Trustmark feels pain of $10 million in bad debt after Tri-State Brick’s demise

Court documents describe the collapse of longtime Jackson company Tri-State Brick & Tile as a “Mississippi success story gone awry.”

And a story in which a bank is left holding the bag — in this instance a very hefty bag.

Trustmark National Bank’s foreclosure on Tri-State Brick & Tile came to a close with the bank taking ownership of the formerly family-owned business at a Hinds County Courthouse auction on July 10. The company, which specialized in making brick for commercial construction, owed the Jackson-based Trustmark around $10 million when the foreclosure occurred.

Trustmark has declined requests to talk about the loans it made to Tri-State over more than half a decade, a period in which court documents claim the company’s board covered the costs of a yacht, its maintenance and captain, a horse farm, high personal credit card balances and personal loans for Jerry Robinson, who took over as CEO of the company after the April 2006 death of husband Robert D. Robinson.

The claims of lavish personal spending of company money are part of a lawsuit the children of Robert D. Robinson’s sister, Martha Robinson Henne, filed in a bid to gain control of the company from Jerry Robinson. Company founder Robert H. Robinson had left the company’s common shares and its control to son Robert and bequeathed Tri-State’s preferred shares to daughter Martha, who died in 1999 and passed the shares onto her children.

Martha’s daughter, Hilda Henne Abbott, is still unsure how she and her siblings lost their preferred shares in the Trustmark foreclosure. “We never gave permission that the preferred shares be put up for collateral,” Abbott said in a written reply to questions about the foreclosure.

“There is a document that I have that shows that my uncle claimed he owned all stock of the company and no outstanding stock was out there, as if we did not exist.

“There are so many unanswered questions here,” she said.

 

Loans came steady

 

If the personal spending of company revenue by Robert D. Robinson and later Jerry Robinson generated alarm within the bank’s lending department, the alarm failed to force changes to a line of credit reported to be as high as $12.5 million.

Any of the expenditures should have raised questions of whether a “diversion of collateral” was occurring, said Pete Weisenberger, a financial services analyst and principal of TP Weisenberger & Co in metro Jackson. “These lines of credit take a lot of work…. A good loan officer has to be at it day to day.”

It would have been “very appropriate” to ask for an audit trail, Weisenberger added.

But often loan officers won’t do this, he said, because “there is a level of trust. Lenders don’t want to offend someone.”

Financial reports provided Tri-State Brick & Tile’s board show the company owed Trustmark $4 million in 2004 and $5.8 million in 2005. The debt jumped to $10.1 million in 2006 with Tri-State’s purchase of an automated kiln.

Not long after, Tri-State began limiting its payments to interest on the principal, according to the financial statements.

But, in the meantime, the line of credit grew from $2.5 million in 2007 to $3.5 million in 2008, the statements show. Long-term debt at the end of 2008 stood at $9.4 million and at $9.8 million at the end of 2009.

Also in 2009, Tri-State borrowed an additional $150,000 on the credit line, according to the statements. The $9.8 million of long-term debt remained in place through 2011, the last year for which financial statements are available.

Sonny MacArthur, an audit partner with Atlanta’s Porter Keadle Moore, said the yacht, horse farm and other expenditures would have been red flags to him had he been the banker tracking the relationship between Tri-State’s governing board and its CEO. “There should be a monitoring mechanism within the bank,” especially to determine where draws from the line of credit are going, he said.

Yet a banker would hardly be surprised to discover company money going to cover personal expenses in a family-run business, MacArthur noted.

“Family businesses are strange birds,” he said. “Often, there is a fine line in terms of disbursement of funds. It is not uncommon to see the blurring of those lines and disbursements being made for personal reasons or family reasons coming out of the coffers.”

But if a company is headed off a cliff, as Tri-State seemed to be toward the end of the decade, a banker should know where each dollar is going, MacArthur said.

“What you don’t want to happen is that the financial performance of the company gets too far south” and “it’s too late to do anything about it.”

Brandon Roberts, principal of Canton banking research and consulting firm Premier Insights, speculates that the $10 million in loans to Tri-State got a lot of scrutiny within Trustmark, a $9.9 billion, publicly owned regional bank. “Typically, a loan of that size would require executive level approval — if not board approval,” Roberts said.

The loan’s default will inflict pain on Trustmark’s bottom line, he said. “If you have to write that asset down, that comes out of income. So you can imagine on a $10 million credit, even a 10 percent write down is going to hurt.”

>>Read more about Tri-State collapse

 

>Family fights for control of Tri-State Brick & Tile

>Everyone thought things were running smoothly for Tri-State

>Assessing Tri-State’s future (or lack of one)

[RSS Feed] [del.icio.us]



To sign up for Mississippi Business Daily Updates, click here.

POST A COMMENT

 

Twang & Tourism: The Country Music Trail

Our annual "Come See Us" magazine offers ideas for spots in Mississippi ranging from golf to culture to history to food. Click the photo for ideas, stories and access to the digital edition of this year's magazine.

FOLLOW THE MBJ ON TWITTER

Top Posts & Pages

%d bloggers like this: