TRUSTMARK CORP Q3 FY2024 earnings call

• Net income totaled $51.3 million, with diluted earnings per share of $0.84; net income from adjusted continuing operations grew 26.7% and the efficiency ratio improved 282 bps.
• Restructuring of the investment securities portfolio contributed to a 9.5% increase in net interest income in Q3.
• Loans held for investment were flat QoQ but up YoY; deposits had targeted runoff of public and brokered deposits but solid growth otherwise.
• Credit quality: Net charge-offs totaled $4.7 million, 0.14% of average loans; allowance for credit losses was 1.21% of loans held for investment.

Loans held for investment were relatively flat, decreasing $55 million quarter-over-quarter (QoQ) and increasing $290 million year-over-year (YoY). Deposits declined $222 million QoQ, but excluding targeted reductions in public and brokered deposits, deposits increased over $300 million QoQ. Net interest income increased $13.7 million (9.5%) QoQ to $158 million, with the net interest margin expanding 31 basis points (bps) to 3.69%. Non-interest income from adjusted continuing operations totaled $37.6 million in Q3, a decrease of $0.7 million QoQ but an increase of $0.6 million YoY. Non-interest expense increased $4.9 million QoQ, driven by salary merits, incentive accruals, and other real estate (ORE) expense, though year-over-year adjusted continuing operations expenses declined $500,000. Trustmark's capital ratios expanded: tangible equity to tangible assets increased 55 bps to 9.07%, CET1 ratio expanded 38 bps to 11.3%, and total risk-based capital ratio expanded 42 bps to 13.71%. Tangible book value per share was $26.88 at September 30, 2024, up 6.5% QoQ and 32.9% YoY.

• Loans held for investment expected to be up low single digits for full-year 2024.
• Deposits excluding brokered deposits to remain relatively stable; projecting a QoQ decline in deposit costs for Q4 2024 by about 13 bps to 2.09%.
• Net interest income expected to increase mid-single digits in 2024, with net interest margin projected 3.65%-3.70% in the second half of 2024.
• Non-interest income from adjusted continuing operations expected to increase low to mid-single digits; non-interest expense expected unchanged reflecting cost containment.
• Preference for organic loan growth, potential market expansion, M&A, or other corporate purposes; assess share repurchase program based on market and balance sheet.

• Potential deposit runoff and impact on funding costs.
• Interest rate fluctuations affecting net interest margin.
• Credit quality risks, including possible increases in non-accrual loans due to economic conditions.

Q: About margin trends, deposit pricing actions and impact on loan yield.

A: Tom Owens discussed deposit pricing to mitigate floating rate loan coupon pressure, noting the loan portfolio is half floating rate and yield curve steepening helping with loan yield.

Q: Fee and expense guidance.

A: Tom Chambers and Tom Owens discussed adjusted continuing operations non-interest income and expense bases, referencing 2023 figures and noting 2025 guidance not yet provided.

Q: Loans, C&I decline, market expansion.

A: Barry Harvey discussed loan shrinkage due to paydowns, expecting near-term drawdowns; Tom Chambers discussed M&A and organic market expansion in regions like Houston, Birmingham, etc.

Q: Loan yields, NPAs.

A: Tom Owens said loan fees have been steady; Barry Harvey discussed NPAs from two corporate credits, with reserves established based on appraisals.

Q: Interest rate impact on credits, C&I inflows.

A: Barry Harvey said 50 bps rate cut helps but more needed, and no significant C&I inflow drivers noted