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, 2003 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 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)208-5111 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.( ) Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ____ Based on the closing sales price of January 31, 2004, the aggregate market value of the voting stock held by nonaffiliates of the Registrant was $1,411,642,080. As of February 20, 2004, there were issued and outstanding 58,267,358 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 2003 Annual Report to Shareholders (Parts I and II), and (2) Proxy Statement for Registrant's Annual Meeting of Shareholders dated March 10, 2004 (Part III).
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 Shareholder 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 Item 9A. Controls and Procedures 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 and Related Shareholder Matters Item 13. Certain Relationships and Related Transactions Item 14. Principal Accountant Fees and Services PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K SIGNATURES EXHIBIT INDEX
PART I ITEM 1. BUSINESS GENERAL Trustmark is a multi-bank holding company headquartered in Jackson, Mississippi, incorporated under the Mississippi Business Corporation Act on August 5, 1968. Trustmark commenced doing business in November 1968. Through its subsidiaries, Trustmark operates as a financial services organization providing banking and financial solutions to corporate, institutional and individual customers predominantly within the states of Mississippi, Tennessee and Florida. Trustmark National Bank (TNB), Trustmark's wholly-owned subsidiary, accounts for substantially all of the assets and revenues of Trustmark. Chartered by the State of Mississippi in 1889, TNB is also headquartered in Jackson, Mississippi. In addition to banking activities, TNB provides investment and insurance products and services to its customers through three wholly-owned subsidiaries, Trustmark Securities, Inc. (formerly Trustmark Financial Services, Inc.), Trustmark Investment Advisors, Inc. and The Bottrell Insurance Agency, Inc. Trustmark also engages in banking activities through its wholly-owned subsidiary, Somerville Bank & Trust Company (Somerville), headquartered in Somerville, Tennessee. Somerville was acquired in a business combination during 2001 and presently has five locations in Somerville, Hickory Withe and Rossville, Tennessee. In addition to its banking subsidiaries, Trustmark also owns all of the stock of F. S. Corporation and First Building Corporation, both inactive nonbank Mississippi corporations. Neither Trustmark nor its subsidiaries have any foreign activities. As of December 31, 2003, Trustmark and its subsidiaries employed 2,356 full-time equivalent employees. Trustmark engages in business through its four reportable segments: Consumer Division, Commercial Division, Wealth Management Division and Operations Division. The Consumer Division delivers a full range of banking, investment and risk management products and services to individuals and small businesses through Trustmark's extensive branch network. The Commercial Division provides various financial products and services to corporate and middle-market clients. The Wealth Management Division includes trust and fiduciary services, brokerage services and services for private banking clients. The Operations Division consists of asset/liability management activities that include the investment portfolio and the related gains/losses on sales of securities, as well as credit risk management, bank operations, human resources and the controller's department. Consumer Division The Consumer Division provides a full range of financial products and services to individuals and small business customers through Trustmark's 144 offices in Mississippi, Tennessee and Florida. The Consumer Division includes TNB's insurance, credit card and mortgage services, Indirect Lending Groups and Correspondent Banking Department. During 2003, Trustmark continued to evaluate its major retail markets in an effort to effectively position its branch network within each market. During 2003, Trustmark continued to apply technology, innovation and expense control to improve productivity and assist in managing profitability and customer relationships. One primary example of the integration of these factors was the Credit Process Redesign initiative used to evaluate and improve the consumer and business credit processes. The goal of this process was to create an environment that fosters greater customer satisfaction, generates loan growth and improves efficiency while maintaining solid credit quality. This process, facilitated by a nationally recognized management consulting firm, should streamline workflow and eliminate processing delays and result in timely loan decisions for Trustmark's customers. Significant efforts were also devoted to developing a transaction image archive. This archive, which was deployed in 2003, improved research efficiency and increased customer satisfaction. It has positioned Trustmark to provide additional revenue-generating services for consumer and commercial relationships. Customers may access automated teller machines (ATM) through Trustmark's network of 179 ATMs in 163 locations in Mississippi, Tennessee and Florida, in addition to worldwide access through other ATM networks such as Plus, Pulse and Cirrus. TrustTouch services allow customers to access detailed account information, via a toll free number 24 hours a day, and TrustTouchpc services offer customers the flexibility to access account information as well as the ability to process transactions 24 hours a day via computer. TrustTouchWeb allows customers to access their bank accounts from any Internet-equipped computer. TrustTouchWeb gives instant access to secured account information around-the-clock and provides the ability to pay bills electronically and transfer funds between accounts. TrustNetWeb, our Internet banking product for small to mid-sized businesses, provides the same convenience and flexibility as TrustTouchWeb with additional features tailored specifically for businesses.
Trustmark provides Consumer Division customers with various personal loan products and small business loans. Trustmark also lends to moderate and lower income homeowners through Community Reinvestment Act programs such as the Downpayment Assistance Program and Farmers Home Multi-Family Home Program. Trustmark continues to serve small businesses through the Business Banking group, which provides banking, investment and insurance solutions to businesses with annual sales of up to $3 million. The Bank at Work program serves as an alternative delivery channel that provides banking services on-site to businesses employing over 100 people. Through Bottrell, TNB's insurance subsidiary, Trustmark provides a full range of commercial insurance products as well as personal life, health, property and casualty insurance. During 2002, Bottrell was able expand its products to include school, medical malpractice and mid-market business insurance through the acquisition of Chandler-Sampson Insurance, Inc. Trustmark's Correspondent Banking Department maintains relationships with independent banks across the state, providing competitively priced cash management, financing and clearing services. Trustmark's public services bankers offer cash management products, loans and investment services tailored for the needs of public entities such as state agencies, municipal governments and school districts. Commercial Division The Commercial Division provides various financial products and services to corporate and middle-market clients through TNB's Commercial Lending and Commercial Real Estate groups. Business Advantage is designed to give businesses a total package of business savings, financial management and convenient services in one comprehensive package, when combined with a regular commercial or small business checking account. To better meet the unique credit needs of larger businesses, the Commercial Division has created relationship managers to work primarily with local middle-market firms, specialized industries, as well as large regional and national firms. Wealth Management Division The Wealth Management Division includes trust and fiduciary services and brokerage services. With $6.9 billion in assets under management or administration, Trustmark offers a full line of asset management and custodial services through its Personal Trust, Employee Benefit and Corporate Trust groups. The Wealth Management Division provides customized solutions for affluent customers by integrating investment management, estate planning, insurance products and private banking. Included in the Wealth Management Division is Trustmark's proprietary mutual fund family, The Performance Funds. The six mutual funds are designed and managed by Trustmark Investment Advisor's investment professionals and are offered throughout the financial services division, including Trustmark Securities, Inc., TNB's full service brokerage subsidiary. Operations Division The Operations Division consists of internal operations, such as asset/liability management activities including TNB's investment portfolio and the related gains/losses on sales of securities, as well as credit risk management, bank operations, human resources, marketing and the controller's department. Additional information on Trustmark's segments can be found in Note 18, "Segment Information," (pages 41-42) included in Trustmark's 2003 Annual Report to Shareholders and is incorporated herein by reference. Available Information Trustmark's internet address is www.trustmark.com. Trustmark makes available through this address, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed, or furnished to, the Securities and Exchange Commission (SEC). Business Combinations On August 29, 2003, Trustmark acquired seven Florida branches of The Banc Corporation of Birmingham, Alabama, in a business combination accounted for by the purchase method of accounting. These branches, known as the Emerald Coast Division, serve the markets from Destin to Panama City. In connection with the transaction, Trustmark paid a $46.8 million deposit premium in exchange for $232.8 million in assets and $209.2 million in deposits and other liabilities. Assets consisted of $224.3 million in loans, $6.8 million in premises and equipment and $1.7 million in other assets. These assets and liabilities have been recorded at fair value based on market conditions and risk characteristics at the acquisition date. Loans were recorded at a $1.9 million discount, consisting of a discount for general credit risk of $3.5 million offset by a market premium of $1.6 million. This net discount will be recognized as interest income over the estimated life of the loans. Excess costs over tangible net assets acquired totaled $49.5 million, of which $1.7 million and $47.8 million have been allocated to core deposits and goodwill, respectively.
Forward-Looking Statements Certain statements contained in Trustmark's Management's Discussion and Analysis of Financial Condition and Results of Operations are not statements of historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to anticipated future operating and financial performance measures, including net interest margin, credit quality, business initiatives, growth opportunities and growth rates, among other things. Words such as "expects," "anticipates," "believes," "estimates" and other similar expressions are intended to identify these forward-looking statements. 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 significantly from those anticipated, estimated, projected or expected. These risks could cause actual results to differ materially from current expectations of Management and include the following: o The level of nonperforming assets, charge-offs and provision expense can be affected by local, state and national economic and market conditions as well as Management's judgments regarding collectability of loans. o Material changes in market interest rates can materially affect many aspects of Trustmark's financial condition and results of operations. Trustmark is exposed to the potential of losses arising from adverse changes in market interest rates and prices which can adversely impact the value of financial products, including securities, loans, deposits, debt and derivative financial instruments. Factors that may affect the market interest rates include local, regional and national economic conditions; utilization and effectiveness of market interest rate contracts; and the availability of wholesale and retail funding sources to Trustmark. Many of these factors are outside Trustmark's control. o Increases in prepayment speeds of mortgage loans resulting from a declining interest rate environment will have an impact on the fair value of the mortgage servicing portfolio which can materially affect Trustmark's results of operations. o The costs and effects of litigation and of unexpected or adverse outcomes in such litigation can materially affect Trustmark's results of operations. o Competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, among other means, could have an effect on Trustmark's operations in our existing markets. o Trustmark is subject to regulation by federal banking agencies and authorities and the Securities and Exchange Commission. Changes in existing regulations or the adoption of new regulations could make it more costly for Trustmark to do business or could force changes in the manner Trustmark does business, which could have an impact on Trustmark's financial condition or results of operations. Although Management 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. These statements are representative only as of the date hereof, and Trustmark does not assume any obligation to update these forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. COMPETITION Changes in regulation, technology and product delivery systems have resulted in an increasingly competitive environment. Trustmark and its subsidiaries compete with other local, regional and national providers of banking, investment and insurance products and services such as other bank holding companies, commercial and state banks, savings and loan associations, consumer finance companies, mortgage companies, insurance agencies, brokerage firms, credit unions and financial service operations of major retailers. Trustmark competes in its markets by offering quality and innovative products and services at competitive prices. Within Trustmark's market area, none of the competitors are dominant.
SUPERVISION AND REGULATION The following discussion sets forth certain material elements of the regulatory framework applicable to bank holding companies and their subsidiaries and provides certain specific information relevant to Trustmark. General Trustmark is a registered bank holding company under the Bank Holding Company Act (BHC) of 1956, as amended. As such, Trustmark and its nonbank subsidiaries are subject to the supervision, examination and reporting requirements of the BHC Act and the regulations of the Federal Reserve Board. In addition, as part of Federal Reserve policy, a bank holding company is expected to act as a source of financial and managerial strength to subsidiary banks and to maintain resources adequate to support each subsidiary bank. The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before: (i) it may acquire direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, the bank holding company will directly or indirectly own or control more than 5.0% of the voting shares of the bank; (ii) it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank; or (iii) it may merge or consolidate with any other bank holding company. The BHC Act further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any section of the United States, or the effect of which may be substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues includes the parties' performance under the Community Reinvestment Act of 1977. The BHC Act, as amended by the interstate banking provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 repealed the prior statutory restrictions on interstate acquisitions of banks by bank holding companies, such that Trustmark may now acquire a bank located in any other state, regardless of state law to the contrary, subject to certain deposit-percentage, aging requirements, and other restrictions. The Interstate Bank Branching Act also generally provided that, after June 1, 1997, national and state-chartered banks may branch interstate through acquisitions of banks in other states. In addition, bank holding companies generally may engage, directly or indirectly, only in banking and such other activities as are determined by the Federal Reserve Board to be closely related to banking. Trustmark is also subject to regulation by the State of Mississippi under its general business corporation laws. In addition to the impact of regulation, Trustmark and its subsidiaries may be affected by legislation which can change banking statutes in substantial and unexpected ways, and by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy. TNB is a national banking association and, as such, is subject to regulation by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board. Almost every area of the operations and financial condition of TNB is subject to extensive regulation and supervision and to various requirements and restrictions under federal and state law including loans, reserves, investments, issuance of securities, establishment of branches, capital adequacy, liquidity, earnings, dividends, management practices and the provision of services. Somerville is a state-chartered commercial bank, subject to regulation primarily by the FDIC and secondarily by the Tennessee Department of Financial Institutions. TNB's nonbanking subsidiaries are subject to a variety of state and federal laws. Trustmark Securities, Inc. is subject to supervision and regulation by the SEC, the National Association of Securities Dealers, Inc., state securities regulators and the various exchanges through which it conducts business. TIA, a registered investment advisor, is subject to supervision and regulation by the SEC and the state of Mississippi. Bottrell is subject to the insurance laws and regulations of the states in which it is active. The Federal Reserve Board supervises Trustmark's nonbanking subsidiaries. Trustmark is also under the jurisdiction of the SEC for matters relating to the offering and sale of its securities. Trustmark is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC.
The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (Act) was signed into law on November 12, 1999. As a result of the Act, banks are able to offer customers a wide range of financial products and services without the restraints of previous legislation. In addition, bank holding companies and other financial services providers have been able to commence new activities and develop new affiliations much more readily. The primary provisions of the Act related to the establishment of financial holding companies and financial subsidiaries became effective on March 11, 2000. The Act authorizes national banks to own or control a "financial subsidiary" that engages in activities that are not permissible for national banks to engage in directly. The Act contains a number of provisions dealing with insurance activities by bank subsidiaries. Generally, the Act affirms the role of the states in regulating insurance activities, including the insurance activities of financial subsidiaries of banks, but the Act also preempts certain state laws. As a result of the Act, in 2001 TNB elected for Bottrell to become a financial subsidiary. This enables TNB to engage in insurance agency activities, through its financial subsidiary Bottrell, at any location. The Act also imposed new requirements related to the privacy of customer financial information. The Act requires financial institutions to disclose their information sharing policies and procedures, and if the institution shares information with nonaffiliated third parties, the institution must provide customers with the opportunity to "opt out" of the sharing arrangements. The Act also prohibits financial institutions from disclosing a customer's account number to nonaffiliated third parties for use in marketing programs, including telemarketing and direct mail programs. Finally, the Act prohibits most persons from obtaining customer information through the use of false, fictitious or fraudulent statements or representations. Trustmark has complied with these requirements and recognizes the need for its customers' privacy. Sarbanes-Oxley Act The Sarbanes-Oxley Act of 2002, ("Sarbanes-Oxley") implements a broad range of corporate governance and accounting measures for public companies (including publicly-held bank holding companies such as Trustmark) designed to promote honesty and transparency in corporate America. Sarbanes-Oxley's principal provisions, many of which have been interpreted through regulations released in 2003, provide for and include, among other things: (i) the creation of an independent accounting oversight board; (ii) auditor independence provisions that restrict non-audit services that accountants may provide to their audit clients; (iii) additional corporate governance and responsibility measures, including the requirement that the chief executive officer and chief financial officer of a public company certify financial statements; (iv) the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer's securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement; (v) an increase in the oversight of, and enhancement of certain requirements relating to, audit committees of public companies and how they interact with the company's independent auditors; (vi) requirements that audit committee members must be independent and are barred from accepting consulting, advisory or other compensatory fees from the issuer; (vii) requirements that companies disclose whether at least one member of the audit committee is a `financial expert' (as such term is defined by the SEC) and if not discussed, why the audit committee does not have a financial expert; (viii) expanded disclosure requirements for corporate insiders, including accelerated reporting of stock transactions by insiders and a prohibition on insider trading during pension blackout periods; (ix) a prohibition on personal loans to directors and officers, except certain loans made by insured financial institutions on nonpreferential terms and in compliance with other bank regulatory requirements; (x) disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code; and (xi) a range of enhanced penalties for fraud and other violations. As required by Sarbanes-Oxley, Trustmark has complied with the requirements included above. In 2004, Management will test its internal control structures which, when completed, will be the basis for KPMG's attestation report on this process. Capital Adequacy Trustmark is subject to capital requirements and guidelines imposed on bank holding companies by the Federal Reserve Board. The OCC imposes similar capital requirements and guidelines on TNB. Somerville is not discussed in this section as it is not a significant subsidiary as defined by the SEC. These capital guidelines involve quantitative and qualitative measures of assets, liabilities and certain off-balance sheet instruments. Trustmark and TNB are required to maintain Tier 1 and total capital equal to at least 4% and 8% of their total risk-weighted assets, respectively. At December 31, 2003, Trustmark exceeded both requirements with Tier 1 capital and total capital equal to 11.03% and 12.29% of its total risk-weighted assets, respectively. At December 31, 2003, TNB also exceeded both requirements with Tier 1 capital and total capital equal to 10.64% and 11.90% of its total risk-weighted assets, respectively.
The Federal Reserve Board also requires bank holding companies to maintain a minimum leverage ratio. The guidelines provide for a minimum leverage ratio of 3% for banks and bank holding companies that meet certain specified criteria, including having the highest regulatory rating. At December 31, 2003, the leverage ratios for Trustmark and TNB were 7.53% and 7.26%, respectively. Failure to meet minimum capital requirements could subject a bank to a variety of enforcement remedies. The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), among other things, identifies five capital categories for insured depository institutions. These include well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. FDICIA requires banking regulators to take prompt corrective action whenever financial institutions do not meet minimum capital requirements. Failure to meet the capital guidelines could also subject a depository institution to capital raising requirements. In addition, a depository institution is generally prohibited from making capital distributions, including paying dividends, or paying management fees to a holding company if the institution would thereafter be undercapitalized. As of December 31, 2003, the most recent notification from the OCC categorized TNB as well capitalized based on the ratios and guidelines described above. Trustmark's wholly-owned subsidiary, Trustmark National Bank, has filed applications to become a Fed-member, state-chartered banking institution. Upon regulatory approvals by the Mississippi Department of Banking and Consumer Finance and the Federal Reserve, which are expected to be received by the end of the first quarter, the national bank charter will be converted to a Mississippi charter. The Federal Reserve and the Mississippi Department of Banking and Consumer Finance will dually regulate Trustmark. Once the conversion has been completed, the bank will be known as Trustmark Bank. Payment of Dividends and Other Restrictions There are various legal and regulatory provisions which limit the amount of dividends TNB can pay to Trustmark without regulatory approval. Approval of the OCC is required if the total of all dividends declared in any calendar year exceeds the total of its net income for that year combined with its retained net income from the preceding two years. TNB will have available in 2004 approximately $8.2 million plus its net income for that year to pay as dividends. In addition, subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to the bank holding company or any of its subsidiaries. Further, subsidiary banks of a bank holding company are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of any services to the bank holding company. FDIC Insurance Assessments The deposits of TNB are insured up to regulatory limits set by the FDIC and, accordingly, are subject to deposit insurance assessments. The FDIC has the authority to raise or lower assessment rates on insured deposits in order to achieve certain designated ratios in the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) and to impose special assessments. The FDIC applies a risk-based assessment system that places each financial institution into one of nine categories based on capital levels and supervisory evaluations provided to the FDIC by the institution's primary federal regulator. Each institution's insurance assessment rate is then determined by the risk category in which it is classified. At December 31, 2003, TNB's annual BIF and SAIF assessment rates and Somerville's BIF rate were $0.0154 per $100 of insured deposits. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Trustmark Corporation (the Registrant) and its primary bank subsidiary, Trustmark National Bank, including their ages, positions and principal occupations for the last five years are as follows: Richard G. Hickson, 59 Trustmark Corporation Chairman, President and Chief Executive Officer since April 2002 President and Chief Executive Officer from May 1997 to April 2002 Trustmark National Bank Chairman and Chief Executive Officer since April 2002 Vice Chairman and Chief Executive Officer from May 1997 to April 2002 Harry M. Walker, 53 Trustmark Corporation Secretary from September 1995 to April 2002 Trustmark National Bank President - Jackson Metro since January 2004 President and Chief Operating Officer - Commercial Division from September 2002 to January 2004 President - Commercial Bank from May 2002 to September 2002 President - General Bank from September 1999 to May 2002 President and Chief Operating Officer from March 1992 to September 1999
Gerard R. Host, 49 Trustmark Corporation Treasurer from September 1995 to April 2002 Trustmark National Bank President - General Banking since January 2004 President and Chief Operating Officer - Consumer Division from September 2002 to January 2004 President - Financial Services Bank from September 1999 to September 2002 Executive Vice President and Chief Financial Officer from November 1995 to September 1999 Duane A. Dewey, 45 Trustmark National Bank President - Wealth Management Division since August 2003 Provident Bank, Cincinnati, Ohio Senior Vice President and Managing Director from October 1997 to August 2003 Zach L. Wasson, Jr., 50 Trustmark Corporation Treasurer since April 2002 Trustmark National Bank Executive Vice President and Chief Financial Officer since September 1999 Senior Vice President and Chief Investment Officer from November 1995 to September 1999 T. Harris Collier III, 55 Trustmark Corporation Secretary since April 2002 Trustmark National Bank General Counsel since January 1990 Louis E. Greer, 49 Trustmark Corporation Chief Accounting Officer since January 2003 Trustmark National Bank Senior Vice President and Chief Accounting Officer since January 2004 Senior Vice President and Controller from September 1998 to January 2004 Vice President and Controller from July 1987 to September 1998 William O. Rainey, 64 Trustmark National Bank Executive Vice President and Chief Banking Officer since November 1991 James S. Lenoir, 61 Trustmark National Bank Executive Vice President and Chief Risk Officer since March 1999 Deposit Guaranty Corp. and Deposit Guaranty National Bank Executive Vice President and Chief Credit Officer from February 1983 to April 1998 James M. Outlaw, Jr., 50 Trustmark National Bank Executive Vice President and Chief Information Officer since September 1999 Senior Vice President and Operations Manager from February 1996 to September 1999
STATISTICAL DISCLOSURES The consolidated statistical disclosures for Trustmark Corporation and subsidiaries are contained in the following Tables 1 through 13. TRUSTMARK CORPORATION STATISTICAL DISCLOSURES TABLE 1 - COMPARATIVE AVERAGE BALANCES - YIELDS AND RATES The table below shows the average balances for all assets and liabilities of Trustmark 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> Years Ended December 31, ---------------------------------------------------------- 2003 2002 ---------------------------- ---------------------------- 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 $ 25,174 $ 287 1.14% $ 26,275 $ 424 1.61% Securities available for sale: Taxable 1,518,170 45,566 3.00% 885,070 50,426 5.70% Nontaxable 67,188 5,280 7.86% 81,883 6,522 7.97% Securities held to maturity: Taxable 236,994 19,766 8.34% 588,193 39,136 6.65% Nontaxable 90,755 7,082 7.80% 89,698 7,120 7.94% Loans, net of unearned income 4,822,350 289,672 6.01% 4,544,611 311,376 6.85% ---------- -------- ---------- -------- Total interest-earning assets 6,760,631 367,653 5.43% 6,215,730 415,004 6.68% Cash and due from banks 296,724 280,543 Other assets 426,157 421,037 Allowance for loan losses (74,890) (75,518) ---------- ---------- Total Assets $7,408,622 $6,841,792 ========== ========== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits $1,134,243 $ 11,938 1.05% $ 957,410 $ 11,991 1.25% Savings deposits 832,490 3,429 0.41% 735,885 4,840 0.66% Time deposits 1,676,700 43,960 2.62% 1,819,130 62,228 3.42% Federal funds purchased and securities sold under repurchase agreements 947,050 10,255 1.08% 788,618 12,652 1.60% Short-term borrowings 391,366 6,041 1.54% 384,481 8,206 2.13% Long-term FHLB advances 472,819 13,935 2.95% 327,054 13,849 4.23% ---------- -------- ---------- -------- Total interest-bearing liabilities 5,454,668 89,558 1.64% 5,012,578 113,766 2.27% Noninterest-bearing demand deposits 1,216,523 -------- 1,086,487 -------- Other liabilities 62,288 66,996 Shareholders' equity 675,143 675,731 ---------- ---------- Total Liabilities and Shareholders' Equity $7,408,622 $6,841,792 ========== ========== Net Interest Margin 278,095 4.11% 301,238 4.85% Less tax equivalent adjustments: Investments 4,327 4,775 Loans 3,938 4,277 -------- -------- Net Interest Margin per Annual Report $269,830 $292,186 ======== ======== </TABLE>
<TABLE> <CAPTION> Year Ended December 31, ---------------------------- 2001 ---------------------------- Average Yield/ Balance Interest Rate ---------- -------- ------ <S> <C> <C> <C> Assets Interest-earning assets: Federal funds sold and securities purchased under reverse repurchase agreements $ 24,698 $ 921 3.73% Securities available for sale: Taxable 1,078,519 68,174 6.32% Nontaxable 91,750 7,289 7.94% Securities held to maturity: Taxable 835,946 55,797 6.67% Nontaxable 90,867 7,269 8.00% Loans, net of unearned income 4,302,485 346,571 8.06% ---------- -------- Total interest-earning assets 6,424,265 486,021 7.57% Cash and due from banks 258,776 Other assets 376,469 Allowance for loan losses (71,650) ---------- Total Assets $6,987,860 ========== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits $ 795,890 $ 19,864 2.50% Savings deposits 637,973 7,759 1.22% Time deposits 1,895,677 98,733 5.21% Federal funds purchased and securities sold under repurchase agreements 1,117,059 42,390 3.79% Short-term borrowings 495,607 22,167 4.47% Long-term FHLB advances 351,301 18,329 5.22% ---------- -------- Total interest-bearing liabilities 5,293,507 209,242 3.95% Noninterest-bearing demand deposits 966,437 -------- Other liabilities 72,478 Shareholders' equity 655,438 ---------- Total Liabilities and Shareholders' Equity $6,987,860 ========== Net Interest Margin 276,779 4.31% Less tax equivalent adjustments: Investments 5,095 Loans 4,780 -------- Net Interest Margin per Annual Report $266,904 ======== </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 2002 and 2001 amounts to conform to the 2003 presentation.
TABLE 2 - VOLUME AND YIELD/RATE VARIANCE ANALYSIS The table below shows the change from year to year for each component of the tax equivalent net interest margin in the amount generated by volume changes and the amount generated by changes in the yield or rate (tax equivalent basis - $ in thousands). <TABLE> <CAPTION> 2003 Compared to 2002 2002 Compared to 2001 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 $ (17) $ (120) $ (137) $ 56 $ (553) $ (497) Securities available for sale: Taxable 25,830 (30,690) (4,860) (11,473) (6,275) (17,748) Nontaxable (1,153) (89) (1,242) (785) 18 (767) Securities held to maturity: Taxable (27,532) 8,162 (19,370) (16,494) (167) (16,661) Nontaxable 86 (124) (38) (94) (55) (149) Loans, net of unearned income 18,176 (39,880) (21,704) 18,792 (53,987) (35,195) ------- -------- -------- ------- -------- -------- Total interest-earning assets 15,390 (62,741) (47,351) (9,998) (61,019) (71,017) Interest paid on: Interest-bearing demand deposits 2,024 (2,077) (53) 3,472 (11,345) (7,873) Savings deposits 584 (1,995) (1,411) 1,059 (3,978) (2,919) Time deposits (4,581) (13,687) (18,268) (3,839) (32,666) (36,505) Federal funds purchased and securities sold under repurchase agreements 2,218 (4,615) (2,397) (10,029) (19,709) (29,738) Short-term borrowings 144 (2,309) (2,165) (4,186) (9,775) (13,961) Long-term FHLB advances 5,038 (4,952) 86 (1,196) (3,284) (4,480) ------- -------- -------- ------- -------- -------- Total interest-bearing liabilities 5,427 (29,635) (24,208) (14,719) (80,757) (95,476) ------- -------- -------- ------- -------- -------- Change in net interest income on a tax equivalent basis $ 9,963 $(33,106) $(23,143) $ 4,721 $ 19,738 $ 24,459 ======= ======== ======== ======= ======== ======== </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 2003, 2002 and 2001. The balances of nonaccrual loans and related income recognized have been included for purposes of these computations. TABLE 3 - SECURITIES PURCHASED UNDER REVERSE REPURCHASE AGREEMENTS The table below presents certain information concerning Trustmark's securities purchased under reverse repurchase agreements for each of the last three years ($ in thousands): 2003 2002 2001 -------- -------- -------- Securities purchased under reverse repurchase agreements: Maximum amount outstanding at any month end during each period $ - $125,000 $125,000 Average amount outstanding at end of period $ 23 $ 4,887 $ 5,543 The securities underlying the reverse repurchase agreements were under Trustmark's control during the periods presented.
TABLE 4 - 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, ------------------------------------ 2003 2002 2001 ---------- ---------- ---------- <S> <C> <C> <C> Securities available for sale U.S. Treasury and U.S. Government agencies $ 301,857 $ 182,219 $ 275,250 Obligations of states and political subdivisions 72,243 71,544 94,271 Mortgage-backed securities 1,382,136 937,753 616,044 Corporate securities 107,418 - - ---------- ---------- ---------- Total debt securities 1,863,654 1,191,516 985,565 Other securities including equity 75,955 48,299 46,946 ---------- ---------- ---------- Total securities available for sale $1,939,609 $1,239,815 $1,032,511 ========== ========== ========== Securities held to maturity Obligations of states and political subdivisions $ 142,169 $ 153,707 $ 184,368 Mortgage-backed securities 36,181 395,390 607,584 Other securities 100 100 100 ---------- ---------- ---------- Total securities held to maturity $ 178,450 $ 549,197 $ 792,052 ========== ========== ========== </TABLE> TABLE 5 - 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, 2003, 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> Securities available for sale U.S. Treasury and U.S. Government agencies $ 1,600 5.86% $ 300,257 2.61% $ - - $ - - $ 301,857 Obligations of states and political subdivisions 8,461 8.33% 47,800 7.82% 11,307 5.62% 4,675 6.27% 72,243 Mortgage-backed securities 87 9.08% 12,523 4.22% 135,518 3.11% 1,234,008 2.63% 1,382,136 Corporate securities - - 72,906 3.45% 34,512 4.02% - - 107,418 -------- --------- ----------- ---------- ---------- Total debt securities $ 10,148 7.95% $ 433,486 3.38% $ 181,337 3.44% $1,238,683 2.64% 1,863,654 ======== ========= =========== ========== Other securities including equity 75,955 ---------- Total securities available for sale $1,939,609 ========== Securities held to maturity Obligations of states and political subdivisions $ 8,829 6.81% $ 44,306 6.86% $ 52,316 7.30% $ 36,718 8.16% $ 142,169 Mortgage-backed securities - - 7,600 6.81% 201 6.10% 28,380 4.76% 36,181 Other securities 100 7.50% - - - - - - 100 -------- --------- ----------- ---------- ---------- Total securities held to maturity $ 8,929 6.82% $ 51,906 6.85% $ 52,517 7.30% $ 65,098 6.68% $ 178,450 ======== ========= =========== ========== ========== </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 2.18 years. As of December 31, 2003, Trustmark did not hold any securities of one issuer with a carrying value exceeding ten percent of total shareholders' equity.
TABLE 6 - COMPOSITION OF THE LOAN PORTFOLIO The table below shows the carrying value of the loan portfolio (including loans held for sale) at the end of each of the last five years ($ in thousands): <TABLE> <CAPTION> December 31, ------------------------------------------------------------------ 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> Real estate loans: Construction and land development $ 406,257 $ 286,500 $ 401,744 $ 309,532 $ 297,231 Secured by 1-4 family residential properties 1,776,475 1,530,284 1,385,490 1,250,767 1,175,775 Secured by nonfarm, nonresidential properties 858,708 811,289 703,674 602,920 555,255 Other real estate loans 156,524 112,923 103,305 86,046 78,090 Loans to finance agricultural production 30,815 37,452 33,509 38,369 35,412 Commercial and industrial 787,094 776,510 788,982 819,948 824,017 Loans to individuals for personal expenditures 777,236 828,535 876,582 809,808 841,059 Obligations of states and political subdivisions 173,296 162,644 166,342 164,059 151,759 Loans for purchasing or carrying securities 10,080 4,849 10,691 11,127 16,160 Other loans 56,127 66,380 54,047 51,357 40,177 ---------- ---------- ---------- ---------- ---------- Loans, net of unearned income $5,032,612 $4,617,366 $4,524,366 $4,143,933 $4,014,935 ========== ========== ========== ========== ========== </TABLE> TABLE 7 - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES The table below shows the amounts of loans in certain categories outstanding as of December 31, 2003, which, based on the remaining scheduled repayments of principal, are due in the periods indicated ($ 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 $ 276,237 $ 90,061 $ 39,959 $ 406,257 Other loans secured by real estate (excluding loans secured by 1-4 family residential properties) 409,197 468,055 137,980 1,015,232 Commercial and industrial 509,347 251,058 26,689 787,094 Other loans (excluding loans to individuals) 109,461 53,121 107,736 270,318 ---------- -------- -------- ---------- Total $1,304,242 $862,295 $312,364 $2,478,901 ========== ======== ======== ========== </TABLE> The following table shows all loans in certain categories due after one year classified according to their sensitivity to changes in interest rates ($ 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 $772,845 $242,670 $1,015,515 Floating interest rates 89,450 69,694 159,144 -------- -------- ---------- Total $862,295 $312,364 $1,174,659 ======== ======== ========== </TABLE>
TABLE 8 - NONPERFORMING ASSETS AND PAST DUE LOANS The table below shows Trustmark's nonperforming assets and past due loans at the end of each of the last five years ($ in thousands): <TABLE> <CAPTION> December 31, ----------------------------------------------- 2003 2002 2001 2000 1999 ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> Loans accounted for on a nonaccrual basis $23,921 $31,642 $36,901 $15,958 $16,671 Other real estate (ORE) 5,929 6,298 5,110 2,280 1,987 ------- ------- ------- ------- ------- Total nonperforming assets $29,850 $37,940 $42,011 $18,238 $18,658 ======= ======= ======= ======= ======= Accruing loans past due 90 days or more $ 2,606 $ 2,946 $ 2,740 $ 2,494 $ 2,043 ======= ======= ======= ======= ======= Nonperforming assets/total loans and ORE 0.59% 0.82% 0.93% 0.44% 0.46% ======= ======= ======= ======= ======= </TABLE> A loan is classified as nonaccrual and the accrual of interest on such loan is discontinued when the contractual payment of principal or interest becomes 90 days past due or if 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 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. A loan is considered impaired when, based on current information and events, it is probable that Trustmark will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The policy for recognizing income on impaired loans is consistent with the nonaccrual policy. As of December 31, 2003, 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. Trustmark had no loan concentrations greater than ten percent of total loans other than those loan categories shown in Table 6. Explanation of the changes in 2003 can be found in the table captioned "Nonperforming Assets" and the related discussion (page 59) included in the Registrant's 2003 Annual Report to Shareholders and is incorporated herein by reference.
TABLE 9 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES The table below summarizes Trustmark's loan loss experience for each of the last five years ($ in thousands): <TABLE> <CAPTION> Years Ended December 31, ----------------------------------------------- 2003 2002 2001 2000 1999 ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> Balance at beginning of period $74,771 $75,534 $65,850 $65,850 $66,150 Loans charged off: Real estate loans (2,863) (4,004) (4,609) (2,176) (1,953) Loans to finance agricultural production (60) (84) (288) (107) (243) Commercial and industrial (3,688) (6,224) (4,317) (3,228) (3,242) Loans to individuals for personal expenditures (9,605) (11,207) (10,982) (9,470) (7,863) All other loans (2,992) (2,516) (2,502) (2,417) (1,685) ------- ------- ------- ------- ------- Total charge-offs (19,208) (24,035) (22,698) (17,398) (14,986) Recoveries on loans previously charged off: Real estate loans 79 64 6 145 156 Loans to finance agricultural production - - - - - Commercial and industrial 735 1,689 721 1,177 791 Loans to individuals for personal expenditures 5,612 5,156 4,774 3,967 3,319 All other loans 2,516 2,256 2,103 1,708 1,348 ------- ------- ------- ------- ------- Total recoveries 8,942 9,165 7,604 6,997 5,614 ------- ------- ------- ------- ------- Net charge-offs (10,266) (14,870) (15,094) (10,401) (9,372) Additions to allowance charged to operating expense 9,771 14,107 13,200 10,401 9,072 Other additions to allowance for loan losses - - 11,578 - - ------- ------- ------- ------- ------- Balance at end of period $74,276 $74,771 $75,534 $65,850 $65,850 ======= ======= ======= ======= ======= Percentage of net charge-offs during period to average loans outstanding during the period 0.21% 0.33% 0.35% 0.25% 0.24% ======= ======= ======= ======= ======= </TABLE> The allowance for loan losses is maintained at a level believed adequate by Management to absorb estimated probable loan losses. Management's periodic evaluation of the adequacy of the allowance is based on identified loan impairments, Trustmark's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective, as it requires material estimates, including the amounts and timing of future cash flows expected to be received on impaired loans, that may be susceptible to significant change. TABLE 10 - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES The following table is a summary by allocation category of Trustmark's allowance for loan losses at December 31, 2003. These allocations were determined based upon Management's analysis of the various types of risk associated with Trustmark's loan portfolio. A discussion of Management's methodology for performing the analysis follows the table ($ in thousands): Allocation for pools of risk-rated loans $36,734 Additional allocation for risk-rated loans 701 Allocation for selected industries 5,658 General allocation for all other loans 17,215 Allocation for available lines of credit and letters of credit 1,880 Unallocated 12,088 ------- Total $74,276 =======
The allowance for loan losses is maintained at a level believed adequate by Management to absorb probable losses in the loan portfolio, in addition to 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 monthly utilizing the criteria specified in the Office of the Comptroller of the Currency's Handbook "Allowance for Loan and Lease Losses", as well as additional guidance provided in the Interagency Policy Statement. Loss percentages are uniformly applied to pools of risk-rated loans within the commercial portfolio. These percentages are determined based on migration analysis, previously established floors for each category and economic factors. In addition, relationships of $500,000 or more which are risk-rated as other loans especially mentioned or substandard and all which are risk-rated doubtful are reviewed by Trustmark's Asset Review Department staff to determine if standard percentages appear to be sufficient to cover probable losses in each category. In the event that the percentages on any particular lines are determined to be insufficient, additional allocations are made based upon recommendations of lending, credit and Asset Review Department personnel. Industry allocations are 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 probable loan losses within portions of the loan portfolio not addressed in the preceding allocations. The types of loans included in the general allocation are residential mortgage loans, direct and indirect consumer loans, credit card loans and overdrafts. The actual allocation amount is based upon the more conservative of either the loss experience within these categories during the year, 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. Percentages, which are the same as those applied to the funded portions of the commercial and retail loan portfolios, are applied to cover any potential losses in these off-balance sheet categories. As the review of the allowance for loan losses involves a significant degree of judgment by Management and is imprecise by nature, the unallocated $12.1 million relates to issues that cannot be measured on a quantitative basis over a prolonged period of time. TABLE 11 - TIME DEPOSITS OF $100,000 OR MORE The table below shows maturities on outstanding time deposits of $100,000 or more at December 31, 2003 ($ in thousands): 3 months or less $143,223 Over 3 months through 6 months 92,546 Over 6 months through 12 months 91,538 Over 12 months 127,008 -------- Total $454,315 ======== TABLE 12 - SELECTED RATIOS The following ratios are presented for each of the last three years: 2003 2002 2001 ------ ------- ------ Return on average assets 1.60% 1.77% 1.59% Return on average equity 17.56% 17.93% 16.98% Dividend payout ratio 34.08% 31.54% 32.27% Equity to assets ratio 9.11% 9.88% 9.38% TABLE 13 - SHORT-TERM BORROWINGS The table below presents certain information concerning Trustmark's short-term borrowings for each of the last three years ($ in thousands): <TABLE> <CAPTION> 2003 2002 2001 ---------- -------- ---------- <S> <C> <C> <C> Federal funds purchased and securities sold under repurchase agreements: Amount outstanding at end of period $ 928,135 $954,978 $1,037,506 Weighted average interest rate at end of period 0.91% 1.16% 1.59% Maximum amount outstanding at any month end during each period $1,032,984 $973,261 $1,318,720 Average amount outstanding during each period $ 947,050 $788,618 $1,117,059 Weighted average interest rate during each period 1.08% 1.60% 3.79% </TABLE>
<TABLE> <CAPTION> 2003 2002 2001 ---------- -------- ---------- <S> <C> <C> <C> Short-term borrowings: Amount outstanding at end of period $ 621,532 $275,959 $ 558,687 Weighted average interest rate at end of period 1.56% 2.02% 2.32% Maximum amount outstanding at any month end during each period $ 648,082 $494,475 $ 984,297 Average amount outstanding during each period $ 391,366 $384,481 $ 495,607 Weighted average interest rate during each period 1.54% 2.13% 4.47% </TABLE> ITEM 2. PROPERTIES Trustmark's principal offices are housed in its complex located in downtown Jackson, Mississippi and owned by TNB. Approximately 214,000 square feet, or 81%, of the available space in the main office building is allocated to bank use with the remainder occupied by tenants on a lease basis. Trustmark, through its two banking subsidiaries, also operates 119 full-service branches, 21 limited-service branches, 4 in-store branches and an ATM network which includes 105 ATMs at on-premise locations and 74 ATMs located at off-premise sites. Trustmark leases 83 of its 202 locations with the remainder being owned. ITEM 3. LEGAL PROCEEDINGS Trustmark 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; 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 Trustmark's consolidated financial position or results of operations; however, Management is unable to estimate a range of potential loss on these matters because of the nature of the legal environment in states where Trustmark conducts business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to Trustmark's shareholders during the fourth quarter of 2003. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS Trustmark's common stock is listed for trading on the Nasdaq Stock Market. At March 1, 2004, there were approximately 4,300 registered shareholders of Trustmark's common stock. Other information required by this item can be found in Note 14, "Shareholders' Equity," (pages 36-38) and the table captioned "Principal Markets and Prices of Trustmark's Stock" (page 45) included in the Registrant's 2003 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 44) included in the Registrant's 2003 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" (pages 46-66) included in the Registrant's 2003 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" (pages 63-66) included in the Registrant's 2003 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 2003 Annual Report to Shareholders (pages 13-43) and are incorporated herein by reference. The table captioned "Summary of Quarterly Results of Operations" (page 45) is also included in the Registrant's 2003 Annual Report of Shareholders and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On April 9, 2002, the Board of Directors of Trustmark Corporation (Trustmark), based on the recommendation of its Audit Committee, decided not to renew the engagement of its independent public accountants, Arthur Andersen LLP (Andersen). This determination followed Trustmark's decision to seek proposals from other independent accountants to audit Trustmark's consolidated financial statements for the year ending December 31, 2002. On April 29, 2002, the Board of Directors of Trustmark, based on the recommendation of its Audit Committee, announced the engagement of KPMG LLP as its independent public accountants to replace Andersen. Subsequent to their engagement, KPMG LLP audited the consolidated balance sheets of Trustmark and its subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2002. During 2001 and 2000 and all subsequent interim periods prior to April 9, 2002, there were no disagreements between Trustmark and Andersen on any matter of accounting principles, financial statement disclosure or auditing scope or procedure which, if not resolved to Andersen's satisfaction, would have caused Andersen to make reference to the matter of the disagreement in connection with their reports. Andersen's reports on Trustmark's consolidated financial statements for each of the years ended 2001 and 2000, did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. Andersen's report on Trustmark's consolidated financial statements for the years ended December 31, 2001 and 2000, dated January 8, 2002, was issued on an unqualified basis in conjunction with the filing of Trustmark's Annual Report on Form 10-K for the year ended December 31, 2001, filed on March 25, 2002. None of the reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred within 2001 and 2000 and all subsequent interim periods prior to April 9, 2002. Prior to April 29, 2002, Trustmark did not consult with KPMG LLP regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K. ITEM 9A. CONTROLS AND PROCEDURES As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of Trustmark's Chief Executive Officer and Treasurer (the Principal Financial Officer) of the effectiveness of Trustmark's disclosure controls and procedures (as defined in Exchange Act Rule 240.13a-15(e)). Based on that evaluation, the Chief Executive Officer and the Treasurer have concluded that Trustmark's current disclosure controls and procedures are effective to ensure that information required to be disclosed by Trustmark in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. There were no changes in Trustmark's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, Trustmark's internal control over financial reporting. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information on the directors of the Registrant can be found in "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" contained in Trustmark Corporation's Proxy Statement (pages 5-8 and 11, respectively) dated March 10, 2004, and is incorporated herein by reference. Information on the Registrant's executive officers is included in Part I, pages 8-9 of this report. Information on the Registrant's Code of Conduct for directors and senior financial officers is available in the Corporate Governance section of Trustmark Corporation's website at www.trustmark.com. Identification of the Audit Committee Financial Expert can be found in "Audit and Finance Committee Report" contained in the Trustmark Corporation's Proxy Statement (pages 15-16) dated March 10, 2004, and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information required by this item can be found in "Directors' Compensation" (page 4) and "Executive Compensation" (pages 11-15) contained in Trustmark Corporation's Proxy Statement dated March 10, 2004, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS Information regarding security ownership of certain beneficial owners and Management can be found in "Securities Ownership by Certain Beneficial Owners and Management" contained in Trustmark Corporation's Proxy Statement (pages 10) dated March 10, 2004, and is incorporated herein by reference. The table below represents compensation plans under which equity securities of Trustmark are authorized as of December 31, 2003: <TABLE> <CAPTION> Number of securities remaining available Number of securities to Weighted average for future issuance be issued upon exercise exercise price of under equity of outstanding options, outstanding options, compensations plans Plan Category warrants and rights (a) warrants and rights (excluding (a)) - ---------------------------- ----------------------- -------------------- -------------------- <S> <C> <C> <C> Approved by security holders 1,610,170 $22.41 5,080,924 Not approved by security holders - - - --------- ------ --------- Total 1,610,170 $22.41 5,080,924 ========= ====== ========= </TABLE> ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions can be found in "Transactions with Management" contained in Trustmark Corporation's Proxy Statement (page 15) dated March 10, 2004, and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information regarding principal accountant fees and services and pre-approval policies for auditor services can be found in "Audit and Finance Committee Report" contained in Trustmark Corporation's Proxy Statement (pages 15-16) dated March 10, 2004, and is incorporated herein by reference. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A-1. Financial Statements The report of KPMG LLP, independent auditors, and the following consolidated financial statements of Trustmark Corporation and subsidiaries are included in the Registrant's 2003 Annual Report to Shareholders and are incorporated into Part II, Item 8 herein by reference: Independent Auditors' Report Consolidated Balance Sheets as of December 31, 2003 and 2002 Consolidated Statements of Income for the Years Ended December 31, 2003, 2002 and 2001 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2003, 2002 and 2001 Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001 Notes to Consolidated Financial Statements (Notes 1 through 19) 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. B. Reports on Form 8-K On October 21, 2003, Trustmark filed a report on Form 8-K announcing its financial results for the period ended September 30, 2003. On December 9, 2003, Trustmark filed a report on Form 8-K announcing the signing of a definitive Branch Purchase and Assumption Agreement pursuant to which Trustmark National Bank will acquire five branches of Allied Houston Bank serving the greater Houston market for a $10 million deposit premium. C. Exhibits The exhibits listed in the Exhibit Index are filed herewith or are incorporated herein by reference.
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/ Richard G. Hickson BY: /s/ Zach L. Wasson ---------------------- ------------------ Richard G. Hickson Zach L. Wasson Chairman of the Board, President Treasurer (Principal & Chief Executive Officer Financial Officer) DATE: March 9, 2004 DATE: March 9, 2004 BY: /s/ Louis E. Greer ------------------ Louis E. Greer Chief Accounting Officer DATE: March 9, 2004
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 9, 2004 BY: /s/ J. Kelly Allgood -------------------- J. Kelly Allgood, Director DATE: March 9, 2004 BY: /s/ Reuben V. Anderson ---------------------- Reuben V. Anderson, Director DATE: March 9, 2004 BY: /s/ John L. Black, Jr. ---------------------- John L. Black, Jr., Director DATE: March 9, 2004 BY: /s/ William C. Deviney, Jr. --------------------------- William C. Deviney, Jr., Director DATE: March 9, 2004 BY: /s/ C. Gerald Garnett --------------------- C. Gerald Garnett, Director DATE: March 9, 2004 BY: /s/ Richard G. Hickson ---------------------- Richard G. Hickson, Chairman, President & Chief Executive Officer and Director DATE: March 9, 2004 BY: /s/ Matthew L. Holleman III --------------------------- Matthew L. Holleman III, Director DATE: March 9, 2004 BY: /s/ William Neville III ----------------------- William Neville III, Director DATE: March 9, 2004 BY: /s/ Richard H. Puckett ---------------------- Richard H. Puckett, Director DATE: March 9, 2004 BY: /s/ Carolyn C. Shanks --------------------- Carolyn C. Shanks, Director DATE: March 9, 2004 BY: /s/ Kenneth W. Williams ----------------------- Kenneth W. Williams, Director DATE: March 9, 2004 BY: /s/ William G. Yates, Jr. ------------------------- William G. Yates, Jr., Director
EXHIBIT INDEX 3-a Articles of Incorporation, as amended, effective April 9, 2002. 3-b Bylaws, as amended, effective January 21, 2003. 10-a Deferred Compensation Plan for Executive Officers of Trustmark National Bank. Filed as Exhibit 10-b to Trustmark's Form 10-K Annual Report for the year ended December 31, 1993, incorporated herein by reference. 10-b Deferred Compensation Plan for Directors of First National Financial Corporation acquired October 7, 1994. Filed as Exhibit 10-c to Trustmark's Form 10-K Annual Report for the year ended December 31, 1994, incorporated herein by reference. 10-c Life Insurance Plan for Executive Officers of First National Financial Corporation acquired October 7, 1994. Filed as Exhibit 10-d to Trustmark's Form 10-K Annual Report for the year ended December 31, 1994, incorporated herein by reference. 10-d Long Term Incentive Plan for key employees of Trustmark Corporation and its subsidiaries approved March 11, 1997. Filed as Exhibit 10-e to Trustmark's Form 10-K Annual Report for the year ended December 31, 1996, incorporated herein by reference. 10-e Deferred Compensation Plan for Directors of Trustmark National Bank, as amended. Filed as Exhibit 10-i to Trustmark's Form 10-K Annual Report for the year ended December 31, 1999, incorporated herein by reference. 10-f Deferred Compensation Plan for Executives of Trustmark National Bank, as amended. Filed as Exhibit 10-j to Trustmark's Form 10-K Annual Report for the year ended December 31, 1999, incorporated herein by reference. 10-g Trustmark Corporation Deferred Compensation Plan effective January 1, 2002. Filed as Exhibit 10-a to Trustmark's Form 10-Q Quarterly Report for the quarterly period ended March 31, 2002, incorporated herein by reference. 10-h Amended and Restated Employment Agreement between Trustmark Corporation and Richard G. Hickson dated March 12, 2002. Filed as Exhibit 10-b to Trustmark's Form 10-Q Quarterly Report for the quarterly period ended March 31, 2002, incorporated herein by reference. 10-i Amended and Restated Change in Control Agreement between Trustmark Corporation and Gerard R. Host dated March 12, 2002. Filed as Exhibit 10-c to Trustmark's Form 10-Q Quarterly Report for the quarterly period ended March 31, 2002, incorporated herein by reference. 10-j Amended and Restated Change in Control Agreement between Trustmark Corporation and Harry M. Walker dated March 12, 2002. Filed as Exhibit 10-d to Trustmark's Form 10-Q Quarterly Report for the quarterly period ended March 31, 2002, incorporated herein by reference. 13 Only those portions of the Registrant's 2003 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. 21 List of Subsidiaries. 23 Consent of KPMG LLP. 31-a Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31-b Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32-a Certification by Chief Executive Officer pursuant to 18 U.S.C. ss. 1350. 32-b Certification by Chief Financial Officer pursuant to 18 U.S.C. ss. 1350. All other exhibits are omitted, as they are inapplicable or not required by the related instructions.