JACKSON — Fitch Ratings has affirmed Trustmark Corp.’s (TRMK) ratings at “BBB+”/”F2”. The rating outlook remains “stable”.
Fitch wrote: “TRMK’s ‘BBB+’ ratings reflect its good asset quality and the leading market share in TRMK’s home state of Mississippi and growing market share in other parts of the southeastern U.S. Furthermore, Fitch positively views the company’s risk appetite measured by relatively lower credit losses through the economic cycle reflecting more conservative underwriting standards and superior risk controls. Offsetting these factors include increased regulatory burden and operating costs due to crossing over $10 billion in assets, a characteristic not shared by the other banks within the peer group.
“TRMK holds the highest deposit market share in Mississippi, which Fitch views positively as it provides TRMK with relatively strong deposit and loan pricing power. TRMK maintains a solid core funding base owing to its strong deposit franchise, with core deposits representing 90% of total deposits as of 2Q’14. While Fitch expects some deposit run-off as rates rise, TRMK’s strong franchise, especially in rural markets, should allow it to retain an adequate level of funding at reasonable costs. This view is anticipated in today’s rating affirmation and the stable outlook.
“Fitch believes TRMK has solid underwriting standards. This viewpoint is supported by the company’s consistent profitability and relatively low charge-off levels in aggregate during the financial crisis. Over the last 35 quarters, which includes the financial downturn, TRMK realized 30% fewer net credit losses as a percentage of total loans when compared to other similarly sized banks within its operating footprint according to Fed data. In Fitch’s view TRMK has shown that it has not made any significant changes to its underwriting standards over recent periods. Therefore, Fitch would expect charge-off levels to remain lower than those of its peers over the long run.
“Following the acquisition of BancTrust Financial Group (BFTG) in 2013, TRMK has assets of greater than $10 billion, the first within the community bank group to cross over the regulatory threshold. Consequently, Fitch observes that, unlike the rest of the current peer group, TRMK has become subject to the Durbin Amendment and annual stress-testing that will likely negatively impact earnings if TRMK does not remain focused on improving operational efficiencies.
“To that point core earnings, as measured through pre-provision net revenue (PPNR), have experienced pressure over recent periods. Fitch notes that TRMK’s PPNR through 2Q’14 was at 1.41% and on the lower end of the community bank peer group versus in prior periods when TRMK’s PPNR was much stronger than peer averages. Fitch anticipates that over the long term, TRMK’s earnings performance will revert to above this peer group’s average. This expectation is incorporated in today’s affirmation and the current outlook.”