Trustmark (TRMK) Q3 Earnings call transcript Oct 23, 2024

Trustmark Corporation, a leading financial institution, recently held its third quarter earnings call, revealing a robust financial performance despite the challenging economic environment. The call, led by Duane Dewey, President and CEO, showcased the company's strategic initiatives and financial health, offering valuable insights into its future prospects.

Strong Fundamentals and Financial Performance

The earnings call highlighted significant progress across the organization, with net income totaling $51.3 million, representing a 26.7% growth in net income from adjusted continuing operations. The efficiency ratio improved by 282 basis points, indicating a marked improvement in profitability. The restructuring of the investment securities portfolio was a major contributor to the 9.5% increase in net interest income in the third quarter. Trustmark's capital ratios also expanded, with tangible equity to tangible assets increasing to 9.07%.

Loan Portfolio and Credit Quality

Loans held for investment remained relatively flat, decreasing $55 million linked-quarter, but increased $290 million year-over-year. Deposits decreased $222 million linked-quarter, primarily due to targeted reductions in public and brokered deposits. However, the company reported growth in net interest income, which increased $13.7 million or 9.5% linked-quarter, reflecting the successful restructuring of the investment securities portfolio.

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. The company's loan portfolio remains well diversified, with a significant focus on multifamily loans, Equipment Finance, and 1-4 family mortgages.

Deposits, Net Interest Margin, and Noninterest Income

Trustmark reported a solid quarter for deposit growth, with personal balances and commercial balances increasing 1.9% and 3.5%, respectively. The bank's net interest margin expanded by 31 basis points to 3.69%, reflecting the success of deposit pricing actions taken in the third quarter. Noninterest income from adjusted continuing operations totaled $37.6 million, a decrease of $0.7 million linked-quarter but an increase of $0.6 million year-over-year.

Capital Management and Expenses

The company's capital ratios expanded significantly, with tangible equity to tangible assets increasing by 55 basis points to 9.07%. The common equity Tier 1 ratio expanded by 38 basis points to 11.3%, while the total risk-based capital ratio expanded by 42 basis points to 13.71%. Despite an increase in noninterest expense due to salary merit increases and annual incentive accruals, the company's diligent expense management continues to be a focus.

Outlook and Future Plans

Looking ahead, Trustmark expects loans held for investment to be up low single digits for the full year 2024, with deposits, excluding brokered deposits, remaining relatively stable. The company anticipates 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. Trustmark remains focused on organic loan growth and potential market expansion, with a preference for M&A or other general corporate purposes depending on market conditions.

Conclusion

Trustmark Corporation's third quarter earnings call underscored its resilience and strategic focus in the face of economic challenges. The company's strong financial performance, diversified loan portfolio, and strategic initiatives position it well for future growth. As Trustmark looks forward to a promising fourth quarter and beyond, investors and stakeholders can have confidence in its ability to navigate the evolving financial landscape.