Loan and Deposit Growth Continues, Credit Quality Remains Strong,

Mortgage Banking, Insurance and Wealth Management Revenue Expands

Trustmark Corporation (NASDAQGS:TRMK) reported net income of $50.3 million in the first quarter of 2023, representing diluted earnings per share of $0.82. Trustmark’s performance during the first quarter produced a return on average tangible equity of 18.03% and a return on average assets of 1.10%. The Board of Directors declared a quarterly cash dividend of $0.23 per share payable June 15, 2023, to shareholders of record on June 1, 2023.

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First Quarter Highlights

• Loan and deposit growth continued during the first quarter
• Credit quality remained strong
• Noninterest income increased linked-quarter, reflecting the strength of diversified business lines
• Expense discipline continued, noninterest expense decreased linked-quarter

Duane A. Dewey, President and CEO, stated, “Our first quarter financial performance reflects solid loan and deposit growth, strong performance in our mortgage, insurance and wealth management businesses, and diligent expense management. Our overall strong performance was impacted by increasingly competitive deposit costs during the quarter, which compressed our net interest margin. Trustmark has a strong, diversified and proven business model that has stood the test of time. We remain well-positioned and committed to meeting our customers’ needs despite the challenging financial services environment. Our balance sheet is well-positioned for additional increases in interest rates and credit quality remains solid. We continue to focus on efficiency enhancements throughout the organization as well as investments in technology to better serve customers.”

Balance Sheet Management

• Loans held for investment (HFI) increased $293.2 million, or 2.4%, during the quarter
• Total deposits increased $346.0 million, or 2.4%, during the quarter
• Maintained strong capital position with CET1 ratio of 9.76% and total risk-based capital ratio of 11.95%

Loans HFI totaled $12.5 billion at March 31, 2023, reflecting an increase of $293.2 million, or 2.4%, linked-quarter and $2.1 billion, or 20.2%, year-over-year. The linked-quarter growth was broad-based and reflected increases in all categories with the exception of state and political subdivisions and consumer loans. Trustmark’s loan portfolio remains well-diversified by loan type and geography.

Deposits totaled $14.8 billion at March 31, 2023, up $346.0 million, or 2.4%, from the prior quarter and down $329.6 million, or 2.2%, year-over-year. Trustmark continues to maintain a strong liquidity position as loans HFI represented 84.5% of total deposits at March 31, 2023. Migration into higher-yielding products continued to drive a change in deposit mix from noninterest-bearing deposits, which represented 25.7% of total deposits at March 31, 2023. Interest-bearing deposit costs totaled 1.53% for the first quarter, while the total cost of deposits was 1.13%. The total cost of interest-bearing liabilities was 1.98% for the first quarter of 2023.

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, 2023, under which $50.0 million of Trustmark’s outstanding shares may be acquired through December 31, 2023. At March 31, 2023, Trustmark’s tangible equity to tangible assets ratio was 6.35%, while the total risk-based capital ratio was 11.95%. Tangible book value per share was $19.24 at March 31, 2023, an increase of 6.2% from the prior quarter.

Credit Quality

• Nonperforming assets represented 0.58% of loans HFI and loans held for sale (HFS) at March 31, 2023
• Net charge-offs totaled 0.04% of average loans in the first quarter
• Allowance for credit losses (ACL) represented 0.98% of loans HFI and 320.80% of nonaccrual loans, excluding individually analyzed loans at March 31, 2023

Nonaccrual loans totaled $72.4 million at March 31, 2023, up $6.4 million from the prior quarter and an increase of $8.0 million year-over-year. Other real estate totaled $1.7 million, reflecting a $302 thousand decrease from the prior quarter and a $1.5 million decline from the prior year.

The provision for credit losses for loans HFI was $3.2 million in the first quarter and was primarily attributable to loan growth. The provision for credit losses for off-balance sheet credit exposures was a negative $2.2 million primarily driven by decreases in unfunded commitments. Collectively, the provision for credit losses totaled $1.0 million in the first quarter compared to $12.1 million in the prior quarter and a negative $2.0 million in the first quarter of 2022.

Allocation of Trustmark’s $122.2 million ACL on loans HFI represented 0.80% of commercial loans and 1.54% of consumer and home mortgage loans, resulting in an ACL to total loans HFI of 0.98% at March 31, 2023. Management believes the level of the ACL is commensurate with the credit losses currently expected in the loan portfolio.

Revenue Generation

• Noninterest income increased 13.7% linked-quarter to total $51.4 million, reflecting growth in mortgage banking, insurance and wealth management revenue
• Net interest income (FTE) totaled $141.1 million in the first quarter, down 6.0% linked-quarter

Revenue in the first quarter totaled $189.0 million, a decline of 1.5% from the prior quarter and an increase of 23.1% from the same quarter in the prior year. The linked-quarter decline primarily reflects lower net interest income offset in part by higher mortgage banking, insurance and wealth management revenue while the year-over-year growth is attributed to higher net interest income offset in part by reduced mortgage banking revenue.

Net interest income (FTE) in the first quarter totaled $141.1 million, resulting in a net interest margin of 3.39%, down 27 basis points from the prior quarter. The contraction of the net interest margin was primarily due to the costs of interest-bearing deposits more than offsetting the increased yields on the loans HFI and HFS portfolio and securities portfolio. Additionally, the margin was impacted by costs associated with the approximately $300 million increase in average on-balance sheet liquidity added during the quarter due to the uncertainty in the broader banking industry.

Noninterest income in the first quarter totaled $51.4 million, an increase of $6.2 million, or 13.7%, from the prior quarter and a decrease of $2.7 million, or 5.1%, year-over-year. The linked-quarter increases in mortgage banking, insurance, and wealth management revenue were offset in part by declines in service charges on deposit accounts and bank card and other fees. The decrease in noninterest income year-over-year is principally due to lower mortgage banking revenue.

Mortgage loan production in the first quarter totaled $361.1 million, down 7.6% from the prior quarter and 33.7% year-over-year. Mortgage banking revenue totaled $7.6 million in the first quarter, an increase of $4.2 million linked-quarter and a decrease of $2.2 million year-over-year. The linked-quarter increase was principally attributable to a decrease in net negative hedge ineffectiveness as well as a decline in runoff of mortgage servicing rights while the year-over-year decline was principally due to a decrease in net hedge ineffectiveness.

Insurance revenue totaled $14.3 million in the first quarter, up $2.3 million, or 19.0%, from the prior quarter and $216 thousand, or 1.5%, 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 $8.8 million, an increase of $701 thousand, or 8.7%, from the prior quarter and a decline of $274 thousand, or 3.0%, year-over-year. The linked-quarter growth reflected higher trust management revenue while the year-over-year decline reflected reduced brokerage revenue.

Noninterest Expense

• Salaries and employee benefits expense increased $587 thousand, or 0.8%, linked-quarter
• Services and fees declined $2.3 million, or 8.2%, linked-quarter
• Adjusted noninterest expense, which excludes ORE expense, amortization of intangibles, charitable contributions resulting in state tax credits, and litigation settlement expense totaled $127.5 million in the first quarter, down 1.7% from the prior quarter. Please refer to the Consolidated Financial Information, Note 7 – Non-GAAP Financial Measures

Noninterest expense in the first quarter totaled $128.3 million, a decrease of $2.2 million, or 1.6%, when compared to the prior quarter excluding the litigation settlement expense. Salaries and employee benefits increased $587 thousand linked-quarter as declines in salaries and commissions were more than offset by a seasonal increase in payroll taxes. Services and fees declined $2.3 million, or 8.2%, principally due to lower professional fees.

FIT2GROW

“In 2022 we announced FIT2GROW, a comprehensive program of Focus, Innovation and Transformation designed to enhance Trustmark’s ability to grow and serve customers. During the first quarter, we refocused our community bank efforts on commercial, small business, and consumer lines of business to provide additional expertise for our customers and enhance profitable revenue growth. We continue to rollout new technology to enhance the customer experience and improve efficiency and productivity. Additionally, our Atlanta loan production office is now fully functioning and is focused on Commercial Real Estate, Residential Real Estate, Corporate Banking, and Equipment Finance. We look forward to the contributions of these businesses to our financial results going forward,” said Dewey.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, April 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, May 10, 2023, in archived format at the same web address or by calling (877) 344-7529, passcode 2946740.

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 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.