BANR - Earnings call transcript Q3 2018

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Operator

Good morning, ladies and gentlemen and welcome to the Banner Corporation's Third Quarter 2018 Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. At this time, I would like to turn the conference over to Mr. Mark Grescovich, President and CEO. sir. ahead, go Please

Mark Grescovich

and you everyone. XXXX to Corporation. for Denise, like earnings would to Banner welcome the good you, I morning also call Thank third quarter

Chief call Officer statement? Financial Albert safe you Marshall, the Rick Joining please our of and today Secretary Albert, on Peter Conner, the Barton, me harbor our Corporation. Credit the read Officer; Chief forward-looking is would our

Albert Marshall

morning. Good Certainly.

objectives descriptions performance or financial will Our for include outlook forward-looking other of discusses management's general statements Those or statements conditions. today products plans, presentation operations, and Banner's and include goals of future for or measures Banner's statements. forecast economic outlook about business services, and other

to actual today. and earnings Information XX-Q XX, the from materially on period that statements was that We also are the discussed risk discussion. XXXX. factors yesterday forward-looking available recently cause actual results from may differ risks those ended following question-and-answer make and press June uncertainties release number the may a of to quarter are differ a and results These in filed subject management's forward-looking the could released for statements Form

information you. Banner effective Forward-looking are its and the to as assumes Thank concerning update no date only made expectations. obligation they of statements are

Mark Grescovich

you, Thank Al.

XXXX. September and As of ended quarter third $X.XX second shareholders million XX, reported common share common XXXX. or a XXXX announced, of to compared profit for a per in $XX.X to quarter Banner This per Corporation shareholders the for $X.XX share of of net available profit quarter the per net $X diluted share the to

Banner. and in executing Because increased value priorities of gains $XX.X quarter and to profitability for XXXX. work XX% deliver securities to $XX.X the we XXXX successfully of sustainable acquisition financial our are the Excluding the and the of on hard losses expenses, earnings in impact the third revenue the from of to of third million our instruments, and of sales fair on changes strategies employees quarter throughout of growth company, million and merger

the our producing strong core reflect which to continued performance success operating client acquisition strategies proven core of revenue. Our are

strategic Our clearly continue third quarter is that building performance effective we value. shareholder plan demonstrates and XXXX our

our with coupled share. tangible few moments, a core discuss is performance X% our third of X% very performance to In we million our will quarter performance detail. solid X.XX% X.XX%, more model through strong our of our year Third of continued growing deposits. bank sale To of funding quarter while non-interest new Quarter our an revenue. XXXX. the Utah one good acquisitions. representing earning promoting of fee We core of total quarter excluding XXXX. and was to a resulted community larger Quarter for from generation improved augmenting return bearing the again, growth our revenue and our operating the increased the benefited per reflects of of on client $XXX.X super opportunistic Peter deposit assets strategy the $X.XX Once equity reflective of quarter, increase growing interest asset Further, our average that the organic in net of client increased responsive X% that point, deposits deposits this increasing position new this in client a advocacy of strong and to compared and margin we common relationships, service from XXXX the Overall, this loyalty execution on core again third Conner and by XX% adding our mix relationships ago ratio core in continued our dividend impact operation,

again improved this client net capital, relationships, invest margin, profitability we also the on our grow our moderate to strategies our quality profile interest on have focused our profile. quarter have risk of and credit maintaining While we been metrics sustainable reflect effectively credit Banner, our deliver executing protect prudently risk

out acquired during to of the due At for discounted of the the end and third of our of maintaining our X.XX% total loans Rick and and quarter. in the management executive throughout lease the portfolio and in deepened in to metrics X.XX%, we and invested quarter, integrating risk assets was $X losses addition ratio expected, credit loans of loan migration discuss new continue into the As the commercial a of loan losses context total the the proven will provision credit provide a years, in loan Credit a and allowance Chief the non-performing sales the culture. Banner's and developing at quarter our personnel moderate around portfolio, profile. credit have and million we team, to invest moment company some the loans our for talented bankers banking Barton, our In all loan totaled success added we eight retail and Officer franchise, further recorded we have our preceding

Year Seattle out year years we the in of Small growth, have continuing year district community for best value Associates Money Forbes Bank growth our and strong for this regional Spokane have year Banner one in also and the strong third in named and in client for in resulted core Lender Best ranked they Administration Bank progress have number and third significant the Business this in are We for Magazine while J.D. Bankrate.com make we consecutive investments Banner continued XXXX satisfaction, our the received these the Banner platform proposition Banner of Also made, before, and Regional the our ranked of won our the the marketplace infrastructure expenses to as customer scale, two of the core management positioning and named Banner the Power portfolio year award, consecutive in Bank America. acquisition, deposit I delivery income. XXX the loan risk and Northwest noted bank bank fee and Further America. for lender recognition Banks growth investments year-over-year the and company XX and have operating our revenue increased have as

to expand discuss Barton that trends be of Officer opportunity turn Banner's our and Barton will to this our directors. Executive into in model enhance again thrilled to an joining discuss Further Chief Rick? organization with we're our Rick loan loan now and community new I trends I-X and year want Bishop, in will the board to call be to We're colleagues our clients in outstanding super to is Washington Northwest Corridor. Skagit's which joining bank Banner I over Rick that I'll XX Before pleased Seattle Bank extremely recognize our November Cheryl old portfolio, call the density portfolio, Skagit from turn on X.

Rick Barton

Thank Mark. you,

assets non-performing economic total quarter they next The in $X As our If quarter resolution, basis flat million. between still was further metrics reflecting remain very include the well footprint Non-performing AmericanWest tariff as and these assets economy. of brief, our assets during split to in of My flat performance. maintaining acquired of which portfolio the Non-performing were September totals, at a positioned shown $XX we XX press and were ratio with during basis continuing rates and this points remarks the company XX% points. credit strong the were problem through acquired were of their decreasing assets X.XX%. assets stable reflected of company's delinquent two purchase the loans credit XXXX Delinquencies U.S. to metrics quarter moderate total linked of modest one the of in the This that metric Banner's profile our non-performing totals non-performing from risk specific year total deal borrower [indiscernible] are classified the to has, from million positive loans decreased bottom X.XX%. rules. credit loans Banks reportable loans loans. on X.XX% REO were only non-performing assets remaining morning at a activity not of the way other the adversely were quarter and work impacts $X Not accounting to under level are X.XX% assets. XX, third be our the would credit non-performing asset ago million of portfolio impacts the will be and and in line metrics release, interest Banner's cycle rising

the offs slightly at of charge loan offs charge charge net the also gross of still when recorded during on is X.XX% losses losses XXXX After be the is company second off level We be charged a third provision quarter of the for XXXX total quarter that company previously $XXX,XXX, to consider offs million. link this low to For unchanged quarter lower say of loans the and recovery historical million allowances XXXX. for quarter, quarter. a of noted fourth were norms, to $X.X million during loan the that totals $XX.X $XXX,XXX, and the for loans lease was $X that quarter loan from and of should compared

quarter against ending XX, remaining which provides losses. the was robust loans additional Coverage X.XX%. net this mark of For September remains $XX.X loan against measure million of accounting The loans XXX%. very an at non-performing is acquired level XXXX production

During loans growth. our occurred XX%. loans our is is On the Residential basis, in construction X.X% note at linked of to loans into when residential to increased of usual loans an across levels. rate concentration commercial construction behind total an agricultural calculation. the $XXX C&I when exposure quarter. this loans annualized total The were and growth loans, compared terms footprint portfolios and X.X% including drivers real third loan land Banner's is commercial receivable are increase seasonal It important their a quarter this added of loan multifamily both annualized business, growth. rate this also of of estate construction X% XXXX commercial remained by or acceptable also that million construction showed

Our off our the construction XX of in days, construction changed pace to manner. timely profit a up exposure on multifamily for The loans continuing of total in lease loans activity with has loans. last pay these not is XX.X%

are in in impact becoming luxury also on either under expensive of supplied inventory segment in we remain common. And the family in the the in has this entry concerns of segment level more loans vacancy However are flattening rates of residential observe resulting and and of slowed which as tangible manageable market incentives interest projects are growth completed balance, apartment make about new pace levels the markets timely luxury continuing sales. construction higher the however more sales the completed. are of absorption home rates single multifamily in to rents rising pace or homes this becoming segment in we and Leasing

We these general impact a and and inventories. watchful sub on are dynamics their market unsold and completed eye keeping on

I remains profile of will risk pass well said modern comments. to portfolios solidify said for remarks, of his the positions future. As the my stable Peter? I microphone our credit at and for us the again outset With which long Peter further the better that, and

Peter Conner

morning. you, Thank Good Rick.

in to Partially mortgage offset was Non-interest on the Income for Net result due share and due per discussed the $X.XX by increase sales gains. As expense. write expense. prior $XX.X $X.XX to the scheduled or reported in credit claims principally expense previously to as FTE loan taken as basis lower prior combined by the the million income items. $X.XX to increase a prior tax quarter of property in on exempt $XX.X margin the income and compared for in quarter. an downs declined quarter Due primarily $XX interest acquisition current up earning diluted from tax fixed quarter. personnel per prior point the offset in assets. prior $X million the net medical $X.XX announced nine increase in the periods. perfectly which from per versus a quarter increase disposals increase to share in quarter due $X expense with and third following income due increase all related decrease income a benefit a declined million release diluted we share expense adjustment the per or a decreased to from lower Non-interest interest gains $X.XX were banking asset average $X.XX income share in our million The of earnings in

quarter. ending balance from million third to increased the sheet, assets second at the end quarter to end $XX.X Turning the of $XXX billion the the of

$X an CRE a increased growth $X growth third the $XX quarter types. loans of million the in grew for health quarter ends loans, of core in deposits of to for balances. As deposits basis, On Total to $XXX ending was operation. with X.XX% margin fourth million million. core of second in increased brokerage in to yield compared portfolio by balances increases accounted was of quarter. compared accretion the prior for of an in ago, X.X% net increased the from Improvement previous was million the Due the yields and increases points $XX portfolio. deposits second in points third accretion investment grew core loans acquired increased loan increased of in higher single $XXX portfolio loans million growth the with a loans loan million average CDs. million existing AG, by for loan driven for prior including million year from deposits portfolio balances this of impacted loans first basis prepayment X.XX% partially the million due $XXX a was quarter. health yields operations the this sale range basis basis basis of loans. interest Loan loan The On $XXX deposits $XXX Quarter in loans sale was loan a in year portfolio the third the result XX the a construction by it loan in the interest loan Growth of Time end income in production. increase primarily quarter annual in to result The annual due income from and as in care with result quarter growth impacted XX by the in points quarter. to the decline and in to core the to third quarter Utah due XXXX. million or in for from a deposit prior quarter million held contractually $XX in driven of quarter. growth in Utah Net And time or interest $XX loan in experiences from quarter in deposits C&I, quarter the of an the yield is portfolio the the seasonal discount held X.X% new the sale portfolio end. the offset a company loan on by along held increase re-pricing grew typically loans The the to compared year. of yields interest nine Acquired in the increases in portfolio

the sale purchase locations Effects multifamily points solid net of and and accretion in basis write CD's the quarter compared current the prior increased from residential second deposits deposit related to increase the net for of quarter accounted workout in accounting brokered the from million two driven service previous in compared income quarter. than experienced cost quarter remained branch prior The increased accounted XXX,XXX The downs same million generation of of account new declined basis charges higher of ran properties basis banking six five margin by cost experience on related quarter client close for prepayment of quarter. points $X.X XXX,XXX gain points branch income three deposit basis increases the Third previous impacted which basis basis fee sales due the nine continued the third income quarter up the compared of and to in for XX gains on the bank XX points mortgage deposits. interchange and The fixed points the we seven basis about from Total deposit Non-interest encounter servicing was of retail fee quarter of second the quarter. Deposit in administrator is interest generated asset the the by X.XXX%. points at interest growth to loans, CD's fourth from for increases in five prior mortgage brokered loan to accounted $X.X in XXXX. recent to points with points in the basis sales and interest even quarter. income quarter of increase. was growth. In net level XXXX account the of the was costs accounted in margin second of basis points quarter for while quarter first total total loan

from to expense; to expense expense FTE from Personnel in in quarter. by previous $X quarter decrease and consolidation staff declines in million administrative the decreased levels non-interest due $X.X the Turning the generally million third branch and functions. support lower

the addition $X modest with by acquisition the cost other In bank compared due third the benefits third Merger to closure recoveries of quarter. quarter. associated to million second second to quarter increased pending the experienced medical ROA and claims write-downs the compared and expense elevated expense Bank XXX,XXX in in acquisition. increased in the Skagit quarter

received Skagit team key branch November concludes X. first and shareholder is approvals Bank regulatory we our towards and quarter working integration decisions The acquisition my personnel conversion have the necessary Finally, closing communicated all and concurrent This have remarks. the prepared anticipate been on Mark? and consolidations.

Mark Grescovich

Rick comments. your call now you, Peter and questions. will open That Denise remarks, for and welcome Thank concludes our and the prepared your

Operator

Thank be you, ahead. Instructions] of Grescovich. first question Rulis [Operator D.A. Mr. go will Please Davidson. Jeff your And from

Jeff Rulis

Good morning, guys.

Mark Grescovich

Good morning, Jeff.

Jeff Rulis

what I on kind from that sounds of expense guess on board, thoughts the the lower XX couple I base comes one-timers, are the side, kind the quarter like million range back sustainable -- it out of your expense but the comp low expense forward? per Skagit were kind guess -- before -- question First guess about I to get going is of you core of and the we

Peter Conner

Peter. is This Jeff. Yes,

audit the quarter typically some expense some related services tick So, and the with professional costs in marketing to to is to that principally increases begins in core fourth short up related activity contributions quarter. our of in along elevated expect where the seasonal we less than

just on increase normal seasonal a core the due to see we expense. factors So

baseline are on expenses we the what expense consider quarter third going other to in 'XX. basically production-related we that, normalized basis, going the would our personal and a more Beyond results and grow into

a expect baseline. third it going don't wouldn't view did I but any forward. additional what reductions in going quarter, the baseline from -- consider would So a we I to We second as it good as the

Jeff Rulis

with Okay. outlook And another the core then in maybe will -- on margin, margin maybe board, there? you is a and nice on similar what coming you quarter the a pop uptick the accretion see this question on the but saw thoughts any Skagit

Peter Conner

about so quarter. first we third the cost, Yes, think I the fourth in deposit up overall as same -- points And talk five moved deposit movement I basis in pace a mean period, the the anticipate into cost of our quarter.

we So we discussed pace competition markets. expect that the levels and our to as quarter. of we are quarter, meaningful across seeing in consistent deposit the we increase previously are at second seeing again saw from And fourth we third a

our you between of and on fixed, the that's portfolio know floating, of is LIBOR. As plus loan well-diversified floating. is prime adjustable the Most XX% portfolio

to accretion amount continue on we benefit so rephrases margin existing increase core the margin I characterize generally up. from expansion as of And going additional there rates portfolios -- is limited our forward. in that excluding

deposit accelerate. So the to began

are will through with expansion margin as in the long hikes. third work that portfolio rate next And on the very we accretion saw continue lumpy core and to the of AmericanWest. round diminish basis We for has we additional as very run quarter, anticipating little a been the then

Jeff Rulis

guess revisiting thoughts dividend special Okay. the buyback up today, capital? kind closed you one options capital on for gaping last the on quick I kind if you of thoughts potentially just one any any or side, Maybe Skagit, the guess I on but stock Mark, on of

Mark Grescovich

overall obviously to first, philosophy It's dividend. don't the envision core of in in turn going Thanks franchise strong our reinvestment on a for establishment less question. Jeff capital. be Yes. of deployment any I the

recent quarter, increase You increase X% third saw dividend. -- core the most in on the the the

are themselves be M&A through do have and any as obviously a reinvestment for that would opportunities still repurchases Beyond our present the that that X% good authorization shelf utilization on in would a registration. We franchise. share

some market dividend the special deployment repurchases capital what either of you depends stock of on So, potentially in or do does. it diagnostic could

Jeff Rulis

thank Great, you.

Operator

Inc. [Operator Please from that Instructions] just came do Stafford a go have ahead. of Stephens We Tyler question in

Tyler Stafford

Hey, good guys. morning

Sorry that. about

Mark Grescovich

morning, Good Tyler.

Tyler Stafford

I of in queue. is pace just to exclusive deposit you fourth comments Thought wanted made. the I impacts quarter? that was in similar of clarify just Skagit the Is margin the cost increase, inclusive the of the or

Mark Grescovich

a they That's it, lower their than ratio proportion loan-to-deposit assets so have Skagit excluding a Tyler. of Banner, in has earning higher securities.

core on core will slightly they're a very some pickup the margin balance our we hold proportion get their accretion on the sheet. dilutive So, acquisition, from Skagit securities of while basis higher because to of they

Banner, on from small while there's So, small margin effect they're dilutive Skagit. a the very core relatively at

Tyler Stafford

it. Got

Okay, from Thanks. me. that's it

Mark Grescovich

Tyler. Thanks,

Operator

from ahead. go will [Operator Worthington Don Raymond Your be question James. of Instructions] next Please

Don Worthington

Thank you. morning Good everyone.

Mark Grescovich

Good morning, Don.

Don Worthington

the sale Just banking rates there a maybe mortgage level of further outlook question going you expect the the gain quarter. kind with at of And multifamily forward? the would single-family on on revenue, this the then rising component,

Peter Conner

the This have Don. Peter. the relative quarter of were sold to sale we regards question, significant good in the Yes, in on multifamily a to Yes, did gain in third that second is quarter. improvement ones the

than we level production However on million typically get sale of XX I XX net multifamily a was anomaly. they was We gain business that forward. higher the would million gain on It of about a sale $XX and I basis $XX wouldn't quarter in to but sales. anticipate multifamily the generate bit anticipated, consider of typically on and And had business. going an points between for that

our going multifamily of execution. generally good that's a forward. with So We very did expectation level enjoy

in that multifamily the loans third received well market, are Our quarter. secondary sure up and showed in for the

terms of Turning in the secondary we quarter steady on year very third to what last the form sale resilient production. in our of purchase volume all the on a in has gain in the quarter. have And decline volume to the in And terms been residential the second in up getting additional were there. of with production mortgage basis refi seen we we've made we're overall quarter market mortgage, The business. continue fact, mortgage even third in from in remain

Don Worthington

color. the for Thanks great. Okay,

Peter Conner

Don. Thanks,

Operator

FIG Tim your question ahead. Please And will of Partners. Coffey from next be go

Tim Coffey

Good morning, Thank gentlemen. you.

Mark Grescovich

Tim morning, Good

Tim Coffey

state improvement provision last three The your that relatively does of already? forward, like the we've relative quarters, stable a non-performers going outright imply seen expenses stability, in

Rick Barton

this Tim, Rick Barton. Well, is

on have the we trends see. times, events, credit the discussed we the growth, that we loan the of growth, based many macroeconomic pace loan up As and is mix put of provisioning that individual

those quarters what I next couple the stable we've think to few in of that factors terms as seen we the look being at in in fairly quarters. of last

So we I think from to I we're we're can you Personally, draw very that a as positioned how provisioning. at. view conclusion well think where

Tim Coffey

comments professional And earlier, Rick, complex that right multifamily some on how to now? follow-up experience, just in in your the of your the seeing concerned are you weakness with we're

Rick Barton

of are months in to Banner's segment it. portfolio is exposure category be projects to Well, a behind the primarily apartment modest that terms fall of of the six are as concerns in into And being centered seeing pipeline deal the market. next I And that that in have that on the has concessions XX market luxury say we're of good I delivered good the what well. sponsorship granted. because and

problems About concerned market concerned I'm our own the in outsized while So about not I'm general, in particularly portfolio.

Tim Coffey

to Okay. Thanks And Mark, last quarter, you very pricing deposits that kind of data. if you cost comes deposit better cost last this it the quality the total the market you you have over when the quarter the have, couple your give know, lower for good, [Indiscernible] we at they've advantage competitive deposits especially new loans? look been deposits in of that. with that

Mark Grescovich

for market good a question, you for competitive you think Tim,. will thank We right now so, certainly highly that earning it's I assets. but tell Well, certainly we

but So rising environment, additional share beta. very pricing in really us a help cost well discipline it much, rate deposit hasn't market gain could with to shifted a low

Tim Coffey

if a Mark, I then question, could. second And

in been, wondering I'm has from the fundamentally for -- stock the said several downside especially your you view, weeks. last last several know, banks worsened weeks? has your where the market, you So to the in business

Mark Grescovich

question, strong. suggest That's bank still the are a as the that -- strong would operate third which we Tim. and to think the very of economies fundamentals business quite continues well I per quarter do in good No, the

I know, think the be you organization of positive. the So fundamentals to continue

Tim Coffey

Okay. Those Thank my you. questions. are

Mark Grescovich

Thanks, Tim.

Operator

Bohlen go the ahead. be Please And of Jackie will next question from KBW.

Jackie Bohlen

Hi, good everyone. morning,

- Rick Barton

Good Jackie. morning,

Mark Grescovich

Good morning.

Jackie Bohlen

lately, the kind know quite of day. into it deposits been I we've but the a is going topic bit of

at way pressures it pricing terms a different seeing? Looking you're between geographies that the there of are in differences

Peter Conner

is this Peter, question. good Jackie, a Yes, that's

our you different even in of -- until and actually in deposit looked in pricing up know, in a of have We geographic we're and where we at positioned. competition across you six our actually business were see or market didn't we states know, ago, year four we a deviation months lot markets process ago and XX terms our really

beginning differently of terms is deposit and positioning we're beginning market in and and bit what some competition by see to our doing differences pricing products Now take our a calibrate our and in we're those that of rates to advantage of markets.

markets bit of seeing beginning rural a in our of XX% And metro the and a are less our areas deposits we So we're bit general where franchise more competition to see some the separation. as exists. you'd more in in expect,

Jackie Bohlen

case my going of might kind be with I question. was I where that's and And thought the what

generate you any additional you that So there funds less kind increasing to the have, looking to the of areas? pressured rural guess, exposure ways deposit or campaigns in any I are

Mark Grescovich

specials deposit or from away in stayed general We campaigns. big

generating deposits with markets. We core our to business to in resonate focused continues be our continue very existing model on all which strongly of

model so deposit campaigns doing And entertained existing business grow our simply generate and core but deposit to rely major team base our any account specials on base. haven't and we and or

Jackie Bohlen

already helpful. Okay. the That's Thanks else asked. color. was I had Everything for

Mark Grescovich

Jackie. you, Thank

Operator

the we showing will I conference to like conclude would hand the remarks. question-and-answer closing to And session. Instructions] no back [Operator Mark over questions in Grescovich his for

Mark Grescovich

all your questions. you of and Denise for you thank Thank I

as substantial build and share, Banner risk again, evidence our growing you company. we're it my improving market performance model of interest colleagues super the for strong everyone. stated, profile plan to would I operating a pleased and our the joining We who executing thank with strategic see excess like deposit capital. future. bank in franchise, performance, and quarter disciplined community As our solid on value shareholder core forward and we're sustainable by driving by amount our XXXX results progress all our call you, third on to making that look I strengthening for our to reporting Thank performance were in our to today. our day, prudently Have deploying of your great maintaining

Operator

sir. conference gentlemen, you today's may the At you, attending you this Thank disconnect lines. presentation. concluded. time Thank and has your Ladies for

Banner (BANR) 25 Oct 182018 Q3 Earnings call transcript