Trustmark Corporation Announces Second Quarter 2019 Financial Results

Trustmark Corporation (NASDAQ:TRMK) reported net income of $42.1 million in the second quarter of 2019, representing diluted earnings per share of $0.65. Diluted earnings per share in the second quarter of 2019 increased 27.5% when compared to the previous quarter and 10.2% when compared to the same period in the prior year. This level of earnings resulted in a return on average tangible equity of 14.14% and a return on average assets of 1.24%. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per share payable September 15, 2019, to shareholders of record on September 1, 2019.

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Second Quarter Highlights

• Revenue, excluding interest and fees on acquired loans, increased 7.6% linked quarter and 5.3% year-over-year to total $155.4 million
• The net interest margin (FTE), excluding acquired loans, was 3.60% in the second quarter, unchanged from the prior quarter and up 14 basis points year-over-year
• Sustained strong credit performance reflected in reduced nonperforming assets and net charge-offs
• Efficiency ratio improved to 64.55%

Gerard R. Host, President and CEO, stated, “Our second quarter performance continued to illustrate the value of Trustmark’s diverse franchise. We continued to focus upon strategic initiatives of profitable revenue growth, capital deployment through additional share repurchases and disciplined expense management. We also continued to maintain and expand customer relationships as evidenced by strength in our banking, mortgage, insurance and wealth management businesses. Thanks to our talented associates, solid profitability and strong capital base, Trustmark remains well positioned to continue meeting the needs of our customers and creating long-term value for our shareholders.”

Balance Sheet Management

• Loans held for investment expanded 1.4% from the prior quarter and 5.0% when compared to the same period in the prior year
• Continued balance sheet and capital optimization through maturing investment securities run-off and share repurchases
• Noninterest-bearing deposits represented 25.2% of total deposits at June 30, 2019

Loans held for investment totaled $9.1 billion at June 30, 2019, reflecting an increase of $121.7 million, or 1.4%, linked-quarter and $437.8 million, or 5.0%, from the prior year. Acquired loans totaled $87.9 million at June 30, 2019, down $5.3 million from the prior quarter. Collectively, loans held for investment and acquired loans totaled $9.2 billion at the end of the second quarter of 2019, up $116.4 million, or 1.3% from the prior quarter and $352.6 million, or 4.0%, year-over-year.

Deposits totaled $11.6 billion at June 30, 2019, up $31.8 million from the prior quarter and $494.2 million year-over-year. Interest-bearing deposit costs totaled 0.99% in the second quarter, an increase of 6 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 second quarter, Trustmark repurchased $13.0 million, or approximately 398 thousand of its common shares in open market transactions. At June 30, 2019, Trustmark had $87.0 million in remaining authority under its existing stock repurchase program, which expires March 31, 2020. At June 30, 2019, Trustmark’s tangible equity to tangible assets ratio was 9.34%, while the total risk-based capital ratio was 13.07%.

Credit Quality

• Nonperforming loans decreased 6.3% and 13.8% from the prior quarter and year-over-year, respectively
• Other real estate declined 2.8% from the prior quarter and 21.2% year-over-year
• Net charge-offs represented 0.05% of average loans in the second quarter

Nonperforming loans totaled $52.9 million at June 30, 2019, down $3.5 million from the prior quarter and $8.5 million year-over-year. Other real estate totaled $31.2 million, down $896 thousand from the prior quarter and $8.4 million from the same period one year earlier. Collectively, nonperforming assets totaled $84.1 million, reflecting a linked-quarter decrease of 5.0% and year-over-year decrease of 16.7%.

Allocation of Trustmark's $80.4 million allowance for loan losses represented 0.96% of commercial loans and 0.60% of consumer and home mortgage loans, resulting in an allowance to total loans held for investment of 0.88% at June 30, 2019, representing a level management considers commensurate with the inherent risk in the loan portfolio. The allowance for loan losses represented 383.19% of nonperforming loans, excluding specifically reviewed impaired loans.

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

Revenue Generation

• Total revenue in the second quarter was $157.4 million, up 7.6% linked-quarter and 3.2% year-over-year
• Net interest income (FTE) totaled $111.0 million in the second quarter, up 2.7% linked-quarter and 2.4% year-over-year
• Noninterest income totaled $49.6 million in the second quarter, up 19.6% linked-quarter and 4.7% year-over-year

Net interest income (FTE) in the second quarter totaled $111.0 million, resulting in a net interest margin of 3.64%, up 1 basis point from the prior quarter. Relative to the prior quarter, net interest income (FTE) increased $2.9 million, reflecting a $4.7 million increase in interest income and a $1.7 million increase in interest expense. 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 totaled 3.60% for the second quarter of 2019, unchanged from the prior quarter as growth in the yield on the loans held for investment and held for sale portfolio, runoff of maturing investment securities, and favorable funding mix were offset by higher costs of interest-bearing deposits.

Noninterest income in the second quarter totaled $49.6 million, an increase of $8.1 million from the prior quarter and $2.2 million when compared to the same period in the prior year. Mortgage banking revenue totaled $10.3 million in the second quarter, up $6.9 million from the prior quarter and $1.2 million year-over-year. The linked-quarter change reflects reduced negative net mortgage hedge ineffectiveness as well as an increase in gains on sales of loans. Mortgage loan production in the second quarter totaled $414.1 million, up 46.1% from the prior quarter and 0.9% year-over-year.

Insurance revenue totaled $11.1 million in the second quarter, up 2.0% from the prior quarter and 3.3% year-over-year due principally to growth in property and casualty commissions. Wealth management revenue in the second quarter totaled $7.7 million, an increase of 3.5% from the prior quarter and year-over-year. This performance is primarily attributable to increased trust and investment management fees. Bank card and other fees increased $813 thousand from the prior quarter primarily due to a seasonal increase in interchange income as well as growth in customer derivative revenue.

Noninterest Expense

• Total noninterest expense totaled $106.1 million in the second quarter, up 0.1% from the prior quarter and 2.2% year-over-year
• Core noninterest expense, which excludes other real estate expense and intangible amortization, totaled $105.0 million, up 1.8% from the prior quarter and 2.3% year-over-year

Salaries and employee benefits increased $995 thousand from the prior quarter to total $61.9 million, primarily due to higher insurance and mortgage commissions as a result of continued growth in both business lines. Services and fees rose 6.1%, or $1.0 million, linked-quarter primarily due to professional fees as well as new software investments designed to improve efficiency and customer experience. Other real estate expense, net declined $1.6 million linked-quarter while other expense declined $397 thousand, or 3.3%, linked-quarter to total $11.8 million.

Additional Information

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, July 24, 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, August 7, 2019, in archived format at the same web address or by calling (877) 344-7529, passcode 10132843.

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 Federal Reserve Board 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
June 30, 2019
($ in thousands)
(unaudited)
													Linked Quarter							Year over Year
QUARTERLY AVERAGE BALANCES	6/30/2019				3/31/2019				6/30/2018				$ Change				% Change			$ Change				% Change
Securities AFS-taxable	$	1,661,464			$	1,753,268			$	2,038,759			$	(91,804	)		-5.2	%		$	(377,295	)		-18.5	%
Securities AFS-nontaxable		31,474				40,159				50,035				(8,685	)		-21.6	%			(18,561	)		-37.1	%
Securities HTM-taxable		821,357				866,665				972,571				(45,308	)		-5.2	%			(151,214	)		-15.5	%
Securities HTM-nontaxable		27,035				28,710				30,337				(1,675	)		-5.8	%			(3,302	)		-10.9	%
Total securities		2,541,330				2,688,802				3,091,702				(147,472	)		-5.5	%			(550,372	)		-17.8	%
Loans (including loans held for sale)		9,260,028				9,038,204				8,707,466				221,824			2.5	%			552,562			6.3	%
Acquired loans		91,217				104,316				202,140				(13,099	)		-12.6	%			(110,923	)		-54.9	%
Fed funds sold and rev repos		34,057				277				1,063				33,780			n/m				32,994			n/m
Other earning assets		316,604				243,493				186,224				73,111			30.0	%			130,380			70.0	%
Total earning assets		12,243,236				12,075,092				12,188,595				168,144			1.4	%			54,641			0.4	%
Allowance for loan losses		(81,996	)			(82,227	)			(86,315	)			231			0.3	%			4,319			5.0	%
Cash and due from banks		478,384				423,749				319,075				54,635			12.9	%			159,309			49.9	%
Other assets		989,078				1,023,862				1,042,156				(34,784	)		-3.4	%			(53,078	)		-5.1	%
Total assets	$	13,628,702			$	13,440,476			$	13,463,511			$	188,226			1.4	%		$	165,191			1.2	%
Interest-bearing demand deposits	$	3,048,876			$	2,899,467			$	2,439,777			$	149,409			5.2	%		$	609,099			25.0	%
Savings deposits		3,801,187				3,786,835				3,860,096				14,352			0.4	%			(58,909	)		-1.5	%
Time deposits		1,840,065				1,881,556				1,798,855				(41,491	)		-2.2	%			41,210			2.3	%
Total interest-bearing deposits		8,690,128				8,567,858				8,098,728				122,270			1.4	%			591,400			7.3	%
Fed funds purchased and repos		51,264				84,352				352,256				(33,088	)		-39.2	%			(300,992	)		-85.4	%
Other borrowings		81,352				90,804				249,853				(9,452	)		-10.4	%			(168,501	)		-67.4	%
Junior subordinated debt securities		61,856				61,856				61,856				—			0.0	%			—			0.0	%
Total interest-bearing liabilities		8,884,600				8,804,870				8,762,693				79,730			0.9	%			121,907			1.4	%
Noninterest-bearing deposits		2,898,266				2,824,220				2,930,726				74,046			2.6	%			(32,460	)		-1.1	%
Other liabilities		240,091				221,199				188,186				18,892			8.5	%			51,905			27.6	%
Total liabilities		12,022,957				11,850,289				11,881,605				172,668			1.5	%			141,352			1.2	%
Shareholders' equity		1,605,745				1,590,187				1,581,906				15,558			1.0	%			23,839			1.5	%
Total liabilities and equity	$	13,628,702			$	13,440,476			$	13,463,511			$	188,226			1.4	%		$	165,191			1.2	%
n/m - percentage changes greater than +/- 100% are considered not meaningful   See Notes to Consolidated Financials

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2019
($ in thousands)
(unaudited)													Linked Quarter							Year over Year
PERIOD END BALANCES	6/30/2019				3/31/2019				6/30/2018				$ Change				% Change			$ Change				% Change
Cash and due from banks	$	404,413			$	454,047			$	387,119			$	(49,634	)		-10.9	%		$	17,294			4.5	%
Fed funds sold and rev repos		75,499				—				—				75,499			n/m				75,499			n/m
Securities available for sale		1,643,725				1,723,445				1,974,675				(79,720	)		-4.6	%			(330,950	)		-16.8	%
Securities held to maturity		825,536				884,319				985,845				(58,783	)		-6.6	%			(160,309	)		-16.3	%
Loans held for sale (LHFS)		240,380				172,683				196,217				67,697			39.2	%			44,163			22.5	%
Loans held for investment (LHFI)		9,116,759				8,995,014				8,678,983				121,745			1.4	%			437,776			5.0	%
Allowance for loan losses, LHFI		(80,399	)			(79,005	)			(83,566	)			(1,394	)		-1.8	%			3,167			3.8	%
Net LHFI		9,036,360				8,916,009				8,595,417				120,351			1.3	%			440,943			5.1	%
Acquired loans		87,884				93,201				173,107				(5,317	)		-5.7	%			(85,223	)		-49.2	%
Allowance for loan losses, acquired loans		(1,398	)			(1,297	)			(3,046	)			(101	)		-7.8	%			1,648			54.1	%
Net acquired loans		86,486				91,904				170,061				(5,418	)		-5.9	%			(83,575	)		-49.1	%
Net LHFI and acquired loans		9,122,846				9,007,913				8,765,478				114,933			1.3	%			357,368			4.1	%
Premises and equipment, net		189,820				189,743				177,686				77			0.0	%			12,134			6.8	%
Mortgage servicing rights		79,283				86,842				97,411				(7,559	)		-8.7	%			(18,128	)		-18.6	%
Goodwill		379,627				379,627				379,627				—			0.0	%			—			0.0	%
Identifiable intangible assets		9,101				10,092				13,677				(991	)		-9.8	%			(4,576	)		-33.5	%
Other real estate		31,243				32,139				39,667				(896	)		-2.8	%			(8,424	)		-21.2	%
Operating lease right-of-use assets		32,762				33,861				—				(1,099	)		-3.2	%			32,762			n/m
Other assets		514,723				503,306				507,863				11,417			2.3	%			6,860			1.4	%
Total assets	$	13,548,958			$	13,478,017			$	13,525,265			$	70,941			0.5	%		$	23,693			0.2	%
Deposits:
Noninterest-bearing	$	2,909,141			$	2,867,778			$	2,958,354			$	41,363			1.4	%		$	(49,213	)		-1.7	%
Interest-bearing		8,657,488				8,667,037				8,114,081				(9,549	)		-0.1	%			543,407			6.7	%
Total deposits		11,566,629				11,534,815				11,072,435				31,814			0.3	%			494,194			4.5	%
Fed funds purchased and repos		51,800				46,867				477,891				4,933			10.5	%			(426,091	)		-89.2	%
Other borrowings		79,012				83,265				187,560				(4,253	)		-5.1	%			(108,548	)		-57.9	%
Junior subordinated debt securities		61,856				61,856				61,856				—			0.0	%			—			0.0	%
Operating lease liabilities		33,878				34,921				—				(1,043	)		-3.0	%			33,878			n/m
Other liabilities		137,233				129,265				141,451				7,968			6.2	%			(4,218	)		-3.0	%
Total liabilities		11,930,408				11,890,989				11,941,193				39,419			0.3	%			(10,785	)		-0.1	%
Common stock		13,418				13,499				14,089				(81	)		-0.6	%			(671	)		-4.8	%
Capital surplus		260,619				272,268				361,715				(11,649	)		-4.3	%			(101,096	)		-27.9	%
Retained earnings		1,369,329				1,342,176				1,282,007				27,153			2.0	%			87,322			6.8	%
Accum other comprehensive loss, net of tax		(24,816	)			(40,915	)			(73,739	)			16,099			39.3	%			48,923			66.3	%
Total shareholders' equity		1,618,550				1,587,028				1,584,072				31,522			2.0	%			34,478			2.2	%
Total liabilities and equity	$	13,548,958			$	13,478,017			$	13,525,265			$	70,941			0.5	%		$	23,693			0.2	%
n/m - percentage changes greater than +/- 100% are considered not meaningful   See Notes to Consolidated Financials

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2019
($ in thousands except per share data)
(unaudited)
	Quarter Ended										Linked Quarter							Year over Year
INCOME STATEMENTS	6/30/2019			3/31/2019			6/30/2018				$ Change				% Change			$ Change				% Change
Interest and fees on LHFS & LHFI-FTE	$	114,873		$	109,890		$	99,761			$	4,983			4.5	%		$	15,112			15.1	%
Interest and fees on acquired loans		2,010			1,916			5,022				94			4.9	%			(3,012	)		-60.0	%
Interest on securities-taxable		13,916			14,665			16,894				(749	)		-5.1	%			(2,978	)		-17.6	%
Interest on securities-tax exempt-FTE		551			646			733				(95	)		-14.7	%			(182	)		-24.8	%
Interest on fed funds sold and rev repos		214			2			5				212			n/m				209			n/m
Other interest income		1,820			1,603			1,054				217			13.5	%			766			72.7	%
Total interest income-FTE		133,384			128,722			123,469				4,662			3.6	%			9,915			8.0	%
Interest on deposits		21,500			19,570			12,139				1,930			9.9	%			9,361			77.1	%
Interest on fed funds pch and repos		81			288			1,250				(207	)		-71.9	%			(1,169	)		-93.5	%
Other interest expense		831			825			1,713				6			0.7	%			(882	)		-51.5	%
Total interest expense		22,412			20,683			15,102				1,729			8.4	%			7,310			48.4	%
Net interest income-FTE		110,972			108,039			108,367				2,933			2.7	%			2,605			2.4	%
Provision for loan losses, LHFI		2,486			1,611			3,167				875			54.3	%			(681	)		-21.5	%
Provision for loan losses, acquired loans		106			78			(441	)			28			35.9	%			547			n/m
Net interest income after provision-FTE		108,380			106,350			105,641				2,030			1.9	%			2,739			2.6	%
Service charges on deposit accounts		10,379			10,265			10,647				114			1.1	%			(268	)		-2.5	%
Bank card and other fees		8,004			7,191			7,070				813			11.3	%			934			13.2	%
Mortgage banking, net		10,295			3,442			9,046				6,853			n/m				1,249			13.8	%
Insurance commissions		11,089			10,871			10,735				218			2.0	%			354			3.3	%
Wealth management		7,742			7,483			7,478				259			3.5	%			264			3.5	%
Other, net		2,130			2,239			2,415				(109	)		-4.9	%			(285	)		-11.8	%
Nonint inc-excl sec gains (losses), net		49,639			41,491			47,391				8,148			19.6	%			2,248			4.7	%
Security gains (losses), net	—			—				—				—			n/m				—			n/m
Total noninterest income		49,639			41,491			47,391				8,148			19.6	%			2,248			4.7	%
Salaries and employee benefits		61,949			60,954			59,975				995			1.6	%			1,974			3.3	%
Services and fees		18,009			16,968			16,322				1,041			6.1	%			1,687			10.3	%
Net occupancy-premises		6,403			6,454			6,550				(51	)		-0.8	%			(147	)		-2.2	%
Equipment expense		5,958			5,924			6,202				34			0.6	%			(244	)		-3.9	%
Other real estate expense, net		132			1,752			(93	)			(1,620	)		-92.5	%			225			n/m
FDIC assessment expense		1,836			1,758			2,538				78			4.4	%			(702	)		-27.7	%
Other expense		11,814			12,211			12,306				(397	)		-3.3	%			(492	)		-4.0	%
Total noninterest expense		106,101			106,021			103,800				80			0.1	%			2,301			2.2	%
Income before income taxes and tax eq adj		51,918			41,820			49,232				10,098			24.1	%			2,686			5.5	%
Tax equivalent adjustment		3,248			3,231			3,203				17			0.5	%			45			1.4	%
Income before income taxes		48,670			38,589			46,029				10,081			26.1	%			2,641			5.7	%
Income taxes		6,530			5,250			6,216				1,280			24.4	%			314			5.1	%
Net income	$	42,140		$	33,339		$	39,813			$	8,801			26.4	%		$	2,327			5.8	%
Per share data
Earnings per share - basic	$	0.65		$	0.51		$	0.59			$	0.14			27.5	%		$	0.06			10.2	%
Earnings per share - diluted	$	0.65		$	0.51		$	0.59			$	0.14			27.5	%		$	0.06			10.2	%
Dividends per share	$	0.23		$	0.23		$	0.23				—			0.0	%			—			0.0	%
Weighted average shares outstanding
Basic		64,677,889			65,239,470			67,758,097
Diluted		64,815,029			65,378,500			67,907,267
Period end shares outstanding		64,398,846			64,789,943			67,621,111
n/m - percentage changes greater than +/- 100% are considered not meaningful   See Notes to Consolidated Financials

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2019
($ in thousands)
(unaudited)
	Quarter Ended												Linked Quarter							Year over Year
NONPERFORMING ASSETS (1)	6/30/2019				3/31/2019				6/30/2018				$ Change				% Change			$ Change				% Change
Nonaccrual loans
Alabama	$	2,327			$	2,971			$	3,685			$	(644	)		-21.7	%		$	(1,358	)		-36.9	%
Florida		330				408				2,978				(78	)		-19.1	%			(2,648	)		-88.9	%
Mississippi (2)		39,373				41,145				39,006				(1,772	)		-4.3	%			367			0.9	%
Tennessee (3)		8,455				8,806				5,338				(351	)		-4.0	%			3,117			58.4	%
Texas		2,403				3,093				10,356				(690	)		-22.3	%			(7,953	)		-76.8	%
Total nonaccrual loans		52,888				56,423				61,363				(3,535	)		-6.3	%			(8,475	)		-13.8	%
Other real estate
Alabama		6,451				6,878				8,290				(427	)		-6.2	%			(1,839	)		-22.2	%
Florida		7,826				8,120				9,789				(294	)		-3.6	%			(1,963	)		-20.1	%
Mississippi (2)		15,511				15,421				19,358				90			0.6	%			(3,847	)		-19.9	%
Tennessee (3)		815				994				1,486				(179	)		-18.0	%			(671	)		-45.2	%
Texas		640				726				744				(86	)		-11.8	%			(104	)		-14.0	%
Total other real estate		31,243				32,139				39,667				(896	)		-2.8	%			(8,424	)		-21.2	%
Total nonperforming assets	$	84,131			$	88,562			$	101,030			$	(4,431	)		-5.0	%		$	(16,899	)		-16.7	%
LOANS PAST DUE OVER 90 DAYS (1)
LHFI	$	1,245			$	670			$	529			$	575			85.8	%		$	716			n/m
LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase)	$	38,355			$	40,793			$	34,693			$	(2,438	)		-6.0	%		$	3,662			10.6	%
	Quarter Ended												Linked Quarter							Year over Year
ALLOWANCE FOR LOAN LOSSES (1)	6/30/2019				3/31/2019				6/30/2018				$ Change				% Change			$ Change				% Change
Beginning Balance	$	79,005			$	79,290			$	81,235			$	(285	)		-0.4	%		$	(2,230	)		-2.7	%
Transfers (4)		—				—				782				—			n/m				(782	)		-100.0	%
Provision for loan losses		2,486				1,611				3,167				875			54.3	%			(681	)		-21.5	%
Charge-offs		(2,937	)			(4,033	)			(3,421	)			1,096			27.2	%			484			14.1	%
Recoveries		1,845				2,137				1,803				(292	)		-13.7	%			42			2.3	%
Net (charge-offs) recoveries		(1,092	)			(1,896	)			(1,618	)			804			42.4	%			526			-32.5	%
Ending Balance	$	80,399			$	79,005			$	83,566			$	1,394			1.8	%		$	(3,167	)		-3.8	%
PROVISION FOR LOAN LOSSES (1)
Alabama	$	1,187			$	791			$	434			$	396			50.1	%		$	753			n/m
Florida		48				(595	)			(811	)			643			n/m				859			n/m
Mississippi (2)		1,970				119				2,768				1,851			n/m				(798	)		-28.8	%
Tennessee (3)		514				(234	)			82				748			n/m				432			n/m
Texas		(1,233	)			1,530				694				(2,763	)		n/m				(1,927	)		n/m
Total provision for loan losses	$	2,486			$	1,611			$	3,167			$	875			54.3	%		$	(681	)		-21.5	%
NET CHARGE-OFFS (RECOVERIES) (1)
Alabama	$	278			$	15			$	112			$	263			n/m			$	166			n/m
Florida		(130	)			(227	)			(122	)			97			42.7	%			(8	)		-6.6	%
Mississippi (2)		907				2,130				1,705				(1,223	)		-57.4	%			(798	)		-46.8	%
Tennessee (3)		44				50				70				(6	)		-12.0	%			(26	)		-37.1	%
Texas		(7	)			(72	)			(147	)			65			90.3	%			140			95.2	%
Total net charge-offs (recoveries)	$	1,092			$	1,896			$	1,618			$	(804	)		-42.4	%		$	(526	)		-32.5	%

(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.
n/m - percentage changes greater than +/- 100% are considered not meaningful   See Notes to Consolidated Financials

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2019
($ in thousands)
(unaudited)
		Quarter Ended																									Six Months Ended
AVERAGE BALANCES		6/30/2019					3/31/2019					12/31/2018					9/30/2018					6/30/2018					6/30/2019					6/30/2018
Securities AFS-taxable		$		1,661,464			$		1,753,268			$		1,847,421			$		1,937,807			$		2,038,759			$		1,707,112			$		2,089,669
Securities AFS-nontaxable				31,474					40,159					38,821					41,889					50,035					35,793					53,982
Securities HTM-taxable				821,357					866,665					893,186					933,294					972,571					843,886					989,054
Securities HTM-nontaxable				27,035					28,710					29,143					29,183					30,337					27,868					31,529
Total securities				2,541,330					2,688,802					2,808,571					2,942,173					3,091,702					2,614,659					3,164,234
Loans (including loans held for sale)				9,260,028					9,038,204					8,933,501					8,907,588					8,707,466					9,149,729					8,672,411
Acquired loans				91,217					104,316					127,747					147,811					202,140					97,730					222,533
Fed funds sold and rev repos				34,057					277					843					477					1,063					17,260					772
Other earning assets				316,604					243,493					200,282					189,471					186,224					280,250					200,028
Total earning assets				12,243,236					12,075,092					12,070,944					12,187,520					12,188,595					12,159,628					12,259,978
Allowance for loan losses				(81,996	)				(82,227	)				(85,842	)				(86,496	)				(86,315	)				(82,111	)				(84,321	)
Cash and due from banks				478,384					423,749					339,605					330,949					319,075					451,217					327,810
Other assets				989,078					1,023,862					1,023,226					1,035,327					1,042,156					1,006,375					1,036,478
Total assets		$		13,628,702			$		13,440,476			$		13,347,933			$		13,467,300			$		13,463,511			$		13,535,109			$		13,539,945
Interest-bearing demand deposits		$		3,048,876			$		2,899,467			$		2,722,841			$		2,602,658			$		2,439,777			$		2,974,584			$		2,422,200
Savings deposits				3,801,187					3,786,835					3,565,682					3,722,533					3,860,096					3,794,051					3,799,140
Time deposits				1,840,065					1,881,556					1,892,983					1,851,866					1,798,855					1,860,696					1,773,889
Total interest-bearing deposits				8,690,128					8,567,858					8,181,506					8,177,057					8,098,728					8,629,331					7,995,229
Fed funds purchased and repos				51,264					84,352					340,094					347,489					352,256					67,717					315,272
Other borrowings				81,352					90,804					90,252					187,196					249,853					86,052					499,617
Junior subordinated debt securities				61,856					61,856					61,856					61,856					61,856					61,856					61,856
Total interest-bearing liabilities				8,884,600					8,804,870					8,673,708					8,773,598					8,762,693					8,844,956					8,871,974
Noninterest-bearing deposits				2,898,266					2,824,220					2,862,161					2,894,061					2,930,726					2,861,448					2,906,186
Other liabilities				240,091					221,199					216,932					202,053					188,186					230,696					184,549
Total liabilities				12,022,957					11,850,289					11,752,801					11,869,712					11,881,605					11,937,100					11,962,709
Shareholders' equity				1,605,745					1,590,187					1,595,132					1,597,588					1,581,906					1,598,009					1,577,236
Total liabilities and equity		$		13,628,702			$		13,440,476			$		13,347,933			$		13,467,300			$		13,463,511			$		13,535,109			$		13,539,945
See Notes to Consolidated Financials

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2019
($ in thousands)
(unaudited)
PERIOD END BALANCES		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018
Cash and due from banks		$	404,413			$	454,047			$	349,561			$	432,471			$	387,119
Fed funds sold and rev repos			75,499				—				830				1,000				—
Securities available for sale			1,643,725				1,723,445				1,811,813				1,864,633				1,974,675
Securities held to maturity			825,536				884,319				909,643				943,883				985,845
Loans held for sale (LHFS)			240,380				172,683				153,799				182,664				196,217
Loans held for investment (LHFI)			9,116,759				8,995,014				8,835,868				8,747,030				8,678,983
Allowance for loan losses, LHFI			(80,399	)			(79,005	)			(79,290	)			(88,874	)			(83,566	)
Net LHFI			9,036,360				8,916,009				8,756,578				8,658,156				8,595,417
Acquired loans			87,884				93,201				106,932				132,615				173,107
Allowance for loan losses, acquired loans			(1,398	)			(1,297	)			(1,231	)			(1,714	)			(3,046	)
Net acquired loans			86,486				91,904				105,701				130,901				170,061
Net LHFI and acquired loans			9,122,846				9,007,913				8,862,279				8,789,057				8,765,478
Premises and equipment, net			189,820				189,743				178,668				178,739				177,686
Mortgage servicing rights			79,283				86,842				95,596				101,374				97,411
Goodwill			379,627				379,627				379,627				379,627				379,627
Identifiable intangible assets			9,101				10,092				11,112				12,391				13,677
Other real estate			31,243				32,139				34,668				36,475				39,667
Operating lease right-of-use assets			32,762				33,861				—				—				—
Other assets			514,723				503,306				498,864				517,498				507,863
Total assets		$	13,548,958			$	13,478,017			$	13,286,460			$	13,439,812			$	13,525,265
Deposits:
Noninterest-bearing		$	2,909,141			$	2,867,778			$	2,937,594			$	2,786,539			$	2,958,354
Interest-bearing			8,657,488				8,667,037				8,426,817				8,170,371				8,114,081
Total deposits			11,566,629				11,534,815				11,364,411				10,956,910				11,072,435
Fed funds purchased and repos			51,800				46,867				50,471				486,865				477,891
Other borrowings			79,012				83,265				79,885				190,919				187,560
Junior subordinated debt securities			61,856				61,856				61,856				61,856				61,856
Operating lease liabilities			33,878				34,921				—				—				—
Other liabilities			137,233				129,265				138,384				143,658				141,451
Total liabilities			11,930,408				11,890,989				11,695,007				11,840,208				11,941,193
Common stock			13,418				13,499				13,717				14,089				14,089
Capital surplus			260,619				272,268				309,545				362,868				361,715
Retained earnings			1,369,329				1,342,176				1,323,870				1,302,593				1,282,007
Accum other comprehensive loss, net of tax			(24,816	)			(40,915	)			(55,679	)			(79,946	)			(73,739	)
Total shareholders' equity			1,618,550				1,587,028				1,591,453				1,599,604				1,584,072
Total liabilities and equity		$	13,548,958			$	13,478,017			$	13,286,460			$	13,439,812			$	13,525,265
See Notes to Consolidated Financials

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2019
($ in thousands except per share data)
(unaudited)
		Quarter Ended																		Six Months Ended
INCOME STATEMENTS		6/30/2019			3/31/2019			12/31/2018				9/30/2018				6/30/2018				6/30/2019			6/30/2018
Interest and fees on LHFS & LHFI-FTE		$	114,873		$	109,890		$	107,709			$	105,993			$	99,761			$	224,763		$	194,473
Interest and fees on acquired loans			2,010			1,916			3,183				4,033				5,022				3,926			9,899
Interest on securities-taxable			13,916			14,665			15,496				16,186				16,894				28,581			34,400
Interest on securities-tax exempt-FTE			551			646			617				656				733				1,197			1,557
Interest on fed funds sold and rev repos			214			2			4				3				5				216			7
Other interest income			1,820			1,603			1,158				1,050				1,054				3,423			1,988
Total interest income-FTE			133,384			128,722			128,167				127,921				123,469				262,106			242,324
Interest on deposits			21,500			19,570			17,334				14,972				12,139				41,070			21,630
Interest on fed funds pch and repos			81			288			1,528				1,348				1,250				369			1,912
Other interest expense			831			825			894				1,467				1,713				1,656			5,107
Total interest expense			22,412			20,683			19,756				17,787				15,102				43,095			28,649
Net interest income-FTE			110,972			108,039			108,411				110,134				108,367				219,011			213,675
Provision for loan losses, LHFI			2,486			1,611			2,192				8,673				3,167				4,097			7,128
Provision for loan losses, acquired loans			106			78			(247	)			(467	)			(441	)			184			(291	)
Net interest income after provision-FTE			108,380			106,350			106,466				101,928				105,641				214,730			206,838
Service charges on deposit accounts			10,379			10,265			11,123				11,075				10,647				20,644			21,504
Bank card and other fees			8,004			7,191			7,750				7,459				7,070				15,195			13,696
Mortgage banking, net			10,295			3,442			5,716				8,647				9,046				13,737			20,311
Insurance commissions			11,089			10,871			9,562				10,765				10,735				21,960			20,154
Wealth management			7,742			7,483			7,504				7,789				7,478				15,225			15,045
Other, net			2,130			2,239			1,904				1,358				2,415				4,369			3,474
Nonint inc-excl sec gains (losses), net			49,639			41,491			43,559				47,093				47,391				91,130			94,184
Security gains (losses), net			—			—			—				—				—				—			—
Total noninterest income			49,639			41,491			43,559				47,093				47,391				91,130			94,184
Salaries and employee benefits			61,949			60,954			58,736				60,847				59,975				122,903			118,450
Services and fees			18,009			16,968			17,910				16,404				16,322				34,977			32,068
Net occupancy-premises			6,403			6,454			6,741				6,910				6,550				12,857			13,052
Equipment expense			5,958			5,924			6,329				6,200				6,202				11,882			12,301
Other real estate expense, net			132			1,752			61				1,168				(93	)			1,884			773
FDIC assessment expense			1,836			1,758			1,897				1,999				2,538				3,594			5,533
Other expense			11,814			12,211			12,253				11,695				12,306				24,025			24,088
Total noninterest expense			106,101			106,021			103,927				105,223				103,800				212,122			206,265
Income before income taxes and tax eq adj			51,918			41,820			46,098				43,798				49,232				93,738			94,757
Tax equivalent adjustment			3,248			3,231			3,231				3,151				3,203				6,479			6,418
Income before income taxes			48,670			38,589			42,867				40,647				46,029				87,259			88,339
Income taxes			6,530			5,250			6,179				4,394				6,216				11,780			11,696
Net income		$	42,140		$	33,339		$	36,688			$	36,253			$	39,813			$	75,479		$	76,643
Per share data
Earnings per share - basic		$	0.65		$	0.51		$	0.55			$	0.54			$	0.59			$	1.16		$	1.13
Earnings per share - diluted		$	0.65		$	0.51		$	0.55			$	0.54			$	0.59			$	1.16		$	1.13
Dividends per share		$	0.23		$	0.23		$	0.23			$	0.23			$	0.23			$	0.46		$	0.46
Weighted average shares outstanding
Basic			64,677,889			65,239,470			66,839,504				67,621,345				67,758,097				64,957,128			67,783,524
Diluted			64,815,029			65,378,500			67,028,978				67,796,346				67,907,267				65,088,908			67,928,829
Period end shares outstanding			64,398,846			64,789,943			65,834,395				67,621,369				67,621,111				64,398,846			67,621,111
See Notes to Consolidated Financials

TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
June 30, 2019
($ in thousands)
(unaudited)
		Quarter Ended
NONPERFORMING ASSETS (1)		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018
Nonaccrual loans
Alabama		$	2,327			$	2,971			$	3,361			$	3,953			$	3,685
Florida			330				408				1,175				1,180				2,978
Mississippi (2)			39,373				41,145				44,331				41,351				39,006
Tennessee (3)			8,455				8,806				8,696				13,195				5,338
Texas			2,403				3,093				4,061				8,157				10,356
Total nonaccrual loans			52,888				56,423				61,624				67,836				61,363
Other real estate
Alabama			6,451				6,878				6,873				7,526				8,290
Florida			7,826				8,120				8,771				8,931				9,789
Mississippi (2)			15,511				15,421				17,255				18,191				19,358
Tennessee (3)			815				994				1,025				1,083				1,486
Texas			640				726				744				744				744
Total other real estate			31,243				32,139				34,668				36,475				39,667
Total nonperforming assets		$	84,131			$	88,562			$	96,292			$	104,311			$	101,030
LOANS PAST DUE OVER 90 DAYS (1)
LHFI		$	1,245			$	670			$	856			$	726			$	529
LHFS-Guaranteed GNMA serviced loans
(no obligation to repurchase)		$	38,355			$	40,793			$	37,384			$	34,115			$	34,693
		Quarter Ended																				Six Months Ended
ALLOWANCE FOR LOAN LOSSES (1)		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018				6/30/2019				6/30/2018
Beginning Balance		$	79,005			$	79,290			$	88,874			$	83,566			$	81,235			$	79,290			$	76,733
Transfers (4)			—				—				—				772				782				—				782
Provision for loan losses			2,486				1,611				2,192				8,673				3,167				4,097				7,128
Charge-offs			(2,937	)			(4,033	)			(16,509	)			(7,017	)			(3,421	)			(6,970	)			(5,963	)
Recoveries			1,845				2,137				4,733				2,880				1,803				3,982				4,886
Net (charge-offs) recoveries			(1,092	)			(1,896	)			(11,776	)			(4,137	)			(1,618	)			(2,988	)			(1,077	)
Ending Balance		$	80,399			$	79,005			$	79,290			$	88,874			$	83,566			$	80,399			$	83,566
PROVISION FOR LOAN LOSSES (1)
Alabama		$	1,187			$	791			$	(346	)		$	593			$	434			$	1,978			$	1,052
Florida			48				(595	)			(160	)			(431	)			(811	)			(547	)			(1,674	)
Mississippi (2)			1,970				119				(3,594	)			(1,630	)			2,768				2,089				5,432
Tennessee (3)			514				(234	)			3,039				8,100				82				280				(186	)
Texas			(1,233	)			1,530				3,253				2,041				694				297				2,504
Total provision for loan losses		$	2,486			$	1,611			$	2,192			$	8,673			$	3,167			$	4,097			$	7,128
NET CHARGE-OFFS (RECOVERIES) (1)
Alabama		$	278			$	15			$	203			$	198			$	112			$	293			$	196
Florida			(130	)			(227	)			(238	)			(586	)			(122	)			(357	)			(1,082	)
Mississippi (2)			907				2,130				(1,873	)			4,677				1,705				3,037				1,972
Tennessee (3)			44				50				7,875				(96	)			70				94				179
Texas			(7	)			(72	)			5,809				(56	)			(147	)			(79	)			(188	)
Total net charge-offs (recoveries)		$	1,092			$	1,896			$	11,776			$	4,137			$	1,618			$	2,988			$	1,077

(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
	June 30, 2019
	(unaudited)
			Quarter Ended																				Six Months Ended
	FINANCIAL RATIOS AND OTHER DATA		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018				6/30/2019			6/30/2018
	Return on equity			10.53	%			8.50	%			9.12	%			9.00	%			10.09	%		9.52	%		9.80	%
	Return on average tangible equity			14.14	%			11.55	%			12.41	%			12.26	%			13.77	%		12.86	%		13.41	%
	Return on assets			1.24	%			1.01	%			1.09	%			1.07	%			1.19	%		1.12	%		1.14	%
	Interest margin - Yield - FTE			4.37	%			4.32	%			4.21	%			4.16	%			4.06	%		4.35	%		3.99	%
	Interest margin - Cost			0.73	%			0.69	%			0.65	%			0.58	%			0.50	%		0.71	%		0.47	%
	Net interest margin - FTE			3.64	%			3.63	%			3.56	%			3.59	%			3.57	%		3.63	%		3.51	%
	Efficiency ratio (1)			64.55	%			68.08	%			66.58	%			64.46	%			64.96	%		66.25	%		64.95	%
	Full-time equivalent employees			2,819				2,839				2,856				2,889				2,890
	CREDIT QUALITY RATIOS (2)
	Net charge-offs/average loans			0.05	%			0.09	%			0.52	%			0.18	%			0.07	%		0.07	%		0.03	%
	Provision for loan losses/average loans			0.11	%			0.07	%			0.10	%			0.39	%			0.15	%		0.09	%		0.17	%
	Nonperforming loans/total loans (incl LHFS)			0.57	%			0.62	%			0.69	%			0.76	%			0.69	%
	Nonperforming assets/total loans (incl LHFS)			0.90	%			0.97	%			1.07	%			1.17	%			1.14	%
	Nonperforming assets/total loans (incl LHFS) +ORE			0.90	%			0.96	%			1.07	%			1.16	%			1.13	%
	ALL/total loans (excl LHFS)			0.88	%			0.88	%			0.90	%			1.02	%			0.96	%
	ALL-commercial/total commercial loans			0.96	%			0.96	%			0.99	%			1.13	%			1.05	%
	ALL-consumer/total consumer and home mortgage loans			0.60	%			0.57	%			0.57	%			0.63	%			0.63	%
	ALL/nonperforming loans			152.02	%			140.02	%			128.67	%			131.01	%			136.18	%
	ALL/nonperforming loans (excl specifically reviewed impaired loans)			383.19	%			342.97	%			350.77	%			339.79	%			345.87	%
	CAPITAL RATIOS
	Total equity/total assets			11.95	%			11.77	%			11.98	%			11.90	%			11.71	%
	Tangible equity/tangible assets			9.34	%			9.15	%			9.31	%			9.26	%			9.07	%
	Tangible equity/risk-weighted assets			11.39	%			11.35	%			11.11	%			11.31	%			11.20	%
	Tier 1 leverage ratio			10.03	%			10.05	%			10.26	%			10.41	%			10.22	%
	Common equity tier 1 capital ratio			11.76	%			11.88	%			11.77	%			12.20	%			12.01	%
	Tier 1 risk-based capital ratio			12.31	%			12.45	%			12.33	%			12.76	%			12.58	%
	Total risk-based capital ratio			13.07	%			13.21	%			13.07	%			13.61	%			13.39	%
	STOCK PERFORMANCE
	Market value-Close		$	33.25			$	33.63			$	28.43			$	33.65			$	32.63
	Book value		$	25.13			$	24.49			$	24.17			$	23.66			$	23.43
	Tangible book value		$	19.10			$	18.48			$	18.24			$	17.86			$	17.61

(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

June 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):

		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018
SECURITIES AVAILABLE FOR SALE
U.S. Government agency obligations		$	26,646			$	28,008			$	30,335			$	32,371			$	36,414
Obligations of states and political subdivisions			38,698				50,954				50,676				57,264				65,348
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA			65,716				66,176				67,494				65,847				60,245
Issued by FNMA and FHLMC			624,364				645,958				666,684				684,474				727,433
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA			751,371				784,566				811,601				840,073				897,652
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA			136,930				147,783				185,023				184,604				187,583
Total securities available for sale		$	1,643,725			$	1,723,445			$	1,811,813			$	1,864,633			$	1,974,675
SECURITIES HELD TO MATURITY
U.S. Government agency obligations		$	3,758			$	3,747			$	3,736			$	3,725			$	3,714
Obligations of states and political subdivisions			32,860				35,352				35,783				42,623				42,458
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA			11,184				11,710				12,090				12,316				12,756
Issued by FNMA and FHLMC			106,755				111,962				115,133				119,040				123,377
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA			536,166				559,690				578,827				600,635				627,470
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC, or GNMA			134,813				161,858				164,074				165,544				176,070
Total securities held to maturity		$	825,536			$	884,319			$	909,643			$	943,883			$	985,845

At June 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 $13.7 million ($10.3 million, net of tax).

Management continues to focus on asset quality as one of the strategic goals of the securities portfolio, which is evidenced by the investment of approximately 97% 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

June 30, 2019

($ in thousands)

(unaudited)

Note 3 – Loan Composition

LHFI BY TYPE (excluding acquired loans)		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018
Loans secured by real estate:
Construction, land development and other land loans		$	1,111,297			$	1,209,761			$	1,056,601			$	1,031,491			$	1,038,745
Secured by 1-4 family residential properties			1,818,126				1,810,872				1,825,492				1,801,029				1,742,496
Secured by nonfarm, nonresidential properties			2,326,312				2,241,072				2,220,914				2,294,289				2,321,734
Other real estate secured			635,839				528,032				543,820				453,687				397,538
Commercial and industrial loans			1,533,318				1,558,057				1,538,715				1,565,922				1,572,764
Consumer loans			176,133				176,619				182,448				182,709				175,261
State and other political subdivision loans			982,187				982,626				973,818				929,178				925,452
Other loans			533,547				487,975				494,060				488,725				504,993
LHFI			9,116,759				8,995,014				8,835,868				8,747,030				8,678,983
Allowance for loan losses			(80,399	)			(79,005	)			(79,290	)			(88,874	)			(83,566	)
Net LHFI		$	9,036,360			$	8,916,009			$	8,756,578			$	8,658,156			$	8,595,417

ACQUIRED LOANS BY TYPE		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018
Loans secured by real estate:
Construction, land development and other land loans		$	5,705			$	5,728			$	5,878			$	6,657			$	11,900
Secured by 1-4 family residential properties			19,967				21,441				22,556				25,274				36,419
Secured by nonfarm, nonresidential properties			43,444				46,492				47,979				66,865				85,117
Other real estate secured			7,416				8,026				8,253				8,507				9,862
Commercial and industrial loans			6,193				6,359				15,267				16,610				20,485
Consumer loans			852				1,033				1,356				1,514				1,700
Other loans			4,307				4,122				5,643				7,188				7,624
Acquired loans			87,884				93,201				106,932				132,615				173,107
Allowance for loan losses, acquired loans			(1,398	)			(1,297	)			(1,231	)			(1,714	)			(3,046	)
Net acquired loans		$	86,486			$	91,904			$	105,701			$	130,901			$	170,061

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 30, 2019

($ in thousands)

(unaudited)

Note 3 – Loan Composition (continued)

		June 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		$	1,111,297			$	393,466			$	78,135			$	309,533			$	22,219			$	307,944
Secured by 1-4 family residential properties			1,818,126				117,564				43,874				1,559,348				84,045				13,295
Secured by nonfarm, nonresidential properties			2,326,312				613,170				245,085				882,457				151,108				434,492
Other real estate secured			635,839				186,048				11,466				275,374				10,035				152,916
Commercial and industrial loans			1,533,318				214,487				21,102				743,969				383,781				169,979
Consumer loans			176,133				24,721				4,798				125,420				18,945				2,249
State and other political subdivision loans			982,187				92,069				40,968				612,021				27,283				209,846
Other loans			533,547				78,854				18,390				355,468				37,084				43,751
Loans		$	9,116,759			$	1,720,379			$	463,818			$	4,863,590			$	734,500			$	1,334,472
CONSTRUCTION, LAND DEVELOPMENT AND OTHER LAND LOANS BY REGION (1)
Lots		$	60,421			$	13,394			$	17,909			$	22,643			$	1,228			$	5,247
Development			70,285				12,384				7,064				28,523				2,090				20,224
Unimproved land			105,318				20,528				16,002				35,467				12,721				20,600
1-4 family construction			228,702				107,017				14,960				78,906				2,821				24,998
Other construction			646,571				240,143				22,200				143,994				3,359				236,875
Construction, land development and other land loans		$	1,111,297			$	393,466			$	78,135			$	309,533			$	22,219			$	307,944
LOANS SECURED BY NONFARM, NONRESIDENTIAL PROPERTIES BY REGION (1)
Non-owner occupied:
Retail		$	401,042			$	177,183			$	48,539			$	97,283			$	24,928			$	53,109
Office			190,039				46,500				17,813				62,097				7,683				55,946
Nursing homes/senior living			226,943				79,605				—				141,341				5,997				—
Hotel/motel			302,574				111,673				90,315				53,697				35,806				11,083
Mini-storage			106,474				11,602				5,757				41,123				582				47,410
Industrial			121,559				29,912				6,567				26,757				2,353				55,970
Health care			45,230				11,627				3,295				26,458				—				3,850
Convenience stores			21,533				3,237				—				7,456				675				10,165
Other			55,602				4,409				7,554				9,446				6,604				27,589
Total non-owner occupied loans			1,470,996				475,748				179,840				465,658				84,628				265,122
Owner-occupied:
Office			146,501				35,970				27,697				53,173				4,559				25,102
Churches			101,947				19,695				6,537				45,935				14,674				15,106
Industrial warehouses			152,020				12,445				3,617				66,798				12,771				56,389
Health care			106,113				22,876				6,474				60,880				2,594				13,289
Convenience stores			108,487				13,376				6,599				65,411				1,159				21,942
Retail			74,396				17,107				7,603				28,457				4,511				16,718
Restaurants			57,243				3,850				1,371				33,309				16,875				1,838
Auto dealerships			30,462				7,729				310				13,786				8,637				—
Other			78,147				4,374				5,037				49,050				700				18,986
Total owner-occupied loans			855,316				137,422				65,245				416,799				66,480				169,370
Loans secured by nonfarm, nonresidential properties		$	2,326,312			$	613,170			$	245,085			$	882,457			$	151,108			$	434,492

(1) Excludes acquired loans.

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 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																				Six Months Ended
		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018				6/30/2019				6/30/2018
Securities – taxable			2.25	%			2.27	%			2.24	%			2.24	%			2.25	%			2.26	%			2.25	%
Securities – nontaxable			3.78	%			3.80	%			3.60	%			3.66	%			3.66	%			3.79	%			3.67	%
Securities – total			2.28	%			2.31	%			2.28	%			2.27	%			2.29	%			2.30	%			2.29	%
Loans - LHFI & LHFS			4.98	%			4.93	%			4.78	%			4.72	%			4.60	%			4.95	%			4.52	%
Acquired loans			8.84	%			7.45	%			9.89	%			10.82	%			9.96	%			8.10	%			8.97	%
Loans - total			5.01	%			4.96	%			4.86	%			4.82	%			4.72	%			4.99	%			4.63	%
FF sold & rev repo			2.52	%			2.93	%			1.88	%			2.50	%			1.89	%			2.52	%			1.83	%
Other earning assets			2.31	%			2.67	%			2.29	%			2.20	%			2.27	%			2.46	%			2.00	%
Total earning assets			4.37	%			4.32	%			4.21	%			4.16	%			4.06	%			4.35	%			3.99	%
Interest-bearing deposits			0.99	%			0.93	%			0.84	%			0.73	%			0.60	%			0.96	%			0.55	%
FF pch & repo			0.63	%			1.38	%			1.78	%			1.54	%			1.42	%			1.10	%			1.22	%
Other borrowings			2.33	%			2.19	%			2.33	%			2.34	%			2.20	%			2.26	%			1.83	%
Total interest-bearing liabilities			1.01	%			0.95	%			0.90	%			0.80	%			0.69	%			0.98	%			0.65	%
Net interest margin			3.64	%			3.63	%			3.56	%			3.59	%			3.57	%			3.63	%			3.51	%
Net interest margin excluding acquired loans			3.60	%			3.60	%			3.50	%			3.50	%			3.46	%			3.60	%			3.41	%

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 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. During the first quarter of 2019, the yield on acquired loans totaled 7.45% and included $243 thousand in recoveries from the settlement of debt, which represented approximately 0.95% of the annualized total acquired loan yield.

Excluding acquired loans, the net interest margin remained flat at 3.60% for the second quarter of 2019 when compared to the first quarter of 2019, as growth in the yield on the loans held for investment and held for sale portfolio, runoff of maturing investment securities, and favorable funding mix were offset by higher 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 $53 thousand with mortgage spreads widening offsetting losses from market volatility and lower rates during the second quarter of 2019.

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

		Quarter Ended																				Six Months Ended
		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018				6/30/2019				6/30/2018
Mortgage servicing income, net		$	5,734			$	5,607			$	5,730			$	5,428			$	5,502			$	11,341			$	11,090
Change in fair value-MSR from runoff			(2,918	)			(2,398	)			(2,752	)			(3,181	)			(3,334	)			(5,316	)			(5,841	)
Gain on sales of loans, net			5,522				3,576				5,206				6,411				5,414				9,098				9,999
Other, net			2,010				1,405				(1,393	)			(83	)			1,365				3,415				1,660
Mortgage banking income before hedge ineffectiveness			10,348				8,190				6,791				8,575				8,947				18,538				16,908
Change in fair value-MSR from market changes			(8,209	)			(8,863	)			(6,537	)			2,615				1,743				(17,072	)			11,264
Change in fair value of derivatives			8,156				4,115				5,462				(2,543	)			(1,644	)			12,271				(7,861	)
Net positive (negative) hedge ineffectiveness			(53	)			(4,748	)			(1,075	)			72				99				(4,801	)			3,403
Mortgage banking, net		$	10,295			$	3,442			$	5,716			$	8,647			$	9,046			$	13,737			$	20,311

TRUSTMARK CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIALS

June 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																				Six Months Ended
		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018				6/30/2019				6/30/2018
Partnership amortization for tax credit purposes		$	(2,010	)		$	(2,010	)		$	(2,101	)		$	(2,202	)		$	(2,202	)		$	(4,020	)		$	(4,404	)
Increase in life insurance cash surrender value			1,803				1,783				1,808				1,805				1,770				3,586				3,508
Other miscellaneous income			2,337				2,466				2,197				1,755				2,847				4,803				4,370
Total other, net		$	2,130			$	2,239			$	1,904			$	1,358			$	2,415			$	4,369			$	3,474

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																				Six Months Ended
		6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018				6/30/2019				6/30/2018
Loan expense		$	3,003			$	2,697			$	2,425			$	2,824			$	3,046			$	5,700			$	5,837
Amortization of intangibles			992				1,101				1,279				1,286				1,286				2,093				2,683
Other miscellaneous expense			7,819				8,413				8,549				7,585				7,974				16,232				15,568
Total other expense		$	11,814			$	12,211			$	12,253			$	11,695			$	12,306			$	24,025			$	24,088

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

June 30, 2019

($ in thousands except per share data)

(unaudited)

Note 7 – Non-GAAP Financial Measures (continued)

				Quarter Ended																				Six Months Ended
				6/30/2019				3/31/2019				12/31/2018				9/30/2018				6/30/2018				6/30/2019				6/30/2018
TANGIBLE EQUITY
AVERAGE BALANCES
Total shareholders' equity				$	1,605,745			$	1,590,187			$	1,595,132			$	1,597,588			$	1,581,906			$	1,598,009			$	1,577,236
Less: Goodwill					(379,627	)			(379,627	)			(379,627	)			(379,627	)			(379,627	)			(379,627	)			(379,627	)
Identifiable intangible assets					(9,631	)			(10,666	)			(11,811	)			(13,083	)			(14,380	)			(10,146	)			(15,077	)
Total average tangible equity				$	1,216,487			$	1,199,894			$	1,203,694			$	1,204,878			$	1,187,899			$	1,208,236			$	1,182,532
PERIOD END BALANCES
Total shareholders' equity				$	1,618,550			$	1,587,028			$	1,591,453			$	1,599,604			$	1,584,072
Less: Goodwill					(379,627	)			(379,627	)			(379,627	)			(379,627	)			(379,627	)
Identifiable intangible assets					(9,101	)			(10,092	)			(11,112	)			(12,391	)			(13,677	)
Total tangible equity		(a)		$	1,229,822			$	1,197,309			$	1,200,714			$	1,207,586			$	1,190,768
TANGIBLE ASSETS
Total assets				$	13,548,958			$	13,478,017			$	13,286,460			$	13,439,812			$	13,525,265
Less: Goodwill					(379,627	)			(379,627	)			(379,627	)			(379,627	)			(379,627	)
Identifiable intangible assets					(9,101	)			(10,092	)			(11,112	)			(12,391	)			(13,677	)
Total tangible assets		(b)		$	13,160,230			$	13,088,298			$	12,895,721			$	13,047,794			$	13,131,961
Risk-weighted assets		(c)		$	10,796,903			$	10,548,472			$	10,803,313			$	10,681,621			$	10,633,646
NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION
Net income				$	42,140			$	33,339			$	36,688			$	36,253			$	39,813			$	75,479			$	76,643
Plus: Intangible amortization net of tax					744				826				959				965				965				1,570				2,014
Net income adjusted for intangible amortization				$	42,884			$	34,165			$	37,647			$	37,218			$	40,778			$	77,049			$	78,657
Period end common shares outstanding		(d)			64,398,846				64,789,943				65,834,395				67,621,369				67,621,111
TANGIBLE COMMON EQUITY MEASUREMENTS
Return on average tangible equity (1)					14.14	%			11.55	%			12.41	%			12.26	%			13.77	%			12.86	%			13.41	%
Tangible equity/tangible assets		(a)/(b)			9.34	%			9.15	%			9.31	%			9.26	%			9.07	%
Tangible equity/risk-weighted assets		(a)/(c)			11.39	%			11.35	%			11.11	%			11.31	%			11.20	%
Tangible book value		(a)/(d)*1,000		$	19.10			$	18.48			$	18.24			$	17.86			$	17.61
COMMON EQUITY TIER 1 CAPITAL (CET1)
Total shareholders' equity				$	1,618,550			$	1,587,028			$	1,591,453			$	1,599,604			$	1,584,072
AOCI-related adjustments					24,816				40,915				55,679				79,946				73,739
CET1 adjustments and deductions:
Goodwill net of associated deferred tax liabilities (DTLs)					(365,745	)			(365,748	)			(365,779	)			(365,823	)			(366,036	)
Other adjustments and deductions for CET1 (2)					(8,268	)			(9,099	)			(9,815	)			(10,868	)			(14,204	)
CET1 capital		(e)			1,269,353				1,253,096				1,271,538				1,302,859				1,277,571
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				$	1,329,353			$	1,313,096			$	1,331,538			$	1,362,859			$	1,337,571
Common equity tier 1 capital ratio		(e)/(c)			11.76	%			11.88	%			11.77	%			12.20	%			12.01	%

(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.

 

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