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

Andrew Taylor - Keefe, Bruyette & Woods, Inc. Peter Ruiz - Sandler O’Neill & Partners LP Kevin Fitzsimmons - Hovde Group.

Good morning, ladies and gentlemen, and welcome to 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 Mr. Joey Rein, Director of Investor Relations at Trustmark. Please go ahead, sir..

Good morning. I would like to remind everyone that a copy of our first quarter earnings release, as well as the slide presentation that will be discussed 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 joining me this morning in the room are Louis Greer, our CFO; Barry Harvey, our Chief Credit Officer; Tom Owens, our Bank Treasurer; and Breck Tyler, President of our Mortgage Services Operation.

Let’s begin by reviewing our financial highlights beginning on Page 3 of the presentation material. Trustmark achieved another quarter of solid financial performance. We continue to maintain and expand relationships, while also focusing on executing our strategic initiatives. Looking at our initiatives, let’s begin with profitable revenue generation.

Loans held for investment, excluding the reclassification of acquired loans that we will address in a moment totaled $7.9 billion, an increase of $116.7 million, or 1.5% linked-quarter. When compared to the prior year, balances increased by 700 million, or almost 10%.

Revenues, excluding interest income on acquired loans increased $6.1 million, or 4.6% linked-quarter. Net interest income, excluding acquired loans increased $2 million, or 2% from the prior quarter. Mortgage banking income increased $4.8 million from the previous quarter to total $10.2 million.

Next process improvement and expense management, core non-interest expense continue to remain well-controlled, while totaling $98.7 million for the first quarter. Under credit quality, other real estate decreased $6.1 million, or 9.8% linked-quarter and $15.8 million, or 22% year-over-year. Net charge-offs represented 0.08% of average total loans.

Allowance for loan losses represented 263.7% of nonperforming loans, excluding specifically reviewed impaired loans. Net income totaled $31.2 million, which represented earnings per share of $0.46. At yesterday’s meeting, our Board declared a quarterly cash dividend of $0.23 per share payable on June 15, 2017 to shareholders of record on June 1.

Now turning to Slide 4, we’ll review the quarter’s results in a little bit more detail. Under loans held for investment, during the first quarter, we reclassified $36.7 million of acquired loans to the loans held for investment portfolio. These acquired loans were reclassified due to the discount on these loans being fully amortized.

Excluding this reclassification, our loans held for investment increased $116.7 million, or 1.5% linked-quarter and 9.6% from one year earlier. We continue to experience growth on our held for investment loans this quarter, while keeping our focus on credit quality and profitability.

As of March 31, 2017, Trustmark’s total energy exposure was approximately $466 million, with outstanding balances of $256 million, which represented approximately 3.2% of the held for investment loan portfolio.

At March 31, non-accrual energy loans represented 9% of the energy-related loans and 28 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.

Looking at Slide 5, we’ll discuss credit risk management. Unless noted otherwise, these credit quality metrics I will discuss exclude acquired loans and other real estate covered by the FDIC loss share agreement. Nonperforming loans increased 24.5% linked-quarter primarily because of one substandard energy credit migrating to a non-accrual status.

When compared to the prior year, nonperforming loans declined 13.3%. At March 31, other real estate totaled $56 million, a $6 million decline from the prior quarter and a $15.8 million decrease from the previous year.

The allowance for loan losses represented approximately 264% of nonperforming loans, excluding specifically reviewed impaired loans, while the allowance for both held for investment and acquired loans represented 1% of loan balances. Now turning to Slide 6, to review the acquired loan portfolio.

At March 31, period-end balances totaled $218.2 million, a $54 million decrease linked-quarter, which included $36.7 million of loans reclassified from the acquired loan portfolio to the held for investment portfolio. For the second quarter of 2017, we expect the yield on acquired loans excluding recoveries to remain in the 5.5% to 6.5% range.

Also, during the second quarter, acquired loans are expected to decline by about $10 million to $15 million. Let’s discuss deposits by turning to Slide 7. For the first quarter of 2017, average deposits totaled $9.9 billion, a $190 million increase from the prior quarter, while period-end balances totaled $10.1 billion, an increase of $48.5 million.

Noninterest-bearing deposits represented approximately 30% of total average deposit. We continue to maintain an attractive low-cost deposit base with approximately 60% of deposits in checking accounts and a total cost of deposits of about 16 basis points. If you look with me on Slide 8, we’ll discuss revenue highlights.

At March 31, revenue excluding income on acquired loans totaled a $138.4 million, an increase of $6.1 million, or 4.6%.

Net interest income for the first quarter totaled a $102 million, a $1.1 million increase from the prior quarter and was mainly due to the growth from interest income on our held for sale and held for investment loan portfolios, being fully offset by – being offset by decreased interest income from acquired loan portfolio and the increased interest expense.

Net interest income, excluding acquired loans totaled $97.2 million for the first quarter, a $2 million increase from the prior quarter and a $5 million increase year-over-year. The net interest margin for the first quarter was 3.49%, down 3 basis points from the prior quarter.

Excluding income on acquired loans, the net interest margin in the first quarter was 3.38%, an increase of 7 basis points from the prior quarter. The increase was due primarily to growth in the yield on the securities portfolio and loans held for investment and held for sale portfolios.

At quarter-end, noninterest income totaled $46 million, or 10.3% increase from the prior quarter and a 6.4% increase when compared to levels one year earlier.

Mortgage banking revenues totaled $10.2 million, an increase of $4.8 million linked-quarter and was due to a net positive mortgage valuation adjustment and a net positive mortgage servicing hedge ineffectiveness, which more than offset decreased secondary marketing gains.

Insurance revenue for the first quarter totaled $9.2 million and 8.4% increase from the prior quarter. Now looking at Slide 9. At March 31, core non-interest expense, excluding ORE and intangible amortization of $3.3 million, totaled $98.7 million.

Salaries and benefits totaled $57.3 million for the first quarter and $866,000 decrease from the prior quarter. Services and fees totaled $15.3 million, a $581,000 increase from the prior quarter, due to additional advertising and outside services. As a reminder, Trustmark terminated its defined benefit pension plan as of December 31, 2016.

The final distributions will be made from the current plan assets and a one-time pension settlement expense of approximately $17.5 million, that is pre-tax and will be recognized when paid by Trustmark during the second quarter of this year estimates that annual pension expense will be reduced by $3 million to $4 million from this point forward.

Now, let’s review capital management by turning to Slide 10. Trustmark continues to maintain its solid capital position, reflecting the profitability of Trustmark’s diversified financial services business. Trustmark remains well-positioned to meet the needs of our customers, while providing value for our shareholders.

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

At quarter-end, Trustmark’s tangible equity to tangible assets ratio was 8.8%, while the total risk-based capital ratio was 13.6%. We continue to remain prudent and diligent in the evaluation of all capital deployment opportunities. Now turning to Slide 11, we’ll conclude with our strategic priorities.

We completed the merger with RB Bancorporation and Reliance Bank on Friday, April 7. We’re excited to welcome our newest associates and their customers to Trustmark and are looking at a complete integration of systems during the second quarter of this year.

We believe our current strategic priorities align our daily activities with our long-term focus, which is contributed to the expansion of our customer relationships, while continued solid financial results and added value for our shareholders. We will continue executing these priorities as we continue to add value to the Trustmark franchise.

At this time, I would be happy to take any questions..

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

Hey, good morning, everyone..

Good morning, Andrew..

So first question is on the margin. Obviously, you’ve got some nice expansion this quarter that benefited from the higher linked-quarter loan yields.

Just digging into that, were there any outsized loan fees, or any temporary items that that help drive the increase? Also maybe just with the pricing on new loan production and just directionally where the margins you can have from here? Thanks..

Andrew, we’ll have – we’ll ask Tom Owens to comment first and then maybe Barry Harvey, as it relates to the new loan yields..

Hi, Andrew, good morning. This is Tom. The increase in loan yields was pretty clean on a linked-quarter basis. So again, that’s just the benefit we had the Fed hike in December. And that’s the benefit of the floating rate loans in portfolio pricing up in response to that, so that’s pretty clean.

Now, I’m sure someone will ask, so I’ll comment on it at this point. There’s a bit of noise in the securities yield. So when you look at our 7 basis points linked-quarter increase in core NIM, taking into account some noise from day count and yield maintenance payments, it’s more like 5 basis points.

And the securities yield increased linked-quarter of 9 basis points, it’s actually more like 3 basis points. Taking into consideration day count and yield maintenance payments, the 3 basis point increase is primarily a function of slower prepayment speeds and slower premium amortization..

Great. That’s helpful..

Again, Jerry, as it relates to the pricing of new loans, what we’re seeing is that continuation within the commercial side of being very competitive, obviously, on the public finance, typically, it’s a big process, so it’s very competitive.

What we’re seeing now on the positive side is within the CRE book, we’re seeing better pricing today – substantially better pricing today than we were 9 to 12 months ago. And so we feel very encourage that the projects remain solid from a structure standpoint, from an equity going in. There’s not really a lot of change from that aspect of it.

But what we do see is a few less players from time to time and we do see better pricing with high-quality customers..

Great, thanks. My last question is just on expenses. Obviously, the quarter run rate is almost $2 million higher than the $97 million average run rate you guys are running out last year. You have the pension savings coming in the back-half of the year.

Were there any seasonal, or non-core items this quarter that would help us think about the core rate just until 3Q?.

This is Louis Greer, really not anything out of the ordinary. We do have another expenses of one-time property of valuation adjustment of a branch that we had closed in December, of about a half – about $500,000 that’s the only unusual item.

Core expenses, I think, we gave guidance somewhere between $97 million and $98 million, we’re slightly above that and we take out the ORE expenses, as well as the amortization of intangibles. And I will tell you that, we do have the acquisition come in the second quarter. We closed that, as Jerry mentioned, in April 7.

And the expenses associated with that acquisition on an annual basis were about $7 million. So that will add a little less than $2 million to that core run rate for next quarter. And so we’re expecting, look, between a $100 million and $101 million as core expenses in the second quarter.

Once you back out the one-time charge for the pension plan of $17.5 million and we will also have some one-time expenses related to the acquisition of almost $3 million, so..

Great. Thanks for the color, guys..

Thank you..

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

Sorry about that. Hey, this is….

Good morning, Brad..

This is Peter Ruiz on for Brad, sorry about that..

Oh. Hi, Brad – Peter..

So I was wondering if you guys could maybe give a little color around the energy credit added to non-accruals.

Are you guys seeing any general weakness, or is this sort of a one-time blip, any color on that would be great?.

Okay.

Barry?.

Sure. Yes, Peter, I guess, a few things. One, as you noticed, we had a reduction in exposure of about $10 million for the quarter and about $15.5 million in reduction in outstanding balances.

So we did see a little migration off the books of a few to energy credits, balance reductions, and then it was of particular credit, we chose not to opt into a refinance up. But as it relates specifically to the one crediting question, we had about a $11.7 million credit, that was substandard as of 12/31.

They ended up filing bankruptcy during January and reorganization. And so when that occurred, we went ahead and moved the credit to non-accrual. We’ve gotten updated values on most of the collateral at this point. We’re still waiting on a few pieces to come in. So we’re really just kind of working our way through the bankruptcy at this point.

We feel like that, we’ve added a little bit extra to our specific reserve. We feel like we’re in good shape for what we believe to be the last couple of days to come in. And so I think at this point, we’ll just work our way through the bankruptcy, see where it leads us.

There may be a potential for some deep financing that needs to be done, and we’ll look to participate in that from a control standpoint. And then as the process moves along, we’ll just consider whatever plan that is presented and make decisions just on the normal course of business..

Great, thanks. I guess, just kind of switching gears a little bit. Loan growth was a little sluggish, but that’s not, I guess, unusual for first quarter.

Do you still think a mid to high single-digit basis, it’s kind of reasonable for the rest of 2017?.

We do, it was a little sluggish. But as you noted, that is somewhat seasonal for the beginning of the year for us. In additional, I think you’re hearing throughout the country that their most banks are experiencing a little less activity than they had in 2016.

We, however, have a number of loans that have already been booked as in the construction book that as they fell out, they will continue to fund up and a very healthy pipeline of loans. And we would think that the original projection that we gave you in the – in January would hold true to be somewhere in the mid to upper single-digit growth rate..

Great. I guess, maybe one last one for me.

Have you – could you quantify at all what sort of cost saves you could expect from the acquisition, if any at all?.

Peter, this is Louis. This is a relatively small acquisition, it was very strategic. And we have some normal cost saves in this – our estimates of adding this acquisition not significant, because we do expect to grow that market enhancement additional resources..

Yes, this was the addition of the Athens, Madison, Huntsville markets for an extension North on I-65 from Birmingham, and well-run organization that we acquired, operated very efficiently, isn’t really much overlap. But we believe, it’s one of the top growth markets in the Southeast.

And we believe that the growth potential is the value in this acquisition more so than cost saves.

Any other question, Peter?.

Thanks..

Thank you..

[Operator Instructions] Our next question comes from Kevin Fitzsimmons of Hovde. Please go ahead..

Hey, guys, good morning..

Good morning, Kevin..

Just more of a broad top-level question on the margin, and I guess this might be more of a move point once we have the deal, but or the deals in there.

It seems like looking back at that margins chart that you all have on, let’s see, I believe, it’s on Slide 8, down the lower left, seems that this, we’re really getting the reported margin and the core margin starting to get closer and closer together.

So, Louis, just wondering how we should think about that trajectory? Is that in terms of the convergence when it happens and how it happens in terms of – is it more likely that the core margin moves up toward the reported margin, or does the accretion vein quicker in the reported moves closer to the core margin? Thanks..

Kevin, we’ve been doing a lot of work on that projection. We have obviously a Fed rate increase in December then one in March. And it’s kind of a readjusted the inflection point with the core margin plus the reclass of some of the loans and the acquired loan portfolio that we talked about.

And then the minimal size of the acquired loan portfolio has decreased.

So I’m going to ask, Tom Owen, has done that work to add a little color, if you would, Tom?.

Sure. So, Kevin, as you noted, those – the two reported margins have continued to converge with the runoff and size of the acquired loan portfolio, as well as the yield associated with it. We are getting closer to stability.

Our internal projections are that, they will continue to converge, but not quite total convergence, but really close here over the next year or two. The other related point is that, we’re pretty close to the point now, where total NII should be going up.

They will be going up year-over-year, as the growth in the core earning assets and the core net interest income now finally overcomes the headwind from the payoffs of the acquired loan portfolio..

Got it. Okay, thank you. Just one addition, Jerry, with the deal closed, and I’m sure now you have to focus on the integration for a while. Can you give us a sense for how the pace of conversations out there is going with potential sellers whether that’s something that seems – you seem more optimistic versus three months ago? Thanks..

Thanks, Kevin. As you mentioned, yes, we have – we’ve closed the transaction from a legal or regulatory standpoint integration. We anticipate by June we will fully convert their systems, a lot of training already taking place, and of course, much of the work we’ve already moved past.

So its clearly a focus on looking at other opportunities that may be available. As far as conversations, I think, the movement in stock prices in general in the financial sector has caused a lot of people to rethink. Some from the perspective of the valuation there that has been there a long time.

We talked at the last quarterly meeting about the four things that could really help justify this increase in valuation, the change in the corporate tax rate, economic stimulus through government spending, less regulatory costs, and then finally, a steep in yield curve, quite honestly there none of those things we see have really occurred yet.

So that side of it, the higher valuation and really nothing has changed significantly, has got people thinking about maybe it’s time to move. So I would say, there’s good conversation, a different type of conversation.

And we feel like our capital position has improved to a point that we will be ready for the opportunities that hopefully we can then cover. I don’t know if that was helpful or not, but that’s kind of where we are..

Yes, great. Thanks, Jerry..

Hey, Kevin, thank you..

[Operator Instructions] There appear to be no further questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Jerry Host for any closing remarks..

Thank you very much, operator. We’re very pleased that you joined us this morning. We’re excited about the – about our first quarter, feel like we have so much positive momentum in the company and all areas of the company, and we’ll work very hard to continue this momentum forward.

So again, thank you for joining us, and we look forward to our next second quarter results at our July call. Thank you and have a great day..

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