JACKSON — Trustmark Corporation (NASDAQ:TRMK) reported net income of $28.1 million in the fourth quarter of 2014, which represented diluted earnings per share of $0.42. For the full year 2014, net income totaled $123.6 million, which resulted in diluted earnings per share of $1.83, an increase of 4.6% from the prior year. Trustmark’s performance during 2014 produced a return on average tangible equity of 12.97% and a return on average assets of 1.03%. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable March 15, 2015, to shareholders of record on March 1, 2015.
Gerard R. Host, President and CEO, stated, “2014 was a year of significant accomplishments for Trustmark. We continued to build upon and expand customer relationships, as reflected by growth in our diversified banking, wealth management and insurance businesses. Over the course of the year, total revenue expanded to $578.5 million, the highest level in Trustmark’s 125-year history. Credit quality continued to improve and remained an important contributor to our financial success. We continued investing in technology to increase revenue, improve efficiency, and ensure compliance with regulatory mandates. We have the necessary infrastructure in place to support a significantly larger organization and are well-positioned to meet the financial needs of our customers and create value for our shareholders.”
Balance Sheet Management
- Loans held for investment increased $650.6 million, or 11.2%, in 2014
- Average noninterest-bearing deposits represented 29.0% of average total deposits in the fourth quarter
- Capital base provides opportunity to support additional growth
Loans held for investment totaled $6.4 billion at December 31, 2014, an increase of $115.8 million, or 7.2% annualized, from the prior quarter and $650.6 million, or 11.2%, from one year earlier. The sequential quarter increase reflected diversified loan growth across Trustmark’s five-state franchise. Construction, land development and other land loans increased $39.1 million during the fourth quarter driven by commercial and residential construction in Trustmark’s Texas, Alabama and Tennessee markets, which was offset in part by reductions in Mississippi. Other loans, which include lending to states and municipalities, nonprofits and real estate investment trusts, increased $38.8 million during the fourth quarter as a result of growth in Trustmark’s Mississippi, Texas and Alabama markets. Commercial and industrial loans increased $23.6 million during the quarter principally due to growth in the Mississippi and Alabama markets. Other real estate secured loans, which include multifamily projects, increased $14.0 million during the quarter as growth in Trustmark’s Mississippi and Alabama markets was offset in part by reductions in Texas. The single-family mortgage portfolio increased $8.9 million during the fourth quarter, reflecting growth in Trustmark’s Alabama and Mississippi markets. Loans secured by nonfarm and nonresidential real estate decreased $7.7 million during the quarter as growth in owner-occupied real estate was more than offset by declines in income producing loans.
Acquired loans totaled $549.4 million at December 31, 2014, down $42.7 million from the prior quarter. Collectively, loans held for investment and acquired loans totaled $7.0 billion at December 31, 2014, up $73.1 million, or 4.2% annualized, from the prior quarter.
Average earning assets during the fourth quarter increased $58.2 million relative to the prior quarter principally due to increased balances of loans held for investment. Average deposits in the fourth quarter declined $163.3 million, reflecting a $150.9 million decrease in average interest-bearing deposits and $12.4 million decline in average noninterest-bearing deposits.
Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. At December 31, 2014, Trustmark’s tangible equity to tangible assets ratio was 8.62%, while the total risk-based capital ratio was 14.56%. Trustmark’s solid capital base provides the opportunity to support organic loan growth in an improving economy and enhance long-term shareholder value.
- Significant improvement in classified and criticized loan balances
- Other real estate declined 4.7% and 13.2% from the prior quarter and year, respectively
- Allowance for loan losses represented 180.95% of nonperforming loans, excluding impaired loans
Nonperforming loans totaled $79.3 million at December 31, 2014, a decrease of $9.0 million from the prior quarter and an increase of $14.1 million from one year earlier. The increase in nonperforming loans year-over-year was primarily the result of a few significant substandard credit relationships migrating to nonaccrual status during the year. Other real estate totaled $92.5 million, a decrease of $4.5 million, or 4.7%, from the prior quarter. Relative to levels one year earlier, other real estate decreased $14.0 million, or 13.2%. Collectively, nonperforming assets totaled $171.9 million, a decrease of $13.5 million from the prior quarter and an increase of $75 thousand from one year earlier.
During the fourth quarter of 2014, recoveries exceeded charge-offs, resulting in a net recovery position of $875 thousand. This compares favorably to the net recovery position in the prior quarter of $428 thousand and net charge-off position of $201 thousand for the comparable period one year earlier. During 2014, Trustmark had a net recovery position of $2.0 million, comparing favorably to a net recovery position of $1.1 million in the prior year. During the fourth quarter of 2014, the provision for loan losses for loans held for investment was a negative $1.4 million; for the year 2014, the provision for loan losses for loans held for investment was $1.2 million compared to a negative $13.4 million for 2013.
During the fourth quarter, Trustmark experienced a 5.4% reduction in classified loan balances and a 14.7% decline in criticized loan balances relative to the prior quarter. When compared to the prior year, classified loan balances decreased 12.3% while criticized loan balances declined 15.9%.
Allocation of Trustmark’s $69.6 million allowance for loan losses represented 1.23% of commercial loans and 0.67% of consumer and home mortgage loans, resulting in an allowance to total loans held for investment of 1.08% at December 31, 2014, which represents a level management considers commensurate with the inherent risk in the loan portfolio. The allowance for loan losses represented 180.95% of nonperforming loans, excluding impaired loans.
All of the above credit quality metrics exclude acquired loans and other real estate covered by FDIC loss-share agreement.
- Total revenue expanded to $578.5 million in 2014
- Net interest income (FTE) achieved record level of $421.2 million in 2014
- Insurance and wealth management revenue increased 8.6% and 9.7%, respectively, during the year
Net interest income (FTE) in the fourth quarter totaled $103.1 million, resulting in a net interest margin of 3.86%. Relative to the prior quarter, interest income (FTE) decreased $7.2 million due principally to a $6.7 million decline in recoveries on acquired loans. The yield on acquired loans in the fourth quarter totaled 9.38% and included recoveries from settlement of debt of $2.0 million, which represented approximately 1.38% of the total acquired annualized loan yield in the fourth quarter. Excluding acquired loans, the net interest margin in the fourth quarter totaled 3.54% and included $2.2 million (eight basis points) of yield maintenance payments on prepaid securities. Net interest income (FTE) in 2014 totaled $421.2 million, an increase of 4.4% from the prior year; the net interest margin (FTE) was 4.03% in 2014 compared to 4.01% in 2013.
Noninterest income totaled $42.0 million in the fourth quarter, a decrease of 2.0% from the prior quarter and an increase of 8.7% from levels one year earlier. Total noninterest income in 2014 was $173.1 million, down 0.4% from the prior year. Bank card and other fees totaled $6.7 million in the fourth quarter, a decrease of 7.8% from the prior quarter and 29.9% from the comparable period one year earlier, reflecting the impact of decreased interchange income as a result of Trustmark becoming subject to debit card interchange fee standards effective July 1, 2014. Service charges on deposit accounts totaled $12.5 million, a decline of 1.8% from the prior quarter and 4.6% from the comparable period one year earlier; the decline was attributable to a reduction in NSF and overdraft fees resulting from changes in customer practices.
Insurance revenue in the fourth quarter totaled $7.8 million, reflecting a seasonal decrease of 15.2% relative to the prior quarter and an increase of 6.6% from levels one year earlier. Improved performance year-over-year resulted from increasing business development efforts. Insurance revenue totaled $33.5 million in 2014, an increase of 8.6% relative to the prior year.
Wealth management revenue totaled $8.5 million in the fourth quarter, an increase of 5.3% from the prior quarter and 3.9% from the comparable period one year earlier. This growth was attributable to improved profitability within the trust management business as well as increased sales within investment services resulting from improved market conditions. Wealth management revenue in 2014 totaled $32.3 million, an increase of 9.7% relative to the prior year.
Mortgage banking revenue in the fourth quarter totaled $5.9 million, an increase of 1.3% relative to the prior quarter and 14.1% from the comparable period one year earlier. Mortgage loan production in the fourth quarter totaled $293.8 million, reflecting a seasonal decrease of 14.9% from the prior quarter and an increase of 6.5% from levels one year earlier due to expanded originations in Trustmark’s Alabama markets. Mortgage loan production in 2014 totaled $1.2 billion, a decline of 17.8% from levels in 2013, while mortgage banking revenue declined 26.0% to $24.8 million principally due to lower secondary marketing gains resulting from tightening mortgage spreads and reduced volume.
- Routine noninterest expense remained well-controlled
- Continued realignment of branch network to enhance efficiency and revenue growth
- Tax credit investments reduced the effective tax rate to 23.8% in 2014
Noninterest expense totaled $104.4 million in the fourth quarter. Excluding ORE expense and intangible amortization of $5.4 million, noninterest expense during the fourth quarter totaled $99.1 million, an increase of $2.0 million from comparable expenses in the prior quarter. The increase during the quarter was primarily reflected in salaries and benefits and other expenses. Salaries and benefits reflected an increase of $484 thousand, which included an additional year-end incentive accrual of $1.3 million offset by reductions in commissions of $742 thousand. Other expense increased $1.5 million, which was principally attributable to contingency reserves. Noninterest expense in 2014 totaled $409.0 million, a decrease of 1.6% relative to the prior year.
Trustmark continued realignment of its branch network to enhance productivity and efficiency as well as promote additional revenue growth. During the fourth quarter, Trustmark consolidated two banking centers with limited growth opportunities. Over the course of 2014, Trustmark consolidated five banking centers and opened three new offices – one each in Birmingham and Montgomery, Alabama, and Memphis, Tennessee. Trustmark is committed to investments to support profitable revenue growth as well as reengineering and efficiency opportunities to enhance shareholder value.