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

Trustmark Corporation (NASDAQ:TRMK) announced net income available to common shareholders of $117.3 million for the year ended December 31, 2012, which represented diluted earnings per share of $1.81, an increase of 9.0% compared to figures one year earlier. Trustmark’s performance during 2012 produced a return on average tangible common equity of 12.55% and a return on average assets of 1.20%. In the fourth quarter of 2012, Trustmark’s net income available to common shareholders totaled $27.7 million, which represented diluted earnings per common share of $0.43, an increase of 13.2% compared to the fourth quarter of 2011. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per common share payable March 15, 2013, to shareholders of record on March 1, 2013.

Printer friendly version of earnings release with consolidated financial statements and notes: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=50537853&lang=en

Gerard R. Host, President and CEO, stated, “2012 was a year of significant achievement for Trustmark, particularly in light of prevailing economic conditions. We continued to build upon and expand customer relationships, the success of which is reflected in our strong financial performance. Thanks in part to the low interest rate environment, the profitability of our mortgage banking business reached record levels. We also experienced increased profitability in our insurance and wealth management businesses. Credit quality significantly improved in our banking business which, in turn, increased profitability. During the year, we completed an acquisition in Florida and announced plans to acquire Mobile, Alabama-based BancTrust Financial Group, which is expected to close during the first quarter of 2013 pending regulatory approval. We also made investments in technology designed to increase revenue and improve efficiency. 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
  • Significant reduction in classified and criticized loan balances
  • Nonperforming assets declined to lowest level in 16 quarters
  • Improved credit quality reflected in reduced net charge-offs and provisioning

Nonperforming loans totaled $82.4 million at December 31, 2012, an increase of 2.1% from the prior quarter and a decline of 25.4% from the prior year. Foreclosed other real estate decreased 5.2% from the prior quarter and 1.1% from the prior year to total $78.2 million. Collectively, nonperforming assets totaled $160.6 million at December 31, 2012, the lowest level since year end 2008 and a decline of 1.6% from prior quarter and 15.3% from levels one year earlier. All of the above metrics exclude acquired loans and other real estate covered by FDIC loss-share agreements.

Net charge-offs during the fourth quarter of 2012 totaled $4.3 million and represented 0.29% of average loans, excluding acquired loans. During 2012, net charge-offs totaled $17.5 million, a 47.9% decline from levels one year earlier, and represented 0.30% of average loans. The provision for loan losses for loans held for investment (LHFI) in 2012 totaled $6.8 million, a 77.2% reduction from the prior year. During the fourth quarter, Trustmark’s provision for loan losses for LHFI was a negative $535 thousand as a result of improved credit quality within its loan portfolio. During the fourth quarter, Trustmark experienced a decline of $20.6 million, or 7.5%, in classified loans and a decline of $20.9 million, or 6.0%, in criticized loans relative to the prior quarter. Relative to figures one year earlier, classified loan balances decreased $61.5 million, or 19.5%, while criticized loan balances decreased $71.9 million, or 18.0%.

Allocation of Trustmark’s $78.7 million allowance for loan losses represented 1.59% of commercial loans and 0.97% of consumer and home mortgage loans, resulting in an allowance to total loans of 1.41% at December 31, 2012, which represents a level management considers to be commensurate with the inherent risk in the loan portfolio. The allowance for loan losses represented 174.5% of nonperforming loans, excluding impaired loans. All of the above metrics exclude acquired loans.

Capital Strength
  • Tangible common equity to tangible assets expanded to 10.28%
  • Total risk-based capital ratio of 17.22%

Trustmark’s solid capital position reflects the consistent profitability of its diversified financial services businesses as well as prudent balance sheet management. At December 31, 2012, tangible common equity totaled $979.0 million and represented 10.28% of tangible assets while the total risk-based capital ratio was 17.22%, significantly exceeding the 10% benchmark to be classified as well capitalized. 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

  • Loan demand improved during fourth quarter
  • Average earning assets remained stable at $8.7 billion
  • Net interest income (FTE) totaled $86.0 million in fourth quarter, $355.4 million in 2012

Loans held for investment and acquired loans totaled $5.7 billion at December 31, 2012, an increase of $50.7 million from the prior quarter. During the quarter Trustmark increased lending to public entities and school districts, which was reflected in other loan growth of $56.8 million. Trustmark also experienced growth in its construction and land development ($7.1 million) and commercial and industrial ($4.4 million) loan portfolios. Excluding anticipated run-off in the 1-4 family mortgage loan portfolio ($13.6 million) and in the indirect auto loan portfolio ($10.7 million), total loans increased $75.1 million relative to the prior quarter.

During the fourth quarter of 2012, average earning assets remained stable at $8.7 billion as growth in investment securities effectively offset declining loan balances. Average deposits declined $36.5 million, or 0.5%, to $7.8 billion. Average noninterest-bearing deposits increased 3.7% to represent 27.1% of average deposits in the fourth quarter of 2012.

Trustmark produced net interest income (FTE) of $86.0 million in the fourth quarter of 2012. The net interest margin was 3.94% during the fourth quarter, down 12 basis points from the prior quarter. The decline is primarily attributable to the continued downward repricing of loans and securities, partially offset by modest declines in the cost of interest-bearing deposits.

Noninterest Income
  • Noninterest income totaled $42.8 million in fourth quarter, $175.2 million in 2012
  • Mortgage banking revenue reaches record $11.3 million in fourth quarter, $41.0 million in 2012
  • Tax credit investments reduced effective tax rate to 23.8% in fourth quarter

Noninterest income totaled $42.8 million in the fourth quarter, a decrease of $2.1 million from the prior quarter. This decline is a result of a $1.2 million gain on disposition of the Corporation’s proprietary mutual fund family that occurred in the third quarter as well as an increase in partnership amortization of $900 thousand related to tax credit investments that reduced the Corporation’s effective tax rate during the fourth quarter by approximately 3.6%. Each of these items was included in other noninterest income.

Trustmark continued to achieve solid financial performance from its diverse financial services businesses. Mortgage banking revenue continued at record levels due to strong loan production resulting from historically low interest rates. Mortgage loan production in the fourth quarter totaled $494.9 million, down 3.9% from the prior quarter but up 17.5% relative to levels one year earlier. During the fourth quarter, mortgage banking revenue totaled $11.3 million, reflecting increased mortgage servicing income and secondary marketing gains and a decrease in mortgage servicing hedge ineffectiveness. Mortgage loan production in 2012 totaled $1.9 billion, an increase of 48.8% from levels in 2011 while mortgage banking revenue increased 52.8% to $41.0 million.

Insurance revenue in the fourth quarter totaled $6.9 million, reflecting a seasonal decrease of 8.6% relative to the prior quarter and an increase of 13.3% from levels one year earlier. Improved performance year-over-year resulted from increased business development efforts as well as increasing insurance premium levels. Insurance revenue in 2012 totaled $28.2 million, an increase of 4.6% relative to the prior year.

Wealth management revenue totaled $6.2 million during the fourth quarter, an increase of 10.1% from the prior quarter and 18.3% from the comparable period one year ago. This growth was attributable in part to increased sales within investment services as well as improved profitability within the trust management business.

Bankcard and other fee income totaled $8.0 million in the fourth quarter, an increase of 15.2% from the prior quarter and 12.2% from the prior year. The growth is principally due to increased commercial credit related fee income and interchange income from debit cards. Service charges on deposit accounts totaled $12.4 million in the fourth quarter, reflecting a 5.7% decline from the prior quarter and 6.6% decrease from levels one year earlier due primarily to a reduction in NSF and overdraft fees.

Noninterest Expense

  • Routine noninterest expense remained well-controlled
  • ORE and foreclosure expense declined 31.5% in 2012
  • Continued investments to support revenue growth and profitability

Noninterest expense in the fourth quarter totaled $87.3 million, an increase of $3.8 million from the prior quarter; excluding ORE and foreclosure expense, noninterest expense increased $2.4 million principally due to additional incentive accruals and commissions ($1.1 million and $545 thousand, respectively). Trustmark also made an additional contribution to its self-funded medical plan ($643 thousand), a portion of which was to support wellness and healthcare with the opening of an associate medical clinic in the Corporation’s main office. Each of these items is included in salary and employee benefits expense. ORE/foreclosure expense totaled $3.2 million in the fourth quarter, an increase of $1.5 million from the prior quarter due to additional write downs on foreclosed real estate.

During 2012, noninterest expense totaled $344.5 million; excluding ORE and foreclosure expense, noninterest expense was $333.3 million, an increase of $19.8 million, or 6.3% from levels one year earlier. Excluding non-routine transaction expense ($2.6 million) as well as on-going expense ($4.0 million) associated with the merger of Bay Bank and Trust Company in the first quarter, noninterest expense increased approximately 4.2% in 2012.

Trustmark continued to make investments and reallocate resources to support revenue growth and profitability. During the year, a new ATM fleet was deployed across the franchise which included deposit automation. Since implementation, ATM-originated deposit transactions have increased approximately 150%. In addition, new operating systems designed to enhance efficiency and productivity were introduced in the Corporation’s finance and human resources areas. During 2012, Trustmark continued realignment of its branch network as three branch offices were consolidated (two in Florida and one in Houston); plans are underway to consolidate two other offices in Houston into a new administrative office during the first quarter of 2013. Trustmark remains committed to identifying additional reengineering and efficiency opportunities to enhance shareholder value.

ADDITIONAL INFORMATION

As previously announced, Trustmark will conduct a conference call with analysts on Tuesday, January 22, 2013, at 4:00 p.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 Monday, February 4, 2013, 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
December 31, 2012
($ in thousands)
(unaudited)
        Linked Quarter Year over Year

QUARTERLY AVERAGE BALANCES
12/31/2012 9/30/2012 12/31/2011

$ Change
% Change

$ Change
% Change
Securities AFS-taxable $ 2,466,738 $ 2,409,292 $ 2,241,361 $ 57,446 2.4 % $ 225,377 10.1 %
Securities AFS-nontaxable 169,906 169,037 164,057 869 0.5 % 5,849 3.6 %
Securities HTM-taxable 26,510 28,333 41,106 (1,823 ) -6.4 % (14,596 ) -35.5 %
Securities HTM-nontaxable   17,443     18,361     22,664     (918 ) -5.0 %   (5,221 ) -23.0 %
Total securities   2,680,597     2,625,023     2,469,188     55,574   2.1 %   211,409   8.6 %
Loans (including loans held for sale) 5,834,525 5,886,447 5,999,221 (51,922 ) -0.9 % (164,696 ) -2.7 %
Acquired loans:
Noncovered loans 82,317 88,562 - (6,245 ) -7.1 % 82,317 n/m
Covered loans 58,272 65,259 77,934 (6,987 ) -10.7 % (19,662 ) -25.2 %
Fed funds sold and rev repos 8,747 6,583 10,516 2,164 32.9 % (1,769 ) -16.8 %
Other earning assets   31,168     31,758     34,859     (590 ) -1.9 %   (3,691 ) -10.6 %
Total earning assets   8,695,626     8,703,632     8,591,718     (8,006 ) -0.1 %   103,908   1.2 %
Allowance for loan losses (88,715 ) (86,865 ) (90,857 ) (1,850 ) 2.1 % 2,142 -2.4 %
Cash and due from banks 238,976 236,566 221,278 2,410 1.0 % 17,698 8.0 %
Other assets   972,748     958,030     914,468     14,718   1.5 %   58,280   6.4 %
Total assets $ 9,818,635   $ 9,811,363   $ 9,636,607   $ 7,272   0.1 % $ 182,028   1.9 %
 
Interest-bearing demand deposits $ 1,545,967 $ 1,534,244 $ 1,511,422 $ 11,723 0.8 % $ 34,545 2.3 %
Savings deposits 2,275,569 2,348,413 2,067,431 (72,844 ) -3.1 % 208,138 10.1 %
Time deposits less than $100,000 1,120,735 1,150,620 1,212,190 (29,885 ) -2.6 % (91,455 ) -7.5 %
Time deposits of $100,000 or more   760,363     781,926     844,565     (21,563 ) -2.8 %   (84,202 ) -10.0 %
Total interest-bearing deposits 5,702,634 5,815,203 5,635,608 (112,569 ) -1.9 % 67,026 1.2 %
Fed funds purchased and repos 388,007 374,885 526,740 13,122 3.5 % (138,733 ) -26.3 %
Short-term borrowings 85,313 81,773 141,600 3,540 4.3 % (56,287 ) -39.8 %
Long-term FHLB advances - - 197 - n/m (197 ) -100.0 %
Subordinated notes 49,866 49,858 49,833 8 0.0 % 33 0.1 %
Junior subordinated debt securities   61,856     61,856     61,856     -   0.0 %   -   0.0 %
Total interest-bearing liabilities 6,287,676 6,383,575 6,415,834 (95,899 ) -1.5 % (128,158 ) -2.0 %
Noninterest-bearing deposits 2,115,784 2,039,729 1,897,398 76,055 3.7 % 218,386 11.5 %
Other liabilities   126,953     114,454     100,274     12,499   10.9 %   26,679   26.6 %
Total liabilities 8,530,413 8,537,758 8,413,506 (7,345 ) -0.1 % 116,907 1.4 %
Shareholders' equity   1,288,222     1,273,605     1,223,101     14,617   1.1 %   65,121   5.3 %
Total liabilities and equity $ 9,818,635   $ 9,811,363   $ 9,636,607   $ 7,272   0.1 % $ 182,028   1.9 %
 
Linked Quarter Year over Year

PERIOD END BALANCES
12/31/2012 9/30/2012 12/31/2011

$ Change
% Change

$ Change
% Change
Cash and due from banks $ 231,489 $ 209,188 $ 202,625 $ 22,301 10.7 % $ 28,864 14.2 %
Fed funds sold and rev repos 7,046 5,295 9,258 1,751 33.1 % (2,212 ) -23.9 %
Securities available for sale 2,657,745 2,724,446 2,468,993 (66,701 ) -2.4 % 188,752 7.6 %
Securities held to maturity 42,188 45,484 57,705 (3,296 ) -7.2 % (15,517 ) -26.9 %
Loans held for sale (LHFS) 257,986 324,897 216,553 (66,911 ) -20.6 % 41,433 19.1 %
Loans held for investment (LHFI) 5,592,754 5,527,963 5,857,484 64,791 1.2 % (264,730 ) -4.5 %
Allowance for loan losses   (78,738 )   (83,526 )   (89,518 )   4,788   -5.7 %   10,780   -12.0 %
Net LHFI 5,514,016 5,444,437 5,767,966 69,579 1.3 % (253,950 ) -4.4 %
Acquired loans:
Noncovered loans 81,523 83,110 - (1,587 ) -1.9 % 81,523 n/m
Covered loans 52,041 64,503 76,804 (12,462 ) -19.3 % (24,763 ) -32.2 %
Allowance for loan losses, acquired loans   (6,075 )   (4,343 )   (502 )   (1,732 ) 39.9 %   (5,573 ) n/m
Net acquired loans   127,489     143,270     76,302     (15,781 ) -11.0 %   51,187   67.1 %
Net LHFI and acquired loans 5,641,505 5,587,707 5,844,268 53,798 1.0 % (202,763 ) -3.5 %
Premises and equipment, net 154,841 155,467 142,582 (626 ) -0.4 % 12,259 8.6 %
Mortgage servicing rights 47,341 44,211 43,274 3,130 7.1 % 4,067 9.4 %
Goodwill 291,104 291,104 291,104 - 0.0 % - 0.0 %
Identifiable intangible assets 17,306 18,327 14,076 (1,021 ) -5.6 % 3,230 22.9 %
Other real estate, excluding covered other real estate 78,189 82,475 79,053 (4,286 ) -5.2 % (864 ) -1.1 %
Covered other real estate 5,741 5,722 6,331 19 0.3 % (590 ) -9.3 %
FDIC indemnification asset 21,774 23,979 28,348 (2,205 ) -9.2 % (6,574 ) -23.2 %
Other assets   374,412     353,857     322,837     20,555   5.8 %   51,575   16.0 %
Total assets $ 9,828,667   $ 9,872,159   $ 9,727,007   $ (43,492 ) -0.4 % $ 101,660   1.0 %
 
Deposits:
Noninterest-bearing $ 2,254,211 $ 2,118,853 $ 2,033,442 $ 135,358 6.4 % $ 220,769 10.9 %
Interest-bearing   5,642,306     5,685,188     5,532,921     (42,882 ) -0.8 %   109,385   2.0 %
Total deposits 7,896,517 7,804,041 7,566,363 92,476 1.2 % 330,154 4.4 %
Fed funds purchased and repos 288,829 408,711 604,500 (119,882 ) -29.3 % (315,671 ) -52.2 %
Short-term borrowings 86,920 83,612 87,628 3,308 4.0 % (708 ) -0.8 %
Subordinated notes 49,871 49,863 49,839 8 0.0 % 32 0.1 %
Junior subordinated debt securities 61,856 61,856 61,856 - 0.0 % - 0.0 %
Other liabilities   157,305     186,061     141,784     (28,756 ) -15.5 %   15,521   10.9 %
Total liabilities   8,541,298     8,594,144     8,511,970     (52,846 ) -0.6 %   29,328   0.3 %
Common stock 13,506 13,496 13,364 10 0.1 % 142 1.1 %
Capital surplus 285,905 284,089 266,026 1,816 0.6 % 19,879 7.5 %
Retained earnings 984,563 973,182 932,526 11,381 1.2 % 52,037 5.6 %

Accum other comprehensive income, net of tax
  3,395     7,248     3,121     (3,853 ) -53.2 %   274   8.8 %
Total shareholders' equity   1,287,369     1,278,015     1,215,037     9,354   0.7 %   72,332   6.0 %
Total liabilities and equity $ 9,828,667   $ 9,872,159   $ 9,727,007   $ (43,492 ) -0.4 % $ 101,660   1.0 %
 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
December 31, 2012
($ in thousands except per share data)
(unaudited)
 
 
Quarter Ended Linked Quarter Year over Year

INCOME STATEMENTS
12/31/2012 9/30/2012 12/31/2011

$ Change
% Change

$ Change
% Change
Interest and fees on loans-FTE $ 74,848 $ 77,783 $ 82,230 $ (2,935 ) -3.8 % $ (7,382 ) -9.0 %
Interest on securities-taxable 15,305 15,909 17,362 (604 ) -3.8 % (2,057 ) -11.8 %
Interest on securities-tax exempt-FTE 2,066 2,089 2,133 (23 ) -1.1 % (67 ) -3.1 %
Interest on fed funds sold and rev repos 9 6 10 3 50.0 % (1 ) -10.0 %
Other interest income   337     339     327     (2 ) -0.6 %   10   3.1 %
Total interest income-FTE   92,565     96,126     102,062     (3,561 ) -3.7 %   (9,497 ) -9.3 %
Interest on deposits 5,061 5,725 7,728 (664 ) -11.6 % (2,667 ) -34.5 %
Interest on fed funds pch and repos 140 135 195 5 3.7 % (55 ) -28.2 %
Other interest expense   1,346     1,358     1,418     (12 ) -0.9 %   (72 ) -5.1 %
Total interest expense   6,547     7,218     9,341     (671 ) -9.3 %   (2,794 ) -29.9 %
Net interest income-FTE 86,018 88,908 92,721 (2,890 ) -3.3 % (6,703 ) -7.2 %
Provision for loan losses, LHFI (535 ) 3,358 6,073 (3,893 ) n/m (6,608 ) n/m
Provision for loan losses, acquired loans   1,945     2,105     624     (160 ) -7.6 %   1,321   n/m
Net interest income after provision-FTE   84,608     83,445     86,024     1,163   1.4 %   (1,416 ) -1.6 %
Service charges on deposit accounts 12,391 13,135 13,269 (744 ) -5.7 % (878 ) -6.6 %
Insurance commissions 6,887 7,533 6,076 (646 ) -8.6 % 811 13.3 %
Wealth management 6,181 5,612 5,223 569 10.1 % 958 18.3 %
Bank card and other fees 7,978 6,924 7,112 1,054 15.2 % 866 12.2 %
Mortgage banking, net 11,331 11,150 6,038 181 1.6 % 5,293 87.7 %
Other, net   (2,007 )   512     (4,928 )   (2,519 ) n/m   2,921   -59.3 %
Nonint inc-excl sec gains (losses), net 42,761 44,866 32,790 (2,105 ) -4.7 % 9,971 30.4 %
Security gains (losses), net   18     (1 )   (11 )   19   n/m   29   n/m
Total noninterest income   42,779     44,865     32,779     (2,086 ) -4.6 %   10,000   30.5 %
Salaries and employee benefits 49,724 47,404 45,616 2,320 4.9 % 4,108 9.0 %
Services and fees 12,572 11,682 11,323 890 7.6 % 1,249 11.0 %
Net occupancy-premises 5,023 5,352 5,038 (329 ) -6.1 % (15 ) -0.3 %
Equipment expense 5,288 5,095 5,139 193 3.8 % 149 2.9 %
FDIC assessment expense 1,075 1,826 1,484 (751 ) -41.1 % (409 ) -27.6 %
ORE/Foreclosure expense 3,173 1,702 2,760 1,471 86.4 % 413 15.0 %
Other expense   10,454     10,399     11,643     55   0.5 %   (1,189 ) -10.2 %
Total noninterest expense   87,309     83,460     83,003     3,849   4.6 %   4,306   5.2 %
Income before income taxes and tax eq adj 40,078 44,850 35,800 (4,772 ) -10.6 % 4,278 11.9 %
Tax equivalent adjustment   3,699     3,629     3,663     70   1.9 %   36   1.0 %
Income before income taxes 36,379 41,221 32,137 (4,842 ) -11.7 % 4,242 13.2 %
Income taxes   8,669     11,317     7,879     (2,648 ) -23.4 %   790   10.0 %
Net income available to common shareholders $ 27,710   $ 29,904   $ 24,258   $ (2,194 ) -7.3 % $ 3,452   14.2 %
 
 
Per common share data
Earnings per share - basic $ 0.43   $ 0.46   $ 0.38   $ (0.03 ) -6.5 % $ 0.05   13.2 %
 
Earnings per share - diluted $ 0.43   $ 0.46   $ 0.38   $ (0.03 ) -6.5 % $ 0.05   13.2 %
 
Dividends per share $ 0.23   $ 0.23   $ 0.23   $ -   0.0 % $ -   0.0 %
 
Weighted average common shares outstanding
Basic   64,785,457     64,778,329     64,122,188  
 
Diluted   65,007,281     64,992,614     64,330,242  
 
Period end common shares outstanding   64,820,414     64,779,937     64,142,498  
 

OTHER FINANCIAL DATA
Return on common equity 8.56 % 9.34 % 7.87 %
Return on average tangible common equity 11.51 % 12.61 % 10.70 %
Return on equity 8.56 % 9.34 % 7.87 %
Return on assets 1.12 % 1.21 % 1.00 %
Interest margin - Yield - FTE 4.23 % 4.39 % 4.71 %
Interest margin - Cost 0.30 % 0.33 % 0.43 %
Net interest margin - FTE 3.94 % 4.06 % 4.28 %
Efficiency ratio (1) 67.80 % 62.39 % 66.13 %
Full-time equivalent employees 2,666 2,632 2,537
 

COMMON STOCK PERFORMANCE
Market value-Close $ 22.46 $ 24.34 $ 24.29
Common book value $ 19.86 $ 19.73 $ 18.94
Tangible common book value $ 15.10 $ 14.95 $ 14.18
 
 

(1) - Excludes nonrecurring income and expense items such as securities gains or losses, bargain purchase gains and non-routine acquisition related transaction expenses.
 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
December 31, 2012
($ in thousands)
(unaudited)
Quarter Ended Linked Quarter Year over Year

NONPERFORMING ASSETS (1)
12/31/2012 9/30/2012 12/31/2011

$ Change
% Change

$ Change
% Change
Nonaccrual loans
Florida $ 19,314 $ 21,456 $ 23,002 $ (2,142 ) -10.0 % $ (3,688 ) -16.0 %
Mississippi (2) 38,960 32,041 46,746 6,919 21.6 % (7,786 ) -16.7 %
Tennessee (3) 8,401 7,388 15,791 1,013 13.7 % (7,390 ) -46.8 %
Texas   15,688     19,773     24,919     (4,085 ) -20.7 %   (9,231 ) -37.0 %
Total nonaccrual loans 82,363 80,658 110,458 1,705 2.1 % (28,095 ) -25.4 %
Other real estate
Florida 18,569 22,340 29,963 (3,771 ) -16.9 % (11,394 ) -38.0 %
Mississippi (2) 27,771 27,113 19,483 658 2.4 % 8,288 42.5 %
Tennessee (3) 17,589 18,545 16,879 (956 ) -5.2 % 710 4.2 %
Texas   14,260     14,477     12,728     (217 ) -1.5 %   1,532   12.0 %
Total other real estate   78,189     82,475     79,053     (4,286 ) -5.2 %   (864 ) -1.1 %
Total nonperforming assets $ 160,552   $ 163,133   $ 189,511   $ (2,581 ) -1.6 % $ (28,959 ) -15.3 %
 

LOANS PAST DUE OVER 90 DAYS (4)
LHFI $ 6,378   $ 5,699   $ 4,230   $ 679   11.9 % $ 2,148   50.8 %
 
LHFS-Guaranteed GNMA serviced loans

(no obligation to repurchase)
$ 43,073   $ 39,492   $ 39,379   $ 3,581   9.1 % $ 3,694   9.4 %
 
Quarter Ended Linked Quarter Year over Year

ALLOWANCE FOR LOAN LOSSES (4)
12/31/2012 9/30/2012 12/31/2011

$ Change
% Change

$ Change
% Change
Beginning Balance $ 83,526 $ 84,809 $ 89,463 $ (1,283 ) -1.5 % $ (5,937 ) -6.6 %
Provision for loan losses (535 ) 3,358 6,073 (3,893 ) n/m (6,608 ) n/m
Charge-offs (8,829 ) (7,907 ) (8,457 ) (922 ) 11.7 % (372 ) 4.4 %
Recoveries   4,576     3,266     2,439     1,310   40.1 %   2,137   87.6 %
Net charge-offs   (4,253 )   (4,641 )   (6,018 )   388   -8.4 %   1,765   -29.3 %
Ending Balance $ 78,738   $ 83,526   $ 89,518   $ (4,788 ) -5.7 % $ (10,780 ) -12.0 %
 

PROVISION FOR LOAN LOSSES (4)
`
Florida $ (706 ) $ 7 $ 4,797 $ (713 ) n/m $ (5,503 ) n/m
Mississippi (2) 2,031 466 3,783 1,565 n/m (1,752 ) -46.3 %
Tennessee (3) (1,037 ) 687 (885 ) (1,724 ) n/m (152 ) 17.2 %
Texas   (823 )   2,198     (1,622 )   (3,021 ) n/m   799   -49.3 %
Total provision for loan losses $ (535 ) $ 3,358   $ 6,073   $ (3,893 ) n/m $ (6,608 ) n/m
 

NET CHARGE-OFFS (4)
Florida $ (237 ) $ (488 ) $ 2,576 $ 251 -51.4 % $ (2,813 ) n/m
Mississippi (2) 874 4,726 2,556 (3,852 ) -81.5 % (1,682 ) -65.8 %
Tennessee (3) (43 ) 438 773 (481 ) n/m (816 ) n/m
Texas   3,659     (35 )   113     3,694   n/m   3,546   n/m
Total net charge-offs $ 4,253   $ 4,641   $ 6,018   $ (388 ) -8.4 % $ (1,765 ) -29.3 %
 

CREDIT QUALITY RATIOS (1)
Net charge offs/average loans 0.29 % 0.31 % 0.40 %
Provision for loan losses/average loans -0.04 % 0.23 % 0.40 %
Nonperforming loans/total loans (incl LHFS) 1.41 % 1.38 % 1.82 %
Nonperforming assets/total loans (incl LHFS) 2.74 % 2.79 % 3.12 %
Nonperforming assets/total loans (incl LHFS) +ORE 2.71 % 2.75 % 3.08 %
ALL/total loans (excl LHFS) 1.41 % 1.51 % 1.53 %
ALL-commercial/total commercial loans 1.59 % 1.79 % 1.91 %
ALL-consumer/total consumer and home mortgage loans 0.97 % 0.84 % 0.76 %
ALL/nonperforming loans 95.60 % 103.56 % 81.04 %
ALL/nonperforming loans -
(excl impaired loans) 174.46 % 174.09 % 194.19 %
 

CAPITAL RATIOS
Total equity/total assets 13.10 % 12.95 % 12.49 %
Common equity/total assets 13.10 % 12.95 % 12.49 %
Tangible common equity/tangible assets 10.28 % 10.13 % 9.66 %
Tangible common equity/risk-weighted assets 14.56 % 14.49 % 13.83 %
Tier 1 leverage ratio 10.97 % 10.83 % 10.43 %
Tier 1 common risk-based capital ratio 14.63 % 14.50 % 13.90 %
Tier 1 risk-based capital ratio 15.53 % 15.40 % 14.81 %
Total risk-based capital ratio 17.22 % 17.25 % 16.67 %
 
(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
       
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
December 31, 2012
($ in thousands)
(unaudited)
    Quarter Ended Year Ended

AVERAGE BALANCES
12/31/2012   9/30/2012   6/30/2012 3/31/2012 12/31/2011 12/31/2012 12/31/2011
Securities AFS-taxable $ 2,466,738 $ 2,409,292 $ 2,341,475 $ 2,327,572 $ 2,241,361 $ 2,386,552 $ 2,146,773
Securities AFS-nontaxable 169,906 169,037 167,287 160,870 164,057 166,790 157,879
Securities HTM-taxable 26,510 28,333 30,136 33,270 41,106 29,551 66,164
Securities HTM-nontaxable   17,443     18,361     19,378     21,598     22,664     19,188     24,891  
Total securities   2,680,597     2,625,023     2,558,276     2,543,310     2,469,188     2,602,081     2,395,707  
Loans (including loans held for sale) 5,834,525 5,886,447 5,938,168 6,014,133 5,999,221 5,918,002 6,033,624
Acquired loans:
Noncovered loans 82,317 88,562 97,341 19,931 - 72,111 -
Covered loans 58,272 65,259 70,217 75,612 77,934 67,310 60,180
Fed funds sold and rev repos 8,747 6,583 5,309 9,568 10,516 7,552 7,871
Other earning assets   31,168     31,758     29,654     34,102     34,859     31,669     36,719  
Total earning assets   8,695,626     8,703,632     8,698,965     8,696,656     8,591,718     8,698,725     8,534,101  
Allowance for loan losses (88,715 ) (86,865 ) (92,223 ) (92,062 ) (90,857 ) (89,954 ) (92,621 )
Cash and due from banks 238,976 236,566 272,283 232,139 221,278 244,952 219,058
Other assets   972,748     958,030     947,914     918,273     914,468     949,328     922,905  
Total assets $ 9,818,635   $ 9,811,363   $ 9,826,939   $ 9,755,006   $ 9,636,607   $ 9,803,051   $ 9,583,443  
 
Interest-bearing demand deposits $ 1,545,967 $ 1,534,244 $ 1,545,203 $ 1,545,045 $ 1,511,422 $ 1,542,601 $ 1,528,963
Savings deposits 2,275,569 2,348,413 2,467,546 2,339,166 2,067,431 2,357,424 2,131,057
Time deposits less than $100,000 1,120,735 1,150,620 1,169,532 1,190,888 1,212,190 1,157,822 1,227,588
Time deposits of $100,000 or more   760,363     781,926     813,530     825,214     844,565     795,126     875,816  
Total interest-bearing deposits 5,702,634 5,815,203 5,995,811 5,900,313 5,635,608 5,852,973 5,763,424
Fed funds purchased and repos 388,007 374,885 280,726 437,270 526,740 370,283 507,925
Short-term borrowings 85,313 81,773 80,275 84,797 141,600 83,042 142,984
Long-term FHLB advances - - - - 197 - 1,240
Subordinated notes 49,866 49,858 49,850 49,842 49,833 49,854 49,821
Junior subordinated debt securities   61,856     61,856     61,856     61,856     61,856     61,856     61,856  
Total interest-bearing liabilities 6,287,676 6,383,575 6,468,518 6,534,078 6,415,834 6,418,008 6,527,250
Noninterest-bearing deposits 2,115,784 2,039,729 1,998,077 1,869,758 1,897,398 2,006,230 1,761,946
Other liabilities   126,953     114,454     104,628     122,668     100,274     117,196     99,974  
Total liabilities 8,530,413 8,537,758 8,571,223 8,526,504 8,413,506 8,541,434 8,389,170
Shareholders' equity   1,288,222     1,273,605     1,255,716     1,228,502     1,223,101     1,261,617     1,194,273  
Total liabilities and equity $ 9,818,635   $ 9,811,363   $ 9,826,939   $ 9,755,006   $ 9,636,607   $ 9,803,051   $ 9,583,443  
 

PERIOD END BALANCES
12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011
Cash and due from banks $ 231,489 $ 209,188 $ 284,735 $ 213,500 $ 202,625
Fed funds sold and rev repos 7,046 5,295 6,725 6,301 9,258
Securities available for sale 2,657,745 2,724,446 2,592,807 2,595,664 2,468,993
Securities held to maturity 42,188 45,484 47,867 52,010 57,705
Loans held for sale (LHFS) 257,986 324,897 286,221 227,449 216,553
Loans held for investment (LHFI) 5,592,754 5,527,963 5,650,548 5,774,753 5,857,484
Allowance for loan losses   (78,738 )   (83,526 )   (84,809 )   (90,879 )   (89,518 )
Net LHFI 5,514,016 5,444,437 5,565,739 5,683,874 5,767,966
Acquired loans:
Noncovered loans 81,523 83,110 94,013 100,669 -
Covered loans 52,041 64,503 66,015 74,419 76,804
Allowance for loan losses, acquired loans   (6,075 )   (4,343 )   (1,526 )   (773 )   (502 )
Net acquired loans   127,489     143,270     158,502     174,315     76,302  
Net LHFI and acquired loans 5,641,505 5,587,707 5,724,241 5,858,189 5,844,268
Premises and equipment, net 154,841 155,467 156,089 156,158 142,582
Mortgage servicing rights 47,341 44,211 43,580 45,893 43,274
Goodwill 291,104 291,104 291,104 291,104 291,104
Identifiable intangible assets 17,306 18,327 19,356 18,821 14,076
Other real estate, excluding covered other real estate 78,189 82,475 73,673 75,742 79,053
Covered other real estate 5,741 5,722 6,482 5,824 6,331
FDIC indemnification asset 21,774 23,979 25,309 28,260 28,348
Other assets   374,412     353,857     332,657     356,678     322,837  
Total assets $ 9,828,667   $ 9,872,159   $ 9,890,846   $ 9,931,593   $ 9,727,007  
 
Deposits:
Noninterest-bearing $ 2,254,211 $ 2,118,853 $ 2,063,261 $ 2,024,290 $ 2,033,442
Interest-bearing   5,642,306     5,685,188     5,932,596     6,066,456     5,532,921  
Total deposits 7,896,517 7,804,041 7,995,857 8,090,746 7,566,363
Fed funds purchased and repos 288,829 408,711 297,669 254,878 604,500
Short-term borrowings 86,920 83,612 78,594 82,023 87,628
Subordinated notes 49,871 49,863 49,855 49,847 49,839
Junior subordinated debt securities 61,856 61,856 61,856 61,856 61,856
Other liabilities   157,305     186,061     148,520     150,723     141,784  
Total liabilities   8,541,298     8,594,144     8,632,351     8,690,073     8,511,970  
Common stock 13,506 13,496 13,496 13,494 13,364
Capital surplus 285,905 284,089 283,023 282,388 266,026
Retained earnings 984,563 973,182 958,322 944,101 932,526

Accum other comprehensive income, net of tax
  3,395     7,248     3,654     1,537     3,121  
Total shareholders' equity   1,287,369     1,278,015     1,258,495     1,241,520     1,215,037  
Total liabilities and equity $ 9,828,667   $ 9,872,159   $ 9,890,846   $ 9,931,593   $ 9,727,007  
 
 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
December 31, 2012
($ in thousands except per share data)
(unaudited)
 
 
Quarter Ended Year Ended

INCOME STATEMENTS
12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011 12/31/2012 12/31/2011
Interest and fees on loans-FTE $ 74,848 $ 77,783 $ 78,046 $ 78,718 $ 82,230 $ 309,395 $ 320,804
Interest on securities-taxable 15,305 15,909 17,352 18,384 17,362 66,950 75,843
Interest on securities-tax exempt-FTE 2,066 2,089 2,086 2,102 2,133 8,343 8,531
Interest on fed funds sold and rev repos 9 6 5 6 10 26 30
Other interest income   337     339     336     330     327     1,342     1,321  
Total interest income-FTE   92,565     96,126     97,825     99,540     102,062     386,056     406,529  
Interest on deposits 5,061 5,725 6,465 7,353 7,728 24,604 36,294
Interest on fed funds pch and repos 140 135 142 171 195 588 965
Other interest expense   1,346     1,358     1,359     1,414     1,418     5,477     5,777  
Total interest expense   6,547     7,218     7,966     8,938     9,341     30,669     43,036  
Net interest income-FTE 86,018 88,908 89,859 90,602 92,721 355,387 363,493
Provision for loan losses, LHFI (535 ) 3,358 650 3,293 6,073 6,766 29,704
Provision for loan losses, acquired loans   1,945     2,105     1,672     (194 )   624     5,528     624  
Net interest income after provision-FTE   84,608     83,445     87,537     87,503     86,024     343,093     333,165  
Service charges on deposit accounts 12,391 13,135 12,614 12,211 13,269 50,351 51,707
Insurance commissions 6,887 7,533 7,179 6,606 6,076 28,205 26,966
Wealth management 6,181 5,612 5,762 5,501 5,223 23,056 22,962
Bank card and other fees 7,978 6,924 8,179 7,364 7,112 30,445 27,474
Mortgage banking, net 11,331 11,150 11,184 7,295 6,038 40,960 26,812
Other, net   (2,007 )   512     (1,150 )   3,758     (4,928 )   1,113     3,853  
Nonint inc-excl sec gains (losses), net 42,761 44,866 43,768 42,735 32,790 174,130 159,774
Security gains (losses), net   18     (1 )   (8 )   1,050     (11 )   1,059     80  
Total noninterest income   42,779     44,865     43,760     43,785     32,779     175,189     159,854  
Salaries and employee benefits 49,724 47,404 46,959 46,432 45,616 190,519 178,556
Services and fees 12,572 11,682 11,750 10,747 11,323 46,751 43,858
Net occupancy-premises 5,023 5,352 4,954 4,938 5,038 20,267 20,254
Equipment expense 5,288 5,095 5,183 4,912 5,139 20,478 20,177
FDIC assessment expense 1,075 1,826 1,826 1,775 1,484 6,502 7,984
ORE/Foreclosure expense 3,173 1,702 2,388 3,902 2,760 11,165 16,293
Other expense   10,454     10,399     14,899     13,068     11,643     48,820     42,728  
Total noninterest expense   87,309     83,460     87,959     85,774     83,003     344,502     329,850  
Income before income taxes and tax eq adj 40,078 44,850 43,338 45,514 35,800 173,780 163,169
Tax equivalent adjustment   3,699     3,629     3,411     3,658     3,663     14,397     14,550  
Income before income taxes 36,379 41,221 39,927 41,856 32,137 159,383 148,619
Income taxes   8,669     11,317     10,578     11,536     7,879     42,100     41,778  
Net income available to common shareholders $ 27,710   $ 29,904   $ 29,349   $ 30,320   $ 24,258   $ 117,283   $ 106,841  
 
Per common share data
Earnings per share - basic $ 0.43   $ 0.46   $ 0.45   $ 0.47   $ 0.38   $ 1.81   $ 1.67  
 
Earnings per share - diluted $ 0.43   $ 0.46   $ 0.45   $ 0.47   $ 0.38   $ 1.81   $ 1.66  
 
Dividends per share $ 0.23   $ 0.23   $ 0.23   $ 0.23   $ 0.23   $ 0.92   $ 0.92  
 
Weighted average common shares outstanding
Basic   64,785,457     64,778,329     64,771,530     64,297,038     64,122,188     64,658,765     64,066,599  
 
Diluted   65,007,281     64,992,614     64,938,697     64,477,277     64,330,242     64,850,550     64,261,145  
 
Period end common shares outstanding   64,820,414     64,779,937     64,775,694     64,765,581     64,142,498     64,820,414     64,142,498  
 
 

OTHER FINANCIAL DATA
Return on common equity 8.56 % 9.34 % 9.40 % 9.93 % 7.87 % 9.30 % 8.95 %
Return on average tangible common equity 11.51 % 12.61 % 12.74 % 13.41 % 10.70 % 12.55 % 12.25 %
Return on equity 8.56 % 9.34 % 9.40 % 9.93 % 7.87 % 9.30 % 8.95 %
Return on assets 1.12 % 1.21 % 1.20 % 1.25 % 1.00 % 1.20 % 1.11 %
Interest margin - Yield - FTE 4.23 % 4.39 % 4.52 % 4.60 % 4.71 % 4.44 % 4.76 %
Interest margin - Cost 0.30 % 0.33 % 0.37 % 0.41 % 0.43 % 0.35 % 0.50 %
Net interest margin - FTE 3.94 % 4.06 % 4.15 % 4.19 % 4.28 % 4.09 % 4.26 %
Efficiency ratio (1) 67.80 % 62.39 % 66.26 % 63.70 % 66.13 % 65.02 % 63.95 %
Full-time equivalent employees 2,666 2,632 2,598 2,611 2,537
 
 

COMMON STOCK PERFORMANCE
Market value-Close $ 22.46 $ 24.34 $ 24.48 $ 24.98 $ 24.29
Common book value $ 19.86 $ 19.73 $ 19.43 $ 19.17 $ 18.94
Tangible common book value $ 15.10 $ 14.95 $ 14.64 $ 14.38 $ 14.18
 
 
(1) - Excludes nonrecurring income and expense items such as securities gains or losses, bargain purchase gains and non-routine acquisition related transaction expenses.
 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
December 31, 2012
($ in thousands)
(unaudited)
 
Quarter Ended

NONPERFORMING ASSETS (1)
12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011
Nonaccrual loans
Florida $ 19,314 $ 21,456 $ 22,260 $ 22,174 $ 23,002
Mississippi (2) 38,960 32,041 47,322 48,648 46,746
Tennessee (3) 8,401 7,388 11,171 13,972 15,791
Texas   15,688     19,773     18,927     20,979     24,919  
Total nonaccrual loans 82,363 80,658 99,680 105,773 110,458
Other real estate
Florida 18,569 22,340 23,324 26,226 29,963
Mississippi (2) 27,771 27,113 19,511 19,240 19,483
Tennessee (3) 17,589 18,545 18,850 17,665 16,879
Texas   14,260     14,477     11,988     12,611     12,728  
Total other real estate   78,189     82,475     73,673     75,742     79,053  
Total nonperforming assets $ 160,552   $ 163,133   $ 173,353   $ 181,515   $ 189,511  
 

LOANS PAST DUE OVER 90 DAYS (4)
LHFI $ 6,378   $ 5,699   $ 1,843   $ 1,553   $ 4,230  
 
LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase) $ 43,073   $ 39,492   $ 35,270   $ 39,496   $ 39,379  
 
 
Quarter Ended Year Ended

ALLOWANCE FOR LOAN LOSSES (4)
12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011 12/31/2012 12/31/2011
Beginning Balance $ 83,526 $ 84,809 $ 90,879 $ 89,518 $ 89,463 $ 89,518 $ 93,510
Provision for loan losses (535 ) 3,358 650 3,293 6,073 6,766 29,704
Charge-offs (8,829 ) (7,907 ) (9,264 ) (5,376 ) (8,457 ) (31,376 ) (45,769 )
Recoveries   4,576     3,266     2,544     3,444     2,439     13,830     12,073  
Net charge-offs   (4,253 )   (4,641 )   (6,720 )   (1,932 )   (6,018 )   (17,546 )   (33,696 )
Ending Balance $ 78,738   $ 83,526   $ 84,809   $ 90,879   $ 89,518   $ 78,738   $ 89,518  
 

PROVISION FOR LOAN LOSSES (4)
Florida $ (706 ) $ 7 $ (770 ) $ 739 $ 4,797 $ (730 ) $ 16,500
Mississippi (2) 2,031 466 1,141 4,152 3,783 7,790 9,917
Tennessee (3) (1,037 ) 687 839 (29 ) (885 ) 460 786
Texas   (823 )   2,198     (560 )   (1,569 )   (1,622 )   (754 )   2,501  
Total provision for loan losses $ (535 ) $ 3,358   $ 650   $ 3,293   $ 6,073   $ 6,766   $ 29,704  
 

NET CHARGE-OFFS (4)
Florida $ (237 ) $ (488 ) $ 4,491 $ 1,495 $ 2,576 $ 5,261 $ 18,843
Mississippi (2) 874 4,726 1,751 251 2,556 7,602 8,355
Tennessee (3) (43 ) 438 536 223 773 1,154 2,575
Texas   3,659     (35 )   (58 )   (37 )   113     3,529     3,923  
Total net charge-offs $ 4,253   $ 4,641   $ 6,720   $ 1,932   $ 6,018   $ 17,546   $ 33,696  
 

CREDIT QUALITY RATIOS (1)
Net charge offs/average loans 0.29 % 0.31 % 0.46 % 0.13 % 0.40 % 0.30 % 0.56 %
Provision for loan losses/average loans -0.04 % 0.23 % 0.04 % 0.22 % 0.40 % 0.11 % 0.49 %
Nonperforming loans/total loans (incl LHFS) 1.41 % 1.38 % 1.68 % 1.76 % 1.82 %
Nonperforming assets/total loans (incl LHFS) 2.74 % 2.79 % 2.92 % 3.02 % 3.12 %
Nonperforming assets/total loans (incl LHFS) +ORE 2.71 % 2.75 % 2.88 % 2.99 % 3.08 %
ALL/total loans (excl LHFS) 1.41 % 1.51 % 1.50 % 1.57 % 1.53 %
ALL-commercial/total commercial loans 1.59 % 1.79 % 1.81 % 1.97 % 1.91 %
ALL-consumer/total consumer and home mortgage loans 0.97 % 0.84 % 0.81 % 0.75 % 0.76 %
ALL/nonperforming loans 95.60 % 103.56 % 85.08 % 85.92 % 81.04 %
ALL/nonperforming loans -
(excl impaired loans) 174.46 % 174.09 % 186.45 % 181.11 % 194.19 %
 

CAPITAL RATIOS
Total equity/total assets 13.10 % 12.95 % 12.72 % 12.50 % 12.49 %
Common equity/total assets 13.10 % 12.95 % 12.72 % 12.50 % 12.49 %
Tangible common equity/tangible assets 10.28 % 10.13 % 9.90 % 9.68 % 9.66 %
Tangible common equity/risk-weighted assets 14.56 % 14.49 % 14.30 % 13.89 % 13.83 %
Tier 1 leverage ratio 10.97 % 10.83 % 10.63 % 10.55 % 10.43 %
Tier 1 common risk-based capital ratio 14.63 % 14.50 % 14.36 % 13.98 % 13.90 %
Tier 1 risk-based capital ratio 15.53 % 15.40 % 15.26 % 14.87 % 14.81 %
Total risk-based capital ratio 17.22 % 17.25 % 17.12 % 16.72 % 16.67 %
 
 
(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
 

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

December 31, 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 $1.2 billion in loans and $1.8 billion in deposits at September 30, 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 2.25 million shares of its common stock for all issued and outstanding shares 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 extend the latest possible closing date for the merger 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 valued 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 by $881 thousand during the second quarter of 2012 as the fair values associated with the Bay Bank acquisition were finalized. The gain of $3.6 million recognized by Trustmark is considered a gain from a bargain purchase under FASB ASC Topic 805 and is included in other noninterest income. Included in noninterest expense during the first quarter of 2012 are non-routine Bay Bank transaction expenses totaling approximately $2.6 million (change in control and severance expense of $672 thousand included in salaries and benefits; contract termination and other expenses of $1.9 million included in other expense).

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

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 Trustmark 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 year ended December 31, 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):
           
12/31/2012 9/30/2012 6/30/2012 3/31/2012

12/31/2011

SECURITIES AVAILABLE FOR SALE
U.S. Government agency obligations
Issued by U.S. Government agencies $ 10 $ 18 $ 22 $ 31 $

3
Issued by U.S. Government sponsored agencies

105,735
60,671 72,923 101,941

64,802
Obligations of states and political subdivisions 215,761 215,900 213,826 208,234

202,827
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA 19,902 21,352 22,367 20,064

12,445
Issued by FNMA and FHLMC 208,564 237,886 264,018 286,169

347,932
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 1,466,366 1,565,290 1,570,226 1,619,920

1,614,965
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 399,780 381,207 354,453 330,318

226,019
Asset-backed securities / structured financial products 241,627 242,122 91,293 23,693

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

-
Total securities available for sale $ 2,657,745 $ 2,724,446 $ 2,592,807 $ 2,595,664 $

2,468,993
 

SECURITIES HELD TO MATURITY
Obligations of states and political subdivisions $ 36,206 $ 37,669 $ 38,351 $ 40,393 $

42,619
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA 3,245 3,435 3,745 4,089

4,538
Issued by FNMA and FHLMC 572 580 583 586

588
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA - 1,624 3,000 4,743

7,749
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA   2,165   2,176   2,188   2,199  

2,211
Total securities held to maturity $ 42,188 $ 45,484 $ 47,867 $ 52,010 $

57,705
 

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 89% 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 subprime. Furthermore, outside of membership in the Federal Home Loan Bank of Dallas 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)
12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011
Loans secured by real estate:
Construction, land development and other land loans $ 468,975 $ 460,599 $ 464,349 $ 465,486 $ 474,082
Secured by 1-4 family residential properties 1,497,480 1,511,514 1,621,865 1,722,357 1,760,930
Secured by nonfarm, nonresidential properties 1,410,264 1,397,536 1,392,293 1,419,902 1,425,774
Other real estate secured 189,949 184,804 192,376 199,400 204,849
Commercial and industrial loans 1,169,513 1,163,681 1,142,282 1,142,813 1,139,365
Consumer loans 171,660 181,896 196,718 210,713 243,756
Other loans   684,913     627,933     640,665     614,082     608,728  
LHFI 5,592,754 5,527,963 5,650,548 5,774,753 5,857,484
Allowance for loan losses   (78,738 )   (83,526 )   (84,809 )   (90,879 )   (89,518 )
Net LHFI $ 5,514,016   $ 5,444,437   $ 5,565,739   $ 5,683,874   $ 5,767,966  
 
 

ACQUIRED NONCOVERED LOANS BY TYPE
12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011
Loans secured by real estate:
Construction, land development and other land loans $ 10,056 $ 11,504 $ 13,154 $ 14,346 $ -
Secured by 1-4 family residential properties 19,404 18,032 18,954 20,409 -
Secured by nonfarm, nonresidential properties 45,649 47,114 53,272 54,954 -
Other real estate secured 669 378 512 695 -
Commercial and industrial loans 3,035 3,371 4,822 5,732 -
Consumer loans 2,610 2,575 3,153 4,188 -
Other loans   100     136     146     345     -  
Noncovered loans 81,523 83,110 94,013 100,669 -
Allowance for loan losses   (1,885 )   (817 )   (62 )   (37 )   -  
Net noncovered loans $ 79,638   $ 82,293   $ 93,951   $ 100,632   $ -  
 

ACQUIRED COVERED LOANS BY TYPE

12/31/2012

9/30/2012

6/30/2012

3/31/2012

12/31/2011
Loans secured by real estate:
Construction, land development and other land loans $ 3,924 $ 3,714 $ 3,683 $ 3,940 $ 4,209
Secured by 1-4 family residential properties 23,990 24,949 27,218 30,221 31,874
Secured by nonfarm, nonresidential properties 18,407 28,291 27,464 30,737 30,889
Other real estate secured 3,567 4,198 4,580 5,087 5,126
Commercial and industrial loans 747 1,803 1,382 2,768 2,971
Consumer loans 177 172 205 206 290
Other loans   1,229     1,376     1,483     1,460     1,445  
Covered loans 52,041 64,503 66,015 74,419 76,804
Allowance for loan losses   (4,190 )   (3,526 )   (1,464 )   (736 )   (502 )
Net covered loans $ 47,851   $ 60,977   $ 64,551   $ 73,683   $ 76,302  
 
           
Note 3 – Loan Composition (continued)
December 31, 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 $ 468,975 $ 85,592 $ 238,182 $ 38,660 $ 106,541
Secured by 1-4 family residential properties 1,497,480 50,598 1,281,057 141,613 24,212
Secured by nonfarm, nonresidential properties 1,410,264 144,718 750,771 173,472 341,303
Other real estate secured 189,949 9,391 146,729 5,957 27,872
Commercial and industrial loans 1,169,513 12,058 813,331 83,215 260,909
Consumer loans 171,660 1,769 148,005 18,466 3,420
Other loans   684,913   25,329   578,046   32,411   49,127
Loans $ 5,592,754 $ 329,455 $ 3,956,121 $ 493,794 $ 813,384
 
 
 

CONSTRUCTION, LAND DEVELOPMENT AND OTHER LAND LOANS BY REGION (1)
Lots $ 53,370 $ 33,053 $ 15,833 $ 1,539 $ 2,945
Development 80,184 9,399 49,479 4,467 16,839
Unimproved land 147,022 41,425 62,224 14,715 28,658
1-4 family construction 77,074 1,445 59,535 2,042 14,052
Other construction   111,325   270   51,111   15,897   44,047
Construction, land development and other land loans $ 468,975 $ 85,592 $ 238,182 $ 38,660 $ 106,541
 
 
 
 

LOANS SECURED BY NONFARM, NONRESIDENTIAL PROPERTIES BY REGION (1)
Income producing:
Retail $ 162,229 $ 41,379 $ 65,160 $ 23,491 $ 32,199
Office 164,624 37,033 85,004 10,415 32,172
Nursing homes/assisted living 100,018 - 91,477 4,052 4,489
Hotel/motel 86,034 1,691 24,815 32,274 27,254
Industrial 55,317 8,262 12,553 369 34,133
Health care 15,589 - 10,331 130 5,128
Convenience stores 8,846 - 4,881 1,419 2,546
Other   144,489   14,565   71,628   6,327   51,969
Total income producing loans 737,146 102,930 365,849 78,477 189,890
 
Owner-occupied:
Office 110,149 13,143 68,545 4,928 23,533
Churches 80,918 3,128 45,665 27,102 5,023
Industrial warehouses 85,082 1,108 43,195 1,191 39,588
Health care 97,882 14,369 52,239 15,647 15,627
Convenience stores 59,848 1,747 37,441 3,923 16,737
Retail 36,929 3,720 24,318 2,989 5,902
Restaurants 32,287 987 24,991 4,761 1,548
Auto dealerships 14,342 437 11,993 1,851 61
Other   155,681   3,149   76,535   32,603   43,394
Total owner-occupied loans 673,118 41,788 384,922 94,995 151,413
         
Loans secured by nonfarm, nonresidential properties $ 1,410,264 $ 144,718 $ 750,771 $ 173,472 $ 341,303
 
(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 Year Ended
12/31/2012   9/30/2012   6/30/2012   3/31/2012   12/31/2011 12/31/2012   12/31/2011
Securities – Taxable 2.44 % 2.60 % 2.94 % 3.13 % 3.02 % 2.77 % 3.43 %
Securities – Nontaxable 4.39 % 4.43 % 4.49 % 4.63 % 4.53 % 4.49 % 4.67 %
Securities – Total 2.58 % 2.73 % 3.06 % 3.24 % 3.13 % 2.89 % 3.52 %
Loans 4.98 % 5.12 % 5.14 % 5.18 % 5.37 % 5.11 % 5.26 %
FF Sold & Rev Repo 0.41 % 0.36 % 0.38 % 0.25 % 0.38 % 0.34 % 0.38 %
Other Earning Assets 4.30 % 4.25 % 4.56 % 3.89 % 3.72 % 4.24 % 3.60 %
Total Earning Assets 4.23 % 4.39 % 4.52 % 4.60 % 4.71 % 4.44 % 4.76 %
 
Interest-bearing Deposits 0.35 % 0.39 % 0.43 % 0.50 % 0.54 % 0.42 % 0.63 %
FF Pch & Repo 0.14 % 0.14 % 0.20 % 0.16 % 0.15 % 0.16 % 0.19 %
Other Borrowings 2.72 % 2.79 % 2.85 % 2.89 % 2.22 % 2.81 % 2.26 %
Total Interest-bearing Liabilities 0.41 % 0.45 % 0.50 % 0.55 % 0.58 % 0.48 % 0.66 %
 
Net interest margin 3.94 % 4.06 % 4.15 % 4.19 % 4.28 % 4.09 % 4.26 %
 

The net interest margin for the fourth quarter of 2012 totaled 3.94% compared to a net interest margin in the prior quarter of 4.06% resulting in a decrease of twelve 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 the 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, including administrative costs, are recorded in noninterest income in mortgage banking, net and are offset by the changes in the fair value of the MSR. The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the change in value of hedge instruments to the change in the fair value of the MSR asset attributable to changes in interest rates and other market driven changes in valuation inputs and assumptions. The impact of this strategy resulted in a net negative ineffectiveness of $3.4 million for the year ended December 31, 2012 compared to a net positive ineffectiveness of $4.4 million for the year ended December 31, 2011.

The following table illustrates the components of mortgage banking revenues included in noninterest income in the accompanying income statements:
     
Quarter Ended Year Ended
12/31/2012   9/30/2012   6/30/2012   3/31/2012   12/31/2011 12/31/2012   12/31/2011
Mortgage servicing income, net $ 4,441 $ 3,984 $ 3,891 $ 3,886 $ 3,725 $ 16,202 $ 14,790
Change in fair value-MSR from runoff (2,631 ) (2,751 ) (2,320 ) (2,106 ) (2,122 ) (9,808 ) (6,907 )
Gain on sales of loans, net 12,034 9,114 6,302 6,469 4,633 33,919 11,952
Other, net   (1,789 )   2,608     3,139     64     133     4,022     2,542  
Mortgage banking income before hedge ineffectiveness   12,055     12,955     11,012     8,313     6,369     44,335     22,377  
Change in fair value-MSR from market changes (418 ) (3,282 ) (5,926 ) 248 (2,842 ) (9,378 ) (15,130 )
Change in fair value of derivatives   (306 )   1,477     6,098     (1,266 )   2,511     6,003     19,565  
Net (negative) positive hedge ineffectiveness   (724 )   (1,805 )   172     (1,018 )   (331 )   (3,375 )   4,435  

Mortgage banking, net
$ 11,331   $ 11,150   $ 11,184   $ 7,295   $ 6,038   $ 40,960   $ 26,812  
 

Note 6 – Other Noninterest Income and Expense

Other noninterest income consisted of the following for the periods presented ($ in thousands):
     
Quarter Ended Year Ended
12/31/2012   9/30/2012   6/30/2012   3/31/2012   12/31/2011 12/31/2012   12/31/2011
Partnership amortization for tax credit purposes $ (3,202 ) $ (2,302 ) $ (1,491 ) $ (1,422 ) $ (2,690 ) $ (8,417 ) $ (6,366 )
Bargain purchase gain on acquisition - - 881 2,754 - 3,635 7,456
Decrease in FDIC indemnification asset (743 ) (609 ) (2,289 ) (81 ) (4,157 ) (3,722 ) (4,157 )
Other miscellaneous income   1,938     3,423     1,749     2,507     1,919     9,617     6,920  
Total other, net $ (2,007 ) $ 512   $ (1,150 ) $ 3,758   $ (4,928 ) $ 1,113   $ 3,853  
 

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 fourth quarter of 2012, other noninterest income included a write-down of the FDIC indemnification asset of $743 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 the sale of the Performance Funds by Trustmark Investment Advisors, Inc. (TIA) to Federated Investors, Inc. (Federated) and certain of Federated’s subsidiaries, pursuant to the terms of the previously announced definitive agreement between Federated, TIA, and TNB. The sale resulted in a gain of $1.2 million for Trustmark, which was recorded as other miscellaneous income.

Other noninterest expense consisted of the following for the periods presented ($ in thousands):
     
Quarter Ended Year Ended
12/31/2012   9/30/2012   6/30/2012   3/31/2012   12/31/2011 12/31/2012   12/31/2011
Loan expense $ 3,274 $ 3,150 $ 8,299 $ 5,525 $ 5,788 $ 20,248 $ 18,229
Non-routine transaction expenses on acquisition - - - 1,917 - 1,917 -
Amortization of intangibles 1,022 1,028 1,028 710 799 3,788 3,131
Other miscellaneous expense   6,158   6,221   5,572   4,916   5,056   22,867   21,368
Total other expense $ 10,454 $ 10,399 $ 14,899 $ 13,068 $ 11,643 $ 48,820 $ 42,728
 

During the second quarter of 2012, Trustmark updated its quarterly analysis of mortgage loan putback exposure. This analysis, along with recent trends of increased mortgage loan putback activity in the mortgage industry, resulted in Trustmark providing an additional reserve of approximately $4.0 million in the second quarter. At December 31, 2012, the reserve for mortgage loan servicing putback expenses totaled $7.8 million. Notwithstanding significant changes in future behaviors and the demand patterns of investors, Trustmark believes that it is appropriately reserved for potential mortgage loan putback requests.

Note 7 – Non-GAAP Financial Measures

In addition to capital ratios defined by 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 Year Ended
12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011 12/31/2012 12/31/2011

TANGIBLE COMMON EQUITY

 
AVERAGE BALANCES
Total shareholders' common equity $ 1,288,222 $ 1,273,605 $ 1,255,716 $ 1,228,502 $ 1,223,101 $ 1,261,617 $

1,194,273

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

(291,104
)

           Identifiable intangible assets
  (17,933 )   (18,971 )   (17,762 )   (14,703 )   (14,550 )   (17,348 )  

(15,464
)
Total average tangible common equity $ 979,185   $ 963,530   $ 946,850   $ 922,695   $ 917,447   $ 953,165   $

887,705
 
 
PERIOD END BALANCES
Total shareholders' common equity $ 1,287,369 $ 1,278,015 $ 1,258,495 $ 1,241,520 $ 1,215,037

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

           Identifiable intangible assets
  (17,306 )   (18,327 )   (19,356 )   (18,821 )   (14,076 )
Total tangible common equity (a) $ 978,959   $ 968,584   $ 948,035   $ 931,595   $ 909,857  
 

TANGIBLE ASSETS
Total assets $ 9,828,667 $ 9,872,159 $ 9,890,846 $ 9,931,593 $ 9,727,007

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

           Identifiable intangible assets
  (17,306 )   (18,327 )   (19,356 )   (18,821 )   (14,076 )
Total tangible assets (b) $ 9,520,257   $ 9,562,728   $ 9,580,386   $ 9,621,668   $ 9,421,827  
 
Risk-weighted assets (c) $ 6,723,259   $ 6,684,820   $ 6,631,887   $ 6,707,026   $ 6,576,953  
 

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION
Net income available to common shareholders $ 27,710 $ 29,904 $ 29,349 $ 30,320 $ 24,258 $ 117,283 $

106,841
Plus:Intangible amortization net of tax   631     635     635     438     493     2,339    

1,945
 
Net income adjusted for intangible amortization $ 28,341   $ 30,539   $ 29,984   $ 30,758   $ 24,751   $ 119,622   $

108,786
 
 
Period end common shares outstanding (d)   64,820,414     64,779,937     64,775,694     64,765,581     64,142,498  
 

TANGIBLE COMMON EQUITY MEASUREMENTS
Return on average tangible common equity 1 11.51 % 12.61 % 12.74 % 13.41 % 10.70 % 12.55 %

12.25
%
Tangible common equity/tangible assets (a)/(b) 10.28 % 10.13 % 9.90 % 9.68 % 9.66 %
Tangible common equity/risk-weighted assets (a)/(c) 14.56 % 14.49 % 14.30 % 13.89 % 13.83 %
Tangible common book value (a)/(d)*1,000 $ 15.10 $ 14.95 $ 14.64 $ 14.38 $ 14.18
 

TIER 1 COMMON RISK-BASED CAPITAL
Total shareholders' equity $ 1,287,369 $ 1,278,015 $ 1,258,495 $ 1,241,520 $ 1,215,037
Eliminate qualifying AOCI (3,395 ) (7,248 ) (3,654 ) (1,537 ) (3,121 )
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 13,035 12,683 12,330 11,978 11,625
Other disallowed intangibles (17,306 ) (18,327 ) (19,356 ) (18,821 ) (14,076 )
Disallowed servicing intangible   (4,734 )   (4,421 )   (4,358 )   (4,589 )   (4,327 )
Total tier 1 capital $ 1,043,865 $ 1,029,598 $ 1,012,353 $ 997,447 $ 974,034
Less:Qualifying tier 1 capital   (60,000 )   (60,000 )   (60,000 )   (60,000 )   (60,000 )
Total tier 1 common capital (e) $ 983,865   $ 969,598   $ 952,353   $ 937,447   $ 914,034  
 
Tier 1 common risk-based capital ratio (e)/(c) 14.63 % 14.50 % 14.36 % 13.98 % 13.90 %
 
1 Calculation = ((net income adjusted for intangible amortization/number of days in period)*number of days in year)/total average tangible common equity

 

Copyright Business Wire 2010

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