Trustmark Corporation Announces Second Quarter 2024 Financial Results

Completed Significant Actions to Increase Earnings, Enhance Profitability Profile, Reduce Risk, and Strengthen Capital Flexibility

Trustmark Corporation (NASDAQ:TRMK) announced second quarter financial results which reflect the previously disclosed sale of Fisher Brown Bottrell Insurance, Inc. (FBBI). As such, second quarter financial results consist of both continuing operations and discontinued operations. The discontinued operations include the financial results of FBBI prior to the sale as well as the gain on sale in the second quarter. The discontinued operations results are presented as a single line item below income from continuing operations in the accompanying tables for all periods presented. Financial results from adjusted continuing operations exclude significant non-routine transactions⁽¹⁾. Trustmark reported net income of $73.8 million in the second quarter of 2024, representing diluted earnings per share of $1.20 and net income from adjusted continuing operations⁽¹⁾ of $40.5 million, or $0.66 per diluted share.

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The Board of Directors declared a quarterly cash dividend of $0.23 per share payable September 15, 2024, to shareholders of record on September 1, 2024.

Significant Non-Routine Transactions in the Second Quarter

• Completed sale of FBBI, producing a gain on sale of $228.3 million ($171.2 million, net of taxes)
• Restructured investment securities portfolio; sold available for sale securities of $1.6 billion with an average yield of 1.36%, which generated a loss of $182.8 million ($137.1 million, net of taxes); purchased $1.4 billion of available for sale securities with an average yield of 4.85%
• Sold a portfolio of 1-4 family mortgage loans that were three payments delinquent and/or nonaccrual at time of selection totaling $56.2 million (Mortgage Loan Sale) which generated a loss of $13.4 million ($10.1 million, net of taxes); sale drove a $54.1 million reduction in nonperforming loans
• Exchanged Visa Class B-1 shares for Visa Class B-2 shares and Visa Class C common stock; Visa Class C stock exchange resulted in a gain of $8.1 million ($6.0 million, net of taxes)

Second Quarter Highlights

• Loans held for investment (HFI) increased $97.5 million, or 0.7%, from the prior quarter to $13.2 billion; excluding the Mortgage Loan Sale, loans HFI increased $152.4 million, or 1.2%, linked-quarter
• Deposits expanded $124.3 million, or 0.8%, linked-quarter to $15.5 billion
• Net interest income (FTE) increased $8.1 million, or 6.0%, linked-quarter to $144.3 million, resulting in a net interest margin of 3.38%, up 17 basis points from the prior quarter
• Noninterest expense totaled $118.3 million, down $1.3 million, or 1.1%, linked-quarter
• Tangible equity to tangible assets ratio increased 105 basis points to 8.52% at June 30, 2024
• Tangible book value per share increased $3.20, or 14.5%, to $25.23 at June 30, 2024

Duane A. Dewey, President and CEO, stated, "The second quarter of 2024 was an extremely productive quarter for Trustmark. We closed the previously announced sale of our insurance agency and completed significant balance sheet restructuring to position the company for improved operating performance into the second half of the year and beyond. While completing these non-recurring events, we also performed well in our core banking franchise with continued loan growth, deposit growth, solid fee income and disciplined expense management. The commitment and dedication of our associates across the organization to successfully meet our clients' financial needs and execute the one-time projects are outstanding, and we believe the company is very well positioned for future opportunities."

Balance Sheet Management

• Loans HFI totaled $13.2 billion, up 0.7% from the prior quarter and 4.3% year-over-year
• Deposits totaled $15.5 billion, up 0.8% from the previous quarter and 3.7% year-over-year
• Enhanced strong capital position with CET1 ratio of 10.92% and total risk-based capital ratio of 13.29%

Loans HFI totaled $13.2 billion at June 30, 2024, reflecting an increase of $97.5 million, or 0.7%, linked-quarter and $541.5 million, or 4.3%, year-over-year. The linked quarter growth reflected increases in construction, development and other land loans, loans secured by nonfarm, nonresidential properties, and other loans and leases offset in part by declines in commercial and industrial loans, other real estate secured loans, and 1-4 family mortgage loans. Trustmark's loan portfolio continues to be well-diversified by loan type and geography.

Deposits totaled $15.5 billion at June 30, 2024, up $124.3 million, or 0.8%, from the prior quarter and $549.0 million, or 3.7%, year-over-year. Trustmark continues to maintain a strong liquidity position as loans HFI represented 85.1% of total deposits at June 30, 2024. Noninterest-bearing deposits represented 20.4% of total deposits at June 30, 2024, compared to 19.8% at March 31, 2024. The cost of interest-bearing deposits increased 1 basis point to 2.75% for the second quarter, while the cost of total deposits was 2.18%, unchanged from the prior quarter. The total cost of interest-bearing liabilities was 2.95% for the second quarter, up 3 basis points linked-quarter.

During the second 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. As of June 30, 2024, Trustmark had not repurchased any of its outstanding common shares under this program. At June 30, 2024, Trustmark's tangible equity to tangible assets ratio was 8.52%, up 105 basis points from the prior quarter, while the total risk-based capital ratio was 13.29%, up 87 basis points from the prior quarter. Tangible book value per share was $25.23 at June 30, 2024, an increase of 14.5% from the prior quarter and 24.7% from the prior year.

Credit Quality

• Nonaccrual loans declined 55.0% linked-quarter to $44.3 million, driven by the Mortgage Loan Sale
• Net charge-offs totaled $11.6 million for the second quarter; excluding the Mortgage Loan Sale, net charge-offs totaled $3.0 million and represented 0.09% of average loans
• Allowance for credit losses (ACL) represented 1.18% of loans HFI and 840.20% of nonaccrual loans HFI, excluding individually analyzed loans, at June 30, 2024

Nonaccrual loans totaled $44.3 million at June 30, 2024, down $54.1 million from the prior quarter and $30.7 million year-over-year. Other real estate totaled $6.6 million, reflecting a decrease of $1.0 million from the prior quarter and an increase of $5.4 million from the prior year. Collectively, nonperforming assets totaled $50.9 million at June 30, 2024, down $55.1 million, or 52.0%, from the prior quarter and $25.3 million, or 33.2%, from the prior year.

The total provision for credit losses for loans HFI was $23.3 million in the second quarter. Excluding the Mortgage Loan Sale, the provision for credit losses for loans HFI was $14.7 million and was primarily attributable to credit migration. The provision for credit losses for off-balance sheet credit exposures was a negative $3.6 million, primarily driven by decreases in unfunded commitments. Collectively, the provision for credit losses, excluding the Mortgage Loan Sale, totaled $11.1 million in the second quarter compared to $7.5 million from the prior quarter and $8.5 million in the second quarter of 2023.

Allocation of Trustmark's $154.7 million ACL on loans HFI represented 1.05% of commercial loans and 1.59% of consumer and home mortgage loans, resulting in an ACL to total loans HFI of 1.18% at June 30, 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 $144.3 million in the second quarter, up 6.0% linked-quarter
• GAAP noninterest income was negative $141.3 million in the second quarter while noninterest income from adjusted continuing operations⁽¹⁾ totaled $38.2 million and represented 21.3% of total revenue from adjusted continuing operations⁽¹⁾
• GAAP revenue was negative $0.3 million in the second quarter while revenue from adjusted continuing operations⁽¹⁾ totaled $179.3 million, up $7.1 million, or 4.1%, linked-quarter

Revenue from adjusted continuing operations⁽¹⁾ in the second quarter totaled $179.3 million, an increase of $7.1 million, or 4.1%, from the prior quarter and $1.5 million, or 0.9%, from the same quarter in the prior year. The linked-quarter increase primarily reflects higher net interest income and solid growth in bank card and other fees and wealth management revenue.

Net interest income (FTE) in the second quarter totaled $144.3 million, resulting in a net interest margin of 3.38%, up 17 basis points from the prior quarter. The increase in the net interest margin was primarily due to increased yields on the securities portfolio and the loans HFI and held for sale portfolio as well as the costs of interest-bearing deposits remaining relatively flat.

Noninterest income from adjusted continuing operations⁽¹⁾ in the second quarter totaled $38.2 million, a decrease of $1.1 million, or 2.8%, from the prior quarter and an increase of $0.4 million, or 1.1%, year-over-year. Bank card and other fees totaled $9.2 million in the second quarter, up $1.8 million, or 24.2%, linked-quarter and $0.3 million, or 3.5%, year-over-year. The linked-quarter increase reflects expanded customer derivative revenue, interchange revenue, and miscellaneous other revenue. Service charges on deposit accounts totaled $10.9 million in the second quarter, relatively unchanged from the prior quarter and up $0.2 million, or 2.1%, year-over-year. Other, net totaled $7.5 million, up $4.4 million linked-quarter as the $8.1 million gain from Visa C exchange was offset in part by the $4.8 million in noncredit-related loss from the Mortgage Loan Sale. Other, net from adjusted continuing operations⁽¹⁾ totaled $4.2 million, an increase of $1.1 million, or 35.5%, from the prior quarter.

Mortgage loan production in the second quarter totaled $379.5 million, an increase of 38.5% from the prior quarter and a decrease of 12.0% year-over-year. Mortgage banking revenue totaled $4.2 million in the second quarter, a decrease of $4.7 million linked-quarter and $2.4 million year-over-year. The linked-quarter decrease was principally attributable to increased net negative hedge ineffectiveness, which was driven by a higher assumed discount rate on servicing cash flows.

Wealth management revenue in the second quarter totaled $9.7 million, an increase of $0.7 million, or 8.3%, from the prior quarter and $0.8 million, or 9.1%, year-over-year. The linked-quarter growth reflected increased investment services and trust management revenue while the year-over-year increase reflected expanded brokerage revenue.

Noninterest Expense

• Noninterest expense declined $1.3 million, or 1.1%, linked-quarter
• Salary and employee benefit expense declined $0.6 million, or 1.0%, linked-quarter

Noninterest expense in the second quarter totaled $118.3 million, a decrease of $1.3 million, or 1.1%, when compared to the prior quarter. Salaries and employee benefits expense decreased $0.6 million, or 1.0%, linked-quarter principally due to reduced compensation expense and the seasonal decline in payroll taxes, which were partially offset by increased commission expense. Other expense declined $0.9 million, or 5.6%, linked-quarter.

⁽¹⁾ Please refer to Consolidated Financial Information, Note 1 – Significant Non-Routine Transactions and Note 7 – Non-GAAP Financial Measures.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, July 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, August 7, 2024, in archived format at the same web address or by calling (877) 344-7529, passcode 4456612.

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