Q1 2021 Banner Corp Earnings Call
Good day and welcome to the Banner Corporation first quarter 'twenty 'twenty, One conference call and webcast all participants will be in a listen only mode should you need <expletive>istance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on a touchtone phone to withdraw your question Press Star then two please note. This event is being recorded I would now like to turn the conference over to Mark Kratz, Kahveci President and CEO. Please go ahead.
Thank you Tom and good morning, everyone I.
I would also like to welcome you to the first quarter 2021 earnings call for Banner Corporation.
As is customary joining me on the call today is Peter Conner, our Chief Financial Officer.
Joe Rice, our Chief Credit Officer, and Rich Arnold our head of Investor Relations.
Rich would you please read our forward looking safe Harbor statement.
Well Mark good morning, our.
Our presentation today discusses banner's business outlook and will include forward looking statements. Those statements include descriptions of management's plans objectives 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.
We also may make other forward looking statements on the question and answer period. Following management's discussion. Additionally, we provided an investor presentation that can be found in the Investor Relations section of our website banner Bank Dot Com. These forward looking statements are subject to a number of risks and uncertainties and actual results may differ.
Materially from those discussed today.
[noise] formation 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 10-K for the year ended December 31 2020.
Forward looking statements are effective.
Only as of the day. They are made and banner <expletive>umes no obligation to update information concerning its expectations Mark.
Mark.
Thank you rich.
First of all I Hope you and your families are well as we all continue to battle, the Covid virus and its effects on our communities and the economy.
Today, we will cover four primary items with you.
First I will provide you a high level comments on banner first quarter performance.
The actions banner continues to take to support all of our stakeholders, including our banner team our clients our communities and our shareholders.
Joe Wright, who 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.
I want to begin by thanking all of my 2100 colleagues on our company that are working extremely hard to <expletive>ist our clients on communities. During these difficult times.
Banner has lived our core values summed up is doing the right thing for 130 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 should provide a consistent and reliable source of commerce on capital through all economic cycles and change events.
I am pleased to report that is exactly what we continue to do.
I am very proud of the entire banner team that are living our core values.
Now, let me turn to an overview of our first quarter performance.
As announced banner Corporation reported a net profit available to common shareholders of $46 $9 million or $1 33 per diluted share for the quarter ended March 31 2021.
This compared to a net profit to common shareholders of $1 10 per share for the fourth quarter of 2020 and 47 per share for the first quarter of 2020.
This quarter's earnings were impacted by the allowance for credit losses release, a continued inflow of liquidity, coupled with very low interest rates.
Our strategy to maintain a moderate risk profile and continued strong mortgage banking revenue.
Peter will discuss these items in more detail shortly.
Directing your attention to pretax pre provision earnings and excluding the impact of merger and acquisition expenses Covid expenses gains and losses on the sale of securities and changes in fair value of financial instruments earnings were $49 $8 million for the first quarter of 2020.
One compared to $47 $2 million in the previous quarter, an increase of five 5%.
This measure I believe it's helpful for illustrating the core earnings power of banner.
First quarter 2021 revenue from core operations increased 3% to $141 $9 million compared to $138 $4 million in the first quarter of 2020.
We benefited from a larger earning <expletive>et mix a good net interest margin and strong mortgage banking fee revenue.
Overall this resulted in a return on average <expletive>ets of $1 two 4% for the quarter.
Once again, our core performance. This quarter reflects continued execution on our Super community Bank strategy, even with the challenges of the pandemic 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 36% compared to March 31 2020.
And represent 93% of total deposits.
Further we continued our strong organic generation of new client relationships in the quarter.
Reflective of this solid performance coupled with our strong tangible common equity ratio, we issued a dividend of 41 per share in the quarter and repurchased 500000 shares of our common stock.
While our branches are fully operational.
Other areas of our workforce have been mobilized with nearly 60% working effectively remotely and the remainder available for in person meetings by appointment, ensuring our Atms remain accessible and functioning and others are performing operational duties.
We have also created special programs for our employees deemed worksite essential and we are providing additional paid time off for exposure or sickness.
To provide support for our clients through this crisis. We have made available several <expletive>istance programs banner has provided SBA payroll protection funds totaling nearly $1 $6 billion for approximately 13000 clients.
Also we made an important $1.5 million commitment to support and minority owned businesses in our footprint.
$1 million equity investment and Broadway Federal Bank, the largest African American depository financial institution in the United States significant contributions to local and regional nonprofits.
And it provided financial support for emergency and basic needs in our footprint.
Let me now turn the call over to Joel to discuss trends in our loan portfolio in her comments on banner's credit quality and loan book Joe.
Thank you Mark and good morning, everyone.
As you read on our press release Banner's credit metrics continue to remain stable as we move through the current pandemic induced credit cycle and as such I will keep my comments relatively brief this morning.
And are stealing from loans as of March 31st represents 0.43% of total loans, an increase of six basis points since year end and compared to 0.66% as of March 31st 2020 non.
Nonperforming <expletive>ets represented 0.23% of total <expletive>ets a decrease of one basis point when compared to the linked quarter non.
Nonperforming <expletive>ets are comprised of nonperforming loans totaling $36 9 million.
One 3 million in the quarter and Oreo and other <expletive>ets of 377000.
Adversely cl<expletive>ified loans represent 3.11% of total loans as of March 31st down from 3.45% as of yearend and compared to 1.36% as of March 31st 2020.
As most of the case last quarter the majority of the improvement.
And is due to risk rating upgrades as borrowers continue to show a return to more normalized operations.
These upgrades were not centered in any one <expletive>et cl<expletive> rather were spread across commercial businesses as well on it's about owner and investor commercial real estate and small business relationships.
As of March 31st our ACL reserve totaled $156 1 million on 1.57% of total loans down from 1.69% reported as of December 31st and compared to 1.41% as of March 31st 2020, excluding.
Excluding loans held for sale and the Paycheck protection loans are current ACL reserve continues to provide significant coverage at 1.81% of total loans, 443% coverage of non accrual loans and 367% kind of range of delinquent loans low.
Phone losses during the quarter totaled $4 7 million and were offset by recoveries at 1.5 million with the continued decline in portfolio loan balances down 195 million quarter over quarter net of P. P. P loans, we released 8 million of our reserve for credit losses as of March 31st.
As we have discussed previously banner maintains a consistent and conservative approach to reserving releasing reserves at this magnitude as a function of the requirements within the seesaw methodology. Our reserve was done early in the pandemic with proactive downgrading of credits impacted by the economic downturn now as we see some improvement in <expletive>et quality.
Our market is slowly beginning to reopen economic indicators, reflecting improving trends additional financial support available through recently approved fiscal stimulus programs.
Vaccine distribution expanding rapidly and in light of the declining portfolio balances. The 12 basis point reduction in our reserve for credit losses is considered modest and our overall reserve remains robust.
Like many of our peers our loan portfolio continued to decline in the first quarter a reflection of the continued strong residential refinance market healthy borrower liquidity and you did loan demand loans.
Loans held for investment are down 2.2% net of P. P. P loans on the corner and 7% year over year looking at specific product lines and excluding the P. P. P loans the decline in C&I loan totals in the current quarter down three 3% is primarily the result of not chasing looser structure on one.
Relationship.
The year over year reduction reflects in large part the continuation of lower line utilization, resulting from excess liquidity borrowers have obtained over the past 12 months.
Commercial credit line utilization is down 8% year over year.
Residential mortgage loans outstanding continue to be impacted by the strong refinance market and are down eight 7% for the corner and 25, 6% year over year. The active refinance market has continued to reduce our home equity credits as well down five 2% for the quarter and 10, 6% year over year.
The decline noted in the agricultural portfolio of 12, 5% quarter over quarter is seasonal in nature and to be expected the decline of nearly 25% year over year net of P. P. P. Loans. However reflects the proactive day banking of several relationships as well as the strategic decision to not chase.
Sure structure and low pricing on others.
Commercial construction totals reflect a decline of 13, 1% for the quarter due in large part to being converted to permanent CRE and are now spread among the commercial real estate on multifamily buckets.
The declining portfolios were somewhat offset by the strong growth in the residential ADC portfolios within the markets. We serve the housing market remains very robust with demand outstripping the supply of available homes in most areas and affordable housing continuing to be under supplied.
Insistent with prior periods, our total residential construction exposure represents five 5% of our portfolio.
When we include multifamily commercial construction and land. The total construction exposure is 13, 3% of total loans in line with our moderate risk profile.
It's important to note that our relationship managers are remaining engaged with clients and the commercial and commercial real estate pipelines are continuing to exhibit strong growth looking forward. We continue to anticipate that commercial investment will begin to pick up in the second half of the year as borrowers begin to make delayed capital investments and build inventories recognize.
I think that they will utilize much of their on balance sheet liquidity before tapping into their credit lines and our closing on new borrowings.
Regarding <expletive>et quality loans rated sub standard declined eight 4% in the corner are $28 7 million as mentioned earlier the majority of the decline was due to upgrading credits.
Nearly 35% of the total adversely cl<expletive>ified credits are within the hospitality industry and these credits represent 44% on the hospitality book Al.
As I have stated previously these relationships are cl<expletive>ified due to the long term impact to their primary repayment source.
That said as of March 31st only three hotel loans totaling $3 8 million remained on active deferral and as we continue to monitor activity. In this sector. We are beginning to see occupancy rates increased in many of our markets with the start of the spring season.
The next largest segment of adversely cl<expletive>ified loans as recreation and leisure at approximately 20% of the total these credits are almost exclusively fitness and recreational facilities, many of which have been significantly shut down for the past year I will note that while they remain cl<expletive>ified as of March 31st no loans on the segment, where operating under an active deferred.
Al.
Nearly 10% of the adversely cl<expletive>ified loans are located in the health care related industries restaurant and foodservice relationships account for 6% of the adversely cl<expletive>ified and approximately 5% are located within the retail book the balance of sub standard credits are not located within an at risk segment and are not concentrated in any one.
Business line.
Loans Underactive defer all continued to decline dropping to $33 9 million as of March 31st of which $25 7 million or mortgage loans under forbearance and the balance $8 2 million or commercial loans under active deferral 7.3 million of which are paying interest monthly.
I will wrap up by stating that our moderate risk profile remains intact. While it is too early to declare this credit cycle over our credit metrics and balance sheet continue to be strong reserves for credit losses remain robust and capital levels continue significantly in excess of regulatory requirement, we remain well positioned for the future.
And with that I will hand, the microphone over to Peter for his comments Peter.
Yeah.
Thank you Jill and good morning, everyone.
As discussed previously and as announced in our earnings release, we reported net income of $46 9 million or $1.33 per diluted share for the first quarter.
Appeared to $39 million on $1.10 per diluted share on the prior quarter.
The 23% increase on per share earnings was driven as a result of an $8 million loan loss provision recapture in.
An increase in core non interest income and lower non interest expense.
Yeah.
Core revenue, excluding gains and losses on securities and changes in fair value from each one.
And that's carried at fair value decreased $1 $7 million from the prior quarter.
Primarily as a result of a decline on the yield on earning <expletive>ets due to the low rate environment.
Core expenses, including unfunded loan commitment provision expense decreased $1 $7 million due primarily to a decline in legal marketing and.
On branch consolidation expenses from the prior quarter.
Turning to the balance sheet.
Total loans decreased $32 million from the prior quarter on as a result of a decline in multifamily loans held for sale.
And held for investment portfolio loan Outstandings, partially offset by an increase in SBA PPP loans excluding.
Excluding PPP loans and held for sale loans portfolio loans declined $195 million.
Due primarily to elevated prepayments and I wonder for mortgage portfolio seasonal declines in agricultural loan Outstandings and lower line utilization and the commercial business portfolios.
Ultra sale loans decreased by 109 billion due to a bulk sale of multifamily loans during the quarter.
And then core deposits increased $990 million from the prior quarter end due to new deposits from the latest round of SBA PPP loans fundings.
Stimulus payments and continued increases in average client deposits balance liquidity.
Core deposits have grown an unprecedented $3 4 billion or 36% over the last 12 months.
Reflecting the effectiveness and execution of banners Super community business model during this period.
Elevated systemic liquidity.
Time deposit balance declined modestly by $8 3 million from prior quarter and ending at $907 million.
Turning to the income statement net.
Net interest income decreased by $3 8 million or 23 basis point decline on average, earning <expletive>et yields offset at 619 million or four 6% increase in average earning <expletive>et balances during the first quarter.
Paired to the prior quarter loan yields decreased 10 basis points due to repricing of existing portfolio of loans and higher levels of prepayment and interest recovery related income in the fourth quarter.
Excluding the impact of prepayments interest recoveries and acquired loan accretion the average loan coupon declined six basis points from the prior quarter.
While the pace of core loan yield decline has slowed modest headwinds colonial continue as new fixed rate loans are originated at lower rates and adjustable rate loans with floors mature.
Total average investment security balances increased by 785 million over the prior quarter funded by deposit growth and loan pay offs all day.
Average yield on the combined balance declined 12 basis points due to a larger mix invested in overnight funds at low rates with elevated prepayments on higher yielding mortgage backed securities.
Total cost of funds declined three basis points to 21 basis points.
As a result from lower deposit costs.
Total deposits declined from 14 to 11 basis points from the first quarter due to declines in interest bearing retail deposit rates.
The ratio of core deposits to total deposits remained at 93% from the first quarter the same as the prior quarter.
The net interest margin declined 20 basis points to 344% on a tax equivalent basis.
The decline was driven by the substantial increase in excess deposit liquidity invested in overnight rates along with a decline in average loan outstandings.
In the coming quarter, we anticipate an acceleration on the pace of P. P. P. M on forgiveness activity, which will increase the effective yield on this portfolio.
We anticipate continuing to ladder, the excess liquidity into the securities portfolio at a measured pace, while remaining flexible to shifts in market conditions.
Yeah.
Total non interest income increased 763000 from the prior quarter core noninterest income excluding gains on sales of securities and changes in securities carried at fair value increased $2 1 million.
Deposit fees increased 646000, due to annual card servicer rebates and plastics expense related reduction on debit card income on the prior quarter.
Total mortgage banking income increased by 750000 due to an increase in gains on multifamily loans sales closed during the quarter while residential.
Mortgage related income remained effectively even with the fourth quarter.
Within residential mortgage the percentage of refinance volume declined to 46% of total production down from 49% in the prior quarter.
Miscellaneous fee income increased 736000, primarily due to <expletive>et write downs on branches closed in the fourth quarter.
Yeah.
Total noninterest expense declined $4 5 million from the prior quarter, excluding merger costs and pandemic specific operating costs core noninterest expense declined $4 3 million.
Salary and benefits expense increased by $3 9 million, primarily due to severance expense.
Two a reduction in staff seasonal increase in payroll taxes, and a 1.2 million adjustment to the liability recorded for deferred compensation.
The credit for capitalized loan origination costs increased by 300000 on the first quarter due to increased SBA PPP loan production, partially offset by lower residential mortgage production.
Occupancy expense declined $1 3 million as a result of the branch closure exit costs in the fourth quarter and seasonal declines in building maintenance.
Advertising and marketing costs decreased by $1 6 million, reflecting the cost of a marketing campaign on our fourth quarter and lower levels of CRA on charitable contribution expense in the current quarter.
Professional and legal expenses decreased by $2 3 million due to an accrual for pending litigation on the prior quarter.
Provision expense for unfunded loan commitments decreased by $2 4 million due to a recapture of the reserve.
As a result of improved economic conditions.
Merger costs remained even in the prior quarter at 570000, reflecting the consummation of the Islanders Bank subsidiary merger into the banner Bank subsidiary during the first quarter.
As indicated the company successfully integrated the Islanders bank subsidiary into banner Bank during the first quarter and we are on track to achieve the expense synergies we have guided to.
The combined impact of the Islanders merger the reduction in branch count and implementation of other efficiency initiatives.
Are anticipated to reduce the core expense run rate in the coming quarter in.
In addition, as part of ongoing capital management, the company repurchased 500000 shares during the quarter.
This concludes my prepared remarks Mark.
Thank you Peter and Jill for your comments that concludes our prepared remarks today and Tom We will now open the call and welcome your questions.
We will now begin the question answer session to ask a question Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys is that any time. Your question has been addressed and you'd like to withdraw. Your question Press Star then two at this time.
We'll pause momentarily to <expletive>emble our roster.
On the first question comes from Jeff Ruleless with D. A Davidson. Please go ahead.
Thanks, Good morning.
Good morning, Jeff.
Wanted to follow up on the the branch.
Closes I I'd be interested in just from from your perspective, the customer retention and the impact.
Thank you Pat and based on.
Maybe favorable results on additional closures is that something that's that's being discussed.
Yeah. He had debt. This is Peter I can address that yeah. We are as you know we consolidated 21 branch locations.
In the third and fourth quarter of last year, and we do monitor client attrition.
So cheated with those branch locations and and so far through the first quarter the collective.
Deposit attrition for those 21 locations is running less than 5%.
And that includes some locations that were fairly distant from their next closest branch. So we.
So it's it's performing better than the way, we've modeled those decisions and I think it's reflective of the fact that you know.
Clients, who have remained sticky to banner.
Or and have adapted to other channels that don't require the branch platform.
And I think to the second question, we continue to look.
For opportunities to harvest consolidations in the branch network that exists today, but I would characterize the pace of branch consolidations will be at a lower pace than we did last year.
Yes.
Okay.
Maybe a follow on is just the as you digest, what you've done Peter I got your comment that you would expect a lower expense run rate I would imagine we back out merger cost this quarter. So we're talking about.
Something inside of that are we.
He said where we are.
Angling towards the targeted cost efficiencies well.
That all kind of.
Be in the Q O Q2 run rate and then from there or is it.
Gross dependent or is it to take a couple of quarters to kind of continue to drift away.
Given those closures.
Yeah, what what we're what we anticipate is we'll see an improvement in the second quarter in terms of the core expense run rate is a function of not just the branch closure and a lower cost of <unk>.
Supporting a smaller branch network, but also the benefits of the Islanders merger, which was closed in mid first quarter. So the expense synergies from the Islanders will begin to manifest in the second quarter along with.
Some of the expense initiatives that have been implemented that we've been talking about so we'll see the effects of those on it came on basically begin to show up in the second quarter, there's still some additional there's other efficiencies in flight.
That will benefit later in the year as we currently see them. So I would characterize the it's kind of a soft landing.
Then the you know the <expletive>ets and some of the.
Al cards or the pace of business activity mortgage in particular, you know the commission expense.
And in the pace of growth that drive the variable costs on the company.
Along with some seasonality that we always have that shows up in the fourth quarter and some of the expense line items.
Okay. Thank you.
My last one is on the on the margin Peter.
Peter you you kind of walk through the push and pull of a few of those items that I guess, if we continue to look at securities investment to kind of grow spread income dollars, but but it sounds like maybe.
That could leave the margin.
Maybe some compression in the short term.
The message that I got right.
Well, yeah that the there's a higher number of moving parts on the margin.
Day than there had been historically as you know.
They're really for four key drivers of where what's going to drive the margin in the next three to four quarters. One is the pace of PPP loan forgiveness and we as we've said we are anticipating a somewhat.
Somewhat of a surge in loan forgiveness activity in the second quarter, which will accelerate the unamortized loan processing fee and interest income as those loans are forgiven.
And so for the P. P P portfolio were anticipating.
An increase in the average yield on that book as those loans pay off.
<unk> elements, we there's really four four elements of the kind of driving the margin on the second element is that the level of just average client deposits liquidity. So we we had almost $1 billion of increase from the first quarter. The question is will that liquidity hold will it began to move off balance sheet as you know the economy recovers.
That's that's another ingredient and then the third is loan demand.
On your Joes comments is that the.
The pipelines are building, we had a strong quarter of loan production.
And we think the pace of prepayments on the existing book is beginning to slow down so the pace of on demand resumption and line utilization is another ingredient and then the last one is with all of that taken into account on the pace of our flattering of the excess deposits liquidity into the Securities book is the last ingredient into the margin so.
Taking that all in.
I would anticipate that we're gonna be treading water in the margin in the second quarter in part due to the P. P P balance.
And then for the rest of the year there'll be some forgiveness.
And then what we're seeing is that the loan coupon on a static balance sheet for the entire loan book is.
Repricing at a fairly modest pace, it's repricing at about two to three basis points down all things equal on a static balance sheet basis, if the yield curve were to remain flat to today.
We're getting some of that back, but we're getting about two two.
Two basis points of cost of funds reduction every quarter or two so we're we're seeing a pretty modest headwind on margin on a static basis. It's the liquidity on balance sheet mix that are really going to drive the margin in the next three quarters.
I don't know how helpful that was but I wanted to give you the our thought process on the ingredients that will go into that.
And in the next two hours.
Very thorough thanks, Peter I'll step back I appreciate it.
Thanks, Jeff.
The next question comes from Andrew Liesch with Piper Sandler. Please go ahead.
Good morning, everyone. Good morning, Andrew.
So last quarter the commentary around loan.
Loan growth was debt balances would end this year basically flat from the end of 'twenty 'twenty and it sounds like pipelines of Boeing and card types and there'll be upset by a P. P pay downs on the year goes on is that still a reasonable target to have basically loans end up flat relative to the end.
The 2020.
Yeah. Andrew This is Jill that's still what we are targeting that we'll be able to be flat, that's gonna be a big year for us given the rapid repayments that we're having in the residential refinancing you know on the offset there but for 2021 we're still indicating that we anticipate.
And would expect that we'll return to our normal mid single digit growth rate in 2022.
Got it great.
And then in on the gain on sale revenue on the $11 4 million can you just provide a breakout on what dollar amount was multifamily versus the dollar amount for residential.
Yeah. This is Peter Andrew Yeah. The multifamily component was right out of a million dollars of that total low.
We had a.
A successful quarter of gain on sale and sales activity and what we're seeing in general in that business unit has a renewed demand for our product on both from a credit.
And pricing perspective, the demand is really resumed full prepayment pandemic levels and so we continue to see very.
Strong buyer demand for that product on for it so the real low.
The drivers of that line item quarter to quarter really the pace of.
New originations in the consummation of the sales which can be lumpy.
Depending on the timing and execution dates of those sales, but overall that that line of businesses.
Resumed with full pre pandemic levels.
Sounds good.
On covered my other questions I'll step back thank you.
Thank you Andrew.
Yeah.
The next question comes from David Feaster with Raymond James. Please go ahead.
Hey, good morning, everybody.
Good morning, David.
I wanted to start on origination.
It's really encouraging to see the acceleration in origination exclusive of PPP, just curious maybe some detail as to what drove that how much of it was new client growth from maybe PPP activity or just more activity from your existing client base and then I.
Yes, with the stronger pipelines I kind of gave some guidance on you know.
Where we end up in the year, but do you think one Q represents the trough or.
May be expected.
And start grow on the second quarter or do you think maybe there could be some additional runoff just given payoffs and pay offs.
Yeah.
David This is Jill on the drivers I've been growth that we saw in the first quarter are across different product lines and you don't see it in any one market or one industry C&I growth was solid on them and we've had some owner occupied.
Transactions as well multifamily construction, so I'm really we're seeing strong growth in the pipeline and what you saw in the production is across the footprint and in various product types.
My Crystal ball isn't clear enough to suggest that we are you know that we've hit the trough I think you have to take into account the stage of reopening that we have across our markets and it it still fits and starts and so that's going to impact us.
On the business confidence and when they start really expanding into building their inventories and things like that so I would push it more to the second half you know we really on this west coast, they're starting to reopen but but again it's not.
We're not fully open.
Okay.
David This is Mark let me just add that you know a lot of a lot of our <expletive>umption here is that the efficacy of the vaccines are going to take effect in.
The West Coast is a lagging other parts of the country in terms of reopening so.
I think Joe's commentary on caution about.
Growth occurring in the second half of the year as warranted based on just the uncertainty that we're seeing right now in terms of reopening.
Yeah.
That's fair and then maybe just could you we've talked on the past about the market for new hires and I'm just curious what you're seeing on how the hiring pipelines looking you know just with bonuses paid out have you seen more opportunities and maybe are there any more any regions that you're specifically looking to add talent and deep.
And the team.
Yes, David this is market.
The good news is that banner has got a tremendous reputation in our markets.
Our regional executives have talent pipelines, so they keep in contact with many bankers in our footprint.
They believe would be truly additive to our organization and fit with our culture.
So we've seen opportunities here to add additional talent.
Even through the pandemic and we've been very successful at it. So so those are all the positive things I would suggest to you that.
Yes.
The opportunity to have discussions.
With other bankers has accelerated.
Primarily because of some frustration in their own institutions.
And does and banner is a a good alternative to a commercial banker coming to our organization and being able to deliver services to their client base. So we have seen a pickup.
Okay.
Encouraging and then just in the prepared remarks, you talked about not chasing looser structures or aggressive pricing I guess, maybe could you elaborate what segments that you may be you see more of that and whether it's coming from the larger regionals when a smaller community bank stretching for growth and then just on new loan yields.
Has there been any repreve just given the steepening of the yield curve is that help pricing at all.
Yeah.
So in terms of and David This is Jay on the looser structure and low pricing. It isn't any one product type you know when we had that in the agricultural portfolio, we had on in C&I.
Where are we seeing distraction that loosening structure, primarily the regional banks are the large banks, but again.
People are hungry for loans and so we're starting to see structure loosen and pricing go down from all of our competition.
And I feel like I missed part of that question now there was one more piece of that question could you repeat.
Yeah, just one of them.
Yeah, sorry go ahead.
Peter you might want to address the yield compression.
Yeah, David I think what we see from a pricing perspective, as you know while the yield curve has steepened and provides a bit of support on some of the term loan.
Right.
Being offset by as Bill alluded to the elevated competitive pressures on generating loan growth, so where we've taken the tact of remaining disciplined on pricing, we're not chasing yield.
To generate loan growth we think.
And we don't want our critics of duration and locked in low rates here too.
To quickly so I'm on.
I guess on balance, we're not seeing a lot of lift yet and new loan pricing given the offsetting competitive pressures to the increasing and steepening yield curve.
Got it that's that's great color thanks, everybody.
David.
The next question comes from Jackie Bohlen with K B W. Please go ahead.
Hey, good morning, everyone. Good morning, Jackie.
Little bit of a housekeeping question, but I want to make sure that I'm, starting with the right base given the impact of net deferred fees on Peter So coffee end of period P. P. P dollar value on them for the loans.
Question.
The loan portion yeah, it's and we do disclose that in our investor deck on page.
<unk> 21, as a reference but there was 1.3 billion in <unk>.
P. P people on Outstandings at the end of the quarter.
And <expletive>ociated with that portfolio of $34 $1 million on on the amortized loan processing fees. So.
Hopefully you know when we know that will be brought into the income based on the pace of loan forgiveness on pay downs.
And we think on we think we will see an acceleration of that in the second quarter.
Okay. Thank you yeah, I did see that number so that that is already net of the unamortized fees the $1 3 billion on there.
It.
It is a it is not actually so it's a gross number.
Okay. Thank you.
And then also a nice.
Alright, I can't find what slide I pulled it from but the loan yield of 4.52% debt was X P. P. P. If I jotted down my notes correctly.
On slide 16, do you happen to have that from last quarter.
Yeah.
I do and I'm going to have to get back because I don't have it handy but.
[noise] alluded to when I lived through my prepared remarks.
Is that a 10 basis point reduction in loan yields from Q4 to.
Q1, and that and that was inclusive of the P. P. P loans and we did have forgiveness activity in Q4, and Q1 and so it had the PPP loans component of very de Minimis impact on the change in loan yields from Q4 to Q1 and.
And then if we take away the interest recoveries and prepayment penalty related interest income out of the fourth quarter that was elevated and we just looked at the low on non coupon. There was a six basis point decline, which is which is reflective of the core portfolio outside of the P. P. P book.
Okay. Okay. That's helpful. Thank you and sorry for the the technicality on my questions.
Touching on kind of a more broad topic.
Just in terms of how you're thinking about capital management I mean, you obviously had some repurchases in the quarter, putting the new authorization to use on you know how are you thinking about capital deployment going forward and do you have a particular ratio that you're targeting.
Yeah.
Yeah, well you know our.
Our cap our guidance on capital appointment is remaining consistent and as you know we.
Announced a 1.7 million share repurchase authorization in December.
And so we have plenty of headroom left on that authorization to do more repurchases.
This year, we are in this environment, we're still favoring a repurchase as a as a form of capital deployment given banner relative discount in.
Our alternative uses of that capital.
We think given that the outlook this year and on a pace of generating retained earnings.
And the lesson pressure on the reserve that there is capacity for continued capital deployment as we go through the rest of this year given our capital ratios we don't.
You know, we don't guide to specific.
Capital targets in the essentially that we used to with tangible common equity is obviously.
Depressed due to the growth in deposits on the growth in <expletive>ets, but our risk weighted capital ratio has actually remained flat to Q4. So we really were focusing on a combination of metrics in this environment.
I would characterize that.
We don't anticipate a lot of decline in the risk based capital ratio on whatever we do.
Because that's a better barometer of capital adequacy than tangible common equity right now.
So you could kind of expect that we wouldn't.
Good.
Drive a decline on the risk based capital ratio after any capital decisions as a way to kind.
Kind of give you some guidelines on how do we think about it.
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Okay, Great. That's helpful. Thank you.
Thanks Jackie.
As a reminder, if you have a question press Star then one to be joined at end of the queue. The next question comes from Andrew Terrell with Stephens. Please go ahead.
Hey, good morning.
Good morning, Andrew.
Hey, Joe maybe a quick one for you I was looking at the reserve against the commercial.
Our real estate portfolio I think it's stepped up about four basis points this quarter.
Were there any sub portfolios or specific industry verticals.
CRE that led to that step up or maybe just any other color you can share on just the puts and takes there.
Yeah.
So within that sub portfolio in.
I would lean towards the conservative nature of watching what's happening in the office space as we move forward and just economic changes to retail properties and our view of things that might be coming in the future and just making sure we've got the right.
<unk> there given what's sitting in that portfolio as well as our cl<expletive>ified <expletive>ets still hanging around in that commercial real estate space.
Okay. Thank you all my other question that I asked and answered so I'll step back. Thanks.
Thank you Andrew.
Okay.
We actually have no further questions Andrew or did you have something else to say.
Yeah.
No that was it. Thank you just wanted to check them. This concludes our question and answer session I will now turn it back over to Mark Kratz Covid for any closing remarks.
Thank you Tom as I stated, we're very proud of the banner team as we continue to do the right thing as we battle this COVID-19 virus and the changes in the economic climate.
While servicing our clients our communities.
Each other and our shareholders. 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 great day, everyone and be safe.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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