Growth in interest income and prudent expense management drove Trustmark Corporation’s (TRMK) first-quarter 2014 earnings per share of 43 cents. The reported figure beat the Zacks Consensus Estimate by a penny and compared favorably with the prior-year quarter figure of 38 cents.
Better-than-expected top-line growth was driven by a rise in interest income, partially offset by a decline in non-interest income and lower benefit from provision for loan losses. Moreover, during the quarter, the company managed to keep expenses under control. Further, improvement in profitability ratio and growth in loan and deposits were tailwinds. Capital ratios and asset quality were mixed bags.
Net income for the quarter came in at $29.0 million, up 16.6% from $24.9 million in the year-ago period.
Trustmark’s full-time equivalent (:FTE) total revenue was $148.6 million, up 3.6% year over year. Moreover, it beat the Zacks Consensus Estimate of $143.0 million.
FTE net interest income increased 6.5% year over year to $98.7 million. The growth was primarily due to a 5.4% rise in interest income as well as a 10.4% decline in interest expense. However, net interest margin (NIM) on FTE basis decreased 6 basis points (bps) from the prior-year quarter to 3.92%.
Non-interest income fell nearly 1.0% from the prior-year quarter to $44.1 million. The decline was primarily due to a slump in mortgage banking business and higher other net expense, partially offset by increase in securities gains, wealth management fees and insurance commissions.
Non-interest expense dipped 0.5% year over year to $101.6 million. The decrease was primarily attributable to a fall in Federal Deposit Insurance Corporation assessment expense and other real estate/Foreclosure expenditures.
As of Mar 31, 2014, loans held for investment, were $5.9 billion, up 7.1% year over year. Total deposits were $10.1 billion, up 2.1% from Mar 31, 2013.
Asset quality was a mixed bag during the quarter. The ratio of total nonperforming loans to total loans was 1.06% as of Mar 31, 2014, down 39 bps from Mar 31, 2013. Further, net recoveries as a percentage of average loans were 0.13% as of Mar 31, 2014, up 5 bps from Mar 31, 2013.
However, the benefit from provision for loan losses was $0.8 million, declining 72.9% from the prior-year quarter.
Profitability and Capital Ratios
Trustmark’s capital ratios were mixed while profitability ratios showed improvement during the reported quarter. As of Mar 31, 2014, Tier 1 leverage ratio was 9.14%, down from 9.83% as of Mar 31, 2013. Total risk-based capital ratio came in at 14.34% against 14.42% as of Mar 31, 2013. However, Tier 1 risk-based capital ratio was 13.11%, up from 12.97% as of Mar 31, 2013.
The return on assets came in at 0.99%, improving from 0.93% as of Mar 31, 2013. As of Mar 31, 2014, return on common equity came in at 8.60%, increasing from 7.61% as of Mar 31, 2013.
We believe that growth in loans will continue to drive Trustmark’s top line in the quarters ahead. Moreover, disciplined expense management and a steady balance sheet position will bolster the company’s growth in the long run.
However, we expect the persistent low interest rates to continue weighing on interest income as well as NIM. Further, limited scope to improve fee income will pose a challenge to the top line.
Currently, Trustmark carries a Zacks Rank #3 (Hold).
Performance of Other Banks
Hancock Holding Company’s (HBHC) quarterly earnings surpassed the Zacks Consensus Estimate, primarily driven prudent expense management and lower provision. Associated Banc-Corp (ASBC) also delivered a positive earnings surprise this season on the back of growth in interest income and almost unchanged operating expenses.
BancorpSouth, Inc. (BXS), on the other hand, posted in line results. Results benefited from increase net interest revenue, lower expenses and absence of provision for credit losses offset by a decrease in non interest income.