Trustmark Corp (TRMK) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's first quarter earnings conference call. (Operator instructions.) As a reminder, this call is being recorded.

It is now my pleasure to introduce Joey Rein, Director of Investor Relations at Trustmark.

Good morning. I would like to remind everyone that a copy of our first quarter earnings release, as well as 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 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'd like to introduce Jerry Host, President and CEO of Trustmark.

Thank you, Joey, and good morning, everyone. I'd like to let you know that with us this morning we have Richard Hickson, our Chairman, Louis Greer, our Chief Financial Officer, Barry Harvey, our Chief Credit Officer, and Buddy Wood, our Chief Risk Officer.

I'd like to take a few minutes and highlight some of the first quarter and then to open it up for questions after we finish a few brief comments.

First quarter was I think a very solid, strong quarter for Trustmark. It is a reflection of our strength and our diversity that we show within our franchise. We had very stable net interest income and 4.30% net interest margin. We showed significant improvement in credit quality, and as we'll talk further you'll see that that's reflected by reductions in our nonperforming loans and our net charge offs.

Our first quarter net income available to common shareholders was $24 million. Basic EPS is $0.38, and diluted EPS of $0.37, and that was very much in line with analysts' expectations. Our return on average tangible common equity was at 11.65, and our return on average assets above 1% at 1.02.

I'd also note that at yesterday's Board of Directors meeting the Board declared a quarterly cash dividend of $0.23 per common share. That dividend is payable on June the 15th.

Turning to loans, our loans held for sale were $6 billion, a decrease of $96 million on a linked quarter basis. This is a result of our efforts to continue to reduce our exposure in construction and land development lending, as well as we've talked before about our decision to discontinue the indirect auto financing business. Those two are issues of the primary drivers as to the reduction and decrease in our loan portfolio.

More specifically, as we look at the construction and land development loans, the decline of about just over 5% or $30 million on a linked quarter basis, that was spread fairly evenly between the Florida, Mississippi, and Texas markets.

Our indirect auto portfolio, you recall peaked at $850 million. That balance is now down to about $165 million. We had been experiencing runoff in that portfolio of about $20 million a month. That runoff is now down to about $12 million a month.

As far as increases in the portfolio we did see increase is the one to four family category of about $5 million. C&I increased about $14 million for the quarter, for the linked quarter. We will continue to add to one to four. The quality of those loans, the yield on those loans is something that we feel is attractive and we're very comfortable with.

As it relates to C&I, we're seeing very healthy pipelines from our lending operations, primarily in Texas, in our Corporate Group, and in our Memphis Group. The challenge is that although we have many lines approved we're still not seeing a significant increase in line usage. Many businesses, although they have paid down inventory levels are liquidity heavy and are using that liquidity to finance certain projects.

We do have, I think to put maybe a little color on some of the unusual or growth we've seen, we've talked to a local caterpillar dealer that's seeing his business up about 40%. When asked why, his answer is, well, the growth in the oil industry has driven a request for new equipment from that dealer. And I think as the economy continues to improve we should begin seeing additional line usage.

Turning to credit quality, as I mentioned earlier, continue to see positive trends. Our nonperforming loans decreased $15 million or just over 11% on a linked quarter basis, and now stand at $127 million, and that's just a little over 2% of our total loans. I'll note that this marks our fourth consecutive quarter of improvement in nonperforming loans. Specifically when we look at Florida we see a decline of $9.2 million or 17%, and in Texas a decline of $6.5 million or almost 19%.

Foreclosed real estate increased slightly, about $2.5 million on a linked quarter basis. That increase included about an $8.5 million commercial real estate loan in Texas. I will tell you that is a single piece of property that we have under a letter of intent and we expect that to close more than likely in the third quarter of this year. We would not anticipate any additional write-downs on that property.

We experienced a number of ORE sales throughout the system, specifically in Texas. We had a large home that we sold for about $2.4 million. In Florida we have about $2.5 million sale, two properties, primarily a single family home in the Destin area, and then a condo project that we had halfway between Destin and Panama City that closed this quarter. And in Memphis we also had a condo project that we sold for about $1.3 million.

Now, the total results of all these was a slight increase or a slight gain, I should say, versus our carrying value on those projects. Again, reflecting I think what we feel is a very thorough and accurate process in writing loans down and managing the ORE process. Now, collectively when you look at the nonperforming loans and the real estate, the nonperforming assets decreased $13.5 million or right at 6% on a linked quarter basis.

Our net charge offs the first quarter totaled $7.6 million, that's a decline of 40% on a linked quarter basis and is just over 50 basis points on average return, that's on our average loans, excuse me. Florida represented 71% of the net charge offs.

And looking at our provision, our loan losses totaled $7.5 million, that's a decrease of 36% on a linked quarter basis. We experienced a steady and continued reduction in criticized loans, including a $12.8 million decline in the Florida market relative to the prior quarter. Our Florida provision decreased $4.4 million. Our Mississippi declined $1.6 million. And Texas increased $1.1 million.

Our allowance for loan losses now stands at $93.4 million or 1.98% of commercial loans, 76 basis points of consumer and home mortgages, and that's a total of 1.57% of total loans, up slightly by 3%. And that represents 215% of nonperforming loans and that excludes the impaired loans with no specific reserves. We feel given the current economic environment that the allowance is appropriate and adequate for our loan portfolio.

Florida has been over the last several years a major topic for us. We would hope that in the near future that we won't break Florida out specifically for comments, but we'll just give you an update of where we are now.

Our total portfolio in Florida now stands at $427 million, that's down 15% or $76 million year-over-year. Our construction and land development exposure in Florida has declined by a third or $61 million year-over-year and now stands at $122 million. The reserve that we have associated for this $122 million is $14.5 million or nearly 12%. We feel like our exposure in Florida has been significantly reduced and that it is adequately and appropriately reserved.

New comments on our balance sheet for linked quarter. Our average loans, as I mentioned before, declined by about $93 million. The average investment portfolio has increased $208 million on a linked quarter basis and now stands at $2.3 billion. They have been buying high quality mortgage backed securities in the three to four-year duration range, that is consistent with the overall duration of the portfolio of about 3.7 years. The portfolio yield now stands at about 3.85%.

Our average earning assets increased to $8.5 billion, and that's an increase of about $120 million or 1.4% linked quarter. Average deposits increased $203 million and now stand at $7.2 billion. That increase is a bit seasonal, first quarter with taxes, we've seen a lot of increases in our public accounts. End of period deposits increased $381 million or about 5%. When we look to break that down, about $260 million of that is public money. We've had some shift in our retail CDs, our retail CDs are down $90 million but we've put on a few brokered CDs, about $50 million in brokered CDs at a rate of about 160 with a term of three years, just to get a little bit of -- just to deal with the liability sensitivity within the balance sheet.

When we look at the net interest income it totaled $90 million. It's down $2 million on a linked quarter basis. That difference is due primarily to two days' worth of accrual with February being a 28-day month versus fourth quarter of last year. Our net interest margin, it now stands at a 4.30%, it's down 6 basis points. As indicated a number of times in the past that we would be coming down off our high, and it happened this last quarter although not significant.

We also told you that our focus would be on maintaining that dollar amount on the net interest income, but you see the increase in the investment portfolio. We anticipate that to be temporary and be in a position to provide all liquidity necessary once we see some growth in the economic environment and pick-up in the loan portfolio.

Let me turn now to the noninterest income. It totaled $36.4 million for the month and represents almost 30% of our total revenues. It had very solid performance. Our service charge on our deposits was nearly $12 million in the quarter, a decline of $1.6 million on a linked quarter basis that we believe is due primarily to the seasonality of the Christmas season and the fact that there are more spends, more transactions that take place, and as a result we normally see more NSF charges in that fourth quarter of each year.

When we compare these figures to a year earlier service charges were down $1.1 million, with approximately $940,000 of that decline attributable specifically to NSF fees from the regulatory changes, the opt-in changes. We had given you an estimate of about $1 million a quarter, and that's pretty much on track with what we had projected.

Bank cards and other fees totaled $6.5 million during the first quarter, that's very much in line with what we saw in the prior quarter. It's up about $600,000 from figures a year earlier, and that is a result of an increase in the debit cards usage by our customers.

Wealth management income represented our best quarterly performance in two years and totaled $6 million for the first quarter. I think it's a result of improving market conditions, as well as growth in our retirement planning services segment of wealth management and our brokerage companies.

Insurance revenues was a solid $6.5 million, and it reflected a seasonal increase on a linked quarter basis. However, I will tell you that we continue as other agencies, we continue to see a softening in the market. That market condition has been longer than most we've seen and would hope with improvement in the economy that we'll see these revenues pick-up, as well, and we look forward to that.

Mortgage banking income was $4.7 million for the first quarter and reflected stable servicing income, a very solid secondary marketing gains, and our hedge operated just exactly as we planned it to, and that was it was relatively neutral, a slight positive on the hedge.

A few comments relative to service charges and bank card and other fees. We've talked about Reg E before, and opt-in, opt-out. Our projections remain on target for 2011 for an impact of opt-in, opt-out of about $3.6 million to $4 million. We are -- have been in constant conversation with our primary regulator, the OCC, about guidance that they will be providing us relative to overdraft protection programs within national banks as it relates to posting order, number of occurrences, minimum dollar amounts, and we will look for that guidance and clarity and will be prepared to adjust appropriately.

We had indicated in the past changes from posting order might have an annual impact of about $5 million in an additional reduction for the NSF, OD income. We would anticipate based on the timing that that is likely to be a second half of the year event.

As far as the Durbin Amendment and interchange, I would think that most people are aware of the amount of scrutiny that that has received in Congress, it's being heavily debated. A number of Senators, specifically Senator Corker, has taken an initiative, and Senator Tester, to ensure that there is an opportunity to look at the impact on consumers and on the banking industry relative to changing interchange fees.

We told you that for 2011 that if interchange fee is going to affect and Trustmark is affected in the same way as the larger banks that could have an impact of somewhere between $4 million and $6 million for the second half of the year. Looking forward we would anticipate that that number is still fairly accurate.

On the noninterest expense side, we saw a slight decline from about $400,000 on the linked quarter basis to right at $80 million. I will tell you that we provided our associates a raise at the beginning of the year, and that is included in this number as our salary and benefit expense totaled $44 million for the first quarter.

Other expenses declined about $650,000, that was principally due to a reduction in certain operational losses and other expenses.

Our equipment expenses increased $900,000 during the quarter for two reasons. Number one, we have implemented a new disaster recovery process within the Company, and we would anticipate that would have an ongoing expense associated with it of somewhere in the neighborhood of $500,000 a quarter. Now, the other $400,000 is primarily associated with the need to have duplication in some of our data and communications lines as we have worked through this transition, and once we eliminate that duplication after testing is complete we'll see that expense go away.

From a capital standpoint our tangible common equity increased $853 million and represents 9.27% of tangible assets. Our total risk based capital increased to 16.25%, and as you can see is significantly exceeds the 10% requirement by the regulators to be classified as well capitalized. Our strong capital base provides us, as we've talked before, with the flexibility to support both organic growth and acquisition opportunities that will work to strengthen Trustmark's franchise.

Speaking of acquisition opportunities, let me briefly cover with you the acquisition of the Heritage Banking Group that took place this last couple of weeks. On April 15th we announced the acquisition of Heritage Banking Group. It was an FDIC assisted transaction. Heritage is a Bank that we have known very well over the years as a correspondent banking customer of Trustmark's. The Institution is 90 years old, headquartered in Carthage, Mississippi. It has a number one deposit market share in its County, which is Leake County, and has about 45% of the deposits in that market.

They had approximately $224 million in assets and about $200 million in deposits. Substantially all of the loans and the ORE that we acquired are part of the covered loss share agreement that we have with the FDIC, which is 80% of any losses. Now, I will tell you this, it's not a multi-tiered transaction. You've seen some. This is one where all of the covered assets will be at the 80% level. About the only thing excluded is about $10 million in consumer loans, and there hasn't been a significant issue with the quality of that loan portfolio.

One of the nice things about this transaction is in market opportunities. Out of their eight offices five of those are in market offices, and we would anticipate that within the 90-day window that we have to put back certain branches to the FDIC that we will take advantage of that opportunity and significantly reduce costs.

We purchased the loans with an asset discount of approximately $23 million, and we paid 15 basis points or roughly $300,000 premium for the deposits. We are anticipating between a $4 million and $6 million after-tax gain in the second quarter once we determine and finalize the fair market value of the assets acquired and make any adjustments.

This transaction is immediately accretive to EPS, although a small transaction we anticipate that for 2011 we'll see a $0.01 accretion and in 2012 it will be $0.02 accretive. So very, very -- a small transaction but makes good financial sense for us. It fills in in the central part of the State between our Jackson, Canton, Central Mississippi locations and our Eastern Mississippi locations in Meridian.

One other note, I'll tell you, is that we opened a branch this last quarter in Philadelphia, Mississippi on the Choctaw Reservation. The Choctaw's have a large gaming operation and are a significant client of ours, and we opened a branch location. And that just so happens that it's on the same highway that goes from Canton through Carthage, and fits very well.

The other real positive is that we had working for us the previous President of this Bank. He'd been there for over 30 years. Left when the Company effectively -- the ownership was sold to another group approximately four years ago, and he is returning now to take over the Bank. And I will tell you that the associates at the Bank, individuals and businesses within the community have been nothing but excited about the return of the President.

So we see this in so many ways as being a real win, win for us. It fits within the criteria of what we set in the way of acquisitions. We would have loved it to have been ten times the size, but every deal you do as long as it adds value I think it's good for the franchise.

Let me take just a minute and remind you of our strategic areas of focus. The first, as you would imagine, is going to be revenue generation within the Company. I would have loved to have told you that we saw significant loan growth in the first quarter. It is what it is. We continue to have, as I mentioned, the runoff in real estate and indirect, although it's slowing. We're seeing good pipeline activity, which needs this economy to improve a little bit, and we have the customer base and relationship once they begin utilizing lines. But we are out every day looking for that.

We also have to look at ways that we're going to reduce this reduction in service charge and bank fees once that hits us. That's being worked on in the way of realigning and repackaging, spiking service charge products, and that process continues. But, as you would imagine, it's very dynamic, it involves assumptions on customer behaviors and reactions, and it also involves some clarification from a legislative standpoint. We are on top of it, and will act accordingly.

Also, we continue to look for M&A opportunities in the marketplace. And we would anticipate that there will be additional FDIC assisted transactions that are available, as well as other consolidating opportunities.

We will not lose our focus on continuing to manage the risks associated with credit and interest rates within the balance sheet. As I mentioned earlier, we've had four consecutive quarters of improvement in our credit numbers. Want to stay on top of that, and I want to keep that process moving forward.

And then, lastly, and I think this probably goes without saying is significant legislation from Dodd-Frank, and we will ensure that this Company is in compliance once those regulations are published.

So, all in all, we believe a very solid quarter. And, at this point, I would like to open it up for questions.

Thank you. (Operator instructions.)

The first question is from Ebrahim Poonawala of Morgan Keegan. Please go ahead.

Good morning, guys. Jerry, you spoke about the runoff in the construction and the indirect auto portfolio. I'm wondering if you have a target in terms of where the runoff in the construction book stops or where it levels out?

Good morning, Ebrahim. Yes, we believe that just as in the indirect portfolio, we've seen that number down by about half, runoff in construction and land. We believe it's going to begin to stabilize.

I will also tell you that as good projects, more specifically from a vertical standpoint, and existing one to four projects that we have, as those opportunities arise we will lend into that. And that's going to be with customers that we know very well, the projects may have slowed over a period of time. We're beginning to see some interest and improvement, and we will lend into those projects in an appropriate way.

Sure. Okay. And I guess just from a bigger picture standpoint would you talk a little bit about your strategy in Texas? Do you think you have enough people on the ground and enough presence from where you can grow organically or win market share? Or are you -- do you expect to add more branches and personnel from a loan lending, loan standpoint?

Good question. The answer to the question is we will more than likely add people in Texas. I don't know that we would add additional locations at this time. We feel like we have some very, very solid locations, and we surround Texas, surround Houston, if you will, from if you look at a clock from about five o'clock to about 12 o'clock. And so those are the areas that are strong from a small business, from a commercial standpoint, they're very diverse.

The Sugarland area is seeing a lot of growth. Texas, overall, seems to be healthier than many other areas within the United States. We have a significant number of people on the ground. We have a very strong Credit Administration Group. We have the capacity to add people, and we will be looking to add people, and there's probably the dynamics of changes within that market will provide us opportunity to add those people.

That has to be one of our growth markets. We want to do it in a way with credit that we're comfortable with, and we've got a good team out there right now, and I would anticipate we would add to that.

Sure. Okay, and one last question, if I may? In terms of the tax rate I guess that went up linked quarter. Should we be assuming the same 31%, 32% tax rate or will it be lower?

I'm going to let Louis answer that question, specifically.

Ebrahim, in the fourth quarter our tax rate was about 28%, some investment in the new market tax credits, they came in, so we lowered our rate, oh, probably 3 or 4 percentage points. So I would expect that our tax rate, around 31.5% is our normal. It just happens to be that we had a significant tax credit in the fourth quarter that lowered that rate, so I'd say our rate is 31.5% on an annual basis.

Okay, thanks for taking my questions, guys.

Thank you.

The next question is from Brian Klock of KBW. Please go ahead, sir.

Good morning, Brian.

Good morning, gentlemen.

Good morning. How are you?

I'm doing good, doing good. I guess, first, congratulations on your Heritage deal, and I like obviously the pricing on that, immediately accretive to book value and EPS, so congratulations on that deal.

Thank you.

With the -- you've still got a boatload of capital to put to work. You have a nice war chest to actually deploy. So maybe you can talk about the follow-up to Ebrahim's questions of there isn't a lot of disruption going on with the Sterling merger and the Whitney merger in your market, so do you think there's opportunities for you guys in those key markets to pull away lenders or relationships to deploy all that excess capital from an organic perspective first before you look at other M&A opportunities?

Brian, yes, we do believe there's opportunity, and we want to be very selective about the opportunities that are out there with people. We have been for the last several months with this disruption stepping through and looking at where we can add expertise and value that complements the existing team that we have on the ground in Texas and elsewhere. I would tell you Memphis is an opportunity, as well.

So that process has been ongoing. We want to be smart about the people that we add to the Company. Make sure that they're going to add expertise that we might not necessarily have or we fill-in voids that we have within our overall loan portfolio.

On balance, as well, we're going to want to make sure that not only do we have the line lenders but that we have the right people from a credit administration standpoint that helps in structuring, reviewing, and underwriting those credits.

Okay, I'll just -- I'll do one follow-up and get back in the queue. I guess just I guess thinking again you're starting to see some of the runoff slow as you guys have talked about, and I guess in your crystal ball with the pick-up in C&I that you had, you know, in Texas you had a 13% annualized growth in C&I, 8% in your commercial real estate, 5% in Mississippi in C&I growth -- if you think the runoff is slowing do you think that maybe you'll see some sort of a transition into net positive loan growth the second half of the year at this pace or maybe you could just kind of comment on where you think you might see the positive growth return again? Thanks, guys.

I wish I had some clarity within that crystal ball. So much of it is dependent on the economic environment, and you know that Mississippi is a non-bust. We didn't see the big bust, we didn't see the huge credit problem in Mississippi that we experienced in some other states. And we don't see the big boom coming out. So it'd be a little slower in Mississippi but, nonetheless, it's going to be very healthy and I believe will be consistent.

Opportunities will be, I believe, in Texas and in the Memphis franchises. Opportunities in our corporate market, where we will follow existing corporations with operations outside of our footprint but customers that we know well and are headquartered within our footprint.

The -- you know, it is so dependent upon this economic recovery. A lot of what banks are seeing now, if you're seeing significant increases it may be because they're fighting for loans and they're pricing those loans down, they're going in and undercutting.

I will tell you that our people have been instructed not to lose good relationships. They've also been instructed not to go out and pick-up loans that we would not find fit in with the credit quality and structure of our Company. And so we are not going to sacrifice growth just to put on some assets that may become a problem, especially if this economy begins to slow again.

That being said, our people are out every day looking for opportunities. We have a lot of good people in place and, as I mentioned earlier, we will look to add to our staff to create that organic growth.

Pipelines, I'll tell you this pipelines are looking healthier, specifically Texas, Memphis, and in our Corporate Group. The pipelines are looking healthier than we've seen probably for three-and-a-half years.

All right. thanks, guys.

The next question is from Joe Adams, Sandler O'Neill. Please go ahead.

Hi, it's actually Kevin Fitzsimmons at Sandler. Hi, guys.

Hi, Kevin.

First, I just wanted to walk-through the fee income guidance to make sure I understand it right. So of roughly $3.5 million to $4 million on the opt-in, opt-out, that's basically in the run rate already, right?

That is correct, that's the changes for opt-in, opt-out that took place last year.

Okay, and then there's the incremental $5 million, that gets you up to that high end of that $6 million to $9 million range you guys gave that would be coming incrementally in the second half assuming you get the guidance, and that's on the processing for the sequencing and other changes related to overdrafts, correct?

Right, that is also correct.

Okay, and then the $4 million to $6 million is incremental if Durbin is implemented as is and in the second half of the year, and which we're also waiting to see, correct?

That is correct, and it's also correct, Kevin, if we're subject to that $0.12 pricing level. Technically being just under $10 billion, technically we would not be subject to it but we think there's going to be enough competitive pressure and we're going to have to adjust our pricing at some point. So there's a little room in that number, but it's assuming that we would need to adjust just to be competitive.

And that one thing, I imagine you're looking for ways to kind of replenish all of this, probably not being able to totally mitigate it, but where are you in that process?

Along the line with a number of prototype products and packages of products, we've done a lot of conversation with external consultants, and looking at ideas and advice with them. A lot of it is based on customer behavior in terms of having your products packaged and priced correctly. You can look at some examples in Australia and Canada of countries that don't have interchange allowed within their pricing for banking, and you will see significantly higher costs for basic checking account services.

So I would anticipate that if we move in that same direction that that's what we'll see is more options to choose from with specific packages that are priced accordingly to our costs, and all of it will be driven by behavior and competition. So that's the great unknown. We want to be prepared and ready, but it has not been our nature to jump out and be the first, but see what happens with some other organizations and then be ready to react very quickly.

Okay, great. And one follow-up just on M&A, I know you had kind of outlined that you think there's opportunity. Can you just talk a little bit, Jerry, about how your -- has your outlook changed, at all, in terms of live banks, failed banks, even the prospect, would you guys be willing to do something large, like an MOE of an institution maybe that's had some overlap but would broaden out your franchise?

And the reason I'm asking if the outlook has changed is on the failed banks, the private -- these private equity backed vehicles have stepped in with cadence and got superior. And is it changing the dynamic a little bit or the opportunity, in your mind? Is the -- are they stepping in and taking some of that away, and so do you have to change the way you look at the opportunities over the next year or two? Thanks.

Good. Kevin, thank you, that was a good question. A couple thoughts come to mind. Number one, as these private equity firms start to buy-up these failed banks, especially of size and especially the pricing levels they are, at some point their appetite either lessens or becomes more competitive you would think.

As far as our appetite we're keeping it open and consistent with pre-described criteria. We'll look at failed banks, we will look at troubled banks, and we will look at healthy institutions that just find it's ready, it's time for them to sell.

Size-wise, you know, the Heritage transaction admittedly was on the small end but it was such a compelling argument on so many fronts that we did the transaction. And then it gives our folks a chance to be back in the game to test the necessary modeling and accounting for these troubled loans, and the interaction we had with the FDIC was absolutely fantastic, and we think they're going to create some other opportunities. But it was on the small end and we would look more towards the half a billion, as we stated up to somewhere in the neighborhood of $3 billion size.

So that's a primary focus. If there are opportunities that exist and other transactions, certainly our Board understands their fiduciary responsibility and what might come about, but we've built this Company over 120 years. Over the last 12, 13 years, 13 years since Richard has been here he's doubled the size of the Bank. And he's done it consistently by getting us outside the Mississippi footprint to get some growth opportunity. We've added insurance agency to the mix, three different agencies.

So our objective is to strengthen the overall earnings power of this franchise and to enhance long-term customer value, our shareholder value. And so we're going to be open-minded but we're going to stick to our discipline.

Okay, great. Thank you.

Thank you, Kevin.

(Operator instructions.)

The next question is from Andy Stapp, B. Riley & Company.

Good morning. Nice quarter.

Thank you, Andy. Good morning.

In your press release you talked about some nonrecurring implementation costs with regard to your data communication network. Were those material?

Somewhere in the $300,000 to $400,000 range, and specifically what that is is we put an upgrade in the data lines and the routers within our branches and you have to keep the old data lines in place while you're doing this.

Okay.

And they want to charge you for those data lines and charge you for your existing lines, and once they're all tested and running we pull the other ones out and that cost goes away.

Got you, got you. And could you talk about your mortgage banking pipeline, where that stands?

Mortgage banking pipeline remains very healthy, although it's off levels that we saw this time last year. We also saw gains in our mortgage hedging program last year. Now we're seeing it work as it's supposed to, and that is it's to be neutral and take the volatility out of the mortgage servicing rights portfolio.

But volume remains very steady. It's level is consistent with two, three years ago. We just saw a tremendous amount of refinancings with the low levels last year, and now that rates have come up we've seen our levels come off. The offset to that is we're looking at other opportunities for production and have taken advantage of a couple situations to put some of our producers in locations that might help drive new volume.

Okay, and what do you estimate the impact of the change in the FDIC assessment formula to be in Q2?

Louis, do you want to take that one?

Yes, I can do that, Jerry. It looks like to me our run rate on the FDIC should be fairly constant in the second quarter, and I'm just looking for that number -- it's somewhere around the 3.2, I believe is what we have.

I'm sorry, I didn't --

It's an insignificant change.

I'm sorry, it's 2.7, insignificant change -- it'll stay about the same.

Okay.

Because of the asset related to versus deposit based.

Okay.

It's all improvement.

All right. What are your thoughts with regard to increasing the dividend or implementing stock buybacks with your strong capital level?

All those are things that we consider, Andy. As you can see, the Board declared the consistency in the $0.23 a share this quarter. We'll reflect on those but it will be part of an overall strategy that's focused on M&A opportunities. Right now we think it's strong, it's a good position to be in, it provides us flexibility and opportunity. And if you look, I think there was an article out earlier in the week by the Motley Fool that basically listed the trust market as one of the best buys out there was at 3.7% dividend. And so I think people are happy with where it is.

Okay, all right. Thank you, that's all I had.

Thank you, Andy.

The next question is from Michael Rose, Raymond James. Please go ahead.

Hi, good morning, everyone.

Good morning, Michael.

Just had a quick question on the deposit growth in the quarter. Was there any geographic flavor to that, meaning did more of it come from Texas, similar to your kind of loan generation?

Michael, the majority of it -- did you say loan or did you say deposits?

I said deposits.

Okay, excuse me. Yes, the majority of it was public money. We see just because of the relationships we have in so many of our community bank markets, with both municipal government, county government, and our relationship with the State of Mississippi, most of that was within the State of Mississippi, and it's tax collections that come in in that first quarter and then they'll be spending it over the remainder of the year.

Okay, so is more typical seasonal in nature, maybe just a little bit bigger this time around?

Right, it's seasonal but just slightly bigger, yes.

Okay, and any thoughts on kind of the securities portfolio from here? I don't know if you mentioned it, I got on the call late.

Well, we mentioned securities portfolio having increased maintaining the duration level in terms of our current purchases, duration level in the 3 to 4-year range. And it's approaching a number that we're comfortable with but certainly on the upper edge of what we want to see as a percentage of assets. It's positioned well in terms of the forward cash flows that as loan volume begins to pick-up we can provide adequate cash flow just from the runoff of the securities portfolio.

Okay, that's helpful. Thanks, guys.

Thank you.

(Operator instructions.)

The next question is Peyton Green, Sterne Agee. Please go ahead.

Yes, good morning. A question on the securities book. What is the expected cash flow in 2011? And then also what's the roll off yield on that?

All right. I'm going to ask -- Peyton, I'm going to ask Buddy Wood to respond to that since he has the numbers in front of him?

Hi, Peyton. We run about $50 million a month off and have been replacing that as well as adding some. The runoff yield is just over 4%, maybe 4.1%. So we have approximately the upper three's is the average, and it'll probably lose about 10 basis points as we go through the year.

Okay, so most of the pressure you would have felt over the last year is really in the rearview mirror, you feel pretty good about it going forward?

It really is, that's correct.

Okay, great. Thank you very much.

Having no further questions, this concludes our question and answer session. I would like to turn the conference back over to Jerry Host for any closing remarks.

Thank you, Operator.

I'd like to just take a moment and thank you all for your interest in Trustmark. We feel like the quarter has been very strong, very positive. In a lot of different ways it shows the consistency, as well as the breadth of this franchise. As we've talked, loan demand is something we remain very focused on and want to see improved. We will see that happen as the economy improves. We're not going to sacrifice quality. We've seen the problems that that creates. We have this continued focus on our credit issues, and anticipate that as we move forward you'll see those numbers improve. So thank you so much for joining us. We look forward to visiting you again next quarter.

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

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