Trustmark Corp. (Nasdaq:TRMK) saw its asset quality decline over the last year as it has suffered the effects of the recession and real estate bubble, but its high tangible equity ratio will protect the bank from any permanent damage.
Trustmark is a Southeastern United States regional bank headquartered in Jackson, Miss., with $9.8 billion in assets. The bank's roots are in central Mississippi, but over time it branched out into Memphis, Tenn., Houston and the Florida Panhandle.

IN PICTURES:
Eight Ways To Survive A Market Downturn

Assets
Trustmark had a loan portfolio of $6.64 billion at the end of the first quarter, with approximately one-third in consumer loans and the remainder in commercial loans. The bank does have a high concentration toward several different types of real estate lending, including a construction and land development portfolio of $1 billion.

These real estate concentrations have hurt the bank in the last year. Total non-performing assets as a percent of total loans and other real estate owned (OREO) was at 2.53% as of March 31. Trustmark also charged off $11.4 million in loans during the quarter.

Florida is where most of the bank's problem loans are. Total loans here were $606 million in the recent Q1, with $181 million of those loans in various stages of distress on a watch list that the bank refers to as "criticized loans". Some of these loans are still accruing interest.

Liabilities
Trustmark's deposit base is concentrated with 80% located in the Jackson Metropolitan Statistical Area (MSA) and the rest of the state. Twenty-one percent of these deposits are non-interest bearing, which helps keep funding costs lower.

Capital
The capital strength of a bank is the most important thing for investors in the current market climate, and Trustmark does well in that regard. Its tangible common equity ratio (TCE) stands at 7.2%, and its Tier 1 risk-based capital ratio was 13.34% as of March 31. That Tier 1 ratio includes $215 million in senior preferred stock issued to the U.S. government as part of the Capital Purchase Program (CPP). Even excluding this, the ratio was 10.2%.

This tangible equity ratio stands favorably versus some of the larger banks that were assessed as part of the Supervisory Capital Assessment Program (SCAP) conducted by the U.S government recently to ascertain capital needs. Citigroup (NYSE:C) had the lowest TCE of the major banks at 1.9%, while KeyCorp (NYSE:KEY) was the highest at 6.0%. Bank of America (NYSE:BAC) and JPMorgan (NYSE:JPM) had a TCE of 2.9% and 4.0%, respectively.

Valuation
Since it is difficult to predict earnings during this turbulent time, a multiple of book value may be the best way to value banks and other financials. Trustmark's tangible book value per share was $11.87 at the end of the Q1. At close to $20 a share, this gives us a multiple of two times book value. This is not exactly cheap for a bank in the market today.

Bottom Line: A Strong TCE
Trustmark is a pricey play in the banking sector considering its declining asset quality over the last 12 months. However, its strong tangible equity base may give some investors comfort that the bank will make it through the balance of the financial crisis.

Read Buy When There's Blood In The Streets to learn how contrarian investors find value in the worst market conditions, and see Analyzing A Bank's Financial Statements for more on bank ratio analysis.

Related Articles
  1. Investing News

    Canada in Recession

    On September 1, 2015, Statistics Canada reported that the economy has contracted by 0.5% in Q2 2015, after falling 0.8% in previous quarter.
  2. Economics

    Is a Recession Coming?

    In the space of a week, the VIX Index, a measure of market volatility, spiked from 13, suggesting extreme complacency, to over 50, evidencing total panic.
  3. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  4. Investing

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  5. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  6. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  7. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  10. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. The New Deal

    A series of domestic programs designed to help the United States ...
  3. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  4. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!