SouthState (SSB) Q1 2026 Earnings Transcript

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DATE

Friday, April 24, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — John C. Corbett
• Chief Financial Officer — William E. Matthews
• Chief Operating Officer — Stephen Dean Young

TAKEAWAYS

• Return on Assets -- 1.37%, as reported for the period.
• Return on Tangible Common Equity -- 17.6%, reflecting profitability on capital deployment.
• Net Interest Margin (NIM) -- 3.79%, just below guidance of 3.8%-3.9%, primarily due to higher deposit costs; deposit costs improved by 6 basis points from prior quarter.
• Net Interest Income -- $562 million, down $19 million sequentially from Q4, with $12.6 million attributed to day count impact.
• Loan Growth -- Loans grew $896 million at a 7.5% annualized rate; average loans up 6.5% annualized, with loan pipelines ending up 33% from year-end to $6.4 billion.
• Texas and Colorado Loan Production -- Increased from $500 million to $1.1 billion year over year, with Houston cited as the leading market.
• Commercial Banking Team Expansion -- Team increased by 7% over the past six months, mainly in Texas and Colorado, with a target to reach 10%-15% expansion over the next couple of years.
• Noninterest Income -- $100 million, reaching the high end of guidance (55-60 bps to average assets), year-over-year increase from $86 million, with correspondent revenue at $24.04 million this quarter versus $16.07 million prior year.
• Noninterest Expense (NIE) -- $359.5 million, in line with expectations; guidance for 4% growth reiterated, with possible near-term increase if recruiting accelerates.
• Net Charge-offs -- $10 million, representing 9 basis points annualized, fully matched by provision for credit losses; nonaccrual and substandard loans declined slightly.
• Capital Ratios -- CET1 ended at 11.3%; tangible common equity (TCE) at 8.64%; tangible book value per share $56.90, up 14% from prior year.
• Share Repurchases -- 3.5 million shares bought back across two quarters, with 1.5 million repurchased this quarter at an average price of $100.84; share count now 97.9 million, down from 101.5 million a year ago.
• Deposit Growth -- $850 million growth in customer deposits when excluding $400 million runoff in public funds; business deposits up 10% for the quarter, concentrated in treasury management.
• Deposit Costs -- Mid-140s basis points in the legacy Southeast, approximately 2.10% in Texas and Colorado; new money market rates increased to near 3% by end of quarter.
• Payout Ratio -- 93% for the quarter, above long-term guidance of 40%-60%, with management citing share price dislocation as rationale for above-trend capital return.
• Securities Portfolio -- Securities-to-assets ratio of 13%; maturities of $900 million expected this year and $900 million in 2027, with anticipated reinvestment at approximately 100 basis points higher yield, but no portfolio expansion planned absent rate reductions.
• Artificial Intelligence Implementation -- Copilot licenses being deployed with user-level and department-level adoption; early use cases improving efficiency and accuracy, but incremental cost impact described as modest.
• Correspondent Banking Revenues -- Fee revenue of $24.4 million this quarter, with organic growth in pipeline products such as commodities and FX hedging anticipated for 2027, but little impact expected for 2026.
• Commercial Real Estate Pipeline Shift -- CRE portion rose to 45% of the loan pipeline from 35% a year ago; C&I loans remain majority of pipeline volume.
• Non-Depository Financial Institutions (NDFI) Exposure -- 1.7%, stated as third lowest among peers, with capital call lines averaging a 50% advance rate.

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RISKS

• CFO Matthews stated, "the first quarter payout ratio was higher than we expect to maintain over the long term," at 93%, which could constrain future capital flexibility.
• NIM guidance reduced to 3.75%-3.80%, down from the prior 3.8%-3.9% range, due to increased deposit competition and a removed assumption of Fed rate cuts, both highlighted by Young as pressures.
• Deposit cost increases driven by end-of-quarter competition, with new money market rates moving from 2.40% to nearly 3%, as cited by Young, creating uncertainty around future funding costs.
• CEO Corbett noted, "we may slow the pace of hiring in the next few months" to ensure proper assimilation in Texas and Colorado, which could moderate near-term growth initiatives.

SUMMARY

SouthState Corporation (NYSE:SSB) delivered above-peer growth in loans and deposits, while capital levels remained robust following aggressive share repurchases. Loan production and pipeline metrics set new highs, especially in Texas and Colorado, where expansion has outpaced expectations. Deposit competition led to higher funding costs, modestly reducing targeted net interest margin and introducing near-term profitability pressures. Efforts to embed artificial intelligence produced initial efficiency gains, yet expense discipline remains, as hiring in newly integrated markets proceeds with caution to balance long-term growth and assimilation. Asset quality indicators remained stable, with credit metrics and special mention loans trending favorably compared to regional peers.

• Management forecasts incremental improvement in noninterest income, with correspondent banking expansion and CRE pipeline mix shifts as future contributors.
• CET1 capital stands to benefit by approximately 85 basis points from new regulatory rules, representing a 7% reduction in risk-weighted assets as addressed by Matthews.
• Executives confirmed that the securities portfolio will remain stable, with maturing securities to be reinvested at higher yields but no net expansion barring a significant drop in rates.
• Long-term payout policy remains at 40%-60% of earnings, with recent actions noted as opportunistic due to perceived market valuation disconnects.
• AI-driven process changes are expected to hold support personnel counts steady while boosting revenue producer efficiency, but meaningful financial impact is projected over 18-24 months rather than immediately.

INDUSTRY GLOSSARY

• Centralized/Decentralized P&L Model: Profit and loss accountability managed independently within each geographic division or business group, allowing for tailored strategies and local profit maximization.
• Deposit Beta: The percentage of change in deposit interest rates paid by the bank relative to changes in benchmark rates, a key indicator of funding cost sensitivity.
• MSR (Mortgage Servicing Rights): The contractual right to service a mortgage loan, for which value is determined by future servicing fee income, subject to periodic fair value remeasurement.
• NDFI (Non-Depository Financial Institution): Financial entities, such as finance companies, that provide banking services but lack a banking license and do not accept traditional deposits.
• TCE (Tangible Common Equity): Equity capital that excludes intangible assets and preferred equity, used as a measure of financial strength and leverage.
• CET1 (Common Equity Tier 1): A regulatory capital metric measuring core equity capital relative to risk-weighted assets, critical for assessing bank solvency.

Full Conference Call Transcript

John C. Corbett: Good morning, everybody. Thanks for joining us. For the quarter, SouthState Corporation 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 are making good progress on all four fronts. As far as recruiting, we are 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% to 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 are 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 has 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 is 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 has more than doubled from $500 million in 2025 to $1.1 billion in 2026. In Houston specifically, we experienced the highest loan growth of any market in the entire company this quarter.

Third, on stock buybacks, we have 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. And then fourth, we are enthusiastically embracing the potential for artificial intelligence. We are deploying more and more Copilot licenses and training our bank at the individual user level. We are researching and beginning to deploy AI tools from our major software providers at the department level. And we are looking for ways to reengineer processes between departments at the enterprise level.

More to come, but we are pleased with the way the entire organization is embracing these new tools with the goal of improving our speed for improved customer service and then scalability for efficiency and shareholder returns. I will point out that we have refreshed some of the slides in our deck to highlight the value proposition of being a SouthState Corporation shareholder. Our story has not changed, and it is not complicated. We are building a premier deposit franchise, and we are doing it in the fastest-growing markets in the United States. We adhere to a geographic and local market leadership business model.

It is 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 instills a CEO and shareholder mindset. It 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 twenty years, ultimately leading to a top-quartile shareholder return over multiple cycles. Will, I will turn it back over to you to walk through the details on the quarter.

William E. Matthews: Thanks, John. Our net interest margin of 3.79% was just below our guidance of 3.8% to 3.9%. The slight miss was primarily a result of deposit costs being a few basis points above our expectation despite a 6 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. Accretion of $38.8 million was in line with expectations and $11.5 million below Q4 levels. Excluding accretion, our NIM was up 1 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. Noninterest income of $100 million was at the high end of our range of 55 to 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 is 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. But if we have greater success in our recruiting efforts, and we have been pleased with our success thus far, NIE could, of course, move up somewhat. Net charge-offs of $10 million represented a 9 basis point annualized rate for the quarter, and this amount was matched by our provision for credit losses. Nonaccrual 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 will 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 will point out that our TBV per share is up almost $7, or 14%, above the year-ago levels. Our TCE ratio is up 39 basis points from March 2025, even with our higher capital return activity over the last couple of quarters. We will now open the call for questions.

Operator: 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 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your questions, simply press 1 again. We will go first to Catherine Mealor at KBW.

John C. Corbett: Hey, Catherine.

Catherine Mealor: Good morning. 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 3.8% to 3.9% range is fair for the year, or if deposit pressures are bringing that a little bit lower than the range? Thanks.

Stephen Dean Young: Sure. Thanks, Catherine. This is Steve. Let me walk through our various assumptions and update them versus last quarter. To your point, yes, we thought that the margin would start out in the low 3.80s 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: the level of interest-earning assets, the rate forecast, what our loan accretion forecast is, and deposit cost. On interest-earning assets, we forecasted for the first quarter we would be between $60 billion and $60.5 billion.

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 to $62 billion range, and we are reiterating that, but we do think that 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 to $64 billion range, with the average probably on the high end of what we were thinking. As it relates to the rate forecast, last quarter we thought that there would be three rate cuts coming into 2026, and it looks like right now the market is 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, so we have now taken out the rate cuts in our forecast. On loan accretion, which is our third one, we forecast $125 million for the full year of 2026, and there is really no change to that. It is coming in line with what we expected. And then the last one was on deposit costs, and our original deposit beta forecast was 27%, and it looks like we came in around 20% for the quarter.

If you go back and look at the movie, for the first 100 basis points of hikes, we had a 38% beta; then the last 75 basis points, we had a 20% beta. Combined, we have had a 30% beta on 175 basis points. As we look forward and think about the deposit environment in a flat rate environment, with our growth trajectory, we think deposit costs will be in the mid-170s basis points versus our earlier forecast to be in the low-mid 170s. Based on all these assumptions, we would expect NIM to be in the 3.75% to 3.80% range.

If growth is in the mid-single digits, we would expect NIM to be on the high end of the range, and if growth is a little bit higher in the high single digits, we would 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.

Catherine Mealor: Yeah, that is great. And then just to take it to the big picture, it feels like this is growth-related. As you think about your model and your forecast, is there a big change in NII dollars, or is it more that average earning assets is higher and that is coming with a little bit of a lower margin, but you are at the same place in terms of dollars?

Stephen Dean Young: Yep. I think if you look at our models in 2026, because growth takes a while to accelerate and get into the budget, if you have lower NIM in the short run, it gets you lower NII dollars in 2026. But if you look at 2027, it all catches up with higher growth. That is the way I would describe the net interest income dollars.

Operator: We will move next to John Eamon McDonald at Truist Securities.

John Eamon McDonald: Great. Thanks. I was hoping you could drill down a little bit in terms of what you are seeing on the loan growth front, what gives you confidence that you might be able to see the high end there, and drill down a little bit more in terms of gross production versus payoffs and utilization?

John C. Corbett: Good morning, John. The 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%, and the growth was broad-based, both by type and geography. Investor CRE was up 9%. C&I is up 9%. Single-family residential owner-occupied was up mid-single digits. From a geography standpoint, every single geography grew, led by Texas and Colorado, which puts a smile on our face as we 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; 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%, up to $6.4 billion, from $4.8 billion at the end of the year. A lot of that is happening in Florida and Texas.

With the momentum we are seeing and the pipeline growth, we think we can keep this going and could be in the upper end of our guidance that we gave you previously.

John Eamon McDonald: Okay, great. And then just a follow-up on the deposit cost. Can you give us a little more color on what you are seeing in terms of competitive dynamics, what you are doing in terms of deposit mix, any promotional strategies, and what the wildcards are around the deposit cost for this year?

Stephen Dean Young: Sure. A couple of things on that. We look at the new money that we raised during the quarter—money market rates as well as CD rates. This quarter, we raised about $400 million in new money market balances at 2.68%. Our new and renewed CDs came in at 3.69%. 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 business deposits, which were up 10%—a lot of treasury management. That is probably where we are continuing to lean in. From a geography perspective, because we run a decentralized P&L model, we track all of the divisions and banking groups.

Deposit costs in the legacy Southeast footprint are in the mid-140s basis points. In Texas and Colorado—obviously a great quarter relative to growth—deposit costs are around 2.10%. We think over time there is an opportunity to lower those with the addition of treasury management, retail, and small business products, but that takes time. The balancing act is deposit growth versus profitability, and we are tweaking dials around that. Last thing on deposits: due to the way the curve increased during the quarter, we saw more competition toward the end of the quarter. Our new money market rates started the quarter in the 2.40% range and ended somewhere in the 3% range.

Until rates come back down, it is a tough environment, as you know.

Operator: We will move next to Stephen Kendall Scouten at Piper Sandler.

Stephen Kendall Scouten: Good morning. Thanks. One other question on the NIM front: the change in the guidance—how much of that would you say is related to the progression of deposit competition versus removing those three cuts? I think at one point it was maybe one to two basis points of help for every 25 bps, but that had been diminished over time. Just wondering about the puts and takes.

Stephen Dean Young: I think it is probably half and half. The two things driving NIM a little lower—3.75% to 3.80% versus 3.80% to 3.90%—are, first, our updated view of growth versus what we originally had given you, and second, deposit competition is higher than we expected. When we got down to the final mile on the deposit beta—getting from 20% to 27%—rates went up toward the end of the quarter. I would assume at some point when we get back to a rate-cutting cycle, that will ease off, and we will be able to get some of that, particularly in some of the new markets. That is how I would characterize it.

Stephen Kendall Scouten: Extremely helpful. And then maybe digging into the hiring plans and activity a little bit more. You put that as your number one strategic goal in the presentation. Can we get an update on what that number was—the score, I think, was 26 last quarter? And are you continuing to focus more on Texas, Colorado, maybe the newer IVTX market, and even the Nashville market, which I think was a newer entry for you?

John C. Corbett: We kicked off the initiative at the beginning of the third quarter to expand the commercial banking sales force by 10% to 15% in the next couple of years. You have to be opportunistic; it is not going to happen on a straight line. The team geared up and built a recruiting pipeline with a couple hundred folks in there, and we have grown the commercial banking team by 7% from October 1 to March 31. Most of that net growth occurred in Texas and Colorado. Dan Stroedel and the team have done a great job carrying the brand and the flag out there.

I would look to them to integrate and assimilate the team and maybe not grow too far, too fast, but I would like to see our team in the legacy Southeast markets continue to take advantage of the growth. By the end of the third quarter of this year—four straight quarters—we may be in the 10% net growth range.

Stephen Kendall Scouten: Okay, super. If I could sneak in one more: how are you thinking about the total payout ratio? The last couple of quarters have been extremely aggressive, but I know Will said you might need to hold more capital for growth. How should we think about total payout from here?

William E. Matthews: Good morning, Steven. Our guidance of 40% to 60% over the medium to long term still holds. That makes sense if you think about a 17% return on tangible common equity; if we are growing at the 8% to 10% range, then a 40% to 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 the first quarter was around 93%, but we thought it was an opportune time given where the share price dislocation was in our minds to be more active.

Our capital policy also includes a sophisticated capital stress testing framework, and that informs our thoughts as well. We like to travel in that 11% to 12% CET1 range.

Stephen Kendall Scouten: Helpful. Thanks for all the color this morning.

Operator: We will move next to an Analyst at JPMorgan.

Analyst: Hi, everyone. Will, you reiterated the expense outlook from the 4% you gave us last quarter. Thinking about the cadence of quarterly expenses, is it pretty consistent with each remaining quarter, or is there anything you would call out for the pattern of expenses by quarter?

William E. Matthews: I will call out a couple of things. Of course, there are items that vary with revenue—some revenue-based expenses. General trends we have seen over the years and some embedded structural things: most of our staff’s annual base pay increase typically occurs July 1, so that kicks in during the third quarter. Our ownership model encourages people both supporting and 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. In the first quarter, you have normal items like higher FICA expense and typically a little higher 401(k) match.

We are still sticking with our guidance heading into the year—roughly 4%—and we will update as the year goes along. Some of that will depend on the opportunistic nature of our hiring initiative—you cannot necessarily time that exactly when good people become available.

Analyst: Thank you. And then, 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 have seen. It seems like you have a lot of room across your footprint to keep making hires. Is the potential for a slowdown due to keeping a closer eye on what expenses could do over the short term? Or walk us through that, please.

John C. Corbett: Anthony, it is less about expense growth. The expense of hiring folks is really an investment in the long-term growth of the bank. Our core values are about the long-term horizon and compounding effects. It is more about the assimilation process. We have hired 75 or 80 commercial bankers in six months. A lot of that occurred in Texas and Colorado. You want to make sure folks are assimilating well into the credit culture of the bank there. I would look to slow a little bit in Texas and Colorado and continue to be opportunistic in the Southeast.

Operator: We will go next to Michael Edward Rose at Raymond James.

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

Stephen Dean Young: Sure. On noninterest income, our guidance for the full-year noninterest income to average assets was between 55 and 60 basis points. We ended up at 61 basis points. We put a new slide on page 12 in the deck that shows the trend. Year over year, we are up from $86 million in 2025 to $100 million now—really healthy growth year over year. That really has been driven by the correspondent line—almost half of it. We were at $16.07 million a year ago and now around $24.04 million. In our earlier call in January, we mentioned that we probably thought we would average somewhere around $25 million a quarter on correspondent; there is no change to that.

We were at $24.04 million, so basically right in line. One quarter might be a little better and one a little worse, but generally that holds. Our general tone relative to noninterest income to average assets continues to be in the middle of that range—between 55 and 60 basis points—as we grow the asset base.

Michael Edward Rose: Appreciate it. Maybe just a follow-up on the commentary around pipelines. I think you said they are still strong and robust. Can you size this for us? And given the success you have had hiring in Texas and Colorado, what could that contribute to growth for the franchise over time? I would expect the mix would be weighted towards those two markets given some of the success and merger disruption.

John C. Corbett: To frame up the size of the pipeline, a year ago at the beginning of the year it was $3.2 billion. Right now it is $6.4 billion, so it has doubled. Two-thirds of that growth has occurred in Florida, Texas, and Colorado. There is a little bit of a mix shift: last year we saw growth mostly in C&I and very little in commercial real estate; the commercial real estate portion has picked up from 35% of the pipeline a year ago to about 45% now. Still, C&I is the majority.

Operator: We will move next to an Analyst at TD Bank.

Analyst: Good morning. This is Noah Caston on for Janet Lee. First question: with the investment securities portfolio moving a bit higher, can you walk through how you are thinking about the trade-off between deploying into securities versus loans?

Stephen Dean Young: Sure. As we think about balance sheet growth, we are mainly looking at it relative to loan growth. Our securities-to-assets is around 13%. In this environment, unless we get a few more rate cuts and there is more of a carry trade, we are not going to be trying to fund new security purchases. I do not expect the securities book to really move. We have about $900 million maturing the rest of the year and about $900 million in 2027, with a weighted average rate around 3.60%. We probably get about 100 basis points on reinvestment just keeping that book reinvested, but I do not expect us to expand the book significantly.

Analyst: And then a follow-up. Appreciate the AI slide in the deck. From a cost perspective, is there anything quantifiable you are seeing in terms of expense saves, and when would we begin to see that flowing through to the bottom line?

John C. Corbett: The incremental cost and expense of AI on the margin is not that high. A lot of the major software providers we currently have are embedding AI tools in software that already exists. On the individual user level, the Copilot licenses are an expense, but relatively small. The fun thing is learning individual use cases and the power of this. We were in a meeting this week—our factoring company takes an individual about two and a half minutes to load an invoice, and there is always some human error. We have 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 they are getting everybody excited.

As far as the expense run rate, I do not see a big build; a lot of this is embedded in software we currently utilize.

Stephen Dean Young: The success we are thinking about long term—maybe over the next 18 to 24 months—is measuring our number of revenue producers versus the number of support personnel. Out of this AI-driven efficiency, as we increase revenue producers, our support personnel should stay relatively flat. That should open up the margin between the two. That is how we are thinking about monitoring it over the next couple of years.

Analyst: Got it. Thank you for the color.

Operator: Next, we will move to Gary Peter Tenner at D.A. Davidson.

Gary Peter Tenner: Thanks. Good morning. First, just to follow up on the capital commentary and the payout ratio questions from earlier, any preliminary calculation on the potential impact of new capital rules on your capital levels?

William E. Matthews: We have run some math on that, and it is roughly a 7% reduction in our risk-weighted assets. That would be roughly an 85 basis point positive impact on our CET1 levels. We do not run the company to the regulatory minimum as the controlling factor. There are a lot of other factors, including our capital stress testing as well as ensuring we maintain the confidence of the rating agencies. I do not know that it necessarily changes our thoughts a whole lot, but it is certainly something new that we have to study further.

Gary Peter Tenner: Thanks. Appreciate that. And then a follow-up on the fee side of things: the deposit account fee line had a sizable ramp over the course of 2025, and this quarter seemed a little more of a seasonal dip than typical. How do you see that line trend either full year over year or over the course of the year?

Stephen Dean Young: Typically, the fourth quarter hits the highs of the year because of seasonal debit card and related fees around the holiday season. In our modeling, the year-over-year trend is somewhere in the 3% to 4% range. If we trended it higher from here, that is probably the way to think about it. All of that is within our 55 to 60 basis points guide for noninterest income to average assets.

Gary Peter Tenner: Got it. Thank you.

Operator: We will go next to Benjamin Gerlinger at Citi.

Benjamin Gerlinger: Hey, good morning.

William E. Matthews: Hey, Ben.

Benjamin Gerlinger: On correspondent banking, I know you said ~$25 million per quarter, ~$100 million for the year. There is a little sensitivity to rates. Is it just more business activity? And longer term, if we do get a couple more cuts, could that $25 million turn into $30 million? How should we think about the business operations overall?

Stephen Dean Young: Good question. Let me frame it up. One thing that caused confusion last quarter is gross versus net. When I speak about correspondent revenue, I am speaking to the gross. On page 12, you see $24.4 million of gross revenue. The other minus $3 million is variation margin, which is really an interest margin. The fees produced were $24.4 million. Looking at the ranges: in our best years, that business did about $110 million of revenue; the worst year did about $70 million. We are towards the higher end of that now.

We are growing the business organically, with some new products rolling out—likely no real impact in 2026 but more in 2027—around commodities to support our energy business and more FX hedging, which should add a few million dollars. On the margin, there is some reasonable upside, but I would not say $30 million a quarter is a good 2027 run rate yet. As we get further into the year and roll out these products, we will have more confidence—maybe by October—to give a better forecast. There is a lot of volatility. Our ARC business is doing well; our bond and trading business is really starting to do well as well. These things are coming together.

With the volatility, it is hard to know how it plays out the next quarter or two, but for now I would expect it to be sturdy and steady for a while before the next leg up.

Benjamin Gerlinger: Gotcha. Great color. And then a follow-up on mortgage. Is there a fair value mark in there? It seemed large.

William E. Matthews: As I mentioned in my prepared remarks, we had our normal practice reviewing our MSR valuation, and we had a positive impact this quarter of about $4.5 million net on the MSR valuation. Some quarters it moves against us; some quarters it is a positive. This quarter was a positive.

Benjamin Gerlinger: Got you. Okay. Great.

Operator: We will go next to an Analyst at Jefferies.

Analyst: Hi, thanks for taking the questions. I wanted to drill into the deposit growth outlook. With your strong loan growth, following the first quarter the deposit side was very strong, but what is your sense of your ability to sustain that level of growth, given the strong outlook on the loan side?

Stephen Dean Young: It is a good question. It is the hardest part at this point. You saw the yield curve move up during the quarter, and short-term funding costs moved up as well. It is different than it would have been in January. My guess is it will get a little easier as volatility settles. Our customer deposits grew at 7% this quarter. We had the seasonal public funds runoff of about $400 million, but business deposits were up 10%, a lot of that in treasury management. It is hard to forecast because our new money market opening rates moved up during the quarter from 2.40% to close to 3%. We can generate deposits; the question is at what cost?

If funding markets move down a bit, that would be helpful. Generally, the business is growing; the question is at what cost.

Analyst: Thanks for that. Shifting over to credit quality, looking at nonperforming assets—well within the five-quarter trend, very stable there—but some peers in the Southeast and Texas are showing some upticks. Any areas you are watching more closely?

John C. Corbett: We went through a period where rates spiked up 5%, and we underwrote a lot of commercial real estate with a 3% rate shock. That is why we saw a lot of reclassing into special mention and classified in the CRE portfolio. We inserted a new slide on page 18 breaking out the investor CRE portfolio. There is little to no concern about loss content in that portfolio given the loan-to-values and payment performance. By category, we are at a weighted average LTV of 56% on these problem loans, and 98% of them are current—that includes nonaccruals.

Areas to watch are the normal ones: a weaker consumer in the lower income range, and some small business—particularly SBA loans—because many are floating-rate and had to deal with the 5% rate shock as well. We have the government guarantee on 75% of that. Overall, credit feels stable right now. Special mentions are coming down. Classifieds ticked down a little on a percentage basis. Charge-offs continue to remain low.

Analyst: Very helpful. Thank you.

Operator: We will go next to David Bishop at Hovde Group.

David Bishop: I will stay on the credit topic. Appreciate the detail—can you expand the thought on the NDFI lending segment? Are you seeing any credit stress within those buckets? You are well below peers—any appetite to grow some of the exposure to those segments? Thanks.

John C. Corbett: We are not. When this hit the news, the credit team spent a lot of time analyzing and digging deep into this portfolio. As you pointed out, we do not have much exposure—it is the third-lowest NDFI exposure amongst our peers at 1.7%. The biggest piece is capital call lines where our advance rate averages 50%. With pressure on that market and a lot of growth there over the last few years, enhanced underwriting standards may push some of that business back to the banking industry at a high level.

David Bishop: Got it. One follow-up on the assimilation of some of the newer bankers in the Texas and Colorado markets: are those hires through noncompete/nonsolicit agreements? Are they generating loans and the loan pipeline at this point?

William E. Matthews: It is a case-by-case basis.

John C. Corbett: I want to say that Dan Stroedel told me the loan pipeline was up to $400 million for the new folks he has brought on in the last six months. There is good production early on. A handful of them have employment agreements we will work through. He is off to a great start. To be able to double your production and go through an integration conversion—taking it from $500 million to $1.1 billion—that team has done a fantastic job.

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

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

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

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