OREANDA-NEWS. Fitch Ratings has affirmed Trustmark Corp.'s (TRMK) ratings at 'BBB+/F2'. The Rating Outlook remains Stable.

The rating action follows a periodic review of the midtier regional banking group, which includes BankUnited Inc. (BKU), BOK Financial Corp. (BOKF), Cathay General Bancorp (CATY), East West Bancorp (EWBC), First Republic Bank (FRC), First Horizon National Corp. (FHN), First National of Nebraska Inc. (FNNI), Fulton Financial Corp. (FULT), Hilltop Holdings, Inc. (HTH), Synovus Financial Corp. (SNV), TCF Financial Corp. (TCB), Trustmark Corp. (TRMK), UMB Financial Corp. (UMBF) and Wintrust Financial Corp. (WTFC).

Company-specific rating rationales for the other banks are published separately, and for further discussion of the midtier regional bank sector in general, refer to the special report titled 'US Banks: Midtier Regional Bank Periodic Review,' to be published shortly.

KEY RATING DRIVERS

IDRs, VRs, AND SENIOR DEBT

TRMK's ratings were affirmed at 'BBB+' and are supported by leading deposit market share in its home state of Mississippi and growing market share in other parts of the southeastern U.S. Meanwhile, Fitch continues to positively view TMRK's risk appetite measured by relatively lower credit losses through the economic cycle reflecting more conservative underwriting standards. Moreover, TRMK has shown the willingness and ability to build capital after its most recent acquisition, a trend that Fitch views favourably.

Offsetting these ratings strengths is TRMK's depressed earnings profile over recent quarters relative to historical performance in light of increased regulatory burden and operating costs due to crossing over $10 billion in assets. Fitch continues to believe this will be a persistent rating constraint over the near to medium term and believes TRMK is toward the higher end of its potential rating range.

TRMK holds the highest deposit market share in the state of Mississippi which provides the bank with strong deposit and loan pricing power. TRMK maintains a solid core funding base owing to its strong deposit franchise, with core deposits representing 92.5% of total deposits as of 3Q15 based on regulatory definitions. While Fitch expects some deposit run-off as rates rise across the industry, TRMK's strong franchise, especially in more rural, isolated markets, should position it well to retain a sound level of funding at reasonable costs. This view is incorporated in today's rating affirmation and the stable outlook.

TRMK has relatively sound underwriting standards evidenced by the company generating consistent profitability and relatively low charge-off levels in aggregate during the financial crisis. Fitch observes that over the last 40 quarters, which includes the financial downturn, TRMK has 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. Moreover, TRMK has realized a relatively lower level of NCOs compared to peer banks in recent periods as remaining nonperforming assets are resolved.

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 and credit costs in general to remain lower than those of its peers over the long run. However, Fitch believes that credit costs could be pressured over the near term as oil prices remain depressed. TRMK has just over $400 million in exposure to the energy sector (none tied directly to oil reserves). Outstanding balances were $207 million at 3Q15. While not expected to materially impact TRMK's credit profile, a prolonged period of depressed energy prices could result in modest upturn in NPAs or credit costs.

Core earnings, as measured through pre-provision net revenue (PPNR), continue to remain modestly pressured relative to similarly rated peers primarily due to elevated costs and lost revenue associated with crossing over the $10 billion asset threshold. TRMK's PPNR in 2014 was at 1.41% of average assets, flat year-over-year and down considerably from prior periods. PPNR was 1.34% during the first nine months of 2015.

Fitch anticipates that core earnings will stabilize slightly above current levels due to efficiencies gained through addition acquisitions and organic growth. Operating efficiency should improve over the mid-term providing some uplift to earnings although higher provisioning costs associated with loan growth will likely offset any expense gains. This expectation is reflected in today's rating affirmation and Outlook.

Capital is considered ample and adequate for TRMK's risk profile and rating. Core capital ratios such as TCE/TA have been brought up 9.01% after dropping under 8% in the middle of 2013. Fitch anticipates TRMK to continue to build capital going forward but might be a little slow given earnings pressure and a relatively high dividend payout ratio. Basel III Common Equity Tier 1 is considered strong and was around 13% at 3Q15.

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. It has thus been affirmed due to the affirmation of the VR.

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.

HOLDING COMPANY

TRMKs's IDR and VR are equalized with those of 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. Ratings are also equalized reflecting the very close correlation between holding company and subsidiary failure and default probabilities.

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

VR, IDRs, AND SENIOR DEBT
Fitch views TRMK's current rating solidly positioned at 'BBB+'. Given what Fitch perceives to be a more challenging operating environment for TRMK with higher operating costs relative to its size, Fitch does not expect upward rating movement for TRMK in the near term.

Fitch expects TRMK to continue to be active in the merger and acquisition (M&A) space as it has been in the past. Fitch expects TRMK's M&A activity to be reasonable in size, in geography and within the bank's core competencies. To the extent that TMRK partakes in M&A activity that does not fit these attributes and/or results in earnings and capital metrics that are not commensurate with its rating level, Fitch could take negative rating action.

A visible negative trend in earnings (measured by ROA or PPNR) from current levels resulting in nominal capital build could lead to negative rating action over the long-term. And, although not expected, a reversal in current AQ trends leading to noticeable earnings and capital deterioration could also lead to negative rating action.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings for TRMK and its operating companies' subordinated debt and preferred stock are sensitive to any change to TRMK's VR.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The long-and short-term deposit ratings are sensitive to any change to TRMK's long-and short-term IDR.

HOLDING COMPANY
Should TRMK's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies.

SUPPORT RATING AND SUPPORT RATING FLOOR

Since TRMK's Support and Support Rating Floors are '5' and 'NF', respectively, there is limited likelihood that these ratings will change over the foreseeable future.

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'.