Q3 2020 Premier Financial Corp (OHIO) Earnings Call
Good morning, and welcome to the Premier Financial Corporation third quarter earnings Conference call.
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Please note. This event is being recorded I would now like to turn the conference over to Tera Murphy. Please go ahead.
Thank you good morning, everyone and thank you for joining us on today's 2023rd quarter Earnings Conference call. This call is also being webcast and the audio replay will be available at the Premier financial Corp. website at Premier Fin Corp. Dotcom following leaderships prepared comments on the company's strategy and performance.
They will be available to take your questions before we begin I'd like to remind you that during the conference call today, including during the question and answer period, you may hear forward looking statements related to future financial results and business operations for Permian Financial Corp.
Actual results may differ materially from current niche has to purchase option as a result of factors over which the company has no control information on these risk factors and additional information on forward looking statements are included in the news release and in the company's reports on file with the Securities and Exchange Commission.
And now I'll turn the call over to Mr. hileman for his comments.
Oh, Thanks, Tara good morning, and welcome to the <unk>.
Financial Corporation third quarter 2020 conference call joining me on the call. This morning to give more details on our financial performance for the quarter as our CFO, Paul not just her as well Gary small bank President, Matt Garrity, Chief lending Officer, and then sleazy Chief Banking officer.
Last night, we issued our 22.
23rd quarter earnings release, now, we'd like to discuss that release and provide insight into the opportunities and challenges for the remainder of 2020.
At the conclusion of our remarks the team will take any questions you might have asked me.
As we continue to navigate through the challenging operating environment.
This remains our clients and providing solutions to their needs.
We are seeing divergence in the operating environment for different sectors of our client base.
That's the total of the hospitality industry continues to struggle with housing and home sales.
Strong Oh.
All of our associates are working very hard to provide our clients the service and attention. They expect from Premier financial and I want to thank them all for their efforts and dedication during these very stressful times.
Third quarter continued to be challenging for a comedy we as well as the entire country container to deal with the Apache [laughter] of the current COVID-19 pandemic, we're consistently monitoring how it is affecting our clients and our own operations. We expect the economic impacts related to COVID-19 to be with us well into 2020.
One.
As the search for a vaccine continues and as baseline consumer confidence builds from a health standpoint.
And then Derek and the resulting economic fallout as a major concern fall as we continue to focus on serving the immediate needs of our clients and ensuring the health and well being of our employees and supporting the communities in which we live in Sir.
Flurried pleased with the strong core performance in the third quarter and the completion of our core conversion in July.
Third quarter 2020, net income on a GAAP basis was 25.7 million or 69 cents per diluted common share compared with 13.2 million or 66 cents.
That's per diluted common share in the third quarter of 2019.
On a core basis net income for the quarter was 28.6 million or 77 cents per diluted loss per diluted share.
[noise] pre tax pre provision return on average assets was strong at 1.99 compared to 2.1 for the third quarter of 19, we've been able to maintain our efficiency ratio below 50% on a core basis with the third quarter at 49.9%.
Our provision for loan loss was also in line this quarter with moderating expectations are higher credit losses due to the economic environment that.
Net charge offs did elevate slightly this quarter to 24 basis points. However, this was offset by provision for loan losses, which resulted in a net impact of one basis point increase in the allowance to 1.63 overall.
Overall credit quality was generally stable in the quarter was very moderate increases in npls and restructured loans.
We see this continued improvement and the amount of loans on deferral dropping from 16 at June.
Quarter end to 9% a september quarter end.
Hi, Matt will have more details on this category in a few minutes we.
We continue to be very diligently monitoring and communicating with our loan clients ongoing strong levels of activity and gain on sale led to another.
Very strong quarter in the mortgage area overall growth in the third quarter was 3.1% for miles and 4.5% for deposits with a shift in the non interest bearing deposits as a percentage of total deposits.
The trend of strong deposit activity continues our overall capital levels are solid and were bolstered by the successful debt offering of $50 million in September.
Felt that the environment for the additional tier two capital was president and it was the appropriate opportunity for us to further strengthen our capital stack.
We were quite satisfied with the execution the offering cutting it at a 4% rate.
We're also pleased to announce the continuation of our dividend with a 2024th quarter dividend of 22 cents per share.
Per share flat with a year ago, and an annual dividend yield of approximately 4.8%.
At quarter end, we had 570000 shares of common stock remaining for purchase under our repurchase plan authorization. In these uncertain times, we continue to assess uses of the authorization as well as other capital strategies.
I will now ask Paul to provide details for the quarter before I conclude with fall.
You Don and good morning, everyone I'll summarize our third quarter results and highlight a certain impactful items.
First as the balance sheet total.
Total loan growth was muted as commercial loan growth was mostly offset by continued shrinkage in residential and consumer lending.
We generated $55 million of commercial loan growth, including some additional PPP.
Residential loans had very strong origination volumes again.
Prepayments and refinancings continue to drive the net portfolio net portfolio reduction, although we did have a $48 million increase in loans held for sale.
For deposit we added another 36 million from June 30 for 2.5% annualized growth rate.
Non interest deposits declined as businesses began using funds and represented about 23% of total deposits at September thirtyth versus 25% at June Thirtyth.
Next I'll explain the allowance.
As previously noted we did adopt cease all effective January 1st and we've discussed the impact of that on previous calls.
For Threeq you the allowance only increased slightly by 363000 due to provision expense for loans of 3.7 million offset by net charge offs of 3.3 million.
Approximately 4.2 million of gross charge offs is related to one credit that was the P.C.D. loan from the U.C.F.C. acquisition.
That loan had a specific reserve established however, accounting rules require that to be reflected through provision expense rather than a credit against the charge off it.
If instead reflected as a credit against charge off a those would be a zero point $9 million or seven basis points for Threeq you.
And a net recovery of one basis point on an LTM basis.
The net increase in the allowance is related to an increase in qualitative factors and risk migration offset by improved quantitative factors.
Qualitative factors were increased in Threeq, you again, primarily due to continued concerns for potential future charge offs.
[noise] quantitative factors improved primarily due to a better economic forecast, including a further improved national unemployment forecast.
And last while non PPV volumes only increased slightly risk migration began to have an impact as we experienced some increases in our special mention and classified balances.
At 930, our allowance coverage to total loans was 1.63%, which is up from 1.62% at 630, but if you exclude PPP loans the ratio would be 1.77 per cent from 1.76% at 630.
In addition, if you include the unamortized balance of purchase accounting marks the coverage ratio would be 2.04%.
The finished the balance sheet I'll discuss capital, where we ended with 959 million of equity at September 30.
18 million from June 30, primarily due to continued strong net earnings.
At September 30, our tangible equity ratio was 9.2% and our.
And our total risk based capital is estimated to be about 12.9%.
We did complete a very successful capital issuance on 930 for 50 million of fixed to floating sub debt with an initial rate of 4.00% below us this year for a triple B minus pro rated bank holding company.
This helped to boost total capital and enhances the holding company's ability to serve as a source of strength for the bank during this economic recession.
Next I'll turn to the income statement.
I will preface this with noting that year over year comparisons are obviously skewed by the fact that we have three months of operations, including you CFC in the third quarter of 2020 compared to none in third quarter of 2019.
I'll start with net interest income, which was 53.3 million for the third quarter of 2020.
This resulted in a net interest margin of 3.47%.
This does include the benefit of accretion from purchase accounting marks with 1.1 million coming through interest income and 0.8 million coming through interest expense.
This also includes $2.7 million of interest income on P.P.P. loans with an average balance of 440 million.
Excluding the impact of those items, our net interest margin would be 3.41%, which is up from 3.34% on a linked quarter basis.
This improvement was attributable to our continued efforts to reduce funding costs as well as the dressing excess liquidity from the significant deposit growth experienced year to date.
Noninterest income was 25 million for Threeq, you and represented almost 32% of total revenues.
A first mortgage banking income was 12 million for third quarter 2020.
Gains on sale of mortgage loans were 13.8 million up from 11, and a half million last quarter, primarily due to pricing along with continued high volumes.
Offsetting those gains were MSR amortization expense of 2 million fairly consistent with last quarter and a negative valuation adjustment of 1.7 million, which is up from $1.4 million last quarter.
The valuation adjustment was negative again this quarter due to continued increase prepay speeds.
As rates improve and prepay speeds revert back to normal levels, we will be able to recover against that valuation allowance.
Next wealth management income came in at 1.5 million, an increase from 0.7 million last year.
In insurance commissions were 3.7 million up from 3.3 million last year.
Service fees and other charges increased to 4.8 million from 4.0 million last year, and we had 1.4 million of security gains, which I'll discuss more shortly.
Next I'll discuss expenses.
First we incurred 3.7 million and merger related costs in the third quarter of 2020, So cumulatively, we have incurred 34 million to date.
I do not expect much more if any to occur in fourq years. Since we have largely completed implementation of synergies and the core conversion.
So excluding merger costs total expenses were 39.9 million compared to 35.6 million in the second quarter of 2020 with.
With the increase primarily due to other expenses an FDIC premiums.
First we early extinguish 30 million of fixed rate FHLB advances that had a weighted average rate of 2.0% and incur.
And incurred a prepayment penalty of 1.4 million, which is recognized in other expenses.
Separately, we sold $55 million of MBS securities, yielding approximately 1.8% at a gain of 1.4 million, thus, resulting in no impact to net income.
The proceeds from the sales are being reinvested into securities yielding approximately 1.1, 0.5% funded by.
Funded by overnight advances with a cost of approximately 20 basis points.
The net effect of the transaction is expected to increase pretax income approximately 425000 over the next 12 months and.
And enhance net interest margin by one basis point.
Next FDIC insurance premiums were 1.5 million dollar expense in the third quarter of 2020.
From a 411000 dollar expense in the second quarter of 2020, and a $255000 credit in the third quarter of 2019.
The increase in expense from prior quarter is largely due to the impact of PPP and includes a year to date accrual estimate true up.
Although PPP loan balances are excludable from the asset base component. They are not excludable from the leverage ratio component because we did not borrow from the P.P.L. <unk>.
Plus any loan funds that were in our deposit base I would also increase the asset base component.
At the I see insurance premiums were a credit of 255000 in the third quarter 2018, due to the receipt of small bank assessment credits.
So excluding the merger costs as well as the FHLB prepayment cost since we exclude security gains we.
We generated a core efficiency ratio of 49.9%, which compares very favorably to 55.5% in the third quarter 2019.
[noise]. Additionally, our core pre tax pre provision income was 34.7 million, which generated a robust 2.20% return on average assets.
We are very pleased with our third quarter operating profitability as we continue to realize our merger benefits.
I'll wrap up with a summary of net earnings.
On a GAAP basis, we reported net income of $25.7 million or 69 cents per share.
Merger costs. This quarter represented 2.9 million on an after tax basis or eight cents per share.
Excluding those costs core earnings were $28.6 million or 77 cents per share.
In conclusion, we had another strong quarter as we completed our core conversion and near final implementation of synergies.
Our healthy capital levels and sturdy operating profitability remain a solid foundation and the current recessionary environment.
That completes my financial review and I'll now turn the call over to Gary for highlights on our community banking initiatives merger integration progress and continued cobot impact Gary.
Thanks, Paul and Hello to all we certainly had a terrific performance quarter and I'll provide a few comments that will give some additional color.
We are 90 days post our integration date, which was July 13th.
And again on ammo, you or excuse me the Nemo eat a combination is a large undertaking and we're very pleased to report is a successful effort.
And we're now in the stage of typical clean up an adjustment activities.
And those continue today, we see that will wind down those efforts over the next few weeks.
Work will continue on operational improvement initiatives that we have slated over the next few months with our goal to optimize our resources to provide the very best client experience possible.
You might note that deposit related non interest income was down a bit for the quarter versus the norm there were fee grace periods and liberal fee wave activity for clients that were affected by the integration.
Which was the movement between the two core systems of their accounts fee income is returning to normal levels as we enter into Q4.
We have also discontinued select points programs et cetera right.
Resetting our fee income base and that's a more permanent effect those fee reductions are more than offset by the corresponding expense reductions related to the cost of administrating those programs.
From a business perspective.
Regardless of the uncertainty created by co, but in the near term election cycle each of our business units are in.
On a good pace as we go into Q4.
Our residential mortgage business continues its excellent year, we expect to carry over effect at least into early 21 the color.
The commercial activity is stronger than might be expected under the circumstances, although pipelines are understandably a bit less than normal but.
Cross the retail shop, we're returning to a more business as usual mode with sales campaigns underway in home equities investments in small business services and.
We're getting excellent early initial.
Initial activity results.
And I wouldn't want to say that our insurance and our wealth management businesses continued to post strong results and all of these fee businesses. It's worth remembering are big enough to matter and provide a very diverse revenue stream for the organization.
Adding to some of the resilience of our performance.
[noise] margin management is always top of mind and as evidenced by the end of the third quarter's rapid decline in our overall cost of funding competitors are flush with cash and there was little promotional activities in the market and we've seen our funding cost dropped by as much as five basis points within a single month period well.
Continue to manage deposit pricing very closely and we expect us to see a continuation of this lowering see over the next couple quarters.
Regarding loan yields we continue to use floors and deemphasize swap activity for the foreseeable future in an effort to protect our yield.
In terms of delivery channel activity, we have recently announced the closing of three branch locations in the first quarter of 21.
Open 19 that certainly affected how our clients interact with us from brick and mortar perspective.
System with past efforts, we continue to look for opportunities to realign our resources and better enable us to do business with the customer in their space and responding to their service preferences.
A comment on credit, we see delinquencies trending upward, but in a very measured pace. We closed Q3 at approximately 90 basis points.
Commercial reflected no meaningful change from our Q1 levels and consumer and residential levels are up but steadily increasing but meaning very at very manageable levels.
We keep a close eye on the migration and we're generally very pleased with where we stand.
Final thought we continued to build a business model and the fashion that we will deliver a strong operating leverage over time. This approach builds better performance resiliency under almost all market conditions. It's worked for us to this point and you should expect no change going forward with that.
With that I'll turn it over to Matt.
Thanks, Gary I'd like to.
I'd like to update you. This morning on the return to pay activity of our borrowers that had received payment accommodation as result of the COVID-19 pandemic comments on our portfolio performance for the quarter and our thoughts on asset quality moving forward.
With respect to payment deferral activity during the third quarter were pleased to report that total loan deferrals declined by approximately 41% as borrowers returned to payment we.
We saw approximately 76.4% of third quarter expiring deferrals returning to payment.
As we discussed on last quarter's call October is our largest month of expiring payment deferrals and as of Monday, our return to pay percentage is tracking to what we experienced for the third quarter. This should pay.
This should put us in the mid single digits by the end of March.
I would note that our reduction in deferred loans was also seen in our high sensitivity portfolios.
Balances under deferral reduced over 33% and our accommodation and food service category over 48% in our retail trade category and over 58% and our long term care category as well.
As outlined in our earnings release, we also saw some extension of deferrals during the quarter, but these extensions largely represent maturing 90 day deferrals that were deferred for an additional 90 days.
On the consumer side mortgage portfolio deferrals word approximately 3.6%, which compares very favorably to the national average of over 6.8%.
In terms of portfolio performance during the quarter I would characterize it as in line with our expectations and consistent with what we communicated previously.
We did see asset quality migration as expected during the quarter, but the migration during the quarter was largely contained in our hotel segment.
The remaining portfolio remained relatively stable during the third quarter.
Our expectation is that well performance continues to improve slowly in the hotel segment at several of these borrowers will require additional support while they continue to recover.
In terms of the asset quality migration, we did see during the quarter much of those hotel segment migration was to the special mention category with one $4.9 million hotel loan moving to substandard.
While we do expect further migration in this segment I would note that by design. The hotel portfolio represents a relatively small segment of our overall loan portfolio at 2.8% of total loans weak.
We continue to monitor the performance of this portfolio and our entire loan portfolio closely.
As Paul mentioned in his remarks, we had a net we had net charge offs of 3.3 million for the third quarter from an individual loan that had a specific reserve established I would not characterize the charge off is being completely COVID-19, driven as it had previously identified as having performance issues and having had a mark established against alone.
Merger.
The loan was in the retail portfolio and we believe the remaining balance is appropriately reserved for.
Our overall outlook for asset quality remains unchanged from our comments last quarter is there remains a high level of uncertainty we bill.
We believe continued economic recovery remains reliant on the duration of the pandemic vaccine development and what future economic stimulus looks like so far the impact of the pandemic has been uneven across customer segments with businesses and consumers tied to more contact dependent segments on a greater duress than those that are now.
Yeah.
Our team continues to stay close to our customers and monitor performance.
In spite of the challenging environment, we were well positioned entering this cycle given our strong asset quality position a strong balance sheet bolstered further during the quarter with our successful sub debt raise and a strong risk management team in place. We also believe that our borrowers have come into this cycle stronger overall than in prior cycles.
While we fully expect continued asset quality migration and additional credit losses in future quarters. During the cycle. We believe we are well positioned to see it through.
I'd now like to turn the call back over to Don for closing remarks Don.
Thank you, Matt well the.
Well the future will continue to bring challenges for the company I believe that we as a company have worked hard to position ourselves.
Proactively address these challenges as another credit challenges and the uncertainty related to the credit environment continues to develop and we expected to be at least several quarters until we see that playing out with more clarity we believe.
We believe we have made consistent progress in our execution of the merger and integration as noted a lot of us to shift our focus to the future the dedication and team work of our employees have proven that our powered by people philosophy is a driving factor behind our success I'm. So proud of their commitment to our clients.
And communities. During this challenging time, we appreciate the trust you have placed in us and thank you for joining us and for your interest and prepare financial Corp. Please.
I'll now be glad to take any questions.
We will now begin the question and answer session.
You asked a good question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
To try your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
The first question will come from Scott Siefers of Piper.
Hi, guys. Thanks for taking my good morning, Scott.
Hi.
Let's see I think first question I wanted to ask is just within the hotel portfolio when you talk.
Talk now about the need for additional support for some borrowers in that portfolio. What do you mean by that like how are you contemplating working those out are those just.
As simple as extensions of deferrals or are we talking more.
It's up more substantial than that.
Scott, It's really just extension of deferrals consistent with some of the regulatory guidance that came out recently.
Really encouraging.
Thanks to continued to support these clients that are impacted by Cove. It we've taken the approach to can continue to assist those although I would say for those hotel loans in really any of our deferred borrowers that need additional assistance, we're really approaching it with a little bit more of a value exchange this time around.
So we will be thinking about enhancements be they economic.
Or structural collateral or increases in requires things of that nature.
Things of that nature, but we do expect that particularly in this hotel segment and thankfully, it's relatively small compared to the overall portfolio.
That we're going to need to continue to support.
These folks for a little while longer.
Okay perfect. Thank you and then maybe a question for Paul So.
The core margin when we back out all the noise.
Surprised by how well it it held up just curious if you can give us maybe a little more color on the puts and takes you see them and sort of where it goes from from here.
Yeah. So a couple of things there part of it is a little bit a pickup from what I've described earlier during the prepared remarks about the restructuring transaction. We did we've been able to take some liquidity get rid of borrowings for the most part.
In addition.
We did.
Get active in this third quarter here ramping up some security investments.
So just as we were in issuer. We were also a buyer on that front by in some sub debt.
And other securities as well as the normal stuff, but.
Given we had that that.
That ability because of the strong deposit growth, which.
Which came in.
Surprisingly strong in the second quarter and was dry a drag to now we obviously put that to work as best we could and that helped profit things up there.
Okay, Perfect and then just as you look forward.
Is that we able overall to support at sort of the current level.
Yeah, Yeah, we think.
Absent any additional shocks to the system here, we think we've for the most part hit a trough.
At the at the three fours level.
All of them.
Most of our loan portfolio, especially the variable stuff is already rolled down we will continue to get a little more compression on there as you know our five year arm portfolio comes up for those resets and whatnot, but.
But weve been beaten down our funding costs very strongly Cds, especially which will continue to turn and we've got a little bit more opportunity. We've still got some higher cost deposit funds out there certain.
Certain money markets and private banking and things like that.
That we could look at if needed to continue to bring.
Bring that down over time.
All right perfect. Thank you very much.
Yep.
The next question is from Michael Perito of KBW.
Hey, guys How's everybody good good.
Good good to hear first question for Matt on the commercial loan balances you know X P. P. P. At least as it would seem to me from the financials I have seen some steady.
Steady you're not although not quite as robust as it was steady growth and I'm just curious how the market for commercial loan growth looks today as you guys see it from both a credit risk appetite standpoint from a pricing standpoint from a competition standpoint, I mean is there some conference that.
We move into next year here that you can continue to drive maybe see some acceleration of commercial loan growth organic commercial.
Sure Mike, it's still a very competitive market I would characterize our activity in our commercial bank as being being solid in some some good growth in the third quarter, but.
But I wouldn't yeah, obviously characterize it is that kind of growth that really either institution has experienced historically over the last couple of years, but the growth is there.
A fair amount of growth in Q3, I think as we get into Q4 I would expect a similar a similar amount of growth, which will impact us in Q4 as some pretty strong pre pay off activity is your plan to pay offs people going out in the permanent market, but.
But in spite of that we'll see some growth our aspirations for 2021 will include.
Includes loan growth in the commercial portfolio, but again I wouldn't say, it's going to be so the.
So the robust levels that both organizations enjoyed historically pre pandemic pre colvin, but.
We've got a really solid team out there looking for the right deals.
Credit philosophy, and how we how we operate in this market I think both institutions were relatively conservative and had a fairly well defined set a goalpost silver what deals make sense in which ones Dell. So what are the things that we bring to market in some consistency there.
Clearly, we will probably be asking a few more questions because of what's going on with covidien the questions that those raise but.
We haven't also we haven't pulled our aurs and either we'll we'll still look to.
Grow this portfolio next year.
Mike. This is Gary is additional evidence on that in the last quarter. We've added five commercial bankers from some strong competitors we're in the mood.
Selective growth and adding talented folks to the team to get it done.
Helpful. Thanks, and then on the mortgage side.
Mortgage side as we look out to the next quarter or two here I mean can you help us just balance what you know some historical seasonal trends versus what's clearly some environmental elevated activity here and how we should think about that unit's production near term.
Yeah, Mike. This is Matt we've got a very strong pipeline going into court to Q4 as we saw.
Production on the refi side dialed down a little bit it was really backfills nicely with purchase and construction perm activity.
So we think our Q4 is going to be pretty solid and we've been pretty transparent that we're enjoying some really outsized margins.
Because of you know is we reach capacity internally you know in turn where pricing up a little bit in reflection of that.
Thats clearly won't last.
Forever It won't last with US all through 21 for example, but we do feel that you know this this.
Expanded profitability that we're experiencing relative to what both banks would have seen in the norms.
Will be with us during Q3 and will bleed into Q1 next year as well.
Helpful. Matt. Thank you and then just last for me Gary You mentioned the three branches that you guys is closed and the changing kind of customer preference that you've you've seen during the pandemic I'm just curious.
How do you see Premier you know in terms of evolving its delivery methods of products and services how far along do you guys see yourselves today I mean, we switch the three branch closures just kind of the the initial stuff that stood out and there is more ongoing or do you feel like it did the combined footprint is now.
Somewhat rightsized, Oh, I guess I'll start there.
Ill unpack that a bit the.
The three branches that we announced two are pure consolidations and given the transaction levels in the market movement easy to do once a little less of a trip consolidation, we're not exiting the market, but it's a it's not as easy as just be down the road and they've been on the board for some.
For some time, but.
Both organizations historically add selectively pruned the branch complement.
On a pretty good.
Current basis, so I don't expect we're going to have the big shock announcement of 25% of our locations going down in the year or anything like that when you look at the branch.
Component that we have now.
There continues to be some potential opportunities there, but again I wouldn't expect a large announcement like that.
Vince to comment a little bit on the network as a whole sure. Thank you Gary I would just also remind everybody that as part of our prudent distribution management program. We're also looking at opportunities, where we do see growth I'll remind everybody I think in the second quarter, we announced the opening of our branch and Columbus and so as we're close.
Certainly looking at the retail network and opportunities that we've got.
To optimize and meet customers, when where and how they want to interact with the bank you will see more focus not just around retail branch distribution, but around our digital strategy and our ability to connect with customers digitally.
And so I would just remark that this is really a function of an ongoing.
Optimization retail distribution strategy program that helps us make the decisions to meet the customer need and demand.
It speaks to my comments earlier, Mike relative to realigning the resources and.
If you were to look into our strategic plan as it stands today, you would see significant dollars going into the digital space.
Channel and all things digital.
And you'd see a trimming of coming.
Trimming of commitment in some of our more traditional channel support.
Continued to be what they need to be but priority wise, we move into that digital space.
And you know as we think about the expense outlook from here do you <unk> you know it sounds like your your NIM actually relatively is going to be pretty resilient here, but still a difficult rate environment, you have to mortgage offset which certainly helps but but I imagine there is not a huge appetite to grow expenses in a significant way.
In this environment I mean, do you feel like you're on the trajectory, where these digital enhancements and upgrades that you're making to your platform are at a point where efficiencies that that they generated.
Potential you know as you scale can can limit the upfront negative impact to your expense growth as you kind of move along this path.
I don't know if it will be a one for one in the year expanded that over a reasonable.
A reasonable period of time, you to expect it should get your earn back in terms of other physical delivery methods and support and processes because a lot of digital is process improvement and just efficiency and customer acquisition expenses. So.
So it may not be within the year spent but thats certainly the goal it's.
A lot of activity that and I think traditionally in banking as we've expanded our channels.
Incurred new costs, and again, you either optimize or get the opportunity to exit some some whole delivery methodology is and you tend to see of net benefit to the bottom line with the technology coming on board.
Right.
Helpful interesting discussion. Thank you guys for taking my questions.
Welcome.
The next question will be from studies Strickland of Fig partners.
Hey, good morning, guys.
Hey, good morning.
Oh, So just a question on the merger discount it was a little less than 15 million at June Thirtyth.
Approximately 1 million of accretion a direct reduction of the Mark.
Should we be thinking that's around 13, and a half now or what was that number.
Yeah, the the accretion on the asset size of the loan the net of loan and securities was the million box yes.
Your.
Can you clarify what you're talking around the discount side.
Yeah, just like when we're trying to look at you know reserves plus the credit Mark is that credit Mark now like 13, and a half million.
Yes, yes, I got it yes.
Got it sorry, just pricing.
Lastly, I thought you said, Brian you were talking dollars, you're correct, yes, yes.
Okay, and then one follow up for me you.
You guys had a great team.
Okay, 20 pre tax pre provision our way.
This quarter do you guys see that as being sustainable and do you think you can expand it into 2021.
You know I think its going to this is done.
I think it's it's realistic to expect that we can we can target this level, whether we can expand on that level.
With some of the headwinds in some of the additional items, we anticipate well.
It will be a challenge, but clearly we're focused on.
The things that we just talked about but I think.
Any kind of significant expansion would probably not be what would be good for net debt ratio.
Got it. Thanks, so much thanks for taking my questions guys are you're welcome. Thank you.
The next question will be from David long of Raymond James.
Good morning, everyone.
Morning.
At the beginning of the call you talked about your qualitative versus your quantitative part of the reserves and curious on the qualitative side what are your assumptions baked into your reserves today on the next stimulus package.
Well.
We do believe that there is obviously the possibility of it but given the current political environment, we're not putting a whole lot of credence and it just yet.
That's something that will hopefully clarify here in the fourth quarter post election, we'll get a lot more of it.
Visibility into that but while we see it as as a possibility it would certainly be beneficial.
We're not going to put a lot of weight into that at this point.
Okay got it and then in response to Scott's question are you mentioned purchasing securities and I thought you mentioned sub debt. So just curious are you guys. Just shoot sub debt are you buying other bank sub debt and your securities portfolio at this point.
Yes, yes, we are it's a you know on a.
Alternative.
Investment, it's a better yield than some of the traditional stuff that we get so it helps from that perspective.
It also helps with some durations and things like that.
Yes, we put some of this is that we put some fences around how much of that we have an appetite for it.
And we're generally going to be looking for companies, we know and understand rather than just.
Any kind of sub debt to purchase so I think well have pretty high quality portfolio that.
On our books here as we move forward through the quarter.
Got it okay. Thanks, and then lastly, the PPP loans and the timing of forgiveness. There have you started to take applications for forgiveness and how are you thinking about.
The timing on your customers going through that process.
Yes, I'll, let Matt answer that one for sure we to your first question, we've seen very little activity.
Forgiveness really just hand literally handfuls of clients that want to go through the process.
Think the lion's share of our client base.
Has been anticipating.
Anticipating what comes next out of Washington.
What what modifications or what happens to the to the forgiveness process as part of the teacher stimulus package. So I think that's a bit of a gating issue right now and to the.
To detect to the extent of the timing.
Of that additional so getting that stimulus rolled out that might be the accelerant that we need.
But our thinking is that this gets more of this.
More of this forgiveness process really gets pushed out into early 21 and into Q1.
Got it thanks for taking my questions guys.
Thank you.
Once again, if you have a question. Please press Star then one.
The next question is a follow up from Scott Siefers of Piper Sandler.
Hi, guys. Thanks for taking the question just wanted to talk about mortgage I mean for you guys and and for everyone. In the industry has just been.
So shockingly strong just guess I'm curious about.
Sort of where and when do you guys think it all begins to settle out I mean, just based on where rates are I would imagine you have some some legs for a while but whether it's.
Whether it's.
Gain on sale margin normalization.
How much re Fi is really left how are you guys thinking about those dynamics.
The the margin wells this is Matt Scott.
The margin will start to normalize as we get into really Q2 through Q4 of 21, and that's our thought process at least for now.
Although the mortgage business is pretty dynamic I don't think anyone would have expected the kind of mortgage mortgage activity that we've experienced this year I think what's a little bit unique about our model that we probably need to remember is it sort of gets to the comment I made a moment ago, where we've seen.
As that refi activity has declined we've seen a nice resale of that decline from our purchase and construction Perm business strategically we view mortgage as a business that we can continue to grow so while 20, our expectations for 21 as well we won't see the robust refinance activity. We also don't.
I'll take that we're going to drop right back off either we feel that theres opportunities for us to continue to expand this business both within the markets, we're in and probably within some contiguous markets as well, we're keeping our eyes open for that so.
Kind of a long answer to me.
Margins normalizing, yes, I mean, we will definitely see that in 21.
But I wouldn't necessarily call.
Paul for a full drop off in volume as a result of the reduced refinance activity next year.
We think we've got a we've got a few different oars in the water there.
Perfect Scott, it's kind of counterintuitive, but rates stayed as they are today and pricing did normalize I think.
I think we see another refinance boom there is probably not just for us, but our constitution five.
Five base, the three quarters of a percent difference between a 15 year.
Re fi and purchase or a purchase money those usually don't have that kind of gap. So again if rates stay as they are pricing will come back into line as volumes sort of slips away and there will be a new type of volume and it will be the refinery at that much lower rate versus that already good rates.
That they might have experienced and there was enough to dig in there.
We could we could see another volume boost next year.
Yeah, that's a good point.
Okay perfect. Thank you guys.
Thank you.
And this concludes our question and answer session I would now like to turn the conference back over to Ciaran Murphy for any closing remarks.
Thank you for joining us today as we discussed our quarterly results. We appreciate your time and interest in Premier financial Corp. have a great day.
Thank you. The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect have a great day.