Trustmark Q3 2026 Earnings Call Transcript

Trustmark (NASDAQ:TRMK) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Trustmark Corporation reported third quarter net income of $58.1 million, or $1 per diluted share, marking a record quarterly operating EPS for the company.

The company executed strategic transactions, including the sale of 34 branch properties with a pre-tax gain of $61.5 million and a securities portfolio repositioning, offsetting a $61.5 million pre-tax loss.

Net interest income grew by $2 million or 1.2% quarter-over-quarter, with a stable net interest margin of 3.84%.

Loan production trends were solid, though overall loans decreased by $43.9 million in the quarter, while deposits grew by $184.3 million.

Trustmark maintained strong credit quality with a net provision for credit losses of $2.3 million and net charge-offs of $1 million.

The company continued its share repurchase program, buying back $20.1 million in shares during the third quarter, and declared a quarterly dividend of $0.25 per share.

Trustmark expects mid-single-digit growth in loans and deposits for the full year 2026, with net interest margin guidance raised to 3.83%-3.87%.

Management remains focused on disciplined capital deployment, organic growth, and potential M&A opportunities.

Full Transcript

OPERATOR

Good morning, ladies and gentlemen, and welcome to the Trustmark Corporation’s third quarter earnings conference call. At this time, all 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 star then one on your touchtone phone, and to withdraw your question, please press star then two. 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.

Joey Rein (Director of Corporate Strategy)

Good morning. Our third quarter earnings release and presentation for today’s call are available in the Investor Relations section of trustmark.com. During this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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’ll turn the call over to Duane Dewey, President and CEO of Trustmark.

Duane Dewey (President and Chief Executive Officer)

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’ll review our performance and outlook and have Barry and Joe 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 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 two strategic, non-routine transactions. We sold 34 branch properties and simultaneously entered into a triple-net lease agreement for each, generating a pre-tax 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 pre-tax 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, or 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 $207.1 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%. Operating 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. Noninterest expense rose $753,000, 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 remains 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 nine months of 2026, we repurchased $60.9 million of common stock for approximately 1.4 million shares. This included $20.1 million, or approximately 428,000 shares, in the third quarter. The Board also declared a quarterly cash dividend of $0.25 per share, payable December 15th to shareholders of record on December 1st. 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 brokered 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 were 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’ll turn it over to Barry for a few comments on loans.

Barry Harvey (Chief Credit and Operations Officer)

Thank you, Duane. And as you know, our balances were down $44 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’re glad to see those leave us. From the C&I perspective, we did experience about $60 million in unexpected payoffs coming from four credits, and on the public finance side we had a slight decline of about $43 million. The good news there is while we did have one 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 ’27.

And on the equipment finance side, we did have a little bit of a slower quarter than we’ve become accustomed to. We do fully expect that 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 a billion dollars. Obviously, not all of those will close, but we do feel very positive about the momentum that we do have at this time. I’d like to turn it over to Joe Bond, our CFO.

Joseph Bond (EVP | Chief Financial Officer)

Thank you, Barry. Let me give a little more color on the deposit. Last quarter, on June 30th, 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 brokered 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 1.7% 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% noninterest-bearing.

We expect that mix to remain relatively stable in our forecast. Importantly, this deposit franchise has been built organically over decades through longstanding 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 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 three months following a rate change, which provides 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 one-year period. On noninterest income, there are two items that are helpful in understanding the linked-quarter comparison. Following the core conversion, approximately $250,000 per month, or roughly $750,000 per quarter, of economics previously reflected in fee income now flows through the net interest margin—a geography change on the income statement and the balance sheet because those products were no longer offered. In addition, the second quarter noninterest income included $1.2 million of partnership distributions that did not repeat this quarter.

Moving over to the sale-leaseback and investment portfolio restructuring, I want to highlight the combined economic effect of two 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 premises impact and taxes—approximately $3.2 million of incremental net income, or 5 cents per diluted share. This was a flawless coordinated effort across our treasury, accounting, finance, facilities, property, and legal teams.

I want to recognize the associates across those groups who worked to execute these transactions.

Joey Rein (Director of Corporate Strategy)

Thank you, Joe. Now we’ll open the floor up for questions.

OPERATOR

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. 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 star then two. And today’s first question will come from Michael Rose with Raymond James. Please go ahead.

Michael Rose (Analyst)

Hey, good morning, guys. Thanks for taking my question. Appreciate the color on the fourth-quarter NIM. I think I misunderstood the 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, you know, deposit betas, you know, and then maybe what we should expect just as we move in beyond the fourth quarter? Will you get the big benefit, you know, just given the competitive pressures on both loans and deposits?

Thanks, guys.

Joseph Bond (EVP | Chief Financial Officer)

Sure. The beta that we’re assuming assumes a full year of rate movement. So typically that will work out into total deposits of around 40 basis points. Our CDs, we do have a lag effect which takes about six months for that to eventually follow through the rate increase, and our interest-bearing transaction deposits—as I’ve spoken to in my comments—we have not changed standard pricing. They’re lagging current rates and the balances are evolving as expected.

So we’re monitoring those very closely. But essentially that’s the betas that I’m expecting. Gary, any comments on the loan yields or what’s happening?

Gary

No, I think the loan yields remain competitive, and in all categories—whether it’s C&I or CRE—we’ll continue to be disciplined and make sure that if it is a thinner-priced credit, it is for the right borrowers, but it’s more of the same, Duane.

Michael Rose (Analyst)

Okay, okay, that’s helpful. And then just as it relates to loans, you know, 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, you know, kind of talk about, you know, pipelines and maybe what you see kind of driving that reversal in a somewhat material way in the fourth quarter? Thanks.

Barry Harvey (Chief Credit and Operations Officer)

Sure. Michael, this is Barry. You know, as I mentioned, the pipeline of our approved commitments is just a little less than a billion dollars as of 9/30, and the pull-through on that remains to be seen. But typically for us, when we go through all the steps of getting something formally approved, the close rate is very strong there. And that’s a stronger pipeline than we’ve seen historically. I do think we’ve got a lot of opportunities with live deals that we approved that will come to fruition during the fourth quarter.

We’re vetting a tremendous number of deals, Michael—every deal—before our relationship managers and portfolio managers spend a lot of time on it. We do vet deals, and it gives us, from the credit perspective, an opportunity to understand where the opportunities are. And we either greenlight those deals and move them forward, or it’s something we may need some additional information on. But I will say we’ve been extremely busy the last three—probably the last three months—vetting deals more so than normal.

Both CRE as well as C&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. But we do feel like there’s a lot of momentum going into fourth quarter that will come to fruition then. So we’re encouraged across the board by the activities, like I mentioned. I mean, just on the public finance side, the payoff we’ve received, but the new facility we’ve put in place—there’s an additional $110 million worth of funding that we didn’t have available previously. So there’s quite a few things that we feel very encouraged about for Q4 and then going into 27, but specifically for Q4.

Michael Rose (Analyst)

I appreciate all the color, Barry. I’ll sit back. Thanks, everyone.

OPERATOR

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

Steven Scouten (Analyst)

Yeah, thanks, everyone. Maybe just drilling down a little bit more, Barry, on that pipeline—I think you gave a billion-dollar figure of the current approved pipeline, and I don’t remember if you’ve given or if you gave that number last quarter—but could you remind us of how that compared maybe kind of quarter over quarter, and just what you expect again from a payoff perspective?

Barry Harvey (Chief Credit and Operations Officer)

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

Steven Scouten (Analyst)

Oh, just kind of any expectations for payoffs relative to last quarter? And I know a lot of that was unexpected payoffs, but just kind of what you see as more scheduled, I suppose.

Barry Harvey (Chief Credit and Operations Officer)

Yeah. And on the scheduled side, it’s in line with what we’ve had in the previous three quarters for Q4. I would say also that, you know, unexpected—while it does in and of itself indicate that we were not planning on it—obviously unexpected happens every quarter. We just don’t know which ones they are. They’re not maturities that we would expect to see leave us based upon the feedback from the borrower. There are situations where the borrower’s circumstances have changed.

So we do have some unexpected every quarter. But we can just speak to third quarter—it’s about $214 million—and we’ll have to wait to see what we experience in the fourth quarter. Typically there’s a lot of things that end up pushing into the next year when you get to the fourth quarter. So we’ll 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 funded, funded and booked, all in Q4.

Duane Dewey (President and Chief Executive Officer)

Steven, I’ll add real quick—this is Duane—just to note that pipeline is significantly broader than we’ve experienced. I think you know where for several quarters, periods, years even, we were predominantly CRE-focused, where now we’re seeing much broader C&I opportunities and then further equipment finance and municipal. So we’re 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.

Steven Scouten (Analyst)

Okay, great. And maybe just one more around loan growth. I mean, with the mid-single-digit guide, you know, kind of year to date, I think like Michael said, it’d 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’s been maybe the biggest surprise relative to what you would have hoped could have happened at the high end.

Barry Harvey (Chief Credit and Operations Officer)

Stephen, I think it’s a combination of all that you mentioned. I mean, we are seeing a little bit more in the way of payoffs than we might would have expected. But having said that, it’s a very competitive landscape, and whether you’re talking about CRE or whether you’re talking about C&I—working capital, non-working capital. We, you know, we haven’t seen a lot of new public opportunities. We do have quite a few of those in front of us today. But I think it’s a matter of just the need has arisen for 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, a lot of it is bid. So it’s, you know, you haven’t won it until you’ve won it, and so it’s one of those things where you just got to be very competitive from the beginning. And then we do have some situations where, due to some long-term relationships, we are able to—it’s a negotiated deal as opposed to a bid deal. But we are seeing some opportunities there that we haven’t seen in the prior quarter.

So public finance has obviously been slower through the first three quarters than we would have anticipated. I think C&I and CRE 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’re 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 that are approved deals waiting to be closed, funded.

And so we’re encouraged by what we see at this point for Q4.

Steven Scouten (Analyst)

Okay. And maybe just one last for me on the deposit beta you referenced—potentially, Joe—it was like 40%. I believe is that, I guess, total deposit beta that you’re thinking about? It looks like maybe on this first hike through 4Q you’d be like 55% interest-bearing. So is that, you know, kind of the right way to think about it on an engineering perspective? Okay. And is that just kind of standard, or is there any mix-shift dynamic affecting that as well?

Joseph Bond (EVP | Chief Financial Officer)

No, we don’t have mix shift right now in our forecast, but there could be risk with that, truly. But right now in our forecast modeling, we don’t have that mix.

Steven Scouten (Analyst)

Okay, perfect. Thanks for the time this morning. Thank you.

OPERATOR

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

Freddie Strickland (Analyst)

Hey, good morning, gentlemen. Just wanted to continue on the loan discussion here, specifically on the payoffs. I realize they’re still a headwind today, and you kind of talked 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 slow down, given what you’ve seen historically, or do you think we’ll see the same level we’ve been seeing the last couple quarters?

Barry Harvey (Chief Credit and Operations Officer)

Penny, this is Barry and I would agree with you. We’re starting to see that a little bit already where there’s a little bit of a pause and there’s additional time wanted to evaluate the direction things may ultimately go from an interest rate perspective. There’s also the need for, you know, a lot of these projects, especially on the CRE side. The projects always have, in almost every real estate deal, some delays during construction that result in slower stabilization.

The project’s going according to plan from the standpoint of if they’re getting the rents they expect and the occupancy is coming as quickly as they anticipated, but it just started later. And therefore there’s oftentimes a need for another six months to 12 months. That’s just normal business, and that’s occurring. And then you do have the situation with a little bit of higher rates and the potential for higher rates. We do have projects that are staying with us. Of course we’re actively pursuing those opportunities. These are projects where it’s been constructed, it’s stabilized or stabilizing, it’s well past a one-to-one debt service coverage on a P&I basis and performing, just not fully baked from the standpoint of getting the maximum value out of the project when you’re selling it into the marketplace.

But we’re very excited about those projects staying with us. They’re well priced relative to the new deals we’re looking at today. And for the most part we’re not necessarily talking about the need to reprice them for that extra 12 months, 18 months where they want to stay, and they’re 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’re encouraged that the little bit higher rates or the belief that there’s 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.

Penny

Thanks, Barry. That’s really helpful color. And just one more from me on the 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?

Duane Dewey (President and Chief Executive Officer)

I’d say in general about the same. Not a lot of change. And I think as we have mentioned in our prior quarterly calls, we 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 haven’t seen much change. I do think the interest rate environment could impact things a little bit. But at the end of the day, I do believe the push to scale is really continuing.

Penny

All right, great. Thanks for taking my questions. I’ll step back.

OPERATOR

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

Will Jones (Analyst)

Yeah, hey, great. Thanks, guys.

Duane Dewey (President and Chief Executive Officer)

Good morning. Good morning, Will.

Will Jones (Analyst)

Hey, so I wanted to just ask, if I kind of put all the moving pieces together, you know, a higher margin next quarter, you give us, you know, the expense guide, which is roughly unchanged. You know, between those two dynamics, it feels like there’s still a good opportunity for operating leverage into 2027. Is that a fair comment to say, Duane? Is that kind of how you see things? And then within that, we kind of sit at this high level of profitability. Following the last insurance trade and bond trade, 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.

Joseph Bond (EVP | Chief Financial Officer)

On the operating leverage, the response is yes, I do see there is upside opportunity really across all avenues in terms of what’s driving the net interest margin, the dynamics of our deposit base and funding there, noninterest revenue items as well. So I do see the opportunity for upside potential there. And I’ll turn it over to Duane.

Duane Dewey (President and Chief Executive Officer)

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

Will Jones (Analyst)

Yeah. Okay, great. Thanks, guys. We’ve already talked about a lot here, so that’s all for me. But appreciate that color.

OPERATOR

Thank you. The next question will come from Christopher Marinak with Breen Capital. Please go ahead.

Christopher Marinak (Analyst)

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

Barry Harvey (Chief Credit and Operations Officer)

Glad to, Chris. You know, our stress testing processes are: there’s bottoms-up we do annually and the top-down we do twice a year, one on the on-cycle and one is the off-cycle. So we are constantly doing all those, especially on the top-down. We are stressing interest rates throughout that process and evaluating what level of stress it’s applying to the portfolio. And then we’re obviously passing that information over to our treasury group where it’s incorporated into our enterprise-wide stress testing.

You know, on a credit-only basis we have an annual review process where we look at approximately 50% of our credits through the annual review process. Then we get another 30% coverage to get us between 75% and 80% of the total book off of what we touch every year through a modification, a renewal, an extension of one type or another. And so we get a lot of opportunities to touch those credits and reevaluate how they’re doing in the interest rate environment.

When we’re underwriting, we do have an underwriting rate that we use that’s different apart from the actual rate or, you know, the 10-year Treasury plus a spread. On all of our covenant testing that we establish, Chris, we use the higher of either the artificial underwriting rate that we’ve established (that we monitor with our peers to make sure we’re all kind of in line with how we’re 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), or the actual rate.

But when we establish covenants, we’re usually going to look at the higher of the three: the actual rate from the test, the underwriting rate that was used at the time it was underwritten, and then some type of 10-year Treasury plus a spread of 200 to 250 basis points. Just so as rates do move, we’re not, you know, we’re looking at, obviously they’re making the payments based upon the actual rate, but we want to make sure we’re quickly deducing how the credit is going to perform in the new environment if, in fact, it has to be refinanced at some point. We don’t want to be caught surprised by the impact of the higher rates on the credit even though it may be a year or two away from that at the time.

And if it’s not going to work, or not going to work as well, we’re having those conversations with the borrowers about right-sizing what interest reserve carry that we need to establish to make sure that as it has to live in a higher rate environment once it’s refinanced, then the project works and works well. I hope that answers your question.

Christopher Marinak (Analyst)

And then the increased pipeline that you have, those deals have been vetted on this basis? I presume so.

Barry Harvey (Chief Credit and Operations Officer)

They have, yeah. Everything about what I just mentioned is what we do on a daily basis and they’re all vetted based upon what we believe the interest rate environment is today, where we think it’s heading, and determining how much cushion there is in deals. In today’s environment, obviously when rates are lower, there’s 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’s what we have to require if we believe the deal is too tight. The only way, if we’re going to move forward with the deal, to protect ourselves is to require more equity on the front end. And we do that on a case-by-case basis.

Christopher Marinak (Analyst)

Got it. Thank you for all that color. I appreciate it. With a larger pipeline, are you doing larger deals or is your deal size still the same as in the past?

Barry Harvey (Chief Credit and Operations Officer)

Yeah, our deal sizes have not changed, Chris, on what we’re doing day in and day out. You know, if you say around the edges, do we do an additional million or two on a deal because there’s reasons that are advantageous for Trustmark to do so? For example, in the CRE world, if we need to do a couple million more to keep it a two-bank deal, which is much more manageable and it’s 100% voting rights and we like the partner that we’re doing business with but they’re full, you know, and they’re a larger bank and they’re full, then we’ll do that additional couple million, two or three million dollars more to keep it a two-bank deal so that we don’t get cut back more than we want to be. And then we don’t have to introduce a smaller bank third party that we really don’t want to deal with in case the project has bumps in the road.

It’s a little easier to build consensus with two 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’ve not made any changes to our approach in order to generate more activity.

Christopher Marinak (Analyst)

Great. Thanks again, Barry. I appreciate it. And thanks for hosting us this morning.

OPERATOR

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

Duane Dewey (President and Chief Executive Officer)

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

OPERATOR

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

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.