TRUSTMARK CORP Q3 FY2026 earnings call

• Financial Results: Record quarterly operating EPS of $1.00; Return on Average Tangible Equity (ROTAE) of 12.72%; Total Revenue of $207.1 million.
• Strategic Transactions: Executed a sale-leaseback of 34 branches generating a $61.5 million pre-tax gain; restructured investment securities portfolio by selling $629.5 million in low-yielding assets and purchasing $628 million in higher-yielding assets (approx. 5% yield).
• Loan Portfolio: Loans held for investment declined $43.9 million sequentially but grew 2.4% year-over-year. Experienced significant unexpected commercial real estate (CRE) payoffs totaling ~$214 million, including $52 million from criticized credits which improved quality.
• Deposit Growth: Core deposits grew $184.3 million (1.2% link-quarter); broker deposits reduced by $198 million, now comprising only 1.3% of total deposits. Deposit cost was 1.67%.
• Credit Quality: Strong asset quality with net provision for credit losses of $2.3 million and net charge-offs of 1 basis point of average loans.
• Capital Return: Repurchased approximately 428,000 shares in Q3; declared quarterly dividend of $0.25 per share.
• Operational Efficiency: Non-interest expense increased slightly by 0.6% link-quarter, driven by salary increases offset by lower other real estate expenses.

Trustmark reported total revenue of $207.1 million, representing a slight decline of 0.5% from the previous quarter and a 2.4% increase year-over-year. Net interest income rose by $2 million (1.2% link-quarter), while non-interest income faced headwinds due to an 11.7% drop in mortgage banking production and a shift in treasury management fees to net interest income following core conversions. Wealth Management revenue continued its positive growth trajectory. The company achieved record quarterly operating earnings per share (EPS) of $1.00, supported by a return on average tangible equity of 12.72%. Significant one-time gains were realized from the sale-leaseback of 34 branch properties ($61.5 million pre-tax gain) and investment portfolio restructuring.

• Net Interest Margin (NIM): Raised full-year 2026 NIM guidance to 3.83%-3.87%, up from prior expectations. Expects Q4 NIM to be at the high end, approximately 4.0%.
• Net Interest Income: Expects fully tax-equivalent net interest income to grow mid-single digits compared to 2025.
• Non-Interest Income: Revised outlook to low-to-mid single-digit growth for full-year 2026, down from previous expectations, due to challenging mortgage markets and the shift of treasury management revenue to NII.
• Non-Interest Expense: Reaffirmed guidance for middle single-digit growth, citing continued investment in the business alongside disciplined expense management.
• Loan and Deposit Growth: Maintains expectation for mid-single-digit growth in both loans held for investment and deposits (excluding broker deposits).
• Provision for Credit Losses: Expects total provision to normalize and remain consistent with prior 2026 quarters.

• Commercial Real Estate Payoffs: Continued elevated levels of unexpected CRE loan payoffs (~$214 million in Q3) pose a headwind to loan growth and require significant new production to offset runoff.
• Competitive Landscape: Intense competition in C&I, CRE, and public finance sectors is pressuring pricing and deal flow, particularly in municipal bidding processes.
• Interest Rate Sensitivity: Uncertainty regarding future rate directions is causing delays in project stabilization and refinancing decisions, impacting loan origination timelines.
• Mortgage Market Headwinds: Weak mortgage banking production volumes (down 11.7%) continue to drag on non-interest income.
• Operational Execution Risk: While the sale-leaseback and portfolio restructuring were executed flawlessly, such complex transactions carry inherent execution and integration risks if not managed precisely.

Q: Analyst Michael Rose asked about deposit beta assumptions and loan yield competitiveness given competitive pressures. / A: CFO Joe Bond stated that deposit betas are modeled assuming a full year of rate movement, resulting in approximately 40 basis points impact on total deposits. He noted CDs have a six-month lag, while interest-bearing transaction accounts are lagging current rates. CEO Duane Dewey and COO Barry Harvey confirmed that loan yields remain competitive across all categories, emphasizing disciplined underwriting for enterprise credits rather than chasing volume.

Q: Analyst Steven Scouten inquired about the strength of the $1 billion approved loan pipeline and expectations for payoff levels in Q4 relative to Q3. / A: COO Barry Harvey described the pipeline as historically strong, with a high probability of closing for vetted deals. He explained that unexpected payoffs vary quarterly but cited the $214 million in Q3 as indicative of borrower circumstance changes. CEO Dewey added that the pipeline is broader than in recent years, showing diversity in CNI, equipment finance, and municipal lending beyond just CRE.

Q: Analyst Freddie Strickland asked if rising rates would slow CRE payoffs and how smaller bank conversations have changed. / A: Barry Harvey agreed that higher rates and uncertainty are causing a pause in some payoff activity, as borrowers wait to see rate trajectories. He noted that stabilized projects staying with Trustmark benefit from variable rate indexing. CEO Dewey stated that M&A conversations with smaller banks remain active and unchanged, driven by the strategic need for scale regardless of the rate environment.

Q: Analyst Will Jones questioned whether the company has operating leverage into 2027 and what the upside potential is post-restructuring. / A: CFO Joe Bond affirmed there is upside opportunity across NIM drivers, deposit dynamics, and non-interest revenue items. CEO Dewey emphasized that focused organic growth through hiring production staff and selective M&A will drive profitability. He reiterated that scale is critically important moving forward.

Q: Analyst Christopher Maranac asked about stress testing processes for real estate debt service coverage and how underwriting has adapted to higher rates. / A: Barry Harvey detailed a rigorous process using artificial underwriting rates higher than actual Treasury plus spreads to ensure cushion. He explained that for tight deals, they require more front-end equity to protect against refinancing risk in a higher rate environment. He confirmed that the current large pipeline has been vetted using these conservative stress-testing parameters.