Trustmark Corporation Announces Third Quarter 2015 Financial Results

JACKSON, Miss.--(BUSINESS WIRE)--Trustmark Corporation (NASDAQ:TRMK) reported net income of $28.4 million in the third quarter of 2015, which represented diluted earnings per share of $0.42. Trustmark’s performance during the third quarter of 2015 produced a return on average tangible equity of 10.96% and a return on average assets of 0.92%. During the first nine months of 2015, Trustmark’s net income totaled $88.2 million, which represented diluted earnings per share of $1.30. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable December 15, 2015, to shareholders of record on December 1, 2015.

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Third Quarter Highlights

• Loans held for investment increased $344.6 million, or 5.3%, from the prior quarter and $458.0 million, or 7.2%, from the comparable period one year earlier
• Credit quality remained solid; continued reduction in nonperforming assets
• Revenue remained stable from the prior quarter at $143.6 million; growth in earning assets partially offset pressures of low interest rate environment
• Noninterest income totaled $46.0 million for the third quarter; insurance commissions up 5.4% and 7.2% linked quarter and year-over-year, respectively

Gerard R. Host, President and CEO, stated, “Reflecting the strength of our diverse five-state franchise, legacy loan growth in the third quarter totaled approximately $345 million, a 5.3% increase from the prior quarter. We also continued to maintain and expand customer relationships in our other lines of business, as evidenced by strength in insurance commissions and mortgage loan production volumes. Routine noninterest expense remained well controlled and credit quality remained solid. Earlier this year, we launched our new consumer mobile banking service, myTrustmark℠, which has been very well received. We remained excited about the opportunities this platform, in addition to others, may present for our franchise. Thanks to our associates, solid profitability and strong capital base, Trustmark remains well-positioned to continue meeting the needs of our customers and creating long-term value for our shareholders.”

Balance Sheet Management

• Solid legacy loan growth in Mississippi, Alabama, Texas and Tennessee during the third quarter
• Total loans (acquired and held for investment) expanded $297.3 million, or 4.3%, from the prior quarter; average earning assets increased $209.1 million, or 2.0%, linked quarter
• Capital base provides opportunity to support additional growth

Loans held for investment totaled $6.8 billion at September 30, 2015, an increase of 5.3% from the prior quarter and 7.2% from the same period one year earlier. Relative to the prior quarter, loans to state and other political subdivisions increased $103.3 million, led by growth in Mississippi and Texas. Construction, land development and other land loans increased $103.0 million, driven by growth in construction loans. Other loans, which include loans to nonprofits and real estate investment trusts, increased $59.8 million, as growth in Mississippi, Texas and Alabama, more than offset declines in Florida and Tennessee. Commercial and industrial loans increased $50.6 million, primarily reflecting growth in Tennessee and Florida, while loans secured by nonfarm, nonresidential real estate increased $37.4 million, principally because of growth in Alabama.

Acquired loans totaled $419.2 million at September 30, 2015, down $47.2 million from the prior quarter. Collectively, loans held for investment and acquired loans totaled $7.2 billion at September 30, 2015, up $297.3 million, or 4.3%, from the prior quarter.

End of period deposits totaled $9.4 billion, a linked-quarter decrease of $379.8 million that primarily reflects a seasonal reduction in public fund balances. Trustmark continues to maintain an attractive, low-cost deposit base with approximately 60.0% of deposits in checking accounts and a total cost of deposits of 0.13%. The favorable mix of interest-bearing liabilities yielded a total cost of funds of 0.26% for the third quarter of 2015.

Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. At September 30, 2015, Trustmark’s tangible equity to tangible assets ratio was 9.01%, while its total risk-based capital ratio was 14.66%. Tangible book value per share was $16.00 at September 30, 2015, up 6.4% year-over-year.

Credit Quality

• Continued improvement in criticized and classified loan balances
• Nonperforming assets declined 8.9% linked quarter and 21.7% year-over-year
• Allowance for loan losses represented 206.72% of nonperforming loans, excluding impaired loans

Levels of criticized and classified loan balances continued to reflect steady improvement. Relative to the prior quarter, criticized and classified loan balances declined by 1.5% and 9.9%, respectively. Compared to levels one year earlier, criticized and classified loan balances declined 22.0% and 20.3%, respectively.

At September 30, 2015, nonperforming loans totaled $61.1 million, a decline of 10.7% from the prior quarter and 30.8% from the prior year. Other real estate totaled $84.0 million, down 7.5% linked quarter and 13.5% year-over-year. Collectively, nonperforming assets totaled $145.1 million, a decrease of $14.1 million, or 8.9%, from the prior quarter and $40.3 million, or 21.7%, from levels one year earlier.

Allocation of Trustmark's $65.6 million allowance for loan losses represented 1.07% of commercial loans and 0.67% of consumer and home mortgage loans, resulting in an allowance to total loans held for investment of 0.97% at September 30, 2015, representing a level management considers commensurate with the inherent risk in the loan portfolio. The allowance for loan losses represented 206.72% of nonperforming loans, excluding impaired loans at September 30, 2015.

All of the above credit quality metrics exclude acquired loans and other real estate covered by FDIC loss-share agreement.

Revenue Generation

• Net interest income (FTE) remained stable relative to the prior quarter at $101.7 million
• Noninterest income increased 0.9% from the prior quarter and 7.2% from levels one year earlier
• Mortgage loan production volumes continued to remain strong at $420.4 million, up 0.8% linked quarter and 21.7% year-over-year

Revenue in the third quarter totaled $143.6 million and remained stable from the prior quarter. Net interest income (FTE) in the third quarter totaled $101.7 million, reflecting a net interest margin of 3.72%. Relative to the prior quarter, decreased interest income on the acquired loan portfolio was more than offset by increased interest income on the loans held for investment and held for sale portfolios, as well as the securities portfolio. The yield on acquired loans in the third quarter totaled 10.46% and included recoveries from settlement of debt of $4.8 million, which represented approximately 4.29% of the annualized total acquired loan yield. Excluding acquired loans, the net interest margin in the third quarter totaled 3.43%, down from 3.49% in the prior quarter.

Noninterest income totaled $46.0 million in the third quarter, an increase of 0.9% from the prior quarter and 7.2% from levels one year earlier. Service charges on deposit accounts increased 4.0% linked quarter, while bank card and other fees decreased 6.1% from the prior quarter, reflecting lower fees on interest rate swaps for commercial loan customers. Other income, net improved $1.9 million linked quarter, driven primarily by FDIC indemnification asset write-downs that occurred during the second quarter of 2015.

Insurance revenue in the third quarter totaled $9.9 million, an increase of 5.4% from the prior quarter and 7.2% from levels one year earlier. The solid performance this quarter was due to continued growth in the commercial property and casualty line of business as well as seasonal factors. Wealth management revenue remained stable relative to the prior quarter at $7.8 million, reflecting expanded trust management and annuity income, but partially offset by lower brokerage activity.

Mortgage banking revenue in the third quarter totaled $7.4 million, down from the prior quarter, but up from levels one year earlier. The decrease in mortgage revenue from the prior quarter primarily reflects a decreased benefit from the mortgage servicing hedge ineffectiveness as well as tightening secondary marketing spreads. Mortgage loan production in the third quarter remained solid at $420.4 million, up 0.8% from the prior quarter and 21.7% from levels one year earlier.

Noninterest Expense

• Routine noninterest expense remained well controlled at $98.2 million, up 0.9% from the prior quarter
• Continued optimization of retail delivery channels with successful adoption of new consumer mobile banking platform, myTrustmark℠, and realignment of branch network

Excluding ORE expense and intangible amortization of $5.3 million, routine noninterest expense totaled $98.2 million, an increase of $847 thousand, or 0.9%, from comparable expenses in the prior quarter. Salaries and benefits totaled $58.3 million in the third quarter, up 1.5% on a linked-quarter basis; the quarter-over-quarter increase primarily reflects increased commissions from seasonal insurance renewals and expanded mortgage loan production. Services and fees decreased 2.1% from the prior quarter, primarily because of lower data processing expense and third-party consulting fees. ORE and foreclosure expense increased $2.5 million from both the prior quarter and the same quarter one year earlier. Other expense increased marginally relative to the prior quarter principally because of higher loan expense.

As banking continues to evolve as something customers will do, not necessarily some place they will go, Trustmark has made investments in mobile banking products to ensure it continues to meet the evolving wants and needs of its customers. In the second quarter of 2015, Trustmark successfully introduced its new consumer mobile banking service, myTrustmark℠, which currently features account monitoring, funds transfer and bill pay capabilities. These capabilities, in addition to planned additions, aim to enhance the Trustmark banking experience, allowing customers to bank when and where they want.

During the third quarter, Trustmark continued the optimization of its retail delivery channels, consolidating two offices in Florida and Texas, and reallocating a portion of those resources into a new office in Gulfport, Mississippi. Year-to-date, Trustmark has consolidated eight offices and opened three new offices. Trustmark is committed to developing and maintaining relationships, while supporting investments that promote profitable revenue growth as well as reengineering and efficiency opportunities to enhance shareholder value.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, October 28, 2015, at 10:00 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, which will also include a slide presentation Management will review during the conference call. A replay of the conference call will also be available through Wednesday, November 11, 2015, in archived format at the same web address or by calling (877) 344-7529, passcode 10072410.

Trustmark Corporation is a financial services company providing banking and financial solutions through 200 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,” “potential,” “continue,” “could,” “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 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, local, state and national economic and market conditions, including the extent and duration of the current volatility in the credit and financial markets as well as 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 relating to the European financial system, and monetary and other governmental actions designed to address the level and volatility of interest rates and the volatility of securities, currency and other 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, changes in our compensation and benefit plans, greater than expected costs or difficulties related to the integration of acquisitions or new products and lines of business, natural disasters, environmental disasters, acts of war or terrorism, and other risks described in our filings with the Securities and Exchange Commission.

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.