Reuters: Mergers News: TEXT-S&P revises Trustmark Corp outlook to negative

Reuters: Mergers News Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

TEXT-S&P revises Trustmark Corp outlook to negative Jun 1st 2012, 18:25 Fri Jun 1, 2012 2:25pm EDT Overview -- Trustmark Corp. has agreed to acquire BancTrust Financial Group in an all-stock transaction valued at approximately $55.4 million. Trustmark also intends to repurchase the $50 million of preferred stock and associated warrant BancTrust had issued to the U.S. Treasury once the transaction has closed. -- The transaction will materially lower Trustmark's capital ratios and could create integration and operational risks. -- As a result, we revised our rating outlook on Trustmark and its principal banking subsidiary, Trustmark National Bank, to negative from stable. At the same time, we affirmed our 'BBB+' and 'A-' long-term issuer credit ratings on Trustmark and Trustmark National, respectively. -- The negative outlook reflects the heightened probability that we could lower our forecast below the 10% minimum required for a "strong" capital and earnings assessment or lower our risk position score to below the "adequate" level. Rating Action On June 1, 2012, Standard & Poor's Rating Services revised its rating outlook on Trustmark Corp. (Trustmark) and its principal banking subsidiary, Trustmark National Bank, to negative from stable. At the same time, Standard & Poor's affirmed its 'BBB+' and 'A-' long-term issuer credit ratings on Trustmark and Trustmark National, respectively. Rationale The outlook revision mostly reflects our view of the BancTrust acquisition's negative effect on Trustmark's capital. Trustmark estimates that its Tier 1 risk-based capital ratio will be 12.2% when the BancTrust acquisition closes in fourth-quarter 2012, down roughly 270 basis points from 14.9% as March 31, 2012. We expect a similar decrease in our risk-adjusted capital (RAC) ratio of 12.1% (as of year-end 2011), which we view as "strong" (as our criteria define the term). We believe that the bank will be able to generate enough capital through earnings to raise its RAC ratio to more than 10% as of year-end 2013. However, the acquisition has weakened the bank's capital cushion, and we believe there is a significantly higher probability that we could lower our capital and earnings assessment in the future because of higher-than-expected losses or additional acquisitions. Trustmark's management has reiterated its intention to continue evaluating additional acquisition opportunities as they arise. We view the acquisition as a mild positive to Trustmark's business position, but it does not change our "adequate" assessment. BancTrust will provide Trustmark an entry into the Alabama market, and the acquisition builds on Trustmark's existing franchise in the Florida Panhandle. BancTrust has $1.7 billion in deposits, with decent share in a handful of markets. We believe that Trustmark will be able to increase and optimize BancTrust's $1.7 billion high-cost deposit base (including roughly 50% of time deposits) and lower the deposit costs, which are currently 60% higher than Trustmark's. BancTrust's marked loan portfolio totaled $1.3 billion as of March 31, 2012, and represented a mix of commercial real estate, commercial and industrial, one- to four- family residential, and construction, land, and development. Trustmark projects that BancTrust will contribute $20 million of net income in 2013 (Trustmark generated $107 million of net income in 2011), assuming cost savings of 25% of core noninterest expense. We don't believe the acquisition will materially weaken Trustmark's "adequate" risk position. However, we recognize the integration risk associated with a large acquisition. Furthermore, BancTrust has had asset quality issues during the past few years, illustrated most recently by the $50 million loss incurred in fourth-quarter 2011. However, we believe that the write-downs on BancTrust loan portfolio are conservative, at roughly 17% of total loans and other real estate owned. In addition, Trustmark has conducted a comprehensive review of an extensive selection of loans, including 97% of nonaccruals. The bank also has experience working out BancTrust's most troubling loan exposure: construction loans in the Florida Panhandle. Outlook The negative outlook reflects the heightened probability that, as a result of adverse economic conditions or additional acquisitions, we could lower our RAC forecast on Trustmark below the 10% minimum required for a "strong" capital and earnings assessment or lower the bank's risk position score to below the "adequate" level. If that were to occur, we could lower the ratings. However, if Trustmark builds its RAC to well more than 10%, and its credit quality were to improve (with nonperforming assets falling to about 1.0%) in a sustainable way, we could raise our risk assessment to "strong" and thereby raise the ratings. Ratings Score Snapshot Issuer Credit Rating A-/Negative/A-2 Bank Holding Company Rating BBB+/Negative/A-2 SACP a- Anchor bbb+ Business Position Adequate (0) Capital and Earnings Strong (+1) Risk Position Adequate (0) Funding and Liquidity Average and Adequate (0) Support 0 GRE Support 0 Group 0 Sovereign Support 0 Additional Factors 0 Related Criteria And Research -- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 -- Banks: Rating Methodology And Assumption, Nov. 9, 2011 -- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011 Ratings List Ratings Affirmed; CreditWatch/Outlook Action To From Trustmark Corp. Counterparty Credit Rating BBB+/Negative/A-2 BBB+/Stable/A-2 Trustmark National Bank Counterparty Credit Rating A-/Negative/A-2 A-/Stable/A-2 Ratings Affirmed Trustmark National Bank Subordinated BBB+ Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions