses deserving of management’s close attention.
•Special Mention - A loan that 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 in the institution's credit position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.




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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 4.    LOANS (Continued)

Credit Risk Management (Continued)
•Substandard - Substandard loans are 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 jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
•Doubtful - Loans classified Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.
•Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.
The following tables summarize the risk category of the Company’s loan portfolio based upon the most recent analysis performed as of September 30, 2022 and December 31, 2021:
PassSpecial
Mention		SubstandardDoubtfulTotal
(dollars in thousands)
As of September 30, 2022
Real estate mortgages:
Construction and development$220,633 $1,526 $— $— $222,159 
Residential159,397 4,195 704 — 164,296 
Commercial871,316 13,743 4,883 — 889,942 
Commercial and industrial234,748 8,428 401 — 243,577 
Consumer and other10,110 37 8 — 10,155 
Total$1,496,204 $27,929 $5,996 $— $1,530,129 
As of December 31, 2021
Real estate mortgages:
Construction and development$168,751 $388 $5,341 $— $174,480 
Residential142,782 3,554 1,154 — 147,490 
Commercial691,863 16,371 8,307 — 716,541 
Commercial and industrial203,630 2,960 73 234 206,897 
Consumer and other8,682 21 6 — 8,709 
Total$1,215,708 $23,294 $14,881 $234 $1,254,117 







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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 4.    LOANS (Continued)

Past Due Loans
A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement.  Generally,
management places a loan on nonaccrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. The following tables present the aging of the recorded investment in loans and leases as of September 30, 2022 and December 31, 2021:

Past Due Status (Accruing Loans)
Current
30-59
Days
60-89
Days
90+
Days
Total Past DueNonaccrualTotal
As of September 30, 2022
Real estate mortgages:
Construction and development
$221,952 $137 $— $— $137 $70 $222,159 
Residential
163,262 391 93 — 484 550 164,296 
Commercial
885,792 1,262 — — 1,262 2,888 889,942 
Commercial and industrial243,072 71 — — 71 434 243,577 
Consumer and other10,131 — 16 — 16 8 10,155 
Total$1,524,209 $1,861 $109 $— $1,970 $3,950 $1,530,129 
As of December 31, 2021
Real estate mortgages:
Construction and development
$173,027 $62 $746 $299 $1,107 $346 $174,480 
Residential
146,871129128195452167147,490 
Commercial
714,0921,775——1,775674716,541 
Commercial and industrial206,02799486—585285206,897 
Consumer and other8,67330——3068,709 
Total$1,248,690 $2,095 $1,360 $494 $3,949 $1,478 $1,254,117 






















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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 4.    LOANS (Continued)

Allowance for Loans Losses
The following tables detail activity in the allowance for loan losses by portfolio segment as of September 30, 2022 and September 30, 2021. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
Real EstateCommercialConsumerTotal
Allowance for loan losses:
Balance at December 31, 2021
$11,554 $3,166 $124 $14,844 
Provision (credit) for loan losses1,337 2,371 (41)3,667 
Loans charged off(73)(269)(8)(350)
Recoveries of loans previously charged off46 204 12 262 
Ending balance at September 30, 2022
$12,864 $5,472 $87 $18,423 
Ending balance - individually evaluated for impairment$489 $331 $— $820 
Ending balance - collectively evaluated for impairment12,335 5,141 87 17,563 
Ending balance - loans acquired with deteriorated credit quality40 — — 40 
Total ending balance at September 30, 2022
$12,864 $5,472 $87 $18,423 
Loans:
Ending balance - individually evaluated for impairment$5,963 $888 $22 $6,873 
Ending balance - collectively evaluated for impairment1,269,261 242,689 10,133 1,522,083 
Ending balance - loans acquired with deteriorated credit quality1,173 — — 1,173 
Total ending balance at September 30, 2022
$1,276,397 $243,577 $10,155 $1,530,129 











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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 4.    LOANS (Continued)

Allowance for Loans Losses (Continued)

Real EstateCommercialConsumerTotal
Allowance for loan losses:
Balance at December 31, 2020
$8,057 $3,609 $193 $11,859 
Provision (credit) for loan losses2,761 (442)(69)2,250 
Loans charged off(44)— (2)(46)
Recoveries of loans previously charged off12 14 8 34 
Ending balance at September 30, 2021
$10,786 $3,181 $130 $14,097 
Ending balance - individually evaluated for impairment$288 $307 $4 $599 
Ending balance - collectively evaluated for impairment10,421 2,874 126 13,421 
Ending balance - loans acquired with deteriorated credit quality77 — — 77 
Total ending balance at September 30, 2021
$10,786 $3,181 $130 $14,097 
Loans:
Ending balance - individually evaluated for impairment$16,105 $332 $30 $16,467 
Ending balance - collectively evaluated for impairment924,406 198,218 8,949 1,131,573 
Ending balance - loans acquired with deteriorated credit quality1,300 — — 1,300 
Total ending balance at September 30, 2021
$941,811 $198,550 $8,979 $1,149,340 



















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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 4.    LOANS (Continued)

Impaired Loans
A loan held for investment is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement. The following tables detail our impaired loans, by portfolio class as of September 30, 2022 and December 31, 2021.
Recorded
Investment		Unpaid
Principal
Balance		Related
Allowance		Average
Recorded
Investment
September 30, 2022
With no related allowance recorded:
Real estate mortgages:
Construction and development
$387$387$—$403
Residential
1,1491,149—1,178
Commercial
4,1294,129—4,180
Commercial and industrial
527527—517
Consumer and other
2222—18
Total with no related allowance recorded
6,2146,214—6,296
With an allowance recorded:
Real estate mortgages:
Construction and development
94944196
Residential
23530671240
Commercial
1,1421,142417515
Commercial and industrial
361361331271
Consumer and other
————
Total with an allowance recorded
1,8321,9038601,122
Total impaired loans$8,046$8,117$860$7,418

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 4.    LOANS (Continued)

Impaired Loans (Continued)
Recorded
Investment		Unpaid
Principal
Balance		Related
Allowance		Average
Recorded
Investment
December 31, 2021
With no related allowance recorded:
Real estate mortgages:
Construction and development
$5,258$5,258$—$5,261
Residential
1,0811,081—1,090
Commercial
7,9927,992—7,993
Commercial and industrial
2222—25
Consumer and other
1515—16
Total with no related allowance recorded
14,36814,368—14,385
With an allowance recorded:
Real estate mortgages:
Construction and development
370370148370
Residential
633704125636
Commercial
680680136682
Commercial and industrial
285285292289
Consumer and other
1111311
Total with an allowance recorded
1,9792,0507041,988
Total impaired loans$16,347$16,418$704$16,373























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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 4.    LOANS (Continued)

Impaired Loans (Continued)
A loan held for investment is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement. The following tables detail our interest income recognized on impaired loans, by portfolio class in the nine months ended September 30, 2022 and 2021.
Recorded
Investment		Average
Recorded
Investment		Interest
Income
Recognized
Nine Months Ended September 30, 2022
With no related allowance recorded:
Real estate mortgages:
Construction and development$387$403$14
Residential1,1491,17845
Commercial4,1294,180208
Commercial and industrial52751722
Consumer and other22181
Total with no related allowance recorded6,2146,296290
With an allowance recorded:
Real estate mortgages:
Construction and development94964
Residential2352408
Commercial1,14251524
Commercial and industrial36127117
Consumer and other———
Total with an allowance recorded1,8321,12253
Total impaired loans$8,046$7,418$343

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 4.    LOANS (Continued)

Impaired Loans (Continued)
Recorded
Investment		Average
Recorded
Investment		Interest
Income
Recognized
Nine Months Ended September 30, 2021
With no related allowance recorded:
Real estate mortgages:
Construction and development$5,049$5,063$113
Residential1,2361,69459
Commercial8,9878,328242
Commercial and industrial32452
Consumer and other18221
Total with no related allowance recorded15,32215,152417
With an allowance recorded:
Real estate mortgages:
Construction and development1,3761,38214
Residential47849012
Commercial2792807
Commercial and industrial30031911
Consumer and other1213—
Total with an allowance recorded2,4452,48444
Total impaired loans$17,767$17,636$461
NOTE 5.    DEPOSITS
Major classifications of deposits are as follows:
September 30,
2022		December 31,
2021
Noninterest-bearing transaction$499,613 $541,546 
Interest-bearing transaction855,350 704,326 
Savings78,687 56,715 
Time deposits, $250,000 and under
266,491 224,556 
Time deposits, over $250,000
66,951 29,308 
   Total$1,767,092 $1,556,451 










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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)

NOTE 5.    DEPOSITS (Continued)
Brokered deposits totaled $65,989 at September 30, 2022 and $34,110 at December 31, 2021. The scheduled maturities of time deposits at September 30, 2022 are as follows:
October 1, 2022 – September 30, 2023$192,141 
October 1, 2023 – September 30, 2024123,138 
October 1, 2024 – September 30, 202513,066 
October 1, 2025 – September 30, 20262,740 
October 1, 2026 – September 30, 20272,216 
Thereafter141 
    Total$333,442 
At September 30, 2022 and December 31, 2021, overdrawn transaction accounts reclassified to loans totaled $130 and $208, respectively.
NOTE 6.    SUBORDINATED NOTES
On June 23, 2016, the Company issued $4,500 of Fixed-to-Floating Rate Subordinated Notes due July 2026 (the “2026 Notes”). The 2026 Notes initially bore interest at 6.625% per annum, payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2017 until July 1, 2021. Thereafter and to, but excluding, the maturity date or earlier redemption, interest was payable quarterly in arrears, at an annual floating rate equal to three-month LIBOR as determined for the applicable quarterly period, plus 5.412%. The Company could, at its option, beginning on July 1, 2021 and on any scheduled interest payment date thereafter, redeem the 2026 Notes, in whole or in part, at a redemption price equal to the outstanding principal amount of the 2026 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption. Issuance costs related to the 2026 Notes totaled $79 and were netted against the subordinated notes liability on the balance sheet. At September 30, 2022 and December 31, 2021, there was no remaining balance of the debt issuance cost related to the 2026 Notes. On June 23, 2021, the Company redeemed all of the outstanding 2026 Notes.
On February 7, 2022, the Company issued $48,000 of Fixed-to-Floating Rate Subordinated Notes due February 2032 (the “Notes”). The Notes bear interest at 3.50% per annum, payable quarterly in arrears. From and including February 7, 2027, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to a Three-Month Term Secured Overnight Financing Rate plus 205 basis points, payable quarterly in arrears. The Company will be entitled to redeem the Notes, in whole or in part, on any interest payment on or after February 7, 2027, and to redeem the Notes in whole upon certain other events. Issuance costs related to the Notes totaled $1,093 and have been netted against the subordinated notes liability on the balance sheet. At September 30, 2022, the remaining balance of the debt issuance cost was $958. The debt issuance costs are being amortized using the straight line method over sixty months and are recorded as a component of interest expense.
On July 1, 2022, pursuant to the registration rights agreement that we entered into in connection with the private placement of our Notes, we completed an exchange offer through which holders of $42,000 aggregate principal amount of then outstanding Notes (the "Unregistered Notes") exchanged their Unregistered Notes for an equal aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due 2032 (the "Registered Notes") that had been registered with the Securities and Exchange Commission under the Securities Act. Following the exchange, $6,000 aggregate principal amount of our Unregistered Notes remained outstanding, and $42,000 in aggregate principal amount of our Registered Notes were outstanding. The terms of the Registered Notes are identical in all material respects to the terms of the Unregistered Notes, except that the Registered Notes are registered under the Securities Act and are generally not subject to transfer restrictions, are not entitled to registration rights and do not have the right to additional interest under the circumstances described in the registration rights agreement relating to our fulfillment of our registration obligations.





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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 7.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.
Non-designated Hedges
Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.
Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the fair value of the Company’s derivative financial instruments including the effects of offsetting as well as their classification on the consolidated balance sheets as of September 30, 2022 and December 31, 2021. As of September 30, 2022, the Company has posted cash collateral of $8,770. The amount of loss recognized in income on derivatives as a fair value adjustment and fee income, for the nine months ended September 30, 2022, were $45 and $3, respectively.
September 30, 2022December 31, 2021
Derivatives not
Designated as Hedging
Instruments		Notional
Amount		Balance Sheet
Location		Fair
Value		Derivatives not
Designated as Hedging
Instruments		Notional
Amount		Balance Sheet
Location		Fair
Value
Interest Rate Products$74,284 Other Assets$9,290 Interest Rate Products$77,534 Other Assets$1,784 
Interest Rate Products74,284 Other Liabilities(9,304)Interest Rate Products77,534 Other Liabilities(1,843)
Credit-risk-related Contingent Features
Applicable for OTC derivatives with dealers
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.
The Company has agreements with certain of its derivative counterparties that contain a provision where if the company fails to maintain its status as a well / adequate capitalized institution, then the Company could be required to post additional collateral.
As of September 30, 2022, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $9,358. If the Company had breached any of these provisions at September 30, 2022, it could have been required to settle its obligations under the agreements at their termination value of $9,358, less the required collateral of $8,770.



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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 8.    COMMITMENTS AND CONTINGENCIES
Loan Commitments
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets. The majority of all commitments to extend credit and standby letters of credit are variable rate instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. A summary of the Company’s commitments is as follows:

September 30,
2022		December 31,
2021
Commitments to extend credit
$467,662$314,194
Standby letters of credit
5,7273,434
    Total$473,389$317,628
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral held varies and is required in instances which the Company deems necessary.
The Company has not been required to perform on any standby letters of credit, and the Company has not incurred any losses on financial standby letters of credit for the nine months ended September 30, 2022 and September 30, 2021.
Contingencies
In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material effect on the Company’s financial statements.
NOTE 9.     CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, commercial real estate, residential real estate, and consumer loans to customers in Alabama and Georgia. The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the economy in these areas.
Eighty-three percent of the Company’s loan portfolio is concentrated in real estate. A substantial portion of these loans are secured by real estate in the Company’s primary market area. In addition, a substantial portion of the other real estate owned is located in those same markets. Accordingly, the ultimate collectibility of the loan portfolio and the recovery of the carrying amount of the other real estate owned are susceptible to changes in market conditions in the Company’s primary market area. The other concentrations of credit by type of loan are set forth in Note 4.


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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 9.     CONCENTRATIONS OF CREDIT (Continued)
The Company, according to regulatory restrictions, may not generally extend credit to any single borrower or group of related borrowers on a secured basis in excess of 20% of capital, as defined, or approximately $48,195 or on an unsecured basis in excess of 10% of capital, as defined, or approximately $24,097.
NOTE 10.    STOCKHOLDERS’ EQUITY
As of September 30, 2022, the Company had 8,705,920 shares of common stock issued and outstanding and does not have any non-voting shares issued and outstanding.
As of December 31, 2021, the Company had 9,012,857 shares of common stock issued and outstanding and does not have any non-voting shares issued and outstanding.
NOTE 11.    REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At September 30, 2022, approximately $52,436 of retained earnings was available for dividend declaration without regulatory approval.
The Bank is also subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total capital, Tier 1 capital, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. In addition, the Bank is subject to an institution-specific capital buffer, which must exceed 2.50% to avoid limitations on distributions and discretionary bonus payments. Management believes, as of September 30, 2022 and December 31, 2021, that the Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 2022, the Company and the Bank believe they are each well capitalized on a consolidated basis for bank regulatory purposes as their respective capital ratios exceed minimum total Tier 1 and CET1 risk-based capital ratios and Tier 1 leverage capital ratios as set forth in the following table. As a bank holding company with less than $3 billion in total consolidated assets, the Company is eligible to be treated as a “small bank holding company” under the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement. As a result, the Company’s capital adequacy is evaluated at the bank level and on a parent-only basis, and it is not subject to consolidated capital standards for regulatory purposes. The ratios set forth below as to the Company are for illustrative purposes in the event it were to become subject to consolidated capital standards for regulatory purposes. The column styled “Required for Capital Adequacy Purposes” includes the 2.5% capital conservation buffer.


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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 11.    REGULATORY MATTERS (Continued)
ActualRequired for Capital
Adequacy Purposes		Minimums To Be “Well
Capitalized” Under
Prompt
Corrective Action
AmountRatioAmountRatioAmountRatio
(dollars in thousands)
As of September 30, 2022
Tier 1 capital (to average assets)
Company$164,564 8.44 %$78,019 4.00 %$— — 
Bank$224,145 11.49 %$78,019 4.00 %$97,524 5.00 %
CET 1 capital (to risk-weighted assets)
Company$164,564 8.73 %$131,929 7.00 %$— — 
Bank$224,145 11.89 %$131,929 7.00 %$122,505 6.50 %
Tier 1 capital (to risk-weighted assets)
Company$164,564 8.73 %$160,199 8.50 %$— — 
Bank$224,145 11.89 %$160,199 8.50 %$150,776 8.00 %
Total capital (to risk-weighted assets)
Company$230,987 12.26 %$197,893 10.50 %$— — 
Bank$242,568 12.87 %$197,893 10.50 %$188,470 10.00 %

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 11.    REGULATORY MATTERS (Continued)
ActualRequired for Capital
Adequacy Purposes		Minimums To Be “Well
Capitalized” Under
Prompt
Corrective Action
AmountRatioAmountRatioAmountRatio
(dollars in thousands)
As of December 31, 2021
Tier 1 capital (to average assets)
Company$156,723 9.74 %$64,376 4.00 %$— — 
Bank$168,027 10.44 %$64,376 4.00 %$80,470 5.00 %
CET 1 capital (to risk-weighted assets)
Company$156,723 10.35 %$106,019 7.00 %$— — 
Bank$168,027 11.09 %$106,019 7.00 %$98,446 6.50 %
Tier 1 capital (to risk-weighted assets)
Company$156,723 10.35 %$128,737 8.50 %$— — 
Bank$168,027 11.09 %$128,737 8.50 %$121,164 8.00 %
Total capital (to risk-weighted assets)
Company$171,567 11.33 %$159,028 10.50 %$— — 
Bank$182,871 12.07 %$159,028 10.50 %$151,455 10.00 %
NOTE 12.    FAIR VALUE OF ASSETS AND LIABILITIES
Determination of Fair Value
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic (FASB ASC 820), the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various 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 techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.



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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 12.    FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Fair Value Hierarchy
In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 - Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts of cash and due from banks, interest-bearing deposits in banks, and federal funds sold make up cash and cash equivalents. The carrying amount of these short-term instruments approximate fair value.
Securities and Other Equity Securities: Where quoted prices are available in an active market, management classifies the securities within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds and exchange-traded equities.
If quoted market prices are not available, management estimates fair values using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and credit spreads. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include GSE obligations, and state and municipal securities. Mortgage-backed securities are included in Level 2 if observable inputs are available. In certain cases where there is limited activity or less transparency around inputs to the valuation, those securities would be classified in Level 3.
Restricted Equity Securities: The carrying amount of restricted equity securities with no readily determinable fair value approximates fair value based on the redemption provisions of the issuers which is cost.
Loans Held for Sale: The carrying amounts of loans held for sale approximates fair value.
Loans: The carrying amount of variable-rate loans that reprice frequently and have no significant change in credit risk approximates fair value. The fair values of fixed rate loans is estimated based on discounted contractual cash flows using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.
Bank Owned Life Insurance: The carrying amount of bank owned life insurance approximates fair value.
Annuities: The carrying amounts of annuities approximate their fair values.

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 12.    FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Fair Value Hierarchy (Continued)
Deposits: The fair values disclosed for transaction deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.
Other Borrowings: The fair value of fixed rate other borrowings is based on discounted contractual cash flows using interest rates currently being offered for borrowings of similar maturities. The fair values of the Company’s variable rate other borrowings approximate their carrying values.
Subordinated Notes: The carrying amounts of the subordinated notes approximate fair value.
Accrued Interest: The carrying amounts of accrued interest approximate fair value.
Trading Assets and Liabilities: The Company has derivative instruments in the form of interest rate swap agreements accounted for as trading assets and liabilities and carried at fair value. The fair value of these instruments is based on information obtained from a third party financial institution. The Company reflects these instruments within Level 2 of the valuation hierarchy.
Off-Balance Sheet Credit-Related Instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.
Assets Measured at Fair Value on a Recurring Basis
The only assets and liabilities measured at fair value on a recurring basis are our securities available for sale and swaps. There were no transfers between levels during the period. Information related to the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021 is as follows:

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 12.    FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Assets Measured at Fair Value on a Recurring Basis (Continued)
Fair Value Measurements At Reporting Date Using:

Fair ValueQuoted Prices
In Active
Markets For
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)
September 30, 2022
U.S. Treasury securities$8,525 $— $8,525 $— 
U.S. Government Sponsored Enterprises (GSEs)
1,904 — 1,904 — 
State and municipal securities47,881 — 47,881 — 
Corporate debt securities11,808 — 11,808 — 
Asset based securities14,001 — 14,001 — 
Mortgage-backed GSE residential/multifamily and non-GSE66,599 — 66,599 — 
Other equity securities5,694 4,079 — 1,615 
Interest Rate Products - asset9,290 — 9,290 — 
Interest Rate Products - liabilities(9,304)— (9,304)— 
December 31, 2021
U.S. Treasury securities$7,822 $— $7,822 $— 
U.S. Government Sponsored Enterprises (GSEs)
9,193 — 9,193 — 
State and municipal securities56,781 — 56,781 — 
Corporate debt securities10,784 — 10,784 — 
Asset based securities10,472 — 10,472 — 
Mortgage-backed GSE residential/multifamily and non-GSE37,120 — 37,120 — 
Other equity securities9,232 4,985 — 4,247 
Interest Rate Products - asset1,784 — 1,784 — 
Interest Rate Products - liabilities(1,843)— (1,843)— 
Assets Measured at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measure at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of September 30, 2022 and December 31, 2021:
Fair Value Measurements At Reporting Date Using:

Fair ValueQuoted Prices
In Active
Markets For
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)
September 30, 2022
Impaired loans$1,413 $— $— $1,413 
Foreclosed assets2,930 — — 2,930 
    Totals$4,343 $— $— $4,343 

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 12.    FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Assets Measured at Fair Value on a Nonrecurring Basis (Continued)
Fair Value Measurements At Reporting Date Using:

Fair ValueQuoted Prices
In Active
Markets For
Identical Assets
(Level 1)		Significant Other
Observable
Inputs (Level 2)		Significant
Unobservable
Inputs (Level 3)
December 31, 2021
Impaired loans$7,718 $— $— $7,718 
Foreclosed assets2,930 — — 2,930 
   Totals$10,648 $— $— $10,648 
Impaired Loans
Loans considered impaired under ASC 310-10-35, Receivables, are loans for which, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans can be measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral less estimated selling costs if the loan is collateral dependent.
The fair value of impaired loans were primarily measured based on the value of the collateral securing these loans. Impaired loans are classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable. The Company generally determines the value of real estate collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for estimated costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors discussed above.
Impaired loans, which are usually measured for impairment using the fair value of collateral, had a carrying amount of $8,046 and $16,347 with a specific valuation allowance of $860 and $704 at September 30, 2022 and December 31, 2021, respectively. Of the $8,046 and $16,347 impaired loan portfolio, $2,274 and $8,422 were carried at fair value as a result of charge offs, specific valuation allowances, and the fair market adjustments at September 30, 2022 and December 31, 2021, respectively. The remaining $5,772 and $7,925 was carried at cost, as the fair value of the collateral on these loans exceeded the book value for each individual credit at September 30, 2022 and December 31, 2021, respectively. Charge offs and changes in specific valuation allowances at September 30, 2022 and December 31, 2021 on impaired loans carried at fair value resulted in additional provision for loan losses of $306 and $40, respectively.
Foreclosed Assets
Foreclosed assets, consisting of properties/assets obtained through foreclosure or in satisfaction of loans, are initially recorded at fair value less estimated costs to sell upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value less estimated costs to sell. Fair values are generally based on third party appraisals of the property/assets and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes further discounted based on management’s historical knowledge, and/or changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts are typically significant unobservable inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less estimated costs to sell, a loss is recognized in noninterest expense.

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 12.    FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Quantitative Disclosures for Level 3 Fair Value Measurements
For Level 3 assets measured at fair value on a recurring basis as of September 30, 2022, the significant unobservable inputs used in the fair value measurements are presented below.

Carrying
Amount
Valuation
Technique
Significant
Unobservable
Input
Weighted
Average
of Input
Recurring:
Other equity securities
$1,615 Discounted cash flowDiscount rate (%)N/A

For Level 3 assets measured at fair value on a recurring basis as of December 31, 2021, the significant unobservable inputs used in the fair value measurements are presented below.

Carrying
Amount
Valuation
Technique
Significant
Unobservable
Input
Weighted
Average
of Input
Recurring:
Other equity securities
$4,247 Discounted cash flowDiscount rate (%)N/A
For Level 3 assets measured at fair value on a nonrecurring basis as of September 30, 2022, the significant unobservable inputs used in the fair value measurements are presented below.
Carrying
Amount
Valuation
Technique
Significant
Unobservable
Input
Weighted
Average
of Input
Nonrecurring:
Impaired loans
$1,413AppraisalAppraisal discounts (%)
15-20%
Foreclosed assets
$2,930AppraisalAppraisal discounts (%)
10-15%
For Level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2021, the significant unobservable inputs used in the fair value measurements are presented below.
Carrying
Amount
Valuation
Technique
Significant
Unobservable
Input
Weighted
Average
of Input
Nonrecurring:
Impaired loans
$7,718AppraisalAppraisal discounts (%)
15-20%
Foreclosed assets
$2,930AppraisalAppraisal discounts (%)
10-15%

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 12.    FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Fair Value of Financial Instruments
The carrying amount and estimated fair value of the Company’s financial instruments were as follows:
September 30, 2022

Estimated Fair Value

Carrying
Amount
Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$246,062 $246,062 $— $— 
Securities available for sale150,718 — 150,718 — 
Other equity securities5,694 4,079 — 1,615 
Loans held for sale1,643 — 1,643 — 
Trading assets9,290 — 9,290 — 
Loans, net1,506,567 — 1,466,917 1,413 
Bank owned life insurance29,677 — 29,677 — 
Annuities15,564 — 15,564 — 
Accrued interest receivable5,699 — 5,699 — 
Restricted equity securities2,791 — — 2,791 
Financial liabilities:
Deposits$1,767,092 $— $1,618,351 $— 
Trading liabilities9,304 — 9,304 — 
FHLB advances26,000 — 25,777 — 
Other borrowings19,978 — 19,978 — 
Subordinated notes47,042 — 47,042 — 
Accrued interest payable359 — 359 — 

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SOUTHERN STATES BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 12.    FAIR VALUE OF ASSETS AND LIABILITIES (Continued)
Fair Value of Financial Instruments (Continued)
December 31, 2021

Estimated Fair Value

Carrying
Amount
Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$283,956 $283,956 $— $— 
Securities available for sale132,172 — 132,172 — 
Other equity securities9,232 4,985 — 4,247 
Loans held for sale2,400 — 2,400 — 
Trading assets1,784 — 1,784 — 
Loans, net1,235,456 — 1,237,491 7,718 
Bank owned life insurance22,201 — 22,201 — 
Annuities12,888 — 12,888 — 
Accrued interest receivable4,170 — 4,170 — 
Restricted equity securities2,600 — — 2,600 
Financial liabilities:
Deposits$1,556,451 $— $1,507,190 $— 
Trading liabilities1,843 — 1,843 — 
FHLB advances25,950 — 25,926 — 
Other borrowings12,498 — 12,498 — 
Subordinated notes— — — — 
Accrued interest payable132 — 132 — 
NOTE 13.    SUBSEQUENT EVENTS.
On October 26, 2022, the Company entered into Subordinated Note Purchase Agreements (each, a “Purchase Agreement”) with certain “accredited investors,” as defined in Rule 501(a) of Regulation D under the Securities Act, and “qualified institutional buyers,” as defined in Rule 144A under the Securities Act, (the “Purchasers” and each, a “Purchaser”) pursuant to which the Company issued and sold $40.0 million in aggregate principal amount of its 7.00% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “2032 Notes”). The 2032 Notes were offered and sold by the Company in a private placement transaction in reliance on exemptions from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D thereunder. The Company intends to use the net proceeds from the sale of the 2032 Notes for general corporate purposes.
The 2032 Notes mature on October 26, 2032 and bear interest at an initial fixed rate of 7.00% per annum, payable quarterly in arrears. From and including October 26, 2027, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to a Three-Month Term Secured Overnight Financing Rate plus 306 basis points, payable quarterly in arrears. The Company will be entitled to redeem the 2032 Notes, in whole or in part, on any interest payment on or after October 26, 2027, and to redeem the 2032 Notes in whole upon certain other events.
Mark Chambers, Sr., who serves as a director of the Company and the Company’s president, and the chief executive officer of Southern States Bank, a wholly-owned subsidiary of the Company, purchased $100,000 of the Notes, and James Henry Smith IV, who serves as a director of the Company, purchased $200,000 of the Notes, in each case on the same terms as the other Purchasers.






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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the years ended December 31, 2021 and December 31, 2020, included in our Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may not be realized. Certain risks, uncertainties and other factors, including those set forth under “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements.
Overview
Southern States Bancshares, Inc. (including its subsidiaries, the “Company,” “our” or “we”) is a bank holding company headquartered in Anniston, Alabama. We operate primarily through our wholly-owned subsidiary, Southern States Bank (the “Bank”), an Alabama banking corporation. We provide banking services from 13 offices in Alabama and Georgia and two LPOs in Georgia. The Bank is a full service community banking institution, which offers an array of deposit, loan and other banking-related products and services to businesses and individuals in our communities. Our principal business activities include commercial and retail banking.
Our management’s discussion and analysis of financial condition and results of operations is intended to provide the reader with information that will assist in the understanding of our business, results of operations, financial condition and financial statements; changes in certain key items in our financial statements from period to period; and the primary factors that we use to evaluate our business.
Recent Developments
On May 23, 2022, we announced the sale of our Heflin and Ranburne, AL branches to First Bank of Alabama ("FBA"). Under terms of the agreement, FBA would acquire the physical locations and approximately $7.0 million in loans and $66.0 million in deposits associated with the branches. The sale was completed during October 2022.
On October 26, 2022, we entered into Subordinated Note Purchase Agreements (each, a “Purchase Agreement”) with certain “accredited investors,” as defined in Rule 501(a) of Regulation D under the Securities Act, and “qualified institutional buyers,” as defined in Rule 144A under the Securities Act, (the “Purchasers” and each, a “Purchaser”) pursuant to which we issued and sold $40.0 million in aggregate principal amount of our 7.00% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “2032 Notes”). We offered and sold the 2032 Notes in a private placement transaction in reliance on exemptions from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D thereunder. We intend to use the net proceeds from the sale of the 2032 Notes for general corporate purposes.
Update Regarding COVID-19 and Current Developments
During the pandemic, we took steps to protect both customers and employees while continuing to provide full service banking. This included closing branches to walk-in business when appropriate and utilizing all drive through facilities and allowing for appointment-based banking. We increased cash levels in ATMs and communicated with customers regarding remote options for banking services. New technology was implemented to allow employees to work from home in addition to allowing for external parties such as auditors and examiners to continue to conduct necessary reviews and examinations.
We participated as a lender in the PPP as established by the CARES Act. Loans totaling $71.7 million were made to 399 existing customers. We proactively worked with customers to assist them in navigating through the pandemic. We granted deferrals on 396 loans totaling $280.1 million, or approximately 28.0% of our loan portfolio. There was one loan remaining on deferral totaling $442,000, or 0.04% of total loans at December 31, 2021, and such deferral ended in February 2022. There were no loans remaining on deferral at September 30, 2022. We know of no significant customer issues resulting from the pandemic.
We participated in the second round of PPP loans, which has been substantially second requests from the 2020 PPP loan recipients. In the second round of PPP loans, $31.7 million of loans were made to 194 existing customers. We continue to actively monitor and consider COVID-19 implications in our operations, lending, and customer needs.

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Overview of Third Quarter 2022 Results
Net income was $6.7 million for the quarter ended September 30, 2022, compared to $5.2 million for the quarter ended June 30, 2022 and $4.9 million for the quarter ended September 30, 2021. Significant measures in the third quarter included:

•Annualized return on average assets (ROAA) was 1.35% for the three months ended September 30, 2022, compared to 1.15% for the three months ended June 30, 2022 and 1.26% for the three months ended September 30, 2021.

•Annualized return on average equity (ROAE) was 15.42% for the three months ended September 30, 2022, compared to 12.32% for the three months ended June 30, 2022 and 12.03% for the three months ended September 30, 2021.

•Earnings per common share was $0.77 for the three months ended September 30, 2022, compared to $0.60 for the three months ended June 30, 2022 and $0.59 for the three months ended September 30, 2021.

•Net interest margin of 4.15% for the third quarter of 2022, compared to 3.84% for the second quarter of 2022 and 3.77% for the third quarter of 2021.

•Net interest income was $19.4 million for the three months ended September 30, 2022, an increase of $3.1 million, or 18.8%, from $16.4 million for the three months ended June 30, 2022 and an increase of $5.8 million, or 42.5%, from $13.6 million for the three months ended September 30, 2021.

•Gross loans, net of unearned income, were $1.5 billion as of September 30, 2022, a $94.8 million, or 6.6%, increase compared to June 30, 2022, or a linked-quarter annualized growth rate of 26.3%.

•Deposits were $1.8 million as of September 30, 2022, a $122.1 million, or 7.4% increase compared to June 30, 2022, or a linked-quarter growth rate of 29.5%.
Primary Factors Used to Evaluate Our Business
The most significant factors we use to evaluate our business and results of operation are net income, return on average assets and return on average equity. We also use net interest income, noninterest income and noninterest expense.
Net Interest Income
Net interest income is our principal source of net income and represents the difference between interest income and interest expense. We generate interest income from interest-earning assets that we own, including loans and investment securities. We incur interest expense from interest-bearing liabilities, including interest-bearing deposits and other borrowings, notably FHLB advances, our Notes and our Line of Credit.
Changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities, are usually the largest drivers of periodic changes.
Noninterest Income
Noninterest income primarily consists of: (i) service charges on deposit accounts; (ii) swap fees; (iii) SBA/USDA fees; (iv) bank card services and interchange fees; (v) mortgage banking activities; (vi) benefits from changes in cash surrender value of bank owned life insurance (BOLI) and (vii) other miscellaneous fees and income.
Our income from service charges on deposit accounts, which includes nonsufficient funds fees, is impacted by several factors, including number of accounts, products utilized and account holder cash management behaviors. These are further impacted by deposit products utilized by customers, marketing of new products and other factors. The income recognized on SBA and USDA loans, mortgage banking and interest rate swaps are impacted by prevailing market conditions and volumes of loans originated.


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Noninterest Expense
Noninterest expense primarily consists of: (i) salaries and employee benefits; (ii) equipment and occupancy expenses; (iii) professional and other service fees; (iv) data processing and telecommunication expenses; (v) FDIC deposit insurance and regulatory assessments; and (vi) other operating expenses.
Primary Factors Used to Evaluate Our Financial Condition
The most significant factors we use to evaluate and manage our financial condition include asset quality, capital and liquidity.
Asset Quality
We monitor the quality of our assets based upon factors including level and severity of deterioration in borrower cash flows and asset quality. Problem assets are assessed and reported as delinquent, classified, nonperforming, nonaccrual or troubled debt restructurings. We also monitor credit concentrations. We manage the allowance for loan losses to reflect loan volumes, identified credit and collateral conditions, economic conditions and other qualitative factors.
Capital
We monitor capital using regulatory capital ratios. Factors used other than regulatory rules include overall financial condition, including the trend and volume of problem assets, reserves, risks, level and quality of earnings, and anticipated growth, including acquisitions.
Liquidity
Deposits primarily consist of commercial and personal accounts maintained by businesses and individuals in our primary market areas. We also utilize brokered deposits, Qwickrate certificates of deposits and reciprocal deposits through a third-party network that effectively allows depositors to receive insurance on amounts greater than the FDIC insurance limit, which is currently $250,000. We manage liquidity based on factors that include the amount of core deposits to total deposits, level of non-customer deposits, short-term funding needs and sources, and the availability of unused funding sources.
Results of Operations for the Three Months Ended September 30, 2022 and 2021
We had net income of $6.7 million for the three months ended September 30, 2022, compared to net income of $4.9 million for the three months ended September 30, 2021, an increase of $1.8 million, or 36.2%. The increased net income was substantially the result of loan and investment growth. This was partially offset by decreased noninterest income and increased interest expense and loan loss provision.
The following table shows the average outstanding balance of each principal category of our assets, liabilities and stockholders’ equity, together with the average yields on our assets and average costs of our liabilities for the periods indicated. Yields and costs are calculated by dividing the annualized income or expense by the average daily balances of the corresponding assets or liabilities for the same period.

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Three Months Ended September 30, 2022
Three Months Ended September 30, 2021
Average
Balance		InterestYield/RateAverage
Balance		InterestYield/Rate
(dollars in thousands)
Assets:
Interest-earning assets:
Loans, net of unearned income(1)
$1,480,735 $20,052 5.37 %$1,122,741 $13,923 4.92 %
Taxable securities128,932 1,010 3.11 %76,612 402 2.08 %
Nontaxable securities56,738 323 2.26 %48,162 266 2.20 %
Other interest-earnings assets192,699 1,135 2.34 %189,131 143 0.30 %
Total interest-earning assets$1,859,104 $22,520 4.81 %$1,436,646 $14,734 4.07 %
Allowance for loan losses(17,250)(13,645)
Noninterest-earning assets124,702 125,870 
Total Assets$1,966,556 $1,548,871 
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing transaction accounts114,517 26 0.09 %98,203 24 0.10 %
Savings and money market accounts811,349 1,644 0.80 %565,861 665 0.47 %
Time deposits281,931 819 1.15 %290,460 345 0.47 %
FHLB advances27,380 102 1.47 %31,520 34 0.43 %
Other borrowings47,659 494 4.12 %6,652 26 1.57 %
Total interest-bearing liabilities$1,282,836 $3,085 0.95 %$992,696 $1,094 0.44 %
Noninterest-bearing liabilities:
Noninterest-bearing deposits$491,917 $384,207 
Other liabilities19,401 9,663 
Total noninterest-bearing liabilities$511,318 $393,870 
Stockholders’ Equity172,402 162,305 
Total Liabilities and Stockholders’ Equity$1,966,556 $1,548,871 
Net interest income$19,435 $13,640 
Net interest spread(2)
3.86 %3.63 %
Net interest margin(3)
4.15 %3.77 %
(1)Includes nonaccrual loans.
(2)Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest-bearing liabilities.
(3)Net interest margin is a ratio of net interest income to average interest earning assets for the same period.
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates.
The following tables set forth the effects of changing rates and volumes on our net interest income during the periods shown. Information is provided with respect to: (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate); and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been proportionately allocated to both volume and rate.
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Three Months Ended September 30, 2022 vs. Three Months
Ended September 30, 2021
Changes due to:
VolumeRateTotal Variance
(dollars in thousands)
Interest-earning assets:
Loans, net of unearned income$4,865 $1,264 $6,129 
Taxable securities409 199 608 
Nontaxable securities49 8 57 
Other interest-earning assets21 971 992 
Total increase in interest income
$5,344 $2,442 $7,786 
Interest-bearing liabilities:
Interest-bearing transaction accounts4 (2)2 
Savings and money market accounts497 482 979 
Time deposits(24)498 474 
FHLB advances(15)83 68 
Other borrowings425 43 468 
Total increase in interest expense
$887 $1,104 $1,991 
Increase in net interest income
$4,457 $1,338 $5,795 
Net interest income for the three months ended September 30, 2022 was $19.4 million compared to $13.6 million for the three months ended September 30, 2021, an increase of $5.8 million, or 42.5%. The increase in net interest income was comprised of a $7.8 million, or 52.8%, increase in interest income, partially offset by a $2.0 million, or 182.0%, increase in interest expense. The growth in interest income was primarily attributable to a $358.0 million, or 31.9%, increase in average loans outstanding as of September 30, 2022, compared to September 30, 2021. The increase in average loans outstanding was primarily due to organic growth. The $2.0 million increase in interest expense for the quarter ended September 30, 2022 was related to an increase of $290.1 million, or 29.2%, in average interest-bearing liabilities, coupled with a 0.51% increase in the rate paid on interest-bearing liabilities as of September 30, 2022 compared to September 30, 2021. The increase in average interest-bearing liabilities from September 30, 2021 to September 30, 2022 was due to organic growth. For the three months ended September 30, 2022, net interest margin and net interest spread were 4.15% and 3.86%, respectively, compared to 3.77% and 3.63%, respectively, for the same period in 2021.
Provision for Loan Losses
The provision for loan losses for the three months ended September 30, 2022 was $1.7 million compared to $750,000 for the three months ended September 30, 2021. The provision was recorded primarily based on growth as well as current economic factors. In the three months ended September 30, 2022, there were net charge offs of $47,000. In the three months ended September 30, 2021, there were net recoveries of $8,000.
The allowance for loan losses as a percentage of gross loans was 1.20% and 1.23% at September 30, 2022 and 2021, respectively. The allowance for loan losses as a percentage of gross loans, without including PPP loans, was 1.20% and 1.25% at September 30, 2022 and 2021, respectively.
Noninterest Income
Noninterest income for the three months ended September 30, 2022 was $1.3 million compared to $2.5 million for the three months ended September 30, 2021, a decrease of $1.2 million, or 46.6%. The following table sets forth the major components of our noninterest income for the three months ended September 30, 2022 and 2021:
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Three Months Ended September 30,
2022
2021
Increase
(Decrease)
(dollars in thousands)
Service charges on deposit accounts$508 $403 $105 
Swap fees11 101 (90)
SBA/USDA fees95 130 (35)
Bank card services and interchange fees443 400 43 
Mortgage banking activities218 393 (175)
Net (loss) gain on securities(143)189 (332)
Other operating income(1)
207 893 (686)
Total noninterest income$1,339 $2,509 $(1,170)
(1)Other income and fees include income and fees associated with miscellaneous services, and increase in the cash surrender value of BOLI and BOLI death benefit payments.
Income from service charges on deposit accounts includes fees for overdraft privilege charges, insufficient funds charges, account analysis service fees on commercial accounts, and monthly account service fees. These fees increased $105,000, or 26.1%, to $508,000 for the three months ended September 30, 2022 from $403,000 for the three months ended September 30, 2021. The increase was primarily attributed to an increase in insufficient funds fees based on volume.
Interest rate swap fees represent fees received when the Bank’s customer enters into a back-to-back swap agreement. These fees decreased $90,000, or 89.1%, to $11,000 for the three months ended September 30, 2022 from $101,000 for the three months ended September 30, 2021. The Bank did not participate in interest rate swaps during the third quarter of 2022 but did realize a small net fair value adjustment as income and a small amount of income from a terminated swap during the period.
SBA/USDA fees primarily include gains on the sale of loans and servicing of the loans. These fees decreased $35,000, or 26.9%, to $95,000 for the three months ended September 30, 2022, from $130,000 for the three months ended September 30, 2021. The Bank did not sell any SBA/USDA loans during the third quarter of 2022.
Bank card services and interchange fees are derived from debit cards and foreign ATM transactions. These fees increased $43,000, or 10.8%, to $443,000 for the three months ended September 30, 2022, from $400,000 for the three months ended September 30, 2021. The increase was primarily the result of greater transactional volume that generated additional interchange fees during the third quarter of 2022.

Income from mortgage banking activities primarily includes origination fees and gains on the sale of mortgage loans originated for sale in the secondary market. Income from mortgage banking activities decreased $175,000, or 44.5%, to $218,000 for the three months ended September 30, 2022 from $393,000 for the three months ended September 30, 2021. This decrease was the result of decreased volumes in the secondary market primarily based on a change in rate environment.
Net loss on securities was $143,000 for the three months ended September 30, 2022 as a result of market adjustment losses on equity securities during the quarter. Net gain on securities was $189,000 for the three months ended September 30, 2021 as result of market adjustment gains on equity securities.
Other income and fees decreased $686,000, or 76.8%, to $207,000 for the three months ended September 30, 2022 from $893,000 for the three months ended September 30, 2021. This decrease was primarily the result of the Bank receiving BOLI death benefits during the third quarter of 2021.



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Noninterest Expense
Noninterest expense for the three months ended September 30, 2022 was $10.2 million compared to $9.2 million for the three months ended September 30, 2021, an increase of $1.1 million, or 11.5%, which primarily resulted from increases in salaries and employee benefits and other operating expenses. The increase was partially offset by decreases in professional fees and occupancy expense.
The following table sets forth the major components of our noninterest expense for the three months ended September 30, 2022 and 2021:
Three Months Ended September 30,
20222021Increase
(Decrease)
(dollars in thousands)
Salaries and employee benefits$6,152 $5,517 $635 
Equipment and occupancy expenses764 908 (144)
Professional services421 551 (130)
Data processing fees599 524 75 
Other real estate income(51)(83)32 
Other operating expenses(1)
2,352 1,768 584 
Total noninterest expense$10,237 $9,185 $1,052 
(1)Other expenses include items such as FDIC insurance, telephone expenses, marketing and advertising expense, debit card expenses, courier fees, directors’ fees, travel and entertainment expenses, insurance, and fraud and forgery losses.
Salaries and employee benefits primarily include: (i) amounts paid to employees for base pay, incentive compensation, and bonuses; (ii) health and other related insurance paid by the Bank on behalf of our employees; and (iii) retirement plans provided for employees including the 401(k) and non-qualified plans maintained for certain key employees. Salaries and employee benefits increased $635,000, or 11.5%, from $5.5 million for the quarter ended September 30, 2021 to $6.2 million for the quarter ended September 30, 2022. The increase was primarily due to normal salary adjustments, increases in benefit and incentive costs, and additional performance-based compensation based on operating results.
Equipment and occupancy expenses consist of depreciation on property, premises, equipment and software, rent expense for leased facilities, maintenance agreements on equipment, property taxes, and other expenses related to maintaining owned or leased assets. Equipment and occupancy expense for the three months ended September 30, 2022 was $764,000 compared to $908,000 for the three months ended September 30, 2021, a decrease of $144,000, or 15.9%. The decrease was primarily attributable to accelerated depreciation of our Birmingham branch during 2021 in preparation for the branch moving to a new location in December 2021.

Professional services expenses, which include legal fees, audit and accounting fees, and consulting fees, decreased $130,000, or 23.6%, to $421,000 for the three months ended September 30, 2022 compared to $551,000 for the three months ended September 30, 2021. This decrease was primarily the result of a reduction in SBA servicing expense during the third quarter of 2022.
Data processing fees, which primarily consists of data processing services for core processing from a third-party vendor, increased $75,000, or 14.3%, to $599,000 for the three months ended September 30, 2022 compared to $524,000 for the three months ended September 30, 2021. The increase was primarily the result of additional software and general increases.
Other real estate income decreased $32,000, or 38.6%, to a net income of $51,000 for the three months ended September 30, 2022, from a net income of $83,000 for the three months ended September 30, 2021. This decrease was substantially the result of a reduction in net other real estate owned (OREO) rental income during the third quarter of 2022 as a large property was sold in December 2021, net of a decrease in OREO expenses related to the same property.


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Other expenses increased $584,000, or 33.0%, to $2.4 million for the three months ended September 30, 2022, compared to $1.8 million for the three months ended September 30, 2021. The increase was due to several factors including fraud losses, of which a portion has since been recovered, increases in data processing, debit card expense and other miscellaneous charges. These increases were somewhat offset by reductions in various professional fees.
Results of Operations for the Nine Months Ended September 30, 2022 and 2021
We had net income of $16.5 million for the nine months ended September 30, 2022, compared to net income of $14.5 million for the nine months ended September 30, 2021, an increase of $2.0 million, or 13.6%. The increased net income was substantially the result of an increase in net interest income, based on growth, and an increase in the net interest margin. This increase was partially offset by a $2.8 million gain on sale of a USDA loan that occurred during the first quarter of 2021 and increases in noninterest expenses during the nine months ended September 30, 2022.
The following table shows the average outstanding balance of each principal category of our assets, liabilities and stockholders’ equity, together with the average yields on our assets and average costs of our liabilities for the periods indicated. Yields and costs are calculated by dividing the annualized income or expense by the average daily balances of the corresponding assets or liabilities for the same period.

Nine Months Ended September 30, 2022
Nine Months Ended September 30, 2021
Average
Balance		InterestYield/RateAverage
Balance		InterestYield/Rate
(dollars in thousands)
Assets:
Interest-earning assets:
Loans, net of unearned income(1)
$1,373,564 $51,083 4.97 %$1,093,684 $40,429 4.94 %
Taxable securities119,224 2,417 2.71 %74,244 1,134 2.04 %
Nontaxable securities56,157 931 2.22 %42,191 729 2.31 %
Other interest-earnings assets202,837 1,713 1.13 %148,349 315 0.28 %
Total interest-earning assets$1,751,782 $56,144 4.29 %$1,358,468 $42,607 4.19 %
Allowance for loan losses(16,044)(12,890)
Noninterest-earning assets123,255 124,539 
Total Assets$1,858,993 $1,470,117 
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Interest-bearing transaction accounts113,427 78 0.09 %94,696 66 0.09 %
Savings and money market accounts741,397 2,862 0.52 %503,064 2,056 0.55 %
Time deposits242,869 1,311 0.72 %310,758 1,233 0.53 %
FHLB advances26,115 144 0.74 %32,215 120 0.50 %
Other borrowings42,604 1,295 4.06 %10,625 315 3.96 %
Total interest-bearing liabilities$1,166,412 $5,690 0.65 %$951,358 $3,790 0.53 %
Noninterest-bearing liabilities:
Noninterest-bearing deposits$502,951 $358,556 
Other liabilities16,420 9,207 
Total noninterest-bearing liabilities$519,371 $367,763 
Stockholders’ Equity173,210 150,996 
Total Liabilities and Stockholders’ Equity$1,858,993 $1,470,117 
Net interest income$50,454 $38,817 
Net interest spread(2)
3.64 %3.66 %
Net interest margin(3)
3.85 %3.82 %
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(1)Includes nonaccrual loans.
(2)Net interest spread is the difference between interest rates earned on interest earning assets and interest rates paid on interest-bearing liabilities.
(3)Net interest margin is a ratio of net interest income to average interest earning assets for the same period.
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates.
The following tables set forth the effects of changing rates and volumes on our net interest income during the periods shown. Information is provided with respect to: (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate); and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been proportionately allocated to both volume and rate.
Nine Months Ended September 30, 2022 vs. Nine Months Ended September 30, 2021
Changes due to:
VolumeRateTotal Variance
(dollars in thousands)
Interest-earning assets:
Loans, net of unearned income$10,285 $369 $10,654 
Taxable securities912 371 1,283 
Nontaxable securities232 (30)202 
Other interest-earning assets460 938 1,398 
Total increase in interest income
$11,889 $1,648 $13,537 
Interest-bearing liabilities:
Interest-bearing transaction accounts13 (1)12 
Savings and money market accounts920 (114)806 
Time deposits(366)444 78 
FHLB advances(34)58 24 
Other borrowings972 8 980 
Total increase in interest expense
$1,505 $395 $1,900 
Increase in net interest income
$10,384 $1,253 $11,637 
Net interest income for the nine months ended September 30, 2022 was $50.5 million compared to $38.8 million for the nine months ended September 30, 2021, an increase of $11.6 million, or 30.0%. The increase in net interest income was comprised of a $13.5 million, or 31.8%, increase in interest income, partially offset by a $1.9 million, or 50.1%, increase in interest expense. The growth in interest income was primarily attributable to a $279.9 million, or 25.6%, increase in average loans outstanding as of September 30, 2022, compared to September 30, 2021. The increase in average loans outstanding was due to organic growth. The $1.9 million increase in interest expense for the nine months ended September 30, 2022 was substantially related to an increase of $215.1 million, or 22.6%, in average interest-bearing liabilities, coupled with a 0.12% increase in the rate paid on interest-bearing liabilities as of September 30, 2022 compared to September 30, 2021. The increase in average interest bearing liabilities from September 30, 2021 to September 30, 2022 was due to organic growth. For the nine months ended September 30, 2022, net interest margin and net interest spread were 3.85% and 3.64%, respectively, compared to 3.82% and 3.66%, respectively, for the same period in 2021.
Provision for Loan Losses
The provision for loan losses for the nine months ended September 30, 2022 was $3.7 million compared to $2.3 million for the nine months ended September 30, 2021. The provision was recorded primarily based on growth and current economic factors. In the nine months ended September 30, 2022, there were net charge offs of $88,000. In the nine months ended September 30, 2021, there were net charge offs of $12,000.
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The allowance for loan losses as a percentage of gross loans was 1.20% and 1.23% at September 30, 2022 and 2021, respectively. The allowance for loan losses as a percentage of gross loans, without including PPP loans, was 1.20% and 1.25% at September 30, 2022 and 2021, respectively.
Noninterest Income
Noninterest income for the nine months ended September 30, 2022 was $4.1 million compared to $9.1 million for the nine months ended September 30, 2021, a decrease of $5.0 million, or 55.0%. The following table sets forth the major components of our noninterest income for the nine months ended September 30, 2022 and 2021:
Nine Months Ended September 30,
2022
2021
Increase
(Decrease)
(dollars in thousands)
Service charges on deposit accounts$1,433 $1,101 $332 
Swap fees48 938 (890)
SBA/USDA fees575 3,434 (2,859)
Bank card services and interchange fees1,302 1,176 126 
Mortgage banking activities717 1,196 (479)
Net loss on securities(546)(17)(529)
Other operating income(1)
545 1,223 (678)
Total noninterest income$4,074 $9,051 $(4,977)
(1)Other income and fees include income and fees associated with miscellaneous services, the increase in the cash surrender value of BOLI and BOLI death benefit payments.
Income from service charges on deposit accounts includes fees for overdraft privilege charges, insufficient funds charges, account analysis service fees on commercial accounts, and monthly account service fees. These fees increased $332,000, or 30.2%, to $1.4 million for the nine months ended September 30, 2022 from $1.1 million for the nine months ended September 30, 2021. The increase was primarily attributed to an increase in insufficient funds fees based on volume, coupled with a new fee from cash intensive businesses that were realized during the nine months ended September 30, 2022.
Interest rate swap fees represent fees received when the Bank’s customer enters into a back-to-back swap agreement. These fees decreased $890,000, or 94.9%, to $48,000 for the nine months ended September 30, 2022 from $938,000 for the nine months ended September 30, 2021. The Bank did not participate in interest rate swaps during the nine months ended September 30, 2022 but did realize a small net fair value adjustment as income and a small amount of income from a terminated swap during the period.
SBA/USDA fees primarily include gains on the sale of loans and servicing of the loans. These fees decreased $2.9 million, or 83.3%, to $575,000 for the nine months ended September 30, 2022, from $3.4 million for the nine months ended September 30, 2021. The Bank realized a gain of $2.8 million on the sale of a USDA loan during the first quarter of 2021.
Bank card services and interchange fees are derived from debit cards and foreign ATM transactions. These fees increased $126,000, or 10.7%, to $1.3 million for the nine months ended September 30, 2022, from $1.2 million for the nine months ended September 30, 2021. The increase was primarily the result of greater transactional volume that generated additional interchange fees during the nine months ended September 30, 2022.
Income from mortgage banking activities primarily includes origination fees and gains on the sale of mortgage loans originated for sale in the secondary market. Income from mortgage banking activities decreased $479,000, or 40.1%, to $717,000 for the nine months ended September 30, 2022 from $1.2 million for the nine months ended September 30, 2021. This decrease was the result of decreased volumes in the secondary market primarily based on a change in rate environment.
Net loss on securities was $546,000 for the nine months ended September 30, 2022 as a result of market adjustment losses on equity securities. Net loss on securities was $17,000 for the nine months ended September 30, 2021 primarily as result
54

of repositioning a portion of the securities portfolio into tax-exempt municipals, partially offset by market adjustment gains on equity securities.
Other income and fees decreased $678,000, or 55.4%, to $545,000 for the nine months ended September 30, 2022 from $1.2 million for the nine months ended September 30, 2021. This decrease was primarily result of the Bank receiving BOLI death benefits during the third quarter of 2021, and slightly offset by increased cash surrender value on BOLI as a result of additional policies purchased during the first quarter of 2022.
Noninterest Expense
Noninterest expense for the nine months ended September 30, 2022 was $29.2 million compared to $26.8 million for the nine months ended September 30, 2021, an increase of $2.4 million, or 8.8%, which primarily resulted from increases in salaries and employee benefits and other operating expenses. The increase was partially offset by decreases in professional fees and occupancy expense.
The following table sets forth the major components of our noninterest expense for the nine months ended September 30, 2022 and 2021:
Nine Months Ended September 30,
2022
2021
Increase
(Decrease)
(dollars in thousands)
Salaries and employee benefits$17,859 $16,104 $1,755 
Equipment and occupancy expenses2,188 2,697 (509)
Professional services1,298 1,822 (524)
Data processing fees1,733 1,565 168 
Other real estate income(91)(285)194 
Other operating expenses(1)
6,191 4,920 1,271 
Total noninterest expense$29,178 $26,823 $2,355 
(1)Other expenses include items such as FDIC insurance, telephone expenses, marketing and advertising expense, debit card expenses, courier fees, directors’ fees, travel and entertainment expenses, insurance, and fraud and forgery losses.
Salaries and employee benefits primarily include: (i) amounts paid to employees for base pay, incentive compensation, and bonuses; (ii) health and other related insurance paid by the Bank on behalf of our employees; and (iii) retirement plans provided for employees including the 401(k) and non-qualified plans maintained for certain key employees. Salaries and employee benefits increased $1.8 million, or 10.9%, from $16.1 million for the nine months ended September 30, 2021 to $17.9 million for the nine months ended September 30, 2022. The increase was primarily due to normal salary adjustments, increases in benefit and incentive costs, an increase in performance-based compensation based on operating results and the addition of support personnel in early 2022.
Equipment and occupancy expenses consist of depreciation on property, premises, equipment and software, rent expense for leased facilities, maintenance agreements on equipment, property taxes, and other expenses related to maintaining owned or leased assets. Equipment and occupancy expense for the nine months ended September 30, 2022 was $2.2 million compared to $2.7 million for the nine months ended September 30, 2021, a decrease of $509,000, or 18.9%. The decrease was primarily attributable to accelerated depreciation of our Birmingham branch during 2021 in preparation for the branch moving to a new location in December 2021, coupled with the termination of the lease agreement on the former Birmingham location.
Professional services expenses, which include legal fees, audit and accounting fees, and consulting fees, decreased $524,000, or 28.8%, to $1.3 million for the nine months ended September 30, 2022 compared to $1.8 million for the nine months ended September 30, 2021. This decrease was primarily the result of elevated SBA expense from a third-party associated with SBA/USDA loan sales and interest rate swap related expenses during the nine months ended September 30, 2021.
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Data processing fees, which primarily consists of data processing services for core processing from a third-party vendor, increased $168,000, or 10.7%, to $1.7 million for the nine months ended September 30, 2022 compared $1.6 million for the nine months ended September 30, 2021. The increase was primarily the result of additional software and general increases.
Other real estate income decreased $194,000, or 68.1%, to a net income of $91,000 for the nine months ended September 30, 2022, from a net income of $285,000 for the nine months ended September 30, 2021. This decrease was substantially the result of a reduction in OREO rental income during the second quarter of 2022 as a large property was sold in December 2021, net of a decrease in OREO expenses related to the same property.
Other expenses increased $1.3 million, or 25.8%, to $6.2 million for the nine months ended September 30, 2022, compared to $4.9 million for the nine months ended September 30, 2021. The increase was due to several factors including fraud losses during the third quarter of 2022, of which a portion has since been recovered, an increase in overall insurance expense and other expense as a result of being a public company and an increase in data processing expense. These increases were somewhat offset by reductions in various professional fees.
Financial Condition
Total assets grew $270.1 million, or 15.2%, to $2.1 billion at September 30, 2022 from $1.8 billion at December 31, 2021.
Our loans, net of unearned income, increased $274.7 million, or 22.0%, to $1.5 billion at September 30, 2022 from $1.3 billion at December 31, 2021. Not considering the impact of PPP loans, the growth for the nine months ended September 30, 2022 was $283.9 million, which represents 22.9% growth, or an annualized rate of 30.6%.
Our securities portfolio increased $18.5 million, or 12.2%, to $170.4 million at September 30, 2022, compared to $151.8 million at December 31, 2021.
Cash and cash equivalents fell $37.9 million, or 13.3%, to $246.1 million at September 30, 2022, from $284.0 million at December 31, 2021. This reduction was primarily due to excess cash and cash equivalents being used to fund loans and investments.
Deposits grew $210.6 million, or 13.5%, to $1.8 billion at September 30, 2022 compared to $1.6 billion at December 31, 2021. The majority of the growth was in money market accounts.
Total stockholders’ equity decreased $6.9 million, or 3.9%, to $170.3 million at September 30, 2022, compared to $177.2 million at December 31, 2021. This reduction was primarily due to a decrease in accumulated other comprehensive income (loss) resulting from changes in the value of the securities portfolio due to increases in interest rates during the year along with the repurchase of common shares, and partially offset by earnings growth.
Loan Portfolio
Loans represent the largest portion of earning assets, greater than the securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing the Company’s financial condition.
The Company originates residential real estate loans for the secondary market. The Company sells the residential real estate loans exclusively to two private investors who solely and independently make the credit decision and set the closing conditions. The loans are closed in the Company’s name but are immediately assigned to the designated investor. These loans have an average turn time to purchase of 30 days or less. These mortgage loans are designated on the Company’s balance sheet as held for sale. This segment represents less than 0.001% of total loans based on the latest thirteen-month average.
We have three loan portfolio segments: real estate (RE) which is divided into three classes, commercial and industrial (C&I), and consumer and other. A class is generally determined based on the initial measurement attribute, risk characteristic of the loan, and method for monitoring and assessing credit risk. Classes within the RE portfolio segment include construction and development or (C&D), residential mortgages, and commercial mortgages.
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Our loan clients primarily consist of small to medium sized business, the owners and operators of these businesses, as well as other professionals, entrepreneurs and high net worth individuals. We believe owner-occupied and investment commercial real estate loans, residential construction loans and commercial business loans provide us with higher risk-adjusted returns, shorter maturities and more sensitivity to interest rate fluctuations, and are complemented by our relatively lower risk residential real estate loans to individuals.
The following describes risk characteristics relevant to each of the loan portfolio segments:
Real estate—The Company offers various types of real estate loan products, which are divided into the classes described below. All loans within this portfolio segment are particularly sensitive to the valuation of real estate:
•Construction and development, or C&D, loans include extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral.
•Residential mortgages include 1-4 family first mortgage loans, which are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property. These include second liens or open-end residential real estate loans, such as home equity lines. These loans are typically repaid by the same means as 1-4 family first mortgages.
•Commercial mortgages include both owner-occupied commercial real estate loans and other commercial real estate loans, such as commercial loans secured by income producing properties. Owner-occupied commercial real estate loans made to operating businesses are long-term financing of land and buildings and are repaid by cash flows generated from business operations. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties.
Commercial and industrial—This loan portfolio segment includes loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, leases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the borrowers’ business operations.
Consumer and other—This loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.
The following table presents the balance and associated percentage of the composition of loans, excluding loans held for sale on the dates indicated:
September 30, 2022December 31, 2021
Amount% of
Total		Amount% of
Total
(dollars in thousands)
Real estate mortgages:
Construction and development$222,159 14.5 %$174,480 13.9 %
Residential164,296 10.7 %147,490 11.8 %
Commercial889,942 58.2 %716,541 57.1 %
Commercial and industrial243,577 15.9 %197,694 15.8 %
PPP Loans— — %9,203 0.7 %
Consumer and other10,155 0.7 %8,709 0.7 %
Gross Loans1,530,129 100.0 %1,254,117 100.0 %
Deferred loan fees(5,139)(3,817)
Allowance for loan losses(18,423)(14,844)
Loans, net$1,506,567 $1,235,456 
Gross loans increased $276.0 million, or 22.0%, to $1.5 billion as of September 30, 2022 as compared to $1.3 billion as of December 31, 2021. The net increase in the Company’s gross loans was due to organic growth of $285.2 million and offset
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by a net decrease of $9.2 million in PPP loans. During the nine months ended September 30, 2022, the Company’s participation in the PPP program resulted in the forgiveness of $9.2 million on existing loans. Portfolio segments and classes remained relatively consistent since December 31, 2021.
The majority of our fixed rate loans have a one to five-year maturity. This type of loan has historically been about 50% of total loans over the past three years because the majority of our commercial loans are priced with five-year balloons.
We are primarily involved in real estate, commercial, agricultural and consumer lending activities with customers throughout our markets in Alabama and Georgia. About 83.4% of our gross loans were secured by real property as of September 30, 2022, compared to 82.8% as of December 31, 2021. We believe that these loans are not concentrated in any one single property type and that they are geographically dispersed throughout our markets. Our debtors’ ability to repay their loans is substantially dependent upon the economic conditions of the markets in which we operate, which consist primarily of wholesale/retail and related businesses.
Commercial real estate loans were 58.2% of total gross loans as of September 30, 2022 and represented 57.1% of total gross loans as of December 31, 2021. C&D loans were 14.5% of total gross loans as of September 30, 2022, and represented 13.9% of total gross loans as of December 31, 2021. The regulatory concentration ratio of the Company’s commercial real estate loans to total risk-based Bank capital is 290.5% as of September 30, 2022 and 273.8% as of December 31, 2021. C&D loans represented 91.6% of total risk-based Bank capital as of September 30, 2022 as compared to 95.4% as of December 31, 2021. The regulatory concentration ratios of commercial real estate loans and construction and development loans to total risk-based capital as of September 30, 2022 and December 31, 2021 were each below the 300%/100% concentration limits provided in regulatory guidance. Further, these loans are geographically diversified, primarily throughout our markets in Alabama and Georgia.
The Company has established concentration limits in its loan portfolio for commercial real estate loans by loan types, including collateral and industry, among others. The sector concentration is actively managed by the Senior Management team, including the Chief Executive Officer, President, Chief Risk/Credit Officer, and Chief Operating Officer.
The Company requires all business purpose loans to be underwritten by a centralized underwriting department located in Birmingham, Alabama. Industry-tested underwriting guidelines are used to assess a borrower’s historical cash flow to determine debt service, and the Company further stress tests the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur.
Construction and Development. Loans for residential construction are for single-family properties to developers or investors. These loans are underwritten based on estimates of costs and the completed value of the project. Funds are advanced based on estimated percentage of completion for the project. Performance of these loans is affected by economic conditions as well as the ability to control the costs of the projects. This category also includes commercial construction projects.
Construction and development loans increased $47.7 million, or 27.3%, to $222.2 million as of September 30, 2022 from $174.5 million as of December 31, 2021. The majority of this increase was due to loan growth primarily in the Company’s Georgia market.
Residential. We offer one-to-four family mortgage loans on both owner-occupied primary residences and investor-owned residences, which make up approximately 66.4% of our residential loan portfolio. Our residential loans also include home equity lines of credit, which total $18.7 million, or approximately 11.4% of our residential portfolio as of September 30, 2022. By offering a full line of residential loan products, the owners of the small to medium sized businesses that we lend to use us, instead of a competitor, for financing a personal residence. We also offer multi-family loans, which comprise 20.3% of the portfolio. Other residential loans make up the remaining 1.9% of the portfolio.
Residential multi-family loans increased $16.8 million, or 11.4%, to $164.3 million as of September 30, 2022 from $147.5 million as of December 31, 2021. The majority of this increase was due to loan growth in the Company’s Georgia markets.
Commercial Real Estate. The Company’s commercial real estate loan portfolio includes loans for commercial property that is owned by real estate investors, construction loans to build owner-occupied properties, and loans to developers of commercial real estate investment properties and residential developments. Commercial real estate loans are subject to underwriting standards and processes similar to the Company’s commercial loans. These loans are underwritten primarily
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based on projected cash flows for income-producing properties and collateral values for non-income-producing properties. The repayment of these loans is generally dependent on the successful operation of the property securing the loans or the sale or refinancing of the property. Real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s real estate portfolio are diversified by type and geographic location. The Company believes the diversity helps reduce the exposure to adverse economic events that may affect any single market or industry.
Commercial real estate loans increased $173.4 million, or 24.2%, to $889.9 million as of September 30, 2022 from $716.5 million as of December 31, 2021. The increase in commercial real estate loans during this period was mostly driven by general increases in lending activity, primarily in the Company’s Georgia markets. As of September 30, 2022, the Company’s commercial real estate portfolio was comprised of $426.3 million in non-owner occupied commercial real estate loans and $88.5 million in commercial construction loans.
Commercial and Industrial. Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably. Underwriting standards have been designed to determine whether the borrower possesses sound business ethics and practices, to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations, and to ensure appropriate collateral is obtained to secure the loan. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as real estate, accounts receivable, or inventory, and typically include personal guarantees. Owner-occupied real estate is included in commercial and industrial loans, as the repayment of these loans is generally dependent on the operations of the commercial borrower’s business rather than on income-producing properties or the sale of the properties.
Commercial and industrial loans increased $45.9 million, or 23.2% to $243.6 million as of September 30, 2022 from $197.7 million as of December 31, 2021. The majority of this increase was due to loan growth primarily in the Company’s Atlanta, Georgia market.
Consumer and Other. The Company utilizes the central underwriting department for all consumer loans over $200,000 in total credit exposure regardless of collateral type. Loans below this threshold are underwritten by the responsible loan officer in accordance with the Company’s consumer loan policy. The loan policy addresses types of consumer loans that may be originated and the requisite collateral, if any, which must be perfected. We believe the relatively smaller individual dollar amounts of consumer loans that are spread over numerous individual borrowers minimize risk.
Consumer and other loans (non-real estate loans) increased $1.4 million or 16.6%, to $10.2 million as of September 30, 2022 from $8.7 million as of December 31, 2021.
Loan Participations
In the normal course of business, the Company periodically sells participating interests in loans to other banks and investors. All participations are sold on a proportionate (pro-rata) basis with all cash flows divided proportionately among the participants and no party has the right to pledge or exchange the entire financial asset without the consent of all the participants. Other than standard 90-day prepayment provisions and standard representations and warranties, participating interests are sold without recourse. We also purchase loan participations from time to time.
At September 30, 2022 and December 31, 2021 loan participations sold to third-parties (which are not included in the accompanying consolidated balance sheets) totaled $105.0 million and $81.7 million, respectively. We sell participations to manage our credit exposures to borrowers. At September 30, 2022 and December 31, 2021, we purchased loan participations totaling $115.0 million and $62.1 million, respectively.
Allowance for Loan Losses
The allowance for loan losses is funded as losses are estimated through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Confirmed losses are charged off immediately. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio. The allowance
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for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the uncollectibility of loans in light of historical experience, the nature and volume of the loan portfolio, the overall portfolio quality, specific problem loans, current economic conditions that may affect the borrower’s ability to pay, the estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. This evaluation does not include the effects of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions.
The allowance for loan losses consists of specific and general components. The specific component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors. Other adjustments may be made to the allowance for loan losses for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when it is probable, based on current information and events, that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Loans, for which the terms have been modified at the borrower’s request, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and are classified as impaired.
Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. Loans that experience insignificant payment delays and payment shortfalls are not generally classified as impaired. Impaired loans are measured by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent, less estimated costs to sell the collateral. Interest on accruing impaired loans is recognized as long as such loans do not meet the criteria for nonaccrual status. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
The Company’s homogeneous loan pools include commercial real estate loans, real estate construction and development loans, residential real estate loans, commercial and industrial loans, and consumer loans. The general allocations to these loan pools are based on the historical loss rates for specific loan types and the internal risk grade, if applicable, adjusted for both internal and external qualitative risk factors. The qualitative factors considered by management include, among other factors, (1) changes in local and national economic conditions; (2) changes in asset quality and foreclosure rates; (3) changes in loan portfolio volume; (4) the composition and concentrations of credit; (5) the impact of competition on loan structuring and pricing; (6) the experience and ability of lending personnel and management; (7) the effectiveness of the Company’s loan policies, procedures and internal controls; (8) current conditions in the real estate and construction markets; (9) the effect of entrance into new markets or the offering of a new product; and (10) the loan review system and oversight of our board of directors. The total allowance established for each homogeneous loan pool represents the product of the historical loss ratio adjusted for internal and external factors and the total dollar amount of the loans in the pool.
The allowance for loan losses was $18.4 million at September 30, 2022 compared to $14.8 million at December 31, 2021, an increase of $3.6 million, or 24.1%. Additional provisions were recorded primarily based on overall growth in loans and current economic factors.
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The following table provides an analysis of the allowance for loan losses as of the dates indicated.
Three Months Ended:
Nine Months Ended:
September 30,
2022		September 30,
2021		September 30,
2022		September 30,
2021
(dollars in thousands)
Average loans, net of unearned income$1,480,735 $1,122,741 $1,373,564 $1,093,684 
Loans, net of unearned income1,524,990 1,145,447 1,524,990 1,145,447 
Allowance for loan losses at beginning of the period16,807 13,339 14,844 11,859 
Charge offs:
Construction and development— — 66 — 
Residential— — 7 44 
Commercial— — — — 
Commercial and industrial269 — 269 — 
Consumer and other1 — 8 2 
Total charge offs270 — 350 46 
Recoveries:
Construction and development— — — — 
Residential11 7 46 12 
Commercial— — — — 
Commercial and industrial204 1 204 14 
Consumer and other8 — 12 8 
Total recoveries223 8 262 34 
Net charge offs (recoveries)$47 $(8)$88 $12 
Provision for loan losses$1,663 $750 $3,667 $2,250 
Balance at end of period$18,423 $14,097 $18,423 $14,097 
Ratio of allowance to end of period loans1.21 %1.23 %1.21 %1.23 %
Ratio of net charge offs (recoveries) to average loans0.00 %0.00 %0.01 %0.00 %
Net charge offs for the three months ended September 30, 2022 totaled $47,000, an increase of $55,000 compared to net recoveries of $8,000 for the three months ended September 30, 2021. Net charge offs for the nine months ended September 30, 2022 totaled $88,000, an increase of $76,000 compared to net charge offs of $12,000 for the nine months ended September 30, 2021.
The following table presents the allocation of the allowance for loan losses for each respective loan category with the corresponding percentage of loans in each category to total loans:

September 30, 2022September 30, 2021
AmountPercentage of loans in each category to gross loansAmountPercentage of loans in each category to gross loans
(dollars in thousands)
Real estate mortgages:
Construction and development$3,286 14.5 %$1,514 13.8 %
Residential1,174 10.7 %879 11.8 %
Commercial8,404 58.2 %8,393 56.3 %
Commercial and industrial5,472 15.9 %3,181 17.3 %
Consumer and other87 0.7 %130 0.8 %
Total$18,423 100.0 %$14,097 100.0 %
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Nonperforming Loans
Loans are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 90 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible. Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable.
A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include loans on nonaccrual status and performing restructured loans. Income from loans on nonaccrual status is recognized to the extent cash is received and when the loan’s principal balance is deemed collectible. Depending on a particular loan’s circumstances, the Company measures impairment of a loan based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent. A loan is considered collateral dependent when repayment of the loan is based solely on the liquidation of the collateral. Fair value, where possible, is determined by independent appraisals, typically on an annual basis. Between appraisal periods, the fair value may be adjusted based on specific events, such as if deterioration of quality of the collateral comes to the Company’s attention as part of its problem loan monitoring process, or if discussions with the borrower lead us to believe the last appraised value no longer reflects the actual market for the collateral. The impairment amount on a collateral-dependent loan is charged off to the allowance if deemed not collectible and the impairment amount on a loan that is not collateral-dependent is set up as a specific reserve.
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less estimated selling costs. Any write-down to fair value at the time of transfer to other real estate owned is charged to the allowance for loan losses. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell. Costs of improvements are capitalized, whereas costs related to holding other real estate owned and subsequent write-downs to the value are expensed. Any gains and losses realized at the time of disposal are reflected in income.
Real estate, which the Company acquires as a result of foreclosure or by deed-in-lieu of foreclosure, is classified as foreclosed assets until sold and is initially recorded at fair value less costs to sell when acquired, establishing a new carrying value. Foreclosed assets totaled $2.9 million at September 30, 2022 consisting substantially of one property, located in Birmingham, Alabama. No loss is anticipated.
Nonperforming loans include nonaccrual loans and loans past due 90 days or more. Nonperforming assets consist of nonperforming loans plus OREO and collateral taken in foreclosure or similar proceedings.
Total nonperforming loans increased approximately $2.0 million from December 31, 2021 to September 30, 2022. The net increase was primarily the result of a commercial real estate loan associated with one borrower that was placed on nonaccrual during the first quarter of 2022, which has since been paying, and will be reevaluated for accruing status prior to end of 2022.
Nonperforming Assets
The following table sets forth the allocation of the Company’s nonperforming assets among different asset categories as of the dates indicated. Nonperforming assets consist of nonperforming loans plus OREO and repossessed property. Nonperforming loans include nonaccrual loans and loans past due 90 days or more.
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September 30,
December 31,
202220212021
(dollars in thousands)
Nonaccrual loans$3,950 $3,308 $1,478 
Past due loans 90 days or more and still accruing interest— — 494 
Total nonperforming loans3,950 3,308 1,972 
OREO2,930 10,146 2,930 
Total nonperforming assets$6,880 $13,454 $4,902 
Troubled debt restructured loans – nonaccrual(1)
1,011 1,041 940 
Troubled debt restructured loans – accruing
1,307 1,085 1,072 
Total troubled debt restructured loans$2,318 $2,126 $2,012 
Allowance for loan losses$18,423 $14,097 $14,844 
Gross loans outstanding at the end of period$1,530,129 $1,149,340 $1,254,117 
Allowance for loan losses to gross loans1.20 %1.23 %1.18 %
Allowance for loan losses to nonperforming loans466.41 %426.15 %752.74 %
Nonperforming loans to gross loans0.26 %0.29 %0.16 %
Nonperforming assets to gross loans and OREO0.45 %1.16 %0.39 %
Nonaccrual loans by category:
Real estate mortgages:
Construction and development$70 $1,972 $346 
Residential550 339 167 
Commercial2,888 690 674 
Commercial and industrial434 300 285 
Consumer and other8 7 6 
       Total$3,950 $3,308 $1,478 
(1) Troubled debt restructured loans are excluded from nonperforming loans unless they otherwise meet the definition of nonaccrual loans or are more than 90 days past due.
Securities Portfolio
The securities portfolio serves the following purposes: (i) it provides liquidity supplement cash flows from the loan and deposit activities of customers; (ii) it can be used as an interest rate risk management tool since it provides a large base of assets and the Company can change the maturity and interest rate characteristics more readily than the loan portfolio to better match changes in the deposit base and other Company funding sources; (iii) it is an alternative interest-earning asset when loan demand is weak or when deposits grow more rapidly than loans; and (iv) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender.
The securities portfolio consists of securities classified as available for sale and held to maturity. All available for sale securities are reported at fair value. Securities available for sale consist primarily of state and municipal securities and mortgage-backed securities. All held to maturity securities are recorded at amortized cost. Securities held to maturity consist of state and municipal securities. We determine the appropriate classification at the time of purchase.
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The following table summarizes the fair value of the securities portfolio as of September 30, 2022 and December 31, 2021:
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
September 30, 2022(dollars in thousands)
Securities Available for Sale
U.S. Treasury securities$9,775 $— $(1,250)$8,525 
U.S. Government Sponsored Enterprises (GSEs)2,133 — (229)1,904 
State and municipal securities56,399 29 (8,547)47,881 
Corporate debt securities12,529 — (721)11,808 
Asset based securities14,698 4 (701)14,001 
Mortgage-backed GSE residential/multifamily and non-GSE71,945 1 (5,347)66,599 
Total securities available for sale$167,479 $34 $(16,795)$150,718 
Securities Held to Maturity
State and municipal securities19,657 — (4,362)15,295 
Total securities held to maturity$19,657 $— $(4,362)$15,295 
Total securities$187,136 $34 $(21,157)$166,013 
December 31, 2021
Securities Available for Sale
U.S. Treasury securities$7,820 $22 $(20)$7,822 
U.S. Government Sponsored Enterprises (GSEs)9,228 68 (103)9,193 
State and municipal securities54,236 2,611 (66)56,781 
Corporate debt securities10,530 289 (35)10,784 
Asset based securities10,380 116 (24)10,472 
Mortgage-backed GSE residential/multifamily and non-GSE37,123 185 (188)37,120 
Total securities available for sale$129,317 $3,291 $(436)$132,172 
Securities Held to Maturity
State and municipal securities19,672 364 (126)19,910 
Total securities held to maturity$19,672 $364 $(126)$19,910 
Total securities$148,989 $3,655 $(562)$152,082 
Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. At September 30, 2022, we evaluated the securities that had an unrealized loss for other-than-temporary impairment and determined all declines in value to be temporary. We anticipate full recovery of amortized cost with respect to these securities by maturity, or sooner in the event of a more favorable market interest rate environment. We do not intend to sell these securities and it is not probable that we will be required to sell them before recovery of the amortized cost basis, which may be at maturity.
The following tables set forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of September 30, 2022 and December 31, 2021. Weighted average yield is calculated by taking the sum of each category of securities multiplied by the respective yield for a given maturity, and dividing by the sum of the securities for the same maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

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Due in One Year or LessDue After One Year Through Five YearsDue After Five Years Through Ten YearsDue After Ten YearsTotal
Amortized CostWeighted Average YieldAmortized CostWeighted Average YieldAmortized CostWeighted Average YieldAmortized CostWeighted Average YieldAmortized CostWeighted Average Yield
(dollars in thousands)
September 30, 2022
Securities Available for Sale
U.S. Treasury securities$— — %$1,991 1.33 %$7,784 1.39 %$— — %$9,775 1.37 %
U.S. Government Sponsored Enterprises (GSEs)— — — — 1,386 2.62 747 1.54 2,133 2.24 
State and municipal securities— — 2,096 1.86 2,237 2.03 52,066 2.29 56,399 2.26 
Corporate debt securities— — 3,024 4.84 9,505 4.94 — — 12,529 4.92 
Asset based securities— — 1,232 2.16 2,746 1.62 10,720 3.45 14,698 3.00 
Mortgage-backed GSE residential/multifamily and non-GSE3,013 5.84 28,603 4.40 7,639 3.89 32,690 2.92 71,945 3.73 
Total securities available for sale$3,013 5.84 %$36,946 4.05 %$31,297 3.20 %$96,223 2.62 %$167,479 3.11 %
Securities Held to Maturity
State and municipal securities— — — — 3,022 2.31 16,635 2.39 19,657 2.37 
Total securities held to maturity$— — %$— — %$3,022 2.31 %$16,635 2.39 %$19,657 2.37 %
Total securities$3,013 5.84 %$36,946 4.05 %$34,319 3.12 %$112,858 2.59 %$187,136 3.03 %
Due in One Year or LessDue After One Year Through Five YearsDue After Five Years Through Ten YearsDue After Ten YearsTotal
Amortized CostWeighted Average YieldAmortized CostWeighted Average YieldAmortized CostWeighted Average YieldAmortized CostWeighted Average YieldAmortized CostWeighted Average Yield
(dollars in thousands)
December 31, 2021
Securities Available for Sale
U.S. Treasury securities$— — %$— — %$7,820 1.36 %$— — %$7,820 1.36 %
U.S. Government Sponsored Enterprises (GSEs)— — 561 1.94 6,122 0.46 2,545 2.13 9,228 1.01 
State and municipal securities302 0.16 1,175 1.79 3,033 1.95 49,726 2.19 54,236 2.16 
Corporate debt securities— — 1,030 3.50 9,500 4.89 — — 10,530 4.75 
Asset based securities— — — — — — 10,380 0.94 10,380 0.94 
Mortgage-backed GSE residential/multifamily and non-GSE— — 15,870 3.02 5,299 1.41 15,954 1.30 37,123 2.05 
Total securities available for sale$302 0.16 %$18,636 2.94 %$31,774 2.31 %$78,605 1.84 %$129,317 2.11 %
Securities Held to Maturity
State and municipal securities— — — — 1,100 2.36 18,572 2.37 19,672 2.37 
Total securities held to maturity$— — %$— — %$1,100 2.36 %$18,572 2.37 %$19,672 2.37 %
Total securities$302 0.16 %$18,636 2.94 %$32,874 2.31 %$97,177 1.94 %$148,989 2.15 %
Bank Owned Life Insurance
We maintain investments in BOLI policies to help control employee benefit costs, as a protection against loss of certain employees and as a tax planning strategy. We are the sole owner and beneficiary of the BOLI policies. At September 30, 2022, BOLI totaled $29.7 million compared to $22.2 million at December 31, 2021. The increase represents additional insurance policies of $7.0 million and an increase in the cash surrender value.
Deposits
Deposits represent the Company’s primary and most vital source of funds. We offer a variety of deposit products including demand deposits accounts, interest-bearing products, savings accounts and certificate of deposits. The Bank also acquires brokered deposits, QwickRate internet certificates of deposit, and reciprocal deposits through the IntraFi network. The reciprocal deposits include both the Certificate of Deposit Account Registry Service (CDARS) and Insured Cash Sweep
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program. The Company is a member of the IntraFi network, which effectively allows depositors to receive FDIC insurance on amounts greater than the FDIC insurance limit, which is currently $250,000. IntraFi allows institutions to break large deposits into smaller amounts and place them in a network of other IntraFi institutions to ensure full FDIC insurance is gained on the entire deposit. Generally, internet and reciprocal deposits are not brokered deposits for regulatory purposes.
Our strong asset growth requires us to place a greater emphasis on both interest and noninterest-bearing deposits. Deposit accounts are added by loan production cross-selling, customer referrals, marketing advertisements, mobile and online banking and our involvement within our communities.
Total deposits at September 30, 2022 were $1.8 billion, representing an increase of $210.6 million, or 13.5%, compared to $1.6 billion at December 31, 2021. As of September 30, 2022, 28.3% of total deposits were comprised of noninterest-bearing demand accounts, 52.9% of interest-bearing non-maturity accounts and 18.8% of time deposits.
The following table summarizes our deposit balances as of September 30, 2022 and December 31, 2021:
September 30, 2022December 31, 2021
AmountPercent of
Total		AmountPercent of
Total
(dollars in thousands)
Noninterest-bearing transaction$499,61328.3%$541,54634.8%
Interest-bearing transaction855,35048.4%704,32645.3%
Savings78,6874.5%56,7153.6%
Time deposits, $250,000 and under266,49115.0%224,55614.4%
Time deposits, over $250,00066,9513.8%29,3081.9%
Total deposits$1,767,092100.0%$1,556,451100.0%
The following tables set forth the maturity of time deposits as of September 30, 2022 and December 31, 2021:
September 30, 2022
Maturity Within:
Three
Months		Three
Months
Through
12 Months		Over 12
Months
Through 3
Years		Over
3 Years		Total
(dollars in thousands)
Time deposits, less than $100,000$25,189$66,718$46,687$2,447$141,041
Time deposits, $100,000 through $250,00023,56041,27859,4461,166125,450
Time deposits, over $250,0004,91430,48230,0711,48466,951
Total time deposits$53,663$138,478$136,204$5,097$333,442
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December 31, 2021
Maturity Within:
Three
Months		Three
Months
Through
12 Months		Over 12
Months
Through 3
Years		Over
3 Years		Total
(dollars in thousands)
Time deposits, less than $100,000$33,061$61,646$29,563$2,832$127,102
Time deposits, $100,000 through $250,00039,75351,1125,4641,12597,454
Time deposits, over $250,00013,23813,5601,3271,18329,308
Total time deposits$86,052$126,318$36,354$5,140$253,864
Time deposits issued in amounts of more than $250,000 represent the type of deposit most likely to affect the Company’s future earnings because of interest rate sensitivity. The effective cost of these funds is generally higher than other time deposits because the funds are usually obtained at premium rates of interest.
The following table presents the average balance and average rate paid on each of the following deposit categories as of September 30, 2022 and 2021:

September 30,
20222021
Average BalanceAverage Rate PaidAverage BalanceAverage Rate Paid
(dollars in thousands)
Noninterest-bearing transaction$502,951—%$358,556—%
Interest-bearing transaction113,4270.09%94,6960.09%
Money markets674,5470.55%455,1770.58%
Savings66,8500.20%47,8870.20%
Time deposits242,8690.72%310,7580.53%
Total deposits$1,600,6440.36%$1,267,0740.35%
Borrowed Funds
In addition to deposits, we utilize advances from the FHLB and other borrowings as a supplementary funding source to finance our operations.
FHLB Advances. The FHLB allows us to borrow, on both short and long-term, collateralized by a blanket floating lien on first mortgage loans and commercial real estate loans as well as FHLB stock. At September 30, 2022 and December 31, 2021, we had borrowing capacity from the FHLB of $116.1 million and $68.4 million, respectively. We had $26.0 million in short-term FHLB borrowings as of September 30, 2022 and $26.0 million as of December 31, 2021. We had no long-term FHLB borrowings as of September 30, 2022 and December 31, 2021. All our outstanding FHLB advances have fixed rates of interest.
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The following table sets forth our FHLB borrowings as of September 30, 2022 and December 31, 2021:
September 30,
2022		December 31,
2021
(dollars in thousands)
Amount outstanding at end of period$26,000 $25,950 
Weighted average interest rate at end of period2.54 %0.34 %
Maximum month-end balance$35,000 $25,950 
Average balance outstanding during the period$26,115 $30,636 
Weighted average interest rate during the period0.74 %0.47 %
Lines of Credit. The Bank has uncollateralized, uncommitted federal funds lines of credit with multiple banks as a source of funding for liquidity management. The total amount of the lines of credit was $87.2 million as of September 30, 2022 and December 31, 2021, all of which was available at these dates.
First Horizon Line of Credit. During 2019, the Company obtained the $25.0 million Line of Credit with First Horizon, which was extended in July 2022 and matures in August 2024. The Line of Credit is collateralized by 100% of the capital stock of the Bank. The Line of Credit includes various financial and nonfinancial covenants. The Line of Credit has a variable interest rate linked to the WSJ Prime Rate with an initial interest rate of 4.75% per annum (but in no event less than 3.00% per annum), and requires quarterly interest payments. The balance outstanding under the Line of Credit as of September 30, 2022 was $20.0 million.
Subordinated Debt Securities
In June 2016, the Company issued $4.5 million of Fixed-to-Floating Rate Subordinated Notes due July 2026 (the “2026 Notes”). The 2026 Notes bore interest at 6.625% per annum, payable semiannually in arrears on January 1 and July 1 of each year until July 2021. Thereafter interest was payable quarterly in arrears at an annual floating rate equal to three-month LIBOR as determined for the applicable quarter plus 5.412%. The Company repaid the 2026 Notes in full on June 23, 2021.
On February 7, 2022, the Company issued $48.0 million of Fixed-to-Floating Rate Subordinated Notes due February 2032 (the “Notes”). The Notes bear interest at 3.50% per annum, payable quarterly in arrears. From and including February 7, 2027, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to a Three-Month Term Secured Overnight Financing Rate plus 205 basis points, payable quarterly in arrears. The Company will be entitled to redeem the Notes, in whole or in part, on any interest payment on or after February 7, 2027, and to redeem the Notes in whole upon certain other events. On July 1, 2022, pursuant to the registration rights agreement that we entered into in connection with the private placement of the Notes, we completed an exchange offer through which holders of $42.0 million aggregate principal amount of then outstanding Notes (the “Unregistered Notes”) exchanged their Unregistered Notes for an equal aggregate principal amount of our 3.50% Fixed-to-Floating Rate Subordinated Notes due 2032 (the “Registered Notes”). Following the exchange, $6.0 million aggregate principal amount of our Unregistered Notes remained outstanding, and $42.0 million in aggregate principal amount of our Registered Notes were outstanding. The terms of the Registered Notes are identical in all material respects to the terms of the Unregistered Notes, except that the Registered Notes are registered under the Securities Act and are generally not subject to transfer restrictions, are not entitled to registration rights and do not have the right to additional interest under the circumstances described in the registration rights agreement relating to our fulfillment of our registration obligations.
On October 26, 2022, the Company issued $40.0 million in 2032 Notes, as referenced in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments".
Liquidity and Capital Resources
Liquidity
Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-
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term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.
Interest rate sensitivity involves the relationships between rate-sensitive assets and liabilities and is an indication of the probable effects of interest rate fluctuations on the Company’s net interest income. Interest rate sensitive assets and liabilities are those with yields or rates that are subject to change within a future time period due to maturity or changes in market rates. A model is used to project future net interest income under a set of possible interest rate movements. The Company’s Asset Liability Committee, or ALCO, reviews this information to determine if the projected future net interest income levels would be acceptable. The Company attempts to stay within acceptable net interest income levels.
Our liquidity position is supported by management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and the fair value of unpledged investment securities. Other available sources of liquidity include wholesale deposits, and additional borrowings from correspondent banks, FHLB advances and the Line of Credit.
Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, and increases in customer deposits. Other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.
The Company and the Bank are separate corporate entities. The Company’s liquidity depends primarily upon dividends received from the Bank and capital and debt issued by the Company. The Company relies on its liquidity to pay interest and principal on Company indebtedness, company operating expenses, and dividends to Company shareholders.
Capital Requirements
We are subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action” (described below), we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies. The capital amounts and classifications are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors.
As of September 30, 2022, both we and the Bank exceeded all the minimum bank regulatory capital requirements to be well capitalized to which we and the Bank were subject.
The table below summarizes the capital requirements applicable to the Company and the Bank in order to be considered “well capitalized” from a regulatory perspective, as well as the Company’s and the Bank’s capital ratios as of September 30, 2022 and December 31, 2021. The Federal Deposit Insurance Act requires, among other things, that the federal banking regulators take prompt corrective action with respect to FDIC-insured depository institutions that do not meet certain minimum capital requirements. Under the Federal Deposit Insurance Act, insured depository institutions are divided into five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under applicable regulations, an institution is defined to be well capitalized if it has a common equity tier 1 capital ratio (“CET1 capital”) of 6.5%, a leverage ratio of at least 5%, a tier 1 risk-based capital ratio of at least 8%, and a total risk-based capital ratio of at least 10%, and it is not subject to a directive, order or written agreement to meet and maintain specific capital levels.
We and the Bank exceeded all regulatory capital requirements under Basel III and the Bank met all the minimum capital adequacy requirements to be considered “well capitalized” as of the dates reflected in the table below. As a bank holding company with less than $3 billion in total consolidated assets, Southern States is eligible to be treated as a “small bank holding company” under the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement. As a result, Southern States’ capital adequacy is evaluated at the bank level and on a parent-only basis, and it is not subject to consolidated capital standards for regulatory purposes. The ratios set forth below as to Southern States are for illustrative purposes in the event Southern States were to become subject to consolidated capital standards for regulatory purposes. The column styled “Required for Capital Adequacy Purposes” includes the 2.5% capital conservation buffer.
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ActualRequired for Capital
Adequacy Purposes		Minimums To Be “Well
Capitalized” Under Prompt
Corrective Action
AmountRatioAmountRatioAmountRatio
(dollars in thousands)
As of September 30, 2022
Tier 1 capital (to average assets)
Company$164,5648.44%$78,0194.00%$——
Bank$224,14511.49%$78,0194.00%$97,5245.00%
CET 1 capital (to risk-weighted assets)
Company$164,5648.73%$131,9297.00%$——
Bank$224,14511.89%$131,9297.00%$122,5056.50%
Tier 1 capital (to risk-weighted assets)
Company$164,5648.73%$160,1998.50%$——
Bank$224,14511.89%$160,1998.50%$150,7768.00%
Total capital (to risk-weighted assets)
Company$230,98712.26%$197,89310.50%$——
Bank$242,56812.87%$197,89310.50%$188,47010.00%
ActualRequired for Capital
Adequacy Purposes		Minimums To Be “Well
Capitalized” Under Prompt
Corrective Action
AmountRatioAmountRatioAmountRatio
(dollars in thousands)
As of December 31, 2021
Tier 1 capital (to average assets)
Company$156,7239.74%$64,3764.00%$——
Bank$168,02710.44%$64,3764.00%$80,4705.00%
CET 1 capital (to risk-weighted assets)
Company$156,72310.35%$106,0197.00%$——
Bank$168,02711.09%$106,0197.00%$98,4466.50%
Tier 1 capital (to risk-weighted assets)
Company$156,72310.35%$128,7378.50%$——
Bank$168,02711.09%$128,7378.50%$121,1648.00%
Total capital (to risk-weighted assets)
Company$171,56711.33%$159,02810.50%$——
Bank$182,87112.07%$159,02810.50%$151,45510.00%
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Contractual Obligations
The following tables contain supplemental information regarding our total contractual obligations at September 30, 2022.
Payments Due as of September 30, 2022
Within
One
Year		One to
Five
Years		After
Five
Years		Total
(dollars in thousands)
Time deposits$192,141$141,160$141$333,442
FHLB advances16,00010,000—26,000
Subordinated debt borrowings——47,04247,042
Short-term borrowings19,978——19,978
Total contractual obligations$228,119$151,160$47,183$426,462
We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short-term and long-term liquidity needs.
Off-Balance Sheet Arrangements
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit to our customers is represented by the contractual or notional amount of those instruments. Commitments to extend credit and standby letters of credit are not recorded as an asset or liability by the Company until the instrument is exercised. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company uses the same credit policies in making commitments and conditional obligations as they do for on-balance sheet instruments. The amount and nature of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the potential borrower.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private short-term borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds collateral supporting those commitments for which collateral is deemed necessary.
The following table summarizes commitments we have made as of the dates presented.
September 30,
2022		December 31,
2021
(dollars in thousands)
Commitments to extend credit$467,662$314,194
Standby letters of credit5,7273,434
Total$473,389$317,628
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Interest Rate Sensitivity and Market Risk
As a financial institution, our primary component of market risk is interest rate volatility. Our interest rate risk policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our sensitivity position within our established guidelines.
Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
We manage our exposure to interest rates by adjusting our balance sheet assets and liabilities in the ordinary course of business. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk.
Our exposure to interest rate risk is managed by ALCO in accordance with policies approved by the Bank’s board of directors. ALCO formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, ALCO considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. ALCO meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, commitments to originate loans and the maturities of investments and borrowings. Additionally, ALCO reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management also employs methodologies to manage interest rate risk, which include an analysis of the relationships between interest-earning assets and interest bearing liabilities and an interest rate risk simulation model and shock analyses.
We use interest rate risk simulation models and shock analyses to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics.
Contractual maturities and re-pricing opportunities of loans are incorporated in the models. The average lives of non-maturity deposit accounts are based on decay assumptions and are incorporated into the models. All of the assumptions used in our analyses are inherently uncertain and, as a result, the models cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the models’ simulated results due to the timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.
On a quarterly basis, we run a simulation model for a static balance sheet and other scenarios. These models test the impact on net interest income from changes in market interest rates under various scenarios. Under the static model, rates are shocked instantaneously and ramped rates change over a 12-month and 24-month horizon based upon parallel and non-parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non-parallel simulation involves analysis of interest income and expense under various changes in the shape of the yield curve. Our internal policy regarding internal rate risk simulations currently specifies that for parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 10% for a 100 basis point shift, 15% for a 200 basis point shift, 20% for a 300 basis point shift, and 25% for a 400 basis point shift.
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The following tables summarize the simulated change in net interest income over a 12-month horizon as of the dates indicated:
Percent Change in Net Interest Income
As of September 30, 2022
As of September 30, 2021
Change in Interest Rates (Basis Points)
+40023.5925.35
+30017.6319.01
+20011.7112.60
+1005.886.19
-100(6.68)(1.54)
-200(14.17)(6.98)
-300(22.85)(12.42)
-400(34.47)(17.24)
Inflation and increases in interest rates may result from fiscal stimulus and monetary stimulus, and the Federal Reserve has indicated it is willing to permit inflation to run moderately above its 2% target for some time. Increases in interest rates may cause consumers to shift their funds to more interest-bearing instruments and to increase the competition for and costs of deposits. If customers move money out of bank deposits and into other investment assets or from transaction deposits to higher interest-bearing time deposits, our funding costs may increase. Additionally, any such loss of funds could result in lower loan originations and growth, which could materially and adversely affect our results of operations and financial condition. Increases in market interest rates may reduce demand for loans, including residential mortgage loan originations. At the same time, increases in rates will increase the rates we charge on variable rate loans and may increase our net interest margin. Higher interest rates would decrease the values of our existing fixed rate securities investments and could potentially adversely affect the values and liquidity of collateral securing our loans. The effects of increased rates will depend on the rates of changes in our costs of funds and interest earned on our loans and investments and the shape of the yield curve.
Impact of Inflation
The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with GAAP and practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation.
Critical Accounting Policies and Estimates
Our accounting and reporting policies conform to GAAP and conform to general practices within our industry. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical to understanding our financial statements.
The JOBS Act and our regulators provided us with an extended transition period to January 1, 2023 for complying with CECL accounting standards affecting public companies.
The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments. Additional information about these policies can be found in Note 1 of the Company’s consolidated financial statements as of December 31, 2021, included in our Annual Report on Form 10-K.
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Basis of Presentation and Consolidation. The consolidated financial statements include the accounts of the Company and its wholly owned consolidated subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents. The Company includes all cash on hand, balances due from other banks, and federal funds sold, all of which have original maturities within three months, as cash and cash equivalents.
Securities. Investment securities may be classified into trading, held to maturity, or available for sale portfolios. Securities that are held principally for resale in the near term are classified as trading. Securities that management has the ability and intent to hold to maturity are classified as held to maturity and recorded at amortized cost. Securities not classified as trading or held to maturity are available for sale and are reported at fair value with unrealized gains and losses excluded from earnings but included in the determination of other comprehensive income. Management uses these assets as part of its asset/liability management strategy. These securities may be sold in response to changes in liquidity needs, interest rates, resultant prepayment risk changes, and other factors. Management determines the appropriate classification of securities at the time of purchase. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Realized gains and losses and declines in value determined to be other-than-temporary are included in gain or loss on sale of securities. The cost of securities sold is based on the specific identification method.
Loans. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances net of any unearned income, charge offs, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the straight-line method, which is not materially different from the effective interest method required by GAAP.
Loans are placed on nonaccrual status when, in management’s opinion, collection of interest is unlikely, which typically occurs when principal or interest payments are more than 90 days past due. When interest accrual is discontinued, all unpaid accrued interest is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Loan Losses. We have elected to take advantage of this extended transition period, which means that the financial statements included in this report, as well as financial statements that we file in the future during the transition period, will not be subject to all new or revised accounting standards generally applicable to public companies for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Confirmed losses are charged off immediately. Subsequent recoveries, if any, are credited to the allowance. The Company’s allowance for loan losses consists of specific valuation allowances established for probable losses on specific loans and general valuation allowances calculated based on historical loan loss experience for similar loans with similar characteristics and trends, discretionarily adjusted for general economic conditions and other qualitative internal and external risk factors.
The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management’s review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in economic and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral. The Bank’s loans are generally secured by specific items of collateral including real property, consumer assets, and other business assets.
While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on various factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Company to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these
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factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. All loans rated substandard or worse and greater than $250,000 are specifically reviewed to determine if they are impaired. Factors considered by management in determining whether a loan is impaired include payment status and the sources, amounts, and probabilities of estimated cash flow available to service debt in relation to amounts due according to contractual terms. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Loans that are determined to be impaired are then evaluated to determine estimated impairment, if any. GAAP allows impairment to be measured on a loan-by-loan basis by the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if repayment is collateral dependent. Loans that are not individually determined to be impaired or are not subject to the specific review of impaired status are subject to the general valuation allowance portion of the allowance for loan loss.
Loans Held for Sale. Loans held for sale are comprised of residential mortgage loans. Loans that are originated for best efforts delivery are carried at the lower of aggregate cost or fair value as determined by aggregate outstanding commitments from investors or current investor yield requirements. All other loans held for sale are carried at fair value. Loans sold are typically subject to certain indemnification provisions with the purchaser. Management does not believe these provisions will have any significant consequences.
Recently Issued Accounting Pronouncements
The following provides a brief description of accounting standards that have been issued but are not yet adopted that could have a material effect on our consolidated financial statements. Please also refer to the Notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q for a full description of recent accounting pronouncements, including the respective expected dates of adoption and anticipated effects on our results of operations and financial condition.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU 2016-02 requires organizations that lease assets (lessees) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by the lease for all operating leases under current U.S. GAAP with a term of more than 12 months. The ASU is effective for non-public business entities for fiscal years beginning after December 15, 2021. Early adoption is permitted. The ASU should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted ASU 2016-02 on June 30, 2021 and there was no material impact on the Company’s consolidated financial statements.
In July 2018, the FASB issued ASU 2018-11, “Leases –Targeted Improvements” to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU 2016-02. Specifically, under the amendments in ASU 2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments have the same effective date as ASU 2016-02 (January 1, 2022 for the Company). The Company adopted ASU 2018-11 on June 30, 2021 and there was no material impact on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The new guidance will apply to most financial assets measured at amortized cost and certain other instruments including loans, debt securities held to maturity, net investments in leases and off-balance sheet credit exposures. The guidance will replace the current incurred loss accounting model that delays recognition of a loss until it is probable a loss has been incurred with an expected loss model that reflects expected credit losses based upon a broader range of estimates including consideration of past events, current conditions and supportable forecasts. The guidance also eliminates the current accounting model for purchased credit impaired loans and debt securities, which will
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require re-measurement of the related allowance at each reporting period. The guidance includes enhanced disclosure requirements intended to help financial statement users better understand estimates and judgement used in estimating credit losses. As originally issued, ASU 2016-13 was effective for financial statements issued for fiscal years and for interim periods within those fiscal years beginning after December 15, 2020, with institutions required to apply the changes through a cumulative-effect adjustment to their retained earnings balance as of the beginning of the first reporting period in which the guidance is effective. On October 16, 2019, the FASB approved a delay in the implementation of ASU 2016-13 by two years for non-public business entities, including the Company. Management has been in the process of developing a revised model to calculate the allowance for loan and leases losses upon implementation of ASU 2016-13 in order to determine the impact on the Company’s consolidated financial statements and, at this time, expects to recognize a one-time cumulative effect adjustment to the allowance for loan and lease losses as of the beginning of the first reporting period in which the new standard is effective. The impact of any such one-time adjustments is not yet known but is not anticipated to be material.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for other than public business entities for fiscal years beginning after December 15, 2020, with early adoption, including adoption in an interim period, permitted. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The amended presentation and disclosure guidance is required only prospectively. The Company did not experience any impact on the Company’s consolidated financial position, results of operations or cash flows as a result of ASU 2017-12.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are presented in our Annual Report on Form 10-K for the year ended December 31, 2021, under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Sensitivity and Market Risk”. Additional information as of September 30, 2022, is included herein under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Interest Rate Sensitivity and Market Risk”.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
As of the end of the period covered by this report, an evaluation was performed by the Company, under the supervision and with the participation of its management, including its Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design and operation of its disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report.
Changes in internal control over financial reporting
There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter of 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. 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. However, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business, including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism laws, we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risks.
Item 1A. Risk Factors
For information regarding risk factors that could affect our business, financial condition, and results of operations, see the information in "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and the Use of Proceeds
On August 12, 2021, we sold 996,429 new shares of our common stock at a public offering price of $19.00 per share in our IPO, and on August 19, 2021, we sold an additional 300,000 at the public offering price pursuant to the exercise of the underwriters’ option to purchase additional shares in the offering. In addition, selling stockholders sold 1,003,571 shares of common stock. The offering resulted in approximately $21.1 million of net proceeds, after deducting underwriting discounts and commissions, and offering expenses, to us, and approximately $17.7 million to the selling stockholders. The offer and sale of shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-257915), which the SEC declared effective on August 11, 2021. Keefe, Bruyette & Woods, Inc. and Truist Securities, Inc. acted as underwriters. The offering commenced on July 30, 2021, and did not terminate until the sale of all of the shares offered. There has been no material change in the planned use of proceeds from our IPO as described in our Final Prospectus that was filed with the SEC on August 12, 2021, pursuant to Rule 424(b)(4) under the Securities Act.
Our purchase of shares of common stock made during the quarter ended September 30, 2022 consisted of stock repurchases made under our publicly announced stock repurchase program (the “Program”) and are summarized in the table below.
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of the Publicly Announced Program
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program(1)
(dollars in thousands)
July 1 - July 31, 2022— $— — $2,643 
August 1 - August 31, 2022— — — 2,643 
September 1 - September 30, 2022— — — 2,643 
Total— $— — $2,643 
(1) On February 16, 2022, we announced that our board of directors approved a Program that authorizes us to repurchase up to $10.0 million of our common stock. The Program will be in effect until December 31, 2022 with the timing of purchases and number of shares repurchased under the Program dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements, and market conditions. We are not obligated to purchase any shares under the Program and the Program may be suspended or discontinued at any time without notice.
Item 3. Defaults Upon Senior Securities
None.
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Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.

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Item 6. Exhibits
NUMBERDESCRIPTION
2.1#
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1#
10.2#
10.3
31.1*
31.2*
32.1**
32.2**
101.INS*Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File - Formatted as Inline XBRL and contained within the Inline XBRL Instance Document in Exhibit 101.
*Filed herewith

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**These exhibits are furnished herewith and shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.
†Indicates a management contract or compensatory plan.
#Certain schedules, exhibits and appendices have been omitted pursuant to Item 601(a)(5). We will furnish the omitted schedules exhibits and appendices to the Securities and Exchange Commission upon request by the Commission.

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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.
SOUTHERN STATES BANCSHARES, INC.
Date: November 10, 2022
By:/s/ Stephen W. Whatley
Stephen W. Whatley
Chairman and Chief Executive Officer, and Director
(Principal Executive Officer)
Date: November 10, 2022
By:/s/ Lynn Joyce
Lynn Joyce
Senior Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

82
Document

        Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED


I, Stephen W. Whatley, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Southern States Bancshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
    
(a)     Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
    
(b)     [Paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];
    
(c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
    
(d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
    
(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
    
(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 10, 2022
By:/s/ Stephen W. Whatley
Stephen W. Whatley
Chairman and Chief Executive Officer
(Principal Executive Officer)


Document

        Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Lynn Joyce, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Southern States Bancshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
    
(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
    
(b)    [Paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];
    
(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
    
(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
    
(a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
    
(b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 10, 2022
By:/s/ Lynn Joyce
Lynn Joyce
Senior Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)


Document

        Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Southern States Bancshares, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen W. Whatley, Chairman and Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 10, 2022
By:/s/ Stephen W. Whatley
Stephen W. Whatley
Chairman and Chief Executive Officer
(Principal Executive Officer)



Document

            Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Southern States Bancshares, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lynn Joyce, Senior Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

        
Date: November 10, 2022
By:/s/ Lynn Joyce
Lynn Joyce
Senior Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)