<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
COMMISSION FILE NUMBER 0-3683
TRUSTMARK CORPORATION
---------------------
(Exact name of Registrant as specified in its charter)
MISSISSIPPI 64-0471500
----------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
248 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201
-------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 354-5111
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of May 10, 1995:
COMMON STOCK, NO PAR VALUE 34,910,683
-------------------------- ----------
Class Number of shares
<PAGE> 2
TRUSTMARK CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
Consolidated Statements of Income
Three Months Ended
March 31, 1995 and 1994
Consolidated Statements of
Cash Flows -- Three Months
Ended March 31, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
SIGNATURES
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRUSTMARK CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in Thousands Except Share Data)
<TABLE>
<CAPTION>
March 31,
1995 December 31,
(Unaudited) 1994*
------------------- -----------------
<S> <C> <C>
Assets
Cash and due from banks (noninterest-bearing) $ 293,908 $ 280,114
Federal funds sold and securities purchased
under reverse repurchase agreements 118,360 105,731
Trading account securities 85 1,150
Securities available for sale 423,932 439,691
Securities held to maturity (fair value: $1,383,068 -- 1995;
$1,345,614 -- 1994) 1,418,042 1,422,660
Loans 2,440,673 2,365,683
Less: Unearned income 14,590 18,118
Allowance for loan losses 63,050 65,014
----------------- ---------------
Net loans 2,363,033 2,282,551
Premises and equipment, net 63,881 64,078
Accrued interest receivable 33,803 37,200
Intangible assets 37,387 38,074
Other assets 83,694 92,116
----------------- ---------------
Total Assets $ 4,836,125 $ 4,763,365
================= ===============
Liabilities
Deposits:
Noninterest-bearing $ 712,035 $ 732,635
Interest-bearing 2,791,924 2,716,594
----------------- ---------------
Total deposits 3,503,959 3,449,229
Federal funds purchased 107,615 160,140
Securities sold under repurchase agreements 740,679 690,898
Accrued expenses and other liabilities 46,970 42,088
----------------- ---------------
Total Liabilities 4,399,223 4,342,355
Commitments and Contingencies
Stockholders' Equity
Common stock, no par value:
Authorized, 100,000,000 shares
Issued and outstanding: 34,910,683 shares 14,546 14,546
Surplus 244,578 244,578
Retained earnings 179,988 169,857
Net unrealized loss on securities available for sale, net of tax (2,210) (7,971)
----------------- ---------------
Total Stockholders' Equity 436,902 421,010
----------------- ---------------
Total Liabilities and Stockholders' Equity $ 4,836,125 $ 4,763,365
================= ===============
</TABLE>
*Derived from audited financial statements
See notes to consolidated financial statements
<PAGE> 4
TRUSTMARK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
($ IN THOUSANDS EXCEPT SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1995 1994
--------------- ----------------
<S> <C> <C>
Interest Income
Interest and fees on loans $ 52,516 $ 44,552
Interest on securities:
Taxable interest income 27,943 27,810
Interest income exempt from federal
income taxes 1,515 1,736
Interest on federal funds sold and securities purchased
under reverse repurchase agreements 1,685 2,228
------------- --------------
Total Interest Income 83,659 76,326
Interest Expense
Interest on deposits 26,403 21,821
Interest on federal funds purchased and securities sold
under repurchase agreements 11,375 6,735
------------- --------------
Total Interest Expense 37,778 28,556
------------- --------------
Net Interest Income 45,881 47,770
Provision for loan losses 563 312
------------- --------------
Net Interest Income After Provision
for Loan Losses 45,318 47,458
Other Income
Trust service income 2,286 2,287
Service charges on deposit accounts 5,115 4,454
Other account charges, fees and commissions 5,284 4,422
Securities gains 120 4
Other 911 788
------------- --------------
Total Other Income 13,716 11,955
Other Expenses
Salaries 15,269 15,649
Employee benefits 2,959 3,208
Net occupancy - premises 2,287 1,973
Equipment expense 3,362 3,246
Services and fees 4,609 4,337
Other real estate expenses 60 168
FDIC insurance assessment 1,899 1,950
Amortization of intangible assets 1,747 1,675
Other 5,928 6,541
------------- --------------
Total Other Expenses 38,120 38,747
------------- --------------
Income before income taxes 20,914 20,666
Income taxes 7,030 6,846
------------- --------------
Net Income $ 13,884 $ 13,820
============= ==============
Net Income Per Share $ 0.40 $ 0.40
============= ==============
Dividends Per Share $ 0.1075 $ 0.1000
============= ==============
Weighted average shares outstanding 34,910,683 34,773,169
============= ==============
</TABLE>
See notes to consolidated financial statements
<PAGE> 5
TRUSTMARK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Operating Activities
Net income $13,884 $13,820
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 563 312
Provision for depreciation and amortization 4,349 4,087
Writedowns and losses/(gains) on other real estate 33 (33)
Net (accretion)/amortization of securities (125) 613
Securities gains (120) (4)
Other (73) 1,416
Decrease in accrued interest receivable 3,397 2,679
Increase in intangible assets (1,060) (1,620)
Increase in deferred income taxes (81) (1,023)
Decrease (increase) in other assets 5,673 (317)
Increase in other liabilities 4,882 9,325
----------- -----------
Net cash provided by operating activities 31,322 29,255
----------- -----------
Investing Activities
Proceeds from calls and maturities of securities available for
sale 31,345 85,849
Proceeds from calls and maturities of securities held to
maturity 17,455 149,504
Proceeds from sales of securities available for sale 92,500
Purchases of securities available for sale (98,545) (171,668)
Purchases of securities held to maturity (12,804) (70,043)
Net increase in federal funds sold and securities
purchased under reverse repurchase agreements (12,629) (154,207)
Net (increase) decrease in loans (80,982) 48,228
Purchases of premises and equipment (2,152) (2,393)
Proceeds from sales of premises and equipment 51 56
----------- -----------
Net cash used by investing activities (65,761) (114,674)
----------- -----------
Financing Activities
Net increase in deposits 54,730 103,318
Net (decrease) increase in federal funds purchased
and securities sold under repurchase agreements (2,744) 9,568
Cash dividends (3,753) (3,394)
----------- -----------
Net cash provided by financing activities 48,233 109,492
----------- -----------
Increase in cash and cash equivalents 13,794 24,073
Cash and cash equivalents at beginning of year 280,114 252,906
----------- -----------
Cash and cash equivalents at end of quarter $293,908 $276,979
=========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) In the opinion of Management, the accompanying consolidated financial
statements contain all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly Trustmark Corporation's financial
position as of March 31, 1995 and December 31, 1994, the results of operations
for the three month period ended March 31, 1995 and 1994 and the cash flows for
the three month period ended March 31, 1995 and 1994.
(2) During the first three months of 1995, the Corporation did not make an
income tax payment due to an overpayment at December 31, 1994, and paid
$36,036,000 in interest on deposit liabilities and other borrowings. This
compares to $933,000 for income taxes and $28,924,000 for interest on deposits
and other borrowings for the first three months of 1994.
(3) For the three months ended March 31, 1995 and 1994, noncash transfers from
loans to foreclosed properties were $458,416 and $511,251, respectively.
(4) On January 1, 1995 the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 114 "Accounting by Creditors for Impairment of
a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosures." The statement addresses how
creditors should establish allowances for credit losses on individual loans
determined to be impaired. The effect of this implementation on the
consolidated financial statements has been immaterial.
(5) In January 1995, a judgment was rendered in a Mississippi circuit court
against the Corporation's subsidiary, Trustmark National Bank, in a case
related to the placement of collateral protection insurance ("CPI") by the Bank
on a particular loan. The judgment awarded $500 thousand in actual damages
and $38 million in punitive damages to the plaintiffs. Several other suits
relating to CPI have been filed against the Bank and are pending at various
stages. Management of the Corporation is vigorously pursuing the appeal of
the judgment mentioned above and the defense of the other pending suits.
While the ultimate outcome of any litigation is uncertain, Management believes,
based on the advice of legal counsel, that the judgment referred to above will
be reversed or substantially reduced and that the impact of this matter, the
other CPI related suits or any additional claims related to CPI will not be
material to the results of operations or financial position of the Corporation.
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements found elsewhere in this report.
BUSINESS COMBINATIONS
On October 7, 1994, the Corporation completed a merger with First National
Financial Corporation (FNFC) of Vicksburg, Mississippi and its wholly-owned
subsidiary, First National Bank of Vicksburg (FNBV). The business combination
was accounted for as a pooling of interests; therefore, all financial data of
the Corporation as previously reported has been restated.
EARNINGS SUMMARY
Trustmark Corporation reported net income for the three months ended March
31, 1995 of $13.9 million or $.40 per share compared to $13.8 million or $.40
per share for the same time period in 1994. The Corporation was able to
maintain its level of earnings due to the growth in noninterest income which
more than offset a drop in the level of net interest income.
Two key measures of profitability in the banking industry are return on
average assets (ROA) and return on average equity (ROE). ROA rose to 1.17%
during the first quarter of 1995 from 1.16% for the same time period in 1994.
ROE for the same time periods was 12.93% versus 14.20%. ROE declined during
the first quarter of 1995 because the pace of growth for equity has exceeded
the growth of earnings.
ASSET/LIABILITY MANAGEMENT AND LIQUIDITY
A key objective of asset/liability management is to manage the
Corporation's assets and liabilities to optimize and maintain the spread
between interest earned and interest paid while ensuring an adequate liquidity
position. The Asset/Liability Committee monitors and adjusts the Corporation's
exposure to interest rates, within specific policy guidelines, based on its
view of current and expected market conditions. The primary tool utilized by
this committee is an asset/liability modeling system which is used to evaluate
exposure to interest rate risk and to project earnings and balance sheet
growth. The Asset/Liability Committees of both senior bank officials and the
Board of Directors meet monthly to review Trustmark's interest rate risk
position. Interest rate risk tolerances are defined by policy and, if
exceeded, are addressed and appropriate action taken to reduce any excess to an
acceptable level. The Corporation's latest net interest income forecasts for
the six month, twelve month and second twelve month periods were within policy
guidelines.
Another tool used to monitor the Corporation's overall interest rate
sensitivity is a gap analysis. The table below represents the Corporation's 90
day and one year gap position as of March 31, 1995 ($ in thousands):
<PAGE> 8
<TABLE>
<CAPTION>
Interest Sensitive Within
90 days One Year
----------- -----------
<S> <C> <C>
Total rate sensitive assets $1,241,341 $1,814,435
Total rate sensitive liabilities 1,550,787 2,302,920
----------- -----------
Net gap $ (309,446) $ (488,485)
=========== ===========
</TABLE>
The analysis indicates that the Corporation is in a negative gap position
over the next three month and twelve month time horizons. Management believes
that it has adequate flexibility to alter the overall rate sensitivity
structure as necessary to minimize exposure to changes in interest rates.
Since the beginning of 1994, the Corporation's negative gap position has
decreased in response to the rising interest rate environment.
The Corporation's goal is to maintain an adequate liquidity position to
compensate for expected and unexpected balance sheet fluctuations and to
provide funds for growth. This is achieved by maintaining a stable base of
core deposits, accessibility to local, regional and national funding sources,
readily marketable assets and diversity in customers, products and market
areas. The ability to maintain liquidity is also enhanced by consistent
earnings power and adequate capital. The Asset/Liability Committee establishes
guidelines which monitor the current liquidity position and ensure adequate
funding capacity.
EARNING ASSETS
Improved loan demand was the major contributor to the growth of earning
assets during the first quarter of 1995. At March 31, 1995, earning assets were
$4.387 billion (90.7% of total assets) compared to $4.317 billion (90.6% of
total assets) at the end of 1994.
Total loans increased by $78.5 million or 3.34% during the first quarter
of 1995. The most substantial growth in the loan portfolio was seen in real
estate loans, which increased by $43.8 million. Although the market has seen
some slowdown in the volume of mortgage loans due to rising interest rates,
additional mortgage production offices and the Corporation's ability to provide
quality service to residential construction borrowers have contributed to this
growth. The Corporation has also continued its commitment to the growth of its
mortgage servicing portfolio. The Corporation intends to package and sell
substantially all qualified one-to-four family residential mortgage loans that
the Corporation has originated or purchased while retaining the right to
service these mortgages. At March 31, 1995, the Corporation's volume of
residential mortgage loan servicing was approximately $2.151 billion compared
to $2.088 billion at the end of 1994.
Commercial and industrial loans grew by $42.7 million during the first
quarter of 1995 in response to the state's improving economic atmosphere. The
most significant changes were in the Construction & Real Estate, Manufacturing
and Wholesale industries.
The Corporation's emphasis on credit quality has produced a healthy loan
portfolio and a conservative approach to providing for
<PAGE> 9
potential loan losses. This emphasis on credit quality can be seen in the
Corporation's commitment to the continued refinement of credit administration
systems designed to monitor overall policy compliance and the adequacy of
supporting financial and collateral documentation. As a result of this
commitment, it is anticipated that the Corporation's ability to identify and
address actual and potential credit problems will be further strengthened.
The allowance for loan losses is maintained at a level which Management
and the Board of Directors believe is adequate to absorb estimated losses
inherent in the loan portfolio, plus estimated losses associated with
off-balance sheet credit instruments such as letters of credit. The adequacy of
the allowance is reviewed on a quarterly basis by using the criteria specified
in revised Comptroller of the Currency Banking Circular 201 as well as
additional guidance provided by regulatory authorities. Specifically, the
analysis is based on a consideration of the following factors: estimated future
loss in significant and criticized loans, known deterioration in concentrations
of credit, classes of loans or pledged collateral, historical loss experience
based on volume and types of loans, results of independent review of the loan
portfolio, trends in portfolio volume, maturity and composition, off-balance
sheet risk, volume and trends in delinquencies and nonaccruals, consideration
of current economic conditions and downturns in specific local industries,
lending policies and procedures and experience, ability and depth of lending
management and staff. This analysis is presented to the Credit Policy Committee
with subsequent review and approval by the Board of Directors.
The current level of the allowance for loan losses approximates 2.60% of
total loans outstanding and provides the Corporation with an adequate reserve
coverage of nonperforming loans. Because of the imprecision and subjectivity
inherent in most estimates of expected credit losses, Management will continue
to take a prudent, yet conservative approach in the evaluation of the allowance
for loan losses.
Net charge-offs totaled $2.527 million during the first quarter of 1995
resulting in an annualized net charge-off ratio of .43%. This compares to net
charge-offs of $273 thousand (an annualized net charge-off ratio of .05%) for
the first quarter of 1994. This increase in net charge-offs is primarily due
to a one time charge-off of approximately $2.2 million from a specific line of
business. Disregarding this one time charge-off, net charge-offs for the first
quarter of 1995 would have approximated the level achieved during the first
quarter of 1994.
A measure of asset quality in the financial institutions industry is the
level of nonperforming assets. Nonperforming assets include nonperforming
loans, consisting of nonaccrual and restructured loans, and other real estate.
See the table below for more details ($ in thousands):
<PAGE> 10
<TABLE>
<CAPTION>
3/31/95 12/31/94
------- -------
<S> <C> <C>
Loans accounted for on a nonaccrual basis $16,292 $12,817
Other real estate 3,810 3,723
Loans past due 90 days or more and still accruing 1,051 2,252
------- -------
Total nonperforming assets and past due loans $21,153 $18,792
------- -------
</TABLE>
Asset quality of the Corporation is considered to be very good. As the
table above illustrates, overall nonperforming assets and past due loans remain
well-controlled and continue to compare favorably to peer levels. As of March
31, 1995, the Corporation knows of no additional loans, other than those
identified above, that Management has serious doubts as to the ability of such
borrowers to repay principal and interest.
The securities portfolio is utilized to provide a quality investment
alternative for available funds and to provide a stable source of interest
income. At March 31, 1995, total securities were $1.842 billion, a decline of
$20.4 million or 1.1% from the end of 1994. This decline is partially
attributable to the Corporation's decision to utilize this liquidity to provide
funds for loan growth. Given the current flat shape of the treasury yield
curve, the Corporation will remain cautious in planning its future strategy for
securities.
The latest comparisons of the tax equivalent yield of the securities
portfolio show the Corporation remaining in the upper quartile when compared to
its peer group. This has been accomplished while maintaining the quality of
the portfolio.
At March 31, 1995, the amortized cost and fair value of securities
classified as available for sale were $427.5 million and $423.9 million,
respectively. This resulted in an unrecognized loss, net of tax, of
approximately $2.210 million as a separate component of stockholders' equity.
During the first quarter of 1995, the Corporation decreased the size of
its short-term portfolio as it sought funds for loan growth and the reduction
of its overnight borrowing needs. Products included in the short-term
portfolio are primarily U. S. Government agency securities classified as
available for sale and reverse repurchase agreements. In order to enhance the
Corporation's liquidity and profitability, this portfolio will continue to be
utilized as an alternative to the overnight funds market.
For the three months ended March 31, 1995, realized gains were $1.350
million on securities available for sale while realized losses totaled $1.280
million, resulting in net securities gains of $70 thousand. Gross unrealized
gains approximated $4.365 million while gross unrealized losses approximated
$7.944 million on these securities.
There were no sales of securities held to maturity during the first
quarter of 1995. Gross gains of $50 thousand were realized on securities
called prior to their maturity. Gross unrealized gains approximated $6.780
million and gross unrealized losses approximated $41.754 million on securities
classified as held to
<PAGE> 11
maturity at March 31, 1995.
Federal funds sold and securities purchased under reverse repurchase
agreements increased by $12.6 million when compared to the end of 1994. Market
conditions and liquidity needs are the driving forces behind the utilization of
federal funds sold and securities purchased under reverse repurchase agreements
as short-term investment products.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Deposits are the primary source of funding for the Corporation's earning
assets. Trustmark offers a variety of products designed to attract and retain
customers with the primary focus on core deposits.
Total deposits at March 31, 1995 increased by $54.7 million when compared
to December 31, 1994. Interest-bearing deposits increased by $75.3 million
while noninterest-bearing deposits decreased $20.6 million during that time
period. With interest rates continuing to rise, growth was seen in all major
categories of interest-bearing deposits. During the remainder of 1995, the
Corporation is committed to increasing its core deposit base while reducing its
dependence on short-term borrowings, principally federal funds purchased and
securities sold under repurchase agreements.
Federal funds purchased decreased $52.5 million when compared to December
31, 1994. This can be traced to a decrease in funds available for purchase
from correspondent banks. Securities sold under repurchase agreements grew by
$49.8 million during the first quarter of 1995. This increase can be primarily
attributed to increased funds invested by governmental entities.
CONTINGENCIES
In January 1995, a judgment was rendered in a Mississippi circuit court
against the Corporation's subsidiary, Trustmark National Bank (the Bank), in a
case related to the placement of collateral protection insurance ("CPI") by the
Bank on a particular loan. The judgment awarded $500 thousand in actual
damages and $38 million in punitive damages to the plaintiffs. Several other
suits relating to CPI have been filed against the Bank and are pending at
various stages. Management of the Corporation is vigorously pursuing the
appeal of the judgment mentioned above and the defense of the other pending
suits. While the ultimate outcome of any litigation is uncertain, Management
believes, based on the advice of legal counsel, that the judgment referred to
above will be reversed or substantially reduced and that the impact of this
matter, the other CPI related suits or any additional claims related to CPI
will not be material to the results of operations or financial position of the
Corporation.
STOCKHOLDERS' EQUITY
The Corporation has always placed a great emphasis on maintaining a strong
capital base. It is the Corporation's goal to maintain its position as a "well
capitalized" financial institution by expanding its capital base through
continued profitability, business combinations and possibly the sale of stock.
Based on the
<PAGE> 12
capital levels defined by banking regulators, a "well capitalized" institution
is one that has at least a 10% total risk-based capital ratio, a 6% Tier 1
risk-based capital ratio and a 5% Tier 1 leverage ratio. The Corporation's
solid capital base is reflected in its regulatory capital ratios. The table
below illustrates these ratios at March 31, 1995 ($ in thousands):
<TABLE>
<S> <C>
Tier 1 Capital $427,392
Tier 2 Capital 34,580
--------
Total Qualifying Capital $461,972
========
Total Risk Weighted Assets $2,737,967
==========
Tier 1/Risk Weighted Assets 15.61%
Tier 2/Risk Weighted Assets 1.26%
------
Total Qualifying Capital/Risk Weighted Assets 16.87%
======
Leverage Ratio 8.92%
======
</TABLE>
As shown in the table above, the Corporation's capital ratios surpass the
minimum requirements of 4% for the Tier 1 capital ratio and 8% for the total
risk-based capital ratio. The Tier 1 leverage ratio generally must exceed 3%
and is driven by evaluation and discretion of the regulators.
At March 31, 1995, the Corporation had stockholders' equity of $436.9
million which contained a net unrealized loss on securities available for sale,
net of taxes, of $2.210 million. This compares to total stockholders' equity at
December 31, 1994 of $421.0 million, which contained a net unrealized loss on
securities available for sale, net of taxes of $7.971 million.
Based on its dividend payout ratio of 27.5%, the Corporation retained
72.5% of its earnings for the first quarter of 1995, generating an internal
capital growth rate of 9.38%. Dividends for the first quarter of 1995 remained
at $.1075 per share resulting in an annual dividend rate of $.43 per share.
Book value for the Corporation's common stock was $12.51 at March 31, 1995
compared to the closing market price of $15.25.
NET INTEREST INCOME
Net interest income is an effective measurement of how well Management has
managed the Corporation's interest rate sensitive assets and liabilities.
During the first quarter of 1995, the Corporation's level of net interest
income dropped by 3.95% or $1.9 million when compared to the same time period
in 1994 essentially due to its cost of funding increasing at a somewhat faster
pace than its yield on earning assets.
When compared to 1994, average earning assets decreased 1.7%
<PAGE> 13
during the first quarter of 1995. During the same time period, the yield on
average earning assets increased by 80 basis points. This combination resulted
in interest income generated by earning assets increasing $7.3 million or 9.6%
when comparing the first quarter of 1995 and 1994. The primary contributor to
this gain was interest and fees on loans, which increased 17.9%. This resulted
from a 7.8% increase in loan volume and a higher interest rate environment when
comparing the first quarter of 1995 to 1994.
Average interest-bearing liabilities decreased 2.4% when comparing the
first quarter of 1995 to the same time period in 1994. During the same time
period, the rate paid increased by 90 basis points. As a result, interest
expense generated by interest-bearing liabilities increased by $9.2 million or
32.3% when compared to the first quarter of 1994. This growth in interest
expense can be attributed to the increased interest rate environment since the
volume of interest-bearing liabilities declined.
The table below illustrates the changes in net interest margin as a
percentage of average earning assets for the periods shown below:
<TABLE>
<CAPTION>
Quarter ended,
-------------------------
3/31/95 12/31/94 3/31/94
------- -------- -------
<S> <C> <C> <C>
Yield on interest-earning assets-FTE 7.91% 7.66% 7.11%
Rate on interest-bearing liabilities 3.52% 3.15% 2.62%
------ ------ -------
Net interest margin-FTE 4.39% 4.51% 4.49%
====== ====== =======
</TABLE>
The fully taxable equivalent (FTE) yield on tax exempt income has been computed
based on a 35% federal marginal tax rate for all periods shown. The
Corporation will continue to take the necessary precautions in order to
minimize exposure to changes in interest rates.
NONINTEREST INCOME
The Corporation stresses the importance of growth in noninterest income as
one of its key long-term strategies. Noninterest income for the first quarter
of 1995, excluding securities losses, increased $1.6 million or 13.8% when
compared to the same time period in 1994.
Other account charges, fees and commissions continue to provide the
largest component of noninterest income. The two major contributors to the
19.5% increase in this category were fees generated from residential mortgage
servicing and ATM usage. Management's commitment to the continued growth of
the mortgage servicing portfolio was evidenced by the $311 thousand or 16.4%
increase in fees collected from servicing mortgages when comparing the first
quarter of 1995 to the same time period in 1994. Increased fees have been
generated by the placement of additional off-site ATM's in gaming locations
during the past year.
Year-to-date service charges have grown by 14.8% when comparing the first
quarter of 1995 to 1994. This increase can be
<PAGE> 14
attributed to Management's reevaluation of its service charge pricing,
procedures and products.
NONINTEREST EXPENSE
Another long-term strategy of the Corporation is to continue to provide
quality service to its customers within the context of economic discipline. The
Corporation's commitment to lowering its cost position is demonstrated by its
efficiency ratios which remain substantially below that of its peer group.
Noninterest expense for the first quarter of 1995 decreased $627 thousand or
1.6% when compared to the first quarter of 1994.
Salaries and employee benefits continue to comprise the largest portion of
other expenses; however, these expenses have declined $629 thousand or 3.34%
when comparing the first quarter of 1995 to 1994. The number of full-time
equivalent employees totaled 2,206 at March 31, 1995, 2,214 at December 31,
1994 and 2,217 at March 31, 1994. This decrease points out the Corporation's
commitment to improving its operational efficiencies through the continued
evaluation of its staff levels. Personnel expense for the Corporation remains
well below that of its peer group.
Renovations to facilities purchased and leased in business combinations as
well as the general maintenance of existing facilities have contributed to the
$314 thousand or 15.9% increase in net occupancy expenses when comparing the
first quarter of 1995 to 1994. Equipment expenses experienced a modest increase
of $116 thousand when comparing the first quarter of 1995 to 1994 primarily
from increased depreciation expenses related to new and existing equipment
utilized in business combinations.
Other expenses decreased $613 thousand or 9.4% when comparing the first
quarter of 1995 to 1994. This can be traced to significantly larger losses on
sale of loans during the first quarter of 1994.
INCOME TAXES
For the three months ended March 31, 1995, the Corporation's effective tax
rate was 33.61% compared to 33.13% for the first quarter of 1994, an increase
of .48%. This increase is due primarily to a decrease in the amount of tax-
exempt interest net of interest expense to carry tax-free obligations. This net
tax-exempt interest was lower for the first quarter of 1995 both in real terms
and as a percentage of interest income than during the three months ended March
31, 1994.
During April of 1995, the Corporation concluded an income tax examination
for the years 1989, 1990 and 1991. The effects, which are not material, are
included in the Corporation's consolidated financial statements.
OTHER REGULATORY MATTERS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of
a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosures." SFAS No. 114 generally will
require all creditors to account for impaired loans, except those that are
<PAGE> 15
accounted for at fair value or at the lower of cost or fair value, at the
present value of the expected future cash flows discounted at the loan's
effective interest rate or, if collateral dependent, at the fair value of the
underlying collateral. The Corporation adopted this standard on January 1,
1995 and the effects on financial condition and results of operations have been
immaterial.
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material developments for the quarter ended March 31, 1995,
relative to the legal matter disclosed in the Notes to Consolidated Financial
Statements of this Form 10-Q and in Form 10-K dated December 31, 1994.
ITEM 2. CHANGES IN SECURITIES
A) None
B) None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
A) None
B) None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A) None
B) None
C) None
D) None
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
(27) Financial Data Schedule
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
TRUSTMARK CORPORATION
---------------------
(Registrant)
DATE: May 10, 1995 /s/ FRANK R. DAY
------------ -----------------------------
Frank R. Day, Chairman of the
Board, President and Chief
Executive Officer
DATE: May 10, 1995 /s/ HARRY M. WALKER
------------ -----------------------------
Harry M. Walker, Secretary-
Treasurer
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 293,908
<INT-BEARING-DEPOSITS> 2,791,924
<FED-FUNDS-SOLD> 118,360
<TRADING-ASSETS> 85
<INVESTMENTS-HELD-FOR-SALE> 423,932
<INVESTMENTS-CARRYING> 1,418,042
<INVESTMENTS-MARKET> 1,383,068
<LOANS> 2,426,083
<ALLOWANCE> 63,050
<TOTAL-ASSETS> 4,836,125
<DEPOSITS> 3,503,959
<SHORT-TERM> 848,294
<LIABILITIES-OTHER> 46,970
<LONG-TERM> 0
<COMMON> 14,546
0
0
<OTHER-SE> 422,356
<TOTAL-LIABILITIES-AND-EQUITY> 4,836,125
<INTEREST-LOAN> 52,516
<INTEREST-INVEST> 29,458
<INTEREST-OTHER> 1,685
<INTEREST-TOTAL> 83,659
<INTEREST-DEPOSIT> 26,403
<INTEREST-EXPENSE> 37,778
<INTEREST-INCOME-NET> 45,881
<LOAN-LOSSES> 563
<SECURITIES-GAINS> 120
<EXPENSE-OTHER> 38,120
<INCOME-PRETAX> 20,914
<INCOME-PRE-EXTRAORDINARY> 20,914
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,884
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
<YIELD-ACTUAL> 4.39
<LOANS-NON> 16,292
<LOANS-PAST> 1,051
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 65,014
<CHARGE-OFFS> 3,543
<RECOVERIES> 1,016
<ALLOWANCE-CLOSE> 63,050
<ALLOWANCE-DOMESTIC> 37,271
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 25,779
</TABLE>
