Old National Bancorp. (NASDAQ:ONB) Q3 2019 Earnings Conference Call - Final Transcript
Oct 21, 2019 • 08:00 am ET
Brendon B. Falconer
with our expectations at 3.26% compared to 3.39% last quarter.
If you recall, second quarter core margin included 13 basis points of interest collected on non-accrual loans, which was significantly higher than normal. Normalizing for the higher than expected accretion and lower interest collected on non-accruals the margin shows 5 basis points of compression. 4 basis points of this decline was attributable to higher premium amortization. The work we've done on the balance sheet over the past year has allowed us to defend our margin well and should help mitigate future margin headwinds from this challenging yield curve.
Slide 10, shows trends in adjusted non-interest income. Our third quarter non-interest income increased $3 million over a strong second quarter performance due to ongoing strength in both our mortgage banking and capital markets revenue lines. Also included on the slide is our purchase versus refi percentage for the mortgage business. Lower interest rates in the third quarter led to an increase in refi activity which accounted for 45% of our production.
Next slide 11 shows the trend in adjusted non-interest expenses. As you can see, we experienced a significant decline in adjusted expenses as we have fully realize the benefit of the Klein partnership cost saves following our second quarter systems conversion. Also worth noting is the reduction in occupancy expense this quarter, which included a $1.9 million property tax accrual reversal that will not recur in Q4. Our adjusted efficiency ratio for the third quarter was 55.26%, a 341 basis point improvement from the third quarter of 2018. Expense discipline is an important part of our culture and despite the revenue headwinds impacting the industry, we remain committed to generating positive operating leverage.
Slide 12, has our credit metrics. Credit conditions remain benign as we experienced positive migration during the quarter and non-performing and under-performing loans continue to hover near cycle lows. We recorded $1.4 million in provision expense during the third quarter, while posting net charge-offs of $800,000.
We've added peer data to our credit line this quarter for comparative purposes. While we run higher non-performing loans than our peers, we believe our practice of recognizing credit issues early and actively engaging with borrowers leads to better outcomes, as evidenced by our below at peer average charge-offs.
Slide 13 demonstrates our strong reserve coverage and low risk balance sheet. With 60 basis points of reserves against organic loans and 324 basis points in loan marked against the acquired loans, we believe that we have adequate reserve coverage. Before we turn away from credit, we want to provide you with an update on our transition to CECL. Progress towards complying with the new standard remains well on track for January 1 implementation. Activities in the fourth quarter will be focused on drafting disclosures and finalizing our control and governance framework. Looking to the day-one impact of CECL, we currently estimate an increase to our allowance for loan losses of approximately $35 to $45 million, a large portion of this increase