Trustmark Corporation

Good morning, ladies and gentlemen, and welcome to Trustmark Corporation third 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 your touchtone phone. To withdraw your question, please press Start and 2. As a reminder, this call is being recorded. It is now my pleasure to introduce Mr. Jory Rain, Director of Corporate Strategy at Trustmark.

Good morning. I'd like to remind everyone that a copy of our third quarter earnings release and the presentation that will be discussed on our 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, 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, it's my pleasure to introduce Duane Dewey, President and CEO of Trustmark.

Thank you, Joey, and good morning, everyone. Thank you for joining us again 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. Trustmark's momentum continued to build in the third quarter. Our performance reflected diversified loan growth and stable credit quality, along with cost-effective core deposit growth. During the quarter, we continue to implement organic growth initiatives and added established customer relationship managers and production talent in key markets across our franchise. These investments are designed to further enhance financial performance and shareholder value. Today in our presentation, I will provide a summary of our performance in the quarter and discuss our forward guidance before moving to your questions. Now turning to slide three, the financial highlights. From the balance sheet perspective, loans held for investment increased $83 million, or 0.6% linked quarter, and $448 million, or 3.4% year-over-year. Our linked quarter growth was diversified and led by C&I, other loans and leases, municipal loans, and other real estate secured loans. Our deposit base grew $550 million for a 3.4% linked quarter. Non-interest-bearing deposits grew at a faster clip of 5.9% linked quarter, or by $186 million. The total cost of deposits in the quarter were up 1.84%, or four basis points linked quarter. very effective cost-effective growth in core deposits. Trustmark reported net income in the third quarter of $56.8 million, representing fully diluted EPS of $0.94 a share, up 2.2% from the prior quarter and 11.9% from the prior year. This level of earnings resulted in a return on average assets of 1.21%, and a return on average tangible equity of 12.84% in the quarter. Net interest income expanded 2.4% to $165.2 million, which produced a net interest margin of 3.83%, an increase of two basis points from the prior quarter. Non-interest income totaled $39.9 million, up 0.1% late quarter, and 6.3% year-over-year. Non-interest expense increased $5.8 million or 4.7% link quarter and included approximately $2.3 million in non-routine items, including the establishment of a $1.4 million reserve for a single property in ORE. and $900,000 in professional fees related to the conversion to a state banking charter and other corporate strategic initiatives. Salaries and employee benefits increased 3.2 million link quarter principally due to annual salary merit increases effective July 1, increased annual incentive accruals and the cost of additional customer relationship managers and production talent associated with our organic growth strategies. Credit quality remained solid. Net charge-offs were $4.4 million and included one individually analyzed loan totaling $3.1 million, which was reserved for in prior periods. Net charge-offs represented 13 basis points of average loans in the third quarter. Net provision for credit losses was $1.7 million, and the allowance for credit losses represents 1.2% of loans held for investment. Again, very solid credit performance. From a capital management perspective, each of our capital ratios increased during the quarter. The CET-1 ratio expanded 18 basis points to 11.88%. while our total risk-based capital ratio increased 18 basis points to 14.33%. During the quarter, we repurchased $11 million of Trustmark common stock. In the first nine months of the year, we repurchased $37 million of stock. We have $63 million in repurchase authority for the remainder of this year. This program continues to be subject to market conditions and management discretion. Tangible book value per share was $29.60 at September 30th, up 3% link quarter and 10.1% year-over-year. The board also declared a quarterly cash dividend of $0.24 per share payable December 15th to shareholders of record on December 1st. 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're tightening the range of our guidance for net interest margin and affirming all other previously provided guidance for the full year. We affirm our guidance and expect loans held for investment to increase mid-single digits for the full year 25. Similarly, we affirm our guidance of low single digit growth in deposits, excluding broker deposits for the full year 25. 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 the anticipated range of the net interest margin for the full year. The range is now 3.78% to 3.82% for the year compared to our prior of 3.77% to 3.83%. We've affirmed our expectations for net interest income to increase in a high single digits for 2025. From a credit perspective, the provision for credit losses including unfunded commitments is expected to continue to trend lower when compared to full year 24. This is, of course, an affirmation of the prior guidance. There is no change in our non-interest income and non-interest expense guidance. Non-interest income from adjusted continuing operations for the full year 25 is expected to increase mid-single digits, while non-interest expense is expected to increase mid-single digits as well. We will continue our disciplined approach to capital deployment with a preference for organic loan growth potential market expansion, M&A and 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 will consider opportunistically. You may have noticed the addition of two new slides in our deck on pages 17 and 18. I encourage you to take a look at the progress we've made in improving our financial performance over the last several years. We're very committed to maintaining that momentum here moving forward. With that, I'd like to open the floor to questions.