Loan Growth Moderates, Credit Quality Remains Stable

Solid Growth in Fee Income and Disciplined Expense Management Reflected in Financial Results

Trustmark Corporation (NASDAQGS:TRMK) reported net income of $41.5 million in the first quarter of 2024, representing diluted earnings per share of $0.68. Trustmark’s performance during the first quarter produced a return on average tangible equity of 12.98% and a return on average assets of 0.89%. The Board of Directors declared a quarterly cash dividend of $0.23 per share payable June 15, 2024, to shareholders of record on June 1, 2024.

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First Quarter Highlights

• Loans held for investment increased 0.8% linked-quarter and represented 85.1% of total deposits at March 31, 2024
• Credit quality remained solid
• Revenue totaled $188.2 million, up 0.9% linked-quarter
• Noninterest income increased 11.1% linked-quarter, reflecting seasonal increases and the strength of diversified business lines
• Noninterest expense decreased 3.9% linked-quarter, reflecting on-going expense management priorities

Duane A. Dewey, President and CEO, stated, “We are off to a great start in 2024. Our first quarter results reflect continued loan growth, solid credit quality, and double-digit increases in noninterest income. In addition, we experienced a meaningful decrease in noninterest expense. These accomplishments are the results of our focused efforts to expand customer relationships and diligently manage expenses. Our associates have done a tremendous job of serving customers, building relationships, and demonstrating the value Trustmark can provide as our customers’ financial partner. We are well positioned to serve and expand our customer base and create long-term value for shareholders.”

Balance Sheet Management

• Loans held for investment (HFI) increased $107.4 million, or 0.8%, during the quarter
• Total deposits decreased $231.2 million, or 1.5%, during the quarter
• Maintained strong capital position with CET1 ratio of 10.12% and total risk-based capital ratio of 12.42%

Loans HFI totaled $13.1 billion at March 31, 2024, reflecting an increase of $107.4 million, or 0.8%, linked-quarter and $560.7 million, or 4.5%, year-over-year. The linked-quarter growth reflected increases in commercial real estate and equipment finance loans offset in part by reductions in state and other political subdivision loans and consumer loans. Trustmark’s loan portfolio remains well-diversified by loan type and geography.

Deposits totaled $15.3 billion at March 31, 2024, down $231.2 million, or 1.5%, from the prior quarter and up $554.9 million, or 3.8%, year-over-year. Trustmark continues to maintain a strong liquidity position as loans HFI represented 85.1% of total deposits at March 31, 2024. Migration into higher-yielding products continued to drive a change in deposit mix from noninterest-bearing deposits, which represented 19.8% of total deposits at March 31, 2024. Interest-bearing deposit costs totaled 2.74% for the first quarter, an increase of 7 basis points linked-quarter, while the total cost of deposits was 2.18%, an increase of 8 basis points linked-quarter. The total cost of interest-bearing liabilities in the first quarter was 2.92%, up 3 basis points from the prior quarter.

During the first quarter, Trustmark did not repurchase any of its outstanding common shares. As previously announced, Trustmark’s Board of Directors authorized a stock repurchase program effective January 1, 2024, under which $50.0 million of Trustmark’s outstanding shares may be acquired through December 31, 2024. At March 31, 2024, Trustmark’s tangible equity to tangible assets ratio was 7.20%, while the total risk-based capital ratio was 12.42%. Tangible book value per share was $21.18 at March 31, 2024, an increase of 1.5% from the prior quarter and 10.1% from the prior year.

Credit Quality

• Net charge-offs totaled $4.1 million, representing 0.12% of average loans in the first quarter
• Provision for credit losses for loans HFI was $7.7 million in the first quarter
• Allowance for credit losses (ACL) represented 1.10% of loans HFI and 235.29% of nonaccrual loans, excluding individually analyzed loans at March 31, 2024

Nonaccrual loans totaled $98.4 million at March 31, 2024, down $1.7 million from the prior quarter and an increase of $26.0 million year-over-year. Other real estate totaled $7.6 million, reflecting increases of $753 thousand and $5.9 million from the prior quarter and prior year, respectively. Collectively, nonperforming assets totaled $106.0 million, representing 0.80% of loans HFI and held for sale (HFS) at March 31, 2024.

The provision for credit losses for loans HFI was $7.7 million in the first quarter and was primarily attributable to loan growth, changes in the macroeconomic forecast, and net adjustments to the qualitative factors. The provision for credit losses for off-balance sheet credit exposures was a negative $192 thousand in the first quarter. Collectively, the provision for credit losses totaled $7.5 million in the first quarter compared to $6.7 million in the prior quarter and $1.0 million in the first quarter of 2023.

Allocation of Trustmark’s $143.0 million ACL on loans HFI represented 0.93% of commercial loans and 1.63% of consumer and home mortgage loans, resulting in an ACL to total loans HFI of 1.10% at March 31, 2024. Management believes the level of the ACL is commensurate with the credit losses currently expected in the loan portfolio.

Revenue Generation

• Net interest income (FTE) totaled $136.2 million in the first quarter, down 2.8% linked-quarter
• Net interest margin totaled 3.21% in the first quarter, down 4 basis points from the prior quarter
• Noninterest income increased 11.1% linked-quarter to total $55.3 million, reflecting growth in mortgage banking, insurance, other income, and wealth management revenue

Revenue in the first quarter totaled $188.2 million, an increase of 0.9% from the prior quarter and a decrease of 0.4% from the same quarter in the prior year. The linked-quarter increase primarily reflects higher noninterest income offset in part by lower net interest income while the year-over-year decrease is attributed to lower net interest income offset in part by growth in noninterest income.

Net interest income (FTE) in the first quarter totaled $136.2 million, resulting in a net interest margin of 3.21%, down 4 basis points from the prior quarter. The decrease in the net interest margin was primarily due to increased costs of interest-bearing liabilities.

Noninterest income in the first quarter totaled $55.3 million, an increase of $5.5 million, or 11.1%, from the prior quarter and $4.0 million, or 7.7%, year-over-year. The linked-quarter increases in mortgage banking, insurance, other income, and wealth management revenue were offset in part by declines in bank card and other fees and service charges on deposit accounts. The increase in noninterest income year-over-year is broad-based, reflecting increases in mortgage banking, insurance, other income, service charges of deposit accounts and wealth management revenue which were offset in part by declines in bank card and other fees.

Mortgage loan production in the first quarter totaled $274.0 million, up 0.8% from the prior quarter and down 24.1% year-over-year. Mortgage banking revenue totaled $8.9 million in the first quarter, an increase of $3.4 million linked-quarter and $1.3 million year-over-year. The linked-quarter increase was principally attributable to increased gain on sales of mortgage loans, improvement in net negative hedge ineffectiveness, and reduced servicing asset amortization. The year-over-year increase was principally due to increased gain on sales of mortgage loans.

Insurance revenue totaled $15.5 million in the first quarter, up $2.3 million, or 17.2%, from the prior quarter and $1.2 million, or 8.1%, year-over-year. The linked-quarter and year-over-year increases primarily reflected growth in commercial property and casualty commissions. Wealth management revenue in the first quarter totaled $9.0 million, an increase of $295 thousand, or 3.4%, from the prior quarter and $172 thousand, or 2.0%, year-over-year. The linked-quarter growth reflected higher trust management revenue while the year-over-year growth reflected increased brokerage revenue.

Other income, net totaled $3.6 million in the first quarter, up $1.1 million from both the prior quarter and year-over-year. Service charges on deposit accounts totaled $11.0 million in the first quarter, reflecting a seasonal decrease of $353 thousand, or 3.1%, from the prior quarter and an increase of $622 thousand, or 6.0%, year-over-year. Bank card and other fees totaled $7.4 million in the first quarter, down $1.1 million from the prior quarter due principally to lower customer derivative revenue. Year-over-year, bank card and other fees declined $375 thousand.

Noninterest Expense

• Total noninterest expense declined $5.3 million, or 3.9%, linked-quarter
• Salary and employee benefit expense declined $2.5 million, or 3.3%, linked-quarter
• Total services and fees declined $3.1 million, or 11.0%, linked-quarter

Noninterest expense in the first quarter totaled $131.1 million, a decrease of $5.3 million, or 3.9%, from the prior quarter and an increase of $2.8 million, or 2.2%, year-over-year. Salary and employee benefit expense totaled $75.5 million in the first quarter, a decline of $2.5 million, or 3.3%, linked-quarter and an increase of $1.4 million, or 1.9%, year-over-year. The linked-quarter decline reflected reductions in incentives, severance, medical insurance, and salary expense, which were offset in part by a seasonal increase in payroll taxes and restricted stock compensation expense. Services and fees in the first quarter totaled $24.8 million, a decrease of $3.1 million, or 11.0%, from the prior quarter and $587 thousand, or 2.3%, year-over-year. The linked-quarter decline is attributable principally to lower professional fees and data processing software expense.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, April 24, 2024, 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 8, 2024, in archived format at the same web address or by calling (877) 344-7529, passcode 4820621.

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.

Risks that could cause actual results to differ materially from current expectations of Management include, but are not limited to, actions by the Board of Governors of the Federal Reserve System (FRB) that impact the level of market interest rates, local, state, national and international 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, changes in the level of nonperforming assets and charge-offs, an increase in unemployment levels and slowdowns in economic growth, 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 impacts related to or resulting from bank failures and other economic and industry volatility, including potential increased regulatory requirements, the demand for the products and services we offer, potential unexpected adverse outcomes in pending litigation matters, our ability to attract and retain 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, 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, 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.

See Notes to Consolidated Financials

See Notes to Consolidated Financials

See Notes to Consolidated Financials

See Notes to Consolidated Financials

See Notes to Consolidated Financials