Trustmark Corporation
Q3 2013 Earnings Call Transcript
Published:
- Operator:
- Good morning, ladies and gentlemen, and welcome to Trustmark Corporation’s Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation this morning, there will be a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. 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 third quarter earnings release and 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 as well as our other filings with the Securities and Exchange Commission. At this time, I would like to introduce Gerry Host, President and CEO of Trustmark.
- Gerry Host:
- Thank you, Joey, and good morning everyone, 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 have another quarter of solid financial results revenue growth expanded to total of 146 million due in part to our successful merger with BancTrust. We continue 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 am 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. Although our Board declared a quarterly cash dividend of $0.23 per share payable at December 15th to shareholders of record on December the 1st. Let’s look at our third quarter accomplishments in greater detail, first is balance sheet. During the third quarter average earning assets remain consistent at $10.3 billion and average deposits totaled $9.7 billion. Loans held for investments, our legacy loan portfolio, totaled 5.7 billion at September 30th, an increase of $119 million or 2.1% from the prior quarter. Growth was broad-based by type as well as geography. Our one-to-four family mortgage loan portfolio increased $68 million during the quarter with the uptake in interest rates and the tightening of secondary marketing spreads we resumed our practice of retaining select 15 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 to $1 million 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 line 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 in the books that are 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 the favorable change in deposit mix as interest bearing deposits declined $153 million, while non-interest 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 charge offs 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 in other real estate covered by FDIC loss share agreements. At September 30, non-performing assets totaled $190 million, a decrease of 1.2% from prior quarter. Non-performing 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 losses totaled 69 million and represented 162% of non-performing loans excluding impaired loans. Each quarter, we re-estimate cash flows on acquired loans. As a result, we recognized approximately 3.3 million in impairments in the third quarter, most of which were in 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 8 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, and it included recoveries of 4.7 million for loan payoffs approximately 75% of which were attributable to BancTrust. Proactively, 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 5 to 7 basis points. Clearly, the 3 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. Non-interest 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 therefore 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. Non-interest expense for the quarter totaled 101.5 million, a decline of 5.7 million from the previous quarter. Excluding non-routine litigation expense of $4 million in the second quarter, non-interest expense declined 1.7 million. Excluding ORE expense and CDI amortization, core non-interest 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 second (ph) quarter, we announced plans to consolidate six additional banking centers where 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:
- We will now begin the question-and-answer session. (Operator Instructions) The first question will come from Steven Alexopoulos of JPMorgan. Please go ahead.
- Steven Alexopoulos:
- I want to start on the core margin, when you say you expect a similar decline in 4Q, are you seeing similar to the 3 basis point decline this quarter or similar to the guidance you gave last quarter down 5 to 7?
- Gerry Host:
- Good question, Steve. We are projecting it’ll be similar to what we actually experienced, the 3 basis point decline.
- Steven Alexopoulos:
- Okay, got you there. And on the mortgage banking, you guys posted one of the smallest declines we have seen, gain on sales down only 15% quarter-over-quarter, and the gain 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 the fourth quarter?
- Gerry Host:
- Personally, I think we have one of the best mortgage people out there, and I think a lot of it was how we managed the pipeline, secondary marketing activity, but I will ask Breck if he will speak more specifically Steve to your question.
- Breck Tyler:
- Thank you, Gerry. Yes Steve, our pipeline hedging is performed internally This is what we do, this is what we focus on, and we have a very disciplined hedging strategy with very defined hedging parameters within our policy. Hedging is a science and this is an art too but just in short, on May 2, when the 10-year is 163, we were not significantly long, and on September 5, when the 10 year was right at 3%, we were not significantly short, so that really helped us maximize the primary spread there, and just to give you a little color, the first quarter again our sale margin was 259 bps, second quarter was 194 bps, third quarter was 186 bps. We are seeing that spread continue to narrow; a lot of it was just due to price competition, some higher mortgage rates, and the refi burnout.
- Steven Alexopoulos:
- So in the fourth quarter, you are expecting a more pronounced decline in mortgage or perhaps similar to what we saw in 3Q?
- Breck Tyler:
- It’s difficult to determine that with the 10-year of about 250, we are kind of in that -- if it continues to -- if it rallies further, we will see if maybe stabilized or not fall as much as if rates go – the 10-year moves high, and mortgage rates go high, we will see it narrow a good bit more. So it is difficult to project that at this time but it is narrowing.
- Operator:
- The next question will come from Kevin Fitzsimmons of Sandler O'Neill. Please go ahead.
- Kevin Fitzsimmons:
- Just a top level question on the margin, I heard the clarification on the guidance for the core margin, but just helping us to try to model this looking out of the next few years, we are out of reported margin of 394, the core margin is 352, I mean 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.
- Gerry Host:
- Good question and that also is one of those that is so much a function of how we manage these acquired loan portfolios, and so I guess maybe both Louis and Barry can comment on what they are seeing, since especially Barry, such a significant part of that acquired loan portfolio and the management of that projections forward fall under him. Let’s start first, again it is Louis with you.
- Louis Greer:
- As you can see, we break out the acquired loans income on the income segment, 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, 4 and 7 under coverage. 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 flow next quarter is somewhere between $50 million and $60 million. So, factored that in by the effective rate this quarter were about 620, just on accretable yield is 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 350ish level. So, down to 350, I don’t see that if it is going to be a slow march, but it all depends on recoveries for the quarter and Barry might add some comments there because recoveries are sort of hard to predict.
- Barry Harvey:
- They are and I guess Kevin just having walk through the loans to this point, I think we’ve gone through the portfolio pretty well and it have some pretty good action plans, I think we feel very encouraged about what we have seen thus far versus what we anticipated in terms of being and what do 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 began to work through the process, I do think ’14 is going to be, there’ll be a lot more activity from the standpoint of walking through the problem just because it takes a little while to kind of get through the files, get them queued up again the legal process and many cases that need to be and I think we’ll see the results through some of those efforts as we get into ’14.
- Kevin Fitzsimmons:
- And then just one quick follow-up I just want to clarify the comment on the expense run rate so I guess by line items you gave in the income statement it looks like income statement you got an expense run rate about 98.4 million and you’re saying that’s a pretty decent run rate going forward, I think you might have also axed out amortization but I don’t see that as the separate line item, so if you can let us know what that is. Thanks.
- Louis Greer:
- There is about $2.5 million of amortization intangibles and including other expenses. So if you back that out of your 98 million, we’re saying somewhere between 95 and 96 which is very similar for this quarter, I think core expenses as Gerry mentioned were around $95.9 million. So, we expect the similar run rate in the fourth quarter.
- Gerry Host:
- But 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 DFAS (Ph) being one of them, increased focused on model validation we would anticipate that there will be some additional expenses associated with regulatory compliance functions going forward.
- Kevin Fitzsimmons:
- Those are not baked into the run rate, that’s what I’m talking about.
- Gerry Host:
- Some of them are but at this point it’s not absolutely clear all the expenses that we will encourage 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. And now 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 it’s not a surprise forward.
- Kevin Fitzsimmons:
- And Gerry based on when you all crossed the $10 billion of threshold, you don’t enter the formal stress testing process in ’14 it’s more in 2015.
- Gerry Host:
- That is correct as far as publishing but as far as actually we’ve already begun the process of creating all of the necessary modeling for the stress test, 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 15 day, Kevin.
- Louis Greer:
- If you look on page 13 of our financials, you’ll see in the note that we’ve breakout amortization of tangibles and that other expense [indiscernible].
- Operator:
- (Operator Instructions). The next question will come from Michael Rose of Raymond James. Please go ahead.
- Michael Rose:
- Just a question on the loan balance, this quarter it 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 kind of where is it level off do you think, we’ve seen about a little over 80 million decline in past few quarters. Thanks.
- Gerry Host:
- Michael, answer to the first question is because of the fact that over the last four years we have decreased by over one half the size of our construction and development portfolio. And where we are with our loan deposit ratio, we have capacity to go out and fill that portfolio back. There is an effort on construction and development. However, there is 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 are 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 four or five years. So we are cautiously optimistic about what we see going forward. But as Greg mentioned it depends a lot on which way rates go and the impact of the economy overall. As far as BancTrust portfolio, we’re actually seeing growth in Alabama outside, the run-off adjusting in the acquired loan portfolio. And I think Barry had mentioned that, 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 are experiencing more run-off than we are. New loan growth, but we are seeing is significant growth in Alabama and at some point here in the near future, we believe that that will turn around.
- Michael Rose:
- Okay thanks for the color, it’s really helpful. And as a follow-up on the construction question, you know as showed us about 10% of non-covered legacy loans this quarter, where would you feel comfortable bringing that to? And then just on a separate topic, the tax rate was a little bit lower this quarter. What should we expect over the next couple of quarters?
- Gerry Host:
- Barry, you want to talk to the first question and Louis the second on tax credit?
- Barry Harvey:
- And the way we kind of view the construction and development portfolio and just to make sure we are clear, our focus has always been, our interest has always been on the construction aspect, that 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, lot of multi-families; you would imagine some student housing as well as office space. And we’re about, we kind of judge ourselves based upon the regulatory guidance that was issued at the later of ‘06 which talks about hundred percent of construction land development being a point at which you need to, if you can do on some additional monitoring. Just to put it in the context, we are about half of that today. And we will be very comfortable growing back up more toward that hundred percent if it’s focused on construction and of course not looking at the real aspect of the land holds, not looking too much in development. We are very comfortable moving back up that direction as demand presents us with the opportunities.
- Louis Greer:
- And with the tax credits, Michael, I would tell you that our tax rates for the quarter was at 25.6; year-to-date is 26.1. Of course we continue to utilize tax credits and as we invest in new, certainly that’s going to keep our rate somewhere around that 25.5 rate [indiscernible], I would expect from the next two quarters. Probably it bring our overall rate for the year somewhere closer to 26 or a little bit low for the full year.
- Operator:
- The next question will come from Dave Bishop of MLV & Co; please go ahead.
- Dave Bishop:
- Following up on Mike’s question that where are the point in terms of the loan pipeline you deeply eluded to that it’s looking as good as it has over the past four to five 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 market there. Is that a function of you guys; you’re coming in there and moving the company from more defensive to offensive nature?
- Barry Harvey:
- 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 long growth expansion was not a focus. Since we do have the capital, we’re certainly in meeting with the new people in Alabama. There is an increased focus on going out and supporting the 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 are hiring people out in that market. Looking at Tennessee, we have seen 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 have also hired in Tennessee people that have C and I experience, and longstanding relationships. So we would look to those three markets at 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 have said, we’re seeing some renewed activity in Florida. We have stopped the decline in that market and are actually seeing some new growth opportunity in the Panhandle market.
- Dave Bishop:
- Great, appreciate the color. And then one follow-up on in terms of getting that core expense rate to that $95 million, obviously the real estate on expenses pumping up 3 million to 4 million finally in the quarter. Any sort of timeframe to get that the minimal amount, I mean I know you’ve noted that BancTrust you’re working some of their criticized assets. Is that going to be 2014 event, 2015 event as you worked through BancTrust?
- Barry Harvey:
- This is Barry. I think that’s going to be the case. I think quarter-over-quarter we’re down couple of million dollars and that’s really the result of a bump up last quarter of 1 credit that we had a challenge with the validity of an appraisal. And we ended up needing to write it down, but that was kind of an isolated event last quarter. This quarter, there was a little more like we traditionally do and more reasonable. I think as it relates to acquired loans, last quarter we went out and updated our appraisals on all of the ORE that we had (adhered) through the acquisition. And overtime as we worked through the classified loans, we’ll begin to migrate some loans in ORE. But those have been revalued recently, so we wouldn’t anticipate a lot of additional (write down) as they migrate from the loan category into the ORE status. So we’re fairly reasonably comfortable, that values have begun to firm up in most all the markets including the Panhandle Florida where we suffered the greater declines. So I think on the whole, we have current values. We will continue to update those values and unless something changes significantly in the marketplace, I would say our overall expansion [audio gap] has been relatively leveled on the go forward basis.
- Dave Bishop:
- Great, thank you.
- Operator:
- (Operator instructions). The next question will come from Peyton Green of Sterne Agee. Please go ahead.
- Peyton Green:
- Yes, good morning. I apologize if I missed this, but Louis I thought you’ve mentioned maybe that the acquired loans would drop by about 50 million to 60 million going forward. Is that average balance you’re referring you to or the end of period in terms of the BancTrust portfolio?
- Louis Greer:
- Peyton that’s the expected cash flow in for the quarter that we would expect, so on average it’ll be little less than that. But again that doesn’t include anything that would be a huge payoff. Those are expected cash flows based on the analysis that we have done prospectively. So that’s $50 million to $60 million.
- Peyton Green:
- Okay and I guess maybe if I’m trying to reconcile the difference between the average balance declined of about I guess it was 60 million in the quarter, in the third quarter, but the end of period was down significantly more.
- Louis Greer:
- Maybe 87 million as period end and I think on average it was down $63 million, if you look at the average balance sheet.
- Peyton Green:
- I mean, I guess, there should we expect a little bit more of drawdown in the average versus the third quarter on the fourth just because of that?
- Louis Greer:
- Payton, I can’t predict that, I actually don’t know what to expect, the cash flow, again I can’t predict what large payoffs could be, so I can just give you the expected cash flow and that’s about $60 million for the quarter, in the fourth quarter.
- Peyton Green:
- Okay, all right and then I guess maybe if you can talk a little bit about where you’re getting new volume in terms of your markets. Where you’re able to get more attractively priced credits versus maybe where it’s more competitive and kind of what the blended role on rate of new loans are today? It’ll be great.
- Louis Greer:
- Okay, 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, it’s probably a little more sluggish than other areas of the country that we have talked with. As far as our markets, it’s competitive in Alabama, Tennessee, Mississippi, Florida, and Texas. As far as tight, we’re seeing a very competitive in the C and I area, less competitive in the construction area simply because there may not be as many players in that market, simply because they are still going through some cleanup and some run off in their portfolios. So, Barry you want to add color, I will take probably finance we 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. But Barry you have any color you want to add?
- Barry Harvey:
- The only thing I’d add to that Gerry and those are the areas where we have seen growth and is on the construction side and it is like we mentioned earlier it has been, a large portion of that has been in the Texas market but it has also been in our Mississippi and Tennessee markets as well and to an extent in Alabama and beginning to build there. On the construction aspect it’s mostly going to be multifamily sort of 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 just by the shear fact that they are buying to 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 emphasis. On the public finance side of things you run into kind of a dual situation it’s a bid process it is extremely competitive and extremely thin. Often times in our smaller markets there is a relationship that is very, very tight between our lending associates as well as the some of the political office officials. Therefore we are 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 into in terms of what we have to get down to get a deal.
- Peyton Green:
- And then in the quarter payoffs benefited the after tax income and the BancTrust acquisition so to speak by about 2.2 million after tax if there was provision of about 3 million pre-tax. And may be if you could just provide a little color on what drove one versus the other?
- Barry Harvey:
- And on the provision piece of it I will speak to that on the BancTrust piece we are about 2.4 million of the 3.3 million in provision belonging to BancTrust and of that it was a combination of things we had some situations with loans where we have gotten some updated values the terminal value changed. Therefore we had a change in the cash flow. We had other situation 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 have got a couple of loans that belong to pools and in some cases the pools themselves the (accordable) yields in the pool changed some up, some down and in the process accounting world the way it works today is if it’s a negative impact its sold immediately if it’s a positive impact it is spread out over the life of even the pool or the life of that individual loan if it’s a specific review. So you kind of get your benefit overtime 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 provisioning for the acquired loans.
- Peyton Green:
- I mean Barry do you think it takes another two or three quarters before you kind of get through everything or do you feel like where it’s just going to be lumpy?
- Barry Harvey:
- It probably would be lumpy but I do think we have gotten through a lot of the credits and we have analyzed them we have got embedded values. So based upon as the customer sits today I think we have got a lot of that in the rearview mirror as we progress with the customer and as their circumstances change that’s probably going to lead the lumpiness that will occur. But we do expect as I mentioned earlier that as we get into 2014 we are going to begin to come to some resolutions on some of these larger credits and we hope of a positive nature but we will come to some resolution on those as we move into ’14.
- Peyton Green:
- And then kind of on the non-covered portfolio the help for investment portfolio the loan loss reserve is down about 120 from 150 or so a year ago. And the coverage is still comparable around 90% of non-performing loans and 90 day past dues and how should we think about that overall level of the reserve and I know you don’t reserve that way but what’s may be a way for us to think about it, continuing to slide further down or do you think it could get to the point where it starts to bottom?
- Barry Harvey:
- And I guess couple of points; what’s driving our reserving today in 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 are rolling all some quarters where we had back in ’10 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 recovered. So with that in mind I think the largest portion of that is behind us. If you look at the fourth quarter will have another core that will roll out that will meaningfully impact the need to provision, as you roll into '14 it becomes less and especially when you move into the second half of '14 it really becomes a non-event. So I think we may have a quarter, maybe even couple of quarters where we have got some continuation of historical loss roll offs, otherwise I think we would be fairly flat to maybe needing to provision a small amount if it was not for the roll off that's been occurring and that will wind down as we get into the middle of the next year.
- Peyton Green:
- So for modeling maybe some negative provision expense for the next two or three quarters, that's fine and it swings to where you actually have an expense going forward would seem pretty reasonable.
- Gerry Host:
- It would and I would anticipate that negative provisioning being of a lower, than what you saw this past quarter.
- Operator:
- Our next question will come from Blair Brantley of BB&T Capital Markets. Please go ahead.
- Blair Brantley:
- Sorry if I missed this, but did you say what the mortgage pipeline looks like this quarter, going to Q4 versus last quarter?
- Gerry Host:
- Breck you want to take that?
- Breck Tyler:
- The fourth quarter is typically a slower quarter this time of the year. We still have a fair amount of population out there that we’re taking advantage of. A lot depends on the movement of rates, was a little bit slower than last few weeks, a lot of uncertainty just from an national perspective. We're beginning to have some traction in our Alabama the BancTrust footprint. But probably we anticipate volumes being lower; we had a very strong third quarter and volume being only down 15%. So we're kind of catching up there, but we're very encouraged in terms of market share gain looking further out, going out six to 12 months four, five things are working trying to advantage to really grow market share that we’re excited about.
- Blair Brantley:
- Other the production in Q3 how much were from new customers taking the gaining market share versus current customers?
- Breck Tyler:
- 61% was purchase business, but we did about 25 million of HARP refine, so if you would have normalized that it would be HARP purchases but we were, we took advantage of the HARP program which was very good too.
- Blair Brantley:
- So you are saying that 61%, those were not customers that have done business with the guys in the past, those are?
- Breck Tyler:
- I misunderstood, I don't have the exact numbers there are all new customers, but we bought about 45% of our business is third party. We service all of that, and you could call on my customers since we service them, but we have had a lot of positive results from refinancing customers that we purchased loans from but also as they move up or down we are doing a fair amount of purchase business from that. I don't have the exact percentage of the purchase business but I can get back with you.
- Blair Brantley:
- That's fine. And then just a quick housekeeping item, what is the BancTrust OREO balance at the end of this quarter?
- Gerry Host:
- We're looking at it, just one second please. It's about $44 million.
- Operator:
- And ladies and gentleman that will conclude our question-and-answer session, I would like to turn the call back over to Mr. Host for his closing remarks.
- Gerry Host:
- Thank you operator and I would like to thank all of you for joining us today and for your interest in Trustmark, this group is headed back to work 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.
- Operator:
- Ladies and gentleman the conference has now concluded, we thank you for attending today's presentation. You may now disconnect your lines.
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