Trustmark Corporation

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Trustmark Corporation Announces Second Quarter 2013 Financial Results and Declares $0.23 Quarterly Dividend

JACKSON, Miss.--(BUSINESS WIRE)-- Trustmark Corporation (NASDAQ:TRMK) announced net income available to common shareholders of $31.1 million in the second quarter of 2013, which resulted in diluted earnings per share of $0.46. Trustmark’s performance during the quarter produced a return on average tangible common equity of 14.09% and a return on average assets of 1.06%. During the first six months of 2013, Trustmark’s net income available to common shareholders totaled $56.0 million, or $0.84 per common share. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per common share payable September 15, 2013, to shareholders of record on September 1, 2013.

Printer friendly version of earnings release with consolidated financial statements and notes:

http://www.businesswire.com/cgi-bin/mmg.cgi?eid=50675131&lang=en

Gerard R. Host, President and CEO, stated, “Trustmark’s momentum continued to build during the second quarter as total revenue increased 7.2% to $142.9 million. Our banking, mortgage banking, wealth management, and insurance businesses continued to perform well while credit quality continued to experience significant improvements, as evidenced by reduced net charge-offs and provisioning. Thanks to our dedicated associates, solid profitability and strong capital base, we are well-positioned to continue providing value for our customers and shareholders.”

BancTrust Merger Update

On February 15, 2013, Trustmark completed its previously announced merger with BancTrust Financial Group, Inc. (“BancTrust”), headquartered in Mobile, Alabama. In March 2013, BancTrust’s operating systems were successfully converted to Trustmark’s banking platform. Trustmark’s financial results in the second quarter of 2013 included revenue attributable to BancTrust of approximately $19.9 million and net income of $6.1 million; net income attributable to BancTrust included $2.0 million (after tax) from recoveries on pay-offs of acquired loans.

Credit Quality

  • Nonperforming assets declined 4.8% during second quarter
  • Improved credit quality reflected in reduced net charge-offs and provisioning

Nonperforming loans totaled $74.3 million at June 30, 2013, a decline of 10.8% from the prior quarter, while foreclosed other real estate totaled $117.7 million, a decline of 0.6% from the prior quarter. Collectively, nonperforming assets totaled $192.0 million at June 30, 2013, a decrease of 4.8% from the prior quarter.

During the second quarter recoveries exceeded charge-offs, resulting in a net recovery of $771 thousand, which represented -0.05% of average loans, excluding acquired loans. This compares to net recoveries of $1.1 million, or -0.08% of average loans, in the prior quarter. As a result of the net recovery position and improved credit quality, the provision for loan losses for loans held for investment was a negative $4.8 million in the second quarter.

Allocation of Trustmark’s $72.8 million allowance for loan losses represented 1.48% of commercial loans and 0.84% of consumer and home mortgage loans, resulting in an allowance to total loans held for investment of 1.31% at June 30, 2013, which represents a level management considers commensurate with the inherent risk in the loan portfolio. The allowance for loan losses represented 158.8% of nonperforming loans, excluding impaired loans.

All of the above credit metrics exclude acquired loans and other real estate covered by FDIC loss-share agreement.

Balance Sheet Management

  • Loans held for investment increased $45.6 million
  • Net interest income (FTE) totaled $103.0 million, resulting in 4.02% net interest margin

Average earning assets totaled $10.3 billion during the second quarter, an increase of $839.7 million from the prior quarter, reflecting the first full quarter of operations following the BancTrust merger on February 15, 2013. During the quarter, total average loans increased $406.3 million to $6.7 billion while investment securities expanded $433.2 million to $3.5 billion. Average deposits totaled $9.8 billion, an increase of $940.4 million from the prior quarter; noninterest-bearing deposits represented 25.1% of total average deposits during the second quarter.

Net interest income (FTE) in the second quarter totaled $103.0 million, an increase of $10.3 million from the prior quarter, and resulted in a four basis point expansion of the net interest margin to 4.02%. The expansion in the net interest margin reflects the significant increase in average acquired loan balances from the BancTrust merger as well as a favorable decline in the cost of interest-bearing liabilities. Excluding acquired loans, the net interest margin compressed 11 basis points from the prior quarter to 3.55% as earning assets continued to reprice at lower rates more rapidly than did interest-bearing deposits.

Loans held for investment totaled $5.6 billion at June 30, 2013, an increase of $45.6 million from the prior quarter. Growth was generally broad based by type as well as by geography. Construction lending expanded $33.8 million during the quarter due to growth in Trustmark’s Texas, Mississippi, Alabama and Tennessee markets while commercial real estate loans increased $21.3 million, reflecting growth in Texas, Florida, Alabama and Mississippi. Other real estate secured loans grew $17.9 million, principally due to growth in Trustmark’s Mississippi and Tennessee markets. Increased lending to public entities and school districts in Mississippi and Alabama was reflected in other loan growth of $25.5 million. During the quarter, the 1-4 family mortgage loan portfolio declined $15.4 million as Trustmark elected to sell the vast majority of its quarterly production of these lower-rate, longer-term mortgages in the secondary market rather than replace run-off in this portfolio. Commercial and industrial loans declined $37.5 million, as growth in Alabama was more than offset by declines in Trustmark’s other markets during the quarter.

Capital Strength

  • Optimized capital base with redemption of $33.0 million in trust preferred securities
  • Total risk-based capital ratio of 13.89%

Trustmark’s common equity totaled $1.33 billion at June 30, 2013, down $26.1 million from March 31, 2013. This decrease included a decline in accumulated other comprehensive loss, net of tax, of $44.5 million for the quarter resulting largely from a reduction of unrealized gains on available for sale securities in a rising interest rate environment.

Trustmark continued to optimize its capital base during the second quarter with the previously announced redemption of $33.0 million in trust preferred securities acquired in conjunction with the BancTrust merger. At June 30, 2013, Trustmark’s tangible common equity to tangible assets ratio was 7.96% while the total risk-based capital ratio was 13.89%, significantly exceeding the 10.00% benchmark to be classified as “well-capitalized.” Trustmark’s solid capital base provides the opportunity to support organic loan growth in an improving economy and enhance long-term shareholder value.

Noninterest Income

  • Service charges and bank card fees collectively increased $2.8 million, or 14.3%, from prior quarter
  • Insurance revenue expanded 10.7% to $8.0 million

Reflecting the continued success of Trustmark’s diversified financial services businesses, noninterest income totaled $43.7 million during the second quarter, including $3.0 million attributable to BancTrust. Service charges on deposit accounts totaled $12.9 million in the second quarter, an increase of $1.2 million, or 10.7%, from the prior quarter principally attributable to BancTrust. Bank card and other fees totaled $9.5 million in the second quarter, an increase of $1.6 million, or 19.7%, from the prior quarter.

Mortgage loan production in the second quarter totaled $424.3 million, up 8.2% from the prior quarter in part due to additional refinancing activity from the Home Affordable Refinance Program. Total revenue from Trustmark’s mortgage banking unit totaled $8.3 million in the second quarter, down $3.3 million from the prior period principally due to lower secondary marketing gains resulting from tightening mortgage spreads during the quarter and lower positive mortgage servicing hedge ineffectiveness.

Insurance revenue totaled $8.0 million, an increase of 10.7% from the prior quarter and 11.6% relative to figures one year earlier due to expanded commercial insurance sales as well as the continued firming of insurance rates. Wealth management income totaled $6.9 million in the second quarter, including income from BancTrust of approximately $1.1 million. Wealth management income increased 0.9% from the prior quarter and 20.4% from levels one year earlier.

During the second quarter, other income decreased $954 thousand relative to the prior quarter due primarily to increased write-off of the FDIC indemnification asset resulting from the re-estimation of cash flows and loan payoffs.

Noninterest Expense

  • Achieved additional merger-related efficiencies
  • Operating expenses remain well-controlled

Noninterest expense in the second quarter totaled $107.2 million and included expenses of $11.4 million reflecting the first full quarter of operations following the BancTrust merger as well as non-routine litigation expense of $4.0 million related to a previously announced proposed settlement concerning Trustmark’s overdraft fees for insufficient funds on debit card purchases and ATM withdrawals. Salaries and employee benefits expense totaled $55.4 million in the second quarter, including BancTrust-related expense of $5.7 million. Excluding BancTrust-related expense, salaries and employee benefits expense totaled $49.7 million in the second quarter of 2013, up $1.0 million, or 2.1%, relative to comparable figures in the prior quarter.

Trustmark continued realignment of its branch network to enhance productivity and efficiency. As previously announced, two of Trustmark’s Houston offices were consolidated into a new administrative office on April 1. In addition, five overlapping offices in the Florida Panhandle were consolidated in May as a result of the BancTrust merger. Trustmark is committed to investments to support profitable revenue growth as well as reengineering and efficiency opportunities to enhance shareholder value.

Trustmark anticipates completing its previously announced plans to purchase two branch offices and assume selected deposit accounts of approximately $11.7 million from SOUTHBank, F.S.B. in the Oxford, Mississippi market at the close of business on Friday, July 26, 2013.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, July 24, 2013, at 10:00 a.m. Central Time to discuss the Corporation’s financial results. Interested parties may listen to the conference call by dialing (877) 317-6789, passcode 10008303, or by clicking on the link provided under the Investor Relations section of our website at www.trustmark.com. A replay of the conference call will also be available through Thursday, August 8, 2013, in archived format at the same web address or by calling (877) 344-7529, passcode 10008303.

Trustmark Corporation is a financial services company providing banking and financial solutions through approximately 215 offices in Alabama, Florida, Mississippi, Tennessee and Texas.

Forward-Looking Statements

Certain statements contained in this document constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future” or the negative of those terms or other words of similar meaning. You should read statements that contain these words carefully because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements include, but are not limited to, statements relating to anticipated future operating and financial performance measures, including net interest margin, credit quality, business initiatives, growth opportunities and growth rates, among other things, and encompass any estimate, prediction, expectation, projection, opinion, anticipation, outlook or statement of belief included therein as well as the management assumptions underlying these forward-looking statements. You should be aware that the occurrence of the events described under the caption “Risk Factors” in Trustmark’s filings with the Securities and Exchange Commission could have an adverse effect on our business, results of operations and financial condition. Should one or more of these risks materialize, or should any such underlying assumptions prove to be significantly different, actual results may vary significantly from those anticipated, estimated, projected or expected.

Risks that could cause actual results to differ materially from current expectations of Management include, but are not limited to, changes in the level of nonperforming assets and charge-offs, local, state and national economic and market conditions, including the extent and duration of the current volatility in the credit and financial markets, changes in our ability to measure the fair value of assets in our portfolio, material changes in the level and/or volatility of market interest rates, the performance and demand for the products and services we offer, including the level and timing of withdrawals from our deposit accounts, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, our ability to attract noninterest-bearing deposits and other low-cost funds, competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, economic conditions, including the potential impact of the European financial crisis on the U.S. economy and the markets we serve, and monetary and other governmental actions designed to address the level and volatility of interest rates and the volatility of securities, currency and other markets, the enactment of legislation and changes in existing regulations, or enforcement practices, or the adoption of new regulations, changes in accounting standards and practices, including changes in the interpretation of existing standards, that affect our consolidated financial statements, changes in consumer spending, borrowings and savings habits, technological changes, changes in the financial performance or condition of our borrowers, changes in our ability to control expenses, changes in our compensation and benefit plans, greater than expected costs or difficulties related to the integration of acquisitions or new products and lines of business, natural disasters, environmental disasters, acts of war or terrorism, the ability to maintain relationships with customers, employees or suppliers as well as the ability to successfully integrate the business and realize cost savings and any other synergies from the BancTrust merger as well as the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect, and other risks described in our filings with the Securities and Exchange Commission.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Except as required by law, we undertake no obligation to update or revise any of this information, whether as the result of new information, future events or developments or otherwise.

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2013
($ in thousands)
(unaudited)
      Linked Quarter   Year over Year

QUARTERLY AVERAGE BALANCES

  6/30/2013     3/31/2013     6/30/2012   $ Change   % Change   $ Change   % Change  
Securities AFS-taxable $ 3,259,086 $ 2,836,051 $ 2,341,475 $ 423,035 14.9 % $ 917,611 39.2 %
Securities AFS-nontaxable 171,974 167,773 167,287 4,201 2.5 % 4,687 2.8 %
Securities HTM-taxable 59,678 48,632 30,136 11,046 22.7 % 29,542 98.0 %
Securities HTM-nontaxable   11,520     16,648     19,378     (5,128 ) -30.8 %   (7,858 ) -40.6 %

Total securities

  3,502,258     3,069,104     2,558,276     433,154   14.1 %   943,982   36.9 %
Loans (including loans held for sale) 5,735,296 5,741,340 5,938,168 (6,044 ) -0.1 % (202,872 ) -3.4 %
Acquired loans:
Noncovered loans 949,367 530,643 97,341 418,724 78.9 % 852,026 n/m
Covered loans 43,425 49,815 70,217 (6,390 ) -12.8 % (26,792 ) -38.2 %
Fed funds sold and rev repos 6,808 6,618 5,309 190 2.9 % 1,499 28.2 %
Other earning assets   34,752     34,661     29,654     91   0.3 %   5,098   17.2 %
Total earning assets   10,271,906     9,432,181     8,698,965     839,725   8.9 %   1,572,941   18.1 %
Allowance for loan losses (84,574 ) (86,447 ) (92,223 ) 1,873 -2.2 % 7,649 -8.3 %
Cash and due from banks 284,056 270,740 272,283 13,316 4.9 % 11,773 4.3 %
Other assets   1,311,262     1,183,493     947,914     127,769   10.8 %   363,348   38.3 %
Total assets $ 11,782,650   $ 10,799,967   $ 9,826,939   $ 982,683   9.1 % $ 1,955,711   19.9 %
 
Interest-bearing demand deposits $ 1,811,402 $ 1,703,336 $ 1,545,203 $ 108,066 6.3 % $ 266,199 17.2 %
Savings deposits 3,060,437 2,767,747 2,467,546 292,690 10.6 % 592,891 24.0 %
Time deposits less than $100,000 1,419,381 1,268,619 1,169,532 150,762 11.9 % 249,849 21.4 %
Time deposits of $100,000 or more   1,029,498     893,104     813,530     136,394   15.3 %   215,968   26.5 %
Total interest-bearing deposits 7,320,718 6,632,806 5,995,811 687,912 10.4 % 1,324,907 22.1 %
Fed funds purchased and repos 312,865 266,958 280,726 45,907 17.2 % 32,139 11.4 %
Short-term borrowings 51,718 66,999 80,275 (15,281 ) -22.8 % (28,557 ) -35.6 %
Long-term FHLB advances 9,575 4,580 - 4,995 n/m 9,575 n/m
Subordinated notes 49,882 49,874 49,850 8 0.0 % 32 0.1 %
Junior subordinated debt securities   82,460     77,989     61,856     4,471   5.7 %   20,604   33.3 %
Total interest-bearing liabilities 7,827,218 7,099,206 6,468,518 728,012 10.3 % 1,358,700 21.0 %
Noninterest-bearing deposits 2,451,547 2,199,043 1,998,077 252,504 11.5 % 453,470 22.7 %
Other liabilities   159,525     176,210     104,628     (16,685 ) -9.5 %   54,897   52.5 %
Total liabilities 10,438,290 9,474,459 8,571,223 963,831 10.2 % 1,867,067 21.8 %
Shareholders' equity   1,344,360     1,325,508     1,255,716     18,852   1.4 %   88,644   7.1 %
Total liabilities and equity $ 11,782,650   $ 10,799,967   $ 9,826,939   $ 982,683   9.1 % $ 1,955,711   19.9 %
 
Linked Quarter Year over Year

PERIOD END BALANCES

  6/30/2013     3/31/2013     6/30/2012   $ Change % Change   $ Change % Change  
Cash and due from banks $ 301,532 $ 242,896 $ 284,735 $ 58,636 24.1 % $ 16,797 5.9 %
Fed funds sold and rev repos 7,869 5,926 6,725 1,943 32.8 % 1,144 17.0 %
Securities available for sale 3,511,683 3,546,083 2,592,807 (34,400 ) -1.0 % 918,876 35.4 %
Securities held to maturity 70,338 73,666 47,867 (3,328 ) -4.5 % 22,471 46.9 %
Loans held for sale (LHFS) 202,699 207,758 286,221 (5,059 ) -2.4 % (83,522 ) -29.2 %
Loans held for investment (LHFI) 5,577,382 5,531,788 5,650,548 45,594 0.8 % (73,166 ) -1.3 %
Allowance for loan losses   (72,825 )   (76,900 )   (84,809 )   4,075   -5.3 %   11,984   -14.1 %
Net LHFI 5,504,557 5,454,888 5,565,739 49,669 0.9 % (61,182 ) -1.1 %
Acquired loans:
Noncovered loans 922,453 1,003,127 94,013 (80,674 ) -8.0 % 828,440 n/m
Covered loans 40,820 47,589 66,015 (6,769 ) -14.2 % (25,195 ) -38.2 %
Allowance for loan losses, acquired loans   (2,690 )   (6,458 )   (1,526 )   3,768   -58.3 %   (1,164 ) 76.3 %
Net acquired loans   960,583     1,044,258     158,502     (83,675 ) -8.0 %   802,081   n/m
Net LHFI and acquired loans 6,465,140 6,499,146 5,724,241 (34,006 ) -0.5 % 740,899 12.9 %
Premises and equipment, net 210,845 210,789 156,089 56 0.0 % 54,756 35.1 %
Mortgage servicing rights 60,380 51,529 43,580 8,851 17.2 % 16,800 38.5 %
Goodwill 368,315 366,366 291,104 1,949 0.5 % 77,211 26.5 %
Identifiable intangible assets 46,889 49,361 19,356 (2,472 ) -5.0 % 27,533 n/m
Other real estate, excluding covered other real estate 117,712 118,406 73,673 (694 ) -0.6 % 44,039 59.8 %
Covered other real estate 5,147 5,879 6,482 (732 ) -12.5 % (1,335 ) -20.6 %
FDIC indemnification asset 17,342 20,198 25,309 (2,856 ) -14.1 % (7,967 ) -31.5 %
Other assets   477,421     452,512     332,657     24,909   5.5 %   144,764   43.5 %
Total assets $ 11,863,312   $ 11,850,515   $ 9,890,846   $ 12,797   0.1 % $ 1,972,466   19.9 %
 
Deposits:
Noninterest-bearing $ 2,520,895 $ 2,534,287 $ 2,063,261 $ (13,392 ) -0.5 % $ 457,634 22.2 %
Interest-bearing   7,296,697     7,375,144     5,932,596     (78,447 ) -1.1 %   1,364,101   23.0 %
Total deposits 9,817,592 9,909,431 7,995,857 (91,839 ) -0.9 % 1,821,735 22.8 %
Fed funds purchased and repos 374,021 219,769 297,669 154,252 70.2 % 76,352 25.6 %
Short-term borrowings 56,645 46,325 78,594 10,320 22.3 % (21,949 ) -27.9 %
Long-term FHLB advances 8,679 10,969 - (2,290 ) -20.9 % 8,679 n/m
Subordinated notes 49,888 49,879 49,855 9 0.0 % 33 0.1 %
Junior subordinated debt securities 61,856 94,856 61,856 (33,000 ) -34.8 % - 0.0 %
Other liabilities   167,812     166,340     148,520     1,472   0.9 %   19,292   13.0 %
Total liabilities   10,536,493     10,497,569     8,632,351     38,924   0.4 %   1,904,142   22.1 %
Common stock 13,994 13,992 13,496 2 0.0 % 498 3.7 %
Capital surplus 342,359 342,233 283,023 126 0.0 % 59,336 21.0 %
Retained earnings 1,006,554 991,012 958,322 15,542 1.6 % 48,232 5.0 %
Accum other comprehensive
(loss) income, net of tax   (36,088 )   5,709     3,654     (41,797 ) n/m   (39,742 ) n/m
Total shareholders' equity   1,326,819     1,352,946     1,258,495     (26,127 ) -1.9 %   68,324   5.4 %
Total liabilities and equity $ 11,863,312   $ 11,850,515   $ 9,890,846   $ 12,797   0.1 % $ 1,972,466   19.9 %
 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 

See Notes to Consolidated Financials.

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2013
($ in thousands except per share data)
(unaudited)
             
 
Quarter Ended Linked Quarter Year over Year

INCOME STATEMENTS

  6/30/2013     3/31/2013     6/30/2012   $ Change % Change   $ Change % Change  
Interest and fees on LHFS & LHFI-FTE $ 67,750 $ 67,412 $ 72,949 $ 338 0.5 % $ (5,199 ) -7.1 %
Interest and fees on acquired loans 20,987 12,782 5,097 8,205 64.2 % 15,890 n/m
Interest on securities-taxable 18,547 16,539 17,352 2,008 12.1 % 1,195 6.9 %
Interest on securities-tax exempt-FTE 1,974 2,018 2,086 (44 ) -2.2 % (112 ) -5.4 %
Interest on fed funds sold and rev repos 5 4 5 1 25.0 % - 0.0 %
Other interest income   372     355     336     17   4.8 %   36   10.7 %
Total interest income-FTE   109,635     99,110     97,825     10,525   10.6 %   11,810   12.1 %
Interest on deposits 5,071 4,909 6,465 162 3.3 % (1,394 ) -21.6 %
Interest on fed funds pch and repos 88 81 142 7 8.6 % (54 ) -38.0 %
Other interest expense   1,513     1,490     1,359     23   1.5 %   154   11.3 %
Total interest expense   6,672     6,480     7,966     192   3.0 %   (1,294 ) -16.2 %
Net interest income-FTE 102,963 92,630 89,859 10,333 11.2 % 13,104 14.6 %
Provision for loan losses, LHFI (4,846 ) (2,968 ) 650 (1,878 ) 63.3 % (5,496 ) n/m
Provision for loan losses, acquired loans   (1,552 )   130     1,672     (1,682 ) n/m   (3,224 ) n/m
Net interest income after provision-FTE   109,361     95,468     87,537     13,893   14.6 %   21,824   24.9 %
Service charges on deposit accounts 12,929 11,681 12,614 1,248 10.7 % 315 2.5 %
Insurance commissions 8,014 7,242 7,179 772 10.7 % 835 11.6 %
Wealth management 6,940 6,875 5,762 65 0.9 % 1,178 20.4 %
Bank card and other fees 9,507 7,945 8,179 1,562 19.7 % 1,328 16.2 %
Mortgage banking, net 8,295 11,583 11,184 (3,288 ) -28.4 % (2,889 ) -25.8 %
Other, net   (2,145 )   (1,191 )   (1,150 )   (954 ) 80.1 %   (995 ) 86.5 %
Nonint inc-excl sec gains (losses), net 43,540 44,135 43,768 (595 ) -1.3 % (228 ) -0.5 %
Security gains (losses), net   174     204     (8 )   (30 ) -14.7 %   182   n/m
Total noninterest income   43,714     44,339     43,760     (625 ) -1.4 %   (46 ) -0.1 %
Salaries and employee benefits 55,405 53,592 46,959 1,813 3.4 % 8,446 18.0 %
Services and fees 12,816 13,032 11,750 (216 ) -1.7 % 1,066 9.1 %
Net occupancy-premises 6,703 5,955 4,954 748 12.6 % 1,749 35.3 %
Equipment expense 6,193 5,674 5,183 519 9.1 % 1,010 19.5 %
FDIC assessment expense 2,376 2,021 1,826 355 17.6 % 550 30.1 %
ORE/Foreclosure expense 5,131 3,820 2,388 1,311 34.3 % 2,743 n/m
Other expense   18,571     18,051     14,899     520   2.9 %   3,672   24.6 %
Total noninterest expense   107,195     102,145     87,959     5,050   4.9 %   19,236   21.9 %
Income before income taxes and tax eq adj 45,880 37,662 43,338 8,218 21.8 % 2,542 5.9 %
Tax equivalent adjustment   3,735     3,655     3,411     80   2.2 %   324   9.5 %
Income before income taxes 42,145 34,007 39,927 8,138 23.9 % 2,218 5.6 %
Income taxes   11,024     9,141     10,578     1,883   20.6 %   446   4.2 %
Net income available to common shareholders $ 31,121   $ 24,866   $ 29,349   $ 6,255   25.2 % $ 1,772   6.0 %
 
 
Per common share data
Earnings per share - basic $ 0.46   $ 0.38   $ 0.45   $ 0.08   21.1 % $ 0.01   2.2 %
 
Earnings per share - diluted $ 0.46   $ 0.38   $ 0.45   $ 0.08   21.1 % $ 0.01   2.2 %
 
Dividends per share $ 0.23   $ 0.23   $ 0.23   $ -   0.0 % $ -   0.0 %
 
Weighted average common shares outstanding
Basic   67,162,530     65,983,204     64,771,530  
 
Diluted   67,344,117     66,149,656     64,938,697  
 
Period end common shares outstanding   67,163,195     67,151,087     64,775,694  
 

OTHER FINANCIAL DATA

Return on common equity 9.29 % 7.61 % 9.40 %
Return on average tangible common equity 14.09 % 10.82 % 12.74 %
Return on assets 1.06 % 0.93 % 1.20 %
Interest margin - Yield - FTE 4.28 % 4.26 % 4.52 %
Interest margin - Cost 0.26 % 0.28 % 0.37 %
Net interest margin - FTE 4.02 % 3.98 % 4.15 %
Efficiency ratio (1) 70.44 % 67.84 % 66.26 %
Full-time equivalent employees 3,119 3,164 2,598
 

COMMON STOCK PERFORMANCE

Market value-Close $ 24.58 $ 25.01 $ 24.48
Common book value $ 19.76 $ 20.15 $ 19.43
Tangible common book value $ 13.57 $ 13.96 $ 14.64
 
 
(1) - Excludes nonrecurring income and expense items such as securities gains or losses, bargain purchase gains and non-routine acquisition related transaction expenses.
 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 

See Notes to Consolidated Financials.

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2013
($ in thousands)
(unaudited)
  Quarter Ended   Linked Quarter   Year over Year

NONPERFORMING ASSETS (1)

  6/30/2013       3/31/2013       6/30/2012   $ Change   % Change   $ Change   % Change  
Nonaccrual loans
Alabama $ 73 $ - $ - $ 73 n/m $ 73 n/m
Florida 15,916 14,046 22,260 1,870 13.3 % (6,344 ) -28.5 %
Mississippi (2) 41,761 46,697 47,322 (4,936 ) -10.6 % (5,561 ) -11.8 %
Tennessee (3) 4,482 4,877 11,171 (395 ) -8.1 % (6,689 ) -59.9 %
Texas   12,086     17,702     18,927     (5,616 ) -31.7 %   (6,841 ) -36.1 %
Total nonaccrual loans 74,318 83,322 99,680 (9,004 ) -10.8 % (25,362 ) -25.4 %
Other real estate
Alabama 27,245 28,870 - (1,625 ) -5.6 % 27,245 n/m
Florida 35,025 30,662 23,324 4,363 14.2 % 11,701 50.2 %
Mississippi (2) 26,843 26,457 19,511 386 1.5 % 7,332 37.6 %
Tennessee (3) 15,811 18,339 18,850 (2,528 ) -13.8 % (3,039 ) -16.1 %
Texas   12,788     14,078     11,988     (1,290 ) -9.2 %   800   6.7 %
Total other real estate   117,712     118,406     73,673     (694 ) -0.6 %   44,039   59.8 %
Total nonperforming assets $ 192,030   $ 201,728   $ 173,353   $ (9,698 ) -4.8 % $ 18,677   10.8 %
 

LOANS PAST DUE OVER 90 DAYS (4)

LHFI $ 4,194   $ 2,772   $ 1,843   $ 1,422   51.3 % $ 2,351   n/m
 
LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase) $ 14,003   $ 4,469   $ 35,270   $ 9,534   n/m $ (21,267 ) -60.3 %
 
Quarter Ended Linked Quarter Year over Year

ALLOWANCE FOR LOAN LOSSES (4)

  6/30/2013     3/31/2013     6/30/2012   $ Change % Change   $ Change % Change  
Beginning Balance $ 76,900 $ 78,738 $ 90,879 $ (1,838 ) -2.3 % $ (13,979 ) -15.4 %
Provision for loan losses (4,846 ) (2,968 ) 650 (1,878 ) 63.3 % (5,496 ) n/m
Charge-offs (3,031 ) (3,325 ) (9,264 ) 294 -8.8 % 6,233 -67.3 %
Recoveries   3,802     4,455     2,544     (653 ) -14.7 %   1,258   49.4 %
Net recoveries (charge-offs)   771     1,130     (6,720 )   (359 ) -31.8 %   7,491   n/m
Ending Balance $ 72,825   $ 76,900   $ 84,809   $ (4,075 ) -5.3 % $ (11,984 ) -14.1 %
 

PROVISION FOR LOAN LOSSES (4)

Alabama $ 232 $ 676 $ - $ (444 ) -65.7 % $ 232 n/m
Florida (3,425 ) (3,675 ) (770 ) 250 -6.8 % (2,655 ) n/m
Mississippi (2) (520 ) (1,920 ) 1,141 1,400 -72.9 % (1,661 ) n/m
Tennessee (3) (335 ) (378 ) 839 43 -11.4 % (1,174 ) n/m
Texas   (798 )   2,329     (560 )   (3,127 ) n/m   (238 ) 42.5 %
Total provision for loan losses $ (4,846 ) $ (2,968 ) $ 650   $ (1,878 ) 63.3 % $ (5,496 ) n/m
 

NET CHARGE-OFFS (4)

Alabama $ 67 $ 11 $ - $ 56 n/m $ 67 n/m
Florida (1,426 ) (849 ) 4,491 (577 ) 68.0 % (5,917 ) n/m
Mississippi (2) 291 (290 ) 1,751 581 n/m (1,460 ) -83.4 %
Tennessee (3) 103 249 536 (146 ) -58.6 % (433 ) -80.8 %
Texas   194     (251 )   (58 )   445   n/m   252   n/m
Total net (recoveries) charge-offs $ (771 ) $ (1,130 ) $ 6,720   $ 359   -31.8 % $ (7,491 ) n/m
 

CREDIT QUALITY RATIOS (1)

Net charge offs/average loans -0.05 % -0.08 % 0.46 %
Provision for loan losses/average loans -0.34 % -0.21 % 0.04 %
Nonperforming loans/total loans (incl LHFS) 1.29 % 1.45 % 1.68 %
Nonperforming assets/total loans (incl LHFS) 3.32 % 3.51 % 2.92 %
Nonperforming assets/total loans (incl LHFS) +ORE 3.26 % 3.44 % 2.88 %
ALL/total loans (excl LHFS) 1.31 % 1.39 % 1.50 %
ALL-commercial/total commercial loans 1.48 % 1.56 % 1.81 %
ALL-consumer/total consumer and home mortgage loans 0.84 % 0.94 % 0.81 %
ALL/nonperforming loans 97.99 % 92.29 % 85.08 %
ALL/nonperforming loans -
(excl impaired loans) 158.75 % 145.83 % 186.45 %
 

CAPITAL RATIOS

Common equity/total assets 11.18 % 11.42 % 12.72 %
Tangible common equity/tangible assets 7.96 % 8.20 % 9.90 %
Tangible common equity/risk-weighted assets 11.57 % 11.92 % 14.30 %
Tier 1 leverage ratio 8.71 % 9.83 % 10.63 %
Tier 1 common risk-based capital ratio 11.79 % 11.79 % 14.36 %
Tier 1 risk-based capital ratio 12.55 % 12.97 % 15.26 %
Total risk-based capital ratio 13.89 % 14.42 % 17.12 %
 
(1) - Excludes Acquired Loans and Covered Other Real Estate
(2) - Mississippi includes Central and Southern Mississippi Regions
(3) - Tennessee includes Memphis, Tennessee and Northern Mississippi Regions
(4) - Excludes Acquired Loans
 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 

See Notes to Consolidated Financials.

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2013
($ in thousands)
(unaudited)
  Quarter Ended   Six Months Ended

AVERAGE BALANCES

  6/30/2013       3/31/2013       12/31/2012       9/30/2012       6/30/2012     6/30/2013       6/30/2012  
Securities AFS-taxable $ 3,259,086 $ 2,836,051 $ 2,466,738 $ 2,409,292 $ 2,341,475 $ 3,048,737 $ 2,334,524
Securities AFS-nontaxable 171,974 167,773 169,906 169,037 167,287 169,885 164,079
Securities HTM-taxable 59,678 48,632 26,510 28,333 30,136 54,186 31,703
Securities HTM-nontaxable   11,520     16,648     17,443     18,361     19,378     14,070     20,488  
Total securities   3,502,258     3,069,104     2,680,597     2,625,023     2,558,276     3,286,878     2,550,794  
Loans (including loans held for sale) 5,735,296 5,741,340 5,834,525 5,886,447 5,938,168 5,738,301 5,976,151
Acquired loans:
Noncovered loans 949,367 530,643 82,317 88,562 97,341 741,162 58,636
Covered loans 43,425 49,815 58,272 65,259 70,217 46,602 72,915
Fed funds sold and rev repos 6,808 6,618 8,747 6,583 5,309 6,714 7,439
Other earning assets   34,752     34,661     31,168     31,758     29,654     34,707     31,878  
Total earning assets   10,271,906     9,432,181     8,695,626     8,703,632     8,698,965     9,854,364     8,697,813  
Allowance for loan losses (84,574 ) (86,447 ) (88,715 ) (86,865 ) (92,223 ) (85,505 ) (92,143 )
Cash and due from banks 284,056 270,740 238,976 236,566 272,283 277,435 252,211
Other assets   1,311,262     1,183,493     972,748     958,030     947,914     1,247,729     933,092  
Total assets $ 11,782,650   $ 10,799,967   $ 9,818,635   $ 9,811,363   $ 9,826,939   $ 11,294,023   $ 9,790,973  
 
Interest-bearing demand deposits $ 1,811,402 $ 1,703,336 $ 1,545,967 $ 1,534,244 $ 1,545,203 $ 1,757,668 $ 1,545,124
Savings deposits 3,060,437 2,767,747 2,275,569 2,348,413 2,467,546 2,914,901 2,403,356
Time deposits less than $100,000 1,419,381 1,268,619 1,120,735 1,150,620 1,169,532 1,344,416 1,180,210
Time deposits of $100,000 or more   1,029,498     893,104     760,363     781,926     813,530     961,678     819,372  
Total interest-bearing deposits 7,320,718 6,632,806 5,702,634 5,815,203 5,995,811 6,978,663 5,948,062
Fed funds purchased and repos 312,865 266,958 388,007 374,885 280,726 290,038 358,998
Short-term borrowings 51,718 66,999 85,313 81,773 80,275 59,316 82,536
Long-term FHLB advances 9,575 4,580 - - - 7,091 -
Subordinated notes 49,882 49,874 49,866 49,858 49,850 49,878 49,846
Junior subordinated debt securities   82,460     77,989     61,856     61,856     61,856     80,237     61,856  
Total interest-bearing liabilities 7,827,218 7,099,206 6,287,676 6,383,575 6,468,518 7,465,223 6,501,298
Noninterest-bearing deposits 2,451,547 2,199,043 2,115,784 2,039,729 1,998,077 2,325,993 1,933,918
Other liabilities   159,525     176,210     126,953     114,454     104,628     167,821     113,648  
Total liabilities 10,438,290 9,474,459 8,530,413 8,537,758 8,571,223 9,959,037 8,548,864
Shareholders' equity   1,344,360     1,325,508     1,288,222     1,273,605     1,255,716     1,334,986     1,242,109  
Total liabilities and equity $ 11,782,650   $ 10,799,967   $ 9,818,635   $ 9,811,363   $ 9,826,939   $ 11,294,023   $ 9,790,973  
 

PERIOD END BALANCES

  6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012  
Cash and due from banks $ 301,532 $ 242,896 $ 231,489 $ 209,188 $ 284,735
Fed funds sold and rev repos 7,869 5,926 7,046 5,295 6,725
Securities available for sale 3,511,683 3,546,083 2,657,745 2,724,446 2,592,807
Securities held to maturity 70,338 73,666 42,188 45,484 47,867
Loans held for sale (LHFS) 202,699 207,758 257,986 324,897 286,221
Loans held for investment (LHFI) 5,577,382 5,531,788 5,592,754 5,527,963 5,650,548
Allowance for loan losses   (72,825 )   (76,900 )   (78,738 )   (83,526 )   (84,809 )
Net LHFI 5,504,557 5,454,888 5,514,016 5,444,437 5,565,739
Acquired loans:
Noncovered loans 922,453 1,003,127 81,523 83,110 94,013
Covered loans 40,820 47,589 52,041 64,503 66,015
Allowance for loan losses, acquired loans   (2,690 )   (6,458 )   (6,075 )   (4,343 )   (1,526 )
Net acquired loans   960,583     1,044,258     127,489     143,270     158,502  
Net LHFI and acquired loans 6,465,140 6,499,146 5,641,505 5,587,707 5,724,241
Premises and equipment, net 210,845 210,789 154,841 155,467 156,089
Mortgage servicing rights 60,380 51,529 47,341 44,211 43,580
Goodwill 368,315 366,366 291,104 291,104 291,104
Identifiable intangible assets 46,889 49,361 17,306 18,327 19,356
Other real estate, excluding covered other real estate 117,712 118,406 78,189 82,475 73,673
Covered other real estate 5,147 5,879 5,741 5,722 6,482
FDIC indemnification asset 17,342 20,198 21,774 23,979 25,309
Other assets   477,421     452,512     374,412     353,857     332,657  
Total assets $ 11,863,312   $ 11,850,515   $ 9,828,667   $ 9,872,159   $ 9,890,846  
 
Deposits:
Noninterest-bearing $ 2,520,895 $ 2,534,287 $ 2,254,211 $ 2,118,853 $ 2,063,261
Interest-bearing   7,296,697     7,375,144     5,642,306     5,685,188     5,932,596  
Total deposits 9,817,592 9,909,431 7,896,517 7,804,041 7,995,857
Fed funds purchased and repos 374,021 219,769 288,829 408,711 297,669
Short-term borrowings 56,645 46,325 86,920 83,612 78,594
Long-term FHLB advances 8,679 10,969 - - -
Subordinated notes 49,888 49,879 49,871 49,863 49,855
Junior subordinated debt securities 61,856 94,856 61,856 61,856 61,856
Other liabilities   167,812     166,340     157,305     186,061     148,520  
Total liabilities   10,536,493     10,497,569     8,541,298     8,594,144     8,632,351  
Common stock 13,994 13,992 13,506 13,496 13,496
Capital surplus 342,359 342,233 285,905 284,089 283,023
Retained earnings 1,006,554 991,012 984,563 973,182 958,322
Accum other comprehensive
(loss) income, net of tax   (36,088 )   5,709     3,395     7,248     3,654  
Total shareholders' equity   1,326,819     1,352,946     1,287,369     1,278,015     1,258,495  
Total liabilities and equity $ 11,863,312   $ 11,850,515   $ 9,828,667   $ 9,872,159   $ 9,890,846  
 

See Notes to Consolidated Financials.

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2013
($ in thousands except per share data)
(unaudited)
             
 
Quarter Ended Six Months Ended

INCOME STATEMENTS

  6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012     6/30/2013     6/30/2012  
Interest and fees on LHFS & LHFI-FTE $ 67,750 $ 67,412 $ 69,989 $ 72,554 $ 72,949 $ 135,162 $ 148,730
Interest and fees on acquired loans 20,987 12,782 4,859 5,229 5,097 33,769 8,034
Interest on securities-taxable 18,547 16,539 15,305 15,909 17,352 35,086 35,736
Interest on securities-tax exempt-FTE 1,974 2,018 2,066 2,089 2,086 3,992 4,188
Interest on fed funds sold and rev repos 5 4 9 6 5 9 11
Other interest income   372     355     337     339     336     727     666  
Total interest income-FTE   109,635     99,110     92,565     96,126     97,825     208,745     197,365  
Interest on deposits 5,071 4,909 5,061 5,725 6,465 9,980 13,818
Interest on fed funds pch and repos 88 81 140 135 142 169 313
Other interest expense   1,513     1,490     1,346     1,358     1,359     3,003     2,773  
Total interest expense   6,672     6,480     6,547     7,218     7,966     13,152     16,904  
Net interest income-FTE 102,963 92,630 86,018 88,908 89,859 195,593 180,461
Provision for loan losses, LHFI (4,846 ) (2,968 ) (535 ) 3,358 650 (7,814 ) 3,943
Provision for loan losses, acquired loans   (1,552 )   130     1,945     2,105     1,672     (1,422 )   1,478  
Net interest income after provision-FTE   109,361     95,468     84,608     83,445     87,537     204,829     175,040  
Service charges on deposit accounts 12,929 11,681 12,391 13,135 12,614 24,610 24,825
Insurance commissions 8,014 7,242 6,887 7,533 7,179 15,256 13,785
Wealth management 6,940 6,875 6,181 5,612 5,762 13,815 11,263
Bank card and other fees 9,507 7,945 7,978 6,924 8,179 17,452 15,543
Mortgage banking, net 8,295 11,583 11,331 11,150 11,184 19,878 18,479
Other, net   (2,145 )   (1,191 )   (2,007 )   512     (1,150 )   (3,336 )   2,608  
Nonint inc-excl sec gains (losses), net 43,540 44,135 42,761 44,866 43,768 87,675 86,503
Security gains (losses), net   174     204     18     (1 )   (8 )   378     1,042  
Total noninterest income   43,714     44,339     42,779     44,865     43,760     88,053     87,545  
Salaries and employee benefits 55,405 53,592 49,724 47,404 46,959 108,997 93,391
Services and fees 12,816 13,032 12,572 11,682 11,750 25,848 22,497
Net occupancy-premises 6,703 5,955 5,023 5,352 4,954 12,658 9,892
Equipment expense 6,193 5,674 5,288 5,095 5,183 11,867 10,095
FDIC assessment expense 2,376 2,021 1,075 1,826 1,826 4,397 3,601
ORE/Foreclosure expense 5,131 3,820 3,173 1,702 2,388 8,951 6,290
Other expense   18,571     18,051     10,454     10,399     14,899     36,622     27,967  
Total noninterest expense   107,195     102,145     87,309     83,460     87,959     209,340     173,733  
Income before income taxes and tax eq adj 45,880 37,662 40,078 44,850 43,338 83,542 88,852
Tax equivalent adjustment   3,735     3,655     3,699     3,629     3,411     7,390     7,069  
Income before income taxes 42,145 34,007 36,379 41,221 39,927 76,152 81,783
Income taxes   11,024     9,141     8,669     11,317     10,578     20,165     22,114  
Net income available to common shareholders $ 31,121   $ 24,866   $ 27,710   $ 29,904   $ 29,349   $ 55,987   $ 59,669  
 
Per common share data
Earnings per share - basic $ 0.46   $ 0.38   $ 0.43   $ 0.46   $ 0.45   $ 0.84   $ 0.92  
 
Earnings per share - diluted $ 0.46   $ 0.38   $ 0.43   $ 0.46   $ 0.45   $ 0.84   $ 0.92  
 
Dividends per share $ 0.23   $ 0.23   $ 0.23   $ 0.23   $ 0.23   $ 0.46   $ 0.46  
 
Weighted average common shares outstanding
Basic   67,162,530     65,983,204     64,785,457     64,778,329     64,771,530     66,576,125     64,534,284  
 
Diluted   67,344,117     66,149,656     65,007,281     64,992,614     64,938,697     66,748,713     64,698,200  
 
Period end common shares outstanding   67,163,195     67,151,087     64,820,414     64,779,937     64,775,694     67,163,195     64,775,694  
 
 

OTHER FINANCIAL DATA

Return on common equity 9.29 % 7.61 % 8.56 % 9.34 % 9.40 % 8.46 % 9.66 %
Return on average tangible common equity 14.09 % 10.82 % 11.51 % 12.61 % 12.74 % 12.43 % 13.07 %
Return on assets 1.06 % 0.93 % 1.12 % 1.21 % 1.20 % 1.00 % 1.23 %
Interest margin - Yield - FTE 4.28 % 4.26 % 4.23 % 4.39 % 4.52 % 4.27 % 4.56 %
Interest margin - Cost 0.26 % 0.28 % 0.30 % 0.33 % 0.37 % 0.27 % 0.39 %
Net interest margin - FTE 4.02 % 3.98 % 3.94 % 4.06 % 4.15 % 4.00 % 4.17 %
Efficiency ratio (1) 70.44 % 67.84 % 67.80 % 62.39 % 66.26 % 69.19 % 64.99 %
Full-time equivalent employees 3,119 3,164 2,666 2,632 2,598
 
 

COMMON STOCK PERFORMANCE

Market value-Close $ 24.58 $ 25.01 $ 22.46 $ 24.34 $ 24.48
Common book value $ 19.76 $ 20.15 $ 19.86 $ 19.73 $ 19.43
Tangible common book value $ 13.57 $ 13.96 $ 15.10 $ 14.95 $ 14.64
 
 
(1) - Excludes nonrecurring income and expense items such as securities gains or losses, bargain purchase gains and non-routine acquisition related transaction expenses.
 

See Notes to Consolidated Financials.

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2013
($ in thousands)
(unaudited)
             
Quarter Ended

NONPERFORMING ASSETS (1)

  6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012  
Nonaccrual loans
Alabama $ 73 $ - $ - $ - $ -
Florida 15,916 14,046 19,314 21,456 22,260
Mississippi (2) 41,761 46,697 38,960 32,041 47,322
Tennessee (3) 4,482 4,877 8,401 7,388 11,171
Texas   12,086     17,702     15,688     19,773     18,927  
Total nonaccrual loans 74,318 83,322 82,363 80,658 99,680
Other real estate
Alabama 27,245 28,870 - - -
Florida 35,025 30,662 18,569 22,340 23,324
Mississippi (2) 26,843 26,457 27,771 27,113 19,511
Tennessee (3) 15,811 18,339 17,589 18,545 18,850
Texas   12,788     14,078     14,260     14,477     11,988  
Total other real estate   117,712     118,406     78,189     82,475     73,673  
Total nonperforming assets $ 192,030   $ 201,728   $ 160,552   $ 163,133   $ 173,353  
 

LOANS PAST DUE OVER 90 DAYS (4)

LHFI $ 4,194   $ 2,772   $ 6,378   $ 5,699   $ 1,843  
 
LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase) $ 14,003   $ 4,469   $ 43,073   $ 39,492   $ 35,270  
 
 
Quarter Ended Six Months Ended

ALLOWANCE FOR LOAN LOSSES (4)

  6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012     6/30/2013     6/30/2012  
Beginning Balance $ 76,900 $ 78,738 $ 83,526 $ 84,809 $ 90,879 $ 78,738 $ 89,518
Provision for loan losses (4,846 ) (2,968 ) (535 ) 3,358 650 (7,814 ) 3,943
Charge-offs (3,031 ) (3,325 ) (8,829 ) (7,907 ) (9,264 ) (6,356 ) (14,640 )
Recoveries   3,802     4,455     4,576     3,266     2,544     8,257     5,988  
Net recoveries (charge-offs)   771     1,130     (4,253 )   (4,641 )   (6,720 )   1,901     (8,652 )
Ending Balance $ 72,825   $ 76,900   $ 78,738   $ 83,526   $ 84,809   $ 72,825   $ 84,809  
 

PROVISION FOR LOAN LOSSES (4)

Alabama $ 232 $ 676 $ - $ - $ - $ 908 $ -
Florida (3,425 ) (3,675 ) (706 ) 7 (770 ) (7,100 ) (31 )
Mississippi (2) (520 ) (1,920 ) 2,031 466 1,141 (2,440 ) 5,293
Tennessee (3) (335 ) (378 ) (1,037 ) 687 839 (713 ) 810
Texas   (798 )   2,329     (823 )   2,198     (560 )   1,531     (2,129 )
Total provision for loan losses $ (4,846 ) $ (2,968 ) $ (535 ) $ 3,358   $ 650   $ (7,814 ) $ 3,943  
 

NET CHARGE-OFFS (4)

Alabama $ 67 $ 11 $ - $ - $ - $ 78 $ -
Florida (1,426 ) (849 ) (237 ) (488 ) 4,491 (2,275 ) 5,986
Mississippi (2) 291 (290 ) 874 4,726 1,751 1 2,002
Tennessee (3) 103 249 (43 ) 438 536 352 759
Texas   194     (251 )   3,659     (35 )   (58 )   (57 )   (95 )
Total net (recoveries) charge-offs $ (771 ) $ (1,130 ) $ 4,253   $ 4,641   $ 6,720   $ (1,901 ) $ 8,652  
 

CREDIT QUALITY RATIOS (1)

Net charge offs/average loans -0.05 % -0.08 % 0.29 % 0.31 % 0.46 % -0.07 % 0.29 %
Provision for loan losses/average loans -0.34 % -0.21 % -0.04 % 0.23 % 0.04 % -0.27 % 0.13 %
Nonperforming loans/total loans (incl LHFS) 1.29 % 1.45 % 1.41 % 1.38 % 1.68 %
Nonperforming assets/total loans (incl LHFS) 3.32 % 3.51 % 2.74 % 2.79 % 2.92 %
Nonperforming assets/total loans (incl LHFS) +ORE 3.26 % 3.44 % 2.71 % 2.75 % 2.88 %
ALL/total loans (excl LHFS) 1.31 % 1.39 % 1.41 % 1.51 % 1.50 %
ALL-commercial/total commercial loans 1.48 % 1.56 % 1.59 % 1.79 % 1.81 %
ALL-consumer/total consumer and home mortgage loans 0.84 % 0.94 % 0.97 % 0.84 % 0.81 %
ALL/nonperforming loans 97.99 % 92.29 % 95.60 % 103.56 % 85.08 %

ALL/nonperforming loans - (excl impaired loans)

158.75 % 145.83 % 174.46 % 174.09 % 186.45 %
 

CAPITAL RATIOS

Common equity/total assets 11.18 % 11.42 % 13.10 % 12.95 % 12.72 %
Tangible common equity/tangible assets 7.96 % 8.20 % 10.28 % 10.13 % 9.90 %
Tangible common equity/risk-weighted assets 11.57 % 11.92 % 14.56 % 14.49 % 14.30 %
Tier 1 leverage ratio 8.71 % 9.83 % 10.97 % 10.83 % 10.63 %
Tier 1 common risk-based capital ratio 11.79 % 11.79 % 14.63 % 14.50 % 14.36 %
Tier 1 risk-based capital ratio 12.55 % 12.97 % 15.53 % 15.40 % 15.26 %
Total risk-based capital ratio 13.89 % 14.42 % 17.22 % 17.25 % 17.12 %
 
 
(1) - Excludes Acquired Loans and Covered Other Real Estate
(2) - Mississippi includes Central and Southern Mississippi Regions
(3) - Tennessee includes Memphis, Tennessee and Northern Mississippi Regions
(4) - Excludes Acquired Loans
 

See Notes to Consolidated Financials.

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2013

($ in thousands)

(unaudited)

Note 1 – Business Combinations

Oxford, Mississippi Branches

On March 29, 2013, Trustmark National Bank (TNB), a subsidiary of Trustmark Corporation (Trustmark), announced the signing of a definitive Branch Purchase and Assumption Agreement (the Agreement) pursuant to which TNB will acquire the two branches of SOUTHBank, F.S.B. (SOUTHBank), serving the Oxford, Mississippi market. The Agreement contemplates the assumption of selected deposit accounts of approximately $11.7 million as well as the purchase of the physical branch offices. The proposed transaction, which is subject to customary closing conditions, is expected to be completed as of the close of business on July 26, 2013. The proposed transaction is not material to Trustmark’s consolidated financial statements and is not considered a business combination in accordance with FASB ASC Topic 805, “Business Combinations.”

BancTrust Financial Group, Inc.

On February 15, 2013, Trustmark completed its merger with BancTrust Financial Group, Inc. (BancTrust), a 26-year-old bank holding company headquartered in Mobile, Alabama. In accordance with the terms of the definitive agreement, the holders of BancTrust common stock received 0.125 of a share of Trustmark common stock for each share of BancTrust common stock in a tax-free exchange. Trustmark issued approximately 2.24 million shares of its common stock for all issued and outstanding shares of BancTrust common stock. The total value of the 2.24 million shares of Trustmark common stock issued to the BancTrust shareholders on the acquisition date was approximately $53.5 million, based on a closing stock price of $23.83 per share of Trustmark common stock on February 15, 2013. At closing, Trustmark repurchased the $50.0 million of BancTrust preferred stock and associated warrant issued to the U.S. Department of Treasury under the Capital Purchase Program for approximately $52.6 million.

The acquisition of BancTrust is consistent with Trustmark’s strategic plan to selectively expand the Trustmark franchise. The acquisition of BancTrust provided Trustmark entry into more than 15 markets in Alabama and enhanced the Trustmark franchise in the Florida Panhandle.

This acquisition was accounted for under the acquisition method in accordance with FASB ASC Topic 805. Accordingly, the assets and liabilities, both tangible and intangible, are recorded at their estimated fair values as of the acquisition date. The fair values of assets acquired and liabilities assumed are subject to adjustment if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability during the measurement period, which is not to exceed one year from the acquisition date of February 15, 2013.

During the second quarter of 2013, Trustmark recorded an additional $1.9 million in goodwill based on changes to the estimated fair value of certain acquired loans and other real estate. These measurement period adjustments have been presented on a retrospective basis, consistent with applicable accounting guidance. The estimated fair values were considered preliminary as of June 30, 2013 and are subject to refinement as additional information relative to the closing date fair values becomes available through the measurement period. The statement of assets purchased and liabilities assumed in the BancTrust acquisition is presented below at their adjusted estimated fair values as of the acquisition date of February 15, 2013 ($ in thousands):

  Cash and due from banks     $ 141,616
Securities 528,016
Loans held for sale 1,050
Acquired noncovered loans 950,487
Premises and equipment, net 55,579
Identifiable intangible assets 33,498
Other real estate 40,103
Other assets   99,580
Total Assets   1,849,929
 
Liabilities:
Deposits 1,740,254
Other borrowings 64,051
Other liabilities   16,761
Total Liabilities   1,821,066
 
Net identified assets acquired at fair value 28,863
Goodwill   77,211
Net assets acquired at fair value $ 106,074

The excess of the consideration paid over the estimated fair value of the net assets acquired was $77.2 million, which was recorded as goodwill under FASB ASC Topic 805. The identifiable intangible assets acquired represent the core deposit intangible at fair value at the acquisition date. The core deposit intangible is being amortized on an accelerated basis over the estimated useful life, currently expected to be approximately 10 years.

Loans acquired from BancTrust were evaluated under a fair value process involving various degrees of deterioration in credit quality since origination, and also for those loans for which it was probable at acquisition that Trustmark would not be able to collect all contractually required payments. These loans, with the exception of revolving credit agreements and leases, are referred to as acquired impaired loans and are accounted for in accordance with FASB ASC Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.”

Note 1 – Business Combinations (continued)

The operations of BancTrust are included in Trustmark’s operating results from February 15, 2013, and added revenue of $19.9 million and net income available to common shareholders of $6.1 million for the second quarter of 2013. Included in BancTrust’s net income available to common shareholders for the second quarter of 2013 are recoveries on pay-offs of acquired loans of $2.0 million (after tax).

Included in Trustmark’s noninterest expense during the first quarter of 2013 are non-routine BancTrust transaction expenses totaling approximately $9.4 million (change in control and severance expense of $1.4 million included in salaries and benefits; professional fees, contract termination and other expenses of $7.9 million included in other expense).

Bay Bank & Trust Company

On March 16, 2012, Trustmark completed its merger with Bay Bank & Trust Co. (Bay Bank), a 76-year old financial institution headquartered in Panama City, Florida. Trustmark acquired all outstanding common stock of Bay Bank for approximately $22 million in cash and stock, comprised of $10 million in cash and the issuance of approximately 510 thousand shares of Trustmark common stock valued at $12 million. This acquisition was accounted for under the acquisition method in accordance with FASB ASC Topic 805. Accordingly, the assets and liabilities, both tangible and intangible, are recorded at their estimated fair values as of the acquisition date. The purchase price allocation was deemed preliminary as of March 31, 2012 and was finalized in the second quarter of 2012.

The statement of assets purchased and liabilities assumed in the Bay Bank acquisition is presented below at their estimated fair values as of the acquisition date of March 16, 2012 ($ in thousands):

  Assets    
Cash and due from banks $ 88,154
Securities available for sale 26,369
Acquired noncovered loans 97,914
Premises and equipment, net 9,466
Identifiable intangible assets 7,017
Other real estate 2,569
Other assets   3,471
Total Assets   234,960
 
Liabilities
Deposits 208,796
Other liabilities   526
Total Liabilities   209,322
 
Net assets acquired at fair value 25,638
Consideration paid to Bay Bank   22,003
 
Bargain purchase gain 3,635
Income taxes   -
Bargain purchase gain, net of taxes $ 3,635

The bargain purchase gain represents the excess of the net of the estimated fair value of the assets acquired and liabilities assumed over the consideration paid to Bay Bank. Initially, Trustmark recognized a bargain purchase gain of $2.8 million during the first quarter of 2012 and subsequently increased the bargain purchase gain by $881 thousand during the second quarter of 2012 as the fair values associated with the Bay Bank acquisition were finalized. The gain of $3.6 million recognized by Trustmark is considered a gain from a bargain purchase under FASB ASC Topic 805 and is included in other noninterest income. Included in noninterest expense during the first quarter of 2012 are non-routine Bay Bank transaction expenses totaling approximately $2.6 million (change in control and severance expense of $672 thousand included in salaries and benefits; contract termination and other expenses of $1.9 million included in other expense).

Loans acquired from Bay Bank were evaluated under a fair value process involving various degrees of deterioration in credit quality since origination, and also for those loans for which it was probable at acquisition that Trustmark would not be able to collect all contractually required payments. These loans, with the exception of revolving credit agreements, are referred to as acquired impaired loans and are accounted for in accordance with FASB ASC Topic 310-30.

Note 2 - Securities Available for Sale and Held to Maturity

The following table is a summary of the estimated fair value of securities available for sale and the amortized cost of securities held to maturity ($ in thousands):

    6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012

SECURITIES AVAILABLE FOR SALE

U.S. Treasury securities $ 505 $ 506 $ - $ - $ -
U.S. Government agency obligations
Issued by U.S. Government agencies 139,066 141,226 10 18 22
Issued by U.S. Government sponsored agencies 133,791 186,293 105,735 60,671 72,923
Obligations of states and political subdivisions 212,204 218,467 215,761 215,900 213,826
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA 46,330 51,138 19,902 21,352 22,367
Issued by FNMA and FHLMC 227,927 241,365 208,564 237,886 264,018
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 2,156,320 2,090,516 1,466,366 1,565,290 1,570,226
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 361,575 377,070 399,780 381,207 354,453
Asset-backed securities 233,965 239,502 241,627 242,122 91,293
Corporate debt securities   -   -   -   -   3,679
Total securities available for sale $ 3,511,683 $ 3,546,083 $ 2,657,745 $ 2,724,446 $ 2,592,807
 

SECURITIES HELD TO MATURITY

Obligations of states and political subdivisions $ 30,295 $ 33,071 $ 36,206 $ 37,669 $ 38,351
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA 2,547 2,932 3,245 3,435 3,745
Issued by FNMA and FHLMC 567 569 572 580 583
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA - - - 1,624 3,000
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA   36,929   37,094   2,165   2,176   2,188
Total securities held to maturity $ 70,338 $ 73,666 $ 42,188 $ 45,484 $ 47,867

Management continues to focus on asset quality as one of the strategic goals of the securities portfolio, which is evidenced by the investment of approximately 92% of the portfolio in GSE-backed obligations and other Aaa rated securities as determined by Moody’s. None of the securities owned by Trustmark are collateralized by assets which are considered sub-prime. Furthermore, outside of membership in the Federal Home Loan Bank of Dallas, Federal Home Loan Bank of Atlanta and Federal Reserve Bank, Trustmark does not hold any equity investment in any GSE.

Note 3 – Loan Composition

LHFI BY TYPE (excluding acquired loans)

    6/30/2013       3/31/2013       12/31/2012       9/30/2012       6/30/2012  
Loans secured by real estate:
Construction, land development and other land loans $ 519,263 $ 485,419 $ 468,975 $ 460,599 $ 464,349
Secured by 1-4 family residential properties (1) 1,414,871 1,430,293 1,497,480 1,511,514 1,621,865
Secured by nonfarm, nonresidential properties 1,406,930 1,385,669 1,410,264 1,397,536 1,392,293
Other real estate secured 192,568 174,680 189,949 184,804 192,376
Commercial and industrial loans 1,169,327 1,206,851 1,169,513 1,163,681 1,142,282
Consumer loans 160,318 160,253 171,660 181,896 196,718
Other loans   714,105     688,623     684,913     627,933     640,665  
LHFI 5,577,382 5,531,788 5,592,754 5,527,963 5,650,548
Allowance for loan losses   (72,825 )   (76,900 )   (78,738 )   (83,526 )   (84,809 )
Net LHFI $ 5,504,557   $ 5,454,888   $ 5,514,016   $ 5,444,437   $ 5,565,739  
 

(1) Previously reported 3/31/2013 balance was increased by $57.4 million due to the misclassification of the proceeds received from the GNMA delinquent loan sale, which should have decreased Other Assets.

 

ACQUIRED NONCOVERED LOANS BY TYPE

    6/30/2013       3/31/2013       12/31/2012       9/30/2012       6/30/2012  
Loans secured by real estate:
Construction, land development and other land loans $ 132,116 $ 138,442 $ 10,056 $ 11,504 $ 13,154
Secured by 1-4 family residential properties 184,928 209,658 19,404 18,032 18,954
Secured by nonfarm, nonresidential properties 318,603 339,953 45,649 47,114 53,272
Other real estate secured 34,869 32,208 669 378 512
Commercial and industrial loans 206,338 235,286 3,035 3,371 4,822
Consumer loans 27,420 32,694 2,610 2,575 3,153
Other loans   18,179     14,886     100     136     146  
Noncovered loans 922,453 1,003,127 81,523 83,110 94,013
Allowance for loan losses   (112 )   (1,961 )   (1,885 )   (817 )   (62 )
Net noncovered loans $ 922,341   $ 1,001,166   $ 79,638   $ 82,293   $ 93,951  

ACQUIRED COVERED LOANS BY TYPE

    6/30/2013       3/31/2013       12/31/2012       9/30/2012       6/30/2012  
Loans secured by real estate:
Construction, land development and other land loans $ 3,662 $ 3,875 $ 3,924 $ 3,714 $ 3,683
Secured by 1-4 family residential properties 18,899 20,980 23,990 24,949 27,218
Secured by nonfarm, nonresidential properties 13,341 17,355 18,407 28,291 27,464
Other real estate secured 2,929 3,365 3,567 4,198 4,580
Commercial and industrial loans 543 648 747 1,803 1,382
Consumer loans 173 179 177 172 205
Other loans   1,273     1,187     1,229     1,376     1,483  
Covered loans 40,820 47,589 52,041 64,503 66,015
Allowance for loan losses   (2,578 )   (4,497 )   (4,190 )   (3,526 )   (1,464 )
Net covered loans $ 38,242   $ 43,092   $ 47,851   $ 60,977   $ 64,551  
Note 3 – Loan Composition (continued)
  June 30, 2013

LHFI - COMPOSITION BY REGION (1)

Total   Alabama   Florida  

Mississippi
(Central and
Southern
Regions)

 

Tennessee
(Memphis, TN
and Northern
MS Regions)

  Texas
Loans secured by real estate:
Construction, land development and other land loans $ 519,263 $ 6,976 $ 81,982 $ 260,588 $ 46,453 $ 123,264
Secured by 1-4 family residential properties 1,414,871 1,876 48,361 1,205,131 137,289 22,214
Secured by nonfarm, nonresidential properties 1,406,930 7,456 151,360 747,660 155,089 345,365
Other real estate secured 192,568 3,885 5,508 145,885 9,888 27,402
Commercial and industrial loans 1,169,327 9,207 11,730 776,215 96,661 275,514
Consumer loans 160,318 5,766 2,460 131,823 17,579 2,690
Other loans   714,105   9,023   24,968   579,980   31,496   68,638
Loans $ 5,577,382 $ 44,189 $ 326,369 $ 3,847,282 $ 494,455 $ 865,087
 
 
 

CONSTRUCTION, LAND DEVELOPMENT AND OTHER LAND LOANS BY REGION (1)

Lots $ 48,459 $ 252 $ 31,247 $ 13,055 $ 888 $ 3,017
Development 72,660 - 9,148 42,729 4,216 16,567
Unimproved land 142,970 1,985 39,055 62,371 15,419 24,140
1-4 family construction 81,058 3,337 2,532 56,507 1,520 17,162
Other construction   174,116   1,402   -   85,926   24,410   62,378
Construction, land development and other land loans $ 519,263 $ 6,976 $ 81,982 $ 260,588 $ 46,453 $ 123,264
 
 
 
 

LOANS SECURED BY NONFARM, NONRESIDENTIAL PROPERTIES BY REGION (1)

Income producing:
Retail $ 147,926 $ 575 $ 40,289 $ 56,413 $ 18,806 $ 31,843
Office 178,142 2,205 35,442 88,632 6,987 44,876
Nursing homes/assisted living 100,307 - - 91,651 4,527 4,129
Hotel/motel 64,430 - 853 29,094 25,208 9,275
Industrial 54,172 703 8,823 12,785 144 31,717
Health care 20,154 213 - 10,827 113 9,001
Convenience stores 9,169 - - 5,988 744 2,437
Other   153,903   2,667   20,854   72,510   4,802   53,070
Total income producing loans 728,203 6,363 106,261 367,900 61,331 186,348
 
Owner-occupied:
Office 105,474 396 14,594 63,427 3,742 23,315
Churches 80,270 - 3,143 43,397 26,206 7,524
Industrial warehouses 95,028 213 3,224 44,435 3,312 43,844
Health care 105,630 - 14,058 60,635 15,491 15,446
Convenience stores 59,769 - 1,698 35,335 3,764 18,972
Retail 36,763 - 3,737 24,859 3,076 5,091
Restaurants 30,817 - 889 23,572 4,606 1,750
Auto dealerships 13,876 - 333 11,721 1,772 50
Other   151,100   484   3,423   72,379   31,789   43,025
Total owner-occupied loans 678,727 1,093 45,099 379,760 93,758 159,017
           
Loans secured by nonfarm, nonresidential properties $ 1,406,930 $ 7,456 $ 151,360 $ 747,660 $ 155,089 $ 345,365
 
(1) Excludes acquired loans.

Note 4 – Yields on Earning Assets and Interest-Bearing Liabilities

The following table illustrates the yields on earning assets by category as well as the rates paid on interest-bearing liabilities on a tax equivalent basis:

  Quarter Ended   Six Months Ended
6/30/2013   3/31/2013   12/31/2012   9/30/2012   6/30/2012 6/30/2013   6/30/2012
Securities – taxable 2.24% 2.33% 2.44% 2.60% 2.94% 2.28% 3.04%
Securities – nontaxable 4.31% 4.44% 4.39% 4.43% 4.49% 4.38% 4.56%
Securities – total 2.35% 2.45% 2.58% 2.73% 3.06% 2.40% 3.15%
Loans - LHFI & LHFS 4.74% 4.76% 4.77% 4.90% 4.94% 4.75% 5.00%
Acquired loans 8.48% 8.93% 13.75% 13.52% 12.23% 8.64% 12.28%
Loans - total 5.29% 5.14% 4.98% 5.12% 5.14% 5.22% 5.16%
FF sold & rev repo 0.29% 0.25% 0.41% 0.36% 0.38% 0.27% 0.30%
Other earning assets 4.29% 4.15% 4.30% 4.25% 4.56% 4.22% 4.20%
Total earning assets 4.28% 4.26% 4.23% 4.39% 4.52% 4.27% 4.56%
 
Interest-bearing deposits 0.28% 0.30% 0.35% 0.39% 0.43% 0.29% 0.47%
FF pch & repo 0.11% 0.12% 0.14% 0.14% 0.20% 0.12% 0.18%
Other borrowings 3.13% 3.03% 2.72% 2.79% 2.85% 3.08% 2.87%
Total interest-bearing liabilities 0.34% 0.37% 0.41% 0.45% 0.50% 0.36% 0.52%
 
Net interest margin 4.02% 3.98% 3.94% 4.06% 4.15% 4.00% 4.17%
Net interest margin excluding acquired loans 3.55% 3.66% 3.77% 3.89% 4.00% 3.60% 4.05%

Reflected in the table above are yields on earning assets and liabilities, along with the net interest margin which equals reported net interest income-FTE, annualized, as a percent of average earning assets. In addition, the table includes net interest margin excluding acquired loans, which equals reported net interest income-FTE excluding interest income on acquired loans, annualized, as a percent of average earning assets excluding average acquired loans.

The net interest margin expanded 4 basis points during the second quarter of 2013 primarily due to the significant increase in average acquired loans as well as a favorable decline in the cost of interest-bearing liabilities. The net interest margin excluding acquired loans compressed 11 basis points as earning assets continued to reprice at lower rates, which was partially offset by lower deposit costs.

During the second quarter of 2013, the yield on average acquired loans includes approximately $6.5 million in recoveries, or an annualized 2.66% of the average acquired loan balance. Approximately $3.0 million of the recoveries occurred from pay-offs of acquired covered loans, which contributed to the write-down of the indemnification asset as provided in Note 6 – Other Noninterest Income and Expense.

Note 5 – Mortgage Banking

Trustmark utilizes a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and option contracts, to achieve a fair value return that offsets the changes in fair value of mortgage servicing rights (MSR) attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting under generally accepted accounting principles (GAAP). Changes in the fair value of these exchange-traded derivative instruments, including administrative costs, are recorded in noninterest income in mortgage banking, net and are offset by the changes in the fair value of the MSR. The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the change in value of hedge instruments to the change in the fair value of the MSR asset attributable to changes in interest rates and other market driven changes in valuation inputs and assumptions. The impact of this strategy resulted in a net positive ineffectiveness of $121 thousand and $172 thousand for the quarters ended June 30, 2013 and 2012, respectively.

The following table illustrates the components of mortgage banking revenues included in noninterest income in the accompanying income statements:

  Quarter Ended   Six Months Ended
  6/30/2013       3/31/2013       12/31/2012       9/30/2012       6/30/2012     6/30/2013       6/30/2012  
Mortgage servicing income, net $ 4,385 $ 4,267 $ 4,441 $ 3,984 $ 3,891 $ 8,652 $ 7,777
Change in fair value-MSR from runoff (2,756 ) (2,460 ) (2,631 ) (2,751 ) (2,320 ) (5,216 ) (4,426 )
Gain on sales of loans, net 7,597 10,165 12,034 9,114 6,302 17,762 12,771
Other, net   (1,052 )   (1,649 )   (1,789 )   2,608     3,139     (2,701 )   3,203  
Mortgage banking income before hedge ineffectiveness   8,174     10,323     12,055     12,955     11,012     18,497     19,325  
Change in fair value-MSR from market changes 6,467 1,127 (418 ) (3,282 ) (5,926 ) 7,594 (5,678 )
Change in fair value of derivatives   (6,346 )   133     (306 )   1,477     6,098     (6,213 )   4,832  
Net positive (negative) hedge ineffectiveness   121     1,260     (724 )   (1,805 )   172     1,381     (846 )
Mortgage banking, net $ 8,295   $ 11,583   $ 11,331   $ 11,150   $ 11,184   $ 19,878   $ 18,479  

During the first quarter of 2013, Trustmark exercised its option to repurchase delinquent loans serviced for GNMA. These loans were subsequently sold to a third party under different repurchase provisions. Trustmark retained the servicing for these loans, which are fully guaranteed by FHA/VA. As a result of this repurchase and sale, the loans are no longer carried as "LHFS-Guaranteed GNMA serviced loans" (see pages 3 and 6). The transaction resulted in a gain of $534 thousand, which was recorded during the first quarter of 2013 and is included in the table above as "Gain on sales of loans, net.”

Note 6 – Other Noninterest Income and Expense

Other noninterest income consisted of the following for the periods presented ($ in thousands):

  Quarter Ended   Six Months Ended
  6/30/2013       3/31/2013       12/31/2012       9/30/2012       6/30/2012     6/30/2013       6/30/2012  
Partnership amortization for tax credit purposes $ (2,221 ) $ (2,117 ) $ (3,202 ) $ (2,302 ) $ (1,491 ) $ (4,338 ) $ (2,913 )
Bargain purchase gain on acquisition - - - - 881 - 3,635
Decrease in FDIC indemnification asset (2,317 ) (1,365 ) (743 ) (609 ) (2,289 ) (3,682 ) (2,370 )
Other miscellaneous income   2,393     2,291     1,938     3,423     1,749     4,684     4,256  
Total other, net $ (2,145 ) $ (1,191 ) $ (2,007 ) $ 512   $ (1,150 ) $ (3,336 ) $ 2,608  

Trustmark invests in partnerships that provide income tax credits on a Federal and/or State basis (i.e., new market tax credits, low income housing tax credits or historical tax credits). These investments are recorded based on the equity method of accounting, which requires the equity in partnership losses to be recognized when incurred and are recorded as a reduction in other income. The income tax credits related to these partnerships are utilized as specifically allowed by income tax law and are recorded as a reduction in income tax expense.

As previously mentioned in Note 1 – Business Combinations, during the second quarter of 2012, the bargain purchase gain for Bay Bank was increased $881 thousand from $2.8 million that was recorded during the first quarter of 2012, as the fair values associated with the Bay Bank acquisition were finalized. In addition, during the second quarter of 2013, other noninterest income included a write-down of the FDIC indemnification asset of $2.3 million on acquired covered loans obtained from Heritage as a result of loan payoffs and improved cash flow projections and lower loss expectations for loan pools.

During the third quarter of 2012, Trustmark completed the sale of the Performance Funds by Trustmark Investment Advisors, Inc. (TIA) to Federated Investors, Inc. (Federated) and certain of Federated’s subsidiaries, pursuant to the terms of the previously announced definitive agreement between Federated, TIA, and TNB. The sale resulted in a gain of $1.2 million for Trustmark, which was recorded as other miscellaneous income.

Other noninterest expense consisted of the following for the periods presented ($ in thousands):

  Quarter Ended   Six Months Ended
  6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012   6/30/2013     6/30/2012
Loan expense $ 4,267 $ 2,995 $ 3,274 $ 3,150 $ 8,299 $ 7,262 $ 13,824
Non-routine transaction expenses on acquisition - 7,920 - - - 7,920 1,917
Amortization of intangibles 2,472 1,442 1,022 1,028 1,028 3,914 1,738
Other miscellaneous expense   11,832   5,694   6,158   6,221   5,572   17,526   10,488
Total other expense $ 18,571 $ 18,051 $ 10,454 $ 10,399 $ 14,899 $ 36,622 $ 27,967

Other miscellaneous expense increased during the second quarter of 2013 due to a non-routine litigation expense of $4.0 million related to a proposed settlement on Trustmark’s overdraft fees for insufficient funds on debit card purchases and ATM withdrawals as previously disclosed in the Form 8-K filed on June 26, 2013.

As previously mentioned in Note 1 – Business Combinations, during the first quarter of 2013, Trustmark incurred $7.9 million of non-routine BancTrust transaction expenses in other noninterest expense. These non-routine transaction expenses include $2.2 million of professional fees and $5.7 million of contract termination and other expenses.

During the second quarter of 2012, Trustmark updated its quarterly analysis of mortgage loan putback exposure. This analysis, along with recent trends of increased mortgage loan putback activity in the mortgage industry, resulted in Trustmark providing an additional reserve of approximately $4.0 million in loan expense in the second quarter of 2012. At June 30, 2013, the reserve for mortgage loan servicing putback expenses totaled $5.9 million. Notwithstanding significant changes in future behaviors and the demand patterns of investors, Trustmark believes that it is appropriately reserved for potential mortgage loan putback requests.

Note 7 – Non-GAAP Financial Measures

In addition to capital ratios defined by GAAP and banking regulators, Trustmark utilizes various tangible common equity measures when evaluating capital utilization and adequacy. Tangible common equity, as defined by Trustmark, represents common equity less goodwill and identifiable intangible assets.

Trustmark believes these measures are important because they reflect the level of capital available to withstand unexpected market conditions. Additionally, presentation of these measures allows readers to compare certain aspects of Trustmark’s capitalization to other organizations. These ratios differ from capital measures defined by banking regulators principally in that the numerator excludes shareholders’ equity associated with preferred securities, the nature and extent of which varies across organizations.

These calculations are intended to complement the capital ratios defined by GAAP and banking regulators. Because GAAP does not include these capital ratio measures, Trustmark believes there are no comparable GAAP financial measures to these tangible common equity ratios. Despite the importance of these measures to Trustmark, there are no standardized definitions for them and, as a result, Trustmark’s calculations may not be comparable with other organizations. Also there may be limits in the usefulness of these measures to investors. As a result, Trustmark encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure. The following table reconciles Trustmark’s calculation of these measures to amounts reported under GAAP.

Note 7 - Non-GAAP Financial Measures (continued)
      Quarter Ended   Six Months Ended
  6/30/2013       3/31/2013       12/31/2012       9/30/2012       6/30/2012     6/30/2013       6/30/2012  

TANGIBLE COMMON EQUITY

AVERAGE BALANCES
Total shareholders' common equity $ 1,344,360 $ 1,325,508 $ 1,288,222 $ 1,273,605 $ 1,255,716 $ 1,334,986 $ 1,242,109
Less:Goodwill (366,592 ) (324,902 ) (291,104 ) (291,104 ) (291,104 ) (345,862 ) (291,104 )
Identifiable intangible assets   (48,402 )   (35,187 )   (17,933 )   (18,971 )   (17,762 )   (41,831 )   (16,233 )
Total average tangible common equity $ 929,366   $ 965,419   $ 979,185   $ 963,530   $ 946,850   $ 947,293   $ 934,772  
 
PERIOD END BALANCES
Total shareholders' common equity $ 1,326,819 $ 1,352,946 $ 1,287,369 $ 1,278,015 $ 1,258,495
Less:Goodwill (368,315 ) (366,366 ) (291,104 ) (291,104 ) (291,104 )
Identifiable intangible assets   (46,889 )   (49,361 )   (17,306 )   (18,327 )   (19,356 )

Total tangible common equity 

(a)

$ 911,615   $ 937,219   $ 978,959   $ 968,584   $ 948,035  
 

TANGIBLE ASSETS

Total assets $ 11,863,312 $ 11,850,515 $ 9,828,667 $ 9,872,159 $ 9,890,846
Less:Goodwill (368,315 ) (366,366 ) (291,104 ) (291,104 ) (291,104 )
Identifiable intangible assets   (46,889 )   (49,361 )   (17,306 )   (18,327 )   (19,356 )

Total tangible assets 

(b)

$ 11,448,108   $ 11,434,788   $ 9,520,257   $ 9,562,728   $ 9,580,386  
 

Risk-weighted assets

(c)

$ 7,878,281   $ 7,862,884   $ 6,723,259   $ 6,684,820   $ 6,631,887  
 

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION

Net income available to common shareholders $ 31,121 $ 24,866 $ 27,710 $ 29,904 $ 29,349 $ 55,987 $ 59,669
Plus:Intangible amortization net of tax   1,526     890     631     635     635     2,416     1,073  
Net income adjusted for intangible amortization $ 32,647   $ 25,756   $ 28,341   $ 30,539   $ 29,984   $ 58,403   $ 60,742  
 

Period end common shares outstanding 

(d)

  67,163,195     67,151,087     64,820,414     64,779,937     64,775,694  
 

TANGIBLE COMMON EQUITY MEASUREMENTS

Return on average tangible common equity 1 14.09 % 10.82 % 11.51 % 12.61 % 12.74 % 12.43 % 13.07 %

Tangible common equity/tangible assets 

(a)/(b)

7.96 % 8.20 % 10.28 % 10.13 % 9.90 %

Tangible common equity/risk-weighted assets 

(a)/(c)

11.57 % 11.92 % 14.56 % 14.49 % 14.30 %

Tangible common book value 

(a)/(d)*1,000

$ 13.57 $ 13.96 $ 15.10 $ 14.95 $ 14.64
 

TIER 1 COMMON RISK-BASED CAPITAL

Total shareholders' equity $ 1,326,819 $ 1,352,946 $ 1,287,369 $ 1,278,015 $ 1,258,495
Eliminate qualifying AOCI 36,088 (5,709 ) (3,395 ) (7,248 ) (3,654 )
Qualifying tier 1 capital 60,000 93,000 60,000 60,000 60,000
Disallowed goodwill (368,315 ) (366,366 ) (291,104 ) (291,104 ) (291,104 )
Adj to goodwill allowed for deferred taxes 13,740 13,388 13,035 12,683 12,330
Other disallowed intangibles (46,889 ) (49,361 ) (17,306 ) (18,327 ) (19,356 )
Disallowed servicing intangible (6,038 ) (5,153 ) (4,734 ) (4,421 ) (4,358 )
Disallowed deferred taxes   (26,411 )   (12,575 )   -     -     -  
Total tier 1 capital $ 988,994 $ 1,020,170 $ 1,043,865 $ 1,029,598 $ 1,012,353
Less:Qualifying tier 1 capital   (60,000 )   (93,000 )   (60,000 )   (60,000 )   (60,000 )

Total tier 1 common capital

(e)

$ 928,994   $ 927,170   $ 983,865   $ 969,598   $ 952,353  
 

Tier 1 common risk-based capital ratio 

(e)/(c)

11.79 % 11.79 % 14.63 % 14.50 % 14.36 %
 
1 Calculation = ((net income adjusted for intangible amortization/number of days in period)*number of days in year)/total average tangible common equity

Trustmark Investor Contacts:
Louis E. Greer, 601-208-2310
Treasurer and
Principal Financial Officer
or
F. Joseph Rein, Jr., 601-208-6898
Senior Vice President
or
Trustmark Media Contact:
Melanie A. Morgan, 601-208-2979
Senior Vice President

Source: Trustmark Corporation

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