Edgar Filing: TRUSTMARK CORP

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2007


o	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

(Exact name of registrant as specified in its charter)


Mississippi		64-0471500
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

248 East Capitol Street, Jackson, Mississippi		39201
(Address of principal executive offices)		(Zip Code)

(601) 208-5111

(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of October 31, 2007, there were 57,272,408 shares outstanding of the registrant’s common stock (no par value).

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

Trustmark Corporation and Subsidiaries
Consolidated Balance Sheets
($ in thousands)

	(Unaudited)
	September 30,			December 31,
	2007			2006
Assets
Cash and due from banks (noninterest-bearing)	$	306,107		$	392,083
Federal funds sold and securities purchased
under reverse repurchase agreements		28,625			27,259
Securities available for sale (at fair value)		519,920			758,273
Securities held to maturity (fair value: $278,095-2007;
$290,905-2006)		278,385			292,243
Loans held for sale		133,693			95,375
Loans		6,917,541			6,563,153
Less allowance for loan losses		72,368			72,098
Net loans		6,845,173			6,491,055
Premises and equipment		146,630			134,372
Mortgage servicing rights		73,253			69,272
Goodwill		291,177			290,363
Identifiable intangible assets		29,313			32,960
Other assets		258,711			257,715
Total Assets	$	8,910,987		$	8,840,970

Liabilities
Deposits:
Noninterest-bearing	$	1,435,231		$	1,574,769
Interest-bearing		5,467,221			5,401,395
Total deposits		6,902,452			6,976,164
Federal funds purchased and securities
sold under repurchase agreements		525,142			470,434
Short-term borrowings		340,598			271,067
Subordinated notes		49,701			49,677
Junior subordinated debt securities		70,104			70,104
Other liabilities		115,453			112,189
Total Liabilities		8,003,450			7,949,635

Commitments and Contingencies

Shareholders' Equity
Common stock, no par value:
Authorized: 250,000,000 shares
Issued and outstanding: 57,272,408 shares - 2007;
58,611,242 shares - 2006		11,933			12,226
Capital surplus		123,227			158,856
Retained earnings		787,356			740,870
Accumulated other comprehensive loss, net of tax		(14,979	)		(20,617	)
Total Shareholders' Equity		907,537			891,335
Total Liabilities and Shareholders' Equity	$	8,910,987		$	8,840,970

See notes to consolidated financial statements.

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Trustmark Corporation and Subsidiaries
Consolidated Statements of Income
($ in thousands except per share data)
(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2007		2006			2007		2006
Interest Income
Interest and fees on loans	$	127,959	$	112,282		$	369,097	$	311,834
Interest on securities:
Taxable		7,181		10,222			25,279		32,150
Tax exempt		1,574		1,803			4,934		5,418
Interest on federal funds sold and securities purchased
under reverse repurchase agreements		397		346			1,830		1,018
Other interest income		482		544			1,615		1,546
Total Interest Income		137,593		125,197			402,755		351,966

Interest Expense
Interest on deposits		50,423		41,781			152,464		105,225
Interest on federal funds purchased and securities
sold under repurchase agreements		5,898		4,896			14,725		15,700
Other interest expense		6,186		7,890			14,706		22,552
Total Interest Expense		62,507		54,567			181,895		143,477
Net Interest Income		75,086		70,630			220,860		208,489
Provision for loan losses		4,999		(81	)		6,783		(5,029	)

Net Interest Income After Provision
for Loan Losses		70,087		70,711			214,077		213,518

Noninterest Income
Service charges on deposit accounts		13,849		14,360			40,271		39,357
Insurance commissions		8,983		8,935			27,656		26,002
Wealth management		6,507		5,770			18,786		17,246
General banking - other		6,111		5,668			18,699		16,333
Mortgage banking, net		2,503		1,131			7,057		7,481
Other, net		3,593		3,559			7,611		7,827
Securities gains, net		23		645			110		1,895
Total Noninterest Income		41,569		40,068			120,190		116,141

Noninterest Expense
Salaries and employee benefits		42,257		40,231			128,276		119,175
Services and fees		9,285		9,240			27,884		26,983
Net occupancy - premises		4,753		4,479			13,801		12,433
Equipment expense		3,922		3,731			11,874		10,963
Other expense		8,271		8,144			24,892		23,535
Total Noninterest Expense		68,488		65,825			206,727		193,089
Income Before Income Taxes		43,168		44,954			127,540		136,570
Income taxes		14,087		15,193			42,774		46,716
Net Income	$	29,081	$	29,761		$	84,766	$	89,854

Earnings Per Share
Basic	$	0.51	$	0.53		$	1.47	$	1.61
Diluted	$	0.51	$	0.52		$	1.46	$	1.60

Dividends Per Share	$	0.22	$	0.21		$	0.66	$	0.63

See notes to consolidated financial statements.

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Trustmark Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
($ in thousands)
(Unaudited)

	2007			2006

Balance, January 1,	$	891,335		$	741,463
Cumulative effect adjustment due to change
in accounting for mortgage servicing rights		-			848
Cumulative effect adjustment due to change
in accounting for prior year immaterial misstatements		-			(8,398	)
Comprehensive income:
Net income per consolidated statements of income		84,766			89,854
Net change in fair value of securities available
for sale, net of tax		4,723			1,624
Net change in defined benefit plans		915			-
Comprehensive income		90,404			91,478
Cash dividends paid		(38,280	)		(35,701	)
Repurchase and retirement of common stock		(38,859	)		(18,809	)
Compensation expense, long-term incentive plan		2,488			2,432
Common stock issued, long-term incentive plan		449			4,407
Common stock issued in business combination		-			103,812
Balance, September 30,	$	907,537		$	881,532

See notes to consolidated financial statements.

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Trustmark Corporation and Subsidiaries
Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)

	Nine Months Ended September 30,
				(See Note 11)
	2007			2006
Operating Activities
Net income	$	84,766		$	89,854
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses		6,783			(5,029	)
Depreciation and amortization		21,032			19,672
Net amortization of securities		1,020			3,549
Securities gains, net		(110	)		(1,895	)
Gains on sales of loans		(5,197	)		(4,907	)
Deferred income tax provision		795			5,255
Proceeds from sales of loans held for sale		916,278			874,221
Purchases and originations of loans held for sale		(943,198	)		(877,386	)
Net increase in mortgage servicing rights		(12,577	)		(12,736	)
Net increase in other assets		(9,284	)		(3,012	)
Net increase in other liabilities		4,756			4,445
Other operating activities, net		2,960			1,008
Net cash provided by operating activities		68,024			93,039

Investing Activities
Proceeds from calls and maturities of securities held to maturity		13,938			9,622
Proceeds from calls and maturities of securities available for sale		287,866			238,934
Proceeds from sales of securities available for sale		62,170			90,358
Purchases of securities held to maturity		-			(6,707	)
Purchases of securities available for sale		(105,082	)		(73,361	)
Net (increase) decrease in federal funds sold and securities
purchased under reverse repurchase agreements		(1,366	)		123,208
Net increase in loans		(359,770	)		(185,346	)
Purchases of premises and equipment		(20,889	)		(16,001	)
Proceeds from sales of premises and equipment		295			1,788
Proceeds from sales of other real estate		2,333			2,135
Net cash paid in business combination		-			(78,920	)
Net cash (used in) provided by investing activities		(120,505	)		105,710

Financing Activities
Net (decrease) increase in deposits		(73,712	)		245,425
Net increase (decrease) in federal funds purchased and securities sold
under repurchase agreements		54,708			(169,867	)
Net increase (decrease) in other borrowings		62,199			(325,594	)
Proceeds from issuance of junior subordinated debt securities		-			61,856
Cash dividends		(38,280	)		(35,701	)
Proceeds from exercise of stock options		439			3,928
Excess tax benefit from exercise of stock options		10			480
Repurchase and retirement of common stock		(38,859	)		(18,809	)
Net cash used in financing activities		(33,495	)		(238,282	)
Decrease in cash and cash equivalents		(85,976	)		(39,533	)
Cash and cash equivalents at beginning of period		392,083			387,930
Cash and cash equivalents at end of period	$	306,107		$	348,397

See notes to consolidated financial statements.

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TRUSTMARK CORPORATION & SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF FINANCIAL STATEMENT PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The consolidated financial statements in this quarterly report on Form 10-Q include the accounts of Trustmark Corporation (Trustmark) and all other entities in which Trustmark has a controlling financial interest. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements, and notes thereto, included in Trustmark’s 2006 annual report on Form 10-K. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Certain reclassifications have been made to prior period amounts to conform to the current period presentation. For the periods presented in this Form 10-Q, these reclassifications include Trustmark’s investment in the stock of the Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) that have 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 Statement of Financial Accounting Standards (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, $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. Interest payments on QZABs, which are covered by the federal government, are provided to Trustmark in the form of a tax credit, in lieu of cash. Trustmark’s investment in QZABs is 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 have been classified as loans. Period end balances of QZABs totaled $21.3 million at both September 30, 2007 and December 31, 2006 with the September 30, 2006 balance equaling $20.0 million.

Management is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. 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.

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 were finalized during 2007, which increased goodwill by $814 thousand and were related to various acquisition related expenses and finalization of Republic’s short-period income tax return. 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 estimated 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.

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NOTE 3 – LOANS AND ALLOWANCE FOR LOAN LOSSES

For the periods presented, loans consisted of the following ($ in thousands):

	September 30,		December 31,
	2007		2006
Loans secured by real estate:
Construction, land development and other land loans	$	1,155,737	$	896,254
Secured by 1-4 family residential properties		1,756,427		1,842,886
Secured by nonfarm, nonresidential properties		1,269,625		1,326,658
Other		142,505		148,921
Loans to finance agricultural production and other loans to farmers		30,486		23,938
Commercial and industrial loans		1,241,772		1,106,460
Consumer loans		1,068,610		934,261
Obligations of states and political subdivisions		210,925		233,666
Other loans		41,454		50,109
Loans		6,917,541		6,563,153
Less allowance for loan losses		72,368		72,098
Net loans	$	6,845,173	$	6,491,055

The following table summarizes the activity in the allowance for loan losses for the periods presented ($ in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Beginning balance	$	70,948		$	71,846		$	72,098		$	76,691
Loans charged off		(6,417	)		(4,056	)		(14,886	)		(9,874	)
Recoveries		2,838			2,513			8,373			8,434
Net charge-offs		(3,579	)		(1,543	)		(6,513	)		(1,440	)
Provision for possible loan losses		4,999			(81	)		6,783			(5,029	)
Allowance of acquired bank		-			5,317			-			5,317
Balance at end of period	$	72,368		$	75,539		$	72,368		$	75,539

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 possible 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 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. This evaluation is inherently subjective, as it requires material estimates, including the amounts and timings of future cash flows expected to be received on impaired loans that may be susceptible to significant changes. Based on recommendations from regulatory authorities, Trustmark modified its methodology regarding industry concentrations for commercial loans. This modification lowered specific industry reserves by $3.5 million, which were offset by increases in other quantitative and qualitative reserves for commercial loans. This increase was warranted by current economic conditions. Management believes that the allowance for loan losses adequately provides for probable losses in its loan portfolio at September 30, 2007.

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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 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, on a pretax basis. Trustmark continually reevaluates its estimates for probable losses resulting from Katrina. As a result, during 2007, Trustmark has reduced its allowance for loan losses by $0.6 million on a pretax basis. 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.

At September 30, 2007 and 2006, the carrying amounts of nonaccrual loans were $45.4 million and $27.8 million, respectively. Included in these nonaccrual loans at September 30, 2007 and 2006, are loans that are considered to be impaired, which totaled $36.4 million and $24.5 million, respectively. The total allowance for loan losses related to impaired loans was $6.7 million at September 30, 2007 and 2006. The average recorded investment in impaired loans was $30.8 million and $29.2 million for the three and nine months ended September 30, 2007, and $22.3 million and $21.4 million for the three and nine months ended September 30, 2006. No material amounts of interest income were recognized on impaired loans or nonaccrual loans for the nine months ended September 30, 2007 and 2006.

NOTE 4 – MORTGAGE BANKING

The fair value of MSR is determined using discounted cash flow techniques benchmarked against third party valuations. Estimates of fair value involve several assumptions, including the key valuation assumptions about market expectations of future prepayment rates, interest rates and discount rates. At September 30, 2007, the valuation of MSR included an assumed average prepayment speed of 9.72 CPR and an average discount rate of 9.91%. Prepayment rates are projected using an industry standard prepayment model. The model considers other key factors, such as a wide range of standard industry assumptions tied to specific portfolio characteristics such as remittance cycles, escrow payment requirements, geographic factors, foreclosure loss exposure, VA no-bid exposure, delinquency rates and cost of servicing including base cost and cost to service delinquent mortgages. Prevailing market conditions at the time of analysis are factored into the accumulation of assumptions and determination of servicing value.

Trustmark utilizes derivative instruments to offset changes in the fair value of MSR attributable to changes in market rates. Changes in the fair value of the derivative instruments 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 market 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, which represented no change in ineffectiveness during the third quarter of 2007.

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The activity in mortgage servicing rights is detailed in the table below ($ in thousands):

	Nine Months Ended September 30,
	2007			2006
Balance at beginning of period	$	69,272		$	58,424
Cumulative-effect adjustment - change in accounting for MSR		-			1,373
Additions:
Purchase of servicing assets		10,116			9,602
Servicing assets that resulted from transfers
of financial assets		4,168			5,185
Disposals		(1,707	)		(2,051	)
Change in fair value:
Due to market changes		(1,323	)		2,113
Due to runoff		(7,279	)		(7,654	)
Due to other		6			(466	)
Balance at end of period	$	73,253		$	66,526

NOTE 5 - DEPOSITS

At September 30, 2007 and December 31, 2006, deposits consisted of the following ($ in thousands):

	September 30,		December 31,
	2007		2006
Noninterest-bearing demand deposits	$	1,435,231	$	1,574,769
Interest-bearing deposits:
Interest-bearing demand		1,191,749		1,139,238
Savings		1,622,944		1,664,804
Time		2,652,528		2,597,353
Total interest-bearing deposits		5,467,221		5,401,395
Total deposits	$	6,902,452	$	6,976,164

NOTE 6 – STOCK AND INCENTIVE COMPENSATION PLANS

On May 10, 2005, the shareholders approved the Trustmark Corporation 2005 Stock and Incentive Compensation Plan (the 2005 Plan), which was adopted by the Board of Directors and replaced the Trustmark Corporation 1997 Long Term Incentive Plan (the 1997 Plan). The purpose of the 2005 Plan is to promote the success of Trustmark and its subsidiaries by providing incentives to key associates and directors that will promote the identification of their personal interest with the long term financial success of Trustmark and with growth in shareholder value. The 2005 Plan is designed to provide flexibility to Trustmark regarding its ability to motivate, attract and retain the services of key associates and directors upon whose judgment, interest and special efforts the successful conduct of its operations is largely dependent. The 2005 Plan allows Trustmark to make grants of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and performance units to key associates and directors.

Effective January 1, 2006, Trustmark adopted the provisions of SFAS No. 123R, “Share-Based Payment,” a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” This statement establishes fair value as the measurement objective in accounting for stock awards and requires the application of a fair value based measurement method in accounting for compensation cost, which is recognized over the requisite service period. Trustmark implemented the provisions of this statement using the modified prospective approach, which applies to new awards, as well as, any previously granted awards outstanding on January 1, 2006. Compensation cost for the portion of awards for which the requisite service had not been rendered as of the date of adoption, is being recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes previously under SFAS No. 123.

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Stock Option Grants

During the first nine months of 2007, there were no stock option awards. Stock option-based compensation expense totaled $948 thousand and $1.4 million for the first nine months of 2007 and 2006, respectively. Stock option-based compensation expense totaled $338 thousand and $507 thousand for the three months ended September 30, 2007 and 2006, respectively.

Restricted Stock Grants

Performance Awards

During the first nine months of 2007, Trustmark awarded 70,500 shares of restricted stock to 27 key members of Trustmark’s executive management team, as well as 4,750 shares of restricted stock to the Trustmark Board of Directors. These performance awards vest based on performance goals of return on average tangible equity (ROATE) and total shareholder return (TSR) compared to a defined peer group. These awards are restricted until December 31, 2009. Awards based on TSR are valued under SFAS No. 123R utilizing a Monte Carlo simulation to estimate fair value of the awards at the grant date, while ROATE awards are valued under SFAS No. 123R, utilizing the fair value of Trustmark’s stock at the grant date based on the estimated number of shares expected to vest.

Time-Vested Awards

Trustmark’s time-vested awards are granted as an incentive in both employee recruitment and retention and are issued to non-executive management associates. During the three and nine months ended September 30, 2007, Trustmark awarded 500 and 36,000 shares, respectively, of time-vested awards, which are restricted for thirty-six months from the award dates. The weighted average share price of the shares awarded during the three and nine months ended September 30, 2007 was $24.81 and $28.60, respectively.

During the first nine months of 2007 and 2006, Trustmark recorded compensation expense for restricted stock awards of $1.5 million and $1.0 million, respectively. During the three-month period ended September 30, 2007 and 2006, Trustmark recorded compensation expense for restricted stock awards of $497 thousand and $379 thousand, respectively.

NOTE 7 – BENEFIT PLANS

In December 2006, Trustmark adopted the provisions of SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans."

Pension Plan

Trustmark maintains a noncontributory defined benefit pension plan (Trustmark Capital Accumulation Plan), which covers substantially all associates employed prior to January 1, 2007. The plan provides retirement benefits that are based on the length of credited service and final average compensation as defined in the plan and vests upon five years of service.

As a result of the adoption of SFAS No. 158, Trustmark elected to move its measurement date for the plan to December 31 from October 31. The following table presents information regarding the net periodic benefit cost for the three and nine-month periods ended September 30, 2007 and 2006 ($ in thousands):

	Three months ended Sept. 30,						Nine months ended Sept. 30,
	2007			2006			2007			2006
Net periodic benefit cost
Service cost	$	327		$	654		$	980		$	1,962
Interest cost		1,174			1,098			3,523			3,294
Expected return on plan assets		(1,323	)		(1,308	)		(3,968	)		(3,923	)
Amortization of prior service cost		(127	)		(87	)		(382	)		(262	)
Recognized net actuarial loss		564			614			1,691			1,841
Net periodic benefit cost	$	615		$	971		$	1,844		$	2,912

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The acceptable range of contributions to the plan is determined each year by the plan's actuary. Trustmark's policy is to fund amounts allowable for federal income tax purposes. In 2007, Trustmark's minimum required contribution is zero. The actual amount of the contribution is determined based on the plan's funded status and return on plan assets as of the measurement date, which was December 31, 2006 for amounts related to 2007 and October 31, 2005 for amounts related to 2006.

Supplemental Retirement Plan

Trustmark maintains a non-qualified supplemental retirement plan covering directors that elect to defer fees, key executive officers and senior officers. The plan provides for defined death benefits and/or retirement benefits based on a participant's covered salary. Trustmark has acquired life insurance contracts on the participants covered under the plan, which may be used to fund future payments under the plan. The measurement date for the plan is December 31.

The following table presents information regarding the plan's net periodic benefit cost for the three and nine-month periods ended September 30, 2007 and 2006 ($ in thousands):

	Three months ended Sept. 30,				Nine months ended Sept. 30,
	2007		2006		2007		2006
Net periodic benefit cost
Service cost	$	330	$	396	$	978	$	1,201
Interest cost		454		413		1,362		1,239
Amortization of prior service cost		35		35		105		104
Recognized net actuarial loss		23		36		70		110
Net periodic benefit cost	$	842	$	880	$	2,515	$	2,654

NOTE 8 – CONTINGENCIES

Letters of Credit

Standby and commercial letters of credit are conditional commitments issued by Trustmark to insure the performance of a customer to a third party. In the normal course of business, in order to fulfill the financing needs of its customers, Trustmark issues financial and performance standby letters of credit. A financial standby letter of credit irrevocably obligates Trustmark to pay a third-party beneficiary when a customer fails to repay an outstanding loan or debt instrument. A performance standby letter of credit irrevocably obligates Trustmark to pay a third-party beneficiary when a customer fails to perform some contractual, nonfinancial obligation. When issuing letters of credit, Trustmark uses essentially the same policies regarding credit risk and collateral which are followed in the lending process.

At September 30, 2007 and 2006, Trustmark’s maximum exposure to credit loss in the event of nonperformance by the other party for standby and commercial letters of credit was $171.9 million and $119.2 million, respectively. These amounts consist primarily of commitments with maturities of less than three years, which have an immaterial carrying value. Trustmark holds collateral to support standby letters of credit when deemed necessary. As of September 30, 2007, the fair value of collateral held was $48.2 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 and Management’s evaluation, that the final resolution of pending legal proceedings will not have a material impact on Trustmark’s consolidated financial position or results of operations; however, Management is unable to estimate a range of potential loss on these matters because of the nature of the legal environment in states where Trustmark conducts business.

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NOTE 9 – 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 $61.9 million in aggregate principal amount of Trustmark’s junior subordinated debentures.

In addition, pursuant to the merger with Republic Bancshares of Texas, Inc. on August 25, 2006, Trustmark assumed the liability for $8.2 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 10 – 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 potentially dilutive stock grants outstanding during the period. The following table reflects weighted-average shares used to calculate basic and diluted EPS for the periods presented (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Basic shares		57,267		56,591		57,856		55,954
Dilutive shares		260		240		287		154
Diluted shares		57,527		56,831		58,143		56,108

NOTE 11 - STATEMENTS OF CASH FLOWS

Trustmark paid $34.7 million in income taxes during the first nine months of 2007, compared to $39.5 million during the first nine months of 2006. Interest paid on deposit liabilities and other borrowings approximated $185.4 million in the first nine months of 2007 and $136.1 million in the first nine months of 2006. For the nine months ended September 30, 2007 and 2006, noncash transfers from loans to foreclosed properties were $5.6 million and $1.6 million, respectively. Assets acquired during the third quarter of 2006 as a result of the Republic business combination totaled $648.3 million, while liabilities assumed totaled $607.5 million.

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During the quarter ended March 31, 2007, Trustmark identified an immaterial error in its statements of cash flows for prior periods. Trustmark improperly reported certain noncash transactions relating to GNMA mortgage loans eligible for repurchase in various components within the cash flow statements. These changes had no impact to the overall total of cash inflows and outflows within the cash flow statements. Trustmark has deemed these changes immaterial to its consolidated financial statements taken as a whole. Please see Trustmark’s Form 10-Q for the period ended March 31, 2007 for changes made in cash flow statements for the years ended December 31, 2006 and December 31, 2005 as well as the quarter ended March 31, 2006. In addition, please see Note 1 for certain reclassifications that have been made to the balance sheet and cash flow statements in order to conform to the current period presentation. The following table reflects the changes in the cash flow statements for the nine months ended September 30, 2006 ($ in thousands):

	As Reported			Adjustment			As Adjusted
Nine Months Ended September 30, 2006
Net cash provided by operating activities	$	117,528		$	(24,489	)	$	93,039
Net cash provided by investing activities		128,765			(23,055	)		105,710
Net cash used in financing activities		(285,826	)		47,544			(238,282	)
Decrease in cash and cash equivalents		(39,533	)		-			(39,533	)
Cash and cash equivalents at beginning of period		387,930			-			387,930
Cash and cash equivalents at end of period	$	348,397		$	-		$	348,397

NOTE 12 – SEGMENT INFORMATION

Trustmark’s management reporting structure includes four segments: general banking, wealth management, insurance and administration. General banking is responsible for all traditional banking products and services, including loans and deposits. Wealth management provides customized solutions for affluent customers by integrating financial services with traditional banking products and services such as private banking, money management, full-service brokerage, financial planning, personal and institutional trust, and retirement services, as well as insurance and risk management services provided by TRMK Risk Management, Inc., a wholly owned subsidiary of TNB. Insurance includes two wholly-owned subsidiaries of TNB: The Bottrell Insurance Agency and Fisher-Brown, Incorporated. Through Bottrell and Fisher-Brown, Trustmark provides a full range of retail insurance products, including commercial risk management products, bonding, group benefits and personal lines coverages. Administration includes all other activities that are not directly attributable to one of the major lines of business. Administration consists of internal operations such as Human Resources, Executive Administration, Treasury (Funds Management) and Corporate Finance.

The accounting policies of each reportable segment are the same as those of Trustmark except for its internal allocations. Trustmark uses a match-funded transfer pricing process to assess operating segment performance. Noninterest expenses for back-office operations support are allocated to segments based on estimated uses of those services. In the first nine months of 2007, Trustmark updated its estimates for probable losses resulting from Katrina and released provision for loan losses of $642 thousand on a pretax basis, compared with $6.3 million released during the first nine months of 2006. Management has determined that these adjustments, due to their unusual nature, should be included in the administration division.

The following tables disclose financial information by reportable segment for the periods ended September 30, 2007 and 2006.

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Trustmark Corporation
Segment Information
($ in thousands)
	General			Wealth
	Banking			Management			Insurance			Administration
For the three months ended	Division			Division			Division			Division			Total
September 30, 2007
Net interest income (expense) from external customers	$	76,392		$	1,302		$	-		$	(2,608	)	$	75,086
Internal funding		(6,235	)		(274	)		-			6,509			-
Net interest income (expense)		70,157			1,028			-			3,901			75,086
Provision for loan losses		3,571			23			-			1,405			4,999
Net interest income (expense) after provision for loan losses		66,586			1,005			-			2,496			70,087
Noninterest income		25,761			6,721			9,019			68			41,569
Noninterest expense		47,972			4,774			6,481			9,261			68,488
Income (loss) before income taxes		44,375			2,952			2,538			(6,697	)		43,168
Income taxes (benefit)		15,307			1,043			984			(3,247	)		14,087
Segment net income (loss)	$	29,068		$	1,909		$	1,554		$	(3,450	)	$	29,081


Selected Financial Information
Average assets	$	7,424,380		$	93,119		$	28,111		$	1,291,838		$	8,837,448
Depreciation and amortization	$	5,767		$	87		$	107		$	1,395		$	7,356


For the three months ended
September 30, 2006
Net interest income (expense) from external customers	$	72,002		$	1,244		$	(2	)	$	(2,614	)	$	70,630
Internal funding		(2,739	)		(266	)		-			3,005			-
Net interest income (expense)		69,263			978			(2	)		391			70,630
Provision for loan losses		1,429			-			-			(1,510	)		(81	)
Net interest income (expense) after provision for loan losses		67,834			978			(2	)		1,901			70,711
Noninterest income		24,633			5,887			9,089			459			40,068
Noninterest expense		46,432			4,628			5,999			8,766			65,825
Income (loss) before income taxes		46,035			2,237			3,088			(6,406	)		44,954
Income taxes (benefit)		15,963			818			1,180			(2,768	)		15,193
Segment net income (loss)	$	30,072		$	1,419		$	1,908		$	(3,638	)	$	29,761


Selected Financial Information
Average assets	$	6,841,085		$	91,460		$	33,199		$	1,484,276		$	8,450,020
Depreciation and amortization	$	5,739		$	105		$	96		$	1,186		$	7,126

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Trustmark Corporation
Segment Information
($ in thousands)
	General			Wealth
	Banking			Management			Insurance			Administration
For the nine months ended	Division			Division			Division			Division			Total
September 30, 2007
Net interest income (expense) from external customers	$	215,653		$	3,569		$	(2	)	$	1,640		$	220,860
Internal funding		(7,635	)		(565	)		-			8,200			-
Net interest income (expense)		208,018			3,004			(2	)		9,840			220,860
Provision for loan losses		5,948			3			-			832			6,783
Net interest income (expense) after provision for loan losses		202,070			3,001			(2	)		9,008			214,077
Noninterest income		73,615			19,246			27,744			(415	)		120,190
Noninterest expense		148,028			14,762			18,579			25,358			206,727
Income (loss) before income taxes		127,657			7,485			9,163			(16,765	)		127,540
Income taxes (benefit)		44,058			2,652			3,552			(7,488	)		42,774
Segment net income (loss)	$	83,599		$	4,833		$	5,611		$	(9,277	)	$	84,766


Selected Financial Information
Average assets	$	7,296,015		$	89,394		$	22,326		$	1,411,645		$	8,819,380
Depreciation and amortization	$	16,208		$	298		$	307		$	4,219		$	21,032


For the nine months ended
September 30, 2006
Net interest income (expense) from external customers	$	205,924		$	3,301		$	(6	)	$	(730	)	$	208,489
Internal funding		(5,382	)		(207	)		-			5,589			-
Net interest income (expense)		200,542			3,094			(6	)		4,859			208,489
Provision for loan losses		1,633			(8	)		-			(6,654	)		(5,029	)
Net interest income (expense) after provision for loan losses		198,909			3,102			(6	)		11,513			213,518
Noninterest income		70,151			17,664			26,328			1,998			116,141
Noninterest expense		136,620			14,095			17,467			24,907			193,089
Income (loss) before income taxes		132,440			6,671			8,855			(11,396	)		136,570
Income taxes (benefit)		45,749			2,431			3,425			(4,889	)		46,716
Segment net income (loss)	$	86,691		$	4,240		$	5,430		$	(6,507	)	$	89,854


Selected Financial Information
Average assets	$	6,660,049		$	88,822		$	27,266		$	1,495,510		$	8,271,647
Depreciation and amortization	$	15,996		$	317		$	295		$	3,064		$	19,672

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NOTE 13 – RECENT PRONOUNCEMENTS

Accounting Standards Adopted in 2007

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. Trustmark adopted FIN 48 on January 1, 2007 and, at the date of adoption, had unrecognized tax benefits of $1.0 million. Trustmark did not record any cumulative effect adjustment to retained earnings as a result of the adoption of FIN 48. The entire $1.0 million of unrecognized tax benefits would impact the effective income tax rate if recognized. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense. As of January 1, 2007, Trustmark had $78 thousand of accrued interest expense included in the $1.0 million of unrecognized tax benefits. With limited exception, Trustmark is no longer subject to U. S. federal, state and local audits by tax authorities for 2002 and earlier tax years. As of September 30, 2007, there have been no material changes to the amount of unrecognized tax benefits. Trustmark does not anticipate a significant change to the total amount of unrecognized tax benefits within the next twelve months.

New Accounting Standards

Other new pronouncements issued but not effective until after September 30, 2007 are not expected to have a significant effect on Trustmark’s balance sheets or results of operations, with the possible exception of the following, which are currently being evaluated by Management:

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument-by-instrument basis, is typically irrevocable once elected. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and early application is allowed under certain circumstances. Management is currently evaluating the impact that SFAS No. 159 will have on Trustmark’s balance sheets and results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Provisions of SFAS No. 157 must be applied prospectively as of the beginning of the first fiscal year in which the accounting standard is applied. Management is currently evaluating the impact that SFAS No. 157 will have on Trustmark’s balance sheets and results of operations.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

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.

FORWARD–LOOKING STATEMENTS

Certain statements contained in this Management’s Discussion and Analysis 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, borrowing and saving 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.

OVERVIEW

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 through approximately 150 offices and 2,600 associates predominantly within the states of Florida, Mississippi, Tennessee and Texas.

Trustmark National Bank (TNB), Trustmark’s wholly-owned subsidiary, accounts for over 98% 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 its wholly-owned subsidiaries, Trustmark Investment Advisors, Inc., The Bottrell Insurance Agency, Inc., TRMK Risk Management, Inc., and Fisher-Brown, Incorporated. TNB also owns all of the stock of Trustmark Securities, Inc., which became an inactive subsidiary during 2006.

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. Trustmark also owns all of the stock of F. S. Corporation and First Building Corporation, both inactive nonbank Mississippi corporations.

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In order to facilitate a private placement of trust preferred securities, Trustmark formed a Delaware trust affiliate, Trustmark Preferred Capital Trust I (Trustmark Trust). Also, as a result of the acquisition of Republic Bancshares of Texas, Inc., Trustmark now owns Republic Bancshares Capital Trust I (Republic Trust), a Delaware trust affiliate. As defined in applicable accounting standards, both Trustmark Trust and Republic Trust, 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.

Financial Highlights

Trustmark’s net income totaled $29.1 million in the third quarter of 2007, which represented basic and diluted earnings per share of $0.51. Net income for the third quarter of 2006 totaled $29.8 million resulting in basic and diluted earnings per share of $0.53 and $0.52, respectively. Trustmark’s third quarter net income produced returns on average shareholders’ equity and average assets of 12.80% and 1.31%, respectively, compared with third quarter 2006 returns of 14.65% and 1.40%. During the first nine months of 2007, Trustmark’s net income totaled $84.8 million, which represented basic and diluted earnings per share of $1.47 and $1.46, respectively. Trustmark’s performance during the first nine months of 2007 resulted in returns on average shareholders’ equity and average assets of 12.62% and 1.29%, respectively, compared with the first nine months of 2006 returns of 15.62% and 1.45%, respectively. Highlights of the third quarter of 2007 compared to 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

·	Noninterest expense declined for the second consecutive quarter

·	Continued investment in banking center expansion program with opening of two additional offices

Business Combinations

Banking Center Expansion Program

During the third quarter of 2007, Trustmark continued to make investments to support additional revenue growth and profitability as well as to reallocate resources to areas with additional growth potential. To this end, Trustmark opened two new banking centers in its Jackson and Hattiesburg markets during the third quarter of 2007 and anticipates the opening of two additional banking centers serving the Houston and Florida panhandle markets during the remainder of this year. These actions reflect Management’s commitment to build long-term value for shareholders.

Non-GAAP Disclosures

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 (Katrina). As a result of its quarterly evaluation of estimated probable losses resulting from 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. Management believes this information will help users compare Trustmark’s current results to those of prior periods.

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	Quarter Ended
	9/30/2007						9/30/2006
	Amount			Basic EPS			Amount			Basic EPS

Net Income as reported-GAAP	$	29,081		$	0.508		$	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		$	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

CRITICAL ACCOUNTING POLICIES

Trustmark’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles and follow general practices within the financial services industry. Application of these accounting principles requires Management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as this information changes, actual financial results could differ from those estimates. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. There have been no significant changes in Trustmark’s critical accounting estimates during the first nine months of 2007.

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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 accompanying Yield/Rate Analysis Table 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. As previously discussed, Trustmark acquired Republic Bancshares of Texas, Inc., during the third quarter of 2006. Accordingly, the results of this acquisition have been included in Trustmark’s average balance sheets and results of operations since the merger date of August 25, 2006.

Net interest income-FTE for the first nine months of 2007 increased $12.1 million, or 5.6%, when compared with the same time period in 2006. Trustmark has achieved a richer mix of earning assets when compared to the previous year with growth in higher yielding loans being funded primarily by the maturities and calls of lower yielding investment securities. In addition, the growth in core deposits has helped reduce Trustmark’s dependence on higher costing wholesale funding products while providing valuable liquidity for funding earning assets when the first nine months of 2007 is compared with the same time period in 2006. The combination of these factors resulted in a two basis point increase in NIM to 3.90%, when the first nine months of 2007 is compared with the same time period in 2006. When compared on a quarterly basis, the NIM for the third quarter of 2007 remained stable at 3.91% when compared with the second quarter of 2007 and increased eight basis points from the 3.83% reported for the third quarter of 2006. For additional discussion, see Market/Interest Rate Risk Management included later in Management’s Discussion and Analysis.

Average interest-earning assets for the first nine months of 2007 were $7.809 billion, compared with $7.434 billion for the same time period in 2006, an increase of $374.8 million. More importantly, the mix of average earning assets changed dramatically when comparing 2007 to 2006. Average total loans during the first nine months of 2007 increased $632.2 million, or 10.2%, relative to the same time period in 2006; while average investment securities decreased by $276.0 million, or 22.4%, during the same time period. Management has continued to emphasize its intention to reposition, in an orderly manner, the investment securities portfolio to a size and nature that supports the primary objectives of neutralizing earnings volatility from the effect of interest rate cycles while providing liquidity to fund higher yielding loans or reduce Trustmark’s overall need for wholesale funding. Management intends to continue this strategic direction for the investment portfolio until an acceptable spread for these assets exists. This change in product mix has resulted in an increase in interest income-FTE of $50.5 million, or 14.1%, when the first nine months of 2007 are compared with the same time period in 2006. This impact is illustrated by the yield on total earning assets increasing from 6.46% for the first nine months of 2006, to 7.02% for the same time period of 2007, an increase of 56 basis points.

Average interest-bearing liabilities for the first nine months of 2007 totaled $6.326 billion compared with $6.008 billion for the same time period in 2006, an increase of $317.2 million, or 5.3%. Trustmark’s ability to attract core deposits has also resulted in a major change in the mix of interest-bearing liabilities. This change is illustrated by an increase in average interest-bearing deposits of $655.3 million, or 13.4%, compared with a decrease of $446.9 million from wholesale funding sources such as federal funds purchased, securities sold under repurchase agreements and FHLB advances. In addition, growth in Trustmark’s average noninterest-bearing deposits of $87.8 million has also provided liquidity while helping to replace higher cost wholesale funding products. Management has made a concerted effort to promote funding from growth in core deposits, rather than other higher-cost funding sources, as a major component in improving the net interest margin and, ultimately, profitability. While the yield on interest-bearing liabilities increased by three basis points on a linked quarter basis, Trustmark’s interest expense was positively impacted by the decrease in yield on certain groups, such as interest-bearing deposits (decrease of two basis points) and borrowings (decrease of 36 basis points) resulting from the Federal Reserve Bank’s decision to lower short-term interest rates during the third quarter of 2007. As a result of these factors, total interest expense for the first nine months of 2007 increased $38.4 million, or 26.8%, when compared with the same time period in 2006.

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Yield/Rate Analysis Table
($ in thousands)

	Quarter Ended September 30,
	2007								2006

	Average					Yield/			Average					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate
Assets
Interest-earning assets:
Federal funds sold and securities purchased
under reverse repurchase agreements	$	30,201		$	397		5.22	%	$	25,205		$	346		5.45	%
Securities - taxable		720,214			7,181		3.96	%		1,029,641			10,222		3.94	%
Securities - nontaxable		133,585			2,422		7.19	%		150,790			2,773		7.30	%
Loans (including loans held for sale)		6,970,434			129,876		7.39	%		6,355,969			114,300		7.13	%
Total interest-earning assets		7,854,434			139,876		7.07	%		7,561,605			127,641		6.70	%
Cash and due from banks		260,997								325,817
Other assets		792,967								636,434
Allowance for loan losses		(70,950	)							(73,836	)
Total Assets	$	8,837,448							$	8,450,020

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	5,451,646			50,423		3.67	%	$	5,122,909			41,781		3.24	%
Federal funds purchased and securities sold
under repurchase agreements		491,488			5,898		4.76	%		432,486			4,896		4.49	%
Borrowings		434,064			6,186		5.65	%		567,970			7,890		5.51	%
Total interest-bearing liabilities		6,377,198			62,507		3.89	%		6,123,365			54,567		3.54	%
Noninterest-bearing demand deposits		1,423,745								1,388,201
Other liabilities		135,469								132,421
Shareholders' equity		901,036								806,033
Total Liabilities and
Shareholders' Equity	$	8,837,448							$	8,450,020

Net Interest Margin					77,369		3.91	%					73,074		3.83	%

Less tax equivalent adjustment					2,283								2,444

Net Interest Margin per
Consolidated Statements of Income				$	75,086							$	70,630

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Yield/Rate Analysis Table
($ in thousands)

	Nine Months Ended September 30,
	2007								2006

	Average					Yield/			Average					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate
Assets
Interest-earning assets:
Federal funds sold and securities purchased
under reverse repurchase agreements	$	45,868		$	1,830		5.33	%	$	27,164		$	1,018		5.01	%
Securities - taxable		816,955			25,279		4.14	%		1,080,530			32,150		3.98	%
Securities - nontaxable		139,128			7,591		7.29	%		151,579			8,335		7.35	%
Loans (including loans held for sale)		6,807,184			375,198		7.37	%		6,175,020			317,898		6.88	%
Total interest-earning assets		7,809,135			409,898		7.02	%		7,434,293			359,401		6.46	%
Cash and due from banks		297,154								325,067
Other assets		785,020								587,073
Allowance for loan losses		(71,929	)							(74,786	)
Total Assets	$	8,819,380							$	8,271,647

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	5,561,700			152,464		3.67	%	$	4,906,361			105,225		2.87	%
Federal funds purchased and securities sold
under repurchase agreements		423,853			14,725		4.64	%		494,750			15,700		4.24	%
Borrowings		340,173			14,706		5.78	%		607,377			22,552		4.96	%
Total interest-bearing liabilities		6,325,726			181,895		3.84	%		6,008,488			143,477		3.19	%
Noninterest-bearing demand deposits		1,467,671								1,379,921
Other liabilities		127,900								113,976
Shareholders' equity		898,083								769,262
Total Liabilities and
Shareholders' Equity	$	8,819,380							$	8,271,647

Net Interest Margin					228,003		3.90	%					215,924		3.88	%

Less tax equivalent adjustment					7,143								7,435

Net Interest Margin per
Consolidated Statements of Income				$	220,860							$	208,489

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Provision for Loan Losses

The provision for loan losses is determined by Management as the amount necessary to adjust the allowance for loan losses to a level, which, in Management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. 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, net charge-offs or recoveries and growth in the loan portfolio among other factors. Accordingly, the amount of the provision reflects both the necessary increases in the allowance for loan losses related to newly identified criticized loans, as well as the actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools.

The provision for loan losses for the first nine months of 2007 totaled $6.8 million compared with a benefit of $5.0 million during the same time period in 2006. Since Katrina, Trustmark has continually evaluated its specific allocation for allowance for loan losses related to the storm. During the first nine months of 2007, Trustmark released $0.6 million Katrina related allowance compared to $6.3 million during the same time period in 2006. At September 30, 2007, $1.2 million of Trustmark’s allowance for loan losses remains allocated to loans impacted by Katrina. Trustmark’s provision for loan losses for the third quarter of 2007 was also impacted by an increase of $17.7 million in nonperforming assets when compared with both June 30, 2007 and September 30, 2006.

Noninterest Income
($ in thousands)
	Three Months Ended September 30,										Nine Months Ended September 30,
	2007		2006		$ Change			% Change			2007		2006		$ Change			% Change
Service charges on deposit accounts	$	13,849	$	14,360	$	(511	)		-3.6	%	$	40,271	$	39,357	$	914			2.3	%
Insurance commissions		8,983		8,935		48			0.5	%		27,656		26,002		1,654			6.4	%
Wealth management		6,507		5,770		737			12.8	%		18,786		17,246		1,540			8.9	%
General banking - other		6,111		5,668		443			7.8	%		18,699		16,333		2,366			14.5	%
Mortgage banking, net		2,503		1,131		1,372			121.3	%		7,057		7,481		(424	)		-5.7	%
Other, net		3,593		3,559		34			1.0	%		7,611		7,827		(216	)		-2.8	%
Total Noninterest Income excl sec gains, net		41,546		39,423		2,123			5.4	%		120,080		114,246		5,834			5.1	%
Securities gains, net		23		645		(622	)		-96.4	%		110		1,895		(1,785	)		-94.2	%
Total Noninterest Income	$	41,569	$	40,068	$	1,501			3.7	%	$	120,190	$	116,141	$	4,049			3.5	%

Net charge-offs totaled $6.5 million in the first nine months of 2007 versus $1.4 million in the same time period in 2006. Net charge-offs related to Katrina in both periods were not material. Net charge-offs represented 0.13% of average loans for the first nine months of 2007, which compared favorably to industry benchmarks. Management feels that this increase in net charge-offs to average loans ratio represents a return to a more normal percentage given Trustmark’s credit profile and market demographics.

See the section captioned “Loans and Allowance for Loan Losses” elsewhere in this discussion for further analysis of the provision for loan losses.

Noninterest Income

Trustmark’s noninterest income continues to show strong growth and plays an important role in improving net income and total shareholder value. Total noninterest income for the first nine months of 2007, excluding securities gains, increased $5.8 million, or 5.1%, compared to the same time period in 2006. The comparative components of noninterest income for the three and nine months ended September 30, 2007 and 2006 are shown in the accompanying table.

The single largest component of noninterest income continues to be service charges for deposit products and services, which totaled $40.3 million for the first nine months of 2007 compared with $39.4 million for the first nine months of 2006, an increase of $0.9 million, or 2.3%. In evaluating the net change in service charges, revenues from NSF fees grew due to increased rates and usage during the first nine months of 2007 while service charges on deposit accounts declined due to the migration of accounts without fees.

Insurance commissions were $27.7 million during the first nine months of 2007, an increase of $1.7 million, or 6.4%, when compared with $26.0 million in the first nine months of 2006. The growth during 2007 is attributable to an increase in rates along the Gulf Coast and the Florida panhandle.

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Wealth management income totaled $18.8 million for the first nine months of 2007, compared with $17.2 million during the same time period in 2006, an increase of $1.5 million, or 8.9%. Wealth management consists of income related to investment management, trust and brokerage services. The growth in wealth management income during the first nine months of 2007 is largely attributed to an increase in trust and investment management fee income resulting from new account growth. In addition, revenues from brokerage services have increased due to solid production and the addition of new investment representatives. At September 30, 2007 and 2006, Trustmark held assets under management and administration of $7.4 billion and $6.7 billion, respectively and brokerage assets of $1.3 billion and $1.2 billion, respectively.

General banking-other totaled $18.7 million during the first nine months of 2007, compared with $16.3 million in the same time period in 2006. General banking-other income consists primarily of fees on various bank products and services as well as bankcard fees

The following table illustrates the components of mortgage banking revenues included in noninterest income in the accompanying income statements:

Mortgage Banking Income
($ in thousands)
	Three Months Ended September 30,												Nine Months Ended September 30,
	2007			2006			$ Change			% Change			2007			2006			$ Change			% Change
Mortgage servicing income, net	$	3,503		$	3,279		$	224			6.8	%	$	10,459		$	9,853		$	606			6.2	%
Change in fair value-MSR from market changes		(5,268	)		(3,901	)		(1,367	)		35.0	%		(1,323	)		2,113			(3,436	)		n/m
Change in fair value-MSR from runoff		(2,681	)		(3,202	)		521			-16.3	%		(7,279	)		(7,654	)		375			-4.9	%
Change in fair value of derivatives		5,298			3,551			1,747			49.2	%		521			(886	)		1,407			n/m
Gains on sales of loans		1,224			1,057			167			15.8	%		4,065			3,711			354			9.5	%
Other, net		427			347			80			23.1	%		614			344			270			78.5	%
Mortgage banking, net	$	2,503		$	1,131		$	1,372			121.3	%	$	7,057		$	7,481		$	(424	)		-5.7	%

n/m - not meaningful

Net revenues from mortgage banking were $7.1 million during the first nine months of 2007, compared with $7.5 million in the first nine months of 2006. As shown in the accompanying table, net mortgage servicing income has increased $606 thousand, or 6.2% when the first nine months of 2007 is compared with the same time period in 2006. This increase coincides with growth in the balance of the mortgage servicing portfolio. Loans serviced for others totaled $4.4 billion at September 30, 2007 compared with $4.0 billion at September 30, 2006.

Trustmark utilizes derivative instruments such as Treasury note futures contracts and exchange-treaded option contracts to offset changes in the fair value of mortgage servicing rights (MSR) attributable to changes in interest rates. Changes in the fair value of these derivative instruments are recorded in mortgage banking income 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 interest rate changes. During the first nine months of 2007, the impact of implementing this strategy resulted in a net negative ineffectiveness of $0.8 million compared with $1.2 million in net positive ineffectiveness during the first nine months of 2006. The decrease in hedging ineffectiveness is primarily due to the increase in volatility in long-term interest rates during 2007. However, recent stability in long-term rates resulted in no change in hedge ineffectiveness when the third quarter of 2007 is compared with the second quarter of 2007. In addition, for the first nine months of 2006, the fair value change in MSR attributable to the change in interest rates included approximately $1.0 million in fair value adjustments that occurred prior to the utilization of Trustmark’s strategy to use derivative instruments to offset changes in the fair value of MSR attributable to changes in interest rates. Changes in the fair value of MSR from present value decay, also referred to as “runoff,” reduced total mortgage banking income by $7.3 million and $7.7 million for the first nine months of 2007 and 2006, respectively.

Representing a significant component of mortgage banking income are gains on the sales of loans, which equaled $4.1 million in the first nine months of 2007 compared with $3.7 million in the same time period in 2006. This growth in the gain on sales of loans coincides with an increase in loan sales from secondary marketing activities of approximately $41.7 million when the first nine months of 2007 is compared with the same time period in 2006.

- 24 -

Securities gains totaled $110 thousand during the first nine months of 2007 compared with securities gains of $1.9 million during the same time period in 2006. The securities gains for 2006 came primarily from a voluntary redemption of an investment in one of the family of Performance mutual funds that was originally funded by Trustmark.

Noninterest Expense
($ in thousands)
	Three Months Ended September 30,									Nine Months Ended September 30,
	2007		2006		$ Change		% Change			2007		2006		$ Change		% Change
Salaries and employee benefits	$	42,257	$	40,231	$	2,026		5.0	%	$	128,276	$	119,175	$	9,101		7.6	%
Services and fees		9,285		9,240		45		0.5	%		27,884		26,983		901		3.3	%
Net occupancy - premises		4,753		4,479		274		6.1	%		13,801		12,433		1,368		11.0	%
Equipment expense		3,922		3,731		191		5.1	%		11,874		10,963		911		8.3	%
Other expense		8,271		8,144		127		1.6	%		24,892		23,535		1,357		5.8	%
Total Noninterest Expense	$	68,488	$	65,825	$	2,663		4.0	%	$	206,727	$	193,089	$	13,638		7.1	%

Noninterest Expense

Management considers expense management a key area of focus in the support of improving shareholder value. As such, Trustmark initiated an enhanced process to proactively manage expenses during the first quarter of 2007 that has reduced noninterest expense during the second and third quarters by a total of approximately $1.0 million. The success of this initiative is due in part to technology enhancements, vendor and contract management programs, and human capital management. Trustmark remains committed to identifying reengineering and efficiency opportunities designed to enhance shareholder value.

Trustmark’s noninterest expense for the first nine months of 2007 increased $13.6 million, or 7.1%, compared to the same time period in 2006. Excluding the impact of the business combination with Republic, the adjusted 2007 increase in noninterest expense was $2.8 million, or 1.4%. The comparative components of noninterest expense for the first nine months of 2007 and 2006 are shown in the accompanying table.

Salaries and employee benefits, the largest category of noninterest expense, were $128.3 million in the first nine months of 2007 and $119.2 million in the same time period in 2006. Included in the 2007 increase of $9.1 million are approximately $8.0 million in salaries and benefits resulting from the Republic business combination. Adjusting for Republic, salaries and benefits increased $1.1 million or approximately 1%. Salaries and benefits for the third quarter of 2007 decreased approximately $600 thousand when compared with the second quarter of 2007 as Trustmark began to see a reduction in staff resulting from the impact of its human capital management initiative. This can be seen in the reduction in FTE employees from 2,694 at June 30, 2007 to 2,635 at September 30, 2007.

The growth in net occupancy-premises expense for the first nine months of 2007 was $1.4 million, or 11.0%, when compared with the same time period in 2006. The Republic business combination and the impact of the banking center expansion program resulted in a net increase of nine Trustmark locations when September 30, 2007 is compared with September 30, 2006 which has contributed to additional occupancy expense during that time period.

As part of the reengineering process mentioned above, Trustmark completed the implementation of remote branch capture during the second quarter of 2007 for its Florida, Texas and Memphis locations. As a result, transportation costs have been significantly reduced as air transportation has been eliminated from the check clearing process. Additional technology upgrades are expected to take place throughout the remainder of 2007 that will further reduce courier expenses related to ground transportation routes within the state of Mississippi. Also during the second quarter of 2007, Trustmark completed technology upgrades which have allowed for the exchange of fully imaged cash letters with the Federal Reserve and other upstream correspondent banks thus reducing overall check clearing costs while improving funds availability. As a result of these implementations, additional costs related to these processes have accounted for a portion of the increases in services and fees, equipment expenses and other expenses seen above.

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Income Taxes

For the nine months ended September 30, 2007, Trustmark’s combined effective tax rate was 33.5% compared to 34.2% for the same time period in 2006. The decrease in Trustmark’s effective tax rate was due to the finalization of Trustmark's 2006 consolidated income tax returns. The decrease in the effective rate derived from utilizing tax credits available to employers operating in the Hurricane Katrina Gulf Opportunity Zone.

LIQUIDITY

Liquidity is the ability to meet asset funding requirements and operational cash outflows in a timely manner, in sufficient amount and without excess cost. Consistent cash flows from operations and adequate capital provide internally generated liquidity. Furthermore, Management maintains funding capacity from a variety of external sources to meet daily funding needs, such as those required to meet deposit withdrawals, loan disbursements and security settlements. Liquidity strategy also includes the use of wholesale funding sources to provide for the seasonal fluctuations of deposit and loan demand and the cyclical fluctuations of the economy that impact the availability of funds. Management keeps excess funding capacity available to meet potential demands associated with adverse circumstances.

The primary sources of liquidity on the asset side of the balance sheet are maturities and cash flows from loans and securities, as well as the ability to sell certain loans and securities. 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 September 30, 2007, Trustmark estimated gross fed funds borrowing capacity at $1.608 billion, compared to $1.505 billion at December 31, 2006. In addition, Trustmark maintains a borrowing relationship with the FHLB, which provided $250.0 million in short-term advances at September 30, 2007, compared with $202.5 million in short-term advances at December 31, 2006. 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 $1.236 billion available in unused FHLB advances. Another borrowing source is the Federal Reserve Discount Window (Discount Window). At September 30, 2007, Trustmark had approximately $700.2 million available in collateral capacity at the Discount Window from pledges of auto loans and securities, compared with $586.4 million available at December 31, 2006. In September 2006, Trustmark renewed a two-year revolving line of credit facility in the amount of $50.0 million and subject to certain financial covenants. At September 30, 2007, Trustmark was in compliance with all financial covenants and had $7.0 million in draws on this line of credit.

During the fourth quarter of 2006, 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 were sold pursuant to the terms of regulations issued by the Office of the Comptroller of the Currency (OCC) and in reliance upon an exemption provided by the Securities Act of 1933, as amended. The Notes are unsecured and subordinate and junior in right of payment to TNB’s obligations to its depositors, its obligations under bankers’ acceptances and letters of credit, its obligations to any Federal Reserve Bank or the FDIC and its obligations to its other creditors, and to any rights acquired by the FDIC as a result of loans made by the FDIC to TNB. 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.

During the third quarter of 2006, Trustmark completed a private placement of $60.0 million of trust preferred securities through a newly formed Delaware trust affiliate, Trustmark Preferred Capital Trust I, (the Trust). The trust preferred securities mature September 30, 2036 and are redeemable at Trustmark’s option beginning after five years. 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. The net proceeds to Trustmark from the sale of the junior subordinated debentures to the Trust were used to assist in financing Trustmark’s merger with Republic.

Also during the third quarter of 2006, Trustmark National Bank was granted a Class B banking license from the Cayman Islands Monetary Authority. Subsequently, Trustmark established a branch in the Cayman Islands through an agent bank. The branch was established as a mechanism to attract dollar denominated foreign deposits (i.e. Eurodollars) as an additional source of funding. At September 30, 2007, Trustmark had no Eurodollar deposits outstanding.

- 26 -

Trustmark also has available its “shelf” registration statement filed on Form S-3 with the Securities and Exchange Commission (SEC) as another possible source of liquidity. 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 $200.0 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 sales 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.

The Board of Directors currently has the authority to issue up to 20 million preferred shares with no par value. The ability to issue preferred shares in the future will provide Trustmark with additional financial and management flexibility for general corporate and acquisition purposes. At September 30, 2007, no such shares have been issued.

Liquidity position and strategy are reviewed regularly by the Asset/Liability Committee and continuously adjusted in relationship to Trustmark’s overall strategy. Management believes that Trustmark has sufficient liquidity and capital resources to meet presently known cash flow requirements arising from ongoing business transactions.

CAPITAL RESOURCES

At September 30, 2007, Trustmark’s shareholders’ equity was $907.5 million, an increase of $16.2 million, or 1.8%, from its level at December 31, 2006. During the first nine months of 2007, net income increased shareholders’ equity by $84.8 million, which was partially offset by shares repurchased at a cost of $38.9 million and dividends paid of $38.3 million. Trustmark utilizes a sophisticated capital model in order to provide Management with a monthly tool for analyzing changes in its strategic capital ratios. This allows Management to hold sufficient capital to provide for growth opportunities, protect the balance sheet against sudden adverse market conditions while maintaining an attractive return on equity to shareholders.

Common Stock Repurchase Program

At September 30, 2007, Trustmark had remaining authorization for the repurchase of up to 1.4 million shares of its common stock. Collectively, the capital management plans adopted by Trustmark since 1998 have authorized the repurchase of 24.3 million shares of common stock. Pursuant to these plans, Trustmark has repurchased approximately 22.7 million shares for $518.1 million, including 1.4 million shares during the first nine months of 2007.

Dividends

Dividends for the nine months ended September 30, 2007 were $0.66 per share, increasing 4.8% when compared with dividends of $0.63 per share for the same time period in 2006. Trustmark’s indicated dividend for 2007 is currently $0.88 per share, up from $0.84 per share for 2006. During October 2007, Trustmark’s Board of Directors announced a 4.55% increase in its regular quarterly dividend to $0.23 per share from $0.22 per share. The Board declared the dividend payable on December 15, 2007 to shareholders of record as of December 1, 2007. This action raises the indicated annual dividend rate to $0.92 per share from $0.88 per share and marks the 25th consecutive increase in Trustmark’s annual dividend.

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 September 30, 2007, that Trustmark and TNB have exceeded all of the minimum capital standards for the parent company and its primary banking subsidiary as established by regulatory requirements. At September 30, 2007, the most recent notification from the 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.

In addition, during 2006, Trustmark enhanced its capital structure with the issuance of trust preferred securities and Subordinated Notes. For regulatory capital purposes, the trust preferred securities qualify as Tier 1 capital while the Subordinated Notes qualify as Tier 2 capital. The addition of these capital instruments provided Trustmark a cost effective manner in which to manage shareholders’ equity and enhance financial flexibility.

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Regulatory Capital Table
($ in thousands)
	September 30, 2007
	Actual Regulatory Capital					Minimum Regulatory Capital Required					Minimum Regulatory Provision to be Well-Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk Weighted Assets)
Trustmark Corporation	$	784,770		10.89	%	$	576,382		8.00	%		n/a		n/a
Trustmark National Bank		769,890		10.72	%		569,328		8.00	%	$	711,661		10.00	%
Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	662,701		9.20	%	$	288,191		4.00	%		n/a		n/a
Trustmark National Bank		649,761		9.09	%		284,664		4.00	%	$	426,996		6.00	%
Tier 1 Capital (to Average Assets)
Trustmark Corporation	$	662,701		7.79	%	$	255,289		3.00	%		n/a		n/a
Trustmark National Bank		649,761		7.73	%		251,273		3.00	%	$	418,789		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 September 30, 2007, earning assets were $7.878 billion, or 88.4% of total assets, compared with $7.736 billion, or 87.5% of total assets at December 31, 2006, an increase of $141.9 million, or 1.8%.

Securities

Over the past few years, Management has continually deemphasized the use of investment securities as a major contributor to net interest income. Instead, Trustmark has maintained investment balances for the use of collateral for public deposit relationships and as a tool to manage the effect of interest rate changes on the net interest margin. As Management continues its strategy of exiting certain assets and reducing balances of funding sources, it will also constantly reevaluate its collateral needs and interest rate risk profile before reinvestment of securities occur. Net proceeds from sales and maturities of securities have been used to reduce balances of higher-cost funding sources and as a funding source for loan growth. During the first nine months of 2007, Trustmark continued to deemphasize the holding of investment securities as seen by the decrease in overall balance of $252.2 million, or 24.0%, when compared to December 31, 2006. Trustmark intends to maintain historically lower balances in investment securities and reduce dependency on wholesale funding until market conditions provide more attractive opportunities.

Management uses the securities portfolio as a tool to control exposure to interest rate risk. Interest rate risk can be adjusted by altering both the duration of the portfolio and the balance of the portfolio. Trustmark has maintained a strategy of offsetting potential exposure to higher interest rates by keeping both the duration and the balances of investment securities at relatively low levels. The estimated duration of the portfolio was 1.97 years at September 30, 2007 and December 31, 2006.

AFS securities are carried at their estimated fair value with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive loss, a separate component of shareholders’ equity. At September 30, 2007, AFS securities totaled $519.9 million, which represented 65.1% of the securities portfolio, compared to $758.3 million, or 72.2%, at December 31, 2006. At September 30, 2007, net unrealized losses on AFS securities of $3.8 million, net of $1.4 million of deferred income taxes, were included in accumulated other comprehensive loss, compared with net unrealized losses of $11.4 million, net of $4.4 million in deferred income taxes, at December 31, 2006. At September 30, 2007, AFS securities consisted of U.S. Treasury securities, obligations of states and political subdivisions, mortgage related securities, corporate securities and other securities.

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 September 30, 2007, HTM securities totaled $278.4 million and represented 34.9% of the total portfolio, compared with $292.2 million, or 27.8%, at the end of 2006.

Management continues to focus on asset quality as one of the strategic goals of the securities portfolio, which is evidenced by the investment of approximately 80% of the portfolio in U.S. Treasury, U.S. Government agencies obligations and other AAA rated securities. None of the securities in the portfolio are considered to be sub-prime.

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Loans and Allowance for Loan Losses

Loans and loans held for sale represented 89.5% of earning assets at September 30, 2007, compared with 88.3% at June 30, 2007 and 86.1% at December 31, 2006. Average loans (including loans held for sale) were $6.807 billion for the first nine months of 2007, an increase of $632.2 million, or 10.2%, when compared with the same time period in 2006. 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 Trustmark’s home mortgage loan portfolio continued. From a geographic perspective, loan growth was most pronounced in Trustmark’s Houston, Jackson, and South Mississippi markets. Trustmark’s successful expansion into higher growth markets is reflected in its loan portfolio. At the end of the third quarter, Trustmark’s Houston, Florida panhandle and Memphis loan portfolios represented 11%, 10%, and 7% of total loans, respectively.

Trustmark makes loans in the normal course of business to certain directors, 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.

The allowance for loan losses is established through provisions for estimated loan losses charged against earnings. The allowance reflects Management’s best estimate of the probable loan losses related to specifically identified loans, as well as, probable incurred loan losses in the remaining loan portfolio and requires considerable judgement. The allowance is based upon Management’s current judgments and the credit quality of the loan portfolio, including all internal and external factors that impact loan collectibility. SFAS No. 5, “Accounting for Contingencies,” and SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” limit the amount of the loss allowance to the estimate of losses that have been incurred at the balance sheet reporting date. Accordingly, the allowance is based upon past events and current economic conditions.

Trustmark’s allowance has been developed using different factors to estimate losses based upon specific evaluation of identified individual loans considered impaired, estimated identified losses on various pools of loans and/or groups of risk rated loans with common risk characteristics and other external and internal factors of estimated probable losses based on other facts and circumstances.

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. The level of Trustmark’s allowance reflects Management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio growth, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. This evaluation takes into account other qualitative factors including recent acquisitions, national, regional and local economic trends and conditions, changes in credit concentration, changes in levels and trends of delinquencies and nonperforming loans, changes in levels and trends of net charge-offs, changes in interest rates and collateral, financial and underwriting exceptions. Based on recommendations from regulatory authorities, Trustmark modified its methodology regarding industry concentrations for commercial loans. This modification lowered specific industry reserves by $3.5 million, which were offset by increases in other quantitative and qualitative reserves for commercial loans. This increase was warranted by current economic conditions. Management believes that the allowance for loan losses adequately provides for probable losses in its loan portfolio at September 30, 2007.

The allowance for loan losses consists of three elements: (i) specific valuation allowances determined in accordance with SFAS No. 114 based on probable losses on specific loans; (ii) historical valuation allowances determined in accordance with SFAS No. 5 based on historical loan loss experience for similar loans with similar characteristics and trends; and (iii) qualitative risk valuation allowances determined in accordance with SFAS No. 5 based on general economic conditions and other qualitative risk factors, both internal and external, to Trustmark.

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, Management recognizes that Trustmark is 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 Trustmark’s Florida and Tennessee markets that were impacted by the residential real estate slowdown.

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At September 30, 2007, the allowance for loan losses was $72.4 million, including specific Katrina accruals of $1.2 million, resulting in an allowance coverage of nonperforming loans of 159.2%. Trustmark’s allocation of its allowance for loan losses represents 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. Based upon current economic conditions, Management believes that the allowance for loan losses adequately provides for probable losses in the loan portfolio.

The details of Trustmark’s nonperforming assets at September 30, 2007 and December 31, 2006 are shown in the accompanying table.

Nonperforming Assets
($ in thousands)
	September 30,			December 31,
	2007			2006
Nonaccrual and restructured loans	$	45,449		$	36,399
Other real estate (ORE)		5,870			2,509
Total nonperforming assets	$	51,319		$	38,908

Nonperforming assets/total loans and ORE		0.74	%		0.59	%

Accruing loans past due 90 days or more	$	9,521		$	2,957
Serviced GNMA loans eligible for repurchase		9,539			8,510
Total loans past due 90 days or more	$	19,060		$	11,467

Net charge-offs for the first nine months of 2007 totaled $6.5 million, or 0.13% of average loans, compared to $1.4 million, or 0.03%, in the same time period in 2006. Trustmark’s loan policy dictates the guidelines to be followed in determining when a loan is charged-off. Commercial purpose loans are charged-off when a determination is made that the loan is uncollectible and continuance as a bankable asset is not warranted. Consumer loans secured by residential real estate are generally charged-off when the credit becomes severely delinquent, and the balance exceeds the fair value of the property less costs to sell. Other consumer purpose loans, including both secured and unsecured, are generally charged-off in full no later than when the loan becomes 120 days past due. Credit card loans are generally charged-off in full when the loan becomes 180 days past due.

Other Earning Assets

Federal funds sold and securities purchased under reverse repurchase agreements were $28.6 million at September 30, 2007, an increase of $1.4 million when compared with December 31, 2006. 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. Total deposits were $6.902 billion at September 30, 2007, compared with $6.976 billion at December 31, 2006, a decrease of $73.7 million, or 1.1%. This decrease is comprised of a decline in noninterest-bearing deposits of $139.5 million which is offset by an increase in interest-bearing deposits of $65.8 million. The majority of the decline in noninterest-bearing deposits can be attributed to commercial DDA balances which are more prone to seasonal fluctuations yielding wide variations in balances. While Trustmark has experienced an increase in interest-bearing deposits, it has also intentionally decreased higher cost brokered CD and MMDA balances as well as reduced rates on other higher yielding deposit products such as commercial MMDA in favor of core deposit products.

Trustmark’s commitment to increasing its presence in higher-growth markets is illustrated by its strategic initiative to build additional banking centers within its four-state banking franchise. This commitment will also benefit Trustmark’s continued focus on increasing core deposit relationships. During the first nine months of 2007, Trustmark opened five new banking centers in Houston, Memphis, Jackson and Hattiesburg, and anticipates opening two additional offices serving the Houston and Florida panhandle markets during the remainder of 2007. Trustmark also closed three offices during 2007 that had limited growth opportunities.

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Trustmark uses short-term borrowings to fund growth of earning assets in excess of deposit growth. Short-term borrowings consist of federal funds purchased, securities sold under repurchase agreements, short-term FHLB advances and the treasury tax and loan note option account. Short-term borrowings totaled $865.7 million at September 30, 2007, an increase of $124.2 million, compared with $741.5 million at December 31, 2006. Trustmark had $70.1 million in junior subordinated debentures and $49.7 million in subordinated notes outstanding at September 30, 2007. For further information on the issuance of the debentures and notes, see Note 9 in the Notes to Consolidated Financial Statements. On a consolidated basis, total borrowings have increased $124.3 million when compared to December 31, 2006, as Trustmark focused on replacing higher yielding deposits with lower cost sources of funding.

LEGAL ENVIRONMENT

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 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, with 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 during recent years may reduce the likelihood of unexpected, sizable awards. At the present time, Management believes, based on the advice of legal counsel and Management’s evaluation, that the final resolution of pending legal proceedings will not have a material impact on Trustmark’s consolidated financial position or results of operations; however, Management is unable to estimate a range of potential loss on these matters because of the nature of the legal environment in states where Trustmark conducts business.

OFF-BALANCE SHEET ARRANGEMENTS

Trustmark makes commitments to extend credit and issues standby and commercial letters of credit in the normal course of business in order to fulfill the financing needs of its customers. These loan commitments and letters of credit are off-balance sheet arrangements.

Commitments to extend credit are agreements to lend money to customers pursuant to certain specified conditions. Commitments generally have fixed expiration dates or other termination clauses. Since many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Trustmark applies the same credit policies and standards as it does in the lending process when making these commitments. The collateral obtained is based upon the assessed creditworthiness of the borrower. At September 30, 2007 and 2006, Trustmark had commitments to extend credit of $2.1 billion and $1.8 billion, respectively.

Standby and commercial letters of credit are conditional commitments issued by Trustmark to ensure the performance of a customer to a first party. When issuing letters of credit, Trustmark uses essentially the same policies regarding credit risk and collateral which are followed in the lending process. At September 30, 2007 and 2006, Trustmark’s maximum exposure to credit loss in the event of nonperformance by the other party for letters of credit was $171.9 million and $119.2 million, respectively. These amounts consist primarily of commitments with maturities of less than three years. Trustmark holds collateral to support certain letters of credit when deemed necessary.

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.

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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.

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:

v	Rate shocked scenarios of up-and-down 100, 200 and 300 basis points.

v	Yield curve twist of +/- two standard deviations of the change in spread of the three-month Treasury bill and the ten-year Treasury note yields.

v	Basis risk scenarios where federal funds/LIBOR spread widens and tightens to the high and low spread determined by using two standard deviations.

v	Prepayment risk scenarios where projected prepayment speeds in up-and-down 200 basis point rate scenarios are compared to current projected prepayment speeds.

Based on the results of the simulation models using static balances at September 30, 2007, it is estimated that net interest income may increase 2.4% 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 minor change in forecasted net interest income illustrates Management’s strategy to mitigate Trustmark’s exposure to cyclical increases in rates by maintaining a neutral position in its interest rate risk position. This projection does not contemplate any additional actions Trustmark could undertake in response to changes in interest rates. In the event of a one-year, shocked, 200 basis point decrease in interest rates, it is estimated net interest income may decrease by 4.9%. 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 2007. Management will continue to prudently manage the balance sheet in an effort to control interest rate risk and maintain profitability over the long term.

Another component of interest rate risk management is measuring the economic value-at-risk for a given change in market interest rates. The economic value-at-risk may indicate risks associated with longer term balance sheet items that may not affect net interest income at risk over shorter time periods. Trustmark also uses computer-modeling techniques to determine the present value of all asset and liability cash flows (both on- and off-balance sheet), adjusted for prepayment expectations, using a market discount rate. The net change in the present value of the asset and liability cash flows in the different market rate environments is the amount of economic value at risk from those rate movements. As of September 30, 2007, the economic value of equity at risk for an instantaneous 100 basis point shift in rates was no more than 1.6% of the market value of Trustmark’s equity.

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. Rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified period of time. 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. These derivative instruments are designated as fair value hedges. Trustmark’s off balance sheet obligations under these derivative instruments totaled $246.1 million at September 30, 2007 and have a negative valuation adjustment of $234 thousand.

During the first quarter of 2006, a strategy was implemented that utilizes a portfolio of derivative instruments, such as Treasury note futures contracts and exchange-traded option contracts, to achieve a fair value return that would substantially offset the changes in fair value of MSR attributable to interest rates. These transactions are considered freestanding derivatives that do not otherwise qualify for hedge accounting. Changes in the fair value of these derivative instruments are recorded in noninterest income in mortgage banking, net and are offset by the changes in the fair value of MSR. During the first nine months of 2007, the impact of implementing this strategy resulted in a net negative ineffectiveness of $0.8 million.

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RECENT PRONOUNCEMENTS

New Accounting Standards

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is included in the discussion of Market/Interest Rate Risk Management found in Management’s Discussion and Analysis.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by Trustmark’s Management, with the participation of its Chief Executive Officer and Treasurer and Principal Financial Officer (Principal Financial Officer), of the effectiveness of Trustmark’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and the Principal Financial Officer concluded that Trustmark’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There has been no change in Trustmark’s internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, Trustmark’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There were no material developments for the quarter ended September 30, 2007, other than those disclosed in the Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of this Form 10-Q.

ITEM 1A. RISK FACTORS

There has been no material change in the risk factors previously disclosed in Trustmark’s Annual Report on Form 10-K for its fiscal year ended December 31, 2006.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table shows information relating to the repurchase of common shares by Trustmark Corporation during the three months ended September 30, 2007:

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					Total Number of		Maximum Number
					Shares Purchased		of Shares that May
	Total Number		Average		as Part of Publicly		Yet be Purchased
	of Shares		Price Paid		Announced Plans		Under the Plans
Period	Purchased		Per Share		or Programs		or Programs
July 1, 2007 through
July 31, 2007		-	$	-		-		1,370,581

August 1, 2007 through
August 31, 2007		-	$	-		-		1,370,581

September 1, 2007 through
September 30, 2007		-	$	-		-		1,370,581

Total		-				-

The repurchase program is subject to Management’s discretion and will continue to be implemented through open market purchases or privately negotiated transactions.

ITEM 6. EXHIBITS

The exhibits listed in the Exhibit Index are filed herewith or are incorporated herein by reference.

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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, thereunto duly authorized.

TRUSTMARK CORPORATION

BY:	/s/ Richard G. Hickson	BY:	/s/ Louis E. Greer
	Richard G. Hickson		Louis E. Greer
	Chairman of the Board, President		Treasurer and Principal
	& Chief Executive Officer		Financial Officer

DATE:	November 8, 2007	DATE:	November 8, 2007

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EXHIBIT INDEX

31-a	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31-b	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32-a	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32-b	Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	All other exhibits are omitted, as they are inapplicable or not required by the related instructions.

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