Trustmark Corporation

Good morning, ladies and gentlemen, and welcome to the Trustmark Corporation's second 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. To withdraw your question, please press star then two. And as a reminder, this call is being recorded. It is now my pleasure to introduce Mr. Jerry Rain, Director of Corporate Strategy at Trustmark. Please go ahead, sir.

Good morning. I'd like to remind everyone that our second quarter earnings release and the presentation that will be discussed on the call this morning are available on the investor relations section of our website at Trustmark.com. During our call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We would like to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties which are outlined in our earnings release and in our other filings with Securities and Exchange Commission. At this time, I'd like to introduce Duane Dewey, President and CEO of Trustmark.

Thank you, Joey, and good morning, everyone. Thank you for joining us this morning. As you know, our longtime CFO Tom Owens was named Chief Operating Officer during the second quarter and Joe Bond joined us as Chief Financial Officer. Both are with me this morning. Also with me are Barry Harvey, our Chief Credit and Operations Officer, and Tom Chambers, our Chief Accounting Officer. Our presentation this morning will provide a summary of our performance and discuss forward guidance before moving to your questions. We continued to make significant progress in accomplishing our strategic initiatives in the second quarter. Loan production remained solid and deposit growth continued at attractive rates, which was reflected in our expanded net interest margin. Years of planning culminated in the second quarter with a successful conversion of our core deposit and related systems to state-of-the-art platforms which will allow us to enhance to customer experience and operate more efficiently. This was a tremendous effort and I'm extremely pleased with the commitment and dedication of our associates to make this transition as seamless as possible for our customers. Now turning to slide three, financial highlights. Our second quarter results reflect continued momentum across the organization with strong financial performance supported by loan and deposit growth expanded net interest income, improved credit quality, and continued investment in technology. Reported net income totaled $63.5 million, representing diluted earnings per share of $1.08. Results in the quarter included two non-routine transactions that collectively increased net income by $6.9 million, or 11 cents per diluted share. During the quarter, we sold a portfolio of mortgage loans that were primarily three payments delinquent and or non-accrual totaling $73.8 million. The reserve on the portfolio exceeded the credit discount, which resulted in an increase in net income of $3.2 million. The sale drove $47.1 million overall reduction in non-performing loans and reduced the risk profile of our one to four family portfolio. We also exchanged Visa shares during the quarter, resulting in a gain of $3.7 million net of taxes. Excluding these two non-routine transactions, operating net income totaled $56.7 million, representing diluted earnings per share of 97 cents. From a balance sheet perspective, loan sale for investment increased $35.1 million or 0.3% during the quarter and $448.2 million or 3.3% year over year. Excluding the mortgage loan sale, loans held for investment increased to $108.9 million or 0.8% linked quarter and $522 million or 3.9% year over year. Barry will elaborate as needed, but I want to mention we had $643 million of new originations in the second quarter and $456 million in line draws. This strong production was offset in part by $318 million in CRE prepayments and $334 million in payoffs. Deposits expanded $358.7 million, or 2.3% linked quarter, and 955.4 million or 6.3% year-over-year. The cost of total deposits declined four basis points linked quarter to 1.59% reflecting the continued strength of our attractive low-cost deposit base. Revenue generation remained solid during the quarter. Total revenue expanded $5.3 million or 2.6% linked quarter to $208.2 million. Net interest income on a fully tax equivalent basis increased $5 million or 3.1% link quarter, producing a net interest margin of 3.84% up three basis points from the prior quarter. Expense management continues to be a focus of the organization. Non-interest expense increased $1.5 million or 1.2% link quarter to $133.7 million. Salaries and employee benefits expense declined $1.3 million or 1.7% link quarter while services and fees increased $1.8 million or 6.5% link quarter primarily reflecting data processing expense and professional fees related to the core deposit conversion and data center migration. From a credit perspective, credit quality improved meaningfully during the quarter. Non-performing assets declined 47.3% to represent 0.39% of the loans held for investment. Net charge-offs totaled $7.5 million for the second quarter, excluding the mortgage loan sale net charge-offs totaled $1.2 million and represented 0.03% of average loans. The net provision for credit losses was $6 million in the second quarter, excluding the $9.2 million release in the provision related to the mortgage sale. Capital levels remain strong and we continue to execute our share repurchase program. During the first six months of 26, we repurchased 40.9 million or approximately 952,000 shares of common stock, including 21.1 million or approximately 475,000 shares in the second quarter. The Board also declared a quarterly cash dividend of 25 cents per share payable September 15 to shareholders of record on September 1, 26. Now let's focus on our 26 full-year expectations, which are shown on slide 15. As we look ahead, we are affirming our previously provided guidance for all full-year 26 categories. We continue to expect loans held for investment to increase in the mid-single digits and deposits excluding broker deposits to increase in the mid-single digits as well. Securities balances are expected to remain stable. From a net interest income perspective, we continue to expect the net interest margin to be in the range of 380 to 385 for the full year 26. Net interest income is expected to increase in the mid-single digits compared to 25. From a credit perspective, we expect total provision for credit losses, including off-balance sheet credit exposure, to normalize, probably more in line with the first quarter than the second quarter. This expectation is consistent with our continued focus on disciplined credit risk management and the improvement in asset quality metrics we reported in the second quarter. Non-interest income is expected to increase in the mid single digits for the full year 26. Non-interest expense is also expected to increase mid single digits, reflecting continued investment in the business while maintaining our focus on expense discipline. Consistent with our prior messaging, we will continue our disciplined approach to capital deployment with a preference for organic loan growth, potential market expansion, M&A, or other general corporate purposes depending on market conditions. So with that, we'll now move to questions.