Trustmark - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered solid linked-quarter improvement: diluted EPS $0.92 (+9.5% q/q), total revenue $196.8M (+2.4% q/q), and net interest margin 3.76% (+7 bps q/q) as deposit costs fell and fee income rose.
• Credit remained well-behaved: net charge-offs were $4.6M (0.14% of avg loans) and ACL was 1.22% of LHFI; NPAs rose modestly q/q but declined y/y; CET1 rose to 11.54%.
• Board raised the quarterly dividend to $0.24 (+4.3%) and resumed buybacks ($7.5M in Q4; $100M authorization for 2025), supported by enhanced profitability and capital accretion.
• 2025 guidance: NIM 3.75–3.85%, NII mid-to-high single-digit growth, loans and core deposits (ex-brokered) low-single-digit growth, PCL stable; mid-single-digit growth in both adjusted noninterest income and adjusted noninterest expense.
• Stock catalysts: continued deposit cost repricing, NIM trajectory, capital deployment (buybacks/dividend), and disciplined CRE credit management; management emphasized a “transformational year” positioning the bank for 2025 and beyond.

What Went Well and What Went Wrong

• What Went Well

  • “2024 was a transformational year… actions… significantly enhanced financial performance and Trustmark’s forward earnings profile” (CEO).
  • Margin and profitability improved: NIM 3.76% (+7 bps q/q), efficiency ratio 61.77% (better than Q4’23), and ROA/ROTCE rose to 1.23%/13.68%.
  • Fee momentum: noninterest income rose to $41.0M (+9% q/q), with mortgage banking up on lower negative hedge ineffectiveness and steady wealth management.

• What Went Wrong

  • NPAs ticked up q/q to $86.0M, driven largely by Mississippi; though still down y/y; nonaccruals +$6.3M q/q.
  • Noninterest expense increased $1.2M (+0.9% q/q) on higher year-end incentives, offset by lower other real estate expense.
  • Deposits declined 0.9% q/q and 3.0% y/y due to intentional public and brokered runoff; noninterest-bearing deposits slipped q/q (still ~20%).

Transcript

Operator (participant)

Welcome to Trustmark Corporation's Q4 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation this morning, there will be a question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. 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 Rein, Director of Corporate Strategy at Trustmark. Please go ahead, sir.

Joey Rein (Director of Corporate Strategy)

Good morning. I'd like to remind everyone that our Q4 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. 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. This time, I'll turn the call over to Duane Dewey, President and CEO of Trustmark.

Duane Dewey (CEO)

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. 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.

These actions, along with other initiatives in prior years, have significantly enhanced financial performance and Trustmark's earnings 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. Our Q4 results reflect continued significant progress across the organization. Net income totaled $56.3 million, representing diluted EPS of $0.92 per share.

This represents a linked quarter increase of $5 million, 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%. For the full year 2024, net income from adjusted continuing operations totaled $186.3 million, or $3.04 per diluted share. This represented an increase of $27.1 million, or 17%, from the prior year. Now let's turn to slide three for a summary of financial highlights. Let's start with the balance sheet.

Loans held for investment totaled $13.1 billion at 12/31, down $10 million linked quarter, and up $139.4 million year over year. Deposits totaled $15.1 billion at year-end, down $132.8 million linked quarter, which includes an intentional reduction in broker deposits of $150 million during the quarter. Excluding this planned runoff, linked quarter deposits were basically flat, up $17 million.

For the full year, deposits declined $461.6 million, which includes the planned reduction of high-cost public and broker deposits totaling $726.8 million. Said differently, all other deposits increased $265.2 million in 2024 while we diligently managed deposit costs. Revenue in the Q4 totaled $196.8 million, up 2.4% linked quarter. For the full year 2024, total revenue from adjusted continuing operations was $740.5 million, up 5.6% from the prior year.

Net interest income totaled $158.4 million in the Q4, producing a net interest margin of 3.76%, up seven basis points linked quarter. Tom Owens will provide a little color on the margin and NII, etc, in a few minutes. Non-interest income in the Q4 totaled $41 million, 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 $156.1 million, 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 Q4 totaled $124.4 million, up $1.2 million, or 0.9% linked quarter.

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. Diligent expense management continues to be a focus of the organization. From a credit quality perspective, net charge-offs totaled $4.6 million in the Q4, 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%. As I mentioned earlier, we resumed activity in the share repurchase program. During the Q4, 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.

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 1st. 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 Officer)

I'll be glad to, Duane. And good morning. Turning to slide four, loans held for investments totaled $13.1 billion as of 12/31, which is relatively flat for the quarter. Increases in the Q4 from multifamily, commercial, and C&I loans, and one-to-four-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.

Looking at slide five, 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 $244 million 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 six, the bank's commercial loan portfolio is well diversified, as you can see, across numerous industries, with no single category exceeding 13%. Looking at slide seven, our provision for credit losses for loans held for investment was $7 million during the quarter, which was driven by the macroeconomic forecast as well as by net adjustments and our qualitative factors.

The provision for credit losses for off-balance sheet credit exposure was $502,000, driven by net adjustments to the qualitative factors, increases in unfunded commitments. At 12/31, the allowance for credit losses for loans held for investment was $160 million. Turning to slide eight, 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. In the Q4, net charge-offs totaled $4.6 million. 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 (CEO)

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

Tom Owens (EVP and CFO)

Thanks, Duane, and good morning, everyone. Turning to deposits on slide nine, deposits totaled $15.1 billion at December 31st, a linked quarter decrease of $132.8 million, and a year-over-year decrease of $461.6 million. The linked quarter decrease was driven by a $150 million decline in brokered CDs, which we allowed to run off at maturity rather than replace. 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.

Those increases were offset by a decline of about $215 million in commercial balances. 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 and $329 million in brokered 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 $265 million, or 2.1%, while our primary focus, as Duane said, has been managing cost while maintaining strong liquidity. Non-interest-bearing DDA balances remained resilient, declining by $69 million linked quarter and remaining at 20% of our deposit base. Time deposits increased by $4 million linked quarter, excluding the decline of $150 million in brokered CDs.

As of December 31st, our promotional and exception price time deposit book totaled $1.6 billion, with a weighted average rate paid of 4.82% and a weighted average remaining term of about three months. Our brokered 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 relatively short weighted average remaining term of these portfolios represents significant opportunity for continued downward repricing.

Time deposit repricing is a primary driver of the guidance that we're providing for further decline in deposit costs during the Q1. Our cost of interest-bearing deposits decreased by 30 basis points from the prior quarter to 2.51%. Turning to slide ten, Trustmark continues to maintain a stable, granular, and low-exposure deposit base. During the Q4, we had an average of about 457,000 personal and non-personal deposit accounts, excluding collateralized public fund accounts, with an average balance per account of about $28,000.

As of December 31st, 64% 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 $6.5 billion at December 31st, representing 179% coverage of uninsured and uncollateralized deposits.

Our Q4 total deposit cost decreased 24 basis points linked quarter at 1.98%. 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. 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 Q1 of about 14 basis points to 1.84%.

As a frame of reference for that guidance, we're on track for deposit costs of approximately 1.87% month-to-date in January. 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%.

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 deposit pricing actions that we took during the quarter, which positioned us well for continued decline in deposit costs during the Q1.

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. The cash flow hedge portfolio, which is structured to mitigate asset sensitivity, had an active notional balance of $875 million and a weighted average maturity of 3.4 years, including the effect of $500 million notional in forward settle swaps and $125 million notional in forward settle floors.

The weighted average received fixed rate on $850 million active notional of interest rate swaps is 3.12%, and the weighted average SOFR rate on $25 million active notional of floors is 4%. Turning to slide 13, non-interest income from adjusted continuing operations totaled $41 million in the Q4, 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%.

I'll point out that the $7.7 million year-over-year increase includes the effect of a $3 million increase in negative net hedge ineffectiveness. So effectively, net of that non-interest income was up $10.7 million, or 7.2%, driven by increases in mortgage banking of $3.4 million, or 13%, wealth management of $2.2 million, or 6%, corporate treasury services of $1.5 million, or 14%, and service charges on deposit accounts of $1 million. Now I'll ask Tom Chambers to cover non-interest expense and capital management.

Tom Chambers (Chief Accounting Officer)

Thank you, Tom. Turning to slide 14, we'll see a detail of our total non-interest expense. During the Q4, non-interest expense totaled $124.4 million for a linked quarter increase of $1.2 million, or 0.9%. 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 the quarter. Total other expense decreased by $2.2 million, driven by a decrease in other real estate expense net as a result of a valuation reserve established during the Q3 related to one assisted living property.

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. Turning to slide 15, capital management, Trustmark remains well positioned from a capital perspective.

As Duane previously mentioned, our capital ratios remained solid. At the end of the quarter, common equity tier one 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. During the Q4, we resumed our share repurchase activity and repurchased $7.5 million, or approximately 203,000 common shares.

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. As Duane indicated, we will continue to evaluate the share repurchase program as the market and capital levels dictate. Trustmark'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. Back to you, Duane.

Duane Dewey (CEO)

Great. Thank you, Tom. Now turn to slide 16. You'll notice a new format for our guidance in 2025. 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 brokered 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 375 to 385 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.

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 2025, with a preference for organic loan growth and potential market expansion.

We'll be considering M&A activities and then other general corporate purposes, as we've already described, such as repurchase, etc. So with that, that concludes our prepared comments, and we'd like to open the floor for questions.

Operator (participant)

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. 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 the first question will come from Catherine Mealor with KBW. Please go ahead.

Catherine Mealor (Analyst)

Thanks. Good morning.

Tom Owens (EVP and CFO)

Morning, Catherine.

Barry Harvey (Chief Credit Officer)

Morning, Catherine.

Catherine Mealor (Analyst)

I wanted to start, first of all, congrats on a great quarter and a great end to the year. I wanted to start just to piggyback on some of the comments here you gave, Tom, on the full-year margin guide. 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?

Tom Owens (EVP and CFO)

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, two Fed cuts of 25 basis points apiece, one in March, one in June. With respect to the loan pricing dynamics, I'll let Barry address spread. I mean, the other factors 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.

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 two to three basis points per month. I think with the higher-for-longer, 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. 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 Q3 to the end of the Q4, the time deposit book priced down by about 15, one-five, about 15 basis points. We're currently modeling for the Q1 that it'll 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 Officer)

I just have a couple of comments. I think from a Q4 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 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.

We'll see one-month LIBOR plus 300, maybe 285. That's the world we've kind of lived in during 2023 and the first half of 2024. It got a little bit more competitive in the Q3 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 285 with the 75-80 basis point fee is where we're kind of settling in. And 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 Q4.

Catherine Mealor (Analyst)

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 paydowns? Or are you still seeing kind of origination volume not pick up at a faster pace as we may have expected? Thanks.

Barry Harvey (Chief Credit Officer)

Sure, Katherine. 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. Actually, during 2023 and the first half of 2024, the CRE activity was less clearly than we experienced in 2021 and 2022, which were very, very strong years.

Therefore, everybody is seeing some maturities in 2025, 2026 from that strong production in 2021, 2022. 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. We're very pleased with that. Remember, we can't project what the customer is or is not going to do.

But remember, with all of our CRE construction multifamily products, there are two one-year extension options that are fully underwritten at the time of origination. 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 so choose. So we did see in the Q4, Katherine, a significant increase in the number of extension options being exercised in Q4 that were going to be 2025 maturities.

Now, we're not making the assumption in our guidance that that's going to continue throughout 2025, but it very well may. And obviously, when you're talking about projects that are $20 to $25 million on the books, if they stay around, it moves the needle very quickly.

I will say our corporate, commercial, and CRE production pipelines continue to look very strong, and as I mentioned, like our peers, 2021, 2022, extremely strong CRE production periods. And when you think in terms of an average full-year duration, then you can see where 2025 and 2026 could have heavier maturities from that strong production in 2021, 2022.

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 materials we have in front of us. We'd like to be very optimistic about the fact that they're going to take us up on those extensions. We're beginning to see it in the Q4 of 2024, 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 it to the permanent market or decide whether or not they're going to sell it and they're happy with cap rates, and so we're starting to see that, but we don't know what the follow-through will be.

Duane Dewey (CEO)

Catherine, I'd like to just add real quickly too. We continue to hear very positive production opportunity on the equipment finance side. C&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 Q4, 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 as Barry described on the CRE front, that can play to the positive. 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 and that low single-digit range.

Catherine Mealor (Analyst)

That makes sense. Okay. Very helpful. Thank you. Great quarter.

Duane Dewey (CEO)

Thank you.

Barry Harvey (Chief Credit Officer)

Thank you, Catherine.

Operator (participant)

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

Christopher Marinac (Director of Research)

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 over the intermediate run?

Barry Harvey (Chief Credit Officer)

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 from a credit risk-taking standpoint with a lot of our peers and even some of the larger regional banks. 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 be criticized or classified. 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 to look at deals.

I think the higher rates are somewhat slowing that down on both the C&I and the CRE front. Although I will say, with 100 basis points drop that we've experienced, a lot more CRE deals pencil today than they did previously. 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 deals, 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 projects as they were 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 into these projects, which allows for the developers 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.

Christopher Marinac (Director of Research)

All right. Great. Thank you for that background. And then just one 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 Trustmark organization.

Tom Owens (EVP and CFO)

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 it 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.

When you look at when we talk about the number of accounts and when you look at the increases in accounts, the headline in 2023 and 2024, very much a function of 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.

Because as we talked about in the prepared commentary, in 2024, we've 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 a consistent rate, the answer is yes.

Duane Dewey (CEO)

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

Christopher Marinac (Director of Research)

No, actually, there was really an account opened that Tom described. So I'm good on that. Sorry if I had mentioned expense. It was not my point. So thank you very much for the call this morning.

Tom Owens (EVP and CFO)

Thank you.

Duane Dewey (CEO)

Thanks, Chris.

Operator (participant)

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

Gary Tenner (VP and Senior Research Analyst)

Thanks. Good morning. I appreciate the color on the puts and takes. Hey, good morning. I appreciate the color on the puts and takes for 2025 loan growth. I was curious about the C&I traction in the Q4. I think you had 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 kind of year-end, maybe seasonality and drawdown on lines that maybe reverses in the Q1?

Barry Harvey (Chief Credit Officer)

Hey, Gary, this is Barry. I think there definitely is some follow-through that's going to occur during 2025. In the Q4 of 2024, 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. In Q3, we moved down to 35%. That was part of the little bit of shrinkage we had in Q3, and during the Q4, 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 Q4. We expect that trend to continue with our C&I producers. I mean, they're very, very active out making calls. 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.

Duane Dewey (CEO)

And 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 the retail commercial banking franchise, but also in our institutional businesses. And through that process, there was some churn and some change and adjustment. 2024 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, all focused on C&I production. And as noted, they're 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&I categories in many of our markets. So that's kind of mixed in there also.

Gary Tenner (VP and Senior Research Analyst)

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, there don't seem to be any looming restrictions to continuing to buy back dependent on the price of course. But am I missing anything there?

Duane Dewey (CEO)

Other than the $100 million authorization from the board, that's the operating restriction, if you will, as you described that we might have. But as you know, I mean, that's a function of a lot of different considerations there. One are what's happening on the growth side of the equation, 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, so.

Tom Owens (EVP and CFO)

Yeah. And I would just add, this is Tom Owens. I would just add our risk-based capital ratio is accreted pretty nicely during the Q4, 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 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 a 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 (VP and Senior Research Analyst)

Great. Thank you.

Barry Harvey (Chief Credit Officer)

Thank you.

Operator (participant)

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

Eric Dowling (Company Representative)

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 growth or normal inflation, but just curious what kind of investments you're focused on.

Duane Dewey (CEO)

It's across the board in terms of technology investment, a number of different initiatives across the organization, one of which includes a core conversion that'll 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's significant continued pressure, I think, on the personnel front, salaries and benefits, a very significant increase in healthcare costs that are true to the industry and true to all different categories out there. 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.

Tom Chambers (Chief Accounting Officer)

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 (CEO)

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. Those all add to the equation.

Eric Dowling (Company Representative)

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 intentional broker 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 deposit growth broadly going into 2025.

Tom Owens (EVP and CFO)

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 Q3 and Q4. 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 strong liquidity in the mid-80s in terms of loan-to-deposit ratio. And so we're really backed off on some of the more competitive bid situations.

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 costs, we feel really, 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 Q4. 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. We expect that to continue here in 2025.

Eric Dowling (Company Representative)

Okay. That's great color. And then maybe one last question for me, and then I'll step back. Just kind of a question on credit. NPAs tipped modestly higher, still relatively benign. 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 Officer)

Eric, this is Barry. I would say we're obviously very focused on it day in and day out and making sure of a very robust annual review process for all of our credits of any size, 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.

There's not really a category that we're more focused on than the other. Obviously, CRE is one that with the 550 basis points increase from the Fed, they've obviously given back 100 of that. That increase weighed on, like it did with all banks, it weighed on the CRE projects and how they were pro forma and how they're maturing through the lease-up process.

Now, I think we've done a good job of going in and being very aggressive in adjusting grades as timely as needed and therefore reflective in our criticized 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 in terms of getting the occupancy level or getting the rents that they were originally pro forma 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 Dowling (Company Representative)

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

Barry Harvey (Chief Credit Officer)

Thank you.

Operator (participant)

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

Andrew Gorczyca (Equity Research Analyst)

Hey, good morning, everyone.

Barry Harvey (Chief Credit Officer)

Good morning.

Andrew Gorczyca (Equity Research Analyst)

Morning. 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 to follow up to that, just wondering what regions present the most attractive growth opportunities in 2025.

Duane Dewey (CEO)

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

Andrew Gorczyca (Equity Research Analyst)

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

Duane Dewey (CEO)

All right. Thank you.

Operator (participant)

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

Hey, good morning, guys. This is John on for David Bishop.

Duane Dewey (CEO)

Hey, John.

Morning.

Tom Owens (EVP and CFO)

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 one to two cuts this year, if that's possible to quantify.

It's absolutely possible to quantify. This is Tom Owens. Again, the cash flow hedge portfolio is designed to mitigate some of the volatility to net interest income. It 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 numbers, $6.5 billion, something like that, floating rate loans.

Essentially, John, the way to think of it is we've taken of the roughly $6.5 billion of floating rate loans, we have effectively swapped them 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 impact of the portfolio itself, I mean, the simple math is $850 million of fixed rate loans for 100 basis points shock.

We would benefit, all else equal, by $8.5 million, right? And so if, let's say, you do get two cuts, one in March, one in June, then in the second half of 2025, we would benefit by $4.25 million from having had the Cash Flow Hedge Portfolio in place relative to our current run rate net interest income.

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 the color on the forecasted beta and how time deposit costs have trended thus far in January. I guess I'm just curious as to how much lower we could see deposits repriced in 1Q and 2Q in the event that we don't see a cut in March or a cut in June.

Duane Dewey (CEO)

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 Q1 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 points cuts based on the market implied forwards in our forecast for March and for June, and we have very little reduction in interest-bearing non-maturity deposit cost associated with those, and so I think it's a conservative guide at this point in terms of deposit cost for the full year. I'll give you an idea on the beta. I mean, what we're modeling at this point is so we just printed 198 for deposit cost in the Q4.

We're guiding to 184 in the Q1. Based on where market implied forwards are today, that would probably drop to, say, by Q4 of this year, 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 222, and then if you said, "Okay, let's say about 170 in the Q4 of 2025," 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.

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.

Absolutely. Thank you.

Barry Harvey (Chief Credit Officer)

Thank you.

Operator (participant)

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 (CEO)

As we mentioned, we feel like the Q4 in 2024 were very positive years for Trustmark and look forward to 2025 here coming moving forward, 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.

Operator (participant)

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