 | News Release |
Trustmark Corporation Announces Third Quarter 2015 Financial Results
JACKSON, Miss. – October 27, 2015 – Trustmark Corporation (NASDAQ:TRMK) reported net income of $28.4 million in the third quarter of 2015, which represented diluted earnings per share of $0.42. Trustmark’s performance during the third quarter of 2015 produced a return on average tangible equity of 10.96% and a return on average assets of 0.92%. During the first nine months of 2015, Trustmark’s net income totaled $88.2 million, which represented diluted earnings per share of $1.30. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable December 15, 2015, to shareholders of record on December 1, 2015.
Third Quarter Highlights
| ● | Loans held for investment increased $344.6 million, or 5.3%, from the prior quarter and $458.0 million, or 7.2%, from the comparable period one year earlier |
| ● | Credit quality remained solid; continued reduction in nonperforming assets |
| ● | Revenue remained stable from the prior quarter at $143.6 million; growth in earning assets partially offset pressures of low interest rate environment |
| ● | Noninterest income totaled $46.0 million for the third quarter; insurance commissions up 5.4% and 7.2% linked quarter and year-over-year, respectively |
Gerard R. Host, President and CEO, stated, “Reflecting the strength of our diverse five-state franchise, legacy loan growth in the third quarter totaled approximately $345 million, a 5.3% increase from the prior quarter. We also continued to maintain and expand customer relationships in our other lines of business, as evidenced by strength in insurance commissions and mortgage loan production volumes. Routine noninterest expense remained well controlled and credit quality remained solid. Earlier this year, we launched our new consumer mobile banking service, myTrustmark℠, which has been very well received. We remained excited about the opportunities this platform, in addition to others, may present for our franchise. 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
| ● | Solid legacy loan growth in Mississippi, Alabama, Texas and Tennessee during the third quarter |
| ● | Total loans (acquired and held for investment) expanded $297.3 million, or 4.3%, from the prior quarter; average earning assets increased $209.1 million, or 2.0%, linked quarter |
| ● | Capital base provides opportunity to support additional growth |
Loans held for investment totaled $6.8 billion at September 30, 2015, an increase of 5.3% from the prior quarter and 7.2% from the same period one year earlier. Relative to the prior quarter, loans to state and other political subdivisions increased $103.3 million, led by growth in Mississippi and Texas. Construction, land development and other land loans increased $103.0 million, driven by growth in construction loans. Other loans, which include loans to nonprofits and real estate investment trusts, increased $59.8 million, as growth in Mississippi, Texas and Alabama, more than offset declines in Florida and Tennessee. Commercial and industrial loans increased $50.6 million, primarily reflecting growth in Tennessee and Florida, while loans secured by nonfarm, nonresidential real estate increased $37.4 million, principally because of growth in Alabama.
Acquired loans totaled $419.2 million at September 30, 2015, down $47.2 million from the prior quarter. Collectively, loans held for investment and acquired loans totaled $7.2 billion at September 30, 2015, up $297.3 million, or 4.3%, from the prior quarter.
End of period deposits totaled $9.4 billion, a linked-quarter decrease of $379.8 million that primarily reflects a seasonal reduction in public fund balances. Trustmark continues to maintain an attractive, low-cost deposit base with approximately 60.0% of deposits in checking accounts and a total cost of deposits of 0.13%. The favorable mix of interest-bearing liabilities yielded a total cost of funds of 0.26% for the third quarter of 2015.
Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. At September 30, 2015, Trustmark’s tangible equity to tangible assets ratio was 9.01%, while its total risk-based capital ratio was 14.66%. Tangible book value per share was $16.00 at September 30, 2015, up 6.4% year-over-year.
Credit Quality
| ● | Continued improvement in criticized and classified loan balances |
| ● | Nonperforming assets declined 8.9% linked quarter and 21.7% year-over-year |
| ● | Allowance for loan losses represented 206.72% of nonperforming loans, excluding impaired loans |
Levels of criticized and classified loan balances continued to reflect steady improvement. Relative to the prior quarter, criticized and classified loan balances declined by 1.5% and 9.9%, respectively. Compared to levels one year earlier, criticized and classified loan balances declined 22.0% and 20.3%, respectively.
At September 30, 2015, nonperforming loans totaled $61.1 million, a decline of 10.7% from the prior quarter and 30.8% from the prior year. Other real estate totaled $84.0 million, down 7.5% linked quarter and 13.5% year-over-year. Collectively, nonperforming assets totaled $145.1 million, a decrease of $14.1 million, or 8.9%, from the prior quarter and $40.3 million, or 21.7%, from levels one year earlier.
Allocation of Trustmark's $65.6 million allowance for loan losses represented 1.07% of commercial loans and 0.67% of consumer and home mortgage loans, resulting in an allowance to total loans held for investment of 0.97% at September 30, 2015, representing a level management considers commensurate with the inherent risk in the loan portfolio. The allowance for loan losses represented 206.72% of nonperforming loans, excluding impaired loans at September 30, 2015.
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) remained stable relative to the prior quarter at $101.7 million |
| ● | Noninterest income increased 0.9% from the prior quarter and 7.2% from levels one year earlier |
| ● | Mortgage loan production volumes continued to remain strong at $420.4 million, up 0.8% linked quarter and 21.7% year-over-year |
Revenue in the third quarter totaled $143.6 million and remained stable from the prior quarter. Net interest income (FTE) in the third quarter totaled $101.7 million, reflecting a net interest margin of 3.72%. Relative to the prior quarter, decreased interest income on the acquired loan portfolio was more than offset by increased interest income on the loans held for investment and held for sale portfolios, as well as the securities portfolio. The yield on acquired loans in the third quarter totaled 10.46% and included recoveries from settlement of debt of $4.8 million, which represented approximately 4.29% of the annualized total acquired loan yield. Excluding acquired loans, the net interest margin in the third quarter totaled 3.43%, down from 3.49% in the prior quarter.
Noninterest income totaled $46.0 million in the third quarter, an increase of 0.9% from the prior quarter and 7.2% from levels one year earlier. Service charges on deposit accounts increased 4.0% linked quarter, while bank card and other fees decreased 6.1% from the prior quarter, reflecting lower fees on interest rate swaps for commercial loan customers. Other income, net improved $1.9 million linked quarter, driven primarily by FDIC indemnification asset write-downs that occurred during the second quarter of 2015.
Insurance revenue in the third quarter totaled $9.9 million, an increase of 5.4% from the prior quarter and 7.2% from levels one year earlier. The solid performance this quarter was due to continued growth in the commercial property and casualty line of business as well as seasonal factors. Wealth management revenue remained stable relative to the prior quarter at $7.8 million, reflecting expanded trust management and annuity income, but partially offset by lower brokerage activity.
Mortgage banking revenue in the third quarter totaled $7.4 million, down from the prior quarter, but up from levels one year earlier. The decrease in mortgage revenue from the prior quarter primarily reflects a decreased benefit from the mortgage servicing hedge ineffectiveness as well as tightening secondary marketing spreads. Mortgage loan production in the third quarter remained solid at $420.4 million, up 0.8% from the prior quarter and 21.7% from levels one year earlier.
Noninterest Expense
| ● | Routine noninterest expense remained well controlled at $98.2 million, up 0.9% from the prior quarter |
| ● | Continued optimization of retail delivery channels with successful adoption of new consumer mobile banking platform, myTrustmark℠, and realignment of branch network |
Excluding ORE expense and intangible amortization of $5.3 million, routine noninterest expense totaled $98.2 million, an increase of $847 thousand, or 0.9%, from comparable expenses in the prior quarter. Salaries and benefits totaled $58.3 million in the third quarter, up 1.5% on a linked-quarter basis; the quarter-over-quarter increase primarily reflects increased commissions from seasonal insurance renewals and expanded mortgage loan production. Services and fees decreased 2.1% from the prior quarter, primarily because of lower data processing expense and third-party consulting fees. ORE and foreclosure expense increased $2.5 million from both the prior quarter and the same quarter one year earlier. Other expense increased marginally relative to the prior quarter principally because of higher loan expense.
As banking continues to evolve as something customers will do, not necessarily some place they will go, Trustmark has made investments in mobile banking products to ensure it continues to meet the evolving wants and needs of its customers. In the second quarter of 2015, Trustmark successfully introduced its new consumer mobile banking service, myTrustmark℠, which currently features account monitoring, funds transfer and bill pay capabilities. These capabilities, in addition to planned additions, aim to enhance the Trustmark banking experience, allowing customers to bank when and where they want.
During the third quarter, Trustmark continued the optimization of its retail delivery channels, consolidating two offices in Florida and Texas, and reallocating a portion of those resources into a new office in Gulfport, Mississippi. Year-to-date, Trustmark has consolidated eight offices and opened three new offices. Trustmark is committed to developing and maintaining relationships, while supporting investments that promote profitable revenue growth as well as reengineering and efficiency opportunities to enhance shareholder value.
Additional Information
As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, October 28, 2015, 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 11, 2015, in archived format at the same web address or by calling (877) 344-7529, passcode 10072410.
Trustmark Corporation is a financial services company providing banking and financial solutions through 200 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 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, greater than expected costs or difficulties related to the integration of acquisitions or new products and lines of business, natural disasters, environmental disasters, acts of war or terrorism, 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 Investor Contacts:
Louis E. Greer
Treasurer and
Principal Financial Officer
601-208-2310
F. Joseph Rein, Jr.
Senior Vice President
601-208-6898
Trustmark Media Contact:
Melanie A. Morgan
Senior Vice President
601-208-2979
 | TRUSTMARK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIALS |
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):
| | | 9/30/2015 | | | 6/30/2015 | | | 3/31/2015 | | | 12/31/2014 | | | 9/30/2014 | |
| SECURITIES AVAILABLE FOR SALE | | | | | | | | | | | | | | | |
| U.S. Treasury securities | | $ | - | | | $ | - | | | $ | - | | | $ | 100 | | | $ | 100 | |
| U.S. Government agency obligations | | | | | | | | | | | | | | | | | | | | |
| Issued by U.S. Government agencies | | | 71,282 | | | | 74,409 | | | | 78,115 | | | | 79,656 | | | | 83,011 | |
| Issued by U.S. Government sponsored agencies | | | 23,016 | | | | 33,009 | | | | 33,076 | | | | 32,818 | | | | 30,779 | |
| Obligations of states and political subdivisions | | | 147,794 | | | | 151,322 | | | | 160,154 | | | | 162,258 | | | | 165,463 | |
| Mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage pass-through securities | | | | | | | | | | | | | | | | | | | | |
| Guaranteed by GNMA | | | 26,651 | | | | 20,651 | | | | 12,010 | | | | 12,427 | | | | 12,828 | |
| Issued by FNMA and FHLMC | | | 177,411 | | | | 185,651 | | | | 195,470 | | | | 204,441 | | | | 213,420 | |
| Other residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
| Issued or guaranteed by FNMA, FHLMC, or GNMA | | | 1,630,402 | | | | 1,662,476 | | | | 1,646,710 | | | | 1,661,833 | | | | 1,603,138 | |
| Commercial mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
| Issued or guaranteed by FNMA, FHLMC, or GNMA | | | 279,609 | | | | 290,398 | | | | 225,826 | | | | 189,334 | | | | 221,641 | |
| Asset-backed securities and structured financial products | | | 26,657 | | | | 28,467 | | | | 30,098 | | | | 31,700 | | | | 33,515 | |
| Total securities available for sale | | $ | 2,382,822 | | | $ | 2,446,383 | | | $ | 2,381,459 | | | $ | 2,374,567 | | | $ | 2,363,895 | |
| | | | | | | | | | | | | | | | | | | | | |
| SECURITIES HELD TO MATURITY | | | | | | | | | | | | | | | | | | | | |
| U.S. Government agency obligations | | | | | | | | | | | | | | | | | | | | |
| Issued by U.S. Government sponsored agencies | | $ | 101,578 | | | $ | 101,374 | | | $ | 101,171 | | | $ | 100,971 | | | $ | 100,767 | |
| Obligations of states and political subdivisions | | | 56,661 | | | | 56,978 | | | | 62,928 | | | | 63,505 | | | | 64,538 | |
| Mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
| Residential mortgage pass-through securities | | | | | | | | | | | | | | | | | | | | |
| Guaranteed by GNMA | | | 17,783 | | | | 18,265 | | | | 18,861 | | | | 19,115 | | | | 13,368 | |
| Issued by FNMA and FHLMC | | | 10,669 | | | | 10,965 | | | | 11,341 | | | | 11,437 | | | | 11,816 | |
| Other residential mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
| Issued or guaranteed by FNMA, FHLMC, or GNMA | | | 808,763 | | | | 838,989 | | | | 842,827 | | | | 834,176 | | | | 836,966 | |
| Commercial mortgage-backed securities | | | | | | | | | | | | | | | | | | | | |
| Issued or guaranteed by FNMA, FHLMC, or GNMA | | | 182,986 | | | | 163,590 | | | | 147,426 | | | | 141,481 | | | | 142,185 | |
| Total securities held to maturity | | $ | 1,178,440 | | | $ | 1,190,161 | | | $ | 1,184,554 | | | $ | 1,170,685 | | | $ | 1,169,640 | |
During the fourth quarter of 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, 2015, the net unamortized, unrealized loss on the transferred securities included in accumulated other comprehensive (loss) income in the accompanying balance sheet totaled approximately $35.6 million ($22.0 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 94% 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 |
Note 2 – Loan Composition
| LHFI BY TYPE (excluding acquired loans) | | 9/30/2015 | | | 6/30/2015 | | | 3/31/2015 | | | 12/31/2014 | | | 9/30/2014 | |
| Loans secured by real estate: | | | | | | | | | | | | | | | |
| Construction, land development and other land loans | | $ | 785,472 | | | $ | 682,444 | | | $ | 691,657 | | | $ | 619,877 | | | $ | 580,794 | |
| Secured by 1-4 family residential properties | | | 1,638,639 | | | | 1,637,933 | | | | 1,613,993 | | | | 1,634,397 | | | | 1,625,480 | |
| Secured by nonfarm, nonresidential properties | | | 1,604,453 | | | | 1,567,035 | | | | 1,516,895 | | | | 1,553,193 | | | | 1,560,901 | |
| Other real estate secured | | | 225,523 | | | | 240,056 | | | | 233,322 | | | | 253,787 | | | | 239,819 | |
| Commercial and industrial loans | | | 1,270,277 | | | | 1,219,684 | | | | 1,228,788 | | | | 1,270,350 | | | | 1,246,753 | |
| Consumer loans | | | 169,509 | | | | 165,215 | | | | 161,535 | | | | 167,964 | | | | 168,813 | |
| State and other political subdivision loans | | | 677,539 | | | | 574,265 | | | | 614,330 | | | | 602,727 | | | | 585,382 | |
| Other loans | | | 420,231 | | | | 360,441 | | | | 353,356 | | | | 347,174 | | | | 325,709 | |
| LHFI | | | 6,791,643 | | | | 6,447,073 | | | | 6,413,876 | | | | 6,449,469 | | | | 6,333,651 | |
| Allowance for loan losses | | | (65,607 | ) | | | (71,166 | ) | | | (71,321 | ) | | | (69,616 | ) | | | (70,134 | ) |
| Net LHFI | | $ | 6,726,036 | | | $ | 6,375,907 | | | $ | 6,342,555 | | | $ | 6,379,853 | | | $ | 6,263,517 | |
| ACQUIRED NONCOVERED LOANS BY TYPE | | 9/30/2015 | | | 6/30/2015 | | | 3/31/2015 | | | 12/31/2014 | | | 9/30/2014 | |
| Loans secured by real estate: | | | | | | | | | | | | | | | |
| Construction, land development and other land loans | | $ | 45,299 | | | $ | 50,867 | | | $ | 51,363 | | | $ | 58,309 | | | $ | 64,808 | |
| Secured by 1-4 family residential properties | | | 96,870 | | | | 101,027 | | | | 111,830 | | | | 116,920 | | | | 120,366 | |
| Secured by nonfarm, nonresidential properties | | | 146,614 | | | | 168,698 | | | | 177,210 | | | | 202,323 | | | | 214,806 | |
| Other real estate secured | | | 23,816 | | | | 25,666 | | | | 26,819 | | | | 27,813 | | | | 28,036 | |
| Commercial and industrial loans | | | 57,748 | | | | 73,732 | | | | 81,261 | | | | 88,256 | | | | 103,185 | |
| Consumer loans | | | 6,295 | | | | 7,273 | | | | 8,494 | | | | 9,772 | | | | 11,236 | |
| Other loans | | | 23,886 | | | | 19,897 | | | | 21,195 | | | | 22,390 | | | | 22,105 | |
| Noncovered loans | | | 400,528 | | | | 447,160 | | | | 478,172 | | | | 525,783 | | | | 564,542 | |
| Allowance for loan losses | | | (11,417 | ) | | | (11,927 | ) | | | (11,106 | ) | | | (10,541 | ) | | | (11,136 | ) |
| Net noncovered loans | | $ | 389,111 | | | $ | 435,233 | | | $ | 467,066 | | | $ | 515,242 | | | $ | 553,406 | |
| ACQUIRED COVERED LOANS BY TYPE | | 9/30/2015 | | | 6/30/2015 | | | 3/31/2015 | | | 12/31/2014 | | | 9/30/2014 | |
| Loans secured by real estate: | | | | | | | | | | | | | | | |
| Construction, land development and other land loans | | $ | 966 | | | $ | 904 | | | $ | 1,447 | | | $ | 1,197 | | | $ | 1,721 | |
| Secured by 1-4 family residential properties | | | 10,546 | | | | 11,080 | | | | 11,200 | | | | 13,180 | | | | 14,114 | |
| Secured by nonfarm, nonresidential properties | | | 5,363 | | | | 5,206 | | | | 5,844 | | | | 7,672 | | | | 8,270 | |
| Other real estate secured | | | 1,511 | | | | 1,622 | | | | 1,469 | | | | 1,096 | | | | 2,949 | |
| Commercial and industrial loans | | | 205 | | | | 371 | | | | 255 | | | | 277 | | | | 327 | |
| Consumer loans | | | - | | | | - | | | | - | | | | - | | | | - | |
| Other loans | | | 54 | | | | 56 | | | | 56 | | | | 204 | | | | 226 | |
| Covered loans | | | 18,645 | | | | 19,239 | | | | 20,271 | | | | 23,626 | | | | 27,607 | |
| Allowance for loan losses | | | (768 | ) | | | (702 | ) | | | (731 | ) | | | (1,518 | ) | | | (813 | ) |
| Net covered loans | | $ | 17,877 | | | $ | 18,537 | | | $ | 19,540 | | | $ | 22,108 | | | $ | 26,794 | |
| | TRUSTMARK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIALS |
| Note 2 – Loan Composition (continued) | | | | | | | | | | | | | | | | | | |
| | | September 30, 2015 | |
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 | | $ | 785,472 | | | $ | 113,462 | | | $ | 47,977 | | | $ | 285,193 | | | $ | 59,210 | | | $ | 279,630 | |
| Secured by 1-4 family residential properties | | | 1,638,639 | | | | 54,393 | | | | 50,026 | | | | 1,402,256 | | | | 114,594 | | | | 17,370 | |
| Secured by nonfarm, nonresidential properties | | | 1,604,453 | | | | 173,525 | | | | 160,976 | | | | 779,426 | | | | 150,353 | | | | 340,173 | |
| Other real estate secured | | | 225,523 | | | | 16,369 | | | | 6,045 | | | | 127,938 | | | | 18,854 | | | | 56,317 | |
| Commercial and industrial loans | | | 1,270,277 | | | | 84,285 | | | | 23,601 | | | | 743,301 | | | | 174,987 | | | | 244,103 | |
| Consumer loans | | | 169,509 | | | | 17,945 | | | | 2,786 | | | | 128,754 | | | | 17,300 | | | | 2,724 | |
| State and other political subdivision loans | | | 677,539 | | | | 45,794 | | | | 26,537 | | | | 485,911 | | | | 22,760 | | | | 96,537 | |
| Other loans | | | 420,231 | | | | 26,479 | | | | 18,422 | | | | 280,586 | | | | 37,920 | | | | 56,824 | |
| Loans | | $ | 6,791,643 | | | $ | 532,252 | | | $ | 336,370 | | | $ | 4,233,365 | | | $ | 595,978 | | | $ | 1,093,678 | |
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CONSTRUCTION, LAND DEVELOPMENT AND OTHER LAND LOANS BY REGION (1) | | | | | | | | | | | | | | | | | |
| Lots | | $ | 48,258 | | | $ | 6,169 | | | $ | 21,204 | | | $ | 14,662 | | | $ | 2,275 | | | $ | 3,948 | |
| Development | | | 56,720 | | | | 9,600 | | | | 5,256 | | | | 29,696 | | | | 767 | | | | 11,401 | |
| Unimproved land | | | 98,485 | | | | 9,034 | | | | 10,774 | | | | 43,899 | | | | 19,675 | | | | 15,103 | |
| 1-4 family construction | | | 145,319 | | | | 25,036 | | | | 9,466 | | | | 67,776 | | | | 2,087 | | | | 40,954 | |
| Other construction | | | 436,690 | | | | 63,623 | | | | 1,277 | | | | 129,160 | | | | 34,406 | | | | 208,224 | |
| Construction, land development and other land loans | | $ | 785,472 | | | $ | 113,462 | | | $ | 47,977 | | | $ | 285,193 | | | $ | 59,210 | | | $ | 279,630 | |
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LOANS SECURED BY NONFARM, NONRESIDENTIAL PROPERTIES BY REGION (1) | | | | | | | | | | | | | | | | | |
| Income producing: | | | | | | | | | | | | | | | | | | | | | | | | |
| Retail | | $ | 211,804 | | | $ | 41,172 | | | $ | 33,401 | | | $ | 79,163 | | | $ | 19,533 | | | $ | 38,535 | |
| Office | | | 212,280 | | | | 21,798 | | | | 37,129 | | | | 76,683 | | | | 7,614 | | | | 69,056 | |
| Nursing homes/assisted living | | | 72,690 | | | | - | | | | - | | | | 67,156 | | | | 5,534 | | | | - | |
| Hotel/motel | | | 131,105 | | | | 33,651 | | | | 17,632 | | | | 36,681 | | | | 33,047 | | | | 10,094 | |
| Industrial | | | 45,719 | | | | 6,942 | | | | 5,182 | | | | 11,060 | | | | 4,019 | | | | 18,516 | |
| Health care | | | 25,650 | | | | 2,156 | | | | 633 | | | | 22,850 | | | | 11 | | | | - | |
| Convenience stores | | | 11,692 | | | | 236 | | | | - | | | | 5,673 | | | | 1,150 | | | | 4,633 | |
| Other | | | 169,471 | | | | 8,765 | | | | 19,451 | | | | 79,492 | | | | 3,652 | | | | 58,111 | |
| Total income producing loans | | | 880,411 | | | | 114,720 | | | | 113,428 | | | | 378,758 | | | | 74,560 | | | | 198,945 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Owner-occupied: | | | | | | | | | | | | | | | | | | | | | | | | |
| Office | | | 115,817 | | | | 8,810 | | | | 17,631 | | | | 58,575 | | | | 8,961 | | | | 21,840 | |
| Churches | | | 92,300 | | | | 4,298 | | | | 2,744 | | | | 46,011 | | | | 29,513 | | | | 9,734 | |
| Industrial warehouses | | | 124,076 | | | | 4,405 | | | | 2,604 | | | | 63,637 | | | | 10,988 | | | | 42,442 | |
| Health care | | | 115,284 | | | | 13,139 | | | | 8,048 | | | | 64,783 | | | | 9,870 | | | | 19,444 | |
| Convenience stores | | | 71,276 | | | | 5,302 | | | | 3,966 | | | | 47,006 | | | | 2,859 | | | | 12,143 | |
| Retail | | | 35,182 | | | | 2,419 | | | | 5,706 | | | | 20,415 | | | | 3,619 | | | | 3,023 | |
| Restaurants | | | 63,194 | | | | 1,910 | | | | 1,853 | | | | 23,412 | | | | 3,417 | | | | 32,602 | |
| Auto dealerships | | | 12,653 | | | | 8,272 | | | | 117 | | | | 2,988 | | | | 1,276 | | | | - | |
| Other | | | 94,260 | | | | 10,250 | | | | 4,879 | | | | 73,841 | | | | 5,290 | | | | - | |
| Total owner-occupied loans | | | 724,042 | | | | 58,805 | | | | 47,548 | | | | 400,668 | | | | 75,793 | | | | 141,228 | |
| Loans secured by nonfarm, nonresidential properties | | $ | 1,604,453 | | | $ | 173,525 | | | $ | 160,976 | | | $ | 779,426 | | | $ | 150,353 | | | $ | 340,173 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) Excludes acquired loans. | | | | | | | | | | | | | | | | | | | | | | | | |
| | TRUSTMARK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIALS |
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 | |
| | | 9/30/2015 | | | 6/30/2015 | | | 3/31/2015 | | | 12/31/2014 | | | 9/30/2014 | | | 9/30/2015 | | | 9/30/2014 | |
| Securities – taxable | | | 2.35 | % | | | 2.33 | % | | | 2.40 | % | | | 2.59 | % | | | 2.35 | % | | | 2.36 | % | | | 2.37 | % |
| Securities – nontaxable | | | 4.18 | % | | | 4.27 | % | | | 4.29 | % | | | 4.20 | % | | | 4.20 | % | | | 4.25 | % | | | 4.26 | % |
| Securities – total | | | 2.43 | % | | | 2.42 | % | | | 2.49 | % | | | 2.67 | % | | | 2.44 | % | | | 2.44 | % | | | 2.46 | % |
| Loans - LHFI & LHFS | | | 4.27 | % | | | 4.38 | % | | | 4.31 | % | | | 4.32 | % | | | 4.36 | % | | | 4.32 | % | | | 4.47 | % |
| Acquired loans | | | 10.46 | % | | | 10.43 | % | | | 11.62 | % | | | 9.38 | % | | | 14.98 | % | | | 10.87 | % | | | 12.11 | % |
| Loans - total | | | 4.65 | % | | | 4.79 | % | | | 4.85 | % | | | 4.73 | % | | | 5.29 | % | | | 4.76 | % | | | 5.24 | % |
| FF sold & rev repo | | | 0.68 | % | | | 1.44 | % | | | 0.00 | % | | | 0.94 | % | | | 0.84 | % | | | 0.82 | % | | | 0.60 | % |
| Other earning assets | | | 2.66 | % | | | 3.81 | % | | | 3.44 | % | | | 3.16 | % | | | 3.66 | % | | | 3.23 | % | | | 3.98 | % |
| Total earning assets | | | 3.91 | % | | | 3.99 | % | | | 4.07 | % | | | 4.05 | % | | | 4.34 | % | | | 3.99 | % | | | 4.30 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-bearing deposits | | | 0.18 | % | | | 0.18 | % | | | 0.19 | % | | | 0.20 | % | | | 0.21 | % | | | 0.19 | % | | | 0.22 | % |
| FF pch & repo | | | 0.15 | % | | | 0.14 | % | | | 0.14 | % | | | 0.14 | % | | | 0.13 | % | | | 0.15 | % | | | 0.12 | % |
| Other borrowings | | | 1.11 | % | | | 2.68 | % | | | 1.81 | % | | | 1.20 | % | | | 1.88 | % | | | 1.61 | % | | | 2.50 | % |
| Total interest-bearing liabilities | | | 0.26 | % | | | 0.26 | % | | | 0.26 | % | | | 0.26 | % | | | 0.27 | % | | | 0.26 | % | | | 0.28 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest margin | | | 3.72 | % | | | 3.81 | % | | | 3.88 | % | | | 3.86 | % | | | 4.14 | % | | | 3.80 | % | | | 4.09 | % |
| Net interest margin excluding acquired loans | | | 3.43 | % | | | 3.49 | % | | | 3.47 | % | | | 3.54 | % | | | 3.47 | % | | | 3.47 | % | | | 3.52 | % |
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 excluding acquired loans decreased 6 basis points during the third quarter of 2015 primarily due to declining yields on loans held for investment and loans held for sale.
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 positive ineffectiveness of $479 thousand and $583 thousand for the quarters ended September 30, 2015 and 2014, respectively.
The following table illustrates the components of mortgage banking revenues included in noninterest income in the accompanying income statements:
| | | Quarter Ended | | | Nine Months Ended | |
| | | 9/30/2015 | | | 6/30/2015 | | | 3/31/2015 | | | 12/31/2014 | | | 9/30/2014 | | | 9/30/2015 | | | 9/30/2014 | |
| Mortgage servicing income, net | | $ | 4,906 | | | $ | 4,696 | | | $ | 4,897 | | | $ | 4,814 | | | $ | 4,674 | | | $ | 14,499 | | | $ | 13,805 | |
| Change in fair value-MSR from runoff | | | (2,636 | ) | | | (2,587 | ) | | | (2,213 | ) | | | (1,999 | ) | | | (2,364 | ) | | | (7,436 | ) | | | (6,567 | ) |
| Gain on sales of loans, net | | | 4,479 | | | | 5,114 | | | | 3,716 | | | | 2,910 | | | | 3,272 | | | | 13,309 | | | | 7,860 | |
| Other, net | | | 215 | | | | 206 | | | | 1,245 | | | | 132 | | | | (323 | ) | | | 1,666 | | | | 772 | |
| Mortgage banking income before hedge ineffectiveness | | | 6,964 | | | | 7,429 | | | | 7,645 | | | | 5,857 | | | | 5,259 | | | | 22,038 | | | | 15,870 | |
| Change in fair value-MSR from market changes | | | (4,141 | ) | | | 6,076 | | | | (2,368 | ) | | | (4,142 | ) | | | 700 | | | | (433 | ) | | | (3,061 | ) |
| Change in fair value of derivatives | | | 4,620 | | | | (4,024 | ) | | | 3,688 | | | | 4,203 | | | | (117 | ) | | | 4,284 | | | | 6,053 | |
| Net positive hedge ineffectiveness | | | 479 | | | | 2,052 | | | | 1,320 | | | | 61 | | | | 583 | | | | 3,851 | | | | 2,992 | |
| Mortgage banking, net | | $ | 7,443 | | | $ | 9,481 | | | $ | 8,965 | | | $ | 5,918 | | | $ | 5,842 | | | $ | 25,889 | | | $ | 18,862 | |
During the first quarter of 2015, Trustmark exercised its option to repurchase approximately $28.5 million of delinquent loans serviced for GNMA. These loans were subsequently sold to a third party under different repurchase provisions. Trustmark retained the servicing for these loans, which are subject to guarantees by FHA/VA. As a result of this repurchase and sale, the loans are no longer carried as "LHFS-Guaranteed GNMA serviced loans" (see pages 3 and 6). The transaction resulted in a gain of $304 thousand, which was recorded during the first quarter of 2015 and is included in the table above as "Gain on sales of loans, net.”
| | TRUSTMARK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIALS |
Note 5 – Other Noninterest Income and Expense
Other noninterest income consisted of the following for the periods presented ($ in thousands):
| | | Quarter Ended | | | Nine Months Ended | |
| | | 9/30/2015 | | | 6/30/2015 | | | 3/31/2015 | | | 12/31/2014 | | | 9/30/2014 | | | 9/30/2015 | | | 9/30/2014 | |
| Partnership amortization for tax credit purposes | | $ | (2,083 | ) | | $ | (2,480 | ) | | $ | (2,472 | ) | | $ | (2,806 | ) | | $ | (3,006 | ) | | $ | (7,035 | ) | | $ | (9,018 | ) |
| Increase (decrease) in FDIC indemnification asset | | | 82 | | | | (1,798 | ) | | | (970 | ) | | | (735 | ) | | | (452 | ) | | | (2,686 | ) | | | (2,139 | ) |
| Increase in life insurance cash surrender value | | | 1,687 | | | | 1,673 | | | | 1,675 | | | | 1,693 | | | | 1,702 | | | | 5,035 | | | | 5,647 | |
| Other miscellaneous income | | | 1,784 | | | | 2,172 | | | | 712 | | | | 2,444 | | | | 1,596 | | | | 4,668 | | | | 5,528 | |
| Total other, net | | $ | 1,470 | | | $ | (433 | ) | | $ | (1,055 | ) | | $ | 596 | | | $ | (160 | ) | | $ | (18 | ) | | $ | 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 or historical tax credits). These investments are recorded based on the equity method of accounting, which requires the equity in partnership losses to be recognized when incurred and are recorded as a reduction in other income. The income tax credits related to these partnerships are utilized as specifically allowed by income tax law and are recorded as a reduction in income tax expense.
During the third quarter of 2015, other noninterest income included a net upward adjustment of the FDIC indemnification asset of $82 thousand on acquired covered loans and covered other real estate obtained from the Heritage Banking Group as a result of declines in loan pay-offs and real estate sales as well as an increase in writedowns of other real estate when compared to the second quarter of 2015.
Other noninterest expense consisted of the following for the periods presented ($ in thousands):
| | | Quarter Ended | | | Nine Months Ended | |
| | | 9/30/2015 | | | 6/30/2015 | | | 3/31/2015 | | | 12/31/2014 | | | 9/30/2014 | | | 9/30/2015 | | | 9/30/2014 | |
| Loan expense | | $ | 3,416 | | | $ | 3,342 | | | $ | 2,721 | | | $ | 3,312 | | | $ | 3,070 | | | $ | 9,479 | | | $ | 9,641 | |
| Amortization of intangibles | | | 1,942 | | | | 1,959 | | | | 1,991 | | | | 2,123 | | | | 2,150 | | | | 5,892 | | | | 6,633 | |
| Other miscellaneous expense | | | 6,840 | | | | 6,885 | | | | 6,994 | | | | 8,985 | | | | 7,744 | | | | 20,719 | | | | 23,173 | |
| Total other expense | | $ | 12,198 | | | $ | 12,186 | | | $ | 11,706 | | | $ | 14,420 | | | $ | 12,964 | | | $ | 36,090 | | | $ | 39,447 | |
Note 6 – Non-GAAP Financial Measures
In addition to capital ratios defined by GAAP and banking regulators, Trustmark utilizes various tangible common equity measures when evaluating capital utilization and adequacy. Tangible common equity, as defined by Trustmark, represents common equity less goodwill and identifiable intangible assets.
Trustmark believes these measures are important because they reflect the level of capital available to withstand unexpected market conditions. Additionally, presentation of these measures allows readers to compare certain aspects of Trustmark’s capitalization to other organizations. These ratios differ from capital measures defined by banking regulators principally in that the numerator excludes shareholders’ equity associated with preferred securities, the nature and extent of which varies across organizations.
These calculations are intended to complement the capital ratios defined by GAAP and banking regulators. Because GAAP does not include these capital ratio measures, Trustmark believes there are no comparable GAAP financial measures to these tangible common equity ratios. Despite the importance of these measures to Trustmark, there are no standardized definitions for them and, as a result, Trustmark’s calculations may not be comparable with other organizations. Also there may be limits in the usefulness of these measures to investors. As a result, Trustmark encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure. The following table reconciles Trustmark’s calculation of these measures to amounts reported under GAAP.
| | TRUSTMARK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIALS |
| Note 6 - Non-GAAP Financial Measures (continued) | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Quarter Ended | | | Nine Months Ended | |
| | | | | | 9/30/2015 | | | 6/30/2015 | | | 3/31/2015 | | | 12/31/2014 | | | 9/30/2014 | | | 9/30/2015 | | | 9/30/2014 | |
| TANGIBLE EQUITY | | | | | | | | | | | | | | | | | | | | | | | |
| AVERAGE BALANCES | | | | | | | | | | | | | | | | | | | | | | |
| Total shareholders' equity | | | $ | 1,469,255 | | | $ | 1,454,501 | | | $ | 1,436,969 | | | $ | 1,422,268 | | | $ | 1,412,857 | | | $ | 1,453,693 | | | $ | 1,391,085 | |
| Less: | Goodwill | | | | | (365,500 | ) | | | (365,500 | ) | | | (365,500 | ) | | | (365,500 | ) | | | (365,500 | ) | | | (365,500 | ) | | | (367,880 | ) |
| | Identifiable intangible assets | | | | (31,144 | ) | | | (30,385 | ) | | | (32,398 | ) | | | (34,411 | ) | | | (36,553 | ) | | | (31,304 | ) | | | (38,743 | ) |
| Total average tangible equity | | | $ | 1,072,611 | | | $ | 1,058,616 | | | $ | 1,039,071 | | | $ | 1,022,357 | | | $ | 1,010,804 | | | $ | 1,056,889 | | | $ | 984,462 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| PERIOD END BALANCES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total shareholders' equity | | | $ | 1,476,756 | | | $ | 1,450,409 | | | $ | 1,446,084 | | | $ | 1,419,940 | | | $ | 1,415,098 | | | | | | | | | |
| Less: | Goodwill | | | | | (365,500 | ) | | | (365,500 | ) | | | (365,500 | ) | | | (365,500 | ) | | | (365,500 | ) | | | | | | | | |
| | Identifiable intangible assets | | | | (30,129 | ) | | | (32,042 | ) | | | (31,250 | ) | | | (33,234 | ) | | | (35,357 | ) | | | | | | | | |
| Total tangible equity | | (a) | | $ | 1,081,127 | | | $ | 1,052,867 | | | $ | 1,049,334 | | | $ | 1,021,206 | | | $ | 1,014,241 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TANGIBLE ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total assets | | | | $ | 12,390,276 | | | $ | 12,182,448 | | | $ | 12,179,164 | | | $ | 12,250,633 | | | $ | 12,096,316 | | | | | | | | | |
| Less: | Goodwill | | | | | (365,500 | ) | | | (365,500 | ) | | | (365,500 | ) | | | (365,500 | ) | | | (365,500 | ) | | | | | | | | |
| | Identifiable intangible assets | | | | (30,129 | ) | | | (32,042 | ) | | | (31,250 | ) | | | (33,234 | ) | | | (35,357 | ) | | | | | | | | |
| Total tangible assets | | (b) | | $ | 11,994,647 | | | $ | 11,784,906 | | | $ | 11,782,414 | | | $ | 11,851,899 | | | $ | 11,695,459 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Risk-weighted assets | | (c) | | $ | 8,831,355 | | | $ | 8,530,144 | | | $ | 8,503,102 | | | $ | 8,387,799 | | | $ | 8,287,608 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | $ | 28,430 | | | $ | 30,602 | | | $ | 29,148 | | | $ | 28,073 | | | $ | 33,589 | | | $ | 88,180 | | | $ | 95,489 | |
| Plus: | Intangible amortization net of tax | | | | 1,199 | | | | 1,210 | | | | 1,229 | | | | 1,312 | | | | 1,328 | | | | 3,638 | | | | 4,098 | |
| Net income adjusted for intangible amortization | | $ | 29,629 | | | $ | 31,812 | | | $ | 30,377 | | | $ | 29,385 | | | $ | 34,917 | | | $ | 91,818 | | | $ | 99,587 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period end common shares outstanding | (d) | | | 67,557,395 | | | | 67,557,395 | | | | 67,556,591 | | | | 67,481,992 | | | | 67,439,788 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TANGIBLE COMMON EQUITY MEASUREMENTS | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Return on average tangible equity (1) | | | | 10.96 | % | | | 12.05 | % | | | 11.86 | % | | | 11.40 | % | | | 13.70 | % | | | 11.62 | % | | | 13.52 | % |
| Tangible equity/tangible assets | (a)/(b) | | | 9.01 | % | | | 8.93 | % | | | 8.91 | % | | | 8.62 | % | | | 8.67 | % | | | | | | | | |
| Tangible equity/risk-weighted assets | (a)/(c) | | | 12.24 | % | | | 12.34 | % | | | 12.34 | % | | | 12.17 | % | | | 12.24 | % | | | | | | | | |
| Tangible book value | (a)/(d)*1,000 | | $ | 16.00 | | | $ | 15.58 | | | $ | 15.53 | | | $ | 15.13 | | | $ | 15.04 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TIER 1 COMMON RISK-BASED CAPITAL - BASEL I | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total shareholders' equity | | | | | | | | | | | | | | | $ | 1,419,940 | | | $ | 1,415,098 | | | | | | | | | |
| Eliminate qualifying AOCI | | | | | | | | | | | | | | | | 42,484 | | | | 34,365 | | | | | | | | | |
| Qualifying tier 1 capital | | | | | | | | | | | | | | | | 60,000 | | | | 60,000 | | | | | | | | | |
| Disallowed goodwill | | | | | | | | | | | | | | | | (365,500 | ) | | | (365,500 | ) | | | | | | | | |
| Adj to goodwill allowed for deferred taxes | | | | | | | | | | | | | | | 15,855 | | | | 15,503 | | | | | | | | | |
| Other disallowed intangibles | | | | | | | | | | | | | | | | (33,234 | ) | | | (35,357 | ) | | | | | | | | |
| Disallowed servicing intangible | | | | | | | | | | | | | | | | (6,436 | ) | | | (6,709 | ) | | | | | | | | |
| Disallowed deferred taxes | | | | | | | | | | | | | | | | (3,479 | ) | | | (1,234 | ) | | | | | | | | |
| Total tier 1 capital | | | | | | | | | | | | | | | | 1,129,630 | | | | 1,116,166 | | | | | | | | | |
| Less: | Qualifying tier 1 capital | | | | | | | | | | | | | | | | (60,000 | ) | | | (60,000 | ) | | | | | | | | |
| Total tier 1 common capital | (e) | | | | | | | | | | | | | | $ | 1,069,630 | | | $ | 1,056,166 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tier 1 common risk-based capital ratio | (e)/(c) | | | | | | | | | | | | | | | 12.75 | % | | | 12.74 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| COMMON EQUITY TIER 1 CAPITAL (CET1) - BASEL III | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total shareholders' equity | | | $ | 1,476,756 | | | $ | 1,450,409 | | | $ | 1,446,084 | | | | | | | | | | | | | | | | | |
| AOCI-related adjustments | | | | 28,580 | | | | 41,193 | | | | 29,652 | | | | | | | | | | | | | | | | | |
| CET1 adjustments and deductions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Goodwill net of associated deferred tax liabilities (DTLs) | | | (348,587 | ) | | | (348,940 | ) | | | (349,292 | ) | | | | | | | | | | | | | | | | |
| | Other adjustments and deductions for CET1 (2) | | | (8,888 | ) | | | (9,568 | ) | | | (9,104 | ) | | | | | | | | | | | | | | | | |
| | | CET1 capital | (f) | | | 1,147,861 | | | | 1,133,094 | | | | 1,117,340 | | | | | | | | | | | | | | | | | |
| | Additional tier 1 capital instruments plus related surplus | | | 60,000 | | | | 60,000 | | | | 60,000 | | | | | | | | | | | | | | | | | |
| | Less: additional tier 1 capital deductions | | | (1,287 | ) | | | (1,571 | ) | | | (1,762 | ) | | | | | | | | | | | | | | | | |
| | | Additional tier 1 capital | | | 58,713 | | | | 58,429 | | | | 58,238 | | | | | | | | | | | | | | | | | |
| | | Tier 1 capital | | | $ | 1,206,574 | | | $ | 1,191,523 | | | $ | 1,175,578 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common equity tier 1 capital ratio | (f)/(c) | | | 13.00 | % | | | 13.28 | % | | | 13.14 | % | | | | | | | | | | | | | | | | |
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| (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. | |
Third Quarter 2015 Financial Results October 27, 2015 Building a Premier Regional Financial Services Organization
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 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, greater than expected costs or difficulties related to the integration of acquisitions or new products and lines of business, natural disasters, environmental disasters, acts of war or terrorism, 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.
Third Quarter Highlights * Source: Company reports Financial performance reflects value of Trustmark’s diversified financial services businesses, resulting in Q3-15 EPS of $0.42 At September 30, 2015: Total Assets $12.4 billion Total Loans (HFI & Acquired) $7.2 billion Total Deposits $9.4 billion Banking Centers 200 Q3-15: Net Income $28.4 million EPS – Diluted $0.42 Dividends / Share $0.23 ROATE 10.96% ROAA 0.92% Tangible Equity / Tangible Assets 9.01% Total Risk-Based Capital Ratio 14.66% Profitable Revenue Generation Loans held for investment increased $344.6 million, or 5.3%, from the prior quarter and $458.0 million, or 7.2%, year-over-year Revenue remained stable from the prior quarter as growth in earning assets helped to partially offset pressures of low interest rate environment Complementary fee-income businesses led to stable linked-quarter noninterest income of $46.0 million Performance of acquired loans continued to exceed expectations, providing capital to support additional growth Process Improvement and Expense Management Introduction of new consumer mobile banking platform, myTrustmark℠, has been very well received; encouraged by the opportunities this platform, and others, may present for the Trustmark franchise Continued realignment of branch network – opened one office while consolidating two offices during the third quarter Credit Quality Continued solid credit performance; criticized and classified loan balances declined relative to the prior quarter and same period in the prior year Nonperforming assets declined 8.9% linked quarter and 21.7% year-over-year
Total Deposits at September 30, 2015 – $9,412 Source: Company reports Attractive, Low-Cost Deposit Base ($ in millions) ($ in millions) Cost of Deposits 0.15% 0.14% 0.13% 0.13% 0.13% Strength of franchise reflected by low cost of deposits, with nearly 60% of deposits in checking accounts Average deposits in the third quarter totaled $9.5 billion; cost of deposits of 13 bps Noninterest-bearing deposits represented 29.1% of average deposits in the third quarter Well diversified deposit base serves as an excellent, low-cost source of funds Deposit Mix – Average Balance Deposit Mix by Type – Q3-15 Ending Balance Noninterest-bearing 29% 29% 28% 28% 29% Interest-bearing 71% 71% 72% 72% 71% 30% 28% 16% 19% 7% *
Credit Risk Management Source: Company reports Note: Credit metrics exclude acquired loans and other real estate covered by FDIC loss-share agreement ($ in millions) Criticized loan balances declined 1.5% from the prior quarter and 22.0% from the same quarter one year earlier; classified loan balances declined 9.9% linked quarter and 20.3% year-over-year Nonperforming assets decreased $14.1 million, or 8.9%, from the prior quarter and $40.3 million, or 21.7%, year-over-year The linked-quarter and year-over-year reduction in nonperforming assets was driven by both a reduction in balances of nonaccrual loans and total other real estate Allowance for loan losses represented 206.72% of nonperforming loans, excluding impaired loans Other Real Estate ALL / Nonperforming Loans (excl. Impaired Loans) * Continued solid credit performance Dollar Change: ($4) ($3) $1 ($7)
Legacy Loan Portfolio Legacy Loans – Dollar Growth by Type ($ in millions) * Source: Company reports Total loans (acquired and held for investment) expanded $297.3 million, or 4.3%, from the prior quarter Loans held for investment (“HFI”) increased 5.3% to $6.8 billion from the prior quarter; year-over-year, loans HFI increased 7.2% Growth in Mississippi, Alabama, Texas and Tennessee, was partially offset by reductions in Florida Linked-quarter increase in construction, land development and other land loans was primarily driven by growth in construction loans Trustmark had total energy sector exposure of $424.5 million with outstanding balances of $207.0 million at September 30, 2015; Trustmark has no loan exposure where the source of repayment or the underlying security of such exposure is tied to the realization of value from energy reserves ($ in millions) Loans HFI Dollar Change: $115 ($35) $33 $345 Continued focus on profitable, credit-disciplined loan growth
Performance of acquired loans Source: Company reports ($ in millions) Acquired Loan Portfolio Acquired Loans Acquired loan yield in the third quarter totaled 10.46% and included recoveries from settlement of debt of $4.8 million, which represented approximately 4.29% of the total yield on acquired loans We expect the yield on acquired loans (excl. recoveries) for the fourth quarter to be in the 5.5% - 6.5% range, reflecting our most recent re-estimation of cash flows Based upon most recent cash flow analyses, acquired loan balances (excl. any settlement of debt) are anticipated to decline approximately $30 to $40 million during the fourth quarter Accretable Yield ($ in millions) Dollar Change: ($43) ($51) Interest Income & Impairment – Acquired Loans (1) Net interest income on acquired loans - Provision for acquired loan losses * ($32) ($47) ($ in thousands) Dollar Change: ($6) ($7) ($6) ($8)
Income Statement Highlights – Revenue Revenue remained stable from the prior quarter at $143.6 million Net Interest Income – FTE Net Interest Margin Noninterest Income ($ in millions) * Net Interest Income on Acq. Loans Net Interest Income (excl. Acq. Loans) Source: Company reports Note: n/m – percentage changes greater than + / - 100% are considered not meaningful (1) Net interest margin, excluding acquired loans and yield maintenance payments, totaled 3.46% (1) ($ in millions) Net interest income (FTE) remained relatively stable to the prior quarter at $101.7 million Diverse portfolio of complementary business lines helped to partially offset seasonal and cyclical activity Insurance posted another quarter of solid results, reflecting growth in the commercial property and casualty line of business as well as seasonal factors Mortgage loan production for the quarter totaled $420.4 million, up 0.8% from the prior quarter and 21.7% from the same period one year earlier
Income Statement Highlights – Noninterest Expense Source: Company reports Routine noninterest expense remained well-controlled Excluding ORE and intangible amortization of $5.3 million, noninterest expense in the third quarter totaled $98.2 million, an increase of 0.9% from the prior quarter Salaries and benefits increased $877 thousand, or 1.5%, from the prior quarter because of increased commissions from seasonal insurance renewals as well as expanded mortgage loan production ORE and foreclosure expense increased $2.5 million during the quarter because of a decreased benefit from gains on sale of ORE as well as increased write-downs Continued optimization of branch network – opened a new office in Gulfport, Mississippi, while consolidating two offices in Florida and Texas Noninterest Expense ($ in millions) * Full-time Equivalent Employees (actual figures presented) Noninterest Expense (excl. ORE and Intangible Amortization) ORE/Intangible Amortization
Capital Management Source: Company reports Tangible equity to tangible assets ratio was 9.01%, while the total risk-based capital ratio was 14.66% in the third quarter Solid capital base provides the opportunity to support growth in an improving economy Solid capital position reflects consistent profitability of diversified financial services businesses * Tangible Equity / Tangible Assets Tier 1 Common Risk-based Capital Ratio Total Risk-based Capital Ratio
Profitable revenue generation Create and expand customer relationships Loan growth Noninterest income – deposit services, wealth management, insurance and mortgage banking Business development and cross-selling Process improvement and expense management Performance Measurement Market Optimization Capital and Expense Management Leverage existing infrastructure investments Enterprise-wide analytics system Network operations center Cybersecurity and fraud detection system Strategic Priorities to Enhance Shareholder Value * Credit quality Maintain disciplined underwriting and pricing Resolution of existing problem assets Effective risk management Ensure regulatory compliance Create value-added proposition, while managing businesses more effectively Mergers and acquisitions In-market consolidation Expand to additional attractive markets Patience and discipline
