TRMK

Trustmark Corporation (TRMK)

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Trustmark Corporation (TRMK)

Q1 2010 Earnings Call

April 28, 2010 11:00 AM EST

Executives

Joey Rein – Director of IR

Richard Hickson – Chairman and CEO

Jerry Host – COO

Barry Harvey – SVP, Chief Credit Administrator

Bob Hardison – SVP, Chief Credit Officer

Analysts

Kevin Fitzsimmons – Sandler O'Neill

Andy Stapp – B. Riley

Brian Klock – KBW

Erika Penala – UBS

Al Savastano – Macquarie

Adam Barkstrom – Sterne Agee

Presentation

Operator

Good morning ladies and gentlemen and welcome to the Trustmark Corporation's First Quarter Earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation this morning there will be a question-and-answer session. (Operator Instructions). As a reminder, this call is being recorded.

It is now my pleasure to introduce Joey Rein, Director of Investor Relations at Trustmark.

Joey Rein

Good morning. I would like to remind everyone that a copy of our first quarter earnings release and supporting financial information is available on the Investor Relations section of our website at trustmark.com.

During the course of our call this morning, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We would like to caution you that these forward-looking statements may differ materially from actual results due to a number of risk and uncertainties, which are outlined in our earnings release and our other filings with the Securities and Exchange Commission.

At this time, I would like to introduce Richard Hickson, Chairman and CEO of Trustmark.

Richard Hickson

Good morning. Thank you for joining us this morning. I have with me Jerry Host, our Chief Operating Officer; Louis Greer, our CFO; Barry Harvey and Bob Hardison representing credit risk in the company; and Mitch Bleski (ph) is with us if there are any questions that come up about securities portfolio and hedging.

It’s been a number of quarters that we have been in this recession and this quarter I feel particularly good about, number one, we earned a lot of money; number two, management and the Board feel really good that the quarter came in just dead on all of our expectations all over the company. What you see here in the earnings release is no standouts, no stars for the quarter, just a team working very well producing a very solid score that we feel has sustainability and we are feeling better about the year than we were at the end of the year.

I will go through some particulars with you. You have our press release and stat sheets. We earned $23 million, $0.37 a share, essentially a 12% return on tangible equity. We did declare a dividend of 23% and you see that the payout ratio has moved back down to a very comfortable level. Pretax, pre-provision, earnings, hung in there at almost $50 million again, extremely consistent, reflects solid net interest income, and expanded net interest margin, which we will chat more about.

Good noninterest expense, a good quarter in mortgage, not a standout quarter. The diversification coming into play, the ballots from the different areas of our noninterest income make us feel very good about where we are today and what we can do. Enhanced capital strength, tangible common equity is now up over $800 million. It actually expanded due to organic growth and shrinkage in the balance sheet on a risk rated basis and somewhat on an absolute basis. We are now up over 9% tangible equity. I think it’s 9.11%.

It was interesting to me as I was talking to our administrative group yesterday, we were comparing to first quarter a year-ago reserves, Tier 1 in total and now our reserves, Tier 1 in total 13% and 15% are at the same percentage as they were when we had $215 million of preferred. So that is a significant shift with what was already very strong capital. I don’t know how you would describe fortress, I don’t know the metrics, but it feels good and flexible, and lets us be on the offensive and Trustmark is on the offensive across the board.

Talking about loans, we have no real estate concentrations to total risk-based capital. If you look at our construction portfolio, it’s down significantly. If you look at our total commercial real estate, we are in a range of not much more than 50% of the 3% guidelines.

We are in a position that if we want to make a real estate loan, we can make it. And I understand they are going to be a lot of very good wins potentially refinancing. I am not talking land, lots, I am talking quality construction and quality finished product with cash flows. We think there will be opportunities for us there. We are not making a habit of it. But if there is something there, Trustmark is going to be in a position to get some good assets and relationships when those opportunities come along.

Loans in the quarter were down. I am going to talk about it on a linked quarter for a moment; things that I thought were significant. In visiting with our management teams, we think we have seen the majority of our shrinkage in our commercial portfolio for the year in the first quarter.

Construction and land development was down $26 million, $15 million of it Florida, the rest scattered. That’s a positive that we wanted to do. Commercial loans were down about $17 million on average, $9 million of that in Mississippi and $19 million in Texas. We had a $20 million tax anticipation note with I believe it was the City of Jackson that paid off.

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