- Reported Earnings: $73.8 million or $1.20 per diluted share.
- Adjusted Earnings from Continuing Operations: $40.5 million or $0.66 per diluted share.
- After-Tax Gain on Sale of Fisher Brown Bottrell Insurance: $171.2 million.
- Loss on Sale of AFS Securities: $182.8 million.
- After-Tax Loss on Mortgage Loan Sale: $10.1 million.
- After-Tax Gain from Visa Share Exchange: $6 million.
- Loans Held for Investment: Increased $98 million linked-quarter, $541 million year-over-year.
- Deposit Growth: Increased $124 million linked-quarter, $549 million year-over-year.
- Net Interest Income: Increased $8 million or 6% linked-quarter to $144 million.
- Net Interest Margin: Expanded 17 basis points to 3.38%.
- Revenue from Continuing Operations: Increased 4.1% linked-quarter.
- Noninterest Income from Continuing Operations: Represented 21.3% of total revenue.
- Noninterest Expense: Declined 1.1% linked-quarter.
- Nonaccrual Loans: Declined 55%.
- Net Charge-Offs: $3 million, representing 9 basis points of average loans.
- Allowance for Credit Losses: Represented 1.18% of loans held for investment and 840% of nonaccrual loans.
- Tangible Equity to Tangible Assets: Increased 105 basis points to 8.52%.
- CET1 Ratio: Expanded 80 basis points to 10.92%.
- Total Risk-Based Capital: Expanded 87 basis points to 13.29%.
- Deposits: Totaled $15.5 billion at June 30, increased $124 million linked-quarter, $549 million year-over-year.
- Cost of Interest-Bearing Deposits: Increased by one basis point to 2.75%.
- Noninterest Income from Adjusted Continuing Operations: $38.2 million, a $1.1 million linked-quarter decrease.
- Noninterest Expense: $118.3 million, a linked-quarter decrease of $1.3 million or 1.1%.
- Commit Equity Tier 1 Ratio: 10.92%, a linked-quarter increase of 80 basis points.
- Total Risk-Based Capital Ratio: 13.29%, a linked-quarter increase of 87 basis points.
Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Trustmark Corp (TRMK, Financial) completed the sale of Fisher Brown Bottrell Insurance, resulting in an after-tax gain of $171.2 million.
- The company sold $1.6 billion of AFS securities with a low yield and purchased $1.4 billion of higher-yielding AFS securities, significantly boosting net interest margin.
- Nonaccrual loans declined by 55% due to the sale of delinquent mortgage loans, improving the overall risk profile.
- Trustmark Corp (TRMK) achieved a linked-quarter increase in net interest income by $8 million, driven by higher loan yields and securities portfolio restructuring.
- Deposits grew by $124 million linked-quarter and $549 million year-over-year, demonstrating strong deposit base growth.
Negative Points
- The sale of AFS securities resulted in a significant loss of $182.8 million.
- The mortgage loan sale led to an after-tax loss of $10.1 million.
- Noninterest income from continuing operations decreased by $1.1 million linked-quarter due to negative net hedge ineffectiveness.
- Provision for credit losses for loans held for investment was $23.3 million, driven by loan growth and risk rate migration.
- The cost of interest-bearing deposits increased, with a projected further rise in the third quarter, impacting overall deposit costs.
Q & A Highlights
Q: Can you provide more details on the expected expense growth for the second half of the year?
A: (Duane Dewey, President and CEO) Yes, we expect a slight increase in expenses in the second half of the year, primarily due to merit increases that were delayed to July. This will result in a low-single digit growth in expenses. (George Chambers, Principal Accounting Officer) The merit increases are the main driver for the higher expenses in the second half.
Q: Regarding the CRE portfolio, was the increase in reserves due to negative migration in special mentioned or classified loans?
A: (Robert Harvey, Chief Credit and Operations Officer) Yes, the increase in reserves was driven by risk rate migration, particularly in special mention and substandard categories. This is a result of the higher rate environment affecting loans made during the low-rate period of 2022 and 2023.
Q: Can you explain the higher deposit cost guidance for the third quarter?
A: (Thomas Owens, CFO) The higher deposit cost guidance is due to actions taken in the first quarter to rationalize deposit costs, which led to more deposit mix change than expected. We pivoted away from these actions in mid-March, resulting in a normalization of deposit costs.
Q: What is the outlook for capital deployment, particularly regarding M&A activities?
A: (Duane Dewey, President and CEO) We are seeing increased M&A activity and discussions in our market. While we focused on organic growth and other priorities this quarter, we plan to consider M&A opportunities more seriously moving into 2025.
Q: What is the current state of criticized or classified loan balances?
A: (Robert Harvey, Chief Credit and Operations Officer) We do not report these balances in our earnings, but they will be available in the call report. The increase in criticized or classified loans is mainly due to project delays and the need for additional support from guarantors.
Q: How do you view the loss content in the CRE portfolio?
A: (Robert Harvey, Chief Credit and Operations Officer) The loss content remains low. The increase in special mention loans is mainly due to project delays and the need for additional support. We do not see a concerning trend in NPAs or NPLs.
Q: Can you provide more details on the actions taken to rationalize deposit costs?
A: (Thomas Owens, CFO) Early in the first quarter, we took actions to rationalize deposit costs, particularly for maturing promotional CDs and non-maturity products. These actions led to more deposit mix change than expected, so we pivoted away from them in mid-March.
Q: What is the impact of the securities portfolio restructuring on net interest margin?
A: (Thomas Owens, CFO) The restructuring of the securities portfolio, completed in June, is expected to increase the net interest margin to 3.55% to 3.60% in the second half of 2024. This was achieved by extending the effective duration and improving the stability of cash flows.
Q: How do you expect the provision for credit losses to trend in the second half of the year?
A: (Duane Dewey, President and CEO) The provision for credit losses will depend on credit quality trends, macroeconomic forecasts, and future loan growth. We expect net charge-offs to remain below the industry average based on the current economic outlook.
Q: What are your expectations for noninterest income and expense in the second half of 2024?
A: (Duane Dewey, President and CEO) We expect noninterest income from continuing operations to increase low-single digits compared to the first half of 2024. Noninterest expense from continuing operations is also expected to increase low-single digits in the second half of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
