Trustmark(TRMK) - 2019 Q1 - Quarterly Report

PART I Item 1. Financial Statements Trustmark Corporation's unaudited consolidated financial statements, including balance sheets, income, and cash flow, are presented with detailed notes Consolidated Balance Sheets Total assets increased to $13.48 billion as of March 31, 2019, from $13.29 billion at December 31, 2018, driven by growth in net loans, with total liabilities also increasing and shareholders' equity seeing a slight decrease Consolidated Balance Sheet Highlights ($ in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $13,478,017 | $13,286,460 | | Net LHFI and acquired loans | $9,007,913 | $8,862,279 | | Securities (AFS & HTM) | $2,607,764 | $2,721,456 | | Goodwill | $379,627 | $379,627 | | Total Liabilities | $11,890,989 | $11,695,007 | | Total deposits | $11,534,815 | $11,364,411 | | Total Shareholders' Equity | $1,587,028 | $1,591,453 | Consolidated Statements of Income For the three months ended March 31, 2019, net income was $33.3 million, a decrease from $36.8 million in the same period of 2018, driven by lower noninterest income and higher noninterest expense, which offset an increase in net interest income Consolidated Income Statement Highlights ($ in thousands, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Interest Income | $104,808 | $102,093 | | Provision for Loan Losses | $1,689 | $4,111 | | Total Noninterest Income | $41,491 | $46,793 | | Total Noninterest Expense | $106,021 | $102,465 | | Net Income | $33,339 | $36,830 | | Diluted EPS | $0.51 | $0.54 | Consolidated Statements of Cash Flows For the first three months of 2019, net cash from operating activities was $14.9 million, a significant decrease from $57.8 million in the prior year period, resulting in a net increase in cash and cash equivalents of $104.5 million Consolidated Cash Flow Summary ($ in thousands) | Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash from operating activities | $14,872 | $57,773 | | Net cash from investing activities | ($23,036) | $263,123 | | Net cash from financing activities | $112,650 | ($341,388) | | Net change in cash and cash equivalents | $104,486 | ($20,492) | Notes to Consolidated Financial Statements Detailed disclosures on Trustmark's accounting policies and financial items, covering key areas like securities, loans, and regulatory capital Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Trustmark's Q1 2019 financial condition and results, covering performance, balance sheet, liquidity, and capital resources - Trustmark's Q1 2019 net income decreased to $33.3 million from $36.8 million year-over-year, mainly due to a $3.6 million increase in noninterest expense and a $2.6 million decrease in total revenue, partially offset by a lower provision for loan losses[194] - Total revenue (Net Interest Income + Noninterest Income) fell by 1.7% YoY to $146.3 million, driven by a significant decline in mortgage banking income due to net negative hedge ineffectiveness[196] - Loans held for investment (LHFI) grew by $159.1 million (1.8%) during the quarter, and deposits increased by $170.4 million (1.5%)[190] - Nonperforming assets (excluding acquired loans) decreased by $7.7 million (8.0%) from year-end 2018 to $88.6 million, reflecting improved credit quality[200] Results of Operations In Q1 2019, net interest income (FTE) rose 2.6% YoY to $108.0 million, with the net interest margin expanding 17 basis points to 3.63%, while noninterest income fell 11.3% to $41.5 million and noninterest expense increased 3.5% to $106.0 million Key Operating Metrics Comparison ($ in thousands) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Interest Income (FTE) | $108,039 | $105,308 | | Net Interest Margin (FTE) | 3.63% | 3.46% | | Provision for Loan Losses, Net | $1,689 | $4,111 | | Noninterest Income | $41,491 | $46,793 | | Noninterest Expense | $106,021 | $102,465 | - The decrease in mortgage banking net income was the primary driver of lower noninterest income, falling to $3.4 million from $11.3 million YoY, mainly due to a net negative hedge ineffectiveness of $4.7 million in Q1 2019 versus a positive $3.3 million in Q1 2018[228][229] Financial Condition As of March 31, 2019, Trustmark's financial condition remained solid with total assets at $13.48 billion, a securities portfolio of $2.61 billion, and loans held for investment (LHFI) growing 1.8% to $9.0 billion, while nonperforming assets continued to decline - The securities portfolio is high quality, with approximately 97% invested in GSE-backed obligations and other Aaa-rated securities[253] - LHFI growth was led by a $153.2 million (14.5%) increase in construction, land development, and other land loans during the quarter[260] - The allowance for loan losses to total LHFI was 0.88% at March 31, 2019, compared to 0.90% at December 31, 2018[269] Capital Resources and Liquidity Trustmark maintained a strong capital and liquidity position, with all regulatory capital ratios significantly exceeding 'well-capitalized' minimums, and a new $100 million share repurchase program authorized Regulatory Capital Ratios | Ratio | March 31, 2019 | Minimum Requirement | | :--- | :--- | :--- | | Common Equity Tier 1 | 11.88% | 7.000% | | Tier 1 Capital | 12.45% | 8.500% | | Total Capital | 13.21% | 10.500% | | Tier 1 Leverage | 10.05% | 4.00% | - Trustmark repurchased 1.2 million shares for $36.9 million in Q1 2019, completing its 2016-authorized program; a new $100 million repurchase program was authorized for April 1, 2019, to March 31, 2020[138][139][293] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the 'Market/Interest Rate Risk Management' discussion within Item 2, indicating that a +100 basis point parallel shift in interest rates would increase net interest income by an estimated 1.1%, while a -100 basis point shift would decrease it by 1.8% Estimated % Change in Net Interest Income (1-Year Horizon) | Change in Interest Rates | 2019 Estimate | | :--- | :--- | | +200 basis points | 2.0% | | +100 basis points | 1.1% | | -100 basis points | -1.8% | Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting during the first quarter - The CEO and Principal Financial Officer concluded that Trustmark's disclosure controls and procedures were effective as of the end of the reporting period[332] - No material changes were made to internal controls over financial reporting during the quarter[333] PART II. OTHER INFORMATION Item 1. Legal Proceedings Trustmark's subsidiary, TNB, faces three lawsuits related to the Stanford Financial Group collapse, with management deeming a material loss not probable - Trustmark is involved in three lawsuits related to the Stanford Financial Group collapse, with claims including fraudulent transfer and conspiracy[334] - Management states that a loss from these proceedings is not considered probable or reasonably estimable at this time[343] Item 1A. Risk Factors The company states that there have been no material changes in the risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - No material changes to risk factors were reported since the last Annual Report on Form 10-K[344] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2019, Trustmark repurchased 1,168,273 shares of common stock, completing a $100.0 million program, and authorized a new $100.0 million stock repurchase program effective April 1, 2019 Share Repurchases for Q1 2019 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January 2019 | 734,955 | $30.12 | | February 2019 | 111,669 | $34.52 | | March 2019 | 321,649 | $33.82 | | Total | 1,168,273 | N/A | - A new $100.0 million stock repurchase program was authorized, effective April 1, 2019, through March 31, 2020[346]