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Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the SouthState Corporation first quarter 2026 earnings conference call. Today's conference is being recorded. 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 the star key, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to William Matthews, Chief Financial Officer. Please go ahead.

Good morning. Welcome to SouthState's First Quarter 2026 earnings call. This is Will Matthews, and I'm here with John Corbett, Steve Young, and Jeremy Lucas. We'll follow our pattern of brief remarks followed by a Q&A. 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 the quarter, SouthState delivered a return on assets of 1.37% and a return on tangible common equity of 17.6%. As we progress through 2026, our four main priorities are, first, to expand our commercial banking sales force. Second, to deliver meaningful organic growth. Third, to systematically retire shares at an attractive valuation. And fourth, to learn how to leverage the benefits of artificial intelligence and implement it throughout the company. We're making good progress on all four fronts. As far as recruiting, we're now in a yield curve environment that is more favorable to balance sheet growth. With the consolidation disruption occurring throughout our markets, we see an opportunity to expand our commercial banking team by 10%-15% in the next couple of years.

In the last six months alone, our division presidents were successful in attracting and growing our commercial banking team by about 7%. We're going to continue to be opportunistic, but based upon the rapid success, we may slow the pace of hiring in the next few months. Second, for organic loan growth, loan pipelines have grown 50% since last summer, and that's resulted in solid annualized loan growth of 8% in the fourth quarter, and then another 7.5% loan growth in the first quarter. Pipelines grew significantly again in the first quarter, which gives us confidence moving forward. Our previous loan growth guidance for 2026 called for mid to upper single-digit growth this year. There's a decent chance that we could end up on the higher end of our guidance. The biggest highlight, by far, has been the success in Texas and Colorado.

On a year-over-year comparison, loan production in those two states have more than doubled, from $500 million in the first quarter of 2025 to $1.1 billion in the first quarter of 2026. Houston specifically experienced the highest loan growth of any market in the entire company this quarter. Third, on stock buybacks. We've repurchased nearly 4% of our shares outstanding since the beginning of the third quarter at an average price of $95.28. We continue to see this as an attractive use of excess capital at a time when bank valuations seem, at least to us, disconnected from fundamental performance and intrinsic value. Fourth, we're enthusiastically embracing the potential for artificial intelligence. We're deploying more and more Copilot licenses and training our bankers at the individual user level.

We're researching and beginning to deploy AI tools from our major software providers at the department level. We're looking for ways to reengineer processes between departments at the enterprise level. More to come, but we're pleased with the way the entire organization is embracing these new tools with the goal of improving our speed and scalability. Speed for improved customer service, and then scalability for efficiency and shareholder returns. Before I turn it over to Will, I'll point out that we've refreshed some of the slides in our deck to highlight the value proposition of being a SouthState shareholder. Our story hasn't changed, and it isn't complicated. We're building a premier deposit franchise, and we're doing it in the fastest-growing markets in the United States. We adhere to a geographic and local market leadership business model.

It's a model that empowers our division presidents to tailor their team, products, and pricing to deliver remarkable service to their unique local community. At the same time, an incentive system built on geographic profitability that instills a CEO and shareholder mindset. This is a model that produces durable results that have outperformed our peers on deposit cost, asset quality, and overall returns. The outperformance is consistent and durable over the last year, over the last five years, and over the last 20 years, ultimately leading to a top quartile shareholder return over multiple cycles. Will, I'll turn it back over to you to walk through the details on the quarter.

Thanks, John. Our net interest margin of 3.79% was just below our guidance of 3.80%-3.90%. The slight miss was primarily a result of deposit costs being a few basis points above our expectation, in spite of the six basis point improvement from the prior quarter. Loan yields of 5.96% were slightly below our new loan production coupons of 6.09% for the quarter. An accretion of $38.8 million was in line with expectations and $11.5 million below Q4 levels. Excluding accretion, our NIM was up a basis point. Net interest income of $562 million was down $19 million from Q4, with the day count impact being $12.6 million of that difference. As John noted, we had another good loan growth quarter, with loans growing $896 million, a 7.5% annualized growth rate. Average loans grew at a 6.5% annualized rate.

Our Texas and Colorado team led the company in loan growth, and every banking group within the company grew loans in the first quarter. We have some optimism about continuing loan growth as our pipeline at quarter end was up 33% compared with year end. Non-interest income of $100 million was at the high end of our range of 55 basis points-60 basis points guidance. We had a solid quarter in capital markets and wealth, with seasonally lighter deposit fees offset by stronger mortgage revenue, which was aided by an increase in the MSR asset value net of the hedge. NIE of $359.5 million was in line with expectations. Looking ahead, we have no changes to our NIE guidance for the remainder of the year.

If we have greater success in our recruiting efforts, and we've been pleased with our success thus far, NIE could, of course, move up somewhat. Net charge-offs of $10 million represented a nine basis points annualized rate for the quarter, and this amount was matched by our provision for credit losses. Non-accrual and substandard loans were down slightly. Payment performance remains very good, and we continue to feel good about our credit quality. Turning to capital, we repurchased 1.5 million shares in the quarter at a weighted average price of $100.84. This makes a total of 3.5 million shares repurchased in the last two quarters, and our share count was 97.9 million shares at quarter end, down from 101.5 million shares a year prior.

Like last year's fourth quarter, the first quarter payout ratio was higher than we expect to maintain over the long term, but we thought it an opportune time to be more active. Our strong loan pipeline and recruiting success give us some optimism we'll need to retain capital to support healthy growth. Even with a higher capital return posture and a 7.5% annualized loan growth in the quarter, capital levels remained very healthy. CET1 ended at 11.3%. Our TCE was 8.64%, and our tangible book value per share ended at $56.90. I'll point out that our TBV per share is up almost $7 or 14% above the year ago levels, and our TCE ratio is up 39 basis points from March 2025, even with our higher capital return activity of the last couple of quarters. Operator, we'll now take questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We'll go first to Catherine Mealor at KBW.

Thanks. Good morning.

Hey, Catherine.

I want to see if we could start on the margin. Will, you talked about how the margin fell a little bit below the range just on deposit cost. Curious if you still think that 380-390 range is fair for the year or if deposit pressures are bringing that a little bit lower than the range. Thanks.

Sure. Thanks, Catherine. This is Steve. Let me kind of walk through our various assumptions and kind of update them versus last quarter. To your point, yes, we thought that the margin would start out in the low 380s for the first quarter and trend higher during the year. It looks like we missed that by a couple of basis points to start the year. If you look at the four things that really make up that guidance in our forecast are the level of interest earning assets, the rate forecast, what our loan accretion forecast is and deposit costs. Those four things. If you look at the interest earning assets, I think we forecasted for the first quarter we'd be between $60 billion and $60.5 billion. I think we ended up at $60.2 billion, so right in the middle of that.

We said for the year that our interest earning assets would average somewhere in the $61 billion-$62 billion range. I think where we are with that, we think that it's potential, we're kind of reiterating that, but we do think that the loan growth might drive that slightly higher. A little bit too early to tell, but interest earning assets could end the year in the $63 billion-$64 billion range relative to the fourth quarter. The average is probably going to be more on the high end of what we were thinking. As it relates to rate forecast, last quarter, we thought that there would be three rate cuts coming into 2026, it looks like right now the market's at zero relative to the conflict and so on.

I think the two-year and the five-year Treasury rates are up 40 basis points from the lows earlier this quarter. We've now taken out the rate cuts in our forecast. On loan accretion, which is our third one, we forecasted $125 million for the full year of 2026, and there's really no change to that. It's coming in line with what we'd expected. Then the last one was on deposit costs, and our original deposit beta forecast was 27%. Then it looks like we came in around 20% for the quarter.

If you go back and look at the movie, I think for the first 100 basis points of cuts, we got 24, we had a 38% beta, and then the last 75 basis points, we had a 20% beta. You combine it all together, we've had a 30% beta on 175 basis points. As we look forward and think about the deposit environment that we're at and the flat environment with our growth trajectory, we think that the deposit cost will be in the mid-170s versus our early forecast to be in the low mid-170s. Based on all these assumptions, we'd expect NIM to be in the 375-380 range. If growth is in the mid-single digit, we would expect NIM to be on the high end of the range.

If growth is as we expect, a little bit higher in the high single digit, we'd expect the NIM to be on the lower end of the range with net interest income higher. Hopefully that helps tell you all the different assumptions.

Yeah, that's great. Just to take a step and think big picture, it feels like this is growth related, right? As you just think about your model and your forecast, is there a big change in NII dollars or is it more average earning assets is higher and that's coming with a little bit of a lower margin, but you're at the same place in terms of dollars?

Yeah. I think if you look at our models in 2026, because growth takes a while to accelerate and get into the budget, 2026, the NIM is, if you have lower NIM in the short run, it gets you lower NII dollars in 2026. If you look at 2027, it all sort of catches up with higher growth. That's kind of the way I would describe the net interest income dollars.

That makes sense. Great. Thank you.

We'll move next to John McDonald at Truist Securities.

Great. Thanks. I was hoping you could drill down a little bit in terms of what you're seeing on the loan growth front. What gives you confidence that you might be able to see the high end there? Kind of just drill down a little bit more in terms of gross production versus payoffs and utilization.

Yeah. Good morning, John. It's John Corbett. The loan production that we had in the first quarter was very similar to the fourth quarter, which was a record for us, almost $4 billion. A lot of the growth came in the latter part of the quarter. We wound up at 7.5% loan growth. Last quarter was 8%. Really the growth was broad-based, both from the type of loan we were doing and also the geography. Investor CRE was up 9%, C&I's up 9%, single family residential owner occupied up mid-single digits. From a geography standpoint, I think Will said in his opening remarks, every single geography grew, led by Texas and Colorado, which was the thing that puts a smile on our face as we've worked through the integration last year.

Following Texas and Colorado at $1.1 billion, Florida and South Carolina each did about $640 million of production. Greenville was the strongest in South Carolina, and as I mentioned earlier, Houston had the highest production in the entire company. Winding the clock forward, even with the $3.8 billion in production, we did not drain the pipeline. The pipeline stayed full and we actually grew the pipeline 33%. It went up to $6.4 billion. From the end of the year, it was at $4.8 billion. A lot of that's happening in Florida and Texas. Just with the momentum we're seeing with the pipeline growth, we think we can keep this momentum going and we think we could be in the upper end of our guidance that we gave you previously.

Okay, great. Just to follow up on the deposit cost, can you give us a little more color on what you're seeing in terms of competitive dynamics on maybe what you're doing in terms of deposit mix, any promotional strategies, and just what are the wild cards around the deposit cost for this year?

Sure. Yeah. John, this is Steve. Yeah, a couple things on that. We look at the new money that we raised during the quarter, and we look at the money market rates as well as the CD rates. This quarter, we raised about $400 million in new money at the new money market rates at 2.68%, and our new and renewed CDs came in at 3.69%. That's sort of where money's coming in. If you exclude the seasonal runoff of public funds, our customer deposits actually grew at 7%, about $850 million, and most of that was in the business area. It was up 10%, so a lot of treasury management and so on. I think that's probably where we're continuing to lean in.

From a geography perspective, if you look at our deposit franchise, because we run a decentralized P&L model, we track all of the different divisions and banking groups together. The deposit cost in the legacy Southeast footprint that we've had is in the mid-140s. We obviously had a great quarter relative to growth in Texas and Colorado, but the deposit costs are around the 210 range. We think over time there's going to be an opportunity to lower these with the addition of treasury management, retail, and small business products. That just takes time. We think there's some opportunity there over time. The balancing act is deposit growth versus profitability, and we're tweaking dials around that.

The last thing I would say about deposit. I will tell you that back to the way that the interest rate curve increased during the quarter, we did see more competition toward the end of the quarter, and so our new money market rates started the quarter in the 2.40% range and ended somewhere in the 3% range. I think what that's telling you, until we can sort of get a little path on rates to come back down, I think we'll have opportunity on the deposit side. Right now, I think it's just a tough environment as you know.

Okay. That's helpful. Thanks, Steve.

We'll move next to Stephen Scouten at Piper Sandler.

Yeah, good morning. Thanks. One other question maybe on the NIM front is just the change in the guidance, how much of that would you say is related to that last comment you made about the progression of deposit competition versus removing that three cuts? I think at one point it was maybe 1 basis points-2 basis points of help for every 25 basis points, but I think that had been diminished over time. Just kind of wondering the puts.

Yeah, I think it's probably half and half. I think the two things driving a little bit the NIM lower between 375-380 versus 380-390, there's probably two things intact. One is, I think our view of growth versus what we originally had given you. That's probably half of it, and probably the other half is the deposit competition is higher than what we expected. The question is, when we got down to the final mile on the deposit beta getting from 20%-27%, rates went up toward the end of the quarter, and so I would assume at some point when we get back to a rate cutting cycle, that'll ease off and we'll be able to get some of that, particularly in some of the new markets.

That would be kind of how I would characterize it if that's helpful.

Extremely helpful. Then maybe digging into the hiring plans and activity a little bit more. Obviously, you put that as your kind of number one strategic goal, I think, in the presentation. Can we get an update on what that number was this quarter? I think it was 26 last quarter. Kind of if you continue to be focused more on Texas, Colorado, maybe the newer IBTX markets and maybe even the Nashville market, which I think was a newer entry for you guys.

Yeah. We kind of kicked off the initiative, Stephen, at the beginning of the third quarter to expand the commercial banking sales force by 10%-15% in the next couple years. That's the kind of thing you just got to be opportunistic about it. It's not going to happen on a straight line. The team geared up. They built a recruiting pipeline with 200 folks in there, and we've grown the commercial banking team specifically by 7% from October 1 to March 31st. Most of that growth, the net growth of the team occurred in Texas and Colorado. Dan Strodel and the team have done a great job carrying the brand and the flag out there. That's an area I'd probably look to them to integrate, assimilate the team and maybe not grow too far too fast.

I would like to see our team in the legacy Southeast markets continue to take advantage of that growth. I think maybe by the end of the year when we end, I guess it'd be the third quarter for four straight quarters, maybe we're in the 10% net growth rate.

Okay. Super. If I could sneak in one more, just kind of wondering how you're thinking about the total payout ratio. Obviously, the last couple quarters have been extremely aggressive, but I know Will said you might need to hold more capital for growth. How could we think about what you might do from a total payout?

Yeah. Good morning, Stephen. Really our guidance of 40%-60% over the medium to long term still holds, and I think that makes sense if you think about it, call it a 17% return on tangible common equity. If we're growing at the 8%-10% range, then a 40%-60% payout ratio would essentially hold our capital levels pretty constant. We did exceed that not only in the fourth quarter, but also here in the first quarter. I think first quarter is around 93%, but we thought it was an opportune time given where the share price dislocation was in our minds, and we're more active. I'll also say too, our capital policy and thoughts about capital, in addition to growth, we have I think a pretty sophisticated capital stress testing framework, and that informs our capital thoughts as well.

We integrate that, and we like to travel in that 11%-12% CET1 range.

Very helpful, Will. Thanks for all the color this morning, guys.

We'll move next to Anthony Elian at JPMorgan.

Hi, everyone. Will, you reiterate the expense outlook from the 4% you gave us last quarter. Just thinking about the cadence of quarterly expenses, is it pretty consistent with each remaining quarter or anything you'd call out for the pattern of expenses by quarter?

Yeah. I'll call it a couple things and say, of course, there's things that vary with revenue. You've got some revenue-based expenses. Just sort of some general trends we've seen over the years, and some of the embedded structural things. Generally most of our staff's annual base pay increase typically occurs July 1. That kicks in in the third quarter. That's one thing to keep in mind. Our ownership model incents people both support and in running a business with revenue to think about how they spend money. Sometimes you see more conservatism earlier in the year and last year, if you looked at our fourth quarter, you saw less conservatism with respect to NIE spend. That's a little bit in there, too.

First quarter, you've got the normal things like the higher FICA expense, typically a little higher 401(k) match, those kind of things. Anyway, we're still sticking with our guidance that we gave heading into the year in that roughly 4% range. We'll continue to address that update as the year goes along. Some of that will, of course, depend on, as John said, the opportunistic nature of our hiring initiative. You can't necessarily time that exactly when you want it, when good people become available.

Thank you. John, you made a comment in your prepared remarks that you may slow the pace of hiring in the next few months given the success you've seen. It just seems like you have a lot of room across your footprint to keep making hires. Is the potential for a slowdown of hiring due to keeping a closer eye on what expenses could do over the short term? Or just walk us through that, please. Thank you.

Anthony, it's less about the expense growth. This expense that you have hiring folks is really an investment in the long-term growth of the bank. If you look at our core values of our company, it's all about the long-term horizon, the compounding effects of that. Really, it's less about that, and it's more just about the assimilation process. We've hired 75 or 80 commercial bankers in six months. A lot of that occurred in Texas and Colorado, and you just want to make sure folks are assimilating well into the credit culture of the bank there. I'd probably look to slow a little bit in Texas, Colorado, and continue to be opportunistic in the Southeast.

Thank you.

We'll go next to Michael Rose at Raymond James.

Hey, good morning, guys. Thanks for taking my questions. Hey, Steve, the fees to average assets were a little bit above the target this quarter. I think it was 61 basis points. Obviously some good momentum there. Any change in thoughts to that, and can we get an update on the correspondent business, just given the changing rate curve in your view? Thanks.

Sure. Thanks, Michael. Yeah, sure. On non-interest income, to your point, I think our guidance for the full year non-interest income to average assets was between 55-60 basis points. We ended up at 61 basis points. We put a new slide in, page 12 in the deck that you can kind of look at the trend. The good news is, if you kind of look at it year-over-year, we're up from $86 million in the first quarter of 2025, and now we're at $100 million. So that's really healthy growth year-over-year. I would say that as you think about the correspondent revenue, you can look at that graph on page 12. That really has driven almost half of it. We were at 16.7 a year ago, now around 24.4.

I think in our earlier call in January, we mentioned that we probably thought we would average somewhere in the $25 million a quarter on correspondent revenue. Really, there's no change to that. We were $24.4 million, so basically right in line. I don't think there's much of a change. There might be one quarter's a little better, one quarter's a little worse. But I think that's generally good. I think our general tone relative to non-interest income to average assets continues to hold kind of in the middle of that range, between 55 basis points-60 basis points. We're going to be growing the asset base as we're growing.

Yep, appreciate it. Maybe just as a follow-up, just as it relates to kind of the commentary, John, around pipelines. I think you said they're still strong and robust. Can you size that for us? Maybe just given the success that you've had hiring kind of in the Texas and Colorado markets, what that could contribute to growth for the franchise over time. I would expect that it would grow at an increasing rate. The mix would be weighted towards those two markets given some of the success and obviously some of the merger disruption. Thanks.

Yeah. Just to kind of frame up the size of the pipeline. A year ago, the pipeline at the beginning of the year was $3.2 billion. Right now it's $6.4 billion, so it's doubled. Two-thirds of that growth has occurred in Florida, Texas, and Colorado, those states. There is a little bit of a mix shift change. Last year, we really saw all the growth was in C&I and very little in commercial real estate. The commercial real estate portion. The pipeline has picked up from 35% of the pipeline a year ago. Now it's about 45% of the pipeline. Still, C&I is the majority of it.

Okay, helpful. I'll step back. Thanks.

We'll move next to Janet Lee at TD Cowen.

Good morning. This is Noah Kasten on for Janet Lee.

Morning.

First question, with the investment securities portfolio moving a bit higher, can you walk through how you're thinking about the trade-off between deploying into securities versus loans?

Sure. I think for us, as we think about balance sheet growth, we're mainly looking at it relative to loan growth. I think we're pretty comfortable. I think our securities to assets is around 13%. I think in this environment, unless we got a few more rate cuts and there was a bit more of a carry trade there, that is probably not something that we're going to be trying to fund new security purchases. I don't expect the securities book to really move. I will tell you that we have about $900 million the rest of the year that's maturing, about $900 million in 2027. That weighted average rate is around 360. We probably get about 100 basis points on just keeping that book reinvested. I don't expect us to expand the book significantly.

Got it. Thank you. That's helpful. A follow-up. Appreciate the AI slide in the deck. I'm wondering from a cost perspective, is there anything quantifiable that you're seeing in terms of expenses? When we would begin to see that flowing through to the bottom line?

Yeah. The incremental cost and expense of AI on the margin is not that high. What we're seeing is that a lot of the major software providers that we currently have in place, they're embedding these AI tools in software that already exists. And then on the individual user level, the Copilot licenses, it's an expense, but it's relatively small. The fun thing about this is learning about individual use cases and the power of this. We were in a meeting this week, and we own a factoring company where it takes an individual about two and a half minutes to load in an invoice, and there's always some human error in that. Two and a half minutes per invoice. We've employed an AI tool that can do 1,000 invoices in two and a half minutes with 100% accuracy.

These are small use cases, but it's sort of getting everybody excited. As far as the expense run rate, I don't see a big build in the expense run rate. A lot of this is embedded in software we currently utilize.

I think, yeah, this to follow up on that. I think the success that we're thinking long term, and it's not any time in the next year, but maybe the next 18-24 months, is one of the things that we are measuring and monitoring is our number of revenue producers versus the number of our support personnel. For us, what we should think that should happen out of this AI boom and the efficiency is that as we increase revenue producers, our support personnel should stay relatively flat, and that should open up sort of the margin in that.

That's kind of how we're thinking about monitoring it over the next few years.

Got it. Thank you for the color.

Next, we'll move to Gary Tenner at D.A. Davidson.

Thanks. Good morning.

Hi, Gary.

I had a couple of questions. Hey, first, just to follow up on the capital commentary and the kind of payout ratio questions from earlier. Any preliminary calculation on the potential impact of new capital rules on your capital levels?

Yeah, Gary, we have run some math on that, and it's roughly 7% reduction in our risk-weighted assets. That would be roughly an 85 basis point positive impact on our CET1 levels. Now, I'll say that we don't run the company currently where the regulatory limit is our controlling factor. There are a lot of other factors, including, as I said, our capital stress testing, as well as ensuring we maintain the confidence of the rating agencies and whatnot. I don't know that it necessarily changes our thoughts a whole lot, but certainly something that's new and we have to study a lot further.

Thanks. Appreciate that. Follow up on the fee side of things. Just curious about the deposit account fee line. Obviously, you had a really sizable ramp over the course of 2025, and this quarter seemed a little more of a seasonal dip than typical. I'm just curious kind of how you see that line trend, either full year-over-year or just over the course of the year. Thanks.

Sure. This is Steve. Yeah. Typically, in the fourth quarter, that usually hits the highs of the year because of the seasonal debit card and fees that happen towards Christmas season and so on. I think from our perspective, I would think that the trend year-over-year would be in the, I think, in our modeling, it's somewhere in the 3%-4% range year-over-year. If you kind of looked at that and trended it higher, I think that would probably be the way to think about it. I think all of that is within, as we model it, that's all within that 55 basis points-60 basis points guidance.

Yes. Got it. Thank you.

We'll go next to Ben Gerlinger at Citi.

Hey, good morning.

Hey, Ben.

Just wanted to kind of follow up on correspondent banking. I know you guys said 25-ish per quarter, 100 for the year. I know there's a little bit of sensitivity to rates. Is it just more business activity? Then kind of thinking longer term, if we do get a couple more cuts, could that 25 turn into 30? Or how should we think about just the business operations overall?

Sure. No, that's a good question. Let me just kind of frame it up. One of the things I think there was a bit of confusion last quarter, is just this whole gross versus net. When I speak about correspondent revenue, I'm speaking to the gross. You have that graph on page 12. The $24.4 million is the gross revenue. The other, the minus $3 million, is a variation margin, which is really kind of an interest margin. Really what the fees that were produced were $24.4 million. That's kind of how I think about the business and how we communicate. I guess, looking at the ranges of that business, so in our best years, that business did about $110 million of revenue. The worst year did about $70 million. We're kind of towards the higher end of that. Of course, we're growing the business organically.

I think the upside to it, where there's some new products that we're rolling out, really won't have much of an impact in 2026, but probably more 2027, which would be around commodities to support our energy business, would be some of our FX. We do FX, but we're doing a little bit more hedging. That should add a few million dollars. On the margin, there's probably some reasonable upside to it, but I don't think $30 million is a good run rate in 2027, for instance. I don't know that we know that yet. As we get further into the year and as we roll out these products and see how they go, I think that would give us more confidence maybe by October to be able to give you a better forecast. For right now, there's a lot of volatility of course.

Our ARC business is doing really good. Our bond and trading business is really starting to do well as well. These things are coming together. The question is, with all the volatility, how that's going to play out the next quarter or two. I would just expect, as we see it and as we forecast, that it's pretty sturdy and steady for a while before we have a next leg up.

Got you. Okay. That's great color. Just want to follow up on mortgage. Is there a fair value mark or anything in there? Just, it seemed large.

Yeah. Hey, Ben, it's Will. As I mentioned in my prepared remarks, we had our normal practice reviewing our MSR evaluation, and we had a positive impact this quarter of about $4.5 million net on the MSR evaluation. Some quarters it's moved against us, some quarters it's moved it to a positive. This quarter was a positive.

Got you. 4.5. Okay, great.

We'll go next to David Chiaverini at Jefferies.

Hi. Thanks for taking the questions. I wanted to drill into the deposit growth outlook. With your strong loan growth, and following the first quarter on the deposit side was very strong. What's your sense of your ability to sustain that level of growth, again, given the strong growth outlook on the loan side?

Yeah, David, it's a good question. I think it's the part that is the hardest at this point. I think you saw cost in the yield curve move up during the quarter. You saw short-term funding costs move up during the quarter. It's obviously, at this point in time, different than it would've been maybe in January. My guess is it'll get a little easier as we get some of the volatility out. As I mentioned earlier, our customer deposits grew at 7% this quarter. Obviously we had the seasonal public funds thing that usually runs around a little bit. We are off $400 million there. Our business accounts, our business was up 10%, and a lot of that was treasury management.

Hard to forecast here because as I mentioned the rates on our money market new openings moved up during the quarter, from 240 to close to 3. I guess, I think we can obviously generate deposits. The question is at what cost? If we can have the funding market move down a little bit, that would be helpful. Generally the business is growing. The question is at what cost?

Thanks for that. Shifting over to credit quality. Looking at non-performing assets well within the five-quarter trend. It looks very stable there. Some of your peers in the Southeast and Texas are showing some upticks. I'm curious about your view if there's any areas you're watching more closely.

We went through this period, David, where rates spiked up 5%, and we underwrote a lot of the commercial real estate with a 3% rate shock. That's why we saw a lot of reclassing into special mention and classifieds of the commercial real estate portfolio. We inserted a new slide on page 18, I don't know if you saw it or not, where we broke out that investor commercial real estate portfolio. Really, there's little to no concern about the loss content in that portfolio, given the loan-to-values and the payment performance. We broke it out by every category, and we're at a Weighted average loan to value of these problem loans of 56% that 98% of them are current, that includes non-accruals.

That's really not an area of concern. The areas would be the normal areas that generally in the economy where we're seeing a weaker consumer on the lower income range of the consumer, and then on some of the small business, particularly SBA loans, because a lot of those are floating rates, and they had to deal with the 5% rate shock as well, but we've got naturally the government guarantee on 75% of that. Anyway, that's a rough overview of kind of our view on credit, but it feels pretty stable right now. Special mentions are coming down, classifieds tick down a little on a percentage basis. Charge-offs continue to remain low.

Very helpful. Thank you.

We'll go next to David Bishop at Hovde Group.

Yeah. If you stay on the credit topic, I appreciate the expanded thought on the NBFI lending segment. Are you seeing any sort of credit stress within those buckets? You know you're well below peers. Any appetite to even grow some of the exposure to some of those segments? Thanks.

Yeah, we're not. The credit team, when all this hit the news, spent a lot of time with Daniel Bockhorst and the credit team analyzing and digging deep in this portfolio. As you pointed out, it's really an area that we don't have much exposure to. It's the third lowest NBFI exposure amongst our peers, 1.7%. The biggest piece of that is capital call lines, which our advance rate averages like 50%. The one thing if you step back and think about this pressure on that market, there's been a lot of growth in it over the last few years. If you think that there's pressure on it's probably going to enhance the underwriting standards, which some of that business may shift back to the banking industry on a high level viewpoint.

Got it. One follow-up in terms of the comments regarding the assimilation of some of the newer bankers in the Texas-Colorado markets. Just curious in terms of those hires, are those bankers sort of through non-compete and non-solicit agreements? I'm curious if they're sort of generating loads in the loan pipeline at this point. Thanks.

Yeah, it's a case-by-case basis, but I want to say that Dan Strodel told me that the loan pipeline was up to $400 million for the new folks he's brought on in the last six months. There's good production early on. A handful of them will have some kind of employment agreement we'll work through. He's off to a great start. To be able to double your production and go through an integration conversion, take it from $500 million to $1.1 billion, that team's done a fantastic job.

Appreciate the color. Thanks.

That concludes our Q&A session. I will now turn the conference back over to John Corbett for closing remarks.

All right, Audra, thank you. As always, we want to thank all of you all for your interest and support of the company. If you have any follow-up questions, feel free to reach out. We'll be available today, and I hope you have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.