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, 1998 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-3683 TRUSTMARK CORPORATION (Exact name of Registrant as specified in its charger) MISSISSIPPI 64-0471500 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 248 East Capitol Street, Jackson, Mississippi 39201 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (601) 354-5111 Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value Nasdaq Stock Market (Title of Class) (Name of Exchange on Which Registered) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES(X)NO( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.( ) Based on the closing sales price of February 19, 1999, the aggregate market value of the voting stock held by nonaffiliates of the Registrant was $1,117,189,595. As of March 11, 1999, there were issued and outstanding 71,899,616 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 1998 Annual Report to Shareholders (Parts I and II), and (2) Proxy Statement for Registrant's Annual Meeting of Shareholders dated March 15, 1999 (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 Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K SIGNATURES EXHIBIT INDEX
TRUSTMARK CORPORATION 1998 FORM 10-K PART I ITEM 1. BUSINESS GENERAL Trustmark Corporation (Trustmark) 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. Trustmark's primary business activities are conducted through its wholly-owned subsidiary, Trustmark National Bank (the Bank) and the Bank's wholly-owned subsidiaries, Trustmark Financial Services, Inc. (TFSI) and Trustmark Insurance Agency, Inc. The Bank accounts for substantially all of the assets and revenues of Trustmark. Chartered by the State of Mississippi in 1889, the Bank is headquartered in Jackson, Mississippi and is the largest bank in the state. Trustmark also owns all of the stock of F.S. Corporation and First Building Corporation, both nonbank Mississippi corporations. F.S. Corporation and First Building Corporation are primarily dormant and are not considered significant subsidiaries. Trustmark provides a broad array of traditional banking products and services primarily to customers in Mississippi through its network of 140 branches and 147 ATMs. In order to service Retail clients' needs more effectively, Pinnacle, a proactive client-focused sales process, was implemented during 1998. As a result of Pinnacle, Trustmark associates have a higher level of client knowledge and understand the financial alternatives best suited to the client's needs. In addition, improvements to Trustmark's delivery channels have expedited communication and information flow to the point of sale thus providing faster and more convenient transactions for clients. In order to allow customers to do their banking around the clock from their homes or offices, Trustmark offers the TrustTouch automated response system. Customers may also obtain information about Trustmark's services via the Internet by accessing its web site (www.trustmark.com). Trustmark's Card Services offer MasterCard, VISA, VISA Gold and VISA Business credit card services to consumers and merchants throughout Mississippi. Trustmark's ExpressCheck debit card allows clients to conveniently pay for purchases from merchants, withdraw cash from
automated teller machines and receive account balance information or transfer funds between their accounts at their convenience. For many years, Trustmark has been active in automobile finance directly throughout its extensive branch network as well as through a long-established indirect network of automobile dealers. Home mortgage lending increased significantly during 1998 and has strengthened Trustmark's position as a premier home lender. In addition, Trustmark's home mortgage department services more than $3.4 billion in home loans throughout the Southeast. Trustmark provides loans, deposit services and cash management for Mississippi businesses. Cash management services offers new technology and services for businesses to monitor cash flow through the utilization of TrustNet computer banking, automated clearing services which facilitates electronic bill payment and direct deposit of employee pay and Trustmark's Mutual Fund Sweep account. Trustmark offers commercial real estate loans targeting the residential real estate development and construction markets. Trustmark also lends to moderate and lower income homeowners in several markets through Community Reinvestment Act programs such as the Downpayment Assistance Program and Farmers Home Multi-Family Home Program. Trustmark's Correspondent Banking Department maintains relationships with independent banks across the state, providing competitively priced cash management services, 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 government and school districts. Trustmark offers a broad line of banking, investment and insurance products designed to meet the objectives of retail and commercial clients. These products include the Performance Funds, a family of six mutual funds designed and managed by Trustmark investment professionals, as well as personal trust and asset management, employee benefits and corporate trust. With $5.4 billion in trust assets under administration, Trustmark's Trust Department offers a full line of asset management and custodial services through its Personal Trust, Employee Benefit and Corporate Trust groups. TFSI, Trustmark's investment brokerage subsidiary, expanded its product offering and delivery network in 1998. TFSI currently has 16 locations across the state of Mississippi and offers a comprehensive range of brokerage services. In 1999, Trustmark will address the insurance needs of clients by broadening the products and services offered by its insurance subsidiary, Trustmark Insurance Agency, Inc. As of March 11, 1999, Trustmark and the Bank employed approximately 2,250 full-time equivalent employees. COMPETITION Trustmark 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, consumer finance companies, mortgage companies, insurance companies, brokerage firms, credit unions and financial service operations of major retailers. All these institutions compete in the areas of interest rates, the availability and quality of services and products, and the pricing of these services and products.
SUPERVISION AND REGULATION Trustmark is a registered bank holding company under the Bank Holding Company Act of 1956, as amended. As such, Trustmark 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, Trustmark is subject to regulation by the State of Mississippi under its laws of incorporation. The Bank is subject to various requirements and restrictions by federal and state banking authorities, including the Office of the Comptroller of the Currency (OCC) and the Mississippi Department of Banking. Areas subject to regulation include loans, reserves, investments, issuance of securities, establishment of branches, loans to directors, executive officers and their related interests, relationships with correspondent banks, consumer protection and other aspects of operations. In addition, national banks are subject to legal limitations on the amount of earnings they may pay as dividends. The Bank also is insured by, and therefore subject to, the regulations of the Federal Deposit Insurance Corporation (FDIC). In December 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) was enacted. FDICIA substantially revised the depository institution regulatory and funding provisions of the Federal Deposit Insurance Act and made revisions to several other federal banking statutes. Among other things, FDICIA requires banking regulators to take prompt corrective action whenever financial institutions do not meet minimum capital requirements. In addition, FDICIA has created restrictions on capital distributions that would leave a depository institution undercapitalized. FDICIA regulations also include procedures and interpretive guidelines that mandate certain audit and reporting requirements for financial institutions. Management is responsible for not only preparing Trustmark's annual financial statements, but also establishing and maintaining adequate internal controls over financial reporting. In addition, Management must comply with certain laws and regulations designated by the FDIC as well as assess the effectiveness of the controls that have been established to comply with these laws and regulations. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Trustmark Corporation (the Registrant) and its bank subsidiary, Trustmark National Bank, including their ages, positions and principal occupations for the last five years are as follows: Richard G. Hickson, 54, President and Chief Executive Officer, Trustmark Corporation; Vice Chairman and Chief Executive Officer, Trustmark National Bank since May 1997; President and Chief Operating Officer, SouthTrust Bank of Georgia, N.A. from 1995 to May 1997; President, Texas Commerce Bank, Dallas from 1993 to 1995.
Frank R. Day, 67, Chairman of the Board, Trustmark Corporation since January 1982. Chairman of the Board, Trustmark National Bank from 1982 to February 1999. T. H. Kendall III, 62, Chairman of the Board, Trustmark National Bank since February 1999. Harry M. Walker, 48, Secretary, Trustmark Corporation since January 1995; President and Chief Operating Officer, Trustmark National Bank since March 1992. Gerard R. Host, 44, Treasurer, Trustmark Corporation since September 1995; Executive Vice President and Chief Financial Officer, Trustmark National Bank since November 1995. George R. Day, 63, Executive Vice President and Chief Credit Officer, Trustmark National Bank since November 1991. William O. Rainey, 59, Executive Vice President and Chief Banking Officer, Trustmark National Bank since November 1991. Thomas W. Mullen, 56, Executive Vice President and Chief Retail Administration Officer, Trustmark National Bank since November 1991. All executive officers, with the exception of Richard G. Hickson, have held executive or senior management positions with Trustmark or the Bank for more than five years. STATISTICAL DISCLOSURES The consolidated statistical disclosures for Trustmark Corporation and subsidiaries are contained in the following Tables 1 through 12. During 1998, Trustmark completed one business combination. On March 13, 1998, Smith County Bank (SCB) in Taylorsville, Mississippi was merged with the Corporation in a business combination accounted for by the purchase method of accounting. At the merger date, SCB had $44 million in net loans, $98 million in total assets and $88 million in total deposits. SCB's results of operations, which are not material, have been included in the financial statements from the merger date.
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, ------------------------------------------------------------- 1998 1997 ----------------------------- ---------------------------- Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate ----------- -------- ------ ---------- -------- ------ Assets Interest-earning assets: Federal funds sold and securities purchased <S> <C> <C> <C> <C> <C> <C> under reverse repurchase agreements $ 112,986 $ 6,078 5.38% $ 64,096 $ 3,575 5.58% Securities available for sale: Taxable 670,249 41,765 6.23% 612,745 36,671 5.98% Nontaxable 25 2 8.00% 320 37 11.56% Securities held to maturity: Taxable 1,184,223 75,683 6.39% 1,301,175 83,208 6.39% Nontaxable 111,415 9,413 8.45% 103,212 8,938 8.66% Loans, net of unearned income 3,344,381 293,855 8.79% 2,771,662 250,108 9.02% --------- -------- ---------- -------- Total interest-earning assets 5,423,279 426,796 7.87% 4,853,210 382,537 7.88% Cash and due from banks 282,487 269,665 Other assets 271,215 252,260 Allowance for loan losses (65,232) (63,897) ---------- ---------- Total Assets $5,911,749 $5,311,238 ========== ========== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits $ 734,682 $ 21,623 2.94% $ 726,812 $ 21,736 2.99% Savings deposits 660,222 14,006 2.12% 573,528 12,333 2.15% Time deposits 1,652,252 87,940 5.32% 1,623,384 86,804 5.35% Federal funds purchased and securities sold under repurchase agreements 1,151,920 58,894 5.11% 912,089 47,236 5.18% Short-term borrowings 172,168 9,437 5.48% 67,708 4,778 7.06% ---------- -------- ---------- -------- Total interest-bearing liabilities 4,371,244 191,900 4.39% 3,903,521 172,887 4.43% -------- -------- Noninterest-bearing demand deposits 865,484 789,041 Other liabilities 59,080 57,786 Shareholders' equity 615,941 560,890 ---------- ---------- Total Liabilities and Shareholders' Equity $5,911,749 $5,311,238 ========== ========== Net Interest Margin 234,896 4.33% 209,650 4.32% Less tax equivalent adjustments: Investments 3,295 3,141 Loans 3,401 2,504 -------- -------- Net Interest Margin per Annual Report $228,200 $204,005 ======== ======== </TABLE>
<TABLE> <CAPTION> December 31, ------------------------------ 1996 ------------------------------ Average Yield/ Balance Interest Rate ---------- -------- ------ Assets Interest-earning assets: Federal funds sold and securities purchased <S> <C> <C> <C> under reverse repurchase agreements $ 76,203 $ 4,223 5.54% Securities available for sale: Taxable 605,467 34,754 5.74% Nontaxable Securities held to maturity: Taxable 1,324,724 84,354 6.37% Nontaxable 92,160 8,245 8.95% Loans, net of unearned income 2,556,811 231,339 9.05% ---------- -------- Total interest-earning assets 4,655,365 362,915 7.80% Cash and due from banks 282,165 Other assets 234,758 Allowance for loan losses (62,785) ---------- Total Assets $5,109,503 ========== Liabilities and Shareholders' Equity Interest-bearing liabilities: Interest-bearing demand deposits $ 978,165 $ 26,472 2.71% Savings deposits 334,925 7,520 2.25% Time deposits 1,493,721 78,622 5.26% Federal funds purchased and securities sold under repurchase agreements 969,413 48,653 5.02% Short-term borrowings 41,274 2,739 6.64% ---------- -------- Total interest-bearing liabilities 3,817,498 164,006 4.30% -------- Noninterest-bearing demand deposits 741,324 Other liabilities 52,168 Shareholders' equity 498,513 ---------- Total Liabilities and Shareholders' Equity $5,109,503 ========== Net Interest Margin 198,909 4.27% Less tax equivalent adjustments: Investments 2,886 Loans 1,966 -------- Net Interest Margin per Annual Report $194,057 ======== </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 1997 and 1996 statements to conform to the 1998 method of presentation.
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> 1998 Compared to 1997 1997 Compared to 1996 Increase (Decrease) Due To: Increase (Decrease) Due To: --------------------------------- -------------------------------- Yield/ Yield/ Volume Rate Net Volume Rate Net -------- -------- -------- -------- -------- -------- Interest earned on: Federal funds sold and securities purchased <S> <C> <C> <C> <C> <C> <C> under reverse repurchase agreements $ 2,635 ($ 132) $ 2,503 ($ 678) $ 30 ($ 648) Securities available for sale: Taxable 3,524 1,570 5,094 428 1,489 1,917 Nontaxable (26) (9) (35) 0 37 37 Securities held to maturity: Taxable (7,525) 0 (7,525) (1,424) 278 (1,146) Nontaxable 696 (221) 475 966 (273) 693 Loans, net of unearned income 50,291 (6,544) 43,747 19,533 (764) 18,769 -------- -------- -------- -------- -------- -------- Total interest-earning assets 49,595 (5,336) 44,259 18,825 797 19,622 Interest paid on: Interest-bearing demand deposits 241 (354) (113) (7,285) 2,549 (4,736) Savings deposits 1,847 (174) 1,673 5,161 (348) 4,813 Time deposits 1,604 (468) 1,136 6,835 1,347 8,182 Federal funds purchased and securities sold under repurchase agreements 12,302 (644) 11,658 (2,936) 1,519 (1,417) Short-term borrowings 5,938 (1,279) 4,659 1,856 183 2,039 -------- -------- -------- -------- -------- -------- Total interest-bearing liabilities 21,932 (2,919) 19,013 3,631 5,250 8,881 -------- -------- -------- -------- -------- -------- Change in net interest income on a tax equivalent basis $ 27,663 ($ 2,417) $ 25,246 $ 15,194 ($ 4,453) $ 10,741 ======== ======== ======== ======== ======== ======== </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 1998, 1997 and 1996 . The balances of nonaccrual loans and related income recognized have been included for purposes of these computations.
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, ------------------------------------- 1998 1997 1996 ----------- ---------- ---------- Securities available for sale <S> <C> <C> <C> U. S. Treasury and U. S. Government agencies $ 362,930 $ 480,965 $ 469,396 Mortgage-backed securities 353,300 97,853 39,536 ---------- ---------- ---------- Total debt securities 716,230 578,818 508,932 Equity securities 31,166 14,159 13,813 ---------- ---------- ---------- Total securities available for sale $ 747,396 $ 592,977 $ 522,745 ========== ========== ========== Securities held to maturity U. S. Treasury and U. S. Government agencies $ 132,388 $ 221,929 $ 267,636 Obligations of states and political subdivisions 239,441 230,642 220,073 Mortgage-backed securities 799,584 944,257 937,451 Other securities 100 100 100 ---------- ---------- ---------- Total securities held to maturity $1,171,513 $1,396,928 $1,425,260 ========== ========== ========== </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, 1998 and the weighted average yield for each range of maturities (tax equivalent basis - $ in thousands): <TABLE> <CAPTION> Maturing ------------------------------------------------------------------------------------------- After One, After Five, Within But Within But Within After One Year Yield Five Years Yield Ten Years Yield Ten Years Yield Total -------- ----- ---------- ----- ----------- ----- --------- ----- ---------- Securities available for sale U. S. Treasury and U. S. <S> <C> <C> <C> <C> <C> <C> <C> Government agencies $ 25,848 6.16% $ 288,973 6.46% $ 48,109 5.68% $ 362,930 Mortgage-backed securities 2,392 7.58% $ 11,581 6.52% 339,327 6.42% 353,300 -------- ---------- ----------- --------- ---------- Total debt securities 25,848 291,365 11,581 387,436 716,230 Equity securities 31,166 -------- ---------- ----------- --------- ---------- Total securities available for sale $ 25,848 $ 291,365 $ 11,581 $ 387,436 $ 747,396 ======== ========== =========== ========= ========== Securities held to maturity U. S. Treasury and U. S. Government agencies $ 6,499 6.15% $ 124,899 6.32% $ 990 6.87% $ 132,388 Obligations of states and political subdivisions 21,361 7.66% 99,537 7.11% 95,406 7.76% $ 23,137 7.35% 239,441 Mortgage-backed securities 700 7.14% 40,867 6.85% 150,645 6.27% 607,372 6.36% 799,584 Other securities 100 7.50% 100 -------- ---------- ----------- --------- ---------- Total securities held to maturity $ 28,560 $ 265,303 $ 247,141 $ 630,509 $1,171,513 ======== ========== =========== ========= ========== </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 2.24 years. As of December 31, 1998, the Corporation held securities of one issuer with a carrying value exceeding ten percent of total shareholders' equity. General obligations of the State of Mississippi with a carrying value of $109,378,000 and an approximate fair value of $115,435,000 were held on December 31, 1998. Included in the aforementioned State of Mississippi holdings are bonds with an aggregate carrying value of $17,028,000 and an approximate fair value of $19,429,000 which are known to be prerefunded or escrowed to maturity by U. S. Government securities.
TABLE 5 - COMPOSITION OF THE LOAN PORTFOLIO The table below shows the carrying value of the loan portfolio at the end of each of the last five years ($ in thousands): <TABLE> <CAPTION> December 31, -------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- Real estate loans: <S> <C> <C> <C> <C> <C> Construction and land development $ 251,654 $ 195,728 $ 168,650 $ 144,010 $ 123,364 Secured by 1-4 family residential properties 1,106,735 699,486 543,661 553,997 504,078 Secured by nonfarm, nonresidential properties 508,194 446,492 398,350 380,734 345,130 Other real estate loans 72,445 70,592 73,229 69,422 63,169 Loans to finance agricultural production 39,682 38,466 33,950 37,434 34,910 Commercial and industrial 721,483 702,361 642,758 616,949 594,836 Loans to individuals for personal expenditures 773,578 701,132 645,829 641,409 606,444 Obligations of states and political subdivisions 141,152 79,178 84,918 63,557 50,033 Loans for purchasing or carrying securities 24,854 17,622 20,469 11,626 1,840 Other loans 62,541 32,598 22,759 52,953 23,761 ---------- ---------- ---------- ---------- ---------- Loans, net of unearned income $3,702,318 $2,983,655 $2,634,573 $2,572,091 $2,347,565 ========== ========== ========== ========== ========== </TABLE> TABLE 6 - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES The table below shows the amounts of loans in certain categories outstanding as of December 31, 1998, which, based on the remaining scheduled repayments of principal, are due in the periods indicated ($ in thousands): <TABLE> <CAPTION> Maturing ------------------------------------------- One Year Within Through After One Year Five Five or Less Years Years Total -------- -------- -------- ---------- <S> <C> <C> <C> Construction and land development $185,995 $ 65,659 $ 251,654 Other loans secured by real estate (excluding loans secured by 1-4 family residential properties) 228,320 205,278 $147,041 580,639 Commercial and industrial 419,005 239,817 62,661 721,483 Other loans (excluding loans to individuals) 120,703 37,926 109,600 268,229 -------- -------- -------- ---------- Total $954,023 $548,680 $319,302 $1,822,005 ======== ======== ======== ========== </TABLE> The following table shows all loans due after one year classified according to their sensitivity to changes in interest rates ($ in thousands): Maturing ------------------------------ One Year Through After Five Five Years Years Total --------- -------- -------- Above loans due after one year which have: Predetermined interest rates $ 482,182 $283,796 $765,978 Floating interest rates 66,498 35,506 102,004 --------- -------- -------- Total $ 548,680 $319,302 $867,982 ========= ======== ========
TABLE 7 - NONPERFORMING ASSETS AND PAST DUE LOANS The table below shows the Corporation's nonperforming assets and past due loans at the end of each of the last five years ($ in thousands): <TABLE> <CAPTION> December 31, ------------------------------------------------ 1998 1997 1996 1995 1994 -------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> Loans accounted for on a nonaccrual basis $13,253 $14,242 $ 8,390 $10,055 $12,817 Other real estate 1,859 2,340 2,734 3,982 3,723 Accruing loans past due 90 days or more 2,431 2,570 2,407 1,810 2,252 ------- ------- ------- ------- ------- Total nonperforming assets and loans past due 90 days or more $17,543 $19,152 $13,531 $15,847 $18,792 ======= ======= ======= ======= ======= </TABLE> Generally, a loan is classified as nonaccrual and the accrual of interest on such loan is discontinued when a contractual payment of principal or interest has become 90 days past due or Management has serious doubts about collectibility of principal or interest even though the loan is currently performing. A delinquent loan may remain in an accruing status if it is either guaranteed or well secured and in process of collection. When a loan is placed in nonaccrual status, unpaid interest credited to income in the current and prior years is reversed against interest income. Interest received on nonaccrual loans is applied against principal. Loans are restored to accrual status when the obligation is brought current or has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectibility of all contractual principal and interest is no longer in doubt. Interest which would have accrued on nonaccrual and restructured loans if they had been in compliance with their original terms is immaterial. In addition, interest income on these loans that was included in net income for the periods presented was immaterial. At December 31, 1998 Management is not aware of any additional credits, other than those identified above, where serious doubts as to the repayment of principal and interest exist. There are no interest-earning assets which would be required to be disclosed above if those assets were loans. The Corporation had no loan concentrations greater than ten percent of total loans other than those loan categories shown in Table 5.
TABLE 8 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES The table below summarizes the Corporation's loan loss experience for each of the last five years ($ in thousands): <TABLE> <CAPTION> Year Ended December 31, ------------------------------------------------------------ 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> Balance at beginning of period $ 64,100 $ 63,000 $ 62,000 $ 65,014 $ 65,014 Loans charged off: Real estate loans (1,121) (503) (1,507) (1,663) (1,034) Loans to finance agricultural production (73) (79) (177) (115) (21) Commercial and industrial (2,561) (1,406) (1,334) (764) (979) Loans to individuals for personal expenditures (6,698) (6,353) (5,651) (6,300) (4,780) All other loans (1,819) (619) (603) (648) (267) -------- -------- -------- -------- -------- Total charge-offs (12,272) (8,960) (9,272) (9,490) (7,081) Recoveries on loans previously charged off: Real estate loans 72 92 325 981 732 Loans to finance agricultural production 2 7 3 10 8 Commercial and industrial 1,181 877 1,334 736 581 Loans to individuals for personal expenditures 2,960 2,283 2,087 1,848 2,703 All other loans 1,036 775 740 462 271 -------- -------- -------- -------- -------- Total recoveries 5,251 4,034 4,489 4,037 4,295 -------- -------- -------- -------- -------- Net charge-offs (7,021) (4,926) (4,783) (5,453) (2,786) Additions to allowance charged to operating expense 7,771 4,682 5,783 2,439 2,786 Other additions to allowance for loan losses 1,300 1,344 -------- -------- -------- -------- -------- Balance at end of period $ 66,150 $ 64,100 $ 63,000 $ 62,000 $ 65,014 ======== ======== ======== ======== ======== Percentage of net charge-offs during period to average loans outstanding during the period 0.21% 0.18% 0.19% 0.22% 0.12% ======== ======== ======== ======== ======== </TABLE> The allowance for loan losses is maintained at a level believed adequate by Management to absorb losses inherent in the loan portfolio. The level of the allowance is based on Management's periodic evaluation of the portfolio, the Corporation's past loan loss experience, known and inherent risks in the portfolio, composition of the portfolio, current economic conditions, review of specific criticized credits and other relevant factors. This evaluation is inherently subjective as it requires 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 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, 1998. These allocations were determined based upon Management's analysis of the various types of risk associated with the Corporation's loan portfolio. A discussion of Management's methodology for performing the analysis follows the table ($ in thousands): Allocation for pools of risk-rated loans $ 34,223 Additional allocation for risk-rated loans 1,621 Allocation for selected industries 4,096 General allocation for all other loans 11,235 Allocation for available lines of credit and letters of credit 3,214 Unallocated 11,761 ------- Total $66,150 ======= The allowance for loan losses is maintained at a level which Management and the Board of Directors believe is adequate to absorb 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 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 Other Loans Especially Mentioned or Substandard and all which are risk-rated Doubtful are reviewed by the Corporation's Internal Asset Review staff to determine if standard percentages appear to be sufficient to cover inherent loss on each line. In the event that the percentages on any particular lines were determined to be insufficient, additional allocations are made based upon recommendations of lending and asset review 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 inherent losses within portions of the loan portfolio not addressed in the preceeding 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: 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. Arbitrary 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. The remaining $11.8 million is unallocated 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.
TABLE 10 - TIME DEPOSITS OF $100,000 OR MORE The table below shows maturities on outstanding time deposits of $100,000 or more at December 31, 1998 ($ in thousands): 3 months or less $178,083 Over 3 months through 6 months 74,363 Over 6 months through 12 months 80,559 Over 12 months 42,908 -------- Total $375,913 ======== TABLE 11 - SELECTED RATIOS The following ratios are presented for each of the last three years: 1998 1997 1996 ------ ------ ------ Return on average assets 1.41% 1.34% 1.27% Return on average equity 13.53% 12.67% 13.07% Dividend payout ratio 30.92% 30.26% 26.74% Equity to assets ratio 10.42% 10.56% 9.76% TABLE 12 - SHORT-TERM BORROWINGS The table below presents certain information concerning the Corporation's short-term borrowings for each of the last three years ($ in thousands): <TABLE> <CAPTION> 1998 1997 1996 ---------- ---------- ---------- Federal funds purchased and securities sold under repurchase agreements: <S> <C> <C> <C> Amount outstanding at end of period $1,318,545 $ 948,700 $ 967,191 Weighted average interest rate at end of period 4.48% 5.72% 5.46% Maximum amount outstanding at any month end during each period $1,544,385 $1,003,907 $1,036,564 Average amount outstanding during each period $1,151,920 $ 912,089 $ 969,413 Weighted average interest rate during each period 5.11% 5.18% 5.02% </TABLE> No other category of short-term borrowings is required to be disclosed because the average balance was less than 30% of shareholders' equity at the end of 1998.
ITEM 2. PROPERTIES Trustmark's principal offices are housed in a 14-floor combination office and bank building located in Jackson, Mississippi and owned by the Bank. Approximately 174,000 square feet (61%) 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 108 full-service branches, 21 limited-service branches, 11 in-store branches and an ATM network which includes 84 ATMs at on-premise locations and 63 ATMs located at off-premise sites. The Bank leases 68 of its 184 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. 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 1998. 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, 1999, there were approximately 5,300 shareholders of record of Trustmark's common stock. Other information required by this item can be found in Note 13, "Shareholders' Equity," (page 31) and the table captioned "Principal Markets and Prices of Trustmark's Stock" (page 37) included in the Registrant's 1998 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 1998 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 38-46) included in the Registrant's 1998 Annual Report to Shareholders and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" (pages 38-40) included in the Registrant's 1998 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 1998 Annual Report to Shareholders (pages 17-35) and are incorporated herein by reference. The table captioned "Summary of Quarterly Results of Operations" (page 36) is also included in the Registrant's 1998 Annual Report of Shareholders and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no change of accountants within the two-year period prior to December 31, 1998.
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information on the directors of the Registrant can be found in Section II, "Election of Directors," and Section VII, "Other Information Concerning Directors," contained in Trustmark Corporation's Proxy Statement dated March 15, 1999, and is incorporated herein by reference. Information on the Registrant's executive officers is included in Part I, page 5 of this report. ITEM 11. EXECUTIVE COMPENSATION Information required by this item can be found in Section V, "Compensation of Executive Officer and Directors," and Section VII, "Other Information Concerning Directors," contained in Trustmark Corporation's Proxy Statement dated March 15, 1999, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and Management can be found in Section III, "Voting Securities and Principal Holders Thereof," and Section IV, "Ownership of Equity Securities by Management," contained in Trustmark Corporation's Proxy Statement dated March 15, 1999, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions can be found in Section VI, "Transactions with Management," contained in Trustmark Corporation's Proxy Statement dated March 15, 1999, 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 1998 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, 1998 and 1997 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements (Notes 1 through 15) Selected Financial Data, Summary of Quarterly Results of Operations, and Principal Markets and Prices of Trustmark's Stock A-2. Financial Statement Schedules The schedules to the consolidated financial statements set forth by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted. 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 On November 13, 1998, Trustmark filed a Form 8-K announcing that its Board of Directors had authorized the purchase of up to 7.5%, or approximately 5.46 million shares, of the Corporation's common stock. In addition, Trustmark also announced a 27% increase in its regular quarterly dividend from 8.25 cents to 10.5 cents per share. This action raised the annual dividend rate from 33 cents to 42 cents per share. C. Exhibits The response to this portion of Item 14 is submitted as a separate section of this report.
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/ Gerard R. Host ---------------------- ------------------ Richard G. Hickson Gerard R. Host President & Chief Treasurer Executive Officer (Chief Financial Accounting Officer DATE: March 9, 1999 DATE: March 9, 1999
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, 1999 BY: /s/ J. Kelly Allgood --------------------------------- J. Kelly Allgood, Director DATE: March 9, 1999 BY: /s/ Reuben V. Anderson --------------------------------- Reuben V. Anderson, Director DATE: March 9, 1999 BY: /s/ John L. Black, Jr. --------------------------------- John L. Black, Jr., Director DATE: March 9, 1999 BY: /s/ Robert P. Cooke III --------------------------------- Robert P. Cooke III, Director DATE: BY: --------------------------------- Frank R. Day, Chairman of the Board and Director DATE: March 9, 1999 BY: /s/ William C. Deviney, Jr. --------------------------------- William C. Deviney, Jr., Director DATE: BY: --------------------------------- D. G. Fountain, Jr., Director DATE: March 9, 1999 BY: /s/ C. Gerald Garnett --------------------------------- C. Gerald Garnett, Director DATE: March 9, 1999 BY: /s/ Richard G. Hickson --------------------------------- Richard G. Hickson, President & Chief Executive Officer and Director DATE: March 9, 1999 BY: /s/ Matthew L. Holleman III --------------------------------- Matthew L. Holleman III, Director DATE: March 9, 1999 BY: /s/ Fred A. Jones --------------------------------- Fred A. Jones, Director
DATE: March 9, 1999 BY: /s/ T.H. Kendall III --------------------------------- T. H. Kendall III, Director DATE: BY: --------------------------------- Larry L. Lambiotte, Director DATE: March 9, 1999 BY: /s/ Donald E. Meiners --------------------------------- Donald E. Meiners, Director DATE: March 9, 1999 BY: /s/ William Neville III --------------------------------- William Neville III, Director DATE: BY: --------------------------------- Richard H. Puckett, Director DATE: BY: --------------------------------- William K. Ray, Director DATE: March 9, 1999 BY: /s/ Harry M. Walker --------------------------------- Harry M. Walker, Director DATE: March 9, 1999 BY: /s/ LeRoy G. Walker, Jr. --------------------------------- LeRoy G. Walker, Jr., Director DATE: March 9, 1999 BY: /s/ Paul H. Watson --------------------------------- Paul H. Watson, Jr., Director DATE: March 9, 1999 BY: /s/ Kenneth W. Williams --------------------------------- Kenneth W. Williams, Director DATE: March 9, 1999 BY: /s/ Allen Wood, Jr. --------------------------------- Allen Wood, Jr., Director
EXHIBIT INDEX 3-a Articles of Incorporation, as amended. Filed as Exhibit 3 to Trustmark'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 Trustmark'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 Trustmark's Form 10-K Annual Report for the year ended December 31, 1994, incorporated herein by reference. 3-d Bylaws, as amended. Filed as Exhibit 3-d to Trustmark's Form 10-K Annual Report for the year ended December 31, 1997. 3-e Articles of Incorporation, as amended. Filed as Exhibit 3-e to Trustmark's Form 10-K Annual Report for the year ended December 31, 1998. 10-a Deferred Compensation Plan for Directors of Trustmark Corporation, as amended. Filed as Exhibit 10 to Trustmark'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 Trustmark's Form 10-K Annual Report for the year ended December 31, 1993, incorporated herein by reference. 10-c Deferred Compensation Plan for Directors of First National Financial Corporation, acquired October 7, 1994. Filed as Exhibit 10-c to Trustmark's Form 10-K Annual Report for the year ended December 31, 1994, incorporated herein by reference. 10-d Life Insurance Plan for Executive Officers of First National Financial Corporation, acquired October 7, 1994. Filed as Exhibit 10-d to Trustmark's Form 10-K Annual Report for the year ended December 31, 1994, incorporated herein by reference. 10-e Long Term Incentive Plan for key employees of Trustmark Corporation and its subsidiaries, approved March 11, 1997. Filed as Exhibit 10-e to Trustmark's Form 10-K Annual Report for the year ended December 31, 1996, incorporated herein by reference. 10-f Employment Agreement between Trustmark Corporation and Richard G. Hickson dated May 13, 1997. Filed as Exhibit 10-f to Trustmark's Form 10-K Annual Report for the year ended December 31, 1997. 10-g Change in Control Agreement between Trustmark Corporation and Harry M. Walker dated December 22, 1997. Filed as Exhibit 10-g to Trustmark's Form 10-K Annual Report for the year ended December 31, 1997. 10-h Change in Control Agreement between Trustmark Corporation and Gerard R. Host dated December 22, 1997. Filed as Exhibit 10-h to Trustmark's Form 10-K Annual Report for the year ended December 31, 1997. 13 Only those portions of the Registrant's 1998 Annual Report to Shareholders expressly incorporated by reference herein are included in this exhibit and, therefore, are filed as a part of this report on Form 10-K. 23 Consent of Arthur Andersen LLP. 27 Financial Data Schedule. All other exhibits are omitted as they are inapplicable or not required by the related instructions.