Key Highlights

  • Diluted EPS was $1.00, up 6.4% from $0.94 a year earlier and down from $1.08 in the second quarter.
  • Net income was $58.1 million, up 2.3% year over year, on revenue of $207.1 million.
  • Net interest margin was 3.84%, flat from the second quarter, with net interest income of $170.6 million.
  • A $61.5 million branch sale-leaseback gain was offset by a $61.5 million securities restructuring loss.
  • The CET1 ratio was 11.98%, and share repurchases totaled $20.1 million in the quarter.

Trustmark Earnings: Did the Third Quarter Hold Up Beneath the One-Time Entries?

Trustmark (NASDAQ:TRMK) reported third-quarter results on Tuesday, October 27, with diluted EPS of $1.00, compared with $1.08 in the second quarter and $0.94 a year earlier. Net income was $58.1 million, up 2.3% year over year and down 8.6% from the prior quarter. The release carried no formal guidance.

Revenue was $207.1 million, up 2.4% year over year, and the efficiency ratio was 63.21% against 61.98%. Return on average tangible equity was 12.72%. Nine-month diluted EPS was $3.03, against $2.74. The estimate used in the screen was $1.00, a surprise of -0.33% as screened.

Trustmark is a bank holding company with $19.11 billion in assets, loans of $13.87 billion and deposits of $16.06 billion.

Trustmark Balance Sheet Moves: What Did the Branch Sale and Bond Restructuring Change?

On September 3, the bank sold 34 branches to affiliates of an investment firm for net cash of $91.7 million and leased them back for 15 years. Initial annual rent is $6.4 million, rising 1.5% a year, and the pre-tax gain was $61.5 million. Net occupancy expense rose 10.7% from the second quarter to $8.6 million, which management tied to higher lease costs.

Separately, Trustmark moved $1.118 billion of held-to-maturity securities to available-for-sale, sold $629.5 million yielding about 1.4% and bought $628.0 million yielding about 5.0%. The pre-tax loss was about $61.5 million, offsetting the lease gain. The added yield of roughly 3.6 percentage points equals about $22 million a year before tax, as calculated.

Higher rates lifted the accumulated other comprehensive loss to $117.7 million from $42.3 million. Tangible book value per share was $30.42, down 2.1% from the prior quarter, which management attributed to that rate effect.

Trustmark Margin, Loans and Credit: Where Are the Pressure Points?

Net interest income on a taxable-equivalent basis was $170.6 million, up 1.2% from the second quarter and 3.2% year over year. The net interest margin was 3.84%, versus 3.83% a year earlier, while total deposit costs rose 8 basis points to 1.67%. Loans held for investment slipped 0.3% to $13.87 billion, with management citing elevated payoffs and a highly competitive lending market.

Deposits were down 0.1% from the second quarter, but rose $184.3 million, or 1.2%, excluding a planned $197.5 million cut in brokered balances. Wealth management income was $11.2 million, up 13.9% year over year.

Credit remained contained. The provision was $2.3 million, net charge-offs were 0.03% of average loans and the allowance was 1.07% of loans. Nonaccrual loans rose $4.7 million to $54.3 million, while nonperforming assets of $57.0 million were down 38.2% from a year ago.

Trustmark Capital Returns: What Comes After the October 28 Earnings Call?

The CET1 ratio was 11.98%, up from 11.87% in the second quarter. Trustmark repurchased about 428,000 shares for $20.1 million in the quarter, under a $100 million authorization running through December 31. The quarterly dividend is $0.25 per share, payable on December 15.

Management hosts its call on Wednesday, October 28, at 8:30 a.m. Central time. Watch for commentary on loan payoffs, deposit costs, occupancy expense after the lease deal, and allowance coverage, which fell to 560.10% of nonaccrual loans from 797.98%.