Trustmark Corporation Announces 2007 Financial Results and Declares $0.23 Quarterly Dividend

Trustmark Corporation (NASDAQ:TRMK) announced net income of $23.8 million in the fourth quarter of 2007, which represented basic earnings per share of $0.42. Trustmark’s fourth quarter net income produced a return on average tangible shareholders’ equity of 16.28% and a return on average assets of 1.06%. Earnings during the fourth quarter included an accrual for expenses due to the Visa antitrust litigation and the correction of an error for an under accrual of interest income for prior periods related to loan fees. Collectively, these two items increased net income in the fourth quarter by $1.5 million, or $0.026 per share. For the year ended December 31, 2007, Trustmark’s net income totaled $108.6 million, which represented basic earnings per share of $1.88. Trustmark’s performance in 2007 resulted in a return on average tangible equity of 19.17% and a return on average assets of 1.23%. Highlights during the fourth quarter of 2007 include: Proactive management of homebuilder credit deterioration in Florida Panhandle Solid loan growth during the quarter led by increases in Houston and Mississippi Gulf Coast markets Continued expense management philosophy reflected in improved efficiency Mortgage Banking income increased despite difficult residential environment During the fourth quarter of 2007, Trustmark’s loan loss provision totaled $17.0 million, an increase of $12.0 million relative to the third quarter of 2007. The increased provision is due to weakening of homebuilder credit quality in Trustmark’s Florida Panhandle market. Trustmark’s total credit exposure in this market is $712 million, or approximately 10% of the Corporation’s total loans, and is predominately real estate related. Nonperforming assets at December 31, 2007 totaled $73.5 million, up $22.2 million relative to the prior quarter, to represent 1.02% of total loans and other real estate. The increase in nonperforming assets was attributable to the Corporation’s Florida Panhandle operation and consisted principally of four residential real estate credits. Net charge-offs in the fourth quarter increased to 0.53% of average loans. Trustmark’s allocation of its allowance for loan losses represented 1.48% of commercial loans and 0.59% of consumer and home mortgage loans, resulting in an allowance to total loans of 1.13% at December 31, 2007. Richard G. Hickson, Chairman and CEO, stated, "While Trustmark is not a sub-prime lender, we are not immune to the credit and market conditions facing the financial services industry. Management is actively engaged in the resolution of credit issues in the Florida Panhandle. We are closely monitoring the impact of declining real estate values on our borrowers and proactively addressing these situations. The loan portfolios in our other geographic markets, which constitute 90% of our total loans, are not experiencing any significant credit issues at this time. "We continued the repositioning of our balance sheet during the fourth quarter as maturing, lower yield investment securities were replaced with quality, higher yield loans. Average loans increased $178.8 million, or 2.6%, during the fourth quarter of 2007 relative to the prior quarter. During the quarter, loan growth was primarily commercial in nature and the disciplined reduction of our home mortgage loan portfolio continued. From a geographic perspective, loan growth was most evident in our Houston and Southern Mississippi markets,” said Hickson. Earnings during the fourth quarter included the correction of an error for an under accrual of interest income in prior periods related to loan fees that increased net income by $2.0 million, or $0.035 per share. Excluding this amount, the net interest margin in the fourth quarter expanded to 3.95%, reflecting loan growth and the prudent management of Trustmark’s funding base. Trustmark’s expense management initiatives continued to gain momentum. Noninterest expense in the fourth quarter totaled $69.7 million, up $1.2 million or 1.8% from the prior quarter. Earnings in the fourth quarter included a charge related to the Corporation’s share of legal contingencies concerning the Visa antitrust litigation that decreased net income by $500 thousand, or $0.009 per share. Excluding this charge, noninterest expenses increased $434 thousand, or 0.63%, from the prior quarter. Hickson commented, "Revenue generation and expense management remain key areas of focus. We will continue to make investments to support revenue growth and profitability as well as reallocate resources to our higher growth markets. During 2007, Trustmark opened a total of five additional banking centers in its Hattiesburg, Houston, Jackson, and Memphis markets. During 2008, six additional banking centers are expected to open in the Florida Panhandle, Houston, Jackson, Memphis and Mississippi Gulf Coast markets. "Noninterest income in Trustmark’s Mortgage Banking division increased during the fourth quarter by $2.5 million, or 98.4%, relative to the prior quarter in part to its successful mortgage serving rights hedging strategy. Trustmark’s home mortgage and home equity loan portfolios continue to perform well despite the challenging residential environment,” said Hickson. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per common share. The dividend is payable March 15, 2008 to shareholders of record on March 1, 2008. Hickson commented, "The fundamental strengths of Trustmark’s businesses remain strong despite the challenges posed in the current economic and market environment. Trustmark remains a profitable, well-capitalized financial services organization with the financial flexibility to succeed in a changing marketplace.” ADDITIONAL INFORMATION As previously announced, Trustmark will host a conference call with analysts on Wednesday, January 23 at 10:00 a.m. Central Time to discuss the Corporation’s financial results. Interested parties may listen to the conference call by dialing (877) 397-0300, passcode 5859487 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, January 30 in archived format at the same web address or by calling (888) 203-1112, passcode 5859487. Trustmark is a financial services company providing banking and financial solutions through over 150 offices and 2,600 associates in Florida, Mississippi, Tennessee and Texas. FORWARD-LOOKING STATEMENTS Certain statements contained in this document are not statements of historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements relating to anticipated future operating and financial performance measures, including net interest margin, credit quality, business initiatives, growth opportunities and growth rates, among other things and encompass any estimate, prediction, expectation, projection, opinion, anticipation, outlook or statement of belief included therein as well as the management assumptions underlying these forward-looking statements. Should one or more of these risks materialize, or should any such underlying assumptions prove to be significantly different, actual results may vary significantly from those anticipated, estimated, projected or expected. These risks could cause actual results to differ materially from current expectations of Management and include, but are not limited to, changes in the level of nonperforming assets and charge-offs, local, state and national economic and market conditions, material changes in market interest rates, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, changes in existing regulations or the adoption of new regulations, natural disasters, acts of war or terrorism, changes in consumer spending, borrowings and savings habits, technological changes, changes in the financial performance or condition of Trustmark’s borrowers, the ability to control expenses, changes in Trustmark’s compensation and benefit plans, greater than expected costs or difficulties related to the integration of new products and lines of business and other risks described in Trustmark’s filings with the Securities and Exchange Commission. Although Management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Trustmark undertakes no obligation to update or revise any of this information, whether as the result of new information, future events or developments or otherwise. TRUSTMARK CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL INFORMATION December 31, 2007 ($ in thousands except per share data) (unaudited)           Quarter Ended December 31, AVERAGE BALANCES 2007   2006 $ Change % Change Securities AFS-taxable $ 435,438 $ 750,742 $ (315,304 ) -42.0 % Securities AFS-nontaxable 46,898 56,367 (9,469 ) -16.8 % Securities HTM-taxable 192,878 197,633 (4,755 ) -2.4 % Securities HTM-nontaxable   82,963     93,549     (10,586 ) -11.3 % Total securities   758,177     1,098,291     (340,114 ) -31.0 % Loans 7,149,243 6,659,605 489,638 7.4 % Fed funds sold and rev repos   25,960     22,559     3,401   15.1 % Total earning assets   7,933,380     7,780,455     152,925   2.0 % Allowance for loan losses (73,659 ) (75,336 ) 1,677 -2.2 % Cash and due from banks 257,319 334,008 (76,689 ) -23.0 % Other assets   807,307     786,317     20,990   2.7 % Total assets $ 8,924,347   $ 8,825,444   $ 98,903   1.1 %   Interest-bearing demand deposits $ 1,160,823 $ 1,215,676 $ (54,853 ) -4.5 % Savings deposits 1,608,125 1,639,028 (30,903 ) -1.9 % Time deposits less than $100,000 1,570,687 1,623,573 (52,886 ) -3.3 % Time deposits of $100,000 or more   1,058,165     993,324     64,841   6.5 % Total interest-bearing deposits 5,397,800 5,471,601 (73,801 ) -1.3 % Fed funds purchased and repos 517,424 402,057 115,367 28.7 % Short-term borrowings 413,676 308,299 105,377 34.2 % Subordinated notes 49,703 10,259 39,444 n/m Junior subordinated debt securities   70,104     70,104     -   n/m Total interest-bearing liabilities 6,448,707 6,262,320 186,387 3.0 % Noninterest-bearing deposits 1,419,364 1,528,891 (109,527 ) -7.2 % Other liabilities 137,197 139,544 (2,347 ) -1.7 % Shareholders' equity   919,079     894,689     24,390   2.7 % Total liabilities and equity $ 8,924,347   $ 8,825,444   $ 98,903   1.1 %     Year-to-date December 31, AVERAGE BALANCES 2007   2006 $ Change % Change Securities AFS-taxable $ 573,940 $ 846,718 $ (272,778 ) -32.2 % Securities AFS-nontaxable 50,763 57,720 (6,957 ) -12.1 % Securities HTM-taxable 195,468 200,501 (5,033 ) -2.5 % Securities HTM-nontaxable   86,030     93,439     (7,409 ) -7.9 % Total securities   906,201     1,198,378     (292,177 ) -24.4 % Loans 6,893,402 6,297,161 596,241 9.5 % Fed funds sold and rev repos   40,850     26,004     14,846   57.1 % Total earning assets   7,840,453     7,521,543     318,910   4.2 % Allowance for loan losses (72,365 ) (74,924 ) 2,559 -3.4 % Cash and due from banks 287,113 327,320 (40,207 ) -12.3 % Other assets   790,636     653,549     137,087   21.0 % Total assets $ 8,845,837   $ 8,427,488   $ 418,349   5.0 %   Interest-bearing demand deposits $ 1,186,683 $ 1,003,649 $ 183,034 18.2 % Savings deposits 1,708,378 1,677,921 30,457 1.8 % Time deposits less than $100,000 1,593,945 1,505,213 88,732 5.9 % Time deposits of $100,000 or more   1,031,382     862,050     169,332   19.6 % Total interest-bearing deposits 5,520,388 5,048,833 471,555 9.3 % Fed funds purchased and repos 447,438 471,386 (23,948 ) -5.1 % Short-term borrowings 269,102 520,942 (251,840 ) -48.3 % Long-term FHLB advances - 2,825 (2,825 ) -100.0 % Subordinated notes 49,692 2,586 47,106 n/m Junior subordinated debt securities   70,104     25,895     44,209   n/m Total interest-bearing liabilities 6,356,724 6,072,467 284,257 4.7 % Noninterest-bearing deposits 1,455,494 1,417,470 38,024 2.7 % Other liabilities 130,244 136,674 (6,430 ) -4.7 % Shareholders' equity   903,375     800,877     102,498   12.8 % Total liabilities and equity $ 8,845,837   $ 8,427,488   $ 418,349   5.0 %     n/m - not meaningful December 31, PERIOD END BALANCES 2007   2006 $ Change % Change Securities available for sale $ 442,345 $ 758,272 $ (315,927 ) -41.7 % Securities held to maturity   275,096     292,243     (17,147 ) -5.9 % Total securities   717,441     1,050,515     (333,074 ) -31.7 % Loans held for sale 147,508 95,375 52,133 54.7 % Loans 7,040,792 6,563,153 477,639 7.3 % Fed funds sold and rev repos   17,997     27,259     (9,262 ) -34.0 % Total earning assets   7,923,738     7,736,302     187,436   2.4 % Allowance for loan losses (79,851 ) (72,098 ) (7,753 ) 10.8 % Cash and due from banks 292,983 392,083 (99,100 ) -25.3 % Mortgage servicing rights 67,192 69,272 (2,080 ) -3.0 % Goodwill 291,177 290,363 814 0.3 % Identifiable intangible assets 28,102 32,960 (4,858 ) -14.7 % Other assets   443,461     392,088     51,373   13.1 % Total assets $ 8,966,802   $ 8,840,970   $ 125,832   1.4 %   Noninterest-bearing deposits $ 1,477,171 $ 1,574,769 $ (97,598 ) -6.2 % Interest-bearing deposits   5,392,101     5,401,395     (9,294 ) -0.2 % Total deposits 6,869,272 6,976,164 (106,892 ) -1.5 % Fed funds purchased and repos 460,763 470,434 (9,671 ) -2.1 % Short-term borrowings 474,354 271,067 203,287 75.0 % Subordinated notes 49,709 49,677 32 n/m Junior subordinated debt securities 70,104 70,104 - n/m Other liabilities   122,964     112,189     10,775   9.6 % Total liabilities   8,047,166     7,949,635     97,531   1.2 % Common stock 11,933 12,226 (293 ) -2.4 % Surplus 124,161 158,856 (34,695 ) -21.8 % Retained earnings 797,993 740,870 57,123 7.7 % Accum other comprehensive loss, net of tax   (14,451 )   (20,617 )   6,166   n/m Total shareholders' equity   919,636     891,335     28,301   3.2 % Total liabilities and equity $ 8,966,802   $ 8,840,970   $ 125,832   1.4 %   Total interest-bearing liabilities $ 6,447,031   $ 6,262,677   $ 184,354   2.9 %   n/m - not meaningful       Quarter Ended December 31, INCOME STATEMENTS 2007   2006 $ Change % Change Interest and fees on loans-FTE $ 133,088 $ 120,235 $ 12,853 10.7 % Interest on securities-taxable 6,505 9,426 (2,921 ) -31.0 % Interest on securities-tax exempt-FTE 2,352 2,699 (347 ) -12.9 % Interest on fed funds sold and rev repos 317 309 8 2.6 % Other interest income   501     684     (183 ) -26.8 % Total interest income-FTE   142,763     133,353     9,410   7.1 % Interest on deposits 47,911 48,615 (704 ) -1.4 % Interest on fed funds pch and repos 5,499 4,528 971 21.4 % Other interest expense   7,055     5,555     1,500   27.0 % Total interest expense   60,465     58,698     1,767   3.0 % Net interest income-FTE 82,298 74,655 7,643 10.2 % Provision for loan losses   17,001     (909 )   17,910   n/m Net interest income after provision-FTE   65,297     75,564     (10,267 ) -13.6 % Service charges on deposit accounts 13,908 13,855 53 0.4 % Insurance commissions 7,630 7,869 (239 ) -3.0 % Wealth management 6,969 5,937 1,032 17.4 % General banking - other 6,177 6,534 (357 ) -5.5 % Mortgage banking, net 4,967 2,549 2,418 94.9 % Other, net   2,604     2,216     388   17.5 % Nonint inc-excl sec gains, net 42,255 38,960 3,295 8.5 % Security gains, net   2     27     (25 ) -92.6 % Total noninterest income   42,257     38,987     3,270   8.4 % Salaries and employee benefits 42,446 40,515 1,931 4.8 % Services and fees 9,375 9,676 (301 ) -3.1 % Net occupancy-premises 4,716 4,687 29 0.6 % Equipment expense 4,165 3,936 229 5.8 % Other expense   9,020     8,577     443   5.2 % Total noninterest expense   69,722     67,391     2,331   3.5 % Income before income taxes and tax eq adj 37,832 47,160 (9,328 ) -19.8 % Tax equivalent adjustment   2,375     2,573     (198 ) -7.7 % Income before income taxes 35,457 44,587 (9,130 ) -20.5 % Income taxes   11,628     15,168     (3,540 ) -23.3 % Net income $ 23,829   $ 29,419   $ (5,590 ) -19.0 %   Earnings per share Basic $ 0.42   $ 0.50   $ (0.08 ) -16.0 %   Diluted $ 0.42   $ 0.50   $ (0.08 ) -16.0 %   Weighted average shares outstanding Basic   57,272,408     58,644,851   -2.3 %   Diluted   57,341,472     59,062,050   -2.9 %   Period end shares outstanding   57,272,408     58,676,586   -2.4 %   Dividends per share $ 0.2300   $ 0.2200   4.5 %   n/m - not meaningful       Year-to-date December 31, INCOME STATEMENTS 2007   2006 $ Change % Change Interest and fees on loans-FTE $ 506,671 $ 436,587 $ 70,084 16.1 % Interest on securities-taxable 31,784 41,576 (9,792 ) -23.6 % Interest on securities-tax exempt-FTE 9,943 11,034 (1,091 ) -9.9 % Interest on fed funds sold and rev repos 2,147 1,327 820 61.8 % Other interest income   2,116     2,230     (114 ) -5.1 % Total interest income-FTE   552,661     492,754     59,907   12.2 % Interest on deposits 200,375 153,840 46,535 30.2 % Interest on fed funds pch and repos 20,224 20,228 (4 ) 0.0 % Other interest expense   21,761     28,107     (6,346 ) -22.6 % Total interest expense   242,360     202,175     40,185   19.9 % Net interest income-FTE 310,301 290,579 19,722 6.8 % Provision for loan losses   23,784     (5,938 )   29,722   n/m Net interest income after provision-FTE   286,517     296,517     (10,000 ) -3.4 % Service charges on deposit accounts 54,179 53,212 967 1.8 % Insurance commissions 35,286 33,871 1,415 4.2 % Wealth management 25,755 23,183 2,572 11.1 % General banking - other 24,876 22,867 2,009 8.8 % Mortgage banking, net 12,024 10,030 1,994 19.9 % Other, net   10,215     10,043     172   1.7 % Nonint inc-excl sec gains, net 162,335 153,206 9,129 6.0 % Security gains, net   112     1,922     (1,810 ) n/m Total noninterest income   162,447     155,128     7,319   4.7 % Salaries and employee benefits 170,722 159,690 11,032 6.9 % Services and fees 37,259 36,659 600 1.6 % Net occupancy-premises 18,517 17,120 1,397 8.2 % Equipment expense 16,039 14,899 1,140 7.7 % Other expense   33,912     32,112     1,800   5.6 % Total noninterest expense   276,449     260,480     15,969   6.1 % Income before income taxes and tax eq adj 172,515 191,165 (18,650 ) -9.8 % Tax equivalent adjustment   9,518     10,008     (490 ) -4.9 % Income before income taxes 162,997 181,157 (18,160 ) -10.0 % Income taxes   54,402     61,884     (7,482 ) -12.1 % Net income $ 108,595   $ 119,273   $ (10,678 ) -9.0 %   Earnings per share Basic $ 1.88   $ 2.11   $ (0.23 ) -10.9 %   Diluted $ 1.88   $ 2.09   $ (0.21 ) -10.0 %   Weighted average shares outstanding Basic   57,709,217     56,632,257   1.9 %   Diluted   57,786,223     57,097,330   1.2 %   Period end shares outstanding   57,272,408     58,676,586   -2.4 %   Dividends per share $ 0.8900   $ 0.8500   4.7 %     n/m - not meaningful       December 31, NONPERFORMING ASSETS 2007   2006 $ Change % Change Nonaccrual loans $ 65,173 $ 36,399 $ 28,774 79.1 % Restructured loans   -     -     -   Total nonperforming loans 65,173 36,399 28,774 79.1 % Other real estate   8,348     2,509     5,839   232.7 % Total nonperforming assets 73,521 38,908 34,613 89.0 % Loans past due over 90 days Included in loan portfolio 4,853 2,957 1,896 64.1 % Serviced GNMA loans eligible for repch   11,847     8,510     3,337   39.2 % Total loans past due over 90 days   16,700     11,467     5,233   45.6 % Total nonperforming assets plus past due over 90 days $ 90,221   $ 50,375   $ 39,846   79.1 %     Quarter Ended December 31, ALLOWANCE FOR LOAN LOSSES 2007   2006 $ Change % Change Beginning Balance $ 72,368 $ 75,539 $ (3,171 ) -4.2 % Provision for loan losses 17,001 (909 ) 17,910 n/m Charge-offs (11,904 ) (5,064 ) (6,840 ) 135.1 % Recoveries   2,386     2,532     (146 ) -5.8 % Net charge-offs   (9,518 )   (2,532 )   (6,986 ) 275.9 % Ending Balance $ 79,851   $ 72,098   $ 7,753   10.8 %     Quarter Ended December 31, CAPITAL RATIOS 2007   2006 EOP equity/ EOP assets 10.26 % 10.08 % Average equity/average assets 10.30 % 10.14 % EOP tangible equity/EOP tangible assets 6.94 % 6.67 % Tier 1 leverage ratio 7.86 % 7.65 % Tier 1 risk-based capital ratio 9.17 % 9.60 % Total risk-based capital ratio 10.93 % 11.40 %     Quarter Ended December 31, FINANCIAL RATIOS 2007   2006 ROA 1.06 % 1.32 % ROE 10.29 % 13.05 % Return on average tangible equity 16.28 % 21.22 % Interest margin - Yield - FTE (See Note 5) 6.98 % 6.80 % Interest margin - Cost - FTE 3.02 % 2.99 % Net interest margin - FTE (See Note 5) 3.95 % 3.81 % Rate on interest-bearing liabilities 3.72 % 3.72 % Efficiency ratio 56.80 % 59.53 % Net charge offs/average loans 0.53 % 0.15 % Provision for loan losses/average loans 0.94 % -0.05 % Nonperforming loans/total loans (incl LHFS) 0.91 % 0.55 % Nonperforming assets/total loans (incl LHFS) 1.02 % 0.58 % Nonperforming assets/total loans (incl LHFS) +ORE 1.02 % 0.58 % ALL/nonperforming loans 122.52 % 198.08 % ALL/total loans (excl LHFS) 1.13 % 1.10 % Net loans (incl LHFS)/total assets 79.28 % 74.50 %     Quarter Ended December 31, COMMON STOCK PERFORMANCE 2007   2006 Market value of stock-Close $ 25.36 $ 32.71 Market value of stock-High $ 29.71 $ 33.61 Market value of stock-Low $ 23.10 $ 30.84 Book value of stock $ 16.06 $ 15.19 Tangible book value of stock $ 10.48 $ 9.68 Market/Book value of stock 157.91 % 215.34 %     December 31, OTHER DATA 2007   2006 EOP Employees - FTE 2,612 2,707     n/m - not meaningful       Year-to-date December 31, ALLOWANCE FOR LOAN LOSSES 2007   2006 $ Change % Change Beginning Balance $ 72,098 $ 76,691 $ (4,593 ) -6.0 % Provision for loan losses 23,784 (5,938 ) 29,722 n/m Charge-offs (26,790 ) (14,938 ) (11,852 ) 79.3 % Recoveries   10,759     10,966     (207 ) -1.9 % Net charge-offs (16,031 ) (3,972 ) (12,059 ) n/m Allowance of acquired bank   -     5,317     (5,317 ) n/m Ending Balance $ 79,851   $ 72,098   $ 7,753   10.8 %       Year-to-date December 31, CAPITAL RATIOS 2007   2006 EOP equity/ EOP assets 10.26 % 10.08 % Average equity/average assets 10.21 % 9.50 % EOP tangible equity/EOP tangible assets 6.94 % 6.67 % Tier 1 leverage ratio 7.86 % 7.65 % Tier 1 risk-based capital ratio 9.17 % 9.60 % Total risk-based capital ratio 10.93 % 11.40 %     Year-to-date December 31, FINANCIAL RATIOS 2007   2006 ROA 1.23 % 1.42 % ROE 12.02 % 14.89 % Return on average tangible equity 19.17 % 20.78 % Interest margin - Yield - FTE (See Note 5) 7.02 % 6.55 % Interest margin - Cost - FTE 3.09 % 2.69 % Net interest margin - FTE (See Note 5) 3.92 % 3.86 % Rate on interest-bearing liabilities 3.81 % 3.33 % Efficiency ratio 58.80 % 58.90 % Net charge offs/average loans 0.23 % 0.06 % Provision for loan losses/average loans 0.35 % -0.09 % Nonperforming loans/total loans (incl LHFS) 0.91 % 0.55 % Nonperforming assets/total loans (incl LHFS) 1.02 % 0.58 % Nonperforming assets/total loans (incl LHFS) +ORE 1.02 % 0.58 % ALL/nonperforming loans 122.52 % 198.08 % ALL/total loans (excl LHFS) 1.13 % 1.10 % Net loans (incl LHFS)/total assets 79.28 % 74.50 %     Year-to-date December 31, COMMON STOCK PERFORMANCE 2007   2006 Market value of stock-Close $ 25.36 $ 32.71 Market value of stock-High $ 33.69 $ 33.61 Market value of stock-Low $ 23.10 $ 27.01 Book value of stock $ 16.06 $ 15.19 Tangible book value of stock $ 10.48 $ 9.68 Market/Book value of stock 157.91% 215.34 %     n/m - not meaningful   Quarter Ended     AVERAGE BALANCES 12/31/2007   9/30/2007 $ Change % Change Securities AFS-taxable $ 435,438 $ 525,858 $ (90,420 ) -17.2 % Securities AFS-nontaxable 46,898 48,818 (1,920 ) -3.9 % Securities HTM-taxable 192,878 194,356 (1,478 ) -0.8 % Securities HTM-nontaxable   82,963     84,767     (1,804 ) -2.1 % Total securities   758,177     853,799     (95,622 ) -11.2 % Loans 7,149,243 6,970,434 178,809 2.6 % Fed funds sold and rev repos   25,960     30,201     (4,241 ) -14.0 % Total earning assets   7,933,380     7,854,434     78,946   1.0 % Allowance for loan losses (73,659 ) (70,950 ) (2,709 ) 3.8 % Cash and due from banks 257,319 260,997 (3,678 ) -1.4 % Other assets   807,307     792,967     14,340   1.8 % Total assets $ 8,924,347   $ 8,837,448   $ 86,899   1.0 %   Interest-bearing demand deposits $ 1,160,823 $ 1,166,548 $ (5,725 ) -0.5 % Savings deposits 1,608,125 1,671,993 (63,868 ) -3.8 % Time deposits less than $100,000 1,570,687 1,575,320 (4,633 ) -0.3 % Time deposits of $100,000 or more   1,058,165     1,037,785     20,380   2.0 % Total interest-bearing deposits 5,397,800 5,451,646 (53,846 ) -1.0 % Fed funds purchased and repos 517,424 491,488 25,936 5.3 % Short-term borrowings 413,676 314,264 99,412 31.6 % Subordinated notes 49,703 49,696 7 n/m Junior subordinated debt securities   70,104     70,104     -   n/m Total interest-bearing liabilities 6,448,707 6,377,198 71,509 1.1 % Noninterest-bearing deposits 1,419,364 1,423,745 (4,381 ) -0.3 % Other liabilities 137,197 135,469 1,728 1.3 % Shareholders' equity   919,079     901,036     18,043   2.0 % Total liabilities and equity $ 8,924,347   $ 8,837,448   $ 86,899   1.0 %     PERIOD END BALANCES 12/31/2007 9/30/2007 $ Change % Change Securities available for sale $ 442,345 $ 519,920 $ (77,575 ) -14.9 % Securities held to maturity   275,096     278,385     (3,289 ) -1.2 % Total securities   717,441     798,305     (80,864 ) -10.1 % Loans held for sale 147,508 133,693 13,815 10.3 % Loans 7,040,792 6,917,541 123,251 1.8 % Fed funds sold and rev repos   17,997     28,625     (10,628 ) -37.1 % Total earning assets   7,923,738     7,878,164     45,574   0.6 % Allowance for loan losses (79,851 ) (72,368 ) (7,483 ) 10.3 % Cash and due from banks 292,983 306,107 (13,124 ) -4.3 % Mortgage servicing rights 67,192 73,253 (6,061 ) -8.3 % Goodwill 291,177 291,177 - n/m Identifiable intangible assets 28,102 29,313 (1,211 ) -4.1 % Other assets   443,461     405,341     38,120   9.4 % Total assets $ 8,966,802   $ 8,910,987   $ 55,815   0.6 %   Noninterest-bearing deposits $ 1,477,171 $ 1,435,231 $ 41,940 2.9 % Interest-bearing deposits   5,392,101     5,467,221     (75,120 ) -1.4 % Total deposits 6,869,272 6,902,452 (33,180 ) -0.5 % Fed funds purchased and repos 460,763 525,142 (64,379 ) -12.3 % Short-term borrowings 474,354 340,598 133,756 39.3 % Subordinated notes 49,709 49,701 8 n/m Junior subordinated debt securities 70,104 70,104 - n/m Other liabilities   122,964     115,453     7,511   6.5 % Total liabilities   8,047,166     8,003,450     43,716   0.5 % Common stock 11,933 11,933 - 0.0 % Surplus 124,161 123,227 934 0.8 % Retained earnings 797,993 787,356 10,637 1.4 % Accum other comprehensive loss, net of tax   (14,451 )   (14,979 )   528   n/m Total shareholders' equity   919,636     907,537     12,099   1.3 % Total liabilities and equity $ 8,966,802   $ 8,910,987   $ 55,815   0.6 %   Total interest-bearing liabilities $ 6,447,031   $ 6,452,766   $ (5,735 ) -0.1 %   n/m - not meaningful     Quarter Ended INCOME STATEMENTS 12/31/2007 9/30/2007 $ Change % Change Interest and fees on loans-FTE $ 133,088 $ 129,394 $ 3,694 2.9 % Interest on securities-taxable 6,505 7,181 (676 ) -9.4 % Interest on securities-tax exempt-FTE 2,352 2,422 (70 ) -2.9 % Interest on fed funds sold and rev repos 317 397 (80 ) -20.2 % Other interest income   501     482     19   3.9 % Total interest income-FTE   142,763     139,876     2,887   2.1 % Interest on deposits 47,911 50,423 (2,512 ) -5.0 % Interest on fed funds pch and repos 5,499 5,898 (399 ) -6.8 % Other interest expense   7,055     6,186     869   14.0 % Total interest expense   60,465     62,507     (2,042 ) -3.3 % Net interest income-FTE 82,298 77,369 4,929 6.4 % Provision for loan losses   17,001     4,999     12,002   n/m Net interest income after provision-FTE   65,297     72,370     (7,073 ) -9.8 % Service charges on deposit accounts 13,908 13,849 59 0.4 % Insurance commissions 7,630 8,983 (1,353 ) -15.1 % Wealth management 6,969 6,507 462 7.1 % General banking - other 6,177 6,111 66 1.1 % Mortgage banking, net 4,967 2,503 2,464 98.4 % Other, net   2,604     3,593     (989 ) -27.5 % Nonint inc-excl sec gains, net 42,255 41,546 709 1.7 % Security gains, net   2     23     (21 ) -91.3 % Total noninterest income   42,257     41,569     688   1.7 % Salaries and employee benefits 42,446 42,257 189 0.4 % Services and fees 9,375 9,285 90 1.0 % Net occupancy-premises 4,716 4,753 (37 ) -0.8 % Equipment expense 4,165 3,922 243 6.2 % Other expense   9,020     8,271     749   9.1 % Total noninterest expense   69,722     68,488     1,234   1.8 % Income before income taxes and tax eq adj 37,832 45,451 (7,619 ) -16.8 % Tax equivalent adjustment   2,375     2,283     92   4.0 % Income before income taxes 35,457 43,168 (7,711 ) -17.9 % Income taxes   11,628     14,087     (2,459 ) -17.5 % Net income $ 23,829   $ 29,081   $ (5,252 ) -18.1 %   Earnings per share Basic $ 0.42   $ 0.51   $ (0.09 ) -17.6 %   Diluted $ 0.42   $ 0.51   $ (0.09 ) -17.6 %   Weighted average shares outstanding Basic   57,272,408     57,267,119   0.0 %   Diluted   57,341,472     57,526,573   -0.3 %   Period end shares outstanding   57,272,408     57,272,408   0.0 %   Dividends per share $ 0.2300   $ 0.2200   4.5 %     n/m - not meaningful       NONPERFORMING ASSETS 12/31/2007 9/30/2007 $ Change % Change Nonaccrual loans $ 65,173 $ 45,449 $ 19,724 43.4 % Restructured loans   -     -     -   Total nonperforming loans 65,173 45,449 19,724 43.4 % Other real estate   8,348     5,870     2,478   42.2 % Total nonperforming assets 73,521 51,319 22,202 43.3 % Loans past due over 90 days Included in Loan Portfolio 4,853 9,521 (4,668 ) -49.0 % Serviced GNMA loans eligible for repch   11,847     9,539     2,308   24.2 % Total loans past due over 90 days   16,700     19,060     (2,360 ) -12.4 % Total nonperforming assets plus past due over 90 days $ 90,221   $ 70,379   $ 19,842   28.2 %     Quarter Ended ALLOWANCE FOR LOAN LOSSES 12/31/2007 9/30/2007 $ Change % Change Beginning Balance $ 72,368 $ 70,948 $ 1,420 2.0 % Provision for loan losses 17,001 4,999 12,002 240.1 % Charge-offs (11,904 ) (6,417 ) (5,487 ) 85.5 % Recoveries   2,386     2,838     (452 ) -15.9 % Net charge-offs   (9,518 )   (3,579 )   (5,939 ) 165.9 % Ending Balance $ 79,851   $ 72,368   $ 7,483   10.3 %     Quarter Ended CAPITAL RATIOS 12/31/2007 9/30/2007 EOP equity/ EOP assets 10.26 % 10.18 % Average equity/average assets 10.30 % 10.20 % EOP tangible equity/EOP tangible assets 6.94 % 6.83 % Tier 1 leverage ratio 7.86 % 7.79 % Tier 1 risk-based capital ratio 9.17 % 9.20 % Total risk-based capital ratio 10.93 % 10.89 %     Quarter Ended FINANCIAL RATIOS 12/31/2007 9/30/2007 ROA 1.06 % 1.31 % ROE 10.29 % 12.80 % Return on average tangible equity 16.28 % 20.41 % Interest margin - Yield - FTE (See Note 5) 6.98 % 7.07 % Interest margin - Cost - FTE 3.02 % 3.16 % Net interest margin - FTE (See Note 5) 3.95 % 3.91 % Rate on interest-bearing liabilities 3.72 % 3.89 % Efficiency ratio 56.80 % 57.98 % Net charge offs/average loans 0.53 % 0.20 % Provision for loan losses/average loans 0.94 % 0.28 % Nonperforming loans/total loans (incl LHFS) 0.91 % 0.64 % Nonperforming assets/total loans (incl LHFS) 1.02 % 0.73 % Nonperforming assets/total loans (incl LHFS) +ORE 1.02 % 0.73 % ALL/nonperforming loans 122.52 % 159.23 % ALL/total loans (excl LHFS) 1.13 % 1.05 % Net loans (incl LHFS)/total assets 79.28 % 76.82 %     Quarter Ended COMMON STOCK PERFORMANCE 12/31/2007 9/30/2007 Market value of stock-Close $ 25.36 $ 28.04 Market value of stock-High $ 29.71 $ 30.15 Market value of stock-Low $ 23.10 $ 24.13 Book value of stock $ 16.06 $ 15.85 Tangible book value of stock $ 10.48 $ 10.25 Market/Book value of stock 157.91 % 176.91 %       OTHER DATA 12/31/2007 9/30/2007 EOP Employees - FTE 2,612 2,635       n/m - not meaningful TRUSTMARK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2007 ($ in thousands except per share data) (unaudited)     Note 1 – Financial Performance Non-GAAP Disclosures   Management is presenting, in the accompanying table, adjustments to net income as reported in accordance with generally accepted accounting principles resulting from significant items occurring during the periods presented.  Management believes this information will help users compare Trustmark’s current results to those of prior periods as presented in the table below.   Quarter Ended 12/31/2007   9/30/2007   12/31/2006 Amount   Basic EPS Amount   Basic EPS Amount   Basic EPS   Net Income as reported-GAAP $ 23,829 $ 0.416 $ 29,081 $ 0.508 $ 29,419 $ 0.502   Adjustments (net of taxes): Correction of Accounting Error (1,989 ) (0.035 ) - - - - Hurricane Katrina - - - - (1,129 ) (0.019 ) Visa Litigation Contingency   494     0.009     -     -     -     -     (1,495 )   (0.026 )   -     -     (1,129 )   (0.019 )   Net Income adjusted for specific items (Non-GAAP) $ 22,334   $ 0.390   $ 29,081   $ 0.508   $ 28,290   $ 0.483       Year-to-Date 12/31/2007 12/31/2006 Amount Basic EPS Amount Basic EPS   Net Income as reported-GAAP $ 108,595 $ 1.882 $ 119,273 $ 2.106   Adjustments (net of taxes): Correction of Accounting Error (1,623 ) (0.028 ) - - Hurricane Katrina (665 ) (0.012 ) (5,688 ) (0.100 ) Visa Litigation Contingency   494     0.009     -     -     (1,794 )   (0.031 )   (5,688 )   (0.100 )   Net Income adjusted for specific items (Non-GAAP) $ 106,801   $ 1.851   $ 113,585   $ 2.006   Correction of Accounting Error The fourth quarter consolidated financial statements include a pre-tax benefit of $3.2 million for the correction of an error relating to the amortization of deferred loan fees, which is included in interest income on loans. Of this amount, $2.6 million arose in prior periods, while $593 thousand was incurred over the first three quarters of 2007. Trustmark’s Management as well as the Audit and Finance Committee of the Board of Directors have reviewed this accounting error utilizing Securities and Exchange Commission Staff Accounting Bulletins (SAB) Nos. 99 and 108 and believe the impact of this error is not material to current or prior period consolidated financial statements. Hurricane Katrina In the third quarter of 2005, immediately following in the aftermath of Hurricane Katrina, Trustmark estimated possible pre-tax losses resulting from this storm of $11.7 million. Trustmark revised these estimates quarterly and any subsequent adjustments are reflected in the table above, net of taxes. At December 31, 2007, the allowance for loan losses included $594 thousand related to possible Hurricane Katrina losses. Visa Litigation Contingency During the fourth quarter of 2007, Trustmark accrued $800 thousand for the Visa litigation contingency relating to the VISA USA Inc. antitrust lawsuit settlement with American Express and other pending Visa litigation (reflecting Trustmark’s share as a Visa member). This expense is expected to be offset by a gain that would be recognized upon Visa’s completion of its initial public offering. 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:   12/31/07   9/30/07   12/31/06 Loans secured by real estate: Construction, land development and other land loans $ 1,194,940 $ 1,155,737 $ 896,254 Secured by 1-4 family residential properties 1,694,757 1,756,427 1,842,886 Secured by nonfarm, nonresidential properties 1,325,379 1,269,625 1,326,658 Other 167,610 142,505 148,921 Loans to finance agricultural production and other loans to farmers 23,692 30,486 23,938 Commercial and industrial loans 1,283,014 1,241,772 1,106,460 Consumer loans 1,087,337 1,068,610 934,261 Obligations of states and political subdivisions 228,330 210,925 233,666 Other loans   35,733   41,454   50,109 Loans 7,040,792 6,917,541 6,563,153 Less Allowance for loan losses   79,851   72,368   72,098 Net Loans $ 6,960,941 $ 6,845,173 $ 6,491,055 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 SAB 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 for commercial loans. This modification, which occurred during the third quarter of 2007, lowered specific industry reserves by $3.5 million, which were offset by increases in other quantitative and qualitative reserves for commercial loans. Trustmark’s allocation of its allowance for loan losses represented 1.48% of commercial loans and 0.59% of consumer and home mortgage loans, resulting in an allowance of 1.13% at December 31, 2007, up from 1.05% at September 30, 2007. During the fourth quarter of 2007, Trustmark’s provision for possible loan losses totaled $17.0 million, resulting in an allowance for loan losses of $79.9 million at December 31, 2007. Trustmark’s provision for loan losses increased $12.0 million and the allowance for loan losses increased $7.5 million relative to the third quarter of 2007. The increased provision is due to weakening of homebuilder credit quality in Trustmark’s Florida Panhandle market. At December 31, 2007, Trustmark’s Florida loan portfolio totaled $712 million, or approximately 10% of the Company’s total loans. The Florida Panhandle has experienced a significant decrease in real estate demand, resulting in nonaccrual loans increasing to $43.8 million, or 6.1% of its Florida loan portfolio. In addition, net charge-offs in the Florida market during the fourth quarter totaled $3.7 million. Management is actively engaged in the resolution of credit issues in the Florida Panhandle. We are closely monitoring the impact of declining real estate values on our borrowers and proactively addressing these situations. While Trustmark expects these actions will assist in the mitigation of the impact of the current credit cycle, weakness in its Florida residential real estate portfolio may continue during 2008. The loan portfolios in our other geographic markets, which constitute 90% of our total loans, are not experiencing any significant credit issues at this time. 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 positive ineffectiveness of $1.2 million. The following table illustrates the components of mortgage banking income included in noninterest income in the accompanying income statements:   Quarter Ended   Year-to-date 12/31/07   9/30/07   12/31/06 12/31/07   12/31/06 Mortgage servicing income, net $ 3,725 $ 3,503 $ 3,395 $ 14,184 $ 13,248 Change in fair value-MSR from market changes (8,143 ) (5,268 ) 1,008 (9,466 ) 3,122 Change in fair value-MSR from runoff (2,064 ) (2,681 ) (2,204 ) (9,343 ) (9,858 ) Change in fair value of derivatives 10,123 5,298 (1,411 ) 10,644 (2,298 ) Gain on sales of loans 1,594 1,224 1,794 5,659 5,505 Other, net   (268 )   427     (33 )   346     311   Mortgage banking, net $ 4,967   $ 2,503   $ 2,549   $ 12,024   $ 10,030   Note 5 – Earning Assets and Interest-Bearing Liabilities The following table illustrates the yields on earning assets by category as well as the rates paid on interest-bearing liabilities on a tax equivalent basis:   Quarter Ended   Year-to-date 12/31/07   9/30/07   12/31/06 12/31/07   12/31/06 Securities – Taxable 4.11% 3.96% 3.94% 4.13% 3.97% Securities - Nontaxable 7.19% 7.19% 7.14% 7.27% 7.30% Securities – Total 4.63% 4.46% 4.38% 4.60% 4.39% Loans 7.21% 7.36% 7.16% 7.31% 6.93% FF Sold & Rev Repo 4.84% 5.22% 5.43% 5.26% 5.10% Total Earning Assets 6.98% 7.07% 6.80% 7.02% 6.55% Interest-bearing Deposits 3.52% 3.67% 3.53% 3.63% 3.05% FF Pch & Repo 4.22% 4.76% 4.47% 4.52% 4.29% Borrowings 5.25% 5.65% 5.67% 5.60% 5.09% Total Interest-bearing Liabilities 3.72% 3.89% 3.72% 3.81% 3.33% Net interest margin 3.95% 3.91% 3.81% 3.92% 3.86% As discussed in Note 1, Trustmark corrected an accounting error in its consolidated financial statements resulting in a pre-tax benefit of $3.2 million and $2.6 million for the quarter and year ended December 31, 2007, respectively. This error correction has been excluded in the table above. Including this error correction, Trustmark’s loan yield for the quarter and year ended December 31, 2007 was 7.39% and 7.35%, respectively, while the net interest margin for the quarter and year ended December 31, 2007 was 4.12% and 3.96%, respectively. 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 December 31, 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 – Reclassification and 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 because 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 $38.4 million at December 31, 2007, $33.2 million at September 30, 2007 and $34.0 million at December 31, 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 as 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 December 31, 2007, September 30, 2007 and December 31, 2006. These reclassifications have been made to prior period amounts in order to conform to the current period presentation.