Trustmark, Walgreens Join 'Clean Stocks' List

The stock has faltered -- shares are down a cumulative 10% over the last three years -- and the pressure to increase salaries has grown. Will that mean Southwest will grant more options in an effort to keep cash compensation low or will the uncertainties in the airline industry make its employees demand more cash? It's hard to tell how future compensation issues will affect earnings because the company doesn't expense options as compensation now.

Trustmark: Approved

Bank accounting requires a lot of trust from investors. Are bad-loan reserves really enough to cover write-offs? Is the bank taking big risks in its hedging against risk? Are securities in the bank's portfolio really marked to fair value? There's really no way for most investors to tell so it all comes down to trust: Do you trust that the people running the bank are telling the truth?

I'd say yes at Trustmark, a bank with 150 offices in Mississippi and Tennessee. Here's why.

The company, headquartered in Jackson, Miss., set up its governance committee in 2000 before the issue became fashionable. The audit and finance committee meets with internal and outside auditors regularly without management, something recommended in the latest round of reforms. And the company has a clear and anonymous method for reporting fraud posted prominently on its Web site for employees and the public, along with a promise not to retaliate against whistle-blowers.

The rest of my due diligence supports that picture. Expensing options wouldn't change earnings per share. Ten of 12 directors are independent by my definition. Auditor KMPG makes $471,000 from auditing the books and only $73,000 from other work. Tricky categories that give banks a chance to fudge earnings, like gains on sale of loans, are a small part of total income. The company did grow by acquisition in 2003, but the deal was to add seven bank branches in Florida and put just $48 million in goodwill on the books.