Trustmark - Earnings Call - Q2 2025

Executive Summary

• Trustmark delivered a solid quarter: diluted EPS of $0.92 rose 4.5% q/q and beat S&P Global consensus by ~$0.05; revenue of $198.6m grew 2.1% q/q but was modestly below consensus as noninterest income softened sequentially. EPS est: $0.868*; Rev est: $200.633m*.
• Profitability expanded: net interest margin increased 6 bps to 3.81% on higher loan yields and lower funding costs; efficiency improved to 61.24%.
• Guidance was broadly constructive: loan growth raised to mid‑single digits (from low‑single), NIM range tightened to 3.77%–3.83%, and NII outlook raised to high‑single‑digit growth; provision expected to trend lower vs 2024; tax rate guided to ~18.3%–18.5%.
• Credit trends improved with reductions in criticized/classified loans; CET1 rose to 11.70%, TBVPS to $28.74; buybacks continued with $26m repurchased YTD and $74m remaining authorization—supportive for the stock narrative into 2H25.

What Went Well and What Went Wrong

What Went Well

• EPS beat driven by NII growth and lower provision; NIM expanded to 3.81% as asset yields rose and liability costs fell (“increase in the yield of loans… and the decrease in the cost of interest‑bearing liabilities”).
• Credit quality: NPAs fell 5.3% q/q; criticized loans −$71m and classified −$40m with ~$75m upgraded to pass, lowering provisioning pressure; NCOs ran at 12 bps of average loans.
• Positive forward tone and guidance: “We are making positive revisions… Loans HFI to increase mid single digits… NIM range now 3.77%–3.83%… NII to increase high single digits”.

What Went Wrong

• Revenue modestly missed S&P consensus as noninterest income declined $2.7m q/q on lower other income and facility sale comp; mortgage was strong y/y but slightly down q/q due to higher servicing amortization. Rev est: $200.633m* vs reported $198.6m.
• Noninterest expense ticked up $1.1m q/q largely on professional fees within services & fees (+$0.8m q/q).
• Deposit balances were essentially flat q/q (+$35m), and total deposits remain down y/y (-2.2%) given deliberate mix pruning in public/brokered funds; interest‑bearing deposit costs, while down 2 bps q/q, remain elevated vs pre‑rate‑hike levels.

Transcript

Speaker 4

Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's second quarter earnings conference call. At this time, all participants are in listen-only mode. Following the presentation this morning, there will be a question and answer session. To ask a question, you may press Star then one on a touchtone phone. To withdraw your question, please press Star then two as a reminder.

Green.

This call is being recorded. It is now my pleasure to introduce Mr. Joey Raine, Director of Corporate Strategy at Trustmark Corporation.

Speaker 0

Good morning.

Speaker 2

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 Corporation.

Speaker 0

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%.

Speaker 4

Year.

Speaker 0

To date, our linked-quarter growth has diversified with one to four 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 non-interest-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. Non-interest 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. Non-interest income was unchanged. Linked-quarter, disciplined expense management continues to be a priority. Non-interest 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 three 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% during the quarter. We repurchased $11 million of Trustmark common stock in the first six 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 2025. 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 2024. This is a positive revision from our previous guidance for the provision to remain stable.

There is no change in our non-interest income and non-interest 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. With that summary and overview, I'd like to open the floor up to questions.

Speaker 4

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Catherine Mealor with KBW.

Speaker 5

Good morning, everyone.

Speaker 3

Morning, Catherine, Kevin and Kathryn.

Speaker 5

Is the increase in your gross guide back up to mid single digit? Can you talk a little bit about what's driving that, that you're seeing less pay downs or better origination growth?

Speaker 1

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 we're seeing more activity in those non-CRE categories. Within CRE, we're seeing good solid production and good solid fundings like we have historically. To your other point as it relates to delays and payoffs, you.

Speaker 0

We looked this quarter at the.

Speaker 1

First half of the year at what was scheduled maturities for our CRE book and about 50% plus of the scheduled maturities 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 2026 and 2027 with extensions. 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. I think it's very important to note that in non-CRE categories we are seeing good, good growth that we may not have always seen previously to the same extent we are now. That's very encouraging.

Great.

Speaker 5

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

Speaker 4

Thanks.

Speaker 3

Catherine, this is Tom Owens.

Speaker 0

I'll start.

Speaker 3

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 is 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. I think, you know.

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 2025. I think as those capital ratios continue to accrete as we get into 2026, you know, that's sort of a headwind to return on average tangible equity.

Speaker 0

Right.

Speaker 3

The build in capital. You know, we talk about the strategic optionality that we have now with the very favorable circumstances that we find ourselves in. We're going to have some important strategic decisions to make going forward in terms of how we manage capital.

Speaker 0

Hey Catherine. I'll add this, Duane, we can't forget, looking back 18 months, our fit to grow initiatives and all the focus on some restructuring, the focus on expense management and expense control. You think of a 2024 actual decline in expenses. First half looks real solid. We do have some things that are happening in second quarter, merit increases and the like hit in the second quarter or the second half, but the diligent expense focus has been paying dividends as well. The combination results are pretty telling.

Speaker 5

Yes, for sure. Okay, great. Thank you for the caller.

Speaker 4

Our next question comes from Tim Mitchell with Raymond James.

Speaker 0

Hey, good morning everyone. Thanks for taking questions.

Just wanted to start on the new guidance, and it's obviously good to see you raise the, but just curious.

I'm sorry, you're breaking up. We can't make out your comments.

I'm sorry.

Can you hear me now?

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

Speaker 4

Sure.

Speaker 3

This is Tom Owens, thanks for the question. In our baseline forecast, which reflects market implied forwards, we do have a Fed rate cut in September and at the end of December of this year. 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. Last I looked at market implied forwards, it's greater than a 50% probability but certainly not a high probability.

Speaker 1

Yet at this point.

Speaker 3

We are slightly asset sensitive. To the extent that the Fed does not cut, and you know, 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. 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. 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. I think we're at 378 year to date and feel good about the guidance for the remainder of the year.

Okay, great. 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 you know, a lot of banks are talking about hiring and organic growth via, you know, bringing on new lenders and such. 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.

Speaker 0

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, Florida Panhandle, and even in our home market of Jackson, Mississippi, we are very actively recruiting and looking for talent across the board. That's a key part of our strategic focus. As you know, that generates organic growth. 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. We are interested and will be very focused and conservative, I think, in our approach to M&A, but are very, very interested in participating.

Okay, great. Thanks for taking my questions. Thank you.

Speaker 4

I'd like to remind everyone to ask the question, Star 1. To withdraw, Star 2. Our next question comes from Christopher Marinac with Janney Montgomery Scott.

Thanks.

Speaker 0

Good morning.

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. 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. 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.

Thank you.

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?

Speaker 1

Rich, 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 the 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?

Yeah, the reserve itself we moved this quarter. We were at 1.25% versus the 1.26% we saw in the previous quarter. From the 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. 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 for meaningful provisioning on the funded side of the provision expense, and I think what we see going forward from a guide perspective is similar to what we saw in the first half.

Speaker 0

Of the year.

Speaker 1

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. 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. When you see those reductions, those in and of themselves we're very pleased with, but we're also pleased with the fact that we had about $75 million worth of non-pass credits upgraded to pass. 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.

We're very pleased with reducing criticized and classified however we have to. Our preference, our strong preference, is always to keep those balances and be able to return those credits to the pass category. This quarter I think was very important for us because during 2024 our criticized and classified grew like most banks did, especially those who were in the CRE business like we are due to the 550 basis point increase in interest rates that occurred over about an 18-month period. That put a lot of pressure on CRE projects specifically. During the first quarter we saw a leveling out of those increases in criticized and classified and we were flat in those categories.

This quarter we saw a meaningful reduction, as I mentioned, $71 million in criticized down, $40 million in classified down, but yet we were able to upgrade $75 million from non-pass to pass and keep those earning assets and that helps on the loan growth side of the equation as well. We're very pleased with what we saw and the provisioning is the provisioning and in the numbers the number. Having said that, we're very pleased with the reason why our provisioning was lower this quarter.

Great Barry, that's really helpful background. Thank you for sharing all that. 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?

Go ahead.

Speaker 0

Yeah, this is Tom Chambers. If you're looking at our year to date tax rate through the first six months, you're looking at an 18.4% effective tax rate. 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 pre-tax income forecast for pre-tax income. I think we'll be in that level range.

Great, thank you very much, and thanks for hosting us all this morning.

Speaker 4

Our next question comes from Feddie Justin Strickland with Hovde Group.

Was just hoping you could talk through the drivers of rising non-interest income.

Speaker 0

Is it better wealth revenues that's really the driver?

Potentially better mortgage or sort of all of the above?

I think it's Duane. I think it's all of the above. There are not dramatic impacts across each of the segments that you mentioned. Wealth management, of course, is driven by the market. 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 U.S. mortgage continues to show improvement across the board. Not dramatic, it's not to historic levels at this point, but improvement over the last several quarters. All of those things end up contributing to our non-interest income categories.

Understood.

Speaker 1

Thanks for that.

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.

Speaker 0

Historically, we operate of course in the Southeast, Mississippi, Alabama, Florida Panhandle. We have a loan production office in Atlanta. We have western Tennessee and Houston, Texas. What we have typically guided and talked about is the fact contiguous markets to all of those different areas, you know, across the Southeastern U.S. We jumped 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, all of that is attractive. Historically, we thought 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. We're also opportunistic on other situations that would be additive and help create shareholder value. I would echo the comments I said a few minutes ago, the amount of discussion and opportunity seems to be increasing in all of those different both geographically and size ranges.

Speaker 4

Got it.

That's helpful.

Thanks for taking my questions.

Speaker 0

All right, thanks.

Speaker 4

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

Speaker 0

Thank you again for participating in our call this morning. 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.

Speaker 4

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