Trustmark Corporation (NASDAQ:TRMK) Q4 2017 Earnings Conference Call Transcript

Jan 24, 2018 • 09:30 am ET

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Trustmark Corporation (NASDAQ:TRMK) Q4 2017 Earnings Conference Call Transcript

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Q & A
Operator
Operator

(Operator Instructions) And our first question today comes from Catherine Mealor from KBW. Please go ahead with your question.

Analyst
Catherine Mealor

Thanks. Good morning, everyone.

Executive
Gerard Host

Good morning, Catherine.

Analyst
Catherine Mealor

I wanted to start on the balance sheet, it looks like you all lowered your securities portfolio a little bit this quarter. Can you just give us a little bit more color on that and on your outlook for further reductions in that portfolio?

Executive
Gerard Host

Sure, I'll ask Tom Owens and he'll address that Cath.

Executive
Thomas Owens

So yes we didn't reduce the portfolio somewhat during the fourth quarter. We looked at the market environment, the prospects for the Fed continuing to hike and the flattening of the yield curve. Reinvestment and securities cash flows became a less attractive form of capital deployment. The other thing to keep in mind is we've carried a somewhat larger disproportionate large investment portfolio relative to peer and that made a lot of sense during the low for long interest rate environment. But as we've continued to absorb excess liquidity with robust loan growth that combined with prospects for further Fed tightening and yield curve flattening has caused us to reconsider for the time being continued reinvestment securities cash flows. So that's an actively monitored tactical decision and the decision as to whether we continue to allow the portfolio to runoff or not will very much be a function of what happens with the market and interest rates and the economy and our loan growth.

Analyst
Catherine Mealor

And so, is there a percentage of securities to average earning asset that you think is appropriate as a goal over the next year or so?

Executive
Thomas Owens

So if you look at our securities turning assets today is about 27%. If you look at the peer median is about 22%, and again as carrying the larger securities portfolio is a function that sort of a legacy function of us. You look four years ago for example, we had a loan to deposit ratio of 67%. Today it's about 87%. What we've done is grow the rest of the balance sheet around the securities portfolio. But now that we have the loan to deposit ratio that's in the mid-80s combined with the other things I discussed in terms of what's likely to happen with interest rates and the shape of the yield curve, it may make sense for us to continue to allow these securities portfolio to runoff. Just to give you an example. We cash flow about $50 million a month from these securities portfolio. So annually that's about $600 million. So if hypothetically we were to allow the securities portfolio to runoff for the remainder of the year, would be 500 million to 600 million lower and if you do math that would take us from 27% of earning assets down to about 22% of earnings assets which is about to peer median. So that's the way to think about it. Mathematically the decision has not been made yet, and as I said it's an actively monitored