Q1 2020 Earnings Call
Thursday Thursday
Thursday Thursday Thursday
Good morning, ladies and gentlemen, and welcome to Trustmark corporations first quarter earnings conference call at this time. All participants are in a listen-only mode following representation this morning. There will be a question answer session to ask a question. You may press * then 1 and a touch-tone phone to a drive your question, please press star. As a reminder. This call is being recorded. It is not my pleasure to introduce Mister Gerry rain director of investor relations Mister rain the floor. I'm sorry.
Thank you, and good morning. I would like to remind everyone that a copy of our first quarter earnings release as well as the slide presentation that will be discussed on our call this morning is available in the investor relations section of our website at trustmark.com during the course of our call management, and they make forward-looking statements within the meaning of the private Securities litigation Reform Act of 1996. We would like to caution you that these forward-looking statements May differ materially from actual results. Usually number of risks and uncertainties, which are outlined in our earnings release and our other filings with the Securities and Exchange Commission at this time. I'd like to introduce Jerry hosts chairman and CEO of Trustmark Corporation. Thank you Joey and Thursday morning and thanks for joining us.
Let me this morning.
Need to discuss their areas of responsibility and to answer questions are Dwayne Dewey president and Chief Operating Officer Louis freear CFO, very hard credit officer and Tom Owens Bank treasure before we review our first quarter results. I want to acknowledge the challenges that many people in our communities are facing a result of covid-19. Our thoughts and prayers are with all those dealing with both the economic and health consequences of this disease and we are grateful to the health care workers and First Responders for the work. They're doing on the front lines of this pandemic. I'm especially proud of our Associates and their dedication to serving customer during the unprecedented times.
Trustmark this price is from a position of strength and stability and we've been proactive in our response as detailed on page three, we've taken comprehensive action to support our customers Associates and communities we continue to serve customers through a variety of channels including drive-thru Branch access our ATM and itm networks and digital and Mobile Banking applications. We're working with customers to provide flexibility by providing waivers of off-season charges branching extensions referrals and forbearance as appropriate and pausing all foreclosures and repossessions in Palm. We are supporting small-business owners by participating in the small business administration's paycheck Protection Program.
As of April 23rd, we have completed and approved approximately 6,000 applications with proceeds in excess of $800 billion dollars.
It's our Associates remain focused on serving our customers. We are committed to doing all we can to ensure their health and safety. We have implemented social distance just practices and taking it Taking additional measures to comply with CDC guidelines approx. 45% of our Associates are working remotely off with other departments working on rotating schedules.
So she's we provided temporary compensation adjustment and we provide all Associates with additional paid sick leave.
We also continue to invest in our communities and we've taken a number of actions to offer support during these uncertain circumstances among other initiatives with mayonnaise special contributions to area food bank provided meals to healthcare heroes in school lunch programs and hosted blood drives. We are committed to doing everything in our power to ensure the safety of our customers and Associates and support our communities through these challenging times.
To page for let's review some highlights from the quarter our results reflect the number of one time or unusual items of provision and expense for credit loss total 27.4 million primarily reflecting the impact of the covid-19 pandemic on expected credit losses. This increase Vision expense for credit losses reduced after tax. Net income by thirty two cents per diluted share first quarter results also include a pre-tax charge of 4 or more million dollars related to a voluntary early retirement program.
Which reduced earnings by $0.05 per diluted share and positive hedge ineffectiveness of nine point nine million dollars increased birth in the first quarter by 12 cents per share.
Little town for investment excluding reclassification of acquired loans increased one hundred and sixty million or 1.7% from the prior quarter and five hundred million or 5.6% year-over-year our pretax pre-provision income total 56.6 million up 31% link water down 40% year-over-year for nine interest expense close to a hundred and ten point two million in the first quarter a 2.5% increase from the prior quarter voluntary early retirement program is expected to produce pre tax savings of approximately 3 million dollars for the remainder of 2020 + 4 million in 20 21.
Effective January 1st Trustmark adopted the current expected credit losses methodology for estimating the allowance for credit losses.
Our credit quality remains solid as non-performing assets declined 5.6% from the prior quarter and 12.1% year-over-year. We maintain strong Capital levels with a common Equity Tier 1 Capital ratio of 11.35% and a total risk-based Capital ratio of 12.78%
In order to ensure ample Capital support to support customers during the covid-19 endemic. We suspended our share repurchase program on March 9th.
At this time, I'd like to bury provide some color on loan growth credit quality in the adoption of people turning to page 5 month loan sale for investment totaled nine point six billion dollars as of the end of the first quarter during the first quarter. We we did we classify $73 worth of a car loans and to our loans held for investment excluding this reclassification loans held for investment increased $160 from the prior quarter growth came primarily from all the construction and as well as other loans, we do continue to anticipate mid-single-digit loan growth for 2020 driven primarily by
bonding zones
Biore project cetera that are currently on the books the loan portfolio remains. Well Diversified from both a product perspective as well as the geographic perspective flipping over to page six Trustmark Siri for polio was approximately two-thirds existing and 1/3 construction Land Development within the construction Land Development book. We focus on the vertical construction as opposed to a lot land land and development Land Development only comprises 22% of the book.
The bikes owner-occupied portfolio has a nice mix between real estate types as well as by industry looking on the pay the 7th. The bank's commercial loan portfolio is well Diversified across numerous Industries, as you can see typically these laws are well secured governed by formulaic borrowing boxes numerous covenants typically or Incorporated in each of these each of these credits and that that are intended to protect both the income statement as well as the balance. I'm turning on the page eight. You can see we have a minimum exposure to both restaurants and energy line utilization and our energy book continues to decrease over time Trustmark has never been in the highly levered or the high-risk seeing our business. We have one customer today with the birth.
Standing balance of 3 million dollars in that book. The bank has always been careful and and under written hotels and Retail real estate. I'm a conservative or prudent manner. We we displayed on page on this particular slide page eight. We displayed some of the metrics for both hotel, as well as retail hotels with ltvs in the 50% range that service coverage about 1.8 on average in our retail portfolio took along the values were in the sixties and debt service coverage about one five. Of course, all of that is pre covid-19 as we move along in the new environment where in New Jersey to see exactly how those types of products are able to perform and recover.
Looking on the page nine Trustmark continues to offer free payment deferrals for all of its products. We've been we've been extremely successful and off both full Department of piano for 90 days as well as converting some of those p&i departments to actually interest-only and that's been a nice nice surprise for us to be able to achieve that in order to keep the customer paying as opposed to the full 90 Department of pain. We we're actually we're actively participating in the paycheck Protection Program is Jerry alluded to earlier and and the continued to be excited about how we've been able to serve our existing customers and provide them some relief during this time looking on the page 10 a.m. We continue to post solid asset quality metrics non-performing loans decreased during the quarter by about four tenths of 1% off.
You're over a year about.
6% decrease are we declined 15% from the prior quarter 23% from the from this time last year as of March our allowance coverage for non-performing loans was 469% excluding those that are specifically reviewed this increase just increase resulted in our home. I was adopting or Cecil solution effective one one or Twenty twenty the day 1 results were an adjustment of 27 million dollars, which was applied to our authors reserve for unfunded commitments. They too which is represented in our q1 results. We were we had reserved for both funded and unfunded primarily the the same amount that we reserve for each of those was driven by the tire rotation and the macroeconomic factors that's looking at both the Southern and the national unemployment and the national GDP wage.
Thank you, Berry turning down to the liability side of the balance sheet time. I'd like to ask if you would discuss the deposit days and then that interest margins. Thanks, Jared home page twelve deposits total of 11.6 billion at March 31st, a $330 million from the prior quarter and at forty 1 million from the prior-year as you know that we continue to optimize our deposit base and we have here in some public funds balanced nutrition. So excluding public fund balances deposit March 31st. We're up 168 million or 1.8% from the prior-year an average balance is for the first quarter excluding public funds were at $205 million or 2.2% from the prior-year our club interest-bearing deposit to climb 14 points in the prior quarter as we continue to practice we replace certain deposits in response to the feds ongoing weight Tufts.
We remain pleased with our continued deposit growth while the same time reducing the cost and non-interest bearing deposits represented 26% of the average deposits in the first quarter of 58% of the odds and checking account. Did he remain strong with one deposit ratio of 85% and March 31st and Reliance on wholesale funding of less than five. Turning to revenue on page thirteen and that interests in common STD totaled 107.1 million in the first quarter, which was a decline a one point seven million from the prior quarter as a reduction of 4.3 million interest income more than offset a decline of two point six million in interested status.
That interest margin the first quarter of 352 reflecting transfer of a card lines to one culture investment. So core net interest margin was unchanged from the prior quarter while I am not interest Mark inclined by 4 basis points and now Dwayne will provide an update on interest in concert. Thank you Tom as shown on page fourteen overall was a solid Choice. Interesting, which total 65.3 million up 37.2% linked quarter and 57.3% year-over-year.
for the quarter
Interesting Tom represented 38.6 of trust marks Revenue demonstrating a solid Diversified Revenue stream our mortgage banking group led the way for the quarter with strong productivity 2457.2 million, which is down the seasonally not a linked quarter basis, but up 61.3% when compared to the first quarter of last year.
Of this production 59% was purchased money to 41% was read by gain on sales of loans for the quarter total of 14.3 million, which is an increase of 6.4 million on a link order basis overall Mortgage Banking Revenue in the first quarter totaled twenty seven point five million and that includes hedge and effectiveness of a positive 9.9 million a very nice quarter in mortgage other non-interest income areas have known for the quarter included our insurance group which continues to show Thursday production and growth reporting quarterly revenue of 11.6 million, which is a seasonal increase of 23.3 linked order in 6% off a year.
Similarly our Wealth Management Group reported a 10% on a linked quarter basis increased and 14% year-over-year reflecting some of the investment we made in that business over the last few years. Finally given the economic environment offsetting some of the Improvement noted service charges on depository accounts and bank card and other fees are down on a list of quarter in your your basis Louis. Will Now cover non interest expense and Capital Management. Thank you, as you can see on page fifteen, you see a detail of our non-interest expensive broken out between core and non-core and Jerry mentioned are corn on interest expense total about a hundred and ten million dollars in the first quarter an increase is about two and a half percent which is in line with our previous Guidance. The increase is primarily related to seasonal increases in payroll taxes and higher Insurance commissions nine nine chorus.
Total about thirteen point six million an increase of 11.2 billion from the fourth quarter of 2019 due to the credit loss expand off-balance-sheet credit exposure, which total 6.8 million and the onetime 4.4 million charge for a voluntary early retirement plan completed in the first quarter in the second quarter weeks big expenses to remain relatively flat with the first quarter as benefits of our voluntary early retirement program would be all set by expenses related to covid-19 that occurred in the second quarter trust trust Mark remains well positioned from a capital position as noted on page Sixteen on March 9th is Jerry. In fact, it is breakout covid-19 began Trustmark suspended its share repurchase program prior to March 9th Trustmark repurchased 887000 shares of common stock for that wage.
and a half million
Dollars, I would also know the trust Market is elected a five-year phase-in transition. Related to the Cecil methodology for its regulatory capital g r a m trust me to discussion. I was first-quarter Financial results has been helpful in closing Trustmark remains focused on providing support advice and solutions to meet our customer's unique. Please during the unprecedented circumstances brought about by covid-19 over a hundred Thirty-One year history. We've weathered many storms off and we remain well-positioned to continue serving customers and creating long-term value for our shareholders at this time. We'd be glad to address any questions.
Hey, thank you, sir. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone before using it speakerphone. Please pick up a month before pressing the keys for the timer question has been addressed you'd like to enjoy your question, please press * then two again at a star then one to ask a question at this time. We were just pause momentarily to a summer roster.
At this time there appeared to be no questions. I will then conclude the question answer assessing call back over to the host sir. I appreciate it. We have a question coming in. Looks like we may have a question coming in. Yeah. Yes, sir. I do apologize, but no one has just come in and we'll go ahead and take that and it'll come from Graham dick of Piper Sandler. Thank you.
Hey guys, this is Grandma Uncle Brad. Did I how's it going? Well, thank you. Thank you for joining us. Just have a couple quick questions here. So within the income you guys you mentioned your writing some waivers on, you know, certain fees and charges of customers kind of just wondering how you think that's going to affect the income here in the near-term. And then also what kind of activity do you seeing a mortgage so far start off the second quarter?
Oh, I'll take I'll take the the question relative to some of the fee waivers at this point. We have not seen a significant impact. Although we we have seen a slide down Trend in some of the deposit related service charge Revenue. We've also am I think this has to do with the shelter-in-place of seeing transaction volumes on our ATM and I T and down a little bit while at the same time seeing a tremendous increase in the activity on our online banking systems both business and and consumer as far as the mortgage company and and the volume there. I'll lift Dwayne comment on that. Yes activity in the second quarter is very strong both quarter-to-quarter and
You're over here. So we're seeing.
Very solid volumes across the board and you know are optimistic about the quarter in that regard.
Okay, great. And then one more thing kind of on your all's exposures to at-risk Industries so as the country and and you're also current more specific starts to come back online. Do you guys kind of look at you know, maybe hotels or or retail cre it's as taking a little longer ramp-up versus restaurants or you guys sort of way the the time lines on the given Industries and and how that might look in terms of feature provisioning on this specific Industries.
Sure. This is very I would glad to glad to answer that as it relates to hotels, you know, we do expect for that to be a a slower process to get fully ramped back up. We would look up to an eighteen to twenty-four months. Before you would see those functioning at levels that they did prior to covid-19. And so we continue to monitor those those habits closely offer concessions where we need to in order to in order to serve our customer but we do expect that to be a a slower process to for people to return to some type of normalcy as it relates to both Leisure Travel as well as business travel on the retail front we expected to to return to normalcy a little bit quicker than we do with hotels nonetheless. They'll still be a a slowness to it. Those are going to be the two categories that we have exposure to in a meaningful way that we would expect to return much more slowly once the akong
It begins to open back up, but we do expect retail to to return we we do expect the rent abatements that we're seeing that that the tenants are are requesting and demanding of the landlords to began to reduce overtime and we don't expect to see the the lease Arrangements being renegotiated at this point in time.
Okay, great. And then sorry one more follow-up. I guess when you guys put your provision on this quarter, were you using the economic assumptions as of 31st, June March or did you guys take it into the second quarter at all? I'm kind of just wondering on I don't know there could be any incremental provisioning the second quarter based on change from Quadrant.
During this is Barry again. You know we do use in most all of our portfolios have one of several macroeconomic factors being used as a national level. We using employment Prime and Judy p and a southern level. We're also using unemployment vacancy rates and the driving the driving the driving Factor our law or fact or and most all of our portfolios is going to be 700 appointment we but we do use both National factors and Southern the national factors are as of 3:27 a.m. From this is coming from Moody's Analytics. And then the southern factors are as of for 1:20, and then we usually one year forecast and then in one year of a version
Okay, great. That's that's super helpful. That's all for me guys. Thanks so much and grab some solid quarter. Thank you.
Again, as a reminder, if you'd like to participate in today's Q&A, please press * then 1 and a touch-tone phone again at the star then one to ask a question again. We will just pause momentarily to Assam our roster.
I do not believe we have any further questions at this time. I will go ahead and the conference back over to mr. Rose sir. We appreciate it. We appreciate all of you joining us today. Obviously, we have a long ways to go before before we see some sense of normalcy through this covid-19 pass the the management team here remains very focused on the challenges. We have at hand. We look each month is looking each each executive officers looking at their areas independently, and then we are meeting daily to discuss the overall situation and to look forward to the weather whatever unknowns are out there and be as prepared as we possibly can for those. We are starting to see some glimmer of hope.
Here in the state of Mississippi. The governor has moved us from a shelter in place to a safer at home process opening up certain businesses off but also maintaining the safety necessary to protect the citizens of the state Alabama will open up at the end of April. We're may be seeing and both markets and opening of the beaches which is very important that time of year to the tourism business. So although I could imagine a long way to go. There's positive signs that that things are beginning to open back up and we think that is going to be helpful to the off the boat state. So again, we we appreciate you joining us this morning. We would anticipate that there is going to be at least another month.
Noisy quarter in terms of some of the numbers just because there's so much taking place, but we will be ready to report to you in July on our own second quarter results. Thank you all for joining us and please stay safe.
And we thank you all so certain to the rest of the management team for your time. Also again, the conference calls now concluded at this time you may disconnect. Thank you again everyone. Take care and have a wonderful day.
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