Second Quarter 2026 Earnings Conference Call

$143 million of new production, just how that compares to the first quarter.

This is very, and it's very, very similar. We're pretty much in line with that, as well as the, you know, the additional funding on the revolvers is very much in line with the first quarter as well. We are very pleased to see some upticks, at least from year end, in the utilization. The bank as a whole, with all revolvers, that would be including HELOCs on the consumer side, are right at 40% utilization. But I will say on the CNI side, the revolvers, the utilization has moved up from 32% at the year end, moved to 37%, now we're at 38% as of the end of the second quarter. So we are very pleased to see that utilization. A lot of activity going on in a few of our markets, and I think a lot of our customers, especially on the construction side, are benefiting from that additional business.

Appreciate that. And then as it relates to kind of back half of the year, obviously, you know, a positive outlook for loan growth, and you talked about kind of an adjusted second quarter number, if you will. So, you know, a lot of banks have had kind of really strong second quarters but have been more cautious, it seems like, for the back half of the year. It doesn't feel like that's where you guys are.

A lot of ours, as I mentioned, it's not so much about production because the pipelines are very good today for us, and our production has been steady from quarter to quarter. It's more about the payoffs and what we see in terms of the scheduled payoffs extending out, and then how much do we see of unanticipated payoffs coming, both of which are coming from the CRE book specifically. And so that phenomena will play itself out, we'll just have to wait and see. But it's not about the engine and the engine working and running hard, that's happening. It's about whether or not we have some more departures than we expect based upon the percent of the maturities that have been leaving us. And then, of course, what we can't see, which is the unexpected, we'll see some of those leave as we do each quarter. That's going to generate or result in our growth, strong or weak, more so than the production. The production is there and very predictable.

Got it. I appreciate that, Collar. And then just visibly the buyback, I think last quarter you talked about $70 million of kind of being low end of what you'd expect for the year. Any changes to the kind of back half of the year outlook on the buyback?

I would say probably closer to, you know, in line with where we've been the first two quarters. That's been right around $20 million per quarter. We continue to see that into the future. But, again, it depends a little bit on what's going on in the market or any other activities that we have. But I would expect that up to equal to where we've been the first two quarters.

Okay, great.

And our next question will come from Catherine Mailer with KBW. Please go ahead. Good morning, Catherine.

So you're now past your big conversion, which I know is a big lift. I just wanted to see if you could give us an update on some efficiencies or benefits that you're going to have now that that's behind you, any upcoming tech or AI investments that you're making and what impact any of that may have on the expense outlook.

And, Catherine, this is Barry. I'll start, and Duane may want to chime in as well. So, you know, from the standpoint of the conversion, I think moving to a supported environment as opposed to a self-supported environment is going to allow us over time to reposition a lot of the jobs that supported our previous deposit system as it did with our previous loan system. And we're going to be shifting some of those jobs into different roles. And then there may be an opportunity to, over time, not have some of the positions. So the application type position where we were actually doing all the maintenance to the system previously, now that we're running an FIS solution on, name it, deposits, teller, sales platform, image system. From that standpoint, we're going to need to determine what our needs are once we're fully settled in, which we will be later this year. And the same is going to be true on the front line side. We did staff up during the second quarter to make sure, first quarter and second quarter, to make sure we had as many people manning the station, if you will, waiting on customers, making sure that we were able to do everything we needed to do during the conversion window. Those things, there's a lot of attrition in that area of the bank already. So if we see that we don't need quite what we've staffed up to to make sure we had more than adequate number of resources in the branches, If that begins to move down, which it can because, like I said, it's a lot of turnover in those positions, then we may be able to decide that we don't need quite as much as we've staffed up to. That would be an efficiency gain as well. And then as far as being able to go in and make adjustments to the system, do things we need to do to drive more business, There's definitely an opportunity for us to go into and establish different pricing mechanisms, whether it be on the deposit side to possibly offer some products and offer some services that we've not been able to previously. It's kind of hard to quantify the value of that today, but we do definitely know that we've been holding off on making some changes on our deposit system that we felt like would be advantageous for us, whether it be getting more customers or getting at a better price. We'll be able to do that now that we have moved to a vendor-supported solution. So we're very excited about that. Duane, is there any comments you want to add to that?

Yeah, I'd like to add. We can't overemphasize how significant that core conversion is for us. And we've talked to many of the analysts out there. That was a 45-year-old core that we were operating that for the last 20-plus years were self-supported. It was a major lift. It was pretty much all hands on deck across the organization. Every depository customer, every commercial customer, every consumer was impacted by the change. Therefore, our staffs were entirely focused on the process of conversion, post-conversion interaction with clients and all that. So, you know, to have a solid overall financial quarter in the midst of that, we're extremely pleased. And like I said, really, really couldn't be prouder of our associates for dealing with that process. So we can't underemphasize that or overemphasize that. So to put some meat in the bone, we added roughly 50 to 55 new associates throughout our retail system to handle and fully staff our branch locations for customer interaction. That was an increase in FTEs for the quarter. So now over time, that will trend back downward, and I think at the end of the day, maybe anywhere from 10 to 15 would be permanent. So we'll see some reduction right off the bat in that regard across the system. Then secondly, you know, post-core conversion, there's a three-month or, you know, we're right now normalized or pretty much normalized throughout our company. So there's been a settling, as Barry mentioned, a settling in, you know, since then of the whole process and new ways of doing business. So now we have settled in. We made a comprehensive presentation to our board yesterday on our AI efforts. Our chief information officer, Chris Davidson, made an outstanding presentation. We have plans that we see will create efficiencies in the future. It's a little early to start to pin numbers and give forecasts in terms of real positive impact of that. But we do see tremendous impact across the organization, and now with that transition and conversion behind us can really turn our attention to those efficiency gains, Catherine, that you're hoping to see.

Yeah, that's great. Okay, awesome. Thank you for all of that. I know that was a really big deal for you, so I'm glad you gave it some of your time. And then my follow-up was maybe just on that, now that you've got the conversion behind you. I know M&A has been something that you've been thinking about. Any kind of updates on that? And especially now that the conversion is behind you, I assume that M&A outlook is maybe an easier lift. But kind of curious how you're thinking about M&A.

Yeah, I think, I mean, it's fairly similar to what we've guided. But, you know, we've had some trepidation, you know, in the past, yes, with the conversion upcoming and some of the other things we've dealt with. So we are now fully considering options there. We do feel we have a lot of options. And I would say from our perspective, we're seeing increased discussion and interest. And it is, you know, all size ranges across the board. So there's a lot of discussion going on. And we would love to participate in M&A, but remain disciplined and focused on doing good things that add to our company and make our company better. And so, you know, I'll emphasize small, medium, large. There are a lot of different things under consideration across the industry, and we're no different. And so we're looking at every opportunity to make our company better.

And our next question will come from Fetty Strickland with Havdi Group. Please go ahead.

Hey, good morning, gentlemen. Just wanted to touch on deposit growth. I mean, do we see that step down a little bit in the back half of the year, just given the affirmation of the guy and a really strong run rate this quarter? Or could we maybe just see the higher end of what can be considered mid-single-digit growth for the year?

Hi, Fetty. This is Joe Bond. Thank you for the question. We're managing the deposit growth in relation to the loan growth activity, aligning the two, and we do have deposit campaigns in place right now. We're not trying to achieve a much higher pace of growth, so we're maintaining the guidance in mid-single digits, and that's what we expect in the remainder of this part of the year. I would like to just touch on a little bit, too, in terms of the competition and pricing being much higher than what we've expected. it may be the case that we will increase our deposit costs and, as a result, also improve the margin at the bottom line, which will help our margin outlook as well. So we're looking at both managing the appropriate growth of our deposits and the associated costs and the impact on the margin on the bottom line.

Understood. That's really helpful. And just wanted to ask on credit. I mean, obviously great to see NPAs down by nearly half following the loan sale here. Does that impact at all forward expectations for charge-offs? And is maybe something in the mid-teens rather than a low 20s maybe more appropriate going forward, just given the step down in non-accruals?

This is very, and I would say that's yes. I do think that the reduction in NPAs, NPLs definitely has the potential to reduce the actual losses we experience going forward. And I think that's probably as simple as, but I think from the standpoint of provisioning, Duane mentioned earlier that we were thinking for the second half of the year, would be more like some blend between the first quarter and the second quarter when you exclude the mortgage sale. I think that's probably where we would be there as it relates to the provision. But as far as the charge-offs go, I do think that the lower non-accruals that we have, the less charge-offs we're going to have going forward, although our charge-offs have been pretty muted already, but I would think that that is a fair assumption.

Okay, great. And just one last one if I could, just from a big picture economic growth perspective, seems like there's a good bit of new investments across the Gulf South. Can you talk about maybe what you're seeing on the ground and maybe what your expectations are, what you're hearing in terms of potential household income and just economic growth potential there?

Yeah, Teddy, I would say economic activity So what we're most familiar with the state of Mississippi is off the charts relative to historic levels within our state. And it does relate partially to the data center builds that are occurring, and there are multiple data center builds across the state. But along with that, there's other manufacturing in support of, you know, everything from, you know, battery generation to our – we have a Nissan plant, a Toyota plant, we have timber, we have – on the coast, we have shipping. We have multiple different areas of economic investment and activity across the state that are at levels never seen before in Mississippi. I would suggest that that spills definitely over into Louisiana and spills over into Alabama, both of which our markets, although we don't have the physical presence in Louisiana, we do bank numerous commercial relationships in that state. So all of that, plus Alabama, is really, really positive for economic activity. You know, as it impacts, I've been to a couple different presentations where we've had different leadership across, you know, both governmental, private sector, et cetera, talking about ongoing past data center construction. All of that still looks really, really positive. So I would say from a Trustmark perspective, we're as positive about the southeastern U.S. economic activity as we've been in a very long time, if ever before. It's just really dynamic right now.

Yeah, I would say, Dwayne, that also is reflective in our line utilization that we've seen, especially on the revolving C&I side. and then we are seeing more activity from the from the um from the municipality side as well uh as these projects are have to be funded um and so we are seeing some good activity there as well understood really helpful perspective i appreciate it i'll step back thank you and our next question will come from steven scowden with piper stantler please go ahead Yeah, thanks.

Good morning. A couple quick follow-ups for me, maybe. In terms of the NIM conversation there, it sounded like Thought maybe could expand the NIM even with some deposit cost increases. So, would the implication be there that loan yields would trend higher from here, maybe a couple basis points a quarter on new production, maybe within that? What were you seeing this quarter in terms of new production yields?

Stephen, thank you for the question. This is Joe. In terms of NIM and my comment about deposit costs increasing and the benefit to margin, it is pulling deposits on balance sheet that may have associated fee income with them and changing the geography of that where the cost would be higher. However, it is lower than other sources of funding, therefore improving the margin in the bottom line. And so that is one factor that we're evaluating.

The other part of the question dealt with the weighted average booking for the quarter. And that was going to be about 6.28%. And that's about 55 basis points better than the average for the portfolio as a whole. So that's still a positive story from when you're comparing just new bookings to the average for the fourth dollar as a whole.

Got it. Very helpful. Perfect. And then just last thing for me, just curious on any updated numbers on hiring that was done during the quarter. I know that's been somewhat active over the last two or three quarters. Curious if there was any more meaningful activity on the hiring front from a production standpoint.

Yeah, I will. I'll take that one quickly, and as I mentioned in one of the prior questions, I mean, second quarter, we were focused on our core, and that really was focused on transitioning, on adding the personnel we needed in the branch system for the most part, and that was 50-some new associates out there, which then what we have referred to prior in terms of new production talent out across the system, it slowed in the second quarter and was really not a focus. So we are ramping back up now as we speak into the second half of the year and really focused on building, again, back to the commercial and some of the other production categories, mortgage, and other areas where we see opportunities. So, but when you look at the second quarter, it was really all hands on deck focused on getting our company converted.

That makes sense. Great. Thanks for the color. I appreciate it.

Thank you. And our next question will come from Christopher Maranek with Brianne Capital. Please go ahead.

Hey, thanks. Good morning. I had a similar question that you already answered about the net charge-offs changing. So, Barry, I'm curious if the CECL rules allow you to revisit kind of lifetime losses, or was that already done in the release we had this quarter?

Right, that's correct, Christopher. Every quarter we're updating our historical averages to recalibrate our probability of default, loss given default. So as we do encounter lower part costs as we move forward, that will in fact result in potentially a little bit lower provisioning. Make sure I'm catching your question correctly there.

Yes, that's correct. So it's an ongoing process, and we may see some further relief as quarters.

We should. We should. Now, the loss we took on the mortgage sale obviously flows in and impacts the mortgage book itself. But the reality of it is, you know, the discount we took two years ago, same quarter, on the mortgage sale was $0.29. The discount we took this time, same criteria for the loans in which mortgages which we sold, the discount was $0.19. So while we maybe were provisioning around $0.23, that's the portion of the $0.29 previously that was credit-related. Now that same portion that's credit-related of the $0.19 is $0.13. So for these mortgages that meet this criteria that we just sold, we were provisioning $0.23. Now we're provisioning $0.13 on a go-forward basis. So that more than anything else will help us on our provisioning for those loans that meet the criteria we just sold in the future.

Great, Barry. Thanks for that. And just a question on deposits. I mean, the success you had in deposits this quarter, is there any sort of lower bound on the loan-to-deposit ratio where you don't want it to get below a certain level?

This is Tom Owens.

I mean, historically, you know, 85% has probably been the bottom end. You know, you've heard us talk for many number of quarters now on being intent on maintaining the loan-to-deposit ratio below 90%.

You know, we're kind of midway between 85% and 90% now. So I would say 85% is a practical matter.

Sounds good, Tom. Thanks for sharing that, and thanks for hosting us all this morning.

Thank you.

And this will conclude our question and answer session. I'd like to turn the conference back over to Mr. Dwayne Dewey for any closing remarks.

Thank you again for joining us on our second quarter call, and we look forward to connecting again after the third quarter. Hope everybody has a great rest of the week, and we'll talk to you then.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.