Trustmark Corp (TRMK) 2013 Q3 法說會逐字稿

Good morning ladies and gentlemen and welcome to Trustmark's third-quarter earnings conference call.

(Operator Instructions)

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

Good morning.

I'd like to remind everyone that a copy of our third-quarter earnings release and supporting financial information is available on the Investor Relations section of our website at www.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'd 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, as well as our other filings with the Securities and Exchange Commission.

At this time I'd like to introduce Gerry Host, President and CEO of Trustmark.

Good morning everyone and thank you for joining us.

Also with me this morning are Louis Greer our CFO, Barry Harvey our Chief Credit Officer, Buddy Wood our Chief Risk Officer, Breck Tyler, President of our Mortgage Services Department, and Tom Owens our Treasurer.

We had another quarter of solid financial results, revenue growth expanded to total $146 million, due in part to our successful merger with BancTrust. We continued to benefit from improvements in credit quality and we completed our purchase of two branches in Oxford, Mississippi.

Highlights for the third quarter include net income of $33 million, which resulted in EPS of $0.49 a share, an increase of 6.5% from the prior quarter. Our earnings in the quarter resulted in a return on average tangible common equity of nearly 15% and a return on average assets of 1.11%.

During the first nine months of 2013, our net income available to common shareholders totaled $89 million. I'm pleased to report net income attributable to the BancTrust merger totaled $4.9 million in the third quarter, which includes net recoveries and impairments of $686,000 after tax. Excluding the net impact of recoveries and impairments, the earnings from BancTrust totaled $4.2 million in the third quarter. Relatively unchanged from the prior quarter. Also our board declared a quarterly cash dividend of $0.23 per share payable December 15 to shareholders of record on December 1.

Let's look at our third quarter accomplishments in greater detail. First the balance sheet. During the third quarter, average earning assets remained consistent at $10.3 billion and average deposits totaled $9.7 billion. For investments, our legacy portfolio totaled $5.7 billion at September 30, an increase of $119 million or 2.1% from the prior quarter.

Growth was broad based by type as well as geography. Our wonderful family mortgage loan portfolio increased $68 million during the quarter with the uptick in interest rates and the tightening of secondary marketing spreads we resumed our practice of retaining select15-year mortgages on our balance sheet.

Construction land and development lending expanded $53 million during the quarter due to growth in our Alabama, Mississippi, and Texas markets. Increased lending to public entities in Mississippi and Tennessee was largely responsible for the $25 million growth in our other loan category. Other real estate secured loans grew $4 million principally due to growth in our Tennessee market. Commercial real estate loans increased a million dollars as growth in Alabama and Texas markets was offset by declines in the remaining markets.

Consumer loans increased $4 million with the majority of that growth coming from the Alabama market. C&I loans declined $36 million, due principally to two accounts that paid down lines at the end of the quarter. These customers are routinely in and out of their lines, aside from that, we experienced C&I growth in our Alabama and our Florida markets.

We're continuing to see organic loan growth and believe it will continue in coming quarters. Our loan pipeline is encouraging and we continue to have loans on the books that are being, beginning to fund, particularly CRE loans in Texas, Mississippi, and Tennessee.

Deposits at the end of the quarter totaled $9.8 billion down $30 million from the prior quarter. We experienced a favorable change in deposit mix, as interest-bearing deposits declined $153 million, while noninterest-bearing deposits increased $122 million to represent a total of 27% of all our deposits.

Turning to capital, at September 30, our tangible common equity to tangible assets was 8.01% and total risk-based capital was 14.02%. Our solid capital base provides opportunity to support organic loan growth while continuing to enhance long-term shareholder value.

As we look at credit quality, we continue experiencing improvement in credit quality, as is evidenced by nominal net chargeoffs of $569,000 and negative provisioning of $3.6 million as a result of updated quantitative reserve factors. Please note that these credit metrics exclude acquired loans and other real estate covered by FDIC law share agreements.

At September 30, nonperforming assets totaled $190 million, a decrease of 1.2% from prior quarter. Nonperforming loans totaled $73 million, a decline of 1.3% from the prior quarter, and foreclosed other real estate totaled $116 million, a decline of 1.2%. Our balance for loan offers totaled $69 million and represented 162% of nonperforming loans excluding impaired loans.

Each quarter we reestimate cash flows on acquired loans. As a result, we recognized approximately $3.3 million in impairments in the third quarter. Most of which were on the BancTrust portfolio. Though the BancTrust acquisition is now the primary influence of acquired loan performance, all three acquisition portfolios are performing better than expected.

Turning to the income statement, net interest income totaled $102 million in the third quarter, resulting in a net interest margin of 3.94%. This eight basis point decline from the prior quarter was primarily due to lower recoveries of acquired loans. The yield on acquired loans totaled 8.2%.

In the third quarter it included recoveries of $4.7 million for loan payoffs, approximately 75% of which were attributable to BancTrust. Collectively, the recoveries on acquired loans represented approximately 2% of the total acquired annualized loan yield in the third quarter.

Excluding the impact of acquired loans, the net interest margin totaled 3.52% compared to 3.55% in the prior quarter. Last quarter we indicated that the net interest margin excluding acquired loans would decline five to seven basis points. Clearly, the three basis point compression in the third quarter was slightly better than we anticipated. Looking ahead, we could expect to see a relatively similar decline in the net interest margin excluding acquired loans in the fourth quarter.

Noninterest income totaled $47 million, an increase of 7.8% from the prior quarter. Mortgage banking production in the quarter totaled $358 million, down 15.7% from the previous quarter, due principally to the decline of refinancing activity following an extended low interest rate environment. In the third quarter, 61% of production was new money purchases and 39% was refis. Mortgage banking revenue in the quarter totaled $8.4 million, up $145,000 from the prior quarter, which reflected increased mortgage servicing income and effective mortgage servicing hedging strategies that were offset in part by reduced secondary marketing gains. Insurance revenue for the quarter totaled $8.2 million an increase of 2.7% from the previous quarter and an increase of 9.2% relative to the prior year. This growth is due in part to expanded customer insurance sales, as well as the continued firming of insurance rates.

Wealth Management revenue during the quarter totaled $7.5 million, an increase of 8.4% from the prior quarter, reflecting expanded trust management revenue and brokerage sales. Fee income attributable to our banking business remained relatively flat as growth in service charges on deposit accounts was partially offset by a decline in bank card and other fee income.

Service charges on deposit accounts totaled $13.9 million, up 7.1% from the prior quarter due in part to seasonality while bank card and other fee income totaled $8.9 million, a decrease of 6.1% from the prior quarter principally from a decline in commercial credit-related fee income. Noninterest expense for the quarter totaled $101.5 million, a decline of $5.7 million from the previous quarter. Excluding nonroutine litigation expense of $4 million in the second quarter, noninterest expense declined $1.7 million.

Excluding ORE expense and CDI amortization, core noninterest expense totaled approximately $95.9 million in the third quarter, relatively unchanged from the previous quarter. We continued realignment of our branch network to enhance productivity and efficiency. During the third quarter, we announced plans to consolidate six additional banking centers with two of those being in the Alabama market, two in the Mississippi market, and two in the Houston, Texas, market. These closures will occur during the fourth quarter of 2013.

As previously announced eight offices were consolidated earlier this year with five of those being overlapping offices in the Florida panhandle as a result of the BancTrust merger. Since the beginning of 2013, we have opened three new offices, one in Houston, one in Jackson, and one in Memphis. During the third quarter, we completed our previously announced purchase of two branch offices in Oxford, Mississippi, and welcome our newest customers, which now have access to an expanded array of products and services.

As I mentioned at the beginning of our call, we had another quarter of solid financial results. Revenues increased, credit quality continued to improve. We continue to be optimistic about our opportunities going forward in all our markets.

So at this time, I would be happy to take any questions that you might have.

(Operator Instructions)

The first question will come from Steven Alexopoulos of JP Morgan. Please go ahead.

I want to start on the core margin. When you say you expect a similar decline in Q4, are you saying similar to the 3 basis point decline this quarter? Or similar to the guidance you gave last quarter, down 5 to 7?

Good question, Steve. We're projecting it will be similar to what we actually experienced -- a 3 basis point decline.

Okay. And on the mortgage banking, you guys posted one of the smallest declines we've seen, gain on sale down only 15% quarter over quarter and again on sale margin held flat. Were you just very good at taking cost out this quarter? And do you expect incremental pressure on the gain on sale margin playing out in fourth quarter?

Personally, I think we have one of the best mortgage people out there. I think a lot of it was how we managed the pipeline; secondary marketing activity. But I'll ask Breck if he will speak more specifically, Steve, to your question.

Our pipeline hedging is performed internally. This is what we do. This is what we focus on. We have a very disciplined hedging strategy with very defined hedging parameters within our policy. Hedging is a science and it's an art too. But just in short, on May 2 when the 10-year was 163 we were not significantly long; and on September 5 when the 10-year was right at 3% we were not significantly short. That really helped us maximize the primary spread there.

And just to give you a little color, the first quarter gain on sale margin was 259 bps, second quarter was 194, third quarter was 186. We are seeing that spread continue to narrow. A lot of it is just due to price competition, some higher mortgage rates and a refi burnout.

So in the fourth quarter, are you expecting a more pronounced decline in mortgage? Or perhaps similar to what we saw in Q3?

It's difficult to determine that with a 10-year about 250. If it rallies further, we'll see if maybe stabilize or not fall as much if rates go -- the 10-year moves higher and mortgage rates go higher, we'll see it narrow a good bit more. It is difficult to project that at this time, but it is narrowing.

Okay. All right. Thanks for taking my questions.

Thank you, Steve.

The next question will come from Kevin Fitzsimmons of Sandler O'Neill. Please go ahead.

Good morning, guys.

Good morning, Kevin.

Just a top level question on the margin. You know, I heard the clarification on the guidance for the core margin. But just helping us to try to model this looking out over the next few years, we're at a reported margin of 394 and the core margin is 352. Should we be thinking about the margin on a steady march down toward the core margin? And would that be fairly slow in the next few quarters? Or would that be more of a steady pace over the next -- call it two years? If any kind of help you can provide on that?

Okay. And good question.

And that also is one of those that is so much a function of how we managed these acquired loan portfolios. And I guess maybe both Louis and Barry can comment on what they're seeing, since especially Barry's such a significant part of that acquired loan portfolio, and the management of that projections forward fall under him.

Let's start first, Louis, with you.

Hey, Kevin. How are you doing today?

As you can see we break out the acquired loans income on the income statement. And as you can tell, we had about a $21 million income for the quarter. That was about $14.5 million of just accretable yield. And about $4.7 million of recoveries.

And as you look at our average balance sheet, you can see that those acquired loans decreased about $88 million. I think our expected cash flows next quarter are somewhere between $50 million and $60 million. So, factor that in by the effective rate this quarter of about 620 just on accretable yield; it's hard to predict recoveries. It's hard to forecast the total margin, but I do see that the core margin, as Gerry reported in his comments, to remain around that 350-ish level.

So, down to 350 -- I don't see that. If it is, it's going to be a slow march, but it all depends on recoveries for the quarter. And Barry, you may could add some comments there because recoveries are certainly hard to predict.

They are. And Kevin, just having worked through the loans to this point, I think we've gone through the portfolio pretty well and have some good action plans. I think we feel very encouraged about what we've seen thus far versus what we anticipated in terms of being able to work through the credits. A large portion of that reduction in BancTrust were in the form of criticized loans. So that was reduction that was somewhat by design as we begin to work though the process.

I do think 2014 there'll be a lot more activity from the standpoint of working through the problem, just because it takes a little while to get through the files, get them queued up, beginning the legal process in many cases if need be; and I think we'll see the results of some of those efforts as we get into 2014.

Okay. Thank you. And then just one quick follow-up. I just want to clarify the comment on the expense run rate. I guess by your line items, you gave in the income statement, it looks like ex-ORE you got an expense run rate of about $98.4 million, and you're saying that's a pretty decent run rate going forward. I think you might have also Xed out amortization. But I don't see that as a separate line item, So if you could let us know what that is, thanks.

There's about $2.5 million of amortization and intangibles included in other expenses. If you back that out of your $98 million, we're saying somewhere between $95 million and $96 million, which is very similar to this quarter. I think quarter expenses, as Gerry mentioned, were right about at $95.9 million. So we expect a similar run rate in the fourth quarter.

The only caveat to that, Kevin, I would tell you is that as we work through some of the new regulatory requirements, that we're seeing [defat] being one of them; increased focus on model validation. We would anticipate that there will be some additional expenses associated with the regulatory compliance functions going forward.

Those are not baked in to the run rate that I'm talking about?

Some of them are. But at this point, it's not absolutely clear all the expenses that we will incur as we go through this process. So yes, some of them are. But as I said, the slight caveat is the unknown as to the exact amount we will be spending going forward. I know most are giving ranges. I would not expect it to be significant relative to the run rate. But I just did want to mention that so that it's not a surprise forward.

And Gerry, based on when you all crossed the $10 billion threshold, you don't enter the formal stress testing process in 2014? It's more in 2015, right?

That is correct as far as publishing; but as far as actually, we've already begun the process of creating all the necessary modeling for the stress tests. We would anticipate that, despite the fact that we have an extra year to comply, that we certainly will be in there doing our own internal modeling and testing well before that 2015 date, Kevin.

Okay, great; thank you

Hey, Kevin, this is Louis.

If you look on page 13 of our financials, you'll see in the note that we break out amortization and tangibles in that other expense line too.

Okay great; thank you, Louis.

You're welcome

(Operator Instructions)

The next question will come from Michael Rose of Raymond James. Please go ahead.

Good morning, guys; how are you?

Good morning, Michael.

Just a question on the loan balance this quarter. Looks like you had pretty decent growth in construction. Are you making more of a concerted effort to grow that portfolio? And then, separately, how should we think about the BancTrust portfolio and where does it level off, do you think? We've seen about a little over $80 million in decline in the past two quarters.

The answer to the first question is, because of the fact that over the last 4 years we have decreased by over one-half the size of our construction development portfolio; and where we are with our loan deposit ratio, we have capacity to go out and build that portfolio back. There's an effort on construction and development. However, there's a focused effort to remain balanced throughout.

We had mentioned previously that we would anticipate some fundings of some transactions that closed earlier in the year. We're beginning to see those. Our pipeline reports indicate that we will continue to see those fundings through fourth quarter and first quarter of next year. In addition, the pipeline looks as healthy as it has in the last 4 or 5 years. So we are cautiously optimistic about what we see going forward. But as Breck mentioned, it depends a lot on which way rates go and the impact of the economy overall.

As far as the BancTrust portfolio, we're actually seeing growth in Alabama outside of the runoff that you're seeing in the acquired loan portfolio. And I think Barry had mentioned that -- and so we're actually managing those two functions separately. The acquired loan portfolio, Barry and his team overseeing those, deciding which go in which direction. And while we have the rest of the Alabama team that is focused on expanding not only relationships that they have, but also building new relationships. So right now we're in a situation where the activity relative to acquired loans is moving faster, so we're experiencing more runoff than we are new loan growth. But we are seeing significant growth in Alabama, and at some point here in the near future, we believe that, that will turn around.

Okay, thanks for the color, that's really helpful.

And as a follow-up on the construction question, I show it as about 10% of noncovered legacy loans this quarter. Where would you feel comfortable bringing that to? And then, on a separate topic, the tax rate was a little bit lower this quarter. What should we expect over the next couple of quarters?

Barry, you want to talk to the first question and Louis taking on the tax question?

And the way we view the construction, land development portfolio -- and just to make sure we're clear, our focus is always been -- our interest has always been on the construction aspect of it. And sometimes you're part of the development piece of it in order to get to the construction piece of it. But our focus today is construction.

It's pretty diversified in terms of the different markets. A lot of multi-family as you'd imagine; some student housing as well as office space. And we're about half and we judge ourselves based upon the regulatory guidance that was issued at the last part of 2006, which talks about 100% of construction; land development being a point at which you need to begin doing some additional monitoring. Just to put it into context, we're about half of that today.

And we'd be very comfortable growing back up more toward that 100% if it's focused on construction, and of course not looking at the raw land, speculative land holds; not looking too much at development. We're very comfortable moving back up that direction as the man presents us with the opportunities.

And with the tax credits, Michael, I would say that our tax rate for the quarter was at 25.6%. Year to date it's 26.1%. Of course we continue to utilize tax credits. And as we invest in new ones, certainly that's going to keep our rate somewhere around that 25.5% rate, I would expect for the next 2 quarters; probably bring our overall rate for the year somewhere closer to 26% or a little bit below for the full year.

Great. Thanks for taking my questions.

Thank you.

The next question will come from Dave Bishop of MLV & Company; please go ahead.

Following up on Mike's question -- or more to the point in terms of the loan pipeline you alluded to, that it's looking as good as it has over the past 4 or 5 years -- can you break that down maybe in terms of the various markets you're looking at. Obviously you saw some good growth in the Alabama markets, there. Is that a function of you guys coming in there and moving the Company from more defensive to offensive nature?

I think it actually is spread throughout the Company. Addressing Alabama first, you're very much on target. They're in a position -- the company was in a position before acquiring them that they were needing capital. So loan growth expansion was not a focus; since we do have the capital, we certainly have -- in meeting with the new people in Alabama, there's an increased focus on going out and supporting existing customers and creating opportunities with new customers there.

As far as Texas -- and I think everyone on the call knows that the Texas markets did not suffer as difficult an environment as most other areas of the country. It has recovered, and for the last year we've seen significant growth there and we're working to take advantage of it. We're hiring people out in that market.

Looking at Tennessee, we have seen the primary increase there has been really in commercial real estate. And we have hired some people that have had long-term experience in that marketplace. We've also hired in Tennessee people that have C&I experience and long-standing relationships. So we would look to those three markets in a very balanced way.

Mississippi, of course, is our legacy market with the largest loan portfolio, and activity is not as robust here as we're seeing in some other markets, although it's very steady. And as a result, we're keeping that portfolio fairly flat. So the real growth is being driven in Alabama, Tennessee, and in Houston.

The other thing I'd say is we're seeing some renewed activity in Florida. We have stopped the decline in that market and are actually seeing some new growth opportunities in the panhandle market.

Great. Appreciate the color. And then one follow-up.

In terms of getting that core expense rate to that $95 million, and obviously other real estate loan expenses, bumping up $3 million, $4 million, $5 million a quarter. Any time frame to get that to a de minimis amount? I know you noted that BancTrust -- you're working some of their criticized assets. Is that going to be 2014 event, 2015 event as you work through BancTrust?

This is Barry.

I think that's going to be the case. I think quarter over quarter, we're down a couple million dollars; and that's really the result of a bump-up last quarter of one credit that we had a challenge with the validity of an appraisal. We ended up needing to write it down. And, but that was kind of an isolated event last quarter. This quarter feels a little bit more like we traditionally do, and so more reasonable.

As it relates to acquired loans, last quarter we went out and updated our appraisals on all of the ORE that we inherited through the acquisition. And over time, as we work through the classified loans, we'll begin to migrate some loans into ORE. But those have been revalued recently. And we wouldn't anticipate a lot of additional writedown as they migrate from the loan category into the ORE status.

We're feeling reasonably comfortable that values have begun to firm up in most all our markets including the panhandle of Florida, where we suffered the greatest declines. So I think on the whole we have current values, we'll continue to update those values, and unless something changes significantly in the market place, I would see our overall expenses being relatively level on a go-forward basis. Great, thank you.

(Operator Instructions)

The next question will come from Peyton Green of Sterne Agee. Please go ahead.

I apologize if I missed this. Louis, I thought you mentioned maybe that the acquired loans would drop by about $50 million to $60 million going forward. Is that the average balance you're referring to? Or the end of period in terms of the BancTrust portfolio?

[There are] expected cash flows for the next quarter that we would expect, so on average it should be a little less than that. But again, that doesn't include anything that would be a huge payoff. Those are the expected cash flows based on the analysis that we've done prospectively. So that's $50 million to $60 million.

Maybe if I'm trying to reconcile the difference between the average balance decline of about $60 million in the quarter in the third quarter, but the end of period was down significantly more.

$87 million at period end, and on average it was down $63 million, if you look at the average balance sheet.

Yes. Should we expect a little bit more of a drawdown in the average versus the third quarter and the fourth just because of that? Or --

Peyton, I can't predict that. I just know what the expected cash flow is again. I can't predict what large payoffs could be. I can give just you the expected cash flow and that's about $60 million for the quarter in the fourth.

And maybe if you can talk a little bit about where you're getting new volume in terms of your markets. Where are you able to get more attractively priced credits versus maybe where it's more competitive? And what the blended [roll] on rate of new loans are today? Be great.

I'll let Barry talk pricing, but from a competitive standpoint, it's competitive everywhere. I think if you look at the country as a whole, the Southeast is probably a little more sluggish than other areas of the country that we have talked with. As far as our markets -- competitive in Alabama, Tennessee, Mississippi, Florida, and Texas. As far as type, we're seeing it very competitive in the C&I area; less competitive in the construction area simply because there may not be as many players in that market simply because they're still going through some cleanup and some runoff within their portfolios.

So, Barry, you want to add color on public finance? We've found that to be a bright spot, although it is competitive with certain banks; just depends on their tax status and appetite for public credits. Barry, do you have any color you want to add?

The only thing I'd add to that, Gerry, those are the areas where we have seen growth is on the construction side; and like we mentioned earlier, a large portion of that has been in the Texas market, but it's also been in our Mississippi and Tennessee markets as well. And to an extent, Alabama and beginning to build there.

On the construction aspect, it's mostly going to be multifamily, student housing, and then some office space development as well. And, as Gerry mentioned, those, from a fee standpoint, from an interest rate standpoint, those are just a little less competitive. By the sheer fact that there's banks that just have enough CRE and are still trying to work through some of their existing problems, so therefore it's a little less competitive in some instances.

On the public finance side of things, you run into a dual situation -- if it's a bid process, it is extreme competitive and extremely thin. Often times in our smaller markets, there's a relationship that's very tight between our lending associates as well as some of the political office officials. Therefore, we're able to negotiate a deal that has a very good yield based on the risk rate assigned to it. So it kind of varies, depending on whether it's negotiated or a bid process. But the public finance on the bid side is probably as competitive-priced as we run in to in terms of what we have to get down to, to get a deal.

In the quarter, payoffs benefited the after-tax income of the BancTrust acquisition, so to speak, by about $2.2 million after tax. Yet there was provision of about $3 million pre-tax. Maybe if you could just provide a little color on what drove one versus the other?

On the provision piece of it, I'll speak to that.

On the BancTrust piece, we're about $2.4 million of the $3.3 million in provision belonged to BancTrust. And of that, it was a combination of things. We had some situations with loans where we've gotten some updated values; the terminal value changed, therefore we had a change in the cash flow. We had other situations -- we had some risk rate changes that we went ahead and made that were downward in nature. That drove a little bit of provisioning as well there.

And then we've got a group of loans that belonged to pools. And in some cases, the pools themselves -- the accretable yield in the pool changed, some up, some down; and in the purchase accounting world, the way it works today is, if it's a negative impact it's felt immediately; if it's a positive impact it's spread out over the life of either the pool or the life of that individual loan if it's a specific review. So you get your benefit over time, but you go ahead and recognize your problems immediately.

So it was a combination of those three things that drove the $2.4 million provisioning that is associated with BancTrust of the overall $3.3 million provisioning for the acquired loans.

Barry, do you think it takes another 2 or 3 quarters before you get through everything? Or do you feel like it's just going to be lumpy?

It probably will be lumpy, but I do think we've gotten through a lot of the credit and we've analyzed them, we've got updated values. Based upon as the customer sits today, I think we've got a lot of that in the rear-view mirror. As we progress with the customer and as their circumstances change, that's probably going to lead to the lumpiness that will occur. We do expect, as I mentioned earlier, that as we get into 2014 we're going to begin to come to some resolutions on some of these larger credits, and we hope of a positive nature; but we'll come to some resolution on those as we move to 2014.

And on the noncovered portfolio, the [helpford] investment portfolio, the loan loss reserve is down about 120 from 150 or so a year ago, and the coverage is still pretty comparable -- around 90% of nonperforming loans and 90-day past dues. How should we think about that overall level of the reserve? And I know you don't reserve that way, but what's maybe a way for us to think about it? Continuing to slide further down? Or do you think it gets to the point where it starts to bottom?

I guess a couple points. What's driving our reserving today and the negative provisioning is really a function of, as Gerry mentioned earlier, the quantitative aspect of our 12-quarter rolling average of historical losses. We're rolling off some quarters where we had, back in 2010, where we had some pretty large losses, mostly attributable to Florida; and rolling on some quarters that are very attractive from the standpoint of where net recovery. So, with that in mind, I think the largest portion of that is behind us.

If you look at the fourth quarter, we'll have another quarter that will roll off that will meaningfully impact the need to provision. As you roll into 2014 it becomes less so. And especially when you move into the second half of 2014, it really becomes a non-event. I think we may have a quarter, maybe even a couple quarters, where we've got some continuation of historical loss rolloff. Otherwise, I think we would be fairly flat to maybe needing to provision a small amount, if it was not for the rolloff that's been occurring. And that will wind down as we get into the middle of the next year.

So for modeling, maybe some negative provision expense for the next two or three quarters, that's fine; and then it swings to where you actually have an expense going forward would seem pretty reasonable.

It would, and I would anticipate that negative provisioning being of a lower nature than what you saw this past quarter.

Okay, great. Thank you very much for taking my questions.

Thanks, Peyton.

Our next question from Blair Brantley of BB&T Capital Markets. Please go ahead.

Good morning, guys. Sorry if I missed this.

Did you say what the mortgage pipeline looks like this quarter, going into Q4, versus last quarter?

Breck, do you want to take that?

The fourth quarter is typically a slower quarter; just the time of the year. We still have a fair amount of heart population out there that we're taking advantage of. It depends on the movement of rates. It was a little slower the last few weeks with a lot of uncertainty just from a national perspective. We're beginning to have some traction in our Alabama, the BancTrust footprint.

But probably anticipate volumes being lower. We had a very strong third quarter and volume being only down 15%. We're catching up there, but we're very encouraged in terms of market share gain looking further out, going out 6 to 12 months, Four or five things are working to our advantage to really grow market share that we're excited about.

Oh, okay. Of that production in Q3, how much was from new customers? And taking or gaining market share, versus --

61% was purchase business. But we also -- we did about $25 million of HARP refi. So I guess if you were to normalize that, it would be higher purchases. We took advantage of the HARP program, which was very good, too.

So you're saying that 61% those were not customers that had done business with you in the past?

I misunderstood. I don't have the exact numbers there on new customers. But we buy -- about 45% of our business is third party. We service all of that. And you could call them our customers since we've serviced for them, but we've had a lot of positive results from refinancing customers that we purchased loans from. But also as they move up or down we're doing a fair amount of purchase business from them. I don't have the exact percentage of the purchase business, but I can get back with you.

That's fine. And just a quick housekeeping item. What is the BancTrust ORE balance at the end of this quarter?

We're looking it up. Just one second, please.

Sure.

The ORE is going to be about $44 million.

Okay. Thank you very much. Appreciate it.

Thank you.

That will conclude our question-and-answer session. I would like to turn the call back over to Mr. Host for his closing remarks.

I'd like to thank all of you for joining us today and for your interest in Trustmark. This group is headed back to work to try to grow the bank and make it more efficient and more profitable. And we look forward to seeing you again in January for our fourth-quarter call. Thank you again.

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.