Trustmark Corporation (TRMK) Q2 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Trustmark Corporation 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 Q&A session. And as a reminder, this call is being recorded. It is now my pleasure to introduce Joey Rein, Director of Corporate Strategy at Trustmark. Please go ahead, sir.

Good morning. I would 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 the Securities and Exchange Commission. This time, I would 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 continue 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 the successful conversion of our core deposit and related systems to state-of-the-art platforms, which will allow us to enhance the customer experience and operate more efficiently. This was a tremendous effort, and I am 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 3, 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 $0.11 per diluted share. During the quarter, we sold a portfolio of mortgage loans that were primarily three payments delinquent and/or nonaccrual 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 nonperforming 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 $0.97. From a balance sheet perspective, loans held for investment increased $35.1 million or 0.3% during the quarter, and $448 million or 3.3% year-over-year. Excluding the mortgage loan sale, loans held for investment increased $109 million or 0.8% linked-quarter and $555 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 $359 million or 2.3% linked-quarter and $955 million, or 6.3% year-over-year. The cost of total deposits declined 4 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% linked-quarter. Producing a net interest margin of 3.84%, up 3 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% linked-quarter to $134 million. Salaries and employee benefits expense declined $1.3 million or 1.7% linked-quarter while services and fees increased $1.8 million or 6.5% linked-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. Nonperforming 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 2026, 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 $0.25 per share payable September 15 to shareholders of record on September 1, 2026. Now let's focus on our full-year expectations, which are shown on slide 15. As we look ahead, we are affirming our previously provided guidance for all full-year 2026 categories. We continue to expect loans held for investment to increase in the mid-single digits and deposits excluding brokered 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 3.80% to 3.85% for the full-year 2026. Net interest income is expected to increase in the mid-single digits compared to 2025. 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 2026. Non-interest expense is also expected to increase in the 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 will now move to questions.

And ladies and gentlemen, we will now begin the Q&A session. And our first question today will come from Michael Rose with Raymond James. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. Wanted to start on the loan growth side. Obviously, really good production this quarter, but still a bunch of pay downs. As well. If I exclude the loan sale, looks like you guys were kind of tracking below the guide for the year. So I guess if you can just walk us through the comfort level of the what would appear to be a kind of ramp in net loan in the back half of the year? Does that assume production continues to increase? Or does it assume that payoffs slow? Or is it a combination of both? Thanks.

Michael, this is Barry. One piece of context as it relates to Q2 as well. As you mentioned, we had-- we reflect-- we reported $35 million worth of growth, add back in the mortgage sale, that puts us at $108 million. We also had $71 million worth of substandard credits that we pushed out of the bank. And so from my perspective, I kind of like to think of those three credits getting pushed out of the bank as part of something that is not necessarily recurring. Desired, but not necessarily recurring. That puts us starting off about $179 million worth of growth. For the quarter, Q2. And then when you are looking into Q3 and Q4, we still see very strong pipelines. Production has been real steady for us and from quarter to quarter. And the payoffs, that is always the tricky part. We are seeing less payoffs than we have maturities. Each quarter on that CRE book. But also, are seeing unexpected payoffs unrelated to what is scheduled to mature and leave us. And the two kind of balance themselves out. So we do expect to see-- to meet the obligation of the mid-single-digit loan growth for the year. We do expect, hopefully, Q3 and Q4 will be a little less bumpy without the mortgage sale, etcetera. But we do expect to be in that mid-single-digit level for loan growth. And like I said, do have $71 million worth of three substandard payoffs that happened this quarter that we do not expect to see those every quarter. We would love to see substandard through the bank, but we do not get that going every quarter. So with that in mind, I do think the quarter looks a little better than just 35 plus the mortgage sale gives you the 108. I think we are probably close to $179 million, $180 million.

That is very helpful context, Barry. I appreciate it. And that leads into the margin question. Was there any prepayment fees or anything like that impacted this quarter's margin because the 3.84% you guys are kind of bumping up against the high end of the target. So just trying to balance the puts and takes as we think about the margin over the next couple of quarters. Thanks.

Michael, this is Tom Owens. Then I will turn it over to Joe regarding guidance on the margin. To your question directly, is there any impact from accelerated prepayment fees or anything like that? I do not believe there is a material impact from that. Do you want to weigh in, Joe?

Thanks, Tom. Yes. So we are reaffirming our guidance, 3.80% to 3.85%. Margin is 3.84%. We do expect near-term margin pressure from deposit funding decisions. We were, as previously announced, in market with some promotional campaigns, and that has increased deposit costs. We have also seen strong pricing competition within our markets. And we have responded accordingly. With the margin, we are expecting repricing of fixed-rate loans and investment securities to partially offset some of that margin pressure. Using the forward curve that we have, there is a rate increase and that will flow through the margin more so in the last quarter of the year. So initially, we are expecting margin pressure in this quarter. And then subsequently, we expect that to reverse, which will put us in our mid-guidance range that we have communicated. So sticking with the 3.80% to 3.85%, Michael?

Okay, helpful. And then maybe just one follow-up to that. I assume you are assuming a rate hike in December, so there would not be much Q4 benefit or full-year benefit if we did not get it, correct?

No. Actually, our forward curve has a rate increase in the month of September, so there will be more of a benefit in the month of in the fourth quarter versus the third quarter.

Okay. Any idea on what that benefit might be just roughly?

We are talking in terms of margin. We are looking at a few, a couple of basis points of margin pressure in the third quarter due to the deposit pricing, and then we expect a couple of basis points of margin improvement pulling us pretty close to the levels that we are right now.

Okay. I will step back. Thanks for all the color.

And our next question will come from Gary Tenner with D. A. Davidson. Please go ahead.

Thanks. Good morning.

Morning, Gary.

Hey, could you remind us that $643 million of new production, just how that compares to the first quarter? Production.

This is Barry. It is very similar. We are pretty much in line with that as well as 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, and 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 C&I side, the revolvers utilization has moved up from 32% at the year-end, moved to 37%. Now we are at 38 as of the end of the second quarter. We are very pleased to see that utilization. A lot of activity going on in quite 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. 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 does not feel like that is where you guys are.

Yeah. A lot of ours, as I mentioned, is 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 is 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 coming from the CRE book specifically? And so that phenomenon will play itself out. We will have to wait and see. But it is not about the engine and the engine working and running hard. That is happening. It is 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 cannot see, which is the unexpected, we will see some of those leave as we do each quarter. That is 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 color. And then just vis-a-vis the buyback, I think last quarter you talked about $70 million of kind of being low end of what you would expect for the year. Any changes to the kind of back half of the year outlook on the buyback?

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

Okay, great. Thank you.

And our next question will come from Catherine Mealor with KBW. Please go ahead.

Thanks. Good morning.

Morning, Catherine.

You are 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 are going to have now that is behind you any upcoming tech or AI investments that you are making and what impact any of that may have on the expense outlook? Thanks.

And Catherine, this is Barry. I will start, and Duane may want to chime in as well. From the standpoint of the conversion, I think moving to a supportive environment as opposed to a self-supported environment, it 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. We are going to be shifting some of those jobs into different roles. Then there may be an opportunity to, over time, not have some of the positions. So the application-type positions where we were actually doing all the maintenance to the system previously, now that we are running an FIS solution on mainframe deposits, teller, sales platform, image system. From that standpoint, we are going to need to determine what our needs are once we are fully settled in, which we will be later this year. And the same is going to be true on the frontline side. We did staff up during the second quarter to make sure in the first quarter and second quarter 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. There is a lot of attrition in that area of the bank already. So if we see that we do not need quite what we have 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, a lot of turnover in those positions. Then we may be able to decide that we do not need quite as much as we 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 probably to drive more business there is definitely an opportunity for us to go into it and establish a different pricing mechanisms, whether it be on the deposit side, to possibly offer some products and offer some services that we have not been able to previously. It is kind of hard to quantify the value of that today. But we do definitely know that we have 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 will be able to do that now that we have moved to a vendor-supported solution. So we are very excited about that. Duane, are there any comments you want to add to that?

Yes, I would like to add. We cannot overemphasize how significant that core conversion is for us. And we have 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, was 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 to have a solid overall financial quarter in the midst of that, we are extremely pleased. And like I said, really could not be prouder of our associates for dealing with that process. So we cannot underemphasize that or overemphasize that. So to put some meat on 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. I think at the end of the day, maybe anywhere from 10 to 15 would be permanent. So we will see some reduction right off the bat. In that regard across the system. Then secondly, post-core conversion, there is a three-month period, and we are right now normalized or pretty much normalized throughout our company. There has been a settling, as Barry mentioned, a settling in 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, George Chambers, made an outstanding presentation. We have plans that we see will create efficiencies in the future. It is a little early to start to pin numbers and give forecast in terms of real positive impact of that. We do see tremendous impact across the organization. Now with that transition and conversion behind us, we can really turn our attention to those efficiency gains, Catherine, that you are hoping to see.

Yeah. That is great. Okay. Awesome. Thank you for all of that. I know that was a really big deal for y'all, so I am glad, you gave us some of your time. And then my follow-up was maybe just on that, now that you have got the conversion behind you, I know M&A has been something that you have been thinking about any kind of update on that? And especially, now that the conversion is behind you, I assume that M&A outlook is maybe an easier lift, kind of curious how you are thinking about M&A? Thank you.

Yes. I mean, it is fairly similar to what we have guided. But we have had some trepidation in the past, yes, with the conversion upcoming and some of the other things we have dealt with. So we are now fully considering options there. We do feel we have a lot of options, I would say from our perspective, we are seeing increased discussion and interest, and it is in all size ranges across the board. So there is a lot of discussion going on. 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 I will emphasize small, medium, large, there are a lot of different things, under consideration across the industry, and we are no different. So we are looking at every opportunity to make our company better.

Great. Thank you.

And our next question will come from Feddie Strickland with Hovde Group. Please go ahead.

Hey, good morning, gentlemen. Just to touch on deposit growth. I mean, we see that step down a little bit in the back half of the year, just given the affirmation of the guide 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, Feddie. This is Joe Bond. Thank you for the question. We are managing the deposit growth in relation to the loan activity aligning the two. And we do have deposit campaigns in place right now. We are not trying to achieve a much higher pace of growth. So we are maintaining the guidance in mid-single digits. And that is 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 have 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 are 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 is really helpful. And just wanted to ask on credit. I mean, obviously, to see NPA 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 nonaccruals?

This is Barry. And I would say, 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 is probably as simple as I think from the standpoint of provisioning, Duane mentioned earlier, that we were thinking for the second half of the year, it would be more like somewhere in between the first quarter and the second quarter when you exclude the mortgage sale. I think that is 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 nonaccruals that we have, the fewer charge-offs we are 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 is a good bit of new investments across the Gulf South. Can you talk about maybe what you are seeing on the ground? And maybe what your expectations are, what you are hearing in terms of potential household income and just economic growth potential there?

Yes. Feddie, I would say economic activity in, so what we are 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 is other manufacturing in support of, you know, everything from, you know, battery generation to-- 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 definitely spills over into Louisiana, spills over into Alabama, both of which are markets, although we do not 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. As it impacts us, I have been to a couple different presentations where we have had different leadership across both governmental, private sector, etcetera, talking about ongoing data center construction. All of that still looks really, really positive. So I would say from a Trustmark perspective, we are as positive about the Southeastern U.S. economic activity as we have been in a very long time, if ever before. It is just really dynamic right now.

Yes. And I would say, Duane, that is reflected in our line utilization that we have seen, especially on the revolving C&I side. And then we are seeing more activity, right, from the municipality side as well, as these projects have to be funded. So we are seeing some good activity there as well.

Understood. Really helpful perspective. I appreciate it. I will step back. Thank you.

And our next question will come from Stephen Scouten with Piper Sandler. Please go ahead.

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

Okay. So 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 are evaluating. Yes. 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 is about 55 basis points better than the average for the portfolio as a whole. So that is still a positive story when you are comparing just new bookings to the average for the portfolio 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 has 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 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 that 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 opportunity. 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 Marinac with Brean Capital Research. 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 am curious if the CECL rules allow you to revisit kind of lifetime losses? Or was that already done in the reserve release we had this quarter?

Right. That is correct, Christopher. Every quarter, we are updating our historical averages to recalibrate our probability of default, loss-given default. So as we do encounter lower charge-offs as we move forward, that will, in fact, result in potentially a little bit lower provisioning. Make sure I am catching your question correctly there. Yes. That is correct. It is an ongoing process, and we may see some further relief as quarters occur. 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 the discount we took two years ago, same quarter on the mortgage sale was 29 cents. The discount we took this time, same criteria for the loans in which mortgage we sold the discount was 19 cents. So while we maybe were provisioning around 23 cents. That is the portion of the $0.29 previously that was credit related. Now that same portion is credit related of the 19 cents is $0.13. So for these mortgages that meet this criteria that we just sold, we were provisioning $0.23, now we are provisioning 13 cents 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 do not want it to get below a certain level.

I will start, Christopher. This is Tom Owens. I mean, historically, 85% has probably been at the bottom end. You have heard us talk for any number of quarters now on being intent on maintaining the loan-to-deposit ratio below 90%. We are 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 having us all this morning. Thank you.

And this will conclude our Q&A session. I would like to turn the conference back over to Mr. Duane 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 will talk to you then.

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