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Trustmark Corporation Announces Third Quarter 2019 Financial Results

JACKSON, Miss.--(BUSINESS WIRE)--

Loan growth and disciplined expense management contribute to performance

Trustmark Corporation (TRMK) reported net income of $41.0 million in the third quarter of 2019, representing diluted earnings per share of $0.64. Diluted earnings per share decreased 1.5% linked-quarter and increased 18.5% compared to the same quarter in the prior year. This level of earnings resulted in a return on average tangible equity of 13.31% and a return on average assets of 1.21%. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable December 15, 2019, to shareholders of record on December 1, 2019.

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Third Quarter Highlights

  • Loans held for investment increased $106.9 million, or 1.2%, linked-quarter and $476.6 million, or 5.4%, from the prior year
  • The net interest margin (FTE), excluding acquired loans, was 3.61% in the third quarter, up 1 basis point from the prior quarter and 11 basis points year-over-year
  • Core noninterest expense, which excludes other real estate expense and intangible amortization, totaled $105.3 million, up 0.3% from the prior quarter and 2.5% year-over-year

Gerard R. Host, President and CEO, stated, “We are pleased to report solid financial results for the third quarter, reflecting Trustmark’s proven ability to successfully perform in the face of a challenging interest rate environment. Our third-quarter results were driven by continued loan growth and disciplined expense management. Trustmark also continued evaluating opportunities to better align delivery channels with customer preferences and deploy resources in higher growth markets. With a team of dedicated associates, a history of consistent performance, and a focus on our strategic initiatives, Trustmark is well positioned to continue meeting the needs of our customers and creating long-term value for shareholders.”

Balance Sheet Management

  • Loans held for investment grew for the sixth consecutive quarter
  • Continued balance sheet and capital optimization through maturing investment securities run-off and share repurchases
  • Noninterest-bearing deposits represented 27.2% of total deposits at September 30, 2019

Loans held for investment totaled $9.2 billion at September 30, 2019, reflecting an increase of 1.2% linked-quarter and 5.4% from the prior year. The growth was driven primarily by commercial real estate and construction and development loans. Acquired loans totaled $81.0 million at September 30, 2019, down $6.9 million from the prior quarter. Collectively, loans held for investment and acquired loans totaled $9.3 billion at the end of the third quarter of 2019, up $100.0 million, or 1.1%, from the prior quarter and $425.0 million, or 4.8%, year-over-year.

Deposits totaled $11.3 billion at September 30, 2019, down $312.4 million from the prior quarter and up $297.3 million year-over-year. The linked-quarter decline is primarily attributable to a seasonal decline in public funds. The deposit mix shifted favorably during the third quarter as noninterest-bearing deposits increased 5.3% linked-quarter and 10.0% year-over-year to total $3.1 billion, representing 27.2% of total deposits. Interest-bearing deposit costs totaled 0.96% in the third quarter, a decrease of 3 basis points linked-quarter. Trustmark continues to maintain an attractive, low-cost deposit base with approximately 57% of deposit balances in checking accounts.

Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. During the third quarter, Trustmark repurchased $4.5 million, or approximately 139 thousand of its common shares in open market transactions. At September 30, 2019, Trustmark had $82.5 million in remaining authority under its existing stock repurchase program, which expires March 31, 2020. At September 30, 2019, Trustmark’s tangible equity to tangible assets ratio was 9.53%, while the total risk-based capital ratio was 13.15%.

Credit Quality

  • Allowance for loan losses represented 357.15% of nonperforming loans, excluding specifically reviewed impaired loans
  • Net charge-offs represented 0.01% of average loans in the third quarter

Nonperforming loans totaled $59.0 million at September 30, 2019, up $6.1 million from the prior quarter and down $8.8 million year-over-year. Other real estate totaled $32.0 million, up $731 thousand from the prior quarter and down $4.5 million from the same period one year earlier. Collectively, nonperforming assets totaled $91.0 million, reflecting a linked-quarter increase of 8.2% and year-over-year decrease of 12.8%.

Allocation of Trustmark's $83.2 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 September 30, 2019, representing a level management considers commensurate with the inherent risk in the loan portfolio.

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

Revenue Generation

  • Net interest margin (FTE), excluding acquired loans, was 3.61%, up 1 basis point from the prior quarter and 11 basis points from the previous year
  • Net interest income (FTE) totaled $111.7 million in the third quarter, up 0.7% linked-quarter and 1.4% year-over-year
  • Noninterest income totaled $48.3 million in the third quarter, representing 31.3% of revenue excluding acquired loans

Net interest income (FTE) in the third quarter totaled $111.7 million, resulting in a net interest margin of 3.66%, up 2 basis points from the prior quarter. Relative to the prior quarter, net interest income (FTE) increased $743 thousand, reflecting a $93 thousand increase in interest income and a $650 thousand decrease in interest expense. During the third quarter of 2019, the yield on acquired loans totaled 11.08% and included $1.1 million in recoveries from the settlement of debt, which represented approximately 5.09% of the annualized total acquired loan yield. Excluding acquired loans, the net interest margin totaled 3.61% for the third quarter of 2019, up 1 basis point from the prior quarter as a decline in the yield on the loans held for investment and held for sale portfolio was offset by runoff of maturing investment securities, decline in other earning assets, favorable funding mix, and lower cost of interest-bearing deposits.

Noninterest income in the third quarter totaled $48.3 million, a decrease of $1.3 million from the prior quarter and an increase of $1.2 million when compared to the same period in the prior year. Mortgage loan production in the third quarter totaled $566.2 million, up 36.7% from the prior quarter and 42.4% year-over-year. Gain on sales of loans, net totaled $8.5 million in the third quarter, up $2.9 million from the second quarter. This increase was more than offset by a $3.7 million increase in negative net mortgage hedge ineffectiveness. Mortgage banking revenue totaled $8.2 million in the third quarter.

Insurance revenue totaled $11.1 million in the third quarter, unchanged from the prior quarter and up 2.9% year-over-year due to broad based growth in commissions. Wealth management revenue in the third quarter totaled $7.7 million, unchanged from the second quarter as increases in brokerage and investment services were offset by a decline in trust management fees. Bank card and other fees increased 4.3% from the prior quarter and 11.9% year-over-year primarily due to higher customer derivative revenue. Service charges on deposit accounts increased 6.6% from the prior quarter and remained flat year-over-year.

Noninterest Expense

  • Total noninterest expense for the third quarter was $106.9 million, up 0.7% from the prior quarter and 1.5% year-over-year
  • Effective tax rate declined to 12.8% in the third quarter
  • Continued to realign delivery channels to reflect changing customer preferences

Salaries and employee benefits increased $546 thousand from the prior quarter to total $62.5 million, primarily due to higher mortgage commissions as a result of increased production. Services and fees rose $829 thousand linked-quarter reflecting continued software investments designed to improve efficiency and customer experience as well as an increase in professional fees. Other real estate expense, net increased $399 thousand linked-quarter while other expense declined $1.0 million linked-quarter to total $10.8 million.

Included in other expense in the third quarter is a recovery of $1.6 million in litigation related expenses incurred in prior periods. Other expense also reflects contributions totaling $1.1 million related to Trustmark’s participation in The Children’s Promise Act, which provides a dollar-for-dollar Mississippi state tax credit to individuals and businesses for donations to eligible charitable organizations. This tax benefit is reflected in Trustmark’s effective tax rate of 12.8% in the third quarter.

Trustmark continues to evaluate delivery channels across its footprint to reflect changing customer preferences and reallocate resources to markets with attractive growth opportunities. Trustmark remains committed to providing the highest quality service in its legacy markets while seeking to further establish a presence in higher growth markets. In the third quarter of 2019, Trustmark closed three offices and opened one office; year-to-date, Trustmark closed five offices and opened two offices.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, October 23, 2019 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, November 6, 2019, in archived format at the same web address or by calling (877) 344-7529, passcode 10135486.

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,” “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 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
September 30, 2019
($ in thousands)
(unaudited)
Linked Quarter Year over Year
QUARTERLY AVERAGE BALANCES 9/30/2019 6/30/2019 9/30/2018 $ Change % Change $ Change % Change
Securities AFS-taxable

$ 1,570,803

$ 1,661,464

$ 1,937,807

$ (90,661)

-5.5%

$ (367,004)

-18.9%

Securities AFS-nontaxable

25,096

31,474

41,889

(6,378)

-20.3%

(16,793)

-40.1%

Securities HTM-taxable

778,098

821,357

933,294

(43,259)

-5.3%

(155,196)

-16.6%

Securities HTM-nontaxable

26,088

27,035

29,183

(947)

-3.5%

(3,095)

-10.6%

Total securities

2,400,085

2,541,330

2,942,173

(141,245)

-5.6%

(542,088)

-18.4%

Loans (including loans held for sale)

9,436,287

9,260,028

8,907,588

176,259

1.9%

528,699

5.9%

Acquired loans

82,641

91,217

147,811

(8,576)

-9.4%

(65,170)

-44.1%

Fed funds sold and rev repos

3,662

34,057

477

(30,395)

-89.2%

3,185

n/m

Other earning assets

176,163

316,604

189,471

(140,441)

-44.4%

(13,308)

-7.0%

Total earning assets

12,098,838

12,243,236

12,187,520

(144,398)

-1.2%

(88,682)

-0.7%

Allowance for loan losses

(83,756)

(81,996)

(86,496)

(1,760)

-2.1%

2,740

3.2%

Other assets

1,447,977

1,467,462

1,366,276

(19,485)

-1.3%

81,701

6.0%

Total assets

$ 13,463,059

$ 13,628,702

$ 13,467,300

$ (165,643)

-1.2%

$ (4,241)

0.0%

 
Interest-bearing demand deposits

$ 3,085,758

$ 3,048,876

$ 2,602,658

$ 36,882

1.2%

$ 483,100

18.6%

Savings deposits

3,568,403

3,801,187

3,722,533

(232,784)

-6.1%

(154,130)

-4.1%

Time deposits

1,753,083

1,840,065

1,851,866

(86,982)

-4.7%

(98,783)

-5.3%

Total interest-bearing deposits

8,407,244

8,690,128

8,177,057

(282,884)

-3.3%

230,187

2.8%

Fed funds purchased and repos

142,064

51,264

347,489

90,800

n/m

(205,425)

-59.1%

Other borrowings

78,404

81,352

187,196

(2,948)

-3.6%

(108,792)

-58.1%

Junior subordinated debt securities

61,856

61,856

61,856

0.0%

0.0%

Total interest-bearing liabilities

8,689,568

8,884,600

8,773,598

(195,032)

-2.2%

(84,030)

-1.0%

Noninterest-bearing deposits

2,932,754

2,898,266

2,894,061

34,488

1.2%

38,693

1.3%

Other liabilities

206,091

240,091

202,053

(34,000)

-14.2%

4,038

2.0%

Total liabilities

11,828,413

12,022,957

11,869,712

(194,544)

-1.6%

(41,299)

-0.3%

Shareholders' equity

1,634,646

1,605,745

1,597,588

28,901

1.8%

37,058

2.3%

Total liabilities and equity

$ 13,463,059

$ 13,628,702

$ 13,467,300

$ (165,643)

-1.2%

$ (4,241)

0.0%

 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 
See Notes to Consolidated Financials
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
September 30, 2019
($ in thousands)
(unaudited)
 
Linked Quarter Year over Year
PERIOD END BALANCES 9/30/2019 6/30/2019 9/30/2018 $ Change % Change $ Change % Change
Cash and due from banks

$

 

 

486,263

 

$

 

 

404,413

 

$

 

 

432,471

 

$

 

 

81,850

 

20.2

%

$

 

 

53,792

 

12.4

%

Fed funds sold and rev repos

 

75,499

 

 

1,000

 

 

(75,499

)

-100.0

%

 

(1,000

)

-100.0

%

Securities available for sale

 

1,553,705

 

 

1,643,725

 

 

1,864,633

 

 

(90,020

)

-5.5

%

 

(310,928

)

-16.7

%

Securities held to maturity

 

785,422

 

 

825,536

 

 

943,883

 

 

(40,114

)

-4.9

%

 

(158,461

)

-16.8

%

Loans held for sale (LHFS)

 

292,800

 

 

240,380

 

 

182,664

 

 

52,420

 

21.8

%

 

110,136

 

60.3

%

Loans held for investment (LHFI)

 

9,223,668

 

 

9,116,759

 

 

8,747,030

 

 

106,909

 

1.2

%

 

476,638

 

5.4

%

Allowance for loan losses, LHFI

 

(83,226

)

 

(80,399

)

 

(88,874

)

 

(2,827

)

-3.5

%

 

5,648

 

6.4

%

Net LHFI

 

9,140,442

 

 

9,036,360

 

 

8,658,156

 

 

104,082

 

1.2

%

 

482,286

 

5.6

%

Acquired loans

 

81,004

 

 

87,884

 

 

132,615

 

 

(6,880

)

-7.8

%

 

(51,611

)

-38.9

%

Allowance for loan losses, acquired loans

 

(1,249

)

 

(1,398

)

 

(1,714

)

 

149

 

10.7

%

 

465

 

27.1

%

Net acquired loans

 

79,755

 

 

86,486

 

 

130,901

 

 

(6,731

)

-7.8

%

 

(51,146

)

-39.1

%

Net LHFI and acquired loans

 

9,220,197

 

 

9,122,846

 

 

8,789,057

 

 

97,351

 

1.1

%

 

431,140

 

4.9

%

Premises and equipment, net

 

188,423

 

 

189,820

 

 

178,739

 

 

(1,397

)

-0.7

%

 

9,684

 

5.4

%

Mortgage servicing rights

 

73,016

 

 

79,283

 

 

101,374

 

 

(6,267

)

-7.9

%

 

(28,358

)

-28.0

%

Goodwill

 

379,627

 

 

379,627

 

 

379,627

 

0.0

%

0.0

%

Identifiable intangible assets

 

8,345

 

 

9,101

 

 

12,391

 

 

(756

)

-8.3

%

 

(4,046

)

-32.7

%

Other real estate

 

31,974

 

 

31,243

 

 

36,475

 

 

731

 

2.3

%

 

(4,501

)

-12.3

%

Operating lease right-of-use assets

 

33,180

 

 

32,762

 

 

418

 

1.3

%

 

33,180

 

n/m

 

Other assets

 

531,834

 

 

514,723

 

 

517,498

 

 

17,111

 

3.3

%

 

14,336

 

2.8

%

Total assets

$

 

 

13,584,786

 

$

 

 

13,548,958

 

$

 

 

13,439,812

 

$

 

 

35,828

 

0.3

%

$

 

 

144,974

 

1.1

%

 
Deposits:
Noninterest-bearing

$

 

 

3,064,127

 

$

 

 

2,909,141

 

$

 

 

2,786,539

 

$

 

 

154,986

 

5.3

%

$

 

 

277,588

 

10.0

%

Interest-bearing

 

8,190,056

 

 

8,657,488

 

 

8,170,371

 

 

(467,432

)

-5.4

%

 

19,685

 

0.2

%

Total deposits

 

11,254,183

 

 

11,566,629

 

 

10,956,910

 

 

(312,446

)

-2.7

%

 

297,273

 

2.7

%

Fed funds purchased and repos

 

376,712

 

 

51,800

 

 

486,865

 

 

324,912

 

n/m

 

 

(110,153

)

-22.6

%

Other borrowings

 

76,685

 

 

79,012

 

 

190,919

 

 

(2,327

)

-2.9

%

 

(114,234

)

-59.8

%

Junior subordinated debt securities

 

61,856

 

 

61,856

 

 

61,856

 

0.0

%

0.0

%

Operating lease liabilities

 

34,319

 

 

33,878

 

 

 

 

441

 

1.3

%

 

34,319

 

n/m

 

Other liabilities

 

135,669

 

 

137,233

 

 

143,658

 

 

(1,564

)

-1.1

%

 

(7,989

)

-5.6

%

Total liabilities

 

11,939,424

 

 

11,930,408

 

 

11,840,208

 

 

9,016

 

0.1

%

 

99,216

 

0.8

%

Common stock

 

13,390

 

 

13,418

 

 

14,089

 

 

(28

)

-0.2

%

 

(699

)

-5.0

%

Capital surplus

 

257,370

 

 

260,619

 

 

362,868

 

 

(3,249

)

-1.2

%

 

(105,498

)

-29.1

%

Retained earnings

 

1,395,460

 

 

1,369,329

 

 

1,302,593

 

 

26,131

 

1.9

%

 

92,867

 

7.1

%

Accum other comprehensive loss, net of tax

 

(20,858

)

 

(24,816

)

 

(79,946

)

 

3,958

 

15.9

%

 

59,088

 

73.9

%

Total shareholders' equity

 

1,645,362

 

 

1,618,550

 

 

1,599,604

 

 

26,812

 

1.7

%

 

45,758

 

2.9

%

Total liabilities and equity

$

 

 

13,584,786

 

$

 

 

13,548,958

 

$

 

 

13,439,812

 

$

 

 

35,828

 

0.3

%

$

 

 

144,974

 

1.1

%

 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 
See Notes to Consolidated Financials
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TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
September 30, 2019
($ in thousands except per share data)
(unaudited)
 
Quarter Ended Linked Quarter Year over Year
INCOME STATEMENTS 9/30/2019 6/30/2019 9/30/2018 $ Change % Change $ Change % Change
Interest and fees on LHFS & LHFI-FTE

$

116,432

 

$

114,873

$

105,993

 

$

1,559

 

1.4

%

$

10,439

 

9.8

%

Interest and fees on acquired loans

 

2,309

 

 

2,010

 

4,033

 

 

299

 

14.9

%

 

(1,724

)

-42.7

%

Interest on securities-taxable

 

13,184

 

 

13,916

 

16,186

 

 

(732

)

-5.3

%

 

(3,002

)

-18.5

%

Interest on securities-tax exempt-FTE

 

485

 

 

551

 

656

 

 

(66

)

-12.0

%

 

(171

)

-26.1

%

Interest on fed funds sold and rev repos

 

23

 

 

214

 

3

 

 

(191

)

-89.3

%

 

20

 

n/m

 

Other interest income

 

1,044

 

 

1,820

 

1,050

 

 

(776

)

-42.6

%