Leases

6 Months Ended

Jun. 30, 2024

Leases

Leases

Note 8 — Leases

As of June 30, 2024, and December 31, 2023, we had operating right-of-use (“ROU”) assets of $103.7 million and $100.3 million, respectively, and operating lease liabilities of $111.8 million and $108.3 million, respectively. We maintain operating leases on land and buildings for some of our operating centers, branch facilities and ATM locations. Most leases include one or more options to renew, with renewal terms extending up to 20 years. The exercise of renewal options is based on the sole judgment of management and what they consider to be reasonably certain given the environment today. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of renewal rate compared to market rates, and the presence of factors that would cause a significant economic penalty to us if the option is not exercised. Leases with an initial term of 12 months or less are not recorded on the balance sheet and instead are recognized in lease expense on a straight-line basis over the lease term.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in thousands)	2024		2023		2024		2023
Lease Cost Components:
Amortization of ROU assets – finance leases	$	117	$	117	$	233	$	233
Interest on lease liabilities – finance leases		8		10		18		21
Operating lease cost (cost resulting from lease payments)		4,356		4,278		8,633		8,518
Short-term lease cost		184		109		323		215
Variable lease cost (cost excluded from lease payments)		956		840		1,753		1,475
Total lease cost	$	5,621	$	5,354	$	10,960	$	10,462
Supplemental Cash Flow and Other Information Related to Leases:
Finance lease – operating cash flows	$	8	$	10	$	18	$	21
Finance lease – financing cash flows		119		110		238		220
Operating lease – operating cash flows (fixed payments)		4,220		4,154		8,413		8,250
Operating lease – operating cash flows (net change asset/liability)		(3,300)		(3,321)		(6,667)		(6,608)
New ROU assets – operating leases		6,550		701		9,093		701
New ROU assets – finance leases		—				—		—
Weighted – average remaining lease term (years) – finance leases		3.93				3.93		4.93
Weighted – average remaining lease term (years) – operating leases		8.86				8.86		9.63
Weighted – average discount rate - finance leases		1.7%				1.7%		1.7%
Weighted – average discount rate - operating leases		3.3%				3.3%		3.0%
Operating lease payments due:
2024 (excluding 6 months ended June 30, 2024)					$	8,613
2025						16,374
2026						15,866
2027						14,693
2028						14,030
Thereafter						61,212
Total undiscounted cash flows						130,788
Discount on cash flows						(18,947)
Total operating lease liabilities					$	111,841

As of June 30, 2024, the Company held a small number of finance leases assumed in connection to the CenterState merger completed in 2020. These leases are all real estate leases. Terms and conditions are similar to those real estate operating leases described above. Lease classifications from the acquired institutions were retained. At June 30, 2024, we did not maintain any leases with related parties, and determined that the number and dollar amount of our equipment leases was immaterial. As of June 30, 2024, we had no additional operating leases that have not yet commenced.

Equipment Lessor

SouthState has an Equipment Finance Group which goes to market through intermediaries. The Equipment Finance Group primarily focuses on serving the construction and utility segments. Lease terms typically range from 24 months to 120 months. At the end of the lease term, the lessee has the option to renew the lease, return the equipment, or purchase the equipment. In the event the equipment is returned, there is a remarketing agreement with the intermediary to sell the equipment. The Equipment Finance Group offers the following lease products: TRAC Leases, Split-TRAC Leases, and FMV Leases. Direct finance equipment leases are included in commercial and industrial loans on the Consolidated Balance Sheets.

The estimated residual values for direct finance leases are established by an approved intermediary who utilizes internally developed analyses, external studies, and/or third-party appraisals to establish a residual position. FMV and Split-TRAC leases have residual risk due to their unguaranteed residual value whereas TRAC leases have a guaranteed residual value. Expected credit losses on direct financing leases and the related estimated residual values are included in the Commercial and Industrial loan segment for the ACL.

The following table summarizes lease receivables and investment in operating leases and their corresponding balance sheet location at June 30, 2024, and December 31, 2023:

	June 30,		December 31,
(Dollars in thousands)	2024		2023
Direct financing leases:
Lease receivables	$	16,997	$	5,503
Unguaranteed residual values		2,837		501
Initial direct costs		505		155
Less: Unearned income		(3,503)		(1,165)
Total net investment in direct financing leases	$	16,836	$	4,994

The following table summarizes direct financing lease income recorded for the three and six months ended June 30, 2024, and remaining lease payment receivable for each of the next five years:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2024		2024
Direct financing lease income
Interest income	$	229	$	392
Remaining lease payments receivable:
2024 (excluding 6 months ended June 30, 2024)			$	1,755
2025				3,556
2026				3,556
2027				3,555
2028				2,505
Thereafter				2,070
Total undiscounted lease receivable				16,997
Less: unearned interest income				(3,503)
Net lease receivables			$	13,494

See Note 1 — Summary of Significant Accounting Policies, under the “Leases” section, of our Annual Report on Form 10-K for the year ended December 31, 2023, on accounting for leases.