Q2 2022 Banner Corp Earnings Call
Speaker 2: The F pro mar on su.
Speaker 1: Thank you all and welcome to Banachorporation 2nd Quarter 2022 Conference School and Webcast.
Speaker 1: My name is Breaker and I'll be today's event specialist.
Speaker 1: There will be a question to announce the session today. And if you wish to ask a question, you may press start followed by one or your telephone keypad.
Speaker 1: If you change your mind at any time, press start 2. and for the later assistance press start 0. and for the later assistance press start 0.
Speaker 1: Your host for today's call will be Mark Ruskowicz, President MCO for Banic Operations. So Mark, please go ahead when you're ready.
Speaker 3: Thank you, Brika, and good morning, everyone. I would also like to welcome you to the second quarter 2022 earnings call for Banner Corporation.
Speaker 3: As is customary, joining me on the call today is Peter Connor, our Chief Financial Officer, Jill Rice, our Chief Credit Officer, and Rich Arnold, our Head of Investor Relations.
Speaker 3: Rich, would you please read our forward-looking Safe Harbor statement?
Speaker 3: Sure, Mark. Good morning. Our presentation today discusses Banner's business outlook and will include forward-looking stakeholders.
Speaker 3: Those statements include descriptions of management's plans, objectives, or goals for future operations, products or services, forecasts of financial or other performance measures, and statements about Banner's general outlook for economic and other conditions. We also may make other forward-looking statements in the question-and-answer period following management's discussion. These forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from those discussed today.
Speaker 3: Information on the risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday and a recently filed form 10Q for the quarter ended March 31st 2022.
Speaker 3: For looking statements are effective only as of the date they are made and better soon, no obligation to update information concerning its expectations. Nice. Nice.
Speaker 3: Thank you, Rich.
Speaker 3: Today we will cover four primary items with you.
Speaker 3: First, I will provide you high-level comments on Banner's second quarter performance.
Speaker 3: Second, the actions Banner continues to take to support all of our stakeholders, including our Banner team, our clients, our communities, and our shareholders.
Speaker 3: Third, Jill Rice will provide comments on the current status of our loan portfolio. And finally, Peter Conner will provide more detail on our operating performance for the quarter and an update on our strategic initiative called Banner Forward.
Speaker 3: As a reminder, the focus of Banner F<|transcribe|> is to accelerate growth and commercial banking.
Speaker 3: deepen relationships with retail clients,
Speaker 3: Advanced Technology Strategies.
Speaker 4: and streamline our back office.
Speaker 4: I want to begin by thanking all of my 2000 colleagues in our company that have helped develop banner forward and are working extremely hard to assist our clients and communities.
Speaker 4: Banner has lived our core values.
Speaker 4: Summed up as doing the right thing for 131 years.
Speaker 4: Our overarching goal is to do the right thing for our clients, our communities, our colleagues, our company, and our shareholders to provide a consistent and reliable source of commerce and capital through all economic cycles and change events.
Speaker 4: I am pleased to report that is exactly what we continue to do.
Speaker 4: I'm very proud of the entire Banner team that are living our core values.
Speaker 4: Now, let me turn to an overview of our performance.
Speaker 4: As announced, the Interpreter Corporation reported a net profit available to common shareholders.
Speaker 4: A $48 million or $1.39 per diluted share for the quarter ended June 30 of 2022.
Speaker 4: This compared to a net profit to common shareholders of $1.56 per share for the second quarter of 2021.
Speaker 4: and $1.27 per share for the first quarter of 2022.
Speaker 4: The earnings comparison is impacted by the provision or recapture for credit losses.
Speaker 4: Access liquidity coupled with a rapid changing interest rate.
Speaker 4: Our strategy to maintain a moderate risk profile
Speaker 4: Continued good mortgage banking revenue.
Speaker 4: A gain on the sale of four branches.
Speaker 4: and the acceleration of deferred loan fee income associated with the SBA loan forgiveness of Paycheck Protection Loans.
Speaker 4: Peter will discuss these items in more detail shortly.
Speaker 4: Directing your attention to pre-tax, pre-provision earnings.
Speaker 4: and excluding the impact of merger and acquisition expenses.
Speaker 4: COVID expenses gained and lost its own and sale of securities.
Speaker 4: Be in our forward expenses.
Speaker 4: changes in fair value financial instruments, and the gain on the sale of branches.
Speaker 4: Earnings were $57.8 million for the second quarter of 2022, compared to $49.7 million for the first quarter of 2022.
Speaker 4: This measure, I believe, is helpful for illustrating the core earnings power of Banner.
Speaker 4: Be in our second quarter of 2022 revenue from core operations increased 8% to $148.3 million compared to $137.6 million for the first quarter of 2022. And down slightly compared to the second quarter a year ago. $122.2 million for the second quarter of 2022.
Speaker 4: We continue to benefit from a larger earning effort mix in improving that interest margin.
Speaker 4: solid mortgage banking fee revenue, and good core expense control.
Speaker 4: Overall, this resulted in a return on average assets of 1.16% for the second quarter of 2022.
Speaker 4: Once again, our core performance reflects continued execution on our super community bank strategy.
Speaker 4: that is growing new client relationships.
Speaker 4: adding to our core funding position by growing core deposits.
Speaker 4: and promoting client loyalty and advocacy through a responsive service model.
Speaker 4: To that point, our core deposits increase 5% compared to June 30, 2021, and represent 95% of total deposits.
Speaker 4: Further, we continued our strong organic generation of new client relationships, and our loans outside of PPP loans increased 5% over the same period last year.
Speaker 4: Reflective of the solid performance.
Speaker 4: Coupled with our strong tangible common equity ratio, we announced a core dividend in the quarter of 44 cents per share.
Speaker 4: Our branches continue to be fully operational and we have reinstated our return to the workplace policies.
Speaker 4: To provide support for our clients through this crisis, we made available several assistance programs.
Speaker 4: Banner has provided SBA payroll protection funds totaling more than $1.6 billion for approximately 13,000 clients.
Speaker 4: Also, we made an important $1.5 million commitment to support minority owned businesses in our footprint. The $1.5 million commitment to support minority owned businesses in our footprint.
Speaker 4: A $1 million equity investment in City First Bank, the largest black-led depository financial institution in the United States.
Speaker 4: Significant contributions to local and regional nonprofits.
Speaker 4: and have provided financial support for emergency and basic needs in our footprint.
Speaker 4: Finally, we continue to receive marketplace recognition and validation of our business model and our value proposition.
Speaker 4: J.D. Power & Associates ranked Banner the number one bank in the Northwest for client satisfaction for the sixth time.
Speaker 4: Banner has been named one of America's 100 Best Banks by Forbes.
Speaker 4: and being in her bank has received an outstanding CRA rating.
Speaker 4: Let me now turn the call over to Jill to discuss trends in our loan portfolio and her comments on Banner's credit quality. Jill. Jill.
Speaker 5: Thank you, Mark, and good morning, everyone. I am pleased to be able to report solid credit metrics this morning once again. Banner's delinquent loans as of June 30 remain nominal at 0.19% of total loans, down from 0.21% when compared to the prior quarter and down from 0.24% as of June 30, 2021.
Speaker 5: Adversity class five loans represent 1.63% of total loans down from 1.95% as of the linked quarter and compared to 2.83% as of June 30, 2021.
Speaker 5: Non-performing assets remain low at 19.1 million and include non-performing loans at 18.7 million and ARIA on other assets of 357,000. No-performing assets remain low at 19.1 million and include non-performing assets remain low at 19.1 million
Speaker 5: This represents 0.12% of total assets and compares to 0.19% as of June 30, 2021.
Speaker 5: due to strong loan growth in the quarter and coupled with the increasing economic uncertainty as we look to the balance of 2022 and into 2023, we posted a $3.19 million provision for loan losses as well as an additional $1.4 million provision for unfounded commitments.
Speaker 5: Losses in the quarter were again offset by recoveries and after the provision our ACL reserve totals 128.7 million or 1.36% of total loans as of June 30th down one basis point from the linked quarter and compares to a reserve of 1.53% as of June 30th, 2021. The reserve currently provides 688% coverage of our non-performing loans.
Speaker 5: Looking at the loan portfolio, we again reported strong loan origination with solid growth across many of the business lines this quarter.
Speaker 5: We reported core portfolio loan growth, excluding PPP loans of $338 million or 3.7% for the quarter and 14.9% on an annualized basis.
Speaker 5: If we exclude the growth in the one-to-four family portfolio, the annualized growth rate remains strong at 8.3 percent. And I will note that this long growth was not the result of loosening underwriting standards.
Speaker 5: Further, our commercial and commercial real estate pipelines remain healthy, although as would be expected, there has been a recent slowdown in activity as clients react to the increasing interest rate environment.
Speaker 5: Looking at specific product lines, CNI activity remains robust in the second quarter. Commercial loans, excluding PPP, grew by nearly 9% or 94 million in the quarter, which is an annualized rate of 35% and balances are now 5% higher than reported as of June 2021.
Speaker 5: Additionally, there was strong growth in the small business score portfolio up 6% or 49 million due to the successful small business campaign that rolled out in the second quarter. Balances are 16% higher than that reported a year ago.
Speaker 5: It is also worth mentioning that while overall C&I utilization inched up 1% in the quarter, it remains 6% below historical 1% in the quarter. It is worth mentioning that while overall C&I utilization inched up 1% in the quarter. It is worth mentioning that while overall C&I utilization
Speaker 5: I reviewed the new volumes reflected that exposures continue to be modest in size and continue to be diversified by industry as well as across our footprint.
Speaker 5: As noted last quarter, commercial real estate totals continue to be hindered by payoffs despite solid origination and are down 41 million in a quarter or 1% 4% annualized.
Speaker 5: The Investor CRE portfolio reduced by 43 million quarter over quarter and the owner occupied CRE portfolio declined by another 28.9 and a quarter.
Speaker 5: The payoffs during the quarter totaled nearly $90 million within the investor and owner-occupied CRE portfolios. These reductions were offset in part by an increase in small-balance CRE totals of $30 million, also the result of the successful small business campaign during the quarter.
Speaker 5: The multifamily portfolio reduced by 4% quarter over quarter but is up 23% when compared to June 30, 2021. This portfolio is split approximately 55% affordable housing and 45% market rate and remains granular in exposure and geographically diversified within our footprint.
Speaker 5: Construction and development loan balances continue to reflect strong production even as we continue to experience rapid payoffs within the residential spec portfolio as construction has completed.
Speaker 5: Commercial construction balances grew by 14 million or 8 percent in the quarter and one to four family construction loans grew by 43 million or 7 percent in the quarter. This was in part offset by reductions in the multifamily construction portfolio of 17 million or 6 percent quarter over quarter.
Speaker 5: slightly over half of this reduction was due to a single anticipated secondary market refinance at completion.
Speaker 5: I will reiterate what I noted last quarter. We do expect that the increasing mortgage rates will have an impact on the velocity of home sales within our residential spec portfolio, although we have not seen that materialized today.
Speaker 5: The housing markets in which we do business continue to be supplied constrained with the inventory of completed and untold homes remaining low. The inventory of completed and untold homes remaining low.
Speaker 5: Consistent with prior periods, our total residential construction exposure remains acceptable at 6.6% of the portfolio, with nearly 40% of that comprised of our custom one-to-four family residential mortgage loan portfolios.
Speaker 5: When you include multi-family commercial construction in land, the total construction of the Spellier remains at 14.8% of total loans.
Speaker 5: As anticipated, agricultural loans reflect the seasonal draws on lines of credit with balances of $38 million quarter over quarter or 16% and are up 17.5% year over year excluding PPP loans. For more information, visit www.fema.gov
Speaker 5: As was noted in the earnings release, there was significant growth in the consumer mortgage portfolio. This was the result of a successful jumbo mortgage campaign in the second quarter as well as holding a portion of the completed custom construction mortgage loans in an effort to rebuild balances that ran off during 2021 and earlier this year. In total, balances grew by 150 million or 21% quarter over quarter and are now up 42% quarter over year.
Speaker 5: Lastly, Home Equity Lines again added materially to the Long Growth in the Quarter, about 36 million or 8% from the linked quarter.
Speaker 5: Very briefly, touching on asset quality, adversely classified loans continue to decline, reducing 24 million in the quarter and are down 118 million or 43% year over year.
Speaker 5: Overall, adversary classified loans are down 64% since the pandemic induced high reported in September of 2020.
Speaker 5: With that, I will wrap up my comments, noting that the uncertain economic environment has only gotten more pessimistic over the past few months. The pandemic has only gotten more pessimistic over the past few months.
Speaker 5: Still, BANA's credit culture is one that is designed for success through all business cycles.
Speaker 5: Our underwriting has remained consistent even through the last extended economic expansion.
Speaker 5: Our long portfolio continues to be diversified by both product type and geography and is granular in nature.
Speaker 5: We continue to have a solid reserve from Lone Losses and Robust Capital. And most importantly, our clients have continued to perform well as reflected in our credit metrics. In short, we are well positioned to move through the next phase of this economic cycle. With that, I'll turn the microphone over to Peter for his comment. Peter.
Speaker 6: Thank you.
Speaker 3: Thank you, Jill, and good morning, everyone.
Speaker 3: As discussed previously and as announced in our earnings release, we reported net income of $48 million or $1.39 per diluted share for the second quarter compared to $44 million or $1.27 per diluted share for the first quarter.
Speaker 3: The 12-cent increase in earnings per share was due to an increase in net interest income and non-interesting income, and the first set by provision expenses quarter. The first set by provision expenses quarter.
Speaker 3: Core revenue, excluding gains and loss of unto carries, changes in fair value financial instruments, security for value.
Speaker 3: and gains on the sale of sold branches increased $10.7 million from the prior quarter.
Speaker 3: due to an increase in that interesting time.
Speaker 3: Core non-interest expenses, which exclude banner-forward, debt extinguishment, and M&A-related expenses, increase 2.5 million due to higher compensation, provide losses, and professional services expense.
Speaker 3: Turning to the balance sheet, total loans increased $315 million from the prior quarter end as a result of increases in health for portfolio loans.
Speaker 3: partially outset by a $29 decline in PPP loans.
Speaker 3: Excluding PPP loans and helper sale loans, portfolio loans increased $338 million at 14.9% and annualized basis. Thank you.
Speaker 3: One to four family real estate loans grew to $150 million in the current quarter as a result of redirecting a portion of residential custom construction loans previously earmarked for sale at completion onto Portfolio with an increase in revenue.
Speaker 4: In-genbo mortgage production.
Speaker 3: We anticipate a similar pace of 1 to 4 mortgage loans to help for investment growth in the coming quarter. We hope that you will be able to help for investment growth in the coming quarter.
Speaker 3: Ending quarter posits decreased $267 million from the prior quarter ends as a result of a sale of four branches that closed in late June .
Speaker 7: accounting for 170 million of the decrease.
Speaker 3: The remaining decrease in deposits reflects a combination of seasonal outflows associated with tax payments along with exits of rate-sensitive deposit balances. Along with exits of rate-sensitive deposit balances.
Speaker 7: Seeking higher yields.
Speaker 7: time deposit balances declined $44 million from the prior quarter end, of which $8 million were due to the aforementioned branch sale and the remaining $36 million declined, driven by higher cost CDEs continuing to roll over at lower retention rates.
Speaker 7: Net interest income increased by 10.4 millions in the prior quarter. Due to an expansion of the net interest margin, a couple of growth and average loan understandings.
Speaker 7: and lower balance of the lower yielding overnight and transparent cash. Let's say the lower turn into the above
Speaker 7: Compared to the prior quarter, along you'll increase four basis points due to increases on floating and adjustable rate loans, partially offset by a decline in PPP loan forgiveness processing fees.
Speaker 7: Excluding the impact of PPP loan forgiveness, pre-payment penalties, interest recovery,
Speaker 7: and acquired lung accretion, the average lung coupon increased 11 basis points from the prior quarter due to increases in floating and adjustable rate allowance.
Speaker 7: Total average interest rate cash and investment balances declined 275 million for the prior quarter. The average yield on the combined cash and investment balances increased 46 basis points.
Speaker 7: due to a lower mix of overnight funds and higher yields on both the securities portfolio and overnight funds driven by higher market rates.
Speaker 7: Total cost of funds declined one basis point to 11 basis points as a result of lower borrowing cut.
Speaker 7: The total cost of deposits remains flat at six basis points in the second quarter as the bank did not raise posted deposit rates during the quarter.
Speaker 7: while borrowing costs declined due to the pay off of a higher cost of HLB advance in the prior quarter. of the pay off of the pay off of a higher cost of HLB advance in the prior quarter.
Speaker 7: The ratio of quarter-posits to total the positive is 95% in the second quarter.
Speaker 7: The ratio of quarter-pies to total the positive is 95% in the second quarter, the same as the previous quarter.
Speaker 7: The net interest margin increased 26 basis points to 3.44% on a tax equivalent basis.
Speaker 7: The increase was driven by higher yielding securities, overnight cash and loans, coupled with a larger mix of loans and a lower mix of overnight cash within the earning half the face.
Speaker 7: In the third quarter, we anticipate a commensurate pace of margin expansion.
Speaker 7: followed by a slow down and future quarters as price sensitive deposits move up and on cheap. Long road continues, overnight cash levels decline and deposit rates accelerate. Secure.
Speaker 7: Access overnight cash is anticipated to decline at a more accelerated pace and coming quarters.
Speaker 7: Sunbelt continued longer and the positive outflows.
Speaker 7: Total non-interesting income increased 7.7 million from the prior quarter. The current quarter benefited from a $7.8 million game on the sale of four branches.
Speaker 7: Core non-interest income, excluding gains on the sale of securities, gain on the sale of branches, and changes in investments carried at fair value increased $325,000.
Speaker 7: Federal deposit fees are flat while mortgage banking income declined $500,000 due to declining recent anti-activity and lower gain on sales spreads.
Speaker 7: While overall residential mortgage production increased 16% from a prior quarter, a larger share of production was directed on balance sheet. While production helped resale the client 43% from the prior quarter.
Speaker 7: Despite the large decline in health or sale production, residential mortgage gain and sale declined only modestly by 10%. Thanks to pipeline hedging gains during the quarter. quarter. you
Speaker 7: Within residential mortgage production, the percentage of revenue is buying decline as a function of rising rates, dropping to 18% of total production, down from 36% in the prior quarter.
Speaker 7: Multi-family loan production and gain on sale premiums remain muted due to the steeping of the yield curve and decline in refinance activity.
Speaker 7: Miscellaneous fee income increased $368,000 due to increased swap fee income and a loss in the sale of former branch facilities in the previous quarter.
Speaker 7: Total non-interest expense increased $858,000 from the prior quarter, primarily due to higher compensation costs, professional fees and fraud losses, while banner-forward implementation costs declined $900,000 to $1.6 million in the current quarter, excluding banner-forward, credit extinguishment and M&A.
Speaker 7: Core non-intersex expense increased 2.5 million.
Speaker 7: Compensation expense increased by $1.3 million due to increases in salaries due to annual merit increases, along with increased production-related commission and bonus expense, partially offset by decline in severance expense from the prior quarter.
Speaker 7: Check payment related fraud laws has increased 1 million.
Speaker 7: reflected in the payment and card processing expense line item.
Speaker 7: While professional services increase due to a combination of volume-driven outside contract client servicing activity and various legal expense items from the prior quarter to lending governance and settlement activities.
Speaker 7: In addition, as part of ongoing capital management, the company repurchased 200,000 shares during the quarter. The company repurchased 200,000 shares during the quarter.
Speaker 7: And please report that Banner Forward remains on track. We just completed the fourth consecutive quarter of implementation and approximately 71 percent of the initiatives from a program value perspective have been executed and are reflected in the current quarter run rate. Mergenerations areXi and we are back.
Speaker 7: with the majority of the efficiency initiatives in place in revenue initiatives beginning to generate benefits and the form of accelerated loan growth.
Speaker 7: of the efficiency initiative in place in revenue initiatives beginning to generate benefits in the form of accelerated loan growth and the income generation.
Speaker 7: Due to the impact of wage inflation and sustained levels of core inflation.
Speaker 7: We are adjusting our core expense quarterly run rate guidance up modestly to run between high 80s and low 90 million dollar range.
Speaker 7: However, our expectations for improved operating leverage and lower core efficiency ratio remain strong as inflationary pressure on a reduced expense base is being more than offset by rate driven expansion in the bank's net interest margin.
Speaker 7: In closing, the company is benefiting from rising rates as evidenced by significant margin expansion in this quarter, the stable low cost of the quarter-files of base in strong, diversified, long growth.
Speaker 7: This concludes my prepared remarks. All right.
Speaker 4: Thank you Peter and Jill for your comments. That concludes our prepared remarks today and Bricka we will now open the call and welcome your questions.
Speaker 1: Thank you. We will now begin the question and answer session.
Speaker 1: To ask a question you may press star 1 on your telephone keypad.
Speaker 1: If you can demand it any time, please press start 2.
Speaker 1: And when speaking please ensure your line is unmuted locally.
Speaker 1: We have the first question on the phone line form.
Speaker 1: Andrew Leach of Pipe Sandler. Andrew Yulani Leiterna.
Speaker 7: Thanks, good morning everyone.
Speaker 7: All right, Andrew, just wanted.
Speaker 3: Just like touch on the long growth outlook here, something like you had a couple of campaigns going on in the second quarter on the small business side and residential mortgage side. Have those ended? Are those continuing? It's kind of curious about the pace of the, the pace in the mix of the growth going forward.
Speaker 5: They are continuing, anticipated to end this month, so a little bit pulling into this quarter.
Speaker 4: Gotcha. I guess what was the impetus to start to start the attempt? I think it's been a pretty decent driver on cross.
Speaker 5: Part of the Banner Forward initiative is to just expand the growth in all of the business lines, whether it's business banking or moving upstream, and so this was just one of the Banner Forward initiatives.
Speaker 8: Got it. All right. I'll set that couple. And then on the.
Speaker 8: You just found the provisioning that that came a little bit higher than I was expecting so just looking at the 3.1 billion. Just looking at the 3.1 billion.
Speaker 8: for loan losses and how are you guys viewing the reserve ratio going forward? You think that's going to continue to build? Do you think you're going to continue to add or add to the provision around this level given macroeconomic concerns?
Speaker 5: So you hit on the things that are going to drive it there, Andrew. So provisioning is really, it's a function of the loan growth, it's a function of the economic conditions and our asset quality and that's been our message all along. We would return to provisioning with loan growth, which we had, and then my standard line, we don't give guidance as to where we're actually going to have our reserve at, but given the increasing economic uncertainty as we look into 2023, you can't expect that it will continue to be on the conservative side with regard...
Speaker 7: where we would anticipate going forward we're going to deploy our excess liquidity into loan growth and funding some deposit runoff for the price sensitive deposits depositors rather than you know increasing the securities book much more beyond this point that we that we had in the second quarter.
Speaker 8: All right, well, thank you for taking the questions. Let's take a little bit of a step back.
Speaker 9: Thank you, Andrew.
Speaker 1: Thank you. The next question from the phone lines comes from Jeff Rulis of DA Davidson. Please go ahead when you're ready.
Speaker 4: Thanks. Good morning.
Speaker 8: Morning. Morning, follow up. I'm just sort of the deposit runoff. I'm just sort of the deposit runoff.
Speaker 8: behavior. You noted the branch sale impact and some seasonal influence, but more focusing on that rate sensitive group and...
Speaker 10: The
Speaker 8: You know, your thoughts on...
Speaker 8: the ultimate amount of folks in your deposit base that would chase that rate and your reaction to, you know, obviously holding core relationships, but just getting a sense for, do you think that continues? And have we worked through some of maybe the fluff or the rate chasers and now you kind of.
Speaker 8: hold the line with the rest of their group. Any thoughts on the positive behavior would be great. Any thoughts on the positive behavior would be great.
Speaker 7: Yeah, Jeff, it's Peter. As we discussed in the past, our deposit base benefits from the fact that it's granular, it's diversified geographically, it's diversified across business line segments.
Speaker 7: A large portion of our deposit base are operating accounts for businesses that have less price sensitivity. And so I guess two sentiments here one is a lot of the price sensitive deposits left in the last rate cycle, right? Because of banner, we didn't match and didn't chase rates last in the last rate cycle. We never posted, we never didn't have any deposit campaigns in the interim period.
Speaker 7: And so we think we have a lot of resiliency built into our deposit base given their behavior in the past. That said, there will be some outflows for certain clients seeking higher rates, but we think that's a relatively small portion. And you won't see Banner leading with deposit rate specials or campaigns. We tend to price in that 40th.
Speaker 7: percentile of our peer group over time in terms of posted rates. So we think we're in a pretty good position. That being said, there'll be some modest amount of deposit runoff that we're willing to let go for rate. But we don't think it's going to be a large number. But we don't think it's going to be a large number.
Speaker 8: Okay, great, thanks. Is there a loan balance that went through on the branch sales as well?
Speaker 7: No, it was a deposit only. We retained all of the loans with that sound. We retained all of the loans with that sound.
Speaker 8: Got it. Okay. And I guess just.
Speaker 8: into the lung growth, the expectations, you know, Jill or Peter, I think Peter you mentioned.
Speaker 8: you know, expectations for one to four family to have some continued momentum and as these small business and rezzy mortgage campaigns continue on through the end of the month. Um, um,
Speaker 8: balancing that with rate increases and impacted customers. Just a little more thought on the loan growth outlook. I know outside of guidance, but just.
Speaker 8: your thoughts on second half type growth in a long portfolio.
Speaker 5: So I'll start and then Peter wants to chime in as well. I guess I'll start by saying that we would expect over the second half of the year to maintain what we've been guiding to and that's that high single digit.
Speaker 5: utilization rates are still effective obviously by the excess liquidity in the system and we did see a little bit of a pullback right at the end of the quarter in activity with that height and interest rates as far as become cautious and watch to see what happens. But the positives still are there, Jeff, located in markets with strong economic and business model that's working, strong loan originations, and our utilization rates that have significant upside potential are...
Speaker 5: Construction and AMD portfolio is off about 10% this quarter. Those will continue to fund up through the bounds of the year. Egg picked back up as I talked about. We have good commercial and commercial real estate pipelines. So, you know, all of the things indicate that we should hit our target, even with the caution in the wind with the economic environment. Even with the caution in the wind with the economic environment.
Speaker 8: That's great. Thank you. And Mark, maybe just the last one just done. And Mark, maybe just the last one just done.
Speaker 8: and let a, you know, some pessimism out there and some priceful utility, but any thought about M&A discussions and your appetite.
Speaker 4: Thanks, Jeff, for the question. And it's a good question. As you're seeing, obviously, there's been a slowdown in MMA activity, certainly, in the financial sector space. But that can be temporary. It's the normal course of the cycle with a full-backed valuations, some uncertainty with the economic climate and what you're really getting in terms of credit.
Speaker 4: potential credit exposure if you're on the acquisition side. But that's never been ban or philosophy to be in and out of the market or philosophy has always been to foster relationships and are into negotiated transaction.
Speaker 4: Transactions have that relationship with the board of directors of potential partners for CEO of potential partners in the executive team. Transactions have that relationship with the board of directors of potential partners in the executive team.
Speaker 4: And then when the timing's right, should there be an opportunity, we would do a combination. So the dialogue continues, the relationships continue to progress, and it's a matter of market timing before certain companies believe that it's time to enter into a combination with BAMER.
Speaker 2: Thanks Mark.
Speaker 4: Thanks Mark. Thank you, Jeff.
Speaker 1: Thank you. We now have a question from Tim Goffi of Chane. Please go ahead when you are ready. I will be in July .
Speaker 11: Great. Thank you. Morning, everybody. Thanks for the questions. I had a question about Banner Forward. Morning. I had a question about Banner Forward, and as you're kind of starting to get to the tail end of this project, I'm wondering how should we start thinking about kind of the revenue opportunities from this project? I mean, clearly you're doing a couple loan programs already, but as we get forward on this.
Speaker 11: I don't know if I'm intended. How should we think about that?
Speaker 7: Yeah, I can't remember. Peter, yeah, our guidance on kind of the trajectory and sequencing of bannervore doesn't change. We anticipate the revenue initiatives within bannervore and our beginning to generate value and the second quarter will continue as we go out into Q3, Q4 and beyond in the form of sustained long growth. So the whole notion is around the long growth initiative is to...
Speaker 7: develop a sustained level of long growth through the business lines that generate. have
Speaker 7: loan production over time. So it's not a big bang where we have one campaign and we're done. The real focus is a permanent and long lasting improvement and loan production and productivity across those functions that will benefit over time, the pace of one at Shinnex Road. The real focus is on the record of the loan production and the real focus is on the rate of loan production, the rate of loan production, the level benefits over time, Bye.
Speaker 7: And then with respect to fee income, we began implementing some of the PNP programs in the late in the second quarter. And we'll begin to see those bear more fruit in the coming quarters if we get a full quarter benefit of those fee increased those fee programs. And there's some additional additional fee income initiatives will be coming online late this year and into the first half of 23 that'll improve.
Speaker 7: the core fee income line as well. So we haven't changed our guidance. And there's still upside on the revenue, pace of revenue growth in those areas that has yet to be recognized in our performance.
Speaker 11: Okay, and if I could just follow up there. If we just talk about the loan growth over time.
Speaker 11: The way to think about that, it would take, you know, to the target from the high single digits to make a low double digits.
Speaker 7: for the total. I think we, yeah, I think the thing to keep in mind is to just for the, you know, we just Jill mentioned in her remarks, the wonderful mortgage growth this quarter and what we expect the next quarter is not something that we would expect to continue over the long run. However, that, you know, upper single digit piece of long growth.
Speaker 7: is something that we would continue to perpetuate going forward as we ex the mortgage growth we saw this quarter.
Speaker 7: That's really the focus is to sustain that upper single-digit loan growth over time in a diversified conservative credit risk demeanor that the Internet has always operated in.
Speaker 11: Okay, so perhaps a good way to think about it is that you can sustain growth through individual vertical volatility then.
Speaker 9: Yeah, that's fair.
Speaker 11: Okay, okay. And then Jill, just a question about the current state of just underwriting and portfolio maintenance. Has anything changed there? Not just to just that, you know, critical quality is not improving because it is, but given the high end economic uncertainty, have you started to kind of adjust or are you the underwriting or more frequent analysis of the portfolio?
Speaker 5: We really haven't because we've maintained a very conservative portfolio management through since the last great recession. We are looking at our watch and worst credits on an ongoing basis. We stress our portfolio on multiple fronts from origination throughout the cycle. The bank looks at underwriting rates and changes those as rates go up.
Speaker 5: rise so that we're looking forward into an increasing rate environment as well. That's always been our practice. The idea of underwriting here is that we're consistent through all cycles so people know that they can count on us through all cycles. You don't want to change the way you're looking at any one business line very materially at any given time.acks Gr enable my make sure they don't manage their prices here. Then the final
Speaker 12: Okay. All right, great. Those are my questions. I'm sorry.
Speaker 12: All right, great, those are my questions. Thank you very much. Thanks, Tim.
Speaker 1: Thank you, Tim. As a reminder, if you'd like to ask any more questions, please press star one on your telephone keypad. Please press star one on your telephone keypad. Please press star one on your telephone keypad.
Speaker 1: We now have another question on the line from Kelly Mottet with KDW.
Speaker 1: Please go ahead when you're ready.
Speaker 13: Hi, good morning. Thanks for the question. I apologize if this is repetitive. I got disconnected during the prepared remarks. But you mentioned your willingness to let some higher rate deposits go in the prepared remarks.
Speaker 13: And at Banner, you guys have really good core deposits. I wouldn't imagine there's quite a bit of that, but I was hoping you could maybe ring fence.
Speaker 13: the amount of deposits you would be, you consider more transactional and would be willing to let go. You consider more transactional and would be willing to let go.
Speaker 7: Hi Kelly, it's Peter. As we mentioned earlier, we feel really good about our core deposit base and our clients in there.
Speaker 7: and the sticky nature of our core deposit base has benefited and as evidenced by the last tightening cycle in 17 and 18, so a lot of that pricing to the clients that would have left in the last cycle because Banner didn't chase rates for deposit growth last time. There are small, there's a small amount of balance that is rate sensitive that we expect to move off balance sheet as rates go higher.
Speaker 7: But for the most part, we think that's a fairly small and limited number. And we're not going to chase rates this time either. And we anticipate – the bulk of our deposit base is relatively granular. A lot of it's operating accounts for businesses that really aren't there here for rates, they're here for service and product, and not there to seek higher yield. So –
Speaker 7: While we will see deposit bait as grow and increase it banner, we're not going to be top of the market in any of our products in terms of rate, nor do we expect a large outflow of deposit balances, but we will see some modest outflow. But I'm not going to, I can't give you a precise number, but I would anticipate some continuing reductions in our deposit balances due to rate as we go through the next several quarters.
Speaker 13: Got it. Thank you for all the color. And then on expenses, they came in a little higher than what you had guided for the past quarter of like the mid to high 80s. Was wondering if that was a function of the...
Speaker 13: branch closures being end of the quarter weighted or if there's greater pressure being seen, inflationary pressures, and how to think about that as we look forward and balance out with.
Speaker 13: the savings from Banner forward.
Speaker 7: Yeah, we didn't get the benefit of the branch consolidation this quarter because they were all – or the branch sales, they were all sold at the end of June . So we expect the benefit of that sale to manifest itself on a full quarter basis in Q3. And there's some other initiatives related to occupancy that will take effect in Q3 as well. But that being said, we are seeing wage inflation pressures and when we announced the banner forward –
Speaker 7: wages, you know, we're going up in the mid two percent range annually. Today, in the market, they're going up in the five percent range. And so we are seeing some wage inflation pressures that are offsetting some of the original guidance around that, you know, made a $80 million dollar number that are offsetting some of the saves we've got in the pipeline. So our guidance is...
Speaker 7: more of a neutral high 80s to low 90s core expense run rate. We do have some other, we expect as we go into 23 and beyond, as we said, a portion of our expense saves are being reinvested in technology and workflow automation across our support, our support and low-on-origination areas that will generate scalability benefits as Banner continues to grow both organically and through M&A over the long-wrest.
Speaker 7: are beginning to show up in certain areas.
Speaker 13: Understood. Thanks. Maybe one last one for me is just wondering about your repurchase appetite. I saw you had a bit of repurchases during the quarter.
Speaker 7: Yeah, our guidance doesn't change there. We are laying our opportunistic in terms of capital appointments. And so, again, it's an opportunistic decision quarter to quarter. We are seeing expanded long growth now. So we need to continue to retain capital support long growth. And we are TCD not a measure that we manage to explicitly, that we are now.
Speaker 7: pay attention to it, albeit our regulatory capital ratios remain very strong. And so it will be a quarter to quarter decision and our appetite hasn't changed over the long run that share repurchases remain an important and useful tool for capital deployment. But we don't have any strong expectations or guidance in terms of the pace of share repurchases other than it will be an opportunistic decision quarter to quarter going forward. Thank you.
Speaker 13: Got it. Thank you so much for the time. I really appreciate it.
Speaker 13: much for the time I really appreciate it.
Speaker 1: Thank you Kelly. As a reminder, if you would like to ask any more questions, please press start followed by one on your telephone keypad now.
Speaker 1: I've had a little further questions. The registered child liked to hand it back to Mark for some closing. The registered child liked to hand it back to Mark for some closing.
Speaker 4: Thank you, Brie. As I've stated, we're very proud of the Banner team and our second quarter performance.
Speaker 4: Thank you all for your interest in banner and joining us on our call today. We look forward to reporting our results to you again in the future. Have a wonderful day everyone.
Speaker 4: and banner and joining us on our call today. We look forward to reporting our results to you again in the future. Have a wonderful day everyone. Bye now.
Speaker 14: Thank you all, that does conclude today's call. Thank you again for joining. Thank you, my name is ConnectorLine.