SouthState Bank Corp (SSB) 2025 Q1 法說會逐字稿

Thank you for standing by. My name is Eric, and I will be a conference operator today. At this time, I would like to welcome everyone to the SouthState Corporation Q1 2025 earnings conference call. (Operator Instructions)

I would now like to turn the call over to Will Matthews, Chief Financial Officer. Please go ahead.

Good morning, and welcome to SouthState's first quarter 2025 earnings call. This is Will Matthews, and I'm here with John Corbett, Steve Young, and Jeremy Lucas. We'll follow our typical pattern of brief remarks followed by Q&A, and I'll 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.

Now I'll turn the call over to you, John.

Thank you, Will. Good morning, everybody. Thanks for joining us. For over a year we've been working on three strategic capital management 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 lease back of bank branches. And the third was the securities restructure that Steve will discuss. So 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'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 with the general economy slowing down. And some was just the result of stiff competition on loan pricing. We're 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, non-accruals and substandard loans were stable, and we only had 4 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. And 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 bottom up analysis by looking at impacted loan segments and by meeting with and listening to our clients. And 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 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. They're an exceptional team and they're going to be a major driver of SouthState'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 Will 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, Will?

Thanks, John. I'll hit 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 lease back, 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 the adjusted metrics, excluding the unusual items. We had good revenue in Q1 led by the net interest margin. Our 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 189 when we were modeling closer to 2%. Additionally, we benefited from bringing the independent assets to market rates through the acquisition, with 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 pure 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 6 basis points.

Steve will give updated margin guidance in our Q&A. Non-interest 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 first quarter of a year. But also earlier than planned realization of some cost saves from the merger.

Strong revenue and cost saves cause our efficiency ratio to drop to 50% for the first quarter. As John noted, credit costs, excluding the non-PCD double count provision and acquired PCD charge-offs at closing remained low with only 4 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, accruable marks were $482 million, 20% of which was a non-PCD credit mark, with 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 3 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 are 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, will now take questions.

(Operator Instructions)

Michael Rose, Raymond James.

Hey, good morning, guys. Thanks for taking my questions. Hey well, can you just give us some color on, what drove the accretion income so high this quarter? It was just much higher than, kind of I was expecting. I think where consensus was, and just given how much accretable yield you have left, it seems like there'll be a bigger step down as we kind of contemplate the rest of the year. So we just left some color there. Thanks.

Yeah, I mentioned in my comments we have a component related to some early payoff that drove it up about 6 basis points in the yield. And I'll remind you that in, as incur accounting you're taking the loan book that was originated in 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 the yield those loans move towards maturity the component of the yield that's represented by accretion of course goes down over time.

And so we had a little bit of that early payoff and then the rest just being the traditional accretion. Yeah.

I guess just to chime in this is Steve, 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 kind of how we think about it. It's 6.25% versus our peers this quarter so far as around 6.11%, which makes sense because we've marked more to market than some of our peers, so might be slightly higher.

But we're putting on new loan production at 6.90% as I reflect upon our experience during the great financial crisis and how we mark 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% to 20%, but we were only putting on loans at 5%.

And so there was this idea that there was a clip that was back in the 2010 to 2017, 2018 range. In this environment, what we're trying to show in 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 going -- what's happening is our portfolio yields at 6.25%, but our actual new production yield is higher than that and therefore, there should not be a cliff assuming rates stays, similar. So that's kind of 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's just like our investment portfolio. What we did this quarter was we took the independent investment portfolio that was yielding roughly 250 basis points. We sold it and now it's yielding [5].

That 250 basis points difference is the same thing that really happened to the fixed loan portfolio of independence. And so anyway, that's, I know that 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 accretion part might go down, but the coupon will go up as you reprice.

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 agreeable yield that is credit related.

Oh, okay, helpful. So I think if I'm looking at this right, I think the core margin was down about 5 basis points. So Steve, based on what you just said. How should we think about the core margin, the 3.41%, assuming that's the right number, moving forward just given some of the dynamics you just spoke about. Thanks.

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 going to be our core. And so maybe to 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.

Yeah, correct.

Okay, all right, great. All right, 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. We talked about, the NIM in the first quarter with 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 roughly 20 basis points.

So the main drivers, there's really four that happened in the quarter. Number one, mentioned it was the deposit costs were 11 basis points lower than our expectations. So that was a significant piece of it. We had a better execution on the deposit strategy.

Number 2, was the accelerated accretion on early payoffs, which was about 5 basis points to them. It was 6 basis points to lo yield, but 5 basis points to them. So those two add up to be 16 basis points. And then the other two was the effect of the sale lease back and the securities restructure we did on our own book that was about that happened in the February, March 1, that was 2 basis points to 3 basis points this quarter, and then we had a bit of a smaller balance sheet.

We thought it would be, earning assets would be around [58%, 57.5%]. So those are kind of the four, 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 them. There's really two big things maybe that would be changing. One is the interest earning asset size. So 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 in 2025 at around $60 billion.

But based on our lower starting point in the first quarter at 57.5%. And then low 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% or so for the year and to exit 2025 around $59 billion.

So those are that's the change, but relative to the forecasts 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 it would continue to drip a little a little higher in 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 '25 to be 3.80% to 3.90% with a smaller earning asset base, but essentially with a higher margin, but essentially the same debt dollars in the fourth quarter.

So I know that's a lot to say, but there's a lot of noise around the corner. I wanted to kind of just clarify, really, the only change is higher margins, a little bit less interest earning assets, same net income dollars as we see it today.

Very helpful. I appreciate all the color a lot. I'll step back. Thanks.

Katherine Mueller, KBW.

Hey, good morning.

Hey, good morning.

Oh, cushion on expenses that came in also lower, at least for me this quarter just curious, maybe if were some of the cost savings came in earlier or and then I know conversion is in May so well if you could just kind of help us think about what a good proforma expense space is once we get all the cost savings in.

Yeah, Katherine, last quarters call I laid out an expected [NIE] range of 3.55% to 3.65% for the first few quarters, then dropping into the 3.40% to 3.50% range in Q4, and I said my comments, we did exceed our expectations in terms of NIE in the first quarter, for two (inaudible) 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 little bit, and that was part of the outperformance in Q1. 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, and 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 costs 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 in the 3.50% to 3.60% range, and then we get more -- some more of the costs saves in Q4, so it's in the 3.45% to 3.50% range be our guide today.

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 when you get some of the cost more the cost saves in from Q2 to Q3, you also have that that factor in it as well. But anyway, that's where we are on our NIE guidance.

And maybe just to add one other thing to what Will said, we of course we talked about the sale lease back in February or at the end of February, so we'll have three months of that versus one month of additional expense, which --

That's about an incremental versus Q1, incremental roughly $6 million a quarter that's in there too.

Thanks. So that the incremental $6 million adds in the extra two months.

Yeah, it's roughly 3 minutes, less than 3 minutes about that. And as there's also a lot of variable things that are hard to predict that fluctuate with revenue in terms of incentive compensation or loan origination volume might increase your fast 91 cost deferral offset. So there's things like that, of course, you understand move around quarter to quarter but that should give you a good guide.

Yeah, no that's what I was thinking because 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 in that number.

Pretty close to what we were expecting.

Okay, great. And then maybe just one back to just the fair value accretion question. Did 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 IBTX was a little bit higher, whereas I was thinking it was going to come in a little bit lower with the movement rates. Am I doing the math right, or is there any way you can just get on what the loan mark ended up being on that book?

I think the total mark for non-PCD and on the credit side as well as the rate mark ended at [482] or 480 something.

(inaudible)

And of the rate mark our portion of that was roughly 80% of that. So I don't know was it [3.80%] something. I don't have it in front of me, but yeah, in the 3.80% I think.

Okay, and that was the -- that's the rate mark versus the credit mark you're saying.

Yeah, the credit mark would be the non-PCD double count which was $96 million I believe something like that.

Yeah, got it. Okay, that's the same. But, okay, yeah, it looks like the rate is a little bit higher. Okay, great. And so then just to kind of recap this accretion question earlier for Michael. So if we're the way to think if we were just to kind of forecast just the accretion piece, really all you want to do is just take the level of accretion we have this quarter back out the accelerated piece.

And that should be kind of I mean if you're doing this over a straight line of the life alone so that should be kind of 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 calculated the accelerated piece was about $7 million.

So we're kind of good at accretion (inaudible) being about $55 million a quarter for the rest of the year and maybe up if we get accelerated pay down.

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 would 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 its coupon and some of it is creation. So this quarter, whatever the loan was, $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 (inaudible)

It's effective yield method as opposed to straight lines, Catherine.

Got it. Okay, that's very helpful. All right, thank you.

Stephen Scouten, Piper Sandler.

Hey, good morning, everyone. Maybe one more follow up on the NIM.

I think it makes a lot of sense. Think we're all have like PTSD from the old legacy. Credit decision back in the 2010s, but you mentioned that your guide has no cuts in there. Is it fair to assume that the men would accelerate a little more beyond what you're assuming if we get a couple of cuts once the cuts move through and stabilize.

Yeah, that's a good question, Steve, and clearly after this whole balance sheet reset we've looked at it, modeled it, and now that we have all the data together we've seen it a little different. The way I would kind of describe our balance sheet today, our balance sheet positioning is much more neutral to rates, and here is the first reason why is in the first quarter, we accelerated the deposit rate improvement from independent and so we ended up 11 basis points better than we expected.

And if you kind of look at it, if we were a combined company from the time they started lowering rates to now, our deposit data down would be 40%. That's 40 basis points on.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 the three things I would say that are moving. Number one, we have the legacy SouthState 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 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 -- on a 25 basis points cut, but we've sort of hit a pretty, we think a reasonably steady state at this level.

Okay, that makes sense.

I think It's almost like you've already extracted a lot of that asset sensitivity just obviously with marketing and balance sheet and then being ahead of schedule on the deposit cost. That's kind of that's fair to say it.

Yeah. 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 transactions, surprises or learnings or anything that would 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.

Yeah, the social blend of these two organizations has gone as well as any that I've ever been involved with, Steven. So we think alike, we're both aiming for the same goals. We've just got to get this conversion behind us, but IBTX was in the same kind of growth markets.

We were a very entrepreneurial approach to their business model. So 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.

Yeah, that makes sense, John. I appreciate that. And then as I think about kind of the potential to do this, low, mid-single digit growth after as you noted a quarter that was kind of obviously lighter on growth this time around what do you need to do from an or a production origination standpoint to kind of get the growth you need because obviously the balance sheets 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, $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 kind of hit whatever target that is?

Yeah, and the production that you see in that chart on the slide there includes the IBTX production of about $550 [million]. So we were --

Ladies and gentlemen, you, 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.

Steve, are you in there? Hello Stephen, are you in there? Steven, you there?

Hi can you hear me?

Yeah, hey Stephen, are you there?

I am, yes sir.

I have no idea what happened. We've got a gremlin on 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, 10 and 15 years that the competition was pricing at [499], fixed on balance sheet. We just saw that as capital destructive kind of pricing, so we weren't going to get 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 kind of 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 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.

Okay, that's really helpful and just to clarify, I think you had said, I think it kind of cut out as you're saying this, but maybe $500 million of that 2.1 billion in production was kind of legacy IBTX footprint.

Yeah, it was 550 million.

Great, fantastic. Thanks for all the call. Congrats on the quarter.

Russell Gunther, Stephens.

Hey, good morning, guys. Wanted to ask on capital, the CET1 11% came in better than the original guide, you mentioned the flexibility it gives you for 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?

Yeah, so we've got a little bit of uncertainty right now with the economy. So I think first and foremost we need to kind of plod through the next two or three months and make sure that things settle down from a from a loan portfolio asset quality standpoint, but then we're going to have options. We're going to 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 going to 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. So I think I think we're going to have a better, clear view in the back half of the year versus what we do today.

Yeah, and Russell, it's will. 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 are up, 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 25 basis points to 25 basis points a quarter from here to the rest of the year. So that optionality John reference should continue to build.

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 and some particular sectors, maybe you can just share where you're taking a closer kind of incremental look today.

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 panicking, 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.

So we think the risks of the CNI 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, and I think we've identified about $200 million of exposure specifically near the ports.

We've 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.

Okay, great, it's really helpful. And then just last one for me switching gears would be on your fee income expectations, just I'd expect that to trend relative to the first quarter and any change to your guide relative to the average assets.

Yeah, I think Russell, this is Steve. Yeah, the non (inaudible) was $86 million, 54 basis points of assets our guide was between [50] and [55] on the higher end, so, pretty close to where we thought 54 basis points was within the guidance the main as we kind of look forward there correspondent was down a little bit on the capital market side on the interest rate swap that's just because of the less, volume going through the, 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 if I kind of take it on balance, our guidance really hasn't changed and it's kind of flat. We think it's going to be flat until we sort of see. The loan volume and capital markets and other things come back. So I don't know when that is, but clearly with the tariff and that talk, it's probably going to push it out a little bit.

Understood. Okay guys, that's it for me. Thanks so much for taking my questions.

You bet, Russell.

Jared Shaw, Barclays.

Hello everybody, good morning. Not to beat a dead horse with the accretion, but, 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. Catherine trying to get to the $385 million gross number from the deal and then we take out the $61.8 million from this quarter.

Like that $50 million a quarter, a good run rate or a good range to assume apart from accelerated accretion or any benefit from accelerated accretion.

Sure, so maybe let me say it another way. So if you take out the accelerated accretion our loan yields this quarter would have been [619] versus (inaudible) is what you reported. So as we think about total loan yield, we think it's, in the foreseeable future, the puts and takes are between [615] and (inaudible) in a quarter and that the accretion in the early stages are going to be higher. So if you pull out that 7 million that we talked about early payoffs and you know that's going to continue to decrease over time, but to your point, it's pretty steady for a while.

And then the coupons going to replace that accretion. And so that total loan yield somewhere in that 615 to 6 (inaudible) quarter range is kind of the way that the way we're modeling internally based on what we see in a flat rate environment. And then of course in the early years in the early periods of time, the accretion, 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 kind of land it, I would look at total loan yield.

Okay, alright, thanks. And then maybe shifting a little bit just to credit, clearly a lot of noise in the provision and allowance with the deal, but as we go forward from here is there any -- what what's the sensitivity. I guess to a weakening (inaudible) baseline, or are you internally using more of an adverse scenario at all in your in your CECL calculation as we as we go forward from here, how should we be thinking about the movement of allowances ratio and sort of provision.

Yeah, Jared, well, 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 business conditions, external factors, etc. Associated with tariffs, that combined with the weightings we have incorporates forecast uncertainty.

I'd say a couple of things on the reserve level. So weighting that in that allowed our provision to be eight in the end for the quarter. Absent that we would have had a provision that would have been negative, so that didn't seem appropriate.

I guess a couple of things. One, if 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. A lot of calls from other banks have focused on their unemployment rate assumption. If you look at the scenarios and our weightings of them, baseline S1, S3, the 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 lost drivers that are important in our season model, commercial real estate price index, housing price index, things like that, in addition to unemployment that helped drive the level of the required reserve.

If we get a serious change to the negative and expectations for all those lost drivers, and you will see our and other banks' provisions need to go up, but if things are pretty stable, I don't see our provision moving up to this level, and conceivably could move down from here if things improve a little bit because, as it's a forward-looking life of loan loss model, and generally, the provision expense is going to precede the charge off experience.

Great, thanks for that. I appreciate it.

David Bishop, Hovde Group.

Hi gentlemen, good morning. This is actually John on for Dave.

Hey, John.

So appreciate the color on the conversion just to confirm, is that still slated for memorial day weekend?

It is.

Wonderful, and I guess just ahead of that date, I'm curious as to how you're thinking about any potential deposit nutrition within the IBTX depositor base.

John, this is Steve. From a standpoint of movement within that book we're really not thinking there's going to be much in the conversion. I mean, the main reason for that, of course, is 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 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 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, 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.

We've done three practice mock conversions already and Renee Brooks 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.

Fantastic. Great to hear. And maybe just to follow back up on Steven'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.

Yeah, again, I was kind of 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 CNI 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 in Florida. Florida is up 28%. So that that's kind of where we're seeing the growth. But some of the stuff in the pipeline and some of it will be kind of tariff dependent whether it pulls through or not.

Fantastic. That's all I had. I appreciate you guys taking my questions and congrats on a great quarter.

Thank you, John.

Chris Marinac, Janney Montgomery Scott.

Thanks, good morning, John, I was just curious on new hires in Texas and Colorado. And where that falls on both timing and priority for you.

Yeah, we had a great recruiting corps here and we're open for business to recruit great bankers in Texas and Colorado. I think we want to 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 we had a big quarter starting with an addition in Nashville, Tennessee. We were able to recruit the President, market President of Truest 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, Jacksonville, Hilton Head, Charleston. So, anyway, we've had a 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.

Great. That helps alot. And thanks for sharing all the other background. It's super. Thank you.

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

All right. Thank you, Eric, and thank you all for calling in and some 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 kind of stuck the landing.

As it relates to the closing of IBTX, we feel like the balance sheets in a great spot. The earnings profile's in a great spot. But if you're building your models and you've got some extra questions, just don't hesitate to reach out to Will or Steve. Hope you guys have a great day, and this will end the call.

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