Q4 2022 Trustmark Corp Earnings Call
Okay.
Good morning.
Ladies and gentlemen, and welcome to Trustmark Corporation's fourth quarter earnings Conference call. At this time, all participants are in listen only mode.
Following the presentation. This morning, there will be a question and answer session.
Ask a question you May press Star then one on your Touchtone stuff too.
Withdraw your question. Please press Star then two.
As a reminder, this call is being recorded.
Now my pleasure to introduce Mr. Joey Rein director of corporate strategy at Trustmark. Please go ahead.
Good morning.
I'd like to remind everyone that a copy of our fourth quarter earnings release as well as the slide presentation. I will discuss this morning is available only investor Relations section of our website at Trustmark Dot com.
During the call sort of course of our call management may make forward looking statements within the meaning of the private Securities Litigation Reform Act of <unk> 95, you would like to caution you that these forward looking statements may differ materially from actual results due to a number of risks and uncertainties, which are outlined.
In our earnings release, and our other filings with the Securities and Exchange Commission.
This time I'd like to introduce Duane Dewey President and CEO of Trustmark.
Thank you Joey and good morning, everyone. Thank you for joining US with me. This morning are Tom Owens, Our Chief Financial Officer, Barry Harvey, Our Chief credit and operations Officer, and Tom Chambers, Our Chief Accounting Officer.
Trustmark had a solid fourth quarter as reflected by record loan growth.
Expansion of the net interest margin solid performance in our insurance and wealth management businesses and strong credit quality.
As we previously disclosed Trustmark agreed to a settlement that's pending court approval, what resolve all current and potential future claims relating to litigation involving the Stanford financial group that began in 2009.
In the fourth quarter Trustmark recognized litigation settlement expense of 175 million.
With discharge Trustmark reported a fourth quarter net loss of $34 1 million or 56 cents per diluted share.
The settlement reduced fourth quarter net income by $75 6 million or $1.24 per diluted share.
For the full year Trustmark net income totaled $71 9 million, representing representing diluted earnings per share of $1.17.
We believe the settlement is in the best interest of Trustmark and our shareholders as it eliminates rep ongoing expense and uncertainty.
With this issue behind US we're focused on the future and the opportunities ahead.
Excluding the litigation settlement expense Trustmark net income in the fourth quarter totaled $41 5 million or <unk> 68 per diluted share and $147 5 million for the full year 2022, representing diluted earnings per share of $2 40.
Now, let's look at our financial highlights in a little more detail by turning to slide three.
At December 31 loans held for investments totaled $12 2 billion, an increase of 619 million linked quarter, and 2 billion or 19, 1% from the prior year.
Deposits totaled $14 4 billion, an increase of $12 5 million from the prior quarter and a decrease of 650 million or four 3% year over year.
Revenue in the fourth quarter totaled 191.8 million up 1.6% linked quarter.
For the year 2022 revenue totaled 700 million, an increase of $60 million or nine 3% from the prior year.
Net interest income totaled 115 million in the fourth quarter, an increase of $11 million or seven 9% linked quarter noninterest income totaled $45 2 million and represented 23 point.
6% of total revenue in the fourth quarter.
Non interest expense in the fourth quarter, excluding the litigation settlement and sold $135 million or 3% increase linked quarter for the year noninterest expense, excluding the litigation settlement totaled $502 5 million, a 2.7% increase from the prior.
A year.
Credit quality remained solid this quarter as net charge offs represented six basis points of average allowance.
The allowance for credit losses for loans held for investment represented nearly 400% of total non accrual loans, excluding individually evaluated loans.
Nonaccrual loans declined two 9% in the fourth quarter and total nonperforming assets declined four 1%.
Including the impact of the settlement, we continue to maintain strong capital levels with a common tier one capital ratio of 974% and a total risk based capital ratio of 11 nine 1%.
The board declared a quarterly cash dividend of <unk> 23 per share payable March 15th to shareholders of record on March 1st.
At this time I'd like to ask Barry to provide color on loan growth and credit quality.
I'll be glad to Duane. Thank you turning to slide four loans held for investments totaled $12 $2 billion as of 12 31.
And then an increase has to do I mentioned of $618 million linked quarter, or five 3% and $2 billion or 19, 1%.
The prior year.
We're extremely excited about the Q4 loan growth that occurred in almost every category. We do expect to continue solid loan growth through 2023.
Our loan portfolio continues to be well diversified based upon both product types as well as geography.
Looking at slide five.
Trustmark CRE portfolio is 93% vertical with 61% existing and 39% construction land development.
Construction land development portfolio is 81% construction.
The bank's owner occupied portfolio has a nice mix between real estate types as well as industries.
Turning to slide six the bank's commercial portfolio is well diversified as you can see across numerous industry segments with no single category exceeding 12%.
Moving now to slide seven.
Our provision for credit losses for loans held for investment was $6 9 million in the fourth quarter, primarily attributable to loan growth and the weakening in the macroeconomic forecast.
The provision for credit losses for off balance sheet credit exposure was $5 2 million in the fourth quarter, primarily driven by increases in unfunded commitments and the macroeconomic forecast.
At 12, 31, 2020 to the allowance for credit losses on loans held for investments totaled $122 million looking.
Looking at slide eight we continue to post solid credit quality metrics.
The allowance for credit losses represents 0.99% of loans held for investment and nearly 400% or not.
Non accrual loans excluding those.
That are individually analyzed in the fourth quarter net charge offs totaled $1 7 million or point out six of average laws.
Net charge offs for the entire year, Tony the only 920000 are point O, 1%, both non accruals and nonperforming assets remain near historically low levels Duane.
Thank you Barry now turning to the liability side of the balance sheet I'd like to ask Tom Owens to discuss our deposit base and net interest margin.
Thanks, Dwayne and good morning, everyone looking at deposits on slide nine.
Deposits totaled $14 4 billion at December 31st.
A $12 5 million dollar increase linked quarter, and a $650 million decrease year over year.
The linked quarter increase was driven by recent public fund balances more than offset the decline in non personal valid.
While personal deposit balances were essentially flat.
The year over year decrease was driven primarily by decreases in non personal and public fund balances with only about 10% of the decrease driven by personal deposit balances. So.
So the granularity of our deposit base remains strong our COO.
Cost of interest bearing deposits increased by 51 basis points from the prior quarter to 71 basis points.
We continued to maintain a favorable deposit mix with 28% of our balances and noninterest bearing deposits and 64% and checking accounts.
Turning our attention to revenue on slide 10, net interest income FTE increased $11 million linked quarter totaling $150 million, which resulted in a net interest margin of 366, representing a linked quarter increase of 16 basis points.
Higher loan balances and yields contributed about $24 million and $6 $2 million, respectively of left wing quarter.
That was partially offset by a $13.3 million increase in deposit cost and a $6 $6 million increase in net borrowing expense.
Drivers of the continued expansion during the quarter in net interest margin included continuing lags and realize deposit betas ongoing fed rate increases and a continued shift in earning asset mix.
Turning to slide 11, our balance sheet remains well positioned for higher interest rates with substantial asset sensitivity driven by loan portfolio next 49% variable rate coupons.
During the fourth quarter, we continued implementation of the cash flow hedging program to manage our asset sensitivity by Ann.
Adding a $150 million notional of interest rate swaps with a weighted average maturity of four one years and weighted average received fixed rate of 364%.
Which brought the portfolio notional at year end to $825 million with a weighted average maturity of three four years and a weighted average received fixed rate of three <unk>.
The year, one increase in NII to immediate interest rate shocks remains asset sensitive at about 2% for 100 basis point shock about 3% for a 200 basis point shock and about 5% for a 300 basis point shock with the benefit in years, two and beyond increasing is.
The balance sheet continues to reprice.
Turning to slide 12, noninterest income from the fourth quarter totaled $45 2 million.
Seven $4 million linked quarter decrease of $16 $8 million decrease full year.
The linked quarter and full year changes are principally due to lower mortgage banking revenue, which was substantially offset by increases in other line items full year.
Service charges on deposit accounts totaled $11 2 million in the fourth quarter, a linked quarter decrease of 156000, while increasing $8 $9 million or 26, 8% full year bank.
Bankcard and other fees totaled $8 2 million in the fourth quarter, a linked quarter decrease of $1 1 billion, while increasing $1 4 million or four 2% full year.
And insurance revenue totaled $12 million in the fourth quarter, that's a normal seasonal decline of one 9 million, while increasing $5 2 million or 10, 7% full year.
For the fourth quarter noninterest income represented 23, 6% of total revenue continuing to demonstrate a well diversified revenue streams.
Now looking at slide 13 mortgage banking mortgage banking revenue totaled $3 4 million in the fourth quarter.
$3 5 million dollar decreased linked quarter, driven by a $1 3 million dollar decrease in gain on sale and a $1 million increase in negative hedge ineffectiveness, which brought negative hedge ineffectiveness or the quarter to $3 $6 million.
For the year mortgage banking declined by $35 $4 million driven by reduced gain on sale.
Mortgage loan production totaled $391 million in the fourth quarter, a decrease of 23% linked quarter.
Duction for the for the full year totaled $2 1 billion, a decrease of 24% year over year.
Retail production remained strong in the fourth quarter, representing 83% of volumes were about $325 million.
Loan sold in the secondary market represented 46% of production, while loans held on balance sheet representing 54%.
Majority of loans going into the portfolio consist of 15 year and hybrid arms, well, we've continued to sell rather than retain our conforming 30 year loan originations.
Gain on sale margin increased by about 8% linked quarter from 181 basis points in the third quarter to 196 basis points in the fourth quarter.
And now I'll ask Tom Chambers to cover noninterest expense and capital management.
Thank you Tom.
Turning to slide 14, you'll see a detail of our noninterest expense broken out between adjusted other in total.
Adjusted noninterest expense was $129 $8 million in the fourth quarter, a linked quarter increase of $4 $3 million or 334%. We had nonrecurring expenses during the fourth quarter totaling $3 million related to severance from the fit to grow organizational restructuring initiatives.
Early lease termination expense related to closed branch offices and legal fees. Excluding these nonrecurring expenses noninterest expense increased $1 $2 million or 1% linked quarter.
As noted on slide 15, Trustmark remains well positioned from a capital perspective.
Some are 31, our capital ratios remain solid with common equity tier one ratio of 974% and a total risk based capital ratio of 11, nine 1% Trust.
Trustmark did not repurchase any of its common shares during the fourth quarter during 2022, trustmark repurchased $24 $6 million or approximately 789000 shares of its common stock our board of directors previously previously authorized a new stock repurchase program.
Under which up to $50 million of its outstanding common shares may be acquired through December 31, 2023.
This authorization replaces the prior stock repurchase program, which expired on December 31 2022.
While our capital ratios declined linked quarter, driven by the combination of robust loan growth in the Stanford litigation settlement our COO.
Capital ratios remain substantially above well capitalized and our capital position is ample to implement our corporate priorities and initiatives.
Though we maintained $50 million of authority during 2023 under our board authorized stock repurchase program, we are unlikely to engage in stock repurchase in a meaningful way.
Time being our priority for capital deployment is through organic lending.
Back to you doing great.
Alright, Thank you Tom turning to Slide 16, Let's review our outlook lets look first at the balance sheet, we're expecting loans held for investment to grow mid to high single digits for the year.
Our Atlanta office is now staffed with very solid production team.
Clothing, our equipment finance organization will start to contribute in coming quarters.
She carrots black balances are expected to decline by high single digits based on non reinvestment of portfolio cash flows.
Deposit balances are expected to grow mid single digits full year, driven by promotional campaign activity.
Moving on to the income statement, we're expecting net interest incomes to grow low to mid single digits, reflecting flat full year net interest margin based on current market implied forward rates.
The provision for credit losses, including unfunded commitments is dependent upon future loan growth and current macroeconomic forecasts and is expected to be above 2022 levels.
Net charge offs that require additional reserving are expected to be nominal based on the current outlook in portfolio.
From a non interest income perspective, we expect service charges and bankcard fees to remain stable, reflecting elimination of consumer NSF fees and the implementation of a transactional de minimis levels on consumer checking accounts as we previously announced as well as by reduced cost.
Smart derivative activity.
Mortgage banking revenue is expected to stabilize at the prior year level insurance revenue is expected to increase high single digits full year with management, our wealth management expected to increase mid single digits.
Noninterest expense is expected to increase mid single digits for the year. This reflects general inflationary pressures and is subject to the impact of commissioned and mortgage insurance and wealth management.
We remain intently focused on our fit to grow initiatives as discussed throughout 2022.
As noted we've expanded our team of talented production staff added a significant new line of business expanded in growth markets, all of which will begin to contribute in 2023.
Additionally, we've invested in technology across the franchise to better serve customers and become more efficient.
<unk> continued to optimize our retail franchise with the closing of 12 offices and the deployment of new ATM and ITM technology.
We believe this focus and investment position as trustmark to provide profitable growth into the future.
Finally, we will continue a disciplined approach to capital deployment with preference for organic loan growth potential M&A and opportunistic share repurchases.
With that overview of our fourth quarter of our fourth quarter financial results and outlook commentary, we'd like to open the floor for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing Nicky.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question will be from Catherine Mealor from K B W. Please go ahead.
Thanks, Good morning.
Good morning Catherine.
So if we could first just dive into the the lower NII guide if you could just provide a little bit of commentary on how you're thinking about cumulative deposit betas and if that's true that's true reaction of the margin over the course of the year to get to that lower NII guide. Thanks.
Sure. So good morning, Catherine this is Tom.
And thank you for the question.
So.
You know as I think we indicated on last quarter's call that well, let me say it this way with respect to our planned for deposit growth for 'twenty three.
We've.
We're approaching it we're building that we built that plan from a bottom up based on the team here internally.
<unk>.
As we said on last quarter's call. We continue you know our forecast is based on market implied forwards, which continue to have the fed funds rate topping out about 5% here by the end of the first quarter and basically staying there for the remainder of the year.
We're continuing to model a full cycle paid up by the time, we get into late third early fourth quarter of 2023.
Of about 50%.
And so that means our interest bearing deposit cost that we're modeling for later in the year rises to about two 5% and as I've said, we've built that from the bottom up the plan.
And you know when I look at it from the top down it is consistent with our historical actual experience I mean, it's been a long time now since that's the fed funds rate was at 5%, but when I look at the historical experience for our company as well as the broader industry.
The results make sense.
Other aspect of it is.
We had very robust loan growth in.
2022, we anticipate continued follow through on that momentum.
The Guy that Duane gave and our loan to deposit ratio in the quarter rose to 85%.
So we're really focused on maintaining strong liquidity.
We really would rather that loan to deposit ratio not go above 90%.
And with the trajectory of loan growth well it relative to deposit growth, we're really focused on beginning to accelerate deposit growth. We essentially were flat for the quarter, we would like to accelerate deposit growth as we come here into 'twenty three the other thing I'll say I'll state the obvious which is it's really an unprecedented.
The environment.
In terms of.
You look at the the headwinds facing the industry in terms of if you look at the fed H eight report and you see.
Continuing month over month declines in the aggregate deposit base in the United States. It is a challenging environment.
As the fed continues to.
Reduce accommodation and withdraw liquidity from the system. So there's a lot of uncertainty obviously in the forecast are the other thing I'll say is you know it's here in the first quarter is when we're really beginning to launch promotional deposit campaigns in earnest.
We started to do that the bids are in December .
That was a contributor the promotional.
Activity to us being able to maintain.
Essentially flat personal deposits during the quarter, which we're very encouraged by and so you know when you. When you look at the competitive landscape right now for deposits liquidity is obviously top of mind.
Industry and so this is our best estimate at this time in terms of.
Those increases in interest bearing deposit cost and thereby the pressure on net interest margin and so obviously what it implies is you think about the pattern of linked quarter increases in net interest margin in 2020 to what our forecast implies the guide implies is we're gonna.
Linked quarter declines in.
Net interest margin here in 'twenty three.
And as you think back to I feel like the perception.
At least looking at the margin traction for our estimates and consensus still had not a lot of expansion from here, but it's still a fairly stable margin, which you know assuming you were more asset sensitive then.
It seems like you are where do you think is the biggest surprise or the biggest change to the two this NIM trajectory versus maybe where you were last quarter.
And as it makes it the question is there anything else. Besides just the funding costs coming in higher is there anything else just to kind of think about it.
Changed your perception about the activity.
Well, it's a good question and I don't know that we have changed our perception of asset sensitivity. So for example, you can look at our.
Loan yield beta which continues to be in the neighborhood of 50%.
And when you look at the numbers that we publish and that we followed in the call report in terms of art and I at risk those numbers reflect the kind of betas that we're talking about here is our baseline scenario. So there Catherine there really hasn't been a change in.
Perception internally I would say the change fundamentally.
Again in the industry I mean, if you look at the broader industry I go back to the H eight what you see there is where the run rate is for double digit growth in loans in the industry and we are part of that and experiencing very robust loan growth you have seen a flat lining and now an outright decline in the dip.
Posit base.
And the industry. So to me that the difference if there's a difference in perception.
Externally about trustmark.
Difference is us really wanting to be proactive as we come into 'twenty three here to make sure that we have much direct trajectory on deposits that can keep pace with loan growth and maintain strong liquidity.
Yeah Catherine.
I would add in this way and I would add and just what Tom's last comment is I do think that long growth that continued into the latter half of really accelerated in the latter half of 2022 and what we look look out into 2023 still have that expectation. So unlike noted earlier.
With some of the investments we've made in new talent and new business line. We think you know we have a still solid expectations on the loan growth side, which I think then that emphasize the need to keep pace on the deposit side and you know, it's an extremely tight it's tightening liquidity and a COO.
<unk> environment for deposits in.
I don't know that I would with term net necessarily a surprise, but we're certainly monitoring it and and that's what we're expecting as we move into 'twenty.
2023.
Yeah, the last point I'd make Kathryn again, I would just reemphasize how challenging the environment is and the uncertainty right. I mean, it's just it's that can fluids of unprecedented set of circumstances really.
So we're like a lot of our peers in the broader industry.
Kind of figure it out it tactically as well as strategically on the deposit side as we go.
And you could argue last cycle. If you looked at your Lat last cycle betas as a proxy you didn't have the level of growth last cycle and so that really makes sense that you're being as higher just given your growth outlook is higher as well.
Yeah, and I think I've said this before I'll make this point again I think it's really important.
I talked about the last time, the fed funds rate was at 5% and O. Six I mean I can argue both sides of it right. If you look back then when the fed funds rate was 5% it was a much longer cycle.
And it took longer to get to 5% and so when you think about it. This way. This is a much shorter cycle you could certainly argue that well Hey don't you think your effective beta is going to be less and I think that's a legitimate argument.
Flip side is.
You know.
But what now 16 years that have passed since the last time the fed funds rate was at 5% and the changes in technology.
You know that we all hold in the palm of our hands and the ability to friction friction is Leslie.
And you know you.
You can do it quickly you can do it cost effectively essentially moving your funds around in search of higher yield and when I think about that that argues for a higher realized beta. So to me you put those two things together and I think that our estimates are reasonable, but again I would emphasize.
Those are our best estimates at this point in time.
Got it that's all.
Helpful and then maybe just one other.
A question on service charges I was surprised that your guidance for service charges is to be stable year over year I was expecting more of a decline just with the NSF fee changes any so.
Just wanted to clarify that.
Kind of stable over the full year 2022 level of service charges.
No I think I think you.
Accurately reflected the NSF changes and de Minimis change reflects about three ish million, maybe a little more than that and.
What we're what we're saying if you'd noted in the fourth quarter, we were stable to down slightly but filled with increased activities and and what we're seeing economically where were still.
Fairly positive on it on a stable outlook Kathryn.
Okay, great very helpful. Thank you.
Thank you.
And the next question will be from Kevin Fitzsimmons with D. A Davidson. Please go ahead.
Hey, good morning, everyone.
Good morning, Kevin Good morning.
I was hoping to.
On the expense guide for mid single digit growth that was opened number one to just clarify what the base for that is as they would.
When I look at this adjusted noninterest expense for full year 'twenty two of about 498 million and then.
And then and then digging into a little bit because it sounds like.
Other than that.
Other than the 100 million settlement. It seems like there was some lumpiness this quarter, which maybe we don't pull out.
And flagged when we're talking about core, but maybe it's not going to be run rate going forward. So I'm just.
Turning to look at expenses from both of those angles.
So Kevin this is Tom Chambers, if you look at what we're expecting going forward.
Yeah, you're right, we have a little lumpiness in the in the fourth quarter.
Our core or our adjusted noninterest expense, we typically pull out.
Significant nonrecurring non routine items, which obviously was the litigation settlement this quarter and already and.
Some amortization of intangibles.
So what we feel next year is you know mid single digits with continued investment in technology.
And Sam.
Salary and benefits that we have a competitive environment.
Those type of line items going forward.
But I I, Kevin I'd add a little bit to that.
For the fourth quarter and as we noted in our comments there were some things that cumulatively are significant but individually like legal expenses.
Some severance costs and branch closure costs.
Costs and that sort of thing that that individually.
Not material, but as an accumulative level did impact the fourth quarter and so as we look into the start of 2023.
We in our minds our appeal.
That those are nonrecurring items and then.
The flip of that is general inflationary kinds of things that we've commented on it everybody seems to be commenting on higher employee cost and and.
The other general inflationary thing so it kind of Texas to that that mid mid ish low to low ish diminish a single digit kind of increases for the full year 2023.
Okay.
Thanks Duane.
Just to clarify is that.
Is the base for that debt for 98.
One 4 million roughly.
Full year.
If you don't have it handy.
Okay.
Hold on one SEC.
That's accurate.
I think that's right yeah, I believe that's accurate for 98.
For $98 four yeah.
Okay and then just.
Just one follow up.
In.
For.
You know, we had Olympic patient few minutes ago about NII, and and how you're being proactive on deposits and you don't want to take loan to deposit ratio over 90%, it's an unprecedented environment I.
Totally recognized all that.
Can I.
Have you all looked at the alternatives.
Maybe dialing like like dialing back the loan growth a bit but you don't have to chase as aggressively for the deposit can still keep.
The loan to deposit ratio, where you where you're at now recognize that you're not seeing a lot of credit stress right now, but you Ya.
No acknowledged that it's pretty uncertain economy and environment and you.
You know so there when we look at loan growth out into next year, There's obviously a demand issue, but we've also heard some banks just.
Just saying hey, we're stepping away from areas like commercial real estate or a certain sector. So I know that's a walk to throw at you, but I'm just.
How did that conversation go in amongst yourselves about.
Hey, we want to grow NII, but one way.
It is.
The merchants are stable and just grow loans less aggressively.
Yeah. So.
Great question, Kevin This is Tom I'll start and then I'll ask Barry to weigh in a little bit we have absolutely have that discussion internally, we have absolutely looked at that.
Okay.
I'll, let barry speak to the lending side, but.
It's an environment that creates opportunity as you just said where you have.
Some of our peers some of our competitors pulling back a bit and so of course, we're evaluating each of those loans loan by loan on a return basis and of course, we're thinking about our marginal cost of funds and you know the potential of repricing the deposit base to a certain extent as we.
<unk> really lean in here to try and accelerate deposit growth. So yes. We have we have discussed that we have thought about that we continue to think about that you know one of the things that we're doing as you know there's always going to be loans at the margin. When you look at the return on them.
They are truly marginal right in this kind of environment. We are we're absolutely being disciplined and what that means is that some of that marginal growth.
Is not going to happen.
Right, but but for us.
It creates opportunity and I think the other thing Barry will talk about too is probably you know relationship continuity.
In this environment, where we have existing relationships or perspective relationships, where they have their current bank or banks that they work with are pulling back creates opportunity for us. So.
I'll, just slip Barry kind of pick up from there.
Yeah, Kevin I'll, just echo some of the thoughts that Tom referenced you know.
Every day when we're looking at deals we are scrutinizing those deals not only from a credit standpoint, but probably more closely than ever from the standpoint of.
From a return on investment and from an ROE perspective, we are passing on deals that are lower on the pricing spectrum that were maybe acceptable.
12 months ago that debt in our environment today for what we're challenged with trying to.
Raise deposits and a little bit of uncertainty about knowing what's going to take to get there and how quickly the deposit growth can keep up with loan growth, where we're trying to be very selective in terms of the profitability of the transaction standpoint always obviously always the credit aspect of it is first and foremost.
We don't expect to grow as we've been doing indicated we don't expect to grow as fast loan growth was in 2023 as we did in 2022 for a variety of reasons being more selective on prices is definitely one of those we do have categories that we've been avoiding those of the same categories that we've been avoiding for quite a few.
Here's just because of some uncertainty around those there on the flip side of those situations there's the <unk>.
A little bit lessening of competition in some categories of lending pricing is getting better structures definitely gotten better.
Those things were all positive.
And we view this somewhat similar to what we saw in the the metal.
Middle of 2000, Twenty's, where there was lessening of competition.
And because of that the deal structure itself improved greatly in the pricing improved and we see that going on today and we want for the right customers. We want to make sure. We take full advantage of that also as has been alluded to we do have a new line of business. So equipment finance out of our Atlanta office along with.
Some additional CRE and C&I lending staff that we've added there that are doing a great job and with that in mind, there's going to be some additional opportunities coming our way that we will need to manage so there's a combination of things one we're trying to be more selective from a from a ROE our Roe.
Turn on investment standpoint, with every deal we look at.
And then we do expect there to be a little less growth, but we do have a little less competition and we do have relationships to manage as Tom alluded to and we do have a new line of business and in some additional resources in existing lines, both CRE and C&I. So there's a there's a sort of a set of gone below us of all those things.
One time, so we do expect to have good solid loan growth as we've got it to and then but we try to be as selective as we can be making sure that the pricing is is in line with what we're paying for those deposits to fund it with.
And Kevin I would just.
I'll just add one other point again and I you know I'm, just I'm going to try and reemphasize This point.
<unk>.
In this environment. It is such an unprecedented environment, we have a team internally.
We meet every morning at eight o'clock and we're looking at reports on Yesterdays activity in terms of deposits and how we're doing in terms of our promotional deposit activity both in terms of volume.
And cost and the extent to which we're attracting new funds versus re pricing the back book.
And so.
Today's January 21st we're obviously early in the quarter were early in the year.
Are going to continue to evaluate and recalibrate as we go and I just wanted to bring it back to the point that Barry just made right. I mean, we're obviously considering the marginal cost of growing the deposit base versus the returns of continuing to grow the loan book at a robust pace.
And we're evaluating that in real time, and we'll adjust and I'll just reemphasize the guidance that we're giving you today reflects our best estimates today, you know what I would I emphasize to that team every morning, they need to be nimble and to recalibrate accordingly. So.
I just want to make that point again.
Oh, that's great and very appreciate it thanks very much guys.
Thank you Kevin.
Yes.
And once again, if you have a question. Please press Star then one.
Our next question is from Dave Bishop from Humpty Group. Please go ahead Scott.
Good morning, gentlemen.
Good morning, Jay Good morning.
Turning to credit for the guidance there just curious I know a lot of it data dependent in terms of.
The the macroeconomic forecast, but when we talk about the are you talking about the provision for loan losses.
Should we think about that just in terms of as it relates to loans held for investment or inclusive of trends in terms of unfunded commitments. Just some clarification in terms of how that got so what that at corporate.
And David This is Barry Yeah, it's definitely both.
Because in this quarter is a good example, we had a lot of good production all of our CRE side and so within that commercial construction bucket. There's a variety of obviously types of talks of.
<unk>, we have there, but nonetheless with within that commercial construction bucket as we put all of those new opportunities. We do reserve for them fully based upon the eventual baseball exposure so with that in mind. There is an impact immediately to those projects going on the books.
And as we are able to continue with a nice solid level of production will continue to have both a need for reserving obviously on the funded as well as the unfunded funded aspect of it you know I've mentioned earlier loan growth the macroeconomic environment portfolio mix in terms of.
The types of credits, we're putting on the books the level of unfunded commitments and the length of maturities and says that's the speeds pick up as the speeds diminish or pick up obviously that has an impact on the the provisioning as well so all of those different aspects will in fact impact not only the provisioning.
<unk> for the funded book, but for the unfunded book as well.
Okay.
Okay, Great appreciate that clarification and then.
In terms of the outlook for securities. It sounds like there's going to be down a bit just curious what you're thinking of in terms of quarterly cash flows.
And maybe how small that becomes as a percent of our overall asset base.
So this is Tom so the portfolio has thrown off about $25 million to $30 million.
Per month.
So let's call it 20 to 25.
So you are between $3 60 to 400 million or so I would say.
$300 million decline in the book value you know of course, you know you get some swings in the carrying value because of changes in OCI for the FMC portfolio.
But again you know.
Given the loan growth that we've had.
Well our intention at this point is to run off the portfolio through year end to generate liquidity to pay down wholesale borrowings we had grown the securities portfolio substantially.
During 2020 one.
With our abundant access liquidity and now obviously with the very robust loan growth. We've had will continue to run that off for the time being.
Perfect. Thank you.
Yeah.
And once again, if you would like to ask a question. Please press Star then one.
The next question will be from Carl Doran from Raymond James. Please go ahead.
Hi, Good morning. Thank you for taking my questions. Most have already been asked but I'll ask a couple of follow ups.
Just in terms of a year.
Guidance for margin.
Do you have any.
That is the assumption for the.
The noninterest bearing concentration.
How does that forget I notice it was down this quarter, but almost a couple of hundred basis points.
Yeah, It was down and Tom This is Tom Owens It was down this quarter.
We are projecting.
Modest continued decline there as I said that one of the big wildcard I think this year and again not just for Trustmark, but for the industry is the extent to which we experienced that mix change from.
Non interest bearing into time deposits.
You know historically.
Historically.
You know.
By the time, you get up to a fed funds rate of 5% historically in the industry and air Trustmark.
You end up with a mix of the your your deposit mix being somewhere in the range of 40%.
Our time deposits and so we came into the year high single digits I would think it will.
Easily double that if not more over the course of the year and it remains to be seen how much of that comes out of.
Noninterest bearing the other thing about it Carl is.
You know as I said in my prepared comments most of the decline.
Most of the decline again.
Deposits in 2022 was a function of non personal or business accounts and we saw a tremendous increase in just.
Businesses holding liquidity.
And so you know.
It seems like a fair amount of that has run its course now in terms of reversal and that was certainly part of what you saw in the fourth quarter. So it remains to be seen how that plays out as well it seems to be stabilizing a bit.
Alright, thank you for that.
Second one.
I think last quarter, you noted that tip.
Typically expect large payoffs, though.
They didn't need it in fourth Q.
But your AR with the robust loan growth. This quarter could you talk about you know with the payoff and Paydown activity was in four Q and how is that looking now.
And Karl this is Barry I'll be glad to and you're exactly correct. We did give that guidance that is what we've been experiencing and matter of fact, when we got into the first part of December obviously credit and treasury or have a lot of conversations about is it going to manifest itself or not because it happened at that point to the degree we anticipated and.
And how we had kind of thought Q4 would work in terms of of actual loan growth specifically in CRE and we had about just in round numbers.
We had about $250 million worth of projects that are when we surveyed the lenders in the middle of December . They indicated there was a little bit of delay and they would be they would be leaving us not in Q4 2022, but during 2023 for the most part they're made in one project that was going to be extended out waterfall.
And so those projects are going to leave us and if they are baked into our loan growth assumptions for 2023, but they did slide a quarter or two into 2023. So that's that resulted in a much stronger fourth quarter than we anticipated, but it really didn't change our outlook.
2023, because there they do like they are going to resolve themselves and leave us during 2023 best based upon the last information from the ballroom.
Alright.
Terrific. Thank you and then maybe one last one for me just I.
I think obviously you paused the share repurchase activity and and for Q1, I mean I'm, assuming it's due to the settlement just how active do you plan to be going forward.
So Carl this is Tom Owens as Tom Chambers said in his prepared comments, it's really unlikely.
Given the present circumstances as best we can foresee that we'll be engaging and meaningful share repurchase activity.
The robust loan growth that we're experiencing is really our per for preferred form of capital deployment.
Alright.
Okay. Thank you that's a that's all for me.
Keith.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over Duane Dewey for any closing remarks.
Well. Thank you again for joining us. This morning, we hope this information has been helpful and we look forward to connecting again at the end of the first quarter and are very excited to move into 2023 and tackle. The challenges ahead. So we'll talk to you again at the end of the first quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Okay.
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