Joseph Rein - SVP and Director of Corporate Strategy Gerard Host - President and CEO Louis Greer - Treasurer and Principal Financial Officer Tom Owens - EVP and Bank Treasurer Barry Harvey - EVP and CCO.

Catherine Mealor - KBW Kevin Fitzsimmons - Hovde Group David Feaster - Raymond James.

Good morning, ladies and gentlemen, and welcome to Trustmark Corporation’s Fourth 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, this call is being recorded.

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

Good morning. I would like to remind everyone that a copy of our fourth 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, I’d like to introduce Jerry Host, President and CEO of Trustmark..

Thank you, Joey. And good morning, everyone, and thanks for joining us. Also on the call this morning are Louis Greer, our CFO; Barry Harvey, our Chief Credit Officer; Tom Owens, our Bank Treasurer; and Breck Tyler, President of our Mortgage company.

2016 was another great year of achievements for Trustmark, we’d like to thank our associates for their hard work, along with our customers, communities and shareholders we have the privilege of serving during 2016. As you all had a part in helping us continue our success.

We’ll begin by taking closer look at our financial performance highlights, beginning on page three of the presentation material.

We are pleased to have achieved another quarter of solid financial performance, let’s review by first looking at profitable revenue generation, loans held for investments increased by $352 million from the prior quarter to total $7.9 billion. When compared to the previous year, balances increased by $760 million nearly 11%.

For the year ending 2016, revenue excluding income on acquired loans increased $19.5 million to total $515 million. Net interest income excluding acquired loans increased by $18.7 million in 2016. Mortgage banking non-interest income before hedge ineffectiveness increased $2.8 million in 2016.

Acquired loan performance continues to exceed our expectations as well as providing capital to support continued growth in the loans held for the investment portfolio. Process improvement and expense management, core non-interest expense continue to remain well controlled, totaling $97.1 million for the fourth quarter.

Achieved cost savings of $2.1 million related to the early retirement program in the fourth quarter and $4.4 million cost savings was achieved during the second half of 2016.

Under credit quality, credit quality continue to remain solid as nonperforming assets declined 6.8% in the fourth quarter and 16% for the year, which represented 1.38% of total loans in other real estate at year-end. Allowance for loan losses represented 267% of nonperforming loans excluding specifically reviewed impaired loans.

For the year, net income totaled $108.4 million, which represented earnings per share of $1.60. I’d also like to remind you that our Board declared quarterly cash dividend of $0.23 per share payable on March 15, 2017 to all shareholders of record on March 1st. Let’s review the quarter results a little bit more detail by turning to slide four.

At year-end loans held for investments, totaled $7.9 billion, an increase of approximately $352 million from the prior quarter, and a $760 million increase from the previous year.

During the fourth quarter we continue to experience robust growth in the held for investment loan portfolio while still maintaining our focus on credit quality and profitability.

As for our energy portfolio as of December 31, 2016, Trustmark’s total energy exposure was approximately $476 million, with outstanding balances of $272 million, which represented 3.5% of the held for investment loan portfolio.

Non-accrual energy loans represented 4% of the energy related loans and 15 basis points of the outstanding held for investment portfolio. As a reminder should oil prices remain at current levels or below for a prolong period of time there is a potential for downgrades to occur. We'll continue to monitor the situation as appropriate.

Now looking at slide five, let's discuss credit risk management. As a reminder unless noted otherwise these credit quality metrics I'll discuss exclude acquired loans and other real estates covered by an FDIC loss share agreement.

During the fourth quarter nonperforming assets declined $8.1 million and when compared to the prior year declined $21.2 million. Nonperforming loans decreased by $0.2 million from the prior quarter and $6.1 million year-over-year.

At December 31st, other real estate totaled $62.1 million, a $3 million decline from the prior quarter and a $15 million decrease from the previous year.

The allowance for loan losses represented approximately 267% of nonperforming loans, excluding specifically reviewed impaired loans, while the allowance for both held for investment and acquired loans represented 1.02% of loan balances. Now turning to slide six, let's look at the acquired loan portfolio.

At quarter end acquired loans totaled $272 million, a decrease of $24 million from the previous quarter and $118 million from this time last year. For the first quarter of 2017, we expect the yield on acquired loans excluding recoveries to be in the 5.5% to 6.5% range.

Also during the first quarter acquired loans are expected to decline between $20 million and $25 million. If you look at slide seven, we’ll now discuss deposits.

At December 31, 2016 average deposits totaled $9.8 billion, an increase of $93 million from the prior quarter, while period end balances totaled $10.1 billion a linked quarter increase of $370 million. Noninterest-bearing deposits represented approximately 32% of total average deposits.

We continue to maintain an attractive low cost deposit base, with approximately 61% of deposits in checking accounts and a total cost of deposits of 14 basis points. Now turning to slide eight, we'll look at some revenue highlights. For the year ended 2016 revenue excluding income on acquired loans increased $19.5 million or 3.7%.

Net interest income for the fourth quarter totaled $104 million, an increase of $1.4 million from the prior quarter and was due mainly to growth in interest income from our three loan portfolios, which were significantly offset by decreased yields on the securities portfolio.

Net interest income excluding acquired loans remained relatively unchanged from the prior quarter and for the year ended 2016 increased $18.7 million. The net interest margin for the fourth quarter was 3.52% no change from the previous quarter.

Excluding the income on acquired loans the net interest margin in the fourth quarter was 3.31%, a decline of 7 basis points from the prior quarter. This decrease was primarily due to a reduction in the yield on the securities portfolios and the loans held for investments and held for sale portfolios.

At December 31st, non-interest income totaled $41.7 million, a 6.7% decrease from the prior quarter and a 6.2% increase from the previous year.

Mortgage banking revenue decreased $1.9 million from the prior quarter to total $5.4 million and was due to a decline in fair value of mortgage loans held for sale, which was offset impart by reduced negative hedge ineffectiveness.

Mortgage loan production for the fourth quarter totaled $406.6 million, a seasonal decrease of 16.7% from the prior quarter. However a 19.6% increase year-over-year. For 2016 mortgage loan production totaled $1.6 billion, an 8.4% increase from the previous year.

Insurance revenue for the fourth quarter totaled $8.5 million, a seasonal decrease of 16% from the prior quarter that is in line with levels from the previous year. For the year insurance revenue totaled $36.8 million, a $340,000 increase over the previous year.

For the fourth quarter bank card and other fees totaled $6.8 million relatively unchanged from the prior quarter. Service charges on deposit accounts experienced a slight decline of $230,000.

Other income net increased $818,000 from the prior quarter, reflecting not only an increase in other miscellaneous income, but also a gain on the disposition of a closed branch facility. Noninterest income for 2016 totaled $174 million, relatively unchanged from the prior year. Now moving to slide nine, let’s look at noninterest expense.

For the fourth quarter core non-interest expense, which excludes $525,000 of ORE, $1.7 million of intangible amortization, $664,000 of expense related to reducing the risk profile of the assets of the corporation’s defined benefit plan prior to termination, and $268,000 of additional pension expense related to ERP all brought our core noninterest expense total to $97.1 million.

Results of the previously announced early retirement program produced savings of $2.1 million during the fourth quarter and $4.4 million during the second half of 2016.

In our effort to continue the realignment of our branch network to reflect the changing preferences of our customers we consolidated nine branch offices during the year across Alabama, Florida and Mississippi. We also opened a branch in Tuscaloosa, Alabama and a loan production office in Pensacola, Florida.

I’ll now turn to capital management on slide 10. Trustmark continues to maintain a solid capital position, which reflects a consistent profitability of Trustmark’s diversified financial services businesses. With that Trustmark continues to remain well positioned to meet the needs of our customers while providing value for our shareholders.

At December 31st, Trustmark’s tangible equity to tangible asset ratio was 8.74%, while the total risk-based capital ratio was 13.5%. Looking at Slide 11, we’ll continue with our strategic priorities. As we move forward into 2017 we will continue using our six strategic priorities as a guide and continuing to make Trustmark a value franchise.

Profitable revenue generation will continue to be a primary focus.

Process improvement, expense management, leverage existing infrastructure and effective risk management will continue to be important focuses as well since significant investments have been made in recent years for these areas, systems and infrastructure to be able to support growth while also meeting regulatory requirements.

We’ll also continue our strong credit quality by maintaining our disciplined underwriting and pricing policy, along with resolution of existing problem assets. In terms of mergers and acquisitions we continue to remain patient and disciplined in our investments to ensure we’re creating long-term value.

Now at this time, I would be happy to take any questions that you would have of me or the group..

We will now begin the question-and-answer session. [Operator Instructions] And our first questioner is Brad Milsaps with Sandler O’Neil. Please go ahead..

Hey guys this is actually Peter Reese [ph] on for Brad. I guess first just touching on expenses, can you remind us about the timing of these expense initiatives.

Can we still expect third quarter is kind of the pension plan? The first time we see real savings from there and maybe still $8.5 million for the early retirement program?.

As far as overall savings from early retirement for the entire year ‘17, yes we do expect to be in that range of $8 million and $8.5 million for the full year. As far as timing of the closure of the pension plan a little bit want to comment on that remind everyone what we at least anticipate that expense will be at closure..

In the fourth quarter we sent out an updated 8-K announcing that we’d take a onetime charge of about $17.5 million in the second quarter to fully terminate and payout our debt plan, which is defined benefit pension plan. And you are correct we’ve begin a $3 million to $4 million annual savings beginning in the third quarter of 2017..

Okay, that’s great.

And maybe just following up with the NIM, quarter loan yields were obviously down a little bit is that partially due to some loan fees there where may be alleviated in third quarter?.

Yes that’s part of it. We had number of loans that were on the books that continue to fund up and of course those fees are taken on the front end. So you didn’t see the fees of those loans. Tom you may want to add a little color to the rest of the margin change..

Hi Peter. So, what you see is a 7 basis point linked quarter decline in core NIM when you back out sort of a normal variability of loan fees, as well as make whole premiums on some of the investment portfolio securities that payoff from time-to-time is really more like four basis points on an adjusted basis.

And again fourth quarter was a pretty robust quarter in terms of loan growth. I would sort of direct you to our year-over-year core net interest margin, which was $3.37 in ‘16 versus $3.46 prior year that’s probably cleaner number and consistent with the guidance that we have been giving..

Okay, that’s great. That’s it for me..

Thanks, Pete..

The next questioner today is Catherine Mealor with KBW. Please go ahead..

Thanks. Good morning, everyone..

Good morning, Catherine..

Follow-up on the margin, so what’s your outlook for the core margin moving forward it feels like with a little bit more compression this quarter; One how do you think about the incremental yield on this new growth that you are seeing come in? And then what kind of benefit we should see in the margin from the higher rates and the steepening of the curve?.

Catherine, Tom is going to take that question..

Okay, thank you..

Good morning, Catherine..

Good morning..

So, obviously higher interest rate that we have seen here in the recent months held substantially and as you would imagine as a result our current projections are for stabilization of loan yields and maybe increases given where market interest rates are currently, as well as market implied forward.

So, as I said earlier the 9 basis point year-over-year decline in the core net interest margin maybe that just cut in half maybe that’s 4 to 5 basis point decline in margin in 2017.

But again with core earning asset growth we would continue to expect it to be the case that core net interest income year-over-year you would continue to see mid-single digit increases in core net interest income..

Great.

And then on the growth, I mean the growth was just phenomenal this quarter as you mentioned Gerard, how much of that was from already was a little bit originated funding up versus just new originations that we saw come through this quarter? And then what does that mean for your expected growth rate going into next year?.

Catherine, I’m going to have Barry Harvey, answer that question I think he can add lot of color..

Okay, great. Thanks..

Thank you, Catherine. I think the total growth was about 46% of that was drawings on existing lines and about 54% were was going to be new bookings and advances on those new bookings. Within the CRE book it’s about half of the growth that we saw on the CRE side was related to new fundings of existing clients, existing facilities.

And then new bookings and new fundings on those about half of our growth that you saw having in the quarter came from CRE. So CRE represented about half of the growth and then within the CRE category it was split pretty evenly between funding on existing lines and then new business with fundings on those..

And then outlook for next year?.

I think it’s from our standpoint it’s a little more predictable going into ‘17 strictly because of the CRE credits that are on the books now that we’re projecting to fund overtime, that’s a lot of equity going into these deals on the front end.

So we are beginning to see fundings in a meaningful way and we will continue through ‘17 that relate to late ‘15 bookings, obviously bookings during 2016 are beginning to fund. We’ll begin to fund this year in a meaningful manner.

So, I think from our perspective we are still viewing it as mid to high single-digit growth and as we have indicated previously, I think outpace that a little bit this year, but I do think that’s realistic for us to be mid to high single-digit growth..

Okay.

And one last one was there any update or change in the classified and criticized numbers versus last quarter?.

Sure, within the classified and criticized we had an increase of about $23 million both of them are the same increase really just two credits that drove that, one was an energy credit for about $12 million, the other was non-energy for about $17 million, that led to the full increase between those two credits.

One was a Texas credit, one was a Mississippi credit..

All right, thank you very much..

Thanks, Catherine..

The next questioner today is Kevin Fitzsimmons with Hovde Group. Please go ahead..

Hey guys, its Hovde Group. I am going to ask another one about margin and a little bit more of taking a step back looking at the reported margin.

So the reported margin this quarter was 3.52%, the core margins 3.31%, the core margin headed down, but it seems like there was some things we shouldn’t necessarily expect going forward at that kind of pace of decline, but it seems like you indicated it could still be going down, but not at the pace we saw this quarter.

And then the reported margin of course has the kind of steady outflow of accretion income, but some of that might get refilled a bit with the deal.

How - all that being said, how should we be looking at trajectory of that reported margin versus the core margin, is it kind of like it’s basically going to converge, but is it somewhere in the middle, is it somewhere closer to where the core margin is now? And I am just trying to factor in the accretion income rolling off the positive impact of rising interest rates and the pressure on the loan yields, if we can speak to that.

Thanks..

Tom, do you want to take that..

So Kevin, that was a whole bunch of questions, but I’ll do my best. So again expecting let’s call it mid-single digit compression in core net interest margin in 2017, given where rates are today and market implied forward.

And as I said there is substantial increase we have seen in market rates as you would expect leads us to believe that loan yields, core loan yields will stabilize perhaps increase a bit. But then the question is then why are you projecting or giving guidance that core net interest margin might actually continue to decline a bit.

And there is a couple of drivers there. One is that investment portfolio yields we think will continue to decline just a bit, if you look at current yield of the securities portfolio, is still a bit higher than the investment securities that we’re purchasing at this point. So you get a little bit of compression there.

And then the big wild card is we’re projecting we have elasticities assumed in our model where we’re projecting that with the increase in rates that’s already occurred, market interest rates that is as well as the projected increases in market interest rates, that our deposit cost to funds will begin to rise correspondingly and as we know I mean that’s a big wild card.

And so is there perhaps some potential benefit from the industry lagging in terms of re-pricing the deposit base, the answer is yes. And perhaps that gets you closer to flat year-over-year core net interest margin. Now regarding your question about how to think about headline reported net interest margin total versus core.

Yes, the answer is that they would continue to converge and that in 2017 that convergence would be more towards the core net interest margin than the total net interest margin..

What about - one thing you didn't mention is your all loan-to-deposits are still a little lower than peer and if you guys can keep growing loans at a decent pace, even though your average security yield is going down.

Is it possible that that can be a catalyst to the margin just from the mixed shift within average earning assets?.

It is. But we are very careful about how we talk about that. We thought [ph] that the last three years, last two and half years we've seen a steady although a low double-digit growth in loan portfolio. We do as you well know have plenty of capacity from a capital perspective and also from a deposit perspective as you stated in the loan deposit ratio.

Our focus the last couple of years has been on selectively bringing on loan relationship managers primarily in markets outside of Mississippi. And so that remains very much a focus.

But in terms of our projections we're trying to be as accurate as we can without assuming all of these positive things that seem to be projected by the market at least somewhat discounted by where we are at this point in time..

Yes Gerry I was just - I was looking at from the standpoint that with going into rising rate environment, you guys seem to have a real meaningful funding cost advantage and at the same time you have room to ramp up that loan-to-deposit ratio. So it seem like you had potential to benefit on both of those fronts.

And it just didn't seem consistent with the tone on the margin, but perhaps you guys are being a little more conservative and I can't argue with that..

Yes. We'd like to think all these things are going to play out. We'd like to believe that the projections of potential for lower tax rate and maybe less regulation and few other things in terms of the growing economy are going to help us. But I think we've worked to try to ground ourselves and where we are now, where we've been.

As you point out you hit some of the things that we're very focused on. How do we take advantages of some of the strengths of our balance sheet given this projected new environment that we're in? And we think there is some real opportunities there, but we don't like to make projections on it until we get a little bit more clarity Kevin..

Got it. Just one follow-on, on M&A you guys are back in the M&A arena after a while off just curious Gerry what you're seeing out there in terms of what - it seems like all the stock prices have moved up. So maybe it's just a relative game and there is no change, but maybe it helps you if you looking at privately held players.

Just how do you feel this move up in the stocks has changed if at all you guys likelihood for continuing to get involved in M&A. Thanks..

Yes and this is purely opinion. Obviously we've seen a number of deals in specifically in the Southeast folks that we're familiar with four deals over the last month.

The increase in currency value I think it's helpful and maybe is moving some people that that we were on the fence moving them off a little bit on, maybe on situations that we're already underway. So I think it's helpful from that standpoint. What's nice is that we do have the capital levels that would allow us to do a deal.

We feel good about where we are in terms of this current deal and being able to move it along very quickly from both a regulatory standpoint and standpoint of actually consolidating.

So doing this transaction Huntsville [ph] is relatively small, but we think strategically important because of where it is and the quality of the people in this franchise that we’re buying. So we have the capacity I think it’s nice to have the improvement in the currency.

The other side of that Kevin is that everybody that may not be publicly traded maybe believe that they stepped up even more than the market.

So there is well but nonetheless we view it as a positive and we view it as maybe a change in people’s thinking in terms of maybe this is an opportunity and feel like we’re well positioned in a lot of ways to take advantage of it..

Got it, thanks very much..

Thank you, Kevin..

[Operator Instructions] Our next question for today is David Feaster with Raymond James. Please go ahead..

Hey good morning, guys..

Good morning, David..

So energy balances were up a bit in the quarter and we’re glad to see that you’re dedicated to the space.

Could you maybe just talk a bit about what types of new credits you’re seeing come across your desk? How pricing is trending for energy credits and maybe just your thoughts on the space in your portfolio going forward?.

Barry?.

Glad to. David we’re not seeing a lot of new deal flow coming across and what we are seeing is reasonably price, but it’s not something where there’s a huge premium potentially for the industry’s condition.

We are seeing opportunities as it relates to transportation primarily whether it be over road, pipe whatever the case maybe, we are seeing a few opportunities there.

And specifically opportunities where it’s they obviously tied to the industry, but not necessarily tied to the commodity in terms of the price of the commodity has don’t have a lot of influence on the particular viability of the company or their business line.

So from that standpoint it’s fairly limited in terms of deal flow with our book itself we had limited activity this particular quarter. The exposure remains flat, we had a little tick up in our outstandings, we did book one new credit for around $5 million the remainder of the increase was advances on existing formula based credits.

And so we continue to monitor these credits very carefully looking at all of the new information available each quarter. It’s for us it’s about 45 credits that we have to keep our hands around. But we had one increase - one credit that actually migrated into the criticized and classified category for - it was about $12 million.

So we did have a small increase there, had no change in our non-accruals or nonperforming if you will except for a small tick down of a little less than a million dollars.

So it was fairly uneventful the quarter from the energy books perspective, but we do continue to monitor very carefully and we do anticipate some additional downgrades coming overtime.

Simply because it’s taking a while for the higher commodity prices to translate into putting more assets to work for our borrowers at higher day rates and then eventually that’s going to transfer or pass its way through our financials.

So it is going to take a little time with the customer base that we have which is more oilfield services related for it all to kind of flow through and for us to become be able to benefit from the higher commodity prices..

Got it, that’s helpful. You guys had pretty strong loan growth in the quarter one of the big drivers was C&I.

Could you maybe just talk a bit about what’s you’re seeing in that segment regionally and by industry? And just the kind of the general sense of optimism and maybe your thoughts on the competition and pricing for C&I loans?.

Sure as far as C&I for the quarter we did see a nice growth predominantly in our Mississippi market, but when it’s described in that matter you kind of have to back up and say we’ve got a Mississippi Group of corporate lenders who are housed here in Jackson, who have a calling area that’s much broader than just the state of Mississippi although that’s how it’s displayed.

So kind of bear in mind that these are going to be opportunities that we have and continuing with states that they are actively calling in. And as far as the type of industries we’re seeing some activity in is going to vary from heavy equipment dealers, we have got some medical equipment, healthcare.

And then we have got grocers, payment service type companies. So it’s quite a variety and it’s diversified in terms of the type of customers that we’re seeing opportunities with. We really haven’t seen anything today that’s translated into new bookings that you might attribute to a better feeling about the environment going forward.

This is just regular business that’s coming our way through our lenders that are hustling for the business talking with other companies, banks, et cetera and finding opportunities. But we really haven’t seen anything thus far that you would attribute back to maybe the change in administration or the perceived change in the environment we’re in..

Got it, that’s helpful.

Last one for me, you have been pretty aggressive in your branch optimization, could you just give us some inside into how you think your footprint going forward and maybe opportunity for potential consolidation?.

We continue to stay very focused on looking at ways that we can really optimize the delivery channels for our customers.

So it’s not a single minded focus of how do we shut branches down it’s really looking market-to-market to try to understand how are customers want to bank and people in rural markets want to bank a little different than people in urban markets.

We have invested significantly in the last five years in automated delivery channels, we’ve just introduced a new product this last quarter called My Teller [ph] which is a virtual teller that will allow us additional flexibility in helping to reduce staffing or actually close some branches and replace it with this to open up in some new channels that we haven’t been into before.

So it’s not a single minded focus of how do we cut out X number of branches, it’s how do we best match the needs of customers from both an existing and a potential growth standpoint in each market. So the pace that you’ve seen over the last couple of years in closures we would anticipate would increase.

But - and we have already spent a lot of money on the - on automation of new delivery channels. So I would say just continuing to watch for more pay should be about what’s you have been seeing the last few years..

Great, that’s terrific color. Thanks guys..

Thank you..

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Jerry Host, for any closing remarks..

Well, first of all, I’d like to say that we at Trustmark are very optimistic about the potential for 2017. Our people are very focused on the opportunities that are out there and we’ll work hard to take advantage of it.

I’d like to thank all of you for your interest and being on the call and we look forward to visiting with you again at the end of the first quarter. Thank you so much..

The conference is now concluded. Thank you all for attending today's presentation. You may now disconnect your lines..