Q2 2025 Trustmark Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to trust smart 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 1 on a touchtone phone to withdraw your question. Please press star then 2 as a reminder this call is being recorded. It is now my pleasure to introduce Mr. Joey rain director of corporate strategy at Trustmark
Speaker Change: 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.
Speaker Change: We would like to caution you that these 4 looking statements, May differ materially from actual results, you do 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 Dwayne president and CEO of trust bar.
Speaker Change: Thank you, Joey and good morning everyone. Thank you for joining us this morning. With me, our Tom Owens, our Chief Financial Officer, Barry Harvey. Our chief credit and operations officer and Tom Chambers our chief accounting officer.
Speaker Change: We continue to build momentum in the second quarter as trust marks, profitability metrics expanded fueled by loan and deposit growth. Solid credit quality Diversified fee income and disciplined expense management.
Speaker Change: 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.
Speaker Change: Now, turning this slide 3 to financial highlights.
Speaker Change: From the balance sheet perspective, loans held for investment increased 223 million or 1.7% link quarter and 374.8 million or 2.9% year to date.
Speaker Change: Our linked quarter growth is Diversified with 1 to 4 Family Mortgage Loans.
Other loans, and leases and Commercial, and Industrial loans, leading the way.
Speaker Change: 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.
Speaker Change: Personal and Commercial deposits totaled, 13 billion dollars at June 30th in increase of 103.8 million or 0.8% from the prior quarter.
Speaker Change: Our cost of total deposits in the second quarter was 1.8%, a decline of 3 basis points linked quarter.
Speaker Change: Any fully diluted EPS of 92 cents. A share up 4.5% from the prior quarter.
Speaker Change: This level of earnings resulted in a return on average assets of 1.21% and in return, on average, tangible Equity of 13.13% in the second quarter.
Speaker Change: Net interest income expanded 4.3% to 161.4 million, which produced a net interest margin of 3.81% and increase of 6 basis points from the prior quarter.
Speaker Change: Non-interest income total to 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. Length quarter.
Speaker Change: disciplined expense management continues to be a priority non-interest expense increased 1.1, million dollars or 0.9% link quarter, which follows a full year decline in 2024, as well as a decline in the first quarter of 2025,
Speaker Change: Salaries and employee benefits and Equipment. Expense were lowered, link border while services and fees increased reflecting higher, professional fees.
Speaker Change: Credit quality remains solid with some improvement, non-performing assets, declined, 5 million, or 5.3% link quarter.
Speaker Change: net charge offs or 4.1 million including 3 individually, analyzed credits, totaling 2.7 million dollars which were reserved for prior periods,
Speaker Change: Net charge offs represented 12 basis points of average loans. In the second quarter, the net provision for credit losses was 4.7 million in the allowance for credit losses represented 1.25% of loans held for investment.
Speaker Change: Again, very solid performance.
Speaker Change: 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 risc-based Capital ratio increased 5 basis points to 14.15%,
Speaker Change: During the quarter. We repurchased 11 million of trust Mark, common stock in the first 6 months of the year, we have repurchased, 26 million of common stock
Speaker Change: We have a remaining 74 million in repurchase Authority.
Uh, for the Year, this program continues to be subject to market, conditions and management discretion.
Speaker Change: Tangible book value per share was 28.74 at June 30th up. 3.5% link quarter and 13.9% year-over-year.
Speaker Change: So declared a quarterly cash dividend of 24 cents per share, payable September 15th, to shareholders of record on September 1st.
Speaker Change: Now let's focus on our forward-looking guidance for the year, which is on page 15 of the deck.
Speaker Change: As you can see, we are making positive revisions and affirming our previously provided full year 2025, expectations, and all other areas.
Speaker Change: 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.
Speaker Change: We expect most health for investment to increase mid single digits for the full year. This is revised upward from our previous guidance of low single-digit growth.
Speaker Change: We affirm our guidance of low single-digit growth and deposits. Excluding broker deposits for the full year 25.
Speaker Change: There is no change in guidance regarding Securities as they are expected to remain stable as we continue to reinvest cash flows.
Speaker Change: 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
Speaker Change: We've revised our p uh, expectations for net interest income to increase High single digits. In 2025, our previous guidance was an increase of mid to high single digits.
Speaker Change: A 4 year 24. This is a positive revision from our previous guidance uh for the provision to remain stable.
Speaker Change: There is no change in our non-interest, income, and non-interest, expense guidance, uh, for the full year 2025.
Speaker Change: We will continue our disciplined approach to Capital deployment with a preference for organic loan growth.
Speaker Change: Potential Market expansion and m&a or other General Corporate purposes, depending on market conditions.
Speaker Change: As noted earlier, we do have remaining Avail availability in our board. Authorized share repurchase program, that will consider opportunistically
Speaker Change: So with that summary and overview, uh, I'd like to open the floor up to questions.
We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone,
Speaker Change: if you are using a speaker-phone 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 2 at this time we will pause momentarily to assemble our roster.
Speaker Change: Our first question comes from Catherine Miller with KBW.
Catherine Miller: Good morning, everyone.
Speaker Change: Morning, Catherine, Catherine, and Catherine.
Speaker Change: Um, it was nice to see the increase in your gross 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 pay Downs or better origination uh growth.
And Catherine, this is Barry. Um It's a combination of of, hey, good morning. It's a combination of things. Um, our production and really in in Q4, and the first half of this year in non Co categories has been very good and, um, and so we're, we're seeing more activity and those non-zero e categories within CRA. We're seeing good solid, um, production, good, solid funding just like we have historically and then to to your other point as it relates to, um, delays and payoffs. You know, we, we looked this quarter at the first half of the year at what was scheduled maturities for our CRA book and about 50 plus percent of the scheduled maturities pushed out. They they for the first half of the year. They had the pushed out to the second half of this year or
Before they pushed out into 26 and 27 with extensions. And so um we are seeing a a a that occur and we're 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 nonc 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 and then you just you said 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 Hour 1 2, Roa 13, Rossi, any any thoughts on just you know goals and or where you think that's going to? It's you know, a lot that's been just from margin expansion so maybe that's kind of a margin question. If you see there if you think there's more margin expansion within that but just just curious if you think there's still profitability Improvement ahead for us, thanks.
Speaker Change: So Katherine, this is Tom Owens. I'll
Speaker Change: yes.
Uh there is up 5 uh going forward. In terms of profitability, I think the combination of uh continuing to drive operating leverage growing balance sheets. I think the potential for some uh continued Nim expansion going forward. Uh, will continue to drive higher Roa.
Speaker Change: Uh the question in terms of rotce, I think it's very much going to be a function of how we manage capital.
Um, you know, we've been very pleased with the capital story, you know, our higher run rate, uh, profitability has allowed us to support, you know, pretty solid loan growth. At the same time that we're, uh, deploying Capital via repurchase while simultaneously continuing to drive, you know, pretty meaningful linked quarter accretion in our Capital ratios. And so I think, um, you know,
Speaker Change: Purchase here in 25. I think it's those Capital ratios that can continue to accrete uh as we get into 26. Um,
Speaker Change: You know, that's sort of a headwind to return on tangible. Common Equity, right. But the build in capital, and so, you know, we talked about the Strategic optionality that we have now, uh, with the the, the very favorable circumstances that we find ourselves in. And so, um, you know, we're going to have some uh, important strategic decisions to make on forward in terms of how we manage capital.
Dwayne: Hey, Katherine. And I'll add this line This Dwayne. Um, and and we can't forget,
Dwayne: You know, back you're looking back, 18 months, our fit to grow initiatives and all the focus on some restructuring to focus on expense management and expense control. Um and 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 in the like hit in the second quarter or or the second half of the year. But, you know, the diligent expense. Um, focus has been, uh, paying dividends as well. So, um, with the, the combination results uh, are, are pretty telling
Speaker Change: Yes, for sure. Okay, great. Thank you for the caller.
Speaker Change: Our next question comes from Tim Mitchell with Raymond James.
Tim Mitchell: Hey, good morning, everyone.
Speaker Change: Morning questions.
Speaker Change: Um, just wanted to start on the on the Nim guidance. Um,
Speaker Change: And that is a good to see you, but just curious, I'm sorry. You're breaking up.
Speaker Change: You're breaking up. We can't, we couldn't make out your comments.
I'm sorry. Can you hear me now?
Speaker Change: Yes, yes.
Speaker Change: Sorry about that. Um, just on the Nim in the knee Outlook. Um, just curious, you know, any rate cut assumptions underlying that and then, you know, within that there's you know, what would take you to the kind of the top end versus the lower end of the of the Nim range.
Sure, this is Tom Owens. Thanks for the question.
Speaker Change: um, so in our Baseline forecast uh which reflects Market implied forwards, we do have
Speaker Change: A Fed rate, cut in September and December of this year.
Speaker Change: Uh, so
Speaker Change: Uh, you know, the December 1 B. So impactful on that interest margin this year um you know, and and it remains to be seen whether the FED does cut September or not. I mean last I looked at uh, Market implied forwards. It's greater than a 50/50, um, probability but certainly not a high probability yet at this
Speaker Change: This point.
Um, we are slightly asset sensitive.
And so, to the extent that um, the FED does not cut.
And, you know, we've talked in Prior calls, about the ongoing re-pricing, 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, uh, modest linked quarter increases in net interest margin and to the extent that the FED does cut obviously, we'd be re reacting with deposit. Um,
Speaker Change: 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 put out there really from the start of the year and
Speaker Change: I think we're at 378 year to date.
Speaker Change: Uh, and feel good about uh, the guidance for the remainder of the year.
Okay, great. Um, and just as a follow-up. Um, just curious your update thoughts, obviously we've seen some some more eminent activity here in the past couple of weeks. Um, and you know, a lot of banks are talk about hiring and organic growth. Um the you know, bring in a new lenders and such. Um, so just kind of curious your thoughts on on, you know, whether you favor 1 of those strategies or just kind of update thoughts on on growing um through those means, thanks.
Speaker Change: In discussions happening across, uh, and not just at trust Mark I assume across the overall industry and uh, we are interested and will be uh, very focused and and um, uh, conservative I think in our approach to m&a, but our our very very interested in participating.
Speaker Change: Okay great. Uh, thanks for taking my questions.
Thank you.
I'd like to remind everyone to ask a question star 1 to withdraw star 2.
Speaker Change: Our next question comes from Christopher marinac with Janie.
Christopher Marinac: Thanks. 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 because that widened the lens as we see other changes around you?
Speaker Change: Um,
Speaker Change: I don't know. Um, Chris, I, I'm not sure, um, it changes as a whole lot. I mean, uh, Texas is a very attractive Market. Um, we, we are active in and have a presence in the Texas Market. We both, you know, bank and have Direct Banking activities in Houston, but we also have a lot of other, uh, credit exposure, Etc, throughout the state. That's a very attractive Market to us. Um, and and have for a time and and
Speaker Change: Probably are in the best position to consider optionality there, uh, but that does not preclude us from looking at, uh, other parts of our contiguous markets and markets that are very significant high growth markets that uh, present opportunity for, uh, for us in in all of our different lines of business. So, I think across the board. Um, Texas is very interesting but the rest of our markets are equally interesting as well. So
Speaker Change: Okay. Great. That's helpful. Dwayne. Thank you. And uh, just a quick question as it pertains to the kind of the the positive revision that we saw in, in the guide, does not have any implications on the reserve or is it more just about the quarterly amounts from the provision of expense?
Speaker Change: Chris it was it was this is Barry. It was it was hard to hear your question. But um, were you asking specifically about the prevention for this quarter versus
Speaker Change: Going forward.
It was more about how the reserve and do you have uh changes uh you know, in the big picture to reserve as a result of this. Um you know, small revision we saw, you know, is there any relief ahead? As you look out, um, to how the reserve is um comprised
Speaker Change: Yeah, the the, the reserve itself, you know, we moved with this quarter. We were at 1.25 versus the 1.264% for the for the Year by 187 million. And so that's reserving that we don't have to do on the, um, contingent liability piece of the equation. Uh, we do continue to see, um, meaningful reserves for Meaningful, provisioning on the the funded side of the, um, of the provision expense and so, um, but I think
Christopher Marinac: What we see going forward from a guide perspective is similar to what we saw on the first half of the year and um, we're very pleased with that. I would say um Chris as it relates to um the provisioning for this quarter, you know, we had good loan growth which required provisioning
Christopher Marinac: Category, but we've kept the outstanding balances and we've kept good earning assets. So we're very pleased with, um, with reducing criticizing classifies, however, we have to, but our preference. Our strong preference is always to keep those balances and be able to return those credits to to the Past category. So this quarter, I think was very important for us because during 2024 we our criticizing classifies grew like most banks did especially those who were in The the CRA business. Like we are due to the 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 CRA projects specifically but then during the first quarter we saw a a leveling out of that in those increases in criticizing classified and we were flat. And 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 up
Christopher Marinac: Upgrade 75 million from non-pass to pass and keep those earning assets and that helps on the long growth side of the equation as well. So we, we're very pleased with what we saw and, uh, the provisioning is the provisioning. And then, the numbers the number, um, having said that, we're very pleased with the reason why our provisioning was lower this quarter.
Speaker Change: Right there, that's really helpful background. Thank you for sharing all that. Um Tom just a quick question for you on the tax tax rate is the tax rate still about this level that we saw in the past quarter.
Speaker Change: Go ahead. So yeah, yeah, this is Tom Chambers. Um if you're looking at our year-to date tax rate through the the first 6 months, you're looking at a 18.4% effective tax rate and you know looking forward we uh believe that this kind of
Speaker Change: 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, a forecast of pre-tax income. So, I think we'll be in that. That, that level of range
Speaker Change: Great. Thank you very much, and thanks for hosting us all this morning.
Fetty Strickland: Our next question comes from fetty Strickland with hubby group.
Fetty Strickland: Um was just hoping you could talk through the the drivers of Verizon 9 for some it is it better wealth revenues. It's really the driver potentially, better, mortgage or sort of all the above
Fetty Strickland: I think it's, um, this is Dwayne, um, I think it's all the above. Um, they're, they're not dramatic impacts, uh, across. Um, each of the segments that you mentioned wealth management. Wealth management is driven by the market, you know, Market, uh, uh, increase in in overall performance. In the stock market side of the equation, helps, uh, assets under management. It's a a fee based business. So that, that is a positive. We have a significant brokerage business that likewise is, uh, impacted positively by improving, uh, financial markets. The other big change probably, uh, for us mortgage continues to show Improvement, uh, across the board so so not dramatic. It's not the historic levels at this point but improvement over, um, the last several quarters. So uh all of those things end up contributing to our, our non-interest income categories.
Speaker Change: Understood, thanks for that. And then just going back to the the m&a discussion. Um, he you were fresh was just on your rough criteria in terms of, you know, size geography and, and maybe earn back in terms of what you're looking for.
You know, it seems like, you know, the 1 to 5 billion range would be a good range. We haven't been active in m&a for, uh, a period of time and, uh, to, to move back in it. It feels like that would be about the right range to consider, but we're also opportunistic on on other situations, that would be additive and, and help create shareholder value. And so it's, um, and I would Echo the comments. I said a few minutes ago, it is, uh, that the the amount of discussion and, um, opportunity seems to be increasing and those all of those different uh both geographically and size. Ranges.
Speaker Change: Got it. That's helpful. Thanks for taking my questions.
Speaker Change: All right, thanks.
This concludes our question and answer session. I would like to turn the conference back over to Dwayne Dewey for any closing remarks,
Speaker Change: Uh, thank you again for, uh, participating in our call this morning and, uh, we look forward to, uh, continuing to build momentum here, into the, the coming quarters, and look forward to our next call at the end of October. Uh, 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