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, 2011

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 000-03683

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 R No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b of the Exchange Act.

Large accelerated filer R		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company 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 R

As of October 31, 2011, there were 64,119,235 shares outstanding of the registrant’s common stock (no par value).

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Trustmark Corporation and Subsidiaries

Consolidated Balance Sheets

($ in thousands)

	(Unaudited)
	September 30,		December 31,
	2011		2010
Assets
Cash and due from banks (noninterest-bearing)	$	245,132	$	161,544
Federal funds sold and securities purchased under reverse repurchase agreements		8,810		11,773
Securities available for sale (at fair value)		2,476,905		2,177,249
Securities held to maturity (fair value: $76,007-2011; $145,143-2010)		71,046		140,847
Loans held for sale (LHFS)		210,269		153,044
Loans held for investment (LHFI), excluding covered loans		5,783,712		6,060,242
Less allowance for loan losses		89,463		93,510
Net LHFI, excluding covered loans		5,694,249		5,966,732
Covered loans		79,064		-
Net LHFI and covered loans		5,773,313		5,966,732
Premises and equipment, net		141,639		142,289
Mortgage servicing rights		43,659		51,151
Goodwill		291,104		291,104
Identifiable intangible assets		14,861		16,306
Other real estate, excluding covered other real estate		89,597		86,704
Covered other real estate		7,197		-
FDIC indemnification asset		33,436		-
Other assets		298,953		355,159
Total Assets	$	9,705,921	$	9,553,902

Liabilities
Deposits:
Noninterest-bearing	$	1,871,040	$	1,636,625
Interest-bearing		5,698,684		5,407,942
Total deposits		7,569,724		7,044,567
Federal funds purchased and securities sold under repurchase agreements		576,672		700,138
Short-term borrowings		98,887		425,343
Long-term FHLB advances		741		-
Subordinated notes		49,831		49,806
Junior subordinated debt securities		61,856		61,856
Other liabilities		126,604		122,708
Total Liabilities		8,484,315		8,404,418

Shareholders' Equity
Common stock, no par value:
Authorized: 250,000,000 shares
Issued and outstanding: 64,119,235 shares - 2011; 63,917,591 shares - 2010		13,359		13,318
Capital surplus		264,750		256,675
Retained earnings		923,891		890,917
Accumulated other comprehensive income (loss), net of tax		19,606		(11,426	)
Total Shareholders' Equity		1,221,606		1,149,484
Total Liabilities and Shareholders' Equity	$	9,705,921	$	9,553,902

See notes to consolidated financial statements.

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,
	2011		2010		2011		2010
Interest Income
Interest and fees on loans	$	76,343	$	80,767	$	229,926	$	244,095
Interest on securities:
Taxable		18,115		18,641		58,481		58,002
Tax exempt		1,401		1,352		4,159		4,167
Interest on federal funds sold and securities purchased under reverse repurchase agreements		5		9		20		24
Other interest income		329		332		994		1,081
Total Interest Income		96,193		101,101		293,580		307,369

Interest Expense
Interest on deposits		9,455		11,609		29,110		38,298
Interest on federal funds purchased and securities sold under repurchase agreements		216		294		770		780
Other interest expense		842		1,631		3,815		4,820
Total Interest Expense		10,513		13,534		33,695		43,898
Net Interest Income		85,680		87,567		259,885		263,471
Provision for loan losses		7,978		12,259		23,631		37,752

Net Interest Income After Provision for Loan Losses		77,702		75,308		236,254		225,719

Noninterest Income
Service charges on deposit accounts		13,680		14,493		38,438		41,690
Insurance commissions		7,516		7,746		20,890		21,467
Wealth management		5,993		5,199		17,739		16,112
Bank card and other fees		7,033		6,235		20,362		18,532
Mortgage banking, net		9,783		9,861		20,774		24,843
Other, net		234		441		8,781		2,423
Securities gains, net		33		4		91		2,228
Total Noninterest Income		44,272		43,979		127,075		127,295

Noninterest Expense
Salaries and employee benefits		44,701		44,034		132,940		130,170
Services and fees		11,485		10,709		32,535		31,487
Net occupancy - premises		5,093		4,961		15,216		14,912
Equipment expense		5,038		4,356		15,038		12,906
FDIC assessment expense		1,812		3,037		6,500		9,219
ORE/Foreclosure expense		5,616		8,728		13,533		21,067
Other expense		11,736		8,598		31,085		25,451
Total Noninterest Expense		85,481		84,423		246,847		245,212
Income Before Income Taxes		36,493		34,864		116,482		107,802
Income taxes		9,525		9,004		33,899		32,326
Net Income	$	26,968	$	25,860	$	82,583	$	75,476

Earnings Per Common Share
Basic	$	0.42	$	0.40	$	1.29	$	1.18

Diluted	$	0.42	$	0.40	$	1.29	$	1.18

Dividends Per Common Share	$	0.23	$	0.23	$	0.69	$	0.69

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

($ in thousands)

(Unaudited)

	2011			2010
Balance, January 1,	$	1,149,484		$	1,110,060
Net income per consolidated statements of income		82,583			75,476
Other comprehensive income:
Net change in fair value of securities available for sale		28,779			9,561
Net change in defined benefit plans		2,253			1,711
Comprehensive income		113,615			86,748
Common stock dividends paid		(44,614	)		(44,473	)
Common stock issued-net, long-term incentive plans:
Stock options		1,507			2,480
Restricted stock		(1,867	)		(1,008	)
Excess tax benefit from stock-based compensation arrangements		553			1,357
Compensation expense, long-term incentive plans		2,928			3,688
Other		-			(60	)
Balance, September 30,	$	1,221,606		$	1,158,792

See notes to consolidated financial statements.

Trustmark Corporation and Subsidiaries

Consolidated Statements of Cash Flows

($ in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2011			2010
Operating Activities
Net income	$	82,583		$	75,476
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		23,631			37,752
Depreciation and amortization		18,523			18,626
Net amortization of securities		6,092			2,087
Securities gains, net		(91	)		(2,228	)
Gains on sales of loans, net		(7,320	)		(9,562	)
Decrease in FDIC indemnification asset		117			-
Bargain purchase gain on acquisition		(7,456	)		-
Deferred income tax benefit		(6,735	)		(11,460	)
Proceeds from sales of loans held for sale		664,099			792,321
Purchases and originations of loans held for sale		(692,958	)		(810,356	)
Originations and sales of mortgage servicing rights, net		(9,581	)		(11,071	)
Net decrease in other assets		40,930			23,720
Net decrease in other liabilities		(3,898	)		(11,163	)
Other operating activities, net		25,278			32,878
Net cash provided by operating activities		133,214			127,020

Investing Activities
Proceeds from calls and maturities of securities held to maturity		69,874			64,208
Proceeds from calls and maturities of securities available for sale		482,918			405,974
Proceeds from sales of securities available for sale		22,996			65,074
Purchases of securities available for sale		(747,383	)		(688,766	)
Net decrease (increase) in federal funds sold and securities purchased under reverse repurchase agreements		3,963			(281	)
Net decrease in loans		227,687			222,924
Purchases of premises and equipment		(8,393	)		(4,924	)
Proceeds from sales of premises and equipment		536			22
Proceeds from sales of other real estate		36,277			40,921
Net cash received in business combination		78,896			-
Net cash provided by investing activities		167,371			105,152

Financing Activities
Net increase (decrease) in deposits		320,808			(163,129	)
Net decrease in federal funds purchased and securities sold under repurchase agreements		(123,466	)		(19,967	)
Net decrease in short-term borrowings		(369,765	)		(24,815	)
Payments from calls of long-term FHLB advances		(153	)		-
Common stock dividends		(44,614	)		(44,473	)
Common stock issued-net, long-term incentive plans		(360	)		1,472
Excess tax benefit from stock-based compensation arrangements		553			1,357
Net cash used in financing activities		(216,997	)		(249,555	)

Increase (decrease) in cash and cash equivalents		83,588			(17,383	)
Cash and cash equivalents at beginning of period		161,544			213,519
Cash and cash equivalents at end of period	$	245,132		$	196,136

See notes to consolidated financial statements

Trustmark Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Business, Basis of Financial Statement Presentation and Principles of Consolidation

Trustmark Corporation (Trustmark) is a multi-bank holding company headquartered in Jackson, Mississippi. Through its subsidiaries, Trustmark operates as a financial services organization providing banking and financial solutions to corporate institutions and individual customers through over 150 offices in Florida, Mississippi, Tennessee and Texas.

The consolidated financial statements in this quarterly report on Form 10-Q include the accounts of 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 (GAAP) 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. GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements, and notes thereto, included in Trustmark’s 2010 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. 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. The preparation of financial statements in conformity with these accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and income and expense during the reporting period and the related disclosures. Although Management’s estimates contemplate current conditions and how they are expected to change in the future, it is reasonably possible that in 2011 actual conditions could vary from those anticipated, which could affect our results of operations and financial condition. The allowance for loan losses, the amount and timing of expected cash flows from covered assets and the FDIC indemnification asset, the valuation of other real estate, the fair value of mortgage servicing rights, the valuation of goodwill and other identifiable intangibles, the status of contingencies and the fair values of financial instruments are particularly subject to change. Actual results could differ from those estimates.

Note 2 – Business Combinations

On April 15, 2011, the Mississippi Department of Banking and Consumer Finance closed the Heritage Banking Group (Heritage), a 90-year old financial institution headquartered in Carthage, Mississippi, and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. On the same date, Trustmark National Bank (TNB) entered into a purchase and assumption agreement with the FDIC in which TNB agreed to assume all of the deposits and purchased essentially all of the assets of Heritage. The FDIC and TNB entered into a loss-share transaction on approximately $151.9 million of Heritage assets, which covers substantially all loans and all other real estate. Under the loss share agreement, the FDIC will cover 80% of covered loan and other real estate losses incurred. Because of the loss protection provided by the FDIC, the risk characteristics of the Heritage loans and other real estate are significantly different from those assets not covered by this agreement. As a result, Trustmark will refer to loans and other real estate subject to the loss share agreement as “covered” while loans and other real estate that are not subject to the loss share agreement will be referred to as “excluding covered.” The loss share agreement applicable to single family residential mortgage loans and related foreclosed real estate provides for FDIC loss sharing and TNB’s reimbursement to the FDIC for recoveries of covered losses for ten years from the date on which the loss share agreement was entered. The loss share agreement applicable to commercial loans and related foreclosed real estate provides for FDIC loss sharing for five years from the date on which the loss share agreement was entered and TNB’s reimbursement to the FDIC for recoveries of covered losses for an additional three years thereafter.

Pursuant to the clawback provisions of the Heritage loss share agreement, Trustmark may be required to reimburse the FDIC should actual losses be less than certain thresholds established in the agreement. To the extent that actual losses on covered loans and covered other real estate are less than estimated losses, the applicable clawback payable to the FDIC upon termination of the loss share agreement will increase. To the extent that actual losses on covered loans and covered other real estate are more than estimated losses, the applicable clawback payable to the FDIC upon termination of the loss share agreement will decrease. At September 30, 2011, Trustmark had no clawback payable to the FDIC.

The assets purchased and liabilities assumed for the Heritage acquisition have been accounted for under the acquisition method of accounting (formerly the purchase method). The assets and liabilities, both tangible and intangible, are recorded at their estimated fair values as of the acquisition date. The fair value amounts are subject to change for up to one year after the closing date as additional information relating to closing date fair values becomes available. The amounts are also subject to adjustments based upon final settlement with the FDIC.

The statement of assets purchased and liabilities assumed in the Heritage acquisition are presented below at their estimated fair values as of the acquisition date of April 15, 2011 ($ in thousands):

Assets
Cash and due from banks	$	50,447
Federal funds sold		1,000
Securities available for sale		6,389
LHFI, excluding covered loans		9,644
Covered loans		97,770
Premises and equipment, net		55
Identifiable intangible assets		902
Covered other real estate		7,485
FDIC indemnification asset		33,333
Other assets		218
Total Assets		207,243

Liabilities
Deposits		204,349
Short-term borrowings		23,157
Other liabilities		730
Total Liabilities		228,236

Net assets acquired at fair value		(20,993	)

Cash received on acquisition		28,449

Bargain purchase gain		7,456

Income taxes		2,852

Bargain purchase gain, net of taxes	$	4,604

For financial instruments measured at fair value, Trustmark utilized Level 2 inputs to determine the fair value of securities available for sale, time deposits (included in deposits above) and FHLB advances (shown as short-term borrowings above). Level 3 inputs were used to determine the fair value of both LHFI and covered loans, identifiable intangible assets, covered other real estate and FDIC indemnification asset. The methodology and significant assumptions used in estimating the fair values of these financial assets and liabilities are as follows:

Securities Available for Sale

Estimated fair values for securities available for sale are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable instruments.

LHFI and Covered Loans

Fair value of acquired loans is determined using a discounted cash flow model based on assumptions regarding the amount and timing of principal and interest payments, estimated prepayments, estimated default rates, estimated loss severity in the event of defaults and current market rates.

Identifiable Intangible Assets

The fair value assigned to the identifiable intangible assets, in this case core deposit intangibles, represent the future economic benefit of the potential cost savings from acquiring core deposits in the acquisition compared to the cost of obtaining alternative funding from market sources.

Covered Other Real Estate

Covered other real estate was initially recorded at its estimated fair value on the acquisition date based on similar market comparable valuations less estimated selling costs.

FDIC Indemnification Asset

The FDIC indemnification asset was initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-share agreement.

Time Deposits

Time deposits were valued by projecting expected cash flows into the future based on each account’s contracted rate and then determining the present value of those expected cash flows using current rates for deposits with similar maturities.

FHLB Advances

FHLB advances were valued by projecting expected cash flows into the future based on each account’s contracted rate and then determining the present value of those expected cash flows using current rates for advances with similar maturities.

Please refer to Note 15 – Fair Value for more information on Trustmark’s classification of financial instruments based on valuation inputs within the fair value hierarchy.

The bargain purchase gain represents the net of the estimated fair value of the assets acquired and liabilities assumed and is influenced significantly by the FDIC-assisted transaction process. Under the FDIC-assisted transaction process, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer's bid, the FDIC may be required to make a cash payment to the acquirer. The pretax gain of $7.5 million recognized by Trustmark is considered a bargain purchase transaction under FASB ASC Topic 805, “Business Combinations.” The gain was recognized as other noninterest income in Trustmark’s consolidated statements of income for the nine months ended September 30, 2011.

The operations of Heritage are included in Trustmark’s operating results from April 15, 2011, and added revenue of $11.1 million and net income available to common shareholders of $5.9 million through September 30, 2011. Such operating results are not necessarily indicative of future operating results. Trustmark believes that given the nature of the assets and liabilities assumed, the significant amount of fair value adjustments and the FDIC loss sharing agreements now in place, historical results of Heritage are not meaningful to Trustmark’s results of operations and thus no pro forma information is presented.

Note 3 – Securities Available for Sale and Held to Maturity

The following table is a summary of the amortized cost and estimated fair value of securities available for sale and held to maturity ($ in thousands):

	Securities Available for Sale									Securities Held to Maturity
September 30, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Estimated Fair Value
U.S. Government agency obligations
Issued by U.S. Government agencies	$	5	$	-	$	-		$	5	$	-	$	-	$	-		$	-
Issued by U.S. Government sponsored agencies		61,599		309		(38	)		61,870		-		-		-			-
Obligations of states and political subdivisions		198,860		8,962		(41	)		207,781		43,246		4,097		(4	)		47,339
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA		13,650		987		-			14,637		5,291		353		-			5,644
Issued by FNMA and FHLMC		392,598		7,991		-			400,589		753		34		-			787
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		1,524,422		55,276		-			1,579,698		19,534		307		-			19,841
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		204,990		7,335		-			212,325		2,222		174		-			2,396
Total	$	2,396,124	$	80,860	$	(79	)	$	2,476,905	$	71,046	$	4,965	$	(4	)	$	76,007


December 31, 2010
U.S. Government agency obligations
Issued by U.S. Government agencies	$	12	$	-	$	-		$	12	$	-	$	-	$	-		$	-
Issued by U.S. Government sponsored agencies		124,093		114		(2,184	)		122,023		-		-		-			-
Obligations of states and political subdivisions		159,418		2,259		(2,040	)		159,637		53,246		2,628		(10	)		55,864
Mortgage-backed securities
Residential mortgage pass-through securities
Guaranteed by GNMA		11,719		723		-			12,442		6,058		171		-			6,229
Issued by FNMA and FHLMC		432,162		1,188		(6,846	)		426,504		763		6		-			769
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		1,361,339		43,788		(4,311	)		1,400,816		78,526		1,503		-			80,029
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		54,331		2,007		(523	)		55,815		2,254		-		(2	)		2,252
Total	$	2,143,074	$	50,079	$	(15,904	)	$	2,177,249	$	140,847	$	4,308	$	(12	)	$	145,143

Temporarily Impaired Securities

The table below includes securities with gross unrealized losses segregated by length of impairment ($ in thousands):

	Less than 12 Months					12 Months or More					Total
			Gross					Gross					Gross
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
September 30, 2011	Fair Value		(Losses)			Fair Value		(Losses)			Fair Value		(Losses)
U.S. Government agency obligations
Issued by U.S. Government sponsored agencies	$	9,957	$	(38	)	$	-	$	-		$	9,957	$	(38	)
Obligations of states and political subdivisions		3,475		(34	)		300		(11	)		3,775		(45	)
Total	$	13,432	$	(72	)	$	300	$	(11	)	$	13,732	$	(83	)

December 31, 2010
U.S. Government agency obligations
Issued by U.S. Government sponsored agencies	$	86,917	$	(2,184	)	$	-	$	-		$	86,917	$	(2,184	)
Obligations of states and political subdivisions		65,523		(2,045	)		307		(5	)		65,830		(2,050	)
Mortgage-backed securities
Residential mortgage pass-through securities
Issued by FNMA and FHLMC		312,787		(6,846	)		-		-			312,787		(6,846	)
Other residential mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		232,279		(4,311	)		-		-			232,279		(4,311	)
Commercial mortgage-backed securities
Issued or guaranteed by FNMA, FHLMC or GNMA		21,073		(525	)		-		-			21,073		(525	)
Total	$	718,579	$	(15,911	)	$	307	$	(5	)	$	718,886	$	(15,916	)

Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. In estimating other-than-temporary impairment losses, Management considers, among other things, the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer and the intent and ability of Trustmark to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. The unrealized losses shown above are primarily due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. Because Trustmark does not intend to sell these securities and it is more likely than not that Trustmark will not be required to sell the investments before recovery of their amortized cost bases, which may be maturity, Trustmark does not consider these investments to be other-than-temporarily impaired at September 30, 2011. There were no other-than-temporary impairments for the nine months ended September 30, 2011 and 2010.

Management has evaluated Trustmark's investment portfolio and has determined that neither the S&P downgrade of U.S. long-term sovereign debt nor the resulting market volatility has created a significant decline in the fair value of Trustmark's investment portfolio. Management will continue to monitor market activity and other events to determine if additional action will be necessary.

Security Gains and Losses

Gains and losses as a result of calls and dispositions of securities were as follows ($ in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
Available for Sale	2011		2010		2011		2010
Proceeds from calls and sales of securities	$	1,175	$	-	$	24,171	$	65,074
Gross realized gains		5		-		57		2,216

Held to Maturity
Proceeds from calls of securities	$	2,355	$	1,210	$	3,645	$	4,960
Gross realized gains		28		4		34		12

Realized gains and losses are determined using the specific identification method and are included in noninterest income as securities gains, net.

Contractual Maturities

The amortized cost and estimated fair value of securities available for sale and held to maturity at September 30, 2011, by contractual maturity, are shown below ($ in thousands). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities				Securities
	Available for Sale				Held to Maturity
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	45,283	$	45,322	$	2,653	$	2,680
Due after one year through five years		50,639		52,721		12,919		13,498
Due after five years through ten years		153,247		159,940		19,809		21,992
Due after ten years		11,295		11,673		7,865		9,169
		260,464		269,656		43,246		47,339
Mortgage-backed securities		2,135,660		2,207,249		27,800		28,668
Total	$	2,396,124	$	2,476,905	$	71,046	$	76,007

Note 4 –Loans Held for Investment (LHFI) and Allowance for Loan Losses, excluding Covered Loans

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

	September 30, 2011		December 31, 2010
Loans secured by real estate:
Construction, land development and other land loans	$	481,821	$	583,316
Secured by 1-4 family residential properties		1,717,366		1,732,056
Secured by nonfarm, nonresidential properties		1,437,573		1,498,108
Other		207,984		231,963
Commercial and industrial loans		1,083,753		1,068,369
Consumer loans		268,002		402,165
Other loans		587,213		544,265
LHFI, excluding covered loans		5,783,712		6,060,242
Less allowance for loan losses		89,463		93,510
Net LHFI, excluding covered loans	$	5,694,249	$	5,966,732

The following table details LHFI, excluding covered loans, individually and collectively evaluated for impairment at September 30, 2011 and December 31, 2010 ($ in thousands):

	September 30, 2011
	LHFI Evaluated for Impairment
	Individually		Collectively		Total

Loans secured by real estate:
Construction, land development and other land loans	$	29,594	$	452,227	$	481,821
Secured by 1-4 family residential properties		23,558		1,693,808		1,717,366
Secured by nonfarm, nonresidential properties		25,303		1,412,270		1,437,573
Other		4,821		203,163		207,984
Commercial and industrial loans		14,204		1,069,549		1,083,753
Consumer loans		907		267,095		268,002
Other loans		1,191		586,022		587,213
Total	$	99,578	$	5,684,134	$	5,783,712

	December 31, 2010
	LHFI Evaluated for Impairment
	Individually		Collectively		Total

Loans secured by real estate:
Construction, land development and other land loans	$	57,831	$	525,485	$	583,316
Secured by 1-4 family residential properties		30,313		1,701,743		1,732,056
Secured by nonfarm, nonresidential properties		29,013		1,469,095		1,498,108
Other		6,154		225,809		231,963
Commercial and industrial loans		16,107		1,052,262		1,068,369
Consumer loans		2,112		400,053		402,165
Other loans		1,393		542,872		544,265
Total	$	142,923	$	5,917,319	$	6,060,242

Loan Concentrations

Trustmark does not have any loan concentrations other than those reflected in the preceding table, which exceed 10% of total LHFI. At September 30, 2011, Trustmark's geographic loan distribution was concentrated primarily in its Florida, Mississippi, Tennessee and Texas markets. A substantial portion of construction, land development and other land loans are secured by real estate in markets in which Trustmark is located. Accordingly, the ultimate collectability of a substantial portion of these loans and the recovery of a substantial portion of the carrying amount of other real estate owned, are susceptible to changes in market conditions in these areas.

Nonaccrual/Impaired LHFI, Excluding Covered Loans

At September 30, 2011 and December 31, 2010, the carrying amounts of nonaccrual LHFI, excluding covered loans, which are considered for impairment analysis, were $99.6 million and $142.9 million, respectively. For collateral dependent loans, when a loan is deemed impaired, the full difference between the carrying amount of the loan and the most likely estimate of the asset’s fair value less cost to sell, is charged-off. All of Trustmark’s specifically evaluated impaired LHFI are collateral dependent loans. At September 30, 2011 and December 31, 2010, specifically evaluated impaired LHFI totaled $66.2 million and $97.6 million, respectively. In addition, these specifically evaluated impaired LHFI had a related allowance of $6.3 million and $8.3 million at the end of the respective periods. Specific charge-offs related to impaired LHFI totaled $18.4 million and $26.9 million while the provisions charged to net income for these loans totaled $6.2 million and $9.6 million for the first nine months of 2011 and 2010, respectively.

All nonaccrual LHFI over $500 thousand are individually assessed for impairment. Impaired LHFI have been determined to be collateral dependent and assessed using a fair value approach. Fair value estimates begin with appraised values based on the current market value/as is value of the property being appraised, normally from recently received and reviewed appraisals. If a current appraisal, or one with an inspection date within the past 12 months, using the necessary assumptions is not in the file, a new appraisal is ordered. Appraisals are obtained from State-certified Appraisers and are based on certain assumptions, which may include construction or development status and the highest and best use of the property. The Appraisal Review Department has the authority to make adjustments to appraisals based on sales contracts, comparable sales and other pertinent information if an appraisal does not incorporate the effect of these assumptions. Appraised values are adjusted down for costs associated with asset disposal. Once the current appraisal is received and the estimated net realizable value determined, the value used in the impairment assessment is updated and adjustments are made to reflect further impairments. At the time a LHFI is deemed to be impaired, the full difference between book value and the most likely estimate of the asset’s net realizable value is charged off. However, as subsequent events dictate and estimated net realizable values decline, required reserves are established.

At September 30, 2011 and December 31, 2010, nonaccrual LHFI, excluding covered loans, not specifically impaired and written down to fair value less cost to sell, totaled $33.4 million and $45.3 million, respectively. In addition, these nonaccrual LHFI had allocated allowance for loan losses of $2.7 million and $3.5 million at the end of the respective periods. No material interest income was recognized in the income statement on impaired or nonaccrual loans for each of the periods ended September 30, 2011 and 2010.

At September 30, 2011 and December 31, 2010, LHFI, excluding covered loans, classified as troubled debt restructurings (TDRs) totaled $27.7 million and $19.2 million, respectively. For TDRs, Trustmark had a related loan loss allowance of $1.9 million at both September 30, 2011 and December 31, 2010. Specific charge-offs related to TDRs totaled $1.6 million for the nine months ended September 30, 2011 and 2010. LHFI that are TDRs are charged down to the most likely fair value estimate less a cost to sell estimate for collateral dependent loans, which would approximate net realizable value.

The following table illustrates the impact of modifications classified as TDRs as a whole at September 30, 2011 as well as those TDRs modified within 2011 for which there was a payment default during the year ($ in thousands):

	Nine Months Ended September 30, 2011
Troubled Debt Restructurings	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Construction, land development and other land loans		14	$	9,114	$	8,447
Secured by 1-4 family residential properties		15		5,112		3,549
Secured by nonfarm, nonresidential properties		4		4,368		4,196
Commercial and industrial		2		11,998		11,531
Total		35	$	30,592	$	27,723


	Three Months Ended September 30, 2011
Troubled Debt Restructurings	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Construction, land development and other land loans		1	$	1,843	$	1,843
Secured by 1-4 family residential properties		5		1,889		1,949
Total		6	$	3,732	$	3,792


	Nine Months Ended September 30, 2011
Troubled Debt Restructurings that Subsequently Defaulted	Number of Contracts				Recorded Investment
Construction, land development and other land loans		2			$	1,688
Secured by 1-4 family residential properties		2				1,485
Total		4			$	3,173

Trustmark’s TDRs have resulted primarily from allowing the borrower to pay interest only for an extended period of time rather than from forgiveness. Accordingly, as shown above, these TDRs have a similar recorded investment for both the pre-modification and post-modification disclosure. Trustmark has utilized loans 90 days or more past due to define payment default in determining TDRs that have subsequently defaulted.

At September 30, 2011 and December 31, 2010, the following table details LHFI, excluding covered loans, classified as TDRs by loan type ($ in thousands):

	September 30, 2011
	Accruing		Nonaccrual		Total
Construction, land development and other land loans	$	244	$	8,203	$	8,447
Secured by 1-4 family residential properties		795		2,754		3,549
Secured by nonfarm, nonresidential properties		-		4,196		4,196
Commercial and industrial		-		11,531		11,531
Total Troubled Debt Restructurings by Type	$	1,039	$	26,684	$	27,723


	December 31, 2010
	Accruing		Nonaccrual		Total
Construction, land development and other land loans	$	-	$	3,181	$	3,181
Secured by 1-4 family residential properties		318		1,488		1,806
Secured by nonfarm, nonresidential properties		-		2,232		2,232
Commercial and industrial		-		11,997		11,997
Total Troubled Debt Restructurings by Type	$	318	$	18,898	$	19,216

At September 30, 2011 and December 31, 2010, the carrying amount of impaired loans, excluding covered loans, consisted of the following ($ in thousands):

	September 30, 2011
			Total LHFI
	Unpaid		with No Related		Total LHFI		Total				Average
	Principal		Allowance		with an Allowance		Carrying		Related		Recorded
	Balance		Recorded		Recorded		Amount		Allowance		Investment

Loans secured by real estate:
Construction, land development and other land loans	$	47,736	$	9,284	$	20,310	$	29,594	$	4,165	$	43,712
Secured by 1-4 family residential properties		32,273		3,624		19,934		23,558		540		26,935
Secured by nonfarm, nonresidential properties		29,547		13,841		11,462		25,303		1,510		27,158
Other		5,625		486		4,335		4,821		1,008		5,488
Commercial and industrial loans		15,966		8,833		5,371		14,204		1,454		15,155
Consumer loans		1,184		-		907		907		10		1,510
Other loans		2,725		17		1,174		1,191		275		1,292
Total	$	135,056	$	36,085	$	63,493	$	99,578	$	8,962	$	121,250

	December 31, 2010
			Total LHFI
	Unpaid		with No Related		Total LHFI		Total				Average
	Principal		Allowance		with an Allowance		Carrying		Related		Recorded
	Balance		Recorded		Recorded		Amount		Allowance		Investment

Loans secured by real estate:
Construction, land development and other land loans	$	81,945	$	33,201	$	24,630	$	57,831	$	6,782	$	69,817
Secured by 1-4 family residential properties		41,475		3,082		27,231		30,313		1,745		30,888
Secured by nonfarm, nonresidential properties		35,679		18,582		10,431		29,013		1,580		23,535
Other		7,009		5,042		1,112		6,154		95		4,126
Commercial and industrial loans		17,413		9,172		6,935		16,107		1,514		11,369
Consumer loans		2,420		-		2,112		2,112		23		1,544
Other loans		2,868		1,107		286		1,393		58		765
Total	$	188,809	$	70,186	$	72,737	$	142,923	$	11,797	$	142,044

Credit Quality Indicators

Trustmark’s loan portfolio credit quality indicators focus on six key quality ratios that are compared against bank tolerances. The loan indicators are total classified outstanding, total criticized outstanding, nonperforming loans, nonperforming assets, delinquencies and net loan losses. Due to the homogenous nature of consumer loans, Trustmark does not assign a formal internal risk rating to each credit and therefore the criticized and classified measures are unique to commercial loans.

In addition to monitoring portfolio credit quality indictors, Trustmark also measures how effectively the lending process is being managed and risks are being identified. As part of an ongoing monitoring process, Trustmark grades the commercial portfolio as it relates to financial statement exceptions, total policy exceptions, collateral exceptions and violations of law as shown below:

Financial Statement Exceptions – focuses on the officers’ ongoing efforts to obtain, evaluate and/or document sufficient information to determine the quality and status of the credits. This area includes the quality and condition of the files in terms of content, completeness and organization. Included is an evaluation of the systems/procedures used to insure compliance with policy such as financial statements, review memos and loan agreement covenants.

Underwriting/Policy – evaluates whether credits are adequately analyzed, appropriately structured and properly approved within requirements of bank loan policy. A properly approved credit is approved by adequate authority in a timely manner with all conditions of approval fulfilled. Total policy exceptions measure the level of exceptions to loan policy within a loan portfolio.

Collateral Documentation – focuses on the adequacy of documentation to support the obligation, perfect Trustmark’s collateral position and protect collateral value. There are two parts to this measure:

Collateral exceptions where certain collateral documentation is either not present, is not considered current or has expired.

90 days and over collateral exceptions are where certain collateral documentation is either not present, is not considered current or has expired and the exception has been identified in excess of 90 days.

Compliance with Law – focuses on underwriting, documentation, approval and reporting in compliance with banking laws and regulations. Primary emphasis is directed to Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and Regulation O requirements.

Commercial Credits

Trustmark has established a Loan Grading System that consists of ten individual Credit Risk Grades (Risk Ratings) that encompass a range from loans where the expectation of loss is negligible to loans where loss has been established. The model is based on the risk of default for an individual credit and establishes certain criteria to delineate the level of risk across the ten unique Credit Risk Grades. Credit risk grade definitions are as follows:

Risk Rate (RR) 1 through RR 6 – Grades one through six represent groups of loans that are not subject to adverse criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that represent low to moderate risk measured by using a variety of credit risk criteria such as cash flow coverage, debt service coverage, balance sheet leverage, liquidity, management experience, industry position, prevailing economic conditions, support from secondary sources of repayment and other credit factors that may be relevant to a specific loan. In general, these loans are supported by properly margined collateral and guarantees of principal parties.

Other Assets Especially Mentioned (OAEM) - (RR 7) – a loan that has a potential weakness that if not corrected will lead to a more severe rating. This rating is for credits that are currently protected but potentially weak because of an adverse feature or condition that if not corrected will lead to a further downgrade.

Substandard (RR 8) – a loan that has at least one identified weakness that is well defined. This rating is for credits where the primary sources of repayment are not viable at this time or where either the capital or collateral is not adequate to support the loan and the secondary means of repayment do not provide a sufficient level of support to offset the identified weakness but are sufficient to prevent a loss at this time. While these credits do not demonstrate any level of loss at this time, further deterioration would lead to a further downgrade.

Doubtful (RR 9) – a loan with an identified weakness that does not have a valid secondary source of repayment. Generally these credits have an impaired primary source of repayment and secondary sources are not sufficient to prevent a loss in the credit.

Loss (RR 10) – a loan or a portion of a loan that is deemed to be uncollectible.

By definition, credit risk grades OAEM (RR 7), substandard (RR 8), doubtful (RR 9) and loss (RR 10) are criticized loans while substandard (RR 8), doubtful (RR 9) and loss (RR 10) are classified loans. These definitions are standardized by all bank regulatory agencies and are generally equally applied to each individual lending institution. The remaining credit risk grades are considered pass credits and are solely defined by Trustmark.

The credit risk grades represent the probability of default (PD) for an individual credit and as such is not a direct indication of loss given default (LGD). The LGD aspect of the subject risk ratings is neither uniform across the nine primary commercial loan groups or constant between the geographic areas. To account for the variance in the LGD aspects of the risk rate system, the loss expectations for each risk rating is integrated into the allowance for loan loss methodology where the calculated LGD is allotted for each individual risk rating with respect to the individual loan group and unique geographic area. The LGD aspect of the reserve methodology is calculated each quarter as a component of the overall reserve factor for each risk grade by loan group and geographic area.

To enhance this process, loans of a certain size that are rated in one of the criticized categories are routinely reviewed to establish an expectation of loss, if any, and if such examination indicates that the level of reserve is not adequate to cover the expectation of loss, a special reserve or impairment is generally applied.

Each loan officer assesses the appropriateness of the internal risk rating assigned to their credits on an ongoing basis. Trustmark’s Asset Review area conducts independent credit quality reviews of the majority of the bank’s commercial loan portfolio concentrations both on the underlying credit quality of each individual loan portfolio as well as the adherence to bank loan policy and the loan administration process. In general, Asset Review conducts reviews of each lending area within a six to eighteen month window depending on the overall credit quality results of the individual area.

The distribution of the losses is accomplished by means of a loss distribution model that assigns a loss factor to each risk rating (1 to 9) in each commercial loan pool. A factor is not applied to risk rate 10 (Loss) as loans classified as Losses are not carried on the bank’s books over quarter ends as they are charged off within the period that the loss is determined.

The expected loss distribution is spread across the various risk ratings by the perceived level of risk for loss. The nine grade scale above ranges from a negligible risk of loss to an identified loss across its breadth. The loss distribution factors are graduated through the scale on a basis proportional to the degree of risk that appears manifest in each individual rating and assumes that migration through the loan grading system will occur.

In addition to the ongoing internal risk rate monitoring described above, Trustmark conducts monthly credit quality reviews (CQR) as well as semi-annual analysis and stress testing on all residential real estate development credits and non-owner occupied commercial real estate (CRE) credits of $1.0 million or more as described below:

Trustmark’s Credit Quality Review Committee meets monthly and performs the following functions: detailed review and evaluation of all loans of $100 thousand or more that are either delinquent thirty days or more or on nonaccrual, including determination of appropriate risk ratings, accrual status, and appropriate servicing officer; review of risk rate changes for relationships of $100 thousand or more; quarterly review of all nonaccruals less than $100 thousand to determine whether the credit should be charged off, returned to accrual, or remain in nonaccrual status; monthly/quarterly review of continuous action plans for all credits rated seven or worse for relationships of $100 thousand or more; monthly review of all commercial charge-offs of $25 thousand or more for the preceding month.

Residential real estate developments - a development project analysis is performed on all projects regardless of size. Performance of the development is assessed through an evaluation of the number of lots remaining, the payout ratios, and the loan-to-value ratios. Results are stress tested as to absorption and price of lots. This information is reviewed by each senior credit officer for that market to determine the need for any risk rate or accrual status changes.

Non-owner occupied commercial real estate – a cash flow analysis is performed on all projects with an outstanding balance of $1.0 million or more. In addition, credits are stress tested for vacancies and rate sensitivity. Confirmation is obtained that guarantor’s financial statements are current, taxes have been paid, and that there are no other issues that need to be addressed. This information is reviewed by each senior credit officer for that market to determine the need for any risk rate or accrual status changes.

Consumer Credits

Loans that do not meet a minimum custom credit score are reviewed quarterly by Management. The Retail Credit Review Committee reviews the volume and percentage of approvals that did not meet the minimum passing custom score by region, individual location, and officer. To assure that Trustmark continues to originate quality loans, this process allows Management to make necessary changes such as changes to underwriting procedures, credit policies, or changes in loan authority to Trustmark personnel.

Trustmark monitors the levels and severity of past due consumer loans on a daily basis through its collection activities. A detailed assessment of consumer loan delinquencies is performed monthly at both a product and market level by delivery channel, which incorporates the perceived level of risk at time of underwriting. Trustmark also monitors its consumer loan delinquency trends by comparing them to quarterly industry averages.

The allowance calculation methodology delineates the consumer loan portfolio into homogeneous pools of loans that contain similar structure, repayment, collateral and risk profile, which include residential mortgage, direct consumer loans, auto finance, credit cards, and overdrafts. For these pools, the historical loss experience is determined by calculating a 20-quarter rolling average and that loss factor is applied to each homogeneous pool to establish the quantitative aspect of the methodology. Where the loss experience does not fully cover the anticipated loss for a pool, an estimate is also applied to each homogeneous pool to establish the qualitative aspect of the methodology. The qualitative portion is the allocation of perceived risks across the loan portfolio to derive the potential losses that exist at the current point in time. This methodology utilizes five separate factors where each factor is made up of unique components that when weighted and combined produce an estimated level of reserve for each of the loan pools. The five factors include economic indicators, performance trends, management experience, lending policy measures, and credit concentrations.

The risk measure for each factor is converted to a scale ranging from 0 (No risk) to 100 (High Risk) to ensure that the combination of such factors is proportional. The determination of the risk measurement for each qualitative factor is done for each market, so that the risk measurements for the qualitative factors are market-specific. The resulting estimated reserve factor is then applied to each pool.

The resulting ratings from the individual factors are weighted and summed to establish the weighted average qualitative factor of a specific loan portfolio. This weighted average qualitative factor is then applied over the five loan pools.

The table below illustrates the carrying amount of loans, excluding covered loans, by credit quality indicator at September 30, 2011 and December 31, 2010 ($ in thousands):

	September 30, 2011
			Commercial Loans
			Pass -		Special Mention -		Substandard -		Doubtful -
			Categories 1-6		Category 7		Category 8		Category 9		Subtotal
Loans secured by real estate:
Construction, land development and other land loans			$	305,155	$	28,014	$	96,487	$	69	$	429,725
Secured by 1-4 family residential properties				118,644		147		16,795		-		135,586
Secured by nonfarm, nonresidential properties				1,291,830		13,123		131,656		51		1,436,660
Other				190,265		314		10,180		-		200,759
Commercial and industrial loans				999,567		24,922		55,456		1,405		1,081,350
Consumer loans				796		24		-		-		820
Other loans				572,818		5,994		2,469		553		581,834
			$	3,479,075	$	72,538	$	313,043	$	2,078	$	3,866,734

	Consumer Loans
			Past Due		Past Due Greater						Total LHFI, excluding
	Current		30-89 Days		Than 90 days		Nonaccrual		Subtotal		covered loans
Loans secured by real estate:
Construction, land development and other land loans	$	49,668	$	490	$	176	$	1,762	$	52,096	$	481,821
Secured by 1-4 family residential properties		1,551,510		11,346		1,742		17,182		1,581,780		1,717,366
Secured by nonfarm, nonresidential properties		876		37		-		-		913		1,437,573
Other		7,189		6		-		30		7,225		207,984
Commercial and industrial loans		2,327		52		-		24		2,403		1,083,753
Consumer loans		258,724		6,973		579		906		267,182		268,002
Other loans		5,348		31		-		-		5,379		587,213
	$	1,875,642	$	18,935	$	2,497	$	19,904	$	1,916,978	$	5,783,712

	December 31, 2010
			Commercial Loans
			Pass -		Special Mention -		Substandard -		Doubtful -
			Categories 1-6		Category 7		Category 8		Category 9		Subtotal
Loans secured by real estate:
Construction, land development and other land loans			$	347,287	$	44,459	$	134,503	$	512	$	526,761
Secured by 1-4 family residential properties				113,776		780		25,167		226		139,949
Secured by nonfarm, nonresidential properties				1,353,794		16,858		126,050		431		1,497,133
Other				216,022		180		7,418		-		223,620
Commercial and industrial loans				977,793		25,642		58,307		1,416		1,063,158
Consumer loans				524		-		-		-		524
Other loans				535,110		210		3,633		146		539,099
			$	3,544,306	$	88,129	$	355,078	$	2,731	$	3,990,244


	Consumer Loans
			Past Due		Past Due Greater						Total LHFI, excluding
	Current		30-89 Days		Than 90 days		Nonaccrual		Subtotal		covered loans
Loans secured by real estate:
Construction, land development and other land loans	$	53,797	$	223	$	-	$	2,535	$	56,555	$	583,316
Secured by 1-4 family residential properties		1,559,611		10,302		1,278		20,916		1,592,107		1,732,056
Secured by nonfarm, nonresidential properties		975		-		-		-		975		1,498,108
Other		8,282		26		-		35		8,343		231,963
Commercial and industrial loans		5,075		97		-		39		5,211		1,068,369
Consumer loans		383,529		13,741		2,260		2,111		401,641		402,165
Other loans		5,166		-		-		-		5,166		544,265
	$	2,016,435	$	24,389	$	3,538	$	25,636	$	2,069,998	$	6,060,242

Past Due LHFI, Excluding Covered Loans

LHFI past due 90 days or more totaled $36.1 million and $19.4 million at September 30, 2011 and December 31, 2010, respectively. Included in these amounts are $33.0 million and $15.8 million, respectively, of serviced loans eligible for repurchase, which are fully guaranteed by GNMA. GNMA optional repurchase programs allow financial institutions to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing. At the servicer's option and without GNMA's prior authorization, the servicer may repurchase such a delinquent loan for an amount equal to 100 percent of the remaining principal balance of the loan. This buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When Trustmark is deemed to have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported as sold and must be brought back onto the balance sheet as loans held for sale, regardless of whether Trustmark intends to exercise the buy-back option. These loans are reported as held for sale with the offsetting liability being reported as short-term borrowings. During December of 2010, Trustmark purchased approximately $53.9 million of GNMA serviced loans, which were subsequently sold to a third party. Trustmark will retain the servicing for these loans, which are fully guaranteed by FHA/VA. Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during the first nine months of 2011.

The following table provides an aging analysis of past due and nonaccrual LHFI, excluding covered loans, by class at September 30, 2011 and December 31, 2010 ($ in thousands):

	September 30, 2011
	Past Due
			Greater than						Current		Total LHFI, excluding
	30-89 Days		90 Days (1)		Total		Nonaccrual		Loans		covered loans

Loans secured by real estate:
Construction, land development and other land loans	$	4,653	$	844	$	5,497	$	29,594	$	446,730	$	481,821
Secured by 1-4 family residential properties		12,798		1,743		14,541		23,558		1,679,267		1,717,366
Secured by nonfarm, nonresidential properties		19,863		-		19,863		25,303		1,392,407		1,437,573
Other		63		-		63		4,821		203,100		207,984
Commercial and industrial loans		8,781		-		8,781		14,204		1,060,768		1,083,753
Consumer loans		6,973		579		7,552		907		259,543		268,002
Other loans		785		-		785		1,191		585,237		587,213
Total past due LHFI	$	53,916	$	3,166	$	57,082	$	99,578	$	5,627,052	$	5,783,712

(1) - Past due greater than 90 days but still accruing interest.

	December 31, 2010
	Past Due
			Greater than						Current		Total LHFI, excluding
	30-89 Days		90 Days (1)		Total		Nonaccrual		Loans		covered loans

Loans secured by real estate:
Construction, land development and other land loans	$	1,651	$	-	$	1,651	$	57,831	$	523,834	$	583,316
Secured by 1-4 family residential properties		11,654		1,278		12,932		30,313		1,688,811		1,732,056
Secured by nonfarm, nonresidential properties		9,149		31		9,180		29,013		1,459,915		1,498,108
Other		441		-		441		6,154		225,368		231,963
Commercial and industrial loans		4,178		39		4,217		16,107		1,048,045		1,068,369
Consumer loans		13,741		2,260		16,001		2,112		384,052		402,165
Other loans		67		-		67		1,393		542,805		544,265
Total past due LHFI	$	40,881	$	3,608	$	44,489	$	142,923	$	5,872,830	$	6,060,242

(1) - Past due greater than 90 days but still accruing interest.

Allowance for Loan Losses

During 2009, Trustmark refined its allowance for loan loss methodology for commercial loans based upon regulatory guidance from its primary regulator. This refined methodology delineated the commercial purpose and commercial construction loan portfolios into 13 separate loan types (or pools), which had similar characteristics, such as, repayment, collateral and risk profiles. During the first quarter of 2010, Trustmark refined the allowance for loan loss methodology for commercial loans by segregating the pools into Trustmark’s four key market regions, Florida, Mississippi, Tennessee and Texas, to take into consideration the uniqueness of each market while continuing to utilize a 10-point risk rating system for each pool. As a result, risk rate factors for commercial loan types increased to 360 while having an immaterial impact to the overall balance of the allowance for loan losses. The nine separate pools are segmented below:

Commercial Purpose Loans

Real Estate – Owner Occupied

Real Estate – Non-Owner Occupied

Working Capital

Non-Working Capital

Land

Lots and Development

Political Subdivisions

Commercial Construction Loans

1 to 4 Family

Non-1 to 4 Family

The quantitative factors utilized in determining the required reserve are intended to reflect a twelve-quarter rolling average, one quarter in arrears, by loan type within each key market region, unless subsequent market factors suggests that a different method is called for. Prior to converting to a twelve-quarter rolling average at September 30, 2011, the quantitative factors reflected a three-year rolling average for its commercial loan book of business. Because of the severe economic environment at the time, starting in 2009, Management determined to alter the methodology of calculating historical loss to use data from the single year for 2008 as the historical loss factor for 2009, and use the average historical loss for 2008 and 2009 for 2010.

The qualitative factors utilize eight separate factors made up of unique characteristics that, when weighted and combined, produce an estimated level of reserve for each loan type. The qualitative factors considered are the following:

National and regional economic trends and conditions

Impact of recent performance trends

Experience, ability and effectiveness of management

Adherence to Trustmark’s loan policies, procedures and internal controls

Collateral, financial and underwriting exception trends

Credit concentrations

Acquisitions

Catastrophe

The measure for each qualitative factor is converted to a scale ranging from 0 (No risk) to 100 (High Risk), other than the last two factors, which are applied on a dollar-for-dollar basis, to ensure that the combination of such factors is proportional. The resulting ratings from the individual factors are weighted and summed to establish the weighted average qualitative factor of a specific loan portfolio within each key market region. This weighted average qualitative factor is then distributed over the nine primary loan pools within each key market region based on the ranking by risk of each.

Changes in the allowance for loan losses were as follows ($ in thousands):

	Nine Months Ended September 30,
	2011			2010
Balance at January 1,	$	93,510		$	103,662
Loans charged-off		(37,312	)		(56,014	)
Recoveries		9,634			9,058
Net charge-offs		(27,678	)		(46,956	)
Provision for loan losses		23,631			37,752
Balance at September 30,	$	89,463		$	94,458

The following tables detail the balance in the allowance for loan losses by portfolio segment at September 30, 2011 and 2010, respectively ($ in thousands):

	Allowance for Loan Losses
	Balance										Balance
	January 1,							Provision for			September 30,
	2011		Charge-offs			Recoveries		Loan Losses			2011
Loans secured by real estate:
Construction, land development and other land loans	$	35,562	$	(14,375	)	$	-	$	8,353		$	29,540
Secured by 1-4 family residential properties		13,051		(7,461	)		410		5,538			11,538
Secured by nonfarm, nonresidential properties		20,980		(3,124	)		-		4,882			22,738
Other		1,582		(577	)		-		1,969			2,974
Commercial and industrial loans		14,775		(3,811	)		2,259		2,529			15,752
Consumer loans		5,400		(4,410	)		4,475		(1,474	)		3,991
Other loans		2,160		(3,554	)		2,490		1,834			2,930
Total	$	93,510	$	(37,312	)	$	9,634	$	23,631		$	89,463


						Allowance for Loan Losses
						Disaggregated by Impairment Method
						Individually		Collectively			Total
Loans secured by real estate:
Construction, land development and other land loans						$	4,165	$	25,375		$	29,540
Secured by 1-4 family residential properties							540		10,998			11,538
Secured by nonfarm, nonresidential properties							1,510		21,228			22,738
Other							1,008		1,966			2,974
Commercial and industrial loans							1,454		14,298			15,752
Consumer loans							10		3,981			3,991
Other loans							275		2,655			2,930
Total						$	8,962	$	80,501		$	89,463

	Allowance for Loan Losses
	Balance									Balance
	January 1,							Provision for		September 30,
	2010		Charge-offs			Recoveries		Loan Losses		2010
Loans secured by real estate:
Construction, land development and other land loans	$	43,552	$	(25,462	)	$	-	$	15,915	$	34,005
Secured by 1-4 family residential properties		13,151		(8,569	)		372		6,941		11,895
Secured by nonfarm, nonresidential properties		20,110		(5,183	)		-		6,345		21,272
Other		1,631		(576	)		-		480		1,535
Commercial and industrial loans		16,275		(2,515	)		1,617		2,120		17,497
Consumer loans		7,246		(8,175	)		4,698		2,137		5,906
Other loans		1,697		(5,534	)		2,371		3,814		2,348
Total	$	103,662	$	(56,014	)	$	9,058	$	37,752	$	94,458


						Allowance for Loan Losses
						Disaggregated by Impairment Method
						Individually		Collectively		Total
Loans secured by real estate:
Construction, land development and other land loans						$	4,706	$	29,299	$	34,005
Secured by 1-4 family residential properties							755		11,140		11,895
Secured by nonfarm, nonresidential properties							1,398		19,874		21,272
Other							203		1,332		1,535
Commercial and industrial loans							4,528		12,969		17,497
Consumer loans							17		5,889		5,906
Other loans							38		2,310		2,348
Total						$	11,645	$	82,813	$	94,458

Note 5 – Covered Loans, Covered Other Real Estate and FDIC Indemnification Asset

Covered Loans

On April 15, 2011, TNB entered into a purchase and assumption agreement with the FDIC in which TNB agreed to assume all of the deposits and essentially all of the assets of Heritage. Loans comprise the majority of the assets acquired and all but $9.6 million are subject to loss share agreements with the FDIC whereby TNB is indemnified against a portion of the losses on covered loans and covered other real estate. The loans acquired from Heritage that are covered by a loss share agreement are presented as covered loans in the accompanying consolidated financial statements.

Trustmark will account for loans under FASB ASC Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” when acquired loans are deemed to be impaired. An acquired loan is considered impaired when there is evidence of credit deterioration since the origination and it is probable at the date of acquisition that Trustmark would be unable to collect all contractually required payments. Acquired loans accounted for under FASB ASC Topic 310-30 will be referred to in this section as “acquired impaired loans.” Revolving credit agreements such as home equity lines are excluded from acquired impaired loan accounting requirements. Trustmark acquired $3.9 million of revolving credit agreements, at fair value, consisting mainly of home equity loans and commercial asset-based lines of credit, where the borrower had revolving privileges on the acquisition date. As such, Trustmark has accounted for such revolving covered loans in accordance with accounting requirements for purchased nonimpaired loans.

The acquired covered loans were recorded at their estimated fair value at the time of acquisition. Fair value of acquired loans is determined using a discounted cash flow model based on assumptions regarding the amount and timing of principal and interest payments, estimated prepayments, estimated default rates, estimated loss severity in the event of defaults and current market rates. Estimated credit losses are included in the determination of fair value; therefore, an allowance for loan losses is not recorded on the acquisition date.

For acquired impaired loans, Trustmark (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”) and (b) estimated the amount and timing of undiscounted expected principal and interest payments (the “undiscounted expected cash flows”). Under acquired impaired loan accounting, the difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The nonaccretable difference represents an estimate of the loss exposure of principal and interest related to the covered acquired impaired loan portfolio and such amount is subject to change over time based on the performance of such covered loans. The carrying value of covered acquired impaired loans is reduced by payments received, both principal and interest, and increased by the portion of the accretable yield recognized as interest income.

The excess of expected cash flows at acquisition over the initial fair value of acquired impaired loans is referred to as the “accretable yield” and is recorded as interest income over the estimated life of the loans using the effective yield method if the timing and amount of the future cash flows is reasonably estimable. Increases in expected cash flows over those originally estimated increase the accretable yield and are recognized as interest income prospectively. Decreases in the amount and changes in the timing of expected cash flows compared to those originally estimated decrease the accretable yield and usually result in a provision for loan losses and the establishment of an allowance for loan losses.

Following acquisition, Trustmark aggregated certain loans into pools of loans with common credit risk characteristics such as loan type and risk rating. To establish accounting pools of loans purchased, loans were first categorized by similar purpose, similar collateral, and by their operational servicing center. As all loans were in a similar geographic region, no geographical information was considered for pooling. Within each category, loans were further segmented by ranges of risk determinants observed at the time of acquisition. For commercial loans, the primary risk determinant was the risk rating as assigned by Trustmark's internal credit officers. For consumer loans, the risk determinants included delinquency, FICO and loan to value. The statistical comparison of the pools reflected that each pool was comprised of loans generally of statistically similar characteristics, including loan type, loan risk and weighted average life. Each pool was then reviewed for statistical similarity of the pool constituents, including standard deviation of purchase price, weighted average life and concentration of largest loans. Loan pools were initially booked at the aggregate fair value of the loan pool constituents, based on the present value of Trustmark's expected cash flows from the loans. Certain purchased loans were not pooled and will be accounted for individually. Such loans consist of loans subject to accounting for purchased nonimpaired loans and loans that require more specific estimates of actual timing and amounts of cash flows due to the significant impairment of the borrower's ability to pay.

Under acquired impaired loan accounting, acquired loans are generally considered accruing and performing loans as the loans accrete interest income over the estimated life of the loan when expected cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing loans as long as the estimated cash flows are received as expected. If the timing and amount of cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and interest income may be recognized on a cash basis or as a reduction of the principal amount outstanding.

The following table presents covered loans acquired as of the date of the Heritage acquisition and activity within covered loans during 2011 ($ in thousands):

At acquisition date:
Contractually required principal and interest	$	145,864
Nonaccretable difference		(38,345	)
Cash flows expected to be collected		107,519
Accretable yield		(13,579	)
Other revolving loans		3,830
Fair value at acquisition date	$	97,770

Covered loans acquired at fair value	$	97,770
Accretion to interest income		2,441
Payments received		(21,147	)
Carrying value at September 30, 2011	$	79,064

At September 30, 2011, covered loans, which are substantially located in Mississippi, consisted of the following ($ in thousands):

Loans secured by real estate:
Construction, land development and other land loans	$	4,024
Secured by 1-4 family residential properties		32,735
Secured by nonfarm, nonresidential properties		33,601
Other		5,294
Commercial and industrial loans		1,772
Consumer loans		158
Other loans		1,480
Covered loans	$	79,064

The following table presents changes in the accretable yield on covered loans acquired in the Heritage acquisition during 2011 ($ in thousands):

Accretable yield acquired	$	(13,579	)
Accretion to interest income		2,441
Carrying value at September 30, 2011	$	(11,138	)

Covered Other Real Estate

All other real estate acquired in a FDIC-assisted acquisition, such as Heritage, that is subject to a FDIC loss-share agreement is referred to as covered other real estate and reported separately in Trustmark’s consolidated balance sheets. Covered other real estate is reported exclusive of expected reimbursement cash flows from the FDIC. Foreclosed covered loan collateral is transferred into covered other real estate at the collateral’s net realizable value, less estimated selling costs.

Covered other real estate was initially recorded at its estimated fair value on the acquisition date based on similar market comparable valuations less estimated selling costs. Any subsequent valuation adjustments due to declines in fair value will be charged to noninterest expense, and will be mostly offset by noninterest income representing the corresponding increase to the FDIC indemnification asset for the offsetting loss reimbursement amount. Any recoveries of previous valuation adjustments will be credited to noninterest expense with a corresponding charge to noninterest income for the portion of the recovery that is due to the FDIC.

As of the date of the Heritage acquisition, Trustmark acquired $7.5 million in covered other real estate. At September 30, 2011, covered other real estate consisted of the following types of properties ($ in thousands):

Construction, land development and other land properties	$	1,624
1-4 family residential properties		934
Nonfarm, nonresidential properties		4,523
Other real estate properties		116
Total covered other real estate	$	7,197

FDIC Indemnification Asset

Trustmark has elected to account for amounts receivable under the loss-share agreement as an indemnification asset in accordance with FASB ASC Topic 805, “Business Combinations.” The FDIC indemnification asset was initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-share agreement. The difference between the present value and the undiscounted cash flows Trustmark expects to collect from the FDIC will be accreted into noninterest income over the life of the FDIC indemnification asset.

The FDIC indemnification asset will be reviewed quarterly and adjusted for any changes in expected cash flows based on recent performance and expectations for future performance of covered loans and covered other real estate. These adjustments are measured on the same basis as the related covered loans and covered other real estate. Any increases in cash flow of the covered loans and covered other real estate over those expected will reduce the FDIC indemnification asset and any decreases in cash flow of the covered loans and covered other real estate under those expected will increase the FDIC indemnification asset. Increases and decreases to the FDIC indemnification asset will be recorded as adjustments to noninterest income.

The following table presents the FDIC indemnification asset acquired as of the date of the Heritage acquisition and activity within the FDIC indemnification asset during 2011 ($ in thousands):

Indemnification asset at acquisition date	$	33,333
Accretion		103
Carrying value at September 30, 2011	$	33,436

Note 6 – Mortgage Banking

Trustmark recognizes as assets the rights to service mortgage loans based on the estimated fair value of the mortgage servicing rights (MSR) when loans are sold and the associated servicing rights are retained. Trustmark also incorporates a hedging strategy, which utilizes a portfolio of derivative instruments to achieve a return that would substantially offset the changes in fair value of MSR attributable to interest rates. Changes in the fair value of these derivative instruments are recorded in noninterest income in mortgage banking, net and are offset by changes in the fair value of MSR.

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 and discount rates. 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 a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and exchange-traded option contracts, to achieve a fair value return that offsets 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 exchange-traded derivative instruments, including administrative costs, are recorded in noninterest income in mortgage banking, net and are offset by the changes in the fair value of MSR. The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the total hedge cost to the changes in the fair value of the MSR asset attributable to interest rate changes. The impact of this strategy resulted in a net positive ineffectiveness of $2.8 million and $2.9 million for the three months ended September 30, 2011 and 2010, respectively, as well as a net positive ineffectiveness of $4.8 million and $7.6 million experienced for the nine months ended September 30, 2011 and 2010, respectively.

See the section captioned “Noninterest Income” in Management’s Discussion and Analysis for further analysis of mortgage banking revenues, which includes the table for net hedge ineffectiveness.

The activity in MSR is detailed in the table below ($ in thousands):

	Nine Months Ended September 30,
	2011			2010
Balance at beginning of period	$	51,151		$	50,513
Origination of servicing assets		9,581			12,752
Disposals of mortgage loans sold serviced released		-			(1,681	)
Change in fair value:
Due to market changes		(12,288	)		(14,813	)
Due to runoff		(4,785	)		(4,799	)
Balance at end of period	$	43,659		$	41,972

During the first quarter of 2010, Trustmark completed the final settlement of the sale of approximately $920.9 million in mortgages serviced for others, which reduced Trustmark’s MSR by approximately $8.5 million. In addition, during December of 2010, Trustmark purchased approximately $53.9 million of GNMA serviced loans, which were subsequently sold to a third party. Trustmark will retain the servicing for these loans, which are fully guaranteed by FHA/VA. The effect of these transactions did not have a material impact on Trustmark's results of operations.

Trustmark is subject to losses in its loan servicing portfolio due to loan foreclosures. For loans sold without recourse, Trustmark has obligations to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loans sold were in violation of representations or warranties made by Trustmark at the time of the sale, herein referred to as mortgage loan servicing putback expenses. Such representations and warranties typically include those made regarding loans that had missing or insufficient file documentation and/or loans obtained through fraud by borrowers or other third parties such as appraisers. The total mortgage loan servicing putback expenses incurred by Trustmark during the first nine months of 2011 were $2.5 million compared to $1.1 million during the same time period in 2010. At September 30, 2011 and December 31, 2010, accrued mortgage loan servicing putback expenses were $2.0 million and $900 thousand, respectively. There is inherent uncertainty in reasonably estimating the requirement for reserves against future mortgage loan servicing putback expenses. Future putback expenses are dependent on many subjective factors, including the review procedures of the purchasers and the potential refinance activity on loans sold with servicing released and the subsequent consequences under the representations and warranties. Based on Trustmark’s experience to date, and its confidence in its underwriting practices on loans sold to others, Management does not believe that a material loss related to these transactions is either probable or reasonably estimated.

Note 7 –Other Real Estate, excluding Covered Other Real Estate

Other real estate, excluding covered other real estate owned, is recorded at the lower of cost or estimated fair value less the estimated cost of disposition. Fair value is based on independent appraisals and other relevant factors. Valuation adjustments required at foreclosure are charged to the allowance for loan losses. At September 30, 2011, Trustmark's geographic loan distribution was concentrated primarily in its Florida, Mississippi, Tennessee and Texas markets. The ultimate recovery of a substantial portion of the carrying amount of noncovered other real estate owned is susceptible to changes in market conditions in these areas.

For the periods presented, changes and losses, net on noncovered other real estate were as follows ($ in thousands):

	Nine Months Ended September 30,
	2011			2010
Balance at beginning of period	$	86,704		$	90,095
Additions		48,975			51,213
Disposals		(35,234	)		(41,322	)
Writedowns		(10,848	)		(15,264	)
Balance at end of period	$	89,597		$	84,722

Gain (Loss), net on the sale of noncovered other real estate included in other expenses	$	474		$	(401	)

Other real estate, excluding covered other real estate, by type of property consisted of the following for the periods presented ($ in thousands):

	September 30,		December 31,
	2011		2010
Construction, land development and other land loans	$	63,756	$	61,963
1-4 family residential properties		12,716		13,509
Nonfarm, nonresidential properties		12,123		9,820
Other real estate loans		1,002		1,412
Total other real estate, excluding covered other real estate	$	89,597	$	86,704

Other real estate, excluding covered other real estate, by geographic location consisted of the following for the periods presented ($ in thousands):

	September 30,		December 31,
	2011		2010
Florida	$	29,949	$	32,370
Mississippi (1)		21,027		24,181
Tennessee (2)		17,940		16,407
Texas		20,681		13,746
Total other real estate, excluding covered other real estate	$	89,597	$	86,704

(1) - Mississippi includes Central and Southern Mississippi Region
(2) - Tennessee includes Memphis, Tennessee and Northern Mississippi Region

Note 8 – Deposits

Deposits consisted of the following for the periods presented ($ in thousands):

	September 30,		December 31,
	2011		2010
Noninterest-bearing demand deposits	$	1,871,040	$	1,636,625
Interest-bearing demand		1,505,851		1,474,045
Savings		2,111,556		1,809,116
Time		2,081,277		2,124,781
Total	$	7,569,724	$	7,044,567

Note 9 – Defined Benefit and Other Postretirement Benefits

Capital Accumulation Plan

Trustmark maintains a noncontributory defined benefit pension plan (Trustmark Capital Accumulation Plan), which covers substantially all associates employed prior to 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 vest upon three years of service. In an effort to control expenses, the Board voted to freeze plan benefits effective during the second quarter of 2009, with the exception of certain associates covered through plans obtained by acquisitions. Individuals will not earn additional benefits, except for interest as required by the IRS regulations, after the effective date. Associates will retain their previously earned pension benefits.

The following table presents information regarding the plan's net periodic benefit cost for the periods presented ($ in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Net periodic benefit cost
Service cost	$	124		$	138		$	398		$	412
Interest cost		1,115			1,194			3,345			3,583
Expected return on plan assets		(1,470	)		(1,481	)		(4,412	)		(4,444	)
Recognized net actuarial loss		1,026			849			3,100			2,548
Net periodic benefit cost	$	795		$	700		$	2,431		$	2,099

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. 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 is December 31. For 2011, Trustmark’s minimum required contribution is expected to be zero. During 2010, Trustmark made a voluntary contribution of $1.9 million to improve the funded status of the 2009 plan year. There was not a voluntary contribution related to the 2010 plan year.

Supplemental Retirement Plan

Trustmark maintains a nonqualified supplemental retirement plan covering directors who elected 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 periods presented ($ in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Net periodic benefit cost
Service cost	$	147	$	190	$	441	$	567
Interest cost		569		561		1,707		1,682
Amortization of prior service cost		59		38		177		114
Recognized net actuarial loss		124		88		372		266
Net periodic benefit cost	$	899	$	877	$	2,697	$	2,629

Note 10 – Stock and Incentive Compensation Plans

Trustmark has granted, and currently has outstanding, stock and incentive compensation awards subject to the provisions of the 1997 Long Term Incentive Plan (the 1997 Plan) and the 2005 Stock and Incentive Compensation Plan (the 2005 Plan). New awards have not been issued under the 1997 Plan since it was replaced by the 2005 Plan. 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. 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.

Stock Option Grants

Stock option awards under the 2005 Plan are granted with an exercise price equal to the market price of Trustmark’s stock on the date of grant. Stock options granted under the 2005 Plan vest 20% per year and have a contractual term of seven years. Stock option awards, which were granted under the 1997 Plan, had an exercise price equal to the market price of Trustmark’s stock on the date of grant, vested equally over four years with a contractual ten-year term. During the second quarter of 2011, compensation expense related to stock options had been fully recognized. Compensation expense for stock options granted under these plans was estimated using the fair value of each option granted using the Black-Scholes option-pricing model and was recognized on the straight-line method over the requisite service period. No stock options have been granted since 2006 when Trustmark began granting restricted stock awards exclusively.

Restricted Stock Grants

Performance Awards

Trustmark’s performance awards are granted to Trustmark’s executive and senior management team. Performance awards granted vest based on performance goals of return on average tangible equity (ROATE) or return on average equity (ROAE) and total shareholder return (TSR) compared to a defined peer group. Awards based on TSR are valued utilizing a Monte Carlo simulation to estimate fair value of the awards at the grant date, while ROATE and ROAE awards are valued utilizing the fair value of Trustmark’s stock at the grant date based on the estimated number of shares expected to vest. The restriction period for performance awards covers a three-year vesting period. These awards are recognized on the straight-line method over the requisite service period. These awards provide for excess shares, if performance measures exceed 100%. Any excess shares granted are restricted for an additional three-year vesting period. The restricted share agreement provides for voting rights and dividend privileges.

Time-Vested Awards

Trustmark’s time-vested awards are granted to Trustmark’s executive and senior management team in both employee recruitment and retention. These awards are also granted to Trustmark’s Board of Directors and are restricted for thirty-six months from the award dates. Time-vested awards are valued utilizing the fair value of Trustmark’s stock at the grant date. These awards are recognized on the straight-line method over the requisite service period.

Performance-Based Restricted Stock Unit Award

During 2009, Trustmark’s previous Chairman and CEO was granted a cash-settled performance-based restricted stock unit award (the RSU award), with each unit having the value of one share of Trustmark’s common stock. The performance period covered a two-year period. This award was granted in connection with an employment agreement dated November 20, 2008, that provides for in lieu of receiving an equity compensation award in 2010 or 2011, the 2009 equity compensation award to be twice the amount of a normal award, with one-half of the award being performance-based and one-half service-based. The RSU award was granted outside of the 2005 Plan in lieu of granting shares of performance-based restricted stock that would exceed the annual limit permitted to be granted under the 2005 Plan, in order to satisfy the equity compensation provisions of the employment agreement. This award provided for excess shares, if performance goals of ROATE and TSR exceeded 100%. Both the performance awards and excess shares vested during the second quarter of 2011. Compensation expense for the RSU award was based on the approximate fair value of Trustmark’s stock at the end of each of the reporting periods and was finalized on the vesting date.

The following tables summarize the stock and incentive plan activity for the periods presented:

	Three Months ended September 30, 2011
	Stock			Performance		Time-Vested
	Options			Awards		Awards
Outstanding/Nonvested shares or units, beginning of period		1,208,500			180,322		365,275
Granted		-			-		4,318
Expired		(800	)		-		-
Outstanding/Nonvested shares or units, end of period		1,207,700			180,322		369,593

	Nine Months ended September 30, 2011
	Stock			Performance			Time-Vested			RSU Award
	Options			Awards			Awards			(Cash-Settled)
Outstanding/Nonvested shares or units, beginning of period		1,311,925			210,797			343,469			23,123
Granted		-			53,863			73,057			-
Granted - excess shares		-			-			84,121			23,123
Exercised or released from restriction		(69,525	)		(84,338	)		(126,596	)		(46,246	)
Expired		(33,400	)		-			-			-
Forfeited		(1,300	)		-			(4,458	)		-
Outstanding/Nonvested shares or units, end of period		1,207,700			180,322			369,593			-

The following table presents information regarding compensation expense for stock and incentive plans for the periods presented ($ in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Compensation expense - Stock and Incentive plans:
Stock option-based awards	$	-	$	78	$	100	$	355
Performance awards		214		251		655		752
Time-vested awards		671		838		2,172		2,580
RSU award (share price: $23.65-2011, $20.82-2010)		-		166		184		490
Total	$	885	$	1,333	$	3,111	$	4,177

Note 11 – Contingencies

Lending Related

Letters of credit are conditional commitments issued by Trustmark to insure the performance of a customer to a third party. Trustmark issues financial and performance standby letters of credit in the normal course of business in order to fulfill the financing needs of its customers. 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, 2011 and 2010, Trustmark’s maximum exposure to credit loss in the event of nonperformance by the other party for letters of credit was $169.8 million and $186.0 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, 2011, the fair value of collateral held was $55.3 million.

Legal Proceedings

Trustmark’s wholly-owned subsidiary, TNB, has been named as a defendant in two lawsuits related to the collapse of the Stanford Financial Group. The first is a purported class action complaint that was filed on August 23, 2009 in the District Court of Harris County, Texas, by Peggy Roif Rotstain, Guthrie Abbott, Catherine Burnell, Steven Queyrouze, Jaime Alexis Arroyo Bornstein and Juan C. Olano, on behalf of themselves and all others similarly situated, naming TNB and four other financial institutions unaffiliated with the Company as defendants. The complaint seeks to recover (i) alleged fraudulent transfers from each of the defendants in the amount of fees received by each defendant from entities controlled by R. Allen Stanford (collectively, the “Stanford Financial Group”) and (ii) damages allegedly attributable to alleged conspiracies by one or more of the defendants with the Stanford Financial Group to commit fraud and/or aid and abet fraud arising from the facts set forth in pending federal criminal indictments and civil complaints against Mr. Stanford, other individuals and the Stanford Financial Group. Plaintiffs have demanded a jury trial. Plaintiffs did not quantify damages. In November 2009, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas) where multiple Stanford related matters are being consolidated for pre-trial proceedings. In May 2010, all defendants (including TNB) filed motions to dismiss the lawsuit, which remain pending, although the plaintiffs have yet to file any responsive briefing. Instead, the plaintiffs have sought to stay the lawsuit pending the conclusion of the federal criminal trial of R. Allen Stanford in Houston, Texas. The court has not ruled on the plaintiff’s motion to stay at this time.

The second Stanford-related lawsuit was filed on December 14, 2009 in the District Court of Ascension Parish, Louisiana, individually by Harold Jackson, Paul Blaine, Carolyn Bass Smith, Christine Nichols, and Ronald and Ramona Hebert naming TNB (misnamed as Trust National Bank) and other individuals and entities not affiliated with TNB as defendants. The complaint seeks to recover the money lost by these individual plaintiffs as a result of the collapse of the Stanford Financial Group (in addition to other damages) under various theories and causes of action, including negligence, breach of contract, breach of fiduciary duty, negligent misrepresentation, detrimental reliance, conspiracy, and violation of Louisiana’s uniform fiduciary, securities, and racketeering laws. The complaint does not quantify the amount of money the plaintiffs seek to recover. In January 2010, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas) where multiple Stanford related matters are being consolidated for pre-trial proceedings. On March 29, 2010, the court stayed the case. TNB filed a motion to lift the stay, which remains pending.

TNB’s relationship with the Stanford Financial Group began as a result of Trustmark’s acquisition of a Houston-based bank in August 2006, and consisted of correspondent banking and other traditional banking services in the ordinary course of business. Both Stanford-related lawsuits are in their preliminary stages and have been previously reported in the press and disclosed by Trustmark.

Trustmark and its subsidiaries are also parties to other 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 (i) the final resolution of pending legal proceedings described above will not, individually or in the aggregate, have a material impact on Trustmark’s consolidated financial position or results of operations and (ii) a material adverse outcome in any such case is not reasonably possible.

Note 12 – 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 awards 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,
	2011		2010		2011		2010
Basic shares		64,119		63,886		64,048		63,834
Dilutive shares		191		181		203		182
Diluted shares		64,310		64,067		64,251		64,016

Weighted-average antidilutive stock awards were excluded in determining diluted earnings per share. The following table reflects weighted-average antidilutive stock awards for the periods presented (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010

Weighted-average antidilutive shares		1,212		1,327		1,225		1,263

Note 13 – Statements of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks. The following table reflects specific transaction amounts for the periods presented ($ in thousands):

	Nine Months Ended September 30,
	2011		2010
Income taxes paid	$	22,374	$	39,291
Interest expense paid on deposits and borrowings		33,907		46,192
Noncash transfers from loans to foreclosed properties		48,975		51,213
Transfer of long-term FHLB advance to short-term		1,900		75,000
Assets acquired in business combination		207,243		-
Liabilities assumed in business combination		228,236		-

Note 14 – Shareholders' Equity

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 Trustmark and TNB. As of September 30, 2011, 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. In addition, TNB has met applicable regulatory guidelines to be considered well-capitalized at September 30, 2011. To be categorized in this manner, TNB must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the accompanying table. There are no significant conditions or events that have occurred since September 30, 2011, which Management believes have affected TNB's present classification.

Trustmark's and TNB's actual regulatory capital amounts and ratios are presented in the table below ($ in thousands):

											Minimum Regulatory
	Actual					Minimum Regulatory					Provision to be
	Regulatory Capital					Capital Required					Well-Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
At September 30, 2011:
Total Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,094,402		16.78	%	$	521,797		8.00	%		n/a		n/a
Trustmark National Bank		1,054,986		16.38	%		515,396		8.00	%	$	644,245		10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	962,942		14.76	%	$	260,899		4.00	%		n/a		n/a
Trustmark National Bank		926,473		14.38	%		257,698		4.00	%	$	386,547		6.00	%

Tier 1 Capital (to Average Assets)
Trustmark Corporation	$	962,942		10.38	%	$	278,202		3.00	%		n/a		n/a
Trustmark National Bank		926,473		10.12	%		274,523		3.00	%	$	457,539		5.00	%

At December 31, 2010:
Total Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,051,933		15.77	%	$	533,774		8.00	%		n/a		n/a
Trustmark National Bank		1,014,219		15.40	%		526,894		8.00	%	$	658,617		10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	918,600		13.77	%	$	266,887		4.00	%		n/a		n/a
Trustmark National Bank		883,549		13.42	%		263,447		4.00	%	$	395,170		6.00	%

Tier 1 Capital (to Average Assets)
Trustmark Corporation	$	918,600		10.14	%	$	271,867		3.00	%		n/a		n/a
Trustmark National Bank		883,549		9.89	%		267,967		3.00	%	$	446,612		5.00	%

Accumulated Other Comprehensive Income (Loss)

The following table presents the components of accumulated other comprehensive income (loss) and the related tax effects allocated to each component for the periods ended September 30, 2011 and 2010 ($ in thousands):

							Accumulated
							Other
	Before-Tax			Tax			Comprehensive
	Amount			Effect			Income (Loss)
Balance, January 1, 2011	$	(18,469	)	$	7,043		$	(11,426	)
Unrealized holding gains on AFS arising during period		46,696			(17,861	)		28,835
Adjustment for net gains realized in net income		(91	)		35			(56	)
Pension and other postretirement benefit plans		3,649			(1,396	)		2,253
Balance, September 30, 2011	$	31,785		$	(12,179	)	$	19,606


Balance, January 1, 2010	$	(2,596	)	$	972		$	(1,624	)
Unrealized holding gains on AFS arising during period		17,711			(6,774	)		10,937
Adjustment for net gains realized in net income		(2,228	)		852			(1,376	)
Pension and other postretirement benefit plans		2,771			(1,060	)		1,711
Balance, September 30, 2010	$	15,658		$	(6,010	)	$	9,648

Note 15 – Fair Value

Fair Value Measurements

FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires certain disclosures about fair value measurements. The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. Depending on the nature of the asset or liability, Trustmark uses various valuation techniques and assumptions when estimating fair value. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. FASB ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs – Valuation is based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that Trustmark has the ability to access at the measurement date.

Level 2 Inputs – Valuation is based upon quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability such as interest rates, yield curves, volatilities and default rates and inputs that are derived principally from or corroborated by observable market data.

Level 3 Inputs – Unobservable inputs reflecting the reporting entity’s own determination about the assumptions that market participants would use in pricing the asset or liability based on the best information available.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. Trustmark’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Financial Instruments Measured at Fair Value

The methodologies Trustmark uses in determining the fair values are based primarily on the use of independent, market-based data to reflect a value that would be reasonably expected upon exchange of the position in an orderly transaction between market participants at the measurement date. The large majority of assets that are stated at fair value are of a nature that can be valued using prices or inputs that are readily observable through a variety of independent data providers. The providers selected by Trustmark for fair valuation data are widely recognized and accepted vendors whose evaluations support the pricing functions of financial institutions, investment and mutual funds, and portfolio managers. Trustmark has documented and evaluated the pricing methodologies used by the vendors and maintains internal processes that regularly test valuations for anomalies.

Trustmark utilizes an independent pricing service to advise it on the carrying value of the securities available for sale portfolio. As part of Trustmark’s procedures, the price provided from the service is evaluated for reasonableness given market changes. When a questionable price exists, Trustmark investigates further to determine if the price is valid. If needed, other market participants may be utilized to determine the correct fair value. Trustmark has also reviewed and confirmed its determinations in thorough discussions with the pricing source regarding their methods of price discovery.

Mortgage loan commitments are valued based on the securities prices of similar collateral, term, rate and delivery for which the loan is eligible to deliver in place of the particular security. Trustmark acquires a broad array of mortgage security prices that are supplied by a market data vendor, which in turn accumulates prices from a broad list of securities dealers. Prices are processed through a mortgage pipeline management system that accumulates and segregates all loan commitment and forward-sale transactions according to the similarity of various characteristics (maturity, term, rate, and collateral). Prices are matched to those positions that are deemed to be an eligible substitute or offset (i.e., “deliverable”) for a corresponding security observed in the market place.

Trustmark estimates fair value of MSR through the use of prevailing market participant assumptions and market participant valuation processes. This valuation is periodically tested and validated against other third-party firm valuations.

Trustmark obtains the fair value of interest rate swaps from a third-party pricing service that uses an industry standard discounted cash flow methodology. In addition, credit valuation adjustments are incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of its interest rate swap contracts for the effect of nonperformance risk, Trustmark has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees.

Trustmark has determined that the majority of the inputs used to value its interest rate swaps offered to qualified commercial borrowers fall within Level 2 of the fair value hierarchy, while the credit valuation adjustments associated with these derivatives utilize Level 3 inputs, such as estimates of current credit spreads. Trustmark has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its interest rate swaps and has determined that the credit valuation adjustment is not significant to the overall valuation of these derivatives. As a result, Trustmark classifies its interest rate swap valuations in Level 2 of the fair value hierarchy.

Trustmark also utilizes derivative instruments such as Treasury note futures contracts and exchange-traded option contracts to achieve a fair value return that offsets the changes in fair value of MSR attributable to interest rates. These derivative instruments are exchange-traded and provide inputs, which allow them to be classified within Level 1 of the fair value hierarchy. In addition, Trustmark utilizes derivative instruments such as interest rate lock commitments in its mortgage banking area which lack observable inputs for valuation purposes resulting in their inclusion in Level 3 of the fair value hierarchy.

At this time, Trustmark presents no fair values that are derived through internal modeling. Should positions requiring fair valuation arise that are not relevant to existing methodologies, Trustmark will make every reasonable effort to obtain market participant assumptions, or independent evaluation.

Financial Assets and Liabilities

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value ($ in thousands):

	September 30, 2011
	Total			Level 1			Level 2			Level 3
U.S. Government agency obligations	$	61,875		$	-		$	61,875		$	-
Obligations of states and political subdivisions		207,781			-			207,781			-
Mortgage-backed securities		2,207,249			-			2,207,249			-
Securities available for sale		2,476,905			-			2,476,905			-
Loans held for sale		210,269			-			210,269			-
Mortgage servicing rights		43,659			-			-			43,659
Other assets - derivatives		3,061			459			1,073			1,529
Other liabilities - derivatives		5,471			658			4,813			-

	December 31, 2010
	Total			Level 1			Level 2			Level 3
U.S. Government agency obligations	$	122,035		$	-		$	122,035		$	-
Obligations of states and political subdivisions		159,637			-			159,637			-
Mortgage-backed securities		1,895,577			-			1,895,577			-
Securities available for sale		2,177,249			-			2,177,249			-
Loans held for sale		153,044			-			153,044			-
Mortgage servicing rights		51,151			-			-			51,151
Other assets - derivatives		(2,247	)		(2,584	)		-			337
Other liabilities - derivatives		(1,581	)		1,562			(3,143	)		-

The changes in Level 3 assets measured at fair value on a recurring basis for the periods ended September 30, 2011 and 2010 are summarized as follows ($ in thousands):

	MSR			Other Assets - Derivatives
Balance, January 1, 2011	$	51,151		$	337
Total net (losses) gains included in net income		(17,073	)		2,946
Additions		9,581			-
Sales		-			(1,754	)
Balance, September 30, 2011	$	43,659		$	1,529

The amount of total losses for the period included in earnings that are attributable to the change in unrealized gains or losses still held at September 30, 2011	$	(12,288	)	$	(46	)


Balance, January 1, 2010	$	50,513		$	(61	)
Total net (losses) gains included in net income		(19,612	)		3,503
Additions		11,071			-
Sales		-			(2,158	)
Balance, September 30, 2010	$	41,972		$	1,284

The amount of total (losses) gains for the period included in earnings that are attributable to the change in unrealized gains or losses still held at September 30, 2010	$	(14,813	)	$	256

Trustmark may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. Assets at September 30, 2011, which have been measured at fair value on a nonrecurring basis, include impaired loans. Loans for which it is probable Trustmark will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement are considered impaired. Specific allowances for impaired loans are based on comparisons of the recorded carrying values of the loans to the present value of the estimated cash flows of these loans at each loan’s original effective interest rate, the fair value of the collateral or the observable market prices of the loans. At September 30, 2011, Trustmark had outstanding balances of $66.2 million in impaired loans, excluding covered loans, which were specifically identified for evaluation and written down to fair value of the underlying collateral less cost to sell based on the fair value of the collateral or other unobservable input compared with $97.6 million at December 31, 2010. These impaired loans are classified as Level 3 in the fair value hierarchy.

Please refer to Note 2 – Business Combinations, for financial assets and liabilities acquired in the Heritage transaction, which were measured at fair value on a nonrecurring basis in accordance with U.S. GAAP.

Nonfinancial Assets and Liabilities

Certain nonfinancial assets measured at fair value on a nonrecurring basis include foreclosed assets (upon initial recognition or subsequent impairment), nonfinancial assets and nonfinancial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other nonfinancial long-lived assets measured at fair value for impairment assessment.

Certain foreclosed assets, upon initial recognition, are remeasured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed asset. The fair value of a foreclosed asset, upon initial recognition, is estimated using Level 3 inputs based on adjusted observable market data. Foreclosed assets measured at fair value upon initial recognition totaled $49.0 million (utilizing Level 3 valuation inputs) during the nine months ended September 30, 2011 compared with $51.2 million for the same period in 2010. In connection with the measurement and initial recognition of the foregoing foreclosed assets, Trustmark recognized charge-offs of the allowance for loan losses totaling $6.0 million and $5.0 million for the first nine months of 2011 and 2010, respectively. Other than foreclosed assets measured at fair value upon initial recognition, $56.8 million of foreclosed assets were remeasured during the first nine months of 2011, requiring write-downs of $10.8 million to reach their current fair values compared to $48.1 million of foreclosed assets that were remeasured during the first nine months of 2010, requiring write-downs of $15.3 million.

Fair Value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments at September 30, 2011 and December 31, 2010, are as follows ($ in thousands):

	September 30, 2011				December 31, 2010
	Carrying		Estimated		Carrying			Estimated
	Value		Fair Value		Value			Fair Value
Financial Assets:
Cash and short-term investments	$	253,942	$	253,942	$	173,317		$	173,317
Securities available for sale		2,476,905		2,476,905		2,177,249			2,177,249
Securities held to maturity		71,046		76,007		140,847			145,143
Loans held for sale		210,269		210,269		153,044			153,044
Net LHFI, excluding covered loans		5,694,249		5,755,286		5,966,732			6,030,219
Covered loans		79,064		79,064		-			-
FDIC indemnification asset		33,436		33,436		-			-
Other assets - derivatives		3,061		3,061		(2,247	)		(2,247	)

Financial Liabilities:
Deposits		7,569,724		7,578,697		7,044,567			7,054,611
Short-term liabilities		675,559		675,559		1,125,481			1,125,481
Long-term FHLB advances		741		741		-			-
Subordinated notes		49,831		49,250		49,806			48,750
Junior subordinated debt securities		61,856		34,021		61,856			30,928
Other liabilities - derivatives		5,471		5,471		(1,581	)		(1,581	)

In cases where quoted market prices are not available, fair values are generally based on estimates using present value techniques. Trustmark’s premise in present value techniques is to represent the fair values on a basis of replacement value of the existing instrument given observed market rates on the measurement date. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates for those assets or liabilities cannot be necessarily substantiated by comparison to independent markets and, in many cases, may not be realizable in immediate settlement of the instruments. The estimated fair value of financial instruments with immediate and shorter-term maturities (generally 90 days or less) is assumed to be the same as the recorded book value. All nonfinancial instruments, by definition, have been excluded from these disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of Trustmark.

The fair values of net loans are estimated for portfolios of loans with similar financial characteristics. For variable rate loans that reprice frequently with no significant change in credit risk, fair values are based on carrying values. The fair values of certain mortgage loans, such as 1-4 family residential properties, are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values of other types of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The processes for estimating the fair value of net loans described above does not represent an exit price under FASB ASC Topic 820 and such an exit price could potentially produce a significantly different fair value estimate at September 30, 2011 and December 31, 2010.

A detailed description of the valuation methodologies used in estimating the fair value of financial instruments can be found in Note 16 included in Item 8 of Trustmark’s Form 10-K Annual Report for the year ended December 31, 2010 with the following exceptions:

Covered loans

The fair value of covered loans is based on estimates of future loan cash flows and appropriate discount rates, which incorporate Trustmark’s assumptions about market funding cost and liquidity premium. The estimates of future loan cash flows are determined using Trustmark’s assumptions concerning the amount and timing of principal and interest payments, prepayments and credit losses.

FDIC indemnification asset

The fair value of the FDIC indemnification asset is estimated by discounting estimated future cash flows based on estimated current market rates.

Note 16 – Derivative Financial Instruments

Trustmark maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. Trustmark’s interest rate risk management strategy involves modifying the repricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin and cash flows. Under the guidelines of FASB ASC Topic 815, “Derivatives and Hedging,” all derivative instruments are required to be recognized as either assets or liabilities and be carried at fair value on the balance sheet. The fair value of derivative positions outstanding is included in other assets and/or other liabilities in the accompanying consolidated balance sheets and in the net change in these financial statement line items in the accompanying consolidated statements of cash flows as well as included in noninterest income in the accompanying consolidated statements of income.

Derivatives Designated as Hedging Instruments

As part of Trustmark’s risk management strategy in the mortgage banking area, derivative instruments such as forward sales contracts are utilized. 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 under FASB ASC Topic 815. The ineffective portion of changes in the fair value of the forward contracts and changes in the fair value of the loans designated as loans held for sale are recorded in noninterest income in mortgage banking, net. Trustmark’s off-balance sheet obligations under these derivative instruments totaled $240.0 million at September 30, 2011, with a negative valuation adjustment of $3.7 million, compared to $163.0 million, with a positive valuation adjustment of $3.1 million as of December 31, 2010.

Derivatives not Designated as Hedging Instruments

Trustmark utilizes a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and option contracts, to achieve a fair value return that offsets 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 exchange-traded derivative instruments are recorded in noninterest income in mortgage banking, net and are offset by the changes in the fair value of MSR. The MSR fair value represents the effect of present value decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the total hedge cost to the changes in the fair value of the MSR asset attributable to interest rate changes. The impact of this strategy resulted in a net positive ineffectiveness of $2.8 million and $2.9 million for the three months ended September 30, 2011 and 2010, respectively, as well as a net positive ineffectiveness of $4.8 million and $7.6 million experienced for the nine months ended September 30, 2011 and 2010, respectively. See the section captioned “Noninterest Income” in Management’s Discussion and Analysis for further analysis of mortgage banking revenues, which includes the table for net hedge ineffectiveness.

Trustmark also utilizes derivative instruments such as interest rate lock commitments in its mortgage banking area. Rate lock commitments are residential mortgage loan commitments with customers, which guarantee a specified interest rate for a specified time period. 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 forward sales contracts. Trustmark’s off-balance sheet obligations under these derivative instruments totaled $151.3 million at September 30, 2011, with a positive valuation adjustment of $1.5 million, compared to $67.9 million, with a positive valuation adjustment of $337 thousand as of December 31, 2010.

Trustmark offers certain derivatives products such as interest rate swaps directly to qualified commercial borrowers seeking to manage their interest rate risk. Trustmark economically hedges interest rate swap transactions executed with commercial borrowers by entering into offsetting interest rate swap transactions with third parties. Derivative transactions executed as part of this program are not designated as qualifying hedging relationships and are, therefore, carried at fair value with the change in fair value recorded in current period earnings. Because these derivatives have mirror-image contractual terms, the changes in fair value substantially offset. As of September 30, 2011, Trustmark had interest rate swaps with an aggregate notional amount of $40.1 million related to this program. The fair value of these derivatives is immaterial at September 30, 2011.

Trustmark has agreements with each of its interest rate swap counterparties that contain a provision where if Trustmark defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Trustmark could also be declared in default on its derivative obligations.

As of September 30, 2011, the termination value of interest rate swaps in a liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $1.2 million. As of September 30, 2011, Trustmark had not posted collateral against its obligations because of negotiated thresholds and minimum transfer amounts under these agreements. If Trustmark had breached any of these triggering provisions at September 30, 2011, it could have been required to settle its obligations under the agreements at the termination value.

Tabular Disclosures

The following tables disclose the fair value of derivative instruments in Trustmark’s balance sheets as well as the effect of these derivative instruments on Trustmark’s results of operations for the periods presented ($ in thousands):

	September 30,		December 31,
	2011		2010
Derivatives in hedging relationships
Interest rate contracts:
Forward contracts included in other liabilities	$	3,702	$	(3,143	)

Derivatives not designated as hedging instruments
Interest rate contracts:
Futures contracts included in other assets	$	246	$	(2,897	)
Exchange traded purchased options included in other assets		213		313
OTC written options (rate locks) included in other assets		1,529		337
Interest rate swaps included in other assets		1,073		-
Exchange traded written options included in other liabilities		658		1,562
Interest rate swaps included in other liabilities		1,111		-

	Three Months Ended September 30,					Nine Months Ended September 30,
	2011			2010		2011			2010
Derivatives in hedging relationships
Amount of (loss) gain recognized in mortgage banking, net	$	(3,570	)	$	2,077	$	(6,845	)	$	(3,380	)

Derivatives not designated as hedging instruments
Amount of gain recognized in mortgage banking, net	$	12,092		$	5,986	$	18,246		$	23,778
Amount of loss recognized in bankcard and other fees		(23	)		-		(38	)		-

Note 17 – Segment Information

Trustmark’s management reporting structure includes three segments: General Banking, Wealth Management and Insurance. General Banking is primarily responsible for all traditional banking products and services, including loans and deposits. General Banking also consists of internal operations such as Human Resources, Executive Administration, Treasury, Funds Management, Public Affairs and Corporate Finance. 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. During 2010, Wealth Management provided life insurance and other risk management services through TRMK Risk Management, Inc. (TRMI), a wholly owned subsidiary of Trustmark National Bank who engaged in individual insurance product sales as a broker of life and long-term care insurance for Wealth Management customers. On December 30, 2010, TRMI was merged into Fisher Brown Bottrell Insurance, Inc. (FBBI), another wholly owned subsidiary of TNB. All previous products and services provided to Wealth Management customers are being provided by FBBI in 2011. Through FBBI, Trustmark’s Insurance Division provides a full range of retail insurance products including commercial risk management products, bonding, group benefits and personal lines coverage. As a result of the changes discussed above, certain immaterial reclassifications have been made to the prior year amounts in order to be in conformity with the current year.

The accounting policies of each reportable segment are the same as those of Trustmark except for its internal allocations. Noninterest expenses for back-office operations support are allocated to segments based on estimated uses of those services. Trustmark measures the net interest income of its business segments with a process that assigns cost of funds or earnings credit on a matched-term basis. This process, called “funds transfer pricing”, charges an appropriate cost of funds to assets held by a business unit, or credits the business unit for potential earnings for carrying liabilities. The net of these charges and credits flows through to the General Banking segment, which contains the management team responsible for determining the bank's funding and interest rate risk strategies.

The following table discloses financial information by reportable segment for the periods presented ($ in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011		2010
General Banking
Net interest income	$	84,509		$	86,453		$	256,449	$	260,128
Provision for loan losses		7,984			12,264			23,624		37,755
Noninterest income		30,686			30,964			88,205		89,390
Noninterest expense		72,916			73,923			212,263		213,406
Income before income taxes		34,295			31,230			108,767		98,357
Income taxes		8,760			7,710			31,198		28,991
General banking net income	$	25,535		$	23,520		$	77,569	$	69,366

Selected Financial Information
Average assets	$	9,423,743		$	9,061,255		$	9,417,382	$	9,109,516
Depreciation and amortization	$	6,207		$	6,335		$	17,276	$	17,230

Wealth Management
Net interest income	$	1,094		$	1,041		$	3,234	$	3,146
Provision for loan losses		(6	)		(5	)		7		(3	)
Noninterest income		6,078			5,289			18,000		16,404
Noninterest expense		6,819			4,752			17,946		14,790
Income before income taxes		359			1,583			3,281		4,763
Income taxes		71			528			1,047		1,587
Wealth management net income	$	288		$	1,055		$	2,234	$	3,176

Selected Financial Information
Average assets	$	81,527		$	87,863		$	82,323	$	90,634
Depreciation and amortization	$	49		$	69		$	162	$	204

Insurance
Net interest income	$	77		$	73		$	202	$	197
Provision for loan losses		-			-			-		-
Noninterest income		7,508			7,726			20,870		21,501
Noninterest expense		5,746			5,748			16,638		17,016
Income before income taxes		1,839			2,051			4,434		4,682
Income taxes		694			766			1,654		1,748
Insurance net income	$	1,145		$	1,285		$	2,780	$	2,934

Selected Financial Information
Average assets	$	67,186		$	68,805		$	65,822	$	67,176
Depreciation and amortization	$	355		$	396		$	1,085	$	1,192

Consolidated
Net interest income	$	85,680		$	87,567		$	259,885	$	263,471
Provision for loan losses		7,978			12,259			23,631		37,752
Noninterest income		44,272			43,979			127,075		127,295
Noninterest expense		85,481			84,423			246,847		245,212
Income before income taxes		36,493			34,864			116,482		107,802
Income taxes		9,525			9,004			33,899		32,326
Consolidated net income	$	26,968		$	25,860		$	82,583	$	75,476

Selected Financial Information
Average assets	$	9,572,456		$	9,217,923		$	9,565,527	$	9,267,326
Depreciation and amortization	$	6,611		$	6,800		$	18,523	$	18,626

Note 18 – Accounting Policies Recently Adopted and Pending Accounting Pronouncements

ASU 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” Issued in September 2011, ASU 2011-08 amends the guidance in ASC 350-202 on testing goodwill for impairment. Under the revised guidance, entities testing goodwill for impairment have the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step 1 of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. The ASU does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. In addition, the ASU does not amend the requirement to test goodwill for impairment between annual tests if events or circumstances warrant; however, it does revise the examples of events and circumstances that an entity should consider. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The adoption of ASU 2011-08 is not expected to have a significant impact on Trustmark’s consolidated financial statements.

ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05 amends the FASB Accounting Standards Codification (Codification) to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments to the Codification in the ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 should be applied retrospectively. Early adoption is permitted. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 for a public entity. For Trustmark, the impact of the ASU is a change in presentation only and will not have a significant impact on Trustmark’s consolidated financial statements.

The FASB recently announced the addition of a project to its agenda to consider deferring certain provisions in ASU 2011-05 related to presentation of reclassification adjustments from other comprehensive income (OCI) to net income. The FASB’s agenda decision responds to renewed concerns about the level of detail that might result from separately presenting items reclassified from OCI to net income, which had also been identified in comment letters sent in response to the exposure draft. The FASB plans to discuss at future meetings whether to delay the effective date of these provisions until it has had time to reconsider these concerns.

ASU 2011-04, “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The ASU is the result of joint efforts by the FASB and IASB to develop a single, converged fair value framework on how to measure fair value and on what disclosures to provide about fair value measurements. While the ASU is largely consistent with existing fair value measurement principles in U.S. GAAP, it expands existing disclosure requirements for fair value measurements and makes other amendments. Many of these amendments were made to eliminate unnecessary wording differences between U.S. GAAP and IFRSs. However, some could change how fair value measurement guidance is applied. The ASU is effective for interim and annual periods beginning after December 15, 2011, for public entities and is not expected to have a significant impact on Trustmark’s consolidated financial statements.

ASU 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.” The ASU eliminates from U.S. GAAP the requirement for entities to consider whether a transferor has the ability to repurchase the financial assets in a repurchase agreement. This requirement was one of the criteria that entities used to determine whether the transferor maintained effective control. Although entities must consider all the effective-control criteria under ASC 860, the elimination of this requirement may lead to more conclusions that a repurchase arrangement should be accounted for as a secured borrowing rather than as a sale. The ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. The adoption of ASU 2011-03 is not expected to have a significant impact on Trustmark’s consolidated financial statements.

ASU 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU 2011-02 clarifies when a loan modification or restructuring is considered a troubled debt restructuring (TDR). This ASU amends ASC 310-40 to include the indicators from ASC 470-60 that a lender should consider in determining whether a borrower is experiencing financial difficulties (e.g., debtor default, debtor bankruptcy, or concerns about the future as a going concern are all indicators of financial difficulty). It further clarifies that a borrower could be experiencing financial difficulty even if it is not currently in default but default is probable in the foreseeable future. The guidance in the rest of the ASU addresses whether the lender has granted a concession to the borrower. The ASU also amends ASC 310-40 to clarify that a lender is explicitly precluded from performing the borrower’s effective interest rate test, described in ASC 470, to determine whether a modification is a TDR. For TDR identification and disclosure purposes, the guidance is effective for the first interim or annual period beginning on or after June 15, 2011, and is to be applied retrospectively to modifications occurring on or after the beginning of the annual period of adoption. For newly identified TDRs that have occurred since the beginning of the earliest period presented and that remain outstanding in the period of adoption, the effect, if any, of the change in the method of calculating impairment under the loss contingency guidance of ASC 450-20 to that in ASC 310-10 is to be reflected in the period of adoption (e.g., the third quarter of 2011 for a calendar-year-end public entity). The adoption of ASU 2011-02 did not have a significant impact on Trustmark’s consolidated financial statements.

ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” In December 2010, the FASB issued ASU 2010-28 which modifies Step 1 of the goodwill impairment test under FASB ASC Topic 350, “Intangibles - Goodwill and Other,” for reporting units with zero or negative carrying amounts to require an entity to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are adverse qualitative factors in determining whether an interim goodwill impairment test between annual test dates is necessary. The ASU allows an entity to use either the equity or enterprise valuation premise to determine the carrying amount of a reporting unit. ASU 2010-28 became effective for Trustmark’s financial statements on January 1, 2011 and the adoption did not have a significant impact on Trustmark’s consolidated financial statements.

ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” In July 2010, the FASB issued ASU 2010-20, which requires Trustmark to provide a greater level of disaggregated information about the credit quality of loans and the allowance for loan losses. This ASU also requires Trustmark to disclose additional information related to credit quality indicators, past due information, and information related to loans modified in a troubled debt restructuring. ASU 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in ASU 2010-20,” temporarily deferred the effective date for disclosures related to troubled debt restructurings to coincide with the effective date of the then proposed ASU 2011-02, which is discussed above. ASU 2010-20 became effective for Trustmark’s financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period became effective for Trustmark’s financial statements beginning on January 1, 2011. The required disclosures are reported in Note 4 – Loans Held for Investment and Allowance for Loan Losses, excluding Covered Loans.

ASU 2010-06, “Improving Disclosures about Fair Value Measurements.” In January 2010, the FASB issued ASU 2010-06, which requires additional disclosures related to the transfers in and out of fair value hierarchy and the activity of Level 3 financial instruments. ASU 2010-06 further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) companies should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. ASU 2010-06 became effective for Trustmark’s financial statements on January 1, 2011 and is reported in Note 15 – Fair Value.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 unaudited consolidated financial statements and the supplemental financial data included elsewhere in this report.

Forward-Looking Statements

Certain statements contained in this document constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future” or the negative of those terms or other words of similar meaning. You should read statements that contain these words carefully because they discuss our future expectations or state other “forward-looking” information. 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. You should be aware that the occurrence of the events described under the caption “Risk Factors” in Trustmark’s filings with the Securities and Exchange Commission in this report could have an adverse effect on our business, results of operations and financial condition. 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.

Risks that could cause actual results to differ materially from current expectations of Management include, but are not limited to, changes in the level of nonperforming assets and charge-offs, local, state and national economic and market conditions, including the extent and duration of the current volatility in the credit and financial markets, changes in our ability to measure the fair value of assets in our portfolio, material changes in the level and/or volatility of market interest rates, the performance and demand for the products and services we offer, including the level and timing of withdrawals from our deposit accounts, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, our ability to attract noninterest-bearing deposits and other low-cost funds, competition in loan and deposit pricing, as well as the entry of new competitors into our markets through de novo expansion and acquisitions, economic conditions and monetary and other governmental actions designed to address the level and volatility of interest rates and the volatility of securities, currency and other markets, the enactment of legislation and changes in existing regulations, or enforcement practices, or the adoption of new regulations, changes in accounting standards and practices, including changes in the interpretation of existing standards, that affect our consolidated financial statements, changes in consumer spending, borrowings and savings habits, technological changes, changes in the financial performance or condition of our borrowers, changes in our ability to control expenses, changes in our compensation and benefit plans, greater than expected costs or difficulties related to the integration of acquisitions or new products and lines of business, natural disasters, environmental disasters, acts of war or terrorism and other risks described in our filings with the Securities and Exchange Commission.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Except as required by law, we undertake no obligation to update or revise any of this information, whether as the result of new information, future events or developments or otherwise.

Description of Business

Trustmark Corporation (Trustmark), a Mississippi business corporation incorporated in 1968, is a bank holding company headquartered in Jackson, Mississippi. Trustmark’s principal subsidiary is Trustmark National Bank (TNB), initially chartered by the State of Mississippi in 1889. At September 30, 2011, TNB had total assets of $9.6 billion, which represents over 98% of the consolidated assets of Trustmark.

Through TNB and its other subsidiaries, Trustmark operates as a financial services organization providing banking and other financial solutions through approximately 150 offices and 2,542 full-time equivalent associates located in the states of Mississippi, Tennessee (in Memphis and the Northern Mississippi region, which is collectively referred to herein as Trustmark’s Tennessee market), Florida (primarily in the northwest or “Panhandle” region of that state which is referred to herein as Trustmark’s Florida market) and Texas (primarily in Houston, which is referred to herein as Trustmark’s Texas market). The principal products produced and services rendered by TNB and Trustmark’s other subsidiaries are as follows:

Trustmark National Bank

Commercial Banking – TNB provides a full range of commercial banking services to corporations and other business customers. Loans are provided for a variety of general corporate purposes, including financing for commercial and industrial projects, income producing commercial real estate, owner-occupied real estate and construction and land development. TNB also provides deposit services, including checking, savings and money market accounts and certificates of deposit as well as treasury management services.

Consumer Banking – TNB provides banking services to consumers, including checking, savings, and money market accounts as well as certificates of deposit and individual retirement accounts. In addition, TNB provides consumer customers with installment and real estate loans and lines of credit.

Mortgage Banking – TNB provides mortgage banking services, including construction financing, production of conventional and government insured mortgages, secondary marketing and mortgage servicing. At September 30, 2011, TNB’s mortgage loan portfolio totaled approximately $1.2 billion, while its portfolio of mortgage loans serviced for others, including, FNMA, FHLMC and GNMA, totaled approximately $4.4 billion.

Insurance – TNB provides a competitive array of insurance solutions for business and individual risk management needs. Business insurance offerings include services and specialized products for medical professionals, construction, manufacturing, hospitality, real estate and group life and health plans. Individual customers are also provided life and health insurance, and personal line policies. Prior to July 30, 2010, TNB provided these services through The Bottrell Insurance Agency, Inc. (Bottrell), which is based in Jackson, Mississippi, and Fisher-Brown, Incorporated (Fisher-Brown), headquartered in Pensacola, Florida. Effective July 30, 2010, Fisher-Brown was merged into Bottrell, which was renamed Fisher Brown Bottrell Insurance, Inc. (FBBI), a Mississippi corporation and subsidiary of TNB. FBBI will maintain the trade names of Bottrell and Fisher Brown and will offer services through divisions under these respective names. Financial results of FBBI will be reported as the combined results of the prior subsidiaries.

Wealth Management and Trust Services – TNB offers specialized services and expertise in the areas of wealth management, trust, investment and custodial services for corporate and individual customers. These services include the administration of personal trusts and estates as well as the management of investment accounts for individuals, employee benefit plans and charitable foundations. TNB also provides corporate trust and institutional custody, securities brokerage, financial and estate planning, retirement plan services as well as life insurance and other risk management services provided by TRMK Risk Management, Inc. (TRMI). TRMI engaged in individual insurance product sales as a broker of life and long-term care insurance for wealth management customers. On December 30, 2010, TRMI was merged into FBBI, another wholly-owned subsidiary of TNB. All previous products and services provided to wealth management customers are provided by FBBI beginning in 2011. TNB’s wealth management division is also served by Trustmark Investment Advisors, Inc. (TIA), a Securities and Exchange Commission (SEC)-registered investment adviser. TIA provides customized investment management services for TNB customers and also serves as investment advisor to The Performance Funds, a proprietary family of mutual funds. At September 30, 2011, Trustmark held assets under management and administration of $7.2 billion and brokerage assets of $1.1 billion.

Somerville Bank & Trust Company

Somerville Bank & Trust Company (Somerville), headquartered in Somerville, Tennessee, provides banking services in the eastern Memphis metropolitan statistical area (MSA) through five offices. At September 30, 2011, Somerville had total assets of $188.1 million.

Capital Trusts

Trustmark Preferred Capital Trust I (Trustmark Trust) is a Delaware trust affiliate formed in 2006 to facilitate a private placement of $60.0 million in trust preferred securities. Republic Bancshares Capital Trust I (Republic Trust) is a Delaware trust affiliate acquired as the result of Trustmark’s 2006 acquisition of Republic Bancshares of Texas, Inc. Republic Trust was formed to facilitate the issuance of $8.0 million in trust preferred securities. As defined in applicable accounting standards, both Trustmark Trust and Republic Trust 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. As previously reported, on October 7, 2010, upon receipt of approval from the Federal Reserve Bank of Atlanta, the trust preferred securities of the Republic Trust were redeemed at par plus accrued interest and the related junior subordinated debt securities were repaid. This redemption reduced Trustmark’s Tier 1 leverage ratio, Tier 1 risk-based capital ratio and total risk-based capital ratio for December 31, 2010, by 0.09%, 0.12% and 0.12%, respectively.

Executive Overview

Economic surveys of financial executives during the third quarter of 2011 indicate that many more are pessimistic about their company’s prospects than are optimistic. Financial executives were challenged during the third quarter by the combined effects of the U.S. debt-ceiling debate, the U.S. loss of its AAA credit rating, the Greek debt crisis and its implication for the rest of Europe and the failure by governments at all levels to solve problems. As a result, financial executives are tempering their expectations for revenue growth as well as capital spending. In addition, consumers are feeling pressured by the continued economic weakness and are closely monitoring their discretionary spending. Continued uncertainty about future economic prospects has increased the magnitude of economic distress facing local markets and resulted in additional pressure on asset quality and earnings while further undermining the stability of bank organizations that serve these markets.

Management has continued to carefully monitor the impact of illiquidity in the financial markets, values of securities and other assets, loan performance, default rates and other financial and macro-economic indicators, in order to navigate the challenging economic environment. To reduce exposure to certain loan categories, Management has continued to reduce certain loan classifications, including construction, land development and other land loans and indirect auto loans. During the first nine months of 2011, Trustmark and TNB’s capital ratios continued to exceed the minimum levels required to be ranked well-capitalized.

TNB did not make significant changes to its loan underwriting standards during the first nine months of 2011. TNB’s willingness to make loans to qualified applicants that meet its traditional, prudent lending standards has not changed. However, TNB has revised its concentration limits of commercial real estate loans, which adhere to the most recent interagency guidelines. As a result, TNB has been cautious in granting credit involving certain categories of real estate, particularly in Florida. Furthermore, in the current economic downturn, TNB makes fewer exceptions to its loan policy as compared to prior periods.

Management has continued its practice of maintaining excess funding capacity to provide Trustmark with adequate liquidity for its ongoing operations. In this regard, Trustmark benefits from its strong deposit base, its highly liquid investment portfolio and its access to funding from a variety of external funding sources such as upstream Federal funds lines, Federal Reserve Discount Window, FHLB advances, and brokered deposits.

Critical Accounting Policies

Trustmark’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) 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 2011.

Recent Legislative and Regulatory Developments

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) into law. The Dodd-Frank Act represents very broad and complex legislation that enacts sweeping changes to the financial services industry that will have significant regulatory and legal consequences for banks now and for years to come. The more significant provisions of the Dodd-Frank Act include the following:

Created the Financial Stability Oversight Council (FSOC), which will identify, monitor and address systemic risks posed by large and complex banks and nonbank entities as well as certain products and services. To date, the FSOC has been engaged in rulemaking with respect to financial market utilities and nonbank financial companies.

Requires application of the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies. These rules will be phased in from January 1, 2013 to January 1, 2016.

Changes the assessment base for federal deposit insurance from the amount of insured deposits to average consolidated assets less average tangible equity. The Dodd-Frank Act increases the minimum reserve ratio for the Deposit Insurance Fund from 1.15% to 1.35% of estimated insurable deposits, or the comparable percentage of the assessment base by September 30, 2020. The FDIC must offset the effect of the increase in the minimum reserve ratio on insured depository institutions with total consolidated assets of less than $10 billion. The FDIC issued a final rule changing its assessment formula effective April 1, 2011.

Makes permanent the $250,000 limit for federal deposit insurance and provides unlimited federal deposit insurance until December 31, 2012 for noninterest-bearing demand transaction accounts at all insured depository institutions.

Directs the Federal banking regulatory agencies to make capital requirements countercyclical – meaning that additional capital will be required in times of economic expansion, but less capital will be required during periods of economic downturn.

Requires a bank holding company to be well-capitalized and well-managed in order to be approved for an interstate bank acquisition. In addition, the appropriate federal banking agency must determine that the resulting bank will continue to be well-capitalized and well-managed after the transaction.

Repeals the prohibition on payments of interest by banks on demand deposit accounts held by businesses; this provision became effective, and was implemented through federal rulemakings effective on July 21, 2011.

Imposes comprehensive regulation of the over-the-counter derivatives market, which includes certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the institution itself.

Implements structural changes in the issuance of certain asset-backed securities to require risk retention by securitizers and originators at a default level of up to 5% to promote the credit quality of the assets being securitized. In April 2011, the federal banking agencies jointly proposed rules for notice and comment.

Implements corporate governance revisions intended to enhance shareholder understanding of executive compensation, to impose independence standards upon outside compensation consultants and to increase shareholder involvement in the compensation process. These requirements are being implemented through SEC rulemakings, certain of which have become effective. Also provides that federal bank regulators shall issue enhanced reporting requirements for incentive-based compensation of any “covered financial institution,” and that federal bank regulators shall prescribe regulations prohibiting any incentive-based payment arrangement that encourages inappropriate risk-taking by the covered financial institution by paying any executive officer, employee, director or principal shareholder of the covered financial institution “excessive compensation, fees, or benefits” or that “could lead to material loss to the covered financial institution.” The federal bank regulators have proposed rules to implement these requirements, but they have not yet become effective.

Centralizes responsibility for consumer financial protection by creation of the Consumer Financial Protection Bureau (CFPB), which, effective July 21, 2011, is responsible for issuing rules, orders and guidance implementing federal consumer financial laws. If and when the bank’s consolidated assets exceed $10.0 billion, the CFPB will become the primary federal consumer financial protection regulator of the bank and the exclusive such regulator for all of its affiliates providing covered products and services. Until that time, the CFPB will have limited jurisdiction over the bank and its affiliate’s operations, with the exclusive enforcement authority resting with the bank’s primary federal banking regulator, and the CFPB’s role limited to requiring reports and participating in examinations with the primary federal banking regulator.

Amends the Electronic Fund Transfer Act to authorize the Federal Reserve to issue regulations regarding any interchange fee that an issuer may receive or charge for an electronic debit card transaction. Requires that fees must be reasonable and proportional to the cost incurred by the issuer with respect to the transaction. On June 29, 2011, the Federal Reserve issued a final rule implementing this provision, which begins to take effect starting on October 1, 2011. On July 12, 2011, the Federal Reserve issued a list of banking organizations subject to and exempt from the new restrictions based on their December 31, 2010 asset levels. Trustmark has been classified as “exempt.” The Federal Reserve plans to update this list annually based on year-end asset levels.

Increases the potential for state intervention in the operations of federally chartered depository institutions by narrowing the circumstances in which preemption of state law may apply and by providing statutory recognition of a role for state law enforcement authorities in regard to federally chartered depository institutions. On July 20, 2011, the OCC issued a final rule revising its preemption rules in light of the new law.

Implements mortgage reforms by including provisions, which require mortgage originators to act in the best interests of consumers and to take steps to seek to ensure that consumers will have the capability to repay loans that they obtain. Also creates incentives for lenders to offer loans that better protect the interests of consumers and provide additional protection for borrowers under high cost loans.

Adopts the so-called Volcker Rule, which bans depository institutions and their affiliates (banking entities) from engaging in proprietary trading and sponsoring or investing in hedge funds and private equity funds. On October 11, 2011, the federal banking agencies released proposed regulations interpreting the Volcker Rule, which they plan to make effective by mid-July 2014. As part of these rules, banking entities will be required to put in place detailed compliance programs.

As the Dodd-Frank Act continues to turn into specific regulatory requirements, there will be further business impacts across a myriad of industries, not just banking. Some of those impacts are readily anticipated such as the change to interchange fees, which can be found in the Bank Card and Other Fees section of Noninterest Income found later in this document. However, other impacts are subtle and do not stem directly from language in the new law. Many of these more subtle impacts will likely only emerge after months and perhaps years of further analysis and evaluation. In addition, certain provisions that affect deposit insurance assessments, payment of interest on demand deposits and interchange fees could increase the costs associated with deposits as well as place limitations on certain revenues those deposits may generate. Finally, implementation of certain significant provisions of the Dodd-Frank Act will continue to occur over a multi-year period. Because many aspects of the Dodd-Frank Act are subject to further rulemaking and will take effect over several years, it is difficult to anticipate the potential impact on Trustmark and its customers. It is clear, however, that the implementation of the Dodd-Frank Act will require Management to invest significant time and resources to evaluate the potential impact of this Act. Management will continue to evaluate this impact as more details regarding the implementation of these provisions become available.

In addition, Trustmark’s regulatory capital requirements may be increased due to planned revisions to the existing Basel Capital Accords (Basel III). These revisions, once finalized, will need to be implemented by U.S. bank regulators before they become binding upon Trustmark, and there is no certainty when this will occur or what form the final revisions will take. It is likely, however, that once implemented, all banking organizations subject to Basel III, including Trustmark, will be required to hold a greater amount of capital, and a greater amount of common equity, than they are currently required to hold.

Financial Highlights

Trustmark reported net income available to common shareholders of $27.0 million, or basic and diluted earnings per common share of $0.42, in the third quarter of 2011 compared to $25.9 million, or basic and diluted earnings per share of $0.40, in the third quarter of 2010. Trustmark's performance during the quarter ended September 30, 2011, produced a return on average tangible common equity of 12.04% and a return on average assets of 1.12% compared to a return on average tangible common equity of 12.38% and a return on average assets of 1.11% during the quarter ended September 30, 2010. During the nine months ended September 30, 2011, Trustmark's net income available to common shareholders totaled $82.6 million or basic and diluted earnings per common share of $1.29, an increase of $7.1 million and $0.11 when compared to the nine months ended September 30, 2010, respectively. Trustmark's performance during the nine months ended September 30, 2011, produced a return on average tangible common equity of 12.80% and a return on average assets of 1.15%, an increase of 0.37% and 0.06% when compared to the nine months ended September 30, 2010, respectively. Earnings during the nine months ended September 30, 2011, included a nonrecurring after-tax bargain purchase gain of $4.6 million, which represented basic and diluted earnings per share of $0.07, resulting from an FDIC-assisted business combination. Trustmark’s Board of Directors declared a quarterly cash dividend of $0.23 per common share. The dividend is payable December 15, 2011, to shareholders of record on December 1, 2011.

At September 30, 2011, nonperforming assets, excluding covered assets (loans and other real estate), totaled $189.2 million, a decrease of $40.5 million, or 17.6%, compared to December 31, 2010, and total nonaccrual loans, excluding covered loans, were $99.6 million, representing a decrease of $43.3 million relative to December 31, 2010. Total net charge-offs for the nine months ended September 30, 2011 were $27.7 million compared to total net charge-offs of $47.0 million for the same time period in 2010.

On April 15, 2011, TNB acquired the banking operations of Heritage Banking Group, Carthage, Mississippi, (Heritage) in a FDIC assisted transaction. Substantially all loans and other real estate acquired are covered by a loss share agreement in which the FDIC will reimburse Trustmark for 80% of losses incurred. At September 30, 2011, the carrying value of loans and deposits acquired was $85.5 million and $165.5 million, respectively. Earnings reflect $5.9 million contributed by Heritage and include a nonrecurring bargain purchase gain of $4.6 million after-tax, or approximately $0.07 per share and other operating net income of approximately $1.3 million, or approximately $0.02 per share.

Because of the loss protection provided by the FDIC, the risk characteristics of the Heritage loans and other real estate are significantly different from those assets not covered by this agreement. As a result, Trustmark will refer to loans and other real estate subject to the loss share agreements as “covered” while loans and other real estate that are not subject to the loss share agreement will be referred to as “excluding covered.”

An acceleration or significantly extended deterioration in loan performance and default levels, a significant increase in foreclosure activity, a material decline in the value of Trustmark’s assets (including loans and investment securities), or any combination of more than one of these trends could have a material adverse effect on Trustmark’s financial condition or results of operations.

Selected Financial Data
($ in thousands, except per share data)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Consolidated Statements of Income
Total interest income	$	96,193		$	101,101		$	293,580		$	307,369
Total interest expense		10,513			13,534			33,695			43,898
Net interest income		85,680			87,567			259,885			263,471
Provision for loan losses		7,978			12,259			23,631			37,752
Noninterest income		44,272			43,979			127,075			127,295
Noninterest expense		85,481			84,423			246,847			245,212
Income before income taxes		36,493			34,864			116,482			107,802
Income taxes		9,525			9,004			33,899			32,326
Net Income	$	26,968		$	25,860		$	82,583		$	75,476

Common Share Data
Basic earnings per share	$	0.42		$	0.40		$	1.29		$	1.18
Diluted earnings per share		0.42			0.40			1.29			1.18
Cash dividends per share		0.23			0.23			0.69			0.69

Performance Ratios
Return on average common equity		8.83	%		8.88	%		9.32	%		8.86	%
Return on average tangible common equity		12.04	%		12.38	%		12.80	%		12.43	%
Return on average total equity		8.83	%		8.88	%		9.32	%		8.86	%
Return on average assets		1.12	%		1.11	%		1.15	%		1.09	%
Net interest margin (fully taxable equivalent)		4.17	%		4.39	%		4.25	%		4.43	%

Credit Quality Ratios (1)
Net charge-offs/average loans		0.36	%		1.18	%		0.61	%		0.99	%
Provision for loan losses/average loans		0.53	%		0.78	%		0.52	%		0.80	%
Nonperforming loans/total loans (incl LHFS*)		1.66	%		2.54	%
Nonperforming assets/total loans (incl LHFS) plus ORE*		3.11	%		3.84	%
Allowance for loan losses/total loans (excl LHFS*)		1.55	%		1.57	%

September 30,		2011			2010
Consolidated Balance Sheets
Total assets	$	9,705,921		$	9,416,905
Securities		2,547,951			2,137,473
Loans held for investment and covered loans (including LHFS*)		6,073,045			6,266,841
Deposits		7,569,724			7,025,336
Common shareholders' equity		1,221,606			1,158,792

Common Stock Performance
Market value - close	$	18.15		$	21.74
Common book value		19.05			18.14
Tangible common book value		14.28			13.31

Capital Ratios
Total equity/total assets		12.59	%		12.31	%
Common equity/total assets		12.59	%		12.31	%
Tangible equity/tangible assets		9.74	%		9.34	%
Tangible common equity/tangible assets		9.74	%		9.34	%
Tangible common equity/risk-weighted assets		14.04	%		12.78	%
Tier 1 leverage ratio		10.38	%		10.26	%
Tier 1 common risk-based capital ratio		13.84	%		12.72	%
Tier 1 risk-based capital ratio		14.76	%		13.75	%
Total risk-based capital ratio		16.78	%		15.75	%

(1) - Excludes Covered Assets (Loans and Other Real Estate)

* - LHFS is Loans Held for Sale.

** - ORE is Other Real Estate.

Non-GAAP Financial Measures

In addition to capital ratios defined by GAAP and banking regulators, Trustmark utilizes various tangible common equity measures when evaluating capital utilization and adequacy. Tangible common equity, as defined by Trustmark, represents common equity less goodwill and identifiable intangible assets.

Trustmark believes these measures are important because they reflect the level of capital available to withstand unexpected market conditions. Additionally, presentation of these measures allows readers to compare certain aspects of Trustmark’s capitalization to other organizations. These ratios differ from capital measures defined by banking regulators principally in that the numerator excludes shareholders’ equity associated with preferred securities, the nature and extent of which varies across organizations.

These calculations are intended to complement the capital ratios defined by GAAP and banking regulators. Because GAAP does not include these capital ratio measures, Trustmark believes there are no comparable GAAP financial measures to these tangible common equity ratios. Despite the importance of these measures to Trustmark, there are no standardized definitions for them and, as a result, Trustmark’s calculations may not be comparable with other organizations. In addition, there may be limits in the usefulness of these measures to investors. As a result, Trustmark encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure. The following table reconciles Trustmark’s calculation of these measures to amounts reported under GAAP.

Reconciliation of Non-GAAP Financial Measures
($ in thousands)		Three Months Ended September 30,						Nine Months Ended September 30,
		2011			2010			2011			2010
TANGIBLE COMMON EQUITY
AVERAGE BALANCES
Total shareholders' equity		$	1,211,434		$	1,155,054		$	1,184,558		$	1,139,231
Less: Goodwill			(291,104	)		(291,104	)		(291,104	)		(291,104	)
Identifiable intangible assets			(15,343	)		(17,716	)		(15,772	)		(18,591	)
Total average tangible common equity		$	904,987		$	846,234		$	877,682		$	829,536

PERIOD END BALANCES
Total shareholders' equity		$	1,221,606		$	1,158,792
Less: Goodwill			(291,104	)		(291,104	)
Identifiable intangible assets			(14,861	)		(17,181	)
Total tangible common equity	(a)	$	915,641		$	850,507

TANGIBLE ASSETS
Total assets		$	9,705,291		$	9,416,905
Less: Goodwill			(291,104	)		(291,104	)
Identifiable intangible assets			(14,861	)		(17,181	)
Total tangible assets	(b)	$	9,399,326		$	9,108,620

Risk-weighted assets	(c)	$	6,522,468		$	6,653,479

NET INCOME ADJUSTED FOR INTANGIBLE AMORTIZATION
Net income		$	26,968		$	25,860		$	82,583		$	75,476
Plus: Intangible amortization net of tax			489			545			1,452			1,635
Net income adjusted for intangible amortization		$	27,457		$	26,405		$	84,035		$	77,111

Period end common shares outstanding	(d)		64,119,235			63,885,959

TANGIBLE COMMON EQUITY MEASUREMENTS
Return on average tangible common equity 1			12.04	%		12.38	%		12.80	%		12.43	%
Tangible common equity/tangible assets	(a)/(b)		9.74	%		9.34	%
Tangible common equity/risk-weighted assets	(a)/(c)		14.04	%		12.78	%
Tangible common book value	(a)/(d)*1,000	$	14.28		$	13.31


		September 30,
TIER 1 COMMON RISK-BASED CAPITAL		2011			2010
Total shareholders' equity		$	1,221,606		$	1,158,792
Eliminate qualifying AOCI			(19,606	)		(9,648	)
Qualifying tier 1 capital			60,000			68,000
Disallowed goodwill			(291,104	)		(291,104	)
Adj to goodwill allowed for deferred taxes			11,273			9,863
Other disallowed intangibles			(14,861	)		(17,181	)
Disallowed servicing intangible			(4,366	)		(4,197	)
Total tier 1 capital		$	962,942		$	914,525
Less: Qualifying tier 1 capital			(60,000	)		(68,000	)
Total tier 1 common capital	(e)	$	902,942		$	846,525

Tier 1 common risk-based capital ratio	(e)/(c)		13.84	%		12.72	%

1 Calculation = ((net income adjusted for intangible amortization/number of days in period)*number of days in year)/total average tangible common equity

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. Loans on nonaccrual 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 (through TNB) acquired Heritage during the second quarter of 2011. This acquisition resulted in additional net interest income of $1.5 million and $3.0 million for the three and nine months ended September 30, 2011, and year to date growth in both average interest-earning assets and average interest-bearing liabilities of $52.2 million and $94.1 million, respectively, which are included in the current year balances shown in the following three paragraphs.

Net interest income-FTE for the three and nine months ended September 30, 2011, decreased $1.6 million, or 1.7%, and $2.7 million, or 1.0%, respectively, when compared with the same periods in 2010. The net interest margin decreased 18 basis points to 4.25% for the first nine months of 2011, compared with the same time period in 2010. The decrease in net interest margin is primarily a result of a downward repricing of fixed rate assets, accelerated premium amortization within the investment portfolio and changes to Trustmark’s asset mix as lower yielding securities supplemented declines in higher yielding loan balances. The impact of this was partially offset by declines in deposit costs, mostly within certificates of deposits and high yield money market accounts.

Average interest-earning assets for the first nine months of 2011 were $8.515 billion, compared with $8.261 billion for the same time period in 2010, an increase of $253.9 million. The growth in average earning assets was primarily due to an increase in average total securities of $472.7 million, or 24.9%, during the first nine months of 2011. The increase in securities was partially offset by a decrease in average total loans (including covered loans) of $214.9 million, or 3.4%, during the first nine months of 2011. This decrease reflects Trustmark’s on-going efforts to reduce exposure to construction and land development lending, the decision in prior years to discontinue indirect auto financing, as well as limited demand for loans. The overall yield on securities decreased 88 basis points when compared with the same time period in 2010 due to run-off of higher yielding securities replaced at lower yields as well as accelerated premium amortization driven by a decline in interest rates. During the first nine months of 2011, interest and fees on loans-FTE decreased $13.3 million, or 5.3%, due to lower average loan balances while the yield on loans fell slightly to 5.23% compared to 5.33% during the same time period in 2010. As a result of these factors, interest income-FTE decreased $12.9 million, or 4.1%, when the first nine months of 2011 is compared with the same time period in 2010. The impact of these changes is also illustrated by the decline in the yield on total earning assets, which fell from 5.14% for the first nine months of 2010 to 4.78% for the same time period in 2011, a decrease of 36 basis points.

Average interest-bearing liabilities for the first nine months of 2011 totaled $6.565 billion compared with $6.467 billion for the same time period in 2010, a slight increase of $98.0 million, or 1.5%. During the first nine months of 2011, average interest-bearing deposits increased $223.5 million, or 4.0%, while the combination of federal funds purchased, securities sold under repurchase agreements and other borrowings decreased by $125.5 million, or 14.2%. The overall yield on interest-bearing liabilities declined 22 basis points during the first nine months of 2011 when compared with the same time period in 2010, primarily due to a reduction in the costs of certificates of deposit and high yield money market accounts. As a result of these factors, total interest expense for the first nine months of 2011 decreased $10.2 million, or 23.2%, when compared with the same time period in 2010.

Yield/Rate Analysis Table

($ in thousands)

	Three Months Ended September 30,
	2011								2010

	Average					Yield/			Average					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate
Assets
Interest-earning assets:
Federal funds sold and securities purchased under reverse repurchase agreements	$	5,801		$	5		0.34	%	$	8,418		$	9		0.42	%
Securities - taxable		2,202,985			18,115		3.26	%		1,797,459			18,641		4.11	%
Securities - nontaxable		194,776			2,155		4.39	%		149,662			2,080		5.51	%
Loans (including covered and loans held for sale)		6,069,541			79,256		5.18	%		6,230,961			83,374		5.31	%
Other earning assets		32,327			329		4.04	%		33,615			332		3.92	%
Total interest-earning assets		8,505,430			99,860		4.66	%		8,220,115			104,436		5.04	%
Cash and due from banks		216,134								214,736
Other assets		939,780								885,600
Allowance for loan losses		(88,888	)							(102,528	)
Total Assets	$	9,572,456							$	9,217,923

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	5,802,080			9,455		0.65	%	$	5,484,734			11,609		0.84	%
Federal funds purchased and securities sold
under repurchase agreements		462,294			216		0.19	%		522,523			294		0.22	%
Other borrowings		199,772			842		1.67	%		321,914			1,631		2.01	%
Total interest-bearing liabilities		6,464,146			10,513		0.65	%		6,329,171			13,534		0.85	%
Noninterest-bearing demand deposits		1,811,472								1,629,122
Other liabilities		85,404								104,576
Shareholders' equity		1,211,434								1,155,054
Total Liabilities and
Shareholders' Equity	$	9,572,456							$	9,217,923

Net Interest Margin					89,347		4.17	%					90,902		4.39	%

Less tax equivalent adjustment					3,667								3,335

Net Interest Margin per
Consolidated Statements of Income				$	85,680							$	87,567

Yield/Rate Analysis Table

($ in thousands)

	Nine Months Ended September 30,
	2011								2010

	Average					Yield/			Average					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate
Assets
Interest-earning assets:
Federal funds sold and securities purchased under reverse repurchase agreements	$	6,980		$	20		0.38	%	$	8,771		$	24		0.37	%
Securities - taxable		2,189,505			58,481		3.57	%		1,746,856			58,002		4.44	%
Securities - nontaxable		181,437			6,398		4.71	%		151,384			6,411		5.66	%
Loans (including covered and loans held for sale)		6,099,415			238,574		5.23	%		6,314,279			251,863		5.33	%
Other earning assets		37,345			994		3.56	%		39,480			1,081		3.66	%
Total interest-earning assets		8,514,682			304,467		4.78	%		8,260,770			317,381		5.14	%
Cash and due from banks		218,310								212,898
Other assets		925,750								898,159
Allowance for loan losses		(93,215	)							(104,501	)
Total Assets	$	9,565,527							$	9,267,326

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	5,806,497			29,110		0.67	%	$	5,582,985			38,298		0.92	%
Federal funds purchased and securities sold
under repurchase agreements		501,585			770		0.21	%		539,464			780		0.19	%
Other borrowings		256,714			3,815		1.99	%		344,313			4,820		1.87	%
Total interest-bearing liabilities		6,564,796			33,695		0.69	%		6,466,762			43,898		0.91	%
Noninterest-bearing demand deposits		1,716,300								1,567,172
Other liabilities		99,873								94,161
Shareholders' equity		1,184,558								1,139,231
Total Liabilities and
Shareholders' Equity	$	9,565,527							$	9,267,326

Net Interest Margin					270,772		4.25	%					273,483		4.43	%

Less tax equivalent adjustment					10,887								10,012

Net Interest Margin per
Consolidated Statements of Income				$	259,885							$	263,471

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. As shown in the table below, the provision for loan losses for the nine months of 2011 totaled $23.6 million, or 0.52% of average loans, compared with $37.8 million, or 0.80% of average loans, for the same time period in 2010. Reduced loan provisioning during the first nine months of 2011 was a result of decreased levels of criticized loans, lower net charge-offs, adequate reserves established in prior years for both new and existing impaired loans and a smaller overall loan portfolio.

Provision for Loan Losses
($ in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011		2010
Florida	$	3,046		$	4,520		$	11,703	$	12,453
Mississippi (1)		3,732			4,398			6,134		11,576
Tennessee (2)		(105	)		(172	)		1,671		4,702
Texas		1,305			3,513			4,123		9,021
Total provision for loan losses	$	7,978		$	12,259		$	23,631	$	37,752

(1) - Mississippi includes Central and Southern Mississippi Regions

(2) - Tennessee includes Memphis, Tennessee and Northern Mississippi Regions

Trustmark continues to devote significant resources to managing credit risks resulting from the slowdown in commercial developments of residential real estate. Management believes that the construction and land development portfolio is appropriately risk rated and adequately reserved based on current conditions.

See the section captioned “Loans Held for Investment and Allowance for Loan Losses, excluding Covered Loans” elsewhere in this discussion for further analysis of the provision for loan losses, which includes the table of nonperforming assets.

Noninterest Income

Trustmark’s noninterest income continues to play an important role in improving net income and total shareholder value. Total noninterest income before securities gains, net for the first nine months of 2011 totaled $127.0 million, an increase of $1.9 million, or 1.5%, when compared to the same period in 2010. The impact of the Heritage acquisition contributed approximately $8.1 million in noninterest income, which includes a bargain purchase gain of $7.5 million. The comparative components of noninterest income for the periods ended September 30, 2011 and 2010 are shown in the accompanying table:

Noninterest Income

($ in thousands)

	Three Months Ended September 30,										Nine Months Ended September 30,
	2011		2010		$ Change			% Change			2011		2010		$ Change			% Change
Service charges on deposit accounts	$	13,680	$	14,493	$	(813	)		-5.6	%	$	38,438	$	41,690	$	(3,252	)		-7.8	%
Insurance commissions		7,516		7,746		(230	)		-3.0	%		20,890		21,467		(577	)		-2.7	%
Wealth management		5,993		5,199		794			15.3	%		17,739		16,112		1,627			10.1	%
Bank card and other fees		7,033		6,235		798			12.8	%		20,362		18,532		1,830			9.9	%
Mortgage banking, net		9,783		9,861		(78	)		-0.8	%		20,774		24,843		(4,069	)		-16.4	%
Other, net		234		441		(207	)		-46.9	%		8,781		2,423		6,358			n/m
Total Noninterest Income before securities gains, net		44,239		43,975		264			0.6	%		126,984		125,067		1,917			1.5	%
Securities gains, net		33		4		29			n/m			91		2,228		(2,137	)		-95.9	%
Total Noninterest Income	$	44,272	$	43,979	$	293			0.7	%	$	127,075	$	127,295	$	(220	)		-0.2	%

n/m - percentage changes greater than +/- 100% are not considered meaningful

Service Charges on Deposit Accounts

Service charges on deposit accounts during the first nine months of 2011 totaled $38.4 million, a decline of $3.3 million from the same time period in 2010. This decline was due to a reduction in NSF fees of $3.0 million and reflected the impact of the Federal Reserve Board (FRB) adopted rule (Regulation E - Electronic Fund Transfers) that went into effect during the third quarter of 2010. Regulation E prohibits financial institutions, such as Trustmark, from charging customers for paying overdrafts on ATM and one-time debit card transactions, unless the customer consents to the overdraft service for those products.

Trustmark expects final guidance from the OCC in the fourth quarter of 2011 or thereafter, which will clarify their regulatory position as it pertains to selected components of Trustmark’s overdraft programs. Trustmark expects that the impact of this guidance, which addresses several items including posting order and number of occurrences, could reduce noninterest income by an estimated $300 to $900 thousand for 2011, depending on when the changes are implemented during 2011. Management is continuing to evaluate Trustmark’s product structure and services to offset the potential impact of these recent regulatory developments.

Insurance Commissions

Insurance commissions were $20.9 million during the first nine months of 2011 compared with $21.5 million for the same time period in 2010. The decline in insurance commissions experienced during the first nine months of 2011 was primarily due to lower commission volume on commercial property and casualty policies. While rate pressures may be subsiding, insurance commission revenues continue to face pressure from falling premium prices for similar insurable risks. Furthermore, the recessionary economy has greatly suppressed demand for insurance coverage by businesses for their inventories and equipment, workers’ compensation and general liability, and has also forced companies to downsize or close.

Wealth Management

Wealth management income totaled $17.7 million for the first nine months of 2011 compared with $16.1 million for the same time period in 2010. 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 2011 is largely attributable to improved market conditions that in turn have generally improved market values in client accounts, as well as growth in retirement planning services and brokerage activities. At September 30, 2011 and 2010, Trustmark held assets under management and administration of $7.2 billion and $7.3 billion, respectively, and brokerage assets of $1.1 billion and $1.2 billion, respectively.

Bank Card and Other Fees

Bank card and other fees totaled $20.4 million during the first nine months of 2011 compared with $18.5 million for the same time period in 2010. Bank card and other fees consist primarily of fees earned on bank card products as well as fees on various bank products and services and safe deposit box fees. The increase was primarily the result of growth in fees earned on bank card products due to increased consumer utilization.

The Dodd-Frank Act amends the Electronic Fund Transfer Act to authorize the FRB to issue regulations regarding any interchange fee that an issuer may receive or charge for an electronic debit card transaction. On June 29, 2011, the FRB issued a final rule (Regulation II - Debit Card Interchange Fees and Routing) establishing standards for debit card interchange fees. Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction and five basis points multiplied by the value of the transaction. This provision regarding debit card interchange fees was effective October 1, 2011. In addition, the FRB also approved an interim rule that allows for an upward adjustment of no more than one cent to an issuer's debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve the fraud-prevention standards set out in the interim rule. The fraud-prevention adjustment was effective on October 1, 2011, concurrent with the debit card interchange fee limits.

In accordance with the statute, issuers that, together with their affiliates, have assets of less than $10.0 billion are exempt from the debit card interchange fee standards. Therefore, Trustmark anticipates there would be no impact of the FRB final rule (Regulation II - Debit Card Interchange Fees and Routing) to noninterest income during 2011. However, if and when Trustmark has assets of greater than $10.0 billion, the effect of the FRB final rule could reduce noninterest income from $6.0 million to $8.0 million on an annual basis. Management is currently evaluating Trustmark’s product structure and services to offset any potential impact of the FRB final rule, if and when Trustmark's assets exceed the $10.0 billion threshold.

Mortgage Banking, Net

Net revenues from mortgage banking were $20.8 million during the first nine months of 2011 compared with $24.8 million for the same time period in 2010. As shown in the accompanying table, net mortgage servicing income increased to $11.1 million for the first nine months of 2011 compared to $10.4 million for the same time period in 2010. Loans serviced for others totaled $4.4 billion at September 30, 2011 compared with $4.3 billion at September 30, 2010.

During the first three months of 2010, Trustmark completed the final settlement of the sale of approximately $920.9 million in mortgages serviced for others, which reduced Trustmark’s MSR by approximately $8.5 million. In addition, during December of 2010, Trustmark purchased approximately $53.9 million of GNMA serviced loans, which were subsequently sold to a third party. Trustmark will retain the servicing for these loans, which are fully guaranteed by FHA/VA. The effect of these transactions did not have a material impact on Trustmark's results of operations.

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,
	2011			2010			$ Change			% Change			2011			2010			$ Change			% Change
Mortgage servicing income, net	$	3,738		$	3,406		$	332			9.7	%	$	11,065		$	10,350		$	715			6.9	%
Change in fair value-MSR from runoff		(2,039	)		(2,255	)		216			9.6	%		(4,785	)		(4,799	)		14			0.3	%
Gain on sales of loans, net		2,366			3,911			(1,545	)		-39.5	%		7,319			9,563			(2,244	)		-23.5	%
Other, net		2,926			1,919			1,007			52.5	%		2,409			2,110			299			14.2	%
Mortgage banking income before hedge ineffectiveness		6,991			6,981			10			0.1	%		16,008			17,224			(1,216	)		-7.1	%
Change in fair value-MSR from market changes		(7,614	)		(3,115	)		(4,499	)		n/m			(12,288	)		(14,813	)		2,525			17.0	%
Change in fair value of derivatives		10,406			5,995			4,411			73.6	%		17,054			22,432			(5,378	)		-24.0	%
Net positive hedge ineffectiveness		2,792			2,880			(88	)		-3.1	%		4,766			7,619			(2,853	)		-37.4	%
Mortgage banking, net	$	9,783		$	9,861		$	(78	)		-0.8	%	$	20,774		$	24,843		$	(4,069	)		-16.4	%

n/m - percentage changes greater than +/- 100% are not considered meaningful

As part of Trustmark’s risk management strategy, exchange-traded derivative instruments are utilized to offset changes in the fair value of MSR attributable to changes in interest rates. Changes in the fair value of these exchange-traded derivative instruments are recorded in noninterest income in mortgage banking, net and are offset by the changes in the fair value of MSR. The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the total hedge cost to the changes in the fair value of the MSR asset attributable to interest rate changes. The impact of this strategy resulted in a net positive ineffectiveness of $2.8 million and $2.9 million for the three months ended September 30, 2011 and 2010, respectively, as well as a net positive ineffectiveness of $4.8 million and $7.6 million experienced for the nine months ended September 30, 2011 and 2010, respectively.

Representing a significant component of mortgage banking income are gains on the sales of loans, which equaled $7.3 million during the first nine months of 2011 compared with $9.6 million for the same time period in 2010. The decline in the gain on sales of loans during the first nine months of 2011 resulted from a decrease in loan sales from secondary marketing activities as well as lower profit margins. Loan sales totaled $656.8 million during the first nine months of 2011, a decrease of $126.0 million when compared with the same time period in 2010.

Other mortgage banking income, net increased by approximately $300 thousand when comparing the nine months ended September 30, 2011 with the same period in 2010 and resulted primarily from a net valuation increase in the fair value of loans held for sale, interest rate lock commitments and forward sale contracts.

Other Income, Net

Other income, net for the first nine months of 2011 was $8.8 million compared with $2.4 million for the same time period in 2010. The increase of $6.4 million during the first nine months of 2011 reflects a nonrecurring bargain purchase gain of $7.5 million resulting from TNB’s acquisition of Heritage during the second quarter of 2011.

Noninterest Expense

Trustmark’s noninterest expense for the first nine months of 2011 increased $1.6 million, or 0.7%, when compared with the same period in 2010. The increase during the first nine months of 2011 was primarily attributable to growth in salaries and benefits, equipment expenses and loan expenses. Noninterest expense incurred by Heritage is included in Trustmark’s noninterest expense and totaled $1.4 million for the first nine months of 2011. Management considers disciplined expense management a key area of focus in the support of improving shareholder value. The comparative components of noninterest expense for the periods ended September 30, 2011 and 2010 are shown in the accompanying table:

Noninterest Expense

($ in thousands)

	Three Months Ended September 30,										Nine Months Ended September 30,
	2011		2010		$ Change			% Change			2011		2010		$ Change			% Change
Salaries and employee benefits	$	44,701	$	44,034	$	667			1.5	%	$	132,940	$	130,170	$	2,770			2.1	%
Services and fees		11,485		10,709		776			7.2	%		32,535		31,487		1,048			3.3	%
ORE/Foreclosure expense:
Writedowns		4,463		7,323		(2,860	)		-39.1	%		10,855		15,264		(4,409	)		-28.9	%
Carrying costs		1,153		1,405		(252	)		-17.9	%		2,678		5,803		(3,125	)		-53.9	%
Total ORE/Foreclosure expense		5,616		8,728		(3,112	)		-35.7	%		13,533		21,067		(7,534	)		-35.8	%
Net occupancy-premises		5,093		4,961		132			2.7	%		15,216		14,912		304			2.0	%
Equipment expense		5,038		4,356		682			15.7	%		15,038		12,906		2,132			16.5	%
FDIC assessment expense		1,812		3,037		(1,225	)		-40.3	%		6,500		9,219		(2,719	)		-29.5	%
Other expense		11,736		8,598		3,138			36.5	%		31,085		25,451		5,634			22.1	%
Total noninterest expense	$	85,481	$	84,423	$	1,058			1.3	%	$	246,847	$	245,212	$	1,635			0.7	%

n/m - percentage changes greater than +/- 100% are not considered meaningful

Salaries and Employee Benefits

Salaries and employee benefits, the largest category of noninterest expense, were $132.9 million for the first nine months of 2011 compared with $130.2 million for the same time period in 2010. This increase primarily reflects modest general merit increases, higher general incentive costs resulting from improved corporate performance, higher costs for employee retirement programs as well as $896 thousand in additional salaries and employee benefits resulting from the Heritage acquisition.

Equipment Expense

Equipment expense for the first nine months of 2011 increased $2.1 million when compared to the same time period in 2010. This was due to enhanced disaster recovery capabilities as well as nonroutine implementation costs related to improvements to Trustmark’s data communications network.

FDIC Assessment Expense

During the first nine months of 2011, FDIC insurance expense decreased $2.7 million, or 29.5% when compared with the same time period in 2010 and resulted from the implementation of the FDIC’s revised deposit insurance assessment methodology implemented during the second quarter of 2011. As required by the Dodd-Frank Act, on April 1, 2011, the FDIC revised the deposit insurance assessment system to base assessments on the average total consolidated assets of insured depository institutions less the average tangible equity during the assessment period. In addition, the Dodd-Frank Act increased the minimum reserve ratio for the Deposit Insurance Fund from 1.15% to 1.35% of estimated insurable deposits, or the comparable percentage of the assessment base by September 30, 2020. The FDIC must offset the effect of the increase in the minimum reserve ratio on insured depository institutions with total consolidated assets of less than $10.0 billion. With total assets slightly below $10.0 billion at September 30, 2011, Trustmark benefitted from the change in the assessment methodology as the FDIC assessment expense dropped approximately $938 thousand, or 34.1%, when compared to the first quarter of 2011. Should Trustmark qualify as a large institution, generally, one with at least $10.0 billion in assets, Management estimates the change in the assessment methodology would have an immaterial impact on Trustmark’s results of operations.

Other Expense

During the first nine months of 2011, other expenses increased $5.6 million, or 22.1%, compared to the same time period in 2010. The growth in other expenses during the first nine months of 2011 was primarily due to an increase in loan expenses that resulted from higher mortgage foreclosure expenses.

During the normal course of business, Trustmark's mortgage banking operations originates and sells certain loans to investors in the secondary market. Trustmark has continued to experience a manageable level of investor repurchase demands. Trustmark is subject to losses in its loan servicing portfolio due to loan foreclosures. For loans sold without recourse, Trustmark has obligations to either repurchase the outstanding principal balance of a loan or make the purchaser whole for the economic benefits of a loan if it is determined that the loans sold were in violation of representations or warranties made by Trustmark at the time of the sale, herein referred to as mortgage loan servicing putback expenses. Such representations and warranties typically include those made regarding loans that had missing or insufficient file documentation and/or loans obtained through fraud by borrowers or other third parties such as appraisers. The total mortgage loan servicing putback expenses incurred by Trustmark during the first nine months of 2011 were $2.5 million compared to $1.1 million during the same time period in 2010. Trustmark operates a conservative, full service mortgage banking business and is confident in its mortgage foreclosure processes. Trustmark has not engaged in “robo-signing” and has not participated in private label securitizations, both of which have been a cause of concern in the mortgage industry. Trustmark works diligently to keep borrowers in their homes, resorting to foreclosure only as a last option.

Segment Information

Results of Segment Operations

General Banking

The General Banking Division is responsible for all traditional banking products and services including a full range of commercial and consumer banking services such as checking accounts, savings programs, overdraft facilities, commercial, installment and real estate loans, home equity loans and lines of credit, drive-in and night deposit services and safe deposit facilities offered through over 150 offices in Florida, Mississippi, Tennessee and Texas. The General Banking Division also consists of internal operations that include Human Resources, Executive Administration, Treasury (Funds Management), Public Affairs and Corporate Finance. Included in these operational units are expenses related to mergers, mark-to-market adjustments on loans and deposits, general incentives, stock options, supplemental retirement and amortization of core deposits. Other than Treasury, these business units are support-based in nature and are largely responsible for general overhead expenditures that are not allocated.

TNB’s acquisition of Heritage contributed approximately $3.0 million to net interest income, $8.1 million to noninterest income (primarily from bargain purchase gain of $7.5 million) and $1.4 million to noninterest expense of the General Banking Division during the nine months ended September 30, 2011, which are also included in the current year balances shown in the following three paragraphs.

Net interest income for the nine months ended September 30, 2011 decreased $3.7 million when compared with the same time period in 2010. The decrease in net interest margin is primarily a result of a downward repricing of fixed rate assets, accelerated premium amortization within the investment portfolio and changes to Trustmark’s asset mix as lower yielding securities supplemented declines in higher yielding loan balances. The provision for loan losses for the nine months ended September 30, 2011 totaled $23.6 million compared to $37.8 million for the same period in 2010, a decrease of $14.1 million, or 37.4%. For more information on this change, please see the analysis of the Provision for Loan Losses located elsewhere in this document.

Noninterest income for the General Banking Division decreased $1.2 million during the first nine months of 2011 compared to the same time period in 2010. Noninterest income for the General Banking Division represents 25.6% of total revenues for the first nine months of 2011 and 2010 and includes service charges on deposit accounts, bank card and other fees, mortgage banking, net, other, net and securities gains, net. For more information on these noninterest income items, please see the analysis of Noninterest Income located elsewhere in this document.

Noninterest expense for the General Banking Division decreased $1.1 million during the first nine months of 2011 when compared with the same time period in 2010. For more information on these noninterest expense items, please see the analysis of Noninterest Expense located elsewhere in this document.

Wealth Management

The Wealth Management Division has been strategically organized to serve Trustmark’s customers as a financial partner providing reliable guidance and sound, practical advice for accumulating, preserving, and transferring wealth. The Investment Services group, along with the Trust group, are the primary service providers in this segment. TIA, a wholly owned subsidiary of TNB that is included in the Wealth Management Division, is a registered investment adviser that provides investment management services to individual and institutional accounts as well as The Performance Fund Family of Mutual Funds. During 2010, TRMK Risk Management, Inc. (TRMI) acted as an agent to provide life, long-term care and disability insurance services for wealth management customers. On December 30, 2010, TRMI was merged into FBBI, another wholly owned subsidiary of TNB. All previous products and services provided to Wealth Management customers are now being provided by FBBI beginning in 2011.

During the first nine months of 2011, net income for the Wealth Management Division decreased $942 thousand, or 29.7%, when compared to the same time period in 2010. Noninterest income increased $1.6 million when the first nine months of 2011 are compared to the same time period in 2010. The increase was due to a growth in revenue for investment management, trust and brokerage services. Noninterest expense increased $3.2 million during the first nine months of 2011 as compared with the same period in 2010; this was primarily due to increased Trust litigation expenses of $1.8 million and legal expenses of $778 thousand resulting from the realignment of certain business units in the first nine months of 2011. For more information on the change in wealth management revenue, please see the analysis included in Noninterest Income located elsewhere in this document.

Insurance

Trustmark’s Insurance Division provides a full range of retail insurance products, including commercial risk management products, bonding, group benefits and personal lines coverage. Prior to July 30, 2010, TNB provided these services through The Bottrell Insurance Agency, Inc. (Bottrell), based in Jackson, Mississippi, and Fisher-Brown, Incorporated (Fisher-Brown), headquartered in Pensacola, Florida. Effective July 30, 2010, Fisher-Brown was merged into Bottrell to create a newly formed entity named Fisher Brown Bottrell Insurance, Inc. (FBBI), a Mississippi corporation and subsidiary of Trustmark National Bank. FBBI will maintain the trade names of Bottrell and Fisher-Brown and will offer services through divisions under these respective names. Financial results of FBBI will be reported as the combined results of the prior subsidiaries.

During the first nine months of 2011, net income for the Insurance Division decreased $154 thousand, or 5.2%, when compared to the same time period in 2010. Noninterest income decreased $631 thousand when the first nine months of 2011 are compared to the same time period in 2010. The decrease was primarily due to lower commission volume on commercial property and casualty policies. This decline was mostly offset by a reduction in salaries and benefits of $325 thousand for the first nine months of 2011 when compared to the same time period in 2010. For more information on the change in insurance commissions, please see the analysis included in Noninterest Income located elsewhere in this document.

During the first nine months of 2011, continued soft business conditions persisted in the markets served by FBBI. Consistent with prior quarters, Trustmark performed an impairment analysis of the book value of capital held in the Insurance Division. Using recent observations of acquisition deal multiples, Trustmark’s latest analysis indicated that current fair value is 110.7% of book value at September 30, 2011, compared to 104.8% at June 30, 2011, 103.7% at March 31, 2011, 104.9% at December 31, 2010 and 104.6% reported at September 30, 2010. Based on this analysis, Trustmark concluded that no impairment charge was required. A continuing period of falling prices and suppressed demand for the products of the Insurance Division may result in impairment of goodwill in the future. FBBI’s ability in slowing the declining revenue trend is dependent on the success of the subsidiary’s continued initiatives to attract new business through cross referrals between practice units and bank relationships, and seeking new business in other markets. FBBI is actively pursuing new business in the Houston market, utilizing Trustmark branch relationships for sources of referrals.

Income Taxes

For the nine months ended September 30, 2011, Trustmark’s combined effective tax rate was 29.1% compared to 30.0% for the same time period in 2010. The decrease in Trustmark's effective tax rate is mainly due to immaterial changes in permanent items as a percentage of pretax income.

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. Earning assets totaled $8.662 billion, or 89.2% of total assets, at September 30, 2011, compared with $8.595 billion, or 90.0% of total assets, at December 31, 2010, an increase of $66.8 million, or 0.8%.

Securities

When compared with December 31, 2010, total investment securities increased by $229.9 million during the first nine months of 2011. This increase resulted primarily from purchases of Agency guaranteed securities offset by maturities and paydowns. During the first nine months of 2011, Trustmark sold approximately $23.0 million in securities, generating a gain of $91 thousand, compared with $65.1 million sold during the same time period in 2010, which generated a gain of $2.2 million.

The securities portfolio is one of many tools Management uses to control exposure to interest rate risk. Interest rate risk can be adjusted by altering duration, composition, as well as balance of the portfolio. Trustmark has maintained a strategy of offsetting potential exposure to higher interest rates by keeping the average life of the portfolio at relatively low levels. The weighted-average life of the portfolio decreased to 3.50 years at September 30, 2011 compared to 3.98 years at December 31, 2010, primarily due to faster prepayment expectations for mortgage-related securities.

Available for sale (AFS) securities are carried at their estimated fair value with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive income (loss), a separate component of shareholders’ equity. At September 30, 2011, AFS securities totaled $2.477 billion, which represented 97.2% of the securities portfolio, compared to $2.177 billion, or 93.9%, at December 31, 2010. At September 30, 2011, unrealized gains, net on AFS securities totaled $80.8 million compared with unrealized gains, net of $34.2 million at December 31, 2010. At September 30, 2011, AFS securities consisted of obligations of states and political subdivisions, mortgage related securities, and U.S. Government agency obligations.

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, 2011, HTM securities totaled $71.0 million and represented 2.8% of the total portfolio, compared with $140.8 million, or 6.1%, at December 31, 2010.

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 90% of the portfolio in U.S. Government agency-backed obligations and other Aaa rated securities. None of the securities owned by Trustmark are collateralized by assets, which are considered sub-prime. Furthermore, outside of membership in the Federal Home Loan Bank of Dallas or the Federal Reserve Bank, Trustmark does not hold any equity investment in government sponsored entities.

As of September 30, 2011, Trustmark did not hold securities of any one issuer with a carrying value exceeding ten percent of total shareholders’ equity, other than certain government-sponsored agencies, which are exempt from inclusion. Management continues to closely monitor the credit quality as well as the ratings of the debt and mortgage-backed securities issued by the U.S. Government sponsored entities and held in Trustmark’s securities portfolio in light of issues currently facing these entities.

The following tables present Trustmark’s securities portfolio by amortized cost and estimated fair value and by credit rating at September 30, 2011:

Securities Portfolio by Credit Rating (1)

($ in thousands)

	September 30, 2011
	Amortized Cost					Estimated Fair Value
	Amount		%			Amount		%
Securities Available for Sale
Aaa	$	2,197,256		91.7	%	$	2,269,117		91.6	%
Aa1 to Aa3		92,691		3.9	%		97,404		3.9	%
A1 to A3		15,277		0.6	%		16,041		0.6	%
Baa1 to Baa3		-		0.0	%		-		0.0	%
Not Rated (2)		90,900		3.8	%		94,343		3.9	%
Total securities available for sale	$	2,396,124		100.0	%	$	2,476,905		100.0	%

Securities Held to Maturity
Aaa	$	27,800		39.1	%	$	28,668		37.7	%
Aa1 to Aa3		23,936		33.7	%		27,148		35.7	%
A1 to A3		2,495		3.5	%		2,584		3.4	%
Baa1 to Baa3		534		0.8	%		557		0.7	%
Not Rated (2)		16,281		22.9	%		17,050		22.5	%
Total securities held to maturity	$	71,046		100.0	%	$	76,007		100.0	%

(1) - Credit ratings obtained from Moody's Investors Service

(2) - Not rated issues primarily consist of Mississippi municipal general obligations

The table presenting the credit rating of Trustmark’s securities is formatted to show the securities according to the credit rating category, and not by category of the underlying security. At September 30, 2011, approximately 91.6% of the available for sale securities are rated Aaa and the same is true with respect to 39.1% of held to maturity securities, which are carried at amortized cost.

Loans Held for Sale

At September 30, 2011, loans held for sale totaled $210.3 million, consisting of $159.5 million of residential real estate mortgage loans in the process of being sold to third parties and $50.8 million of Government National Mortgage Association (GNMA) optional repurchase loans. At December 31, 2010, loans held for sale totaled $153.0 million, consisting of $123.3 million in residential real estate mortgage loans in the process of being sold to third parties and $29.7 million in GNMA optional repurchase loans. Please refer to the nonperforming assets table that follows for information on GNMA loans eligible for repurchase which are past due 90 days or more.

GNMA optional repurchase programs allow financial institutions to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing. At the servicer's option and without GNMA's prior authorization, the servicer may repurchase such a delinquent loan for an amount equal to 100 percent of the remaining principal balance of the loan. This buy-back option is considered a conditional option until the delinquency criteria are met, at which time the option becomes unconditional. When Trustmark is deemed to have regained effective control over these loans under the unconditional buy-back option, the loans can no longer be reported as sold and must be brought back onto the balance sheet as loans held for sale, regardless of whether Trustmark intends to exercise the buy-back option. These loans are reported as held for sale with the offsetting liability being reported as short-term borrowings. During December of 2010, Trustmark purchased $53.9 million of GNMA serviced loans, which were subsequently sold to a third party principally at par. Trustmark retained the servicing for these loans, which are fully guaranteed by FHA/VA. Trustmark benefited from this transaction by reducing the amount of delinquent loans serviced for GNMA as well as improving Trustmark’s servicer rating. The effect of this transaction did not have a material impact on Trustmark’s results of operations. Trustmark did not exercise its buy-back option on any delinquent loans serviced for GNMA during the first nine months of 2011.

Loans Held for Investment (LHFI) and Allowance for Loan Losses, excluding Covered Loans

LHFI, excluding Covered Loans

Loans held for investment, excluding covered loans, at September 30, 2011 totaled $5.784 billion compared to $6.060 billion at December 31, 2010, a decrease of $276.5 million. These declines are directly attributable to a strategic focus to reduce certain loan classifications, specifically construction, land development and other land loans and the decision in prior years to discontinue indirect consumer auto loan financing. In addition, current economic conditions have also reduced demand for credit. The $101.5 million decline in construction, land development and other land loans can be primarily attributable to reductions in Trustmark’s Texas and Florida markets of approximately $76.3 million since December 31, 2010. The consumer loan portfolio decrease of $134.2 million primarily represents a decrease in the indirect consumer auto portfolio as well as the sale of the student loan portfolio. The indirect consumer auto portfolio balance at September 30, 2011 was $107.0 million compared with $201.1 million at December 31, 2010. On July 19, 2011, Trustmark sold its $33.0 million student loan portfolio that was remaining since the discontinuation of government-sponsored student loan programs through banks. Trustmark incurred no gain or loss through the sale and the revenue generated by the loans, net of servicing costs and other expenses, was insignificant.

LHFI by Type (excluding covered loans)

($ in thousands)

	September 30,		December 31,
	2011		2010
Real estate loans:
Construction, land development and other land loans	$	481,821	$	583,316
Secured by 1- 4 family residential properties		1,717,366		1,732,056
Secured by nonfarm, nonresidential properties		1,437,573		1,498,108
Other real estate secured		207,984		231,963
Commercial and industrial loans		1,083,753		1,068,369
Consumer loans		268,002		402,165
Other loans		587,213		544,265
LHFI, excluding covered loans		5,783,712		6,060,242
Less allowance for loan losses		89,463		93,510
Net LHFI, excluding covered loans	$	5,694,249	$	5,966,732

In the following tables, loans reported by region (along with related nonperforming assets and net charge-offs) are associated with location of origination except for loans secured by 1-4 family residential properties (representing traditional mortgages), credit cards and indirect consumer auto loans. These loans are included in the Mississippi Region because they are centrally decisioned and approved as part of a specific line of business located at Trustmark’s headquarters in Jackson, Mississippi.

The loans held for investment composition by region at September 30, 2011 is illustrated in the following tables ($ in thousands) and reflects a diversified mix of loans by region.

	September 30, 2011
LHFI Composition by Region (1)	Total		Florida		Mississippi (Central and Southern Regions)		Tennessee (Memphis, TN and Northern MS Regions)		Texas
Loans secured by real estate:
Construction, land development and other land loans	$	481,821	$	101,450	$	232,555	$	32,155	$	115,661
Secured by 1-4 family residential properties		1,717,366		62,236		1,477,200		146,086		31,844
Secured by nonfarm, nonresidential properties		1,437,573		160,701		779,899		173,977		322,996
Other		207,984		11,046		149,807		7,410		39,721
Commercial and industrial loans		1,083,753		12,670		781,978		81,902		207,203
Consumer loans		268,002		1,241		239,837		21,752		5,172
Other loans		587,213		27,252		492,283		27,976		39,702
Loans	$	5,783,712	$	376,596	$	4,153,559	$	491,258	$	762,299

Construction, Land Development and Other Land Loans by Region (1)
Lots	$	68,439	$	41,099	$	20,682	$	1,717	$	4,941
Development		119,820		11,885		58,492		5,751		43,692
Unimproved land		181,649		47,303		82,084		18,825		33,437
1-4 family construction		74,398		872		54,510		3,771		15,245
Other construction		37,515		291		16,787		2,091		18,346
Construction, land development and other land loans	$	481,821	$	101,450	$	232,555	$	32,155	$	115,661

Loans Secured by Nonfarm, Nonresidential Properties by Region (1)
Income producing:
Retail	$	159,569	$	39,954	$	63,786	$	24,366	$	31,463
Office		147,390		41,795		76,938		11,702		16,955
Nursing homes/assisted living		124,533		-		114,673		4,510		5,350
Hotel/motel		79,150		10,869		29,946		10,808		27,527
Industrial		32,266		8,879		6,182		450		16,755
Health care		12,978		-		11,880		50		1,048
Convenience stores		9,878		203		4,998		2,337		2,340
Other		164,536		13,806		72,629		13,509		64,592
Total income producing loans		730,300		115,506		381,032		67,732		166,030

Owner-occupied:
Office		112,458		16,396		60,061		9,878		26,123
Churches		91,303		2,119		51,746		32,499		4,939
Industrial warehouses		90,182		3,521		51,166		502		34,993
Health care		84,395		10,761		52,602		14,236		6,796
Convenience stores		64,844		1,246		36,454		2,634		24,510
Retail		34,271		4,061		21,408		1,855		6,947
Restaurants		33,510		631		25,298		5,913		1,668
Auto dealerships		18,689		549		14,422		1,981		1,737
Other		177,621		5,911		85,710		36,747		49,253
Total owner-occupied loans		707,273		45,195		398,867		106,245		156,966

Loans secured by nonfarm, nonresidential properties	$	1,437,573	$	160,701	$	779,899	$	173,977	$	322,996

(1) Excludes covered loans.

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.

Allowance for Loan Losses

The allowance for loan losses is established through provisions for estimated loan losses charged against net income. 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 judgment. 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. Accordingly, the allowance is based upon both 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 SAB No. 102 as well as other regulatory guidance. The level of Trustmark’s allowance reflects Management’s continuing evaluation of 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 industry and credit concentration; changes in levels and trends of delinquencies and nonperforming loans; changes in levels and trends of net charge-offs; and changes in interest rates and collateral, financial and underwriting exceptions.

Commercial Purpose Loans

Real Estate – Owner Occupied

Real Estate – Non-Owner Occupied

Working Capital

Non-Working Capital

Land

Lots and Development

Political Subdivisions

Commercial Construction Loans

1 to 4 Family

Non-1 to 4 Family

At September 30, 2011, the allowance for loan losses was $89.5 million, a decrease of $4.0 million when compared with December 31, 2010. Total allowance coverage of nonperforming loans, excluding impaired loans, at September 30, 2011, was 248.8%, compared to 188.1% at December 31, 2010. Allocation of Trustmark’s $89.5 million allowance for loan losses represented 1.94% of commercial loans and 0.76% of consumer and home mortgage loans, resulting in an allowance to total loans of 1.55% as of September 30, 2011. This compares with an allowance to total loans of 1.54% at December 31, 2010, which was allocated to commercial loans at 1.94% and to consumer and mortgage loans at 0.78%.

Net charge-offs for the first nine months of 2011 totaled $27.7 million, or 0.61% of average loans, compared to $47.0 million, or 0.99% of average loans, during the same time period in 2010. This decrease can be primarily attributed to a slowing in the decline of property values in commercial developments of residential real estate along with a substantial reduction in auto finance charge-offs. The net charge-offs for Florida shown in the table below exceeded their provision for the first nine months of 2011 because a large portion of charge-offs had been fully reserved in prior periods. Management continues to monitor the impact of real estate values on borrowers and is proactively managing these situations.

Net Charge-Offs
($ in thousands)	Three Months Ended September 30,					Nine Months Ended September 30,
	2011			2010		2011		2010
Florida	$	2,909		$	8,951	$	16,267	$	23,820
Mississippi (1)		1,988			3,879		5,799		14,541
Tennessee (2)		499			3,475		1,802		4,932
Texas		(35	)		2,152		3,810		3,663
Total net charge-offs	$	5,361		$	18,457	$	27,678	$	46,956

(1) - Mississippi includes Central and Southern Mississippi Regions

(2) - Tennessee includes Memphis, Tennessee and Northern Mississippi Regions

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 1-4 family residential real estate are generally charged-off or written down when the credit becomes severely delinquent, and the balance exceeds the fair value of the property less costs to sell. Non-real estate consumer purpose loans, including both secured and unsecured, are generally charged-off in full during the month in which the loan becomes 120 days past due. Credit card loans are generally charged-off in full when the loan becomes 180 days past due.

Nonperforming Assets, excluding Covered Assets (Loans and Other Real Estate)

Nonperforming assets totaled $189.2 million at September 30, 2011, a decrease of $40.5 million relative to December 31, 2010. Collectively, total nonperforming assets to total loans and other real estate at September 30, 2011 was 3.11% compared to 3.64% at December 31, 2010. During the first nine months of 2011, nonperforming loans decreased $43.3 million, or 30.3%, relative to December 31, 2010 to total $99.6 million, or 1.66% of total LHFI, marking six consecutive quarters of improvement. Foreclosed real estate decreased $402 thousand from the prior quarter to total $89.6 million.

Nonperforming Assets (1)

($ in thousands)

	September 30, 2011			December 31, 2010
Nonaccrual loans
Florida	$	27,263		$	53,773
Mississippi (2)		44,825			39,803
Tennessee (3)		14,575			14,703
Texas		12,915			34,644
Total nonaccrual loans		99,578			142,923
Other real estate
Florida		29,949			32,370
Mississippi (2)		21,027			24,181
Tennessee (3)		17,940			16,407
Texas		20,681			13,746
Total other real estate		89,597			86,704
Total nonperforming assets	$	189,175		$	229,627

Nonperforming assets/total loans (including loans held for sale) and ORE		3.11	%		3.64	%

Loans Past Due 90 days or more and still Accruing
Loans held for investment	$	3,166		$	3,608

Serviced GNMA loans eligible for repurchase (4)	$	32,956		$	15,777

(1) - Excludes Covered Assets (Loans and Other Real Estate)

(2) - Mississippi includes Central and Southern Mississippi Regions

(3) - Tennessee includes Memphis, Tennessee and Northern Mississippi Regions

(4) - No obligation to repurchase

See the previous discussion of Loans Held for Sale for more information on Trustmark’s serviced GNMA loans eligible for repurchase and the impact of Trustmark’s repurchases of delinquent mortgage loans under the GNMA optional repurchase program.

The following table illustrates nonaccrual loans, excluding covered loans, by loan type for the periods presented:

Nonaccrual Loans by Loan Type (1)
($ in thousands)

	September 30, 2011		December 31, 2010
Construction, land development and other land loans	$	29,594	$	57,831
Secured by 1-4 family residential properties		23,558		30,313
Secured by nonfarm, nonresidential properties		25,303		29,013
Other loans secured by real estate		4,821		6,154
Commercial and industrial		14,204		16,107
Consumer loans		907		2,112
Other loans		1,191		1,393
Total Nonaccrual Loans by Type	$	99,578	$	142,923

(1) - Excludes Covered Loans

Florida Credit Quality

($ in thousands)

	September 30, 2011
								Classified (3)
	Total Loans		Criticized Loans (1)		Special Mention (2)			Accruing		Nonimpaired Nonaccrual		Impaired Nonaccrual (4)
Construction, land development and other land loans:
Lots	$	41,099	$	13,991	$	2,347		$	8,005	$	1,940	$	1,699
Development		11,885		2,356		-			-		85		2,271
Unimproved land		47,303		29,982		20,114			4,768		447		4,653
1-4 family construction		872		-		-			-		-		-
Other construction		291		291		-			291		-		-
Construction, land development and other land loans		101,450		46,620		22,461			13,064		2,472		8,623
Commercial, commercial real estate and consumer		275,146		56,626		8,472			31,986		3,303		12,865

Total Florida loans	$	376,596	$	103,246	$	30,933		$	45,050	$	5,775	$	21,488


Florida Loan Loss Reserves by Loan Type	Total Loans		Loan Loss Reserves		Loan Loss Reserve % of Total Loans
Construction, land development and other land loans:
Lots	$	41,099	$	3,956		9.63	%
Development		11,885		952		8.01	%
Unimproved land		47,303		6,365		13.46	%
1-4 family construction		872		28		3.21	%
Other construction		291		73		25.09	%
Construction, land development and other land loans		101,450		11,374		11.21	%
Commercial, commercial real estate and consumer		275,146		7,722		2.81	%

Total Florida loans	$	376,596	$	19,096		5.07	%

(1)	Criticized loans equal all special mention and classified loans.

(2)	Special mention loans exhibit potential credit weaknesses that, if not resolved, may ultimately result in a more severe classification.

(3)	Classified loans include those loans identified by management as exhibiting well-defined credit weaknesses that may jeopardize repayment in full of the debt.

(4)

All nonaccrual loans over $500 thousand are individually assessed for impairment. Impaired loans have been determined to be collateral dependent and assessed using a fair value approach. Fair value estimates begin with appraised values, normally from recently received and reviewed appraisals. Appraised values are adjusted down for costs associated with asset disposal. At the time a loan is deemed to be impaired, the full difference between book value and the most likely estimate of the asset’s net realizable value is charged off. However, as subsequent events dictate and estimated net realizable values decline, required reserves are established.

Trustmark has made significant progress in the resolution of its construction and land development portfolio in Florida. During the last 12 months, this portfolio was reduced by 30.5% to total $101.5 million. At September 30, 2011, the associated reserve for loan losses on this portfolio totaled $11.4 million, or 11.2%. Trustmark remains focused on managing credit risks resulting from current economic and real estate market conditions.

As seen in the table above, at September 30, 2011, approximately $24.2 million in construction, land development and other loans have been classified and reserved for at appropriate levels, including $8.6 million of impaired loans that have been charged down to fair value of the underlying collateral less cost to sell. Management believes that this portfolio is appropriately risk rated and adequately reserved based upon current conditions.

The following table illustrates other real estate, excluding covered other real estate, by type of property for the periods presented:

Other Real Estate by Property Type (1)

($ in thousands)

	September 30, 2011		December 31, 2010
Construction, land development and other land loans	$	63,756	$	61,963
1-4 family residential properties		12,716		13,509
Nonfarm, nonresidential properties		12,123		9,820
Other real estate loans		1,002		1,412
Total other real estate	$	89,597	$	86,704

(1) - Excludes Covered Other Real Estate

The following table illustrates writedowns of other real estate, excluding covered other real estate, by region for the periods presented:

Writedowns of Other Real Estate by Region (1)
($ in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Florida	$	1,569	$	5,036	$	4,624	$	10,846
Mississippi (2)		1,913		2,220		4,400		3,578
Tennessee (3)		374		65		823		741
Texas		600		2		1,001		99
Total writedowns of other real estate	$	4,456	$	7,323	$	10,848	$	15,264

(1) - Excludes Covered Other Real Estate

(2) - Mississippi includes Central and Southern Mississippi Region

(3) - Tennessee includes Memphis, Tennessee and Northern Mississippi Region

Covered Loans

On April 15, 2011, TNB entered into a purchase and assumption agreement with the FDIC in which TNB agreed to assume all of the deposits and essentially all of the assets of Heritage. Loans comprise the majority of the assets acquired and all but $9.6 million are subject to loss share agreements with the FDIC whereby TNB is indemnified against a portion of the losses on covered loans and covered other real estate. The loans acquired from Heritage that are covered by loss share agreements are presented as covered loans in the accompanying consolidated financial statements.

The following table presents covered loans acquired as of the date of the Heritage acquisition and activity within covered loans during 2011 ($ in thousands):

Covered loans acquired at fair value	$	97,770
Accretion to interest income		2,441
Payments received		(21,147	)
Carrying value at September 30, 2011	$	79,064

At September 30, 2011, covered loans, which are substantially located in Mississippi, consisted of the following ($ in thousands):

Loans secured by real estate:
Construction, land development and other land loans	$	4,024
Secured by 1-4 family residential properties		32,735
Secured by nonfarm, nonresidential properties		33,601
Other		5,294
Commercial and industrial loans		1,772
Consumer loans		158
Other loans		1,480
Covered loans	$	79,064

Covered Other Real Estate

At September 30, 2011, covered other real estate consisted of the following types of properties ($ in thousands):

Construction, land development and other land properties	$	1,624
1-4 family residential properties		934
Nonfarm, nonresidential properties		4,523
Other real estate properties		116
Total covered other real estate	$	7,197

FDIC Indemnification Asset

Trustmark has elected to account for amounts receivable under the loss-share agreement as an indemnification asset in accordance with FASB ASC Topic 805, “Business Combinations.” The FDIC indemnification asset is initially recorded at fair value, based on the discounted value of expected future cash flows under the loss-share agreement. The difference between the present value and the undiscounted cash flows Trustmark expects to collect from the FDIC will be accreted into noninterest income over the life of the FDIC indemnification asset.

The following table presents the FDIC indemnification asset acquired as of the date of the Heritage acquisition and activity within the FDIC indemnification asset during 2011 ($ in thousands):

Indemnification asset at acquisition date	$	33,333
Accretion		103
Carrying value at September 30, 2011	$	33,436

Other Earning Assets

Federal funds sold and securities purchased under reverse repurchase agreements were $8.8 million at September 30, 2011, a decrease of $3.0 million when compared with December 31, 2010. Trustmark utilizes these products as offerings for its correspondent banking customers as well 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 Trustmark serves. Deposits include interest-bearing and noninterest-bearing demand accounts, savings, money market, certificates of deposit and individual retirement accounts. Total deposits were $7.570 billion at September 30, 2011, compared with $7.045 billion at December 31, 2010, an increase of $525.2 million, or 7.5%. Growth in deposits is a combination of increases in both noninterest-bearing and interest-bearing deposits of $234.4 million and $290.7 million, respectively. Noninterest-bearing deposit growth was seen primarily in commercial and business accounts, with the Heritage acquisition contributing a modest $14.7 million. The increase in interest-bearing deposits resulted primarily from growth in public entity and money market accounts as well as $150.8 million from the Heritage acquisition. Partially offsetting the increase was a decrease in certificate of deposit account balances, excluding Heritage, of $154.2 million as Trustmark continues its efforts to reduce high-cost deposit balances.

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 $675.6 million at September 30, 2011, a decrease of $449.9 million, when compared with $1.125 billion at December 31, 2010. Of these amounts, $286.8 million and $285.1 million, respectively, were customer related transactions. This decrease resulted primarily from declines of $123.5 million in federal funds purchased and securities sold under repurchase agreements and $348.1 million in short-term FHLB advances as funding pressures lessened due to strong deposit growth.

Legal Environment

Trustmark’s wholly-owned subsidiary, TNB, has been named as a defendant in two lawsuits related to the collapse of the Stanford Financial Group. The first is a purported class action complaint that was filed on August 23, 2009 in the District Court of Harris County, Texas, by Peggy Roif Rotstain, Guthrie Abbott, Catherine Burnell, Steven Queyrouze, Jaime Alexis Arroyo Bornstein and Juan C. Olano, on behalf of themselves and all others similarly situated, naming TNB and four other financial institutions unaffiliated with Trustmark as defendants. The complaint seeks to recover (i) alleged fraudulent transfers from each of the defendants in the amount of fees received by each defendant from entities controlled by R. Allen Stanford (collectively, the “Stanford Financial Group”) and (ii) damages allegedly attributable to alleged conspiracies by one or more of the defendants with the Stanford Financial Group to commit fraud and/or aid and abet fraud arising from the facts set forth in pending federal criminal indictments and civil complaints against Mr. Stanford, other individuals and the Stanford Financial Group. Plaintiffs have demanded a jury trial. Plaintiffs did not quantify damages. In November 2009, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas) where multiple Stanford related matters are being consolidated for pre-trial proceedings. In May 2010, all defendants (including TNB) filed motions to dismiss the lawsuit, which remain pending, although the plaintiffs have yet to file any responsive briefing. Instead, the plaintiffs have sought to stay the lawsuit pending the conclusion of the federal criminal trial of R. Allen Stanford in Houston, Texas. The court has not ruled on the plaintiff’s motion to stay at this time.

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, 2011 and 2010, Trustmark had commitments to extend credit of $1.6 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 that are followed in the lending process. At September 30, 2011 and 2010, Trustmark’s maximum exposure to credit loss in the event of nonperformance by the other party for letters of credit was $169.8 million and $186.0 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.

Contractual Obligations

Payments due from Trustmark under specified long-term and certain other binding contractual obligations were scheduled in our Annual Report on Form 10-K for the year ended December 31, 2010. The most significant obligations, other than obligations under deposit contracts and short-term borrowings, were for operating leases for banking facilities. There have been no material changes since year-end.

Capital Resources

At September 30, 2011, Trustmark’s total shareholders’ equity was $1.222 billion, an increase of $72.1 million from its level at December 31, 2010. During the first nine months of 2011, shareholders’ equity increased primarily as a result of net income of $82.6 million and was offset by common stock dividends of $44.6 million. Trustmark utilizes a 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.

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 to exceed the well-capitalized guidelines for regulatory capital. As of September 30, 2011, 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. In addition, TNB has met applicable regulatory guidelines to be considered well-capitalized at September 30, 2011. To be categorized in this manner, TNB must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the accompanying table. There are no significant conditions or events that have occurred since September 30, 2011, which 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 currently 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.

	Actual Regulatory Capital					Minimum Regulatory Capital Required					Minimum Regulatory Provision to be Well-Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
At September 30, 2011:
Total Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,094,402		16.78	%	$	521,797		8.00	%		n/a		n/a
Trustmark National Bank		1,054,986		16.38	%		515,396		8.00	%	$	644,245		10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	962,942		14.76	%	$	260,899		4.00	%		n/a		n/a
Trustmark National Bank		926,473		14.38	%		257,698		4.00	%	$	386,547		6.00	%

Tier 1 Capital (to Average Assets)
Trustmark Corporation	$	962,942		10.38	%	$	278,202		3.00	%		n/a		n/a
Trustmark National Bank		926,473		10.12	%		274,523		3.00	%	$	457,539		5.00	%

At December 31, 2010:
Total Capital (to Risk Weighted Assets)
Trustmark Corporation	$	1,051,933		15.77	%	$	533,774		8.00	%		n/a		n/a
Trustmark National Bank		1,014,219		15.40	%		526,894		8.00	%	$	658,617		10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Trustmark Corporation	$	918,600		13.77	%	$	266,887		4.00	%		n/a		n/a
Trustmark National Bank		883,549		13.42	%		263,447		4.00	%	$	395,170		6.00	%

Tier 1 Capital (to Average Assets)
Trustmark Corporation	$	918,600		10.14	%	$	271,867		3.00	%		n/a		n/a
Trustmark National Bank		883,549		9.89	%		267,967		3.00	%	$	446,612		5.00	%

Dividends on Common Stock

Dividends per common share for the nine months ended September 30, 2011 and 2010 were $0.69. Trustmark’s indicated dividend for 2011 is $0.92 per common share, which is the same as dividends per common share in 2010.

Common Stock Repurchase Program

Trustmark did not repurchase any common shares during the first nine months of 2011 and currently has no authorization from the Board of Directors to repurchase its common stock.

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 asset side of the balance sheet provides liquidity primarily through maturities and cash flows from loans and securities, as well as the ability to sell certain loans and securities while the liability portion of the balance sheet provides liquidity primarily through noninterest and interest-bearing deposits. Trustmark utilizes Federal funds purchased, brokered deposits, FHLB advances, securities sold under agreements to repurchase as well as the Federal Reserve Discount Window (Discount Window) to provide additional liquidity. Access to these additional sources represents Trustmark’s incremental borrowing capacity.

Deposit accounts represent Trustmark’s largest funding source. Average deposits totaled to $7.523 billion for the first nine months of 2011 and represented approximately 78.6% of average liabilities and shareholders’ equity when compared to average deposits of $7.150 billion, which represented 77.2% of average liabilities and shareholders’ equity for the same time period in 2010.

Trustmark utilizes a limited amount of brokered deposits to supplement other wholesale funding sources. At September 30, 2011, brokered sweep Money Market Deposit Account (MMDA) deposits totaled $103.4 million compared to $147.9 million at December 31, 2010. At September 30, 2011, Trustmark had $49.7 million in term fixed-rate brokered CDs outstanding, compared with no outstanding brokered CDs at December 31, 2010. The addition of brokered CDs during the first quarter was part of an interest rate risk management strategy and represented the lowest cost alternative for term fixed-rate funding.

At September 30, 2011, Trustmark had $290.0 million of upstream Federal funds purchased, compared to $415.0 million at December 31, 2010. Trustmark maintains adequate federal funds lines in excess of the amount utilized to provide sufficient short-term liquidity. Trustmark also maintains a relationship with the FHLB, which provided $2.6 million in advances at September 30, 2011, compared with $350 million in advances at December 31, 2010. Under the existing borrowing agreement, Trustmark had sufficient qualifying collateral to increase FHLB advances by $1.887 billion at September 30, 2011.

Additionally, during 2011, Trustmark could utilize wholesale funding repurchase agreements as a source of borrowing by utilizing its unencumbered investment securities as collateral. At September 30, 2011, Trustmark had approximately $371.0 million available in repurchase agreement capacity compared to $497.4 million at December 31, 2010.

Another borrowing source is the Discount Window. At September 30, 2011, Trustmark had approximately $798.9 million available in collateral capacity at the Discount Window from pledges of loans and securities, compared with $845.5 million at December 31, 2010.

TNB has outstanding $50.0 million in aggregate principal amount of Subordinated Notes (the Notes) due December 15, 2016. At September 30, 2011, the carrying amount of the Notes was $49.8 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, currently qualify as Tier 2 capital for both TNB and Trustmark.

During 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 related junior subordinated debentures to the Trust were used to assist in financing Trustmark’s merger with Republic. On October 7, 2010, upon receipt of approval from the Federal Reserve Bank of Atlanta, the trust preferred securities of the Republic Trust, which totaled $8.0 million, were redeemed at par plus accrued interest and the junior subordinated debt securities were repaid.

Another funding mechanism set into place in 2006 was Trustmark’s grant of 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, 2011, Trustmark had $91.8 million in Eurodollar deposits outstanding.

The Board of Directors currently has the authority to issue up to 20.0 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, 2011, Trustmark has no shares of preferred stock 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.

Asset/Liability Management

Overview

Market risk reflects the potential risk of loss arising from adverse changes in interest rates and market prices. Trustmark has risk management policies to monitor and limit exposure to market risk. Trustmark’s primary market risk is interest rate risk created by core banking activities. Interest rate risk is the potential variability of the income generated by Trustmark’s financial products or services, which results from changes in various market interest rates. Market rate changes may take the form of absolute shifts, variances in the relationships between different rates and changes in the shape or slope of the interest rate term structure.

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.

Derivatives

Trustmark uses financial derivatives for management of interest rate risk. The Asset/Liability Committee, in its oversight role for the management of interest rate risk, approves the use of derivatives in balance sheet hedging strategies. The most common derivatives employed by Trustmark are interest rate lock commitments, forward contracts, both futures contracts and options on futures contracts, interest rate swaps, interest rate caps and interest rate floors. In addition, Trustmark has entered into derivative contracts as counterparty to one or more customers in connection with loans extended to those customers. These transactions are designed to hedge exposures of the customers and are not entered into by Trustmark for speculative purposes. Increased federal regulation of the over-the-counter derivative markets may increase the cost to Trustmark to administer derivative programs.

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. 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 under FASB ASC Topic 815, “Derivatives and Hedging.” The gross, notional amount of Trustmark’s off-balance sheet obligations under these derivative instruments totaled $391.3 million at September 30, 2011, with a negative valuation adjustment of $2.2 million, compared to $230.9 million, with a positive valuation adjustment of $3.5 million as of December 31, 2010.

Trustmark utilizes a portfolio of exchange-traded derivative instruments, such as Treasury note futures contracts and exchange-traded option contracts, to achieve a fair value return that offsets 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 exchange-traded derivative instruments are recorded in noninterest income in mortgage banking, net and are offset by the changes in the fair value of MSR. The MSR fair value represents the present value of future cash flows, which among other things includes decay and the effect of changes in interest rates. Ineffectiveness of hedging the MSR fair value is measured by comparing the total hedge cost to the changes in the fair value of the MSR asset attributable to interest rate changes. The impact of this strategy resulted in a net positive ineffectiveness of $2.8 million and $2.9 million for the three months ended September 30, 2011 and 2010, respectively, as well as a net positive ineffectiveness of $4.8 million and $7.6 million experienced for the nine months ended September 30, 2011 and 2010, respectively.

As of September 30, 2011, the termination value of interest rate swaps in a liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $1.2 million. As of September 30, 2011, Trustmark has not posted collateral against its obligations because of negotiated thresholds and minimum transfer amounts under these agreements. If Trustmark had breached any of these triggering provisions at September 30, 2011, it could have been required to settle its obligations under the agreements at the termination value.

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.

Financial simulation models are the primary tools used by Trustmark’s Asset/Liability Committee to measure interest rate exposure. Using a wide range of scenarios, Management is provided with extensive information on the potential impact to net interest income caused by changes in interest rates. Models are structured to simulate cash flows and accrual characteristics of Trustmark’s balance sheet. Assumptions are made about the direction and volatility of interest rates, the slope of the yield curve and the changing composition of Trustmark’s balance sheet, resulting from both strategic plans and customer behavior. In addition, the model incorporates Management’s assumptions and expectations regarding such factors as loan and deposit growth, pricing, prepayment speeds and spreads between interest rates.

Based on the results of the simulation models using static balances at September 30, 2011, it is estimated that net interest income may decrease 1.9% 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. At September 30, 2010, it was estimated that net interest income may decrease 1.4% in the same one-year, shocked, up 200 basis point rate shift scenario. In the event of a 100 basis point decrease in interest rates using static balances at September 30, 2011, it is estimated that net interest income may decrease by 4.7% compared to a 4.1% decrease at September 30, 2010. At September 30, 2011 and 2010, the impact of a 200 basis point drop scenario was not calculated due to the historically low interest rate environment.

The table below summarizes the effect various rate shift scenarios would have on net interest income at September 30, 2011 and 2010:

Interest Rate Exposure Analysis	Estimated Annual % Change
	in Net Interest Income
	2011			2010
Change in Interest Rates
+200 basis points		-1.9	%		-1.4	%
+100 basis points		-0.8	%		-0.9	%
-100 basis points		-4.7	%		-4.1	%

As shown in the table above, the interest rate shocks illustrate the negative contribution to net interest income in both rising and falling interest rate environments. While there are several factors that contribute to the decline in net interest income, the primary factor in a one-year, shocked, down 100 basis point rate shift scenario is an increased speed of prepayment of mortgage-related assets reinvested at lower interest rates, which is partially offset by lower deposit costs. In the one-year, shocked, up 200 basis point rate shift scenario, the principal factor for declining net interest income is an increased cost of deposits and other short-term liabilities. Although an increase in the rate on floating rate loans partially offsets the increased interest expense, the upward repricing is limited as many of these loans contain interest rate floors. 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 2011 or additional actions Trustmark could undertake in response to changes in interest rates. 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 economic value of equity (EVE), also known as net portfolio value, is defined as the difference between the present value of asset cash flows and the present value of liability cash flows. The resulting change in EVE in different market rate environments, from the base case scenario, is the amount of EVE at risk from those rate environments. As of September 30, 2011, the economic value of equity at risk for an instantaneous up 200 basis point shift in rates produced an increase in net portfolio value of 4.0% compared to an increase of 5.0% from one year ago. The slight decrease in sensitivity is primarily attributed to a higher level of fixed rate mortgage related assets. An instantaneous 100 basis point decrease in interest rates produced a decline in net portfolio value of 9.0% compared to a decline of 7.1% from one year ago. The increase in sensitivity is primarily attributed to increased prepayment activity associated with mortgage related assets reinvested at lower interest rates. The following table summarizes the effect that various rate shifts would have on net portfolio value at September 30, 2011 and 2010:

Economic Value - at - Risk	Estimated % Change
	in Net Portfolio Value
	2011			2010
Change in Interest Rates
+200 basis points		4.0	%		5.0	%
+100 basis points		3.6	%		4.1	%
-100 basis points		-9.0	%		-7.1	%

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

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

Trustmark’s wholly-owned subsidiary, TNB, has been named as a defendant in two lawsuits related to the collapse of the Stanford Financial Group. The first is a purported class action complaint that was filed on August 23, 2009 in the District Court of Harris County, Texas, by Peggy Roif Rotstain, Guthrie Abbott, Catherine Burnell, Steven Queyrouze, Jaime Alexis Arroyo Bornstein and Juan C. Olano, on behalf of themselves and all others similarly situated, naming TNB and four other financial institutions unaffiliated with Trustmark as defendants. The complaint seeks to recover (i) alleged fraudulent transfers from each of the defendants in the amount of fees received by each defendant from entities controlled by R. Allen Stanford (collectively, the “Stanford Financial Group”) and (ii) damages allegedly attributable to alleged conspiracies by one or more of the defendants with the Stanford Financial Group to commit fraud and/or aid and abet fraud arising from the facts set forth in pending federal criminal indictments and civil complaints against Mr. Stanford, other individuals and the Stanford Financial Group. Plaintiffs have demanded a jury trial. Plaintiffs did not quantify damages. In November 2009, the lawsuit was removed to federal court by certain defendants and then transferred by the United States Panel on Multidistrict Litigation to federal court in the Northern District of Texas (Dallas) where multiple Stanford related matters are being consolidated for pre-trial proceedings. In May 2010, all defendants (including TNB) filed motions to dismiss the lawsuit, which remain pending, although the plaintiffs have yet to file any responsive briefing. Instead, the plaintiffs have sought to stay the lawsuit pending the conclusion of the federal criminal trial of R. Allen Stanford in Houston, Texas. The court has not ruled on the plaintiff’s motion to stay at this time.

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, 2010.

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

Trustmark did not engage in any unregistered sales of equity securities during the third quarter of 2011.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

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

EXHIBIT INDEX

31-a		Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31-b		Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32-a		Certification by Chief Executive Officer pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32-b		Certification by Principal Financial Officer pursuant to 18 U.S.C. ss. 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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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/ Gerard R. Host	BY:	/s/ Louis E. Greer
	Gerard R. Host		Louis E. Greer
	President and Chief Executive Officer		Treasurer, Principal Financial Officer and Principal Accounting Officer

DATE:	November 8, 2011	DATE:	November 8, 2011