Trustmark Corporation Announces First Quarter 2012 Financial Results
and Declares $0.23 Quarterly Cash Dividend
Jackson, Miss. – April 24, 2012 – Trustmark Corporation (NASDAQ:TRMK) announced net income available to common shareholders of $30.3 million in the first quarter of 2012, which represented diluted earnings per common share of $0.47, an increase of 23.7% compared to the prior quarter and 27.0% relative to figures one year earlier. Trustmark’s performance during the first quarter of 2012 produced a return on average tangible common equity of 13.41% and a return on average assets of 1.25%. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per common share payable June 15, 2012, to shareholders of record on June 1, 2012.
Gerard R. Host, President and CEO, stated, “Trustmark’s first quarter performance was a great start to the year. Total revenue increased 7.3% to $130.7 million due in part to solid performance in our banking, mortgage banking and insurance businesses. Credit quality continued to improve as evidenced by significantly lower net charge-offs and provisioning levels. We enhanced franchise value through an in-market acquisition in the Florida Panhandle. We also invested in a new fleet of state-of-the-art ATMs designed to enhance our competitive position. Thanks to our dedicated associates, solid profitability and strong capital base, Trustmark remains well-positioned to continue meeting the needs of our customers and take advantage of opportunities to create value for our shareholders.”
Completion of Bay Bank Merger
| · | Significantly enhanced presence in Florida Panhandle with addition of seven offices |
| · | Creates second largest deposit market share in Bay County, Florida |
| · | Seamless operational conversion |
On March 16, 2012, Trustmark completed its previously announced merger with Bay Bank & Trust Co., Panama City, FL. At acquisition date, the carrying values of loans and deposits acquired were $98.1 million and $208.8 million, respectively. Earnings during the first quarter reflect a nonrecurring bargain purchase gain of $2.8 million which was partially offset by nonrecurring merger expenses of $1.6 million, net of taxes. Collectively, the net impact of these two items increased net income in the first quarter by approximately $1.2 million, or approximately $0.02 per share. Trustmark is pleased to provide an expanded array of banking and financial services to our newest customers in the Florida Panhandle.
Credit Quality
· | Net charge-offs totaled $1.9 million, or 0.13% of average loans |
| · | Allowance for loan losses represented 181.1% of nonperforming loans, excluding impaired loans |
| · | Nonperforming assets continued steady decline to $181.5 million |
Trustmark continued to experience significant improvements in credit quality. Nonperforming loans totaled $105.8 million at March 31, 2012, a decline of 4.2% from the prior quarter and 16.6% from the prior year. Foreclosed other real estate experienced similar improvement, declining 4.2% from the prior quarter and 15.1% from levels one year earlier to total $75.7 million. Collectively, nonperforming assets totaled $181.5 million at March 31, 2012, the lowest level in the last 11 quarters. All of the above metrics exclude acquired loans and other real estate covered by FDIC loss-share agreements.
During the first quarter of 2012, net charge-offs totaled $1.9 million while the provision for loan losses totaled $3.3 million. Allocation of Trustmark’s $90.9 million allowance for loan losses represented 1.97% of commercial loans and 0.75% of consumer and home mortgage loans, resulting in an allowance to total loans of 1.57% at March 31, 2012. The allowance for loan losses represented 181.1% of nonperforming loans, excluding impaired loans. All of the above metrics exclude acquired loans.
Capital Strength
| · | Robust capital position provides strategic flexibility |
| · | Tangible common equity to tangible assets totaled 9.68% |
| · | Total risk-based capital ratio totaled 16.72% |
Trustmark’s solid capital position reflects the consistent profitability of its diversified financial services businesses as well as prudent balance sheet management. At March 31, 2012, tangible common equity totaled $931.6 million and represented 9.68% of tangible assets while the total risk-based capital ratio was 16.72%. Trustmark’s strong capital base provides the opportunity to support organic loan growth in an improving economy as well as the flexibility to expand via acquisitions designed to enhance long-term shareholder value.
Balance Sheet Management
| · | Average earning assets expand to $8.7 billion |
| · | Net interest income (FTE) totaled $90.6 million |
Loans held for investment and acquired loans totaled $5.9 billion at March 31, 2012, an increase of $15.6 million from the prior quarter. Excluding acquired loans, loan balances declined $82.7 million from the prior quarter. The single family mortgage loan portfolio declined by $38.6 million. Trustmark’s efforts to reduce exposure to construction and land development lending as well as the decision to discontinue indirect auto financing continued to be reflected in loan totals as these portfolios declined $8.6 million and $20.7 million, respectively.
During the first quarter of 2012, average earning assets increased $104.9 million, or 1.2%, relative to the prior quarter, to $8.7 billion. The increase was attributable to growth in investment securities and acquired loans. Average deposits increased $237.1 million, or 3.1%, relative to the prior quarter to total $7.8 billion, primarily due to seasonal growth in public deposits.
Prudent asset and liability management, including disciplined loan and deposit pricing, continued to produce solid net interest income and a strong net interest margin. Net interest income (FTE) totaled $90.6 million during the first quarter, resulting in a net interest margin of 4.19%. In the fourth quarter, net interest income totaled $92.7 million and included $3.8 million of recovery and accretion resulting from improved cash flows on acquired loans. Excluding this recovery and accretion, the net interest margin was 4.10% during the fourth quarter. The nine basis point expansion in the net interest margin reflected decreased premium amortization in the investment portfolio, higher yields on acquired covered loans and modest declines in deposit costs which were offset in part by continued downward re-pricing of fixed rate assets.
Noninterest Income
| · | Noninterest income totaled $43.8 million, representing 33.5% of total revenue |
| · | Mortgage, Insurance and Wealth Management income expand |
Trustmark continued to achieve solid financial results from its diverse financial services businesses. Mortgage banking income during the first quarter totaled $7.3 million, an increase of $1.3 million from the prior quarter. Performance in mortgage banking continued to reflect stable mortgage servicing income and increased secondary marketing gains of $1.8 million, which were partially offset by the increase in net hedge ineffectiveness of mortgage servicing rights of $687 thousand relative to the prior quarter. During the first quarter, mortgage production totaled $414.8 million, down 1.5% from the prior period but up 61.9% from levels one year earlier.
Insurance revenue during the first quarter totaled $6.6 million, an increase of 8.7% from the prior quarter due to firming insurance rates as well as seasonal growth in group health programs. Wealth management income increased 5.3% relative to the prior quarter to total $5.5 million due to growth in trust management and investment services.
Service charges on deposit accounts totaled $12.2 million in the first quarter, reflecting a seasonal decline from the prior quarter but a 2.6% increase from levels one year earlier. Bank card income increased 3.5% from the prior quarter and 13.7% from the prior year to $7.4 million due in part to increased card usage and ATM fees. Other miscellaneous income totaled $3.8 million in the first quarter and included the previously discussed $2.8 million bargain purchase gain related to the Bay Bank merger.
Noninterest Expense
| · | Noninterest expense remained well-controlled |
| · | Efficiency ratio improved to 63.70% |
Noninterest expense in the first quarter increased $2.8 million, or 3.3%, relative to the prior quarter to total $85.8 million. The increase was principally attributable to nonrecurring acquisition expenses totaling approximately $2.6 million related to the Bay Bank merger. Specifically, $1.9 million of one-time contract termination and other expenses is included in other expense and $672 thousand of change in control and severance expense is included in salaries and benefits. Separately, ORE foreclosure expense increased $1.1 million relative to the prior quarter. All discretionary expenses remained well-controlled. Relative to figures one year earlier, noninterest expense increased $5.8 million, reflecting in part additional salary and benefit expense from the Heritage merger as well as $1.9 million in additional loan expense and the aforementioned $2.6 million in nonrecurring acquisition expenses related to the Bay Bank transaction.
ADDITIONAL INFORMATION
As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, April 25, 2012, 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) 317-6789, passcode 10008303, 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 Thursday, May 10, 2012, in archived format at the same web address or by calling (877) 344-7529, passcode 10008303.
Trustmark is a financial services company providing banking and financial solutions through approximately 170 offices in 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 in this report 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, 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 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 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.
Trustmark Investor Contacts:
Louis E. Greer
Treasurer and
Principal Financial Officer
601-208-2310
F. Joseph Rein, Jr.
Senior Vice President
601-208-6898
Trustmark Media Contact:
Melanie A. Morgan
Senior Vice President
601-208-2979
