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Trustmark Corporation (NASDAQ:TRMK)

Q4 2009 Earnings Call

January 27, 2009 11:00 a.m. ET

Executives

Richard Hickson – Chairman & Chief Executive Officer

Buddy Wood – Chief Risk Officer

Barry Harvey – Senior Vice President, Chief Credit Administrator

Bob Hardison – Chief Commercial Credit Officer

Louis Greer – Chief Financial Officer

Joey Rein – Director of Investor Relations

Analysts

Kevin Fitzsimmons – Sandler O'Neill & Partners

Steven Alexopoulos – JP Morgan

Jennifer Demba – Suntrust Robinson Humphrey

Adam Barkstrom – Sterne, Agee & Leach

Michael Rose – Raymond James

Andy Stapp – B. Riley & Company

Jeff Davis – FTN Equity Capital Markets

Brian Klock – Keefe, Bruyette & Woods

Albert Savastano – Fox-Pitt Kelton

Operator

Good morning ladies and gentlemen and welcome to the Trustmark Corporation's Fourth Quarter Earnings conference call. At this time, all participants are in listen-only mode. Following the presentation this morning there will be a question-and-answer session. (Operator Instructions) It is now my pleasure to introduce Joey Rein, Director of Investor Relations at Trustmark.

Joey Rein

Good morning. I would like to remind everyone that a copy of our fourth 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, 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, Chairman and CEO of Trustmark.

Richard Hickson

Good morning. Thank you joining us this morning. We look forward to chatting you this morning on what we consider a very good quarter for Trustmark. Net income available to common shareholders totaled $13.9 million for the quarter and $73 million for the year. As we discussed this out joined by Gary Host, our Chief Operating Officer, Louis Greer, our Chief Financial Officer and other executives involved with credit and other risk in the company.

Earnings per share of $0.23 for the quarter, there was an earning in the fourth quarter included a one time non-cash charge of $8.2 million or $0.14 a share for the accelerated accretion of discount associated with the full redemption of the $215 million preferred stock from the U.S. Treasury. Performance reflects solid net interest income with an expanded net interest margin. Reduced operating expenses and increased tangible common equity, pretax pre provision earnings were approximately $53 million. Very consistent, very profitable and predictable, there were know core extraordinary items for the quarter.

Before we go into credit quality today, I’d like to take a moment and reflect on 2009 as we completed our assessment of what we accomplished during the year. When you look at the year overall net income to common shareholders of $73 was down from the $91 million of 2008. Our net income for preferred dividend was actually up a million dollars at 93 versus 92 in the pretax pre provision net income was $214 million versus $212 million.

When you look at the pretax pre provision income I think I just point out to you that 2009 was a very core year for Trustmark, where 2008 had a due extraordinary items when we compare to year-over-year we earned the 214 even when our FDIC premium was $16 million this year compare to $3.5 million a year before, our real estate foreclosure expense was pertain this year compare to 2.5 a year before, the year and half before we had approximately $6.5 million pre tax from selling our visa and master cards stock and in 2008 the year before we had an $11millon pre tax gain in our invest or hedging. That really reinforces how good 2009 was, when you take a little that our margin result well over $30 million and we do an exceptional job and gain our mortgage loan sales this year.

Looking at some of our operating land the major for management across truss more was a reduced exposure to contraction and land development lending eliminated the related concentration but prove actively managing our portfolio and enhancing under writing.

Total CRE is no longer any type of concentration compare to total risk capital – total risk by capital is a low over $970 million. Total construction being at $827 million, non-owner occupied commercial real estate is around $820 million to the two together allow over a 1.6 compared to our $970 and total risk base push us in a very strong position. Real estate lending kicks off again with the quality margins and good income producing properties and good loans Trustmark will be in a very strong position to do that.

We also implemented the ARGO system across all of our branches with our new sales and service and teller system. It is a big positive for us, the (inaudible) we have gone from 20 minutes of opening an account down to five minutes and 20 minutes was (inaudible) it should make a significant difference over the next few years with our cross sale. We conducted very targeted and very significant business development programs from key customers and prospects we have grown our markets throughout the year and we maintain a very dominant deposit market share in our legacy markets.

In our mortgage business we expanded origination about 33% to $1.9 billion, we achieved secondary marketing gains of approximately $20 million in the fourth quarter we executed a $1 billion bulk sale of servicing at its carrying value with no loss to us this is a very positive to us, it reduces our exposure, reduces our hedge, but even more important has us in line where we are in a position to selectively grow hedging again which will make our mortgage business more profitable.

Hedging programs for our mortgage pipeline and mortgage servicing asset were extremely successful, the total change in our MSR hedging after absorbing the cost of hedging was a positive $21,000 hedging $5 billion, that is where we intended to do and we are very, very pleased with that. Taken a lot of risk out of our full service mortgage business.

Our Wealth Management Group increased total assets under management about 4% to $8 billion even in these volatile markets. In the insurance business we converted (inaudible) and brown to one state of the art management agency software application resulting in a more effective management oversize and enhanced cost savings and we’ll see this going forward. In our corporate finance area we completed a very successful follow-on common stock issuance for $115 million and we completed four (Inaudible) payments of $215 million and repurchased our warrant.

In technology we completed the conversion of check operations to an all image environment to an estimated annual savings of over $2 million and that means 100% (Inaudible). We renegotiated number processing contracts, which we believe will result in the future savings of an additional $1 million annual. In the human resources area we reduced full time equivalent staffing by 83 positions or 3.2% during the year without layoffs while salary and benefit expense decreased nearly $2 million. We also significantly increased delivery of web-based training with a 41% reduction in the associated travel expense with that.

In risk management we established three new loan committees one for commercial one for real estate and one for working criticized and problem assets, these loan committees are populated with professional with those particular skill sets from all geographic regions therefore we are getting great intro discussion and understanding and generating much more consistency across Trustmark with underwriting and working of problems.

We redefined our allowance for loan loss methodology for commercial loans through a classification into 13 homogeneous loan types. Also in risk management we purchased approximately $700 million of investment securities sold about a $183 million that’s no longer met our goals with a pre-tax gain of around $5 million. At year-end our investment securities portfolio had a great cash flow and an unrealized gain of approximately $60 million. We think 2009 was a great year at Trustmark where we accomplished a lot in credit quality but also in many other areas which allowed us to produce a very consistent $214 million really top class pre-tax pre provision income.

At this time I’ll take you to page three of our stat sheet, it will talk about credit quality. Excluding our impaired loans of $74 million, our allowance for loan losses represented a 155% of non-performing loans. Linked quarter non-performing loans increased less than $3 million to a total of 141 or about 2.16% of total loans. Foreclosed real estate increased $18 million principally due to one loan in our Florida market and one loan in our Houston market; I’ll cover those in detail.

Non-performing assets totaled approximately $230 million of representing about 3.5% of total loans in real estate. Our provision for loan losses totaled $17.7 million compare to charge offs of 17.1 the allowance move to $103.7, 1.64% of total loans however a very strong 2.1% of commercial loans and 80 basis points on consumer and all mortgages.

Taking a look at some of that I tell you non-accrual loans were relatively flat, I would like to point out to you that over 90 non-accrual loans of $141, $74 million have been impaired or 53% and there has been a significant right down in those loans that are impaired. The impaired loans in Florida have been written down 35% that 35% has taken place over approximately three years all of these properties have been operates many times we think we have a good hand to loans.

All of our other impaired loans have been written down approximately 6% in our Texas market and Mississippi market we have not experienced big appreciation there nor have we seen any big drops there in bank. When we take a look at other real estates, Florida moved up approximately $11 million. We had one $10 million (inaudible) in the state of Florida, it was a loan that had not gone non-performing but we expected it to do so in the fourth quarter. Their properties that we are very familiar with it’s made up principally of beachfront not golf view housing, single family housing and beachfront not golf view lots. We already have two or three different contracts in place to sell nearly 60% of this property. We’re not anticipating any loans on these particular properties.

The change in ORE in Mississippi and Tennessee were negligible. In Texas we had an increase principally one loan to a residential real estate company. And Texas different from Florida, there is a very rapid foreclosure process this is a residential builder who was working with a couple of the (inaudible) that failed in the FDIC was not making advances, they elected to not move forward. We have foreclosed (inaudible) answering particular questions. We have taken our write-down of about 10% in this portfolio. We’re not expecting any losses of significance. There are a number of these housed already under contract and we do not see Texas as another Florida in many extent.

Non-performing assets 231 versus 210, our provision for long losses, we had a provision and part of $11.3 million compared to recovery the owner of (Inaudible) let me say we went on a search in Florida, looking for any place that we could go a head and said a specific reserved based on what we might anticipate would often with a newer price coming in 2010. We looked at our compared portfolio and setup reserves against (Inaudible) and order to try to remove the great deal of that second quarter loan.

There were two significant charge offs in Florida and one for $2.6 million writing down of a piece of land, the second was $1.2 million on the final write off and one of our major problems that we had over the last couple of years, that was a $8 million residential development of which we had now written off approximately 100%. It was way off market at North of the state, we want of bank checking loans and it is now 100% behind us, I expect it would be sold for some level of recovery in 2010 or 2011.

Will be half to cover anything, that you discussed particular about the different markets. Florida credit quality, the main thing I look at with Florida, we had now reduced the exposure in the last 24 months in construction. About 48%, about $187 million down to a $198 million, so our total exposure in Florida loan construction is now less than our pre-tax pre provision earnings for last year, if we [kick] that up we will have it down to zero within another 24 months, since we [kick] each other.

Our non-impaired construction and land development loans totaled a $163 million with an associated reserve of $24 million in Florida against that $163 million or 14.6% with the 6.77% reserve against Florida. We continue to work in Florida; we continue to have a very experienced group. System wide we have eight credit deputies all of which are long-term experienced we have them all in our major markets plus two in Texas to handle the volume of business that we are doing there to make sure that we are sticking to our underwrite standards. Our credit deputies are not inside jobs they are also outside calling with our loan officers looking at all of our projects which gives us a double shot at good solid underwriting.

If we move away from credit quality to asset liability management, we did have a small increase in our investment portfolio up to $1.9 billion. Is acting just as we had hope it would three payments are not at the level of our model it is earning and producing from the bank at a time when we do not have any significant loan demand so its worked out extremely well for Trustmark our net interest margin total right at $91 million very consistent, very predictable expanded five basis points to 4.33% net of time when we are intentionally reducing loan earning assets. Loan sale for investment were $6.3 billion down $62 million reflecting a continues reduction and construction and land development and our decision two years ago to excess the indirect auto business which is prove to be a very positive decision for us from a risk from a loss and from a generation of excess capital.

Total deposits increase over $300 million to $7.2 billion, our capital strength and strong liquidity continue to be reflected in lower interest varying cost down 12 basis points to 1.21% again best in showing our strength and dominants in our legacy markets.

Non-interest income is a real positive for Trustmark the diversification is a real strength the consistency with stability is a big positive for our earnings. Non-interest income just $40 million service charges remain stable to 14 mortgage banking had another staler quarter of $6.6 million with no (inaudible) with a $400,000 change in our MSR. General banking $6 million reflecting increased debit card revenue. Insurance revenue totaled $6.4 million and expected seasonal decline and wealth management remains stable at $5.4 million. This again is a better strength of Trustmark, we think our diversification is giving us good strong pre provision earnings and should continue to do so.

On the non-interest expense side, we were $75.6 million down $3.6 million over the linked quarter, salaries and benefits $42 million, a decrease of 400,000 for the quarter. As I mentioned over the last three years we have worked by attrition our full time equivalent is down significantly. Our total expenses were $14.4 million, a decrease of 3.1. We were able to lower our foreclosure a little over $2 million. Our efficiency ratio coming in just over 57% for the fourth quarter rides us consistently as one of the best expense managers in our pier group. We feel we’re well positioned to take advantage of the opportunities in the market plane.

As far as strategic direction for 2010, we continue to manage credit and balance sheet risk. We’re pushing for revenue generation to improve the expense managements, investments. We will have a very strong calling program. We are in a position if we see an acquisition opportunity that interests us we can advantage of it to increase shareholder value.

Thank you listening to us this morning, I’ll conclude my remarks and open it for questions from our group. Thank you.

Question-and-answer-session

Operator

(Operator Instruction). Our first question comes from Kevin Fitzsimmons with Sandler O'Neill.

Kevin Fitzsimmons - Sandler O'Neill

Richard, I’ve got two questions, first, can you give us some sense on you outlook for the margin, I keep thinking for the past two quarters that this margin is getting close to peaking and it proves me wrong, but now at over 4.30% how should we kind of look at that margin going forward and then secondly, if you can give us some sense for credit, I know there has been a lot of companies that have been more stressed than you, calling the peak in losses and wanting to normalizing credit, but where you guys see for yourselves in terms of when you suspect you might see a peak in losses and provisions NPAs and how that relates to reserve building, thanks.

Richard Hickson

On the margin we did a number of things during the year, which we did not foresee that we were going to be as successful. One was putting in (inaudible) on our loan portfolio and we have been diligent, our customers have been understanding, and Jerry Host and his commercial teams have just done an exceptional job there.

We were just playing lucky when we bought bond the timing of April of ‘08 and we tried to stay out of the way and we took the portfolio down quite a bit and we are just having the benefit of that. We were really able to do some things on lowering our deposit costs and we are still expecting to see some of that in our CD portfolio this year but obviously not as much as last year. We are not looking for a 433 but we are not looking for anything lower than 4% for next year.

Kevin Fitzsimmons - Sandler O'Neill

When you say that, would you think it happens gradually for suddenly or?

Richard Hickson

I’m going to let Louis Greer tackle that one (inaudible).

Louis Greer

We would see that coming down on a quarterly basis not (inaudible) tremendously at the industries, but taking our models we’ve got coming now (inaudible).

Richard Hickson

It is possible that we keep with this indirect auto running off and there was a lot of dealer reserves that had to be accreted against that auto portfolio, so did not have a lot of profitability in it right now, so the margin, it just looks okay for next year.

Louis Greer

Let me add one other thought about some margins. We have a balance sheet structure that we have spent a good deal of time putting together that has a deposit base that even the interest baring short term deposits that we have which make up the majority of our core deposits along with our non interest baring indeterminate maturity checking accounts. We operate with a 40% data to the movement of interest rates on liability side. We have on the third of our loans in a variable position so that we don’t see either the asset or liability side of our balance sheet moving very far away from a very tight range that we target. We use some fixed rate assets because we needed to. So we were actually too asset sensitive and the extension in the investment portfolio along with a small amount of increased preference by our customer in fixed rate lending has allowed us to maintain a balance that puts that 4% range very comfortably in a management focus. So we have got a lot of tools that we haven’t used as much as we feel that we can especially in the borrowed funds area as you can see from the amount that we are using compared to the very significant amount of availability.

So those types of asset liability an interest (Inaudible) management provide you ways –for 2010 comfort that (Inaudible) product.

Louis Greer

Hard and very hardy Bob will be able to comment the market on credit and vary overall Bob just – all last week five days in Texas...

Kevin Fitzsimmons - Sandler O'Neill

Pretty well going through everything they are spending significant amount to time and – bob you can comment on where are you working we are in the cycle and with (Inaudible) as we look into –

Richard Hickson

That’s is second part of questions with regarding credit and looking forward I guess we are looking at (Inaudible) such a bit part of that, if you look its about 50% of our non-performing and our change off and our provision expansion and so forth and it is still uncertain in that market. We have been about 80 months into concentrate effort with dedicated people in that market working credits down there. Early on the value still so far some fast and we really look on still a lot of time trying to get our arms around it, but now we realize a number of month we feel like we do have a understanding, we do have our arms around what’s going on and we actively working the credits and we’re seeing some of the fruits of that labor.

We can’t say that Florida is behind us, we still have more work to, but I think and may be Barry could comment a little on this in a few minutes that we are to some degree able to make some type of estimation and predictions about what we think the credit cards are going to be in Florida. Again it is still uncertain, it’s difficult to predict, but I think we have a hand up now and up to where we can start looking at South Asia, you won’t see it. I don’t think we could tell you with any derived accuracy that we are there yet, but we’re getting closer.

With regard to Texas I was out there and we went through the portfolios and talked to a lot of people and talked to some customers and we think that market out there is fairly stable. I think you can look at the unemployment rate and things like that as they are below the national average. Housing starts, where they were 40,000 a year in the boom times and now are going to between 15 and 20 predicted to 10 which is still pretty good, very good activity.

Our problems it’s actually a root (inaudible) really centered in eight credits that have our attention, two are companies related to natural gas production, one in the distribution company, we have two land loans, one development loan, one large house and one office building development. So as far as spread out, each house is own set of issues and the land loans and development loans we have good loan to values. The single family resident about a $2.5 million house with 3.3 3.4 so we have got good loan value. And given the activity we just don’t see a great deal of problems in Texas we are going to have the kinds of problems you would expect to see when you have a recession of that magnitude, I think Houston is weathering it better than most but we are on top of these problems we don’t see systemic issues in Texas as this point.

I think the period would be isolated unfortunately they are isolated and these credits are really large probably averaging $4 million, $5 million of pace may be not quite that much but and we don’t expect much, I think we have build issues in Tennessee maybe (inaudible) cases there and in Mississippi our market has been very stable. We do have some problems (inaudible). We don’t see a whole wave of new problems coming in Mississippi we are going to have a few isolated cases but we don’t really, again we are going to have the big real estate values in Mississippi so the market has held pretty steady. So we will move through Mississippi in general fashion that we have in the past.

Kevin Fitzsimmons - Sandler O'Neill

Comment also on, we have always been a fairly large consumer bank, what you are seeing there relative to our collections efforts any change although the mortgage is broadly covered, back on the provisioning losses and non-performing assets that Bob was coming and I think holistically from a provisioning standpoint from a roll standpoint, we see ’10 to be in our minds below ’09 to what degree we don’t at this point but just do our analysis and we have taken this approach that we took when we projected out ’09 to project ’10, we feel like that as Bob indicated address a number of our credit especially Florida addressing our larger credits. I think we are seeing that clearly when we looked at loans that came impaired this quarter (inaudible). Just the one of thing is if you could a sense of reserve building how you feel about that some companies have started releasing already a few and others have gone indicated, we are going to continue to build but probably that slowing rate. I’m just wondering how you feel about it?

Richard Hickson

Barry would you comment on that

Barry Harvey

Sure. I would see as probably on the first category have been eventually we don’t necessarily know when that will occur what we do if you like as a result of having our (Inaudible) properly reserved for today and those being the predominate credit that are going to move their way, the common player is the non audience player or move that way direct into to ORE, because of that and because of levels of reserving we have on those credits. We could see a reasonable maybe a large amount of reserve being released as those credit move to natural process. So we (Inaudible) well to find ourselves soon around and later in the situation where we don’t need as much reserves all we don’t have is many new problems coming on board and the combination of the two resulting in a lower (Inaudible) and cost saving situation where net charge off exceeds for vision, on based up on the activity going on

Richard Hickson

That could be pushed a little bit two for the rapid stay off this out of paper and we got a reserve a little excess of 30 basis point. In that paper and the course we are taking our charge off they are out of burnings. So we will see a low pressure on that we reserve that will be almost $5 million

Barry Harvey

That’s correct

Richard Hickson

We are hopeful, but we are still searching for gaps and anything we feel we need the reserve for during each quarter.

Operator

Our next question is from Brian Klock of KBW please go ahead.

Brian Klock- KBW

Tell me just see if I understand quickly when Kevin’s questions about the margin are you guys saying that you think the margin will be down by 4% by the end of 2010 or do you just think that it’s some pressure here from the level that it has had currently.

Richard Hickson

I would say I was just putting some rails on the baby bed, I wouldn’t think it would roll off in either way.

Brian Klock- KBW

Okay. I would imagine that maybe you can give some color on the good solid core deposit growth you had. Seem like it came in at the end of the year and so that funding impact isn’t in your margin for the fourth quarter, so it seems there could be a positive impact on your margin for the first quarter of 2010 from a good solid DBA growth.

Richard Hickson

I’m going to let Gerry Host, Chief Operating Officer who is day-to-day just talk about that.

Gerry Host

What that increase in deposits is a result of the public money that’s come in typically at year end and are spend out through the first six months of fiscal year, (inaudible) 6.30 fiscal cycle so that’s why you have that spending that takes place over that period of time. Core deposits overall from those both retail stand point and business standpoint have remained very steady and increased slightly despite the fact that we are very close controlled on our deposit rates, we use heavy focus on technology to maintain customer relationships, one of things we have accomplished over the last year is that we have completely eliminated all paper checks within the company. Two months ago we unplugged our last 3890 check reading machine. So we are completely paperless for taking that technology out to our customer and offering them more deposit capture very aggressively to increase their efficiency and to help lot of those core deposits into us. So we feel good about the stability of the deposits within the organization pricing is very solid and we’ll continue to work to grow those core deposits.

Brian Klock- KBW

Just follow up on that, how much was the public deposit money influence in the fourth quarter?

Gerry Host

Those are approximately $200 million.

Brian Klock- KBW

I want to ask one more and I’ll get back in the queue. Richard maybe can talk about in the budget as I missed this earlier, the Texas NPAs went down about $3 million went quarter so did the some group credit with that come out of that NPA?

Richard Hickson

We did sale the same crude note our recovery on that within our reserves which we left in the reserves and that was principally the reason for the drop and think that was between 7 and $8 million.

Operator

(Operator Instructions). Our next question comes from Andy Stapp of B. Riley & Company.

Andy Stapp – B. Riley & Company

Could you add a little bit more color you said and take it pretty balance interest rate sensitive to why is to slightly assets sensitive. As interest rates begin to pick upward and what you see the impact there including the impact of frozen loans?

Richard Hickson

Buddy Wood want to comment on that and Jerry may want to comment on that.

Buddy Wood

I think one of the key test that we’ve run is pivoting around the yield curves in a number of different way. So that we don’t to shock, but don’t just ramp but we also twist occurs and do a variety of other types adjustments to see what could happen with all of the unknown potentials the outlook for interest rates and the change and chips for yield curve. With all of that we have run approximately less than 2% and rising interest rate sometime later in the year of our net interest income and we would say that in a worst case that might run up a little bit over 3% so somewhere in a range, if we don’t do anything in order to adjusted which is highly unlikely because at least try somewhat we have a special review where we just talked about all the alternatives from structured productive longer term deposit programs and all of the various borrowing that’s available towards from so many different sources at region if we get expensive rate. But that range we’d say that worse case the way we look at is we could see a 6 to $10 million negative kit if we did nothing at all and we believe that well within where we want to start this and just continue to monitor that closely as we see the behavior as early as today.

Bob Hardison

Buddy following into that relative to the situation on course or asset liability modeling and the comments that Richard made earlier about where we think the margin might go all reflective the impact of rising interest rates on those loans that the price for floors. On other words many of the spread as we put floors in and we were new loans we generally increase to spread to the existing into these whether it’s for LIBOR based. So the GAAP is not that significant it have included in our models we’ve included a projection on what we think will happen with loan volume over the next year. So what you have heard that I think – all those things in our model process.

Andy Stapp – B. Riley & Company.

Speaking a little volume I guess in your last call you are pretty – about loan growth in loan demand in – is a hope there?

Unidentified Participants

I will answer that question it alone anticipated loan volumes continues to be what call slightly – rest of the economy as we have did our customers, we hear that there are reducing your inventory level any CapEx project that they have on the board – post pound or completely eliminated as we talked to you before and we have – done a way with the indirect, direct - business they were seeing that portfolio run off within the way with the two loan business so we have seen a decrease in volumes that we wont have in the past. So we were working on is a focus on existing customers as well as opportunities that might exists its so they feel like they are getting customer that (Inaudible) thanks they feel like getting (Inaudible) service of opportunities to work they had at one time. So wet think being able to maintain a at slightly down level of volume through out 2010 of this versus well and that also would in June – out look models

Andy Stapp – B. Riley & Company

Okay now get back in the queue as your appetite for FDIC deals change materially what you previously discussed, and also you could talk about. Where you would be looking for such deals do you want to stay in you foot print or potentially move outside you footprint?

Richard Hickson

Well, I guess the first comment I would make about that is (inaudible).

Andy Stapp – B. Riley & Company

I can appreciate that.

Richard Hickson

Number two, we expand a very significant amount of time trying to understand what is really means to take on and go into business with the US government. We are viewing and refining the accounting of FDIC related transactions, we’re also spending a significant amount of time trying to understand how much effort working the loan problem portfolios will be recording, decision making who will make the decisions and the fact that Trustmark is not interested in getting all of our extremely skilled workout people working out deals that don’t impact Trustmark favorably.

That does not mean we are not interested in FDIC transactions, it means that we want to go into anything that we do head up, we want to know that’s accretive and after we work on it for two, or three or four years that we have something that make us sense for the company when we get through. We do not want to go out and purchase a franchise with fuller to 40 branches of which we don’t like any of them where we would end up having to move the mall two plots (inaudible) and make another $50 million investments. So we will look at it very pragmatically, we would love to be in a transaction where we think we could increase our core deposits with the meaningful for particularly a company years down the road in managing our core position. When I think of our about footprints that covers Mississippi, Tennessee, Florida and Texas and anything in between. So I would say we would be food prints. I don’t see us in Southern Florida and I don’t see us in Western Texas. Other than that we would look, we prefer something that has some age and some retail quality to it.

We now have (inaudible) don’t work for problem loans, but we would much prefer if we’re going to take all working out a bunch of real estate problems with the government, we would like to generally understand the lay end and the back. So we’re looking, we’re free, we have no rains on it. We have a (inaudible) we have the earnings and we have the personnel. So like deal comes along with the competitors. Outside of the FDIC, we surely not going to go product by problem bank without the FDIC, but if there are some weaknesses with something outside of the FDIC that we think are good intermediate long-term value and are diluted to us. And we take this view although retail system and just convert it instantly and save the turner money and use all of the damaging technology and our retail chains. We could consider that also.

Andy Stapp – B. Riley & Company

Would you consider Central (inaudible) all your foot prints?

Richard Hickson

It would have to be a really good franchise and if it’s a really, really good franchise, there are no further people down there in central Florida that I would suspect we would be tough winning, but we would look at it. But that’s not our primary. You are talking Orlando down and through their, is not a primary purpose for us at this time.

Operator

Our next question comes is from Albert Savastano of (inaudible).

Unidentified Analyst

Good morning, guys, how are you? Two questions for you, just in terms of (inaudible) with loan demand that still be in anemic in your terms, does that mean about just can you say relatively flat intent?

Richard Hickson

Unless interest makes move up and there is some exceptional opportunity in mortgage bank.

Unidentified Analyst

And then I was wondering if you can expand a little bit more on your comments in terms of taking of the second quarter volatility in charge offs with the Florida review maybe moving up forward to the fourth quarter?

Unidentified Participant

We’re trying its varying offset. We do it year two the other agency regulatory loan loss methodologies and it encourages us to traffic anticipate as much as we can and or allow to do so.

Unidentified Analyst

Do you go and get more appraisals on the properties in the fourth quarter that you were to normally in the second is that kind of which date?

Unidentified Participant

We are always apprising properties we had a number of appraisals in the fourth quarter but nothing like the second what we are working to try the smooth that out as much. We are trying to anticipate what might happen to appraisals over the length in Florida and trying to put some levels of appropriate discount level. We reserve for the second quarter, no every worked on next year, yes a lot of our losses that we will see in the second quarter will big loans or performing today and will be smaller real estate projects were we get new financials spring and the owners have just run out a cash.

Unidentified Analyst

Big projects that will be very small. Most of the balance things we’re dealing with our under a million dollars. So probably safe assume the charge offs for the in the first quarter and second quarter probably wont double they’ve done in the past couple of years.

Unidentified Participant

I don’t believe that, if you’re talking about ’07 to ’08 that was big increase if you talking about ’09 to ’08 was fairly stable as you know you get most of your financial so you can do your global cash flows we get most tax return and most information there in the first and second quarter. So and the unique nature of the Panhandle of Florida being very seasonal systems weather in this and down in Southern Florida. We expect to see that we’re very cautious about and we’re working to smooth as much as we can. And Barry commented that we are very hopeful they’ve reserving in charge offs in 2007 will be below 2009.

Operator

Our next question comes from Brian Klock of KBW.

Brian Klock - KBW

I guess double type two things one within the other operating expense can you give us the break out of our recast in the fourth quarter.

Louis Greer

In that fact sheet only in the foot notes back.

Brian Klock - KBW

I would know.

Louis Greer

The fourth quarter calls for other real estates versus the last 3, 4, $6 million to 59.

Brian Klock – KBW

Richard for you. Do you guys have an updated I guess assessment of what the impact on your deposit service targets charges could be year-over-year looking at 2010 versus 2009?

Richard Hickson

We had said before and we’re looking at the legislation is and play and anticipate what might be in place and a long short maybe 5 to $10 million on an annualize basis Gerry is just.

Unidentified Participant

That’s a vary to our own estimates of what we have done as we fully once the accounts its all of our accounts 25% incurred and over drive below 75% of our accounts years period of time we’ve look that where that’s occurring frequency channel meaning (inaudible) is at point of sale, is it check and so we have all that data available and have been discussing a variety of different alternatives, options. We’ve looked what we do about a process of getting people who has in and what that will take. So I guess that was a long answer to your question. We are thoroughly evaluating what we have, how it works and has various alternatives and more clarity developed. I think we will be prepared, but as Richard mentioned we’ve done a rough estimates, we think it may somewhere in the 5 to $7 million impact at this point. But Jerry that would not be impacted until July of this year.

Louis Greer

The legislation is not going affect until the first of July. So that would be a half year number and that’s what it will occur in the second half of the year.

Brian Klock – KBW

I guess the 5 to $10 million of annualized half of that potentially could be on your 2010?

Richard Hickson

We’re very careful projection we make there, just too much on (inaudible).

Operator

Our next question comes from Andy Stapp – B. Riley & Company.

Andy Stapp – B. Riley & Company

Debit card impact that $5 million to $7 million you mentioned is that 2010 impact or a full year impact?

Richard Hickson

That was an indicative of what it was in 2010 impact.

Andy Stapp – B. Riley & Company

Okay. So it’s half-year impact.

Richard Hickson

Half year, that’s correct.

Andy Stapp – B. Riley & Company

Okay. And then you talked about getting your hands around Florida, what do you see in terms of sings of stabilization in real estate values?

Richard Hickson

We are predicting, last year we said it was a 21% drop, we’re predicting these going to be less than that.

Andy Stapp – B. Riley & Company

Substantially less or you don’t have --?

Richard Hickson

Is very possible holistically it can be a percent or more, but we surely don’t know. But in looking at properties and looking at appraisals and looking at what appraisers are using for their discounts and the comps they are using, I think that would be unless there is really some change, I’m hoping that would take care of it.

Andy Stapp – B. Riley & Company

And you are taken that into your no loss reserve model and valuing (inaudible)?

Richard Hickson

Absolutely.

Operator

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

Richard Hickson

Thank you for joining us today. As you can see in addition to working on the great recession we have a number of other very positive things rolling on in the company. We’re very profitable, we have plenty of capital, we have 2600 associates that are (inaudible) and have very good skill set and all of our land of businesses we are seeking opportunities to increase shareholder value and let’s look forward to our results from the first quarter. Thank you for joining.

Operator

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

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Source: Trustmark Corporation Q4 2009 Earnings Conference Call
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