Q1 2020 Earnings Call
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Thank you, Rocco and good morning everyone. I would also like to welcome you to the first quarter 2020 earnings call for Banner Corporation as is customary off joining me on the call. Today is Rick Barton our chief credit officer Peter Connor our Chief Financial Officer, Joe Rice our chief Commercial Credit officer Rich Arnold our head of investor relations. Would you please read our forward-looking Safe Harbor statement?
Caremark
Good morning. Our presentation today discusses banners business Outlook and will include forward-looking statements those statements include descriptions of Management's plans objectives or goals for future operations team for services forecast of financial or other performance measures and statements about banners 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 in actual results, May differ materially from those discussed today information on the risk factors that could cause actual results to differ are available in the earnings press release that was released yesterday, and I recently filed form 10-K for the year ended December 31st, 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 rich.
It is certainly been an interesting quarter and I hope you and your families are well as we all battle the covid-19 pandemic day. We will cover for primary items with you off first. I will provide you high-level comments on the quarter.
2nd all know two things Banner is currently doing to support all our stakeholders including our Banner team our clients our communities and our shareholders.
Third Rick Barton will provide comments on the current status of our loan portfolio and accommodations. We have made to assist our clients.
Finally Peter Connor will provide more detail on our operating performance for the quarter and the build of our loan loss Reserve associated with adopting Cecil and taking into consideration the estimated credit impact of the pandemic.
I want to begin by thanking all of my 2100 colleagues in our company that are working extremely hard to assist our clients and communities during these difficult times.
Banner has lived our core values summed up as doing the right thing for a hundred and thirty years. It is critically important that we continue 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. I am pleased to report that is exactly what we are doing. I am very proud of the entire Banner team who are living our core values.
Now, let me turn to the an overview of the first quarter performance.
As announced winner Corporation reported a net profit available to Common shareholders of 16.9 million or $0.47 per diluted share for the quarter ended March 31st, 2020 this compared to a net profit to Common shareholders of $0.95 per share for the first quarter of 2019 and 95 tax per share in the fourth quarter of 2019.
this quarter
Earnings were impacted by a number of items including the adoption of Cecil and the estimated impact of the pandemic on the economy and subsequently the increase in our loan loss Reserve along with a net change in the fair value of financial instruments.
Peter will discuss these items in more detail shortly.
Directing your attention to pre-tax pre-provision earnings and excluding the impact of merger-and-acquisition expenses gains and losses on the sale of Securities and changes in the fair value of financial instruments earnings were forty eight point nine million dollars for the first quarter 2020 compared to forty six point four million dollars in the first quarter of 2019 an increase of 5%
This measure I believed helps illustrate the core earnings power of Banner.
First quarter 2020 revenue from core operations was 142.9 Million compared to 134.2 million dollars in the first quarter of 2019.
We benefited from a larger and improved earning asset mix an interest. Margin that remained above above 4% and good Mortgage Banking fee Revenue overall, including the higher loan-loss provision this resulted in a return on average assets of 4% for the first quarter of 2020. Once again off or 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.
That point our core deposits increased 13% compared to March 31st, 2019, non-interest-bearing deposits increased 11.7% off from one year ago and represent a stable 39% of total deposits.
Further we continued are strong organic generation of new client relationships.
Reflective of the solid performance coupled with our strong tangible common equity ratio of 9.7% We issued a dividend of $0.41 per share in the quarter also in light of the uncertainty of the future economic climate. We have suspended our share repurchases while we continue to monitor current conditions and wages Outlook. The company has not changed our policy of supporting our core dividend.
Why we have limited operations in our branches. Our Workforce has been mobilized with nearly 60% working effectively remotely and the remainder available for in-person meetings By Appointment While others perform operational duties. We are working our drive throughs and making sure are ATMs remain accessible and functioning.
We have also.
Created special programs for our employees deemed worksite essential with premium pay and other benefits and we are providing additional paid time off for exposure or sickness May Provide support for our clients. We have made available several Assistance programs. These include waved penalties for early IRA distributions up to a $1,000 and CD withdraws up to $25,000 in increase daily limits on mobile check deposits and ATM withdrawals.
Further through the first round of funding Banner has provided SBA payroll protection funds totaling nearly five hundred million dollars per 1545 businesses and provided deferred payments or waved interest on 2415 loans totaling nearly $751 a month of April 24th. Finally. We have made significant contributions to local and Regional nonprofits and provided initial support of $150,000 for emergency and basic needs in our footprint. Let me now turn the call over to Rick to discuss Trends in our loan portfolio and his comments on banners credit quality off Rick.
Thanks, Mark for the past several years this portion of our call began by noting that banners credit metrics were stable during the just in a quarter maintaining the moderate risk profile of the company's loan portfolio. We further stated that the company continued to be well positioned to deal with the next credit cycle, whatever form it might take those same statements could be repeated for a credit metrics of March 31st, 2020. However, making that statement now as a kid looking at a rear view mirror and ignoring that the current pandemic has been changing the economic and credit landscape at warp speed since the end of March.
With this thought in mind my remarks this morning, we'll talk about the position of our portfolio at the end of the first quarter of 2020 and then turn to information on facts and observations on the impact of the pandemic on banners loan portfolio.
It makes sense to touch on several of the company's credit metrics at quarter-end to emphasize our position of strength going into this pandemic Driven Credit cycle delinquent loans were six six percent of total loans, the twenty-five basis point increase from the linked quarter is an early indicator of pandemic portfolio compact the company's level of adversely classified assets were up during quarter, but remained well below historic norms and our modest when viewed in the context of banners Capital position,
non-performing Assets in
Increased five million dollars to $46 billion dollars during the quarter and our 306% of total assets non-performing assets were split between our phones at $44 million and REO and other assets two million. The increase in non-performing loans is due to a single leverage syndicated credit that was having difficulties that predate the pandemic you will recall in the fourth quarter of last year non-performing loans spiked as a result of a single Agri business loan.
During the first quarter good progress was made by our special Assets Group on this exposure, which is performing on an agreed to workout plan.
with banners adoption of Cecil and the onset of the pandemic
the first quarter loss provision was twenty one point seven million dollars. This provision was after loan charge-offs two million dollars and recoveries on charged off loans of two point five million dollars allowance for credit losses now stands at 130 Point four million dollars and is 1.41% of total loans coverage non-performing loans remain significant at 299% additionally under Cecil. The reserve for unfunded loan commitments was eleven point five million dead in his remarks Peter Connor will detail are thinking and assumptions and posting this first quarter provision in light of the pandemic.
For the past ten years a company priority has been to remix its loan portfolio in support of a moderate risk profile.
We believe this has been accomplished with the following points made in support of the mixing.
Acquisition Development and Construction loans at March 31st, 2020 are 13.2% of total loans.
Residential construction and land loans are 7.3% of total loans and as many of you will remember this concentration alone was off 30% pre Great Recession.
Multi-family exposure is 7.7% of total loans.
Commercial business loans are 23.3% of the loan portfolio not including owner-occupied real estate loans that are 11.6% of the loan portfolio.
Commercial business loans are Diversified by industry size and geography shared National credits are just 2% of the total loan portfolio with leverage transactions being less than 1% agricultural loans are 3.7% of the portfolio Consumer loans, including one to four-family permanent loans are 16.6% of the portfolio investor commercial real estate loans are 28.1% of total loans making it the Palm it was largest concentration. This portfolio also is the first Diversified by industry size and geography with an average loan size of less than $750,000. Finally single borrower exposure is diversifier. The company's largest exposure is 3.75% of
capital in the top
25 commitments are 59% of capital outstanding on these commitments is 39% of capital.
A great deal of effort has been focused on building the company's credit culture. This has been a Cooperative effort between credit risk management and production lines of business office with support from the top of the house and the board of directors a laser focus has been maintained on good initial risk selection and our lending policy has remained unchanged as we chose not to relax our approach to underwriting during the long economic expansion. This should stand Us in good stead as we deal with the realities of the home and damaged. It also puts us in a position of continuing to meet the credit needs of our clients going forward.
With the discussion of batters, March Thirty One two thousand and twenty portfolio position complete the balance of my remarks will be on the month pandemic realities economic forecasts are beginning to capture the magnitude of the economic cycle. We are facing the initial impact of the cycle on our wage though is reflected in this quarter's provision expense and as Peter will discuss provisioning and future quarters also is likely to be impacted.
The impact on many of our clients has been Swift and is reflected in the level of loan deferrals and modifications. We have granted as noted in. Our press release first-quarter modifications were made to 912 loans, totaling $328 million dollars. These numbers have continued to grow during the month of April and now stand it off 2415 loans and 751 million dollars, which is 8.1% of the total loan portfolio.
Portfolio segments with significant modification activity or the following small business scored loans 166 million dollars hotel motel loans 123 million dollars Consumer loans including one to four-family mortgages 91 million dollars restaurants $71,000.
Retail commercial real estate $79 and sports clubs and fitness centers $50 the balance of the modification are spread between larger C&I borrowers fifty million dollars and a variety of investor and owner-occupied commercial real estate property types. The birth of our modifications has been ninety days and under regulatory guidance. They are not considered to be troubled that restructures.
are exposed
Here's an portfolio segments with the highest immediate risk or the following.
Hotel $213 restaurants $163
Recreation and Leisure $90 Health Care practitioners $124 million dollars Health Care Facilities 244 million dollars a month or oil and gas exposure is nail on a direct basis with indirect exposure and less than ten million dollars and our Airline exposure is less than ten million dollars.
In order to better gauge portfolio issues. We are in the process of a relationship by raised relationship review of our loan portfolio. This will give us a good base line that help manage our loan portfolio generally and probably problem credits individually through the duration of the pandemic. We are committed to assist clients in a safe and strong as they deal with how the pandemic is impacting their businesses. In addition to the modifications just discussed Mark outlined our participation in the payroll Protection Program and we are assessing our participation in the upcoming Main Street Landing initiative and we are looking for other actions that we can take off of her clients survive. This unprecedented credit cycle.
and finally, we are fortunate to operate in geographies that we're outperforming the national economy pre pandemic and that are home to many exceptional companies and research universities these footprint demographics when combined with our strong credit metrics loan portfolio diversification and capital structure will serve us well as we work with our clients through this period of economic uncertainty
What's that? Turn the microphone over to Peter Connor for his comment Peter.
Thank you, Rick and good morning. Everybody has discussed previously and as announced in our earnings release we reported net income of 16.9 million or $0.47 per month here for the first quarter compared to thirty three point seven million or $0.95 per diluted share in the prior quarter while quarter Revenue increased 3.2 million in the fourth quarter. First quarter earnings were negatively impacted by the elevated Cecil Lomas provision that contemplates deteriorating economic conditions and future periods. I'd like to make a few comments about our approach to the inaugural Cecil Reserve in the first quarter.
Total reserves including the allowance for credit losses and reserves for unfunded loan commitments increased 38.7 million from the fourth quarter to 142 million in cash the day one adaption to Cecil in the day to provision for the first quarter.
the store
Or quantitative component of a reserve model uses twelve years of actual loss history back to the first quarter of 2008 and incorporates the losses experienced off during the Great Recession.
Our economic forecast assumption contemplated negative GDP growth in the eighteen to twenty percent range and unemployment peaking at 9% in the second quarter then remaining in the 66% range into 2021.
The qualitative adjustment component reflects management judgments and conditions unique to our markets and portfolio since quarter. And when we establish the reserve the economic life has deteriorated, however, the offsetting risk transfer effect of the fiscal stimulus provided by government loan programs that Banner is participating in are yet to be known nor is the pace and timing of reopening of the economy. The inner has used a prudent reserving methodology since the Great Recession and we believe that we continue to practice in the first quarter based on the facts and circumstances that existed at quarter-end and we will continue to do so going forward.
trying to get PS the 48% decline in per-share earnings from the prior quarter was primarily the result of the increase in loan loss provision expense and reduction in the value of financial instruments cured if their value
Total loans increased $48 million prior quarter and as a result of increased refinanced driven prepayments on 1 2 for first-lien mortgages mortgage loans lower construction loan at Stanford along with a decline in health for sale loan outstandings. We did not experience any material change in overall credit line usage as of the end of the first quarter.
Organic portfolio loan growth excluding home for sale loans decline 19.6 million felt for sale loans declined by 28 million as both sales out of the multifamily portfolio, exceeded production to the quarter excluding the Alta Pacific a position loans held for portfolio through by 3% over the prior-year quarter.
And in core deposits increased $355 million from prior quarter and due to organic new account growth and general increases in average account balances as customer liquidity wage increased heading into the pandemic.
Excluding the Alpha Pacific acquisition for deposits grew 9.3% over the prior-year quarter.
9 to 5 it's increased by $46 billion due to an increase in brokered CDs while retail CDs remain flat.
Fhlb borrowings declined 203 million as a result of core deposit growth.
That interesting, remain even with the fourth quarter at $119 billion as growth in average earning assets offset a small decline in net interest margin compared to the prior quarter bath. He'll decrease ten basis points principally due to an overall decline in the yield curve. The average loan coupon declined 7 basis points, which was partially offset by an increase in a creation related interests kind of 2 basis points and to decrease and deferred loan origination prepayment and interest penalty related fees totaling 5 basis points.
total cost of
Funds to climb 6 days as planks to 46 basis points as a result of lower deposit costs and wholesale funding costs the costs of deposits declined from 40 basis points for 35 in the first quarter due to declines in retail deposit costs.
Brokered CDs accounted for four basis points of the total deposit cost one basis point lower than the prior quarter composition of non interest-bearing deposit the total deposit help studying at 39% of total deposits and the ratio of deposits to Total deposits held steady at 89% in the first quarter.
The net interest margin declined modestly by one basis point to 4.19% as a decline in funding cost kept kept pace with a decline and running out of guilt and improved security Fields do to purchase an immune Securities at the stress prices in March along with slower prepayment speeds on MBS Securities helped offset, the impact of the decline and Loan yields wage increase in contributed ten basis points to the margin in the first quarter up to basis points from the eight basic clients want accretion contributed to the margin of the fourth quarter.
The bank continued to adjust deposit rates down during the quarter and into April and we anticipate seeing a continued decline in average deposit cost carry through into the second quarter.
Total non-interest income declined by one point 1 million from the prior quarter the results this quarter included a loss of four point six million on Fair Value adjustments on Securities held for trading in the Investment Portfolio due to higher credit spreads non interesting, excluding losses on the sales of and changes in security security at fair value increased 3.4 million month deposit fees increased $166,000 due to additional volume from the altar Pacific acquisition in mid 4th quarter.
Total Mortgage Banking income increased significantly by 3.9 million due primarily to an increase in Residential Mortgage gain-on-sale spreads on - and high refinance volume demands from within this line item multifamily loan gain-on-sale income was down $669,000 for the fourth quarter due to losses on the held for sale interest rate hedge due to the office and Market rates and the slow down and new Loan Production in the near-term. Multifamily Loan Production will remain muted as secondary Market buyer demand has softened with the pandemic.
This one is fee income decreased $562,000 due principally to lower SBA and swap income.
Turning did not interest expense total non-interest expense increased by one point five million from the prior quarter, excluding acquisition costs and pandemic specific operating costs Courtney expense increased 4.5 million compensation expense increased 2.9 Million due to a combination of higher payroll taxes normally experienced this time of year along with a medical claim response from the first quarter following an accrual release in the fourth quarter.
Well, we did not see.
Covid-19 specific related medical claims in the first quarter. We did experience an increase in routine medical claims in advance of the stay-at-home orders.
The credit for capitalized want origination costs declined by three million in the first quarter due to a substantial decline in new Loan Production.
Provision expense for unfunded loan commitments increased one point seven million as a result of the day to Cecil required reserves model as applied to under on loan commitments.
Increase was proportionate to the change in the increase in the reserve for the allowance for credit losses discussed previously other expenses generally declined in the first quarter results and lower client transaction activity employee travel and Conference and facility costs all driven by the stay-at-home order is in effect across the energy footprint.
Covid-19 specific items such as employee salary premiums overtime benefits and medical claims customer Communications facilities and sanitization Cash and Carry roofing supplies and certain it costs enabling a remote work environment. We anticipate the increase from these pandemics specific costs will be less than the offsetting reduction in normal operating costs wage typically incurred over the same period for conferences and travel marketing and Branch transaction driven costs.
this concludes my prepared remarks mark
Thank you, Peter and Rick for your comments that concludes our prepared remarks and Rocco will now open the call and welcome your questions. Absolutely. Well now begin the question-and-answer session to ask a question. You may have been one on your touchtone phone. If you're using the speaker phone, we ask that you please pick up your handset before pressing the keys to my question, please press * then two today's first question comes from Jackie Bowen with KBW, please go ahead.
Hi, good morning. Everyone morning Jackie. I wanted to dig into Mortgage Banking first just you know, the meaningful increased quarter-on-quarter Peter that would happen to know the multifamily impact on a linked quarter basis. Do you have the dollar value of its contribution to see income this quarter?
Hi Jackie, it's Peter. Yeah, it was it was about $400,000 for the quarter. So it's a bit lower than it has been as I described in my prepared remarks and most of that page. Well, it would do two pieces. It was due to the decline in the in the Hedge, uh that we put on the pipeline prior to sell them alone. And then to production for the quarter was lower than wage experienced in part due to the first quarter and then as the pandemic began to emerge that also negatively effects and production and multi-family.
Okay, and it sounds like that, you know production and those Trends are likely to continue in the near term for that specific piece of it. Yeah, that that's correct. We we pulled back on production. All right, an increase pricing in anticipation of a Slowdown in the demand in our secondary fire University of other Banks. So we we've you know preemptively slowed down production going forward. It's helpful. Thank you and then turning to the the single-family piece of it on, you know, just doing some basic head mask. So I'm going to be off a little bit here, It looks like the single-family piece almost doubled this quarter. I'm in terms of games was that all due to being on sale margin or was there higher volume as well in the quarter?
It was due to to margin we were we were actually down in terms of production a little over 10% from the fourth quarter the mix in terms of refinance purchase continued to increase towards the refinance site. It was about 50-50 refinanced purchase in the first quarter and we experienced such a high demand of refinance volume. Am I able to increase pricing and generate a higher gain on sale this quarter, you know, well above what we've experienced the gain on sale is a bit over 4% off on a net basis for the quarter. So all of that increase was driven by hired, you know on sale. Okay, and do you have what it was for the fourth quarter?
The I'm sorry. What was the question? What what the gain on sale was for the fourth quarter just so I can compare the two. Yeah, it was it was running in the mid 2% range in terms of Gainesville percentage off. And and how how are you looking to this line items in the current quarter, you know I know and it's likely to continue to be strong but given the stay-at-home orders. I would suspect that purchases are down significantly.
Yeah, we're it's so far. The evidence is that you know, at least in the first part of this quarter that you know, the pipelines are holding up holding up. Well, although it's you know, we're not through the quarter yet, Um, so we haven't seen a diminishment of demand or or volume coming in so far I would anticipate we'll see you soon as somewhat lower spread on loans again on sale spread in the second quarter of all things equal so we can all anticipated Decline and again on sale income number in Q2, but we continue to see strong refinance volume. And as you know family we see some seasonal increase due to weather in the second and third quarter. So that's a bit of an offset to um, you know, what we normally see in terms of the slow down and refinance volume. So like, you know life right now, we we see studies should goes in terms of production for the second quarter. I'll be at a lower gate on sale.
Okay, so that line item probably from a single family perspective probably wind up somewhere between you and one Q.
Yeah, that's true.
Okay, okay, and then just one last one and I'll sit back you mentioned the conversion was done in February. How much is the cost to have you realized from Ulta Pacific to date month so through yes so through we we would have recognized hundred percent of them by the end of the first quarter. So we really are effectively done with the cost. You know, any remaining really are de minimis at this point. So what we've seen the second quarter the full total amount of the Synergy that we contemplated when we announced the transaction back in July 25th of 2019.
Okay, great. Thank you. I'll set back.
Thank you. Jackie. Next question Gordon mccleery, please. Go ahead. Good morning. Good morning. Gorgeous off a Mark. I guess could you provide an updated updated expectations for how you're thinking about net growth this year and an origination and origination activity and I guess Peter how would that origination activity translate into the capitalized origination costs in the salaries expenses line.
Yeah Gordon, this is Mark. I'll take the first part of that question. I think you know we had initiated some our thoughts that we would see some mid single-digit growth in jobs in the loan book. I think it's as we suspect now, we're looking at it and suggesting that the capital spending is is not going to occur until the latter half of the year and you're going to start to see some businesses will certainly draw down some of their working capital facilities as the economy begins to rebound but we're not anticipating that until later in the year and the continued low interest rate environment is going to lead to two additional refinancing specifically in the one one to four-family books so long. I think you can you can view our look at the overall loan growth as being flat.
Peter do you
Want to comment on yeah. Hi Gordon heater. Yeah, in terms of the the fertile want a reservation next time. I think we'll see some modest increase in that credit to compensation expense going into Q2 and Q3, you know, we typically we have a fairly low seasonal, um Loan Production in the first quarter just naturally based on our business model that has Mark, you know, highlighted, you know, we're expecting a slower pace of production this year given the pandemic so you've got to kind of balance that into what we normally see as an increase in in Loan Production a second quarter will be muted because of the pandemic but I you know guide to a modest increase in that that line item going into Q2. The other wild-card is the s p p p p program right that that too has some modest amount of loan origination, um, you know offset but yet that's yet to be determined based on the quantity we end up doing in a second quarter dead.
I appreciate that speaking of the PPP program. Do you have an estimated estimate of what the Blended rate could be?
Yeah, this is Peter. So we today based on what we even asked terms of the first Toronto production. The average weighted loan processing fee was right at 3% but that had a higher weighting of life that we're front-loaded in some ways in the first round of production. And we expect that as we go forward that average loan size with a Klein and the Sea will go up. So I I think we're gonna be closer to three and a half percent as opposed to 3 by the time the second quarter end. And then how how many loans did you have that type line pending approval and just what's the the pipeline for round two?
How is that looking?
Yeah, it's Gordon. So we had north of 5,000 inquiries coming into the overall program. And you saw the numbers that we put in the deck as one that we did through the initial phase which was $1,345 businesses receiving $448 million dollars in funding. I am asleep would anticipate that those numbers are a bit larger in terms of applications approved by the bank and waiting for an approval by the SBA. So, you know, I did that we can get the etran system up and running effectively for the bank, you know as they go through the approval process. You could see that number looking very much similar provided. There's enough funds in in the SBA process.
And again that the the numbers I gave you in terms of earning asset rather loan growth are without this particular program. So net of this program, which obviously will invest inflate the balance sheet Peter. You have any additional remarks to that?
No.
You covered it Walmart.
Thanks for clarifying that last point and how do you expect it to fund these balances? Are you are you bringing them in bringing deposits in or expect to use p p l f or fhlb was how was the balance sheet supposed to be funded for these?
Yeah, yes. Yes. Yeah, we're going we're going to fund them with the PPP Plumbing facility from the FED which has you know is 30 basis points for that also is required in order to get any regulatory capital of relief as well. So our plan at this juncture is to fund the entirety of the PPP loan balance with that fed facilities. I'll step back. Thank you.
Thank you. All right. Next question today comes from David. She's through with Raymond change. Hey, good morning. Everybody morning David. I just kind of wanted to follow up on the the PPP question. Are you primarily just focused on existing customers or using this as an opportunity to expand relationships? And and are you able to walk in, you know, ask for more full deposit relationship as your supporting your client base?
Yeah, this this is Mark. Look, I think the first and foremost that we're doing is trying to support all the businesses that are looking for an application and relief through a g p p program and that's the approach we've taken many of them are clients. Some of them are not clients and we're trying to support everybody who approaches the bank bag with that particular plan. I don't view this as a program and it's staged right now. Obviously given the quick, uh, usually ization of the initial funding has one in which it's a a true marketing plan for the bank. We're doing this to help the businesses and communities in which we operate and that's how I set up. This is not set up as a a marketing grab for a competing against other Banks. We hope the other financial institutions are mobilizing as as strongly as we are dead.
With our staff trying to process these to help the businesses and the communities in which we all operate. So our approach to this is one of of folks coming in with that are if they qualify and they fill out an application and they get in the queue. We're going to service them. Okay, that's helpful and then just walk on deposits General you guys have done a tremendous job growing low cost for deposits. I guess just giving all the stimulus down at the market and you know, the the treasury actions and everything you think about deposit growth going forward and and maybe in light of you know a flat, you know loan growth environment. Where where do you how do you plan on using excess liquidity?
Yeah, how you doing?
Yeah, I do Peter. Yeah, so we are correct. We seen a an increase in you know count level and client liquidity and deposit accounts and wage are seeing some inflows from the PPP program as well going into deposit accounts as the ones get funded. So we we think this increase in liquidity is really bifurcated a two-component. There's a piece that's going to go back out off-balance-sheet. Um, you know, the next quarter or two, you know, one funding proceeds or use the proceeds from the PPP program go back off balance sheet and then and then we think there's a component here that's going to be more sticky a little hang around for a while this increase liquidity. So we're we are going to invest it but on a day-to-day basis is to basically take advantage of the short-term liquidity, but not creating excessive liquidity risk for the company and creating a lot of excess birth.
Creation with this newfound liquidity over the long run. So it's a it's a blend of Investments both short medium and long based on where we believe the duration of these deposits wage. So ultimately, okay and then I guess ultimately what how do you think about the corn in in light of all that going forward just you know much about that and then also any thoughts on increasing going forward under Cecil. Thanks. Yeah the you know, so we are margin of four for $19 for the quarter back was good. It was also we had a good quarter alone appreciate it was up a couple of basis points from the prior quarter appreciate both of the lumpy, but we anticipate that loan across an component to gradually declined quarter-to-quarter. So we're not going to see the level of accretion some support that we saw in the first quarter going forward. It'll drop a couple of years.
Just wanted to thank you know one or two every quarter to go forward. So you you'll take that into account and then you know, we did look at the spot rate on our loan yields at March 31st. We you know, after this point, uh cut in fed funds and Prime compared to the average loan yield that we reported in the quarter, which was 503. We did see about a 25 basis-point decline in the spot rate on loan yields at March 31st. So you can take that into account and then factor in a continuing decline in our funding costs as I mentioned earlier, we continue with a steady pace of deposit rate reduction along with a steady pace of lower wholesale funding costs to partially offset the decline and longfields. I did mention my prepared remarks or security deals were up this quarter partly due to a slower prepayment activity in rmbs, but also due to the fact that we purchased about tumour.
$40 of beauties and
Hi high, rated corporate very distressed prices and that third week of March when it was significant dislocation in the markets. And so that basket of Securities came on at about 4% tax adjusted yield. So that'll create a little bit of support on the Securities portfolio, uh going forward. So all that being said, it's you know, we took my guidance on the margin specifically and in this quarter, um, you know, the PPP program is going to have another element of effect on the margin with the processing fee and the pace of loan funding. P p we actually think the PPP program will be a creative to margin the in the first two quarters of its existence. And so you'll you have to factor that into your margin expectations against the generally, you know, declining organic Colonial that we would have had otherwise
Scott thanks everybody.
Thank you. All right. Next question comes from Andrew lease with Piper Sandler, please. Go ahead. Good morning. Everyone. Just kind of a god kind of follow-up question on the on the margin here. I know you guys have been putting loan floors and that's going to focus for a while. Just what percentage of loans are are at 4 is right now and wage report Foley was tied to fix rates.
Theater all started with the the moon question. So our our loan repricing mix has remained relatively stable over time and it continues to be about 40% of our loan book is fixed rate and the remaining uh, sixty percent is is basically split between adjustable loans every price between three three months and months and five years. And the rest of it's floating on prime or Libor, um, in terms of loan floors, uh, we've got about two point eight billion or so of loan either floating or adjustable with with a floor. And as of today about seventy percent of that book, uh is at its floor close to added four months and the remaining portion is still got some spread between it's strike price and actual floor. So there's there's some support there. Um, but we'll continue to see some decline in in floating wage.
Floating rate loan yields as we go forward and we have we have instill the discipline of floors and all that new floating rate loan originations as a general rule unless they're exception of proofing. So, um, you know, there is some support there and I think the other point to make here is that overtime is an actual Florida loan pricing that the market will accept in terms of um, expected credit losses and want to record an expense that'll that'll improve spreads over those indices overtime. This is a natural market effect.
Gotcha. I agree. Thank you. That's very helpful. And then just on the expenses and just expenses here excluding some of the the murder charges a one-time covid-19 expenses that you called out quarterly numbers off $94 million or so. It's the uh, I guess it's the origination credit is a little bit larger number this quarter. Um, let me see expenses. Come down a little bit is like a $93 run rate the right level to be looking at going forward.
Yeah, that's um a part of that as you point out its way to relatively light quarter of loan origination, uh credit to expense and third quarter as a, you know, mentioned earlier. We think that I think that number is going to move up a bit here in the second quarter as well as production, uh goes up relative to the first quarter. So you'll see some benefit Thursday. We'll get some of the Synergy benefit from Alta Pacific showing up beginning the second quarter. It's not a big acquisition. So I'm not going to say it's a big component that we will see the full synergies of that integration began in the second quarter and then as a guided to earlier employee-related costs for travel conferences and some other activity that we normally happens often aren't happening because of the stay-at-home order. So we'll see some some benefits. They're going forward. The other point I mentioned is that we as we discussed previously we have ongoing issue.
As to improve the operating efficiency in our delivery platform. So the retail Branch Network and our commercial delivery platform and some automation initiatives that will improve efficiency of those have been pushed back. I'm giving the pandemic so they while their still active they've been deferred during the pandemic. So the pace of our improving operating efficiency has been pushed out during the week and I'm actually want to take that into account as you think about, you know, the end of two thousand twenty and Twenty-One and Beyond will will resurrect those projects, but right now they're on claws for about six months.
That's it. That's the telephone. Thanks so much. I'll stay back.
Thank you. Andrew. Next question comes from Jeff Lewis with the Davison, please go ahead good morning morning a bunch of questions wage and asked but I guess on the PVP. Do you have any sense for the percent of those that that you funded that that would be including the at-risk group in terms of those that you've identified? Um, which which participated in the PPP as well?
I'll ask Ric to to comment on that.
Morning, Jeff, you know, we have not done the segment analysis yet. I was holding off on doing that until we get through the current round of funding so that we have a little more comprehensive view of how the money was used. I can't say just from my review of the list Thursday. We have funded the date that it's spread throughout all sectors and it's not concentrated in any one of the segments Thursday if identified as high risk with the possible exception that the word Hotel pops up in the list quite frequently.
So a equal share you'd think if if it was nine or 10% of the portfolio. That would be your best guess with a higher percentage of hotel if that's where I would start from. Yes, Jeff fair enough. Okay, and then Mark, I think I know the answer to this but I'll ask it anyway just on the buyback and capital sort of revisit those thoughts. I know that we're we've got to stay some prudent on how this plays out. But you know when or kind of the Triggers on by back when that may be back in play and just dots in in capital in general appreciate it.
Thank you Jeff. I think as indicated in my prepared remarks, we've obviously suspended any share repurchase just as other financial institutions have brought there's still too much uncertainty as to how this is all going to play out over the course of the next twelve months and we want to make sure that our Capital position remains very strong and that we're supporting our clients through this. So that's number one. The other thing as part of my prepared remarks is, you know, we evaluate all of our Capital deployment all the time on a quarterly basis, we certainly as as a as an institution look at our dividend policy and it has identified in the first quarter. We issued a $41 dividend Accord dividend is certainly something that is top-of-mind for for the board and for the institution in terms of capital deployment, but first and foremost, obviously, it's going to suck.
Support our clients through this and as we've done in the past with share repurchase, we've been opportunistic as to when we would deploy that when we feel comfortable that we have good understanding as to what the economic profile of the country is going to be and in particular the banks overall risk appetites going to be in Risk components going to be over the next several months. And right now it's just too early to tell. Yep. Yep. No, I appreciate the color there. And one last one for Rick Ross the it sounded pretty positive on that kind of progressing. Well on that agribusiness credit is you know, is that classification possibly going to change out of non-accrual or you know, given its kind of the regulatory environment. Could that be considered a TV are or how do you how do you view that credit dead?
And it's ultimate processing here as we go forward.
Okay. Well as I said in my remarks, we're pleased with the progress that we have made the date but these are just the first baby steps and what's not going to be a long-term work out and it's going to be probably and I'm at least a year before we could consider moving it out of non-accrual unless something, you know, really remarkable happens if it was out of non-accrual off today for whatever reason it probably would be a troubled debt restructure sort of a vague answer but when we get into these were very difficult working out situations that have a long ten or to them and you're in the really very early stages. It's hard to at this point put markers in the road and say dead.
This is going to happen by such and such.
to date
understood what was the size of that just
Forgetting what the speech was about eighteen million.
Okay. Thank you.
Thanks Jeff gentleman. I was a reminder, please plus, please press * then 1 if you have a question.
And this includes your question answer session. I'd like to turn the conference back over to the management team for me find a little bars.
Right. Thank you Rocco. This is Mark greskovich. As I stated. We're very proud of the banner team as we continue to do the right thing as we battle this Fogelberg endemic. Thank you for your interest in banner and for joining our call today. We look forward to reporting our results to you again in the future. Have a wonderful and safe day. Everyone dead by now.
Thank you. This concludes today's conference call. You may not it's not your line. Have a wonderful day.