<PAGE>
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, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-3683
TRUSTMARK CORPORATION
(Exact name of Registrant as specified in its charger)
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 February 20, 1998, the aggregate market
value of the voting stock held by nonaffiliates of the Registrant was
$1,132,940,138.
As of March 16, 1998, there were issued and outstanding 36,733,044 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 1997 Annual Report to
Shareholders (Parts I and II), and (2) Proxy Statement for Registrant's Annual
Meeting of Shareholders dated March 13, 1998 (Part III).
<PAGE>
TRUSTMARK CORPORATION
FORM 10-K
INDEX
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of
Securities Holders
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the
Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
<PAGE>
TRUSTMARK CORPORATION
1997 FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
Trustmark Corporation (the 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 (the Bank) and the Bank's wholly-owned subsidiary, Trustmark
Financial Services, Inc. (TFSI). The Bank accounts for substantially all of the
assets and revenues of the Corporation. Chartered by the State of Mississippi in
1889, the Bank is headquartered in Jackson, Mississippi 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.
The Bank offers a variety of deposit, investment and credit products to its
customers through strategic business units serving 185 locations in the State of
Mississippi. During 1997, the Bank's existing strategic business units were
realigned into new groups which included the Retail Banking Group, the
Commercial Banking Group and the Financial Services Group.
The Retail Banking Group includes the Community Banking Network,
Residential Mortgage, Retail and Small Business Services. Both the Community
Bank Network, which manages 19 community banks with over 100 branches and the
Retail Unit, which administers Card Services, Indirect Lending and all Metro
Jackson branches, provide traditional banking products primarily to individuals
and small businesses. In order to provide customers with services that are
convenient and meet their demanding schedules, both Community Banking and Retail
branches have been opened inside Wal-Mart stores, Kroger supermarkets and
Albertson's supermarkets. In order to allow customers to do their banking around
the clock from their homes or offices, the Bank now offers TrustTouch pc, an
on-line banking service. Customers may also obtain information about the Bank's
services via the Internet by accessing its web site (www.trustmark.com). Through
the Retail Unit, the Bank's Card Services offer MasterCard, VISA, VISA Gold and
VISA Business credit card services to consumers and merchants throughout
Mississippi. In addition, the Bank now has more than 100,000 debits cards in
use. The Indirect Lending area is affiliated with over 100 automobile
dealerships across the region and has enabled the Bank to become the second
largest financier of automobiles in Mississippi and the largest among financial
institutions. A natural extension of Retail Services, the Bank's Residential
Mortgage Unit offers first time and repeat home borrowers financing
opportunities at several convenient locations throughout the state.
<PAGE>
The Commercial Banking Group provides loans, deposit services and cash
management to businesses and banks statewide. The Deposit/Cash Management
department offers new technology and services for businesses to monitor cash
flows through the utilization of TrustNet computer banking, automated clearing
services which facilitates electronic bill payment and direct deposit of
employee pay and the Bank's Mutual Fund Sweep account. The Bank offers real
estate loans targeting residential construction builders and developers in
addition to commercial real estate construction and financing. The Bank also
lends to moderate and lower income homeowners in several markets through
Community Reinvestment Act programs such as the Downpayment Assistance Program
and Farmers Home Multi-Family Home Program. The Bank's Correspondent Banking
Department maintains relationships with more than 100 independent banks across
the state, providing competitively priced cash management services, financing
and clearing services.
The Financial Services Group offers trust and investment services to
individuals, corporations and public entities. With $5.6 billion under
administration, the Bank's Trust Department offers a full line of asset
management and custodial services. In early 1997, Trustmark Financial Services,
Inc. (TFSI), a subsidiary of the Bank began offering full-service brokerage
services at discount prices. TFSI offers mutual funds, equities, corporate and
municipal bonds, and self-directed Individual Retirement Accounts. The Public
Services Department specializes in serving the financial needs of public
entities such as state agencies, municipal government and school districts.
As of March 16, 1998, the Corporation and the Bank employed approximately
2,300 full-time equivalent employees.
COMPETITION
The Bank competes with national and state banks in its service areas for
all types of depository, credit, investment and trust services. In addition, it
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,
investment companies, credit unions and financial service operations of major
retailers. All these institutions compete 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
<PAGE>
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 Bank 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.
The Bank also is insured by, and therefore subject to, the regulations of
the Federal Deposit Insurance Corporation (FDIC). 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. FDICIA regulations also include procedures and interpretive
guidelines that mandate certain audit and reporting requirements for financial
institutions. Management is responsible for not only preparing the Corporation's
annual financial statements, but also establishing and maintaining adequate
internal controls over financial reporting. In addition, Management must comply
with certain laws and regulations designated by the FDIC as well as assess the
effectiveness of the controls that have been established to comply with these
laws and regulations.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Trustmark Corporation (the Registrant) and its
bank subsidiary, Trustmark National Bank, including their ages, positions and
principal occupations for the last five years are as follows:
Frank R. Day, 66, Director, Chairman of the Board, Trustmark Corporation;
Chairman of the Board, Trustmark National Bank since January 1982.
Richard G. Hickson, 53, President and Chief Executive Officer, Trustmark
Corporation; Vice Chairman and Chief Executive Officer, Trustmark National Bank
since May 1997; President and Chief Operating Officer, SouthTrust Bank of
Georgia, N.A. from 1995 to May 1997; President, Texas Commerce Bank, Dallas from
1993 to 1995.
Harry M. Walker, 47, Secretary, Trustmark Corporation since January 1995;
President and Chief Operating Officer, Trustmark National Bank since March 1992.
Gerard R. Host, 43, Treasurer, Trustmark Corporation since September 1995;
Executive Vice President and Chief Financial Officer, Trustmark National Bank
since November 1995.
George R. Day, 62, Executive Vice President and Chief Credit Officer, Trustmark
National Bank since November 1991.
Thomas W. Mullen, 55, Executive Vice President for Strategic Planning, Trustmark
National Bank since November 1991.
William O. Rainey, 58, Executive Vice President and Chief Banking Officer,
Trustmark National Bank since November 1991.
All executive officers, with the exception of Richard G. Hickson, have held
executive or senior management positions with the Corporation or the Bank for
more than five years.
STATISTICAL DISCLOSURES
The consolidated statistical disclosures for Trustmark Corporation and
subsidiaries are contained in the following Tables 1 through 12.
During 1997, the Corporation completed two business combinations. On
February 28, 1997, the Corporation completed its merger with First Corinth
Corporation (FCC) and its subsidiary, National Bank of Commerce of Corinth,
Mississippi (NBC) in a business combination accounted for as a pooling of
interests. At the merger date, FCC and NBC had approximatgely $134 million in
total assets. As a result of this transaction, the Corporation has restated its
financial statements to include FCC and NBC as of January 1, 1997. Prior years'
statistical disclosures were not restated as the changes would have been
immaterial. On September 19, 1997, Perry County Bank (PCB) in New Augusta,
Mississippi was merged with the Corporation in a business combination accounted
for by the purchase method of accounting. At the merger date, PCB has
approximately $43 million in total assets. PCB's results of operations, which
are not material, have been included in the statistical disclosures from the
merger date.
<PAGE>
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,
-------------------------------------------------------------
1997 1996
----------------------------- -----------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------- ---------- -------- -------
Assets
Interest-earning assets:
Federal funds sold and securities purchased
<S> <C> <C> <C> <C> <C> <C>
under reverse repurchase agreements $ 64,096 $ 3,575 5.58% $ 76,203 $ 4,223 5.54%
Trading securities 1,387 107 7.71% 340 69 20.29%
Securities available for sale:
Taxable 612,745 36,671 5.98% 605,467 34,754 5.74%
Nontaxable 320 37 11.56%
Securities held to maturity:
Taxable 1,299,788 83,101 6.39% 1,324,384 84,285 6.36%
Nontaxable 103,212 8,938 8.66% 92,160 8,245 8.95%
Loans, net of unearned income 2,771,662 250,108 9.02% 2,556,811 231,339 9.05%
---------- -------- ---------- --------
Total interest-earning assets 4,853,210 382,537 7.88% 4,655,365 362,915 7.80%
Cash and due from banks 269,665 282,165
Other assets 252,260 234,758
Allowance for loan losses (63,897) (62,785)
---------- ----------
Total Assets $5,311,238 $5,109,503
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits $ 726,812 21,736 2.99% $ 978,165 26,472 2.71%
Savings deposits 573,528 12,333 2.15% 334,925 7,520 2.25%
Time deposits 1,623,384 86,804 5.35% 1,493,721 78,622 5.26%
Federal funds purchased and securities sold
under repurchase agreements 912,089 47,236 5.18% 969,413 48,653 5.02%
Short term borrowing 67,708 4,778 7.06% 41,274 2,739 6.64%
---------- -------- ---------- --------
Total interest-bearing liabilities 3,903,521 172,887 4.43% 3,817,498 164,006 4.30%
-------- --------
Noninterest-bearing demand deposits 789,041 741,324
Other liabilities 57,786 52,168
Stockholders' equity 560,890 498,513
---------- ==========
Total Liabilities and Stockholders' Equity $5,311,238 $5,109,503
========== ==========
Net Interest Margin 209,650 4.32% 198,909 4.27%
Less tax equivalent adjustments:
Investments 3,141 2,886
Loans 2,504 1,966
-------- --------
Net Interest Margin per Annual Report $204,005 $194,057
======== ========
</TABLE>
<PAGE>
December 31,
-----------------------------
1995
-----------------------------
Average Yield/
Balance Interest Rate
========== ======== ======
Assets
Interest-earning assets:
Federal funds sold and securities purchased
under reverse repurchase agreements $ 113,594 $ 6,815 6.00%
Trading securities 500 68 13.60%
Securities available for sale:
Taxable 455,176 28,872 6.34%
Nontaxable
Securities held to maturity:
Taxable 1,291,136 81,052 6.28%
Nontaxable 99,933 9,060 9.07%
Loans, net of unearned income 2,481,030 227,322 9.16%
---------- --------
Total interest-earning assets 4,441,369 353,189 7.95%
Cash and due from banks 275,235
Other assets 223,468
Allowance for loan losses (62,547)
----------
Total Assets $4,877,525
==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits $1,080,817 31,712 2.93%
Savings deposits 235,223 6,109 2.60%
Time deposits 1,448,962 74,553 5.15%
Federal funds purchased and securities sold
under repurchase agreements 898,439 49,171 5.47%
Short term borrowing 12,907 1,196 9.27%
---------- --------
Total interest-bearing liabilities 3,676,348 162,741 4.43%
--------
Noninterest-bearing demand deposits 701,357
Other liabilities 47,984
Stockholders' equity 451,836
==========
Total Liabilities and Stockholders' Equity $4,877,525
==========
Net Interest Margin 190,448 4.29%
Less tax equivalent adjustments:
Investments 3,171
Loans 1,677
--------
Net Interest Margin per Annual Report $185,600
========
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 1996 and 1995 statements to conform to the 1997 method of
presentation.
<PAGE>
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>
1997 Compared to 1996 1996 Compared to 1995
Increase (Decrease) Due To: Increase (Decrease) Due To:
-------------------------------- --------------------------------
Yield/ Yield/
Volume Rate Net Volume Rate Net
-------- -------- -------- ======== ======== ========
Interest earned on:
Federal funds sold and securities purchased
<S> <C> <C> <C> <C> <C> <C>
under reverse repurchase agreements ($ 678) $ 30 ($ 648) ($ 2,102) ($ 490) ($ 2,592)
Trading securities 103 (65) 38 (26) 27 1
Securities available for sale:
Taxable 428 1,489 1,917 8,817 (2,935) 5,882
Nontaxable 0 37 37 0 0 0
Securities held to maturity:
Taxable (1,578) 394 (1,184) 2,163 1,070 3,233
Nontaxable 966 (273) 693 (696) (119) (815)
Loans, net of unearned income 19,533 (764) 18,769 6,801 (2,784) 4,017
-------- -------- -------- -------- -------- --------
Total interest-earning assets 18,774 848 19,622 14,957 (5,231) 9,726
Interest paid on:
Interest-bearing demand deposits (7,285) 2,549 (4,736) (2,926) (2,314) (5,240)
Savings deposits 5,161 (348) 4,813 2,320 (909) 1,411
Time deposits 6,835 1,347 8,182 2,406 1,663 4,069
Federal funds purchased and securities sold
under repurchase agreements (2,936) 1,519 (1,417) 3,707 (4,225) (518)
Short term borrowings 1,856 183 2,039 1,967 (424) 1,543
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 3,631 5,250 8,881 7,474 (6,209) 1,265
-------- -------- -------- -------- -------- --------
Change in net interest income on a
tax equivalent basis $ 15,143 ($ 4,402) $ 10,741 $ 7,483 $ 978 $ 8,461
======== ======== ======== ======== ======== ========
</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 1997, 1996 and 1995 . The
balances of nonaccrual loans and related income recognized have been included
for purposes of these computations.
<PAGE>
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,
====================================
1997 1996 1995
========== ========== ==========
Securities available for sale
<S> <C> <C> <C>
U. S. Treasury and U. S. Government agencies $ 480,965 $ 469,396 $ 413,385
Mortgage-backed securities 97,853 39,536 53,382
---------- ---------- ----------
Total debt securities 578,818 508,932 466,767
Equity securities 14,159 13,813 13,080
---------- ---------- ----------
Total securities available for sale $ 592,977 $ 522,745 $ 479,847
========== ========== ==========
Securities held to maturity
U. S. Treasury and U. S. Government agencies $ 221,929 $ 267,636 $ 257,335
Obligations of states and political subdivisions 230,642 220,073 212,065
Mortgage-backed securities 944,257 937,451 884,132
Other securities 100 100 100
---------- ---------- ----------
Total securities held to maturity $1,396,928 $1,425,260 $1,353,632
========== ========== ==========
</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 December 31, 1997 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
-------- ----- ---------- ----- ---------- ----- --------- ----- ----------
Securities available for sale
U. S. Treasury and U. S
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Government agencies $84,504 5.24% $396,461 6.20% $ 480,965
Mortgage-backed securities 9,658 7.05% $ 219 8.87% $ 87,976 6.55% 97,853
------- -------- -------- -------- ----------
Total debt securities 84,504 406,119 219 87,976 578,818
Equity securities 14,159
------- -------- -------- -------- ----------
Total securities available for sale $84,504 $406,119 $ 219 $ 87,976 $ 592,977
======= ======== ======== ======== ==========
Securities held to maturity
U. S. Treasury and U. S
Government agencies $77,305 5.61% $144,624 6.33% $ 221,929
Obligations of states and
political subdivisions 17,932 7.33% 93,403 7.43% $ 86,228 7.61% $ 33,079 8.81% 230,642
Mortgage-backed securities 628 6.67% 24,086 7.18% 210,139 6.47% 709,404 6.47% 944,257
Other securities 100 7.50% 100
------- -------- -------- -------- ----------
Total securities held to maturity $95,865 $262,113 $296,467 $742,483 $1,396,928
======= ======== ======== ======== ==========
</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 2.33 years.
As of December 31, 1997 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 $124,979,000
and an approximate fair value of $128,820,000 were held on December 31, 1997.
Included in the aforementioned State of Mississippi holdings are bonds with an
aggregate carrying value of $17,087,000 and an approximate fair value of
$18,827,000 which are known to be prerefunded or escrowed to maturity by U. S.
Government securities.
<PAGE>
TABLE 5 - COMPOSITION OF THE LOAN PORTFOLIO
The table below shows the carrying value of the loan portfolio at the end
of each of the last five years ($ in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Real estate loans:
<S> <C> <C> <C> <C> <C>
Construction and land development $ 195,728 $ 168,650 $ 144,010 $ 123,364 $ 102,873
Secured by 1-4 family residential properties 699,486 543,661 553,997 504,078 569,411
Secured by nonfarm, nonresidential properties 446,492 398,350 380,734 345,130 340,058
Other real estate loans 70,592 73,229 69,422 63,169 52,295
Loans to finance agricultural production 38,466 33,950 37,434 34,910 35,490
Commercial and industrial 702,361 642,758 616,949 594,836 531,054
Loans to individuals for personal expenditures 701,132 645,829 641,409 606,444 529,907
Obligations of states and political subdivisions 79,178 84,918 63,557 50,033 38,407
Loans for purchasing or carrying securities 17,622 20,469 11,626 1,840 3,995
Other loans 32,598 22,759 52,953 23,761 27,528
---------- ---------- ---------- ---------- ----------
Loans, net of unearned income $2,983,655 $2,634,573 $2,572,091 $2,347,565 $2,231,018
========== ========== ========== ========== ==========
</TABLE>
TABLE 6 - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
The table below shows the amounts of loans in certain categories
outstanding as of December 31, 1997, which, based on the remaining scheduled
repayments of principal, are due in the periods indicated ($ 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 $ 151,351 $ 44,377 $ 195,728
Other loans secured by real estate (excluding
loans secured by 1-4 family residential
properties) 271,228 154,509 $ 91,347 517,084
Commercial and industrial 466,225 192,740 43,396 702,361
Other loans (excluding loans to individuals) 71,090 26,325 70,449 167,864
---------- ---------- ---------- ----------
Total $ 959,894 $ 417,951 $ 205,192 $1,583,037
========== ========== ========== ==========
</TABLE>
The following table shows all loans due after one year classified according
to their sensitivity to changes in interest rates ($ in thousands):
<TABLE>
<CAPTION>
Maturing
------------------------------------
One Year
Through After
Five Five
Years Years Total
---------- ---------- ----------
<S> <C> <C> <C>
Above loans due after one year which have:
Predetermined interest rates $ 379,323 $ 182,659 $ 561,982
Floating interest rates 38,628 22,533 61,161
---------- -------- ----------
Total $ 417,951 $205,192 $ 623,143
========== ======== ==========
</TABLE>
<PAGE>
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,
-----------------------------------------------
1997 1996 1995 1994 1993
======= ======= ======= ======= =======
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis $14,242 $ 8,390 $10,055 $12,817 $13,730
Other real estate 2,340 2,734 3,982 3,723 5,709
Accruing loans past due 90 days or more 2,570 2,407 1,810 2,252 1,816
------- ------- ------- ------- -------
Total nonperforming assets and loans past due
90 days or more $19,152 $13,531 $15,847 $18,792 $21,255
======= ======= ======= ======= =======
</TABLE>
Generally, a loan is classified as nonaccrual and the accrual of interest
on such loan is discontinued when a contractual payment of principal or interest
has become 90 days past due or Management has serious doubts about
collectibility of principal or interest even though the loan is currently
performing. A delinquent loan may remain in an accruing status if it is well
secured and in process of collection. When a loan is placed in nonaccrual
status, unpaid interest credited to income in the current and prior years is
reversed against interest income. Interest received on nonaccrual loans is
applied against principal. Loans are restored to accrual status when the
obligation is brought current or has performed in accordance with the
contractual terms for a reasonable period of time, and the ultimate
collectibility of all contractual principal and interest is no longer in doubt.
Interest which would have accrued on nonaccrual and restructured loans if they
had been in compliance with their original terms is immaterial. In addition,
interest income on these loans that was included in net income for the periods
presented was immaterial.
At December 31, 1997 Management is not aware of any additional credits,
other than those identified above, where serious doubts as to the repayment of
principal and interest exist. There are no interest-earning assets which would
be required to be disclosed above if those assets were loans. The Corporation
had no loan concentrations greater than ten percent of total loans other than
those loan categories shown in Table 5.
<PAGE>
TABLE 8 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The table below summarizes the Corporation's loan loss experience for each
of the last five years ($ in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 63,000 $ 62,000 $ 65,014 $ 65,014 $ 51,871
Loans charged off:
Real estate loans (503) (1,507) (1,663) (1,034) (2,451)
Loans to finance agricultural production (79) (177) (115) (21) (178)
Commercial and industrial (1,406) (1,334) (764) (979) (4,278)
Loans to individuals for personal expenditures (6,353) (5,651) (6,300) (4,780) (4,496)
All other loans (619) (603) (648) (267) (162)
-------- -------- -------- -------- --------
Total charge-offs (8,960) (9,272) (9,490) (7,081) (11,565)
Recoveries on loans previously charged off:
Real estate loans 92 325 981 732 590
Loans to finance agricultural production 7 3 10 8
Commercial and industrial 877 1,334 736 581 2,796
Loans to individuals for personal expenditures 2,283 2,087 1,848 2,703 2,226
All other loans 775 740 462 271 178
-------- -------- -------- -------- --------
Total recoveries 4,034 4,489 4,037 4,295 5,790
-------- -------- -------- -------- --------
Net charge-offs (4,926) (4,783) (5,453) (2,786) (5,775)
Additions to allowance charged to operating expense 4,682 5,783 2,439 2,786 18,596
Other additions to allowance for loan losses 1,344 322
-------- -------- -------- -------- --------
Balance at end of period $ 64,100 $ 63,000 $ 62,000 $ 65,014 $ 65,014
======== ======== ======== ======== ========
Percentage of net charge-offs during period to average
loans outstanding during the period 0.18% 0.19% 0.22% 0.12% 0.27%
======== ======== ======== ======== ========
</TABLE>
The allowance for loan losses is maintained at a level believed adequate by
Management to absorb estimated possible 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.
<PAGE>
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, 1997. These allocations
were determined by internal formulas based upon Management's analysis of the
various types of risk associated with the Corporation's loan portfolio. A
discussion of Management's methodology for performing the analysis follows the
table ($ in thousands):
Allocation for pools of risk-rated loans $29,048
Additional allocation for risk-rated loans 2,488
Allocation for selected industries 3,592
General allocation for all other loans 9,687
Allocation for available lines of credit and letters of credit 2,560
Discretionary 16,725
-------
Total $64,100
=======
The allowance for loan losses is maintained at a level which Management and
the Board of Directors believe is adequate to absorb estimated possible 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 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 1997,
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 $16,725,000 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 present stability shown by the Corporation's level of
nonperforming assets, Management does not anticipate that the percentage of 1998
net charge-offs to total loans to be significantly higher than that experienced
in 1997. 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.
<PAGE>
TABLE 10 - TIME DEPOSITS OF $100,000 OR MORE
The table below shows maturities on outstanding time deposits of $100,000
or more at December 31, 1997 ($ in thousands):
3 months or less $203,673
Over 3 months through 6 months 84,035
Over 6 months through 12 months 74,521
Over 12 months 89,224
---------
Total $451,453
=========
TABLE 11 - SELECTED RATIOS
The following ratios are presented for each of the last three years:
1997 1996 1995
====== ====== ======
Return on average assets 1.34% 1.27% 1.23%
Return on average equity 12.67% 13.07% 13.23%
Dividend payout ratio 30.26% 26.74% 25.73%
Equity to assets ratio 10.56% 9.76% 9.26%
TABLE 12 - SHORT TERM BORROWINGS
The table below presents certain information concerning the Corporation's
short term borrowings for each of the last three years ($ in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
========== ========== ==========
Federal funds purchased and securities sold under repurchase agreements:
<S> <C> <C> <C>
Amount outstanding at end of period $ 948,700 $ 967,191 $ 932,983
Weighted average interest rate at end of period 5.72% 5.46% 5.13%
Maximum amount outstanding at any
month end during each period $1,003,907 $1,036,564 $ 945,207
Average amount outstanding during each period $ 912,089 $ 969,413 $ 898,439
Weighted average interest rate during each period 5.18% 5.02% 5.47%
</TABLE>
Disclosure of other short term borrowings is not required because the
average balance for 1997 was less than 30% of stockholders' equity at the end of
1997.
<PAGE>
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 the Bank.
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. The Bank also operates 109 full-service branches, 22
limited-service branches, 11 in-store branches and an ATM network which includes
83 ATMs at on- premise locations and 60 ATMs located at off-premise sites. The
Bank leases 77 of its 185 locations with the remainder being owned.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are parties to lawsuits and other
claims that arise in the ordinary course of business; some of the lawsuits
assert claims to the lending, collection, servicing, investment, trust and other
business activities of the Bank; and some of the lawsuits allege substantial
claims for damages. The cases are being vigorously contested. In the regular
course of business, Management evaluates estimated losses or costs related to
litigation, and provision is made for anticipated losses whenever Management
believes that such losses are probable and can be reasonably estimated. At the
present time, Management believes, based on the advice of legal counsel, that
the final resolution of pending legal proceedings will not have a material
impact on the Corporation's consolidated financial position or results of
operations.
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 1997.
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 March 2, 1998, there were approximately 5,200 shareholders of record
of the Corporation's common stock. Other information required by this item can
be found in Note 12, "Stockholders' Equity," (page 29) and the table captioned
"Principal Markets and Prices of the Corporation's Stock" (page 34) included in
the Registrant's 1997 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 33) included in the
<PAGE>
Registrant's 1997 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
35-42) included in the Registrant's 1997 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item can be found in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" (pages
35-37) included in the Registrant's 1997 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
1997 Annual Report to Shareholders (pages 17-32) and are incorporated herein by
reference. The table captioned "Summary of Quarterly Results of Operations"
(page 33) is also included in the Registrant's 1997 Annual Report of
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, 1997.
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 VIII, "Other Information Concerning
Directors," contained in Trustmark Corporation's Proxy Statement dated March 13,
1998, and is incorporated herein by reference. Information on the Registrant's
executive officers is included in Part I, page 6 of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item can be found in Section VI, "Compensation
of Executive Officer and Directors," and Section VIII, "Other Information
Concerning Directors," contained in
<PAGE>
Trustmark Corporation's Proxy Statement dated March 13, 1998, 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 IV, "Voting Securities and Principal Holders
Thereof," and Section V, "Ownership of Equity Securities by Management,"
contained in Trustmark Corporation's Proxy Statement dated March 13, 1998, and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions can be
found in Section VII, "Transactions with Management," contained in Trustmark
Corporation's Proxy Statement dated March 13, 1998, 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 1997 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, 1997 and 1996
Consolidated Statements of Income for the Years Ended December 31, 1997,
1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995
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.
<PAGE>
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.
<PAGE>
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/ Richard G. Hickson
----------------------------- -----------------------
Frank R. Day Richard G. Hickson
Chairman of the Board President & Chief
Executive Officer
DATE: March 20, 1998 DATE: March 20, 1998
BY: /s/ Gerard R. Host
-----------------------------
Gerard R. Host
Treasurer
(Chief Financial and
Accounting Officer)
DATE: March 20, 1998
<PAGE>
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 20, 1998 BY: /s/ J. Kelly Allgood
-------------------------------
J. Kelly Allgood, Director
DATE: March 20, 1998 BY: /s/ Reuben V. Anderson
-------------------------------
Reuben V. Anderson, Director
DATE: March 20, 1998 BY: /s/ John L. Black, Jr.
-------------------------------
John L. Black, Jr., Director
DATE: March 20, 1998 BY: /s/ Harry H. Bush
-------------------------------
Harry H. Bush, Director
DATE: March 20, 1998 BY: /s/ Robert P. Cooke III
-------------------------------
Robert P. Cooke III, Director
DATE: March 20, 1998 BY: /s/ Frank R. Day
---------------------------------
Frank R. Day, Chairman of the
Board and Director
DATE: March 20, 1998 BY:
---------------------------------
William C. Deviney, Jr., Director
DATE: March 20, 1998 BY: /s/ D.G. Fountain, Jr.
--------------------------------
D. G. Fountain, Jr., Director
DATE: March 20, 1998 BY: /s/ C. Gerald Garnett
--------------------------------
C. Gerald Garnett, Director
DATE: March 20, 1998 BY: /s/ Richard G. Hickson
--------------------------------
Richard G. Hickson, President &
Chief Executive Officer and Director
DATE: March 20, 1998 BY: /s/ Matthew L. Holleman III
--------------------------------
Matthew L. Holleman III, Director
DATE: March 20, 1998 BY: /s/ Fred A. Jones
--------------------------------
Fred A. Jones, Director
DATE: March 20, 1998 BY: /s/ T.H. Kendall III
--------------------------------
T. H. Kendall III, Director
<PAGE>
DATE: March 20, 1998 BY: /s/ Larry L. Lambiotte
--------------------------------
Larry L. Lambiotte, Director
DATE: March 20, 1998 BY: /s/ Robert V. Massengill
--------------------------------
Robert V. Massengill, Director
DATE: March 20, 1998 BY: /s/ Donald E. Meiners
--------------------------------
Donald E. Meiners, Director
DATE: March 20, 1998 BY: /s/ William Neville III
--------------------------------
William Neville III, Director
DATE: March 20, 1998 BY:
--------------------------------
Richard H. Puckett, Director
DATE: March 20, 1998 BY: /s/ Charles W. Renfrow
--------------------------------
Charles W. Renfrow, Director
DATE: March 20, 1998 BY:
--------------------------------
William Thomas Shows, Director
DATE: March 20, 1998 BY: /s/ Harry M. Walker
--------------------------------
Harry M. Walker, Director
DATE: March 20, 1998 BY: /s/ LeRoy G. Walker, Jr.
--------------------------------
LeRoy G. Walker, Jr., Director
DATE: March 20, 1998 BY: /s/ Paul H. Watson
--------------------------------
Paul H. Watson, Jr., Director
DATE: March 20, 1998 BY:
--------------------------------
John C. Wheeless, Jr., Director
DATE: March 20, 1998 BY: /s/ Allen Wood, Jr.
--------------------------------
Allen Wood, Jr., Director
<PAGE>
EXHIBIT INDEX
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, incorporated herein by reference.
3-d Bylaws, as amended. Filed as Exhibit 3-d to the Corporation's Form
10-K Annual Report for the year ended December 31, 1997.
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, incorporated herein by
reference.
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, incorporated herein by reference.
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, incorporated herein by reference.
10-e Long Term Incentive Plan for key employees of Trustmark Corporation and
its subsidiaries, approved March 11, 1997. Filed as Exhibit 10-e to the
Corporation's Form 10-K Annual Report for the year ended December 31,
1996, incorporated herein by reference.
10-f Employment Agreement between Trustmark Corporation and Richard G.
Hickson dated May 13, 1997. Filed as Exhibit 10-f to the Corporation's
Form 10-K Annual Report for the year ended December 31, 1997.
10-g Change in Control Agreement between Trustmark Corporation and Harry M.
Walker dated December 22, 1997. Filed as Exhibit 10-g to the
Corporation's Form 10-K Annual Report for the year ended December 31,
1997.
10-h Change in Control Agreement between Trustmark Corporation and Gerard R.
Host dated December 22, 1997. Filed as Exhibit 10-h to the
Corporation's Form 10-K Annual Report for the year ended December 31,
1997.
13 Only those portions of the Registrant's 1997 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.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
All other exhibits are omitted as they are inapplicable or not required
by the related instructions.
<PAGE>
Exhibit 3-d
BYLAWS
OF
TRUSTMARK CORPORATION
(Incorporated under the laws of Mississippi)
ARTICLE I
OFFICES
The principal office shall be in the City of Jackson, County of Hinds,
State of Mississippi; and the name of the resident agent for process upon the
corporation is T. Harris Collier, III, whose mailing address is 248 East Capitol
Street, Jackson, Mississippi. The corporation may also have offices at such
other places as the Board of Directors may from time to time appoint, or as the
business of the corporation may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
1. Place. The place of all meetings of stockholders shall be the principal
office of the corporation in the City of Jackson, County of Hinds, State of
Mississippi, or such other place as shall be determined, from time to time, by
the Board of Directors. The place at which such meeting shall be held shall be
stated in the notice and call of the meeting.
2. Time. The annual meeting of stockholders for the election of directors
and for the transaction of such other business as may properly come before the
meeting shall be held each year on the date and at the time selected by the
Board of Directors and stated in the notice and call of the meeting. [This
section was put in its present form effective December 9, 1997.]
3. Special Meetings. Special meetings of stockholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by the President
or by a majority of the Board of Directors and shall be called at any time by
the President or the Board of Directors upon the request of stockholders owning
ten percent (10%) of the outstanding shares of the corporation entitled to vote
at such meetings. Business transacted at all special meetings shall be confined
to the objects stated in the call.
<PAGE>
4. Notice. Written or printed notice stating the place, day and hour of the
meeting (and in the case of a special meeting, the purpose or purposes for which
the meeting is called) shall be given at least ten (10) days and not more than
sixty (60) days prior to the meeting, at the direction of the President, the
Secretary or other officer or persons calling the meeting. Such notice shall be
given to each stockholder of record entitled to vote at the meeting; and notice
shall be deemed delivered to the stockholder when deposited in the United States
mail, postage prepaid, addressed to the stockholder at his last known post
office address or to the address appearing on the stock transfer books of the
corporation.
5. Voting List. A complete list of stockholders entitled to notice of the
ensuing meeting, arranged in alphabetical order, with the address of and number
of shares held by each, shall be prepared by the Secretary, who shall have
charge of the stock transfer books of the corporation. The stockholders' list
shall be available for inspection by any shareholder no later than two (2)
business days after notice of the meeting is given for which the list was
prepared and continuing through the meeting, at the corporation's principal
office or at a place identified in the meeting notice in the city where the
meeting will be held.
6. Quorum. A majority of the outstanding shares of the corporation entitled
to vote, represented in person or by proxy, shall constitute a quorum at any
meeting of stockholders, unless otherwise provided by law; but less than a
quorum may adjourn any meeting, from time to time, and the meeting may be held,
as adjourned, without further notice.
7. Voting of Shares. If a quorum is present, the affirmative vote of a
majority of the shares represented at the meeting and entitled to vote shall be
the act of the stockholders, unless the vote of a greater number is required by
law for any specific purpose. Voting at all meetings may be oral, but any
qualified voter may demand a stock vote whereupon the vote will be taken by
ballot, each of which shall state the name of the stockholder voting and the
number of shares voted by him; and if such ballot be cast by a proxy, it shall
also state the name of such proxy. Subject to the provisions of Section 9 of
this Article II (relating to cumulative voting for directors), each stockholder
shall have one vote for each share of stock having voting power, registered in
his name as of the closing date of the stock transfer books, upon each matter
submitted to a vote at any meeting of stockholders.
8. Proxies. Every stockholder having the right to vote shall be entitled to
vote either in person or by proxy executed in writing. No proxy shall be valid
<PAGE>
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy. Proxies shall be dated and shall be filed with the
records of the meeting. No officer or employee of Trustmark National Bank shall
act as proxy.
9. Cumulative Voting. At each election for Directors every stockholder
entitled to vote at such election shall have the right to vote, in person or by
proxy, the number of shares owned by him for as many persons as there are
Directors to be elected, and for whose election he has a right to vote, or to
cumulate his votes by giving one candidate as many votes as the number of such
Directors multiplied by the number of his shares shall equal, or by distributing
such votes on the same principle among any number of such candidates.
10. Nominations for Director. Nominations for election to the Board of
Directors may be made by the Board of Directors or by any stockholder of any
outstanding class of capital stock of the corporation entitled to vote for
election of directors. Nominations other than those made by or on behalf of the
existing management of the corporation, shall be made in writing and shall be
delivered or mailed to the Chairman of the Board of the corporation not less
than fourteen (14) days nor more than fifty (50) days prior to any meeting of
stockholders called for the election of directors; provided, however, that if
less than twenty-one (21) days' notice of the meeting is given to shareholders,
such nomination shall be mailed or delivered to the Chairman of the Board of the
corporation not later than the close of business on the seventh (7th) day
following the day on which the notice of the meeting was mailed. Such
notification shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (C) the total number of
shares of capital stock of the corporation that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the corporation owned by the
notifying shareholder. Nominations not made in accordance herewith may, in his
discretion, be disregarded by the chairman of the meeting, and upon his
instructions the vote tellers may disregard all votes cast for each such
nominee.
11. Judges of the Election. Every election of directors shall be managed
by three judges, who shall be appointed by the chairman and who shall hold,
either directly or indirectly (including, without limitation, indirect ownership
as a participant in any pension plan, profit sharing plan or other employee
benefit plan) shares of the corporation. The judges of election shall hold and
conduct the election at which they are appointed to serve; and, after the
election, they shall file with the Secretary a Certificate under their hands
certifying the results thereof and the names of the directors elected. The
judges of election, at the request of the chairman for the meeting, shall act as
tellers of any other vote by ballot taken at such meeting, and shall certify the
results thereof.
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
1. General Powers. The management of all the affairs, of the corporation
shall be vested in the Board of Directors.
2. Number, Tenure and Qualifications. The number of directors of the
corporation shall be not less than five (5) nor more than twenty-six (26)
members, the exact number within such minimum and maximum limits to be fixed and
determined from time to time by resolution of a majority of the full Board of
Directors or by resolution of the stockholders at any meeting thereof. Each
director shall hold office for one (1) year and until his successor shall have
been elected and qualified. Each director shall own in his own right common or
preferred shares of Trustmark National Bank or the corporation, with an
aggregate par, fair market or equity value of not less than $1,000 as of either
(I) the date of purchase, (ii) the date the person became a director, or (iii)
the date of that person's most recent election to the board of directors
whichever is more recent. Any combination of common or preferred stock of
Trustmark National Bank or the corporation may be used. [The first sentence of
this section was put in its present form effective May 13, 1997.]
3. Vacancies. All vacancies in the Board of Directors, whether caused by
resignation, death, increase in the number of directors or otherwise, shall be
filled through appointment by a majority of the remaining Directors then in
office at an annual or special meeting called for that purpose. A director thus
elected to fill any vacancy shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualifies.
4. Regular Meetings. Regular meetings of the Board of Directors, when
required, shall be held on the second Tuesday of each month. Formal advance
notice shall not be required. If any regular meeting shall fall on a holiday, it
may be held upon such other day as may be designated by the Chairman of the
Board of Directors or the President of the corporation. Regular meetings may be
held without notice at the principal office of the corporation at such time as
may be determined by the Chairman or President.
5. Special Meetings. Special meetings may be called at any time by the
President, the Chairman of the Board of Directors or by a majority of the
directors at such time and place as may be designated. Notice of special
meetings shall be given stating the time and place, at least two (2) days in
advance thereof by letter, telegram, facsimile, or personally.
<PAGE>
6. Quorum. A majority of the entire board of directors then in office shall
constitute a quorum, and the affirmative vote of a majority of those present and
voting shall be the action of the Board. Less than a quorum may adjourn any
meeting to a subsequent day without further notice until a quorum can be had. If
the number of directors is reduced below the number that would constitute a
quorum based upon the total number of required director positions, then no
business may be transacted, except selecting directors to fill vacancies in
conformance with Article III, Section 3. If a quorum is present, the Board of
Directors may take action through the vote of a majority of the directors in
attendance.
7. Organization. The Chairman, upon receiving the certificate of the judges
of the result of any election, shall notify the directors - elect of their
election and of the time at which they are required to meet at the principal
office of the corporation for the purpose of organizing the new Board. After the
Board has organized it should by resolution designate from among its members an
Executive Committee or other committees, each of which shall have all the
authority of the Board of Directors except as limited in such resolution or
bylaw, appoint officers, fix salaries for the ensuing year, and transact such
other business as may properly come before the organizational meeting. The
organization meeting shall be appointed to be held on the day of the election or
as soon thereafter as practicable, and, in any event, within thirty (30) days
thereof. If, at the time fixed for such meeting, there shall be no quorum
present, the directors present may adjourn the meeting, from time to time, until
a quorum is obtained. All committees of the Board shall keep regular minutes of
their meetings and shall report their actions to the Board of Directors at its
next meeting.
8. Compensation. Directors may be compensated for their services on the
Board at such times, in such amounts and in accordance with such compensation
plans as the Board of Directors, by proper action, shall determine. Provided,
however, that any member of the Board who is also an officer of the corporation
or of Trustmark National Bank shall not be compensated for service on the Board
of Directors. All directors may be reimbursed for actual expenses incurred in
connection with service on the Board as the Board of Directors, by proper
action, shall determine.
9. Informal Action. Any action of the corporation required to be taken, or
which may be taken, at a meeting of the directors, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all the directors entitled to vote thereon. Such consent shall have
the same force and effect as a unanimous vote of directors and may be stated as
such in any document filed with any governmental agency or body.
<PAGE>
10. Voting of Shares in Other Corporations. The Chairman, the President or
such other officer or person as may be designated by resolution may act for the
corporation in voting shares it owns of any other corporation. The Board may
determine the manner in which such shares are to be voted or may delegate to its
representative the authority to vote such shares in the best interests of the
corporation.
11. Honorary or Advisory Directors. Honorary or advisory members of the
Board of Directors, without voting power or power of final decision in matters
concerning the business of the corporation, may be appointed by resolution of a
majority of the full Board of Directors at any annual or special meeting.
Honorary or advisory directors shall not be counted to determine the number of
directors of the corporation or the presence of a quorum in connection with any
board action, and shall not be required to own qualifying shares.
12. Executive Committee. The Board may appoint an Executive Committee of
not less than four (4) nor more than five (5) outside Directors. The Chairman
and such other officers or persons as may be designated by the Board, shall
serve as members of the committee. One or more honorary or advisory directors
appointed by the Chairman may serve as ex officio members of the committee. The
committee shall exercise, when the Board is not in session, all powers of the
Board that may lawfully be delegated to it. The committee shall have the power
to fix the time and place of its meetings, prescribe its procedures, and
cooperate with and assist the officers of the corporation in the transaction of
its business. The committee shall keep minutes of its meetings, and such minutes
shall be available for inspection by the Board, the regulatory authorities, or
such others as may lawfully be authorized.
13. Audit Committee. The Board may appoint an Audit Committee composed of
not less than three (3) Directors, exclusive of any active officers, at such
times and for such terms as shall be determined by the Board. If appointed the
duties of the Audit Committee shall be prescribed by the Board. Such duties may
include, without limitation, the duty to examine the affairs of the corporation,
or to cause suitable examinations to be made by auditors responsible only to the
Board of Directors and to report the result of such examination in writing to
the Board at the next regular meeting thereafter. The Board may elect, in lieu
of such periodic audits, to adopt an adequate continuous audit system. If
requested by the Board, the report of the Audit Committee shall state whether
the corporation is in sound condition, whether adequate internal controls and
procedures are being maintained, and shall recommend to the Board such changes
in the manner of conducting the affairs of the corporation as shall be deemed
advisable. The Audit Committee shall keep minutes of its meetings, and such
minutes shall be available for inspection by the Board, the regulatory
authorities, or such others as may lawfully be authorized.
<PAGE>
14. Other Committees. There may be such other committees as the Board from
time to time deems advisable. The committees shall have purposes, duties, powers
and responsibilities as determined by the Board. Each committee shall establish
its procedures and shall keep minutes of its meetings, and such minutes shall be
available for inspection by the Board, the regulatory authorities, or such
others as may lawfully be authorized.
ARTICLE IV
OFFICERS
1. Number. The officers of the corporation shall be a Chairman of the
Board, a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect a Vice Chairman of
the Board or a Vice President when and as it deems necessary. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the Board of Directors from time to time. Any two or more offices
may be held by the same person, except the offices of President and Secretary.
2. Election and Terms of Office. The officers of the corporation shall be
elected annually by the Board of Directors at its first meeting held each year
after the annual meeting of stockholders. If the election of officers shall not
be held at such meeting, the election may be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor has been elected
and qualified or until his death, resignation or removal from office in the
manner hereinafter provided.
3. Removal. Any officer or agent elected or appointed by the Board of
Directors may be removed at any time, with or without cause, whenever in its
judgment the best interests of the corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
4. Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise may be filled by the Board of Directors
for the unexpired portion of the term.
<PAGE>
5. Chairman of the Board. The Board shall appoint one of its members to be
Chairman of the Board, who may serve as the Chief Executive Officer of the
corporation. Such person shall also preside at all meetings of the Board and all
meetings of the shareholders and supervise the carrying out of the policies
adopted or approved by the Board; shall have general executive powers, as well
as the specific powers conferred by these Bylaws; and shall also have and may
exercise such further powers and duties as from time to time may be conferred
upon or assigned by the Board of Directors.
6. Vice Chairman of the Board. The Board may appoint one or more of its
members to be Vice Chairman of the Board. In the absence of the Chairman, the
Vice Chairman shall preside at any meeting of the Board. The Vice Chairman shall
have general executive powers, and shall have and may exercise any and all other
powers and duties as from time to time may be conferred, or assigned, by the
Board of Directors.
7. President and Chief Executive Officer. The President and Chief Executive
Officer shall have general supervision of the affairs of the corporation, shall
sign or countersign all certificates, contracts and other instruments of the
corporation as authorized by the Board of Directors, shall make reports to the
Board of Directors and Stockholders, and shall perform all such other duties as
are incident to his office or required of him by the Board of Directors. In the
absence of the Chairman and Vice Chairman of the Board, the President and Chief
Executive Officer shall preside at any meeting of the Board. [This section was
put in its present form effective May 13, 1997.]
8. Vice President. The Board may appoint one or more Vice- Presidents of
the corporation. In the absence of the President or in the event of his death,
inability or refusal to act, a Vice President so designated by the Board shall
perform the duties of the President and when so acting shall have all the powers
of and be subject to all the restrictions upon the President. The Vice President
or any additional or assistant Vice President shall perform such other duties as
may be from time to time assigned by the President or by the Board of Directors.
9. Secretary. The Secretary shall keep the Minutes of the meetings of
stockholders and of the Board of Directors and, upon request, of any committees
of the Board of Directors, in one or more books provided for that purpose. He
shall issue notices of all meetings, except notice of special meetings of
directors called at the request of a majority of directors as provided in
Section 5 of Article III of these Bylaws, which notice may be issued by such
directors. He shall have charge of the seal and the corporate record books and
shall make such reports and
<PAGE>
perform such other duties as are incident to his office, or which may be
required of him by the Board of Directors.
10. Treasurer. The Treasurer shall have the custody of all funds and
securities of the corporation and shall keep regular books of account. He shall
receive and disburse all funds of the corporation and shall render to the Board
of Directors from time to time as may be required of him an account of all his
transactions as Treasurer and of the financial condition of the corporation. He
shall perform all duties incident to his office or which may be required of him
by the Board of Directors.
11. Salaries. The salaries of the officers shall be fixed from time to time
by the Board of Directors. No officer shall be prevented from receiving such
salary by reason of the fact that he is also a director of the corporation.
12. Delegation of Duties. In case of the death, absence, refusal, or
inability to act of any officer of the corporation, the Board of Directors may
from time to time delegate the powers or duties of such officer to any other
officer, or to any director or other person.
13. Bonds. The Board of Directors may by resolution require any or all of
the officers to give bonds to the corporation, with sufficient surety,
conditioned on the faithful performance of the respective duties of the office
and to comply with such other conditions as may be required by the Board of
Directors.
14. Resignation. An officer may resign at any time by delivering notice to
the Corporation. A resignation is effective when notice is given unless the
notice specifies a later effective date.
15. Contractual Arrangements. Any contractual arrangement concerning
compensation and/or employee benefits between the corporation and any officer
must be approved by a majority of the full Board of Directors.
16. Executive Officers. The Chairman, Vice-Chairman (if any), President,
any Vice President and Secretary shall be Executive Officers of the corporation.
One or more of these officers may also be designated as Chief Executive Officer,
Chief Financial Officer, Chief Operating Officer, or other officer by the Board
of Directors. Other officers may be designated by the Board from time to time as
Executive Officers, in accordance with the provisions of Paragraph (a) of
Section 215.2 - "DEFINITIONS" of Regulation "O" (12 C.F.R. 215) of the Board of
Governors of the Federal Reserve System.
<PAGE>
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. Form of Certificate. Certificates representing shares of the corporation
shall be in such form as may be determined by the Board of Directors. Such
certificates shall be signed by the President and by the Secretary or by such
other officers authorized by the Board of Directors, with the seal of the
corporation affixed thereto. Signatures and the corporate seal may be
facsimiles, but a facsimile signature may be used only if the certificate is
countersigned by a transfer agent, or registered by a registrar, other than the
corporation itself or an employee of the corporation. The Board of Directors may
adopt or use procedures for replacing lost, stolen or destroyed stock
certificates as permitted by law.
2. Registration. Registered stockholders only shall be entitled to be
treated by the corporation as the holders in fact of the stock standing in their
respective names, and the corporation shall not be bound to recognize any
equitable or other claim to or interest in the share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
expressly provided by the laws of Mississippi.
3. Closing of Transfer Books. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of stockholders for any other proper purpose, the Board
of Directors may provide that the stock transfer books shall be closed for a
stated period, but not to exceed fifty (50) days. If the stock transfer books
shall be closed for the purpose of determining stockholders entitled to notice
of or to vote at a meeting of stockholders, such books shall be closed for at
least ten (10) days immediately preceding such meeting.
4. Fixing Record Date. In lieu of closing the stock transfer books as
described in Paragraph 3 herein, the Board of Directors may fix in advance a
date as the record date for determining the shareholders entitled to notice of a
shareholder meeting, to demand a special meeting, to vote or take any other
action; provided, however, that in no event shall the record date fixed by the
Board of Directors be more than fifty (50) days or less than ten (10) days
before the meeting or action requiring a determination of shareholders, or a
date preceding the date upon which the resolution fixing the record date is
adopted.
<PAGE>
4. Transfers of Stock. All transfers of stock of the corporation shall be
made upon the books of the corporation by the holder of such shares in person,
or by his legal representative, executor or administrator, only upon surrender
of the certificate or certificates of stock for cancellation, properly endorsed.
ARTICLE VI
FINANCE
1. Fiscal Year. The fiscal year of the corporation shall begin on the 1st
day of January and end on the 31st day of December of each year, unless
otherwise provided by the Board of Directors.
2. Indemnity. Any person, his heirs, executors, or administrators, may be
indemnified or reimbursed by the corporation for reasonable expenses actually
incurred in connection with any action, suit, or proceeding, civil or criminal,
to which he or they shall be made a party or potential party by reason of his
being or having been a director, an honorary or advisory director, officer, or
employee of the corporation or of any firm, corporation or organization which he
served in any such capacity at the request of the corporation; provided,
however, that no person shall be so indemnified or reimbursed in relation to any
matter in such action, suit, or proceeding as to which he shall finally be
adjudged to have been guilty of or liable for negligence or willful misconduct
in the performance of his duties to the corporation; and provided further, that
no person shall be so indemnified or reimbursed in relation to any
administrative proceeding or action instituted by an appropriate bank regulatory
agency which proceeding or action results in a final order assessing civil money
penalties or requiring affirmative action by an individual or individuals in the
form of payments to the corporation. The foregoing right of indemnification or
reimbursement shall not be exclusive of other rights to which such person, his
heirs, executors, or administrators, may be entitled as a matter of law. The
corporation may, upon affirmative vote of a majority of its board of directors,
purchase insurance to indemnify its directors, honorary or advisory directors,
officers and employees. Such insurance may, but need not, be for the benefit of
all directors, honorary or advisory directors, officers or employees.
3. Dividends. The Board of Directors may from time to time declare and the
corporation may pay dividends on its outstanding shares in the manner and upon
the terms and conditions as provided by law.
<PAGE>
4. Affiliated Corporations. If the corporation should become affiliated
with any bank or other business regulated by special provisions of law, the
directors and officers shall, to the extent required by law, permit the
examination of the corporation's records, disclose fully the relations between
the corporation and such bank or other business and furnish reports and
information.
ARTICLE VII
WAIVER
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the corporation, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice.
ARTICLE VIII
AMENDMENTS
These Bylaws may be altered, amended or repealed or new Bylaws adopted by
the Board of Directors.
<PAGE>
Exhibit 10-f
AGREEMENT
This AGREEMENT is dated as of May 13, 1997 by and between Trustmark
Corporation, a Mississippi corporation (the "Company"), and Richard G. Hickson,
(the "Executive").
The Company desires to employ the Executive and the Executive desires to
accept such employment on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and agreements
herein contained, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties, intending to be legally
bound, hereby agree as follows:
1. Term of Employment. Subject to Section 5 hereof, the term of the
Executive's employment under this Agreement shall commence on the 13th day of
May, 1997 (the "Commencement Date"), and shall continue until terminated as
provided in Section 5 (the "Term").
2. Duties of Employment. The Executive hereby agrees for the Term to render
his services to the Company as its President and Chief Executive Officer and
such other office or position with the Company as may be reasonably requested by
the Board of Directors of the Company (the "Board"), and in connection
therewith, to perform such duties commensurate with his office as he shall
reasonably be directed by the Board to perform. The Executive shall perform such
duties faithfully and diligently at all times. The Executive shall have no other
employment while he is employed by the Company; provided, however, that the
Executive may serve on the boards of directors of companies which do not compete
with the Company and in such capacity attend regularly scheduled board meetings
to the extent approved in writing in advance by the Board. When and if requested
to do so by the Board, the Executive shall serve as a director and officer of
any subsidiary or affiliate of the Company. The Company shall notify the
Executive if it believes that the Executive has breached any of his obligations
under this Section 2; in such event, the Executive shall have thirty (30) days
within which to cure such breach, other than a breach of his obligation to
refrain from employment with any person or entity other than the Company or any
of its subsidiaries or affiliates.
3. Compensation and Other Benefits.
3.1. Salary. As his full base compensation for all services to be rendered
by the Executive during the Term, the Company shall pay to the Executive a base
salary at an annual rate of $400,000 for the 1997 calendar year of the Term and
for each successive year of the Term in an amount established each year by the
Compensation Committee of the Board and the Board, but in no event less than
$400,000 annually. Payment shall be made in accordance with the Company's usual
payroll practices for senior executives. The annual base salary set forth in
this Section 3, as in effect at any particular time, shall hereinafter be
referred to as the "Base Salary." The Company shall withhold or cause to be
withheld from the Base Salary (and other wages hereunder) all taxes and other
amounts as are required by law to be withheld.
3.2. Annual Bonus. In addition to the Base Salary, the Executive shall have
the opportunity annually to earn as a bonus fifty percent (50%) of his Base
Salary (the "Target Award Opportunity"). In establishing the actual bonus earned
each year by the Executive (the "Annual Bonus"), the Compensation Committee of
the Board, in consultation with the Executive, shall have the discretion to
increase the Annual Bonus above or decrease the Annual Bonus below the Target
Award Opportunity for that year. In so doing the Compensation Committee's
determination shall be based upon an assessment of the performance of both the
Executive and the Company taking into
<PAGE>
consideration such performance goals as may be established by the Compensation
Committee periodically in consultation with the Executive. The Executive's
Annual Bonus shall not exceed seventy-five percent (75%) of the Base Salary for
any one year. Notwithstanding the foregoing, the Executive's Annual Bonus for
the 1997 calendar year of the Term shall be an amount not less than fifty
percent (50%) of the Base Salary prorated for the Executive's period of
employment for the 1997 calendar year.
3.3. Stock Options. The Company will grant to the Executive for no cash
consideration an option to acquire 28,000 shares of common stock of the Company
at a price equal to the fair market value of the common stock on the
Commencement Date in accordance with the Company's 1997 Long Term Incentive
Plan. These options however shall vest as follows: 25% on the first anniversary
of the Commencement Date, and 25% on each such successive anniversary date
thereafter until fully vested, unless earlier vested as provided in Section 5
herein. Subsequent stock option grants may be made in such amounts as are
determined in the sole discretion of the Compensation Committee of the Board.
3.4. Vacation. The Executive shall be entitled to four weeks of paid
vacation for the 1997 calendar year of the Term and for each successive calendar
year of the Term thereafter. Upon termination of the Term of this Agreement,
Executive shall be paid on a pro rata basis for all unused vacation granted
during the year of termination at the Base Salary rate then existing. The
Executive shall not be paid for any unused vacation if terminated for Cause (as
hereinafter defined). No payment shall be made for unused vacation from any
prior years.
3.5. Participation in Employee Benefit Plans. The Executive shall be
permitted to participate in all group life, hospitalization and disability
insurance plans, health programs, pension plans, similar benefit plans or other
so-called "fringe benefit programs" of the Company (the "Employee Benefits") as
are now existing or as may hereafter be revised or adopted and offered to senior
executives generally to the extent the Executive is eligible under the
eligibility provisions of the relevant plan.
4. Confidentiality.
4.1. The Executive covenants and agrees that all trade secrets,
confidential information (including but not limited to confidential information
with respect to marketing, product offerings or expansion plans), and financial
matters of the Company and its subsidiaries (collectively "Confidential
Information") which are learned by him in the course of his employment by the
Company shall be held in a fiduciary capacity and treated as confidential by him
and shall not be disclosed, communicated or divulged by him or used by him for
the benefit of any person or entity (other than the Company, its subsidiaries or
affiliates) unless expressly authorized in writing by the Board, or unless the
Confidential Information becomes generally available to the public otherwise
than through disclosure by the Executive.
4.2. The Executive agrees that (1) during the period he is employed
hereunder and for a period of twelve (12) months thereafter, he will not,
without the prior written consent of the Board, directly or indirectly solicit,
entice, persuade, or induce any employee, director, officer, associate,
consultant, agent or independent contractor of the Company (i) to terminate such
person's employment or engagement by the Company or (ii) to become employed by
any person, firm partnership, corporation, or other such enterprise other than
the Company, its subsidiaries or affiliates, and (2) he shall not following the
termination of his employment hereunder represent that he is in any way
connected with the business of the Company (except to the extent agreed to in
writing by the Company).
<PAGE>
4.3. The Executive agrees that during the period he is employed hereunder
and, in the event the Company terminates his employment hereunder for Cause (as
hereinafter defined) or the Executive terminates his employment hereunder
without Good Reason (as hereinafter defined), for a period of twelve (12) months
thereafter he will not (except as a representative of the company or with the
prior written consent of the Board) engage, participate or make any financial
investment, as an employee, director, officer, associate, consultant, agent,
independent contractor, lender or investor, in the business of any person, firm,
partnership, corporation or other enterprise that is engaged in direct
competition with the business of the Company in the State of Mississippi.
Nothing in this Section 4.3 shall be construed to preclude the Executive from
making any investments in the securities of any business enterprise whether or
not engaged in competition with the Company, to the extent that such securities
are actively traded on a national securities exchange or in the over-the-counter
market in the United States or on any foreign securities exchange and represent
less than one- percent (1%) of any class of securities of such business
enterprise.
5. Termination and Severance.
5.1. Notice of Termination. Subject to the provisions of this Agreement,
the Company and the Executive may terminate the Term on thirty (30) days written
notice to the other party, which notice shall specify in detail the cause for
termination, except that no prior written notice need be given by the Company in
the event it terminates the Executive's employment hereunder for Cause (as
hereinafter defined and subject to applicable cure provisions).
5.2. Resignation. Except as otherwise provided in Section 5.6 or 5.7
herein, the Executive may voluntarily terminate the Term and resign from
employment with the Company by written notice to Company specifying the
effective date of such resignation. Upon receipt of such notice, the Company
shall have the right to terminate the Term immediately or at such earlier date
as the Company may elect by written notice to the Executive. Therefore, Company
shall have no further obligations or liabilities to Executive, except for
obligations to pay the Executive (1) any unpaid Base Salary and accrued vacation
benefits earned through the date of termination; and, (2) the Annual Bonus
earned for the calendar year immediately preceding the calendar year of
termination to the extent not already paid.
5.3. Death. In the event of the Executive's death during the Term, the Term
and the Executive's employment shall terminate automatically, and Company shall
pay to his spouse or designated beneficiary, or if none, to his estate (1) any
unpaid Base Salary and accrued vacation benefits earned through the date of
death, (2) the Annual Bonus earned for the calendar year immediately preceding
the calendar year of death to the extent not already paid, and (3) a pro rata
share of the Target Award Opportunity for the calendar year of death (calculated
on the basis of the number of days elapsed in such year through the date of
death). The Company shall pay to the Executive, his spouse, designated
beneficiary or estate, as the case may be, any amounts owing pursuant to this
Section 5.3 in a single lump sum within fifteen (15) days following termination
of the Executive's employment.
5.4. Disability. If the Executive becomes physically or mentally disabled
during the Term so that he is unable to perform the services required of him
pursuant to this Agreement for a period of 90 days, the Company may terminate
the Term and the Executive's services hereunder effective the 91st day after the
date of such disability, at which time the Company shall promptly pay to the
Executive the payments set forth in Section 5.3 hereof.
<PAGE>
5.5. For Cause. The Company may terminate the Executive's employment during
the Term for Cause. For purposes of this Agreement, "Cause" shall mean that the
Executive has (i) committed an act of personal dishonesty, embezzlement or
fraud; (ii) has misused alcohol or drugs; (iii) failed to pay any obligation
owed to the Company or any affiliate; (iv) breached a fiduciary duty or
deliberately disregarded any rule of the Company or any affiliate; (v) has
committed an act of willful misconduct, or the intentional failure to perform
stated duties; (vi) has willfully violated any law, rule or regulation (other
than misdemeanors, traffic violations or similar offenses) or any final
cease-and-desist order; (vii) has disclosed without authorization any
Confidential Information of the Company or any affiliate, or has engaged in any
conduct constituting unfair competition, or has induced any customer of the
Company or any Affiliate to breach a contract with the Company or any affiliate.
If at any time during the Term the Company shall terminate the Executive
for "Cause" the Company shall pay the Executive (i) any unpaid Base Salary
earned through the date of termination, and (ii) the Annual Bonus earned for the
calendar year immediately preceding the calendar year of termination to the
extent not already paid, without any further obligations to the Executive.
5.6. Change in Control. If at any time during the Term the Company
experiences a Change in Control and within three (3) years after the date the
Change in Control occurs (i) the Term and the Executive are terminated other
than for Cause, death or disability or (ii) the Executive resigns for Good
Reason, the following provisions shall apply:
(i) "Change in Control" shall mean any one of the following events: (1) the
acquisition by any person of ownership of, holding or power to vote more
than 20% of the Company's voting stock, (2) the acquisition by any person
of the ability to control the election of a majority of the Company's
Board, (3) the acquisition of a controlling influence over the management
or policies of the Company by any person or by persons acting as a "group"
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934
(Exchange Act), or (4) during any period of two consecutive years,
individuals (the "Continuing Directors") who at the beginning of such
period constitute the Board (the "Existing Board") cease for any reason to
constitute at least two-thirds thereof, provided that any individual whose
election or nomination for election as a member of the Existing Board was
approved by a vote of at least two-thirds of the Continuing Directors then
in office shall be considered a Continuing Director. Notwithstanding the
foregoing, in the case of (1), (2) and (3) hereof, ownership or control of
the Company's voting stock by the only subsidiary of the Company or any
employee benefit plan sponsored by the Company or any subsidiary shall not
constitute a Change in Control. For purposes of this subparagraph, the term
"person" refers to an individual or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization of any other form of entity not specifically
listed herein;
(ii) "Good Reason" shall mean (1) a demotion in the Executive's status,
title or position, or the assignment to the Executive of duties or
responsibilities which are materially inconsistent with such status, title
or position; (2) a material breach of this Agreement by the Company,
provided the Company has not remedied such breach within thirty (30) days
of receipt of written notice of such breach; (3) a relocation of the
executive offices of the Company to a location more than 50 miles outside
of Jackson, Mississippi without the Executive's written consent given to
the Company within thirty (30) days of the Executive's receipt of
notification of such relocation by the Company or (4) the failure of the
Executive to be named as the Chief Executive Officer of any successor by
merger to the Company. Any good faith determination of "Good Reason" made
by the Executive shall be conclusive; and
<PAGE>
(iii) The Company shall pay to the Executive in a lump sum in cash within
thirty (30) days after the effective date of termination (except for the
payment described in Section 5.6 (iii)(D) which shall be paid on the date
specified therein) the aggregate of the following amounts: A. The sum of
(1) the Executive's Base Salary and accrued vacation benefits
through the date of termination to the extent not theretofore paid and (2) the
product of (x) the sum of (i) Executive's Base Salary rate immediately prior to
the Change in Control and (ii) the highest Annual Bonus amount earned in any one
of the three (3) years preceding the year of the Change in Control, and (y) a
severance multiple of 4.5 if the termination occurs during the first twelve (12)
months after the Commencement Date, of 3.5 if the termination occurs during the
second twelve months after the Commencement Date or 3.0 if the termination
occurs during any successive twelve month period during the Term thereafter. For
the purposes of the calculation in this Section 5.6(iii)(A), the Executive's
Annual Bonus for 1997 shall be annualized; e.g., if the Executive's Annual Bonus
for 1997 is $125,000, then his Annual Bonus for this calculation shall be
$200,000 ($125,000 / 5 months x 12). Also, if the Executive has been employed
fewer than three (3) years when the Change in Control occurs, then the highest
Annual Bonus actually earned in the previous year or years shall apply;
B. The Company shall continue to provide to the Executive the Employee
Benefits for such period of time following the effective date of termination as
is equal in years to the severance multiple set forth in Section 5.6 (iii)(A)
above, reduced by any employment benefits received from later employment;
C. Any stock options granted pursuant to this Agreement or the Company's
1997 Long Term Incentive Plan which have not vested shall immediately vest in
the Executive in full. Any such stock options which were intended by the parties
to be incentive stock options but which exceed the "$100,000 first exercisable
rule" shall be converted into non-qualified stock options; and
D. If the Executive is unable to sell his home in Jackson for at least the
lesser of $800,000 or the then current appraised value of the home within 4
months following the effective date of his termination, Company shall acquire
such property at this time for a purchase price equal to the lesser of $800,000
or the then current appraised value of the Executive's home in Jackson in
exchange for an unencumbered deed to the property.
5.7. No Change in Control. If there has not been a Change in Control within
three (3) years of the date of termination and the Company terminates the Term
and the Executive's employment for a reason other than Cause, death, disability
or the Executive's normal retirement or if the Executive gives written notice of
voluntary termination for any reason during the period February 13, 1998 through
May 12, 1998, the Company shall pay to the Executive the aggregate of the
following amounts in a lump sum in cash (except for the payment described in
Section 5.7(D) which shall be paid on the date specified therein).
A. The sum of (1) the Executive's Base Salary and accrued vacation benefits
through the date of termination to the extent not theretofore paid;
B. The amount equal to the product of (1) 1.5 and (2) the sum of (x)
Executive's annual Base Salary and (y) the Executive's Target Award Opportunity
in effect for the calendar year in which the termination occurs;
C. The Company shall continue to provide to the Executive the Employee
Benefits for a period of eighteen months following the effective date of the
termination, reduced by any employee benefits received from later employment;
<PAGE>
D. If the Executive is unable to sell his home in Jackson for at least the
lesser of $800,000 or the then current appraised value of the home within 4
months following the effective date of his termination, Company shall acquire
such property at this time for a purchase price equal to the lesser of $800,000
or the then current appraised value of the Executive's home in Jackson in
exchange for an unencumbered deed to the property;
E. Except for the amount, if any, described in paragraph D above and except
as provided in paragraph F below, the payments hereunder shall be made within
thirty (30) days after the effective date of termination; and
F. Notwithstanding the foregoing, if the Executive voluntarily resigns
during the period February 13, 1998 through May 12, 1998, the Company shall not
be obligated to make the payments set forth in this Section 5.7, including any
amount under Paragraph D, until the end of six (6) months following the
effective date of such termination and then only if the Executive has not
accepted employment in a comparable or better position with another person,
company or institution during such six (6) month period.
5.8 Retirement. Unless terminated earlier pursuant to this Section 5, the
Term and the Executive's employment shall automatically terminate on the last
business day of the calendar year in which the Executive reaches age 65, in
which event, the Executive shall be entitled to receive such retirement benefits
which have accrued to the Executive by virtue of his employment hereunder, but
not the severance benefits described in Sections 5.6 and 5.7 hereof.
5.9. Return of Documents on Termination. On termination of employment, the
Executive shall promptly return to the Company all documents, materials, papers,
data, computer discs, statements and any other written material (including but
not limited to all copies thereof) and other property of the Company.
6. Expenses.
6.1. General. The Company shall reimburse the Executive for his reasonable
out-of-pocket expenses incurred pursuant to this Agreement and in connection
with the performance of his duties under this Agreement, in accordance with the
general policy of the Company, upon submission of satisfactory documentation
evidencing such expenditures.
7. Moving Expenses and Signing Bonus.
7.1. In addition to the reimbursement of expenses pursuant to Section 6
hereof , the Company shall reimburse the Executive for Moving Expenses (as
defined below) upon presentation to the Company of an itemized expense voucher.
As used in this Section 7, the term "Moving Expenses" means any reasonable
out-of-pocket expenses incurred by the Executive in connection with the
relocation of his residence from Atlanta, Georgia to Jackson, Mississippi,
including, but not limited to (1) the reasonable cost of travel to Jackson by
Executive and his wife to locate a residence, including economy class round trip
airfare, lodging, car rentals and meals; (2) economy class airfare for the
Executive and his family from Atlanta to Jackson on the date of relocation ("the
Moving Date") (3) temporary lodging expenses in Jackson for a period not to
exceed eight (8) months while the Executive is locating or building and moving
into such residence (4) the physical transfer of the Executive's possessions and
automobiles, and (5) any other reasonable expenses incidental to such
relocation.
7.2. Within a reasonable period of time after the Commencement Date, the
Company shall pay the Executive the sum of Two Hundred Thirteen Thousand One
hundred Dollars ($213,100.00), which amount is intended by the parties to cover
all incidental direct expenses associated with moving into the Executive's new
residence in Jackson, certain carrying costs
<PAGE>
associated with the Executive's residence in Atlanta, the sale of such residence
and forfeited benefits at the Executive's current place of employment.
8. Non-Assignment. This Agreement and all of the Executive's rights and
obligations hereunder are personal to the Executive and shall not be assignable;
provided, however, that upon his death all of the Executive's rights to cash
payments under this Agreement shall inure to the benefit of his widow, personal
representative, designees or other legal representatives, as the case may be.
Any person, firm or corporation succeeding to the business of the Company by
merger, purchase, consolidation or otherwise shall assume by contract or
operation of law the obligations of the Company hereunder, provided, however,
that the Company shall, notwithstanding such assumption, remain liable and
responsible for the fulfillment of its obligations under this Agreement.
9. Arbitration. In the event of a dispute between the Company and the
Executive over the terms of this Agreement which is not settled by the parties,
the company and the Executive agree to settle any and all such disputed issues
by arbitration in accordance with the then-existing rules of the American
Arbitration Association. The Company and the Executive shall jointly appoint one
person to act as the arbitrator. In the event the Company and the Executive
cannot agree to an arbitrator within 30 days, the arbitrator shall be chosen by
the American Arbitration Association. The decision of the arbitrator shall be
binding upon the parties and there shall be no appeal therefrom other than for
bias, fraud or misconduct. The costs of the arbitration, including the fees and
expenses of the arbitrator, shall be borne fifty percent by the Company, on the
one hand, and fifty percent by the Executive, on the other, but each party shall
pay its own attorneys' fees and other professional costs and expenses; provided,
however, that if the arbitrator shall rule for the Executive, the Company shall
pay or reimburse the Executive's reasonable attorneys' fees and other
professional costs and expenses and the Executive's share of the arbitration
costs incurred in connection with such arbitration. Notwithstanding the
foregoing, it is specifically understood that the Executive shall remain free to
assert and enforce in any court of competent jurisdiction such rights, if any,
as the Executive may have under federal law, including without limitation,
rights arising under Title VII of the Civil Rights Act of 1964, as amended, the
Age Discrimination and Employment Act of 1967, as amended, and/or the Americans
With Disabilities Act of 1990. Any decision rendered by the arbitrator, except
as provided above, shall be final and binding.
10. Excise Tax Limitation.
10.1. Notwithstanding anything contained in this Agreement (or in any other
agreement between the Executive and the Company) to the contrary, to the extent
that any payments and benefits provided under this Agreement or payments or
benefits provided to, or for the benefit of, the Executive under the Trustmark
Corporation 1997 Long Term Incentive Plan or any other plan or agreement (such
payments or benefits are collectively referred to as the "Payments") would be
subject to the excise tax (the "Excise Tax") imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended (the"Code"), the Payments shall be
reduced if and to the extent that a reduction in the Payments would result in
the Executive retaining a larger amount, on an after-tax basis (taking into
account federal, state and local income taxes and the Excise Tax), than he would
have retained had he been entitled to receive all of the Payments (such reduced
amount is hereinafter referred to as the "Limited Payment Amount"). Unless the
Executive shall have given prior written notice to the Company specifying a
different order to effectuate the reduction, the Company shall reduce the
Payments by first reducing or eliminating those payments or benefits which are
not payable in cash and then by reducing or eliminating cash payments, in each
case in reverse order beginning with payments or benefits which are to be paid
the farthest in time from the date the "Determination"
<PAGE>
(as hereinafter defined) is delivered to the Company and the Executive. Any
notice given by the Executive pursuant to the preceding sentence shall take
precedence over the provisions of any other plan, arrangement or agreement
governing the Executive's rights and entitlements to any benefits or
compensation.
10.2. The determination as to whether the Payments shall be reduced to the
Limited Payment Amount and the amount of such Limited Payment Amount (the
"Determination") shall be made at the Company's expense by an accounting firm
selected by the Company and reasonably acceptable to the Executive which is
designated as one of the five (5) largest accounting firms in the United States
(the "Accounting Firm"). The Accounting Firm shall provide the Determination in
writing, together with detailed supporting calculations and documentation, to
the Company and the Executive on or prior to the date of termination of the
Executive's employment if applicable, or at such other time as requested by the
Company or by the Executive. Within ten (10) days of the delivery of the
Determination to the Executive, the Executive shall have the right to dispute
the Determination (the "Dispute") in writing setting forth the precise basis of
the dispute. If there is no Dispute, the Determination shall be binding, final
and conclusive upon the Company and the Executive.
11. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction such invalidity, legality or unenforceability will not affect any
other provision or any other jurisdiction, but this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
12. Other Provisions.
12.1. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission, or
if mailed, five days after the date of deposit in the United States mail, as
follows:
(i) if to the Company, to:
Trustmark Corporation
248 East Capitol Street
Post Office Box 291
Jackson, MS 39205
Attention: Chairman of Executive Committee
(ii) if to the Executive, to:
Richard G. Hickson
366 Blackland Road, N.W.
Atlanta, Georgia 30342
Any party may change its address for notice hereunder by notice to the other
parties hereto.
12.2. Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior representations, warranties and agreements, written or oral with respect
thereto between the Company and the Executive.
<PAGE>
12.3. Waivers and Agreements. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by written instrument signed by the parties or, in the case
of a waiver, by the party waiving compliance. No delay on the part of any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any right, power or
privilege hereunder, nor any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
12.4. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Mississippi, without regard to its
principle of conflicts of law.
12.5. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original but both of which together shall
constitute one and the same instrument.
12.6. Headings. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
13. Board Approval. The effectiveness of this Agreement shall be subject to
approval by a majority of the Board of the Company entitled to vote on the date
hereof.
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first above written.
TRUSTMARK CORPORATION
By: /s/ Frank R. Day
-------------------------------------
Frank R. Day
Chairman and Chief Executive Officer
EXECUTIVE
/s/ Richard G. Hickson
-------------------------------------
Richard G. Hickson
<PAGE>
Exhibit 10-g
AGREEMENT
This Agreement ("Agreement") is dated as of December 22, 1997, by and
between Trustmark Corporation, a Mississippi corporation (the "Company"), and
Harry M. Walker (the "Executive").
The Company desires to provide certain benefits described in this Agreement
to the Executive and the Executive desires to accept such benefits on the terms
and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and agreements
herein contained, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties, intending to be legally
bound, hereby agree as follows:
1. Definition of Terms. As used in this Agreement, the following terms
shall have the respective meanings indicated below:
A. "Base Salary" means the Executive's annual base salary as in effect at
any particular time.
B. "Cause" means that the Executive has (i) committed an act of personal
dishonesty, embezzlement or fraud; (ii) has misused alcohol or drugs; (iii)
failed to pay any obligation owed to the Company or any affiliate; (iv) breached
a fiduciary duty or deliberately disregarded any rule of the Company or any
affiliate; (v) has committed an act of willful misconduct, or the intentional
failure to perform stated duties; (vi) has willfully violated any law, rule or
regulation (other than misdemeanors, traffic violations or similar offenses) or
any final cease-and-desist order; (vii) has disclosed without authorization any
Confidential Information of the Company or any affiliate, or has engaged in any
conduct constituting unfair competition, or has induced any customer of the
Company or any affiliate to breach a contract with the Company or any affiliate.
C. "Change in Control" means any one of the following events: (1) the
acquisition by any person of ownership of, holding or power to vote more than
20% of the Company's voting stock, (2) the acquisition by any person of the
ability to control the election of a majority of the Company's board of
directors, (3) the acquisition of a controlling influence over the management or
policies of the Company by any person or by persons acting as a "group" (within
the meaning of Section 13(d) of the Securities Exchange Act of 1934 (Exchange
Act), or (4) during any period of two consecutive years, individuals (the
"Continuing Directors") who at the beginning of such period constitute the board
of directors (the "Existing Board") cease for any reason to constitute at least
two-thirds thereof, provided that any individual whose election or nomination
for election as a member of the Existing Board was approved by a vote of at
least two-thirds of the Continuing Directors then in office shall be considered
a Continuing Director. Notwithstanding the foregoing, in the case of (1), (2)
and (3) hereof, ownership or control of the Company's voting stock by the only
subsidiary of the Company or any employee benefit plan sponsored by the Company
or any subsidiary shall not constitute a Change in Control. For purposes of this
subparagraph, the term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization of any other form of entity not
specifically listed herein;
D. "Company's 1997 Long Term Incentive Plan" shall means the Trustmark
Corporation 1997 Long Term Incentive Plan approved by its shareholders on March
11, 1997.
<PAGE>
E. "Confidential Information" means all trade secrets, confidential
information (including but not limited to confidential information with respect
to marketing, product offerings or expansion plans) and financial matters of the
Company and its subsidiaries.
F. "Disability" means that the Executive becomes physically or mentally
disabled during the Executive's employment with the Company so that he is unable
to perform the services required of him for a period of 90 days.
G. "Employee Benefits" means all group life, hospitalization and disability
insurance plans, health programs, pension plans, similar benefit plans or other
so called "fringe benefit programs" of the Company as are now existing or as may
hereafter be revised or adopted and offered to senior executives of the Company
or its affiliates generally.
H. "Good Reason" means (1) a demotion in the Executive's status, title or
position, or the assignment to the Executive of duties or responsibilities which
are materially inconsistent with such status, title or position; (2) a material
breach of this Agreement by the Company, provided the Company has not remedied
such breach within thirty (30) days of receipt of written notice of such breach;
or (3) a relocation of the executive offices of the Company to a location more
than 50 miles outside of Jackson, Mississippi without the Executive's written
consent given to the Company within thirty (30) days of the Executive's receipt
of notification of such relocation by the Company.
2. Change in Control. If at any time during the Executive's employment the
Company experiences a Change in Control and within two (2) years after the date
the Change in Control occurs (i) the Executive's employment is terminated other
than for Cause, death or Disability or (ii) the Executive resigns for Good
Reason, the following provisions shall apply:
A. The Company shall pay to the Executive in a lump sum in cash within
thirty (30) days after the effective date of termination the aggregate of the
following amounts:
(i) The sum of (1) the Executive's Base Salary and accrued vacation
benefits through the date of termination to the extent not theretofore paid and
(2) the product of (x) the sum of (i) Executive's Base Salary rate immediately
prior to the Change in Control and (ii) the highest annual bonus amount earned
in either of the two (2) years preceding the year of the Change in Control, and
(y) a severance multiple of 2.0
(ii) The Company shall continue to provide to the Executive the Employee
Benefits for such period of time following the effective date of termination for
two (2) years, reduced by any employment benefits received from later
employment; and
(iii) Any stock options granted pursuant to the Company's 1997 Long Term
Incentive Plan which have not vested shall immediately vest in the Executive in
full. Any such stock options which were intended by the parties to be incentive
stock options but which exceed the "$100,000 first exercisable rule" shall be
converted into non-qualified stock options.
3. Noncompete.
A. The Executive agrees that (1) during the period he is employed and for a
period of twelve (12) months after termination of employment, he will not,
without the prior written consent of the Board, directly or indirectly solicit,
entice, persuade, or induce any employee, director, officer, associate,
consultant, agent or independent contractor of the Company (i) to terminate such
person's employment or engagement by the Company or (ii) to become employed by
any person, firm, partnership, corporation, or other such enterprise other than
the Company, its subsidiaries or affiliates, and (2) he shall not following the
termination of his employment hereunder represent that he is any way connected
with the business of the Company (except to the extent agreed to in writing by
the Company).
<PAGE>
B. The Executive agrees that during the period he is employed and, if the
Company terminates his employment for Cause or the Executive terminates his
employment without Good Reason for a period of twelve (12) months thereafter he
will not (except as a representative of the Company or with the prior written
consent of the Board) engage, participate or make any financial investment, as
an employee, director, officer, associate, consultant, agent, independent
contractor, lender or investor, in the business of any person, firm,
partnership, corporation or other enterprise that is engaged in direct
competition with the business of the Company in the State of Mississippi.
Nothing in this paragraph B shall be construed to preclude the Executive from
making any investments in the securities of any business enterprise whether or
not engaged in competition with the Company, to the extent that such securities
are actively traded on a national securities exchange or in the over-the-counter
market in the United States or on any foreign securities exchange and represent
less than one-percent (1%) of any class of securities of such business
enterprise
4. Non-Assignment. This Agreement and all of the Executive's rights and
obligations hereunder are personal to the Executive and shall not be assignable;
provided, however, that upon his death all of the Executive's rights to cash
payments under this Agreement shall inure to the benefit of his widow, personal
representative, designees or other legal representatives, as the case may be.
Any person, firm or corporation succeeding to the business of the Company by
merger, purchase, consolidation or otherwise shall assume by contract or
operation of law the obligations of the Company hereunder, provided, however,
that the Company shall, notwithstanding such assumption, remain liable and
responsible for the fulfillment of its obligations under this Agreement.
5. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction such invalidity, legality or unenforceability will not affect any
other provision or any other jurisdiction, but this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
6. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission, or
if mailed, five days after the date of deposit in the United States mail, as
follows:
(i) if to the Company, to:
Trustmark Corporation
248 East Capitol Street
Post Office Box 291
Jackson, MS 39205
Attention: Chief Executive Officer
(ii) if to the Executive, to:
Harry M. Walker
148 St. Andrews Drive
Jackson, MS 39211
Any party may change its address for notice hereunder by notice to the
other parties hereto.
<PAGE>
7. Entire Agreement. This Agreement contains the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
representations, warranties and agreements, written or oral with respect thereto
between the Company and the Executive.
8. Waivers and Agreements. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by written instrument signed by the parties or, in the case
of a waiver, by the party waiving compliance. No delay on the part of any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any right, power or
privilege hereunder, nor any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Mississippi, without regard to its
principle of conflicts of law.
10. Headings. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
11. Board Approval. This Agreement has been authorized by action of the
Executive Compensation Committee of the Board of Directors of the Company on
December 22, 1997, as is referenced in the minutes of their meeting on that day.
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first above written.
TRUSTMARK CORPORATION EXECUTIVE
By: /s/ Richard G. Hickson /s/ Harry M. Walker
------------------------- -------------------
Richard G. Hickson Harry M. Walker
Chief Executive Officer
<PAGE>
Exhibit 10-h
AGREEMENT
This Agreement ("Agreement") is dated as of December 22, 1997, by and
between Trustmark Corporation, a Mississippi corporation (the "Company"), and
Gerard R. Host (the "Executive").
The Company desires to provide certain benefits described in this Agreement
to the Executive and the Executive desires to accept such benefits on the terms
and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and agreements
herein contained, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties, intending to be legally
bound, hereby agree as follows:
1. Definition of Terms. As used in this Agreement, the following terms
shall have the respective meanings indicated below:
A. "Base Salary" means the Executive's annual base salary as in effect at
any particular time.
B. "Cause" means that the Executive has (i) committed an act of personal
dishonesty, embezzlement or fraud; (ii) has misused alcohol or drugs; (iii)
failed to pay any obligation owed to the Company or any affiliate; (iv) breached
a fiduciary duty or deliberately disregarded any rule of the Company or any
affiliate; (v) has committed an act of willful misconduct, or the intentional
failure to perform stated duties; (vi) has willfully violated any law, rule or
regulation (other than misdemeanors, traffic violations or similar offenses) or
any final cease-and-desist order; (vii) has disclosed without authorization any
Confidential Information of the Company or any affiliate, or has engaged in any
conduct constituting unfair competition, or has induced any customer of the
Company or any affiliate to breach a contract with the Company or any affiliate.
C. "Change in Control" means any one of the following events: (1) the
acquisition by any person of ownership of, holding or power to vote more than
20% of the Company's voting stock, (2) the acquisition by any person of the
ability to control the election of a majority of the Company's board of
directors, (3) the acquisition of a controlling influence over the management or
policies of the Company by any person or by persons acting as a "group" (within
the meaning of Section 13(d) of the Securities Exchange Act of 1934 (Exchange
Act), or (4) during any period of two consecutive years, individuals (the
"Continuing Directors") who at the beginning of such period constitute the board
of directors (the "Existing Board") cease for any reason to constitute at least
two-thirds thereof, provided that any individual whose election or nomination
for election as a member of the Existing Board was approved by a vote of at
least two-thirds of the Continuing Directors then in office shall be considered
a Continuing Director. Notwithstanding the foregoing, in the case of (1), (2)
and (3) hereof, ownership or control of the Company's voting stock by the only
subsidiary of the Company or any employee benefit plan sponsored by the Company
or any subsidiary shall not constitute a Change in Control. For purposes of this
subparagraph, the term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization of any other form of entity not
specifically listed herein;
D. "Company's 1997 Long Term Incentive Plan" shall means the Trustmark
Corporation 1997 Long Term Incentive Plan approved by its shareholders on March
11, 1997.
E. "Confidential Information" means all trade secrets, confidential
information (including but not limited to confidential information with respect
to marketing, product offerings or expansion plans) and financial matters of the
Company and its subsidiaries.
<PAGE>
F. "Disability" means that the Executive becomes physically or mentally
disabled during the Executive's employment with the Company so that he is unable
to perform the services required of him for a period of 90 days.
G. "Employee Benefits" means all group life, hospitalization and disability
insurance plans, health programs, pension plans, similar benefit plans or other
so called "fringe benefit programs" of the Company as are now existing or as may
hereafter be revised or adopted and offered to senior executives of the Company
or its affiliates generally.
H. "Good Reason" means (1) a demotion in the Executive's status, title or
position, or the assignment to the Executive of duties or responsibilities which
are materially inconsistent with such status, title or position; (2) a material
breach of this Agreement by the Company, provided the Company has not remedied
such breach within thirty (30) days of receipt of written notice of such breach;
or (3) a relocation of the executive offices of the Company to a location more
than 50 miles outside of Jackson, Mississippi without the Executive's written
consent given to the Company within thirty (30) days of the Executive's receipt
of notification of such relocation by the Company.
2. Change in Control. If at any time during the Executive's employment the
Company experiences a Change in Control and within two (2) years after the date
the Change in Control occurs (i) the Executive's employment is terminated other
than for Cause, death or Disability or (ii) the Executive resigns for Good
Reason, the following provisions shall apply:
A. The Company shall pay to the Executive in a lump sum in cash within
thirty (30) days after the effective date of termination the aggregate of the
following amounts:
(i) The sum of (1) the Executive's Base Salary and accrued vacation
benefits through the date of termination to the extent not theretofore paid
and (2) the product of (x) the sum of (i) Executive's Base Salary rate
immediately prior to the Change in Control and (ii) the highest annual
bonus amount earned in either of the two (2) years preceding the year of
the Change in Control, and (y) a severance multiple of 2.0
(ii) The Company shall continue to provide to the Executive the Employee
Benefits for such period of time following the effective date of
termination for two (2) years, reduced by any employment benefits received
from later employment; and
(iii) Any stock options granted pursuant to the Company's 1997 Long Term
Incentive Plan which have not vested shall immediately vest in the
Executive in full. Any such stock options which were intended by the
parties to be incentive stock options but which exceed the "$100,000 first
exercisable rule" shall be converted into non-qualified stock options.
3. Noncompete.
A. The Executive agrees that (1) during the period he is employed and for a
period of twelve (12) months after termination of employment, he will not,
without the prior written consent of the Board, directly or indirectly solicit,
entice, persuade, or induce any employee, director, officer, associate,
consultant, agent or independent contractor of the Company (i) to terminate such
person's employment or engagement by the Company or (ii) to become employed by
any person, firm, partnership, corporation, or other such enterprise other than
the Company, its subsidiaries or affiliates, and (2) he shall not following the
termination of his employment hereunder represent that he is any way connected
with the business of the Company (except to the extent agreed to in writing by
the Company).
B. The Executive agrees that during the period he is employed and, if the
Company terminates his employment for Cause or the Executive terminates his
employment without Good Reason for a period of twelve (12) months thereafter he
will not (except as a representative of the
<PAGE>
Company or with the prior written consent of the Board) engage, participate or
make any financial investment, as an employee, director, officer, associate,
consultant, agent, independent contractor, lender or investor, in the business
of any person, firm, partnership, corporation or other enterprise that is
engaged in direct competition with the business of the Company in the State of
Mississippi. Nothing in this paragraph B shall be construed to preclude the
Executive from making any investments in the securities of any business
enterprise whether or not engaged in competition with the Company, to the extent
that such securities are actively traded on a national securities exchange or in
the over-the-counter market in the United States or on any foreign securities
exchange and represent less than one-percent (1%) of any class of securities of
such business enterprise.
4. Non-Assignment. This Agreement and all of the Executive's rights and
obligations hereunder are personal to the Executive and shall not be assignable;
provided, however, that upon his death all of the Executive's rights to cash
payments under this Agreement shall inure to the benefit of his widow, personal
representative, designees or other legal representatives, as the case may be.
Any person, firm or corporation succeeding to the business of the Company by
merger, purchase, consolidation or otherwise shall assume by contract or
operation of law the obligations of the Company hereunder, provided, however,
that the Company shall, notwithstanding such assumption, remain liable and
responsible for the fulfillment of its obligations under this Agreement.
5. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction such invalidity, legality or unenforceability will not affect any
other provision or any other jurisdiction, but this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
6. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission, or
if mailed, five days after the date of deposit in the United States mail, as
follows:
(i) if to the Company, to:
Trustmark Corporation
248 East Capitol Street
Post Office Box 291
Jackson, MS 39205
Attention: Chief Executive Officer
(ii) if to the Executive, to:
Gerard R. Host
509 Winter Oak
Madison, MS 39110
Any party may change its address for notice hereunder by notice to the
other parties hereto.
7. Entire Agreement. This Agreement contains the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
representations, warranties and agreements, written or oral with respect thereto
between the Company and the Executive.
<PAGE>
8. Waivers and Agreements. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by written instrument signed by the parties or, in the case
of a waiver, by the party waiving compliance. No delay on the part of any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any right, power or
privilege hereunder, nor any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Mississippi, without regard to its
principle of conflicts of law.
10. Headings. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
11. Board Approval. This Agreement has been authorized by action of the
Executive Compensation Committee of the Board of Directors of the Company on
December 22, 1997, as is referenced in the minutes of their meeting on that day.
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first above written.
TRUSTMARK CORPORATION EXECUTIVE
By: /s/ Richard G. Hickson /s/ Gerard R. Host
------------------------ --------------------
Richard G. Hickson Gerard R. Host
Chief Executive Officer
<PAGE>
Exhibit 13
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, 1997
and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
- ------------------------
Arthur Andersen LLP
Jackson, Mississippi,
January 22, 1998.
<PAGE>
Trustmark Corporation and Subsidiaries
Consolidated Balance Sheets
($ In Thousands)
December 31,
-----------------------
1997 1996
---------- ----------
Assets
Cash and due from banks (noninterest-bearing) $ 292,555 $ 337,090
Federal funds sold and securities purchased
under reverse repurchase agreements 70,786 92,718
Trading account securities 99 102
Securities available for sale (at fair value) 610,471 527,942
Securities held to maturity (fair value:
$1,407,167 - 1997; $1,431,805 - 1996) 1,396,928 1,425,260
Loans 2,983,655 2,634,573
Less allowance for loan losses 64,100 63,000
---------- ----------
Net loans 2,919,555 2,571,573
Premises and equipment 67,958 61,535
Intangible assets 40,085 38,637
Other assets 146,721 138,827
---------- ----------
Total Assets $5,545,158 $5,193,684
========== ==========
Liabilities
Deposits:
Noninterest-bearing $ 898,679 $ 826,137
Interest-bearing 2,920,270 2,771,299
---------- ----------
Total deposits 3,818,949 3,597,436
Federal funds purchased 283,468 201,965
Securities sold under repurchase agreements 665,232 765,226
Other short-term borrowings 140,058 66,352
Other liabilities 43,826 38,521
---------- ----------
Total Liabilities 4,951,533 4,669,500
Commitments and Contingencies
Stockholders' Equity Common stock, no par value:
Authorized: 100,000,000 shares
Issued and outstanding: 36,370,354 shares - 1997;
34,910,683 shares - 1996 15,154 14,546
Surplus 246,768 244,578
Retained earnings 320,901 261,850
Net unrealized gain on securities available
for sale, net of tax 10,802 3,210
---------- ----------
Total Stockholders' Equity 593,625 524,184
---------- ----------
Total Liabilities and Stockholders' Equity $5,545,158 $5,193,684
========== ==========
See notes to consolidated financial statements.
<PAGE>
Trustmark Corporation and Subsidiaries
Consolidated Statements of Income
($ In Thousands Except Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $247,604 $229,373 $225,645
Interest on securities:
Taxable interest income 119,879 119,044 109,994
Interest income exempt from federal income taxes 5,834 5,354 5,887
Interest on federal funds sold and securities purchased
under reverse repurchase agreements 3,575 4,292 6,815
-------- -------- --------
Total Interest Income 376,892 358,063 348,341
Interest Expense
Interest on deposits 120,873 112,614 112,374
Interest on federal funds purchased and securities
sold under repurchase agreements 47,236 48,653 49,171
Other interest expense 4,778 2,739 1,196
-------- -------- --------
Total Interest Expense 172,887 164,006 162,741
-------- -------- --------
Net Interest Income 204,005 194,057 185,600
Provision for loan losses 4,682 5,783 2,439
-------- -------- --------
Net Interest Income After Provision
for Loan Losses 199,323 188,274 183,161
Noninterest Income
Service charges on deposit accounts 25,260 23,425 21,765
Other account charges, fees and commissions 19,557 17,331 15,225
Mortgage servicing fees 13,253 11,925 9,592
Trust service income 12,401 10,102 9,275
Securities gains 549 113 323
Other income 4,535 4,078 3,287
-------- -------- --------
Total Noninterest Income 75,555 66,974 59,467
Noninterest Expenses
Salaries and employee benefits 85,920 77,890 74,107
Net occupancy-premises 9,748 9,353 9,220
Equipment expenses 12,822 12,522 11,750
Services and fees 22,574 20,996 20,636
Amortization of intangible assets 9,341 8,372 7,266
Other expenses 27,510 28,685 28,309
-------- -------- --------
Total Noninterest Expenses 167,915 157,818 151,288
-------- -------- --------
Income Before Income Taxes 106,963 97,430 91,340
Income taxes 35,899 32,291 31,582
-------- -------- --------
Net Income $ 71,064 $ 65,139 $ 59,758
======== ======== ========
Earnings Per Share
Basic $ 1.95 $ 1.87 $ 1.71
======== ======== ========
Diluted $ 1.95 $ 1.87 $ 1.71
======== ======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
Trustmark Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
($ In Thousands Except Share Data)
<TABLE>
<CAPTION>
Unrealized
Common Retained Gains
Total Stock Surplus Earnings (Losses)
-------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $421,010 $14,546 $244,578 $ 169,857 $ (7,971)
Net income 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
Net income 65,139 65,139
Cash dividends paid ($0.50 per share) (17,455) (17,455)
Net change in unrealized gains (losses) on
securities available for sale, net of tax (2,252) (2,252)
-------- ------- -------- -------- ---------
Balance, December 31, 1996 524,184 14,546 244,578 261,850 3,210
Net income 71,064 71,064
Cash dividends paid ($0.59 per share) (21,286) (21,286)
Issuance of 1,476,125 shares of common stock
for immaterial pooling of interests business combination 13,348 615 3,460 9,273
Issuance of 205,746 shares of common stock
for purchase business combination 5,452 86 5,366
Repurchase and retirement of
222,200 shares of common stock (6,729) (93) (6,636)
Net change in unrealized gains (losses) on
securities available for sale, net of tax 7,592 7,592
-------- ------- -------- --------- ---------
Balance, December 31, 1997 $593,625 $15,154 $246,768 $ 320,901 $ 10,802
======== ======= ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Trustmark Corporation and Subsidiaries
Consolidated Statements of Cash Flows
($ In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income $ 71,064 $ 65,139 $ 59,758
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 4,682 5,783 2,439
Provision for depreciation and amortization 18,964 17,993 17,477
Net accretion of securities (236) (4,316) (4,614)
Securities gains (549) (113) (323)
Increase in intangible assets (8,309) (9,490) (6,863)
Decrease (increase) in deferred income taxes 1,127 (2,206) (1,628)
Increase in other assets (16,606) (10,305) (9,016)
Increase in other liabilities 5,358 23,607 5,796
Other 2,059 (2,184) (782)
--------- --------- ---------
Net cash provided by operating activities 77,554 83,908 62,244
Investing Activities
Proceeds from calls and maturities of securities available for sale 90,184 137,863 320,074
Proceeds from calls and maturities of securities held to maturity 213,784 197,880 150,321
Proceeds from sales of securities available for sale 166,469 215,344 119,404
Purchases of securities available for sale (323,119) (392,145) (462,147)
Purchases of securities held to maturity (175,614) (269,037) (80,935)
Net decrease (increase) in federal funds sold and securities
purchased under reverse repurchase agreements 25,982 20,867 (7,854)
Net increase in loans (331,368) (65,030) (229,311)
Purchases of premises and equipment (14,690) (8,573) (6,134)
Proceeds from sales of premises and equipment 478 40 182
Proceeds from sales of other real estate 2,084 2,369 2,808
Net assets assumed in immaterial pooling of interests business combination 13,348
Cash paid in business combination, net of cash equivalents
of acquired bank (1,319)
--------- --------- ---------
Net cash used by investing activities (333,781) (160,422) (193,592)
Financing Activities
Net increase in deposits 184,492 67,391 80,816
Net (decrease) increase in federal funds purchased and securities sold
under repurchase agreements (18,491) 34,208 81,945
Net increase in short term borrowings 73,706 30,454 2,928
Cash dividends (21,286) (17,455) (15,449)
Common stock purchased and retired (6,729)
--------- --------- ---------
Net cash provided by financing activities 211,692 114,598 150,240
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (44,535) 38,084 18,892
Cash and cash equivalents at beginning of year 337,090 299,006 280,114
--------- --------- ---------
Cash and cash equivalents at end of year $ 292,555 $ 337,090 $ 299,006
========= ========= =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
NOTE 1 - BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION,
ACCOUNTING POLICIES AND RECENT PRONOUNCEMENTS
BUSINESS
Trustmark Corporation (the Corporation), through Trustmark National Bank
(the Bank), its wholly-owned subsidiary, provides a broad array of financial
products and services primarily to customers in Mississippi. The Bank's
principal activities include retail and commercial banking, indirect and real
estate lending, investment services and trust services. The Corporation and Bank
are subject to the regulations of federal agencies which perform periodic
examinations.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the amounts of the
Corporation, the Bank, and the Bank's wholly-owned subsidiary, Trustmark
Financial Services, Inc. All intercompany accounts and transactions have been
eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. Management is required to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
ACCOUNTING POLICIES
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 and Held to Maturity
Management determines the appropriate classification of securities at the
time of purchase. Securities are classified as held to maturity when the
Corporation has the intent and ability to hold the security to maturity.
Securities held to maturity are stated at amortized cost.
Securities not classified as held to maturity are classified as available
for sale and are stated at fair value. Unrealized gains and losses, net of tax,
on these securities are recorded as a separate component of stockholders'
equity.
The amortized cost of securities available for sale and held to maturity is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and accretion is included in interest income on securities.
The specific identification method is used to determine realized gains and
losses on sales of securities, which are reported as securities gains(losses) in
noninterest income.
Loans
Loans are stated at the amount of unpaid principal, reduced by an allowance
for loan losses. Interest on loans is accrued and recorded as interest income
based on the outstanding principal balance.
<PAGE>
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 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 earnings. Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
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.
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 using the
straight-line and accelerated methods.
Intangible Assets
Core deposit intangibles represent the net present value of the future
economic benefits related to the use of deposits purchased and are amortized on
a straight-line basis up to 15 years. At December 31, 1997 and 1996, net core
deposit intangibles totaled $14.3 million and $15.8 million, respectively.
Mortgage servicing rights represent the cost of the right to receive future
servicing income.
<PAGE>
Mortgage servicing rights are amortized using an accelerated method over
the estimated lives of the related mortgage loans. Periodically the Corporation
evaluates the carrying value of its mortgage servicing rights by analyzing the
discounted cash flows of such assets under current market conditions. At
December 31, 1997 and 1996, net mortgage servicing rights totaled $25.8 million
and $22.8 million, respectively.
Other Real Estate Owned
Other real estate owned includes assets that have been acquired in
satisfaction of debt through foreclosure. 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. Valuation adjustments required at 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 expenses. Costs of operating and maintaining the properties,
net of related income and gains (losses) on their disposition, are charged to
other expenses as incurred.
Improvements made to properties are capitalized if the expenditures are
expected to be recovered upon the sale of the property.
Income Taxes
The Corporation accounts for deferred income taxes using the asset and
liability method. Deferred tax assets and liabilities are based on the temporary
differences between the financial statement carrying amounts and tax bases of
the Corporation's assets and liabilities. Deferred tax assets and liabilities
are measured using the enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be realized or
settled.
Derivative Financial Instruments
Derivatives are used to hedge interest rate exposures by modifying the
interest rate characteristics of specific balance sheet instruments. The
Corporation regularly enters into certain derivative financial instruments,
forward interest rate contracts, as part of its normal asset/liability
management strategies. At December 31, 1997, the Corporation's obligations under
forward contracts consist of commitments to sell mortgage loans originated
and/or purchased, in the secondary market at a future date. These obligations
are entered into by the Corporation in order to fix the Draft 5-(2/6/98)
interest rate at which it can offer mortgage loans to its customers or purchase
mortgage loans from other financial institutions. Realized gains and losses on
forward contracts and the sale of mortgage loans 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 for sale by the Corporation at the end
of a financial reporting period is recognized at that time.
<PAGE>
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 $34.5 million in 1997,
$36.0 million in 1996 and $32.7 million in 1995. Interest paid on deposit
liabilities and other borrowings approximated $166.2 million in 1997, $163.7
million in 1996 and $159.3 million in 1995. For the years ended December 31,
1997, 1996 and 1995, noncash transfers from loans to foreclosed properties were
$1.7 million, $1.5 million and $3.0 million, respectively.
Per Share Data
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." SFAS No. 128 established standards for computing and presenting earnings
per share (EPS) and applies to entities with publicly held common stock or
potential common stock. This statement replaces the presentation of primary EPS
with a presentation of basic EPS and requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. The Corporation has adopted this statement effective
December 31, 1997 and restated all prior period per share data to conform with
this statement. This restatement had no effect on prior period per share data.
Basic EPS was computed by dividing net income by the weighted average
shares of common stock outstanding, 36,384,463 in 1997 and 34,910,683 in 1996
and 1995. Diluted EPS for 1997 was computed by dividing net income by the sum of
the weighted average shares of common stock outstanding and for the effect of
stock options issued in 1997. The effect of the stock options was to increase
the weighted average number of shares by 8,438, for computing diluted EPS. For
1996 and 1995, the weighted average shares outstanding were the same for
computing basic and diluted EPS because the Corporation did not have any
dilutive securities outstanding.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 method of presentation.
RECENT PRONOUNCEMENTS
Effective January 1, 1997, the Corporation adopted the provisions of SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" as amended Draft 5-(2/6/98) by SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125." SFAS No. 125 establishes accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities. It further
requires that an entity recognize the financial and servicing assets it controls
and the liabilities it has incurred, derecognize financial assets when control
has been surrendered, and derecognize liabilities when extinguished. Consistent
standards are provided by this statement for distinguishing transfers of
<PAGE>
financial assets that are sales from transfers that are secured borrowings. This
statement, as amended, was effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996, and
is effective after December 31, 1997, for repurchase agreements, dollar-roll
agreements, securities lending, and similar transactions. The effect of this
statement, as amended, was not material to the Corporation's consolidated
financial statements. The adoption of the provisions delayed by SFAS No. 127
also will not have a material impact on the Corporation's consolidated financial
statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The statement
is effective for fiscal years beginning after December 15, 1997. Management
intends to comply with this standard in 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement is effective for fiscal years beginning after December 15, 1997.
Management intends to comply with this standard in 1998.
<PAGE>
NOTE 2 - BUSINESS COMBINATIONS
On September 19, 1997, Perry County Bank (PCB) in New Augusta, Mississippi
was merged with the Corporation and accounted for as a purchase business
combination. The stockholders of PCB received approximately 206 thousand shares
of the Corporation's common stock and $3.5 million cash. The Corporation
received assets of $43.3 million and assumed liabilities of $37 million. Excess
cost over net assets acquired equaled $2.7 million and has been allocated to
core deposits. The results of operations, which are not material, have been
included in the financial statements from the merger date.
On February 28, 1997, the Corporation completed its merger with First
Corinth Corporation (FCC) and its subsidiary, National Bank of Commerce of
Corinth (NBC). The Corporation issued approximately 1.5 million shares of common
stock in the merger which was accounted for as a pooling of interests business
combination. As a result of this transaction, the Corporation has restated its
financial statements to include FCC and NBC as of January 1, 1997. Prior years'
financial statements were not restated as the changes would have been
immaterial.
On September 9, 1997, the Corporation entered into a definitive agreement
to acquire Smith County Bank (SCB), in Taylorsville, Mississippi with
approximately $97 million in total assets. Under the terms of the agreement, the
Corporation will exchange approximately 363 thousand shares of common stock for
all the issued and outstanding shares of SCB. The transaction, which will be
accounted for as a purchase business combination, is subject to the approval of
the stockholders of SCB and regulatory authorities and is expected to be
completed during the first quarter of 1998.
NOTE 3 - CASH AND DUE FROM BANKS
The Corporation is required to maintain average reserve balances with the
Federal Reserve Bank based on a percentage of deposits. The average amount of
those reserves for the year ended December 31, 1997, was approximately $7.1
million.
<PAGE>
NOTE 4 - SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
A summary of the amortized cost and estimated fair value of securities
available for sale and held to maturity at December 31, 1997 and 1996 follows ($
in thousands):
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
--------------------------------------------- --------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value Cost Gains (Losses) Value
1997 --------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies $ 480,965 $ 6,197 $ (912) $ 486,250 $ 221,929 $ 1,621 $ (243) $ 223,307
Obligations of states and political
subdivisions 230,642 7,319 (1,257) 236,704
Debt securities of foreign governments 100 100
Mortgage-backed securities 97,853 334 (211) 97,976 944,257 5,843 (3,044) 947,056
Other securities 14,159 12,213 (127) 26,245
--------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Total $ 592,977 $ 18,744 $ (1,250) $ 610,471 $1,396,928 $ 14,783 $ (4,544) $1,407,167
========= ========== ========== =========== ========== ========== ========== ==========
1996
U.S. Treasury and other U.S.
Government agencies $ 469,396 $ 651 $ (3,484) $ 466,563 $ 267,636 $ 1,359 $ (878) $ 268,117
Obligations of states and political
subdivisions 220,073 5,469 (1,315) 224,227
Debt securities of foreign governments 100 100
Mortgage-backed securities 39,536 299 (187) 39,648 937,451 6,575 (4,665) 939,361
Other securities 13,813 7,918 21,731
--------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Total $ 522,745 $ 8,868 $ (3,671) $ 527,942 $1,425,260 $ 13,403 $ (6,858) $1,431,805
========= ========== ========== =========== ========== ========== ========== ==========
</TABLE>
The amortized cost and estimated fair value of securities available for
sale and held to maturity at December 31, 1997, by contractual maturity, are
shown below ($ 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 $ 84,504 $ 84,212 $ 94,288 $ 94,306
Due after one year through five years 396,461 402,038 238,778 241,570
Due after five years through ten years 86,425 89,140
Due after ten years 14,159 26,245 33,180 35,095
--------- --------- ---------- ----------
495,124 512,495 452,671 460,111
Mortgage-backed securities 97,853 97,976 944,257 947,056
--------- --------- ---------- ----------
Total $ 592,977 $ 610,471 $1,396,928 $1,407,167
========= ========= ========== ==========
</TABLE>
<PAGE>
Gross gains and losses as a result of calls and dispositions of securities
available for sale were $640 thousand and $97 thousand, respectively, in 1997,
$106 thousand and $86 thousand, respectively, in 1996 and $1.4 million and $1.3
million, respectively, in 1995.
During 1997, 1996 and 1995, there were no sales of securities held to
maturity. Gross gains of $6 thousand, $93 thousand and $217 thousand were
realized on calls and other dispositions of these securities during 1997, 1996
and 1995, respectively.
Securities with a carrying value of $1.82 billion and $1.76 billion at
December 31, 1997 and 1996, respectively, were pledged to collateralize public
deposits, securities sold under agreements to repurchase, and for other purposes
as required or permitted by law.
NOTE 5 - LOANS
At December 31, 1997 and 1996, loans consisted of the following ($ in
thousands):
1997 1996
----------- -----------
Real estate loans:
Construction and land development $ 195,728 $ 168,650
Secured by 1-4 family residential properties 699,486 543,661
Secured by nonfarm, nonresidential properties 446,492 398,350
Other 70,592 73,229
Loans to finance agricultural production 38,466 33,950
Commercial and industrial 702,361 642,758
Loans to individuals for personal expenditures 701,132 645,829
Obligations of states and political subdivisions 79,178 84,918
Loans for purchasing or carrying securities 17,622 20,469
Other loans 32,598 22,759
----------- -----------
Loans 2,983,655 2,634,573
Allowance for loan losses (64,100) (63,000)
----------- -----------
Net loans $ 2,919,555 $ 2,571,573
=========== ===========
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):
Balance at January 1, 1997 $ 59,056
New loans 252,506
Repayments (248,017)
=========
Balance at December 31, 1997 $ 63,545
=========
<PAGE>
Changes in the allowance for loan losses were as follows ($ in thousands):
1997 1996 1995
======== ======== ========
Balance at January 1 $ 63,000 $ 62,000 $ 65,014
Provision charged to expense 4,682 5,783 2,439
Loans charged off (8,960) (9,272) (9,490)
Recoveries 4,034 4,489 4,037
Allowance applicable to loans of acquired banks 1,344
-------- -------- --------
Balance at December 31 $ 64,100 $ 63,000 $ 62,000
======== ======== ========
At December 31, 1997, nonaccrual loans equaled $14.2 million, of which $11
million were considered impaired and have been written down to their net
realizable value. The average carrying amount of impaired loans during 1997 was
approximately $9.9 million. The interest income recognized on impaired loans in
1997 and the foregone interest on nonaccrual loans was immaterial.
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows ($ in thousands):
December 31,
-------------------
1997 1996
-------- --------
Land $ 12,070 $ 11,132
Buildings and leasehold improvements 81,486 74,650
Furniture and equipment 70,057 69,115
-------- --------
163,613 154,897
Less accumulated depreciation and amortization 95,655 93,362
-------- --------
Premises and equipment $ 67,958 $ 61,535
======== ========
NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At December 31, 1997, the carrying values of securities sold under
repurchase agreements, by contractual maturity, are shown below ($ in
thousands):
Carrying
Value
--------
Demand $295,338
In one day 162,085
Term up to 30 days 42,067
Term of 30 to 90 days 62,844
Term of 90 days and over 102,898
--------
Total $665,232
========
The weighted average interest rate for these repurchase agreements was
5.59% at December 31, 1997. The repurchase agreements are collateralized by
specific U. S. Treasury and other U. S. Government agency securities with
carrying values of approximately $675.8 million and fair values of approximately
$678.8 million.
NOTE 8 - INCOME TAXES
The income tax provision included in the statements of income is as follows
($ in thousands):
1997 1996 1995
-------- -------- --------
Current:
Federal $ 32,076 $ 31,767 $ 30,262
State 2,696 2,730 2,948
Deferred:
Federal 1,038 (1,879) (1,586)
State 89 (327) (42)
-------- -------- --------
Income tax provision $ 35,899 $ 32,291 $ 31,582
======== ======== ========
<PAGE>
The income tax provision differs from the amount computed by applying the
statutory federal income tax rate of 35% to income before income taxes as a
result of the following ($ in thousands):
1997 1996 1995
-------- -------- --------
Income tax computed at statutory tax rate $ 37,437 $ 34,101 $ 31,969
Tax exempt interest (3,702) (3,103) (3,111)
Nondeductible interest expense 536 470 565
State income taxes, net 2,785 2,403 2,906
Other (1,157) (1,580) (747)
-------- -------- --------
Income tax provision $ 35,899 $ 32,291 $ 31,582
======== ======== ========
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):
1997 1996
Deferred Tax Assets: -------- --------
Allowance for loan losses $ 24,321 $ 23,854
Deferred compensation 4,207 3,793
Capitalized mortgage servicing costs 1,114 1,186
Core deposit intangibles 1,837 1,596
Other 2,394 4,219
-------- --------
Total gross deferred tax asset 33,873 34,648
Deferred Tax Liabilities:
Unrealized securities gains (6,691) (1,988)
Pension plan (1,911) (1,814)
Discount accretion on securities (878) (1,042)
Accelerated depreciation and amortization (458) (465)
Other (608) (406)
-------- --------
Total gross deferred tax liability (10,546) (5,715)
-------- --------
Net deferred tax asset $ 23,327 $ 28,933
======== ========
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 be realized.
The income tax provision included $210 thousand in 1997, $43 thousand in
1996 and $124 thousand in 1995 resulting from securities transactions.
<PAGE>
NOTE 9 - EMPLOYEE BENEFIT PLANS
Pension Plan
The Corporation maintains a defined noncontributory pension plan which
covers substantially all employees with more than one year of service. The plan
provides pension benefits that are based on the length of credited service and
final average compensation as defined in the plan. The Corporation's policy is
to fund amounts allowable for federal income tax purposes. The following table
sets forth the funded status of the Corporation's defined noncontributory
pension plan and the amounts recognized in the consolidated balance sheets at
December 31, 1997 and 1996 ($ in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested $ 32,353 $ 29,685
Nonvested 518 609
-------- --------
Total $ 32,871 $ 30,294
======== ========
Projected benefit obligation $(42,650) $(38,836)
Plan assets at fair value - primarily listed stocks, pooled funds
and fixed income securities 57,749 43,448
-------- --------
Plan assets in excess of projected benefit obligation 15,099 4,612
Unrecognized net (gain) from past experience different from
that assumed (10,513) (1,549)
Unrecognized net assets being amortized over 15 years (1,667) (2,031)
Unrecognized prior service cost 2,092 2,354
Contributions after measurement date 1,358
-------- --------
Prepaid pension assets recorded in balance sheets $ 5,011 $ 4,744
======== ========
</TABLE>
Net pension costs included the following components ($ in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 2,892 $ 2,776 $ 2,537
Interest cost on projected benefit obligation 2,860 2,549 2,249
Actual return on assets (12,299) (5,570) (6,278)
Net amortization and deferral 8,474 2,233 3,550
-------- -------- --------
Net pension costs $ 1,927 $ 1,988 $ 2,058
======== ======== ========
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation 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%.
The Corporation does not provide any significant post-retirement or
post-retirement benefits to its employees other than pension benefits.
Defined Contribution Plans
Effective January 1, 1997, the Corporation converted its profit sharing
plan into an employee stock ownership plan which covers substantially all
employees with more than one year of service. The contributions made to these
plans are at the Board of Directors' discretion and were $2.2 million in 1997,
$2.2 million in 1996 and $1.9 million in 1995.
Also, the Corporation provides its employees with a self directed 401(k)
retirement plan that allows an employee to defer the greater of 15% of base pay
or $7,000. The Corporation does not contribute to this plan.
Deferred Compensation Plan
The Corporation provides a deferred compensation plan covering its
directors and key executives and senior officers. Participants of the deferred
compensation plan can defer a portion of their compensation for payment after
retirement. Life insurance contracts have been purchased which may be used to
fund payments under the plan. Expenses related to this plan were $747 thousand
in 1997, $601 thousand in 1996 and $1.3 million in 1995.
Long Term Incentive Plan
During 1997, the Corporation adopted an incentive stock plan which includes
the granting of incentive stock options and nonqualified stock options. Stock
options are granted at a price equal to the market value of the stock at the
date of grant and are exercisable for a period not to exceed ten years from the
date of grant. The maximum number of shares that could be granted under this
plan is 3.5 million shares.
The Corporation granted stock options for 86,000 shares of common stock
during 1997 at an average market price of $26.35. At December 31, 1997, options
to purchase 28,000 shares of common stock were exercisable at an average price
of $24.88.
The Corporation accounts for the incentive stock plan under Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized. For 1997, had compensation expense been recognized consistent with
SFAS No. 123, "Accounting for Stock-Based Compensation, " pro forma net income
would have been $70.8 million while pro forma basic and diluted EPS would have
been $1.95.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Corporation currently has lease commitments for banking premises and
general offices and equipment which expire from 1998 to 2026. The majority of
these commitments contain renewal options which extend the base lease from 5 to
20 years. Rental expense approximated $3.0 million in 1997, $2.8 million in 1996
and $2.4 million in 1995.
<PAGE>
Minimum rental commitments at December 31, 1997, under material,
noncancelable leases for banking premises and general offices and equipment,
were as follows ($ in thousands):
Year ended Minimum Rental
December 31, Commitment
------------ --------------
1998 $ 877
1999 668
2000 493
2001 410
2002 359
Thereafter 1,741
Legal Proceedings
The Corporation and its subsidiaries are parties to lawsuits and other
claims that arise in the ordinary course of business; some of the lawsuits
assert claims related to the lending, collection, servicing, investment, trust
and other business activities of Trustmark National Bank; and some of the
lawsuits allege substantial claims for damages. The cases are being vigorously
contested. In the regular course of business, Management evaluates estimated
losses or costs related to litigation, and provision is made for anticipated
losses whenever Management believes that such losses are probable and can be
reasonably estimated. At the present time, Management believes, based on the
advice of legal counsel, that the final resolution of pending legal proceedings
will not have a material impact on the Corporation's consolidated financial
position or results of operations.
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, a type of derivative financial instrument, are
agreements to purchase or sell securities or other money market instruments at a
future specified date at a specified price or yield. As of December 31, 1997,
the Corporation's exposure under forward contracts represents commitments to
sell mortgages in the future and is immaterial.
<PAGE>
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 or 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, 1997, as
represented below ($ in thousands):
Contractual or
Notional Amount
-------------------
1997 1996
Financial instruments whose contractual -------- --------
amounts represent credit risk:
Loan commitments $795,444 $728,166
Standby and commercial letters
of credit written 33,823 34,781
Financial instruments whose contractual or
notional amounts exceed the amount of
credit risk:
Forward contracts 82,675 73,465
NOTE 12 - STOCKHOLDERS' EQUITY
The Corporation and the Bank are subject to minimum capital requirements
which are administered by various Federal regulatory agencies. These capital
requirements, as defined by federal guidelines, involve quantitative and
qualitative measures of assets, liabilities and certain off-balance sheet
instruments. Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the financial statements of
the Corporation and Bank.
Management believes, as of December 31, 1997, that the Corporation and the
Bank meet all capital adequacy requirements to which they are subject. At
December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency (OCC) categorized the Bank as well capitalized. To
be categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier 1 risk-based and Tier 1 leverage ratios (defined in applicable
regulations) as set forth in the table below. There are no significant
conditions or events that have occurred since the OCC's notification that
Management believes has affected the Bank's present classification.
<PAGE>
The Corporation's and the Bank's actual regulatory capital amounts and
ratios are presented in the table below ($ in thousands):
<TABLE>
<CAPTION>
Minimum Regulatory
Actual Minimum Regulatory Provision to be
Regulatory Capital Capital Required Well Capitalized
------------------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------ -------- ----- -------- ------
At December 31, 1997:
Total Capital (to Risk Weighted Assets)
<S> <C> <C> <C> <C> <C> <C>
Trustmark Corporation $612,460 19.25% $254,493 8.00% N/A
Trustmark National Bank $596,304 18.81% $253,597 8.00% $316,996 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation $572,395 17.99% $127,246 4.00% N/A
Trustmark National Bank $556,377 17.55% $126,798 4.00% $190,198 6.00%
Tier 1 Capital (to Average Assets)
Trustmark Corporation $572,395 10.63% $215,411 4.00% N/A
Trustmark National Bank $556,377 10.35% $214,938 4.00% $268,672 5.00%
At December 31, 1996:
Total Capital (to Risk Weighted Assets)
Trustmark Corporation $548,479 18.82% $233,143 8.00% N/A
Trustmark National Bank $532,724 18.58% $229,369 8.00% $286,711 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation $511,722 17.56% $116,572 4.00% N/A
Trustmark National Bank $496,550 17.32% $114,684 4.00% $172,026 6.00%
Tier 1 Capital (to Average Assets)
Trustmark Corporation $511,722 10.16% $201,447 4.00% N/A
Trustmark National Bank $496,550 9.89% $200,857 4.00% $251,071 5.00%
</TABLE>
Dividends paid by the Corporation are substantially funded from dividends
received from the Bank. The Bank's regulators limit the amount of dividends that
may be declared without prior approval. At December 31, 1997, approximately
$140.1 million of undistributed earnings of the Bank included in consolidated
surplus and retained earnings of the Bank included in consolidated surplus and
retained earnings was available for future distribution to the Corporation as
dividends without prior regulatory approval.
<PAGE>
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of financial instruments at
December 31,1997 and 1996 are as follows ($ in thousands):
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
Financial Assets:
<S> <C> <C> <C> <C>
Cash and short-term investments $ 363,341 $ 363,341 $ 429,808 $ 429,808
Trading account securities 99 99 102 102
Securities available for sale 610,471 610,471 527,942 527,942
Securities held to maturity 1,396,928 1,407,167 1,425,260 1,431,805
Net loans 2,919,555 2,944,308 2,571,573 2,580,802
Mortgage servicing rights 25,759 44,450 22,808 33,863
Financial Liabilities:
Deposits 3,818,949 3,829,505 3,597,436 3,598,840
Short-term liabilities 1,088,758 1,088,758 1,033,543 1,033,543
</TABLE>
The methodology and significant assumptions used in estimating the fair
values presented above are as follows:
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 instruments. 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 do not represent the
underlying value of the Corporation.
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 their 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 conjunction 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>
Mortgage Servicing Rights
The estimated fair value of mortgage servicing rights is determined by
discounting the expected future cash flows using current market rates. For
purposes of evaluation and measuring fair value, mortgage servicing rights are
stratified using the predominant risk characteristics of the underlying loans.
These risk characteristics include loan type, maturity and interest rate.
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 which is 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>
NOTE 14 -TRUSTMARK CORPORATION (Parent Company Only) FINANCIAL INFORMATION
($ in thousands)
BALANCE SHEETS
December 31,
-------------------
1997 1996
-------- --------
Assets
Investment in bank $574,894 $511,702
Other assets 18,776 12,687
-------- --------
Total Assets $593,670 $524,389
======== ========
Liabilities and Stockholders' Equity
Accrued expenses $ 45 $ 205
Stockholders' equity 593,625 524,184
-------- --------
Total Liabilities and Stockholders' Equity $593,670 $524,389
======== ========
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
Revenue
<S> <C> <C> <C>
Dividends received from bank $ 31,739 $ 17,513 $ 17,487
Equity in undistributed earnings of subsidiaries 38,438 47,393 41,693
Other income 1,358 800 779
-------- -------- --------
71,535 65,706 59,959
Expenses 471 567 201
-------- -------- --------
Net Income $ 71,064 $ 65,139 $ 59,758
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
Operating Activities
<S> <C> <C> <C>
Net income $ 71,064 $ 65,139 $ 59,758
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in investment in subsidiaries (38,438) (47,393) (41,693)
Other 410 (630) (298)
-------- -------- --------
Net cash provided by operating activities 33,036 17,116 17,767
Investing Activities
Net cash paid in connection with business combination (1,319)
Purchases of securities available for sale (167) (733) (234)
-------- -------- --------
Net cash used by investing activities (1,486) (733) (234)
Financing Activities
Cash dividends paid (21,286) (17,455) (15,449)
Common stock purchased and retired (6,729)
-------- -------- --------
Net cash provided by financing activities (28,015) (17,455) (15,449)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 3,535 (1,072) 2,084
Cash and cash equivalents at beginning of year 1,385 2,457 373
======== ======== ========
Cash and cash equivalents at end of year $ 4,920 $ 1,385 $ 2,457
======== ======== ========
</TABLE>
The Corporation paid income taxes of approximately $34.5 million in 1997,
$36.0 million in 1996 and $32.7 million in 1995. No interest was paid by the
parent company during the three years ended December 31, 1997.
<PAGE>
Trustmark Corporation and Subsidiaries
Selected Financial Data
(unaudited)
($ In Thousands Except Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Consolidated Statements of Income
<S> <C> <C> <C> <C> <C>
Total interest income $376,892 $358,063 $348,341 $315,449 $310,607
Total interest expense 172,887 164,006 162,741 125,968 117,658
-------- -------- -------- -------- --------
Net interest income 204,005 194,057 185,600 189,481 192,949
Provision for loan losses 4,682 5,783 2,439 2,786 18,596
Noninterest income 75,555 66,974 59,467 48,670 47,898
Noninterest expense 167,915 157,818 151,288 151,123 149,893
-------- -------- -------- -------- --------
Income before income taxes 106,963 97,430 91,340 84,242 72,358
Income taxes 35,899 32,291 31,582 29,237 20,106
-------- -------- -------- -------- --------
Net income $ 71,064 $ 65,139 $ 59,758 $ 55,005 $ 52,252
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Per Share Data
Earnings per share
<S> <C> <C> <C> <C> <C>
Basic $1.95 $1.87 $1.71 $1.58 $1.55
===== ===== ===== ===== =====
Diluted $1.95 $1.87 $1.71 $1.58 $1.55
===== ===== ===== ===== =====
Cash dividends per share $0.59 $0.50 $0.44 $0.41 $0.37
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Consolidated Balance Sheets
<S> <C> <C> <C> <C> <C>
Total assets $5,545,158 $5,193,684 $4,992,592 $4,763,365 $4,708,206
Securities - nontrading 2,007,399 1,953,202 1,842,325 1,862,351 1,980,566
Net loans 2,919,555 2,571,573 2,510,091 2,282,551 2,166,004
Deposits 3,818,949 3,597,436 3,530,045 3,449,229 3,428,781
</TABLE>
<PAGE>
Summary of Quarterly Results of Operations
(unaudited)
($ In Thousands Except Share Data)
<TABLE>
<CAPTION>
1997
---------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income $ 91,806 $ 93,826 $ 94,115 $ 97,145
Net interest income 50,264 50,299 50,883 52,559
Provision for loan losses 908 1,357 1,013 1,404
Income before income taxes 26,986 26,015 26,078 27,884
Net income 17,675 17,542 17,754 18,093
Earnings per share
Basic 0.48 0.48 0.49 0.50
Diluted 0.48 0.48 0.49 0.50
1996
---------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
Interest income $ 89,203 $ 89,332 $ 90,306 $ 89,222
Net interest income 47,906 48,471 48,978 48,702
Provision for loan losses 2,144 1,364 1,190 1,085
Income before income taxes 23,646 24,852 26,206 22,726
Net income 15,369 16,187 17,517 16,066
Earnings per share
Basic 0.44 0.47 0.50 0.46
Diluted 0.44 0.47 0.50 0.46
</TABLE>
Trustmark Corporation and Subsidiaries
Principal Markets and Prices of the Corporation's Stock
Dividends Stock Prices
Per -------------------
Share High Low
--------- -------------------
1997
1st Quarter $ .14 28 3/4 24 1/4
2nd Quarter .14 29 1/2 24
3rd Quarter .14 32 1/4 27 3/4
4th Quarter .165 48 29 1/4
1996
1st Quarter $ .12 23 1/4 19 1/2
2nd Quarter .12 24 3/4 21
3rd Quarter .12 22 1/2 20
4th Quarter .14 28 22
The Corporation's common stock is listed for trading on the NASDAQ stock
market as stock symbol TRMK.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following provides a narrative discussion and analysis of significant
changes in the Corporation's results of operations and financial condition. This
discussion should be read in conjunction with the consolidated financial
statements and the supplemental financial data included elsewhere in this
report.
The Private Securities Litigation Reform Act of 1995 evidences Congress'
determination that the disclosure of forward-looking information is desirable
for investors and encourages such disclosure by providing a safe harbor for
forward-looking statements by Management. Certain of the information included in
this discussion contains forward-looking statements and information that are
based on Management's belief as well as certain assumptions made by, and
information currently available to Management. Specifically, Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward- looking statements with respect to the adequacy of the
allowance for loan losses; the effect of legal proceedings on the Corporation's
financial condition, results of operations and liquidity; year 2000 compliance
issues and market risk disclosures. The risks and uncertainties that may affect
operations, performance, growth projections and the results of the Corporation's
business include, but are not limited to, fluctuations in the economy, the
relative strength and weakness in the consumer and commercial credit sector and
in the real estate market, the actions taken by the Federal Reserve for the
purpose of managing the economy, interest rate movements, the impact of
competitive products, services and pricing, timely development by the
Corporation of technology enhancements for its products and operating systems,
legislation and similar matters. With regard to legal proceedings, the outcome
of litigation is inherently uncertain and depends on judicial interpretations of
law and the findings of judges and juries. Although Management of the
Corporation believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. Such forward-looking statements are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks
materialize, or should any such underlying assumptions prove to be significantly
different, actual results may vary materially from those anticipated, estimated,
projected or expected.
FINANCIAL SUMMARY
For the year ended December 31, 1997, the Corporation's net income
increased 9.10% to $71.1 million compared with $65.1 million in 1996 and $59.8
million in 1995. Basic and diluted earnings per share for 1997 were $1.95
compared with $1.87 and $1.71 in 1996 and 1995, respectively. The increase in
earnings for 1997 reflects a higher level of net interest income, continued
improvement in other noninterest income and controlled growth of noninterest
expense.
Total assets at December 31, 1997 increased 6.77% over year end 1996 to
$5.545 billion, while stockholders' equity increased 13.25% over year end 1996
and equaled $593.6 million. The return on average assets for 1997 increased to
1.34% compared with 1.27% in 1996 and 1.23% in 1995. The return on average
equity in 1997 was 12.67% compared with 13.07% and 13.23% in 1996 and 1995,
respectively. The decline in return on average equity during the three-year
period results from a percentage growth of equity that exceeds the percentage
growth in net income.
BUSINESS COMBINATIONS
Acquisitions have been, and are expected to continue to be, a significant
part of the Corporation's growth and have enhanced the market position of the
Corporation in the state of Mississippi. Management is continually evaluating
new market areas in which to expand and to provide its financial services.
On September 19, 1997, Perry County Bank (PCB) in New Augusta, Mississippi
was merged in a business combination accounted for by the purchase method of
accounting. At the merger date, PCB had approximately $23 million in net loans,
$43.3 million in total assets and $37 million in total deposits. The
<PAGE>
stockholders of PCB received approximately 206,000 shares of the Corporation's
common stock and $3.5 million cash in connection with the merger. Excess cost
over net assets acquired equaled $2.7 million and has been allocated to core
deposits. PCB's results of operations, which are not material, have been
included in the financial statements from the merger date.
On February 28, 1997, Trustmark Corporation completed its merger with First
Corinth Corporation (FCC) and its subsidiary, National Bank of Commerce of
Corinth (NBC). At February 28, 1997, FCC and its subsidiary had approximately
$64 million in net loans, $134 million in total assets and $113 million in total
deposits. The Corporation issued approximately 1.5 million shares of common
stock in the merger which was accounted for as a pooling of interests. As a
result of this transaction, the Corporation has restated its financial
statements to include FCC and NBC as of January 1, 1997. Prior years' financial
statements were not restated as the changes would have been immaterial.
On September 9, 1997, the Corporation entered into a definitive agreement
to acquire Smith County Bank (SCB) located in Taylorsville, Mississippi. SCB
reported total assets at December 31, 1997, of approximately $94 million and has
five locations in Smith and Jones counties. Under the terms of the agreement,
the Corporation will exchange approximately 363,000 shares of common stock for
all the issued and outstanding shares of SCB. The transaction, which will be
accounted for as a purchase business combination, is subject to the approval of
the stockholders of SCB and regulatory authorities and is expected to be
completed during the first quarter of 1998.
ASSET/LIABILITY MANAGEMENT
Overview
Market risk is the risk of loss arising from adverse changes in market
prices and rates. The Corporation has risk management policies to monitor and
limit exposure to market risk. The Corporation's market risk is comprised
primarily of interest rate risk created by its core banking activities in loans
and deposits. Management continually develops and applies cost effective
strategies to manage these risks. In asset and liability management activities,
policies are in place that are designed to manage interest rate risk. The
Asset/Liability Committee, consisting of executive officers, sets the day-to-day
operating guidelines and approves strategies affecting net interest income and
coordinates activities within policy limits established by the Board of
Directors based on the Corporation's tolerance for risk. A key objective of the
Corporation's asset/liability management program is to quantify, monitor and
manage interest rate risk and to assist Management in maintaining stability in
the net interest margin under varying interest rate environments. The
Asset/Liability Committees of both the Bank's executive officers and the
Corporation's Board of Directors meet monthly to evaluate current and projected
interest rate risk positions and their adherence to the Corporation's policy
limits and review its balance sheet composition.
Market/Interest Rate Risk Management
The Corporation's primary purpose in managing interest rate risk is to
effectively invest the Corporation's capital and to manage and preserve the
value created by its core banking business. The Corporation utilizes an
investment portfolio as well as off-balance sheet instruments to manage the
interest rate risk naturally created through its business activities. The
primary tool utilized by the Asset/Liability Committee is a modeling system that
is run quarterly in order to provide information used to evaluate the
Corporation's exposure to interest rate risk, to project earnings and manage
balance sheet growth. This modeling system utilizes the following scenarios in
order to give Management a method of evaluating the Corporation's interest rate,
basis and prepayment risk under different conditions:
o Rate shocked scenarios of up-and-down 100, 200 and 300 basis points.
o Yield curve twist of +/- 2 standard deviations of the change in spread of
the 3 month treasury bill and the 10 year treasury note yields.
o Basis risk scenarios where federal funds/prime spread widens and tightens
50 and 100 basis points.
<PAGE>
o Prepayment risk scenarios, where projected prepayment speeds in an
up-and-down 200 basis point rate scenario, are compared to current
projected prepayment speeds.
Static gap analysis is an additional tool that can be utilized for interest
rate risk measurement. Management feels that this method for analyzing interest
sensitivity does not provide a complete picture of the Corporation's exposure to
interest rate changes since it illustrates a point-in-time measurement and,
therefore, does not incorporate the effects of future balance sheet trends,
changes in prepayment speeds or varying interest rate scenarios. This analysis
is a relatively straightforward tool which is useful mainly in highlighting
significant short-term repricing volume mismatches. Utilized in the table below
are Management's assumptions relating to prepayments of certain loans and
securities as well as the maturity for rate sensitive assets and liabilities.
The following table presents the Corporation's rate sensitivity static gap
analysis at December 31, 1997 ($ in thousands):
Interest Sensitive Within
---------------------------
90 days One Year
---------- ----------
Total rate sensitive assets $1,367,056 $2,214,781
Total rate sensitive liabilities 1,800,920 2,693,754
---------- ----------
Net gap $ (433,864) $ (478,973)
=========== ==========
The analysis indicates that the Corporation is in a negative gap position
over the next three and twelve month periods. Management believes 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 static gap analysis does not fully capture the impact of interest rate
movements on the Corporation's interest sensitive assets and liabilities. The
interest rate sensitivity table that follows provides additional information
about the Corporation's financial instruments that are sensitive to changes in
interest rates. The quantitative information about market risk is necessarily
limited because it does not take into account operating transactions or
anticipated hedging instruments. The tabular disclosure of the Corporation's
market risk is also limited by its failure to depict accurately the effect on
assumptions of significant changes in the economy or interest rates as well as
changes in Management's expectations or intentions. The information in the
interest rate sensitivity table below reflects contractual interest rate
repricing dates and contractual maturity (including principal amortization)
dates except where altered by the following assumptions:
o The scheduled maturities of mortgage-backed securities and CMOs are
adjusted by the industry dealer prepayment speed for various coupon
segments of the portfolio.
o Principal repayments of loans (other than residential mortgages) and early
withdrawals of deposits include assumptions based on Management's
experience and judgement.
o Changes in prepayment behavior of the residential mortgage portfolio are
based on the current patterns of comparable mortgage-backed securities.
o For indeterminate maturity deposit products (money market, NOW and savings
accounts), the table presents principal cash flows based on the
Corporation's historical experience, Management's judgement and statistical
analysis, as applicable, concerning their most likely withdrawal behaviors.
o Weighted average floating rates are based on the rate for that product as
of December 31, 1997.
<PAGE>
The table below presents principal amounts and related weighted average
interest rates by year of maturity for the Corporation's financial assets and
liabilities along with estimated fair values ($ in thousands):
Interest Rate Sensitivity Table at December 31, 1997
<TABLE>
<CAPTION>
Estimated
1998 1999 2000 2001 2002 Beyond Total Fair Value
---------- -------- -------- -------- -------- -------- ---------- ----------
LOANS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate $ 719,471 $395,783 $308,099 $205,996 $134,917 $181,817 $1,946,083 $1,965,307
Average Int Rate 8.46% 8.37% 8.40% 8.26% 8.24% 7.72% 8.33%
Floating Rate $ 443,734 $133,619 $ 84,492 $ 60,339 $ 53,734 $235,762 $1,011,680 $1,017,206
Average Int Rate 9.01% 8.82% 8.98% 7.14% 6.62% 7.50% 8.39%
INVESTMENT SECURITIES
Fixed Rate $ 449,551 $414,141 $335,143 $388,290 $196,627 $223,746 $2,007,498 $2,017,737
Average Int Rate 5.87% 6.10% 6.23% 6.52% 6.55% 6.58% 6.25%
OTHER EARNING ASSETS
Floating Rate $ 70,786 $ 70,786 $ 70,786
Average Int Rate 6.12% 6.12%
TOTAL FINANCIAL ASSETS $1,683,542 $943,543 $727,734 $654,625 $385,278 $641,325 $5,036,047 $5,071,036
Average Int Rate 7.81% 7.44% 7.47% 7.12% 7.15% 7.24% 7.48%
DEPOSITS
Fixed Rate $1,138,075 $430,198 $34,586 $ 19,149 $ 16,582 $ 586 $1,639,176 $1,649,732
Average Int Rate 5.21% 5.83% 5.80% 5.31% 5.62% 6.46% 5.39%
Floating Rate $ 448,654 $228,162 $228,162 $140,416 $140,416 $ 95,284 $1,281,094 $1,281,094
Average Int Rate 2.99% 2.46% 2.46% 2.47% 2.47% 2.03% 2.62%
OTHER INT-BEARING LIABILITIES
Fixed Rate $ 90,058 $ 90,058 $ 90,058
Average Int Rate 5.81% 5.81%
Floating Rate $ 998,700 $ 998,700 $ 998,700
Average Int Rate 5.37% 5.37%
TOTAL FINANCIAL
LIABILITIES $2,675,487 $658,360 $262,748 $159,565 $156,998 $ 95,870 $4,009,028 $4,019,584
Average Int Rate 4.92% 4.66% 2.90% 2.81% 2.80% 2.06% 4.51%
</TABLE>
Derivative Financial Instruments
Derivatives are used to hedge interest rate exposures by modifying the
interest rate characteristics of specific balance sheet instruments. The
Corporation regularly enters into certain derivative financial instruments,
forward interest rate contracts, as part of its normal asset/liability
management strategies. At December 31, 1997, the Corporation's obligations under
forward contracts consist of commitments to sell mortgage loans originated
and/or purchased 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 mortgage loans from other
financial institutions. Realized gains and losses on forward contracts and the
sale of mortgage loans 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 for sale by the Corporation at the end of a financial reporting period is
recognized at that time. As of December 31, 1997, the Corporation's exposure
under commitments to sell mortgages is immaterial.
<PAGE>
Liquidity
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. The Asset/Liability Committee establishes guidelines by which
they monitor the current liquidity position to ensure adequate funding capacity.
This is accomplished through the active management of both the asset and
liability sides of the balance sheet and by maintaining accessibility to local,
regional and national funding sources. The ability to maintain consistent
earnings and adequate capital also enhances the Corporation's liquidity.
EARNING ASSETS
The percentage of earning assets to total assets measures the effectiveness
of Management's efforts to invest available funds into the most efficient and
profitable uses. Earning assets at December 31, 1997 were $5.062 billion, or
91.29% of total assets, compared with $4.681 billion, or 90.12% of total assets
for December 31, 1996, an increase of $381 million, or 8.15%, and is primarily
the result of business combinations completed during 1997 and growth in the loan
portfolio.
Loans
Loans, the largest category of earning assets for the Corporation, produce
the highest level of interest income. At December 31, 1997, total loans were
$2.984 billion, an increase of $349.1 million, or 13.25%, from the $2.635
billion reported at December 31, 1996. At December 31, 1997, loans were 58.9% of
the Corporation's earning assets compared with 56.3% at December 31, 1996.
Approximately $81 million of the growth in the loan portfolio is the result of
business combinations while the remainder can be attributed to increases in
loans secured by real estate, commercial and industrial loans, and loans to
individuals for personal expenditures. Within the real estate category,
increases in loans secured by residential properties can be attributed to a
Management strategy to retain 10 to 15 year conventional mortgages in its
portfolio.
The Corporation's lending policies have produced consistently strong asset
quality. A measure of asset quality in the financial institutions industry is
the level of nonperforming assets. Nonperforming assets include nonperforming
loans, consisting of nonaccrual and restructured loans, and other real estate as
reflected in the following table ($ in thousands):
December 31,
------------------
1997 1996
------- -------
Loans accounted for on a nonaccrual basis $14,242 $ 8,390
Other real estate (ORE) 2,340 2,734
Accruing loans past due 90 days or more 2,570 2,407
------- -------
Total nonperforming assets and
loans past due 90 days or more $19,152 $13,531
======= =======
Nonperforming assets/Total loans plus ORE 0.56% 0.42%
======= =======
Although the table above shows the Corporation's level of nonperforming
assets and loans past due 90 days or more at December 31, 1997 to be higher than
December 31, 1996, the overall level of nonperforming assets continues to be
less than those of its peer group. The Corporation has controlled its level of
nonperforming assets by maintaining strong underwriting standards, consistent
credit reviews and a prudent loan charge-off policy. At December 31, 1997,
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.
<PAGE>
The allowance for loan losses is maintained at a level that 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. A
formal review is prepared quarterly to assess the risk in the loan portfolio and
to determine the adequacy of the allowance for loan losses. This analysis is
presented to the Credit Policy Committee with subsequent review and approval by
the Board of Directors. At December 31, 1997, the allowance for loan losses was
$64.1 million, representing 2.15% of total loans outstanding. This compares with
an allowance for loan losses of $63.0 million at December 31, 1996, representing
2.39% of total loans outstanding. The increase of $1.1 million is directly the
result of 1997 business combinations.
Net charge-offs were $4.9 million or 0.18% of average loans for the year
ended December 31, 1997, an increase of $143 thousand from $4.8 million or 0.19%
of average loans for the year ended December 31, 1996. The Corporation's level
of net charge-offs for 1997 compares favorably to its peer group.
Securities
The securities portfolio is utilized to provide a quality investment
alternative for available funds and a stable source of interest income. At
December 31, 1997, securities available for sale (AFS), with a carrying value of
$610.5 million, and securities held to maturity (HTM), with a carrying value of
$1.397 billion, combined to create a securities portfolio totaling $2.007
billion, an increase of $54.2 million or 2.77% from December 31, 1996. This
increase is primarily the result of business combinations completed during 1997.
Also, growth has come in the area of shorter term U. S. Government securities
that have provided the Corporation a greater degree of liquidity and additional
collateral as pledges for public deposits, securities sold under agreements to
repurchase and for other purposes as required or permitted by law.
Management continues to stress asset quality as one of the strategic goals
of the securities portfolio which can be seen by the investment of 87% of the
portfolio in U. S. Treasury and U. S. Government agency obligations. The REMIC
and CMO issues held in the securities portfolio are over 99% U. S. Government
agency issues. In order to avoid excessive yield volatility from unexpected
prepayments, the Corporation's normal practice is to purchase investment
securities at or near par value to reduce the risk of premium write-offs.
At December 31, 1997, securities AFS had a carrying value of $610.5 million
and an amortized cost of $593.0 million. This compares with a carrying value of
$527.9 million and an amortized cost of $522.7 million at December 31, 1996. At
December 31, 1997, gross unrealized gains were $18.7 million on securities AFS
while gross unrealized losses were $1.3 million. Net unrealized gains are shown
as a separate component of stockholders' equity, net of taxes and equaled $10.8
million at December 31, 1997.
The carrying value of securities HTM was $1.397 billion at December 31,
1997 compared with $1.425 billion at year end 1996. The fair value of HTM
securities at December 31, 1997 was $1.407 billion compared with $1.432 billion
at year end 1996. Gross unrealized gains were $14.8 million and gross unrealized
losses were $4.5 million on securities HTM at December 31, 1997.
Other Earning Assets
Federal funds sold and securities purchased under reverse repurchase
agreements were $70.8 million at December 31, 1997, a decrease of $21.9 million
when compared with year end 1996. The Corporation utilizes these products as a
short-term investment alternative whenever it has excess liquidity. The decline
during 1997 reflects Management's decision and ability to fund other earning
assets, primarily loans.
<PAGE>
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
The Corporation's deposit base is its primary source of funding and
consists of deposits from the communities served by the Corporation. Total
deposits were $3.819 billion at December 31, 1997, an increase of $221.5
million, or 6.16%, over year end 1996. Business combinations completed during
1997 were responsible for approximately $132.8 million of this growth.
Federal funds purchased were $283.5 million at December 31, 1997, and
increased $81.5 million when compared with year end 1996. Securities sold under
repurchase agreements totaled $665.2 million at December 31, 1997, a decrease of
$100.0 million from year end 1996. At December 31, 1997, the balance of demand
notes was $73.9 million compared to $26.4 million at December 31, 1996. During
the last quarter of 1996, the Corporation began to increase its utilization of
demand notes as a low cost source of funding. Because of the funding available
from demand notes, the Corporation was able to reduce its overall need for funds
from securities sold under repurchase agreements.
CONTINGENCIES
The Corporation and its subsidiaries are parties to lawsuits and other
claims that arise in the ordinary course of business; some of the lawsuits
assert claims related to the lending, collection, servicing, investment, trust
and other business activities of Trustmark National Bank; and some of the
lawsuits allege substantial claims for damages. The cases are being vigorously
contested. In the regular course of business, Management evaluates estimated
losses or costs related to litigation, and provision is made for anticipated
losses whenever Management believes that such losses are probable and can be
reasonably estimated. At the present time, Management believes, based on the
advice of legal counsel, that the final resolution of pending legal proceedings
will not have a material impact on the Corporation's consolidated financial
position or results of operations.
STOCKHOLDERS' EQUITY
The regulatory capital ratios for the Corporation and the Bank are shown in
the table below compared to the minimum ratios that are currently required under
capital adequacy standards imposed by their regulators. Management believes, at
December 31, 1997, that the Corporation and the Bank meet all capital adequacy
requirements to which they are subject. The most recent notification from the
Office of the Comptroller of the Currency categorized the Bank as well
capitalized. Actual and minimum, regulatory capital amounts and ratios at
December 31, 1997, for the Corporation and the Bank are as follows ($ in
thousands):
<TABLE>
<CAPTION>
Actual Minimum Regulatory
Regulatory Capital Capital Required
------------------ ------------------
Amount Ratio Amount Ratio
-------- ----- -------- -----
Total Capital (to Risk Weighted Assets)
<S> <C> <C> <C> <C>
Trustmark Corporation $612,460 19.25% $254,493 8.00%
Trustmark National Bank $596,304 18.81% $253,597 8.00%
Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation $572,395 17.99% $127,246 4.00%
Trustmark National Bank $556,377 17.55% $126,798 4.00%
Tier 1 Capital (to Average Assets)
Trustmark Corporation $572,395 10.63% $215,411 4.00%
Trustmark National Bank $556,377 10.35% $214,938 4.00%
</TABLE>
<PAGE>
At December 31, 1997, the Corporation had stockholders' equity of $593.6
million, which contained a net unrealized gain on securities available for sale,
net of taxes, of $10.8 million. This compares to total stockholders' equity at
December 31, 1996 of $524.2 million, which contained a net unrealized gain on
securities available for sale, net of taxes, of $3.2 million.
Based on a dividend payout ratio of 30.26%, the Corporation retained 69.74%
of its earnings during 1997, generating an internal capital growth rate of
8.84%. Dividends for 1997 were $0.59 per share compared with $0.50 per share for
1996 and $0.44 for 1995. Book value for the Corporation's common stock was
$16.32 at December 31, 1997, compared with the closing market price of $46.25.
In connection with the PCB and SCB mergers, the Corporation's board of
directors has authorized the Corporation to purchase shares of its common stock
in open market transactions. The Corporation has purchased and retired 222,200
shares of its common stock reducing its number of common shares outstanding to
36,370,354 at December 31, 1997.
NET INTEREST INCOME
Net interest income (NII) is interest income generated by earning assets
reduced by the interest expense of funding those assets and is the Corporation's
principal source of income. Consequently, changes in the mix and volume of
earning assets and interest-bearing liabilities, and their related yields and
interest rates, can have a significant impact on earnings.
For 1997, the Corporation's level of NII increased by $9.9 million, or
5.1%, when compared with 1996. Business combinations completed during 1997
contributed $2.5 million to NII with the remaining increase coming primarily
from more rapid growth of average earning assets, primarily in the loan
portfolio, when compared to interest-bearing liabilities during a period of
relatively stable interest rates. For 1996, NII increased by $8.5 million, or
4.56%, when compared with 1995. The improvement in NII for 1996 was due to a
higher volume of average earning assets producing an increase in interest income
while the Corporation was able to maintain the costs of its funding sources.
For 1997, average earning assets increased 4.3% when compared to the same
period in 1996. This was driven by an 8.4% increase in average loans. When this
growth was combined with relatively stable interest rates, the yield on average
earning assets increased by eight basis points when compared to 1996. This
combination resulted in an increase in total interest income of $18.8 million,
or 5.3%, when comparing 1997 with 1996. Business combinations completed during
1997 contributed $6.7 million to this increase.
In 1996, average earning assets increased 4.8%. This was driven by a 9.5%
increase in average securities and a 3.0% increase in average loans. While 1996
produced an increase in the volume of average earning assets, a slightly lower
interest rate environment created a decline in the yield on average earning
assets of 15 basis points. This combination resulted in an increase in total
interest income of $9.7 million, or 2.8%, when comparing 1996 to 1995.
Average interest-bearing liabilities grew by 2.2% during 1997.
Interest-bearing deposits experienced growth of 4.2% during 1997 while average
funds purchased and securities sold under repurchase agreements declined 5.9%.
In addition, the Corporation's increased utilization of demand notes during 1997
led to substantial growth in this category when comparing 1997 and 1996. As a
result of these factors, total interest expense increased by $8.9 million when
comparing 1997 to 1996. Business combinations completed during 1997 contributed
$4.3 million to this increase.
<PAGE>
Average interest-bearing liabilities grew 3.1% during 1996; however,
average interest-bearing deposits increased by only 1.5% while average federal
funds purchased and securities sold under repurchase agreements grew by 7.9%.
Since average interest-bearing deposits comprise nearly 75% of average
interest-bearing liabilities, the small growth in the category combined with a
five basis point decline in rates created only $240 thousand in increased
interest expense on deposits during 1996. When this is combined with a decline
of $518 thousand in interest expense on federal funds purchased and securities
sold under repurchase agreements and a $1.6 million increase in other interest
expense, total interest expense increased by $1.3 million during 1996.
The table below illustrates the changes in the net interest margin as a
percentage of average earning assets for the periods shown:
Year Ended December 31,
-----------------------
1997 1996 1995
----- ----- -----
Yield on interest-earning assets-FTE 7.88% 7.80% 7.95%
Rate on interest-bearing liabilities 3.56% 3.53% 3.66%
----- ----- -----
Net interest margin-FTE 4.32% 4.27% 4.29%
===== ===== =====
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 its interest rate risk policies to manage 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 1997, the Corporation's provision for loan losses was $4.7
million compared with $5.8 million in 1996 and $2.4 million in 1995. The
increase in the provision during 1996 can be attributed to Management's decision
to raise the allowance for loan losses given the overall growth and composition
of the loan portfolio.
<PAGE>
NONINTEREST INCOME
The Corporation stresses the importance of growth in noninterest income as
one of its key long-term strategies. This was accomplished during 1997, as
noninterest income, excluding securities gains, increased $8.1 million, or
12.2%, when compared with 1996. Business combinations completed during 1997
contributed approximately $1.1 million to this increase. Noninterest income has
grown by approximately $15.9 million, or 26.8% since 1995.
The largest single category of noninterest income, service charges on
deposit accounts, grew by $1.8 million, or 7.8%, when 1997 is compared with
1996. This increase can be attributed to a reduction in the amount of waived
service charges and a higher volume of consumer account activity. Service
charges increased $1.7 million, or 7.6%, when 1996 is compared with 1995.
Other account charges, fees and commissions, increased $2.2 million, or
12.8%, when 1997 is compared with 1996 and also experienced an increase of $2.1
million, or 13.8%, when 1996 is compared with 1995. Major contributors to the
growth in this category during these periods were fees generated from discount
brokerage services, credit cards, ATMs and a variety of other fee producing
products and services.
Mortgage servicing fees grew by $1.3 million and $2.3 million during 1997
and 1996, respectively, as the amount of mortgages serviced increased 9.0% when
comparing 1997 with 1996 and 14.5% when comparing 1996 with 1995. At December
31, 1997, the Corporation serviced approximately $3.1 billion in mortgages.
Trust service income increased by $2.3 million and contributed the largest
percentage increase in noninterest income (22.8%) during 1997 as the Bank
continued to be one of the largest providers of asset management services in
Mississippi. At December 31, 1997, the Bank had trust accounts with assets under
management with fair values of approximately $5.6 billion. When comparing 1996
to 1995, trust service income increased by $827 thousand, or 8.9%.
Gross securities gains of $640 thousand and losses of $97 thousand were
realized during 1997 because of calls and dispositions of securities classified
as available for sale. There were no sales of securities held to maturity during
1997. Gross securities gains of $6 thousand were realized on calls and other
dispositions of these securities during that period.
NONINTEREST EXPENSE
Another long-term strategy of the Corporation is to continue to provide
quality service to customers within the context of economic discipline. The
efficiency ratio, a key indicator of the control of noninterest expense and the
growth of noninterest income, was 59.0% for the year ended December 31, 1997,
compared with 59.4% for 1996 and 60.9% for 1995 . Total noninterest expense
increased $10.1 million, or 6.4%, during 1997 compared with $6.5 million, or
4.3% growth during 1996. Business combinations completed during 1997 contributed
$2.8 million to the 1997 increase.
Salaries and employee benefits continue to comprise the largest portion of
noninterest expenses and increased $8.0 million, or 10.3%, when comparing 1997
with 1996 and $3.8 million, or 5.1%, when comparing 1996 with 1995.
Approximately $1.7 million, or 21.1%, of the 1997 increase can be attributed to
business combinations completed during 1997. The number of full-time equivalent
employees totaled 2,309 at December 31, 1997, 2,247 at December 31, 1996 and
2,208 at December 31, 1995.
Services and fees increased $1.6 million, or 7.5%, when comparing 1997 to
1996. Increased costs for professional fees and communications expense
contributed to this increase. During 1996, services and fees increased by $360
thousand, or 1.7%, when compared to 1995.
The amortization of intangible assets increased $969 thousand, or 11.6%,
when comparing 1997 with 1996. As mentioned above, the growth of the mortgage
servicing portfolio provided a larger base of mortgage servicing rights that
began amortization during 1997 which contributed significantly to this increase.
Amortization of intangible assets grew by $1.1 million, or 15.2%, when comparing
1996 to 1995 also because of growth in the mortgage servicing portfolio. The
growth of mortgage servicing rights during 1996 was primarily affected by new
accounting regulations which eliminated the distinction between purchased
mortgage servicing rights and the mortgage servicing rights on loans originated
by the Corporation.
<PAGE>
Other expenses decreased by $1.2 million, or 4.1%, when comparing 1997 with
1996. Increased loan fees related to the mortgage servicing portfolio and
operational expenses were offset by a decline in the FDIC assessment experienced
during 1997. When 1996 is compared to 1995, the increase in other expenses is
$376 thousand, or 1.3%. Increased expenses related to the Corporation's
settlement of the legal proceedings associated with the placement of collateral
protection insurance on automobiles and mobile homes were also offset by a
decline in the FDIC assessment when comparing 1996 to 1995.
Management will continue to monitor closely the level of noninterest
expenses as part of its effort to continue to improve the profitability of the
Corporation.
INCOME TAXES
For the year ended December 31, 1997, the Corporation's combined effective
tax rate was 33.6% compared with 33.1% for 1996 and 34.6% in 1995. The increase
in the Corporation's effective tax rate for 1997 is due primarily to the
reversal of a liability for accrued state income taxes during 1996. The
liability was reversed due to passage of legislation which effectively settled
an ongoing dispute over the disallowance of interest expense to carry U. S.
Government securities.
REGULATORY MATTERS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The statement
is effective for fiscal years beginning after December 15, 1997. Management
intends to comply with this standard in 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement is effective for financial statements for periods beginning after
December 15, 1997. Management intends to comply with this standard in 1998.
YEAR 2000 COMPLIANCE
The Corporation has established a task-force to review all computer-based
systems and applications and develop an action plan to ensure that its computer
and information systems will function properly in the year 2000. This plan,
which has been approved by the Board of Directors and Management, includes the
Corporation's approach to having all systems and applications changed for the
year 2000 by December 31, 1998 with final testing to take place during 1999. At
this time, Management believes that implementation of its year 2000 action plan
will not materially affect the Corporation's operations in the future. However,
the Corporation could possibly be affected by the unsuccessful attempt of other
entities in addressing this issue. Management does not expect the costs of
achieving year 2000 compliance to have a material effect on the Corporation's
consolidated financial statements.
<PAGE>
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
Trustmark Corporation
Post Office Box 291
Jackson, Mississippi 39205-0291
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report incorporated by reference in this Form 10-K, into Trustmark Corporation's
previously filed Registration Statements on Form S-8 (File Numbers 333-35889 and
333-07141).
/s/ Arthur Andersen LLP
- ---------------------------
Arthur Andersen LLP
Jackson, Mississippi,
March 25, 1998.
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