Performance Reflects Continued Loan Growth, Strong Credit Quality, Asset Sensitive Balance Sheet and Diversified Fee Income

Trustmark Corporation (NASDAQGS: TRMK) reported net income of $42.5 million in the third quarter of 2022, representing diluted earnings per share of $0.69. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable December 15, 2022, to shareholders of record on December 1, 2022.

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Third Quarter Highlights

• Loans held for investment (HFI) increased $641.2 million, or 5.9%, from the prior quarter
• Deposits totaled $14.4 billion, with noninterest-bearing deposits representing 30.2% of total deposits
• Total revenue expanded 13.7% from the prior quarter to $188.7 million
• Net interest income (FTE) increased 20.3% from the prior quarter to $139.1 million, resulting in a 60 basis point expansion in the net interest margin to 3.50%
• Noninterest income totaled $52.6 million, representing 27.9% of total revenue
• Credit quality remained solid; net charge-offs totaled $1.0 million, or 0.03% of average loans

Duane A. Dewey, President and CEO, stated, “Trustmark’s solid financial performance during the third quarter reflected significant loan growth, net interest margin expansion, solid performance in our insurance and wealth management businesses, and strong credit quality. We continued to invest in technology enhancements, rationalize our branch network and add business lines to grow and serve customers. Trustmark is well-positioned to respond to changing economic conditions and create long-term value for our shareholders.”

Balance Sheet Management

• Loans HFI totaled $11.6 billion, up 5.9% from the prior quarter and 13.9% year-over-year
• Investment securities totaled $3.6 billion, down 4.8% from the prior quarter and up 4.3% year-over-year
• Deposits totaled $14.4 billion, down 2.3% from the prior quarter and 3.3% year-over-year
• Initiated a cash flow hedging program to manage asset sensitivity
• Maintained strong capital position with CET1 ratio of 10.63% and total risk-based capital ratio of 12.85%

Loans HFI totaled $11.6 billion at September 30, 2022, reflecting an increase of $641.2 million, or 5.9%, linked-quarter and $1.4 billion, or 13.9%, year-over-year. The linked-quarter growth was broad-based, reflecting increases in virtually every category. Trustmark’s loan portfolio remains well-diversified by loan type and geography.

Deposits totaled $14.4 billion at September 30, 2022, down $345.0 million, or 2.3%, from the prior quarter and $497.7 million, or 3.3%, year-over-year. Trustmark continues to maintain a strong liquidity position as loans HFI represented 80.3% of total deposits at September 30, 2022. Noninterest-bearing deposits represented 30.2% of total deposits at the end of the third quarter. Interest-bearing deposit costs totaled 0.20% in the third quarter, an increase of 9 basis points from the prior quarter. The total cost of interest-bearing liabilities was 0.31% in the third quarter of 2022, an increase of 14 basis points from the prior quarter.

During the third quarter Trustmark initiated a cash flow hedging program under which interest rate swaps convert floating rate loans to fixed rate. The intent of the program is to manage the natural asset sensitivity of Trustmark’s balance sheet. As of September 30, 2022, notional balances totaled $675.0 million with a weighted average receive fixed rate of 2.98%.

Trustmark repurchased $8.0 million, or approximately 247 thousand of its common shares during the third quarter. During the nine months ended September 30, 2022, Trustmark repurchased $24.6 million, or approximately 789 thousand of its common shares. At September 30, 2022, Trustmark had $75.4 million in remaining authority under its existing stock repurchase program, which expires on December 31, 2022. 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 September 30, 2022, Trustmark’s tangible equity-to-tangible assets ratio was 6.67% while its total risk-based capital ratio was 12.85%. Tangible book value per share was $18.39 at September 30, 2022, down 6.1% from the prior quarter reflecting a decline in accumulated other comprehensive income due to mark-to-market adjustments on securities available for sale resulting from the increase in market interest rates during the third quarter.

Credit Quality

• Provision for credit losses for loans HFI was $12.9 million, largely driven by reserves related to loan growth and a less positive outlook within the macroeconomic forecasts
• Allowance for credit losses (ACL) represented 466.0% of nonaccrual loans, excluding individually evaluated loans at September 30, 2022

Nonaccrual loans totaled $67.9 million at September 30, 2022, up $5.9 million from the prior quarter and $1.7 million year-over-year. Other real estate totaled $3.0 million, reflecting a $63 thousand decrease from the prior quarter and a decline of $3.2 million year-over-year. Collectively, nonperforming assets totaled $70.9 million at September 30, 2022, reflecting a linked-quarter increase of $5.8 million and a year-over-year decrease of $1.6 million.

The provision for credit losses for loans HFI was $12.9 million in the third quarter. This provisioning was primarily driven by reserves related to loan growth, individually analyzed reserves, and a less positive outlook within the macroeconomic forecasts partially offset by adjustments to the pandemic reserve. The provision for credit losses for off-balance sheet credit exposures was a negative $1.3 million in the third quarter. Collectively, the provision for credit losses totaled $11.6 million in the third quarter compared to $1.1 million in the prior quarter and a negative $3.5 million in the third quarter of 2021.

Allocation of Trustmark’s $115.1 million allowance for credit losses on loans HFI represented 0.93% of commercial loans and 1.20% of consumer and home mortgage loans, resulting in an allowance to total loans HFI of 0.99% at September 30, 2022. Management believes the level of the ACL is commensurate with the credit losses currently expected in the loan portfolio.

Revenue Generation

• Total revenue increased $22.8 million, or 13.7%, linked-quarter
• Net interest income (FTE) expanded $23.5 million, or 20.3%, linked-quarter
• Noninterest income totaled $52.6 million, representing 27.9% of total revenue in the third quarter

Revenue in the third quarter totaled $188.7 million, an increase of $22.8 million, or 13.7%, from the prior quarter and $36.3 million, or 23.8%, from the same quarter in the prior year. The linked-quarter and year-over-year increases were principally due to higher net interest income resulting from increased average earning assets and rising interest rates.

Net interest income (FTE) in the third quarter totaled $139.1 million, resulting in a net interest margin of 3.50%, up 60 basis points from the prior quarter. The expansion of the net interest margin was due to increases in the yields on the loans held for investment and held for sale portfolio and the securities portfolio and was partially offset by costs of interest-bearing deposits, which resulted from the higher interest rate environment.

Noninterest income in the third quarter totaled $52.6 million, a decrease of $647 thousand from the prior quarter and $1.5 million year-over-year. The linked-quarter decline was attributable to lower mortgage banking revenue, bank card and other fees, and wealth management revenue, which were offset by increased service charges on deposit accounts, other, net revenue and insurance commissions. Mortgage loan production in the third quarter totaled $508.3 million, down 25.4% from the prior quarter and 28.3% year-over-year. Mortgage banking revenue totaled $6.9 million in the third quarter, a decrease of $1.3 million from the prior quarter and $7.1 million year-over-year. The linked-quarter decline was principally attributable to lower gains on sales of mortgage loans in the secondary market.

Insurance revenue totaled $13.9 million in the third quarter, up $209 thousand, or 1.5%, linked-quarter and up $1.8 million, or 14.7%, year-over-year due in part to increased property and casualty commissions. Wealth management revenue totaled $8.8 million in the third quarter, a decrease of $324 thousand, or 3.6%, from the prior quarter and $293 thousand, or 3.2%, year-over-year as growth in investment management services was more than offset by lower trust management and brokerage revenue. Service charges on deposit accounts increased $1.1 million, or 10.7%, from the prior quarter and $2.4 million, or 27.0%, year-over-year. Bank card and other fees decreased $862 thousand from the prior quarter and increased $756 thousand year-over-year.

Noninterest Expense

• Noninterest expense totaled $126.7 million in the third quarter, up $2.9 million, or 2.4%, from the prior quarter
• Investments in new Atlanta loan production office (LPO) and establishment of Equipment Finance line of business reflected in increased salary and benefit expense
• Efficiency ratio improves to 64.96%

Noninterest expense in the third quarter was $126.7 million, up $2.9 million, or 2.4%, from the prior quarter. Salaries and employee benefits increased $1.0 million, or 1.4%, linked-quarter due primarily to expansion initiatives including the opening of a LPO in Atlanta as well as the establishment of the Equipment Finance line of business. Total services and fees increased $1.3 million, or 5.1%, linked-quarter due to increased professional fees associated with technology and risk management initiatives. Office occupancy expense increased $503 thousand, or 7.3%, linked-quarter due in part to seasonal increases in utilities and increased rental expense.

FIT2GROW

“Earlier this year, we announced FIT2GROW, a comprehensive program of Focus, Innovation and Transformation designed to enhance Trustmark’s ability to grow and serve customers. As part of this program, we are focusing our community bank efforts on commercial, small business, and consumer lines of business to provide additional expertise for our customers and enhance profitable revenue growth. We have also expanded geographically with the opening of a loan production office in Atlanta, which is focused on Commercial Real Estate, Residential Real Estate, Corporate Banking, and Equipment Finance,” said Dewey.

“Innovation is also a key component of FIT2GROW. In recent years, investments in state-of-the-art technology were made in Trustmark’s insurance, wealth management and mortgage banking areas as well as in human resources and accounting systems. We also made significant upgrades to our mobile banking platform, ITM network and digital marketing programs. Collectively, these investments have positioned Trustmark for growth and efficiency. During the third quarter, we successfully converted to a new core loan system and will be implementing a state-of-the-art loan origination platform during the fourth quarter. Collectively, these investments are designed to provide best-in-class service to customers as well as enhance our productivity and efficiency,” said Dewey.

“We have accelerated efforts to optimize our branch network, reflecting changing customer preferences and the continued migration to mobile and digital channels as announced in the first quarter. To date, eight offices have been closed in 2022, and four additional offices are scheduled to close in the fourth quarter. We will continue to pursue opportunities to redesign workflows and restructure the organization,” said Dewey.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, October 26, 2022, 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, November 9, 2022, in archived format at the same web address or by calling (877) 344-7529, passcode 8003135.

Trustmark is a financial services company providing banking and financial solutions through offices in Alabama, Florida, Georgia, 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 (SEC) 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. Furthermore, many of these risks and uncertainties are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the novel coronavirus (COVID-19) pandemic, and also by the effectiveness of varying governmental responses in ameliorating the impact of the pandemic on our customers and the economies where they operate.

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, 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 recent heightened levels of inflation and the reactions of the FRB and other governmental departments and agencies in response thereto, 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 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.