Trustmark Corporation

Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's fourth quarter earnings conference call. At this time, all participants are in a 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 touch-tone 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.

Good morning. I'd like to remind everyone that a copy of our fourth quarter earnings release and the presentation that will be discussed this morning are available on the investor relations section of our website at Trustmark.com. During our call, management may make forward-looking statements with the meaning of the Private Securities Litigation Reform Act of 1995, and we'd 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 in our other filings with the Securities and Exchange Commission. At this time, I'd like to introduce Dwayne Dooley, President and CEO of Trustmark Corporation.

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 throughout the year, resulting in record earnings in 2025. Our traditional banking business drove continued loan and deposit growth, a strong net interest margin, and solid credit quality. Our mortgage banking business achieved increased production and significant improvement in profitability, while revenue in our wealth management business reached an all-time high. In our presentation this morning, I will provide a summary of our performance and discuss forward guidance before moving to your questions. Now turning to slide three, our financial highlights. Our fourth quarter results reflected continued significant progress across the organization. Net income totaled $57.9 million, representing diluted EPS of 97 cents a share, 3.2 percent one quarter, and 5.4 percent year-over-year. For the full year, Trustmark achieved a record net income of $224.1 million, representing diluted earnings per share of $3.70. Net income from adjusted continuing operations increased $37.8 million, or 20.3 percent in 2025. This level of earnings resulted in a return on average assets of 1.21 percent and a return on average tangible equity of 12.97 percent. From the balance sheet perspective, loans held for investment increased 126 million or 0.9 percent in quarter and 584 million or 4.5 percent year over year. Our loan portfolio remains well diversified by loan type and geography. Our deposit base declined $131 million, or 0.8% linked quarter, driven in part by a decrease in public fund deposits of $290 million, $219 million. Year over year, deposits increased $392 million, or 2.6%, driven by growth in commercial and personal balances of $568 million. The cost of total deposits in the fourth quarter was 1.72%, a decrease of 12 basis points length quarter. Our strong, cost-effective core deposit base is a continuing strength of Trustmark. During the fourth quarter, we repurchased $43 million, or 1.1 million shares of our common stock. For the year, we repurchased $80 million, or 2.2 million shares, which represented 3.5 percent of outstanding shares at year-end 2024. As previously announced, we have authorization to repurchase up to $100 million of Trustmark common shares during 2026. This program continues to be subject to market conditions and management discretion. Revenue in the fourth quarter totaled $204 million, while revenue for the full year totaled $800 million, a record year in Trustmark. Net interest income in the fourth quarter totaled $166 million, which produced a net interest margin of 3.81%. For the full year, net interest income totaled $647 million, up 8.4% from the prior year. Noninterest income in the fourth quarter totaled $41 million, up 3.3% linked quarter. In 2025, noninterest income totaled $164 million, representing 20.5% of total revenue. Noninterest expense increased $1.2 million, or 0.9% linked quarter, For the year, non-interest expense totaled $512 million, an increase of 5.5% from the prior year. Diligent expense management continues to be a focus of our organization. From a credit perspective, net charge-offs in the fourth quarter were $7.6 million and included one individually analyzed loan totaling $5.9 million, which was reserved for in prior periods. Net charge-offs represented 0.22% of average loans in the fourth quarter. For the full year, net charge-offs were 13 basis points of average loans. The provision for credit losses in the fourth quarter totaled $1.2 million. The provision for both loans held for investment and off-balance sheet credit exposure were impacted by positive credit migration loan and unfunded commitment growth, and the macroeconomic forecast. In 2025, the provision for credit losses was $12.9 million. At year end, the allowance for credit losses represented 1.15 percent of loans held for investment. Again, very solid credit performance. We've been active on the capital management front, issuing $170 million of 6 percent fixed to floating subject in the fourth quarter. the proceeds of which were used to repay $125 million of existing sub-debt and for general corporate purposes. This action further strengthened our regulatory capital position. At year-end, the CET1 ratio was 11.72%, while our total risk-based capital ratio was 14.41%. Additionally, the Board announced a 4.2% increase in Trustmark's regular quarterly dividend to $0.25 per share from $0.24 per share. This dividend is payable March 15, 2026 to shareholders of record on March 1 and takes our full-year dividend to $1 per share. As previously mentioned, we repurchased $8 million of Trustmark common stock during the year including $43 million in the fourth quarter. At year end, tangible bulk value per share was 30.28, an increase of 2.3 percent from the prior quarter and 13.5 percent from the prior year. I'm very pleased to report that through share repurchase activity and quarterly dividends, Trustmark returned approximately 61.8 percent of net income to 2025 shareholders. Now let's focus on forward guidance, which is on page 15 of the deck. We're providing full year guidance for 26, as well as the 2025 benchmarks upon which the guidance is based. We expect loans held for investment to increase mid-single digits for the full year 2026, and deposits excluding brokered deposits to increase mid-single digits as well. Securities balances are expected to remain stable as we continue to reinvest cash flows. We anticipate the net interest margin will be in the range of 3.8 percent to 3.85 percent for the full year, while we expect net interest income to increase mid-single digits. From a credit perspective, total provision for credit losses, including off-balance sheet credit exposure, is expected to normalize. Non-interest income for full year 2026 is expected to increase mid-single digits as is non-interest expense. We will continue our disciplined approach to capital deployment with a preference for organic loan growth, potential market expansion, M&A, or other general corporate purposes depending on market conditions. At one point, you see pages 17 and 18. showing Trustmark has made significant improvement in its financial performance over the last several years. We're committed to maintaining that momentum into 2026, and with that, I would like to open the floor up to questions.