Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's Second 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 Joey Rein, Director of Investor Relations at Trustmark. Please go ahead.

Good morning and thank you. I'd like to remind everyone that a copy of our second 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'll turn the call over to Jerry Host, President and CEO of Trustmark.

Good morning all, and thanks for joining us. Also with us this morning are Louis Greer, our CFO; Barry Harvey, the Chief Credit Officer; and Tom Owens, the Bank Treasurer. Let's begin by looking at our second quarter highlights that begin on page 3 of the presentation material. We are pleased to report another quarter of solid financial performance. Our legacy loan portfolio expanded for the fifth consecutive quarter. Our acquired loan portfolio continues to perform extremely well, as cash flow estimates continue to improve and yields on acquired loans have increased. Asset quality metrics also continue to perform well as criticized and classified loan balances continue to decline in our legacy loan portfolio. Our deposit base remains very strong. Non-interest deposits represented 27% of average deposits in the second quarter and our cost of deposits declined to 16 basis points in the second quarter. Total revenue expanded 7.5% relative to the prior quarter to just shy of $150 million. Our capital base continued to grow providing us with a continued ability to meet customer demand. Net income in the second quarter was $32.9 million which represented earnings per share of 49%, an increase of 14% from the prior quarter. Our financial performance during the quarter produced return on tangible equity of 13.9% and a return on average assets of 1.1%. I'd also like to remind you that our board declared a quarterly cash dividend of $0.23 per share payable on September 15 to shareholders of record on September 1. Let's review the quarter in a little more detail. Turning to Slide 4, as I mentioned a moment ago, we continue to experience solid growth in our legacy loan portfolio. At quarter end, loans held for investments totaled $6.2 billion, an increase of $263 million or 4.4% from the prior…

We will now being the question-and answer-session. (Operator Instructions). The first question comes from Steven Alexopoulos of JPMorgan. Please go ahead.

I wanted to start -- at $263 million, loan growth was obviously very strong in the quarter. How are you thinking about loan growth potential for the rest of this year? Does it stay at $263 million? Does it fall back to the 1Q level at $125 million? And may be comment on drivers?

Good, Steve. I will answer kind of at a higher level ask Barry to add a little detail to that. I would tell you that our feeling is that if you look at growth year-to-date that would be a good indication of what our expectations are for the remainder of the year. Second quarter was extremely strong but some of that was a timing issue. These are construction loans that were made in the first quarter and in the fourth quarter of last year where the equity was put into the project and now they're starting to draw down in their lines during the second quarter, so some of that was just kind of a timing difference. So I think you would be better off looking at the first half of the year as an indication of what we expect going forward. Pipelines look extremely healthy. We've talked before in the fourth quarter, in the first quarter, fourth quarter last year, first quarter about the fact that our pipelines are looking better than they have in five or six years. That continues to be the situation here. So pipelines are healthy. Good demand, it is a competitive environment. We are maintaining disciplines relative to our underwriting processes. And Barry maybe you can speak a little bit to diversification and add any additional details you would like to.

I'm glad too Jerry. I guess Steve and I guess couple of things. One, when you look at the numbers here, you see the negative $61 million in the construction category, land development, in reality there is about $140 million that is migrated out of that category into our non-bond, nonresidential and other real estate secured. And that's going to be your non-owner occupied and your multifamily projects that have been completed and they're migrating down into the existing category. Actually, we're up roughly $88 million in construction land development and is under construction category, a little bit one-to-four family but most all of its other construction or commercial construction, if you will. When you look at the one-to-four family growth of the $48 million that's going to be predominantly coming out of our mortgage company about $38 million, about $10 million is going to be in our home equity lands and loan portfolio. We're glad to see some growth beginning to reoccur there. The mortgage quality that too our mortgage company, extremely solid in today's environment, it's mostly predominantly still 15-year paper, non-jumbo. There is a little jumbo, there is a little 30-year paper, but commonly it's what it always has been 15-year non-jumbo. When you look at commercial C&I portfolio, we are diversified between Tennessee, Texas, and Alabama. Nice solid growth, quality customers. You also see that within the other loan category we've got a significant amount of growth there $88 million, that's going to mostly be coming out of the public finance side, about $69 million of that $88 million that's coming for a diverse -- from really all our markets Mississippi, Florida, Texas and Alabama are all contributing in that area. So we're very pleased with not only the diversity of the types of growth we're seeing, we are very pleased with the diversity as in relation to the markets. As it relates to the CRE portion of it, one thing that's a pleasant situation for us is, while we work our CRE exposure down over '08, '09, '10 and '11 as some banks feared it provided us with a room to pursue this good opportunities with strong sponsors, lot of equity going in. As Jerry mentioned, it takes a little while for these types of loans to fund up but they're beginning to fund up. Some of this is stuff that we booked back in '13, that's beginning to fund up as the equity is going in. And we still see quite a bit of loans on the books today that have quite a bit more to fund. So overtime we expect that to happen over the next 18 months.

That's excellent color. Thank you. May be to follow-up on that. This quarter, I guess the interest income on the acquired loans was about 20% of total interest income. Can you talk about the ability to drive net interest income growth for the rest of the year, given your guidance of $60 million of runoff per quarter from the acquired?

Yes. We will talk -- first of all, let's talk core from the held for investments. We -- this growth continues. We do feel comfortable. We should remain steady as long as we're in this interest rate environment. Somewhere in that 350 range obviously, with rates having dropped just a little bit from where we were several months ago that puts a little pressure on but we feel comfortable about that core margin. Now, Barry, we -- the acquired loan yield, as well as acquired loan recoveries is a very difficult item to accurately project because there are so many variables in there. But Barry may be you could give just a little bit of sense as to what we see for the remainder of the year in that portfolio.

Sure. And now, let me comment a little bit on it and I may pass it over to Louis to comment on it from the accounting side of it as well because those are two work hand-in-glove. From the credit side of it, what we continue to see within the -- the unrelated to the recoveries, what we continue to see in the portfolio is improvement in the overall risk ratings, more upgrades than downgrades that results in a lower profitability default, a lower loss-given default. Therefore, we have an improvement in the projected future cash flows that are going to come off that portfolio. We continue to see some pay downs that aren't scheduled, principal pay downs, as we are able to work with the customers. We are also very encouraged by the fact that the loans that we are losing out of that portfolio typically are loans that that are substandard credits, problem credits that happen to fit inside of some pools, whereas what we're not seeing is a loss of the core franchise that we purchased. With the good solid customers we're able to retain them and continue to expand that relationship. So from that perspective, on the credit side, we continue to see working through the problems but also maintaining and actually growing the solid relationships that we acquired.

Yes, Barry. And as those cash flows prove on a quarterly basis. And the re-estimation that cash flow prospectively, it increases the yield forward. So cash flows continue to increase, yields will continue to remain at this level or even higher it just depends because as you can see this portfolio continues to run down. So that's the accounting works.

And one last comment I will make. On the recovery I side, while we did have a nice recovery this quarter we are seeing opportunities to continue to have solid recoveries coming out of this portfolio.

So I guess what you're saying is, given your outlook for recoveries, you expect to be able to drive net interest income growth for the balance of the year? Is that what you're saying?

The thing what Barry said and there is a potential to see recoveries to continue, at what level it's just very hard to predict, Steve.

The next question comes from Michael Rose of Raymond James. Please go ahead.

Can you just update us on what you're doing to offset the loss revenues from Durbin? If you have any specific initiatives in place and what your thoughts are there?

Yes. It's good question. And obviously, one thing of the industry as a whole is looking at -- we are -- obviously there has been a change in focus as it relates to interchange income, as it relates to NSF/OD. That also has had an impact on us as we released earlier. We have settled our NSF/OD litigation. The checks and the credits for that went out during the second quarter with some explanation. Yet we continue to see increased volumes of debit card usage throughout the system, which helps to offset that. We continue to work to open new checking accounts and relationships, work to expand the electronic banking channel so that we can be more responsive to customer needs. But it's going to be a matter of working to grow various areas within the retail banking sectors. As Barry pointed out, we've been working steadily and have had success in growing the home equity lines, the credit card portfolio, which is from a pure margin standpoint most profitable has grown in the second quarter. So it's not any one thing, but I think a matter of insuring that we're in front of customers and offering all the products and services that we have available.

Okay. That's helpful. And then as a follow-up, can you talk about or walk us through your thoughts on regulatory costs as we move through the remainder of this year and into next? And more specifically, if you could maybe touch on what you've done in the BSA and AML arenas? Thanks.

Yes. Obviously, there has been. We celebrated Durban, I think on the fourth anniversary of Durban on Monday. And obviously, there has been significant change in the regulatory arena. And both the regulators and the banks are working their way through all of the new rules and regulations that have been put out there. We -- in addition to that, we have after the acquisition of Bank Trust; we went over the $10 billion mark, which creates an additional focus on this. We just thought Durban is one of the major impacts there. As far as preparing for this, it's not a one-time event. It is an ongoing process of staying up with changing rules and regulation, the interpretation that the regulators have these rules and regulations and working to have good communications with them to ensure that we stay and think and we adjust accordingly. As far as cost, you see some of the increase in the second quarter that we had as the result, some external experts that we have had in, in the areas of model risk validation, the areas of DFAST, as well as in the areas of BSA/AML. We feel good about where we are with these programs. However, there is an awful lot of changing that is taking place. And as I mentioned, it's not getting to a point in being there, it is a process of this constant change adjustments and improving upon what you're doing. We take it very seriously, not only on a management level, but at a board level. It is something that we are very focused on. I think you will see that there will be continued cost there, but we've already absorbed significant cost in preparing for the major changes of Dodd-Frank. We have roughly 45% of Dodd-Frank to be put, yet put into play. We feel, as though the more significant items have already been put into rules and regulations. And that we have absorbed much of that cost. So I hope that's helpful, but it is a very difficult issue to quantify to any exact level.

The next question comes from Catherine Mealor of KBW. Please go ahead.

Jerry, can you talk a little bit about how we should think about expenses going forward? I know you've guided the 95 to 96 range the past couple of quarters, and we're just a smidge above that now. And it feels like with higher regulatory costs, and even with growth being better, you've got higher commissions coming with that. So do you think there is still upward movement in the expense line over the next couple of quarters?

Our feeling is our projections are that we're going to be able to hold at these levels, even with these increased cost, because we're going to have to find ways it's we can better utilize the technology, look more closely at our retail branch delivery structure and see if there are some things that we do to reduce costs there. Main focus is we spent some significant money over the last four; five years putting technology in place and a lot of it is changing processes in an effort to utilize that technology and reduce cost in some other areas. At the same time you're delivering a higher level of service to your customers. So longwinded way of saying, Catherine that we feel good with despite the fact that we will continue to spend more from a regulatory standpoint and we will add people into our compliance areas, in areas of DFAST and Model Risk Validation, BSA/AML. We will do all that, but we will find reductions in other operating areas of the company to offset that.

Okay, thank you. And then a new follow-up on the margin. Can you -- how should we think about just the mix of the balance sheet, and may be the size of the securities portfolio and the loan to deposit ratio moving forward? As loan growth improves, do you have any intentions to bring the securities portfolio down a little bit and let the loan to deposit ratio drift up, which may help the margin? Or are you comfortable targeting the asset mix that you have currently?

Very good question. And as we mentioned earlier, we would anticipate that we would continue to grow loans at a rate somewhat in line with or very close to what we've done the first half. I want Tom Owens, our Treasurer, to comment on the plans for the securities portfolio and may be deposits as well.

So Catherine, as you know, quarter-over-quarter very little change in the size of investment portfolio, we continue to be positioned relatively neutral with respect to interest to interest rate risk profile. The securities portfolio is a key lever that can be pulled to adjust that. So no plans to grow the investment portfolio the focus is on growing earning assets through loans. And I would say we just adjust securities portfolio that's necessary to maintain relatively neutral interest rate risk profile. Also in terms of liquidity, we obviously have ample liquidity. So could grow the investment portfolio we needed to.

(Operator Instructions). The next question comes from Steve Moss of Evercore. Please go ahead.

Just wanted to ask here with regard to how low the loan-loss reserve could go? It looks like it declined to 1.08 of loans excluding acquired assets. And I'm -- acquired loans -- and I'm wondering, given that nonperforming assets were essentially flat quarter-over-quarter, what are your thoughts with regard to where that ratio could go? I appreciate the color with regard to the substandard and classifieds improving, but just curious if there is a floor to that.

Let me ask Barry Harvey, if he will address that question. As you know there is this balance and there is some subjectivity as well as the constant changes that takes place as we reevaluate and review all the loans in the company. And the quality of the portfolio overall has gotten significantly better over the last several years and we've moved problem loans out. And as a result, we have to accurately reflect based on both historical and what we see now that overall level of provisioning. So Barry if you would may be add a little detail to that.

Sure. And Steve, I guess, from our prospective, we love to see the loan losses there begin to level out at these levels. From a dollar perspective, I think that will begin to occur. As we continue to go loans the actual percentage coverage has the potential to drift downward, hopefully not much is what we would strive for. I do think that one thing that works in our favor is we work off on the quantitative side of our reserve calculation. We work off of a 12-quarter rolling average and we just this quarter rolled off our last big historical net charge-off quarter and the quarters that will roll off hereafter will be much smaller. So therefore there will be less historical losses rolling off therefore there will be less reserve being released. As a result on the quantitative side there will be less reserve that will be flushed into the earnings unless they have somewhere else to go. So I think from that perspective it will be a little bit easier as we move forward to for the reserve to level out at least from a dollar perspective, if not from a percentage perspective. I think that percentage is going to be dictated by how well we're able to continue to grow loans and at what point we need to begin provisioning and have a positive provision more than we do this quarter to reflect the loan growth. The loans coming off obviously have more reserves on them than the loans coming on require being good loans coming on and most of the stuff work in the way out goes back to the criticizing, classified reduction that you referred to earlier. So it is a challenge. I think all banks are faced with that and we will just continue to try to keep a -- retain an adequate reserve which we feel like we have today based on the credit risk we have in the portfolio.

Okay. Appreciate that. And then just wondering what are your thoughts here in terms of nonperforming asset disposition? Basically, the balance is stable quarter-over-quarter what are seeing for activity there?

Oh, we have -- outside of some -- an outlier like the one large one that moved in which was $9.3 million that kind of bumped off our number this quarter. We expect for that downward trend to continue. We are getting down to some reason, but not reasonable levels based upon where we like to be. But from where we've been we're getting down to some more reasonable levels. We would expect for that downward trend to begin to occur again next quarter and in a directionally consistent way we will move down may be not to the level we move down after we came out the downturn but we will continue to move downward and continue to work those out. We have not got gone the route of bulk selling our nonperforming loans that is always an option that we can consider. We've looked at that and determined it's just more efficient, more profitable for our shareholders for us to continue to work them out of bank as opposed to bulk sell them and not have to see them every day.

Right. Okay, that's helpful. And then one thing on the mortgage banking side, it looks like gain on the sale of margins was about 85 basis points this quarter. Kind of wondering if that's a clean run rate going -- a clean number going forward? Or if we should expect it to improve?

Steve, this is Louis. I think that's a fairly reasonable rate. I think in the second quarter we've had volume increase about 40%. So whether that volume continues I think you have a fairly reasonable rate going forward.

The next question comes from David Bishop of Drexel Hamilton. Please go ahead.

Just getting a little bit granular here in terms of some of the loan growth we saw this quarter. We saw decent growth sort of in the -- on the commercial real estate side in the hotel/motel segment. May be some color there in terms of what you're seeing, what's driving some of that?

Sure. This is Barry and we are continuing to see on all the non-owner occupied we are continuing to see some opportunities to present themselves. These are going to be projects that we construct and once they are complete they do migrate into the existing category. That's not necessarily a line of business that we go out and actively pursue but for the right borrower, at the right amount of equity going in, in the right location where we feel good about the demographics that is something that we continue to do. Multi-family is an area where we have grown quite a bit and we do quite a bit more of that as far as on an ongoing basis today so and that's something that we have in the pipeline, and as for as within the construction category we have a reasonable amount of multi-family that is being constructed today and then we have some multi-family actually this past quarter move out into the existing category. But we do feel like commercial real estate in general are meeting our underwriting standards is an opportunity for us to grow where there is a little less competition overall compared to may be C&I in our business where of course you do have a few banks that are just not entered in the CRE business today just because they still have quite a bit of exposure from the 2008, 2009, and 2010 time periods.

Got it. And then just in terms of the provision this quarter, remind me in terms of the provision related to the acquired loans. Is that just reflecting originations on that platform that were brought over without reserves, and you've got a reserve for that growth out of that platform?

No, it's not. Those loans are part of our traditional reserve and but with the acquired provision what you got is a situation where some specific review loans, you have terminal values on these loans typically that are based upon appraisals. We get updated appraisals. We have had a few appraisals come in a little lower. So the actual terminal value that we anticipated has gone down. Therefore we needed a provision for that difference. Also where the terminal value didn't change, but for whatever the reason the terminal date got pushed out, further into the future that you've discounted cash flow that's just time value of money, while at times what you have is something you think you got to foreclose on, and then you get a bankruptcy filing and that tracks you out another 6 to 9 to 12 months. So you have a time value of money factor there. And then in the second quarter we did have a large number of loans that we were able to settle the debt on and resolve and/or move them over into ORE. And in some cases when we sell the debt, just like all the times, we settle the debt for more than the mark. There are occasions where we settle the debt for less than the mark, and when we do that, we need to provision for that difference as well as when properties move into ORE within a price value below the carry value, we've got to provision for that difference. So that that $3.8 million provision for the acquired loans is unique to the acquired loans that we purchased both form the Heritage, from Bay Bank, as well as from Bank Trust. So and there is also always obviously within the accounting side of it, there is some timing differences. Some things happen in June, they get flushed out in July. We may have had some larger events happened in June that will get flushed out in July, may be compared to March and April, but nonetheless it's just a wash. So the $3.8 million, we don't view that as something that it will be on a reoccurring basis. We would anticipate that number being more back in line with what we had historically provisioned for these acquired loans.

Okay, great color. And then moving back to the funding and loan growth I think you started to talk about -- just curious what -- and on the deposit and borrowing side, maybe sort of the dynamics there, what you're thinking about moving forward?

Okay. I will ask Tom will address that. One of the good things about our franchise is that it has very high percentage wise, very high levels of core deposit funding. And you see a slight decrease from previous quarter and in this quarter, but it really was planned as a result of moving some of the more expensive deposits particularly on the Alabama markets off the balance sheet. But the ability to attract dollars has been something that -- has been consistent throughout franchise for quite some time, especially as we've gone through different cycles. But Tom, let me -- let me you add to that, if you would please.

Yes. So as I said earlier, we do have ample liquidity to grow both loans and securities funding as necessary and if desired, yes, tying it back to my comments on interest rate risk. I mean you obviously; you need to factor in both interest rate risk and your liquidity profile in terms of what you do with the investment portfolio. So depending on the pace of loan growth and in particular, relative to deposit growth and the composition of the loan growth, the other lever you could call is to take securities cash flows and redeploy them into loan growth. We currently run about $40 million to $50 million per month of investment securities cash flows that we're currently reinvesting to maintain portfolio, its current size. Obviously, we could ratchet back that reinvestment and have ample liquidity again to fund loan growth.

The next question comes from Blair Brantley of BB&T Capital Markets. Blair Brantley - BB&T Capital Markets: Had a question on the loan growth. I just want to get some more color in terms of how much was taking share? How much was from new production? How much moved over from the acquired portfolio?

Good question. Well go ahead Barry.

Sure. I'll be glad that Blair, I guess the increase that we've experienced obviously is a continuation of growing the relationship with our existing customers and then opportunities with new customers as well. I think it's important to note that about 33% of our growth for the quarter came from Alabama and of course those are new loans in Alabama. Of that 86% increase you see in Alabama, there was about $16 million that were loans that migrated from the acquired portfolio into the non-acquired portfolio. But the key there is whenever we migrate a loan, there is accounting guide that dictates when you can and when you can't we're very careful not to migrate loans. This is a -- these loans that have migrated or completely rewrite, there are no different than any other loan that walks in the door. It's something that's not amortizing. And then you turnaround and amortize that over an extended period time and you guarantor a new collateral, it's just a complete new loan. So we don't view that as something where we have $16 million to us is part of that $86 million just like all the rest of it is. So we really do see a third of our growth coming out of the Alabama market, which we're very excited about. As far as the other growth we're experiencing, I would point to the fact that our levels of shared national credits increased $9 million over the quarter. So obviously when we grew $263 million, it's not coming through SNICs. And then year-to-date our level of SNICs is actually substantially down. So these are going to be -- for the most part, these are going to be direct transactions, new borrowers, additional business with existing borrowers, well diversified as to the types of lending and well diversified as to the market. And we are very pleased to see the growth but we are very cognizant of continue to maintain as Jerry said earlier our underwriting discipline, as well as our pricing discipline. And obviously, if we have to give on one, we will give on pricing as we need to, to be competitive. We try to maintain our underwriting discipline throughout all the opportunities we evaluate. Blair Brantley - BB&T Capital Markets: Okay. Thank you. And then, just a follow-up. Can you give a sense of then I guess the pay down activity from Q1 to Q2, has that really changed at all or -- and what you are kind of seeing there?

We're not seeing that, we're not seeing a significant change on the non-acquired loans. We're not seeing a significant change in the pay down. It's just pretty standard business. We're not losing customers or relationships over price. So we're being competitive where we need to be on existing customers. So we're not seeing any unusual pay downs or payoffs on the non-acquired loans. On the acquired loans, there is a natural progression for the problem loans to be worked, either be rehabilitated or to a past credit or to be worked out with the bank. So we fully expect that trend to continue both on natural payoffs, as well as the working out of problems.

The next question comes from Jennifer Demba of SunTrust Robinson Humphrey. Please go ahead.

Well thank you. I jumped on late, so if this has been covered, I apologize. All right the bank card revenue -- are you expecting that to come down seasonally in the third quarter on top of the decline related to Durbin?

Jennifer, now we are not. We are actually -- well to take Durbin out, we have seen continued increase in bank card usage. We have done a number of retail promotions that effectively are aimed at putting the cards out. They are showing the convenience. Obviously, though there has been -- besides Durbin there has been number of issues in the news likely with the target situation that make it difficult to project. But our overall sense is that, despite Durbin we will continue to see an increase in volumes. And that revenue is growing although slowly, it is growing not decreasing outside of Durbin.

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

Thank you very much. I would like to thank you for joining me and your interest in Trustmark. It has been a very good second quarter for the company in a lot of ways, with the loan growth, the improvement in credit quality, the steady growth of the company and we are very pleased with that. We would anticipate that as long as the economy continues to slowly improve that that our earnings will as well. We again appreciate you joining us and look forward to the third quarter results. Thank you very much.

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