Q1 2024 Trustmark Corpo Earnings Call
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Operator: Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's first quarter earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation this morning, there will be a question and answer session. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. As a reminder, this call is being recorded. It is now my pleasure to introduce Mr. Joey Rayne, Director of Corporate Strategy at Trustmark.
Speaker Change: Good morning, ladies and gentlemen, and welcome to Trustmark corporations first quarter earnings Conference call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: Following the presentation. This morning, there will be a question and answer session.
Speaker Change: To ask a question you May press Star then one on a touchtone phone.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: As a reminder, this call is being recorded.
Speaker Change: It is now my pleasure to introduce Mr. Joey Rein director of corporate strategy at Trustmark.
Joseph Peter Yanchunis: Good morning. I'd like to remind everyone that a copy of our first quarter earnings release, as well as the slide presentation that will be discussed on our call this morning, is available in the Investor Relations section of our website at Trustmark.com. During the course of our call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and we would like to caution 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 in our other filings with the Securities and Exchange Commission. At this time, I'd like to introduce Duane Dewey, President and CEO of Trustmark Corporation.
Joseph Peter Yanchunis: Good morning, I'd like to remind everyone that a copy of our first quarter earnings release as well as the slide presentation that will be discussed on our call. This morning.
Joseph Peter Yanchunis: Available on the Investor Relations section of our website at Trustmark Dot com during the course of our call management may make forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and we would like to caution you that these forward looking statements may differ materially from actual results.
Joseph Peter Yanchunis: He's really a number of risks and uncertainties, which are outlined in our earnings release and in our other filings with the Securities and Exchange Commission at this time I'd like to introduce Duane Dewey President and CEO of Trustmark Corporation.
Duane Arthur Dewey: Thank you, Joey, and good morning, everyone. Thank you for joining us this morning. With me are Tom Owens, our Chief Financial Officer, Barry Harvey, our Chief Credit and Operations Officer, and Tom Chambers, our Chief Accounting Officer. We have great news to share with you this morning on multiple fronts. First, Trustmark had a strong first quarter, reflecting continued loan growth, solid credit quality, increased non-interest income and revenue, and a decrease in non-interest expense.
Duane Arthur Dewey: Thank you Joey and good morning, everyone. Thank you for joining US. This morning with me are Tom Owens, Our Chief Financial Officer, Barry Harvey, Our Chief credit and operations Officer, and Tom Chambers, Our Chief Accounting Officer.
Duane Arthur Dewey: We have great news to share with you. This morning on multiple fronts first trustmark had a strong first quarter, reflecting continued loan growth solid credit quality increased noninterest income and revenue and a decrease in noninterest expense.
Duane Arthur Dewey: Before diving into the quarter, I want to share another important development for our company. We have signed a definitive agreement to sell our insurance agency, Bishop Brown Bottrell Insurance, to Marks McLennan Agency in a cash transaction valued at $345 million. Turning to slide four, we are extremely proud of the insurance brokerage business that we have built over the past 20 plus years at Trustmark. FBBI is in the top five largest bank-affiliated agencies in the country.
Duane Arthur Dewey: Before delving into the quarter I want to share some of my other important another important development for our company.
We have signed a definitive agreement to sell our insurance agency Fisher Brown Bottrell insurance to Marsh Mclennan agency in a cash transaction valued at $345 million.
Duane Arthur Dewey: Turning to slide four.
Duane Arthur Dewey: We are extremely proud of the insurance brokerage business that we have built over the past 20 plus years of Trustmark.
Duane Arthur Dewey: F. B B is in the top five largest bank affiliated agencies in the country.
Duane Arthur Dewey: It has produced consistent organic revenue and profitability growth over the years, especially the last ten plus years. The transaction multiples prove what we've known for some time, that we have a very valuable and well-regarded franchise. Through this transaction, we are pleased to be partnering with MMA and think we've chosen the best home for our employees and clients of FBBI. The transaction is expected to close during the second quarter of the year.
Duane Arthur Dewey: It has produced consistent organic revenue and profitability growth over the years, especially the last 10 plus years.
Duane Arthur Dewey: The transaction multiples, Peru, what we've known for some time that we have a very valuable and well regarded franchise.
Duane Arthur Dewey: Through this transaction, we are pleased to be partnering with M&A and think we've chosen the best home for our employees and clients are Beth B B.
Duane Arthur Dewey: The transaction is expected to close during the second quarter of the year.
Duane Arthur Dewey: In recent months, the multiples in the insurance brokerage industry have increased significantly. The positive implications of a sale for our shareholders and for the bank have become compelling. FBBI contributed 7% of the bank's net income in 2023, while the purchase price is over 20% of the bank's market capitalization. As part of this transaction, we intend to reposition our balance sheet, and Tom Owens will give more details on that strategy. Importantly, the combined transactions are expected to generate around 16% full-year EPS accretion and a 17% increase in tangible book value per share, while also increasing TCE to total assets by over 100 basis points.
Duane Arthur Dewey: In recent months the multiples in the insurance brokerage industry have increased significantly.
Duane Arthur Dewey: Positive implications of the sale for our shareholders and for the bank became compelling.
Duane Arthur Dewey: F B B I contributed 7% of the bank's net income in 2023.
Duane Arthur Dewey: The purchase price is over 20% of the bank's market capitalization.
Duane Arthur Dewey: As part of this transaction, we intend to reposition our balance sheet and Tom Owens will give more details on that strategy.
Thomas C. Owens: Importantly, the combined transactions are expected to generate.
Thomas C. Owens: 16% full year, EPS accretion and 17% increase in tangible book value per share.
Thomas C. Owens: I'll also increasing TCE to total assets over 100 basis points.
Duane Arthur Dewey: After the sale, Trustmark has attractive fee-income businesses, specifically a strong wealth management franchise and a significant mortgage business. Our pro forma fee income will be in the range of a healthy 20 percent. Now we'll spend some time on the pro forma.
Thomas C. Owens: After the sale Trustmark has attractive fee income businesses.
Thomas C. Owens: Specifically, a strong wealth management franchise, and a significant mortgage business our pro forma fee income will be in the range of a healthy 20%.
Thomas C. Owens: Now I will spend some time on the pro forma.
Thomas C. Owens: Happy to Duane and good morning everyone. So, turning to slide six. As Duane indicated, the sale of FBBI is substantially accretive to capital, and we intend to deploy a portion of that accretion via the restructuring of the securities portfolio. Based on current market conditions, which are obviously subject to change, we anticipate the sale of $1.6 billion in AFS securities, with a book yield of approximately 1.7% at a loss of approximately $160 million.
Speaker Change: Happy to Duane and good morning, everyone. So turning to slide six.
Speaker Change: As Dwayne indicated the sale of F b be substantially accretive to capital and we intend to deploy a portion of that accretion would be the restructuring of the securities portfolio.
Speaker Change: Based on current market conditions, which are obviously subject to change we anticipate the sale of $1 6 billion in <unk> securities with.
Speaker Change: With a book yield of approximately one 7% at a loss of approximately $160 million.
Thomas C. Owens: We anticipate the reinvestment of $1.4 billion in securities yielding approximately 5%, resulting in a net increase in yield of approximately 325 basis points, an estimated earnback of about 3.4 years. We'll be taking advantage of the opportunity to remix our securities portfolio to achieve a more consistent ladder of cash flows over time while also improving the stability of cash flows by increasing the mix of Treasury and agency securities with positive convexity while reducing the mix of agency MBS with negative convexity.
Speaker Change: We anticipate reinvestment of $1 4 billion in securities yielding approximately 5%.
Speaker Change: Resulting a net increase in yield of approximately 325 basis points.
Speaker Change: Estimated earn back of a three about three four years.
Speaker Change: Okay.
Speaker Change: We'll be taking the abandoned advantage of the opportunity to remix our securities portfolio to achieve a more consistent ladder of cash flows over time.
While also improving the stability of cash flows by increasing the mix of Treasury and agency securities with positive convexity, while reducing the mix of agency MBS with negative convexity.
Thomas C. Owens: Including the impact of the securities portfolio restructuring, the combined transactions are approximately 65 basis points accretive to CET1 and 114 basis points accretive to TCE. The additional capital provides flexibility for additional accretive capital deployment actions, including the support of organic loan growth, share repurchases, M&A, or other general corporate purposes, depending on market conditions. As Duane indicated, the combined transactions are approximately 17% accretive to tangible book value per share and 16% accretive to full-year EPS.
Speaker Change: Including the impact of the securities portfolio restructuring the combined transactions are approximately 65 basis points accretive CPT, one and 114 basis points accretive to TCE.
Speaker Change: The additional capital provides flexibility for additional accretive capital deployment actions, including the support of organic loan growth share repurchases M&A or other general corporate purposes, depending on market conditions.
As Dwayne indicated the combined transactions of approximately 17% accretive to tangible book value per share at 16% accretive to full year yeah.
Thomas C. Owens: Likewise, our other key profitability metrics improve, with ROA up approximately 12 basis points, NIM up approximately 27 basis points, and the efficiency ratio down approximately 449 basis points. And then turning to slide seven, it includes a walk-down of after-tax cash proceeds, as well as a tangible book value per share reconciliation, which we're happy to take questions on during the Q&A session.
Speaker Change: Likewise, our other key profitability metrics improved with our way up approximately 12 basis points NIM up approximately 27 basis points and efficiency ratio down approximately 449 basis points.
Speaker Change: And then turning to slide 17 includes walk down to the after tax cash proceeds as well as the tangible book value per share reconciliation, which we're happy to take questions on during the Q&A session.
Duane Arthur Dewey: Right, thanks, Tom. Now, let's turn to slide eight and review the strong financial highlights for the first quarter. Loans held for investment increased $107.4 million, or 0.8% of the link quarter, and $560.7 million, or 4.5% year-over-year. Deposits totaled $15.3 billion, a link quarter decrease of $231.2 million, and an increase of $554.9 million, or 3.8% year-over-year. Net interest income totaled $136.2 million in the first quarter, which resulted in a net interest margin of 3.21 percent.
Speaker Change: Duane.
Duane Arthur Dewey: Great. Thanks, Tom now, let's turn to slide eight you reviewed the strong financial highlights for the first quarter.
Duane Arthur Dewey: Yes.
Duane Arthur Dewey: Loans held for investment increased to $107 4 million or a 0.08 0.8.
Duane Arthur Dewey: 8% linked quarter, and $560 7 million or four 5% year over year.
Duane Arthur Dewey: Deposits totaled $15 3 billion, a linked quarter decrease of $231 2 million and an increase of $554 9 million or three 8% year over year.
Duane Arthur Dewey: Net interest income totaled $136 2 million in the first quarter, which resulted in a net interest margin of 3.21%.
Duane Arthur Dewey: Non-interest income in the first quarter totaled $55.3 million, an increase of 11.1% compared to the prior quarter, and represented 29.4% of total revenue. Revenue for the first quarter totaled $188.2 million, an increase of $1.6 million from the prior quarter. Non-interest expense in the first quarter totaled $131.1 million, a decrease of 3.9 percent compared to the linked quarter, reflecting ongoing expense management priorities. Our credit quality continues to remain solid, with net charge-offs during the first quarter totaling $4.1 million, representing 12 basis points of average loans.
Duane Arthur Dewey: Noninterest income in the first quarter totaled $55 3 million, an increase of 11, 1% linked quarter and represented 29, 4% of total revenue.
Duane Arthur Dewey: Revenue for the first quarter totaled $188 2 million, an increase of $1 6 million from the prior quarter.
Duane Arthur Dewey: Noninterest expense in the first quarter totaled $131 1 million a decrease of three 9% linked quarter.
Duane Arthur Dewey: <unk> ongoing expense management priorities.
Duane Arthur Dewey: Our credit quality continues to remain solid with net charge offs during the first quarter totaling $4 1 million, representing 12 basis points of average loans.
Duane Arthur Dewey: The provision for credit losses for loans held for investment was $7.7 million in the first quarter. We continue to maintain strong capital levels with a common Tier 1 equity of 10.12% and a total risk-based capital ratio of 12.42%. The Board declared a quarterly cash dividend of $0.23 per share payable on June 15 to shareholders of record on June 1. Now, I'd like to ask Barry Harvey to provide some color on our loan growth and credit quality.
Duane Arthur Dewey: The provision for credit losses for loans held for investment was 7.7 million in the first quarter. We continued to maintain strong capital levels with common tier one equity of 10.12% and a total risk based capital ratio of 12, four 2% the board declared a quarterly.
Duane Arthur Dewey: Cash dividend up <unk> 23 per share payable on June 15th to shareholders of record on June 1st.
Duane Arthur Dewey: Now I'd like to ask Barry Harvey to provide some color on our loan growth and credit quality.
Robert Barry Harvey: I'll be glad to, Duane, and thank you. Turning to slot nine, loans held for investments totaled $13.1 billion as of March 31. That's an increase, as Duane mentioned, of $107 million for the quarter. Loan growth during Q1 came from Commercial Real Estate and our Equipment Finance line of business. We still expect long-term growth in the mid-single digits for 2024. As you can see, our loan portfolio remains well diversified, both by product type as well as geography. Look at the spot, Tian.
Robert Barry Harvey: I'd be glad to Dwight Thank you I'll turn to slide nine loans held for investments totaled $13 1 billion.
Robert Barry Harvey: At March 31, that's an increase has to do I mentioned of 107 million for the quarter.
Robert Barry Harvey: Loan growth during Q1 came from.
Robert Barry Harvey: Commercial real estate and our equipment finance line of business.
Robert Barry Harvey: We still expect loan growth in the mid single digits for 2024.
Robert Barry Harvey: As you can see our loan portfolio remains well diversified by product type as well as geography.
Robert Barry Harvey: Looking at slide 10.
Robert Barry Harvey: CRE portfolio is 94% vertical.
Robert Barry Harvey: The portfolio is 94% vertical, with 70% in the existing category and 30% in construction land development. Our construction land development portfolio is 80% construction. Trustmark's office portfolio, as you can see, is very modest at $279 million outstanding, which represents only 2% of our overall loan portfolio. The portfolio is comprised of loans with high-quality tenants, low lease turnover, strong occupancy levels, and low leverage. The credit metrics for this portfolio remain extremely strong. Turning to slide 11. The bank's commercial loan portfolio is well diversified, as you can see, across numerous industries, with no single category exceeding 14%. Looking at slide 12.
Robert Barry Harvey: 70% and the existing category and 30% construction land development.
Robert Barry Harvey: Our construction land development portfolio is 80% construction.
Robert Barry Harvey: So it's more of the office portfolio, which you can see is very modest at 279 billion outstanding which represents only 2% of our overall.
Robert Barry Harvey: Overall loan portfolio.
Robert Barry Harvey: Folio is comprised of.
Credits with high quality tenants.
Robert Barry Harvey: Low lease turnover strong occupancy levels.
Robert Barry Harvey: Low leverage.
Robert Barry Harvey: Metrics for this portfolio remained extremely strong.
Robert Barry Harvey: Turning to slide 11.
Robert Barry Harvey: The bank's commercial loan portfolio is well diversified as you can see across numerous industries with no single category exceeded 14%.
Robert Barry Harvey: Looking at slide 12.
Robert Barry Harvey: Our provision for credit losses for loans held for investment was $7.7 million during the first quarter, which was attributable to long growth, changes in our macroeconomic forecast, and net adjustments to our qualitative factors. The Provision for Credit Loss is, for off balance sheet credit exposure was a negative $192,000 for the quarter. At March 31, the allowance for loan losses for loans held for investment was $143 million. Turning to slide 13, we continue to post solid credit quality metrics.
Robert Barry Harvey: Provision for credit losses for loans held for investments was $7 7 million during the first quarter, which was attributable to loan growth changes in our macroeconomic forecast.
Robert Barry Harvey: And net adjustments to our qualitative factors.
Robert Barry Harvey: The provision for credit losses for off balance sheet credit exposure was a negative 120, <unk> hundred $92000 for the quarter.
Robert Barry Harvey: At March 31, the allowance for loan losses for loans held for investment was 143 million.
Robert Barry Harvey: Turning to slide 13, we continue to post solid credit quality metrics the allowance for credit losses represents one 1% of loans held for investment and 235%.
Robert Barry Harvey: The allowance for credit losses represents 1.1% of loans held for investment and 235% of non-accruals, excluding those that are individually analyzed. In the first quarter, net charge-offs totaled $4.1 million or.12% of average loans. Both non-accruals and non-performing assets remain at reasonable levels.
Robert Barry Harvey: Non accruals, excluding those that are individually analogs.
Robert Barry Harvey: In the first quarter net charge offs totaled $4 1 million or <unk>.
Robert Barry Harvey: One 2% of average loans, both non accruals and nonperforming assets remain at reasonable levels.
Duane Arthur Dewey: Thank you, Barry. Now Tom Owens will focus on the positives in the outlook statement here. Thanks, Duane.
Robert Barry Harvey: Right.
Speaker Change: Thank you Barry now, telling my ones well focus on deposits.
Speaker Change: Statement here thanks.
Speaker Change: Thanks Duane.
Thomas C. Owens: Turning to deposits on slide 14, we began the year with another good quarter that continued to show the strength of our deposit base in an environment that continues to remain exceptionally competitive. These deposits totaled $15.3 billion at March 31st, a linked quarter decrease of $231 million, or 1.5%, and a year-over-year increase of $555 million, or 3.8%. We continue to experience volatility in public fund balances during the quarter.
Speaker Change: Turning to deposits on slide 14, we began the year with another good quarter, which continued to show the strength of our deposit base.
Speaker Change: An environment that continues to remain exceptionally competitive.
Speaker Change: It's totaled $15 3 billion at March 31.
Speaker Change: The quarter decrease of $231 million or one 5% on a year over year increase of $555 million or three 8%.
Speaker Change: We continue to experience volatility in public fund balances during the quarter declined $117 million during the first quarter after having grown by $463 million during the fourth quarter. So.
Thomas C. Owens: It declined $117 million during the first quarter after having grown by $463 million during the fourth quarter, so some noise there, really counter-seasonal noise related to certain large depositors. Non-personal balances declined by $36 million during the quarter, while personal balances declined by $86 million during the first quarter. That was driven by $69 million of personal CD attrition, which reflects our efforts to rationalize the cost of our promotional CD book as it matured during the quarter.
Speaker Change: Some some noise there really counter seasonal noise related to certain large depositors.
Speaker Change: Non personal balances declined by $36 million during the quarter, while personal balances declined by $86 million. During the first quarter that was driven by $69 million of it.
Speaker Change: Personal CD attrition, which reflects our efforts to rationalize the cost of our promotional CD book as well.
Speaker Change: They matured during the quarter and brokered Cds were essentially unchanged at up $8 million during the first quarter.
Speaker Change: As of March 31, our promotional and exception price time deposit book totaled $1 5 billion with a weighted average rate paid of five points you are up 7% and a weighted average remaining term of about five months.
Thomas C. Owens: And brokered CDs were essentially unchanged, up $8 million during the first quarter. As of March 31st, our promotional and exception price time deposit book totaled $1.5 billion with a weighted average rate paid of 5.07 percent and a weighted average remaining term of about five months. Our broker deposit book totaled $587 million at an all-in weighted average rate paid that remained at about 5.45% and a weighted average remaining term that remained at about three months as of March 31.
Speaker Change: Our broker deposit book totaled $587 million at an all in weighted average rate paid.
Speaker Change: Of that remained at about 545% and a weighted average remaining term that remained at about three months as of March 31.
Speaker Change: Regarding mix noninterest bearing DDA balances declined $158 million linked quarter or four 9% to $3 billion.
As of the end of the quarter that represented 20% of our deposit base decline.
Speaker Change: It was driven primarily by non personal balances with personal balances continuing to show signs of bottoming.
Thomas C. Owens: Regarding mixed, non-interest bearing DDA balances, declined $158 million linked to a quarterly rate of 4.9% to $3 billion as of the end of the quarter. That represented 20% of our deposit base. The decline was driven primarily by non-personal balances, with personal balances continuing to show signs of bottlenecks. Our cost of interest-bearing deposits increased by 7 basis points from the prior quarter to 2.74%, down from the 28 basis point linked quarter increase in the fourth quarter.
Speaker Change: Our cost of interest bearing deposits increased by seven basis points from the prior quarter to $2, 74%, which was down from the 28 basis point linked quarter increase in the fourth quarter.
Speaker Change: Turning to slide 15, Trustmark continues to maintain a stable granular and low exposure deposit base during the quarter. We had an average of about 463000 personal and non personal deposit accounts, excluding collateralize public fund accounts with an average balance per account of about <unk>.
Speaker Change: $7000.
Speaker Change: As of March 31, 64% of our deposits were insured and 14% were collateralized, meaning that our mix of deposits that are uninsured and uncollateralized was.
Speaker Change: It was essentially unchanged linked quarter at 22%.
And we continue to maintain substantial secured borrowing capacity, which stood at $6 2 billion at March 31, representing 185% coverage of uninsured and uncollateralized deposits.
Thomas C. Owens: Turning to slide 15, Trustmark continues to maintain a stable, granular, and low-exposure deposit base. During the quarter, we had an average of about 463,000 personal and non-personal deposit accounts, including collateralized public fund accounts with an average balance per account of about $27,000. As of March 31st, 64% of our deposits were insured and 14% were collateralized, meaning that our mix of deposits that are uninsured and uncollateralized was essentially unchanged, linked to the quarter at 22%, and we continue to maintain substantial secured lending capacity, which stood at $6.2 billion on March 31st, representing 185% coverage of uninsured and uncollateralized deposits.
Speaker Change: Yeah.
Speaker Change: Looking at the chart in the bottom left hand corner of the slide our first quarter total deposit cost at $2. One 8% represented a linked quarter increase of eight basis points and accumulative beta cycle to date.
Speaker Change: 40%.
Speaker Change: And our forecast for the second quarter is a four basis points increase in deposit costs to two 2%.
Speaker Change: Continuing the trend of flattening of linked quarter increases in bringing the cycle to date beta of 40% to 41%.
Speaker Change: Turning our attention to slide 16 revenue net interest income FTE decreased $3 $8 million linked quarter totaling $136 2 million, which resulted in a net interest margin of 321%.
Speaker Change: Net interest margin decreased by four basis points linked quarter as the two basis points of dilution due to asset rate and volume and six basis points of dilution due to liability rate and volume was somewhat offset by four basis points lift due to day count.
Thomas C. Owens: Looking at the chart in the bottom left-hand corner of the slide, our first quarter total deposit cost of 2.18% represented a linked quarter increase of 8 basis points, an accumulative beta cycle to date of 40%. And our forecast for the second quarter is a four basis points increase in deposit costs to 2.22 percent, continuing the trend of flattening linked corridor increases and bringing the cycle-to-date beta to 41 percent. Turning our attention to Slide 16, Revenue, Net Interest Income, FTE decreased $3.8 million on the linked order, totaling $136.2 million, which resulted in a net interest margin of 3.21%.
Speaker Change: With respect to the asset rate dilution, we had an unusual drop in loan fees during the quarter, which resulted in a one basis point linked quarter decline in loan yield a normalized level of loan fees would've resulted in about a four basis points linked quarter increase in loan yield.
Speaker Change: Which would have reduced the linked quarter decline in net interest margin to a basis point or two rather than the reported four basis points decrease so we're continuing to close in on a trough in net interest margin.
Speaker Change: Turning to slide 17, our interest rate risk profile remained essentially unchanged as of March 31, with substantial asset sensitivity driven by loan portfolio mix was 50% variable rate coupon.
Speaker Change: During the first quarter, we entered into a 55 million notional of forward starting swaps.
Thomas C. Owens: Net interest margin decreased by four basis points in the linked quarter as the two basis points of dilution due to asset rate and volume and the six basis points of dilution due to liability rate and volume were somewhat offset by four basis points of lift due to day count. With respect to asset rate dilution, we had an unusual drop in loan fees during the quarter, which resulted in a one-basis point-linked quarterly decline in loan yield.
Speaker Change: Which brought the swap portfolio notional at quarter end to $1 105 billion with a weighted average maturity of two nine years and a weighted average received fixed rate of three 9%.
Speaker Change: We also entered into a 45 million notional forward, starting floors, which brought the floor portfolio notional at quarter end to $120 million with a weighted average maturity of four years at a weighted average so for rate of 361% the cash flow hedging program substantially reduces our ads.
Speaker Change: Asset sensitivity to any potential downward shock in interest rates.
Speaker Change: Turning to slide 18, noninterest income for the first quarter totaled $55 $3 million.
Thomas C. Owens: A normalized level of loan fees would have resulted in about a four-basis point linked quarter increase in loan yield, which would have reduced the linked quarter decline in net interest margin to a basis point or two, rather than the reported four-basis point decrease. On slide 17, our interest rate risk profile remained essentially unchanged as of March 31st.
Speaker Change: $5 5 million linked quarter increase and a $4 million increase year over year.
Speaker Change: <unk> driver of the linked quarter increase was mortgage banking.
Speaker Change: Which was up $3 $4 million, driven and approximately equal parts by increased gain on sale margin reduced servicing asset amortization and improvement in the net negative hedge ineffectiveness.
Tom Chambers: We also have a substantial asset sensitivity driven by the loan portfolio mix with a 50% variable rate coupon. During the first quarter, we entered into $55 million notional of forward-starting swaps, which brought the SWOT portfolio notion at quarter end to $1.105 billion with a weighted average maturity of 2.9 years and a weighted average received fixed rate of 3.19%. We also entered into 45 million notional forward starting floors, which brought the floor portfolio notional at quarter end to $120 million with a weighted average maturity of four years at a weighted average SOFA rate of 3.60%.
Speaker Change: And now I'll ask Tom Chambers to cover noninterest expense and capital.
Tom Chambers: Thank you Tom turning to slide 19, we will see a detail of our total noninterest interest expense during the first quarter adjusted noninterest expense totaled $131 million or linked quarter decrease of $4 6 million or three 4%, mainly driven by a decrease in services.
And fees of $3 $1 million, resulting from lower professional fees and data processing software expense in.
Tom Chambers: In addition, salaries salaries and benefits decreased by $1 $1 million, mainly due to the reduction of annual performance incentives.
Tom Chambers: Set by a seasonal increase in payroll taxes.
Tom Chambers: The cash flow hedging program substantially reduces our adverse asset sensitivity to any potential downward shock in interest rates. Turning to slide 18, non-interest income for the first quarter totaled $55.3 million, a $5.5 million linked quarter increase, and a $4 million increase year over year. The biggest driver of the linked quarter increase was mortgage banking, which was up $3.4 million, driven in approximately equal parts by increased gain on sale margin, reduced servicing asset amortization, and improvement in the net negative hedge ineffectiveness. Now, I'll ask Tom Chambers to cover non-interest expense and capital management.
Tom Chambers: Turning to slide 'twenty, Trustmark remains well positioned from a capital perspective.
Tom Chambers: As Dwayne previously mentioned our capital ratios remained solid with common equity tier one ratio of 10, 2% and a total risk based capital ratio of 12, 42%.
Tom Chambers: Although we currently have a $50 million share repurchase program in place.
Priority for capital deployment continues to be through organic lending.
Speaker Change: Thank you Duane.
Great. Thank you Tom.
Speaker Change: Let's now look at our outlook commentary on slide 21, I do want to emphasize that these forward looking commentary is pre transaction and does not reflect any balance sheet repositioning.
Duane Arthur Dewey: So first let's look at the balance sheet, we're expecting loans to grow mid single digits in 2024, while deposits are expected to grow low single digits.
Tom Chambers: Thank you, Tom. Turning to slide 19, we'll see a detail of our total non-interest expense. During the first quarter, adjusted non-interest expense totaled $130.1 million, a link quarter decrease of $4.6 million, or 3.4 percent, mainly driven by a decrease in services and fees of $3.1 million, resulting from lower professional fees and data processing software. In addition, salaries and benefits decreased by $1.1 million, mainly due to the reduction of annual performance incentives offset by a seasonal increase in payroll tax.
Duane Arthur Dewey: Securities balances are expected to decline by high single digits based on non reinvestment of portfolio cash flows which of course are subject to changes in market interest rates.
Duane Arthur Dewey: We'll be updating our security guidance, along with our second quarter results.
Duane Arthur Dewey: Now on to the income statement, we're expecting net interest income to decline low single digits in 'twenty, four reflecting continued earning asset growth and stabilizing deposit cost, resulting in a full year net interest margin of approximately three 2% based on market implied forward into.
Tom Chambers: Turning to slide 20, Trustmark remains well-positioned from a capital perspective. As Duane previously mentioned, our capital ratios remain solid, a common equity Tier 1 ratio of 10.12% and a total risk-based capital ratio of 12.42%. Although we currently have a $50 million share repurchase program in place, our priority for capital deployment continues to be through organic lending. Back to you, Duane.
Duane Arthur Dewey: First rates and as noted previously NII will be significantly impacted by balance sheet work post close of the transaction.
Duane Arthur Dewey: Our credit the total provision for credit losses, including unfunded commitments is dependent upon future loan growth.
Duane Arthur Dewey: Current macroeconomic forecast credit quality trends.
Duane Arthur Dewey: Net charge offs are expected to remain below the industry average based on the current economic outlook.
Duane Arthur Dewey: From a non interest income perspective, noninterest income is expected to grow mid single digits, which is our wealth management and our mortgage division in the latter half of the year.
Duane Arthur Dewey: Great. Thank you, Tom.
Duane Arthur Dewey: Let's now look at our Outlook commentary on slide 21, but I do want to emphasize that this forward-looking commentary is pre-transaction and does not reflect any balance sheet repositioning. So first, let's look at the balance sheet.
Duane Arthur Dewey: Our 2020 for noninterest expense is expected to increase low single digits for the full year, which reflects our cost containment initiatives and is subject to the impact of conditions in mortgage and wealth management.
Duane Arthur Dewey: We're expecting loans to grow mid-single digits in 2024, while deposits are expected to grow low-single digits. However, securities balances are expected to decline by high single digits based on non-reinvestment of portfolio cash flows, which of course are subject to changes in market interest rates. We'll be updating our security guidance along with our second quarter results. Now on to the income statement. We're expecting net interest income to decline low single digits in 2024, reflecting continued earnings asset growth and stabilizing deposit cost, resulting in a full year net interest margin of approximately 3.2 percent based on market implied forward interest rates.
Duane Arthur Dewey: Again, we will reset our non insurance expense expectations. After the sale is completed.
Duane Arthur Dewey: Finally, we'll continue a disciplined approach to capital deployment with a preference for organic loan growth and potential M&A.
Duane Arthur Dewey: While continuing to maintain a strong capital base to implement corporate priorities and initiatives.
Speaker Change: So with that I'd like to open the floor for questions at this time.
Speaker Change: Yeah.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you are using a speaker phone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Duane Arthur Dewey: And, as noted previously, NII will be significantly impacted by balance sheet work post-close of the transaction. For credit, the total provision for credit losses, including unfunded commitments, is dependent upon future loan growth, the current macroeconomic forecast, and credit quality trends. Net charge-offs are expected to remain below the industry average based on the current economic outlook. From a non-interest income perspective, non-interest income is expected to grow mid-single digits, which is our wealth management and our mortgage division in the latter half of the year.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Our first question comes from will Jones of K B W. Go ahead. Please.
William Bradford Jones: Hey, great good morning, guys.
William Bradford Jones: Alright, well good morning.
William Bradford Jones: So it was a great city insurance Bill hit the tape congrats on kind of getting that through the finish line there.
Just curious as you.
William Bradford Jones: Think about kind of the dynamics of the transaction we have.
William Bradford Jones: The bond sale coming through pro forma CET, one and TCE are really going to kind of remain at.
William Bradford Jones: And unless you are both levels I think you guys lay out so around 10 eight.
Duane Arthur Dewey: For 2024, non-interest expense is expected to increase in low single digits for the full year, which reflects our cost containment initiatives and is subject to the impact of commissions in mortgage and wealth management. Again, we will reset our non-insurance expense expectations after the sale is completed. Finally, we will continue a disciplined approach to capital deployment with a preference for organic loan growth and potential M&A. We will continue to maintain a strong capital base to implement corporate priorities and initiatives. And with that, I'd like to open the floor to questions at this time.
Well on the CET one following the bond sale.
William Bradford Jones: Just curious through your lens, how you would characterize where excess capital will stand.
William Bradford Jones: All of them and the closing of the sale the bond sale.
William Bradford Jones: And then I guess, the natural follow up to that as you guys kind of look the tools for further redeployment, what's your growth M&A buybacks and then maybe even more balance sheet optimization. If you guys could just kind of stuck break down for us.
William Bradford Jones: Try and ring fence, where you would prioritize further deployment that would be super helpful. Thank you.
William Bradford Jones: So will this is Tom Owens.
William Bradford Jones: Start.
Thomas C. Owens: So theres a lot there.
Thomas C. Owens: Historical context as you know we've been in the Buda.
Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Will Jones of KBW. Go ahead, please.
Thomas C. Owens: We have abstained from share repurchase activity we.
Thomas C. Owens: We have.
Thomas C. Owens: Prioritized.
Supporting organic loan growth.
Thomas C. Owens: With the desire to continue to accrete capital over time.
Thomas C. Owens: What this transaction with the <unk> sale allows us to do is substantially.
Thomas C. Owens: Restructure.
Thomas C. Owens: <unk>.
Thomas C. Owens: Most of our <unk> portfolio, which so we wanted to take advantage of that opportunity and in Super round numbers in terms of regulatory capital ratios were taking approximately half of half of the accretion and supporting the restructuring of the <unk> portfolio and the other half of the Transat.
William Bradford Jones: Hey, great, good morning guys. Morning, Will. Good morning.
William Bradford Jones: So, it was great to see the insurance sale hit the tape. Congratulations on kind of getting that through the finish line there. I'm just curious, you know, as you think about kind of the dynamics of the transaction, we have the bond sale coming through, and pro forma, CET-1 and TCE are really going to kind of remain at, you know, nice robust levels. I think you guys will lay out somewhere around 10-8 on CET-1 following the bond sale.
Thomas C. Owens: Action to accrete to regulatory capital, So I would say for the foreseeable future. Our priorities will remain the same which is to say supporting organic loan growth.
Thomas C. Owens: And allowing capital to accrete.
Thomas C. Owens: I would not anticipate that we would become active with respect to share repurchases as a result of.
William Bradford Jones: I'm just curious through your lens how you would characterize, you know, where excess capital will stand following the closing of the sale, the bond sale. And then I guess the natural follow-up to that is you got to kind of list the tools for, you know, further redeployment, which are, you know, growth, M&A, buybacks, and then maybe even more balance sheet optimization. If you guys could just kind of stack rank that for us and try and, you know, ring-fence, you know, where you would prioritize further deployment, that would be super helpful. Thank you.
Thomas C. Owens: This transaction I would anticipate that.
Thomas C. Owens: We will continue to be in the mode that we have been in but again. It is helpful. It does provide additional flexibility and as we continue to accrete capital position us for other opportunities.
Speaker Change: Okay great.
Speaker Change: Very helpful. I mean does it change the way that you guys kind of view M&A opportunities.
Speaker Change: Well al.
Speaker Change: Respond real quickly Rick well there are one we have got to get this transaction behind us and get that.
Speaker Change: Repositioning that Tom was referring to behind us and move forward.
Thomas C. Owens: So Will, this is Tom Owens. I'll start.
Thomas C. Owens: So there's a lot there. You know, historical context, as you know, we've been in the mode we have. We have abstained from share repurchase activity. We have prioritized supporting organic loan growth with a desire to continue to accrete capital over time. What this transaction, the FEBI sale, allows us to do is substantially restructure most of our AFS portfolio. So we wanted to take advantage of that opportunity.
Speaker Change: We feel there are still a pretty significant headwinds in the marketplace and and really at this time are focusing on the organic side of things, we're adding production talent across the franchise we're focused on.
Speaker Change: Our new business line equipment finance is doing very well and.
Speaker Change: We'd like to continue to support that business.
Speaker Change: New office in the Atlanta market that we'd like to support so we've got plenty of opportunity to add production talent across the system that we think really is.
Speaker Change: The real opportunity for growth and we will continue to focus on that for the time being the headwinds in the M&A space remain.
Thomas C. Owens: And in super round numbers in terms of regulatory capital ratios, we're taking approximately half of the accretion and supporting the restructuring of the AFS portfolio and the other half of the transaction to accrete to regulatory capital. So I would say for the foreseeable future, our priorities will remain the same, which is to say supporting organic loan growth and allowing capital to accrete. I would not anticipate that we would become active with respect to share repurchases as a result of this transaction.
Speaker Change: Pressure on our Aoc I and other issues.
Speaker Change: The regulatory environment, I'd say, yes, I'm really focusing organically for the time being until we start to see some clarity there on the other side of the equation.
Speaker Change: Yeah, Okay. That's great and then maybe just one for me quickly on the quarter.
Speaker Change: You guys saw a really nice dip in expenses this quarter.
Speaker Change: I guess, maybe a little surprised the guidance still stands at low single digits.
Thomas C. Owens: I would anticipate that we'll continue to be in the mode that we have been in. But again, it is helpful. It does provide additional flexibility, and as we continue to accumulate capital, positions us for other opportunities.
Speaker Change: Although I guess, maybe this is just more pulled up to the low end of that guidance could you just I guess, maybe talk to some of the dynamics there and then.
Speaker Change: How do you think about it in respect to the <unk> below.
But low single digit growth guidance.
Speaker Change: Yeah I'll start real quick this is Duane I'll start real quick and then Tom Chambers can add some thoughts but.
Duane Arthur Dewey: Okay, great. That's very helpful. But does this change, you know, the way that you guys kind of view M&A opportunities?
Duane Arthur Dewey: Firstly, if you look at.
Duane Arthur Dewey: Linked quarter, the comparative is really good quarter or year to year comparative.
Duane Arthur Dewey: Well, I'll respond real quickly. Well, you know, there are one thing we've got to get this transaction behind us and, you know, get the repositioning that Tom was referring to behind us and move forward. You know, we feel there are still pretty significant headwinds in the marketplace and, really, at this time, we're focusing on the organic side of things. We're adding production talent across the franchise. We're focused on, you know, our new business line, Equipment Finance, is doing very well, and we'd like to continue to support that business.
Duane Arthur Dewey: It's up in the very low single digits and so we're still up.
Duane Arthur Dewey: Feeling.
Speaker Change: That that's a pretty good guidance moving forward I mean, we still feel inflationary pressures costs really across the board.
Speaker Change: Are you know whether it's <unk>.
Speaker Change: Associate and benefits and all of that cost is still significant and and there are still inflationary pressures out there, but a lot of the other things that Tom mentioned in his comments professional fees third party fees.
Speaker Change: And data processing costs and things like that with some of the initiatives we started.
Duane Arthur Dewey: We have a new office in the Atlanta market that we'd like to support, so we've got plenty of opportunity to add production talent across the system. We think this really is a real opportunity for growth, and we'll continue to focus on that for the time being. You know, the headwinds in the M&A space remain, pressure on AOCI and other issues, you know, the regulatory environment, so I'd see us really focusing organically for the time being until we start to see some clarity there on the other side of the equation.
Speaker Change: A couple of years ago in the pit to grow process et cetera have started to take hold so that'll keep a lid on the expense growth, but we still see it still felt comfortable at the very low single digit range.
Speaker Change: For the full year.
Speaker Change: I can't add anything to that as well.
Speaker Change: Well said.
Alright, guys. That's it for me thanks for all the color this morning.
Speaker Change: Thank you will.
Speaker Change: Our next question comes from Gary Tenner of D. A Davidson go ahead. Please.
Duane Arthur Dewey: Yeah, okay. That's great.
Gary Tenner: Thanks, Good morning.
Duane Arthur Dewey: And then maybe just one for me quickly on the quarter. You guys saw a really nice, you know, dip in expenses this quarter. You know, I guess I'm maybe a little surprised the guidance is still at low single digits, although I guess maybe this just pulls it up to the low end of that guidance. Could you just, I guess, maybe re-talk about some of the dynamics there and then, you know, how you think about it in respect to the low single-digit growth guidance?
Gary Tenner: I was wondering a couple of hey, I had a couple of kind of bookkeeping items on the insurance sale.
Gary Tenner: With the expected close by the end of the second quarter, we do anticipate that the bonds.
Gary Tenner: Restructuring would also be complete by June 30, or at the very least early in the third quarter. So you have effectively a full quarter beginning <unk> of that transaction.
Speaker Change: I'll start just real quickly I mean, the <unk>.
Speaker Change: <unk> closed states should be around the first of June is what we're targeting but yeah as you know that Ken.
Duane Arthur Dewey: Yeah, I'll start real quick. This is Duane.
Speaker Change: It vary a bit as we get into this process here, but then it will require some regulatory approval. So.
Duane Arthur Dewey: I'll start real quick, and then Tom Chambers can add some thoughts. But, you know, firstly, if you look at... Link Quarter, the comparison is really good. Quarter, year-to-year comparative, it's up in the very low single digits. And so, you know, we're still feeling that that's pretty good guidance moving forward. I mean, we still feel inflationary pressures, you know, costs really across the board are, you know, whether it's associate and benefits, and all of that cost is still significant.
Speaker Change: We're targeting <unk> for clothes, which then gives us opportunity for.
Speaker Change: Other things to happen before the end of the second quarter.
Speaker Change: Okay, Great and then as we're thinking about the expense piece of insurance businesses as a quarterly run rate assumption for adjusting models and that kind of 10 $5 million to $11 million per quarter.
Speaker Change: In terms of what will be leaving.
Speaker Change: Trustmark consolidated is that a reasonable number to use any any qualms with that kind of range.
Duane Arthur Dewey: And there are still inflationary pressures out there. But a lot of the other things that Tom mentioned in his comments, professional fees, third-party fees, data processing costs, and things like that with some of the initiatives we started, you know, a couple of years ago in the fit to grow process, et cetera, have started to take hold. So that'll keep a lid on the expense growth, but we still see and still feel comfortable at the very low single-digit range for the full year.
Speaker Change: Oh, that's a very reasonable number and just just noting that'll be out for seven months of the year.
Speaker Change: Okay, Great and then.
Speaker Change: Yes Les.
Speaker Change: Last question, just as it relates to that.
Speaker Change: I think theres. The note that M&A will be an insurance broker partner of the bank shall.
Speaker Change: Should we assume that that means that they'll be referral, but just where you would actually potentially generate some sort of fee income from that over time.
Tom Chambers: I can't add anything to that; that was well said.
Or.
Speaker Change: Just how to think about that.
Tom Chambers: All right, guys, well, that's it for me today. Thanks for all the coverage this morning.
Speaker Change: Yeah.
Speaker Change: The answer is no it's not there's not an ongoing fee arrangements, but we went through a very painstaking process and this process of considering a partner, we we and the agency impact MMA to joined forces with we're very excited about that.
Operator: Our next question comes from Gary Tenner of D.A. Davison. Go ahead, please.
Gary Tenner: Thanks, good morning. I have a couple of bookkeeping items on the insurance sale. With the expected close by the end of the second quarter, would you anticipate that the bond Restructuring would also be complete by June 30, or at the very least early in the third quarter, so you'd have an expected full quarter beginning 3Q of that transaction?
Speaker Change: About that ongoing opportunity for our production team for our associates for our clients and we do continue to expect to have a ongoing relationship with MMA and build on 25 years of experience with the team that will be transitioning there so were.
Duane Arthur Dewey: I'll start just real quickly. The expected close date should be around the first of June. That can vary a bit as we get into this process here. But then it requires some regulatory approval. So we're targeting June 1st for the close, which then gives us the opportunity for other things to happen before the end of the second quarter.
Speaker Change: We're very positive, but it is not a direct fee income.
Speaker Change: <unk> type arrangement.
Speaker Change: Thank you.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: Our next question comes from Michael Rose of Raymond James Go ahead. Please.
Gary Tenner: Okay, great. And then as we're thinking about the expense piece of the insurance business, is a quarterly run rate assumption for adjusting models in that kind of $10.5 to $11 million per quarter in terms of what we'll be leaving Trustmark consolidated, is that a reasonable number to use? Any qualms with that kind of range?
Michael Rose: Hey, good morning, everyone. Thanks for taking my questions.
Michael Rose: Just following up on that.
Michael Rose: Good morning, just following up on the capital.
Michael Rose: Questions I understand youre going to be conservative maybe as it relates to buybacks, but is there a certain capital level that you guys are managing to before you would potentially look a little bit more.
Thomas C. Owens: No, that's a very reasonable number and, just noting that they'll be out for seven months of the year.
Michael Rose: At doing some some buybacks just given where the where the stock is trading and what the earn back would be on the pro forma tangible book.
Gary Tenner: Oh, great. And then... Yeah, last question as it relates to that. You know, I think there's the note that MMA will, you know, be an insurance broker partner of the bank. Should we assume that that means that they'll be a referral business where you would actually potentially generate some sort of fee income from that over time? Or... you know, just how to think about it. The answer is no, it's not.
Michael Rose: Is it just kind of like you want to wait until all the actions happened before you would maybe.
Michael Rose: Look to buy back stock.
Michael Rose: Yeah, Michael This is Tom Owens good morning to you.
I think the baseline assumption would be based on our current sort of business as usual run rate.
Thomas C. Owens: Quarterly accretion in capital it would probably be on the sidelines now I mean, it's always subject to market conditions right I mean, clearly we have.
Duane Arthur Dewey: The answer is no, there's not an ongoing fee arrangement, but we went through a very painstaking process in this process of considering a partner. We and the agency handpicked MMA to join forces with. We're very excited about that ongoing opportunity for our production team, for our associates, for our clients. And we do continue to expect to have an ongoing relationship with MMA and build on 25 years of experience with the team that will be transitioning there. So we're very positive, but it is not a direct fee-income, referral-type arrangement. Thank you.
Thomas C. Owens: More capital now at our disposal, so its subject to market conditions, but I think.
Thomas C. Owens: Absent.
<unk>.
Thomas C. Owens: Volatility in the market and what might happen with the stock price I think the baseline assumption for the remainder of the year would be that.
Thomas C. Owens: We're going to be on the sidelines on share repurchase and continue to accrete capital and support organic loan growth.
Thomas C. Owens: And some of the initiatives Duane talked about.
Thomas C. Owens: Yep.
Speaker Change: And maybe if you can just as a follow up just.
Speaker Change: Just on the organic growth side is there anything that this this new capital will free up and allow you to do that you might have been a little bit cautious on before meaning would you look to maybe hire some more lenders build out some.
Operator: Again, if you have a question, please press star, then 1. Our next question comes from Michael Rose of Raymond James. Go ahead, please.
Speaker Change: On the fee side, maybe invest some more money, they're just looking for a sense of what levers.
Michael Rose: Hey, good morning, everyone. Thanks for taking my questions. Just following up on the capital questions. Good morning. I understand you're gonna be conservative, maybe as it relates to buybacks, but is there a certain capital level that you guys are managing to before you would potentially look a little bit more at doing some buybacks, just given where the stock is trading and what the earn back would be on the pro forma tangible book, or is it just kind of like you wanna wait until all the actions happen before you would maybe look to buyback some stock?
Speaker Change: This capital can be deployed into on the organic growth side. Thanks.
Speaker Change: Yeah Michael.
Speaker Change: Yeah as I stated earlier I think this does give us some opportunity and I mean, we've always had a preference for organic growth.
Speaker Change: We feel this does give us the opportunity we've got very very attractive markets, Houston, Atlanta, Memphis, Birmingham mobile.
Speaker Change: Et cetera crossed our franchise, where we can add talent across all of those markets.
Speaker Change: And like I mentioned earlier in a business like equipment finance, where we're starting to gain experience and get comfortable really understanding that business and there's some opportunity to add production talent. There and then the last thing I'd note. The other consideration in that process would be.
Michael Rose: Thanks.
Thomas C. Owens: Yeah, Michael. This is Tom Owens. Good morning to you.
Thomas C. Owens: You know, I think the baseline assumption would be based on our current, you know, sort of business-as-usual run rate of quarterly accretion in capital. It would probably be on the sidelines. I mean, it's always subject to market conditions, right? I mean, clearly, we have more capital now at our disposal, so it's subject to market conditions. But I think, absent, you know, volatility in the market and what might happen with the stock price, I think the baseline assumption for the remainder of the year would be that we're going to be on the sidelines on share repurchase and continue to accrete capital and support organic loan growth, some of the initiatives that Duane talked about.
Speaker Change: Boring opportunities in new markets that we don't currently operate in.
Speaker Change: Experienced by opening the Atlanta market and we think there are some very attractive markets in and around regions that we already serve where we already have exposure and knowledge that we can add talent and so.
Speaker Change: We do think that this gives us a unique opportunity to expand it really focus or more aggressively in some of those organic areas.
Speaker Change: Yeah.
Speaker Change: Okay. That's very helpful. And then maybe just finally for me.
When I was working through the model last night it does seem like some of the assumptions.
Duane Arthur Dewey: Yep, understood. And maybe, as a follow-up, just on the organic growth side, is there anything that this new capital will free up and allow you to do that you might have been a little bit cautious about before? Meaning, would you look to maybe hire some more lenders, build out some on the fee side, maybe invest some more money there? Just looking for a sense of what levers this capital can be deployed on the organic growth side. Thanks.
Speaker Change: Around.
Speaker Change: EPS accretion could prove to be a little bit conservative.
Speaker Change: Just if you can maybe walk through kind of the puts and takes to the projected EPS accretion the way you see it whether it be impact from rates or.
Speaker Change: Our ability to deploy capital may be higher I know you talked about maybe potentially.
Speaker Change: Having the opportunity to do more on the bond book, we've seen that with a few other of these sale transactions, where you've actually seen more Don on the security side. So just can you walk through kind of the puts and takes to that EPS accretion guidance, what could be better than maybe what the potential headwinds abate.
Duane Arthur Dewey: Yeah, Michael, as I stated earlier, I think this does give us some opportunity, and we've always had a preference for organic growth, and we feel this does give us the opportunity. We've got very, very attractive markets, Houston, Atlanta, Memphis, Birmingham, Mobile, et cetera, across our franchise where we can add talent across all those markets. And then, like I mentioned earlier, in a business like Equipment Finance, where we're starting to gain experience and get comfortable really understanding that business, and feel there's some opportunity to add production talent there.
Speaker Change: Sure. So I'll start this is Tom Owens.
Thomas C. Owens: You know clearly with that amount of bond portfolio restructuring.
Thomas C. Owens: And particularly with respect to the volatility we've had in interest rates in the market quarter to date here is still somewhat early in the quarter.
Thomas C. Owens: The amount of restructuring the composition of the restructuring could end up you know these are pro forma assumptions could end up being different here.
Duane Arthur Dewey: And then the last thing I'd note, the other consideration in that process would be exploring opportunities in new markets that we don't currently operate in. We've gained experience by opening the Atlanta market, and we think there are some very attractive markets in and around regions that we already serve, where we already have exposure and knowledge that we can add talent to. And so, we do think that this gives us a unique opportunity to expand and really focus more aggressively on some of those organic areas.
Thomas C. Owens: We've done we've put our best thoughts together in terms of how we would restructure the portfolio.
Thomas C. Owens: I think Michael to me.
Michael Rose: It's it's almost more interesting to talk about the puts and takes fundamentally.
Michael Rose: What some of the opportunities might be there ex the transaction.
Speaker Change: You know when you think about.
Speaker Change: The variability with respect to where the fed might had with respect to interest rates the impact on deposit cost I mean, I think that there is an opportunity. There you know we continue to flatten that linked quarter increase in terms of deposit cost I think there is we can talk about.
Michael Rose: Okay, that's very helpful. And then maybe, just finally, for me, when I was working through the model last night, those seem like some of the assumptions around EPS accretion could prove to be a little bit conservative. Just if you could maybe, you know, walk through kind of the puts and takes to the projected EPS accretion, the way you see it, whether it be, you know, impact from rates or, you know, ability to deploy capital, maybe higher. I know you talked about maybe potentially having the opportunity to do more on the bond book. We've seen that with a few other of these sales trends.
Speaker Change: Puts and takes I think theres some opportunity to outperform there relative to the guidance at the same time, there is some risk there right, which.
Speaker Change: Particularly with respect to noninterest bearing DDA balances and the trends there so.
Speaker Change: No.
Speaker Change: When it's all said and done when we consider the puts and takes we left the guidance intact basically across the board.
Speaker Change: So I guess.
Those are the thoughts I can share with you that come to mind.
Thomas C. Owens: Sure. So I'll start. This is Tom Owens.
Speaker Change: Great I appreciate the answers my questions.
Thomas C. Owens: You know, clearly with that amount of bond portfolio restructuring and, particularly with respect to the volatility we've had in interest rates in the market quarter to date here, still somewhat early in the quarter, the amount of restructuring. The composition of the restructuring could end up, these are pro forma assumptions, could end up being different here. We've put our best thoughts together in terms of how we would restructure the portfolio.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: This concludes our question and answer session.
Speaker Change: I would like to turn the conference back over to Duane Dewey for any closing remarks.
Duane Arthur Dewey: I'd like to thank you all for joining us for today's call. We hope it was informative for very excited to move into the.
Thomas C. Owens: You know, I think, Michael, to me, it's almost more interesting to talk about the puts and takes fundamentally and what some of the opportunities might be there, you know, X the transaction. You think about the variability with respect to where the Fed might head with respect to interest rates, and the impact on deposit costs. I mean, I think that there's an opportunity there. You know, we continue to flatten that linked quarter increase in terms of deposit cost. I think there's, you know, when you talk about puts and takes, I think there's some opportunity to outperform there relative to the guidance. At the same time, there's some risk there, right, which I particularly deal with.
Duane Arthur Dewey: New arrangement from an insurance perspective, and very excited for our second quarter and to continue to add.
Duane Arthur Dewey: Shareholder value. Thanks, again for joining us and we'll be back to you at the end of the second quarter.
Duane Arthur Dewey: Okay.
Speaker Change: The conference call has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].
Michael Rose: Great, I appreciate the answers to my questions.
Operator: Again, if you have a question, please press star, then 1. This concludes our question and answer session. I would like to turn the conference back over to Duane Dewey for any closing remarks. I'd like to thank you all for joining us.
Duane Arthur Dewey: I'd like to thank you all for joining us on today's call. We hope it was informative.
Duane Arthur Dewey: We're very excited to move into the new arrangement from an insurance perspective and very excited for the second quarter and to continue to add shareholder value. Thanks again for joining us, and we'll be back to you at the end of the second quarter. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.
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