Trustmark Corp (TRMK) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's first-quarter earnings conference call.

At this time, all participants are in a listen-only mode. Following the presentation this morning, there will be a question-and-answer session. (Operator Instructions). As a reminder, this call is being recorded.

It is now my pleasure to introduce 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, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We want 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 introduce Richard Hickson, Chairman and CEO of Trustmark.

Good morning. Thank you for joining us this morning.

I have with me Jerry Host, our Chief Operating Officer, Louis Greer, our CFO, Barry Harvey and Bob Hardison representing Credit Risk in the Company. Mitch [Bleski] is with us if there are any questions that come up about a securities portfolio and hedging.

You know, it's been a number of quarters that we have been in this recession, and this quarter I feel particularly good about -- number one, we earned a lot of money; number two, management and the board feel really good that the quarter came in just dead on all of our expectations all over the Company.

What you see here in the earnings release is no standouts, no stars for the quarter, just a team working very well producing a very solid score that we feel has sustainability. We are feeling better about the year than we were at the end of the year.

I will go through some particulars with you. You have our press release and stat sheets.

We earned $23 million, $0.37 a share, essentially a 12% return on tangible equity. We did declare a dividend of 23%, and you see that the payout ratio has moved back down to a very comfortable level.

Pretax, pre-provision earnings hung in there at almost $50 million again -- extremely consistent. It reflects solid net interest income and expanded net interest margin, which we will chat more about. Good noninterest expense -- a good order quarter in mortgage, not a standout quarter. The diversification coming into play, the balance from the different areas of our noninterest income make us feel very good about where we are today and what we can do.

Enhanced capital strength -- tangible common equity is now up over $800 million. It actually expanded due to organic growth and shrinkage in the balance sheet on a risk-weighted basis, and somewhat on an absolute basis. We are now up over 9% tangible equity; I think it's 9.11%.

It was interesting to me, as I was talking to our administrative group yesterday, we were comparing to first quarter a year ago reserves, Tier 1 and total. Now, our reserves, Tier 1 and total, 13% and 15%, are at the same percentages they were when we had $215 million of preferred. So that is a significant shift with already -- what was already very strong capital. I don't know how you would describe Fortress, I don't know the metrics but it feels good and flexible, and lets us be on the offensive. Trustmark is on the offensive across the board.

Talking about loans, we have no real estate concentrations to total risk-based capital. You look at our construction portfolio, it's down significantly. You look at our total commercial real estate, we are in a range of not much more than 50% of the 3% guidelines. We are in a position that, if we want to make a real estate loan, we can make it. I understand there are going to be a lot of very good ones potentially refinancing.

I'm not talking land, lots; I'm talking quality construction and quality finished product with cash flows. We think there will be opportunities for us there. We are not making a habit of it, but if there's something there, Trustmark is going to be in a position to get some good assets and relationships when those opportunities come along.

Loans in the quarter were down. I'm going to talk about it on a link-quarter for a moment, things that I thought were significant. In visiting with our management teams, we think we've seen the majority of our shrinkage in our commercial portfolio for the year in the first quarter.

Construction and land development was down $26 million, $15 million of it in Florida, the rest scattered. That's a positive that we wanted to do.

Commercial loans were down about $17 million on average, $9 million of that in Mississippi and $19 million in Texas. We had a $20 million tax anticipation note with I believe it was the city of Jackson that paid off. Other than that, Jerry Host, going through his reports, nothing of any significance, just usage up and down on lines.

We are shrinking somewhat, but it is planned. Consumer loans were down $61 million. That was auto, and we have worked that down very significantly. Because of dealer reserves and the amount of expenses we've been able to cut, we are not being impacted by that from a profitability perspective. Auto charge-offs were down significantly 50% of the quarter a year ago, pretty good there.

I want to talk about credit quality, but first I want to talk about the reserving and what happened within the reserve on a high level. Now, our allowance for loan losses is 131%, excluding nonperforming loans, excluding our impaired loans. We will go into our impaired portfolio significantly for you also.

Nonperforming loans were up about $20 million, $24 million. We'll get into that in great detail. ORE was up $1 million, which has a lot of good news underneath it.

If I take a look at provisioning for the quarter, we have found that our risk rating system is working very well. It is correct; it is proving to us that we are reserving proper amounts.

In the quarter, we charged off $17 million. $8.5 million of that was reserved for in previous periods, so we only needed to reserve $8.6 million to cover charge-offs. Of that $8.6 million, auto was $1.3 million and mortgage was a little over $3.5 million, a couple of houses in Florida principally making up the majority of it, so we feel good that we have been reserving and that we are correct.

We added $2.3 million to our impaired reserve, of which $3.2 million of that is in Florida. During the quarter, we impaired $38 million worth of loans. The write down on all of the appraisals for those impaired loans, the $38 million, was $5.7 million. We had reserves of $5.8 million already reserved against those impaired loans, so there was absolutely no provision required, absolutely $100,000 came back to us.

Now, what we've been working on for the last two quarters is the second quarter of this year because we had so much that traditionally fell in reappraisal. So, on our existing impaired loans before the $38 million, we revalued $17 million and actually pulled them out of the second quarter, and we pulled those loans which we thought had the most risk of a second-quarter appraisal. The three larger land loans that were in there, we actually wrote them down $3.9 million this quarter, down 23%. We've looked at the appraisals. That's a little more than we thought it should be in looking at the quality of the properties, but we accepted the appraisals and wrote them down. That is a good hit at the second quarter which we took at the first.

In the second quarter on our impaired portfolio, which is 55% of all nonaccrual loans and any loan over $1 million, we plan to reappraise $32 million. We have a $4.1 million reserve assigned to those impaired loans. There is nothing large and nothing that I perceive as a significant risk, dollar-wise. So that means we have a 13% reserve against loans that have already been appraised, and I feel that is going to cover the second quarter impaired loan appraisals. We may use all the $4 million; we may not. But that pretty well cleans it out and there's hardly anything in the third and fourth quarter when you look at that.

So our reserves are reflecting our loss levels. We have addressed what we are expecting of the larger issues that we take a look at it. We will get into more detail, if you want to, on that.

As I take a look at nonperformings, Florida was up $5 million, Mississippi $10 million -- one loan, a longtime homebuilder. We're being very aggressive with the relationship. Foreclosing, we get about $1.5 million of write-downs on it. I think it's on the books now for $8 million. It is starter homes and midsize homes in Jackson, developed lots. We aren't expecting any more loss. Jackson is developing, moving along at a reasonable pace. We don't expect any real issues there. Texas, $8 million, two loans.

This quarter, our loan review team was in Texas for a couple of weeks. Our primary regulator was in Texas for a very deep look at Texas. At the end of it all, we had one small credit we disagreed on, on one grade. We felt very good.

I've personally been in Texas in the last two weeks. I have walked all the real estate down there with an entourage of understanding it. We have some thorough breakdowns that Bob Hardison will go into.

The difference between Texas and Florida -- and I am such a skeptic when it comes to real estate -- is this real estate that we have taken control of, there are offers right there, some of them two and three offers. We will go into that in greater detail. I do not view the quality of the nonperforming increase that we saw this quarter to be anywhere near like the quality that was going on nonperforming all last year.

We have had really good luck with a couple of residential credits that we had foreclosed on that we had mentioned to you earlier. We've sold a significant number of the houses with actually a small gain, and a significant number of lots. Compared to customer view, the lots are bringing 80%, which is pretty well dead-on where we have them in ORE) We have a very skilled group of people that understand the Houston market.

I'm going to leave credit quality, if I may, and we will come back to that for you. We will talk about balance sheet. The net interest margin continues to expand. Our loan yields held very well. Our commercial portfolio was absolutely flat in yield; our consumer portfolio held flat in yield, a little bit of drop in what we earned on our bond portfolio, nothing of significance.

The real story is our total interest-bearing deposit costs were 1%. CDs price down but our CD posted rate is still below what our CDs cost us during the quarter.

Average loans were about $6.4 billion still, reducing construction and land and auto. The average investment portfolio was up about a little over $100 million. Average earning assets were stable at about $8.3 billion.

No real change on the deposit side, up on average, down on end-over-end.

The issue with the margin, we are not paying any significant attention to the fact that the margin went up 9 points or basis points or whatever. It's already -- was it 430s. Now it's at 440s. I think what we're looking at is absolute amount of earning assets, and where we are looking and what we're doing to get earning assets on the books. We have a tremendous amount of capital to support it, and so we are on the offensive.

Noninterest income was a good quarter, no standouts, no really trip-ups. Noninterest expense is still controlled, maintained. We spend a little more money now on technology and our run rate because of our retail systems that are really positive for us. We are spending money on other software. We are investing where we think it can save money. We are renegotiating with vendors, contract renegotiations where we think we will be getting more fees, so I feel good about that. Overall, just a very solid quarter for where we are.

We will continue to manage credit. We will continue to manage the balance sheet. We are aggressively after revenue generation, strategic thinking in every area of the Bank; lots of calling going on; tremendous amount of calling in our Texas market going on. We are at a point that we have worked enough with the FDIC and in these look rooms that I can say our CFO has a very solid understanding of FDIC transactions, the positives and negatives, and the impact it would have on our Company.

We still do not see anything of significance with the FDIC in our strategic planning committee with our [corporate] board. We laid out and refreshed acquisition criteria this quarter.

You know, with an FDIC transaction, you really would want at least half of the branches, I guess. It would be something you would want to own at the end of the day, and we didn't see anything this quarter. We are actively looking. We have the ability, the skill sets; we have a staff that, if we tackled an FDIC workout, we have the staff to do it. So, I would look more toward, as we move further into the recovery, there likely will be other opportunities that come along that could have more strategic immediate term impact on the Company.

We are not ruling out FDIC. We could well do one or two smaller transactions, but we are not looking at $1 billion or $2 billion FDIC transaction. We wish we were, but we don't see it in a market at this point where we wish to be.

All in all, a very good quarter, and we would be happy to open it to questions.

Operator, we will take the first question now, please.

Thank you. We will begin the question-and-answer session. (Operator Instructions). Kevin Fitzsimmons, Sandler O'Neill.

Richard, a couple of quick questions, the obvious one is the margin. It seems like, every quarter, we talk about the margin probably modestly declining from here and then we come in and see the margin has jumped again. So it seems like what you're saying is the balance sheet could potentially even grow from here and maybe that could have a cost to the margin.

Would you expect the margin to modestly go down? I think you said last quarter that's kind of what you expected but it would probably stay above 4%. I'm just looking for some sense on what kind of pace of compression.

Then secondly, if you could just touch on the loan -- what you expect for loan balance. I know you said you think most of the commercial contraction is done for the year. I'm just trying to get a sense why you think that. It seems like a lot of companies are seeing no demand out there. Is it because you are willing -- it sounds like you are willing to do real estate loans where maybe a lot of other banks aren't right now. We're just trying to get a sense for that. Thank you.

Sure. Part of the answer to both of your questions is the paydown of the auto portfolio. You know, it's running almost $60 million a quarter. The profitability in that, versus the dealer reserves that we are amortizing right along with it, it just wasn't really profitable. We have been able to do more on the CD side than we anticipated. Most of our paydown on the commercial side has been charge-offs and moving to ORE.

We have not seen a shrinkage in our community bank portfolio. Actually, I believe it was up $17 million, in the first quarter, in Mississippi.

And no credit issues out there. So we have this underlying legacy, strong core market share bank outside of our real estate department and corporate department in Jackson, all over Mississippi, that's just out there, offensive, and just going on like business as usual.

I am not saying we are going to make many real estate loans. I am saying we can pick and choose, and we have the ability to do so, and they will be priced well.

Go ahead Richard.

The margin -- you know, it may go up a few more basis points but long-range, if we add to the balance sheet with growth or with bonds, the margin is going to come back down as a percent, so we are more focused on the absolute dollars. We love the margin, but we prefer the earnings. The margin is just doing what it's doing because of the dynamics, the pricing down of deposits. I don't see much deterioration in the absolute numbers this year, of the dollars earnings. It can go one way or the other just if we decide to add to the bond portfolio. We've not done that. We are just sitting here. We want to keep our earning assets at least where they are, Kevin.

Okay. Richard, just one question I get a lot is that, ex Florida, the portfolios, the other geographies have held up relatively well. You just mentioned before they continue to do that. There's another competitor of yours up further north in the state that has seen the past couple of quarters credit really deteriorate and it kind of gets characterized as later-stage deterioration. In other words, these borrowers have held up, but just due to the duration of the downturn, they are starting to hit a relative wall. Do you worry about that? Do you see that? How do you feel about that for your portfolio?

Thank you for that question. You know, I don't know about those other companies, but we are a national bank, OCC primary regulator, [fed] member. We have a very, very strong loan review team, tremendous number of solid people who -- no turnover, been in every one of our markets, know the files, don't have any complications with our officers discussing credit. In our Company, when you raise your hand and you find your own problems before a loan review, you get a nod.

We feel good about the way we are reserving and migrating credits. Our move to historical losses last year has paid off the last couple of quarters. When we get down to the third month of a quarter, I am not flinching and hiding from Barry Harvey and Bob Hardison. I am chasing them, and we are reserving ahead.

So you know, the buckets aren't that large. I was drilling Barry Harvey the day before yesterday morning and I said "Okay, let's just assume every significant credit out there that can go bad does go bad, we have just no luck. $2 million or $3 million." So, I am unaware, but we have worked closely with our regulators over the last three years in really proving up our methodology, diligent on getting appraisals. That's not to say we can't have a surprise or two, but our classified and criticized loans have not gone up. When we look at our stress testing, we did a forecast most likely a mid stress and a high stress, and our numbers hadn't hit our forecast yet. We are right along target.

We do not like where we are with nonperforming and ORE, but we actually liquidated $12 million in ORE this quarter with no loss. I am going to Florida in a few minutes and we're going to close about a $4 million piece of ORE that's been around for a long time, tomorrow. And we closed a significant house last week. We are seeing movement in Florida and we are seeing more properties selling.

Jerry wants to make a comment.

Yes, Kevin, this is Jerry Host. I'd like to add just a little bit of color to both this issue of do we see leftover problems that might be arising as well as the issue of loan demand moving forward.

We have a very complete process, in terms of monitoring calling activities of our commercial real estate -- excuse me, commercial relationship managers in the market. I have been attending, on a regular basis, these weekly calling meetings that they have. I am finally beginning to see some sense that there are renewed activities in some businesses, in terms of their willingness to begin borrowing again -- slight, but it's very different than what we've been seeing for the last two years.

In addition, within the Company, we certainly have all the analytics that come in on every market in terms of paydowns, new notes going on, so on and so forth. But we also have these advisory boards still in place. They play a very important role in that they provide us anecdotal information about what's going on in these different communities.

We've had a series of regional meetings this first quarter. I will tell you that the attitude of these advisory directors, relative to what's going on in some of these markets, has been more positive than it's been in three years. So without forecasting in any way, we do feel a sense of change and positive attitude that we haven't felt in about three years.

But we hope that, when you combine the continued calling efforts, the possibility that people have stopped decreasing their inventory levels, which has reduced their need for borrowing against their lines, with the thought that there is now talk of some capital expenditures that they have put off, whether it is for replacement of equipment, investment in technology that they have been putting off that they need to do to make their businesses more efficient moving forward, we are seeing a change. We think that, at a minimum, we will be able to hold the line on where we are with our balances. If the economy continues to improve, we hope that we will be part of that participation in the improvement in loan growth.

(multiple speakers)

(multiple speakers) significant, but you heard Jerry.

Thanks, guys. That was very helpful.

Andy Stapp, B. Riley.

Good morning. Just to follow up on more color on how you think you can start to grow earning assets, anything out there? I mean you've already discussed the possibility of CRE loans and renewed C&I demand, but is there any anything else out there that you're looking at?

Well, I would think home equity is going to be muted. I definitely think residential construction will be muted for a period of time. I think it is going to be a head-on, very competitive ballgame of midsized banks against giant banks pushing after C&I loans, owner-occupied real estate and some quality CRE. I don't think there will be any expanded rate margins. We see it competitive now. We will be in a position to price and take any piece of business we wish to do so.

We have a very strong margin. If we want a piece of business, we can be very competitive. We proved that a couple of times this quarter with fantastic credit quality.

Okay, but you don't foresee building your securities portfolio?

It depends on the rate. Our security portfolio is well in line. It has a cash flow of $30 million or $40 million a month. We have absolute liquidity. We have the ability to grow CDs if we wish to do so. So it just depends on the strategies that we decide to take based on what our models and our feelings of what's going to happen to interest rates.

We could expand our portfolio $200 million to $300 million when we feel the time is correct. We are not going to let our equity continue to grow, which it will, and not utilize it. If loan demand isn't there, we will utilize it, but we have enough cash flow from auto and our bond portfolio that we don't really sustain any real risk if rates move up, if we add a few additional bonds, which would bring 3.5% or so to the bottom line on any bonds that we might add because our funding would likely choose the lowest cost we can find.

Okay.

That's ammo just sitting there we really aren't using.

Understood. You released about $2 million in reserve link-quarter. Would you just give me some color on what you think about the reserve process, building process? Do you think it has or will soon come to an end?

Andy, I covered that extremely thoroughly with five points about the provision. We will be happy to go back through those with you. But essentially, loans that are moving into impairment were well reserved. We moved and took -- we are doing as best we can to normalize the second quarter.

Understood. I understood that. I just meant further along.

I anticipate charge-offs to be more than reserves. We are anticipating as much as the inter-agency guidelines and loan loss reserve regs will allow us to do.

You know, on the ORE side, we appraised a number of properties. I think we appraised 15 ORE properties. We wrote off $400,000. The rest of our ORE expense was all of our taxes for the year, legal expenses. We have budgeted, on our guidelines, up to a 30% decrease in the value of Florida real estate that is in ORE. We don't expect it to be there.

The second quarter will be our largest deal ORE valuation, but it is -- with a 30% decrease, it will look like last year, second quarter -- third and fourth quarter, negligible required.

So we could be surprised pleasantly in the second quarter, but we just feel we are well reserved for the quality of the portfolio. You know, as this auto is paying down $60 million, we carry a pretty heavy reserve against that auto paper. We are taking those charge-offs directly. That is freeing up reserves. So it just is what it is.

Barry, do you want to comment any more about our methodology, your comfort level with it, what you're doing, what you're anticipating?

I think we are very comfortable with our methodology, Richard. It's extremely granular. I mean, we are down to the point where we have 360 different reserve factors depending on the type of loan it is in the market in which it resides, so it's a combination of historical losses and qualitative factors which represent the risk that's not unique to that particular loan but is unique to the environment we are operating in.

Andy, I think one of the best indicators of what's happening is the new $38 million worth of impaired loans that came into the portfolio, the impaired portfolio, this quarter, of which we had a charge-off of $5.7 million, as Richard indicated. Yet, we had reserves already assigned to it -- of those loans of $5.8 million. When you have those type of situations, you're obviously going to be running a higher charge-off number than you are a provision number, assuming you don't have a lot of downgrades from a credit quality standpoint. That would be the only way you would be able to keep those two numbers in line. Or in other words, your net charge-offs are going to likely outpace your provisioning unless we have a have a lot of risk rate changes and downgrades in credits.

I would say, in Houston -- and I don't think you want to get as granular as I would take you -- you know, we had one home we foreclosed on in this quarter. We might have -- we will have a significant recovery on it. We had written it down. They've got an appraisal; the appraisal is hundreds of thousands of dollars higher. The property that moved into foreclosure, a couple of them, $7 million or $8 million and the appraisals came in $10 million. So we've got room to have Florida drop on these, which we are not going to see, and really have to reserve nothing as we move the process of liquidating the properties. So it's a different kind of -- it's still a bad loan, but the (inaudible) problems aren't there. Our margins are working.

You know, I just looked at my Texas notes. We sold 18 houses in the first quarter in Texas, and actually made $129,000. We sold 19 lots and, against the loan value, lost $225,000, and against our ORE balance lost $18,000. So that is dead-on. They are not selling every offer they get, either. They are marketing them and marching right through them.

Okay, thank you. One more quick question and I will get back in the queue. Do you happen to have where 30 to 89-day delinquencies stood versus Q4?

Yes. Actually I think it's a little bit -- do you want to cover it, Barry? I was looking at it last night, and it was a better feeling.

Sure. What we have is we have the 30 days or more. Overall, we've actually gone down a little bit on delinquencies, quarter-over-quarter. We are down -- the whole portfolio down to about around 3.22%. The most significant changes we have seen there is in our indirect auto portfolio. This is -- it has gone from prior quarter of 3.97% 30 days or more to 2.71%. Those actual dollars past due in that portfolio, which drives a lot of our delinquencies, have dropped from approximately $16 million down to around $9 million during the first quarter of the year. So from a delinquency standpoint, we are beginning to see some reduction on the 30 days or more, and the predominant driver of that is going to be that indirect portfolio.

Yes, and small business lending. We have $600 million, $700 million of really small business lending, and those percentages of past dues are always higher. They are elevated now from norm but that's why that number is 3%.

Okay, thank you.

(Operator Instructions). Brian Klock, KBW.

Good morning, gentlemen. You guys have covered a lot of my questions already. I just have one fee income question, Richard. I guess, looking at the insurance commission line, a little lower than where we were. We usually have the seasonal adjustments in the first quarter. Is there any sort of lag that we could see some of that carry over into the second, or is this run rate a little lower than in the past? Or maybe you could give us (multiple speakers).

We were about $300,000 or $400,000 lower. There was one that was carrying over into the first quarter that we closed. There is still pressure on rates in Florida. Values are down; insurance rates are down. You know, it is cyclical. We had a presentation on insurance to the Strategic Planning Committee of our board, which was very in depth.

We are hiring in insurance. As you know, we finished the systems, the accounting systems, in consolidating it together. We are expecting to save a good bit of money on that. Our marketing with the insurance companies makes us easier to do so. It's just the market and it is very cyclical.

We've looked at our valuations on insurance this quarter. We have no impairment. We work closely with Marsh, the consulting agency, on that. We have good buys; we made good buys in insurance. These are -- our Florida and Mississippi agencies are large, commercially driven. So no, it's not growing right now, but it's hanging in there.

Okay. This last question, I might have missed it -- you talked a little bit earlier about the new or the increase in nonperforming loans in Texas. You talked about two loans for $8 million.

If I look at the total NPLs that came in, it looks like there was maybe, what, $16 million because you had $8 million (technical difficulty) from NPL into ORE. So is that the biggest credit, that $8 million or I guess those two loans (multiple speakers)?

Yes, that was it. It wasn't much of anything else, but I'm going to let Bob and Barry -- Bob, you may want to comment on that particular issue in Texas, it's where you are.

Actually, the increase in the nonperforming loans in Texas we attribute to two loans, both development loans. They were originated in '07, and the loans had builder contracts to take down lots, once completed, from a number of quality builders that we had underwritten the builders to make sure they would be able. But as it turned out, as the lots were completed, it came at a time when the economy turned down and housing starts had turned down and the builders weren't able to adhere to the lot takedown schedule. So the borrowers encountered some difficulty and we ended up impairing those loans, went nonaccrual and we impaired them. But as had been pointed out, because we had 25%-plus equity, cash equity going in these loans, both of these loans, we did not have any write-down when we did the impairment. The impairment is an as-is value, not as-completed or as-developed but as the project stood appraisal. And we had no write-down.

We believe these projects are well located, well situated. As the Houston economy improves, which we're starting to see some of that now with lot absorption and housing starts and stabilization in the energy sector, we are starting to see that improve and we feel like that these projects will progress. Well, they're going to be off schedule, but we feel the lots that are now completed and ready to go over time will be absorbed as these builders come back into the market.

Bob, the full $24 million increase, all three of the credits -- the two Bob just spoke to as well as the other credit that drove that increase, have all been impaired, written down to value. So from the standpoint of (inaudible) have a point in time from a collateral -- they are collateral dependent -- from a collateral perspective, we do not have any risk, additional risk, in that credit as of that point in time.

Okay, thanks. I appreciate you guys taking my questions. Thank you.

Erika Penala, UBS.

Good morning, gentlemen. My question is clearly you have all of this excess capital and you know, eventually loan demand will pick back up. But have you -- you know, given that your tone on FDIC deals is a little bit more muted, have you considered restarting a buyback program or increasing your dividend sooner rather than later?

No. You know, the subject came up with our board. We want to hold onto this capital for a while because we want to be sure that no strategic opportunity comes up in the next 12 months that we can't jump right in there and be as competitive as anyone, even a larger institution that might be competing with us. So, we think it is a position that we are enjoying the flexibility. We could always do a buyback; we could always increase the dividend. Right now, we want to do what we've done all quarter -- is look at everything FDIC that makes any sense at all and try to make it work and look at other acquisition opportunities.

As we looked at the insurance agency premiums for sale, it is down. We still are not impaired. It's an ideal time that, if we wanted to make an insurance acquisition, we have the tangible equity to spend doing it. If we decided to expand wealth management, we have the tangible equity to do that because, as you know, it would create almost 100% intangible, and we measure ourselves by return on tangible equity.

So, Erica, it's just a good spot to be in and we are not complacent about it in any way.

Just to follow-up, how are you weighing the opportunities for regular deals versus what you see in the FDIC pipeline today versus three months ago?

It is a tad premature to do anything that would be significant for us. We obviously follow these situations. We still have concern about the illiquidity on the balance sheets of a lot of these companies that are either incurring small losses or breaking even. We are watching that. It's a good position to be in at this time. If we decided to do something more significant, I have been assured as late as yesterday that the equity markets are there. I do not anticipate going to the equity market.

We can add a very, very significant amount of 100% risk-rated assets, probably in the range of $2.5 billion, and still be over 12% of risk-based capital.

Thank you for my taking my questions, Richard.

Al Savastano, Macquarie.

I just wanted to see on the -- just get a clarification on your credit guidance in terms of the Florida review. It sounds like that we won't get the seasonal bump that we had in the past few years in the second quarter. But then I thought you also said something that maybe charge-offs could match in the second quarter of '10 versus '09. Can you straighten me out on that, please?

Yes. I have said we have been working to lessen the impact of second-quarter reappraisals for the last two quarters. I have not quantified and we just do not do that since we don't give forward guidance on Florida. But I have commented on the level of impaired loans and the reserves that are there for the second quarter and the amount of ORE that would be reappraised. So, I think that would be all that we could say at this time.

Got you, understand. Thank you much.

(Operator Instructions). Adam Barkstrom, Sterne Agee.

Richard, just real quickly, I know you touched on it in the beginning and I came late to the call and you touched on it a little on Erika's questions. But could you maybe just fill in 20 seconds, the FDIC deals, kind of where you guys are and maybe give us some color as to have you looked at some stuff and what's kind of the holdup there, if indeed you are interested at all? I'm sorry if I (multiple speakers)

Well, there really haven't been any. I think that if -- you know, we are not -- Trustmark is not going to fly off to Chicago and buy a bunch of banks. I think there was a Chicago batch; there may be something out in Oregon. I don't remember if there was anything in Florida or not -- not much of anything, and it was a relatively slow quarter. You know, TD Bank stepped in down there in southern Florida and decided to do a 50-50 loss sharing with the FDIC. I think, if TD wants to do that, they are going to take everything they want because those that we look at, we've been in banks this quarter. We have had quite a learning experience with our teams in looking at how problem banks restructure their loans, how they may take a loan and put it two years interest-only and then automatically converting to a five-year [ARM] and like five years after that, maybe a 30-year [ARM] maybe lower the interest rate down to a couple of percent.

We think there is potential for some of these loans to go beyond the loss-sharing guarantee. We saw a lot of risk in these things that we weren't sure that would be totally mitigated. That doesn't mean we won't do one, but there just wasn't anything going on.

You know, there might be more coming up in the panhandle if you look at the Texas ratios. I assure you, we know the ratio of every bank in the panhandle of Florida. That's the only place that we have any sick banks in our market or fringe.

Okay, great. Thank you for repeating some of that.

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

I'd like to thank you for joining us. We are a third of the way through the second quarter, and we are on top of it. We are hoping to have a good second quarter, don't see any significant loan growth in the quarter. We are still working through credit issues. We know we have the capital. We will use it diligently and intelligently with a lot of pull.

Thank you for joining us.

This does conclude today's teleconference. Thank you for joining us. You may now disconnect your lines.