Trustmark Announces First Quarter Financial Results
Jackson, MS - April 17, 2007 - Trustmark Corporation (NASDAQ:TRMK) announced net income of $25.9 million in the first quarter of 2007, which represented basic earnings per share of $0.44. Trustmark’s first quarter net income produced a return on average tangible shareholders’ equity of 18.76% and a return on average assets of 1.19%. Highlights included:
| l | Average total loans in the first quarter of 2007 increased $596.5 million, or 9.8%, compared to figures one year earlier |
| l | Average total deposits in the first quarter of 2007 increased $930.5 million, or 15.1%, compared to figures one year earlier |
| l | Stable net interest margin of 3.89% despite rising deposit costs compared to one year ago |
| l | Continued excellent credit quality |
| l | Continued implementation of banking center expansion plans |
Richard G. Hickson, Chairman and CEO, stated, “Despite the challenging economic and financial environment, Trustmark made significant progress during the first quarter of 2007 as reflected by solid loan and deposit growth, continued excellent credit quality, and further expansion within the Corporation’s higher-growth markets. During the first quarter of 2007, average loans totaled $6.7 billion, an increase of $596.5 million, or 9.8%, relative to figures one year earlier. Average deposits during the first quarter of 2007 were $7.1 billion, up $930.5 million, or 15.1% compared to the same period one year earlier. This growth was broad-based with increases noted across Trustmark’s franchise.
“As the flat Treasury yield curve diminished the profitability of holding longer-term investment securities, we continued to reduce our investment securities portfolio and related borrowings. At March 31, 2007, Trustmark’s investment portfolio represented 11.1% of the Corporation’s total assets and had an average duration of approximately 1.9 years. As a consequence of reducing our investment portfolio and maintaining a historically short duration, our spread continued to be constrained, as investment yields remained low. As such, we have foregone current earnings in an effort to enhance the interest rate risk profile of the Corporation. The decline in the investment securities portfolio, coupled with solid loan growth, has resulted in a richer mix of earning assets and a stable net interest margin of 3.89% in the first quarter of 2007.
“Trustmark’s financial services businesses are fundamentally strong and well-positioned despite the challenging operating environment. Our success in providing financial solutions for customers is reflected in enhanced noninterest income and growth in our wealth management and insurance businesses,” said Hickson.
“While we have not been immune to the prolonged flat Treasury yield curve’s impact on the net interest margin, we recognize the challenges it presents and remain focused upon expense management and revenue generation. As such, we continue to proactively manage our expenses and have instituted a program to identify reengineering and efficiency opportunities in an effort to enhance shareholder value. These initiatives are designed to reinforce Trustmark’s culture of efficiency and productivity without interrupting customer service.
“We continue to balance efforts to augment productivity in mature, lower growth markets with opportunities to expand in higher growth markets. Our objective is to maximize profitability and enhance the growth prospects of the Trustmark franchise. To this end, we opened a new banking center in Houston during the first quarter and anticipate the opening of two additional offices serving the Houston and Memphis markets during the second quarter. We will also be closing three offices during the second quarter with limited growth opportunities. These actions reflect our commitment to reinvest and realign the franchise to support additional revenue growth and build long-term value for our shareholders,” said Hickson.
“In recent months, there has been heightened focus on sub-prime lending in the financial services industry. While many within the industry have been severely impacted by deteriorating credit quality associated with sub-prime lending, Trustmark has virtually no sub-prime credit exposure. Trustmark’s credit quality indicators remained strong during the first quarter. Nonperforming assets totaled $39.2 million at March 31, 2007, which represented 0.59% of total loans, and the allowance coverage for non-performing loans was 194.4%. Net charge-offs represented only 0.10% of average loans during the first quarter of 2007.
“Trustmark’s losses related to Hurricane Katrina have not been as great as originally anticipated. We have updated our estimates for probable losses resulting from Hurricane Katrina and reduced the allowance for loan losses and mortgage related charges, which increased net income during the first quarter of 2007 by $0.7 million, or $0.01 per share. At March 31, 2007, Trustmark maintained specific Hurricane Katrina allocations in its allowance for loan losses of $1.4 million,” said Hickson.
During the first quarter of 2007, Trustmark repurchased approximately 468 thousand shares of its common stock. At March 31, 2007, Trustmark had authorization to repurchase up to an additional 2.3 million shares. The repurchase program is subject to market conditions and management discretion and will continue to be implemented through open market purchases or privately negotiated transactions.
ADDITIONAL INFORMATION
As previously announced, Trustmark will host a conference call with analysts on Wednesday, April 18 at 10:00 a.m. Central Time to discuss the Corporation’s financial results. Interested parties may listen to the conference call by dialing (877) 704-5378, passcode 2214262 or by clicking on the link provided under the Investor Relations section of our website at www.trustmark.com. A replay of the conference call will also be available through Wednesday, April 25 in archived format at the same web address or by calling (888) 203-1112, passcode 2214262.
Trustmark is a financial services company providing banking and financial solutions through over 150 offices and 2,700 associates in Florida, Mississippi, Tennessee and Texas.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document are not statements of historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements relating to anticipated future operating and financial performance measures, including net interest margin, credit quality, business initiatives, growth opportunities and growth rates, among other things and encompass any estimate, prediction, expectation, projection, opinion, anticipation, outlook or statement of belief included therein as well as the management assumptions underlying these forward-looking statements. Should one or more of these risks materialize, or should any such underlying assumptions prove to be significantly different, actual results may vary significantly from those anticipated, estimated, projected or expected.
These risks could cause actual results to differ materially from current expectations of Management and include, but are not limited to, changes in the level of nonperforming assets and charge-offs, local, state and national economic and market conditions, material changes in market interest rates, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, changes in existing regulations or the adoption of new regulations, natural disasters, acts of war or terrorism, changes in consumer spending, borrowings and savings habits, technological changes, changes in the financial performance or condition of Trustmark’s borrowers, the ability to control expenses, changes in Trustmark’s compensation and benefit plans, greater than expected costs or difficulties related to the integration of new products and lines of business and other risks described in Trustmark’s filings with the Securities and Exchange Commission.
Although Management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Trustmark undertakes no obligation to update or revise any of this information, whether as the result of new information, future events or developments or otherwise.
Trustmark Contacts:
| Investors: | Louis E. Greer | Joseph Rein |
| | Treasurer and | |
| | Principal Financial Officer | |
| | 601-208-2310 | |
| | | |
| Media: | | |
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| | | |
 | TRUSTMARK CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL INFORMATION |
| | | Quarter Ended March 31, | | | | | |
AVERAGE BALANCES | | | 2007 | | | 2006 | | | $ Change | | | % Change | |
| Securities AFS-taxable | | $ | 681,885 | | $ | 933,336 | | $ | (251,451 | ) | | -26.9 | % |
| Securities AFS-nontaxable | | | 54,815 | | | 60,023 | | | (5,208 | ) | | -8.7 | % |
| Securities HTM-taxable | | | 198,286 | | | 202,664 | | | (4,378 | ) | | -2.2 | % |
| Securities HTM-nontaxable | | | 89,988 | | | 92,732 | | | (2,744 | ) | | -3.0 | % |
Total securities | | | 1,024,974 | | | 1,288,755 | | | (263,781 | ) | | -20.5 | % |
| Loans | | | 6,663,620 | | | 6,067,164 | | | 596,456 | | | 9.8 | % |
| Fed funds sold and rev repos | | | 74,076 | | | 27,804 | | | 46,272 | | | 166.4 | % |
Total earning assets | | | 7,762,670 | | | 7,383,723 | | | 378,947 | | | 5.1 | % |
| Allowance for loan losses | | | (72,452 | ) | | (76,875 | ) | | 4,423 | | | -5.8 | % |
| Cash and due from banks | | | 345,974 | | | 333,748 | | | 12,226 | | | 3.7 | % |
| Other assets | | | 778,595 | | | 561,129 | | | 217,466 | | | 38.8 | % |
Total assets | | $ | 8,814,787 | | $ | 8,201,725 | | $ | 613,062 | | | 7.5 | % |
| | | | | | | | | | | | | | |
| Interest-bearing demand deposits | | $ | 1,195,515 | | $ | 840,499 | | $ | 355,016 | | | 42.2 | % |
| Savings deposits | | | 1,785,162 | | | 1,737,338 | | | 47,824 | | | 2.8 | % |
| Time deposits less than $100,000 | | | 1,616,916 | | | 1,436,152 | | | 180,764 | | | 12.6 | % |
| Time deposits of $100,000 or more | | | 1,021,953 | | | 793,139 | | | 228,814 | | | 28.8 | % |
Total interest-bearing deposits | | | 5,619,546 | | | 4,807,128 | | | 812,418 | | | 16.9 | % |
| Fed funds purchased and repos | | | 351,797 | | | 530,205 | | | (178,408 | ) | | -33.6 | % |
| Short-term borrowings | | | 202,838 | | | 634,420 | | | (431,582 | ) | | -68.0 | % |
| Long-term FHLB advances | | | - | | | 5,746 | | | (5,746 | ) | | n/m | |
| Subordinated notes | | | 49,680 | | | - | | | 49,680 | | | n/m | |
| Junior subordinated debt securities | | | 70,104 | | | - | | | 70,104 | | | n/m | |
Total interest-bearing liabilities | | | 6,293,965 | | | 5,977,499 | | | 316,466 | | | 5.3 | % |
| Noninterest-bearing deposits | | | 1,495,447 | | | 1,377,377 | | | 118,070 | | | 8.6 | % |
| Other liabilities | | | 127,264 | | | 103,374 | | | 23,890 | | | 23.1 | % |
| Shareholders' equity | | | 898,111 | | | 743,475 | | | 154,636 | | | 20.8 | % |
Total liabilities and equity | | $ | 8,814,787 | | $ | 8,201,725 | | $ | 613,062 | | | 7.5 | % |
| | | | | | | | | | | | | | |
| n/m - not meaningful | | | | | | | | | | | | | |
| | | March 31, | | | | | |
PERIOD END BALANCES | | | 2007 | | | 2006 | | | $ Change | | | % Change | |
| Securities available for sale | | $ | 703,296 | | $ | 940,476 | | $ | (237,180 | ) | | -25.2 | % |
| Securities held to maturity | | | 286,040 | | | 296,760 | | | (10,720 | ) | | -3.6 | % |
Total securities | | | 989,336 | | | 1,237,236 | | | (247,900 | ) | | -20.0 | % |
| Loans held for sale | | | 125,898 | | | 154,151 | | | (28,253 | ) | | -18.3 | % |
| Loans | | | 6,626,515 | | | 5,964,807 | | | 661,708 | | | 11.1 | % |
| Fed funds sold and rev repos | | | 104,900 | | | 46,941 | | | 57,959 | | | 123.5 | % |
Total earning assets | | | 7,846,649 | | | 7,403,135 | | | 443,514 | | | 6.0 | % |
| Allowance for loan losses | | | (72,049 | ) | | (73,542 | ) | | 1,493 | | | -2.0 | % |
| Cash and due from banks | | | 336,438 | | | 321,662 | | | 14,776 | | | 4.6 | % |
| Mortgage servicing rights | | | 70,594 | | | 64,283 | | | 6,311 | | | 9.8 | % |
| Goodwill | | | 290,246 | | | 137,368 | | | 152,878 | | | 111.3 | % |
| Identifiable intangible assets | | | 31,744 | | | 27,933 | | | 3,811 | | | 13.6 | % |
| Other assets | | | 389,715 | | | 356,849 | | | 32,866 | | | 9.2 | % |
Total assets | | $ | 8,893,337 | | $ | 8,237,688 | | $ | 655,649 | | | 8.0 | % |
| | | | | | | | | | | | | | |
| Noninterest-bearing deposits | | $ | 1,522,066 | | $ | 1,428,206 | | $ | 93,860 | | | 6.6 | % |
| Interest-bearing deposits | | | 5,792,236 | | | 4,892,826 | | | 899,410 | | | 18.4 | % |
Total deposits | | | 7,314,302 | | | 6,321,032 | | | 993,270 | | | 15.7 | % |
| Fed funds purchased and repos | | | 289,798 | | | 366,443 | | | (76,645 | ) | | -20.9 | % |
| Short-term borrowings | | | 167,831 | | | 692,295 | | | (524,464 | ) | | -75.8 | % |
| Long-term FHLB advances | | | - | | | 5,707 | | | (5,707 | ) | | -100.0 | % |
| Subordinated notes | | | 49,685 | | | - | | | 49,685 | | | n/m | |
| Junior subordinated debt securities | | | 70,104 | | | - | | | 70,104 | | | n/m | |
| Other liabilities | | | 107,610 | | | 96,526 | | | 11,084 | | | 11.5 | % |
Total liabilities | | | 7,999,330 | | | 7,482,003 | | | 517,327 | | | 6.9 | % |
| Common stock | | | 12,130 | | | 11,604 | | | 526 | | | 4.5 | % |
| Capital surplus | | | 146,937 | | | 63,674 | | | 83,263 | | | 130.8 | % |
| Retained earnings | | | 753,801 | | | 696,236 | | | 57,565 | | | 8.3 | % |
| Accum other comprehensive | | | | | | | | | | | | | |
| loss, net of tax | | | (18,861 | ) | | (15,829 | ) | | (3,032 | ) | | n/m | |
Total shareholders' equity | | | 894,007 | | | 755,685 | | | 138,322 | | | 18.3 | % |
Total liabilities and equity | | $ | 8,893,337 | | $ | 8,237,688 | | $ | 655,649 | | | 8.0 | % |
| | | | | | | | | | | | | | |
| Total interest-bearing liabilities | | $ | 6,369,654 | | $ | 5,957,271 | | $ | 412,383 | | | 6.9 | % |
| | | | | | | | | | | | | | |
n/m - not meaningful | | | | | | | | | | | | | |
| | | Quarter Ended March 31, | | | | | |
| INCOME STATEMENTS | | 2007 | | 2006 | | $ Change | | % Change | |
| Interest and fees on loans-FTE | | $ | 119,965 | | $ | 98,483 | | $ | 21,482 | | | 21.8 | % |
| Interest on securities-taxable | | | 9,080 | | | 11,075 | | | (1,995 | ) | | -18.0 | % |
| Interest on securities-tax exempt-FTE | | | 2,633 | | | 2,803 | | | (170 | ) | | -6.1 | % |
| Interest on fed funds sold and rev repos | | | 976 | | | 307 | | | 669 | | | 217.9 | % |
| Other interest income | | | 592 | | | 514 | | | 78 | | | 15.2 | % |
Total interest income-FTE | | | 133,246 | | | 113,182 | | | 20,064 | | | 17.7 | % |
| Interest on deposits | | | 50,355 | | | 29,975 | | | 20,380 | | | 68.0 | % |
| Interest on fed funds pch and repos | | | 3,813 | | | 5,056 | | | (1,243 | ) | | -24.6 | % |
| Other interest expense | | | 4,583 | | | 7,361 | | | (2,778 | ) | | -37.7 | % |
Total interest expense | | | 58,751 | | | 42,392 | | | 16,359 | | | 38.6 | % |
Net interest income-FTE | | | 74,495 | | | 70,790 | | | 3,705 | | | 5.2 | % |
| Provision for loan losses | | | 1,639 | | | (2,984 | ) | | 4,623 | | | n/m | |
Net interest income after provision-FTE | | | 72,856 | | | 73,774 | | | (918 | ) | | -1.2 | % |
| Service charges on deposit accounts | | | 12,693 | | | 11,689 | | | 1,004 | | | 8.6 | % |
| Insurance commissions | | | 8,772 | | | 8,349 | | | 423 | | | 5.1 | % |
| Wealth management | | | 5,879 | | | 5,611 | | | 268 | | | 4.8 | % |
| General banking - other | | | 6,170 | | | 5,195 | | | 975 | | | 18.8 | % |
| Mortgage banking, net | | | 2,755 | | | 3,452 | | | (697 | ) | | -20.2 | % |
| Other, net | | | 1,824 | | | 1,528 | | | 296 | | | 19.4 | % |
| Nonint inc-excl sec gains | | | 38,093 | | | 35,824 | | | 2,269 | | | 6.3 | % |
| Security gains | | | 58 | | | 866 | | | (808 | ) | | n/m | |
Total noninterest income | | | 38,151 | | | 36,690 | | | 1,461 | | | 4.0 | % |
| Salaries and employee benefits | | | 43,166 | | | 39,377 | | | 3,789 | | | 9.6 | % |
| Services and fees | | | 9,558 | | | 8,764 | | | 794 | | | 9.1 | % |
| Net occupancy-premises | | | 4,414 | | | 3,884 | | | 530 | | | 13.6 | % |
| Equipment expense | | | 3,904 | | | 3,643 | | | 261 | | | 7.2 | % |
| Other expense | | | 8,364 | | | 7,844 | | | 520 | | | 6.6 | % |
Total noninterest expense | | | 69,406 | | | 63,512 | | | 5,894 | | | 9.3 | % |
Income before income taxes | | | 41,601 | | | 46,952 | | | (5,351 | ) | | -11.4 | % |
| Tax equivalent adjustment | | | 2,553 | | | 2,549 | | | 4 | | | 0.2 | % |
| Income taxes | | | 13,191 | | | 15,084 | | | (1,893 | ) | | -12.5 | % |
Net income | | $ | 25,857 | | $ | 29,319 | | $ | (3,462 | ) | | -11.8 | % |
| | | | | | | | | | | | | | |
Earnings per share | | | | | | | | | | | | | |
Basic | | $ | 0.44 | | $ | 0.53 | | $ | (0.09 | ) | | -17.0 | % |
| | | | | | | | | | | | | | |
Diluted | | $ | 0.44 | | $ | 0.52 | | $ | (0.08 | ) | | -15.4 | % |
| | | | | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | | | | | |
Basic | | | 58,508,335 | | | 55,696,401 | | | | | | 5.0 | % |
| | | | | | | | | | | | | | |
Diluted | | | 58,791,656 | | | 56,035,548 | | | | | | 4.9 | % |
| | | | | | | | | | | | | | |
Period end shares outstanding | | | 58,217,983 | | | 55,680,234 | | | | | | 4.6 | % |
| | | | | | | | | | | | | | |
Dividends per share | | $ | 0.2200 | | $ | 0.2100 | | | | | | 4.8 | % |
| | | | | | | | | | | | | | |
n/m - not meaningful | | | | | | | | | | | | | |
| | | March 31, | | | | | |
NONPERFORMING ASSETS | | | 2007 | | | 2006 | | | $ Change | | | % Change | |
| Nonaccrual loans | | $ | 37,061 | | $ | 27,211 | | $ | 9,850 | | | 36.2 | % |
| Restructured loans | | | - | | | - | | | - | | | | |
Total nonperforming loans | | | 37,061 | | | 27,211 | | | 9,850 | | | 36.2 | % |
| Other real estate | | | 2,158 | | | 3,342 | | | (1,184 | ) | | -35.4 | % |
Total nonperforming assets | | | 39,219 | | | 30,553 | | | 8,666 | | | 28.4 | % |
| Loans past due over 90 days | | | | | | | | | | | | | |
| Included in Loan Portfolio | | | 3,583 | | | 1,274 | | | 2,309 | | | 181.2 | % |
| Serviced GNMA loans eligible for repch | | | 6,336 | | | 14,702 | | | (8,366 | ) | | -56.9 | % |
Total loans past due over 90 days | | | 9,919 | | | 15,976 | | | (6,057 | ) | | -37.9 | % |
Total nonperforming assets plus past | | | | | | | | | | | | | |
due over 90 days | | $ | 49,138 | | $ | 46,529 | | $ | 2,609 | | | 5.6 | % |
| | | | | | | | | | | | | | |
| | | Quarter Ended March 31, | | | | | | | |
ALLOWANCE FOR LOAN LOSSES | | | 2007 | | | 2006 | | | $ Change | | | % Change | |
| Beginning Balance | | $ | 72,098 | | $ | 76,691 | | $ | (4,593 | ) | | -6.0 | % |
| Provision for loan losses | | | 1,639 | | | (2,984 | ) | | 4,623 | | | n/m | |
| Charge-offs | | | (4,282 | ) | | (2,834 | ) | | (1,448 | ) | | 51.1 | % |
| Recoveries | | | 2,594 | | | 2,669 | | | (75 | ) | | -2.8 | % |
| Net charge-offs | | | (1,688 | ) | | (165 | ) | | (1,523 | ) | | n/m | |
| Ending Balance | | $ | 72,049 | | $ | 73,542 | | $ | (1,493 | ) | | -2.0 | % |
| | | | | | | | | | | | | | |
RATIOS | | | | | | | | |
| ROA | | | 1.19 | % | | | 1.45 | % |
| ROE | | | 11.68 | % | | | 15.99 | % |
| Return on average tangible equity | | | 18.76 | % | | | 20.59 | % |
| EOP equity/ EOP assets | | | 10.05 | % | | | 9.17 | % |
| Average equity/average assets | | | 10.19 | % | | | 9.06 | % |
| Interest margin - Yield - FTE | | | 6.96 | % | | | 6.22 | % |
| Interest margin - Cost - FTE | | | 3.07 | % | | | 2.33 | % |
| Net interest margin - FTE | | | 3.89 | % | | | 3.89 | % |
| Rate on interest-bearing liabilities | | | 3.79 | % | | | 2.88 | % |
| Efficiency ratio | | | 61.89 | % | | | 60.04 | % |
| Net charge offs/average loans | | | 0.10 | % | | | 0.01 | % |
| Provision for loan losses/average loans | | | 0.10 | % | | | -0.20 | % |
| Nonperforming loans/total loans | | | 0.56 | % | | | 0.46 | % |
| Nonperforming assets/total loans | | | 0.59 | % | | | 0.51 | % |
| Nonperforming assets/total loans+ORE | | | 0.59 | % | | | 0.51 | % |
| ALL/nonperforming loans | | | 194.41 | % | | | 270.27 | % |
| ALL/total loans | | | 1.09 | % | | | 1.23 | % |
| Net loans/total assets | | | 73.70 | % | | | 71.52 | % |
| | | | | | | | | |
COMMON STOCK PERFORMANCE | | | | | | | | |
| Market value of stock-Close | | $ | 28.04 | | | $ | 31.64 | |
| Market value of stock-High | | $ | 33.69 | | | $ | 32.00 | |
| Market value of stock-Low | | $ | 26.85 | | | $ | 27.01 | |
| Book value of stock | | $ | 15.36 | | | $ | 13.57 | |
| Tangible book value of stock | | $ | 9.83 | | | $ | 10.60 | |
| Tangible equity | | $ | 572,017 | | | $ | 590,384 | |
| Market/Book value of stock | | | 182.55 | % | | | 233.16 | % |
| | | | | | | | | |
OTHER DATA | | | | | | | | |
| EOP Employees - FTE | | | 2,729 | | | | 2,604 | |
| | | | | | | | | |
n/m - not meaningful | | | | | | | | |
| | | Quarter Ended | | | | | |
AVERAGE BALANCES | | | 3/31/2007 | | | 12/31/2006 | | | $ Change | | | % Change | |
| Securities AFS-taxable | | $ | 681,885 | | $ | 750,742 | | $ | (68,857 | ) | | -9.2 | % |
| Securities AFS-nontaxable | | | 54,815 | | | 56,367 | | | (1,552 | ) | | -2.8 | % |
| Securities HTM-taxable | | | 198,286 | | | 197,633 | | | 653 | | | 0.3 | % |
| Securities HTM-nontaxable | | | 89,988 | | | 93,549 | | | (3,561 | ) | | -3.8 | % |
Total securities | | | 1,024,974 | | | 1,098,291 | | | (73,317 | ) | | -6.7 | % |
| Loans | | | 6,663,620 | | | 6,659,605 | | | 4,015 | | | 0.1 | % |
| Fed funds sold and rev repos | | | 74,076 | | | 22,559 | | | 51,517 | | | 228.4 | % |
Total earning assets | | | 7,762,670 | | | 7,780,455 | | | (17,785 | ) | | -0.2 | % |
| Allowance for loan losses | | | (72,452 | ) | | (75,336 | ) | | 2,884 | | | -3.8 | % |
| Cash and due from banks | | | 345,974 | | | 334,008 | | | 11,966 | | | 3.6 | % |
| Other assets | | | 778,595 | | | 786,317 | | | (7,722 | ) | | -1.0 | % |
Total assets | | $ | 8,814,787 | | $ | 8,825,444 | | $ | (10,657 | ) | | -0.1 | % |
| | | | | | | | | | | | | | |
| Interest-bearing demand deposits | | $ | 1,195,515 | | $ | 1,215,676 | | $ | (20,161 | ) | | -1.7 | % |
| Savings deposits | | | 1,785,162 | | | 1,639,028 | | | 146,134 | | | 8.9 | % |
| Time deposits less than $100,000 | | | 1,616,916 | | | 1,623,573 | | | (6,657 | ) | | -0.4 | % |
| Time deposits of $100,000 or more | | | 1,021,953 | | | 993,324 | | | 28,629 | | | 2.9 | % |
Total interest-bearing deposits | | | 5,619,546 | | | 5,471,601 | | | 147,945 | | | 2.7 | % |
| Fed funds purchased and repos | | | 351,797 | | | 402,057 | | | (50,260 | ) | | -12.5 | % |
| Short-term borrowings | | | 202,838 | | | 308,299 | | | (105,461 | ) | | -34.2 | % |
| Subordinated notes | | | 49,680 | | | 10,259 | | | 39,421 | | | 384.3 | % |
| Junior subordinated debt securities | | | 70,104 | | | 70,104 | | | - | | | 0.0 | % |
Total interest-bearing liabilities | | | 6,293,965 | | | 6,262,320 | | | 31,645 | | | 0.5 | % |
| Noninterest-bearing deposits | | | 1,495,447 | | | 1,528,891 | | | (33,444 | ) | | -2.2 | % |
| Other liabilities | | | 127,264 | | | 139,544 | | | (12,280 | ) | | -8.8 | % |
| Shareholders' equity | | | 898,111 | | | 894,689 | | | 3,422 | | | 0.4 | % |
Total liabilities and equity | | $ | 8,814,787 | | $ | 8,825,444 | | $ | (10,657 | ) | | -0.1 | % |
| | | | | | | | | | | | | | |
| n/m - not meaningful | | | | | | | | | | | | | |
PERIOD END BALANCES | | | 3/31/2007 | | | 12/31/2006 | | | $ Change | | | % Change | |
| Securities available for sale | | $ | 703,296 | | $ | 758,273 | | $ | (54,977 | ) | | -7.3 | % |
| Securities held to maturity | | | 286,040 | | | 292,243 | | | (6,203 | ) | | -2.1 | % |
Total securities | | | 989,336 | | | 1,050,516 | | | (61,180 | ) | | -5.8 | % |
| Loans held for sale | | | 125,898 | | | 95,375 | | | 30,523 | | | 32.0 | % |
| Loans | | | 6,626,515 | | | 6,563,153 | | | 63,362 | | | 1.0 | % |
| Fed funds sold and rev repos | | | 104,900 | | | 27,259 | | | 77,641 | | | 284.8 | % |
Total earning assets | | | 7,846,649 | | | 7,736,303 | | | 110,346 | | | 1.4 | % |
| Allowance for loan losses | | | (72,049 | ) | | (72,098 | ) | | 49 | | | -0.1 | % |
| Cash and due from banks | | | 336,438 | | | 392,083 | | | (55,645 | ) | | -14.2 | % |
| Mortgage servicing rights | | | 70,594 | | | 69,272 | | | 1,322 | | | 1.9 | % |
| Goodwill | | | 290,246 | | | 290,363 | | | (117 | ) | | 0.0 | % |
| Identifiable intangible assets | | | 31,744 | | | 32,960 | | | (1,216 | ) | | -3.7 | % |
| Other assets | | | 389,715 | | | 392,087 | | | (2,372 | ) | | -0.6 | % |
Total assets | | $ | 8,893,337 | | $ | 8,840,970 | | $ | 52,367 | | | 0.6 | % |
| | | | | | | | | | | | | | |
| Noninterest-bearing deposits | | $ | 1,522,066 | | $ | 1,574,769 | | $ | (52,703 | ) | | -3.3 | % |
| Interest-bearing deposits | | | 5,792,236 | | | 5,401,395 | | | 390,841 | | | 7.2 | % |
Total deposits | | | 7,314,302 | | | 6,976,164 | | | 338,138 | | | 4.8 | % |
| Fed funds purchased and repos | | | 289,798 | | | 470,434 | | | (180,636 | ) | | -38.4 | % |
| Short-term borrowings | | | 167,831 | | | 271,067 | | | (103,236 | ) | | -38.1 | % |
| Subordinated notes | | | 49,685 | | | 49,677 | | | 8 | | | 0.0 | % |
| Junior subordinated debt securities | | | 70,104 | | | 70,104 | | | - | | | 0.0 | % |
| Other liabilities | | | 107,610 | | | 112,189 | | | (4,579 | ) | | -4.1 | % |
Total liabilities | | | 7,999,330 | | | 7,949,635 | | | 49,695 | | | 0.6 | % |
| Common stock | | | 12,130 | | | 12,226 | | | (96 | ) | | -0.8 | % |
| Surplus | | | 146,937 | | | 158,856 | | | (11,919 | ) | | -7.5 | % |
| Retained earnings | | | 753,801 | | | 740,870 | | | 12,931 | | | 1.7 | % |
| Accum other comprehensive | | | | | | | | | | | | | |
| loss, net of tax | | | (18,861 | ) | | (20,617 | ) | | 1,756 | | | n/m | |
Total shareholders' equity | | | 894,007 | | | 891,335 | | | 2,672 | | | 0.3 | % |
Total liabilities and equity | | $ | 8,893,337 | | $ | 8,840,970 | | $ | 52,367 | | | 0.6 | % |
| | | | | | | | | | | | | | |
| Total interest-bearing liabilities | | $ | 6,369,654 | | $ | 6,262,677 | | $ | 106,977 | | | 1.7 | % |
| | | | | | | | | | | | | | |
n/m - not meaningful | | | | | | | | | | | | | |
| | | Quarter Ended | | | | | |
| INCOME STATEMENTS | | 3/31/2007 | | 12/31/2006 | | $ Change | | % Change | |
| Interest and fees on loans-FTE | | $ | 119,965 | | $ | 120,235 | | $ | (270 | ) | | -0.2 | % |
| Interest on securities-taxable | | | 9,080 | | | 9,426 | | | (346 | ) | | -3.7 | % |
| Interest on securities-tax exempt-FTE | | | 2,633 | | | 2,699 | | | (66 | ) | | -2.4 | % |
| Interest on fed funds sold and rev repos | | | 976 | | | 309 | | | 667 | | | 215.9 | % |
| Other interest income | | | 592 | | | 684 | | | (92 | ) | | -13.5 | % |
Total interest income-FTE | | | 133,246 | | | 133,353 | | | (107 | ) | | -0.1 | % |
| Interest on deposits | | | 50,355 | | | 48,615 | | | 1,740 | | | 3.6 | % |
| Interest on fed funds pch and repos | | | 3,813 | | | 4,528 | | | (715 | ) | | -15.8 | % |
| Other interest expense | | | 4,583 | | | 5,555 | | | (972 | ) | | -17.5 | % |
Total interest expense | | | 58,751 | | | 58,698 | | | 53 | | | 0.1 | % |
Net interest income-FTE | | | 74,495 | | | 74,655 | | | (160 | ) | | -0.2 | % |
| Provision for loan losses | | | 1,639 | | | (909 | ) | | 2,548 | | | n/m | |
Net interest income after provision-FTE | | | 72,856 | | | 75,564 | | | (2,708 | ) | | -3.6 | % |
| Service charges on deposit accounts | | | 12,693 | | | 13,855 | | | (1,162 | ) | | -8.4 | % |
| Insurance commissions | | | 8,772 | | | 7,869 | | | 903 | | | 11.5 | % |
| Wealth management | | | 5,879 | | | 5,937 | | | (58 | ) | | -1.0 | % |
| General banking - other | | | 6,170 | | | 6,534 | | | (364 | ) | | -5.6 | % |
| Mortgage banking, net | | | 2,755 | | | 2,549 | | | 206 | | | 8.1 | % |
| Other, net | | | 1,824 | | | 2,216 | | | (392 | ) | | -17.7 | % |
| Nonint inc-excl sec gains | | | 38,093 | | | 38,960 | | | (867 | ) | | -2.2 | % |
| Security gains | | | 58 | | | 27 | | | 31 | | | 114.8 | % |
Total noninterest income | | | 38,151 | | | 38,987 | | | (836 | ) | | -2.1 | % |
| Salaries and employee benefits | | | 43,166 | | | 40,515 | | | 2,651 | | | 6.5 | % |
| Services and fees | | | 9,558 | | | 9,676 | | | (118 | ) | | -1.2 | % |
| Net occupancy-premises | | | 4,414 | | | 4,687 | | | (273 | ) | | -5.8 | % |
| Equipment expense | | | 3,904 | | | 3,936 | | | (32 | ) | | -0.8 | % |
| Other expense | | | 8,364 | | | 8,577 | | | (213 | ) | | -2.5 | % |
Total noninterest expense | | | 69,406 | | | 67,391 | | | 2,015 | | | 3.0 | % |
Income before income taxes | | | 41,601 | | | 47,160 | | | (5,559 | ) | | -11.8 | % |
| Tax equivalent adjustment | | | 2,553 | | | 2,573 | | | (20 | ) | | -0.8 | % |
| Income taxes | | | 13,191 | | | 15,168 | | | (1,977 | ) | | -13.0 | % |
Net income | | $ | 25,857 | | $ | 29,419 | | $ | (3,562 | ) | | -12.1 | % |
| | | | | | | | | | | | | | |
Earnings per share | | | | | | | | | | | | | |
Basic | | $ | 0.44 | | $ | 0.50 | | $ | (0.06 | ) | | -12.0 | % |
| | | | | | | | | | | | | | |
Diluted | | $ | 0.44 | | $ | 0.50 | | $ | (0.06 | ) | | -12.0 | % |
| | | | | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | | | | | |
Basic | | | 58,508,335 | | | 58,644,851 | | | | | | -0.2 | % |
| | | | | | | | | | | | | | |
Diluted | | | 58,791,656 | | | 59,062,050 | | | | | | -0.5 | % |
| | | | | | | | | | | | | | |
Period end shares outstanding | | | 58,217,983 | | | 58,676,586 | | | | | | -0.8 | % |
| | | | | | | | | | | | | | |
Dividends per share | | $ | 0.2200 | | $ | 0.2200 | | | | | | 0.0 | % |
| | | | | | | | | | | | | | |
n/m - not meaningful | | | | | | | | | | | | | |
NONPERFORMING ASSETS | | | 3/31/2007 | | | 12/31/2006 | | | $ Change | | | % Change | |
| Nonaccrual loans | | $ | 37,061 | | $ | 36,399 | | $ | 662 | | | 1.8 | % |
| Restructured loans | | | - | | | - | | | - | | | | |
Total nonperforming loans | | | 37,061 | | | 36,399 | | | 662 | | | 1.8 | % |
| Other real estate | | | 2,158 | | | 2,509 | | | (351 | ) | | -14.0 | % |
Total nonperforming assets | | | 39,219 | | | 38,908 | | | 311 | | | 0.8 | % |
| Loans past due over 90 days | | | | | | | | | | | | | |
| Included in loan portfolio | | | 3,583 | | | 2,957 | | | 626 | | | 21.2 | % |
| Serviced GNMA loans eligible for repch | | | 6,336 | | | 8,510 | | | (2,174 | ) | | -25.5 | % |
Total loans past due over 90 days | | | 9,919 | | | 11,467 | | | (1,548 | ) | | -13.5 | % |
Total nonperforming assets plus past | | | | | | | | | | | | | |
due over 90 days | | $ | 49,138 | | $ | 50,375 | | $ | (1,237 | ) | | -2.5 | % |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | Quarter Ended | | | | | | | |
ALLOWANCE FOR LOAN LOSSES | | | 3/31/2007 | | | 12/31/2006 | | | $ Change | | | % Change | |
| Beginning Balance | | $ | 72,098 | | $ | 75,539 | | $ | (3,441 | ) | | -4.6 | % |
| Provision for loan losses | | | 1,639 | | | (909 | ) | | 2,548 | | | n/m | |
| Charge-offs | | | (4,282 | ) | | (5,064 | ) | | 782 | | | -15.4 | % |
| Recoveries | | | 2,594 | | | 2,532 | | | 62 | | | 2.4 | % |
| Net charge-offs | | | (1,688 | ) | | (2,532 | ) | | 844 | | | -33.3 | % |
| Ending Balance | | $ | 72,049 | | $ | 72,098 | | $ | (49 | ) | | -0.1 | % |
RATIOS | | | | | | | | |
| ROA | | | 1.19 | % | | | 1.32 | % |
| ROE | | | 11.68 | % | | | 13.05 | % |
| Return on average tangible equity | | | 18.76 | % | | | 21.22 | % |
| EOP equity/ EOP assets | | | 10.05 | % | | | 10.08 | % |
| Average equity/average assets | | | 10.19 | % | | | 10.14 | % |
| Interest margin - Yield - FTE | | | 6.96 | % | | | 6.80 | % |
| Interest margin - Cost - FTE | | | 3.07 | % | | | 2.99 | % |
| Net interest margin - FTE | | | 3.89 | % | | | 3.81 | % |
| Rate on interest-bearing liabilities | | | 3.79 | % | | | 3.72 | % |
| Efficiency ratio | | | 61.89 | % | | | 59.53 | % |
| Net charge offs/average loans | | | 0.10 | % | | | 0.15 | % |
| Provision for loan losses/average loans | | | 0.10 | % | | | -0.05 | % |
| Nonperforming loans/total loans | | | 0.56 | % | | | 0.55 | % |
| Nonperforming assets/total loans | | | 0.59 | % | | | 0.59 | % |
| Nonperforming assets/total loans+ORE | | | 0.59 | % | | | 0.59 | % |
| ALL/nonperforming loans | | | 194.41 | % | | | 198.08 | % |
| ALL/total loans | | | 1.09 | % | | | 1.10 | % |
| Net loans/total assets | | | 73.70 | % | | | 73.42 | % |
| | | | | | | | | |
COMMON STOCK PERFORMANCE | | | | | | | | |
| Market value of stock-Close | | $ | 28.04 | | | $ | 32.71 | |
| Market value of stock-High | | $ | 33.69 | | | $ | 33.61 | |
| Market value of stock-Low | | $ | 26.85 | | | $ | 30.84 | |
| Book value of stock | | $ | 15.36 | | | $ | 15.19 | |
| Tangible book value of stock | | $ | 9.83 | | | $ | 9.68 | |
| Tangible equity | | $ | 572,017 | | | $ | 568,012 | |
| Market/Book value of stock | | | 182.55 | % | | | 215.34 | % |
| | | | | | | | | |
OTHER DATA | | | | | | | | |
| EOP Employees - FTE | | | 2,729 | | | | 2,707 | |
| | | | | | | | | |
n/m - not meaningful | | | | | | | | |
| | TRUSTMARK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Note 1 - Financial Performance Non-GAAP
Management is presenting in the accompanying table, adjustments to net income as reported in accordance with generally accepted accounting principles for significant items resulting from Hurricane Katrina. Management believes this information will help users compare Trustmark’s current results to those of prior periods.
Non-GAAP Disclosures
($ in thousands except per share data)
| | | Quarter Ended | |
| | | 3/31/2007 | | 12/31/2006 | | 3/31/2006 | |
| | | Amount | | Basic EPS | | Amount | | Basic EPS | | Amount | | Basic EPS | |
| | | | | | | | | | | | | | |
Net Income as reported-GAAP | | $ | 25,857 | | $ | 0.442 | | $ | 29,419 | | $ | 0.502 | | $ | 29,319 | | $ | 0.526 | |
| | | | | | | | | | | | | | | | | | | | |
Adjustments (net of taxes): | | | | | | | | | | | | | | | | | | | |
Less items related to Hurricane Katrina | | | | | | | | | | | | | | | | | | | |
| Provision for loan losses | | | (396 | ) | | (0.007 | ) | | (871 | ) | | (0.015 | ) | | (1,944 | ) | | (0.035 | ) |
| Mortgage related charges | | | (269 | ) | | (0.004 | ) | | (258 | ) | | (0.004 | ) | | (517 | ) | | (0.009 | ) |
| | | | (665 | ) | | (0.011 | ) | | (1,129 | ) | | (0.019 | ) | | (2,461 | ) | | (0.044 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net Income adjusted for specific items (Non-GAAP) | | $ | 25,192 | | $ | 0.431 | | $ | 28,290 | | $ | 0.483 | | $ | 26,858 | | $ | 0.482 | |
During the third quarter of 2005, immediately following in the aftermath of Hurricane Katrina, Trustmark initiated a process to assess the storm’s impact on its customers and on Trustmark’s consolidated financial statements. In accordance with Statement of Financial Accounting Standards (SFAS) No. 5, “Accounting for Contingencies,” Trustmark determined, through reasonable estimates, that specific losses were probable and initially increased its allowance for loan losses by $9.8 million and established other accruals for losses totaling $2.1 million, on a pre-tax basis.
Trustmark updates its estimates for probable losses resulting from Hurricane Katrina on a quarterly basis. As a result, Trustmark has reduced its allowance for loan losses during the first quarter of 2007 by $0.6 million and other reserves by $0.4 million on a pre-tax basis resulting in an increase to Trustmark’s net income of $0.7 million, or $0.01 per share. The table above reflects the quarterly financial impact these changes in estimates had on reported earnings.
At March 31, 2007, the allowance for loan losses included specific Katrina accruals totaling $1.4 million, comprised of $0.9 million for mortgage loans and $0.5 million for consumer loans. Management’s estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as the information changes, actual results could differ from those estimates.
Note 2 - Business Combinations
On August 25, 2006, Trustmark completed its merger with Houston-based Republic Bancshares of Texas, Inc. (Republic) in a business combination accounted for by the purchase method of accounting. Trustmark purchased all the outstanding common and preferred shares of Republic for approximately $205.3 million. The purchase price includes approximately 3.3 million in common shares of Trustmark valued at $103.8 million, $100.0 million in cash and $1.5 million in acquisition-related costs. The purchase price allocations are preliminary and are subject to final determination and valuation of the fair value of assets acquired and liabilities assumed. At August 25, 2006, Republic had assets consisting of $21.1 million in cash and due from banks, $64.5 million in federal funds sold, $76.5 million in securities, $458.0 million in loans, $9.0 million in premises and equipment and $18.3 million in other assets as well as deposits of $593.3 million and borrowings and other liabilities of $13.2 million. These assets and liabilities have been recorded at fair value based on market conditions and risk characteristics at the acquisition date. Excess costs over tangible net assets acquired totaled $172.9 million, of which $19.3 million has been allocated to core deposits, $690 thousand to borrower relationships and $152.9 million to goodwill.
Note 3 - Loans and Allowance for Loan Losses
For the periods presented, loans consisted of the following:
| | | 3/31/07 | | 12/31/06 | | 3/31/06 | |
| Loans secured by real estate: | | | | | | | | | | |
| Construction, land development and other land loans | | $ | 1,000,006 | | $ | 896,254 | | $ | 789,134 | |
| Secured by 1-4 family residential properties | | | 1,805,469 | | | 1,842,886 | | | 1,865,124 | |
| Secured by nonfarm, nonresidential properties | | | 1,233,710 | | | 1,326,658 | | | 1,078,519 | |
| Other | | | 150,120 | | | 148,921 | | | 115,193 | |
| Loans to finance agricultural production and other loans to farmers | | | 25,707 | | | 23,938 | | | 27,550 | |
| Commercial and industrial loans | | | 1,155,825 | | | 1,106,460 | | | 920,184 | |
| Consumer loans | | | 969,739 | | | 934,261 | | | 891,405 | |
| Obligations of states and political subdivisions | | | 231,245 | | | 233,666 | | | 233,267 | |
| Other loans | | | 54,694 | | | 50,109 | | | 44,431 | |
| Loans | | | 6,626,515 | | | 6,563,153 | | | 5,964,807 | |
| Less Allowance for loan losses | | | 72,049 | | | 72,098 | | | 73,542 | |
| Net Loans | | $ | 6,554,466 | | $ | 6,491,055 | | $ | 5,891,265 | |
The allowance for loan losses is maintained at a level believed adequate by Management, based on estimated probable losses within the existing loan portfolio. Trustmark’s allowance for probable loan loss methodology is based on guidance provided in SEC Staff Accounting Bulletin No. 102, “Selected Loan Loss Allowance Methodology and Documentation Issues,” as well as on other regulatory guidance. Accordingly, Trustmark’s methodology is based on historical loss experience by type of loan and internal risk ratings, homogeneous risk pools and specific loss allocations, with adjustments considering current economic events and conditions. The provision for loan losses reflects loan quality trends, including the levels of and trends related to nonaccrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors. Trustmark implemented specific changes to its allowance for loan loss methodology as a result of the Interagency Policy Statement on the Allowance for Loan and Lease Losses published by the governmental regulating agencies for financial services companies during the fourth quarter of 2006.
Note 4 - Mortgage Banking
Trustmark utilizes derivative instruments to offset changes in the fair value of mortgage servicing rights (MSR) attributable to changes in interest rates. Changes in the fair value of the derivative instrument are recorded in mortgage banking income, net and are offset by the changes in the fair value of MSR, as shown in the accompanying table. MSR fair values represent the effect of present value decay and the effect of changes in interest rates. Ineffectiveness of hedging MSR fair value is measured by comparing total hedge cost to the fair value of the MSR asset attributable to interest rate changes. During the first quarter of 2007, the impact of implementing this strategy resulted in a net positive ineffectiveness of $0.3 million.
The following table illustrates the components of mortgage banking income included in noninterest income in the accompanying income statements:
| | | Quarter Ended | |
| | | 3/31/07 | | 12/31/06 | | 3/31/06 | |
| Mortgage servicing income, net | | $ | 3,478 | | $ | 3,395 | | $ | 3,335 | |
| Change in fair value-MSR from market changes | | | (447 | ) | | 1,008 | | | 3,812 | |
| Change in fair value-MSR from runoff | | | (2,104 | ) | | (2,204 | ) | | (2,052 | ) |
| Change in fair value of derivatives | | | 715 | | | (1,411 | ) | | (2,556 | ) |
| Gain on sales of loans | | | 1,345 | | | 1,794 | | | 1,041 | |
| Other, net | | | (232 | ) | | (33 | ) | | (128 | ) |
| Mortgage banking, net | | $ | 2,755 | | $ | 2,549 | | $ | 3,452 | |
Note 5 - Earning Assets and Interest-Bearing Liabilities
The following table illustrates the yields on earning assets by category as well as the rates paid on interest-bearing liabilities on a tax equivalent basis:
| | | Quarter Ended | |
| | | 3/31/07 | | 12/31/06 | | 3/31/06 | |
| Securities - Taxable | | | 4.18 | % | | 3.94 | % | | 3.95 | % |
| Securities - Nontaxable | | | 7.37 | % | | 7.14 | % | | 7.44 | % |
| Securities - Total | | | 4.63 | % | | 4.38 | % | | 4.37 | % |
| Loans | | | 7.30 | % | | 7.16 | % | | 6.58 | % |
| FF Sold & Rev Repo | | | 5.34 | % | | 5.43 | % | | 4.48 | % |
| Total Earning Assets | | | 6.96 | % | | 6.80 | % | | 6.22 | % |
| | | | | | | | | | | |
| Interest-bearing Deposits | | | 3.63 | % | | 3.53 | % | | 2.53 | % |
| FF Pch & Repo | | | 4.40 | % | | 4.47 | % | | 3.87 | % |
| Borrowings | | | 5.76 | % | | 5.67 | % | | 4.66 | % |
| Total Interest-bearing Liabilities | | | 3.79 | % | | 3.72 | % | | 2.88 | % |
| | | | | | | | | | | |
| Net interest margin | | | 3.89 | % | | 3.81 | % | | 3.89 | % |
Note 6 - Subordinated Notes Payable and Junior Subordinated Debt Securities
In December 2006, Trustmark National Bank (TNB) issued $50 million aggregate principal amount of Subordinated Notes (the Notes) due December 15, 2016. At March 31, 2007, the carrying amount of the Notes was $49.7 million. The Notes, which are not redeemable prior to maturity, qualify as Tier 2 capital for both TNB and Trustmark. Proceeds from the sale of the Notes were used for general corporate purposes.
On August 18, 2006, Trustmark completed a private placement of $60.0 million of trust preferred securities through its Delaware trust affiliate, Trustmark Preferred Capital Trust I, (the Trust). Under applicable regulatory guidelines, these trust preferred securities qualify as Tier 1 capital. The proceeds from the sale of the trust preferred securities were used by the Trust to purchase $61.856 million in aggregate principal amount of Trustmark’s junior subordinated debentures.
In addition, pursuant to the acquisition of Republic Bancshares of Texas, Inc. on August 25, 2006, Trustmark assumed the liability for $8.248 million in junior subordinated debt securities issued to Republic Bancshares Capital Trust I (Republic Trust), also a Delaware trust. Republic Trust used the proceeds from the issuance of $8.0 million in trust preferred securities to acquire the junior subordinated debt securities. Under applicable regulatory guidelines, these trust preferred securities qualify as Tier 1 capital.
As defined in applicable accounting standards, both Trustmark Preferred Capital Trust I and Republic Bancshares Capital Trust I, wholly-owned subsidiaries of Trustmark, are considered variable interest entities for which Trustmark is not the primary beneficiary. Accordingly, the accounts of both trusts are not included in Trustmark’s consolidated financial statements.
Note 7 - Basis of Presentation
Trustmark’s investment in the stock of the Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) has been reclassed from investment securities to other assets since these equity securities do not have a readily determinable fair value which places them outside the scope of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Period end balances of FRB and FHLB stock totaled $33.1 million at March 31, 2007, $34.0 million at December 31, 2006 and $36.2 million at March 31, 2006.
In addition, Trustmark has also reclassed its investment in Qualified Zone Academy Bonds (QZABs) from other assets into loans. QZABs are part of a federal initiative that provides funds on a limited basis to schools that meet very specific criteria for construction and modernization projects. To qualify for funds from this initiative a school must be located in a federal empowerment zone, an enterprise community or 35 percent or more of its students must qualify for free or reduced price lunch. Interest payments on QZABs, which is covered by the federal government, is provided to Trustmark in the form of a tax credit, in lieu of cash. Trustmark’s investment in QZABs will be measured in accordance with SFAS No. 115 since these investments meet the definition of a security, however, since Trustmark consistently reports investments of this nature as loans to states and political subdivisions, they will be classified as loans. Period end balances of QZABs totaled $21.3 million at both March 31, 2007 and December 31, 2006 with the March 31, 2006 balance equaling $19.9 million.
These reclassifications have been made to prior period amounts in order to conform to the current period presentation.
