Hello, everyone, and welcome to the SouthState Corporation Q1 2023 Earnings Conference Call. My name is Charlie, and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register your question, please press star followed by one on your telephone keypads. I want to hand over to our host, Will Matthews, CFO, to begin. Will, please go ahead. Good morning. Welcome to SouthState's Q1 2023 earnings call. This is Will Matthews. I'm here with John Corbett, Steve Young, and Jeremy Lucas. John and I will make a few brief prepared remarks before we open it up for questions. As always, a copy of our earnings release and our investor deck are located on our investor relations website. Before we begin our remarks, let me 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, let me turn the call over to John Corbett, our CEO. All right. Thank you, Will. Good morning, everybody. Thank you for making time to join us. In March, we passed the third anniversary of the pandemic shutdown of the economy. It also marked the third anniversary of the Fed's massive quantitative easing response. Last year, however, the Fed made a hard pivot from fighting the pandemic economy to fighting the inflation economy. Intuitively, we've all been worried that the speed and scale of that pivot would result in casualties. Well, those casualties showed up in the banking system on March eighth. In spite of the recent turmoil, the SouthState team delivered results that were right in line with our previous guidance. During the quarter, we produced growth in loans, deposits, liquidity, and our capital ratios. Earnings per share of $1.83 increased 32% from the same period last year. That yielded a return on tangible common equity of about 19%. In the weeks following March 8th, the market identified two immediate risks, liquidity and capital, and also two longer term risks, earnings and credit. I'll briefly touch on each. On liquidity, we've been building a diversified and granular deposit base for decades, and we came into this rate hiking cycle with $6 billion in cash a year ago. SouthState manages 1.5 million deposit accounts with an average deposit size that is the lowest of our peer group at only $24,000 per account. That granularity adds stability and a lower% of uninsured deposits. On page 26, we've itemized $19 billion of available liquidity sources to cover less than $11 billion of uninsured and uncollateralized deposits. That provides a 176% coverage ratio. There's ample liquidity. On capital. In the weeks following March 8th, there's been speculation about the regulatory response and whether unrealized losses will eventually be reflected in regulatory capital ratios. On page 27, we show a waterfall to illustrate that SouthState remains well capitalized on all regulatory ratios if you include the impact of AOCI. Additionally, we calculated it to include the impact of both available for sale securities and held to maturity securities. All of our regulatory ratios still exceed well-capitalized requirements. Those capital ratios should continue to build as the balance sheet grows at a more moderate pace. In fact, tangible book value per share increased 6% during the Q1. On earnings. Like most banks, the biggest risk to our earnings forecast are deposit costs. We finished the Q1 with a cumulative deposit beta of only 13% and a total cost of deposits of 63 basis points, which came in right in line with our prior guidance. That low beta helped our PPNR per share to grow 62% over the last year. Given the events in March 8, that earnings growth ramp will moderate, and Steve can share some updated thoughts in the Q&A on potential deposit betas moving forward. Finally, on credit. Asset quality metrics remain excellent and stable. However, we are conservatively building reserves. Over the last 4 quarters, we added $123 million in loan loss reserves compared to just $3 million in charge-offs. With the increasing focus on the office segment, we added a new slide in the deck that Will could touch on in his remarks. Stepping back from current events, every shakeup like this presents new challenges and new opportunities. This management team has been involved in 9 FDIC transactions and knows what it's like to manage through a cycle. That's why our guiding principles of soundness, profitability, and growth start with soundness. We will continue to have opportunities to recruit new bankers, and we're already seeing opportunities to command higher loan spreads as industry liquidity is becoming scarce. It doesn't hurt to be located in the most vibrant markets in the country. The Southeast is known for its friendly business climate and capital flows where capital is treated well. It seems like every month there's an announcement of a new multi-billion dollar manufacturing facility with thousands of new jobs in the Southeast. Those job opportunities are leading to population migration. Based on the latest census report. SouthState operates in 4 of the 6 fastest growing states in the country. I'll conclude my remarks by thanking our team. You can never predict when a black swan event will occur. Those are the times when long-term client relationships matter the most. SouthState's relationships run long and deep. Now I'll turn it over to Will to walk you through details on the quarter. Thanks, John. I'll speak briefly to a few measures before we open it up for questions. From a high-level perspective, our 1st quarter margin and deposit costs were at or slightly better than our prior guidance. After the events of March 8th, we decided to build a bit more liquidity on the balance sheet. Our tax equivalent NIM of 3.93% was down 6 basis points from the 4th quarter, although it was approximately 9-10 basis points better than we had budgeted. A 40 basis point increase in earning asset yields was offset by a 46 basis point increase in cost of funds. Cost of total deposits increased 42 basis points, in line with our guidance of a 40-50 basis point increase from last quarter. Our interest-bearing deposit costs remained slightly below 1% at 97 basis points. Loans grew at a 7% annualized rate in line with our expectations, predominantly in single-family residential, up almost $400 million. Line of credit utilization remained flat, with C&I line usage actually down 2% from Q4 and HELOC usage flat. Deposits grew at a 1% rate. Included in that deposit growth is brokered CD issuance of one and a quarter billion dollars during the quarter. We had budgeted and planned to issue $1 billion, went ahead and issued an additional $250 million late in the quarter in light of some of the industry concern. Excluding brokered CDs, our deposits declined approximately $1.2 billion in the quarter. Of that amount, approximately $400 million was normal public funds drawdowns after Q4 tax collection season. We did see continued growth in the number of core banking deposit accounts, debit cards, and customers in the quarter. We had $900 million in FHLB borrowings outstanding as we elected to carry more cash on the balance sheet at quarter end, with cash and Fed funds balances up $700 million. Non-interest income improved $8 million over the Q4, led by correspondent and mortgage and steady performance in wealth management. Non-interest expenses continue to be well managed with NIE of $231 million, up $3 million from the Q4 and slightly better than expected for the quarter. We had another quarter of very low credit losses with net loan recoveries, excluding overdraft losses and only $1 million in total net charge-offs. We added to the reserve levels again this quarter with a $33 million provision expense, $18 million of which was for unfunded commitments. The combined total of our allowance and reserve for unfunded commitments stood at $456 million at the end of the quarter, up 8 basis points to 1.48%. As John noted, that's a $123 million in provision expense versus only $3 million in net charge-offs over the last four quarters with net loan recoveries before including overdraft charge-offs. We expanded our reserve coverage by 23 basis points over this period. Slide 22 shows asset quality trends over the last five quarters. These metrics continue to be very solid. NPLs to loans of 41 basis points were up slightly from Q4 and down slightly from the 2022 Q1. NPAs were up $19 million and criticized and classified assets were essentially flat, with substandard loans down $12 million and special mention loans up $10 million. Past dues were also down. Given the current interest in office CRE, I'll mention a few highlights with respect to that portfolio. As noted on slide 21, office CRE represents approximately 4% of our outstanding loans, and 97% of this portfolio is in market. The portfolio is very granular with an average loan size of less than $1.5 million, and the vast majority of the properties are smaller than 150,000 sq ft and not located in a central business district. Our weighted average debt service coverage is 1.64 times, and our weighted average loan to value is 59%. Credit metrics on this portfolio are also strong, with very low levels of delinquencies and only 1 basis point on non-accrual. Additionally, we've added some disclosures beginning on slide 25 covering deposits, liquidity, and capital. Our capital position continues to be strong, and as John noted, would remain so if regulatory ratios were changed to include AOCI. All in all, while the last month of the quarter was rather tumultuous for our industry, we believe we're well positioned with a strong capital base, granular deposit funding, continued strong revenue, and solid credit metrics. Operator, we'll now take questions. Of course, if you'd like to register a question, please press star followed by one on your telephone keypad now. If you'd like to withdraw your question, please press star followed by two. When preparing to ask a question, please ensure you are unmuted locally. As a reminder, that's star followed by one on your telephone keypad now. Our first question comes from Catherine Mealor of KBW. Catherine, your line is open. Please go ahead. Thanks. Good morning. Hey, Catherine. All right. Well, John, you teed Steve up for the deposit beta question, so I thought I'd start there and just wanted to get your thoughts, Steve, on how you're thinking about the acceleration in deposit beta, you know, over the next couple of quarters. Yeah, Catherine, this is Steve. Good to talk to you. Of course, John throws me the softball, so here I go. Let me just kind of first of all, you know, just talk to the deposit beta. Obviously, let me kind of put it in context of margin in general. This may be a little longer-winded than you want, but I think it kind of describes the overall perspective. You know, as John and Will both mentioned, we had a really good NIM in the Q1, 3.93%. Our guidance was somewhere, you know, for the year between 3.70% and 3.90%. You know, deposit costs were, you know, within our guidance, which we were really excited about. You know, as we talk to you about margin, I'm going to give you the same guidance for 2023 with a few updates in the assumptions. You know, just with the caveat, when industry experienced toward the first of March, it really changed our thinking around how much liquidity to hold, as well as our customers' desire for more rate-sensitive products. As we think about the three assumptions, those three assumptions haven't changed. Number one is the size of our interest-earning assets. Number two, the assumption of interest rates, and number three is the deposit beta question you asked. First, around interest-earning assets in January, we talked about on the call our guidance of an average $40 billion interest-earning asset base in 2023, and we have no change to that. Two, we talked about interest rates. In January, the Moody's consensus forecast was for Fed funds to move up to 5% and then be lowered 25 basis points by Q4 of this year. Based on the new Moody's baseline forecast, we expect Fed funds to peak at 5.25% here in about a week, and then stay there all the way through 2023. On page 16, you know, our graph shows our cycle-to-date beta is at 13% versus our historical beta at 24% in the last cycle. You know, as a result of the banking industry turmoil in March, you know, we are estimating that our deposit beta or our deposit costs will rise on 45-50 basis points in the Q2, bringing our cycle-to-date deposit beta into the low 20s versus our historical at 24%. If the Fed stops raising rates in the Q2 based on history, we'd expect deposit costs to continue to move up at a much more gradual pace in the back half of the year. This could cause full cycle beta to increase a few percentage points. You know, to be honest and humble about the whole answer is, we don't really know. It's been a unusual change in March. Having said all that, we're confident in our deposit base, and it seems to be doing well. You know, with all those new assumptions around interest rates and timing of deposit betas, we'd expect our full year 2023 NIM to stabilize in the 3.60%-3.70% range and into 2024. Just one last point. You know, if over the next two years, Moody's baseline is correct and Fed funds falls into the low 3s% with a slightly upward sloping yield curve, you know, the environment's very favorable for us as our interest-sensitive deposit rates will be lowered while our assets that are adjustable and fixed will still reprice higher. Our deposit franchise gets to continue to perform and provide real stable margin environment, but really net interest income driven not by margin, but by growth in interest-earning assets. It's a long-winded answer, but hopefully that gives you confidence. I can tell the beta was in there somewhere. Yeah. That's great. That was awesome as it always is. Thank you. Very helpful. Maybe a few follow-ups to that. On your average earning asset comment that the size is the same at $40 billion, is there a shift within that where you have a little more cash, maybe less loans with a more moderate loan growth outlook? That's right. I think we're, you know, back to the, as John mentioned, the four things that everybody talked about on March eighth, liquidity, credit, capital, and earnings. You know, we're probably gonna carry a little bit more liquidity just through this time, just prudently. Yeah. I'd say, Catherine, not any dramatically bigger liquidity position. I think early on, we all were trying to figure out what was needed in light of all the uncertainty, and we all spent a lot of time increasing our contingent liquidity sources, and we've got a slide on that in the deck. I'll say we're continuing to do that post quarter and increased it further from there. you know, having access to the liquidity is important, but I wouldn't say we're gonna dramatically increase the size of balance sheet liquidity on balance sheet, you know, by big numbers. Back to the deposit conversation. We're seeing a lot of remix out of non-interest bearing into interest bearing, you know, across the industry. With your deposit beta guide, and you're giving a total deposit base that's gonna include that remix, how much of a shift do you expect to continue to see out of non-interest bearing within that guide? Yeah. Hey, Catherine, when we look back at history, you know, our DDA is, you know, today is 34% of our total deposits. You know, pre-pandemic, it was in the high 20s. Not sure that it's gonna go all the way back there, but, you know, you kind of have to assume that it's gonna continue to drift. We don't know. I would imagine that we would track pretty much the industry, however that's gonna play out. Okay. I think one other thought around that is I do think it's around, you know, business deposits. Of course, as we've talked about on this call, you know, 100 times is, you know, we have a pretty granular deposit base that's sort of between retail, small business, and commercial. We have that slide that shows the granularity of each. Really, the remix is primarily in the commercial space and not in small business and retail. That's been, you know, pretty steady. Yeah. Maybe just one thought just on that point is, what kind of behavior have you seen? That I agree, I think the deposit betas have mostly been driven on the commercial side, really across the industry. As you look at your small business and retail piece, did you see any change in behavior or pickup, especially after the March volatility? Yeah, I think it's, you know, probably woke the entire customer base up just around excess deposits. There was some excess deposits that were sitting in checking. Really, primarily, if you looked at it from March eighth on, it was really more of a business remix than it really was any retail or small business. Within business, there was more volatility with nonprofits, where folks are managing other people's money. They were a little bit more sensitive to the issues of March eighth. Yeah. Can I give you an interesting statistic? We had our call center volume the two weeks following March eighth was a normal total volume. It was 66,500 and something calls, only 30 calls had anything to do with FDIC insurance coverage. You know, 5 basis points of the calls, which surprised me how little call center activity we had around that subject. For sure. That's interesting. I agree. Well, that's all very helpful. I'll out of the queue. Thanks so much. All right. Thank you, Catherine. Thank you. Our next question comes from Kevin Fitzsimmons of D.A. Davidson. Kevin, your line is open. Please proceed. Hey, good morning, everyone. Good morning. I was just looking to drill down a little more into the comments about slowing balance sheet growth. From, from what I remember, I don't think you guys were guiding to rapid growth. I think you had last said mid-single digit. If we're going even slower than that, maybe just help us with does that happen quickly? Does that happen steadily over the course of the year? Is that more, is that more driven by the demand and what the Fed has done, you know, the Fed's getting what it wants from the economy? Is it more you guys really proactively tapping on the brakes just given the economic cost of funding a loan, the credit concerns, et cetera? Thanks. Kevin, it's John. I think our previous guide for 2023 was that we would have mid-single digit loan growth for the year. We came in at 7% in the Q1. You know, I can imagine that loan growth may be more heavily weighted to the first half of the year, and things would maybe slow down in the back half of the year as you have a lack of liquidity in the system and just price discovery between buyers and sellers. You know, from our C&I borrower standpoint, I think that business is still good, but a lot of them are kind of in a wait and see mode before they make major capital expenditures. The M&A activity slowed down in C&I. CRE has slowed significantly, and we're seeing some of our peer banks back out of that space. We want to be selective there. Multifamily is still strong because a lot of folks are still priced out of the single-family market, and we've got a lot of population migration here. Industrial demand is still real strong near the ports particularly. We've got less than 1% vacancy rates in Savannah and Charleston on industrial. You know, I think there's a lag effect, Kevin, with the Fed interest rate increases. You know, we were growing loans in the mid-teens in 2022, 7% in 2023 in the Q1. I still think the mid-single digits for the full year feels about right. Okay, great. Maybe just a quick check on expenses. I know, I think last quarter you told us about a $950 million run rate or for the year. Now we're, I think you said expenses came in a little better than your expectations. Is that still the outlook? Or given that things are getting tougher on the top line, is there gonna be more scrutiny on the expense line? Thanks. Yeah, Kevin, it's Will. You know, hopefully, we're always applying the appropriate level of scrutiny to our NIE base and everybody applying that ownership culture as they think through their NIE base. I did reference we're a little better than target. I think we had in the Q1 maybe budgeted about $1 million more. You know, pretty much on top of it. We still think the 950 is a good number. Obviously, in an environment like this, though, you do rethink, you know, do we need to necessarily make this hire or that hire that we may have had approved in the budget? Is that something we can hold off on and make sure that we need to do it? Those kind of decisions that hopefully our team of owners will think through that way. You know, there are factors, you know, that are hard to predict. You know, one is loan production volume and the impact that has on the capitalization of loan origination costs, you know, which is an offset to NIE. Lower production leads to lower cost offset in that regard or higher NIE. You know, sitting here through the Q1, I'm pleased we're a little bit ahead of budget on NIE. I still think our guidance for the full year feels about right at this point. Yeah. Just what I would add to that, Kevin, is just, you know, big picture is that we're, you know, continuing to work on our platforms and spend money on those to make sure that we've got a really good customer and employee experience. We think that that's gonna pay dividends out in 2024, 2025. You know, to Will's point, we're always trying to manage expenses, you know, to the lowest common denominator and ultimately create. There'll always be opportunities again in environments like this, where there'll be teams of people and other things that we'll have the opportunity to hire, and you wanna have the ability to do that. I think within all that, we're gonna manage the expense base. Yeah. One other point I'll make, too, just, as you're thinking about modeling. Our, our typical, most of our employees annual increase cycle is a July one increase. You'll see, you'll see, you know, that's a Q3 event every year. Okay. Appreciate that. Steve, one thing I just it was a nice, rebound quarter for correspondent. Just wondering if that's a sustainable pace or how we should think about that going forward. Yeah, no. To your point, you know, the correspondent had a great quarter this quarter. You know, I kind of the way that we think about that business is, you know, obviously the arc, the interest rate swap revenues had a good, really good quarter. Fixed income is difficult right now just because of the way the yield curve is shaped and cash on bank's balance sheets. I kinda, the way I kinda describe it is, until the Fed's done hiking rates and we get some stability, you know, which should come in the next, you know, maybe towards the back half of the year, you know, these interest sensitive businesses like mortgage and correspondent probably will stay lower. I wouldn't expect, I mean, the Q1 is really good, and I would kind of go back to our original guide on that, to be in that 55 to 65 basis points of assets, until the non-interest income to be that. Until, you know, the Fed stops raising rates and then we kind of go to 60 to 70 after that, because we just need some stability for those businesses. Got it. Thanks very much, guys. Thank you. Our next question comes from Stephen Scouten of Piper Sandler. Steven, your line is open. Please go ahead. Yeah, good morning, everyone. I guess I was kind of curious at a high level, how do you think if in any way your business model has kind of changed with all the turmoil from March 8 and beyond? You know, everybody seems to think, oh, regional banking model is somehow dead now. I'm just kind of curious what your views are on that at a high level and how you think your business model may or may not have changed? Yeah, Steven, it's John. you know, I think about our business model and a couple things come to mind. Number one is, the local market leadership in our business model. We have 41 regional presidents, and they manage their own balance sheet and their own income statement. I think that has proved to be very valuable when it comes to managing deposit costs and deposit betas. In a headquarter-centric type of business model, you're making all of these interest rate decisions at the headquarters. I think it's much, much better for the local market leaders to figure out where they need to shoot the bullets on pricing deposits for their very best customers rather than someone guessing hundreds of miles away. I think that part of our model has been very, very valuable. The other piece of the model is, it's a diversified model. You heard Steve talk about the diversity of the deposit base. One-third retail, one-third small business, one-third commercial treasury. You go back to 2008, 2009, what got the banks in trouble? It was concentration on the loan portfolio. You look at this cycle, what got banks in trouble was concentration on the deposit side. I think our decentralized leadership model has proven to be very valuable, and I think the diversity of our business mix has proved to be very valuable and kept some stability. I don't know that we're thinking about this crisis as something that's going to change the way we do business. I think it's proven to be resilient. Great. That's really helpful. Congrats on a really great stable quarter. Appreciate it. Thank you. Thank you. Our next question comes from Michael Rose of Raymond James. Michael, your line is open. Please proceed. Hey, good morning, guys. Thanks for taking my questions. Just wanted to go back to mortgage for a second. The gain on sale margin popped up. You had a better quarter if you back out the MSR gain. I think you just made some comments. I might have missed them, but just wanted to get the kind of the outlook there. On the balance sheet side, you've been portfolioing more of the mortgages, which obviously contributed to this quarter's growth. Just wanted to get the outlook there for, you know, how much you might plan on a quarterly basis to portfolios going forward. Thanks. Sure, Michael Rose, this is Steve Young. Yeah, you're right. You know, the gain on sales did come back a little bit this quarter. I think our total production was around $556 million, of which we portfolio-ed about $400 million of that. You know, not quite, I think it's 70%-72% portfolio. You know, the adjustable ARMs on that was 78% of that, so most of it's just we're putting on an ARM, adjustable rate mortgages. As we kind of think about the future, you know, we don't see a huge run-up in that business for a while until things stabilize a little bit. I think what we're seeing most and why we have so much portfolio production is we have an owner person who is building a house. You know, there's just not enough inventory. They're doing a kind of a CP loan that, you know, firms out into an ARM on our balance sheet. Typically, these are professional doctor. I think the number was in the mid 40% of our portfolio production was that in the Q1. We're seeing a lot of those types of opportunities, which obviously feeds into wealth management and so on. We're not seeing, you know, any huge pickup in sort of the traditional secondary business, at least right now. You know, certainly it's come off the lows a little bit. You know, my sense is like anything else, like all these fee businesses, these are opportunities for us to build, to continue to rebuild and build these businesses. You know, so we're actively recruiting mortgage bankers. We're actively recruiting some of our correspondent group. You know, we're actively doing all those things, not because it's gonna pay off in the next 3-6 months, but because it'll pay off in the next, you know, 12-24. So that's kind of how we're thinking about investing in those businesses. Very helpful. Maybe just going back to deposits. Just wanted to kind of talk about flows. Obviously you guys added some broker this quarter. You had the seasonal decline in public funds. Just excluding those two kind of impacts, you know, the core deposits obviously went down. Can you just talk about trends, you know, kind of since everything happened in early March? You know, have you seen balances stabilize to maybe perhaps grow? What is the plan going forward to grow core deposits? Thanks. Hey, Michael, it's Will. I'll start, and maybe John or Steve can jump in and elaborate. You know, I'd say the events of March 8th probably caused us to be a little more focused on deposits within our market and within our various markets. So our sales hat on the deposit side became, you know, a little more important, you know, from that point forward. I think what you'll see from this point forward, I think, is a lot more activity in that regard. If you look at the March 8th to March 31st activity, essentially in that period you saw our commercial deposits down about $400 million. Our other deposits, the rest of the bank is up about $100 million. Net-net over that period, yep, you're down about $300 million. You know, we have a lot of swings in the various categories, obviously from period to period, depending on what's going on. That, that's, you know, not a real precise measure, but that, you know, like I said, we were surprised how few calls we had, to, you know, at the call center. Maybe John can touch on some of the activity we had with the outreach we did with our, some of our customers right around that time. Yeah. You know, I go back to January, even before the March eighth events. We were seeing some drawdowns of deposits in January. I don't know that a lot of that was the public funds piece that's seasonal. Things stabilized in February. We were feeling really, really good about the stability of the deposit portfolio in February, and then naturally things picked up and the runoff picked up in March. April, we started this deposit campaign, and things stabilized again until you get to tax day. That's kind of the ebbs and the flows the last few months. For us, Michael, the important thing was after March eighth that we instilled confidence in our frontline bankers, and we met with probably 100 or more of our leaders on that Monday morning. You know, I think the market correctly identified the risks to the system were uninsured deposits and the size of deposit accounts. We had some great data Monday morning to share with our bankers that SouthState had the lowest average deposit size of any of our peers, and we had one of the lowest uninsured percentages of total deposits. I think that gave our bankers a lot of confidence, and that confidence in turn translated to our customers' confidence. One other data point, too, I mentioned the commercial deposits. You know, our commercial line of credit utilization fell by roughly 2% during the quarter. You know, so it looks like businesses tend to use their cash before they use our cash, so to speak. That makes a lot of sense. Thanks for the insights. Maybe just finally for me. I know capital is a precious commodity at this point, but the stock has definitely come in. You guys have a buyback in place. Any thoughts on using it? If not, you know, kind of near term, what would kind of change the calculus for you? Thanks. Yeah. I think in the near term, Michael, we think, capital, continuing to allow capital to accrete and build is wise. You know, that having capital as a strength will allow us to be more opportunistic should some opportunities develop coming out of this. As John mentioned in his prepared remarks, we've got a history of Of doing that. In our view, for the foreseeable future, we continue to plan to let capital accrete. It'd be good to get some guidance, you know, some clarity on regulatory changes and even the regulatory changes that don't necessarily affect banks below $100 billion statutorily or re-regulation-wise. That kind of guidance often flows downhill. We'll wanna, you know, be able to understand and digest that as well. You know, longer term, having a clearer picture on credit growth, et cetera, will allow us to figure out what's the best way to use what's hopefully still a very good capital formation rate. Great. Thanks for taking my question. Appreciate it. As a reminder, if you wish to submit a question via the telephone lines, you can do so by pressing star followed by one on your telephone keypad now. Our next question comes from Brody Preston of UBS. Brody, your line is open. Please go ahead. Hey, good morning, everyone. Thanks for taking the questions. You bet, sir. Steve, I wanted to follow up, just on the line of thought on the non-interest bearing. I know it's, I know it's really hard to predict, you know, but you did give, you did give expectations for margin for the rest of the year. It, it sounded like you're expecting some further mix there based on the other comments you gave. Just wanted to ask, within your margin guidance, what are you guys expecting for a non-interest-bearing deposit mix? Yeah, I don't know that we would say that publicly, although we just don't know, honestly. We have some... We definitely think there's some movement, you know, from 34% into the high 20s. We don't know if all that happens in the next, you know, 2 quarters or it happens over the next 18 months. We're just not really sure. I would just assume that we're gonna be a lot like the industry and seeing the continued remix. I think this quarter is about 7%, so I would assume that that probably trends maybe another quarter or so, and then after that stabilizes. I think what's happening right now is there, you know, there's a wake-up moment in March 8th, and that probably, I would expect until the Fed stops raising rates. Let's assume they stop raising rates in May, that there's some remix over this next quarter, and then we probably get the most of that remix out of the picture, I would think. It'll dribble in over the next, you know, yeah, two to four quarters after that. Got it. That's helpful. I did also wanna ask, just on the correspondent bank, could you give us a sense for what amount of your deposits come from your correspondent relationships, and how those trended, you know, from 12/31 to 3/31? Yeah, you know, that correspondent business, we have $200 million in DDA, $300 million in money market accounts, maybe $200 million in Fed funds. I'm gonna guess $600 million maybe. Yeah, we've always been pretty intentional about that business relative to being a fee income business versus a deposit gathering business. We do gather deposits. We have about $1.5 billion sits off balance sheet with the EBA, which we, you know, sort of all their wires and ACHs come through us. Instead of us putting that $1.5 billion on our balance sheet, we send it to the Fed. We've always been pretty disciplined around how much of that we wanted to put on our balance sheet at any point in time. Hopefully that's helpful. No, that is. That is. I appreciate that. I had 2 last questions. Appreciated the office slide. I did wanna ask, is that, is there owner-occupied office included within that 4% of the total portfolio that you put out there? If there is, do you have a sense for what that portion is? That's the non-owner occupied office space, Brodie. Got it. Got it. Thank you very much for that clarification. I did just wanna ask again, on the non-owner occupied portion, I guess maybe I should have triangulated the office exposure before I asked that question. You did give the other non-owner occupied CRE portfolios. I did just wanna ask on the hotel and the nursing home, I know the nursing home is a very small portion for you. I did wanna ask, you know, what causes those two loan portfolios to have higher substandard and special mention ratios than the rest of the book. I'm particularly interested in the nursing home. Just wondering if there's anything, you know, special going on there. Yeah, you bet. You know, the hotels is a carryover from COVID. As we get financial statements on these hotels, we're continually upgrading those, and we see that trend continuing. That's just a hangover from COVID. Actually, hotels are performing very, very well right now. The convention business is about back to normal. Tourism in Florida is about back to normal. We do not forecast problems in the near term in the hotel space. On the assisted living space, it's less than 1% of our loans. We had a couple of new facilities that came online during COVID. You know, basically it's healthcare costs, you know, the fear of COVID, and the facilities are a little slower to become occupied. Got it. Do you, I guess I know it's a really small portion of your book, but is that a trend, I guess, when you kinda look across, you know? Assisted living facilities and the deals that kind of come across your desk, are you seeing kind of that slowness in lease up or, you know, in occupancy across, you know, some of the newer facilities that are being built versus maybe some of the older ones that already had higher occupancy rates? Yeah. I just think that that is a challenged space because of COVID, and I think it'll be slow to come back to what it was prior to COVID. I mean, I think it's just an overall COVID issue. Yeah, Brody, we saw them also have problems with, you know, labor inflation and labor shortages. They kind of got it from all ends. As you said, it's not a big space for us, nor is it a big much of an appetite for us. We've had those on downgraded status really for a good while now. Yeah. We've got two non-accrual assisted living facilities. Both of them are current on their payments, so we don't anticipate a loss there. Got it. Actually, on that note, I think. Thank you. 59% of our non-performing loans are current on payments. Oh, okay. Well, that's good. That's good to know. All right, guys. Well, thank you very much for taking my questions. I appreciate it. Certainly. Thank you. Thank you. As a final reminder, if you wish to submit a question via the telephone lines, you can do so by pressing star followed by one on your telephone keypad now. Our next question comes from Brandon King of Truist Securities. Brandon, your line is open. Please go ahead. Hey, good morning. Morning, Brandon. Hey. I just wanted to know if you could help us how we think about with loan yields and how they could increase from current levels, maybe get the benefit from fixed rate loan repricing. Steve, I know you mentioned that 45 to 50 basis points increase of the deposit costs in the Q2, but how much can you offset that with, you know, loan yields repricing? How does that kind of trend towards the later half of the year when the Fed pauses? Yeah, Brandon, it's a good question. That's kind of why we think there's stability in the back half of the year with margin. You know, if you look at our book, we've got about... We have a slide in the deck that talks about our fixed rate book. Call it about half of it is fixed rate. We've got about, so that's about, you know, $15 billion or so. We've got about $8.7 billion that's floating daily, so that probably has one more rate hike in it. We have about $3.6 billion that is gonna be adjustable here in the next 12 months, and its weighted average rate is 4.07%. You know, if it's based on a one-year Treasury or what have you, likely that's gonna reprice in the 6s somewhere. We have some other adjustable that'll reprice. About $2.6 billion that'll reprice out past further than the year. As we think about loan yields, you know, we had a, you know, pretty significant move in loan yields, I think it's 41 basis points for the portfolio in the Q1. I would say that probably we'll be 15 to 20 basis points over the next couple of quarters, and maybe we crest out at the, you know, end of the year somewhere between 5.50% and 5.75%, somewhere in there. Got it. Got it. Very, very helpful. Then on the deposit side, what is kind of the continued appetite for broker deposits? Could you share kind of what the rate and maturity, the broker deposits were that you raised in the quarter? Sure, Brandon. You know, if you kind of I'm gonna give you a short answer and a long answer. The short answer is, we did about $1.25 billion at about is right at a 5% coupon, and it's got a three-quarters of a year duration. That's the short answer. The longer answer is, if you kind of look back at these times of stress, times when, you know, like I'll go back to March of 2020, we sort of did the same thing. We borrowed, I think, about $1.1 billion or $1.2 billion of broker deposits because it was really uncertain in March of 2020 about, you know, small businesses, pandemic. The way we think about it is, you know, that's a source that we can get to quickly that we'd sort of bolster the balance sheet. Over time, we would expect that to probably continue to ebb down. You know, if you went to pre-cycle, pre-pandemic, in December of 2019, I think we had about 3.5% of our assets were in either Home Loan Bank or broker deposits. That's probably a good long-term average. Today we're at 5%. You know, my guess is we'll drop back down over time. Okay. Makes sense. Lastly, on credit, net charge-offs continue to be very low and, you know, some of your peers have already seen some normalization of blips. I'm just curious, just how long, much longer do you think you can keep net charge-offs at this level? Kind of when do you think that pace of normalization will start to begin? Yeah, good question. We'll have to just see how this cycle unfolds. For the quarter, we actually have net loan recoveries. I think we mentioned in the prepared remarks, we've set aside $123 million in reserves for only $3 million in the last year. You know, I think if you look at the loan portfolio, we've got a lot of detail in the appendix there about our loan to values. They're in the high 50s, so we feel like we've got great equity and great sponsorship with our clients. We're just gonna have to see how this cycle plays out. This is unlike anything we've faced in our careers from a liquidity standpoint, but we like our hand in the book that we've got. Okay. Thanks for taking my questions. You bet. Thank you. Our next question comes from David Bishop of Hovde Group. David, your line is open. Please go ahead. Yeah, good morning, gentlemen, and had to jump on. Good morning. Yeah, good morning. Apologize if this question has been asked and answered, I think just noticed the run-up in short-term liquidity here and borrowings here. Is that just a modicum of cautiousness given the dislocation this quarter, and how should we think about that, you know, cash and short-term investments, trending through the rest of the year? Thanks. Yeah, David, this is Steve. You know, what we reiterated earlier was, you know, kind of that mid-single digit loan growth. We reiterated a $40 billion interest earning asset base. We would expect, I think we ended up a little bit higher than that if you looked at a spot basis on interest earning assets at the end of the quarter with a little bit more cash. I'd imagine that cash would come down a little bit. But that's sort of our guide, I don't think it's a huge move either way. Great. Thank you. Thank you. At this stage, we currently have no further questions. I'll hand back over to the management team for any final remarks. Thanks for joining us this morning. I know there was a lot of earnings releases yesterday. It was a busy morning. Appreciate you joining us. If you have any questions on your modeling, don't hesitate to give us a ring. Hope you have a great day. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.