1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
COMMISSION FILE NUMBER 0-3683
TRUSTMARK CORPORATION
(Exact name of Registrant as specified in its charter)
MISSISSIPPI 64-0471500
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
248 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601)354-5111
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of April 25, 1994:
COMMON STOCK, NO PAR VALUE 31,172,907
Class Number of shares
2
TRUSTMARK CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1994 and December 31, 1993
Consolidated Statements of Income
Three Months Ended
March 31, 1994 and 1993
Consolidated Statements of
Cash Flows - Three Months
Ended March 31, 1994 and 1993
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
SIGNATURES
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRUSTMARK CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in Thousands Except Share Data)
MARCH 31,
1994 DECEMBER 31,
(UNAUDITED) 1993*
----------- -----
ASSETS
Cash and due from banks (noninterest-bearing) $ 262,969 $ 238,433
Federal funds sold and securities purchased
under reverse repurchase agreements 244,113 91,506
Trading account securities 1,837 2,555
Securities:
Available for sale, at fair value 781,941
At lower of aggregate cost or fair value
(fair value: $84,346) 84,278
Held to maturity (fair value: $1,068,391-1994;
$1,838,485-1993) 1,082,146 1,796,828
Loans 2,070,906 2,116,938
Less: Unearned income 30,819 33,112
Allowance for possible loan losses 62,636 62,650
------------ ------------
Net loans 1,977,451 2,021,176
Premises and equipment, net 58,808 58,749
Accrued interest receivable 32,785 34,982
Intangible assets 40,373 40,426
Other assets 62,173 63,093
------------ ------------
TOTAL ASSETS $ 4,544,596 $ 4,432,026
============ ============
LIABILITIES
Deposits:
Noninterest-bearing deposits $ 657,612 $ 676,601
Interest-bearing deposits 2,617,335 2,512,604
------------ ------------
Total deposits 3,274,947 3,189,205
Federal funds purchased 135,670 84,295
Securities sold under repurchase agreements 715,300 760,840
Accrued expenses and other liabilities 47,236 39,059
------------ ------------
TOTAL LIABILITIES 4,173,153 4,073,399
STOCKHOLDERS' EQUITY
Common stock, no par value:
Authorized, 40,000,000 shares
Issued and outstanding: 31,172,907 shares 12,989 12,989
Surplus 220,888 220,888
Retained earnings 134,701 124,750
Net unrealized gain on securities available
for sale, net of tax 2,865
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 371,443 358,627
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,544,596 $ 4,432,026
============ ============
*Derived from audited financial statements
See notes to consolidated financial statements
4
TRUSTMARK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
($ in Thousands Except Share Data)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
---------
1994 1993
---- ----
INTEREST INCOME
Interest and fees on loans $ 41,370 $ 39,292
Interest and dividends on securities:
Taxable interest and dividend income 26,374 27,908
Interest income exempt from federal
income taxes 1,604 1,868
Interest on federal funds sold and securities purchased
under reverse repurchase agreements 2,120 2,144
----------- -----------
TOTAL INTEREST INCOME 71,468 71,212
INTEREST EXPENSE
Interest on deposits 19,950 23,051
Interest on federal funds purchased and securities sold
under repurchase agreements 6,716 4,948
----------- -----------
TOTAL INTEREST EXPENSE 26,666 27,999
----------- -----------
NET INTEREST INCOME 44,802 43,213
Provision for loan losses 215 3,786
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 44,587 39,427
OTHER INCOME
Trust service income 2,231 1,976
Service charges on deposit accounts 4,188 4,092
Other account charges, fees and commissions 4,342 3,522
Securities gains 4 19
Other 598 868
----------- -----------
TOTAL OTHER INCOME 11,363 10,477
OTHER EXPENSES
Salaries 14,699 12,710
Employee benefits 2,959 2,670
Net occupancy - premises 1,806 1,585
Equipment expense 2,971 2,647
Services and fees 4,038 3,817
Other real estate expenses 149 1,129
FDIC insurance assessment 1,781 1,780
Amortization of intangible assets 1,675 2,445
Other 6,155 5,789
----------- -----------
TOTAL OTHER EXPENSES 36,233 34,572
----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 19,717 15,332
Income taxes 6,650 5,330
----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 13,067 10,002
Cumulative effect on prior years (to December 31, 1992)
of change in accounting for income taxes 1,519
----------- -----------
NET INCOME $ 13,067 $ 11,521
=========== ===========
PER SHARE DATA
Income before cumulative effect of change in
accounting principle $ .42 $ .34
Cumulative effect on prior years (to December 31, 1992)
of change in accounting for income taxes .05
----------- -----------
NET INCOME PER SHARE $ .42 $ .39
=========== ===========
DIVIDENDS PER SHARE $ .10 $ .093
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 31,172,907 29,476,383
=========== ===========
See notes to consolidated financial statements
5
TRUSTMARK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
1994 1993
---- ----
OPERATING ACTIVITIES
Net income $13,067 $11,521
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 215 3,786
Provision for depreciation and amortization 3,914 4,420
Writedowns and (gains)/losses on other
real estate (33) 1,027
Amortization of security discounts (1,599) (1,647)
Gains on sales of securities (4) (19)
Other 1,406 (4,017)
Decrease in accrued interest receivable 2,197 905
Increase in intangible assets (1,620) (297)
Increase in deferred income taxes (1,023) (3,611)
Decrease in other assets 662 10,274
Increase in other liabilities 8,177 11,821
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 25,359 34,163
-------- --------
INVESTING ACTIVITIES
Proceeds from calls and maturities of securities
available for sale 84,180
Proceeds from calls and maturities of securities
carried at lower of aggregate cost or
fair value 82,000
Proceeds from calls and maturities of securities
held to maturity 146,757 130,946
Purchases of securities available for sale (147,496)
Purchases of securities carried at lower of
aggregate cost or fair value (132,900)
Purchases of securities held to maturity (60,180) (214,014)
Net increase in federal funds sold and securities
purchased under reverse repurchase agreements (152,607) (56,876)
Net decrease in loans 42,124 38,587
Purchases of premises and equipment (2,117) (1,472)
Proceeds from sales of premises and equipment 56
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (89,283) (153,729)
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 85,742 (48,702)
Net increase in federal funds purchased
and securities sold under repurchase agreements 5,835 115,563
Cash dividends (3,117) (2,751)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 88,460 64,110
-------- --------
Increase (decrease) in cash and cash equivalents 24,536 (55,456)
Cash and cash equivalents at beginning of year 238,433 252,410
-------- --------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $262,969 $196,954
======== ========
See notes to consolidated financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) In the opinion of Management, the accompanying unaudited and audited
consolidated financial statements contain all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly Trustmark
Corporation's financial position as of March 31, 1994 and December 31, 1993,
the results of operations for the three month period ended March 31, 1994 and
1993 and the cash flows for the three month period ended March 31, 1994 and
1993.
(2) During the first three months of 1994, the Corporation paid approximately
$7,775,000 in income taxes and $26,978,000 in interest on deposit liabilities
and other borrowings. This compares to $1,410,000 for income taxes and
$30,168,000 for interest on deposits and other borrowings for the first three
months of 1993.
(3) For the three months ended March 31, 1994 and 1993, noncash transfers from
loans to foreclosed properties were $445,000 and $314,000, respectively. For
the three months ended March 31, 1994, noncash transfers to securities
available for sale were $84,000,000 from securities held for sale and
$629,000,000 from securities held to maturity.
(4) On January 1, 1994 the Corporation adopted SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." Debt securities not
classified as trading account securities or investment securities expected to
be held to maturity and all equity securities are classified as
available-for-sale securities and reported at fair value, with net unrealized
gains and losses reported, net of income tax, as a separate component of
stockholders' equity. The net unrealized gain reported in stockholders' equity
at March 31, 1994 is $2,865,000.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated statements found elsewhere in this report.
ACQUISITIONS
After the close of business on July 31, 1993, UniSouth Banking Corporation
(UniSouth), of Columbus, Mississippi, was merged with Trustmark National Bank.
This business combination has been accounted for by the purchase method of
accounting. Accordingly, the consolidated statements of income and cash flows
for the three months ended March 31, 1993 do not reflect the impact of this
merger. All other financial statements include the effect of this merger since
its consummation.
On March 28, 1994, Trustmark Corporation and First National Financial
Corporation, parent company of First National Bank of Vicksburg, Mississippi
entered into an agreement in principle whereby First National Financial
Corporation will be merged into Trustmark Corporation. The merger agreement
stipulates that the shareholders of First National Financial Corporation will
receive approximately 3.6 million shares of Trustmark Corporation common stock
and the right to receive $1.1 million in cash on the closing date. The merger
is subject to approval by the appropriate shareholders and regulatory
authorities and will be accounted for as a pooling of interests.
Trustmark Corporation reported total assets at March 31, 1994 of $4.545
billion and currently has 142 locations serving 43 Mississippi cities. At
March 31, 1994, First National Financial Corporation had total assets of $301.7
million. First National has eight locations in Vicksburg and one in Jackson.
EARNINGS SUMMARY
Trustmark Corporation reported net income of $13.1 million for the first
quarter of 1994 compared to $11.5 million for the same time period in 1993. The
1994 growth in net income represents an increase of 13.4% when compared to
1993. On a per share basis, net income was $.42 in 1994 compared to $.39 in
1993. Earnings for 1994 increased primarily because of continued improvement in
net interest income combined with modest growth in noninterest income,
effective management of noninterest expenses and a substantially lower
provision for loan losses. It should also be noted that net income for 1993
was positively impacted by the adoption of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," as of January 1, 1993.
The cumulative effect of this change in accounting principle was to increase
net income by $1.5 million or $.05 per share.
The return on average assets (ROA) for the first quarter of 1994 was 1.17%
compared to 1.12% for the same time period in 1993. The return on average
equity (ROE) was 14.51% for the first quarter of 1994 compared to 15.51% for
the same time period in 1993.
ASSET/LIABILITY MANAGEMENT AND LIQUIDITY
A key objective of asset/liability management is to control
8
interest rate risk in order to provide stability in the net interest margin.
The Asset/Liability Committee monitors and adjusts the Corporation's exposure
to interest rates, within specific policy guidelines, based on its view of
current and expected market conditions. The primary tool utilized by this
committee is an earnings simulation model which can quantify variations in net
interest income in future periods under a variety of interest rate
environments. Each month, the committee reviews the output of this model with
respect to the estimated impact of various interest rate scenarios on net
interest income and its compliance with policy guidelines.
Another tool used to monitor the Corporation's overall interest rate
sensitivity is a gap analysis. The table below represents the Corporation's 90
day and one year gap position as of March 31, 1994 ($ in thousands):
Interest Sensitive Within
90 days One Year
----------- -----------
Total rate sensitive assets $1,155,542 $1,698,157
Total rate sensitive liabilities 1,882,145 2,371,733
----------- -----------
Net gap $ (726,603) $ (673,576)
=========== ===========
The analysis indicates that the Corporation is in a negative gap position
over the next three-month and twelve-month time horizons. Management believes
that it has adequate flexibility to alter the overall rate sensitivity
structure as necessary to minimize exposure to changes in interest rates. As
such, the Corporation's negative gap position has decreased by approximately
17% in the three-month time horizon and by approximately 22% in the
twelve-month time horizon since December 31, 1993 in response to rising
interest rates.
The Corporation has historically funded its liquidity requirements with
funds generated from operations, including new deposits and proceeds from the
repayments of loans and maturing investments. The Corporation also maintains
funding relationships with other financial institutions as part of its
liquidity management process.
EARNING ASSETS
The Corporation's earning asset structure changed dramatically during the
first quarter of 1994. Both the major categories of loans and securities
declined while federal funds sold and securities purchased under reverse
repurchase agreements showed a substantial increase.
Total loans declined by $43.7 million during the first quarter of 1994.
Within the loan portfolio, the most substantial decrease was seen in real
estate loans which declined by $66.6 million. This decline can be traced to two
major factors. First, interest rates on mortgage loans have been rapidly
rising during the first quarter which has slowed the volume of mortgages
refinanced. In addition, the Corporation continues to be committed to the
growth of its mortgage servicing portfolio. This commitment would require that
9
qualified mortgage loans that the Corporation had originated or purchased would
be packaged and sold, while retaining the right to service these mortgages. At
March 31, 1994, the Corporation's volume of residential mortgage loan servicing
was approximately $1.846 billion compared to $1.677 billion at the end of 1993.
This increase can be attributed to the strong growth of loans purchased in the
correspondent market and the utilization of loans originated within the
Corporation.
Commercial and industrial loans grew by $23.8 million during the first
quarter of 1994 and have benefited from the improving economic atmosphere
within the state. This has generated growth in both the services and wholesale
industries.
The Corporation's emphasis on credit quality has produced a healthy loan
portfolio and a conservative approach to providing for potential loan losses.
This emphasis on credit quality can be seen in the Corporation's commitment to
the continued refinement of credit administration systems designed to monitor
overall policy compliance and the adequacy of supporting financial and
collateral documentation. As a result of recent improvements, it is
anticipated that the Corporation's ability to identify and address actual and
potential credit problems will be further strengthened.
The allowance for loan losses is maintained at a level which Management
and the Board of Directors believe is adequate to absorb estimated losses
inherent in the loan portfolio, plus estimated losses associated with
off-balance sheet credit instruments such as letters of credit. The adequacy of
the allowance is reviewed on a quarterly basis by using the criteria specified
in revised Comptroller of the Currency Banking Circular 201 as well as guidance
provided in the Interagency Policy Statement received in January 1994. Each
review includes analyses of historical loss experience, trends in portfolio
volume and composition, ratio analysis related to overall credit quality,
consideration of current economic conditions, estimated future losses in
significant criticized loans, changes in lending policies and procedures and
other pertinent information. This review is presented to the Credit Policy
Committee with subsequent review and approval by the Board of Directors.
The allowance for loan losses has remained at substantially the same level
as December 31, 1993. The allowance currently approximates 3.07% of total
loans outstanding compared to 3.0% at December 31, 1993 and provides the
Corporation with an adequate reserve coverage of nonperforming loans. Because
of the imprecision and subjectivity inherent in most estimates of expected
credit losses, Management will continue to take a prudent, yet conservative
approach in the evaluation of the allowance for loan losses.
Net charge-offs totaled $229 thousand for the first quarter of 1994 which
resulted in an annualized net charge-off ratio of .05%. The current level of
net charge-offs for the Corporation remains well below that of banks within its
peer group.
A measure of asset quality in the financial institutions
10
industry is the level of nonperforming assets. Nonperforming assets include
nonperforming loans, consisting of nonaccrual and restructured loans, and other
real estate. See the table below for more details ($ in thousands):
3/31/94 12/31/93
------- -------
Loans accounted for on a nonaccrual basis $13,224 $ 9,784
Other real estate 3,939 3,961
Loans past due 90 days or more and still accruing 628 1,217
------- -------
Total nonperforming assets and past due loans $17,791 $14,962
======= =======
Asset quality of the Corporation is considered to be very good. The
overall volume of classified assets, which is comprised of classified loans and
other real estate owned, remains at approximately the same level reported at
year end and is favorable. While an increase in nonaccrual loans was reflected
in the March 31, 1994 figures, overall nonperforming assets and past due loans
remain well-controlled and continue to compare favorably to peer levels. As of
March 31, 1994, the Corporation knows of no additional loans, other than those
identified above, that Management has serious doubts as to the ability of such
borrowers to repay principal and interest.
The securities portfolio is utilized to provide a quality investment
alternative for available funds and to provide a stable source of interest
income. The overall balance of the securities portfolio declined by over $17.0
million during the first quarter of 1994 as the Corporation sought to replenish
the balances in federal funds sold that were utilized to purchase securities
during the fourth quarter of 1993. However, once an adequate base for
liquidity purposes was reached and with future loan demand uncertain, the
Corporation decided to increase the short-term investment portfolio as an
alternative to the overnight funds market. During the first quarter of 1994,
income earned by the short-term portfolio was approximately $258 thousand
greater than comparable investments in the overnight funds market. The
short-term portfolio will continue to play a vital role in maintaining the
Corporation's liquidity and profitability.
Within the securities portfolio, the current rising interest rate
environment has slowed the prepayment of CMO's. However, this has created only
a minimal extension of the duration of the securities portfolio. The
Corporation intends to take a prudent approach to the maintenance of its
securities portfolio.
The latest comparisons of the tax equivalent yield of the investment
portfolio show the Corporation remaining in the upper quartile when compared to
its peer group. This has been accomplished while maintaining the quality of
the portfolio.
On January 1, 1994, the Corporation adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under this new accounting
standard, debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as held to maturity and reported at
amortized cost.
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Debt and equity securities which are not classified as held to maturity or as
trading securities are classified as available-for- sale and reported at fair
value, with unrealized gains and losses reported as a separate component of
stockholders' equity, net of income taxes. At March 31, 1994, the carrying
values and fair values of securities classified as available-for-sale are
$777.3 million and $781.9 million, respectively. This resulted in an
unrecognized gain, net of tax, of approximately $2.87 million as a separate
component of stockholders' equity.
For the first quarter of 1994, realized gains were $4 thousand on
securities available-for-sale while there were no realized losses. Gross
unrealized gains approximated $12.8 million while gross unrealized losses
approximated $8.2 million on these securities. There were no realized gains or
losses on the sale of securities classified as held to maturity. Gross
unrealized gains approximated $12.1 million and gross unrealized losses
approximated $25.9 million on securities classified as held to maturity at
March 31, 1994.
Federal funds sold and securities purchased under reverse repurchase
agreements increased by $152.6 million when compared to the end of 1993. Weak
loan demand and unfavorable market conditions for security purchases created
the need for the Corporation to utilize federal funds sold and securities
purchased under reverse repurchase agreements as a short-term investment
alternative.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Deposits provide the Corporation with its primary source of funds. Total
deposits at March 31, 1994 increased by $85.7 million or 2.69% when compared to
December 31, 1993. Interest-bearing deposits increased by $104.7 million while
noninterest-bearing deposits fell by $19.0 million during that time period.
Interest-bearing deposits have become more appealing to deposit customers as
interest rates have steadily risen during the first quarter of 1994 and
short-term gains from the stock market or mutual funds have become more
uncertain.
Federal funds purchased increased $51.4 million or 61.0% when compared to
December 31, 1993. This can be traced to an increase in excess funds purchased
from downstream correspondent banks.
Securities sold under repurchase agreements fell by $45.5 million during
the first quarter of 1994. With interest rates on the rise, some customers who
had purchased securities sold under repurchase agreements have sought deposit
products that would provide additional yield. However, this remains a very
popular alternative to traditional deposit products.
STOCKHOLDERS' EQUITY
The Corporation has always placed a great emphasis on maintaining its
strong capital base. The Corporation's Management and Board of Directors
continually evaluate business decisions that may have an impact on the level of
stockholders' equity. It is their goal that the Corporation maintain a "well
capitalized" equity position. Based on the capital levels defined by banking
regulators, a "well capitalized" institution is one that has at least a 10%
total risk-based capital ratio, a 6% Tier 1 risk-based
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capital ratio and a 5% Tier 1 leverage ratio. The Corporation's solid capital
base is reflected in its regulatory capital ratios. The table below
illustrates these ratios at March 31, 1994 ($ in thousands):
Tier 1 Capital $355,679
Tier 2 Capital 29,289
--------
Total Qualifying Capital $384,968
========
Total Risk Weighted Assets $2,309,777
==========
Tier 1/Risk Weighted Assets 15.40%
Tier 2/Risk Weighted Assets 1.27%
------
Total Qualifying Capital/Risk Weighted Assets 16.67%
======
Leverage Ratio 7.85%
======
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, 1994, the Corporation had stockholders' equity of $371.4
million which contained a net unrealized gain on securities available-for-sale,
net of taxes, of $2.87 million. Based on its first quarter dividend payout
ratio of 23.8%, the Corporation retained 76.2% of its earnings, generating an
internal capital growth rate of 11.1%. Dividends for the first quarter of 1994
remained at $.10 per share resulting in an annual dividend rate of $.40 per
share. Book value for the Corporation's common stock was $11.92 at March 31,
1994, compared to the closing market price of $17.25.
NET INTEREST INCOME
Net interest income is an effective measurement of how well Management has
managed the Corporation's interest rate sensitive assets and liabilities.
Interest income generated by earning assets increased .36% for the three months
ended March 31, 1994 when compared to the same time period in 1993. Declines
in interest earned from securities, federal funds sold and securities purchased
under reverse repurchase agreements were more than offset by the increase in
interest and fees on loans. A higher average balance combined with an increase
in rates resulted in an increase in interest and fees on loans. Interest
expense generated by interest- bearing liabilities declined by 4.8% when
compared to the first quarter of 1993. A reduction in both the average balance
and rate paid on interest-bearing deposits more than offset an increase in the
average balances of federal funds sold and securities
13
purchased under reverse repurchase agreements.
The table below illustrates the effect of these changes on the net
interest margin:
Three months ended
-------------------------
3/31/94 3/31/93 Change
------- ------- -------
Yield on interest-earning assets-FTE 7.08% 7.69% (.61)%
Rate on interest-bearing liabilities 2.60% 2.97% (.37)%
------ ------ -------
Net interest margin-FTE 4.48% 4.72% (.24)%
====== ====== =======
The fully taxable equivalent (FTE) yield on tax exempt income has been computed
based on a 35% federal marginal tax rate for both 1994 and 1993. For the first
quarter of 1994, the Corporation experienced compression in its net interest
margin due to the effect of lower yields on earning assets funded by
noninterest-bearing sources of funds. In addition, the Corporation's negative
gap position allowed a greater amount of interest-bearing liabilities to be
repriced during a period of rising interest rates. The recent changes in the
prime rate will help to offset this position in future periods. However, the
Corporation will continue to take the necessary precautions in order to protect
itself against a rapidly changing interest rate environment.
PROVISION FOR LOAN LOSSES
Management has continued to stress that one of the primary components of
continued profitability is credit quality. This is reflected in the $3.6
million decline in the Corporation's provision for loan losses when comparing
the first quarter of 1994 to the same time period in 1993. This decline has
resulted from the Corporation's declining percentage of net loan losses to
average loans which is a product of Management's prudent approach to improving
credit quality.
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 1994, excluding security gains, increased 8.6% when compared to the same
time period in 1993. Trust service income increased by 12.9% when compared to
the first quarter of 1993 as Trustmark continued to be one of the largest bank
providers of asset management services in Mississippi. Service charges
increased 2.4% primarily from an increase in the number of deposit accounts.
During the first quarter of 1994, other account charges, fees and commissions
became the largest component of noninterest income. The two major contributors
to the 23.3% increase in this category were fees generated by the mortgage
servicing area and the growth of Trustmark Financial Services, Inc. (TFSI).
Management's commitment to the continued growth of the mortgage servicing
portfolio was seen by the 46.5% increase in fees collected from servicing
14
mortgages. Continued growth of the mortgage servicing portfolio is expected
during 1994 as the Corporation seeks to increase its mortgage correspondent and
loan production network of offices and branches. Fees generated by TFSI during
the first quarter of 1994 increased by over 6% when compared to the same time
period in 1993. This improvement was related to an increased emphasis on the
marketing and sale of its investment products. The revenues from other income
decreased by 31.1% during the first quarter of 1994 primarily from the
reduction of net gains on the sale of loans. Security gains for both the first
quarter of 1994 and 1993 were immaterial.
NONINTEREST EXPENSE
Another long-term strategy of the Corporation is to continue to provide
quality service to its customers within the context of economic discipline.
During 1994, the Corporation will complete its conversion to an integrated
banking system which will provide better customer service through convenient
access to information and integration with related applications, plus the
introduction of new products and enhanced profitability analysis. In addition,
the utilization of the newest technological advances in the financial industry
has allowed the Corporation to enhance its efficiency. This has allowed the
Corporation's percentage of overhead expenses to average assets to remain
substantially below that of its peer group.
Salaries and employee benefits continue to comprise the largest portion of
other expenses and have increased 14.8% during the first quarter of 1994 due to
normal annual compensation increases combined with an increase in contributions
to employee benefit plans. In addition, salaries and employee benefits for the
first quarter of 1993 does not include expenses for the employees of UniSouth
which was merged into the Corporation on July 31, 1993. The number of
full-time equivalent employees totaled 2,057 at March 31, 1994, 2,072 at
December 31, 1993 and 1,982 at March 31, 1993. Personnel expense for the
Corporation remains well below that of its peer group. Renovations to
facilities purchased and leased in the UniSouth acquisition as well as the
general maintenance of existing facilities have contributed to the $545
thousand increase in occupancy and equipment expenses during the first quarter
of 1994. Services and fees expense increased by 5.8% during the same time
period due to increased expenses for communications and data processing
resulting primarily from the UniSouth acquisition. Decreased write-downs were
the major contributor to the 86.8% decrease in other real estate expenses
during the first quarter of 1994. The Corporation's volume of other real estate
compares very favorably to that of its peer group. FDIC insurance expense
remained at essentially the same level as that of the prior year. The
amortization of intangible assets has decreased 31.5% when comparing the first
quarter of 1994 to the same time period last year. Increased prepayments of
mortgages serviced resulted in the accelerated amortization of mortgage
servicing rights during the first quarter of 1993. In addition, the
amortization of intangible assets associated with the purchase of the Canton
Exchange Bank in 1983 was completed during the fourth quarter of 1993. Other
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expenses increased 6.3% during the first quarter of 1994 primarily due to
increased expenses related to the purchase and sale of loans in the mortgage
servicing portfolio.
INCOME TAXES
For the three months ended March 31, 1994, the Corporation's effective tax
rate was 33.7% compared to 24.9% for the first quarter of 1993. This increase
in the effective tax rate is due to the Corporation's adoption of SFAS No. 109,
"Accounting for Income Taxes," during the first quarter of 1993. The
cumulative effect of this change in accounting principle was to decrease income
tax expense by $1.5 million. This reduced the Corporation's effective tax rate
for the first quarter of 1993 by 9.9%.
OTHER REGULATORY MATTERS
In June 1993, FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," that addresses how creditors should establish
allowances for credit losses on individual loans determined to be impaired.
This standard offers a definition of impairment and how the amount of
impairment is measured. SFAS No. 114 applies to financial statements for fiscal
years beginning after December 15, 1994. The effect of the implementation of
this statement is not expected to be material.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material developments for the quarter ended March 31, 1994.
ITEM 2. CHANGES IN SECURITIES
A) None
B) None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
A) None
B) None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A) None
B) None
C) None
D) None
ITEM 5. OTHER INFORMATION
On March 28, 1994, the Corporation announced plans for the merger of First
National Financial Corporation, parent company of First National Bank of
Vicksburg, Mississippi, and Trustmark Corporation, parent company of Trustmark
National Bank. At March 31, 1994, First National Financial Corporation had
total assets of $301.7 million. The merger is subject to approval by the
appropriate shareholders and regulatory authorities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended March 31,
1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
TRUSTMARK CORPORATION
(Registrant)
DATE: April 25, 1994 /s/ FRANK R. DAY
Frank R. Day, Chairman of the
Board, President and Chief
Executive Officer
DATE: April 25, 1994 /s/ DAVID R. CARTER
David R. Carter, Secretary-
Treasurer