Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's First Quarter Earnings Conference Call. [Operator Instructions] 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.
Good morning. I'd like to remind everyone that our first quarter earnings release and the slide presentation that will be discussed on our call this morning are available on the Investor Relations section of our website at trustmark.com. During our call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and we'd 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'd like to introduce Duane Dewey, President and CEO of 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. Trustmark reported solid performance in the first quarter, building upon our momentum for 2024. As you may have seen, we experienced continued loan growth, stable credit quality, expanded fee income and lower noninterest expense in the first quarter.
I would like to note that we're adjusting our presentation format this quarter. I will first provide a summary of our performance, discuss our forward guidance and then move to questions. This will reduce the time spent on our comments and allow more time for your questions. We understand this is a popular day in the earnings release cycle, and we want to allow as much time as possible to address questions you may have after reviewing our release and related deck.
Now turning to Slide 3, the financial highlights slide. Please note all information presented here is from continuing operations. From the balance sheet perspective, loans held for investment increased $151 million or 1.2% linked quarter. Our growth was diversified and reflected increases in CRE, other commercial loans and leases and 1 to 4 family mortgage loans. Our deposit base remained stable.
During the quarter, our cost of total deposits increased 15 basis points to 1.83%. Trustmark reported net income in the first quarter of $53.6 million, representing fully diluted EPS of $0.88 per share. This level of earnings resulted in a return on average assets of 1.19% and a return on average tangible equity of 13.13%. This performance reflects solid net interest income of $155 million, which produced a net interest margin of 3.75%. Noninterest income totaled approximately $43 million, up 4% linked quarter as growth in mortgage banking, wealth management and other income was offset in part by seasonal declines in bank card and other fees and service charges on deposit accounts.
We're very pleased with our continued expense management efforts. Noninterest expense declined $419,000 linked quarter, which follows a full year decline in 2024. Salaries and employee benefits, service and fees and other expenses were all lower linked quarter. Credit quality remained stable. Net charge-offs totaled $1.4 million, representing 4 basis points of average loans in the first quarter. The net provision for credit losses was $5.3 million and the allowance for credit losses expanded 4 basis points to 1.2% of loans held for investment. Again, a very solid credit profile.
From a capital management perspective, each of our capital ratios increased during the quarter. The CET1 ratio expanded to 11.63%, while our risk-based capital ratio increased 13 basis points to 14.1%. During the quarter, we repurchased $15 million of Trustmark common stock and a remaining repurchase authority of $85 million for the remainder of this year. This program continues to be subject to market conditions and management discretion. Tangible book value per share was $27.78 at March 31, up 4.1% during the quarter and 26.1% year-over-year. The Board also declared quarterly cash dividend of $0.24 per share payable June 15 to shareholders of record on June 1.
Now let's focus on our forward-looking guidance for the year, which is on Page 15 of the deck. As you can see, we are affirming our previously provided full year 2025 expectations across the board. Although we are intently monitoring the impact of tariffs and other administrative policies on our customer base, interest rates and credit-related issues, we feel it is early in the process, and we've not yet seen an immediate impact.
We expect loans held for investments to increase low single digits for the full year 2025 and deposits, excluding broker deposits to increase low single digits as well. 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 mid to high single digits in 2025.
From a credit perspective, the provision for credit losses, including unfunded commitments is expected to remain stable. Noninterest income from adjusted continuing operations for the full year '25 is expected to increase mid-single digits, while noninterest expense from adjusted continuing operations is expected to increase mid-single digits as well. We will continue our disciplined approach to capital deployment with a preference for organic loan growth, potential market expansion, M&A or other general corporate purposes depending on market conditions. As noted earlier, we do have remaining availability in our Board-authorized share repurchase program that we will consider opportunistically.
So with that, I would like to now open the floor up to questions.
Thank you. [Operator Instructions] And the first question will come from Will Jones with KBW.
I wanted to start just with loan growth, either Barry or Duane, if you could just maybe walk us through some of the growth trends you saw this quarter and how the that the paydown story kind of played out for the quarter? And then just with respect to the growth guidance for the remainder of the year, obviously, a fairly volatile environment out there. Duane, could you just give us a pulse for just boots on the ground, what you're hearing from clients? And anecdotally, just whether you've seen any change or definitive change in any client behavior just with regards to the tariffs and some of the uncertainty out there? That would be great.
Will, this is Barry. I'll start and then I'm going to have Duane weigh in. I guess starting with the payoffs this quarter. As we've mentioned previously, while we do expect to have meaningful maturing CRE loans during 2025 as a result of the strong production in '21 and '22 that we experienced. We expect that to be a -- more of a second half event than a first half event, and that's kind of the way it played out. We have done an extremely good job, I believe, of touching our customers, communicating with our customers and making sure they're aware on projects that are performing that there is 2, 1-year extension options available to them. Quite a few of them have indicated that they intend to avail themselves of that option for a few reasons.
I think one is the -- as you mentioned, the uncertainty that exist today regarding interest rates and the directions they may move and whether it's more advantageous for them to wait and pay the cost of carry for a year or so to see if the interest rate environment may improve. And if it does, take the opportunity to either sell the project at a better cap rate, potentially move it to the private market and lock in a very attractive rate. So for all those reasons, the loan growth we saw in the first quarter was not unexpected from our perspective. And we -- the payoff scenario, we think will continue to play itself out as the year moves along. But we have seen quite a bit of -- as we forecast every quarter, what we expect to see with our CRE book, which is $5.3 billion.
And based on that survey, as of 9/30 of last year, we saw quite a few of our customers who have maturing CRE credits in 2025 indicate they probably will avail themselves of that opportunity to push it out to '26. We saw that trend continue as of 12/31. And we're actually -- as we've continued with that process of quarterly forecasting, we don't anticipate that trend changing in what we see coming out of our 3/31 survey work that we're currently doing now.
So we're very pleased in that regard, but it has -- we are very focused on that. And then also focused on seeing if there's not opportunities for us to move existing funded business that for one reason or another, we have an opportunity to compete for, as well as continuing to ensure that the projects we have are performing as we expect them to and addressing any problems that may pop up.
I'll speak just briefly to the issue regarding what we're seeing in the marketplace, and Duane can add some color to that. I know, obviously, any time you have disruption, there's going to be people who pause in whatever their plans were and don't move forward on those. Fortunately, a lot of the growth that we have anticipate having in 2025 is going to come from existing CRE projects that are on the books that are going to fund, and that's going to happen regardless. And then as far as future projects on the CRE side, we've not really heard anything from our customers in terms of concerns about significant spends that they'll have on projects going forward that they caused them to pause on wanting to move forward on the project.
There's definitely the potential that the backing of the sponsors will not be as active on supporting those projects as maybe they have previously until some of the -- some disruption in the marketplace kind of settles down. But we do expect for those sponsors to come back again because we do expect for that return they're seeing on these projects to be materially better than what they can find elsewhere in a risk-free environment. But a lot of that's going to depend upon interest rates.
Duane, let me turn it to you now.
Yes. I will add coming into the end of the quarter -- first quarter into the end of the quarter, Will, we -- I think our pipelines were as good or better than we've seen for a long time, and that was pretty much across the board, C&I, CRE, equipment finance, et cetera, even some of our small business areas and so on across the board, what we were hearing from our officers, as well as directly from customers, very solid pipeline, very solid plans and so on. So -- and that is still intact. Those pipelines are still very good. Post April 2nd, post the so-called Liberation Day, since April 2nd, we've done some polling across our business units and some direct interaction with customers as well.
Probably we are hearing for the first time, there's a lot of uncertainty out there. I may hold off for a bit. It may slow down a bit. Let me see how things work out here. So, it hasn't directly hit the pipeline reports yet, but we could see some slowdown in some of that new origination volume that we were anticipating. But it's not yet dramatic, and it's not yet fully baked into actuality, if you know what I'm saying. So it's real early in the process and a couple of up days and a couple of positive days and rhetoric out of the media and the administration changes instantly. So it's -- we're seeing the volatility there. But haven't really -- and as we noted in our forecast moving forward, we're still affirming that low single-digit growth for the year.
Yes. That's great. I really appreciate that thorough answer, Barry and Duane on that. Maybe, Tom, just a quick one for you. I certainly appreciate the margin range you put out there, the 3.75% to 3.85%. We're kind of sitting at the low end today. And I know you generally guide off of the forward curve. I was just hoping if you could help us maybe sensitize that margin a bit. I know there's various thoughts and then considerations for how rates may ultimately play out this year. But if we do wind up in a scenario with a higher level of cuts, could you just help us walk through maybe what happens to the margin in that scenario?
Sure, Will, happy to. So several points I'd make there. First of all, with respect to the 1 basis point linked quarter decline in net interest margin, we experienced a normal seasonal linked quarter decline in loan fees, which was worth about 3 basis points of NIM. And so on a normalized linked quarter basis rather than a 1 basis point decline, that would have been a 2 basis point increase, which is consistent with the guidance that we've put out there and the commentary we've provided. We continue to believe going forward that we will experience low single-digit linked quarter increases in net interest margin. And as we discussed in the past, the primary driver there is the ongoing repricing of the fixed rate loan book and the HTM securities.
With respect to your question about market implied forward interest rates, in our current forecast, we have 3 Fed rate cuts consistent with market implied forwards, one in June, one in September and then one in December. Of course, the one in December is not so consequential to our '25 net interest margin. But I think our objective there, Will, and we're confident we can achieve it. If you look at, for example, Slide 9 on the deposit base and you look at the cumulative beta that we've driven through the first quarter of 39% and through the second quarter, we're forecasting a 5 basis point linked quarter decline in deposit costs and a cumulative beta of 35%.
Our objective, assuming that we do end up with and it's a big assumption, June and September rate cuts would be to continue to maintain that cumulative beta in the mid-30s, which would allow us to continue to have that low single-digit linked quarter NIM accretion.
Tom, that's super helpful. So if I hear you right, really, if we adjust for some of those seasonal decline in loan fees, margin really could have looked closer to 3.77%, 3.78%. And then just based on forward rates, you would still expect to see maybe a little bit grinding higher of that margin as we move through the balance of the year?
Correct, Will. That's right.
Well, thanks, guys and many congrats for overcoming this CRA overhang.
Our next question will come from Tim Mitchell with Raymond James.
I want to start on credit. The NPA ratio and the reserves both were up linked quarter. The increase in NPAs was modest. But just given the reserve build, is there anything you're seeing that's worth calling out? Or is that more so just a function of all the uncertainty out in the environment and maybe shifting some of your Q factors and CECL inputs and such? Any color would be great.
Sure. This is Barry. As it relates to the ACL and the uptick in coverage, our funded reserve was $8.1 million, provision was $8.1 million for the quarter and that resulted in -- and the net of that, of course, was the $5.3 million. That drove up the coverage to the [ 12.6% ] that we reported. We did see a reduction in the unfunded commitments, and that was probably the biggest part of what drove the release on the liability side. There was -- really the quarter was pretty much as we expected.
The loan growth of the $152 million that drove some of that provisioning. And then we also had an uptick in the qualitative portion of our provision. A little bit of that was just the changing in risk ratings. And then there was a little bit of that where we were migrating to some of our own probability of defaults where historically, we had used some third-party data, our peer data, and we've accumulated enough information to move to our own probability defaults and leverage that. And that drove up the qualitative portion of our provision a little bit. But I think on the whole, the provision kind of came in where we expected it to. Obviously, the funded portion closer in line to maybe where the market saw it and then the unfunded release kind of brought us down a little bit below where the consensus of the analysts were.
Great. Makes sense. And then on expenses, just given the decline this quarter, could you remind us of any impact -- timing impacts from merit or any investments you're undertaking this year just as we think about that low single-digit growth outlook?
I'll start and Tom -- and Tom can add to it. But I mean, it's -- as you've heard over extended period of time here, we've had a pretty intense focus on expenses across the board in all aspects. I think the first quarter, if you look at a small decline in the first quarter is directly related to salaries, benefits, slower hiring than originally anticipated, commissions, some of the commission categories, mortgage, et cetera, where production maybe was a little below expectations and so on. Those things all accumulate to lower salary and benefit totals and then some other contractual things that we do, third-party support and so on were limited in the first quarter.
I think as we look out into the remainder of the year, we have some things planned. We have announced previously, we have a core system conversion that will occur in the first part of 2026. So there's some related expenses there. There's other just, I would say, normal expense increases across the board, contractual increases and those sorts of things that all then total to a mid-single-digit year. And our hope and effort is to control that and maybe beat that number, but that's kind of what we're thinking at this point.
Tom or Tom, anything to add?
I just think -- this is Tom Chambers. I just think that you have to remember that our merit increases are now coming at the beginning of the third quarter on salaries that previously with the first quarter, the latter part of the first quarter event. So we've got some back-end expenses during the year that will be triggered that will get us to that single-digit forecast.
Yes, absolute color. Yes, absolutely. If I could sneak one last one in. So on the buybacks, which was nice to see you guys lean into this quarter. Is this a pace kind of that you would expect to continue with moving forward? And then just any other thoughts around capital? I know you mentioned potentially expanding in new markets and whatnot and organic growth remains a priority, but just any more color you could give overall would be awesome.
Yes. I'll start, and again, Tom can add to. But as far as the pace, the market will dictate the pace and management discretion. I think loan growth and some other factors there kind of contribute to our thought process. We do feel some opportunity, though, to continue that buyback trend and probably would forecast fairly consistent quarter-to-quarter, but we'll see. So in terms of other deployment of capital, we're focused on strategic growth initiatives in key markets, which we hope generate or continue to generate organic loan growth.
We think we have some opportunities in some very high-growth markets, Houston, Birmingham, Atlanta, Gulf Coast of Florida and Alabama and so on. So we've got some hiring plans there that we think can generate some organic growth. And I will say prior to the Liberation Tariff announcement date, M&A was very much forefront in the industry. And I think Will noted in his earlier question, our CRA adjustment, which we think along with improved balance sheet, et cetera, put us in position for some M&A activity post April 2nd, maybe a little slower, but we'll see how the year evolves, and we'd very much be interested in continuing that thought process. So those would be some comments relative to capital.
Tom?
Yes. I guess this is Tom Owens. The only thing I'd add is that we were very pleased, obviously, to continue to drive capital accretion during the quarter with solid loan growth of $152 million and with the deployment of $15 million via share repurchase, had about 9 basis points of accretion in CET1 in the quarter and anticipate that we will continue to drive some continued accretion at about that pace. And so as Duane said, the share repurchase will be driven by a number of things, including how the loan growth comes to pass over the remainder of the year, which could end up -- we could end up leaning somewhat more into share repurchase deployment via share repurchase with less loan growth. We could end up pulling back a bit with more loan growth. But it's nice to be in a position to have that flexibility.
[Operator Instructions] Our next question will come from Christopher Marinac with Janney Montgomery Scott.
I want to drill back on the loan growth conversation. And I guess my curiosity is if we're meeting the loan growth goal for this year, does that enable you to be incredibly sort of picky and selective on the loans you do? And does that, therefore, give you flexibility on credit costs and also provide more flexibility on deposits as well?
This is Barry. I'll address the loan portion and let Tom address the deposit aspect of it. I think as far as being selective, we wake up every day thinking we are and selective on the deals that we do, not only from a credit, from a structure standpoint, we -- probably what's changed a little bit is some of the depending on the industry, some of the deals have become more competitive from a pricing standpoint, whether it be the origination fee or whether it be the interest rate itself, they've been -- but that's kind of a hit and miss for us. We see some deals that look just like they did back in really in the first part of all of '23 and the first part of '24, where they're very attractive, both from a fee and interest rate standpoint. And we see other deals that are all of a sudden very competitive. And obviously, anything that's funded debt is very competitive.
So we do see quite a few of our peers more active than they've been maybe a few years ago. But the credit quality itself, we're continuing to be selective on the deals, try to get the structure we need and then obviously, the pricing is something that we have to give on that. We're willing to do so. But first and foremost, the credit structure has to be what we need in order to be able to move forward and continue to be selective.
I do think that the environment that we're in now, there's still opportunity. There's still deal flow, but there are more competitors today than there were a year ago looking at the same deals. Tom?
So Chris, this is Tom. On your question about on the deposit side and flexibility there. I'd start by making the point we've been pleased with our ability to drive personal and commercial deposit balances, up $394 million or 3.2% year-over-year. And as you know, Chris, we've been really in a mode of optimizing, rationalizing our deposit cost. We're in an environment that remains competitive from a promotional perspective, and we have really not been leaning into that at this point. And so we've got some levers that we can pull here. We've continued to develop our digital capabilities and we've continued to deepen relationships with depositors that we brought in beginning as early as the first quarter of 2023.
And so we have -- we feel like we have really good flexibility there. We even made some adjustments to our tactics mid-quarter in the first quarter that have been very encouraging for us. So we're very confident that we can calibrate on the deposit side cost effectively to support loan growth opportunities going forward.
Great. That's helpful. Just a quick follow-up is just about the C&I utilization. And does this environment kind of change behavior on C&I, do you think as the next few quarters unfold?
And Christopher, this is Barry. It did not affect us this quarter. We were 36% utilization, which was what we were for the fourth quarter of last year. And that's not -- that's pretty much in line with where we've been historically. That is something that we're monitoring to see. I think it will -- I think we'll have less impact there than possibly new projects moving forward in the environment we're in now until we get a little more clarity going forward. But from what we see so far, we've not seen a change in utilization of our revolving lines of credit.
This concludes our question-and-answer session. I would now like to turn the conference back over to Duane Dewey for any closing remarks.
Great. Thank you. Thank you again for joining us today. We look forward to catching up again at the end of the second quarter, and we hope that everybody has a great week. Thank you.
The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.
