Q2 2019 Earnings Call
Good day.
Welcome to the banner Corporation second quarter, 2019 conference call and webcast.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.
To withdraw your question. Please press Star then too.
Please note this event is being recorded.
I would now like to turn the conference over to Mr., Mark Grescovich, President and CEO . Please go ahead.
Thank you Shawn and good morning, everyone.
I would also like to welcome you to the second quarter 2019 earnings call for Banner Corporation.
As is customary joining me on the call today is Rick Barton, our Chief Credit Officer.
Peter Conner, our Chief Financial Officer.
And all of his final earnings call Albert Marshall The Secretary of the Corporation, who is retiring after nearly 39 years of service.
Also joining our call as our new head of Investor Relations Rich Arnold.
Albert would you please read our forward looking safe Harbor statement.
Certainly good morning, everyone.
Our presentation today discusses banner's business outlook and <unk> forward looking statements. Those statements include descriptions of management's plans objectives or goals for future operations products or services forecast of financial or other performance measures and statements about banner's general outlook for economic and other conditions as well as statements concerning the merger announcement with <unk> Bancorp.
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 information on the risk factors that could cause actual results to differ are available from the earnings and the merger. That's releases that were released yesterday and a recently filed Form 10-Q for the quarter ended March 31, 2019 forward looking statements are effective only as of the date. They are made and banner assumes no obligation to update information concerning its expectations.
Thank you.
[noise]. Thank you Al as announced banner Corporation reported a net profit available to common shareholders of $39.7 million or $1.14 per diluted share for the quarter ended June Thirtyth 2019.
This compared to a net profit to common shareholders of one dollar per share for the second quarter of 2018.
And 95 cents per share in the first quarter of 2019.
Excluding the impact of merger and acquisition expenses gains and losses on the sale of securities.
Changes in fair value of financial instruments and tax adjustments.
Earnings were $40 million for the second quarter 2019, compared to $32.2 million in the second quarter of 2018, an increase of 24%.
Due to the hard work of our employees throughout the company. We are successfully executing on our strategies and priorities to deliver sustainable profitability and revenue growth the banner.
Our core operating performance continued to reflect the success of our proven client acquisition strategies, which are producing strong core revenue and we are benefiting from the successful integration of our recent acquisition of Scottrade Bank.
Our second quarter 2019 performance demonstrates that our strategic plan continues to be effective and we are building shareholder value.
Second quarter 2019 revenue from core operations was $139.5 million compared to $126 million in the second quarter of 2018.
We benefited from a larger and improved earning asset mix, a solid net interest margin and good deposit and mortgage fee revenue.
Overall this resulted in a return on average assets of 1.36% for the second quarter of 2019.
Once again our performance this quarter reflects continued execution on our Super community Bank strategy that is growing new client relationships, adding to our core funding position by growing core deposits and promoting client loyalty and advocacy through our responsive service model.
To that point, our core deposits increased 11.4% compared to June Thirtyth 2018.
Non interest bearing deposits increased 9.7% from one year ago and represent a stable 39% of total deposits.
Further we continue to.
Continued our strong organic generation of new client relationships.
Reflective of this solid performance, coupled with our strong tangible common equity ratio of 10.5%.
We issued a core dividend of 41 cents per share in the quarter and repurchase 600000 shares of common stock.
In a few moments Peter Conner will discuss our operating performance in more detail.
Well, we have been effectively executing on our strategies to protect our net interest margin grow client relationships deliver sustainable profitability and prudently invest our capital. We have also focused on maintaining the improved risk profile of banner.
Again, this quarter, our credit quality metrics reflect our moderate risk profile.
At the end of the quarter, our ratio of allowance for loan and lease losses to total loans was 1.12% and our total nonperforming assets totaled <unk>, 0.18%.
In a moment, Rick Barton, our Chief Credit Officer will discuss the credit metrics of the company.
And provide some context around the loan portfolio and our success at maintaining a moderate credit risk profile.
In the quarter and throughout the preceding nine years, we've continued to invest in our franchise.
We have added talented commercial and retail banking personnel to our company and we have invested in further developing and integrating all our bankers into banner's proven credit and sales culture.
We also have made and are continuing to make significant investments in enhancing our digital and physical delivery platforms positioning the company for continued growth and scale.
While these investments have increased our core operating expenses. They have resulted in core revenue growth strong customer acquisition year over year growth in the loan portfolio and strong deposit fee income.
Further as I've noted before we have received marketplace recognition of our progress and our value proposition as JD power and associates. This year again ranked banner the number one bank in the northwest for client satisfaction. The fifth year. We have won this award.
The small business administration named banner Bank community lender of the year for the Seattle and Spokane District for two consecutive years and this year named banner Bank regional lender of the year for the fifth consecutive year.
Money magazine named Banner Bank, the Best Bank in the Pacific Region again this year also.
Banner was ranked in the Forbes 2019, best banks in America for the third consecutive year.
Before I turn the call over to Rick Barton to discuss trends in our loan portfolio I want to recognize our new colleagues from Alta Pacific Bank and outstanding community business Bank their clients and employees that will soon be joining banner.
We're extremely pleased with this opportunity to expand our Super community Bank model and enhance our density in the California market.
I'll now turn the call over to Rick Barton to discuss trends in our loan portfolio Rick.
Thanks Mark.
Once again, Ben banners credit Mark made metrics were stable during the just completed quarter, maintaining the moderate risk profile of the companys loan portfolio.
My specific remarks on our credit metrics. This morning will be brief.
Delinquent loans decreased 14 basis points from the linked quarter to 0.40% of total loans.
Delinquencies one year ago, we're 0.29%.
The company's level of adversely classified assets was stable during the quarter.
And remains well below historical norms.
Nonperforming assets decreased $1 million to $21 million during the quarter and 0.18% of total assets.
This metric at June 32018 was 0.16%.
Nonperforming assets were split between non performing loans of $18 million.
And our Ido and other assets of $3 million.
Nonperforming loans are not concentrated in any single loan category.
Not reflected in these totals are the remaining nonperforming loans of $6 million acquired from say, who swap americanwest and sketch it banks, which are not reportable under purchase accounting rules.
If we were to include the acquired nonperforming loans in our nonperforming asset totals.
The ratio of non performing assets to total assets would still be a modest 20 basis points.
For the quarter the company recorded net loan charge offs of $1.1 million.
Gross charge offs for the quarter were $1.9 million.
Well gross charge offs were up $500000 from the linked quarter, we still consider charge offs at this level to be low when compared to historical norms.
And they are not concentrated in any portfolio segment.
Also the quarterly increase in loan loss recoveries should not be considered recurring.
[noise] after a second quarter provision of $2 million and net loan losses of $1.1 million.
The allowance for loan and lease losses for the company.
Totals $98.3 million and is 1.12% of total loans unchanged from last quarter.
For the quarter ending June 32018, this measure was 1.22%.
Coverage of non performing loans remain very robust at 534%.
From 504% last quarter.
The remaining net accounting Mark against acquired loans is $23 million, which provides an additional level of protection against loan losses.
During the second quarter of 2019 total loans receivable were up $54 million when compared to the first quarter of 2019.
When viewing this number is important to note several points.
Cnine loan growth occurred across our footprint at an annualized rate of 19%.
As expected agricultural loans began their seasonal drawdown.
The residential construction portfolio was down by $12 million driven by the continued rebound in new home sales in our markets.
Investors see our reconstruction and permanent loans, both were down slightly during the quarter.
The small increases in multifamily construction and permanent homes were driven by commitments to Fanapt affordable housing.
Additionally, banners construction loan portfolios remain at exceptional acceptable concentration levels.
Residential construction exposure, including land loans is 7.9% of total loans.
When both multifamily and commercial construction.
And non residential land loans are added into this calculation.
Our total construction and land exposure is 12.3% of total loans.
At March 31, 2019, these ratios were 8.1% and 12.6% respectively.
The markets in which we make residential construction loans are experiencing strong sales.
Driven by both lower interest rates and continued robust.
Economic activity in our markets.
We feel that markets are now performing at or near historical norms.
The more affordable housing segments are still undersupplied, while some inventory buildup is noted in luxury homes.
The pace of lease up activity in multifamily projects remained steady, but we are continuing to observe flattening in the growth of multifamily rents.
The permanent loan market for new stabilizing multifamily projects remains robust.
As I said at the outset of my remarks, the credit story at our company remained stable during the second quarter of 2019.
We continued to be well positioned to deal with the next credit cycle, whatever form it might take and the portfolio impacts of macroeconomic economic factors, such as terrorists interest rates and the national debt.
With that said.
Pass the microphone to Peter tighter for his comments Peter.
Thank you Rick and good morning, everybody.
As discussed previously and as announced in our earnings release.
We reported net income of $39.7 million or one dollar and 14 cents per diluted share.
For the second quarter compared to $33.3 million or 95 cents per diluted share in the prior quarter.
The second quarter results benefited from the realization of the expense synergies from the scheduled acquisition.
Growth in residential and multifamily mortgage held for sale loan production.
An increase in portfolio loan Outstandings and a stable core net interest margin.
The 19 cents increase in per share earnings from the prior quarter was due to the following items.
Net interest income increased four cents due to an increase in average loan yields.
Noninterest income increased 14 cents due to an increase in mortgage and multifamily gain on sale income.
Growth in deposit related fee income and a write down on a former bank building in the prior quarter.
Noninterest expense declined seven cents due primarily to lower acquisition related charges.
Income tax expense increased six cents per share as a result of an increase in pre tax income.
Weighted average diluted share count declined by 290000 shares from the prior quarter as a result of repurchasing 600000 shares during the second quarter.
Positively impacting earnings by one cents.
Per share.
Total loans increased to 179 million from the prior quarter and as a result of 125 million increase in multifamily and residential mortgage loans held for sale and a 54 million increase in portfolio loans.
Portfolio loan growth in the second quarter was driven by strong cnine he like loan production.
Partially offset by declines in residential construction loan outstandings.
Ending held for sale loans grew by $125 million.
As a result of strong multifamily loan production during the quarter and no completed bulk sales.
And in core deposits were flat to the prior quarter.
Well I didn't point to point core deposits were flat to the first quarter average core deposit balances increased 75 million during the quarter for just under 4% on an annualized basis as we experienced our typical seasonal upswing in core deposits following annual tax payments in April .
Time deposits decreased by $93 million in the second quarter due to a decline in brokered Cds.
FHLB borrowings increased by 188 million in the second quarter as a result of growth in the multifamily held for sale portfolio and reductions in brokered Cds as a function of ongoing wholesale funds management.
Net interest income increased 600000 from the prior quarter due to an increase in average loan yields loan yields increased two basis points, principally due to an increase in prepayment related interest income.
Loan interest accretion from the acquired loan portfolios was flat to the prior quarter contributing nine basis points to loan yield in both quarters.
The weighted average loan coupon, excluding the effects of prepayments interest recoveries and deferred loan fee income declined one basis point from the first quarter.
Due to declines in term LIBOR and treasury rates.
Total cost of funds of 56 basis points was flat to the prior quarter as a modest increase in deposit costs was offset with lower rates on wholesale funding.
The total cost of deposits in the second quarter was 39 basis points up two basis points from the prior quarter.
As a result of lag to increases in retail deposit rates, partially offset by a reduction in higher cost brokered CD balances.
Brokered Cds accounted for four basis points of total deposit costs down from seven basis points in the prior quarter.
The composition of noninterest bearing deposits to total deposits remained steady at 39% and the ratio of core deposits to total deposits also remained steady at 88% in the second quarter.
The net interest margin increased one basis point to 4.38%.
The effects of purchase accounting related loan accretion were seven basis points in the current quarter.
The same as the preceding quarter.
The increase in net interest margin was driven by an increase in the yield on earning assets largely as a result of a return to a more typical pace of prepayment and interest penalty related interest income.
After coming off a lower level of this activity in the first quarter than we typically see.
Overall, the foundational elements of the company's net interest margin have not changed.
And remain the same and the company's balance sheet remains modestly asset sensitive.
Total noninterest income increased 4.6 million from the prior quarter.
Core non interest income excluding losses on the sales of and changes in securities carried at fair value increased $4.7 million.
Total mortgage banking income increased 2.5 million due to substantial increases in residential mortgage and multifamily loan production relative to the prior quarter.
Residential mortgage production was up in both purchase and refinance related originations across all product types.
Multifamily held for sale loan production increased meaningfully from the first quarter driven in part by borrower refinanced demand as a result of lower five and 10 year treasury rates.
Along with the typical seasonal increase in production, we normally experience in the second quarter.
BOLI income was down modestly in the second quarter as a result of a death benefit gain in the first quarter.
Miscellaneous fee income increased 900000, primarily as a result of a branch building right down in the first quarter.
Non interest expense declined by $3.3 million due to a 1.8 million decline in acquisition expenses.
A 1.5 million decrease in core noninterest expense driven largely.
From an increase in capitalized loan origination cost from increases in loan production along with an increase in standard loan origination unit cost rates implemented in the second quarter.
Run rate core expenses now reflect the skin the synergies of the scheduled acquisition.
With the 1 million increase in second quarter personnel expense. The result of increased commission incentives in annual merit increases being partially offset by a decline in head count.
Finally, we are excited about the Alta Pacific acquisition, and the positive impact it will have to our California presence.
We anticipate closing the transaction in the fourth quarter and look forward to welcoming the Alta Pacific team to the banner family.
Information about the transaction and all the Pacific Bank.
Can be found on banners Investor Relations web site.
This concludes my prepared remarks Mark.
Thank you Rick. Thank you Peter that concludes our prepared remarks, this morning, and Sean will now open the call and welcome your questions.
We will now begin the question answer session to ask a 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 if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.
Our first question comes from Jeff Rulis with da Davidson. Please go ahead.
Thanks, Good morning, guys.
Morning, Jeff.
Mark I was hoping to just get some color on how that outfit Pacific deal came about it had you been actively seeking a deal in California, slash where they.
Approaching you and just kind of a little little background, if you could.
Sure.
As I've stated many times.
The way we approach.
M&A activity is through negotiated transactions and those take quite a bit of time.
To to come to fruition, so conversations with banks such as all of the Pacific.
Have been occurring for several quarters.
In some cases several years.
Like with the with the case of scattered. So this has been over a period of time, where weve had conversations with.
Their executive management team and board about the potential for combination and it just so happened that the timing was right and it's a good opportunity for us to get additional density in the market we're already in.
Great and maybe Rick just a follow on on.
Do you have updated.
Sort of pro forma theory, and construction concentration levels relative to capital.
Given the deal I not that sizable but.
Maybe even pre deal.
Could you just remind us what those levels were.
Okay, Jeff good morning.
Our real estate concentration levels are.
No.
Just slightly below the regulatory guidelines.
That are set out the 100% for.
80, and see and 300% per total CRT exposure.
The bulk of the bulk of Pacific portfolio is real estate centric, so well at marginally to those concentration levels.
Okay. So for both.
Just below that those guidelines.
Both metrics.
Yes, Okay got you and then maybe just a last one on the on the mortgage banking outlook.
Last year, you had you actually had a stronger third quarter than in the second quarter I don't know if there was some pent up demand for this year.
Great timing any thoughts on the back half of the year in the in the mortgage book in the fee income side.
Yes, Hi, Jeff its Peter Yeah, we.
To your point, there was a bit of pent up demand coming out of the first quarter. We as you recall, we had some and easily.
Negative impact from from weather in the first quarter.
In the residential mortgage space and so there was some pent up demand that flowed into the second quarter of this year.
I'd also characterize our refinance volumes did increase in the second quarter, we were at 23% of our volume was refinance in the second quarter compared to 20% in the first quarter. So we got a bit a tailwind as well from the lower 10 year Treasury that helped with.
Overall production in the second quarter.
So I'd characterize I wouldn't.
Assume that we'd see a commensurate increase like we saw last year into the third quarter, but characterize our our second quarter is robust.
And as you recall, our our best two quarters of the year always the second and third quarter, but.
I wouldnt carry the the increase in the second quarter as another.
Indication of a further increase in the third quarter.
Okay, great. Thank you.
Thank you Jeff.
Our next question comes from Gordon Mcguire with Stephens. Please go ahead.
Good morning, Thanks for taking the question.
Morning Gordon.
Maybe just moving over to the NIM with the market pricing in a rate cut I was wondering if you could update us or give some guidance on how we should think about trends over the next couple of quarters, if we get a few cuts.
Yes, Hi, Gordon its Peter Yes, so we as Weve as Weve discussed previously our balance sheet is modestly acis assets asset sensitive.
And.
You know, we if you think about a 25 basis point rate cut.
Our margin would decline in the mid single digits and that's a function of our loan portfolio, 30% of our loans are what we consider floating and within that 30%.
20% of them are tied to prime and 10% to LIBOR. So we've already seen some of the decline as LIBOR leads the expectation on fed funds cuts that some of that's already reflected in our second quarter results.
And then the tenure is down substantially from where it was last year. So we've seen.
Quite a bit of the impact of the decline in the longer into the curve already so our expectation is.
Mid single digit.
Type impact to margin.
In the following quarter of a 25 basis point cut.
Of course, given the benefit of time, we have the opportunity to help manage the impact of some of the downside on margin through.
Levers we have on how we fund the company both.
From a wholesale perspective as well as from the mix in the retail deposit base.
Got it and then just on the service charges I think the release mentioned they were up due to interchange any any updated guidance for durbin.
Yes, our guidance is has not changed with Durbin. So we anticipate a seven and a half million dollar.
Impact interchange income in the second half of this year and then next year, including.
Growth for additional accounts and transactions, we'd assume a 15 and a half million dollar impact for full year 2020.
Got it I think congratulations on the deal, but maybe any thoughts on additional M&A just given the relative size of the Pacific whether you'd be interested in.
Adding another one in the near term.
Yes, Brian this is mark.
Look I think we're always looking at ways in which we can and increase our density and the current footprint already some very attractive markets and we want to continue to expand in those markets. We're going to stay focused on our organic growth strategy, but if we can augment the franchise.
More certainly would take advantage of that.
Okay. So this still wouldn't prevent you from another one if it if you had the opportunity.
It's not necessarily a very large transaction for the bank.
And then as far as preference between California, you've got an increase size there or any thoughts on whether you are looking northwest area or California.
Any preference there.
Well.
Obviously, we just added in California, So we now have $2 billion.
2 billion of our franchises in California.
What I would suggest as we actually like all of our markets and can use additional density and all of our footprint.
I wouldn't look for us to expand outside of our footprint, though.
Got it. Thank you that's all I had.
Thank you Gordon.
Our next question comes from Matthew Clark with Piper Jaffray.
Please go ahead.
Hi, good morning.
Good morning, Matthew.
Peter just wanted to hone in on deposit.
Cost a little bit more with that said.
You know potentially cutting next week by 25 basis points, just wanted to get your sense for.
The beta.
On deposit cost going.
Lower.
Yeah Matthew.
So.
In terms of our our expectation for deposit cost. So we we were at 39 basis points in the second quarter.
There's still a little bit of inertia left in terms of repricing our deposit book.
Simply through the passage of time and.
Maturity of our CD book Rolling over at somewhat higher rates.
As they mature the 612 and 24 month centers.
Coming on at slightly higher rates Theres a bit of just carry inertia, we did some modest pricing adjustments on our interest bearing buck in the in the middle of the second quarter that'll carry over.
And a full quarter of.
Impact in the third quarter, but all that being said.
If we did see a decline of 25 basis points.
I would anticipate our deposit cost to be flat to potentially up a basis points just due to the fact that we have that carry impact of the inertia going into the into the third quarter beyond the third quarter. Then we begin to look at reductions and opportunities we have to calibrate our pricing.
Relative to to market conditions in the fourth quarter with some potential reductions at that point, but I would not characterize any meaningful decline in deposit cost going into the third quarter, even with the 25 basis point cut.
This month.
Okay great.
And then just on the multifamily.
Gain on sale activity can you just isolate the much.
I'm not sure because in the release, but can you just isolate the.
The multifamily loans sold into related gain on sale just wanted to get a sense for that margin going forward.
Sustainable.
Yeah, we as we've discussed in prior calls we we.
We have adopted a fair value.
Accounting methodology is the multifamily production. So we actually account for the revenue when the loans are produced not when they are sold.
And so we marked the loans based on where market conditions are in terms of where we can sell those loans.
Typically in the following quarter and on a net basis after broker fees origination expenses.
Hedging costs were marking those loans in the 90 basis point net gain on sale level and Thats, where we anticipate selling what's on our books right now so the cash event of the sale really will have no impact on income a little bit up and down but.
Well, we'd recognize in terms of revenue in the second quarter was based on what they produce they did as as I mentioned earlier had a very strong quarter of loan production, we produced a $100 million in multifamily held for sale loan production.
The second quarter.
And that was up from about 25 million in the first quarter. So they have had a very strong quarter of production and we have good rest of activity to our our product in the secondary market. So we expect to sell that production.
In an orderly fashion over the next.
Over the next quarter.
Okay, great. Thank you.
Thank you Matt.
Our next question will come from Tim Obrien with Sandler O'neill and partners. Please go ahead.
Thanks.
Question for Peter that.
He accretable yield or the fair value discount on acquired loans was 22.6 million at quarter end.
Yes.
How much of that.
Could be affected by seasonal.
So your question Tim So as.
I think as lots of us know we've been.
We're working on our seasonal model that one of the one of the implications a seasonal from a purchase accounting perspective is that we will have to double count the non impaired credit Mark that we currently have on our books into the reserve beginning the first quarter of 2020.
And so thats part of our overall seasonal impact.
And so there will be a double counting of the.
Of the of a portion of that loan discount in the reserve related to the non impaired acquired loans.
We're not prepared to give guidance on what our seasonal impact as it at this juncture as we're working through the models and the bigger impacts going to be the overall Cecil model not the.
The impact of the purchased loans, but the upside is that once wonder Cecil will accrete, a 100% of that non impaired credit mark back into income no longer will it be use for charge offs and so there will be a little bit of benefit in the form of a higher run rates of accretable yield oppose Cecil because all of the charge offs on that non impaired acquired portfolio will run against the reserve not against the discount in the future. So we can return 100% of that discount into interest income in the future.
Do you have a sense Peter at this point or when you guys might be able to share a little bit more.
Quantitative detail on seasonal impact here.
Before year end is that a possibility maybe.
On your report third quarter, something like that results or something like that are you guys anticipating trying to do something like that or what are your thoughts. There are you going to wait till next year.
Well, we're not giving guidance on the quarter are gonna Discloser ranch just yet.
It will will.
Certainly be.
By the end of the fourth quarter.
We are working through the the models.
And we're running models in parallel with our fast five.
And.
We're well well down the road in terms of our our seasonal number but.
We'll we'll give guidance when we're ready to give guidance.
And then shifting gears I didnt.
Capture necessarily color you gave about the.
Uptick the seasonal uptick in service charges. This quarter that netted you guys, what like a million for additional.
Relative to last quarter.
Could you run that through that.
Color on haven't seen that before with you guys that kind of a seasonal uptick in that.
The line item before and it was.
So it was it stood out good could you talk a little bit more about that.
Sure, Yes, sure it's and it's a good question. So we did see a meaningful increase in.
Debit card interchange related income from the first quarter, the second quarter and that that was cause for three reasons. One as you point out we have a seasonal increase in transaction volume that we normally see.
Coupled with normal account growth and account acquisition the cause of the increase to we saw.
Some revenue synergy benefit coming off of this gadget conversion.
Where that were scheduled haddon recognize the opportunity to collect all of the interchange income on its debit card.
Portfolio that were now recognizing post conversion under banner and then three we did have a nonrecurring.
Income item in the second quarter interchange income of about $400000 related to the recapture of.
Contract negotiation with our debit card processor that we.
Booked into income in the second quarter, So I'd characterize 400000 of that second quarter resolved.
Is nonrecurring, but the rest of it is recurring.
And I think you gave some indication.
In the press release about gadget.
Synergies and also what the impact of Durbin is going to be on that did you did you do that as well did you account for that.
Durbin said no this gadget piece.
Yeah, Yeah, we didnt set the $7 million I I mentioned earlier does contemplate the inclusion of this gadget portfolio.
And the growth that we see there. So we we've gone through a complete audit of our of our impact recently with all the current debit card accounts and transaction. So that $75 million is is a current update to the impact we anticipate including scheduled portfolio.
How much of the so.
So it was 1.6 million higher sequentially take out 400000 for that one time, so a million too.
How much of the increase in the quarter was tied this gadget.
Can you share that.
I don't have a precise number for you Tim but.
Yes, it's it's something less than 500000, but it's.
Did have a meaningful impact.
Okay.
All right and then one last question.
Your.
Capital ratios were hardly data from the share repurchases. This quarter do you guys can you remind us do you have authorization remaining.
Under the.
Previous program.
What are your thoughts on additional I know that the stock is up nicely in and out but just curious what your the prospect of.
Potential additional repurchases might be.
So we.
So we have a 5% authorization to repurchase shares weve and that translates into roughly 1.7 million shares weve used 600000.
That authorization. So we have plenty of additional ammunition to do further repurchases this year.
But as we've said all along weve been agnostic with the form of our capital deployment between M&A share repurchases and special dividends.
So far this year, we've done two of the three so and last year, we did all three so.
We are guiding to the form of capital deployment.
But we are going to continue to deploy the excess capital and we continue to guide to a mid ninetys the level over time.
You don't want to throw one more question that yet capitalized loan origination cost were obviously.
Up quite a bit and that benefited.
Now that.
Help you manage non interest expense.
Any color on that in terms of go forward look but was there any anomaly in that number that 7.399 million.
Well, we if you look at our loan production numbers from Q1 to Q2, they were up 49% and our capitalized on origination expense was up 52%. So the vast majority of the increase in that line item was due to this.
Large production quarter, we had.
A smaller amount of it was due to some rate adjustments, we put through in the second quarter. So we increased for certain loan products. The standard loan origination cost that goes against.
The the capitalized on origination calculation in the quarter, but the vast majority of the change was simply due to the loan production in the quarter.
Thanks, Peter Thanks, guys.
I did too.
As a reminder, if you would like to ask a question. Please press Star then one.
Our next question comes from Luke Wilson with KBW. Please go ahead.
Hi, Good morning, guys. Thank you for taking my questions.
Good morning, Luke.
Just kind of housekeeping question.
Related to the closing of the Ulta Pacific is that supposed to be mid quarter or do you have a.
As Vik time on that just for modeling purposes.
Yes, we haven't guided to anything more specific loop in the fourth quarter.
For modeling purposes, I would assume a mid fourth quarter closing.
It's also important also important to you. The following question is when are we going to convert.
We anticipate converting in the mid first quarter of 2020.
And so this looks very much like the timeline for this gadget acquisition and conversion.
In terms of synergy closing and then synergy recognition.
Okay terms of synergy timing.
My expectation is we'd recognize.
25% of the guided synergies in the fourth quarter run rate.
And then achieved the rest of the synergies.
By the end of the first quarter. So we see the majority and almost the entirety of the synergies by the second quarter of 2020.
Okay. That's that's that's very helpful. Thanks, and then just I know you mentioned earlier on the Durbin impact that 15 million should be increased only nominally by the the abbey NK by I think it was 50000 in the presentation is that correct on an annual basis, Yes, that's correct and the reason is they are a business focused community bank and so their their level of debit card transaction activity is.
Substantially lower on a proportionate basis and banners.
Okay.
Thanks, and then.
Just switching to.
The deposits.
The the roll off and brokered Cds is it was it was definitely welcome. This quarter do you kind of see that maintaining at that level going forward and then kind of back filling it with core deposits or how do you see deposit growth kind of coming through the back half of this year, excluding the acquisition.
Well, we normally see a seasonal increase in our retail core deposits in the third quarter and.
We anticipate that.
To come through this year as well like it has in past years.
That being said, we will see a modest increase in brokered CD balances in the third quarter, we did run them off.
In the second quarter.
As we manage our wholesale funding between FHLB borrowings and brokered Cds.
And we attempt to take advantage of the best.
Tenor versus price trade off that we can achieve between those two sources of wholesale funding and.
And going to the third quarter, we'll see a bit of a shift back into brokered Cds, although not large it will be at a higher average balance than we had in the second quarter, but more importantly, we anticipate funding our loan growth with retail core deposits.
More than brokered Cds or FHLB increases in the third quarter.
Okay. That's helpful and then kind of just continuing on that.
Just a little bit more color just in terms of what the rates on brokered Cds versus FHLB borrowings do you guys disclose that or would you be willing to disclose that.
Just kind of seeing how those impact the.
That yeah, there and that they are in their public.
There are there and the brokered Cds enough for the tenders that we look at which are typically in the six to.
12 month range are running right around 2% 2.05 in that range and that is that is down actually substantially down from about 250 from six six to nine months ago, and FHLB borrowings run fairly close to that brokered CD level, albeit we get some activity stock dividend that shows up in noninterest income or Youve FHLB is you've got to take that into account, but the all in cost between those two sources are within.
Five to 10 basis points of each other around that 200 basis point level.
Okay Thats helpful and then.
Lastly, just mark maybe a question for you just kind of on.
So you guys are definitely building out the California presence and didn't know if there was other markets and it was brushed on briefly earlier, but.
Looking at maybe like the Idaho or or that the the other markets that you're not you don't have a huge presence in like the California, Oregon, Washington would there be any kind of de Novo then those in those markets or would maybe you look to do kind of more acquisition.
Well look it really depends on the pace of M&A.
As you know Denovo operations have a longer term payback than an M&A acquisition. So.
So we will evaluate both of those concepts, we may end up doing a little bit of both quite frankly.
But I'll be around all the markets all the markets that we're currently in.
Okay. That's helpful. Thank you guys for taking my questions.
Thank you look.
And this concludes our question and answer session I would like to turn the conference back over to Mark Grescovich for any closing remarks.
Thank you Sean as I stated, we are pleased with our solid second quarter 2019 performance in a challenging interest rate environment and see it as evidence they were 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, who are driving this solid performance for our company.
And we look forward to reporting our results to you in the future. Thank you for your interest in banner and joining us on the call today have a good day everyone.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.