Fitch Affirms Trustmark Corp's Ratings at 'BBB+'/'F2'; Outlook Stable

Fitch Ratings affirms Trustmark Corp.'s (TRMK) ratings at 'BBB+'/'F2'. The rating Outlook remains Stable. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS - IDRS, VRs, AND SENIOR DEBT

TRMK's 'BBB+' ratings reflect its good asset quality and the leading market share in TRMK's home state of Mississippi and growing market share in other parts of the southeastern U.S. Furthermore, Fitch positively views the company's risk appetite measured by relatively lower credit losses through the economic cycle reflecting more conservative underwriting standards and superior risk controls. Offsetting these factors include increased regulatory burden and operating costs due to crossing over $10 billion in assets, a characteristic not shared by the other banks within the peer group.

TRMK holds the highest deposit market share in Mississippi, which Fitch views positively as it provides TRMK with relatively strong deposit and loan pricing power. TRMK maintains a solid core funding base owing to its strong deposit franchise, with core deposits representing 90% of total deposits as of 2Q'14. While Fitch expects some deposit run-off as rates rise, TRMK's strong franchise, especially in rural markets, should allow it to retain an adequate level of funding at reasonable costs. This view is anticipated in today's rating affirmation and the stable outlook.

Fitch believes TRMK has solid underwriting standards. This viewpoint is supported by the company's consistent profitability and relatively low charge-off levels in aggregate during the financial crisis. Over the last 35 quarters, which includes the financial downturn, TRMK realized 30% fewer net credit losses as a percentage of total loans when compared to other similarly sized banks within its operating footprint according to Fed data. In Fitch's view TRMK has shown that it has not made any significant changes to its underwriting standards over recent periods. Therefore, Fitch would expect charge-off levels to remain lower than those of its peers over the long run.

Following the acquisition of BancTrust Financial Group (BFTG) in 2013, TRMK has assets of greater than $10 billion, the first within the community bank group to cross over the regulatory threshold. Consequently, Fitch observes that, unlike the rest of the current peer group, TRMK has become subject to the Durbin Amendment and annual stress-testing that will likely negatively impact earnings if TRMK does not remain focused on improving operational efficiencies.

To that point core earnings, as measured through pre-provision net revenue (PPNR), have experienced pressure over recent periods. Fitch notes that TRMK's PPNR through 2Q'14 was at 1.41% and on the lower end of the community bank peer group versus in prior periods when TRMK's PPNR was much stronger than peer averages. Fitch anticipates that over the long term, TRMK's earnings performance will revert to above this peer group's average. This expectation is incorporated in today's affirmation and the current Outlook.

RATING SENSITIVITIES - IDRS, VRs, AND SENIOR DEBT

Given what Fitch perceives to be a more challenging operating environment for TRMK with higher costs of doing business, Fitch does not expect upward rating movement for TRMK in the near term.

Negative trends in earnings or a reversal in current AQ trends leading to earnings and capital deterioration could lead to negative rating action. Further, if the company's growth (either through acquisition or organic) were to exceed Fitch's comfort level and capital levels fell materially below their current levels, ratings could be adversely impacted.

KEY RATING DRIVERS - LONG AND SHORT TERM DEPOSIT RATINGS

TRMK's uninsured deposit ratings at the subsidiary banks are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

KEY RATING SENSITIVITIES - LONG AND SHORT TERM DEPOSIT RATINGS

The ratings of long and short-term deposits issued by the trust banks and its subsidiaries are primarily sensitive to any change in the company's IDR. This means that should a Long-term IDR be downgraded, deposit ratings could be similarly impacted.

KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Trustmark National Bank's subordinated debt rating is 1 notch below its VR of 'bbb+' in accordance with Fitch's assessment of the instruments non-performance and loss severity risk profiles.

KEY RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings of subordinated debt and other hybrid securities are sensitive to any change in the company's VR.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

TRMK has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, TRMK is not systemically important and therefore, the probability of support is unlikely. The IDRs and VRs do not incorporate any support.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

TRMK's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.

KEY RATING DRIVERS - HOLDING COMPANY

The IDR and VR of TRMK is equalized with its operating company, Trustmark National Bank, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.

KEY RATING SENSITIVITIES - HOLDING COMPANY

If TRMK became undercapitalized or increased double leverage significantly there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies.

Fitch has affirmed the following ratings with a Stable Outlook:

Trustmark Corporation

--Long-Term IDR at 'BBB+';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb+';

--Support at '5';

--Support Rating at 'NF'.

Trustmark National Bank

--Long-Term IDR at 'BBB+';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb+';

--Subordinated debt at 'BBB';

--Long-Term Deposits at 'A-';

--Short-Term Deposits at 'F2';

--Support at '5';

--Support Rating at 'NF'.

Additional information is available at www.fitchratings.com.

In addition to the source(s) of information identified in Fitch's Master Criteria, these actions were additionally informed by information provided by the companies.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria (Jan. 31, 2014');

--'Rating FI Subsidiaries and Holding Companies (Aug. 10, 2012)';

--'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria (Jan. 31, 2014)';

--'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles (March 27, 2014)';

--'U.S. Banking Quarterly Comment: 2Q14 (July 2014');

--'U.S. Banks: Liquidity and Deposit Funding (Diminishing QE Effectiveness and its Impact on Systemic Liquidity and Funding)' (Aug. 8, 2013);

--'U.S. Bank Mergers and Acquisitions' -- When Will The Catalysts Kick In? (July 11, 2013)

--'U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)' (June 18, 2013)

--'U.S. Banks: Home Equity Reset Risk Hitting the Reset Button in 2014' (April 29, 2013)

--'U.S. Banks: Rationalizing the Branch Network (Witness the Incredible Shrinking Branch Network)' (Sept. 17, 2012);

--'Treatment of Unrealized Losses in U.S. Bank Capital Rule Proposal (Pro-Cyclical Capital Policy to Create Greater Capital Volatility for Banks)' (Aug. 7, 2012);

--'Risk Radar' (Sept. 2014).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Assessing and Rating Bank Subordinated and Hybrid Securities Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137

U.S. Bank HoldCos & OpCos: Evolving Risk Profiles

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=742096

U.S. Banking Quarterly Comment: 2Q14 (Environment Constraining Earnings)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753107

U.S. Banks: Liquidity and Deposit Funding

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714196

Evaluating U.S. Bank Mergers and Acquisitions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=190982

U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710875

U.S. Banks: Rationalizing the Branch Network (Witness the Incredible Shrinking Branch Network)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688330

Treatment of Unrealized Losses in U.S. Bank Capital Rule Proposal (Pro-Cyclical Capital Policy to Create Greater Capital Volatility for Banks)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685638

Risk Radar Global 3Q14

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=773568

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=878934

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