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

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

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

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Gerard R. Host, President and CEO, stated, "2012 was a year of significant achievement for Trustmark, particularly in light of prevailing economic conditions. We continued to build upon and expand customer relationships, the success of which is reflected in our strong financial performance. Thanks in part to the low interest rate environment, the profitability of our mortgage banking business reached record levels. We also experienced increased profitability in our insurance and wealth management businesses. Credit quality significantly improved in our banking business which, in turn, increased profitability. During the year, we completed an acquisition in Florida and announced plans to acquire Mobile, Alabama-based BancTrust Financial Group, which is expected to close during the first quarter of 2013 pending regulatory approval. We also made investments in technology designed to increase revenue and improve efficiency. Thanks to our dedicated associates, solid profitability and strong capital base, Trustmark remains well-positioned to continue meeting the needs of our customers and creating value for our shareholders."

Credit Quality

• Significant reduction in classified and criticized loan balances

• Nonperforming assets declined to lowest level in 16 quarters

• Improved credit quality reflected in reduced net charge-offs and provisioning

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

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

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

Capital Strength

• Tangible common equity to tangible assets expanded to 10.28%

• Total risk-based capital ratio of 17.22%

Trustmark's solid capital position reflects the consistent profitability of its diversified financial services businesses as well as prudent balance sheet management. At December 31, 2012, tangible common equity totaled $979.0 million and represented 10.28% of tangible assets while the total risk-based capital ratio was 17.22%, significantly exceeding the 10% benchmark to be classified as well capitalized. Trustmark's strong capital base provides the opportunity to support organic loan growth in an improving economy and enhance long-term shareholder value.

Balance Sheet Management

• Loan demand improved during fourth quarter

• Average earning assets remained stable at $8.7 billion

• Net interest income (FTE) totaled $86.0 million in fourth quarter, $355.4 million in 2012

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

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

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

Noninterest Income

• Noninterest income totaled $42.8 million in fourth quarter, $175.2 million in 2012

• Mortgage banking revenue reaches record $11.3 million in fourth quarter, $41.0 million in 2012

• Tax credit investments reduced effective tax rate to 23.8% in fourth quarter

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

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

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

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

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

Noninterest Expense

• Routine noninterest expense remained well-controlled

• ORE and foreclosure expense declined 31.5% in 2012

• Continued investments to support revenue growth and profitability

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

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

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

ADDITIONAL INFORMATION

As previously announced, Trustmark will conduct a conference call with analysts on Tuesday, January 22, 2013, at 4:00 p.m. Central Time to discuss the Corporation's financial results. Interested parties may listen to the conference call by dialing (877)317-6789, passcode 10008303, or by clicking on the link provided under the Investor Relations section of our website at www.trustmark.com. A replay of the conference call will also be available through Monday, February 4, 2013, in archived format at the same web address or by calling (877)344-7529, passcode 10008303.

Trustmark is a financial services company providing banking and financial solutions through approximately 170 offices in Florida, Mississippi, Tennessee and Texas.

FORWARD-LOOKING STATEMENTS

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

Risks that could cause actual results to differ materially from current expectations of Management include, but are not limited to, changes in the level of nonperforming assets and charge-offs, local, state and national economic and market conditions, including the extent and duration of the current volatility in the credit and financial markets, changes in our ability to measure the fair value of assets in our portfolio, material changes in the level and/or volatility of market interest rates, the performance and demand for the products and services we offer, including the level and timing of withdrawals from our deposit accounts, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, our ability to attract noninterest-bearing deposits and other low-cost funds, competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, economic conditions, including the potential impact of the European financial crisis on the U.S. economy and the markets we serve, and monetary and other governmental actions designed to address the level and volatility of interest rates and the volatility of securities, currency and other markets, the enactment of legislation and changes in existing regulations, or enforcement practices, or the adoption of new regulations, changes in accounting standards and practices, including changes in the interpretation of existing standards, that affect our consolidated financial statements, changes in consumer spending, borrowings and savings habits, technological changes, changes in the financial performance or condition of our borrowers, changes in our ability to control expenses, changes in our compensation and benefit plans, greater than expected costs or difficulties related to the integration of acquisitions or new products and lines of business, natural disasters, environmental disasters, acts of war or terrorism, the expected timing and likelihood of completion of the proposed merger with BancTrust Financial Group, Inc., (BancTrust), including the timing, receipt and terms and conditions of required regulatory approvals of the proposed merger that could reduce anticipated benefits or cause the parties to abandon the merger, the ability to maintain relationships with customers, employees or suppliers as well as the ability to successfully integrate the business and realize cost savings and any other synergies and the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect, the risk that the proposed merger with BancTrust is terminated prior to completion and results in significant transaction costs to Trustmark, and other risks described in our filings with the Securities and Exchange Commission.

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