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Trustmark Corporation Announces Third Quarter 2019 Financial Results

October 22, 2019 4:30 PM

Loan growth and disciplined expense management contribute to performance

JACKSON, Miss.--(BUSINESS WIRE)-- Trustmark Corporation (NASDAQ: TRMK) reported net income of $41.0 million in the third quarter of 2019, representing diluted earnings per share of $0.64. Diluted earnings per share decreased 1.5% linked-quarter and increased 18.5% compared to the same quarter in the prior year. This level of earnings resulted in a return on average tangible equity of 13.31% and a return on average assets of 1.21%. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable December 15, 2019, to shareholders of record on December 1, 2019.

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Printer friendly version of earnings release with consolidated financial statements and notes: https://www.businesswire.com/news/home/52115206/en

Third Quarter Highlights

Gerard R. Host, President and CEO, stated, “We are pleased to report solid financial results for the third quarter, reflecting Trustmark’s proven ability to successfully perform in the face of a challenging interest rate environment. Our third-quarter results were driven by continued loan growth and disciplined expense management. Trustmark also continued evaluating opportunities to better align delivery channels with customer preferences and deploy resources in higher growth markets. With a team of dedicated associates, a history of consistent performance, and a focus on our strategic initiatives, Trustmark is well positioned to continue meeting the needs of our customers and creating long-term value for shareholders.”

Balance Sheet Management

Loans held for investment totaled $9.2 billion at September 30, 2019, reflecting an increase of 1.2% linked-quarter and 5.4% from the prior year. The growth was driven primarily by commercial real estate and construction and development loans. Acquired loans totaled $81.0 million at September 30, 2019, down $6.9 million from the prior quarter. Collectively, loans held for investment and acquired loans totaled $9.3 billion at the end of the third quarter of 2019, up $100.0 million, or 1.1%, from the prior quarter and $425.0 million, or 4.8%, year-over-year.

Deposits totaled $11.3 billion at September 30, 2019, down $312.4 million from the prior quarter and up $297.3 million year-over-year. The linked-quarter decline is primarily attributable to a seasonal decline in public funds. The deposit mix shifted favorably during the third quarter as noninterest-bearing deposits increased 5.3% linked-quarter and 10.0% year-over-year to total $3.1 billion, representing 27.2% of total deposits. Interest-bearing deposit costs totaled 0.96% in the third quarter, a decrease of 3 basis points linked-quarter. Trustmark continues to maintain an attractive, low-cost deposit base with approximately 57% of deposit balances in checking accounts.

Trustmark’s capital position remained solid, reflecting the consistent profitability of its diversified financial services businesses. During the third quarter, Trustmark repurchased $4.5 million, or approximately 139 thousand of its common shares in open market transactions. At September 30, 2019, Trustmark had $82.5 million in remaining authority under its existing stock repurchase program, which expires March 31, 2020. At September 30, 2019, Trustmark’s tangible equity to tangible assets ratio was 9.53%, while the total risk-based capital ratio was 13.15%.

Credit Quality

Nonperforming loans totaled $59.0 million at September 30, 2019, up $6.1 million from the prior quarter and down $8.8 million year-over-year. Other real estate totaled $32.0 million, up $731 thousand from the prior quarter and down $4.5 million from the same period one year earlier. Collectively, nonperforming assets totaled $91.0 million, reflecting a linked-quarter increase of 8.2% and year-over-year decrease of 12.8%.

Allocation of Trustmark's $83.2 million allowance for loan losses represented 0.98% of commercial loans and 0.61% of consumer and home mortgage loans, resulting in an allowance to total loans held for investment of 0.90% at September 30, 2019, representing a level management considers commensurate with the inherent risk in the loan portfolio.

Unless otherwise noted, all of the above credit quality metrics exclude acquired loans.

Revenue Generation

Net interest income (FTE) in the third quarter totaled $111.7 million, resulting in a net interest margin of 3.66%, up 2 basis points from the prior quarter. Relative to the prior quarter, net interest income (FTE) increased $743 thousand, reflecting a $93 thousand increase in interest income and a $650 thousand decrease in interest expense. During the third quarter of 2019, the yield on acquired loans totaled 11.08% and included $1.1 million in recoveries from the settlement of debt, which represented approximately 5.09% of the annualized total acquired loan yield. Excluding acquired loans, the net interest margin totaled 3.61% for the third quarter of 2019, up 1 basis point from the prior quarter as a decline in the yield on the loans held for investment and held for sale portfolio was offset by runoff of maturing investment securities, decline in other earning assets, favorable funding mix, and lower cost of interest-bearing deposits.

Noninterest income in the third quarter totaled $48.3 million, a decrease of $1.3 million from the prior quarter and an increase of $1.2 million when compared to the same period in the prior year. Mortgage loan production in the third quarter totaled $566.2 million, up 36.7% from the prior quarter and 42.4% year-over-year. Gain on sales of loans, net totaled $8.5 million in the third quarter, up $2.9 million from the second quarter. This increase was more than offset by a $3.7 million increase in negative net mortgage hedge ineffectiveness. Mortgage banking revenue totaled $8.2 million in the third quarter.

Insurance revenue totaled $11.1 million in the third quarter, unchanged from the prior quarter and up 2.9% year-over-year due to broad based growth in commissions. Wealth management revenue in the third quarter totaled $7.7 million, unchanged from the second quarter as increases in brokerage and investment services were offset by a decline in trust management fees. Bank card and other fees increased 4.3% from the prior quarter and 11.9% year-over-year primarily due to higher customer derivative revenue. Service charges on deposit accounts increased 6.6% from the prior quarter and remained flat year-over-year.

Noninterest Expense

Salaries and employee benefits increased $546 thousand from the prior quarter to total $62.5 million, primarily due to higher mortgage commissions as a result of increased production. Services and fees rose $829 thousand linked-quarter reflecting continued software investments designed to improve efficiency and customer experience as well as an increase in professional fees. Other real estate expense, net increased $399 thousand linked-quarter while other expense declined $1.0 million linked-quarter to total $10.8 million.

Included in other expense in the third quarter is a recovery of $1.6 million in litigation related expenses incurred in prior periods. Other expense also reflects contributions totaling $1.1 million related to Trustmark’s participation in The Children’s Promise Act, which provides a dollar-for-dollar Mississippi state tax credit to individuals and businesses for donations to eligible charitable organizations. This tax benefit is reflected in Trustmark’s effective tax rate of 12.8% in the third quarter.

Trustmark continues to evaluate delivery channels across its footprint to reflect changing customer preferences and reallocate resources to markets with attractive growth opportunities. Trustmark remains committed to providing the highest quality service in its legacy markets while seeking to further establish a presence in higher growth markets. In the third quarter of 2019, Trustmark closed three offices and opened one office; year-to-date, Trustmark closed five offices and opened two offices.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, October 23, 2019 at 8:30 a.m. Central Time to discuss the Corporation’s financial results. Interested parties may listen to the conference call by dialing (877) 317-3051 or by clicking on the link provided under the Investor Relations section of our website at www.trustmark.com. A replay of the conference call will also be available through Wednesday, November 6, 2019, in archived format at the same web address or by calling (877) 344-7529, passcode 10135486.

Trustmark is a financial services company providing banking and financial solutions through 193 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 potential market impacts of efforts by the Board of Governors of the Federal Reserve System (FRB) to reduce the size of its balance sheet, conditions in the housing and real estate markets in the regions in which Trustmark operates and the extent and duration of the current volatility in the credit and financial markets as well as crude oil prices, changes in our ability to measure the fair value of assets in our portfolio, material changes in the level and/or volatility of market interest rates, the performance and demand for the products and services we offer, including the level and timing of withdrawals from our deposit accounts, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, our ability to attract noninterest-bearing deposits and other low-cost funds, competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, economic conditions, including the potential impact of issues relating to the European financial system and monetary and other governmental actions designed to address credit, securities, and/or commodity 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, greater than expected costs or difficulties related to the integration of acquisitions or new products and lines of business, cyber-attacks and other breaches which could affect our information system security, natural disasters, environmental disasters, acts of war or terrorism, and other risks described in our filings with the Securities and Exchange Commission.

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

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
September 30, 2019
($ in thousands)
(unaudited)
Linked Quarter Year over Year
QUARTERLY AVERAGE BALANCES 9/30/2019 6/30/2019 9/30/2018 $ Change % Change $ Change % Change
Securities AFS-taxable

$ 1,570,803

$ 1,661,464

$ 1,937,807

$ (90,661)

-5.5%

$ (367,004)

-18.9%

Securities AFS-nontaxable

25,096

31,474

41,889

(6,378)

-20.3%

(16,793)

-40.1%

Securities HTM-taxable

778,098

821,357

933,294

(43,259)

-5.3%

(155,196)

-16.6%

Securities HTM-nontaxable

26,088

27,035

29,183

(947)

-3.5%

(3,095)

-10.6%

Total securities

2,400,085

2,541,330

2,942,173

(141,245)

-5.6%

(542,088)

-18.4%

Loans (including loans held for sale)

9,436,287

9,260,028

8,907,588

176,259

1.9%

528,699

5.9%

Acquired loans

82,641

91,217

147,811

(8,576)

-9.4%

(65,170)

-44.1%

Fed funds sold and rev repos

3,662

34,057

477

(30,395)

-89.2%

3,185

n/m

Other earning assets

176,163

316,604

189,471

(140,441)

-44.4%

(13,308)

-7.0%

Total earning assets

12,098,838

12,243,236

12,187,520

(144,398)

-1.2%

(88,682)

-0.7%

Allowance for loan losses

(83,756)

(81,996)

(86,496)

(1,760)

-2.1%

2,740

3.2%

Other assets

1,447,977

1,467,462

1,366,276

(19,485)

-1.3%

81,701

6.0%

Total assets

$ 13,463,059

$ 13,628,702

$ 13,467,300

$ (165,643)

-1.2%

$ (4,241)

0.0%

Interest-bearing demand deposits

$ 3,085,758

$ 3,048,876

$ 2,602,658

$ 36,882

1.2%

$ 483,100

18.6%

Savings deposits

3,568,403

3,801,187

3,722,533

(232,784)

-6.1%

(154,130)

-4.1%

Time deposits

1,753,083

1,840,065

1,851,866

(86,982)

-4.7%

(98,783)

-5.3%

Total interest-bearing deposits

8,407,244

8,690,128

8,177,057

(282,884)

-3.3%

230,187

2.8%

Fed funds purchased and repos

142,064

51,264

347,489

90,800

n/m

(205,425)

-59.1%

Other borrowings

78,404

81,352

187,196

(2,948)

-3.6%

(108,792)

-58.1%

Junior subordinated debt securities

61,856

61,856

61,856

—

0.0%

—

0.0%

Total interest-bearing liabilities

8,689,568

8,884,600

8,773,598

(195,032)

-2.2%

(84,030)

-1.0%

Noninterest-bearing deposits

2,932,754

2,898,266

2,894,061

34,488

1.2%

38,693

1.3%

Other liabilities

206,091

240,091

202,053

(34,000)

-14.2%

4,038

2.0%

Total liabilities

11,828,413

12,022,957

11,869,712

(194,544)

-1.6%

(41,299)

-0.3%

Shareholders' equity

1,634,646

1,605,745

1,597,588

28,901

1.8%

37,058

2.3%

Total liabilities and equity

$ 13,463,059

$ 13,628,702

$ 13,467,300

$ (165,643)

-1.2%

$ (4,241)

0.0%

n/m - percentage changes greater than +/- 100% are considered not meaningful
See Notes to Consolidated Financials
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
September 30, 2019
($ in thousands)
(unaudited)
Linked Quarter Year over Year
PERIOD END BALANCES 9/30/2019 6/30/2019 9/30/2018 $ Change % Change $ Change % Change
Cash and due from banks

$

486,263

$

404,413

$

432,471

$

81,850

20.2

%

$

53,792

12.4

%

Fed funds sold and rev repos

—

75,499

1,000

(75,499

)

-100.0

%

(1,000

)

-100.0

%

Securities available for sale

1,553,705

1,643,725

1,864,633

(90,020

)

-5.5

%

(310,928

)

-16.7

%

Securities held to maturity

785,422

825,536

943,883

(40,114

)

-4.9

%

(158,461

)

-16.8

%

Loans held for sale (LHFS)

292,800

240,380

182,664

52,420

21.8

%

110,136

60.3

%

Loans held for investment (LHFI)

9,223,668

9,116,759

8,747,030

106,909

1.2

%

476,638

5.4

%

Allowance for loan losses, LHFI

(83,226

)

(80,399

)

(88,874

)

(2,827

)

-3.5

%

5,648

6.4

%

Net LHFI

9,140,442

9,036,360

8,658,156

104,082

1.2

%

482,286

5.6

%

Acquired loans

81,004

87,884

132,615

(6,880

)

-7.8

%

(51,611

)

-38.9

%

Allowance for loan losses, acquired loans

(1,249

)

(1,398

)

(1,714

)

149

10.7

%

465

27.1

%

Net acquired loans

79,755

86,486

130,901

(6,731

)

-7.8

%

(51,146

)

-39.1

%

Net LHFI and acquired loans

9,220,197

9,122,846

8,789,057

97,351

1.1

%

431,140

4.9

%

Premises and equipment, net

188,423

189,820

178,739

(1,397

)

-0.7

%

9,684

5.4

%

Mortgage servicing rights

73,016

79,283

101,374

(6,267

)

-7.9

%

(28,358

)

-28.0

%

Goodwill

379,627

379,627

379,627

—

0.0

%

—

0.0

%

Identifiable intangible assets

8,345

9,101

12,391

(756

)

-8.3

%

(4,046

)

-32.7

%

Other real estate

31,974

31,243

36,475

731

2.3

%

(4,501

)

-12.3

%

Operating lease right-of-use assets

33,180

32,762

—

418

1.3

%

33,180

n/m

Other assets

531,834

514,723

517,498

17,111

3.3

%

14,336

2.8

%

Total assets

$

13,584,786

$

13,548,958

$

13,439,812

$

35,828

0.3

%

$

144,974

1.1

%

Deposits:
Noninterest-bearing

$

3,064,127

$

2,909,141

$

2,786,539

$

154,986

5.3

%

$

277,588

10.0

%

Interest-bearing

8,190,056

8,657,488

8,170,371

(467,432

)

-5.4

%

19,685

0.2

%

Total deposits

11,254,183

11,566,629

10,956,910

(312,446

)

-2.7

%

297,273

2.7

%

Fed funds purchased and repos

376,712

51,800

486,865

324,912

n/m

(110,153

)

-22.6

%

Other borrowings

76,685

79,012

190,919

(2,327

)

-2.9

%

(114,234

)

-59.8

%

Junior subordinated debt securities

61,856

61,856

61,856

—

0.0

%

—

0.0

%

Operating lease liabilities

34,319

33,878

—

441

1.3

%

34,319

n/m

Other liabilities

135,669

137,233

143,658

(1,564

)

-1.1

%

(7,989

)

-5.6

%

Total liabilities

11,939,424

11,930,408

11,840,208

9,016

0.1

%

99,216

0.8

%

Common stock

13,390

13,418

14,089

(28

)

-0.2

%

(699

)

-5.0

%

Capital surplus

257,370

260,619

362,868

(3,249

)

-1.2

%

(105,498

)

-29.1

%

Retained earnings

1,395,460

1,369,329

1,302,593

26,131

1.9

%

92,867

7.1

%

Accum other comprehensive loss, net of tax

(20,858

)

(24,816

)

(79,946

)

3,958

15.9

%

59,088

73.9

%

Total shareholders' equity

1,645,362

1,618,550

1,599,604

26,812

1.7

%

45,758

2.9

%

Total liabilities and equity

$

13,584,786

$

13,548,958

$

13,439,812

$

35,828

0.3

%

$

144,974

1.1

%

n/m - percentage changes greater than +/- 100% are considered not meaningful
See Notes to Consolidated Financials
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
September 30, 2019
($ in thousands except per share data)
(unaudited)
Quarter Ended Linked Quarter Year over Year
INCOME STATEMENTS 9/30/2019 6/30/2019 9/30/2018 $ Change % Change $ Change % Change
Interest and fees on LHFS & LHFI-FTE

$

116,432

$

114,873

$

105,993

$

1,559

1.4

%

$

10,439

9.8

%

Interest and fees on acquired loans

2,309

2,010

4,033

299

14.9

%

(1,724

)

-42.7

%

Interest on securities-taxable

13,184

13,916

16,186

(732

)

-5.3

%

(3,002

)

-18.5

%

Interest on securities-tax exempt-FTE

485

551

656

(66

)

-12.0

%

(171

)

-26.1

%

Interest on fed funds sold and rev repos

23

214

3

(191

)

-89.3

%

20

n/m

Other interest income

1,044

1,820

1,050

(776

)

-42.6

%

(6

)

-0.6

%

Total interest income-FTE

133,477

133,384

127,921

93

0.1

%

5,556

4.3

%

Interest on deposits

20,385

21,500

14,972

(1,115

)

-5.2

%

5,413

36.2

%

Interest on fed funds pch and repos

547

81

1,348

466

n/m

(801

)

-59.4

%

Other interest expense

830

831

1,467

(1

)

-0.1

%

(637

)

-43.4

%

Total interest expense

21,762

22,412

17,787

(650

)

-2.9

%

3,975

22.3

%

Net interest income-FTE

111,715

110,972

110,134

743

0.7

%

1,581

1.4

%

Provision for loan losses, LHFI

3,039

2,486

8,673

553

22.2

%

(5,634

)

-65.0

%

Provision for loan losses, acquired loans

(140

)

106

(467

)

(246

)

n/m

327

70.0

%

Net interest income after provision-FTE

108,816

108,380

101,928

436

0.4

%

6,888

6.8

%

Service charges on deposit accounts

11,065

10,379

11,075

686

6.6

%

(10

)

-0.1

%

Bank card and other fees

8,349

8,004

7,459

345

4.3

%

890

11.9

%

Mortgage banking, net

8,171

10,295

8,647

(2,124

)

-20.6

%

(476

)

-5.5

%

Insurance commissions

11,072

11,089

10,765

(17

)

-0.2

%

307

2.9

%

Wealth management

7,691

7,742

7,789

(51

)

-0.7

%

(98

)

-1.3

%

Other, net

1,989

2,130

1,358

(141

)

-6.6

%

631

46.5

%

Nonint inc-excl sec gains (losses), net

48,337

49,639

47,093

(1,302

)

-2.6

%

1,244

2.6

%

Security gains (losses), net

—

—

—

—

n/m

—

n/m

Total noninterest income

48,337

49,639

47,093

(1,302

)

-2.6

%

1,244

2.6

%

Salaries and employee benefits

62,495

61,949

60,847

546

0.9

%

1,648

2.7

%

Services and fees

18,838

18,009

16,404

829

4.6

%

2,434

14.8

%

Net occupancy-premises

6,831

6,403

6,910

428

6.7

%

(79

)

-1.1

%

Equipment expense

5,971

5,958

6,200

13

0.2

%

(229

)

-3.7

%

Other real estate expense, net

531

132

1,168

399

n/m

(637

)

-54.5

%

FDIC assessment expense

1,400

1,836

1,999

(436

)

-23.7

%

(599

)

-30.0

%

Other expense

10,787

11,814

11,695

(1,027

)

-8.7

%

(908

)

-7.8

%

Total noninterest expense

106,853

106,101

105,223

752

0.7

%

1,630

1.5

%

Income before income taxes and tax eq adj

50,300

51,918

43,798

(1,618

)

-3.1

%

6,502

14.8

%

Tax equivalent adjustment

3,249

3,248

3,151

1

0.0

%

98

3.1

%

Income before income taxes

47,051

48,670

40,647

(1,619

)

-3.3

%

6,404

15.8

%

Income taxes

6,016

6,530

4,394

(514

)

-7.9

%

1,622

36.9

%

Net income

$

41,035

$

42,140

$

36,253

$

(1,105

)

-2.6

%

$

4,782

13.2

%

Per share data
Earnings per share - basic

$

0.64

$

0.65

$

0.54

$

(0.01

)

-1.5

%

$

0.10

18.5

%

Earnings per share - diluted

$

0.64

$

0.65

$

0.54

$

(0.01

)

-1.5

%

$

0.10

18.5

%

Dividends per share

$

0.23

$

0.23

$

0.23

—

0.0

%

—

0.0

%

Weighted average shares outstanding
Basic

64,358,540

64,677,889

67,621,345

Diluted

64,514,605

64,815,029

67,796,346

Period end shares outstanding

64,262,779

64,398,846

67,621,369

n/m - percentage changes greater than +/- 100% are considered not meaningful
See Notes to Consolidated Financials
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION

Net interest income after provision-FTE

($ in thousands)
(unaudited)
Quarter Ended Linked Quarter Year over Year
NONPERFORMING ASSETS (1) 9/30/2019 6/30/2019 9/30/2018 $ Change % Change $ Change % Change
Nonaccrual loans
Alabama

$

2,936

$

2,327

$

3,953

$

609

26.2

%

$

(1,017

)

-25.7

%

Florida

311

330

1,180

(19

)

-5.8

%

(869

)

-73.6

%

Mississippi (2)

43,895

39,373

41,351

4,522

11.5

%

2,544

6.2

%

Tennessee (3)

10,193

8,455

13,195

1,738

20.6

%

(3,002

)

-22.8

%

Texas

1,695

2,403

8,157

(708

)

-29.5

%

(6,462

)

-79.2

%

Total nonaccrual loans

59,030

52,888

67,836

6,142

11.6

%

(8,806

)

-13.0

%

Other real estate
Alabama

6,501

6,451

7,526

50

0.8

%

(1,025

)

-13.6

%

Florida

6,983

7,826

8,931

(843

)

-10.8

%

(1,948

)

-21.8

%

Mississippi (2)

17,646

15,511

18,191

2,135

13.8

%

(545

)

-3.0

%

Tennessee (3)

844

815

1,083

29

3.6

%

(239

)

-22.1

%

Texas

—

640

744

(640

)

-100.0

%

(744

)

-100.0

%

Total other real estate

31,974

31,243

36,475

731

2.3

%

(4,501

)

-12.3

%

Total nonperforming assets

$

91,004

$

84,131

$

104,311

$

6,873

8.2

%

$

(13,307

)

-12.8

%

LOANS PAST DUE OVER 90 DAYS (1)
LHFI

$

878

$

1,245

$

726

$

(367

)

-29.5

%

$

152

20.9

%

LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase)

$

36,445

$

38,355

$

34,115

$

(1,910

)

-5.0

%

$

2,330

6.8

%

Quarter Ended Linked Quarter Year over Year
ALLOWANCE FOR LOAN LOSSES (1) 9/30/2019 6/30/2019 9/30/2018 $ Change % Change $ Change % Change
Beginning Balance

$

80,399

$

79,005

$

83,566

$

1,394

1.8

%

$

(3,167

)

-3.8

%

Transfers (4)

—

—

772

—

n/m

(772

)

-100.0

%

Provision for loan losses

3,039

2,486

8,673

553

22.2

%

(5,634

)

-65.0

%

Charge-offs

(2,892

)

(2,937

)

(7,017

)

45

1.5

%

4,125

58.8

%

Recoveries

2,680

1,845

2,880

835

45.3

%

(200

)

-6.9

%

Net (charge-offs) recoveries

(212

)

(1,092

)

(4,137

)

880

80.6

%

3,925

-94.9

%

Ending Balance

$

83,226

$

80,399

$

88,874

$

2,827

3.5

%

$

(5,648

)

-6.4

%

PROVISION FOR LOAN LOSSES (1)
Alabama

$

561

$

1,187

$

593

$

(626

)

-52.7

%

$

(32

)

-5.4

%

Florida

(154

)

48

(431

)

(202

)

n/m

277

64.3

%

Mississippi (2)

1,528

1,970

(1,630

)

(442

)

-22.4

%

3,158

n/m

Tennessee (3)

2,175

514

8,100

1,661

n/m

(5,925

)

-73.1

%

Texas

(1,071

)

(1,233

)

2,041

162

13.1

%

(3,112

)

n/m

Total provision for loan losses

$

3,039

$

2,486

$

8,673

$

553

22.2

%

$

(5,634

)

-65.0

%

NET CHARGE-OFFS (RECOVERIES) (1)
Alabama

$

329

$

278

$

198

$

51

18.3

%

$

131

66.2

%

Florida

(136

)

(130

)

(586

)

(6

)

-4.6

%

450

76.8

%

Mississippi (2)

(391

)

907

4,677

(1,298

)

n/m

(5,068

)

n/m

Tennessee (3)

483

44

(96

)

439

n/m

579

n/m

Texas

(73

)

(7

)

(56

)

(66

)

n/m

(17

)

-30.4

%

Total net charge-offs (recoveries)

$

212

$

1,092

$

4,137

$

(880

)

-80.6

%

$

(3,925

)

-94.9

%

(1)

Excludes acquired loans.

(2)

Mississippi includes Central and Southern Mississippi Regions.

(3)

Tennessee includes Memphis, Tennessee and Northern Mississippi Regions.

(4)

The allowance for loan losses balance related to the remaining loans acquired in the Heritage acquisition and the Reliance merger, which were transferred from acquired impaired loans to LHFI during the third quarter of 2018.
n/m - percentage changes greater than +/- 100% are considered not meaningful
See Notes to Consolidated Financials
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
September 30, 2019
($ in thousands)
(unaudited)
Quarter Ended Nine Months Ended
AVERAGE BALANCES 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018 9/30/2019 9/30/2018
Securities AFS-taxable

$

1,570,803

$

1,661,464

$

1,753,268

$

1,847,421

$

1,937,807

$

1,661,177

$

2,038,492

Securities AFS-nontaxable

25,096

31,474

40,159

38,821

41,889

32,188

49,906

Securities HTM-taxable

778,098

821,357

866,665

893,186

933,294

821,716

970,263

Securities HTM-nontaxable

26,088

27,035

28,710

29,143

29,183

27,268

30,738

Total securities

2,400,085

2,541,330

2,688,802

2,808,571

2,942,173

2,542,349

3,089,399

Loans (including loans held for sale)

9,436,287

9,260,028

9,038,204

8,933,501

8,907,588

9,246,298

8,751,665

Acquired loans

82,641

91,217

104,316

127,747

147,811

92,645

197,352

Fed funds sold and rev repos

3,662

34,057

277

843

477

12,678

673

Other earning assets

176,163

316,604

243,493

200,282

189,471

245,173

196,470

Total earning assets

12,098,838

12,243,236

12,075,092

12,070,944

12,187,520

12,139,143

12,235,559

Allowance for loan losses

(83,756

)

(81,996

)

(82,227

)

(85,842

)

(86,496

)

(82,665

)

(85,054

)

Other assets

1,447,977

1,467,462

1,447,611

1,362,831

1,366,276

1,454,350

1,364,959

Total assets

$

13,463,059

$

13,628,702

$

13,440,476

$

13,347,933

$

13,467,300

$

13,510,828

$

13,515,464

Interest-bearing demand deposits

$

3,085,758

$

3,048,876

$

2,899,467

$

2,722,841

$

2,602,658

$

3,012,049

$

2,483,014

Savings deposits

3,568,403

3,801,187

3,786,835

3,565,682

3,722,533

3,718,008

3,773,324

Time deposits

1,753,083

1,840,065

1,881,556

1,892,983

1,851,866

1,824,431

1,800,167

Total interest-bearing deposits

8,407,244

8,690,128

8,567,858

8,181,506

8,177,057

8,554,488

8,056,505

Fed funds purchased and repos

142,064

51,264

84,352

340,094

347,489

92,771

326,129

Other borrowings

78,404

81,352

90,804

90,252

187,196

83,475

394,333

Junior subordinated debt securities

61,856

61,856

61,856

61,856

61,856

61,856

61,856

Total interest-bearing liabilities

8,689,568

8,884,600

8,804,870

8,673,708

8,773,598

8,792,590

8,838,823

Noninterest-bearing deposits

2,932,754

2,898,266

2,824,220

2,862,161

2,894,061

2,885,478

2,902,100

Other liabilities

206,091

240,091

221,199

216,932

202,053

222,404

190,446

Total liabilities

11,828,413

12,022,957

11,850,289

11,752,801

11,869,712

11,900,472

11,931,369

Shareholders' equity

1,634,646

1,605,745

1,590,187

1,595,132

1,597,588

1,610,356

1,584,095

Total liabilities and equity

$

13,463,059

$

13,628,702

$

13,440,476

$

13,347,933

$

13,467,300

$

13,510,828

$

13,515,464

See Notes to Consolidated Financials
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
September 30, 2019
($ in thousands)
(unaudited)
PERIOD END BALANCES 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Cash and due from banks

$

486,263

$

404,413

$

454,047

$

349,561

$

432,471

Fed funds sold and rev repos

—

75,499

—

830

1,000

Securities available for sale

1,553,705

1,643,725

1,723,445

1,811,813

1,864,633

Securities held to maturity

785,422

825,536

884,319

909,643

943,883

Loans held for sale (LHFS)

292,800

240,380

172,683

153,799

182,664

Loans held for investment (LHFI)

9,223,668

9,116,759

8,995,014

8,835,868

8,747,030

Allowance for loan losses, LHFI

(83,226

)

(80,399

)

(79,005

)

(79,290

)

(88,874

)

Net LHFI

9,140,442

9,036,360

8,916,009

8,756,578

8,658,156

Acquired loans

81,004

87,884

93,201

106,932

132,615

Allowance for loan losses, acquired loans

(1,249

)

(1,398

)

(1,297

)

(1,231

)

(1,714

)

Net acquired loans

79,755

86,486

91,904

105,701

130,901

Net LHFI and acquired loans

9,220,197

9,122,846

9,007,913

8,862,279

8,789,057

Premises and equipment, net

188,423

189,820

189,743

178,668

178,739

Mortgage servicing rights

73,016

79,283

86,842

95,596

101,374

Goodwill

379,627

379,627

379,627

379,627

379,627

Identifiable intangible assets

8,345

9,101

10,092

11,112

12,391

Other real estate

31,974

31,243

32,139

34,668

36,475

Operating lease right-of-use assets

33,180

32,762

33,861

—

—

Other assets

531,834

514,723

503,306

498,864

517,498

Total assets

$

13,584,786

$

13,548,958

$

13,478,017

$

13,286,460

$

13,439,812

Deposits:
Noninterest-bearing

$

3,064,127

$

2,909,141

$

2,867,778

$

2,937,594

$

2,786,539

Interest-bearing

8,190,056

8,657,488

8,667,037

8,426,817

8,170,371

Total deposits

11,254,183

11,566,629

11,534,815

11,364,411

10,956,910

Fed funds purchased and repos

376,712

51,800

46,867

50,471

486,865

Other borrowings

76,685

79,012

83,265

79,885

190,919

Junior subordinated debt securities

61,856

61,856

61,856

61,856

61,856

Operating lease liabilities

34,319

33,878

34,921

—

—

Other liabilities

135,669

137,233

129,265

138,384

143,658

Total liabilities

11,939,424

11,930,408

11,890,989

11,695,007

11,840,208

Common stock

13,390

13,418

13,499

13,717

14,089

Capital surplus

257,370

260,619

272,268

309,545

362,868

Retained earnings

1,395,460

1,369,329

1,342,176

1,323,870

1,302,593

Accum other comprehensive loss, net of tax

(20,858

)

(24,816

)

(40,915

)

(55,679

)

(79,946

)

Total shareholders' equity

1,645,362

1,618,550

1,587,028

1,591,453

1,599,604

Total liabilities and equity

$

13,584,786

$

13,548,958

$

13,478,017

$

13,286,460

$

13,439,812

See Notes to Consolidated Financials
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
September 30, 2019
($ in thousands except per share data)
(unaudited)
Quarter Ended Nine Months Ended
INCOME STATEMENTS 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018 9/30/2019 9/30/2018
Interest and fees on LHFS & LHFI-FTE

$

116,432

$

114,873

$

109,890

$

107,709

$

105,993

$

341,195

$

300,466

Interest and fees on acquired loans

2,309

2,010

1,916

3,183

4,033

6,235

13,932

Interest on securities-taxable

13,184

13,916

14,665

15,496

16,186

41,765

50,586

Interest on securities-tax exempt-FTE

485

551

646

617

656

1,682

2,213

Interest on fed funds sold and rev repos

23

214

2

4

3

239

10

Other interest income

1,044

1,820

1,603

1,158

1,050

4,467

3,038

Total interest income-FTE

133,477

133,384

128,722

128,167

127,921

395,583

370,245

Interest on deposits

20,385

21,500

19,570

17,334

14,972

61,455

36,602

Interest on fed funds pch and repos

547

81

288

1,528

1,348

916

3,260

Other interest expense

830

831

825

894

1,467

2,486

6,574

Total interest expense

21,762

22,412

20,683

19,756

17,787

64,857

46,436

Net interest income-FTE

111,715

110,972

108,039

108,411

110,134

330,726

323,809

Provision for loan losses, LHFI

3,039

2,486

1,611

2,192

8,673

7,136

15,801

Provision for loan losses, acquired loans

(140

)

106

78

(247

)

(467

)

44

(758

)

Net interest income after provision-FTE

108,816

108,380

106,350

106,466

101,928

323,546

308,766

Service charges on deposit accounts

11,065

10,379

10,265

11,123

11,075

31,709

32,579

Bank card and other fees

8,349

8,004

7,191

7,750

7,459

23,544

21,155

Mortgage banking, net

8,171

10,295

3,442

5,716

8,647

21,908

28,958

Insurance commissions

11,072

11,089

10,871

9,562

10,765

33,032

30,919

Wealth management

7,691

7,742

7,483

7,504

7,789

22,916

22,834

Other, net

1,989

2,130

2,239

1,904

1,358

6,358

4,832

Nonint inc-excl sec gains (losses), net

48,337

49,639

41,491

43,559

47,093

139,467

141,277

Security gains (losses), net

—

—

—

—

—

—

—

Total noninterest income

48,337

49,639

41,491

43,559

47,093

139,467

141,277

Salaries and employee benefits

62,495

61,949

60,954

58,736

60,847

185,398

179,297

Services and fees

18,838

18,009

16,968

17,910

16,404

53,815

48,472

Net occupancy-premises

6,831

6,403

6,454

6,741

6,910

19,688

19,962

Equipment expense

5,971

5,958

5,924

6,329

6,200

17,853

18,501

Other real estate expense, net

531

132

1,752

61

1,168

2,415

1,941

FDIC assessment expense

1,400

1,836

1,758

1,897

1,999

4,994

7,532

Other expense

10,787

11,814

12,211

12,253

11,695

34,812

35,783

Total noninterest expense

106,853

106,101

106,021

103,927

105,223

318,975

311,488

Income before income taxes and tax eq adj

50,300

51,918

41,820

46,098

43,798

144,038

138,555

Tax equivalent adjustment

3,249

3,248

3,231

3,231

3,151

9,728

9,569

Income before income taxes

47,051

48,670

38,589

42,867

40,647

134,310

128,986

Income taxes

6,016

6,530

5,250

6,179

4,394

17,796

16,090

Net income

$

41,035

$

42,140

$

33,339

$

36,688

$

36,253

$

116,514

$

112,896

Per share data
Earnings per share - basic

$

0.64

$

0.65

$

0.51

$

0.55

$

0.54

$

1.80

$

1.67

Earnings per share - diluted

$

0.64

$

0.65

$

0.51

$

0.55

$

0.54

$

1.80

$

1.67

Dividends per share

$

0.23

$

0.23

$

0.23

$

0.23

$

0.23

$

0.69

$

0.69

Weighted average shares outstanding
Basic

64,358,540

64,677,889

65,239,470

66,839,504

67,621,345

64,755,406

67,728,871

Diluted

64,514,605

64,815,029

65,378,500

67,028,978

67,796,346

64,889,916

67,875,925

Period end shares outstanding

64,262,779

64,398,846

64,789,943

65,834,395

67,621,369

64,262,779

67,621,369

See Notes to Consolidated Financials
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
September 30, 2019
($ in thousands)
(unaudited)
Quarter Ended
NONPERFORMING ASSETS (1) 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Nonaccrual loans
Alabama

$

2,936

$

2,327

$

2,971

$

3,361

$

3,953

Florida

311

330

408

1,175

1,180

Mississippi (2)

43,895

39,373

41,145

44,331

41,351

Tennessee (3)

10,193

8,455

8,806

8,696

13,195

Texas

1,695

2,403

3,093

4,061

8,157

Total nonaccrual loans

59,030

52,888

56,423

61,624

67,836

Other real estate
Alabama

6,501

6,451

6,878

6,873

7,526

Florida

6,983

7,826

8,120

8,771

8,931

Mississippi (2)

17,646

15,511

15,421

17,255

18,191

Tennessee (3)

844

815

994

1,025

1,083

Texas

—

640

726

744

744

Total other real estate

31,974

31,243

32,139

34,668

36,475

Total nonperforming assets

$

91,004

$

84,131

$

88,562

$

96,292

$

104,311

LOANS PAST DUE OVER 90 DAYS (1)
LHFI

$

878

$

1,245

$

670

$

856

$

726

LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase)

$

36,445

$

38,355

$

40,793

$

37,384

$

34,115

Quarter Ended Nine Months Ended
ALLOWANCE FOR LOAN LOSSES (1) 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018 9/30/2019 9/30/2018
Beginning Balance

$

80,399

$

79,005

$

79,290

$

88,874

$

83,566

$

79,290

$

76,733

Transfers (4)

—

—

—

—

772

—

1,554

Provision for loan losses

3,039

2,486

1,611

2,192

8,673

7,136

15,801

Charge-offs

(2,892

)

(2,937

)

(4,033

)

(16,509

)

(7,017

)

(9,862

)

(12,980

)

Recoveries

2,680

1,845

2,137

4,733

2,880

6,662

7,766

Net (charge-offs) recoveries

(212

)

(1,092

)

(1,896

)

(11,776

)

(4,137

)

(3,200

)

(5,214

)

Ending Balance

$

83,226

$

80,399

$

79,005

$

79,290

$

88,874

$

83,226

$

88,874

PROVISION FOR LOAN LOSSES (1)
Alabama

$

561

$

1,187

$

791

$

(346

)

$

593

$

2,539

$

1,645

Florida

(154

)

48

(595

)

(160

)

(431

)

(701

)

(2,105

)

Mississippi (2)

1,528

1,970

119

(3,594

)

(1,630

)

3,617

3,802

Tennessee (3)

2,175

514

(234

)

3,039

8,100

2,455

7,914

Texas

(1,071

)

(1,233

)

1,530

3,253

2,041

(774

)

4,545

Total provision for loan losses

$

3,039

$

2,486

$

1,611

$

2,192

$

8,673

$

7,136

$

15,801

NET CHARGE-OFFS (RECOVERIES) (1)
Alabama

$

329

$

278

$

15

$

203

$

198

$

622

$

394

Florida

(136

)

(130

)

(227

)

(238

)

(586

)

(493

)

(1,668

)

Mississippi (2)

(391

)

907

2,130

(1,873

)

4,677

2,646

6,649

Tennessee (3)

483

44

50

7,875

(96

)

577

83

Texas

(73

)

(7

)

(72

)

5,809

(56

)

(152

)

(244

)

Total net charge-offs (recoveries)

$

212

$

1,092

$

1,896

$

11,776

$

4,137

$

3,200

$

5,214

(1)

Excludes acquired loans.

(2)

Mississippi includes Central and Southern Mississippi Regions.

(3)

Tennessee includes Memphis, Tennessee and Northern Mississippi Regions.

(4)

The allowance for loan losses balance related to the remaining loans acquired in the Bay Bank merger, which were transferred from acquired impaired loans to LHFI during the second quarter of 2018, and the remaining loans acquired in the Heritage acquisition and the Reliance merger, which were transferred from acquired impaired loans to LHFI during the third quarter of 2018.
See Notes to Consolidated Financials
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
September 30, 2019
(unaudited)
Quarter Ended Nine Months Ended
FINANCIAL RATIOS AND OTHER DATA 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018 9/30/2019 9/30/2018
Return on equity

9.96

%

10.53

%

8.50

%

9.12

%

9.00

%

9.67

%

9.53

%

Return on average tangible equity

13.31

%

14.14

%

11.55

%

12.41

%

12.26

%

13.01

%

13.02

%

Return on assets

1.21

%

1.24

%

1.01

%

1.09

%

1.07

%

1.15

%

1.12

%

Interest margin - Yield - FTE

4.38

%

4.37

%

4.32

%

4.21

%

4.16

%

4.36

%

4.05

%

Interest margin - Cost

0.71

%

0.73

%

0.69

%

0.65

%

0.58

%

0.71

%

0.51

%

Net interest margin - FTE

3.66

%

3.64

%

3.63

%

3.56

%

3.59

%

3.64

%

3.54

%

Efficiency ratio (1)

64.98

%

64.55

%

68.08

%

66.58

%

64.46

%

65.82

%

64.78

%

Full-time equivalent employees

2,835

2,819

2,839

2,856

2,889

CREDIT QUALITY RATIOS (2)
Net charge-offs/average loans

0.01

%

0.05

%

0.09

%

0.52

%

0.18

%

0.05

%

0.08

%

Provision for loan losses/average loans

0.13

%

0.11

%

0.07

%

0.10

%

0.39

%

0.10

%

0.24

%

Nonperforming loans/total loans (incl LHFS)

0.62

%

0.57

%

0.62

%

0.69

%

0.76

%

Nonperforming assets/total loans (incl LHFS)

0.96

%

0.90

%

0.97

%

1.07

%

1.17

%

Nonperforming assets/total loans (incl LHFS) +ORE

0.95

%

0.90

%

0.96

%

1.07

%

1.16

%

ALL/total loans (excl LHFS)

0.90

%

0.88

%

0.88

%

0.90

%

1.02

%

ALL-commercial/total commercial loans

0.98

%

0.96

%

0.96

%

0.99

%

1.13

%

ALL-consumer/total consumer and home mortgage loans

0.61

%

0.60

%

0.57

%

0.57

%

0.63

%

ALL/nonperforming loans

140.99

%

152.02

%

140.02

%

128.67

%

131.01

%

ALL/nonperforming loans (excl specifically reviewed impaired loans)

357.15

%

383.19

%

342.97

%

350.77

%

339.79

%

CAPITAL RATIOS
Total equity/total assets

12.11

%

11.95

%

11.77

%

11.98

%

11.90

%

Tangible equity/tangible assets

9.53

%

9.34

%

9.15

%

9.31

%

9.26

%

Tangible equity/risk-weighted assets

11.50

%

11.39

%

11.35

%

11.11

%

11.31

%

Tier 1 leverage ratio

10.34

%

10.03

%

10.05

%

10.26

%

10.41

%

Common equity tier 1 capital ratio

11.83

%

11.76

%

11.88

%

11.77

%

12.20

%

Tier 1 risk-based capital ratio

12.38

%

12.31

%

12.45

%

12.33

%

12.76

%

Total risk-based capital ratio

13.15

%

13.07

%

13.21

%

13.07

%

13.61

%

STOCK PERFORMANCE
Market value-Close

$

34.11

$

33.25

$

33.63

$

28.43

$

33.65

Book value

$

25.60

$

25.13

$

24.49

$

24.17

$

23.66

Tangible book value

$

19.57

$

19.10

$

18.48

$

18.24

$

17.86

(1)

The efficiency ratio is noninterest expense (excluding amortization of purchased intangibles and other real estate expense, net) to total net interest income (FTE) and noninterest income (excluding security gains (losses), net and amortization of partnership tax credits). Any significant non-routine income and expense items are adjusted accordingly.

(2)

Excludes acquired loans.
See Notes to Consolidated Financials

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

September 30, 2019

($ in thousands)

(unaudited)

Note 1 – Leases

ASU 2016-02, “Leases (Topic 842)” became effective for Trustmark on January 1, 2019. As a result, during the first quarter of 2019, Trustmark recorded operating lease right-of-use assets and operating lease liabilities of $33.9 million and $34.9 million, respectively, in its consolidated balance sheet. In addition, Trustmark recorded finance lease right-of-use assets, net of accumulated depreciation of $11.2 million in premises and equipment, net and finance lease liabilities of $11.2 million in other borrowings. The effect on Trustmark’s consolidated income statement is considered immaterial.

Note 2 - Securities Available for Sale and Held to Maturity

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

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

SECURITIES AVAILABLE FOR SALE

U.S. Government agency obligations

$

24,697

$

26,646

$

28,008

$

30,335

$

32,371

Obligations of states and political subdivisions

35,001

38,698

50,954

50,676

57,264

Mortgage-backed securities

Residential mortgage pass-through securities

Guaranteed by GNMA

63,391

65,716

66,176

67,494

65,847

Issued by FNMA and FHLMC

589,962

624,364

645,958

666,684

684,474

Other residential mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC, or GNMA

705,601

751,371

784,566

811,601

840,073

Commercial mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC, or GNMA

135,053

136,930

147,783

185,023

184,604

Total securities available for sale

$

1,553,705

$

1,643,725

$

1,723,445

$

1,811,813

$

1,864,633

SECURITIES HELD TO MATURITY

U.S. Government agency obligations

$

3,770

$

3,758

$

3,747

$

3,736

$

3,725

Obligations of states and political subdivisions

31,806

32,860

35,352

35,783

42,623

Mortgage-backed securities

Residential mortgage pass-through securities

Guaranteed by GNMA

10,994

11,184

11,710

12,090

12,316

Issued by FNMA and FHLMC

102,048

106,755

111,962

115,133

119,040

Other residential mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC, or GNMA

510,770

536,166

559,690

578,827

600,635

Commercial mortgage-backed securities

Issued or guaranteed by FNMA, FHLMC, or GNMA

126,034

134,813

161,858

164,074

165,544

Total securities held to maturity

$

785,422

$

825,536

$

884,319

$

909,643

$

943,883

At September 30, 2019, the net unamortized, unrealized loss included in accumulated other comprehensive loss in the accompanying balance sheet for securities held to maturity previously transferred from securities available for sale totaled approximately $12.9 million ($9.6 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 97.1% of the portfolio in GSE-backed obligations and other Aaa rated securities as determined by Moody’s. None of the securities owned by Trustmark are collateralized by assets which are considered sub-prime. Furthermore, outside of stock ownership in the Federal Home Loan Bank of Dallas, Federal Home Loan Bank of Atlanta and Federal Reserve Bank, Trustmark does not hold any other equity investment in a GSE.

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

September 30, 2019

($ in thousands)

(unaudited)

Note 3 – Loan Composition

LHFI BY TYPE (excluding acquired loans)

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

Loans secured by real estate:

Construction, land development and other land loans

$

1,135,999

$

1,111,297

$

1,209,761

$

1,056,601

$

1,031,491

Secured by 1-4 family residential properties

1,820,455

1,818,126

1,810,872

1,825,492

1,801,029

Secured by nonfarm, nonresidential properties

2,442,308

2,326,312

2,241,072

2,220,914

2,294,289

Other real estate secured

668,667

635,839

528,032

543,820

453,687

Commercial and industrial loans

1,491,367

1,533,318

1,558,057

1,538,715

1,565,922

Consumer loans

176,894

176,133

176,619

182,448

182,709

State and other political subdivision loans

978,456

982,187

982,626

973,818

929,178

Other loans

509,522

533,547

487,975

494,060

488,725

LHFI

9,223,668

9,116,759

8,995,014

8,835,868

8,747,030

Allowance for loan losses

(83,226

)

(80,399

)

(79,005

)

(79,290

)

(88,874

)

Net LHFI

$

9,140,442

$

9,036,360

$

8,916,009

$

8,756,578

$

8,658,156

ACQUIRED LOANS BY TYPE

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

Loans secured by real estate:

Construction, land development and other land loans

$

5,417

$

5,705

$

5,728

$

5,878

$

6,657

Secured by 1-4 family residential properties

18,437

19,967

21,441

22,556

25,274

Secured by nonfarm, nonresidential properties

40,930

43,444

46,492

47,979

66,865

Other real estate secured

6,887

7,416

8,026

8,253

8,507

Commercial and industrial loans

4,925

6,193

6,359

15,267

16,610

Consumer loans

593

852

1,033

1,356

1,514

Other loans

3,815

4,307

4,122

5,643

7,188

Acquired loans

81,004

87,884

93,201

106,932

132,615

Allowance for loan losses, acquired loans

(1,249

)

(1,398

)

(1,297

)

(1,231

)

(1,714

)

Net acquired loans

$

79,755

$

86,486

$

91,904

$

105,701

$

130,901

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

September 30, 2019

($ in thousands)

(unaudited)

Note 3 – Loan Composition (continued)

September 30, 2019

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

$

1,135,999

$

392,477

$

66,158

$

333,988

$

26,091

$

317,285

Secured by 1-4 family residential properties

1,820,455

121,831

38,897

1,562,384

82,598

14,745

Secured by nonfarm, nonresidential properties

2,442,308

659,792

240,514

913,696

154,075

474,231

Other real estate secured

668,667

190,140

28,558

265,986

10,081

173,902

Commercial and industrial loans

1,491,367

213,605

22,804

768,433

309,075

177,450

Consumer loans

176,894

24,232

7,220

124,288

18,577

2,577

State and other political subdivision loans

978,456

106,533

40,628

608,661

27,691

194,943

Other loans

509,522

78,614

17,333

311,756

59,367

42,452

Loans

$

9,223,668

$

1,787,224

$

462,112

$

4,889,192

$

687,555

$

1,397,585

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

Lots

$

63,792

$

17,389

$

13,804

$

23,876

$

1,955

$

6,768

Development

65,661

10,008

7,148

27,030

4,666

16,809

Unimproved land

104,624

21,497

15,442

34,692

12,880

20,113

1-4 family construction

244,493

110,665

18,765

83,839

2,729

28,495

Other construction

657,429

232,918

10,999

164,551

3,861

245,100

Construction, land development and other land loans

$

1,135,999

$

392,477

$

66,158

$

333,988

$

26,091

$

317,285

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

Non-owner occupied:

Retail

$

403,515

$

172,009

$

47,835

$

97,741

$

23,734

$

62,196

Office

238,781

60,140

17,465

61,779

7,839

91,558

Hotel/motel

306,027

110,834

90,205

53,726

40,188

11,074

Mini-storage

103,819

11,587

3,225

41,274

569

47,164

Industrial

181,466

88,938

6,290

27,012

2,254

56,972

Health care

52,598

11,199

3,267

34,321

—

3,811

Convenience stores

22,339

3,189

—

8,481

657

10,012

Other

54,467

4,314

6,679

10,125

5,965

27,384

Total non-owner occupied loans

1,363,012

462,210

174,966

334,459

81,206

310,171

Owner-occupied:

Office

143,386

35,961

26,856

50,830

5,336

24,403

Churches

102,277

22,837

6,454

43,770

14,321

14,895

Industrial warehouses

145,760

11,818

3,420

65,102

12,483

52,937

Health care

124,138

18,622

7,453

82,350

2,568

13,145

Convenience stores

106,546

13,072

7,159

63,830

908

21,577

Retail

70,423

16,398

7,422

25,770

4,379

16,454

Restaurants

54,942

3,897

1,339

31,144

16,698

1,864

Auto dealerships

29,944

7,657

305

13,512

8,470

—

Nursing homes/senior living

216,863

62,871

—

148,061

5,931

—

Other

85,017

4,449

5,140

54,868

1,775

18,785

Total owner-occupied loans

1,079,296

197,582

65,548

579,237

72,869

164,060

Loans secured by nonfarm, nonresidential properties

$

2,442,308

$

659,792

$

240,514

$

913,696

$

154,075

$

474,231

(1) Excludes acquired loans.

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

September 30, 2019

($ in thousands)

(unaudited)

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

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

Quarter Ended

Nine Months Ended

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

9/30/2019

9/30/2018

Securities – taxable

2.23

%

2.25

%

2.27

%

2.24

%

2.24

%

2.25

%

2.25

%

Securities – nontaxable

3.76

%

3.78

%

3.80

%

3.60

%

3.66

%

3.78

%

3.67

%

Securities – total

2.26

%

2.28

%

2.31

%

2.28

%

2.27

%

2.28

%

2.28

%

Loans - LHFI & LHFS

4.90

%

4.98

%

4.93

%

4.78

%

4.72

%

4.93

%

4.59

%

Acquired loans

11.08

%

8.84

%

7.45

%

9.89

%

10.82

%

9.00

%

9.44

%

Loans - total

4.95

%

5.01

%

4.96

%

4.86

%

4.82

%

4.97

%

4.70

%

FF sold & rev repo

2.49

%

2.52

%

2.93

%

1.88

%

2.50

%

2.52

%

1.99

%

Other earning assets

2.35

%

2.31

%

2.67

%

2.29

%

2.20

%

2.44

%

2.07

%

Total earning assets

4.38

%

4.37

%

4.32

%

4.21

%

4.16

%

4.36

%

4.05

%

Interest-bearing deposits

0.96

%

0.99

%

0.93

%

0.84

%

0.73

%

0.96

%

0.61

%

FF pch & repo

1.53

%

0.63

%

1.38

%

1.78

%

1.54

%

1.32

%

1.34

%

Other borrowings

2.35

%

2.33

%

2.19

%

2.33

%

2.34

%

2.29

%

1.93

%

Total interest-bearing liabilities

0.99

%

1.01

%

0.95

%

0.90

%

0.80

%

0.99

%

0.70

%

Net interest margin

3.66

%

3.64

%

3.63

%

3.56

%

3.59

%

3.64

%

3.54

%

Net interest margin excluding acquired loans

3.61

%

3.60

%

3.60

%

3.50

%

3.50

%

3.60

%

3.44

%

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

During the third quarter of 2019, the yield on acquired loans totaled 11.08% and included $1.1 million in recoveries from the settlement of debt, which represented approximately 5.09% of the annualized total acquired loan yield. During the second quarter of 2019, the yield on acquired loans totaled 8.84% and included $583 thousand in recoveries from the settlement of debt, which represented approximately 2.56% of the annualized total acquired loan yield.

Excluding acquired loans, the net interest margin increased to 3.61% for the third quarter of 2019 when compared to the second quarter of 2019, as a decline in the yield on the loans held for investment and held for sale portfolio was offset by runoff of maturing investment securities, decline in other earning assets, favorable funding mix, and lower costs of interest-bearing deposits.

Note 5 – Mortgage Banking

Trustmark utilizes a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and option contracts, to achieve a fair value return that offsets the changes in fair value of mortgage servicing rights (MSR) attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting under generally accepted accounting principles (GAAP). Changes in the fair value of these exchange-traded derivative instruments, including administrative costs, are recorded in noninterest income in mortgage banking, net and are offset by the changes in the fair value of the MSR. The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the change in value of hedge instruments to the change in the fair value of the MSR asset attributable to changes in interest rates and other market driven changes in valuation inputs and assumptions. The impact of this strategy resulted in a net negative ineffectiveness of $3.7 million primarily due to market volatility and lower rates during the third quarter of 2019.

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

Quarter Ended

Nine Months Ended

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

9/30/2019

9/30/2018

Mortgage servicing income, net

$

5,688

$

5,734

$

5,607

$

5,730

$

5,428

$

17,029

$

16,518

Change in fair value-MSR from runoff

(3,569

)

(2,918

)

(2,398

)

(2,752

)

(3,181

)

(8,885

)

(9,022

)

Gain on sales of loans, net

8,458

5,522

3,576

5,206

6,411

17,556

16,410

Other, net

1,341

2,010

1,405

(1,393

)

(83

)

4,756

1,577

Mortgage banking income before hedge ineffectiveness

11,918

10,348

8,190

6,791

8,575

30,456

25,483

Change in fair value-MSR from market changes

(8,054

)

(8,209

)

(8,863

)

(6,537

)

2,615

(25,126

)

13,879

Change in fair value of derivatives

4,307

8,156

4,115

5,462

(2,543

)

16,578

(10,404

)

Net positive (negative) hedge ineffectiveness

(3,747

)

(53

)

(4,748

)

(1,075

)

72

(8,548

)

3,475

Mortgage banking, net

$

8,171

$

10,295

$

3,442

$

5,716

$

8,647

$

21,908

$

28,958

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

September 30, 2019

($ in thousands)

(unaudited)

Note 6 – Other Noninterest Income and Expense

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

Quarter Ended

Nine Months Ended

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

9/30/2019

9/30/2018

Partnership amortization for tax credit purposes

$

(1,994

)

$

(2,010

)

$

(2,010

)

$

(2,101

)

$

(2,202

)

$

(6,014

)

$

(6,606

)

Increase in life insurance cash surrender value

1,814

1,803

1,783

1,808

1,805

5,400

5,313

Other miscellaneous income

2,169

2,337

2,466

2,197

1,755

6,972

6,125

Total other, net

$

1,989

$

2,130

$

2,239

$

1,904

$

1,358

$

6,358

$

4,832

Trustmark invests in partnerships that provide income tax credits on a Federal and/or State basis (i.e., new market tax credits, low income housing tax credits and historical tax credits). The income tax credits related to these partnerships are utilized as specifically allowed by income tax law and are recorded as a reduction in income tax expense.

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

Quarter Ended

Nine Months Ended

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

9/30/2019

9/30/2018

Loan expense

$

2,886

$

3,003

$

2,697

$

2,425

$

2,824

$

8,586

$

8,661

Amortization of intangibles

1,021

992

1,101

1,279

1,286

3,114

3,969

Other miscellaneous expense

6,880

7,819

8,413

8,549

7,585

23,112

23,153

Total other expense

$

10,787

$

11,814

$

12,211

$

12,253

$

11,695

$

34,812

$

35,783

Note 7 – Non-GAAP Financial Measures

In addition to capital ratios defined by U.S. generally accepted accounting principles (GAAP) and banking regulators, Trustmark utilizes various tangible common equity measures when evaluating capital utilization and adequacy. Tangible common equity, as defined by Trustmark, represents common equity less goodwill and identifiable intangible assets.

Trustmark believes these measures are important because they reflect the level of capital available to withstand unexpected market conditions. Additionally, presentation of these measures allows readers to compare certain aspects of Trustmark’s capitalization to other organizations. These ratios differ from capital measures defined by banking regulators principally in that the numerator excludes shareholders’ equity associated with preferred securities, the nature and extent of which varies across organizations. In Management’s experience, many stock analysts use tangible common equity measures in conjunction with more traditional bank capital ratios to compare capital adequacy of banking organizations with significant amounts of goodwill or other tangible assets, typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions.

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

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

September 30, 2019

($ in thousands)

(unaudited)

Note 7 – Non-GAAP Financial Measures (continued)

Quarter Ended

Nine Months Ended

9/30/2019

6/30/2019

3/31/2019

12/31/2018

9/30/2018

9/30/2019

9/30/2018

TANGIBLE EQUITY

AVERAGE BALANCES

Total shareholders' equity

$

1,634,646

$

1,605,745

$

1,590,187

$

1,595,132

$

1,597,588

$

1,610,356

$

1,584,095

Less: Goodwill

(379,627

)

(379,627

)

(379,627

)

(379,627

)

(379,627

)

(379,627

)

(379,627

)

Identifiable intangible assets

(8,706

)

(9,631

)

(10,666

)

(11,811

)

(13,083

)

(9,660

)

(14,405

)

Total average tangible equity

$

1,246,313

$

1,216,487

$

1,199,894

$

1,203,694

$

1,204,878

$

1,221,069

$

1,190,063

PERIOD END BALANCES

Total shareholders' equity

$

1,645,362

$

1,618,550

$

1,587,028

$

1,591,453

$

1,599,604

Less: Goodwill

(379,627

)

(379,627

)

(379,627

)

(379,627

)

(379,627

)

Identifiable intangible assets

(8,345

)

(9,101

)

(10,092

)

(11,112

)

(12,391

)

Total tangible equity

(a)

$

1,257,390

$

1,229,822

$

1,197,309

$

1,200,714

$

1,207,586

TANGIBLE ASSETS

Total assets

$

13,584,786

$

13,548,958

$

13,478,017

$

13,286,460

$

13,439,812

Less: Goodwill

(379,627

)

(379,627

)

(379,627

)

(379,627

)

(379,627

)

Identifiable intangible assets

(8,345

)

(9,101

)

(10,092

)

(11,112

)

(12,391

)

Total tangible assets

(b)

$

13,196,814

$

13,160,230

$

13,088,298

$

12,895,721

$

13,047,794

Risk-weighted assets

(c)

$

10,935,018

$

10,796,903

$

10,548,472

$

10,803,313

$

10,681,621

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION

Net income

$

41,035

$

42,140

$

33,339

$

36,688

$

36,253

$

116,514

$

112,896

Plus: Intangible amortization net of tax

766

744

826

959

965

2,336

2,979

Net income adjusted for intangible amortization

$

41,801

$

42,884

$

34,165

$

37,647

$

37,218

$

118,850

$

115,875

Period end common shares outstanding

(d)

64,262,779

64,398,846

64,789,943

65,834,395

67,621,369

TANGIBLE COMMON EQUITY MEASUREMENTS

Return on average tangible equity (1)

13.31

%

14.14

%

11.55

%

12.41

%

12.26

%

13.01

%

13.02

%

Tangible equity/tangible assets

(a)/(b)

9.53

%

9.34

%

9.15

%

9.31

%

9.26

%

Tangible equity/risk-weighted assets

(a)/(c)

11.50

%

11.39

%

11.35

%

11.11

%

11.31

%

Tangible book value

(a)/(d)*1,000

$

19.57

$

19.10

$

18.48

$

18.24

$

17.86

COMMON EQUITY TIER 1 CAPITAL (CET1)

Total shareholders' equity

$

1,645,362

$

1,618,550

$

1,587,028

$

1,591,453

$

1,599,604

AOCI-related adjustments

20,858

24,816

40,915

55,679

79,946

CET1 adjustments and deductions:

Goodwill net of associated deferred tax liabilities (DTLs)

(365,741

)

(365,745

)

(365,748

)

(365,779

)

(365,823

)

Other adjustments and deductions for CET1 (2)

(6,671

)

(8,268

)

(9,099

)

(9,815

)

(10,868

)

CET1 capital

(e)

1,293,808

1,269,353

1,253,096

1,271,538

1,302,859

Additional tier 1 capital instruments plus related surplus

60,000

60,000

60,000

60,000

60,000

Less: additional tier 1 capital deductions

—

—

—

—

—

Additional tier 1 capital

60,000

60,000

60,000

60,000

60,000

Tier 1 capital

$

1,353,808

$

1,329,353

$

1,313,096

$

1,331,538

$

1,362,859

Common equity tier 1 capital ratio

(e)/(c)

11.83

%

11.76

%

11.88

%

11.77

%

12.20

%

(1)

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

(2)

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

Trustmark 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

Source: Trustmark Corporation

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