JACKSON, Miss.--(BUSINESS WIRE)--Jul 24, 2018--Trustmark Corporation (NASDAQ:TRMK) reported net income of $39.8 million in the second quarter of 2018, representing diluted earnings per share of $0.59. Diluted earnings per share in the second quarter of 2018 increased 9.3% when compared to reported earnings in the previous quarter and 25.5% when compared to core earnings (reported net income excluding non-routine transactions) the same period in the prior year. This level of earnings resulted in a return on average tangible equity of 13.77% and a return on average assets of 1.19%. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable September 15, 2018, to shareholders of record on September 1, 2018.

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Second Quarter Highlights

Revenue, excluding interest and fees on acquired loans, increased 2.4% linked quarter to total $147.5 million The net interest margin (FTE), excluding acquired loans, was 3.46% in the second quarter, up 9 basis points from the prior quarter Sustained strong credit performance reflected in reduced nonperforming assets Efficiency ratio improved to 64.90%

Gerard R. Host, President and CEO, stated, “The second quarter showed the value of the diverse Trustmark franchise, with solid loan growth across our five state footprint. We continued to focus on our strategic initiatives of balance sheet optimization, capital deployment through additional share repurchases and disciplined expense management. We also continued to maintain and expand customer relationships in our other lines of businesses, as evidenced by strength in insurance commissions and mortgage loan production volumes. This past quarter – as part of the J.D. Power 2018 U.S. Retail Banking Satisfaction Study – Trustmark was recognized as having the ‘Highest Customer Satisfaction with Retail Banking in the South Central Region’*. We appreciate this recognition from our customers and thank our associates for their commitment to excellent customer service. Thanks to our talented 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

Loans held for investment expanded $165.0 million, or 1.9%, from the prior quarter and $382.9 million, or 4.6%, from the prior year Continued balance sheet and capital optimization through maturing investment securities run-off and share repurchases Noninterest-bearing deposits represent 26.7% of total deposits

Loans held for investment totaled $8.7 billion at June 30, 2018, reflecting an increase of $165.0 million, or 1.9%, linked quarter and $382.9 million, or 4.6%, from the prior year. Loans secured by nonfarm, nonresidential properties increased $63.8 million during the quarter, driven by growth in Alabama, Tennessee and Florida. Construction and land development loans increased $52.6 million as growth in construction lending in Texas, Mississippi, Florida and Tennessee were offset by a decline in Alabama. Residential loans grew $43.6 million driven by strong growth in Mississippi. Other loans, which include loans to finance companies, mortgage warehousing and REITs, increased $26.1 million, driven by strength in Mississippi and Alabama. Commercial and industrial loans grew $10.8 million, as growth in Texas and Tennessee more than offset declines in Alabama and Florida.

Deposits totaled $11.1 billion at June 30, 2018, up $96.6 million from the prior quarter. Trustmark continues to maintain an attractive, low-cost deposit base with approximately 60% of deposit balances in checking accounts. Interest-bearing deposit costs increased 11 basis point linked-quarter driven in part by growth in public fund deposits as well as a rising interest rate environment.

Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. During the second quarter, Trustmark repurchased $5.4 million of its common shares in open market transactions; at June 30, 2018, Trustmark had $91.4 million in remaining authority under its existing stock repurchase program, which expires March 31, 2019. At June 30, 2018, Trustmark’s tangible equity to tangible assets ratio was 9.07%, while the total risk-based capital ratio was 13.39%.

Credit Quality

Nonperforming loans decreased 10.7% and 17.2% from the prior quarter and year-over-year, respectively Other real estate remained flat from the prior quarter and decreased 20.6% year-over-year Allowance for loan losses represented 345.87% of nonperforming loans, excluding specifically reviewed impaired loans

Nonperforming loans totaled $61.4 million at June 30, 2018, down $7.3 million from the prior quarter and $12.8 million year-over-year. Other real estate totaled $39.7 million, remaining flat from the prior quarter and declining $10.3 million from the same period one year earlier. Collectively, nonperforming assets totaled $101.0 million, reflecting a linked-quarter decrease of 6.7% and year-over-year decrease of 18.6%.

Allocation of Trustmark’s $83.6 million allowance for loan losses represented 1.05% of commercial loans and 0.63% of consumer and home mortgage loans, resulting in an allowance to total loans held for investment of 0.96% at June 30, 2018, representing a level management considers commensurate with the inherent risk in the loan portfolio. Collectively, the allowance for both held for investment and acquired loan losses represented 0.98% of total loans, which includes held for investment and acquired loans.

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

Revenue Generation

Net interest margin, excluding acquired loans, was 3.46%, an increase of 9 basis points from the prior quarter Maturing investment securities run-off is accretive to the net interest margin Deposit costs remain well controlled Noninterest income totaled $47.4 million, up 1.3% linked quarter

Net interest income (FTE) in the second quarter totaled $108.4 million, resulting in a net interest margin of 3.57%, up 11 basis points from the prior quarter. Relative to the prior quarter, net interest income (FTE) increased $3.1 million, reflecting a $4.6 million increase in interest income and a $1.6 million increase in interest expense. During the second quarter of 2018, the yield on acquired loans totaled 9.96% and included $1.6 million in recoveries from the settlement of debt, which represented approximately 3.20% of the annualized total acquired loan yield. Excluding acquired loans, the net interest margin totaled 3.46% for the second quarter of 2018, an increase of 9 basis points when compared to the first quarter of 2018, which was principally due to growth in the yield on the loans held for investment and held for sale portfolio, runoff of maturing investment securities, and favorable funding mix offset by higher costs of interest-bearing deposits.

Noninterest income in the second quarter increased 1.3% from the prior quarter to total $47.4 million. Insurance revenue totaled $10.7 million in the second quarter, up 14.0% from the prior quarter and 10.2% year-over-year; this performance reflects growth in the property and casualty lines as well as seasonal factors. Mortgage banking revenue totaled $9.0 million in the second quarter, down $2.2 million from the prior quarter and flat year-over-year. The linked-quarter change reflects reduced net positive mortgage hedge ineffectiveness which more than offset an increase in gain on sale of loans. Mortgage loan production in the second quarter totaled $410.5 million, up 42.0% from the prior quarter and 10.2% year-over-year. Wealth management revenue in the second quarter totaled $7.5 million, down 1.2% and 2.6% from the prior quarter and year-over-year, respectively. The linked-quarter performance is primarily attributable to decreased trust management fees which more than offset strength in fee income from investment services. Bank card and other fees increased $444 thousand from the prior quarter primarily due to increased interchange income and customer derivative revenue. Service charges on deposit accounts remained stable when compared to both linked quarter and year-over-year.

Noninterest Expense

Total noninterest expense increased 1.3% linked quarter and decreased 15.0% year-over-year to $103.8 million Core noninterest expense, which excludes other real estate expense and intangible amortization, totaled $102.6 million, up 2.4% from the prior quarter and 3.4% year-over-year

Salaries and employee benefits increased $1.5 million from the prior quarter to total $60.0 million, primarily due to higher insurance and mortgage commissions as a result of continued growth in both business lines. Services and fees rose 3.7%, or $576 thousand, linked-quarter primarily due to new software investments designed to improve efficiency and customer experience. Other real estate expense declined $959 thousand linked quarter while net occupancy-premises expense totaled $6.6 million, flat from the prior quarter. Other expense totaled $12.3 million, an increase of $524 thousand, or 4.4%, on a linked-quarter basis.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, July 25, 2018 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, August 8, 2018, in archived format at the same web address or by calling (877) 344-7529, passcode 10121520.

Trustmark is a financial services company providing banking and financial solutions through 198 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 Federal Reserve Board 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.

*Disclaimer

Trustmark National Bank received the highest score in the South Central region in the J.D. Power 2016 and 2018 U.S. Retail Banking Satisfaction Studies of customers’ satisfaction with their retail bank. Visit jdpower.com/awards

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