BANR
#Hi, <UNK>.
It's <UNK>.
So, as we noted, the core operating number that we reflect for the quarter did include the $1.4 million of prior-period expenses.
We do ---+ so that will go away going forward.
In addition, we would probably expect another $1 million to $1.5 million of run rate expense reduction through the final phases of the integration and cost savings related to the acquisition.
However, as I did note earlier it's certainly entirely possible that growth in our operations will mask some of that, specifically if we continue to have good success in mortgage banking.
You realize that those are variable costs that can increase.
And there'll be some additional expenses associated with our progress towards becoming a $10 billion bank.
But we're getting close to the run rate that we expect in the second half of the year, but there's a little bit of room left to go.
Well, I think we've indicated a number of times that on a long-term basis we expect with our business model and our geography that an efficiency ratio in the 63% to 65% range is probably a reasonable target to allow us to still deliver a value proposition that resonates with clients.
If we exclude the one-time expense and the merger-related expenses on a normalized basis we were just right around 65% for the quarter that just ended, so we're getting pretty close, as I indicated.
<UNK>, this is <UNK>.
What I would add to that is we are very focused on creating positive operating leverage, not specifically just the efficiency ratio.
So as long as the organization continues to be able to grow aggressively the revenue stream and outpace the expense to create that positive operating leverage we will stay focused on that.
Well, that's certainly the expectation.
So I guess, as I said, an encouraging sign would be the size of that loan held for sale portfolio.
I hope it's not because they weren't salable, let's put it that way, and we don't think they are.
So that is an encouraging sign, and that will be part of the strategy for staying under $10 billion.
There are also, as long as we've opened that subject, you can see that we had a pretty substantial amount of federal home loan bank borrowings at the end of the quarter.
We will be able to liquidate some securities to pay those down, and we will expect to see some continued runoff in some of the brokered CDs and other timed certificates.
So we still remain optimistic that staying under $10 billion is going to be very doable, and, as you know, that has significant impact in terms of pushing off the financial consequences of the Durbin Amendment if we do go over $10 billion.
So, the strategy remains the same, and it does appear to us that we have the levers to pull to execute on that strategy.
Not enough.
Yes, actually, the core yield probably dropped a few basis points on the loan portfolio.
The table that shows yields on loan includes the impact of purchase accounting, and, as I noted, that was 18 basis ---+ or as the press release noted it was 18 basis points during the quarter.
So we're still in an environment where term loans in particular are coming in with interest rates in the very low 4s, and sometimes we're seeing good clients.
This is not news to our change, but good clients in commercial banking lines have been sub-4%.
So the pressure on loan yields has not dissipated.
It will be there.
But, as noted, the margin has continued to hold up reasonably well.
Hey, <UNK>, this is <UNK>.
The increase during the quarter was really driven by that single transaction.
It was a commercial real estate transaction.
There was a squabble between the owner and the tenant that resulted in a cessation of lease payments.
As I mentioned in my comments, we believe that a successful resolution has been crafted to that issue, and we are hopeful that that will be consummated in the early part of the third quarter.
Yes, that really drove the increase in nonperforming assets.
I think so.
Well, we really overall expect growth there, <UNK>.
As I've noted, the first half of the year is always seasonally weak for us, and I think for most banks, particularly banks in the Northwest that I'm familiar with.
So core deposit growth, the strategies that we have in place, we would anticipate an uptick in balances and additional client acquisition along the lines that we've achieved for a number of years now.
But there will be that planned runoff continued on the CD portfolio.
It's getting smaller all the time.
As I noted, 85% of the deposits now are in core.
So just simple math means that runoff will slow down.
Hi, <UNK>.
This is <UNK> <UNK>.
Through the first six months of this year we've incurred $9.2 million.
We expect another $1 million to $2 million that we'll incur in the third quarter.
There may be a small tail in the fourth quarter, and that'll primarily relate to some additional consulting expense and some premises cost.
There was a minor amount of interest reversal.
I don't remember the exact number, <UNK>.
This is <UNK>.
But that's a common occurrence any time a loan migrates to nonaccrual.
No.
Not at all.
Yes, <UNK>.
Good morning.
Our ---+ again, our capital deployment plan hasn't changed.
Our first and foremost goal is to make sure that we have a solid core dividend that has a payout ratio between 30% and 35%, that we are reinvesting effectively in the franchise to maintain that core dividend.
And then we would look to potential ways in which we could augment the franchise and then look finally to the buybacks and/or special dividends.
So we still have authorization, up to 5%.
We have not utilized it to date.
But we're exploring all options on utilization of capital going forward.
Well, Ted, that's a great question.
This is <UNK> <UNK>.
And like all great questions, they're not easy to answer.
But I'll take a stab at it by saying the following.
Assuming that we see similar patterns in loan growth and a similar migration of acquired loans into the provisioning arena, you would expect to see provisioning to be similar to what we had this quarter.
But we need to keep in mind that it's not realistic to expect that there would be a run rate of over $1 million in net loan recoveries going forward.
Well, <UNK>, this is <UNK>.
As we've suggested in the past, we think that normal organic growth commensurate with the economy and taking a little additional market share is going to have your balance ---+ or your deposits, in particular, your funding resource growing by 6% to 8% annualized rate, maybe even a little higher than that.
But it ---+ so that's going to organically take you over 10 eventually.
And our expectation has been, continues to be that that's sometime during 2017.
Are there other levers that we could possibly pull to push that $10,000 threshold out even another year.
Yes, they're there, but they become more strategic in nature, and we haven't approach or announced any sort of decisions relative to any of that.
So I think our normal ---+ that process still remains, that sometime next year we'll cross $10 billion.
Does that ---+ and I guess the ancillary to that, does that mean if you think you're going to do it organically might you do something a little more aggressively to get even further beyond 10.
That's a possibility.
But those are strategic decisions that are further down the road.
Well, I think that's right.
And then, as <UNK> has pointed out, we have strong capital position.
And so employing that capital is an additional element to the thought process.
Yes, this is <UNK>.
I think as mentioned in the comments I made, actually our delinquencies declined slightly during the quarter.
And really in terms of looking at the risk rating of credits in the portfolio it's been remarkably stable over the last several quarters.
There's migration in and out, but the net effect, with the exception of that one large credit impacted by the energy sector, it's been a very stable picture.
Almost all of the brokered CDs would be maturing in the second half of this year.
And there's a table in here that has them in it.
I can't remember the number off the top of my head.
I want to say about $90 million.
No, I didn't say that appear to.
I said I don't want to find out that they are.
May have been a bit flip in that.
But it is a fairly significant buildup compared to the prior quarter.
So it hopefully is very good news in terms of what to expect going forward on gain on sale.
So, yes.
Probably about two-thirds of it.
No, that's the plan.
Well, I think ---+ this is <UNK> <UNK>, <UNK> ---+ I think that there's a healthy balance between the two.
Of course, there is some expansion of credit granted to existing relationships, but we've been very pleased by the progress we've been making in the historic and the new footprint with the addition of new borrowing customers.
I don't have an exact split between the two, but it's balanced.
It's what we expected.
Nothing out of the norm.
That's really tough to answer, <UNK>.
This is <UNK>.
As opportunity presents itself, growth opportunities present themselves, we'll make appropriate investments, and those generally require some expense investment.
But do I know exactly what those are going to be.
No.
I think the other point that I was trying to make with that comment is there are expenses related to ultimately crossing $10 billion in terms of DFAS compliance, in terms of organizational staffing and the like that could come into play here, as well.
So you're going to have growth opportunities presented by just the business and economy that's still, in our market areas, is performing well.
And then there's going to be a little bit of perhaps catch-up with respect to preparation for crossing $10 billion.
Those will be in contrast to expected cost savings as a result of further completion of the integration process.
<UNK>, this is <UNK>.
<UNK>, let me just add that if you reflect on <UNK> and <UNK>'s comments regarding future run rate of the expense base and what the makeup of that is, that contemplates bad investments.
Yes, <UNK>.
This is <UNK> <UNK>.
So that business typically will generate about $75 million to $90 million a quarter in terms of loan production.
We would expect that business to generate between $1 million to $1.5 million a quarter on a normal basis.
So you could expect to see what we saw in the second quarter repeat maybe with some additional gain on sale going forward.
<UNK>, this is <UNK>.
Actually we've been very pleasantly surprised that our business strategy that we've rolled out is being very well received in the marketplaces in which we operate in both of those states of California and Utah.
We're actually seeing quite a bit of client relationship growth, and it's too early to tell what we're ---+ early indications are.
You had a nominal amount of attrition.
And we're actually seeing growth in those particular markets with our new product offering and our sales strategy and service levels.
It's just under $50 million, <UNK>.
Yes, I think to the extent that we reduce holdings of securities which are yielding less than loans, that's going to be a mitigating factor on the net interest margin.
But, as I pointed out earlier, low interest rates are still a fact of life, and there's an awful lot of pressure on origination rates.
Thanks, Andrew.
As I stated, we are pleased with our solid second quarter 2016 performance and see it as evidence that we are making substantial and sustainable progress on our disciplined strategic plan to build shareholder value by executing on our super community bank model by growing market share, strengthening our deposit franchise, improving our core operating performance, maintaining a moderate risk profile, and prudently deploying excess capital.
I'd like to thank all my colleagues for driving the solid performance for our company.
Thank you for your interest in Banner and for joining our call today.
We look forward to reporting our results again to you in the future.
Have a great day, everyone.
