FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-3683
TRUSTMARK CORPORATION
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Mississippi 64-0471500
Trustmark Corporation
248 East Capitol Street
Jackson, MS 39201
(601) 208-5111
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No ____
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of April 30, 2003.
Title Outstanding
Common stock, no par value 59,175,352
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Trustmark Corporation and Subsidiaries
Consolidated Balance Sheets
($ in thousands)
(Unaudited)
March 31, December 31,
2003 2002
----------- -----------
Assets
Cash and due from banks (noninterest-bearing) $ 363,738 $ 357,427
Federal funds sold and securities purchased
under reverse repurchase agreements 27,015 23,957
Securities available for sale (at fair value) 1,523,599 1,262,570
Securities held to maturity (fair value:
$464,743 - 2003; $578,150 - 2002) 442,946 549,197
Loans held for sale 125,730 199,680
Loans 4,505,350 4,417,686
Less allowance for loan losses 74,867 74,771
----------- -----------
Net loans 4,430,483 4,342,915
Premises and equipment 103,630 104,113
Intangible assets 109,608 119,643
Other assets 179,115 179,204
----------- -----------
Total Assets $ 7,305,864 $ 7,138,706
=========== ===========
Liabilities
Deposits:
Noninterest-bearing $ 1,223,941 $ 1,251,240
Interest-bearing 3,754,058 3,435,056
----------- -----------
Total deposits 4,977,999 4,686,296
Federal funds purchased 321,746 319,985
Securities sold under repurchase agreements 494,729 634,993
Short-term borrowings 321,879 275,959
Long-term FHLB advances 457,667 475,000
Other liabilities 71,201 66,939
----------- -----------
Total Liabilities 6,645,221 6,459,172
Commitments and Contingencies
Shareholders' Equity
Common stock, no par value:
Authorized: 250,000,000 shares
Issued and outstanding: 59,210,244 shares -
2003; 60,516,668 shares - 2002 12,337 12,609
Capital surplus 157,954 188,652
Retained earnings 484,980 470,317
Accumulated other comprehensive income, net of tax 5,372 7,956
----------- -----------
Total Shareholders' Equity 660,643 679,534
----------- -----------
Total Liabilities and Shareholders' Equity $ 7,305,864 $ 7,138,706
=========== ===========
See notes to consolidated financial statements.
Trustmark Corporation and Subsidiaries
Consolidated Statements of Income
($ in thousands except per share data)
(Unaudited)
Three Months Ended
March 31,
-----------------------
2003 2002
-------- --------
Interest Income
Interest and fees on loans $ 70,699 $ 77,463
Interest on securities:
Taxable 20,155 24,169
Tax exempt 2,069 2,336
Interest on federal funds sold and securities
purchased under reverse repurchase agreements 82 99
Other interest income 12 770
-------- --------
Total Interest Income 93,017 104,837
Interest Expense
Interest on deposits 16,062 21,778
Interest on federal funds purchased and securities
sold under repurchase agreements 2,726 3,659
Other interest expense 5,032 5,471
-------- --------
Total Interest Expense 23,820 30,908
-------- --------
Net Interest Income 69,197 73,929
Provision for loan losses 3,000 4,307
-------- --------
Net Interest Income After Provision
for Loan Losses 66,197 69,622
Noninterest Income
Service charges on deposit accounts 12,680 11,424
Other account charges and fees 6,625 7,001
Insurance commissions 3,787 2,660
Mortgage servicing fees 4,326 4,322
Trust service income 2,311 2,519
Gains on sales of loans 3,893 1,505
Securities gains 8,148 140
Other income (587) (585)
-------- --------
Total Noninterest Income 41,183 28,986
Noninterest Expense
Salaries and employee benefits 35,924 29,522
Net occupancy - premises 2,986 2,789
Equipment expense 3,710 3,895
Services and fees 7,879 7,805
Amortization/impairment of intangible assets 11,655 986
Loan expense 2,371 2,552
Other expense 5,201 4,441
-------- --------
Total Noninterest Expense 69,726 51,990
-------- --------
Income Before Income Taxes 37,654 46,618
Income taxes 13,170 16,289
-------- --------
Net Income $ 24,484 $ 30,329
======== ========
Earnings Per Share
Basic $ 0.41 $ 0.48
======== ========
Diluted $ 0.41 $ 0.48
======== ========
See notes to consolidated financial statements.
Trustmark Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
($ in thousands)
(Unaudited)
2003 2002
--------- ---------
Balance, January 1, $ 679,534 $ 685,444
Comprehensive income:
Net income per consolidated statements of income 24,484 30,329
Net change in fair value of securities available
for sale, net of tax (5,550) (1,047)
Net change in fair value of cash flow hedges,
net of tax 2,966 (231)
--------- ---------
Comprehensive income 21,900 29,051
Cash dividends paid (9,821) (9,520)
Common stock transactions, long-term incentive plan 563 -
Repurchase and retirement of common stock (31,533) (19,389)
--------- ---------
Balance, March 31, $ 660,643 $ 685,586
========= =========
See notes to consolidated financial statements.
Trustmark Corporation and Subsidiaries
Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
Three Months Ended
March 31,
-----------------------
2003 2002
--------- ---------
Operating Activities
Net income $ 24,484 $ 30,329
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,000 4,307
Depreciation and amortization/impairment 14,632 4,176
Net amortization (accretion) of securities 1,932 (181)
Securities gains (8,148) (140)
Gains on sales of loans (3,893) (1,505)
Deferred income tax (benefit) provision (1,462) 3,641
Proceeds from sales of loans 963,965 249,765
Purchases and originations of loans held
for sale (838,235) (203,380)
Net increase in intangible assets (1,620) (4,000)
Net decrease in other assets 1,882 2,075
Net increase in other liabilities 9,066 8,147
Other operating activities, net (155) (8)
--------- ---------
Net cash provided by operating activities 165,448 93,226
Investing Activities
Proceeds from calls and maturities of securities
held to maturity 180,810 79,844
Proceeds from calls and maturities of securities
available for sale 85,375 89,914
Proceeds from sales of securities available for sale 76,922 176
Purchases of securities available for sale (500,728) (27,077)
Net (increase) decrease in federal funds sold
and securities purchased under reverse
repurchase agreements (3,058) 120,371
Net (increase) decrease in loans (138,455) 41,101
Purchases of premises and equipment (2,194) (9,110)
Proceeds from sales of premises and equipment 480 16
Proceeds from sales of other real estate 715 854
--------- ---------
Net cash (used in) provided by investing activities (300,133) 296,089
Financing Activities
Net increase in deposits 291,703 16,447
Net decrease in federal funds purchased and securities
sold under repurchase agreements (138,503) (236,251)
Net increase (decrease) in other borrowings 45,920 (197,762)
Proceeds from long-term FHLB advances (17,333) -
Cash dividends (9,821) (9,520)
Common stock transactions, net (30,970) (19,389)
--------- ---------
Net cash provided by (used in) financing activities 140,996 (446,475)
--------- ---------
Increase (decrease) in cash and cash equivalents 6,311 (57,160)
Cash and cash equivalents at beginning of period 357,427 328,779
--------- ---------
Cash and cash equivalents at end of period $ 363,738 $ 271,619
========= =========
See notes to consolidated financial statements.
TRUSTMARK CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION AND PRINCIPLES OF
CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of Management, all adjustments (consisting of normal recurring accruals)
considered necessary for the fair presentation of these consolidated financial
statements have been included. The notes included herein should be read in
conjunction with the notes to the consolidated financial statements included in
Trustmark Corporation's (Trustmark) 2002 annual report on Form 10-K.
The consolidated financial statements include Trustmark and its wholly-owned
bank subsidiaries, Trustmark National Bank (TNB) and Somerville Bank & Trust
Company (Somerville). All intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made to prior
period amounts to conform with the current year presentation.
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 $7 million have
been allocated to other identifiable intangible assets and goodwill,
respectively. Trustmark's financial statements include the results of operations
for the CSI acquisition from the merger date. The pro forma impact of this
acquisition on Trustmark's results of operations is insignificant.
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
The following table summarizes the activity in the allowance for loan losses for
the three month periods ended March 31 ($ in thousands):
2003 2002
-------- --------
Balance at beginning of year $ 74,771 $ 75,534
Provision charged to expense 3,000 4,307
Loans charged off (5,191) (6,846)
Recoveries 2,287 2,245
-------- --------
Net charge-offs (2,904) (4,601)
-------- --------
Balance at end of period $ 74,867 $ 75,240
======== ========
At March 31, 2003 and 2002, the carrying amounts of nonaccrual loans were $31.8
million and $41.0 million, respectively. Included in these nonaccrual loans at
March 31, 2003 and 2002, are loans that are considered to be impaired, which
totaled $24.7 million and $33.4 million, respectively. At March 31, 2003, the
total allowance for loan losses related to impaired loans was $6.5 million
compared with $8.2 million at March 31, 2002. The average carrying amounts of
impaired loans during the first quarter of 2003 and 2002 were $25.5 million and
$32.4 million, respectively. No material amounts of interest income were
recognized on impaired loans or nonaccrual loans for the first quarter of 2003
or 2002.
NOTE 4 - INTANGIBLE ASSETS
At March 31, 2003 and December 31, 2002, intangible assets, net of any
applicable amortization or impairment, consisted of the following ($ in
thousands):
March 31, December 31,
2003 2002
---------- ----------
Mortgage servicing rights $ 39,655 $ 48,827
Goodwill 48,028 48,028
Other identifiable intangible assets:
Core deposit intangibles 18,562 19,288
Insurance customer relationship intangibles 2,767 2,904
---------- ----------
Total amortizable 21,329 22,192
Pension plan intangible 596 596
---------- ----------
Total other identifiable intangible assets 21,925 22,788
---------- ----------
Total intangible assets $ 109,608 $ 119,643
========== ==========
NOTE 5 - STOCK-BASED COMPENSATION
Prior to January 1, 2003, Trustmark accounted for 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 equaled the
market price for the underlying stock on the date of grant, no compensation
expense was recognized. Effective January 1, 2003, Trustmark adopted the fair
value recognition provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure."
Under the provisions of these statements, Trustmark will account for incentive
stock options prospectively for all awards granted, modified or settled after
January 1, 2003. The following table reflects pro forma net income and earnings
per share for the periods presented, had Trustmark elected to adopt the fair
value approach prior to January 1, 2003 ($ in thousands except per share data):
Three Months Ended
March 31,
------------------
2003 2002
------- -------
Net income, as reported $24,484 $30,329
Add: Total stock-based employee compensation expense
included in reported net income, net of related
tax effects - -
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (336) (382)
------- -------
Pro forma net income $24,148 $29,947
======= =======
Earnings per share:
As reported
Basic $ 0.41 $ 0.48
Diluted 0.41 0.48
Pro forma
Basic $ 0.40 $ 0.47
Diluted 0.40 0.47
NOTE 6 - CONTINGENCIES
Standby Letters of Credit
Trustmark issues financial and performance standby letters of credit in the
normal course of business in order to fulfill the financing needs of its
customers. Standby letters of credit are conditional commitments issued by
Trustmark to insure the performance of a customer to a third party. A financial
standby letter of credit is a commitment by Trustmark to guarantee a customer's
repayment of an outstanding loan or debt instrument. Trustmark guarantees a
customer's performance to a third party under a contractual nonfinancial
obligation through the use of a performance standby letter of credit. When
issuing letters of credit, Trustmark uses essentially the same policies
regarding credit risk and collateral which are followed in the lending process.
At March 31, 2003, the maximum potential amount of future payments Trustmark
could be required to make under its standby letters of credit was $68.7 million,
which also represented the maximum credit risk associated with these
commitments. This amount consisted primarily of commitments with maturities of
less than four years. These standby letters of credit have an immaterial
carrying value. Trustmark holds collateral to support standby letters of credit
when deemed necessary. As of March 31, 2003, the fair value of collateral held
was $18.1 million.
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 7 - EARNINGS PER SHARE
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 partially diluted stock options outstanding during
the period. The following table reflects weighted average shares used to
calculate basic and diluted EPS for the periods presented:
Three Months Ended
March 31,
-------------------------
2003 2002
---------- ----------
Basic 59,912,276 63,463,798
Dilutive shares (due to stock options) 143,475 207,755
---------- ----------
Diluted 60,055,751 63,671,553
========== ==========
NOTE 8 - STATEMENTS OF CASH FLOWS
Trustmark paid income taxes approximating $1.1 million and $2.0 million during
the three months ended March 31, 2003 and 2002, respectively. Interest paid on
deposit liabilities and other borrowings approximated $23.8 million in the first
three months of 2003 and $33.5 million in the first three months of 2002. For
the three months ended March 31, 2003 and 2002, noncash transfers from loans to
foreclosed properties were $864 thousand and $1.8 million, respectively.
NOTE 9 - RECENT PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board (FASB) issued SFAS No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." This statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement is effective for contracts entered into
or modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. Management is in the process of evaluating the impact of this
statement but does not expect it to have a material impact on Trustmark's
consolidated financial position and results of operations.
NOTE 10 - SEGMENT INFORMATION
Effective January 1, 2003, Trustmark changed the composition of its reportable
segments to the following: Consumer Division, Commercial Division, Investment
Division and Operations Division. The Consumer Division delivers a full range of
banking, investment and risk management products and services to individuals and
small businesses through Trustmark's extensive branch network. Included in this
segment are products and services for insurance, credit card, mortgage, indirect
automobile financing and student loans. The Commercial 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 as well as other specialized lending
services. The Investment Division includes trust and fiduciary services,
discount brokerage services and services for private banking clients. Also
included in this segment is a selection of investment management services
including Trustmark's proprietary mutual fund family. The Operations Division
consists of asset/liability management activities that include the investment
portfolio and the related gains/losses on sales of securities, as well as credit
risk management, bank operations, human resources and the controller's
department. The Operations Division 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 utilizes matched maturity transfer
pricing to assign cost of funding to assets and earnings credits to liabilities
with a corresponding offset to the Operations Division. Trustmark allocates
non-interest expense based on various activity-based costing statistics.
Excluding internal funding, Trustmark does not have inter-company 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 the Operations Division.
The table on page 11 discloses financial information by segment for the periods
ended March 31, 2003 and 2002. The prior year period has been restated to
conform to the current presentation.
Trustmark Corporation
Segment Information
($ in thousands)
Consumer Commercial Investment Operations
Division Division Division Division Total
---------- ---------- ---------- ---------- ----------
For the three months ended
March 31, 2003
- ----------------------------------
Net interest income from
external customers $ 39,922 $ 13,208 $ 1,225 $ 14,842 $ 69,197
Internal funding 8,038 (2,588) (33) (5,417) -
---------- ---------- ---------- ---------- ----------
Net interest income 47,960 10,620 1,192 9,425 69,197
Provision for loan losses 2,589 56 (15) 370 3,000
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 45,371 10,564 1,207 9,055 66,197
Noninterest income 25,318 1,939 4,794 9,132 41,183
Noninterest expense 52,054 3,729 4,323 9,620 69,726
---------- ---------- ---------- ---------- ----------
Income before income taxes 18,635 8,774 1,678 8,567 37,654
Income taxes 6,532 3,027 623 2,988 13,170
---------- ---------- ---------- ---------- ----------
Segment net income $ 12,103 $ 5,747 $ 1,055 $ 5,579 $ 24,484
========== ========== ========== ========== ==========
Selected Financial Information
Average assets $3,930,989 $1,108,520 $ 117,802 $1,931,803 $7,089,114
Depreciation and amortization $ 12,336 $ 114 $ 105 $ 2,077 $ 14,632
For the three months ended
March 31, 2002
- ----------------------------------
Net interest income from
external customers $ 38,581 $ 14,474 $ 1,239 $ 19,635 $ 73,929
Internal funding 8,110 (4,495) (318) (3,297) -
---------- ---------- ---------- ---------- ----------
Net interest income 46,691 9,979 921 16,338 73,929
Provision for loan losses 2,609 1,856 (9) (149) 4,307
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 44,082 8,123 930 16,487 69,622
Noninterest income 21,472 1,674 5,542 298 28,986
Noninterest expense 41,283 3,396 4,177 3,134 51,990
---------- ---------- ---------- ---------- ----------
Income before income taxes 24,271 6,401 2,295 13,651 46,618
Income taxes 8,416 2,208 843 4,822 16,289
---------- ---------- ---------- ---------- ----------
Segment net income $ 15,855 $ 4,193 $ 1,452 $ 8,829 $ 30,329
========== ========== ========== ========== ==========
Selected Financial Information
Average assets $3,813,118 $1,077,269 $ 96,330 $1,896,483 $6,883,200
Depreciation and amortization $ 1,698 $ 112 $ 88 $ 2,278 $ 4,176
ITEM 2. 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. Initially 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 March 31, 2003, Trustmark and
its subsidiaries employed 2,283 full-time equivalent employees.
Trustmark engages in business through its four reportable segments: Consumer
Division, Commercial Division, Investment Division and Operations Division. The
Consumer Division delivers a full range of banking, investment and risk
management products and services to individuals and small businesses through
Trustmark's extensive branch network. The Commercial Division provides various
financial products and services to corporate and middle-market clients. The
Investment Division includes trust and fiduciary services, discount brokerage
services and services for private banking clients. The Operations Division
consists of asset/liability management activities that include the investment
portfolio and the related gains/losses on sales of securities, as well as credit
risk management, bank operations, human resources and the controller's division.
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. As of March 31, 2003, mortgage servicing rights had a gross carrying
amount of $58.9 million with a valuation allowance of $19.2 million. As of
year-end 2002, mortgage servicing rights had a gross carrying amount of $61.3
million with a valuation allowance of $12.5 million.
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 March 31, 2003,
Trustmark had unamortized goodwill totaling $48.0 million and other identifiable
intangible assets subject to amortization totaling $21.9 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, and the results of operations have been
included in the financial statements from the merger date. The pro forma impact
of this acquisition on Trustmark's results of operations is insignificant.
FINANCIAL SUMMARY HIGHLIGHTS
Trustmark's net income for the three months ended March 31, 2003, totaled $24.5
million compared with $30.3 million for the same period in 2002. Basic and
diluted earnings per share were $0.41 for the first quarter of 2003, a decrease
of 14.6% when compared with $0.48 for the first quarter of 2002. Earnings during
the first quarter 2003 included an after-tax charge of $4.1 million, or $0.07
per share, associated with Trustmark's voluntary early retirement program.
Trustmark achieved a return on average assets of 1.40%, a return on average
equity of 14.88% and an efficiency ratio of 54.17% for the three months ended
March 31, 2003. Excluding the charge for the early retirement program,
Trustmark's performance for the first quarter 2003 resulted in a return on
average assets of 1.63% and a return on average equity of 17.36%. These compared
with first quarter 2002 ratios of 1.79% for return on average assets, 18.22% for
return on average equity and 50.95% for the efficiency ratio. The charge for the
early retirement program has been eliminated in the first quarter 2003 adjusted
return on average assets and adjusted return on average equity in order to
reflect these ratios on a comparable basis to the other periods presented.
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 16 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. 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.
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 26.
Net interest income-FTE for the quarter ended March 31, 2003, decreased $4.9
million, or 6.4%, when compared with first quarter 2002. The continuing decline
in interest rates experienced during 2003 and 2002 has impacted both assets and
liabilities. Earning asset yields declined at a faster rate than
interest-bearing liability rates when comparing the first quarter of 2003 with
the same period in 2002, resulting in a 46 basis point decline in the NIM. The
decline in the NIM was also affected by Trustmark's use of interest rate
contracts, which provided $770 thousand of additional interest income as the
floor reached its strike price during first quarter 2002, compared to zero
during first quarter 2003.
- --------------------------------------------------------------------------------
Trustmark Corporation
Yield/Rate Analysis Table
($ in thousands)
For the Three Months Ended March 31,
--------------------------------------------------------------
2003 2002
----------------------------- ------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------ ---------- -------- ------
Assets
Interest-earning assets:
Federal funds sold and securities
purchased under reverse
repurchase agreements $ 29,700 $ 82 1.12% $ 24,619 $ 99 1.63%
Securities - taxable 1,644,002 20,155 4.97% 1,580,527 24,169 6.20%
Securities - nontaxable 160,966 3,183 8.02% 180,193 3,594 8.09%
Loans, including loans held for sale 4,617,076 71,803 6.31% 4,470,931 79,358 7.20%
---------- -------- ---------- --------
Total interest-earning assets 6,451,744 95,223 5.99% 6,256,270 107,220 6.95%
Cash and due from banks 302,372 285,818
Other assets 410,141 416,476
Allowance for loan losses (75,143) (75,364)
---------- ----------
Total Assets $7,089,114 $6,883,200
========== ==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits $3,550,934 16,062 1.83% $3,519,957 21,778 2.51%
Federal funds purchased and
securities sold under
repurchase agreements 926,205 2,726 1.19% 891,677 3,659 1.66%
Borrowings 716,569 5,032 2.85% 687,628 5,471 3.23%
---------- -------- ---------- --------
Total interest-bearing liabilities 5,193,708 23,820 1.86% 5,099,262 30,908 2.46%
-------- --------
Noninterest-bearing demand deposits 1,158,944 1,039,334
Other liabilities 69,053 69,497
Shareholders' equity 667,409 675,107
---------- ----------
Total Liabilities and
Shareholders' Equity $7,089,114 $6,883,200
========== ==========
Net Interest Margin 71,403 4.49% 76,312 4.95%
Less tax equivalent adjustment 2,206 2,383
-------- --------
Net Interest Margin per Consolidated
Statements of Income $ 69,197 $ 73,929
======== ========
- --------------------------------------------------------------------------------
Average interest-earning assets for first quarter 2003 were $6.452 billion,
compared with $6.256 billion for first quarter 2002, an increase of $195.5
million, or 3.1%. This growth is primarily seen in average loans, which
increased 3.3% during first quarter 2003 from the same period in 2002, as
Trustmark effectively utilized the liquidity from maturing securities to fund
loan growth, which yielded higher returns than securities during this period.
The yield on average earning assets dropped from 6.95% during first quarter 2002
to 5.99% for the same period in 2003, a decrease of 96 basis points, as a result
of the declining interest rate environment. This translated into a decrease in
interest income-FTE during first quarter 2003 of $12.0 million, or 11.2%, when
compared with first quarter 2002.
Average interest-bearing liabilities for first quarter 2003 totaled $5.194
billion, compared with $5.099 billion for first quarter 2002, an increase of
$94.4 million, or 1.9%. Average interest-bearing deposits increased as well as
federal funds purchased, repurchase agreements and borrowings. Although
interest-bearing liabilities have increased, interest expense has continued to
decrease due to the declining interest rate environment. The average rates on
interest-bearing liabilities for the first quarters of 2003 and 2002, were 1.86%
and 2.46%, respectively, a decrease of 60 basis points. As a result of these
factors, total interest expense for first quarter 2003 decreased $7.1 million,
or 22.9%, when compared with the prior year period.
Provision for Loan Losses
Trustmark's provision for loan losses totaled $3.0 million for the three months
ended March 31, 2003, compared with $4.3 million for the same period in 2002.
During the first quarter of 2003, the provision for loan losses equaled 103% of
net charge-offs compared with 94% in the prior year period. As a percentage of
average loans, the provision was 0.26% for first quarter 2003 compared with
0.39% for first quarter 2002. 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 13, as well as the
discussion of Loans beginning on page 23.
Noninterest Income
Noninterest income (NII) consists of revenues generated from a broad range of
banking and financial services. NII totaled $41.2 million in first quarter 2003
compared with $29.0 million in first quarter 2002. NII represented 30.7% of
total revenues in first quarter 2003 versus 21.7% in first quarter 2002. The
comparative components of noninterest income for the three month periods ended
March 31, 2003 and 2002, are shown in the accompanying table on page 18.
- --------------------------------------------------------------------------------
Noninterest Income
($ in thousands)
Quarter Ended
March 31,
-------------------
2003 2002 $ Change % Change
-------- -------- -------- --------
Service charges on deposit accounts $ 12,680 $ 11,424 $ 1,256 11.0%
Other account charges and fees 6,625 7,001 (376) -5.4%
Insurance commissions 3,787 2,660 1,127 42.4%
Mortgage servicing fees 4,326 4,322 4 0.1%
Trust service income 2,311 2,519 (208) -8.3%
Gains on sales of loans 3,893 1,505 2,388 158.7%
Securities gains 8,148 140 8,008 5720.0%
Other income (587) (585) (2) 0.3%
-------- -------- --------
Total Noninterest Income $ 41,183 $ 28,986 $ 12,197 42.1%
======== ======== ========
- --------------------------------------------------------------------------------
The single largest component of noninterest income continues to be service
charges for deposit products and services, which increased 11.0% in first
quarter 2003 over the prior year period. This increase was primarily the result
of courtesy overdraft protection, which was introduced during the third quarter
of 2002, as well as from increased transaction volume.
Other account charges and fees totaled $6.6 million in first quarter 2003, a
decrease of $376 thousand, or 5.4%, when compared with the prior year period.
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 increases in
bankcard fees from the repricing of merchant discount rates and increased debit
card usage by individuals.
Insurance commissions were $3.8 million in first quarter 2003 compared to $2.7
million in first quarter 2002, an increase of $1.1 million, or 42.4%. This
growth was primarily from the CSI business combination, intensified sales
efforts and increased pricing by insurance companies.
During the three months ended March 31, 2003, mortgage servicing fees totaled
$4.3 million, maintaining the level from the prior year period. Increased
prepayments during the period slowed the overall growth of the mortgage
servicing portfolio. Trustmark serviced mortgage loans with average balances of
$3.5 billion in first quarter 2003 and $3.6 billion in first quarter 2002.
Trust service income was $2.3 million for first quarter 2003, a decrease of $208
thousand when compared with the prior year period, as continued weakness in
capital markets slowed growth in this area. 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 March 31, 2003.
Gains on sales of loans were $3.9 million in quarter ended March 31, 2003,
compared with $1.5 million in the prior year period. During first quarter 2003,
Trustmark recorded gains of $1.2 million on the sale of $19.2 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. Excluding the impact of this transaction,
gains on sales of loans from secondary marketing activity experienced
volume-driven growth of $1.2 million during first quarter 2003 compared with the
same period in 2002 from an increased volume of branch-originated loans and the
continued benefit of a falling interest rate environment.
Securities gains totaled $8.1 million during first quarter 2003 compared with
$140 thousand during first quarter 2002. The increase experienced during 2003 is
primarily from sales of available for sale (AFS) securities with a total fair
value of $99.1 million. 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. Management has
always regarded the investment portfolio as an integral tool in the management
of interest rate risk.
Other income during the three month periods ended March 31, 2003 and 2002, were
losses of $587 thousand and $585 thousand, respectively. First quarter 2003
included a $300 thousand gain on sale of premises and equipment, offset by a
$698 thousand loss on a fair value hedge adjustment on the mortgage servicing
portfolio. Valuation adjustments on Trustmark's interest rate caps and floors
also affected other income significantly, with losses of $269 thousand and $814
thousand for the first quarters of 2003 and 2002, respectively. Although the
intent of interest rate caps and floors is to provide protection against
excessive interest rate movement over a period of years that 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. These noncash charges against income 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 $461 thousand and $8.5 million at March 31, 2003 and
2002, respectively.
Noninterest Expense
The comparative components of noninterest expense for the three months ended
March 31, 2003 and 2002, are shown in the accompanying table.
- --------------------------------------------------------------------------------
Noninterest Expense
($ in thousands)
Quarter Ended
March 31,
-------------------
2003 2002 $ Change % Change
-------- -------- -------- --------
Salaries and employee benefits $ 35,924 $ 29,522 $ 6,402 21.7%
Net occupancy - premises 2,986 2,789 197 7.1%
Equipment expense 3,710 3,895 (185) -4.7%
Services and fees 7,879 7,805 74 0.9%
Amortization/impairment of intangible
assets 11,655 986 10,669 1082.0%
Loan expense 2,371 2,552 (181) -7.1%
Other expense 5,201 4,441 760 17.1%
-------- -------- --------
Total Noninterest Expense $ 69,726 $ 51,990 $ 17,736 34.1%
======== ======== ========
- --------------------------------------------------------------------------------
Trustmark's noninterest expense increased $17.7 million, or 34.1%, in first
quarter 2003 to $69.7 million, compared with $52.0 million in first quarter
2002. One of the contributing factors of this increase was Trustmark's early
retirement program, which yielded a $6.3 million expense in the first quarter of
2003. The increase in noninterest expense was also attributable to Trustmark's
recognition of $6.7 million in impairment allowance for mortgage servicing
rights in first quarter 2003 compared with a $2.0 million impairment reversal
for the same period in 2002. Growth in the impairment allowance results from the
continued reduction in long-term mortgage rates 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 $2.7 million, or 5.0%, when comparing the first
quarter of 2003 with the prior year period.
Control of expenses remains a management priority. One method of measuring
expense control is the efficiency ratio, which is calculated by dividing total
noninterest expense by tax-equivalent net interest income plus noninterest
income and demonstrates how much a company spends for each dollar of revenue
earned. Trustmark's efficiency ratio was 54.17% for the first quarter of 2003,
compared with 50.95% for the same period in 2002. Certain transactions that
occurred during the periods have been excluded from net interest income,
noninterest income and noninterest expense in order to reflect the efficiency
ratio calculation on a comparable basis for the periods presented. Noninterest
expense was reduced for impairment of mortgage servicing rights of $6.7 million
in first quarter 2003 and increased by the $2.0 million impairment reversal in
first quarter 2002. Noninterest expense was also reduced by the $6.3 million
charge for the early retirement program during the first quarter of 2003.
Noninterest income has been reduced by securities gains of $8.1 million and $140
thousand for the first quarter of 2003 and 2002, respectively. In addition,
noninterest income has been increased by valuation adjustments for interest rate
contracts of $269 thousand and $814 thousand for the first quarter of 2003 and
2002, respectively.
Salaries and employee benefits, the largest category of noninterest expense,
were $35.9 million in first quarter 2003 and $29.5 million in first quarter
2002, an increase of $6.4 million, or 21.7%. This increase is primarily from
$6.3 million of expense recognized for Trustmark's early retirement program.
This program was accepted by 116 employees, or 4.75% of the workforce, and is
expected to result in significant savings during the remainder of 2003. These
savings should also enhance earnings in 2004.
During first quarter 2003, net occupancy-premises expense was $3.0 million, an
increase of $197 thousand, over the prior year period, and was partially offset
by the $185 thousand decrease in equipment expense for the same period. Services
and fees showed a minor change from the prior period, with an increase of $74
thousand in first quarter 2003 from first quarter 2002. Loan expense experienced
a minor decrease of $181 thousand during first quarter 2003 from the prior year
level.
Amortization/impairment expense associated with intangible assets totaled $11.7
million for first quarter 2003, compared with $986 thousand in the first quarter
of 2002. The increase experienced during the 2003 period included $6.7 million
for additional impairment of mortgage servicing rights compared with a $2.0
million impairment reversal in the prior period. This 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 $2.1 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 2003 period also included $138 thousand of
amortization of insurance customer relationship intangibles from the business
combination with CSI completed in June 2002.
Income Taxes
For the quarter ended March 31, 2003, Trustmark's combined effective tax rate
was 35.0%, compared with 34.9% for first quarter 2002. The slight increase in
Trustmark's effective tax rate 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 March 31, 2003, these
arrangements gave Trustmark approximately $1.412 billion in borrowing capacity,
compared with $1.482 billion as of December 31, 2002. In addition, Trustmark
maintains a borrowing relationship with the FHLB, which provided $125.0 million
in short-term advances and $457.7 million in long-term advances at March 31,
2003, compared with $107.7 million in short-term advances and $475.0 million in
long-term advances at December 31, 2002. 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
$513.2 million available in unused FHLB advances. Another borrowing source is
the Federal Reserve Discount Window (Discount Window). At March 31, 2003,
Trustmark had approximately $539 million available in borrowing capacity at the
Discount Window from pledges of auto loans and securities, compared with $541
million available at December 31, 2002. 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 March 31, 2003, Trustmark had not
drawn upon this line of credit.
On April 16, 2003, Trustmark filed a registration statement on Form S-3 with the
Securities and Exchange Commission (SEC) utilizing a "shelf" registration
process, which became effective May 2, 2003. Under this shelf process, Trustmark
may offer from time to time any combination of securities described in the
prospectus in one or more offerings up to a total amount of $200 million. The
securities described in the prospectus include common and preferred stock,
depositary shares, debt securities, junior subordinated debt securities and
trust preferred securities. Net proceeds from the sale of the offered securities
may be used to redeem or repurchase outstanding securities, repay outstanding
debt, finance acquisitions of companies and other assets and provide working
capital.
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
March 31, 2003, no such shares have been issued.
CAPITAL RESOURCES
At March 31, 2003, Trustmark's shareholders' equity was $660.6 million, a
decrease of $18.9 million, or 2.8%, from its level at December 31, 2002. This
decline in shareholders' equity resulted from an increased amount of common
shares repurchased and dividends paid when compared to first quarter net income.
Common Stock Repurchase Program
On October 15, 2002, the Board of Directors of Trustmark authorized the current
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 16.9 million shares for $357.2 million,
including 1.3 million shares during the first quarter of 2003 for $31.5 million.
The current remaining authorization is approximately 1.6 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
Dividends for the first three months of 2003 were $0.165 per share, increasing
10.0% when compared with dividends of $0.15 per share for the prior-year period.
Trustmark's dividend payout ratio, which is dividends per share divided by
earnings per share, was 40.2% for the first quarter of 2003, compared with 31.3%
for the same period in 2002.
Regulatory Capital
Trustmark and TNB are subject to minimum capital requirements, which are
administered by various federal regulatory agencies. These capital requirements,
as defined by federal guidelines, involve quantitative and qualitative measures
of assets, liabilities and certain off-balance sheet instruments. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the financial statements of both Trustmark and TNB.
Trustmark aims not only to exceed the minimum capital standards, but also the
well capitalized guidelines for regulatory capital. Management believes, as of
March 31, 2003, that Trustmark and TNB have met or exceeded all of the minimum
capital standards for the parent company and its primary banking subsidiary as
established by regulatory requirements. At March 31, 2003, the most recent
notification from the Office of the Comptroller of the Currency (OCC), TNB's
primary federal banking regulator, categorized TNB as well capitalized. To be
categorized in this manner, TNB must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios (defined in applicable regulations) as set
forth in the accompanying table. There are no significant conditions or events
that have occurred since the OCC's notification that Management believes have
affected TNB's present classification.
Regulatory Capital
($ in thousands)
March 31, 2003
---------------------------------------------------------------
Minimum Regulatory
Actual Regulatory Minimum Regulatory Provision to be
Capital Capital Required Well Capitalized
------------------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------ -------- ------ -------- ------
Total Capital (to Risk Weighted Assets)
Trustmark Corporation $636,985 13.60% $374,794 8.00% - -
Trustmark National Bank 617,917 13.46% 367,156 8.00% $458,944 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation $578,222 12.34% $187,397 4.00% - -
Trustmark National Bank 560,368 12.21% 183,578 4.00% $275,367 6.00%
Tier 1 Capital (to Average Assets)
Trustmark Corporation $578,222 8.24% $210,457 3.00% - -
Trustmark National Bank 560,368 8.17% 205,871 3.00% $343,119 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 March 31, 2003, earning assets were $6.625 billion,
or 90.68% of total assets, compared with $6.453 billion, or 90.40% of total
assets at December 31, 2002, an increase of $171.6 million, or 2.7%. The primary
component of this growth was an 8.5% increase in total securities as Management
decided to replenish the securities portfolio after large securities sales in
the latter part of 2002 and first quarter 2003.
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 March
31, 2003, Trustmark's securities portfolio totaled $1.967 billion, compared to
$1.812 billion at December 31, 2002, an increase of $154.8 million, or 8.5%.
The securities portfolio is a powerful risk management tool which 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.
During first quarter 2003, Trustmark sold additional securities with a total
fair value of $99.1 million. These transactions 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 then to an estimated 1.73 years at March
31, 2003. By reducing the duration of the portfolio, Trustmark has reduced
exposure to volatile interest rates while 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.
Available for sale (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 March 31,
2003, AFS securities totaled $1.524 billion, which represented 77.5% of the
securities portfolio, compared to $1.263 billion, or 69.7%, at December 31,
2002. At March 31, 2003, 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 March 31, 2003, unrealized gains on AFS securities of $13.8 million, net of
$5.3 million of deferred income taxes, were included in accumulated other
comprehensive income, compared with $22.8 million, net of $8.7 million, at
December 31, 2002. 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 March 31, 2003, HTM securities totaled $442.9 million and
represented 22.5% of the total portfolio, compared with $549.2 million, or
30.3%, at the end of 2002. This decrease is from calls and maturities of
securities, the proceeds of which were used to purchase shorter duration
mortgage related securities.
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 86% of
the portfolio in U.S. Treasury and U.S. Government agencies obligations.
Loans and Allowance for Loan Losses
Loans, including loans held for sale, represented 69.9% of earning assets at
March 31, 2003, compared with 71.6% at year-end 2002. At March 31, 2003, loans
totaled $4.631 billion, a nominal increase from its level of $4.617 billion at
December 31, 2002. Real estate lending continued to be positively impacted by
record low interest rates while other loan areas have been negatively affected
by a weakened economy.
Trustmark makes loans in the normal course of business to certain directors,
including their immediate families and companies in which they are principal
owners. Such loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than the normal risk
of collectibility at the time of the transaction.
Trustmark's lending policies have resulted in consistently sound asset quality.
One measure of asset quality in the financial services industry is the level of
nonperforming assets. The details of Trustmark's nonperforming assets at March
31, 2003 and December 31, 2002, are shown in the accompanying table.
- --------------------------------------------------------------------------------
Nonperforming Assets
($ in thousands)
March 31, December 31,
2003 2002
------------ ------------
Nonaccrual and restructured loans $ 31,769 $ 31,642
Other real estate (ORE) 7,281 6,298
------------ ------------
Total nonperforming assets $ 39,050 $ 37,940
============ ============
Accruing loans past due 90 days or more $ 2,512 $ 2,946
============ ============
Nonperforming assets/total loans and ORE 0.84% 0.82%
============ ============
- --------------------------------------------------------------------------------
Total nonperforming assets increased $1.1 million, or 2.9%, during the first
quarter of 2003. Most of this growth was seen in the area of other real estate,
which increased by $983 thousand, or 15.6% from the 2002 year-end level, and was
comprised primarily of three larger commercial customers. The reserve coverage
of nonperforming loans remains strong at 235.7% at March 31, 2003, a nominal
change from 236.3% at December 31, 2002.
At March 31, 2003, the allowance for loan losses was $74.9 million, increasing
$96 thousand, or 0.1%, from the year-end 2002 level of $74.8 million. The
allowance for loan losses represented 1.62% of total loans outstanding at March
31, 2003, and December 31, 2002. As of March 31, 2003, 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 $2.9 million, or 0.26%, of average loans, for the quarter
ended March 31, 2003, compared with $4.6 million, or 0.42% of average loans, for
the prior year period. This improvement is primarily from gross charge-offs,
which decreased $1.7 million, or 24.2%, when comparing the first quarters of
2003 and 2002. First quarter 2002 charge-offs were affected by four larger
commercial loan losses totaling $2.1 million.
Other Earning Assets
Federal funds sold and securities purchased under reverse repurchase agreements
were $27.0 million at March 31, 2003, an increase of $3.1 million, when compared
with year-end 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
$4.978 billion at March 31, 2003, compared with $4.686 billion at December 31,
2002, an increase of $291.7 million, or 6.2%. This growth primarily came from
seasonal increases in public interest-bearing demand deposits. During the first
quarter of 2003, interest-bearing deposits increased $319.0 million, or 9.3%,
while noninterest-bearing deposits decreased $27.3 million, or 2.2%. Trustmark's
deposit mix remains favorable with noninterest-bearing deposits representing
24.6% of total deposits at March 31, 2003, compared with 26.7% at year-end 2002.
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 $1.138 billion at March 31, 2003, a
decrease of $92.6 million, compared with $1.231 billion at year-end 2002.
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 $457.7 million at March 31, 2003, a decrease of
$17.3 million from December 31, 2002. These totals include $250.0 million in
advances with variable rates adjusting quarterly, while the remaining advances
are fixed rate, primarily 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.
At December 31, 2002, Trustmark's pension plan was underfunded, requiring an
accrual for minimum pension liability of $5.7 million. During the first quarter
of 2003, the Board of Directors approved a tax-deductible contribution to the
pension plan in the amount of $7.0 million. A minimum pension liability of $5.7
million will be reevaluated at the plan's measurement date, October 31, 2003.
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. 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, where it remains at March 31, 2003. Modeling static balances from
March 31, 2003, it is estimated that net interest income may increase, possibly
as much as 8%, 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 is a
slight improvement in exposure to rising rates when compared to December 31,
2002. In a shocked, down 200 basis point rate shift scenario, net income may
decline from the base case as much as 13% 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 remainder 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 March 31, 2003, reflected an
asset gap of $22 million, shifting from a liability gap of $234 million at March
31, 2002. One-year gap analysis projected at March 31, 2003, reflected an asset
gap of $258 million, an improvement from a liability gap of $146 million at
March 31, 2002. This new static gap analysis indicates that Trustmark is better
positioned for the possibility of a rising interest rate environment.
As part of Trustmark's risk management strategy in the mortgage banking area,
various derivative instruments such as interest rate lock commitments and
forward sales contracts are utilized. 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. Effective January 1,
2003, Trustmark has redesignated these derivative instruments as fair value
hedges as permitted by SFAS No. 133, "Accounting for Derivatives Instruments and
Hedging Activities," as amended. Under SFAS No. 133, changes in the values of
derivatives designated as fair value hedges are recognized in earnings. In this
case Trustmark would recognize changes in the values of the designated
derivatives in earnings simultaneously with changes in the values of the
designated hedged loans. To the extent changes in the values of the derivatives
are 100% effective in offsetting changes in the values of hedged loans, the fair
value adjustments on the derivatives and hedged loans would offset one another.
In contrast, Trustmark's previous designation of these derivatives as cash flow
hedges resulted in changes in value being recognized in accumulated other
comprehensive income, net of taxes, a component of Shareholders' Equity, and in
earnings. Management anticipates that this change will help mitigate the
potential for earnings volatility related to the valuation of these hedging
instruments in the future.
Trustmark continued a risk controlling strategy utilizing caps and floors, which
may be further implemented over time. As of March 31, 2003, Trustmark was not
utilizing interest rate floors but 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.
Another tool used for interest rate risk management is interest rate swaps.
Interest rate swaps are derivative contracts under which two parties agree to
make interest payments on a notional principal amount. In a generic swap, one
party pays a fixed interest rate and receives a floating interest rate while the
other party receives a fixed interest rate and pays a floating interest rate.
During April 2003, Trustmark initiated four separate interest rate swaps with a
total notional principal amount of $100 million. Trustmark initiated these swaps
to mitigate the effects of further changes in the fair value of specific
noncallable, nonprepayable, fixed rate advances from the FHLB by agreeing to pay
a floating interest rate tied to LIBOR. The swap contracts are tied to the
maturity of four separate FHLB advances maturing between 2005 and 2006.
RECENT PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board (FASB) issued SFAS No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." This statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under SFAS No. 133. This statement is effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. Management is in the process of evaluating the
impact of this statement but does not expect it to have a material impact on
Trustmark's consolidated financial position and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in "Market/Interest Rate Risk
Management" (pages 26-27) of "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ITEM 4. CONTROLS AND PROCEDURES
For the period ending March 31, 2003, Trustmark evaluated the effectiveness of
the design and operation of its disclosure controls and procedures pursuant to
Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended
(Exchange Act) , under the supervision and with the participation of its
management, including the Chief Executive Officer and the Treasurer (the
Principal Financial Officer). Based upon this evaluation, the Chief Executive
Officer and the Treasurer concluded that, as of March 31, 2003, Trustmark's
disclosure controls and procedures were adequate to ensure that information
required to be disclosed by Trustmark in the reports filed or submitted by it
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and Exchange
Commission. Subsequent to this review, there have been no significant changes in
Trustmark's internal controls or in other factors that could significantly
affect these controls.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material developments for the quarter ended March 31, 2003, other
than those disclosed in the Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of this Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
The exhibits listed in the Exhibit Index are filed herewith or are
incorporated herein by reference.
B. Reports on Form 8-K
1. On January 21, 2003, Trustmark filed a report on Form 8-K announcing
its financial results for the period ended December 31, 2002.
2. On January 28, 2003, Trustmark filed a report on Form 8-K announcing
that Chairman and Chief Executive Officer Richard G. Hickson was
making a presentation to analysts attending the 2003 Salomon Smith
Barney Financial Services Conference. The report included the
financial data that was presented at the conference.
3. On February 11, 2003, Trustmark filed a report on Form 8-K announcing
the results of a voluntary early retirement program.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRUSTMARK CORPORATION
BY: /s/ Richard G. Hickson BY: /s/ Zach L. Wasson
---------------------- ------------------
Richard G. Hickson Zach L. Wasson
Chairman of the Board, President Treasurer (Principal
& Chief Executive Officer Financial Officer)
DATE: May 14, 2003 DATE: May 14, 2003
EXHIBIT INDEX
10-a Long Term Incentive Plan - Stock Options for key employees of Trustmark
Corporation and its subsidiaries and members of the Board of Directors
of Trustmark, as amended October 1, 2002.
99-a Certification by Chief Executive Officer pursuant to 18 U.S.C. ss. 1350.
99-b Certification by Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
99-c Certification by Chief Financial Officer pursuant to 18 U.S.C. ss. 1350.
99-d Certification by Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
All other exhibits are omitted, as they are inapplicable or not required by the
related instructions.
Exhibit 99-a
CERTIFICATION BY
CHIEF EXECUTIVE OFFICER
TRUSTMARK CORPORATION AND SUBSIDIARIES
PURSUANT TO 18 U.S.C. ss. 1350
I, Richard G. Hickson, Chairman of the Board, President & Chief Executive
Officer of Trustmark Corporation and Subsidiaries (Trustmark), hereby certify
that the accompanying report on Form 10-Q (Report) for the period ending March
31, 2003, and filed with the Securities and Exchange Commission on the date
hereof pursuant to Section 13(a) of the Securities Exchange Act of 1934 by
Trustmark, fully complies with the requirements of that section.
I further certify that the information contained in the Report fairly presents,
in all material aspects, the financial condition and results of operations of
Trustmark.
BY: /s/ Richard G. Hickson
----------------------
Richard G. Hickson
Chairman of the Board, President
& Chief Executive Officer
DATE: May 14, 2003
Exhibit 99-b
CERTIFICATION BY
CHIEF EXECUTIVE OFFICER
TRUSTMARK CORPORATION AND SUBSIDIARIES
PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Richard G. Hickson, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Trustmark
Corporation and Subsidiaries;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
BY: /s/ Richard G. Hickson
----------------------
Richard G. Hickson
Chairman of the Board, President
& Chief Executive Officer
DATE: May 14, 2003
Exhibit 99-c
CERTIFICATION BY
CHIEF FINANCIAL OFFICER
TRUSTMARK CORPORATION AND SUBSIDIARIES
PURSUANT TO 18 U.S.C. ss. 1350
I, Zach L. Wasson, Treasurer of Trustmark, hereby certify that the accompanying
report on Form 10-Q (Report) for the period ending March 31, 2003, and filed
with the Securities and Exchange Commission on the date hereof pursuant to
Section 13(a) of the Securities Exchange Act of 1934 by Trustmark, fully
complies with the requirements of that section.
I further certify that the information contained in the Report fairly presents,
in all material aspects, the financial condition and results of operations of
Trustmark.
BY: /s/ Zach L. Wasson
------------------
Zach L. Wasson
Treasurer (Principal
Financial Officer)
DATE: May 14, 2003
Exhibit 99-d
CERTIFICATION BY
CHIEF FINANCIAL OFFICER
TRUSTMARK CORPORATION AND SUBSIDIARIES
PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Zach L. Wasson, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Trustmark
Corporation and Subsidiaries;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
BY: /s/ Zach L. Wasson
------------------
Zach L. Wasson
Treasurer (Principal
Financial Officer)
DATE: May 14, 2003