Trustmark Corporation Q1 2009 Earnings Call Transcript

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 |  About: Trustmark Corporation (TRMK)
by: SA Transcripts

Operator

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. (Operator Instructions)

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

Joey Rein

Good morning and thank you operator. I would like to remind everyone that a copy of our first quarter earnings release, along with supporting financial information is available on the Investor Relations section of our website at www.trustmark.com, by clicking on the news releases tab.

During the course of our call this morning, we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We would like to caution you that these forward-looking statements may differ materially from actual results, due to a number of 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 Richard Hickson, our Chairman and CEO.

Richard Hickson

Good morning. I’d like to thank you for joining us this morning. Our board meeting, falling on the last Tuesday this month has us I guess about last in reporting earnings. I’ll say, it’s been long month, because we’ve been very anxious to get these good earnings out to you.

We reported net income available to common shareholders of $23.4 million, a return on tangible common equity of around 14.5%, a return on assets of 1.10% and we declared our cash dividend, payable of $0.23 a share unchanged. Earnings during the quarter continue to reflect our core operating strength, expanded net interest income, growth and non-interest income, prudent expense management and enhanced capital strength. Bottom line, Trustmark has a very strong capital position, a solid balance sheet and financial flexibility.

Let met take you to page three in our stat sheet, which addresses credit quality. Non-accrual loans increased $20 million to $134 million or 1.94% of total loans. Taking a look at it by state; Florida was up $8.7 million, no large credits migrated to non-accrual.

There were a number of small credits. There were three over $1 million, one was a home and Watercolor, which was written down and subsequently sold and closed after quarter end. Another was a couple of residential lots. The other was a piece of land about $3.7 million; it was subsequently written down during the quarter to $1.5 million.

In Mississippi, the change in non-accrual was principally small home mortgage credit. No credit over $0.5 million. In Tennessee, there was no change, it was one loan residential related. In Texas, we were up $6 million; that is one real estate developer, old customer of the bank, had financial problems outside of our projects.

There are three different piece of real estate in that, all the three well located; one in office, one in office condominium and one is smaller piece of land due north and due west out in the Sugar Land area. Those have been reserve for. We are expecting to see them move into foreclosure and be liquidated within one or two quarters.

Other real estate increased $3 million, nothing significant. About 18 of that’s in Florida and I believe Florida has already actually went down a couple of million dollars. We sold about $3 million worth of real estate, all smaller houses and lots in Florida during the last quarter. Only other change in foreclosed was one $2.7 million land loan on the Gulf Coast in Biloxi and our Mississippi portfolios variable lands, we are not anticipating anything of significance there.

The total non-performing increased $24 million, up to 2.5% of total loans and other real estate. Net charge-offs were actually down linked quarter about $1.2 million to $11.4 million, a 0.66 of loan. Of the $11.4 million, $6.9 million was in Florida. Taking a look at it, principally it was the two credits that moved through to non-accrual that moved fairly quickly; nothing else of significance there, due smaller lot loan write-downs.

Our indirect auto portfolio charge-offs were $2.4 million. So, if you take Florida at seven and indirect auto was 2.4, anything else in our $7 billion loan portfolio was absolutely minimum. Our provision came in at $16.9 million, exceeding charge-offs by $5.5 million. In Florida, we did our best to identify issues during the quarter and we reserved $3.8 million more than our charge-offs. Our loan loss now is a little more than a $100 million at a $100.4 million.

When you look at our commercial and real estate commercial portfolios, we are at a 1.95% on that commercial portfolio, at 0.73% on the consumer portfolio and 1.51% of total loan. When I look at the consumer portfolio, as you know that’s significant with us. We began moving our auto portfolio down, probably in October of ’07 and it decreases about $20 million a month to $25 million. At quarter end it was about $550 million from our high of right at $900 million.

Our indirect consumer had a 30 day past due at the end of March, of 1.9% actually down from 2.52% at the end of the year. We are noticing what we think is a moderating of that as we look at the month of the April also. Our direct consumer portfolio, which would include HELOC such as that, past dues over 30 days were flat at 1.53%, loses 0.66 annualized there. So we are not seeing any significant migration in our consumer; our home mortgage portfolio that giving us any sense of immediate concern.

If I could take you to page nine of our stat sheet, that covers the state of Florida and I will go through it for you. I will use a lot of linked quarter numbers. It just seemed too crowded to begin putting linked quarters in this. If it proves significant to you, we’ll do that. If you take a look it our total Florida portfolio, it’s down around $87 million over the year.

Actually our construction and land development portfolio is down $95 million over the year. We have really worked our Florida credit quality, criticized and classified sheet for you, so you can see migration more clearly. You will see that criticized loans in Florida were $181 million; that’s up only $5 million for the quarter linked quarter; however, construction and development loans criticized work down a linked $10.5 million.

You will see that the way we have the nomenclature criticized loans, includes all of our special mentioned loans and classified loans, including impaired loans. You’ll see that there’s $32 million in construction related special mentioned loans. I would say a little over half of that is made up of one loan where it is performing, we have global cash flows and the last appraisal we have is about five or six times value.

So, I do not see any loss. If there is migration in this credit, I don’t see it as a significant impact, but at this time I’m not expecting much migration on this credit. It has some income producing properties, some losses, some raw lands in it.

If we take a look, we have $47 million of substandard or classified loans that are accruing. If I take a look at those, only 30 of that is in construction and land development. The lot loans are some of the most beautiful beach front lots and we have sales of lots around it that would cover this easily in the last six months.

Taking a look at the unimproved land, that particular one has a fairly strong owner, it is accruing. If I take a look at the other constructions, that’s recurring. It is some land development and lots with three or four fairly strong owners. It could migrate, but I don’t see any loss in it.

On our non-impaired, non-accrual loans, the $10 million lot loan is a relationship. It is a golf course lot loan. It has been written down probably well over 50% or 60% at quarter end. We think we have that one fairly well covered. If I move over to our impaired loans, they are up $1 million for the quarter, actually construction down a $1 million.

I went through a process at quarter end. I took the largest 20 non-accrual relationships or loans in the state of Florida. Good news is, that covered everything over a $1 million, number 20 was $1,003,000. When we take those 20 relationships which totaled, the original amount was $86 million. That was the original amount of the loan, less any payments of principal by the customer during the accrual part of the loan.

Then we took our total write-downs which was $14 million and after the customer has made their last payment to us, we have written down our reserve 35% against the paid down amount, not the original amount. We feel we’re in pretty good shape on that.

As you know, the second quarter is when we do most of our reappraisal of Florida. So when you look at what we are reappraising, you can see they were dealing with $49 million in impaired loans and not much in non-impaired non-accrual and you can apply whatever rate you want, 10%, 20%, 30%, whatever; those numbers aren’t going to be a big blow to us, we feel in the second quarter, principally because the amounts of the loans have moved out.

If we look overall to Florida, you can see now that we have a 3.7% loan loss reserve against the total portfolio. We have all right at a 7.5% reserve against our non-impaired construction loans and you can see we’re well reserved all the away through.

We haven’t seen the end of Florida. What we are seeing now are smaller loans popping up. Our Florida special assets team; they’re five of them, they’re all very experienced. We’re working through these. We’re seeing some migration properties out. We had a couple of significant payoff during the quarter and we’re encouraged that we’ll see a lot more happen hopefully in the second quarter.

Let me leave Florida if I may and take you into our overall credit quality. Our charge-offs were 66 basis points on an annual basis, down from 73 in the fourth quarter. Taking a look at our loan loss reserve at 151 totally, non-performing loans at 75% of the reserve; remember those impaired loans have been written down and the non-accruals at the level, I’ve already told you. So, that concludes my comment. We’ll be happy to taking questions on credit quality when we finish.

Our capital strength was enhanced as you can see; tangible common equity, home grown, up $62 million from a year ago. Tangible common equity increased 25 basis points to 7.2%. Total risk based capital was at 15.28, significantly above well capitalized.

Without the $215 million senior preferred securities with treasury, our total risk based capital would have been 12.14%, up significantly above well capitalized and our common dividend payout ratio for the quarter was 56%. Taking a look at our balance sheet, end of period loans decreased about $82 million. $71 million of the $82 million was in our indirect auto portfolio.

Our home mortgage company’s production was very significant in the quarter, approximately $650 million up a 114% on a linked quarter. Therefore our home mortgage lending portfolio increased around $77 million in the quarter. Construction, land and development loans were down about $29 million. All of this auto and construction as planned. We are making a lot of new commercial loans, but regular C&I loans are relatively flat.

End of period deposits increased around $333 million or 5% linked quarter. Non-interest bearing makes up 21% of our total deposits, linked quarter that was up about 2.4%, right at $33 million. The remainder was split between CDs and public money; CDs up around $130. We wanted to see what we could do in Texas, so we raised our CD rates minimally. At after about three weeks, we had to call all to it.

So, our branches are well placed between these mega banks and we have a lot of mega bank ex-employees in our branches now and they know the marketplace and we feel that if we need at some point to grow our CDs, we can do it in that 70 branch system fairly easily.

Public money was up about a $170 million, we’re not sure of what we’ll see from the stimulus. We are taking the least expansion fund as you can tell, because our total funding was down around 37 basis points, where our total earnings assets I believe was down 34.

So, the net interest margin was about $91 million, stable at 4.18%. Average earnings assets were up about $350 million, principally investment securities. They are just quality, Fannie Mae, Freddie Mac securities, no real change there .We have more or less reached a peak level of where we will hold our investment portfolio. Non-interest income totaled $43 million.

Our mortgage company, like everyone else has had a great quarter. One of the advantages for us, we’ve always been in the business. We did a great job during Katrina with our mortgage company. We just have a very good reputation and there are only about four players in the national market and they aren’t really focused on our markets as much. Therefore, we’re in a really good position I think with our mortgage business.

If you take a look at page 10 in our press release, you will see that income broken out. You will see consistency in servicing fees. It was a little over a $2 million hedging effectiveness with a steep yield curve that is likely to continue, unless we have some very severe volatility. Gain on sales was about $4 million and because our pricing was so good, our FASB 133 was up about $3.5 million. Our mortgage company says they expect to hang on to the vast majority of that 133.

Taking a look at insurance; insurance was up a little bit about 10% that’s seasonal. We’ve had good, good claim experience, therefore had a little bit more contingency. Service charges is not a lot of fund in the banking industry today. The consumers are watching their accounts more; they’re not over drawing as much. Our services charges decreased seasonally $1.5 million or about 10%. We think it’s going to be a tough battle of service charges, so we are very dominant in this Mississippi market, with tremendous ability to hoping checking account and we’ll continue to do so.

Wealth management was down about $1 million. It’s the level of assets; it’s a decrease in the amount of money that we’re managing from decreases in the equity portfolios of everyone. We brought in a lot of new business last year. We are not expecting a big drop-off here. Non-interest expenses increased $2.9 million due to higher FDIC loan expenses and the seasonal employee benefit that comes in the first quarter.

Salaries and benefits were up $1.5 million. Salaries themselves were absolutely flat linked quarter. Mortgage production incentives were up $627,000 and seasonal payroll practice up around $800,000. Our efficiency ratio, hogging there at a 55%; the FDIC expense increased $1.2 million to $2.7 million due to the higher premium.

When you look at Trustmark and you look at our direction, we’ll continue to manage credit risk and balance sheet risks. We’ll continue to let our indirect auto runoff. We are continuing a heavy business development program. We are looking for new loans. We are making new commercial loans. We are still lending for vertical construction. We are not making land loans or lot loans.

We continue to do work to develop and put the assets in our Houston franchise. We are very vigorously defending our legacy Mississippi market. We’re preserving and growing our tangible equity. We are selectively reflecting on any pay all bank deposits that might come our way. Today we seeing nothing that particularly interests us.

I would be happy to have my colleagues Jerry Host, Chief Operating Officer, who’s here; Louis Greer, our Chief Financial Officer and our credit teams to answer any questions that you might have.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll take our first question from Kevin Fitzsimmons with Sandler O'Neil

Kevin Fitzsimmons – Sandler O'Neil

Good morning Richard.

Richard Hickson

Good morning Kevin, how are you?

Kevin Fitzsimmons – Sandler O'Neil

Good, thanks for having me. A couple of questions; first I know you talked a little bit about Texas and on credit you spent a lot of time on Florida, but with Texas I know it’s a smaller part of the company, but it looked like the provision came in below net charge-offs, while non-performers increased link quarters. So I was just wondering if you could just address that; what is happening in Texas related to credit and probably your outlook in terms of how energy is going to affect that market. Thanks.

Richard Hickson

We’ll be happy to. That was one loan for us and the other piece of ORE down there is supposed to close next month. So, when we look at it, we just have had a decrease, I guess in the level criticized down there.

Jerry Host just spent there days down there and we did a complete study of all of our residential lot, land, homes under construction, commercial, retailer, whatever and we don’t seem to be in any situation that appears to be deteriorating on the real estate side. I’m going to let, Jerry talk about his visits down there and then Bob Hardison will comment on our exposure to the energy industry.

We’re not the one to be an expert on what’s going to happen to Huston relative to energy. I lived down there a long time and I don’t think $50 oil is going to make a real significant impact. As you know, they’re expecting to lose about 50,000 jobs in Huston next year or this year in what we see. Jerry will talk about his trip to Huston.

Jerry Host

I will, thank you Richard. I guess in a nutshell, after visiting was both our leading officers and with a number of customers that are in primarily in the residential development and building business, the consensus was that Texas has not experienced the same downturn in value that we’ve seen in so many other areas of the county, number one.

Number two, because they saw this coming, this downturn specifically in California and Florida coming, they reacted more quickly. They slowed the acquisition of land, development slow and if you look at some of the metro study work that is done in the Houston market specifically, you’ll see that the number of home coming online versus the sales has remained fairly consistent.

So, they’ve been able to bring the supply of houses inline with the demand. The number of loss this last quarter it was somewhere in $70,000 range, probably $50,000 losses was they’re need to meet the demand over the next year’s timeframe. So, unlike other areas of the country and like Florida, it appears as though Texas has done and specifically Houston has done an excellent job in managing through this housing issue.

Richard Hickson

It appears me that loan that when on non-accrual Kevin, would likely reversed for in the fourth quarter.

Jerry Host

That particular loan, it was one credit and given our collateral values under the FASB 114 impairment rule, did not require issuing reserve. It’s not beyond the head. So we did not have to reserve additionally for that loan, it went on non-accrual.

Kevin Fitzsimmons - Sandler O’Neil

Okay, thank you. Just one quick follow-up Richard; could you just give us an update on how you’re feeling about TARP. Do you expect to hold on to that for a while? Are you more inclined to pullout all the stops to try and repay that sooner rather than later? Thank you.

Richard Hickson

No, it’s very clear to anyone looking at us, that Trustmark has sufficient capital; it’s elected to repay TARP. We took the TARP about five months ago and we said we took for term insurance. We will very thoughtfully reflect or what we will do with TARP and then we will make that decision if and when we are absolutely certain we see no need for it and are very thoughtful in how we approach this.

Kevin Fitzsimmons - Sandler O’Neil

Okay, thanks.

Operator

We’ll take our next question from Andy Stapp - B. Riley & Company.

Andy Stapp – B. Riley & Company

Good morning and nice quarter.

Richard Hickson

Thank you very much Andy

Andy Stapp – B. Riley & Company

You touched on the somewhat, but just wondering if you could comment, what you’re seeing in Florida, are you seeing signs of the beginning of a bottom or any signs of stabilization?

Richard Hickson

Well remember, if we look at the geography of Florida, it’s just the long way from Naples to Panama City, and that market is more of an Alabama, Georgia market. It’s a drive to market, only 10% of the people to go Panhandle fly. By the way that’s new airports on schedule and I think if it goes to 20% flying in after these airlines begin coming in, it will be too crowded for me down there.

It is very busy down there. It was busier this winter than I’ve ever see it, with the snow burgs from Ontario and Michigan. It is crowded down there now, a very good spring break. We are seeing strategic buyers when the price is right, vertical is moving, we’re seeing some lots sale. We don’t yet know how much the deterioration was really over the winter and pricing.

We moved 12 or 15 pieces of ORE. All of it residential related and we lost no money from where we had it written down. It’s not over with; whether it hit a bottom this winter, we won’t know for quite a while. It’s going to be quite a while on the lots and land that are of the beach. Well, Art do you want to add anything?

Art Stevens

Just one comment and I don’t really know if it’s particularly negative, but it’s more of an observation. When Florida first happened and it was such a dramatic fall-off and such a dramatic sharp down there in values and so forth, we had a lot of credits that immediately went from a past grade to a substandard grade or impairment and so forth and more of the trend we’re seeing now is that the credits are moving through, a migration of our credit scale.

I’ll say an orderly fashion was a fashion, we’re more accustomed to seeing in other markets, nut that will be moving from a gray-to-gray and if it continues of course it will go to a substandard or impaired category. So it’s a little more of an organized migration, it seems like to some of the weaker credits and I don’t know it helps us in the event to get a better handle on where we could see things and where they are and where they’re going? So, it’s just an observation.

Andy Stapp - B. Riley & Company

It’s helpful.

Richard Hickson

I would remind you that that the sun’s out there now and we’re going to march through that market accessing the value this quarter and what it will be, whatever it is, I think we pointed out that we can shoulder it just fine. We hope it’s significantly less than last year.

Andy Stapp - B. Riley & Company

Right, okay. Do you have much in the way of loans to auto dealers?

Jerry Host

Yes, it’s probably $25 million. We’ve got floor plans at a few dealers, commercial buildings, but it’s not significant.

Richard Hickson

But they’re couple of real good four dealers and we really appreciate their relationship.

Andy Stapp - B. Riley & Company

Okay, thanks. You see any signs amounting stress in CRE and C&I loans?

Richard Hickson

Our CRE loans, the ones that are now income producing is not very large and we are seeing the same stress with anybody related to home building or supporting the home building industry, but as far as income producing real estate volume, anything that you…

Jerry Host

We really have just seeing isolated instances of where our project may lose tenants or leases mature in the lands are lower, but it’s more isolated and more of the kinds of things you might expect to see when we’re in a significant economic downturn in our portfolio, but again our income property portfolio is not large relative to our size. So, it’s more just in isolating case at this point.

Richard Hickson

We’re actually looking for good income producing commercial real estate loans that are seasoned and good quality borrower.

Andy Stapp - B. Riley & Company

Have there been much change in cap rates for the income producing CRE.

Richard Hickson

We are not in enough credits like that. Bob you want to comment on that; whether we have any first hand knowledge of that.

Bob Hardision

Yes, we see when we are getting reappraisals and other things across the market that cap rates are moving up; not dramatically, but there probably 100 basis points, 150 in some markets. So, they’re moving up which of course will affect values and so forth.

Andy Stapp – B. Riley & Company

Okay and do you have your 30 to 89 delinquencies at quarter end.

Richard Hickson

What would you like?

Andy Stapp – B. Riley & Company

30 to 89 day delinquencies.

Richard Hickson

Well we have told you everything over 30 and that would include that.

Andy Stapp – B. Riley & Company

Okay, I missed that. I can get that in the transcript.

Richard Hickson

We had a little growth in loans over 90 days.

Bob Hardision

There was primarily one loan; it was in Florida, but that caused for a sense made payments and brought that loan within contract terms and so it was just an odd situation; unusual circumstances, but that loan has been corrected.

Richard Hickson

Let me let Barry Harvey who is in charge of all of our retail credit administration talk on that migration of past dues. Is there anything there Barry that you prepared.

Barry Harvey

Sure. We’ve been pretty consistent in term of delinquencies, retail portfolios where we’re trending up a little bit for us on the mortgage portfolio, but well below industry norms. In our indirect other portfolio we’re very pleased with a recent downturn in delinquencies that we’ve experienced over the last 12 months, our charge-offs are beginning to follow suite and we’re very helpful that trend will continue as the portfolio continues to strengthen over the coming years.

Within our other portfolios whether it be small business credit cards, direct loans made to our branch network, we are not experiencing any systemic changes and what we’re seeing in terms of delinquencies aren’t charge-off. It’s just business as usual, isolated emphasis one quarter to the next, but no major changes.

Andy Stapp – B. Riley & Company

Okay lastly, if you could talk about what you’re seeing for the margin going forward?

Richard Hickson

I don’t think it going to change much. I’ll let Louis Greer talk about that, our Chief Financial Officer over the next few quarters. Louis, do you want to comment on it?

Louis Greer

Yes, Rich I’d be glad to. I think if you look at our margin disclosure on page 10 that you can see, we have some compression on our earning asset that offset a reduction. Our total cost of deposits and funds that are moving forward. We possibly see a slight compression, but nothing of any significance there’s in the second, third or fourth quarter. At this point we look at our (Inaudible).

Andy Stapp - B. Riley & Company

Okay. Thank you very much.

Operator

(Operator Instructions) We’ll take our next question from Brian Klock with KBW.

Brian Klock - KBW

Good morning, gentlemen.

Richard Hickson

Hi, Brian.

Brian Klock - KBW

Richard, a lot of details already been covered and I again appreciate all your granularity you guys put in your release. Do you have the assets under management number at the end of the first quarter?

Richard Hickson

I’m going to ask Jonathan Rogers, our Wealth Management CFO to come in.

Jonathan Rogers

Approximately $5 billion; that includes discretionary and non-discretionary items.

Brian Klock - KBW

Great, thank you.

Jerry Host

It’s a little bit under trade discretionary.

Brian Klock - KBW

Excellent, okay thank you. With the strong mortgage production in the first quarter, do you have the details about what was purchase versus refi?

Richard Hickson

Jerry Host, will know that.

Jerry Host

We shifted, it was almost a shift from 75%, the remaining 25% refi to just the offices, 75% reify to 25% due origination. It more than doubled the production.

Richard Hickson

It’s interesting; out of that $670 million, $100 million was 15 year end and that’s good quality paper for us to hang on to.

Brian Klock - KBW

Okay, thank you. Richard, I guess do you have an idea where that pipeline since quarter end for the first three weeks of April, do you still have good amount of origination volume to coming through?

Richard Hickson

Our origination volume continues to be strong. We would anticipate at some points some slowing in that volume, but at least for the next couple of months, we feel like we’ll stay on track with what we saw in the first quarter.

Brian Klock – KBW

Okay, thanks Jerry and Richard you talked about it being difficult from the revenue side, the service charge and deposits, customer activity. I guess the limit, less over direct activity. What are you thinking about as far as the service charge revenue line here? Is first quarter a better run rate versus what we’ve seen? Obviously we’ve got seasonal factors in there; what your expectations are for that line item?

Richard Hickson

These are the kind of question that is great and have a strong involved, Chief Operating Officer, so I’ll toss that one to Jerry.

Jerry Host

Thank you Richard and that certainly is a line item we’ve spend a lot of time looking at options. What we see relative to the service charge revenue is I think a function of what’s happened over the last several years. The consumers become more conscious of overdraft charges and service charges related to their checking account. So, there’s been a migration to free checking.

With this recession that we’re in, we have also seen the consumer being far more discretionary than they even have or relative to overdraft. We’ve seen consumer spending drop. When that drops that affects our service charge income as it relates overdraft revenue, as it relates to service charge income on our debit card product. We are not out of line with what we’re seeing though in the rest of the country and as we talk to consultants that work with banks on service charge revenues, we’ve seen consumer drop in some other location somewhere in the 15%, we are down about 8%.

So I’d expect that we could see this line item follow a similar trend of what we’ve seen, so far for this first quarter. Some of this is a function of what happens with the economy. We continue to see a continued decline in the economy. This number could drop. If it flatten out, I think we’ll see it stabilize somewhat.

Brian Klock – KBW

Okay and Jerry, do you have I guess how much is consumer service charge versus commercial in the first quarter and fourth quarter or just generally what that make-up is?

Jerry Host

Yes, on the commercial side, most of that is being paid through compensating balances, so the majority of the revenues come from consumers.

Brian Klock - KBW

Got it, okay great; and Richard just one last question; on page nine of stat sheet, you talked about the Florida credit quality and went through a lot of granularity there. Just noticed that the criticized loans in the non-construction Florida portfolio, so that the commercial, commercial real estate and consumer was $46.4 million credit size loans at the end of the first quarter; that’s up from about $31 million at the end of the fourth quarter. There’s anything in there that’s concerning or that’s issues related to the housing market like you said? Even though they maybe commercial credit?

Richard Hickson

Do you know what commercial credit you’ve criticized? A couple of shop is there at Fort Walton and something else. Not anything that would jump out that the value’s going to comedown. Our officers there are really working these loans individually, that are not criticized and slotting through portfolio and they’re encourage to recognize a problem early.

Brian Klock – KBW

Okay, great. Thanks guys. I appreciate, you taking my questions.

Jonathan Rogers

Brian, if I could clarify my answer earlier, this is Jonathan Rogers. You had asked about, assets under wealth management. Approximately $5 million included managed assets and assets held in trust relationships that are not necessarily managed, but there also needs to be an inclusion of about $1.9 billion that’s in custody relating to it, for a total of $6.8 billion and I think it’s a better answer to your question of what we have under care there and under fee-based?

Brian Klock - KBW

Okay and I guess so Trust assets under management administration you disclosed in the 10-K at the end of the year was $6.8 million. So, that include?

Jonathan Rogers

Same thing in the managed assets Jon and went down to $3.3 billion, so that’s not down as much as our call.

Brian Klock - KBW

Okay. I appreciate that guys.

Operator

We’ll take our next question from Albert Savastano from Fox-Pitt Kelton.

Albert Savastano - Fox-Pitt Kelton

Good morning, guys how are you?

Richard Hickson

Good morning, Albert.

Albert Savastano - Fox-Pitt Kelton

I appreciate your comments on the Florida book. I was just wondering if I got some right. I think you said that you don’t expect a significant loss on the non-impaired, but did you mention the rest of the criticized loans in terms of expectations there and if you didn’t, maybe if you can clarify your comments please.

Richard Hickson

Well, similar real estate will devalue similar amounts. I think it depends on who owns the property and what they’re in process of doing with it and their cash flow and global to serve this it if it’s a stall project. So I don’t think we have any particular answer there. We will do many, many appraisals and when we finish it, partially in the second quarter and in the third quarter, we’ll give you the results by property type, against the original or last years appraisal.

Albert Savastano - Fox-Pitt Kelton

Got it, thank you very much

Operator

We’ll take our a follow-up question from Kevin Fitzsimmons with Sandler O'Neill

Kevin Fitzsimmons - Sandler O'Neill

Hey guys, just a quick follow-up. Just wanted to clarify; Louis, when you talked about the margin, if I heard you right I think you said probably just slight compression. Last quarter I think you guys said that the margin would probably compress over the balance of the year, down towards where the margin was at year end ’07, which I think was like a 3.93 or 3.94 type of level. So I just wanted to clarify if there’s any change in expectations from that?

Then secondly, I think you mentioned Richard about the other mortgage related revenue line item jumping up this quarter and I think you said that was related to pricing and 133 issues and that you thought you could hold that and I just want to clarify that, that you think that’s a sustainable kind of level or whether will that likely bounce down.

Richard Hickson

That can work its way after the second quarter. That particular land will move up in the gain sale on loans, but we’re going to beat the budget for the year, because we think regardless we’ll make the budget remainder of the year. So we don’t think this will essentially go away, it will just move around there.

I think on the margin, a couple of things and I said I thought it would go back to four. We’ve been very successful in Jerry Host and his people putting forward in new loan and loans they come up for renewal; that’s helped the margin. We have not seen the prepayments in the mortgage-backed security portfolio that Mitch’s models might predict. It’s been more inline with our original expectation to-date.

Our net interest margin nominal numbers depends on what we can do as far as getting out and finding a place to growth. We’re going to live with us auto of running on, but frankly it didn’t add much profitability when we look at the amortization of the dealer reserves and other things of exiting the business. So, it definitely should hold up above four and it’s not depend on Mitch and Buddy Wood, spotting their days and finding some good investment to buy and lots going to depend on Jerry reprising his loan portfolios, when lands are coming up for renewal this spring.

Kevin Fitzsimmons - Sandler O'Neill

Okay, great. Thanks for the clarification.

Operator

This concludes today’s question-and-answer session. I would like to turn the conference back over to our speakers for any additional or closing remarks.

Richard Hickson

Well, it was good to have you with us today. We hope we’ll see many of you at the Gulf South conference in New Orleans. We look forward to that, I believe that’s the end of next week and thank you very much for joining us and we’re available, Joey Rein and Louis, if you have any additional questions; we’re always happy to chat with you. Thank you very much.

Operator

That’s today’s conference call. Thank you for your participation.

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