Q4 2024 Trustmark Corp Earnings Call
Thank you.
Good morning, ladies and gentlemen, and welcome to Trust Smart Corporation's fourth quarter earnings conference call. At this time, all participants are in a listen-only mode.
Following their presentation this morning, there will be a question and answer session.
To ask a question you may press star then 1 on your touchtone phone and 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 Rain, Director of Corporate Strategy at Trustmark. Please go ahead, sir.
Good morning.
Speaker Change: I'd like to remind everyone that our fourth quarter earnings release and the slide presentation that will be discussed on our call this morning are available on the investor relations section of our website at trustmark.com.
Speaker Change: During our call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker Change: Due to a number of risks and uncertainties, which are outlined in our earnings release.
Speaker Change: and our other filings with the Securities and Exchange Commission. At this time, I'll turn the call over to Duane Dewey, President and CEO of TrustBarn.
Duane Dewey: Thank you, Joey. 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 Dewey: 2024 was a transformational year for Trustmark, reflecting the sale of our insurance agency, the restructuring of our balance sheet, and the expanded sales and service initiatives designed to meet the needs of our customers.
Duane Dewey: have significantly enhanced financial performance and Trustmark's earning profile. Our capital levels rose meaningfully, which led to the board's decision to increase the quarterly cash dividend, along with renewed activity in the share repurchase program.
Duane Dewey: Our fourth quarter results reflect continued significant progress across the organization.
Duane Dewey: Net income totaled $56.3 million, representing diluted EPS of $0.92 per share.
Duane Dewey: This represents a linked quarter increase of $5 million, or 9.7%, along with an 8 cent increase in diluted EPS.
Duane Dewey: Our performance in the quarter produced a return on tangible common equity of 13.68%, and a return on average assets of 1.23%.
Duane Dewey: For the full year 24, net income from adjusted continuing operations totaled $186.3 million, or $3.04 per diluted share.
Duane Dewey: This represented an increase of 27.1 million or 17% from the prior year.
Duane Dewey: Now let's turn to slide three for a summary of financial highlights.
Let's start with the balance sheet.
Duane Dewey: Loans held for investment totaled $13.1 billion at 1231, down $10 million link quarter and up $139.4 million year-over-year.
Duane Dewey: Deposits totaled $15.1 billion at year-end, down $132.8 million late quarter, which includes an intentional reduction in broker deposits of $150 million during the quarter.
Duane Dewey: Excluding this planned runoff, length quarter deposits were basically flat, up 17 million dollars.
Duane Dewey: For the full year, deposits declined $461.6 million, which includes the planned reduction of high-cost public and brokered deposits totaling $726.8 million.
Duane Dewey: Said differently, all other deposits increased $265.2 million in 2024 while we diligently managed deposit costs.
Duane Dewey: Net interest income totaled $158.4 million in the fourth quarter, reducing a net interest margin of 3.76%.
Speaker Change: Up 7 basis points, length quarter. Thomas Owens will provide a little color on the margin and NII, etc. in a few minutes.
Speaker Change: Non-interest income in the fourth quarter totaled $41 million, up 9% linked quarter, reflecting broad-based growth across virtually all fee-based businesses.
Speaker Change: For the full year, non-interest income from adjusted continuing operations totaled $156.1 million, an increase of 5.2% from the prior year.
Speaker Change: 1.2 million or 0.9% linked quarters. For the full year, non-interest expense from adjusted continuing operations totaled $485.7 million, a decline of $2.1 million from the prior year.
Speaker Change: Diligent expense management continues to be a focus of the organization.
Speaker Change: From a credit quality perspective, net charge-offs totaled $4.6 million in the fourth quarter, representing 0.14% of average loans.
Speaker Change: The allowance for credit losses represented 1.22% of loans held for investment and 341% of non-accrual loans excluding individually analyzed loans.
Speaker Change: Trustmark's capital ratios expanded meaningfully during the quarter as tangible equity and tangible assets increased to 9.13%.
Speaker Change: while the CET-1 ratio expanded 24 basis points to 11.54% and the total risk-based capital ratio expanded 26 basis points to 13.97%.
[inaudible]
Speaker Change: As I mentioned earlier, we resumed activity in the share repurchase program. During the fourth quarter, we repurchased 7.1 million, or approximately 203,000 shares of common stock. And as previously announced, we are authorized to repurchase up to 100 million of Trustmark shares during 2025.
Speaker Change: Additionally, the board announced a 4.3% increase in the regular quarterly dividend to $0.24 per share from $0.23 per share. The dividend is payable March 15, 2025 to shareholders of record on March 1.
Speaker Change: This action raises the indicated annual dividend rate to $0.96 per share from $0.92 per share.
Speaker Change: Each action, the renewed activity in the share repurchase program, and a quarterly dividend are reflective of Trustmark's improved financial performance and enhanced forward earnings profile.
Speaker Change: At this time, Barry Harvey is going to review the loan portfolio and credit quality.
Barry Harvey: Increases in the fourth quarter from multifamily commercial and CNI loans and one to four family mortgages were offset by declines in state and political loans, other CRE loans, and other loans.
Barry Harvey: We expect loan growth of low single digit for 2025. As you can see, our loan portfolio remains well diversified, both from a product standpoint as well as from a geography standpoint.
Barry Harvey: Looking at slide 5, TrustForm's CRE portfolio is 95% vertical with 73% in the existing category and 27% in construction land development. Our construction land development portfolio is 81% construction.
Barry Harvey: Trustmark's office portfolio, as you can see, is very modest at $244 million outstanding, which represents only 2% of our overall loan book. The portfolio is comprised of credits with top-quality tenants, low lease turnover, strong occupancy levels, and low leverage.
Barry Harvey: Turning to slide 6, the bank's commercial loan portfolio is well diversified, as you can see, across numerous industries, with no single category exceeding 13%.
Barry Harvey: Looking at slide 7, our provision for credit losses for loans held for investment was $7 million during the quarter.
Barry Harvey: which was driven by the macroeconomic forecast as well as by net adjustments in our qualitative factors.
Barry Harvey: The provision for credit losses for all balance sheet credit exposure was $502,000.
Barry Harvey: excuse me, $502,000 driven by net adjustments to the qualitative factors, increases in unfunded commitments.
Barry Harvey: At 1231, the allowance for credit losses for loans held for investment was $160 million.
Turning to slide 8, we continue to post credits.
Barry Harvey: We continue to post solid credit quality metrics. The allowance for credit losses increased by 122%.
Barry Harvey: Our quarter was 1.21%, representing 341% of non-accruals, excluding those that are individually analyzed. In the fourth quarter, net charge-offs totaled $4.6 million.
Barry Harvey: While both non-accruals and non-performing assets increased slightly during the quarter, they have declined meaningfully year-over-year.
Barry Harvey: Due to our continuing efforts to effectively manage and resolve problem assets in a timely manner. Duane. Great. Thank you, Barry. Now Tom Owens will cover deposits, net interest margin, and non-interest income.
Thanks, Duane, and good morning, everyone.
Tom Owens: Turning to deposits on slide 9, deposits totaled $15.1 billion at December 31st.
Tom Owens: A linked quarter decrease of $132.8 million and a year-over-year decrease of $461.6 million.
Tom Owens: The linked quarter decrease was driven by a $150 million decline in brokered CDs, which we allowed to run off at maturity rather than at workplace.
[inaudible]
Tom Owens: Beyond the intentional runoff of brokered CDs, deposits increased by $17 million during the quarter, with solid growth of about $157 million in personal balances and about $74 million in public fund balances.
Tom Owens: Those increases were offset by decline of about $215 million in commercial balances.
Thank you.
Tom Owens: The year-over-year decline of $462 million was driven by declines of $398 million in public fund balances.
That reflects our significantly less competitive posture on rates.
Tom Owens: and $329 million in broker deposits, which we chose not to renew at maturity.
Tom Owens: Looking beyond those managed declines in balances, personal and commercial deposits increased year-over-year by 265 million dollars or 2.1 percent.
Duane Dewey: while our primary focus, as Duane said, has been managing cost while maintaining strong liquidity.
Duane Dewey: Non-interest bearing DEA balances remained resilient, declining by $69 million linked quarter and remaining at 20% of our deposit base.
Duane Dewey: Time deposits increased by $4 million linked quarter, excluding the decline of $150 million in brokered CDs.
Duane Dewey: As of December 31st, our promotional and exception price time deposit book totaled $1.6 billion, with a weighted average rate paid at 4.82%, and a weighted average remaining term of about three months.
Duane Dewey: Our broker time deposit book totaled $250 million at an all-in weighted average rate paid of 4.85% and a weighted average remaining term of about two months as of December 31st.
The End.
Duane Dewey: The relatively short weighted average remaining term of these portfolios represents significant opportunity for continued downward repricing.
Duane Dewey: Our cost of interest bearing deposits decreased by 30 basis points from the prior quarter to 2.51%.
Turning to slide 10, Charles Mark maintains, continues to maintain
Duane Dewey: a stable, granular, and low-exposure deposit base. During the fourth quarter, we had an average of about 457,000 personal and non-personal deposit accounts.
Duane Dewey: excluding collateralized public fund accounts with an average balance per account of about $28,000.
Duane Dewey: As of December 31st, 64% of our deposits were insured and 12% were collateralized.
Duane Dewey: meaning that our mix of deposits that are uninsured and uncollateralized was relatively unchanged linked quarter at 24 percent.
Duane Dewey: We maintained substantial secured borrowing capacity, which stood at $6.5 billion at December 31st, representing 179% coverage of uninsured and uncollateralized deposits.
Thank you for tuning in.
Duane Dewey: The favorable variance to prior guidance reflects proactive strategic pricing actions that we took during the quarter, in anticipation of the Fed's rate cuts in November and December.
Duane Dewey: Based on those actions, as well as the ongoing repricing of the time deposit portfolio, we're currently projecting a linked quarter decline in deposit cost for the first quarter of about 14 basis points to 1.84%.
Duane Dewey: As a frame of reference for that guidance, we're on track for deposit costs of approximately 1.87% months to date in January.
[inaudible]
Duane Dewey: Turning our attention to revenue on slide 11, net interest income, FTE, totaled $158.4 million, which resulted in a net interest margin of 3.76%.
Duane Dewey: Net interest margin increase by seven basis points linked quarter driven by 27 basis points of accretion from liability rate and volume offset by 20 basis points of dilution from asset rate and volume.
Duane Dewey: Again these results reflect the proactive pricing deposit pricing actions that we took during the quarter which position us well for continued decline in deposit costs during the first quarter.
Duane Dewey: Turning to slide 12, our interest rate risk profile remained essentially unchanged as of December 31st with loan portfolio mix of 52% variable rate coupon.
Duane Dewey: The Cash Flow Hedge Portfolio, which is structured to mitigate asset sensitivity, had an active notional balance of $875 million and weighed an average maturity of 3.4 years.
Duane Dewey: including the effect of 500 million dollars notional in forward settle swaps and 125 million notional forward settle floors.
Duane Dewey: The weighted average received fixed rate on 850 million active notional interest rate swaps is 3.12% and the weighted average SOFR rate on 25 million active notional floors is 4%.
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Thank you.
Speaker Change: Turning to slide 13, non-interest income from adjusted continuing operations totaled $41 million in the fourth quarter, a linked quarter increase of approximately $3.4 million.
and totaled $156.1 million for the full year.
a year-over-year increase of about $7.7 million or 5.2%.
Speaker Change: Corporate Treasury Services of $1.5 million or 14% and service charges on deposit accounts of $1 million.
Speaker Change: And now I'll ask Tom Chambers to cover non-interest expense and capital management.
Tom Chambers: Thank you, Tom. Turning to slide 14, we'll see a detail of our total non-interest expense.
Tom Chambers: During the fourth quarter, non-interest expense totaled $124.4 million for a link quarter increase of $1.2 million, or 0.9%.
Tom Chambers: The increase was mainly driven by an increase in salary and benefits of $2.5 million, resulting from an increase in annual performance incentive accruals during quarter.
Tom Chambers: Total other expense decreased by 2.2 million dollars driven by a decrease in other real estate expense net as a result of a valuation reserve established during the third quarter related to one assisted living property.
Tom Chambers: For the year ended 2024, non-interest expense from adjusted continuing operations totaled $485.7 million for a year-over-year decrease of $2.1 million or 0.4%, which was a result of focused discipline expense control during the year.
turn to the slide 15.
Capital Management
Trust Morton remains well positioned from a capital perspective.
As Duane previously mentioned, our capital ratios remain solid.
Tom Chambers: At the end of the quarter, Common Equity Tier 1 ratio was 11.54%, a link quarter increase of 24 basis points.
Tom Chambers: And total risk-based capital ratio was 13.97%, a length-quarter increase of 26 basis points.
Tom Chambers: During the fourth quarter, we resumed our share repurchase activity and repurchased seven and a half million dollars, or approximately 203,000 common shares.
Tom Chambers: Although we currently have a $100 million share repurchase program in place for year-end 2025, our priority for capital deployment continues to be focused on organic lending.
Duane Dewey: As Duane indicated, we will continue to evaluate the share repurchase program as the market and capital levels dictate.
Duane Dewey: Plusmark's Board of Directors announced an increase in its regular quarterly dividend from 23 cents to 24 cents per share, resulting in an increase of 4.3 percent.
Duane Dewey: This action raises the indicated annual dividend from $0.92 per share to $0.96 per share.
Back to you Duane.
Duane Dewey: Great. Thank you, Tom. Now turn to slide 16. You'll notice a new format for our guidance in 25. We now include 2024 benchmarks upon which our 25 full-year guidance is based.
Duane Dewey: We expect Loans Out for Investment to increase low single digits for the full year 2025 and Deposits Excluding Brokered Deposits to increase also low single digits during the year.
Duane Dewey: Securities balances are expected to remain stable as we continue to reinvest cash flows.
[inaudible]
Duane Dewey: We anticipate the net interest margin will be in the range of $3.75 to $3.85 for the full year while we expect net interest income to increase in the mid to high single digits during 2025.
Duane Dewey: From a credit perspective, the provision for credit losses, including unfunded commitments, is expected to remain stable relative to 2024.
Duane Dewey: Non-interest income from adjusted continuing operations for full year 25 is expected to increase mid-single digits.
Duane Dewey: While non-interest expands from adjusted continuing operations, it is expected to increase mid-single digits as well.
Duane Dewey: As already noted, we'll continue our disciplined approach to capital deployment in 2025 with a preference for organic loan growth and potential market expansion.
Duane Dewey: We'll be considering M&A activities and then other general corporate purposes as we've already described such as repurchase, etc.
Duane Dewey: So with that, that concludes our prepared comments and we'd like to open the floor for questions.
Thank you very much.
Speaker Change: Thank you. We will now begin the question and answer session.
Duane Dewey: To ask a question, you may press star then 1 on your touch tone phone.
Duane Dewey: If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star, then two. And at this time, we'll pause momentarily to assemble a roster.
and John Harkin. Thank you. Thank you.
Speaker Change: And the first question will come from Catherine Miller with KBW. Please go ahead.
Thanks, good morning.
Morning, Catherine. Morning, Catherine.
Speaker Change: I wanted to start, first of all, congrats on a great quarter and great end to the year and I wanted to start just to piggyback on some of the commentary you gave Tom on the full year margin.
Speaker Change: died, it was helpful to hear where you think deposit costs are going.
Speaker Change: Can you talk a little bit about loan pricing and how you're thinking about loan betas and incremental loan pricing over the next couple of quarters?
Speaker Change: Well I'll start Catherine and we'll see if Barry wants to weigh in.
Barry Harvey: As you know, roughly half of the book is floating rate.
Speaker Change: We do have in the forecast, based on market-applied forwards, two Fed cuts of 25 basis points apiece.
one in March, one in June.
With respect to the loan pricing dynamics,
Speaker Change: you know, in prior quarters, when I've commented on that dynamic, I think I've said, you know, you can sort of rely on
Speaker Change: a tailwind, so to speak, on the fixed rate loans of two to three basis points per month.
You know, I think with the
Speaker Change: The longer interest rates have remained higher here. Some of that effect has diminished. So whereas I previously said two to three basis points, maybe I'd say now one to two basis points. So that continues to represent a tailwind, but not...
quite as much.
Really, Catherine, the primary driver is deposit costs.
Speaker Change: The reason I go through the statistics and the prepared commentary on the time deposit book is it is very short. And just to give you an idea here on a point-to-point basis.
Speaker Change: say from the end of the third quarter to the end of the fourth quarter, the time deposit book priced down by about 15, 1.5, about 15 basis points.
Speaker Change: We're currently modeling for the first quarter that it'll price down by about double that amount.
So it's really a key driver.
Speaker Change: of the guidance for the linked quarter NIM and then for the full year NIM because obviously that repricing
Speaker Change: continues in quarters beyond that at a diminishing rate obviously but I'll let Barry weigh in with any thoughts on pricing. I think from a Q4 weighted average interest rate book standpoint
We were about 7.11% versus the book average.
Speaker Change: on 6.07%, so we do continue to have, as you said, the tailwind.
We are still we are still seeing the spread
Speaker Change: during 23 and the first half of 24. It got a little bit more competitive in the...
Speaker Change: and the third quarter, where some banks got back involved that had not been active in the CRA space, but it seems to have settled down from there. And that one-month-wide board plus 285.
Speaker Change: with the 75-80 basis point fee is where we're kind of settling in. It looks like that everybody in the market is...
Speaker Change: and John C. We're just behaving a little more rationally and understanding what the risk is and needing to get paid for it. So we're very pleased to see that transition occur kind of during the fourth quarter.
Speaker Change: Okay, great. And on lung growth, your low single-digit guidance, it feels like everyone in the industry is feeling a little bit better about the outlook for lung growth this year. And just curious within that, is
Speaker Change: Does that low single digit include maybe better origination volume but still the impact of paydowns or are you still seeing kind of origination volume not pick up as a faster pace as we may have expected? Thanks.
Speaker Change: Sure, and Catherine, I'll be glad to kind of, I'm gonna kind of go through this
Speaker Change: succinctly hopefully but but I want to make sure we cover it because it's important for you know as you said for 2025 we are guiding to low single-digit long growth you know
Speaker Change: Actually, during 23 and the first half of 24, the CRE activity was less clearly than we experienced in 21 and 22, which were very, very strong years.
Speaker Change: and therefore everybody is seeing some maturities in 25-26 from that.
strong production in 21-22.
Speaker Change: We did see a nice pickup in production for CRE in Q3 and Q4 of this year. That looks like that's going to be the trend going forward, and we're very pleased with that.
Speaker Change: Remember, and we can't project what the customer is or is not going to do, but remember with all of our CRE Construction Mini-Farm products,
There are two 1-year extension options.
Speaker Change: that are fully underwritten at the time of origination. So all the terms, pricing, everything is known to the customer.
Speaker Change: and assuming they're meeting certain performance hurdles, they can avail themselves of that extra year and then that extra second year if they so choose.
Speaker Change: So, we did see in the fourth quarter, Catherine, a significant increase in the number of extension options being exercised.
in Q4 that we're going to be 2025 maturities.
Speaker Change: Now, we're not making the assumption in our guidance that that's going to continue throughout 25, but it very well may. And obviously when you're talking about projects that are $20 or $25 million on the books, if they stay around, it moves the needle very quickly.
Speaker Change: I will say our corporate, commercial, and CRE production pipelines continue to look very strong.
Speaker Change: and, you know, as I mentioned, like our peers, 2021, 2022, extremely strong.
CRE Productions.
periods.
Speaker Change: and when you think in terms of an average four-year duration.
Speaker Change: then you can see where 25 and 26 could have heavier maturities from that strong production in 21-22.
Speaker Change: That doesn't mean they're going to leave us, in our case, because we've already underwritten those two one-year extension options.
Speaker Change: But we don't know with any certainty that they will or won't. All we know is the maturities we have in front of us. We're very
Speaker Change: We'd like to be very optimistic about the fact that they're going to take us on those extensions. We're beginning to see it in the fourth quarter of 2024, but we don't know how much follow-through there'll be there.
Speaker Change: The interest rate environment settling down may allow for more of our customers to decide they do want that additional one year to find whether they're going to move it to the permanent market or decide whether or not they're going to sell it and they're happy with the cap rates and so we're starting to see that but we don't know what the follow-through will be.
Speaker Change: Catherine, I'd like to just add real quickly too, we continue to hear
Very positive production opportunity on the equipment finance side.
for hearing from the respective teams out there, their pipelines.
Speaker Change: some of which hadn't funded yet, which we have some optimism there that that will begin to fund.
Speaker Change: in 2025, as well as new production in 2025 with the other categories. So overall, we're still a little, we want to see it happen a bit, but we come into 2025 optimistic, and it is very...
That makes sense. Okay, very helpful. Thank you. Great order.
Thank you. Thank you, Catherine.
Speaker Change: The next question will come from Christopher Marinak with JANI. Please go ahead.
Speaker Change: Hey thanks, good morning. I wanted to ask about your thoughts about net charge-offs and is there any tolerance to have a little bit higher loss rate to get more growth and kind of how do you think through that not just near-term but you know over the intermediate run?
Barry Harvey: And Christopher, this is Barry. You know, I would say that we know just from the number of deals we're in with other banks.
Barry Harvey: that were very much in line from a credit risk-taking standpoint with a lot of our peers, and even some of the larger regional banks. And so I think from the standpoint of additional risk-taking, it's more a function of the opportunities.
Barry Harvey: Coming forward, then it is necessarily the deals we're passing on that we might could possibly do, and that might end up resulting in a little more charge-out from that perspective. You know, I do think we're very careful and very aggressive in terms of rating our credits, whether that be criticized or classified, and we want to make sure we're maintaining high credit quality at all times. I think it's more of a function of the market improving.
and providing more opportunities.
Barry Harvey: to look at deals, and I think the higher rates are somewhat...
Barry Harvey: slowing that down on both the C&I and the CRE front, although I will say
with the 100 basis points drop that we've experienced.
Barry Harvey: a lot more CRE deals penciled today than they did previously. So, I think it's a function, from a CRE perspective, of the funds being available.
Barry Harvey: in order to put in the equity, and that's beginning to improve. But until you see the availability of the equity from the developers...
Barry Harvey: coming in for the deal so then they can go and move the one they've got on the books today and move forward on the next project. That's what we're kind of needing to see is when you talk about risk-free 5% returns
then there's not as many.
funds that are interested in plowing money into
Barry Harvey: as they were when you had no option in terms of a risk-free return.
Barry Harvey: Now, that's all seeming to settle out now, and there's more fun money coming back in.
Barry Harvey: to these projects, which allows for the developments to move forward. But I think from the standpoint of decisioning the credits that we have an opportunity to look at, I think we're as aggressive as any of our competitors. They're in these deals, so we're jointly determining the underwriting. So I feel very confident that we're in sync with what others are doing.
Thank you.
Barry Harvey: So Chris, this is Tom Owens. I'll start. I'm a little confused by the question connecting the dots between expenses I think you were asking about and then deposit accounts. I'll start with addressing deposit accounts. You know
I would say with respect to
Barry Harvey: operating accounts the there's been there's always a natural churn right attrition versus new account openings and we've been very steady in that regard
Barry Harvey: When you look at, when we talk about the number of accounts, and when you look at the increases in accounts, the headline in 23 and 24 very much a function of
Barry Harvey: promotional activity, especially as it relates to time deposits. So you sort of have to put those off to the side when you're talking about
number of accounts outstanding and growth or decline in accounts.
Barry Harvey: because, as we talked about in the prepared commentary, in 2024 we've very much been focused on managing cost.
Barry Harvey: and balancing the relationship between loan growth and deposit growth, but I would say just in terms of our competitive position and do we continue to push forward in growing accounts at a consistent rate, the answer is yes.
Barry Harvey: And Chris, did we miss the first part of that question? Was there another part of the question?
Barry Harvey: no actually it was really a count open that Tom described so I'm good on that sorry if I mentioned expense that's not my point so thank you very much for the call this morning
Thank you. Thanks for us.
Speaker Change: The next question will come from Gary Tenor with DA Davidson. Please go ahead.
Thanks. Good morning.
Speaker Change: I appreciate the call around the puts and takes for 2025 loan growth. I was curious about the C&I traction in the
Speaker Change: fourth quarter. I think you indicated in the past that maybe post-election there was increased optimism, the pipelines had strengthened up. Is there any follow through in terms of the period imbalances there or is that purely a kind of year-end maybe seasonality and drawdown on lines that maybe reverses in the first quarter?
Speaker Change: Hey Jerry, this is Barry. I think there definitely is some policy that's going to occur during 2025.
Speaker Change: In the fourth quarter of 2024, what you saw was a combination. We had some new opportunities, new bookings that funded.
Speaker Change: And then we also had an increase in line utilization. You know, we typically have been in that 37% range.
and Q3, we moved down to 35%.
Speaker Change: That was part of the little bit of shrinkage we had in Q3.
Speaker Change: And during the fourth quarter, we did move up to 36%. So I think there's opportunities to continue to obviously move back to 37% and beyond, in terms of line utilization. And we did have some good production that was actually approved and funded during the fourth quarter. We expect that trend to continue with our C&I producers. I mean, they're very, very active out making calls. We've got—
Speaker Change: and some newer individuals to the bank who have a long experience in that type of lending. We expect to see some additional production coming from them as well as our long-term associates.
Speaker Change: adjustments we've made throughout our franchise particularly in the retail commercial banking franchise but also in our institutional businesses and through that process there was some churn and some change and adjustment
Barry Harvey: Twenty-four was more of a, let's see, we're starting to form now and produce, and I think going into 2025, we feel good about the structure and the team in place, as Barry noted.
Probably in the last 60 days, we've added 10 plus.
new production personnel that
spans from equipment finance through commercial banking into corporate banking.
Barry Harvey: all focused on C&I production, and as noted, they were very complimentary to the restructuring stuff that we did, so we're expecting to continue to see improved performance out of all of our C&I categories.
Barry Harvey: in many of our markets, so that's kind of mixed in there also.
Speaker Change: Thanks, I appreciate the color there. And then a quick question just on the stock repurchase. I know you talked about it a bit in your prepared remarks.
You know given
Speaker Change: The outlook for pretty moderate loan growth, or loan growth and overall balance sheet growth, and a good return profile.
Speaker Change: There don't seem to be any looming restrictions to continuing the buyback, dependent on the price of course. Am I missing anything there?
Speaker Change: considerations there. One are you know what's happening on the growth side of the equation.
Speaker Change: as well as then what's happening in M&A or any other considerations that we might have as we move into the year. So there's a lot of different factors that play into that. We meet and analyze regularly and consider the best way to use capital, and that is one of those alternatives.
Speaker Change: Yeah, and I would just add, this is Tom Owens, I would just add, you know, our risk-based capital ratio has accreted pretty nicely.
Speaker Change: during the fourth quarter up about 25 basis points or so. And you look at CET1 at about 11 and a half percent.
Speaker Change: You know, I just can't imagine, you get up to about 12% or so and, you know, without the share repurchase program, even with more robust loan growth, there's...
in all likelihood going to continue to be
Speaker Change: the opportunity to deploy capital via repurchase. And again, we do view it as an attractive opportunity from a return perspective. We have a pretty diligent framework, diligent process by which we evaluate share repurchase activities.
Speaker Change: I would imagine that you will see a continuation of the activity.
Great, thank you.
[inaudible]
Speaker Change: The next question will come from Eric Spector with Raymond James. Please go ahead.
Eric Spector: Hey, good morning, everybody. This is Eric dialing in from Michael. Thanks for taking the questions.
Eric Spector: Maybe just touching on your expense guide, I'm just curious some of the investments that you've got embedded in your expense guide. Obviously, there's some natural expense credits from normal inflation, but just curious what kind of investments you're focused on.
Well, it's across the board.
Eric Spector: In terms of technology investment, a number of different initiatives across the organization, one of which includes a core conversion that will be
Eric Spector: focused for the company here throughout 2025. We continue to invest in digital technology and so on to serve customers across the board.
Eric Spector: When you step back and look at the 2025 Expense Guide, there's significant continued pressure, I think, on the personnel front, salaries and benefits.
Eric Spector: A very significant increase in health care costs that are true to the industry.
and Trudy, all different categories out there.
Speaker Change: There are a number of different pressures that are just impacting the expenses for 2025. Those would be ones that come to mind. I don't know, Tom or Tom, if y'all have anything to add to that.
Speaker Change: I'd probably add risk infrastructure, continuing to invest in our risk infrastructure and
Speaker Change: ensure that we have the right framework in place to continue to allow us to grow both organically as well as potentially through acquisition.
Speaker Change: And then I did leave out, as I already commented on in prior comments...
Speaker Change: The new production staff, of course, across a lot of different markets and all of our different categories of production, we're vehemently focused on those categories as well, adding to our potential for growth, and those all add to the equation.
Speaker Change: The first time I've ever seen a movie, I've never seen a movie.
Thank you very much.
Speaker Change: That's great color. And then maybe just touching on deposits, you've done a great job reducing costs. Just curious how client reception has been, whether you've seen any pushback or attrition from that. I know most of the runoff this quarter was from the brokered, the intentional brokered runoff. But just curious if you could touch on some of the non-interest bearing and DDA trends and how much of that seasonal dynamics versus migration and accounts and just the outlook for composite risk broadly going into 2025.
This is Tom Owens.
I would say we've been very pleased to date.
Speaker Change: with the pricing actions, the reaction to the pricing actions that we took in the third and fourth quarter. There's really not been a noticeable increase.
Speaker Change: in attrition, in deposit accounts as a result of those actions.
Speaker Change: And again, as we said in the prepared remarks, I mean...
Speaker Change: If you get past the managed declines of brokered CDs and the public fund balances where, you know, there's just a certain portion of that public fund deposit base that is very competitive on a bid basis,
And so, again, we're trying to
Speaker Change: maintain our liquidity, strong liquidity in the mid 80s in terms of loan to deposit ratio and so we're just we're really backed off on some of the more competitive bid situations but so you you know that leaves you with the core deposits personal and non-personal
that grew over 2% for the full year in 2024.
Speaker Change: And so given, you know, what our competitive posture looked like and our focus on rationalizing costs, we feel really, really good about that.
Speaker Change: and we feel really good about our ability to continue to fund balance sheet growth cost-effectively. You know, it's interesting when you look at slide...
Speaker Change: Speculate, based on what we've seen here during earnings season, that we probably widen that spread again during the fourth quarter.
Speaker Change: I think this environment right now has been an opportunity for us to distinguish ourselves in terms of the value of our deposit base and we expect that to continue here in 2025.
Speaker Change: I have a question on credit. MPAs hit modestly higher, you know, still relatively benign. It looked like that was particularly in Mississippi. Just curious whether you're seeing
Speaker Change: Any migration and how you think about credit broadly and if there's anywhere you're watching more closely than others.
Speaker Change: and Eric and Siberi. I would say, you know, we're obviously very focused on it day in and day out and making sure, you know, very, very robust.
Speaker Change: annual review process for all of our credits of any size.
Speaker Change: and along with a number of different ways in which we're monitoring all the triggers on our credits to see what might encourage us to go dig into a credit that maybe is showing some signs of weakness.
Speaker Change: But there's not really a category that we're more focused on than the other
Speaker Change: Obviously, CRE is one that with the 550 basis point increase from the Fed, they've obviously given back 100 of that, but that increase weighed on, like it did with all banks, it weighed on the CRE.
Speaker Change: projects and the how they were performed and and how they're how they're
maturing
through the lease-up process.
Speaker Change: I think we've done a good job of going in and being very aggressive and adjusting grades.
as timely as needed.
Speaker Change: and therefore reflective in our criticizing class 5 levels. I do feel like that we've got more credits in front of us that we're going to be upgrading than we do downgrading as we move into 2025.
Speaker Change: are getting the rents that they were originally pro-former and underwritten at.
Speaker Change: while we are monitoring everything and watching it very carefully as we should every day.
Speaker Change: I am encouraged that we will see the cycle begin to turn back up and we'll see, like I said, more upgrades and downgrades as we move forward.
Speaker Change: Great, thank you for taking the questions and congrats on a good quarter.
Thank you.
Speaker Change: The next question will come from Andrew Gorzyka with Piper Sandler. Please go ahead.
Hey, good morning, everyone.
Good morning.
Speaker Change: A lot of my questions have kind of been answered at this point, but I just wanted to hop back to maybe capital priorities. In the prepared remarks, you touched on organic lending being the top priority, and then followed by potential market expansion. And just to follow up to that, just wondering what regions present the most attractive growth opportunities in 2025?
So, um...
Speaker Change: First and foremost, organic loan growth is certainly the most cost-effective way to use capital, so that's
Speaker Change: continues to be a focus, and I've already commented on some of the production staff. And then further, I commented on the fact that we had been through some restructuring and so on, and through that process, we have plenty of opportunity to add production staff.
Speaker Change: in a lot of our existing markets, Houston, South Alabama, the Mobile, Baldwin County area, in Birmingham specifically, Birmingham is
significant opportunity for us.
Speaker Change: Atlanta, we had opened a loan production office in Atlanta several years ago. We've now continued to expand all of our offerings in that market. Equipment finance is another area where we've had very solid success with
Speaker Change: a fairly limited production team, of which we're now adding to the production team in the equipment finance area. Then if you step back and look at our footprint, we have very attractive markets in and around the core franchise.
Speaker Change: up into Tennessee, over into Texas, and so on. So those are all things that would be on the drawing board. The most likely for 2025, however, would be adding to existing production staff and expanding markets where we already serve.
and then the next one.
Speaker Change: Got it. Makes sense. That's all I had. Thanks for taking the question.
All right. Thank you.
David Bishop: The next question will come from David Bishop with VHUB-D Group.
Hey, good morning, guys. This is John on for Dave.
Hey John. Morning.
Thank you. Thank you. Thank you.
David Bishop: So just wanted to start quickly on the on the hedge front. I was wondering if you could just share your thoughts on on how the the hedging strategy should impact the margin moving forward particularly in the event that we get you know say another one to two cuts this year if that's possible to quantify.
Thank you. Thank you. Thank you.
David Bishop: It's absolutely possible to quantify. This is Tom Owens. Again, the cash flow hedge portfolio is designed to mitigate some of the volatility.
David Bishop: to Net Interest Income that comes with changes in interest rates. As we said in our prepared comments, 52% of the portfolio is floating rates.
So
David Bishop: we've taken a portion so that's in round number six and a half billion something like that floating rate loans we essentially John the way to think of it is
David Bishop: via $850 million notional interest rate swaps and $25 million of floors. So that's the correct way to think about it in terms of...
David Bishop: impact of the portfolio itself I mean the simple math is 850 million of fixed rate loans for a hundred basis point shock we would benefit all of the things equal by eight and a half million dollars
David Bishop: And so if you, let's say you do get two cuts,
David Bishop: One in March, one in June, then in the second half of 2025, we would benefit by $4.25 million from having had the
David Bishop: cash flow hedge portfolio in place relative to our current run rate net interest income.
Speaker Change: very helpful thank you for that and I guess just pivoting and not to beat a dead horse here on the on the deposit front appreciate all the color on the the forecasted beta and and how time deposit costs have trended thus far in January I guess I'm just curious as to
Speaker Change: How much lower we could see deposits reprice in 1Q and 2Q in the event that we don't see a cut in March or a cut in June?
Well it's a good question and I will tell you
Speaker Change: As I said earlier in my prepared commentary, our guide for the year in terms of net interest margin, our guide for the first quarter in terms of deposit cost, is very much a function of the ongoing repricing of the time deposit book.
At this point, we have very little.
priced, and as I said, we do have
Speaker Change: 25 basis point cuts based on the market implied forwards in our forecast.
Speaker Change: for March and for June, and we have very little reduction in interest-bearing non-maturity deposit costs associated with those.
Speaker Change: And so I think it's a conservative guide at this point.
Speaker Change: in terms of deposit costs for the full year. I'll give you an idea on the beta.
Speaker Change: I mean what we're modeling at this point is so so we just printed 198 for deposit cost in the fourth quarter we're guiding to 184
Speaker Change: in the first quarter, based on where market-implied forwards are today, that would probably drop to, say, by fourth quarter of this year, call it 170 or so in round numbers.
Speaker Change: And that would represent, you know, to my way of thinking, that would represent a beta, so to speak, of about 34%. Right? So if you took in the numerator, if you took the decline from our peak
Deposit cost for a quarter of $222.
And then if you said...
Okay, let's say about 170.
Speaker Change: in the fourth quarter of 25. Take that in the numerator and then in the denominator take five and a half percent fed funds went down to four percent fed funds.
Speaker Change: and you should get a beta of about 34%. So that's currently what we have modeled and that's what's driving our guidance at this point in terms of net interest margin for the full year.
Speaker Change: Understood. That's fantastic, Culler, and much appreciated. That's all I had. Congrats on the quarter, guys, and thank you for taking my questions.
Absolutely. Thank you. Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mr. Duane Dewey for any closing remarks. Please go ahead.
Duane Dewey: As we mentioned, we feel like the fourth quarter in 2024 were very positive years for Trustmark.
look forward to 2025 here moving forward.
Duane Dewey: and we appreciate you joining the call this morning and we'll look forward to reconvening back at the end of April. Have a great rest of the week.
Duane Dewey: The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.