Trustmark Corporation Announces Second Quarter 2013 Financial Results and Declares $0.23 Quarterly D

Trustmark Corporation Announces Second Quarter 2013 Financial Results and Declares $0.23 Quarterly Dividend

JACKSON, Miss.--(BUSINESS WIRE)-- Trustmark Corporation (NAS: TRMK) announced net income available to common shareholders of $31.1 million in the second quarter of 2013, which resulted in diluted earnings per share of $0.46. Trustmark's performance during the quarter produced a return on average tangible common equity of 14.09% and a return on average assets of 1.06%. During the first six months of 2013, Trustmark's net income available to common shareholders totaled $56.0 million, or $0.84 per common share. Trustmark's Board of Directors declared a quarterly cash dividend of $0.23 per common share payable September 15, 2013, to shareholders of record on September 1, 2013.

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Gerard R. Host, President and CEO, stated, "Trustmark's momentum continued to build during the second quarter as total revenue increased 7.2% to $142.9 million. Our banking, mortgage banking, wealth management, and insurance businesses continued to perform well while credit quality continued to experience significant improvements, as evidenced by reduced net charge-offs and provisioning. Thanks to our dedicated associates, solid profitability and strong capital base, we are well-positioned to continue providing value for our customers and shareholders."

BancTrust Merger Update

On February 15, 2013, Trustmark completed its previously announced merger with BancTrust Financial Group, Inc. ("BancTrust"), headquartered in Mobile, Alabama. In March 2013, BancTrust's operating systems were successfully converted to Trustmark's banking platform. Trustmark's financial results in the second quarter of 2013 included revenue attributable to BancTrust of approximately $19.9 million and net income of $6.1 million; net income attributable to BancTrust included $2.0 million (after tax) from recoveries on pay-offs of acquired loans.

Credit Quality

• Nonperforming assets declined 4.8% during second quarter

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

Nonperforming loans totaled $74.3 million at June 30, 2013, a decline of 10.8% from the prior quarter, while foreclosed other real estate totaled $117.7 million, a decline of 0.6% from the prior quarter. Collectively, nonperforming assets totaled $192.0 million at June 30, 2013, a decrease of 4.8% from the prior quarter.

During the second quarter recoveries exceeded charge-offs, resulting in a net recovery of $771 thousand, which represented -0.05% of average loans, excluding acquired loans. This compares to net recoveries of $1.1 million, or -0.08% of average loans, in the prior quarter. As a result of the net recovery position and improved credit quality, the provision for loan losses for loans held for investment was a negative $4.8 million in the second quarter.

Allocation of Trustmark's $72.8 million allowance for loan losses represented 1.48% of commercial loans and 0.84% of consumer and home mortgage loans, resulting in an allowance to total loans held for investment of 1.31% at June 30, 2013, which represents a level management considers commensurate with the inherent risk in the loan portfolio. The allowance for loan losses represented 158.8% of nonperforming loans, excluding impaired loans.

All of the above credit metrics exclude acquired loans and other real estate covered by FDIC loss-share agreement.

Balance Sheet Management

• Loans held for investment increased $45.6 million

• Net interest income (FTE) totaled $103.0 million, resulting in 4.02% net interest margin

Average earning assets totaled $10.3 billion during the second quarter, an increase of $839.7 million from the prior quarter, reflecting the first full quarter of operations following the BancTrust merger on February 15, 2013. During the quarter, total average loans increased $406.3 million to $6.7 billion while investment securities expanded $433.2 million to $3.5 billion. Average deposits totaled $9.8 billion, an increase of $940.4 million from the prior quarter; noninterest-bearing deposits represented 25.1% of total average deposits during the second quarter.

Net interest income (FTE) in the second quarter totaled $103.0 million, an increase of $10.3 million from the prior quarter, and resulted in a four basis point expansion of the net interest margin to 4.02%. The expansion in the net interest margin reflects the significant increase in average acquired loan balances from the BancTrust merger as well as a favorable decline in the cost of interest-bearing liabilities. Excluding acquired loans, the net interest margin compressed 11 basis points from the prior quarter to 3.55% as earning assets continued to reprice at lower rates more rapidly than did interest-bearing deposits.

Loans held for investment totaled $5.6 billion at June 30, 2013, an increase of $45.6 million from the prior quarter. Growth was generally broad based by type as well as by geography. Construction lending expanded $33.8 million during the quarter due to growth in Trustmark's Texas, Mississippi, Alabama and Tennessee markets while commercial real estate loans increased $21.3 million, reflecting growth in Texas, Florida, Alabama and Mississippi. Other real estate secured loans grew $17.9 million, principally due to growth in Trustmark's Mississippi and Tennessee markets. Increased lending to public entities and school districts in Mississippi and Alabama was reflected in other loan growth of $25.5 million. During the quarter, the 1-4 family mortgage loan portfolio declined $15.4 million as Trustmark elected to sell the vast majority of its quarterly production of these lower-rate, longer-term mortgages in the secondary market rather than replace run-off in this portfolio. Commercial and industrial loans declined $37.5 million, as growth in Alabama was more than offset by declines in Trustmark's other markets during the quarter.

Capital Strength

• Optimized capital base with redemption of $33.0 million in trust preferred securities

• Total risk-based capital ratio of 13.89%

Trustmark's common equity totaled $1.33 billion at June 30, 2013, down $26.1 million from March 31, 2013. This decrease included a decline in accumulated other comprehensive loss, net of tax, of $44.5 million for the quarter resulting largely from a reduction of unrealized gains on available for sale securities in a rising interest rate environment.

Trustmark continued to optimize its capital base during the second quarter with the previously announced redemption of $33.0 million in trust preferred securities acquired in conjunction with the BancTrust merger. At June 30, 2013, Trustmark's tangible common equity to tangible assets ratio was 7.96% while the total risk-based capital ratio was 13.89%, significantly exceeding the 10.00% benchmark to be classified as "well-capitalized." Trustmark's solid capital base provides the opportunity to support organic loan growth in an improving economy and enhance long-term shareholder value.

Noninterest Income

• Service charges and bank card fees collectively increased $2.8 million, or 14.3%, from prior quarter

• Insurance revenue expanded 10.7% to $8.0 million

Reflecting the continued success of Trustmark's diversified financial services businesses, noninterest income totaled $43.7 million during the second quarter, including $3.0 million attributable to BancTrust. Service charges on deposit accounts totaled $12.9 million in the second quarter, an increase of $1.2 million, or 10.7%, from the prior quarter principally attributable to BancTrust. Bank card and other fees totaled $9.5 million in the second quarter, an increase of $1.6 million, or 19.7%, from the prior quarter.

Mortgage loan production in the second quarter totaled $424.3 million, up 8.2% from the prior quarter in part due to additional refinancing activity from the Home Affordable Refinance Program. Total revenue from Trustmark's mortgage banking unit totaled $8.3 million in the second quarter, down $3.3 million from the prior period principally due to lower secondary marketing gains resulting from tightening mortgage spreads during the quarter and lower positive mortgage servicing hedge ineffectiveness.

Insurance revenue totaled $8.0 million, an increase of 10.7% from the prior quarter and 11.6% relative to figures one year earlier due to expanded commercial insurance sales as well as the continued firming of insurance rates. Wealth management income totaled $6.9 million in the second quarter, including income from BancTrust of approximately $1.1 million. Wealth management income increased 0.9% from the prior quarter and 20.4% from levels one year earlier.

During the second quarter, other income decreased $954 thousand relative to the prior quarter due primarily to increased write-off of the FDIC indemnification asset resulting from the re-estimation of cash flows and loan payoffs.

Noninterest Expense

• Achieved additional merger-related efficiencies

• Operating expenses remain well-controlled

Noninterest expense in the second quarter totaled $107.2 million and included expenses of $11.4 million reflecting the first full quarter of operations following the BancTrust merger as well as non-routine litigation expense of $4.0 million related to a previously announced proposed settlement concerning Trustmark's overdraft fees for insufficient funds on debit card purchases and ATM withdrawals. Salaries and employee benefits expense totaled $55.4 million in the second quarter, including BancTrust-related expense of $5.7 million. Excluding BancTrust-related expense, salaries and employee benefits expense totaled $49.7 million in the second quarter of 2013, up $1.0 million, or 2.1%, relative to comparable figures in the prior quarter.

Trustmark continued realignment of its branch network to enhance productivity and efficiency. As previously announced, two of Trustmark's Houston offices were consolidated into a new administrative office on April 1. In addition, five overlapping offices in the Florida Panhandle were consolidated in May as a result of the BancTrust merger. Trustmark is committed to investments to support profitable revenue growth as well as reengineering and efficiency opportunities to enhance shareholder value.

Trustmark anticipates completing its previously announced plans to purchase two branch offices and assume selected deposit accounts of approximately $11.7 million from SOUTHBank, F.S.B. in the Oxford, Mississippi market at the close of business on Friday, July 26, 2013.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, July 24, 2013, 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) 317-6789, 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 Thursday, August 8, 2013, in archived format at the same web address or by calling (877) 344-7529, passcode 10008303.

Trustmark Corporation is a financial services company providing banking and financial solutions through approximately 215 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, 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 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 from the BancTrust merger as well as the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect, 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.