Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's First 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 morning. I'd like to remind everyone that a copy of our first 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 morning, we 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 risk and uncertainties, which are outlined in our earnings release and our other filings with the Securities and Exchange Commission. At this time, we'll turn the call over to Gerry Host, President and CEO of Trustmark.

Thank you, Joey, and good morning, everyone. Thanks for joining us. As we -- as I finish my comments, we'll go into question-and-answer. And with us to add color to that session is Barry Harvey, our Chief Credit Officer; Louis Greer, our Chief Financial Officer; Tom Owens, our Bank Treasurer; and Buddy Wood, our Chief Risk Officer. Let's start, if we could, by looking at some of the first quarter highlights. We had solid financial performance again. We experienced a fourth consecutive quarter of loan growth in our legacy portfolio. Our credit quality continues to improve, and the core net interest margin expanded by 4 basis points. We reduced our noninterest expense. And all in all, we feel it was a very successful quarter as we began our 125th year in business as a financial services company. We do that with a very strong capital base and it has positioned us, we believe, very well for the future needs of both our customers and our shareholders. In the first quarter, our net income was $29 million or $0.43 a share, a return on tangible equity just below 13% at 12.93%. And our return on assets of 0.99% or right at 1%. We, yesterday, in our Board of Directors meeting, our board declared a quarterly cash -- approved and declared a quarterly cash dividend of $0.23 a share and that will be payable on June 15 of this year. Now let's take a look in a little bit more detail on the first quarter. Looking at the balance sheet in quarter and the loans held for investments totaled $5.9 billion. This was an increase of $125 million for the quarter or 8.8% annualized. The growth that we saw was diversified by both market type and loan type. Our commercial and industrial…

[Operator Instructions] The first question comes from Michael Rose with Raymond James.

I just wanted to kind of reconcile your commentary around kind of mid-single-digit growth this year, because it looks like the legacy growth was a little bit better. And wanted to get some context on what happened in Texas this quarter, it looked like growth stalled out after pretty nice growth over the past couple of years. Was there any pay downs or any seasonal items or anything that impacted growth in Texas?

Thanks, Michael. And yes, there was some significant pay down. We had a couple of hotel projects that we had been involved in from a construction standpoint that went to permanent. We had another large participant credit that we were involved in that we choose not to renew. That was very significant. And then a couple of C&I pay downs. Total amount of large nonscheduled pay downs was in excess of $60 million.

The next question comes from Steve Moss with Evercore.

I just want to touch in terms of the C&I book here, what were the big underlying drivers of growth this quarter?

On the C&I portfolio, it was very well-diversified throughout the footprint. Barry, you want to add some specific color?

Sure, I'd be glad to, Gerry. The main 2 markets that the growth occurred in, while we did have growth throughout the footprint, as Gerry indicated, we did see quite a bit growth in Mississippi and Alabama. It was energy-related, it was transportation and timber. We had commercial contractors. Those were the main areas where we saw some growth on the C&I side.

Okay. And just wondering in terms of pricing these days, what are you guys are seeing? Is that more just on price, or are you seeing on term and structure too?

It's mostly on price is what we see. We -- our underwriting process is pretty similar to most institutions we compete against. So there's not a lot of difference in most instances on the opportunities we see. But from a pricing standpoint, it's -- well, it has somewhat stabilized in terms of the ROEs that we're able to achieve on the credits that we're getting the chance to bid on. We're -- while it has stabilized, it is still fairly competitive and it is fairly thin in some instances on the higher-quality credits. But the good news is, it has over the last 18, 24 months, it has stabilized in terms of the pricing that we're getting on the higher-quality credits.

[Operator Instructions] The next question comes from Steven Alexopoulos with JPMorgan.

This is Preeti Dixit on for Steve. Quick question on service charges, they looked pretty soft -- they looked pretty soft this quarter. Was there any unusual activity there beyond the usual seasonality and could we maybe expect more of a catch-up heading into 2Q?

Louis, why don't you answer that?

Yes, there's is some seasonality in there. But also I do think we saw a little bit of decline related to maybe some of the weather activity during the first quarter. People are not being able to get out in the Southeast, because of the weather conditions here in the Southeast, fairly severe winter and we saw less swipes on the debit cards as a result of that, we saw fewer chargers related to that activity.

One other thing, let me add to that, Louis. One thing I would comment on, we have seen a change in NSF revenues. Some of that we believe is seasonal, some of it may be a function of people's balance as been higher because of the e-filing of tax returns and receiving their tax payments earlier, as we look at accounts. So it is a bit softer than it was. Some of it is seasonal, some of it may be behavioral change as well. It is little early to tell. We've -- we think that this is something that other banks are experiencing as well, but it's a little early to be certain.

Okay, that's really helpful. And then, in terms of the mentioned on the focus on expenses and some branch consolidation, can you maybe give us a little bit color on the puts and takes that keep that guidance at kind of the 95 to 96 range. And then maybe is there are any opportunities you're seeing to drive that a little bit lower?

We're constantly looking at options to drive the number lower. The balance that we look to reach has to do with a process where, as we mentioned earlier, we're looking at branch consolidations in different markets, process improvement through utilizing technology while we have technology spends to keep us current and competitive. At the same time, we're balancing that against some expenses that we have had related to increased compliance and regulatory costs. One of the things we've talked about last time was DFAS and the fact that we are working through a more robust model to be in compliance with banks over -- the requirements of banks over the $10 billion size. So a lot of those expenses have been incurred. We would anticipate they're going to be additional expenses, just because of the environment that we're in. We're staying focused, not only on regulatory issues and compliance issues, but also issues that help ensure that safety and soundness from a cyber security standpoint are on the forefront. And we remain very focused and diligent relative to that issue. So it's very much a balancing act defining expenses at the same time where you're having to incur expenses. We do believe we can keep it at that 95 and 96 level, but internally, there's a lot of things going on to keep it there.

[Operator Instructions] The next question is from Dave Bishop with Drexel Hamilton.

I was wondering, Gerry, if you could maybe talk about -- maybe, as you look at capital, maybe the rank order of use of capital, is it acquisitions, maybe solidify the dividend a bit, potential buybacks, M&A? Just curious how you sort of think about use of capital.

That's something that is discussed regularly with the board. And I will tell you that, as you mentioned, the different types of capital utilization, our dividend payout ratio is just above 50%. It's been consistent now for a number of years, we've gone through the cycle without lowering that. We believe that those investors in Trustmark find that to be very beneficial. At the same time we've kept that steady, consistent dividend, we've been able to grow capital and have done 3 acquisitions, one of them is fairly significant last year. Since then, the profitability has allowed us to grow back the capital levels to a point to where we can sustain this organic growth that we have recognized here in the last 4 quarters on the loan side, sustain that and still have the ability to go out and look at other opportunities. Because at this point in time, we feel like growth is clearly our major focus and strategy and that's a combination of both organic and M&A opportunities.

The next question comes from Blair Brantley with BB&T Capital Markets.

I had some questions on the investment portfolio and how you're kind of thinking about that from a relative size perspective. Obviously, it's growing throughout the cycle. Just trying to get sense of what maybe your target size maybe given some of the loan growth that you've had recently?

I'll let Tom Owens talk a little bit about that strategy there.

So Blair, as we've guided in the past, our current target is about $3.6 billion. You can see, we're up a little bit during the quarter to about that level. There's really been no change in the strategy there. Gerry mentioned earlier, in terms of liquidity, it seemed like the seasonality of deposit flows were bit higher than where we would expect to be right now, maybe a couple of hundred million dollars or so. We are evaluating the deployment of that liquidity. So if the market presents the right opportunities, it wouldn't be surprising to see us invest, grow the portfolio $200 million. And then, over time, I think the plan is to maintain it at that level. But as we say, we need to continue to grow earning assets. And so that would be a lever that you could potentially pull to do that if you don't get the loan growth that you were looking for. But there has been no change in the strategy in terms of duration or the securities that we're investing in.

So all else being equal, as a percent of earning assets, you would expect that to fall over time in your security portfolio?

As growth continues, you're right, the normal cycle is, as growth continues, the investment portfolio, cash flow helps to fund that loan growth. And that's what we would expect. But as Tom said, if in the event we see the economy slow again and loan growth slows, then obviously, he will take advantage of utilizing the excess cash we have in the portfolio.

Okay, and then -- that's very helpful. And then on and just the reported margin side of it, accretion obviously from BankTrust, there's going to be some volatility and whatnot, but how would you see that kind of trending over time? Or how much license is really left there in terms of that benefit?

Well, Barry, you added to my comment, but obviously, there was a significant mark and a significant size within that acquired loan portfolio that we are continuing to work through. We have recognized some of the opportunities and value, and we would anticipate that there will be additional benefits through the remainder of the year, given the fact that the economy continues to improve. So we would think that there is additional benefit. That the timeframe should be throughout the remainder of this year. And Barry, I don't know if there is additional color you want to add or not.

Yes, Gerry, I guess couple of things, Blair, and Louis might want to chime in on the accretion piece of it. We've talked about our growth rate, $150 million worth of runoff that will occur over the remainder of the year in our acquired loan portfolio, and that's based upon scheduled payments and maturing loans, things of that nature. Now -- in that part of it, I think, as we know it today, is fairly predictable in some respects. But I think the part that's less predictable is the potential resolving and settling out of some of this debt and it will come in the form of, in many cases, in the form of recoveries. In some cases, it will come in the form of improvement in the credit itself and show up through the accretion side. But to answer your bigger question is, there's still much life left in the portfolio. We believe, from a recovery standpoint, there's quite bit of life left in the portfolio, from the standpoint of working through the credit and how we perform based upon the mark we have previously established. And then that will influence the accretion as well, because as we do work through the problems and hopefully generate some meaningful recoveries, those loans will not be there to accrete on a go forward basis. So it's kind of a -- there's kind of 2 parts to it.

Yes, Barry, to add, we've got about $745 million worth of those loans as of March 31. And I'd say the accretable yield on that at March 31, to be accreted over time is still over $100 million. So right at the $103 million, $105 million. So I think at the pace of runoff of about $50 million per quarter, I think you can do the math.

The next question comes from Jennifer Demba with SunTrust Robinson Humphrey.

Just curious as to how much of your loan growth during the quarter might have come from participations or shared national credits and the like. And then, I have a question about M&A.

Well, Barry, do you have specifics there? Okay, go ahead Barry?

Jennifer, what I can tell you is, we are obviously always looking at all of the credit opportunities we have. We've got some pretty strict parameters, by which we decide to get involved in participation. And we do focus strictly on inside of our market footprint and also making sure there's a business reason to be involved in the credit and not just transaction. There's some ancillary opportunities to obtain additional business. On a regular basis, on a monthly basis, we monitor carefully our levels of participations, whether it be Snix [ph] or non- Snix [ph] that we buy into, and we have established parameters that are at the board approval level as to how much we're going to have in any given market, in any given type. We don't track day in and day out how much of our growth is participation versus nonparticipations. But I would say that of the large credits that we're participating in, quite a few of those are shared national credits, or at least purchase participations. But I would say, from that perspective, it's not -- it's nothing other than credits that are larger than we're looking to have a single hold in. And there is a business reason to be in every one of them and we feel like there's ancillary business to be gained in every one of them, and they are inside of our market footprint.

Okay. And on the M&A front, you said you're interested in transactions in attractive markets and the footprint. Specifically what markets hold greater interest for you at this point?

Well, basically, that's something, Jennifer, that we're -- we have stated before that our focus is in the Southeast. As you know as well as probably better than I do that opportunities to acquire other banks present themselves or can be gathered, depending upon a particular situation in an organization. So we have not limited our focus to any particular area or specific market. We have found success in both in-market transactions where we can take some costs out and we can improve market share. And as well as opportunities like the BankTrust transaction where we really -- we had a mortgage loan presence, but we didn't have a banking presence, and moved into that market and it's done very well with that transaction. So we'll stay within the Southeast footprint, we'll stay open as to both consolidating opportunities and opportunities to expand the footprint.

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

Well, I would like to, first of all, thank you, again, joining us and for your interest in Trustmark. We do believe we have a very good first quarter. There's great momentum both from a growth standpoint and from, as we have talked, the opportunity on what we're doing with the acquired loan portfolio, the businesses as it relates to wealth management, insurance have done very well. And we believe will continue to do well. And again, we thank you for joining us. And we look forward to visiting you at the second quarter call.

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