SouthState - Earnings Call - Q1 2025
April 25, 2025
Transcript
Operator (participant)
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 SouthState 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 one again. I would now like to turn the call over to Will Matthews, Chief Financial Officer. Please go ahead.
Will Matthews (CFO)
Good morning, and welcome to SouthState's first quarter 2025 earnings call. This is Will Matthews, and I'm here with John Corbett, Steve Young, and Jeremy Lucas. We'll follow our typical pattern of brief remarks followed by Q&A, and I'll refer you to the earnings release and investor presentation under the Investor Relations tab of our website. Before we begin our remarks, I want to remind you that comments we make may include forward-looking statements within the meaning of the federal securities laws and regulations. Any such forward-looking statements we may make are subject to the safe harbor rules. Please review the forward-looking disclaimer and safe harbor language in the press release and presentation for more information about our forward-looking statements and risks and uncertainties which may affect us. Now I'll turn the call over to you, John.
John Corbett (CEO)
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. It was a big balance sheet reset that brought our balance sheet closer to current market rates. The result is a materially higher net interest margin of 3.85%. Taken together, these three moves propelled SouthState's earnings to an adjusted return on assets of 1.38% and return on tangible common equity of approximately 20%. The earnings power of the bank is running better than we expected, and PPNR per share has grown by 25% in the last year. That is 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. 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. Between a better starting point and industry-leading returns, we're going to be accumulating capital at a rapid pace. Regardless of the tariff impact, we're going to have flexibility to use the excess capital for either defense or for offense as we progress through the year. The SouthState teams in Texas and Colorado are doing a great job. We've only been working together for about a year, but it feels like we've been partners for much longer.
They're an exceptional team, and they're going to be a major driver of SouthState's performance in the years to come. Everybody's ready to get the conversion in the rearview mirror next month so we can hit the ground running in the back half of 2025. I'll turn it over to Will to walk you through the details of what was a noisy quarter of balance sheet marks and one-timers tied to these three strategic moves. Will?
Will Matthews (CFO)
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 5.70%, leading to a first quarter NIM of 3.85%. Our loan yield improved to 6.25%, approximately 65 basis points below our new origination rate for the first quarter, and very close to peer median loan yields, as noted on slide 19. Loan yield in the quarter also benefited from early payoff on a couple of acquired loans, increasing loan yields by six basis points. 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 caused our efficiency ratio to drop to 50% for the first quarter. As John noted, credit costs, excluding the non-PCD double-count provision and acquired PCD charge-offs at closing, remained low, with only 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, accruable marks were $482 million, 20% of which was a non-PCD credit mark, with the remaining 80% being rate marks to bring the Independent earning assets to market yields as of the acquisition date.
The marks and double-count PCL, combined with our existing allowance, solidified our strong loss absorption capacity. NPAs were 60 basis points of loans and ORE, down three basis points from year-end. Substandard and special mention loans were down 5-6% from combined year-end levels using our loan grading methodology. As you'll note on slide 11, with a CET1 of 11% and TBV of just above $50, our capital position remains very healthy and above the 10.4% level we modeled at the time of deal announcement. Additionally, as John noted, our returns on capital were also strong and higher than our original modeling. This healthy capital and reserve position and strong capital formation rate should allow us to maintain a position of strength and optionality, which is, of course, valuable in uncertain times such as these. Operator will now take questions.
Operator (participant)
At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Michael Rose with Raymond James. Please go ahead.
Michael Rose (Analyst)
Hey, good morning, guys. Thanks for taking my questions. Can you just give us some color on what drove the accretion income so high this quarter? It was just much higher than kind of I was expecting, I think, where consensus was. 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. We just love some color there. Thanks.
Will Matthews (CFO)
Yeah. I mentioned in my comments we had a component related to some early payoff that drove it up about six basis points on the yield. I'll remind you that, as you know, in purchase accounting, you're taking the loan book that was originated in a different rate environment and bringing it to current market rates. In bringing the Independent loans 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. It's still a little bit below. As those loans move towards maturity, the component of the yield that's represented by accretion, of course, goes down over time. We had a little bit of that early payoff, and then the rest is being the traditional accretion.
Steven Young (EVP)
Yeah. I guess just to chime in, this is Steve. We put in slide 19 to sort of show what we believe this to look like. If you think about the loan yield this quarter for the total loan yield, that's kind of how we think about it. It's six and a quarter versus our peers this quarter so far, around 6.11, which makes sense because we've marked more to market than some of our peers, so it's varied by a slightly higher. We're putting on new loan production at 6.90. As I reflect upon our experience during the great financial crisis and how we marked credit, there were times that we marked credit 25%, and then we would outperform credit, and then we would have these huge yields going forward at 15%-20%, but we were only putting on loans at 5%.
There was this idea that there was a cliff. That was back in the 2010 to 2017, 2018 range. In this environment, what we are trying to show on this slide is, number one, the marks are much lower. The rate mark in this case is about 2.9%, so not anywhere near the other. What is happening is our portfolio yields at six and a quarter, but our actual new production yield is higher than that. Therefore, there should not be a cliff, assuming rate stays similar. That is kind of how we are thinking about it. The idea of accretable is really the concept of PCI accounting and big credit marks. The way we are thinking about it is it is 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. Anyway, 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.
Will Matthews (CFO)
Yeah. One more point, maybe to clarify too. Of the total accretable yield, Michael, just under 20% of it represents non-PCD credit mark. That is the only component of the accretable yield that is credit-related.
Michael Rose (Analyst)
Oh, okay. Helpful. I think if I'm looking at this right, I think the core margin was down about five basis points. Steve, based on what you've just said, how should we think about the core margin, that 341, assuming that's the right number, moving forward, just given some of the dynamics you just spoke about? Thanks.
Steven Young (EVP)
Yeah. The core margin to us is the reported margin from here on. 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 do not call it accretion. Just to be clear on reported versus core, reported is going to be our core. Maybe to your question, probably your real question is just around how solid is this NIM going forward. If that is your question, I am happy to answer it if that is your question.
Michael Rose (Analyst)
Yes. Correct.
Steven Young (EVP)
Okay. All right. Great. All right. 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 3.85% versus our guide of 3.60%-3.70% and say, "Okay, what's the main difference in that guide, the difference of, call it, roughly 20 basis points?" 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. 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.
Those two add up to be 16 basis points. The other two was the effect of the sale leaseback and the securities restructure we did on our own book. That was about that happened end of February, 1st of March. That was two to three basis points this quarter. We had a bit of a smaller balance sheet. We thought it would be earning assets would be around $58 billion. It was $57.5 billion. Those are kind of the four, the differences in where our guidance was and where it ended up. A lot of it was deposit outperformance. As we think about the guidance going forward on NIM, there are really two big things maybe that would be changing. One is the interest earning asset size.
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. Based on our lower starting point in the first quarter at $57.5 billion, and then slower growth projection of low to mid-single digit growth for the remainder of 2025, we expect our average interest earning assets to be $58 billion or so for the year and to exit 2025 around $59 billion. That is the change. Relative to the forecasts, we are forecasting no rate cuts, and we can talk about that if somebody wants to follow up.
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 it would continue to drift a little higher into 2026 as we continue to reprice assets. To summarize all of that, in our guide last quarter, we expected the fourth quarter 2025 NIM to be in the 375-385 range. We now expect that NIM in the fourth quarter of 2025 to be 380-390 with a smaller earning asset base, but essentially with a higher margin, but essentially the same net interest income dollars in the fourth quarter. I know that's a lot to say, but there's a lot of noise around the quarter, and I wanted to kind of just clarify it.
Really, the only change is higher margin, a little bit less interest earning assets, same net interest income dollars as we see it today.
Michael Rose (Analyst)
Very helpful. Appreciate all the color, guys. It's a lot. I'll step back. Thanks.
Steven Young (EVP)
Thank you, Michael.
Operator (participant)
Next question comes from the line of Catherine Mealor with KBW. Please go ahead.
Kathryn Mueller (Analyst)
Hey. Good morning.
Michael Rose (Analyst)
Hey. Good morning.
Kathryn Mueller (Analyst)
Oh, my question on expenses. That came in also lower, at least for me this quarter. Just curious maybe if some of the cost savings came in earlier or in the end. I know conversion is in May. 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 in.
Will Matthews (CFO)
Yeah, Catherine. Last quarter's call, I laid out an expected NIE range of $355 million-$365 million for the first few quarters, then dropping into the $340 million-$350 million range in Q4. I said in my comments, we did exceed our expectations in terms of NIE in the first quarter for two factors. One, if you look back at last year and other years, we do have a tendency sometimes for hires and projects that are in the budget for first quarter starts to get pushed back a little bit. That was part of the outperformance in Q1. That often catches up later in the year. If you look last year from Q1 to Q4, you saw our NIE move up about $10 million from Q1 to Q4. 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-$360 range. We get some more of the cost saves in Q4, so it's in the $345-$350 range would be our guide today. Also, keep in mind, July 1 is when most of our team is up for a merit increase.
That factors in between the delta when you get some of the more of the cost saves in from Q2 to Q3. You also have that factor in it as well. Anyway, that's where we are on our NIE guidance.
Steven Young (EVP)
Maybe just to add one other thing to what Will said, of course, we talked about the sale leaseback in February or at the end of February. We'll have three months of that versus one month of additional expense, which.
Will Matthews (CFO)
Yeah. That is about an incremental versus Q1 incremental, roughly $6 million a quarter that is in there too. Thanks, Steve, for that reminder.
Kathryn Mueller (Analyst)
Okay. So that incremental $6 million adds in the extra two months.
Will Matthews (CFO)
Yes. Yeah. Exactly. It's roughly three months, a little less than three months for about that. As you know, Kathryn, 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. There's things like that that, of course, you understand move around quarter to quarter, but that should give you a good guide.
Kathryn Mueller (Analyst)
Yeah. No, that's helpful. That's what I was thinking is because the loan origination was stronger, but the net loan growth was a little bit slower. I was wondering if that was part of what was going on in that number. That guidance is really helpful.
Will Matthews (CFO)
It's pretty close to what we were expecting.
Kathryn Mueller (Analyst)
Okay. Okay. Great. Maybe just one back to just the fair value accretion question. If I look at where your loan discount is plus the accretion that we already saw this quarter, it looks like the loan mark on IBTX was a little bit higher, whereas I was thinking it was going to come in a little bit lower with the moving rates. Am I doing that math right? Or is there any way you can just kind of say something what the loan mark ended up being on that book?
Steven Young (EVP)
I think the total mark for non-PCD and on the credit side as well as the rate mark ended up, what, 482 or 480 something.
Will Matthews (CFO)
The total accretable mark's $482.83 million.
Steven Young (EVP)
Yeah. Of the rate mark portion of that, it was roughly 80% of that. I do not know, was it 380 something? I do not have it in front of me, but it is in the 380s, I think.
Kathryn Mueller (Analyst)
Okay. That is the rate mark versus the credit mark, you are saying?
Will Matthews (CFO)
Yeah. Yes.
Michael Rose (Analyst)
Yeah. The credit mark would be the non-PCD double count, which was $96 million, I believe, something like that. Yeah.
Kathryn Mueller (Analyst)
Yep. Got it. Okay. Yeah. That's the same. Okay. Yeah. It looks like the rate was a little bit higher. Okay. Great. Just to kind of recap this accretion question earlier for Michael. 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. That should be kind of, I mean, you're doing this over a straight line over the last loans. That should be kind of baked in for the next three years. It may fluctuate up if we have accelerated paydowns. There's no reason to really assume that we're coming down significantly again versus this kind of, I think I calculated the accelerated piece was about $7 million.
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.
Will Matthews (CFO)
Yeah. The way I would describe it, you're looking at it from the bottoms up. We're looking at it from the top down, just like we would do investment yield this quarter. We're looking at it from a total loan yield perspective. That loan yield has two components. Most of it's coupon and some of it is accretion. This quarter, whatever the loan income was, was $800 million or whatever the number was, a portion of that was accretion. Over time, what will happen as every month goes by, we will reprice those coupons up as they mature, and the accretion part will come down. If rates did not move, that total loan yield should not move from a perspective of the acquisition, if that makes sense.
Steven Young (EVP)
That is effective yield method as opposed to straight line, Kathryn. So yeah.
Kathryn Mueller (Analyst)
Got it. Okay. That's very helpful. All right. Thank you.
Operator (participant)
Next question comes from the line of Stephen Scouten with Piper Sandler. Please go ahead.
Stephen Scouten (Analyst)
Hey. Good morning, everyone. Maybe one more follow-up on the NIM. I think it makes a lot of sense. I think we all have PTSD from the old legacy credit accretion back in the 2010s. You mentioned that your guide has no cuts in there. Is it fair to assume that the NIM would accelerate a little more beyond what you're assuming if we get a couple of cuts once the cuts move through and stabilize?
Will Matthews (CFO)
Yeah. That's a good question, Stephen. Clearly, after this whole balance sheet reset, we've looked at it, modeled it, and now that we have all the data together, we've seen it a little different. The way I would kind of describe our balance sheet today, our balance sheet positioning is much more neutral to rates. Here is the first reason why: in the first quarter, we accelerated the deposit rate improvement from Independent. We ended up 11 basis points better than we expected. If you kind of look at it, if we were a combined company from the time they started lowering rates to now, our deposit beta down would be 40%. That's 40 basis points on 100 basis points of cuts, which is much higher than we modeled. We do not expect from here to get that 40%.
We expect it to be much more muted in that 25-27% range. As we think about kind of the there's puts and takes to all of this, the three things I would say that are moving, number one, we have the legacy SouthState billion-dollars-a-quarter loans that are moving up every quarter as we reprice them because the yields are higher than our coupon. We have the legacy independent loans that will, because rates have come down 50 basis points since the mark, when they mature, they'll likely come down a little bit from that perspective. 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.
We have sort of hit a pretty, we think, a reasonably steady state at this level.
Stephen Scouten (Analyst)
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?
Will Matthews (CFO)
That's fair to say it. Yeah.
Michael Rose (Analyst)
Okay. Great. That's fantastic. I guess maybe at a very high level, is there anything you guys could speak to, either positively or negatively, kind of developments since the close of the IBTX transaction, surprises or learnings or anything that would give us some visibility into how the combination is going, especially from a production standpoint and what that potential of the combined franchise really looks like?
John Corbett (CEO)
Yeah. The social blend of these two organizations has gone as well as any that I've ever been involved with, Steven. We think alike. We're both aiming for the same goals. We just got to get this conversion behind us. IBTX was in the same kind of growth markets. We were a very entrepreneurial approach to their business model. David and I spent five years talking about this, working about this, learning about each other's company. There really are not a lot of surprises because we spent so much time building that relationship for years ahead of time.
Stephen Scouten (Analyst)
Yeah. That makes sense, John. Appreciate that. As I think about kind of the potential to do this low, mid-single-digit growth after, as you noted, a quarter that was kind of obviously lighter on growth this time around, what do you need to do from a production origination standpoint to kind of get the growth you need? Because obviously, the balance sheet's a lot bigger. I mean, production was up this quarter, but not enough on the larger balance sheet. Does that need to be $3 billion-$4 billion a quarter in new loan production? How do you think about that ramp-up? Do you need to hire more people in those new markets to kind of hit whatever target that is?
John Corbett (CEO)
Yeah. The production that you see in that chart on the slide there includes the IBTX production of about $550 million. We were.
Operator (participant)
Ladies and gentlemen, the conference will resume in just a moment. Please remain on the line. We thank you for your patience. Ladies and gentlemen, we thank you for your patience. We will now resume the conference.
John Corbett (CEO)
Steve, are you in there? Hello, Steven, are you in there? Steven, you there?
Michael Rose (Analyst)
Can you hear me?
John Corbett (CEO)
Yeah. Hey, Steven, you there?
Michael Rose (Analyst)
I am. Yes, sir.
John Corbett (CEO)
Yeah. I have no idea what happened. We got a gremlin on the phone. Anyway, we were talking about the growth dynamic and talking about some of the competitive pricing dynamics. We had some deals, high-quality medical deals, 10 and 15 years that the competition was pricing at 4.99% fixed on balance sheet. We just saw that as capital-destructive kind of pricing. We were not getting paid to grow, so we did not. Good news, Steven, is that our pipeline is up 44% since the beginning of the year, which is kind of surprising given all the tariff noise. Our loan portfolios are growing in April. We have had $173 million of loan growth in the first few weeks. We are optimistic, but we continue to hire. We had a lot of hirings in the first quarter.
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.
Steven Young (EVP)
Okay. That's really helpful. 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?
John Corbett (CEO)
Yeah. It was $550 million, $550 million.
Steven Young (EVP)
Great. Fantastic. Thanks, Brother Corbett. Congrats on another great quarter.
Operator (participant)
Your next question comes from the line of Russell Gunther with Stephens. Please go ahead.
Russell Gunther (Analyst)
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 a defensive and offensive situation. I guess just thinking about the ability to go on offense if the macro environment would allow, how are you thinking about capital deployment from here?
John Corbett (CEO)
Yeah. We have a little bit of uncertainty right now with the economy. 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. We are going to have options. We are 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. Right now, we do not have any clear direction on how we are 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.
I think we're going to have a better, clearer view in the back half of the year versus what we do today.
Will Matthews (CFO)
Yeah. Russell as well. I'll just add a couple of things. One, as John said, we do expect to see growth resume, although we didn't grow in Q1. Pipelines were up materially from the end of the year. We expect to grow and use some of the capital for that. We also, though, are in a position where we would see our CET1 creating probably 20-25 basis points a quarter from here through the rest of the year. That optionality John referenced should continue to build.
Russell Gunther (Analyst)
That's very helpful. Thank you, guys. 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.
John Corbett (CEO)
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. 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. We think the risks of the C&I portfolio are probably more second-order effects. On the CRE side, we're taking a hard look at the industrial warehouse exposure, particularly in the port cities. I think we've identified about $200 million of exposure specifically near the ports. We got about $50 million in spec industrial, which is pretty small in Jacksonville, Savannah, and Charleston. 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. We got more work to do, and we'll be in a better position to assess the risk in the next quarter.
Russell Gunther (Analyst)
Okay. Great. That's really helpful. 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 average assets.
John Corbett (CEO)
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 pretty close to where we thought 54 was within the guidance. The main, as we kind of look forward there, correspondent was down a little bit on the capital market side on the interest rate swaps. That is just because of less volume going through the tube on loan growth and so on. 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 team. That really grew this quarter. If I kind of take it on balance, our guidance really has not changed, and it is 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. 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.
Russell Gunther (Analyst)
Understood. Okay, guys. That's it for me. Thanks so much for taking my questions.
John Corbett (CEO)
You bet, Russell.
Operator (participant)
Your next question comes from the line of Jared Shaw with Barclays. Please go ahead.
Jared Shaw (Analyst)
Hey, everybody. Good morning.
John Corbett (CEO)
Good morning.
Jared Shaw (Analyst)
I don't know. Not to beat a dead horse with the accretion, but just as we're trying to build out NII guide going forward, is there sort of a dollar of accretion that we can be basing it on? I think Catherine trying to get to the $385 million gross number from the deal, and then we take out the $61 million, $61.8 million from this quarter, is that $50 million a quarter a good run rate or good range to assume apart from accelerated accretion or any benefit from accelerated accretion?
John Corbett (CEO)
Sure. Maybe let me say it another way. If you take out the accelerated accretion, our loan yields this quarter would have been 6.19% versus 6.25% is what you reported. As we think about total loan yield, we think in the forward-visible future, the puts and takes are between 6.15%-6.25%, and the accretion in the early stages is going to be higher. If you pull out that $7 million that we talked about, early payoffs, that is going to continue to decrease over time. To your point, it is pretty steady for a while. The coupon is going to replace that accretion.
That total loan yield somewhere in that 615-6 and a quarter range is kind of the way we are modeling internally based on what we see in a flat rate environment. Of course, in the early years or in the early periods of time, the accretion, I think, schedule would have been probably in the $50 million range, give or take. That is probably not a bad place to start. To kind of land it, I would look at total loan yield.
Jared Shaw (Analyst)
Okay. All right. Thanks. Maybe shifting a little bit just to credit, clearly, a lot of noise in the provision and allowance with the deal. As we go forward from here, is there any, what's the sensitivity, I guess, to a weakening Moody's baseline, or are you internally using more of an adverse scenario at all in your CECL calculation? As we go forward from here, how should we be thinking about the movement of allowance ratio and sort of provisioning?
Will Matthews (CFO)
Yeah. Jared as well. We hold our scenario weightings constant. Our belief that's a little better statistically in terms of modeling. What we did do this quarter was to add in a Q factor associated with business conditions, external factors, etc., associated with the tariffs. That combined with the weightings we have incorporates forecast uncertainty. I'd say a couple of things on the reserve level. Weighing that in, that allowed our provision to be $8 million for the quarter. Absent that, we would have had a provision that would have been negative. That did not seem appropriate. I guess a couple of things. One, if you think back to when we adopted CECL back in 2020, our reserve level would have been about 30 basis points below where we are today at that time frame.
A lot of calls for other banks have focused on their unemployment rate assumption. If you look at the scenarios and our weightings of them, baseline S1, S3, the average unemployment rate, weighted average unemployment rate for 2026 would be about 5.2% on those. I'll also caution you, there are a lot of other factors that are loss drivers that are important in our CESL model: commercial real estate price index, housing price index, things like that, in addition to unemployment that help drive the level of the required reserve. If we get a serious change to the negative and expectations for all those loss drivers, you know we'll see our and other banks' provisions need to go up. If things are pretty stable, I don't see our provision moving up from this level.
Conceivably, it could move down from here if things improve a little bit because, as you know, it's a forward-looking life of loan loss model. Generally, the provision expense is going to precede the charge-off experience.
Jared Shaw (Analyst)
Great. Thanks for that. Appreciate it.
John Corbett (CEO)
Sure.
Operator (participant)
Your next question comes from the line of David Bishop with Hovde Group. Please go ahead.
David Bishop (Director)
Hi, gentlemen. Good morning. This is actually John on for Dave.
John Corbett (CEO)
Hey, John.
David Bishop (Director)
I appreciate the color on the conversion. Just to confirm, is that still slated for Memorial Day weekend?
John Corbett (CEO)
It is.
David Bishop (Director)
Wonderful. 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 Corbett (CEO)
John, this is Steve. From a standpoint of movement within that book, we're really not thinking there's going to be much in the conversion. I mean, the main reason for that, of course, is hopefully we're given better technology, but more importantly, we're keeping all the frontline bankers who deal with the clients. In our model, it's local market driven. I would think our commercial and treasury and others should be good. Our platforms, from what we're hearing from the Independent folks, on average is getting better. Of course, there's always turmoil in that first few months afterwards. We have roughly 500 legacy SouthState people going to the Independent markets during May and June to help out the teammates there to make sure that this transition is as seamless as it can be. To your point, these things are always hard.
It's a heavy lift, but we believe we've got everything we're doing in place to get this done well. We are not modeling any. We don't expect it, but we'll see. We've done three practice mock conversions already, and Renee Brooks leads this effort for us. She's done a ton of these conversions. 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 of months.
David Bishop (Director)
Fantastic. Great to hear. Maybe just to follow back up on Steven's questions on loan growth, and I 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.
John Corbett (CEO)
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 is up 28%. That's kind of where we're seeing the growth. Some of the stuff's in the pipeline, and some of it will be kind of tariff-dependent, whether it pulls through or not.
David Bishop (Director)
Fantastic. That's all I had. I appreciate you guys taking my questions and congrats on a great quarter.
John Corbett (CEO)
Thank you, John.
Operator (participant)
Your next question comes from the line of Chris Marinak with Janney Montgomery Scott. Please go ahead.
Chris Marinac (Director)
Thanks. Good morning. John, I'm just curious on new hires in Texas and Colorado and where that falls on both timing and priority for you.
John Corbett (CEO)
Yeah. We had a great recruiting quarter here, and we're open for business to recruit great bankers in Texas and Colorado. I think we want to get through the conversion, Chris, and implement the new treasury management software and get the bankers used to that. We look to layer on some additional middle market bankers once we put that in the rearview mirror. We had a big quarter starting with an addition in Nashville, Tennessee. We were able to recruit the market president of Truist Bank in Nashville, Cameron Wells, and we're building a team around him and starting a loan production office in Nashville. We've hired commercial and middle market bankers this quarter in Tampa, Jacksonville, Athens, Georgia, Raleigh, North Carolina, big ads to the wealth area in Atlanta, Jacksonville, Hilton Head, Charleston. Anyway, we've had a great recruiting quarter.
As far as adding the middle market team in the new markets, we'd like to get the treasury piece in place first.
Chris Marinac (Director)
Great. That helps a lot. Thanks for sharing all the other background. It's super. Thank you.
John Corbett (CEO)
Sure.
Operator (participant)
I will now turn the call back over to John Corbett for closing remarks. Please go ahead.
John Corbett (CEO)
All right. Thank you, Eric. Thank you all for calling in. Some moving parts here during the quarter, and you had great questions, and hopefully we provided some clarity for you. We are real pleased that we have kind of stuck the landing as it relates to the closing of IBTX. We feel like the balance sheet is in a great spot, the earnings profile is in a great spot. If you are building your models and you have some extra questions, just do not hesitate to reach out to Will or Steve. Hope you guys have a great day, and this will end the call.
Operator (participant)
Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.