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Trustmark Corporation Announces Fourth Quarter and Fiscal Year 2019 Financial Results

Performance reflects improved earning asset mix, continued loan growth and solid credit quality

Trustmark Corporation (NASDAQ:TRMK) reported net income of $33.9 million in the fourth quarter of 2019, representing diluted earnings per share of $0.53. Results in the fourth quarter reflect negative hedge ineffectiveness which reduced net income by $2.2 million, or $0.03 per share.

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For the full year, Trustmark’s net income totaled $150.5 million, representing diluted earnings per share of $2.32. Diluted earnings per share in 2019 increased 5.0% when compared to the prior year. Results for 2019 reflect negative hedge ineffectiveness which reduced net income by $8.6 million, or $0.13 per share. Trustmark’s net income in 2019 produced a return on average tangible equity of 12.45% and a return on average assets of 1.11%.

Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable March 15, 2020, to shareholders of record on March 1, 2020.

2019 Highlights

  • Loans held for investment increased $499.8 million, or 5.7%, during the year
  • Nonperforming assets declined 14.4%, and net charge-offs represented 0.06% of average loans in 2019
  • Improved balance sheet positioning as securities and loans (excluding acquired loans) represented 20.5% and 76.7%, respectively, of average earning assets in 2019
  • Net interest income (FTE), excluding acquired loans, totaled $431.1 million, an increase of 3.9% from the prior year
  • Revenue, excluding acquired loans and negative hedge ineffectiveness, totaled $616.8 million, an increase of 5.5%

Gerard R. Host, President and CEO, stated, "We remained focused on our strategic initiatives this year, profitably increasing revenue across our financial services businesses, optimizing our balance sheet, deploying capital through share repurchases, and maintaining disciplined expense management. Looking ahead to 2020, Trustmark will continue to provide the financial services and advice our customers have come to expect. We remain committed to supporting investments to promote profitable revenue growth, reengineering processes to enhance operational efficiency, realigning delivery channels to support changing customer preferences and managing the franchise for the long-term."

Balance Sheet Management

  • Continued balance sheet and capital optimization through maturing investment securities run-off and share repurchases
  • Loans held for investment increased $112.0 million from the prior quarter
  • Cost of interest-bearing deposits declined 11 basis points during the quarter to 0.85%

Loans held for investment totaled $9.3 billion at December 31, 2019, reflecting an increase of 1.2% linked-quarter and 5.7% from the prior year. The linked-quarter growth reflects increases in construction and land development, residential mortgage, nonfarm, nonresidential and other real estate secured loans. Acquired loans totaled $72.6 million at December 31, 2019, down $8.4 million from the prior quarter and $34.3 million from the prior year. Collectively, loans held for investment and acquired loans totaled $9.4 billion at the end of the fourth quarter of 2019, up $103.6 million, or 1.1%, from the prior quarter and $465.4 million, or 5.2%, year-over-year.

Deposits totaled $11.2 billion at December 31, 2019, unchanged from the prior quarter and down $118.9 million, or 1.0%, year-over-year. Excluding public fund balances, deposits at December 31, 2019, were unchanged from the prior quarter and up $303.6 million, or 3.3% year-over-year. Interest-bearing deposit costs totaled 0.85% for the fourth quarter, a decrease of 11 basis points linked-quarter. Trustmark continues to maintain an attractive, low-cost deposit base with approximately 58% of deposit balances in checking accounts. The total cost of interest-bearing liabilities was 0.88% for the fourth quarter of 2019.

Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. At December 31, 2019, Trustmark’s tangible equity to tangible assets ratio was 9.72%, while the total risk-based capital ratio was 13.25%. During the fourth quarter, Trustmark repurchased $2.2 million, or approximately 64 thousand of its common shares in open market transactions. Trustmark repurchased $56.6 million, or approximately 1.8 million of its common shares in 2019. At December 31, 2019, Trustmark had $80.3 million in remaining authority under its existing stock repurchase program, which expires March 31, 2020.

Today, the Board of Directors authorized a new stock repurchase program, effective April 1, 2020, under which $100 million of Trustmark’s outstanding shares may be acquired through December 31, 2021. The shares may be purchased from time to time at prevailing market prices, through open market or private transactions, depending on market conditions. 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 decreased 9.8% and 13.6% from the prior quarter and year-over-year, respectively
  • Other real estate declined 8.5% from the prior quarter and 15.6% year-over-year
  • Allowance for loan losses represented 410.52% of nonperforming loans, excluding specifically reviewed impaired loans

Nonperforming loans totaled $53.2 million at December 31, 2019, down $5.8 million from the prior quarter and $8.4 million year-over-year. Other real estate totaled $29.2 million, reflecting a $2.7 million decrease from the prior quarter and down $5.4 million from the prior year. Collectively, nonperforming assets totaled $82.5 million, reflecting a linked-quarter decrease of 9.4% and a year-over-year decrease of 14.4%.

Allocation of Trustmark's $84.3 million allowance for loan losses represented 0.98% of commercial loans and 0.61% of consumer and home mortgage loans, resulting in an allowance to total loans held for investment of 0.90% at December 31, 2019, representing a level management considers commensurate with the present risk in the loan portfolio.

Unless otherwise noted, all of the above credit quality metrics exclude acquired loans.

Revenue Generation

  • Noninterest income before negative hedge ineffectiveness totaled $198.6 million in 2019, an increase of $16.1 million, or 8.8%, from the prior year
  • Net interest income (FTE), excluding acquired loans, totaled $431.1 million in 2019, an increase of 3.9% from the prior year
  • The net interest margin (FTE), excluding acquired loans, was 3.58% in 2019, compared to 3.46% in 2018

Revenue in the fourth quarter totaled $153.2 million, down 2.3% from the prior quarter and up 3.0% from the same quarter in the prior year. The linked-quarter decline reflects lower interest income as well as a seasonal reduction in noninterest income. Net interest income (FTE) in the fourth quarter totaled $108.7 million, resulting in a net interest margin of 3.56%. Relative to the prior quarter, net interest income (FTE) decreased $3.0 million as a reduction in interest expense was more than offset by a decline in total interest income. During the fourth quarter of 2019, the yield on acquired loans totaled 10.90% and included $661 thousand in recoveries from the settlement of debt, which represented approximately 3.37% of the annualized total acquired loan yield. Excluding acquired loans, the net interest margin decreased to 3.52% in the fourth quarter of 2019, compared to 3.61% in the prior quarter. The decrease was primarily due to a decline in the yield on the loans held for investment and held for sale portfolio which was partially offset by runoff of maturing investment securities and lower cost of interest-bearing deposits. Net interest income (FTE) in 2019 totaled $439.5 million, resulting in a net interest margin (FTE) of 3.62%; excluding acquired loans, the net interest margin (FTE) was 3.58%.

Noninterest income in the fourth quarter totaled $47.6 million, a decrease of $759 thousand from the prior quarter and an increase of $4.0 million compared to the same quarter in the prior year. The linked-quarter decrease primarily reflects a seasonal decline in insurance commissions. In the fourth quarter, bank card and other fees decreased 1.9% from the prior quarter, and service charges on deposit accounts decreased 1.5%. Other income, net totaled $3.5 million in the fourth quarter, up $1.5 million linked-quarter due to an increase in other miscellaneous income.

Insurance revenue in the fourth quarter totaled $9.4 million, down $1.7 million from the third quarter and $198 thousand from the same quarter in the prior year. The linked-quarter decrease is due to a seasonal decline in commissions. Insurance revenue in 2019 totaled $42.4 million, up 4.7%, or $1.9 million, from the prior year. The solid performance in 2019 reflects improved sales management practices, producer development, and realization of operational efficiencies resulting from investments in technology and processes.

Wealth management revenue totaled $7.8 million in the fourth quarter, in line with the prior quarter and up 3.5% year-over-year. The increase is primarily attributable to higher trust management fees. For the year, wealth management revenue totaled $30.7 million, up 1.1% from the prior year. Trustmark added capabilities and personnel in its Private Banking Group and completed internal reorganizations in 2019 to enhance the competitive positioning of the wealth management segment and streamline business functions.

Mortgage loan production in the fourth quarter totaled $498.5 million, a seasonal decline of 11.9% from the prior quarter and a 64.2% increase year-over-year, partially due to higher refinancing activity and lower interest rates. Mortgage banking income before negative hedge ineffectiveness totaled $10.9 million in the fourth quarter, a decline of $1.0 million from the prior quarter. In 2019, mortgage loan production totaled $1.76 billion, up 25.8% from the prior year. Mortgage banking income before negative hedge ineffectiveness totaled $41.3 million in 2019, an increase of $9.1 million, or 28.1%, from the prior year.

Noninterest Expense

  • Core noninterest expense, which excludes other real estate expense, net and intangible amortization, totaled $107.5 million, up 2.1% from the prior quarter
  • Effective corporate tax rate in 2019 was 13.4%
  • Continued investments to enhance the customer experience and realign delivery channels to support changing customer preferences

Total noninterest expense for the fourth quarter was $110.0 million, up 3.0%, or $3.2 million, from the prior quarter. The increase is primarily due to a $2.1 million increase in other expense. Other expense in the third quarter included a $1.6 million recovery of litigation related expenses. Excluding the impact of this item, other expense increased 4.4%, or $539 thousand, and total noninterest expense increased 1.5%, or $1.6 million, in the fourth quarter. In 2019, noninterest expense totaled $429.0 million, up 3.3% from the prior year.

Core noninterest expense, which excludes other real estate expense, net ($1.5 million) and intangible amortization ($1.0 million), totaled $107.5 million in the fourth quarter, a 2.1% increase from the prior quarter. In 2019, core noninterest expense totaled $421.0 million, an increase of 3.1% from the prior year.

Salaries and employee benefits totaled $62.3 million in the fourth quarter, down $176 thousand from the prior quarter due to seasonally lower insurance commissions. Services and fees rose $662 thousand linked-quarter reflecting continued software investments designed to improve efficiency and customer experience as well as increased advertising expense and increased spending on outside services and fees. Other real estate expense, net increased $960 thousand linked-quarter.

Trustmark has grown and sustained business by understanding and serving its customer base, and in 2019 Trustmark made significant investments to support changing customer preferences and enhance the customer experience. During the year, Trustmark closed five branches and opened two branches featuring a new design that allows for integration of the myTeller® technology and offers more areas of engagement. Trustmark remains committed to investments that promote profitable revenue growth as well as reengineering and efficiency opportunities that enhance long-term shareholder value.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, January 29, 2020 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 12, 2020, in archived format at the same web address or by calling (877) 344-7529, passcode 10137727.

Trustmark is a financial services company providing banking and financial solutions through 193 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 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 potential market impacts of efforts by the Board of Governors of the Federal Reserve System (FRB) to reduce the size of its balance sheet, 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 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 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, 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.

...
 

TRUSTMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION
December 31, 2019
($ in thousands)
(unaudited)

 
Linked QuarterYear over Year
QUARTERLY AVERAGE BALANCES 12/31/20199/30/201912/31/2018$ Change% Change$ Change% Change
Securities AFS-taxable

$

1,551,358

 

$

1,570,803

 

$

1,847,421

 

$

(19,445

)

-1.2

%

$

(296,063

)

-16.0

%

Securities AFS-nontaxable

 

23,300

 

 

25,096

 

 

38,821

 

 

(1,796

)

-7.2

%

 

(15,521

)

-40.0

%

Securities HTM-taxable

 

734,474

 

 

778,098

 

 

893,186

 

 

(43,624

)

-5.6

%

 

(158,712

)

-17.8

%

Securities HTM-nontaxable

 

25,703

 

 

26,088

 

 

29,143

 

 

(385

)

-1.5

%

 

(3,440

)

-11.8

%

Total securities

 

2,334,835

 

 

2,400,085

 

 

2,808,571

 

 

(65,250

)

-2.7

%

 

(473,736

)

-16.9

%

Loans (including loans held for sale)

 

9,467,437

 

 

9,436,287

 

 

8,933,501

 

 

31,150

 

0.3

%

 

533,936

 

6.0

%

Acquired loans

 

77,797

 

 

82,641

 

 

127,747

 

 

(4,844

)

-5.9

%

 

(49,950

)

-39.1

%

Fed funds sold and rev repos

 

184

 

 

3,662

 

 

843

 

 

(3,478

)

-95.0

%

 

(659

)

-78.2

%

Other earning assets

 

227,116

 

 

176,163

 

 

200,282

 

 

50,953

 

28.9

%

 

26,834

 

13.4

%

Total earning assets

 

12,107,369

 

 

12,098,838

 

 

12,070,944

 

 

8,531

 

0.1

%

 

36,425

 

0.3

%

Allowance for loan losses

 

(86,211

)

 

(83,756

)

 

(85,842

)

 

(2,455

)

-2.9

%

 

(369

)

-0.4

%

Other assets

 

1,445,075

 

 

1,447,977

 

 

1,362,831

 

 

(2,902

)

-0.2

%

 

82,244

 

6.0

%

Total assets

$

13,466,233

 

$

13,463,059

 

$

13,347,933

 

$

3,174

 

0.0

%

$

118,300

 

0.9

%

 
Interest-bearing demand deposits

$

3,167,256

 

$

3,085,758

 

$

2,722,841

 

$

81,498

 

2.6

%

$

444,415

 

16.3

%

Savings deposits

 

3,448,899

 

 

3,568,403

 

 

3,565,682

 

 

(119,504

)

-3.3

%

 

(116,783

)

-3.3

%

Time deposits

 

1,663,741

 

 

1,753,083

 

 

1,892,983

 

 

(89,342

)

-5.1

%

 

(229,242

)

-12.1

%

Total interest-bearing deposits

 

8,279,896

 

 

8,407,244

 

 

8,181,506

 

 

(127,348

)

-1.5

%

 

98,390

 

1.2

%

Fed funds purchased and repos

 

164,754

 

 

142,064

 

 

340,094

 

 

22,690

 

16.0

%

 

(175,340

)

-51.6

%

Other borrowings

 

79,512

 

 

78,404

 

 

90,252

 

 

1,108

 

1.4

%

 

(10,740

)

-11.9

%

Junior subordinated debt securities

 

61,856

 

 

61,856

 

 

61,856

 

0.0

%

0.0

%

Total interest-bearing liabilities

 

8,586,018

 

 

8,689,568

 

 

8,673,708

 

 

(103,550

)

-1.2

%

 

(87,690

)

-1.0

%

Noninterest-bearing deposits

 

3,017,824

 

 

2,932,754

 

 

2,862,161

 

 

85,070

 

2.9

%

 

155,663

 

5.4

%

Other liabilities

 

205,786

 

 

206,091

 

 

216,932

 

 

(305

)

-0.1

%

 

(11,146

)

-5.1

%

Total liabilities

 

11,809,628

 

 

11,828,413

 

 

11,752,801

 

 

(18,785

)

-0.2

%

 

56,827

 

0.5

%

Shareholders' equity

 

1,656,605

 

 

1,634,646

 

 

1,595,132

 

 

21,959

 

1.3

%

 

61,473

 

3.9

%

Total liabilities and equity

$

13,466,233

 

$

13,463,059

 

$

13,347,933

 

$

3,174