Joseph Rein - Senior Vice President and Director of Corporate Strategy Gerard Host - President and Chief Executive Officer Barry Harvey - Executive Vice President and Chief Credit Officer Louis Greer - Treasurer and Principal Financial Officer Tom Owens - Executive Vice President and Bank Treasurer.

Catherine Mealor - Keefe, Bruyette & Woods, Inc. Kevin Fitzsimmons - Hovde Group Brad Milsaps - Sandler O’Neill & Partners LP.

Good morning, ladies and gentlemen, and welcome to Trustmark Corporation’s Third Quarter 2016 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 Mr. Joey Rein, Director of Investor Relations at Trustmark. Please go ahead..

Good morning. I would like to remind everyone that a copy of our third 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 as well as our other filings with the Securities and Exchange Commission. At this time, I’d like to introduce 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. I’ll start by reviewing some highlights on Page 3 of our presentation.

We are pleased with the solid financial performance Trustmark achieved during the third quarter. Looking first at loans held for investments, they increased by $94 million from the prior quarter, to total $7.5 billion. When compared to the prior year, balances increased by $707 million or 10.4%.

Revenue excluding income on acquired loans totaled $135.5 million, an increase from both the prior quarter and year-over-year. Net interest income on a fully tax equivalent basis, excluding acquired loans increased by 2.7% from the prior quarter, while noninterest income increased by 1.1%.

Core noninterest expense continued to remain well controlled totaling $96.6 million for the quarter. We achieved cost savings of $1.9 million during the third quarter related to our previously announced early retirement program. Credit continued to remain solid, as nonperforming assets decline during the third quarter.

The allowance for loan losses represented 256.5% of nonperforming loans excluding specifically reviewed impaired loans. The allowance for held for investment and acquired loans totaled 1.06% of total held for investment and acquired loans. Net income in the third quarter totaled $31 million, which represented earnings per share of $0.46.

I’d also like to remind you that our Board yesterday declared a quarterly cash dividend of $0.23 per share payable on December 15, 2016 to our shareholders of record on December 1. Turning to Slide 4, we’ll review this quarter’s results in a little bit more detail.

At September 30, 2016 loans held for investments totaled $7.5 billion, an increase of approximately $94 million from the prior quarter, when compared to one-year earlier this portfolio grew $708 million.

During the third quarter, we continue to prudently grow the held for investment portfolio, while still remaining focused on credit quality and profitability. As for our energy portfolio, Trustmark has no loan exposure, where the source of repayment 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 $476 million and outstanding balances were about $256 million, which represented approximately 3.4% of the held for investment loan portfolio.

At September 30, nonaccrual energy loans represented 4.8% of the energy portfolio and less than 17 basis points of the held for investment portfolio. Now, looking at Slide 5, we’ll discuss credit risk metrics.

As a reminder, unless noted otherwise, these credit quality metrics I’ll discuss exclude acquired loans and other real estate covered by an FDIC loss-share agreement. Nonperforming assets declined $15.2 million from the prior quarter and $25.7 million from levels one year earlier.

Nonperforming loans decreased 16.5% from the prior quarter and 11% year-over-year. Other real estate declined 6.5% linked-quarter and 22.6% from the prior year. As you can see from the chart on Slide 5, ORE balances continue to decline.

The allowance for loan losses represented approximately 257% of nonperforming loans excluding specifically reviewed impaired loans, while the allowance for both held for investment and acquired loans represented 1.06% of loan balances.

While both criticized and classified loan balances remain at historically low levels, and continue to reflect strong credit quality, they both increased during the quarter 28.3% and 18.5% respectively.

The entire increase for both criticized and classified loans was the result of four energy credits being downgraded during the quarter, all are performing. The grade changes were identified during the bank’s ongoing quarterly assessment of its energy portfolio, and have been reserved for appropriately.

Turning to Slide 6, let’s look at the acquired loans portfolio. At quarter end, acquired loans have decreased $43 million from the prior quarter to total just under $300 million. For the fourth quarter, we expect the yield on acquired loans excluding recoveries to be in the 5% to 6% range.

Acquired loans are expected to continue to decline, by about $25 million to $30 million during the fourth quarter. We’ll now turn to deposits on Slide 7. As we’ve discussed previously, our average deposits at September 30 totaled $9.7 billion with noninterest-bearing deposits representing approximately 32% of total average deposits.

We continue to remain - to maintain an attractive low cost deposit base, highlighting the strength of our franchise, with nearly 60% of deposits in checking accounts. Trustmark has continued to maintain its low cost of deposits 13 basis points over several quarters, while also remaining below the peer median cost of deposits.

Turning to Slide 8, we’ll look at revenue highlights. Revenue excluding income on acquired loans totaled a $135.5 million on September 30 up from the prior quarter and year over year.

Net interest income for the third quarter totaled a $102 million and resulted in a net interest margin of 3.52%, down 4 basis points from the prior quarter due to a reduction in accretion income and recoveries on the acquired loans portfolio.

Excluding income on acquired loans, the net interest margin in the third quarter remained unchanged from the prior quarter at 3.38%. Noninterest income increased 1.1% from the prior quarter to total $44.7 million.

Mortgage banking revenue increased 9.6% from the prior quarter, while mortgage loan production volume increased, linked-quarter, by nearly 21%. Service charges on deposit accounts increased 5.7% from the prior quarter, while insurance grew 4.5%. Moving to Slide 9, let’s look at noninterest expense.

For the third quarter, core noninterest expense which excludes ORE, intangible amortization and other expenses related to the early retirement program and plan termination of the corporation’s defined benefit plan remain well controlled at $96.6 million, down $1.4 million from the prior quarter.

Results of the previously announced early retirement program produced savings of $1.9 million during the quarter, which was partially offset by increased pension costs of $900,000 related to reducing the risk profile of the assets of the corporation’s defined benefits plan.

As well as other non-routine pension expense related to the early retirement plan. During the quarter, our efficiency ratio improved 339 basis points to 63.8%. Well, now turning to capital management on Slide 10.

Trustmark continues to maintain a solid capital position, which reflects the consistent profitability of Trustmark’s diversified financial services businesses. With that, Trustmark remains well positioned to meet the needs of our customers, while providing value to our shareholders.

During the third quarter, Trustmark did not repurchase any of its common shares. The repurchase program, which is subject to market conditions and management discretion will continue to be implemented through open market repurchases or privately negotiated transactions.

At September 30, Trustmark’s tangible equity to tangible asset ratio was 8.97%, while the total risk-based capital ratio was 13.82%. Turning to Slide 11, we’ll continue our strategic priorities. We believe the current strategic priorities in place aligned our daily activities with our long-term focus.

We should contribute it to the expansion of our customer relationships. Our continued financial results and added value for our shareholders. While, we remain excited about the progress we’ve made. We will continue to work on our initiatives to better position Trustmark for the future.

At this time, I’ll be happy to take any questions that you would have..

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Catherine Mealor of KBW. Please go ahead..

Thanks, good morning, everyone..

Good morning, Catherine..

Can you give us the total balances of this four energy credits that were downgraded this quarter, and then what the current reserve is on these credits?.

Yes. I’ll let Barry maybe to give an idea - just a little color around all four of those. Barry, if you would..

Okay. That’s great. Thanks, Gerry..

Sure - okay, I’d be glad to, Catherine. The total amount downgraded is going to be around $54 million on the - from the credit size standpoint. The four credits in question are going to - of course all in our energy book. A couple of them are oilfield services related, a couple of them are midstream.

And they all did come through the process sort of our quarterly review process that we performed looking at the updated financials as well the borrowing bases and the covenant package, making sure we are in compliance there.

Again, these are all credits that we continue to reserve for based upon the fact that they are operating companies and they are working capital or nonworking capital in nature. So therefore, they blend into overall reserve. They do not have different reserves that are specific to them being energy versus another industry.

So that’s how we continue to reserve for this portfolio, and we are very comfortable with that process thus far. Here again, the reason for the lag possibly from the commodity price change that we saw in the fourth quarter of 2014 and continued all the way through the latter part of 2015, continues to be the fact that these companies have contracts.

They mature, they get reworked. A number of things happened where the equipment is - it is either working or not working and as things are put on the shelf then obviously it affects the revenue stream. They continue to work on their efficiency from the expense side of it.

But nonetheless, they do take time for things to flow through the financials of the changes in the industry and the deterioration of the industry. So therefore, they tend to be lagging and relative to, say, something that’s more reserve based in nature. But we do continue to reserve for them appropriately based upon their risk rate.

And that’s based upon whether they’re working capital or nonworking capital..

And then are these your only energy credits that are on classified in the $256 million energy book?.

No, they’re not. We’ve had a few others that we’ve downgraded to this continuous review process that we do on quarterly basis..

Okay.

So do you have the total amount of classifieds within the $256 million?.

Well, of the criticized it’s going to be roughly around the third of our book is going to be criticized at this point..

And so is it you are saying that the reserves are going to blend into your overall reserve? Is it fair to say since your commercial book has approximately reserve of 1% on it, is it fair to say that on average the reserve on these credits is around 1%?.

No, that would not be the right assumption. The overall book has obviously a much higher level of criticized and classifieds in it. So therefore it has a much higher reserve multiple times of our regular portfolio.

And then of course the criticized and classified loans themselves, just like our criticized and classifieds, they have much higher reserves on them based on the deterioration. So the reserved levels we have on the energy book are very similar to what we’ve seen when we’ve looked at other peers who have a much larger energy exposure than we do.

So we’re very comfortable with the level of the overall reserve, but it’s much higher than the overall portfolio reserve..

Okay, all right. That’s helpful. Thank you. And maybe just one follow-up on the expenses, can you give us a little bit of an update on, just a reminder of additional expenses from the earlier time and program that we should see for through next quarter, and your guide for expense run rate going into next quarter or next year? Thanks..

Yes Cathy, this is Louis. I will tell you that we did have some additional one-time expenses for the quarter. I think we mentioned the de-risking strategy. We had estimated it to be about $600,000. It came in a little over $650,000. And then we had some additional elections of lump sum payments that was about $250,000.

So that resulted in the $900,000 expense related to the pension for the quarter. We do expect that to continue into the fourth quarter. The unknown is really the lump sum payments that we might make. So our core run rate estimate for the fourth quarter is between $95 million and $96 million in the fourth quarter.

And again, we do expect that we’d be without ORE expenses, amortization in this projected pension expense in the fourth quarter for de-risking in potential lump sum, so….

Okay, that’s great. Thank you..

Thank you, Cathy..

Our next question comes from Kevin Fitzsimmons of Hovde Group. Please go ahead..

Hey, good morning, guys..

Good morning, Kevin..

Gerry, can you walk us through a little bit how you’re thinking about loan growth going forward.

Are we thinking of this kind of mid-single-digit annualized pace or do you think it can go higher? And can you talk a little bit by loan type or market if it’s relevant? Just I noticed linked-quarter, state, political subdivisions was a big driver, I don’t know if that was more seasonal.

And then you had declines in C&I, not sure if that was more pay downs or related to working down energy.

And then, if you can tie into that - I know this is a long winding question - but if you can tie into that, how you guys are on a commercial real estate concentrations, and whether you guys are pulling back or whether you’re viewing that as an opportunity? Thanks..

I’m going to step through parts of your equation and ask Barry to fill in some color. Overall, Kevin, we’ve been guiding to the fact that our pipeline have plateaued from where they were earlier in the year.

We had, as we stated, seeing low-double-digit growth over the last year, but we’re beginning to see it slow and would expect it to be in the mid to up or single digits with economic growth where it is both nationally and in the Southeast.

We would expect that growth to be somewhere in the middle single digits closer to that end of the range, based on the latest pipeline information we have. In terms of market, we continue to see strength in the Texas market, good growth in Tennessee and parts of Alabama.

We’re maintaining, I’d say in the Mississippi market and Florida has in terms of the Panhandle and the business we’re doing there, it is experienced relatively slow growth. So the three drivers really for us are Texas, Alabama and Tennessee. As far as geographic and product side concentrations, we do have capacity in all areas.

I’ll ask Barry if he would talk a little bit more about kind of where we are specifically with CRE and C&I. And then, your question around public finance that is somewhat seasonal and, it’s also a function of opportunity, some of what we do particularly in the Texas market is more bid.

In other markets like Alabama and Mississippi, it is more negotiated or project specific and provide us with better opportunities than we see sometimes in the Texas market. So Barry, if you would maybe add to that maybe especially around some concentration levels..

I’d be glad to do it, Gerry.

And I think, Kevin, when you look at our growth in the third quarter commercial construction, it continues to be an area where we’re seeing funding up of projects that are on the book, as well as pursuing future opportunities for new projects that we’ll fund up in the - down the road as far as the public finance goes as Gerry indicated, this has a lot of business for us, and we’ve been in for long time.

We’re fortunate that we’re getting some diversity now into the Texas and Alabama markets to complement what we’ve always done in Mississippi. And it’s a combination of [GOs and TANs and VANs] [ph] as well as pledges of revenue, and then there is also a number of other types of lending that we do within this category.

It is somewhat a function within the Texas market of the number of people participating in the bidding process, and that does have inflows and we do - we are more successful from time to time than others within the Mississippi, Alabama markets, it is negotiated based on relationships and we do get better pricing on those deals, and they’re little bit more consistent in terms of the deal flow.

As it relates to concentrations, and where we see growth in the future, I think from a concentration standpoint, we’re about 60% of the 100% measure on construction land and development, and we are about 172% of the total CRE 300% regulatory guidance limit.

And so we feel comfortable where we sit today, I think that’s part of the picture, but we also project out over the next three years, where we think we’re going to be.

We look at what’s on the books today, and once you’re going to fund, and once you’re going to move from construction to existing, and once you’re going to move out the bank if it’s going to what’s going to flow in and then once you’re going to fund in construction and flow on to existing and then other bank that’s going to.

So we’re pretty detailed about different category of loan as to how we see our concentrations building over time. And therefore we’re constantly monitoring those.

We’ve got like most banks, we probably have a couple categories then we’re looking at on an ongoing basis, and making sure that we’re not building up more than we need to be from a total risk-based capital perspective.

Obviously, like most banks apartments, and we divide that multifamily between student housing and apartments, because we feel like they perform completely different for different reason.

So with apartments, we’re continuously monitoring those to make sure we’re at levels, we want to be add as well as some - as well as any other categories like hospitality, where we want to have some, but you don’t want to have necessarily too much, because of nature of the business.

So we’re monitoring those very carefully as well as all of our other categories of retail office, industrial warehouse et cetera.

But we do have today plenty of room to grow, as Gerry indicated, and we do expect that a meaningful amount of our growth next year will be funding on existing business on the books today, which we’re very confident about that on the standpoint of where our growth can come from in 2017, is the fact that it’s on the book.

It’s just a matter of getting funding up in order to achieve the growth goals we have for 2017..

Great, thank you. Very helpful. Gerry, can I just ask quickly you mentioned M&A before your stock is - has increased and you have a stronger multiple at this point.

Can you give us sense for how - what your outlook is for opportunities or the Pate’s [ph] conversations and what you think the likelihood of you guys finding some opportunities and where those might be? Thanks..

Yes, Kevin. As we said before the radar is very much on, and we’re constantly monitoring the screen for opportunities. We always, as you’ve noted in terms of the valuation, our own valuation our currency have improved from where it has been a year ago, one of the reasons why we’ve chosen not to buyback at these levels.

The challenge continues to be pricing differences between the buyers and sellers. I think, we all know that number of deals has been flat to down a little bit versus a year ago, and more of the deals are smaller in nature. So we continue to look for opportunities either within market.

So that we can improve our position, we look an opportunities in contiguous markets as well, where we can expand the brand, where we can look for opportunities to bring some of the products and services to market or banks that show the growth potential.

So we love to be able to say that we have an opportunity, but the reality is that we continue to look - and we continue to look for something that will add long-term shareholder value..

Great. Thanks, Gerry..

Thank you, Kevin..

[Operator Instructions] our next question comes from Brad Milsaps of Sandler O’Neill. Please go ahead..

Hey, good morning, guys..

Hi, Brad..

Hi, just maybe kind of a series of modern related questions. You guys have done a nice job of taking the loan deposit ratio higher over the last year, just curious how much higher you would like to take that? And then two, this quarter knows that loan yields were up.

Did fees have a bigger impact than normal? And then maybe third, any comments around sort of how you feel about how much accretion will flow through in 2017.

Any of those comments around the margin would be helpful?.

Okay, well, we’ll ask Tom Owens, our Treasurer, to comment on those..

Good morning, Brad. So with your question with respect to loans to deposits currently about 83%, we would be comfortable - very comfortable continuing to take that higher, say, into the low to mid 90s, so there is easily another 10% of capacity there.

Regarding the margin and loan yields, yes, third quarter as we’ve discussed in the past there is some volatility to fees. And so, what you’re seeing there is some of the benefit of third quarter being stronger in terms of loan fees. With respect to the core net interest margin, linked-quarter was unchanged.

But if you strip back the volatility of the fees, probably off 2 basis points. Now, what’s interesting though is we had a similar phenomenon in third quarter of 2015. So there is a pretty clean comparisons year-over-year between third quarter 2016 and third quarter 2015.

You look at the guidance we’ve given in the past of mid- to high-single-digit growth in core earning assets, offset by low-single-digit compression in core net interest margin, resulting in mid-single-digit growth year-over-year in core net interest income and that’s exactly what you see third quarter year-over-year.

And we would maintain that guidance, same trends that have driven that, we expect to continue for the foreseeable future..

Okay.

And remind me what a 25 basis point increase from the fed may or may not do for you guys in your view?.

Again, we are slightly asset sensitive. You see that in the numbers that we published now. So all other things equal, 25-basis-point increase in the fed is accretive to net interest margin. Obviously, the wildcard there is how the industry reacts in terms of deposit pricing.

So our models assume some elasticity on deposit rate paid consistent with historical experience. So I would call that modestly beneficial, assuming that those elasticities are consistent with history. It could be a bit more meaningful if the industry continues to lag in terms of deposit pricing..

Great, that’s helpful. And just maybe a housekeeping question or two for Louis, any thoughts on maybe the level of accretion in 2017 that you expect? And in the tax rate it’s kind of been around 21% the last couple of quarters, but had been running a little higher, just any color there might be helpful as well..

Well, as you are aware on the accretions, as we continue to see those loans pay down $25 million to $30 million, certainly in dollars they are going to come down, and I would expect that rate - the yield on those come down slightly. So I am looking forward maybe in 2017, somewhere between 5% and 5.5% yield on those outstanding balances.

So you can figure out the average and kind of compute what we expect for accretable yield. Can’t give you an estimate on recoveries, offs we could have some. But as you’re aware, Barry and his team have done a tremendous job on some settlement of that debt. We expect that to slow in the future, specifically in 2017.

When you look our tax rate, as you are aware in the third quarter, we settle up and filed our tax return as a result of truing up our accrual. We picked up about a little over $500,000 for the quarter. So if you compare the tax rate for this year, third quarter, to last year you can see they’re very similar.

But as you’re aware, we did do our early retirement. We did a one-time charge of about 9.3. As a result, our pre-tax income is down about - looks like about $13 million. As our permanent differences remain constant and as our tax credit remain constant, our yields, I mean, our effective tax rate for 2016 we expect that to be around that 22% range.

So you’ll probably see our fourth quarter a little higher than 21%. But again for the year, we expect that tax rate to be around 22% to 22.5%. Pretty comparable to the prior year’s of about 23.25%. So as a result of a lower pre-tax, principally because early retirement constant, there are permanent differences.

We expect that tax rate to stay fairly constant at 22% in the fourth quarter..

Great. Thank you, guys..

Thank you, Brad..

[Operator Instructions] There have been no further questions. I would now like to turn the conference back to Mr. Gerry Host for closing remarks..

Thank you, operator. We’d like thank all of you for joining us and for your interest in Trustmark. And we look forward to reporting to you again at the end of January on our fourth quarter and 2016 results. So thank you all and have a great day..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines..