Exhibit 99.1

Trustmark Corporation Announces Fourth Quarter and Fiscal Year 2020 Financial Results

Record earnings in 2020 reflect value of diversified financial services businesses

Solid balance sheet, credit quality and capital base provide strength and stability

 

JACKSON, Miss. – January 26, 2021 – Trustmark Corporation (NASDAQ:TRMK) reported net income of $51.2 million in the fourth quarter of 2020, representing diluted earnings per share of $0.81.  Net income in the fourth quarter produced a return on average tangible equity of 15.47% and a return on average assets of 1.28%.  For the full year, Trustmark’s net income totaled a record level of $160.0 million, representing diluted earnings per share of $2.51.  Diluted earnings per share in 2020 increased 8.2% when compared to the prior year.  Trustmark’s net income in 2020 produced a return on average tangible equity of 12.58% and a return on average assets of 1.05%.

 

Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable March 15, 2021, to shareholders of record on March 1, 2021.

 

Gerard R. Host, Executive Chairman, stated, “This past year has been extremely challenging for everyone.  The effects of COVID-19 have significantly impacted the ways in which we live, work and interact with one another.  We extend our deepest sympathies to all who lost loved ones and all who have been impacted by this pandemic.  We also extend our sincere appreciation and gratitude to healthcare professionals for their tireless and self-sacrificing work during this pandemic.  Also, we want to thank our associates for their countless efforts to serve our customers and support our communities and businesses.  Trustmark remains committed to providing solutions to meet customer’s unique needs during these unprecedented times.”

 

2020 Highlights

 

Duane A. Dewey, President and CEO, commented, “Our financial results demonstrate the value of Trustmark’s diversified financial services businesses.  Despite a challenging environment, our banking, insurance and wealth management businesses all performed well while our mortgage banking business achieved record results.  We experienced significant loan and deposit growth, and credit quality remained extremely strong as did capital ratios.  Trustmark continues to be well-positioned to serve and expand its customer base and create long-term value for its shareholders.”

 

Balance Sheet Management

 

Loans held for investment totaled $9.8 billion at December 31, 2020, reflecting an increase of 5.2% from the prior year.  At December 31, 2020, Trustmark’s gross PPP loans totaled $623.0 million.  Net of deferred fees and costs of $12.9 million, PPP loans totaled $610.1 million.  Collectively, loans held for investment and PPP loans totaled $10.4 billion at year end 2020, an increase of $1.1 billion, or 11.8% from the prior year.

 

Deposits totaled $14.0 billion at December 31, 2020, up $826.4 million, or 6.2%, from the prior quarter and $2.8 billion, or 24.9%, year-over-year primarily reflecting the impact of additional customer liquidity.  Noninterest bearing deposits represented 31.0% of total deposits at December 31, 2020.  Interest-bearing deposit costs totaled 0.27% for the fourth quarter, a decrease of 4 basis points linked-quarter.  The total cost of interest-bearing liabilities was 0.30% for the fourth quarter of 2020, a decrease of 3 basis points from the prior quarter.

 

Trustmark’s capital position remained solid, reflecting the strength and diversity of its financial services businesses.  During the fourth quarter of 2020, Trustmark Corporation issued $125 million of 3.625% fixed-to-floating rate subordinated notes due in 2030 for general corporate purposes, further strengthening its regulatory capital position.  At December 31, 2020, Trustmark’s tangible equity to tangible assets ratio was 8.34%, while the total risk-based capital ratio increased to 14.12%.

 

As previously announced, Trustmark’s Board of Directors authorized a stock repurchase program effective April 1, 2020, under which $100 million of Trustmark’s outstanding shares may be acquired through December 31, 2021.  While Trustmark suspended its share repurchase program during the first quarter of 2020 to preserve capital given the economic uncertainty associated with the COVID-19 pandemic, Trustmark expects to resume the repurchase of its shares from time to time at prevailing market prices, through open market or private transactions, depending on market conditions, and in conjunction with its disciplined share repurchase framework.  There is no guarantee as to the number of shares that may be repurchased by Trustmark, and Trustmark may discontinue purchases at any time at management’s discretion.

 

Credit Quality

 

Nonperforming loans totaled $63.1 million at December 31, 2020, an increase of $9.3 million from the prior quarter and $9.9 million year-over-year.  Other real estate totaled $11.7 million, reflecting a $4.6 million decrease from the prior quarter and a $17.6 million decline from the prior year.  Collectively, nonperforming assets totaled $74.8 million, reflecting a linked-quarter increase of 6.7% and year-over-year reduction of 9.3%.

 

Allocation of Trustmark’s $117.3 million allowance for credit losses on loans held for investment represented 1.20% of commercial loans and 1.16% of consumer and home mortgage loans, resulting in an allowance for credit losses to total loans held for investment of 1.19% at December 31, 2020, representing a level management considers commensurate with the present risk in the loan portfolio.  

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Revenue Generation

 

Revenue in the fourth quarter totaled $177.5 million, a decrease of 1.3% from the prior quarter and an increase of 15.9% from the same quarter in the prior year.  The linked-quarter decline reflects higher net interest income, which was more than offset by reduced mortgage banking revenue. In 2020, revenue totaled $701.1 million, an increase of 14.3% from the prior year.  Excluding interest and fees on PPP loans, revenue totaled $674.5 million in 2020, an increase of $60.9 million, or 9.9%, from the prior year principally due to growth in mortgage banking revenue.

 

Net interest income (FTE) in the fourth quarter totaled $114.3 million, resulting in a net interest margin of 3.15%.  Relative to the prior quarter, net interest income (FTE) increased $5.1 million reflecting an increase of $4.5 million in interest income as well as a $611 thousand reduction in interest expense.  Excluding interest and fees on PPP loans, net interest income (FTE) totaled $99.4 million, resulting in a net interest margin of 2.91%, a linked-quarter decline of 14 basis points.  Continued low interest rates decreased the yield on the loans held for investment and held for sale portfolio as well as the securities portfolio and were partially offset by lower costs of interest-bearing deposits.  

 

Noninterest income in the fourth quarter totaled $66.1 million, a decrease of $7.6 million from the prior quarter and an increase of $18.5 million from the prior year.  The linked-quarter change reflects increases in service charges on deposit accounts and bank card and other fees, which were more than offset by a decline in mortgage banking revenue and a seasonal decline in insurance revenue.   The increase in noninterest income year-over-year is principally due to increased mortgage banking revenue.  

 

Mortgage loan production in the fourth quarter totaled $788.4 million, a seasonal decline of 11.0% from the prior quarter and a 58.1% increase year-over-year.  Mortgage banking revenue before hedge ineffectiveness totaled $29.1 million in the fourth quarter, a decline of $6.6 million from the prior quarter primarily due to lower gains on sale of loans in the secondary market.  In 2020, mortgage loan production totaled a record $2.98 billion, up 69.4% from the prior year.  Mortgage banking revenue totaled $125.8 million in 2020, an increase of $96.0 million from the prior year.  

 

Insurance revenue in the fourth quarter totaled $10.2 million, a seasonal decline of $1.4 million from the prior quarter and an increase of $832 thousand from the prior year.  Insurance revenue in 2020 totaled $45.2 million, up $2.8 million, or 6.6%, from the prior year.  The solid performance during the year reflects an expanded producer workforce as well as the realization of operational efficiencies from investments in technology and improved processes.

 

Wealth management revenue totaled $7.8 million in the fourth quarter, up 2.1% from the prior quarter and 1.0% from the prior year.  In 2020, wealth management revenue totaled $31.6 million, an increase of 3.1% from the prior year.  During 2020, Trustmark continued to enhance its competitive positioning and efficiency of its wealth management businesses as well as expand its Private Banking capabilities in key markets.

 

Noninterest Expense

 

Adjusted noninterest expense in the fourth quarter was $119.6 million, up $4.9 million, or 4.3%, from the prior quarter. Salaries and employee benefits increased $2.3 million linked-quarter principally due to increases  for  performance-based incentives.  Total services and fees increased $1.3 million during the fourth quarter due  to continued investments in technology and higher professional fees.    Other expense increased $1.2 million from the prior quarter principally due to increased operational losses and other expenses.

 

Credit loss expense related to off-balance sheet credit exposures was a negative $1.1 million in the fourth quarter, reflecting the improvement of the macroeconomic factors used to determine the necessary reserves for off-balance sheet credit exposures.  Other real estate expense was a negative $812 thousand for the fourth quarter, a decrease of approximately $2.0 million from the prior quarter, which is attributed to lower write-downs of ORE of $716 thousand and a net gain on the sale of ORE property of $1.3 million.

 

During 2020, Trustmark consolidated six offices and expanded deployment of interactive teller machines.  In January 2021, Trustmark opened a new office featuring a design that integrates myTeller interactive teller machine technology as well as provides enhanced areas for customer engagement.  With the opening of this office, two other offices were closed.  

 

“Looking forward, Trustmark will focus upon efficiency, growth and innovation opportunities while building upon its solid risk management processes, corporate culture and core values.   We will continue to optimize delivery channels to reflect changing customer preferences and introduce technology to enhance growth and efficiency opportunities.  We will provide the services and advice our customers have come to expect while building term value for our shareholders,” said Dewey.

 

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, January 27, 2021 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, February 10, 2021, in archived format at the same web address or by calling (877) 344-7529, passcode 10151113.

Trustmark is a financial services company providing banking and financial solutions through 183 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 “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. 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.

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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 and our customers, as well as the effectiveness of actions of federal, state and local governments and agencies (including the Board of Governors of the Federal Reserve Board (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 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.

 

 

 

F. Joseph Rein, Jr.

Senior Vice President

601-208-6898

 

 

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Note 1 – Recently Effective Accounting Pronouncements

ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” was adopted by Trustmark Corporation (Trustmark) on January 1, 2020.  At the date of adoption, Trustmark recorded a decrease to its ACL, LHFI of $3.0 million and an increase to its ACL on off-balance sheet credit exposures of $29.6 million resulting in a one-time cumulative effect adjustment of $26.6 million ($19.9 million, net of tax) through retained earnings.

In accordance with the amendments of ASU 2016-13, Trustmark estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts including the COVID-19 pandemic effects.  Trustmark uses a third-party software application to calculate the quantitative portion of the ACL using a methodology and assumptions specific to each loan pool.  The qualitative portion of the ACL is based on general economic conditions and other internal and external factors affecting Trustmark as a whole as well as specific LHFI.  The total quantitative and qualitative portions of the ACL reflect Management’s expectations of future conditions based on reasonable and supportable forecasts.

Based upon the factors discussed above, during the fourth quarter of 2020, Trustmark recorded a negative provision for credit losses of $4.4 million and a negative credit loss expense related to off-balance sheet credit exposures of $1.1 million compared to a provision for credit losses of $1.8 million and a negative credit loss expense related to off-balance sheet credit exposures of $3.0 million recorded during the third quarter of 2020.

Upon adoption of FASB ASC Topic 326, Trustmark elected to account for its existing acquired loans as purchased credit deteriorated loans included within the LHFI portfolio.  As a result, acquired loans of $72.6 million, as well as the necessary calculated allowance of $1.8 million, were transferred during the first quarter of 2020.  The acquired loans and related allowance transferred were acquired in the BancTrust Financial Group, Inc. merger on February 13, 2013.  LHFI presented in prior periods exclude acquired loans and thus may not be comparable to the current period presentation. 

In accordance with FASB ASC Subtopic 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Cost,” Trustmark has developed an allowance for credit losses methodology effective January 1, 2020, which replaces its previous allowance for loan losses methodology.  The ACL for LHFI is adjusted through the provision for credit losses and reduced by the charge off of loan amounts, net of recoveries.  Prior periods present the allowance for loan losses and provision for loan losses methodology under the incurred loss model and thus may not be comparable to the current period presentation. 

Trustmark’s estimated allowance for credit losses on securities available for sale and held to maturity under ASU 2016-13 was deemed immaterial due to the composition of these portfolios.  Both portfolios consist primarily of U.S. government agency guaranteed mortgage-backed securities for which the risk of loss is minimal.  Therefore, Trustmark did not recognize a cumulative effect adjustment through retained earnings related to the available for sale or held to maturity securities.

Trustmark has elected the five-year phase-in transition period related to adopting the CECL methodology for its regulatory capital.

Note 2 - Paycheck Protection Program

 

At December 31, 2020, Trustmark had outstanding 7,398 PPP loans totaling $610.1 million (net of $12.9 million of deferred fees and costs) under the Coronavirus Aid, Relief, and Economic Security Act, which was signed into law on March 27, 2020.  Due to amount and nature of the PPP loans, these loans were not included in the LHFI portfolio and are presented separately in the accompanying consolidated balance sheets. The PPP loans are fully guaranteed by the SBA; therefore, no ACL was estimated for these loans.

Note 3 - Securities Available for Sale and Held to Maturity

The following table is a summary of the estimated fair value of securities available for sale and the amortized cost of securities held to maturity:

 

 

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Note 3 - Securities Available for Sale and Held to Maturity (continued)

At December 31, 2020, the net unamortized, unrealized loss included in accumulated other comprehensive income (loss) in the accompanying balance sheet for securities held to maturity previously transferred from securities available for sale totaled approximately $8.9 million ($6.7 million, net of tax).

Management continues to focus on asset quality as one of the strategic goals of the securities portfolio, which is evidenced by the investment of 98.7% of the portfolio in GSE-backed obligations and other Aaa rated securities as determined by Moody’s. None of the securities owned by Trustmark are collateralized by assets which are considered sub-prime. Furthermore, outside of stock ownership in the Federal Home Loan Bank of Dallas, Federal Home Loan Bank of Atlanta and Federal Reserve Bank, Trustmark does not hold any other equity investment in a GSE.

Note 4 – Loan Composition

LHFI consisted of the following during the periods presented:

 

 

The following table presents the LHFI composition by region at December 31, 2020 and reflects each region’s diversified mix of loans:

 

 

 

 

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Note 4 – Loan Composition (continued)

 

 

Note 5 – Subordinated Notes Payable

During the fourth quarter of 2020, Trustmark agreed to issue and sell $125.0 million aggregate principal amount of its 3.625% Fixed-to-Floating Rate Subordinated Notes (the Notes) due December 1, 2030.  The Notes were sold at an underwriting discount of 1.2%, resulting in net proceeds to Trustmark of $123.5 million before deducting offering expenses of $600 thousand. At December 31, 2020, the carrying amount of the Notes was $122.9 million.  The Notes are unsecured obligations and are subordinated in right of payment to all our existing and future senior indebtedness, whether secured or unsecured.  The Notes are obligations of Trustmark only and are not obligations of, and are not guaranteed by, any of its subsidiaries, including Trustmark National Bank.  From the date of issuance until November 30, 2025, the Notes bear interest at a fixed rate of 3.625% per year, payable semi-annually in arrears on June 1 and December 1 of each year.  Beginning December 1, 2025, the Notes will bear interest at a floating rate per year equal to the Benchmark rate, which is the Three-Month Term Secured Overnight Financing Rate (SOFR), plus 338.7 basis points, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year.  The Notes qualify as Tier 2 capital for Trustmark.  The Notes may be redeemed at Trustmark’s option under certain circumstances.  Trustmark intends to use the net proceeds for general corporate purposes.  

 

 

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Note 6 – Yields on Earning Assets and Interest-Bearing Liabilities

The following table illustrates the yields on earning assets by category as well as the rates paid on interest-bearing liabilities on a tax equivalent basis:

 

Reflected in the table above are yields on earning assets and liabilities, along with the net interest margin which equals reported net interest income-FTE, annualized, as a percent of average earning assets. In addition, the table includes net interest margin excluding PPP and acquired loans, which equals reported net interest income-FTE excluding interest income on PPP and acquired loans, annualized, as a percent of average earning assets excluding average PPP and acquired loans.  

The net interest margin excluding PPP and acquired loans totaled 2.91% for the fourth quarter of 2020, a decrease of 14 basis points when compared to the third quarter of 2020.  Continued low interest rates decreased the yield on the loans held for investment and held for sale portfolio as well as the securities portfolio and were partially offset by lower costs of interest-bearing deposits.  

Note 7 – Mortgage Banking

Trustmark utilizes a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and option contracts, to achieve a fair value return that offsets the changes in fair value of mortgage servicing rights (MSR) attributable to interest rates.  These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting under generally accepted accounting principles (GAAP).  Changes in the fair value of these exchange-traded derivative instruments, including administrative costs, are recorded in noninterest income in mortgage banking, net and are offset by the changes in the fair value of the MSR.  The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates.  Ineffectiveness of hedging the MSR fair value is measured by comparing the change in value of hedge instruments to the change in the fair value of the MSR asset attributable to changes in interest rates and other market driven changes in valuation inputs and assumptions.  The impact of this strategy resulted in a net negative ineffectiveness of $909 thousand during the fourth quarter of 2020.  

The following table illustrates the components of mortgage banking revenues included in noninterest income in the accompanying income statements:

 

 

Note 8 – Salaries and Employee Benefit Plans

Early Retirement Program

In January 2020, Trustmark announced a voluntary early retirement program for associates age 60 and above with five or more years of continuous service. The cost of this program is reflected in a one-time, pre-tax charge of approximately $4.4 million (salaries and benefits of $4.3 million and other miscellaneous expense of $102 thousand; or $0.05 per basic share net of tax) in Trustmark’s first quarter 2020 earnings.

 

 

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Note 9 – Other Noninterest Income and Expense

Other noninterest income consisted of the following for the periods presented:

 

Trustmark invests in partnerships that provide income tax credits on a Federal and/or State basis (i.e., new market tax credits, low income housing tax credits and historical tax credits). The income tax credits related to these partnerships are utilized as specifically allowed by income tax law and are recorded as a reduction in income tax expense.

Other noninterest expense consisted of the following for the periods presented:

 

Note 10 – Non-GAAP Financial Measures

In addition to capital ratios defined by U.S. generally accepted accounting principles (GAAP) and banking regulators, Trustmark utilizes various tangible common equity measures when evaluating capital utilization and adequacy.  Tangible common equity, as defined by Trustmark, represents common equity less goodwill and identifiable intangible assets.

Trustmark believes these measures are important because they reflect the level of capital available to withstand unexpected market conditions.  Additionally, presentation of these measures allows readers to compare certain aspects of Trustmark’s capitalization to other organizations.  These ratios differ from capital measures defined by banking regulators principally in that the numerator excludes shareholders’ equity associated with preferred securities, the nature and extent of which varies across organizations.  In Management’s experience, many stock analysts use tangible common equity measures in conjunction with more traditional bank capital ratios to compare capital adequacy of banking organizations with significant amounts of goodwill or other tangible assets, typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions.

These calculations are intended to complement the capital ratios defined by GAAP and banking regulators.  Because GAAP does not include these capital ratio measures, Trustmark believes there are no comparable GAAP financial measures to these tangible common equity ratios.  Despite the importance of these measures to Trustmark, there are no standardized definitions for them and, as a result, Trustmark’s calculations may not be comparable with other organizations.  Also, there may be limits in the usefulness of these measures to investors.  As a result, Trustmark encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.  The following table reconciles Trustmark’s calculation of these measures to amounts reported under GAAP.

 

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Note 10 – Non-GAAP Financial Measures (continued)

 

 

 

 

 

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Note 10 – Non-GAAP Financial Measures (continued)

Trustmark discloses certain non-GAAP financial measures because Management uses these measures for business planning purposes, including to manage Trustmark’s business against internal projected results of operations and to measure Trustmark’s performance. Trustmark views these as measures of our core operating business, which exclude the impact of the items detailed below, as these items are generally not operational in nature. These non-GAAP financial measures also provide another basis for comparing period-to-period results as presented in the accompanying selected financial data table and the audited consolidated financial statements by excluding potential differences caused by non-operational and unusual or non-recurring items. Readers are cautioned that these adjustments are not permitted under GAAP. Trustmark encourages readers to consider its consolidated financial statements and the notes related thereto in their entirety, and not to rely on any single financial measure.

The following table presents pre-provision net revenue (PPNR) during the periods presented:

 

The following table presents adjustments to net income and select financial ratios as reported in accordance with GAAP resulting from significant non-routine items occurring during the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

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Note 10 – Non-GAAP Financial Measures (continued)

 

The following table presents Trustmark’s calculation of its efficiency ratio for the periods presented: