Trustmark Corporation Announces Third Quarter Earnings

Trustmark Corporation (NASDAQ:TRMK) announced net income of $29.1 million in the third quarter of 2007, which represented basic earnings per share of $0.51. Trustmark’s third quarter net income produced a return on average tangible shareholders’ equity of 20.41% and a return on average assets of 1.31%. During the first nine months of 2007, Trustmark’s net income totaled $84.8 million, which represented basic earnings per share of $1.47. Trustmark’s performance during the first nine months of 2007 resulted in returns on average tangible shareholders’ equity and average assets of 20.19% and 1.29%, respectively. Highlights for the third quarter of 2007 compared to the second quarter of 2007 include: Average total loans increased $186.3 million, or 2.7% Net interest income (FTE) expanded 1.6% to $77.4 million, resulting in a stable net interest margin of 3.91% Noninterest income increased 2.7% to $41.6 million and represented 35.0% of total revenue Noninterest expense declined for the second consecutive quarter Continued investment in banking center expansion program with opening of two additional offices Richard G. Hickson, Chairman and CEO, stated, "The repositioning of our balance sheet continued during the third quarter as quality, higher yield loans replaced maturing lower yield securities. Increasing momentum of our balance sheet strategy is especially evident when reviewing our performance during the second and third quarters of 2007. On a linked quarter basis, average loans increased $186.3 million, or 2.7%. Commercial and consumer loan growth was well diversified and the disciplined reduction in our home mortgage loan portfolio continued. From a geographic perspective, loan growth was most pronounced in our Houston, Jackson, and South Mississippi markets. Our successful expansion into higher growth markets is reflected in Trustmark’s loan portfolio. At the end of the third quarter, our Houston, Florida panhandle and Memphis loan portfolios represented 11%, 10%, and 7% of our total loans, respectively. "Trustmark optimized its funding costs and reduced balances of higher yielding deposits during the third quarter. Loan growth, coupled with diligent management of our funding base, is reflected in increased net interest income and a stable net interest margin of 3.91%,” said Hickson. "Investments in image technology are generating significantly increasing returns for Trustmark. The ability to capture and transmit check images electronically has been implemented in our banking centers in Florida, Tennessee and Texas. This has significantly decreased clearing and courier costs and expedited funds availability. In addition, Trustmark is now both sending and receiving its daily transit check clearings electronically with the Federal Reserve Bank of Atlanta. The benefits of these investments have produced tangible results: average cash and cash equivalent levels during the third quarter have been reduced by approximately $65 million relative to figures one year earlier, positively impacting the net interest margin and reducing staffing in operational areas. Implementation of check image capture technology in our core Mississippi banking centers will be completed by mid-year 2008, resulting in additional efficiencies in courier costs and human capital. "Trustmark initiated an enhanced process to proactively manage expenses during the first quarter of 2007 that has reduced our quarterly noninterest expense by approximately $1.0 million, or by 1.5% annually. As a result, our efficiency ratio improved to 57.98% during the third quarter of 2007. The success of this initiative is due in part to technology enhancements, vendor and contract management programs, and human capital management. While we are pleased with our progress to date, we are committed to identifying additional reengineering and efficiency opportunities designed to enhance shareholder value,” said Hickson. "We believe Trustmark’s credit culture and underwriting processes have well-positioned the organization to face the challenges presented by the current economic environment. While Trustmark has no sub-prime mortgage loans, we are not immune to the credit challenges and current market conditions facing the financial services industry. During the third quarter of 2007, nonperforming loans increased $17.7 million due principally to two relationships with residential real estate developers originated in our Florida and Tennessee markets that were impacted by the residential real estate slowdown. Based upon current economic conditions, we believe Trustmark is adequately reserved. Trustmark’s allocation of its allowance for loan losses represented 1.36% of commercial loans and 0.58% of consumer and home mortgage loans, resulting in an allowance to total loans of 1.05% at September 30, 2007. Net charge-offs represented 0.20% of average loans during the third quarter and 0.13% of average loans year-to-date, comparing favorably to industry benchmarks,” said Hickson. "We continue to make investments to support additional revenue growth and profitability as well as to reallocate resources to areas with additional growth potential. During the third quarter, Trustmark opened two banking centers in Jackson and Hattiesburg. We anticipate opening two additional banking centers in the Houston and Florida panhandle markets during the remainder of 2007. During 2008, four additional banking offices are expected to open in the Florida panhandle, Houston, Memphis and Mississippi Gulf Coast markets. These actions reflect our commitment to build long-term value for our shareholders through reallocation of resources to areas with additional growth potential," said Hickson. "Our Board of Directors recently affirmed Trustmark’s 2008-10 Strategic Plan and strategy of continued migration into markets with higher growth opportunities, including Florida and Texas. While expanding into higher growth markets, Trustmark will vigorously defend its leadership position in major legacy markets in Mississippi. We will continue to focus on revenue growth and expense management in an effort to increase shareholder value,” said Hickson. ADDITIONAL INFORMATION As previously announced, Trustmark will host a conference call with analysts on Wednesday, October 24 at 10:00 a.m. Central Time to discuss the Corporation’s financial results. Interested parties may listen to the conference call by dialing (800) 810-0924, passcode 6416369 or by clicking on the link provided under the Investor Relations section of our website at www.trustmark.com. A replay of the conference call will also be available through Wednesday, October 31 in archived format at the same web address or by calling (888) 203-1112, passcode 6416369. Trustmark is a financial services company providing banking and financial solutions through over 150 offices and 2,600 associates in Florida, Mississippi, Tennessee and Texas. FORWARD-LOOKING STATEMENTS Certain statements contained in this document 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 include, but are not limited to, statements relating to anticipated future operating and financial performance measures, including net interest margin, credit quality, business initiatives, growth opportunities and growth rates, among other things and encompass any estimate, prediction, expectation, projection, opinion, anticipation, outlook or statement of belief included therein as well as the management assumptions underlying these forward-looking statements. 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, but are not limited to, changes in the level of nonperforming assets and charge-offs, local, state and national economic and market conditions, material changes in market interest rates, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, changes in existing regulations or the adoption of new regulations, natural disasters, acts of war or terrorism, changes in consumer spending, borrowings and savings habits, technological changes, changes in the financial performance or condition of Trustmark’s borrowers, the ability to control expenses, changes in Trustmark’s compensation and benefit plans, greater than expected costs or difficulties related to the integration of new products and lines of business and other risks described in Trustmark’s filings with the Securities and Exchange Commission. 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. Trustmark undertakes no obligation to update or revise any of this information, whether as the result of new information, future events or developments or otherwise. TRUSTMARK CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL INFORMATION September 30, 2007 ($ in thousands) (unaudited)           Quarter EndedSeptember 30, AVERAGE BALANCES 2007 2006 $ Change % Change Securities AFS-taxable $ 525,858 $ 831,128 $ (305,270 ) -36.7 % Securities AFS-nontaxable 48,818 56,281 (7,463 ) -13.3 % Securities HTM-taxable 194,356 198,513 (4,157 ) -2.1 % Securities HTM-nontaxable   84,767     94,509     (9,742 ) -10.3 % Total securities   853,799     1,180,431     (326,632 ) -27.7 % Loans 6,970,434 6,355,969 614,465 9.7 % Fed funds sold and rev repos   30,201     25,205     4,996   19.8 % Total earning assets   7,854,434     7,561,605     292,829   3.9 % Allowance for loan losses (70,950 ) (73,836 ) 2,886 -3.9 % Cash and due from banks 260,997 325,817 (64,820 ) -19.9 % Other assets   792,967     636,434     156,533   24.6 % Total assets $ 8,837,448   $ 8,450,020   $ 387,428   4.6 %   Interest-bearing demand deposits $ 1,166,548 $ 1,039,355 $ 127,193 12.2 % Savings deposits 1,671,993 1,669,894 2,099 0.1 % Time deposits less than $100,000 1,575,320 1,533,155 42,165 2.8 % Time deposits of $100,000 or more   1,037,785     880,505     157,280   17.9 % Total interest-bearing deposits 5,451,646 5,122,909 328,737 6.4 % Fed funds purchased and repos 491,488 432,486 59,002 13.6 % Short-term borrowings 314,264 535,339 (221,075 ) -41.3 % Subordinated notes 49,696 - 49,696 n/m Junior subordinated debt securities   70,104     32,631     37,473   114.8 % Total interest-bearing liabilities 6,377,198 6,123,365 253,833 4.1 % Noninterest-bearing deposits 1,423,745 1,388,201 35,544 2.6 % Other liabilities 135,469 132,421 3,048 2.3 % Shareholders' equity   901,036     806,033     95,003   11.8 % Total liabilities and equity $ 8,837,448   $ 8,450,020   $ 387,428   4.6 %   Year-to-dateSeptember 30, AVERAGE BALANCES 2007 2006 $ Change % Change Securities AFS-taxable $ 620,614 $ 879,062 $ (258,448 ) -29.4 % Securities AFS-nontaxable 52,065 58,176 (6,111 ) -10.5 % Securities HTM-taxable 196,341 201,468 (5,127 ) -2.5 % Securities HTM-nontaxable   87,063     93,403     (6,340 ) -6.8 % Total securities   956,083     1,232,109     (276,026 ) -22.4 % Loans 6,807,184 6,175,020 632,164 10.2 % Fed funds sold and rev repos   45,868     27,164     18,704   68.9 % Total earning assets   7,809,135     7,434,293     374,842   5.0 % Allowance for loan losses (71,929 ) (74,786 ) 2,857 -3.8 % Cash and due from banks 297,154 325,067 (27,913 ) -8.6 % Other assets   785,020     587,073     197,947   33.7 % Total assets $ 8,819,380   $ 8,271,647   $ 547,733   6.6 %   Interest-bearing demand deposits $ 1,195,398 $ 932,196 $ 263,202 28.2 % Savings deposits 1,742,163 1,691,028 51,135 3.0 % Time deposits less than $100,000 1,601,783 1,465,325 136,458 9.3 % Time deposits of $100,000 or more   1,022,356     817,812     204,544   25.0 % Total interest-bearing deposits 5,561,700 4,906,361 655,339 13.4 % Fed funds purchased and repos 423,853 494,750 (70,897 ) -14.3 % Short-term borrowings 220,381 592,602 (372,221 ) -62.8 % Long-term FHLB advances - 3,778 (3,778 ) n/m Subordinated notes 49,688 - 49,688 n/m Junior subordinated debt securities   70,104     10,997     59,107   537.5 % Total interest-bearing liabilities 6,325,726 6,008,488 317,238 5.3 % Noninterest-bearing deposits 1,467,671 1,379,921 87,750 6.4 % Other liabilities 127,900 113,976 13,924 12.2 % Shareholders' equity   898,083     769,262     128,821   16.7 % Total liabilities and equity $ 8,819,380   $ 8,271,647   $ 547,733   6.6 %   n/m - not meaningful   September 30, PERIOD END BALANCES 2007 2006 $ Change % Change Securities available for sale $ 519,920 $ 825,106 $ (305,186 ) -37.0 % Securities held to maturity   278,385     289,125     (10,740 ) -3.7 % Total securities   798,305     1,114,231     (315,926 ) -28.4 % Loans held for sale 133,693 125,988 7,705 6.1 % Loans 6,917,541 6,558,900 358,641 5.5 % Fed funds sold and rev repos   28,625     6,907     21,718   314.4 % Total earning assets   7,878,164     7,806,026     72,138   0.9 % Allowance for loan losses (72,368 ) (75,539 ) 3,171 -4.2 % Cash and due from banks 306,107 348,397 (42,290 ) -12.1 % Mortgage servicing rights 73,253 66,526 6,727 10.1 % Goodwill 291,177 290,753 424 0.1 % Identifiable intangible assets 29,313 36,503 (7,190 ) -19.7 % Other assets   405,341     390,101     15,240   3.9 % Total assets $ 8,910,987   $ 8,862,767   $ 48,220   0.5 %   Noninterest-bearing deposits $ 1,435,231 $ 1,580,533 $ (145,302 ) -9.2 % Interest-bearing deposits   5,467,221     5,541,680     (74,459 ) -1.3 % Total deposits 6,902,452 7,122,213 (219,761 ) -3.1 % Fed funds purchased and repos 525,142 258,463 266,679 103.2 % Short-term borrowings 340,598 430,210 (89,612 ) -20.8 % Subordinated notes 49,701 - 49,701 n/m Junior subordinated debt securities 70,104 70,104 - n/m Other liabilities   115,453     100,244     15,209   15.2 % Total liabilities   8,003,450     7,981,234     22,216   0.3 % Common stock 11,933 12,212 (279 ) -2.3 % Surplus 123,227 156,625 (33,398 ) -21.3 % Retained earnings 787,356 724,384 62,972 8.7 %   Accum other comprehensive loss, net of tax   (14,979 )   (11,688 )   (3,291 ) n/m Total shareholders' equity   907,537     881,533     26,004   2.9 % Total liabilities and equity $ 8,910,987   $ 8,862,767   $ 48,220   0.5 %   Total interest-bearing liabilities $ 6,452,766   $ 6,300,457   $ 152,309   2.4 %   n/m - not meaningful   PERIOD END BALANCES 9/30/2007 12/31/2006 $ Change % Change Securities available for sale $ 519,920 $ 758,273 $ (238,353 ) -31.4 % Securities held to maturity   278,385     292,243     (13,858 ) -4.7 % Total securities   798,305     1,050,516     (252,211 ) -24.0 % Loans held for sale 133,693 95,375 38,318 40.2 % Loans 6,917,541 6,563,153 354,388 5.4 % Fed funds sold and rev repos   28,625     27,259     1,366   5.0 % Total earning assets   7,878,164     7,736,303     141,861   1.8 % Allowance for loan losses (72,368 ) (72,098 ) (270 ) 0.4 % Cash and due from banks 306,107 392,083 (85,976 ) -21.9 % Mortgage servicing rights 73,253 69,272 3,981 5.7 % Goodwill 291,177 290,363 814 0.3 % Identifiable intangible assets 29,313 32,960 (3,647 ) -11.1 % Other assets   405,341     392,087     13,254   3.4 % Total assets $ 8,910,987   $ 8,840,970   $ 70,017   0.8 %   Noninterest-bearing deposits $ 1,435,231 $ 1,574,769 $ (139,538 ) -8.9 % Interest-bearing deposits   5,467,221     5,401,395     65,826   1.2 % Total deposits 6,902,452 6,976,164 (73,712 ) -1.1 % Fed funds purchased and repos 525,142 470,434 54,708 11.6 % Short-term borrowings 340,598 271,067 69,531 25.7 % Subordinated notes 49,701 49,677 24 n/m Junior subordinated debt securities 70,104 70,104 - n/m Other liabilities   115,453     112,189     3,264   2.9 % Total liabilities   8,003,450     7,949,635     53,815   0.7 % Common stock 11,933 12,226 (293 ) -2.4 % Surplus 123,227 158,856 (35,629 ) -22.4 % Retained earnings 787,356 740,870 46,486 6.3 %   Accum other comprehensive loss, net of tax   (14,979 )   (20,617 )   5,638   n/m Total shareholders' equity   907,537     891,335     16,202   1.8 % Total liabilities and equity $ 8,910,987   $ 8,840,970   $ 70,017   0.8 %   Total interest-bearing liabilities $ 6,452,766   $ 6,262,677   $ 190,089   3.0 %   n/m - not meaningful   Quarter EndedSeptember 30, INCOME STATEMENTS 2007 2006 $ Change % Change Interest and fees on loans-FTE $ 129,394 $ 113,756 $ 15,638 13.7 % Interest on securities-taxable 7,181 10,222 (3,041 ) -29.7 % Interest on securities-tax exempt-FTE 2,422 2,773 (351 ) -12.7 % Interest on fed funds sold and rev repos 397 346 51 14.7 % Other interest income   482     544     (62 ) -11.4 % Total interest income-FTE   139,876     127,641     12,235   9.6 % Interest on deposits 50,423 41,781 8,642 20.7 % Interest on fed funds pch and repos 5,898 4,896 1,002 20.5 % Other interest expense   6,186     7,890     (1,704 ) -21.6 % Total interest expense   62,507     54,567     7,940   14.6 % Net interest income-FTE 77,369 73,074 4,295 5.9 % Provision for loan losses   4,999     (81 )   5,080   n/m Net interest income after provision-FTE   72,370     73,155     (785 ) -1.1 % Service charges on deposit accounts 13,849 14,360 (511 ) -3.6 % Insurance commissions 8,983 8,935 48 0.5 % Wealth management 6,507 5,770 737 12.8 % General banking - other 6,111 5,668 443 7.8 % Mortgage banking, net 2,503 1,131 1,372 121.3 % Other, net   3,593     3,559     34   1.0 % Nonint inc-excl sec gains, net 41,546 39,423 2,123 5.4 % Security gains, net   23     645     (622 ) -96.4 % Total noninterest income   41,569     40,068     1,501   3.7 % Salaries and employee benefits 42,257 40,231 2,026 5.0 % Services and fees 9,285 9,240 45 0.5 % Net occupancy-premises 4,753 4,479 274 6.1 % Equipment expense 3,922 3,731 191 5.1 % Other expense   8,271     8,144     127   1.6 % Total noninterest expense   68,488     65,825     2,663   4.0 % Income before income taxes 45,451 47,398 (1,947 ) -4.1 % Tax equivalent adjustment 2,283 2,444 (161 ) -6.6 % Income taxes   14,087     15,193     (1,106 ) -7.3 % Net income $ 29,081   $ 29,761   $ (680 ) -2.3 %   Earnings per share Basic $ 0.51   $ 0.53   $ (0.02 ) -3.8 %   Diluted $ 0.51   $ 0.52   $ (0.01 ) -1.9 %   Weighted average shares outstanding Basic   57,267,119     56,590,964   1.2 %   Diluted   57,526,573     56,830,753   1.2 %   Period end shares outstanding   57,272,408     58,611,242   -2.3 %   Dividends per share $ 0.2200   $ 0.2100   4.8 %     n/m - not meaningful     Year-to-dateSeptember 30, INCOME STATEMENTS 2007 2006 $ Change % Change Interest and fees on loans-FTE $ 373,583 $ 316,352 $ 57,231 18.1 % Interest on securities-taxable 25,279 32,150 (6,871 ) -21.4 % Interest on securities-tax exempt-FTE 7,591 8,335 (744 ) -8.9 % Interest on fed funds sold and rev repos 1,830 1,018 812 79.8 % Other interest income   1,615     1,546     69   4.5 % Total interest income-FTE   409,898     359,401     50,497   14.1 % Interest on deposits 152,464 105,225 47,239 44.9 % Interest on fed funds pch and repos 14,725 15,700 (975 ) -6.2 % Other interest expense   14,706     22,552     (7,846 ) -34.8 % Total interest expense   181,895     143,477     38,418   26.8 % Net interest income-FTE 228,003 215,924 12,079 5.6 % Provision for loan losses   6,783     (5,029 )   11,812   n/m Net interest income after provision-FTE   221,220     220,953     267   0.1 % Service charges on deposit accounts 40,271 39,357 914 2.3 % Insurance commissions 27,656 26,002 1,654 6.4 % Wealth management 18,786 17,246 1,540 8.9 % General banking - other 18,699 16,333 2,366 14.5 % Mortgage banking, net 7,057 7,481 (424 ) -5.7 % Other, net   7,611     7,827     (216 ) -2.8 % Nonint inc-excl sec gains, net 120,080 114,246 5,834 5.1 % Security gains, net   110     1,895     (1,785 ) -94.2 % Total noninterest income   120,190     116,141     4,049   3.5 % Salaries and employee benefits 128,276 119,175 9,101 7.6 % Services and fees 27,884 26,983 901 3.3 % Net occupancy-premises 13,801 12,433 1,368 11.0 % Equipment expense 11,874 10,963 911 8.3 % Other expense   24,892     23,535     1,357   5.8 % Total noninterest expense   206,727     193,089     13,638   7.1 % Income before income taxes 134,683 144,005 (9,322 ) -6.5 % Tax equivalent adjustment 7,143 7,435 (292 ) -3.9 % Income taxes   42,774     46,716     (3,942 ) -8.4 % Net income $ 84,766   $ 89,854   $ (5,088 ) -5.7 %   Earnings per share Basic $ 1.47   $ 1.61   $ (0.14 ) -8.7 %   Diluted $ 1.46   $ 1.60   $ (0.14 ) -8.8 %   Weighted average shares outstanding Basic   57,856,420     55,954,020   3.4 %   Diluted   58,142,830     56,107,748   3.6 %   Period end shares outstanding   57,272,408     58,611,242   -2.3 %   Dividends per share $ 0.6600   $ 0.6300   4.8 %     n/m - not meaningful   September 30, NONPERFORMING ASSETS 2007 2006   $ Change % Change Nonaccrual loans $ 45,449 $ 27,758 $ 17,691 63.7 % Restructured loans   -     -     -   Total nonperforming loans 45,449 27,758 17,691 63.7 % Other real estate   5,870     3,284     2,586   78.7 % Total nonperforming assets 51,319 31,042 20,277 65.3 % Loans past due over 90 days Included in loan portfolio 9,521 3,721 5,800 155.9 % Serviced GNMA loans eligible for repch   9,539     12,783     (3,244 ) -25.4 % Total loans past due over 90 days   19,060     16,504     2,556   15.5 % Total nonperforming assets plus past due over 90 days $ 70,379   $ 47,546   $ 22,833   48.0 %     Quarter EndedSeptember 30, ALLOWANCE FOR LOAN LOSSES 2007 2006 $ Change % Change Beginning Balance $ 70,948 $ 71,846 $ (898 ) -1.2 % Provision for loan losses 4,999 (81 ) 5,080 n/m Charge-offs (6,417 ) (4,056 ) (2,361 ) 58.2 % Recoveries   2,838     2,513     325   12.9 % Net charge-offs (3,579 ) (1,543 ) (2,036 ) 132.0 % Allowance of acquired bank   -     5,317     (5,317 ) n/m Ending Balance $ 72,368   $ 75,539   $ (3,171 ) -4.2 %   Quarter EndedSeptember 30, RATIOS 2007 2006 ROA 1.31 % 1.40 % ROE 12.80 % 14.65 % Return on average tangible equity 20.41 % 20.51 % EOP equity/ EOP assets 10.18 % 9.95 % Average equity/average assets 10.20 % 9.54 % Interest margin - Yield - FTE 7.07 % 6.70 % Interest margin - Cost - FTE 3.16 % 2.86 % Net interest margin - FTE 3.91 % 3.83 % Rate on interest-bearing liabilities 3.89 % 3.54 % Efficiency ratio 57.98 % 58.52 % Net charge offs/average loans 0.20 % 0.10 % Provision for loan losses/average loans 0.28 % -0.01 % Nonperforming loans/total loans 0.66 % 0.42 % Nonperforming assets/total loans 0.74 % 0.47 % Nonperforming assets/total loans+ORE 0.74 % 0.47 % ALL/nonperforming loans 159.23 % 272.13 % ALL/total loans 1.05 % 1.15 % Net loans/total assets 76.82 % 73.15 %   Quarter EndedSeptember 30, COMMON STOCK PERFORMANCE 2007 2006 Market value of stock-Close $ 28.04 $ 31.43 Market value of stock-High $ 30.15 $ 32.78 Market value of stock-Low $ 24.13 $ 28.31 Book value of stock $ 15.85 $ 15.04 Tangible book value of stock $ 10.25 $ 9.46 Tangible equity $ 587,047 $ 554,277 Market/Book value of stock 176.91 % 208.98 %   September 30, OTHER DATA 2007 2006 EOP Employees - FTE 2,635 2,674     n/m - not meaningful   Year-to-dateSeptember 30, ALLOWANCE FOR LOAN LOSSES 2007 2006   $ Change % Change Beginning Balance $ 72,098 $ 76,691 $ (4,593 ) -6.0 % Provision for loan losses 6,783 (5,029 ) 11,812 n/m Charge-offs (14,886 ) (9,874 ) (5,012 ) 50.8 % Recoveries   8,373     8,434     (61 ) -0.7 % Net charge-offs (6,513 ) (1,440 ) (5,073 ) 352.3 % Allowance of acquired bank   -     5,317     (5,317 ) n/m Ending Balance $ 72,368   $ 75,539   $ (3,171 ) -4.2 %   Year-to-dateSeptember 30, RATIOS 2007 2006 ROA 1.29 % 1.45 % ROE 12.62 % 15.62 % Return on average tangible equity 20.19 % 20.64 % EOP equity/ EOP assets 10.18 % 9.95 % Average equity/average assets 10.18 % 9.30 % Interest margin - Yield - FTE 7.02 % 6.46 % Interest margin - Cost - FTE 3.11 % 2.58 % Net interest margin - FTE 3.90 % 3.88 % Rate on interest-bearing liabilities 3.84 % 3.19 % Efficiency ratio 59.60 % 58.68 % Net charge offs/average loans 0.13 % 0.03 % Provision for loan losses/average loans 0.13 % -0.11 % Nonperforming loans/total loans 0.66 % 0.42 % Nonperforming assets/total loans 0.74 % 0.47 % Nonperforming assets/total loans+ORE 0.74 % 0.47 % ALL/nonperforming loans 159.23 % 272.13 % ALL/total loans 1.05 % 1.15 % Net loans/total assets 76.82 % 73.15 %     Year-to-dateSeptember 30, COMMON STOCK PERFORMANCE 2007 2006 Market value of stock-Close $ 28.04 $ 31.43 Market value of stock-High $ 33.69 $ 32.78 Market value of stock-Low $ 24.13 $ 27.01 Book value of stock $ 15.85 $ 15.04 Tangible book value of stock $ 10.25 $ 9.46 Tangible equity $ 587,047 $ 554,277 Market/Book value of stock 176.91 % 208.98 %     n/m - not meaningful   Quarter Ended     AVERAGE BALANCES 9/30/2007   6/30/2007 $ Change   % Change Securities AFS-taxable $ 525,858 $ 655,815 $ (129,957 ) -19.8 % Securities AFS-nontaxable 48,818 52,627 (3,809 ) -7.2 % Securities HTM-taxable 194,356 196,424 (2,068 ) -1.1 % Securities HTM-nontaxable   84,767     86,491     (1,724 ) -2.0 % Total securities   853,799     991,357     (137,558 ) -13.9 % Loans 6,970,434 6,784,126 186,308 2.7 % Fed funds sold and rev repos   30,201     33,811     (3,610 ) -10.7 % Total earning assets   7,854,434     7,809,294     45,140   0.6 % Allowance for loan losses (70,950 ) (72,400 ) 1,450 -2.0 % Cash and due from banks 260,997 285,424 (24,427 ) -8.6 % Other assets   792,967     783,339     9,628   1.2 % Total assets $ 8,837,448   $ 8,805,657   $ 31,791   0.4 %   Interest-bearing demand deposits $ 1,166,548 $ 1,224,450 $ (57,902 ) -4.7 % Savings deposits 1,671,993 1,770,576 (98,583 ) -5.6 % Time deposits less than $100,000 1,575,320 1,613,569 (38,249 ) -2.4 % Time deposits of $100,000 or more   1,037,785     1,007,157     30,628   3.0 % Total interest-bearing deposits 5,451,646 5,615,752 (164,106 ) -2.9 % Fed funds purchased and repos 491,488 426,738 64,750 15.2 % Short-term borrowings 314,264 142,815 171,449 120.0 % Subordinated notes 49,696 49,688 8 0.0 % Junior subordinated debt securities   70,104     70,104     -   0.0 % Total interest-bearing liabilities 6,377,198 6,305,097 72,101 1.1 % Noninterest-bearing deposits 1,423,745 1,484,611 (60,866 ) -4.1 % Other liabilities 135,469 120,879 14,590 12.1 % Shareholders' equity   901,036     895,070     5,966   0.7 % Total liabilities and equity $ 8,837,448   $ 8,805,657   $ 31,791   0.4 %   PERIOD END BALANCES 9/30/2007 6/30/2007 $ Change % Change Securities available for sale $ 519,920 $ 608,906 $ (88,986 ) -14.6 % Securities held to maturity   278,385     281,403     (3,018 ) -1.1 % Total securities   798,305     890,309     (92,004 ) -10.3 % Loans held for sale 133,693 132,588 1,105 0.8 % Loans 6,917,541 6,769,632 147,909 2.2 % Fed funds sold and rev repos   28,625     20,081     8,544   42.5 % Total earning assets   7,878,164     7,812,610     65,554   0.8 % Allowance for loan losses (72,368 ) (70,948 ) (1,420 ) 2.0 % Cash and due from banks 306,107 292,248 13,859 4.7 % Mortgage servicing rights 73,253 76,955 (3,702 ) -4.8 % Goodwill 291,177 290,852 325 0.1 % Identifiable intangible assets 29,313 30,528 (1,215 ) -4.0 % Other assets   405,341     396,522     8,819   2.2 % Total assets $ 8,910,987   $ 8,828,767   $ 82,220   0.9 %   Noninterest-bearing deposits $ 1,435,231 $ 1,505,821 $ (70,590 ) -4.7 % Interest-bearing deposits   5,467,221     5,563,364     (96,143 ) -1.7 % Total deposits 6,902,452 7,069,185 (166,733 ) -2.4 % Fed funds purchased and repos 525,142 503,442 21,700 4.3 % Short-term borrowings 340,598 138,529 202,069 145.9 % Subordinated notes 49,701 49,693 8 0.0 % Junior subordinated debt securities 70,104 70,104 - 0.0 % Other liabilities   115,453     111,654     3,799   3.4 % Total liabilities   8,003,450     7,942,607     60,843   0.8 % Common stock 11,933 11,931 2 0.0 % Surplus 123,227 122,185 1,042 0.9 % Retained earnings 787,356 770,925 16,431 2.1 % Accum other comprehensive loss, net of tax   (14,979 )   (18,881 )   3,902   -20.7 % Total shareholders' equity   907,537     886,160     21,377   2.4 % Total liabilities and equity $ 8,910,987   $ 8,828,767   $ 82,220   0.9 %   Total interest-bearing liabilities $ 6,452,766   $ 6,325,132   $ 127,634   2.0 %   n/m - not meaningful   Quarter Ended INCOME STATEMENTS 9/30/2007 6/30/2007 $ Change % Change Interest and fees on loans-FTE $ 129,394 $ 124,224 $ 5,170 4.2 % Interest on securities-taxable 7,181 9,018 (1,837 ) -20.4 % Interest on securities-tax exempt-FTE 2,422 2,536 (114 ) -4.5 % Interest on fed funds sold and rev repos 397 457 (60 ) -13.1 % Other interest income   482     541     (59 ) -10.9 % Total interest income-FTE   139,876     136,776     3,100   2.3 % Interest on deposits 50,423 51,686 (1,263 ) -2.4 % Interest on fed funds pch and repos 5,898 5,014 884 17.6 % Other interest expense   6,186     3,937     2,249   57.1 % Total interest expense   62,507     60,637     1,870   3.1 % Net interest income-FTE 77,369 76,139 1,230 1.6 % Provision for loan losses   4,999     145     4,854   n/m Net interest income after provision-FTE   72,370     75,994     (3,624 ) -4.8 % Service charges on deposit accounts 13,849 13,729 120 0.9 % Insurance commissions 8,983 9,901 (918 ) -9.3 % Wealth management 6,507 6,400 107 1.7 % General banking - other 6,111 6,418 (307 ) -4.8 % Mortgage banking, net 2,503 1,799 704 39.1 % Other, net   3,593     2,194     1,399   63.8 % Nonint inc-excl sec gains, net 41,546 40,441 1,105 2.7 % Security gains, net   23     29     (6 ) -20.7 % Total noninterest income   41,569     40,470     1,099   2.7 % Salaries and employee benefits 42,257 42,853 (596 ) -1.4 % Services and fees 9,285 9,041 244 2.7 % Net occupancy-premises 4,753 4,634 119 2.6 % Equipment expense 3,922 4,048 (126 ) -3.1 % Other expense   8,271     8,257     14   0.2 % Total noninterest expense   68,488     68,833     (345 ) -0.5 % Income before income taxes 45,451 47,631 (2,180 ) -4.6 % Tax equivalent adjustment 2,283 2,307 (24 ) -1.0 % Income taxes   14,087     15,496     (1,409 ) -9.1 % Net income $ 29,081   $ 29,828   $ (747 ) -2.5 %   Earnings per share Basic $ 0.51   $ 0.52   $ (0.01 ) -1.9 %   Diluted $ 0.51   $ 0.51   $ -   0.0 %   Weighted average shares outstanding Basic   57,267,119     57,807,447   -0.9 %   Diluted   57,526,573     58,025,401   -0.9 %   Period end shares outstanding   57,272,408     57,264,283   0.0 %   Dividends per share $ 0.2200   $ 0.2200   0.0 %     n/m - not meaningful     NONPERFORMING ASSETS 9/30/2007 6/30/2007 $ Change % Change Nonaccrual loans $ 45,449 $ 27,770 $ 17,679 63.7 % Restructured loans   -     -     -   Total nonperforming loans 45,449 27,770 17,679 63.7 % Other real estate   5,870     3,408     2,462   72.2 % Total nonperforming assets 51,319 31,178 20,141 64.6 % Loans past due over 90 days Included in Loan Portfolio 9,521 6,433 3,088 48.0 % Serviced GNMA loans eligible for repch   9,539     11,273     (1,734 ) -15.4 % Total loans past due over 90 days   19,060     17,706     1,354   7.6 % Total nonperforming assets plus past due over 90 days $ 70,379   $ 48,884   $ 21,495   44.0 %     Quarter Ended ALLOWANCE FOR LOAN LOSSES 9/30/2007 6/30/2007 $ Change % Change Beginning Balance $ 70,948 $ 72,049 $ (1,101 ) -1.5 % Provision for loan losses 4,999 145 4,854 n/m   Charge-offs (6,417 ) (4,187 ) (2,230 ) 53.3 % Recoveries   2,838     2,941     (103 ) -3.5 % Net charge-offs   (3,579 )   (1,246 )   (2,333 ) 187.2 % Ending Balance $ 72,368   $ 70,948   $ 1,420   2.0 %   Quarter Ended RATIOS 9/30/2007 6/30/2007 ROA 1.31 % 1.36 % ROE 12.80 % 13.37 % Return on average tangible equity 20.41 % 21.38 % EOP equity/ EOP assets 10.18 % 10.04 % Average equity/average assets 10.20 % 10.16 % Interest margin - Yield - FTE 7.07 % 7.03 % Interest margin - Cost - FTE 3.16 % 3.11 % Net interest margin - FTE 3.91 % 3.91 % Rate on interest-bearing liabilities 3.89 % 3.86 % Efficiency ratio 57.98 % 59.04 % Net charge offs/average loans 0.20 % 0.07 % Provision for loan losses/average loans 0.28 % 0.01 % Nonperforming loans/total loans 0.66 % 0.41 % Nonperforming assets/total loans 0.74 % 0.46 % Nonperforming assets/total loans+ORE 0.74 % 0.46 % ALL/nonperforming loans 159.23 % 255.48 % ALL/total loans 1.05 % 1.05 % Net loans/total assets 76.82 % 75.87 %   Quarter Ended COMMON STOCK PERFORMANCE 9/30/2007 6/30/2007 Market value of stock-Close $ 28.04 $ 25.86 Market value of stock-High $ 30.15 $ 28.76 Market value of stock-Low $ 24.13 $ 25.04 Book value of stock $ 15.85 $ 15.47 Tangible book value of stock $ 10.25 $ 9.86 Tangible equity $ 587,047 $ 564,780 Market/Book value of stock 176.91 % 167.16 %     OTHER DATA 9/30/2007 6/30/2007 EOP Employees - FTE 2,635 2,694     n/m - not meaningful           TRUSTMARK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2007 ($ in thousands) (unaudited)   Note 1 – Financial Performance Non-GAAP   Management is presenting, in the accompanying table, adjustments to net income as reported in accordance with generally accepted accounting principles for significant items resulting from Hurricane Katrina. Management believes this information will help users compare Trustmark’s current results to those of prior periods.   Non-GAAP Disclosures ($ in thousands except per share amounts)   Quarter Ended 9/30/2007   6/30/2007   9/30/2006   Amount    Basic EPS Amount  Basic EPS Amount  Basic EPS   Net Income as reported-GAAP $ 29,081 $ 0.508 $ 29,828 $ 0.516 $ 29,761 $ 0.526   Adjustments (net of taxes): Less items related to Hurricane Katrina Provision for loan losses - - - - (874 ) (0.015 ) Mortgage related charges   -     -     -     -     (14 )   (0.001 )   -     -     -     -     (888 )   (0.016 )   Net Income adjusted for specific items (Non-GAAP) $ 29,081   $ 0.508   $ 29,828   $ 0.516   $ 28,873   $ 0.510       Year-to-Date 9/30/2007   9/30/2006   Amount  Basic EPS Amount  Basic EPS   Net Income as reported-GAAP $ 84,766 $ 1.465 $ 89,854 $ 1.606   Adjustments (net of taxes): Less items related to Hurricane Katrina Provision for loan losses (396 ) (0.007 ) (3,865 ) (0.069 ) Mortgage related charges   (269 )   (0.005 )   (694 )   (0.012 )   (665 )   (0.012 )   (4,559 )   (0.081 )   Net Income adjusted for specific items (Non-GAAP) $ 84,101   $ 1.453   $ 85,295   $ 1.525     During the third quarter of 2005, immediately following in the aftermath of Hurricane Katrina, Trustmark initiated a process to assess the storm’s impact on its customers and on Trustmark’s consolidated financial statements. In accordance with Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies,” Trustmark determined, through reasonable estimates, that specific losses were probable and initially increased its allowance for loan losses by $9.8 million and established other accruals for losses totaling $2.1 million, on a pretax basis. As a result of its quarterly evaluation of estimated probable losses resulting from Hurricane Katrina, Trustmark reduced its allowance for loan losses during 2007 by $0.6 million and other reserves by $0.4 million on a pretax basis resulting in an increase to Trustmark’s net income of $0.7 million, or $0.01 per share. The table above reflects the quarterly financial impact these changes in estimates had on reported earnings. At September 30, 2007, the allowance for loan losses included specific Katrina accruals totaling $1.2 million. Management’s estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as the information changes, actual results could differ from those estimates. Note 2 – Business Combinations On August 25, 2006, Trustmark completed its merger with Houston-based Republic Bancshares of Texas, Inc. (Republic) in a business combination accounted for by the purchase method of accounting. Trustmark purchased all the outstanding common and preferred shares of Republic for approximately $205.3 million. The purchase price includes approximately 3.3 million in common shares of Trustmark valued at $103.8 million, $100.0 million in cash and $1.5 million in acquisition-related costs. The purchase price allocations are final. At August 25, 2006, Republic had assets consisting of $21.1 million in cash and due from banks, $64.5 million in federal funds sold, $76.5 million in securities, $458.0 million in loans, $9.0 million in premises and equipment and $19.2 million in other assets as well as deposits of $593.3 million and borrowings and other liabilities of $14.2 million. These assets and liabilities have been recorded at fair value based on market conditions and risk characteristics at the acquisition date. Excess costs over tangible net assets acquired totaled $173.8 million, of which $19.3 million has been allocated to core deposits, $690 thousand to borrower relationships and $153.8 million to goodwill. Note 3 – Loans and Allowance for Loan Losses For the periods presented, loans consisted of the following:       9/30/07 6/30/07 9/30/06 Loans secured by real estate: Construction, land development and other land loans $ 1,155,737 $ 1,059,721 $ 903,399 Secured by 1-4 family residential properties 1,756,427 1,827,945 1,865,395 Secured by nonfarm, nonresidential properties 1,269,625 1,268,236 1,310,191 Other 142,505 132,833 127,072 Loans to finance agricultural production and other loans to farmers 30,486 38,999 31,055 Commercial and industrial loans 1,241,772 1,163,346 1,115,452 Consumer loans 1,068,610 1,018,427 926,823 Obligations of states and political subdivisions 210,925 205,431 227,397 Other loans   41,454   54,694   52,116 Loans 6,917,541 6,769,632 6,558,900 Less Allowance for loan losses   72,368   70,948   75,539 Net Loans $ 6,845,173 $ 6,698,684 $ 6,483,361   The allowance for loan losses is maintained at a level believed adequate by Management, based on estimated probable losses within the existing loan portfolio. Trustmark’s allowance for probable loan loss methodology is based on guidance provided in SEC Staff Accounting Bulletin No. 102, "Selected Loan Loss Allowance Methodology and Documentation Issues,” as well as on other regulatory guidance. Accordingly, Trustmark’s methodology is based on historical loss experience by type of loan and internal risk ratings, homogeneous risk pools and specific loss allocations, with adjustments considering current economic events and conditions. The provision for loan losses reflects loan quality trends, including the levels of and trends related to nonaccrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors, in compliance with the Interagency Policy Statement on the Allowance for Loan and Lease Losses published by the governmental regulating agencies for financial services companies. Based on recommendations from regulatory authorities, Trustmark modified its methodology regarding industry concentrations during the third quarter of 2007. As a result, there was an immaterial reclassification between components within the allowance for loan losses. Note 4 – Mortgage Banking Trustmark utilizes derivative instruments to offset changes in the fair value of mortgage servicing rights (MSR) attributable to changes in interest rates. Changes in the fair value of the derivative instrument are recorded in mortgage banking income, net and are offset by the changes in the fair value of MSR, as shown in the accompanying table. MSR fair values represent the effect of present value decay and the effect of changes in interest rates. Ineffectiveness of hedging MSR fair value is measured by comparing total hedge cost to the fair value of the MSR asset attributable to market changes. During 2007, the impact of implementing this strategy resulted in a net negative ineffectiveness of $0.8 million. The following table illustrates the components of mortgage banking income included in noninterest income in the accompanying income statements:     Quarter Ended Year-to-date   9/30/07       6/30/07       9/30/06     9/30/07       9/30/06   Mortgage servicing income, net $ 3,503 $ 3,478 $ 3,279 $ 10,459 $ 9,853 Change in fair value-MSR from market changes (5,268 ) 4,392 (3,901 ) (1,323 ) 2,113 Change in fair value-MSR from runoff (2,681 ) (2,494 ) (3,202 ) (7,279 ) (7,654 ) Change in fair value of derivatives 5,298 (5,492 ) 3,551 521 (886 ) Gain on sales of loans 1,224 1,496 1,057 4,065 3,711 Other, net   427     419     347     614     344   Mortgage banking, net $ 2,503   $ 1,799   $ 1,131   $ 7,057   $ 7,481     Note 5 – Earning Assets and Interest-Bearing Liabilities The following table illustrates the yields on earning assets by category as well as the rates paid on interest-bearing liabilities on a tax equivalent basis:     Quarter Ended Year-to-date 9/30/07   6/30/07   9/30/06 9/30/07   9/30/06 Securities – Taxable 3.96% 4.24% 3.94% 4.14% 3.98% Securities - Nontaxable 7.19% 7.31% 7.30% 7.29% 7.35% Securities – Total 4.46% 4.67% 4.37% 4.60% 4.39% Loans 7.36% 7.34% 7.10% 7.34% 6.85% FF Sold & Rev Repo 5.22% 5.42% 5.45% 5.33% 5.01% Total Earning Assets 7.07% 7.03% 6.70% 7.02% 6.46% Interest-bearing Deposits 3.67% 3.69% 3.24% 3.67% 2.87% FF Pch & Repo 4.76% 4.71% 4.49% 4.64% 4.24% Borrowings 5.65% 6.01% 5.51% 5.78% 4.96% Total Interest-bearing Liabilities 3.89% 3.86% 3.54% 3.84% 3.19% Net interest margin 3.91% 3.91% 3.83% 3.90% 3.88%   Note 6 – Subordinated Notes Payable and Junior Subordinated Debt Securities In December 2006, Trustmark National Bank (TNB) issued $50.0 million aggregate principal amount of Subordinated Notes (the Notes) due December 15, 2016. At September 30, 2007, the carrying amount of the Notes was $49.7 million. The Notes, which are not redeemable prior to maturity, qualify as Tier 2 capital for both TNB and Trustmark. Proceeds from the sale of the Notes were used for general corporate purposes. On August 18, 2006, Trustmark completed a private placement of $60.0 million of trust preferred securities through its Delaware trust affiliate, Trustmark Preferred Capital Trust I (the Trust). Under applicable regulatory guidelines, these trust preferred securities qualify as Tier 1 capital. The proceeds from the sale of the trust preferred securities were used by the Trust to purchase $61.856 million in aggregate principal amount of Trustmark’s junior subordinated debentures. In addition, pursuant to the acquisition of Republic Bancshares of Texas, Inc. on August 25, 2006, Trustmark assumed the liability for $8.248 million in junior subordinated debt securities issued to Republic Bancshares Capital Trust I (Republic Trust), also a Delaware trust. Republic Trust used the proceeds from the issuance of $8.0 million in trust preferred securities to acquire the junior subordinated debt securities. Under applicable regulatory guidelines, these trust preferred securities qualify as Tier 1 capital. As defined in applicable accounting standards, both Trustmark Preferred Capital Trust I and Republic Bancshares Capital Trust I, wholly-owned subsidiaries of Trustmark, are considered variable interest entities for which Trustmark is not the primary beneficiary. Accordingly, the accounts of both trusts are not included in Trustmark’s consolidated financial statements. Note 7 – Basis of Presentation Trustmark’s investment in the stock of the Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) has been reclassed from investment securities to other assets since these equity securities do not have a readily determinable fair value which places them outside the scope of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities.” Period end balances of FRB and FHLB stock totaled $33.2 million at September 30, 2007, $25.3 million at June 30, 2007, $34.0 million at December 31, 2006 and $37.4 million at September 30, 2006. In addition, Trustmark has also reclassed its investment in Qualified Zone Academy Bonds (QZABs) from other assets into loans. QZABs are part of a federal initiative that provides funds on a limited basis to schools that meet very specific criteria for construction and modernization projects. To qualify for funds from this initiative a school must be located in a federal empowerment zone, an enterprise community or 35 percent or more of its students must qualify for free or reduced price lunch. Interest payments on QZABs, which are covered by the federal government, are provided to Trustmark in the form of tax credits, in lieu of cash. Trustmark’s investment in QZABs will be measured in accordance with SFAS No. 115 since these investments meet the definition of a security, however, since Trustmark consistently reports investments of this nature as loans to states and political subdivisions, they will be classified as loans. Period end balances of QZABs totaled $21.3 million at September 30, 2007, June 30, 2007 and December 31, 2006, with the September 30, 2006 balance equaling $20.0 million. These reclassifications have been made to prior period amounts in order to conform to the current period presentation.