Performance Reflects Continued Balance Sheet Growth and Strong Credit Quality

Trustmark Corporation (Nasdaq:TRMK) reported net income of $52.0 million in the first quarter of 2021, representing diluted earnings per share of $0.82. Net income in the first quarter produced a return on average tangible equity of 15.56% and a return on average assets of 1.26%. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable June 15, 2021, to shareholders of record on June 1, 2021.

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First Quarter Highlights

• Supported local businesses by originating 4,774 loans totaling $301.5 million (net of $16.5 million in deferred fees and costs) from the SBA’s Paycheck Protection Program (PPP) during the quarter
• Mortgage loan production totaled $766.6 million, down 2.8% from the prior quarter and an increase of 67.7% from levels one year earlier
• Provision for credit losses totaled a negative $10.5 million due to improved credit loss expectations

Duane A. Dewey, President and CEO, stated, “Our first quarter financial performance reflects solid loan and deposit growth, as well as continued increases in our insurance and wealth management businesses. Our mortgage banking revenue remained strong following record-setting levels in the prior quarter. Improvement in the economic outlook resulted in negative provision and expense for credit losses, which also contributed to earnings. We continue to focus on efficiency enhancements throughout the organization, including investments in technology to better serve customers as well as rationalization of the branch network. Trustmark remains well-positioned to serve and expand our customer base and create long-term value for our shareholders.”

Balance Sheet Management

• Loans held for investment (HFI) totaled $10.0 billion, up 1.6% from the prior quarter and 4.3% year-over-year
• Deposits totaled $14.4 billion, an increase of 2.4% linked-quarter and 24.3% year-over-year
• Maintained strong capital position with CET1 ratio of 11.71% and total risk-based capital ratio of 14.07%

Loans HFI totaled $10.0 billion at March 31, 2021, reflecting an increase of $159.2 million, or 1.6%, linked-quarter and $415.8 million, or 4.3%, year-over-year. The linked-quarter growth reflects increases in other real estate secured loans and loans secured by nonfarm, nonresidential properties, which were principally the result of the migration of construction loans as projects were completed. Trustmark’s loan portfolio is well-diversified by loan type and geography.

Deposits totaled $14.4 billion at March 31, 2021, up $334.7 million, or 2.4%, from the prior quarter and $2.8 billion, or 24.3%, year-over-year. Trustmark maintains a strong liquidity position as loans HFI represented 69.4% of total deposits at March 31, 2021. Noninterest-bearing deposits represented 32.7% of total deposits at the end of the first quarter, compared to 31.0% in the prior quarter. Interest-bearing deposit costs totaled 0.22% for the first quarter, a decrease of 5 basis points from the prior quarter. The total cost of interest-bearing liabilities was 0.28% for the first quarter of 2021, a decrease of 2 basis points from the prior quarter.

During the first quarter, Trustmark repurchased $4.2 million, or approximately 145 thousand of its common shares in open market transactions. At March 31, 2021, Trustmark had $95.8 million in remaining authority under its existing stock repurchase program, which expires December 31, 2021. The repurchase program, which is subject to market conditions and management discretion, will continue to be implemented through open market repurchases or privately negotiated transactions. At March 31, 2021, Trustmark’s tangible equity to tangible assets ratio was 8.30%, while its total risk-based capital ratio was 14.07%. Tangible book value per share was $21.59 at March 31, 2021, up 8.4% year-over-year.

Credit Quality

• Allowance for credit losses (ACL) represented 437.08% of nonaccrual loans, excluding individually evaluated loans, at March 31, 2021
• Recoveries exceeded charge-offs by $2.4 million in the first quarter
• Loans remaining under a COVID-19 related concession represented approximately 28 basis points of loans HFI at March 31, 2021

Nonaccrual loans totaled $63.5 million at March 31, 2021, up $386 thousand from the prior quarter and $10.5 million year-over-year. Other real estate totaled $10.7 million, reflecting a $1.0 million decrease from the prior quarter and a decline of $14.2 million year-over-year. Collectively, nonperforming assets totaled $74.2 million at March 31, 2021, reflecting a linked-quarter decrease of $614 thousand and a year-over-year decrease of $3.7 million.

The provision for credit losses was a negative $10.5 million in the first quarter. Negative provisioning was primarily driven by decreases in quantitative reserves as a result of an improving economic forecast.

Allocation of Trustmark’s $109.2 million allowance for credit losses on loans HFI represented 1.13% of commercial loans and 0.95% of consumer and home mortgage loans, resulting in an allowance to total loans HFI of 1.09% at March 31, 2021. Management believes the level of the ACL is commensurate with the present risk in the loan portfolio.

Revenue Generation

• Mortgage banking revenue totaled $20.8 million in the first quarter, reflecting tighter spreads and reduced gains on sale of mortgage loans in the secondary market
• Insurance commissions increased 22.1% from the prior quarter and wealth management revenue rose 7.4% over the same period

Revenue in the first quarter totaled $162.9 million, down 8.2% from the prior quarter and 3.7% from the same quarter in the prior year. The linked-quarter decrease primarily reflects lower interest income and fees from PPP loans and loans HFI and lower net gains on sales of mortgage loans.

Net interest income (FTE) in the first quarter totaled $105.2 million, resulting in a net interest margin of 2.81%, down 34 basis points from the prior quarter. The net interest margin, excluding PPP loans and Federal Reserve Bank balance, totaled 2.99% for the first quarter, a decrease of 10 basis points when compared to the prior quarter. Continued low interest rates decreased the yield on the loans held for investment and held for sale portfolio as well as the securities portfolio and were partially offset by lower costs of interest-bearing deposits.

Noninterest income in the first quarter totaled $60.6 million, a decrease of $5.5 million from the prior quarter and $4.7 million year-over-year. The linked-quarter increases in insurance, wealth management and bank card revenue were more than offset by declines in mortgage banking revenue and service charges on deposit accounts. Mortgage loan production in the first quarter totaled $766.6 million, down 2.8% from the record level in the prior quarter and an increase of 67.7% year-over-year. Mortgage banking revenue totaled $20.8 million in the first quarter, a decrease of $7.4 million from the prior quarter and $6.7 million year-over-year. The linked-quarter decline is principally attributable to reduced spreads which resulted in lower net gains on sales of mortgage loans in the secondary market.

Insurance revenue totaled $12.4 million in the first quarter, up 22.1%, or $2.2 million, from the fourth quarter of 2020 and 7.7%, or $895 thousand, year-over-year. The linked-quarter increase primarily reflects growth in property and casualty commissions. Wealth management revenue in the first quarter totaled $8.4 million, an increase of $578 thousand, or 7.4%, from the prior quarter and relatively unchanged year-over-year. The linked-quarter growth reflects both higher trust management fees and brokerage and investment services revenue.

Bank card and other fees increased $365 thousand, or 4.0%, from the prior quarter and $4.1 million, or 76.9%, year-over-year, reflecting higher customer derivative revenue. Service charges on deposit accounts decreased $927 thousand, or 11.2%, from the prior quarter and $2.7 million, or 26.7%, year-over-year. The decline is due largely to reduced NSF/OD occurrences attributable in part to stimulus programs to address the COVID-19 pandemic.

Noninterest Expense

• Noninterest expense totaled $112.2 million in first quarter, down 5.6% from the prior quarter
• Adjusted noninterest expense, which excludes amortization of intangibles, ORE expenses, and credit losses for off-balance sheet credit exposures, increased $629 thousand, or 0.5%, from the prior quarter; please refer to the Consolidated Financial Information, Footnote 8– Non-GAAP Financial Measures
• Continued to realign delivery channels to reflect changing customer preferences

Adjusted noninterest expense in the first quarter was $120.2 million, up $629 thousand, or 0.5%, from the prior quarter. Salaries and employee benefits increased $1.5 million linked-quarter principally due to payroll taxes and increases for performance-based commissions. Services and fees increased $157 thousand and net occupancy-premises expense grew $179 thousand during the first quarter compared to the prior quarter.

Credit loss expense related to off-balance sheet credit exposures was a negative $9.4 million in the first quarter, reflecting the improvement of the macroeconomic factors used to determine the necessary reserves for off-balance sheet credit exposures. Other real estate expense, net totaled $324 thousand for the first quarter compared to a negative $812 thousand for the fourth quarter of 2020, reflecting lower net gains on sale of other real estate.

Trustmark continued to invest in technology to enhance efficiency. Digital transformation initiatives, including a completely redesigned, state-of-the-art website to promote engagement and enhance the customer experience, position Trustmark for additional growth. During the first quarter, Trustmark continued to realign delivery channels and closed seven offices, reflecting changing customer preferences and the continued migration to mobile and digital banking channels. Additionally, two new offices were opened, one each in the Memphis, TN MSA and the Jackson, MS MSA. Each of these offices features a design that integrates myTeller^® interactive teller machine technology as well as provides enhanced areas for customer interaction.

“Looking forward, Trustmark will continue to focus upon efficiency, growth and innovation opportunities while building upon our solid risk management processes, corporate culture and core values. We will continue to optimize delivery channels and introduce technology to enhance growth and efficiency opportunities. We will provide the services and advice our customers have come to expect while building long-term value for our shareholders,” said Dewey.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, April 28, 2021 at 8:30 a.m. Central Time to discuss the Corporation’s financial results. Interested parties may listen to the conference call by dialing (877) 317-3051 or by clicking on the link provided under the Investor Relations section of our website at www.trustmark.com. A replay of the conference call will also be available through Wednesday, May 12, 2021, in archived format at the same web address or by calling (877) 344-7529, passcode 10153927.

Trustmark is a financial services company providing banking and financial solutions through 181 offices in Alabama, Florida, Mississippi, Tennessee and Texas.

Forward-Looking Statements

Certain statements contained in this document constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “project,” “potential,” “seek,” “continue,” “could,” “would,” “future” or the negative of those terms or other words of similar meaning. You should read statements that contain these words carefully because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements include, but are not limited to, statements relating to anticipated future operating and financial performance measures, including net interest margin, credit quality, business initiatives, growth opportunities and growth rates, among other things, and encompass any estimate, prediction, expectation, projection, opinion, anticipation, outlook or statement of belief included therein as well as the management assumptions underlying these forward-looking statements. You should be aware that the occurrence of the events described under the caption “Risk Factors” in Trustmark’s filings with the Securities and Exchange Commission could have an adverse effect on our business, results of operations and financial condition. Should one or more of these risks materialize, or should any such underlying assumptions prove to be significantly different, actual results may vary significantly from those anticipated, estimated, projected or expected.

Risks that could cause actual results to differ materially from current expectations of Management include, but are not limited to, changes in the level of nonperforming assets and charge-offs, an increase in unemployment levels and slowdowns in economic growth, our ability to manage the impact of the COVID-19 pandemic on our markets and our customers, as well as the effectiveness of actions of federal, state and local governments and agencies (including the Board of Governors of the Federal Reserve System (FRB)) to mitigate its spread and economic impact, local, state and national economic and market conditions, conditions in the housing and real estate markets in the regions in which Trustmark operates and the extent and duration of the current volatility in the credit and financial markets, levels of and volatility in crude oil prices, changes in our ability to measure the fair value of assets in our portfolio, material changes in the level and/or volatility of market interest rates, the performance and demand for the products and services we offer, including the level and timing of withdrawals from our deposit accounts, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, our ability to attract noninterest-bearing deposits and other low-cost funds, competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, economic conditions, including the potential impact of issues related to the European financial system and monetary and other governmental actions designed to address credit, securities, and/or commodity markets, the enactment of legislation and changes in existing regulations or enforcement practices or the adoption of new regulations, changes in accounting standards and practices, including changes in the interpretation of existing standards, that affect our consolidated financial statements, changes in consumer spending, borrowings and savings habits, technological changes, changes in the financial performance or condition of our borrowers, changes in our ability to control expenses, greater than expected costs or difficulties related to the integration of acquisitions or new products and lines of business, cyber-attacks and other breaches which could affect our information system security, natural disasters, environmental disasters, pandemics or other health crises, acts of war or terrorism, and other risks described in our filings with the Securities and Exchange Commission (SEC).

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Except as required by law, we undertake no obligation to update or revise any of this information, whether as the result of new information, future events or developments or otherwise.