TRMK

Trustmark Corporation (TRMK)

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Trustmark Corporation (TRMK)

Q3 2010 Earnings Call

October 27, 2010 11:00 am ET

Executives

Joey Rein - Director, IR

Richard Hickson - Chairman, President and CEO

Mitch Bleske - SVP & CIO, Trustmark National Bank

Bob Hardison - CCCO

Jerry Host - CEO Designee

Analysts

Steven Alexopoulos - JPMorgan

Adam Barkstrom - Sterne Agee

Kevin Fitzsimmons - Sandler O'Neill

Elena Kim - UBS

Brian Klock - KBW

Presentation

Operator

Good morning ladies and gentlemen and welcome to the Trustmark Corporation third quarter earnings conference call. At this time all participants are in a listen-only-mode. Following the presentation this morning there will be an opportunity to ask question. (Operators 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 third quarter earning release as well as supporting financial information is available on the Investor Relation section of our website at Trustmark.com. During the course of our call this morning we 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 risks and uncertainties which are outlined in our earnings release and our other filings with the Securities and Exchange Commission.

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

Richard Hickson

Good morning. Thank you Joey and thank all of you for joining us today. I have with me this morning Jerry Host, our CEO Designee and Chief Operating Officer; Louis Greer, our Chief Financial Officer; Barry Harvey, our Chief Credit Officer and other executives who will be available to make comments or answer any questions that you might have after my comments.

Trustmark had a very solid quarter. We are in a fully offensive mode. This weekend, we are having an all-site strategic planning for our top 30 executives as we work and refine our plans for next year and our three-year strategic plan. We fully recognize that the economy is slowly coming out of a great recession. We hear there is no significant loan demand around the country. We are expecting slow growth. Our management team intends to manage through that. We are accustomed to non-high growth markets. We know how to control expenses. We are in a fully offensive mode with our capital and looking for good loan growth.

Mississippi is sluggish, but we do not feel it is seeing the continued downturn in real estate as a number of other states. Net income available to common shareholders this quarter was approximately $26 million, earnings per share $0.40, a return on average tangible equity of approximately 12.4%. Our board comfortably declared a cash dividend of $0.23 per share which is the same rate we’ve had for the last couple of years.

Payout ratio at a very comfortable level based on the level of equity in pre-tax, free provision earnings. Solid financial results, still a robust net interest income, very diversified non-interest income and continued discipline expense management. Our solid capital base has positioned to us to take advantage of opportunities in the market place that we assure you would build shareholder value.

As I talk about credit quality, I think you would best follow me on page six of our stats sheet which has a five quarter running average. The provision for loan losses was $12.3 million a quarter, less than net charge-offs of $18.5 million or 1.18% of loans. There are three or four reasons that our provisioning was less than charge-offs, but principally we experienced a $21 million reduction in classified loans of which 15 million was in Florida.

We also experienced a slower migration in two new classified loans. Let me peel it back a level further than out press release. Sub standard are classified sub standard loans dropped $10 million. Those that related to charge-offs had been previously reserved for and that released approximately $4 million in reserves. In addition, Trustmark has traditionally impaired and immediately written off all impaired loans which are principally real estate, down to market at the $1 million level.

We made a decision to lower our impairment level as we were seeing a build up of smaller credits where we feel they will be resolution, but we are building and not clearing as quickly. So we have lowered our impairment level from $1 million to $500,000. This resulted in the classification of doubtful dropping from approximately $13 million down to $4 million. This is was all previously reserved for resulting in the principal increase of charge-offs above reserving.

Our allowance for loan loss is approximately $95 million, 1.97% of our commercial loans and 0.81% of our consumer and home loans or 1.57% of total loans. We are seeing and feeling an improvement in credit quality. If you take a look at the five quarter moving averages on page six, you will notice that non-performing loans appear to have peaked in the end of the first quarter that Florida's bond performing is down significantly from approximately $80 million to $66 million. You will see that even with a drop in non-performing other real estate has begun to fall. Florida down significantly from $46 million at the end of the year to $31 million.

When we take a look at our loan loss reserve our auto book is now down under $250 million. We have reserves there at a level that we were experiencing charge-offs earlier and therefore, as we are seeing pay downs in the order book which was approximately $50 million this quarter. Reserves are being released that approximated $500,000 this quarter and as you know we do not intend to rebuild that auto portfolio.

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