Trustmark Corp 2026 Q3 Earnings Call

Our third quarter earnings release and presentation for today's call are available in the investor relations section of trustmark.com. During this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from these statements because of risks and uncertainties outlined in our earnings release and our other filings with the Securities and Exchange Commission. Now, 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 today are Tom Owens, our Chief Operating Officer, Joe Bond, our Chief Financial Officer, Barry Harvey, our Chief Credit and Operations Officer, and Tom Chambers, our Chief Accounting Officer. I'll review our performance and outlook and have Barry and Joe add some color before taking your questions. Trustmark delivered a solid third quarter, highlighted by growing net interest income, strong credit quality, and core deposit growth. Results demonstrate the strength of the core franchise, while strategic balance sheet actions taken during the quarter are designed to enhance future earnings capacity. Wealth management also continued its positive momentum, and we maintained our focus on disciplined expense management and returning capital to shareholders. Turning to slide 3, financial highlights.

Trustmark reported third quarter net income of $58.1 million, or $1 per diluted share, with a return on average tangible equity of 12.72% and a return on average assets of 1.21%. The quarterly operating EPS is a record for Trustmark in our 137-year history. The quarter included two strategic non-routine transactions. We sold 34 branch properties and simultaneously entered into a triple net lease agreement for each, generating a pre-tax gain of $61.5 million after transaction-related expenses. We also repositioned our investment securities portfolio, reclassifying held-to-maturity securities for available-for-sale. We sold $629.5 million of securities, yielding a weighted average of 1.4%, and purchased $628 million of securities, yielding a weighted average of approximately 5%. The resulting $61.5 million pre-tax loss was effectively offset by the sale-leaseback gain.

In the quarter, loans held for investment declined $43.9 million, or 0.3%, but increased $321 million or 2.4% year-over-year. Loan production trends remained solid during the quarter, although growth was offset by continued elevated commercial loan payoffs. Barry Harvey will provide more detail after my summary comments. On the deposit side, excluding planned brokered deposit runoff, deposits grew $184.3 million or 1.2% linked quarter and 3.4% year-over-year. Total deposit costs were 1.67% for the quarter, reflecting the strength of our attractive low-cost deposit base. Revenue remained solid at $207.1 million, down 0.5% linked quarter and up 2.4% year-over-year. Fully tax-equivalent net interest income rose $2 million, or 1.2% linked quarter, while the net interest margin held steady at 3.84%. Fee income reflected quarterly variability. Mortgage banking loan production volume was down 11.7%, and linked quarter revenue was down 11.6%.

Treasury management fee revenue was also down due to our core conversion shift to on-balance sheet deposits from fee income-oriented products. Finally, wealth management revenue showed continued solid growth. Expense discipline remains a priority. Non-interest expense rose $753,000, or 0.6% linked quarter. Salaries and employee benefits increased $1.7 million or 2.3%, while other expense fell $1.7 million or 10.4%, primarily due to lower other real estate miscellaneous and loan expenses. Credit quality remains strong with third quarter net provision for credit losses of $2.3 million and net charge-offs were $1 million or 3 basis points of average loans. During the quarter, we continued our share repurchase program. In the first nine months of 2026, we repurchased $60.9 million of common stocks for approximately 1.4 million shares. This included $20.1 million or approximately 428,000 shares in the third quarter.

The board also declared a quarterly cash dividend of $0.25 per share payable December 15th, to shareholders of record on December 1st. Turning to our full year outlook on slide 15. Note, it is a full year outlook. We continue to expect mid-single-digit growth in both loans held for investment and deposits, excluding broker deposits. Security balances are expected to remain stable. We have raised our full year 2026 net interest margin guidance to 3.83%-3.87%. This is for the full year. You will recall Q1 NIM was 3.81%, while second and third quarters were 3.84%. We do expect to be at the high end of our guide range with a Q4 NIM around 4%. We expect fully tax-equivalent net interest income to be up mid-single digits compared to 2025.

We expect the total provision for credit losses, including off-balance sheet credit exposure, to normalize and remain consistent with prior 2026 quarters. This outlook is in line with our disciplined credit risk management and strong third quarter asset quality metrics. With the challenging mortgage markets and the movement of treasury management revenue to NII, we now expect low to mid-single-digit growth in full year non-interest income, and we reaffirm our full year 2026 non-interest expense guidance of middle single-digit growth as we continue investing in the business while maintaining expense discipline. As previously communicated, we will maintain a disciplined approach to capital deployment, favoring organic loan growth, potential market expansion, M&A, and other general corporate purposes as market conditions warrant. Now with that overall summary, I'll turn it over to Barry for a few comments on loans.

Thank you, Duane. As you know, our balances were down $24 million for the quarter, and that puts us up year to date, $195 million. We do continue to see CRE payoffs, both expected and unexpected. The unexpected payoffs for the quarter were about $214 million. Some good news on some payoffs is we did have $52 million worth of payoffs that were criticized credits, and we are glad to see those leave us. From the C&I perspective, we did experience about $60 million in unexpected payoffs coming from four credits. On the public finance side, we had a slight decline of about $43 million. The good news there is while we did have one credit that paid off, that drove most of that decline.

In the third quarter, we did also create a new facility for that same customer that has today about $115 million worth of availability to be drawn. We do expect that to fund up over Q4 and into 2027. On the equipment finance side, we did have a little bit of slower quarter than we have become accustomed to. We do fully expect that that faster growth will reoccur in Q4 of this year. From the standpoint of the pipeline, the approved loan pipeline is very strong right now for us. We continue to have confidence in our ability to generate solid loan growth in Q4 and beyond. The pipeline, as it sits today of approved commitments, is around $1 billion. Obviously, not all those will close, but we do feel very positive about the momentum that we do have.

At this time, I would like to turn it over to Joe Bond, our CFO.

Thank you, Barry. Let me give a little more color on the deposit. Last quarter on June 30th, we had a surge on the last day of $200 million of non-interest-bearing deposits that left soon thereafter. With that, deposit growth across both commercial and consumer channels allowed us to reduce broker deposits by $198 million during the quarter, further strengthening our funding profile. Broker deposits now represent just 1.3% of total deposits. Deposit costs were 1.67% for the quarter, one basis point above our guidance last quarter. For the quarter, we are forecasting deposit costs of approximately 1.76% with a 33 beta. The increase in this quarter primarily reflects deposit campaigns launched before the FOMC rate increase. We have not changed our promotional pricing since those campaigns were launched. We also have not changed pricing of our standard products. Exception pricing remains limited. Our deposit mix remains approximately 80% interest-bearing and 20% non-interest-bearing.

We expect that mix to remain relatively stable in our forecast. Importantly, this deposit franchise has been built organically over decades through long-standing customer relationships and the work of our associates. We believe that provides us with a durable funding advantage in this competitive market. Now turning over to net interest margin and revenue. Net interest margin was stable at 3.84%, as Duane has spoken to. On a linked quarter basis, loan yields increased 4 basis points and securities were up 8 basis points. While the cost of interest-bearing liabilities rose 4 basis points. On a year-over-year basis, the cost of interest-bearing liabilities is down 27 basis points. Approximately 59% of the loan portfolio reprices within the first 3 months following a rate change, which provides relatively rapid asset pricing.

Based on our current modeling, we expect approximately 2 basis points of NIM expansion for each 25 basis point change in rates, assuming no growth over a one-year period. On non-interest income, there are 2 items that are helpful in understanding the linked quarter comparison. Following the core conversion, approximately $250,000 per month, or roughly $750,000 per quarter of economics previously reflected in fee income now flows through the net interest margin, a geography change on the income statement and the balance sheet because those products were no longer offered. In addition, the second quarter non-interest income included $1.2 million of partnership distributions that did not repeat this quarter. Moving over to the sale-leaseback and investment portfolio restructuring, I want to highlight the combined economic effect of 2 significant transactions this quarter.