<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 JUNE 30, 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 August 11, 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
June 30, 1995 and December 31, 1994
Consolidated Statements of Income
Three and Six Months Ended
June 30, 1995 and 1994
Consolidated Statements of
Cash Flows - Six Months
Ended June 30, 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>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1995 1994*
---------------- ------------------
<S> <C> <C>
ASSETS
Cash and due from banks (noninterest-bearing) $ 278,949 $ 280,114
Federal funds sold and securities purchased
under reverse repurchase agreements 122,098 105,731
Trading account securities 97 1,150
Securities available for sale 458,580 439,691
Securities held to maturity (fair value: $1,407,783-1995;
$1,345,614-1994) 1,405,944 1,422,660
Loans 2,508,184 2,365,683
Less: Unearned income 11,627 18,118
Allowance for loan losses 61,450 65,014
---------------- -----------------
Net loans 2,435,107 2,282,551
Premises and equipment, net 62,824 64,078
Accrued interest receivable 36,817 37,200
Intangible assets 37,615 38,074
Other assets 82,690 92,116
---------------- -----------------
Total Assets $ 4,920,721 $ 4,763,365
================ =================
LIABILITIES
Deposits:
Noninterest-bearing $ 707,313 $ 732,635
Interest-bearing 2,766,988 2,716,594
---------------- -----------------
Total deposits 3,474,301 3,449,229
Federal funds purchased 69,513 160,140
Securities sold under repurchase agreements 875,694 690,898
Accrued expenses and other liabilities 49,075 42,088
---------------- -----------------
Total Liabilities 4,468,583 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 190,950 169,857
Net unrealized gain (loss) on securities available for sale, net of tax 2,064 (7,971)
---------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 452,138 421,010
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,920,721 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -------------------------------
1995 1994 1995 1994
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 55,834 $ 46,342 $ 108,350 $ 90,894
Interest on securities:
Taxable interest income 27,458 28,145 55,395 55,955
Interest income exempt from federal
income taxes 1,528 1,746 3,049 3,482
Interest on federal funds sold and securities purchased
under reverse repurchase agreements 2,104 1,537 3,789 3,765
-------------- ------------- ------------- -------------
TOTAL INTEREST INCOME 86,924 77,770 170,583 154,096
INTEREST EXPENSE
Interest on deposits 28,351 22,118 54,754 43,939
Interest on federal funds purchased and securities sold
under repurchase agreements 12,675 7,764 24,050 14,499
-------------- ------------- ------------- -------------
TOTAL INTEREST EXPENSE 41,026 29,882 78,804 58,438
-------------- ------------- ------------- -------------
NET INTEREST INCOME 45,898 47,888 91,779 95,658
Provision for loan losses (791) 423 (228) 735
-------------- ------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 46,689 47,465 92,007 94,923
OTHER INCOME
Trust service income 2,302 2,225 4,588 4,512
Service charges on deposit accounts 5,158 4,481 10,273 8,935
Other account charges, fees and commissions 6,460 4,621 11,744 9,043
Securities gains 0 35 120 39
Other 1,328 294 2,239 1,082
-------------- ------------- ------------- -------------
TOTAL OTHER INCOME 15,248 11,656 28,964 23,611
OTHER EXPENSES
Salaries 15,126 14,920 30,395 30,569
Employee benefits 2,741 2,834 5,700 6,042
Net occupancy - premises 2,196 2,073 4,483 4,046
Equipment expense 3,585 3,347 6,947 6,593
Services and fees 4,583 4,749 9,192 9,086
Other real estate expenses 124 164 184 332
FDIC insurance assessment 1,898 1,952 3,797 3,902
Amortization of intangible assets 1,793 1,719 3,540 3,394
Other 7,278 5,364 13,206 11,905
-------------- ------------- ------------- -------------
TOTAL OTHER EXPENSES 39,324 37,122 77,444 75,869
-------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 22,613 21,999 43,527 42,665
Income taxes 7,898 7,303 14,928 14,149
-------------- ------------- ------------- -------------
NET INCOME $ 14,715 $ 14,696 $ 28,599 $ 28,516
============== ============= ============= =============
NET INCOME PER SHARE $ 0.42 $ 0.42 $ 0.82 $ 0.82
============== ============= ============= =============
DIVIDENDS PER SHARE $ 0.1075 $ 0.1000 $ 0.2150 $ 0.2000
============== ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 34,910,683 34,773,169 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>
SIX MONTHS ENDED JUNE 30,
-------------------------------
1995 1994
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 28,599 $ 28,516
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses (228) 735
Provision for depreciation and amortization 8,782 8,314
(Gains)/losses and writedowns on other real estate (99) (66)
Net (accretion)/amortization of securities (1,523) 543
Securities gains (120) (40)
Other (273) 1,255
Decrease (increase) in accrued interest receivable 383 (1,969)
Increase in intangible assets (3,082) (3,207)
Increase in deferred income taxes (1,969) (325)
Decrease in other assets 5,718 248
Increase in other liabilities 6,987 2,421
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 43,175 36,425
--------- ---------
INVESTING ACTIVITIES
Proceeds from calls and maturities of securities available for sale 159,660 139,785
Proceeds from calls and maturities of securities held to maturity 27,366 229,512
Proceeds from sales of securities available for sale 92,500 195,876
Purchases of securities available for sale (245,794) (233,021)
Purchases of securities held to maturity (18,011) (296,040)
Net increase in federal funds sold and securities
purchased under reverse repurchase agreements (16,367) (66,726)
Net increase in loans (152,083) (5,603)
Purchases of premises and equipment (3,452) (5,277)
Proceeds from sales of premises and equipment 106 110
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (156,075) (41,384)
--------- ---------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 25,072 (7,866)
Net increase in federal funds purchased
and securities sold under repurchase agreements 94,169 7,987
Cash dividends paid (7,506) (6,789)
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 111,735 (6,668)
--------- ---------
Decrease in cash and cash equivalents (1,165) (11,627)
Cash and cash equivalents at beginning of year 280,114 252,906
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 278,949 $ 241,279
========= =========
</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 balance sheets
as of June 30, 1995 and December 31, 1994, the statements of income for the
three and six month periods ended June 30, 1995 and 1994 and the statements of
cash flows for the six month period ended June 30, 1995 and 1994.
(2) During the first six months of 1995, the Corporation paid approximately
$13,775,000 in income taxes and $76,156,000 in interest on deposit liabilities
and other borrowings. This compares to $16,738,000 for income taxes and
$58,902,000 for interest on deposits and other borrowings for the first six
months of 1994.
(3) For the six months ended June 30, 1995 and 1994, noncash transfers from
loans to foreclosed properties were $569,000 and $1,012,000, 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 ("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. The Bank filed
motions for the court to set aside the jury verdict, to reduce the verdict or
to grant a new trial. The judge took the motions under advisement in April
1995. On August 4, 1995, the court reduced the punitive damages from $38
million to $5 million. If the plaintiffs do not accept this order, a new trial
will result. However, if accepted, it is the intention of Management to
vigorously pursue the appeal of this case. Several other suits relating to CPI
have been filed against the Bank and are pending at various stages. 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 will be reduced again 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 June
30, 1995 and 1994 of $14.7 million or $.42 per share. Earnings for the six
months ended June 30, 1995 were $28.6 million or $.82 per share compared to
$28.5 million or $.82 per share for the same time period in 1994. The
Corporation was able to maintain its level of earnings because growth in
noninterest income and a decline in the provision for loan losses 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). During the second
quarter of 1995 ROA measured 1.21% and ROE 13.25% compared to a ROA of 1.23%
and a ROE of 14.59% for the same time period in 1994. For the six months ended
June 30, 1995, ROA was 1.19% and ROE was 13.10% compared to a ROA of 1.19% and
a ROE of 14.40% for the same time period in 1994. The decline in ROE for both
periods presented can be attributed to a faster pace of growth for equity than
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
<PAGE> 8
June 30, 1995 ($ in thousands):
<TABLE>
<CAPTION>
Interest Sensitive Within
90 days One Year
----------- -----------
<S> <C> <C>
Total rate sensitive assets $1,290,565 $1,907,624
Total rate sensitive liabilities 1,613,805 2,353,437
----------- -----------
Net gap $ (323,240) $ (445,813)
=========== ===========
</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 a general trend of rising interest rates.
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 half of 1995. At June 30, 1995, earning assets were
$4.483 billion (91.1% of total assets) compared to $4.317 billion (90.6% of
total assets) at the end of 1994.
Total loans increased by $149.0 million or 6.35% during the first half of
1995. The most substantial growth in the loan portfolio was seen in real
estate loans, which increased by $104.7 million. Recently declining interest
rates combined with 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 June 30,
1995, the Corporation's volume of residential mortgage loan servicing was
approximately $2.235 billion compared to $2.088 billion at the end of 1994.
Commercial and industrial loans grew by $40.7 million during the first
half of 1995 in response to the state's improving economic atmosphere. The most
significant changes were in the Construction & Real Estate, Manufacturing and
Service industries.
The Corporation's emphasis on asset quality has produced a healthy loan
portfolio and a conservative approach to providing for potential loan losses.
A measure of asset quality in the financial
<PAGE> 9
institutions industry is the level of nonperforming assets. Nonperforming
assets include nonperforming loans, consisting of nonaccrual and restructured
loans, and other real estate. See the table below for more details ($ in
thousands):
<TABLE>
<CAPTION>
6/30/95 12/31/94
------- -------
<S> <C> <C>
Loans accounted for on a nonaccrual basis $14,231 $12,817
Other real estate 2,575 3,723
Loans past due 90 days or more and still accruing 1,359 2,252
------- -------
Total nonperforming assets and past due loans $18,165 $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 June
30, 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 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, national and
local 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 2.46% 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 $809 thousand during the second quarter of 1995
resulting in an annualized net charge-off ratio of .13%. For the six months
ended June 30, 1995, net charge-offs were $3.336 million, which yielded an
annualized net charge-off ratio of .28%. This compares to net charge-offs of
$780 thousand (an annualized net charge-off ratio of .07%) for the first half
of
<PAGE> 10
1994. This increase in net charge-offs is primarily due to a one- time
charge-off of approximately $2.3 million from a specific line of business.
Disregarding this one-time charge-off, net charge-offs for the first half of
1995 would have approximated the level achieved during the first half of 1994.
The securities portfolio is utilized to provide a quality investment
alternative for available funds and to provide a stable source of interest
income. At June 30, 1995, total securities were $1.865 billion, an increase of
$2.2 million or .12% from the end of 1994. The small growth in the securities
portfolio is partially attributable to the Corporation's decision to maintain
its investment portfolio at approximately its current level to allow any excess
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 June 30, 1995, the amortized cost and fair value of securities
classified as available for sale were $455.2 million and $458.6 million,
respectively. This resulted in an unrecognized gain, net of tax, of
approximately $2.064 million as a separate component of stockholders' equity.
During the second quarter of 1995, the size of the Corporation's
short-term portfolio remained stable. 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 six months ended June 30, 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 $5.671 million while gross unrealized losses approximated
$2.332 million on these securities.
There were no sales of securities held to maturity during the first half
of 1995. Gross gains of $50 thousand were realized on securities called prior
to their maturity. Gross unrealized gains approximated $15.701 million and
gross unrealized losses approximated $13.862 million on securities classified
as held to maturity at June 30, 1995.
Federal funds sold and securities purchased under reverse repurchase
agreements increased by $16.4 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.
<PAGE> 11
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 June 30, 1995 increased by $25.1 million when compared
to December 31, 1994 with the majority of this growth centered in certificates
of deposit. 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 $90.6 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
$184.8 million during the first half 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, 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. The Bank filed motions for
the court to set aside the jury verdict, to reduce the verdict or to grant a
new trial. The judge took the motions under advisement in April 1995. On
August 4, 1995, the court reduced the punitive damages from $38 million to $5
million. If the plaintiffs do not accept this order, a new trial will result.
However, if accepted, it is the intention of Management to vigorously pursue
the appeal of this case. Several other suits relating to CPI have been filed
against the Bank and are pending at various stages. While the ultimate outcome
of any litigation is uncertain, Management believes, based on the advice of
legal counsel, that the judgment referred to above will be reversed or will be
reduced again and that the impact of this matter, the other CPI related suits
or any additional claims related to CPI will not be material to the results of
operations or financial position of the Corporation.
STOCKHOLDERS' EQUITY
The Corporation has always placed a great emphasis on maintaining a strong
capital base. It is the Corporation's goal to maintain its position as a "well
capitalized" financial institution by expanding its capital base through
continued profitability, business combinations and possibly the sale of stock.
Based on the capital levels defined by banking regulators, a "well capitalized"
institution is one that has at least a 10% total risk-based capital ratio, a 6%
Tier 1 risk-based capital ratio and a 5% Tier 1 leverage ratio. The
Corporation's solid capital base is reflected in its regulatory capital ratios.
The table below illustrates these ratios at June 30, 1995 ($ in thousands):
<PAGE> 12
<TABLE>
<S> <C>
Tier 1 Capital $438,707
Tier 2 Capital 35,332
--------
Total Qualifying Capital $474,039
========
Total Risk Weighted Assets $2,800,415
=========
Tier 1/Risk Weighted Assets 15.67%
Tier 2/Risk Weighted Assets 1.26%
------
Total Qualifying Capital/Risk Weighted Assets 16.93%
======
Leverage Ratio 9.04%
======
</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 June 30, 1995, the Corporation had stockholders' equity of $452.1
million, which contained a net unrealized gain on securities available for
sale, net of taxes, of $2.064 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 26.8%, the Corporation retained
73.2% of its earnings for the first half of 1995, generating an internal
capital growth rate of 9.58%. Dividends for the second 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 $12.95 at June 30, 1995
compared to the closing market price of $17.63.
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 half of 1995, the Corporation's level of net interest income
dropped by 4.06% or $3.9 million when compared to the same time period in 1994.
For the second quarter, net interest income declined 4.16% or $2.0 million when
compared to the second quarter of 1994. These declines can be attributed to
the Corporation's cost of funding increasing at a somewhat faster pace than its
yield on earning assets.
When compared to 1994, average earning assets decreased 0.09% during the
first half of 1995. During the same time period, the yield on average earning
assets increased by 75 basis points. This combination resulted in interest
income generated by earning assets increasing $16.5 million or 10.7% when
comparing the first six months of 1995 and 1994. The primary contributor to
this gain was interest and fees on loans, which increased 19.2%. This resulted
<PAGE> 13
from a 9.5% increase in average loan volume and a higher interest rate
environment when comparing the first half of 1995 to 1994.
Average interest-bearing liabilities decreased 0.5% when comparing the
first half of 1995 to the same time period in 1994. During the same time
period, the rate paid increased by 93 basis points. As a result, during the
first six months of 1995 interest expense generated by interest-bearing
liabilities increased by $20.4 million or 34.9% when compared to the first half
of 1994. This growth in interest expense can be attributed to the increased
interest rate environment since the volume of interest-bearing liabilities was
relatively unchanged.
The table below illustrates the changes in net interest margin as a
percentage of average earning assets for the periods shown below:
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------
1995 1994 Change
------ ------ ------
<S> <C> <C> <C>
Yield on interest-earning assets-FTE 7.94% 7.19% .75%
Rate on interest-bearing liabilities 3.61% 2.68% .93%
------ ------ ------
Net interest margin-FTE 4.33% 4.51% (.18%)
====== ====== ======
</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.
PROVISION FOR LOAN LOSSES
The Corporation's provision for loan losses is the adjustment to expense
necessary to maintain the allowance for loan losses at an adequate level. As a
result of Management's assessment of the adequacy of the allowance, the
Corporation recorded a $791 thousand negative provision during the second
quarter of 1995. During the second quarter of 1994, the Corporation's provision
for loan losses was $423 thousand. For the six months ended June 30, 1995, the
Corporation recorded a negative provision for loan losses of $228 thousand.
For the first half of 1994, the Corporation's provision for loan losses was
$735 thousand.
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 half of
1995, excluding securities gains, increased $5.3 million or 22.4% 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 major contributors to the 29.9%
increase in this category were fees generated from residential mortgage
servicing, ATM usage and a variety of other fee producing products and
services.
Year-to-date service charges have grown by 15.0% when
<PAGE> 14
comparing the first half of 1995 to 1994. This increase can be attributed to
Management's reevaluation of its service charge pricing, procedures and
products.
The increase in other income can be attributed to recording certain
nonrecurring miscellaneous income and the growth in gains on sales of loans.
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 continue to compare favorably with its peer group.
Noninterest expense for the first half of 1995 increased $1.6 million or 2.1%
when compared to the first half of 1994.
Salaries and employee benefits continue to comprise the largest portion of
other expenses; however, these expenses have declined $516 thousand or 1.4%
when comparing the first half of 1995 to 1994. The number of full-time
equivalent employees totaled 2,192 at June 30, 1995 and 2,206 at June 30, 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
$437 thousand or 10.8% increase in net occupancy expenses when comparing the
first half of 1995 to 1994. Equipment expenses experienced a modest increase of
$354 thousand when comparing the first half of 1995 to 1994, primarily from
increased depreciation expenses related to new and existing equipment utilized
in business combinations.
Other expenses increased $1.3 million or 10.9% when comparing the first
half of 1995 to 1994. This can be traced to larger operational losses recorded
during the first half of 1995 than in the same time period in 1994.
INCOME TAXES
For the six months ended June 30, 1995, the Corporation's effective tax
rate was 34.3% compared to 33.2% for the first half of 1994, an increase of
1.1%. 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 six months of 1995 both in real
terms and as a percentage of interest income than during the six months ended
June 30, 1994.
During 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 (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 114,
<PAGE> 15
"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 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.
In March of 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of."
This statement establishes standards concerning accounting for "impaired"
property, plant and equipment, identifiable intangibles and related goodwill.
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995.
The Corporation is currently evaluating the impact that adoption of this
statement will have on its financial condition and results of operations.
The FASB has also issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights and Excess Servicing Receivables and for Securitization of Mortgage
Loans." The new statement amends Statement No. 65, "Accounting for Certain
Mortgage Banking Activities" and primarily eliminates the distinction between
purchased mortgage servicing rights and mortgage servicing rights on loans
originated by the financial institution. SFAS No. 122 is effective for fiscal
years beginning after December 15, 1995. The Corporation is currently
evaluating the impact that adoption of this statement will have on its
financial condition and results of operations.
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material developments for the quarter ended June 30, 1995
other than those disclosed in the Notes to Consolidated Financial Statements
and Management's Discussion and Analysis of this Form 10-Q, as well as the
March 31, 1995 Form 10-Q.
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
None
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: August 11, 1995 /s/ FRANK R. DAY
--------------- -----------------------------
Frank R. Day, Chairman of the
Board, President and Chief
Executive Officer
DATE: August 11, 1995 /s/ HARRY M. WALKER
--------------- -----------------------------
Harry M. Walker, Secretary-
Treasurer
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 278,949
<INT-BEARING-DEPOSITS> 2,766,988
<FED-FUNDS-SOLD> 122,098
<TRADING-ASSETS> 97
<INVESTMENTS-HELD-FOR-SALE> 458,580
<INVESTMENTS-CARRYING> 1,405,944
<INVESTMENTS-MARKET> 1,407,783
<LOANS> 2,496,557
<ALLOWANCE> 61,450
<TOTAL-ASSETS> 4,920,721
<DEPOSITS> 3,474,301
<SHORT-TERM> 945,207
<LIABILITIES-OTHER> 49,075
<LONG-TERM> 0
<COMMON> 14,546
0
0
<OTHER-SE> 437,592
<TOTAL-LIABILITIES-AND-EQUITY> 4,920,721
<INTEREST-LOAN> 108,350
<INTEREST-INVEST> 58,444
<INTEREST-OTHER> 3,789
<INTEREST-TOTAL> 170,583
<INTEREST-DEPOSIT> 54,754
<INTEREST-EXPENSE> 78,804
<INTEREST-INCOME-NET> 91,779
<LOAN-LOSSES> (228)
<SECURITIES-GAINS> 120
<EXPENSE-OTHER> 77,444
<INCOME-PRETAX> 43,527
<INCOME-PRE-EXTRAORDINARY> 43,527
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,599
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
<YIELD-ACTUAL> 4.33
<LOANS-NON> 14,231
<LOANS-PAST> 1,359
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 65,014
<CHARGE-OFFS> 5,240
<RECOVERIES> 1,904
<ALLOWANCE-CLOSE> 61,450
<ALLOWANCE-DOMESTIC> 37,854
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 23,596
</TABLE>
