Good afternoon, ladies and gentlemen. And welcome to Trustmark Corporation's Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. It is now my pleasure to introduce Joey Rein, Director of Investor Relations at Trustmark.

Good afternoon and thank you. I'd like to remind everyone that a copy of our fourth quarter earnings release and supporting financial information is available on the Investor Relations section of our website at trustmark.com. During the course of our call this afternoon, 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 in our other filings with the Securities and Exchange Commission. At this time, I'll turn the call over to Jerry Host, President and CEO of Trustmark.

Thank you, Joey, and good morning, everyone. Thank you all for adjusting your schedule for this late afternoon call. We would anticipate that, that our next conference, quarterly conference call will be back on normal schedule but we appreciate you staying with us this late. Joining me in addition to Joey Rein is Louis Greer, our Chief Financial Officer, Barry Harvey, our Chief Credit Officer; and Mitch Bleske, our Chief Investment Officer and Treasurer. And they will all be available at the end of my comments to answer questions that you might have. Let me start out first of all by reviewing a couple of the highlights of 2012 which for us was a year of significant achievement, particularly in light of the economic conditions we've all faced. Profitability of our mortgage banking group reached record levels. We increased profitability of our wealth management and our insurance businesses. We showed significant improvement in credit quality and we completed the merger with Bay Bank in Panama City and we announced plans to acquire BankTrust in Mobile which we expect that transaction to close later this quarter pending regulatory approval. We also continued making investments in technology to increase revenue long term and to improve efficiency within the company. Our 2012 net income available to common shareholders totaled $117.3 million, diluted earnings per share $1.81 which is an increase of 9%, return on average equity of 1.2% and return on average tangible common equity of 12.55%. I may have said return on average assets of 1, return on average equity. Fourth quarter 2012 highlights if I cover posted solid performance in the fourth quarter with net income available to common shareholders of $27.7 million, diluted earnings per share of $0.43, up 13.2% from a year earlier. Our return on assets for the…

[Operator Instructions] And our first question is from Steven Alexopoulos of JPMorgan.

I wanted to start with net interest income declining around 4% or so in the second half of 2012, it's down around $4 million. Just given your margin guidance which is down 8 to 10 basis points a quarter, should we expect similar pressure on net interest income for the full year 2013 sort of down around 4% or are there any offsets of that we should be thinking about?

Well I think to answer your question we would anticipate if we remain in this low interest environment that we'll continue to see pressure on the margins. We have been in the past been able to maintain floors on many of our loans. As those loans are being repriced, as they become more and more challenging to keep those floors just because of competitive reasons. And as you know, you can take a look at the investment portfolio, see the runoff in the investment portfolio and understand that this $65 million to $75 million a month is being reinvested in the 1.75% to 2% range. And then on the deposit side, you take a look and see that where we are with overall deposit cost extremely low levels. We're not able to, because of that compression, squeeze a significant amount more out of that. And so, you're going to get squeeze margin. So what we're looking for is some if we see improvement in the economy, you're going to see 2 things happen. You're going to see I think loan growth increase as the economy improves and you're going to see a yield curve that might steep a little bit when that happens that the benefit of the core deposit base that this company has I think really starts to kick into improve the margin.

Okay. And maybe just one other question. I wanted to follow-up on comments on the release regarding the efficiency opportunities that you talked about. One, is there anything you could share with us today in terms of cost saving initiatives for the new year? And then second, do you see enough of a cost saving opportunity to at least drive positive operating leverage in 2013?

Thanks, Steve. First, I'll start and then, Louis, you certainly can fill in since you are the driver of efficiency. So that has become very much focused in the company on revisiting where we might find additional efficiencies. We put some technology, new technology this year in both our HR area and our finance area that we believe will help drive efficiencies and in terms of people cost overall. Secondly, we'll be looking at ways that we can improve efficiencies through our branch configuration network, areas where we can look at reducing number of branches, other areas where we might need to expand our footprint or do 2 for ones. So there are a couple of areas that we'll look at and Louis if you want to add any color to that, please do.

Jerry, I think you're exactly correct, but we've been looking at our run rate I think on a quarter basis. On a quarter basis -- on a quarterly basis, somewhere around that $80 million or $81 million in dollars, of course when you look our expense base for 2012, it had some pieces in balance. So we're going to try to get back to that core run rate of somewhere around $80 million, $81 million for 2013. And that would be through some efficiencies, certainly through technology as well as branch consolidation.

Our next question is from Catherine Mealor of KBW.

Maybe a little more on the margin, maybe first, can you give us the accelerated accretable yields for this quarter and any guidance for that going into the first quarter of next year?

Yes, Catherine I think the accretable yield that we have for the quarter is about $2.3 million.

Okay, so down a little bit.

Yes.

And then any thoughts on that going into next quarter?

It's hard to predict just because of the fair value accounting and re-estimating cash flows and those type of things it's hard to predict but I would say, we've been fairly consistent for the year around $2 million a quarter.

Okay, all right. And then on the -- you mentioned that you changed your posting for your checks, did you do that early in the quarter or kind of mid-quarter, so do we see a full impact of that in the lower service charges this quarter or do you think we'll see another decline aside from just a normal seasonal declines you see in the first quarter, next quarter?

We think that the annual impact, first of all, yes, we did put it in early in the quarter. Secondly, we think that the annual impact is going to be somewhere in the $3 million to $3.25 million range.

And our next question is from Jennifer Demba of SunTrust Robinson Humphrey.

Can you talk about M&A opportunities and kind of the flow of opportunities you're seeing now versus maybe 3 to 6 months ago and what your interest level is and bearing your time given that you are about to close BankTrust sometime during the first quarter?

Well, Jennifer, first of all I think that the level of activity relative to where we were 6 months ago in terms of conversations and contact that we're receiving is fairly consistent. I will tell you that our focus right now is on getting BankTrust closed, consolidated ensuring that we have a smooth transition so that their customers are impacted in a positive way and it's one of those things where even though you have for us a sizable transaction you've got to stay aware of other opportunities that are out there the fact that we have the strong capital position I think puts us in a position that is those opportunities come up. We find something that works at a good price, we certainly will be prepared to take advantage of it. But our focus right now is on closing BankTrust and a smooth transition.

[Operator Instructions] And our next question is from Kevin Fitzsimmons of Sandler O'Neill.

I know there was a question answered earlier on expenses and Louis you mentioned how you are trying to work back down through that $81 million quarterly run rate. Can you talk just on personnel expenses? I know you guys mentioned a couple lumpy items that caused that to be higher. Is this really the new run rate for personnel expenses or is it or are these kind of seasonal items that are going to come down next quarter?

Let me start and Louis'll add to that, Kevin. Three things. One, there has been expense associated with a general incentive accrual. Our earnings this year for 2012 were very strong and included some significant milestones relative to some goals we had set at the end of 2011. So we have accrued incentives in order to pay our people. In addition because of the record volume in the mortgage company we're seeing significant increase in the accrual for commissions on originators. So those are 2 things that I would say if they're not at the same levels that we've seen last year wouldn't be -- those aren't necessarily ongoing run rate. The other thing I'll comment on is we did some hiring in the fourth quarter in anticipation of BankTrust to prepare for including, to ensure that we have consistency in service levels and that's a bit of an abnormality. So those are the main reasons and then Louis you want to touch on some of the medical expense?

Yes, we have a self funded medical plan and we like to keep the targeted balance and there so we took put an additional 650 in that plan to come up with full week basis on adequate balance for funding so that was a one-time fourth quarter we made about 650 so Kevin you back out the stuff that Jerry mentioned pluses we expect the run rate similar to the first 3 quarters of 2012 on average so.

Okay, great, that's very helpful. And just a quick follow-up on credit I know you had the slight negative provision on legacy loans this quarter but how should we think about provisioning going forward. It seems like the allowance to loan ratio down little over 1.4% is more toward a normalized pace. Should we think about provisioning in line with net charges-offs going forward?

Kevin, this is Barry. That's kind of hard to say at this point because we continue to see a trend in net upgrades and therefore some release of provisioning as that occurs, we're continuing to work through our problem loans and as we do so, we've got in many cases if they are impaired we've got specific reserves on those and as we're able to settle that debt or revalue that debt on any given quarter the revaluation seem to be less of a drop than we've seen previously so at some point the specific reserves we have are going to -- are going to substantially outpace the actual write down at which point we'll know we don't need those going forward but at this stage we still got them on the credit. So as I would say '13, I would see the net charge-offs continuing to outpace the provision just looking forward.

And next, we have a question from Michael Rose of Raymond James.

Just wanted to circle back to the margin guidance, I think you said 8 to 10 basis points compression a quarter, in the first quarter at least layering in BankTrust, it seems like the margin would be a little bit lower, can you at least from a pro forma standpoint kind of give us what that impact might be?

Well, I guess first quarter, first of all I think we hope to have the transaction close by first quarter and I don't know that the impact on BankTrust in the first quarter is going to be significant. There -- well once we get it done, there will be some noise in the following quarter from expenses that we will take relative to the transaction but as far as the overall margin, we feel like what they will add margin wise will be fairly consistent with our margin, they've been able to obtain good yields on their loans, and we think there is some benefit in some of their deposit pricing that we can help just by reconfiguring the mix. Mitch, you got any color you want to add to that?

I mean, if you were to run rate the margin for BankTrust, we'd estimate about $14 million a quarter. So, depending on when they're coming in the first quarter you might see some impact and of course -- net interest income from them -- in terms of net interest margin percent impact it's hard to tell partly because we'll obviously use purchase accounting depending what the discount cash flows were used it's really going to drive what the total margin percent impact is for us.

Certainly the margins come down from our original view. When we did the announcement of the transactions certainly there the loans have run off a little bit. So I think Mitch said the margin that we projected in quarterly basis is fairly accurate. But again there are a lot of moving parts in this fair value accounting in intercept.

Yes, and that's what I was trying to get because I think if you just take the third quarter numbers and kind of smash the 2 together it's about a negative 20 basis points but I know there is puts and take.

Sorry, Michael. That's just a hard number to predict at this point in time especially since we like to update our unit day one accounting and all that.

And our next question is from David Bishop of Stifel, Nicolaus.

Sorry about that. Hit the wrong button there. Hey, quick question following up on the credit side of things, you'd mentioned in terms of the revamp in terms of the reserve methodology I think was on the consumer portfolio?

Right.

Is that going to spread to maybe some of the other portfolios there and that had an impact if you look forward in terms of the outlook for provisioning the reserve as well?

It was actually the result of working to become consistent relative to the commercial portfolio and Barry if you want to add to that.

Yes I think that's pretty [indiscernible]. I think that we've had, when we built a commercial portfolio during ‘08, we built it in ‘08 and we kind of built a 3-year history: ‘08, ‘09 and ’10. Then it became a 12-quarter rolling average at that point. We had always had a 20-quarter rolling average on the consumer side that we just maintained but we -- the more we looked it, the more conversation we have with third parties. The desire for the consistency between the 2 is -- continues to be a subject of conversation. We took the opportunity and resulted in a provisioning of about $1.4 million that impact to the provisions that's a one-time occurrence. Today they are synched up. We really don't see any need to make any further adjustments either on the consumer or the commercial side as it relates to the, as it relates to the length of the rolling average on the quantitative side.

Okay, great. And then just in terms of the outlook for loan demand there. You know that some pockets of growth is squarely on the public side there may be talking about the loan pipeline entering this year relative to entering last quarter and you are -- where you do see some opportunities as Texas going gangbusters, we’ve heard from others what you are seeing in some of the markets in Florida there as well.

Yes, healthiest loan growth we've seen is in Texas and some real estate related projects multifamily primarily in Tennessee markets and in the Mississippi markets, we are seeing some pick up in line usage in all markets other than Florida. So the fourth quarter pipelines and actual production were as positive as they have been in several years. We're seeing pipelines continue to have that steady flow, although it is not robust. We're starting to see some of the projects that were done in the fourth quarter beginning to fund here in the first quarter. So as we stated in our comments, we are cautiously optimistic about loan growth but we are certainly not back to levels that we were pre 2008.

And the next question is from Blair Brantley of BB&T Capital Markets.

Had a couple of questions on BankTrust. You had mentioned in closing at the end of the quarter or is that still the target at the end of February?

Well, we're hoping for the end of February but we're still waiting on regulatory approval and until we get that approval we really can't set a specific closing date.

And then secondly, it seems like conditions have kind of got worse for BankTrust, is part of that just getting in preparation for the closing of the deal, some like capital has gone down, [indiscernible] seems to have gotten worse, obviously some have run offs. Can you comment on that at all?

Not really, we're not seeing that things have gotten worse, we're seeing that we are all working on in preparation of the merger but I really couldn't comment on any conditions that BankTrust at this point.

Okay, I have to know if something what you kind of when you got first kind of with the deal in terms of credit margin, of anything had changed there with conditions with some things that may have popped out that maybe weren't caught before hand or something like that?

No, I can say that Barry Harvey and his team have been in there before. We're not changing our credit marks at all. I think obviously like we have experienced some compression in the margin, they have but it hasn't been significant. You look at growth, loan growth with their capital position, they are just waiting as we are to get this transaction completed so that we can move forward. But they continue to stay focused on serving the needs of their customers in all their markets.

This will conclude our question and answer session. I would like to turn the conference back over to Jerry Host for any closing remarks.

Thank you, operator. Let me just say that's we appreciate very much again you joining us late on this Tuesday afternoon for the call. We appreciate your interest in Trustmark and look forward to our call at the end of the first quarter of this year. Thank you all for joining us.

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