Trustmark Corporation Announces Third Quarter Earnings.

JACKSON, Miss. -- Trustmark Corporation (NASDAQ:TRMK) announced net income of $29.1 million in the third quarter of 2007, which represented basic earnings per share of $0.51. Trustmark's third quarter net income produced a return on average tangible shareholders' equity of 20.41% and a return on average assets of 1.31%. During the first nine months of 2007, Trustmark's net income totaled $84.8 million, which represented basic earnings per share of $1.47. Trustmark's performance during the first nine months of 2007 resulted in returns on average tangible shareholders' equity and average assets of 20.19% and 1.29%, respectively. Highlights for the third quarter of 2007 compared to the second quarter of 2007 include:

* Average total loans increased $186.3 million, or 2.7%

* Net interest income (FTE) expanded 1.6% to $77.4 million, resulting in a stable net interest margin of 3.91%

* Noninterest income increased 2.7% to $41.6 million and represented 35.0% of total revenue

* Noninterest expense declined for the second consecutive quarter

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

Richard G. Hickson, Chairman and CEO, stated, "The repositioning of our balance sheet continued during the third quarter as quality, higher yield loans replaced maturing lower yield securities. Increasing momentum of our balance sheet strategy is especially evident when reviewing our performance during the second and third quarters of 2007. On a linked quarter basis, average loans increased $186.3 million, or 2.7%. Commercial and consumer loan growth was well diversified and the disciplined reduction in our home mortgage loan portfolio continued. From a geographic perspective, loan growth was most pronounced in our Houston, Jackson, and South Mississippi markets. Our successful expansion into higher growth markets is reflected in Trustmark's loan portfolio. At the end of the third quarter, our Houston, Florida panhandle and Memphis loan portfolios represented 11%, 10%, and 7% of our total loans, respectively.

"Trustmark optimized its funding costs and reduced balances of higher yielding deposits during the third quarter. Loan growth, coupled with diligent management of our funding base, is reflected in increased net interest income and a stable net interest margin of 3.91%," said Hickson.

"Investments in image technology are generating significantly increasing returns for Trustmark. The ability to capture and transmit check images electronically has been implemented in our banking centers in Florida, Tennessee and Texas. This has significantly decreased clearing and courier costs and expedited funds availability. In addition, Trustmark is now both sending and receiving its daily transit check clearings electronically with the Federal Reserve Bank of Atlanta. The benefits of these investments have produced tangible results: average cash and cash equivalent levels during the third quarter have been reduced by approximately $65 million relative to figures one year earlier, positively impacting the net interest margin and reducing staffing in operational areas. Implementation of check image capture technology in our core Mississippi banking centers will be completed by mid-year 2008, resulting in additional efficiencies in courier costs and human capital.

"Trustmark initiated an enhanced process to proactively manage expenses during the first quarter of 2007 that has reduced our quarterly noninterest expense by approximately $1.0 million, or by 1.5% annually. As a result, our efficiency ratio improved to 57.98% during the third quarter of 2007. The success of this initiative is due in part to technology enhancements, vendor and contract management programs, and human capital management. While we are pleased with our progress to date, we are committed to identifying additional reengineering and efficiency opportunities designed to enhance shareholder value," said Hickson.

"We believe Trustmark's credit culture and underwriting processes have well-positioned the organization to face the challenges presented by the current economic environment. While Trustmark has no sub-prime mortgage loans, we are not immune to the credit challenges and current market conditions facing the financial services industry. During the third quarter of 2007, nonperforming loans increased $17.7 million due principally to two relationships with residential real estate developers originated in our Florida and Tennessee markets that were impacted by the residential real estate slowdown. Based upon current economic conditions, we believe Trustmark is adequately reserved. Trustmark's allocation of its allowance for loan losses represented 1.36% of commercial loans and 0.58% of consumer and home mortgage loans, resulting in an allowance to total loans of 1.05% at September 30, 2007. Net charge-offs represented 0.20% of average loans during the third quarter and 0.13% of average loans year-to-date, comparing favorably to industry benchmarks," said Hickson.

"We continue to make investments to support additional revenue growth and profitability as well as to reallocate resources to areas with additional growth potential. During the third quarter, Trustmark opened two banking centers in Jackson and Hattiesburg. We anticipate opening two additional banking centers in the Houston and Florida panhandle markets during the remainder of 2007. During 2008, four additional banking offices are expected to open in the Florida panhandle, Houston, Memphis and Mississippi Gulf Coast markets. These actions reflect our commitment to build long-term value for our shareholders through reallocation of resources to areas with additional growth potential," said Hickson.

"Our Board of Directors recently affirmed Trustmark's 2008-10 Strategic Plan and strategy of continued migration into markets with higher growth opportunities, including Florida and Texas. While expanding into higher growth markets, Trustmark will vigorously defend its leadership position in major legacy markets in Mississippi. We will continue to focus on revenue growth and expense management in an effort to increase shareholder value," said Hickson.

ADDITIONAL INFORMATION

As previously announced, Trustmark will host a conference call with analysts on Wednesday, October 24 at 10:00 a.m. Central Time to discuss the Corporation's financial results. Interested parties may listen to the conference call by dialing [phone], passcode 6416369 or by clicking on the link provided under the Investor Relations section of our website at www.trustmark.com. A replay of the conference call will also be available through Wednesday, October 31 in archived format at the same web address or by calling [phone], passcode 6416369.

Trustmark is a financial services company providing banking and financial solutions through over 150 offices and 2,600 associates in Florida, Mississippi, Tennessee and Texas.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document are not statements of historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements relating to anticipated future operating and financial performance measures, including net interest margin, credit quality, business initiatives, growth opportunities and growth rates, among other things and encompass any estimate, prediction, expectation, projection, opinion, anticipation, outlook or statement of belief included therein as well as the management assumptions underlying these forward-looking statements. Should one or more of these risks materialize, or should any such underlying assumptions prove to be significantly different, actual results may vary significantly from those anticipated, estimated, projected or expected.

These risks could cause actual results to differ materially from current expectations of Management and include, but are not limited to, changes in the level of nonperforming assets and charge-offs, local, state and national economic and market conditions, material changes in market interest rates, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, changes in existing regulations or the adoption of new regulations, natural disasters, acts of war or terrorism, changes in consumer spending, borrowings and savings habits, technological changes, changes in the financial performance or condition of Trustmark's borrowers, the ability to control expenses, changes in Trustmark's compensation and benefit plans, greater than expected costs or difficulties related to the integration of new products and lines of business and other risks described in Trustmark's filings with the Securities and Exchange Commission.

Although Management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Trustmark undertakes no obligation to update or revise any of this information, whether as the result of new information, future events or developments or otherwise.

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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 Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies," Trustmark determined, through reasonable estimates, that specific losses were probable and initially increased its allowance for loan losses by $9.8 million and established other accruals for losses totaling $2.1 million, on a pretax basis.

As a result of its quarterly evaluation of estimated probable losses resulting from Hurricane Katrina, Trustmark reduced its allowance for loan losses during 2007 by $0.6 million and other reserves by $0.4 million on a pretax basis resulting in an increase to Trustmark's net income of $0.7 million, or $0.01 per share. The table above reflects the quarterly financial impact these changes in estimates had on reported earnings.

At September 30, 2007, the allowance for loan losses included specific Katrina accruals totaling $1.2 million. Management's estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as the information changes, actual results could differ from those estimates.

Note 2 - Business Combinations

On August 25, 2006, Trustmark completed its merger with Houston-based Republic Bancshares of Texas, Inc. (Republic) in a business combination accounted for by the purchase method of accounting. Trustmark purchased all the outstanding common and preferred shares of Republic for approximately $205.3 million. The purchase price includes approximately 3.3 million in common shares of Trustmark valued at $103.8 million, $100.0 million in cash and $1.5 million in acquisition-related costs. The purchase price allocations are final. At August 25, 2006, Republic had assets consisting of $21.1 million in cash and due from banks, $64.5 million in federal funds sold, $76.5 million in securities, $458.0 million in loans, $9.0 million in premises and equipment and $19.2 million in other assets as well as deposits of $593.3 million and borrowings and other liabilities of $14.2 million. These assets and liabilities have been recorded at fair value based on market conditions and risk characteristics at the acquisition date. Excess costs over tangible net assets acquired totaled $173.8 million, of which $19.3 million has been allocated to core deposits, $690 thousand to borrower relationships and $153.8 million to goodwill.

Note 3 - Loans and Allowance for Loan Losses

For the periods presented, loans consisted of the following:

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The allowance for loan losses is maintained at a level believed adequate by Management, based on estimated probable losses within the existing loan portfolio. Trustmark's allowance for probable loan loss methodology is based on guidance provided in SEC Staff Accounting Bulletin No. 102, "Selected Loan Loss Allowance Methodology and Documentation Issues," as well as on other regulatory guidance. Accordingly, Trustmark's methodology is based on historical loss experience by type of loan and internal risk ratings, homogeneous risk pools and specific loss allocations, with adjustments considering current economic events and conditions. The provision for loan losses reflects loan quality trends, including the levels of and trends related to nonaccrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors, in compliance with the Interagency Policy Statement on the Allowance for Loan and Lease Losses published by the governmental regulating agencies for financial services companies. Based on recommendations from regulatory authorities, Trustmark modified its methodology regarding industry concentrations during the third quarter of 2007. As a result, there was an immaterial reclassification between components within the allowance for loan losses.

Note 4 - Mortgage Banking

Trustmark utilizes derivative instruments to offset changes in the fair value of mortgage servicing rights (MSR) attributable to changes in interest rates. Changes in the fair value of the derivative instrument are recorded in mortgage banking income, net and are offset by the changes in the fair value of MSR, as shown in the accompanying table. MSR fair values represent the effect of present value decay and the effect of changes in interest rates. Ineffectiveness of hedging MSR fair value is measured by comparing total hedge cost to the fair value of the MSR asset attributable to market changes. During 2007, the impact of implementing this strategy resulted in a net negative ineffectiveness of $0.8 million.

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

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Note 5 - Earning Assets and Interest-Bearing Liabilities

The following table illustrates the yields on earning assets by category as well as the rates paid on interest-bearing liabilities on a tax equivalent basis:

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Note 6 - Subordinated Notes Payable and Junior Subordinated Debt Securities

In December 2006, Trustmark National Bank (TNB) issued $50.0 million aggregate principal amount of Subordinated Notes (the Notes) due December 15, 2016. At September 30, 2007, the carrying amount of the Notes was $49.7 million. The Notes, which are not redeemable prior to maturity, qualify as Tier 2 capital for both TNB and Trustmark. Proceeds from the sale of the Notes were used for general corporate purposes.

On August 18, 2006, Trustmark completed a private placement of $60.0 million of trust preferred securities through its Delaware trust affiliate, Trustmark Preferred Capital Trust I (the Trust). Under applicable regulatory guidelines, these trust preferred securities qualify as Tier 1 capital. The proceeds from the sale of the trust preferred securities were used by the Trust to purchase $61.856 million in aggregate principal amount of Trustmark's junior subordinated debentures.

In addition, pursuant to the acquisition of Republic Bancshares of Texas, Inc. on August 25, 2006, Trustmark assumed the liability for $8.248 million in junior subordinated debt securities issued to Republic Bancshares Capital Trust I (Republic Trust), also a Delaware trust. Republic Trust used the proceeds from the issuance of $8.0 million in trust preferred securities to acquire the junior subordinated debt securities. Under applicable regulatory guidelines, these trust preferred securities qualify as Tier 1 capital.

As defined in applicable accounting standards, both Trustmark Preferred Capital Trust I and Republic Bancshares Capital Trust I, wholly-owned subsidiaries of Trustmark, are considered variable interest entities for which Trustmark is not the primary beneficiary. Accordingly, the accounts of both trusts are not included in Trustmark's consolidated financial statements.

Note 7 - Basis of Presentation

Trustmark's investment in the stock of the Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB) has been reclassed from investment securities to other assets since these equity securities do not have a readily determinable fair value which places them outside the scope of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Period end balances of FRB and FHLB stock totaled $33.2 million at September 30, 2007, $25.3 million at June 30, 2007, $34.0 million at December 31, 2006 and $37.4 million at September 30, 2006.

In addition, Trustmark has also reclassed its investment in Qualified Zone Academy Bonds (QZABs) from other assets into loans. QZABs are part of a federal initiative that provides funds on a limited basis to schools that meet very specific criteria for construction and modernization projects. To qualify for funds from this initiative a school must be located in a federal empowerment zone, an enterprise community or 35 percent or more of its students must qualify for free or reduced price lunch. Interest payments on QZABs, which are covered by the federal government, are provided to Trustmark in the form of tax credits, in lieu of cash. Trustmark's investment in QZABs will be measured in accordance with SFAS No. 115 since these investments meet the definition of a security, however, since Trustmark consistently reports investments of this nature as loans to states and political subdivisions, they will be classified as loans. Period end balances of QZABs totaled $21.3 million at September 30, 2007, June 30, 2007 and December 31, 2006, with the September 30, 2006 balance equaling $20.0 million.

These reclassifications have been made to prior period amounts in order to conform to the current period presentation.