Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the South State Corporation Q1 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the call over to Will Matthews, Chief Financial Officer. Please go ahead.

Good morning, and welcome to South State'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-leaseback 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 South State'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. 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 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. 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 bottoms-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 South State 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 South State'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.

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 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 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 570, leading to a first quarter NIM of 385. Our loan yield improved to six and a quarter, 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 six 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, 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, 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 three basis points from year end. Substandard and special mention loans were down five to six percent from combined year-end levels using our loan grading methodology. As you'll note on slide 11, with a CET1 of 11 percent and TBV of just above $50, our capital position remains very healthy and above the 10.4 percent 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, we'll now take questions.

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

Michael Rose with Raymond James. Please go ahead. Hey, good morning, guys. Thanks for taking my questions. Well, 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 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.

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. You know, and I'll remind you that, as you know, in purchase accounting, you're taking the loan book that was originated in different rate environment and bringing it to current market rates. So, you know, so in bringing the independent loans, you know, to that rate, you saw in our slide 19, we tried 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, 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 just being the traditional accretion.

Yeah, and I guess just to chime in, this is Steve. 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 kind of how we think about it. It's six and a quarter versus our peers this quarter so far around 611, which makes sense because we've marked more to market than some of our peers, so the period might be slightly higher. But we're putting on new loan production at 690, 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. forward at 15 20 percent but we were only putting on loans at five percent and so there was this idea that there was a clip that was back in the 2010 the 2017 2018 range in this environment what we're trying to show in this slide is number one the the marks are much lower so the rate mark in this case is about 2.9 percent so not anywhere near the other but what what's going what's happening is our portfolio yields at six and a quarter, but our actual new production yield is higher than that. And therefore, there should not be a cliff, assuming rates stay 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 is 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 five that 250 basis points difference is the same thing that really happened to the fixed loan portfolio of independent 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. Yeah, and one more point maybe to clarify too. Of the total accretable yield, Michael, about just under 20 percent of it represents non-PCD credit mark. So that's the only component of the accretable yield that is credit related. Oh, okay, helpful. So I think if

If I'm looking at this right, I think the core margin was down about five basis points. So, Steve, based on what you just said, how should we think about the core margin, you know, that 341, assuming that's the right number, moving forward, just given, you know, some of the dynamics you just spoke about?

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. 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, 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. So 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. Will talked about the NIM in the first quarter was 385 versus our guide of a 360 to 370 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, Will mentioned it, was the deposit costs 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, but five basis points to NIM. So those two add up to be 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. But that was about, you know, that happened end of February, 1st of March. That was two to three basis points this quarter. And then we have a bit of a smaller balance sheet. We thought it would be, you know, earning assets would be around 58, 57 and a half. 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 DIM, 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 in 2025 at around $60 billion. But based on our lower starting point in the first quarter at $57.5 and then slower growth projection of low-to-mid single-digit growth for the remainder of 25 we expect our average uh interest earning assets to be 58 or so for the year and to exit 2025 around 59 billion so those those are that's the change but you know relative to the forecast source we're forecasting no rate cuts we're uh and we can talk about that if somebody wants to follow up um but based on all those assumptions we'd expect the nim to be pretty steady between 380 and 390 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 375 to 385 range. We now expect that NIM in the fourth quarter of 2025 to be $380 to $390 with a smaller earning asset base, but 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 court, and I wanted to kind of 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.

Very helpful. Appreciate all the color catches a lot. I'll step back. Thank you, Mark.

Your next question comes from the line of Catherine Mueller with KBW. Please go ahead.

Thanks. Good morning. Hey, good morning. Next 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, and then I know conversion is in May. So, Will, if you could just kind of help us think about what a good pro forma expense base is once we get all

the cost savings end yeah katherine um you know last last quarter's call i laid out an expected nia range of 355 to 365 for the first few quarters then dropping into the 340 to 350 range in q4 um you know and and i said my comments we did exceed our expectations in terms of with 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 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 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 right now we would say for Q2 and Q3, it's in the 350 to 360 range. And then we get, you know, some more of the cost saves in Q4, so it's in the 345 to 350 range would 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 Q2 to Q3, you also have 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, and of course, we talked about the sale leaseback in February or at the end of February, so we'll have two months, three months of that versus one month of additional expense, which.

Yeah, so that's about an incremental versus Q1 incremental roughly $6 million a quarter that's in there too. Thanks, Steve, for that reminder.

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

Yes, yes, exactly. It's roughly three miles. A little less than three miles before about that. And as you know, 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 FAS 91 cost deferral offset. So there's things like that that, of course, you understand move around quarter to quarter, but that should give you a good guide.

yeah that's what i was thinking because the 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 but that guy pretty close to what we were expecting okay okay great and then maybe just

one back to just the uh fair value accretion question did um if 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 uh 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 that math right or is there any way you can just

update us on what the loan mark ended up being on that book i think the total mark uh for non-pcd and and uh on the credit side as well as the rate mark ended up what 482 or 480 something total we will mark 482 83 yeah and of the the rate mark our portion of that was roughly 80 percent uh of that so i don't know was it 380 something i don't have it in front of me but yeah in the

380s i think okay and that was the that's the rate mark versus the credit mark you're saying

yes yes yeah the credit mark would be the pcd double count which was with 96 million i believe

something like that yeah yep got it okay that yeah that's the same but um okay yeah it looks the rate was a little bit higher okay great and so then just to just to kind of recap the accretion um question earlier for michael so if we're the 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 had this quarter back out the accelerated piece and that should be kind of i mean you're doing this over straight line over the last of loans like that should be kind of baked in for the next three years and then it may fluctuate up if we have accelerated paydowns but there's no reason to really assume that we're coming down significantly again versus this kind of um i think i calculated the accelerated piece was about seven million so we're kind of good at accretion income being about 55 million a quarter for the rest of the year and maybe up if we get

accelerated paydowns yeah the way the way i would describe it um you're looking at it from the bottoms up. We're looking at it from the top down, just like we would do 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, 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 lines Catherine so um so yeah got it okay that's

very helpful all right thank you next question comes from the line of Stephen Skoten with

piper sandler please go ahead hey good morning everyone um maybe one more follow-up on the nim

i think it makes a lot of sense i think we all have like ptsd from the old legacy uh credit

decision back in the 2010s but um you mentioned that your guide has no no cuts in there is it fair to assume that the name would uh accelerate a little more beyond what you're assuming if if we get a couple of cuts you know once once the cuts move through and stabilize yeah that's a good

question steven and you know clearly after this whole balance sheet reset we've looked at it models it and you know 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 and here is is not the first reason why is in the first quarter you know we accelerated the deposit rate improvement from independent. And so, you know, 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, you know, our deposit data 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 percent. We expect it to be much more muted in that 25, 26, 27 percent 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 South State 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 math on the new balance sheet, we think we're pretty neutral, maybe a basis point or two increase on a 25 basis point 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 marking the balance sheet and then being ahead of schedule on the deposit cost. Is that kind of fair? 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 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?

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 got to get this conversion behind us. But, you know, IBTX was in the same kind of growth markets. We were a 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.

Yeah, that makes sense, John. Appreciate that. And then as 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 kind of, you know, obviously wide around growth this time around. What do you need to do from a production origination standpoint to kind of get the growth you need? Because, obviously, 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 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. 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, you know, fixed on balance sheet. we just saw that as, you know, capital destructive kind of pricing. So we weren't going to 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 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 more optimistic, but we continue 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 were saying this, but maybe $500 million of that $2.1 billion in production was kind of legacy IBTX footprint? Yeah, it was $5.50

$550 million.

Great. Fantastic. Thanks for all the color. Congrats on another quarter.

Your next question comes from the line of Russell Gunther with Stevens. Please go ahead.

Hey, good morning, guys. Wanted to ask on capital. 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? 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 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 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 we're going to have a better, clearer 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 things. One, as John said, we do expect to see growth resume, although we didn't grow in Q1. Pipelines were up materially from the 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 optionality, John referenced, 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 in 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 um so we think the risk 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've got more work to do, and we'll be in a better position to assess the risk in the next quarter.

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 assets?

Yeah, no, thanks, Russell. This is Steve. Yeah, the non-interest income was 86 million, 54 basis points of assets. Our guide was between 50 and 55 on the higher end. So, you know, pretty close to where we thought at 54 was within the guidance. You know, the main, as we kind of 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 it's less, you know, volume going through the tube on loan growth and so on. So there was that effect. On the other side of that, Wealth Management 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 your next question comes from the line of jared shaw with barclays

please go ahead hey everybody good morning um i don't know not to uh not to beat a dead horse with the accretion but um just as we're trying to build out an II guide going forward, is there sort of a dollar of accretion that we can, uh, be, be basing it on? I think, you know, Catherine trying to get to the, you know, the, the, the 200, the 385 million, um, gross number from the deal. And then we, you know, take out the 61 million, uh, 61.8 million from this quarter. you know is is is like that 50 million a quarter a a good run rate or good range to to assume apart from accelerated accretion or any any benefit from accelerated accretion sure so um

let me be let me say it another way so um if if you take out the accelerated uh accretion our loan yields this quarter would have been 619 versus six and a quarter is what you reported um so as we think about total loan yield um we think it's you know in the forb seal feature the puts and takes are between 6 15 and six and a quarter and that the the accretion in the early stages are going to be higher so if you pull out that seven million that we talked about early payoffs and you know that's going to continue to decrease over time but you to your point it's pretty steady for a while, and then the coupon's going to, you know, replace that accretion. And so that total loan yield, somewhere in that 615 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, to kind of land it, I would, I would look at total

loan yield. Okay. All right. Thanks. Um, and then maybe shifting a little bit just to, to credit, um, you know, clearly a lot of, a lot of noise in the provision and, um, allowance with, with the deal. But, you know, as we go forward from here, um, is there any, you know, what, 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 CECL calculation? You know, as we go forward from here, how should we be thinking about the movement of allowances ratio and sort of provisioning?

Yeah, Jared, it's Will. You know, we hold our scenario weightings constant, our belief that's little better statistically um in terms of modeling but what we did do this quarter was to add in a a q factor associated with you know business conditions external factors etc associated with the tariffs um you know that that kind of um that combined with the weightings we have incorporates forecast uncertainty i'd say um a couple things on on the reserve level so weighing that in that allowed our provision to be eight man for the quarter absent that we would have had a a provision that would have been negative so we that didn't seem appropriate um you know i guess a couple things one if you think back to when we adopted cecil back in 2020 our reserve level would have been about 30 basis points below where we are today at that time frame um you know a lot of calls for other banks have focused on their unemployment rate assumption if you look at the scenarios and our weightings of them you know baseline s1 s3 the average unemployment rate uh 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 lost drivers that are important in our cecil model you know commercial real estate price index housing price index things like that in addition to unemployment that help drive um the level of the required reserve you know if we get a uh serious um 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 you know i don't see our vision moving up from this level and you know conceivably could move down from here if things improve a little bit because as you know it's a it's a forward-looking life of loan uh loss model um and generally you know the provision expense

is going to precede the charge off um experience great uh thanks for that appreciate it sure

your next question comes from the line of david bishop with hob group please go ahead

hi gentlemen good morning this is actually john on for dave Hey, John. So, I 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 attrition within the IBTX depositor base.

John, this is Steve. You know, 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, 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 uh roughly 500 legacy south state people uh going to the independent markets uh during may and june to help out the teammates there to make sure that this transition is as seamless as it can be but uh to your point you know these things are always hard it's a heavy lift but we believe uh 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 um but we'll see we've done 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 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.

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 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 kind of 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.

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

Your next question comes from the line of Chris Maranak with Jannie Montgomery Scott. Please go ahead.

Thanks. Good morning, John. 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 core here, and we're open for business to recruit great bankers in Texas and Colorado. You know, 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 looked to layer on some additional middle market bankers once we put that in the rearview mirror but but we had a we had a big quarter and starting with an addition in Nashville Tennessee we were able to recruit the president 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 ads to the wealth area in Atlanta, Jacksonville, Hilton Head, Charleston. So anyway, we've 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. Great. That helps a lot. And thanks for sharing all the other background. It's super.

thank you sure i will now turn the call back over to john corbett for closing remarks please go ahead

all right thank you eric and and um thank you all for calling in and uh some moving parts here during the quarter and you had great questions and hopefully we brought it some clarity uh 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 great spot the earnings profiles 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.