<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
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
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Mississippi 64-1471500
Trustmark Corporation
P.O. Box 291
Jackson, MS 39201
(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 registrant's classes of
common stock, as of the latest practicable date.
Title Outstanding
Common stock, no par value 34,910,683
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1996 1995*
============= =============
<S> <C> <C>
ASSETS
Cash and due from banks (noninterest-bearing) $306,409 $299,006
Federal funds sold and securities purchased
under reverse repurchase agreements 39,600 113,585
Trading account securities 279 226
Securities available for sale 542,034 488,693
Securities held to maturity (fair value: $1,443,050-1996;
$1,370,670-1995) 1,445,906 1,353,632
Loans 2,591,582 2,580,219
Less: Unearned income 3,682 8,128
Allowance for loan losses 63,000 62,000
------------- -------------
Net loans 2,524,900 2,510,091
Premises and equipment 60,863 61,193
Intangible assets 38,999 37,671
Other assets 138,938 128,495
------------- -------------
TOTAL ASSETS $5,097,928 $4,992,592
============= =============
LIABILITIES
Deposits:
Noninterest-bearing $710,346 $767,051
Interest-bearing 2,808,996 2,762,994
------------- -------------
Total deposits 3,519,342 3,530,045
Federal funds purchased 225,835 75,675
Securities sold under repurchase agreements 781,860 857,308
Other liabilities 59,781 50,812
------------- -------------
TOTAL LIABILITIES 4,586,818 4,513,840
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 250,672 214,166
Net unrealized gain on securities available for sale, net of tax 1,314 5,462
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 511,110 478,752
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,097,928 $4,992,592
============= =============
</TABLE>
* Derived from audited financial statements.
See notes to consolidated financial statements.
<PAGE>
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN THOUSANDS EXCEPT SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
========================== =========================
1996 1995 1996 1995
=========== =========== =========== ===========
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $57,848 $58,561 $171,132 $166,911
Interest on securities:
Taxable interest income 30,426 27,500 89,761 82,895
Interest income exempt from federal income taxes 1,259 1,439 4,139 4,488
Interest on federal funds sold and securities
purchased under reverse repurchase agreements 773 1,319 3,809 5,108
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 90,306 88,819 268,841 259,402
INTEREST EXPENSE
Interest on deposits 28,073 28,810 84,449 83,564
Interest on federal funds purchased and securities
sold under repurchase agreements 12,051 12,652 37,077 36,702
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 40,124 41,462 121,526 120,266
----------- ----------- ----------- -----------
NET INTEREST INCOME 50,182 47,357 147,315 139,136
Provision for loan losses 1,190 1,183 4,698 955
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 48,992 46,174 142,617 138,181
NONINTEREST INCOME
Trust service income 2,956 2,303 7,720 6,891
Service charges on deposit accounts 5,995 5,425 17,403 15,698
Other account charges, fees and commissions 7,447 6,115 21,482 17,859
Securities gains 47 75 93 195
Other 1,033 762 2,918 3,001
----------- ----------- ----------- -----------
TOTAL NONINTEREST INCOME 17,478 14,680 49,616 43,644
NONINTEREST EXPENSES
Salaries and employee benefits 19,153 18,104 57,253 54,199
Net occupancy - premises 2,454 2,435 6,906 6,918
Equipment expenses 3,196 2,961 9,309 9,047
Services and fees 5,173 5,122 15,313 15,175
FDIC insurance assessment 1,600 21 2,605 3,818
Amortization of intangible assets 2,156 1,915 6,147 5,455
Other 6,532 5,747 19,996 19,137
----------- ----------- ----------- -----------
TOTAL NONINTEREST EXPENSES 40,264 36,305 117,529 113,749
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 26,206 24,549 74,704 68,076
Income taxes 8,689 8,423 25,631 23,351
----------- ----------- ----------- -----------
NET INCOME $17,517 $16,126 $49,073 $44,725
=========== ============ =========== ===========
NET INCOME PER SHARE $0.50 $0.46 $1.41 $1.28
=========== ============ =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 34,910,683 34,910,683 34,910,683 34,910,683
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
===============================
1996 1995
======== ========
<S> <C> <C>
OPERATING ACTIVITIES
Net income $49,073 $44,725
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 4,698 955
Provision for depreciation and amortization 13,288 13,231
Net accretion of securities (4,255) (3,414)
Securities gains (93) (195)
Gains and writedowns on other real estate (5) (60)
Other (1,601) (530)
Increase in intangible assets (7,589) (5,049)
Increase in deferred income taxes (956) (1,624)
(Increase) decrease in other assets (10,082) 584
Increase in other liabilities 8,969 9,402
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 51,447 58,025
-------- --------
INVESTING ACTIVITIES
Proceeds from calls and maturities of securities available for sale 120,799 273,483
Proceeds from calls and maturities of securities held to maturity 155,514 58,176
Proceeds from sales of securities available for sale 215,338 92,570
Purchases of securities available for sale (392,145) (245,794)
Purchases of securities held to maturity (247,491) (132,701)
Net decrease in federal funds sold and securities
purchased under reverse repurchase agreements 73,985 47,981
Net increase in loans (17,930) (229,691)
Purchases of premises and equipment (5,817) (4,398)
Proceeds from sales of premises and equipment 35 127
Proceeds from sales of other real estate 2,226 2,454
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (95,486) (137,793)
-------- --------
FINANCING ACTIVITIES
Net (decrease) increase in deposits (10,703) 33,560
Net increase in federal funds purchased and
securities sold under repurchase agreements 74,712 54,987
Cash dividends paid (12,567) (11,260)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 51,442 77,287
-------- --------
Increase (decrease) in cash and cash equivalents 7,403 (2,481)
Cash and cash equivalents at beginning of year 299,006 280,114
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $306,409 $277,633
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION AND PRINCIPLES
OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of Management, all adjustments (consisting of normal recurring accruals)
considered necessary for the fair presentation of these consolidated financial
statements have been included. The notes included herein should be read in
conjunction with the notes to the consolidated financial statements included in
Trustmark Corporation's (the Corporation) 1995 annual report on Form 10-K.
The consolidated financial statements include the accounts of the Corporation,
its wholly-owned subsidiaries, First Building Corporation, F.S. Corporation,
Trustmark National Bank (the Bank) and the Bank's wholly-owned subsidiary,
Trustmark Financial Services, Inc. All intercompany profits, balances and
transactions have been eliminated.
NOTE 2 - LOANS
The following table summarizes the activity in the allowance for loan losses for
the nine month periods ended September 30, 1996 and 1995 ($ in thousands):
1996 1995
------- -------
Balance at beginning of year $62,000 $65,014
Provision charged to expense 4,698 955
Loans charged off (6,757) (7,431)
Recoveries 3,059 2,912
------- -------
Balance at end of period $63,000 $61,450
======= =======
At September 30, 1996, the recorded investment in commercial loans considered to
be impaired under SFAS No. 114 was $7.775 million, all of which were on a
nonaccrual basis. As a result of direct write-downs, the specific allowance
related to these impaired loans is immaterial. For the nine months ended
September 30, 1996, the average recorded investment in impaired loans was
approximately $8.477 million, and the amount of interest income recognized on
impaired loans was immaterial. Loans on which the accrual of interest has been
discontinued or reduced totaled $9.460 million at September 30, 1996. The
foregone interest associated with such loans is immaterial.
<PAGE>
NOTE 3 - CONTINGENCIES
There are twenty-three suits pending in federal court against the Corporation's
subsidiary, Trustmark National Bank, relating to the placement of collateral
protection insurance ("CPI") by Trustmark on particular automobile and mobile
home loans. On September 18, 1995, one of the suits was certified as a mandatory
class action, with the class broadly defined to include all persons who financed
an automobile (or other personal property) through Trustmark and whose loan
accounts were charged for CPI premiums. One of the CPI insurers, the CPI
underwriter and the insurance agent are also defendants to the class action. All
plaintiffs in pending suits are members of the mandatory class. On January 10,
1996, the federal court entered an Order in the class action enjoining all other
pending CPI-related lawsuits and enjoining all future CPI-related lawsuits. The
court proceedings are matters of public record.
The cases are being vigorously contested. Investigation is continuing. Similar,
but not identical, cases in other states have had a variety of results,
including settlements. Trustmark's program was consistent with those of numerous
other banks, including banks in Mississippi which are in the process of
defending or settling similar suits. While the ultimate outcome of this legal
matter cannot be predicted with reasonable certainty, Management believes that
the resolution of this matter will not have a material adverse effect on the
Corporation's consolidated financial position. However, Management cannot
predict with reasonable certainty the impact that it might have on the
Corporation's consolidated results of operations during periods until the
litigation is terminated.
In addition, Trustmark is defendant in various pending and threatened legal
actions arising in the normal course of business. In the opinion of Management,
and based on the advice of legal counsel, the ultimate resolution of these
matters will not have a material effect on the Corporation's consolidated
financial statements.
NOTE 4 - STATEMENTS OF CASH FLOWS
During the nine months ended September 30, 1996 and 1995, the Corporation paid
approximately $27.492 million and $22.050 million, respectively, in income taxes
and $123.869 million and $116.379 million, respectively, in interest on deposit
liabilities and other borrowings. For the nine months ended September 30, 1996
and 1995, noncash transfers from loans to foreclosed properties were $1.208
million and $1.200 million, respectively.
NOTE 5 - RECENT PRONOUNCEMENTS
On January 1, 1996, the Corporation adopted Statement of Financial Accounting
Standards No. 122 (SFAS No. 122), "Accounting for Mortgage Servicing Rights-an
amendment of FASB Statement No. 65." In accordance with SFAS No. 122, the cost
of mortgage loans purchased or originated with a definitive plan to sell the
loans and retain the mortgage servicing rights is allocated between the loans
and the servicing rights based on their estimated fair values at the purchase or
origination date. The adoption of SFAS No. 122 resulted in no material impact on
the Corporation's financial condition or results of operations.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (SFAS No. 125), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No.
125 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities based on consistent
application of a "financial-components approach" that focuses on control. The
impact of SFAS No. 125, when adopted on January 1, 1997, on the Corporations's
financial condition or results of operations will not be material.
<PAGE>
ITEM 2. 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.
EARNINGS SUMMARY
Trustmark Corporation, parent company of Trustmark National Bank, reported net
income of $17.517 million, or $.50 per share, for the third quarter of 1996,
compared with $16.126 million or $.46 per share, for the third quarter of 1995,
an increase of 8.63%. Net income for the nine months ended September 30, 1996,
was $49.073 million, or $1.41 per share, compared to $44.725 million, or $1.28
per share, for the same time period last year. Net income for 1996 includes
increases in net interest income and noninterest income combined with an
emphasis on the control of noninterest expenses and the effect of a special
one-time FDIC assessment on deposits acquired through assisted transactions with
the Resolution Trust Corporation in prior years. Two key measures of
profitability in the financial services industry are return on average assets
(ROA) and return on average equity (ROE). For the nine months ended September
30, 1996, ROA was 1.28% compared to 1.23% for the same time period in 1995. For
the nine months ended September 30, 1996, ROE was 13.30% compared with 13.41%
for the same time period in 1995. ROE has been lower during 1996 because the
pace of growth for equity exceeded that of net income.
ASSET/LIABILITY MANAGEMENT AND LIQUIDITY
A key objective of the Corporation's asset/liability management program is to
quantify, monitor and control interest rate risk and to assist Management in
maintaining stability in the net interest margin under varying interest rate
environments. The Asset/Liability Committee monitors and adjusts the
Corporation's exposure to interest rates, within specific policy guidelines,
based on its analysis of current and expected market conditions. The primary
tool utilized by this committee is an asset/liability modeling system used to
evaluate exposure to interest rate risk and to project earnings and balance
sheet growth. The Asset/Liability Committees of both senior bank officials and
the Board of Directors meet monthly to evaluate current and projected interest
rate risk positions.
Another tool used to monitor the Corporation's overall interest rate sensitivity
is a gap analysis. The table below represents the Corporation's 90 day and one
year gap position as of September 30, 1996 ($ in thousands):
Interest Sensitive Within
90 days One Year
---------- -----------
Total rate sensitive assets $1,311,623 $2,061,900
Total rate sensitive liabilities 1,757,427 2,695,415
---------- -----------
Net gap $ (445,804) $ (633,515)
========== ===========
<PAGE>
The analysis indicates that the Corporation is in a negative gap position over
the next three month and twelve month time horizons. This position has been
established in response to slightly falling interest rates. Management believes
there is adequate flexibility to alter the overall rate sensitivity structure as
necessary to minimize exposure to changes in interest rates should they occur.
The Asset/Liability Committee establishes guidelines by which they monitor the
current liquidity position to ensure adequate funding capacity. 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 accomplished through the active management of both the asset and
liability sides of the balance sheet and by maintaining accessibility to local,
regional and national funding sources. The ability to maintain consistent
earnings power and adequate capital also enhance the Corporation's liquidity.
EARNING ASSETS
The percentage of earning assets to total assets measures the effectiveness of
Management's efforts to invest available funds into the most efficient and
profitable uses. At September 30, 1996, earning assets were $4.616 billion, or
90.54% of total assets, compared with $4.528 billion, or 90.70% at the end of
1995. A decrease in federal funds sold and securities purchased under reverse
repurchase agreements at September 30, 1996, was the primary factor contributing
to this decline in earning assets to total assets.
Total loans increased by $15.809 million or .61% during the first nine months of
1996. Loans secured by real estate have increased during the first nine months
of 1996 primarily in the area of construction and development. At September 30,
1996, the Corporation's volume of residential mortgage loan servicing was
approximately $2.752 billion compared with $2.473 billion at the end of 1995.
This increase can be attributed to the strong growth of loans purchased in the
correspondent market and the continued emphasis on loans originated within the
Corporation.
The Corporation's conservative lending policies have produced consistently good
asset quality. A measure of asset quality in the financial institutions industry
is the level of nonperforming assets. Nonperforming assets include nonperforming
loans, consisting of nonaccrual and restructured loans, and other real estate as
reflected in the table below ($ in thousands):
<PAGE>
September 30, December 31,
1996 1995
------- -------
Nonaccrual loans $ 9,460 $10,055
Other real estate (ORE) 2,969 3,982
Loans past due 90 days or more
& still accruing 5,884 1,810
------- -------
Total nonperforming assets and
loans past due 90 days or more $18,313 $15,847
======= =======
Nonperforming assets/Total
loans + ORE .48% .54%
======= =======
In spite of the increase shown above, the Corporation's level of nonperforming
assets and loans past due 90 days or more remains well controlled and continues
to compare favorably to peer levels. At September 30, 1996, Management is not
aware of any additional credits, other than those identified above, where
serious doubts as to the repayment of principal and interest exist.
The current level of the allowance for loan losses approximates 2.43% of total
loans outstanding. The allowance for loan losses is maintained at a level that
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 and unfunded
lines of credit. The adequacy of the allowance is reviewed quarterly by using
the criteria specified by regulatory authorities. This analysis is presented to
the Credit Policy Committee with subsequent review and approval by the Board of
Directors. Because of the imprecision and subjectivity inherent in most
estimates of expected credit losses, Management will continue to take a prudent
approach in the evaluation of the allowance for loan losses.
Net charge-offs totaled $3.698 million during the first nine months of 1996
compared with $4.519 million for the same time period in 1995, a net charge-off
ratio of .19% and .25%, respectively. Net charge-offs for the third quarter of
1996 were $1.190 million compared with $1.183 million for the same time period
in 1995, a net charge-off ratio of .19% for both periods.
The securities portfolio is utilized to provide a quality investment alternative
for available funds and to provide a stable source of interest income. At
September 30, 1996, total securities were $1.988 billion, an increase of
$145.615 million or 7.90% from December 31, 1995. Included in the portfolio at
September 30, 1996, were securities available for sale with a fair value of
$542.034 million and an amortized cost of $539.907 million. The Corporation
utilized its securities portfolio during the third quarter to provide needed
liquidity as loan demand strengthened and deposits decreased.
<PAGE>
Securities available for sale had gross unrealized gains of $7.539 million at
September 30, 1996, while gross unrealized losses were $5.412 million. Gross
unrealized gains were $9.937 million and gross unrealized losses were $12.793
million on securities classified as held to maturity at September 30, 1996.
Federal funds sold and securities purchased under reverse repurchase agreements
decreased by $73.985 million when compared with the end of 1995. Market
conditions and liquidity needs are the driving forces behind the use of federal
funds sold and securities purchased under reverse repurchase agreements as
short-term investment products.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Deposits originating within the communities served by Trustmark 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 decreased .30%, or $10.703 million,
during the first nine months of 1996 primarily from a decline in
noninterest-bearing deposits. With interest rates on short-term savings
instruments unchanged since earlier in 1996, the growth in interest-bearing
deposits has come primarily from CD's with maturities of less than two years. In
recent months, the Corporation has introduced new CD products in order to
attract and retain its core deposit base.
Federal funds purchased increased $150.160 million when compared with December
31, 1995. Because of declining deposits, the Corporation has utilized its
upstream and downstream correspondent base to help supply liquidity when needed.
Another reason for an increase in federal funds purchased would be the $75.448
million decline in securities sold under repurchase agreements since December
31, 1995. Because it is primarily a temporary investment alternative for deposit
customers, fluctuations in securities sold under repurchase agreements is
common.
CONTINGENCIES
There are twenty-three suits pending in federal court against the Corporation's
subsidiary, Trustmark National Bank, relating to the placement of collateral
protection insurance ("CPI") by Trustmark on particular automobile and mobile
home loans. On September 18, 1995, one of the suits was certified as a mandatory
class action, with the class broadly defined to include all persons who financed
an automobile (or other personal property) through Trustmark and whose loan
accounts were charged for CPI premiums. One of the CPI insurers, the CPI
underwriter and the insurance agent are also defendants to the class action. All
plaintiffs in pending suits are members of the mandatory class. On January 10,
1996, the federal court entered an Order in the class action enjoining all other
pending CPI-related lawsuits and enjoining all future CPI-related lawsuits. The
court proceedings are matters of public record.
The cases are being vigorously contested. Investigation is continuing. Similar,
but not identical, cases in other states have had a variety of results,
including settlements. Trustmark's program was consistent with those of numerous
other banks, including banks in Mississippi which are in the process of
<PAGE>
defending or settling similar suits. While the ultimate outcome of this legal
matter cannot be predicted with reasonable certainty, Management believes that
the resolution of this matter will not have a material adverse effect on the
Corporation's consolidated financial position. However, Management cannot
predict with reasonable certainty the impact that it might have on the
Corporation's consolidated results of operations during periods until the
litigation is terminated.
In addition, Trustmark is defendant in various other pending and threatened
legal actions arising in the normal course of business. In the opinion of
Management, and based on the advice of legal counsel, the ultimate resolution of
these matters will not have a material effect on the Corporation's consolidated
financial statements.
STOCKHOLDERS' EQUITY
The Corporation has always placed a great emphasis on maintaining a strong
capital base. The Corporation's goal is 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. 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 the Corporation's risk based capital
and risk based capital ratios at September 30, 1996 ($ in thousands):
Tier 1 Capital $ 500,191 17.61%
Tier 2 Capital 35,850 1.26%
-------- -----
Risk Based Capital $ 536,041 18.87%
======== =====
Risk Weighted Assets $2,840,830
=========
Tier 1 Leverage Ratio 9.78%
====
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 September 30, 1996, the Corporation had stockholders' equity of $511.110
million, which contained a net unrealized gain on securities available for sale,
net of taxes, of $1.314 million. This compares to total stockholders' equity at
December 31, 1995, of $478.8 million, which contained a net unrealized gain on
securities available for sale, net of taxes, of $5.462 million. The period end
and weighted average number of shares of Trustmark Corporation's common stock
for both the third quarter and nine month period ended September 30, 1996, was
34,910,683.
<PAGE>
Based on a dividend payout ratio of 25.53%, the Corporation retained 74.47% of
its earnings during the first nine months of 1996, generating an internal
capital growth rate of 9.91%. Dividends for the third quarter of 1996 were $.12
per share. Book value for the Corporation's common stock was $14.64 at September
30, 1996, compared with the closing market price of $22.00.
NET INTEREST INCOME
For the nine months ended September 30, 1996, the Corporation's level of net
interest income increased by $8.179 million, or 5.88%, when compared with the
same time period in 1995. Net interest income for the third quarter of 1996
showed growth of $2.825 million or 5.97% when compared with the third quarter of
1995. The growth for both the three and nine month periods can be attributed to
the Corporation's volume of earning assets increasing at a faster pace than its
volume of interest-bearing liabilities.
The table below illustrates the changes in the net interest margin as a
percentage of average earning assets for the periods shown:
Quarter Ended Nine months Ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Yield on interest-
earning assets-FTE 7.80% 7.99% 7.79% 7.95%
Rate on interest-
bearing liabilities 3.42% 3.68% 3.47% 3.64%
---- ---- ---- ----
Net interest margin-FTE 4.38% 4.31% 4.32% 4.31%
==== ==== ==== ====
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 to minimize exposure to changes
in interest rates.
PROVISION FOR LOAN LOSSES
The provision for loan losses reflects Management's assessment of the adequacy
of the allowance for loan losses to absorb potential write-offs in the loan
portfolio. Factors considered in the assessment include growth and composition
of the loan portfolio, historical credit loss experience, current and
anticipated economic conditions and changes in borrowers' financial positions.
During the nine months ended September 30, 1996, the Corporation's provision for
loan losses was $4.698 million compared with a provision of $955 thousand for
the first nine months of 1995. The increase in the provision can be attributed
to Management's decision to raise the allowance for loan losses given the
general softening of the economy experienced during 1996.
NONINTEREST INCOME
The Corporation stresses the importance of growth in noninterest income as one
of its key long-term strategies. This was accomplished during both the three and
nine month periods ended
<PAGE>
September 30, 1996, as noninterest income, excluding securities gains, increased
when compared with the same time periods in 1995.
Other account charges, fees and commissions for the first nine months of 1996
contributed the largest portion of the increase in noninterest income when
compared with the same time period in 1995. The major contributors to the 20.29%
increase in this category were fees generated from residential mortgage
servicing, discount brokerage fees and a variety of other fee producing products
and services. Service charges for the first nine months of 1996 have also grown
by 10.86% when compared with the same time period in 1995.
Gross securities gains of $106 thousand and gross securities losses of $86
thousand were realized during the first nine months of 1996 because of calls and
dispositions of securities classified as available for sale. There were no sales
of securities held to maturity during the first nine months of 1996. Gross
securities gains of $73 thousand were realized on calls and other dispositions
of these securities during that time period.
NONINTEREST EXPENSE
Another long-term strategy of the Corporation is to continue to provide quality
service to customers within the context of economic discipline. The efficiency
ratio, a key indicator of the control of noninterest expense and the growth of
noninterest income, improved during both the three and nine month periods ended
September 30, 1996, when compared with the same time periods in 1995. The
efficiency ratio was 56.99% for the quarter ended September 30, 1996, compared
with 60.53% for same time period in 1995. For the nine months ended September
30, 1996, the efficiency ratio was 58.09% compared with 61.26% for the first
nine months of 1995.
Salaries and employee benefits continue to comprise the largest portion of
noninterest expenses and increased 5.63% when comparing the first nine months of
1996 to the same time period in 1995. The number of full-time equivalent
employees totaled 2,207 at both September 30, 1996 and September 30, 1995.
The FDIC insurance assessment has experienced major changes in both 1995 and
1996. During the third quarter of 1995, the Corporation received a $1.919
million refund from the FDIC because the Bank Insurance Fund (BIF) had been
overcapitalized. In addition, the FDIC assessment rate on BIF deposits declined
from $.23 per $100 for the first three quarters of 1995 to $.04 per $100 for the
fourth quarter of 1995. During 1996, the assessment rate on BIF deposits has
been zero. The rate on Savings Association Insurance Fund (SAIF) deposits has
remained at $.23 per $100 of assessable deposits for both 1995 and 1996. On
September 30, 1996, legislation was enacted that allowed the FDIC to charge a
special one-time assessment on SAIF assessable deposits in order to capitalize
the SAIF. The Corporation has SAIF deposits resulting from assisted purchases
through the Resolution Trust Corporation during the early 1990's. The
Corporation's special assessment on these SAIF insured deposits was $1.923
million. These nonrecurring events resulted in a combined $3.842 million shift
in FDIC expense when comparing the nine months ended September 30, 1996, and
<PAGE>
September 30, 1995. When this is deducted from the gross change in noninterest
expenses for the nine months ending September 30, 1996 and September 30, 1995,
the result is an overall decline of $62 thousand. When comparing the three
months ended September 30, 1996 and September 30, 1995, the resulting change is
an increase of $117 thousand in total noninterest expenses.
INCOME TAXES
For the nine months ended September 30, 1996 and September 30, 1995, the
Corporation's effective tax rate was 34.3%. There were no significant variations
in permanent book/tax differences from September 30, 1995 to September 30, 1996.
OTHER REGULATORY MATTERS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (SFAS No. 125), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No.
125 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities based on consistent
application of a "financial-components approach" that focuses on control. The
impact of SFAS No. 125, when adopted on January 1, 1997, on the Corporations's
financial condition or results of operations will not be material.
<PAGE>
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material developments for the quarter ended September 30, 1996,
other than those disclosed in the Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of this Form 10-Q. The collateral
protection insurance lawsuit tried in Laurel, Mississippi, between Charles Smith
and Jesse Holmes and Trustmark National Bank has been settled out of court as of
September 27, 1996. The judgment against Trustmark has been dismissed. The terms
of the settlement are confidential.
ITEM 5. OTHER INFORMATION
Plans for the merger of the First Corinth Corp., parent company of National
Bank of Commerce of Corinth, Mississippi, and Trustmark Corporation, parent
company of Trustmark National Bank, Jackson, Mississippi, were announced on
September 6, 1996. First Corinth Corporation reported total assets at September
30, 1996, of approximately $139 million. The merger, which will be accounted for
as a pooling of interests, will be subject to all applicable corporate,
shareholder and regulatory approval.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. The following exhibits are included herein:
(27) Financial Data Schedule
There were no reports on Form 8-K filed during the quarter ended September 30,
1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRUSTMARK CORPORATION
By: /s/ Frank R. Day
--------------------------------------------------------------
Frank R. Day Chairman of the Board, President and CEO
Date: November 12, 1996
By: /s/ Harry M. Walker
--------------------------------------------------------------
Harry M. Walker Secretary
Date: November 12, 1996
By: /s/ Gerard R. Host
--------------------------------------------------------------
Gerard R. Host Treasurer
Date: November 12, 1996
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 306,409
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 39,600
<TRADING-ASSETS> 279
<INVESTMENTS-HELD-FOR-SALE> 542,034
<INVESTMENTS-CARRYING> 1,445,906
<INVESTMENTS-MARKET> 1,443,050
<LOANS> 2,587,900
<ALLOWANCE> 63,000
<TOTAL-ASSETS> 5,097,928
<DEPOSITS> 3,519,342
<SHORT-TERM> 1,007,695
<LIABILITIES-OTHER> 59,781
<LONG-TERM> 0
0
0
<COMMON> 14,546
<OTHER-SE> 496,564
<TOTAL-LIABILITIES-AND-EQUITY> 5,097,928
<INTEREST-LOAN> 171,132
<INTEREST-INVEST> 93,900
<INTEREST-OTHER> 3,809
<INTEREST-TOTAL> 268,841
<INTEREST-DEPOSIT> 84,449
<INTEREST-EXPENSE> 121,526
<INTEREST-INCOME-NET> 147,315
<LOAN-LOSSES> 4,698
<SECURITIES-GAINS> 93
<EXPENSE-OTHER> 117,529
<INCOME-PRETAX> 74,704
<INCOME-PRE-EXTRAORDINARY> 74,704
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,073
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
<YIELD-ACTUAL> 4.32
<LOANS-NON> 9,460
<LOANS-PAST> 5,884
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 62,000
<CHARGE-OFFS> 6,757
<RECOVERIES> 3,059
<ALLOWANCE-CLOSE> 63,000
<ALLOWANCE-DOMESTIC> 39,402
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 23,598
</TABLE>
