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

Trustmark Corporation (NASDAQ:TRMK) announced net income available to common shareholders of $29.9 million in the third quarter of 2012, which represented diluted earnings per common share of $0.46, an increase of 2.2% from the prior quarter and 9.5% when compared to the third quarter of 2011. Trustmark’s performance during the third quarter of 2012 produced a return on average tangible common equity of 12.61% and a return on average assets of 1.21%. During the first nine months of 2012, Trustmark’s net income available to common shareholders totaled $89.6 million, which represented diluted earnings per common share of $1.38, an increase of 7.0% from the comparable period one year earlier. Trustmark’s performance during the first nine months of 2012 resulted in a return on average tangible common equity of 12.91% and a return on average assets of 1.22%. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per common share payable December 15, 2012, to shareholders of record on December 1, 2012.

Printer friendly version of earnings release with consolidated financial statements and notes: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=50449848&lang=en

Gerard R. Host, President and CEO, stated, “Trustmark achieved another solid quarter of financial performance despite sluggish economic conditions and the prolonged low interest rate environment. During the quarter, we continued building upon and expanding customer relationships. This was especially evident in our mortgage banking and insurance businesses. We continued to experience meaningful improvement in credit quality as reflected by significantly lower levels of classified and criticized loans as well as a 30.9% reduction in net charge-offs. Also we made progress toward our pending merger with BancTrust Financial Group, a $2.0 billion financial institution based in Mobile, Alabama. This transaction, which is expected to close during the first two months of 2013, is subject to regulatory approval.”

Credit Quality
  • Nonperforming loans declined 19.1% to $80.7 million
  • Classified and criticized loans declined $15.9 million and $15.2 million, respectively
  • Allowance for loan losses represented 174.1% of nonperforming loans, excluding impaired loans

Trustmark continued to experience significant improvements in credit quality. Nonperforming loans totaled $80.7 million at September 30, 2012, a decline of 19.1% from the prior quarter and 19.0% from the prior year. Foreclosed other real estate increased 11.9% from the prior quarter but decreased 7.9% from the prior year to total $82.5 million. Collectively, nonperforming assets totaled $163.1 million at September 30, 2012, the lowest level since year end 2008 and a decline of 36.4% from the peak of $256.7 million at March 31, 2010. All of the above metrics exclude acquired loans and other real estate covered by FDIC loss-share agreements.

Net charge-offs during the third quarter of 2012 totaled $4.6 million. The third quarter provision for loan losses totaled $3.4 million as sufficient reserves were previously established for both impaired and other substandard credits. During the third quarter, Trustmark experienced a $15.9 million, or 5.5%, decline in classified loans and a $15.2 million, or 4.2%, decline in criticized loans relative to the prior quarter. Relative to balances one year earlier, classified loans decreased $71.1 million, or 20.6%, while criticized loans decreased $69.0 million, or 16.5%.

Allocation of Trustmark’s $83.5 million allowance for loan losses represented 1.79% of commercial loans and 0.84% of consumer and home mortgage loans, resulting in an allowance to total loans of 1.51% at September 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 174.1% of nonperforming loans, excluding impaired loans. All of the above metrics exclude acquired loans.

Capital Strength
  • Tangible common equity to tangible assets expanded to 10.13%
  • Total risk-based capital ratio increased to 17.25%

Trustmark’s solid capital position reflects the consistent profitability of its diversified financial services businesses as well as prudent balance sheet management. At September 30, 2012, tangible common equity totaled $968.6 million and represented 10.13% of tangible assets while the total risk-based capital ratio was 17.25%. 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 remained stable at $8.7 billion
  • Net interest income (FTE) totaled $88.9 million

Loans held for investment and acquired loans totaled $5.7 billion at September 30, 2012, a decrease of $135.0 million from the prior quarter due principally to a $113.5 million decline in single family mortgage loans. During the quarter, many customers continued to take advantage of the opportunity to refinance existing mortgages at more attractive rates. In fact, Trustmark’s mortgage production totaled $514.8 million in the third quarter, an increase of 10.7% from the prior quarter and 50.9% 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 $13.6 million in the third quarter to total $36.2 million. Commercial and industrial loans increased $20.4 million during the quarter, reflecting growth in Trustmark’s Mississippi, Tennessee and Texas markets.

During the third quarter of 2012, average earning assets remained stable at $8.7 billion as growth in investment securities effectively offset declining loan balances. Average deposits decreased $139.0 million, or 1.7%, relative to the prior quarter to total $7.9 billion. Average noninterest-bearing deposits increased 2.1% to represent 26.0% of average deposits in the third quarter of 2012.

While not immune to the extended low interest rate environment and continued sluggish economic conditions that have impacted the banking industry, Trustmark’s prudent asset and liability management produced net interest income (FTE) of $88.9 million in the third quarter of 2012. The net interest margin was 4.06% during the third quarter, down nine basis points from the prior quarter. The decrease is primarily due to the downward repricing of loans and securities, partially offset by modest declines in the cost of interest-bearing deposits.

Noninterest Income
  • Noninterest income totaled $44.9 million, representing 34.5% of total revenue
  • Mortgage banking momentum continued with year-to-date income of $29.6 million

Mortgage banking income continued at record levels due to strong loan production resulting from historically low interest rates. During the third quarter, mortgage banking income totaled $11.2 million, reflecting stable mortgage servicing income and increased secondary marketing gains, which were offset in part by increased mortgage servicing hedge ineffectiveness. Mortgage banking results for the quarter included mark-to-market adjustments on mortgage loans held for sale of $2.6 million due largely to increased refinancing activity resulting from lower mortgage rates.

Insurance revenue during the third quarter totaled $7.5 million, an increase of 4.9% from the prior quarter due to seasonal increases in commercial insurance business as well as a firming of insurance rates as renewals occur. Insurance revenue was stable relative to levels one year earlier. Wealth management income totaled $5.6 million in the third quarter, down approximately $150 thousand from the prior quarter and $381 thousand from levels one year earlier due largely to the diminishing profitability of its proprietary mutual fund business. During the third quarter, Trustmark completed the previously announced sale and reorganization of its proprietary mutual fund business for a pretax payment of $1.2 million, which is reflected in other noninterest income. As a result of this transaction, Trustmark is able to fully embrace open architecture in its wealth management business and focus additional resources on managing client relationships.

Service charges on deposit accounts totaled $13.1 million in the third quarter, reflecting a 4.1% increase from the prior quarter and a 4.0% decrease from levels one year earlier. Bank card and other fee income totaled $6.9 million, down $1.3 million from the prior quarter principally due to reduced commercial credit related fee income, and in-line with levels one year earlier.

Noninterest Expense
  • Noninterest expense remained well-controlled
  • ORE/Foreclosure expense declined to lowest level in 13 quarters

Noninterest expense in the third quarter totaled $83.5 million, down $4.5 million from the prior quarter and $2.0 million from levels one year earlier. Salary and employee benefit expense remained well-controlled, increasing 0.9% from the prior quarter to total $47.4 million. Services and fees as well as equipment expense declined relative to the prior quarter. Occupancy expense totaled $5.4 million, an increase of approximately $400 thousand from the prior quarter due largely to a write-off of leasehold improvements associated with a pending branch office consolidation.

ORE/Foreclosure expense continued to reflect positive trends. During the third quarter of 2012, ORE/Foreclosure expense totaled $1.7 million, a decline of 28.7% relative to the prior quarter and 69.7% when compared to figures one year earlier. Other expense totaled $10.4 million in the third quarter, a decline of $4.5 million from the prior quarter. This decline is directly attributed to Trustmark’s additional $4.0 million reserve for mortgage repurchases in the second quarter of 2012.

ADDITIONAL INFORMATION

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, October 24, 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, November 8, 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, 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 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 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 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
September 30, 2012
($ in thousands)
(unaudited)
            Linked Quarter   Year over Year

QUARTERLY AVERAGE BALANCES
  9/30/2012     6/30/2012     9/30/2011  

$ Change
 

% Change

$ Change
  % Change
Securities AFS-taxable $ 2,409,292 $ 2,341,475 $ 2,150,117 $ 67,817 2.9 % $ 259,175   12.1 %
Securities AFS-nontaxable 169,037 167,287 170,714 1,750 1.0 % (1,677 ) -1.0 %
Securities HTM-taxable 28,333 30,136 52,868 (1,803 ) -6.0 % (24,535 ) -46.4 %
Securities HTM-nontaxable   18,361     19,378     24,062     (1,017 ) -5.2 %   (5,701 ) -23.7 %
Total securities   2,625,023     2,558,276     2,397,761     66,747   2.6 %   227,262   9.5 %
Loans (including loans held for sale) 5,886,447 5,938,168 5,985,730 (51,721 ) -0.9 % (99,283 ) -1.7 %
Acquired loans:
Noncovered loans 88,562 97,341 - (8,779 ) -9.0 % 88,562 n/m
Covered loans 65,259 70,217 83,811 (4,958 ) -7.1 % (18,552 ) -22.1 %
Fed funds sold and rev repos 6,583 5,309 5,801 1,274 24.0 % 782 13.5 %
Other earning assets   31,758     29,654     32,327     2,104   7.1 %   (569 ) -1.8 %
Total earning assets   8,703,632     8,698,965     8,505,430     4,667   0.1 %   198,202   2.3 %
Allowance for loan losses (86,865 ) (92,223 ) (88,888 ) 5,358 -5.8 % 2,023 -2.3 %
Cash and due from banks 236,566 272,283 216,134 (35,717 ) -13.1 % 20,432 9.5 %
Other assets   958,030     947,914     939,780     10,116   1.1 %   18,250   1.9 %
Total assets $ 9,811,363   $ 9,826,939   $ 9,572,456   $ (15,576 ) -0.2 % $ 238,907   2.5 %
 
Interest-bearing demand deposits $ 1,534,244 $ 1,545,203 $ 1,558,318 $ (10,959 ) -0.7 % $ (24,074 ) -1.5 %
Savings deposits 2,348,413 2,467,546 2,133,437 (119,133 ) -4.8 % 214,976 10.1 %
Time deposits less than $100,000 1,150,620 1,169,532 1,232,374 (18,912 ) -1.6 % (81,754 ) -6.6 %
Time deposits of $100,000 or more   781,926     813,530     877,951     (31,604 ) -3.9 %   (96,025 ) -10.9 %
Total interest-bearing deposits 5,815,203 5,995,811 5,802,080 (180,608 ) -3.0 % 13,123 0.2 %
Fed funds purchased and repos 374,885 280,726 462,294 94,159 33.5 % (87,409 ) -18.9 %
Short-term borrowings 81,773 80,275 85,678 1,498 1.9 % (3,905 ) -4.6 %
Long-term FHLB advances - - 2,413 - n/m (2,413 ) -100.0 %
Subordinated notes 49,858 49,850 49,825 8 0.0 % 33 0.1 %
Junior subordinated debt securities   61,856     61,856     61,856     -   0.0 %   -   0.0 %
Total interest-bearing liabilities 6,383,575 6,468,518 6,464,146 (84,943 ) -1.3 % (80,571 ) -1.2 %
Noninterest-bearing deposits 2,039,729 1,998,077 1,811,472 41,652 2.1 % 228,257 12.6 %
Other liabilities   114,454     104,628     85,404     9,826   9.4 %   29,050   34.0 %
Total liabilities 8,537,758 8,571,223 8,361,022 (33,465 ) -0.4 % 176,736 2.1 %
Shareholders' equity   1,273,605     1,255,716     1,211,434     17,889   1.4 %   62,171   5.1 %
Total liabilities and equity $ 9,811,363   $ 9,826,939   $ 9,572,456   $ (15,576 ) -0.2 % $ 238,907   2.5 %
 
Linked Quarter Year over Year

PERIOD END BALANCES
  9/30/2012     6/30/2012     9/30/2011  

$

 Change
% Change  

$

 Change
% Change  
Cash and due from banks $ 209,188 $ 284,735 $ 245,132 $ (75,547 ) -26.5 % $ (35,944 ) -14.7 %
Fed funds sold and rev repos 5,295 6,725 8,810 (1,430 ) -21.3 % (3,515 ) -39.9 %
Securities available for sale 2,724,446 2,592,807 2,476,905 131,639 5.1 % 247,541 10.0 %
Securities held to maturity 45,484 47,867 71,046 (2,383 ) -5.0 % (25,562 ) -36.0 %
Loans held for sale (LHFS) 324,897 286,221 210,269 38,676 13.5 % 114,628 54.5 %
Loans held for investment (LHFI) 5,527,963 5,650,548 5,783,712 (122,585 ) -2.2 % (255,749 ) -4.4 %
Allowance for loan losses   (83,526 )   (84,809 )   (89,463 )   1,283   -1.5 %   5,937   -6.6 %
Net LHFI 5,444,437 5,565,739 5,694,249 (121,302 ) -2.2 % (249,812 ) -4.4 %
Acquired loans:
Noncovered loans 83,110 94,013 - (10,903 ) -11.6 % 83,110 n/m
Covered loans 64,503 66,015 79,064 (1,512 ) -2.3 % (14,561 ) -18.4 %
Allowance for loan losses, acquired loans   (4,343 )   (1,526 )   -     (2,817 ) n/m   (4,343 ) n/m
Net acquired loans   143,270     158,502     79,064     (15,232 ) -9.6 %   64,206   81.2 %
Net LHFI and acquired loans 5,587,707 5,724,241 5,773,313 (136,534 ) -2.4 % (185,606 ) -3.2 %
Premises and equipment, net 155,467 156,089 141,639 (622 ) -0.4 % 13,828 9.8 %
Mortgage servicing rights 44,211 43,580 43,659 631 1.4 % 552 1.3 %
Goodwill 291,104 291,104 291,104 - 0.0 % - 0.0 %
Identifiable intangible assets 18,327 19,356 14,861 (1,029 ) -5.3 % 3,466 23.3 %
Other real estate, excluding covered other real estate 82,475 73,673 89,597 8,802 11.9 % (7,122 ) -7.9 %
Covered other real estate 5,722 6,482 7,197 (760 ) -11.7 % (1,475 ) -20.5 %
FDIC indemnification asset 23,979 25,309 33,436 (1,330 ) -5.3 % (9,457 ) -28.3 %
Other assets   353,857     332,657     298,953     21,200   6.4 %   54,904   18.4 %
Total assets $ 9,872,159   $ 9,890,846   $ 9,705,921   $ (18,687 ) -0.2 % $ 166,238   1.7 %
 
Deposits:
Noninterest-bearing $ 2,118,853 $ 2,063,261 $ 1,871,040 $ 55,592 2.7 % $ 247,813 13.2 %
Interest-bearing   5,685,188     5,932,596     5,698,684     (247,408 ) -4.2 %   (13,496 ) -0.2 %
Total deposits 7,804,041 7,995,857 7,569,724 (191,816 ) -2.4 % 234,317 3.1 %
Fed funds purchased and repos 408,711 297,669 576,672 111,042 37.3 % (167,961 ) -29.1 %
Short-term borrowings 83,612 78,594 98,887 5,018 6.4 % (15,275 ) -15.4 %
Long-term FHLB advances - - 741 - n/m (741 ) -100.0 %
Subordinated notes 49,863 49,855 49,831 8 0.0 % 32 0.1 %
Junior subordinated debt securities 61,856 61,856 61,856 - 0.0 % - 0.0 %
Other liabilities   186,061     148,520     126,604     37,541   25.3 %   59,457   47.0 %
Total liabilities   8,594,144     8,632,351     8,484,315     (38,207 ) -0.4 %   109,829   1.3 %
Common stock 13,496 13,496 13,359 - 0.0 % 137 1.0 %
Capital surplus 284,089 283,023 264,750 1,066 0.4 % 19,339 7.3 %
Retained earnings 973,182 958,322 923,891 14,860 1.6 % 49,291 5.3 %

Accum other comprehensive income, net of tax
  7,248     3,654     19,606     3,594   98.4 %   (12,358 ) -63.0 %
Total shareholders' equity   1,278,015     1,258,495     1,221,606     19,520   1.6 %   56,409   4.6 %
Total liabilities and equity $ 9,872,159 $ 9,890,846 $ 9,705,921 $ (18,687 ) -0.2 % $ 166,238   1.7 %
 

n/m - percentage changes greater than +/- 100% are considered not meaningful
 

See Notes to Consolidated Financials
             
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
September 30, 2012
($ in thousands except per share data)
(unaudited)
   
 
Quarter Ended Linked Quarter Year over Year

INCOME STATEMENTS
  9/30/2012     6/30/2012     9/30/2011  

$ Change
% Change

$ Change
% Change  
Interest and fees on loans-FTE $ 77,783 $ 78,046 $ 79,256 $ (263 ) -0.3 % $ (1,473 ) -1.9 %
Interest on securities-taxable 15,909 17,352 18,115 (1,443 ) -8.3 % (2,206 ) -12.2 %
Interest on securities-tax exempt-FTE 2,089 2,086 2,155 3 0.1 % (66 ) -3.1 %
Interest on fed funds sold and rev repos 6 5 5 1 20.0 % 1 20.0 %
Other interest income   339     336     329     3   0.9 %   10   3.0 %
Total interest income-FTE   96,126     97,825     99,860     (1,699 ) -1.7 %   (3,734 ) -3.7 %
Interest on deposits 5,725 6,465 8,911 (740 ) -11.4 % (3,186 ) -35.8 %
Interest on fed funds pch and repos 135 142 216 (7 ) -4.9 % (81 ) -37.5 %
Other interest expense   1,358     1,359     1,386     (1 ) -0.1 %   (28 ) -2.0 %
Total interest expense   7,218     7,966     10,513     (748 ) -9.4 %   (3,295 ) -31.3 %
Net interest income-FTE 88,908 89,859 89,347 (951 ) -1.1 % (439 ) -0.5 %
Provision for loan losses, excluding acquired loans 3,358 650 7,978 2,708 n/m (4,620 ) -57.9 %
Provision for acquired loan losses   2,105     1,672     -     433   25.9 %   2,105   n/m
Net interest income after provision-FTE   83,445     87,537     81,369     (4,092 ) -4.7 %   2,076   2.6 %
Service charges on deposit accounts 13,135 12,614 13,680 521 4.1 % (545 ) -4.0 %
Insurance commissions 7,533 7,179 7,516 354 4.9 % 17 0.2 %
Wealth management 5,612 5,762 5,993 (150 ) -2.6 % (381 ) -6.4 %
Bank card and other fees 6,924 8,179 7,033 (1,255 ) -15.3 % (109 ) -1.5 %
Mortgage banking, net 11,150 11,184 9,783 (34 ) -0.3 % 1,367 14.0 %
Other, net   512     (1,150 )   234     1,662   n/m   278   n/m
Nonint inc-excl sec gains, net 44,866 43,768 44,239 1,098 2.5 % 627 1.4 %
Security (losses) gains, net   (1 )   (8 )   33     7   -87.5 %   (34 ) n/m
Total noninterest income   44,865     43,760     44,272     1,105   2.5 %   593   1.3 %
Salaries and employee benefits 47,404 46,959 44,701 445 0.9 % 2,703 6.0 %
Services and fees 11,682 11,750 11,485 (68 ) -0.6 % 197 1.7 %
Net occupancy-premises 5,352 4,954 5,093 398 8.0 % 259 5.1 %
Equipment expense 5,095 5,183 5,038 (88 ) -1.7 % 57 1.1 %
FDIC assessment expense 1,826 1,826 1,812 - 0.0 % 14 0.8 %
ORE/Foreclosure expense 1,702 2,388 5,616 (686 ) -28.7 % (3,914 ) -69.7 %
Other expense   10,399     14,899     11,736     (4,500 ) -30.2 %   (1,337 ) -11.4 %
Total noninterest expense   83,460     87,959     85,481     (4,499 ) -5.1 %   (2,021 ) -2.4 %
Income before income taxes and tax eq adj 44,850 43,338 40,160 1,512 3.5 % 4,690 11.7 %
Tax equivalent adjustment   3,629     3,411     3,667     218   6.4 %   (38 ) -1.0 %
Income before income taxes 41,221 39,927 36,493 1,294 3.2 % 4,728 13.0 %
Income taxes   11,317     10,578     9,525     739   7.0 %   1,792   18.8 %
Net income available to common shareholders $ 29,904   $ 29,349   $ 26,968   $ 555   1.9 % $ 2,936   10.9 %
 
 
Per common share data
Earnings per share - basic $ 0.46   $ 0.45   $ 0.42   $ 0.01   2.2 % $ 0.04   9.5 %
 
Earnings per share - diluted $ 0.46   $ 0.45   $ 0.42   $ 0.01   2.2 % $ 0.04   9.5 %
 
Dividends per share $ 0.23   $ 0.23   $ 0.23   $ -   0.0 % $ -   0.0 %
 
Weighted average common shares outstanding
Basic   64,778,329     64,771,530     64,119,235  
 
Diluted   64,992,614     64,938,697     64,310,453  
 
Period end common shares outstanding   64,779,937     64,775,694     64,119,235  
 

OTHER FINANCIAL DATA
Return on common equity 9.34 % 9.40 % 8.83 %
Return on average tangible common equity 12.61 % 12.74 % 12.04 %
Return on equity 9.34 % 9.40 % 8.83 %
Return on assets 1.21 % 1.20 % 1.12 %
Interest margin - Yield - FTE 4.39 % 4.52 % 4.66 %
Interest margin - Cost 0.33 % 0.37 % 0.49 %
Net interest margin - FTE 4.06 % 4.15 % 4.17 %
Efficiency ratio (1) 62.39 % 66.26 % 63.99 %
Full-time equivalent employees 2,632 2,598 2,542
 

COMMON STOCK PERFORMANCE
Market value-Close $ 24.34 $ 24.48 $ 18.15
Common book value $ 19.73 $ 19.43 $ 19.05
Tangible common book value $ 14.95 $ 14.64 $ 14.28
 
 
(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
September 30, 2012
($ in thousands)
(unaudited)
    Quarter Ended Linked Quarter Year over Year

NONPERFORMING ASSETS (1)
  9/30/2012       6/30/2012       9/30/2011  

$ Change
% Change

$ Change
% Change
Nonaccrual loans
Florida $ 21,456 $ 22,260 $ 27,263 $ (804 ) -3.6 % $ (5,807 ) -21.3 %
Mississippi (2) 32,041 47,322 44,825 (15,281 ) -32.3 % (12,784 ) -28.5 %
Tennessee (3) 7,388 11,171 14,575 (3,783 ) -33.9 % (7,187 ) -49.3 %
Texas   19,773     18,927     12,915     846   4.5 %   6,858   53.1 %
Total nonaccrual loans 80,658 99,680 99,578 (19,022 ) -19.1 % (18,920 ) -19.0 %
Other real estate
Florida 22,340 23,324 29,949 (984 ) -4.2 % (7,609 ) -25.4 %
Mississippi (2) 27,113 19,511 21,027 7,602 39.0 % 6,086 28.9 %
Tennessee (3) 18,545 18,850 17,940 (305 ) -1.6 % 605 3.4 %
Texas   14,477     11,988     20,681     2,489   20.8 %   (6,204 ) -30.0 %
Total other real estate   82,475     73,673     89,597     8,802   11.9 %   (7,122 ) -7.9 %
Total nonperforming assets $ 163,133   $ 173,353   $ 189,175   $ (10,220 ) -5.9 % $ (26,042 ) -13.8 %
 

LOANS PAST DUE OVER 90 DAYS (4)
LHFI $ 5,699   $ 1,843   $ 3,166   $ 3,856   n/m $ 2,533   80.0 %
 
LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase) $ 39,492   $ 35,270   $ 32,956   $ 4,222   12.0 % $ 6,536   19.8 %
 
Quarter Ended Linked Quarter Year over Year

ALLOWANCE FOR LOAN LOSSES (4)
  9/30/2012     6/30/2012     9/30/2011  

$ Change
  % Change  

$ Change
  % Change
Beginning Balance $ 84,809 $ 90,879 $ 86,846 $ (6,070 ) -6.7 % $ (2,037 ) -2.3 %
Provision for loan losses 3,358 650 7,978 2,708 n/m (4,620 ) -57.9 %
Charge-offs (7,907 ) (9,264 ) (8,675 ) 1,357 -14.6 % 768 -8.9 %
Recoveries   3,266     2,544     3,314     722   28.4 %   (48 ) -1.4 %
Net charge-offs   (4,641 )   (6,720 )   (5,361 )   2,079   -30.9 %   720   -13.4 %
Ending Balance $ 83,526   $ 84,809   $ 89,463   $ (1,283 ) -1.5 % $ (5,937 ) -6.6 %
 

PROVISION FOR LOAN LOSSES (4)
`
Florida $ 7 $ (770 ) $ 3,046 $ 777 n/m $ (3,039 ) -99.8 %
Mississippi (2) 466 1,141 3,732 (675 ) -59.2 % (3,266 ) -87.5 %
Tennessee (3) 687 839 (105 ) (152 ) -18.1 % 792 n/m
Texas   2,198     (560 )   1,305     2,758   n/m   893   68.4 %
Total provision for loan losses $ 3,358   $ 650   $ 7,978   $ 2,708   n/m $ (4,620 ) -57.9 %
 

NET CHARGE-OFFS (4)
Florida $ (488 ) $ 4,491 $ 2,909 $ (4,979 ) n/m $ (3,397 ) n/m
Mississippi (2) 4,726 1,751 1,988 2,975 n/m 2,738 n/m
Tennessee (3) 438 536 499 (98 ) -18.3 % (61 ) -12.2 %
Texas   (35 )   (58 )   (35 )   23   -39.7 %   -   0.0 %
Total net charge-offs $ 4,641   $ 6,720   $ 5,361   $ (2,079 ) -30.9 % $ (720 ) -13.4 %
 

CREDIT QUALITY RATIOS (1)
Net charge offs/average loans 0.31 % 0.46 % 0.36 %
Provision for loan losses/average loans 0.23 % 0.04 % 0.53 %
Nonperforming loans/total loans (incl LHFS) 1.38 % 1.68 % 1.66 %
Nonperforming assets/total loans (incl LHFS) 2.79 % 2.92 % 3.16 %
Nonperforming assets/total loans (incl LHFS) +ORE 2.75 % 2.88 % 3.11 %
ALL/total loans (excl LHFS) 1.51 % 1.50 % 1.55 %
ALL-commercial/total commercial loans 1.79 % 1.81 % 1.94 %
ALL-consumer/total consumer and home mortgage loans 0.84 % 0.81 % 0.76 %
ALL/nonperforming loans 103.56 % 85.08 % 89.84 %
ALL/nonperforming loans -
(excl impaired loans) 174.09 % 186.45 % 248.82 %
 

CAPITAL RATIOS
Total equity/total assets 12.95 % 12.72 % 12.59 %
Common equity/total assets 12.95 % 12.72 % 12.59 %
Tangible common equity/tangible assets 10.13 % 9.90 % 9.74 %
Tangible common equity/risk-weighted assets 14.49 % 14.30 % 14.04 %
Tier 1 leverage ratio 10.83 % 10.63 % 10.38 %
Tier 1 common risk-based capital ratio 14.50 % 14.36 % 13.84 %
Tier 1 risk-based capital ratio 15.40 % 15.26 % 14.76 %
Total risk-based capital ratio 17.25 % 17.12 % 16.78 %
 
(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
September 30, 2012
($ in thousands)
(unaudited)
    Quarter Ended   Nine Months Ended

AVERAGE BALANCES
  9/30/2012       6/30/2012       3/31/2012       12/31/2011       9/30/2011     9/30/2012       9/30/2011  
Securities AFS-taxable $ 2,409,292 $ 2,341,475 $ 2,327,572 $ 2,241,361 $ 2,150,117 $ 2,359,628 $ 2,114,897
Securities AFS-nontaxable 169,037 167,287 160,870 164,057 170,714 165,743 155,796
Securities HTM-taxable 28,333 30,136 33,270 41,106 52,868 30,571 74,608
Securities HTM-nontaxable   18,361     19,378     21,598     22,664     24,062     19,774     25,641  
Total securities   2,625,023     2,558,276     2,543,310     2,469,188     2,397,761     2,575,716     2,370,942  
Loans (including loans held for sale) 5,886,447 5,938,168 6,014,133 5,999,221 5,985,730 5,946,031 6,045,218
Acquired loans:
Noncovered loans 88,562 97,341 19,931 - - 68,684 -
Covered loans 65,259 70,217 75,612 77,934 83,811 70,344 54,197
Fed funds sold and rev repos 6,583 5,309 9,568 10,516 5,801 7,151 6,980
Other earning assets   31,758     29,654     34,102     34,859     32,327     31,838     37,345  
Total earning assets   8,703,632     8,698,965     8,696,656     8,591,718     8,505,430     8,699,764     8,514,682  
Allowance for loan losses (86,865 ) (92,223 ) (92,062 ) (90,857 ) (88,888 ) (90,371 ) (93,215 )
Cash and due from banks 236,566 272,283 232,139 221,278 216,134 246,958 218,310
Other assets   958,030     947,914     918,273     914,468     939,780     941,468     925,750  
Total assets $ 9,811,363   $ 9,826,939   $ 9,755,006   $ 9,636,607   $ 9,572,456   $ 9,797,819   $ 9,565,527  
 
Interest-bearing demand deposits $ 1,534,244 $ 1,545,203 $ 1,545,045 $ 1,511,422 $ 1,558,318 $ 1,541,471 $ 1,534,874
Savings deposits 2,348,413 2,467,546 2,339,166 2,067,431 2,133,437 2,384,908 2,152,498
Time deposits less than $100,000 1,150,620 1,169,532 1,190,888 1,212,190 1,232,374 1,170,274 1,232,777
Time deposits of $100,000 or more   781,926     813,530     825,214     844,565     877,951     806,799     886,348  
Total interest-bearing deposits 5,815,203 5,995,811 5,900,313 5,635,608 5,802,080 5,903,452 5,806,497
Fed funds purchased and repos 374,885 280,726 437,270 526,740 462,294 364,332 501,585
Short-term borrowings 81,773 80,275 84,797 141,600 85,678 82,280 143,450
Long-term FHLB advances - - - 197 2,413 - 1,591
Subordinated notes 49,858 49,850 49,842 49,833 49,825 49,850 49,817
Junior subordinated debt securities   61,856     61,856     61,856     61,856     61,856     61,856     61,856  
Total interest-bearing liabilities 6,383,575 6,468,518 6,534,078 6,415,834 6,464,146 6,461,770 6,564,796
Noninterest-bearing deposits 2,039,729 1,998,077 1,869,758 1,897,398 1,811,472 1,969,445 1,716,300
Other liabilities   114,454     104,628     122,668     100,274     85,404     113,920     99,873  
Total liabilities 8,537,758 8,571,223 8,526,504 8,413,506 8,361,022 8,545,135 8,380,969
Shareholders' equity   1,273,605     1,255,716     1,228,502     1,223,101     1,211,434     1,252,684     1,184,558  
Total liabilities and equity $ 9,811,363   $ 9,826,939   $ 9,755,006   $ 9,636,607   $ 9,572,456   $ 9,797,819   $ 9,565,527  
 

PERIOD END BALANCES
  9/30/2012     6/30/2012     3/31/2012     12/31/2011     9/30/2011  
Cash and due from banks $ 209,188 $ 284,735 $ 213,500 $ 202,625 $ 245,132
Fed funds sold and rev repos 5,295 6,725 6,301 9,258 8,810
Securities available for sale 2,724,446 2,592,807 2,595,664 2,468,993 2,476,905
Securities held to maturity 45,484 47,867 52,010 57,705 71,046
Loans held for sale (LHFS) 324,897 286,221 227,449 216,553 210,269
Loans held for investment (LHFI) 5,527,963 5,650,548 5,774,753 5,857,484 5,783,712
Allowance for loan losses   (83,526 )   (84,809 )   (90,879 )   (89,518 )   (89,463 )
Net LHFI 5,444,437 5,565,739 5,683,874 5,767,966 5,694,249
Acquired loans:
Noncovered loans 83,110 94,013 100,669 - -
Covered loans 64,503 66,015 74,419 76,804 79,064
Allowance for loan losses, acquired loans   (4,343 )   (1,526 )   (773 )   (502 )   -  
Net acquired loans   143,270     158,502     174,315     76,302     79,064  
Net LHFI and acquired loans 5,587,707 5,724,241 5,858,189 5,844,268 5,773,313
Premises and equipment, net 155,467 156,089 156,158 142,582 141,639
Mortgage servicing rights 44,211 43,580 45,893 43,274 43,659
Goodwill 291,104 291,104 291,104 291,104 291,104
Identifiable intangible assets 18,327 19,356 18,821 14,076 14,861
Other real estate, excluding covered other real estate 82,475 73,673 75,742 79,053 89,597
Covered other real estate 5,722 6,482 5,824 6,331 7,197
FDIC indemnification asset 23,979 25,309 28,260 28,348 33,436
Other assets   353,857     332,657     356,678     322,837     298,953  
Total assets $ 9,872,159   $ 9,890,846   $ 9,931,593   $ 9,727,007   $ 9,705,921  
 
Deposits:
Noninterest-bearing $ 2,118,853 $ 2,063,261 $ 2,024,290 $ 2,033,442 $ 1,871,040
Interest-bearing   5,685,188     5,932,596     6,066,456     5,532,921     5,698,684  
Total deposits 7,804,041 7,995,857 8,090,746 7,566,363 7,569,724
Fed funds purchased and repos 408,711 297,669 254,878 604,500 576,672
Short-term borrowings 83,612 78,594 82,023 87,628 98,887
Long-term FHLB advances - - - - 741
Subordinated notes 49,863 49,855 49,847 49,839 49,831
Junior subordinated debt securities 61,856 61,856 61,856 61,856 61,856
Other liabilities   186,061     148,520     150,723     141,784     126,604  
Total liabilities   8,594,144     8,632,351     8,690,073     8,511,970     8,484,315  
Common stock 13,496 13,496 13,494 13,364 13,359
Capital surplus 284,089 283,023 282,388 266,026 264,750
Retained earnings 973,182 958,322 944,101 932,526 923,891

Accum other comprehensive income, net of tax
  7,248     3,654     1,537     3,121     19,606  
Total shareholders' equity   1,278,015     1,258,495     1,241,520     1,215,037     1,221,606  
Total liabilities and equity $ 9,872,159 $ 9,890,846 $ 9,931,593 $ 9,727,007 $ 9,705,921
 

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

INCOME STATEMENTS
  9/30/2012     6/30/2012     3/31/2012     12/31/2011     9/30/2011     9/30/2012     9/30/2011  
Interest and fees on loans-FTE $ 77,783 $ 78,046 $ 78,718 $ 82,230 $ 79,256 $ 234,547 $ 238,574
Interest on securities-taxable 15,909 17,352 18,384 17,362 18,115 51,645 58,481
Interest on securities-tax exempt-FTE 2,089 2,086 2,102 2,133 2,155 6,277 6,398
Interest on fed funds sold and rev repos 6 5 6 10 5 17 20
Other interest income   339     336     330     327     329     1,005     994  
Total interest income-FTE   96,126     97,825     99,540     102,062     99,860     293,491     304,467  
Interest on deposits 5,725 6,465 7,353 7,728 8,911 19,543 29,110
Interest on fed funds pch and repos 135 142 171 195 216 448 770
Other interest expense   1,358     1,359     1,414     1,418     1,386     4,131     3,815  
Total interest expense   7,218     7,966     8,938     9,341     10,513     24,122     33,695  
Net interest income-FTE 88,908 89,859 90,602 92,721 89,347 269,369 270,772
Provision for loan losses, excluding acquired loans 3,358 650 3,293 6,073 7,978 7,301 23,631
Provision for acquired loan losses   2,105     1,672     (194 )   624     -     3,583     -  
Net interest income after provision-FTE   83,445     87,537     87,503     86,024     81,369     258,485     247,141  
Service charges on deposit accounts 13,135 12,614 12,211 13,269 13,680 37,960 38,438
Insurance commissions 7,533 7,179 6,606 6,076 7,516 21,318 20,890
Wealth management 5,612 5,762 5,501 5,223 5,993 16,875 17,739
Bank card and other fees 6,924 8,179 7,364 7,112 7,033 22,467 20,362
Mortgage banking, net 11,150 11,184 7,295 6,038 9,783 29,629 20,774
Other, net   512     (1,150 )   3,758     (4,928 )   234     3,120     8,781  
Nonint inc-excl sec gains, net 44,866 43,768 42,735 32,790 44,239 131,369 126,984
Security (losses) gains, net   (1 )   (8 )   1,050     (11 )   33     1,041     91  
Total noninterest income   44,865     43,760     43,785     32,779     44,272     132,410     127,075  
Salaries and employee benefits 47,404 46,959 46,432 45,616 44,701 140,795 132,940
Services and fees 11,682 11,750 10,747 11,323 11,485 34,179 32,535
Net occupancy-premises 5,352 4,954 4,938 5,038 5,093 15,244 15,216
Equipment expense 5,095 5,183 4,912 5,139 5,038 15,190 15,038
FDIC assessment expense 1,826 1,826 1,775 1,484 1,812 5,427 6,500
ORE/Foreclosure expense 1,702 2,388 3,902 2,760 5,616 7,992 13,533
Other expense   10,399     14,899     13,068     11,643     11,736     38,366     31,085  
Total noninterest expense   83,460     87,959     85,774     83,003     85,481     257,193     246,847  
Income before income taxes and tax eq adj 44,850 43,338 45,514 35,800 40,160 133,702 127,369
Tax equivalent adjustment   3,629     3,411     3,658     3,663     3,667     10,698     10,887  
Income before income taxes 41,221 39,927 41,856 32,137 36,493 123,004 116,482
Income taxes   11,317     10,578     11,536     7,879     9,525     33,431     33,899  
Net income available to common shareholders $ 29,904   $ 29,349   $ 30,320   $ 24,258   $ 26,968   $ 89,573   $ 82,583  
 
Per common share data
Earnings per share - basic $ 0.46   $ 0.45   $ 0.47   $ 0.38   $ 0.42   $ 1.39   $ 1.29  
 
Earnings per share - diluted $ 0.46   $ 0.45   $ 0.47   $ 0.38   $ 0.42   $ 1.38   $ 1.29  
 
Dividends per share $ 0.23   $ 0.23   $ 0.23   $ 0.23   $ 0.23   $ 0.69   $ 0.69  
 
Weighted average common shares outstanding
Basic   64,778,329     64,771,530     64,297,038     64,122,188     64,119,235     64,616,226     64,047,866  
 
Diluted   64,992,614     64,938,697     64,477,277     64,330,242     64,310,453     64,804,661     64,251,025  
 
Period end common shares outstanding   64,779,937     64,775,694     64,765,581     64,142,498     64,119,235     64,779,937     64,119,235  
 
 

OTHER FINANCIAL DATA
Return on common equity 9.34 % 9.40 % 9.93 % 7.87 % 8.83 % 9.55 % 9.32 %
Return on average tangible common equity 12.61 % 12.74 % 13.41 % 10.70 % 12.04 % 12.91 % 12.80 %
Return on equity 9.34 % 9.40 % 9.93 % 7.87 % 8.83 % 9.55 % 9.32 %
Return on assets 1.21 % 1.20 % 1.25 % 1.00 % 1.12 % 1.22 % 1.15 %
Interest margin - Yield - FTE 4.39 % 4.52 % 4.60 % 4.71 % 4.66 % 4.51 % 4.78 %
Interest margin - Cost 0.33 % 0.37 % 0.41 % 0.43 % 0.49 % 0.37 % 0.53 %
Net interest margin - FTE 4.06 % 4.15 % 4.19 % 4.28 % 4.17 % 4.14 % 4.25 %
Efficiency ratio (1) 62.39 % 66.26 % 63.70 % 66.13 % 63.99 % 64.12 % 63.25 %
Full-time equivalent employees 2,632 2,598 2,611 2,537 2,542
 
 

COMMON STOCK PERFORMANCE
Market value-Close $ 24.34 $ 24.48 $ 24.98 $ 24.29 $ 18.15
Common book value $ 19.73 $ 19.43 $ 19.17 $ 18.94 $ 19.05
Tangible common book value $ 14.95 $ 14.64 $ 14.38 $ 14.18 $ 14.28
 
 

(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
September 30, 2012
($ in thousands)
(unaudited)
       
Quarter Ended

NONPERFORMING ASSETS (1)
  9/30/2012     6/30/2012     3/31/2012     12/31/2011     9/30/2011  
Nonaccrual loans
Florida $ 21,456 $ 22,260 $ 22,174 $ 23,002 $ 27,263
Mississippi (2) 32,041 47,322 48,648 46,746 44,825
Tennessee (3) 7,388 11,171 13,972 15,791 14,575
Texas   19,773     18,927     20,979     24,919     12,915  
Total nonaccrual loans 80,658 99,680 105,773 110,458 99,578
Other real estate
Florida 22,340 23,324 26,226 29,963 29,949
Mississippi (2) 27,113 19,511 19,240 19,483 21,027
Tennessee (3) 18,545 18,850 17,665 16,879 17,940
Texas   14,477     11,988     12,611     12,728     20,681  
Total other real estate   82,475     73,673     75,742     79,053     89,597  
Total nonperforming assets $ 163,133   $ 173,353   $ 181,515   $ 189,511   $ 189,175  
 

LOANS PAST DUE OVER 90 DAYS (4)
LHFI $ 5,699   $ 1,843   $ 1,553   $ 4,230   $ 3,166  
 
LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase) $ 39,492   $ 35,270   $ 39,496   $ 39,379   $ 32,956  
 
 
Quarter Ended Nine Months Ended

ALLOWANCE FOR LOAN LOSSES (4)
  9/30/2012     6/30/2012     3/31/2012     12/31/2011     9/30/2011     9/30/2012     9/30/2011  
Beginning Balance $ 84,809 $ 90,879 $ 89,518 $ 89,463 $ 86,846 $ 89,518 $ 93,510
Provision for loan losses 3,358 650 3,293 6,073 7,978 7,301 23,631
Charge-offs (7,907 ) (9,264 ) (5,376 ) (8,457 ) (8,675 ) (22,547 ) (37,312 )
Recoveries   3,266     2,544     3,444     2,439     3,314     9,254     9,634  
Net charge-offs   (4,641 )   (6,720 )   (1,932 )   (6,018 )   (5,361 )   (13,293 )   (27,678 )
Ending Balance $ 83,526   $ 84,809   $ 90,879   $ 89,518   $ 89,463   $ 83,526   $ 89,463  
 

PROVISION FOR LOAN LOSSES (4)
Florida $ 7 $ (770 ) $ 739 $ 4,797 $ 3,046 $ (24 ) $ 11,703
Mississippi (2) 466 1,141 4,152 3,783 3,732 5,759 6,134
Tennessee (3) 687 839 (29 ) (885 ) (105 ) 1,497 1,671
Texas   2,198     (560 )   (1,569 )   (1,622 )   1,305     69     4,123  
Total provision for loan losses $ 3,358   $ 650   $ 3,293   $ 6,073   $ 7,978   $ 7,301   $ 23,631  
 

NET CHARGE-OFFS (4)
Florida $ (488 ) $ 4,491 $ 1,495 $ 2,576 $ 2,909 $ 5,498 $ 16,267
Mississippi (2) 4,726 1,751 251 2,556 1,988 6,728 5,799
Tennessee (3) 438 536 223 773 499 1,197 1,802
Texas   (35 )   (58 )   (37 )   113     (35 )   (130 )   3,810  
Total net charge-offs $ 4,641   $ 6,720   $ 1,932   $ 6,018   $ 5,361   $ 13,293   $ 27,678  
 

CREDIT QUALITY RATIOS (1)
Net charge offs/average loans 0.31 % 0.46 % 0.13 % 0.40 % 0.36 % 0.30 % 0.61 %
Provision for loan losses/average loans 0.23 % 0.04 % 0.22 % 0.40 % 0.53 % 0.16 % 0.52 %
Nonperforming loans/total loans (incl LHFS) 1.38 % 1.68 % 1.76 % 1.82 % 1.66 %
Nonperforming assets/total loans (incl LHFS) 2.79 % 2.92 % 3.02 % 3.12 % 3.16 %
Nonperforming assets/total loans (incl LHFS) +ORE 2.75 % 2.88 % 2.99 % 3.08 % 3.11 %
ALL/total loans (excl LHFS) 1.51 % 1.50 % 1.57 % 1.53 % 1.55 %
ALL-commercial/total commercial loans 1.79 % 1.81 % 1.97 % 1.91 % 1.94 %
ALL-consumer/total consumer and home mortgage loans 0.84 % 0.81 % 0.75 % 0.76 % 0.76 %
ALL/nonperforming loans 103.56 % 85.08 % 85.92 % 81.04 % 89.84 %
ALL/nonperforming loans -
(excl impaired loans) 174.09 % 186.45 % 181.11 % 194.19 % 248.82 %
 

CAPITAL RATIOS
Total equity/total assets 12.95 % 12.72 % 12.50 % 12.49 % 12.59 %
Common equity/total assets 12.95 % 12.72 % 12.50 % 12.49 % 12.59 %
Tangible common equity/tangible assets 10.13 % 9.90 % 9.68 % 9.66 % 9.74 %
Tangible common equity/risk-weighted assets 14.49 % 14.30 % 13.89 % 13.83 % 14.04 %
Tier 1 leverage ratio 10.83 % 10.63 % 10.55 % 10.43 % 10.38 %
Tier 1 common risk-based capital ratio 14.50 % 14.36 % 13.98 % 13.90 % 13.84 %
Tier 1 risk-based capital ratio 15.40 % 15.26 % 14.87 % 14.81 % 14.76 %
Total risk-based capital ratio 17.25 % 17.12 % 16.72 % 16.67 % 16.78 %
 
 
(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

September 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.

BancTrust shareholders approved the merger on September 26, 2012. Regulatory approval is still pending. On October 9, 2012, Trustmark and BancTrust announced that the definitive agreement dated May 28, 2012, pursuant to which BancTrust will merge into Trustmark has been amended to accommodate the closing of the merger in early 2013. As such, the latest possible closing date for the merger has been extended from December 31, 2012, to February 28, 2013. This extension provides additional time in which to receive regulatory approval as well as to ensure a smooth transition and operational conversion to Trustmark systems in early 2013. All other material aspects of the definitive agreement remain unchanged.

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.”

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

9/30/2011

SECURITIES AVAILABLE FOR SALE
U.S. Government agency obligations
Issued by U.S. Government agencies $ 18 $ 22 $ 31 $ 3 $

5
Issued by U.S. Government sponsored agencies 60,671 72,923 101,941 64,802

61,870
Obligations of states and political subdivisions 215,900 213,826 208,234 202,827

207,781
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA 21,352 22,367 20,064 12,445

14,637
Issued by FNMA and FHLMC 237,886 264,018 286,169 347,932

400,589
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 1,565,290 1,570,226 1,619,920 1,614,965

1,579,698
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 381,207 354,453 330,318 226,019

212,325
Asset-backed securities / structured financial products 242,122 91,293 23,693 -

-
Corporate debt securities   -   3,679   5,294   -  

-
Total securities available for sale $ 2,724,446 $ 2,592,807 $ 2,595,664 $ 2,468,993 $

2,476,905
 

SECURITIES HELD TO MATURITY
Obligations of states and political subdivisions $ 37,669 $ 38,351 $ 40,393 $ 42,619 $

43,246
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA 3,435 3,745 4,089 4,538

5,291
Issued by FNMA and FHLMC 580 583 586 588

753
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 1,624 3,000 4,743 7,749

19,534
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA   2,176   2,188   2,199   2,211  

2,222
Total securities held to maturity $ 45,484 $ 47,867 $ 52,010 $ 57,705 $

71,046
 

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, Independent Bankers Bank of Florida and Federal Reserve Bank, Trustmark does not hold any equity investment in government sponsored entities.

Note 3 – Loan Composition

LHFI BY TYPE (excluding acquired loans)
      9/30/2012       6/30/2012       3/31/2012       12/31/2011       9/30/2011  
Loans secured by real estate:  
Construction, land development and other land loans $ 460,599 $ 464,349 $ 465,486 $ 474,082 $ 481,821
Secured by 1-4 family residential properties 1,511,514 1,621,865 1,722,357 1,760,930 1,717,366
Secured by nonfarm, nonresidential properties 1,397,536 1,392,293 1,419,902 1,425,774 1,437,573
Other real estate secured 184,804 192,376 199,400 204,849 207,984
Commercial and industrial loans 1,163,681 1,142,282 1,142,813 1,139,365 1,083,753
Consumer loans 181,896 196,718 210,713 243,756 268,002
Other loans   627,933     640,665     614,082     608,728     587,213  
LHFI 5,527,963 5,650,548 5,774,753 5,857,484 5,783,712
Allowance for loan losses   (83,526 )   (84,809 )   (90,879 )   (89,518 )   (89,463 )
Net LHFI $ 5,444,437   $ 5,565,739   $ 5,683,874   $ 5,767,966   $ 5,694,249  
 
 

ACQUIRED NONCOVERED LOANS BY TYPE
  9/30/2012     6/30/2012     3/31/2012     12/31/2011     9/30/2011  
Loans secured by real estate:
Construction, land development and other land loans $ 11,504 $ 13,154 $ 14,346 $ - $ -
Secured by 1-4 family residential properties 18,032 18,954 20,409 - -
Secured by nonfarm, nonresidential properties 47,114 53,272 54,954 - -
Other real estate secured 378 512 695 - -
Commercial and industrial loans 3,371 4,822 5,732 - -
Consumer loans 2,575 3,153 4,188 - -
Other loans   136     146     345     -     -  
Noncovered loans 83,110 94,013 100,669 - -
Allowance for loan losses   (817 )   (62 )   (37 )   -     -  
Net noncovered loans $ 82,293   $ 93,951   $ 100,632   $ -   $ -  
           

ACQUIRED COVERED LOANS BY TYPE
  9/30/2012     6/30/2012     3/31/2012     12/31/2011     9/30/2011
Loans secured by real estate:
Construction, land development and other land loans $ 3,714 $ 3,683 $ 3,940 $ 4,209 $ 4,024
Secured by 1-4 family residential properties 24,949 27,218 30,221 31,874 32,735
Secured by nonfarm, nonresidential properties 28,291 27,464 30,737 30,889 33,601
Other real estate secured 4,198 4,580 5,087 5,126 5,294
Commercial and industrial loans 1,803 1,382 2,768 2,971 1,772
Consumer loans 172 205 206 290 158
Other loans   1,376     1,483     1,460     1,445     1,480
Covered loans 64,503 66,015 74,419 76,804 79,064
Allowance for loan losses   (3,526 )   (1,464 )   (736 )   (502 )   -
Net covered loans $ 60,977   $ 64,551   $ 73,683   $ 76,302   $ 79,064
 
           
Note 3 – Loan Composition (continued)
September 30, 2012

LHFI - COMPOSITION BY REGION (1)
Total Florida

Mississippi(Central andSouthernRegions)

Tennessee(Memphis, TNand NorthernMS Regions)
Texas
Loans secured by real estate:
Construction, land development and other land loans $ 460,599 $ 87,187 $ 222,776 $ 37,905 $ 112,731
Secured by 1-4 family residential properties 1,511,514 53,023 1,289,279 142,852 26,360
Secured by nonfarm, nonresidential properties 1,397,536 154,121 742,922 175,051 325,442
Other real estate secured 184,804 8,760 133,434 5,031 37,579
Commercial and industrial loans 1,163,681 13,972 782,879 86,768 280,062
Consumer loans 181,896 1,308 157,253 19,241 4,094
Other loans   627,933   24,861   532,101   25,139   45,832
Loans $ 5,527,963 $ 343,232 $ 3,860,644 $ 491,987 $ 832,100
 
 
 

CONSTRUCTION, LAND DEVELOPMENT AND OTHER LAND LOANS BY REGION (1)
Lots $ 56,286 $ 34,302 $ 16,303 $ 1,475 $ 4,206
Development 84,524 8,615 50,250 5,836 19,823
Unimproved land 152,884 42,735 65,785 16,382 27,982
1-4 family construction 73,417 1,261 54,820 2,503 14,833
Other construction   93,488   274   35,618   11,709   45,887
Construction, land development and other land loans $ 460,599 $ 87,187 $ 222,776 $ 37,905 $ 112,731
 
 
 
 

LOANS SECURED BY NONFARM, NONRESIDENTIAL PROPERTIES BY REGION (1)
Income producing:
Retail $ 165,600 $ 42,253 $ 67,787 $ 23,260 $ 32,300
Office 138,458 37,107 67,044 9,703 24,604
Nursing homes/assisted living 87,028 - 77,963 4,146 4,919
Hotel/motel 96,569 8,498 28,244 32,483 27,344
Industrial 52,094 8,545 13,238 374 29,937
Health care 15,425 - 10,535 139 4,751
Convenience stores 9,209 - 4,564 1,441 3,204
Other   133,806   14,050   69,874   6,348   43,534
Total income producing loans 698,189 110,453 339,249 77,894 170,593
 
Owner-occupied:
Office 117,073 14,804 72,779 6,693 22,797
Churches 86,602 3,149 50,759 27,575 5,119
Industrial warehouses 83,132 1,126 41,766 319 39,921
Health care 98,511 14,120 51,077 15,909 17,405
Convenience stores 60,778 1,770 37,997 4,000 17,011
Retail 39,123 3,769 25,538 3,135 6,681
Restaurants 32,467 1,136 25,158 4,837 1,336
Auto dealerships 20,077 479 17,697 1,838 63
Other   161,584   3,315   80,902   32,851   44,516
Total owner-occupied loans 699,347 43,668 403,673 97,157 154,849
         
Loans secured by nonfarm, nonresidential properties $ 1,397,536 $ 154,121 $ 742,922 $ 175,051 $ 325,442
 
(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     Nine Months Ended
9/30/2012   6/30/2012   3/31/2012   12/31/2011   9/30/2011   9/30/2012   9/30/2011
Securities – Taxable 2.60% 2.94% 3.13% 3.02% 3.26% 2.89% 3.57%
Securities – Nontaxable 4.43% 4.49% 4.63% 4.53% 4.39% 4.52% 4.71%
Securities – Total 2.73% 3.06% 3.24% 3.13% 3.35% 3.00% 3.66%
Loans 5.12% 5.14% 5.18% 5.37% 5.18% 5.15% 5.23%
FF Sold & Rev Repo 0.36% 0.38% 0.25% 0.38% 0.34% 0.32% 0.38%
Other Earning Assets 4.25% 4.56% 3.89% 3.72% 4.04% 4.22% 3.56%
Total Earning Assets 4.39% 4.52% 4.60% 4.71% 4.66% 4.51% 4.78%
 
Interest-bearing Deposits 0.39% 0.43% 0.50% 0.54% 0.61% 0.44% 0.67%
FF Pch & Repo 0.14% 0.20% 0.16% 0.15% 0.19% 0.16% 0.21%
Other Borrowings 2.79% 2.85% 2.89% 2.22% 2.75% 2.84% 1.99%
Total Interest-bearing Liabilities 0.45% 0.50% 0.55% 0.58% 0.65% 0.50% 0.69%
 
Net interest margin 4.06% 4.15% 4.19% 4.28% 4.17% 4.14% 4.25%
 

The net interest margin for the third quarter of 2012 totaled 4.06% compared to a net interest margin in the prior quarter of 4.15% resulting in a decrease of nine basis points. The decrease is primarily due to the downward repricing of loans and securities partially offset by 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 negative ineffectiveness of $1.8 million for the quarter ended September 30, 2012 compared to a net positive ineffectiveness of $2.8 million for the quarter ended September 30, 2011.

The following table illustrates the components of mortgage banking revenues included in noninterest income in the accompanying income statements:
    Quarter Ended   Nine Months Ended
  9/30/2012       6/30/2012       3/31/2012       12/31/2011       9/30/2011     9/30/2012       9/30/2011  
Mortgage servicing income, net $ 3,984 $ 3,891 $ 3,886 $ 3,725 $ 3,738 $ 11,761 $ 11,065
Change in fair value-MSR from runoff (2,751 ) (2,320 ) (2,106 ) (2,122 ) (2,039 ) (7,177 ) (4,785 )
Gain on sales of loans, net 9,114 6,302 6,469 4,633 2,366 21,885 7,319
Other, net   2,608     3,139     64     133     2,926     5,811     2,409  
Mortgage banking income before hedge ineffectiveness   12,955     11,012     8,313     6,369     6,991     32,280     16,008  
Change in fair value-MSR from market changes (3,282 ) (5,926 ) 248 (2,842 ) (7,614 ) (8,960 ) (12,288 )
Change in fair value of derivatives   1,477     6,098     (1,266 )   2,511     10,406     6,309     17,054  
Net (negative) positive hedge ineffectiveness   (1,805 )   172     (1,018 )   (331 )   2,792     (2,651 )   4,766  
Mortgage banking, net $ 11,150   $ 11,184   $ 7,295   $ 6,038   $ 9,783   $ 29,629   $ 20,774  
 

Note 6 – Other Noninterest Income and Expense

Other noninterest income consisted of the following for the periods presented ($ in thousands):
    Quarter Ended   Nine Months Ended
  9/30/2012       6/30/2012       3/31/2012       12/31/2011       9/30/2011     9/30/2012       9/30/2011  
Partnership amortization for tax credit purposes $ (2,302 ) $ (1,491 ) $ (1,422 ) $ (2,690 ) $ (1,417 ) $ (5,215 ) $ (3,676 )
Bargain purchase gain on acquisition - 881 2,754 - - 3,635 7,456
Decrease in FDIC indemnification asset (609 ) (2,289 ) (81 ) (4,157 ) - (2,979 ) -
Other miscellaneous income   3,423     1,749     2,507     1,919     1,651     7,679     5,001  
Total other, net $ 512   $ (1,150 ) $ 3,758   $ (4,928 ) $ 234   $ 3,120   $ 8,781  
 

Note 6 – Other Noninterest Income and Expense (continued)

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 and 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 third quarter of 2012, other noninterest income included a write-down of the FDIC indemnification asset of $609 thousand 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 a sale of assets by Trustmark Investment Advisors, Inc. (TIA) to Federated Investors, Inc. (Federated) and certain of Federated’s subsidiaries, pursuant to the terms of a previously announced definitive agreement between Federated, TIA and Trustmark National Bank. 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   Nine Months Ended
9/30/2012   6/30/2012   3/31/2012   12/31/2011   9/30/2011 9/30/2012   9/30/2011
Loan expense $ 3,150 $ 8,299 $ 5,525 $ 5,788 $ 4,632 $ 16,974 $ 12,444
Non-routine transaction expenses on acquisition - - 1,917 - - 1,917 -
Amortization of intangibles 1,028 1,028 710 799 792 2,766 2,330
Other miscellaneous expense   6,221   5,572   4,916   5,056   6,312   16,709   16,311
Total other expense $ 10,399 $ 14,899 $ 13,068 $ 11,643 $ 11,736 $ 38,366 $ 31,085
 

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 September 30, 2012, the reserve for mortgage loan repurchases totaled $8.6 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.
 
Note 7 - Non-GAAP Financial Measures (continued)
    Quarter Ended   Nine Months Ended
9/30/2012   6/30/2012   3/31/2012   12/31/2011   9/30/2011 9/30/2012   9/30/2011

TANGIBLE COMMON EQUITY
AVERAGE BALANCES
Total shareholders' common equity $ 1,273,605 $ 1,255,716 $ 1,228,502 $ 1,223,101 $ 1,211,434 $ 1,252,684 $ 1,184,558

Less:   Goodwill
(291,104 ) (291,104 ) (291,104 ) (291,104 ) (291,104 ) (291,104 ) (291,104 )

           Identifiable intangible assets
  (18,971 )   (17,762 )   (14,703 )   (14,550 )   (15,343 )   (17,152 )   (15,772 )
Total average tangible common equity $ 963,530   $ 946,850   $ 922,695   $ 917,447   $ 904,987   $ 944,428   $ 877,682  
 
PERIOD END BALANCES
Total shareholders' common equity $ 1,278,015 $ 1,258,495 $ 1,241,520 $ 1,215,037 $ 1,221,606

Less:   Goodwill
(291,104 ) (291,104 ) (291,104 ) (291,104 ) (291,104 )

           Identifiable intangible assets
  (18,327 )   (19,356 )   (18,821 )   (14,076 )   (14,861 )
Total tangible common equity (a) $ 968,584   $ 948,035   $ 931,595   $ 909,857   $ 915,641  
 

TANGIBLE ASSETS
Total assets $ 9,872,159 $ 9,890,846 $ 9,931,593 $ 9,727,007 $ 9,705,291

Less:   Goodwill
(291,104 ) (291,104 ) (291,104 ) (291,104 ) (291,104 )

           Identifiable intangible assets
  (18,327 )   (19,356 )   (18,821 )   (14,076 )   (14,861 )
Total tangible assets (b) $ 9,562,728   $ 9,580,386   $ 9,621,668   $ 9,421,827   $ 9,399,326  
 
Risk-weighted assets (c) $ 6,684,820   $ 6,631,887   $ 6,707,026   $ 6,576,953   $ 6,522,468  
 

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION
Net income available to common shareholders $ 29,904 $ 29,349 $ 30,320 $ 24,258 $ 26,968 $ 89,573 $ 82,583

Plus: Intangible amortization net of tax
  635     635     438     493     489     1,708     1,452  
Net income adjusted for intangible amortization $ 30,539   $ 29,984   $ 30,758   $ 24,751   $ 27,457   $ 91,281   $ 84,035  
 
Period end common shares outstanding (d)   64,779,937     64,775,694     64,765,581     64,142,498     64,119,235  
 

TANGIBLE COMMON EQUITY MEASUREMENTS
Return on average tangible common equity 1 12.61 % 12.74 % 13.41 % 10.70 % 12.04 % 12.91 % 12.80 %
Tangible common equity/tangible assets (a)/(b) 10.13 % 9.90 % 9.68 % 9.66 % 9.74 %
Tangible common equity/risk-weighted assets (a)/(c) 14.49 % 14.30 % 13.89 % 13.83 % 14.04 %
Tangible common book value (a)/(d)*1,000 $ 14.95 $ 14.64 $ 14.38 $ 14.18 $ 14.28
 

TIER 1 COMMON RISK-BASED CAPITAL
Total shareholders' equity $ 1,278,015 $ 1,258,495 $ 1,241,520 $ 1,215,037 $ 1,221,606
Eliminate qualifying AOCI (7,248 ) (3,654 ) (1,537 ) (3,121 ) (19,606 )
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 12,683 12,330 11,978 11,625 11,273
Other disallowed intangibles (18,327 ) (19,356 ) (18,821 ) (14,076 ) (14,861 )
Disallowed servicing intangible   (4,421 )   (4,358 )   (4,589 )   (4,327 )   (4,366 )
Total tier 1 capital $ 1,029,598 $ 1,012,353 $ 997,447 $ 974,034 $ 962,942

Less: Qualifying tier 1 capital
  (60,000 )   (60,000 )   (60,000 )   (60,000 )   (60,000 )
Total tier 1 common capital (e) $ 969,598   $ 952,353   $ 937,447   $ 914,034   $ 902,942  
 
Tier 1 common risk-based capital ratio (e)/(c) 14.50 % 14.36 % 13.98 % 13.90 % 13.84 %
 
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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