Trustmark Corporation Announces Second Quarter 2012 Financial Results And Declares $0.23 Quarterly Cash Dividend

Trustmark Corporation (NASDAQ:TRMK) announced net income available to common shareholders of $29.3 million in the second quarter of 2012, which represented diluted earnings per common share of $0.45. Trustmark’s performance during the quarter produced a return on average tangible common equity of 12.74% and a return on average assets of 1.20%. During the first six months of 2012, Trustmark’s net income available to common shareholders totaled $59.7 million, which represented diluted earnings per common share of $0.92. Trustmark’s performance during the first half of 2012 resulted in a return on average tangible common equity of 13.07% and a return on average assets of 1.23%. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per common share payable September 15, 2012, to shareholders of record on September 1, 2012.

Printer friendly version of earnings release with consolidated financial statements and notes: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=50350804&lang=en

Gerard R. Host, President and CEO, stated, “Trustmark continued to achieve solid financial performance in the second quarter. Total revenue for the quarter exceeded $130 million due in part to solid performance in our banking, mortgage banking, wealth management and insurance businesses. Credit quality continued to improve as evidenced by significantly lower nonaccrual loans and provisioning levels. In May, we announced plans to acquire BancTrust Financial Group, a $2.0 billion financial institution based in Mobile, Alabama. This transaction, which is expected to close during the fourth quarter of 2012, is subject to approval by regulatory authorities and BancTrust’s shareholders. Thanks to our dedicated associates, solid profitability and strong capital base, Trustmark remains well-positioned to continue meeting the needs of our customers and creating value for our shareholders.”

Credit Quality
  • Classified and criticized loans declined $20.7 million and $35.2 million, respectively, relative to the prior quarter
  • Allowance for loan losses represented 186.5% of nonperforming loans, excluding impaired loans

Trustmark continued to experience significant improvements in credit quality. Nonperforming loans totaled $99.7 million at June 30, 2012, a decline of 5.8% from the prior quarter and 17.6% from the prior year. Foreclosed other real estate experienced similar improvement, declining 2.7% from the prior quarter and 18.1% from levels one year earlier to total $73.7 million. Collectively, nonperforming assets totaled $173.4 million at June 30, 2012, the lowest level since year end 2008. All of the above metrics exclude acquired loans and other real estate covered by FDIC loss-share agreements.

Net charge-offs during the second quarter of 2012 totaled $6.7 million. The second quarter provision for loan losses totaled $650 thousand for non-acquired loans as sufficient reserves were previously established for both impaired and other substandard credits, net loan risk rate upgrades and balance reductions on criticized credits. During the second quarter, Trustmark experienced a $20.7 million, or 6.7%, decline in classified loans and a $35.2 million, or 8.8%, decline in criticized loans relative to the prior quarter. Relative to figures one year earlier, classified loan balances decreased $68.0 million, or 19.0%, while criticized loan balances decreased $80.0 million, or 18.0%.

Allocation of Trustmark’s $84.8 million allowance for loan losses represented 1.81% of commercial loans and 0.81% of consumer and home mortgage loans, resulting in an allowance to total loans of 1.50% at June 30, 2012, which represents a level management considers to be commensurate with the inherent risk in the loan portfolio. The allowance for loan losses represented 186.5% of nonperforming loans, excluding impaired loans. All of the above metrics exclude acquired loans.

Capital Strength
  • Tangible common equity to tangible assets expanded to 9.90%
  • Total risk-based capital ratio increased to 17.12%

Trustmark’s solid capital position reflects the consistent profitability of its diversified financial services businesses as well as prudent balance sheet management. At June 30, 2012, tangible common equity totaled $948.0 million and represented 9.90% of tangible assets while the total risk-based capital ratio was 17.12%. Trustmark’s strong capital base provides the opportunity to support organic loan growth in an improving economy and enhance long-term shareholder value.

Balance Sheet Management
  • Average earning assets totaled $8.7 billion
  • Net interest income (FTE) totaled $89.9 million

Loans held for investment and acquired loans totaled $5.8 billion at June 30, 2012, a decrease of $139.3 million from the prior quarter due principally to a $105.0 million decline in single family mortgage loans. During the quarter, many customers took advantage of the opportunity to refinance existing mortgages at more attractive rates. In fact, Trustmark’s mortgage production totaled $465.1 million in the second quarter, an increase of 12.1% from the prior quarter and 84.9% from levels one year earlier. Trustmark elected to sell the vast majority of these lower rate, longer term home mortgages in the secondary market rather than replacing the runoff in its single family loan portfolio. Trustmark’s decision to discontinue indirect auto financing continued to be reflected in loan totals as this portfolio declined $16.2 million in the second quarter. In addition, current economic conditions continued to constrain the demand for credit as reflected by a $32.6 million decline in nonfarm, nonresidential loans.

During the second quarter of 2012, average earning assets remained stable at $8.7 billion while average deposits increased $223.8 million, or 2.9%, relative to the prior quarter to total $8.0 billion. Average noninterest-bearing deposits increased 6.9% to represent 25.0% of average deposits in the second quarter of 2012.

Prudent asset and liability management, including disciplined loan and deposit pricing, continued to produce solid net interest income and a strong net interest margin. Net interest income (FTE) totaled $89.9 million during the second quarter, resulting in a net interest margin of 4.15%, four basis points lower than the prior quarter. The decrease is due to the downward repricing of fixed rate loans and securities, partially offset by improvements in the accreted yield on acquired covered loans and modest declines in the cost of interest-bearing deposits.

Noninterest Income
  • Noninterest income totaled $43.8 million, representing 33.6% of total revenue
  • Mortgage, Insurance and Wealth Management income expand

Trustmark continued to achieve solid financial results from its diverse financial services businesses. Mortgage banking income during the second quarter totaled $11.2 million, an increase of $3.9 million from the prior quarter. Performance in mortgage banking continued to reflect stable mortgage servicing income, solid secondary marketing gains, and successful hedging programs. During the quarter, mortgage banking results included mark-to-market adjustments on mortgage loans held for sale of $3.1 million due largely to increased refinancing activity resulting from lower mortgage rates.

Insurance revenue during the second quarter totaled $7.2 million, an increase of 8.7% from the prior quarter due to increased commercial insurance business as well as a firming of insurance rates. Insurance revenue increased 4.6% from levels one year earlier. Wealth management income increased 4.7% relative to the prior quarter to total $5.8 million due to growth in trust fees and brokerage service revenues. During the second quarter, Trustmark announced the pending sale of its proprietary mutual fund business. While not a material transaction financially, this transaction will allow Trustmark to fully embrace open architecture in its wealth management business and focus additional resources on managing client relationships.

Service charges on deposit accounts totaled $12.6 million in the second quarter, reflecting a 3.3% seasonal increase from the prior quarter and a 1.8% decrease from levels one year earlier. Bank card and other fee income increased 11.1% from the prior quarter and 19.3% from the prior year to $8.2 million due in part to increased debit card usage and other banking fees.

Other noninterest income declined $4.9 million relative to the prior quarter, principally due to acquisition related activities. During the second quarter, the fair values associated with the Bay Bank acquisition were finalized and resulted in a bargain purchase gain of $881 thousand in addition to the $2.8 million recorded in the first quarter of 2012. In addition, the FDIC indemnification asset on acquired covered loans from the Heritage transaction was reduced by $2.3 million during the second quarter as a result of the re-estimation of cash flows and loan payoffs.

Noninterest Expense
  • ORE/Foreclosure expense declined to lowest level in 12 quarters
  • Noninterest expense remained well-controlled

Noninterest expense in the second quarter increased $2.2 million, or 2.5%, relative to the prior quarter to total $88.0 million. Excluding acquisition expenses related to the Bay Bank merger recorded in the first quarter of $2.6 million ($1.9 million in contract termination and other expenses included in other expense and $672 thousand of change in control and severance expense included in salaries and benefits), noninterest expense increased $4.8 million in the second quarter. Salaries and benefits expense increased $1.2 million, or 2.6%, in the second quarter relative to recurring expenses in the prior quarter. Approximately $730 thousand of this increase is attributable to the first full quarter of the Bay Bank acquisition.

ORE/Foreclosure expense totaled $2.4 million, a decline of 38.8% relative to the prior quarter and 49.2% when compared to figures one year earlier. Services and fees totaled $11.8 million in the second quarter, an increase of $1.0 million relative to the prior quarter. This increase includes costs associated with the installation of new computer software systems and expenses related to the realignment of certain business units.

Other expense totaled $14.9 million in the second quarter, an increase of $3.7 million when compared to recurring expenses in the prior quarter. During the second quarter of 2012, Trustmark updated its quarterly analysis of mortgage loan repurchase exposure. This analysis, along with recent trends of increased mortgage loan repurchase activity in the mortgage industry, resulted in Trustmark providing an additional reserve of approximately $4.0 million in the second quarter. At June 30, 2012, the reserve for mortgage loan repurchases totaled $9.2 million. Notwithstanding significant changes in future behaviors and the demand patterns of investors, Trustmark believes that it is appropriately reserved for potential mortgage loan repurchase requests.

ADDITIONAL INFORMATION

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, July 25, 2012, 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 9, 2012, in archived format at the same web address or by calling (877)344-7529, passcode 10008303.

Trustmark is a financial services company providing banking and financial solutions through approximately 170 offices in 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 in this report 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 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 new products and lines of business, natural disasters, environmental disasters, acts of war or terrorism, the expected timing and likelihood of completion of the proposed merger with BancTrust Financial Group, Inc., (BancTrust), including the timing, receipt and terms and conditions of required regulatory approvals of the proposed merger that could reduce anticipated benefits or cause the parties to abandon the merger, the diversion of management’s time and attention from Trustmark’s ongoing business during this time period, the ability to maintain relationships with customers, employees or suppliers as well as the ability to successfully integrate the businesses and realize cost savings and any other synergies and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; the risk that the proposed merger with BancTrust is terminated prior to completion and results in significant transaction costs to Trustmark, 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, 2012
($ in thousands)
(unaudited)
      Linked Quarter   Year over Year

QUARTERLY AVERAGE BALANCES
  6/30/2012     3/31/2012     6/30/2011   $ Change   % Change   $ Change   % Change  
Securities AFS-taxable $ 2,341,475 $ 2,327,572 $ 2,142,978 $ 13,903 0.6 % $ 198,497 9.3 %
Securities AFS-nontaxable 167,287 160,870 151,471 6,417 4.0 % 15,816 10.4 %
Securities HTM-taxable 30,136 33,270 73,739 (3,134 ) -9.4 % (43,603 ) -59.1 %
Securities HTM-nontaxable   19,378     21,598     25,797     (2,220 ) -10.3 %   (6,419 ) -24.9 %
Total securities   2,558,276     2,543,310     2,393,985     14,966   0.6 %   164,291   6.9 %
Loans (including loans held for sale) 5,938,168 6,014,133 6,044,232 (75,965 ) -1.3 % (106,064 ) -1.8 %
Acquired loans:
Noncovered loans 97,341 19,931 - 77,410 n/m 97,341 n/m
Covered loans 70,217 75,612 77,858 (5,395 ) -7.1 % (7,641 ) -9.8 %
Fed funds sold and rev repos 5,309 9,568 6,807 (4,259 ) -44.5 % (1,498 ) -22.0 %
Other earning assets   29,654     34,102     32,028     (4,448 ) -13.0 %   (2,374 ) -7.4 %
Total earning assets   8,698,965     8,696,656     8,554,910     2,309   0.0 %   144,055   1.7 %
Allowance for loan losses (92,223 ) (92,062 ) (94,771 ) (161 ) 0.2 % 2,548 -2.7 %
Cash and due from banks 272,283 232,139 216,483 40,144 17.3 % 55,800 25.8 %
Other assets   947,914     918,273     937,503     29,641   3.2 %   10,411   1.1 %
Total assets $ 9,826,939   $ 9,755,006   $ 9,614,125   $ 71,933   0.7 % $ 212,814   2.2 %
 
Interest-bearing demand deposits $ 1,545,203 $ 1,545,045 $ 1,579,894 $ 158 0.0 % $ (34,691 ) -2.2 %
Savings deposits 2,467,546 2,339,166 2,277,220 128,380 5.5 % 190,326 8.4 %
Time deposits less than $100,000 1,169,532 1,190,888 1,255,496 (21,356 ) -1.8 % (85,964 ) -6.8 %
Time deposits of $100,000 or more   813,530     825,214     904,106     (11,684 ) -1.4 %   (90,576 ) -10.0 %
Total interest-bearing deposits 5,995,811 5,900,313 6,016,716 95,498 1.6 % (20,905 ) -0.3 %
Fed funds purchased and repos 280,726 437,270 396,618 (156,544 ) -35.8 % (115,892 ) -29.2 %
Short-term borrowings 80,275 84,797 92,077 (4,522 ) -5.3 % (11,802 ) -12.8 %
Long-term FHLB advances - - 2,333 - n/m (2,333 ) -100.0 %
Subordinated notes 49,850 49,842 49,817 8 0.0 % 33 0.1 %
Junior subordinated debt securities   61,856     61,856     61,856     -   0.0 %   -   0.0 %
Total interest-bearing liabilities 6,468,518 6,534,078 6,619,417 (65,560 ) -1.0 % (150,899 ) -2.3 %
Noninterest-bearing deposits 1,998,077 1,869,758 1,714,778 128,319 6.9 % 283,299 16.5 %
Other liabilities   104,628     122,668     98,154     (18,040 ) -14.7 %   6,474   6.6 %
Total liabilities 8,571,223 8,526,504 8,432,349 44,719 0.5 % 138,874 1.6 %
Shareholders' equity   1,255,716     1,228,502     1,181,776     27,214   2.2 %   73,940   6.3 %
Total liabilities and equity $ 9,826,939   $ 9,755,006   $ 9,614,125   $ 71,933   0.7 % $ 212,814   2.2 %
 
Linked Quarter Year over Year

PERIOD END BALANCES
  6/30/2012     3/31/2012     6/30/2011   $ Change % Change   $ Change % Change  
Cash and due from banks $ 284,735 $ 213,500 $ 221,853 $ 71,235 33.4 % $ 62,882 28.3 %
Fed funds sold and rev repos 6,725 6,301 4,576 424 6.7 % 2,149 47.0 %
Securities available for sale 2,592,807 2,595,664 2,399,042 (2,857 ) -0.1 % 193,765 8.1 %
Securities held to maturity 47,867 52,010 87,923 (4,143 ) -8.0 % (40,056 ) -45.6 %
Loans held for sale (LHFS) 286,221 227,449 123,244 58,772 25.8 % 162,977 n/m
Loans held for investment (LHFI) 5,650,548 5,774,753 5,906,316 (124,205 ) -2.2 % (255,768 ) -4.3 %
Allowance for loan losses   (84,809 )   (90,879 )   (86,846 )   6,070   -6.7 %   2,037   -2.3 %
Net LHFI 5,565,739 5,683,874 5,819,470 (118,135 ) -2.1 % (253,731 ) -4.4 %
Acquired loans:
Noncovered loans 94,013 100,669 - (6,656 ) -6.6 % 94,013 n/m
Covered loans 66,015 74,419 88,558 (8,404 ) -11.3 % (22,543 ) -25.5 %
Allowance for loan losses, acquired loans   (1,526 )   (773 )   -     (753 ) 97.4 %   (1,526 ) n/m
Net acquired loans   158,502     174,315     88,558     (15,813 ) -9.1 %   69,944   79.0 %
Net LHFI and acquired loans 5,724,241 5,858,189 5,908,028 (133,948 ) -2.3 % (183,787 ) -3.1 %
Premises and equipment, net 156,089 156,158 140,640 (69 ) 0.0 % 15,449 11.0 %
Mortgage servicing rights 43,580 45,893 50,111 (2,313 ) -5.0 % (6,531 ) -13.0 %
Goodwill 291,104 291,104 291,104 - 0.0 % - 0.0 %
Identifiable intangible assets 19,356 18,821 15,651 535 2.8 % 3,705 23.7 %
Other real estate, excluding covered other real estate 73,673 75,742 89,999 (2,069 ) -2.7 % (16,326 ) -18.1 %
Covered other real estate 6,482 5,824 7,485 658 11.3 % (1,003 ) -13.4 %
FDIC indemnification asset 25,309 28,260 33,327 (2,951 ) -10.4 % (8,018 ) -24.1 %
Other assets   332,657     356,678     325,468     (24,021 ) -6.7 %   7,189   2.2 %
Total assets $ 9,890,846   $ 9,931,593   $ 9,698,451   $ (40,747 ) -0.4 % $ 192,395   2.0 %
 
Deposits:
Noninterest-bearing $ 2,063,261 $ 2,024,290 $ 1,806,908 $ 38,971 1.9 % $ 256,353 14.2 %
Interest-bearing   5,932,596     6,066,456     5,825,426     (133,860 ) -2.2 %   107,170   1.8 %
Total deposits 7,995,857 8,090,746 7,632,334 (94,889 ) -1.2 % 363,523 4.8 %
Fed funds purchased and repos 297,669 254,878 539,693 42,791 16.8 % (242,024 ) -44.8 %
Short-term borrowings 78,594 82,023 90,156 (3,429 ) -4.2 % (11,562 ) -12.8 %
Long-term FHLB advances - - 2,794 - n/m (2,794 ) -100.0 %
Subordinated notes 49,855 49,847 49,823 8 0.0 % 32 0.1 %
Junior subordinated debt securities 61,856 61,856 61,856 - 0.0 % - 0.0 %
Other liabilities   148,520     150,723     129,025     (2,203 ) -1.5 %   19,495   15.1 %
Total liabilities   8,632,351     8,690,073     8,505,681     (57,722 ) -0.7 %   126,670   1.5 %
Common stock 13,496 13,494 13,359 2 0.0 % 137 1.0 %
Capital surplus 283,023 282,388 263,940 635 0.2 % 19,083 7.2 %
Retained earnings 958,322 944,101 911,797 14,221 1.5 % 46,525 5.1 %
Accum other comprehensive
income, net of tax   3,654     1,537     3,674     2,117   n/m   (20 ) -0.5 %
Total shareholders' equity   1,258,495     1,241,520     1,192,770     16,975   1.4 %   65,725   5.5 %
Total liabilities and equity $ 9,890,846   $ 9,931,593   $ 9,698,451   $ (40,747 ) -0.4 % $ 192,395   2.0 %
 
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, 2012
($ in thousands except per share data)
(unaudited)
           
 
Quarter Ended     Linked Quarter Year over Year

INCOME STATEMENTS
  6/30/2012     3/31/2012     6/30/2011   $ Change % Change   $ Change % Change  
Interest and fees on loans-FTE $ 78,046 $ 78,718 $ 80,202 $ (672 ) -0.9 % $ (2,156 ) -2.7 %
Interest on securities-taxable 17,352 18,384 20,374 (1,032 ) -5.6 % (3,022 ) -14.8 %
Interest on securities-tax exempt-FTE 2,086 2,102 2,115 (16 ) -0.8 % (29 ) -1.4 %
Interest on fed funds sold and rev repos 5 6 7 (1 ) -16.7 % (2 ) -28.6 %
Other interest income   336     330     333     6   1.8 %   3   0.9 %
Total interest income-FTE   97,825     99,540     103,031     (1,715 ) -1.7 %   (5,206 ) -5.1 %
Interest on deposits 6,465 7,353 9,936 (888 ) -12.1 % (3,471 ) -34.9 %
Interest on fed funds pch and repos 142 171 216 (29 ) -17.0 % (74 ) -34.3 %
Other interest expense   1,359     1,414     1,420     (55 ) -3.9 %   (61 ) -4.3 %
Total interest expense   7,966     8,938     11,572     (972 ) -10.9 %   (3,606 ) -31.2 %
Net interest income-FTE 89,859 90,602 91,459 (743 ) -0.8 % (1,600 ) -1.7 %
Provision for loan losses, excluding acquired loans 650 3,293 8,116 (2,643 ) -80.3 % (7,466 ) -92.0 %
Provision for acquired loan losses   1,672     (194 )   -     1,866   n/m   1,672   n/m
Net interest income after provision-FTE   87,537     87,503     83,343     34   0.0 %   4,194   5.0 %
Service charges on deposit accounts 12,614 12,211 12,851 403 3.3 % (237 ) -1.8 %
Insurance commissions 7,179 6,606 6,862 573 8.7 % 317 4.6 %
Wealth management 5,762 5,501 5,760 261 4.7 % 2 0.0 %
Bank card and other fees 8,179 7,364 6,854 815 11.1 % 1,325 19.3 %
Mortgage banking, net 11,184 7,295 6,269 3,889 53.3 % 4,915 78.4 %
Other, net   (1,150 )   3,758     7,785     (4,908 ) n/m   (8,935 ) n/m
Nonint inc-excl sec gains, net 43,768 42,735 46,381 1,033 2.4 % (2,613 ) -5.6 %
Security (losses) gains, net   (8 )   1,050     51     (1,058 ) n/m   (59 ) n/m
Total noninterest income   43,760     43,785     46,432     (25 ) -0.1 %   (2,672 ) -5.8 %
Salaries and employee benefits 46,959 46,432 44,203 527 1.1 % 2,756 6.2 %
Services and fees 11,750 10,747 10,780 1,003 9.3 % 970 9.0 %
Net occupancy-premises 4,954 4,938 5,050 16 0.3 % (96 ) -1.9 %
Equipment expense 5,183 4,912 4,856 271 5.5 % 327 6.7 %
FDIC assessment expense 1,826 1,775 1,938 51 2.9 % (112 ) -5.8 %
ORE/Foreclosure expense 2,388 3,902 4,704 (1,514 ) -38.8 % (2,316 ) -49.2 %
Other expense   14,899     13,068     9,817     1,831   14.0 %   5,082   51.8 %
Total noninterest expense   87,959     85,774     81,348     2,185   2.5 %   6,611   8.1 %
Income before income taxes and tax eq adj 43,338 45,514 48,427 (2,176 ) -4.8 % (5,089 ) -10.5 %
Tax equivalent adjustment   3,411     3,658     3,629     (247 ) -6.8 %   (218 ) -6.0 %
Income before income taxes 39,927 41,856 44,798 (1,929 ) -4.6 % (4,871 ) -10.9 %
Income taxes   10,578     11,536     13,196     (958 ) -8.3 %   (2,618 ) -19.8 %
Net income available to common shareholders $ 29,349   $ 30,320   $ 31,602   $ (971 ) -3.2 % $ (2,253 ) -7.1 %
 
 
Per common share data
Earnings per share - basic $ 0.45   $ 0.47   $ 0.49   $ (0.02 ) -4.3 % $ (0.04 ) -8.2 %
 
Earnings per share - diluted $ 0.45   $ 0.47   $ 0.49   $ (0.02 ) -4.3 % $ (0.04 ) -8.2 %
 
Dividends per share $ 0.23   $ 0.23   $ 0.23   $ -   0.0 % $ -   0.0 %
 
Weighted average common shares outstanding
Basic   64,771,530     64,297,038     64,072,047  
 
Diluted   64,938,697     64,477,277     64,281,348  
 
Period end common shares outstanding   64,775,694     64,765,581     64,119,235  
 

OTHER FINANCIAL DATA
Return on common equity 9.40 % 9.93 % 10.73 %
Return on average tangible common equity 12.74 % 13.41 % 14.71 %
Return on equity 9.40 % 9.93 % 10.73 %
Return on assets 1.20 % 1.25 % 1.32 %
Interest margin - Yield - FTE 4.52 % 4.60 % 4.83 %
Interest margin - Cost 0.37 % 0.41 % 0.54 %
Net interest margin - FTE 4.15 % 4.19 % 4.29 %
Efficiency ratio (1) 66.26 % 63.70 % 62.39 %
Full-time equivalent employees 2,598 2,611 2,575
 

COMMON STOCK PERFORMANCE
Market value-Close $ 24.48 $ 24.98 $ 23.41
Common book value $ 19.43 $ 19.17 $ 18.60
Tangible common book value $ 14.64 $ 14.38 $ 13.82
 
 
(1) - Excludes nonrecurring income and expense items such as securities gains or losses, bargain purchase gains and one-time 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, 2012
($ in thousands)
(unaudited)
  Quarter Ended   Linked Quarter   Year over Year

NONPERFORMING ASSETS (1)
  6/30/2012       3/31/2012       6/30/2011   $ Change   % Change   $ Change   % Change  
Nonaccrual loans
Florida $ 22,260 $ 22,174 $ 30,752 $ 86 0.4 % $ (8,492 ) -27.6 %
Mississippi (2) 47,322 48,648 47,802 (1,326 ) -2.7 % (480 ) -1.0 %
Tennessee (3) 11,171 13,972 17,564 (2,801 ) -20.0 % (6,393 ) -36.4 %
Texas   18,927     20,979     24,900     (2,052 ) -9.8 %   (5,973 ) -24.0 %
Total nonaccrual loans 99,680 105,773 121,018 (6,093 ) -5.8 % (21,338 ) -17.6 %
Other real estate
Florida 23,324 26,226 33,823 (2,902 ) -11.1 % (10,499 ) -31.0 %
Mississippi (2) 19,511 19,240 22,921 271 1.4 % (3,410 ) -14.9 %
Tennessee (3) 18,850 17,665 15,760 1,185 6.7 % 3,090 19.6 %
Texas   11,988     12,611     17,495     (623 ) -4.9 %   (5,507 ) -31.5 %
Total other real estate   73,673     75,742     89,999     (2,069 ) -2.7 %   (16,326 ) -18.1 %
Total nonperforming assets $ 173,353   $ 181,515   $ 211,017   $ (8,162 ) -4.5 % $ (37,664 ) -17.8 %
 

LOANS PAST DUE OVER 90 DAYS (4)
LHFI $ 1,843   $ 1,553   $ 6,993   $ 290   18.7 % $ (5,150 ) -73.6 %
 
LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase) $ 35,270   $ 39,496   $ 24,708   $ (4,226 ) -10.7 % $ 10,562   42.7 %
 
Quarter Ended Linked Quarter Year over Year

ALLOWANCE FOR LOAN LOSSES (4)
  6/30/2012     3/31/2012     6/30/2011   $ Change % Change   $ Change % Change  
Beginning Balance $ 90,879 $ 89,518 $ 93,398 $ 1,361 1.5 % $ (2,519 ) -2.7 %
Provision for loan losses 650 3,293 8,116 (2,643 ) -80.3 % (7,466 ) -92.0 %
Charge-offs (9,264 ) (5,376 ) (17,505 ) (3,888 ) 72.3 % 8,241 -47.1 %
Recoveries   2,544     3,444     2,837     (900 ) -26.1 %   (293 ) -10.3 %
Net charge-offs   (6,720 )   (1,932 )   (14,668 )   (4,788 ) n/m   7,948   -54.2 %
Ending Balance $ 84,809   $ 90,879   $ 86,846   $ (6,070 ) -6.7 % $ (2,037 ) -2.3 %
 

PROVISION FOR LOAN LOSSES (4)

 
Florida $ (770 ) $ 739 $ 5,633 $ (1,509 ) n/m $ (6,403 ) n/m
Mississippi (2) 1,141 4,152 1,331 (3,011 ) -72.5 % (190 ) -14.3 %
Tennessee (3) 839 (29 ) 157 868 n/m 682 n/m
Texas   (560 )   (1,569 )   995     1,009   -64.3 %   (1,555 ) n/m
Total provision for loan losses $ 650   $ 3,293   $ 8,116   $ (2,643 ) -80.3 % $ (7,466 ) -92.0 %
 

NET CHARGE-OFFS (4)
Florida $ 4,491 $ 1,495 $ 7,880 $ 2,996 n/m $ (3,389 ) -43.0 %
Mississippi (2) 1,751 251 3,401 1,500 n/m (1,650 ) -48.5 %
Tennessee (3) 536 223 324 313 n/m 212 65.4 %
Texas   (58 )   (37 )   3,063     (21 ) 56.8 %   (3,121 ) n/m
Total net charge-offs $ 6,720   $ 1,932   $ 14,668   $ 4,788   n/m $ (7,948 ) -54.2 %
 

CREDIT QUALITY RATIOS (1)
Net charge offs/average loans 0.46 % 0.13 % 0.97 %
Provision for loan losses/average loans 0.04 % 0.22 % 0.54 %
Nonperforming loans/total loans (incl LHFS) 1.68 % 1.76 % 2.01 %
Nonperforming assets/total loans (incl LHFS) 2.92 % 3.02 % 3.50 %
Nonperforming assets/total loans (incl LHFS) +ORE 2.88 % 2.99 % 3.45 %
ALL/total loans (excl LHFS) 1.50 % 1.57 % 1.47 %
ALL-commercial/total commercial loans 1.81 % 1.97 % 1.84 %
ALL-consumer/total consumer and home mortgage loans 0.81 % 0.75 % 0.76 %
ALL/nonperforming loans 85.08 % 85.92 % 71.76 %
ALL/nonperforming loans -
(excl impaired loans) 186.45 % 181.11 % 181.95 %
 

CAPITAL RATIOS
Total equity/total assets 12.72 % 12.50 % 12.30 %
Common equity/total assets 12.72 % 12.50 % 12.30 %
Tangible common equity/tangible assets 9.90 % 9.68 % 9.43 %
Tangible common equity/risk-weighted assets 14.30 % 13.89 % 13.51 %
Tier 1 leverage ratio 10.63 % 10.55 % 10.18 %
Tier 1 common risk-based capital ratio 14.36 % 13.98 % 13.55 %
Tier 1 risk-based capital ratio 15.26 % 14.87 % 14.46 %
Total risk-based capital ratio 17.12 % 16.72 % 16.47 %
 
(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, 2012
($ in thousands)
(unaudited)
  Quarter Ended   Six Months Ended

AVERAGE BALANCES
  6/30/2012       3/31/2012       12/31/2011       9/30/2011       6/30/2011     6/30/2012       6/30/2011  
Securities AFS-taxable $ 2,341,475 $ 2,327,572 $ 2,241,361 $ 2,150,117 $ 2,142,978 $ 2,334,524 $ 2,096,995
Securities AFS-nontaxable 167,287 160,870 164,057 170,714 151,471 164,079 148,214
Securities HTM-taxable 30,136 33,270 41,106 52,868 73,739 31,703 85,658
Securities HTM-nontaxable   19,378     21,598     22,664     24,062     25,797     20,488     26,444  
Total securities   2,558,276     2,543,310     2,469,188     2,397,761     2,393,985     2,550,794     2,357,311  
Loans (including loans held for sale) 5,938,168 6,014,133 5,999,221 5,985,730 6,044,232 5,976,151 6,075,455
Acquired loans:
Noncovered loans 97,341 19,931 - - - 58,636 -
Covered loans 70,217 75,612 77,934 83,811 77,858 72,915 39,144
Fed funds sold and rev repos 5,309 9,568 10,516 5,801 6,807 7,439 7,579
Other earning assets   29,654     34,102     34,859     32,327     32,028     31,878     39,896  
Total earning assets   8,698,965     8,696,656     8,591,718     8,505,430     8,554,910     8,697,813     8,519,385  
Allowance for loan losses (92,223 ) (92,062 ) (90,857 ) (88,888 ) (94,771 ) (92,143 ) (95,415 )
Cash and due from banks 272,283 232,139 221,278 216,134 216,483 252,211 219,415
Other assets   947,914     918,273     914,468     939,780     937,503     933,092     918,620  
Total assets $ 9,826,939   $ 9,755,006   $ 9,636,607   $ 9,572,456   $ 9,614,125   $ 9,790,973   $ 9,562,005  
 
Interest-bearing demand deposits $ 1,545,203 $ 1,545,045 $ 1,511,422 $ 1,558,318 $ 1,579,894 $ 1,545,124 $ 1,522,958
Savings deposits 2,467,546 2,339,166 2,067,431 2,133,437 2,277,220 2,403,356 2,162,186
Time deposits less than $100,000 1,169,532 1,190,888 1,212,190 1,232,374 1,255,496 1,180,210 1,232,982
Time deposits of $100,000 or more   813,530     825,214     844,565     877,951     904,106     819,372     890,615  
Total interest-bearing deposits 5,995,811 5,900,313 5,635,608 5,802,080 6,016,716 5,948,062 5,808,741
Fed funds purchased and repos 280,726 437,270 526,740 462,294 396,618 358,998 521,555
Short-term borrowings 80,275 84,797 141,600 85,678 92,077 82,536 172,815
Long-term FHLB advances - - 197 2,413 2,333 - 1,173
Subordinated notes 49,850 49,842 49,833 49,825 49,817 49,846 49,813
Junior subordinated debt securities   61,856     61,856     61,856     61,856     61,856     61,856     61,856  
Total interest-bearing liabilities 6,468,518 6,534,078 6,415,834 6,464,146 6,619,417 6,501,298 6,615,953
Noninterest-bearing deposits 1,998,077 1,869,758 1,897,398 1,811,472 1,714,778 1,933,918 1,667,926
Other liabilities   104,628     122,668     100,274     85,404     98,154     113,648     107,229  
Total liabilities 8,571,223 8,526,504 8,413,506 8,361,022 8,432,349 8,548,864 8,391,108
Shareholders' equity   1,255,716     1,228,502     1,223,101     1,211,434     1,181,776     1,242,109     1,170,897  
Total liabilities and equity $ 9,826,939   $ 9,755,006   $ 9,636,607   $ 9,572,456   $ 9,614,125   $ 9,790,973   $ 9,562,005  
 

PERIOD END BALANCES
  6/30/2012     3/31/2012     12/31/2011     9/30/2011     6/30/2011  
Cash and due from banks $ 284,735 $ 213,500 $ 202,625 $ 245,132 $ 221,853
Fed funds sold and rev repos 6,725 6,301 9,258 8,810 4,576
Securities available for sale 2,592,807 2,595,664 2,468,993 2,476,905 2,399,042
Securities held to maturity 47,867 52,010 57,705 71,046 87,923
Loans held for sale (LHFS) 286,221 227,449 216,553 210,269 123,244
Loans held for investment (LHFI) 5,650,548 5,774,753 5,857,484 5,783,712 5,906,316
Allowance for loan losses   (84,809 )   (90,879 )   (89,518 )   (89,463 )   (86,846 )
Net LHFI 5,565,739 5,683,874 5,767,966 5,694,249 5,819,470
Acquired loans:
Noncovered loans 94,013 100,669 - - -
Covered loans 66,015 74,419 76,804 79,064 88,558
Allowance for loan losses, acquired loans   (1,526 )   (773 )   (502 )   -     -  
Net acquired loans   158,502     174,315     76,302     79,064     88,558  
Net LHFI and acquired loans 5,724,241 5,858,189 5,844,268 5,773,313 5,908,028
Premises and equipment, net 156,089 156,158 142,582 141,639 140,640
Mortgage servicing rights 43,580 45,893 43,274 43,659 50,111
Goodwill 291,104 291,104 291,104 291,104 291,104
Identifiable intangible assets 19,356 18,821 14,076 14,861 15,651
Other real estate, excluding covered other real estate 73,673 75,742 79,053 89,597 89,999
Covered other real estate 6,482 5,824 6,331 7,197 7,485
FDIC indemnification asset 25,309 28,260 28,348 33,436 33,327
Other assets   332,657     356,678     322,837     298,953     325,468  
Total assets $ 9,890,846   $ 9,931,593   $ 9,727,007   $ 9,705,921   $ 9,698,451  
 
Deposits:
Noninterest-bearing $ 2,063,261 $ 2,024,290 $ 2,033,442 $ 1,871,040 $ 1,806,908
Interest-bearing   5,932,596     6,066,456     5,532,921     5,698,684     5,825,426  
Total deposits 7,995,857 8,090,746 7,566,363 7,569,724 7,632,334
Fed funds purchased and repos 297,669 254,878 604,500 576,672 539,693
Short-term borrowings 78,594 82,023 87,628 98,887 90,156
Long-term FHLB advances - - - 741 2,794
Subordinated notes 49,855 49,847 49,839 49,831 49,823
Junior subordinated debt securities 61,856 61,856 61,856 61,856 61,856
Other liabilities   148,520     150,723     141,784     126,604     129,025  
Total liabilities   8,632,351     8,690,073     8,511,970     8,484,315     8,505,681  
Common stock 13,496 13,494 13,364 13,359 13,359
Capital surplus 283,023 282,388 266,026 264,750 263,940
Retained earnings 958,322 944,101 932,526 923,891 911,797
Accum other comprehensive
income, net of tax   3,654     1,537     3,121     19,606     3,674  
Total shareholders' equity   1,258,495     1,241,520     1,215,037     1,221,606     1,192,770  
Total liabilities and equity $ 9,890,846 $ 9,931,593 $ 9,727,007 $ 9,705,921 $ 9,698,451
 

See Notes to Consolidated Financials                                                                
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2012
($ in thousands except per share data)
(unaudited)
               
 
Quarter Ended Six Months Ended

INCOME STATEMENTS
  6/30/2012     3/31/2012     12/31/2011     9/30/2011     6/30/2011     6/30/2012     6/30/2011  
Interest and fees on loans-FTE $ 78,046 $ 78,718 $ 82,230 $ 79,256 $ 80,202 $ 156,764 $ 159,318
Interest on securities-taxable 17,352 18,384 17,362 18,115 20,374 35,736 40,366
Interest on securities-tax exempt-FTE 2,086 2,102 2,133 2,155 2,115 4,188 4,243
Interest on fed funds sold and rev repos 5 6 10 5 7 11 15
Other interest income   336     330     327     329     333     666     665  

Total interest income-FTE
  97,825     99,540     102,062     99,860     103,031     197,365     204,607  
Interest on deposits 6,465 7,353 7,728 8,911 9,936 13,818 19,655
Interest on fed funds pch and repos 142 171 195 216 216 313 554
Other interest expense   1,359     1,414     1,418     1,386     1,420     2,773     2,973  
Total interest expense   7,966     8,938     9,341     10,513     11,572     16,904     23,182  
Net interest income-FTE 89,859 90,602 92,721 89,347 91,459 180,461 181,425
Provision for loan losses, excluding acquired loans 650 3,293 6,073 7,978 8,116 3,943 15,653
Provision for acquired loan losses   1,672     (194 )   624     -     -     1,478     -  
Net interest income after provision-FTE   87,537     87,503     86,024     81,369     83,343     175,040     165,772  
Service charges on deposit accounts 12,614 12,211 13,269 13,680 12,851 24,825 24,758
Insurance commissions 7,179 6,606 6,076 7,516 6,862 13,785 13,374
Wealth management 5,762 5,501 5,223 5,993 5,760 11,263 11,746
Bank card and other fees 8,179 7,364 7,112 7,033 6,854 15,543 13,329
Mortgage banking, net 11,184 7,295 6,038 9,783 6,269 18,479 10,991
Other, net   (1,150 )   3,758     (4,928 )   234     7,785     2,608     8,547  
Nonint inc-excl sec gains, net 43,768 42,735 32,790 44,239 46,381 86,503 82,745
Security (losses) gains, net   (8 )   1,050     (11 )   33     51     1,042     58  
Total noninterest income   43,760     43,785     32,779     44,272     46,432     87,545     82,803  
Salaries and employee benefits 46,959 46,432 45,616 44,701 44,203 93,391 88,239
Services and fees 11,750 10,747 11,323 11,485 10,780 22,497 21,050
Net occupancy-premises 4,954 4,938 5,038 5,093 5,050 9,892 10,123
Equipment expense 5,183 4,912 5,139 5,038 4,856 10,095 10,000
FDIC assessment expense 1,826 1,775 1,484 1,812 1,938 3,601 4,688
ORE/Foreclosure expense 2,388 3,902 2,760 5,616 4,704 6,290 7,917
Other expense   14,899     13,068     11,643     11,736     9,817     27,967     19,349  
Total noninterest expense   87,959     85,774     83,003     85,481     81,348     173,733     161,366  
Income before income taxes and tax eq adj 43,338 45,514 35,800 40,160 48,427 88,852 87,209
Tax equivalent adjustment   3,411     3,658     3,663     3,667     3,629     7,069     7,220  
Income before income taxes 39,927 41,856 32,137 36,493 44,798 81,783 79,989
Income taxes   10,578     11,536     7,879     9,525     13,196     22,114     24,374  
Net income available to common shareholders $ 29,349   $ 30,320   $ 24,258   $ 26,968   $ 31,602   $ 59,669   $ 55,615  
 
Per common share data
Earnings per share - basic $ 0.45   $ 0.47   $ 0.38   $ 0.42   $ 0.49   $ 0.92   $ 0.87  
 
Earnings per share - diluted $ 0.45   $ 0.47   $ 0.38   $ 0.42   $ 0.49   $ 0.92   $ 0.87  
 
Dividends per share $ 0.23   $ 0.23   $ 0.23   $ 0.23   $ 0.23   $ 0.46   $ 0.46  
 
Weighted average common shares outstanding
Basic   64,771,530     64,297,038     64,122,188     64,119,235     64,072,047     64,534,284     64,011,590  
 
Diluted   64,938,697     64,477,277     64,330,242     64,310,453     64,281,348     64,698,200     64,230,216  
 
Period end common shares outstanding   64,775,694     64,765,581     64,142,498     64,119,235     64,119,235     64,775,694     64,119,235  
 
 

OTHER FINANCIAL DATA
Return on common equity 9.40 % 9.93 % 7.87 % 8.83 % 10.73 % 9.66 % 9.58 %
Return on average tangible common equity 12.74 % 13.41 % 10.70 % 12.04 % 14.71 % 13.07 % 13.21 %
Return on equity 9.40 % 9.93 % 7.87 % 8.83 % 10.73 % 9.66 % 9.58 %
Return on assets 1.20 % 1.25 % 1.00 % 1.12 % 1.32 % 1.23 % 1.17 %
Interest margin - Yield - FTE 4.52 % 4.60 % 4.71 % 4.66 % 4.83 % 4.56 % 4.84 %
Interest margin - Cost 0.37 % 0.41 % 0.43 % 0.49 % 0.54 % 0.39 % 0.55 %
Net interest margin - FTE 4.15 % 4.19 % 4.28 % 4.17 % 4.29 % 4.17 % 4.29 %
Efficiency ratio (1) 66.26 % 63.70 % 66.13 % 63.99 % 62.39 % 64.99 % 62.86 %
Full-time equivalent employees 2,598 2,611 2,537 2,542 2,575
 
 

COMMON STOCK PERFORMANCE
Market value-Close $ 24.48 $ 24.98 $ 24.29 $ 18.15 $ 23.41
Common book value $ 19.43 $ 19.17 $ 18.94 $ 19.05 $ 18.60
Tangible common book value $ 14.64 $ 14.38 $ 14.18 $ 14.28 $ 13.82
 
 
(1) - Excludes nonrecurring income and expense items such as securities gains or losses, bargain purchase gains and one-time acquisition related transaction expenses.
 

See Notes to Consolidated Financials                                                                 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2012
($ in thousands)
(unaudited)
             
Quarter Ended

NONPERFORMING ASSETS (1)
  6/30/2012     3/31/2012     12/31/2011     9/30/2011     6/30/2011  
Nonaccrual loans
Florida $ 22,260 $ 22,174 $ 23,002 $ 27,263 $ 30,752
Mississippi (2) 47,322 48,648 46,746 44,825 47,802
Tennessee (3) 11,171 13,972 15,791 14,575 17,564
Texas   18,927     20,979     24,919     12,915     24,900  
Total nonaccrual loans 99,680 105,773 110,458 99,578 121,018
Other real estate
Florida 23,324 26,226 29,963 29,949 33,823
Mississippi (2) 19,511 19,240 19,483 21,027 22,921
Tennessee (3) 18,850 17,665 16,879 17,940 15,760
Texas   11,988     12,611     12,728     20,681     17,495  
Total other real estate   73,673     75,742     79,053     89,597     89,999  
Total nonperforming assets $ 173,353   $ 181,515   $ 189,511   $ 189,175   $ 211,017  
 

LOANS PAST DUE OVER 90 DAYS (4)
LHFI $ 1,843   $ 1,553   $ 4,230   $ 3,166   $ 6,993  
 
LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase) $ 35,270   $ 39,496   $ 39,379   $ 32,956   $ 24,708  
 
 
Quarter Ended Six Months Ended

ALLOWANCE FOR LOAN LOSSES (4)
  6/30/2012     3/31/2012     12/31/2011     9/30/2011     6/30/2011     6/30/2012     6/30/2011  
Beginning Balance $ 90,879 $ 89,518 $ 89,463 $ 86,846 $ 93,398 $ 89,518 $ 93,510
Provision for loan losses 650 3,293 6,073 7,978 8,116 3,943 15,653
Charge-offs (9,264 ) (5,376 ) (8,457 ) (8,675 ) (17,505 ) (14,640 ) (28,637 )
Recoveries   2,544     3,444     2,439     3,314     2,837     5,988     6,320  
Net charge-offs   (6,720 )   (1,932 )   (6,018 )   (5,361 )   (14,668 )   (8,652 )   (22,317 )
Ending Balance $ 84,809   $ 90,879   $ 89,518   $ 89,463   $ 86,846   $ 84,809   $ 86,846  
 

PROVISION FOR LOAN LOSSES (4)
Florida $ (770 ) $ 739 $ 4,797 $ 3,046 $ 5,633 $ (31 ) $ 8,657
Mississippi (2) 1,141 4,152 3,783 3,732 1,331 5,293 2,402
Tennessee (3) 839 (29 ) (885 ) (105 ) 157 810 1,776
Texas   (560 )   (1,569 )   (1,622 )   1,305     995     (2,129 )   2,818  
Total provision for loan losses $ 650   $ 3,293   $ 6,073   $ 7,978   $ 8,116   $ 3,943   $ 15,653  
 

NET CHARGE-OFFS (4)
Florida $ 4,491 $ 1,495 $ 2,576 $ 2,909 $ 7,880 $ 5,986 $ 13,358
Mississippi (2) 1,751 251 2,556 1,988 3,401 2,002 3,811
Tennessee (3) 536 223 773 499 324 759 1,303
Texas   (58 )   (37 )   113     (35 )   3,063     (95 )   3,845  
Total net charge-offs $ 6,720   $ 1,932   $ 6,018   $ 5,361   $ 14,668   $ 8,652   $ 22,317  
 

CREDIT QUALITY RATIOS (1)
Net charge offs/average loans 0.46 % 0.13 % 0.40 % 0.36 % 0.97 % 0.29 % 0.74 %
Provision for loan losses/average loans 0.04 % 0.22 % 0.40 % 0.53 % 0.54 % 0.13 % 0.52 %
Nonperforming loans/total loans (incl LHFS) 1.68 % 1.76 % 1.82 % 1.66 % 2.01 %
Nonperforming assets/total loans (incl LHFS) 2.92 % 3.02 % 3.12 % 3.16 % 3.50 %
Nonperforming assets/total loans (incl LHFS) +ORE 2.88 % 2.99 % 3.08 % 3.11 % 3.45 %
ALL/total loans (excl LHFS) 1.50 % 1.57 % 1.53 % 1.55 % 1.47 %
ALL-commercial/total commercial loans 1.81 % 1.97 % 1.91 % 1.94 % 1.84 %
ALL-consumer/total consumer and home mortgage loans 0.81 % 0.75 % 0.76 % 0.76 % 0.76 %
ALL/nonperforming loans 85.08 % 85.92 % 81.04 % 89.84 % 71.76 %
ALL/nonperforming loans -
(excl impaired loans) 186.45 % 181.11 % 194.19 % 248.82 % 181.95 %
 

CAPITAL RATIOS
Total equity/total assets 12.72 % 12.50 % 12.49 % 12.59 % 12.30 %
Common equity/total assets 12.72 % 12.50 % 12.49 % 12.59 % 12.30 %
Tangible common equity/tangible assets 9.90 % 9.68 % 9.66 % 9.74 % 9.43 %
Tangible common equity/risk-weighted assets 14.30 % 13.89 % 13.83 % 14.04 % 13.51 %
Tier 1 leverage ratio 10.63 % 10.55 % 10.43 % 10.38 % 10.18 %
Tier 1 common risk-based capital ratio 14.36 % 13.98 % 13.90 % 13.84 % 13.55 %
Tier 1 risk-based capital ratio 15.26 % 14.87 % 14.81 % 14.76 % 14.46 %
Total risk-based capital ratio 17.12 % 16.72 % 16.67 % 16.78 % 16.47 %
 
 
(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, 2012

($ in thousands)

(unaudited)

Note 1 – Business Combinations

BancTrust Financial Group, Inc.

On May 29, 2012, Trustmark Corporation (Trustmark) and BancTrust Financial Group, Inc. (BancTrust) announced the signing of a definitive agreement pursuant to which BancTrust will merge into Trustmark. BancTrust has 49 offices throughout Alabama and the Florida Panhandle with $1.3 billion in loans and $1.8 billion in deposits at March 31, 2012.

Under the terms of the definitive agreement, which was approved unanimously by the Boards of Directors of both companies, holders of BancTrust common stock will receive 0.125 of a share of Trustmark common stock for each share of BancTrust common stock in a tax-free exchange. Trustmark will issue approximately 2,245,923 shares of its common stock for all issued and outstanding shares of BancTrust common stock. Based upon a price of $24.66 per share of Trustmark common stock, the transaction is valued at approximately $55.4 million, or $3.08 per share of BancTrust common stock. Trustmark intends to repurchase the $50.0 million of BancTrust preferred stock and associated warrant issued to the U.S. Department of Treasury under the Capital Purchase Program.

The transaction is expected to close during the fourth quarter of 2012 and is subject to approval by regulatory authorities and BancTrust’s shareholders, as well as certain other customary closing conditions.

Bay Bank & Trust Company

On March 16, 2012, Trustmark National Bank (TNB) 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 value at $12 million. This acquisition was accounted for under the acquisition method in accordance with FASB ASC Topic 805, “Business Combinations.” 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 $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).

All loans acquired from Bay Bank, with the exception of revolving credit agreements, 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 TNB would not be able to collect all contractually required payments. These loans 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.”

The operations of Bay Bank are included in TNB’s operating results from March 16, 2012 and added revenue of $5.6 million and net income available to common shareholders of $1.8 million through June 30, 2012. Such operating results are not necessarily indicative of future operating results.

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2012

($ in thousands)

(unaudited)

Note 1 – Business Combinations (continued)

Heritage Banking Group

On April 15, 2011, the Mississippi Department of Banking and Consumer Finance closed the Heritage Banking Group (Heritage), a 90-year old financial institution headquartered in Carthage, Mississippi, and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. On the same date, Trustmark National Bank (TNB) entered into a purchase and assumption agreement with the FDIC in which TNB agreed to assume all of the deposits and purchased essentially all of the assets of Heritage. The FDIC and TNB entered into a loss-share transaction on approximately $151.9 million of Heritage assets, which covers substantially all loans and all other real estate. Under the loss-share agreement, the FDIC will cover 80% of covered loan and other real estate losses incurred. Because of the loss protection provided by the FDIC, the risk characteristics of the Heritage loans and other real estate covered by the loss-share agreement are significantly different from those assets not covered by this agreement. As a result, Trustmark will refer to loans and other real estate subject to the loss-share agreement as “covered” while loans and other real estate that are not subject to the loss-share agreement will be referred to as “noncovered” or “excluding covered.” The loss-share agreement applicable to single family residential mortgage loans and related foreclosed real estate provides for FDIC loss sharing and TNB’s reimbursement to the FDIC for recoveries of covered losses for ten years from the date on which the loss-share agreement was entered. The loss-share agreement applicable to commercial loans and related foreclosed real estate provides for FDIC loss sharing for five years from the date on which the loss-share agreement was entered and TNB’s reimbursement to the FDIC for recoveries of covered losses for an additional three years thereafter.

The assets purchased and liabilities assumed for the Heritage acquisition have been accounted for under the acquisition method of accounting (formerly the purchase method). The assets and liabilities, both tangible and intangible, are recorded at their estimated fair values as of the acquisition date. The fair value amounts are subject to change for up to one year after the closing date as additional information relating to closing date fair values becomes available. The amounts are also subject to adjustments based upon final settlement with the FDIC.

The bargain purchase gain from the Heritage acquisition represents the net of the estimated fair value of the assets acquired and liabilities assumed and is influenced significantly by the FDIC-assisted transaction process. Under the FDIC-assisted transaction process, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer's bid, the FDIC may be required to make a cash payment to the acquirer. The pretax gain of $7.5 million ($4.6 million after tax) recognized by TNB is considered a bargain purchase transaction under FASB ASC Topic 805. The gain was recognized as other noninterest income in Trustmark’s consolidated statements of income for the three months ended June 30, 2011.

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):
    6/30/2012       3/31/2012       12/31/2011       9/30/2011     6/30/2011

SECURITIES AVAILABLE FOR SALE
U.S. Government agency obligations
Issued by U.S. Government agencies $ 22 $ 31 $ 3 $ 5 $ 7
Issued by U.S. Government sponsored agencies 72,923 101,941 64,802 61,870 102,940
Obligations of states and political subdivisions 213,826 208,234 202,827 207,781 186,034
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA 22,367 20,064 12,445 14,637 14,990
Issued by FNMA and FHLMC 264,018 286,169 347,932 400,589 413,493
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 1,570,226 1,619,920 1,614,965 1,579,698 1,556,676
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 354,453 330,318 226,019 212,325 124,902
Asset-backed securities / structured financial products 91,293 23,693 - - -
Corporate debt securities   3,679   5,294   -   -   -
Total securities available for sale $ 2,592,807 $ 2,595,664 $ 2,468,993 $ 2,476,905 $ 2,399,042
 

SECURITIES HELD TO MATURITY
Obligations of states and political subdivisions $ 38,351 $ 40,393 $ 42,619 $ 43,246 $ 46,931
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA 3,745 4,089 4,538 5,291 5,547
Issued by FNMA and FHLMC 583 586 588 753 753
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 3,000 4,743 7,749 19,534 32,456
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA   2,188   2,199   2,211   2,222   2,236
Total securities held to maturity $ 47,867 $ 52,010 $ 57,705 $ 71,046 $ 87,923

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 90% of the portfolio in U.S. Government agency-backed obligations and other AAA rated securities. 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 and the Federal Reserve Bank, Trustmark does not hold any equity investment in government sponsored entities.

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2012

($ in thousands)

(unaudited)

Note 3 – Loan Composition

LHFI BY TYPE (excluding acquired loans)
    6/30/2012       3/31/2012       12/31/2011       9/30/2011       6/30/2011  
Loans secured by real estate:
Construction, land development and other land loans $ 464,349 $ 465,486 $ 474,082 $ 481,821 $ 510,867
Secured by 1-4 family residential properties 1,621,865 1,722,357 1,760,930 1,717,366 1,737,744
Secured by nonfarm, nonresidential properties 1,392,293 1,419,902 1,425,774 1,437,573 1,457,328
Other real estate secured 192,376 199,400 204,849 207,984 208,797
Commercial and industrial loans 1,142,282 1,142,813 1,139,365 1,083,753 1,082,127
Consumer loans 196,718 210,713 243,756 268,002 332,032
Other loans   640,665     614,082     608,728     587,213     577,421  
LHFI 5,650,548 5,774,753 5,857,484 5,783,712 5,906,316
Allowance for loan losses   (84,809 )   (90,879 )   (89,518 )   (89,463 )   (86,846 )
Net LHFI $ 5,565,739   $ 5,683,874   $ 5,767,966   $ 5,694,249   $ 5,819,470  
 
 

ACQUIRED NONCOVERED LOANS BY TYPE
  6/30/2012     3/31/2012     12/31/2011     9/30/2011     6/30/2011  
Loans secured by real estate:
Construction, land development and other land loans $ 13,154 $ 14,346 $ - $ - $ -
Secured by 1-4 family residential properties 18,954 20,409 - - -
Secured by nonfarm, nonresidential properties 53,272 54,954 - - -
Other real estate secured 512 695 - - -
Commercial and industrial loans 4,822 5,732 - - -
Consumer loans 3,153 4,188 - - -
Other loans   146     345     -     -     -  
Noncovered loans 94,013 100,669 - - -
Allowance for loan losses   (62 )   (37 )   -     -     -  
Net noncovered loans $ 93,951   $ 100,632   $ -   $ -   $ -  

ACQUIRED COVERED LOANS BY TYPE
    6/30/2012       3/31/2012       12/31/2011       9/30/2011     6/30/2011
Loans secured by real estate:
Construction, land development and other land loans $ 3,683 $ 3,940 $ 4,209 $ 4,024 $ 8,477
Secured by 1-4 family residential properties 27,218 30,221 31,874 32,735 32,124
Secured by nonfarm, nonresidential properties 27,464 30,737 30,889 33,601 35,846
Other real estate secured 4,580 5,087 5,126 5,294 5,363
Commercial and industrial loans 1,382 2,768 2,971 1,772 5,570
Consumer loans 205 206 290 158 163
Other loans   1,483     1,460     1,445     1,480   1,015
Covered loans 66,015 74,419 76,804 79,064 88,558
Allowance for loan losses   (1,464 )   (736 )   (502 )   -   -
Net covered loans $ 64,551   $ 73,683   $ 76,302   $ 79,064 $ 88,558

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2012

($ in thousands)

(unaudited)
Note 3 – Loan Composition (continued)
  June 30, 2012

LHFI - COMPOSITION BY REGION (1)
Total   Florida  

Mississippi (Central and Southern Regions)
 

Tennessee(Memphis, TN and NorthernMS Regions)
  Texas
Loans secured by real estate:
Construction, land development and other land loans $ 464,349 $ 89,082 $ 224,822 $ 32,692 $ 117,753
Secured by 1-4 family residential properties 1,621,865 56,097 1,395,357 141,644 28,767
Secured by nonfarm, nonresidential properties 1,392,293 152,491 749,681 164,270 325,851
Other real estate secured 192,376 8,815 136,719 5,020 41,822
Commercial and industrial loans 1,142,282 14,630 775,678 81,314 270,660
Consumer loans 196,718 1,374 170,972 19,934 4,438
Other loans   640,665   25,165   543,222   21,910   50,368
Loans $ 5,650,548 $ 347,654 $ 3,996,451 $ 466,784 $ 839,659
 
 
 

CONSTRUCTION, LAND DEVELOPMENT AND OTHER LAND LOANS BY REGION (1)
Lots $ 58,972 $ 35,499 $ 17,311 $ 1,617 $ 4,545
Development 103,956 9,036 55,825 5,974 33,121
Unimproved land 154,849 42,335 68,518 16,763 27,233
1-4 family construction 74,250 1,933 57,212 2,369 12,736
Other construction   72,322   279   25,956   5,969   40,118
Construction, land development and other land loans $ 464,349 $ 89,082 $ 224,822 $ 32,692 $ 117,753
 
 
 
 

LOANS SECURED BY NONFARM, NONRESIDENTIAL PROPERTIES BY REGION (1)
Income producing:
Retail $ 158,044 $ 41,004 $ 63,709 $ 23,310 $ 30,021
Office 137,786 37,259 68,996 9,772 21,759
Nursing homes/assisted living 92,772 - 83,302 4,238 5,232
Hotel/motel 82,176 8,593 28,754 17,442 27,387
Industrial 52,954 8,677 13,521 269 30,487
Health care 16,620 - 10,735 149 5,736
Convenience stores 9,393 196 4,461 1,468 3,268
Other   137,788   15,667   70,850   6,606   44,665
Total income producing loans 687,533 111,396 344,328 63,254 168,555
 
Owner-occupied:
Office 116,381 16,116 68,697 6,872 24,696
Churches 87,073 2,066 51,605 28,325 5,077
Industrial warehouses 94,212 2,375 51,604 325 39,908
Health care 95,299 10,469 50,794 16,461 17,575
Convenience stores 60,977 1,452 37,375 5,199 16,951
Retail 38,809 4,259 26,205 1,736 6,609
Restaurants 34,682 594 26,038 6,687 1,363
Auto dealerships 20,269 499 17,829 1,874 67
Other   157,058   3,265   75,206   33,537   45,050
Total owner-occupied loans   704,760   41,095   405,353   101,016   157,296
Loans secured by nonfarm, nonresidential properties $ 1,392,293 $ 152,491 $ 749,681

 
$ 164,270 $ 325,851
 

(1) Excludes acquired loans.

 

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2012

($ in thousands)

(unaudited)

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
6/30/2012   3/31/2012   12/31/2011   9/30/2011   6/30/2011   6/30/2012  

6/30/2011
Securities – Taxable 2.94% 3.13% 3.02% 3.26% 3.69% 3.04% 3.73%
Securities – Nontaxable 4.49% 4.63% 4.53% 4.39% 4.79% 4.56% 4.90%
Securities – Total 3.06% 3.24% 3.13% 3.35% 3.77% 3.15% 3.82%
Loans 5.14% 5.18% 5.37% 5.18% 5.25% 5.16% 5.25%
FF Sold & Rev Repo 0.38% 0.25% 0.38% 0.34% 0.41% 0.30% 0.40%
Other Earning Assets 4.56% 3.89% 3.72% 4.04% 4.17% 4.20% 3.36%
Total Earning Assets 4.52% 4.60% 4.71% 4.66% 4.83% 4.56% 4.84%
 
Interest-bearing Deposits 0.43% 0.50% 0.54% 0.61% 0.66% 0.47% 0.68%
FF Pch & Repo 0.20% 0.16% 0.15% 0.19% 0.22% 0.18% 0.21%
Other Borrowings 2.85% 2.89% 2.22% 2.75% 2.76% 2.87% 2.10%
Total Interest-bearing Liabilities 0.50% 0.55% 0.58% 0.65% 0.70% 0.52% 0.71%
 
Net interest margin 4.15% 4.19% 4.28% 4.17% 4.29% 4.17% 4.29%

The net interest margin for the second quarter of 2012 totaled 4.15% compared to a net interest margin in the prior quarter of 4.19% resulting in a decrease of four basis points. The decrease is mostly due to the downward repricing of loans and securities, partially offset by improvements in the accreted yield of acquired covered loans and modest declines in the cost of interest-bearing deposits.

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 MSR attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting. Changes in the fair value of these exchange-traded derivative instruments are recorded in noninterest income in mortgage banking, net and are offset by the changes in the fair value of 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 changes 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 $172 thousand and $1.7 million for the quarters ended June 30, 2012 and 2011, 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
  6/30/2012       3/31/2012       12/31/2011       9/30/2011       6/30/2011     6/30/2012       6/30/2011  
Mortgage servicing income, net $ 3,891 $ 3,886 $ 3,725 $ 3,738 $ 3,713 $ 7,777 $ 7,327
Change in fair value-MSR from runoff (2,320 ) (2,106 ) (2,122 ) (2,039 ) (1,455 ) (4,426 ) (2,746 )
Gain on sales of loans, net 6,302 6,469 4,633 2,366 1,852 12,771 4,953
Other, net   3,139     64     133     2,926     448     3,203     (517 )
Mortgage banking income before hedge ineffectiveness   11,012     8,313     6,369     6,991     4,558     19,325     9,017  
Change in fair value-MSR from market changes (5,926 ) 248 (2,842 ) (7,614 ) (4,931 ) (5,678 ) (4,674 )
Change in fair value of derivatives   6,098     (1,266 )   2,511     10,406     6,642     4,832     6,648  
Net positive (negative) hedge ineffectiveness   172     (1,018 )   (331 )   2,792     1,711     (846 )   1,974  
Mortgage banking, net $ 11,184   $ 7,295   $ 6,038   $ 9,783   $ 6,269   $ 18,479   $ 10,991  

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2012

($ in thousands)

(unaudited)

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
  6/30/2012       3/31/2012       12/31/2011       9/30/2011       6/30/2011     6/30/2012       6/30/2011  
Partnership amortization for tax credit purposes $ (1,491 ) $ (1,422 ) $ (2,690 ) $ (1,417 ) $ (1,137 ) $ (2,913 ) $ (2,259 )
Bargain purchase gain on acquisition 881 2,754 - - 7,456 3,635 7,456
Decrease in FDIC indemnification asset (2,289 ) (81 ) (4,157 ) - - (2,370 ) -
Other miscellaneous income   1,749     2,507     1,919     1,651     1,466     4,256     3,350  
Total other, net $ (1,150 ) $ 3,758   $ (4,928 ) $ 234   $ 7,785   $ 2,608   $ 8,547  

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 2012, 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.

Other noninterest expense consisted of the following for the periods presented ($ in thousands):
  Quarter Ended   Six Months Ended
  6/30/2012     3/31/2012     12/31/2011     9/30/2011     6/30/2011   6/30/2012     6/30/2011
Loan expense $ 8,299 $ 5,525 $ 5,788 $ 4,632 $ 4,139 $ 13,824 $ 7,812
Non-routine transaction expenses on acquisition - 1,917 - - - 1,917 -
Amortization of intangibles 1,028 710 799 792 783 1,738 1,538
Other miscellaneous expense   5,572   4,916   5,056   6,312   4,895   10,488   9,999
Total other expense $ 14,899 $ 13,068 $ 11,643 $ 11,736 $ 9,817 $ 27,967 $ 19,349

During the second quarter of 2012, Trustmark updated its quarterly analysis of mortgage loan repurchase exposure. This analysis, along with recent trends of increased mortgage loan repurchase activity in the mortgage industry, resulted in Trustmark providing an additional reserve of approximately $4.0 million in the second quarter. At June 30, 2012, the reserve for mortgage loan repurchases totaled $9.2 million. Notwithstanding significant changes in future behaviors and the demand patterns of investors, Trustmark believes that it is appropriately reserved for potential mortgage loan repurchase requests.

Note 7 – Non-GAAP Financial Measures

In addition to capital ratios defined by generally accepted accounting principles (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.

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2012

($ in thousands)

(unaudited)
Note 7 - Non-GAAP Financial Measures (continued)
    Quarter Ended   Six Months Ended
  6/30/2012       3/31/2012       12/31/2011       9/30/2011       6/30/2011     6/30/2012       6/30/2011  

TANGIBLE COMMON EQUITY
AVERAGE BALANCES
Total shareholders' common equity $ 1,255,716 $ 1,228,502 $ 1,223,101 $ 1,211,434 $ 1,181,776 $ 1,242,109 $ 1,170,897
Less:Goodwill (291,104 ) (291,104 ) (291,104 ) (291,104 ) (291,104 ) (291,104 ) (291,104 )
Identifiable intangible assets   (17,762 )   (14,703 )   (14,550 )   (15,343 )   (15,976 )   (16,233 )   (15,989 )
Total average tangible common equity $ 946,850   $ 922,695   $ 917,447   $ 904,987   $ 874,696   $ 934,772   $ 863,804  
 
PERIOD END BALANCES
Total shareholders' common equity $ 1,258,495 $ 1,241,520 $ 1,215,037 $ 1,221,606 $ 1,192,770
Less:Goodwill (291,104 ) (291,104 ) (291,104 ) (291,104 ) (291,104 )
Identifiable intangible assets   (19,356 )   (18,821 )   (14,076 )   (14,861 )   (15,651 )
Total tangible common equity (a) $ 948,035   $ 931,595   $ 909,857   $ 915,641   $ 886,015  
 

TANGIBLE ASSETS
Total assets $ 9,890,846 $ 9,931,593 $ 9,727,007 $ 9,705,291 $ 9,698,451
Less:Goodwill (291,104 ) (291,104 ) (291,104 ) (291,104 ) (291,104 )
Identifiable intangible assets   (19,356 )   (18,821 )   (14,076 )   (14,861 )   (15,651 )
Total tangible assets (b) $ 9,580,386   $ 9,621,668   $ 9,421,827   $ 9,399,326   $ 9,391,696  
 
Risk-weighted assets (c) $ 6,631,887   $ 6,707,026   $ 6,576,953   $ 6,522,468   $ 6,556,690  
 

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION
Net income available to common shareholders $ 29,349 $ 30,320 $ 24,258 $ 26,968 $ 31,602 $ 59,669 $ 55,615
Plus:Intangible amortization net of tax   635     438     493     489     483     1,073     963  
Net income adjusted for intangible amortization $ 29,984   $ 30,758   $ 24,751   $ 27,457   $ 32,085   $ 60,742   $ 56,578  
 
Period end common shares outstanding (d)   64,775,694     64,765,581     64,142,498     64,119,235     64,119,235  
 

TANGIBLE COMMON EQUITY MEASUREMENTS
Return on average tangible common equity 1 12.74 % 13.41 % 10.70 % 12.04 % 14.71 % 13.07 % 13.21 %
Tangible common equity/tangible assets

(a)/(b)
9.90 % 9.68 % 9.66 % 9.74 % 9.43 %
Tangible common equity/risk-weighted assets (a)/(c) 14.30 % 13.89 % 13.83 % 14.04 % 13.51 %
Tangible common book value (a)/(d)*1,000 $ 14.64 $ 14.38 $ 14.18 $ 14.28 $ 13.82
 

TIER 1 COMMON RISK-BASED CAPITAL
Total shareholders' equity $ 1,258,495 $ 1,241,520 $ 1,215,037 $ 1,221,606 $ 1,192,770
Eliminate qualifying AOCI (3,654 ) (1,537 ) (3,121 ) (19,606 ) (3,674 )
Qualifying tier 1 capital 60,000 60,000 60,000 60,000 60,000
Disallowed goodwill (291,104 ) (291,104 ) (291,104 ) (291,104 ) (291,104 )
Adj to goodwill allowed for deferred taxes 12,330 11,978 11,625 11,273 10,920
Other disallowed intangibles (19,356 ) (18,821 ) (14,076 ) (14,861 ) (15,651 )
Disallowed servicing intangible   (4,358 )   (4,589 )   (4,327 )   (4,366 )   (5,011 )
Total tier 1 capital $ 1,012,353 $ 997,447 $ 974,034 $ 962,942 $ 948,250
Less:Qualifying tier 1 capital   (60,000 )   (60,000 )   (60,000 )   (60,000 )   (60,000 )
Total tier 1 common capital (e) $ 952,353   $ 937,447   $ 914,034   $ 902,942   $ 888,250  
 
Tier 1 common risk-based capital ratio (e)/(c) 14.36 % 13.98 % 13.90 % 13.84 % 13.55 %
 
1 Calculation = ((net income adjusted for intangible amortization/number of days in period)*number of days in year)/total average tangible common equity

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