Trustmark Corp (TRMK) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Trustmark Corporation 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, today's call is being recorded. It's now my pleasure to introduce Joy Rein, Director of Investor Relations at Trustmark.

Good morning and thank you. I would 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, by clicking on the news releases tab.

During the course of our call this morning, 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 would like to turn the call over to our Chairman and CEO, Richard Hickson.

Good morning. Thank you for joining us this morning. I have with me this morning Gerry Host, our Chief Operating Officer; and Louis Greer, our Chief Financial Officer, plus other members of our management team, in order that we can cover all the questions that you might have. I will follow outline our news release and stat sheets. We have endeavored to give you maximum transparency into a number of areas of the Company. We will surely be pleased to answer any questions and discuss any areas that you might want to discuss after my comments.

We had reported net income of $26 million or $0.46 a share. I think, from your perspective and ours, there were three significant items that affected earnings for the quarter. First, we provisioned approximately $14 million for loan losses, primarily the Panhandle of Florida, and we'll discuss that in-depth. The amounted after-tax to, I believe, about $0.16 a share, our provisioning. And you can surely reflect that when the provisioning goes back, Trustmark's earnings will look superb because they look good today, even with that level of provisioning.

We had a superb quarter in mortgage banking with our volumes up. The value of mortgage assets remained stable while yields on treasuries declined; therefore, we were a beneficiary. We were a beneficiary in the management of our MSR mortgage banking portfolio of approximately $7 million. And at the proper point, Buddy [Wood] will surely comment on that and give you some insight to that.

As most all other financial institutions, we had a $1.5 million recapture and gain from the Visa settlement. Our return on tangible equity was about 17.5%, our return on assets a very, very solid 119. We're seeing our efficiency ratio work down now in the 56% range. Our profitability increased our tangible internally generated equity, and we've seen a strong increase from a year ago of approximately 8%, around the $50 million range. That's giving us some significant financial flexibility to take advantage of opportunities, whether they be lending or other, in the marketplace.

I'm very pleased with the diligence and attitude of all of our people in the Company, particularly those in Florida, and our special assets and loan review teams that put a significant amount of effort into Florida in a continuing way over the last quarter. Our nonperforming assets jumped up to 1.21 of total loans. If you will take a look at page three, we have given you some transparency there in the stat sheet. You'll see that number is still very manageable for us. Non-accrual loans at around $78 million, up around $12 million, most of which was in the state of Florida. That was principally tied back to one loan that is a townhouse project of around $8.5 million that is completely finished, well built. It's about 60 townhouses in seven or eight buildings. A number of them are under contract to sell in the $130,000 range, $140,000 range, five or six of those.

We have recognized and we are in process of a full impairment on them, but we recognized what we consider the borrowers' inability to market the project on a timely basis. So, even though it is not past due at this point, we went ahead and put it on accrual. We're working on our appraisals, but we tried to come back and look at it before we got our appraisals and have everything to do a full impairment analysis. We took a look at it and tried to look at it as if it were an apartment, and we've reserved approximately a third of the value of the loan. We think that will be sufficient when we actually get our impairment analysis.

It's a quality product. It was built for people who work on the Gulf Coast, not vacation there. It's off the coast and in one of the close drive towns where even a number of our people with our insurance company and bank, and we think they will move out. I think, once we can get some control of the project, we'll see it move through rather rapidly.

On the non-accrual side, there was nothing else of any significance that I would bring to your attention. The Tennessee was one builder loan. We're on top of it. We see nothing of significance there with any loss. Texas is one loan that was an acquired loan. It's not a real estate loan; it's a C&I nylon. We have the owner-occupied real estate and the equipment. It has been reserved for. We don't see anything that will move the needle on the Company on that.

Our other real estate did not move. There is an issue that you've probably heard about, and that is it's taking a significant amount of time in the state of Florida to address foreclosure. We're seeing some deed in lieu of foreclosure in the marketplace. We have not experienced that ourselves at any level, at this time. We have had some properties move in and some small amount of properties sell.

If you take a look at page 5, I will address net charge-offs and provisioning. We tried to give you the transparency of going in by area, and you can see that our charge-offs in Florida, the only ones of any significance in our company, were about $10 million, $9.7 million. This was principally the four or five loans that we mentioned to you that we recognized in the third and the fourth quarter of last year, reserved for it and then did our impairment analysis. And overall, it came in fairly close to our impairment analysis, to where we were in our reserving.

We sent our loan review team back into Florida. They were there in late February on up through the middle of March. They covered 85% of the dollar volume. There were a number of individuals, six or seven of them. These are experienced individuals. Most of them were bank examiners before. It was principally the same team that did due diligence when we purchased the bank in Florida four years ago. They have been back into that market a number of times. They spent a significant amount of time going over the entire loan portfolio. As I said, there was 85% coverage. They were complementary in saying that our loan officers know their credits, we know the relationships. They had some good debate, and we're all in agreement with what they did on the grading.

We now have classified in Florida approximately $100 million in loans. As you would expect, it is primarily centered in our construction and land development portfolio. In our portfolio in Florida, there are about $70 million in past due loans, approximately $50 million of that $70 million is already on non-accrual. So I think we're putting a fence around this issue and that we have now classified 25% of it. We've put half of that on non-accrual; and we, I believe, have $21 million that's 30 days past due that's not on non-accrual. And I assure you, we're all over those credits with our workout people, our officers and our credit administration people.

If you take a look at the portfolios on page five by geographic region, there was no real change. We're in a process at this point of seeing fairly good loan growth in Houston, some loan growth in our larger commercial areas in the Jackson market, covering the Mississippi Gulf Coast, Central Mississippi. We have taken a hard look at our auto portfolio. We don't see anything systemic there that -- coming at this time. Losses are up marginally, still below peer median. But we had let our auto paper run off about $50 million in quarter. Where we were normally underwriting about $50 million a quarter, we've dropped it down to the $20 million range. We anticipate seeing this auto portfolio slowly move down. We have not set a target; we're just going to be prudent.

We have put higher requirements on profitability and credit on that portfolio, and that's why we're seeing it -- and we've come in and around the $20 million range, and we feel that $20 million is fine. We're not expecting at this time any deterioration in that portfolio that I would expect to be here talking with you about.

Let's take a look at losses for the quarter on page 5. Net charge-offs around 9.8. Mr. Host reminded me, wanted me to tell you, that we've seen some movement in properties and our losses, and we're not missing it by far and what we're seeing what we're saying is going to be there. He had a property move -- I think it was right at $3 million, 15 lots or so, and we were dead on. We have seen other lots sell to individuals. We don't believe we are seeing, at least not with us, any wholesale bottom feeders in our properties. We do have those 17 homes that are over in Panama City that we talk with you about with that developer. We expect that foreclosure to finalize, and we believe we've reserved well against that. Those were those homes that I believe sell at around the $300,000 level, something in that range.

I'm going to leave the credit issue for a minute and go to a couple of other things, and we'll come back and open it for questions.

I am so pleased with the performance of a couple of thousand people who have anything to do with deposits in our company. They have really worked well together to control our deposit cost. Call it dominance in our markets, call it willingness to negotiate, but they have brought our deposit costs down, and they have all done a very good job of doing that.

Because of that, we were able to sustain what I think is a superior net interest margin. I was in our asset liability meeting the day before yesterday, I posed the question again. We have re-run our margin models, and I see stability in our margin for the remainder of this year. We were in a position with a much improved yield curve to make a few bond purchases. These were, GSE, very attractive bonds, and yielding about 4.80. That's going to be a positive improvement for us. We don't expect to see us go back in anywhere up with peer at this time of 15 or 16 or 17 or 20% bonds. We have gotten down into the single digits there, and I think the bad medicine we took of giving up some earnings by deleveraging the Company over three years is now really coming back and paying some dividends for us and the spread that we have in these bonds is not really going to have any negative impact on our margin at this time.

We recognize the Federal Reserve will likely lower rates a couple of more times, and we are modeling for that.

Expense management is something that is a hallmark here. Our people are really doing a great job in controlling headcount, which is essentially flat after being down 100 last year. We are still reworking contracts, vendor programs. We've addressed our health care plans. They seem to be doing much better. I congratulated our employees yesterday on the management of that. We feel comfortable with where we are with expense control, and it is a very positive for our company. We have still, at the same time, opened branches. We've opened a couple of this year. We also anticipate there will be four additional openings this year.

Our retail group just reaches in and moved some folks into the branch, and they work on handling service, which we get great records in, and they have great models in controlling their retail headcount. As Mr. Host says, he continues to close branches that are not going to be productive, consolidate other branches. My expectation is that these four branches that we finish this year will likely put us in a position that in '09 we may go to a couple of branches rather than six or eight new branches. This will put our franchise -- we'll open another one out in West Houston in a place called Frye Road, here in just another month or two. I believe that puts us 16 to 18 retail sites, extremely well-placed in Texas, and they are growing. We're finding out that with great people we can compete out there.

Also we have another branch, a super branch, that's going to open on the Mississippi Gulf Coast. We've opened one on Poplar Street, which is an important business location in Memphis. And we'll open in downtown Panama City here in the next couple of months. These are all positive.

Now, the branches that we've opened here in Jackson -- wow, they're going great guns, and they are beyond our expectation. We are able to not only defensively maintain but to marginally grow in our market share on deposits here in Jackson.

That will conclude my comments today. I would be very happy to open it for questions.

(OPERATOR INSTRUCTIONS) Barry McCarver, Stephens Inc.

You mentioned, talked a little bit about the provisioning in the quarter. We're hearing a lot of -- in the news from other banks, from regulators, from auditors and a desire to potentially push provisions higher for the industry. Are you feeling any pressure to continue to do that as well, or was this quarter's moves really just more a reflection of the asset quality moves there?

We follow the regs and guidelines, and I'm going to ask Barry Harvey if he wants to make any comment on that. Barry is in charge of compliance and regulation in the bank. Barry, do you have anything to add? We visit with our auditors and regulators often. Barry, do you want to comment on that?

We strictly just follow the guidance which requires us to justify either through a quantitative or a quantitative process what our reserve levels are. During the quarter, the $14.2 million -- some of that was used to cover charge-offs of the $12.3 million, but part of the charge-offs were loans that we had provisioned for, as Richard indicated, in the third and the fourth quarter of last year. So we actually did provision about $7.5 million for downgrades during the quarter in addition to provisioning what was necessary for the charge-offs we took during the quarter.

So you really can't take the $12.3 million in charge-offs and compare that to the $14.2 million in provision because we already had a large percentage of those charge-offs provisioned for previously.

I'm wondering if you could provide just a little bit more color on that hedging strategy for the mortgage servicing piece. Obviously we're trying to get an idea of what that could look like in the second quarter, since you had such a very strong first quarter.

Not looking bad right now.

It certainly isn't.

I'm talking about the second quarter. I'm going to turn that to Buddy Wood, and he's going to tell you what we're hedging and now. I heard Buddy say yesterday and maybe for the tenth time, we had historic volatility. We've seen these spreads retrace. So, unless we see extreme volatility, we're not going to see any -- into the other direction, we're not going to see this just evaporate.

Buddy, do you what you talk about what you're doing and how -- more detail (inaudible)?

Barry, the way that the hedge functions is to use only treasury-indexed products so that, during volatile times like this, the futures and options that we use are highly liquid. As you know, the use of mortgage-related indexed items ran into a great deal of illiquidity during the same period of time. So we add that point.

The factors that relate to how we measure the profitability are primarily three. The amount of volatility that Richard talked about causes options and futures to become very valuable. The second part is, with the steepening of the yield curve, the carry between the cost of funds and the mortgage product widens dramatically and we end up with a nice additional positive spread in between the cost of funds on the carry.

The third is the difference between the 10-year treasury securities and mortgages, the spread itself. Those three components, as you know, in this first quarter hit a very sizable and, in the case of spreads, record levels well into the 200 basis points between treasuries and mortgages related to the flight-to-quality issues, stability in mortgage product for credit reasons and the great attraction of the US Treasury market, which caused so much money into it and caused the yields to drop dramatically.

Half of that, the part related to volatility and carry, are the type of income levels that, during business cycles, this type of hedge will always be very favorable. It is a defensive hedge. The intent is to operate plus or minus zero, but we will benefit in a positive yield curve and in volatile times with extra income. Those two, along with the unusual spread, which accounts for probably half of the amount of dollars that you saw in the first quarter, are the main events.

If you look at how much impairment we would have experienced during the first quarter, you would have seen approximately $10 million negative, had we not been hedging. Instead, the value of the hedge produced $17 million, which produces the net $7 million that you see in there. We can talk more about it, but I think that that covers the essence. But I'd be glad to go further if there's anything else you want to know.

Well, maybe we can to do this off-line, but I'm having trouble getting my hands around the idea that you might have this type of income. Again, that $7 million --

No, he didn't say that. No. When we look at what we're hedging to -- Buddy, go into, if you would, the guidance -- say you manage back to zero. It's a little bit beyond zero each way, but not much. Talk about -- where are the spreads that come back to where, now?

The spreads had gotten to where they are operating in the 180 basis point range. Typically, over a long period of time, there in the 135-basis-point range, between the 10-year Treasury and mortgage-backed securities.

So let's go to your point. What can happen? What can happen in this hedge structure is that, if we move slowly back to a normal spread marketplace, we will reposition the hedge constantly. We do it continuously, every day, and we will retain a portion of this money. I can't tell you how much. But the only way that we would lose all of it is if we went to a zero volatility and a flat yield curve in a very rapid move. Those conditions could bring us to zero. If we have a slow movement back from less volatile times [than] we're experiencing today and to a flatter yield curve, we will retain a portion. I don't know what that exact number would be, but a couple of million dollars is not a bad estimate, in my mind, of our ability to be able to manage that hedge over a longer period of time.

And this is an integral part of what is a very well-run mortgage company. It's very competitive, strong in its branding and in a position in our markets with the problems and issues that the large originators have had, which are national and public, is putting us in a good position.

I think I'm following now; that's very helpful (multiple speakers)

(multiple speakers) the moves and the spreads. It's going from 140 to 220, and this isn't something -- this mismanagement of this MSR is a continuous process with highly professional people.

I guess what he's saying there, too, is that the liquidity of the instrument there is -- I would think there would be some risk in managing that, and it sounds like right now the liquidity of the instrument prevents -- you feel pretty confident about it, I guess.

I do, and it's because we use only Treasury futures and Treasury options, as opposed to mortgage products, which, of course, have had that liquidity challenge.

Kevin Fitzsimmons, Sandler O'Neill.

I know you went into detail about the additions to nonperforming and detail on the charge-offs. Can you give us a little sense for the inflow into the watchlist on the quarter, and maybe -- I guess what I am interested in is, depending on which competitor you're listening to, Florida is, it sounds like, imploding. Your exposure is really focused on the Panhandle, and the Panhandle started deteriorating much earlier than these other parts. I'm just wondering what inning you think we are in on that. Would we expect to see some stabilization in that part of Florida earlier?

Obviously, no one can predict that. As I said, our loan review team was in there. They are seasoned. They're told every day to call them as they see them. This selling season is going to be very important in the Panhandle. It's just beginning. The sense is, in my mind, that people are beginning to see that prices have fallen and it's all over the board, dependent on the property, as you would expect. There's nothing there -- or dependent upon when the last appraisal you did because that bubble was really running up in '05 and '06.

So we think the prices -- this is not residential housing we're talking about -- since the Panhandle was early, have likely reached a point. We're not expecting appraisals that we have done in the last three or four months, if we do one three or four months from now, that it's going to change very much. We are not seeing any really surge of buying. As you know, there was auction there from a gentleman who passed away in Panama City. There was beach property sold, there were like eight or nine acres of beachfront. It sold for an amount at auction that pleased everyone. There were a number of other individual properties that he owned; he was one of the larger developers in that area. And they moved off. That's given us some sense of comfort on some other exposures we have.

When I look at our exposures in Florida, I run a report every couple of weeks of every loan in Florida over $500,000 by grade. So I can see that progression, and I think that progression, after all the work we've done this quarter, I'm not expecting some massive movement into it. If we have no sales down there this selling season, like last, if it doesn't turn somewhat, if buyers don't come in, then I think it's anybody's guess. We're doing global cash flows on all of these relationships of any size. They don't have as much liquidity as they had two years ago or last year, but they're still in there.

We don't have -- we have some good-size relationships, but we don't have any really large loans on any one piece of property, whatever. Most of our loans are 1, 2, $3 million, some 5's, a couple of 10's. We don't have $30 million against one piece of land that's going to hit us like that, Kevin.

It's very difficult to answer your question. All I know to do is think aloud with you.

That was very helpful. Separately, one of your competitors last night announced a goodwill impairment on the Florida operation. Is that something that has even been a conversation or that is possible for you all? If you can share with us why?

That's a very good question. We paid $48 million for our bank in Florida. It was a situation where we did not by a bank, we bought the loans and deposits and seven branches of the Emerald Coast Bank. With it, we acquired a great Board of Directors and eight or ten really good lending officers, who by the way, I don't think we've lost one. We've added a few.

Our deposits are still there that we purchased. The relationships are still there. A lot of our lending, our what we call we are going to bank at the end of this thing, the relationships, are still there. We have not lost those relationships. Therefore, we are not considering any impairment of our goodwill in Florida, which I think is in the 40, $45 million range, and it seems well in line with what -- we've seen no permanent impairment in that bank. Remember, it was about $250 million in deposits and about 200, $250 million in loans.

We have a very strong commercial relationship portfolio, which is somewhat over $100 million. They're not on the past due list, they're not on the watchlist. They're cash flowing because they're in business for folks who come to vacation at the beach, and it's crowded down there. So it's just -- they aren't buying any real estate while they are there. They're still coming to the beach.

Charlie Ernst, Sandler O'Neill.

Can you talk about -- was there any effort to price down loans in order to get them ready to sell, attractively priced to sell for the spring season? Did that lead to any of the increase in the net charge-offs?

We still have folks trying to sell and manage their own properties, Charlie. Our foreclosure is minimal. People have not walked their properties with us, so I'm sure the borrowers are doing all that they can to price and move their properties, and we've seen some move in the last couple of weeks. But from our perspective, no, we're not in a position to do that. We own very little property at this point.

We will move as quickly as we can, once we get control over it.

Richard, when your team is going down into the Panhandle, what are they doing in terms of thinking about appraisals and how you assess the current valuations of the properties?

We'll do that, Charlie. I've got to let two people take a shot that. I'm going to let Bob Hardison talk about process and what we're doing with that. He's our Chief Commercial Credit Officer. And then, Barry will listen -- Harvey -- and if Bob doesn't cover something in his comments, then Barry will chime in. Bob, do you to talk about that, the process?

Due to the evident deterioration in the market down there, certainly the appraisal issue is one that has risen to the forefront over and above our normal appraisal process, and we are -- on all our classified loans we have current appraisals that have been done. We say current -- it's within a year or, in most cases, within six months. Certainly, we want that time frame to include that time in which the market has shown some deterioration.

So all our classified loans will have current appraisals. At renewal, we will typically get a new appraisal. There will be some exceptions if the guarantors show such financial strength that we believe that we can primarily rely on the guarantors, we will do an internal type of valuation using data that our internal appraisal review staff has to come up with a revised value on the collateral. So we're very sensitive to that, and we're making some adjustments in our appraisal process with regard to loans that are not classified and we think would merit appraisals, either at maturity or renewal; or, during the period of time the loan is in effect, if we think that that collateral has diminished in value, which it in a lot of cases has.

But we're sensitive to that and I know the regulators are too, and we're moving to make sure that we have appropriate appraisals in file to satisfy the carrying value of the loans.

We have a number of new appraisals, and we have a number of new appraisals coming in.

I guess, given the lack of transactions down there, how do you know, when you're charging something off, that the appraisal is anywhere near the ballpark of where it should be?

Let me tell you what I did, and I've learned an awful lot, Charlie. I called the senior appraiser in the Company, and I said, on our four loans that we took write-downs, I said, Steve, I want you to pull the four original appraisals, which were back in '05, and I want you to bring the new appraisals. And after you've spent about 30 minutes on each one of them, I want you to sit down and explain them to me.

And I'm a lot more comfortable with the values today than I should have been in 2005. I looked and we had banks copying other banks, lending in '05 and '06. I'm looking today, and I know this market extremely well. When you have lots go from 300 to $82,000 that are fully developed, and you have some comps around, I don't think it's the value, per se, although the value is this. It's not what it's going to sell for, it's when is it going to sell. And you're putting about a four-year build-out in these things and a profit in there for the next owner.

So I feel that these four or five major appraisers who are in the Panhandle of Florida, whom we know, are being realistic because I've had our senior appraiser go through the appraisers and the appraisals, and satisfy himself that they are following the guidelines and using reasonable comps. Gerry Host wants to make a comment too, Charlie.

I would just comment that the market is not void of all sales. Over the last six weeks, we have seen a number of sales take place relative to lots, developments and specific one- to four-family dwellings. So we are starting to see some activity in the market. It certainly isn't anywhere near what we'd like to see, but there are some levels being established for different types of property.

Charlie, you know that Panhandle fairly well. It's small. The development that's there -- there's a lot of product, but it's getting a lot of people looking at it. I believe it's reaching a stage that people feel they're getting a bargain. At least people here at Jackson that I've talked to are saying -- I'm having a number of people now say to me, tell me one of your people to talk to. We're going down to look at this, that and the other, or I've put in a bid on a house and I don't know if I'm going to get it. Do you folks have any in foreclosure? I say no, but we can surely direct you to people.

That's not going to turn the market around, but that's a lot better than it was six months ago.

Richard, can you just say if you have any idea as to how big you are willing to take the bond portfolio, what we should expect maybe over the next couple of quarters?

I would expect -- that's going to depend on the yield curve, but our ability to fund it is easy. Buddy, do you want to comment on what you think, based on the bond market and curves, that we might do?

I think what we have been pleased with is being able to bring a four-year target to the investment portfolio using a strip of securities out of the agency CMO market, primarily -- good spreads, and an ability to fund them in the short run primarily on a short end, with an eye to moving some of that funding out. If you recall, we were asset sensitive when we began this process. This is very helpful to us in working with the asset-liability mix that we wanted to make some correction in (multiple speakers) so the amount that we were targeting would be in the neighborhood of about $1 billion or a little bit more.

$1 billion in total size, not $1 billion more?

No; $1 billion in total. And Charlie, our runoff is so fast that we'll have to buy a lot of bonds to get it to $1 billion, because of where it is. The maturity is about $30 million a month, 25 to $30 million. And we don't feel any pressure to take it to $1 billion, but it will help our revenues. And that market -- I hadn't talked to anybody in about two days -- was 480 to 490, total asset yield on it. Our capacity -- we're using principally downstream federal funds today and just a little bit of upstream. We were completely out of the Federal Home Loan Bank. We went back in there the other today for a marginal amount -- 100, $200 million -- just in very short duration. We have the ability to fix.

So we think this will be a positive for us. But as Buddy said, I don't think you're going to see us back near peer with $1.5 billion bond portfolio.

Is there any timing in terms of how quickly you think you get to that level?

Oh, I would say measured between now and end of the year, we're not going to go out and do all of that immediately. I think we've bought, in total, $250 million in the first quarter and maybe another $150 million since quarter end when we saw things really improve in yield the other day. It's going to be totally dependent on the yield curve. Charlie, if I were going to plot it out, I would just do it on a measured straight-line basis because that's about the best we can guess right now.

Richard, you said that the margin -- you think it should be pretty stable, even with a little bit of a buildout in the bond for portfolio. That was the comment; right?

Yes, and we've tried to take all areas that feed into our [ALCO] model, our projected loan growth, our runoffs in our auto. We're letting this pristine home mortgage portfolio, which I think is about $850 million, is running off around $15 million a month. Recall, this was principally 15-year paper. It's seasoned five or six years. It's a different borrower that we cherry-picked the 15-year loans. The runoff rate is about 5.3% or 5.4% on that, but the spread is abnormally good on the bonds right now.

Gerry, any additions you want to make on the margin discussion with Charlie?

No, I think that's pretty solid. You commented (inaudible) the pristine quality of the 1 to 4. We actually, as you know have been in recovery this last month, net recovery out of that portfolio, and we still feel very good about that 1 to 4 portfolio.

The only thing I would add is that, we have been able to work with the deposit side as an offset to the loan repricing that we have been experiencing, and our mix of assets has allowed us to keep the margins in our forecast in the general range of where we are operating today.

Our certificates of deposit are not wholesale; they're all retail. We don't have any wholesale debt in the bank. I think there's $50 million or something from [Homa Torre], or somebody that we can just keep our name in the market. We've not used our [Cayman] branch, haven't felt the need and we've got 2 to $300 million in CDs maturing every month from like a 4.50% down to wherever it is now, in the 2%'s. And we think that will cover this repricing of customers that are demanding that we lowered their interest rates. We think those are balanced out fairly well with each other.

(OPERATOR INSTRUCTIONS) [Erin Jacobson], KBW.

I was wondering if you could talk about deposits. I know you just (inaudible) that you saw some traction this quarter. I was wondering if you could talk to your hopes or expectations going forward through the year on volumes and pricing?

Well, I think that our answer would be the same as any depository financial institution. It's very competitive. We're fortunate to have a deep, rich core deposit bank. We have not -- we have led these Mississippi markets downward. We have the courage to do that in our home markets. We don't have the need to compete with those who don't have our liquidity and ability to fund, so we still pick and choose.

We are putting ourselves in a very positive position. I think I said, we bought $400 million or something of bonds, and if we buy more we're then able to use these bonds for pledging for our public funds. We had about $600 million in letters of credit at the Federal Home Loan Bank, which was costing us 12 to 14 basis points a year. So we're letting those run off in big batches and replacing that with public funds. Public funds seem about at the same level as last year. We see them moving more to floating rates, anticipating, and we are winning public funds at that type with floating rates, as they appear, would be like three-year bids, and they probably think rates are going to move up during the end. So they are making their bets.

I don't see any significant deposit growth.

Okay.

Our marketplace is that we are the flight to quality spot in our market. We have had no questions at all, anywhere, in any of our markets about quality of deposits. I hope that helps you.

Peyton Green, FTN Midwest Securities.

I was wondering if you could comment a little bit on just your interaction with customers and how their attitude is and what you take from that now versus, say, six to nine months ago.

Peyton, would you put a little more color on that? Which segment of customers, and where?

You know, probably where -- you can go by geography, I guess. I would think Texas is in really good shape, Mississippi is in pretty good shape, and then Florida, obviously, feels a lot different. But just maybe, are you starting to see people try to take advantage of opportunities in Florida yet, or are people still on a buyers strike?

They are looking, and they are patient. I've had a couple of large developers are that our real estate owners go in. They'll visit with John [Summerall] or [Todd Siegel], who know the market very well. They will look at borrowers and centers. We know the markets, whether we're lending to use people or not. And they haven't been buying yet; they have been looking. I think they are really mulling it over to be sure that prices aren't going to drop again.

I'm talking shopping centers, smaller things, 10, 12, $15 million properties. Now, on these houses, lots of people are looking and talking about condominiums. We've seen people buy in Destin and then Navarre and Orange Beach. But I'm not sure that's going to move the market. It's going to have to be folks from Atlanta and Birmingham and Texas.

Now, a real key is people are really pleased about that airport going down in Panama City. I think that's going to make a difference, but that airport is not going to be open for a couple of years.

I guess I was just trying to get a sense of if there's one more down move after the [fourth quarter].

I don't know. Gerry or I go to each board meeting, and we're holding their hands. There are -- we're sort of fortunate in that most of our Board, but our losses to date are on folks that weren't from Destin and Panama City. We were lending to developers who came from Birmingham and Atlanta and Dallas, and they didn't know the markets. They bought property, paid way too much for them, in '05 -- essentially, when I look at our four or five.

The group down there that has been there for 30 years, they tell us, this thing has been up and down so many times, I'm worried about it. I'm glad I didn't leverage up as much, but I got all I can handle. They are professional and marketing it. We have customers that had condominiums where we didn't finance their condominiums. We are financing their other things and we're seeing them really work through these condominiums, but they are getting and overhang in it. And we're not financing the overhang for them. We're leaving it with those that brought them.

I think there will be some overhang. We're seeing some creative work on the part of these people to package these remaining properties, to make them appealing to retail buyers. We've not personally been in a lot of discussions with these people that want to come in and bulk buy, and we've not had the product, nor do our customers have that bulk product.

[Mr. Host] wants to add a little bit to that (multiple speakers).

Richard, I think, has covered Florida extremely well and accurately. As far as the Mississippi market, which makes up the vast majority of our portfolio, let me comment that, first of all, we didn't see the dramatic appreciation in prices that we saw in that Florida Panhandle market, in the Mississippi market. Secondly, we have been working with seasoned developers over many years and as they began to see the market slow in mid '05, '06, they on their own began to cut back the production of new product and began working down their current inventory levels.

So you ask for a geographic flavor. I think you need to understand that Florida is very different from Mississippi, which is very stable, and then you have the Houston market, which, by all accounts, if you talk to people in Houston, has not checked at all.

Mention (multiple speakers) you've been to Memphis recently, [right]?

Memphis is, I would say, closer to Mississippi, where you did see developers slow their new product. I think the difference between Memphis and Mississippi was that there were a number of specific developments within the city that relied heavily on subprime paper for takeout of the homes. So there has been sporadic impact of the subprime market on the sale of certain projects in Memphis. But by and large, other than that, I think you would say it was very similar to what we're seeing in Mississippi -- no real boom, and so we do not anticipate a major bust.

I guess would it be fair to say that you kind of expect double-digit loan growth in Texas, mid single-digit in Mississippi and maybe flat to negative in Florida?

I think that's a good way to characterize it, but then you have to come back and say that we are reducing our auto portfolio and we are reducing our 1 to 4's because the reason we aren't putting good, solid 1 to 4's on the books is we are getting the same yield out of these mortgage-backed securities that we're putting on the books. So it's taking a lot less capital and freeing up capital for us, for maximum flexibility.

We've been riding around Florida for two years, three years, talking about the sense of the slowdown, particularly since the middle of '06. That's at least two years. So I would hope, if you go back to the beginning of the slowdown, hopefully we're reaching a halfway point down there. If you say it's going to take two years more for this thank to, quote, normalize to what normal should have been in Florida, or was in '03 and '04, what happened down there we've about figured out.

It's cyclical down there, and every four or five years you're going to have a downturn. I think the lowering of interest rates in 2001 prevented that downturn and just added to pure greed and speculation. And an awful lot of folks are paying for that, including us. We feel we are on top of it. We don't have eight new officers trying to introduce themselves to the customers who owe us the money. We know them, they know us. We're going to do about as well as anybody down there in working it out and working through it. We don't control the market.

I think nonperformings will go up. I don't think we've seen the peak. And we are on top of it. The good thing about Trustmark is, the other nine cylinders of this company are hitting and doing well, and our earnings in there, even with a $0.16 per share reserve, we had a $1.20 ROA, and give this elephant a few bites at a time, we'll march right through it.

That does conclude today's question-and-answer session. At this time, I'd like to turn the call back over to Mr. Hickson for any additional or closing remarks.

Thank you very much for listening to us. I know it was a lengthy call. We're attempting to be as transparent as privacy of customers will allow us to be. We want you to know about us, and we're available at any time to discuss issues of this nature with you. Thank you.

That does conclude today's call. We do appreciate your participation. You may disconnect at this time.