Trustmark Corporation (NASDAQ:TRMK) reported net income of $24.0 million in the second quarter of 2017, representing diluted earnings per share of $0.35. Included in second quarter financial results were non-routine charges related to the termination of Trustmark's defined benefit pension plan as well as charges related to the merger with RB Bancorporation and its subsidiary, Reliance Bank ("Reliance"), which reduced net income by $10.9 million and $2.0 million (net of tax), respectively. Separately, Trustmark received non-taxable proceeds related to life insurance acquired as part of a previous acquisition that increased net income in the second quarter by $4.9 million. Adjusting for the above items, net income in the second quarter totaled $32.0 million, representing diluted earnings per share of $0.47. Trustmark's Board of Directors declared a quarterly cash dividend of $0.23 per share payable September 15, 2017, to shareholders of record on September 1, 2017.

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Second Quarter Highlights
  • Loans held for investment increased $291.4 million, or 3.6%, from the prior quarter and $890.9 million, or 12.0%, year-over-year
  • Revenue (excluding income on acquired loans and life insurance proceeds) increased 1.9% from the prior quarter and 6.4% year-over-year to total $141.0 million in the second quarter
  • Routine noninterest expense remained well controlled

Gerard R. Host, President and CEO, stated, "Trustmark continued to gain momentum and achieved solid financial results in the second quarter. We continued to experience robust loan growth across our five-state franchise, while maintaining historically low levels of other real estate and net charge-offs. Our mortgage, insurance and wealth management businesses continued to provide complementary revenue sources to our traditional banking business. Routine noninterest expense remained well controlled. We also completed the Reliance merger and conversion in the second quarter and had a very successful rollout of our myTrustmark¿ Business platform. Thanks to our associates, solid profitability and strong capital base, Trustmark remains well positioned to continue meeting the needs of our customers and creating long-term value for our shareholders."

Completion of Reliance Merger
  • Expanded presence in attractive Huntsville, Alabama, MSA with seven banking centers
  • Completed seamless operational conversion

On April 7, 2017, Trustmark completed its previously announced merger with Reliance, headquartered in Athens, Alabama. At the merger date, the estimated fair values of loans and deposits acquired were $117.4 million and $166.2 million, respectively. The operations of Reliance are included in Trustmark's operating results as of the merger date and did not have a material impact on Trustmark's results of operations.

Balance Sheet Management

  • Continued diversified legacy loan growth demonstrates the value of Trustmark's five-state franchise
  • Noninterest-bearing deposits represented 30.3% of total average deposits; total cost of deposits of 0.20% in the second quarter
  • Solid capital base continues to provide flexibility in pursuing growth opportunities

Loans held for investment totaled $8.3 billion at June 30, 2017, reflecting an increase of 3.6% from the prior quarter and 12.0% year-over-year. Commercial and industrial loans increased $94.2 million during the quarter, reflecting growth in Mississippi, Alabama and Tennessee. Relative to the prior quarter, construction lending expanded $62.1 million, primarily due to growth in Texas and Alabama. Loans secured by nonfarm, nonresidential properties increased $45.0 million, principally driven by growth in Alabama, Texas and Florida. Other real estate secured loans, which include multifamily projects, grew $32.6 million, driven by growth in Alabama and Texas.

Acquired loans totaled $314.9 million at June 30, 2017, an increase of $96.7 million from the prior quarter due to the Reliance merger. Collectively, loans held for investment and acquired loans totaled $8.6 billion at June 30, 2017, up $388.1 million from the prior quarter.

Deposits totaled $10.4 billion at June 30, 2017. Excluding acquired deposits of $166.2 million, deposits increased $152.8 million, or 1.5%, from the previous quarter. Trustmark continues to maintain an attractive, low-cost deposit base with a total cost of deposits of 0.20%. The favorable mix of interest-bearing liabilities yielded a total cost of funds of 0.44% for the second quarter of 2017.

Trustmark's capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. At June 30, 2017, Trustmark's tangible equity to tangible assets ratio was 8.61%, while its total risk-based capital ratio was 13.11%. Tangible book value per share was $17.17 at June 30, 2017, up 2.4% year to date.

Credit Quality

  • Nonperforming loans increased $12.8 million from the prior quarter, primarily due to a single healthcare-related credit moving to nonaccrual status during the quarter
  • Other real estate decreased $6.0 million to total $50.0 million
  • Recoveries exceeded charge-offs by $818 thousand
  • Allowance for loan losses represented 277.4% of nonperforming loans, excluding specifically reviewed impaired loans

At June 30, 2017, nonperforming loans totaled $74.1 million while other real estate totaled $50.0 million. Collectively, nonperforming assets increased $6.8 million, or 5.8%, linked quarter while decreasing $10.5 million, or 7.8%, year-over-year.

Allocation of Trustmark's $76.2 million allowance for loan losses represented 0.99% of commercial loans and 0.67% of consumer and home mortgage loans, resulting in an allowance to total loans held for investment of 0.92% at June 30, 2017, representing a level management considers commensurate with the inherent risk in the loan portfolio. Collectively, the allowance for both held for investment and acquired loan losses represented 0.97% of total loans, which include held for investment and acquired loans.

Unless noted otherwise, all of the above credit quality metrics exclude acquired loans and other real estate covered by FDIC loss-share agreement.

Revenue Generation
  • Net interest income (FTE) excluding income on acquired loans totaled $100.7 million in the second quarter, an increase of 3.5% from the prior quarter
  • Insurance and wealth management revenue demonstrated solid growth, increasing 5.8% and 3.5%, respectively, from the prior quarter
  • Mortgage loan-production volume increased 22.8% linked quarter to $372.7 million

Net interest income (FTE) in the second quarter totaled $106.9 million, which resulted in a net interest margin of 3.49%. Compared to the prior quarter, net interest income (FTE) increased $4.5 million, which reflects continued growth in interest income from the held for sale and held for investment loan portfolios as well as growth in interest and fees on acquired loans. During the second quarter of 2017, the yield on acquired loans totaled 7.96% and included $952 thousand in recoveries from the settlement of debt, which represented approximately 1.21% of the annualized total acquired loan yield. Excluding acquired loans, the net interest margin for the second quarter of 2017 totaled 3.37% and remained relatively stable when compared to the first quarter of 2017, as growth in the yield on the loans held for investment and held for sale portfolio was offset by higher costs of interest-bearing deposits.

Noninterest income totaled $50.2 million in the second quarter. Excluding the previously mentioned non-taxable life insurance proceeds of $4.9 million, noninterest income was $45.3 million, a decline of 1.6% from the prior quarter and an increase of 2.4% over the previous year. Decreased mortgage hedge ineffectiveness was the main driver for the linked quarter decline. Mortgage banking revenue in the second quarter totaled $9.0 million, down $1.2 million from the prior quarter and up $2.3 million year-over-year. Relative to the prior quarter, both bank card and other fees and insurance commissions showed strong growth, increasing 13.4% and 5.8%, respectively.

Insurance revenue totaled $9.7 million in the second quarter, representing an increase of 5.8% from the prior quarter and 1.1% from the same period one year earlier. The performance this quarter was primarily driven by the commercial property and casualty line of business. Wealth management revenue in the second quarter totaled $7.7 million, up 3.5% over the prior quarter, but down 4.2% year-over-year. The linked quarter increase was primarily a result of higher brokerage asset management fees and recordkeeping fees.

Noninterest Expense
  • Efficiency ratio improved to 64.5% in the second quarter
  • Continued realignment of delivery channels

Excluding other real estate expense ($383 thousand), intangible amortization ($1.5 million), the one-time charges related to the pension plan termination ($17.6 million) and one-time expenses associated with the Reliance merger ($3.2 million), routine noninterest expense in the second quarter totaled $99.3 million. Trustmark estimates that the termination of the noncontributory tax-qualified defined benefit pension plan will reduce annual pension plan expense approximately $3.0 million to $4.0 million. Salaries and benefits expense - excluding the $17.6 million one-time pension plan termination charge - was $59.1 million, which increased marginally from the prior quarter due to inclusion of Reliance associates and higher commissions. Services and fees decreased $323 thousand from the prior quarter, while other real estate and foreclosure expense decreased $1.4 million. Other expense - excluding the $3.2 million charge related to the Reliance merger - totaled $11.7 million, a decrease of $1.1 million on a comparable basis from the prior quarter.

Trustmark is committed to developing and maintaining relationships, supporting investments that promote profitable revenue growth and realigning retail delivery channels to support changing customer preferences. Trustmark recently renovated an office in Memphis that is co-branded with a leading coffee retailer in an effort to increase foot traffic and create additional opportunities to introduce Trustmark products and services to prospective customers. Trustmark also initiated a pilot program introducing myTeller¿, an interactive video teller service provided through a centralized teller center that delivers most functions provided by traditional tellers, at this location and others across the franchise. Investments in myTrustmark¿, a mobile and online banking platform, provides enhanced customer access to account information, payment services and financial management tools. Adoption of myTrustmark¿ has notably increased with approximately two-thirds of customers accessing the platform via mobile devices. Successful adoption of myTrustmark¿ served as the basis for the second quarter launch of myTrustmark¿ Business, which provides the features of myTrustmark¿ into a product offering specifically designed for commercial customers.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, July 26, 2017, at 8:30 a.m. Central Time to discuss the Corporation's financial results. Interested parties may listen to the conference call by dialing (877) 317-3051 or by clicking on the link provided under the Investor Relations section of our website at www.trustmark.com, which will also include a slide presentation Management will review during the conference call. A replay of the conference call will also be available through Wednesday, August 9, 2017, in archived format at the same web address or by calling (877) 344-7529, passcode 10110062.

Trustmark Corporation is a financial services company providing banking and financial solutions through 199 offices in Alabama, Florida, Mississippi, Tennessee and Texas.

Forward-Looking Statements

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

Risks that could cause actual results to differ materially from current expectations of Management include, but are not limited to, changes in the level of nonperforming assets and charge-offs, local, state and national economic and market conditions, including conditions in the housing and real estate markets in the regions in which Trustmark operates and the extent and duration of the current volatility in the credit and financial markets as well as crude oil prices, 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 issues relating to the European financial system 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, including those associated with the planned termination of our noncontributory tax-qualified defined benefit pension plan, greater than expected costs or difficulties related to the integration of acquisitions or new products and lines of business, cyber-attacks and other breaches which could affect our information system security, natural disasters, environmental disasters, acts of war or terrorism, and other risks described in our filings with the Securities and Exchange Commission.

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

 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2017
($ in thousands)
(unaudited)
                  Linked Quarter     Year over Year

QUARTERLY AVERAGE BALANCES
6/30/2017 3/31/2017 6/30/2016

$ Change
    % Change

$ Change
    % Change
Securities AFS-taxable $ 2,334,600 $ 2,252,162 $ 2,214,040 $ 82,438 3.7 % $ 120,560 5.4 %
Securities AFS-nontaxable 75,640 88,522 99,296 (12,882 ) -14.6 % (23,656 ) -23.8 %
Securities HTM-taxable 1,108,158 1,124,692 1,122,463 (16,534 ) -1.5 % (14,305 ) -1.3 %
Securities HTM-nontaxable   32,878     33,009     34,785     (131 ) -0.4 %   (1,907 ) -5.5 %
Total securities   3,551,276     3,498,385     3,470,584     52,891   1.5 %   80,692   2.3 %
Loans (including loans held for sale) 8,348,758 8,074,449 7,505,409 274,309 3.4 % 843,349 11.2 %
Acquired loans 315,558 250,482 349,740 65,076 26.0 % (34,182 ) -9.8 %
Fed funds sold and rev repos 3,184 397 1,263 2,787 n/m 1,921 n/m
Other earning assets   77,770     79,515     64,000     (1,745 ) -2.2 %   13,770   21.5 %
Total earning assets   12,296,546     11,903,228     11,390,996     393,318   3.3 %   905,550   7.9 %
Allowance for loan losses (83,328 ) (83,394 ) (83,614 ) 66 0.1 % 286 0.3 %
Cash and due from banks 307,966 310,542 271,135 (2,576 ) -0.8 % 36,831 13.6 %
Other assets   1,229,981     1,235,469     1,240,846     (5,488 ) -0.4 %   (10,865 ) -0.9 %
Total assets $ 13,751,165   $ 13,365,845   $ 12,819,363   $ 385,320   2.9 % $ 931,802   7.3 %
 
Interest-bearing demand deposits $ 2,035,491 $ 1,981,982 $ 1,830,107 $ 53,509 2.7 % $ 205,384 11.2 %
Savings deposits 3,337,374 3,319,572 3,221,850 17,802 0.5 % 115,524 3.6 %
Time deposits   1,777,529     1,650,251     1,678,564     127,278   7.7 %   98,965   5.9 %
Total interest-bearing deposits 7,150,394 6,951,805 6,730,521 198,589 2.9 % 419,873 6.2 %
Fed funds purchased and repos 525,523 498,963 488,512 26,560 5.3 % 37,011 7.6 %
Short-term borrowings 1,047,107 887,848 319,288 159,259 17.9 % 727,819 n/m
Long-term FHLB advances 141,097 251,033 597,269 (109,936 ) -43.8 % (456,172 ) -76.4 %
Subordinated notes 49,980 n/m (49,980 ) -100.0 %
Junior subordinated debt securities   61,856     61,856     61,856       0.0 %     0.0 %
Total interest-bearing liabilities 8,925,977 8,651,505 8,247,426 274,472 3.2 % 678,551 8.2 %
Noninterest-bearing deposits 3,110,125 3,008,176 2,927,469 101,949 3.4 % 182,656 6.2 %
Other liabilities   162,823     173,066     131,627     (10,243 ) -5.9 %   31,196   23.7 %
Total liabilities 12,198,925 11,832,747 11,306,522 366,178 3.1 % 892,403 7.9 %
Shareholders' equity   1,552,240     1,533,098     1,512,841     19,142   1.2 %   39,399   2.6 %
Total liabilities and equity $ 13,751,165   $ 13,365,845   $ 12,819,363   $ 385,320   2.9 % $ 931,802   7.3 %
 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 

See Notes to Consolidated Financials
 
 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2017
($ in thousands)
(unaudited)
 
                  Linked Quarter     Year over Year

PERIOD END BALANCES
6/30/2017 3/31/2017 6/30/2016

$ Change
    % Change

$ Change
    % Change
Cash and due from banks $ 318,329 $ 379,590 $ 322,049 $ (61,261 ) -16.1 % $ (3,720 ) -1.2 %
Fed funds sold and rev repos 6,900 500 3,198 6,400 n/m 3,702 n/m
Securities available for sale 2,447,688 2,365,554 2,388,306 82,134 3.5 % 59,382 2.5 %
Securities held to maturity 1,139,754 1,156,067 1,173,204 (16,313 ) -1.4 % (33,450 ) -2.9 %
Loans held for sale (LHFS) 203,652 174,090 213,546 29,562 17.0 % (9,894 ) -4.6 %
Loans held for investment (LHFI) 8,296,045 8,004,657 7,405,181 291,388 3.6 % 890,864 12.0 %
Allowance for loan losses   (76,184 )   (72,445 )   (71,796 )   (3,739 ) -5.2 %   (4,388 ) -6.1 %
Net LHFI 8,219,861 7,932,212 7,333,385 287,649 3.6 % 886,476 12.1 %
Acquired loans 314,910 218,242 339,035 96,668 44.3 % (24,125 ) -7.1 %

Allowance for loan losses, acquired loans
  (7,423 )   (10,006 )   (12,480 )   2,583   25.8 %   5,057   40.5 %
Net acquired loans   307,487     208,236     326,555     99,251   47.7 %   (19,068 ) -5.8 %
Net LHFI and acquired loans 8,527,348 8,140,448 7,659,940 386,900 4.8 % 867,408 11.3 %
Premises and equipment, net 182,315 183,311 192,732 (996 ) -0.5 % (10,417 ) -5.4 %
Mortgage servicing rights 82,628 82,758 62,814 (130 ) -0.2 % 19,814 31.5 %
Goodwill 379,627 366,156 366,156 13,471 3.7 % 13,471 3.7 %
Identifiable intangible assets 19,422 19,117 24,058 305 1.6 % (4,636 ) -19.3 %
Other real estate 49,958 55,968 69,890 (6,010 ) -10.7 % (19,932 ) -28.5 %
Other assets   551,517     566,802     554,456     (15,285 ) -2.7 %   (2,939 ) -0.5 %
Total assets $ 13,909,138   $ 13,490,361   $ 13,030,349   $ 418,777   3.1 % $ 878,789   6.7 %
 
Deposits:
Noninterest-bearing $ 3,092,915 $ 3,209,727 $ 2,921,016 $ (116,812 ) -3.6 % $ 171,899 5.9 %
Interest-bearing   7,330,476     6,894,745     6,610,508     435,731   6.3 %   719,968   10.9 %
Total deposits 10,423,391 10,104,472 9,531,524 318,919 3.2 % 891,867 9.4 %
Fed funds purchased and repos 508,068 524,335 606,336 (16,267 ) -3.1 % (98,268 ) -16.2 %
Short-term borrowings 1,222,592 864,690 360,434 357,902 41.4 % 862,158 n/m
Long-term FHLB advances 978 250,994 751,106 (250,016 ) -99.6 % (750,128 ) -99.9 %
Subordinated notes 49,985 n/m (49,985 ) -100.0 %

Junior subordinated debt securities
61,856 61,856 61,856 0.0 % 0.0 %
Other liabilities   130,335     146,053     145,641     (15,718 ) -10.8 %   (15,306 ) -10.5 %
Total liabilities   12,347,220     11,952,400     11,506,882     394,820   3.3 %   840,338   7.3 %
Common stock 14,114 14,112 14,090 2 0.0 % 24 0.2 %
Capital surplus 367,075 365,951 364,516 1,124 0.3 % 2,559 0.7 %
Retained earnings 1,209,238 1,200,903 1,157,025 8,335 0.7 % 52,213 4.5 %

Accum other comprehensive loss, net of tax
  (28,509 )   (43,005 )   (12,164 )   14,496   33.7 %   (16,345 ) n/m
Total shareholders' equity   1,561,918     1,537,961     1,523,467     23,957   1.6 %   38,451   2.5 %
Total liabilities and equity $ 13,909,138   $ 13,490,361   $ 13,030,349   $ 418,777   3.1 % $ 878,789   6.7 %
 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 

See Notes to Consolidated Financials
 
 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2017
($ in thousands except per share data)
(unaudited)
 
 
      Quarter Ended     Linked Quarter     Year over Year

INCOME STATEMENTS
6/30/2017     3/31/2017     6/30/2016

$ Change
    % Change

$ Change
    % Change
Interest and fees on LHFS & LHFI-FTE $ 89,486 $ 83,790 $ 77,777 $ 5,696 6.8 % $ 11,709 15.1 %
Interest and fees on acquired loans 6,263 5,189 8,051 1,074 20.7 % (1,788 ) -22.2 %
Interest on securities-taxable 19,377 19,197 19,402 180 0.9 % (25 ) -0.1 %
Interest on securities-tax exempt-FTE 1,178 1,300 1,429 (122 ) -9.4 % (251 ) -17.6 %
Interest on fed funds sold and rev repos 11 1 4 10 n/m 7 n/m
Other interest income   371     267     200   104   39.0 %   171   85.5 %
Total interest income-FTE   116,686     109,744     106,863   6,942   6.3 %   9,823   9.2 %
Interest on deposits 5,107 3,945 3,122 1,162 29.5 % 1,985 63.6 %
Interest on fed funds pch and repos 1,037 698 404 339 48.6 % 633 n/m
Other interest expense   3,628     2,673     2,428   955   35.7 %   1,200   49.4 %
Total interest expense   9,772     7,316     5,954   2,456   33.6 %   3,818   64.1 %
Net interest income-FTE 106,914 102,428 100,909 4,486 4.4 % 6,005 6.0 %
Provision for loan losses, LHFI 2,921 2,762 2,596 159 5.8 % 325 12.5 %

Provision for loan losses, acquired loans
  (2,564 )   (1,605 )   607   (959 ) -59.8 %   (3,171 ) n/m

Net interest income after provision-FTE
  106,557     101,271     97,706   5,286   5.2 %   8,851   9.1 %

Service charges on deposit accounts
10,755 10,832 11,051 (77 ) -0.7 % (296 ) -2.7 %
Bank card and other fees 7,370 6,500 7,436 870 13.4 % (66 ) -0.9 %
Mortgage banking, net 9,008 10,185 6,721 (1,177 ) -11.6 % 2,287 34.0 %
Insurance commissions 9,745 9,212 9,638 533 5.8 % 107 1.1 %
Wealth management 7,674 7,413 8,009 261 3.5 % (335 ) -4.2 %
Other, net   5,637     1,891     1,372   3,746   n/m   4,265   n/m

Nonint inc-excl sec gains (losses), net
50,189 46,033 44,227 4,156 9.0 % 5,962 13.5 %
Security gains (losses), net   1           1   n/m   1   n/m
Total noninterest income   50,190     46,033     44,227   4,157   9.0 %   5,963   13.5 %
Salaries and employee benefits 59,060 57,302 67,018 1,758 3.1 % (7,958 ) -11.9 %
Defined benefit plan termination 17,644 17,644 n/m 17,644 n/m
Services and fees 15,009 15,332 14,522 (323 ) -2.1 % 487 3.4 %
Net occupancy-premises 6,210 6,238 5,928 (28 ) -0.4 % 282 4.8 %
Equipment expense 6,162 5,998 5,896 164 2.7 % 266 4.5 %
Other real estate expense 383 1,759 1,193 (1,376 ) -78.2 % (810 ) -67.9 %
FDIC assessment expense 2,686 2,640 2,959 46 1.7 % (273 ) -9.2 %
Other expense   14,921     12,788     12,663   2,133   16.7 %   2,258   17.8 %
Total noninterest expense   122,075     102,057     110,179   20,018   19.6 %   11,896   10.8 %
Income before income taxes and tax eq adj 34,672 45,247 31,754 (10,575 ) -23.4 % 2,918 9.2 %
Tax equivalent adjustment   4,910     4,838     4,532   72   1.5 %   378   8.3 %
Income before income taxes 29,762 40,409 27,222 (10,647 ) -26.3 % 2,540 9.3 %
Income taxes   5,727     9,161     5,719   (3,434 ) -37.5 %   8   0.1 %
Net income $ 24,035   $ 31,248   $ 21,503 $ (7,213 ) -23.1 % $ 2,532   11.8 %
 
Per share data
Earnings per share - basic $ 0.35   $ 0.46   $ 0.32 $ (0.11 ) -23.9 % $ 0.03   9.4 %
 
Earnings per share - diluted $ 0.35   $ 0.46   $ 0.32 $ (0.11 ) -23.9 % $ 0.03   9.4 %
 
Dividends per share $ 0.23   $ 0.23   $ 0.23     0.0 %     0.0 %
 
Weighted average shares outstanding
Basic   67,736,298     67,687,365     67,619,571
 
Diluted   67,892,532     67,845,785     67,770,174
 
Period end shares outstanding   67,740,901     67,729,434     67,623,601
 
n/m - percentage changes greater than +/- 100% are considered not meaningful

 

See Notes to Consolidated Financials
 
 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2017
($ in thousands)
(unaudited)
 
      Quarter Ended     Linked Quarter     Year over Year

NONPERFORMING ASSETS (1)
6/30/2017     3/31/2017     6/30/2016

$ Change
    % Change

$ Change
    % Change
Nonaccrual loans
Alabama $ 1,723 $ 1,649 $ 1,379 $ 74 4.5 % $ 344 24.9 %
Florida 3,174 3,559 1,806 (385 ) -10.8 % 1,368 75.7 %
Mississippi (2) 63,889 49,349 54,543 14,540 29.5 % 9,346 17.1 %
Tennessee (3) 4,975 5,185 5,345 (210 ) -4.1 % (370 ) -6.9 %
Texas   383     1,565     2,055     (1,182 ) -75.5 %   (1,672 ) -81.4 %
Total nonaccrual loans 74,144 61,307 65,128 12,837 20.9 % 9,016 13.8 %
Other real estate
Alabama 13,301 13,953 18,031 (652 ) -4.7 % (4,730 ) -26.2 %
Florida 17,377 21,577 28,052 (4,200 ) -19.5 % (10,675 ) -38.1 %
Mississippi (2) 14,377 14,974 14,435 (597 ) -4.0 % (58 ) -0.4 %
Tennessee (3) 3,363 4,706 7,432 (1,343 ) -28.5 % (4,069 ) -54.7 %
Texas   1,540     758     1,552     782   n/m   (12 ) -0.8 %
Total other real estate   49,958     55,968     69,502     (6,010 ) -10.7 %   (19,544 ) -28.1 %
Total nonperforming assets $ 124,102   $ 117,275   $ 134,630   $ 6,827   5.8 % $ (10,528 ) -7.8 %
 

LOANS PAST DUE OVER 90 DAYS (4)
LHFI $ 1,216   $ 1,307   $ 3,382   $ (91 ) -7.0 % $ (2,166 ) -64.0 %
 
LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase) $ 29,906   $ 31,147   $ 23,473   $ (1,241 ) -4.0 % $ 6,433   27.4 %
 
Quarter Ended Linked Quarter Year over Year

ALLOWANCE FOR LOAN LOSSES (4)
6/30/2017 3/31/2017 6/30/2016

$ Change
% Change

$ Change
% Change
Beginning Balance $ 72,445 $ 71,265 $ 69,668 $ 1,180 1.7 % $ 2,777 4.0 %
Provision for loan losses 2,921 2,762 2,596 159 5.8 % 325 12.5 %
Charge-offs (2,118 ) (4,202 ) (3,251 ) 2,084 49.6 % 1,133 34.9 %
Recoveries   2,936     2,620     2,783     316   12.1 %   153   5.5 %
Net recoveries (charge-offs)   818     (1,582 )   (468 )   2,400   n/m   1,286   n/m
Ending Balance $ 76,184   $ 72,445   $ 71,796   $ 3,739   5.2 % $ 4,388   6.1 %
 

PROVISION FOR LOAN LOSSES (4)
Alabama $ 866 $ 1,189 $ 1,189 $ (323 ) -27.2 % $ (323 ) -27.2 %
Florida (975 ) 3 (364 ) (978 ) n/m (611 ) n/m
Mississippi (2) 2,268 1,826 (833 ) 442 24.2 % 3,101 n/m
Tennessee (3) 322 208 726 114 54.8 % (404 ) -55.6 %
Texas   440     (464 )   1,878     904   n/m   (1,438 ) -76.6 %
Total provision for loan losses $ 2,921   $ 2,762   $ 2,596   $ 159   5.8 % $ 325   12.5 %
 

NET (RECOVERIES) CHARGE-OFFS (4)
Alabama $ (29 ) $ 66 $ 436 $ (95 ) n/m $ (465 ) n/m
Florida (973 ) (155 ) (595 ) (818 ) n/m (378 ) -63.5 %
Mississippi (2) 33 1,759 (237 ) (1,726 ) -98.1 % 270 n/m
Tennessee (3) 146 83 252 63 75.9 % (106 ) -42.1 %
Texas   5     (171 )   612     176   n/m   (607 ) -99.2 %
Total net (recoveries) charge-offs $ (818 ) $ 1,582   $ 468   $ (2,400 ) n/m $ (1,286 ) n/m
 
(1) - Excludes acquired loans and covered other real estate
(2) - Mississippi includes Central and Southern Mississippi Regions
(3) - Tennessee includes Memphis, Tennessee and Northern Mississippi Regions
(4) - Excludes acquired loans
 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 

See Notes to Consolidated Financials
 
 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2017
($ in thousands)
(unaudited)
      Quarter Ended     Six Months Ended

AVERAGE BALANCES
6/30/2017     3/31/2017     12/31/2016     9/30/2016     6/30/2016 6/30/2017     6/30/2016
Securities AFS-taxable $ 2,334,600 $ 2,252,162 $ 2,271,503 $ 2,249,109 $ 2,214,040 $ 2,293,609 $ 2,212,760
Securities AFS-nontaxable 75,640 88,522 91,495 95,233 99,296 82,045 102,570
Securities HTM-taxable 1,108,158 1,124,692 1,101,382 1,115,053 1,122,463 1,116,379 1,132,449
Securities HTM-nontaxable   32,878     33,009     33,675     34,179     34,785     32,943     35,313  
Total securities   3,551,276     3,498,385     3,498,055     3,493,574     3,470,584     3,524,976     3,483,092  
Loans (including loans held for sale) 8,348,758 8,074,449 7,855,444 7,658,089 7,505,409 8,212,361 7,425,871
Acquired loans 315,558 250,482 282,197 317,273 349,740 283,200 364,088
Fed funds sold and rev repos 3,184 397 1,418 1,352 1,263 1,798 823
Other earning assets   77,770     79,515     80,608     68,706     64,000     78,638     65,351  
Total earning assets   12,296,546     11,903,228     11,717,722     11,538,994     11,390,996     12,100,973     11,339,225  
Allowance for loan losses (83,328 ) (83,394 ) (82,604 ) (82,301 ) (83,614 ) (83,361 ) (82,376 )
Cash and due from banks 307,966 310,542 314,420 299,670 271,135 309,247 276,524
Other assets   1,229,981     1,235,469     1,238,029     1,243,854     1,240,846     1,232,710     1,247,062  
Total assets $ 13,751,165   $ 13,365,845   $ 13,187,567   $ 13,000,217   $ 12,819,363   $ 13,559,569   $ 12,780,435  
 
Interest-bearing demand deposits $ 2,035,491 $ 1,981,982 $ 1,920,273 $ 1,848,084 $ 1,830,107 $ 2,008,884 $ 1,848,075
Savings deposits 3,337,374 3,319,572 3,049,733 3,101,161 3,221,850 3,328,522 3,205,383
Time deposits   1,777,529     1,650,251     1,638,853     1,667,345     1,678,564     1,714,242     1,678,070  
Total interest-bearing deposits 7,150,394 6,951,805 6,608,859 6,616,590 6,730,521 7,051,648 6,731,528
Fed funds purchased and repos 525,523 498,963 494,193 481,071 488,512 512,316 502,846
Short-term borrowings 1,047,107 887,848 435,576 311,473 319,288 967,917 366,452
Long-term FHLB advances 141,097 251,033 685,844 751,095 597,269 195,761 549,207
Subordinated notes 40,757 49,988 49,980 49,976
Junior subordinated debt securities   61,856     61,856     61,856     61,856     61,856     61,856     61,856  
Total interest-bearing liabilities 8,925,977 8,651,505 8,327,085 8,272,073 8,247,426 8,789,498 8,261,865
Noninterest-bearing deposits 3,110,125 3,008,176 3,160,959 3,060,331 2,927,469 3,059,432 2,881,876
Other liabilities   162,823     173,066     166,379     136,971     131,627     167,917     132,931  
Total liabilities 12,198,925 11,832,747 11,654,423 11,469,375 11,306,522 12,016,847 11,276,672
Shareholders' equity   1,552,240     1,533,098     1,533,144     1,530,842     1,512,841     1,542,722     1,503,763  
Total liabilities and equity $ 13,751,165   $ 13,365,845   $ 13,187,567   $ 13,000,217   $ 12,819,363   $ 13,559,569   $ 12,780,435  
 

See Notes to Consolidated Financials
 
 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2017
($ in thousands)
(unaudited)
 
 

PERIOD END BALANCES
      6/30/2017     3/31/2017     12/31/2016     9/30/2016     6/30/2016
Cash and due from banks $ 318,329 $ 379,590 $ 327,706 $ 383,945 $ 322,049
Fed funds sold and rev repos 6,900 500 500 500 3,198
Securities available for sale 2,447,688 2,365,554 2,356,682 2,410,947 2,388,306
Securities held to maturity 1,139,754 1,156,067 1,158,643 1,143,234 1,173,204
Loans held for sale (LHFS) 203,652 174,090 175,927 242,097 213,546
Loans held for investment (LHFI) 8,296,045 8,004,657 7,851,213 7,499,204 7,405,181
Allowance for loan losses   (76,184 )   (72,445 )   (71,265 )   (70,871 )   (71,796 )
Net LHFI 8,219,861 7,932,212 7,779,948 7,428,333 7,333,385
Acquired loans 314,910 218,242 272,247 295,737 339,035
Allowance for loan losses, acquired loans   (7,423 )   (10,006 )   (11,397 )   (11,380 )   (12,480 )
Net acquired loans   307,487     208,236     260,850     284,357     326,555  
Net LHFI and acquired loans 8,527,348 8,140,448 8,040,798 7,712,690 7,659,940
Premises and equipment, net 182,315 183,311 184,987 190,930 192,732
Mortgage servicing rights 82,628 82,758 80,239 65,514 62,814
Goodwill 379,627 366,156 366,156 366,156 366,156
Identifiable intangible assets 19,422 19,117 20,680 22,366 24,058
Other real estate 49,958 55,968 62,051 64,993 69,890
Other assets   551,517     566,802     577,964     558,166     554,456  
Total assets $ 13,909,138   $ 13,490,361   $ 13,352,333   $ 13,161,538   $ 13,030,349  
 
Deposits:
Noninterest-bearing $ 3,092,915 $ 3,209,727 $ 2,973,238 $ 3,111,603 $ 2,921,016
Interest-bearing   7,330,476     6,894,745     7,082,774     6,574,098     6,610,508  
Total deposits 10,423,391 10,104,472 10,056,012 9,685,701 9,531,524
Fed funds purchased and repos 508,068 524,335 539,817 514,918 606,336
Short-term borrowings 1,222,592 864,690 769,778 412,792 360,434
Long-term FHLB advances 978 250,994 251,049 751,075 751,106
Subordinated notes 49,993 49,985
Junior subordinated debt securities 61,856 61,856 61,856 61,856 61,856
Other liabilities   130,335     146,053     153,613     150,442     145,641  
Total liabilities   12,347,220     11,952,400     11,832,125     11,626,777     11,506,882  
Common stock 14,114 14,112 14,091 14,090 14,090
Capital surplus 367,075 365,951 366,563 365,553 364,516
Retained earnings 1,209,238 1,200,903 1,185,352 1,172,193 1,157,025
Accum other comprehensive loss, net of tax   (28,509 )   (43,005 )   (45,798 )   (17,075 )   (12,164 )
Total shareholders' equity   1,561,918     1,537,961     1,520,208     1,534,761     1,523,467  
Total liabilities and equity $ 13,909,138   $ 13,490,361   $ 13,352,333   $ 13,161,538   $ 13,030,349  
 

See Notes to Consolidated Financials
 
 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2017
($ in thousands except per share data)
(unaudited)
 
      Quarter Ended     Six Months Ended

INCOME STATEMENTS
6/30/2017     3/31/2017     12/31/2016     9/30/2016     6/30/2016 6/30/2017     6/30/2016
Interest and fees on LHFS & LHFI-FTE $ 89,486 $ 83,790 $ 81,346 $ 80,649 $ 77,777 $ 173,276 $ 154,012
Interest and fees on acquired loans 6,263 5,189 8,290 6,781 8,051 11,452 15,073
Interest on securities-taxable 19,377 19,197 18,775 19,351 19,402 38,574 39,488
Interest on securities-tax exempt-FTE 1,178 1,300 1,340 1,388 1,429 2,478 2,926
Interest on fed funds sold and rev repos 11 1 4 5 4 12 5
Other interest income   371     267     335   223     200   638     430  
Total interest income-FTE   116,686     109,744     110,090   108,397     106,863   226,430     211,934  
Interest on deposits 5,107 3,945 3,380 3,208 3,122 9,052 6,160
Interest on fed funds pch and repos 1,037 698 471 411 404 1,735 835
Other interest expense   3,628     2,673     2,662   2,603     2,428   6,301     4,817  
Total interest expense   9,772     7,316     6,513   6,222     5,954   17,088     11,812  
Net interest income-FTE 106,914 102,428 103,577 102,175 100,909 209,342 200,122
Provision for loan losses, LHFI 2,921 2,762 1,834 4,284 2,596 5,683 4,839
Provision for loan losses, acquired loans   (2,564 )   (1,605 )   1,150   691     607   (4,169 )   1,916  
Net interest income after provision-FTE   106,557     101,271     100,593   97,200     97,706   207,828     193,367  
Service charges on deposit accounts 10,755 10,832 11,444 11,677 11,051 21,587 22,132
Bank card and other fees 7,370 6,500 6,796 6,756 7,436 13,870 14,354
Mortgage banking, net 9,008 10,185 5,428 7,364 6,721 19,193 15,420
Insurance commissions 9,745 9,212 8,459 10,074 9,638 18,957 18,231
Wealth management 7,674 7,413 7,505 7,571 8,009 15,087 15,416
Other, net   5,637     1,891     2,092   1,274     1,372   7,528     2,260  
Nonint inc-excl sec gains (losses), net 50,189 46,033 41,724 44,716 44,227 96,222 87,813
Security gains (losses), net   1                 1     (310 )
Total noninterest income   50,190     46,033     41,724   44,716     44,227   96,223     87,503  
Salaries and employee benefits 59,060 57,302 58,168 57,250 67,018 116,362 124,219
Defined benefit plan termination 17,644 17,644
Services and fees 15,009 15,332 14,751 14,947 14,522 30,341 28,997
Net occupancy-premises 6,210 6,238 6,426 6,440 5,928 12,448 12,116
Equipment expense 6,162 5,998 6,172 6,063 5,896 12,160 11,990
Other real estate expense 383 1,759 525 (1,313 ) 1,193 2,142 1,374
FDIC assessment expense 2,686 2,640 2,562 2,911 2,959 5,326 5,770
Other expense   14,921     12,788     11,663   11,610     12,663   27,709     24,657  
Total noninterest expense   122,075     102,057     100,267   97,908     110,179   224,132     209,123  
Income before income taxes and tax eq adj 34,672 45,247 42,050 44,008 31,754 79,919 71,747
Tax equivalent adjustment   4,910     4,838     4,725   4,611     4,532   9,748     9,005  
Income before income taxes 29,762 40,409 37,325 39,397 27,222 70,171 62,742
Income taxes   5,727     9,161     8,402   8,415     5,719   14,888     14,236  
Net income $ 24,035   $ 31,248   $ 28,923 $ 30,982   $ 21,503 $ 55,283   $ 48,506  
 
Per share data
Earnings per share - basic $ 0.35   $ 0.46   $ 0.43 $ 0.46   $ 0.32 $ 0.82   $ 0.72  
 
Earnings per share - diluted $ 0.35   $ 0.46   $ 0.43 $ 0.46   $ 0.32 $ 0.81   $ 0.72  
 
Dividends per share $ 0.23   $ 0.23   $ 0.23 $ 0.23   $ 0.23 $ 0.46   $ 0.46  
 
Weighted average shares outstanding
Basic   67,736,298     67,687,365     67,627,496   67,625,085     67,619,571   67,711,966     67,614,616  
 
Diluted   67,892,532     67,845,785     67,817,770   67,793,203     67,770,174   67,864,414     67,761,315  
 
Period end shares outstanding   67,740,901     67,729,434     67,628,618   67,626,939     67,623,601   67,740,901     67,623,601  
 

See Notes to Consolidated Financials
 
 
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2017
($ in thousands)
(unaudited)
 
      Quarter Ended        

NONPERFORMING ASSETS (1)
6/30/2017     3/31/2017     12/31/2016     9/30/2016     6/30/2016
Nonaccrual loans
Alabama $ 1,723 $ 1,649 $ 665 $ 1,403 $ 1,379
Florida 3,174 3,559 3,644 3,719 1,806
Mississippi (2) 63,889 49,349 37,771 41,968 54,543
Tennessee (3) 4,975 5,185 6,213 6,620 5,345
Texas   383     1,565     941     700     2,055  
Total nonaccrual loans 74,144 61,307 49,234 54,410 65,128
Other real estate
Alabama 13,301 13,953 15,989 15,574 18,031
Florida 17,377 21,577 22,582 25,147 28,052
Mississippi (2) 14,377 14,974 15,646 16,659 14,435
Tennessee (3) 3,363 4,706 6,183 6,061 7,432
Texas   1,540     758     1,651     1,552     1,552  
Total other real estate   49,958     55,968     62,051     64,993     69,502  
Total nonperforming assets $ 124,102   $ 117,275   $ 111,285   $ 119,403   $ 134,630  
 

LOANS PAST DUE OVER 90 DAYS (4)
LHFI $ 1,216   $ 1,307   $ 1,832   $ 953   $ 3,382  
 
LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase) $ 29,906   $ 31,147   $ 28,345   $ 25,570   $ 23,473  
 
 
Quarter Ended Six Months Ended

ALLOWANCE FOR LOAN LOSSES (4)
6/30/2017 3/31/2017 12/31/2016 9/30/2016 6/30/2016 6/30/2017 6/30/2016
Beginning Balance $ 72,445 $ 71,265 $ 70,871 $ 71,796 $ 69,668 $ 71,265 $ 67,619
Provision for loan losses 2,921 2,762 1,834 4,284 2,596 5,683 4,839
Charge-offs (2,118 ) (4,202 ) (4,037 ) (8,279 ) (3,251 ) (6,320 ) (6,614 )
Recoveries   2,936     2,620     2,597     3,070     2,783     5,556     5,952  
Net recoveries (charge-offs)   818     (1,582 )   (1,440 )   (5,209 )   (468 )   (764 )   (662 )
Ending Balance $ 76,184   $ 72,445   $ 71,265   $ 70,871   $ 71,796   $ 76,184   $ 71,796  
 

PROVISION FOR LOAN LOSSES (4)
Alabama $ 866 $ 1,189 $ 763 $ 132 $ 1,189 $ 2,055 $ 1,729
Florida (975 ) 3 (655 ) 31 (364 ) (972 ) (1,182 )
Mississippi (2) 2,268 1,826 1,873 703 (833 ) 4,094 1,015
Tennessee (3) 322 208 (118 ) 151 726 530 864
Texas   440     (464 )   (29 )   3,267     1,878     (24 )   2,413  
Total provision for loan losses $ 2,921   $ 2,762   $ 1,834   $ 4,284   $ 2,596   $ 5,683   $ 4,839  
 

NET (RECOVERIES) CHARGE-OFFS (4)
Alabama $ (29 ) $ 66 $ 368 $ 38 $ 436 $ 37 $ 499
Florida (973 ) (155 ) (502 ) (169 ) (595 ) (1,128 ) (1,269 )
Mississippi (2) 33 1,759 1,591 2,484 (237 ) 1,792 (311 )
Tennessee (3) 146 83 (8 ) 74 252 229 260
Texas   5     (171 )   (9 )   2,782     612     (166 )   1,483  
Total net (recoveries) charge-offs $ (818 ) $ 1,582   $ 1,440   $ 5,209   $ 468   $ 764   $ 662  
 
(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
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2017
(unaudited)
 
      Quarter Ended     Six Months Ended

FINANCIAL RATIOS AND OTHER DATA
6/30/2017     3/31/2017     12/31/2016     9/30/2016     6/30/2016 6/30/2017     6/30/2016
Return on equity 6.21 % 8.27 % 7.51 % 8.05 % 5.72 % 7.23 % 6.49 %
Return on average tangible equity 8.68 % 11.39 % 10.41 % 11.16 % 8.08 % 10.02 % 9.16 %
Return on assets 0.70 % 0.95 % 0.87 % 0.95 % 0.67 % 0.82 % 0.76 %
Interest margin - Yield - FTE 3.81 % 3.74 % 3.74 % 3.74 % 3.77 % 3.77 % 3.76 %
Interest margin - Cost 0.32 % 0.25 % 0.22 % 0.21 % 0.21 % 0.28 % 0.21 %
Net interest margin - FTE 3.49 % 3.49 % 3.52 % 3.52 % 3.56 % 3.49 % 3.55 %
Efficiency ratio (1) 64.50 % 66.67 % 66.08 % 63.81 % 67.20 % 65.57 % 67.04 %
Full-time equivalent employees 2,858 2,799 2,788 2,787 2,818
 

CREDIT QUALITY RATIOS (2)
Net charge-offs/average loans -0.04 % 0.08 % 0.07 % 0.27 % 0.03 % 0.02 % 0.02 %
Provision for loan losses/average loans 0.14 % 0.14 % 0.09 % 0.22 % 0.14 % 0.14 % 0.13 %
Nonperforming loans/total loans (incl LHFS) 0.87 % 0.75 % 0.61 % 0.70 % 0.85 %
Nonperforming assets/total loans (incl LHFS) 1.46 % 1.43 % 1.39 % 1.54 % 1.77 %
Nonperforming assets/total loans (incl LHFS) +ORE 1.45 % 1.42 % 1.38 % 1.53 % 1.75 %
ALL/total loans (excl LHFS) 0.92 % 0.91 % 0.91 % 0.95 % 0.97 %
ALL-commercial/total commercial loans 0.99 % 0.97 % 0.97 % 1.02 % 1.05 %
ALL-consumer/total consumer and home mortgage loans 0.67 % 0.67 % 0.68 % 0.68 % 0.70 %
ALL/nonperforming loans 102.75 % 118.17 % 144.75 % 130.25 % 110.24 %
ALL/nonperforming loans (excl specifically reviewed impaired loans) 277.42 % 263.73 % 267.40 % 256.56 % 231.13 %
 

CAPITAL RATIOS
Total equity/total assets 11.23 % 11.40 % 11.39 % 11.66 % 11.69 %
Tangible equity/tangible assets 8.61 % 8.80 % 8.74 % 8.97 % 8.97 %
Tangible equity/risk-weighted assets 11.19 % 11.49 % 11.39 % 11.85 % 11.85 %
Tier 1 leverage ratio 9.56 % 9.86 % 9.90 % 9.92 % 9.93 %
Common equity tier 1 capital ratio 11.73 % 12.19 % 12.16 % 12.35 % 12.32 %
Tier 1 risk-based capital ratio 12.30 % 12.79 % 12.76 % 12.97 % 12.94 %
Total risk-based capital ratio 13.11 % 13.61 % 13.59 % 13.82 % 13.82 %
 

STOCK PERFORMANCE
Market value-Close $ 32.16 $ 31.79 $ 35.65 $ 27.56 $ 24.85
Book value $ 23.06 $ 22.71 $ 22.48 $ 22.69 $ 22.53
Tangible book value $ 17.17 $ 17.02 $ 16.76 $ 16.95 $ 16.76
 

(1) - The efficiency ratio is noninterest expense to total net interest income (FTE) and noninterest income, excluding security gains (losses), amortization of partnership tax credits, amortization of purchased intangibles, and significant non-routine income and expense items as disclosed in Note 8.

(2) - Excludes acquired loans and covered other real estate.
 

See Notes to Consolidated Financials
 
 

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2017

($ in thousands)

(unaudited)
 

Note 1 - Business Combinations

On April 7, 2017, Trustmark Corporation completed its merger with RB Bancorporation (Reliance), the holding company for Reliance Bank, which had seven offices serving the Huntsville, Alabama metropolitan service area (MSA). Reliance Bank was merged into Trustmark National Bank simultaneously with the merger of Trustmark and RB Bancorporation. Under the terms of the Merger Agreement dated November 14, 2016, Trustmark paid $22.00 in cash for each share of Reliance common stock outstanding, which represented total consideration for Reliance common shareholders of approximately $23.7 million.

The merger with Reliance was consistent with Trustmark's strategic plan to selectively expand the Trustmark franchise and enhance the Trustmark franchise in north Alabama.

This merger was accounted for in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, "Business Combinations." Accordingly, the assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the merger date. The fair values of the assets acquired and liabilities assumed are subject to adjustment if additional information relative to the closing date fair values becomes available through the measurement period, which is not to exceed one year from the merger date of April 7, 2017.

The statement of assets purchased and liabilities assumed in the Reliance merger is presented below at their estimated fair values as of the merger date of April 7, 2017 ($ in thousands):
     
Assets:
Cash and due from banks $ 5,013
Federal funds sold and securities purchased under reverse repurchase agreements 6,900
Securities 54,843
Acquired loans 117,447
Premises and equipment, net 3,700
Identifiable intangible assets 1,850
Other real estate 475
Other assets   6,037
Total assets 196,265
 
Liabilities:
Deposits 166,158
Other borrowings 17,469
Other liabilities   1,322
Total liabilities 184,949
 
Net identifiable assets acquired at fair value 11,316
Goodwill   13,472
Net assets acquired at fair value $ 24,788
 

The excess of the consideration paid over the estimated fair value of the net assets acquired was $13.5 million, which was recorded as goodwill under FASB ASC Topic 805. The identifiable intangible assets acquired represent the core deposit intangible at fair value at the merger date. The core deposit intangible is being amortized on an accelerated basis over the estimated useful life, currently expected to be approximately ten years.

Loans acquired from Reliance were evaluated under a fair value process. Loans with evidence of deterioration in credit quality and for which it was probable at acquisition that Trustmark would not be able to collect all contractually required payments are referred to as acquired impaired loans and accounted for in accordance with FASB ASC Topic 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality."

The operations of Reliance are included in Trustmark's operating results from April 7, 2017 and did not have a material impact on Trustmark's results of operations. During the second quarter of 2017, Trustmark included non-routine merger transaction expenses in other noninterest expense totaling $3.2 million (change in control expense of $1.3 million; professional fees, contract termination and other expenses of $1.9 million).

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2017

($ in thousands)

(unaudited)

Note 2 - Securities Available for Sale and Held to Maturity

The following table is a summary of the estimated fair value of securities available for sale and the amortized cost of securities held to maturity ($ in thousands):
                     
6/30/2017 3/31/2017 12/31/2016 9/30/2016 6/30/2016

SECURITIES AVAILABLE FOR SALE
U.S. Government agency obligations
Issued by U.S. Government agencies $ 51,277 $ 53,247 $ 55,763 $ 58,234 $ 61,359
Issued by U.S. Government sponsored agencies 272 274 276 283 286
Obligations of states and political subdivisions 96,514 109,895 115,373 124,641 129,285
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA 58,422 42,667 42,786 36,788 29,282
Issued by FNMA and FHLMC 860,571 733,214 631,084 561,989 428,542
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 1,157,241 1,202,719 1,267,951 1,374,399 1,474,357
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA   223,391   223,538   243,449   254,613   265,195
Total securities available for sale $ 2,447,688 $ 2,365,554 $ 2,356,682 $ 2,410,947 $ 2,388,306
 

SECURITIES HELD TO MATURITY
U.S. Government agency obligations
Issued by U.S. Government sponsored agencies $ 3,669 $ 3,658 $ 3,647 $ 3,636 $ 31,142
Obligations of states and political subdivisions 46,098 46,273 46,303 52,937 53,473
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA 14,399 14,977 15,478 16,183 16,415
Issued by FNMA and FHLMC 144,282 118,733 81,299 39,989 42,267
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 740,042 771,296 803,474 831,662 824,175
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA   191,264   201,130   208,442   198,827   205,732
Total securities held to maturity $ 1,139,754 $ 1,156,067 $ 1,158,643 $ 1,143,234 $ 1,173,204
 

During 2013, Trustmark reclassified approximately $1.099 billion of securities available for sale to securities held to maturity. The securities were transferred at fair value, which became the cost basis for the securities held to maturity. At the date of transfer, the net unrealized holding loss on the available for sale securities totaled approximately $46.6 million ($28.8 million, net of tax). The net unrealized holding loss is amortized over the remaining life of the securities as a yield adjustment in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. There were no gains or losses recognized as a result of the transfer. At June 30, 2017, the net unamortized, unrealized loss on the transferred securities included in accumulated other comprehensive loss in the accompanying balance sheet totaled approximately $21.8 million ($13.4 million, net of tax).

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 96% of the portfolio in GSE-backed obligations and other Aaa rated securities as determined by Moody's. None of the securities owned by Trustmark are collateralized by assets which are considered sub-prime. Furthermore, outside of stock ownership in the Federal Home Loan Bank of Dallas, Federal Home Loan Bank of Atlanta and Federal Reserve Bank, Trustmark does not hold any other equity investment in a GSE.

 

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2017

($ in thousands)

(unaudited)
 
Note 3 - Loan Composition
                     
 

LHFI BY TYPE (excluding acquired loans)
6/30/2017 3/31/2017 12/31/2016 9/30/2016 6/30/2016
Loans secured by real estate:
Construction, land development and other land loans $ 922,029 $ 859,927 $ 831,437 $ 766,685 $ 718,438
Secured by 1-4 family residential properties 1,655,968 1,656,837 1,660,043 1,592,453 1,620,013
Secured by nonfarm, nonresidential properties 2,109,367 2,064,352 2,034,176 1,916,153 1,900,784
Other real estate secured 432,208 399,636 318,148 317,680 323,734
Commercial and industrial loans 1,635,000 1,540,783 1,528,434 1,421,382 1,466,511
Consumer loans 170,858 166,314 170,562 170,073 166,436
State and other political subdivision loans 936,860 910,493 917,515 875,973 805,401
Other loans   433,755     406,315     390,898     438,805     403,864  
LHFI 8,296,045 8,004,657 7,851,213 7,499,204 7,405,181
Allowance for loan losses   (76,184 )   (72,445 )   (71,265 )   (70,871 )   (71,796 )
Net LHFI $ 8,219,861   $ 7,932,212   $ 7,779,948   $ 7,428,333   $ 7,333,385  
 
 

ACQUIRED LOANS BY TYPE (1)
6/30/2017 3/31/2017 12/31/2016 9/30/2016 6/30/2016
Loans secured by real estate:
Construction, land development and other land loans $ 35,054 $ 17,651 $ 20,850 $ 25,040 $ 38,016
Secured by 1-4 family residential properties 74,313 54,721 69,540 76,601 81,676
Secured by nonfarm, nonresidential properties 132,663 92,075 103,820 110,606 119,698
Other real estate secured 19,553 16,275 19,010 20,903 25,272
Commercial and industrial loans 34,375 20,691 36,896 39,519 49,760
Consumer loans 2,833 2,664 3,365 3,878 4,295
Other loans   16,119     14,165     18,766     19,190     20,318  
Acquired loans 314,910 218,242 272,247 295,737 339,035
Allowance for loan losses, acquired loans   (7,423 )   (10,006 )   (11,397 )   (11,380 )   (12,480 )
Net acquired loans $ 307,487   $ 208,236   $ 260,850   $ 284,357   $ 326,555  
 

(1) Trustmark revised the presentation of acquired loans by eliminating the segmentation of acquired noncovered loans and acquired covered loans due to the significantly reduced size of the acquired covered loan portfolio.

During the first quarter of 2017, Trustmark transferred the remaining balance of the acquired loans not accounted for under FASB ASC Topic 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality" to LHFI due to the discount on these loans being fully amortized. The balance of these transferred loans totaled $36.7 million.
 

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2017

($ in thousands)

(unaudited)
 
Note 3 - Loan Composition (continued)
      June 30, 2017

LHFI - COMPOSITION BY REGION (1)
Total     Alabama     Florida    

Mississippi (Central and Southern Regions)
   

Tennessee (Memphis, TN and Northern MS Regions)
    Texas
Loans secured by real estate:
Construction, land development and other land loans $ 922,029 $ 257,674 $ 51,436 $ 312,059 $ 37,529 $ 263,331
Secured by 1-4 family residential properties 1,655,968 95,896 50,122 1,394,674 97,633 17,643
Secured by nonfarm, nonresidential properties 2,109,367 354,161 203,932 885,278 158,187 507,809
Other real estate secured 432,208 59,798 2,989 195,528 37,557 136,336
Commercial and industrial loans 1,635,000 168,627 23,317 843,150 347,865 252,041
Consumer loans 170,858 23,081 3,805 125,112 16,667 2,193
State and other political subdivision loans 936,860 83,549 28,670 582,333 29,366 212,942
Other loans   433,755   53,758   18,443   280,612   38,549   42,393
Loans $ 8,296,045 $ 1,096,544 $ 382,714 $ 4,618,746 $ 763,353 $ 1,434,688
 

CONSTRUCTION, LAND DEVELOPMENT AND OTHER LAND LOANS BY REGION (1)
Lots $ 60,773 $ 13,483 $ 17,231 $ 24,597 $ 2,369 $ 3,093
Development 47,140 6,061 5,332 14,709 550 20,488
Unimproved land 105,896 18,271 15,759 39,721 14,906 17,239
1-4 family construction 184,978 51,575 10,981 77,400 1,900 43,122
Other construction   523,242   168,284   2,133   155,632   17,804   179,389
Construction, land development and other land loans $ 922,029 $ 257,674 $ 51,436 $ 312,059 $ 37,529 $ 263,331
 

LOANS SECURED BY NONFARM, NONRESIDENTIAL PROPERTIES BY REGION (1)
Income producing:
Retail $ 311,186 $ 101,742 $ 46,732 $ 100,677 $ 17,662 $ 44,373
Office 211,628 32,957 22,819 73,351 6,113 76,388
Nursing homes/assisted living 143,806 8,605 128,639 6,562
Hotel/motel 239,188 55,752 41,825 63,381 35,883 42,347
Mini-storage 137,633 12,583 41,384 14,255 69,411
Industrial 101,390 15,800 9,919 22,091 4,586 48,994
Health care 30,636 4,475 804 24,351 1,006
Convenience stores 21,306 1,381 9,080 930 9,915
Other   92,676   14,674   17,859   11,878   6,576   41,689
Total income producing loans 1,289,449 247,969 139,958 474,832 92,567 334,123
 
Owner-occupied:
Office 136,259 18,373 23,471 66,766 5,271 22,378
Churches 86,035 12,701 2,044 43,930 20,640 6,720
Industrial warehouses 143,292 4,508 3,497 61,953 13,172 60,162
Health care 119,754 23,479 7,167 69,204 4,441 15,463
Convenience stores 100,424 9,053 13,001 52,291 1,115 24,964
Retail 45,605 5,943 6,893 24,189 1,950 6,630
Restaurants 33,552 3,482 852 25,668 1,622 1,928
Auto dealerships 23,438 9,726 37 8,757 4,918
Other   131,559   18,927   7,012   57,688   12,491   35,441
Total owner-occupied loans   819,918   106,192   63,974   410,446   65,620   173,686
Loans secured by nonfarm, nonresidential properties $ 2,109,367 $ 354,161 $ 203,932 $ 885,278 $ 158,187 $ 507,809
 

(1) Excludes acquired loans.
 

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2017

($ in thousands)

(unaudited)
 

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

The following table illustrates the yields on earning assets by category as well as the rates paid on interest-bearing liabilities on a tax equivalent basis:
 
      Quarter Ended     Six Months Ended
6/30/2017     3/31/2017     12/31/2016     9/30/2016     6/30/2016 6/30/2017     6/30/2016
Securities - taxable 2.26 % 2.31 % 2.21 % 2.29 % 2.34 % 2.28 % 2.37 %
Securities - nontaxable 4.35 % 4.34 % 4.26 % 4.27 % 4.29 % 4.35 % 4.27 %
Securities - total 2.32 % 2.38 % 2.29 % 2.36 % 2.41 % 2.35 % 2.45 %
Loans - LHFI & LHFS 4.30 % 4.21 % 4.12 % 4.19 % 4.17 % 4.25 % 4.17 %
Acquired loans 7.96 % 8.40 % 11.69 % 8.50 % 9.26 % 8.15 % 8.33 %
Loans - total 4.43 % 4.33 % 4.38 % 4.36 % 4.39 % 4.38 % 4.36 %
FF sold & rev repo 1.39 % 1.02 % 1.12 % 1.47 % 1.27 % 1.35 % 1.22 %
Other earning assets 1.91 % 1.36 % 1.65 % 1.29 % 1.26 % 1.64 % 1.32 %
Total earning assets 3.81 % 3.74 % 3.74 % 3.74 % 3.77 % 3.77 % 3.76 %
 
Interest-bearing deposits 0.29 % 0.23 % 0.20 % 0.19 % 0.19 % 0.26 % 0.18 %
FF pch & repo 0.79 % 0.57 % 0.38 % 0.34 % 0.33 % 0.68 % 0.33 %
Other borrowings 1.16 % 0.90 % 0.87 % 0.88 % 0.95 % 1.04 % 0.94 %
Total interest-bearing liabilities 0.44 % 0.34 % 0.31 % 0.30 % 0.29 % 0.39 % 0.29 %
 
Net interest margin 3.49 % 3.49 % 3.52 % 3.52 % 3.56 % 3.49 % 3.55 %
Net interest margin excluding acquired loans 3.37 % 3.38 % 3.31 % 3.38 % 3.38 % 3.38 % 3.39 %
 

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

During the second quarter of 2017, the yield on acquired loans totaled 7.96% and included $952 thousand in recoveries from the settlement of debt, which represented approximately 1.21% of the annualized total acquired loan yield. Excluding acquired loans, the net interest margin for the second quarter of 2017 totaled 3.37% and remained relatively stable when compared to the first quarter of 2017, as growth in the yield on the loans held for investment and held for sale portfolio was offset by higher costs 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 mortgage servicing rights (MSR) attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting under generally accepted accounting principles (GAAP). Changes in the fair value of these exchange-traded derivative instruments, including administrative costs, are recorded in noninterest income in mortgage banking, net and are offset by the changes in the fair value of the MSR. The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the change in value of hedge instruments to the change in the fair value of the MSR asset attributable to changes in interest rates and other market driven changes in valuation inputs and assumptions. The impact of this strategy resulted in a net positive ineffectiveness of $835 thousand and $2.8 million for the quarters ended June 30, 2017 and March 31, 2017, respectively.

The following table illustrates the components of mortgage banking revenues included in noninterest income in the accompanying income statements:
         
Quarter Ended Six Months Ended
6/30/2017     3/31/2017     12/31/2016     9/30/2016     6/30/2016 6/30/2017     6/30/2016
Mortgage servicing income, net $ 5,439 $ 5,458 $ 5,218 $ 5,271 $ 5,177 $ 10,897 $ 10,235
Change in fair value-MSR from runoff (2,896 ) (2,387 ) (2,739 ) (2,862 ) (2,500 ) (5,283 ) (4,505 )
Gain on sales of loans, net 5,001 3,550 6,054 6,410 5,480 8,551 8,071
Other, net   629     772     (2,925 )   (299 )   498     1,401     3,140  
Mortgage banking income before hedge ineffectiveness   8,173     7,393     5,608     8,520     8,655     15,566     16,941  
Change in fair value-MSR from market changes (1,291 ) 1,466 13,112 381 (7,033 ) 175 (13,899 )
Change in fair value of derivatives   2,126     1,326     (13,292 )   (1,537 )   5,099     3,452     12,378  
Net positive (negative) hedge ineffectiveness   835     2,792     (180 )   (1,156 )   (1,934 )   3,627     (1,521 )
Mortgage banking, net $ 9,008   $ 10,185   $ 5,428   $ 7,364   $ 6,721   $ 19,193   $ 15,420  
 

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2017

($ in thousands)

(unaudited)

Note 6 - Salaries and Employee Benefit Plans

Early Retirement Program

During the second quarter of 2016, Trustmark announced a voluntary early retirement program (ERP) for associates age 60 and above with five or more years of service. The cost of this program is reflected in a one-time, pre-tax charge of approximately $9.3 million (salaries and employee benefits expense of $9.1 million and other miscellaneous expense of $230 thousand), or $0.085 per basic share net of tax, in Trustmark's second quarter 2016 earnings. As a result of the ERP, during the third and fourth quarters of 2016, Trustmark incurred additional expense of $236 thousand and $268 thousand, respectively, which primarily resulted from additional settlements from pension lump sum elections.

Defined Benefit Pension Plan

Trustmark maintained a noncontributory tax-qualified defined benefit pension plan (Trustmark Capital Accumulation Plan, the "Plan"), in which substantially all associates who began employment prior to 2007 participated. The Plan provided for retirement benefits based on the length of credited service and final average compensation, as defined in the Plan, which vested upon three years of service. Benefit accruals under the plan were frozen in 2009, with the exception of certain associates covered through plans obtained in acquisitions that were subsequently merged into the Plan. As previously reported, on July 26, 2016, the Board of Directors of Trustmark authorized the termination of the Plan, effective as of December 31, 2016. To satisfy commitments made by Trustmark to associates (collectively, the "Continuing Associates") covered through acquired plans that were merged into the Plan, the Board also approved the spin-off of the portion of the Plan associated with the accrued benefits of the Continuing Associates into a new plan titled the Trustmark Corporation Pension Plan for Certain Employees of Acquired Financial Institutions (the "Spin-Off Plan"), effective as of December 31, 2016, immediately prior to the termination of the Plan. In order to terminate the Plan, in accordance with Internal Revenue Service and Pension Benefit Guaranty Corporation requirements, Trustmark was required to fully fund the Plan on a termination basis and contributed the additional assets necessary to do so. The final distributions were made from current plan assets and a one-time pension settlement expense of $17.6 million was recognized when paid by Trustmark during the second quarter of 2017. After the distribution of Plan assets during the second quarter of 2017, Trustmark estimates that the annual pension expense will be reduced by $3.0 million to $4.0 million.

Note 7 - Other Noninterest Income and Expense

Other noninterest income consisted of the following for the periods presented ($ in thousands):
         
Quarter Ended Six Months Ended
6/30/2017     3/31/2017     12/31/2016     9/30/2016     6/30/2016 6/30/2017     6/30/2016
Partnership amortization for tax credit purposes $ (2,287 ) $ (2,274 ) $ (2,479 ) $ (2,479 ) $ (2,479 ) $ (4,561 ) $ (4,958 )
Increase in life insurance cash surrender value 1,782 1,714 1,751 1,746 1,702 3,496 3,394
Other miscellaneous income   6,142     2,451     2,820     2,007     2,149     8,593     3,824  
Total other, net $ 5,637   $ 1,891   $ 2,092   $ 1,274   $ 1,372   $ 7,528   $ 2,260  
 

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). 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.

During the second quarter of 2017, Trustmark received nontaxable proceeds of $4. 9 million related to life insurance acquired as part of a previous acquisition, which was recorded in other miscellaneous income in the table above.

Other noninterest expense consisted of the following for the periods presented ($ in thousands):
         
Quarter Ended Six Months Ended
6/30/2017     3/31/2017     12/31/2016     9/30/2016     6/30/2016 6/30/2017     6/30/2016
Loan expense $ 2,827 $ 2,792 $ 2,823 $ 3,336 $ 3,024 $ 5,619 $ 6,067
Amortization of intangibles 1,544 1,564 1,686 1,692 1,692 3,108 3,488
Other miscellaneous expense   10,550   8,432   7,154   6,582   7,947   18,982   15,102
Total other expense $ 14,921 $ 12,788 $ 11,663 $ 11,610 $ 12,663 $ 27,709 $ 24,657
 

As previously discussed in Note 1 - Business Combinations, non-routine Reliance merger transaction expenses totaled $3.2 million and were included in other miscellaneous expense during the second quarter of 2017.

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2017

($ in thousands)

(unaudited)

Note 8 - Non-GAAP Financial Measures

In addition to capital ratios defined by U.S. 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. In Management's experience, many stock analysts use tangible common equity measures in conjunction with more traditional bank capital ratios to compare capital adequacy of banking organizations with significant amounts of goodwill or other tangible assets, typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions.

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

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2017

($ in thousands)

(unaudited)
 

Note 8 - Non-GAAP Financial Measures (continued)
    Quarter Ended     Six Months Ended
6/30/2017     3/31/2017     12/31/2016     9/30/2016     6/30/2016 6/30/2017     6/30/2016

TANGIBLE EQUITY
AVERAGE BALANCES
Total shareholders' equity $ 1,552,240 $ 1,533,098 $ 1,533,144 $ 1,530,842 $ 1,512,841 $ 1,542,722 $ 1,503,763
Less: Goodwill (378,191 ) (366,156 ) (366,156 ) (366,156 ) (366,156 ) (372,207 ) (366,156 )
Identifiable intangible assets   (19,713 )   (19,950 )   (21,585 )   (23,311 )   (24,961 )   (19,831 )   (25,835 )
Total average tangible equity $ 1,154,336   $ 1,146,992   $ 1,145,403   $ 1,141,375   $ 1,121,724   $ 1,150,684   $ 1,111,772  
 
PERIOD END BALANCES
Total shareholders' equity $ 1,561,918 $ 1,537,961 $ 1,520,208 $ 1,534,761 $ 1,523,467
Less: Goodwill (379,627 ) (366,156 ) (366,156 ) (366,156 ) (366,156 )
Identifiable intangible assets   (19,422 )   (19,117 )   (20,680 )   (22,366 )   (24,058 )

Total tangible equity

(a)
$ 1,162,869   $ 1,152,688   $ 1,133,372   $ 1,146,239   $ 1,133,253  
 

TANGIBLE ASSETS
Total assets $ 13,909,138 $ 13,490,361 $ 13,352,333 $ 13,161,538 $ 13,030,349
Less: Goodwill (379,627 ) (366,156 ) (366,156 ) (366,156 ) (366,156 )
Identifiable intangible assets   (19,422 )   (19,117 )   (20,680 )   (22,366 )   (24,058 )

Total tangible assets

(b)
$ 13,510,089   $ 13,105,088   $ 12,965,497   $ 12,773,016   $ 12,640,135  

Risk-weighted assets

(c)
$ 10,391,912   $ 10,031,410   $ 9,952,123   $ 9,670,302   $ 9,559,816  
 

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION
Net income $ 24,035 $ 31,248 $ 28,923 $ 30,982 $ 21,503 $ 55,283 $ 48,506
Plus: Intangible amortization net of tax   954     966     1,041     1,045     1,045     1,920     2,154  
Net income adjusted for intangible amortization $ 24,989   $ 32,214   $ 29,964   $ 32,027   $ 22,548   $ 57,203   $ 50,660  

Period end common shares outstanding

(d)
  67,740,901     67,729,434     67,628,618     67,626,939     67,623,601  
 

TANGIBLE COMMON EQUITY MEASUREMENTS

Return on average tangible equity (1)
8.68 % 11.39 % 10.41 % 11.16 % 8.08 % 10.02 % 9.16 %

Tangible equity/tangible assets

(a)/(b)
8.61 % 8.80 % 8.74 % 8.97 % 8.97 %

Tangible equity/risk-weighted assets

(a)/(c)
11.19 % 11.49 % 11.39 % 11.85 % 11.85 %

Tangible book value

(a)/(d)*1,000
$ 17.17 $ 17.02 $ 16.76 $ 16.95 $ 16.76
 

COMMON EQUITY TIER 1 CAPITAL (CET1)
Total shareholders' equity $ 1,561,918 $ 1,537,961 $ 1,520,208 $ 1,534,761 $ 1,523,467
AOCI-related adjustments 28,509 43,005 45,798 17,075 12,164
CET1 adjustments and deductions:
Goodwill net of associated deferred tax liabilities (DTLs) (360,198 ) (347,085 ) (347,442 ) (347,800 ) (348,158 )
Other adjustments and deductions for CET1 (2)   (11,267 )   (10,803 )   (8,637 )   (9,307 )   (10,042 )

CET1 capital

(e)
1,218,962 1,223,078 1,209,927 1,194,729 1,177,431
Additional tier 1 capital instruments plus related surplus 60,000 60,000 60,000 60,000 60,000
Less: additional tier 1 capital deductions   (247 )   (159 )   (267 )   (276 )   (328 )
Additional tier 1 capital   59,753     59,841     59,733     59,724     59,672  
Tier 1 capital $ 1,278,715   $ 1,282,919   $ 1,269,660   $ 1,254,453   $ 1,237,103  
 

Common equity tier 1 capital ratio

(e)/(c)
11.73 % 12.19 % 12.16 % 12.35 % 12.32 %
 

(1) Calculation = ((net income adjusted for intangible amortization/number of days in period)*number of days in year)/total average tangible equity.

(2) Includes other intangible assets, net of DTLs, disallowed deferred tax assets (DTAS), threshold deductions and transition adjustments, as applicable.
 

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2017

($ in thousands)

(unaudited)

Note 8 - Non-GAAP Financial Measures (continued)

Trustmark discloses certain non-GAAP financial measures, including net income adjusted for significant non-routine transactions, because Management uses these measures for business planning purposes, including to manage Trustmark's business against internal projected results of operations and to measure Trustmark's performance. Trustmark views net income adjusted for significant non-routine transactions as a measure of our core operating business, which excludes the impact of the items detailed below, as these items are generally not operational in nature. This non-GAAP measure also provides another basis for comparing period-to-period results as presented in the accompanying selected financial data table and the audited consolidated financial statements by excluding potential differences caused by non-operational and unusual or non-recurring items. Readers are cautioned that these adjustments are not permitted under GAAP. Trustmark encourages readers to consider its consolidated financial statements and the notes related thereto in their entirety, and not to rely on any single financial measure.

The following table presents adjustments to net income and select financial ratios as reported in accordance with GAAP resulting from significant non-routine items occurring during the periods presented ($ in thousands, except per share data):

         
Quarter Ended Six Months Ended
6/30/2017     6/30/2016 6/30/2017     6/30/2016
Amount     Diluted EPS Amount     Diluted EPS Amount     Diluted EPS Amount     Diluted EPS
 
Net Income (GAAP) $ 24,035 $ 0.354 $ 21,503 $ 0.317 $ 55,283 $ 0.815 $ 48,506 $ 0.716
 
Significant non-routine transactions (net of taxes):
 
Early retirement program expense 5,738 0.085 5,738 0.085
Defined benefit plan termination 10,895 0.160 10,895 0.161
Reliance merger transaction expenses 1,999 0.029 1,999 0.029
Gain on life insurance proceeds   (4,894 )   (0.072 )           (4,894 )   (0.072 )        

Net Income adjusted for significant non-routine transactions (Non-GAAP)
$ 32,035   $ 0.471   $ 27,241   $ 0.402   $ 63,283   $ 0.933   $ 54,244   $ 0.801  
 
Reported Adjusted Reported Adjusted Reported Adjusted Reported Adjusted
(GAAP) (Non-GAAP) (GAAP) (Non-GAAP) (GAAP) (Non-GAAP) (GAAP) (Non-GAAP)
 
Return on equity 6.21 % 8.28 % 5.72 % 7.24 % 7.23 % 8.27 % 6.49 % 7.25 %
Return on average tangible equity 8.68 % 11.46 % 8.08 % 10.14 % 10.02 % 11.43 % 9.16 % 10.20 %
Return on assets 0.70 % 0.93 % 0.67 % 0.85 % 0.82 % 0.94 % 0.76 % 0.85 %
 

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