<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 2-29897
TRUSTMARK CORPORATION
(Exact name of Registrant as specified in its charter)
MISSISSIPPI 64-0471500
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
248 EAST CAPITOL STREET, JACKSON, MISSISSIPPI 39201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 354-5111
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE NASDAQ STOCK MARKET
(Title of Class) (Name of Exchange on Which Registered)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES (X) NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
Based on the closing sales price of March 1, 1996, the aggregate market value of
the voting stock held by nonaffiliates of the Registrant was $517,802,469.
As of March 1, 1996, there were issued and outstanding 34,910,683 shares of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference to parts I, II
and III of the Form 10-K report: (1) Registrant's 1995 Annual Report to
Shareholders (Parts I and II), and (2) Proxy Statement for Registrant's Annual
Meeting of Shareholders dated February 16, 1996 (Part III).
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TRUSTMARK CORPORATION
FORM 10-K
INDEX
PART I
Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 15
PART III
Item 10. Directors and Executive Officers of the
Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial
Owners and Management 16
Item 13. Certain Relationships and Related Transactions 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 16
SIGNATURES 18-21
EXHIBIT INDEX 22
2
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TRUSTMARK CORPORATION
1995 FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
Trustmark Corporation (Corporation) is a one-bank holding company which was
incorporated under the Mississippi Business Corporation Act on August 5, 1968
and commenced doing business in November 1968. The Corporation's primary
business activities are conducted through its wholly-owned subsidiary, Trustmark
National Bank (Trustmark) and Trustmark's wholly-owned subsidiary, Trustmark
Financial Services, Inc. (TFSI). Trustmark accounts for substantially all of the
assets and revenues of the Corporation. Trustmark, which was chartered by the
State of Mississippi in 1889, is headquartered in Jackson and is the largest
bank in the state. The Corporation also owns all of the stock of F. S.
Corporation and First Building Corporation, both nonbank Mississippi
corporations. F. S. Corporation and First Building Corporation are primarily
dormant and are not considered significant subsidiaries.
Trustmark Corporation's primary means of asset growth has been through
mergers and acquisitions of financial institutions. The most recent acquisition
involved the merger of First National Financial Corporation and its wholly-owned
subsidiary, First National Bank of Vicksburg with the Corporation. The business
combination was consummated on October 7, 1994 utilizing the pooling of
interests method of accounting. The Corporation, through its bank subsidiary,
Trustmark, offers a variety of deposit, investment and credit products to its
customers through a branch network with facilities in 162 locations. Trustmark
is well established as a provider of depository, credit and cash management
services to middle-market and larger businesses. These services range from
payroll checking, business checking accounts, corporate savings, secured and
unsecured lines of credit and loans to direct deposit payroll, sweep accounts
and letters of credit. Trustmark also offers MasterCard, VISA and VISA Gold
credit card services to consumers and merchants throughout Mississippi. In
addition, Trustmark has successfully introduced the Trustmark Express Check
debit card, which allows customers to access their checking or savings account
through any merchant that accepts MasterCard and at any Trustmark Express,
Gulfnet or Cirrus automated teller machine (ATM). Trustmark's Trust Services
business unit provides services in three areas: custody, investment management
and ancillary services such as a third party fiscal agent. Trustmark's
Investment Services unit provides both institutional and retail customers with
quality investment opportunities through its Dealer Bank Department and TFSI.
Full service brokerage was added as a service in 1994, and plans are being made
for expansion of offices in Trustmark branch locations. As of January 31, 1996,
the Corporation and its bank subsidiary employed 2,211 full-time equivalent
employees.
COMPETITION
The Corporation's bank subsidiary, Trustmark, competes with national and
state banks in its service areas for all types of depository, credit, investment
and trust services. In addition, Trustmark competes in its respective service
areas with other financial institutions including savings and loan associations,
personal loan companies, consumer finance companies, mortgage companies,
insurance companies, brokerage firms,
3
<PAGE> 4
investment companies, credit unions and financial service operations of major
retailers. Trustmark competes with these financial institutions in the areas of
interest rates, the availability and quality of services and products, and the
pricing of these services and products.
SUPERVISION AND REGULATION
The Corporation is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended. As such, the Corporation is required to file an
annual report and such additional information as the Board of Governors of the
Federal Reserve System may require. The Act requires every bank holding company
to obtain the prior approval of the Board of Governors before it may acquire
substantially all of the assets of any bank, or ownership or control of any
voting shares of any bank, if, after the acquisition, it would own or control,
directly or indirectly, more than five percent of the voting shares of the bank.
In addition, a bank holding company is generally prohibited from engaging in or
acquiring direct or indirect control of voting shares of any company engaged in
nonbanking activities. One of the principal exceptions to this prohibition is
for activities found by the Board of Governors, by order or regulation, to be
closely related to banking or managing or controlling banks "as to be a proper
incident thereto." The Board has by regulation determined that a number of
activities are closely related to banking within the meaning of the Act. In
addition, the Corporation is subject to regulation by the State of Mississippi
under its laws of incorporation.
The Corporation's bank subsidiary, Trustmark, is subject to various
requirements and restrictions by federal and state banking authorities including
the Office of the Comptroller of the Currency (OCC) and the Mississippi
Department of Banking. Areas subject to regulation include loans, reserves,
investments, issuance of securities, establishment of branches, loans to
directors, executive officers and their related interests, relationships with
correspondent banks, consumer protection and other aspects of operations. In
addition, national banks are subject to legal limitations on the amount of
earnings they may pay as dividends.
Trustmark also is insured by, and therefore subject to the regulations of
the Federal Deposit Insurance Corporation (FDIC). Consequently, Trustmark is
subject to FDIC insurance assessments. Trustmark qualifies for the lowest
assessment rate for deposits insured by the Bank Insurance Fund (BIF). In
November 1995, the FDIC reduced this assessment rate from $.04 per $100 of
deposits to zero, effective in 1996. Banks must still pay the mandatory minimum
$2,000 fee to belong to the insurance fund. In addition, Trustmark has
approximately $366 million of deposits insured by the Savings Association
Insurance Fund (SAIF) as the result of assisted purchases made through
transactions defined as "Oakar" by the FDIC. At the present time, this
assessment rate remains at $.23 per $100 of SAIF deposits.
In December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA) was enacted. FDICIA substantially revised the depository
institution regulatory and funding provisions of the Federal Deposit Insurance
Act and made revisions to several other federal banking statutes. Among other
things, FDICIA requires banking regulators to take prompt corrective action
whenever financial institutions do not meet minimum capital requirements. In
addition, FDICIA has created restrictions on capital distributions that would
leave a depository institution undercapitalized.
In May of 1993, the FDIC adopted the final rule implementing Section 112
of FDICIA. This regulation includes requirements, procedures and interpretive
guidelines that mandate new audit and reporting requirements for financial
institutions. As a result of these new requirements, certain formal
attestations, assertions and documentation must be imposed on existing control
structures. This regulation became effective for fiscal years ending after
December 31, 1992.
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<PAGE> 5
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Trustmark Corporation (the Registrant) and its
bank subsidiary, Trustmark National Bank, including their ages, their positions
and their principal occupations for the last five years are as follows:
Frank R. Day, 64, Director, Chairman of the Board, President and Chief
Executive Officer, Trustmark Corporation; Chairman of the Board and
Chief Executive Officer, Trustmark National Bank since January 1988.
Harry M. Walker, 45, Secretary, Trustmark Corporation since January
1995; President and Chief Operating Officer, Trustmark National Bank
since March 1992.
Gerard R. Host, 41, Treasurer, Trustmark Corporation since October
1995; Executive Vice President and Chief Financial Officer, Trustmark
National Bank since October 1995.
Charles Bailey, 64, Executive Vice President and Bank Operations
Manager, Trustmark National Bank from October 1984 until retirement
effective December 31, 1995.
George R. Day, 60, Executive Vice President and Chief Credit Officer,
Trustmark National Bank since January 1992.
Richard E. Horne, 48, Executive Vice President and Chief Lending
Officer, Trustmark National Bank since September 1992. Senior Vice
President in Lending and Branch Administration, C & S National Bank,
Fort Lauderdale, Florida from August 1988 to August 1992.
Thomas W. Mullen, 53, Executive Vice President for Strategic Planning,
Trustmark National Bank since November 1991.
William O. Rainey, 56, Executive Vice President and Chief Banking
Officer, Trustmark National Bank since November 1991.
All executive officers, with the exception of Richard E. Horne, have held
executive or senior management positions with the Corporation or Trustmark for
more than five years.
STATISTICAL DISCLOSURES
The consolidated statistical disclosures for Trustmark Corporation and
subsidiaries are contained in Tables 1 through 12.
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TRUSTMARK CORPORATION
STATISTICAL DISCLOSURES
TABLE 1 - COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES
The Average Assets and Liabilities table below shows the average balances for
all assets and liabilities of the Corporation at year end and the interest
income or expense associated with those assets and liabilities. The yields or
rates have been computed based upon the interest income or expense for each of
the last three years ended (tax equivalent basis - $ in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------
1995 1994
---------------------------------- ---------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- --------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Federal funds sold and securities purchased
under reverse repurchase agreements $113,594 $6,815 6.00% $156,650 $6,188 3.95%
Trading securities 500 68 13.60% 964 68 7.05%
Securities available for sale:
Taxable 455,176 28,872 6.34% 628,073 40,599 6.46%
Nontaxable
Securities held to maturity:
Taxable 1,291,136 81,052 6.28% 1,215,805 71,797 5.91%
Nontaxable 99,933 9,060 9.07% 110,382 10,331 9.36%
Loans, net of unearned income 2,481,030 227,322 9.16% 2,246,350 191,739 8.54%
----------- --------- ----------- ---------
Total interest-earning assets 4,441,369 353,189 7.95% 4,358,224 320,722 7.36%
Cash and due from banks 275,235 267,107
Other assets 223,468 224,336
Allowance for loan losses (62,547) (64,958)
----------- -----------
TOTAL ASSETS $4,877,525 $4,784,709
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits $1,080,817 31,712 2.93% $1,139,553 28,216 2.48%
Savings deposits 235,223 6,109 2.60% 253,968 6,012 2.37%
Time deposits 1,448,962 74,553 5.15% 1,349,727 56,926 4.22%
Federal funds purchased and securities sold
under repurchase agreements 898,439 49,171 5.47% 873,480 33,136 3.79%
----------- --------- ----------- ---------
Total interest-bearing liabilities 3,663,441 161,545 4.41% 3,616,728 124,290 3.44%
--------- ---------
Noninterest-bearing demand deposits 701,357 695,289
Accrued expenses and other liabilities 60,891 62,876
Stockholders' equity 451,836 409,816
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,877,525 $4,784,709
=========== ===========
NET INTEREST MARGIN 191,644 4.31% 196,432 4.51%
Less tax equivalent adjustments:
Investments 3,171 3,634
Loans 1,677 1,639
--------- ---------
NET INTEREST MARGIN PER ANNUAL REPORT $186,796 $191,159
========= =========
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1993
--------------------------------------------
Average Yield/
Balance Interest Rate
-------- -------- -------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Federal funds sold and securities purchased
under reverse repurchase agreements $162,375 $5,079 3.13%
Trading securities 1,445 111 7.68%
Securities available for sale:
Taxable 165,246 7,180 4.35%
Nontaxable 11,113 734 6.60%
Securities held to maturity:
Taxable 1,626,459 112,920 6.94%
Nontaxable 110,034 11,320 10.29%
Loans, net of unearned income 2,108,314 178,872 8.48%
----------- ----------
Total interest-earning assets 4,184,986 316,216 7.56%
Cash and due from banks 251,115
Other assets 202,789
Allowance for loan losses (58,221)
-----------
TOTAL ASSETS $4,580,669
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits $1,151,466 28,244 2.45%
Savings deposits 234,848 5,807 2.47%
Time deposits 1,393,569 60,657 4.35%
Federal funds purchased and securities sold
under repurchase agreements 762,909 22,062 2.89%
----------- ----------
Total interest-bearing liabilities 3,542,792 116,770 3.30%
----------
Noninterest-bearing demand deposits 622,783
Accrued expenses and other liabilities 59,911
Stockholders' equity 355,183
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,580,669
===========
NET INTEREST MARGIN 199,446 4.77%
Less tax equivalent adjustments:
Investments 4,217
Loans 1,392
-----------
NET INTEREST MARGIN PER ANNUAL REPORT $193,837
===========
</TABLE>
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 associated
with the average loan balances are immaterial. Interest income and average
yield on tax-exempt assets have been calculated on a fully tax equivalent basis
using a tax rate of 35% for each of the three years presented. Certain
reclassifications have been made to the 1994 and 1993 statements to conform to
the 1995 method of presentation.
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TRUSTMARK CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 2 - VOLUME AND YIELD/RATE VARIANCE ANALYSIS
The Volume and Yield/Rate Variance table below shows the change from
year to year for each component of the tax equivalent net interest margin
separated into the amount generated by volume changes and the amount generated
by changes in the yield or rate (tax equivalent basis - $ in thousands):
<TABLE>
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
Increase (Decrease) Due To: Increase (Decrease) Due To:
--------------------------- ---------------------------
Yield/ Yield/
Volume Rate Net Volume Rate Net
------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Federal funds sold and securities purchased
under reverse repurchase agreements ($2,007) $2,634 $627 ($184) $1,293 $1,109
Trading securities (43) 43 0 (35) (8) (43)
Securities available for sale:
Taxable (10,985) (742) (11,727) 28,485 4,934 33,419
Nontaxable 0 0 0 (734) 0 (734)
Securities held to maturity:
Taxable 4,604 4,651 9,255 (25,899) (15,224) (41,123)
Nontaxable (958) (313) (1,271) 36 (1,025) (989)
Loans, net of unearned income 20,994 14,589 35,583 11,612 1,255 12,867
-------- -------- -------- -------- -------- --------
Total interest-earning assets 11,605 20,862 32,467 13,281 (8,775) 4,506
Interest paid on:
Interest-bearing demand deposits (1,496) 4,992 3,496 (329) 301 (28)
Savings deposits (463) 560 97 451 (246) 205
Time deposits 4,410 13,217 17,627 (1,913) (1,818) (3,731)
Federal funds purchased and securities sold
under repurchase agreements 971 15,064 16,035 3,517 7,557 11,074
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 3,422 33,833 37,255 1,726 5,794 7,520
-------- -------- -------- -------- -------- --------
Change in net interest income on a
tax equivalent basis $8,183 ($12,971) ($4,788) $11,555 ($14,569) ($3,014)
======== ======== ======== ======== ======== ========
</TABLE>
The change in interest due to both volume and yield/rate has been
allocated to change due to volume and change due to yield/rate in proportion to
the absolute value of the change in each. Tax-exempt income has been adjusted
to a tax equivalent basis using a tax rate of 35% for 1995, 1994 and 1993. The
balances of nonaccrual loans and related income recognized have been included
for purposes of these computations.
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TRUSTMARK CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 3 - SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY
The table below indicates amortized costs of securities available for sale and
held to maturity by type at year end for each of the last three years ($ in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U. S. Treasury and U. S. Government agencies $413,385 $376,302 $97,484
Obligations of states and political subdivisions 8,420
Mortgage-backed securities 53,382 63,388 51,253
---------- ---------- ----------
Total debt securities 466,767 439,690 157,157
Equity securities 13,080 12,909
---------- ---------- ----------
Total securities available for sale $479,847 $452,599 $157,157
========== ========== ==========
SECURITIES HELD TO MATURITY
U. S. Treasury and U. S. Government agencies $257,335 $316,109 $722,567
Obligations of states and political subdivisions 212,065 192,321 158,193
Mortgage-backed securities 884,132 914,130 927,625
Other securities 100 100 3,055
---------- ---------- ----------
Total debt securities 1,353,632 1,422,660 1,811,440
Equity securities 11,969
---------- ---------- ----------
Total securities held to maturity $1,353,632 $1,422,660 $1,823,409
========== ========== ==========
</TABLE>
TABLE 4 - MATURITY DISTRIBUTION AND YIELDS OF SECURITIES AVAILABLE FOR SALE AND
SECURITIES HELD TO MATURITY
The following table details the maturities of securities available for sale and
held to maturity using amortized cost at Decmber 31, 1995 and the weighted
average yield for each range of maturities (tax equivalent basis - $ in
thousands):
<TABLE>
<CAPTION>
MATURING
---------------------------------------------------------------------------------------
AFTER ONE, AFTER FIVE,
WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR YIELD FIVE YEARS YIELD TEN YEARS YIELD TEN YEARS YIELD TOTAL
--------- ------ ---------- ----- ----------- ------ --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
U. S. Treasury and U. S.
Government agencies $122,351 5.47% $291,034 5.55% $413,385
Mortgage-backed securities $23,785 7.54% $29,597 7.33% 53,382
-------- -------- -------- -------- ----------
Total debt securities 122,351 291,034 23,785 29,597 466,767
Equity securities 13,080
-------- -------- -------- -------- ----------
Total securities available for
sale $122,351 $291,034 $23,785 $29,597 $479,847
======== ======== ======== ======== ==========
SECURITIES HELD TO MATURITY
U. S. Treasury and U. S.
Government agencies $41,691 7.35% $215,644 6.18% $257,335
Obligations of states and
political subdivisions 21,009 8.00% 62,317 7.18% $ 86,498 7.63% $ 42,241 8.91% $ 212,065
Mortgage-backed securities 1,863 6.52% 17,694 6.99% 209,181 6.61% 655,394 6.44% 884,132
Other securities 100 7.50% 100
-------- -------- -------- -------- ----------
Total securities held to maturity $64,563 7.54% $295,655 6.44% $295,779 6.91% $697,635 6.59% $1,353,632
======== ======== ======== ======== ==========
</TABLE>
Due to the nature of mortgage related securities, the actual maturities of
these investments can be substantially shorter than their contractual maturity.
Management believes the actual weighted average maturity of the entire mortgage
related portfolio to be approximately 2.95 years.
As of December 31, 1995 the Corporation held securities of one issuer with
a carrying value exceeding ten percent of total stockholders' equity. General
obligations of the State of Mississippi with a carrying value of $122,202,000
and an approximate fair value of $126,807,000 were held on December 31, 1995.
Included in the aforementioned State of Mississippi holdings are bonds with an
aggregate carrying value of $21,183,000 and an approximate fair value of
$21,694,000 which are known to be prerefunded or escrowed to maturity by U. S.
Government securities.
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TRUSTMARK CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 5 - COMPOSITION OF THE LOAN PORTFOLIO
The table below shows the carrying value of the loan portfolio at the
end of each of the last five years ($ in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Real estate loans:
Construction and land development $144,010 $123,364 $102,873 $86,164 $92,189
Secured by 1-4 family residential properties 553,997 504,078 569,411 485,378 436,540
Secured by nonfarm, nonresidential properties 380,734 345,130 340,058 308,755 325,029
Other real estate loans 69,422 63,169 52,295 50,550 39,935
Term federal funds sold 125,000 120,000
Loans to finance agricultural production 37,434 34,910 35,490 21,213 18,887
Commercial and industrial 616,949 594,836 531,054 487,322 505,370
Loans to individuals for personal expenditures 641,409 606,444 529,907 413,457 418,215
Obligations of states and political subdivisions 63,557 50,033 38,407 41,320 46,675
Loans for purchasing or carrying securities 11,626 1,840 3,995 6,490 6,549
Lease financing receivables 2,360 3,871 4,427 3,837 2,470
Other loans 50,593 19,890 23,101 30,014 34,108
---------- ---------- ---------- ---------- ----------
Loans, net of unearned income $2,572,091 $2,347,565 $2,231,018 $2,059,500 $2,045,967
========== ========== ========== ========== ==========
</TABLE>
TABLE 6 - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
The table below shows the amounts of loans in certain categories
outstanding as of December 31, 1995, which, based on the remaining scheduled
repayments of principal, are due in the periods indicated ($ in thousands):
<TABLE>
<CAPTION>
MATURING
-------------------------------------------------
ONE YEAR
WITHIN THROUGH AFTER
ONE YEAR FIVE FIVE
OR LESS YEARS YEARS TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Construction and land development $123,156 $20,854 $144,010
Other loans secured by real estate (excluding
loans secured by 1-4 family residential
properties) 217,484 157,592 $75,080 450,156
Commercial and industrial 391,691 180,580 44,678 616,949
Other loans (excluding loans to individuals) 115,015 21,308 29,247 165,570
---------- ---------- ---------- ----------
Total $847,346 $380,334 $149,005 $1,376,685
========== ========== ========== ==========
</TABLE>
The following table shows all loans due after one year classified
according to their sensitivity to changes in interest rates ($ in thousands):
<TABLE>
<CAPTION>
MATURING
------------------------------------
ONE YEAR AFTER
THROUGH FIVE
FIVE YEARS YEARS TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Above loans due after one year which have: $333,960 $134,598 $468,558
Predetermined interest rates 46,374 14,407 60,781
Floating interest rates ---------- ---------- ----------
Total $380,334 $149,005 $529,339
========== ========== ==========
</TABLE>
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TRUSTMARK CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 7 - NONPERFORMING ASSETS AND PAST DUE LOANS
The table below shows the Corporation's nonperforming assets and past due loans
at the end of each of the last five years ($ in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $10,055 $12,817 $13,730 $14,008 $20,023
Restructured loans 2,552 1,373
------- ------- ------- ------- -------
Nonperforming loans 10,055 12,817 13,730 16,560 21,396
Other real estate 3,982 3,723 5,709 9,711 16,670
------- ------- ------- ------- -------
Nonperforming assets 14,037 16,540 19,439 26,271 38,066
Accruing loans past due 90 days or more 1,810 2,252 1,816 2,396 3,133
------- ------- ------- ------- -------
Total nonperforming assets and loans past due
90 days or more $15,847 $18,792 $21,255 $28,667 $41,199
======= ======= ======= ======= =======
</TABLE>
Generally, a loan is classified as nonaccrual and the accrual of interest
on such loan is discontinued when the contractual payment of principal or
interest has become 90 days past due or Management has serious doubts about
further collectibility of principal or interest, even though the loan is
currently performing. A loan may remain on nonaccrual status if it is in the
process of collection and is either guaranteed or well secured. When a loan is
placed on nonaccrual status, unpaid interest credited to income in the current
and prior years is reversed against interest income. Interest received on
nonaccrual loans is applied against principal. Loans are restored to accrual
status when the obligation is brought current or has performed in accordance
with the contractual terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no longer in
doubt. Interest which would have been accrued on nonaccrual and restructured
loans if they had been in compliance with their original terms is immaterial. In
addition, interest income on these loans that was included in net income for the
periods presented was immaterial.
At December 31, 1995 Management is not aware of any additional credits,
other than those identified above, where serious doubts as to the repayment of
principal and interest exist. There are no interest-earning assets which would
be required to be disclosed above if those assets were loans. The Corporation
had no loan concentrations greater than ten percent of total loans other than
those loan categories shown in Table 5.
10
<PAGE> 12
TRUSTMARK CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 8 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The table below summarizes the Corporation's loan loss experience for
each of the last five years ($ in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $65,014 $65,014 $51,871 $41,542 $32,456
Loans charged off:
Real estate loans (1,663) (1,034) (2,451) (6,728) (7,855)
Loans to finance agricultural production (115) (21) (178) (131) (80)
Commercial and industrial (764) (979) (4,278) (7,698) (6,778)
Loans to individuals for personal expenditures (6,300) (4,780) (4,496) (5,499) (5,631)
Lease financing receivables
All other loans (648) (267) (162) (120) (272)
--------- --------- --------- --------- ---------
Total charge-offs (9,490) (7,081) (11,565) (20,176) (20,616)
Recoveries on loans previously charged off:
Real estate loans 981 732 590 890 787
Loans to finance agricultural production 10 8 11
Commercial and industrial 736 581 2,796 1,221 401
Loans to individuals for personal expenditures 1,848 2,703 2,226 1,495 1,222
Lease financing receivables
All other loans 462 271 178 151 115
--------- --------- --------- --------- ---------
Total recoveries 4,037 4,295 5,790 3,768 2,525
--------- --------- --------- --------- ---------
Net charge-offs (5,453) (2,786) (5,775) (16,408) (18,091)
Additions to allowance charged to operating expense 2,439 2,786 18,596 26,737 27,177
Other additions to allowance for loan losses 322
--------- --------- --------- --------- ---------
Balance at end of period $62,000 $65,014 $65,014 $51,871 $41,542
========= ========= ========= ========= =========
Percentage of net charge-offs during period to average
loans outstanding during the period 0.22% 0.12% 0.27% 0.82% 0.93%
========= ========= ========= ========= =========
</TABLE>
The allowance for loan losses is maintained at a level believed adequate by
Management to absorb estimated probable loan losses. Management's periodic
evaluation of the adequacy of the allowance is based on the Corporation's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay (including the
timing of future payments), the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions, and other
relevant factors. This evaluation is inherently subjective as it requires
material estimates including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible to
significant change.
11
<PAGE> 13
TRUSTMARK CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 9 - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table is a summary by allocation category of the
Corporation's allowance for loan losses at December 31, 1995. These
allocations were determined by internal formulas based upon Management's
analyses of the various types of risk associated with the Corporation's loan
portfolio. A discussion of Management's methodology for performing these
analyses follows the table ($ in thousands):
<TABLE>
<S> <C>
Allocation for pools of
risk-rated loans $ 24,229
Additional allocation for
risk-rated loans 923
Allocation for selected
industries 1,187
General allocation for
all other loans 8,935
Allocation for available lines
of credit and letters of credit 1,816
Discretionary 24,910
---------
Total $ 62,000
=========
</TABLE>
The allowance for loan losses is maintained at a level which Management
and the Board of Directors believe is adequate to absorb estimated losses
inherent in the loan portfolio, plus estimated losses associated with
off-balance sheet credit instruments such as letters of credit and unfunded
lines of credit. The adequacy of the allowance is reviewed quarterly utilizing
the criteria specified in the Office of the Comptroller of the Currency's
revised Banking Circular 201 as well as additional guidance provided in the
Interagency Policy Statement. Loss percentages were uniformly applied to pools
of risk-rated loans within the commercial portfolio. These percentages were
determined based on migration analysis, previously established floors for each
category and economic factors. In addition, relationships of $500,000 or more
which were risk-rated Other Loans Especially Mentioned (OLEM) or Substandard
and all which were risk-rated Doubtful were reviewed by the Corporation's
Internal Asset Review staff to determine if the standard percentages appeared
to be sufficient to cover potential loss on each line. In the event that the
percentages on any particular lines were determined to be insufficient,
additional allocations were made based upon recommendations of lending and
asset review personnel.
Industry allocations were made based on concentrations of credit within
the portfolio as well as arbitrary designation of certain other industries by
Management.
The general allocation is included in the allowance to cover potential
loan losses within portions of the loan portfolio not addressed in the
preceeding allocations. The types of loans included in the general allocation
were residential mortgage loans, direct and indirect consumer loans, credit
card loans and overdrafts. The actual allocation amount was based upon the
more conservative estimate of loss experience within these categories during
1995, the historical 5-year moving average for each category, or previously
established floors.
The amount included in the allocation for lines of credit and letters of
credit consists of a percentage of the unused portion of those lines and the
amount outstanding in letters of credit. Arbitrary percentages, which were
the same as those applied to the funded portions of the commercial and retail
loan portfolios, were applied to cover any potential losses in these
off-balance sheet categories.
The remaining $24,910,000 is discretionary and serves as added protection
in the event that any of the above specific components are determined to be
inadequate or for issues that cannot or have not been measured on a
quantitative basis over a prolonged period of time.
Because of the stability shown by the Corporation's level of nonperforming
assets, Management estimates that the anticipated amount of net charge-offs for
1996 will be at approximately the same level as 1995. However, because of the
imprecision inherent in most estimates of expected credit losses, Management
will continue to take a prudent approach in the evaluation of the allowance for
loan losses.
12
<PAGE> 14
TRUSTMARK CORPORATION
STATISTICAL DISCLOSURES (CONTINUED)
TABLE 10 - TIME DEPOSITS OF $100,000 OR MORE
The table below shows maturities on outstanding time deposits of $100,000 or
more at December 31, 1995 ($ in thousands):
<TABLE>
<S> <C>
3 months or less $163,518
Over 3 months through 6 months 69,689
Over 6 months through 12 months 66,957
Over 12 months 56,885
--------
Total $357,049
========
</TABLE>
TABLE 11 - SELECTED RATIOS
The following ratios are presented for each of the last three years:
<TABLE>
<CAPTION>
1995 1994 1993
============ ============ =============
<S> <C> <C> <C>
Return on average assets 1.23% 1.15% 1.14%
Return on average equity 13.23% 13.42% 14.71%
Dividend payout ratio 25.73% 25.95% 23.87%
Equity to assets ratio 9.26% 8.57% 7.75%
</TABLE>
TABLE 12 - SHORT-TERM BORROWINGS
The table below presents certain information concerning the Corporation's
short-term borrowings for each of the last three years ($ in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
============ ============ =============
<S> <C> <C> <C>
Federal funds purchased and securities
sold under repurchase agreements:
Amount outstanding at end of period $932,983 $851,038 $842,733
Weighted average interest rate at end of period 5.13% 5.38% 2.92%
Maximum amount outstanding at any
month end during each period $945,207 $997,525 $911,888
Average amount outstanding during each period $898,439 $873,480 $762,909
Weighted average interest rate during each period 5.47% 3.79% 2.89%
</TABLE>
13
<PAGE> 15
ITEM 2. PROPERTIES
The Corporation's principal offices are housed in a 14-floor
combination office and bank building located in Jackson, Mississippi. This
building, along with all other physical properties of the Corporation, are
owned by its bank subsidiary, Trustmark. Approximately 155,000 square feet
(55%) of the available space in the main office building is allocated to bank
use with the remainder occupied by tenants on a lease basis. Trustmark also
operates 97 full-service branches, 28 limited-service branches and an ATM
network which includes 71 ATMs at on-premise locations and 49 ATMs located at
off-premise sites. Trustmark leases 36 of its 162 total locations with the
remainder being owned.
ITEM 3. LEGAL PROCEEDINGS
In January 1995, a judgment was rendered in a Mississippi trial court
against the Corporation's subsidiary, Trustmark National Bank, in a case
related to the placement of collateral protection insurance (CPI) by Trustmark
on a particular loan. The judgment awarded $500 thousand in actual damages
(against Trustmark and the insurance agent, jointly and severally) and $38
million in punitive damages (against Trustmark only). Trustmark filed motions
for entry of judgment in its favor, or for a new trial, or to reduce the
verdicts. The judge took the motions under advisement in April 1995. On
August 4, 1995, the court reduced the punitive damage award from $38 million to
$5 million. The judge left the actual damage award intact. Notice of appeal
has been filed by Trustmark appealing this case to the Mississippi Supreme
Court. Notice of cross-appeal has been filed by the plaintiffs.
There are 11 other CPI-related suits in state courts and ten suits in
federal courts. On September 18, 1995, one of the federal court suits was
certified as a class action, with the class broadly defined to include all
persons who financed an automobile through Trustmark and whose loan accounts
were charged for CPI premiums. One of the CPI insurers, the CPI underwriter
and the insurance agent are also defendants to the class action. The court
proceedings are matters of public record.
The cases are being vigorously contested. Investigation is continuing.
Similar, but not identical, cases in other states have had a variety of
results, including settlements. Trustmark's program was consistent with those
of numerous other banks, including banks in Mississippi which are in the
process of defending similar suits. While the ultimate outcome of this legal
matter cannot be predicted with reasonable certainty, Management believes that
the resolution of this matter will not have a material adverse effect on the
Corporation's consolidated financial position. However, Management cannot
predict with reasonable certainty the impact it might have on the Corporation's
consolidated results of operations during periods until the litigation is
terminated.
In addition, Trustmark is defendant in various other pending and
threatened legal actions arising in the normal course of business. In the
opinion of Management, and based on the advice of legal counsel, the ultimate
resolution of these matters will not have a material effect on the
Corporation's consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Corporation's shareholders during
the fourth quarter of 1995.
14
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Corporation's common stock is listed for trading on the Nasdaq Stock
Market. At January 26, 1996 there were approximately 5,300 shareholders of
record of the Corporation's common stock. Other information required by this
item can be found in Note 12, "Stockholders' Equity," (page 33) and the table
captioned "Principal Markets and Prices of the Corporation's Stock" (page 37)
included in the Registrant's 1995 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item can be found in the table captioned
"Selected Financial Data" (page 36) included in the Registrant's 1995 Annual
Report to Shareholders and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this item can be found in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
(pages 37-43) included in the Registrant's 1995 Annual Report to Shareholders
and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Trustmark Corporation and
Subsidiaries, the accompanying Notes to Consolidated Financial Statements and
the Report of Independent Public Accountants are contained in the Registrant's
1995 Annual Report to Shareholders (pages 19-43) and are incorporated herein by
reference. The table captioned "Summary of Quarterly Results of Operations"
(page 36) is also included in the Registrant's 1995 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change of accountants within the two-year period prior
to December 31, 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on the directors of the Registrant can be found in Section II,
"Election of Directors," and Section VII, "Other Information Concerning
Directors," contained in Trustmark Corporation's Proxy Statement dated February
16, 1996 and is incorporated herein by reference. Information on the
Registrant's executive officers is included in Part I, page 5 of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item can be found in Section V, "Compensation
of Executive Officers and Directors," and Section VII, "Other Information
Concerning Directors," contained in Trustmark
15
<PAGE> 17
Corporation's Proxy Statement dated February 16, 1996 and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial owners and
Management can be found in Section III, "Voting Securities and Principal
Holders Thereof," and Section IV, "Ownership of Equity Securities by
Management," contained in Trustmark Corporation's Proxy Statement dated
February 16, 1996 and is incorporated herein by reference.
The Registrant knows of no arrangements which may at a subsequent date
result in a change in control of the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions can
be found in Section VI, "Transactions with Management," contained in Trustmark
Corporation's Proxy Statement dated February 16, 1996 and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
A-1. Financial Statements
The report of Arthur Andersen LLP, independent auditors, and the following
consolidated financial statements of Trustmark Corporation and Subsidiaries are
included in the Registrant's 1995 Annual Report to Shareholders and are
incorporated into Part II, Item 8 herein by reference:
Report of Independent Public Accountants
Consolidated Balance Sheets as of
December 31, 1995 and 1994
Consolidated Statements of Income for the
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for
the Years Ended December 31, 1995, 1994
and 1993
Notes to Consolidated Financial Statements
(Notes 1 through 14)
Selected Financial Data, Summary of Quarterly
Results of Operations, and Principal
Markets and Prices of the Corporation's Stock
A-2. Financial Statement Schedules
The schedules to the consolidated financial statements set forth by
Article 9 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
16
<PAGE> 18
A-3. Exhibits
The exhibits listed in the Exhibit Index are filed herewith or are
incorporated herein by reference.
B. Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
C. Exhibits
The response to this portion of Item 14 is submitted as a separate section
of this report.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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/ Frank R. Day BY: /s/ Gerard R. Host
------------------------- -------------------------
Frank R. Day Gerard R. Host
Chairman of the Board, Treasurer
President and Chief
Executive Officer
DATE: March 12, 1996 DATE: March 12, 1996
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
DATE: March 12, 1996 BY: /s/ J. Kelly Allgood
------------------------------
J. Kelly Allgood, Director
DATE: March 12, 1996 BY: /s/ Reuben V. Anderson
------------------------------
Reuben V. Anderson, Director
DATE: March 12, 1996 BY:
------------------------------
John L. Black, Jr., Director
DATE: March 12, 1996 BY: /s/ Harry H. Bush
------------------------------
Harry H. Bush, Director
DATE: March 12, 1996 BY: /s/ Robert P. Cooke III
------------------------------
Robert P. Cooke III, Director
DATE: March 12, 1996 BY: /s/ Frank R. Day
------------------------------
Frank R. Day, Principal
Executive Officer and Director
DATE: March 12, 1996 BY:
------------------------------
William C. Deviney, Jr.,
Director
DATE: March 12, 1996 BY: /s/ D. G. Fountain, Jr.
------------------------------
D. G. Fountain, Jr., Director
DATE: March 12, 1996 BY: /s/ C. Gerald Garnett
------------------------------
C. Gerald Garnett, Director
DATE: March 12, 1996 BY: /s/ Matthew L. Holleman III
------------------------------
Matthew L. Holleman III, Director
DATE: March 12, 1996 BY: /s/ Fred A. Jones
------------------------------
Fred A. Jones, Director
19
<PAGE> 21
DATE: March 12, 1996 BY: /s/ T. H. Kendall III
------------------------------
T. H. Kendall III, Director
DATE: March 12, 1996 BY:
------------------------------
Larry L. Lambiotte, Director
DATE: March 12, 1996 BY: /s/ Robert V. Massengill
------------------------------
Robert V. Massengill, Director
DATE: March 12, 1996 BY: /s/ Donald E. Meiners
------------------------------
Donald E. Meiners, Director
DATE: March 12, 1996 BY: /s/ William Neville III
------------------------------
William Neville III, Director
DATE: March 12, 1996 BY: /s/ Richard H. Puckett
------------------------------
Richard H. Puckett, Director
DATE: March 12, 1996 BY: /s/ Charles W. Renfrow
------------------------------
Charles W. Renfrow, Director
DATE: March 12, 1996 BY: /s/ Clyda S. Rent
------------------------------
Clyda S. Rent, Director
DATE: March 12, 1996 BY: /s/ William Thomas Shows
------------------------------
William Thomas Shows, Director
DATE: March 12, 1996 BY: /s/ Harry M. Walker
------------------------------
Harry M. Walker, Director
DATE: March 12, 1996 BY: /s/ LeRoy G. Walker, Jr.
------------------------------
LeRoy G. Walker, Jr., Director
DATE: March 12, 1996 BY: /s/ Paul H. Watson, Jr.
------------------------------
Paul H. Watson, Jr., Director
20
<PAGE> 22
DATE: March 12, 1996 BY: /s/ John C. Wheeless, Jr.
------------------------------
John C. Wheeless, Jr., Director
DATE: March 12, 1996 BY: /s/ Allen Wood, Jr.
------------------------------
Allen Wood, Jr., Director
21
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<S> <C>
3-a Articles of Incorporation, as amended. Filed as
Exhibit 3 to the Corporation's Form 10-K Annual Report
for the year ended December 31, 1990, incorporated
herein by reference.
3-b Bylaws, as amended. Filed as Exhibit 3-b to the
Corporation's Form 10-K Annual Report for the year
ended December 31, 1991, incorporated herein by
reference.
3-c Articles of Incorporation, as amended. Filed as
Exhibit 3-c to the Corporation's Form 10-K Annual Report
for the year ended December 31, 1994.
10-a Deferred Compensation Plan for Directors of Trustmark
Corporation, as amended. Filed as Exhibit 10 to the Corporation's
Form 10-K Annual Report for the year ended December 31, 1991,
incorporated herein by reference.
10-b Deferred Compensation Plan for Executive Officers of
Trustmark National Bank. Filed as Exhibit 10-b to the
Corporation's Form 10-K Annual Report for the year
ended December 31, 1993.
10-c Deferred Compensation Plan for Directors of First National Financial
Corporation, acquired October 7, 1994. Filed as Exhibit 10-c to the
Corporation's Form 10-K Annual Report for the year ended
December 31, 1994.
10-d Life Insurance Plan for Executive Officers of First
National Financial Corporation, acquired October 7, 1994.
Filed as Exhibit 10-d to the Corporation's Form 10-K
Annual Report for the year ended December 31, 1994.
13 Only those portions of the Registrant's 1995 Annual Report
to Shareholders expressly incorporated by reference
herein are included in this exhibit and, therefore, are
filed as a part of this report on Form 10-K.
27 Financial Data Schedule.
All other exhibits are omitted as they are inapplicable or not required
by the related instructions.
</TABLE>
22
<PAGE> 1
Report of Independent Public Accountants
To the Board of Directors and Shareholders
Trustmark Corporation:
We have audited the accompanying consolidated balance sheets of Trustmark
Corporation (a Mississippi corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trustmark Corporation and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective
January 1, 1994, the Corporation changed its method of accounting for
securities.
/s/ Arthur Andersen LLP
Jackson, Mississippi,
January 17, 1996.
<PAGE> 2
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
---------------------------------------------------------------- ------------- -------------
<S> <C> <C> <C>
TRUSTMARK ASSETS
CORPORATION Cash and due from banks (noninterest-bearing) $ 299,006 $ 280,114
AND Federal funds sold and securities purchased
SUBSIDIARIES under reverse repurchase agreements 113,585 105,731
Trading account securities 226 1,150
Securities available for sale (at fair value) 488,693 439,691
CONSOLIDATED Securities held to maturity (fair value: $1,370,670 - 1995;
BALANCE $1,345,614 - 1994) 1,353,632 1,422,660
SHEETS Loans 2,580,219 2,365,683
($ In Thousands) Less: Unearned income 8,128 18,118
Allowance for loan losses 62,000 65,014
------------ ------------
Net loans 2,510,091 2,282,551
Premises and equipment 61,193 64,078
Intangible assets 37,671 38,074
Other assets 128,495 129,316
------------ ------------
TOTAL ASSETS $ 4,992,592 $ 4,763,365
============ ============
LIABILITIES
Deposits:
Noninterest-bearing $ 767,051 $ 732,635
Interest-bearing 2,762,994 2,716,594
------------ ------------
Total deposits 3,530,045 3,449,229
Federal funds purchased 75,675 160,140
Securities sold under repurchase agreements 857,308 690,898
Other liabilities 50,812 42,088
------------ ------------
TOTAL LIABILITIES 4,513,840 4,342,355
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value:
Authorized, 100,000,000 shares
Issued and outstanding: 34,910,683 shares 14,546 14,546
Surplus 244,578 244,578
Retained earnings 214,166 169,857
Net unrealized gain (loss) on securities
available for sale, net of tax 5,462 (7,971)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 478,752 421,010
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,992,592 $ 4,763,365
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995 1994 1993 TRUSTMARK
- --------------------------------------------------------- ------------ ------------ ------------ CORPORATION
INTEREST INCOME AND
Interest and fees on loans $ 225,645 $ 190,100 $ 177,480 SUBSIDIARIES
Interest on securities:
Taxable interest income 109,994 112,446 120,213 CONSOLIDATED
Interest income exempt from federal income taxes 5,887 6,715 7,835 STATEMENTS
Interest on federal funds sold and securities purchased OF INCOME
under reverse repurchase agreements 6,815 6,188 5,079 ($ In Thousands
------------ ------------ ------------ Except Share
TOTAL INTEREST INCOME 348,341 315,449 310,607 Data)
INTEREST EXPENSE
Interest on deposits 112,374 91,154 94,708
Interest on federal funds purchased and securities
sold under repurchase agreements 49,171 33,136 22,062
------------ ------------ ------------
TOTAL INTEREST EXPENSE 161,545 124,290 116,770
------------ ------------ ------------
NET INTEREST INCOME 186,796 191,159 193,837
Provision for loan losses 2,439 2,786 18,596
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 184,357 188,373 175,241
NONINTEREST INCOME
Trust service income 9,275 8,715 8,176
Service charges on deposit accounts 21,765 18,666 18,335
Other account charges, fees and commissions 24,817 20,214 16,825
Securities gains (losses) 323 (1,374) 503
Other income 3,287 2,449 4,059
------------ ------------ ------------
TOTAL NONINTEREST INCOME 59,467 48,670 47,898
NONINTEREST EXPENSES
Salaries and employee benefits 74,107 72,497 69,231
Net occupancy-premises 9,220 8,401 7,986
Equipment expenses 13,460 13,482 12,521
Services and fees 18,926 18,874 17,081
FDIC insurance assessment 4,328 7,689 7,749
Amortization of intangible assets 7,266 6,932 8,291
Other real estate expenses 336 1,159 3,377
Other expenses 24,841 23,767 24,545
------------ ------------ ------------
TOTAL NONINTEREST EXPENSES 152,484 152,801 150,781
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 91,340 84,242 72,358
Income taxes 31,582 29,237 20,106
------------ ------------ ------------
NET INCOME $ 59,758 $ 55,005 $ 52,252
============ ============ ============
NET INCOME PER SHARE $ 1.71 $ 1.58 $ 1.55
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 34,910,683 34,805,193 33,787,791
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
UNREALIZED
COMMON RETAINED GAINS
TOTAL STOCK SURPLUS EARNINGS (LOSSES)
------------------------------------------------- --------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
TRUSTMARK BALANCE, JANUARY 1, 1993 $ 323,243 $ 13,782 $ 219,316 $ 90,145
CORPORATION AND Net income for year 52,252 52,252
SUBSIDIARIES Cash dividends paid ($0.37 per share) (12,504) (12,504)
Common stock issued in business combination 24,600 707 23,893
--------- -------- --------- ----------
BALANCE, DECEMBER 31, 1993 $ 387,591 $ 14,489 $ 243,209 $ 129,893
CONSOLIDATED Cumulative effect of a change in accounting
STATEMENTS method, net of tax 14,326 $ 14,326
OF CHANGES IN Net income for year 55,005 55,005
STOCKHOLDERS' Cash dividends paid ($0.41 per share) (13,936) (13,936)
EQUITY Cash paid in business combination (1,105) (1,105)
($ In Thousands Common stock issued for purchase of subsidiary
Except Share minority interest 1,426 57 1,369
Data) Net change in unrealized gains (losses) on
securities available for sale, net of tax (22,297) (22,297)
--------- -------- --------- ---------- ---------
BALANCE, DECEMBER 31, 1994 421,010 14,546 244,578 169,857 (7,971)
Net income for year 59,758 59,758
Cash dividends paid ($0.44 per share) (15,449) (15,449)
Net change in unrealized gains (losses) on
securities available for sale, net of tax 13,433 13,433
--------- -------- --------- ---------- ---------
BALANCE, DECEMBER 31, 1995 $ 478,752 $ 14,546 $ 244,578 $ 214,166 $ 5,462
========= ======== ========= ========== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1994 1993
----------------------------------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
TRUSTMARK OPERATING ACTIVITIES
CORPORATION Net income $ 59,758 $ 55,005 $ 52,252
AND Adjustments to reconcile net income to net cash provided
SUBSIDIARIES by operating activities:
Provision for loan losses 2,439 2,786 18,596
CONSOLIDATED Provision for depreciation and amortization 17,477 17,069 17,634
STATEMENTS Net (accretion) amortization of securities (4,614) 416 2,243
OF CASH FLOWS Securities (gains) losses (323) 1,374 (503)
($ In Thousands) (Gains) losses and write-downs on other real estate (52) 802 2,648
Other (730) (31) (3,311)
Increase in intangible assets (6,863) (4,579) (6,822)
Increase in deferred income taxes (1,628) (612) (11,046)
Increase in other assets (9,016) (19,371) (4,939)
Increase (decrease) in other liabilities 8,724 (5,587) 4,354
---------- ---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 65,172 47,272 71,106
INVESTING ACTIVITIES
Proceeds from calls and maturities of securities available for sale 320,074 246,536 271,026
Proceeds from calls and maturities of securities held to maturity 150,321 269,779 572,204
Proceeds from sales of securities available for sale 119,404 392,136 50,076
Proceeds from sales of securities held to maturity 22,725
Purchases of securities available for sale (462,147) (327,706) (282,475)
Purchases of securities held to maturity (80,935) (477,228) (860,285)
Net (increase) decrease in federal funds sold and securities
purchased under reverse repurchase agreements (7,854) (10,525) 74,436
Net increase in loans (229,311) (119,470) (68,820)
Purchases of premises and equipment (6,134) (10,016) (8,615)
Proceeds from sales of premises and equipment 182 146 165
Proceeds from sales of other real estate 2,808 2,572 3,352
Cash equivalents of acquired bank, net of cash paid 20,601
Cash paid in business combination (1,105)
---------- ---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (193,592) (34,881) (205,610)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 80,816 20,448 (155,997)
Net increase in federal funds purchased and securities sold
under repurchase agreements 81,945 8,305 292,571
Cash dividends (15,449) (13,936) (12,504)
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 147,312 14,817 124,070
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents 18,892 27,208 (10,434)
Cash and cash equivalents at beginning of year 280,114 252,906 263,340
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 299,006 $ 280,114 $ 252,906
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
NOTE 1 - BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION, ACCOUNTING
POLICIES AND RECENT PRONOUNCEMENTS
BUSINESS
The Corporation and its banking subsidiary are engaged only in the general
banking business and activities closely related to banking and provide these
services primarily to customers in Mississippi through its banking subsidiary.
The Corporation is subject to the regulations of certain federal agencies and
undergoes periodic examinations by those regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, the Corporation is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the dates of the statements of condition and the reported amounts of revenues
and expenses for the years then ended. Actual results could differ
significantly from those estimates.
ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Trustmark
Corporation, its wholly-owned subsidiaries, First Building Corporation, F. S.
Corporation, Trustmark National Bank (the Bank) and the Bank's wholly-owned
subsidiary, Trustmark Financial Services, Inc. All intercompany profits,
balances and transactions have been eliminated.
TRADING ACCOUNT SECURITIES
Trading account securities are held for resale in anticipation of
short-term market movements. Trading account securities, consisting primarily
of debt securities, are carried at fair value. Gains and losses, both realized
and unrealized, are classified as other income.
SECURITIES AVAILABLE FOR SALE
Effective January 1, 1994, the Corporation adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under this statement,
securities available for sale prior to maturity are reported at fair value with
unrealized gains and losses excluded from earnings and reported as a separate
component of stockholders' equity, net of related deferred income taxes. The
effect of this change at January 1, 1994 was to increase stockholders' equity
by $14,326,000, net of deferred income taxes. Gains or losses on the sale of
these securities, computed based on the carrying value of the specific
securities sold, are classified as securities gains (losses) in noninterest
income.
<PAGE> 7
SECURITIES HELD TO MATURITY
Securities held to maturity are securities which the Corporation has the
intent and ability to hold to maturity. Securities held to maturity are stated
at cost, adjusted for amortization of premiums and accretion of discount using
the interest method. Gains and losses on the sale of securities held to
maturity, computed based on the adjusted cost of the specific securities sold,
are classified as securities gains (losses) in noninterest income.
LOANS
Loans generally are stated at the amount of unpaid principal, reduced by
unearned income and an allowance for loan losses. Unearned income on consumer
loans is recognized as income over the terms of the loans by a method which
approximates the interest method. Interest on other loans is calculated by
applying the simple interest method to the daily outstanding principal balance.
Generally, a loan is classified as nonaccrual and the accrual of interest
on such loan is discontinued when the contractual payment of principal or
interest has become 90 days past due or Management has serious doubts about
further collectibility of principal or interest, even though the loan currently
is performing. A loan may remain on accrual status if it is in the process of
collection and is either guaranteed or well secured. When a loan is placed on
nonaccrual status, unpaid interest credited to income in the current and prior
years is reversed against interest income. Interest received on nonaccrual
loans is applied against principal. Loans are restored to accrual status when
the obligation is brought current or has performed in accordance with the
contractual terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no longer in
doubt.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through provisions for loan
losses charged against income. Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
Beginning in 1995, the Corporation adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure." Under
the new standard, the 1995 allowance for loan losses related to loans that are
identified for evaluation in accordance with SFAS No. 114 is based on
discounted cash flows using the loan's initial effective interest rate or the
fair value of the collateral for certain collateral dependent loans.
The allowance for loan losses is maintained at a level believed adequate
by Management to absorb estimated probable loan losses. Management's periodic
evaluation of the adequacy of the allowance is based on the Corporation's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay (including the
timing of future payments), the estimated value of any underlying collateral,
<PAGE> 8
composition of the loan portfolio, current economic conditions, and
other relevant factors. This evaluation is inherently subjective as it
requires material estimates including the amounts and timing of future cash
flows expected to be received on impaired loans that may be susceptible to
significant change.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is charged to expense over the estimated useful
lives of the assets. Leasehold improvements are amortized over the terms of
the respective leases or the estimated useful lives of the improvements,
whichever is shorter. Depreciation and amortization expenses are computed by
the straight-line and accelerated methods.
INTANGIBLE ASSETS
Intangible assets consist of core deposits and purchased mortgage
servicing rights. Core deposits are being amortized by the straight-line
method over 10 years. Mortgage servicing rights are being amortized by an
accelerated method over the estimated average life of the underlying mortgages.
OTHER REAL ESTATE
Other real estate owned is reported in other assets and is recorded at
the lower of cost or estimated fair value less the estimated cost of
disposition. Any valuation adjustments required upon foreclosure are charged
to the allowance for loan losses. Subsequent to foreclosure, losses on the
periodic revaluation of the property are charged to current period earnings as
other real estate expenses. Costs of operating and maintaining the properties,
net of related income and gains or losses on their disposition, are charged to
other real estate expenses as incurred.
INCOME TAXES
The Corporation adopted SFAS No. 109, "Accounting for Income Taxes,"
effective January 1, 1993. The adoption of SFAS No. 109 changed the
Corporation's method of accounting for income taxes from the deferred method to
an asset and liability method. The cumulative effect of adopting SFAS No. 109
on the Corporation's financial statements in 1993 was to increase net income
$1,575,000 or 5 cents per share.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Refer to Note 8 for the
detail of temporary differences which give rise to deferred tax assets and
liabilities.
OFF-BALANCE SHEET INSTRUMENTS
The Corporation regularly enters into interest rate contracts as part of
its normal asset/liability management activities. These contracts consist
entirely of forward contracts. Forward contracts are agreements to purchase or
sell securities or other money market instruments at a future specified date at
a specified price or yield. At December 31, 1995, the Corporation's
obligations under
<PAGE> 9
forward contracts consist of commitments to sell mortgages originated or
purchased by the Corporation in the secondary market at a future date. These
obligations are entered into by the Corporation in order to fix the interest
rate at which it can offer mortgage loans to its customers or purchase
mortgages from other financial institutions. Gains or losses on the sale of
mortgages in the secondary market are recorded upon the sale of the mortgages
and included in other income. Any decline in market value of mortgages held by
the Corporation at the end of a financial reporting period pending sale in the
secondary market is recognized at that time. As of December 31, 1995, the
Corporation's exposure under commitments to sell mortgages in the future is
immaterial.
EMPLOYEE BENEFIT PLANS
The Corporation has a noncontributory pension plan covering substantially
all of its employees. The Corporation's funding policy for the plan is to make
contributions within the limits required by applicable regulations. Employees
of the Corporation participate in a profit-sharing plan covering substantially
all employees with more than one year's service. Executive and qualified senior
officers participate in a supplemental executive incentive program.
Contributions to these plans are made at the discretion of the Corporation's
Board of Directors and are funded accordingly. The Corporation has a trusteed,
contributory, self-insured medical benefit plan covering substantially all
employees who work at least 30 hours per week and have completed the required
waiting period. Contributions to the plan are made as prescribed by the
trustees. The Corporation also has deferred compensation plans for its
directors and certain executive and senior officers. The Corporation does not
provide any significant postretirement or postemployment benefits other than
pension.
PER SHARE DATA
Per share data is based on the weighted average number of shares
outstanding during each period. Per share data reflects the effects of the
business combination accounted for as a pooling of interests in 1994 (See Note
2).
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and amounts due from banks. The Corporation paid income taxes
approximating $32,728,000 in 1995, $32,725,000 in 1994 and $32,124,000 in 1993.
Interest paid on deposit liabilities and other borrowings approximated
$159,253,000 in 1995, $124,581,000 in 1994 and $119,355,000 in 1993.
For the years ended December 31, 1995, 1994 and 1993, noncash transfers
from loans to foreclosed properties were $2,991,000, $1,490,000 and $2,989,000,
respectively.
<PAGE> 10
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993
financial statements to conform to the 1995 method of presentation.
RECENT PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of." This statement requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. SFAS
No. 121 is effective for fiscal years beginning after December 15, 1995. The
adoption of this statement will not have a material impact on the Corporation's
consolidated financial statements.
The FASB has also issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights and Excess Servicing Receivables and for Securitization of Mortgage
Loans." The new statement amends Statement No. 65, "Accounting for Certain
Mortgage Banking Activities," and primarily eliminates the distinction between
purchased mortgage servicing rights and mortgage servicing rights on loans
originated by the financial institution. SFAS No. 122 is effective for fiscal
years beginning after December 15, 1995. The adoption of this statement will
not have a material impact on the Corporation's consolidated financial
statements.
In October of 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans and is
effective for fiscal years beginning after December 15, 1995. Since the
Corporation currently does not have any stock-based employee compensation
plans, the adoption of this statement will have no effect on the Corporation's
consolidated financial statements.
<PAGE> 11
NOTE 2 - BUSINESS COMBINATIONS
On October 7, 1994, First National Financial Corporation (FNFC) and its
wholly-owned subsidiary, First National Bank of Vicksburg, were merged with the
Corporation. The stockholders of FNFC received 3,600,262 shares of the
Corporation's common stock in connection with the merger. In addition, cash
payments of approximately $1,105,000 were made in connection with the merger.
All financial data of the Corporation reflects the business combination using
the pooling of interests method of accounting.
On July 31, 1993, UniSouth Banking Corporation (UniSouth) was merged with
Trustmark National Bank in a business combination accounted for by the purchase
method of accounting. The total purchase price was approximately $29,647,000.
The stockholders of UniSouth received 1,696,524 shares of the Corporation's
common stock and approximately $677,000 cash related to the merger. The
Corporation received cash and cash equivalents of approximately $20,601,000,
loans and other assets of approximately $153,895,000 and assumed deposits and
other liabilities of approximately $158,044,000. Excess cost over net assets
acquired approximated $12,518,000 and has been allocated to core deposits. The
results of operations of UniSouth, which are not material, subsequent to July
31, 1993 are included in the consolidated statements of income.
<PAGE> 12
NOTE 3 - CASH AND DUE FROM BANKS
The Corporation is required to maintain average reserve balances with the
Federal Reserve Bank. The reserve balance varies depending upon the types and
amounts of deposits. At December 31, 1995, the reserve balance with the
Federal Reserve Bank was approximately $33,775,000.
<PAGE> 13
NOTE 4 - SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY
A summary of the amortized cost and estimated fair value of
securities available for sale and held to maturity at December 31,
1995 and 1994 follows ($ in thousands):
<TABLE>
<CAPTION>
Securities Available for Sale
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------ ------------- ----------- ----------
<S> <C> <C> <C> <C>
1995
U.S. Treasury and other U.S.
Government agencies $ 413,385 $ 2,479 $ (263) $ 415,601
Obligations of states and political
subdivisions
Debt securities of foreign governments
Mortgage-backed securities 53,382 1,187 (50) 54,519
Other securities 13,080 5,498 (5) 18,573
------------ --------- ----------- ---------
Total $ 479,847 $ 9,164 $ (318) $ 488,693
------------ --------- ----------- ---------
1994
U.S. Treasury and other U.S.
Government agencies $ 376,302 $ 14 $ (13,856) $ 362,460
Obligations of states and political
subdivisions
Debt securities of foreign governments
Mortgage-backed securities 63,388 246 (2,933) 60,701
Other securities 12,909 3,621 16,530
------------ --------- ----------- ----------
Total $ 452,599 $ 3,881 $ (16,789) $ 439,691
============ ========= =========== ==========
<CAPTION>
Securities Held to Maturity
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
1995
U.S. Treasury and other U.S.
Government agencies $ 257,335 $ 2,546 $ (210) $ 259,671
Obligations of states and political
subdivisions 212,065 8,703 (909) 219,859
Debt securities of foreign governments 100 100
Mortgage-backed securities 884,132 10,113 (3,205) 891,040
Other securities
------------ ---------- ----------- ------------
Total $ 1,353,632 $ 21,362 $ (4,324) $ 1,370,670
============ ========== =========== ============
1994
U.S. Treasury and other U.S.
Government agencies $ 316,109 $ 745 $ (10,773) $ 306,081
Obligations of states and political
subdivisions 192,321 4,214 (7,117) 189,418
Debt securities of foreign governments 100 100
Mortgage-backed securities 914,130 309 (64,424) 850,015
Other securities
------------ ---------- ----------- ------------
Total $ 1,422,660 $ 5,268 $ (82,314) $ 1,345,614
============ ========== =========== ============
</TABLE>
On January 1, 1994, in adopting SFAS No. 115, the Corporation transferred
securities with an amortized cost of approximately $629,000,000 from held to
maturity to available for sale. There were no other transfers made between
classifications during 1994. In November of 1995, the FASB issued a special
report giving guidance regarding implementation of SFAS No. 115. In that
report, FASB allowed for the reassessment of the appropriateness of the
classifications of all securities held. Reclassifications from the held to
maturity category which resulted from this one-time reassessment were not
presumed to call into question the intent of the Corporation with regards to
other securities in the held to maturity category. As a result of this
reassessment, the Corporation transferred a single U.S. Treasury security from
the held to maturity category to the available for sale category. At the time
of transfer the security had a carrying value of $25,121,000, an approximate
fair value of $25,461,000 and an unrealized holding gain of $340,000. There
were no other transfers made between classifications during 1995.
Gross gains of $1,386,000 and gross losses of $1,280,000 were realized in
1995 as a result of calls and dispositions of securities classified as
available for sale. During 1994, gross gains of $4,197,000 and gross losses of
$5,594,000 were realized as a result of calls and dispositions of securities
classified as available for sale. During 1993, gross gains and gross losses on
dispositions of securities carried at the lower of aggregate cost or fair value
were not material. At December 31, 1995 and 1994, the net adjustments to
unrealized holding gains or (losses) on available for sale securities included
as a separate component of stockholders' equity were $5,462,000 and
($7,971,000), respectively. The net change in the unrealized holding gains or
(losses) during 1995 was a gain of $13,433,000.
During 1995 and 1994, there were no sales of securities held to maturity.
Gross gains of $217,000 and $23,000 were realized on calls and other
dispositions of these securities during 1995 and 1994, respectively. Gross
gains of $623,000 and gross losses of $148,000 were realized in 1993 as the
result of calls and the disposition of securities held to maturity. All sales
of held to maturity securities during 1993 were related to business
combinations.
The amortized cost and estimated fair value of securities available for
sale and held to maturity at December 31, 1995, by contractual maturity, are
shown below ($ in thousands). Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Securities
Available For Sale Held To Maturity
---------------------------------- ---------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Due in one year or less $ 122,351 $ 122,518 $ 57,874 $ 58,474
Due after one year through five years 291,034 293,083 281,654 285,072
Due after five years through ten years 87,535 91,588
Due after ten years 13,080 18,573 42,437 44,496
------------- ------------- ------------- -------------
426,465 434,174 469,500 479,630
Mortgage-backed securities 53,382 54,519 884,132 891,040
------------- ------------- ------------- -------------
Total $ 479,847 $ 488,693 $ 1,353,632 $ 1,370,670
============= ============= ============= ============
</TABLE>
Securities with a carrying value of $1,602,709,000 at December 31, 1995
and $1,491,333,000 at December 31, 1994 were pledged to collateralize public
deposits, securities sold under agreements to repurchase, and for other
purposes as required or permitted by law.
<PAGE> 14
NOTE 5 - LOANS
At December 31, 1995 and 1994, the loan portfolio carrying values consisted of
the following ($ in thousands):
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Real estate loans:
Construction and land development $ 144,010 $ 123,364
Secured by 1-4 family residential properties 553,997 504,078
Secured by nonfarm, nonresidential properties 380,734 345,130
Other 69,422 63,169
Loans to finance agricultural production 37,434 34,910
Commercial and industrial 616,949 594,836
Loans to individuals for personal expenditures 641,409 606,444
Obligations of states and political subdivisions 63,557 50,033
Loans for purchasing or carrying securities 11,626 1,840
Lease financing receivables 2,360 3,871
Other loans 50,593 19,890
------------ ------------
Loans, net of unearned interest 2,572,091 2,347,565
Allowance for loan losses (62,000) (65,014)
------------ ------------
Net loans $ 2,510,091 $ 2,282,551
============ ============
</TABLE>
In the ordinary course of business, the Corporation makes loans to its
directors and to companies in which these directors are principal owners. In
the opinion of Management, such loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other parties. An analysis of changes in these
loans follows ($ in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1995 $ 66,535
New loans 124,206
Repayments (137,896)
Other changes 9,083
--------------
Balance at December 31, 1995 $ 61,928
==============
</TABLE>
Changes in the allowance for loan losses were as follows ($ in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------- -------------
<S> <C> <C> <C>
Balance at January 1 $ 65,014 $ 65,014 $ 51,871
Provision charged to expense 2,439 2,786 18,596
Loans charged off (9,490) (7,081) (11,565)
Recoveries 4,037 4,295 5,790
Allowance applicable to loans of acquired bank 322
----------- ---------- -----------
Balance at December 31 $ 62,000 $ 65,014 $ 65,014
=========== ========== ===========
</TABLE>
At December 31, 1995, the recorded investment in commercial loans that are
considered to be impaired under SFAS No. 114 was $8,103,000 (all of which were
on a nonaccrual basis). As a result of direct write-downs, the specific
allowance related to these impaired loans is immaterial. The average recorded
investment in impaired loans during the year ended December 31, 1995 was
approximately $11,000,000. For the year ended December 31, 1995, the amount of
interest income recognized on impaired loans was immaterial.
Loans on which the accrual of interest has been discontinued or reduced
approximated $10,055,000 at December 31, 1995. The foregone interest
associated with such loans is immaterial.
<PAGE> 15
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows ($ in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
--------- ---------
<S> <C> <C>
Land $ 10,787 $ 10,594
Buildings and leasehold improvements 71,705 70,289
Furniture and equipment 64,294 64,465
--------- ---------
146,786 145,348
Less accumulated depreciation and amortization 85,593 81,270
--------- ---------
Premises and equipment $ 61,193 $ 64,078
========= =========
</TABLE>
<PAGE> 16
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At December 31, 1995, the carrying values of securities sold under
repurchase agreements, by contractual maturity, are shown below ($ in
thousands):
Carrying
Value
--------
In one day $ 82,635
Term up to 30 days 70,303
Term of 30 to 90 days 70,751
Term of 90 days and over 11,719
Demand 621,900
--------
Total $857,308
========
The weighted average interest rate for these repurchase agreements was
5.11% at December 31, 1995. The repurchase agreements are collateralized by
specific U. S. Treasury and other U. S. Government agency securities with
carrying values of approximately $874,790,000 and fair values of approximately
$911,825,000.
<PAGE> 17
NOTE 8 - INCOME TAXES
The income tax provision included in the statements of income was as follows ($
in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
CURRENT:
Federal $ 30,262 $ 26,556 $ 30,412
State 2,948 2,070 2,259
DEFERRED:
Federal (1,586) 606 (11,439)
State (42) 5 (1,126)
---------- ---------- ---------
Net income tax provision $ 31,582 $ 29,237 $ 20,106
========== ========== =========
</TABLE>
The net income tax provision differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes as a result
of the following ($ in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- --------------------- -----------------
Percent Percent Percent
of Pretax of Pretax of Pretax
Tax Income Tax Income Tax Income
--------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax computed on income before income taxes $ 31,969 35.0% $ 29,485 35.0% $ 25,325 35.0%
(Decrease) increase in tax resulting from:
Tax exempt security interest net of premium amortization (3,111) (3.4) (3,393) (4.0) (3,550) (4.9)
Nondeductible interest expense 565 .6 429 0.5 247 0.3
State income tax, net 2,906 3.2 2,075 2.5 1,133 1.6
Cumulative effect of change in accounting for income taxes (1,575) (2.2)
Adjustment to deferred tax assets and liabilities for enacted
change in tax rates (583) (0.8)
Other (747) (.8) 641 0.7 (891) (1.4)
--------- ----- --------- ----- -------- ------
Net income tax provision $ 31,582 34.6% $ 29,237 34.7% $ 20,106 27.6%
========= ===== ========= ==== ========= ------
</TABLE>
The income tax provision (benefit) included $124,000 in 1995, ($526,000) in
1994 and $192,000 in 1993 resulting from securities transactions.
Temporary differences between the financial statement carrying amounts and
the tax bases of assets and liabilities give rise to the following net deferred
tax asset, which is included in other assets ($ in thousands):
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS: 1995 1994
---------- -----------
<S> <C> <C>
Allowance for loan losses $ 23,214 $ 24,304
Unrealized securities losses 4,937
Deferred compensation 3,319 2,827
Capitalized mortgage servicing costs 1,731 1,783
Core deposit intangibles 1,295 14
Other 2,577 1,883
---------- -----------
Total gross deferred tax asset 32,136 35,748
DEFERRED TAX LIABILITIES:
Unrealized securities gains (3,383)
Pension plan (1,220) (1,232)
Accretion of discounts on securities (1,124) (1,142)
Accelerated depreciation and amortization (713) (745)
Other (365) (606)
---------- -----------
Total gross deferred tax liability (6,805) (3,725)
---------- -----------
Net deferred tax asset $ 25,331 $ 32,023
========== ===========
</TABLE>
The Corporation has evaluated the need for a valuation allowance and,
based on the weight of the available evidence, has determined that it is more
likely than not that all deferred tax assets will eventually be realized.
During 1995, the Corporation concluded an income tax examination for the
years 1989, 1990 and 1991. Also, in 1994, the Corporation reached a settlement
with the Internal Revenue Service regarding the deduction for amortization of
core deposit intangibles. The effects of these matters are not material.
<PAGE> 18
NOTE 9 - EMPLOYEE BENEFIT PLANS
Net periodic pension costs included the following components ($ in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -------------
<S> <C> <C> <C>
Service cost earned during period $ 2,537 $ 2,489 $ 2,140
Interest cost on projected benefit obligation 2,249 2,030 1,557
Actual return on assets (6,278) 47 (2,888)
Net amortization and deferral:
Amortization of unrecognized net assets and
prior service cost (102) (144) (191)
Asset gain (loss) deferred 3,652 (2,502) 911
----------- ----------- -------------
Net periodic pension costs $ 2,058 $ 1,920 $ 1,529
=========== =========== =============
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the Corporation's consolidated balance sheets at December 31,
1995 and 1994 ($ in thousands):
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested $ 25,446 $ 22,709
Nonvested 563 452
------------ ------------
Accumulated benefit obligation $ 26,009 $ 23,161
============ ============
Projected benefit obligation $ (34,675) $ (30,635)
Plan assets at fair value 37,585 31,549
------------ ------------
Plan assets in excess of projected benefit obligation 2,910 914
Unrecognized net (gain) loss (618) 2,186
Unrecognized net assets being amortized over 15 years (2,394) (2,758)
Unrecognized prior service cost 2,616 2,878
Contributions after measurement date 676
------------ ------------
Prepaid pension assets $ 3,190 $ 3,220
============ ============
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.5%. The rate of
increase in future compensation was 4%. The expected long-term rate of return
on plan assets was 8.5%.
Plan assets included common stocks, trust department pooled funds,
short-term investment funds and fixed investment funds guaranteed by insurance
carriers.
Operating expenses included $5,154,000 (1995), $4,651,000 (1994) and
$5,450,000 (1993) for contributions to the Corporation's other employee benefit
plans.
<PAGE> 19
NOTE 10 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Corporation currently has lease commitments for banking premises and
general offices and equipment which expire from 1996 to 2010. The majority of
these commitments contain renewal options which extend the base lease from 5 to
20 years. Rental expense approximated $2,377,000 in 1995, $2,221,000 in 1994
and $1,855,000 in 1993.
Minimum rental commitments at December 31, 1995, under material,
noncancelable leases for banking premises and general offices and equipment,
were as follows ($ in thousands):
Year ended Minimum Rental
December 31, Commitment
------------ --------------
[S] [C]
1996 $ 934
1997 789
1998 604
1999 442
2000 399
2001-2010 1,347
LEGAL PROCEEDINGS
In January 1995, a judgment was rendered in a Mississippi trial court
against the Corporation's subsidiary, Trustmark National Bank, in a case
related to the placement of collateral protection insurance ("CPI") by the Bank
on a particular loan. The judgment awarded $500 thousand in actual damages
(against the Bank and the insurance agent, jointly and severally) and $38
million in punitive damages (against the Bank only). The Bank filed motions
for entry of judgment in its favor, or for a new trial, or to reduce the
verdicts. The judge took the motions under advisement in April 1995. On
August 4, 1995, the court reduced the punitive damage award from $38 million to
$5 million. The judge left the actual damage award intact. Notice of appeal
has been filed by the Bank appealing this case to the Mississippi Supreme
Court. Notice of cross-appeal has been filed by the plaintiffs.
There are eleven other CPI-related suits in state courts and nine
CPI-related suits in federal courts. On September 18, 1995, one of the federal
court suits was certified as a class action, with the class broadly defined to
include all persons who financed an automobile through the Bank and whose loan
accounts were charged for CPI premiums. One of the CPI insurers, the CPI
underwriter and the insurance agent are also defendants to the class action.
The court proceedings are matters of public record.
The cases are being vigorously contested. Investigation is continuing.
Similar, but not identical, cases in other states have had a variety of
results, including settlements. Trustmark's program was consistent with those
of numerous other banks, including banks in Mississippi which are in the
process of defending or settling similar suits. While the ultimate outcome of
this legal matter cannot be predicted with reasonable certainty, Management
believes that the resolution of this matter will not
<PAGE> 20
have a material adverse effect on the Corporation's consolidated financial
position. However, Management cannot predict with reasonable certainty the
impact that it might have on the Corporation's consolidated results of
operations during periods until the litigation is terminated.
In addition, the Bank is defendant in various other pending and threatened
legal actions arising in the normal course of business. In the opinion of
Management, and based on the advice of legal counsel, the ultimate resolution
of these matters will not have a material effect on the Corporation's
consolidated financial statements.
REGULATORY MATTERS
Various legislative proposals regarding the future of the Savings
Insurance Fund (SAIF) have been reported recently. Several of these proposals
include a one-time special assessment for SAIF deposits. The Corporation has
approximately $366 million of deposits insured by SAIF as the result of
assisted purchases made through transactions defined as "Oakar" by the FDIC.
At the present time, Congress is still debating the specific features of this
legislation. Consequently, the Corporation does not know when and if any such
proposal may be adopted or the ultimate effect on its insurance assessment
resulting from deposits insured by the SAIF.
<PAGE> 21
NOTE 11 - OFF-BALANCE SHEET INSTRUMENTS
The Corporation 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. The Corporation also engages in
forward contracts in order to manage its own exposure to the risks of interest
rate fluctuations.
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. The Corporation 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.
Standby and commercial letters of credit are conditional commitments
issued by the Corporation to guarantee the performance of a customer to a third
party. Essentially, the same policies regarding credit risk and collateral
which are followed in the lending process are used when issuing letters of
credit.
Forward contracts are agreements to purchase or sell securities or other
money market instruments at a future specified date at a specified price or
yield. Credit risk may arise from the possibility that counterparties may not
have the ability to fulfill their commitments. Market risk arises from
movements in interest rates and securities values. At December 31, 1995,
obligations under forward contracts consist of commitments to sell mortgages
originated or purchased by the Corporation in the secondary market at a future
date. As of December 31, 1995, the Corporation's exposure under commitments to
sell mortgages in the future is immaterial.
The Corporation's maximum exposure to credit loss in the event of
nonperformance by the other party for loan commitments and letters of credit is
represented by the contractual notional amount of those instruments. However,
for forward contracts, the contractual or notional amounts do not represent the
Corporation's actual exposure to credit loss at December 31, 1995, as
represented below ($ in thousands):
Contractual or
Notional Amount
---------------
1995 1994
---- ----
Financial instruments whose contractual
amounts represent credit risk:
Loan commitments $641,911 $575,328
Standby and commercial letters
of credit written 28,195 35,304
Financial instruments whose contractual or
notional amounts exceed the amount of
credit risk:
Forward contracts 163,855 34,250
<PAGE> 22
NOTE 12 - STOCKHOLDERS' EQUITY
Banking regulations limit the amount of dividends that may be paid without
prior approval of the Bank's regulatory agency. At December 31, 1995,
approximately $136,315,000 of undistributed earnings of the Bank included in
consolidated surplus and retained earnings was available for future
distribution to the Corporation as dividends, subject to approval by the Board
of Directors. Banking regulations also require maintaining certain minimum
levels of capital for which the Bank is in compliance.
In 1995, the Corporation's Board of Directors increased the authorized
number of shares of the Corporation from 40,000,000 to 100,000,000 shares.
<PAGE> 23
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Values of Financial Instruments,"
requires disclosure of financial instruments' fair values, as well as the
methodology and significant assumptions used in estimating fair values. In
cases where quoted market prices are not available, fair values are based on
estimates using present value techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates for those
assets or liabilities cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of
the instrument. The estimated fair value of financial instruments with
immediate and shorter-term maturities (generally 90 days or less) is assumed to
be the same as the recorded book value. All nonfinancial instruments, by
definition, have been excluded from these disclosure requirements.
Accordingly, the aggregate fair value amounts presented below do not represent
the underlying value of the Corporation. The carrying amounts and estimated
fair values of financial instruments for December 31, 1995 and 1994 are as
follows ($ in thousands):
<TABLE>
<CAPTION>
1995 1994
----------------------------------- ----------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 412,591 $ 412,591 $ 385,845 $ 385,845
Trading account securities 226 226 1,150 1,150
Securities available for sale 488,693 488,693 439,691 439,691
Securities held to maturity 1,353,632 1,370,670 1,422,660 1,345,614
Net loans 2,510,091 2,514,973 2,282,551 2,319,329
FINANCIAL LIABILITIES:
Deposits 3,530,045 3,536,141 3,449,229 3,449,492
Short-term liabilities 932,983 932,983 851,038 851,038
</TABLE>
The methodology and significant assumptions used in estimating the fair
values presented above are as follows:
CASH AND SHORT-TERM INVESTMENTS
The carrying amounts for cash and due from banks and short-term
investments (federal funds sold and securities purchased under reverse
repurchase agreements) approximate fair values due to the immediate and
shorter-term maturities.
SECURITIES
Estimated fair values for trading account securities, securities available
for sale, and securities held to maturity are based on quoted market prices
where available. If quoted market prices are not available, estimated fair
values are based on quoted market prices of comparable instruments.
LOANS
The fair values of loans are estimated for portfolios of loans with
similar financial characteristics. For variable rate loans that reprice
frequently and with no significant change in credit risk, fair values are based
on carrying values. The fair values of certain mortgage loans, such as
one-to-four family residential properties, are based on quoted market prices of
similar loans sold in conjuction with securitization transactions, adjusted for
differences in loan characteristics. The fair values of other types of loans are
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for
the same remaining maturities.
<PAGE> 24
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS - Continued
DEPOSITS
The fair values of deposits with no stated maturity, such as
noninterest-bearing demand deposits, NOW accounts, MMDA products and savings
accounts are, by definition, equal to the amount payable on demand. This amount
is commonly referred to as the carrying value. Fair values for certificates of
deposit are based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for deposits of
similar remaining maturities.
SHORT-TERM LIABILITIES
The carrying amounts for federal funds purchased, securities sold under
repurchase agreements and other liabilities approximate their fair values.
OFF-BALANCE SHEET INSTRUMENTS
The fair values of loan commitments, letters of credit and forward
contracts approximate the fees currently charged for similar agreements or the
estimated cost to terminate or otherwise settle similar obligations. The fees
associated with these financial instruments, or the estimated cost to
terminate, as applicable, are immaterial.
<PAGE> 25
NOTE 14 - SUMMARIZED FINANCIAL INFORMATION OF TRUSTMARK CORPORATION
Summarized financial information of Trustmark Corporation, parent company
only, was as follows ($ in thousands):
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Investment in bank $ 468,062 $ 414,095
Other assets 11,906 8,276
------------ ------------
TOTAL ASSETS $ 479,968 $ 422,371
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses $ 1,216 $ 1,361
Stockholders' equity 478,752 421,010
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 479,968 $ 422,371
============ ============
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
REVENUE
Dividends received from bank $ 17,487 $ 14,178 $ 12,808
Equity in undistributed earnings of subsidiaries 41,693 40,805 37,081
Other income 779 1,119 2,612
----------- ------------ ------------
59,959 56,102 52,501
EXPENSES 201 1,097 249
----------- ------------ ------------
NET INCOME $ 59,758 $ 55,005 $ 52,252
=========== ============ ============
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 59,758 $ 55,005 $ 52,252
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in investment in subsidiaries (41,693) (40,805) (37,081)
Other (298) 473 (2,473)
----------- ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,767 14,673 12,698
INVESTING ACTIVITIES
Cash paid in connection with business combination (1,105) (677)
Purchases of securities available for sale (234) (567)
----------- ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (234) (1,672) (677)
FINANCING ACTIVITIES
Cash dividends-net cash used by financing activities (15,449) (13,936) (12,504)
----------- ------------ ------------
Increase (decrease) in cash and cash equivalents 2,084 (935) (483)
Cash and cash equivalents at beginning of year 373 1,308 1,791
----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,457 $ 373 $ 1,308
=========== ============ ============
</TABLE>
Trustmark Corporation paid income taxes of approximately $32,728,000 in
1995, $32,725,000 in 1994 and $32,124,000 in 1993. No interest was paid by the
parent company during the three years ended December 31, 1995.
<PAGE> 26
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995 1994 1993 1992 1991
- -------------------------------------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
TRUSTMARK
CONSOLIDATED STATEMENTS OF INCOME CORPORATION
Total interest income $ 348,341 $ 315,449 $ 310,607 $ 310,626 $ 333,668 AND
Total interest expense 161,545 124,290 116,770 138,369 187,215 SUBSIDIARIES
------------ ----------- ------------ ----------- ------------
Net interest income 186,796 191,159 193,837 172,257 146,453
Provision for loan losses 2,439 2,786 18,596 26,737 27,177 SELECTED
Noninterest income 59,467 48,670 47,898 45,583 40,269 FINANCIAL
Noninterest expense 152,484 152,801 150,781 132,844 120,226 DATA
------------ ----------- ------------ ----------- ------------ (UNAUDITED)
Income before income taxes 91,340 84,242 72,358 58,259 39,319 ($ In Thousands
Income taxes 31,582 29,237 20,106 17,490 9,107 Except Share
------------ ----------- ------------ ----------- ------------ Data)
Net income $ 59,758 $ 55,005 $ 52,252 $ 40,769 $ 30,212
============ =========== ============ =========== ============
PER SHARE DATA
Net income per share $1.71 $1.58 $1.55 $1.23 $0.91
===== ===== ===== ===== =====
Cash dividends per share $0.44 $0.41 $0.37 $0.34 $0.33
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
December 31,
- -----------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS
Total assets $ 4,992,592 $ 4,763,365 $ 4,708,206 $ 4,346,985 $ 4,136,835
Securities - nontrading 1,842,325 1,862,351 1,980,566 1,718,635 1,436,086
Net loans 2,510,091 2,282,551 2,166,004 2,007,629 2,004,425
Deposits 3,530,045 3,449,229 3,428,781 3,431,383 3,389,989
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1995 March 31 June 30 September 30 December 31
- ------------------------------------ -------- -------- ------------ -----------
<S> <C> <C> <C> <C>
SUMMARY
OF QUARTERLy
Interest income $83,659 $86,924 $88,819 $88,939 RESULTS OF
Net interest income 45,881 45,898 47,357 47,660 OPERATIONS
Provision for loan losses 563 (791) 1,183 1,484 (unaudited)
Income before income taxes 20,914 22,613 24,549 23,264 ($ In Thousands
Net income 13,884 14,715 16,126 15,033 Except Share
Net income per share $0.40 $0.42 $0.46 $0.43 Data)
1994 March 31 June 30 September 30 December 31
- ------------------------------------ -------- -------- ------------ -----------
Interest income $76,326 $77,770 $79,558 $81,795
Net interest income 47,770 47,890 47,853 47,646
Provision for loan losses 312 423 694 1,357
Income before income taxes 20,617 21,999 21,412 20,214
Net income 13,820 14,696 13,940 12,549
Net income per share $0.40 $0.42 $0.40 $0.36
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
----------------------------------------------------------
Dividends Stock Prices
Per ----------------------
Share High Low
----------------------------------------------------------
<S> <C> <C> <C> <C>
TRUSTMARK 1995
CORPORATION -----------
AND 1st Quarter $ .1075 17 1/2 15
SUBSIDIARIES 2nd Quarter .1075 18 1/2 14 3/4
PRINCIPAL 3rd Quarter .1075 19 3/8 17
MARKETS 4th Quarter .12 22 3/4 18
AND PRICES
OF THE 1994
STOCK -----------
1st Quarter $ .10 17 1/4 14 1/2
2nd Quarter .10 19 1/2 14 3/4
3rd Quarter .10 19 3/4 17 3/4
4th Quarter .1075 19 1/2 15 3/4
</TABLE>
The Corporation's common stock is listed for trading
on the Nasdaq stock market as stock symbol TRMK.
<PAGE> 28
BUSINESS OF THE CORPORATION AND ITS SUBSIDIARIES
Trustmark Corporation is a one-bank holding company which was incorporated
under the Mississippi Business Corporation Act on August 5, 1968 and commenced
doing business in November 1968. The Corporation's primary business activities
are generated through its wholly-owned subsidiary, Trustmark National Bank
(Trustmark). Trustmark accounts for substantially all of the assets and
revenues of the Corporation. Trustmark, which was chartered by the State of
Mississippi in 1889, now has 162 locations serving 44 Mississippi communities
and offering a wide range of financial services through 97 full-service
branches and 28 limited-service branches. In addition, its ATM network
includes 71 automated teller machines at on-premise locations with 49 located
at off-premise sites. Trustmark's wholly-owned subsidiary, Trustmark Financial
Services, Inc., provides a wide range of investment products through a
full-service investment center. The Corporation also directly owns all of the
stock of F. S. Corporation and First Building Corporation, both nonbank
Mississippi corporations. F. S. Corporation and First Building Corporation are
primarily dormant and are not considered significant subsidiaries.
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements found elsewhere in this report.
EARNINGS SUMMARY
Trustmark Corporation's net income for the year ended December 31, 1995
was $59.8 million, or $1.71 per share, as compared to $55.0 million, or $1.58
per share, for the same time period in 1994, an increase of 8.6%. Net income
for the year ended December 31, 1993 was $52.3 million, or $1.55 per share.
Two key measures of profitability in the banking industry are return on average
assets (ROA) and return on average equity (ROE). ROA rose to 1.23% in 1995
from 1.15% in 1994 and 1.14% in 1993. The improvements in the Corporation's
performance are attributed primarily to significant growth in noninterest
income combined with a continued emphasis on the control of noninterest
expenses. ROE was 13.23% in 1995 versus 13.42% in 1994 and 14.71% in 1993. ROE
has declined during the three-year period presented because the pace of growth
for equity has exceeded the growth of earnings.
BUSINESS COMBINATIONS
The Corporation's primary means of asset growth has been through the
merger and acquisition of financial institutions. The most recent acquisition
was consummated on October 7, 1994, when the Corporation completed the merger
of First National Financial Corporation (FNFC) of Vicksburg, Mississippi and
its wholly-owned subsidiary, First National Bank of Vicksburg (FNBV). All
financial data of the Corporation reflects the business combination using the
pooling of interests method of accounting.
On July 31, 1993, UniSouth Banking Corporation (UniSouth), of Columbus,
Mississippi, was merged with Trustmark National Bank. This business combination
has been accounted for by the purchase method of accounting. Accordingly, the
financial statements include the effect of this business combination only since
its consummation. Please see Note 2 of the Notes to Consolidated Financial
Statements for additional information.
ASSET/LIABILITY MANAGEMENT AND LIQUIDITY
A key objective of the Corporation's asset/liability management program is
to optimize and maintain the spread between interest earned and interest paid
while ensuring an adequate liquidity position. The Asset/Liability Committee
monitors and adjusts the Corporation's exposure to interest rates, within
specific policy guidelines, based on its analysis of current and expected
market conditions. The primary tool utilized by this committee is an
asset/liability modeling system which is used to evaluate exposure to interest
rate risk and to project earnings and balance sheet growth. The
Asset/Liability Committees of both senior bank officials and the Board of
Directors meet monthly to evaluate current and projected interest rate risk
positions.
<PAGE> 30
Another tool used to monitor the Corporation's overall interest rate
sensitivity is a gap analysis. The table below represents the Corporation's 90
day and one year gap position as of December 31, 1995 ($ in thousands):
Interest Sensitive Within
--------------------------
90 days One Year
----------- -----------
Total rate sensitive assets $1,331,629 $2,007,078
Total rate sensitive liabilities 1,694,224 2,526,783
----------- -----------
Net gap $ (362,595) $ (519,705)
=========== ===========
The analysis indicates that the Corporation is in a negative gap position
over the next three month and twelve month time horizons. In response to
slightly falling interest rates, the Corporation's negative net gap position
has grown slightly during the last half of 1995. Management believes that
there is adequate flexibility to alter the overall rate sensitivity structure
as necessary to minimize exposure to changes in interest rates should they
occur.
The Asset/Liability Committee establishes guidelines by which the current
liquidity position is monitored to ensure adequate funding capacity. The
Corporation's goal is to maintain an adequate liquidity position to compensate
for expected and unexpected balance sheet fluctuations and to provide funds for
growth. This is achieved by maintaining a stable base of core deposits,
accessibility to local, regional and national funding sources, readily
marketable assets and diversity in customers, products and market areas. The
ability to maintain liquidity is also enhanced by consistent earnings power and
adequate capital.
EARNING ASSETS
Improved loan demand was the driving force behind the growth of earning
assets during 1995. At December 31, 1995, earning assets were $4.528 billion,
or 90.7% of total assets, compared to $4.317 billion, or 90.6% of total assets,
at the end of 1994.
Total loans increased by $224.5 million or 9.56% during 1995. Declining
market interest rates have boosted loan demand by stimulating consumer
spending, which in turn has given incentive to businesses to pursue capital
expansions and boost inventories. In addition, reduced interest rates have also
provided a major boost to real estate lending.
The most substantial growth in the loan portfolio was seen in real estate
loans, which increased by $112.4 million, primarily in loans secured by
residential and commercial properties. In addition, the Corporation's ability
to provide quality service to construction borrowers has proven to be
instrumental in the growth of residential construction and development loans.
The Corporation continued its commitment to the growth of the mortgage
servicing portfolio during 1995. The Corporation's strategy is to package and
sell substantially all qualified one-to-
<PAGE> 31
four family residential mortgage loans that the Corporation has originated or
purchased while retaining the right to service these mortgages. At December
31, 1995, the Corporation's volume of residential mortgage loan servicing was
approximately $2.473 billion compared to $2.088 billion at the end of 1994.
This increase of over $384 million can be attributed to the strong growth of
loans purchased in the correspondent market and the continued emphasis on loans
originated within the Corporation.
Commercial and consumer loans grew $57.1 million during 1995 in response
to the state's improving economic climate. The most significant changes were
in the Manufacturing, Retail and Service industries. A more detailed analysis
of the Corporation's loan portfolio is presented in Note 5 of the Notes to
Consolidated Financial Statements.
The Corporation's conservative lending policies have produced consistently
good asset quality. A measure of asset quality in the financial institutions
industry is the level of nonperforming assets. Nonperforming assets include
nonperforming loans, consisting of nonaccrual and restructured loans, and other
real estate as reflected in the table below ($ in thousands):
December 31,
---------------
1995 1994
------- -------
Loans accounted for on a nonaccrual basis $10,055 $12,817
Other real estate 3,982 3,723
Loans past due 90 days or more & still accruing 1,810 2,252
Total nonperforming assets and ------- -------
loans past due 90 days or more $15,847 $18,792
======= =======
Overall nonperforming assets and loans past due 90 days or more remain
well-controlled and as a result continue to compare favorably to peer levels.
The decline in nonperforming assets and loans past due 90 days or more
experienced during 1995 illustrates the Corporation's commitment to credit
quality in light of the $224.5 million increase in total loans during that time
period. As a percentage of total loans and other real estate, nonperforming
assets declined from .70% at the end of 1994 to .54% at the end of 1995. At
December 31, 1995, Management is not aware of any additional credits, other
than those identified above, where serious doubts as to the repayment of
principal and interest exist.
The current level of the allowance for loan losses approximates 2.41% of
total loans outstanding. The allowance for loan losses is maintained at a level
which Management and the Board of Directors believe is adequate to absorb
estimated losses inherent in the loan portfolio, plus estimated losses
associated with off-balance sheet credit instruments such as letters of credit
and unfunded lines of credit. The adequacy of the allowance is reviewed on a
quarterly basis by using the criteria specified in revised Comptroller of the
Currency Banking Circular 201 as well as additional guidance provided by
regulatory authorities. This analysis is presented to the Credit Policy
Committee with
<PAGE> 32
subsequent review and approval by the Board of Directors. Because of the
imprecision and subjectivity inherent in most estimates of expected credit
losses, Management will continue to take a prudent approach in the evaluation
of the allowance for loan losses. An analysis of the changes in the allowance
for loan losses is contained in Note 5 of the Notes to Consolidated Financial
Statements.
Net charge-offs totaled $5.453 million during 1995 resulting in a net
charge-off ratio of .22%. This compares to net charge-offs of $2.786 million
or a net charge-off ratio of .12% for 1994. A large portion of this increase
can be attributed to a one-time charge-off of approximately $2.3 million from a
specific line of business that was taken during the first six months of 1995.
The securities portfolio is utilized to provide a quality investment
alternative for available funds and to provide a stable source of interest
income. At December 31, 1995, total securities were $1.842 billion, a decrease
of $20.0 million or 1.08% from the end of 1994. This slight decrease in the
securities portfolio is partially attributable to the Corporation's decision to
maintain its investment portfolio at approximately its current level in order
to provide funds for loan growth. A more detailed presentation of the
composition of the securities portfolio is contained in Note 4 of the Notes to
Consolidated Financial Statements.
Within the portfolio, obligations of states, counties and municipalities
have grown as the Corporation seeks qualified tax-exempt income primarily from
Mississippi governmental units. Collateralized mortgage securities (CMO's)
comprise approximately one half of the securities portfolio. Roughly 92% of
CMO holdings are of the Planned Amortization Class structure, which provide a
high degree of cash flow stability. This high degree of structure combined
with a well distributed collateral base coincides with the Corporation's risk
profile for its securities portfolio. To ensure that the Corporation's CMO's
maintain a manageable range of average life and yield, two hundred basis point
rate shift tests are performed on a monthly basis.
The latest comparisons of the tax equivalent yield of the securities
portfolio show the Corporation remaining in the upper half of its peer group.
This has been accomplished while maintaining the quality of the portfolio. The
Corporation will remain cautious in planning its future strategy for
securities.
As a result of adopting SFAS No. 115 on January 1, 1994, the Corporation
transferred securities with an amortized cost of approximately $629 million
from held to maturity to available for sale. In November 1995, the FASB issued
a special report giving guidance regarding implementation of SFAS No. 115. In
that report, the FASB allowed for the reassessment of the appropriateness of
the classifications of all securities held. Reclassifications from the held to
maturity category were not presumed to call into question the intent of the
Corporation with regard to the remainder of the held to maturity portfolio. As
a result of this reassessment, the Corporation transferred a single U. S.
Treasury security from the held to maturity to the available for sale
classification. There were no other transfers made between classifications
during either
<PAGE> 33
1994 or 1995.
At December 31, 1995, the amortized cost and fair value of securities
classified as available for sale were $479.8 million and $488.7 million,
respectively. This resulted in an unrecognized gain, net of tax, of
approximately $5.462 million reported as a separate component of stockholders'
equity.
Gross gains of $1.386 million and gross losses of $1.280 million were
realized in 1995 as a result of calls and dispositions of securities classified
as available for sale. This compares to $4.197 million in gross gains and
$5.594 million in gross losses on this portfolio during 1994. During 1993,
gross gains and losses on this portfolio were immaterial.
At December 31, 1995, gross unrealized gains were $9.164 million while
gross unrealized losses were $318 thousand on securities classified as
available for sale. This compares to gross unrealized gains of $3.881 million
and gross unrealized losses of $16.789 million on this portfolio at December
31, 1994.
There were no sales of securities held to maturity during 1994 and 1995.
Gross gains of $217 thousand and $23 thousand were realized on calls and other
dispositions of these securities during 1995 and 1994, respectively. Gross
gains of $623 thousand and gross losses of $148 thousand were realized in 1993
as the result of calls and the disposition of securities held to maturity. All
sales of held to maturity securities during 1993 were related to a business
combination.
Gross unrealized gains approximated $21.362 million and gross unrealized
losses approximated $4.324 million on securities classified as held to maturity
at December 31, 1995. This compares to gross unrealized gains of $5.268
million and gross unrealized losses of $82.314 million on securities classified
as held to maturity at December 31, 1994.
Federal funds sold and securities purchased under reverse repurchase
agreements increased by $7.9 million when compared to the end of 1994. Market
conditions and liquidity needs are the driving forces behind the utilization of
federal funds sold and securities purchased under reverse repurchase agreements
as short-term investment products.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Deposits originating within the communities served by Trustmark are the
primary source of funding for the Corporation's earning assets. Trustmark
offers a variety of products designed to attract and retain customers with the
primary focus on core deposits.
Total deposits increased 2.34%, or $80.8 million, to $3.530 billion at
December 31, 1995 from $3.449 billion at December 31, 1994, primarily from
growth in its core deposit base. The composition of deposits remained
relatively stable when comparing year end balances.
Federal funds purchased decreased $84.5 million when compared to December
31, 1994. This can be traced to a decrease in funds available for purchase
from correspondent banks. Securities sold under repurchase agreements grew by
$166.4 million during 1995. This increase can be primarily attributed to
increased funds
<PAGE> 34
invested by governmental entities. More information on securities sold under
repurchase agreements is presented in Note 7 of the Notes to Consolidated
Financial Statements.
CONTINGENCIES
In January 1995, a judgment was rendered in a Mississippi trial court
against the Corporation's subsidiary, Trustmark National Bank, in a case
related to the placement of collateral protection insurance ("CPI") by
Trustmark on a particular loan. The judgment awarded $500 thousand in actual
damages (against Trustmark and the insurance agent, jointly and severally) and
$38 million in punitive damages (against Trustmark only). Trustmark filed
motions for entry of judgment in its favor, or for a new trial, or to reduce
the verdicts. The judge took the motions under advisement in April 1995. On
August 4, 1995, the court reduced the punitive damage award from $38 million to
$5 million. The judge left the actual damage award intact. Notice of appeal
has been filed by Trustmark appealing this case to the Mississippi Supreme
Court. Notice of cross-appeal has been filed by the plaintiffs.
There are eleven other CPI-related suits in state courts and ten suits in
federal courts. On September 18, 1995, one of the federal court suits was
certified as a class action, with the class broadly defined to include all
persons who financed an automobile through Trustmark and whose loan accounts
were charged for CPI premiums. One of the CPI insurers, the CPI underwriter and
the insurance agent are also defendants to the class action. The court
proceedings are matters of public record.
The cases are being vigorously contested. Investigation is continuing.
Similar, but not identical, cases in other states have had a variety of
results, including settlements. Trustmark's program was consistent with those
of numerous other banks, including banks in Mississippi which are in the
process of defending or settling similar suits. While the ultimate outcome of
this legal matter cannot be predicted with reasonable certainty, Management
believes that the resolution of this matter will not have a material adverse
effect on the Corporation's consolidated financial position. However,
Management cannot predict with reasonable certainty the impact that it might
have on the Corporation's consolidated results of operations during periods
until the litigation is terminated.
In addition, Trustmark is defendant in various other pending and
threatened legal actions arising in the normal course of business. In the
opinion of Management, and based on the advice of legal counsel, the ultimate
resolution of these matters will not have a material effect on the
Corporation's consolidated financial statements.
STOCKHOLDERS' EQUITY
The Corporation has always placed a great emphasis on maintaining a strong
capital base. The Corporation's goal is to maintain its position as a "well
capitalized" financial institution by expanding its capital base through
continued profitability, business combinations and possibly the sale of stock.
A "well capitalized" institution is one that has at least a 10% total risk-
<PAGE> 35
based capital ratio, a 6% Tier 1 risk-based capital ratio and a 5% Tier 1
leverage ratio. The Corporation's solid capital base is reflected in its
regulatory capital ratios. The table below illustrates these ratios at
December 31, 1995 ($ in thousands):
Tier 1 Capital $462,627
Tier 2 Capital 35,537
--------
Total Qualifying Capital $498,164
========
Total Risk Weighted Assets $2,816,526
==========
Tier 1/Risk Weighted Assets 16.43%
Tier 2/Risk Weighted Assets 1.26%
------
Total Qualifying Capital/Risk Weighted Assets 17.69%
======
Leverage Ratio 9.39%
======
As shown in the table above, the Corporation's capital ratios surpass the
minimum requirements of 4% for the Tier 1 capital ratio and 8% for the total
risk-based capital ratio. The Tier 1 leverage ratio generally must exceed 3%
and is driven by evaluation and discretion of the regulators.
At December 31, 1995, the Corporation had stockholders' equity of $478.8
million, which contained a net unrealized gain on securities available for
sale, net of taxes, of $5.462 million. This compares to total stockholders'
equity at December 31, 1994 of $421.0 million, which contained a net unrealized
loss on securities available for sale, net of taxes, of $7.971 million. The
1995 period end and weighted average number of shares for the Corporation was
34,910,683.
Based on a dividend payout ratio of 25.7%, the Corporation retained 74.3%
of 1995's earnings, generating an internal capital growth rate of 9.82%.
Dividends for the fourth quarter of 1995 were raised to $.12 per share,
resulting in a projected annual dividend rate of $.48 per share. Book value for
the Corporation's common stock was $13.71 at December 31, 1995, compared to the
closing market price of $22.75.
NET INTEREST INCOME
During 1995, the Corporation's level of net interest income dropped by
2.28% or $4.4 million when compared to 1994. This is a slightly larger amount
than the $2.7 million decline experienced when comparing 1994 to 1993. These
declines can be attributed to the Corporation's cost of funds increasing at a
faster pace than its yield on earning assets.
When compared to 1994, average earning assets increased 1.91% during 1995.
During the same time period, the yield on average
<PAGE> 36
earning assets increased by 59 basis points. This combination resulted in
interest income generated by earning assets increasing $32.9 million or 10.4%
when comparing 1995 and 1994. The primary contributor to this gain was interest
and fees on loans, which increased 18.7%. This resulted from a 10.4% increase
in average loan volume and a higher interest rate environment when comparing
1995 to 1994.
During 1995, average interest-bearing liabilities increased by only 1.3%
when compared to 1994. However, during the same time period, the rate paid
increased by 79 basis points. As a result, during 1995 interest expense
generated by interest-bearing liabilities increased by $37.3 million or 30.0%
when compared to 1994.
Average earning assets rose 4.1% during 1994 while the yield on those
assets declined by 20 basis points. This resulted in an increase of $4.8
million or 1.6% in interest income when comparing 1994 to 1993. At the same
time, average interest-bearing liabilities rose 2.1% with the rate paid
increasing by 14 basis points when compared to 1993. This combination led to a
$7.5 million or 6.4% increase in interest expense attributable to
interest-bearing liabilities when comparing 1994 to 1993.
The table below illustrates the changes in net interest margin as a
percentage of average earning assets for the periods shown:
December 31,
----------------------
1995 1994 1993
------ ------ ------
Yield on interest-earning assets-FTE 7.95% 7.36% 7.56%
Rate on interest-bearing liabilities 3.64% 2.85% 2.79%
----- ------ ------
Net interest margin-FTE 4.31% 4.51% 4.77%
====== ====== ======
The fully taxable equivalent (FTE) yield on tax-exempt income has been computed
based on a 35% federal marginal tax rate for all periods shown. The
Corporation will continue to take the necessary precautions in order to
minimize exposure to changes in interest rates.
PROVISION FOR LOAN LOSSES
The provision for loan losses reflects Management's assessment of the
adequacy of the allowance for loan losses to absorb potential write-offs in the
loan portfolio. Factors considered in the assessment include growth and
composition of the loan portfolio, historical credit loss experience, current
and anticipated economic conditions and changes in borrowers' financial
positions. During 1995, the Corporation's provision for loan losses was $2.439
million compared to $2.768 million for 1994 and $18.596 million for 1993. The
reduction of the provision for loan losses during this period was primarily
attributable to a decrease in nonperforming loans.
<PAGE> 37
NONINTEREST INCOME
The Corporation stresses the importance of growth in noninterest income as
one of its key long-term strategies. Noninterest income for 1995, excluding
securities gains, increased $9.1 million or 18.2% when compared to 1994. This
compares to an increase of $2.6 million or 5.6% when 1994 is compared to 1993.
Trust service income increased by 6.4% in 1995 as Trustmark continued to
be one of the largest bank providers of asset management services in
Mississippi. At December 31, 1995, Trustmark had trust accounts with an asset
market value of $4.9 billion compared to $4.1 billion for December 31, 1994.
Other account charges, fees and commissions continue to provide the
largest component of noninterest income. For 1995, the major contributors to
the 22.8% increase in this category were fees generated from residential
mortgage servicing, ATM usage and a variety of other fee producing products and
services. This category also provided the largest growth during 1994 as a
larger mortgage servicing portfolio produced increased fees. In addition, fees
resulting from ATM usage grew significantly during 1994 as the Trustmark
Express ATM system added an average of two automated teller machines per month.
Year-to-date service charges have grown by 16.6% when comparing 1995 to
1994. This increase can be attributed to Management's reevaluation of its
service charge pricing, procedures and products.
The increase in other income can be attributed primarily to gains on the
sale of mortgage loans in the secondary market experienced during 1995. The
Corporation recorded securities losses during 1994 as sales were made of
securities acquired in the merger with FNFC in order to maintain the current
policies and standards of the Corporation's securities portfolio.
NONINTEREST EXPENSE
Another long-term strategy of the Corporation is to continue to provide
quality service to customers within the context of economic discipline.
Noninterest expense for 1995 decreased $317 thousand or .21% when compared to
1994. Noninterest expenses increased $2.0 million or 1.34% when comparing 1994
and 1993. This nominal increase is especially noteworthy when it is noted that
expenses from both the Columbus and Tupelo branches, which were acquired during
the UniSouth acquisition, have been included for the entire year of 1994 while
expenses for 1993 were included only from the acquisition date of July 31,
1993.
The efficiency ratio, a key indicator of the control of noninterest
expense, improved throughout 1995 as the Corporation continued its emphasis on
the control of noninterest expenses. The efficiency ratio for the year ended
December 31, 1995 was 60.9% compared with 62.0% for 1994 and 60.4% for 1993.
The primary contributor to the decline in noninterest expenses experienced
during 1995 was the FDIC insurance assessment. During the second quarter of
1995, the Bank Insurance Fund (BIF) reached its designated reserve ratio of
1.25%. Once verified, the FDIC moved to refund overpayments to this fund and
to reduce future BIF assessments. The Corporation received a refund of $1.92
million
<PAGE> 38
that was recognized during the third quarter of 1995. Effective for the fourth
quarter of 1995, the FDIC decreased the lowest assessment rate for deposits
insured through the BIF from $.23 per $100 of deposits to $.04. Since the
Corporation had qualified to receive the lowest assessment rate, this decreased
the fourth quarter FDIC insurance assessment by approximately $1.4 million.
Salaries and employee benefits continued to comprise the largest portion of
noninterest expenses and increased 2.2% during 1995. The number of full-time
equivalent employees totaled 2,208 at December 31, 1995, 2,212 at December 31,
1994 and 2,230 at December 31, 1993. This decrease demonstrates the
Corporation's success in controlling the size of its workforce through a strong
investment in technology. Management views improved technological systems as a
key to enhanced improvement in productivity.
Renovations to facilities purchased and leased in business combinations as
well as the general maintenance of existing facilities have contributed to the
$819 thousand or 9.7% increase in net occupancy expenses when comparing 1995 to
1994. Both equipment expenses and services and fees experienced only modest
increases during 1995. Services and fees expense increased by 10.5% during 1994
due to increased expenses for communications and advertising.
Other real estate expenses decreased by 71% during 1995 due to a reduction
in market write-downs. This decline can be directly attributed to the
Corporation's conservative approach in evaluating net realizable value at the
time of foreclosure. Other real estate expenses for 1994 decreased 65.7% due
to improvements in asset quality.
The amortization of intangible assets increased 4.82% during 1995 compared
to a decrease of 16.4% during 1994. The amount of mortgages serviced increased
18.4% during 1995 and provided a larger base of mortgage servicing rights that
began amortization during 1995. Increased prepayments of mortgages serviced
resulted in the accelerated amortization of mortgage servicing rights during
1993 which more than offset the amortization of intangible assets associated
with the UniSouth acquisition which began during the third quarter of 1993.
Other expenses increased $1.1 million or 4.5% when comparing 1995 to 1994.
This can be traced to larger operational costs recorded during 1995 than in the
same time period in 1994.
INCOME TAXES
In 1995, the Corporation's effective tax rate was 34.6% compared to 34.7%
in 1994 and 27.6% in 1993. The effective tax rates for 1995 and 1994 were
higher than 1993 as a result of three factors. First, 1993 income tax expense
is net of the tax benefit recorded from the cumulative effect of adopting SFAS
No. 109, and the impact on deferred tax assets of the 1% increase in the
federal statutory tax rate beginning in 1993. Second, tax exempt income as a
percentage of total income declined during 1995 and 1994. And finally,
differences arising from nondeductible core deposit amortization related to a
business combination consummated in July 1993 and the reduction in deductible
amortization related to the 1994 settlement of the core deposit amortization
issue with the
<PAGE> 39
Internal Revenue Service caused the effective tax rate to rise in 1994 and
1995. During 1995, the Corporation concluded an income tax examination for the
years 1989, 1990 and 1991. The effects of the tax examination were not
material.
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation's principal objective in issuing derivatives for purposes
other than trading is asset/liability management. To achieve that objective,
the Corporation enters into forward interest rate contracts involving
commitments to sell mortgages originated or purchased by the Corporation.
Interest rate forward contracts are commitments to either purchase or sell a
financial instrument at a specific future date for a specified price and may be
settled in cash or through delivery of the financial instrument. These
contracts allow the Corporation to fix the interest rate at which it can offer
mortgage loans to its customers or purchase mortgages from other financial
institutions. Gains or losses on the sale of mortgages in the secondary market
are recorded upon the sale of the mortgages and included in other income. Any
decline in the market value of mortgages which are pending sale in the
secondary market and are held by the Corporation at the end of a financial
reporting period is recognized at that time. As of December 31, 1995, the
Corporation's exposure under commitments to sell mortgages is immaterial. The
remaining maturity on all forward interest rate contracts is less than one
year.
OTHER REGULATORY MATTERS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This statement requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the asset's carrying amount. SFAS No. 121 is effective for fiscal years
beginning after December 15, 1995. The adoption of this statement will not
have a material impact on the consolidated financial statements.
The FASB has also issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights and Excess Servicing Receivables and for Securitization of Mortgage
Loans." The new statement amends Statement No. 65, "Accounting for Certain
Mortgage Banking Activities" and primarily eliminates the distinction between
purchased mortgage servicing rights and mortgage servicing rights on loans
originated by the financial institution. SFAS No. 122 is effective for fiscal
years beginning after December 15, 1995. The Corporation will adopt this
statement in 1996 and such adoption will not have a material impact on the
consolidated financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans and is effective for
fiscal years beginning after December 15, 1995. Since the Corporation
currently does not have any stock-based employee compensation plans, the
adoption of this statement will have no effect on the Corporation's
<PAGE> 40
consolidated financial statements.
In November 1995, the FDIC again reduced the lowest assessment rate for
deposits insured by the BIF from $.04 per $100 of deposits to zero. This
reduction will be effective for 1996. Banks must still pay the mandatory
minimum $2,000 fee to belong to the insurance fund.
Various legislative proposals regarding the future of the Savings
Insurance Fund (SAIF) have been reported recently. Several of these proposals
include a one-time special assessment for SAIF deposits. The Corporation has
approximately $366 million of deposits insured by SAIF as the result of
assisted purchases made through transactions defined as "Oakar" by the FDIC.
At the present time, Congress is still debating the specific features of this
legislation. Consequently, the Corporation does not know when and if any such
proposal may be adopted or the ultimate effect on its insurance assessment
resulting from deposits insured by the SAIF.
PRINCIPAL OCCUPATION OF THE CORPORATION'S DIRECTORS AND
EXECUTIVE OFFICERS
This information is included elsewhere in this report in conjunction with
listings of Directors and Officers.
SECURITIES AND EXCHANGE COMMISSION (SEC) FORM 10-K
A copy of the annual report on Form 10-K, as filed with the SEC, may be
obtained without charge by directing a written request to:
Gerard R. Host, Treasurer
Trustmark Corporation
Post Office Box 291
Jackson, Mississippi 39205-0291
<TABLE> <S> <C>
<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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<EPS-PRIMARY> 1.71
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