Moody's Affirms Trustmark's Ratings - Analyst Blog

Recently, Moody's Investors Service, the credit rating wing of Moody's Corporation MCO, affirmed all ratings of the bank holding company of Trustmark National Bank – Trustmark Corporation TRMK. The bank had previously received an “A3” and ”Prime-2” long- and short-term bank deposit ratings, respectively.

The standalone bank financial strength rating of “C” (equivalent to a baseline credit assessment of “a3”) and a “Baa1” issuer rating of Trustmark Corporation were also confirmed in the same event. All these ratings carry a negative outlook.

The rating affirmation came on the back of the company's successful integration of BancTrust Financial Group, Inc. of Mobile, Alabama while maintaining core profitability and capital adequacy metrics.

The credit management of Trustmark Corporation performed well during the acquisition of BancTrust and generated profits consistently. Also, the integration of the acquired entity did not result in business attritions. The ratings agency also identified that the overall commercial real estate concentration that fell from the pre-crisis levels is not significant enough when compared to peers.

Moody's opines that the overall financial profile of Trustmark Corporation was affected by the takeover. However, the company's profile remained on par with its industry counterparts.

The negative outlook affirmed by Moody's was reflective of two aspects – the first being mounting operating costs that are unlikely to mitigate declining accretion income, hampering profitability. Secondly, as other real estate owned (OREO) comprises approximately 50% of Trustmark Corporation's non-performing assets, delay in the sale of the OREO portfolio increases the risk of credit costs with deterioration in market value.

Rating affirmations from credit rating agencies play an important part in retaining investor confidence as well as maintaining creditworthiness in the market. Although Trustmark Corporation's present score with the credit rating agency is expected to help it write more business going forward, we remain skeptical regarding the prospects owing to the negative outlook affirmation.

Trustmark Corporation currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the banking sector include BNC Bancorp BNCN and Farmers Capital Bank Corp. FFKT. Both the stocks carry a Zacks Rank #1 (Strong Buy).