Loan and Deposit Growth Continues, Credit Quality Remains Strong, Insurance and Wealth Management Revenue Expands

Trustmark Corporation (NASDAQGS:TRMK) reported net income of $29.2 million in the first quarter of 2022, representing diluted earnings per share of $0.47. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable June 15, 2022, to shareholders of record on June 1, 2022.

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First Quarter Highlights

• Total revenue expanded 2.9% from the prior quarter to $153.5 million
• Net interest income (FTE) grew 1.1% from the prior quarter to $102.3 million, resulting in a 5 basis point expansion in the net interest margin to 2.58%
• Noninterest income increased 6.6% from the prior quarter to $54.1 million, representing 35.3% of total revenue
• Credit quality remained strong; provision for credit losses was a negative $2.0 million in first quarter

Duane A. Dewey, President and CEO, stated, “Our first quarter financial performance reflects solid loan growth and expansion in both net interest income and noninterest income. Our balance sheet is well-positioned for additional increases in interest rates and credit quality remains a hallmark of the organization. We continue to focus on efficiency enhancements throughout the organization, including rationalization of the branch network as well as investments in technology to better serve customers. Trustmark remains well-positioned to serve and expand our customer base and create long-term value for our shareholders.”

Balance Sheet Management

• Loans held for investment (HFI) increased 1.5% from the prior quarter and 4.1% year-over-year
• Deposits grew 0.2% linked-quarter and 5.1% year-over-year
• Maintained strong capital position with CET1 ratio of 11.23% and total risk-based capital ratio of 13.53%

Loans HFI totaled $10.4 billion at March 31, 2022, reflecting an increase of $149.3 million, or 1.5%, linked-quarter and $413.4 million, or 4.1%, year-over-year. The linked-quarter growth reflects increases in 1-4 family mortgage loans, commercial and industrial loans, and loans to municipalities. Growth in these areas was partially offset by reductions in other loans, construction, land development and other land loans, and other real estate secured loans. Trustmark’s loan portfolio remains well-diversified by loan type and geography.

Deposits totaled $15.1 billion at March 31, 2022, up $26.1 million, or 0.2%, from the prior quarter and $729.9 million, or 5.1%, year-over-year. Trustmark continues to maintain a strong liquidity position as loans HFI represented 68.8% of total deposits at March 31, 2022. Noninterest-bearing deposits represented 31.4% of total deposits at the end of the first quarter, compared to 31.6% in the prior quarter. Interest-bearing deposit costs totaled 0.11% for the first quarter, a decrease of 2 basis points from the prior quarter. The total cost of interest-bearing liabilities was 0.16% for the first quarter of 2022, a decrease of 3 basis points from the prior quarter.

During the first quarter, Trustmark repurchased $9.1 million, or approximately 279 thousand of its common shares, in open market transactions. At March 31, 2022, Trustmark had $90.9 million in remaining authority under its existing stock repurchase program, which expires December 31, 2022. The repurchase program, which is subject to market conditions and management discretion, will continue to be implemented through open market repurchases or privately negotiated transactions. At March 31, 2022, Trustmark’s tangible equity to tangible assets ratio was 7.29%, while its total risk-based capital ratio was 13.53%. Tangible book value per share was $20.22 at March 31, 2022, down 7.8% from the prior quarter reflecting a decline in other comprehensive income due to valuation adjustments on securities available for sale resulting from the increase in market interest rates during the first quarter.

Credit Quality

• Allowance for credit losses (ACL) represented 484.01% of nonaccrual loans, excluding individually evaluated loans, at March 31, 2022
• Recoveries exceeded charge-offs in the first quarter
• Other real estate totaled $3.2 million at March 31, 2022

Nonaccrual loans totaled $64.4 million at March 31, 2022, up $1.7 million from the prior quarter and $885 thousand year-over-year. Other real estate totaled $3.2 million, reflecting a $1.4 million decrease from the prior quarter and a decline of $7.5 million year-over-year. Collectively, nonperforming assets totaled $67.6 million at March 31, 2022, reflecting a linked-quarter increase of $331 thousand and a year-over-year decrease of $6.6 million.

The provision for credit losses for loans HFI was a negative $860 thousand in the first quarter while the provision for credit losses for off-balance sheet credit exposures was a negative $1.1 million. Collectively, the provision for credit losses totaled a negative $2.0 million in the first quarter and was attributable to an increase in reserves due to individually analyzed loans and loan growth which were more than offset by improvements in the macroeconomic forecast and credit quality.

Allocation of Trustmark’s $98.7 million allowance for credit losses on loans HFI represented 0.95% of commercial loans and 0.96% of consumer and home mortgage loans, resulting in an allowance to total loans HFI of 0.95% at March 31, 2022. Management believes the level of the ACL is commensurate with the credit losses currently expected in the loan portfolio.

Revenue Generation

• Pre-provision net revenue totaled $31.9 million, an increase of 7.8% linked-quarter; please refer to the Consolidated Financial Information, Footnote 6 – Non-GAAP Financial Measures
• Net interest income (FTE) excluding Paycheck Protection Program (PPP) interest and fees totaled $102.2 million, up 1.3% linked-quarter
• Noninterest income increased 6.6% linked-quarter to total $54.1 million, which represented 35.3% of total revenue

Revenue in the first quarter totaled $153.5 million, up 2.9% from the prior quarter and down 5.8% from the same quarter in the prior year. The linked-quarter increase reflected higher net interest income as well as increased noninterest income. The decline in revenue year-over-year was attributable principally to a reduction in interest and fees on PPP loans as well as the decline in mortgage banking revenues from historically high levels.

Net interest income (FTE) in the first quarter totaled $102.3 million, resulting in a net interest margin of 2.58%, up 5 basis points from the prior quarter. The net interest margin, excluding PPP loans and Federal Reserve Bank balance, totaled 2.88% the first quarter, an increase of 6 basis points when compared to the prior quarter. The expansion of the net interest margin excluding PPP loans and the Federal Reserve Bank balance was due to increases in the yields on the loans held for investment and held for sale portfolio and the securities portfolio as well as lower costs of interest-bearing liabilities.

Noninterest income in the first quarter totaled $54.1 million, an increase of $3.3 million from the prior quarter and a decrease of $6.5 million year-over-year. The linked-quarter increases in insurance, wealth management and other, net revenue, which includes a gain on the sale of a former branch facility, were offset in part by a decline in mortgage banking revenue. Mortgage loan production in the first quarter totaled $544.3 million, down 7.9% from the prior quarter and 29.0% year-over-year. Mortgage banking revenue totaled $9.9 million in the first quarter, a decrease of $1.7 million from the prior quarter and $10.9 million year-over-year. The linked-quarter and year-over-year declines were principally attributable to reduced volumes and spreads, which collectively resulted in lower net gains on sales of mortgage loans in the secondary market.

Insurance revenue totaled $14.1 million in the first quarter, up 20.3%, or $2.4 million, from the fourth quarter of 2021 and 13.2%, or $1.6 million, year-over-year. The linked-quarter and year-over-year increase primarily reflected growth in commercial property and casualty commissions. Wealth management revenue in the first quarter totaled $9.1 million, an increase of $297 thousand, or 3.4%, from the prior quarter and $638 thousand, or 7.6%, year-over-year. The linked-quarter growth reflected higher trust management revenue while growth year-over-year reflects increased trust management and brokerage revenue.

Noninterest Expense

• Noninterest expense totaled $121.5 million in first quarter, up 1.7% linked-quarter and unchanged year-over year
• Adjusted noninterest expense, which excludes ORE expense, amortization of intangibles, and charitable contributions resulting in state tax credits totaled $120.6 million in the first quarter, up 2.1% from the prior quarter and 0.3% year-over-year. Please refer to the Consolidated Financial Information, Footnote 6 – Non-GAAP Financial Measures

Noninterest expense in the first quarter was $121.5 million, up $2.1 million, or 1.7%, from the prior quarter. Salaries and employee benefits increased $1.3 million linked-quarter principally due to payroll taxes. Services and fees increased $1.5 million linked-quarter due to continued investments in technology and higher professional fees while net occupancy-premises expense grew $263 thousand linked-quarter. Equipment expense and other expense collectively declined $1.1 million linked-quarter.

FIT2GROW

• Comprehensive program of Focus, Innovation and Transformation to enhance Trustmark’s growth and profitability
• Market optimization initiatives to accelerate

“We have accelerated our efforts to optimize our branch network, reflecting changing customer preferences and the continued migration to mobile and digital banking channels. We have identified 11 branch offices across the franchise to be closed during 2022, with estimated annualized expense savings of $2.0 million in 2023. Many of these offices are near other existing Trustmark locations. We also anticipate additional opportunities to realign our organizational structure to serve customers more effectively. These initiatives are components of FIT2GROW, a comprehensive program of Focus, Innovation and Transformation designed to enhance Trustmark’s ability to grow and serve customers and build long-term value for our shareholders. More information on these important initiatives will be provided in coming quarters,” said Dewey.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, April 27, 2022, 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 11, 2022, in archived format at the same web address or by calling (877) 344-7529, passcode 7381408.

Trustmark is a financial services company providing banking and financial solutions through 179 offices in Alabama, Florida, 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 Item 1A. Risk Factors in this report 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. Furthermore, many of these risks and uncertainties are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the novel coronavirus (COVID-19) pandemic, and also by the effectiveness of varying governmental responses in ameliorating the impact of the pandemic on our customers and the economies where they operate.

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, our ability to manage the impact of the COVID-19 pandemic on our markets, as well as the effectiveness of actions of federal, state and local governments and agencies (including the Board of Governors of the Federal Reserve System (FRB)) to mitigate its spread and economic impact, 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 Securities and Exchange Commission (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.