Trustmark Corporation Announces Third Quarter 2023 Financial Results

Performance Reflects Continued Loan and Deposit Growth, Solid Credit Quality, and Diversified Fee Income

Trustmark Corporation (NASDAQ:TRMK) reported net income of $34.0 million in the third quarter of 2023, representing diluted earnings per share of $0.56. As previously disclosed, Trustmark recognized a litigation settlement expense of $6.5 million in the third quarter, which reduced net income by $4.9 million, or $0.08 per diluted share. Excluding this expense, Trustmark's third quarter net income totaled $38.9 million, or $0.64 per diluted share. Please refer to the Consolidated Financial Information, Note 1 – Litigation Settlement and Note 7 – Non-GAAP Financial Measures. Trustmark's Board of Directors declared a quarterly cash dividend of $0.23 per share payable December 15, 2023, to shareholders of record on December 1, 2023.

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Third Quarter Highlights

• Loans held for investment (HFI) increased $196.3 million, or 1.6%, from the prior quarter to $12.8 billion
• Deposits expanded $188.0 million, or 1.3%, linked-quarter to $15.1 billion
• Net interest income (FTE) totaled $141.9 million, down $1.4 million linked-quarter, resulting in a net interest margin of 3.29%
• Noninterest income totaled $52.2 million for the third quarter, representing 27.4% of total revenue
• Noninterest expense, excluding litigation settlement expense, increased 1.7% from the prior quarter
• Credit quality remained solid; net charge-offs totaled $3.6 million, or 0.11% of average loans, in the third quarter

Duane A. Dewey, President and CEO, stated, "Trustmark's financial performance during the third quarter reflected continued loan and deposit growth, stable net interest income, strong performance in our insurance business, and solid credit quality. During the first nine months of 2023, Trustmark's net income totaled $129.4 million, which represented diluted earnings per share of $2.11, an increase of 22.7% from the same period in 2022. We continue to implement significant cost savings initiatives to improve efficiency as well as technology to enhance our ability 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 $12.8 billion, up 1.6% from the prior quarter and 10.6% year-over-year
• Deposits totaled $15.1 billion, up 1.3% from the prior quarter and 4.7% year-over-year
• Maintained strong capital position with CET1 ratio of 9.89% and total risk-based capital ratio of 12.11%

Loans HFI totaled $12.8 billion at September 30, 2023, reflecting an increase of $196.3 million, or 1.6%, linked-quarter and $1.2 billion, or 10.6%, year-over-year. The linked quarter growth primarily reflected increases in other real estate secured loans and nonfarm, nonresidential properties offset in part by declines in construction, land development and other land loans, state and other political subdivision loans, and commercial and industrial loans. Trustmark's loan portfolio remains well-diversified by loan type and geography.

Deposits totaled $15.1 billion at September 30, 2023, up $188.0 million, or 1.3%, from the prior quarter and $676.7 million, or 4.7%, year-over-year. Trustmark continues to maintain a strong liquidity position as loans HFI represented 84.8% of total deposits at September 30, 2023. Migration into higher-yielding products continued to drive a change in deposit mix from noninterest-bearing deposits, which represented 22.0% of total deposits at September 30, 2023. Interest-bearing deposit costs totaled 2.39% in the third quarter, while the total cost of deposits was 1.84%. The total cost of interest-bearing liabilities was 2.72% in the third 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 September 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 September 30, 2023. Trustmark's tangible equity-to-tangible assets ratio was 6.57% while its total risk-based capital ratio was 12.11% at September 30, 2023.

Credit Quality

• Net charge-offs totaled $3.6 million in the third quarter, representing 0.11% of average loans
• Provision for credit losses for loans HFI was $8.3 million for the third quarter
• Allowance for credit losses (ACL) represented 1.05% of loans HFI and 273.60% of nonaccrual loans, excluding individually evaluated loans at September 30, 2023

Nonaccrual loans totaled $90.9 million at September 30, 2023, up $15.9 million from the prior quarter and $23.0 million year-over-year. Other real estate totaled $5.5 million, reflecting increases of $4.3 million from the prior quarter and $2.5 million year-over-year. Collectively, nonperforming assets totaled $96.4 million at September 30, 2023, reflecting a linked-quarter increase of $20.2 million and a year-over-year increase of $25.5 million.

During the third quarter, a fully-reserved nonaccrual loan transitioned to other real estate. This credit represented substantially all the net charge-offs experienced during the quarter and was also responsible for the increase in other real estate.

The provision for credit losses for loans HFI was $8.3 million in the third quarter and was primarily attributable to a single new individually evaluated nonaccrual loan for which specific reserves were established, a weakening macroeconomic forecast, loan growth, and net adjustments to the qualitative factors. The provision for credit losses for off-balance sheet credit exposures was $104 thousand in the third quarter. Collectively, the provision for credit losses totaled $8.4 million in the third quarter compared to $8.5 million in the prior quarter and $11.6 million in the third quarter of 2022.

Allocation of Trustmark's $134.0 million ACL on loans HFI represented 0.86% of commercial loans and 1.66% of consumer and home mortgage loans, resulting in an allowance to total loans HFI of 1.05% at September 30, 2023. Management believes the level of the ACL is commensurate with the credit losses currently expected in the loan portfolio.

Revenue Generation

• Revenue totaled $190.9 million, down 1.3% linked-quarter
• Net interest income (FTE) totaled $141.9 million in the third quarter, down 0.9% from the prior quarter
• Noninterest income totaled $52.2 million, representing 27.4% of total revenue in the third quarter

Net interest income (FTE) in the third quarter totaled $141.9 million, resulting in a net interest margin of 3.29%, down 4 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 third quarter totaled $52.2 million, a decrease of $1.3 million from the prior quarter and $382 thousand year-over-year. The linked-quarter decline was attributable to lower other income net, bank card and other fees, mortgage banking revenue, and wealth management revenue, which were offset in part by increased insurance commissions and service charges on deposit accounts.

Mortgage loan production in the third quarter totaled $389.9 million, down 9.6% from the prior quarter and 23.3% year-over-year. Mortgage banking revenue totaled $6.5 million in the third quarter, a decrease of $142 thousand from the prior quarter and $418 thousand 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 commissions totaled $15.3 million in the third quarter, up $539 thousand, or 3.7%, linked-quarter and $1.4 million, or 10.0%, year-over-year due principally to increased property and casualty and group health commissions. Wealth management revenue totaled $8.8 million in the third quarter, a decrease of $109 thousand, or 1.2%, from the prior quarter and unchanged year-over-year. The linked-quarter change reflected growth in investment services, which was more than offset by lower trust management revenue. Service charges on deposit accounts increased $379 thousand, or 3.5%, from the prior quarter and declined $244 thousand, or 2.2%, year-over-year. Bank card and other fees decreased $700 thousand from the prior quarter and $1.1 million year-over-year. The linked-quarter change was attributable to seasonal factors while the year-over-year change was due to reduced customer derivative revenue.

Noninterest Expense

• Total noninterest expense in the third quarter was $140.9 million; excluding litigation settlement expense of $6.5 million, noninterest expense was $134.4 million, up $2.2 million, or 1.7%, from the prior quarter. Please refer to the Consolidated Financial Information, Note 7 – Non-GAAP Financial Measures
• FDIC assessment expense totaled $3.8 million in the third quarter, up $1.2 million, or 47.6%, from the prior quarter

Salaries and employee benefits increased $726 thousand, or 1.0%, linked-quarter due primarily to increased salary expense. Services and fees decreased $382 thousand, or 1.4%, linked-quarter due to reduced professional fees. Net occupancy-premises expense increased $275 thousand, or 3.9%, linked-quarter due in part to seasonal increases in utilities and increased rental expense. Equipment expense increased $412 thousand, or 6.4%, linked-quarter. Other expense increased $1.2 million, or 8.2%, linked-quarter, principally due to increased FDIC assessment expense.

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 $191 million as of September 30, 2023. Implementation of our technology plans for conversion of our deposit/teller/customer information system continued during the quarter. In addition, 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, along with cost savings initiatives, 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, October 25, 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, November 8, 2023, in archived format at the same web address or by calling (877) 344-7529, passcode 4921731.

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, 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.