Trustmark Q4 2024 Earnings Report

Trustmark EPS Results

• Actual EPS: $0.92
• Consensus EPS: $0.83
• Beat/Miss: Beat by +$0.09
• One Year Ago EPS: N/A

Trustmark Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $194.98 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Trustmark Announcement Details

• Quarter: Q4 2024
• Date: 1/28/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, January 29, 2025
• Conference Call Time: 9:30AM ET

Trustmark (NASDAQ:TRMK) operates as the bank holding company for Trustmark National Bank that provides banking and other financial solutions to individuals and corporate institutions in the United States. The company operates through three segments: General Banking, Wealth Management, and Insurance. It offers checking, savings, and money market accounts; certificates of deposits and individual retirement accounts; financing for commercial and industrial projects, income-producing commercial real estate, owner-occupied real estate, and construction and land development; and installment and real estate loans, and lines of credit, as well as treasury management services. The company also provides mortgage banking services, including construction financing, production of conventional and government-insured mortgages, and secondary marketing and mortgage servicing. In addition, it provides wealth management and trust services, such as administration of personal trusts and estates; management of investment accounts for individuals, employee benefit plans, and charitable foundations; and corporate trust and institutional custody, securities brokerage, financial and estate planning, retirement plan, and investment management services. Further, the company offers business insurance products and services for medical professionals, construction, manufacturing, hospitality, real estate, and group life and health plans; and life and health insurance, and personal line policies for individual customers. Trustmark Corporation was founded in 1889 and is headquartered in Jackson, Mississippi.

Trustmark Q4 2024 Earnings Call Transcript

Presentation

[Operator]

gentlemen, and welcome to Trustmark Corporation's Fourth Quarter Earnings Conference Call. As a reminder, this call is being recorded. It is now my pleasure to introduce Mr. Joey Raine, Director of Corporate Strategy at Trustmark. Please go ahead, sir.

[Joey Rein, Senior Vice President & Director Corporate Strategy at Trustmark]

Good morning. I'd like

[Joey Rein, Senior Vice President & Director Corporate Strategy at Trustmark]

to remind everyone that our 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. During 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 due to a number of risks and uncertainties, which are outlined in our earnings release and our other filings with the Securities and Exchange Commission. At this time, I'll turn the call over to Duane Dewey, President and CEO of Trustmark.

[Duane Dewey, President & CEO at Trustmark]

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. Twenty twenty four 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. These actions along with other initiatives in prior years have significantly enhanced financial performance in Trustmark's earnings profile.

[Duane Dewey, President & CEO at Trustmark]

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. Our results reflect continued significant progress the organization. Net income totaled $5,630,000,0.0 representing diluted EPS of $0,.92 per share. This represents a linked quarter increase of $5,000,000 or 9.7%, along with an $0,.08 increase in diluted EPS. 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, President & CEO at Trustmark]

For the full year of net income from adjusted continuing operations totaled $18,630,000,0.0 or $3,.04 per diluted share. This represented an increase of $2,710,000,0.0 or 17% from the prior year. Now, let's turn to Slide 3 for a summary of financial highlights. Let's start with the balance sheet. Loans held for investment totaled $1,310,000,000,0.0 at twelvethirty 1, down $10,000,000 linked quarter and up $13,940,000,0.0 year over year.

[Duane Dewey, President & CEO at Trustmark]

Deposits totaled $1,510,000,000,0.0 at year end, down $13,280,000,0.0 linked quarter, which includes an intentional reduction in broker deposits of $150,000,000 during the quarter. Excluding this planned runoff, linked quarter deposits were basically flat, up $17,000,000 For the full year, deposits declined $46,160,000,0.0 which includes the planned reduction of high cost public and brokered deposits totaling $72,680,000,0.0 Said differently, all other deposits increased $26,520,000,0.0 in while we diligently managed deposit costs. Revenue in the totaled $19,680,000,0.0 up 2.4% linked quarter. For the full year 2024, total revenue from adjusted continuing operations was $74,050,000,0.0 up 5.6% from the prior year. Net interest income totaled $15,840,000,0.0 in the reducing a net interest margin of 3.76%, up 7 basis points linked quarter.

[Duane Dewey, President & CEO at Trustmark]

Tom Owens will provide a little color on the margin and NII, etcetera, in a few minutes. Non interest income in the totaled $41,000,000 up 9% linked quarter, reflecting broad based growth across virtually all fee based businesses. For the full year, non interest income from adjusted continuing operations totaled $15,610,000,0.0 an increase of 5.2% from the prior year. From an expense perspective, we've shown noticeable improvement. Non interest expense from continuing operations in the totaled $12,440,000,0.0 up $120,000,0.0 or 0.9 linked quarter.

[Duane Dewey, President & CEO at Trustmark]

For the full year, non interest expense from adjusted continuing operations totaled $48,570,000,0.0 a decline of $210,000,0.0 from the prior year. Diligent expense management continues to be a focus of the organization. From a credit quality perspective, net charge offs totaled $460,000,0.0 in the representing 0.14% of average loans. The allowance for credit losses represented 1.22% of loans held for investment and 341% of non accrual loans excluding individually analyzed loans. Trustmark's capital ratios expanded meaningfully during the quarter as tangible equity to tangible assets increased to 9.13%, while the CET1 ratio expanded 24 basis points to 11.54% and the total risk based capital ratio expanded 26 basis points to 13.97%.

[Duane Dewey, President & CEO at Trustmark]

As I mentioned earlier, we resumed activity in the share repurchase program. During the we repurchased $710,000,0.0 or approximately 203,000 shares of common stock. And as previously announced, we are authorized to repurchase up to 100,000,000 of Trustmark's shares during 2025. 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 1525 to shareholders of record on March '1.

[Duane Dewey, President & CEO at Trustmark]

This action raises the indicated annual dividend rate to $0,.96 per share from $0,.92 per share. Each action, the renewed activity in the share repurchase program and the quarterly dividend are reflective of Trustmark's improved financial performance and enhanced forward earnings profile. At this time, Barry Harvey is going to review the loan portfolio and credit quality.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

I'll be glad to, Duane, and good morning. Turning to Slide 4, loans held for investments totaled $1,310,000,000,0.0 as of which was relatively flat for the quarter. Increases in the from multifamily, commercial and C and I loans and 1 to 4 family mortgages were offset by declines in state and political loans, other CRE loans and other loans. 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, Chief Credit & Operations Officer at Trustmark]

Looking at Slide 5, Trustmark'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. Trustmark's office portfolio, as you can see, is very modest at $2.44,000,000 dollars outstanding, which represents only 2% of our overall loan book. The portfolio is comprised of credits with high quality tenants, low lease turnover, strong occupancy levels and low leverage. 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, Chief Credit & Operations Officer at Trustmark]

Looking to Slide 7, our provision for credit losses for loans held for investment was $7,000,000 during the quarter, which was driven by macroeconomic forecast as well as by net adjustments in our qualitative factors. The provision for credit losses for off balance sheet credit exposure was $502,000 excuse me, dollars 502,000 driven by net adjustments to the qualitative factors, increases in unfunded commitments. At 01/00, the allowance for credit losses held for loans held for investment was $160,000,000 Turning to Slide 8, we continue to post credit excuse me, we continue to post solid credit quality metrics. The allowance for credit losses increased by 122%. Prior quarter was 1.221%, representing 341% of non accruals excluding those that are individually analyzed.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

In the net charge offs totaled $460,000,0.0 While both non accruals and non performing assets increased slightly during the quarter, they have declined meaningfully year over year due to our continuing efforts to effectively manage and resolve problem assets in a timely manner. Duane?

[Duane Dewey, President & CEO at Trustmark]

Great. Thank you, Barry. Now, Tom Owens can cover deposits, net interest margin and non interest income.

[Thomas Owens, Executive VP & CFO at Trustmark]

Thanks, Duane, and good morning, everyone. Turning to deposits on Slide 9. Deposits totaled $1,510,000,000,0.0 at December '31, a linked quarter decrease of $13,280,000,0.0 and a year over year decrease of $46,160,000,0.0 The linked quarter decrease was driven by a $150,000,000 decline in brokered CDs, which we allowed to run off at maturity rather than at first place. Beyond the intentional runoff of brokered CDs, deposits increased by $17,000,000 during the quarter

[Thomas Owens, Executive VP & CFO at Trustmark]

with solid growth of about

[Thomas Owens, Executive VP & CFO at Trustmark]

$157,000,000 in personal balances and about $74,000,000 in public fund balances. Those increases were offset by decline of about $2.15,000,000 dollars in commercial balances. The year over year decline of four sixty two million dollars was driven by declines of $3.98,000,000 dollars in public fund balances. That reflects our significantly less competitive posture on rates and $3.29,000,000 dollars in broker deposits, which we chose not to renew at maturity. Looking beyond those managed declines in balances, personal and commercial deposits increased year over year by $2.65,000,000 dollars or 2.1%, while our primary focus, as Duane said, has been managing cost while maintaining strong liquidity.

[Thomas Owens, Executive VP & CFO at Trustmark]

Non interest bearing DEA balances remained resilient, declining by $69,000,000 linked quarter and remaining at 20% of our deposit base. Time deposits increased by $4,000,000 linked quarter, excluding the decline of $150,000,000 in brokered CDs. As of December '31, our promotional and exception price time deposit book totaled $160,000,000,0.0 with a weighted average rate paid of 4.82% and weighted average remaining term of about three months. Our broker time deposit book totaled $2.50,000,000 dollars at an all in weighted average rate paid of 4.85% and a weighted average remaining term of about two months as of December '31. The relatively short weighted average remaining term of these portfolios represent significant opportunity for continued downward repricing and time deposit repricing is a primary driver of the guidance that we're providing for further decline in deposit costs during the first quarter.

[Thomas Owens, Executive VP & CFO at Trustmark]

Our cost of interest bearing deposits decreased by 30 basis points from the prior quarter to 2.51%. Turning to Slide 10, Trustmark maintains continues to maintain a stable, granular and low exposure deposit base. During the we had an average of about 457000 personal and non personal deposit accounts, excluding collateralized public fund accounts, with an average balance per account of about $28,000 As of December '31, '60 04/00 of our deposits were insured and 12% were collateralized, meaning that our mix of deposits that are uninsured and uncollateralized was relatively unchanged linked quarter at 24%. We maintained substantial secured borrowing capacity, which stood at $650,000,000,0.0 at December '31, representing 179% coverage of uninsured and uncollateralized deposits. Our total deposit cost decreased 24 basis points linked quarter at 1.98%.

[Thomas Owens, Executive VP & CFO at Trustmark]

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 Nov. 0 and Dec. 0. 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 of about 14 basis points to 1.84%. As a frame of reference for that guidance, we're on track for deposit cost of approximately 1.87% month to date in Jan.

[Thomas Owens, Executive VP & CFO at Trustmark]

0. Turning our attention to revenue on Slide 11, net interest income FTE totaled $15,840,000,0.0 which resulted in a net interest margin of 3.76%. Net interest margin increased by 7 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. Again, these results reflect the proactive pricing deposit pricing actions that we took during the quarter, which positioned us well for continued decline in deposit costs during the Turning to Slide 12, our interest rate risk profile remained essentially unchanged as of December '31 with loan portfolio mix of 52% variable rate coupon. The cash flow hedge portfolio, which is structured to mitigate asset sensitivity, had an active notional balance of $8.75,000,000 dollars and weighted average maturity of three point four years, including the effect of $500,000,000 notional in forward settled swaps and $125,000,000 notional forward settled floors.

[Thomas Owens, Executive VP & CFO at Trustmark]

The weighted average received fixed rate on $8.50,000,000 dollars active notional interest rate swaps is 3.12% and the weighted average SOFR rate on $25,000,000 active notional floors is 4%. Turning to Slide 13, non interest income from adjusted continuing operations totaled $41,000,000 in the a linked quarter increase of approximately $340,000,0.0 and totaled $15,610,000,0.0 for the full year, a year over year increase of about $770,000,0.0 or 5.2%. I'll point out that the $770,000,0.0 year over year increase includes the effect of a $3,000,000 increase in negative net hedge in effectiveness. So effectively, net of that non interest income was up $1,070,000,0.0 or 7.2%, driven by increases in mortgage banking of $340,000,0.0 or 13% wealth management of $220,000,0.0 or 6% corporate treasury services of $150,000,0.0 or 14% and service charges on deposit accounts of $1,000,000 And now I'll ask Tom Chambers to cover non interest expense and capital management.

[Tom Chambers, Chief Accounting Officer at Trustmark]

Thank you, Tom. Turning to Slide 14, we'll see

[Tom Chambers, Chief Accounting Officer at Trustmark]

a detail of our total non interest expense. During the non interest expense totaled $12,440,000,0.0 for a linked quarter increase of 1200000.0 or 0.9%. The increase was mainly driven by an increase in salary and benefits of $250,000,0.0 resulting from an increase in annual performance incentive accruals during the quarter. Total other expense decreased by $220,000,0.0 driven by a decrease in other real estate expense net as a result of a valuation reserve established during the related to 1 assisted living property. For the year ended 2024, non interest expense from adjusted continuing operations totaled $48,570,000,0.0 for a year over year decrease of $210,000,0.0 or 0.4%, which was a result of focused disciplined expense control during the year.

[Tom Chambers, Chief Accounting Officer at Trustmark]

Turning to slide 15, capital management. Trustmark remains well positioned from a capital perspective. As Duane previously mentioned, our capital ratios remain solid. At the end of the quarter, common equity Tier 1 ratio was 11.54%, a linked quarter increase of 24 basis points. And total risk based capital ratio was 13.97%, a linked quarter increase of 26 basis points.

[Tom Chambers, Chief Accounting Officer at Trustmark]

During the we resumed our share repurchased $750,000,0.0 or approximately 203,000 common shares. Although we currently have $100,000,000 share repurchase program in place for year end 2025, our priority for capital deployment continues to be focused on organic lending. As Duane indicated, we will continue to evaluate the share repurchase program as the market and capital levels dictate. Plusmark's Board of Directors announced an increase in its regular quarterly dividend from $0,.23 to $0,.24 per share, resulting in an increase of 4.3%. This action raises the indicated annual dividend from $0,.92 per share to $0,.96 per share.

[Duane Dewey, President & CEO at Trustmark]

Back to you, Duane. Great. Thank you, Tom. Now, turn to Slide 16. You'll notice a new format for our guidance in 2025.

[Duane Dewey, President & CEO at Trustmark]

We now include 2024 benchmarks upon which our 2025 full year guidance is based. We expect loans held for investment to increase low single digits for the full year 2025 and deposits excluding broker deposits to increase also low single digits during the year. Securities balances are expected to remain stable as we continue to reinvest cash flows. 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. From a credit perspective, the provision for credit losses, including unfunded commitments, is expected to remain stable relative to 2024.

[Duane Dewey, President & CEO at Trustmark]

Non interest income from adjusted continuing operations for full year 2025 is expected to increase mid single digits, while non interest expense from adjusted continuing operations is expected to increase mid single digits as well. As already noted, we'll continue our disciplined approach to capital deployment in with a preference for organic loan growth and potential market expansion. We'll be considering M and A activities and then other general corporate purposes as we've already described, such as repurchase, etcetera. So with that, that concludes our prepared comments, and we'd like to open the floor for questions.

[Operator]

Thank you. We will now begin the question and answer session. And the first question will come from Catherine Mealor with KBW. Please go ahead.

[Catherine Mealor, Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Thanks. Good morning.

[Duane Dewey, President & CEO at Trustmark]

Good morning, Catherine.

[Thomas Owens, Executive VP & CFO at Trustmark]

Good morning, Catherine.

[Catherine Mealor, Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

I wanted to start first of all, congrats on a great quarter and great end to the year. And I wanted to start to piggyback on some of the commentary you gave Tom on the full year margin side. It was helpful to hear where you think deposit costs are going. 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?

[Thomas Owens, Executive VP & CFO at Trustmark]

Well, I'll start, Catherine, and we'll see if Barry wants to weigh in. As you know, roughly half of the book is floating rate. We do have in the forecast based on market implied forwards 2 Fed cuts of 25 basis points apiece, 1 in March 0, 01/00 in June 0. With respect to the loan pricing dynamics, I'll let Barry address spread. I mean, the other factors are obviously are spread on floating rate loans coming on the books as well as the differential between fixed rate loans maturing and going off the books and then the lift that we've been getting from new fixed rate loans coming on the books.

[Thomas Owens, Executive VP & CFO at Trustmark]

In prior quarters when I've commented on that dynamic, I think I've said you can sort of rely on a tailwind, so to speak, on the fixed rate loans of 2 to 3 basis points per month. I think with the higher for longer the longer interest rates have remained higher here, some of that effect is diminished. So whereas I've previously said 2 to 3 basis points, maybe I'd say now 1 to 2 basis points. So that continues to represent a tailwind, but not quite as much. Really, Catherine, the primary driver is deposit costs.

[Thomas Owens, Executive VP & CFO at Trustmark]

The reason I go through the statistics in 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, say from the end of the to the end of the the time of deposit book priced down by about fifteen, one point five, about 15 basis points. We're currently modeling for the that it will price down by about double that amount. So, it's really a key driver of the guidance for the linked quarter NIM and then for the full year NIM because obviously that repricing continues in quarters beyond that at a diminishing rate, obviously. But I'll let Barry weigh in with any thoughts on loan pricing.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

Well, I'll just make a couple of comments, Tom. I think from a weighted average interest rate book standpoint, we were about 7.11% versus the book average of 6.07%. So we do continue to have, as you said, the tailwind of what's going on is obviously at a higher rate than what's currently in the portfolio. From the standpoint of what we're seeing most of our activities, Catherine, on the CRE side, which obviously all of that for us is floating. And we are still seeing the spread, for the most part, be at levels that we've previously benefited from.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

We'll see 1 LIBOR plus $300,000,000 maybe $2.85,000,000 dollars that's the world we kind of lived in during and the It got a little bit more competitive in the where some banks got back involved that had not been active in the CRE space. But it seems to have settled down from there. And that one month LIBOR plus $2.85 with the $75.80 basis point fee is where we're kind of settling in. It looks like that everybody in the market is 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

[Catherine Mealor, Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

Okay, great. And on loan growth, your low single digit guidance, it feels like everyone in the industry is feeling a little bit better about the outlook for loan growth this year. And just curious within that, does that low single digit include maybe better origination volume, but still the impact of pay downs? Or are you still seeing kind of origination volume not pick up as a faster pace as we may have expected? Thanks.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

Sure. And Catherine, I'll be glad to kind of go through this succinctly hopefully, but I want to make sure we cover it because it's important. As you said, for 2025, we are guiding to low single digit loan growth. During actually during 2023 and the the CRE activity was less clearly than we experienced in 2021 and 2022, which were very, very strong years. And therefore, everybody is seeing some maturities in 06/00 from that strong production in 02/00.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

We did see a nice pickup in production for CRE in and this year. That looks like that's going to be the trend going forward. We're very pleased with that. 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 firm products, there are two one year extension options that are fully underwritten at the time of origination.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

So all the terms, pricing, everything is known to the customer. And assuming they're meeting certain performance hurdles, they can avail themselves of that extra year and then that extra second year if they sub choose. So we did see in the a significant increase in the number of extension options being exercised in that were going to be 2025 maturities. Now we're not making the assumption in our guidance that that's going to continue throughout but it very well may. And obviously, when you're talking about projects that are $20,000,000 or $25,000,000 on the books, If they stay around, it moves the needle very quickly.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

I will say our corporate, commercial and CRE production pipelines continue to look very strong. And as I mentioned, like our peers, 2021, '20 '20 02/00, extremely strong CRE production periods. And when you think in terms of an average full year duration, then you can see where and could have heavier maturities from that strong production in 02/00. That doesn't mean they're going to leave us in our case because we've already underwritten those two one year extension options, 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.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

We're very we'd like to be very optimistic about the fact that they're going to take up to us on those extensions. We're beginning to see it in the but we don't know how much follow through there'll be there. 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 into the primary 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.

[Duane Dewey, President & CEO at Trustmark]

Catherine, I'd like to just add real quickly too. We continue to hear very positive production opportunity on the equipment finance side. C and I, which is middle market corporate and our basic commercial banking, We're hearing from the respective teams out there, their pipelines are increasing. We had a very solid corporate middle market which some of which hadn't funded yet, which we have some optimism there that that will begin to fund 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 described on the CRE front that can play to the positive.

[Duane Dewey, President & CEO at Trustmark]

It can still be a bit of a headwind in the payoff category. But at the end of the day, that's where the guide comes from in that low single digit range.

[Catherine Mealor, Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)]

That makes sense. Okay, very helpful. Thank you. Great quarter.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

Thank you.

[Duane Dewey, President & CEO at Trustmark]

Thank you, Catherine.

[Operator]

The next question will come from Christopher Marinac with Janney. Please go ahead.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

Hey, thanks. Good morning.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

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 and how do you think through that, not just near term, but over the intermediate run?

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

And Christopher, this is Barry. I would say that we know just from the number of deals we're in with other banks that we're very much in line with from a credit risk taking standpoint with a lot of our peers and even some of our 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 coming forward than 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 offs from that perspective. I do think we're very careful and very aggressive in terms of rating our credits, whether they'd 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 with a 100 basis points drop that we've experienced, I'll with 100 basis points drop that we've experienced, a lot more CRE deals penciled today than they did previously.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

So I think it's a function from a CRE perspective of the funds being available in order to put in the equity and that's beginning to improve. But until you see the availability of the equity for the developers coming into the deal, so they can then they can go and move the 1 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 projects as they were when it was when you had no option in terms of a risk free return. Now that's all seeming to settle out now and there's more fund money coming back in 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.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

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.

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

All right, great. Thank you

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

for that background. And then just 1 follow-up just on expenses. Do you have any color or just observations on sort of net new deposit accounts and sort of just the flow of new customers from the deposit side? I mean, we realize the balance changes quarter to quarter, but just thinking out loud about how new accounts and customers are added to the TrustPark organization?

[Thomas Owens, Executive VP & CFO at Trustmark]

So, Chris, this is Tom Owens. I'll start.

[Thomas Owens, Executive VP & CFO at Trustmark]

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. I would say with respect to operating accounts, there's always a natural churn, right, attrition versus new account openings. And we've been very steady in that regard.

[Thomas Owens, Executive VP & CFO at Trustmark]

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 '20 04/00 very much a function of promotional activity, especially as it relates to time deposits. So, you sort of have

[Thomas Owens, Executive VP & CFO at Trustmark]

to put those off to

[Thomas Owens, Executive VP & CFO at Trustmark]

the side when you're talking about number of accounts outstanding and growth or decline in accounts, because as we talked about in the prepared commentary, we've in 2024, we very much been focused on managing cost 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 consistent rate? The answer is yes.

[Duane Dewey, President & CEO at Trustmark]

And Chris, did we miss the first part of that question? Was there another part of the question?

[Christopher Marinac, Director of Research at Janney Montgomery Scott]

No, actually, David, it's really account open that Tom described, so I'm good on that. Sorry if I had mentioned expense was not my point. So thank you very much for the call this morning.

[Thomas Owens, Executive VP & CFO at Trustmark]

Thank you. Thanks, Chris.

[Operator]

The next question will come from Gary Tenner with D. A. Davidson. Please go ahead.

[Gary Tenner, MD & Senior Research Analyst at D.A. Davidson Companies]

Thanks. Good morning. I appreciate the color on the puts and takes. Hey, good morning. I appreciate color on the puts and takes for 2025 loan growth.

[Gary Tenner, MD & Senior Research Analyst at D.A. Davidson Companies]

I was curious about the C and I traction in the I think you'd indicated in the past that maybe post election there was increased optimism, the pipelines have strengthened up. Is there any follow through in terms of the period end balances there or is that purely kind of year end maybe seasonality and drawdown lines that maybe reverses in the

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

Hey, Jared, this is Barry. I think there definitely is some follow through that's going to occur during 2025. In the what you saw was a combination. We had some new opportunities, new bookings that funded and then we also had an increase in line utilization. We typically have been in that 37% range.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

In we moved down to 35%. That was part of our little bit of shrinkage we had in And during 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 We expect that trend to continue with our C and I producers. I mean, they're very, very active out making calls.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

We've got 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. And

[Duane Dewey, President & CEO at Trustmark]

I'll just chime in a bit. As you will recall, over the last couple of years, we've talked about fit to grow and adjustments we've made throughout our franchise, particularly in

[Duane Dewey, President & CEO at Trustmark]

the

[Duane Dewey, President & CEO at Trustmark]

retail commercial banking franchise, but also in our institutional businesses. And through that process, there was some churn and some change and adjustment. '24 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 sixty days, we've added 10 plus new production personnel that spans from equipment finance through commercial banking into corporate banking, all focused on C and I production.

[Duane Dewey, President & CEO at Trustmark]

And as noted, they are very complementary to the restructuring stuff that we did. So, we're expecting to continue to see improved performance out of all of our C and I categories in many of our markets. So, that's kind of mixed in there also.

[Gary Tenner, MD & Senior Research Analyst at D.A. Davidson Companies]

Thanks. I appreciate the color there. And then quick question just on the stock repurchase. I know you talked about it a bit in your prepared remarks. Given the outlook for pretty moderate loan growth or loan growth and overall balance sheet growth and a good return profile.

[Gary Tenner, MD & Senior Research Analyst at D.A. Davidson Companies]

There don't seem to be any looming restrictions to continuing to buyback dependent on the price course. But am I missing anything there?

[Duane Dewey, President & CEO at Trustmark]

Other than the $100,000,000 authorization from the Board, that's the operating restriction, if you will, you described that we might have. But as you know, I mean, that's a function considerations there. 1, what's happening on the growth side of the equation as well as then what's happening in M and 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 1 of

[Duane Dewey, President & CEO at Trustmark]

those alternatives.

[Thomas Owens, Executive VP & CFO at Trustmark]

Yes. And I would just

[Thomas Owens, Executive VP & CFO at Trustmark]

add this is Tom Owens.

[Thomas Owens, Executive VP & CFO at Trustmark]

I would just add, our risk based capital ratio is accreted pretty nicely during the up about 25 basis points or so. And you look at CET1 at about 11.5%, I just can't imagine you get up to about 12% or so and without the share repurchase program, even with more robust loan growth, there's in all likelihood going to be continue to be the opportunity to deploy capital via repurchase. And again, we do view it as an attractive opportunity from a return perspective. We have pretty diligent framework, diligent process by which we evaluate share repurchase activity. So, I would imagine that you will see a continuation of the activity.

[Gary Tenner, MD & Senior Research Analyst at D.A. Davidson Companies]

Great. Thank you.

[Thomas Owens, Executive VP & CFO at Trustmark]

Thank you.

[Operator]

The next question will come from Eric Spector with Raymond James. Please go ahead.

[Eric Spector, Senior Equity Research Associate - Banks at Raymond James]

Hey, good morning everybody. This is Eric Dowling in for Michael. Thanks for taking the questions. 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, Chris, from normal inflation, but just curious what kind of investments you're focused on?

[Duane Dewey, President & CEO at Trustmark]

Well, it's across the board. In terms of technology investment, a number of different initiatives across the organization, 1 of which includes a core conversion that will be a focus for the company here throughout 2025. We continue to invest in digital technology and so on to serve customers across the board. When you step back and look at the 2025 expense guide, there is significant continued pressure, I think, on the personnel front, salaries and benefits, very significant increase in healthcare costs that are true to the industry and true to all different categories out there. So, there are a number of different pressures that are just impacting the expenses for 2025.

[Duane Dewey, President & CEO at Trustmark]

Those would be ones that come to mind. I don't know, Tom or Tom, if you all have anything to add to that.

[Thomas Owens, Executive VP & CFO at Trustmark]

I'd probably add risk infrastructure, continuing to invest in our risk infrastructure and ensure that we have the right framework in place to continue to allow us to grow both organically as well as potentially through acquisition.

[Duane Dewey, President & CEO at Trustmark]

And then, I did leave out, as I already commented on in prior comments, 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.

[Eric Spector, Senior Equity Research Associate - Banks at Raymond James]

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 broker runoff. But just curious if you could touch on some of that non interest bearing and DVA trends and how much of that seasonal dynamics versus migration and accounts and just the outlook for deposit growth broadly going into 2025?

[Thomas Owens, Executive VP & CFO at Trustmark]

So, this is Tom Owens. I would say we've been very pleased to date with the pricing actions, the reaction to the pricing actions that we took in the there's really not been a noticeable increase in attrition in deposit accounts as a result of those actions. And again, as we said in the prepared remarks, I mean, if you get past the managed declines of brokered CDs and the public fund balances where 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 maintain our liquidity, strong liquidity in the in terms of loan to deposit ratio. And so, we're just we really backed off on some of the more competitive bid situations.

[Thomas Owens, Executive VP & CFO at Trustmark]

But so, that leaves you with the core deposits, personal and non personal, that grew over 2% for the full year in 2024. And so, given what our competitive posture looked like and our focus on rationalizing cost, we feel really good about that and we feel really good about our ability to continue to fund balance sheet growth cost effectively. It's interesting when you look at Slide 10 of the deck and you look at the way we've managed to slowly but surely widen the spread between our deposit cost and the KRX median deposit cost. And I would speculate based on what we've seen here during earnings season that we probably widen that spread again during the So, 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.

[Eric Spector, Senior Equity Research Associate - Banks at Raymond James]

Great. That's great color. And then maybe 1 last question for me and then I'll step back. Just kind of a question on credit. MPAs ticked modestly higher, still relatively benign.

[Eric Spector, Senior Equity Research Associate - Banks at Raymond James]

It looked like that was particularly in Mississippi. Just curious whether you're seeing any migration and how you think about credit broadly, if there's anywhere you're watching more closely than others?

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

And Eric, this is Barry. I would say, we're obviously very focused on it day in and day out and making sure very, very robust annual review process for all of our credits of any size and along with the number of different ways in which we've got 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. But there's not really a category that we're more focused on than the other. Obviously, CRE is 1 that with the five fifty basis point increase from the Fed, they've obviously given back 100 of that. But that increase weighed on like I did with all banks, it weighed on the CRE projects and the how they were pro form a and how they're maturing through the lease up process.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

Now I think we've done a good job of going in and being very aggressive and adjusting grades as timely as needed and therefore reflective in our criticized and classified 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 based upon everything we know at this point. So I feel very comfortable that this is a cycle and these credits are going to cycle back from a non pass to a pass category. And I do think 100 basis points helps that. But time helps that as well because most of these projects that are struggling just need an additional six to nine months to get to where they should have been or they're six to nine months behind, looked at another way.

[Barry Harvey, Chief Credit & Operations Officer at Trustmark]

In terms of getting the occupancy level or getting the rents that they were originally pro form a and underwritten at. So while we are monitoring everything and watching it very carefully as we should every day, 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.

[Eric Spector, Senior Equity Research Associate - Banks at Raymond James]

Great. Thank you for taking the questions and congrats on a good quarter.

[Eric Spector, Senior Equity Research Associate - Banks at Raymond James]

Thank you.

[Operator]

The next question will come from Andrew Gorzica with Piper Sandler. Please go ahead.

[Andrew Gorczyca, Research Analyst at Piper Sandler Companies]

Hi, good morning everyone.

[Duane Dewey, President & CEO at Trustmark]

Good morning.

[Thomas Owens, Executive VP & CFO at Trustmark]

Good morning.

[Andrew Gorczyca, Research Analyst at Piper Sandler Companies]

A lot of my questions have kind of been answered at this point, but 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 a follow-up to that, just wondering what regions present the most attractive growth opportunities in 2025?

[Duane Dewey, President & CEO at Trustmark]

So, first and foremost, organic loan growth is certainly the most cost effective way to use capital. So, that continues to be a focus and I've already commented on some of the production staff. And then I 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 in a lot of our existing markets, Houston, South Alabama, the Mobile, Baldwin County area. In Birmingham specifically, Birmingham is a significant opportunity for us.

[Duane Dewey, President & CEO at Trustmark]

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 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 up into Tennessee, over into Texas and so on. So those are all things that would be on the drawing board.

[Duane Dewey, President & CEO at Trustmark]

The most likely for 2025, however, would be adding to existing production staff and expanding markets where we already serve.

[Andrew Gorczyca, Research Analyst at Piper Sandler Companies]

Got it. Makes sense. That's all I had. Thanks for taking the question.

[Thomas Owens, Executive VP & CFO at Trustmark]

Great. Thank you.

[Operator]

The next question will come from David Bishop with B. Hovde Group. Please go ahead.

[Analyst]

Hey, good morning, guys. This is John on for Dave.

[Thomas Owens, Executive VP & CFO at Trustmark]

Hey, John. Good morning.

[Analyst]

So just wanted to start quickly on the hedge front. I was wondering if you could just share your thoughts on how the hedging strategy should impact the margin moving forward, particularly in the event that we get, say, another 1 to 2 cuts this year, if that's possible to quantify?

[Analyst]

Well, it's absolutely possible to quantify.

[Thomas Owens, Executive VP & CFO at Trustmark]

This is Tom Owens. Again, the cash flow hedge portfolio is designed to mitigate some of the volatility to net interest income that comes with changes in interest rates. As we said in our prepared comments, 52% of the portfolio is floating rate. So, we've taken a portion. So, that's in round number $650,000,000,0.0 something like that floating rate loans.

[Thomas Owens, Executive VP & CFO at Trustmark]

We've essentially, John, the way to think of it is, we've taken of the roughly $650,000,000,0.0 of floating rate loans, we have effectively swapped them via $8.50,000,000 dollars to $75,000,000 notional $8.50,000,000 dollars notional interest rate swaps and $25,000,000 of floors. So that's the correct way to think about it. In terms of impact of the portfolio itself, I mean, the simple math is $8.50,000,000 dollars of fixed rate loans for 100 basis point shock, we would benefit all of the things equal by $850,000,0.0 right? And so, if you let's say, you do get 2 cuts, 1 in March 0, 01/00 in June 0, then in the we would benefit by $4,250,000,.00 from having had the cash flow hedge portfolio in place relative to our current run rate net interest income.

[Analyst]

Very helpful. Thank you for that. And I guess just pivoting and not to beat a dead horse here on the deposit front, appreciate all of the color on the forecasted data and how time deposit costs have trended thus far in Jan. 0. I guess, I'm just curious as to how much lower we could see deposits re price in 1Q and 2Q in the event that we don't see a cut in March 0 or a cut in June 0?

[Thomas Owens, Executive VP & CFO at Trustmark]

Well, it's a good question. And I would tell you, as I said earlier in my prepared commentary, our guide for the year in terms of net interest margin, our guide for the 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 in. As I said, we do have 25 basis point cuts based on the market implied forward in our forecast for March 0 and for June 0. And we have very little reduction in interest bearing non maturity deposit costs associated with those.

[Thomas Owens, Executive VP & CFO at Trustmark]

And so, I think it's a conservative guide at this point in terms of deposit costs for the full year. I'll give you an idea on the beta.

[Thomas Owens, Executive VP & CFO at Trustmark]

I mean, what we're modeling at this point is,

[Thomas Owens, Executive VP & CFO at Trustmark]

so we just printed 198 for deposit cost in the We're guiding to 184 in the based on where market implied forwards are today, that would probably drop to say by call it 170 or so in round numbers. And that would represent 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 $2,.22 and then if you said, okay, let's say about $170 in the '20 05/00 take that in the numerator and then in the denominator, take 5.5% fed funds went down to 4% fed funds target 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.

[Analyst]

Understood. That's fantastic color and much appreciated. That's all I had. Congrats on the quarter guys and thank you for taking my questions.

[Analyst]

Absolutely. Thank you. Thank you.

[Operator]

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, President & CEO at Trustmark]

As we mentioned, we feel like the in 2024 were very positive years for Trustmark and look forward to 2025 here moving forward. And we appreciate you joining the call this morning and we'll look forward to reconvening back at the April,. Have a great rest of the week.

[Operator]

The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Joey Rein, Senior Vice President & Director Corporate Strategy
• Duane Dewey, President & CEO
• Barry Harvey, Chief Credit & Operations Officer
• Thomas Owens, Executive VP & CFO
• Tom Chambers, Chief Accounting Officer

Analysts

• Catherine Mealor, Managing Director - Equity Research at Keefe, Bruyette & Woods (KBW)
• Christopher Marinac, Director of Research at Janney Montgomery Scott
• Gary Tenner, MD & Senior Research Analyst at D.A. Davidson Companies
• Eric Spector, Senior Equity Research Associate - Banks at Raymond James
• Andrew Gorczyca, Research Analyst at Piper Sandler Companies
• Analyst