Loan and Deposit Growth Continues, Credit Quality Remains Strong,

Net Interest Income and Noninterest Income Expand

Trustmark Corporation (NASDAQGS:TRMK) reported net income of $45.0 million in the second quarter of 2023, representing diluted earnings per share of $0.74. Trustmark’s performance during the second quarter produced a return on average tangible equity of 15.18% and a return on average assets of 0.96%. The Board of Directors declared a quarterly cash dividend of $0.23 per share payable September 15, 2023, to shareholders of record on September 1, 2023.

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Second Quarter Highlights

• Loans held for investment (HFI) increased $116.8 million, or 0.9%, from the prior quarter to $12.6 billion
• Deposits expanded $130.2 million, or 0.9%, linked-quarter to $14.9 billion
• Total revenue increased $4.5 million, or 2.4%, linked-quarter to $193.5 million
• Net interest income (FTE) increased $2.2 million linked-quarter to $143.3 million, resulting in a net interest margin of 3.33%
• Noninterest income totaled $53.6 million, representing 27.7% of total revenue
• Credit quality remained strong; net charge-offs represented 4 basis points of average loans

Duane A. Dewey, President and CEO, stated, “Trustmark continued to post solid financial results in the second quarter, reflecting continued loan and deposit growth, expanding net interest income, and growth in our fee-based businesses. During the first six months of 2023, Trustmark’s net income totaled $95.3 million, which represented diluted earnings of $1.56 per share, an increase of 51.5% from the same period in 2022. We have a tremendous team of associates throughout our system that are focused on expanding existing customer relationships as well as demonstrating the value Trustmark can provide potential customers as their trusted financial partner. We have added very talented people across the organization in numerous production and back office roles to meet our objectives. We continue to implement initiatives to improve efficiency, enhance our ability to grow and serve customers, and build long-term value for our shareholders.”

Balance Sheet Management

• Loans HFI totaled $12.6 billion, up 0.9% from the prior quarter and 15.3% year-over-year
• Deposits totaled $14.9 billion, up 0.9% from the previous quarter and 1.0% year-over-year
• Maintained strong capital position with CET1 ratio of 9.87% and total risk-based capital ratio of 12.08%

Loans HFI totaled $12.6 billion at June 30, 2023, reflecting an increase of $116.8 million, or 0.9%, linked-quarter and $1.7 billion, or 15.3%, year-over-year. The linked quarter growth reflected increases in other real estate secured loans, nonfarm, nonresidential loans, and 1-4 family residential loans offset in part by declines in other loans, state and political subdivision loans, and construction, land development and other land loans. Trustmark’s loan portfolio continues to be well-diversified by loan type and geography.

Deposits totaled $14.9 billion at June 30, 2023, up $130.2 million, or 0.9%, from the prior quarter and up $143.7 million, or 1.0%, year-over-year. Trustmark continues to maintain a strong liquidity position as loans HFI represented 84.6% of total deposits at June 30, 2023. Migration into higher-yielding products continued to drive a change in deposit mix from noninterest-bearing deposits, which represented 23.2% of total deposits at June 30, 2023. Interest-bearing deposit costs totaled 1.96% for the second quarter, while the total cost of deposits was 1.48%. The total cost of interest-bearing liabilities was 2.42% for the second quarter of 2023.

As previously announced, Trustmark’s Board of Directors authorized a stock repurchase program effective January 1, 2023, under which $50.0 million of Trustmark’s outstanding shares may be acquired through December 31, 2023. As of June 30, 2023, Trustmark had not repurchased any of its outstanding common shares under this program. Trustmark’s regulatory capital ratios continued to exceed all levels to be considered “well-capitalized” as of June 30, 2023.

Credit Quality

• Nonperforming assets represented 0.60% of total loans and other real estate at June 30, 2023
• Net charge-offs totaled $1.2 million in the second quarter, representing 0.04% of average loans
• Allowance for credit losses (ACL) represented 1.03% of loans HFI and 301.4% of nonaccrual loans, excluding individually analyzed loans, at June 30, 2023

Nonaccrual loans totaled $75.0 million at June 30, 2023, up $2.7 million from the prior quarter and an increase of $13.0 million year-over-year. Other real estate totaled $1.1 million, reflecting a $547 thousand decrease from the prior quarter and a $1.9 million decline from the prior year.

The provision for credit losses for loans HFI was $8.2 million in the second quarter and was primarily attributable to extended maturities on mortgage loans resulting from lower prepayment speeds, weakening macroeconomic factors, and loan growth. The provision for credit losses for off-balance sheet credit exposures was $245 thousand, primarily driven by weakening macroeconomic factors. Collectively, the provision for credit losses totaled $8.5 million in the second quarter compared to $1.0 million from the prior quarter and $1.1 million in the second quarter of 2022.

Allocation of Trustmark’s $129.3 million ACL on loans HFI represented 0.84% of commercial loans and 1.60% of consumer and home mortgage loans, resulting in an ACL to total loans HFI of 1.03% at June 30, 2023. Management believes the level of the ACL is commensurate with the credit losses currently expected in the loan portfolio.

Revenue Generation

• Total revenue increased $4.5 million, or 2.4%, linked-quarter
• Net interest income (FTE) totaled $143.3 million in the second quarter, up 1.6% linked-quarter
• Noninterest income increased 4.2% linked-quarter to total $53.6 million, representing 27.7% of total revenue in the second quarter

Revenue in the second quarter totaled $193.5 million, an increase of $4.5 million, or 2.4%, from the prior quarter and $27.5 million, or 16.6%, from the prior year. The linked-quarter increase primarily reflects higher net interest income and solid growth in all fee income business with the exception of mortgage banking. The year-over-year growth in revenue is attributed to higher net interest income.

Net interest income (FTE) in the second quarter totaled $143.3 million, resulting in a net interest margin of 3.33%, down 6 basis points from the prior quarter. The decrease in the net interest margin was due to increased costs of interest-bearing deposits which were partially offset by increased yields on the loans HFI and HFS portfolio and securities portfolio.

Noninterest income in the second quarter totaled $53.6 million, an increase of $2.2 million, or 4.2%, from the prior quarter and a $300 thousand increase year-over-year. With the exception of mortgage banking, all categories increased linked-quarter with other, net and bank card and other fees increasing $1.2 million and $1.1 million, respectively. Year-over-year increases in insurance, other, net and service charges on deposit accounts, were offset in part by declines in bank card and other fees, mortgage banking and wealth management revenue.

Mortgage loan production in the second quarter totaled $431.3 million, an increase of 19.5% from the prior quarter and a decrease of 36.7% year-over-year. Mortgage banking revenue totaled $6.6 million in the second quarter, a decrease of $1.0 million linked-quarter and $1.5 million year-over-year. The linked-quarter decrease was principally attributable to accelerated amortization of mortgage servicing rights offset in part by reduced net negative hedge ineffectiveness.

Insurance revenue totaled $14.8 million in the second quarter, up $459 thousand, or 3.2%, from the prior quarter and $1.1 million, or 7.8%, year-over-year. The linked-quarter increase primarily reflected growth in policy fees and other commissions while the year-over-year increase primarily reflected growth in commercial property and casualty commissions. Wealth management revenue in the second quarter totaled $8.9 million, an increase of $102 thousand, or 1.2%, from the prior quarter and a decline of $220 thousand, or 2.4%, year-over-year. The linked-quarter growth reflected higher trust management revenue while the year-over-year decline reflected reduced brokerage revenue.

Noninterest Expense

• Noninterest expense totaled $132.2 million in the second quarter, up 3.0%, from the prior quarter
• Adjusted noninterest expense, which excludes other real estate expense, amortization of intangibles, and charitable contributions resulting in state tax credits, totaled $131.6 million in the second quarter, an increase of 3.2% from the prior quarter. Please refer to the Consolidated Financial Information, Note 7 – Non-GAAP Financial Measures

Noninterest expense in the second quarter totaled $132.2 million, an increase of $3.9 million, or 3.0%, when compared to the prior quarter. Salaries and employee benefits increased $1.9 million linked-quarter principally due to commissions and annual merit increases. Services and fees increased $2.8 million, or 11.2%, linked-quarter primarily due to increases in professional fees. Net occupancy expense declined $521 thousand, or 6.8%, while other expense declined $309 thousand, or 2.1%, linked-quarter.

FIT2GROW

“In 2022, we announced FIT2GROW, a comprehensive program of Focus, Innovation and Transformation designed to enhance our ability to grow and serve customers. Our Atlanta-based Equipment Finance division, established in late 2022, continues to gain traction as its portfolio has grown to $127 million as of June 30, 2023. Implementation of our technology plans continued during the second quarter with conversion of our credit card platform to a best-in-class product for our customers. In addition, advancements in our loan underwriting system were implemented and plans for conversion of our deposit system continued. During the quarter, work continued on the design of our sales through service process, which will be implemented across the retail branch network in early 2024. These actions are designed to enhance Trustmark’s performance and build long-term value for our shareholders,” said Dewey.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, July 26, 2023, 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, August 9, 2023, in archived format at the same web address or by calling (877) 344-7529, passcode 7655682.

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, changes in the level of nonperforming assets and charge-offs, an increase in unemployment levels and slowdowns in economic growth, actions by the Board of Governors of the Federal Reserve System (FRB) that impact the level of market interest rates, local, state and national economic and market conditions (including uncertainty regarding the federal government's debt limit or a prolonged shutdown of the federal government), 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 impacts related to or resulting from recent bank failures and other economic and industry volatility, including potential increased regulatory requirements and costs and potential impacts to macroeconomic conditions, 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 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.