Trustmark Corp
NASDAQ:TRMK
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Trustmark Corp
Earnings Call Analysis
Q3-2024 Analysis
Trustmark Corp
In the third quarter, Trustmark Corporation demonstrated solid financial growth, reporting net income of $51.3 million and earnings per share of $0.84. This marked a notable 26.7% increase in net income from adjusted continuing operations, alongside a significant improvement in the efficiency ratio by 282 basis points. The company's restructuring of its investment securities portfolio was pivotal in achieving a 9.5% increase in net interest income, which rose to $158 million.
Loans held for investment were relatively stable at $13.1 billion, experiencing a slight decline of $55 million from the previous quarter but marking an increase of $290 million year-over-year. The quarter saw a decrease in total deposits by $222 million, primarily due to targeted reductions in public and brokered deposits. However, personal and commercial deposit balances saw a combined growth of approximately $307 million, underscoring the strength of the company’s core deposit base.
The net interest margin for the quarter expanded to 3.69%, reflecting a 31 basis point increase due to effective deposit pricing strategies and securities portfolio adjustments. The company projects maintaining a healthy net interest margin between 3.65% and 3.70% for the second half of 2024, supported by ongoing improvements in asset yield and stabilizing deposit costs.
Noninterest income amounted to $37.6 million for the quarter, showing a modest year-over-year increase. However, it experienced a slight decline from the previous quarter. The company recorded a noninterest expense rise of $4.9 million, attributed to annual salary increases, incentive accruals, and increased expenses related to properties under active contract. Year-over-year, noninterest expenses actually decreased by $500,000, reflecting effective cost-control measures.
Trustmark's capital ratios remained robust, with the common equity tier 1 (CET1) ratio rising to 11.30%. The company announced a quarterly dividend of $0.23 payable on December 15, reflecting its commitment to returning value to shareholders and maintaining a disciplined approach to capital deployment. Share repurchase plans will continue to be considered based on market conditions.
Looking ahead, Trustmark anticipates low single-digit loan growth for 2024 alongside stable deposits. The net interest income is projected to increase in the mid-single digits, with a full-year net interest margin expected to be around 3.50% based on market conditions. Noninterest income is forecast to grow in low to mid-single digits while keeping noninterest expenses approximately unchanged as part of rigorous cost management efforts.
Trustmark demonstrated resilient credit quality metrics, with net charge-offs totaling $4.7 million, translating to only 0.14% of average loans. The allowance for credit losses stood at 1.21% of loans held for investment, indicating strong provisions against potential losses. The company expects that net charge-offs will remain below the industry average amid the current economic forecast.
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Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's Third 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, sir.
Thank you. Good morning. I'd like to remind everyone that our Third 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 as well as 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.
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. The third quarter was a very active and productive quarter for Trustmark.
Our third quarter results reflect significant progress across the organization. Net income totaled $51.3 million, representing diluted earnings per share of $0.84. Profitability meaningfully increased as evidenced by 26.7% growth in net income from adjusted continuing operations and a 282 basis point improvement in the efficiency ratio. The restructuring of the investment securities portfolio was a major contributor to the 9.5% increase in net interest income in the third quarter. These accomplishments are the result of focused efforts to enhance Trustmark's long-term performance.
Now let's turn to Slide 3 for a recap of the strong fundamental accomplishments during the quarter. Loans held for investment were relatively flat, decreasing $55 million linked-quarter and increasing $290 million year-over-year. Deposits declined $222 million linked-quarter, excluding targeted reductions in public and brokered deposits of approximately $530 million deposits increased over $300 million linked-quarter. A significant contributor to our performance in the quarter was the growth in net interest income, which increased $13.7 million or 9.5% linked-quarter to $158 million. The net interest margin expanded 31 basis points during the quarter to 3.69%.
Tom Owens will provide some additional color in his remarks here in a minute. Noninterest income from adjusted continuing operations in the third quarter totaled $37.6 million, a decrease of $0.7 million linked-quarter and an increase of $0.6 million year-over-year.
From an expense perspective, noninterest expense increased $4.9 million during the quarter. There are three primary drivers of this increase. First, our annual salary merit increases were effective July 1; second, annual incentive accruals and commissions increased due to strong operating performance and third, we had an increase in ORE expense related to the establishment of a reserve for a single property that is under contract to sell and scheduled to close in the fourth quarter. Year-over-year expenses from adjusted continuing operations actually declined $500,000.
Diligent expense management continues to be a focus of the organization here moving forward. Trustmark's capital ratios expanded meaningfully during the quarter as tangible equity to tangible assets increased 55 basis points to 9.07% while the CET1 ratio expanded 38 basis points to 11.3% and the total risk-based capital ratio expanded 42 basis points to 13.71%. Tangible book value per share was $28 -- $26.88 at September 30, 2024, an increase of 6.5% from the prior quarter and 32.9% from the prior year.
The Board declared a $0.23 dividend payable on December 15 to shareholders of record on December 1. From a credit quality perspective, net charge-offs totaled $4.7 million during the quarter, representing 0.14% of average loans. The allowance for credit losses represented 1.21% of loans held for investment and nearly 500% of nonaccrual loans, excluding individually analyzed loans.
At this time, Barry Harvey will provide an overview of our loan portfolio and credit quality.
I'll be glad to, Duane. Thank you. Turning to Slide 4. Loans held for investment totaled $13.1 billion as of September 30, which, as Duane indicated, is relatively flat for the third quarter. Increases in the third quarter came from existing multifamily loans, our Equipment Finance line of business and 1-4 family mortgages, they were offset by declines in C&I, state and political loans and other CRE. We continue to expect loan growth of low single digits for 2024. As you can see, our loan portfolio remains well diversified by both product type as well as geography.
Looking on to Slide 5. Trustmark's CRE portfolio is 95% vertical with 70% in the existing category and 30% in construction land development. Our construction land development portfolio is 82% construction. Trustmark's office portfolio, as you can see, is very modest at $262 million outstanding, which represents only 2% of the overall loan book. The portfolio is comprised of credits with high-quality tenants as well as 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 14%. Looking to Slide 7. Our provision for credit losses for loans held for investment was $7.9 million during the third quarter, which was driven by specific reserves for individually analyzed credits and net adjustments to our qualitative factors. The provision for credit losses for off-balance sheet credit exposure was a negative $1.4 million which resulted primarily from a decline in unfunded commitments. At September 30, the allowance for credit losses for loans held for investment was $158 million.
Turning to Slide 8. We continue to post solid credit quality metrics. The allowance for credit losses increased to 1.21% of loans held for investment, representing 497% of non-accruals, excluding those loans that are individually analyzed. In the third quarter, net charge-offs totaled $4.7 million, as Duane mentioned earlier, both non-accruals and nonperforming assets increased during the quarter, primarily as a result of two commercial credits. However, they are materially -- they materially declined year-over-year due to continued efforts to effectively manage and resolve problem assets in a timely manner. Duane?
Great. Thank you, Barry. Now Tom Owens will cover deposits, net interest margin and noninterest income.
Thanks, Duane, and good morning, everyone. Turning to deposits on Slide 9. We had another good quarter, which continued to show the strength of our deposit base. Deposits totaled $15.2 billion at September 30. There was a linked-quarter decrease of $222 million or 1.4% and a year-over-year increase of $139 million or 0.9%. However, as Duane indicated, a significant driver of that decline was targeted intentional runoff of deposits. Specifically, the linked-quarter increase -- decrease was driven by a $200 million decline in brokered CDs, which we allowed to run off at maturity rather than replace. And we had $330 million in public fund balances, which are really targeted decline related to large accounts that tend to be somewhat volatile quarter-to-quarter.
Looking beyond that, we had a solid quarter of deposit growth with growth of $155 million in personal balances and about $152 million in commercial balances, representing linked-quarter growth of about 1.9% and 3.5%, respectively. Noninterest-bearing DDA balances remained resilient, declining by $11 million linked-quarter and remaining above 20% of our deposit base. Time deposits increased by $124 million linked-quarter, excluding the decline of $200 million in brokered CDs.
As of September 30, our promotional and exception price time deposit book totaled $1.4 billion with a weighted average rate paid of 4.97% and a weighted average remaining term of about 5 months. Our brokered time deposit book totaled $400 million at a weighted average all-in rate paid of 5.41% and a weighted average remaining term of about 2 months as of September 30. And our cost of interest-bearing deposits increased by 6 basis points from the prior quarter to 2.81%.
Turning to Slide 10. Trustmark continues to maintain a stable, granular and low exposure deposit base. During the third quarter, we had an average of about 460,000 personal and nonpersonal deposit accounts, excluding collateralized public fund accounts, with an average balance per account of about $28,000. As of September 30, 65% 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 23%. We maintained substantial secured borrowing capacity, which stood at $6.2 billion at September 30, representing 176% coverage of uninsured and uncollateralized deposits.
Our third quarter total deposit cost increased 4 basis points linked-quarter at 2.22%. The favorable variance to prior guidance reflects proactive strategic pricing actions that we took during the quarter in anticipation of the Fed September rate cut. Based on those cuts as well as the cuts that we're currently contemplating in anticipation of a possible cut by the Fed on November 7, we're currently projecting a linked-quarter decline in deposit costs for the fourth quarter of about 13 basis points to 2.09%. And as a frame of reference for that guidance, we're on track for deposit costs of approximately 2.11% month-to-date here in October.
Turning our attention to revenue on Slide 11. Net interest income FTE increased $13.7 million linked-quarter, totaling $158 million, which resulted in a net interest margin of 3.69%. Our net interest margin increased by 31 basis points linked-quarter, as Duane said, driven by securities portfolio restructuring as well as ongoing accretion from loan rate and volume. The deposit pricing actions taken in the third quarter as well as the actions that we'll likely be taking in the fourth quarter to offset the anticipated Fed rate cut on November 7 should enable us to achieve a minimum of 3.65% to 3.70% for the second half -- second half of '24.
Turning to Slide 12. Our interest rate risk profile remained essentially unchanged as of September 30 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 of $875 million and a weighted average maturity of 3.5 years, including the effect of $390 million in forward settled swaps and $125 million in forward settled floors. The weighted average received fixed rate on the $850 million active notional swaps is 3.12% and the weighted average SOFR rate on the $25 million of active notional floors is 4%.
Turning to Slide 13. Noninterest income from adjusted continuing operations totaled $37.6 million in the third quarter, a linked-quarter decrease of approximately $700,000 and a year-over-year increase of about $600,000. The linked-quarter decrease was driven primarily by seasonal and onetime items that have increased during the second quarter rather than fundamental recurring drivers that decreased third quarter revenue.
Mortgage banking net hedge ineffectiveness normalized somewhat linked-quarter to negative $2.5 million, but remained unfavorable year-over-year by $1.5 million. Excluding net hedge ineffectiveness, noninterest income increased by $2.1 million or 5.6% year-over-year, which is consistent with our full year guidance.
And now I'll ask Tom Chambers to cover noninterest expense and capital management.
Thanks, Tom. Turning to Slide 14, we'll see a detail of our total noninterest expense. During the third quarter, noninterest expense totaled $123.3 million for a linked-quarter increase of $4.9 million or 4.2%. The increase was mainly driven by an increase in salary and benefits of $1.9 million, resulting from an increase in annual performance incentive accruals of $1.2 million and salary expense of $523,000 due to annual merit increases beginning July 1.
If you'll look, services and fees increased $981,000 mainly as a result of increased third-party professional fees during the quarter. Other real estate expense net increased $2.1 million, driven by establishing a reserve related to one property during the quarter. When you remove other real estate net for each period and the litigation settlement expense incurred during the third quarter of 2023, there was a decline in adjusted noninterest expense when comparing the third quarter year-over-year of approximately 2.4%.
Turning to Slide 15. 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 11.30%, a linked-quarter increase of 38 basis points. Total risk-based capital was 13.71%, a linked-quarter increase of 42 basis points. Although we currently have a $50 million share repurchase program in place, 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 did take.
Back to you, Duane.
Great. Thank you, Tom. Now turning to Slide 16. We expect loans held for investment to be up low single digits for the full year 2024 and deposits, excluding the brokered deposits to remain relatively stable for the full year 2024. Securities balances are expected to remain stable as we reinvest cash flows. We anticipate net interest income to increase in the mid-single digits in 2024, reflecting continuing earning asset growth, stabilizing deposit costs and accretion from balance sheet repositioning, resulting and full year 2024 net interest margin of approximately 3.50% based on market implied forward interest rates. We expect the net interest margin to be in the range of 3.65% to 3.70% in the second half of 2024.
From a credit perspective, the provision for credit losses, including unfunded commitments is dependent upon credit quality trends, current macroeconomic forecast and future loan growth. Net charge-offs from continuing operations are expected to remain below the industry average based on the current economic outlook.
Noninterest income from adjusted continuing operations for full year 2024 is expected to increase low to mid-single digits while noninterest expense from adjusted continuing operations full year '24 is expected to be approximately unchanged reflecting the heightened cost containment initiatives.
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. We will also continue to assess the Board of Directors approved 2024 share repurchase program as the market and balance sheet dictate. That concludes our prepared comments this morning and we now open the floor to questions.
[Operator Instructions] And the first question will come from Will Jones with KBW.
I wanted to start with the margin. I mean the trends were obviously really impressive in the quarter as we saw the first kind of full quarter impact with the securities restructuring, the margin perhaps came even a little bit better than expected. Tom, you alluded multiple times to some of the deposit pricing actions that you guys were able to take. Could you just walk us through a little bit of what you were able to do there towards the end of the quarter and whether or not you saw any pushback from clients or just any general commentary about what you're able to achieve on the deposit front?
Yes, Will, so thank you for the question. The cuts that we made to deposits in the third quarter, we made with the intention of substantially mitigating the pressure from the 50 basis point reduction on our floating rate loan coupons. We feel really good about the monitoring and reporting we have. We look at it on a daily basis in terms of account activity and deposit flows, and we are very encouraged at this point.
We feel really good about our ability to maintain our deposit base and our deposit base. The challenge, Will, obviously, now is we're potentially looking at another 25 here coming up real soon, November 7 and then who knows, maybe one in December. And so when you start to get into sort of a relatively rapid fire sequence of Fed cuts, tactically, you're always in that position of there's what you want to do, but at the same time -- and the want to do is obviously to maintain our net interest margin and offset the adverse impact on our floating rate loan portfolio.
But at the same time, we're on a daily basis, as I said, monitoring deposit activity. We feel good right now and the guidance that we're putting out there right now reflects what we anticipate at this point. Might there be the opportunity to do a bit better. There might be the last couple of quarters, we've been managed to come in favorable relative to guidance. And so it's just going to get trickier here, I think, tactically, but that's going to continue to be our intent is to maintain our net interest margin going forward.
Yes, that's great. I appreciate that comprehensive answer. It feels like maybe we have a pretty good understanding of what deposits and deposit costs will do next quarter, but is there any way to kind of quantify what was the impact you expect to see maybe on the loan yield side, just understanding you have a little bit higher exposure to variable rates and -- but there's also a little bit of hedging involved as well?
So again, about half the portfolio is floating rate. So, Will, there's -- and it gets a little trickier here again with the Fed cutting rates. In the background, half the portfolio -- the loan portfolio is floating rate, half of it is fixed in very round numbers, right? And so you've got the repricing characteristics of each. In the background -- absent Fed rate cuts in the background, as I've said on prior calls, we continue to have that effect of whether you think of it as a couple of basis points a month or 5 or 6 basis points per quarter of lift to loan yield absent the Fed's actions, right?
And so it's also interesting here that we've seen post Fed rate cut, we've actually seen some steepening of the yield curve. If you look at a 3-year swap rate or a 5-year treasury, the belly of the curve there where most of our fixed rate pricing would be off of, it's interesting that those rates are now going up even as it's anticipated that the Fed will likely cut in November. So that is helpful, right? That's helpful that you still have some lift in the background.
Okay. That's great. Really appreciate that. And just as a point of clarification on the fee and expense guidance. Do you guys happen to have just handy, the adjusted continuing ops, fees and expenses from 2023, just so we're all kind of comparing off the same base?
We do Will, and I'm going to ask Tom Chambers to address that.
So, Will, this is Tom Chambers. How you get there is if you look at our 2023 10-K as filed, if you look at noninterest income off the income statement and back out the insurance segment revenue in the insurance -- in the segment revenue footnote in the back, that's the base we're looking at for noninterest income. In the noninterest expense base, you do the same thing, but you also take out the significant nonrecurring items that we incurred during the year last year, which would be litigation settlement expense of $6.5 million and reduction in force expense we incurred in the fourth quarter last year of [ $1.4 ] million.
So if you do that exercise, you'll get to the base we're looking at. So noninterest income to back up on that, it's going to be approximately $148 million and noninterest expense, if you do that exercise, is going to be about $488 million.
You might note also, Will, in the deck, we put in the addendum where we had at the front of the deck last quarter, we have in the back of the deck the adjusted continuing operations calculations and that may help some as well to get the baseline numbers.
Yes, yes. All right. That makes a lot of sense. That's very helpful. If you kind of look at the expense guide and you just kind of see what implied that would be for the fourth quarter of this year, it feels like we may see a little bit of an uptick in expenses in the fourth quarter. Are there any puts or takes that we should be considering as we kind of think about the run rate into the next quarter and what that potentially implicates for 2025?
This is Tom. I think your logic is accurate. We're looking at a little bit of an uptick in the fourth quarter. If you do that math, 2025, I believe we have -- we're going to continue to challenge our expense initiative, reduction initiatives and battle that front as hard as we have in 2024 but at this point, I don't believe we're ready to give guidance on 2025.
No, but we will reiterate that we feel really good on a year-over-year basis, excluding the sort of unusual-ish items we're down, what, 2.5% year-over-year in noninterest expense and from adjusted continuing operations.
Third quarter of this quarter of [indiscernible]. So we feel good about that accomplishment, particularly in the inflationary environment in which we've been operating.
Yes. I mean, no doubt that the profitability for this quarter. So that's it for me.
Your next question will come from Tim Mitchell with Raymond James.
This is Tim in for Michael. I just want to start out on loans. We've heard a lot of your peers talk about maybe some elevated payoff activity in the third quarter. You saw some declines in C&I. I was just hoping if you could discuss kind of what you saw that drove the modest decline kind of flat balances in the third quarter. And then based on the guide, it would seem you maybe expect some modest growth here in the fourth quarter?
Yes. Tim, this is Barry. Let me just reiterate our guidance for the year hasn't changed. We're low single digits. During the third quarter, we did have obviously a slight loan shrinkage of $55 million. That's primarily a result of some paydowns on some corporate and commercial lines during the latter part of the quarter. To that point, even our average loan balances are actually up for the quarter because those payoffs did come late.
Based on our analysis, we fully believe these paydowns are just the normal ebb and flow of line utilization. Our historical line utilization has averaged around 37%. During the quarter, our utilization decreased from 37% to 35%. But we fully expect these lines to draw back up in the near term. We do -- when we look at our corporate, commercial and CRE pipelines, they remain very strong. Our production activity is doing quite well. We are like all other banks that have a real estate exposure. There is a certain amount of payoffs that are in front of us that we'll need to deal with in terms of runoff that we need to cover off. But we're very pleased with the way our pipelines look today.
Great. Appreciate the color. And then maybe more strategically, you talked about market expansion a little bit. We've seen some M&A activity pick up in the past few months. Just hoping you could discuss maybe your approach to building out new markets, whether it be via M&A or maybe some team lift outs and maybe any markets that are particularly attractive to you right now?
Well, all the above are definitely attractive to us. We're actively building -- I guess we'd say we're building a pipeline of M&A opportunity here as we move forward. We feel good about the overall performance of the company, our capital situation and everything now is lining up very, very nicely for potential opportunities. We are seeing a definite increase in pipeline and conversation and interested, I guess, interested parties in the marketplace. So I think that's a possibility.
In terms of the organic side, we are very definitely focused on expanding business lines and expanding in markets where we have a current presence. That would include markets like Houston, Birmingham, Atlanta, maybe South Alabama and so on. So we have opportunities to expand in those markets where we have knowledge and a presence and good visibility into attractive teams. So we're actively working on that front.
Additionally, we've had good success on the Equipment Finance side. We've got a year -- almost 2 years now under our belt in that business. We've gotten familiar with the underwriting standards, et cetera, and feel there are definite expansion opportunities in our production staff in those businesses.
And then finally, the mortgage market is coming back to life. And we had strategically reduced mortgage production over time, and we feel there's opportunities again starting to surface in the mortgage business where we have potential to add production teams across the franchise. So we see a lot of opportunity organically on that front, but are also very interested in your comment and your question on M&A. That's a very defined focus for us.
[Operator Instructions]
Our next question will come from Gary Tenner with D.A. Davidson.
I wanted to ask about the loan yields here in the third quarter relative to the commentary about the fourth quarter NIM outlook. It looks like loan yields were up 1 basis point. I'm wondering if there was any impact either way regarding loan fees or anything just as I'm trying to think of the kind of upward repricing portion of the loan portfolio from a fixed or hybrid perspective?
So Gary, this is Tom Owens. No, I don't think there was really anything particularly unusual about loan fees in the third quarter relative to where we've been running on average, I'd say very probably for the last 6 or 8 quarters, right? I mean been pretty much steady state.
Go ahead.
Okay. Just as it relates to the increase in NPAs, can you just kind of give any color around the kind of the credits, the type of credit location, et cetera?
You said the first part about it again NPAs, as far as what was the question.
Give any color on the NPAs in the third quarter and fourth quarter increase.
Okay. I'm sorry. I wasn't sure if you're referring to the year-over-year of third quarter. Yes. We just -- we had two credits that I mentioned earlier that are both corporate customers that one of them had been nonaccrual several years back and had turned the company around. They begin to struggle again and we moved that credit back into the nonaccrual status. We did go ahead and reserve as part of our individually analyzed process and reserved it appropriately based on the current appraisal we have, even going in and scrutinizing the appraisal a little bit and maybe making what we felt like were appropriate haircuts to the appraisal to make sure we've got an appropriate reserve.
And then the other credit was in a different industry, but nonetheless, it was a credit that had been troubled for a quarter or 2, and then there began to be the need for making certain concessions, at which point we determined it was not only substandard, it was also nonaccrual and we moved it to nonaccrual. I do feel like that second credit is smaller in nature, but I do feel like the ultimate result there is going to be a liquidation and they have begun marketing the assets, and we do have a really good sense of what they should bring, and we were able to establish a reserve on that individually analyzed credit based upon those LOIs that we've already received. So we feel good that we've got that accounted for it properly.
The next question will come from [ Christopher Marinac with Janney ].
I just want to continue on Gary's questions. And if you looked at the interest rate move in September, does that help at all on upgrading credits in future quarters? Or is it too early to kind of use that as a catalyst?
This is Barry. I think it's a little bit too early. Definitely 50 basis points really makes things look better. I think most people would look -- having seen a 550 basis point run up, I think most banks would like to see 100 basis points or even 125. I think that makes pretty much all the CRE projects that have been struggling carrying that additional cost of carry perform much better even if they're in an early stage of construction or maybe they're stabilizing, but haven't stabilized yet. I do think when you look at the pro forma and you look at 100 basis points down or even 125, I think that makes everything work that maybe didn't quite chin the bar previously.
So the 50 makes a big step in that direction. We'd like to see the other 225s that were alluded to for the rest of this year. And then next year is a little bit unknown, but if we can get a little bit of help next year. I think the good news in that is from a risk rating standpoint, from a reserving standpoint, that is very beneficial. I do also think as you move into a lower interest rate environment, you do -- the results will be some credits moving away from you as a result to being able to achieve a better cap rate on the sale or possibly better financing in the permanent market. We're already seeing a little bit of that. I think we'll continue to see better pricing in the permanent market.
So the downside could be some migration of some of your portfolio that is at a point where it is stabilized, might begin to move out maybe even ahead of maturity, that would be the downside.
Got it. And then is there anything from your normal tax return work and client interaction on the commercial book sort of thinking C&I that would lead to more inflows there?
There's not.
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, Sir.
Well, thank you again for joining us for this quarter's report. We're very excited where the company is positioned and look forward to a great fourth quarter and look forward to getting back on our call at the January time line. And you all have a great rest of the week.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.