form10q.htm
SECURITIES AND
EXCHANGE COMMISSION
|
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended June 30, 2008
|
o
|
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
000-03683
(Exact name of registrant as
specified in its charter)
Mississippi
|
64-0471500
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
248
East Capitol Street, Jackson, Mississippi
|
39201
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(Registrant’s
telephone number, including area code)
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 þ No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b of the Exchange Act.
Large
accelerated filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o (Do not check if
a smaller reporting company)
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
As of
July 30, 2008, there were 57,296,449 shares outstanding of the registrant’s
common stock (no par value).
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
Trustmark
Corporation and Subsidiaries
Consolidated
Balance Sheets
($
in thousands)
|
|
(Unaudited)
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Assets
|
|
|
|
|
|
|
Cash
and due from banks (noninterest-bearing)
|
|
$ |
296,628 |
|
|
$ |
292,983 |
|
Federal
funds sold and securities purchased under reverse repurchase
agreements
|
|
|
23,901 |
|
|
|
17,997 |
|
Securities
available for sale (at fair value)
|
|
|
908,949 |
|
|
|
442,345 |
|
Securities
held to maturity (fair value: $263,156 - 2008; $276,631 -
2007)
|
|
|
260,741 |
|
|
|
275,096 |
|
Loans
held for sale
|
|
|
184,858 |
|
|
|
147,508 |
|
Loans
|
|
|
6,859,375 |
|
|
|
7,040,792 |
|
Less
allowance for loan losses
|
|
|
86,576 |
|
|
|
79,851 |
|
Net
loans
|
|
|
6,772,799 |
|
|
|
6,960,941 |
|
Premises
and equipment, net
|
|
|
154,026 |
|
|
|
151,680 |
|
Mortgage
servicing rights
|
|
|
76,209 |
|
|
|
67,192 |
|
Goodwill
|
|
|
291,145 |
|
|
|
291,177 |
|
Identifiable
intangible assets
|
|
|
25,958 |
|
|
|
28,102 |
|
Other
assets
|
|
|
319,835 |
|
|
|
291,781 |
|
Total
Assets
|
|
$ |
9,315,049 |
|
|
$ |
8,966,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$ |
1,443,553 |
|
|
$ |
1,477,171 |
|
Interest-bearing
|
|
|
5,680,130 |
|
|
|
5,392,101 |
|
Total
deposits
|
|
|
7,123,683 |
|
|
|
6,869,272 |
|
Federal
funds purchased and securities sold under repurchase
agreements
|
|
|
748,137 |
|
|
|
460,763 |
|
Short-term
borrowings
|
|
|
260,812 |
|
|
|
474,354 |
|
Subordinated
notes
|
|
|
49,725 |
|
|
|
49,709 |
|
Junior
subordinated debt securities
|
|
|
70,104 |
|
|
|
70,104 |
|
Other
liabilities
|
|
|
126,703 |
|
|
|
122,964 |
|
Total
Liabilities
|
|
|
8,379,164 |
|
|
|
8,047,166 |
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
Common
stock, no par value:
|
|
|
|
|
|
|
|
|
Authorized: 250,000,000
shares
|
|
|
|
|
|
|
|
|
Issued
and outstanding: 57,296,449 shares - 2008; 57,272,408
shares - 2007
|
|
|
11,938 |
|
|
|
11,933 |
|
Capital
surplus
|
|
|
126,881 |
|
|
|
124,161 |
|
Retained
earnings
|
|
|
814,674 |
|
|
|
797,993 |
|
Accumulated
other comprehensive loss, net of tax
|
|
|
(17,608 |
) |
|
|
(14,451 |
) |
Total
Shareholders' Equity
|
|
|
935,885 |
|
|
|
919,636 |
|
Total
Liabilities and Shareholders' Equity
|
|
$ |
9,315,049 |
|
|
$ |
8,966,802 |
|
See
notes to consolidated financial statements.
Consolidated
Statements of Income
($
in thousands except per share data)
(Unaudited)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$ |
107,456 |
|
|
$ |
122,804 |
|
|
$ |
225,506 |
|
|
$ |
241,138 |
|
Interest
on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
11,079 |
|
|
|
9,018 |
|
|
|
16,936 |
|
|
|
18,098 |
|
Tax
exempt
|
|
|
1,263 |
|
|
|
1,649 |
|
|
|
2,619 |
|
|
|
3,360 |
|
Interest
on federal funds sold and securities purchased
under
reverse repurchase agreements
|
|
|
168 |
|
|
|
457 |
|
|
|
347 |
|
|
|
1,433 |
|
Other
interest income
|
|
|
475 |
|
|
|
541 |
|
|
|
1,047 |
|
|
|
1,133 |
|
Total
Interest Income
|
|
|
120,441 |
|
|
|
134,469 |
|
|
|
246,455 |
|
|
|
265,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
36,881 |
|
|
|
51,686 |
|
|
|
80,244 |
|
|
|
102,041 |
|
Interest
on federal funds purchased and securities
sold
under repurchase agreements
|
|
|
3,019 |
|
|
|
5,014 |
|
|
|
6,092 |
|
|
|
8,827 |
|
Other
interest expense
|
|
|
2,923 |
|
|
|
3,937 |
|
|
|
7,752 |
|
|
|
8,520 |
|
Total
Interest Expense
|
|
|
42,823 |
|
|
|
60,637 |
|
|
|
94,088 |
|
|
|
119,388 |
|
Net
Interest Income
|
|
|
77,618 |
|
|
|
73,832 |
|
|
|
152,367 |
|
|
|
145,774 |
|
Provision
for loan losses
|
|
|
31,012 |
|
|
|
145 |
|
|
|
45,255 |
|
|
|
1,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income After Provision for
Loan Losses
|
|
|
46,606 |
|
|
|
73,687 |
|
|
|
107,112 |
|
|
|
143,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
13,223 |
|
|
|
13,729 |
|
|
|
25,787 |
|
|
|
26,422 |
|
Insurance
commissions
|
|
|
8,394 |
|
|
|
9,901 |
|
|
|
16,650 |
|
|
|
18,673 |
|
Wealth
management
|
|
|
7,031 |
|
|
|
6,400 |
|
|
|
14,229 |
|
|
|
12,279 |
|
General
banking - other
|
|
|
6,053 |
|
|
|
6,418 |
|
|
|
11,841 |
|
|
|
12,588 |
|
Mortgage
banking, net
|
|
|
6,708 |
|
|
|
1,799 |
|
|
|
17,764 |
|
|
|
4,554 |
|
Other,
net
|
|
|
6,999 |
|
|
|
2,194 |
|
|
|
10,220 |
|
|
|
4,018 |
|
Securities
gains, net
|
|
|
58 |
|
|
|
29 |
|
|
|
491 |
|
|
|
87 |
|
Total
Noninterest Income
|
|
|
48,466 |
|
|
|
40,470 |
|
|
|
96,982 |
|
|
|
78,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
42,771 |
|
|
|
42,853 |
|
|
|
86,355 |
|
|
|
86,019 |
|
Services
and fees
|
|
|
9,526 |
|
|
|
9,041 |
|
|
|
18,956 |
|
|
|
18,599 |
|
Net
occupancy - premises
|
|
|
4,850 |
|
|
|
4,634 |
|
|
|
9,651 |
|
|
|
9,048 |
|
Equipment
expense
|
|
|
4,144 |
|
|
|
4,048 |
|
|
|
8,218 |
|
|
|
7,952 |
|
Other
expense
|
|
|
8,323 |
|
|
|
8,257 |
|
|
|
16,260 |
|
|
|
16,621 |
|
Total
Noninterest Expense
|
|
|
69,614 |
|
|
|
68,833 |
|
|
|
139,440 |
|
|
|
138,239 |
|
Income
Before Income Taxes
|
|
|
25,458 |
|
|
|
45,324 |
|
|
|
64,654 |
|
|
|
84,372 |
|
Income
taxes
|
|
|
7,906 |
|
|
|
15,496 |
|
|
|
20,923 |
|
|
|
28,687 |
|
Net
Income
|
|
$ |
17,552 |
|
|
$ |
29,828 |
|
|
$ |
43,731 |
|
|
$ |
55,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.31 |
|
|
$ |
0.52 |
|
|
$ |
0.76 |
|
|
$ |
0.96 |
|
Diluted
|
|
$ |
0.31 |
|
|
$ |
0.51 |
|
|
$ |
0.76 |
|
|
$ |
0.95 |
|
Dividends
Per Share
|
|
$ |
0.23 |
|
|
$ |
0.22 |
|
|
$ |
0.46 |
|
|
$ |
0.44 |
|
See
notes to consolidated financial statements.
Trustmark
Corporation and Subsidiaries
Consolidated
Statements of Changes in Shareholders' Equity
($
in thousands)
(Unaudited)
|
|
2008
|
|
|
2007
|
|
Balance,
January 1,
|
|
$ |
919,636 |
|
|
$ |
891,335 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
Net
income per consolidated statements of income
|
|
|
43,731 |
|
|
|
55,685 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
Net
change in fair value of securities available for sale
|
|
|
(3,621 |
) |
|
|
1,126 |
|
Net
change in defined benefit plans
|
|
|
464 |
|
|
|
610 |
|
Comprehensive
income
|
|
|
40,574 |
|
|
|
57,421 |
|
Cash
dividends paid
|
|
|
(26,497 |
) |
|
|
(25,630 |
) |
Common
stock issued-net, long-term incentive plans
|
|
|
(48 |
) |
|
|
232 |
|
Excess
tax benefit from stock-based compensation arrangements
|
|
|
136 |
|
|
|
7 |
|
Compensation
expense, long-term incentive plans
|
|
|
2,084 |
|
|
|
1,654 |
|
Repurchase
and retirement of common stock
|
|
|
- |
|
|
|
(38,859 |
) |
Balance,
June 30,
|
|
$ |
935,885 |
|
|
$ |
886,160 |
|
See
notes to consolidated financial statements.
Trustmark
Corporation and Subsidiaries
Consolidated
Statements of Cash Flows
($
in thousands)
(Unaudited)
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
income
|
|
$ |
43,731 |
|
|
$ |
55,685 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
45,255 |
|
|
|
1,784 |
|
Depreciation
and amortization
|
|
|
13,676 |
|
|
|
13,676 |
|
Net
amortization of securities
|
|
|
313 |
|
|
|
356 |
|
Securities
gains, net
|
|
|
(491 |
) |
|
|
(87 |
) |
Gains
on sales of loans
|
|
|
(3,632 |
) |
|
|
(3,072 |
) |
Deferred
income tax (benefit) provision
|
|
|
(4,173 |
) |
|
|
2,924 |
|
Proceeds
from sales of loans held for sale
|
|
|
719,276 |
|
|
|
579,487 |
|
Purchases
and originations of loans held for sale
|
|
|
(742,157 |
) |
|
|
(607,680 |
) |
Net
increase in mortgage servicing rights
|
|
|
(10,839 |
) |
|
|
(8,329 |
) |
Net
(increase) decrease in other assets
|
|
|
(8,488 |
) |
|
|
1,862 |
|
Net
increase in other liabilities
|
|
|
241 |
|
|
|
460 |
|
Other
operating activities, net
|
|
|
(925 |
) |
|
|
(2,822 |
) |
Net
cash provided by operating activities
|
|
|
51,787 |
|
|
|
34,244 |
|
|
|
|
|
|
|
|
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
Proceeds
from calls and maturities of securities held to maturity
|
|
|
14,308 |
|
|
|
10,909 |
|
Proceeds
from calls and maturities of securities available for sale
|
|
|
158,672 |
|
|
|
181,676 |
|
Proceeds
from sales of securities available for sale
|
|
|
43,007 |
|
|
|
62,170 |
|
Purchases
of securities available for sale
|
|
|
(669,537 |
) |
|
|
(93,012 |
) |
Net
(increase) decrease in federal funds sold and securities purchased under
reverse repurchase agreements
|
|
|
(5,904 |
) |
|
|
7,178 |
|
Net
decrease (increase) in loans
|
|
|
125,885 |
|
|
|
(211,815 |
) |
Purchases
of premises and equipment
|
|
|
(8,086 |
) |
|
|
(15,554 |
) |
Proceeds
from sales of premises and equipment
|
|
|
8 |
|
|
|
191 |
|
Proceeds
from sales of other real estate
|
|
|
2,520 |
|
|
|
1,116 |
|
Net
cash used in investing activities
|
|
|
(339,127 |
) |
|
|
(57,141 |
) |
|
|
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
254,411 |
|
|
|
93,021 |
|
Net
increase in federal funds purchased and securities sold under repurchase
agreements
|
|
|
287,374 |
|
|
|
33,008 |
|
Net
decrease in short-term borrowings
|
|
|
(224,391 |
) |
|
|
(138,717 |
) |
Cash
dividends
|
|
|
(26,497 |
) |
|
|
(25,630 |
) |
Common
stock issued-net, long-term incentive plan
|
|
|
(48 |
) |
|
|
232 |
|
Excess
tax benefit from stock-based compensation arrangements
|
|
|
136 |
|
|
|
7 |
|
Repurchase
and retirement of common stock
|
|
|
- |
|
|
|
(38,859 |
) |
Net
cash provided by (used in) financing activities
|
|
|
290,985 |
|
|
|
(76,938 |
) |
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
3,645 |
|
|
|
(99,835 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
292,983 |
|
|
|
392,083 |
|
Cash
and cash equivalents at end of period
|
|
$ |
296,628 |
|
|
$ |
292,248 |
|
See
notes to consolidated financial statements.
TRUSTMARK
CORPORATION & SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF FINANCIAL STATEMENT PRESENTATION AND PRINCIPLES OF
CONSOLIDATION
The
consolidated financial statements in this quarterly report on Form 10-Q include
the accounts of Trustmark Corporation (Trustmark) and all other entities in
which Trustmark has a controlling financial interest. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
The
accompanying unaudited condensed consolidated financial statements have been
prepared in conformity with U.S. generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the consolidated financial statements, and notes thereto, included in
Trustmark’s 2007 annual report on Form 10-K. Operating results for
the interim periods disclosed herein are not necessarily indicative of the
results that may be expected for a full year or any future
period. Certain reclassifications have been made to prior period
amounts to conform to the current period presentation.
Management
is required to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates. 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.
NOTE
2 – LOANS AND ALLOWANCE FOR LOAN LOSSES
For the
periods presented, loans consisted of the following ($ in
thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Loans
secured by real estate:
|
|
|
|
|
|
|
Construction,
land development and other land loans
|
|
$ |
1,158,549 |
|
|
$ |
1,194,940 |
|
Secured
by 1-4 family residential properties
|
|
|
1,633,021 |
|
|
|
1,694,757 |
|
Secured
by nonfarm, nonresidential properties
|
|
|
1,300,753 |
|
|
|
1,325,379 |
|
Other
real estate secured
|
|
|
148,588 |
|
|
|
167,610 |
|
Commercial
and industrial loans
|
|
|
1,313,620 |
|
|
|
1,283,014 |
|
Consumer
loans
|
|
|
994,475 |
|
|
|
1,087,337 |
|
Other
loans
|
|
|
310,369 |
|
|
|
287,755 |
|
Loans
|
|
|
6,859,375 |
|
|
|
7,040,792 |
|
Less
allowance for loan losses
|
|
|
86,576 |
|
|
|
79,851 |
|
Net
loans
|
|
$ |
6,772,799 |
|
|
$ |
6,960,941 |
|
The
following table summarizes the activity in the allowance for loan losses for the
periods presented ($ in thousands):
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Beginning
balance
|
|
$ |
81,818 |
|
|
$ |
72,049 |
|
|
$ |
79,851 |
|
|
$ |
72,098 |
|
Loans
charged-off
|
|
|
(28,820 |
) |
|
|
(4,187 |
) |
|
|
(43,996 |
) |
|
|
(8,469 |
) |
Recoveries
|
|
|
2,566 |
|
|
|
2,941 |
|
|
|
5,466 |
|
|
|
5,535 |
|
Net
charge-offs
|
|
|
(26,254 |
) |
|
|
(1,246 |
) |
|
|
(38,530 |
) |
|
|
(2,934 |
) |
Provision
for loan losses
|
|
|
31,012 |
|
|
|
145 |
|
|
|
45,255 |
|
|
|
1,784 |
|
Balance
at end of period
|
|
$ |
86,576 |
|
|
$ |
70,948 |
|
|
$ |
86,576 |
|
|
$ |
70,948 |
|
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 possible loan loss methodology
is based on guidance provided in SEC Staff Accounting Bulletin (SAB) No. 102,
“Selected Loan Loss Allowance Methodology and Documentation Issues,” as well as
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 environmental factors such as current economic events, industry and
geographical conditions and portfolio performance indicators. 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
and net charge-offs or recoveries, among other factors, in compliance with the
Interagency Policy Statement on the Allowance for Loan and Lease Losses
published by the governmental regulating agencies for financial services
companies. This evaluation is inherently subjective, as it requires
material estimates, including the amounts and timings of future cash flows
expected to be received on impaired loans that may be susceptible to significant
changes. Management believes that the allowance for loan losses adequately
provides for probable losses in its loan portfolio at June 30,
2008.
At June
30, 2008 and December 31, 2007, the carrying amounts of nonaccrual loans, which
are considered for impairment in accordance with SFAS No. 114, “Accounting by
Creditors for Impairment of a Loan,” were $95.3 million and $65.2 million,
respectively. When a loan is deemed to be impaired, the difference
between the carrying amount of the loan and the net realizable value is
charged-off and, as such, the impaired loan has no specific allowance for loan
loss reserves. At June 30, 2008 and December 31, 2007, impaired loans
totaled $45.5 million and $6.5 million, respectively. During the
first half of 2008, specific charge-offs related to impaired loans totaled $26.1
million while the provisions charged to net income totaled $16.4
million. For the first half of 2007, both specific charge-offs
related to impaired loans and provisions charged to net income were
zero.
At June
30, 2008 and December 31, 2007, nonaccrual loans, not specifically impaired and
written down to net realizable value, totaled $49.8 million and $58.7 million,
respectively. In addition, these nonaccrual loans had allocated
allowance for loan losses of $10.5 million and $11.3 million at the end of the
respective periods. No material interest income was recognized in the
income statement on impaired or nonaccrual loans during the six months ended
June 30, 2008 and 2007.
NOTE
3 – MORTGAGE BANKING
The fair
value of mortgage servicing rights (MSR) is determined using discounted cash
flow techniques benchmarked against third-party opinions of value. Estimates of
fair value involve several assumptions, including the key valuation assumptions
about market expectations of future prepayment rates, interest rates and
discount rates. Prepayment rates are projected using an industry standard
prepayment model. The model considers other key factors, such as a wide range of
standard industry assumptions tied to specific portfolio characteristics such as
remittance cycles, escrow payment requirements, geographic factors, foreclosure
loss exposure, VA no-bid exposure, delinquency rates and cost of servicing,
including base cost and cost to service delinquent mortgages. Prevailing market
conditions at the time of analysis are factored into the accumulation of
assumptions and determination of servicing value.
Trustmark
utilizes derivative instruments, specifically exchange-traded Treasury note
futures and option contracts, to offset changes in the fair value of MSR
attributable to changes in interest rates. Changes in the fair value of these
derivative instruments are recorded in mortgage banking income 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 position to the fair
value of the MSR asset attributable to market changes. Changes in
yields created fluctuating values in both MSR and the hedge during the second
quarter of 2008. Rising mortgage rates during the second quarter
resulted in an increase of $13.1 million in the MSR value which is in contrast
to the first quarter of 2008 when the MSR value declined by $10.2 million due to
a drop in mortgage rates. Conversely, the hedge value declined by
$10.5 million during the second quarter of 2008 after posting a first quarter
increase of $17.6 million due to rising yields on ten-year Treasury
notes. The $2.6 million in positive net ineffectiveness during the
second quarter is primarily attributed to income resulting from a steep yield
curve.
The
activity in mortgage servicing rights is detailed in the table below ($ in
thousands):
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
Balance
at beginning of period
|
|
$ |
67,192 |
|
|
$ |
69,272 |
|
Origination
of servicing assets
|
|
|
12,504 |
|
|
|
9,393 |
|
Disposals
|
|
|
(1,665 |
) |
|
|
(1,057 |
) |
Change
in fair value:
|
|
|
|
|
|
|
|
|
Due
to market changes
|
|
|
2,911 |
|
|
|
3,945 |
|
Due
to runoff
|
|
|
(4,733 |
) |
|
|
(4,598 |
) |
Balance
at end of period
|
|
$ |
76,209 |
|
|
$ |
76,955 |
|
NOTE
4 - DEPOSITS
At June
30, 2008 and December 31, 2007, deposits consisted of the following ($ in
thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Noninterest-bearing
demand deposits
|
|
$ |
1,443,553 |
|
|
$ |
1,477,171 |
|
Interest-bearing
deposits:
|
|
|
|
|
|
|
|
|
Interest-bearing
demand
|
|
|
1,265,901 |
|
|
|
1,210,817 |
|
Savings
|
|
|
1,837,675 |
|
|
|
1,577,198 |
|
Time
|
|
|
2,576,554 |
|
|
|
2,604,086 |
|
Total
interest-bearing deposits
|
|
|
5,680,130 |
|
|
|
5,392,101 |
|
Total
deposits
|
|
$ |
7,123,683 |
|
|
$ |
6,869,272 |
|
NOTE
5 – STOCK AND INCENTIVE COMPENSATION PLANS
Trustmark
accounts for stock and incentive compensation following the provisions of
Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based
Payment,” a revision of SFAS No. 123, “Accounting for Stock-Based
Compensation.” This statement establishes fair value as the
measurement objective in accounting for stock awards and requires the
application of a fair value based measurement method in accounting for
compensation cost, which is recognized over the requisite service
period. Trustmark implemented the provisions of this statement using
the modified prospective approach, which applies to new awards as well as any
previously granted awards outstanding on January 1,
2006. Compensation cost for the portion of awards for which the
requisite service had not been rendered as of the date of adoption, is being
recognized over the remaining service period using the compensation cost
calculated for pro forma disclosure purposes previously under SFAS No.
123.
Stock
Option Grants
During
the first six months of 2008, there were no grants of stock option
awards. Stock option-based compensation expense totaled $502 thousand
and $611 thousand for the first six months of 2008 and 2007,
respectively. Stock option-based compensation expense totaled $217
thousand and $109 thousand for the three months ended June 30, 2008 and 2007,
respectively.
Restricted
Stock Grants
Performance
Awards
During
the first six months of 2008, Trustmark awarded 76,464 shares of performance
based restricted stock to 28 key members of Trustmark’s executive management
team and board of directors. These performance awards vest based on performance
goals of return on average tangible equity (ROATE) and total shareholder return
(TSR) compared to a defined peer group. These awards are restricted
until December 31, 2010 and are valued in accordance with SFAS No.
123R. The TSR portion of the award is valued utilizing a Monte Carlo
simulation to estimate fair value of the awards at the grant date, while the
ROATE portion is valued utilizing the fair value of Trustmark’s stock at the
grant date based on the estimated number of shares expected to
vest.
The
performance based restricted stock issued in May 2005, vested on December 31,
2007. The stock related to this grant was issued to the participants free of
restriction during the first quarter of 2008. As a result of achieving 132% of
the performance goals during the performance period, 21,060 excess shares were
awarded and will vest at either the date of Trustmark’s Annual meeting of
Shareholders in 2010 or May 31, 2010, whichever comes first.
Time-Vested
Awards
Trustmark’s
time-vested awards are granted as an incentive in both employee recruitment and
retention and are issued to Trustmark’s directors, executive management team and
non-executive management associates. During the first six months of 2008,
Trustmark awarded 99,979 shares of time-vested restricted stock to key members
of Trustmark’s management team and board of directors. These time-vested awards
are restricted for thirty-six months from the award dates. The
weighted average share price of the shares awarded during the first six
months of 2008 was $20.99.
During
the first six months of 2008 and 2007, Trustmark recorded compensation expense
for restricted stock awards of $1.6 million and $1.0 million,
respectively. During the three-month period ended June 30, 2008 and
2007, Trustmark recorded compensation expense for restricted stock awards of
$761 thousand and $429 thousand, respectively.
NOTE
6 – BENEFIT PLANS
Pension
Plan
Trustmark
maintains a noncontributory defined benefit pension plan (Trustmark Capital
Accumulation Plan), which covers substantially all associates employed prior to
January 1, 2007. The plan provides retirement benefits that are based on the
length of credited service and final average compensation as defined in the plan
and vests upon five years of service.
In
December 2006, Trustmark adopted the provisions of SFAS No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans" and
elected to move its measurement date for the plan to December 31 from October
31. The following table presents information regarding the net
periodic benefit cost for the three and six-month periods ended June 30, 2008
and 2007 ($ in thousands):
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
499 |
|
|
$ |
326 |
|
|
$ |
910 |
|
|
$ |
653 |
|
Interest
cost
|
|
|
1,234 |
|
|
|
1,175 |
|
|
|
2,468 |
|
|
|
2,349 |
|
Expected
return on plan assets
|
|
|
(1,399 |
) |
|
|
(1,323 |
) |
|
|
(2,797 |
) |
|
|
(2,645 |
) |
Amortization
of prior service cost
|
|
|
(128 |
) |
|
|
(128 |
) |
|
|
(255 |
) |
|
|
(255 |
) |
Recognized
net actuarial loss
|
|
|
341 |
|
|
|
564 |
|
|
|
842 |
|
|
|
1,127 |
|
Net
periodic benefit cost
|
|
$ |
547 |
|
|
$ |
614 |
|
|
$ |
1,168 |
|
|
$ |
1,229 |
|
The
acceptable range of contributions to the plan is determined each year by the
plan's actuary. Trustmark's policy is to fund amounts allowable for
federal income tax purposes. The actual amount of the contribution
will be determined based on the plan's funded status and return on plan assets
as of the measurement date, which was December 31, 2007 for amounts related to
2008. In 2008, Trustmark's minimum required contribution is expected
to be zero.
Supplemental
Retirement Plan
Trustmark
maintains a non-qualified supplemental retirement plan covering directors that
elect to defer fees, key executive officers and senior officers. The
plan provides for defined death benefits and/or retirement benefits based on a
participant's covered salary. Trustmark has acquired life insurance
contracts on the participants covered under the plan, which may be used to fund
future payments under the plan. The measurement date for the plan is
December 31.
The
following table presents information regarding the plan's net periodic benefit
cost for the three and six-month periods ended June 30, 2008 and 2007 ($ in
thousands):
|
|
Three
months ended June 30,
|
|
|
Six
months ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
317 |
|
|
$ |
328 |
|
|
$ |
608 |
|
|
$ |
648 |
|
Interest
cost
|
|
|
523 |
|
|
|
454 |
|
|
|
1,046 |
|
|
|
908 |
|
Amortization
of prior service cost
|
|
|
32 |
|
|
|
35 |
|
|
|
70 |
|
|
|
70 |
|
Recognized
net actuarial loss
|
|
|
34 |
|
|
|
24 |
|
|
|
94 |
|
|
|
47 |
|
Net
periodic benefit cost
|
|
$ |
906 |
|
|
$ |
841 |
|
|
$ |
1,818 |
|
|
$ |
1,673 |
|
NOTE
7 – CONTINGENCIES
Letters
of Credit
Standby
and commercial letters of credit are conditional commitments issued by Trustmark
to insure the performance of a customer to a third party. Trustmark
issues financial and performance standby letters of credit in the normal course
of business in order to fulfill the financing needs of its
customers. A financial standby letter of credit irrevocably obligates
Trustmark to pay a third-party beneficiary when a customer fails to repay an
outstanding loan or debt instrument. A performance standby letter of
credit irrevocably obligates Trustmark to pay a third-party beneficiary when a
customer fails to perform some contractual, nonfinancial
obligation. When issuing letters of credit, Trustmark uses
essentially the same policies regarding credit risk and collateral which are
followed in the lending process. At June 30, 2008 and 2007,
Trustmark’s maximum exposure to credit loss in the event of nonperformance by
the other party for standby and commercial letters of credit was $158.8 million
and $168.3 million, respectively. These amounts consist primarily of
commitments with maturities of less than three years, which have an immaterial
carrying value. Trustmark holds collateral to support standby letters
of credit when deemed necessary. As of June 30, 2008, the fair value
of collateral held was $32.2 million.
Legal
Proceedings
Trustmark
and its subsidiaries are parties to lawsuits and other claims that arise in the
ordinary course of business. Some of the lawsuits assert claims
related to the lending, collection, servicing, investment, trust and other
business activities, and some of the lawsuits allege substantial claims for
damages. The cases are being vigorously contested. In the
regular course of business, Management evaluates estimated losses or costs
related to litigation, and provision is made for anticipated losses whenever
Management believes that such losses are probable and can be reasonably
estimated. At the present time, Management believes, based on the
advice of legal counsel and Management’s evaluation, that the final resolution
of pending legal proceedings will not have a material impact on Trustmark’s
consolidated financial position or results of operations; however, Management is
unable to estimate a range of potential loss on these matters because of the
nature of the legal environment in states where Trustmark conducts
business.
NOTE
8 – EARNINGS PER SHARE
Basic
earnings per share (EPS) is computed by dividing net income by the
weighted-average shares of common stock outstanding. Diluted EPS is
computed by dividing net income by the weighted-average shares of common stock
outstanding, adjusted for the effect of potentially dilutive stock grants
outstanding during the period. The following table reflects
weighted-average shares used to calculate basic and diluted EPS for the periods
presented (in thousands):
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Basic
shares
|
|
|
57,296 |
|
|
|
57,807 |
|
|
|
57,290 |
|
|
|
58,156 |
|
Dilutive
shares
|
|
|
39 |
|
|
|
218 |
|
|
|
32 |
|
|
|
259 |
|
Diluted
shares
|
|
|
57,335 |
|
|
|
58,025 |
|
|
|
57,322 |
|
|
|
58,415 |
|
NOTE
9 - STATEMENTS OF CASH FLOWS
Trustmark paid $38.4 million in income
taxes during the first half of 2008, compared to $27.1 million paid during the
first half of 2007. Interest paid on deposit liabilities and other
borrowings approximated $99.9 million in the first half of 2008 and $119.1
million in the first half of 2007. For the six months ended June 30,
2008 and 2007, noncash transfers from loans to foreclosed properties were $17.0
million and $2.6 million, respectively.
NOTE
10 – SEGMENT INFORMATION
Trustmark’s
management reporting structure includes four segments: general banking, wealth
management, insurance and administration. General banking is
responsible for all traditional banking products and services, including loans
and deposits. Wealth management provides customized solutions for
affluent customers by integrating financial services with traditional banking
products and services such as private banking, money management, full-service
brokerage, financial planning, personal and institutional trust, and retirement
services, as well as life insurance and risk management services provided by
TRMK Risk Management, Inc., a wholly-owned subsidiary of Trustmark National Bank
(TNB). Insurance includes two wholly-owned subsidiaries of
TNB: The Bottrell Insurance Agency and Fisher-Brown,
Incorporated. Through Bottrell and Fisher-Brown, Trustmark provides a
full range of retail insurance products, including commercial risk management
products, bonding, group benefits and personal lines
coverages. Administration includes all other activities that are not
directly attributable to one of the major lines of
business. Administration consists of internal operations such as
Human Resources, Executive Administration, Treasury and Corporate
Finance.
The
accounting policies of each reportable segment are the same as those of
Trustmark except for its internal allocations. Noninterest expenses for
back-office operations support are allocated to segments based on estimated uses
of those services. Trustmark measures the net interest income of its business
segments with a process that assigns cost of funds or earnings credit on a
matched-term basis. This process, called "funds transfer pricing",
charges an appropriate cost of funds to assets held by a business unit, or
credits the business unit for potential earnings for carrying
liabilities. The net of these charges and credits flows through to
the Administration Division, which contains the management team responsible for
determining the bank's funding and interest rate risk
strategies. During the first half of 2008 as a result of a
steeper yield curve, the earnings credited to segments on deposits declined by a
greater amount than the cost of funds charged to segments on loans, causing an
increase in net interest income to the Administration Division.
The
following tables disclose financial information by reportable segment for the
periods ended June 30, 2008 and 2007.
Trustmark
Corporation
Segment
Information
($
in thousands)
|
|
General
|
|
|
Wealth
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
|
|
|
Management
|
|
|
Insurance
|
|
|
Administration
|
|
|
|
|
For
the three months ended
|
|
Division
|
|
|
Division
|
|
|
Division
|
|
|
Division
|
|
|
Total
|
|
June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
62,328 |
|
|
$ |
995 |
|
|
$ |
37 |
|
|
$ |
14,258 |
|
|
$ |
77,618 |
|
Provision
for loan losses
|
|
|
30,863 |
|
|
|
(12 |
) |
|
|
- |
|
|
|
161 |
|
|
|
31,012 |
|
Noninterest
income
|
|
|
28,167 |
|
|
|
7,180 |
|
|
|
8,353 |
|
|
|
4,766 |
|
|
|
48,466 |
|
Noninterest
expense
|
|
|
49,767 |
|
|
|
5,093 |
|
|
|
5,907 |
|
|
|
8,847 |
|
|
|
69,614 |
|
Income
before income taxes
|
|
|
9,865 |
|
|
|
3,094 |
|
|
|
2,483 |
|
|
|
10,016 |
|
|
|
25,458 |
|
Income
taxes
|
|
|
3,401 |
|
|
|
1,088 |
|
|
|
946 |
|
|
|
2,471 |
|
|
|
7,906 |
|
Segment
net income
|
|
$ |
6,464 |
|
|
$ |
2,006 |
|
|
$ |
1,537 |
|
|
$ |
7,545 |
|
|
$ |
17,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets
|
|
$ |
7,549,643 |
|
|
$ |
95,549 |
|
|
$ |
17,620 |
|
|
$ |
1,511,946 |
|
|
$ |
9,174,758 |
|
Depreciation
and amortization
|
|
$ |
5,307 |
|
|
$ |
83 |
|
|
$ |
109 |
|
|
$ |
1,273 |
|
|
$ |
6,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense)
|
|
$ |
69,037 |
|
|
$ |
1,010 |
|
|
$ |
(1 |
) |
|
$ |
3,786 |
|
|
$ |
73,832 |
|
Provision
for loan losses
|
|
|
39 |
|
|
|
(19 |
) |
|
|
- |
|
|
|
125 |
|
|
|
145 |
|
Noninterest
income
|
|
|
24,242 |
|
|
|
6,528 |
|
|
|
9,919 |
|
|
|
(219 |
) |
|
|
40,470 |
|
Noninterest
expense
|
|
|
49,727 |
|
|
|
4,966 |
|
|
|
6,254 |
|
|
|
7,886 |
|
|
|
68,833 |
|
Income
(loss) before income taxes
|
|
|
43,513 |
|
|
|
2,591 |
|
|
|
3,664 |
|
|
|
(4,444 |
) |
|
|
45,324 |
|
Income
taxes
|
|
|
15,007 |
|
|
|
916 |
|
|
|
1,423 |
|
|
|
(1,850 |
) |
|
|
15,496 |
|
Segment
net income (loss)
|
|
$ |
28,506 |
|
|
$ |
1,675 |
|
|
$ |
2,241 |
|
|
$ |
(2,594 |
) |
|
$ |
29,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets
|
|
$ |
7,267,903 |
|
|
$ |
89,263 |
|
|
$ |
19,412 |
|
|
$ |
1,429,079 |
|
|
$ |
8,805,657 |
|
Depreciation
and amortization
|
|
$ |
5,439 |
|
|
$ |
101 |
|
|
$ |
102 |
|
|
$ |
1,412 |
|
|
$ |
7,054 |
|
Trustmark
Corporation
Segment
Information
($
in thousands)
|
|
General
|
|
|
Wealth
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
|
|
|
Management
|
|
|
Insurance
|
|
|
Administration
|
|
|
|
|
For
the six months ended
|
|
Division
|
|
|
Division
|
|
|
Division
|
|
|
Division
|
|
|
Total
|
|
June
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
$ |
127,383 |
|
|
$ |
2,055 |
|
|
$ |
48 |
|
|
$ |
22,881 |
|
|
$ |
152,367 |
|
Provision
for loan losses
|
|
|
45,076 |
|
|
|
(12 |
) |
|
|
- |
|
|
|
191 |
|
|
|
45,255 |
|
Noninterest
income
|
|
|
59,875 |
|
|
|
14,598 |
|
|
|
16,606 |
|
|
|
5,903 |
|
|
|
96,982 |
|
Noninterest
expense
|
|
|
100,198 |
|
|
|
10,593 |
|
|
|
11,895 |
|
|
|
16,754 |
|
|
|
139,440 |
|
Income
before income taxes
|
|
|
41,984 |
|
|
|
6,072 |
|
|
|
4,759 |
|
|
|
11,839 |
|
|
|
64,654 |
|
Income
taxes
|
|
|
14,480 |
|
|
|
2,149 |
|
|
|
1,827 |
|
|
|
2,467 |
|
|
|
20,923 |
|
Segment
net income
|
|
$ |
27,504 |
|
|
$ |
3,923 |
|
|
$ |
2,932 |
|
|
$ |
9,372 |
|
|
$ |
43,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets
|
|
$ |
7,586,047 |
|
|
$ |
95,786 |
|
|
$ |
18,633 |
|
|
$ |
1,312,769 |
|
|
$ |
9,013,235 |
|
Depreciation
and amortization
|
|
$ |
10,760 |
|
|
$ |
166 |
|
|
$ |
205 |
|
|
$ |
2,545 |
|
|
$ |
13,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the six months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense)
|
|
$ |
137,861 |
|
|
$ |
1,976 |
|
|
$ |
(2 |
) |
|
$ |
5,939 |
|
|
$ |
145,774 |
|
Provision
for loan losses
|
|
|
2,167 |
|
|
|
(20 |
) |
|
|
- |
|
|
|
(363 |
) |
|
|
1,784 |
|
Noninterest
income
|
|
|
47,854 |
|
|
|
12,525 |
|
|
|
18,725 |
|
|
|
(483 |
) |
|
|
78,621 |
|
Noninterest
expense
|
|
|
100,056 |
|
|
|
9,988 |
|
|
|
12,098 |
|
|
|
16,097 |
|
|
|
138,239 |
|
Income
(loss) before income taxes
|
|
|
83,492 |
|
|
|
4,533 |
|
|
|
6,625 |
|
|
|
(10,278 |
) |
|
|
84,372 |
|
Income
taxes
|
|
|
28,823 |
|
|
|
1,609 |
|
|
|
2,568 |
|
|
|
(4,313 |
) |
|
|
28,687 |
|
Segment
net income (loss)
|
|
$ |
54,669 |
|
|
$ |
2,924 |
|
|
$ |
4,057 |
|
|
$ |
(5,965 |
) |
|
$ |
55,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets
|
|
$ |
7,230,770 |
|
|
$ |
87,500 |
|
|
$ |
19,386 |
|
|
$ |
1,472,541 |
|
|
$ |
8,810,197 |
|
Depreciation
and amortization
|
|
$ |
10,441 |
|
|
$ |
211 |
|
|
$ |
200 |
|
|
$ |
2,824 |
|
|
$ |
13,676 |
|
NOTE
11 – FAIR VALUE
On
January 1, 2008, Trustmark adopted SFAS No. 157, “Fair Value Measurements.” SFAS
No. 157 established a framework for measuring fair value in generally accepted
accounting principles and expanded disclosures about fair value
measurements. In accordance with Financial Accounting Standards Board
Staff Position (FSP) No. 157-2, “Effective Date of Financial Accounting
Standards Board (FASB) Statement No. 157,” Trustmark will defer application of
SFAS No. 157 for nonfinancial assets and nonfinancial liabilities until January
1, 2009.
Trustmark
measures a portion of its assets and liabilities on a fair value basis. Fair
value is used for certain assets and liabilities in which fair value is the
primary basis of accounting. Examples of these include derivative instruments,
available for sale securities, loans held for sale and MSR. Fair value is
defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date. Depending on the nature of the asset or liability, Trustmark
uses various valuation techniques and assumptions when estimating fair value,
which are in accordance with SFAS No. 157.
In
accordance with SFAS No. 157, Trustmark groups its assets and liabilities
carried at fair value in three levels, based on the markets in which the assets
and liabilities are traded and the reliability of assumptions used to determine
fair value. These levels are:
Level 1 –
Valuation is based upon quoted prices for identical instruments traded in active
markets.
Level 2 –
Valuation is based upon quoted prices for similar instruments in active markets
or quoted prices for identical or similar instruments in markets that are not
active.
Level 3 –
Valuation is based on significant valuation assumptions that are not readily
observable in the market.
When
determining the fair value measurements for assets and liabilities required or
permitted to be recorded at and/or marked to fair value, Trustmark considers the
principal or most advantageous market in which it would transact and considers
assumptions that market participants would use when pricing the asset or
liability. When possible, Trustmark looks to active and observable markets to
price identical assets or liabilities. When identical assets and liabilities are
not traded in active markets, Trustmark looks to market observable data for
similar assets and liabilities. Nevertheless, certain assets and liabilities are
not actively traded in observable markets and Trustmark must use alternative
valuation techniques to derive a fair value measurement.
The
methodologies Trustmark uses in determining the fair values are based primarily
on the use of independent, market-based data to reflect a value that would be
reasonably expected upon exchange of the position in an orderly transaction
between market participants at the measurement date. The large
majority of assets that are stated at fair value are of a nature that can be
valued using prices or inputs that are readily observable through a variety of
independent data providers. The providers selected by Trustmark for
fair valuation data are widely recognized and accepted vendors whose evaluations
support the pricing functions of financial institutions, investment and mutual
funds, and portfolio managers. Trustmark has documented and evaluated
the pricing methodologies used by the vendors and has maintained internal
processes that regularly test valuations for anomalies.
Mortgage
loan commitments are valued based on the securities prices of similar
collateral, term, rate and delivery for which the loan is eligible to deliver in
place of the particular security. Trustmark acquires a broad array of
mortgage security prices that are supplied by a market data vendor, which in
turn accumulates prices from a broad list of securities
dealers. Prices are processed through a mortgage pipeline management
system that accumulates and segregates all loan commitment and forward-sale
transactions according to the similarity of various characteristics (maturity,
term, rate, and collateral). Prices are matched to those positions
that are deemed to be an eligible substitute or offset (i.e. “deliverable”) for
a corresponding security observed in the market place.
In
situations where there is little market activity such as MSR, Trustmark uses
independent experts to evaluate fair value through the use of prevailing market
participant assumptions, and market participant valuation
processes. These values and processes are periodically tested and
validated by other third-party experts.
At this
time, Trustmark presents no fair values that are derived through internal
modeling. Should positions requiring fair valuation arise that are
not relevant to existing methodologies, Trustmark will make every reasonable
effort to obtain market participant assumptions, or independent
evaluation.
The
following table presents financial assets and liabilities measured at fair value
on a recurring basis as of June 30, 2008 ($ in thousands):
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Securities
available for sale
|
|
$ |
908,949 |
|
|
$ |
6,012 |
|
|
$ |
902,937 |
|
|
$ |
- |
|
Loans
held for sale
|
|
|
184,858 |
|
|
|
- |
|
|
|
184,858 |
|
|
|
- |
|
Mortgage
servicing rights
|
|
|
76,209 |
|
|
|
- |
|
|
|
- |
|
|
|
76,209 |
|
Other
assets - derivatives
|
|
|
2,542 |
|
|
|
1,483 |
|
|
|
420 |
|
|
|
639 |
|
Other
liabilities - derivatives
|
|
|
1,899 |
|
|
|
1,899 |
|
|
|
- |
|
|
|
- |
|
The
changes in Level 3 assets measured at fair value on a recurring basis as of June
30, 2008 are summarized as follows ($ in thousands):
|
|
Other
Assets - Derivatives
|
|
|
MSR
|
|
Balance,
beginning of period
|
|
$ |
198 |
|
|
$ |
67,192 |
|
Total
net gains (losses) included in net income
|
|
|
2,318 |
|
|
|
(1,822 |
) |
Purchases,
sales, issuances and settlements, net
|
|
|
(1,877 |
) |
|
|
10,839 |
|
Net
transfers into/out of Level 3
|
|
|
- |
|
|
|
- |
|
Balance,
end of period
|
|
$ |
639 |
|
|
$ |
76,209 |
|
|
|
|
|
|
|
|
|
|
The
amount of total gains for the period included in earnings that are
attributable to the change in unrealized gains or losses still held at
June 30, 2008
|
|
$ |
948 |
|
|
$ |
2,911 |
|
Trustmark
may be required, from time to time, to measure certain assets at fair value on a
nonrecurring basis in accordance with U.S. generally accepted accounting
principles. Assets at June 30, 2008 which have been measured at fair value on a
nonrecurring basis include impaired loans. Loans for which it is
probable Trustmark will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan agreement
are considered impaired. Once a loan is identified as individually impaired,
Management measures impairment in accordance with SFAS No. 114, “Accounting by
Creditors for Impairment of a Loan.” Specific allowances for impaired
loans are based on comparisons of the recorded carrying values of the loans to
the present value of the estimated cash flows of these loans at each loan’s
original effective interest rate, the fair value of the collateral or the
observable market prices of the loans. At June 30, 2008, impaired loans
were written down to net realizable value based on the fair value of
the collateral or other unobservable input and are classified as Level 3 in the
fair value hierarchy. Trustmark had outstanding balances of $45.5
million in impaired loans as of June 30, 2008.
Certain
nonfinancial assets and nonfinancial liabilities measured at fair value on a
recurring basis include reporting units measured at fair value in the first step
of a goodwill impairment test, as well as intangible assets. As
stated above, SFAS No. 157 will be applicable to these fair value measurements
beginning January 1, 2009.
NOTE
12 – RECENT PRONOUNCEMENTS
Accounting
Standards Adopted in 2008
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS No. 159 allows
entities the option to measure eligible financial instruments at fair value as
of specified dates. Such election, which may be applied on an
instrument-by-instrument basis, is typically irrevocable once elected. SFAS No.
159 is effective for fiscal years beginning after November 15, 2007, and early
application is allowed under certain circumstances. Management elected not to
apply the fair value option to any of its assets or liabilities at January 1,
2008.
In June
2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue No.
06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards.” EITF 06-11 states that an entity should recognize a realized
tax benefit associated with dividends on nonvested equity shares, nonvested
equity share units and outstanding equity share options charged to retained
earnings as an increase in additional paid in capital. EITF 06-11
should be applied prospectively to income tax benefits of dividends on
equity-classified share-based payment awards that are declared in fiscal years
beginning after December 15, 2007. The adoption of EITF 06-11 did not
have a material impact on Trustmark’s balance sheets or results of
operations.
In
November 2007, the SEC issued SAB No. 109 (SAB 109), “Written Loan Commitments
Recorded at Fair Value Through Earnings.” SAB 109 rescinds SAB
105’s prohibition on inclusion of expected net future cash flows related to loan
servicing activities in the fair value measurement of a written loan commitment.
SAB 109 also applies to any loan commitments for which fair value accounting is
elected under SFAS No. 159. SAB 109 is effective prospectively for derivative
loan commitments issued or modified in fiscal quarters beginning after December
15, 2007. The adoption of SAB 109 did not have a material impact on
Trustmark’s balance sheets or results of operations.
New
Accounting Standards
For
additional information on new accounting standards issued but not effective
until after June 30, 2008, please refer to Recent Pronouncements included in
Management’s Discussion and Analysis.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
The
following provides a narrative discussion and analysis of Trustmark
Corporation’s (Trustmark) financial condition and results of
operations. This discussion should be read in conjunction with the
consolidated financial statements and the supplemental financial data included
elsewhere in this report.
FORWARD–LOOKING
STATEMENTS
Certain
statements contained in this Management’s Discussion and Analysis 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, borrowing and saving 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.
OVERVIEW
Business
Trustmark
is a multi-bank holding company headquartered in Jackson, Mississippi,
incorporated under the Mississippi Business Corporation Act on August 5,
1968. Trustmark commenced doing business in November
1968. Through its subsidiaries, Trustmark operates as a financial
services organization providing banking and financial solutions through
approximately 150 offices and 2,600 associates predominantly within the states
of Florida, Mississippi, Tennessee and Texas.
Trustmark
National Bank (TNB), Trustmark’s wholly-owned subsidiary, accounts for over 98%
of the assets and revenues of Trustmark. Initially chartered by the
state of Mississippi in 1889, TNB is also headquartered in Jackson,
Mississippi. In addition to banking activities, TNB provides
investment and insurance products and services to its customers through its
wholly-owned subsidiaries, Trustmark Investment Advisors, Inc., The Bottrell
Insurance Agency, Inc. (Bottrell), TRMK Risk Management, Inc., and Fisher-Brown,
Incorporated (Fisher-Brown). TNB also owns all of the stock of Trustmark
Securities, Inc., an inactive subsidiary.
Trustmark
also engages in banking activities through its wholly-owned subsidiary,
Somerville Bank & Trust Company (Somerville), headquartered in Somerville,
Tennessee. Somerville presently has five locations in Somerville,
Hickory Withe and Rossville, Tennessee. Trustmark also owns all of
the stock of F. S. Corporation and First Building Corporation, both inactive
nonbank Mississippi corporations.
In order
to facilitate a private placement of trust preferred securities, Trustmark
formed a Delaware trust affiliate, Trustmark Preferred Capital Trust I
(Trustmark Trust). Also, as a result of the acquisition of Republic
Bancshares of Texas, Inc., Trustmark owns Republic Bancshares Capital Trust I
(Republic Trust), a Delaware trust affiliate. As defined in
applicable accounting standards, both Trustmark Trust and Republic Trust,
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.
CRITICAL
ACCOUNTING POLICIES
Trustmark’s
consolidated financial statements are prepared in accordance with U.S. generally
accepted accounting principles and follow general practices within the financial
services industry. Application of these accounting principles
requires Management to make estimates, assumptions and judgments that affect the
amounts reported in the consolidated financial statements and accompanying
notes. These estimates, assumptions and judgments are based on
information available as of the date of the consolidated financial statements;
accordingly, as this information changes, actual financial results could differ
from those estimates.
Certain
policies inherently have a greater reliance on the use of estimates, assumptions
and judgments and, as such, have a greater possibility of producing results that
could be materially different than originally reported. There have
been no significant changes in Trustmark’s critical accounting estimates during
the first six months of 2008.
FINANCIAL
HIGHLIGHTS
Trustmark’s
net income totaled $17.6 million in the second quarter of 2008, which
represented basic and diluted earnings per share of
$0.31. Trustmark’s second quarter 2008 net income produced returns on
average tangible equity and average assets of 11.70% and 0.77%
respectively. During the first six months of 2008, Trustmark’s net
income totaled $43.7 million, which represented basic and diluted earnings per
share of $0.76. Trustmark’s performance during the first half of 2008
resulted in returns on average tangible equity and average assets of 14.61% and
0.98%, respectively.
Net
income for the three and six-months ended June 30, 2008, decreased $12.3 million
and $12.0 million, respectively, when compared with the same periods in
2007. The decrease in both periods is primarily related to additional
provision for loan losses resulting from changes in credit quality in
Trustmark’s Florida Panhandle market. In addition, earnings during
the quarter included a gain on sale of MasterCard stock that increased net
income by $3.3 million, or $0.058 per share.
Selected
income statement data and other selected data for the comparable periods were as
follows ($ in thousands, except per share data):
|
|
Quarter
Ended
|
|
|
Six
Months Ended
|
|
|
|
6/30/2008
|
|
|
6/30/2007
|
|
|
6/30/2008
|
|
|
6/30/2007
|
|
Net
interest income-fully taxable equivalent
|
|
$ |
79,865 |
|
|
$ |
76,139 |
|
|
$ |
156,935 |
|
|
$ |
150,634 |
|
Taxable
equivalent adjustment
|
|
|
2,247 |
|
|
|
2,307 |
|
|
|
4,568 |
|
|
|
4,860 |
|
Net
interest income
|
|
|
77,618 |
|
|
|
73,832 |
|
|
|
152,367 |
|
|
|
145,774 |
|
Provision
for loan losses
|
|
|
31,012 |
|
|
|
145 |
|
|
|
45,255 |
|
|
|
1,784 |
|
Net
interest income after provision for loan losses
|
|
|
46,606 |
|
|
|
73,687 |
|
|
|
107,112 |
|
|
|
143,990 |
|
Noninterest
income
|
|
|
48,466 |
|
|
|
40,470 |
|
|
|
96,982 |
|
|
|
78,621 |
|
Noninterest
expense
|
|
|
69,614 |
|
|
|
68,833 |
|
|
|
139,440 |
|
|
|
138,239 |
|
Income
before income taxes
|
|
|
25,458 |
|
|
|
45,324 |
|
|
|
64,654 |
|
|
|
84,372 |
|
Income
taxes
|
|
|
7,906 |
|
|
|
15,496 |
|
|
|
20,923 |
|
|
|
28,687 |
|
Net
income
|
|
$ |
17,552 |
|
|
$ |
29,828 |
|
|
$ |
43,731 |
|
|
$ |
55,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - basis
|
|
$ |
0.31 |
|
|
$ |
0.52 |
|
|
$ |
0.76 |
|
|
$ |
0.96 |
|
Earnings
per common share - diluted
|
|
|
0.31 |
|
|
|
0.51 |
|
|
|
0.76 |
|
|
|
0.95 |
|
Dividends
per common share
|
|
|
0.23 |
|
|
|
0.22 |
|
|
|
0.46 |
|
|
|
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets
|
|
|
0.77 |
% |
|
|
1.36 |
% |
|
|
0.98 |
% |
|
|
1.27 |
% |
Return
on average tangible equity
|
|
|
11.70 |
% |
|
|
21.38 |
% |
|
|
14.61 |
% |
|
|
20.08 |
% |
Details
of the changes in the various components of net income are further discussed in
the section captioned “Results of Operations.”
Non-GAAP
Disclosures
Management
is presenting, in the accompanying table, adjustments to net income as reported
in accordance with generally accepted accounting principles for significant
items occurring during the periods presented. Management believes this
information will help users compare Trustmark’s current results to those of
prior periods as presented in the table below ($ in thousands):
|
|
Quarter
Ended
|
|
|
Six
Months Ended
|
|
|
|
6/30/2008
|
|
|
6/30/2007
|
|
|
6/30/2008
|
|
|
6/30/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income as reported-GAAP
|
|
$ |
17,552 |
|
|
$ |
29,828 |
|
|
$ |
43,731 |
|
|
$ |
55,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
(net of taxes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MasterCard
Class A Common
|
|
|
(3,308 |
) |
|
|
- |
|
|
|
(3,308 |
) |
|
|
- |
|
Visa
Litigation Contingency
|
|
|
- |
|
|
|
- |
|
|
|
(936 |
) |
|
|
- |
|
Hurricane
Katrina
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(665 |
) |
|
|
|
(3,308 |
) |
|
|
- |
|
|
|
(4,244 |
) |
|
|
(665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income adjusted for specific items (Non-GAAP)
|
|
$ |
14,244 |
|
|
$ |
29,828 |
|
|
$ |
39,487 |
|
|
$ |
55,020 |
|
MasterCard
Class A Common
During
the second quarter of 2008, MasterCard offered Class B shareholders the right to
convert their stock into marketable Class A shares. Trustmark
exercised its right to convert its shares and sold them through a liquidation
program. The conversion and sale resulted in an after-tax gain of
$3.3 million.
Visa
Litigation Contingency
In the
first quarter of 2008, Trustmark recognized an after-tax gain of $936 thousand
resulting from the Visa initial public offering. This gain more than
offsets an after-tax accrual of $494 thousand that Trustmark recorded in the
fourth quarter of 2007 for the Visa litigation contingency relating to the Visa
USA Inc. antitrust lawsuit settlement with American Express and other pending
Visa litigation (reflecting Trustmark’s share as a Visa
member).
Hurricane
Katrina
In the
third quarter of 2005, immediately following the aftermath of Hurricane Katrina,
Trustmark estimated possible pre-tax losses resulting from this storm of $11.7
million. Trustmark revised these estimates quarterly and any
subsequent adjustments are reflected in the table above, net of
taxes. At June 30, 2008, the allowance for loan losses included $405
thousand related to possible Hurricane Katrina losses.
RESULTS
OF OPERATIONS
Net
Interest Income
Net
interest income is the principal component of Trustmark’s income stream and
represents the difference, or spread, between interest and fee income generated
from earning assets and the interest expense paid on deposits and borrowed
funds. Fluctuations in interest rates, as well as volume and mix
changes in earning assets and interest-bearing liabilities, can materially
impact net interest income. The net interest margin (NIM) is computed by
dividing fully taxable equivalent net interest income by average
interest-earning assets and measures how effectively Trustmark utilizes its
interest-earning assets in relationship to the interest cost of funding
them. The accompanying Yield/Rate Analysis Table shows the average
balances for all assets and liabilities of Trustmark and the interest income or
expense associated with earning assets and interest-bearing
liabilities. The yields and rates have been computed based on
interest income and expense adjusted to a fully taxable equivalent (FTE) basis
using a 35% federal marginal tax rate for all periods shown. Nonaccruing loans have been
included in the average loan balances, and interest collected prior to these
loans having been placed on nonaccrual has been included in interest
income. Loan fees included in interest income associated with the
average loan balances are immaterial.
Net
interest income-FTE for the three and six month periods ending June 30, 2008,
increased $3.7 million and $6.3 million, respectively, when compared with the
same time periods in 2007. Trustmark has been able to maintain its
net interest margin in spite of interest rates continuing to fall during the
second quarter of 2008, by keeping its borrowing costs down through disciplined
deposit pricing. This strategy has been successful because Trustmark’s strong
liquidity position has allowed Management to be selective in utilizing its
deposit base as a funding source. The combination of these factors resulted in a
four basis point increase in NIM to 3.92%, when the first six months of 2008 is
compared with the same time period in 2007, while the second quarter NIM of
3.91% was two basis points higher than in the second quarter of 2007. For
additional discussion, see Market/Interest Rate Risk Management included later
in Management’s Discussion and Analysis.
Average
interest-earning assets for the first six months of 2008 were $8.059 billion,
compared with $7.823 billion for the same time period in 2007, an increase of
$236.4 million. More importantly, the mix of average earning assets changed
dramatically when comparing 2008 to 2007. Average total loans during
the first six months of 2008 increased $404.7 million, or 6.0%, relative to the
same time period in 2007, while average investment securities decreased by
$143.5 million, or 14.2%, during the same time period. However,
interest rates continued to fall during the first half of 2008 which contributed
to a decline in the yield on loans of 87 basis points when compared to the same
time period in 2007. The combination of these factors resulted in a
decline in interest income-FTE of $19.0 million, or 7.0%, when the first half of
2008 is compared with the same time period in 2007. The impact of
these factors is also illustrated by the yield on total earning assets
decreasing from 6.96% for the first six months of 2007, to 6.26% for the same
time period of 2008, a decrease of 70 basis points.
Average
interest-bearing liabilities for the first six months of 2008 totaled $6.537
billion compared with $6.300 billion for the same time period in 2007, an
increase of $237.3 million, or 3.8%. However, the mix of these
liabilities has changed when these two periods are
compared. Management’s strategy of disciplined deposit pricing
resulted in a 1.0% increase in interest-bearing deposits during the first half
of 2008 while the combination of federal funds purchased, securities sold under
repurchase agreements and borrowings increased by 26.9%. The impact of utilizing
these higher cost interest-bearing liabilities was offset somewhat by the
decrease in the overall yield of 191 basis points on these products when the
first six months of 2008 is compared with the same time period in
2007. As a result of these factors, total interest expense for the
first six months of 2008 decreased $25.3 million, or 21.2%, when compared with
the same time period in 2007.
Yield/Rate
Analysis Table
($
in thousands)
|
|
Quarter
Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds sold and securities purchased under reverse repurchase
agreements
|
|
$ |
30,567 |
|
|
$ |
168 |
|
|
|
2.21 |
% |
|
$ |
33,811 |
|
|
$ |
457 |
|
|
|
5.42 |
% |
Securities
- taxable
|
|
|
955,837 |
|
|
|
11,079 |
|
|
|
4.66 |
% |
|
|
852,239 |
|
|
|
9,018 |
|
|
|
4.24 |
% |
Securities
- nontaxable
|
|
|
112,809 |
|
|
|
1,943 |
|
|
|
6.93 |
% |
|
|
139,118 |
|
|
|
2,536 |
|
|
|
7.31 |
% |
Loans
(including loans held for sale)
|
|
|
7,080,495 |
|
|
|
109,023 |
|
|
|
6.19 |
% |
|
|
6,784,126 |
|
|
|
124,224 |
|
|
|
7.34 |
% |
Other
earning assets
|
|
|
41,481 |
|
|
|
475 |
|
|
|
4.61 |
% |
|
|
35,033 |
|
|
|
541 |
|
|
|
6.19 |
% |
Total
interest-earning assets
|
|
|
8,221,189 |
|
|
|
122,688 |
|
|
|
6.00 |
% |
|
|
7,844,327 |
|
|
|
136,776 |
|
|
|
6.99 |
% |
Cash
and due from banks
|
|
|
253,545 |
|
|
|
|
|
|
|
|
|
|
|
285,424 |
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
782,986 |
|
|
|
|
|
|
|
|
|
|
|
748,306 |
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(82,962 |
) |
|
|
|
|
|
|
|
|
|
|
(72,400 |
) |
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
9,174,758 |
|
|
|
|
|
|
|
|
|
|
$ |
8,805,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits
|
|
$ |
5,746,237 |
|
|
|
36,881 |
|
|
|
2.58 |
% |
|
$ |
5,615,752 |
|
|
|
51,686 |
|
|
|
3.69 |
% |
Federal
funds purchased and securities sold under repurchase
agreements
|
|
|
618,227 |
|
|
|
3,019 |
|
|
|
1.96 |
% |
|
|
426,738 |
|
|
|
5,014 |
|
|
|
4.71 |
% |
Other
borrowings
|
|
|
322,602 |
|
|
|
2,923 |
|
|
|
3.64 |
% |
|
|
262,607 |
|
|
|
3,937 |
|
|
|
6.01 |
% |
Total
interest-bearing liabilities
|
|
|
6,687,066 |
|
|
|
42,823 |
|
|
|
2.58 |
% |
|
|
6,305,097 |
|
|
|
60,637 |
|
|
|
3.86 |
% |
Noninterest-bearing
demand deposits
|
|
|
1,409,371 |
|
|
|
|
|
|
|
|
|
|
|
1,484,611 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
134,237 |
|
|
|
|
|
|
|
|
|
|
|
120,879 |
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
944,084 |
|
|
|
|
|
|
|
|
|
|
|
895,070 |
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders'
Equity
|
|
$ |
9,174,758 |
|
|
|
|
|
|
|
|
|
|
$ |
8,805,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Margin
|
|
|
|
|
|
|
79,865 |
|
|
|
3.91 |
% |
|
|
|
|
|
|
76,139 |
|
|
|
3.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
tax equivalent adjustment
|
|
|
|
|
|
|
2,247 |
|
|
|
|
|
|
|
|
|
|
|
2,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Margin per Consolidated
Statements of Income
|
|
|
|
|
|
$ |
77,618 |
|
|
|
|
|
|
|
|
|
|
$ |
73,832 |
|
|
|
|
|
The prior
period has been restated to include the addition of Federal Home Loan Bank and
Federal Reserve Bank stock in other earning assets.
Yield/Rate
Analysis Table
($
in thousands)
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Rate
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds sold and securities purchased under reverse repurchase
agreements
|
|
$ |
26,744 |
|
|
$ |
347 |
|
|
|
2.61 |
% |
|
$ |
53,832 |
|
|
$ |
1,433 |
|
|
|
5.37 |
% |
Securities
- taxable
|
|
|
749,261 |
|
|
|
16,936 |
|
|
|
4.55 |
% |
|
|
866,128 |
|
|
|
18,098 |
|
|
|
4.21 |
% |
Securities
- nontaxable
|
|
|
115,305 |
|
|
|
4,029 |
|
|
|
7.03 |
% |
|
|
141,945 |
|
|
|
5,169 |
|
|
|
7.34 |
% |
Loans
(including loans held for sale)
|
|
|
7,128,864 |
|
|
|
228,664 |
|
|
|
6.45 |
% |
|
|
6,724,206 |
|
|
|
244,189 |
|
|
|
7.32 |
% |
Other
earning assets
|
|
|
39,220 |
|
|
|
1,047 |
|
|
|
5.37 |
% |
|
|
36,909 |
|
|
|
1,133 |
|
|
|
6.19 |
% |
Total
interest-earning assets
|
|
|
8,059,394 |
|
|
|
251,023 |
|
|
|
6.26 |
% |
|
|
7,823,020 |
|
|
|
270,022 |
|
|
|
6.96 |
% |
Cash
and due from banks
|
|
|
256,469 |
|
|
|
|
|
|
|
|
|
|
|
315,532 |
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
779,352 |
|
|
|
|
|
|
|
|
|
|
|
744,071 |
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(81,980 |
) |
|
|
|
|
|
|
|
|
|
|
(72,426 |
) |
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
9,013,235 |
|
|
|
|
|
|
|
|
|
|
$ |
8,810,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits
|
|
$ |
5,671,729 |
|
|
|
80,244 |
|
|
|
2.85 |
% |
|
$ |
5,617,638 |
|
|
|
102,041 |
|
|
|
3.66 |
% |
Federal
funds purchased and securities sold under repurchase
agreements
|
|
|
517,783 |
|
|
|
6,092 |
|
|
|
2.37 |
% |
|
|
389,475 |
|
|
|
8,827 |
|
|
|
4.57 |
% |
Other
borrowings
|
|
|
347,326 |
|
|
|
7,752 |
|
|
|
4.49 |
% |
|
|
292,449 |
|
|
|
8,520 |
|
|
|
5.87 |
% |
Total
interest-bearing liabilities
|
|
|
6,536,838 |
|
|
|
94,088 |
|
|
|
2.89 |
% |
|
|
6,299,562 |
|
|
|
119,388 |
|
|
|
3.82 |
% |
Noninterest-bearing
demand deposits
|
|
|
1,400,107 |
|
|
|
|
|
|
|
|
|
|
|
1,489,999 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
137,988 |
|
|
|
|
|
|
|
|
|
|
|
124,054 |
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
938,302 |
|
|
|
|
|
|
|
|
|
|
|
896,582 |
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders'
Equity
|
|
$ |
9,013,235 |
|
|
|
|
|
|
|
|
|
|
$ |
8,810,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Margin
|
|
|
|
|
|
|
156,935 |
|
|
|
3.92 |
% |
|
|
|
|
|
|
150,634 |
|
|
|
3.88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
tax equivalent adjustment
|
|
|
|
|
|
|
4,568 |
|
|
|
|
|
|
|
|
|
|
|
4,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Margin per Consolidated
Statements of Income
|
|
|
|
|
|
$ |
152,367 |
|
|
|
|
|
|
|
|
|
|
$ |
145,774 |
|
|
|
|
|
The prior
period has been restated to include the addition of Federal Home Loan Bank and
Federal Reserve Bank stock in other earning assets.
Provision
for Loan Losses
The
provision for loan losses is determined by Management as the amount necessary to
adjust the allowance for loan losses to a level, which, in Management’s best
estimate, is necessary to absorb probable losses within the existing loan
portfolio. 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, net charge-offs or recoveries
and growth in the loan portfolio among other factors. Accordingly,
the amount of the provision reflects both the necessary increases in the
allowance for loan losses related to newly identified criticized loans, as well
as the actions taken related to other loans including, among other things, any
necessary increases or decreases in required allowances for specific loans or
loan pools.
|
|
Quarter
Ended
|
|
|
Six
Months Ended
|
|
PROVISION FOR LOAN
LOSSES
|
|
6/30/2008
|
|
|
6/30/2007
|
|
|
6/30/2008
|
|
|
6/30/2007
|
|
Florida
|
|
$ |
24,145 |
|
|
$ |
482 |
|
|
$ |
33,702 |
|
|
$ |
576 |
|
Mississippi
(1)
|
|
|
3,667 |
|
|
|
360 |
|
|
|
6,474 |
|
|
|
1,562 |
|
Tennessee
(2)
|
|
|
2,440 |
|
|
|
(368 |
) |
|
|
3,219 |
|
|
|
(372 |
) |
Texas
|
|
|
760 |
|
|
|
(329 |
) |
|
|
1,860 |
|
|
|
18 |
|
Total
provision for loan losses
|
|
$ |
31,012 |
|
|
$ |
145 |
|
|
$ |
45,255 |
|
|
$ |
1,784 |
|
(1)
- Mississippi includes Central and Southern Mississippi Regions
(2)
- Tennessee includes Memphis, Tennessee and Northern Mississippi
Regions
As shown
in the table above, the provision for loan losses for the first six months of
2008 totaled $45.3 million, or 1.28% of average loans, compared with $1.8
million during the same time period in 2007. The provision for loan
losses for the second quarter of 2008 totaled $31.0 million, or 1.76% of average
loans, compared with $145 thousand during the same time period in
2007. Trustmark’s provision for the first half of 2008 was impacted
by an increase of $67.5 million and $17.3 million in nonaccrual loans when
compared to June 30, 2007 and March 31, 2008, respectively.
These
increases are largely attributed to continued credit deterioration in the
construction and land development portfolio in Trustmark’s Florida Panhandle
market resulting from prolonged depression in real estate
demand. During the second quarter, Trustmark’s loan review teams
conducted reviews encompassing approximately 85% of the Florida loan
portfolio. Trustmark’s Florida loan officers, in conjunction with
corporate credit administration officers, credit workout groups, other real
estate specialists and legal department officers secured updated financials on
all guarantors of significant credits. In addition, 159 updated
property appraisals were obtained during the second quarter. As a
result, nonaccrual loans for that market grew to $70.5 million at June 30, 2008,
an increase of $64.1 million when compared with June 30, 2007 and $20.8 million
when compared with March 31, 2008. In addition, net charge-offs in
the Florida market during the second quarter of 2008 totaled $22.1 million, an
increase of $12.4 million when compared with the first quarter of
2008. Trustmark’s Management believes that the Florida construction
and land development portfolio is appropriately risk rated and adequately
reserved based upon current conditions. Trustmark’s Mississippi,
Tennessee and Texas loan portfolios continued to perform relatively well in the
current economic environment as seen by the changes in provision for loan losses
illustrated in the table above.
See the
section captioned “Loans and Allowance for Loan Losses” elsewhere in this
discussion for further analysis of the provision for loan losses.
Noninterest
Income
Trustmark’s
noninterest income continues to play an important role in improving net income
and total shareholder value. Total noninterest income before
security gains, net for the first six months of 2008 increased $18.0 million, or
22.9%, compared to the same time period in 2007. For the second
quarter of 2008, noninterest income before security gains, net increased $8.0
million, or 19.7% when compared to the second quarter of 2007. Please
see the discussion below for the selected items which supported this
increase. The comparative components of noninterest income for the
three and six month periods ended June 30, 2008 and 2007 are shown in the
accompanying table.
The
single largest component of noninterest income continues to be service charges
for deposit products and services, which totaled $25.8 million for the first six
months of 2008 compared with $26.4 million for the first six months of 2007, a
decrease of $635 thousand, or 2.4%. This decline was due to a
decrease in NSF revenues which was negatively impacted by the issuance of U.S.
Government Economic Stimulus checks as well as a reduction in service charges
due to a shift in the relative mix of deposit products towards lower cost or
free accounts.
Noninterest
Income
($
in thousands)
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Service
charges on deposit accounts
|
|
$ |
13,223 |
|
|
$ |
13,729 |
|
|
$ |
(506 |
) |
|
|
-3.7 |
% |
|
$ |
25,787 |
|
|
$ |
26,422 |
|
|
$ |
(635 |
) |
|
|
-2.4 |
% |
Insurance
commissions
|
|
|
8,394 |
|
|
|
9,901 |
|
|
|
(1,507 |
) |
|
|
-15.2 |
% |
|
|
16,650 |
|
|
|
18,673 |
|
|
|
(2,023 |
) |
|
|
-10.8 |
% |
Wealth
management
|
|
|
7,031 |
|
|
|
6,400 |
|
|
|
631 |
|
|
|
9.9 |
% |
|
|
14,229 |
|
|
|
12,279 |
|
|
|
1,950 |
|
|
|
15.9 |
% |
General
banking - other
|
|
|
6,053 |
|
|
|
6,418 |
|
|
|
(365 |
) |
|
|
-5.7 |
% |
|
|
11,841 |
|
|
|
12,588 |
|
|
|
(747 |
) |
|
|
-5.9 |
% |
Mortgage
banking, net
|
|
|
6,708 |
|
|
|
1,799 |
|
|
|
4,909 |
|
|
|
n/m |
|
|
|
17,764 |
|
|
|
4,554 |
|
|
|
13,210 |
|
|
|
n/m |
|
Other,
net
|
|
|
6,999 |
|
|
|
2,194 |
|
|
|
4,805 |
|
|
|
n/m |
|
|
|
10,220 |
|
|
|
4,018 |
|
|
|
6,202 |
|
|
|
n/m |
|
Total
Noninterest Income before sec gains, net
|
|
|
48,408 |
|
|
|
40,441 |
|
|
|
7,967 |
|
|
|
19.7 |
% |
|
|
96,491 |
|
|
|
78,534 |
|
|
|
17,957 |
|
|
|
22.9 |
% |
Securities
gains, net
|
|
|
58 |
|
|
|
29 |
|
|
|
29 |
|
|
|
n/m |
|
|
|
491 |
|
|
|
87 |
|
|
|
404 |
|
|
|
n/m |
|
Total
Noninterest Income
|
|
$ |
48,466 |
|
|
$ |
40,470 |
|
|
$ |
7,996 |
|
|
|
19.8 |
% |
|
$ |
96,982 |
|
|
$ |
78,621 |
|
|
$ |
18,361 |
|
|
|
23.4 |
% |
n/m
- percentages greater than +/- 100% are considered not meaningful
Insurance
commissions were $16.7 million during the first half of 2008, a decrease of $2.0
million, or 10.8%, when compared with the first half of 2007. The
decline in insurance commissions experienced during the first half of 2008 is
primarily attributable to Fisher-Brown, Trustmark’s wholly-owned insurance
subsidiary located in the Florida Panhandle, which has been impacted by a
decline in revenues resulting from a decrease in premium rates charged by its
insurance carriers.
Wealth
management income totaled $14.2 million for the first six months of 2008,
compared with $12.3 million during the same time period in 2007, an increase of
$2.0 million, or 15.9%. Wealth management consists of income related to
investment management, trust and brokerage services. The growth in
wealth management income during the first half of 2008 is largely attributed to
an increase in trust and investment management fee income resulting from new
account growth. In addition, revenues from brokerage services have
increased due to solid and improved production from Trustmark’s team of
investment representatives. At June 30, 2008 and 2007, Trustmark held
assets under management and administration of $7.6 billion and $7.2 billion,
respectively, as well as brokerage assets of $1.2 billion at both period
ends.
General
banking-other totaled $11.8 million during the first six months of 2008,
compared with $12.6 million in the same time period in 2007. General
banking-other income consists primarily of fees on various bank products and
services as well as bankcard fees and safe deposit box
fees. This decrease is primarily related to a decline in fees earned
on an interest rate driven product.
Net
revenues from mortgage banking were $17.8 million during the first six months of
2008, compared with $4.6 million in the first six months of 2007. As shown in
the accompanying table, net mortgage servicing income has increased $595
thousand, or 8.6% when the first half of 2008 is compared with the same time
period in 2007. This increase coincides with growth in the balance of
the mortgage servicing portfolio as well as an increase in mortgage
production. Loans serviced for others totaled $4.8 billion at June
30, 2008 compared with $4.2 billion at June 30, 2007. Trustmark’s
highly regarded mortgage banking reputation has enabled it to take advantage of
competitive disruptions and expand market share.
The
following table illustrates the components of mortgage banking revenues included
in noninterest income in the accompanying income statements ($ in
thousands):
Mortgage
Banking Income
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Mortgage
servicing income, net
|
|
$ |
3,804 |
|
|
$ |
3,478 |
|
|
$ |
326 |
|
|
|
9.4 |
% |
|
$ |
7,551 |
|
|
$ |
6,956 |
|
|
$ |
595 |
|
|
|
8.6 |
% |
Change
in fair value-MSR from market changes
|
|
|
13,104 |
|
|
|
4,392 |
|
|
|
8,712 |
|
|
|
n/m |
|
|
|
2,911 |
|
|
|
3,945 |
|
|
|
(1,034 |
) |
|
|
-26.2 |
% |
Change
in fair value of derivatives
|
|
|
(10,453 |
) |
|
|
(5,492 |
) |
|
|
(4,961 |
) |
|
|
90.3 |
% |
|
|
7,146 |
|
|
|
(4,777 |
) |
|
|
11,923 |
|
|
|
n/m |
|
Change
in fair value-MSR from runoff
|
|
|
(2,303 |
) |
|
|
(2,494 |
) |
|
|
191 |
|
|
|
-7.7 |
% |
|
|
(4,733 |
) |
|
|
(4,598 |
) |
|
|
(135 |
) |
|
|
2.9 |
% |
Gains
on sales of loans
|
|
|
2,542 |
|
|
|
1,496 |
|
|
|
1,046 |
|
|
|
69.9 |
% |
|
|
3,620 |
|
|
|
2,841 |
|
|
|
779 |
|
|
|
27.4 |
% |
Other,
net
|
|
|
14 |
|
|
|
419 |
|
|
|
(405 |
) |
|
|
-96.7 |
% |
|
|
1,269 |
|
|
|
187 |
|
|
|
1,082 |
|
|
|
n/m |
|
Mortgage
banking, net
|
|
$ |
6,708 |
|
|
$ |
1,799 |
|
|
$ |
4,909 |
|
|
|
n/m |
|
|
$ |
17,764 |
|
|
$ |
4,554 |
|
|
$ |
13,210 |
|
|
|
n/m |
|
n/m
- percentages greater than +/- 100% are considered not meaningful
Trustmark
utilizes derivative instruments such as Treasury note futures contracts and
exchange-traded option contracts to offset changes in the fair value of mortgage
servicing rights (MSR) attributable to changes in interest rates. Changes in the
fair value of these derivative instruments are recorded in mortgage banking
income 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. Changes in yields
created fluctuating values in both MSR and the hedge during the second quarter
of 2008. During the first six months of 2008, the MSR value increased
$2.9 million primarily due to a 32 basis point increase in mortgage rates. The
hedge improved in value by $7.1 million due to three factors; a five
basis point decline in Treasury market yields, increased income from options due
to higher levels of volatility and additional income due to a steeper yield
curve. The impact of implementing this strategy resulted in a net positive
ineffectiveness of $10.1 million. Changes in the fair value of MSR from
present value decay, referred to as “runoff,” reduced total mortgage banking
income by $4.7 million and $4.6 million for the first half of 2008 and 2007,
respectively.
Other
income for the first half of 2008 was $10.2 million, compared to $4.0 million in
the same time period in 2007. During the first quarter of 2008,
Trustmark achieved a $1.0 million gain from the redemption of Trustmark’s shares
in Visa upon their initial public offering along with $1.1 million in insurance
benefits resulting from insurance policies used to cover participants in
Trustmark’s supplemental retirement plan. Another portion of the
increase shown during the first half of 2008 occurred during the second quarter
and is related to Trustmark’s conversion and sale of MasterCard Class A common
stock. During the quarter, MasterCard offered Class B shareholders
the right to convert their stock into marketable Class A
shares. Trustmark exercised its right to convert these shares and
sold them through a liquidation program achieving a gain of $5.4
million. These transactions are offset by decreases of $588
thousand in income earned from Trustmark’s investment in various limited
partnerships and $635 thousand in revenues earned on a product driven by
interest rates.
Securities
gains totaled $491 thousand during the first six months of 2008 compared with
securities gains of $87 thousand during the same time period in 2007. The
securities gains for 2008 came primarily from an effort to reduce Trustmark’s
holding of corporate bonds.
Noninterest
Expense
Trustmark’s
noninterest expense for the first half of 2008 increased $1.2 million, or 0.9%,
compared to the same time period in 2007. The comparative components
of noninterest expense for the three and six-month periods of 2008 and 2007 are
shown in the accompanying table.
Management
considers expense control a key area of focus in the support of improving
shareholder value. During the second quarter of 2008, noninterest
expense totaled $69.6 million, marking the fifth consecutive quarter below
Management’s target of $70.0 million. Trustmark’s success in this
regard was the result of ongoing human capital management programs as well as a
heightened awareness of expense management across the
organization. Management remains committed to identifying additional
reengineering and efficiency opportunities designed to enhance shareholder
value.
Noninterest
Expense
($
in thousands)
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Salaries
and employee benefits
|
|
$ |
42,771 |
|
|
$ |
42,853 |
|
|
$ |
(82 |
) |
|
|
-0.2 |
% |
|
$ |
86,355 |
|
|
$ |
86,019 |
|
|
$ |
336 |
|
|
|
0.4 |
% |
Services
and fees
|
|
|
9,526 |
|
|
|
9,041 |
|
|
|
485 |
|
|
|
5.4 |
% |
|
|
18,956 |
|
|
|
18,599 |
|
|
|
357 |
|
|
|
1.9 |
% |
Net
occupancy - premises
|
|
|
4,850 |
|
|
|
4,634 |
|
|
|
216 |
|
|
|
4.7 |
% |
|
|
9,651 |
|
|
|
9,048 |
|
|
|
603 |
|
|
|
6.7 |
% |
Equipment
expense
|
|
|
4,144 |
|
|
|
4,048 |
|
|
|
96 |
|
|
|
2.4 |
% |
|
|
8,218 |
|
|
|
7,952 |
|
|
|
266 |
|
|
|
3.3 |
% |
Other
expense
|
|
|
8,323 |
|
|
|
8,257 |
|
|
|
66 |
|
|
|
0.8 |
% |
|
|
16,260 |
|
|
|
16,621 |
|
|
|
(361 |
) |
|
|
-2.2 |
% |
Total
Noninterest Expense
|
|
$ |
69,614 |
|
|
$ |
68,833 |
|
|
$ |
781 |
|
|
|
1.1 |
% |
|
$ |
139,440 |
|
|
$ |
138,239 |
|
|
$ |
1,201 |
|
|
|
0.9 |
% |
Salaries
and employee benefits, the largest category of noninterest expense, were $86.4
million in the first half of 2008 and $86.0 million in the same time period in
2007. During the first half of 2008, salary expense remained
relatively flat when compared with the same time period in 2007 and was
positively impacted by Trustmark’s human capital management programs which
resulted in a decrease of 57 FTE employees at June 30, 2008, when compared with
the same time period in 2007. Employee benefits expense for the six
months ended June 30, 2008 increased by approximately $435 thousand when
compared to the same time period in 2007 and is primarily attributed to
increased costs for employee insurance programs offset by declines in expenses
related to Trustmark’s 401(k) plan as well as payroll taxes.
Changes
in net occupancy and equipment expenses have resulted from Trustmark’s continued
banking center expansion program as well as the initial implementation of
technology enhancements. Expenses in these two categories increased
by approximately $869 thousand on a comparative year-to-date basis with $312
thousand of this increase occurring during the second quarter of
2008.
Other
expenses decreased $361 thousand, or 2.2%, when comparing the first six months
of 2008 to the same time period in 2007. This change has been heavily
impacted by an event which occurred during the first quarter of
2008. In March 2008, in connection with its initial public offering
(IPO), Visa used a portion of the IPO proceeds to fund an escrow account with
respect to its previously mentioned litigation matters. This enabled Trustmark
to recognize its portion of the escrow account totaling $473 thousand as a
reduction to other expenses.
Income
Taxes
For the
six months ended June 30, 2008, Trustmark’s combined effective tax rate was
32.4% compared to 34.0% for the same time period in 2007. The
decrease in Trustmark’s effective tax rate is due to immaterial changes in
permanent items as a percentage of pretax income.
LIQUIDITY
Liquidity
is the ability to meet asset funding requirements and operational cash outflows
in a timely manner,
in sufficient amount and without excess cost. Consistent cash flows
from operations and adequate capital provide internally generated
liquidity. Furthermore, Management maintains funding capacity from a
variety of external sources to meet daily funding needs, such as those required
to meet deposit withdrawals, loan disbursements and security
settlements. Liquidity strategy also includes the use of wholesale
funding sources to provide for the seasonal fluctuations of deposit and loan
demand and the cyclical fluctuations of the economy that impact the availability
of funds. Management keeps excess funding capacity available to meet
potential demands associated with adverse circumstances.
The asset
side of the balance sheet provides liquidity primarily through maturities and
cash flows from loans and securities, as well as the ability to sell certain
loans and securities while the liability portion of the balance sheet provides
liquidity primarily through noninterest and interest-bearing
deposits. Trustmark utilizes Federal funds purchased, brokered
deposits, FHLB advances and securities sold under agreements to repurchase to
provide additional liquidity. Access to these additional sources
represents Trustmark’s incremental borrowing capacity.
At June
30, 2008, Trustmark had $581.0 million of Federal funds purchased from upstream
correspondents, compared to $279.5 million at December 31, 2007. At
June 30, 2008, Trustmark had an estimated additional capacity of $1.276 billion,
compared with $1.337 billion at December 31, 2007. Based on internal guidelines,
Trustmark had the capacity to increase brokered deposits by $352.5 million,
compared to $328.8 million at year end. Trustmark also maintains a
relationship with the FHLB, which provided
$150.0 million in short-term advances at June 30, 2008, compared with $375.0
million in short-term advances at December 31, 2007. Under the
existing borrowing agreement, Trustmark had sufficient qualifying collateral to
increase FHLB advances by $1.498 billion. Another borrowing source is the
Federal Reserve Discount Window (Discount Window). At June 30, 2008,
Trustmark had approximately $626.0 million available in collateral capacity at
the Discount Window from pledges of auto loans and securities, compared with
$712.5 million at December 31, 2007. At June 30, 2008,
Trustmark had $7.0 million outstanding on a $50.0 million revolving line of
credit facility that expires in March 2010. Subsequent to June 30,
2008, Trustmark repaid the outstanding balance on this line of credit and
terminated the agreement.
During
2006, TNB issued $50.0 million aggregate principal amount of Subordinated Notes
(the Notes) due December 15, 2016. At June 30, 2008, the carrying amount of the
Notes was $49.7 million. The Notes were sold pursuant to the terms of
regulations issued by the Office of the Comptroller of the Currency (OCC) and in
reliance upon an exemption provided by the Securities Act of 1933, as
amended. The Notes are unsecured and subordinate and junior in right
of payment to TNB’s obligations to its depositors, its obligations under
bankers’ acceptances and letters of credit, its obligations to any Federal
Reserve Bank or the FDIC and its obligations to its other creditors, and to any
rights acquired by the FDIC as a result of loans made by the FDIC to
TNB. 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.
Also
during 2006, Trustmark completed a private placement of $60.0 million of trust
preferred securities through a newly formed Delaware trust affiliate, Trustmark
Preferred Capital Trust I, (the Trust). The trust preferred
securities mature September 30, 2036 and are redeemable at Trustmark’s option
beginning after five years. 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. The net proceeds to Trustmark from the sale
of the junior subordinated debentures to the Trust were used to assist in
financing Trustmark’s merger with Republic.
Another
funding mechanism set into place in 2006 was Trustmark’s grant of a Class B
banking license from the Cayman Islands Monetary
Authority. Subsequently, Trustmark established a branch in the Cayman
Islands through an agent bank. The branch was established as a
mechanism to attract dollar denominated foreign deposits (i.e. Eurodollars) as
an additional source of funding. At June 30, 2008, Trustmark had
$46.6 million in Eurodollar deposits outstanding.
The Board
of Directors currently has the authority to issue up to 20 million preferred
shares with no par value. The ability to issue preferred shares in
the future will provide Trustmark with additional financial and management
flexibility for general corporate and acquisition purposes. At June
30, 2008, no such shares have been issued.
Liquidity
position and strategy are reviewed regularly by the Asset/Liability Committee
and continuously adjusted in relationship to Trustmark’s overall
strategy. Management believes that Trustmark has sufficient liquidity
and capital resources to meet presently known cash flow requirements arising
from ongoing business transactions.
CAPITAL
RESOURCES
At June
30, 2008, Trustmark’s shareholders’ equity was $935.9 million, an increase of
$16.2 million from its level at December 31, 2007. During the first
six months of 2008, shareholders’ equity increased primarily as a result of net
income of $43.7 million offset by a $3.2 million increase in accumulated other
comprehensive loss and dividends paid of $26.5 million. Trustmark
utilizes a sophisticated capital model in order to provide Management with a
monthly tool for analyzing changes in its strategic capital
ratios. This allows Management to hold sufficient capital to provide
for growth opportunities, protect the balance sheet against sudden adverse
market conditions while maintaining an attractive return on equity to
shareholders.
Common
Stock Repurchase Program
At June
30, 2008, Trustmark had remaining authorization for the repurchase of up to 1.4
million shares of its common stock. Collectively, the capital
management plans adopted by Trustmark since 1998 have authorized the repurchase
of 24.3 million shares of common stock. Pursuant to these plans,
Trustmark has repurchased approximately 22.7 million shares for $518.1
million. Trustmark did not repurchase any shares during the first six
months of 2008.
Dividends
Dividends
for the six months ended June 30, 2008, were $0.46 per share, increasing 4.5%
when compared with dividends of $0.44 per share for the same time period in
2007. Trustmark’s indicated dividend for 2008 is currently $0.92 per
share, up from $0.88 per share for 2007.
Regulatory
Capital
Trustmark
and TNB are subject to minimum capital requirements, which are administered by
various federal regulatory agencies. These capital requirements, as
defined by federal guidelines, involve quantitative and qualitative measures of
assets, liabilities and certain off-balance sheet
instruments. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
financial statements of both Trustmark and TNB. Trustmark aims to
exceed the well-capitalized guidelines for regulatory capital. As of
June 30, 2008, Trustmark and TNB have exceeded all of the minimum capital
standards for the parent company and its primary banking subsidiary as
established by regulatory requirements. In addition, TNB has met
applicable regulatory guidelines to be considered well-capitalized at June 30,
2008. To be categorized in this manner, TNB must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the accompanying table. There are no significant
conditions or events that have occurred since June 30, 2008, which Management
believes have affected TNB’s present classification.
In
addition, during 2006, Trustmark enhanced its capital structure with the
issuance of trust preferred securities and Subordinated Notes. For
regulatory capital purposes, the trust preferred securities qualify as Tier 1
capital while the Subordinated Notes qualify as Tier 2 capital. The
addition of these capital instruments provided Trustmark a cost effective manner
in which to manage shareholders’ equity and enhance financial
flexibility.
Regulatory
Capital Table
($
in thousands)
|
|
June 30,
2008
|
|
|
|
Actual
Regulatory Capital
|
|
|
Minimum
Regulatory Capital Required
|
|
|
Minimum
Regulatory Provision to be Well-Capitalized
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total
Capital (to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trustmark
Corporation
|
|
$ |
833,070 |
|
|
|
11.46 |
% |
|
$ |
581,666 |
|
|
|
8.00 |
% |
|
|
n/a |
|
|
|
n/a |
|
Trustmark
National Bank
|
|
|
808,273 |
|
|
|
11.27 |
% |
|
|
573,887 |
|
|
|
8.00 |
% |
|
$ |
717,358 |
|
|
|
10.00 |
% |
Tier
1 Capital (to Risk Weighted Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trustmark
Corporation
|
|
$ |
696,769 |
|
|
|
9.58 |
% |
|
$ |
290,833 |
|
|
|
4.00 |
% |
|
|
n/a |
|
|
|
n/a |
|
Trustmark
National Bank
|
|
|
677,426 |
|
|
|
9.44 |
% |
|
|
286,943 |
|
|
|
4.00 |
% |
|
$ |
430,415 |
|
|
|
6.00 |
% |
Tier
1 Capital (to Average Assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trustmark
Corporation
|
|
$ |
696,769 |
|
|
|
7.87 |
% |
|
$ |
265,501 |
|
|
|
3.00 |
% |
|
|
n/a |
|
|
|
n/a |
|
Trustmark
National Bank
|
|
|
677,426 |
|
|
|
7.79 |
% |
|
|
260,991 |
|
|
|
3.00 |
% |
|
$ |
434,984 |
|
|
|
5.00 |
% |
EARNING
ASSETS
Earning
assets serve as the primary revenue streams for Trustmark and are comprised of
securities, loans, federal funds sold and securities purchased under resale
agreements. Average earning assets totaled $8.221 billion, or 89.6% of totals
assets, for the second quarter of 2008, $7.898 billion, or 89.2% of total assets
for the first quarter of 2008 and $7.844 billion, or 89.1% of total assets, for
the second quarter of 2007.
Securities
From
2005 through 2007, Trustmark allowed its investment portfolio to run-off given a
flat yield curve and limited spread opportunity. The cash flow created by this
run-off was reinvested in higher yielding loans resulting in an improved net
interest margin percentage. In the first quarter of 2008, given a
steeper yield curve and improved spread opportunities on investment securities
versus traditional funding sources, Trustmark began purchasing
securities.
When
compared with December 31, 2007, total investment securities increased by $452.2
million during the first half of 2008. This increase resulted
primarily from purchases of Agency issued or guaranteed collateralized mortgage
obligation securities offset by maturities and paydowns. In addition,
during the first six months of 2008, Trustmark sold approximately $48.5 million
of corporate bonds, which carried a high risk-rating for risk-based capital
purposes, generating a gain of approximately $404 thousand. This was
a strategy undertaken to reduce lower yielding, higher risk-weight investment
portfolio assets.
Management
uses the securities portfolio as a tool to control exposure to interest rate
risk. Interest rate risk can be adjusted by altering both the
duration of the portfolio and the balance of the portfolio. Trustmark
has maintained a strategy of offsetting potential exposure to higher interest
rates by keeping both the duration and the balances of investment securities at
relatively low levels. The duration of the portfolio was 2.87 years
at June 30, 2008 and 1.77 years at December 31, 2007. Duration during the first
six months of 2008 was somewhat lengthened as a result of the recent investment
strategy mentioned above.
AFS
securities are carried at their estimated fair value with unrealized gains or
losses recognized, net of taxes, in accumulated other comprehensive loss, a
separate component of shareholders’ equity. At June 30, 2008, AFS
securities totaled $908.9 million, which represented 77.7% of the securities
portfolio, compared to $442.3 million, or 61.7%, at December 31,
2007. At June 30, 2008, net unrealized losses on AFS securities of
$7.0 million, net of $2.7 million of deferred income taxes, were included in
accumulated other comprehensive loss, compared with net unrealized losses of
$1.2 million, net of $0.4 million in deferred income taxes, at December 31,
2007. At June 30, 2008, AFS securities consisted of U.S. Treasury
securities, obligations of states and political subdivisions, mortgage related
securities and corporate securities.
Held to
maturity (HTM) securities are carried at amortized cost and represent those
securities that Trustmark both intends and has the ability to hold to
maturity. At June 30, 2008, HTM securities totaled $260.7 million and
represented 22.3% of the total portfolio, compared with $275.1 million, or
38.3%, at the end of 2007.
Management
continues to focus on asset quality as one of the strategic goals of the
securities portfolio, which is evidenced by the investment of approximately 82%
of the portfolio in U.S. Treasury, U.S. Government agency-backed obligations and
other AAA rated securities. None of the securities in the portfolio
are considered to be sub-prime. Furthermore, outside of membership in the
Federal Home Loan Bank of Dallas, Trustmark does not hold any equity investment
in government sponsored entities.
Loans
and Allowance for Loan Losses
Loans
(excluding loans held for sale) and the allowance for loan losses are reflected
in the accompanying table ($ in thousands). Loans at June 30, 2008
totaled $6.859 billion compared to $7.041 billion at December 31, 2007, a
decrease of $181.4 million. Average loans declined $96.7 million for
the same comparable period. These declines are directly attributable
to a strategic focus to reduce certain loan classifications, specifically
construction and land development loans, as well as indirect consumer auto
loans. In addition, these decreases have been impacted by current
economic conditions. Construction and land development loans have
decreased by $36.4 million when compared with December 31, 2007, while consumer
loans have decreased by $92.9 million during the same time
period. The decline in construction and land development loans can be
primarily attributable to Trustmark’s Florida market, which at June 30, 2008 had
loans totaling $321.9 million; a decrease of $64.3 million from December 31,
2007. The consumer loan portfolio decrease of $92.9 million primarily
represents a decrease in the indirect consumer auto portfolio. The
declines in these classifications are expected to continue until the real estate
market stabilizes in Florida and overall economic conditions
improve.
LOANS BY
TYPE
|
|
6/30/2008
|
|
|
12/31/2007
|
|
|
$
Change
|
|
|
%
Change
|
|
Loans
secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction,
land development and other land loans
|
|
$ |
1,158,549 |
|
|
$ |
1,194,940 |
|
|
$ |
(36,391 |
) |
|
|
-3.0 |
% |
Secured
by 1-4 family residential properties
|
|
|
1,633,021 |
|
|
|
1,694,757 |
|
|
|
(61,736 |
) |
|
|
-3.6 |
% |
Secured
by nonfarm, nonresidential properties
|
|
|
1,300,753 |
|
|
|
1,325,379 |
|
|
|
(24,626 |
) |
|
|
-1.9 |
% |
Other
real estate secured
|
|
|
148,588 |
|
|
|
167,610 |
|
|
|
(19,022 |
) |
|
|
-11.3 |
% |
Commercial
and industrial loans
|
|
|
1,313,620 |
|
|
|
1,283,014 |
|
|
|
30,606 |
|
|
|
2.4 |
% |
Consumer
loans
|
|
|
994,475 |
|
|
|
1,087,337 |
|
|
|
(92,862 |
) |
|
|
-8.5 |
% |
Other
loans
|
|
|
310,369 |
|
|
|
287,755 |
|
|
|
22,614 |
|
|
|
7.9 |
% |
Loans
|
|
|
6,859,375 |
|
|
|
7,040,792 |
|
|
|
(181,417 |
) |
|
|
-2.6 |
% |
Less
Allowance for Loan Losses
|
|
|
86,576 |
|
|
|
79,851 |
|
|
|
6,725 |
|
|
|
8.4 |
% |
Net
Loans
|
|
$ |
6,772,799 |
|
|
$ |
6,960,941 |
|
|
$ |
(188,142 |
) |
|
|
-2.7 |
% |
The loan
composition by region at June 30, 2008 is reflected in the following table ($ in
thousands). The table reflects a diversified mix of loans by
region.
|
|
June 30,
2008
|
|
LOAN COMPOSITION BY
REGION
|
|
Total
|
|
|
Florida
|
|
|
Mississippi
(Central and Southern Regions)
|
|
|
Tennessee
(Memphis, TN and Northern MS Regions)
|
|
|
Texas
|
|
Loans
secured by real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction,
land development and other land loans
|
|
$ |
1,158,549 |
|
|
$ |
321,864 |
|
|
$ |
475,381 |
|
|
$ |
108,384 |
|
|
$ |
252,920 |
|
Secured
by 1-4 family residential properties
|
|
|
1,633,021 |
|
|
|
93,946 |
|
|
|
1,326,666 |
|
|
|
175,723 |
|
|
|
36,686 |
|
Secured
by nonfarm, nonresidential properties
|
|
|
1,300,753 |
|
|
|
178,869 |
|
|
|
725,791 |
|
|
|
188,347 |
|
|
|
207,746 |
|
Other
real estate secured
|
|
|
148,588 |
|
|
|
12,648 |
|
|
|
105,114 |
|
|
|
12,303 |
|
|
|
18,523 |
|
Commercial
and industrial loans
|
|
|
1,313,620 |
|
|
|
22,739 |
|
|
|
934,086 |
|
|
|
67,399 |
|
|
|
289,396 |
|
Consumer
loans
|
|
|
994,475 |
|
|
|
2,905 |
|
|
|
945,704 |
|
|
|
32,862 |
|
|
|
13,004 |
|
Other
loans
|
|
|
310,369 |
|
|
|
12,704 |
|
|
|
276,744 |
|
|
|
15,123 |
|
|
|
5,798 |
|
Loans
|
|
$ |
6,859,375 |
|
|
$ |
645,675 |
|
|
$ |
4,789,486 |
|
|
$ |
600,141 |
|
|
$ |
824,073 |
|
The
allowance for loan losses totaled $86.6 million and $79.9 million at June 30,
2008 and December 31, 2007, respectively. The allowance for loan
losses is established through provisions for estimated loan losses charged
against earnings. The allowance reflects Management’s best estimate
of the probable loan losses related to specifically identified loans, as well
as, probable loan losses in the remaining loan portfolio and requires
considerable judgment. The allowance is based upon Management’s
current judgments and the credit quality of the loan portfolio, including all
internal and external factors that impact loan collectibility. SFAS
No. 5, “Accounting for Contingencies,” and SFAS No. 114, “Accounting by
Creditors for Impairment of a Loan,” limit the amount of the loss allowance to
the estimate of losses that have been incurred at the balance sheet reporting
date. Accordingly, the allowance is based upon past events and
current economic conditions.
Trustmark’s
allowance has been developed using different factors to estimate losses based
upon specific evaluation of identified individual loans considered impaired,
estimated identified losses on various pools of loans and/or groups of risk
rated loans with common risk characteristics and other external and internal
factors of estimated probable losses based on other facts and
circumstances.
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. The level of Trustmark’s allowance reflects Management’s
continuing evaluation of industry concentrations, specific credit risks, loan
loss experience, current loan portfolio growth, present economic, political and
regulatory conditions and unidentified losses inherent in the current loan
portfolio. This evaluation takes into account other qualitative
factors including recent acquisitions, national, regional and local economic
trends and conditions, changes in credit concentration, changes in levels and
trends of delinquencies and nonperforming loans, changes in levels and trends of
net charge-offs, changes in interest rates and collateral, financial and
underwriting exceptions. The allowance for loan losses consists of three
elements: (i) specific valuation allowances determined in accordance with SFAS
No. 114 based on probable losses on specific loans; (ii) historical valuation
allowances determined in accordance with SFAS No. 5 based on historical loan
loss experience for similar loans with similar characteristics and trends; and
(iii) qualitative risk valuation allowances determined in accordance with SFAS
No. 5 based on general economic conditions and other qualitative risk factors,
both internal and external, to Trustmark.
At June
30, 2008, the allowance for loan losses was $86.6 million, resulting in
allowance coverage of nonperforming loans of 90.8%. When impaired
loans, which have been written down to net realizable value, are excluded from
nonperforming loans, the revised allowance coverage of nonperforming loans is
173.6%. Trustmark’s allocation of its allowance for loan losses
represents 1.67% of commercial loans and 0.60% of consumer and home mortgage
loans, resulting in an allowance to total loans of 1.26% at June 30,
2008.
Nonperforming
assets totaled $118.2 million at June 30, 2008, an increase of $44.7 million
relative to December 31, 2007, and represented 1.67% of total loans and other
real estate. As seen in the table below, this change was largely
attributable to increases in nonaccrual loans and other real estate originating
in Trustmark’s Florida market.
The
details of Trustmark’s nonperforming assets are shown in the accompanying table
($ in thousands):
NONPERFORMING
ASSETS
|
|
June
30, 2008
|
|
|
December
31, 2007
|
|
Nonaccrual
loans
|
|
|
|
|
|
|
Florida
|
|
$ |
70,484 |
|
|
$ |
43,787 |
|
Mississippi
(1)
|
|
|
12,572 |
|
|
|
13,723 |
|
Tennessee
(2)
|
|
|
5,216 |
|
|
|
4,431 |
|
Texas
|
|
|
7,039 |
|
|
|
3,232 |
|
Total
nonaccrual loans
|
|
|
95,311 |
|
|
|
65,173 |
|
Other
real estate
|
|
|
|
|
|
|
|
|
Florida
|
|
|
10,398 |
|
|
|
995 |
|
Mississippi
(1)
|
|
|
5,258 |
|
|
|
1,123 |
|
Tennessee
(2)
|
|
|
6,778 |
|
|
|
6,084 |
|
Texas
|
|
|
438 |
|
|
|
146 |
|
Total
other real estate
|
|
|
22,872 |
|
|
|
8,348 |
|
Total
nonperforming assets
|
|
$ |
118,183 |
|
|
$ |
73,521 |
|
|
|
|
|
|
|
|
|
|
LOANS PAST DUE OVER 90
DAYS
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
3,056 |
|
|
$ |
4,853 |
|
Loans
HFS - guaranteed GNMA serviced loans
|
|
|
15,809 |
|
|
|
11,847 |
|
Total
loans past due over 90 days
|
|
$ |
18,865 |
|
|
$ |
16,700 |
|
(1)
- Mississippi includes Central and Southern Mississippi Regions
(2)
- Tennessee includes Memphis, Tennessee and Northern Mississippi
Regions
During
the second quarter of 2008, Trustmark conducted extensive reviews of the
construction and land development portfolio of its Florida Panhandle
market. In addition to obtaining current financial information on
borrowers and guarantors, updated property appraisals were obtained on a
substantial portion of this $321.9 million portfolio. Through the
review and appraisal process, $21.0 million in loans were charged-off based upon
current property values in the marketplace. As seen in the
accompanying table, approximately $96.6 million in construction and land
development loans have been classified and reserved for at appropriate levels,
including $42.4 million of impaired loans that have been written down to net
realizable value. At June 30, 2008, Management believes that this
portfolio is appropriately risk rated and adequately reserved based upon current
conditions. Trustmark’s Mississippi, Tennessee and Texas loan
portfolios continue to perform relatively well in the current economic
environment.
FLORIDA CREDIT
QUALITY
|
|
Total
Loans
|
|
|
Criticized
Loans
|
|
|
Classified
Loans
|
|
|
Nonaccrual
Loans
|
|
|
Impaired
Loans
|
|
Construction
and land development loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lots
|
|
$ |
84,936 |
|
|
$ |
15,711 |
|
|
$ |
11,071 |
|
|
$ |
7,455 |
|
|
$ |
1,628 |
|
Development
|
|
|
41,098 |
|
|
|
19,245 |
|
|
|
19,245 |
|
|
|
19,245 |
|
|
|
10,107 |
|
Unimproved
land
|
|
|
120,422 |
|
|
|
65,058 |
|
|
|
37,417 |
|
|
|
21,660 |
|
|
|
18,178 |
|
1-4
family construction
|
|
|
33,151 |
|
|
|
10,757 |
|
|
|
10,757 |
|
|
|
6,340 |
|
|
|
6,016 |
|
Other
construction
|
|
|
42,257 |
|
|
|
25,636 |
|
|
|
18,119 |
|
|
|
9,861 |
|
|
|
6,497 |
|
Construction
and land development loans
|
|
|
321,864 |
|
|
|
136,407 |
|
|
|
96,609 |
|
|
|
64,561 |
|
|
|
42,426 |
|
Commercial,
commercial real estate and consumer
|
|
|
323,811 |
|
|
|
34,695 |
|
|
|
16,660 |
|
|
|
5,923 |
|
|
|
289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Florida loans
|
|
$ |
645,675 |
|
|
$ |
171,102 |
|
|
$ |
113,269 |
|
|
$ |
70,484 |
|
|
$ |
42,715 |
|
FLORIDA CREDIT
QUALITY
|
|
Total
Loans Less Impaired Loans
|
|
|
Loan
Loss Reserves
|
|
|
Loan
Loss Reserve % of Non-Impaired Loans
|
|
Construction
and land development loans:
|
|
|
|
|
|
|
|
|
|
Lots
|
|
$ |
83,308 |
|
|
$ |
4,037 |
|
|
|
4.85 |
% |
Development
|
|
|
30,991 |
|
|
|
3,328 |
|
|
|
10.74 |
% |
Unimproved
land
|
|
|
102,244 |
|
|
|
5,065 |
|
|
|
4.95 |
% |
1-4
family construction
|
|
|
27,135 |
|
|
|
1,002 |
|
|
|
3.69 |
% |
Other
construction
|
|
|
35,760 |
|
|
|
2,326 |
|
|
|
6.50 |
% |
Construction
and land development loans
|
|
|
279,438 |
|
|
|
15,758 |
|
|
|
5.64 |
% |
Commercial,
commercial real estate and consumer
|
|
|
323,522 |
|
|
|
6,587 |
|
|
|
2.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Florida loans
|
|
$ |
602,960 |
|
|
$ |
22,345 |
|
|
|
3.71 |
% |
As seen
in the table below, Trustmark’s net charges-offs totaled $26.3 million during
the second quarter of 2008 and $38.5 million for the first half of the
year. These increases can be attributed to work performed by
Trustmark’s loan review teams as well as a continued lack of residential real
estate sales activity in Trustmark’s Florida Panhandle market. Management
continues to monitor the impact of declining real estate values on borrowers and
is proactively managing these situations.
|
|
Quarter
Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
NET
CHARGE-OFFS
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Florida
|
|
$ |
22,064 |
|
|
$ |
(19 |
) |
|
$ |
31,752 |
|
|
$ |
81 |
|
Mississippi
(1)
|
|
|
4,214 |
|
|
|
1,193 |
|
|
|
5,788 |
|
|
|
2,426 |
|
Tennessee
(2)
|
|
|
48 |
|
|
|
48 |
|
|
|
234 |
|
|
|
50 |
|
Texas
|
|
|
(72 |
) |
|
|
24 |
|
|
|
756 |
|
|
|
377 |
|
Total
net charge-offs
|
|
$ |
26,254 |
|
|
$ |
1,246 |
|
|
$ |
38,530 |
|
|
$ |
2,934 |
|
(1)
- Mississippi includes Central and Southern Mississippi Regions
(2)
- Tennessee includes Memphis, Tennessee and Northern Mississippi
Regions
Trustmark’s
loan policy dictates the guidelines to be followed in determining when a loan is
charged-off. Commercial purpose loans are charged-off when a
determination is made that the loan is uncollectible and continuance as a
bankable asset is not warranted. Consumer loans secured by residential real
estate are generally charged-off or written down when the credit becomes
severely delinquent, and the balance exceeds the fair value of the property less
costs to sell. Non-real estate consumer purpose loans, including both secured
and unsecured, are generally charged-off in full no later than when the loan
becomes 120 days past due. Credit card loans are generally
charged-off in full when the loan becomes 180 days past due.
Other
Earning Assets
Federal
funds sold and securities purchased under reverse repurchase agreements were
$23.9 million at June 30, 2008, an increase of $5.9 million when compared with
December 31, 2007. Trustmark utilizes these products as a short-term
investment alternative whenever it has excess liquidity.
DEPOSITS
AND OTHER INTEREST-BEARING LIABILITIES
Trustmark’s
deposit base is its primary source of funding and consists of core deposits from
the communities served by Trustmark. Total deposits were $7.124
billion at June 30, 2008, compared with $6.869 billion at December 31, 2007, an
increase of $254.4 million, or 3.7%. When compared with March 31,
2008, deposit balances during the second quarter decreased by $220.7
million. In both comparisons, noninterest-bearing deposits remained
relatively unchanged. Declines in interest-bearing deposits during
the second quarter were impacted by a roll-off of seasonal deposits received
during the first quarter as well as Trustmark’s decision to maintain a strategy
of disciplined deposit pricing in light of its strong liquidity
position.
Trustmark’s
commitment to increasing its presence in higher-growth markets is illustrated by
its strategic initiative to build additional banking centers within its
four-state banking franchise. This commitment will also benefit
Trustmark’s continued focus on increasing core deposit
relationships. Thus far in 2008, Trustmark has opened five new
banking centers and anticipates opening an additional banking center later this
year.
Trustmark
uses short-term borrowings to fund growth of earning assets in excess of deposit
growth. Short-term borrowings consist of federal funds purchased,
securities sold under repurchase agreements, short-term FHLB advances and the
treasury tax and loan note option account. Short-term borrowings
totaled $1.009 billion at June 30, 2008, an increase of $73.8 million when
compared with balances at December 31, 2007. The utilization of these
wholesale funding products increased during the second quarter as Trustmark
utilized a strategy of disciplined deposit pricing in order to control borrowing
costs. Other borrowings also included $70.1 million in junior
subordinated debentures and $49.7 million in subordinated notes outstanding at
June 30, 2008.
LEGAL
ENVIRONMENT
Trustmark
and its subsidiaries are parties to lawsuits and other claims that arise in the
ordinary course of business. Some of the lawsuits assert claims
related to lending, collection, servicing, investment, trust and other business
activities, and some of the lawsuits allege substantial claims for
damages. The cases are being vigorously contested. In the
regular course of business, Management evaluates estimated losses or costs
related to litigation, and provision is made for anticipated losses whenever
Management believes that such losses are probable and can be reasonably
estimated. In recent years, the legal environment in Mississippi has
been considered by many to be adverse to business interests, with regards to the
overall treatment of tort and contract litigation as well as the award of
punitive damages. However, tort reform legislation that became
effective during recent years may reduce the likelihood of unexpected, sizable
awards. At the present time, Management believes, based on the advice
of legal counsel and Management’s evaluation, that the final resolution of
pending legal proceedings will not have a material impact on Trustmark’s
consolidated financial position or results of operations; however, Management is
unable to estimate a range of potential loss on these matters because of the
nature of the legal environment in states where Trustmark conducts
business.
OFF-BALANCE
SHEET ARRANGEMENTS
Trustmark
makes commitments to extend credit and issues standby and commercial letters of
credit in the normal course of business in order to fulfill the financing needs
of its customers. These loan commitments and letters of credit are
off-balance sheet arrangements.
Commitments
to extend credit are agreements to lend money to customers pursuant to certain
specified conditions. Commitments generally have fixed expiration
dates or other termination clauses. Since many of these commitments
are expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Trustmark applies
the same credit policies and standards as it does in the lending process when
making these commitments. The collateral obtained is based upon the
assessed creditworthiness of the borrower. At June 30, 2008 and 2007,
Trustmark had commitments to extend credit of $1.6 billion and $2.0 billion,
respectively.
Standby
and commercial letters of credit are conditional commitments issued by Trustmark
to ensure the performance of a customer to a third party. When
issuing letters of credit, Trustmark uses essentially the same policies
regarding credit risk and collateral which are followed in the lending
process. At June 30, 2008 and 2007, Trustmark’s maximum exposure to
credit loss in the event of nonperformance by the other party for letters of
credit was $158.8 million and $168.3 million, respectively. These
amounts consist primarily of commitments with maturities of less than three
years. Trustmark holds collateral to support certain letters of credit when
deemed necessary.
ASSET/LIABILITY
MANAGEMENT
Overview
Market
risk reflects the potential risk of loss arising from adverse changes in
interest rates and market prices. Trustmark has risk management policies to
monitor and limit exposure to market risk. Trustmark’s primary market
risk is interest rate risk created by core banking
activities. Interest rate risk is the potential variability of the
income generated by Trustmark’s financial products or services, or the value of
same, which results from changes in various market interest
rates. Market rate changes may take the form of absolute shifts,
variances in the relationships between different rates and changes in the shape
or slope of the interest rate term structure.
Management
continually develops and applies cost-effective strategies to manage these
risks. The Asset/Liability Committee sets the day-to-day operating guidelines,
approves strategies affecting net interest income and coordinates activities
within policy limits established by the Board of Directors. A key
objective of the asset/liability management program is to quantify, monitor and
manage interest rate risk and to assist Management in maintaining stability in
the net interest margin under varying interest rate
environments.
Market/Interest
Rate Risk Management
The
primary purpose in managing interest rate risk is to invest capital effectively
and preserve the value created by the core banking business. This is
accomplished through the development and implementation of lending, funding,
pricing and hedging strategies designed to maximize net interest income
performance under varying interest rate environments subject to specific
liquidity and interest rate risk guidelines.
Financial
simulation models are the primary tools used by Trustmark’s Asset/Liability
Committee to measure interest rate exposure. Using a wide range of
sophisticated simulation techniques provides Management with extensive
information on the potential impact to net interest income caused by changes in
interest rates. Models are structured to simulate cash flows and
accrual characteristics of Trustmark’s balance sheet. Assumptions are
made about the direction and volatility of interest rates, the slope of the
yield curve and the changing composition of Trustmark’s balance sheet, resulting
from both strategic plans and customer behavior. In addition, the
model incorporates Management’s assumptions and expectations regarding such
factors as loan and deposit growth, pricing, prepayment speeds and spreads
between interest rates.
Based on
the results of the simulation models using static balances at June 30, 2008, it is estimated that net
interest income may decrease 1.8% in a one-year, shocked, up 200 basis point
rate shift scenario, compared to a base case, flat rate scenario for the same
time period. At March 31, 2008, the results of the simulation models using
static balances indicated that net interest income would increase 3.3% in the
same one-year, shocked, up 200 basis point shift scenario. In the
event of a 100 basis point decrease in interest rates using static balances at
June 30, 2008, it is estimated net interest income would remain flat; compared
with a decrease of 2.3% at March 31, 2008. A 200 basis point decline
in interest rates would yield an estimated decrease in net interest income of
2.3% using static balances at June 30, 2008, compared with a decrease of 6.3% at
March 31, 2008. The shift in interest rate risk position during the
second quarter is primarily the result of adding fixed rate investment portfolio
assets which have been funded with short-term liabilities. This has
created a shift from an asset sensitive balance sheet to one that is more
liability sensitive. In regards to the various results at June 30,
2008, while there has been a shift in the interest rate position, the changes in
net interest income in all three scenarios are considered minimal. These minor
changes in forecasted net interest income in the various second quarter rate
scenarios illustrate Management’s strategy to mitigate Trustmark’s exposure to
changes in interest rates by maintaining a neutral position in its interest rate
risk position. Management cannot provide any assurance about the
actual effect of changes in interest rates on net interest
income. The estimates provided do not include the effects of possible
strategic changes in the balances of various assets and liabilities throughout
2008 or additional actions Trustmark could undertake in response to changes in
interest rates. Management will continue to prudently manage the balance sheet
in an effort to control interest rate risk and maintain profitability over the
long term.
Another
component of interest rate risk management is measuring the economic
value-at-risk for a given change in market interest rates. The economic
value-at-risk may indicate risks associated with longer term balance sheet items
that are not fully reflected in the shorter time period evaluated in the net
interest income simulation. Trustmark also uses computer-modeling techniques to
determine the present value of all asset and liability cash flows (both on- and
off-balance sheet), adjusted for prepayment expectations, using a market
discount rate. The net change in the present value of the asset and liability
cash flows in the different market rate environments is the amount of economic
value at risk from those rate movements which is referred to as net portfolio
value. As of June 30, 2008, the economic value of equity at risk for an
instantaneous up 200 basis point shift in rates produced a decline in net
portfolio value of 5.9%, while an instantaneous 200 basis point decrease in
interest rates produced a decrease in net portfolio value of 0.8%. In
comparison, the models indicated a net portfolio value decrease of 0.2% as of
March 31, 2008, had interest rates moved up instantaneously 200 basis points,
and a decrease of 2.4%, had an instantaneous 200 basis points decrease in
interest rates occurred.
Derivatives
Trustmark
uses financial derivatives for management of interest rate risk. The
Asset/Liability Committee, in its oversight role for the management of interest
rate risk, approves the use of derivatives in balance sheet hedging
strategies. The most common derivatives employed by Trustmark are
interest rate lock commitments, forward contracts and both futures contracts and
options on futures contracts.
As part
of Trustmark’s risk management strategy in the mortgage banking area, various
derivative instruments such as interest rate lock commitments and forward sales
contracts are utilized. Rate lock commitments are residential mortgage loan
commitments with customers, which guarantee a specified interest rate for a
specified period of time. Trustmark’s obligations under forward
contracts consist of commitments to deliver mortgage loans, originated and/or
purchased, in the secondary market at a future date. These derivative
instruments are designated as fair value hedges for certain of these
transactions that qualify as fair value hedges under SFAS No.
133. Trustmark’s off-balance sheet obligations under these derivative
instruments totaled $298.4 million at June 30, 2008, with a positive valuation
adjustment of $1.1 million, compared to $211.3 million at December 31, 2007,
with a negative valuation adjustment of $686 thousand.
Trustmark
utilizes derivative instruments, specifically Treasury note futures contracts
and exchange-traded option contracts, to offset changes in the fair value of MSR
attributable to changes in interest rates. These transactions are
considered freestanding derivatives that do not otherwise qualify for hedge
accounting. Changes in the fair value of these derivative instruments
are recorded in noninterest income in mortgage banking, net and are offset by
the changes in the fair value of MSR. MSR fair values represent the
effect of present value decay and the effect of changes in market
rates. Ineffectiveness of hedging MSR fair value is measured by
comparing total hedge cost to the fair value of the MSR attributable to market
changes. This hedge is discussed further in the mortgage banking
section of the noninterest income discussion earlier in this
document.
RECENT
PRONOUNCEMENTS
Accounting
Standards Adopted in 2008
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS No. 159 allows
entities the option to measure eligible financial instruments at fair value as
of specified dates. Such election, which may be applied on an
instrument-by-instrument basis, is typically irrevocable once elected. SFAS No.
159 is effective for fiscal years beginning after November 15, 2007, and early
application is allowed under certain circumstances. Management elected not to
apply the fair value option to any of its assets or liabilities at January 1,
2008.
In June
2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue No.
06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards.” EITF 06-11 states that an entity should recognize a realized
tax benefit associated with dividends on nonvested equity shares, nonvested
equity share units and outstanding equity share options charged to retained
earnings as an increase in additional paid in capital. EITF 06-11
should be applied prospectively to income tax benefits of dividends on
equity-classified share-based payment awards that are declared in fiscal years
beginning after December 15, 2007. The adoption of EITF 06-11 did not
have a material impact on Trustmark’s balance sheets or results of
operations.
In
November 2007, the SEC issued SAB No. 109 (SAB 109), “Written Loan
Commitments Recorded at Fair Value Through Earnings.” SAB 109 rescinds SAB
105’s prohibition on inclusion of expected net future cash flows related to loan
servicing activities in the fair value measurement of a written loan commitment.
SAB 109 also applies to any loan commitments for which fair value accounting is
elected under SFAS No. 159. SAB 109 is effective prospectively for derivative
loan commitments issued or modified in fiscal quarters beginning after
December 15, 2007. The adoption of SAB 109 did not have a
material impact on Trustmark’s balance sheets or results of
operations.
New
Accounting Standards
Other new
pronouncements issued but not effective until after June 30, 2008, include the
following:
On June
16, 2008, the FASB posted FASB Staff Position (FSP) No. EITF 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” FSP No. EITF 03-6-1 stipulates that
unvested share-based payment awards that contain nonforfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating
securities and shall be included in the computation of EPS pursuant to the
two-class method. This FSP is effective for financial statements
issued for fiscal years beginning after December 15, 2008. Management
is currently evaluating the impact that FSP No. EITF 03-6-1 will have on
Trustmark’s consolidated financial statements.
In May 2008, the FASB
issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles.” SFAS No. 162
identifies the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States (the GAAP
hierarchy). The hierarchical guidance provided by SFAS No. 162 did
not have a significant impact on Trustmark’s consolidated financial
statements.
On April
25, 2008, the FASB posted FSP 142-3, “Determination of the Useful Life of
Intangible Assets.” This FSP amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, “Goodwill and Other Intangible Assets.” The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible asset
under Statement 142 and the period of expected cash flows used to measure the
fair value of the asset under FASB Statement No. 141R, “Business Combinations.”
This FSP is effective for financial statements issued for fiscal years beginning
after December 15, 2008. Management is currently
evaluating the impact that FSP 142-3 will have on Trustmark’s
balance sheets and results of operations.
In March
2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No. 133” (SFAS No. 161).
SFAS No. 161 expands quarterly disclosure requirements in SFAS No. 133 about an
entity’s derivative instruments and hedging activities. SFAS No. 161 is
effective for fiscal years beginning after November 15,
2008. Management is currently evaluating the impact that SFAS No. 161
will have on Trustmark’s consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 141(revised), “Business
Combinations.” SFAS No. 141R expands the definition of transactions and
events that qualify as business combinations; requires that the acquired assets
and liabilities, including contingencies, be recorded at fair value determined
on the acquisition date; changes the recognition timing for restructuring costs;
and requires the expensing of acquisition costs as incurred. SFAS No. 141R is
required to be applied to business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008, with earlier adoption being prohibited.
Also in
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an Amendment of ARB No. 51.” SFAS
No. 160 states that accounting and reporting for minority interests will be
recharacterized as noncontrolling interests and classified as a component of
equity. The statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners. This statement is effective prospectively for fiscal years
beginning after December 15, 2008. Management is currently evaluating the impact
of SFAS No. 160 on its balance sheets and results of
operations.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The
information required by this item is included in the discussion of
Market/Interest Rate Risk Management found in Management’s Discussion and
Analysis.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As of the
end of the period covered by this Quarterly Report on Form 10-Q, an
evaluation was carried out by Trustmark’s Management, with the participation of
its Chief Executive Officer and Treasurer and Principal Financial Officer
(Principal Financial Officer), of the effectiveness of Trustmark’s disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934). Based on that evaluation,
the Chief Executive Officer and the Principal Financial Officer concluded that
Trustmark’s disclosure controls and procedures were effective as of the end of
the period covered by this report.
Changes
in Internal Control over Financial Reporting
There has
been no change in Trustmark’s internal control over financial reporting during
the last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, Trustmark’s internal control over financial
reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
There
were no material developments for the quarter ended June 30, 2008, other than
those disclosed in the Notes to Consolidated Financial Statements and
Management’s Discussion and Analysis of this Form 10-Q.
ITEM
1A. RISK FACTORS
There has
been no material change in the risk factors previously disclosed in Trustmark’s
Annual Report on Form 10-K for its fiscal year ended December 31,
2007.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The
following table shows information relating to the repurchase of common shares by
Trustmark Corporation during the three months ended June 30, 2008:
Period
|
|
Total
Number
of
Shares
Purchased
|
|
|
Average
Price
Paid
Per
Share
|
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
|
|
Maximum
Number of Shares that May Yet be Purchased Under the Plans or
Programs
|
|
April
1, 2008 through April 30, 2008
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
1,370,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
1, 2008 through May 31, 2008
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
1,370,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
1, 2008 through June 30, 2008
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
1,370,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
The
repurchase program is subject to Management’s discretion and will continue to be
implemented through open market purchases or privately negotiated
transactions.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The
annual meeting of Trustmark’s shareholders was held on May 13,
2008. At this meeting, the following individuals were elected to
serve as Directors of Trustmark until the annual meeting of shareholders in 2009
or until their respective successors are elected and qualified. The
vote was cast as follows:
|
|
Votes
Cast in Favor
|
|
|
Against/Withheld
|
|
|
|
Number
|
|
|
%
|
|
|
Number
|
|
|
%
|
|
Reuben
V. Anderson
|
|
|
47,876,546 |
|
|
|
98.20 |
% |
|
|
882,393 |
|
|
|
1.80 |
% |
Adolphus
B. Baker
|
|
|
47,933,207 |
|
|
|
98.31 |
% |
|
|
825,732 |
|
|
|
1.69 |
% |
William
C. Deviney, Jr.
|
|
|
47,897,135 |
|
|
|
98.24 |
% |
|
|
861,804 |
|
|
|
1.76 |
% |
C.
Gerald Garnett
|
|
|
47,746,885 |
|
|
|
97.93 |
% |
|
|
1,012,054 |
|
|
|
2.07 |
% |
Daniel
A. Grafton
|
|
|
47,905,827 |
|
|
|
98.26 |
% |
|
|
853,112 |
|
|
|
1.74 |
% |
Richard
G. Hickson
|
|
|
47,886,824 |
|
|
|
98.22 |
% |
|
|
872,115 |
|
|
|
1.78 |
% |
David
H. Hoster
|
|
|
47,925,052 |
|
|
|
98.29 |
% |
|
|
833,887 |
|
|
|
1.71 |
% |
John
M. McCullouch
|
|
|
47,927,427 |
|
|
|
98.30 |
% |
|
|
831,512 |
|
|
|
1.70 |
% |
Richard
H. Puckett
|
|
|
47,924,535 |
|
|
|
98.29 |
% |
|
|
834,404 |
|
|
|
1.71 |
% |
R.
Michael Summerford
|
|
|
47,905,902 |
|
|
|
98.26 |
% |
|
|
853,037 |
|
|
|
1.74 |
% |
Kenneth
W. Williams
|
|
|
47,933,032 |
|
|
|
98.31 |
% |
|
|
825,907 |
|
|
|
1.69 |
% |
William
G. Yates, Jr.
|
|
|
47,905,940 |
|
|
|
98.26 |
% |
|
|
852,999 |
|
|
|
1.74 |
% |
In
addition, shareholders also voted to ratify the selection of KPMG LLP as
Trustmark’s independent accountants for the fiscal year ending December 31,
2008. The vote was cast as follows:
Total
Votes For
|
48,565,579
|
Total
Votes Against
|
124,788
|
Total
Abstentions
|
68,570
|
ITEM
6. EXHIBITS
The
exhibits listed in the Exhibit Index are filed herewith or are incorporated
herein by reference.
EXHIBIT
INDEX
|
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
Certification
of the Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
Certification
of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
All
other exhibits are omitted, as they are inapplicable or not required by
the related instructions. |
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/ Richard G.
Hickson
|
BY:
|
/s/ Louis E.
Greer
|
|
Richard
G. Hickson
|
|
Louis
E. Greer
|
|
Chairman
of the Board, President
|
|
Treasurer
and Principal
|
|
&
Chief Executive Officer
|
|
Financial
Officer
|
|
|
|
|
DATE:
|
August
8, 2008
|
DATE:
|
August
8, 2008
|