Trustmark Corporation (TRMK) Q3 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Trezmark Corporation's Third Quarter Earnings Conference Call. At this time, 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 *1 on your touch tone phone. And to withdraw your question, please press *2. 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. Our third quarter earnings release and presentation for today's call are available in the Investor Relations section of trust.com. During this call, management may make forward looking statements within the meaning of the Private Securities Litigation Reform Act of 2000. 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 will turn the call over to Duane Arthur 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 will review our performance and outlook and have Barry and Joey 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 $1.00 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 2 strategic non routine transactions. We sold 34 branch properties and simultaneously entered into a triple net lease agreement for each generating a pretax gain of $61.5 million after transaction related expenses. We also repositioned our investment securities portfolio, reclassifying held to maturity securities to 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 pretax 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 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 $107.1 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 thousand 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 remained 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 9 months of 2026, we repurchased $60.9 million of common stocks, or approximately 1.4 million shares. This included $20.1 million or approximately $428 thousand shares in the third quarter. The Board also declared a quarterly cash dividend of $0.25 per share payable December 15, to shareholders of record on December 1. 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 to 3.87% This is for the full year. You will recall Q1 NIM was 3.81, while second and third quarters 3.84. We do expect to be at the high end of our guide range with the 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 noninterest income and we reaffirm our full-year 2026 noninterest expense guidance of mid-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 will turn it over to Barry for a few comments on loans.

Thank you, Duane. And 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 and I perspective, we did experience about $60 million in unexpected payoffs coming from 4 credits. And on the public finance side, we had a slight decline of about $43 million. The good news there is we while we did have 1 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. And 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 is faster growth will reoccur in Q4 of this year. Just 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. And the pipeline as it sits today of approved commitments is around $1 billion. Obviously, not all of 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 Joseph E. Bond, our CFO.

Thank you, Barry. Let me give a little more color on the deposits. Last quarter on June 30, we had a surge on the last day of $200 million of noninterest 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. Brokered deposits now represent just 1.3% of total deposits. Deposit costs were 1.67% for the quarter, 1 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 the 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 relative 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 1-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 thousand per month or roughly $750 thousand per quarter of economic previously reflected in fee income now flows through the net interest margin, a geography change on the income statement. in the balance sheet because those products were no longer offered. In addition, the second quarter non interest income included $1.2 million of partnership distribution that did not repeat this quarter. Moving over to the sale leaseback and investment portfolio restructuring. Restructuring, I want to highlight the combined economic effect of 2 significant transactions. this quarter. Together, these transactions allowed us to unlock capital embedded in our branch network and redeploy it through restructuring of our investment portfolio to further strengthen our balance sheet. The objective was to improve the timing of portfolio cash flows, strengthen our interest rate risk profile and enhance future earnings. For the fourth quarter of 2026, we currently expect the transaction to contribute approximately $5.7 million of incremental net interest income which equates to approximately 12 basis points of margin after considering net occupancy and premise impact, premises impact,, and taxes, approximately $3.2 million of income, incremental net income or $0.05 of diluted shares. This was a flawless coordinated effort across our treasury accounting, finance, facilities, property and legal teams, and I want to recognize the associates across those groups who work to execute these transactions. Blaine?

Thank you, Joey. Now we will open the floor for questions.

Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. And if at any time your question has been addressed, and you would like to withdraw your question, please press *2. And today's first question will come from Michael Rose with Raymond James. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. Appreciate the color on the fourth quarter NIM. I think I misunderstood slides last night, but good to hear, and I appreciate the color around the sensitivity to forward rates. Can you just give us some underlying assumptions around deposit betas, and then maybe what we should expect just on as we move in beyond the fourth quarter, where you will get the big benefit just given the competitive pressures on both loans and deposits?

Sure. The beta that we are assuming assumes a full year of rate movement So typically, that will work out into total deposit of around 40 basis points. Our CDs, we do have a lag effect, which takes about 6 months for that to eventually follow through the rate increase and our interest bearing transaction deposits as I have spoken to in my comments, we have not changed standard pricing They are lagging current rate and the balances are evolving as expected. So we are monitoring those very closely. But essentially, that is the data that I am expecting. Barry, any comments on the loans yields or what is happening?

No, I think the loan yields remain competitive in all categories, whether it is C and I or CRE. We are continuing to be disciplined and make sure that if we are, if it is a thinner priced credit, it is for the right borrowers. And but that it is more of the same, Duane.

Okay.

that is helpful. And then just as it relates to loans, a little bit of shrinkage this quarter. You kind of reiterated the guide implies a pretty big step up in the fourth quarter. I guess maybe can you just kind of talk about pipelines and maybe what you see kind of driving that reversal? In a somewhat material way in the fourth quarter? Thanks.

Sure, Michael. This is Barry. As I mentioned, the pipeline of our approved commitment is just a little less than $1 billion as of ninethirty. And, the pull through on that remains to be the same, but typically, for us, when we go through all the steps of getting something formally approved, The close rate is very strong there, and stronger pipeline than we have seen historically. I do think we have got a lot of opportunities with live deals that we approved that will come to fruition during the fourth quarter. And we are betting a tremendous number of deals. Michael, every deal that. Before our relationship managers and portfolio managers spend a lot of time on it, We do vet deals. And it gives us, from a credit perspective, an opportunity to understand where the opportunities are and we need to green light those deals and move them forward or it is something we may need some additional information on. But I will say we have been extremely busy the last 3, probably the last 3 months vetting deals, more so than normal, both CRE but as well as C and I, both working capital, non working capital. It takes a little while for those deals to fully mature. And to get them approved and then to get them closed and booked. We do feel like there is a lot of momentum going into fourth quarter. That will come to fruition then. So we are encouraged across the board by the activities. I mentioned. I mean, just on the public finance side, the payoff we have received with the new facility we have put in place, there is an additional $110 million worth of funding that we did not have available previously. So there is quite a few things that we feel very encouraged about for Q4. And then going into 2027, but specifically for Q4.

I appreciate all the color, Barry. I will step back. Thanks, everyone. Thanks, Michael.

The next question will come from Stephen Scouten with Piper Sandler. Please go ahead.

Yes. Thanks, everyone. Maybe just drilling down a little bit more, Barry, on that pipeline. I think you gave $1 billion figure of the of the current, approved pipeline. And I do not remember if you have given if you gave that number last quarter, but could you remind us how that compared maybe kind of quarter over quarter and just what you expect again from a payoff perspective?

Sure, Stephen. From a quarter over quarter, it is a little hard to say only because we have changed our some of our methodologies and that we are evaluating the pipeline. So it is a little hard to compare previous periods We do feel like that it is a is stronger pipeline than we have had historically. And we have got, a number of deals that are far along in the process and that we feel like the probability of closing is much higher. The second half of your question, remind me.

Oh, just kinda any expectations for payoff? Relative to last quarter? And I know a lot of that was unexpected payoffs, but just kind of you see is more scheduled, I suppose?

Yes. And on the schedule side, it is in line with what we have had in the previous 3 quarters. For Q4. I would say also that unexpected, while it does in and of itself indicate that we were not planning on it, obviously, unexpected happens every quarter. We just do not know which ones they are. They are not maturities that we would expect to see leave us based upon the feedback from the borrower their situations where the borrower's circumstances have changed, So we do have some unexpected every quarter But if we can just speak to third quarter, it is about $214 million and we will have to wait and see what we experienced in the fourth quarter. Typically, there is a lot of things that end up pushing into the next year when you get to the fourth quarter. So have to just wait and see how that plays out. But we are very encouraged by the activity we have going and the stage at which it is relative to being able to get the loan closed and booked and funded and booked. All in Q4.

Stephen, I will add real quick. This is Duane. Just to know, that pipeline is significantly broader than we have experienced. I think we are for several quarters, periods, years even, where we were predominantly CRE focused where now we are seeing much broader C and I opportunities and then further equipment finance and municipal. So we are seeing some things now Barry mentioned in his prior comments that are very encouraging along the loan diversity perspective. So, good news on that front.

Okay, great. And maybe just 1 more around loan growth. I mean, with the mid single digit guide kind of year to date, I think like Michael said, it would be a pretty heavy lift here. In the fourth quarter, but you sound confident. But kind of year to date, what do you think maybe has been slightly behind schedule with what you would have seen at the beginning of the year? Is that competitive factors, pricing, payoff levels, maybe a little bit of everything, I assume. But, if you can kind of speak to what is been maybe the biggest surprise relative to what, you know, you would have hoped could happen at the high end.

Stephen, I think it is a combination of all that you mentioned. I mean, we are seeing a little bit more in the way of payoffs than we might have expected. But having said that, it is a very competitive landscape. And, whether it is whether you are talking about CRE, or whether you are talking about C and I working capital, nonworking capital, we have not seen a lot of new public opportunities We do have quite a few of those in front of us today. But, I think it is a matter of just the need has arisen for the, some of the municipalities. And other entities that fit inside that public finance category. So we are seeing some opportunities there. But here again, on the public side, everything pretty much. there is a lot of it is bid. So it is. You know, you do not. You have not wanted till you have wanted. And, and so it is 1 of those things where you just got to be very competitive from the beginning And, and then we do have some situations where, due to some long term relationships, we are able to have a negotiated deal as opposed to a bid deal. But we are seeing some opportunities there. That we have not seen in the prior quarter. So public finance has obviously been slower through the first 3 quarters than we would have anticipated. I think C and I and CRE it is a function of competitiveness and the number of players pursuing the opportunities And in some cases, where competitors are willing to go to win an opportunity. So we are going to have to remain disciplined and be selective for when we get very, very thin on pricing. But I am encouraged by the level of our pipeline of approved deals waiting to be closed. Funded, and so we are encouraged by what we see at this point for Q4.

Okay. And maybe just 1 last for me. On the on deposit beta you referenced potentially, and Joey was like 40%, I believe. Is that, I guess, total deposit beta that you are thinking about? It looks like maybe on the first hike through Q4, you would be at like 55% on interest bearing. So is that you know, kind of the right way to think about it on an interest bearing perspective?

Yes. Okay.

And is that just kind of standard, or is there any mix shift dynamic affecting that as well?

We do not have mix shift right now in our forecast. But there could be risk with that. Truly. But right now in our forecast modeling, we do not have that mix.

Okay. Perfect. Thanks for the time this morning. Thank you.

The next question will come from Freddie Strickland with Hovde Group. Please go ahead.

Hey, good morning, gentlemen. Just wanted to continue on the loan discussion here. I realize there is still a headwind today. and can you kind of talk through a good bit of what you expect near term. but if we continue to see rates go up a little bit, could we see those slowdown given what you have seen historically? Or do you think we will see the same level we have been seeing in the last couple of quarters?

Freddie. This is, Barry. And I would agree with you. We are starting to see that a little bit already where there is there is a little bit of a pause and it is going to-- and there is additional time wanted to evaluate the direction, things may ultimately go from an interest rate perspective. there is also the need for a lot of these projects, especially on the CRE side, projects that always have in almost every real estate deal, there is some delays during construction. That result in slower stabilization. The project is going according to plan from the standpoint of they are getting the rents they expect. And the occupancy is coming as quickly as they anticipated. But it just started later. And therefore, there is oftentimes a need for another 6 months to 12 months that is just normal business. And that is occurring. And then you do have the situation with a little bit of higher rates and the potential for higher rates then you do have we do have projects that are staying with us. Of course, we are actively pursuing those opportunities. These are projects where it is been constructed, it is stabilized or stabilizing. it is well past 1-to-1. Debt service coverage on P and I basis and performing just not fully baked from the standpoint of getting the maximum value out of the project when you are selling it into the marketplace. But we are very excited about those projects staying with us. They are well priced. Relative to the new deals we are looking at today. And for the most part, we are not necessarily talking about the need to reprice them for that extra 12 months, 18 months. Where they will not stay. So and they are all variable rates. So as these rates bump up, and the pricing stays the same, we get the benefit of the index moving up. So we are encouraged that this, that the little bit higher rates are or the belief that there is going to be higher rates will allow these projects to stay a little longer than we anticipated. That will help us some on the runoff and the need for production to cover the runoff. Thanks, Barry.

that is really helpful color. And just 1 more from me on just M&A environment. Has the return of higher rates and some uncertainty increased or decreased the amount of conversations there? And what are you seeing from smaller banks?

I would say in general, about the same, not a lot of change. And I think as we have mentioned in our prior quarterly calls, I mean, do believe scale is going to be critically important moving forward. And so we remain very interested. And there are conversations ongoing across all spectrums of sizes So I really have not seen much change. I do think the interest rate environment could impact things a little bit, but at the end of the I do believe the push to scale is really continuing.

Alright. Great. Thanks for taking my questions. I will step back. Thank you.

The next question will come from Will Jones with KBW. Please go ahead.

Yeah. Hey. Great. Thanks, guys. Good morning. Morning, Will.

Hey, so I wanted to just ask if I kind of put all the moving pieces together, a higher margin next quarter, you give us the expense guide, which is roughly unchanged. Between those 2 dynamics, it feels like still a good opportunity for operating leverage into 2027. I guess, just is that a fair comment to say, Duane? Is that kind of how you see things? And then within that, you know, we kind of sit at this high level of profitability, following the last insurance trade and bond trade You know, we now have the HTM restructure here. What do you feel like the ultimate upside is to profitability, kind of putting all these moving pieces together? Thank you. On the operating leverage, the response is yes. I do see there is upside opportunity really across all avenues in terms of what is driving the net interest margin, the dynamics of our deposit base and funding there. Net interest, noninterest revenue items as well. So I do see that the opportunity for upside potential there, and I will turn it over to Duane.

Yes. And I would just conclude with basically what we have said all along. Focused, intense, organic growth, We have talked about hiring and things we are doing in our production staffs across our franchise. So we are focused on organic key market growth In Q3 2026, we hired 18 to 19 new production professionals across the system Some of those were replacements or upgrades. But continued focus on organic growth is going to drive it. And I do think selective M&A and, like I said a second ago, I think scale and factors that impact scale is going to be critically important moving forward.

Yeah. Great. Thanks, guys. We have already talked about a lot here. So that is all for me, appreciate that color. Thank you.

The next question will come from Christopher Marinac with Brean Research. Please go ahead.

Hey, thanks. Good morning. Barry, can you remind us on the stress testing process that you have been doing for a while on the debt service coverage for real estate? And then how does it change given what is happened with rates the last couple of months, let alone what the look forward is?

Sure. I would be glad to. Christopher. We do our stress testing process is-- there is bottoms up we do annually. And the top down we do twice a year. 1 on the on-cycle and 1 is of the off-cycle. So we are constantly doing all of those, especially on the top down, we are stressing interest rates throughout that process. And evaluating what level of stress it is applying to the portfolio And then we are obviously passing that information over to our treasury group where it is incorporated into our enterprise wide stress testing On a credit only basis, we have an annual review process to where we look at approximately 50% of our credits through the annual review process. and we get another 30% coverage to get us between 75-80% of the total book from what we touch every through modification of renewal and extension of 1 type or another. And so we get a lot of opportunities to touch those credits and reevaluate how they are doing in the interest rate environment. When we are underwriting, we do have a--we do have a underwriting rate that we use that is different and apart from the actual rate or the treasury plus for 10-year Treasury plus spread on all of our covenant testing, that we established, Christopher, we use the higher of either the artificial underwriting rate that we have established that we monitor with our peers to make sure we are all kind of in line with how we are underwriting these credits. Trying to give ourselves as much cushion as we can between the actual rate and the artificial rate that we established for underwriting But when we establish covenants, we are usually going to look at the higher of the 3: the actual rate for the test, the underwriting rate that was used at the time, it was obviously underwritten And then some type of 10-year Treasury plus the spread of 200 to 250 basis points just so as rates do move and we are not-- we are looking at obviously, they are making the payments based upon the actual rate. But we want to make sure we are quickly deducing how is the credit going to perform in the new environment, if, in fact, it has to be refinanced at some point, we do not want to be caught surprised by the impact of the higher rates on the credit, even though it may be a year or 2 away from that at the time. And if it is not going to work, or not going to work as well, having those conversations with the borrowers about rightsizing what, you know, interest reserve carry we need to establish to make sure that asset has to live in a higher rate environment once it is refinanced, then, the project works. And works well. I hope that answers your question.

No, it does. And then the increased pipeline that you have, those deals have been vetted on this basis, I presume. so they have, right.

Yes. Everything about what I just mentioned is what we do on a daily basis. And they are all vetted based upon what we believe the interest rate environment is today. Where we think it is heading, and determining how much cushion there is in deals in today's environment Obviously, with when rates are lower, there is more opportunity for cushion in the deals and the deals still work. But the way you address that is through additional equity on the front end and that is what we have to require. If we believe the deal is too tight, the only way to if we are going to move forward with the deal, the only way to protect ourselves is to require more equity on the front end And we do that on a case by case basis.

Got it. With the larger pipeline, are you doing larger deals? Or is your deal size still the same as in the past?

Yes. Our deal sizes have not changed, Christopher, on what we are doing. Day in and day out. If you say around the edges, do we do an additional $1 million or 2 on a deal because there is reasons that are advantageous for Trustmark to do so. For example, in CRE world, if we need to do a couple of million more to keep it a 2-bank deal, which is much more manageable. it is 100% voting rights. And we like the partner that we are we are doing business with, but they are full and they are a larger bank, and they are full then we will probably we will do that additional couple of million the $2 million or $3 million more to keep it a 2-bank deal so that we do not get cut back more than we want to be then we do not have to introduce a smaller bank third party that we really do not want to deal with in case the project has bumps in the road it is a little easier to build consensus with 2 banks, especially with the larger bank being typically more rational. And less capital constrained, So for all those reasons, we do make adjustments around the edges of what we say we do hard and fast. But, we have not made any changes to our approach in order to generate more activity.

Great. Again, Barry. I appreciate it. And thanks for hosting us this morning. Thank you.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Duane Arthur Dewey for any closing remarks. Please go ahead.

Well, thank you again for joining us this morning. We appreciate everybody on the call and we look forward to catching back up the end of the fourth quarter. We believe the third quarter was a solid 1 and 1 that positions us well for the future. And we look to catch up in January. Thank you.

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