Q3 2020 Horizon Bancorp Inc Earnings Call
Good morning, everyone and welcome to the Horizon Bancorps conference call to discuss financial results for the three months ended September 30 20 trend.
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Such forward looking statements are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated.
And it is available on the company's website with information that will be addressed this morning.
Presenting today.
Per cent growth in deposits for the quarter at 2.5% and continued strong credit metrics.
On the next slide exhibit horizons season bleeding leadership team that has managed through multiple recessions.
And overseen a history of strong financial performance and growth over the past 17 years.
As you see on slide six we've account Ah completed 11, new or organic market expansion and 14 mergers and acquisitions during the 17 time your period.
The right to make or is a company in the move and we continue to look for new opportunities.
[noise] slight seven clearly demonstrates horizons ability to achieve meaningful growth.
Lightens objective is to obtain a balanced growth strategy with 50% organic and 50 per cent through mergers and acquisitions from 2009 to 2019 horizon achieve 14% annual growth on assets, which was 4.7 times the change in gross domestic product during the same time period and three three.
Three times, the average great growth rate for the banking industry.
Well the last five years from 2014, two 2019 horizons results are even more impressive exhibited by 20% annual growth rate over a growth rate on average assets, which was 5.2 times changing gross domestic product.
And 5.2 times, the average growth rate for the banking industry.
On slide eight we highlight our primary market area and dark Brown dark green.
Raisins markets represent diversified economies and excellent growth opportunities horizons expansion and growth has occurred primarily in college and University towns and the state or county governmental seats.
Therefore, a majority of our footprint has an economic base. It is traditionally more stable than other areas of Indiana and Michigan.
As most of you know, we bank customers and the number of college towns all major universities in both Indiana and Michigan have open in the fall under certain safety protocols. Some universities have moved to all virtual class room instruction as a number of Covid cases increases how are these moves have been temporary.
[noise] Horizons footprint is also visit physician well to take advantage of the outbound migration from Illinois.
Which continues to increase as consumers and businesses C to exit the dense living spaces high taxes, and the high cost of living.
It will be interesting to see if I November 3rd, Illinois passed the state referendum to add yet another tax increase tied to a progressive income tax model.
At this tax increases passed we fully expect the Illinois outbound migration.
Well a salary.
Both Indiana, and Michigan continue to show improvement economies as evidenced by a reduction in unemployment rates as of September 30th Indiana's unemployment rate with 6.2 per cent, which is well below the U S national unemployment rate of 7.9.
Michigan's overall unemployment rate was 8.5 per cent the regions, we serve in the western and central part of the state are reporting levels much closer to 6%.
Horizons footprint helps a geographically dispersed credit risk was 61% of our loans in Indiana and 39% in Michigan.
In addition, horizon has been consistent.
For a long period of time focused our growth and for revenue streams retail banking mortgage banking business banking and wealth in investment management.
This strategy Diversifies risk and stabilize earnings and bearing economic cycles bye.
By example, today, our mortgage teams are doing very well, which offset store growth and other business lines and helps upon an increase in credit loss reserves during slow economic periods.
Skipping over to slide 10, we continue to closely monitor the impacts of COVID-19 pandemic on the communities we serve.
Well Indiana's number of daily reported positive COVID-19 cases appears to be moving towards a potential new record.
The actual fatality rate for the state remains low at 2.6%.
With our hospital intensive care units running at 62% of occupancy.
92% of Indiana's Covid fatality rates are occurring in the in the over 60 age group with two thirds of the fatalities occurring in senior housing centers.
There continues to be a strong effort to file a covid safety protocols to protect our seniors.
Michigan is also training upward and the number of COVID-19 cases that October 24th at a new single day record for the number of cases reported the.
The trend statewide are increasing however, primarily in metropolitan areas, such as the greater Detroit and Grand Rapids regions.
The safety and well being of our employees his horizons first priority.
And we continue to hear the strict safety protocols as you navigate reopening stages in our markets.
Indiana has advanced to its fifth and final stage of opening before returned to full business as usual.
Restaurants, and bars, it open to 100% of capacity major events lesson 500 attendees are permitted and all gyms and fitness centers are now able to open.
All businesses must continue to comply with social distancing facemask and personal hygiene requirements. Some minutes pelts, he's like Indianapolis still have more stringent requirements and the state as a whole and as a result nonessential businesses continue to struggle in those markets.
And September 8th, Michigan allowed indoor gyms, and fitness centers to open subject to social distancing and limitations of the number of people to 25 per cent of building capacity, Although Michigan Supreme Court rescinded Governor Whitman emergency powers to restrict operations, Michigan continues to operate under more restricted COVID-19 guidelines then Indiana.
Or all we're very proud of a resilient employees and how they're responding to serve our customer needs. During these unprecedented times.
Part of the COVID-19 horizon was well on its way to transform this customer base to a digital platform as evidenced by the chart on page 11, and located on the left titled active online banking users at more than 102000.
Or 73, Mister mall checking accounts.
As expected during this pandemic and presented on discharge the right Horizons digital transactions rapidly increased and brand chat branch transactions decline due to limiting office traffic to appointment only until June 15th.
Even after you opening our offices the branch transaction volumes continue to be suppressed Fortunately horizon was well prepared where this increase in digital transactions.
Other technology investments to enhance our customer experienced this year include adding a fourth call center location to increase capacity expanding our interactive telling machines to allow for virtual teller interactions at our twenty-seven locations in with expanded virtual tell her hours from six a M to eight P. M six days a week.
The addition of chatting online account opening to improve the customer experience and to provide another channel service approximately 90 per cent of horizons online chats are answered by box.
Now for the financial date, it's my privilege to turn it over to our CFO Mark sequel, Mark.
Thank you Craig I will briefly.
Briefly summarize our third quarter results, which are demonstrated the ability to realize are strong operating results dropped to the bottom line as we navigate this current environment.
Starting with slide 13, the third quarter's results were just shy of matching the companies record high earning with pretax pre revision income being the highest in the company's history. We.
We continued to build allowance, but with the lower credit expenses than the previous two quarters as we believe we're properly.
We believe we are appropriately reserved given the current state of our portfolio and our seasonal modeling.
Our profitability metrics, including pretax pre provision earnings benefited from growth in net interest income supported by higher average it balances an interest earning asset.
Linked quarter net interest income growth allowed us to outpace net interest margin compression of eight basis points during the quarter.
On slide 14, the eight basis point decline in margin during the quarter with expected with 10 basis points coming from the full three months of interest expense following our June subordinated debt issuance.
In addition, compared to the second quarter impact the lower yielding P. P. P loans the margin was impacted an additional one basis point.
Based on these impacts the margin performed well as a reduction to deposit costs continue to outpace alright.
Alright, I continued to keep pace with the reduction and asset yields.
On slide 15 loan yields were reduced during the quarter as a new production and adjustable rate loans reprice lower PPP loans contributor to approximately three more basis points to the reduction than they did in the last quarter.
His lungs continue to reprice and new product is originated at lower rates additional down pressure on ask that yields is expected, resulting in additional margin pressures, we enter into 2021 and the opportunities to lower funding costs are realized.
On slide 16.
Strong core deposits continue to help reduce our funding costs.
The C. D portfolio is 31 basis point decrease in cost.
Led the reduction in funding cost is the high cost C DS mature during this quarter.
Another hundred and $76 million a C DS with an average cost of 1.44% will mature in the fourth quarter to continue to reduce our cost of funds.
The 8% growth and non interest bearing deposits and interest bearing deposit cause it down to 13 basis points also contributed to stabilizing the margin in the third quarter.
Moving to slide 17.
Since the first quarter of the year, we maintain a conservative and strong liquidity position, which we've maintained through through the end of September.
We also expect additional liquidity from P. P P loan forgiveness and in the longer term warehouse alone balance is returning to normal levels.
Late in the third quarter and in in the early weeks in the fourth quarter, we took steps to utilize this liquidity deleverage and the optimized optimize returns of earning assets.
During the third quarter, we allocated 100 million of this liquidity and begin purchasing investment securities.
Also in October October we prepaid 83 million is a S. H L. B advances with a weighted average cost of 2.61% utilizing $62 million of cash and selling $21 million of investments.
While our fourth quarter results will reflect in that one time loss of 1.2 million on the prepayment there will be less than one year payback from the interest earnings are interest expense savings.
Looking ahead, we we will continue to look for additional opportunities as we see the need to utilize excess liquidity.
Slide 18 record mortgage gain on sale drove the increase in noninterest income offset with a non-cash impairment charge to the mortgage servicing right in the quarter.
The continued record levels of refunding refinancing activity and strong percentage gains were receiving on the sale of mortgage loans is providing revenue to help offset lower non sufficient funds he's.
Based on local and national refinancing activity. We expect we expect strong topline contributions to continue from this business through the end of the year.
Played 19.
During the third quarter, we continued to manage operating expenses and improve the fish the ratio to 55.6%.
Last quarter, 1.1 point $1 million, a deferred PPP loan origination costs help salaries and caught and benefit costs.
Without that benefit the salaries and benefit costs, the the accrual to bonuses due to achieving target for incentive plans together drove the increase in noninterest expense during the third quarter.
Horizon has long sustained in the finished.
Efficiency ratio and other operating expenses metrics that are favorable to pier medians.
We believe that continues to be the case in the third quarter.
As many of you know part of Horizons normal operating process includes a rigorous annual branch evaluation, which led the consolidation of twenty-five retail locations over the last five years looking.
Looking ahead, we intend to continue our efforts of maximizing the efficiency and scalability of our retail franchise. While further leveraging investments we have already made in digital mobile and remote banking as well as our call centers.
Slide 20 now.
Now as we have discussed we adopt we adopted Cecil on January 1st and the 1.2 million reserve build in the third quarter was primarily driven by allocation made from continuing to analyze sectors of alone alone to potentially have the highest risk of loss.
Percentage of allowance loans was 139 as September 30, or 1.51% when excluding PPP alone.
A balance of $12 9 million remains for discounts on acquired loans.
Slide 21.
Horizon continues to name's James maintain a strong capital position in these uncertain times supplemented by our $60 million and subordinated debt raised in June Accordingly September 30, the holding company had just over $126 million in cash representing nearly 18 quarters that fixed costs, which include interest on all that operated.
Expenses at the holding company and the current shareholder dividend level, which we are committed to maintaining.
Slide 22.
We remain diligent and performing internal capital stress testing to ensure horizon maintains adequate capital and a range of scenarios from mild to extreme. We also are engaged third parties to review our capital out of adequacy based on their last scenarios.
For example, a recent third party reviewed demonstrated horizons ability to sustain capital and a three standard deviation credit an interest rate risky then.
This review does show that as an industry. There is sustainable capital in this scenario what differentiates us from the industry is it horizons expected earnings during the rescue that were more than adequate to cover the credit and interest rate impact without the use of the excess capital.
Overall, we are very pleased with our financial permanent performance through the first nine months of this challenging year. We believe we are well positioned run a credit liquidity and capital perspective, and look forward to refining our operating model to further improve our resolved in the quarters ahead.
Some additional comments on our loan portfolio I will turn it back over to Craig.
Thank you Mark looking at Horizons 4 billion in total loans on slide 24, you'll see a diversified portfolio with 58% and commercial loans and 42% in residential mortgage and consumer loans at.
At Horizon, we like this loan mix the Diversifies, our credit risk and provide the advantages to managing our net interest margin.
This slide also details granularity in our commercial portfolio, which itself as well diversified our single largest sector as in residential multifamily housing loans at less than 6% of total loans, which continues to perform well.
Ah, they're going to make horizon managers capital at risk by maintaining an in house learning limit at 30 million, which is well below our legal linney limit of approximately 76 million or granularity is further enhanced by the fact that horizons average commercial loan is only 366000.
I'm moving to slide twenty-five.
Lone deferrals peeked in May and continued to rapidly declined through September 30th.
Third loans as of September 30th declined by 70 per cent over the prior quarter to 4.1% of total loans. The majority of our dollars under a loan deferment are still in the commercial loan portfolio with consumer and mortgage loan to for remaining low.
At less than 1% overall horizons referral rates are in line with pure banks.
The number of commercial loans on payment deferral totaled 61 down from the choir prior quarters total of 670 loans Horizons commercial lending team has been diligent in meeting with our business customers to update their financial plans into place their loans back on a regularly scheduled payment routine.
Approximately half the commercial owned and deferral.
Continue to make interest payments and the other half are still in full payment deferrals.
Those loans on.
Full payment deferral are primarily hotels and are expected to come off full deferral in the fourth quarter with some continuing to make interest only.
Zero 220 21.
Moving to slide twenty-six horizon has a season team of consumer underwriters and a long history of uprooted consumer loan underwriting our consumer loan portfolios predominantly secured with 99% of our loans back by collateral of some type and the vast majority of our consumer loans are made in market.
Consumer loan portfolio has excellent credit royalty as evidenced by a high high FICO scores low delinquency and low nonperforming loans.
And the next slide horizon of the season team of mortgage underwriters processors and mortgage loan originators. We have been in this business for a long time the majority of our mortgage productions sold on the secondary market with year to date loans sold running at 75% of total production.
Right in the mortgage loan quality remains strong at quarter end is exhibited by lone delinquent slow loan delinquency in non-performing mortgage loans.
Moving to slide 28 horizon have a history and culture of prudent commercial loan underwriting, we are primarily and and market lender. We require recourse on most for a loan from the principal owners are loans are geographically dispersed throughout Indiana and Michigan.
Commercial an asset quality metrics continue to be fair what quarter in non-performing commercial loans were 69 basis points. A total commercial loans. This does represent a slight increase over the 61 basis points at June 30th This increase in nonaccrual loans was primarily driven by one recreational sports enterprise located in Indianapolis.
And this enterprise still isn't that reopened due to COVID-19 restrictions commercial.
Commercial loans, they would see at the end of the third quarter continue to be low at.
Five basis points.
On Slide 29 report on our elevated monitoring and those loans segments that exhibit the most duress as evidenced by high payment deferral.
The majority of horizons payment deferrals, where major nonessential businesses or real estate loans that have tenants were primarily non essential businesses that portfolio segments with elevated monitoring include hotels restaurants, non owner occupied retail leisure and hospitality.
[noise] hotel payment modifications continue to be the highest percentage of any sector and as of September 30th two approximately 82 million or 58% of our total horchow loans. This is down from her high on June 30th of 105 million and modified loans or 75% of this sector.
The comfort we have with this portfolio portfolios that are borrowers are longtime operators have managed through multiple economic cycles. Most of of liquid sources to fall back upon in the portfolio hasn't low average loan to value ratio at 57%.
I will touch more in hotels in just a moment and X restaurants, we have 22 million in full service restaurant loans, one relationship has more than $10 million alone Outstandings and is with a very strong operator with considerable liquid assets in very short amortization schedule and the real estate portion of their desk.
Our limited service restaurant loans totaled $29 million.
Most consists of good franchises, such as Mcdonalds, Culver's, and Burger King and I with longtime owner operators Horizons borrowers are reporting that their fast food total revenues are down your to date between 25, and 30%, which places them close to or at the break even point to service that.
However, some entities are actually reporting an increase in net profits over the prior year due to low overhead and good drive through revenue.
Total restaurant loans still under determined is only at three per cent or 2.1 million most of the restaurant loans under permit are located in Indianapolis or greater Detroit market areas, where they have more stringent COVID-19 operating restrictions.
Our comfort in this portfolio due to the fact that the average loan is low at 365000, good you're today performance longtime operators and good franchises.
The non owner occupied retail portfolio. This portfolio was holding up will do to stable markets and strong sponsors. In addition is portfolios low average loan to value ratios of 53%, which does provide horizon cushion and any potential loan exposure.
Total loans still underpayment deferrals.
Is that $15 $3 million 11 per cent of the portfolio. All of these loans are making at least interest payments are covered in this loan portfolios due to the fact, we have good sponsors low average loan amount low loan to value ratios in a diverse stable markets.
The leisure and hospitality segment consists of a diverse group of borrowers, including golf courses bowling centers movie theaters fitness establishments in a zoo.
All entities are open with the exception of the one in Annapolis business that we mentioned earlier.
And generally have a strong cooperative sponsors. However, we may need to increase the allocation of this portfolio at the COVID-19 challenges continue and a stage where municipalities add additional COVID-19 restrictions.
Our next slide.
There is a map it exhibits locations of horizons loan secured by hotels and as you can see the vast majority of our hotels that we financed are located along interstate highways or resort communities hotels hotels, located along Interstate highways of rebuilding faster than those hotels located metropolitan metropolitan areas, where they are dependent upon spot.
Getting or convention venues all hotels in our portfolio are open for business with occupancy rates rates are still arranging the 20th to 70 per cent range. We can continue to see improvement occupancy each month.
Moving to slide 31 ego distress of COVID-19 Horizon continues report strong ethic quality metrics in the second quarter, which you can see on this slide the chart in the upper left exhibit slow total net charge offs over the last five quarters of less than two basis points.
The shirt in the upper right corner credit Los revision expense was low throughout 2019, and four 2020 horizons Pervenche provision expenses higher to build reserves due to the early adoption of Cecil and primarily related to econometrics in the general allocation of the nature and characteristics of our loan portfolios. During this pandemic.
The chart in the lower left exhibits horizons total nonperforming loans, a total loans, which is still lower and manageable at 72 basis points. The slight increase we discussed earlier.
The shirt on the lower right alone for credit loss reserve exhibits horizon at 1.39% of total loans, which is in line with our community other community banks that have adopted Cecil and if you exclude PPP loans, where they lost your credit losses at 151 of total loans.
In conclusion, our investment thesis is we have a season management team was managed to multiple economic cycles and has a history of delivering grow with far exceeding the banking industry's average growth rates excellent geographic diversification was stable and less volatile markets strong credit culture high quality well diversified balance.
Street robust capital levels Horizons favorable historical earnings run right, even during the great recession and now during the early stages of this pandemic.
And finally, the fact maintain a conservative guideline to retain cash at the holding company to protect dividends to a common shoulders and your provider future optionality.
Thank you that concludes my comments for the third quarter's earnings presentation will not turn it back the operator to open the lines up for questions. Thank you.
Thank you very much sir.
The question and answer session.
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Momentarily to assemble rostow.
The first question is from the line of Terry Mcevoy from Stevens. Please go ahead.
Hi, good morning, guys.
Good morning, Good morning, maybe let's start with a question on expenses Uhm I I understand the step up in the third quarter due to the just the strong performance of the company and the second half of the year, but was wondering what your thoughts were on the third quarter, whether it will move down to a more normal level and then looking out and.
2021, I I know you talked about evaluating branches, which in theory should generate some cost savings, but what are your thoughts on expense growth in 2021, and just you know in incorporating inflation and and other investments that you foresee across the company.
Yeah, what you saw and this is mark what you saw in the third quarter was what you explain it with some catch up from the first half of the year just based on the performance through that point and needed to start to build these accruals and with.
Obviously way.
You can't predict what we're gonna exactly see in the fourth quarter, we will need to continue to maintain bonus accruals, we expect through the fourth quarter I'm going to the 21, we're committed to continue to look for these costs saves through the branch rationalization is gonna be.
He to to that is we want to continue to leverage the the network that we have in the technology that we have and we we know that we need to do to maintain the level of expenses to be able to to to help drive the bottom line just based on what.
We see coming on the interest rates side on the into 21, and then and then that interest Martin.
Yeah, if I could add to that.
What's driving our strategy for 21 22 and beyond is the fact that striking that interest Morgan. So there's not a single line item on our expenses side, that's not being considered for reduction. In addition to that we engaged a third party consulting firm to review all 73 of our locations to look at.
Where shall we in best for future growth and where she would reduce our cost for because the market is according girls. So we do have a plan in place for 2021 and more will be coming out probably in the first quarter. Thank you for the question.
And then just as my follow up not to be too technical but slide 20 on the sea. So the third quarter reserve building and consumer stands out versus.
Some of the other banks that I've looked at this corner could you just talk about what was behind that reserve built in consumer in Q3.
Yes, that's all econometrics driven the fact that we were running out of a stimulus monies and so forth, but delinquencies still remains low. So we were basing it on the econometrics trends in consumer side bankruptcies are starting to increase again in our market. So it's it's not tied to the portfolio performance Jimmy.
Editing that all.
We covered that.
You know, we went through our portfolio and looked at them by loan to value debt to income ratio credit score and put them in different categories and the most risk at the top we took those loans and the most risk and applied a a percentage to those to put it as an overall.
Allowance.
Two that just to be on a conservative basis, but as Craig said the delinquencies are are holding up very well and we don't see any specific issues and that percentage that were tied that portfolio higher risk credits was due to the econometric. So good point.
To Jim's comment we have a an excellent data bank of information on our loans over to slice and dice multiple ways, which we've we've exhausted I think going west.
Two three quarters.
Thank you for the question.
That's great. Thank you thanks, everyone.
Thank you.
The next question is from the line off.
Race from Piper.
Go ahead.
Yes, I got in the morning.
Morning.
Mark I was hoping to get.
Get you guys are looking commentary on the court.
Margin going forward obviously.
M S will impact reported and then but I guess away from that.
You know what the balance sheet.
That was alluded to earlier.
Think about the cord and then <unk>.
Projecting into the fourth quarter and into early 21 as well at this point.
Yeah in the fourth quarter, the deleverage in their reaction and those interest costs should benefit the margin as we have been able to see even through the third quarter that we were able to you know taking out. The addition.
It'll cost of that sub that we were able to maintain as a margin on the.
The remaining of the asset side and and then the savings on the liability side, So I I I.
Think that that'll be a benefit.
[noise] into next year, we still have anticipated we still have some additional savings coming from the C. D portfolio, but as I stated that starts to those benefits start to run out we do see some pressure as we get into 21 and and through 21 on the March.
<unk>.
Okay got it and just curious.
Think about those dynamics, how should think about longer obviously, the whitehouse and it.
Some nice girls in the quarter. Just curious did you guys have Eugenia work through you know some credit on the commercial side. If we should expect some attrition within the commercial portfolio going forward and maybe we can expect a bottoming in loans overall extra warehouse in the forefront on some built modestly.
21, or it's just any thoughts on the overall longer with all of them here.
<unk> House.
Based based this is Craig. Thank you for the question [noise] space.
Historical performance when we are coming out of recession, we have about two quarters will react to.
To make up the Loanloss not lost with loan shrinkage in the warehouse business. Since you know we would expect that again go into the 2021. So 2021 from a girl standpoint, we don't expect much growth because we have to offset the decline in warehouse loans Ah pipelines for commercial lending are picking up a dentist you Wanna.
Adding to the pipelines and commercial it on.
Oh, that's really we have seen an increase in activity across really across our footprint our growth markets are performing well getting new opportunities with some new new clients to horizon, but well.
Well known to our officers.
Okay, great for the club perfect color.
Thank you for the question [laughter].
Yeah.
Thank you.
The next question is from the line off Damon.
Go ahead.
Hey, good morning, guys up everybody's doing well today.
My My first question is related to the outlook for provision expense Mark just kind of wondering what your thoughts are you know pretty meaningful declined this quarter from the first two quarters a year and just kind of you know as you assess your your seatbelt model and you look out for the remainder of this year it into two.
2021, do you feel that reserve levels are adequate or do you feel that you know.
I can always uncertainties in the local economies would require you to continue to build this as well.
Okay.
Yeah. Thank you Damon you know I think he said it.
The uncertainties are are unknown to us now even as we stood at the end of the third quarter, where we're very comfortable with what our our our allowance balance is based on what we know to date I think the driving factors and the uncertainty is what direction of the economy go going into neck.
First year, if we continued to see where we are right now and we we don't see additional deterioration I I I think we would feel like we're we're in line. We would have to continue to look at when there's charge officer to to replace but it's just too hard.
To know what what's gonna happen, we've got an election coming up we have the the covid spikes. So I think it's it's kind of hard to even for us to be able to say until we started seeing the econometric, obviously, they've been improving but that could change.
Okay, but we've been pleasantly surprised by the dynamic management of our borrowers of their business lines and a lot of the feedback we're getting from our commercial portfolio as they are able to manage through this COVID-19, except some of the essential nonessential businesses in those markets that have been.
[noise] more restrictive so I think the question is gonna be after the election, what's gonna happen to the business segment everything and shut it down again, and then to I have a high degree accomplish there will be another stimulus package coming out shortly after election, maybe after January 20th but that should help soften any below in 2021.
Gotcha, Okay, and then you know with respect to the fan Com. You know you guys had a loss this quarter and the mortgage servicing income that have an S. R. A.
Kind of normalizing that mark what's a reasonable expectation for fee income.
Taking into account the pipeline straight for mortgage banking.
Yeah, I think we commented that the mortgage banking looking into the void quarter still as strong as we continue to see purchase and refinancing activity that's wrong.
Going into next year, I think sometimes the first quarter is typically a slower quarter in the Midwest. However, depending on what what happened with interest rates and the continued ability to potentially lower the Morgan or a could you continue to drive refinancing.
And maintain a strong strong game, but yeah I I think if you're looking at when you look at the estimates from the mortgage banking experts there. They are predicting around at 30% decline next year in volume. So that's kind of what we're looking at right now until we start to see what what actually is happening.
Yeah. The real question is without stop their monetary policy and stop buying longterm.
And once they get out of the market, you'll see that does this term turned downward so.
Okay, Alright, thank you very much guy.
Like the English.
Thank you very much.
The next question is from the line of.
Brian Martin from Johnny.
Please go ahead.
Hey, good morning, guys.
When Brian Good morning, Brian Hey.
Hey, guys I Wonder if could you just comment it sounds like you know the credit poor performance, obviously very strong were there any changes or a note in the in your criticized are classified.
[noise] portfolio this quarter.
Brian as we downgraded downgrade.
Downgrade our credits as we modified loans went downgraded dentist gave me more color on it for Brian.
Yes. The so is Craig mentioned whenever we were touching or a file for modification. We were we were downgrading by one step.
So very few loans went into classified status in that in that.
Exercise so to speak [laughter] now we did see some increase in classified as we did move a one or excuse me to relationships related to the hotel port Coaldale.
Into that classified category sub standard.
During the quarter they are continuing to make payments as agreed but again, recognizing some weaknesses, obviously in that portfolio, but some of the metrics for these two borrowers in particular he felt that was prudent so but beyond that we have not seen significant.
[noise] movement in the portfolio.
Okay, it's a pretty stable or slightly higher for the criticising classified only kid acute come out yeah.
Yeah, and Brian They we haven't even at this point being able to allocate specific reserves either or these credit they still or any general pool allocation within our within our modeling just cause I specific losses have not been identified yet.
Gotcha, Okay and then.
Could you just mark just any thoughts at Mister remaining under in Lone pays for the P. P. P and how are you thinking about that.
Yeah, you know, we're starting to what were taking applications. We're starting we hadn't just a handful get forgiving at this point and so they are starting to come through but only about a little less than a fourth of our customers have applied for a P. P. P forgiveness at this point.
So we expect to see some come in through the fourth quarter, and then again, depending on how quickly the S. B a approved them, which right now it looks like they're proving some other than fairly quickly.
We would expect to see the larger portion come into the first quarter.
Okay, and then the remaining unearned fees you expect to collect.
Yeah that would be the same as windows are forgiven, the unearned fees or just under 8 million around $8 million their their amortizing at a rate of about $450000 a month, when they're not being forgiven.
So, but those those fees would be the kind of what I was saying and we should see some in the fourth quarter and then the more the majority of them coming into next year.
Gotcha. Okay. Thanks, Thanks, guys 8 million net of expenses, yes, yeah. That's the net net net remaining thanks, Brian for the question yeah. Thanks.
Thank you.
The next question is from the line of David long from.
Please go ahead.
Good morning, everyone.
Morning to Edward.
Is it relates to the hundred million in the securities or cast that you're gonna be investing in the security portfolio. What are you, adding and what type of yields are you getting and all this right now.
HM.
Primarily because it's Craig mentioned in the the feds buying about everything there is in the mortgage side, we we're trying to mix in some some some of that product, but primarily looking at non taxable and nontaxable muniz and where there is value in that.
So the muni portfolio will see the biggest percentage of the increase and.
The mix of that we we would hope to be able to maintain a over at 2% reading turn.
On a gas equivalent basis.
We're purchasing those.
Got it thanks for providing me that color. That's that's all I have access to that you'd ever.
Haven't.
Thank you very much.
Yeah.
But a reminder that the participants to ask a question Please press star and funny.
If you have a question please press star and at this time.
[noise] as there are no further questions I now have the conference call with the management.
Oh, what do you.
Okay. Thank you for participating in today's earnings conference call them with Horizon Bank or we look forward to meeting you in person someday in the near future you have a good week. Thank you now bye now.
Thank you very much members of punishment ladies.
Ladies and gentlemen, the conference call has now concluded. Thank you for attending today's presentation.
Disconnect your life.