Joey Rein - Director of IR Gerard Host - President, CEO, Director of the Company and the Bank Barry Harvey - EVP, CCO Louis Greer - Principal Financial Officer, Treasurer; EVP and CFO of the Bank Thomas Owens - EVP and Bank Treasurer of the Bank.

Elan Zanger - Jefferies David Feaster - Raymond James Catherine Mealor - KBW.

Good morning, ladies and gentlemen, and welcome to Trustmark Corporation’s Second Quarter Earnings Conference Call and webcast. 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, today’s conference call is being recorded.

At this time it is now my pleasure to introduce Mr. Joey Rein, Director of Investor Relations at Trustmark. Please go ahead..

Good morning and thank you operator. I would like to remind everyone that a copy of our second quarter earnings release, as well as the slide presentation that will be discussed on our call this morning is available on the Investor Relations section of our website at trustmark.com.

During the course of our call, 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 risks and uncertainties, which are outlined in our earnings release and our other filings with the Securities and Exchange Commission. At this time, we’ll turn the call over to Gerry Host, President and CEO of Trustmark..

Thank you, Joey, and good morning, everyone and thanks for joining us. Also joining me this morning are Louis Greer, our CFO; Barry Harvey, our Chief Credit Officer; and Tom Owens, our Bank Treasurer.

Before I begin the program let me make you aware that Trustmark that is investor’s slide presentation that we’re about to cover which summarizes financial results for the second quarter and released to the market Monday evening July 25. This information was not intended to be released until after the close of trading yesterday, Tuesday, July 26.

To ensure that everyone had access to our complete earnings package Trustmark issued its full second quarter earnings press release and filed Form 8K containing the press release and the investor slide presentation on Tuesday, July 26, prior to the opening of the market rather than after the close of the market as originally scheduled.

We’re reviewing the events that led to the premature release of our investor slide presentation and will take steps necessary to prevent a reoccurrence of this event in the future. Now let’s begin reviewing some highlights on page 3 of the presentation material. Trustmark achieved another quarter solid financial performance.

We continue to maintain and expand relationships and executed in our strategic initiatives to enhance long term shareholder value. Looking at profitable revenue generation, loan sale for investment expanded across our five states footprint by approximately $137 million or 7.6% annualized from the prior quarter.

Revenue excluding income on acquired loans totaled approximately $133 million, up from both the prior quarters and year-over-year. Net interest income excluding acquired loans remained stable from the prior quarter while noninterest income increased by 2.2%.

During the quarter we continue to proactively manage noninterest expense as previously announced we completed a voluntary early retirement program which will create opportunities for our associates and better position Trustmark to address the continued structural changes our industry faces.

Additionally our Board of Directors authorized a termination of a previously frozen pension plan. Pension plan termination will be effective December 31, 2016, and anticipated cost savings once completed in the second quarter of 2017 will be between $3 million and $4 million annually.

Moving on routine noninterest remained well controlled totaling $98 million for the quarter. We also closed the previously announced six branch offices. Under credit quality, credit continue to remain solid as nonperforming assets declined during the quarter and net charge offs were negligible.

The allowance for both held for investments and acquired loans totaled 1.09% representing a level management considers commensurate with the inherent risks in our loan portfolio. Overall and excluding the impact of the one-time charge incurred during the second quarter net income totaled $27.2 million which represented earnings per share of $0.40.

Also our Board declared quarterly cash dividend of $0.23 per share payable on September 15, 2016, to shareholders of record on September 1. On slide 4, we will discuss this quarter’s results in a little bit more detail.

At June 30, 2016, loan sale for investments totaled $7.4 billion an increase of approximately $137 million from the prior quarter and $958 million year-over-year.

As I mentioned last quarter we remain focused on credit quality and profitability when growing our loan portfolio that said growth this past quarter was solid and diversified across our five state franchises.

Looking at our energy portfolio Trustmark has no loan exposure, where the source of repayment on the underlying security or the underlying security of such exposure is tied to the realization of value from energy reserves.

At quarter end Trustmark’s total energy exposure was approximately $474 million and outstanding balances were about $258 million, which represented approximately 3.5% of held for investment loan portfolio.

In terms of nonaccrual energy loans as of June 30, balances represented 4.5% of the energy portfolio and less than 20 basis points of the HFI portfolio. As of reminder should oil prices remain at current levels or below for a long period of time there is a potential for downgrades to occur. We will continue to monitor the situation as appropriate.

Now, looking at slide 5, we’ll discuss credit risk management. As a reminder unless noted otherwise, these credit quality measures all discussed exclude acquired loans and other real estate covered by our FDIC loss share agreement. On a length quarter and year-over-year basis both criticized and classified loan balances declined.

Nonperforming loans increased approximately 8% from the prior quarter and 5% from the levels one year earlier. As you can see in the slide, other real estate continued to display steady improvement.

The allowance for loan losses represented approximately 231% of nonperforming loans excluding specifically reviewed impaired loans and the allowances for both held for investments and acquired loans represented 1.09% of loan balances. On slide 6, we will be looking at the acquired loans portfolio.

At June 30, acquired loans totaled $339 million, the decrease of approximately $26 million from the prior quarter.

For the third quarter, we expect the yield on acquired loans excluding recoveries to be in the 5.5% to 6.5% range, excluding any settlement of debt, acquired loans are expected to decline by $25 million to $30 million during the third quarter. We will turn now to deposits on slide 7.

We continue to maintain an attractive low cost deposit base as average deposits totaled $9.7 billion with noninterest-bearing deposits representing approximately 30% of total average deposits for the quarter and total deposit costs remain unchanged at 13 basis points. Turing to slide 8, we will look at revenue highlights.

Revenue excluding income on acquired loans totaled approximately $133 million up from the prior quarter and year-over-year.

Net interest income for the second quarter totaled $101 million and resulted in a net interest margin of 3.56%, excluding income on acquired loans and yield maintenance payments the net interest margin in the second quarter remained unchanged from the prior quarter at 3.38%.

Noninterest income increased from the prior quarter to total approximately $44 million. Insurance and wealth management performed well increasing 12.2% and 8.1% respectively from the prior quarter. Mortgage banking income before hedge ineffectiveness increased 4.5% from the prior quarter while mortgage loans production volume increased about 31%.

Moving to slide9, noninterest expense, in the second quarter routine noninterest expense remained well controlled at $98 million recall this figure doesn't include the onetime charge of $9.3 related to our voluntary early retirement program.

Excluding the portion of that onetime charge, salary and benefits expense totaled $58 million up marginally from prior quarter due to increased commission cost on higher mortgage production volume. Lastly we will consolidate the previously announced six branch offices in the second quarter.

That leaves us with the total of 194 branches in our footprint. And we will continue to realize our delivery in retail channels from both a branch and digital perspective.

Looking at slide 10, capital management, Trustmark continues to maintain and enhance its solid capital position which provides the flexibility to support our strategic growth initiatives.

This past quarter we repurchased approximately 34,000 common shares through the open market as mentioned on last quarter's conference call, we view this program as another capital deployment option in addition to loan growth, M&A and delivering a consistent dividend. At June 30, Trustmark’s tangible equity to tangible asset ratio was 8.97%.

While the total risk based capital was 13.82%. We'll continue to remain prudent and diligent in the evaluation of all capital deployment opportunities. On Slide 11, we'll continue with our strategic priorities. This past quarters result continued to reflect our diligent efforts to serve our customers and execute on our strategic priorities.

We maintained and expanded customer relationships across our five state franchises while continuing to control non-interest expense. We also continued to take proactive measures to address structural changes in our industry and better position trust mark for the future.

We remain excited about the progress we've made and are thankful to our associates who have helped us get there. As we look forward, there still remains a lot of work to be done and we'll continue to execute on our strategic initiatives to expand customer relationships and deliver long term value to our shareholders.

At this time, we would be happy to take any questions that you might have..

[Operator Instructions] Our first question today comes from Emlen Harmon from Jefferies. Please go ahead with your question..

Hi guys, good morning. This is Elan Zanger on for Emlen..

Oh, good morning, Elan..

All right. You guys made a couple of big steps this year on expenses between earlier time and plan, some branch restructuring.

Do you guys have anything else on the radar in the immediate future?.

Well, we think that the closing of the CAT plan although impacted to some extent this year because of the de-risking efforts along with some final closing thoughts next year, will really result in some positives long term for the future somewhere in the neighbourhood of anywhere from $2.5 million to $3.5 million or $4 million.

So, what we consider that another major initiative, we froze this plan back in 2009 but for a number of reasons have not been able to close the plan.

Closing it we thing also provides when we distribute the dollars in that CAP plan, we believe it will provide our associates with the opportunity to access these dollars, combined in with other retirement dollars as they have, and manage them according to their own style.

So, that's another major initiative that we should complete hopefully in the second quarter of next year that will result in some long term continuous savings for the bank. Continued to stay focussed on the correct balance between our digital delivery channels in our brick and mortar channels.

We do not believe branches are going away but what you do in branches and how many branches you need in the future I think is critical. So, we meet on a very regular basis to evaluate each market and understand what the opportunities are there, how we can keep growing and what are the best ways to keep growing.

The only other thing I'd say is that is the technology plays an important part going forward. Data management and data information help us to become more efficient, better serve our customers and that's what these comments about this company transitioning for the new environment is all about. So, you'll see I think more of that in the future..

Okay, that's helpful.

So, with all of these new expense reductions, what can we expect in terms of what are the cost savings that might be reinvested?.

Well, maybe a better way to think about that is what's what do we think our run rate will do going forward. What we see maybe for the remainder of the year and things that and what are the trends for the future. And I would ask Louis Greer; our Chief Financial Officer if he would comment..

Thanks, Gerry. Looking at the next two quarters in some of the calls initiatives, you add these things up and you certainly we got salary and benefits on an annualized basis savings about an 8.5 million, you take that quarterly it's about 2.1 million. We got branch closure sit that are coming up, that we just closed, it will take to second half.

I think we mentioned that would be about an 800 for the second half of that 400,000 of the quarterly basis. Gerry mentioned the de-risking strategy on the pension plan. That's actually going to cost us a little over a $0.5 million for the next couple of quarters. So, year now that a slightly under a 2 million for the third and the fourth quarter.

So, we predict that our estimate forecast that our run rate for expenses is gone between 95.5 million and 96.5 million for the third quarter, maybe even slightly down from there in the fourth quarter.

So, Gerry mentioned the CAP plan, certainly those savings won't come about until after the second quarter because we'll have to fund that plan to the turn of about $12 million. So, you will see those savings --..

In second quarter..

That's right. In second quarter of 17. So, those savings will come about in the beginning in the third quarter. Of 17..

Okay guy, thanks for answering my question..

Thank you..

[Operator Instructions] Our next question comes from David Feaster from Raymond James. Please go ahead with your question..

Hey, good afternoon, everybody..

Good morning, David..

Could you just give us a sense of what you're seeing in your footprint as it relates to multifamily in construction? What's the pulse of the market and are there any areas that are causing you any concern?.

Let me ask Barry Harvey; our Chief Credit Officer, if he would take that question.

Barry?.

Would be glad to, Gerry. David, what we're seeing is still a reasonable amount of activity on the multifamily side. It's in all of our markets it's still fairly steady. It's a little slower than today than it has been in '15 and definitely slower than we experienced in '14.

But we've seen a somewhat of a slowdown, the structure, the deals are still very similar in terms of the amount of equity going in upfront.

We continue to focus on the Tier 1 sponsors, once that we've done a lot of business with ones who have been in this business for a long period of time and there is are still in that anywhere from 25% to 40% to 45% equity going in upfront.

Occasionally you will see the interest-only period on these projects, maybe a little bit longer than it has been historically, maybe another six months longer. And that's more functional by the market allowing forwards and it is a need for stabilization because projects are coming online and stable out in fairly quickly.

And then as if it’s a merchant builder then moving on to the secondary market as planned.

So, we're not really seeing any change other than a slight slowdown in the number of multifamily projects coming across our desk but as far as the performance of the projects, thus far we've seen no deterioration there, we have seen no change in the secondary market in terms it’s exceptions of the projects cap rates still are strong.

So from that standpoint we continue to see a solid market there. It's just a little bit at slower pace as far as new opportunities..

Okay. That's helpful.

And could we talk a little bit about M&A real fast? What are you seeing in the market and maybe where would you be focused both regionally and size wise?.

Okay. Thank you. I will take that it’s Gerard. As far as where our focus is it remains in the South East. We would like to expand in some of the growth areas within states like Alabama and Florida. We do not have a footprint in Georgia and we believe that would a good opportunity for us.

And obviously, Texas remains a state that where we are primarily in the Huston area we are doing business in some of the other markets and could be helpful to have the positive footprint, a banking footprint in some of those other metropolitan market in Texas. So that's where our focus is from a geographic standpoint.

Size standpoint we said, we will do any opportunity that we think enhances long term value somewhere in the $300 million to $3 billion size, our opportunities that we have taken advantage of before and can manage we believe are in the scope of our ability to manage. So in each deal is a little bit different.

But that is general, a range and scope of what we would be doing.

We continue to look for opportunities that will provide for enhanced shareholder growth for the company and each deal is different where we will continue to evaluate opportunities and as we see the right ones and can work through them then that's certainly becomes part of our overall capital management plan and capital deployment..

Okay, great.

And since you talked about size a little bit could you give us a pulse of what you are seeing in the Texas economy, it's obviously held up much better than most have expected but could you just give your thoughts on Texas and specifically how Huston doing as well?.

I will take first shot and then ask Barry to add color from his perspective as Chief Credit Officer. Spend some time out in our Huston market recently making through calls with our Huston relationship managers. As you mentioned the market in Huston itself it is always been impacted by the energy business has held up very well.

What we see I guess maybe two key things.

One, the market seems to be much more diversified than we have seen in other cycles and as such has been more resilient and then secondly I would say that what we have seen is many of the clients that we have out there have responded more quickly to adjusting their business models in the beginning of the downturn. And I think that has been helpful.

In other markets outside Huston, like Dallas, like San Antonio like Austin, we do have lending opportunities in those markets and we see activity in those markets remains very strong, is less impacted by energy and there are still significant opportunities I would say especially in the Dallas market.

And Barry there maybe some additional color you would like to add to that..

In addition I fully agree with that description of what’s going on in the market.

I think from our portfolios specifically standpoint we are seeing some continued construction, commercial construction opportunities in the Texas market but most of those are going to be as Gerry indicated in Dallas as well as Austin and those are going to be continuation of what we’ve seen throughout all of our footprint which is going to be opportunities, some opportunities in the multi-family as well as student housing and apartments being the two different categories there as well as some retail, some office and little bit of hospitality those are the opportunities we are seeing present themselves in the Texas market but not necessarily in Huston and so.

And then, outside of that I think our portfolio has been fairly flat in terms of balances, our growth in the Huston market but our energy portfolio there the portion is in the Huston market has performed very well and we have been very pleased with that and so from the overall standpoint we have been pleased with the way the market has held up given the commodity price as well as the opportunities we’ve seen in some other Texas cities other than Huston..

Alright, thank you very much..

[Operator Instructions] Our next question comes from Catherine Mealor from KBW. Please go ahead with your question..

Thanks, good morning everyone. .

Good morning Catherine..

Its changed to the outlook for your margin given kind of the moving rates this quarter, I mean, the core margin have been down little bit but fairly stable over the past few quarters and do you think that you can continue that trend or given the yield curve and what rate that would might see little more pressure there on the back half of the year?.

We could answer that question accurately as we all know what’s we’re going to do between now and year end Catherine. But given the fact that we can't, given the fact that [indiscernible] was about to finish up the call without having the opportunity to talk, I am glad that you asked this question, so Tom if you would..

I appreciate that Gerry and hi Catherine. Thank you. So I think the guidance that we have given historically in terms of low single digit annualized percentage compression in our quarterly net interest margin is appropriate to maintain going forward.

Year-over-year it's 11 basis point decline and I think the story continues to be that low single digit compression in core NIM offset by high single digit growth in core earnings assets is going to allow us to continue to grow core net interest income mid single digit year-over-year.

To your point about lower interest rates obviously the flattening of the yield curve at the lower for longer environment is not helpful. But I think that the trends that we have seen historically here are going to continue for the time being.

I will also tell you that as we have talked about on past calls there are normal volatility to both loan fees and yield maintenance payments in the investment portfolio if you adjust for those year-over-year in the second quarter; our core net interest margin was off only 6 basis points.

But I think if you continue to think in terms of two to three basis points a quarter 8 to12 basis points call it 10 on average per core NIM year-over-year it's going to continue to be appropriate..

Okay, really helpful, thank you Tom.

And then, maybe one follow-up just on the buyback, can you talk a little bit about your expectations for the pace of buy back activity and how you balance that versus looking at M&A opportunities?.

Well, I will take that as well. This is Tom.

So, as Gerry indicated in his comments we view the share buyback program as an alternative form of capital deployment and we continually evaluate returns available from that form of deployment versus organic growth for lending or acquisition opportunities and I think the right way to think about it is, yes, we will continue to be opportunistic with share repurchase where the market presents those opportunities in the broader context it's a tool to be used in the event that we continue to grind lower in terms of loans coupons and loan spreads.

It’s the way I think of it is, it's a floor in terms of the returns available for capital deployment..

Got it, makes sense.

So as the stock maybe hangs around current levels it would be fair to assume that we may not see as much activity, we may not see that much activity as we would have if we had big pull back in the market again?.

Catherine that is a good assumption and I think it also one of the things you look at is, how does our currency value compared to maybe some of the other things in the market could be an acquisition mode and we take that into consideration as well in terms of overall balance of capital deployment..

Makes sense, great, thank you..

Thank you, Catherine..

And ladies and gentlemen, this will conclude today's question-and-answer session. At this time I would like to turn the conference call back over to Mr. Gerard Host for any closing remarks..

Thank you, operator. And we appreciate everyone joining us; we will continue to stay focused on investments that help to grow long term shareholder value for this company. We remain optimistic about some of the things we are seeing going on in the market.

We will continue to control our expenses in this challenging rate environment and are very hopeful and optimistic about the future. So again, thank you for joining us and we look forward to meeting with you again at the end of the third quarter..

Ladies and gentlemen, today's conference is now concluded. Thank you attending today's presentation. You may now disconnect your telephone lines..