Exhibit 13
Management's Statement on Responsibility for Financial Reporting
The management of Trustmark is responsible for the content and integrity of the
consolidated financial statements, related disclosures and other information
included in this annual report. The consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States applied on a consistent basis. The financial statements presented
include specific amounts determined using Management's best estimates and
judgments.
Management has established, maintains and relies on Trustmark's accounting and
related systems of internal controls. These systems provide reasonable assurance
that transactions are properly authorized and recorded in the consolidated
financial statements and safeguard the corporation's assets from material loss
or misuse. Trustmark maintains an internal audit staff that monitors compliance
with the corporation's accounting and internal control systems and reports to
the Audit and Finance Committee of the Board of Directors.
The Audit and Finance Committee of the Board of Directors, composed entirely of
independent directors, meets periodically with Management, internal audit and
the independent auditors to ensure that each is carrying out their
responsibilities. The independent auditors, internal auditors and members of
Management each have full and free access to meet privately as well as together
with the Audit and Finance Committee to discuss internal controls, accounting,
auditing or other financial matters.
The consolidated financial statements of Trustmark have been audited by KPMG
LLP, independent auditors, who were engaged to express an opinion whether the
consolidated financial statements presented in this annual report fairly
present, in all material respects, the financial position, results of operations
and cash flows of Trustmark for the periods presented.
/s/ Richard G. Hickson /s/ Zach L. Wasson
Richard G. Hickson Zach L. Wasson
Chairman and Treasurer
Chief Executive Officer
Independent Auditors' Report
The Board of Directors and Shareholders
Trustmark Corporation:
We have audited the accompanying consolidated balance sheets of Trustmark
Corporation and 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.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Trustmark
Corporation and subsidiaries as of December 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Notes 1 and 7 to the consolidated financial statements,
effective January 1, 2002, the Company changed its method of accounting for
goodwill and other intangible assets. Also, as discussed in Note 1 and 4,
effective January 1, 2000, the Company changed its method of accounting for
derivative instruments and hedging activities.
/s/ KPMG LLP
Jackson, Mississippi
January 20, 2003
Trustmark Corporation and Subsidiaries
Consolidated Balance Sheets
($ in thousands)
December 31,
------------------------
2002 2001
---------- ----------
Assets
Cash and due from banks (noninterest-bearing) $ 357,427 $ 328,779
Federal funds sold and securities purchased
under reverse repurchase agreements 23,957 137,521
Securities available for sale (at fair value) 1,262,570 1,061,495
Securities held to maturity (fair value:
$578,150 -2002; $820,917- 2001) 549,197 792,052
Loans 4,617,366 4,524,366
Less allowance for loan losses 74,771 75,534
---------- ----------
Net loans 4,542,595 4,448,832
Premises and equipment, net 104,113 97,158
Intangible assets (including goodwill of
$48,028 - 2002; $41,004 - 2001) 119,643 116,691
Other assets 179,204 197,811
---------- ----------
Total Assets $7,138,706 $7,180,339
========== ==========
Liabilities
Deposits:
Noninterest-bearing $1,251,240 $1,167,437
Interest-bearing 3,435,056 3,445,928
---------- ----------
Total deposits 4,686,296 4,613,365
Federal funds purchased 319,985 235,781
Securities sold under repurchase agreements 634,993 801,725
Short-term borrowings 275,959 558,687
Long-term FHLB advances 475,000 225,000
Other liabilities 66,939 60,337
---------- ----------
Total Liabilities 6,459,172 6,494,895
Commitments and Contingencies
Shareholders' Equity
Common stock, no par value:
Authorized: 250,000,000 shares
Issued and outstanding: 60,516,668 shares - 2002;
63,705,671 shares - 2001 12,609 13,273
Capital surplus 188,652 66,083
Retained earnings 470,317 587,387
Accumulated other comprehensive income,
net of tax 7,956 18,701
---------- ----------
Total Shareholders' Equity 679,534 685,444
---------- ----------
Total Liabilities and Shareholders' Equity $7,138,706 $7,180,339
========== ==========
See notes to consolidated financial statements.
Trustmark Corporation and Subsidiaries
Consolidated Statements of Income
($ in thousands except per share data)
Years Ended December 31,
--------------------------------
2002 2001 2000
-------- -------- --------
Interest Income
Interest and fees on loans $305,709 $340,809 $344,576
Interest on securities:
Taxable 89,562 123,971 133,742
Tax exempt 8,867 9,463 7,703
Interest on federal funds sold and securities
purchased under reverse repurchase agreements 424 921 2,155
Other interest income 1,390 982 -
-------- -------- --------
Total Interest Income 405,952 476,146 488,176
Interest Expense
Interest on deposits 79,059 126,356 126,329
Interest on federal funds purchased and securities
sold under repurchase agreements 12,652 42,390 68,618
Other interest expense 22,055 40,496 60,249
-------- -------- --------
Total Interest Expense 113,766 209,242 255,196
-------- -------- --------
Net Interest Income 292,186 266,904 232,980
Provision for loan losses 14,107 13,200 10,401
-------- -------- --------
Net Interest Income After Provision
for Loan Losses 278,079 253,704 222,579
Noninterest Income
Service charges on deposit accounts 50,056 46,769 41,883
Other account charges and fees 28,371 29,473 32,355
Insurance commissions 17,837 11,635 10,043
Mortgage servicing fees 17,247 16,920 14,781
Trust service income 9,962 9,423 9,912
Securities gains 13,568 2,448 9,388
Gains on sales of loans 9,353 9,163 2,978
Other income (4,524) 6,159 3,200
-------- -------- --------
Total Noninterest Income 141,870 131,990 124,540
Noninterest Expense
Salaries and employee benefits 119,801 110,540 100,253
Net occupancy - premises 12,088 11,576 10,404
Equipment expense 15,085 15,651 15,511
Services and fees 32,414 30,098 26,216
Amortization/impairment of intangible assets 24,275 14,129 8,618
Loan expense 9,765 9,560 7,987
Other expense 20,413 22,713 19,805
-------- -------- --------
Total Noninterest Expense 233,841 214,267 188,794
-------- -------- --------
Income Before Income Taxes and Cumulative Effect
of a Change in Accounting Principle 186,108 171,427 158,325
Income taxes 64,968 60,146 54,124
-------- -------- --------
Income Before Cumulative Effect of a Change in
Accounting Principle 121,140 111,281 104,201
Cumulative effect of a change in accounting
principle, net of tax - - (2,464)
-------- -------- --------
Net Income $121,140 $111,281 $101,737
======== ======== ========
Earnings Per Share
Basic earnings per share before cumulative
effect of a change in accounting principle $ 1.95 $ 1.72 $ 1.53
Cumulative effect of a change in accounting
principle, net of tax - - (0.03)
-------- -------- --------
Basic earnings per share $ 1.95 $ 1.72 $ 1.50
======== ======== ========
Diluted earnings per share before cumulative
effect of a change in accounting principle $ 1.94 $ 1.72 $ 1.53
Cumulative effect of a change in accounting
principle, net of tax - - (0.03)
-------- -------- --------
Diluted earnings per share $ 1.94 $ 1.72 $ 1.50
======== ======== ========
See notes to consolidated financial statements.
Trustmark Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
($ in thousands except per share data)
Common Stock Accumulated
--------------------- Other
Shares Capital Retained Comprehensive
Outstanding Amount Surplus Earnings Income Total
----------- ------- -------- -------- ------------- --------
Balance, January 1, 2000 70,423,993 $14,672 $193,721 $444,999 $ 2,364 $655,756
Comprehensive income:
Net income per consolidated statements of income - - - 101,737 - 101,737
Net change in fair value of
securities available for sale, net of tax - - - - 7,922 7,922
Net change in fair value of cash flow
hedges, net of tax - - - - (472) (472)
--------
Comprehensive income - - - - - 109,187
Cash dividends paid ($0.51 per share) - - - (34,629) - (34,629)
Repurchase and retirement of common stock (5,668,971) (1,181) (99,492) - - (100,673)
----------- ------- -------- -------- ------------- --------
Balance, December 31, 2000 64,755,022 13,491 94,229 512,107 9,814 629,641
Comprehensive income:
Net income per consolidated statements of income - - - 111,281 - 111,281
Net change in fair value of
securities available for sale, net of tax - - - - 7,610 7,610
Net change in fair value of cash flow
hedges, net of tax - - - - 1,277 1,277
--------
Comprehensive income - - - - - 120,168
Cash dividends paid ($0.56 per share) - - - (36,001) - (36,001)
Common stock issued in business combination 2,405,630 501 45,521 - - 46,022
Common stock issued, long-term incentive plan 620 - (8) - - (8)
Repurchase and retirement of common stock (3,455,601) (719) (73,659) - - (74,378)
----------- ------- -------- -------- ------------- --------
Balance, December 31, 2001 63,705,671 13,273 66,083 587,387 18,701 685,444
Comprehensive income:
Net income per consolidated statements of income - - - 121,140 - 121,140
Net change in fair value of
securities available for sale, net of tax - - - - (3,845) (3,845)
Net change in fair value of cash flow
hedges, net of tax - - - - (3,771) (3,771)
Net change in unfunded accumulated benefit
obligation, net of tax - - - - (3,129) (3,129)
--------
Comprehensive income - - - - 110,395
Cash dividends paid ($0.62 per share) - - - (38,210) (38,210)
Common stock issued, long-term incentive plan 65,712 14 668 - - 682
Repurchase and retirement of common stock (3,254,715) (678) (78,099) - - (78,777)
Transfer to capital surplus - - 200,000 (200,000) - -
----------- ------- -------- -------- ------------- --------
Balance, December 31, 2002 60,516,668 $12,609 $188,652 $470,317 $ 7,956 $679,534
=========== ======= ======== ======== ============= ========
See notes to consolidated financial statements.
Trustmark Corporation and Subsidiaries
Consolidated Statements of Cash Flows
($ in thousands)
Years Ended December 31,
--------------------------------------
2002 2001 2000
---------- ---------- ----------
Operating Activities
Net income $ 121,140 $ 111,281 $ 101,737
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 14,107 13,200 10,401
Depreciation and amortization 36,871 26,864 20,909
Net amortization (accretion) of securities 1,062 785 (2,396)
Securities gains (13,568) (2,448) (9,388)
Gains on sales of loans (9,353) (9,163) (2,978)
Deferred income tax (benefit) provision (5,104) 3,111 2,469
Cumulative effect of a change in accounting principle - - 3,820
Proceeds from sale of loans held for sale 1,059,396 1,235,114 494,867
Purchases and originations of loans held for sale (1,138,231) (1,099,548) (700,696)
Proceeds from sales of trading securities - 990 130,575
Purchases of trading securities - - (990)
Net increase in intangible assets (16,859) (25,037) (9,936)
Net decrease (increase) in other assets 22,972 (8,902) (37,022)
Net (decrease) increase in other liabilities (7,506) (5,916) 7,779
Other operating activities, net 3,726 2,532 442
---------- ---------- ----------
Net cash provided by operating activities 68,653 242,863 9,593
Investing Activities
Proceeds from calls and maturities of securities held to maturity 267,055 216,611 200,389
Proceeds from calls and maturities of securities available for sale 440,840 573,765 149,217
Proceeds from sales of securities available for sale 315,597 14,700 144,726
Purchases of securities held to maturity (21,887) - (193,095)
Purchases of securities available for sale (956,684) (407,796) (362,571)
Net decrease (increase) in federal funds sold and securities
purchased under reverse repurchase agreements 113,564 (31,368) (18,250)
Net (increase) decrease in loans (19,682) (67,359) 69,408
Purchases of premises and equipment (17,340) (12,892) (10,817)
Proceeds from sales of premises and equipment 738 123 209
Proceeds from sales of other real estate 4,223 3,676 4,032
Net cash paid in business combinations (7,799) (62,739) -
---------- ---------- ----------
Net cash provided (used) by investing activities 118,625 226,721 (16,752)
Financing Activities
Net increase in deposits 72,931 7,781 133,622
Net decrease in federal funds purchased and securities sold
under repurchase agreements (82,528) (229,657) (122,407)
Net decrease in other borrowings (282,728) (332,193) (100,060)
Proceeds from long-term FHLB advances 250,000 225,000 250,000
Cash dividends (38,210) (36,001) (34,629)
Common stock transactions, net (78,095) (74,386) (100,673)
---------- ---------- ----------
Net cash (used) provided by financing activities (158,630) (439,456) 25,853
---------- ---------- ----------
Increase in cash and cash equivalents 28,648 30,128 18,694
Cash and cash equivalents at beginning of year 328,779 298,651 279,957
---------- ---------- ----------
Cash and cash equivalents at end of year $ 357,427 $ 328,779 $ 298,651
========== ========== ==========
See notes to consolidated financial statements.
NOTE 1 - BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION, SIGNIFICANT
ACCOUNTING POLICIES AND RECENT PRONOUNCEMENTS
BUSINESS
Trustmark Corporation (Trustmark) is a bank holding company headquartered in
Jackson, Mississippi. Trustmark provides a broad array of banking and financial
solutions through over 150 offices in Mississippi and Tennessee.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of Trustmark and its
wholly-owned bank subsidiaries, Trustmark National Bank (TNB) and Somerville
Bank & Trust Company. All intercompany accounts and transactions have been
eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America.
Management is required to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation of mortgage
servicing rights.
Certain reclassifications have been made to prior periods to conform to the
current year presentation.
SIGNIFICANT ACCOUNTING POLICIES
Trading Account Securities
Trading account securities are purchased and held for resale in anticipation of
short-term market movements. Trading account securities typically consist of
debt securities and are carried at fair value. Gains and losses, both realized
and unrealized, are classified as other income.
Securities Available for Sale and Held to Maturity
Management determines the appropriate classification of securities at the time
of purchase. Debt securities are classified as held to maturity when Trustmark
has the intent and ability to hold the security to maturity. Securities held to
maturity are stated at amortized cost.
Securities not classified as held to maturity or trading are classified as
available for sale and are stated at fair value. Unrealized gains and losses,
net of tax, on these securities are recorded in shareholders' equity as
accumulated other comprehensive income. Securities classified as available for
sale include securities that may be used as part of the asset/liability strategy
or that may be sold in response to interest rate movements, liquidity needs,
changes in prepayment expectations or for other business purposes.
The amortized cost of securities available for sale and held to maturity is
adjusted for amortization of premiums and accretion of discounts to maturity,
determined using the interest method. Such amortization and accretion is
included in interest income on securities. The specific identification method is
used to determine realized gains and losses on sales of securities, which are
reported as securities gains (losses) in noninterest income.
Loans
Loans are stated at the amount of unpaid principal, adjusted for the net amount
of direct costs and nonrefundable loan fees associated with lending. The net
amount of nonrefundable loan origination fees and direct costs associated with
the lending process, including commitment fees, is deferred and accreted to
interest income over the lives of the loans using a method that approximates the
interest method. Interest on loans is accrued and recorded as interest income
based on the outstanding principal balance.
Mortgage loans held for sale in the secondary market are carried at the lower of
cost or estimated fair value on an aggregate basis. These loans are primarily
first-lien mortgage loans originated or purchased by Trustmark. Any declines in
estimated fair value below the cost basis of mortgages held for sale are
recognized through a valuation allowance and charged to income.
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. Loans classified as nonaccrual, excluding residential mortgages,
consumer and other homogeneous loans, are considered impaired loans. Specific
allowances for impaired loans are based on comparisons of the recorded carrying
values of the loans to the present value of these loans' estimated cash flows at
each loan's original effective interest rate, the fair value of the collateral
or the loans' observable market prices. The policy for recognizing income on
impaired loans is consistent with the nonaccrual policy.
Allowance for Loan Losses
The allowance for loan losses is established through provisions for estimated
loan losses charged against earnings. Loans deemed to be uncollectible are
charged against the allowance for loan losses, and subsequent recoveries, if
any, are credited to the allowance.
The allowance for loan losses is maintained at a level believed adequate by
Management to absorb estimated probable loan losses. Management's periodic
evaluation of the adequacy of the allowance is based on 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.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is charged to expense over the estimated useful lives
of the assets, which are up to thirty-nine years for buildings and three to
seven years for furniture and equipment. Leasehold improvements are amortized
over the terms of the respective leases, or the estimated useful lives of the
improvements, whichever is shorter. Depreciation and amortization expenses are
computed using both straight-line and accelerated methods. Trustmark continually
evaluates whether events and circumstances have occurred that indicate that such
long-lived assets have been impaired. Measurement of any impairment of such
long-lived assets is based on those assets' fair values. There were no
impairment losses on premises and equipment recorded during 2002, 2001 or 2000.
Intangible Assets
Intangible assets consist of goodwill, identifiable intangible assets and
mortgage servicing rights. Effective January 1, 2002, Trustmark adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets." This statement requires that goodwill no
longer be amortized, while amortizing other identifiable intangibles over their
respective useful lives to their estimated residual values and measuring these
assets for possible impairment. Included in Note 7 - Intangible Assets are the
specific carrying values, amortization and pro forma disclosures as required by
SFAS No. 142.
Goodwill, which represents the excess of cost over the fair value of the net
assets of an acquired business, was amortized on a straight-line method up to
twenty years prior to the adoption of SFAS No. 142. Effective January 1, 2002,
goodwill is no longer amortized but tested for impairment annually.
Identifiable intangible assets, comprised primarily of core deposit intangibles
and insurance customer relationship intangibles, represent the net present value
of the future economic benefits related to the use of an acquired deposit and
insurance base. These assets are being amortized on a straight-line method up to
fifteen years. The results of straight-line amortization are not materially
different from an accelerated method.
Mortgage servicing rights are rights to service mortgage loans for others,
whether the loans were acquired through purchase or loan origination. Purchased
mortgage servicing rights are capitalized at cost. For loans originated and sold
where the servicing rights have been retained, Trustmark allocates the cost of
the loan and the servicing right based on their relative fair values. Mortgage
servicing rights are amortized over the estimated period of the related net
servicing income.
Impairment of goodwill, core deposit intangibles and insurance customer
relationship intangibles is evaluated annually or whenever events or changes in
circumstances indicate that the carrying amount should be assessed. Impairment
for mortgage servicing rights is determined using estimated fair values with the
loans stratified by product type and term. Impairment, if any, for goodwill,
core deposit intangibles and insurance customer relationship intangibles is
recognized as a permanent charge to noninterest expense. Impairment, if any, for
mortgage servicing rights is recognized through a valuation allowance with a
corresponding charge to noninterest expense.
Other Real Estate Owned
Other real estate owned includes assets that have been acquired in satisfaction
of debt through foreclosure. Other real estate owned is reported in other assets
and is recorded at the lower of cost or estimated fair value less the estimated
cost of disposition. Valuation adjustments required at foreclosure are charged
to the allowance for loan losses. Subsequent to foreclosure, losses on the
periodic revaluation of the property are charged to current period earnings as
other expense. Costs of operating and maintaining the properties, net of related
income and gains (losses) on their disposition, are charged to other expense as
incurred. Improvements made to properties are capitalized if the expenditures
are expected to be recovered upon the sale of the property.
Derivative Financial Instruments
Trustmark utilizes various derivative financial instruments as part of its risk
management strategy and as a means to meet customers' needs. These instruments
are subject to credit and market risks that are not reflected on the balance
sheet. Credit risk represents the maximum potential loss due to possible
nonperformance by obligors and counterparties under the terms of contracts.
Market risk represents the potential loss due to the decrease in the value of a
financial instrument caused primarily by changes in interest rates, prepayment
speeds or the prices of debt instruments. On January 1, 2000, Trustmark adopted
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended. Trustmark uses derivatives in the form of forward contracts and
interest rate locks, which are designated as cash flow hedges to mitigate
interest rate exposures related to mortgage loans held for sale and mortgage
loans in process as part of its normal asset/liability management strategies.
Forward contracts are agreements to purchase or sell securities or other money
market instruments at a future specified date at a specified price or yield.
Trustmark's obligations under forward contracts consist of commitments to
deliver mortgage loans, originated and/or purchased, in the secondary market at
a future date into mortgage-backed securities. Unrealized gains or losses on
these forward contracts are recorded in accumulated other comprehensive income,
net of tax. Realized gains and losses on forward contracts and the sale of
mortgage loans in the secondary market are recorded upon the settlement of the
related forward contract and included in other income. As all of Trustmark's
cash flow hedges are determined to be effective, no gains or losses related to
ineffective portions of these hedges have been recognized in the results of
operations for the three years ended December 31, 2002.
Trustmark enters into fixed and variable rate residential mortgage loan
commitments with customers, commonly referred to as interest rate lock
commitments (rate locks). While the principal amount of the commitments under
these rate locks is not recorded on Trustmark's balance sheet, the fair value of
these contracts is recorded in the financial statements with changes in fair
value recorded in current period earnings as other income. At December 31, 2002
and 2001, these commitments had a fair value of $1.1 million and $146 thousand,
while their notional value was $143.3 million and $50.8 million, respectively.
Interest rate contracts, such as caps and floors, are options that are linked to
a notional principal amount and an underlying indexed interest rate. Exposure to
loss on all interest rate contracts will increase or decrease as interest rates
fluctuate. These derivatives, which are not designated as hedges, are carried at
their current fair value, with changes in value recognized in current period
earnings as other income. When a particular cap or floor hits its strike price,
a cash payment is received and included in other interest income. For these
types of instruments, cash requirements and exposure to credit risk are
significantly less than the notional value.
Income Taxes
Trustmark accounts for deferred income taxes using the liability method.
Deferred tax assets and liabilities are based on temporary differences between
the financial statement carrying amounts and tax basis of Trustmark's assets and
liabilities. Deferred tax assets and liabilities are measured using the enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be realized or settled.
Stock-Based Compensation
Trustmark accounts for its incentive stock options under the recognition and
measurement provisions of Accounting Principles Board (APB) Opinion No. 25
"Accounting for Stock Issued to Employees." Under APB No. 25, because the
exercise price of Trustmark's incentive stock options equals the market price
for the underlying stock on the date of grant, no compensation expense has been
recognized. Effective January 1, 2003, Trustmark adopted the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," prospectively to all awards granted, modified or settled after
January 1, 2003. The following table reflects pro forma net income and earnings
per share had Trustmark elected to adopt the fair value approach of SFAS No.
123, prior to January 1, 2003 ($ in thousands except per share data):
2002 2001 2000
-------- -------- --------
Net income:
As reported $121,140 $111,281 $101,737
Compensation expense, net of tax 1,530 1,315 989
-------- -------- --------
Pro forma $119,610 $109,966 $100,748
======== ======== ========
Earnings per share:
As reported
Basic $ 1.95 $ 1.72 $ 1.50
Diluted 1.94 1.72 1.50
Pro forma
Basic 1.92 $ 1.70 $ 1.48
Diluted 1.92 1.70 1.48
The estimated fair values of stock options at their grant date during 2002, 2001
and 2000 were $8.51, $7.54 and $6.72, respectively. The estimated fair value of
each option granted is calculated using the Black-Scholes option-pricing model.
The following weighted average assumptions were used in the model for 2002, 2001
and 2000:
2002 2001 2000
-------- -------- --------
Risk-free investment rate 5.21% 5.24% 6.53%
Expected volatility 27.04% 30.60% 32.01%
Expected life (in years) 7.60 7.90 8.30
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks. Trustmark paid income taxes approximating $70.4
million in 2002, $55.6 million in 2001 and $49.7 million in 2000. Interest paid
on deposit liabilities and other borrowings approximated $119.2 million in 2002,
$222.9 million in 2001, and $249.6 million in 2000. For the years ended December
31, 2002, 2001 and 2000, noncash transfers from loans to foreclosed properties
were $6.8 million, $5.2 million and $4.2 million, respectively. Assets acquired
during 2001 as a result of business combinations totaled $671 million, while
liabilities assumed totaled $573 million. During 2002, $100 million of long-term
Federal Home Loan Bank (FHLB) advances were transferred to short-term borrowings
compared with $250 million in 2001.
Per Share Data
Basic earnings per share (EPS) is computed by dividing net income by the
weighted average shares of common stock outstanding. Diluted EPS is computed by
dividing net income by the weighted average shares of common stock outstanding,
adjusted for the effect of potentially dilutive stock options outstanding during
the period. The following table reflects weighted average shares used to
calculate basic and diluted EPS for the periods presented:
Years Ended December 31,
--------------------------------------
2002 2001 2000
---------- ---------- ----------
Basic shares 62,250,734 64,755,382 67,884,854
Dilutive shares (due to stock options) 165,396 121,323 44,105
---------- ---------- ----------
Diluted shares 62,416,130 64,876,705 67,928,959
========== ========== ==========
RECENT PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
amending SFAS No. 123, "Accounting for Stock-Based Compensation." Effective
January 1, 2003, Trustmark adopted the provisions of SFAS No. 123, as amended by
SFAS No. 148, under the prospective method. Under this method, Trustmark will
apply the recognition provisions to all awards granted, modified or settled
after January 1, 2003. The impact of this statement on Trustmark's consolidated
financial position and results of operations is not expected to be material.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in this interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The impact of this interpretation on Trustmark's consolidated
financial position and results of operations is not expected to be material.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions." As of October 1, 2002, this statement requires
financial services companies to subject all of their goodwill to annual
impairment tests instead of amortizing any goodwill previously subject to SFAS
No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions."
This statement applies to all new and past financial institution acquisitions,
including "branch acquisitions" that qualify as acquisitions of a business, but
excluding acquisitions between mutual institutions. All acquisitions within the
scope of SFAS No. 147 will now be governed by the requirements of SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." Additionally, this statement amends SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to include long-term customer
relationship intangible assets in its scope. Effective October 1, 2002, these
intangibles must be evaluated for impairment. The adoption of this statement had
no impact on Trustmark's consolidated financial position and results of
operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. The provisions of this statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The impact of this statement on
Trustmark's consolidated financial position and results of operations is not
expected to be material.
NOTE 2 - BUSINESS COMBINATIONS
On June 28, 2002, The Bottrell Insurance Agency, Inc., a wholly-owned subsidiary
of TNB, acquired Chandler-Sampson Insurance, Inc. (CSI) in Jackson, Mississippi.
This business combination, which is not material to Trustmark, was accounted for
under the purchase method of accounting. The shareholders of CSI received $8
million in cash in connection with the merger. Excess cost over tangible net
assets acquired totaled $10 million, of which $3 million and $7 million have
been allocated to other identifiable intangible assets and goodwill,
respectively.
On December 14, 2001, Nashoba Bancshares, Inc. (Nashoba) in Germantown,
Tennessee, was merged with Trustmark in a business combination accounted for by
the purchase method of accounting. Nashoba was the holding company for Nashoba
Bank, and at the merger date, Nashoba had $10 million in securities, $147
million in total loans, $163 million in total assets and $132 million in total
deposits. The shareholders of Nashoba received $28 million in cash in connection
with the merger. Excess cost over tangible net assets acquired totaled $17
million, of which $3 million and $14 million have been allocated to core
deposits and goodwill, respectively.
On April 6, 2001, Barret Bancorp, Inc. (Barret) in Barretville, Tennessee, was
merged with Trustmark in a business combination accounted for by the purchase
method of accounting. Barret was the holding company for Peoples Bank in
Barretville, Tennessee, and Somerville Bank & Trust Company in Somerville,
Tennessee. At the merger date, Barret had $104 million in securities, $307
million in total loans, $508 million in total assets and $414 million in total
deposits. The shareholders of Barret received approximately 2.4 million shares
of Trustmark's common stock along with $51 million in cash. Excess cost over
tangible net assets acquired totaled $27 million, of which $11 million and $16
million have been allocated to core deposits and goodwill, respectively.
Trustmark's financial statements include the results of operations for the above
purchase business combinations from the respective merger dates. The pro forma
impact of these acquisitions on Trustmark's results of operations is immaterial.
NOTE 3 - CASH AND DUE FROM BANKS
Trustmark is required to maintain average reserve balances with the Federal
Reserve Bank based on a percentage of deposits. The average amounts of those
reserves for the years ended December 31, 2002 and 2001, were $15.2 million and
$4.8 million, respectively.
NOTE 4 - SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
A summary of the amortized cost and estimated fair value of securities available
for sale and held to maturity at December 31, 2002 and 2001, follows ($ in
thousands):
Securities Available for Sale Securities Held to Maturity
------------------------------------------------ ----------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value Cost Gains (Losses) Value
---------- ---------- --------- ---------- --------- ---------- ---------- ---------
2002
- ----
U.S. Treasury and other U.S.
Government agencies $ 182,219 $ 9,960 $ (125) $ 192,054 $ - $ - $ - $ -
Obligations of states and
political subdivisions 71,544 5,458 - 77,002 153,707 13,662 - 167,369
Mortgage-backed securities 937,753 9,082 (1,620) 945,215 395,390 15,379 (88) 410,681
Other securities 48,299 - - 48,299 100 - - 100
---------- ---------- --------- ---------- --------- --------- ---------- ---------
Total $1,239,815 $ 24,500 $ (1,745) $1,262,570 $ 549,197 $ 29,041 $ (88) $ 578,150
========== ========== ========= ========== ========= ========= ========== =========
2001
- ----
U.S. Treasury and other U.S.
Government agencies $ 275,250 $ 7,667 $ (1,680) $ 281,237 $ - $ - $ - $ -
Obligations of states and
political subdivisions 94,271 3,562 (77) 97,756 184,368 5,888 (33) 190,223
Mortgage-backed securities 616,044 19,156 (18) 635,182 607,584 23,010 - 630,594
Other securities 46,946 468 (94) 47,320 100 - - 100
---------- ---------- --------- ---------- --------- --------- ---------- ---------
Total $1,032,511 $ 30,853 $ (1,869) $1,061,495 $ 792,052 $ 28,898 $ (33) $ 820,917
========== ========== ========= ========== ========= ========= ========== =========
On January 1, 2000, Trustmark adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended. As allowed by SFAS No. 133, at
the date of initial application of this statement, Trustmark transferred held to
maturity securities with an amortized cost of $237.5 million and a fair value of
$237.8 million into the available for sale category. In addition, Trustmark
transferred held to maturity securities with an amortized cost of $135.1 million
and a fair value of $131.2 million into the trading category. The effect of
adopting SFAS No. 133 is shown as a cumulative effect of a change in accounting
principle and reduced net income by $2.5 million (net of taxes) during the first
quarter of 2000. In order to offset the effect of adopting SFAS No. 133,
Trustmark sold available for sale equity securities which resulted in realized
gains in the first quarter of $4.6 million or an after tax gain of $2.9 million.
These separate transactions allowed Trustmark to reposition the investment
portfolio as well as provide additional liquidity for investment opportunities
in a potentially higher yielding market environment while having an
insignificant impact on consolidated net income during 2000.
Gross gains as a result of calls and dispositions of securities available for
sale were $13.6 million in 2002, $1.5 million in 2001 and $9.4 million in 2000.
During 2002, there were no gross losses on calls and dispositions of these
securities, while $28 thousand and $8 thousand were realized in 2001 and 2000,
respectively.
During 2002, 2001 and 2000, there were no sales of securities held to maturity.
Gross gains of $7 thousand, $968 thousand and $29 thousand were realized on
calls of these securities during 2002, 2001 and 2000, respectively.
Securities with a carrying value of $1.3 billion and $1.6 billion at December
31, 2002 and 2001, respectively, were pledged to collateralize public deposits
and securities sold under agreements to repurchase, and for other purposes as
required or per- mitted by law.
The amortized cost and estimated fair value of securities available for sale and
held to maturity at December 31, 2002, by con- tractual maturity, are shown
below ($ in thousands). Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Securities Securities
Available for Sale Held to Maturity
----------------------- ----------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---------- ---------- --------- ----------
Due in one year or less $ 34,162 $ 35,445 $ 12,185 $ 12,393
Due after one year through five years 153,819 161,864 38,683 42,199
Due after five years through ten years 100,514 106,402 55,873 61,680
Due after ten years 13,567 13,644 47,066 51,197
---------- ---------- --------- ----------
302,062 317,355 153,807 167,469
Mortgage-backed securities 937,753 945,215 395,390 410,681
---------- ---------- --------- ----------
Total $1,239,815 $1,262,570 $ 549,197 $ 578,150
========== ========== ========= ==========
NOTE 5 - LOANS
At December 31, 2002 and 2001, loans consisted of the following ($ in
thousands):
2002 2001
---------- ----------
Real estate loans:
Construction and land development $ 286,500 $ 401,744
Secured by 1-4 family residential properties 1,330,604 1,264,645
Secured by nonfarm, nonresidential properties 811,289 703,674
Loans held for sale 199,680 120,845
Other 112,923 103,305
Loans to finance agricultural production 37,452 33,509
Commercial and industrial 776,510 788,982
Consumer 833,384 887,273
Obligations of states and political subdivisions 162,644 166,342
Other loans 66,380 54,047
---------- ----------
Loans 4,617,366 4,524,366
Less allowance for loan losses 74,771 75,534
---------- ----------
Net loans $4,542,595 $4,448,832
========== ==========
Trustmark does not have any loan concentrations other than those reflected in
the preceding table which exceed 10% of total loans. At December 31, 2002,
Trustmark's geographic loan distribution was concentrated primarily in its
Mississippi and Tennessee markets.
Changes in the allowance for loan losses were as follows ($ in thousands):
2002 2001 2000
------- ------- -------
Balance at January 1 $75,534 $65,850 $65,850
Provision charged to expense 14,107 13,200 10,401
Loans charged off (24,035) (22,698) (17,398)
Recoveries 9,165 7,604 6,997
------- ------- -------
Net charge-offs (14,870) (15,094) (10,401)
Allowance applicable to loans
of acquired banks - 11,578 -
------- ------- -------
Balance at December 31 $74,771 $75,534 $65,850
======= ======= =======
At December 31, 2002 and 2001, the carrying amounts of nonaccrual loans were
$31.6 million and $36.9 million, respectively. Included in these nonaccrual
loans at December 31, 2002 and 2001, are loans that are considered to be
impaired, which totaled $24.2 and $28.9 million, respectively. The specific
allowance related to these impaired loans was not material. The average carrying
amounts of impaired loans during 2002, 2001 and 2000 were $29.9 million, $22.7
million and $12.2 million, respectively. No material amounts of interest income
were recognized on impaired loans or nonaccrual loans for each of the years in
the three-year period ended December 31, 2002.
Trustmark makes loans in the normal course of business to certain directors,
including their immediate families and companies in which they are principal
owners. Such loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons, and do not involve more than the normal
risk of collectability at the time of the transaction. At December 31, 2002 and
2001, total loans to these persons were $62.2 million and $104.8 million,
respectively. During 2002, $572.6 million of new loan advances were made while
repayments were $603 million. Approximately $12.2 million of these loans were
reclassified as a result of directors' retirements or changes in position of
executive officers during the year.
NOTE 6 - PREMISES AND EQUIPMENT
At December 31, 2002 and 2001, premises and equipment are summarized as follows
($ in thousands):
2002 2001
-------- --------
Land $ 22,059 $ 21,302
Buildings and leasehold improvements 105,422 100,981
Furniture and equipment 108,130 98,381
-------- --------
Total cost of premises and equipment 235,611 220,664
Less accumulated depreciation and amortization 131,498 123,506
-------- --------
Premises and equipment, net $104,113 $ 97,158
======== ========
NOTE 7 - INTANGIBLE ASSETS
Goodwill and Other Identifiable Intangible Assets
The changes in the carrying amount of goodwill by segment for the years ended
December 31, 2002 and 2001, are as follows ($ in thousands):
Retail Financial
Banking Services Total
--------- --------- ---------
Balance as of January 1, 2001 $ - $ 11,913 $ 11,913
Additions from business combinations 30,492 - 30,492
Purchase accounting adjustments - (69) (69)
Amortization (433) (899) (1,332)
--------- --------- ---------
Balance as of December 31, 2001 30,059 10,945 41,004
Addition from business combination - 6,638 6,638
Purchase accounting adjustments 438 (52) 386
--------- --------- ---------
Balance as of December 31, 2002 $ 30,497 $ 17,531 $ 48,028
========= ========= =========
Effective January 1, 2002, Trustmark adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." As of the adoption date, Trustmark had unamortized goodwill
in the amount of $41.0 million and unamortized other identifiable intangible
assets, consisting primarily of core deposit intangible assets, in the amount of
$22.2 million. These assets are subject to the provisions of SFAS No. 142.
Trustmark performed a transitional impairment test on its goodwill assets, using
three separate reporting units. Two reporting units were determined by
separating Trustmark's Retail Banking division into its two components,
Somerville and the retail portion of TNB. The third reporting unit, The Bottrell
Insurance Agency, Inc., is a subset of Financial Services. This test, as well as
a subsequent routine impairment test, indicated that no impairment charge was
required. Additionally, no material reclassifications of finite-lived intangible
assets were made as a result of adoption.
The following table sets forth pro forma net income and earnings per share
excluding goodwill amortization for the years ended December 31, 2002, 2001 and
2000 ($ in thousands, except per share data):
Years Ended December 31,
----------------------------------
2002 2001 2000
-------- -------- --------
Net Income:
As reported $121,140 $111,281 $101,737
Goodwill amortization, net of tax - 866 2,560
-------- -------- --------
Pro forma $121,140 $112,147 $104,297
======== ======== ========
Earnings per share:
As reported
Basic $ 1.95 $ 1.72 $ 1.50
Diluted 1.94 1.72 1.50
Pro forma
Basic $ 1.95 $ 1.73 $ 1.54
Diluted 1.94 1.73 1.54
At December 31, 2002 and 2001, other identifiable intangible assets consisted of
the following ($ in thousands):
2002 2001
---------------------- ----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
-------- ------------ -------- ------------
Identifiable Intangible Assets:
Core deposit intangibles $ 38,549 $ 19,261 $ 38,931 $ 16,715
Insurance customer
relationship intangibles 3,180 276 - -
-------- ------------ -------- ------------
Total amortizable 41,729 19,537 38,931 16,715
Pension plan intangible 596 - - -
-------- ------------ -------- ------------
Total $ 42,325 $ 19,537 $ 38,931 $ 16,715
======== ============ ======== ============
During 2002, Trustmark acquired $3.2 million of insurance customer relationship
intangible assets resulting from the acquisition of CSI, which have a weighted
average amortization period of 11.8 years. Trustmark also recorded an intangible
asset related to the unrecognized prior service cost of the pension plan in the
amount of $596 thousand. The value of this unamortized asset is reviewed
annually and adjusted based on the value of the pension plan's assets compared
with its benefit obligation. These additions to the gross carrying amounts were
partially offset by the removal of fully-amortized assets. During 2002 and 2001,
Trustmark recorded $3.2 million and $2.6 million, respectively, of amortization
of other identifiable intangible assets.
Trustmark estimates that amortization expense for intangible assets will be $2.9
million in 2003, $1.9 million in 2004, and $1.7 million per year in 2005, 2006
and 2007.
Mortgage Servicing Rights
The changes in the carrying amount of mortgage servicing rights for the years
ended December 31, 2002 and 2001, are as follows ($ in thousands):
Gross Net
Carrying Valuation Carrying
Amount Allowance Amount
-------- --------- --------
Balance as of January 1, 2001 $ 43,153 $ - $ 43,153
Additions 20,523 - 20,523
Amortization/impairment (8,205) (2,000) (10,205)
-------- --------- --------
Balance as of December 31, 2001 55,471 (2,000) 53,471
Additions 17,376 - 17,376
Amortization/impairment (11,540) (10,480) (22,020)
-------- --------- --------
Balance as of December 31, 2002 $ 61,307 $ (12,480) $ 48,827
======== ========= ========
NOTE 8 - DEPOSITS
At December 31, 2002 and 2001, deposits consisted of the following ($ in
thousands):
2002 2001
---------- ----------
DDA, NOW, MMDA $2,193,422 $2,054,336
Savings 744,386 677,296
Time 1,748,488 1,881,733
---------- ----------
Total deposits $4,686,296 $4,613,365
========== ==========
The aggregate amount of time deposits of $100,000 or more at December 31, 2002,
was $476.4 million.
The maturities of interest-bearing deposits at December 31, 2002, are as follows
($ in thousands):
2003 $1,272,604
2004 274,186
2005 116,437
2006 37,771
2007 and thereafter 47,490
----------
Total time deposits 1,748,488
Interest-bearing deposits with no stated maturity 1,686,568
----------
Total interest-bearing deposits $3,435,056
==========
NOTE 9 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
At December 31, 2002 and 2001, the carrying values of securities sold under
repurchase agreements, by contractual maturity, are as follows ($ in thousands):
2002 2001
-------- --------
Demand/In one day $554,253 $716,803
Term up to 30 days 27,741 26,576
Term of 30 to 90 days 10,999 10,323
Term of 90 days and over 42,000 48,023
-------- --------
Total $634,993 $801,725
======== ========
The weighted average interest rates for these repurchase agreements were 1.12%
and 1.64% at December 31, 2002 and 2001, respectively. Specific U.S. Treasury
and other U.S. Government agencies securities with carrying values of $784
million at December 31, 2002, and $874 million at December 31, 2001,
collateralize the repurchase agreements. The fair value of this collateral
approximated $800 million at December 31, 2002, and $897 million at December 31,
2001.
NOTE 10 - BORROWINGS
Short-Term Borrowings
At December 31, 2002 and 2001, short-term borrowings consisted of the following
($ in thousands):
2002 2001
-------- --------
Term federal funds purchased $100,000 $130,000
FHLB advances 107,710 357,911
Treasury tax and loan note option account 45,985 49,999
Other 22,264 20,777
-------- --------
Total $275,959 $558,687
======== ========
Trustmark has received advances from the FHLB, which are classified as
short-term and are collateralized by a blanket lien on Trustmark's
single-family, multi-family, home equity and commercial mortgage loans. These
advances consist primarily of a single advance for $100 million, which matures
in October 2003 and has a floating rate of 1.35%, which is reset quarterly based
on the three-month LIBOR. The remaining advances are expected to be repaid
during 2003 and have interest rates ranging from 5.18% to 6.80%.
The treasury tax and loan note option account, which is collateralized by a
pledge of U.S. Treasury, U.S. Government agencies and state, county and
municipal securities as required by the Department of the Treasury, is an
open-ended interest-bearing note maintained at the Federal Reserve Bank.
Interest is charged at the weekly Federal Funds rate minus 25 basis points.
Long-Term Federal Home Loan Bank Advances
Trustmark has received noncallable advances totaling $475 million at December
31, 2002, and $225 million at December 31, 2001, which are collateralized by a
blanket lien on Trustmark's single-family, multi-family, home equity and
commercial mortgage loans. Advances totaling $50 million mature in 2004, $350
million in 2005 and $75 million in 2006 and have fixed and floating rates
ranging from 1.78% to 5.75%. Floating rate advances are reset quarterly based on
the three-month LIBOR. At December 31, 2002, Trustmark had $551.1 million
available in unused FHLB advances.
Line of Credit
In June 2002, Trustmark entered into a two-year line of credit arrangement
enabling borrowings up to $50 million, subject to certain financial covenants.
At December 31, 2002, Trustmark had not utilized this line of credit.
NOTE 11 - INCOME TAXES
The income tax provision included in the statements of income is as follows ($
in thousands):
2002 2001 2000
------- ------- -------
Current
Federal $60,969 $49,992 $46,651
State 9,103 7,043 5,004
Deferred
Federal (4,364) 2,782 2,150
State (740) 329 319
------- ------- -------
Income tax provision $64,968 $60,146 $54,124
======= ======= =======
The income tax provision differs from the amount computed by applying the
statutory federal income tax rate of 35% to income before income taxes as a
result of the following ($ in thousands):
2002 2001 2000
------- ------- -------
Income tax computed at statutory tax rate $65,138 $59,999 $55,414
Tax exempt interest (5,753) (6,384) (5,548)
Nondeductible interest expense 357 703 856
State income taxes, net 5,436 4,792 3,460
Other (210) 1,036 (58)
------- ------- -------
Income tax provision $64,968 $60,146 $54,124
======= ======= =======
Temporary differences between the financial statement carrying amounts and the
tax basis of assets and liabilities give rise to the following net deferred tax
assets at December 31, 2002 and 2001, which are included in other assets ($ in
thousands):
2002 2001
------- -------
Deferred tax assets
Allowance for loan losses $28,467 $28,865
Deferred compensation 6,860 6,572
Pension plan 814 -
Other 5,836 3,442
------- -------
Total gross deferred tax asset 41,977 38,879
------- -------
Deferred tax liabilities
Unrealized gains 8,704 11,441
Pension plan - 882
Investment securities 1,100 978
Accelerated depreciation and amortization 4,965 2,823
Capitalized mortgage servicing rights 890 3,300
Intangible assets 5,045 3,813
Other 861 2,760
------- -------
Total gross deferred tax liability 21,565 25,997
------- -------
Net deferred tax asset $20,412 $12,882
======= =======
Trustmark has evaluated the need for a valuation allowance and, based on the
weight of the available evidence, has determined that it is more likely than not
that all deferred tax assets will be realized.
NOTE 12 - EMPLOYEE BENEFIT PLANS
Pension Plan
Trustmark maintains a defined noncontributory pension plan which covers
substantially all employees with more than one year of service. The plan
provides pension benefits that are based on the length of credited service and
final average compensation as defined in the plan. Trustmark's policy is to fund
amounts allow- able for federal income tax purposes. The following tables
present information regarding the benefit obligation, plan assets, funded status
of the plan and net periodic pension costs ($ in thousands):
December 31,
--------------------
2002 2001
------- -------
Change in projected benefit obligation
Benefit obligation, beginning of year $64,201 $54,822
Service cost 2,781 3,042
Interest cost 4,862 4,194
Actuarial loss 4,706 4,836
Benefit payments (4,580) (2,196)
Prior service cost 259 (497)
------- -------
Projected benefit obligation, end of year 72,229 64,201
Change in plan assets
Fair value of plan assets, beginning of year 58,751 62,185
Actual return on plan assets (1,277) (2,874)
Employer contributions 2,339 1,636
Benefit payments (4,580) (2,196)
------- -------
Fair value of plan assets, end of year 55,233 58,751
------- -------
Funded status of plan assets
Plan assets less than projected benefit obligation (16,996) (5,450)
Remaining unrecognized transition asset - (213)
Unrecognized prior service cost 596 548
Unrecognized net loss 19,338 7,421
------- -------
Prepaid pension assets recorded in balance sheets $ 2,938 $ 2,306
======= =======
Amounts recognized in the balance sheets
Prepaid pension asset recorded in balance sheets $ 2,938 $ 2,306
Accrued minimum pension liability (5,663) -
Intangible asset 596 -
Accumulated comprehensive income 5,067 -
------- -------
Prepaid pension assets recorded in balance sheets $ 2,938 $ 2,306
======= =======
Years Ended December 31,
--------------------------
2002 2001 2000
------ ------ ------
Net periodic pension cost
Service cost - benefits earned during
the period $2,781 $3,042 $3,028
Interest cost on projected benefit obligation 4,862 4,194 3,709
Expected return on plan assets (5,935) (5,721) (5,459)
Amortization of prior service cost 212 262 262
Amortization of net obligation at transition (213) (364) (363)
Recognized net actuarial gain - - (436)
------ ------ ------
Net periodic benefit cost $1,707 $1,413 $ 741
====== ====== ======
Weighted-average assumptions as of end of year
Discount rate 7.00% 7.50% 7.75%
Expected long-term return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 4.00% 4.00% 4.00%
Post Retirement Benefits
Trustmark does not provide any significant post-retirement or post-employment
benefits to associates at normal retirement other than pension benefits.
Defined Contribution Plans
Trustmark provides its employees with a self-directed 401(k) retirement plan
which allows employees to contribute a percentage of base pay, within limits
provided by the Internal Revenue Code and accompanying regulations, into the
plan. Trustmark's contributions to this plan were $3.0 million in 2002 and $2.7
million in both 2001 and 2000.
Deferred Compensation Plan
Trustmark provides a deferred compensation plan covering its directors, key
executives and senior officers. Participants in the deferred compensation plan
can defer a portion of their compensation for payment after retirement. Life
insurance contracts have been purchased which may be used to fund payments under
the plan. Net expenses related to this plan were $761 thousand in 2002 and $1.6
million in 2001. As a result of death benefits received in 2000, a net gain in
the amount of $137 thousand was realized.
Long-Term Incentive Plan
Trustmark's incentive stock plan provides for the granting of incentive stock
options and nonqualified stock options. Stock options are granted at an exercise
price equal to the market value of the stock at the date of grant and are
exercisable for a period not to exceed ten years from the date of grant. The
maximum number of shares that can be granted under this plan is 7.0 million
shares. The following tables summarize Trustmark's option activities for 2002,
2001 and 2000:
2002 2001 2000
------------------- ------------------- -----------------
Average Average Average
Option Option Option
Shares Price Shares Price Shares Price
--------- ------- --------- ------- ------- -------
Outstanding, beginning of year 1,232,100 $ 20.27 880,500 $ 19.70 556,250 $ 20.78
Granted 392,350 25.43 371,100 21.68 339,250 18.06
Exercised (114,414) 17.08 (11,500) 21.67 - -
Forfeited (59,875) 22.13 (8,000) 20.68 (15,000) 22.37
--------- --------- -------
Outstanding, end of year 1,450,161 21.85 1,232,100 20.27 880,500 19.70
========= ========= =======
Exercisable, end of year 583,401 20.57 423,101 19.32 228,739 19.18
========= ========= =======
Options Outstanding Options Exercisable
- ----------------------------------------------------------- ----------------------
Weighted Weighted
Outstanding Weighted Average Average Exercisable Average
Range of December 31, Remaining Years Exercise December 31, Exercise
Exercise Prices 2002 to Expiration Price 2002 Price
- --------------- ----------- ---------------- -------- ----------- --------
$12.73 - $15.27 55,268 4.4 $ 13.53 55,268 $ 13.53
$17.82 - $20.37 302,750 7.4 18.06 139,571 18.06
$20.38 - $22.91 719,793 7.1 22.21 388,562 22.47
$22.92 - $25.46 372,350 9.3 25.46 - -
--------- -------
1,450,161 7.6 21.85 583,401 20.57
========= =======
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Lending Related
Trustmark makes commitments to extend credit and issues standby and commercial
letters of credit in the normal course of business in order to fulfill the
financing needs of its customers.
Commitments to extend credit are agreements to lend money to customers pursuant
to certain specified conditions. Commitments generally have fixed expiration
dates or other termination clauses. Since many of these commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Trustmark applies the same
credit policies and standards as it does in the lending process when making
these commitments. The collateral obtained is based upon the assessed
creditworthiness of the borrower.
Standby and commercial letters of credit are conditional commitments issued by
Trustmark to insure the performance of a customer to a third party. Essentially,
the same policies regarding credit risk and collateral, which are followed in
the lending process, are used when issuing letters of credit.
Trustmark's maximum exposure to credit loss in the event of nonperformance by
the other party for loan commitments and letters of credit is represented by the
contractual or notional amount of those instruments. The following table shows
the contractual or notional amounts for lending related financial instruments
whose contractual amounts represent credit risk at December 31 ($ in thousands):
Contract or
Notional Amount
----------------------------
2002 2001
---------- ---------
Loan commitments $1,130,356 $ 904,429
Standby and commercial letters of
credit written $ 70,387 $ 38,864
Lease Commitments
Trustmark currently has lease commitments for banking premises and equipment,
which expire from 2003 to 2014. These commitments contain renewal options, which
extend the base lease from 5 to 20 years. Rental expense approximated $3.7
million in 2002, $3.6 million in 2001 and $3.7 million in 2000.
At December 31, 2002, future minimum rental commitments under noncancellable
leases for banking premises and general offices and equipment are as follows ($
in thousands):
2003 $2,072
2004 1,805
2005 784
2006 377
2007 296
Thereafter 485
------
Total $5,819
======
Early Retirement Program
In December 2002, Trustmark introduced a voluntary early retirement program for
eligible associates. The cost of this program, which is expected to be completed
during the first quarter of 2003, will depend on the number of associates
accepting the early retirement opportunity and will result in a charge to
Trustmark's results of operations in 2003.
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.
NOTE 14 - SHAREHOLDERS' EQUITY
Regulatory Capital
Trustmark and TNB are subject to minimum capital requirements which are
administered by various federal regulatory agencies. These capital requirements,
as defined by federal guidelines, involve quantitative and qualitative measures
of assets, liabilities and certain off-balance sheet instruments. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the financial statements of Trustmark and TNB.
Management believes, as of December 31, 2002, that Trustmark and TNB meet all
capital adequacy requirements to which they are subject. At December 31, 2002,
the most recent notification from the Office of the Comptroller of the Currency
(OCC) categorized TNB as well capitalized. To be categorized as well
capitalized, TNB must maintain minimum total risk-based, Tier 1 risk-based and
Tier 1 leverage ratios (defined in applicable regulations) as set forth in the
table below. There are no significant conditions or events that have occurred
since the OCC's notification that Management believes have affected TNB's
present classification.
Trustmark's and TNB's actual regulatory capital amounts and ratios are presented
in the table below ($ in thousands):
Minimum Regulatory
Actual Minimum Regulatory Provision to be
Regulatory Capital Capital Required Well Capitalized
------------------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------ -------- ----- -------- ------
At December 31, 2002:
Total Capital (to Risk Weighted Assets)
Trustmark Corporation $651,612 13.99% $372,504 8.00% - -
Trustmark National Bank 632,096 13.86% 364,835 8.00% $456,043 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation $593,204 12.74% $186,252 4.00% - -
Trustmark National Bank 574,910 12.61% 182,417 4.00% $273,626 6.00%
Tier 1 Capital (to Average Assets)
Trustmark Corporation $593,204 8.72% $204,044 3.00% - -
Trustmark National Bank 574,910 8.64% 199,562 3.00% $332,603 5.00%
At December 31, 2001:
Total Capital (to Risk Weighted Assets)
Trustmark Corporation $655,486 14.40% $364,071 8.00% - -
Trustmark National Bank 640,354 14.39% 355,983 8.00% $444,979 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation $598,202 13.14% $182,035 4.00% - -
Trustmark National Bank 584,541 13.14% 177,991 4.00% $266,987 6.00%
Tier 1 Capital (to Average Assets)
Trustmark Corporation $598,202 8.74% $205,398 3.00% - -
Trustmark National Bank 584,541 8.73% 200,939 3.00% $334,898 5.00%
Common Stock Repurchase Program
On October 15, 2002, the Board of Directors of Trustmark authorized the newest
plan to repurchase up to 5% of common stock, or approximately 3.1 million
shares, subject to market conditions and management discretion. Collectively,
the capital management plans adopted by Trustmark since 1998 have authorized the
repurchase of 18.5 million shares of common stock. Pursuant to these plans,
Trustmark has repurchased approximately 15.6 million shares at a cost of $325.7
million, including 3.3 million shares during 2002 at a cost of $78.7 million.
The current remaining authorization is approximately 2.9 million shares.
Authorization of Preferred Shares
On April 9, 2002, the shareholders approved a proposal by the Board of Directors
to amend the Articles of Incorporation to authorize the issuance of up to 20
million preferred shares with no par value. The Board of Directors believes that
authorizing preferred shares for potential issuance is advisable and in the best
interests of Trustmark. The ability to issue preferred shares in the future will
provide Trustmark with additional financial and management flexibility for
general corporate and acquisition purposes. As of December 31, 2002, no such
shares have been issued.
Dividends
Dividends paid by Trustmark are substantially funded from dividends received
from TNB. Approval by TNB's regulators 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 of the preceding two years. During the
fourth quarter of 2002, TNB applied for and received approval from its
regulators to pay an additional $100.0 million in dividends during 2003. Based
on this approval, TNB will have available in 2003 approximately $33.7 million
plus its net income for that year to pay as dividends.
Comprehensive Income
Comprehensive income is the change in equity during a period from transactions
and other events and circumstances from nonowner sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners.
In addition to net income, Trustmark has identified changes related to other
nonowner transactions in the Consolidated Statements of Changes in Shareholders'
Equity. Changes in other nonowner transactions consist of changes in the fair
value on securities available for sale, cash flow hedges and a minimum pension
liability.
In the calculation of comprehensive income, certain reclassification adjustments
are made to avoid duplicating items that are displayed as part of net income and
other comprehensive income in that period or earlier periods. The following
table reflects the reclassification amounts and the related tax effects of
changes in fair value on securities available for sale, cash flow hedges and a
minimum pension liabilty for the years ended December 31, 2002, 2001 and 2000 ($
in thousands):
Accumulated
Other
Before-Tax Tax Comprehensive
Amount Effect Income
Accumulated other comprehensive income: ---------- ------- -------------
Balance, January 1, 2000 $ 3,860 $(1,496) $ 2,364
Net change in fair value of securities available for sale 22,217 (8,498) 13,719
Net change in fair value of cash flow hedges (764) 292 (472)
Less adjustment for net gains included in net income (9,388) 3,591 (5,797)
---------- ------- -------------
Balance, December 31, 2000 15,925 (6,111) 9,814
Net change in fair value of securities available for sale 14,772 (5,650) 9,122
Net change in fair value of cash flow hedges 2,068 (791) 1,277
Less adjustment for net gains included in net income (2,448) 936 (1,512)
---------- ------- -------------
Balance, December 31, 2001 30,317 (11,616) 18,701
Net change in fair value of securities available for sale 7,341 (2,808) 4,533
Net change in fair value of cash flow hedges (6,107) 2,336 (3,771)
Minimum pension liability adjustment (5,067) 1,938 (3,129)
Less adjustment for net gains included in net income (13,568) 5,190 (8,378)
---------- ------- -------------
Balance, December 31, 2002 $ 12,916 $(4,960) $ 7,956
========== ======= =============
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of financial instruments at
December 31, 2002 and 2001, are as follows ($ in thousands):
2002 2001
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
Financial Assets:
Cash and short-term investments $ 381,384 $ 381,384 $ 466,300 $ 466,300
Securities available for sale 1,262,570 1,262,570 1,061,495 1,061,495
Securities held to maturity 549,197 578,150 792,052 820,917
Net loans 4,542,595 4,636,282 4,448,832 4,515,204
Interest rate contracts 730 730 9,278 9,278
Financial Liabilities:
Deposits 4,686,296 4,713,394 4,613,365 4,639,695
Short-term liabilities 1,230,937 1,230,937 1,596,193 1,596,193
Long-term FHLB advances 475,000 507,031 225,000 267,252
The methodology and significant assumptions used in estimating the fair values
presented above are as follows:
In cases where quoted market prices are not available, fair values are generally
based on estimates using present value techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
for those assets or liabilities cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. The estimated fair value of financial instruments
with immediate and shorter-term maturities (generally 90 days or less) is
assumed to be the same as the recorded book value. All nonfinancial instruments,
by definition, have been excluded from these disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of Trustmark.
Cash and Short-Term Investments
The carrying amounts for cash and due from banks and short-term investments
(federal funds sold and securities purchased under reverse repurchase
agreements) approximate fair values due to their immediate and shorter-term
maturities.
Securities
Estimated fair values for securities available for sale and securities held to
maturity are based on quoted market prices where available. If quoted market
prices are not available, estimated fair values are based on quoted market
prices of comparable instruments.
Loans
The fair values of loans are estimated for portfolios of loans with similar
financial characteristics. For variable rate loans that reprice frequently with
no significant change in credit risk, fair values are based on carrying values.
The fair values of certain mortgage loans, such as 1-4 family residential
properties, are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences in loan
characteristics. The fair values of other types of loans are estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Interest Rate Contracts
The fair value of interest rate contracts, such as caps and floors, is based on
standard pricing methodology using current market rates and volatility.
Deposits
The fair values of deposits with no stated maturity, such as noninterest-bearing
demand deposits, NOW accounts, MMDA products and savings accounts are, by
definition, equal to the amount payable on demand which is the carrying value.
Fair values for certificates of deposit are based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities.
Short-Term Liabilities
The carrying amounts for federal funds purchased, securities sold under
repurchase agreements and other borrowings approximate their fair values.
Long-Term FHLB Advances
Fair values for long-term FHLB advances are based on the discounted value of
contractual cash flows.
Off-Balance Sheet Instruments
The fair values of loan commitments and letters of credit approximate the fees
currently charged for similar agreements or the estimated cost to terminate or
otherwise settle similar obligations. The fees associated with these financial
instruments, or the estimated cost to terminate, as applicable, are immaterial.
NOTE 16 - DERIVATIVE FINANCIAL INSTRUMENTS
Trustmark uses derivatives to reduce interest rate exposures by mitigating the
interest rate risk of mortgage loans held for sale and mortgage loans in
process. Trustmark regularly enters into derivative financial instruments in the
form of forward contracts, as part of its normal asset/liability management
strategies. Forward contracts are agreements to purchase or sell securities or
other money market instruments at a future specified date at a specified price
or yield. Trustmark's obligations under forward contracts consist of commitments
to deliver mortgage loans, originated and/or purchased, in the secondary market
at a future date. The credit risk inherent in forward contracts arises from the
potential inability of counterparties to meet the terms of their contracts;
therefore, the contractual or notional amounts of these contracts do not
represent Trustmark's actual exposure to credit loss. Trustmark's off-balance
sheet obligations under forward contracts totaled $283.2 million as of December
31, 2002, with an unrealized loss of $3.0 million, net of deferred taxes, which
is included in other comprehensive income in shareholders' equity.
Trustmark continues a risk controlling strategy that utilizes caps and floors.
The intent of utilizing these financial instruments is to reduce the risk
associated with the effects of significant movements in interest rates. Caps and
floors, which are not designated as hedging instruments, are options linked to a
notional principal amount and an underlying indexed interest rate. Exposure to
loss on these options will increase or decrease as interest rates fluctuate. At
December 31, 2002, Trustmark had $300 million notional amount of interest rate
caps with carrying values totaling $730 thousand. These caps mature in 2006 and
are linked to the three-month LIBOR, with a strike rate of 6%. Trustmark did not
have any interest rate floors at December 31, 2002.
During 2002, Trustmark sold its 5-year floor contract and purchased an
additional 5-year cap contract with a notional amount of $100 million. Trustmark
received payments of $1.3 million on the interest rate floor during 2002,
compared with $982 thousand during 2001, as the interest rate floor contract
reached its strike price. These payments have been recorded as other interest
income. No such payments were received in 2000.
NOTE 17 - MANAGED LOANS
During 2002, Trustmark sold $1.049 billion of residential mortgage loans in
securitization transactions compared with $1.226 billion in 2001. Pretax gains
on these sales totaled $8.4 million in 2002 compared with $8.1 million in 2001
and were recorded in noninterest income. Trustmark receives annual servicing fee
income approximating 0.35% of the outstanding balance of the underlying loans.
Mortgage servicing rights are discussed further in Note 7 - Intangible Assets.
The investors and the securitization trusts have no recourse to the assets of
Trustmark for failure of debtors to pay when due.
In the determination of the value of mortgage servicing rights at the dates of
securitization, certain key economic assumptions are made. During 2002, mortgage
servicing rights were added based on discount rates ranging from 7% to 10%,
prepayment rates ranging from 7% to 30% CPR and weighted average lives ranging
from four to eight years.
At December 31, 2002, the fair value of mortgage servicing rights was $48.8
million, with a weighted average life of approximately four years. Based on this
information, the following table illustrates the sensitivity of the fair value
of mortgage servicing rights to immediate 10% and 20% adverse changes in the
following key assumptions ($ in thousands):
Impact on Fair Value
(Adverse Change)
--------------------
Assumptions Range 10% 20%
- --------------- ------------- ------- -------
Discount Rate 7% - 12% $(2,169) $(3,366)
Prepayment Rate 12% - 24% CPR (4,035) (6,436)
These sensitivities are hypothetical and should not be considered to predict
actual future performance. As changes in assumptions and changes in fair value
may not be linear, it is not possible to extrapolate the impact of other
scenarios from these projections. Also, changes in one assumption may result in
changes in other assumptions, which might magnify or counteract the
sensitivities.
NOTE 18 - SEGMENT INFORMATION
Trustmark has four reportable segments: Retail Banking, Commercial Banking,
Financial Services and Treasury & Other. The Retail Banking 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 Banking division provides various financial products and services
to corporate and middle-market clients. Included among these products and
services are specialized services for commercial and residential real estate
development lending, indirect automobile financing and other specialized lending
services. Financial Services includes trust and fiduciary services, discount
brokerage services, insurance services, as well as credit card and mortgage
services. Also included in this segment is a selection of investment management
services including Trustmark's proprietary mutual fund family. Treasury & Other
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, marketing and the
controller's department. Treasury & Other also includes expenses such as
corporate overhead and amortization of intangible assets.
Trustmark evaluates performance and allocates resources based on the profit or
loss of the individual segments. Trustmark uses matched maturity transfer
pricing to assign cost of funding to assets and earnings credits to liabilities
with a corresponding offset to Treasury & Other. Trustmark allocates noninterest
expense based on various activity-based costing statistics. Excluding internal
funding, Trustmark does not have intercompany revenues or expenses.
Additionally, segment income tax expense is calculated using the marginal tax
rate. The difference between the marginal and effective tax rate is included in
Treasury & Other.
The following table discloses financial information by segment for the years
ended December 31, 2002, 2001 and 2000 ($ in thousands):
Retail Commercial Financial Treasury
2002 Banking Banking Services & Other Total
- ---- ---------- ---------- ---------- ---------- ----------
Net interest income from external customers $ 52,517 $ 102,584 $ 68,941 $ 68,144 $ 292,186
Internal funding 96,287 (55,240) (25,248) (15,799) -
---------- ---------- ---------- ---------- ----------
Net interest income 148,804 47,344 43,693 52,345 292,186
Provision for loan losses 5,940 5,828 1,828 511 14,107
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses 142,864 41,516 41,865 51,834 278,079
Noninterest income 56,127 645 73,129 11,969 141,870
Noninterest expense 128,111 16,122 75,863 13,745 233,841
---------- ---------- ---------- ---------- ----------
Income before income taxes 70,880 26,039 39,131 50,058 186,108
Income taxes 24,524 8,986 13,973 17,485 64,968
---------- ---------- ---------- ---------- ----------
Segment net income $ 46,356 $ 17,053 $ 25,158 $ 32,573 $ 121,140
========== ========== ========== ========== ==========
Selected Financial Information
Average assets $2,353,117 $1,580,113 $1,118,722 $1,789,840 $6,841,792
Depreciation and amortization $ 5,257 $ 184 $ 22,137 $ 9,293 $ 36,871
2001
- ----
Net interest income from external customers $ 24,861 $ 124,469 $ 50,037 $ 67,537 $ 266,904
Internal funding 119,992 (79,946) (16,012) (24,034) -
---------- ---------- ---------- ---------- ----------
Net interest income 144,853 44,523 34,025 43,503 266,904
Provision for loan losses 6,912 3,814 2,109 365 13,200
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses 137,941 40,709 31,916 43,138 253,704
Noninterest income 54,211 510 66,183 11,086 131,990
Noninterest expense 126,440 15,606 58,066 14,155 214,267
---------- ---------- ---------- ---------- ----------
Income before income taxes 65,712 25,613 40,033 40,069 171,427
Income taxes 22,731 8,844 14,105 14,466 60,146
---------- ---------- ---------- ---------- ----------
Segment net income $ 42,981 $ 16,769 $ 25,928 $ 25,603 $ 111,281
========== ========== ========== ========== ==========
Selected Financial Information
Average assets $2,271,258 $1,591,874 $ 883,977 $2,240,751 $6,987,860
Depreciation and amortization $ 4,856 $ 209 $ 10,940 $ 10,859 $ 26,864
2000
- ----
Net interest income from external customers $ 27,610 $ 128,890 $ 47,455 $ 29,025 $ 232,980
Internal funding 95,034 (92,189) (20,919) 18,074 -
---------- ---------- ---------- ---------- ----------
Net interest income 122,644 36,701 26,536 47,099 232,980
Provision for loan losses 6,620 2,071 1,710 - 10,401
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses 116,024 34,630 24,826 47,099 222,579
Noninterest income 50,637 594 58,475 14,834 124,540
Noninterest expense 110,969 15,824 47,915 14,086 188,794
---------- ---------- ---------- ---------- ----------
Income before income taxes and cumulative
effect of a change in accounting principle 55,692 19,400 35,386 47,847 158,325
Income taxes 19,219 6,699 12,395 15,811 54,124
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of a change
in accounting principle 36,473 12,701 22,991 32,036 104,201
Cumulative effect of a change in accounting
principle (net of tax) - - - (2,464) (2,464)
---------- ---------- ---------- ---------- ----------
Segment net income $ 36,473 $ 12,701 $ 22,991 $ 29,572 $ 101,737
========== ========== ========== ========== ==========
Selected Financial Information
Average assets $2,132,184 $1,509,260 $ 870,981 $2,268,604 $6,781,029
Depreciation and amortization $ 4,190 $ 205 $ 5,789 $ 10,725 $ 20,909
NOTE 19 - TRUSTMARK CORPORATION (Parent Company Only) FINANCIAL INFORMATION
($ in thousands):
BALANCE SHEETS
December 31,
--------------------
2002 2001
-------- --------
Assets
Investment in banks $673,426 $681,326
Other assets 6,254 4,482
-------- --------
Total Assets $679,680 $685,808
======== ========
Liabilities and Shareholders' Equity
Accrued expense $ 146 $ 364
Shareholders' equity 679,534 685,444
-------- --------
Total Liabilities and Shareholders' Equity $679,680 $685,808
======== ========
STATEMENTS OF INCOME
Years Ended December 31,
--------------------------------
2002 2001 2000
-------- -------- --------
Revenue
Dividends received from banks $118,215 $187,570 $123,380
Earnings of subsidiaries over (under) distributions 2,616 (77,202) (27,318)
Other income 697 1,418 9,018
-------- -------- --------
Total Revenue 121,528 111,786 105,080
Expense 388 505 3,343
-------- -------- --------
Net Income $121,140 $111,281 $101,737
======== ======== ========
STATEMENTS OF CASH FLOWS
Years Ended December 31,
--------------------------------
2002 2001 2000
-------- -------- --------
Operating Activities
Net income $121,140 $111,281 $101,737
Adjustments to reconcile net income to net cash
provided by operating activities:
(Increase) decrease in investment in
subsidiaries (2,616) 77,202 27,318
Other (85) 24 (98)
-------- -------- --------
Net cash provided by operating activities 118,439 188,507 128,957
Investing Activities
Net cash paid in business combinations - (78,026) -
Proceeds from sales of securities available for sale 813 1,546 4,933
Purchases of premises and equipment (4,077) - -
-------- -------- --------
Net cash (used) provided by investing activities (3,264) (76,480) 4,933
Financing Activities
Cash dividends (38,210) (36,001) (34,629)
Common stock transactions, net (78,095) (74,386) (100,673)
-------- -------- --------
Net cash used by financing activities (116,305) (110,387) (135,302)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (1,130) 1,640 (1,412)
Cash and cash equivalents at beginning of year 3,885 2,245 3,657
-------- -------- --------
Cash and cash equivalents at end of year $ 2,755 $ 3,885 $ 2,245
======== ======== ========
Trustmark (parent company only) paid income taxes of approximately $70.4 million
in 2002, $55.6 million in 2001 and $49.7 million in 2000. No interest was paid
during 2002, 2001 and 2000.
SELECTED FINANCIAL DATA
($ in thousands except per share data)
Years Ended December 31, 2002 2001 2000 1999 1998
- ---------------------------------------- ---------- ---------- ---------- ---------- ----------
Consolidated Statements of Income
Total interest income $ 405,952 $ 476,146 $ 488,176 $ 447,481 $ 418,720
Total interest expense 113,766 209,242 255,196 205,079 191,900
---------- ---------- ---------- ---------- ----------
Net interest income 292,186 266,904 232,980 242,402 226,820
Provision for loan losses 14,107 13,200 10,401 9,072 7,771
Noninterest income 141,870 131,990 124,540 101,943 86,990
Noninterest expense 233,841 214,267 188,794 186,043 176,941
---------- ---------- ---------- ---------- ----------
Income before income taxes and
cumulative effect of a change in
accounting principle 186,108 171,427 158,325 149,230 129,098
Income taxes 64,968 60,146 54,124 51,236 45,784
---------- ---------- ---------- ---------- ----------
Income before cumulative effect
of a change in accounting principle 121,140 111,281 104,201 97,994 83,314
Cumulative effect of a change in
accounting principle (net of tax) - - (2,464) - -
---------- ---------- ---------- ---------- ----------
Net income $ 121,140 $ 111,281 $ 101,737 $ 97,994 $ 83,314
========== ========== ========== ========== ==========
Per Share Data
Basic earnings per share before
cumulative change $ 1.95 $ 1.72 $ 1.53 $ 1.36 $ 1.14
Cumulative effect of a change
in accounting principle - - (0.03) - -
---------- ---------- ---------- ---------- ----------
Basic earnings per share $ 1.95 $ 1.72 $ 1.50 $ 1.36 $ 1.14
========== ========== ========== ========== ==========
Diluted earnings per share before
cumulative change $ 1.94 $ 1.72 $ 1.53 $ 1.36 $ 1.14
Cumulative effect of a change
in accounting principle - - (0.03) - -
---------- ---------- ---------- ---------- ----------
Diluted earnings per share $ 1.94 $ 1.72 $ 1.50 $ 1.36 $ 1.14
========== ========== ========== ========== ==========
Cash dividends per share $ 0.62 $ 0.56 $ 0.51 $ 0.44 $ 0.35
========== ========== ========== ========== ==========
December 31, 2002 2001 2000 1999 1998
- ---------------------------------------- ---------- ---------- ---------- ---------- ----------
Consolidated Balance Sheets
Total assets $7,138,706 $7,180,339 $6,886,988 $6,743,404 $6,355,190
Securities 1,811,767 1,853,547 2,125,098 2,174,201 1,946,509
Loans 4,617,366 4,524,366 4,143,933 4,014,935 3,702,318
Deposits 4,686,296 4,613,365 4,058,418 3,924,796 3,946,397
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
(unaudited)
($ in thousands except per share data)
2002 1st 2nd 3rd 4th
- ---------------------------------------- ---------- ---------- ----------- ----------
Interest income $ 104,837 $ 103,499 $ 101,421 $ 96,195
Net interest income 73,929 74,791 73,093 70,373
Provision for loan losses 4,307 3,000 3,000 3,800
Income before income taxes 46,618 48,727 46,533 44,230
Net income 30,329 31,403 30,062 29,346
Earnings per share
Basic and Diluted 0.48 0.50 0.49 0.48
2001 1st 2nd 3rd 4th
- ---------------------------------------- ---------- ---------- ---------- ----------
Interest income $ 121,574 $ 123,991 $ 119,457 $ 111,124
Net interest income 58,199 65,893 70,127 72,685
Provision for loan losses 2,400 2,400 3,800 4,600
Income before income taxes 39,888 41,916 44,342 45,281
Net income 25,884 27,279 28,709 29,409
Earnings per share
Basic and Diluted 0.40 0.41 0.44 0.46
PRINCIPAL MARKETS AND PRICES OF TRUSTMARK'S STOCK
Stock Prices
Dividends -------------------------
Per Share High Low
--------- ---------- ----------
2002
- ----------
4th Quarter $ 0.165 $ 24.300 $ 20.350
3rd Quarter 0.150 26.150 21.290
2nd Quarter 0.150 27.140 24.560
1st Quarter 0.150 25.500 23.380
2001
- ----------
4th Quarter $ 0.150 $ 24.820 $ 21.260
3rd Quarter 0.135 24.750 20.450
2nd Quarter 0.135 23.770 18.000
1st Quarter 0.135 22.625 19.375
Trustmark's common stock is listed for trading on the NASDAQ stock market as
stock symbol TRMK.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following provides a narrative discussion and analysis of Trustmark
Corporation's (Trustmark) financial condition and results of operations. This
discussion should be read in conjunction with the consolidated financial
statements and the supplemental financial data included elsewhere in this
report.
BUSINESS
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 and Tennessee.
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 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, 2002, Trustmark and
its subsidiaries employed 2,443 full-time equivalent employees.
In 2001, Trustmark began implementation of a new brand position as a "trusted
financial partner" to reflect the move from a bank to a diversified financial
services organization. Trustmark engages in business through its four reportable
segments: Retail Banking, Commercial Banking, Financial Services and Treasury &
Other. The Retail Banking division provides banking services to individuals and
small business customers. The Commercial Banking division provides commercial
lending and other banking services to corporate and middle-market banking
clients. Financial Services offers a full range of services to meet specialized
financial needs of both individuals and corporate clients. Treasury & Other
consists of internal operations, such as asset/liability management activities
including the 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.
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.
CRITICAL ACCOUNTING POLICIES
Trustmark's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
require the use of estimates and assumptions that affect the amounts reported in
those consolidated financial statements. The following is a description of the
accounting policies applied by Trustmark which are deemed "critical." Critical
accounting policies are defined as policies that are important to the portrayal
of Trustmark's financial condition and results of operations and that require
Management's most difficult, subjective or complex judgments. Actual financial
results could differ significantly if different judgments or estimates are
applied in the application of these policies.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level Management and the Board
of Directors believe is adequate to absorb estimated probable losses within the
loan portfolio. A formal analysis is prepared monthly to assess the risk in the
loan portfolio and to determine the adequacy of the allowance for loan losses.
The analysis for loan losses considers any identified impairment and estimates
determined by applying specific allowance factors to the commercial and consumer
loan portfolios.
Commercial loans as well as commercial real estate loans carry an internally
assigned risk grade based on a scale of one to ten. An allowance factor is
assigned to each loan grade based on historical loan losses in addition to other
factors such as the level and trend of delinquencies, classified and criticized
loans and nonperforming loans. Other factors are also taken into consideration
such as local, regional and national economic trends, industry and other types
of concentrations and loan loss trends that run counter to historical averages.
All classified loans greater than $500 thousand are reviewed quarterly by the
Asset Review Department to determine if a higher allowance factor should be
applied to the loan based on a greater level of risk and probability of loss.
Consumer loans carry allowance factors applied to pools of homogeneous loans
such as direct and indirect loans, credit cards, home equity loans, other types
of revolving consumer lines of credit and residential mortgage loans. The
allowance factor applied to each pool is based on historical loan loss trends as
well as current and projected trends in loan losses. Also taken into
consideration are trends in consumer delinquencies, consumer bankruptcies and
the effectiveness of Trustmark's collection function as well as economic
conditions and trends referred to above.
Mortgage Servicing Rights
Mortgage servicing rights are rights to service mortgage loans for others,
whether the loans were acquired through purchase or loan origination. Purchased
mortgage servicing rights are capitalized at cost. For loans originated and sold
where the servicing rights have been retained, Trustmark allocates the cost of
the loan and the servicing right based on their relative fair values. In
determining the fair value of mortgage servicing rights, Trustmark relies on
assumptions regarding factors such as mortgage interest rates, discount rates,
mortgage loan prepayment speeds, market trends and industry demands. Any change
in these assumptions could produce different fair values of mortgage servicing
rights. Impairment, if any, for mortgage servicing rights is recognized through
a valuation allowance with a corresponding charge to noninterest expense that is
determined using estimated fair values with the loans stratified by product type
and term.
Fair Values
Determining the fair value of net assets acquired through business combinations,
including the recognition of intangible assets, involves a high degree of
judgment and complexity. Certain assets, such as loans held for sale, are
accounted for at the lower of cost or fair value. Some of these assets do not
have readily available market quotations and require an estimation of their fair
value. Additionally, certain recorded assets, such as goodwill and core deposit
intangibles, are subject to periodic impairment analysis. As of December 31,
2002, Trustmark had unamortized goodwill totaling $48.0 million and other
identifiable intangible assets subject to amortization totaling $22.8 million.
These intangible assets are evaluated for impairment periodically. Impairment,
if any, for goodwill and other identifiable intangible assets would be charged
to noninterest expense.
BUSINESS COMBINATIONS
In June 2002, The Bottrell Insurance Agency, Inc., a wholly-owned subsidiary of
TNB, acquired Chandler-Sampson Insurance, Inc. (CSI) located in Jackson,
Mississippi. CSI was a regional leader in school, medical malpractice and
mid-market business insurance and had total assets of approximately $2 million.
This business combination, which is not material to Trustmark, was accounted for
under the purchase method of accounting.
During 2001, Trustmark completed its first two interstate business combinations,
with Barret Bancorp, Inc. (Barret) in Barretville, Tennessee, and with Nashoba
Bancshares, Inc. (Nashoba) in Germantown, Tennessee, both in the greater
Memphis, Tennessee area. On April 6, Trustmark acquired Barret, the holding
company for Peoples Bank in Barretville, Tennessee, and Somerville Bank & Trust
Company in Somerville, Tennessee, which collectively had 13 offices and $508
million in total assets. The shareholders of Barret received approximately 2.4
million shares of Trustmark's common stock as well as $51 million in cash. On
December 14, Trustmark completed its acquisition of Nashoba, paying Nashoba's
shareholders $28 million in cash. Nashoba was the holding company for Nashoba
Bank and at the merger date had three offices and $163 million in total assets.
Both business combinations were accounted for under the purchase method of
accounting.
Trustmark's consolidated financial statements include the results of operations
for the above business combinations from the respective merger dates. The pro
forma impact of these acquisitions on Trustmark's results of operations is
insignificant.
FINANCIAL SUMMARY HIGHLIGHTS
Trustmark's net income for the year ended December 31, 2002, totaled $121.1
million compared with $111.3 million for 2001 and $101.7 million for 2000. Basic
earnings per share were $1.95 for 2002, an increase of 13.4% when compared with
$1.72 for 2001. Basic earnings per share were $1.50 for 2000. Diluted earnings
per share were $1.94 for 2002, $1.72 for 2001 and $1.50 for 2000. Trustmark
achieved a return on average assets of 1.77%, a return on average equity of
17.93% and an efficiency ratio of 51.63% for the year ended December 31, 2002.
These compared with 2001 ratios of 1.59% for return on average assets, 16.98%
for return on average equity and 53.56% for the efficiency ratio, while in 2000
the return on average assets was 1.50%, the return on average equity was 15.68%
and the efficiency ratio was 52.69%.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the principal component of Trustmark's income stream and
represents the difference, or spread, between interest and fee income generated
from earning assets and the interest expense paid on deposits and borrowed
funds. Fluctuations in interest rates as well as volume and mix changes in
earning assets and interest-bearing liabilities can materially impact net
interest income. The net interest margin (NIM) is computed by dividing fully
taxable equivalent net interest income by average interest-earning assets and
measures how effectively Trustmark utilizes its interest-earning assets in
relationship to the interest cost of funding them. The Yield/Rate Analysis Table
on page 48 shows the average balances for all assets and liabilities of
Trustmark and the interest income or expense associated with earning assets and
interest-bearing liabilities. The yields and rates have been computed based upon
interest income and expense adjusted to a fully taxable equivalent (FTE) basis
using a 35% federal marginal tax rate for all periods shown. Trading accounts
with average balances of $11 thousand in 2002, $69 thousand in 2001 and $7.5
million in 2000 have been included in taxable securities available for sale.
Nonaccruing loans have been included in the average loan balances and interest
collected prior to these loans having been placed on nonaccrual has been
included in interest income. Loan fees included in interest associated with the
average loan balances are immaterial.
Yield/Rate Analysis Table
($ in thousands)
Years Ended December 31,
-----------------------------------------------------------
2002 2001
---------------------------- ----------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------ ---------- -------- ------
Assets
Interest-earning assets:
Federal funds sold and securities purchased
under reverse repurchase agreements $ 26,264 $ 424 1.61% $ 24,629 $ 921 3.74%
Securities available for sale:
Taxable 885,081 50,426 5.70% 1,078,588 68,174 6.32%
Nontaxable 81,883 6,522 7.96% 91,750 7,289 7.94%
Securities held to maturity:
Taxable 588,193 39,136 6.65% 835,946 55,797 6.67%
Nontaxable 89,698 7,120 7.94% 90,867 7,269 8.00%
Loans, net of unearned income 4,544,611 311,376 6.85% 4,302,485 346,571 8.06%
---------- -------- ---------- --------
Total interest-earning assets 6,215,730 415,004 6.68% 6,424,265 486,021 7.57%
Cash and due from banks 280,543 258,776
Other assets 421,037 376,469
Allowance for loan losses (75,518) (71,650)
---------- ----------
Total Assets $6,841,792 $6,987,860
========== ==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits $ 957,410 $ 11,991 1.25% $ 795,890 $ 19,864 2.50%
Savings deposits 735,885 4,840 0.66% 637,973 7,759 1.22%
Time deposits 1,819,130 62,228 3.42% 1,895,677 98,733 5.21%
Federal funds purchased and securities
sold under repurchase agreements 788,618 12,652 1.60% 1,117,059 42,390 3.79%
Short-term borrowings 384,481 8,206 2.13% 495,607 22,167 4.47%
Long-term FHLB advances 327,054 13,849 4.23% 351,301 18,329 5.22%
---------- -------- ---------- --------
Total interest-bearing liabilities 5,012,578 113,766 2.27% 5,293,507 209,242 3.95%
---------- ----------
Noninterest-bearing demand deposits 1,086,487 966,437
Other liabilities 66,996 72,478
Shareholders' equity 675,731 655,438
---------- ----------
Total Liabilities and Shareholders' Equity $6,841,792 $6,987,860
========== ==========
Net Interest Margin 301,238 4.85% 276,779 4.31%
Less tax equivalent adjustments:
Investments 4,775 5,095
Loans 4,277 4,780
-------- --------
Net Interest Margin per Annual Report $292,186 $266,904
======== ========
Year Ended December 31,
----------------------------
2000
----------------------------
Average Yield/
Balance Interest Rate
---------- -------- ------
Assets
Interest-earning assets:
Federal funds sold and securities purchased
under reverse repurchase agreements $ 32,496 $ 2,155 6.63%
Securities available for sale:
Taxable 1,060,986 71,876 6.77%
Nontaxable 68,754 5,765 8.38%
Securities held to maturity:
Taxable 938,793 61,866 6.59%
Nontaxable 77,015 6,086 7.90%
Loans, net of unearned income 4,079,870 348,997 8.55%
---------- --------
Total interest-earning assets 6,257,914 496,745 7.94%
Cash and due from banks 268,544
Other assets 320,329
Allowance for loan losses (65,758)
----------
Total Assets $6,781,029
==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits $ 661,889 $ 23,641 3.57%
Savings deposits 640,557 11,189 1.75%
Time deposits 1,745,591 91,499 5.24%
Federal funds purchased and securities
sold under repurchase agreements 1,212,016 68,618 5.66%
Short-term borrowings 878,275 56,837 6.47%
Long-term FHLB advances 51,230 3,412 6.66%
---------- --------
Total interest-bearing liabilities 5,189,558 255,196 4.92%
----------
Noninterest-bearing demand deposits 880,020
Other liabilities 62,429
Shareholders' equity 649,022
----------
Total Liabilities and Shareholders' Equity $6,781,029
==========
Net Interest Margin 241,549 3.86%
Less tax equivalent adjustments:
Investments 4,148
Loans 4,421
--------
Net Interest Margin per Annual Report $232,980
========
Management has strategically reduced Trustmark's exposure to future increases in
interest rates by restructuring the balance sheet and utilizing interest rate
contracts. Balance sheet restructuring has occurred by reducing Trustmark's
utilization of wholesale funding, which includes short-term borrowings such as
federal funds purchased, repurchase agreements and short-term FHLB advances,
while increasing the reliance on liquidity provided by maturing investments.
Also, Trustmark has utilized longer term, fixed rate advances from the FHLB.
Trustmark will continue to manage the overall risk exposure present during
significant movements in interest rates and reduce the impact of interest rate
movement on net interest income. For additional discussion, see Market/Interest
Rate Risk Management on page 57.
Net interest income-FTE for the year ended December 31, 2002, increased $24.5
million, or 8.8%, when compared with 2001. Excluding business combinations, this
increase would have been $17.5 million, or 6.6%. The continuing decline in
interest rates experienced during 2002 has impacted both assets and liabilities.
While earning asset yields were affected, a greater impact was felt in the cost
of interest-bearing liabilities as Trustmark benefited from being liability
sensitive for a large portion of 2002. This interest sensitivity position
illustrates that Trustmark was generally able to increase net interest income in
a declining rate environment, since a greater proportion of liabilities were
tied to short-term rates than assets. This combination resulted in an overall
positive impact to the NIM of 54 basis points, when comparing 2002 to 2001.
Additionally, during 2002, Trustmark's use of interest rate caps and floors
provided $1.3 million of additional interest income as the floor reached its
strike price during a falling interest rate environment, compared to $982
thousand during 2001.
Average interest-earning assets for 2002 were $6.216 billion, compared with
$6.424 billion in 2001, a decrease of $208.5 million, or 3.2%. This decrease
results from Management's utilization of liquidity provided by maturing
securities to reduce Trustmark's reliance on wholesale funding sources. In
addition, a positive impact to the NIM was realized from the change in mix of
interest earning assets as Trustmark effectively utilized the liquidity from
maturing lower yielding securities to fund loan growth, which yielded higher
returns than securities during this period. This change in mix is illustrated by
loans as a percent of total earning assets increasing to 71.6% at December 31,
2002, from 69.4% at December 31, 2001. The yield on average earning assets
dropped from 7.57% during 2001 to 6.68% in 2002, a decrease of 89 basis points.
The combination of a decrease in the earning asset base and declining yields
resulted in a decrease in interest income-FTE during 2002 of $71.0 million, or
14.6%, when compared with 2001.
Average interest-bearing liabilities for 2002 totaled $5.013 billion, compared
with $5.294 billion for 2001, a decrease of $280.9 million, or 5.3%. Average
interest-bearing deposits increased while federal funds purchased, repurchase
agreements and borrowings decreased, continuing the trend from the prior year.
This change in mix proved beneficial in reducing interest expense through the
growth of lower cost core deposits versus borrowings. The average rates on
interest-bearing liabilities for 2002 and 2001, were 2.27% and 3.95%,
respectively, a decrease of 168 basis points. As a result of these factors,
total interest expense for 2002 decreased $95.5 million, or 45.6%, when compared
with 2001.
Average interest-earning assets for 2001 were $6.424 billion, compared with
$6.258 billion in 2000, an increase of $166.4 million, or 2.7%. Growth was
centered in average loans, which increased $222.6 million, or 5.5%, when
compared with 2000. Average securities, including trading, for 2001 decreased
$48.4 million, or 2.3%. The yield on average earning assets dropped from 7.94%
in 2000 to 7.57% in 2001, a decrease of 37 basis points. The combination of
growth in the earning asset base and declining yields resulted in a decrease in
interest income-FTE during 2001 of $10.7 million, or 2.2%, when compared with
2000.
Average interest-bearing liabilities for 2001 totaled $5.294 billion compared
with $5.190 billion for 2000, an increase of $103.9 million, or 2.0%. Average
interest-bearing deposits for 2001 increased $281.5 million, or 9.2%, offset by
a decrease in federal funds purchased, repurchase agreements, short-term
borrowings and long-term FHLB advances of $177.6 million, or 8.29%, when
compared with 2000. The average rate on interest-bearing liabilities for 2001
was 3.95%, a decrease of 97 basis points when compared with 2000. As a result of
these factors, interest expense for 2001 decreased $46.0 million, or 18.0%, when
compared with 2000.
Provision for Loan Losses
Trustmark's provision for loan losses totaled $14.1 million in 2002, $13.2
million in 2001 and $10.4 million in 2000. During 2002, the provision for loan
losses equaled 95% of net charge-offs compared with 87% in 2001 and 100% in
2000. As a percentage of average loans, the provision was 0.31% for both 2002
and 2001 compared with 0.25% for 2000. The provision for loan losses reflects
Management's assessment of the adequacy of the allowance for loan losses to
absorb probable losses inherent in the loan portfolio. The amount of provision
for each period is dependent upon many factors including loan growth, net
charge-offs, changes in the composition of the loan portfolio, delinquencies,
Management's assessment of loan portfolio quality, the value of collateral and
general economic factors. See further discussion of the Allowance for Loan
Losses in Critical Accounting Policies beginning on page 46, as well as the
discussion of Loans beginning on page 55.
Noninterest Income
Noninterest income (NII) consists of revenues generated from a broad range of
banking and financial services. NII totaled $141.9 million in 2002 compared with
$132.0 million in 2001 and $124.5 million in 2000. NII represented 25.9% of
total revenues in 2002 versus 21.7% in 2001 and 20.3% in 2000. The components of
noninterest income for the years ended December 31, 2002, 2001 and 2000, and the
percentage change from the prior year are shown in the accompanying table.
Noninterest Income
($ in thousands)
2002 2001 2000
-------------------- -------------------- --------------------
Amount % Change Amount % Change Amount % Change
-------- -------- -------- -------- -------- --------
Service charges on deposit $ 50,056 7.0% $ 46,769 11.7% $ 41,883 10.4%
accounts
Other account charges and fees 28,371 -3.7% 29,473 -8.9% 32,355 5.1%
Insurance commissions 17,837 53.3% 11,635 15.9% 10,043 47.0%
Mortgage servicing fees 17,247 1.9% 16,920 14.5% 14,781 2.9%
Trust service income 9,962 5.7% 9,423 -4.9% 9,912 11.0%
Securities gains 13,568 454.2% 2,448 -73.9% 9,388 791.3%
Gains on sales of loans 9,353 2.1% 9,163 207.7% 2,978 25.8%
Other income (4,524) -173.5% 6,159 92.5% 3,200 53.4%
-------- -------- --------
Total Noninterest Income $141,870 7.5% $131,990 6.0% $124,540 22.2%
======== ======== ========
The single largest component of noninterest income continues to be service
charges for deposit products and services, which increased 7.0% in 2002 after an
increase of 11.7% in 2001. Excluding business combinations, the increase in 2002
is 4.5% compared with 6.9% in 2001. An increase in overdraft fees during 2001
plus the introduction of courtesy overdraft protection during 2002 combined with
increased transaction volumes during both years accounted for the increases
during 2002 and 2001.
Other account charges and fees totaled $28.4 million in 2002, a decrease of $1.1
million, or 3.7%, when compared with 2001. Decreasing revenues from market
driven products was the primary factor in this decline as reductions were seen
in cash management, brokerage and advisory services and float-related revenues.
Offsetting this decrease were bankcard fees, which increased $1.2 million in
2002, or 14.7%, primarily from growth in debit card usage by individuals and
businesses. In 2001, income from other account charges and fees was $29.5
million, a decrease of $2.9 million when compared with 2000. Similar
circumstances were seen when comparing 2001 to 2000 as declines in products with
market-driven fees were offset by increases in bankcard fees due to increased
usage propelled by intensified sales efforts of the business debit card.
Insurance commissions were $17.8 million in 2002 compared to $11.6 million in
2001 and $10.0 million in 2000. The growth in 2002 equaled $6.2 million, or
53.3%, primarily from the CSI business combination and growth in sales of fixed
annuity products. Trustmark's insurance commissions, including annuity income,
grew 15.9% during 2001 from expanded product lines and distribution channels for
commercial and retail insurance services.
During 2002, mortgage servicing fees totaled $17.2 million, compared to $16.9
million in 2001 and $14.8 million in 2000. The nominal change in mortgage
servicing fees during 2002 was impacted by increased prepayments during the
period, which slowed the overall growth of the mortgage servicing portfolio.
Trustmark serviced mortgage loans with average balances of $3.6 billion in 2002,
$3.5 billion in 2001 and $3.2 billion in 2000.
Trust service income was $10.0 million for 2002, an increase of $539 thousand
when compared with 2001, as continued weakness in capital markets slowed growth
in this area. During 2001, trust service income was $9.4 million, a decrease of
$489 thousand when compared with 2000. Declining market conditions during 2001
contributed to a decline in valuation of assets managed, which directly impacted
corporate trust fees and advisory fees. Trustmark, which continues to be one of
the largest providers of asset management services in Mississippi, held assets
under administration of $6.6 billion at December 31, 2002.
Gains on sales of loans were $9.4 million in 2002, $9.2 million in 2001 and $3.0
million in 2000. During 2002, Trustmark recorded gains of $1.1 million on the
sale of $42 million in high-yielding delinquent GNMA loans from Trustmark's
servicing portfolio. The sale of these loans, which were government guaranteed,
allowed Trustmark to eliminate costly collection efforts. A similar sale of $37
million took place during 2001, yielding a gain of $1.2 million. In addition,
during 2001 a gain of $3.9 million was realized from the sale of $191 million in
mortgage loans with significant prepayment risk. Excluding the impact of these
transactions, gains on sales of loans from secondary marketing activity
experienced volume-driven growth of $4.2 million during 2002 compared with 2001
from an increased volume of branch-originated loans and the continued benefit of
a falling interest rate environment.
Other income during 2002 was a loss of $4.5 million compared with gains of $6.2
million in 2001 and $3.2 million in 2000. For both 2002 and 2001, the variance
is primarily due to valuation adjustments on Trustmark's interest rate caps and
floors. Although the intent of interest rate caps and floors is to provide
protection against excessive interest rate movement over a period of years which
may be detrimental to Trustmark's earnings, fair value accounting is used to
carry derivative financial instruments with changes in value recognized
currently in earnings as other income. The valuation adjustment on these
interest rate contracts was a recognized loss of $6.0 million during 2002
compared with a recorded gain of $4.9 million in 2001. The noncash charge
against income realized in 2002 may be reversed, in whole or in part, if
interest rates increase prior to the expiration of the interest rate caps
currently held by Trustmark, which expire in 2006. The fair value of these
interest rate contracts was $730 thousand, $9.3 million and $1.3 million at
December 31, 2002, 2001 and 2000, respectively.
Securities gains totaled $13.6 million during 2002 compared with $2.4 million
during 2001 and $9.4 million in 2000. The increase experienced during 2002 is
primarily from sales of $216.5 million in available for sale (AFS) securities.
These securities were sold as recent significant price increases provided the
opportunity to restructure a portion of the portfolio to reduce price volatility
in an extremely low interest rate cycle. In addition, securities sold had
performed exceedingly well during a recent bond rally, but also had features
that would have exposed Trustmark to excessive downside price risk during a
period of rising interest rates. Management has always regarded the investment
portfolio as an integral tool in the management of interest rate risk.
Securities gains decreased during 2001 as the volume of sales of securities
declined when compared with 2000. During 2000, securities gains of $8.6 million,
which were realized from sales of AFS securities, offset the effect of adopting
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended. Also in 2000,
securities gains of $793 thousand were realized from the sale of U.S. Treasury
securities with yields from fair values below current funding costs. The
proceeds from this sale were used to reduce Trustmark's short-term borrowings.
This transaction allowed Trustmark to reposition its balance sheet, which
provided liquidity and improvements in the NIM during 2001.
Noninterest Expense
The components of noninterest expense for the years ended December 31, 2002,
2001 and 2000, and the percentage change from the prior year are shown in the
accompanying table on page 52.
Noninterest Expense
($ in thousands)
2002 2001 2000
-------------------- -------------------- --------------------
Amount % Change Amount % Change Amount % Change
-------- -------- -------- -------- -------- --------
Salaries and employee benefits $119,801 8.4% $110,540 10.3% $100,253 1.6%
Net occupancy - premises 12,088 4.4% 11,576 11.3% 10,404 0.8%
Equipment expense 15,085 -3.6% 15,651 0.9% 15,511 5.5%
Services and fees 32,414 7.7% 30,098 14.8% 26,216 0.9%
Amortization/impairment of
intangible assets 24,275 71.8% 14,129 63.9% 8,618 -15.7%
Loan expense 9,765 2.1% 9,560 19.7% 7,987 1.9%
Other expense 20,413 -10.1% 22,713 14.7% 19,805 8.4%
-------- -------- --------
Total Noninterest Expense $233,841 9.1% $214,267 13.5% $188,794 1.5%
======== ======== ========
Trustmark's noninterest expense increased $19.6 million, or 9.1%, in 2002 to
$233.8 million, compared with $214.3 million in 2001 and $188.8 million in 2000.
Included in this increase are $2.8 million from the CSI business combination and
$4.4 million from business combinations completed during 2001. This increase in
noninterest expense is also attributable to Trustmark's recognition of $10.5
million in impairment allowance for mortgage servicing rights in 2002 compared
with $2.0 million for 2001. Growth in the impairment allowance results from the
continued reduction in long-term mortgage rates experienced during 2002 and the
related increase in prepayments of mortgage loans which had a negative impact on
the value of Trustmark's mortgage servicing portfolio. Excluding these items,
total noninterest expense increased $3.8 million, or 1.8%, during 2002 when
compared with 2001.
Control of expenses remains a management priority. Improvement in expense
control is evidenced in Trustmark's efficiency ratio, which decreased to 51.63%
during 2002 from 53.56% in 2001 and 52.69% in 2000. The efficiency ratio is
calculated by dividing total noninterest expense by tax-equivalent net interest
income plus noninterest income, excluding security gains, and demonstrates how
much a company spends for each dollar of revenue earned. Certain transactions
that occurred during the periods have been excluded from the efficiency ratio
calculation. Noninterest expense was reduced for impairment of mortgage
servicing rights of $10.5 million in 2002 and $2.0 million in 2001. During 2000,
noninterest expense was reduced by re-engineering costs of $461 thousand and
litigation settlements of $1.6 million. Noninterest income excluded gains on
sales of loans totaling $1.1 million in 2002, $5.1 million in 2001 and $2.1
million in 2000. Valuation adjustments on interest rate contracts also impacted
noninterest income with losses of $6.0 million in 2002 and gains of $4.9 million
in 2001 and $230 thousand in 2000.
Salaries and employee benefits, the largest category of noninterest expense,
were $119.8 million in 2002, $110.5 million in 2001 and $100.3 million in 2000.
For 2002, salaries and employee benefits increased $9.3 million, or 8.4%.
Excluding business combinations, the increase was $5.0 million, or 4.7%.
Effective 2002, Trustmark changed its discretionary contribution to the employee
401(k) plan to a matching plan. The impact of this change along with normal
annual merit increases and an increase in the cost of health benefits were the
major factors behind the rise in salaries and the cost of employee benefits
during 2002. For 2001, salaries and employee benefits increased $10.3 million,
or 10.3%, over 2000. Excluding business combinations, this increase would have
been $6.5 million, or 6.5%. This change represents normal annual merit increases
along with additional incentive-based compensation and benefit costs related to
medical insurance and the pension plan.
During 2002, net occupancy-premises expense increased $512 thousand, or 4.4%,
following an 11.3% increase during 2001. Business combinations accounted for
over 99% of the increase during 2002. Of the increase in 2001, $554 thousand was
attributable to business combinations. Additional maintenance on existing
premises, higher utility costs and increased leasehold amortization resulting
from Management's evaluation of its lease commitments accounted for the
remaining increase.
Equipment expense totaled $15.1 million in 2002, $15.7 million in 2001 and $15.5
million in 2000. The decrease during 2002 was $566 thousand, or 3.6%, and
illustrated savings from Trustmark's system integration activities completed in
2000 and close control over capital expenditures and service agreements over the
past few years. These savings helped offset the recurring costs added for
applications that have enhanced customer service and improved operating
efficiency.
Services and fees for 2002 totaled $32.4 million compared to $30.1 million for
2001 and $26.2 million for 2000. Additional professional and consulting fees
related to on-going human resource and revenue enhancement projects, legal and
audit-related fees and higher costs for software-related expense contributed to
the increase experienced during 2002. Increased advertising costs related to
Trustmark's new brand position along with higher professional and software fees
contributed to the increase experienced during 2001.
For 2002, amortization/impairment expense associated with intangible assets
totaled $24.3 million compared with $14.1 million in 2001 and $8.6 million in
2000. The increase experienced during 2002 included $10.5 million for additional
impairment of mortgage servicing rights compared with $2.0 million for the prior
period. This noncash charge against income may be reversed, in whole or in part,
if refinancing slows or the expected life of the mortgage servicing portfolio
lengthens. Amortization of mortgage servicing rights increased by $3.3 million
as a result of increased refinancings during a period of historically low
interest rates, which shortened the expected life of the mortgage servicing
portfolio and required a faster amortization of existing mortgage servicing
rights. The growth in amortization of core deposit intangibles and insurance
customer relationship intangibles is attributable to business combinations
completed during 2002 and 2001. These increases were partially offset by the
$1.3 million reduction in goodwill amortization as the result of Trustmark's
adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," which required
Trustmark to discontinue amortization of goodwill effective January 1, 2002. The
$5.5 million increase during 2001, which includes the establishment of a $2.0
million impairment allowance, can be attributed to the increased amortization of
mortgage servicing rights resulting from higher prepayments in the servicing
portfolio during a significantly lower interest rate environment.
Loan expense was $9.8 million in 2002, $9.6 million in 2001 and $8.0 million in
2000. Much of the increase in 2002 and 2001 was attributable to additional
expense related to the mortgage servicing portfolio. This expense has been
impacted during those years by both the growth in the amount of mortgages
serviced as well as the increased payoffs resulting from a lower interest rate
environment.
Other expense totaled $20.4 million in 2002 compared with $22.7 million for 2001
and $19.8 million for 2000. The decrease in 2002 is attributable to the impact
of Management's expense control efforts over various controllable expense
categories, such as travel and entertainment. In addition, more stringent
security measures, along with centralized recovery efforts, led to a decrease in
operational losses when compared to 2001. Growth in various discretionary
spending accounts led to the increase seen in 2001 when compared with 2000.
Income Taxes
For the year ended December 31, 2002, Trustmark's combined effective tax rate
was 34.9%, compared with 35.1% for 2001 and 35.0% for 2000. The slight decrease
in Trustmark's effective tax rate for 2002 is due to immaterial changes in
various permanent items as a percentage of pretax income.
LIQUIDITY
The liquidity position of Trustmark is monitored on a daily basis by Trustmark's
Treasury department. In addition, the Asset/Liability Committee reviews
liquidity on a regular basis and approves any changes in strategy that are
necessary as a result of anticipated balance sheet or cash flow changes. Also,
on a monthly basis, Management compares Trustmark's liquidity position to
established corporate policies. Trustmark was able to improve overall liquidity
capacity over the last year, as indicated by the reduction in the loan to
deposit ratio and reliance on wholesale funding. The ability to maintain
consistent cash flows from operations as well as adequate capital also enhances
Trustmark's liquidity.
The primary source of liquidity on the asset side of the balance sheet are
maturities and cash flows from both loans and securities, as well as the ability
to sell certain loans and securities. With mortgage rates at historical lows,
increased prepayments on mortgage loans have also provided an additional source
of liquidity for Trustmark. Liquidity on the liability side of the balance sheet
is generated primarily through growth in core deposits. To provide additional
liquidity, Trustmark utilizes economical short-term wholesale funding
arrangements for federal funds purchased and securities sold under repurchase
agreements in both regional and national markets. At December 31, 2002, these
arrangements gave Trustmark approximately $1.5 billion in borrowing capacity. In
addition, Trustmark maintains a borrowing relationship with the FHLB, which
provided $107.7 million in short-term advances and $475.0 million in long-term
advances at December 31, 2002, compared with $357.9 million in short-term
advances and $225.0 million in long-term advances at December 31, 2001. These
advances are collateralized by a blanket lien on Trustmark's single-family,
multi-family, home equity and commercial mortgage loans. Under the existing
borrowing agreement, Trustmark has $551.1 million available in unused FHLB
advances. Another borrowing source is the Federal Reserve Discount Window
(Discount Window). At December 31, 2002, Trustmark had approximately $541
million available in borrowing capacity at the Discount Window from pledges of
auto loans and securities. In June 2002, Trustmark entered into a two-year line
of credit arrangement enabling borrowings up to $50 million, subject to certain
financial covenants. At December 31, 2002, Trustmark had not drawn upon this
line of credit.
On April 9, 2002, the shareholders approved a proposal by the Board of Directors
to amend the Articles of Incorporation to authorize the issuance of up to 20
million preferred shares with no par value. The Board of Directors believes that
authorizing preferred shares for potential issuance is advisable and in the best
interests of Trustmark. The ability to issue preferred shares in the future will
provide Trustmark with additional financial and management flexibility. As of
December 31, 2002, no such shares have been issued.
CAPITAL RESOURCES
At December 31, 2002, Trustmark's shareholders' equity was $679.5 million, a
decrease of $5.9 million, or 0.9%, from its level at December 31, 2001. The
increase from net income was offset by common shares repurchased and dividends
paid. Trustmark continues to improve shareholder value by utilizing strategic
capital management plans designed to improve earnings per share and return on
equity while maintaining sufficient regulatory capital levels. Since
implementation of these plans in 1998, Trustmark's return on average equity
increased to 17.93% in 2002 from 13.53% in 1998, while basic earnings per share
have risen from $1.14 in 1998 to $1.95 in 2002, an increase of 71.1%.
Common Stock Repurchase Program
On October 15, 2002, the Board of Directors of Trustmark authorized the newest
plan to repurchase up to 5% of common stock, or approximately 3.1 million
shares, subject to market conditions and management discretion. Collectively,
the capital management plans adopted by Trustmark since 1998 have authorized the
repurchase of 18.5 million shares of common stock. Pursuant to these plans,
Trustmark has repurchased approximately 15.6 million shares at a cost of $325.7
million, including 3.3 million shares during 2002 at a cost of $78.7 million.
The current remaining authorization is approximately 2.9 million shares. On
October 15, 2002, the Board of Directors of Trustmark authorized the transfer of
$200.0 million from retained earnings to surplus to replenish funds used in the
common stock repurchase program.
Dividends
Another strategy designed to enhance shareholder value has been to maintain a
consistent dividend payout ratio, which is dividends per share divided by
earnings per share. For 2002, Trustmark increased dividends per share for the
nineteenth consecutive year. Dividends for 2002 were $0.62 per share, increasing
10.7% when compared with dividends of $0.56 per share in 2001. Dividends per
share have increased 20.6% since 2000. Trustmark's dividend payout ratio was
31.5% for 2002, compared with 32.3% for 2001 and 34.0% for 2000.
Regulatory Capital
Trustmark and TNB are subject to minimum capital requirements, which are
administered by various federal regulatory agencies. These capital requirements,
as defined by federal guidelines, involve quantitative and qualitative measures
of assets, liabilities and certain off-balance sheet instruments. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the financial statements of both Trustmark and TNB.
Trustmark aims not only to exceed the minimum capital standards, but also the
well capitalized guidelines for regulatory capital. Management believes, as of
December 31, 2002, that Trustmark and TNB have met or exceeded all of the
minimum capital standards for the parent company and its primary banking
subsidiary as established by regulatory requirements. At December 31, 2002, the
most recent notification from the Office of the Comptroller of the Currency
(OCC), TNB's primary federal banking regulator, categorized TNB as well
capitalized. To be categorized in this manner, TNB must maintain minimum total
risk-based, Tier 1 risk-based and Tier 1 leverage ratios (defined in applicable
regulations) as set forth in the accompanying table on page 54. There are no
significant conditions or events that have occurred since the OCC's notification
that Management believes have affected TNB's present classification.
Regulatory Capital Table
($ in thousands)
December 31, 2002
--------------------------------------------------------------
Minimum Regulatory
Actual Minimum Regulatory Provision to be
Regulatory Capital Capital Required Well Capitalized
------------------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------ -------- ----- -------- ------
Total Capital (to Risk Weighted Assets)
Trustmark Corporation $651,612 13.99% $372,504 8.00% - -
Trustmark National Bank 632,096 13.86% 364,835 8.00% $456,043 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation $593,204 12.74% $186,252 4.00% - -
Trustmark National Bank 574,910 12.61% 182,417 4.00% $273,626 6.00%
Tier 1 Capital (to Average Assets)
Trustmark Corporation $593,204 8.72% $204,044 3.00% - -
Trustmark National Bank 574,910 8.64% 199,562 3.00% $332,603 5.00%
EARNING ASSETS
Earning assets serve as the primary revenue streams for Trustmark and are
comprised of securities, loans, federal funds sold and securities purchased
under resale agreements. At December 31, 2002, earning assets were $6.453
billion, or 90.40% of total assets, compared with $6.515 billion, or 90.74% of
total assets at December 31, 2001, a decrease of $62.3 million, or 1.0%. This
decrease is part of Management's overall strategy to neutralize the effects of
substantial interest rate changes on the balance sheet as well as the income
statement during a volatile interest rate environment by utilizing liquidity
from maturing securities to reduce dependency on wholesale funding.
Securities
The securities portfolio consists primarily of debt securities, which are
utilized to provide Trustmark with a quality investment alternative and a stable
source of interest income, as well as collateral for pledges on public deposits
and repurchase agreements. Additionally, the securities portfolio is used as a
tool to manage risk from movements in interest rates, to support profitability
and to offset risks incurred by business units. When evaluating the performance
of the securities portfolio, Management considers not only interest income but
also the flexibility and liquidity provided by changes in fair value. At
December 31, 2002, Trustmark's securities portfolio totaled $1.812 billion,
compared to $1.854 billion at December 31, 2001, a reduction of $41.8 million,
or 2.3%.
The securities portfolio is one of Trustmark's most powerful risk management
tools because it enables Management to control both the invested balance and the
duration of securities. During the third quarter of 2002, significant price
changes in the portfolio enabled Trustmark to sell securities with a total fair
value of $216.5 million. This enabled Trustmark to restructure a portion of its
investment portfolio by investing the proceeds in short duration mortgage
related securities. This strategy reduced the duration of the portfolio from an
estimated 2.83 years at December 31, 2001, to an estimated 1.94 years at
December 31, 2002, and therefore reduced exposure to volatile interest rates,
increasing liquidity and flexibility. Management intends to keep the portfolio
near historically low duration levels while the interest rate cycle is in a
stage of lower yields.
AFS securities are carried at their estimated fair value with unrealized gains
or losses recognized, net of taxes, in accumulated other comprehensive income, a
separate component of shareholders' equity. At December 31, 2002, AFS securities
totaled $1.263 billion, which represented 69.7% of the securities portfolio,
compared to $1.061 billion, or 57.3%, at December 31, 2001. At December 31,
2002, AFS securities consisted of U.S. Treasury and Agency securities,
obligations of states and political subdivisions, mortgage related securities
and other securities, primarily Federal Reserve Bank and FHLB stock. At December
31, 2002, unrealized gains on AFS securities of $22.8 million, net of $8.7
million of deferred income taxes, were included in accumulated other
comprehensive income, compared with $29.0 million, net of $11.1 million, at
December 31, 2001. These unrealized gains are significant in providing
flexibility when strategic opportunities arise.
Held to maturity (HTM) securities are carried at amortized cost and represent
those securities that Trustmark both intends and has the ability to hold to
maturity. At December 31, 2002, HTM securities totaled $549.2 million and
represented 30.3% of the total portfolio, compared with $792.1 million, or
42.7%, at the end of 2001. This decrease is from calls and maturities of
securities, the proceeds of which were used to purchase shorter duration
mortgage related securities as well as to reduce reliance on wholesale funding.
Management continues to focus on asset quality as one of the strategic goals of
the securities portfolio, which is evidenced by the investment of over 80% of
the portfolio in U.S. Treasury and U.S. Government agencies obligations.
Loans
Loans represented 71.6% of earning assets at December 31, 2002, compared with
69.4% at year-end 2001. At December 31, 2002, loans totaled $4.617 billion,
increasing $93.0 million, or 2.1%, from its level of $4.524 billion at December
31, 2001. This increase is primarily the result of Trustmark's home equity line
of credit (HELOC) program, which was launched during 2002, as well as from
increased mortgage activity during a period of low interest rates. The HELOC
program continues to provide potential for future loan growth with minimal
operational expense. Growth in HELOC's and mortgage lending was offset by
declines in consumer and commercial lending, reflecting the impact of a slowing
economy.
Trustmark makes loans in the normal course of business to certain directors,
including their immediate families and companies in which they are principal
owners. Such loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than the normal risk
of collectibility at the time of the transaction.
Trustmark's lending policies have resulted in consistently sound asset quality.
One measure of asset quality in the financial services industry is the level of
nonperforming assets. The details of Trustmark's nonperforming assets at
December 31, 2002 and 2001, are shown in the accompanying table.
Nonperforming Assets
($ in thousands)
December 31,
------------------
2002 2001
------- -------
Nonaccrual and restructured loans $31,642 $36,901
Other real estate (ORE) 6,298 5,110
------- -------
Total nonperforming assets $37,940 $42,011
======= =======
Accruing loans past due 90 days or more $ 2,946 $ 2,740
======= =======
Nonperforming assets/total loans and ORE 0.82% 0.93%
======= =======
Credit quality improved during 2002, as indicated by a decrease in nonperforming
assets of $4.1 million. As a result, the reserve coverage of nonperforming loans
improved from 204.7% at December 31, 2001, to 236.3% at December 31, 2002.
At December 31, 2002, the allowance for loan losses was $74.8 million,
decreasing $763 thousand, or 1.0%, from the prior year level of $75.5 million.
The allowance for loan losses represented 1.62% and 1.67%, respectively, of
total loans outstanding at December 31, 2002 and 2001. During 2002, additional
allocations were made for pools of loans in certain industries based on recent
loss history. Industries listed for additional allocations were agriculture,
real estate and construction, manufacturing, retail trade and services. As of
December 31, 2002, Management believes that the allowance for loan losses
provides adequate protection in regards to charge-off experience and the current
level of nonperforming assets.
Net charge-offs were $14.9 million, or 0.33%, of average loans, for the year
ended December 31, 2002, compared with $15.1 million, or 0.35%, of average
loans, for the year ended December 31, 2001. Gross charge-offs increased $1.3
million, or 5.9%, during 2002 from levels in 2001; however, this was offset by
increases in recoveries of $1.6 million, or 20.5%, during the same period.
Other Earning Assets
Federal funds sold and securities purchased under reverse repurchase agreements
were $24.0 million at December 31, 2002, a decrease of $113.6 million, when
compared with year-end 2001. At December 31, 2001, Trustmark had one reverse
repurchase agreement for $125 million that was used as collateral for pledging
to public deposits, which matured in January 2002. Trustmark utilizes these
products as a short-term investment alternative whenever it has excess
liquidity.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Trustmark's deposit base is its primary source of funding and consists of core
deposits from the communities served by Trustmark. Deposits include both
interest-bearing and noninterest-bearing demand accounts, savings, money market,
certificates of deposits and individual retirement accounts. Total deposits were
$4.686 billion at December 31, 2002, compared with $4.613 billion at December
31, 2001, an increase of $72.9 million, or 1.6%. This nominal growth came from
noninterest-bearing public demand deposits. Interest-bearing deposits decreased
$10.9 million, or 0.3%, during 2002. For this same period, noninterest-bearing
deposits increased $83.8 million, or 7.2%. Trustmark's deposit mix remains
favorable with noninterest-bearing deposits representing 26.7% of total deposits
at year-end 2002, compared with 25.3% at year-end 2001. Trustmark will continue
to seek deposits by expanding its presence in higher growth markets and
evaluating additional wholesale deposit funding sources.
Short-term borrowings consist of federal funds purchased, securities sold under
repurchase agreements, FHLB borrowings and the treasury tax and loan note option
account. Short-term borrowings totaled $1.231 billion at December 31, 2002, a
decrease of $365.3 million, compared with $1.596 billion at year-end 2001.
Trustmark has used the liquidity created by maturing securities as well as
increased core deposits to reduce reliance on wholesale funding.
Long-term FHLB advances totaled $475.0 million at December 31, 2002, an increase
of $250 million from December 31, 2001. These are primarily fixed rate,
long-term FHLB advances maturing from 2004 to 2006. Trustmark's use of these
advances is significant in that it reduces the volatility of Trustmark's
wholesale funding base by using long-term fixed rate products.
CONTINGENCIES
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. In recent years, the
legal environment in Mississippi has been considered by many to be adverse to
business interests in regards to the overall treatment of tort and contract
litigation as well as the award of punitive damages. However, tort reform
legislation that became effective January 1, 2003, may reduce the likelihood of
unexpected sizable awards. 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.
In December 2002, Trustmark introduced a voluntary early retirement program for
eligible associates. The cost of this program, which is expected to be completed
during the first quarter of 2003, is contingent upon the number of associates
accepting the early retirement opportunity and will result in a charge to
Trustmark's results of operations in 2003.
At December 31, 2002, Trustmark's pension plan was underfunded, requiring an
accrual for minimum pension liability of $5.7 million. Trustmark intends to fund
this plan within a range of $2.4 million to $7.0 million during 2003 and expects
this payment to be at the higher end of this range.
ASSET/LIABILITY MANAGEMENT
Overview
Market risk is the risk of loss arising from adverse changes in market prices
and rates. Trustmark has risk management policies to monitor and limit exposure
to market risk. Trustmark's market risk is comprised primarily of interest rate
risk created by core banking activities. Interest rate risk is the risk to net
interest income represented by the impact of higher or lower interest rates.
Management continually develops and applies cost-effective strategies to manage
these risks. The Asset/Liability Committee sets the day-to-day operating
guidelines, approves strategies affecting net interest income and coordinates
activities within policy limits established by the Board of Directors. A key
objective of the asset/liability management program is to quantify, monitor and
manage interest rate risk and to assist Management in maintaining stability in
the net interest margin under varying interest rate environments.
Market/interest Rate Risk Management
The primary purpose in managing interest rate risk is to invest capital
effectively and preserve the value created by the core banking business. This is
accomplished through the development and implementation of lending, funding,
pricing and hedging strategies designed to maximize net interest income
performance under varying interest rate environments subject to specific
liquidity and interest rate risk guidelines.
Management has continued its concerted effort to decrease interest rate
sensitivity through changes to the balance sheet mix and risk characteristics of
assets and liabilities as well as through purchases of interest rate hedging
instruments. Asset sensitivity has been reduced in commercial lending by
increasing holdings of floating rate loans. Also, both the overall size of the
securities portfolio and the maturity structure of securities have been lowered.
Liability sensitivity has been reduced with growth in core deposits and declines
in short-term wholesale funding and the use of longer term borrowings. Trustmark
continues utilizing hedging activities to lessen the adverse effects of large
swings in interest rates, adding $300 million in notional amounts of long-term
interest rate caps in 2001 and 2002. As a result of these changes, Trustmark has
significantly reduced its exposure to rising interest rates, while experiencing
lower growth in net interest income. During 2002, the balance sheet shifted from
a liability sensitive position to an asset sensitive position. Modeling static
balances from year-end 2002, it is estimated that net interest income may
increase, possibly as much as 7%, in a one-year, shocked, up 200 basis point
rate shift scenario, compared to a base case, flat rate scenario for the same
time period. This represents a substantial improvement in exposure to rising
rates at December 31, 2002, when compared to December 31, 2001. In a shocked,
down 200 basis point rate shift scenario, net income may decline from the base
case as much as 14% in a one-year horizon. Management cannot provide any
assurance about the actual effect of changes in interest rates on net interest
income. The estimates provided do not include the effects of possible strategic
changes in the balances of various assets and liabilities throughout the course
of 2003. Management will continue to monitor the balance sheet as balances
change and maintain a proactive stance to manage interest rate risk.
The primary tool utilized by the Asset/Liability Committee is a third-party
modeling system which is widely accepted in the financial institutions industry.
This system provides information used to evaluate exposure to interest rate
risk, project earnings and manage balance sheet growth. This modeling system
utilizes the following scenarios in order to give Management a method of
evaluating Trustmark's interest rate, basis and prepayment risk under different
conditions:
o Rate shocked scenarios of up-and-down 100, 200 and 300 basis points.
o Yield curve twist of +/- 2 standard deviations of the change in spread
of the three-month Treasury bill and the 10-year Treasury note yields.
o Basis risk scenarios where federal funds/LIBOR spread widens and
tightens to the high and low spread determined by using 2 standard
deviations.
o Prepayment risk scenarios where projected prepayment speeds in
up-and-down 200 basis point rate scenarios are compared to current
projected prepayment speeds.
A static gap analysis is a tool used mainly for interest rate risk measurement,
in which the balance sheet amounts as of a certain date are stratified based on
repricing frequency. The assets and liabilities repricing in a certain time
frame are then compared to determine the gap between assets and liabilities for
that period. If assets are greater than liabilities for the specified time
period, then the balance sheet is said to be in an asset gap, or asset
sensitive, position. This analysis is helpful in that it highlights significant
short-term repricing volume mismatches. Management's assumptions related to the
prepayment of certain loans and securities, as well as the maturity for rate
sensitive assets and liabilities, are utilized for sensitivity static gap
analysis. Three-month gap analysis projected at December 31, 2002, reflected an
asset gap of $52 million, a dramatic shift from a liability gap of $703 million
at December 31, 2001. One-year gap analysis projected at December 31, 2002,
reflected an asset gap of $321 million, an improvement from a liability gap of
$369 million at December 31, 2001. This new static gap analysis indicates that
Trustmark is better positioned for the possibility of a rising interest rate
environment.
The static gap analysis does not fully capture the impact of interest rate
movements on interest sensitive assets and liabilities. The interest rate
sensitivity tables that follow provide additional information about Trustmark's
financial instruments that are sensitive to changes in interest rates. The
quantitative information about market risk is limited because it does not take
into account operating transactions or anticipated hedging instruments. Also,
the tabular disclosure of Trustmark's market risk is limited by its failure to
accurately depict the effect on assumptions of significant changes in the
economy or interest rates as well as changes in Management's expectations or
intentions. The information in the interest rate sensitivity tables on page 60
reflects contractual interest rate repricing dates and contractual maturity
(including principal amortization) dates except where altered by the following
assumptions:
o The scheduled maturities of mortgage-backed securities and CMOs are
adjusted by the industry dealer prepayment speed for various coupon
segments of the portfolio.
o Principal repayments of loans (other than residential mortgages) and
early withdrawals of deposits include assumptions based on Management's
experience and judgment.
o Changes in prepayment behavior of the residential mortgage portfolio
are based on the current patterns of comparable mortgage-backed
securities.
o For indeterminate maturity deposit products (money market, NOW and
savings accounts), the tables present principal cash flows based on
Trustmark's historical experience, Management's judgment and
statistical analysis, as applicable, concerning their most likely
withdrawal behaviors.
o Weighted average floating rates are based on the rate for that product
as of December 31, 2002 and 2001.
Trustmark uses derivatives to reduce interest rate exposures by mitigating the
interest rate risk of mortgage loans held for sale and mortgage loans in
process. Trustmark regularly enters into derivative financial instruments in the
form of forward contracts as part of its normal asset/liability management
strategies. Forward contracts are agreements to purchase or sell securities or
other money market instruments at a future specified date at a specified price
or yield. Trustmark's obligations under forward contracts consist of commitments
to deliver mortgage loans, originated and/or purchased, in the secondary market
at a future date.
Trustmark continued a risk controlling strategy utilizing caps and floors, which
may be further implemented over time. During 2002, Trustmark sold its 5-year
floor contract with a notional amount of $100 million and purchased an
additional 4-year cap contract with a notional amount of $100 million. As of
December 31, 2002, Trustmark had interest rate cap contracts with notional
amounts totaling $300 million, which mature in 2006. The intent of utilizing
these financial instruments is to reduce the risk associated with the effects of
significant movements in interest rates. Caps and floors, which are not
designated as hedging instruments for accounting purposes, are options linked to
a notional principal amount and an underlying indexed interest rate. Exposure to
loss on these options will increase or decrease as interest rates fluctuate.
RECENT PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
amending SFAS No. 123, "Accounting for Stock-Based Compensation." Effective
January 1, 2003, Trustmark adopted the provisions of SFAS No. 123, as amended by
SFAS No. 148, under the prospective method. Under this method, Trustmark will
apply the recognition provisions to all awards granted, modified or settled
after January 1, 2003. The impact of this statement on Trustmark's consolidated
financial position and results of operations is not expected to be material.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in this interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The impact of this interpretation on Trustmark's consolidated
financial position and results of operations is not expected to be material.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions." As of October 1, 2002, this statement requires
financial services companies to subject all of their goodwill to annual
impairment tests instead of amortizing any goodwill previously subject to SFAS
No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions."
This statement applies to all new and past financial institution acquisitions,
including "branch acquisitions" that qualify as acquisitions of a business, but
excluding acquisitions between mutual institutions. All acquisitions within the
scope of SFAS No. 147 will now be governed by the requirements of SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." Additionally, this statement amends SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to include long-term customer
relationship intangible assets in its scope. Effective October 1, 2002, these
intangibles must be evaluated for impairment. The adoption of this statement had
no impact on Trustmark's consolidated financial position and results of
operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. The provisions of this statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The impact of this statement on
Trustmark's consolidated financial position and results of operations is not
expected to be material.
Interest Rate Sensitivity Table
($ in thousands)
Estimated
December 31, 2002 2003 2004 2005 2006 2007 Thereafter Total Fair Value
- ----------------- ---------- -------- -------- -------- -------- ---------- ---------- ----------
Loans, Net
Fixed Rate $1,283,674 $683,449 $436,074 $266,986 $165,721 $270,216 $3,106,120 $3,199,807
Average Int Rate 6.64% 7.24% 7.35% 6.78% 6.51% 6.38% 6.84%
Floating Rate $ 647,862 $168,279 $126,153 $108,939 $113,253 $271,989 $1,436,475 $1,436,475
Average Int Rate 3.90% 3.29% 3.37% 3.27% 3.49% 3.06% 3.54%
Investment Securities
Fixed Rate $ 674,209 $339,747 $318,475 $204,734 $ 85,336 $187,916 $1,810,417 $1,839,370
Average Int Rate 7.08% 3.94% 3.72% 3.97% 4.21% 4.32% 5.13%
Floating Rate $ 887 $ 169 $ 106 $ 67 $ 42 $ 79 $ 1,350 $ 1,350
Average Int Rate 2.56% 4.21% 4.22% 4.22% 4.23% 4.23% 3.13%
Other Earning Assets
Floating Rate $ 23,957 - - - - - $ 23,957 $ 23,957
Average Int Rate 1.41% - - - - - 1.41%
Interest-Bearing Deposits
Fixed Rate $1,279,358 $265,831 $114,833 $ 37,109 $ 43,708 $ 1,840 $1,742,679 $1,769,777
Average Int Rate 2.58% 3.75% 4.71% 5.09% 4.65% 5.21% 3.02%
Floating Rate $ 601,275 $273,440 $273,440 $273,440 $270,782 - $1,692,377 $1,692,377
Average Int Rate 0.81% 0.73% 0.73% 0.73% 0.73% - 0.76%
Other Interest-Bearing Liabilities
Fixed Rate $ 69,771 $ 50,000 $100,000 $ 75,243 - $ 5,945 $ 300,959 $ 332,990
Average Int Rate 2.90% 4.65% 5.49% 5.60% - 5.53% 4.78%
Floating Rate $1,404,978 - - - - - $1,404,978 $1,404,978
Average Int Rate 1.00% - - - - - 1.00%
Estimated
December 31, 2001 2002 2003 2004 2005 2006 Thereafter Total Fair Value
- ----------------- ---------- -------- -------- -------- -------- ---------- ---------- ----------
Loans, Net
Fixed Rate $1,296,150 $727,973 $497,001 $303,316 $215,132 $236,378 $3,275,950 $3,342,322
Average Int Rate 7.45% 7.90% 6.99% 7.55% 7.22% 7.17% 7.60%
Floating Rate $ 521,975 $120,243 $ 97,913 $ 90,354 $ 72,406 $269,991 $1,172,882 $1,172,882
Average Int Rate 4.56% 3.77% 3.63% 3.47% 3.82% 3.73% 4.08%
Investment Securities
Fixed Rate $ 509,427 $258,525 $302,006 $239,924 $151,669 $342,111 $1,803,662 $1,832,527
Average Int Rate 5.68% 6.59% 6.68% 6.82% 6.86% 5.95% 6.28%
Floating Rate $ 930 $ 7,107 $ 13,729 $ 11,847 $ 9,923 $ 6,349 $ 49,885 $ 49,885
Average Int Rate 3.83% 3.09% 3.00% 2.99% 2.98% 2.98% 3.02%
Other Earning Assets
Floating Rate $ 137,521 - - - - - $ 137,521 $ 137,521
Average Int Rate 1.95% - - - - - 1.95%
Interest-Bearing Deposits
Fixed Rate $1,455,973 $241,892 $117,737 $ 40,929 $ 32,246 $ 151 $1,888,928 $1,915,258
Average Int Rate 3.91% 4.41% 4.71% 6.34% 5.23% 6.59% 4.11%
Floating Rate $ 604,122 $238,789 $238,789 $238,789 $236,511 - $1,557,000 $1,557,000
Average Int Rate 1.30% 1.07% 1.07% 1.07% 1.07% - 1.16%
Other Interest-Bearing Liabilities
Fixed Rate $ 72,047 - $ 50,000 $100,000 $ 75,000 - $ 297,047 $ 339,299
Average Int Rate 3.11% - 4.65% 5.49% 5.60% - 4.80%
Floating Rate $1,524,146 - - - - - $1,524,146 $1,524,146
Average Int Rate 1.49% - - - - - 1.49%