<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 March 31, 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 64-0471500
Trustmark Corporation
248 East Capitol Street
Jackson, Mississippi 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 May 10, 1996.
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)
March 31, December 31,
1996 1995*
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks (noninterest-bearing) $ 284,586 $ 299,006
Federal funds sold and securities purchased
under reverse repurchase agreements 111,668 113,585
Trading account securities 70 226
Securities available for sale (at fair value) 696,230 488,693
Securities held to maturity (fair value: $1,397,527-1996;
$1,370,670-1995) 1,397,820 1,353,632
Loans 2,545,359 2,580,219
Less: Unearned income 6,357 8,128
Allowance for loan losses 63,000 62,000
--------- ---------
Net loans 2,476,002 2,510,091
Premises and equipment 60,911 61,193
Intangible assets 38,608 37,671
Other assets 128,760 128,495
--------- ---------
TOTAL ASSETS $5,194,655 $4,992,592
========= =========
LIABILITIES
Deposits:
Noninterest-bearing $ 748,474 $ 767,051
Interest-bearing 2,881,174 2,762,994
--------- ---------
Total deposits 3,629,648 3,530,045
Federal funds purchased 125,110 75,675
Securities sold under repurchase agreements 894,205 857,308
Other liabilities 59,809 50,812
--------- ---------
TOTAL LIABILITIES 4,708,772 4,513,840
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 225,346 214,166
Net unrealized gain on securities available for sale, net of tax 1,413 5,462
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 485,883 478,752
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $5,194,655 $4,992,592
========= =========
</TABLE>
* Derived from audited financial statements.
See notes to consolidated financial statements.
<PAGE>
TRUSTMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN THOUSANDS EXCEPT SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------------
1996 1995
--------- ---------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 57,022 $ 52,516
Interest on securities:
Taxable interest income 28,645 27,937
Interest income exempt from federal income taxes 1,448 1,521
Interest on federal funds sold and securities
purchased under reverse repurchase agreements 2,088 1,685
--------- ---------
TOTAL INTEREST INCOME 89,203 83.659
INTEREST EXPENSE
Interest on deposits 28,129 26,403
Interest on federal funds purchased and securities
sold under repurchase agreements 12,881 11,375
--------- ---------
TOTAL INTEREST EXPENSE 41,010 37,778
--------- ---------
NET INTEREST INCOME 48,193 45,881
Provision for loan losses 2,144 563
--------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 46,049 45,318
NONINTEREST INCOME
Trust service income 2,382 2,286
Service charges on deposit accounts 5,572 5,115
Other account charges, fees and commissions 6,845 5,284
Securities gains (losses) (4) 120
Other income 1,005 911
--------- ---------
TOTAL NONINTEREST INCOME 15,800 13,716
NONINTEREST EXPENSES
Salaries and employee benefits 19,002 18,228
Net occupancy-premises 2,122 2,287
Equipment expenses 3,105 2,928
Services and fees 4,958 5,043
FDIC insurance assessment 498 1,899
Amortization of intangible assets 1,935 1,747
Other expenses 6,583 5,988
--------- ----------
TOTAL NONINTEREST EXPENSES 38,203 38,120
--------- ----------
INCOME BEFORE INCOME TAXES 23,646 20,914
Income taxes 8,277 7,030
--------- ----------
NET INCOME $ 15,369 $ 13,884
========= ==========
NET INCOME PER SHARE $ 0.44 $ 0.40
========= ==========
DIVIDENDS PER SHARE $ 0.12 $ 0.1075
========= ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 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>
Three Months Ended March 31,
----------------------------
1996 1995
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 15,369 $ 13,884
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 2,144 563
Provision for depreciation and amortization 4,262 4,349
Net accretion of securities (1,608) (125)
Securities losses (gains) 4 (120)
(Gains)/losses and write-downs on other real estate (48) 33
Other (464) (73)
Increase in intangible assets (2,872) (1,060)
Increase in deferred income taxes (919) (81)
Decrease in other assets 2,128 8,811
Increase in other liabilities 8,997 4,882
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,993 31,063
--------- ---------
INVESTING ACTIVITIES
Proceeds from calls and maturities of securities available for sale 34,580 31,345
Proceeds from calls and maturities of securities held to maturity 52,270 17,455
Proceeds from sales of securities available for sale 96,645 92,500
Purchases of securities available for sale (343,583) (98,545)
Purchases of securities held to maturity (96,590) (12,804)
Net decrease (increase) in federal funds sold and securities purchased under 1,917 (12,629)
reverse repurchase agreements
Net decrease (increase) in loans 32,391 (80,982)
Purchases of premises and equipment (1,743) (2,152)
Proceeds from sales of premises and equipment 18 51
Proceeds from sales of other real estate 936 259
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (223,159) (65,502)
--------- ---------
FINANCING ACTIVITIES
Net increase in deposits 99,603 54,730
Net increase (decrease) in federal funds purchased and securities sold under 86,332 (2,744)
repurchase agreements
Cash dividends paid (4,189) (3,753)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 181,746 48,233
--------- ---------
(Decrease) increase in cash and cash equivalents (14,420) 13,794
Cash and cash equivalents at beginning of year 299,006 280,114
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 284,586 $ 293,908
========= =========
</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 1995 annual report on Form 10-K.
The consolidated financial statements include the accounts of Trustmark
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 three month periods ended March 31, 1996 and 1995 ($ in thousands):
1996 1995
---- ----
Balance at January 1 $62,000 $65,014
Provision charged to expense 2,144 563
Loans charged off (2,077) (3,543)
Recoveries 933 1,016
------ ------
Balance at March 31 $63,000 $63,050
====== ======
At March 31, 1996, the recorded investment in commercial loans considered to be
impaired under SFAS No. 114 was $10,807,000, 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 quarter ended March 31, 1996, the
average recorded investment in impaired loans was approximately $9,847,000, 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
$12,554,000 at March 31, 1996. The foregone interest associated with such loans
is immaterial.
NOTE 3 - CONTINGENCIES
In January 1995, a judgment was rendered in a Mississippi trial court against
the Corporation's subsidiary, Trustmark National Bank, in a case related to the
placement of collateral protection insurance ("CPI") by Trustmark on a
particular loan. The judgment awarded $500 thousand in actual damages (against
Trustmark and the insurance agent, jointly and severally) and $38 million in
punitive damages (against Trustmark only). Trustmark filed motions for entry of
judgment in its favor, or for a new trial, or to reduce the verdicts. The judge
took the motions under advisement in April 1995. On August 4, 1995, the court
reduced the punitive damage award from $38 million to $5 million. The judge left
the actual damage award intact. Notice of appeal has been filed by Trustmark
appealing this case to the Mississippi Supreme Court. Notice of cross-appeal has
been filed by the plaintiffs.
There are twenty other CPI-related suits against Trustmark pending in federal
court. On September 18, 1995, one of the federal court suits was certified as a
mandatory class action, with the class broadly defined to include all persons
who financed an automobile 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 (except for the case referred to in the first paragraph of
this note), 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 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.
<PAGE>
NOTE 4 - STATEMENTS OF CASH FLOWS
During the three months ended March 31, 1996, the Corporation paid approximately
$100,000 in income taxes and $40,713,000 in interest on deposit liabilities and
other borrowings. During the three months ended March 31, 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.
For the three months ended March 31, 1996 and 1995, noncash transfers from loans
to foreclosed properties were $437,000 and $336,000, respectively.
NOTE 5 - RECENT PRONOUNCEMENTS
On January 1, 1996, the Corporation adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights-an amendment of FASB Statement No. 65." This statement
eliminates the accounting distinction between rights acquired through loan
origination activities and those acquired through purchase transactions,
establishes guidelines for impairment analysis and requires fair value
disclosures. At March 31, 1996, the Corporation's carrying value of mortgage
servicing rights was $19,416,000, with a fair value of approximately
$24,650,000. The estimated fair value was calculated by discounting the future
cash flows of the rights which have been stratified by loan type, note rate,
date of origination and term while assuming certain prepayment risk.
<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's net income for the three months ended March 31, 1996 was
$15.369 million, or $0.44 per share, compared to $13.884 million, or $0.40 per
share, for the same time period in 1995, an increase of 10.7%. Two key measures
of profitability in the banking industry are return on average assets (ROA) and
return on average equity (ROE). ROA was 1.20% at March 31, 1996 compared to
1.17% at March 31, 1995. The improvements in the Corporation's performance are
attributed primarily to growth in both net interest income and noninterest
income combined with a continued emphasis on the control of noninterest
expenses. ROE was 12.86% at March 31, 1996 compared to 12.93% at March 31, 1995.
ROE was slightly lower at March 31, 1996, because the pace of growth for equity
exceeded that of net income.
ASSET/LIABILITY MANAGEMENT AND LIQUIDITY
A key objective of the Corporation's asset/liability management program is to
quantify, monitor and control interest rate risk and to assist Management in
maintaining stability in the net interest margin under varying interest rate
environments. The Asset/Liability Committee monitors and adjusts the
Corporation's exposure to interest rates, within specific policy guidelines,
based on its analysis of current and expected market conditions. The primary
tool utilized by this committee is an asset/liability modeling system which is
used to evaluate exposure to interest rate risk and to project earnings and
balance sheet growth. The Asset/Liability Committees of both senior bank
officials and the Board of Directors meet monthly to evaluate current and
projected interest rate risk positions.
Another tool used to monitor the Corporation's overall interest rate sensitivity
is a gap analysis. The table below represents the Corporation's 90 day and one
year gap position as of March 31, 1996 ($ in thousands):
Interest Sensitive Within
90 days One Year
------- --------
Total rate sensitive assets $ 1,367,524 $ 2,161,686
Total rate sensitive liabilities 1,771,820 2,700,912
--------- ---------
Net gap $ (404,296) $ (539,226)
========= =========
The analysis indicates that the Corporation is in a negative gap position over
the next three month and twelve month time horizons. In response to slightly
falling interest rates, the Corporation's negative gap position has grown
moderately since the end of 1995. Management believes that 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 the current
liquidity position is monitored 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 liquidity is also
enhanced by the Corporation's consistent earnings power and adequate capital.
EARNING ASSETS
The proportion of earning assets to total assets measure the effectiveness of
Management's efforts to invest available funds into the most efficient and
profitable uses. At March 31, 1996, earning assets were $4.745 billion, or 91.3%
of total assets, compared to $4.528 billion, or 90.7% of total assets, at the
end of 1995. An increase in the securities portfolio was the driving force
behind the growth of earning assets during the first quarter of 1996.
Total loans decreased by $33.1 million or 1.29% during the first quarter of
1996. Commercial and consumer loans, including credit cards, made up the
majority of the decline as lending to both businesses and individuals weakened
in response to a general softening of the economy. Loans secured by real estate
increased during the first quarter of 1996 primarily in loans secured by
residential properties.
The Corporation continued its commitment to the growth of the mortgage servicing
portfolio during the first quarter of 1996. At March 31, 1996, the Corporation's
volume of residential mortgage loan servicing was approximately $2.570 billion
compared to $2.473 billion at the end of 1995. This increase can be attributed
to the strong growth of loans purchased in the correspondent market and the
continued emphasis on loans originated within the Corporation.
<PAGE>
The Corporation's conservative lending policies have produced consistently good
asset quality. A measure of asset quality in the financial institutions industry
is the level of nonperforming assets. Nonperforming assets include nonperforming
loans, consisting of nonaccrual and restructured loans, and other real estate as
reflected in the table below ($ in thousands):
March 31, December 31,
1996 1995
------ ------
Loans accounted for on a nonaccrual basis $12,554 $10,055
Other real estate 3,534 3,982
Loans past due 90 days or more and still accruing 2,507 1,810
------ ------
Total nonperforming assets and
loans past due 90 days or more $18,595 $15,847
====== ======
In spite of the increase shown above, the Corporation's level of nonperforming
assets and loans past due 90 days or more remain well controlled and continue to
compare favorably to peer levels. At March 31, 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 2.48% of total
loans outstanding. 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 and unfunded
lines 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.
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 $1.144 million during the first quarter of 1996
resulting in a net charge-off ratio of 0.18%. This compares to net charge-offs
of $2.527 million or a net charge-off ratio of 0.43% for the same time period in
1995.
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, 1996, total securities were $2.094 billion, an increase of $251.7 million or
13.7% from December 31, 1995. The Corporation utilized its excess available
funds to provide a quality investment alternative as loan demand weakened during
the first quarter of 1996. This growth was primarily centered in U. S. Treasury
securities. The latest comparisons of the tax equivalent yield of the securities
portfolio show the Corporation remaining in the upper half of its peer group.
This has been accomplished while maintaining the quality of the portfolio.
At March 31, 1996, the amortized cost and fair values of securities classified
as available for sale were $693.9 million and $696.2 million, respectively. This
resulted in an unrecognized gain, net of tax, of approximately $1.413 million
reported as a separate component of stockholders' equity.
Gross gains of $52 thousand and gross losses of $76 thousand were realized
during the first quarter of 1996 as a result of calls and dispositions of
securities classified as available for sale. At March 31, 1996, gross unrealized
gains were $7.163 million while gross unrealized losses were $4.874 million on
securities classified as available for sale.
There were no sales of securities held to maturity during the first quarter of
1996. Gross gains of $20 thousand were realized on calls and other dispositions
of these securities during that time period. Gross unrealized gains approximated
$12.363 million and gross unrealized losses approximated $12.656 million on
securities classified as held to maturity at March 31, 1996.
Federal funds sold and securities purchased under reverse repurchase agreements
decreased by $1.9 million when compared to the end of 1995. 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 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.
<PAGE>
Total deposits increased 2.82%, or $99.6 million, during the first quarter of
1996 primarily from growth in interest-bearing deposits. With interest rates on
deposits falling slightly during the quarter, the growth in interest-bearing
deposits was split between short-term savings instruments such as MMDA, NOW and
savings accounts and CD's with maturities of less than one year.
Federal funds purchased increased $49.4 million when compared to December 31,
1995. This can be traced to an increase in funds available for purchase from
correspondent banks. Securities sold under repurchase agreements grew by $36.9
million during the first quarter of 1996. This increase can be primarily
attributed to increased funds invested by governmental entities.
CONTINGENCIES
In January 1995, a judgment was rendered in a Mississippi trial court against
the Corporation's subsidiary, Trustmark National Bank, in a case related to the
placement of collateral protection insurance ("CPI") by Trustmark on a
particular loan. The judgment awarded $500 thousand in actual damages (against
Trustmark and the insurance agent, jointly and severally) and $38 million in
punitive damages (against Trustmark only). Trustmark filed motions for entry of
judgment in its favor, or for a new trial, or to reduce the verdicts. The judge
took the motions under advisement in April 1995. On August 4, 1995, the court
reduced the punitive damage award from $38 million to $5 million. The judge left
the actual damage award intact. Notice of appeal has been filed by Trustmark
appealing this case to the Mississippi Supreme Court. Notice of cross-appeal has
been filed by the plaintiffs.
There are twenty other CPI-related suits against Trustmark pending in federal
court. On September 18, 1995, one of the federal court suits was certified as a
mandatory class action, with the class broadly defined to include all persons
who financed an automobile 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 (except for the case referred to in the paragraph above),
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 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 these ratios at March 31, 1996 ($ in
thousands):
Tier 1 Capital $ 474,160
Tier 2 Capital 35,227
-------
Total Qualifying Capital $ 509,387
=======
Total Risk Weighted Assets $ 2,790,378
=========
Tier 1/Risk Weighted Assets 16.99%
Tier 2/Risk Weighted Assets 1.26%
-----
Total Qualifying Capital/Risk Weighted Assets 18.25%
=====
Leverage Ratio 9.25%
=====
<PAGE>
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, 1996, the Corporation had stockholders' equity of $485.9 million,
which contained a net unrealized gain on securities available for sale, net of
taxes, of $1.413 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 for the Corporation as of March 31, 1996
were 34,910,683.
Based on a dividend payout ratio of 27.3%, the Corporation retained 72.7% of its
first quarter earnings, generating an internal capital growth rate of 9.36%.
Dividends for the first quarter of 1996 were $0.12 per share, resulting in a
projected annual dividend rate of $0.48 per share. Book value for the
Corporation's common stock was $13.92 at March 31, 1996, compared to the closing
market price of $22.50.
NET INTEREST INCOME
During the first quarter of 1996, the Corporation's level of net interest income
increased by 5.04% or $2.3 million when compared to the same time period in
1995. This growth can be attributed to the Corporation's volume of earning
assets increasing at a faster pace than its volume of interest-bearing
liabilities.
During the first quarter of 1996, average earning assets grew $318.8 million, or
7.32%, when compared to the same time period in 1995. When the same periods were
compared, the yield on average earning assets decreased by 12 basis points. This
combination resulted in interest income generated by earning assets increasing
$5.5 million or 6.6% when comparing the first quarter of 1996 and 1995. The
primary contributor to this gain was interest and fees on loans, which increased
8.6%. This resulted from a 7.7% increase in average loan volume and a higher
interest rate environment when comparing 1996 to 1995.
During the first quarter of 1996, average interest-bearing liabilities grew by
$233.0 million, or 6.4%, when compared to the same time period in 1995. In
addition, the rate paid increased by five basis points. As a result, during the
first quarter of 1996 interest expenses generated by interest-bearing
liabilities increased by $3.2 million or 8.6% when compared to the same time
period in 1995. Both interest-bearing deposits and federal funds purchased and
securities sold under repurchase agreements contributed to this increase.
The table below illustrates the changes in net interest margin as a percentage
of average earning assets for the periods shown:
Quarter ended
March 31,
-------------
1996 1995
---- ----
Yield on interest-earning assets-FTE 7.79% 7.91%
Rate on interest-bearing liabilities 3.53% 3.52%
---- ----
Net interest margin-FTE 4.26% 4.39%
==== ====
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 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 first quarter of 1996, the Corporation's provision for loan losses
was $2.144 million compared to $563 thousand for the first quarter of 1995. The
increase in the provision can be attributed to the Corporation's decision to
boost the allowance for loan losses given the general softening of the economy
experienced during the first quarter of 1996.
<PAGE>
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
1996, excluding securities gains (losses), increased $2.2 million or 16.2% when
compared to the same time period in 1995.
Other account charges, fees and commissions contributed the largest portion of
the increase in noninterest income during the first quarter of 1996. The major
contributors to the 29.5% increase in this category were fees generated from
residential mortgage servicing, discount brokerage fees and a variety of other
fee producing products and services.
NONINTEREST EXPENSE
Another long-term strategy of the Corporation is to continue to provide quality
service to customers within the context of economic discipline. Noninterest
expense for the first quarter of 1996 increased $83 thousand or 0.22% when
compared to the same time period in 1995.
The efficiency ratio, a key indicator of the control of noninterest expense,
improved during the first quarter of 1996 as the Corporation continued its
emphasis on the control of noninterest expenses and the growth of noninterest
income. The efficiency ratio for the three months ended March 31, 1996 was
58.55% compared with 62.76% for first three months of 1995.
The overall level of noninterest expenses has benefitted from the reduction in
FDIC assessment rates. Effective for the fourth quarter of 1995, the FDIC
decreased the lowest assessment rate for deposits insured through the Bank
Insurance Fund (BIF) from $0.23 per $100 of deposits to $0.04. In November of
1995, the FDIC again reduced the lowest assessment rate for deposits insured by
the BIF from $0.04 per $100 of deposits to zero. This reduction was effective
for the first quarter of 1996. The Corporation continues to pay $0.23 per $100
of deposits on approximately $373 million of deposits insured by the Savings
Association Insurance Fund (SAIF) as the result of assisted purchases made
through transactions defined as "Oakar" by the FDIC.
Salaries and employee benefits continue to comprise the largest portion of
noninterest expenses and increased 4.2% when comparing the first quarter of 1996
to the same time period in 1995. The number of full-time equivalent employees
totaled 2,206 at March 31, 1996 and 2,210 at March 31, 1995.
INCOME TAXES
For the three months ended March 31, 1996, the Corporation's effective tax rate
was 35% compared to 33.6% for the first quarter of 1995. This increase in the
effective tax rate is due to two factors. First, for the period ended March 31,
1996, tax-exempt interest income as a percentage of net income declined when
compared to the same time period in 1995. Second, during the first quarter of
1995 the Corporation received tax-exempt life insurance proceeds which reduced
the Corporation's effective tax rate for that period.
OTHER REGULATORY MATTERS
Various legislative proposals regarding the future of the SAIF have been
reported recently. Several of these proposals include a one- time special
assessment for SAIF deposits. At the present time, Congress is still debating
the specific features of this legislation. Consequently, the Corporation does
not know when and if any such proposal may be adopted or the ultimate effect on
its insurance assessment resulting from deposits insured by the SAIF.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material developments for the quarter ended March 31, 1996 other
than those disclosed in the Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of this Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. The following exhibits are included herein:
(27) Financial Data Schedule
No reports on Form 8-K were filed during the quarter ended March 31, 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: May 10, 1996
By: /s/ Harry M. Walker
-----------------------------------------------------------
Harry M. Walker Secretary
Date: May 10, 1996
By: /s/ Gerard R. Host
-----------------------------------------------------------
Gerard R. Host Treasurer
Date: May 10, 1996
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 284,586
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 111,668
<TRADING-ASSETS> 70
<INVESTMENTS-HELD-FOR-SALE> 696,230
<INVESTMENTS-CARRYING> 1,397,820
<INVESTMENTS-MARKET> 1,397,527
<LOANS> 2,539,002
<ALLOWANCE> 63,000
<TOTAL-ASSETS> 5,194,655
<DEPOSITS> 3,629,648
<SHORT-TERM> 1,019,315
<LIABILITIES-OTHER> 59,809
<LONG-TERM> 0
0
0
<COMMON> 14,546
<OTHER-SE> 471,337
<TOTAL-LIABILITIES-AND-EQUITY> 5,194,655
<INTEREST-LOAN> 57,022
<INTEREST-INVEST> 30,093
<INTEREST-OTHER> 2,088
<INTEREST-TOTAL> 89,203
<INTEREST-DEPOSIT> 28,129
<INTEREST-EXPENSE> 41,010
<INTEREST-INCOME-NET> 48,193
<LOAN-LOSSES> 2,144
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 38,203
<INCOME-PRETAX> 23,646
<INCOME-PRE-EXTRAORDINARY> 23,646
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,369
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
<YIELD-ACTUAL> 4.26
<LOANS-NON> 12,554
<LOANS-PAST> 2,507
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 62,000
<CHARGE-OFFS> 2,077
<RECOVERIES> 933
<ALLOWANCE-CLOSE> 63,000
<ALLOWANCE-DOMESTIC> 39,424
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 23,576
</TABLE>
