JACKSON, Miss.--(BUSINESS WIRE)-- Trustmark Corporation (NASDAQ:TRMK) announced net income available to common shareholders of $29.3 million in the second quarter of 2012, which represented diluted earnings per common share of $0.45. Trustmark’s performance during the quarter produced a return on average tangible common equity of 12.74% and a return on average assets of 1.20%. During the first six months of 2012, Trustmark’s net income available to common shareholders totaled $59.7 million, which represented diluted earnings per common share of $0.92. Trustmark’s performance during the first half of 2012 resulted in a return on average tangible common equity of 13.07% and a return on average assets of 1.23%. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per common share payable September 15, 2012, to shareholders of record on September 1, 2012.

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Gerard R. Host, President and CEO, stated, “Trustmark continued to achieve solid financial performance in the second quarter. Total revenue for the quarter exceeded $130 million due in part to solid performance in our banking, mortgage banking, wealth management and insurance businesses. Credit quality continued to improve as evidenced by significantly lower nonaccrual loans and provisioning levels. In May, we announced plans to acquire BancTrust Financial Group, a $2.0 billion financial institution based in Mobile, Alabama. This transaction, which is expected to close during the fourth quarter of 2012, is subject to approval by regulatory authorities and BancTrust’s shareholders. Thanks to our dedicated associates, solid profitability and strong capital base, Trustmark remains well-positioned to continue meeting the needs of our customers and creating value for our shareholders.”

Credit Quality

• Classified and criticized loans declined $20.7 million and $35.2 million, respectively, relative to the prior quarter
• Allowance for loan losses represented 186.5% of nonperforming loans, excluding impaired loans

Trustmark continued to experience significant improvements in credit quality. Nonperforming loans totaled $99.7 million at June 30, 2012, a decline of 5.8% from the prior quarter and 17.6% from the prior year. Foreclosed other real estate experienced similar improvement, declining 2.7% from the prior quarter and 18.1% from levels one year earlier to total $73.7 million. Collectively, nonperforming assets totaled $173.4 million at June 30, 2012, the lowest level since year end 2008. All of the above metrics exclude acquired loans and other real estate covered by FDIC loss-share agreements.

Net charge-offs during the second quarter of 2012 totaled $6.7 million. The second quarter provision for loan losses totaled $650 thousand for non-acquired loans as sufficient reserves were previously established for both impaired and other substandard credits, net loan risk rate upgrades and balance reductions on criticized credits. During the second quarter, Trustmark experienced a $20.7 million, or 6.7%, decline in classified loans and a $35.2 million, or 8.8%, decline in criticized loans relative to the prior quarter. Relative to figures one year earlier, classified loan balances decreased $68.0 million, or 19.0%, while criticized loan balances decreased $80.0 million, or 18.0%.

Allocation of Trustmark’s $84.8 million allowance for loan losses represented 1.81% of commercial loans and 0.81% of consumer and home mortgage loans, resulting in an allowance to total loans of 1.50% at June 30, 2012, which represents a level management considers to be commensurate with the inherent risk in the loan portfolio. The allowance for loan losses represented 186.5% of nonperforming loans, excluding impaired loans. All of the above metrics exclude acquired loans.

Capital Strength

• Tangible common equity to tangible assets expanded to 9.90%
• Total risk-based capital ratio increased to 17.12%

Trustmark’s solid capital position reflects the consistent profitability of its diversified financial services businesses as well as prudent balance sheet management. At June 30, 2012, tangible common equity totaled $948.0 million and represented 9.90% of tangible assets while the total risk-based capital ratio was 17.12%. Trustmark’s strong capital base provides the opportunity to support organic loan growth in an improving economy and enhance long-term shareholder value.

Balance Sheet Management

• Average earning assets totaled $8.7 billion
• Net interest income (FTE) totaled $89.9 million

Loans held for investment and acquired loans totaled $5.8 billion at June 30, 2012, a decrease of $139.3 million from the prior quarter due principally to a $105.0 million decline in single family mortgage loans. During the quarter, many customers took advantage of the opportunity to refinance existing mortgages at more attractive rates. In fact, Trustmark’s mortgage production totaled $465.1 million in the second quarter, an increase of 12.1% from the prior quarter and 84.9% from levels one year earlier. Trustmark elected to sell the vast majority of these lower rate, longer term home mortgages in the secondary market rather than replacing the runoff in its single family loan portfolio. Trustmark’s decision to discontinue indirect auto financing continued to be reflected in loan totals as this portfolio declined $16.2 million in the second quarter. In addition, current economic conditions continued to constrain the demand for credit as reflected by a $32.6 million decline in nonfarm, nonresidential loans.

During the second quarter of 2012, average earning assets remained stable at $8.7 billion while average deposits increased $223.8 million, or 2.9%, relative to the prior quarter to total $8.0 billion. Average noninterest-bearing deposits increased 6.9% to represent 25.0% of average deposits in the second quarter of 2012.

Prudent asset and liability management, including disciplined loan and deposit pricing, continued to produce solid net interest income and a strong net interest margin. Net interest income (FTE) totaled $89.9 million during the second quarter, resulting in a net interest margin of 4.15%, four basis points lower than the prior quarter. The decrease is due to the downward repricing of fixed rate loans and securities, partially offset by improvements in the accreted yield on acquired covered loans and modest declines in the cost of interest-bearing deposits.

Noninterest Income

• Noninterest income totaled $43.8 million, representing 33.6% of total revenue
• Mortgage, Insurance and Wealth Management income expand

Trustmark continued to achieve solid financial results from its diverse financial services businesses. Mortgage banking income during the second quarter totaled $11.2 million, an increase of $3.9 million from the prior quarter. Performance in mortgage banking continued to reflect stable mortgage servicing income, solid secondary marketing gains, and successful hedging programs. During the quarter, mortgage banking results included mark-to-market adjustments on mortgage loans held for sale of $3.1 million due largely to increased refinancing activity resulting from lower mortgage rates.

Insurance revenue during the second quarter totaled $7.2 million, an increase of 8.7% from the prior quarter due to increased commercial insurance business as well as a firming of insurance rates. Insurance revenue increased 4.6% from levels one year earlier. Wealth management income increased 4.7% relative to the prior quarter to total $5.8 million due to growth in trust fees and brokerage service revenues. During the second quarter, Trustmark announced the pending sale of its proprietary mutual fund business. While not a material transaction financially, this transaction will allow Trustmark to fully embrace open architecture in its wealth management business and focus additional resources on managing client relationships.

Service charges on deposit accounts totaled $12.6 million in the second quarter, reflecting a 3.3% seasonal increase from the prior quarter and a 1.8% decrease from levels one year earlier. Bank card and other fee income increased 11.1% from the prior quarter and 19.3% from the prior year to $8.2 million due in part to increased debit card usage and other banking fees.

Other noninterest income declined $4.9 million relative to the prior quarter, principally due to acquisition related activities. During the second quarter, the fair values associated with the Bay Bank acquisition were finalized and resulted in a bargain purchase gain of $881 thousand in addition to the $2.8 million recorded in the first quarter of 2012. In addition, the FDIC indemnification asset on acquired covered loans from the Heritage transaction was reduced by $2.3 million during the second quarter as a result of the re-estimation of cash flows and loan payoffs.

Noninterest Expense

• ORE/Foreclosure expense declined to lowest level in 12 quarters
• Noninterest expense remained well-controlled

Noninterest expense in the second quarter increased $2.2 million, or 2.5%, relative to the prior quarter to total $88.0 million. Excluding acquisition expenses related to the Bay Bank merger recorded in the first quarter of $2.6 million ($1.9 million in contract termination and other expenses included in other expense and $672 thousand of change in control and severance expense included in salaries and benefits), noninterest expense increased $4.8 million in the second quarter. Salaries and benefits expense increased $1.2 million, or 2.6%, in the second quarter relative to recurring expenses in the prior quarter. Approximately $730 thousand of this increase is attributable to the first full quarter of the Bay Bank acquisition.

ORE/Foreclosure expense totaled $2.4 million, a decline of 38.8% relative to the prior quarter and 49.2% when compared to figures one year earlier. Services and fees totaled $11.8 million in the second quarter, an increase of $1.0 million relative to the prior quarter. This increase includes costs associated with the installation of new computer software systems and expenses related to the realignment of certain business units.

Other expense totaled $14.9 million in the second quarter, an increase of $3.7 million when compared to recurring expenses in the prior quarter. During the second quarter of 2012, Trustmark updated its quarterly analysis of mortgage loan repurchase exposure. This analysis, along with recent trends of increased mortgage loan repurchase activity in the mortgage industry, resulted in Trustmark providing an additional reserve of approximately $4.0 million in the second quarter. At June 30, 2012, the reserve for mortgage loan repurchases totaled $9.2 million. Notwithstanding significant changes in future behaviors and the demand patterns of investors, Trustmark believes that it is appropriately reserved for potential mortgage loan repurchase requests.

ADDITIONAL INFORMATION

As previously announced, Trustmark will conduct a conference call with analysts on Wednesday, July 25, 2012, at 10:00 a.m. Central Time to discuss the Corporation’s financial results. Interested parties may listen to the conference call by dialing (877)317-6789, passcode 10008303, or by clicking on the link provided under the Investor Relations section of our website at www.trustmark.com. A replay of the conference call will also be available through Thursday, August 9, 2012, in archived format at the same web address or by calling (877)344-7529, passcode 10008303.

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

FORWARD-LOOKING STATEMENTS

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

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

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