Q1 2025 Trustmark Corp Earnings Call
John: 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 [inaudible]
John: Following the presentation this morning, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch tone phone.
Speaker Change: To withdraw your question, please press star, then two. 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.
Speaker Change: Good morning. I'd like to remind everyone that our first quarter earnings release in the slide presentation that we'll 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 more looking statements within the meaning of the private securities litigation or form act of 1995, and we'd like to caution you that these four looking statements may differ materially from actual results.
Speaker Change: New to a number of risks and uncertainties which are outlined in our earnings release and our other volumes with the Securities and Exchange Commission. At this time I'd like to introduce Duane Dewey, President and CEO of Trustmark.
Thank you.
Duane Dewey: Thank you, Joey, and good morning, everyone. Thank you for joining us this morning. Weekly are Tom Owens, our Chief Financial Officer, Mary Harvey, our Chief Credit and Operations Officer, and Tom Chambers, our Chief Accounting Officer.
Duane Dewey: Trustmark reported solid performance in the first quarter, building upon our momentum from 2024.
Duane Dewey: As you may have seen, we experienced continued bone growth, stable credit quality, expanded the income and lower non-interest expense in the first quarter.
Duane Dewey: I would like to know that we're adjusting our presentation format this order. I will first provide a summary of our performance, discuss our forward guidance, and then move to questions.
Duane Dewey: This will reduce the time spent on art common and allow more time for your questions.
Duane Dewey: We understand this is a popular day in the earnings release cycle and we want to allow as much time as possible to address questions you may have after reviewing our release and release deck.
Now turning to slide three, the Financial Highlight Slide slide.
Please note all information presented here as we continue in operations.
Duane Dewey: From the balance sheet perspective, loans held for investment increased $151 million for 1.2%
Our growth was diversified and reflected increases in CRA Gary.
Duane Dewey: Other commercial loans and leases and one to four family mortgage loans.
Duane Dewey: Our deposit base remains stable during the quarter or cost of total deposits decreased 15 basis points to 1.83%.
Duane Dewey: reported net income in the first quarter of $53.6 million, representing fully deluded EPS of 88 cents per share.
Duane Dewey: This level of earnings was noted in a return on average assets of 1.19% and a return on average taxable equity of 13.13%
Duane Dewey: This performance reflects solid net interest income of $155 million, which produced net a net interest margin of 3.75%.
Duane Dewey: Non-interesting income totaled approximately $43 million up 4% link quarter as growth in mortgage banking, wealth management and other income was offset in part by seasonal declines and bank card and other fees.
and Service Charges on Deposit Accounts
Duane Dewey: We're very pleased with our continued expense management efforts, non-interest expense declined $419,000 which follows a full-year decline in 2024.
Duane Dewey: Salaries and Employee Benefits, Service and Bees, and other expenses for all lower-linked quarter.
Duane Dewey: Credit quality remains stable. Net charge also totaled $1.4 million, representing four basis points of average allowance in the first quarter.
Duane Dewey: The net provision for credit losses was 5.3 million, and the allowance for credit losses expanded 4 basis points to 1.2% of loan cell for investment.
Again, a very solid credit profile.
Duane Dewey: From a capital management perspective, each of our capital ratios increased during the quarter. The CET-1 ratio expanded to 11.63% while our risk-based capital ratio increased 13 basis points.
to 14.1 percent.
Duane Dewey: During the quarter, we repurchased $15 million of Trustmark Common Stock and a remaining repurchase authority of $85 million for the remainder of this year.
Duane Dewey: This program continues to be subject to market conditions and management discretion.
Duane Dewey: Cancer will book value for sure was $27.78 at March 31, up 4.1% during the quarter and 26.1% year-over-year.
Duane Dewey: The board also declared a quarterly cash dividend of 24 cents per share of payable June 15th to share owners of record on June 1st.
Duane Dewey: Now, let's focus on our forward-looking guidance for the year, which is on page 15 of the deck.
Duane Dewey: As you can see, we are affirming our previously provided full year 2025 expectations across the board.
Duane Dewey: Although we are intently monitoring the impact of tariffs and other administrative policies on our customer base interest rates and credit related issues we feel it is early in the process and we've not yet seen an immediate impact.
Duane Dewey: We expect loans help for investments to increase low single digits for the full year 2025 and deposits excluding broker deposits.
to increase loan single digits as well.
Duane Dewey: Security's balances are expected to remain stable as we continue to reinvest cash flows.
Duane Dewey: We anticipate the net interest margin will be in the range of 375 to 385 for the full year while we expect net interest income to increase mid to high single fidgets in 2025.
Duane Dewey: From a credit perspective, the provision for credit losses, including unfunded commitments, is expected to remain stable.
Duane Dewey: Non-interesting from adjusted continuing operations for the full year 25 is expected to increase mid-single digits while non-interest expense from adjusted continuing operations is expected to increase mid-single digits as well.
Duane Dewey: We will continue our disciplined approach to capital deployment with a preference for organic loan growth, potential market expansion, M&A or other general corporate purposes depending on market conditions.
Duane Dewey: As noted earlier, we do have remaining availability in our board authorize share repurchase program that we will consider opportunistic.
Duane Dewey: So with that, I would like to now open the floor up to questions.
Thank you.
Duane Dewey: Thank you. We will now begin the question and answer session.
Speaker Change: And the first question will come from Will Jones with KBW. Please go ahead.
Yeah, hey, good morning guys.
Take good morning well, party well.
Speaker Change: Hey, you can want to thank, thanks for the questions. I wanted to start with just with long growth, either very Duane. If you could just maybe walk through some of the growth trends, you saw this quarter and how the pay down story kind of played out for the quarter.
Speaker Change: and then just with respect to the growth guidance for the remainder of the year, obviously a fairly volatile environment out there. Duane, could you just give us a poll for just boots on the ground? What's your hearing from clients? And anecdotally, just...
Speaker Change: Just what, whether you've seen any, you know, change or definitive, you know, change in any client behavior just with regards to the terrorists and some of the uncertainty out there. Let me be great. Thank you.
Speaker Change: Will, this is very off start and then I'm going to have Duane, Duane lay in. I guess starting with the pay-outs, this quarter, as we mentioned previously.
Speaker Change: Well, we do expect to have meaningful cheering CRE loans during 2025 as a result of the strong production in 21 or 22 that we experienced.
Speaker Change: We expect that to be a second, more than a second half event and a first half event and that's kind of the way it played out [inaudible]
We have done a extremely good job, I believe, of...
Touching our customers, communicating with our customers
Speaker Change: and making sure they're aware on projects that are performing, that there is two, one, your extension options available to them.
Speaker Change: Quite a few of them have indicated that they intend to avail themselves of that option for a few reasons. I think one is, as you mentioned, the uncertainty that exists today regarding interest rates.
Speaker Change: and the directions they may move and whether it's more advantageous for them to wait and pay the cost of Gary for a year or so to see if the interest rate environment may improve and if it does.
Speaker Change: as take the opportunity to either sell the project and a better cap rate.
Speaker Change: potentially move it to the private market and lock in a very attractive rig, so for all those reasons.
Speaker Change: The Long Growth we saw in the first quarter was not unexpected from our perspective and the pay-off scenario we think will continue to play itself out.
Speaker Change: I see your moves along, but we have seen quite a bit of...
Speaker Change: As we forecast every quarter, we'll expect to see with our CRE book, which is $5.3 billion.
and based on that survey. Bye.
Speaker Change: As of 930 last year, we saw quite a few of our customers who have maturing CRE credits in 2025 indicate they probably will build themselves of that.
Opportunity to push it out to 26.
Speaker Change: We saw that trend continue as of 1231 and we were actually as we continue with that process of quarterly forecasting we don't anticipate that trend changing and what we see coming out of our 331
Speaker Change: Survey work that we're currently doing now so we're very pleased to never go hard but we are very focused on that and then also focused on seeing if there's not opportunities for us.
Speaker Change: to move existing funded business. That's one reason or another. We have an opportunity to
Speaker Change: as well as continuing to ensure that the projects we have are performing as we expect them to and addressing any problems that may pop up.
Speaker Change: I'll stick just briefly to the issue regarding what we're seeing in the marketplace, and Duane can add some color to that, I know, you know, obviously anytime you have disruption.
Speaker Change: There's going to be people who pause in whatever their plans were and don't move forward on those. Fortunately, a lot of the growth that we have, anticipate having in 2025, it's going to come from existing CRU projects that are on the books that are going to fund.
Speaker Change: and that's going to happen regardless. And then, as far as future projects on the CRE side, we've not really heard anything from our customers in terms of...
concerns about significant
The backing of the sponsors.
Speaker Change: on supporting those projects as maybe they have previously until some of the some disruption in the marketplace kind of settles down but we do expect for those sponsors to come back the end but we do expect for that return they're seeing on these projects to be materially better than what they can find elsewhere.
Speaker Change: and a risk-free environment. But a lot of that's going to depend upon interest rates on Duane. Let me turn it to you now. Yeah, I will add
Speaker Change: Coming into the end of the quarter, first quarter into the end of the quarter, well, I think our pipelines were as good or better than we've seen for a long time and that was pretty much across the board.
CNI, CRE, Equipment Finance, Williams,
Speaker Change: etc. Even some of our small business areas and so on across the board what we were hearing from our officers as well as directly from customers, very solid pipelines, very solid plans and so on. So and that is still intact, those pipelines are still very good.
Speaker Change: Post April 2nd, the so-called Liberation Day. Since April 2nd, we've done some polling across our business units and some direct interaction with customers as well.
Speaker Change: Probably we are hearing for the first time, you know, there's a lot of uncertainty out there.
Speaker Change: I may hold off for a bit and may slow down a bit. Let me see how things work out here. So it has it directly hit these.
Speaker Change: Pipeline Reports yet, but we could see some slowdown in some of that new origination volume that we were anticipating.
Speaker Change: But it's not yet dramatic and it's not yet fully baked into actuality, if you know what I'm saying, so it's real early in the process.
Speaker Change: and a couple of updates and a couple of positive days and rhetoric out of the median the administration, you know, it changes instantly so it's we're seeing the volatility there.
Speaker Change: But it happened really, and as we noted, our forecast moved forward, we're still affirming that low single-digit growth for the year.
Dr.
Speaker Change: Yeah, that's great. I really appreciate that throw-in serum bearing's way on that.
Um, maybe Thomas just said, put one for you.
Speaker Change: You know, I certainly appreciated the margin range you put out there, the 375 to 385. We're kind of sitting at the low end today and I know you generally like generally guide off of the
Speaker Change: The Forward Curve. I was just hoping that you could help us maybe sensitize that margin a bit. I know there's various thoughts and then considerations for how rates made ultimately play out this year but if we do want up in a scenario with a higher level of cuts. [inaudible]
Speaker Change: Could you just help us walk through maybe what happens to the margin in that scenario?
I'm really sure we're all happy to. So, several points I'd make nearer.
Speaker Change: First of all, with respect to the one basis point linked quarter decline in that interest margin, we experienced a normal seasonal linked quarter decline in loan fees.
Speaker Change: which was worth about three basis points of NIMM. And so on a normalized link quarter basis, rather than a one basis point decline, that would have been a two basis point increase.
Speaker Change: which is consistent with the guidance that we've put out there, the commentary we've provided, we continue to believe.
Speaker Change: going forward that we will experience low single digit linked quarter increases in that interest margin.
Speaker Change: As we discussed in the past, the primary driver there is the ongoing repricing of the Fixed
Speaker Change: With respect to your question about Market and Plife Forward Interest rates and our current forecast, we have three Fed rate cuts.
Speaker Change: consistent with Mark and applied forwards, one in June , one in September , and then one in December , of course, the one in December is not so consequential to our 25 net interest margin.
Speaker Change: I think our objective there will and we're confident we can achieve it, you know, if you look at it.
Speaker Change: For example, slide 9 on the deposit base and you look at the cumulative data that we've driven.
Speaker Change: through the first quarter of 39% and through the second quarter with forecasting five basis point wing to quarter decline and deposit cost and a cumulative rate of 35%.
Speaker Change: Our objective, assuming that we do end up with, and it's a big assumption.
Speaker Change: June and September rate cuts would be to continue to maintain that cumulative data in the mid-30s, which would allow us to continue to have that low, excuse me, that low single digit-link-quartered-minimum creation.
Speaker Change: Okay, Thomas, that's super helpful. So, if I hear you right, really, if we adjust for some of those seasonal decline on loan fees, margin really could have looked closer to 377, 378. And then just based on forward rates, you would still expect to see maybe a little bit grinding higher of that margin as we move to the balance of the year.
Speaker Change: Correct Will, that's right. Yeah, okay, that's really helpful. Well thanks guys and I can congrats for, you know, overcoming the sub-CRA overhang.
Very good. Thanks. Thank you.
Tim Mitchell: Our next question will come from Tim Mitchell with Raymond James. Please go ahead.
Hey, good morning, everyone. Thanks for taking my questions.
Tim Mitchell: I want to start on credit, the MPA ratio and the reserve, both for uplinked quarter, increased MPA's as modest, but just given the reserve bill, is there anything you're seeing that's worth calling out, or is that more so just a function of...
All the uncertainty out in the environment and maybe shifting some of your cue factors and see someone puts in such any color would be great.
That drove off the coverage to the 1-2-6.
Tim Mitchell: and that was probably the biggest part of what drove the release on the liability side.
Tim Mitchell: There was really the quarter was pretty much as we expected, you know, the long growth of the 152 million bad growth, some of that provisioning.
Tim Mitchell: and then we also had an uptick and the qualitative portion of our provision. A little bit of that was just the changing and risk ratings and then there was a little bit of that where we were migrating to some of our own probability devolves.
Tim Mitchell: where historically we had used some third-party data or peer data, and we've accumulated enough information to move to our own probability of false.
Tim Mitchell: and leverage that and that drove up the qualitative portion of our provision a little bit.
Tim Mitchell: But I think on the whole the provision kind of came in where we expected it to obviously the funded portion closer in line.
Tim Mitchell: to make me wear the market saw it, and then the unfunded release kind of brought us down a little bit below with the consensus of the analyst's work.
Great, make sense.
Tim Mitchell: The little expense is just given the decline this quarter. Could you remind us of any impact? The timing impacts from merit or any investment shown or taken this year just as we think about that. Let's single-digit growth that look.
Speaker Change: I'll start in Tom and Tom can add to it, but
I mean it is-
Tim Mitchell: As you've burned over an extended period of time here, we've had a pretty intense focus on expenses across the board.
and in all aspects, I think the first quarter, [inaudible]
Tim Mitchell: If you look at a small decline in the first quarters, directly related to-
Saurie's Benefits [inaudible]
It's slower hiring than originally anticipated.
Tim Mitchell: Commission, some of the Commission categories, mortgage, etc., where production maybe was a little below.
Expectations, and so on, those things all accumulate to...
Lower Sowery and Benefit Tonals and in some other.
Tim Mitchell: Contractural Things that we do, third party support, and so on. We're limited in the first quarter. I think as we look out into the remainder of the year, we have some things planned. We have announced previously we have a core system conversion that will occur in the first part of 2026.
So, there's some related expenses there. There's other just-
I would say normal. [inaudible]
Tim Mitchell: Expense increases across the more contractual increases and those sorts of things.
Tim Mitchell: that all then told to a mid-single digit here. And our hope and effort is to control that and maybe beat that number, but that's kind of what we're thinking at this point, Tom or Tom. Anything to add?
Tim Mitchell: No, I just think this Tom Chambers, I just think that you have to remember that our merit increases are now coming.
Tim Mitchell: at the beginning of the third quarter on salaries that previously were the first quarter, a lot of part of the first quarter event. So we've got some back-end expenses during the year that'll be triggered, that'll get us to that single-digit full cast.
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Guy, I'll picture the color.
Yeah, absolutely. If I could see one last one in.
Tim Mitchell: Some of the buybacks, which is nice to see you guys lean into this quarter, is this a pace kind of that you would expect to continue with moving forward? And then just any other thoughts around capital? And now you mentioned, you know, potentially, expanding a new mark, and so on and organic earth or into priority, but just any more colleague give overall would be awesome.
Speaker Change: Yeah, I'll start and, again, Tom can add to you, but as far as the pace, the market will dictate the pace and management discretion, I think, loan growth and some other factors there kind of contribute to our thought process.
Speaker Change: We do feel some opportunity to continue that by back trend.
Speaker Change: and probably would forecast fairly consistent order to quarter, but we'll see.
So...
in terms of other deployment of capital, where-
We're focused on strategic growth initiatives in key markets, which
Speaker Change: We hope to continue to generate organic loan growth. We think we have some opportunities since very high growth markets, Houston, Birmingham, Atlanta, Gulf Coast, Florida, and Alabama, and so on to weeks.
Speaker Change: We've got some hiring plans there that we think can generate some organic growth.
Speaker Change: and I will say prior to the Liberation Care Announcement date,
You know,
M&A was very, very much forefront in the industry and—
Speaker Change: I think well noted in this earlier question, our CRA Adjustment, which—
Speaker Change: We think, along with improved balance sheet, et cetera, put us in position for some M&A activity, you know, post April 2nd, maybe a little slower but we'll see how the year evolves and we very much be interested in continuing that thought process. Yeah, so...
Speaker Change: Those would be some comments relative to Capitol Tom. Yeah, I guess this Tom Owens, the only thing I'd add is that we were very pleased, obviously, to continue to drive Capitol accretion during the quarter with solid loan growth 152 million and with the deployment of 15 million via Sherry Purchase.
Speaker Change: had about nine basis points of accretion in CET1 in the quarter, and anticipates that we will continue to drive some continued accretion at about that pace.
Speaker Change: and so, as Duane said, the Sherry Purchase will be driven by a number of things including how the loan growth comes to pass over the remainder of the year, which could end up, you know, we could end up leaning somewhat more into Sherry Purchase, deployment via Sherry Purchase with less loan growth. We could end up pulling back a bit with more loan growth, but it's nice to be in a position to have that flexibility.
Got it. Well, thanks for taking my questions.
Thank you.
Speaker Change: Again, if you have a question, please press star then one. Our next question will come from Christopher Marinac with Jenny Montgomery Scott. Please go ahead.
Christopher Marinak: Hey, thanks. Good morning. I wanted to drill back on the low growth conversation and I guess my curiosity is if we're meeting the low growth goal for this year does that enable you to be incredibly sort of picky and selective on the loans you do do?
Speaker Change: and does that therefore give you flexibility on credit costs and also provide more flexibility on deposits as well?
Speaker Change: And this is Barry. I'll address the loan portion and let Tom address the positive aspect of it. I think as far as being selected
Speaker Change: You know, we wake up every day thinking we are and selected on the deals that we do. Not only from a credit, from a structure standpoint, we, you know, probably what's changed a little bit is some of the
Speaker Change: So, depending on the industry, some of the deals have become more competitive from a pricing standpoint.
Speaker Change: Whether it be the missionation fee, or whether it be the interest rate itself, but that's kind of a hit in this for us. We see some deals that look just like they did.
back in
Speaker Change: I can really, in the first part of all of 23, in the first part of 24, where they're very attractive, both must be an interesting point. We see other deals that are all of a sudden very competitive and obviously anything that's funded that is very competitive. So we do see quite a few of our peers.
more active than they'd been maybe a few years ago.
Speaker Change: But the credit quality itself will continue to be selective on the deals, try to get the structure we need.
Speaker Change: and then obviously the processing is something that we have to give on that we're willing to do so but it's first and foremost the credit structure has to be what we need in order to move forward and continue to be selected.
Speaker Change: I do think that the environment that we're in now, there's still opportunity, there's still a deal flow, but there are more competitors today than there were a year ago looking at the same deals. Come.
Speaker Change: So Chris is the Tom on your question on the deposit side and flexibility there. I'd start by making the point we've been pleased.
Tom: with our ability to drive personal and commercial deposit balances of $394 million, a 3.2% year-over-year. And as you know, Chris, we've been really in a mode of
Um...
Tom: You know, we're in an environment that remains competitive from a promotional perspective, and we have really not been leading into that at this point. And so...
You know, we've
Tom: We've got some lepers that we can pull here. We've continued to develop our digital capabilities and we've continued to deepen relationships with the positives that we brought in, beginning as early as...
The first quarter of 2023.
Tom: And so we feel like we have really good flexibility there. We even made some adjustments to our tactics mid-quarter in the first quarter that has been very encouraging for us. So, we're very confident that we can calibrate them into positive side.
Cost Effectively to Support Lone Growth Opportunities Going Forward.
Speaker Change: Great, that's helpful. Thank you both for that. Just a quick follow-up is just about the CNI utilization and, you know, does this environment kind of change behavior on CNI, do you think is the next few quarters unfold?
Speaker Change: and Chris, because for this and Barry, it did not affect this quarter, we were 36% utilization, which was what we were for the fourth quarter of last year, and that's not, that's not.
Speaker Change: That's pretty much in line for me being historically. That is something that we're monitoring to see. I think it will, I think we'll have less impact there.
Speaker Change: and possibly new projects moving forward in the environment we're in now until we get a little more clarity going forward. But what we see so far, we've not seen a change in utilization of our revolving lines of credit.
Great, Barry. Thanks again, I appreciate everyone's input.
Thank you.
Speaker Change: This concludes our question and answer session. I would now like to turn the conference back over to Duane Dewey for any closing remarks.
Speaker Change: Thank you. Thank you again for joining us today. We look forward to catching up again at the end of the second quarter and hope that everybody has a great week. Thank you.
Speaker Change: The conference call has now concluded. Thank you for attending today's presentation. We may now disconnect.
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