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.

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.…

[Operator Instructions] 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 less -- 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 look 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 pushed out. They -- 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 be smoothed 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. Great. And maybe just taking a step back, a bigger picture question. Your profitability has continued to move higher really throughout the past -- over 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? It's -- 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 the combination of continuing to drive operating leverage, growing balance sheet, 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, and I'll add -- this is Duane. And we can't forget back -- you're looking back 18 months, our FIT2GROW initiatives and all the focus on some restructuring, the focus on expense management and expense control. And you think of a 2024 actual decline in expenses, first half looks real solid. We do have some things that are happening in the second quarter, merit increases and the like in the second quarter -- or the second half of the year. But the diligent expense focus has been paying dividends as well. So the combination results are pretty telling.

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. But just curious...

Sorry, you're breaking. You're breaking up, we can't -- We could not make out your comments.

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, 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 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. And I would say on both counts, yes. We are focusing on the growth markets that we serve currently, which we have a number when you look at markets like Houston, Texas and Birmingham and Atlanta and South Alabama, Panhandle, Florida and even in our home market of Jackson, Mississippi, we are very actively recruiting and looking for talent across the board. And so that's a key part of our strategic focus. And as you know, that generates organic growth. And then I would say, yes, the M&A activity has increased fairly significantly. There are many, many different options and discussions happening across -- and not just at Trustmark, I assume, across the overall industry. And we are interested and we'll be very focused and conservative, I think, in our approach to M&A, but are very, very interested in participating.

[Operator Instructions] 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, et cetera, 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. So...

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. The reserve itself, we moved -- this quarter, we're at 1.25% versus the 1.26% we saw in the previous quarter. We -- from a provisioning standpoint, we expect the provisioning, as we've guided to continue to be similar to what we've seen in the first half of this year. From the standpoint of the reserve levels, we continue to see less in terms of unfunded commitments. That particular unfunded commitments is down for the year by about $187 million. And so that's reserving that we don't have to do on the contingent liability piece of the equation. We do continue to see meaningful reserves -- meaningful provisioning on the funded side of the provision expense. And so -- but I think what we see going forward from a guide perspective is similar to what we saw in the first half of the year. And we're very pleased with that. I would say, Chris, as it relates to the provisioning for this quarter, we had good loan growth, which required provisioning. We had some weakening economic factors that are baked into our quantitative forward forecasting models. But what really drove the provisioning down for this quarter, unlike previous quarters, was we did see a meaningful reduction in criticized loans, about $71 million. We also saw a meaningful reduction in classified loans, about $40 million. And when you see those reductions, those in and of themselves, we're very pleased with, but we're also pleased with the fact that about -- we had about $75 million worth of non-pass credits upgraded to pass. And so that's the type of reduction in criticized and classified we like to see because, one, we've returned a problem credit back to a pass category, but we've kept the outstanding balances and we've kept good earning assets.…

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 that's going to -- 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 think it's -- this is Duane. I think it's all the above. They're not dramatic impacts across each of the segments that you mentioned, wealth management, of course, wealth management is driven by the market increase in overall performance in the stock market side of the equation helps assets under management. That's a fee-based business. So that is a positive. We have a significant brokerage business that likewise is impacted positively by improving financial markets. The other big change probably for us, mortgage continues to show improvement across the board. So not dramatic. It's not the historic levels at this point, but improvement over the last several quarters. So all of those things end up contributing 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?

Sure. So historically, so we operate, of course, in the Southeast, Mississippi, Alabama, Panhandle of Florida. We have a loan production office in Atlanta. We have Western Tennessee and Houston, Texas. And so what we have typically guided and talked about is the fact contiguous markets to all of those different areas across the Southeastern U.S. We jump Louisiana. Louisiana has interest. Arkansas is a great market, very fast growing, especially Northern Arkansas is a very fast-growing market. Tennessee is a fast-growing market. Texas speaks for itself. Georgia, North part of Florida is -- all of that is attractive. And historically, we've talked about those markets as being opportunistic for us. In terms of size, it depends on the opportunity. It seems like the $1 billion to $5 billion range would be a good range. We haven't been active in M&A for a period of time. And to move back in, it feels like that would be about the right range to consider. But we're also opportunistic on other situations that would be additive and help create shareholder value. And so it's -- and I would echo the comments I said a few minutes ago, it is -- the amount of discussion and opportunity seems to be increasing in all of those different -- both geographically and size ranges.

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.