SouthState Corporation (NASDAQ:SSB) Q1 2025 Earnings Call Transcript

SouthState Corporation (NASDAQ:SSB) Q1 2025 Earnings Call Transcript April 25, 2025

Operator: I would now like to turn the call over to William Matthews, Chief Financial Officer. Please go ahead. Good morning, and welcome to SouthState Corporation’s first quarter 2025 earnings call.

William Matthews: This is William Matthews, and I’m here with John Corbett, Stephen Young, and Jeremy Lucas. We will follow our typical pattern of brief remarks followed by Q&A. I will refer you to the earnings release and investor presentation under the Investor Relations tab of our website. Before we begin our remarks, I want to remind you that comments we make may include forward-looking statements within the meaning of the federal securities laws and regulations. Any such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in the press release and presentation for more information about our forward-looking statements and risks and uncertainties which may affect us. I’ll turn the call over to you, John.

John Corbett: Thank you, William. Good morning, everybody. Thanks for joining us. For over a year, we’ve been working on three strategic capital moves that all culminated in the first quarter. The first and the most significant was the closing of the independent financial transaction. The second was the sale leaseback of bank branches, and the third was the securities restructure that Stephen will discuss. It was a big balance sheet reset that brought our balance sheet closer to current market rates. The result is a materially higher net interest margin of 3.85%. Taken together, these three moves propelled SouthState Corporation’s earnings to an adjusted return on assets of 1.38% and return on tangible common equity of approximately 20%.

So the earnings power of the bank is running better than we expected, and PPNR per share has grown by 25% in the last year. So that’s the bright spot. On the other hand, balance sheet growth slowed after good growth last year. Some of the slowdown this quarter was normal seasonality, some was the general economy slowing down, and some was just the result of stiff competition on loan pricing. Encouraged though that our pipelines have grown considerably in the last few months, and the growth prospects look better in the second quarter. Asset quality remains fine. Excluding day one acquisition adjustments, nonaccruals and substandard loans were stable. We only had four basis points in charge-offs. Now like all of you, we’re trying to figure out the impact of tariffs on the growth trajectory for the rest of the year.

It’s going to be a progressive revelation over the next few months. Meanwhile, our credit team is working on a top-down and a bottoms-up analysis by looking at impacted loan segments and by meeting with and listening to our clients. Our clients are not panicking, but many of them wisely are taking a pause on capital projects. Following the independent closing, we’re fortunate to be starting with higher capital ratios than we modeled. So between a better starting point and industry-leading returns, we’re going to be accumulating capital at a rapid pace. So regardless of the tariff impact, we’re going to have flexibility to use the excess capital for either defense or for offense as we progress through the year. The SouthState Corporation teams in Texas and Colorado are doing a great job.

We’ve only been working together for about a year, but it feels like we’ve been partners for much longer. An exceptional team, and they’re going to be a major driver of SouthState Corporation’s performance in the years to come. Everybody’s ready to get the conversion in the rearview mirror next month so we can hit the ground running in the back half of 2025. I’ll turn it over to William to walk you through the details of what was a noisy quarter of balance sheet marks and one-timers tied to these three strategic moves.

William Matthews: Thanks, John. I’ll do a few highlights and make some explanatory comments before we move to Q&A. The quarter had a lot of moving parts with the closing of the acquisition, the sale leaseback, and the securities portfolio restructuring. We added Slide 10 to this quarter’s deck, which should help you assess our operating performance versus the impact of each of these items on the quarter. For the remainder of my comments, I’ll address our operating performance and adjusted metrics, excluding the unusual items. We had good revenue in Q1 led by the net interest margin. Tax equivalent NIM improved 37 basis points from the fourth quarter, a bit better than we modeled. A big part of the outperformance was our cost of deposits, which came in at $1.89 when we were modeling closer to 2%.

Additionally, we benefited from bringing the independent assets to market rates through the acquisition, earning asset yields of 5.70 leading to a first quarter NIM of 3.85. Our loan yield improved to 6.25, approximately 65 basis points below our new origination rate for the first quarter and very close to peer median loan yields, as noted on slide 19. Loan yield in the quarter also benefited from early payoff on a couple of acquired loans, increasing loan yields by six basis points. Stephen will give updated margin guidance in our Q&A. Noninterest income of $86 million was slightly below, but generally in line with expectations, giving us total revenue of $630 million. On the expense side, NIE of $341 million was lower than anticipated in spite of the CDI valuation coming in higher than modeled and driving amortization expense $3 million higher than we had budgeted.

I’d attribute this Q1 outperformance to a couple of primary factors: delays in hiring budgeted staff and implementation of budgeted projects, which is not necessarily atypical in the 50% for the first quarter. As John noted, credit costs, excluding the non-PCD double count provision and acquired PCD charge-offs at closing, remain low with only four basis points in net charge-offs and an $8 million provision. The day one PCD charge-offs of $39 million were to bring these acquired loans into compliance with our charge-off policy. For the acquired loans, accretable marks were $482 million, 20% of which was a non-PCD credit mark, but the remaining 80% being rate marks to bring the independent earning assets to market yields as of the acquisition date.

The marks and double count PCL, combined with our existing allowance, solidified our strong loss absorption capacity. NPAs were 60 basis points of loans and ORE, down three basis points from year-end. Substandard and special mention loans were down 5% to 6% from combined year-end levels using our loan grading methodology. As you’ll note on slide 11, with a CET1 of 11%, and TBV of just above $50, our capital position remains very healthy and above the 10.4% level we modeled at the time of deal announcement. Additionally, as John noted, our returns on capital were also strong and higher than our original modeling. This healthy capital and reserve position and strong capital formation rate should allow us to maintain a position of strength and optionality, which is, of course, valuable in uncertain times such as these.

Operator, we’ll now take questions.

Q&A Session

Operator: At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Michael Rose with Raymond James. Please go ahead.

Michael Rose: Good morning, guys. Thanks for taking my questions. Good morning. William, can you just give us some color on what drove the accretion income so high this quarter? It was just much higher than I was expecting, I think, where consensus was. And, yeah, just given how much accretable yield you have left, it seems like there’ll be a bigger step down as we contemplate the rest of the year. So we would love some color there. Thanks.

William Matthews: Yeah. You know, I mentioned in my comments, we had a component related to some early payoff that drove it up about six basis points in the yield. And I’ll remind you that, as you know, in purchase accounting, you’re taking the loan book that was originated in a different rate environment and bringing it to current market rates. So in bringing the independent loans to that rate, you saw in our slide 19. We try to show sort of where our total loan portfolio yield is versus where we’re originating new loans is still a little bit below. You know, as the yield as those loans move towards maturity, the component of the yield that’s represented by accretion, of course, goes down over time. You know? And so we had a little bit of that early payoff and then the rest has been the traditional accretion.

Stephen Young: Yeah. And I guess just to chime in, this is Stephen. You know, we put in slide 19 to sort of show what we believe this to look like. And so if you think about the loan yield this quarter for the total loan yield is kinda how we think about it. It’s 6.25% versus our peers this quarter so far. It’s around 6.11%. Which makes sense because we’ve marked more to market than some of our peers. So period by it’s slightly higher. But we’re putting on new loan production at 6.90%. Because I reflect upon our experience during the great financial crisis and how we marked credit. There were times that we marked credit 25% and then we would outperform credit, and then we would have these huge yields going forward. At 15%, 20%.

We were only putting on loans at 5%. And so there was this idea that there was a cliff. That was back in the 2010 to 2017, 2018 range. This environment, what we’re trying to show on this slide is number one, the marks are much lower. So the rate mark in this case is about 2.9%, so not anywhere near the other. But what’s happening is our portfolio yield is at 6.25%, but our actual new production yield is higher than that. And, therefore, there should not be a cliff assuming rate stays similar. So that’s kinda how we’re thinking about it. So the idea of accretable is really the concept of PCI accounting and big credit marks. The way we’re thinking about it is it’s just like our investment portfolio.

William Matthews: What we did this quarter

Stephen Young: was we took the independent investment portfolio that was yielding roughly 250 basis points. We sold it. Now it’s yielding five. That 250 basis points difference is the same thing that really happened to the fixed loan portfolio of independents. And so, anyway, that’s I know that we’re probably one of the first ones into the larger discussion here, but the total loan yield should not change. The accretive the accretion part might go down, but the coupon will go up as you reprice.

William Matthews: Yeah. And one more point maybe to clarify too. Of the total accretable yield, Michael, about just under 20% of it represents non-PCD credit mark. So that’s the only component of the accretable yield that is credit related.

Michael Rose: Oh, okay. Helpful. So I think if I’m looking at this right, I think the core margin was down about five basis points. So, Stephen, based on what you just said, how should we think about the core margin, you know, the 3.41%, assuming that’s the right number, moving forward just given, you know, some of the dynamics you just spoke about. Thanks.

Stephen Young: Yeah. So the core margin to us is the reported margin from here on. And the reason for that is because just like the securities book, we could have marked that book at 2% and accreted it up to a 5% book. But in actuality, what we did is we sold it at a 5% coupon and now we don’t call it accretion. So just to be clear on reported versus core reported is gonna be core. And so maybe your question, your probably your real question is just around how solid is this NIM going forward and so if that’s your question, I’m happy to answer it if that’s your question.

Michael Rose: Yeah. Correct.

Stephen Young: Okay. Alright. Great. Alright. So can I maybe I’ll just take a step back, and I know we spent a lot of time on it, but it’s a significant piece of the quarter? William talked about, you know, the NIM in the first quarter was 3.85% versus our guide of the 3.60% to 3.70% and say, okay. Well, what’s the main difference in that guide? The difference of, call it, you know, roughly 20 basis points. So the main drivers, there’s really four that happened in the quarter. Number one, William mentioned it, was the deposit cost were 11 basis points lower than our expectation. So that was a significant piece of it. We had a better execution on the deposit strategy. Number two, was the accelerated accretion on early payoffs, which was about five basis points to NIM.

It was six basis points to loan yield, five basis points to NIM. So those two add up to be, you know, 16 basis points. And then the other two was the effect of the sale leaseback and the securities restructure we did on our own book. That was about, you know, that happened in February. That was two to three basis points this quarter. And then we had a bit of a smaller balance sheet. We thought it would be, you know, earning assets would be around $58 billion. It’s $57.5 billion. So those are kind of the four, you know, the differences in where our guidance was and where it ended up. And a lot of it was deposit outperformance. But as we think about the guidance going forward on NIM, there’s really two big things maybe that would be changing.

One is the interest earning asset size. So, you know, in our call last quarter, we originally expected our average interest earning assets to be $59 billion for the year. And to exit the fourth quarter this year’s 2025 at around $60 billion. But based on our lower starting point in the first quarter of $57.5 billion, and then slower growth projection of low to mid-single-digit growth for the remainder of ’25. We expect our average interest earning assets to be $58 billion or so for the year and to exit 2025 around $59 billion. So those are the changes. But, you know, relative to the forecast, we’re forecasting no rate cuts. And we can talk about that if somebody wants to follow-up. But based on all those assumptions, we’d expect the NIM to be pretty steady between 3.80% and 3.90% for the rest of the year.

And that, you know, it would continue to drift a little higher into 2026 as we continue to reprice assets. But to summarize all of that, in our guide last quarter, we expected the fourth quarter 2025 NIM to be in the 3.75% to 3.85% range. We now expect that NIM in the fourth quarter of 2025 to be 3.80% to 3.90%. With a smaller earning asset base but, you know, essentially, with a higher margin, but essentially the same net interest income dollars in the fourth quarter. So I know that’s a lot to say, but there’s a lot of noise around the quarter. I wanted to kinda just clarify it. Really, the only change is higher margins, a little bit less interest earning assets, same net interest income dollars as we see it today.

Michael Rose: Very helpful. Appreciate all the color, guys. That’s a lot. I’ll step back. Thanks.

Operator: Thank you, Mike. Your next question comes from the line of Catherine Mealor with KBW. Please go ahead.

Catherine Mealor: Thanks. Good morning.

Stephen Young: Hey. Good morning.

Catherine Mealor: Question on expenses, that came in also lower, at least for me, this quarter. Just curious maybe if some of the cost savings came in earlier or and then I know conversion is in May. So, William, if you could just kinda help us think about what a good pro forma expense base is once we get all the cost savings in.

William Matthews: Yeah, Catherine. You know, last quarter’s call, I laid out an expected NIE range of $355 million to $365 million for the first two few quarters. Then dropping into $340 million to $350 million range in Q4. You know? And I said in my comments, we did exceed our expectations in terms of NIE in the first quarter for two factors. One, if you look back at last year and other years, we do have a tendency sometimes for hires and projects that are in the budget. For first quarter starts to get pushed back a bit, and that was part of the outperformance in Q1. You know, that often catches up later in the year. If you look last year from Q1 to Q4, you saw our NIE move up about $10 million from Q1 to Q4. That was part of that effect.

I’d say the other factor, though, was we did achieve some of the cost saves earlier than anticipated. We’ve had some support positions leave earlier than anticipated, and so we got some of those cost saves a little ahead of schedule. All that to be said, I don’t think the guide for the rest of the year is that different from what I said three months ago. I think you know, right now, we would say for Q2 and Q3, it’s at the $350 million to $360 million range. And then we get, you know, more some more of the cost saves in Q4, so it’s in the $345 million to $350 million range. It’ll be our guide today. You know, also keep in mind, July 1 is when most of our team is up for a merit increase, so that factors in between the delta when you get some of the cost more of the cost saves in from Q2 to Q3.

You also have that factored in as well. But anyway, that’s where we are on our NIE guidance.

Stephen Young: And maybe just to add one other thing to what William said, we and, of course, we talked about the sale leaseback. In February or at the February. So we’ll have two months three months of that versus one month of additional expense, which

William Matthews: Yeah. So that’s about an incremental versus Q1 incremental roughly $6 million a quarter that’s in there too. Thanks, Stephen, for that reminder.

Catherine Mealor: Okay. So that incremental $6 million adds in the extra two months?

William Matthews: Yes. Yes. Exactly. It’s roughly three months. A little less than three months. Without that. And as you know, Catherine, there’s also a lot of variable things that are hard to predict if it’s that fluctuate with revenue in terms of incentive compensation. Or loan origination volume might increase your FAS 91 cost deferral offset. So there’s things like that. But, of course, you understand move around quarter to quarter, but that should give you a good guide.

Catherine Mealor: Yeah. No. That’s what I was thinking because of the loan origination was stronger, but the net loan growth was a little bit slower. So I was wondering if that was part of what was going on. You know, in that number.

William Matthews: But if that got an internal report close to what we were expecting.

Catherine Mealor: Okay. Great. Then maybe just one back to just the fair value accretion. Question. Did I if I look at where your loan discount is, plus the accretion that we already saw this quarter, it looks like the loan mark on at BTX was a little bit higher. Whereas I was thinking was gonna come in a little bit lower with the move in rates. Am I doing that math right, or is there any way you can just kinda see us on what the loan mark ended up being? On that book?

Stephen Young: I think the total mark for non-PCD and on the credit side as well as the rate mark ended up $482 million or $480 something? The total equivalent mark’s $482.83 million. Yeah. And of the so the rate mark, our portion of that was roughly 80%. Of that. So I don’t know. Was it $380 something? I don’t have it in front of me, Yeah. In the $380s, I think.

Catherine Mealor: Okay. And that’s the rate mark versus the credit mark you’re saying?

Stephen Young: Yeah. The yes. Yeah. The credit mark would be the non-PCD double count, which was with $96 million, I believe. Something like that.

William Matthews: Yeah.

Catherine Mealor: Yep. Got it. Okay. That yeah. That’s the same. But okay. Yeah. Looks like the rate is a little bit higher. Okay. Great. And so then just to just to kinda recap this accretion question earlier for Michael. So if we’re so the way to think if if we were just to kind of forecast just the accretion piece, really, all you wanna do is just take the level of accretion we had this quarter back out the accelerated piece and that should be kind of I mean, you’re doing this over a straight line over the life of loans. Like, that should be kinda baked in for the next three years, and then it may fluctuate up if we have accelerated pay downs. But there’s no reason to really assume that we’re coming down significantly again versus this kind of I think I calculated the accelerated piece was about $7 million. So we’re kinda good at accretion income being about $55 million a quarter for the rest of the year and maybe up if we get accelerated pay down.

Stephen Young: Yeah. The way I would describe it, you’re looking at it from the bottoms up. We’re looking at it from the top down, just like we did investment yield this quarter. So, we’re looking at it from a total loan yield perspective. And so that loan yield has two components. Most of it’s coupon, and some of it is accretion. So this quarter, whatever the loan income was, you know, $800 million or whatever the number was, a portion of that was accretion. Over time, what will happen as every month goes by, we will reprice those coupons up as they mature and the accretion part will come down. But if rates didn’t move, that total loan yield shouldn’t move. From a perspective of the acquisition, if that makes sense. And it’s effective yield method as opposed to straight line, Catherine.

William Matthews: So

Operator: so yeah.

Catherine Mealor: Got it. Okay. That’s very helpful. Alright. Thank you.

Operator: Next question comes from the line of Stephen Scouten with Piper Sandler. Please go ahead.

Stephen Scouten: Maybe one more follow-up on the NIM. Think it makes a lot of sense. I think we all have, like, PTSD from the old legacy credit back in the 2010s. But you mentioned that your guide has no cuts in there. Is it fair to assume that the NIM would accelerate a little more beyond what you’re assuming if we get a couple of cuts, you know, once the cut move through and stabilize?

Stephen Young: Yeah. Right. That’s a good question, Stephen. And, you know, clearly, after this whole balance sheet reset, we’ve looked at a model that and, you know, now that we have all the data together, we’ve seen it a little different. The way I would kinda describe our balance sheet today our balance sheet positioning is much more neutral to rates. And here is not the first reason why is in the first quarter, you we accelerated the deposit rate improvement from independent. And so, you know, we ended up 11 basis points better than we expected. If you kinda look at it, if we were a combined company, from the time they started lowering rates to now, you know, our deposit beta down would be 40%. That’s 40 basis points on, you know, 100 basis points of cuts, which is much higher than we modeled.

We don’t expect from here to get that 40%. We expect it to be much more muted in that 25%, 26%, 27% range. And so as we think about kind of the there’s puts and takes to all of this, but, you know, the three things I would say that are moving. Number one, we have the legacy SouthState Corporation billion dollars a quarter. Loans that are moving up every quarter as we reprice them because the yields are higher than our coupon. We have the legacy independent loans that will because rates have come down 50 basis points since the mark, when they mature, they’ll likely come down a little bit from that perspective. And then we have the floating, you know, floating rate loans versus floating rate deposits. All that being said, when we run the map on the new balance sheet, we think we’re pretty neutral, maybe a basis point or two increase on the, you know, on a 25 basis point cut but we’ve sorta hit a pretty we think a reasonably steady state at this level.

Stephen Scouten: Okay. That makes sense in think. It’s almost like you’ve already extracted a lot of that asset sensitivity just obviously with marketing the balance sheet and then being ahead of schedule. On the deposit cost. Is that that’s kinda fair?

Stephen Young: That’s fair to say it. Yeah.

Stephen Scouten: Okay. Great. That’s fantastic. And I guess maybe at a very high level, is there anything you guys could speak to either positively or negatively kind of development since the close of the IBTX transaction surprises or learnings or anything that would, you know, give us some visibility into how the combination is going, especially from a production standpoint and what that potential of the combined franchise really looks like?

John Corbett: Yeah. The social blend of these two organizations has gone as well as any that I’ve ever been involved with, Stephen. So we think alike. We’re both aiming for the same goals. We just gotta get this conversion behind us. But, you know, the IBTX was in the same kind of growth markets. We were very entrepreneurial approach to their business model. So, you know, David and I spent five years talking about this, working about this, learning about each other’s company. So there really are not a lot of surprises because we spent so much time building that relationship for years ahead of time.

Operator: Yeah. That makes sense, John. Appreciate that. And then

Stephen Scouten: I think about kind of the potential to do this, you know, low mid-single-digit growth after as you noted, a quarter that was kinda, you know, obviously, on growth this time around. What do you need to do from a production origination standpoint to kinda get the growth you need? Because, actually, the balance sheet’s a lot bigger. So I mean, production was up this quarter, but not enough on the larger balance sheet. So does that need to be, you know, $3 billion to $4 billion a quarter in new loan production? Or how do you think about that ramp up and do you need to hire more people in those new markets to kinda hit whatever target that is?

Stephen Young: Yeah. In the production that you see in the chart on the slide there includes the IBTX production of about $550 million. So we were

Operator: Ladies and gentlemen, your the conference will resume in just a moment. Please remain on the line. We thank you for your patience. Ladies and gentlemen, we thank you for your patience. We will now resume the conference.

Stephen Young: Stephen, are you in there?

William Matthews: Hello, Stephen. Are you in there? Stephen, you there?

Stephen Scouten: Hi. Can you hear me?

Stephen Young: Yeah. Hey, Stephen. You there?

William Matthews: I am. Yes, sir.

Stephen Young: Yeah. I have no idea what happened. We got a gremlin in the phone. Anyway, we were talking about the growth dynamic and talking about some of the competitive pricing dynamics. So we had some deals, high-quality medical deals, ten and fifteen years that the competition was pricing it $4.99, you know, fixed on balance sheet. We just saw that as, you know, capital destructive kinda pricing. So we weren’t gonna get him paid to grow, so we didn’t. Good news, Stephen, is that our pipeline is up 44%. Since the beginning of the year, which is kinda surprising given all the tariff noise and our loan portfolios are growing in April. So we’ve had $173 million of loan growth in the first few weeks. So we’re optimistic, but you know, we’re continuing to hire.

We had a lot of hirings in the first quarter. So I don’t know that we need to change a whole lot about how we’re thinking about the business to continue to get back to normal growth rates when the economy settles down.

Stephen Scouten: Okay. That’s really helpful. And just to clarify, I

Stephen Young: you had said I think it kinda cut out as you were saying this, but maybe $500 million of that $2.1 billion in production was kind of legacy IBTX footprint.

Stephen Young: Yeah. It was $550 million.

Stephen Scouten: Great. Fantastic. Thanks for all the color. Congrats on another great quarter.

Operator: Your next question comes from the line of Russell Gunther with Stephens. Please go ahead.

Russell Gunther: Hey. Good morning, guys. Wanted to ask on capital. You know, CET1 11% came in better than the original guide. You mentioned the flexibility it gives you from both the defensive and offensive situation. I guess just thinking about the ability to go on offense if the macro environment would allow. How are you thinking about capital deployment from here?

John Corbett: Yeah. So we’ve got a little bit of uncertainty right now. With the economy. So I think first and foremost, we need to kinda plod through the next two or three months and make sure that things settle down from a loan portfolio asset quality standpoint. But then we’re gonna have options. We’re gonna have options to potentially look at our dividend, to look at the buyback, we could look at M&A in the back half of the year. So, you know, right now, we don’t have any clear direction on how we’re gonna deploy the capital. We wanted to stick the landing on the closing of IBTX and make sure that our capital position was what we forecast. We wound up a little bit better. I think we’re gonna have a better, clearer view in the back half of the year versus what we do today.

William Matthews: Yeah. And, Russell, it’s William. I’ll just add a couple of things. One, as John said, we do expect to see growth resume, although we didn’t grow in Q1. Pipelines were up, you know, materially from end of the year. So we expect to grow and use some of the capital for that. We also, though, are in a position where we would see our CET1 creating probably 20 to 25 basis points a quarter from here through the rest of the year. So that, you know, that optionality John referenced should continue to build.

Russell Gunther: That’s very helpful. Thank you, guys. And then maybe just the other side of that question, should defense be required? You mentioned taking a look at your portfolio in some particular sectors. Maybe you can just share, you know, where you’re taking a closer kinda incremental look today.

John Corbett: Yeah. Sure. We’ve had a lot of conversations with our clients and we’re trying to learn from them. They’re trying to learn from us. And at the end of the day, the customers, as I said, are not panicked. But some of them are putting a pause on some of these capital projects. On our first pass from the credit team, we don’t see a lot of direct exposure to importers from China in our portfolio, just a handful. We think this risk of the C&I portfolio are probably more second-order effects. On the CRE side, we’re taking a hard look at the industrial warehouse exposure, particularly in the port cities. I think we’ve identified about $200 million of exposure specifically near the ports. Got about $50 million in spec, industrial, which is pretty small in Jacksonville, Savannah, and Charleston, so it’s not that much.

Our credit folks today think the biggest risk is just a widespread recession rather than a specific segment of our portfolio. So we got more work to do and we’ll be in a better position to assess the risk in the next quarter.

Russell Gunther: Okay. Great. That’s really helpful. And then just last one for me, switching gears, would be on your fee income. Expectations. Just how you’d expect that to trend relative to the first quarter and any change to your guide relative to the average asset?

Stephen Young: Yeah. No. Thanks, Russell. This is Stephen. Yeah. That’s the noninterest income was $86 million, 54 basis points of assets. Our guide was between fifty and fifty-five on the higher end. So, you know, pretty close to where we thought, at 54, it was within the guidance. You know, the main as we kinda look forward, there, you know, correspondent was down a little bit on the capital market side on the interest rate swap. That’s just because of less, you know, volume going through the, you know, tube on loan growth and so on. So there was that effect. On the other side of that wealth management, they had a really great quarter. Some of our new partners private capital management, had a great quarter, and all the teams.

And so that really grew this quarter. But, you know, if I kinda take it on balance, you know, our guidance really hasn’t changed and it’s kinda flat. We think it’s gonna be flat until we sort of see the loan volume and capital markets and other things come back. So, you know, I don’t know when that is, but clearly with the tariff and that talk, it’s probably gonna push it out a little bit.

Russell Gunther: Yeah.

Operator: Understood. Okay, guys. That’s it for me. Thanks so much for taking my questions.

Russell Gunther: You bet, Russell.

Operator: Your next question comes from the line of Jared Shaw with Barclays. Please go ahead.

Jared Shaw: Everybody. Good morning. Hey. Good morning. I know. Not to

Stephen Young: not to beat a dead horse with the accretion, but

Jared Shaw: just as we’re trying to build out NII guide going forward, is there sort of a dollar of accretion that we can be basing it on? I think, you know, Catherine trying to get to the, you know, the $385 million gross number from the deal, and then we, you know, take out the $61 million $61.8 million from this quarter, you know, is like, that $50 million a quarter a good run rate or good range to assume apart from accelerated accretion? Or any benefit from accelerated accretion?

Stephen Young: Sure. So let maybe let me say it another way. So if you take out the accelerated accretion, our loan yields this quarter would have been 6.19% versus 6.25% is what you reported. So as we think about total loan yield, we think it’s, you know, in the forward foreseeable future, the puts and takes are between 6.15% and 6.25%. And that the accretion in the early stages are gonna be higher. So if you pull out that $7 million that we talked about early, payoffs, then, you know, that’s gonna continue to decrease. Over time. But to your point, it’s pretty steady for a while. And then the coupon’s gonna replace that accretion. And so that total loan yield somewhere in that 6.15% to 6.25% range is kind of the way we’re modeling internally based on what we see.

In a flat rate environment. And then, of course, in the early years, or in the early periods of time, the accretion, you know, I think, schedule would have been probably in the $50 million range, give or take. That’s probably not a bad place to start. But if you’re to kinda land it, I would look at total loan yield.

Jared Shaw: Okay. Alright. Thanks. And then maybe shifting a little bit just to credit, you know,

Stephen Young: Clearly, a lot of noise in the provision and allowance with

Jared Shaw: the deal. But as we go forward from here, is there any what’s the sensitivity, I guess, to a weakening Moody’s baseline or are you internally using more of an adverse scenario at all? In your in your CECL calculation, you know, as we go forward from here, how should we be thinking about the movement of allowances ratio and sort of provision?

William Matthews: Yeah, Jared. It’s William. You know, we hold our scenario weightings constant. Our belief that’s a little better statistically in terms of modeling. But what we did do this quarter was to add in a Q factor associated with, you know, business conditions, external factors, etcetera, associated with tariffs. You know, that kinda that combined with the weightings we have incorporates forecast uncertainty. I’d say, a couple things on the reserve level. So weighing that in, that allowed our provision to be $8 million for the quarter. Absent that, we would have had a provision that would have been negative. So that didn’t seem appropriate. You know, I guess a couple of things. One, you think back to when we adopted CECL back in 2020, our reserve level would have been about 30 basis points below where we are today.

At that time frame. You know, a lot of calls for other banks have focused on their rate assumption. If you look at the scenarios and our weightings of them, you know, baseline S1, S3, the average unemployment rate weighted average unemployment rate for 2026 would be about 5.2% on those. But I’ll also caution you there are a lot of other factors that are loss drivers that are important in our CECL model. You know, commercial real estate price index, housing price index, things like that in addition to unemployment that help drive the level of the required reserve. You know, if we get a serious change to the negative and expectations for all those loss drivers, and you will see our and other banks provisions need to go up. If things are pretty stable, you know, I don’t see our provision moving up at this level.

And, you know, conceivably, it could move down from here if things improve a little bit because as you know, it’s a forward-looking life of loan loss model. And, generally, you know, the provision expense is gonna precede the charge-off experience.

Jared Shaw: Great. Thanks for that. Appreciate it.

William Matthews: Sure.

Operator: Your next question comes from the line of David Bishop with Hovde Group. Please go ahead.

John Corbett: Hi, gentlemen. Good morning. This is actually John on for Dave.

Stephen Young: Hey, John.

John Corbett: So I appreciate the color on the conversion. Just to confirm, is that still slated for Memorial Day weekend?

Operator: It is.

John Corbett: Wonderful. And I guess just ahead of that date, I’m curious as to how you’re thinking about any potential deposit attrition within the IBTX depositor base.

Stephen Young: John, this is Stephen. You know, from a standpoint of movement within that book, we’re really not thinking there’s gonna be much in the conversion. Yeah. I mean, the main reason for that, of course, is, you know, hopefully, we’re given better technology but more importantly, we’re keeping all the frontline bankers who deal with the clients. So in our model, it’s local market driven, so I would think our commercial and treasury and others should be good, and our platforms, you know, from what we’re hearing from the independent folks, on average is getting better. Of course, there’s always turmoil in that first few months afterwards, and so we have, roughly 500 legacy SouthState Corporation people, going to the independent markets during May and June.

To help out the teammates there to make sure that this transition is as seamless as it can be. But to your point, you know, these things are always hard. It’s a heavy lift. But we believe we’ve got everything we can we’re doing in place to get this done well. So we don’t we are not modeling any. We don’t expect it. But we’ll see. And we’ve done we’ve done three practice mock conversions already, and Renee broke leads this effort for us. She’s done a ton of these conversions. So everything appears to be on track. But it’s a lot of change for the bankers and their experience. They’ve done this. As buyers. So we’ll get through it in a couple months.

John Corbett: Fantastic. Great to hear. And maybe just to follow back up on Stephen’s questions on loan growth and appreciate the specifics on the pipeline progression since the beginning of the year. I guess I’m just curious if there’s any color around or if there were any discernible changes in size or complexion in the pipeline immediately before and immediately after tariff Day earlier this month.

Stephen Young: Yeah. Again, I was kinda surprised that the pipeline was building during all of this turmoil over the last few months, but it’s up 44%. You look at where it’s growing, we’ve seen a 55% increase in our CRE pipeline, a 43% increase in our C&I pipeline, only about a 2% increase in our owner-occupied CRE. The biggest growth markets in the pipeline are Atlanta. They’re up 46% since the beginning of the year, and Florida. Florida’s up 28%. So that’s kinda where we’re seeing the growth. You know? But some of the stuff’s in the pipeline and some of it will be kind of tariff dependent whether it pulls through or not.

John Corbett: Fantastic. That’s all I had. Appreciate you guys taking my questions, and congrats on a great quarter.

Stephen Young: Thank you, John.

Operator: Your next question comes from the line of Chris Marinac with Janney Montgomery Scott. Please go ahead.

Chris Marinac: Thanks. Good morning. John, I just curious on new hires in Texas and Colorado and where that falls on both timing and priority for you.

John Corbett: Yeah. We had a great recruiting quarter here, and we’re open for business to recruit great bankers in Texas and Colorado. You know, I think we wanna get through the conversion, Chris, and implement the new treasury management software and get the bankers used to that. And then we look to layer on some additional middle market bankers once we put that in the rearview mirror. But we had a big quarter, and starting with an addition in Nashville, Tennessee. We were able to recruit the market president of Truist Bank in Nashville, Cameron Wells. And we’re building a team around him and starting a loan production office in Nashville. We’ve hired commercial and middle market bankers this quarter in Tampa, Jacksonville, Athens, Georgia, Raleigh, North Carolina, big adds to the wealth area in Atlanta, Jackson, Hilton Head, Charleston.

So anyway, we had a great, great recruiting quarter, but as far as adding the middle market team in the new markets, we’d like to get the treasury piece in place first.

Chris Marinac: Great. That helps a lot, and thanks for sharing all the other background. It’s super. Thank you.

William Matthews: Sure.

Operator: I will now turn the call back over to John Corbett for closing remarks. Please go ahead.

John Corbett: Alright. Thank you, Eric, and thank you all for calling in. And so moving parts here during the quarter and you had great questions. And, hopefully, we’ve provided some clarity for you, but we’re real pleased that we’ve kinda stuck the landing as it relates to the closing of IBTX. We feel like the balance sheet’s in great spot. The earnings profile’s in a great spot. But if you’re building your models and you got some extra questions, just don’t hesitate to reach out to William or Stephen. Hope you guys have a great day. And this will end the call.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining, and you may now disconnect.