Trustmark Corporation Announces Third Quarter 2024 Financial Results

Performance Reflects Increased Earnings, Enhanced Profitability, and Strengthened Capital Flexibility

Trustmark Corporation (NASDAQ:TRMK) reported net income of $51.3 million in the third quarter of 2024, representing diluted earnings per share of $0.84. In the second quarter of 2024, Trustmark reported net income of $73.8 million, 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. Net income from adjusted continuing operations⁽¹⁾ increased $10.8 million, or 26.7%, linked-quarter.

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Financial results in the second quarter of 2024, which included the sale of Fisher Brown Bottrell Insurance, Inc. (FBBI), consisted of both continuing operations and discontinued operations. The discontinued operations included 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 and as separate lines in the balance sheet in the accompanying tables for all periods presented. Financial results from adjusted continuing operations⁽¹⁾ exclude significant non-routine transactions.

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

Third Quarter Highlights

• Net income from adjusted continuing operations⁽¹⁾ increased $10.8 million, or 26.7%, linked-quarter to $51.3 million
• Net interest income (FTE) increased $13.7 million, or 9.5%, linked-quarter to $158.0 million, resulting in a net interest margin of 3.69%, up 31 basis points from the prior quarter
• Loans held for investment (HFI) totaled $13.1 billion, a decrease of $55.3 million, or 0.4%, from the prior quarter and an increase of $289.9 million, or 2.3%, year-over-year
• Deposits totaled $15.2 billion, down $222.0 million, or 1.4%, linked-quarter, and up $139.0 million, or 0.9%, year-over-year; excluding targeted reductions in public and brokered deposits totaling $529.7 million, deposits increased $307.7 million, or 2.1%, linked-quarter
• Achieved return on average tangible equity of 12.86% and return on average assets of 1.10%
• Efficiency ratio improved 282 basis points to 60.99% in the third quarter

Duane A. Dewey, President and CEO, stated, "Trustmark's third quarter results reflect significant achievement across the organization. Profitability meaningfully increased as evidenced by the 26.7% growth in net income from adjusted continuing operations⁽¹⁾ and a 282 basis point improvement in the efficiency ratio. The restructuring of the investment securities portfolio in the second quarter was a major contributor to the 9.5% increase in net interest income in the third quarter. These accomplishments are the result of focused efforts to enhance Trustmark's long-term performance and competitiveness. We continue to implement technology and streamline processes to enhance our ability to grow and serve customers. Trustmark is well-positioned to compete in changing economic conditions and create long-term value for our shareholders."

Balance Sheet Management

• Loans HFI totaled $13.1 billion, down 0.4% from the prior quarter and up 2.3% year-over-year
• Deposits totaled $15.2 billion, down 1.4% from the previous quarter and up 0.9% year-over-year
• Enhanced strong capital position with CET1 ratio of 11.30% and total risk-based capital ratio of 13.71%

Loans HFI totaled $13.1 billion at September 30, 2024, reflecting a decrease of $55.3 million, or 0.4%, linked-quarter and an increase of $289.9 million, or 2.3%, year-over-year. The linked-quarter change reflected decreases in commercial and industrial loans, state and other political subdivision loans, and commercial real estate loans offset in part by increases in other real estate secured loans, other loans and leases (equipment finance), and 1-4 family mortgage loans. Trustmark's loan portfolio continues to be well-diversified by loan type and geography.

Deposits totaled $15.2 billion at September 30, 2024, down $222.0 million, or 1.4%, from the prior quarter and an increase of $139.0 million, or 0.9%, year-over-year. Excluding targeted reductions in public deposits of $330.1 million and brokered deposits of $199.6 million, deposits increased $307.7 million, or 2.1%, linked-quarter. Trustmark continues to maintain a strong liquidity position as loans HFI represented 86.0% of total deposits at September 30, 2024. Noninterest-bearing deposits represented 20.6% of total deposits at September 30, 2024, compared to 20.4% of total deposits at June 30, 2024. The cost of interest-bearing deposits increased 6 basis points to 2.81% for the third quarter, while the cost of total deposits was 2.22%, up 4 basis points from the prior quarter. The total cost of interest-bearing liabilities was 2.94% for the third quarter, down 1 basis point linked-quarter.

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 September 30, 2024, Trustmark had not repurchased any of its outstanding common shares under this program. At September 30, 2024, Trustmark's tangible equity to tangible assets ratio was 9.07%, up 55 basis points from the prior quarter, while the total risk-based capital ratio was 13.71%, up 42 basis points from the prior quarter. Tangible book value per share was $26.88 at September 30, 2024, an increase of 6.5% from the prior quarter and 32.9% from the prior year.

Credit Quality

• Net charge-offs totaled $4.7 million in the third quarter, representing 0.14% of average loans
• Net provision for credit losses totaled $6.5 million for the third quarter
• Allowance for credit losses (ACL) represented 1.21% of loans HFI and 497.27% of nonaccrual loans, excluding individually evaluated loans at September 30, 2024

Nonaccrual loans totaled $73.8 million at September 30, 2024, reflecting an increase of $29.5 million from the prior quarter and a decline of $17.1 million year-over-year. Other real estate totaled $3.9 million, reflecting a decrease of $2.7 million from the prior quarter and $1.6 million from the prior year. Collectively, nonperforming assets totaled $77.7 million at September 30, 2024, up $26.9 million from the prior quarter and down $18.6 million from the prior year. Nonperforming assets represented 0.58% of loans HFI and loans held for sale at September 30, 2024.

The net provision for credit losses totaled $6.5 million in the third quarter compared to $19.7 million in the second quarter (which included a $8.6 million provision related to the Mortgage Loan Sale) and $8.4 million in the third quarter of 2023. The provision for credit losses for loans HFI was $7.9 million in the third quarter and was primarily attributable to specific reserves for individually analyzed credits and net adjustments to the qualitative factors. The provision for credit losses for off-balance sheet credit exposures was a negative $1.4 million, primarily driven by decreases in unfunded commitments.

Allocation of Trustmark's $157.9 million ACL on loans HFI represented 1.08% of commercial loans and 1.64% of consumer and home mortgage loans, resulting in an ACL to total loans HFI of 1.21% at September 30, 2024. Management believes the level of the ACL is commensurate with the credit losses currently expected in the loan portfolio.

Revenue Generation

• Total revenue expanded to $192.3 million in the third quarter
• Net interest income (FTE) totaled $158.0 million in the third quarter, up 9.5% linked-quarter
• Noninterest income totaled $37.6 million in the third quarter

Total revenue in the third quarter was $192.3 million; in the second quarter total revenue was negative $0.3 million while revenue from adjusted continuing operations⁽¹⁾ was $179.3 million; total revenue from adjusted continuing operations⁽¹⁾ increased $13.0 million, or 7.3%, linked-quarter.

Net interest income (FTE) in the third quarter totaled $158.0 million, resulting in a net interest margin of 3.69%, up 31 basis points from the prior quarter. The increase in the net interest margin was primarily due to increased yields on the securities portfolio, while the loans HFI and held for sale portfolio remained relatively flat, offset by the increase in the cost of interest-bearing deposits.

Noninterest income in the third quarter totaled $37.6 million; in the second quarter noninterest income was a negative $141.3 million while noninterest income from adjusted continuing operations⁽¹⁾ totaled $38.2 million. Noninterest income from adjusted continuing operations⁽¹⁾ decreased $0.7 million, or 1.8%, from the prior quarter and increased $0.6 million, or 1.7% year-over-year. Service charges on deposit accounts totaled $11.3 million in the third quarter, an increase of $0.3 million, or 3.2% from the prior quarter and $0.2 million, or 1.8%, year-over-year. Bank card and other fees totaled $7.9 million in the third quarter, down $1.3 million linked-quarter and $0.3 million year-over-year. The linked-quarter change reflects reduced customer derivative revenue and seasonal declines in miscellaneous other revenue. Other, net totaled $3.0 million in the third quarter. Excluding the Visa C shares positive fair value adjustment of $8.1 million and the non-credit related loss on sale of 1-4 family mortgage loans of $4.8 million in the second quarter, other, net declined $1.3 million linked-quarter.

Mortgage loan production in the third quarter totaled $392.1 million, an increase of 3.3% from the prior quarter and 0.6% year-over-year. Mortgage banking revenue totaled $6.1 million in the third quarter, an increase of $1.9 million linked-quarter and a decrease of $0.3 million year-over-year. The linked-quarter increase was principally attributable to decreased net negative hedge ineffectiveness, which was offset in part by lower gains on sale of mortgage loans.

Wealth management revenue in the third quarter totaled $9.3 million, a decrease of $0.4 million, or 4.2%, from the prior quarter and an increase of $0.5 million, or 5.9%, year-over-year. The linked-quarter change reflected a seasonal decline in trust management and investment services revenue while the year-over-year increase reflected expanded brokerage revenue.

Noninterest Expense

• Noninterest expense increased $4.9 million, or 4.2%, linked-quarter
• Salaries and employee benefits expense increased $1.9 million, or 2.9%, linked quarter, reflecting annual merit increases, annual incentive accruals, and commissions
• Other real estate expense, net increased $2.1 million, all of which relates to the establishment of a reserve for a single property

Noninterest expense in the third quarter totaled $123.3 million, an increase of $4.9 million, or 4.2%, when compared to the prior quarter and a year-over-year decline of $0.5 million, or 0.4%, excluding the litigation settlement expense incurred in the third quarter of 2023. Salaries and employee benefits expense increased $1.9 million, or 2.9%, linked-quarter principally due to annual merit increases effective July 1, mortgage banking commissions and annual incentive-based accruals as a result of strong operating performance. Salaries and employee benefits expense in the third quarter declined $0.7 million, or 1.0%, from levels one year earlier. Other expense totaled $17.3 million in the third quarter, an increase of $2.1 million linked-quarter and $2.3 million year-over-year. The linked-quarter and year-over-year changes are attributable to an increase in other real estate expense, net related to the establishment of a reserve for a single property under contract to sell in the fourth quarter of 2024.

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

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)

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, October 23, 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, November 6, 2024, in archived format at the same web address or by calling (877) 344-7529, passcode 9091375.

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 or 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, 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.