Good morning, ladies and gentlemen and welcome to Trustmark Corporation’s Second Quarter Earnings Conference Call. [Operator Instructions] 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 sir.

Good morning. I’d like to remind everyone that a copy of our second quarter earnings release as well as the slide presentation that will be discussed on our call this morning is available on the Investor Relations section of our website at trustmark.com. During the call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and 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 Corporation.

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. The second quarter was a very active quarter and productive for Trustmark. So we have a lot to share with you this morning on multiple fronts. During the quarter, we completed significant actions to increase earnings, enhance our profitability profile, reduce risk and strengthen capital flexibility. We had 4 significant non-routine items as outlined on Slide 3. First, we completed the previously announced sale of Fisher Brown Bottrell Insurance, capitalizing on attractive multiples of 5.9x revenue and 28x net income. We recognized an after-tax gain on sale of $171.2 million. Second, we sold $1.6 billion of AFS securities with an average yield of 1.36%, generating a loss of $182.8 million. We then purchased $1.4 billion of AFS securities with an average yield of 4.85%, which will significantly boost our net interest margin, enhance our profitability profile. Tom Owens will provide some additional color on this restructuring process that took place in late May and throughout much of June. Third, we proactively reduced the risk profile of our 1-4 family mortgage portfolio. During the quarter, we sold mortgage loans that were 3 payments or more delinquent and or non-accrual at the time of selection, totaling $56.2 million. The mortgage loan sale resulted in an after-tax loss of $10.1 million, and this sale drove a $54.1 million reduction in non-performing loans. Finally, we exchanged our Visa Class B-1 shares for B-2 shares and Class C common stock. The exchange of Class C shares resulted in a $6 million after-tax gain during the quarter. With all the moving parts during the quarter, we developed Slide…

Thank you, Duane. I’ll be glad to. Turning to Slide 7, loans held for investments totaled $13.2 billion as of June 30. That’s an increase, as Duane mentioned, of $97 million for the quarter. Loan growth during Q2 came from commercial real estate and the equipment finance line of business. We expect loan growth of low-single digits for 2024. As you can see, our loan portfolio remains diversified, both from a product standpoint as well as a geography. Looking onto Slide 8, Trustmark’s CRE portfolio is 94% vertical with 69% in the existing category and 31% in construction land development. Our construction land development portfolio is 82% construction. Trustmark’s office portfolio, as you can see, is very modest at $279 million outstanding, which represents only 2% of our overall loan book. The portfolio was comprised of credits with high-quality tenants, low lease turnover, strong occupancy levels and low leverage. Onto Slide 9, the bank’s commercial portfolio is well diversified, as you can see across numerous industries, with no single category exceeding 15%. Looking at Slide 10, our provision for credit losses for loans held for investment was $23.3 million during the second quarter. Excluding the mortgage loan sale, the provision for credit losses for loans held for investment was $14.7 million, which was driven by two parts: one, loan growth as well as risk rate migration. The provision for credit losses for off-balance sheet credit exposure was a negative $3.6 million, which resulted primarily from a decline in unfunded CRE commitments. At June 30, the allowance for credit losses for loans held for investment was $155 million. Looking onto Slide 11, we continue to post solid credit quality metrics. The allowance for credit losses represents 1.18% of loans held for investment and 840% of non-accruals, excluding those that are individually analyzed. In the second quarter, net charge-offs totaled $11.6 million. Excluding the previously referenced mortgage loan sale, net charge-offs totaled $3 million or 9 basis points of average loans. Both non-accruals and non-performing assets decreased significantly during the quarter as a result of the mortgage loan sale. Duane?

Okay. Thanks, Barry. Now Tom Owens will cover deposits, net interest margin and non-interest income.

Thanks, Duane, and good morning, everyone. Turning to deposits on Slide 12. We had another good quarter, which continued to show the strength of our deposit base. Deposits totaled $15.5 billion at June 30, a linked-quarter increase of $124 million or 0.8%, and a year-over-year increase of $549 million or 3.7%. The linked-quarter increase was driven by growth of $114 million in non-interest-bearing DDA balances, which remained at 20% of our deposit base. Time deposits also increased by $90 million linked-quarter, driven by $77 million of growth in personal CDs and $13 million of growth in brokered CDs. As of June 30, our promotional and exception price time deposit book totaled $1.5 billion with a weighted average rate paid of 4.98% and a weighted average remaining term of about 5 months. Our brokered deposit book totaled $600 million at an all-in weighted average rate paid which remained at about 5.43% and the weighted average remaining term remains at about 3 months as of June 30. Our cost of interest-bearing deposits increased by 1 basis point from the prior quarter to 2.75%, down from the 7 basis point linked-quarter increase in the second quarter. Turning to Slide 13, Trustmark continues to maintain a stable granular and low exposure deposit base. During the first quarter, we had an average of about 460,000 personal and non-personal deposit accounts, excluding collateralized public fund accounts, with an average balance per account of about $27,000. As of June 30, 64% of our deposits were insured and 14% were collateralized, meaning that our mix of deposits that are uninsured and uncollateralized was essentially unchanged linked-quarter at 22%. We continue to maintain substantial secured borrowing capacity, which stood at $6.1 billion at June 30, representing 179% coverage of uninsured and uncollateralized deposits. Our second quarter total deposit cost…

Thank you, Tom. Turning to Slide 17, we’ll see a detail of our total non-interest expense. During the second quarter, non-interest expense continued to decline and totaled $118.3 million for a linked-quarter decrease of $1.3 million or 1.1%. This decline was mainly driven by a decrease in salary and benefits of $600,000, resulting in reduced compensation expense, and a seasonal decline in payroll taxes, offset by increased commission expense driven by increased revenue. Other expense decreased by $900,000, resulting from lower operational losses during the quarter. Turning to Slide 18, Trustmark remains well positioned from a capital perspective. As Duane previously mentioned, our capital ratios remain solid with a commit equity Tier 1 ratio of 10.92%, a linked-quarter increase of 80 basis points, and a total risk-based capital ratio of 13.29%, a linked-quarter increase of 87 basis points. Although we currently have a $50 million share repurchase program in place, our priority for capital deployment continues to be focused on organic lending. As Duane indicated, we will continue to evaluate the share repurchase program as the market and our capital levels dictate. Back to you, Duane.

Great. Thanks, Tom. A very, very busy quarter for us here. So we’ll now open the floor up for questions that you may have.

[Operator Instructions] And the first question will come from Catherine Mealor with KBW. Please go ahead.

Thanks. Good morning.

Good morning, Catherine.

I wanted to start on some of the guidance that you provided, which is really helpful just to look at it on continuing operations and then kind of a growth rate to the back half of the year. So thank you for how you laid that out. I’ll begin with expenses. If you take the first half of the year and then grow that at a low-single digit pace, I’m getting kind of a run rate in the back half of the year around kind of $122 million, $123 million a quarter, which is a little bit higher than the first half. I just want to make sure that, that’s around what you’re thinking and where some of that growth is coming from.

Catherine, I’ll start. Tom, Chambers can continue on. But yes, I think in general, some of the things that occurred in the first quarter and second quarter will not continue into the second half of the year. So, we do think we will get a little bit of growth comparing the first half to second half, and it is in the very low-single digit range. Tom can elaborate a little more. But yes, I think you are about right with your numbers. Tom?

Yes. Duane, thank you. I believe the biggest driver of the increase in the second half of the year is we changed our merit increase structure. We used to have merit increases hit during March of the year, and we delayed that this year to hit in July. So, the first half of the year did not have merit increases in our salaries and the second half of the year will. So, that will be the biggest.

But it still keeps it in that low – very low-single digit range.

Yes, sir.

Okay. Great. Everything else was – made perfect sense. I am actually not going to ask a margin question this quarter. So, Tom, I am going to – you are off the hook this quarter from me. My second question is on the CRE. It looks like you sold the NPAs that then built the reserve and it looks like you put a lot of that in your CRE reserve. Just curious if that’s just from pure conservatism, or was there any negative migration in special mentioned or classified within your commercial real estate portfolio that drove that?

Hey Catherine, this is Barry.

Good morning Barry.

And I will try to speak to both of those. Good morning. The first thought process as it relates to the selling of the mortgage book that we did was, those are – that’s most all that’s 30-year paper. And it’s – once it gets into that category of non-accrual and there is a high roll rate from prepayments down and more, it’s kind of sticky and hard to remove. And we thought in today’s environment, while it’s still attractive, it would be a good time to go ahead and give ourselves some additional room as it relates to NPLs and NPAs. As it relates to the – your second part of your question is regarding the risk rate migrations driving some of the provisioning, that is correct. I mean we like all banks on the CRE side are beginning to see some risk rate migration as it relates to predominantly special mention. And occasionally, there is some that’s going to be substandard. We don’t really see this is anything other than a cycle at this stage that we are flowing through. But of course, when you have the rate increases we have, coming out of what was put on the books in the second half of really all of ‘23 and then most all of ‘22, if not all of ‘22, that population is going to be more challenged just because it was made the lowest rate environment. And then now it’s functioning because all of ours are variable rate that I am referencing is functioning and it’s always been functioning in the higher rate environment. So, there is more stress on the category of lending not just for Trustmark, but anybody who was booking those type of CRE loans during that window of time that are now beginning to reach CO, and in many cases beginning to stabilize. There is the need to continue to support those projects by the sponsor, by the guarantors, by the borrowers in order to give them a little bit more time to fully stabilize. It’s also a function of most construction projects for quite a while, very seldom do they finish on time. So, they need a little more time to fully stabilize and sometimes that’s 6 months, sometimes that’s 12 months. So, it’s all those factors that are going in to making sure we are staying on top of our credits, making sure we are grading them appropriately at all times. I wouldn’t call it conservatism. I would just say that we’re very focused on making sure that we are looking at as much of the book as often as we can to make sure the grades are right at all times, which would lead you to believe the ACL is accurate at all times as well.

Okay. That’s great. Do you have the balances of increase in criticized or classified?

We don’t report those in our earnings traditionally. That will be – of course, they will be in the call report.

Okay. That’s great. We can wait for that. So, it seems like the loss content perhaps is still arguably low on these projects, but you are more just migrating them to special mentioned, if there needs to be support from the guarantor just because of the project delay?

That’s correct. That’s a correct assessment, Catherine. We don’t see our – this quarter, charge-offs were $3 million when you exclude the mortgage sale, which is obviously one-time, that’s versus $4 million last quarter. So, we – and we don’t really see a trend developing there that’s concerned. We don’t see a trend developing in our NPAs or NPLs of concern, but we do want to make sure the grading is correct on all of our credits. And we would expect those to cycle, like especially if we have got any type of rate reductions in the second half of this year or next year, obviously, any of those would be some welcome relief in terms of trying to meet those debt service coverage ratio requirements.

Great. Thank you very much for the color Barry.

[Operator Instructions] Our next question will come from Gary Tenner with D.A. Davidson. Please go ahead.

Thanks. Good morning.

Good morning Gary.

I wanted to ask about the guide on deposit costs for the third quarter. I guess I am a little surprised that it’s – the guidance is that much higher, just given the success on the non-interest bearing front in the second quarter and generally moderated – moderating deposit cost increases in the industry overall. So, you had alluded to some actions you took to set yourselves up better for lower rates. I am curious kind of what impact that’s having on the third quarter outlook.

Yes. Good morning Gary, this is Tom Owens, so good question. Coming into 2024, early in the first quarter, we began to take some actions to try and rationalize our deposit costs, particularly as it related to maturing promotional CDs as well as some rates on non-maturity products. And what we found – I don’t want to say that was experimental, right. But I think all banks at this point are focused on their deposit base and what the opportunities are to try and rationalize cost. And so we did try some of that in the first quarter. And what we found is we were driving more deposit mix change and more deposit disintermediation than we would have liked. And so we got into approximately mid-March, and we really sort of pivoted away from that. And so that’s what I mean by the actions we had taken in the first quarter, which set us up for a good running start, so to speak, towards beating on the guide that we had put out there for the second quarter. But at the same time, knowing that those deposit costs would continue to march higher going forward, and that’s what we have seen. So, I really encourage you and analysts and investors to think in terms of whether we are talking about loan yield or deposit cost, it’s – think in terms of mid-single digit increases on a normalized basis. We had a sort of a hiccup in terms of our loan yields in the first quarter on a linked-quarter basis, which was the result of sort of an unusual decrease in loan fees. That normalized for us here in the second quarter, right. And so you saw what is seemingly a disproportionately large increase on a linked-quarter basis in loan yield in the second quarter, that was normalization. And our guide in terms of deposit costs for the third quarter is also normalization. We are in relative equilibrium at this point on a month-over-month basis and on a linked-quarter basis in terms of the increase in loan yield versus the increase in deposit costs.

Thanks Tom for the answer. I guess if I were to boil it down to thinking that the third quarter outlook on deposit cost is almost – has basically been normalized and kind of skipped over the second quarter from a re-pricing perspective, is that kind of what it was…?

Absolutely, and that’s exactly right, Gary. And that’s why in my prepared comments, I gave you the reference point of month-to-date deposit costs here in July of 2.25%.

Okay. I appreciate that. And then if I could ask a follow-up just on capital, you have talked about kind of the priorities of organic growth, etcetera. But pushing an 11% CET1 ratio, I wonder if you could talk about capital really more from an M&A perspective, kind of where things are in terms of conversations? Has there been any sort of increase in conversations in your footprint and activity levels?

I will start. Others can add if they need to. As it relates to M&A, I mean first of all, yes, there are more – there is a little more activity out there, things we are hearing about and things that are being presented to us as opportunities, etcetera. So, we are seeing some increased activity there. In our minds, I think we wanted to get through this quarter with a lot of noise and activity, and all these different one-time deals kind of let the dust settle, and then really moving into 2025, more thinking about the M&A space in a little more focus and the like. But at the end of the day, I do believe there is a little more activity or at least a lot of different discussions and thought processes going on across our marketplace.

Thank you.

This concludes 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 sir.

Thank you again for joining us this morning. Very, very busy quarter for us, and we are very excited about the second half of 2024. And we look forward to our third quarter call in October. So, look forward to catching up then. Thank you.

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