TRUSTMARK CORP – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following provides a narrative discussion and analysis of Trustmark
Corporation's (Trustmark) financial condition and results of operations. This
discussion should be read in conjunction with the unaudited consolidated
financial statements and the supplemental financial data included in Part I.
Item 1. - Financial Statements of this report.

Description of Business

Trustmark, a Mississippi business corporation incorporated in 1968, is a bank
holding company headquartered in Jackson, Mississippi. Trustmark's principal
subsidiary is Trustmark National Bank (TNB), initially chartered by the State of
Mississippi in 1889. At March 31, 2022, TNB had total assets of $17.439 billion,
which represented approximately 99.99% of the consolidated assets of Trustmark.

Through TNB and its other subsidiaries, Trustmark operates as a financial
services organization providing banking and other financial solutions through
179 offices and 2,725 full-time equivalent associates (measured at March 31,
2022) located in the states of Alabama, Florida (primarily in the northwest or
"Panhandle" region of that state, which is referred to herein as Trustmark's
Florida market), Mississippi, Tennessee (in the Memphis and Northern Mississippi
regions, which are collectively referred to herein as Trustmark's Tennessee
market), and Texas (primarily in Houston, which is referred to herein as
Trustmark's Texas market). Trustmark's operations are managed along three
operating segments: General Banking Segment, Wealth Management Segment and
Insurance Segment. For a complete overview of Trustmark's business, see the
section captioned "The Corporation" included in Part I. Item 1. - Business of
Trustmark's Annual Report on Form 10-K for its fiscal year ended December 31,
2021 (2021 Annual Report).

Executive Overview

Trustmark has been committed to meeting the banking and financial needs of its
customers and communities for over 130 years, and remains focused on providing
support, advice and solutions to meet its customers' unique needs. Trustmark's
financial performance during the three months ended March 31, 2022 reflected
linked-quarter expansion in both net interest income and noninterest income and
solid loan growth, with growth in loans held for investment (LHFI) of $149.3
million, or 1.5%, as well as strong credit quality and disciplined expense
management. Trustmark remains focused on expanding customer relationships, which
was reflected in the solid performance of its banking, insurance and wealth
management businesses in the first quarter of 2022.

Trustmark is committed to managing the franchise for the long term, supporting
investments to promote profitable revenue growth, realigning delivery channels
to support changing customer preferences as well as reengineering and efficiency
opportunities to enhance long-term shareholder value. Trustmark's capital
position remained solid, reflecting the consistent profitability of its
diversified financial services businesses. Trustmark's Board of Directors
declared a quarterly cash dividend of $0.23 per share. The dividend is payable
June 15, 2022, to shareholders of record on June 1, 2022.

Recent Economic and Industry Developments

Economic activity continued to improve during the first three months of 2022 as
COVID-19 cases declined across the United States and restrictions were lifted;
however, economic concerns remain as a result of the cumulative weight of
uncertainty regarding the long-term effectiveness of the COVID-19 vaccine and
the potential economic impact of recent geopolitical developments, such as
Russia's invasion of Ukraine and COVID-19 lockdowns in China. Doubts surrounding
the near-term direction of global markets and the potential impact on the United
States economy are expected to persist for the near term. While Trustmark's
customer base is wholly domestic, international economic conditions affect
domestic economic conditions, and thus may have an impact upon Trustmark's
financial condition or results of operations.

Market interest rates have begun to rise during 2022 after an extended period at
historical lows. In March 2022, the FRB raised the target federal funds rate for
the first time in three years to a range of 0.25% to 0.50% and signaled the
possibility of additional rate increases throughout 2022. In addition, in March
2022 the FRB increased the interest that it pays on reserves from 0.10% to
0.40%. The prolonged period of reduced interest rates has had and may continue
to have an adverse effect on net interest income and margins and profitability
for financial institutions, including Trustmark. As interest rates increase, so
will competitive pressures on the deposit cost of funds. It is not possible to
predict the pace and magnitude of changes in interest rates, or the impact rate
changes will have on Trustmark's results of operations.

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In the April 2022 "Summary of Commentary on Current Economic Conditions by
Federal Reserve District," the twelve Federal Reserve Districts' reports
suggested that economic activity during the reporting period (covering the
period from February 18, 2022 through April 11, 2022) strengthened further,
displaying a moderate rate of growth; however, several Districts noted that the
pace of growth continued to be constrained by supply chain disruptions and labor
shortages. Reports by the twelve Federal Reserve Districts (Districts) noted the
following during the reporting period:

•

Consumer spending accelerated among retail and non-financial service firms as
COVID-19 cases tapered across the country. Manufacturing activity was solid
overall across most Districts, but supply chain backlogs, labor market tightness
and elevated input costs continued to pose challenges on firms' abilities to
meet demand. Vehicle sales remained largely constrained by low inventories.

•

Commercial real estate activity accelerated modestly as office occupancy and
retail activity increased. Districts' contacts reported continued strong demand
for residential real estate but limited supply.

•

Agricultural conditions were mixed across regions. Farmers were supported by
surging crop prices, but drought conditions were a challenge in some Districts
and increasing input costs were squeezing producer margins across the nation.

•

Inflationary pressures remained strong, with firms continuing to pass swiftly
rising input costs through to customers. Contacts across Districts, particularly
within the manufacturing sector, noted steep increases in raw materials,
transportation and labor costs. In multiple Districts, contacts reported spikes
in prices for energy, metals and agricultural commodities following the Russian
invasion of Ukraine, and several noted that the COVID-19 lockdowns in China had
worsened supply chain disruptions. Firms in most Districts expected inflationary
pressures to continue over the coming months.

•

Employment increased at a moderate rate as demand for workers was high, but
labor growth was dampened by the overall lack of available workers, though
several Districts reported signs of modest improvement in worker availability.
Many firms reported significant turnover as workers left for higher wages and
more flexible job schedules. Persistent labor demand continued to fuel strong
wage growth, particularly for workers willing to change jobs. Firms reported
that inflationary pressures were also contributing to higher wages and that
higher wages were doing little to alleviate widespread job vacancies.

•

Outlooks for future growth were clouded by the uncertainty created by recent
geopolitical developments and rising prices.

Reports by the Federal Reserve's Sixth District, Atlanta (which includes
Trustmark's Alabama, Florida and Mississippi market regions), Eighth District,
St. Louis (which includes Trustmark's Tennessee market region), and Eleventh
District, Dallas (which includes Trustmark's Texas market region), noted similar
findings for the reporting period as those discussed above. The Federal
Reserve's Sixth District also reported that while housing demand was strong,
persistently low inventory levels, higher home prices and rising mortgage rates
constrained sales and further diminished affordability. The Federal Reserve's
Sixth District also noted that conditions at financial institutions were steady
as loan growth improved, with consumer lending experiencing the strongest growth
among loan portfolios, and deposit balances were flat. The Federal Reserve's
Eighth District noted that banking contacts reported a slight increase in loan
demand and expected competition among lenders to put downward pressure on rates.
The Federal Reserve's Eleventh District also reported that activity in the
energy sector expanded further in part due to the recent run-up in energy prices
and increased oilfield activity, rig count and oil and natural gas production.
The Federal Reserve's Eleventh District also noted that despite increased
uncertainty, outlooks were optimistic within the energy sector, bolstered by
strong consumer demand and expectations of limited global supply growth in 2022.

Financial Highlights

Trustmark reported net income of $29.2 million, or basic and diluted earnings
per share (EPS) of $0.47, in the first quarter of 2022, compared to $52.0
million, or basic and diluted EPS of $0.82, in the first quarter of 2021.
Trustmark's reported performance during the quarter ended March 31, 2022
produced a return on average tangible equity of 9.05%, a return on average
assets of 0.68%, an average equity to average assets ratio of 9.79% and a
dividend payout ratio of 48.94%, compared to a return on average tangible equity
of 15.56%, a return on average assets of 1.26%, an average equity to average
assets ratio of 10.55% and a dividend payout ratio of 28.05% during the quarter
ended March 31, 2021.

Total revenue, which is defined as net interest income plus noninterest income,
for the three months ended March 31, 2022 was $153.5 million, a decrease of $9.5
million, or 5.8%, when compared to the same time period in 2021. The decrease in
total revenue for the first quarter of 2022 when compared to the same time
period in 2021, resulted from a decline in noninterest income, primarily due to
a decline in mortgage banking, net, as well as a decline in net interest income,
primarily due to a decrease in interest and fees on PPP loans, partially offset
by an increase in interest on securities and a decline in interest on deposits.
These factors are discussed in further detail below.

Net interest income for the three months ended March 31, 2022 totaled $99.3
million, a decrease of $3.0 million, or 2.9%, when compared to the same time
period in 2021. Interest income totaled $103.7 million for the three months
ended March 31, 2022, a decrease

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of $5.8 million, or 5.3%, when compared to the same time period in 2021,
principally due to a decline in interest and fees on PPP loans, primarily due to
PPP loans forgiven by the U.S. Small Business Administration (SBA) as well as
the PPP loans sold during the second quarter of 2021, partially offset by an
increase in interest on securities primarily due to securities purchased.
Interest expense totaled $4.4 million for the three months ended March 31, 2022,
a decrease of $2.8 million, or 38.8%, when compared to the same time period in
2021, principally due to the decline in interest on deposits as a result of
lower interest rates.

Noninterest income for the three months ended March 31, 2022 totaled $54.1
million, a decrease of $6.5 million, or 10.7%, when compared to the same time
period in 2021, primarily due to a decline in mortgage banking, net, partially
offset by increases in service charges on deposit accounts and insurance
commissions. Mortgage banking, net totaled $9.9 million for the three months
ended March 31, 2022, a decrease of $10.9 million, or 52.5%, when compared to
the same time period in 2021, principally due to a decline in the gain on sales
of loans, net. Service charges on deposit accounts totaled $9.5 million for the
three months ended March 31, 2022, an increase of $2.1 million, or 28.5%, when
compared to the same time period in 2021 principally due to an increase in the
amount of non-sufficient funds (NSF) and overdraft occurrences on consumer
demand deposit accounts (DDAs) and interest checking accounts and service
charges on consumer interest checking accounts, primarily as a result of an
increase in customer transactions with the further abatement of pandemic-related
concerns. Insurance commissions totaled $14.1 million for the three months ended
March 31, 2022, an increase of $1.6 million, or 13.2%, when compared to the same
time period in 2021, principally due to growth in commissions from commercial
property and casualty business.

Noninterest expense for the three months ended March 31, 2022 totaled $121.5
million, relatively unchanged when compared to the same time period in 2021, as
an increase in services and fees was largely offset by a decline in salaries and
employee benefits. Services and fees totaled $24.5 million for the three months
ended March 31, 2022, an increase of $2.0 million, or 8.8%, when compared to the
same time period in 2021, primarily due to an increase in data processing
charges related to software. Salaries and employee benefits totaled $69.6
million for the three months ended March 31, 2022, a decrease of $1.6 million,
or 2.2%, when compared to the same time period in 2021, principally due to
declines in commission expense related to mortgage loan originations and
time-based restricted stock expense.

Trustmark's PCL on LHFI for the three months ended March 31, 2022 totaled a
negative $860 thousand, a decrease in the negative PCL of $9.6 million, or
91.8%, when compared to the same time period in 2021. The negative PCL on LHFI
for the first quarter of 2022 primarily reflected a decline in required reserves
as a result of improved credit quality and improvements in the macroeconomic
forecasting variables used in the ACL modeling, partially offset by increases in
specific reserves for individually analyzed LHFI and reserves related to loan
growth. The PCL on off-balance sheet credit exposures totaled a negative $1.1
million for the three months ended March 31, 2022, a decrease in the negative
PCL of $8.3 million, or 88.2%, when compared to the same time period in 2021.
The negative PCL on off-balance credit primarily reflected a decline in required
reserves as a result of a decrease in the unfunded balances partially offset by
an increase in reserves as a result of changes in the total reserve rate used in
the calculation of the ACL on off-balance sheet credit exposures. Please see the
section captioned "Provision for Credit Losses" for additional information
regarding the PCL on LHFI and off-balance sheet credit exposures.

At March 31, 2022, nonperforming assets totaled $67.6 million, an increase of
$331 thousand, or 0.5%, compared to December 31, 2021, as an increase in
nonaccrual LHFI was largely offset by a decline in other real estate. Nonaccrual
LHFI totaled $64.4 million at March 31, 2022, an increase of $1.7 million, or
2.7%, relative to December 31, 2021, primarily due to one large commercial
credit in the Texas market region that was placed on nonaccrual status during
the first quarter of 2022, partially offset by reductions, pay-offs and
charge-offs of nonaccrual loans in the Texas, Mississippi and Tennessee market
regions. Other real estate totaled $3.2 million at March 31, 2022, a decline of
$1.4 million, or 30.1%, compared to December 31, 2021, principally due to
properties sold in the Mississippi market region.

LHFI totaled $10.397 billion at March 31, 2022, an increase of $149.3 million,
or 1.5%, compared to December 31, 2021. The increase in LHFI during the first
three months of 2022 was primarily due to net growth in LHFI secured by real
estate in Trustmark's Mississippi, Texas and Tennessee market regions,
commercial and industrial LHFI in the Mississippi and Alabama market regions and
state and other political subdivision LHFI in the Mississippi and Texas market
regions, partially offset by declines in commercial and industrial LHFI in
Trustmark's Tennessee and Texas market regions, other commercial LHFI across all
five market regions and state and other political subdivision LHFI in the
Alabama market region. For additional information regarding changes in LHFI and
comparative balances by loan category, see the section captioned "LHFI."

Management has continued its practice of maintaining excess funding capacity to
provide Trustmark with adequate liquidity for its ongoing operations. In this
regard, Trustmark benefits from its strong deposit base, its highly liquid
investment portfolio and its access to funding from a variety of external
funding sources such as upstream federal funds lines, FHLB advances and, on a
limited basis, brokered deposits. See the section captioned "Capital Resources
and Liquidity" for further discussion of the components of Trustmark's excess
funding capacity.

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Total deposits were $15.113 billion at March 31, 2022, an increase of $26.1
million, or 0.2%, compared to December 31, 2021. During the first three months
of 2022, noninterest-bearing deposits decreased $32.0 million, or 0.7%,
reflecting a decline in public DDAs partially offset by an increase in
commercial DDAs. Interest-bearing deposits increased $58.1 million, or 0.6%,
during the first three months of 2022, primarily due to growth in consumer and
commercial Money Market Deposit Accounts (MMDA) as well as consumer savings
accounts, partially offset by declines in all categories of interest checking
accounts and consumer certificates of deposits.

Recent Legislative and Regulatory Developments

For additional information regarding legislation and regulation applicable to
Trustmark, see the section captioned "Supervision and Regulation" included in
Part I. Item 1. - Business of Trustmark's 2021 Annual Report.

Selected Financial Data

The following tables present financial data derived from Trustmark's
consolidated financial statements as of and for the periods presented ($ in
thousands, except per share data):

                                                    Three Months Ended March 31,
                                                      2022                 2021
Consolidated Statements of Income
Total interest income                            $      103,713       $      109,472
Total interest expense                                    4,369                7,136
Net interest income                                      99,344              102,336
Provision for credit losses (PCL), LHFI                    (860 )            (10,501 )
PCL, off-balance sheet credit exposures (1)              (1,106 )             (9,367 )
Noninterest income                                       54,115               60,583
Noninterest expense (1)                                 121,519              121,548
Income before income taxes                               33,906               61,239
Income taxes                                              4,695                9,277
Net Income                                       $       29,211       $       51,962

Total Revenue (2)                                $      153,459       $      162,919

Per Share Data
Basic EPS                                        $         0.47       $         0.82
Diluted EPS                                                0.47                 0.82
Cash dividends per share                                   0.23                 0.23

Performance Ratios
Return on average equity                                   6.91 %              11.98 %
Return on average tangible equity                          9.05 %              15.56 %
Return on average assets                                   0.68 %               1.26 %
Average equity / average assets                            9.79 %              10.55 %
Net interest margin (fully taxable equivalent)             2.58 %               2.81 %
Dividend payout ratio                                     48.94 %              28.05 %

Credit Quality Ratios (3)
Net charge-offs (recoveries) / average loans              -0.01 %              -0.09 %
PCL, LHFI / average loans                                 -0.03 %              -0.41 %
Nonaccrual LHFI / (LHFI + LHFS)                            0.61 %               0.61 %

Nonperforming assets / (LHFI + LHFS)

  plus other real estate                                   0.64 %               0.71 %
ACL LHFI / LHFI                                            0.95 %               1.09 %


(1)
During the second quarter of 2021, Trustmark reclassified its credit loss
expense related to off-balance sheet credit exposures from noninterest expense
to PCL, off-balance sheet credit exposures. Prior periods have been reclassified
accordingly.
(2)
Consistent with Trustmark's audited annual financial statements, total revenue
is defined as net interest income plus noninterest income.
(3)
Excludes PPP loans.

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