Good morning, ladies and gentlemen, and welcome to Trustmark Corporation Third 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 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 continued 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 3, 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 or 3.4% linked quarter. Noninterest-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 4 basis points linked quarter, very effective cost-effective growth, very 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…

[Operator Instructions] The first question comes from Stephen Scouten with Piper Sandler.

You guys mentioned, and apologies, I missed like the first minute or 2 of the call, but I know you mentioned in the release, some of the expense growth was on progress on the new hire front. Can you give any color around kind of year-to-date hires quarter -- what you saw in the quarter and kind of what you have planned moving forward from a hiring perspective, assuming that's still kind of focused Houston, Birmingham, Atlanta, I think as you've spoken to previously?

Right. Great question. And I'll start, Stephen. We hired approximately 29 new associates in the third quarter alone. 21 of those 29 new associates are production related, either direct producers or direct support of production. And those across all business units from commercial real estate, equipment finance, corporate banking, commercial banking and the markets you noted are absolutely the markets of focus. Houston, Birmingham, Huntsville, Alabama, the Panhandle of Florida, South Alabama and Atlanta. And the 21 are included in each one of those markets. So we consider that a major focus for the organization here moving forward. I don't know that we'll hit those levels in every quarter. We likely fourth quarter will not reach that level of new associates. But moving into the coming year or 2, we're very focused on that organic strategy in those key markets.

Okay. And would you expect to see some incremental expense build in the fourth quarter kind of related to the recent hiring levels? It seems as though to get to the increase in mid-single digits year-over-year, there needs to be a little bit of an uptick in the expense base from this quarter, but I want to make sure I'm thinking about that right.

Stephen, this is Tom Chambers. Yes, that's true. What hit us in the third quarter for the additional new hires was about $400,000. And of course, that's because we're hiring throughout the quarter, fully loaded, we would expect that to increase during the fourth quarter.

I will add to that, Stephen. There are some, we'll call them, nonroutine parts of that expense because there are recruiting fees. There's onetime signing bonuses and things like that, that are mixed into that. So at a run rate level, Tom noted the amount, but I would say there were some nonroutine things that would be included in that total. Additionally, as you know, I mean, the expectation is we're adding the talent to produce revenue as well. And so we will factor that into coming revenue projections.

Sure. That makes sense. And then lastly for me, just around the share repurchase. I think you said previously maybe $10 million to $15 million a quarter is the right way to think about that. But just kind of curious, given how bank stocks have been trading and just how rapidly you're building capital, if you would think about upsizing that range potentially and kind of how you think about that earnback on the repurchase versus potential M&A?

Stephen, this is Tom Owens. I'll start. So yes, we've been very pleased at our ability to continue to deploy capital via repurchase while supporting loan growth and continuing to drive nice accretion to our regulatory capital ratios, I think we're up 18 basis points linked quarter. Certainly, as you suggest, as our capital levels continue to build, it may well be the case that as we enter '26 that we'd probably lean more proactively into share repurchase depending on how loan growth plays out. I think for the fourth quarter, it's reasonable to assume that we'll remain on the pace that we've been, which is about $50 million for this year.

The next question comes from Michael Rose with Raymond James.

So there's clearly been some M&A within some of the markets that you guys operate on. I was just wondering if you could discuss maybe some of the opportunities, maybe expanding on Stephen's question just for hiring as we move forward. And if you think that kind of a mid-single-digit growth rate for -- I know it's a little early, but for next year is something we should contemplate given some of the opportunities that are in front of you and given some of the hires that you put in place.

I'll start. Michael, absolutely. We think that and prior experience would say that every M&A deal in given markets does present opportunity. It's both to some extent on the hiring side and to some extent on the customer, customer acquisition side. And we look at it like that. I mean it's a competitive world. The one that was announced here recently in the last day or so is very much -- there's a lot of overlap in our markets. And we compete against them today. We have competed against them for a very long time. So it goes with the territory. No real change, I don't think from a real competitive perspective, but we do see it as creating opportunity for us. And it is really in predominantly all markets that we serve today. So I think good opportunity ahead.

Okay. Helpful. And then maybe just stepping back, I do appreciate the new slide you put in. Obviously, there's been some real good progress due in part somewhat to the sale of the insurance business and the restructure a couple of years ago. What's kind of the next evolution here, I guess, is what I'm trying to ask. Where do you think some of those numbers could go? And maybe if you can discuss some of the puts and takes of kind of getting to whatever the new numbers as we move over the next few years might be? Like what are some of the opportunities you guys see? And then what are some of the headwinds you guys think you're going to face?

So Michael, this is Tom Owens. I'll start. First and foremost, when you look at those slides, I think the fourth quarter is likely to continue those trends. And then to your question about the longer term and what's the next evolution, we're focused on continuing to drive competitive growth in PPNR, which we think mid-single digits is reasonable in that regard. And I think when you add the deployment of capital from our strong run rate profitability, as I just mentioned earlier, as we head into '26, we're likely to -- we'll see where loan growth shakes out. Clearly, that's our preferred method of deployment for capital. But given that we're approaching now 12% in terms of CET1, I think it's safe to say that we'll probably deploy at a more proactive rate in 2026. So I think we're on pace this year to retire something like 2% of our shares outstanding. And so I think if you add mid-single-digit growth in PPNR to low single-digit decline in EPS outstanding, I think we're likely to wind up in high single-digit growth in EPS, would be a baseline. And then I'll let Duane and maybe Barry speak to what the opportunities might be from there.

Well, I would add to that. And as we already discussed in the prior question, it allows better financial performance, all in all, allows us to invest in that organic strategy. And so we're very focused. We're very focused on key growth markets. We believe we operate already in very significant growth markets in our footprint. And we're focused in all business lines really at expanding in those key markets. And the improved financial performance allows us the ability to do that a little more aggressively than we had in prior years. So we're very optimistic there. A market like Huntsville, Alabama, that would be considered one of the top growth markets in the country, we hired a fantastic group of new bankers in that market. Very, very excited about them joining Trustmark. We've added teams across a couple of the other markets I already mentioned, Atlanta, Birmingham and so on. So the improved financial performance allows us to invest in that organic strategy. And then the last comment I'd say, of course, there's a lot of activity right now. We're very aware of what's going on, on the M&A front around us. There are discussions across the board up and down. So we're staying in tune with that. In a lot of cases, that creates additional opportunities. So we're on it. We like the organic strategy, though, at this point.

The next question comes from Feddie Strickland with Hovde Group.

Just wanted to kick it off with a clarification question on expenses. It sounded like you might be guiding towards a little higher expenses in the fourth quarter. Is that the case? Because I thought you might have that $900,000 of nonroutine professional fees and maybe the ORE expense come down a little bit.

This is Tom Chambers. Yes, we expect, obviously, those nonrecurrings should fall off, but we're still guiding to mid-single-digit growth year-over-year in expenses. So if you look at our fourth quarter, we will have a slight increase in expense or expected expense without nonrecurring items.

Got it. And then just shifting gear to the margin. Just given the asset-sensitive balance sheet, is it fair to assume we see a little bit of compression from here or near term and maybe a little bit of recovery just as deposits catch up down the road?

This is Tom Owens. I'll take that. It's sort of a yes and no on that. First of all, you saw we printed a 2 basis point linked quarter increase in net interest margin for the quarter from 3.81% to 3.83%. We've talked in the past about the ongoing repricing of the back book fixed rate loans for both loans and securities providing a bit of a tailwind. And I think that's what you saw with the 2 basis point increase in loan yield quarter-over-quarter. We are slightly asset sensitive. And so when the Fed cuts, we have to be pretty proactive in terms of cutting deposit rates to maintain net interest margin on a linked-quarter basis. And clearly, that is our intention. We anticipate that the Fed will cut tomorrow or later today and then again in December. And then I think we have 3 cuts penciled in for 2026, so ending the year at about 3% at the top end of the range. So yes, in the short term, there can be some headwind. It just depends on how depositors and competitors in the market react to those cuts that we make in deposit rates. But we are optimistic about maintaining NIM in this general area of 3.80% to 3.83%. When I look at analyst estimates for the fourth quarter, I think I see something like 3.83%, which is the number we just presented. And then when I look at full year estimates for '26, I think I see a median estimate there of 3.82%. And so I think those are reasonable numbers. I think that there might be some choppiness quarter-to-quarter, as you suggest. But as we manage our way through it, on average, I think we would see net interest margin continuing to be in about this range where we are now. And I'll make the point, we're at about 3.80% year-to-date. And so I think we're stabilizing here, but it might be choppy quarter-to-quarter.

Just one other quick question. I was just wondering if you could talk about trends in classified and criticized loans. The provision was a little lower this quarter. So I was kind of curious if either of those were flat or maybe even went down a little bit.

Sure. Frank, this is Barry. I was just going to mention that we did have a nice trend down of about $49 million in criticized loans this quarter. That gives us a trend down of about $123 million for the first 3 quarters of this year. So very encouraged by that, especially given the fact that we kind of were flat in the first quarter. So that $123 million has really come in the last 2 quarters. And so we're very encouraged by that positive trend. Like most of our peer banks, we trended up all during 2024, criticized, classified. And then we flattened out in the first quarter, felt like that was an inflection point. It turned out to be. And then we've been moving down at a nice pace, both Q2 and Q3 of this year. So we're very encouraged by that. That is part of our lower provision. That is 1 of probably 4 factors that went into the provision being lower this quarter than it has been in Q1 and Q2.

The next question comes from the line of Catherine Mealor with KBW.

Just one follow-up on the margin. Just if we can kind of look at some of the components, it was interesting to see deposit costs increase a little bit this quarter. And I know we've got the cut and maybe another one today coming. But can you talk a little bit about where you're seeing deposit cost trends and maybe how you're thinking about the beta over this next round of cuts relative to what we've seen over the past round of cuts. And as kind of growth improves and maybe competition picks up, if it's fair to model maybe a little bit more conservative beta moving forward.

Sure, Catherine. This is Tom Owens. Yes, the linked quarter increase in net interest margin, it almost builds on the answer that I just gave to Feddie, which is we are asset sensitive. We do have an extremely valuable deposit base, which we continue to demonstrate as we manage our way through interest rate cycles. Because we're slightly asset sensitive, we try to be proactive in pricing down deposits to maintain net interest margin. And it's always a balancing act, right? You're always trying to optimize that. I mean you want to reduce rates paid on deposits as much as you can at the same time as you're trying not to drive unwanted attrition of profitable customers. And so most of what we saw in the third quarter is what I'll call the pushback, right, the extent to which you cut deposit rates, but depositors push back. And so certainly, we have a framework in place where when depositors push back, the more profitable the customer and the stronger the pushback, the more willing and able we are to accommodate with exception interest pricing. And so that's largely what drove that linked quarter increase, Catherine. We also engaged in a pretty proactive promotional deposit campaign during the third quarter. Our loan-to-deposit ratio at the second quarter had risen to 89% from 87% at year-end '24. We wanted to manage that back down a bit. We were very pleased with the execution of that campaign. So that was a bit of a driver to that, but not a big driver. I'd say in the third quarter, it continued to be what I would characterize as a surprisingly competitive environment for deposits in our space with loan growth in the industry generally outpacing deposit growth somewhat. So surprisingly competitive in the third…

Very helpful color and perspective. And then maybe the other side of it, on just loan yields, can you talk about where incremental new loan pricing is coming on today?

Catherine, this is Barry. It varies kind of dealing with the categories. I would say, outside of CRE, it's remained pretty consistent. We haven't seen a lot of changes there. I would say within the CRE category, it has gotten more competitive than it was earlier in the year and definitely more competitive than it was last year. And so the good news is there's a lot more deal flow. I was looking at the production for the last 4 quarters relative to the prior 4 quarters. And fourth quarter of '24 through the first 3 quarters of this year, our production is much, much stronger on the CRE side. Having said that, the pricing is more competitive. And so when you think about the spread, when you think about the origination fee, we've been yielding and that industry has really been yielding for quite a while. It is getting more competitive just to the number of players who are, I would say, back in the market that hadn't been previously. And that's been pretty much true for this entire year. There's been a lot more opportunities. We've been pitching on a lot more deals. We probably have landed -- we have landed a few more deals than we did in the previous 4 quarters, but not as much as you would think based upon the number of opportunities. And we are landing those. They are -- the price is thinner on the spread and the price is thinner on the fee within the CRE category. The rest of the categories are pretty similar to the way they've been in terms of the competition and the rates that we're able to yield.

The next question comes from the line of Gary Tenner with D.A. Davidson.

A lot of my questions have been asked. But I wanted to just follow up on your comments around the recruiting in the quarter. As you think of the kind of producer or producer supporting hires, any kind of particular segment that you're leaning into? I think you talked that it's pretty varied geographically. But from a segment perspective, anything you're particularly leaning into or anything you're particularly focused on the deposit side in terms of the hires you made.

So in general, I'll say we really are focused geographically. We're focused on the markets that we feel present the best growth opportunity. And I've mentioned those previously, the Houstons, Atlantas, the Birmingham, Huntsville, Panhandle and South Alabama present in our mind and Jackson, Mississippi, frankly, but those present the best growth opportunities. So we're focused on our business lines in those markets. To date, I would say if we're focused in specific categories, we've had pretty good success on the equipment finance team, we've added producers in that, which we've talked about the last several quarters as being -- we're very pleased with the growth experienced in that business and are seeing good opportunity there. And we've had a really, really good approach and really nice team build there, and that's been an area of focus. But I would say of the ones that I've mentioned earlier, 21 new hires, it is pretty evenly spread between CRE, corporate banking, commercial banking. We've even actually in a somewhat challenging market has created some opportunity on the mortgage front. In markets where we have not had a mortgage production side, we've added a handful of mortgage producers. So it's pretty well diversified across all the business lines that we serve with a little more focus on specific growth markets.

I appreciate the comments there. And then just on the deposit side, given the guide you gave for the fourth quarter, in terms of the public funds deposits, which are 13%, 14% of your total deposits, what's the repricing timing of that segment?

This is Tom. So with respect to the public fund balances, by and large, those are administered rate or floating rates, even indexed down. It's a really small percentage of those that are bid on some fixed rate for any extended period of time.

The next question comes from the line of Christopher Marinac with Janney Montgomery Scott.

Tom, you had touched a little bit on funding in some of the earlier questions, but I kind of wanted to ask at large. I mean, what is your thought about initiatives to fund the balance sheet the next couple of years? Should we expect to see the loan-to-deposit ratio around the sort of high 80s? Do you think it can trend differently? And I guess just is M&A a part of that funding strategy in the big picture?

So there's a lot there, Chris. It's a great question. I'll start off by saying that, as I said earlier, loan growth had outpaced deposit growth in the earlier part of the year, and we were -- in the first half of the year, and so our loan-to-deposit ratio had floated up to 89%. We really want to keep that in the mid-80s, mid to high 80s. We do not want that floating up into the 90s. And so yes, you should expect us to maintain that type of liquidity. As I said, we were really pleased with the execution of the promotional money market program in the third quarter. And I think we had -- so we had conducted a similar campaign in the third quarter of '24. And then fourth quarter '24 through second quarter of '25, we were not nearly as proactive in terms of promotional deposit campaign activity. So to your point, do we have the opportunity to continue to fund deposit growth to match loan growth. We're very confident in our ability to do that. The way I think about that is going to a more sort of always-on approach in terms of the next promotional campaign, and there's certainly different and more proactive techniques that we can employ. The techniques we've employed have been reasonably conservative in that regard, and so pretty cost effective in bringing on new balances. But we're confident in our ability to fund loan growth cost effectively. And I guess I would maybe turn it over to Duane to address the issue to the extent to which that does or does not play into our view on acquisition opportunities.

Yes. Just a couple of notes. I mean one thing I did not mention when I was answering Gary's question a minute ago, the other element of that production staff has been on the treasury management side. So we have added treasury management talent. All of our RMs across our entire system have deposit growth goals. And Tom, you may have the number in front of you of commercial growth in the third quarter, but we have experienced solid commercial deposit growth as well, which has been part of that strategy. As we talk about our organic strategy, it's very focused on full relationship, including the deposit side. And like I said, in the third quarter, we're very pleased with progress there. And as we bring on the new talent, that's -- of course, loan growth, deposit growth, they're all part of the strategy. So that's a key part. In terms of M&A, yes, deposits, core deposits, core funding, that's all part of the equation. And as I stated a bit ago, there is a lot of discussion going on out in the market. We're continuing to be very focused and very disciplined executing on our organic strategy and hopefully opportunistic when the right partner presents itself, and we'll consider that as it goes. And I would say, yes, deposits are a part of that consideration.

And I would just follow up then, Chris, to Duane's point. You look at the $370 million of deposit growth we had in the third quarter, it was pretty evenly balanced between personal and commercial. Commercial was something like $180 million or so. And then of the personal, that was pretty evenly mixed between the promotional campaign that I mentioned and then just fundamental organic growth.

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 the questions, and thank you for being on the call. We look forward to getting back together at the end of the fourth quarter, and hope you have a great rest of the week. Thank you.

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