Trustmark Corporation Announces Third Quarter 2016 Financial Results

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Trustmark Corporation Announces Third Quarter 2016 Financial Results

JACKSON, Miss.--()--Trustmark Corporation (NASDAQ:TRMK) reported net income of $31.0 million in the third quarter of 2016, which represented diluted earnings per share of $0.46. This level of earnings resulted in a return on average tangible common equity of 11.16% and a return on average assets of 0.95%. Diluted earnings per share in the third quarter of 2016 increased 9.5% relative to the same period in the prior year and 15.0% from the prior quarter when a one-time charge related to a voluntary early retirement program (ERP) in that quarter is excluded. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable December 15, 2016, to shareholders of record on December 1, 2016.

Printer friendly version of earnings release with consolidated financial statements and notes: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=51445688&lang=en

Third Quarter Highlights

  • Loans held for investment increased $94.0 million, or 5.2% annualized, from the prior quarter and $707.6 million, or 10.4%, year-over-year
  • Credit quality remained solid, reflecting continued reductions in nonperforming assets
  • Revenue excluding income on acquired loans increased 2.2% linked quarter, or 8.8% annualized, and 2.7% year-over-year to total $135.5 million in the third quarter
  • Core noninterest expense remained well controlled at $96.6 million

Gerard R. Host, President and CEO, stated, “Trustmark achieved another quarter of solid financial results. We continued to maintain and expand customer relationships in our banking business by growing loans while maintaining solid credit quality. Our other lines of business continued to perform well, reflecting strength in insurance and mortgage banking. Core noninterest expense remained well controlled. 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.”

Balance Sheet Management

  • Diversified legacy loan growth reflects the value of Trustmark’s five-state franchise
  • Noninterest-bearing deposits increased to 32.1% of total deposits at September 30; cost of deposits remained steady at 0.13% in the third quarter
  • Solid capital base continues to provide flexibility in pursuing growth opportunities

Loans held for investment totaled $7.5 billion at September 30, 2016, reflecting an increase of 5.2% annualized from the prior quarter and 10.4% year-over-year. Compared to the prior quarter, loans to state and other political subdivisions increased $70.6 million reflecting growth in Texas, Mississippi and Alabama. Construction, land development and other land loans increased $48.3 million driven by growth across Trustmark’s five-state franchise. Other loans, which include loans to nonprofits and real estate investment trusts, increased $34.9 million, reflecting growth in Mississippi and Tennessee. Loans secured by nonfarm, nonresidential real estate increased $15.4 million with growth in the Mississippi, Texas and Florida markets. Commercial and industrial loans declined $45.1 million as growth in Alabama, Tennessee and Florida was more than offset with declines in Mississippi and Texas. During the quarter, Trustmark sold the vast majority of its lower-rate, longer-term home mortgages in the secondary market rather than replacing the runoff in its single-family loan portfolio; as a result, the single-family loan portfolio decreased by $27.6 million.

Acquired loans totaled $295.7 million at September 30, 2016, down $43.3 million from the prior quarter. Collectively, loans held for investment and acquired loans totaled $7.8 billion at September 30, 2016, up $50.7 million, or 2.6% annualized, from the prior quarter.

Deposits totaled $9.7 billion at September 30, 2016, up $154.2 million, or 1.6%, from the prior quarter. Trustmark continues to maintain an attractive, low-cost deposit base with a total cost of deposits of 0.13%. The favorable mix of interest-bearing liabilities yielded a total cost of funds of 0.30% for the third quarter of 2016.

Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. During the third quarter, Trustmark did not repurchase any of its common shares. The repurchase program, which is subject to market conditions and management discretion, will continue to be implemented through open market repurchases or privately negotiated transactions. At September 30, 2016, Trustmark’s tangible equity to tangible assets ratio was 8.97%, while its total risk-based capital ratio was 13.82%. Tangible book value per share was $16.95 at September 30, 2016, up 5.9% from the prior year.

Credit Quality

  • Nonperforming loans and other real estate decreased 16.5% and 6.5%, respectively, from the prior quarter
  • Allowance for loan losses represented 256.56% of nonperforming loans, excluding specifically reviewed impaired loans
  • Allowance for held for investment and acquired loans represented 1.06% of total held for investment and acquired loans

At September 30, 2016, nonperforming loans totaled $54.4 million, down 16.5% linked quarter and 11.0% year-over-year. Other real estate totaled $65.0 million, reflecting a decline of 6.5% from the prior quarter and 22.6% from the same period one year earlier.

Net charge-offs for the quarter were $5.2 million and resulted from four impaired credits being written down to fair value or charged-off in full. None of these credits were energy related, and a significant portion of the net charge-offs had been provisioned for in previous periods.

Allocation of Trustmark's $70.9 million allowance for loan losses represented 1.02% of commercial loans and 0.68% of consumer and home mortgage loans, resulting in an allowance to total loans held for investment of 0.95% at September 30, 2016, 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 1.06% of total loans, which include held for investment and acquired loans.

Unless otherwise noted, 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 $95.4 million in the third quarter, up 2.7% from the prior quarter
  • Noninterest income totaled $44.7 million in the third quarter, up 1.1% from the prior quarter
  • Insurance and mortgage banking revenue demonstrated solid growth, increasing 4.5% and 9.6%, respectively, from the prior quarter

Net interest income (FTE) in the third quarter totaled $102.2 million, which resulted in a net interest margin of 3.52%. Compared to the prior quarter, net interest income (FTE) increased $1.3 million, which reflects continued growth in interest income from both the held for sale and held for investment loan portfolios, in addition to a lower level of interest and recoveries from the acquired loan portfolio. The yield on acquired loans in the third quarter totaled 8.50% and included recoveries from settlement of debt of $1.9 million; this compares to $2.9 million in recoveries from settlement of debt in the prior quarter. The net interest margin (FTE) excluding acquired loans totaled 3.38% in the third quarter, remaining unchanged from the prior quarter.

Service charges on deposit accounts totaled $11.7 million in the third quarter, an increase of $626 thousand, or 5.7%, from the prior quarter and a decline of $723 thousand, or 5.8%, year-over-year. The linked quarter change was attributable to a seasonal increase in occurrences of consumer overdrafts while the year-over-year decline reflected a decrease in consumer and business service charges as well as a reduction in occurrences of consumer overdrafts.

Bank card and other fees totaled $6.8 million in the third quarter, a decline of $680 thousand, or 9.1%, linked quarter and $208 thousand, or 3.0%, year-over-year. The linked quarter decline reflected a seasonal reduction in ATM surcharge revenue as well as reduced revenue from customer derivatives while the change year-over-year included lower ATM surcharge revenue.

Insurance revenue totaled $10.1 million in the third quarter, an increase of $436 thousand, or 4.5%, from the prior quarter and $168 thousand, or 1.7%, from the same period one year earlier. The linked quarter increase was primarily driven by the commercial property and casualty line of business while growth year-over-year reflected increases in group health insurance and other commission income, which were offset in part by reduced commercial property and casualty revenue.

Wealth management revenue totaled $7.6 million in the third quarter, a decrease of $438 thousand, or 5.5%, from the prior quarter and $219 thousand, or 2.8%, from the comparable period in 2015, reflecting in part a decline in trust management revenue.

Mortgage banking revenue in the third quarter totaled $7.4 million, an increase of $643 thousand, or 9.6%, linked quarter and a decrease of $79 thousand, or 1.1%, year-over-year. The growth from the prior quarter reflected increased secondary marketing gains and improved hedge ineffectiveness as well as expanded mortgage servicing income. When compared to levels one year earlier, increased secondary marketing gains and mortgage servicing income were more than offset by unfavorable mortgage servicing hedge ineffectiveness and a lower level of mark-to-market gains on mortgage loans held for sale. Mortgage loan production in the third quarter totaled $487.9 million, up 20.8% from the prior quarter and 16.1% from the comparable period one year earlier.

Noninterest Expense

  • Core noninterest expense remained well controlled at $96.6 million
  • Results of the previously announced ERP produced savings of $1.9 million during the third quarter

Trustmark’s proactive expense management programs have resulted in lower noninterest expense and improved efficiency levels. During the third quarter, noninterest expense totaled $97.9 million, down $12.3 million, or 11.1% from the prior quarter. Excluding the one-time charge of $9.3 million in second quarter related to the ERP, noninterest expense declined $3.0 million, or 2.9%, linked quarter. The efficiency ratio improved 339 basis points during the quarter to 63.8%.

Core noninterest expense, which excludes ORE expense (gain of $1.3 million), intangible amortization ($1.7 million), expense related to reducing the risk profile of the assets of the Corporation’s defined benefit plan prior to termination ($664 thousand) and additional pension expense related to the ERP ($236 thousand), totaled $96.6 million in the third quarter, a decline of $1.4 million on a comparable basis from the prior quarter.

Salaries and benefits expense totaled $57.3 million, which decreased during the quarter by $9.8 million. Excluding one-time ERP charges of $9.1 million during the second quarter, salary and benefits decreased by $706 thousand. This decrease represents ERP savings of $1.9 million during the quarter offset in part by increased pension cost of $900 thousand related to reducing the risk profile of the assets of the Corporation’s defined benefits plan as well as other non-routine pension expense related to the ERP. Other real estate expense decreased by $2.5 million during the quarter principally due to lower writedown expense of $1.2 million and an increase in the gain on sale of $1.1 million driven by the sale of two properties. Other expense totaled $11.6 million in the quarter, a decrease of $1.1 million from the prior quarter. Excluding ERP charges in the second quarter, other expense decreased by $823 thousand on a comparable basis from the prior quarter.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, October 26, 2016, at 10:00 a.m. Central Time to discuss the Corporation’s financial results. Interested parties may listen to the conference call by dialing (877) 317-3051 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, November 9, 2016, in archived format at the same web address or by calling (877) 344-7529, passcode 10093856.

Trustmark Corporation is a financial services company providing banking and financial solutions through 194 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

September 30, 2016
($ in thousands)
(unaudited)
                Linked Quarter     Year over Year

QUARTERLY AVERAGE BALANCES

  9/30/2016     6/30/2016     9/30/2015   $ Change     % Change   $ Change     % Change  
Securities AFS-taxable $ 2,249,109 $ 2,214,040 $ 2,269,763 $ 35,069 1.6 % $ (20,654 ) -0.9 %
Securities AFS-nontaxable 95,233 99,296 116,290 (4,063 ) -4.1 % (21,057 ) -18.1 %
Securities HTM-taxable 1,115,053 1,122,463 1,151,673 (7,410 ) -0.7 % (36,620 ) -3.2 %
Securities HTM-nontaxable   34,179     34,785     36,278     (606 ) -1.7 %   (2,099 ) -5.8 %
Total securities   3,493,574     3,470,584     3,574,004     22,990   0.7 %   (80,430 ) -2.3 %
Loans (including loans held for sale) 7,658,089 7,505,409 6,771,947 152,680 2.0 % 886,142 13.1 %
Acquired loans:
Noncovered loans 306,809 335,012 421,262 (28,203 ) -8.4 % (114,453 ) -27.2 %
Covered loans 10,464 14,728 18,982 (4,264 ) -29.0 % (8,518 ) -44.9 %
Fed funds sold and rev repos 1,352 1,263 1,167 89 7.0 % 185 15.9 %
Other earning assets   68,706     64,000     58,534     4,706   7.4 %   10,172   17.4 %
Total earning assets   11,538,994     11,390,996     10,845,896     147,998   1.3 %   693,098   6.4 %
Allowance for loan losses (82,301 ) (83,614 ) (84,482 ) 1,313 -1.6 % 2,181 -2.6 %
Cash and due from banks 299,670 271,135 266,174 28,535 10.5 % 33,496 12.6 %
Other assets   1,243,854     1,240,846     1,286,189     3,008   0.2 %   (42,335 ) -3.3 %
Total assets $ 13,000,217   $ 12,819,363   $ 12,313,777   $ 180,854   1.4 % $ 686,440   5.6 %
 
Interest-bearing demand deposits $ 1,848,084 $ 1,830,107 $ 1,915,567 $ 17,977 1.0 % $ (67,483 ) -3.5 %
Savings deposits 3,101,161 3,221,850 3,059,183 (120,689 ) -3.7 % 41,978 1.4 %
Time deposits less than $100,000 961,641 978,678 1,072,373 (17,037 ) -1.7 % (110,732 ) -10.3 %
Time deposits of $100,000 or more   705,704     699,886     712,910     5,818   0.8 %   (7,206 ) -1.0 %
Total interest-bearing deposits 6,616,590 6,730,521 6,760,033 (113,931 ) -1.7 % (143,443 ) -2.1 %
Fed funds purchased and repos 481,071 488,512 528,232 (7,441 ) -1.5 % (47,161 ) -8.9 %
Short-term borrowings 311,473 319,288 534,931 (7,815 ) -2.4 % (223,458 ) -41.8 %
Long-term FHLB advances 751,095 597,269 1,195 153,826 25.8 % 749,900 n/m
Subordinated notes 49,988 49,980 49,955 8 0.0 % 33 0.1 %
Junior subordinated debt securities   61,856     61,856     61,856       0.0 %     0.0 %
Total interest-bearing liabilities 8,272,073 8,247,426 7,936,202 24,647 0.3 % 335,871 4.2 %
Noninterest-bearing deposits 3,060,331 2,927,469 2,771,186 132,862 4.5 % 289,145 10.4 %
Other liabilities   136,971     131,627     137,134     5,344   4.1 %   (163 ) -0.1 %
Total liabilities 11,469,375 11,306,522 10,844,522 162,853 1.4 % 624,853 5.8 %
Shareholders' equity   1,530,842     1,512,841     1,469,255     18,001   1.2 %   61,587   4.2 %
Total liabilities and equity $ 13,000,217   $ 12,819,363   $ 12,313,777   $ 180,854   1.4 % $ 686,440   5.6 %
 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 
 

See Notes to Consolidated Financials

                           

TRUSTMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

September 30, 2016

($ in thousands)

(unaudited)

 
 
Linked Quarter Year over Year

PERIOD END BALANCES

  9/30/2016     6/30/2016     9/30/2015   $ Change % Change   $ Change % Change  
Cash and due from banks $ 383,945 $ 322,049 $ 220,052 $ 61,896 19.2 % $ 163,893 74.5 %
Fed funds sold and rev repos 500 3,198 (2,698 ) n/m 500 n/m
Securities available for sale 2,410,947 2,388,306 2,382,822 22,641 0.9 % 28,125 1.2 %
Securities held to maturity 1,143,234 1,173,204 1,178,440 (29,970 ) -2.6 % (35,206 ) -3.0 %
Loans held for sale (LHFS) 242,097 213,546 173,679 28,551 13.4 % 68,418 39.4 %
Loans held for investment (LHFI) 7,499,204 7,405,181 6,791,643 94,023 1.3 % 707,561 10.4 %
Allowance for loan losses   (70,871 )   (71,796 )   (65,607 )   925   -1.3 %   (5,264 ) 8.0 %
Net LHFI 7,428,333 7,333,385 6,726,036 94,948 1.3 % 702,297 10.4 %
Acquired loans:
Noncovered loans 291,825 325,196 400,528 (33,371 ) -10.3 % (108,703 ) -27.1 %
Covered loans 3,912 13,839 18,645 (9,927 ) -71.7 % (14,733 ) -79.0 %
Allowance for loan losses, acquired loans   (11,380 )   (12,480 )   (12,185 )   1,100   -8.8 %   805   -6.6 %
Net acquired loans   284,357     326,555     406,988     (42,198 ) -12.9 %   (122,631 ) -30.1 %
Net LHFI and acquired loans 7,712,690 7,659,940 7,133,024 52,750 0.7 % 579,666 8.1 %
Premises and equipment, net 190,930 192,732 196,558 (1,802 ) -0.9 % (5,628 ) -2.9 %
Mortgage servicing rights 65,514 62,814 69,809 2,700 4.3 % (4,295 ) -6.2 %
Goodwill 366,156 366,156 365,500 0.0 % 656 0.2 %
Identifiable intangible assets 22,366 24,058 30,129 (1,692 ) -7.0 % (7,763 ) -25.8 %
Other real estate, excluding covered other real estate 64,993 69,502 83,955 (4,509 ) -6.5 % (18,962 ) -22.6 %
Covered other real estate 388 2,865 (388 ) -100.0 % (2,865 ) -100.0 %
FDIC indemnification asset 1,749 n/m (1,749 ) -100.0 %
Other assets   558,166     554,456     551,694     3,710   0.7 %   6,472   1.2 %
Total assets $ 13,161,538   $ 13,030,349   $ 12,390,276   $ 131,189   1.0 % $ 771,262   6.2 %
 
Deposits:
Noninterest-bearing $ 3,111,603 $ 2,921,016 $ 2,787,454 $ 190,587 6.5 % $ 324,149 11.6 %
Interest-bearing   6,574,098     6,610,508     6,624,950     (36,410 ) -0.6 %   (50,852 ) -0.8 %
Total deposits 9,685,701 9,531,524 9,412,404 154,177 1.6 % 273,297 2.9 %
Fed funds purchased and repos 514,918 606,336 534,204 (91,418 ) -15.1 % (19,286 ) -3.6 %
Short-term borrowings 412,792 360,434 709,845 52,358 14.5 % (297,053 ) -41.8 %
Long-term FHLB advances 751,075 751,106 1,173 (31 ) 0.0 % 749,902 n/m
Subordinated notes 49,993 49,985 49,961 8 0.0 % 32 0.1 %
Junior subordinated debt securities 61,856 61,856 61,856 0.0 % 0.0 %
Other liabilities   150,442     145,641     144,077     4,801   3.3 %   6,365   4.4 %
Total liabilities   11,626,777     11,506,882     10,913,520     119,895   1.0 %   713,257   6.5 %
Common stock 14,090 14,090 14,076 - 0.0 % 14 0.1 %
Capital surplus 365,553 364,516 360,494 1,037 0.3 % 5,059 1.4 %
Retained earnings 1,172,193 1,157,025 1,130,766 15,168 1.3 % 41,427 3.7 %
Accum other comprehensive loss, net of tax   (17,075 )   (12,164 )   (28,580 )   (4,911 ) 40.4 %   11,505   -40.3 %
Total shareholders' equity   1,534,761     1,523,467     1,476,756     11,294   0.7 %   58,005   3.9 %
Total liabilities and equity $ 13,161,538   $ 13,030,349   $ 12,390,276   $ 131,189   1.0 % $ 771,262   6.2 %
 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 
 

See Notes to Consolidated Financials

                           
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION

September 30, 2016

($ in thousands except per share data)

(unaudited)

 
Quarter Ended Linked Quarter Year over Year

INCOME STATEMENTS

  9/30/2016     6/30/2016   9/30/2015 $ Change % Change   $ Change % Change  
Interest and fees on LHFS & LHFI-FTE $ 80,649 $ 77,777 $ 72,951 $ 2,872 3.7 % $ 7,698 10.6 %
Interest and fees on acquired loans 6,781 8,051 11,607 (1,270 ) -15.8 % (4,826 ) -41.6 %
Interest on securities-taxable 19,351 19,402 20,264 (51 ) -0.3 % (913 ) -4.5 %
Interest on securities-tax exempt-FTE 1,388 1,429 1,609 (41 ) -2.9 % (221 ) -13.7 %
Interest on fed funds sold and rev repos 5 4 2 1 25.0 % 3 n/m
Other interest income   223     200   392   23   11.5 %   (169 ) -43.1 %
Total interest income-FTE   108,397     106,863   106,825   1,534   1.4 %   1,572   1.5 %
Interest on deposits 3,208 3,122 3,147 86 2.8 % 61 1.9 %
Interest on fed funds pch and repos 411 404 205 7 1.7 % 206 n/m
Other interest expense   2,603     2,428   1,811   175   7.2 %   792   43.7 %
Total interest expense   6,222     5,954   5,163   268   4.5 %   1,059   20.5 %
Net interest income-FTE 102,175 100,909 101,662 1,266 1.3 % 513 0.5 %
Provision for loan losses, LHFI 4,284 2,596 2,514 1,688 65.0 % 1,770 70.4 %
Provision for loan losses, acquired loans   691     607   1,256   84   13.8 %   (565 ) -45.0 %
Net interest income after provision-FTE   97,200     97,706   97,892   (506 ) -0.5 %   (692 ) -0.7 %
Service charges on deposit accounts 11,677 11,051 12,400 626 5.7 % (723 ) -5.8 %
Insurance commissions 10,074 9,638 9,906 436 4.5 % 168 1.7 %
Wealth management 7,571 8,009 7,790 (438 ) -5.5 % (219 ) -2.8 %
Bank card and other fees 6,756 7,436 6,964 (680 ) -9.1 % (208 ) -3.0 %
Mortgage banking, net 7,364 6,721 7,443 643 9.6 % (79 ) -1.1 %
Other, net   1,274     1,372   1,470   (98 ) -7.1 %   (196 ) -13.3 %
Nonint inc-excl sec gains (losses), net 44,716 44,227 45,973 489 1.1 % (1,257 ) -2.7 %
Security gains (losses), net             n/m   -   n/m
Total noninterest income   44,716     44,227   45,973   489   1.1 %   (1,257 ) -2.7 %
Salaries and employee benefits 57,250 67,018 58,270 (9,768 ) -14.6 % (1,020 ) -1.8 %
Services and fees 14,947 14,522 14,691 425 2.9 % 256 1.7 %
Net occupancy-premises 6,440 5,928 6,580 512 8.6 % (140 ) -2.1 %
Equipment expense 6,063 5,896 5,877 167 2.8 % 186 3.2 %
FDIC assessment expense 2,911 2,959 2,559 (48 ) -1.6 % 352 13.8 %
Other real estate expense (1,313 ) 1,193 3,385 (2,506 ) n/m (4,698 ) n/m
Other expense   11,610     12,663   12,198   (1,053 ) -8.3 %   (588 ) -4.8 %
Total noninterest expense   97,908     110,179   103,560   (12,271 ) -11.1 %   (5,652 ) -5.5 %
Income before income taxes and tax eq adj 44,008 31,754 40,305 12,254 38.6 % 3,703 9.2 %
Tax equivalent adjustment   4,611     4,532   4,056   79   1.7 %   555   13.7 %
Income before income taxes 39,397 27,222 36,249 12,175 44.7 % 3,148 8.7 %
Income taxes   8,415     5,719   7,819   2,696   47.1 %   596   7.6 %
Net income $ 30,982   $ 21,503 $ 28,430 $ 9,479   44.1 % $ 2,552   9.0 %
 
Per share data
Earnings per share - basic $ 0.46   $ 0.32 $ 0.42 $ 0.14   43.8 % $ 0.04   9.5 %
 
Earnings per share - diluted $ 0.46   $ 0.32 $ 0.42 $ 0.14   43.8 % $ 0.04   9.5 %
 
Dividends per share $ 0.23   $ 0.23 $ 0.23     0.0 %     0.0 %
 
Weighted average shares outstanding
Basic   67,625,085     67,619,571   67,557,395
 
Diluted   67,793,203     67,770,174   67,707,456
 
Period end shares outstanding   67,626,939     67,623,601   67,557,395
 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 

See Notes to Consolidated Financials

 
                         
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION

September 30, 2016

($ in thousands)

(unaudited)

 
 
Quarter Ended Linked Quarter Year over Year

NONPERFORMING ASSETS (1)

  9/30/2016     6/30/2016     9/30/2015   $ Change % Change   $ Change % Change  
Nonaccrual loans
Alabama $ 1,403 $ 1,379 $ 1,306 $ 24 1.7 % $ 97 7.4 %
Florida 3,719 1,806 7,444 1,913 n/m (3,725 ) -50.0 %
Mississippi (2) 41,968 54,543 44,955 (12,575 ) -23.1 % (2,987 ) -6.6 %
Tennessee (3) 6,620 5,345 4,911 1,275 23.9 % 1,709 34.8 %
Texas   700     2,055     2,515     (1,355 ) -65.9 %   (1,815 ) -72.2 %
Total nonaccrual loans 54,410 65,128 61,131 (10,718 ) -16.5 % (6,721 ) -11.0 %
Other real estate
Alabama 15,574 18,031 23,822 (2,457 ) -13.6 % (8,248 ) -34.6 %
Florida 25,147 28,052 30,374 (2,905 ) -10.4 % (5,227 ) -17.2 %
Mississippi (2) 16,659 14,435 13,180 2,224 15.4 % 3,479 26.4 %
Tennessee (3) 6,061 7,432 9,840 (1,371 ) -18.4 % (3,779 ) -38.4 %
Texas   1,552     1,552     6,739     -   0.0 %   (5,187 ) -77.0 %
Total other real estate   64,993     69,502     83,955     (4,509 ) -6.5 %   (18,962 ) -22.6 %
Total nonperforming assets $ 119,403   $ 134,630   $ 145,086   $ (15,227 ) -11.3 % $ (25,683 ) -17.7 %
 

LOANS PAST DUE OVER 90 DAYS (4)

LHFI $ 953   $ 3,382   $ 9,224   $ (2,429 ) -71.8 % $ (8,271 ) -89.7 %
 
LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase) $ 25,570   $ 23,473   $ 15,165   $ 2,097   8.9 % $ 10,405   68.6 %
 
Quarter Ended Linked Quarter Year over Year

ALLOWANCE FOR LOAN LOSSES (4)

  9/30/2016     6/30/2016     9/30/2015   $ Change % Change   $ Change % Change  
Beginning Balance $ 71,796 $ 69,668 $ 71,166 $ 2,128 3.1 % $ 630 0.9 %
Provision for loan losses 4,284 2,596 2,514 1,688 65.0 % 1,770 70.4 %
Charge-offs (8,279 ) (3,251 ) (11,406 ) (5,028 ) n/m 3,127 -27.4 %
Recoveries   3,070     2,783     3,333     287   10.3 %   (263 ) -7.9 %
Net charge-offs   (5,209 )   (468 )   (8,073 )   (4,741 ) n/m   2,864   -35.5 %
Ending Balance $ 70,871   $ 71,796   $ 65,607   $ (925 ) -1.3 % $ 5,264   8.0 %
 

PROVISION FOR LOAN LOSSES (4)

Alabama $ 132 $ 1,189 $ (70 ) $ (1,057 ) -88.9 % $ 202 n/m
Florida 31 (364 ) (1,430 ) 395 n/m 1,461 n/m
Mississippi (2) 703 (833 ) 4,221 1,536 n/m (3,518 ) -83.3 %
Tennessee (3) 151 726 (1,050 ) (575 ) -79.2 % 1,201 n/m
Texas   3,267     1,878     843     1,389   74.0 %   2,424   n/m
Total provision for loan losses $ 4,284   $ 2,596   $ 2,514   $ 1,688   65.0 % $ 1,770   70.4 %
 

NET CHARGE-OFFS (4)

Alabama $ 38 $ 436 $ 163 $ (398 ) -91.3 % $ (125 ) -76.7 %
Florida (169 ) (595 ) (1,090 ) 426 -71.6 % 921 -84.5 %
Mississippi (2) 2,484 (237 ) 7,391 2,721 n/m (4,907 ) -66.4 %
Tennessee (3) 74 252 448 (178 ) -70.6 % (374 ) -83.5 %
Texas   2,782     612     1,161     2,170   n/m   1,621   n/m
Total net charge-offs $ 5,209   $ 468   $ 8,073   $ 4,741   n/m $ (2,864 ) -35.5 %
 
(1) - Excludes acquired loans and covered other real estate
(2) - Mississippi includes Central and Southern Mississippi Regions
(3) - Tennessee includes Memphis, Tennessee and Northern Mississippi Regions
(4) - Excludes acquired loans
 
n/m - percentage changes greater than +/- 100% are considered not meaningful
 
 

See Notes to Consolidated Financials

                       
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
September 30, 2016
($ in thousands)
(unaudited)
    Quarter Ended Nine Months Ended

AVERAGE BALANCES

  9/30/2016     6/30/2016     3/31/2016     12/31/2015     9/30/2015     9/30/2016     9/30/2015  
Securities AFS-taxable $ 2,249,109 $ 2,214,040 $ 2,211,479 $ 2,209,801 $ 2,269,763 $ 2,224,964 $ 2,238,822
Securities AFS-nontaxable 95,233 99,296 105,844 110,290 116,290 100,106 121,373
Securities HTM-taxable 1,115,053 1,122,463 1,142,434 1,145,397 1,151,673 1,126,608 1,138,424
Securities HTM-nontaxable   34,179     34,785     35,841     35,755     36,278     34,932     38,600  
Total securities   3,493,574     3,470,584     3,495,598     3,501,243     3,574,004     3,486,610     3,537,219  
Loans (including loans held for sale) 7,658,089 7,505,409 7,346,333 7,089,672 6,771,947 7,503,842 6,630,143
Acquired loans:
Noncovered loans 306,809 335,012 361,772 384,306 421,262 334,430 461,774
Covered loans 10,464 14,728 16,663 18,341 18,982 13,939 21,033
Fed funds sold and rev repos 1,352 1,263 382 1,384 1,167 1,000 650
Other earning assets   68,706     64,000     66,702     68,016     58,534     66,477     48,759  
Total earning assets   11,538,994     11,390,996     11,287,450     11,062,962     10,845,896     11,406,298     10,699,578  
Allowance for loan losses (82,301 ) (83,614 ) (81,138 ) (78,652 ) (84,482 ) (82,351 ) (83,611 )
Cash and due from banks 299,670 271,135 281,912 272,562 266,174 284,295 276,151
Other assets   1,243,854     1,240,846     1,253,282     1,266,712     1,286,189     1,245,988     1,292,685  
Total assets $ 13,000,217   $ 12,819,363   $ 12,741,506   $ 12,523,584   $ 12,313,777   $ 12,854,230   $ 12,184,803  
 
Interest-bearing demand deposits $ 1,848,084 $ 1,830,107 $ 1,866,043 $ 1,917,598 $ 1,915,567 $ 1,848,078 $ 1,896,046
Savings deposits 3,101,161 3,221,850 3,188,916 2,963,318 3,059,183 3,170,389 3,178,675
Time deposits less than $100,000 961,641 978,678 994,406 1,033,233 1,072,373 978,181 1,104,339
Time deposits of $100,000 or more   705,704     699,886     683,170     687,635     712,910     696,288     749,651  
Total interest-bearing deposits 6,616,590 6,730,521 6,732,535 6,601,784 6,760,033 6,692,936 6,928,711
Fed funds purchased and repos 481,071 488,512 517,180 563,424 528,232 495,535 482,740
Short-term borrowings 311,473 319,288 413,616 733,365 534,931 347,992 307,821
Long-term FHLB advances 751,095 597,269 501,144 50,078 1,195 616,994 1,217
Subordinated notes 49,988 49,980 49,972 49,964 49,955 49,980 49,947
Junior subordinated debt securities   61,856     61,856     61,856     61,856     61,856     61,856     61,856  
Total interest-bearing liabilities 8,272,073 8,247,426 8,276,303 8,060,471 7,936,202 8,265,293 7,832,292
Noninterest-bearing deposits 3,060,331 2,927,469 2,836,283 2,839,894 2,771,186 2,941,795 2,762,064
Other liabilities   136,971     131,627     134,236     141,925     137,134     134,287     136,754  
Total liabilities 11,469,375 11,306,522 11,246,822 11,042,290 10,844,522 11,341,375 10,731,110
Shareholders' equity   1,530,842     1,512,841     1,494,684     1,481,294     1,469,255     1,512,855     1,453,693  
Total liabilities and equity $ 13,000,217   $ 12,819,363   $ 12,741,506   $ 12,523,584   $ 12,313,777   $ 12,854,230   $ 12,184,803  
 
 

See Notes to Consolidated Financials

                   
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION

September 30, 2016

($ in thousands)

(unaudited)

 

PERIOD END BALANCES

  9/30/2016     6/30/2016     3/31/2016     12/31/2015     9/30/2015  
Cash and due from banks $ 383,945 $ 322,049 $ 228,498 $ 277,751 $ 220,052
Fed funds sold and rev repos 500 3,198 250
Securities available for sale 2,410,947 2,388,306 2,368,120 2,345,422 2,382,822
Securities held to maturity 1,143,234 1,173,204 1,168,203 1,187,818 1,178,440
Loans held for sale (LHFS) 242,097 213,546 191,028 160,189 173,679
Loans held for investment (LHFI) 7,499,204 7,405,181 7,268,022 7,091,385 6,791,643
Allowance for loan losses   (70,871 )   (71,796 )   (69,668 )   (67,619 )   (65,607 )
Net LHFI 7,428,333 7,333,385 7,198,354 7,023,766 6,726,036
Acquired loans:
Noncovered loans 291,825 325,196 349,781 372,711 400,528
Covered loans 3,912 13,839 14,974 17,700 18,645
Allowance for loan losses, acquired loans   (11,380 )   (12,480 )   (13,535 )   (11,992 )   (12,185 )
Net acquired loans   284,357     326,555     351,220     378,419     406,988  
Net LHFI and acquired loans 7,712,690 7,659,940 7,549,574 7,402,185 7,133,024
Premises and equipment, net 190,930 192,732 194,453 195,656 196,558
Mortgage servicing rights 65,514 62,814 68,208 74,007 69,809
Goodwill 366,156 366,156 366,156 366,156 365,500
Identifiable intangible assets 22,366 24,058 25,751 27,546 30,129
Other real estate, excluding covered other real estate 64,993 69,502 71,806 77,177 83,955
Covered other real estate 388 496 1,651 2,865
FDIC indemnification asset 506 738 1,749
Other assets   558,166     554,456     542,397     562,350     551,694  
Total assets $ 13,161,538   $ 13,030,349   $ 12,775,196   $ 12,678,896   $ 12,390,276  
 
Deposits:
Noninterest-bearing $ 3,111,603 $ 2,921,016 $ 2,874,306 $ 2,998,694 $ 2,787,454
Interest-bearing   6,574,098     6,610,508     6,759,337     6,589,536     6,624,950  
Total deposits 9,685,701 9,531,524 9,633,643 9,588,230 9,412,404
Fed funds purchased and repos 514,918 606,336 466,436 441,042 534,204
Short-term borrowings 412,792 360,434 411,385 412,617 709,845
Long-term FHLB advances 751,075 751,106 501,124 501,155 1,173
Subordinated notes 49,993 49,985 49,977 49,969 49,961
Junior subordinated debt securities 61,856 61,856 61,856 61,856 61,856
Other liabilities   150,442     145,641     142,519     150,970     144,077  
Total liabilities   11,626,777     11,506,882     11,266,940     11,205,839     10,913,520  
Common stock 14,090 14,090 14,093 14,076 14,076
Capital surplus 365,553 364,516 363,979 361,467 360,494
Retained earnings 1,172,193 1,157,025 1,151,757 1,142,908 1,130,766
Accum other comprehensive loss, net of tax   (17,075 )   (12,164 )   (21,573 )   (45,394 )   (28,580 )
Total shareholders' equity   1,534,761     1,523,467     1,508,256     1,473,057     1,476,756  
Total liabilities and equity $ 13,161,538   $ 13,030,349   $ 12,775,196   $ 12,678,896   $ 12,390,276  
 
 

See Notes to Consolidated Financials

                       

TRUSTMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

September 30, 2016
($ in thousands except per share data)
(unaudited)
   
Quarter Ended Nine Months Ended

INCOME STATEMENTS

  9/30/2016     6/30/2016   3/31/2016     12/31/2015     9/30/2015   9/30/2016     9/30/2015  
Interest and fees on LHFS & LHFI-FTE $ 80,649 $ 77,777 $ 76,235 $ 74,383 $ 72,951 $ 234,661 $ 214,155
Interest and fees on acquired loans 6,781 8,051 7,022 11,910 11,607 21,854 39,242
Interest on securities-taxable 19,351 19,402 20,086 21,149 20,264 58,839 59,581
Interest on securities-tax exempt-FTE 1,388 1,429 1,497 1,565 1,609 4,314 5,086
Interest on fed funds sold and rev repos 5 4 1 4 2 10 4
Other interest income   223     200   230     402     392   653     1,177  
Total interest income-FTE   108,397     106,863   105,071     109,413     106,825   320,331     319,245  
Interest on deposits 3,208 3,122 3,038 3,000 3,147 9,368 9,598
Interest on fed funds pch and repos 411 404 431 274 205 1,246 527
Other interest expense   2,603     2,428   2,389     1,987     1,811   7,420     5,074  
Total interest expense   6,222     5,954   5,858     5,261     5,163   18,034     15,199  
Net interest income-FTE 102,175 100,909 99,213 104,152 101,662 302,297 304,046
Provision for loan losses, LHFI 4,284 2,596 2,243 3,043 2,514 9,123 5,332
Provision for loan losses, acquired loans   691     607   1,309     997     1,256   2,607     2,428  
Net interest income after provision-FTE   97,200     97,706   95,661     100,112     97,892   290,567     296,286  
Service charges on deposit accounts 11,677 11,051 11,081 11,961 12,400 33,809 35,405
Insurance commissions 10,074 9,638 8,593 8,501 9,906 28,305 27,923
Wealth management 7,571 8,009 7,407 7,831 7,790 22,987 23,538
Bank card and other fees 6,756 7,436 6,918 7,156 6,964 21,110 21,142
Mortgage banking, net 7,364 6,721 8,699 4,287 7,443 22,784 25,889
Other, net   1,274     1,372   888     (466 )   1,470   3,534     (18 )
Nonint inc-excl sec gains (losses), net 44,716 44,227 43,586 39,270 45,973 132,529 133,879
Security gains (losses), net         (310 )         (310 )    
Total noninterest income   44,716     44,227   43,276     39,270     45,973   132,219     133,879  
Salaries and employee benefits 57,250 67,018 57,201 57,366 58,270 181,469 172,832
Services and fees 14,947 14,522 14,475 13,717 14,691 43,944 43,817
Net occupancy-premises 6,440 5,928 6,188 6,304 6,580 18,556 19,014
Equipment expense 6,063 5,896 6,094 6,105 5,877 18,053 17,754
FDIC assessment expense 2,911 2,959 2,811 2,614 2,559 8,681 8,114
Other real estate expense (1,313 ) 1,193 181 (518 ) 3,385 61 5,421
Other expense   11,610     12,663   11,994     13,032     12,198   36,267     36,090  
Total noninterest expense   97,908     110,179   98,944     98,620     103,560   307,031     303,042  
Income before income taxes and tax eq adj 44,008 31,754 39,993 40,762 40,305 115,755 127,123
Tax equivalent adjustment   4,611     4,532   4,473     4,334     4,056   13,616     12,099  
Income before income taxes 39,397 27,222 35,520 36,428 36,249 102,139 115,024
Income taxes   8,415     5,719   8,517     8,570     7,819   22,651     26,844  
Net income $ 30,982   $ 21,503 $ 27,003   $ 27,858   $ 28,430 $ 79,488   $ 88,180  
 
Per share data
Earnings per share - basic $ 0.46   $ 0.32 $ 0.40   $ 0.41   $ 0.42 $ 1.18   $ 1.31  
 
Earnings per share - diluted $ 0.46   $ 0.32 $ 0.40   $ 0.41   $ 0.42 $ 1.17   $ 1.30  
 
Dividends per share $ 0.23   $ 0.23 $ 0.23   $ 0.23   $ 0.23 $ 0.69   $ 0.69  
 
Weighted average shares outstanding
Basic   67,625,085     67,619,571   67,609,662     67,557,991     67,557,395   67,618,131     67,546,786  
 
Diluted   67,793,203     67,770,174   67,746,592     67,734,109     67,707,456   67,771,125     67,677,206  
 
Period end shares outstanding   67,626,939     67,623,601   67,639,832     67,559,128     67,557,395   67,626,939     67,557,395  
 
 

See Notes to Consolidated Financials

                       

TRUSTMARK CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

September 30, 2016
($ in thousands)
(unaudited)
   
 
Quarter Ended

NONPERFORMING ASSETS (1)

  9/30/2016     6/30/2016     3/31/2016     12/31/2015     9/30/2015  
Nonaccrual loans
Alabama $ 1,403 $ 1,379 $ 1,788 $ 1,776 $ 1,306
Florida 3,719 1,806 4,952 5,180 7,444
Mississippi (2) 41,968 54,543 56,590 40,754 44,955
Tennessee (3) 6,620 5,345 5,849 5,106 4,911
Texas   700     2,055     1,515     2,496     2,515  
Total nonaccrual loans 54,410 65,128 70,694 55,312 61,131
Other real estate
Alabama 15,574 18,031 19,137 21,578 23,822
Florida 25,147 28,052 27,907 29,579 30,374
Mississippi (2) 16,659 14,435 14,511 14,312 13,180
Tennessee (3) 6,061 7,432 8,699 9,974 9,840
Texas   1,552     1,552     1,552     1,734     6,739  
Total other real estate   64,993     69,502     71,806     77,177     83,955  
Total nonperforming assets $ 119,403   $ 134,630   $ 142,500   $ 132,489   $ 145,086  
 

LOANS PAST DUE OVER 90 DAYS (4)

LHFI $ 953   $ 3,382   $ 611   $ 2,300   $ 9,224  
 

LHFS-Guaranteed GNMA serviced loans

(no obligation to repurchase) $ 25,570   $ 23,473   $ 24,110   $ 21,812   $ 15,165  
 
 
Quarter Ended Nine Months Ended

ALLOWANCE FOR LOAN LOSSES (4)

  9/30/2016     6/30/2016     3/31/2016     12/31/2015     9/30/2015     9/30/2016     9/30/2015  
Beginning Balance $ 71,796 $ 69,668 $ 67,619 $ 65,607 $ 71,166 $ 67,619 $ 69,616
Provision for loan losses 4,284 2,596 2,243 3,043 2,514 9,123 5,332
Charge-offs (8,279 ) (3,251 ) (3,363 ) (3,781 ) (11,406 ) (14,893 ) (18,688 )
Recoveries   3,070     2,783     3,169     2,750     3,333     9,022     9,347  
Net charge-offs   (5,209 )   (468 )   (194 )   (1,031 )   (8,073 )   (5,871 )   (9,341 )
Ending Balance $ 70,871   $ 71,796   $ 69,668   $ 67,619   $ 65,607   $ 70,871   $ 65,607  
 

PROVISION FOR LOAN LOSSES (4)

Alabama $ 132 $ 1,189 $ 540 $ 1,453 $ (70 ) $ 1,861 $ 1,314
Florida 31 (364 ) (818 ) (1,357 ) (1,430 ) (1,151 ) (765 )
Mississippi (2) 703 (833 ) 1,848 1,842 4,221 1,718 3,538
Tennessee (3) 151 726 138 182 (1,050 ) 1,015 (101 )
Texas   3,267     1,878     535     923     843     5,680     1,346  
Total provision for loan losses $ 4,284   $ 2,596   $ 2,243   $ 3,043   $ 2,514   $ 9,123   $ 5,332  
 

NET CHARGE-OFFS (4)

Alabama $ 38 $ 436 $ 63 $ 422 $ 163 $ 537 $ 523
Florida (169 ) (595 ) (674 ) (389 ) (1,090 ) (1,438 ) (579 )
Mississippi (2) 2,484 (237 ) (74 ) 925 7,391 2,173 8,562
Tennessee (3) 74 252 8 188 448 334 337
Texas   2,782     612     871     (115 )   1,161     4,265     498  
Total net charge-offs $ 5,209   $ 468   $ 194   $ 1,031   $ 8,073   $ 5,871   $ 9,341  
 
(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

September 30, 2016

(unaudited)

 
Quarter Ended Nine Months Ended

FINANCIAL RATIOS AND OTHER DATA

  9/30/2016         6/30/2016     3/31/2016     12/31/2015     9/30/2015   9/30/2016       9/30/2015  
Return on equity 8.05 % 5.72 % 7.27 % 7.46 % 7.68 % 7.02 % 8.11 %
Return on average tangible equity 11.16 % 8.08 % 10.26 % 10.61 % 10.96 % 9.85 % 11.62 %
Return on assets 0.95 % 0.67 % 0.85 % 0.88 % 0.92 % 0.83 % 0.97 %
Interest margin - Yield - FTE 3.74 % 3.77 % 3.74 % 3.92 % 3.91 % 3.75 % 3.99 %
Interest margin - Cost 0.21 % 0.21 % 0.21 % 0.19 % 0.19 % 0.21 % 0.19 %
Net interest margin - FTE 3.52 % 3.56 % 3.54 % 3.74 % 3.72 % 3.54 % 3.80 %
Efficiency ratio (1) 63.81 % 67.20 % 66.87 % 66.03 % 67.87 % 65.95 % 66.78 %
Full-time equivalent employees 2,787 2,818 2,946 2,941 2,963
 

CREDIT QUALITY RATIOS (2)

Net charge-offs/average loans 0.27 % 0.03 % 0.01 % 0.06 % 0.47 % 0.10 % 0.19 %
Provision for loan losses/average loans 0.22 % 0.14 % 0.12 % 0.17 % 0.15 % 0.16 % 0.11 %
Nonperforming loans/total loans (incl LHFS) 0.70 % 0.85 % 0.95 % 0.76 % 0.88 %
Nonperforming assets/total loans (incl LHFS) 1.54 % 1.77 % 1.91 % 1.83 % 2.08 %
Nonperforming assets/total loans (incl LHFS) +ORE 1.53 % 1.75 % 1.89 % 1.81 % 2.06 %
ALL/total loans (excl LHFS) 0.95 % 0.97 % 0.96 % 0.95 % 0.97 %
ALL-commercial/total commercial loans 1.02 % 1.05 % 1.06 % 1.05 % 1.07 %
ALL-consumer/total consumer and home mortgage loans 0.68 % 0.70 % 0.65 % 0.66 % 0.67 %
ALL/nonperforming loans 130.25 % 110.24 % 98.55 % 122.25 % 107.32 %
ALL/nonperforming loans (excl specifically reviewed impaired loans) 256.56 % 231.13 % 203.24 % 210.32 % 206.72 %
 

CAPITAL RATIOS

Total equity/total assets 11.66 % 11.69 % 11.81 % 11.62 % 11.92 %
Tangible equity/tangible assets 8.97 % 8.97 % 9.01 % 8.79 % 9.01 %
Tangible equity/risk-weighted assets 11.85 % 11.85 % 11.84 % 11.68 % 12.24 %
Tier 1 leverage ratio 9.92 % 9.93 % 9.93 % 10.03 % 10.09 %
Common equity tier 1 capital ratio 12.35 % 12.32 % 12.41 % 12.57 % 13.00 %
Tier 1 risk-based capital ratio 12.97 % 12.94 % 13.04 % 13.21 % 13.66 %
Total risk-based capital ratio 13.82 % 13.82 % 13.92 % 14.07 % 14.66 %
 

STOCK PERFORMANCE

Market value-Close $ 27.56 $ 24.85 $ 23.03 $ 23.04 $ 23.17
Book value $ 22.69 $ 22.53 $ 22.30 $ 21.80 $ 21.86
Tangible book value $ 16.95 $ 16.76 $ 16.50 $ 15.98 $ 16.00
 

(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 nonroutine income and expense items.

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

See Notes to Consolidated Financials

                           

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

September 30, 2016

($ in thousands)

(unaudited)

 

Note 1 - Securities Available for Sale and Held to Maturity

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

 
9/30/2016 6/30/2016 3/31/2016 12/31/2015 9/30/2015

SECURITIES AVAILABLE FOR SALE

U.S. Government agency obligations
Issued by U.S. Government agencies $ 58,234 $ 61,359 $ 63,814 $ 68,135 $ 71,282
Issued by U.S. Government sponsored agencies 283 286 286 281 23,016
Obligations of states and political subdivisions 124,641 129,285 135,655 138,609 147,794
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA 36,788 29,282 25,081 25,812 26,651
Issued by FNMA and FHLMC 561,989 428,542 330,558 225,542 177,411
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 1,374,399 1,474,357 1,540,541 1,582,860 1,630,402
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 254,613 265,195 272,185 279,226 279,609
Asset-backed securities and structured financial products         24,957   26,657
Total securities available for sale $ 2,410,947 $ 2,388,306 $ 2,368,120 $ 2,345,422 $ 2,382,822
 

SECURITIES HELD TO MATURITY

U.S. Government agency obligations
Issued by U.S. Government sponsored agencies $ 3,636 $ 31,142 $ 63,085 $ 101,782 $ 101,578
Obligations of states and political subdivisions 52,937 53,473 54,278 55,892 56,661
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA 16,183 16,415 16,590 17,363 17,783
Issued by FNMA and FHLMC 39,989 42,267 9,871 10,368 10,669
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA 831,662 824,175 818,201 820,012 808,763
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA   198,827   205,732   206,178   182,401   182,986
Total securities held to maturity $ 1,143,234 $ 1,173,204 $ 1,168,203 $ 1,187,818 $ 1,178,440
 

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 September 30, 2016, the net unamortized, unrealized loss on the transferred securities included in accumulated other comprehensive loss in the accompanying balance sheet totaled approximately $25.7 million ($15.8 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 95% 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

September 30, 2016

($ in thousands)

(unaudited)

 

Note 2 – Loan Composition

 

LHFI BY TYPE (excluding acquired loans)

9/30/2016 6/30/2016 3/31/2016 12/31/2015 9/30/2015
Loans secured by real estate:
Construction, land development and other land loans $ 766,685 $ 718,438 $ 697,500 $ 824,723 $ 785,472
Secured by 1-4 family residential properties 1,592,453 1,620,013 1,640,015 1,649,501 1,638,639
Secured by nonfarm, nonresidential properties 1,916,153 1,900,784 1,893,240 1,736,476 1,604,453
Other real estate secured 317,680 323,734 273,752 211,228 225,523
Commercial and industrial loans 1,421,382 1,466,511 1,368,464 1,343,211 1,270,277
Consumer loans 170,073 166,436 164,544 169,135 169,509
State and other political subdivision loans 875,973 805,401 787,049 734,615 677,539
Other loans   438,805   403,864   443,458   422,496   420,231
LHFI 7,499,204 7,405,181 7,268,022 7,091,385 6,791,643
Allowance for loan losses   (70,871 )   (71,796 )   (69,668 )   (67,619 )   (65,607 )
Net LHFI $ 7,428,333 $ 7,333,385 $ 7,198,354 $ 7,023,766 $ 6,726,036
           

ACQUIRED NONCOVERED LOANS BY TYPE

9/30/2016 6/30/2016 3/31/2016 12/31/2015 9/30/2015
Loans secured by real estate:
Construction, land development and other land loans $ 25,040 $ 37,682 $ 41,097 $ 41,623 $ 45,299
Secured by 1-4 family residential properties 72,689 73,313 81,314 86,950 96,870
Secured by nonfarm, nonresidential properties 110,606 115,989 126,177 135,626 146,614
Other real estate secured 20,903 24,015 24,374 23,860 23,816
Commercial and industrial loans 39,519 49,639 51,663 55,075 57,748
Consumer loans 3,878 4,295 5,027 5,641 6,295
Other loans   19,190   20,263   20,129   23,936   23,886
Noncovered loans 291,825 325,196 349,781 372,711 400,528
Allowance for loan losses   (11,330 )   (12,218 )   (13,212 )   (11,259 )   (11,417 )
Net noncovered loans $ 280,495 $ 312,978 $ 336,569 $ 361,452 $ 389,111
           
 

 

 

ACQUIRED COVERED LOANS BY TYPE (1)

9/30/2016 6/30/2016 3/31/2016 12/31/2015 9/30/2015
Loans secured by real estate:
Construction, land development and other land loans $ $ 334 $ 387 $ 1,021 $ 966
Secured by 1-4 family residential properties 3,912 8,363 8,564 10,058 10,546
Secured by nonfarm, nonresidential properties 3,709 3,679 4,638 5,363
Other real estate secured 1,257 1,132 1,286 1,511
Commercial and industrial loans 121 1,143 624 205
Consumer loans
Other loans     55   69   73   54
Covered loans 3,912 13,839 14,974 17,700 18,645
Allowance for loan losses   (50 )   (262 )   (323 )   (733 )   (768 )
Net covered loans $ 3,862 $ 13,577 $ 14,651 $ 16,967 $ 17,877

(1) Trustmark’s loss share agreement with the FDIC covering the acquired covered loans other than loans secured by 1-4 family residential properties expired on June 30, 2016. Trustmark’s loss share agreement with the FDIC covering the acquired covered loans secured by 1-4 family residential properties will expire in 2021. Effective July 1, 2016, all acquired covered loans excluding the acquired covered loans secured by 1-4 family residential properties were reclassified to acquired noncovered loans.

   
TRUSTMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS

September 30, 2016

($ in thousands)

(unaudited)

 
 

Note 2 – Loan Composition (continued)

 
September 30, 2016

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 $ 766,685 $ 138,256 $ 64,664 $ 269,498 $ 55,915 $ 238,352
Secured by 1-4 family residential properties 1,592,453 73,672 47,011 1,350,883 103,739 17,148
Secured by nonfarm, nonresidential properties 1,916,153 264,483 164,480 890,783 135,327 461,080
Other real estate secured 317,680 22,415 3,934 144,864 17,762 128,705
Commercial and industrial loans 1,421,382 150,892 18,288 683,042 288,595 280,565
Consumer loans 170,073 20,109 3,688 126,228 17,917 2,131
State and other political subdivision loans 875,973 76,432 29,602 554,403 32,607 182,929
Other loans   438,805   37,715   18,716   300,260   61,811   20,303
Loans $ 7,499,204 $ 783,974 $ 350,383 $ 4,319,961 $ 713,673 $ 1,331,213
 

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

Lots $ 58,673 $ 14,008 $ 19,480 $ 20,700 $ 1,831 $ 2,654
Development 49,186 6,315 7,246 20,929 619 14,077
Unimproved land 110,549 15,868 16,764 43,079 17,028 17,810
1-4 family construction 169,657 43,729 9,821 70,614 2,877 42,616
Other construction   378,620   58,336   11,353   114,176   33,560   161,195
Construction, land development and other land loans $ 766,685 $ 138,256 $ 64,664 $ 269,498 $ 55,915 $ 238,352
 

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

Income producing:
Retail $ 290,139 $ 67,751 $ 36,384 $ 111,629 $ 21,601 $ 52,774
Office 232,940 32,747 31,247 78,121 6,212 84,613
Nursing homes/assisted living 97,159 90,351 6,808
Hotel/motel 192,610 46,418 21,482 50,589 25,916 48,205
Mini-storage 111,854 9,070 5,445 53,399 183 43,757
Industrial 88,693 9,498 9,236 24,944 5,254 39,761
Health care 25,162 2,587 837 21,738
Convenience stores 18,980 1,564 10,130 1,030 6,256
Other   70,253   5,814   10,879   22,849   2,841   27,870
Total income producing loans 1,127,790 175,449 115,510 463,750 69,845 303,236
 
Owner-occupied:
Office 144,046 15,775 23,995 77,336 6,971 19,969
Churches 86,329 8,785 2,125 44,829 23,370 7,220
Industrial warehouses 126,365 6,409 3,788 60,487 10,553 45,128
Health care 123,856 20,153 6,963 69,296 7,983 19,461
Convenience stores 87,992 7,466 2,375 53,596 1,204 23,351
Retail 35,657 3,983 5,127 20,749 2,048 3,750
Restaurants 32,028 3,593 1,149 21,656 3,529 2,101
Auto dealerships 14,542 8,944 42 4,393 1,163
Other   137,548   13,926   3,406   74,691   8,661   36,864
Total owner-occupied loans   788,363   89,034   48,970   427,033   65,482   157,844
Loans secured by nonfarm, nonresidential properties $ 1,916,153 $ 264,483 $ 164,480 $ 890,783 $ 135,327 $ 461,080
 

(1) Excludes acquired loans.

 
     
TRUSTMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS

September 30, 2016

($ in thousands)

(unaudited)

 
Note 3 – Yields on Earning Assets and Interest-Bearing Liabilities

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

 
Quarter Ended Nine Months Ended
9/30/2016   6/30/2016   3/31/2016   12/31/2015   9/30/2015 9/30/2016   9/30/2015
Securities – taxable   2.29 %   2.34 %   2.41 %   2.50 %   2.35 %   2.35 %   2.36 %
Securities – nontaxable 4.27 % 4.29 % 4.25 % 4.25 % 4.18 % 4.27 % 4.25 %
Securities – total 2.36 % 2.41 % 2.48 % 2.57 % 2.43 % 2.42 % 2.44 %
Loans - LHFI & LHFS 4.19 % 4.17 % 4.17 % 4.16 % 4.27 % 4.18 % 4.32 %
Acquired loans 8.50 % 9.26 % 7.46 % 11.74 % 10.46 % 8.38 % 10.87 %
Loans - total 4.36 % 4.39 % 4.33 % 4.57 % 4.65 % 4.36 % 4.76 %
FF sold & rev repo 1.47 % 1.27 % 1.05 % 1.15 % 0.68 % 1.34 % 0.82 %
Other earning assets 1.29 % 1.26 % 1.39 % 2.34 % 2.66 % 1.31 % 3.23 %
Total earning assets 3.74 % 3.77 % 3.74 % 3.92 % 3.91 % 3.75 % 3.99 %
 
Interest-bearing deposits 0.19 % 0.19 % 0.18 % 0.18 % 0.18 % 0.19 % 0.19 %
FF pch & repo 0.34 % 0.33 % 0.34 % 0.19 % 0.15 % 0.34 % 0.15 %
Other borrowings 0.88 % 0.95 % 0.94 % 0.88 % 1.11 % 0.92 % 1.61 %
Total interest-bearing liabilities 0.30 % 0.29 % 0.28 % 0.26 % 0.26 % 0.29 % 0.26 %
 
Net interest margin 3.52 % 3.56 % 3.54 % 3.74 % 3.72 % 3.54 % 3.80 %
Net interest margin excluding acquired loans 3.38 % 3.38 % 3.40 % 3.43 % 3.43 % 3.39 % 3.47 %
 

Reflected in the table above are yields on earning assets and liabilities, along with the net interest margin which equals reported net interest income-FTE, annualized, as a percent of average earning assets. In addition, the table includes net interest margin excluding acquired loans, which equals reported net interest income-FTE excluding interest income on acquired loans, annualized, as a percent of average earning assets excluding average acquired loans. The net interest margin decreased 4 basis points during the third quarter of 2016. The decline was primarily due to a $1.4 million reduction in accretion income and recoveries on settlement of debt for acquired loans during the third quarter of 2016 compared to the second quarter of 2016.

Note 4 – 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 negative ineffectiveness of $1.2 million for the quarter ended September 30, 2016 compared to a net positive ineffectiveness of $479 thousand for the quarter ended September 30, 2015.

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

       
Quarter Ended Nine Months Ended
9/30/2016     6/30/2016     3/31/2016     12/31/2015     9/30/2015 9/30/2016     9/30/2015
Mortgage servicing income, net $ 5,271 $ 5,177 $ 5,058 $ 5,126 $ 4,906 $ 15,506 $ 14,499
Change in fair value-MSR from runoff (2,862 ) (2,500 ) (2,005 ) (2,091 ) (2,636 ) (7,367 ) (7,436 )
Gain on sales of loans, net 6,410 5,480 2,591 4,656 4,479 14,481 13,309
Other, net   (299 )   498   2,642   (1,433 )   215   2,841   1,666
Mortgage banking income before hedge ineffectiveness   8,520   8,655   8,286   6,258   6,964   25,461   22,038
Change in fair value-MSR from market changes 381 (7,033 ) (6,866 ) 2,010 (4,141 ) (13,518 ) (433 )
Change in fair value of derivatives   (1,537 )   5,099   7,279   (3,981 )   4,620   10,841   4,284
Net (negative) positive hedge ineffectiveness   (1,156 )   (1,934 )   413   (1,971 )   479   (2,677 )   3,851
Mortgage banking, net $ 7,364 $ 6,721 $ 8,699 $ 4,287 $ 7,443 $ 22,784 $ 25,889
 

TRUSTMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS
September 30, 2016
($ in thousands)
(unaudited)

Note 5 – Salaries and Employee Benefit Plans

Early Retirement Program
In April 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 quarter of 2016 Trustmark realized savings of $1.9 million in salaries and employee benefits expense and incurred additional pension expense of $236 thousand, which resulted from additional settlements from pension lump sum elections.

Defined Benefit Pension Plan
Trustmark maintains 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 participate. The Plan provides retirement benefits that are based on the length of credited service and final average compensation, as defined in the Plan, and vest upon three years of service. Benefit accruals under the plan have been frozen since 2009, with the exception of certain associates covered through plans obtained in acquisitions that were subsequently merged into the Plan. Other than the associates covered through these acquired plans that were merged into the Plan, associates have not earned additional benefits, except for interest as required by law, since the Plan was frozen. Current and former associates who participate in the Plan retain their right to receive benefits that accrued before the Plan was frozen.

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 is required to fully fund the Plan on a termination basis and will contribute the additional assets necessary to do so. The final distributions will be made from current plan assets and a one-time pension settlement expense will be recognized when paid by Trustmark during the second quarter of 2017. Further, as a result of Trustmark’s de-risking investment strategy for the Plan as of June 30, 2016, the expected rate of return on plan assets during the second half of 2016 will decrease from 6.0% to 2.5%. Accordingly, Trustmark's increased periodic benefit costs for the Plan during the third quarter of 2016 was $664 thousand. Participants in the Plan will have a choice of receiving a lump sum cash payment or annuity payments under a group annuity contract purchased from an insurance carrier, subject to certain exceptions. As a result of the termination of the Plan, each participant will become fully vested in his or her accrued benefits under the Plan.

The Board reserved the right to defer or revoke the termination of the Plan if circumstances change such that deferral or revocation would be warranted, but has no intent to do so at this time.

     
Note 6 – Other Noninterest Income and Expense

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

 
Quarter Ended Nine Months Ended
9/30/2016   6/30/2016   3/31/2016   12/31/2015   9/30/2015 9/30/2016   9/30/2015
Partnership amortization for tax credit purposes $ (2,479 ) $ (2,479 ) $ (2,479 ) $ (3,015 ) $ (2,083 ) $ (7,437 ) $ (7,035 )
(Decrease) increase in FDIC indemnification asset (72 ) (118 ) (99 ) (827 ) 82 (289 ) (2,686 )
Increase in life insurance cash surrender value 1,746 1,702 1,692 1,667 1,687 5,140 5,035
Other miscellaneous income   2,079   2,267   1,774   1,709   1,784   6,120   4,668
Total other, net $ 1,274 $ 1,372 $ 888 $ (466 ) $ 1,470 $ 3,534 $ (18 )
 

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.

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

     
Quarter Ended Nine Months Ended
9/30/2016     6/30/2016     3/31/2016     12/31/2015     9/30/2015 9/30/2016     9/30/2015
Loan expense $ 3,336 $ 3,024 $ 3,043 $ 3,356 $ 3,416 $ 9,403 $ 9,479
Amortization of intangibles 1,692 1,692 1,796 1,927 1,942 5,180 5,892
Other miscellaneous expense   6,582   7,947   7,155   7,749   6,840   21,684   20,719
Total other expense $ 11,610 $ 12,663 $ 11,994 $ 13,032 $ 12,198 $ 36,267 $ 36,090
 

TRUSTMARK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS
September 30, 2016
($ in thousands)
(unaudited)

Note 7 – 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

September 30, 2016

($ in thousands)

(unaudited)

 
 
Note 7 – Non-GAAP Financial Measures (continued)
 
Quarter Ended Nine Months Ended
9/30/2016   6/30/2016   3/31/2016   12/31/2015   9/30/2015 9/30/2016   9/30/2016

TANGIBLE EQUITY

AVERAGE BALANCES
Total shareholders' equity $ 1,530,842 $ 1,512,841 $ 1,494,684 $ 1,481,294 $ 1,469,255 $ 1,512,855 $ 1,453,693
Less: Goodwill (366,156 ) (366,156 ) (366,156 ) (365,945 ) (365,500 ) (366,156 ) (365,500 )
Identifiable intangible assets   (23,311 )   (24,961 )   (26,709 )   (28,851 )   (31,144 )   (24,988 )   (31,304 )
Total average tangible equity $ 1,141,375 $ 1,121,724 $ 1,101,819 $ 1,086,498 $ 1,072,611 $ 1,121,711 $ 1,056,889
 
PERIOD END BALANCES
Total shareholders' equity $ 1,534,761 $ 1,523,467 $ 1,508,256 $ 1,473,057 $ 1,476,756
Less: Goodwill (366,156 ) (366,156 ) (366,156 ) (366,156 ) (365,500 )
Identifiable intangible assets   (22,366 )   (24,058 )   (25,751 )   (27,546 )   (30,129 )
Total tangible equity (a) $ 1,146,239 $ 1,133,253 $ 1,116,349 $ 1,079,355 $ 1,081,127
 

TANGIBLE ASSETS

Total assets $ 13,161,538 $ 13,030,349 $ 12,775,196 $ 12,678,896 $ 12,390,276
Less: Goodwill (366,156 ) (366,156 ) (366,156 ) (366,156 ) (365,500 )
Identifiable intangible assets   (22,366 )   (24,058 )   (25,751 )   (27,546 )   (30,129 )
Total tangible assets (b) $ 12,773,016 $ 12,640,135 $ 12,383,289 $ 12,285,194 $ 11,994,647
Risk-weighted assets (c) $ 9,670,302 $ 9,559,816 $ 9,431,021 $ 9,242,902 $ 8,831,355
 

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION

Net income $ 30,982 $ 21,503 $ 27,003 $ 27,858 $ 28,430 $ 79,488 $ 88,180
Plus: Intangible amortization net of tax   1,045   1,045   1,109   1,191   1,199   3,199   3,638
Net income adjusted for intangible amortization $ 32,027 $ 22,548 $ 28,112 $ 29,049 $ 29,629 $ 82,687 $ 91,818
Period end common shares outstanding (d)   67,626,939   67,623,601   67,639,832   67,559,128   67,557,395
 

TANGIBLE COMMON EQUITY MEASUREMENTS

Return on average tangible equity (1) 11.16 % 8.08 % 10.26 % 10.61 % 10.96 % 9.85 % 11.62 %
Tangible equity/tangible assets (a)/(b) 8.97 % 8.97 % 9.01 % 8.79 % 9.01 %
Tangible equity/risk-weighted assets (a)/(c) 11.85 % 11.85 % 11.84 % 11.68 % 12.24 %
Tangible book value (a)/(d)*1,000 $ 16.95 $ 16.76 $ 16.50 $ 15.98 $ 16.00
 

COMMON EQUITY TIER 1 CAPITAL (CET1)

Total shareholders' equity $ 1,534,761 $ 1,523,467 $ 1,508,256 $ 1,473,057 $ 1,476,756
AOCI-related adjustments 17,075 12,164 21,573 45,394 28,580
CET1 adjustments and deductions:
Goodwill net of associated deferred tax liabilities (DTLs) (347,800 ) (348,158 ) (348,515 ) (348,873 ) (348,587 )
Other adjustments and deductions for CET1 (2)   (9,307 )   (10,042 )   (10,861 )   (7,980 )   (8,888 )
CET1 capital (e) 1,194,729 1,177,431 1,170,453 1,161,598 1,147,861
Additional tier 1 capital instruments plus related surplus 60,000 60,000 60,000 60,000 60,000
Less: additional tier 1 capital deductions   (276 )   (328 )   (434 )   (1,063 )   (1,287 )
Additional tier 1 capital   59,724   59,672   59,566   58,937   58,713
Tier 1 capital $ 1,254,453 $ 1,237,103 $ 1,230,019 $ 1,220,535 $ 1,206,574
 
Common equity tier 1 capital ratio (e)/(c) 12.35 % 12.32 % 12.41 % 12.57 % 13.00 %
 
(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
September 30, 2016
($ in thousands)
(unaudited)

Note 7 – 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 Nine Months Ended
9/30/2016   9/30/2015 9/30/2016   9/30/2015
Amount   Diluted EPS Amount   Diluted EPS Amount   Diluted EPS Amount   Diluted EPS
 
Net Income (GAAP) $ 30,982 $ 0.457 $ 28,430 $ 0.420 $ 79,488 $ 1.173 $ 88,180 $ 1.303
 
Significant non-routine transactions (net of taxes):

Non-routine early retirement program expense

146 0.002 5,884 0.087

Non-routine pension expense due to de-risking strategy in Plan assets portfolio

  410   0.006       410   0.006    
Net Income adjusted for significant
non-routine transactions (Non-GAAP) $ 31,538 $ 0.465 $ 28,430 $ 0.420 $ 85,782 $ 1.266 $ 88,180 $ 1.303
 
Reported Adjusted Reported Adjusted Reported Adjusted Reported Adjusted
(GAAP) (Non-GAAP) (GAAP) (Non-GAAP) (GAAP) (Non-GAAP) (GAAP) (Non-GAAP)
 
Return on equity 8.05 % 8.20 % 7.68 % n/a 7.02 % 7.57 % 8.11 % n/a
Return on average tangible equity 11.16 % 11.36 % 10.96 % n/a 9.85 % 10.60 % 11.62 % n/a
Return on assets 0.95 % 0.97 % 0.92 % n/a 0.83 % 0.89 % 0.97 % n/a
 
n/a - not applicable

Contacts

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

Release Summary

Trustmark Corporation Announces Third Quarter 2016 Financial Results

Contacts

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