Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's Second Quarter Earnings Conference Call. As a reminder, this call is being recorded. It is now my pleasure to introduce Mr. Joey Rein, Director of Corporate Strategy at Trustmark.

Good morning. I'd like to remind everyone that a copy of our second quarter earnings release and the slide presentation that we'll be discussing this morning is 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 our other filings with the 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. With me are Tom Owens, our Chief Financial Officer; Barry Harvey, our Chief Credit and Operations Officer; and Tom Chambers, our Chief Accounting Officer. We continued to build momentum in the second quarter as Trustmark's profitability metrics expanded, fueled by loan and deposit growth, solid credit quality, diversified fee income, and disciplined expense management. In our presentation this morning, I will provide a summary of our performance, discuss our forward guidance, and then move to questions. This will reduce the time spent on our comments and allow more time for your questions. Now turning to Slide 3, the financial highlights. From the balance sheet perspective, loans held for investment increased $223 million or 1.7%, linked quarter, and $374.8 million or 2.9% year-to-date. Our linked quarter growth is diversified with 1-4 family mortgage loans, other loans and leases, and commercial and industrial loans leading the way. Our deposit base grew $35 million during the quarter, as growth in noninterest-bearing deposits was offset in part by a decline in interest-bearing deposits. Personal and commercial deposits totaled $13 billion at June 30, an increase of $103.8 million or 0.8% from the prior quarter. Our cost of total deposits in the second quarter was 1.8%, a decline of 3 basis points linked quarter. Trustmark reported net income in the second quarter of $55.8 million, representing fully diluted EPS of $0.92 a share, up 4.5% from the prior quarter. This level of earnings resulted in a return on average assets of 1.21% and a return on average tangible equity of 13.13% in the second quarter. Net interest income expanded 4.3% to $161.4 million, which produced a net interest margin of 3.81%, an increase of 6 basis points from the prior quarter. Noninterest income totaled $39.9 million, excluding the gain on a sale of a bank facility in the first quarter and a net loss on the sale of bank facilities in the second quarter, noninterest income was unchanged linked quarter. Disciplined expense management continues to be a priority. Noninterest expense increased $1.1 million or 0.9%, linked quarter, which follows a full year decline in 2024 as well as a decline in the first quarter of 2025. Salaries and employee benefits and equipment expense were lower, linked quarter, while services and fees increased, reflecting higher professional fees. Credit quality remained solid with some improvement. Nonperforming assets declined $5 million or 5.3%, linked quarter. Net charge-offs were $4.1 million, including 3 individually analyzed credits totaling $2.7 million, which were reserved for in prior periods. Net charge-offs represented 12 basis points of average loans in the second quarter. The net provision for credit losses was $4.7 million, and the allowance for credit losses represented 1.25% of loans held for investment. Again, very solid performance. From a capital management perspective, each of our capital ratios increased during the quarter. The CET1 ratio expanded 7 basis points to 11.7%, while our total risk-based capital ratio increased 5 basis points to 14.15%. During the quarter, we repurchased $11 million of Trustmark common stock. In the first 6 months of the year, we have repurchased $26 million of common stock. We have a remaining $74 million in repurchase authority for the year. This program continues to be subject to market conditions and management discretion. Tangible book value per share was $28.74 at June 30, up 3.5% linked quarter and 13.9% year-over-year. The Board also declared a quarterly cash dividend of $0.24 per share, payable September 15 to shareholders of record on September 1. Now let's focus on our forward-looking guidance for the year, which is on Page 15 of the deck. As you can see, we are making positive revisions and affirming our previously provided full-year 2025 expectations in all other areas. Although we are monitoring the impact of tariffs and other administrative policies on our customer base, interest rates, and credit-related issues, the situation continues to evolve, and we've not seen a significant impact at this point. We expect loans held for investment to increase mid-single digits for the full year. This is revised upward from our previous guidance of low single-digit growth. We affirm our guidance of low single-digit growth in deposits, excluding brokered deposits for the full year '25. There is no change in guidance regarding securities, as they are expected to remain stable as we continue to reinvest cash flows. We've tightened our anticipated range of net interest margin for full year 2025. The range is now 3.77% to 3.83% for the full year compared to our prior guidance of 3.75% to 3.85%. We've revised our expectations for net interest income to increase high-single digits in 2025. Our previous guidance was an increase of mid- to high-single digits. From a credit perspective, the provision for credit losses, including unfunded commitments is expected to continue to trend lower when compared to full year '24. This is a positive revision from our previous guidance for the provision to remain stable. There is no change in our noninterest income and noninterest expense guidance for the full year 2025. We will continue our disciplined approach to capital deployment with a preference for organic loan growth, potential market expansion, and M&A or other general corporate purposes depending on market conditions. As noted earlier, we do have remaining availability in our Board-authorized share repurchase program that we'll consider opportunistically. So with that summary and overview, I'd like to open the floor up to questions.

Our first question comes from Catherine Mealor with KBW.

It was nice to see the increase in your growth guide back up to mid-single digit. Can you talk a little bit about what's driving that? Is it more about the fact that you're seeing less paydowns or better origination growth?

Catherine, this is Barry. It's a combination of things. Our production really in Q4 and the first half of this year in non-CRE categories has been very good. And so we're seeing more activity in those non-CRE categories. Within CRE, we're seeing good solid production, good solid fundings like we have historically. And then to your other point, as it relates to delays and payoffs, we looked at this quarter at the first half of the year at what was scheduled maturities for our CRE book, and about 50-plus percent of the scheduled maturities have pushed out. For the first half of the year, they either pushed out to the second half of this year or they pushed out into '26 and '27 with extensions. And so we are seeing that occur, and we're pleased to see that because it helps things be able to smooth out a little bit. But also, I think it's very important to note that in non-CRE categories, we are seeing good growth that we may not have always seen previously to the same extent we are now. So that's very encouraging.

Great. And maybe just taking a step back, a bigger picture question. Your profitability has continued to move higher really throughout the past 1.5 years, and you're now at a 1.2% ROA, 13% ROTCE. Any thoughts on just goals or where you think that's going to? A lot of it's been just for margin expansion. So maybe that's kind of a margin question if you think there's more margin expansion within that. But just curious if you think there's still profitability improvement ahead for us.

So Catherine, this is Tom Owens. I'll start. I think that, yes, there is upside going forward in terms of profitability. I think a combination of continuing to drive operating leverage and growing the balance sheet, and I think the potential for some continued NIM expansion going forward will continue to drive higher ROA. The question in terms of ROTCE, I think it's very much going to be a function of how we manage capital. We've been very pleased with the capital story. Our higher run-rate profitability has allowed us to support pretty solid loan growth at the same time that we're deploying capital via repurchase while simultaneously continuing to drive pretty meaningful linked quarter accretion in our capital ratios. And so I think it's reasonable to assume that we'll continue in this range of $10 million to $15 million a quarter in terms of share repurchase here in '25. I think as those capital ratios continue to accrete as we get into '26, that's sort of a headwind to return on tangible common equity, right, the build in capital. And so we talk about the strategic optionality that we have now with the very favorable circumstances that we find ourselves in. And so we're going to have some important strategic decisions to make going forward in terms of how we manage capital.

Catherine, this is Duane. Looking back 18 months, our FIT2GROW initiatives and emphasis on restructuring and expense management have been significant. The outlook for 2024 shows an actual decline in expenses, and the first half appears quite strong. There are some developments in the second quarter, such as merit increases in the second half of the year. However, our careful focus on expenses has been beneficial. Overall, the results are quite revealing.

Our next question comes from Tim Mitchell with Raymond James.

Just wanted to start on the NIM guidance. And it's obviously good to see you raise it. But just curious...

Sorry, we couldn't hear your comments clearly.

I'm sorry, can you hear me now?

Yes. Yes.

Sorry about that. Just on the NIM and the NII outlook, just curious, any rate cut assumptions underlying that? And then within that, what would take you to kind of the top end versus lower end of the NIM range?

Sure. This is Tom Owens. Thanks for the question. So in our baseline forecast, which reflects market implied forwards, we do have a Fed rate cut in September and December of this year. So the December one won't be so impactful on net interest margin this year. And it remains to be seen, obviously, whether the Fed does cut in September or not. I mean, the last I looked at market implied forwards, it's greater than a 50-50 probability, but certainly not a high probability yet at this point. We are slightly asset-sensitive. And so to the extent that the Fed does not cut, and we've talked on prior calls about the ongoing repricing, the tailwind we have to net interest margin from the ongoing repricing of fixed-rate loans and securities, that is helpful. That should continue to drive modest linked quarter increases in net interest margin. And to the extent that the Fed does cut, obviously, we'd be reacting with deposit cuts to rates paid on deposits with the objective of defending our net interest margin. So we feel like we're in a good place in terms of the guidance that we've put out there really from the start of the year. And I think we're at 3.78% year-to-date and feel good about the guidance for the remainder of the year.

Okay. Great. And then just as a follow-up, just curious your updated thoughts. Obviously, we've seen some more M&A activity here in the past couple of weeks, and a lot of banks are talking about hiring and organic growth via bringing on new lenders and such. So just kind of curious your thoughts on whether you favor one of those strategies or just kind of your updated thoughts on growing through those means?

This is Duane. I can confirm that we are concentrating on the growth markets we currently serve, which include locations like Houston, Texas, Birmingham, Atlanta, South Alabama, the Panhandle of Florida, and our home base of Jackson, Mississippi. We are actively recruiting and seeking talent in various areas, a crucial aspect of our strategic focus that drives organic growth. Additionally, the M&A activity has notably increased, with numerous discussions taking place across the industry, not just at Trustmark. We are interested in M&A and will approach it with focus and caution, but we are eager to participate.

Our next question comes from Christopher Marinac with Janney.

I want to follow up on the M&A question only from the perspective of as you have other acquisitions like what we saw in Texas last week, does that change your kind of partner program with the preferred banks you partner with? Could that widen the lens as we see other changes around you?

I don't know, Chris, I'm not sure it changes a whole lot. I mean, Texas is a very attractive market. We are active and have a presence in the Texas market. We both bank and have direct banking activities in Houston, but we also have a lot of other credit exposure, etc., throughout the state. That's a very attractive market to us and have for a time, and now probably are in the best position to consider optionality there. But that does not preclude us from looking at other parts of our contiguous markets and markets that are very significant high-growth markets that present opportunity for us in all of our different lines of business. So I think across the board, Texas is very interesting, but the rest of our markets are equally interesting as well.

Okay. Great. That's helpful, Duane. And just a quick credit question as it pertains to the kind of the positive revision that we saw in the guide. Does that have any implications on the reserve? Or is it more just about the quarterly amount from the provision expense?

Chris, this is Barry. It was hard to hear your question, but were you asking specifically about the provision for this quarter versus going forward?

It was more about how the reserve and do you have changes in the big picture to reserve as a result of this small revision we saw. Is there any relief ahead as you look out to how the reserve is comprised?

Yes, we are currently at a reserve of 1.25%, slightly down from 1.26% in the previous quarter. We anticipate that provisioning will remain consistent with what we've observed in the first half of this year. We have noticed a decrease in unfunded commitments, down about $187 million this year, which means less reserving needed for contingent liabilities. On the funded side, we continue to see significant provisioning. Looking ahead, we expect conditions to be similar to the first half of the year, which we find encouraging. This quarter, we experienced good loan growth that necessitated provisioning. Some economic factors impacting our quantitative forecasting models have weakened but what significantly lowered our provisioning this quarter was a notable reduction in criticized loans by about $71 million and classified loans by approximately $40 million. We are pleased with these reductions and also with the fact that $75 million worth of non-pass credits were upgraded to pass. This shows that we've effectively returned problem credits to the pass category while maintaining strong earning assets. This quarter was pivotal for us as criticized and classified loans had increased for many banks, especially those in commercial real estate due to rising interest rates. However, we saw a leveling out in the first quarter and a meaningful reduction this quarter. The upgrades from non-pass to pass help support loan growth as well. Overall, we are satisfied with the results and the reasons behind our lower provisioning this quarter.

Great. That's really helpful background. Tom, just a quick question for you on the tax rate. Is the tax rate still about this level that we saw in the past quarter?

Yes, this is Tom Chambers. If you're looking at our year-to-date tax rate through the first 6 months, you're looking at an 18.4% effective tax rate. And looking forward, we believe that our year-end effective tax rate will be in that range of about, I'd say, 18.3% to 18.5%. Of course, that's driven by pretax income, a forecasted pretax income. So I think we'll be in that level of range.

Our next question comes from Feddie Strickland with Hovde Group.

I was just hoping you could talk through the drivers of rising noninterest income. Is it better wealth revenues that's really the driver, potentially better mortgage or sort of all of the above?

I believe it's all of the above. The impacts across each of the mentioned segments are not dramatic. Wealth management, of course, benefits from the overall increase in the stock market, which helps assets under management. This is a fee-based business, making it a positive factor. Additionally, we have a substantial brokerage business that is also positively influenced by the improving financial markets. Another noteworthy change for us is that the mortgage sector continues to show improvement across the board. While it's not at historic levels, there has been progress over the last several quarters. All of these elements contribute to our noninterest income categories.

Understood. And then just going back to the M&A discussion. Can you refresh us just on your rough criteria in terms of size, geography, and maybe earn back in terms of what you're looking for?

Historically, we have operated primarily in the Southeast, including Mississippi, Alabama, and the Florida Panhandle. We also have a loan production office in Atlanta, as well as a presence in Western Tennessee and Houston, Texas. Typically, we have guided our focus towards contiguous markets in these regions. While we skip Louisiana, we find Arkansas, especially Northern Arkansas, to be a very promising and rapidly growing market. Tennessee is similarly expanding quickly, and Texas is strong on its own. Northern Florida and Georgia are also appealing to us. We have viewed these markets as opportunities in the past. In terms of size, we're generally looking at opportunities in the $1 billion to $5 billion range for potential mergers and acquisitions, as we haven't engaged in this area for some time. This range seems appropriate for our re-entry into M&A, but we are also open to other situations that could add value for our shareholders. The volume of discussions and opportunities appears to be increasing across various geographical areas and sizes.

This concludes our question-and-answer session. I would like to turn the conference back over to Duane Dewey for any closing remarks.

Thank you again for participating in our call this morning, and we look forward to continuing to build momentum here into the coming quarters and look forward to our next call at the end of October. Everybody, have a great rest of the week.

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