Banner Corp (NASDAQ:BANR) Q4 2019 Earnings Conference Call - Final Transcript

Jan 24, 2020 • 11:00 am ET

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Banner Corp (NASDAQ:BANR) Q4 2019 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Ladies and gentlemen we'll now begin the question-and-answer session. [Operator Instructions] And our first question today comes from Jeff Rulis from D.A. Davidson. Please go ahead with your question.

Analyst
Jeffrey Rulis

Good morning.

Executive
Mark J. Grescovich

Good morning, Jeff.

Analyst
Jeffrey Rulis

On the margin side of things, did -- the loans brought on non-accrual, did that impact margin in the quarter?

Executive
Peter J. Conner

Yes. Hi, Jeff, it's Peter. Now the non-accrual increase did not have a material effect on the margins in the fourth quarter.

Analyst
Jeffrey Rulis

Okay. Is that -- was that a timing thing. Or it's just, it was not in sum, but like late in the quarter? Or it just had an immaterial effect?

Executive
Richard B. Barton

Yes. It occurred very late in the quarter Jeff, this is Rick.

Analyst
Jeffrey Rulis

Okay. So to that end, I guess, Peter and/or Rick, just the outlook on the margin given, I think Peter you outlined the prepayment on FHLB and continued expectation for deposit costs. I guess, how does that net out on margin going forward?

Executive
Peter J. Conner

Yes. We -- and as I mentioned in my prepared comments Jeff, we had some benefit from loan accretion from AltaPacific and a bit of an increase in interest prepayment related fees that go into the loan yield in the fourth quarter. If we take -- kind of adjust for those things, moving on to a normalized basis and a bit of a decrease in loan accretion that we normally expect as we get further into the acquired portfolios, along with the inertia we now have on reducing deposit cost is we know there is a lag in repricing deposits when market rates decline. We are guiding to a mid single-digit decline in margin in the first quarter given those moving parts. We'd expect a similar mid single-digit decline in cost of funds as well for the company in part due to ongoing declines and repricing of our retail deposit products, but also some benefit from prepaying some of the term advance FHLB borrowings that we did.

In the fourth quarter, we prepaid approximately $100 million of longer term durated FHLB advances and move those into overnight or very short FHLB borrowings by the end of the year.

Analyst
Jeffrey Rulis

Okay. And Rick, just hoping for some color on the large commercial relationship. Is that one single loan, a bucket of loans, if you could talk about kind of any type and color and then potentially kind of the expected workout timeline?

Executive
Richard B. Barton

Okay. Jeff, I'll be happy to address that. It is a single loan and it's not uncommon for things to be very lumpy in the commercial world when credit events happen. It's agribusiness credit that we have been monitoring for quite some time. They've had it in our classified loan totals. We have scoured the portfolio and have come to the conclusion that this issue with this particular relationship is isolated to that relationship, but not found in other credits individually or portfolio segments collectively. This is going to be a more extended work out period, but we have --