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, 1996 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-3683 TRUSTMARK CORPORATION (Exact name of Registrant as specified in its charter) MISSISSIPPI 64-0471500 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 248 East Capitol Street, Jackson, Mississippi 39201 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (601) 354-5111 Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value Nasdaq Stock Market (Title of Class) (Name of Exchange on Which Registered) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES (X) NO ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) Based on the closing sales price of February 28, 1997, the aggregate market value of the voting stock held by nonaffiliates of the Registrant was $708,260,757 . As of February 28, 1997, there were issued and outstanding 36,386,808 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 1996 Annual Report to Shareholders (Parts I and II), and (2) Proxy Statement for Registrant's Annual Meeting of Shareholders dated February 14, 1997 (Part III). 1
TRUSTMARK CORPORATION FORM 10-K INDEX PART I Item 1. Business 3-13 Item 2. Properties 14 Item 3. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 15 Item 6. Selected Financial Data 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 8. Financial Statements and Supplementary Data 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 15 PART III Item 10. Directors and Executive Officers of the Registrant 15 Item 11. Executive Compensation 16 Item 12. Security Ownership of Certain Beneficial Owners and Management 16 Item 13. Certain Relationships and Related Transactions 16 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 16-17 SIGNATURES 18-21 EXHIBIT INDEX 22 2
TRUSTMARK CORPORATION 1996 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, it is headquartered in Jackson and is the largest bank in the state. The Corporation also owns all of the stock of F. S. Corporation and First Building Corporation, both nonbank Mississippi corporations. F. S. Corporation and First Building Corporation are primarily dormant and are not considered significant subsidiaries. The Bank offers a variety of deposit, investment and credit products to its customers through a branch network with facilities in 166 locations. The Bank is well established as a provider of depository, credit and cash management services to middle-market and larger businesses. These services range from payroll checking, business checking accounts, corporate savings, secured and unsecured lines of credit and loans to direct deposit payroll, sweep accounts and letters of credit. The Bank also offers MasterCard, VISA, VISA Gold and, beginning in June of 1996, VISA Business credit card services to consumers and merchants throughout Mississippi. In addition, the Trustmark Express Check debit card, which allows customers to access their checking or savings account through any merchant that accepts MasterCard and at any Trustmark Express, Gulfnet or Cirrus automated teller machine (ATM), continues to be very successful. During 1996, the Bank introduced TrustTouch pc, an on-line banking service allowing customers to do their banking around the clock from their homes or offices. Customers may also obtain information about the Bank's services via the Internet by accessing its web site. The Trust Services business unit provides services in three areas: custody, investment management and ancillary services such as a third party fiscal agent. The Investment Services unit provides both institutional and retail customers with quality investment opportunities through its Dealer Bank Department and TFSI. Beginning in 1997, full service brokerage services will be offered at discount prices. As of February 28, 1997, the Corporation and the Bank employed 2,267 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. 3
SUPERVISION AND REGULATION The Corporation is a registered bank holding company under the Bank Holding Company Act of 1956, as amended. As such, the Corporation is required to file an annual report and such additional information as the Board of Governors of the Federal Reserve System may require. The Act requires every bank holding company to obtain the prior approval of the Board of Governors before it may acquire substantially all of the assets of any bank, or ownership or control of any voting shares of any bank, if, after the acquisition, it would own or control, directly or indirectly, more than five percent of the voting shares of the bank. In addition, a bank holding company is generally prohibited from engaging in or acquiring direct or indirect control of voting shares of any company engaged in nonbanking activities. One of the principal exceptions to this prohibition is for activities found by the Board of Governors, by order or regulation, to be closely related to banking or managing or controlling banks "as to be a proper incident thereto." The Board has by regulation determined that a number of activities are closely related to banking within the meaning of the Act. In addition, the Corporation is subject to regulation by the State of Mississippi under its laws of incorporation. The 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). Consequently, the Bank is subject to FDIC insurance assessments. The Bank qualifies for the lowest assessment rate of zero per $100 for deposits insured by the Bank Insurance Fund (BIF) and the Savings Insurance Fund (SAIF). The Bank has deposits insured by the SAIF as a result of assisted purchases through the Resolution Trust Corporation during the early 1990's. As a result of the passage of the Deposit Insurance Funds Act on September 30, 1996, the Bank was charged a one-time special assessment during the third quarter of 1996 in order to capitalize the SAIF. Beginning in 1997, the FDIC will assess the Bank only for the purpose of retiring debt of the Financing Corporation (FICO). This assessment will be charged at an annual rate of $.01296 per $100 of BIF deposits and $.0648 per $100 of SAIF deposits. In December 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) was enacted. FDICIA substantially revised the depository institution regulatory and funding provisions of the Federal Deposit Insurance Act and made revisions to several other federal banking statutes. Among other things, FDICIA requires banking regulators to take prompt corrective action whenever financial institutions do not meet minimum capital requirements. In addition, FDICIA has created restrictions on capital distributions that would leave a depository institution undercapitalized. In May of 1993, the FDIC adopted the final rule implementing Section 112 of FDICIA. This regulation includes requirements, procedures and interpretive guidelines that mandate new audit and reporting requirements for financial institutions. As a result of these new requirements, certain formal attestations, assertions and documentation must be imposed on existing control structures. This regulation became effective for fiscal years ending after December 31, 1992. 4
EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Trustmark Corporation (the Registrant) and its bank subsidiary, Trustmark National Bank, including their ages, their positions and their principal occupations for the last five years are as follows: Frank R. Day, 65, Director, Chairman of the Board, President and Chief Executive Officer, Trustmark Corporation; Chairman of the Board and Chief Executive Officer, Trustmark National Bank since January 1988. Harry M. Walker, 46, Secretary, Trustmark Corporation since January 1995; President and Chief Operating Officer, Trustmark National Bank since March 1992. Gerard R. Host, 42, Treasurer, Trustmark Corporation since September 1995; Executive Vice President and Chief Financial Officer, Trustmark National Bank since November 1995. George R. Day, 61, Executive Vice President and Chief Credit Officer, Trustmark National Bank since November 1991. Richard E. Horne, 49, Executive Vice President and Chief Lending Officer, Trustmark National Bank since September 1992. Senior Vice President in Lending and Branch Administration, C & S National Bank, Fort Lauderdale, Florida from August 1988 to August 1992. Thomas W. Mullen, 54, Executive Vice President for Strategic Planning, Trustmark National Bank since November 1991. William O. Rainey, 57, Executive Vice President and Chief Banking Officer, Trustmark National Bank since November 1991. All executive officers, with the exception of Richard E. Horne, have held executive or senior management positions with the Corporation or the Bank for more than five years. STATISTICAL DISCLOSURES The consolidated statistical disclosures for Trustmark Corporation and subsidiaries are contained in Tables 1 through 12. 5
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, 1996 December 31, 1995 --------------------------- --------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ------- -------- ------- ------- -------- ------- <S> <C> <C> <C> <C> <C> <C> ASSETS Interest-earning assets: Federal funds sold and securities purchased under reverse repurchase agreements $76,203 $4,223 5.54% $113,594 $6,815 6.00% Trading securities 340 69 20.29% 500 68 13.60% Securities available for sale: Taxable 605,467 34,754 5.74% 455,176 28,872 6.34% Securities held to maturity: Taxable 1,324,384 84,285 6.36% 1,291,136 81,052 6.28% Nontaxable 92,160 8,245 8.95% 99,933 9,060 9.07% Loans, net of unearned income 2,556,811 231,339 9.05% 2,481,030 227,322 9.16% --------- ------- --------- ------- Total interest-earning assets 4,655,365 362,915 7.80% 4,441,369 353,189 7.95% Cash and due from banks 282,165 275,235 Other assets 234,758 223,468 Allowance for loan losses (62,785) (62,547) --------- --------- TOTAL ASSETS $5,109,503 $4,877,525 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Interest-bearing demand deposits $978,165 26,472 2.71% $1,080,817 31,712 2.93% Savings deposits 334,925 7,520 2.25% 235,223 6,109 2.60% Time deposits 1,493,721 78,622 5.26% 1,448,962 74,553 5.15% Federal funds purchased and securities sold under repurchase agreements 969,413 48,653 5.02% 898,439 49,171 5.47% --------- ------- --------- ------- Total interest-bearing liabilities 3,776,224 161,267 4.27% 3,663,441 161,545 4.41% ------- ------- Noninterest-bearing demand deposits 741,324 701,357 Other liabilities 93,442 60,891 Stockholders' equity 498,513 451,836 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,109,503 $4,877,525 ========= ========= NET INTEREST MARGIN 201,648 4.33% 191,644 4.31% Less tax equivalent adjustments: Investments 2,886 3,171 Loans 1,966 1,677 -------- -------- NET INTEREST MARGIN PER ANNUAL REPORT $196,796 $186,796 ======== ======== </TABLE>
<TABLE> <CAPTION> December 31, 1994 --------------------------- Average Yield/ Balance Interest Rate ------- -------- ------- <S> <C> <C> <C> ASSETS Interest-earning assets: Federal funds sold and securities purchased under reverse repurchase agreements $156,650 $6,188 3.95% Trading securities 964 68 7.05% Securities available for sale: Taxable 628,073 40,599 6.46% Securities held to maturity: Taxable 1,215,805 71,797 5.91% Nontaxable 110,382 10,331 9.36% Loans, net of unearned income 2,246,350 191,739 8.54% --------- ------- Total interest-earning assets 4,358,224 320,722 7.36% Cash and due from banks 267,107 Other assets 224,336 Allowance for loan losses (64,958) --------- TOTAL ASSETS $4,784,709 ========= LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Interest-bearing demand deposits $1,139,553 28,216 2.48% Savings deposits 253,968 6,012 2.37% Time deposits 1,349,727 56,926 4.22% Federal funds purchased and securities sold under repurchase agreements 873,480 33,136 3.79% --------- ------- Total interest-bearing liabilities 3,616,728 124,290 3.44% ------- Noninterest-bearing demand deposits 695,289 Other liabilities 62,876 Stockholders' equity 409,816 --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,784,709 ========= NET INTEREST MARGIN 196,432 4.51% Less tax equivalent adjustments: Investments 3,634 Loans 1,639 -------- NET INTEREST MARGIN PER ANNUAL REPORT $191,159 ======== </TABLE> Nonaccruing loans have been included in the average loan balances and interest collected prior to these loans having been placed on nonaccrual has been included in interest income. Loan fees included in interest associated with the average loan balances are immaterial. Interest income and average yield on tax-exempt assets have been calculated on a fully tax equivalent basis using a tax rate of 35% for each of the three years presented. Certain reclassifications have been made to the 1995 and 1994 statements to conform to the 1996 method of presentation. 6
TRUSTMARK CORPORATION STATISTICAL DISCLOSURES (CONTINUED) TABLE 2 - VOLUME AND YIELD/RATE VARIANCE ANALYSIS The Volume and Yield/Rate Variance table below shows the change from year to year for each component of the tax equivalent net interest margin separated into the amount generated by volume changes and the amount generated by changes in the yield or rate (tax equivalent basis - $ in thousands): <TABLE> <CAPTION> 1996 Compared to 1995 1995 Compared to 1994 Increase (Decrease) Due To: Increase (Decrease) Due To: ---------------------------- ---------------------------- Yield/ Yield/ Volume Rate Net Volume Rate Net ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> INTEREST EARNED ON: Federal funds sold and securities purchased under reverse repurchase agreements ($2,102) $(490) $(2,592) ($2,007) $2,634 $627 Trading securities (26) 27 1 (43) 43 0 Securities available for sale: Taxable 8,817 (2,935) 5,882 (10,985) (742) (11,727) Securities held to maturity: Taxable 2,163 1,070 3,233 4,604 4,651 9,255 Nontaxable (696) (119) (815) (958) (313) (1,271) Loans, net of unearned income 6,801 (2,784) 4,017 20,994 14,589 35,583 ------- ------- ------- ------- ------- ------- Total interest-earning assets 14,957 (5,231) 9,726 11,605 20,862 32,467 INTEREST PAID ON: Interest-bearing demand deposits (2,926) (2,314) (5,240) (1,496) 4,992 3,496 Savings deposits 2,320 (909) 1,411 (463) 560 97 Time deposits 2,406 1,663 4,069 4,410 13,217 17,627 Federal funds purchased and securities sold under repurchase agreements 3,707 (4,225) (518) 971 15,064 16,035 ------- ------- ------- ------- ------- ------- Total interest-bearing liabilities 5,507 (5,785) (278) 3,422 33,833 37,255 ------- ------- ------- ------- ------- ------- CHANGE IN NET INTEREST INCOME ON A TAX EQUIVALENT BASIS $9,450 $554 $10,004 $8,183 ($12,971) ($4,788) ======= ======= ======= ======= ======= ======= </TABLE> The change in interest due to both volume and yield/rate has been allocated to change due to volume and change due to yield/rate in proportion to the absolute value of the change in each. Tax-exempt income has been adjusted to a tax equivalent basis using a tax rate of 35% for 1996, 1995 and 1994 . The balances of nonaccrual loans and related income recognized have been included for purposes of these computations. 7
TRUSTMARK CORPORATION STATISTICAL DISCLOSURES (CONTINUED) TABLE 3 - SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY The table below indicates amortized costs of securities available for sale and held to maturity by type at year end for each of the last three years ($ in thousands): <TABLE> <CAPTION> December 31, --------------------------------- 1996 1995 1994 --------- --------- --------- <S> <C> <C> <C> SECURITIES AVAILABLE FOR SALE U. S. Treasury and U. S. Government agencies $469,396 $413,385 $376,302 Mortgage-backed securities 39,536 53,382 63,388 --------- --------- --------- Total debt securities 508,932 466,767 439,690 Equity securities 13,813 13,080 12,909 --------- --------- --------- Total securities available for sale $522,745 $479,847 $452,599 ========= ========= ========= SECURITIES HELD TO MATURITY U. S. Treasury and U. S. Government agencies $267,636 $257,335 $316,109 Obligations of states and political subdivisions 220,073 212,065 192,321 Mortgage-backed securities 937,451 884,132 914,130 Other securities 100 100 100 --------- --------- --------- Total securities held to maturity $1,425,260 $1,353,632 $1,422,660 ========= ========= ========= </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, 1996 and the weighted average yield for each range of maturities (tax equivalent basis - $ in thousands): <TABLE> <CAPTION> Maturing ------------------------------------------------------------------------------------------ After One, After Five, Within But Within But Within After One Year Yield Five Years Yield Ten Years Yield Ten Years Yield Total -------- ----- ---------- ----- ---------- ----- --------- ----- --------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> SECURITIES AVAILABLE FOR SALE U. S. Treasury and U. S. Government agencies $167,378 5.47% $302,018 5.57% $469,396 Mortgage-backed securities $10,463 7.10% $29,073 7.05% 39,536 -------- -------- -------- -------- --------- Total debt securities 167,378 302,018 10,463 29,073 508,932 Equity securities 13,813 -------- -------- -------- -------- --------- Total securities available for sale $167,378 $302,018 $10,463 $29,073 $522,745 ======== ======== ======== ======== ========= SECURITIES HELD TO MATURITY U. S. Treasury and U. S. Government agencies $79,333 6.48% $188,303 6.10% $267,636 Obligations of states and political subdivisions 16,860 6.88% 74,526 7.10% $90,246 7.63% $38,441 8.68% 220,073 Mortgage-backed securities 2,858 8.97% 36,114 7.04% 194,183 6.49% 704,296 6.46% 937,451 Other securities 100 7.50% 100 -------- -------- -------- -------- --------- Total securities held to maturity $99,051 $298,943 $284,529 $742,737 $1,425,260 ======== ======== ======== ======== ========= </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 2.67 years. As of December 31, 1996 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 $136,117,000 and an approximate fair value of $138,445,000 were held on December 31, 1996. Included in the aforementioned State of Mississippi holdings are bonds with an aggregate carrying value of $19,586,000 and an approximate fair value of $19,849,000 which are known to be prerefunded or escrowed to maturity by U. S. Government securities. 8
TRUSTMARK CORPORATION STATISTICAL DISCLOSURES (CONTINUED) TABLE 5 - COMPOSITION OF THE LOAN PORTFOLIO The table below shows the carrying value of the loan portfolio at the end of each of the last five years ($ in thousands): <TABLE> <CAPTION> December 31, -------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> Real estate loans: Construction and land development $168,650 $144,010 $123,364 $102,873 $86,164 Secured by 1-4 family residential properties 543,661 553,997 504,078 569,411 485,378 Secured by nonfarm, nonresidential properties 398,350 380,734 345,130 340,058 308,755 Other real estate loans 73,229 69,422 63,169 52,295 50,550 Term federal funds sold 125,000 Loans to finance agricultural production 33,950 37,434 34,910 35,490 21,213 Commercial and industrial 642,758 616,949 594,836 531,054 487,322 Loans to individuals for personal expenditures 645,829 641,409 606,444 529,907 413,457 Obligations of states and political subdivisions 84,918 63,557 50,033 38,407 41,320 Loans for purchasing or carrying securities 20,469 11,626 1,840 3,995 6,490 Lease financing receivables 997 2,360 3,871 4,427 3,837 Other loans 21,762 50,593 19,890 23,101 30,014 ---------- ---------- ---------- ---------- ---------- Loans, net of unearned income $2,634,573 $2,572,091 $2,347,565 $2,231,018 $2,059,500 ========== ========== ========== ========== ========== </TABLE> TABLE 6 - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES The table below shows the amounts of loans in certain categories outstanding as of December 31, 1996, which, based on the remaining scheduled repayments of principal, are due in the periods indicated ($ in thousands): <TABLE> <CAPTION> Maturing -------------------------------------------- Within One Year After One Year Through Five or Less Five Years Years Total -------- ---------- ------- -------- <S> <C> <C> <C> <C> Construction and land development $145,119 $23,531 $168,650 Other loans secured by real estate (excluding loans secured by 1-4 family residential properties) 266,270 136,771 $68,538 471,579 Commercial and industrial 400,073 194,069 48,616 642,758 Other loans (excluding loans to individuals) 82,001 25,837 54,258 162,096 -------- -------- -------- --------- Total $893,463 $380,208 $171,412 $1,445,083 ======== ======== ======== ========= </TABLE> The following table shows all loans due after one year classified according to their sensitivity to changes in interest rates ($ in thousands): <TABLE> <CAPTION> Maturing -------------------------------- One Year After Through Five Five Years Years Total ---------- ------- ------- <S> <C> <C> <C> Above loans due after one year which have: Predetermined interest rates $361,533 $155,351 $516,884 Floating interest rates 18,675 16,061 34,736 -------- -------- -------- Total $380,208 $171,412 $551,620 ======== ======== ======== </TABLE> 9
TRUSTMARK CORPORATION STATISTICAL DISCLOSURES (CONTINUED) TABLE 7 - NONPERFORMING ASSETS AND PAST DUE LOANS The table below shows the Corporation's nonperforming assets and past due loans at the end of each of the last five years ($ in thousands): <TABLE> <CAPTION> December 31, --------------------------------------------------- 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> Nonaccrual loans $8,390 $10,055 $12,817 $13,730 $14,008 Restructured loans 2,552 ------- ------- ------- ------- ------- Nonperforming loans 8,390 10,055 12,817 13,730 16,560 Other real estate 2,734 3,982 3,723 5,709 9,711 ------- ------- ------- ------- ------- Nonperforming assets 11,124 14,037 16,540 19,439 26,271 Accruing loans past due 90 days or more 2,407 1,810 2,252 1,816 2,396 ------- ------- ------- ------- ------- Total nonperforming assets and loans past due 90 days or more $13,531 $15,847 $18,792 $21,255 $28,667 ======= ======= ======= ======= ======= </TABLE> Generally, a loan is classified as nonaccrual and the accrual of interest on such loan is discontinued when the contractual payment of principal or interest has become 90 days past due or Management has serious doubts about further collectibility of principal or interest, even though the loan is currently performing. A loan may remain on nonaccrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current and prior years is reversed against interest income. Interest received on nonaccrual loans is applied against principal. Loans are restored to accrual status when the obligation is brought current or has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt. Interest which would have been accrued on nonaccrual and restructured loans if they had been in compliance with their original terms is immaterial. In addition, interest income on these loans that was included in net income for the periods presented was immaterial. At December 31, 1996 Management is not aware of any additional credits, other than those identified above, where serious doubts as to the repayment of principal and interest exist. There are no interest-earning assets which would be required to be disclosed above if those assets were loans. The Corporation had no loan concentrations greater than ten percent of total loans other than those loan categories shown in Table 5. 10
TRUSTMARK CORPORATION STATISTICAL DISCLOSURES (CONTINUED) TABLE 8 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES The table below summarizes the Corporation's loan loss experience for each of the last five years ($ in thousands): <TABLE> <CAPTION> Year Ended December 31, --------------------------------------------------- 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> Balance at beginning of period $62,000 $65,014 $65,014 $51,871 $41,542 Loans charged off: Real estate loans (1,507) (1,663) (1,034) (2,451) (6,728) Loans to finance agricultural production (177) (115) (21) (178) (131) Commercial and industrial (1,334) (764) (979) (4,278) (7,698) Loans to individuals for personal expenditures (5,651) (6,300) (4,780) (4,496) (5,499) All other loans (603) (648) (267) (162) (120) ------- ------- ------- ------- ------- Total charge-offs (9,272) (9,490) (7,081) (11,565) (20,176) Recoveries on loans previously charged off: Real estate loans 325 981 732 590 890 Loans to finance agricultural production 3 10 8 11 Commercial and industrial 1,334 736 581 2,796 1,221 Loans to individuals for personal expenditures 2,087 1,848 2,703 2,226 1,495 All other loans 740 462 271 178 151 ------- ------- ------- ------- ------- Total recoveries 4,489 4,037 4,295 5,790 3,768 ------- ------- ------- ------- ------- Net charge-offs (4,783) (5,453) (2,786) (5,775) (16,408) Additions to allowance charged to operating expense 5,783 2,439 2,786 18,596 26,737 Other additions to allowance for loan losses 322 ------- ------- ------- ------- ------- Balance at end of period $63,000 $62,000 $65,014 $65,014 $51,871 ======= ======= ======= ======= ======= Percentage of net charge-offs during period to average loans outstanding during the period 0.19% 0.22% 0.12% 0.27% 0.82% ======= ======= ======= ======= ======= </TABLE> The allowance for loan losses is maintained at a level believed adequate by Management to absorb estimated probable loan losses. Management's periodic evaluation of the adequacy of the allowance is based on the Corporation's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. 11
TRUSTMARK CORPORATION STATISTICAL DISCLOSURES (CONTINUED) TABLE 9 - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES The following table is a summary by allocation category of the Corporation's allowance for loan losses at December 31, 1996. These allocations were determined by internal formulas based upon Management's analyses of the various types of risk associated with the Corporation's loan portfolio. A discussion of Management's methodology for performing these analyses follows the table ($ in thousands): Allocation for pools of risk-rated loans $26,532 Additional allocation for risk-rated loans 1,630 Allocation for selected industries 2,592 General allocation for all other loans 8,648 Allocation for available lines of credit and letters of credit 2,312 Discretionary 21,286 ------- Total $63,000 ======= The allowance for loan losses is maintained at a level which Management and the Board of Directors believe is adequate to absorb estimated losses inherent in the loan portfolio, plus estimated losses associated with off-balance sheet credit instruments such as letters of credit and unfunded lines of credit. The adequacy of the allowance is reviewed quarterly utilizing the criteria specified in the Office of the Comptroller of the Currency's revised Banking Circular 201 as well as additional guidance provided in the Interagency Policy Statement. Loss percentages were uniformly applied to pools of risk-rated loans within the commercial portfolio. These percentages were determined based on migration analysis, previously established floors for each category and economic factors. In addition, relationships of $500,000 or more which were risk-rated Other Loans Especially Mentioned 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 1996, 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 $21,286,000 is discretionary and serves as added protection in the event that any of the above specific components are determined to be inadequate or for issues that cannot or have not been measured on a quantitative basis over a prolonged period of time. Because of the stability shown by the Corporation's level of nonperforming assets, Management estimates that the anticipated amount of net charge-offs for 1997 will be at approximately the same level as 1996. However, because of the imprecision inherent in most estimates of expected credit losses, Management will continue to take a prudent approach in the evaluation of the allowance for loan losses. 12
TRUSTMARK CORPORATION STATISTICAL DISCLOSURES (CONTINUED) TABLE 10 - TIME DEPOSITS OF $100,000 OR MORE The table below shows maturities on outstanding time deposits of $100,000 or more at December 31, 1996 ($ in thousands): 3 months or less $195,625 Over 3 months through 6 months 80,114 Over 6 months through 12 months 49,102 Over 12 months 69,702 -------- Total $394,543 ======== TABLE 11 - SELECTED RATIOS The following ratios are presented for each of the last three years: 1996 1995 1994 ------ ------ ------ Return on average assets 1.27% 1.23% 1.15% Return on average equity 13.07% 13.23% 13.42% Dividend payout ratio 26.74% 25.73% 25.95% Equity to assets ratio 9.76% 9.26% 8.57% TABLE 12 - SHORT-TERM BORROWINGS The table below presents certain information concerning the Corporation's short-term borrowings for each of the last three years ($ in thousands): <TABLE> <CAPTION> 1996 1995 1994 -------- -------- -------- <S> <C> <C> <C> Federal funds purchased and securities sold under repurchase agreements: Amount outstanding at end of period $967,191 $932,983 $851,038 Weighted average interest rate at end of period 5.46% 5.13% 5.38% Maximum amount outstanding at any month end during each period $1,036,564 $945,207 $997,525 Average amount outstanding during each period $969,413 $898,439 $873,480 Weighted average interest rate during each period 5.02% 5.47% 3.79% </TABLE> 13
ITEM 2. PROPERTIES The Corporation's principal offices are housed in a 14-floor combination office and bank building located in Jackson, Mississippi. This building, along with all other physical properties of the Corporation, are owned by its bank subsidiary. 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 99 full-service branches, 26 limited-service branches and an ATM network which includes 73 ATMs at on-premise locations and 58 ATMs located at off-premise sites. The Bank leases 32 of its 166 total locations with the remainder being owned. ITEM 3. LEGAL PROCEEDINGS The information required by this item can be found in Note 10, "Commitments and Contingencies," (page 31) included in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. 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 1996. 14
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 3, 1997 there were approximately 5,248 shareholders of record of the Corporation's common stock. Other information required by this item can be found in Note 12, "Stockholders' Equity," (page 33) and the table captioned "Principal Markets and Prices of the Corporation's Stock" (page 37) included in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this item can be found in the table captioned "Selected Financial Data" (page 36) included in the Registrant's 1996 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 38-43) included in the Registrant's 1996 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 1996 Annual Report to Shareholders (pages 19-43) and are incorporated herein by reference. The table captioned "Summary of Quarterly Results of Operations" (page 36) is also included in the Registrant's 1996 Annual Report to Shareholders and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no change of accountants within the two-year period prior to December 31, 1996. 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 February 14, 1997 and is incorporated herein by reference. Information on the Registrant's executive officers is included in Part I, page 5 of this report. 15
ITEM 11. EXECUTIVE COMPENSATION Information required by this item can be found in Section VI, "Compensation of Executive Officers and Directors," and Section VIII, "Other Information Concerning Directors," contained in Trustmark Corporation's Proxy Statement dated February 14, 1997 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 February 14, 1997 and is incorporated herein by reference. The Registrant knows of no arrangements which may at a subsequent date result in a change in control of the Registrant. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions can be found in Section VII, "Transactions with Management," contained in Trustmark Corporation's Proxy Statement dated February 14, 1997 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 1996 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, 1996 and 1995 Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 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 16
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. A-3. Exhibits The exhibits listed in the Exhibit Index are filed herewith or are incorporated herein by reference. B. Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report. C. Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. 17
SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRUSTMARK CORPORATION BY: /s/ Frank R. Day BY: /s/ Gerard R. Host ---------------------- ------------------------ Frank R. Day Gerard R. Host Chairman of the Board, Treasurer President and Chief Executive Officer DATE: March 11, 1997 DATE: March 11, 1997 18
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 11, 1997 BY: -------------------------------------- J. Kelly Allgood, Director DATE: March 11, 1997 BY: /s/ Reuben V. Anderson -------------------------------------- Reuben V. Anderson, Director DATE: March 11, 1997 BY: /s/ John L. Black, Jr. --------------------------------------- John L. Black, Jr., Director DATE: March 11, 1997 BY: /s/ Harry H. Bush --------------------------------------- Harry H. Bush, Director DATE: March 11, 1997 BY: /s/ Robert P. Cooke III --------------------------------------- Robert P. Cooke III, Director DATE: March 11, 1997 BY: /s/ Frank R. Day --------------------------------------- Frank R. Day, Principal Executive Officer and Director DATE: March 11, 1997 BY: /s/ William C. Deviney, Jr. --------------------------------------- William C. Deviney, Jr., Director DATE: March 11, 1997 BY: /s/ D. G. Fountain, Jr. --------------------------------------- D. G. Fountain, Jr., Director DATE: March 11, 1997 BY: /s/ C. Gerald Garnett --------------------------------------- C. Gerald Garnett, Director DATE: March 11, 1997 BY: /s/ Matthew L. Holleman III --------------------------------------- Matthew L. Holleman III, Director 19
DATE: March 11, 1997 BY: /s/ Fred A. Jones --------------------------------------- Fred A. Jones, Director DATE: March 11, 1997 BY: /s/ T. H. Kendall III --------------------------------------- T. H. Kendall III, Director DATE: March 11, 1997 BY: --------------------------------------- Larry L. Lambiotte, Director DATE: March 11, 1997 BY: /s/ Robert V. Massengill --------------------------------------- Robert V. Massengill, Director DATE: March 11, 1997 BY: /s/ Donald E. Meiners --------------------------------------- Donald E. Meiners, Director DATE: March 11, 1997 BY: /s/ William Neville III --------------------------------------- William Neville III, Director DATE: March 11, 1997 BY: /s/ Richard H. Puckett --------------------------------------- Richard H. Puckett, Director DATE: March 11, 1997 BY: /s/ Charles W. Renfrow --------------------------------------- Charles W. Renfrow, Director DATE: March 11, 1997 BY: /s/ Clyda S. Rent --------------------------------------- Clyda S. Rent, Director DATE: March 11, 1997 BY: /s/ William Thomas Shows --------------------------------------- William Thomas Shows, Director DATE: March 11, 1997 BY: /s/ Harry M. Walker --------------------------------------- Harry M. Walker, Director DATE: March 11, 1997 BY: /s/ LeRoy G. Walker, Jr. --------------------------------------- LeRoy G. Walker, Jr., Director 20
DATE: March 11, 1997 BY: /s/ Paul H. Watson, Jr. --------------------------------------- Paul H. Watson, Jr., Director DATE: March 11, 1997 BY: --------------------------------------- John C. Wheeless, Jr., Director DATE: March 11, 1997 BY: /s/ Allen Wood, Jr. --------------------------------------- Allen Wood, Jr., Director 21
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. 10-a Deferred Compensation Plan for Directors of Trustmark Corporation, as amended. Filed as Exhibit 10 to the Corporation's Form 10-K Annual Report for the year ended December 31, 1991, incorporated herein by reference. 10-b Deferred Compensation Plan for Executive Officers of Trustmark National Bank. Filed as Exhibit 10-b to the Corporation's Form 10-K Annual Report for the year ended December 31, 1993. 10-c Deferred Compensation Plan for Directors of First National Financial Corporation, acquired October 7, 1994. Filed as Exhibit 10-c to the Corporation's Form 10-K Annual Report for the year ended December 31, 1994. 10-d Life Insurance Plan for Executive Officers of First National Financial Corporation, acquired October 7, 1994. Filed as Exhibit 10-d to the Corporation's Form 10-K Annual Report for the year ended December 31, 1994. 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. 13 Only those portions of the Registrant's 1996 Annual Report to Shareholders expressly incorporated by reference herein are included in this exhibit and, therefore, are filed as a part of this report on Form 10-K. 27 Financial Data Schedule. All other exhibits are omitted as they are inapplicable or not required by the related instructions. 22