Trustmark Corp (TRMK) 2020 Q3 法說會逐字稿

Good morning, and welcome to the Trustmark Corporation Third Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Joey Rein, Director of Investor Relations at Trustmark. Please go ahead.

Good morning. I'd like to remind everyone that a copy of our third quarter earnings release as well as the slide presentation that will be discussed on our call this morning, 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 our 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, Chairman and CEO of Trustmark.

Good morning, everyone, and thanks for joining us. With me this morning are Duane Dewey, President and Chief Operating Officer; Louis Greer, our CFO; Barry Harvey, our Chief Credit Officer; and Tom Owens, our Bank Treasurer.

During the third quarter, we remained focused on ensuring the safety of our customers and associates and supporting our local economies. We continued serving customers both remotely and through our branches, and we observed meaningful increases in the adoption of our mobile banking solutions. We remained engaged with our customers, actively discussing challenges and solutions and providing concessions as appropriate. We continue to follow best practices for health and safety of our associates. I'm extremely proud of our associates' dedication to providing advice and solutions to meet our customers' unique needs in this challenging environment.

Moving to Page 3, let's review some highlights from the quarter. Our results reflect the value of our diversified financial services businesses. Noninterest income increased 6% linked-quarter and represented 41% of revenue in the third quarter. Our results reflect a lower provision and expense for credit losses due to improvement in the macroeconomic factors used to compute reserves under our CECL model. PPP loans totaled $970 million at September 30, before deferred fees and costs of $25.7 million. Loans held for investment, excluding PPP loans, increased $188 million or 1.9% from the prior quarter and $624 million or 6.8% year-over-year. Our pretax preprovision income totaled $62.9 million, up 1.4% linked-quarter and 26% year-over-year.

Adjusted noninterest expense totaled $115 million in the third quarter, up 3.2% from the prior quarter. Our allowance for credit losses represented 1.24% of loans held for investment at September 30, 2020. We maintained strong capital levels with a common equity tier 1 capital ratio of 11.36% and a total risk-based capital ratio of 12.88%. The Board of Directors declared a quarterly cash dividend of $0.23 per share payable December 15 to shareholders of record on December 1.

At this time, I'd like to ask Barry Harvey to provide some color on loan growth and credit quality. Barry?

[Got it], Jerry. Looking on to Page 4, you can see that loans held for investment, excluding PPP loans, totaled $9.8 billion as of 9/30. That's up $188 million or 1.9% linked-quarter, and that puts us up $624 million or 6.8% year-over-year. The loan growth reflects continued funding on our commercial real estate construction loans. The loan portfolio remains well diversified based on both product type and geography.

Looking on to Page 5, Trustmark's CRE portfolio is 63% existing and 37% construction land development. Of that construction land development, 82% is construction. The bank owner-occupied portfolio has a nice mix between both type and industrial.

Looking on to Page 6, the bank's commercial loan portfolio is well diversified, as you can see, across numerous industry segments. Typically, these loans are well secured, governed by a formulaic borrowing basis, covenanted to protect both the income statement and the balance sheet.

Looking on to Page 7, we have minimum exposure, as you can see, to restaurants and energy. Trustmark has never been in the higher risk C&I lending business. And currently, we just have the same one customer with about $11 million outstanding. The bank has always underwritten both hotels and retail in a very conservative manner. Currently, we have about 19% of the hotel book and 6% of the retail CRE book that's under a payment concession plan.

Moving on to Page 8, we conducted a review of the commercial borrowers that have been potentially impacted by COVID-19 during Q3. These were borrowers who received 1 or more payment concessions, or borrowers in industries that have been significantly impacted by COVID-19. Approximately 80% of the borrowers receiving a concession, 1 or more concessions were reviewed. We reviewed 96% of the hotel portfolio, 86% of the restaurant portfolio, 94% of the retail CRE book. This review resulted in a coverage of $1.8 billion and resulted in us downgrading $139 million or 7.7% of the portfolio reviewed, to the criticized category during the quarter.

Turning on to Page 9, our allowance for loan losses was relatively unchanged from the prior quarter. Our reserve calculation included an increase in both loan growth and the qualitative changes due to the COVID portfolio review we performed. It also reflected a decrease in our quantitative portion of our reserve basis point improvements in our economic forecast. As of September 30, the allowance for loan losses on loans held for investment totaled $122 million.

Looking on to Page 10, we continue to post solid asset quality metrics. Our allowance for loan losses represented 1.24% of our held-for-investments, which resulted in almost a 600% coverage of nonperforming loans, excluding those that are individually evaluated. We recorded a net -- we were net recovered for the quarter by $1.1 million. Other real estate declined by 11% from the previous quarter, and it declined 49% year-over-year.

Turning on to Page 11, the bank actively participated, as you know, in the Paycheck Protection Program and has successfully assisted a significant number of businesses that have been negatively impacted by COVID-19 pandemic. Our PPP loans totaled $944 million as of September 30. This was net of the deferred loan fees and costs associated with the program of $26 million. We're currently taking forgiveness applications from borrowers with loan amounts $50,000 and above, and have completed reviews on approximately $230 million or 24% of our PPP portfolio and have submitted those to the SBA for concurrence with the recommendation we've made. Jerry?

Great. Thank you, Barry. Now turning to the liability side of the balance sheet, I'd like to ask Tom if he would discuss our deposit base and the net interest margin. Tom?

Thank you, Jerry. So turning to Page 12, deposits totaled $13.2 billion at September 30, which was down $283 million from prior quarter. However, average balances were up $277 million linked quarter and up $2.2 billion year-over-year, primarily reflecting additional customer liquidity associated with the PPP loan program and government stimulus payments. The linked-quarter average balance growth was driven primarily by commercial balances, which were up 9%, while growth in consumer balances of 2% essentially offset declines in public-fund balances of 7%, which reflects normal seasonality of public funds.

Our cost of interest-bearing deposits declined 6 basis points from the prior quarter to total 31 basis points, driven primarily by the continued downward repricing of time deposits. We continue to maintain a favorable deposit mix as noninterest-bearing deposits rose to 30% of deposits at September 30, while 62% of deposits were in checking accounts. Our liquidity remains strong with a loan-to-deposit ratio of 82% as at September 30 and reliance on wholesale funding of less than 3% of assets.

Turning our attention to revenue on Page 13, net interest income FTE totaled $109.2 million in the third quarter, representing a linked-quarter increase of $1.2 million. Interest and fees on PPP loans totaled $6.7 million, while $102.4 million was core. The core was a decline of $516,000 from the prior quarter as a reduction of $2 million in core interest income more than offset a decline of $1.5 million in interest expense. Net interest margin in the third quarter of 3.03% declined by 9 basis points from the second quarter as did the core NIM ex-PPP loans, which declined to 3.05%.

Other earning assets remained elevated during the quarter, as commercial and consumer deposit balances continued to increase and public fund balances remained elevated despite the normal seasonal decline during the quarter. We continue to anticipate a reversal of the significant increase in public fund balances, which occurred during the second quarter, although the full impact on NIM may not be felt until first quarter of '21.

And now Duane will provide an update on noninterest income.

Thank you, Tom. And as shown on Page 14, our fee businesses posted strong performance in the third quarter. Noninterest income totaled $73.7 million, up 6% linked quarter and 52.5% year-over-year. For the quarter, noninterest income represented 41% of Trustmark's revenue, demonstrating a solid diversified revenue stream. Our mortgage banking group continued to report solid results, and we will discuss it in more detail in a moment.

Service charges on deposit accounts increased $1.2 million linked-quarter as customers gradually returned to a more normal pre-pandemic activity level. Bank card and other fees were up $1.1 million from the prior quarter due to higher customer derivative revenue and interchange income. Insurance revenue was down seasonally, but up year-over-year, and wealth management revenue was in line with the prior quarter as increases in brokerage and investment services were offset by a decline in trust management fees.

Turning to Page 15, our mortgage banking group had another outstanding quarter as loan production totaled $886 million, an increase of 3.8% from the prior quarter and 56.5% year-over-year. Retail production represented 70.2% of volume or $622 million in the third quarter. Gain on sales of loans for the quarter totaled $34.5 million, which is an increase of $394,000 on a linked-quarter basis. Overall, mortgage banking revenue in the third quarter totaled $36.4 million, up $2.7 million from the prior quarter, another very strong quarter in the mortgage business.

Louis will now cover noninterest expense and capital management. Louis?

Thank you, Duane. As you can see on Page 16, you see a detail of our noninterest expenses broken out between adjusted and total. Adjusted noninterest expenses, which excludes amortization of intangible ORE expense and credit loss for off-balance sheet credit exposures totaled about $114.6 million in the third quarter, an increase of about $3.6 million or 3.2%. Salary and employees' benefits were up $1.2 million due to increases in salaries, commissions related to the mortgage company and accruals for performance-based incentives. Services and fees increased related to continued investment in technology.

Other adjusted noninterest expenses rose $1.5 million, principally due to loan expenses related to loan volumes and a noncash charge for a realignment of branch offices of approximately $900,000. As we put branches up for sale, we show those as assets for sale. We fair value those. So that's an adjustment for a fair value of $900,000 for 2 facilities that we're trying to sell.

Credit loss expense related to off-balance sheet and credit exposure was a negative $3 million, a decline of $9.2 million from the prior quarter, primarily reflecting improvement of macroeconomic factors used to determine the necessary reserves for off-balance sheet exposure. This was partially offset by a $932,000 increase in ORE expenses, which is due to write-downs during the third quarter. In the fourth quarter, we expect that adjusted expenses as previously defined to be approximately $113 million, depending on mortgage production for the fourth quarter of 2020.

As Jerry mentioned earlier, we remain well capitalized and with a total common tier 1 ratio of 11.36%, total risk base of 12.88% at September 30. And as Jerry mentioned, the Board of Directors declared a $0.23 dividend payable to shareholders on December 15, 2020.

Jerry?

Great, thank you, Louis. If you look, I think we're putting up Slide 18, which is the announced succession plans. I'd first like to begin by congratulating Duane and Tom on their new upcoming roles. We are extremely excited about these 2 gentlemen moving into the CEO and CFO, respectively, over the next 6 months or so.

You saw the announcement yesterday afternoon, a variety of changes taking place. I thought I'd take just a minute and go through them. The process for the succession of both the CEO role and the CFO role has been one that has been in place for over 2 years now. Our Board has taken a very thoughtful and deliberate process in making this happen. They have used the counsel of outside expertise, both from a legal and from the perspective of leadership consultants to help make that decision. It has, as I mentioned, been a very thoughtful and deliberate process.

I will tell you that over the next several months, Duane and I will be transitioning the remaining responsibilities of the CEO role to include risk and finance between now and the year-end. And I will tell you that I plan to stay very active in the company, but in a very different way. We have a very engaged Board of Directors. And I plan to be very involved in Board governance. I'll stay very involved in the strategic planning process, M&A, and investor relations. But Duane will be running the company, make no doubt of that. And he is well prepared to do that. He's been here for over 17 years and has had a lot of prior experience in both large and smaller organizations over his banking career. So I'm really excited about Duane moving into this role and what he's going to bring to this company.

In addition, effective January 1, we're going to make some changes around our administrative process. Granville Tate, who many of you have not -- many of you know, but some of you on this call have not had the opportunity to listen to Granville talk about the company. He's currently our General Counsel and Chief Risk Officer. We plan on having Granville take on the additional responsibilities of Chief Administrative Officer, and that should help support Duane as it relates to a lot of the other activities that are involved in running the organization. Both of those changes will be effective January 1, 2021.

In addition, on March 1 -- and this is so that we can get through the year-end, get through the K, get through preparation of the proxy and a lot of other things -- Louis, who has provided us with his intent, his letter of intent to retire from the company as of March 1, 2021, Louis is remaining on to assist Tom Owens and working us through that year-end process and all the financial reporting associated with that. So Louis will retire then. Tom Owens will step into the Chief Financial Officer role. In addition, Tom Chambers, who has served as our comptroller, will become our Principal Accounting Officer for the corporation. And he will become our Chief Accounting Officer for the bank and will assist Tom in the financial reporting issues of the company.

And then the last change we want to communicate to you is that several months ago, Maria Sugay, or we call her Ria, has joined the company. She came in initially as co-Treasurer, but in the back of our mind, we felt like if all of these transition plans played out that beginning in March 1 of next year, Ria will be ready to move into the Treasurer role, taking Tom's place. So a number of significant changes in the company, all well thought out, we believe, all with a very competent group of people that are going to bring, I think, a new dimension, a new perspective to the company. They've all got tremendous energy and are ready to go once we get out of this COVID funk, I guess is what I might call it. We're excited about it, as I said, looking forward to it.

And with that, let me suggest that, operator, we open it up for calls on either the org changes or the financials.

(Operator Instructions) Our first question comes from Jennifer Demba with Truist Securities.

Congratulations on everything that happened with the succession planning. Just wondering what the strategic focuses are going to be for Trustmark over the next 12 to 18 months, assuming this pandemic doesn't have an abrupt ending like we'd like, sometime in the next 6 months.

Jennifer, we have been in the process of, as we prepared for these changes, of Duane being very involved and engaged in our focal points, given the changes here, and knowing that there's a change in how the customers want to bank with us, how we must bank, the challenges of this low interest-rate environment with a flat yield curve and the challenges it brings. And I think you can see our financials reflect the fact that we have other businesses that are helping to provide fee income. But we do have very much a focus going forward and I'd ask that Duane maybe talk about those areas of focus.

Yes, Jennifer. So as we start to focus on 2021 and beyond, we basically are categorizing it in 5 primary categories, efficiencies being at the top of the list. That is taking advantage of some of the technology advancements and projects we have underway on the efficiency side as well as really examining the branch system and how we deliver products and services to the consumer across the franchise. Secondly, we're focused on growth being both organic opportunities to grow things that we do currently and do them more extensively across the system, et cetera, but organically really focused on growth as well as opportunities that may present themselves as we come out of this from M&A side or any other type of expansion opportunity; so efficiency, growth.

We are constantly focused on innovation and how we process data, how we analyze data, how we interact with customers, et cetera. So innovation would be the third. We want to do this all in a way in which we're very cognizant of risk and managing our risk. Focus and making sure we maintain a proper balance between growth and risk management. And then finally we feel real strongly about the company's culture and how we go about expanding and building on all the things I just mentioned, while maintaining the, we feel, unique culture of our company that's focused on our customers and our communities and our associates. And so as we build our strategic plan, those are the 5 primary tenets that we are focusing on.

Great. I have one more question. You talked about your hotel loans having a reasonably high deferral rate. Any thoughts of loan sales in these more stressed categories, if you could get a pretty favorable price?

Jennifer, this is Barry. I would say that's not something that we're considering at this time. I think we're very pleased with how our portfolios are performing, including our hotel portfolio. As we mentioned previously, about 40% of that exposure in that book are in coastal resort areas. They had a very nice summer this year, very much in line with what they experienced in 2019. The rest of the book, we fully expect for it to cycle down, as you would envision. But even the non-resort areas for our hotels, they're mostly drive destinations, so it's not like someone is going to be getting on plane to get there and may be reluctant to do so. So for that reason, they're all beginning to do a little better, as everybody adjusts to this new process that we're operating in. And so therefore we do expect to see the portfolio cycle through and come back out the other side. And so at this point we don't have any interest in looking at potential sales, although obviously we get phone calls every day in that regard.

The next question is from Catherine Mealor with KBW.

First off, congrats on all of the management changes. I also wanted to start my questions on loan growth. Your loan growth has I think been really probably one of the best growth rates I've seen this quarter. Can you just talk a little bit about how much of that's coming from new originations versus the construction funding and what your outlook is for growth moving forward?

Catherine, this is Barry. The great majority of our loan growth continues to be funding on our existing CRE projects and we would expect that to continue through the remainder of this year. One thing that we have identified for 2021 that will impact us is we do have a larger number of our projects that will have fully funded, that will be leaving us or slated to leave us during 2021, versus what we're experiencing in 2020.

So as you know, every quarter we're surveying all of our CRE professionals, getting a clear understanding of what they know about the projects, how long they'll stay with us versus what the maturity date may say. And so therefore we're constantly updating what we believe to be the forecast of loans that we know are going to leave us during a given period of time and of course we do experience, like all banks, unanticipated payoffs where the developer doesn't necessarily know they're in the market to sell something, but all of a sudden they get a really strong offer, and they go ahead and accept that and it moves away from us. So what we do see in 2021 is more payoffs coming from our existing stabilized CRE projects than we were experiencing in 2020. So we do have a little bit more of a headwind going into 2021 than we experienced in 2020.

Great, that's helpful. Is it fair to assume a slower growth rate for loans in '21 versus it looks like maybe ex-PPP you'll be kind of 6% to 7% this year, so is it fair to assume a slower growth rate from that dynamic in 2021?

Yes, we're continuing to evaluate what we think 2021 is going to look like. But purely from the fact that we do have a larger number of CRE payoffs coming our way in 2021 that we have a high level of certainty around versus 2020, that we would expect to have slower growth in 2021 versus 2020.

Great, got it. And then how does that impact the margin on some of these? Would you look at some of these projects as having higher yields and is there any kind of large impact to the margin that we should be aware of as those projects roll off?

Catherine, this is Tom. No, I don't think there would be any material impact to the margin from the rate at which those new loans go on and fund up.

I would add to Tom's comment. What we've experienced during the 9 months of this year, especially the 7 months since COVID kind of became a factor, we have experienced much better pricing, Catherine, during this period time. Of course, those loans are not funded at this point and won't fund until 2021. So we have seen better fee, origination fees, and we have seen some materially better pricing and we've been able to establish floors on a lot of the projects that we've approved during -- pretty much from February to now. So from that standpoint, I think we are encouraged that when those projects do begin funding in 2021, we will see a little better spread on those that we booked during this 7-month period.

Okay. That's great. And maybe that parlays into the margin outlook question for you, Tom. You gave a little bit of description on what you expect to see from the public fund flows. But can you just give us some thoughts on what your outlook for the margin is?

Sure, happy to, Catherine. This is Tom. So to start with, we need to bear in mind that it's a complicated answer. I guess I'd start by using our guidance from last quarter as a reference point, which was essentially kind of averaging over the next handful of quarters, linked-quarter declines and earning asset yields of mid-single-digit basis points. And then on the deposit side, interest-bearing deposit costs, linked-quarter declines in the low single digits number of basis points, which gives you some run rate, some modest run rate compression.

However, here's where it gets complicated: When you think about the anticipated payoffs, think about my prepared comments and the continuing elevated deposit balances. Deposit balances have continued to grow. They have not yet begun to [retract]. And then you combine that with the anticipated reimbursements on the PPP loans, some of which we anticipate will happen in the fourth quarter, more of which we anticipate will happen in the first quarter, you're going to see very significant drag to net interest margin, including core net interest margin from the increase in excess reserves. So while you've got that sort of truly fundamental run rate of low-to-mid single-digit quarter-over-quarter compression in core net interest margin, you also have this, what I'll call, exogenous factors suddenly of all the incremental additional liquidity coming from PPP loan reimbursements. And what that will do cosmetically is that will drive down our reported net interest margin and core net interest margin.

So I want to be very clear in terms of our guidance that, in my view, there's a difference between the fundamentals in terms of ongoing compression between earning asset yield and funding costs. There's a difference there between what I'll just describe as possibly "sticker shock" that you would see in terms of the impact of that excess liquidity, which in round numbers, could be about 20 basis points. So another way of saying that is, once you get past the payoff of the PPP loans, the reimbursement of those loans, all other things equal that you already had in your model, you should expect to see a 20 basis point drop in our run rate in terms of net interest margin, but that is not driven by fundamentals. That's driven by the excess liquidity.

From a modeling perspective, we're taking a pretty conservative approach, we think, which is to say we're not currently modeling significant attrition of that liquidity nor are we modeling a significant redeployment of that liquidity. And that's obviously part of our ongoing analysis and strategic thinking as we think about '21, what the effective duration of that liquidity might be and what the possible forms of redeployment might be.

Great. That's very, very helpful. So basically you're assuming that the PPP, as we see PPP forgiveness, the liquidity actually continues to build as we move into next year, which is what's driving that 20 bps for the...

Correct.

(Operator Instructions) The next question is from Joe Yanchunis with Raymond James.

So I was hoping to shift to the expense outlook. And I guess in the near term, where do you think that will settle? And how should we think about your branch count and how that will end, say, 12 months out?

This is Louis. I will tell you that I think our expenses, I gave you a view of the fourth quarter where we think that those core expenses or adjusted expenses, we call them, without some of the noise, ORE and amortization, is going to settle in at about $113 million. I can tell you, we're in the process of our strategic planning and our budgeting process right now. Right now, I think we plan to close at least 6 branches in '21. Is that the question I heard? You wanted to know how many branch count, I think. We're continuing to consolidate branches and we're looking at 6 additional branches in 2021.

Understood. I appreciate it. And I was also hoping to ask about M&A. So I guess, in relation to potential M&A, what are some of the characteristics that you would look for in a dance partner?

This is Jerry. I'll answer that question. We typically -- first of all, our geographic focus is Southeastern United States. And in that, we would draw in Texas even though technically they're not in the Southeastern United States; they are currently part of our footprint and if opportunities arise, [we] would gladly expand further into the Texas markets. Primarily the Southeast, we're looking and feel like we can easily manage organizations between -- from $300 million to $5 billion in size, and our focus is there.

In terms of characteristics, we do well in both the secondary sized markets, the markets like Jackson and Mobile, Birmingham, Huntsville. We do significant business in the larger markets like Atlanta, like Dallas, through our commercial real estate group and in some ways, our C&I group. But we don't necessarily have to have a footprint there. So our focus there is in terms of strategy, find those organizations that would complement what we already have, so that we could be a more dominant player in markets we're in as well as to find opportunities that allow us to consolidate some costs. So those are some of the characteristics about our M&A activity.

All right, I really appreciate it and congrats on the good quarter.

The next question is from Graham Dick with Piper Sandler.

All right, so after completing the COVID-impacted portfolio review this quarter, it looks like you guys allocated about $18 million to the reserve as a result. Would you guys expect that you're about done building the reserve, barring any unforeseen developments in the economy and that future provisioning will mostly be driven by loan growth and any credit migration, if it occurs?

Grant, this is Barry. We did grow the loan -- the funded loan reserve by $1.8 million during the quarter. And I think that's going to all depend upon what happens going forward. The drivers this quarter, of course, were really there were 2 drivers. The macroeconomic forecast improved, and that resulted in a release calculated at about $14.1 million on the quantitative side.

Then on the qualitative side, based upon the COVID-19 population we identified and reviewed and downgraded and added reserves to, that resulted in about a $17.1 million provisioning. So those 2 pretty much offset each other from a qualitative-quantitative perspective during Q3. I think going forward, what you're going to see that's going to impact our reserving, it's going to be, obviously, the macroeconomic forecast. If it continues to improve, it's going to continue to generate a release. We're going to continue to review this $1.8 billion COVID-19 portfolio we've identified, and probably add some credits to it over time as we come across them. So that will be a quarterly update that we'll be doing as we get up new financial information from the borrowers and the guarantors. So that will be an opportunity for some additional downgrading of maybe what we move to special mention, make other substandard. We may have some new special mention and substandard. So that will be ongoing through 2021.

Those 2 are probably the biggest 2 factors that are going to determine whether we have additional reserving or a release of reserves. The other factors, of course, that you need to consider is going to be portfolio mix along with the levels of unfunded commitments. Loan growth is a factor. We had nice loan growth this quarter of $188 million. We did obviously fully reserve for that. And then if for some reason, the maturity lengths begin to lengthen out or shorten, obviously this quarter we did have a release that related to -- there are speeds picking up and we updated our discounted cash flows, and that was a result of our maturity shortening. So as our maturities shorten or lengthen, that's going to obviously require additional reserving or release of reserves.

So all those factors are going to come into play, I think the biggest 2 being our forecast, our macroeconomic forecast going forward, if that continues to improve, that will be a release. If we continue to find credits that need to be downgraded as a result of COVID-19, that will be a use, as it was this quarter. It was pretty much a wash.

Great. That's really helpful. And I guess moving on to mortgage, it's obviously been really strong over the last few quarters. How are you guys thinking about how production might turn out in 2021? I know it's super tough to pinpoint, but we'd just like some color on how you guys are approaching the new year.

This is Duane. As you say, mortgage has been tremendously strong. It remains strong as we go into the fourth quarter. There's seasonality, of course, and we do expect lower production numbers in the fourth quarter. But still historically, a very strong fourth quarter is our expectation. It could be off 20% or 25%, while still being very, very strong at a historical level.

Moving into '21, is still everybody's best guess. I believe as long as rates stay low and there's a good balance of purchase and refi type business out in the marketplace, we still are looking at '21 as being a strong mortgage year. There are a lot of dynamics in that business, as you know, primary-secondary spreads and different things like that. But as things go, we're still expecting solid production. And then last comment on that is, a number of years ago we did begin a shift to retail production. And our retail production staff out in the field is doing a tremendous job in generating new opportunities. And that is a big factor in the improved results that we've seen this year and hope that that continues into '21.

Great. That's all for me, and congrats on the succession plans.

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 so much, operator. And I'd like to thank you all for joining us. I'm excited about our record quarterly financial results. They reflect the contribution of all areas of the company and show our strength. I think more importantly, though, I'm very excited about how we got there, and that was through the dedication of our associates and their commitment to our customers, both retail and commercial. And I think that really shows, and that's what we believe helps differentiate us.

And then finally, again, a congratulations to Duane and Tom and Granville, Tom Chambers and Ria in these upcoming reassignments. I am very excited about the future of this company and where we're headed under their leadership. We appreciate all of your interest in Trustmark. And we look forward to being with you again January in our fourth quarter and year-end call. Thank you so much.

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