Trustmark Corporation Announces 2016 Financial Results

Trustmark Corporation Announces 2016 Financial Results

Trustmark Corporation (NASDAQ:TRMK) reported net income of $28.9 million in the fourth quarter of 2016, which represented diluted earnings per share of $0.43. Diluted earnings per share in the fourth quarter of 2016 increased 4.9% when compared to the same period in the prior year. For the full year, Trustmark’s net income totaled $108.4 million, which represented diluted earnings per share of $1.60, and produced a return on average tangible equity of 9.99% and a return on average assets of 0.84%. Excluding charges related to a voluntary early retirement program (ERP) and expense related to reducing the risk profile of the assets of the Corporation’s defined benefits plan prior to termination, diluted earnings per share in 2016 were $1.70, compared to $1.71 in 2015. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable March 15, 2017, to shareholders of record on March 1, 2017.

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Fourth Quarter Highlights

• Loans held for investment increased $352.0 million, or 4.7%, from the prior quarter and $759.8 million, or 10.7%, from the comparable period one year earlier
• Credit quality remained solid; nonperforming assets declined 6.8% and 16.0% from the prior quarter and year-over-year, respectively
• Core noninterest expense remained well controlled at $97.1 million in the fourth quarter

Gerard R. Host, President and CEO, stated, “2016 was another year of significant achievement for Trustmark. We continued to provide customers with the products and services they desired as evidenced by our third consecutive year of double-digit loan growth and solid performance across our financial services businesses. We made investments in technology designed to enhance our customers’ experience and strengthen security. In addition, we continued to realign delivery channels in response to changing customer preferences and embraced opportunities to enhance efficiency and profitability. As we look forward in 2017, we will continue to manage the franchise for the long term by expanding and building sustainable relationships. 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

• Diversified loan growth reflects the value of the Trustmark franchise
• Average noninterest-bearing deposits in 2016 increased 7.7% and represented 31.0% of average total deposits; cost of deposits remained steady
• Solid capital base continues to provide flexibility in pursuing growth opportunities

Loans held for investment totaled $7.9 billion at December 31, 2016, an increase of 4.7% from the prior quarter and 10.7% from the same period one year earlier. Compared to the prior quarter, loans secured by nonfarm, nonresidential real estate expanded $118.0 million, reflecting growth across Trustmark’s franchise. Commercial and industrial loans increased $107.1 million as growth in Mississippi and Tennessee more than offset declines in Alabama, Florida and Texas. Single-family mortgage loans grew $67.6 million principally due to growth in Mississippi, Alabama and Florida. Construction, land development and other land loans expanded $64.7 million, driven primarily by growth in construction loans in Mississippi and Alabama. Loans to state and other political subdivisions increased $41.5 million, led principally by growth in Texas and Mississippi. Other loans, which include loans to nonprofits and real estate investment trusts, declined $47.9 million as growth in Texas was more than offset by declines in Mississippi and Tennessee.

Acquired loans totaled $272.2 million at December 31, 2016, down $23.5 million from the prior quarter. Collectively, loans held for investment and acquired loans totaled $8.1 billion at December 31, 2016, up 4.2% from the prior quarter and 8.6% from the prior year.

Deposits totaled $10.1 billion at December 31, 2016, an increase of $370.3 million from the prior quarter. Trustmark continues to maintain an attractive, low-cost deposit base with approximately 60% of deposits in checking accounts and a total cost of deposits of 0.14%. The total cost of interest-bearing liabilities was 0.31% for the fourth quarter of 2016.

Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. At December 31, 2016, Trustmark’s tangible equity to tangible assets ratio was 8.74%, while its total risk-based capital ratio was 13.59%. Tangible book value per share was $16.76 at December 31, 2016, up 4.9% year-over-year.

Credit Quality

• Nonperforming loans and other real estate decreased 11.0% and 19.6%, respectively, in 2016
• Allowance for loan losses represented 267.40% of nonperforming loans, excluding specifically reviewed impaired loans
• Net charge-offs represented 10 basis points of average loans in 2016

Nonperforming loans totaled $49.2 million at December 31, 2016, down 9.5% from the prior quarter and 11.0% year-over-year. Other real estate totaled $62.1 million, reflecting a 4.5% linked-quarter decrease and a 19.6% year-over-year reduction. Collectively, nonperforming assets totaled $111.3 million, reflecting a linked-quarter and year-over-year decrease of 6.8% and 16.0%, respectively.

Allocation of Trustmark's $71.3 million allowance for loan losses represented 0.97% of commercial loans and 0.68% of consumer and home mortgage loans, resulting in an allowance to total loans held for investment of 0.91% at December 31, 2016, representing a level management considers commensurate with the inherent risk in the loan portfolio. In aggregate, the allowance for both held for investment and acquired loan losses represented 1.02% of total loans, which include held for investment and acquired loans.

Unless noted otherwise, 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) excluding acquired loans in 2016 totaled $375.7 million, up 5.2% from the prior year
• Noninterest income in 2016 totaled $173.9 million, up 0.5% from the prior year
• Mortgage loan production volume in 2016 totaled $1.6 billion, up 8.4% from the prior year

Revenue in the fourth quarter totaled $140.6 million, down 1.2% from the prior quarter, reflecting in part a seasonal reduction in noninterest income. Net interest income (FTE) in the fourth quarter totaled $103.6 million, resulting in a net interest margin of 3.52%. Compared to the prior quarter, net interest income (FTE) increased $1.4 million primarily due to growth in interest income (FTE) from the held for sale and held for investment loan portfolios and the acquired loan portfolio, which were offset in part by decreased yields on the securities portfolio. The yield on acquired loans in the fourth quarter totaled 11.69% and included recoveries from settlement of debt of $3.8 million, which represented approximately 5.40% of the annualized total acquired loan yield. Excluding acquired loans, the net interest margin in the fourth quarter was 3.31%, down 7 basis points from the prior quarter. The contraction in the net interest margin is attributable to a reduction in the yield on the securities portfolio and the loans held for investment and held for sale portfolios. Net interest income (FTE) in 2016 totaled $405.9 million, resulting in a net interest margin (FTE) of 3.53%; excluding acquired loans, the net interest margin (FTE) was 3.37%.

Noninterest income totaled $41.7 million in the fourth quarter, down from the prior quarter primarily as a result of seasonally lower mortgage banking revenues and insurance commissions. In the fourth quarter, bank card and other fees totaled $6.8 million, unchanged from the prior quarter, while service charges on deposit accounts totaled $11.4 million, down 2.0% from the prior quarter. Other income, net increased $818 thousand linked quarter, reflecting an increase in other miscellaneous income as well as a gain on the disposition of a closed branch facility. Noninterest income for 2016 totaled $173.9 million and remained stable when compared to the prior year.

Insurance revenue in the fourth quarter totaled $8.5 million, reflecting a seasonal decrease of 16.0% from the prior quarter and in line with levels one year earlier. For the year, insurance revenue totaled $36.8 million, up $340 thousand relative to the prior year. The solid performance in 2016 reflects increased business development efforts and initiatives that supported enhanced productivity.

Wealth management revenue totaled $7.5 million in the fourth quarter, remaining stable relative to the prior quarter and down 4.2% from levels one year earlier. The year-over-year decline is primarily attributable to reduced annuity and trust management income. Wealth management revenue in 2016 totaled $30.5 million, down 2.8% relative to the prior year. Trustmark remained focused on servicing clients and realigned processes to enhance productivity.

Mortgage banking revenue in the fourth quarter totaled $5.4 million, down $1.9 million from the prior quarter. The linked-quarter decline is primarily attributable to a $2.6 million decline in fair value of mortgage loans held for sale, which was offset in part by reduced negative hedge ineffectiveness of $976 thousand. Mortgage loan production in the fourth quarter totaled $406.6 million, a seasonal decrease of 16.7% from the prior quarter and an increase of 19.6% year-over-year.

In 2016, mortgage banking revenue totaled $28.2 million, down 6.5% from the prior year; increased secondary marketing gains and mortgage servicing income were more than offset by negative mortgage servicing hedge ineffectiveness. Excluding mortgage servicing hedge ineffectiveness, mortgage banking revenue increased $2.8 million, or 9.8%, during the year. Mortgage loan production in 2016 totaled $1.6 billion, up 8.4% from the prior year.

Noninterest Expense

• Core noninterest expense in 2016 remained well controlled and totaled $388.7 million
• Results of the previously announced ERP produced savings of $2.1 million during the fourth quarter and $4.4 million during second half of 2016

Core noninterest expense, which excludes ORE expense ($525 thousand), intangible amortization ($1.7 million), expense related to reducing the risk profile of the assets of the Corporation’s defined benefit plan prior to termination ($664 thousand) and additional pension expense related to the ERP ($268 thousand), totaled $97.1 million in the fourth quarter, an increase of $496 thousand on a comparable basis from the prior quarter.

Salaries and benefits totaled $58.2 million in the fourth quarter, up 1.6% linked quarter due to increased expense related to incentive compensation programs. Services and fees declined 1.3% from the prior quarter, reflecting in part a reduction in communications expense and professional fees. ORE and foreclosure expense totaled $525 thousand during the fourth quarter, which compares to a gain on sale of ORE of $1.3 million in the prior quarter. Relative to 2015, core noninterest expense remained stable at $388.7 million.

Trustmark continued the optimization of its retail delivery channels to enhance productivity and efficiency as well as promote additional growth. During the fourth quarter, Trustmark opened a loan production office in Pensacola, Florida, and consolidated two banking centers. For the year, Trustmark consolidated nine branch offices across Alabama, Mississippi and Florida, and reallocated a portion of those resources into a new banking center in Tuscaloosa, Alabama, and a new loan production office in Pensacola, Florida. Overall, these collective efforts resulted in the consolidation of 36 branch offices and the establishment of nine banking centers over the past four years. 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, January 25, 2017, 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, February 8, 2017, in archived format at the same web address or by calling (877) 344-7529, passcode 10098633.

Trustmark Corporation 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 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 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, including those associated with the planned termination of our noncontributory tax-qualified defined benefit pension plan, 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.