Banner Corporation (BANR) Q1 2024 Earnings Call Transcript

Banner Corporation (NASDAQ:BANR) Q1 2024 Earnings Call Transcript April 18, 2024 11:00 AM ET

Company Participants

Mark Grescovich – President and CEO
Rich Arnold – Head of IR
Jill Rice – CCO
Rob Butterfield – CFO

Conference Call Participants

Andrew Liesch – Piper Sandler
Andrew Terrell – Stephens, Inc.
David Feaster – Raymond James
Kelly Motta – KBW
Timothy Coffey – Janney Montgomery Scott

Operator

Hello, all, and welcome to Banner Corporation’s First Quarter 2024 Conference Call and Webcast. My name is Lydia and I’ll be your operator today. [Operator Instructions] I’ll now hand you over to Mark Grescovich, President and CEO, to begin. Please go ahead.

Mark Grescovich

Thank you, Lydia, and good morning, everyone. I would also like to welcome you to the first quarter 2024 earnings call for Banner Corporation. Joining me on the call today is Rob Butterfield, Banner Corporation’s Chief Financial Officer; Jill Rice, our Chief Credit Officer; and Rich Arnold, our Head of Investor Relations.

Rich, would you please read our forward-looking safe harbor statement?

Rich Arnold

Sure, Mark. Good morning. Our presentation today discusses Banner’s business outlook and will include forward-looking statements. Those statements include descriptions of management’s plans, objectives or goals for future operations, products or services, forecasts of financial or other performance measures, and statements about Banner’s general outlook for economic and other conditions. We also may make other forward-looking statements in the question-and-answer period following management’s discussion. These forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday and a recently filed Form 10-K for the year ended December 31st, 2023. Forward-looking statements are effective only as of the day they are made, and Banner assumes no obligation to update information concerning its expectations. Mark?

Mark Grescovich

Thank you, Rich. As is customary, today, we will cover four primary items with you. First, I will provide you with high-level comments on Banner’s first quarter 2024 performance. Second, the actions Banner continues to take to support all of our stakeholders, including our Banner team, our clients, our communities, and our shareholders. Third, Jill Rice will provide comments on the status of our loan portfolio. And finally, Rob Butterfield will provide more detail on our operating performance for the quarter, as well as comments on our balance sheet.

Before I get started, I wanted to again thank all of my 2,000 colleagues in our company who are working extremely hard to assist our clients and communities. Banner has lived our core values, summed up as doing the right thing for the past 133 years. Our overarching goal continues to be, do the right thing for our clients, our communities, our colleagues, our company, and our shareholders, and to provide a consistent and reliable source of commerce and capital through all economic cycles and change events. I am pleased to report again to you, 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 performance. As announced, Banner Corporation reported a net profit available to common shareholders of $37.6 million, or $1.09 per diluted share, for the quarter ended March 31st, 2024. This compares to a net profit to common shareholders of $1.24 per share for the fourth quarter of 2023. Again this quarter, the earnings comparison is primarily impacted by the provision for credit losses and the rapid increase in interest rates in 2023, resulting in increased funding costs. Our strategy to maintain a moderate risk profile and the investments we have made and continue to make to improve operating performance have positioned the company well to weather recent market headwinds. Rob will discuss a number of these in more detail shortly. To illustrate the core earnings power of Banner, I would direct your attention to pre-tax pre-provision earnings excluding gains and losses on sale of securities, Banner forward expenses, and changes in fair value of financial instruments.

Our first quarter 2024 core earnings were $53 million. Banner’s first quarter 2024 revenue from core operations was approximately $150 million compared to $157 million for the fourth quarter of 2023. We continue to have a strong core deposit base that has proved to be resilient and loyal to Banner in the wake of a highly competitive environment, a very good net interest margin, and core expense control. Overall, this resulted in a core return on average assets of 1.08% for the first quarter of 2024. Although we are in a very difficult operating environment for commercial banks, our core performance reflects continued execution on our super community bank strategy, that is growing new client relationships, maintaining our core funding position, promoting client loyalty and advocacy through our responsive service model, and demonstrating our safety and soundness through all economic cycles and change events.

To that point, our core deposits represent 89% of total deposits. Further, we continued our organic generation of new relationships and our loans increased 7% over the same period last year. Reflective of this solid performance, coupled with our strong regulatory capital ratios and the fact that we increased our tangible common equity per share by 12% from the same period last year, we announced a core dividend of $0.48 per common share.

As I’ve mentioned on previous calls, Banner published our inaugural Environmental, Social, and Governance Report last year, which supplemented our initial ESG highlights report. Together, these reports provide insight into Banner’s ESG activities and reflect our commitment to doing the right thing in support of our clients, the many communities that we serve, and our colleagues, and highlights the many ways our sustainable business practices are supporting our long-term strength.

Finally, I’m pleased to say that we continue to receive marketplace recognition and validation of our business model and our value proposition. Banner was again named one of America’s 100 Best Banks and one of the best banks in the world by Forbes. Newsweek named Banner as one of the most trustworthy companies in America again this year and just recently named Banner one of the best regional banks in the country. S&P Global Market Intelligence ranked Banner’s financial performance among the top 50 public banks with more than $10 billion in assets, and the digital banking provider Q2 Holdings awarded Banner their Bank of the Year for Excellence. Additionally, as we’ve noted previously, Banner Bank received an outstanding CRA rating in our most recent CRA examination.

Let me now turn the call over to Jill to discuss trends in our loan portfolio and her comments on Banner’s credit quality. Jill?

Jill Rice

Thank you, Mark, and good morning, everyone. I am pleased to be able to report that Banner’s credit metrics continue to remain solid. Delinquent loans ended the quarter at 0.36%, reflecting a slight improvement over the 0.40% reported in the linked quarter and compared to 0.37% reported as of March 31st, 2023. Adversely classified loans declined in the quarter by $9.4 million and now total 1.07% of total loans compared to 1.16% as of December 31st, 2023. Changes in Banner’s non-performing assets were negligible quarter-over-quarter, continue to be centered in non-performing loans, and represent a modest 0.19% of total assets. The net provision for credit losses for the quarter was $520,000, comprised of a $1.4 million provision for loan losses offset in part by a release of $887,000 in the reserve for unfunded loan commitments as well as a release of $17,000 related to the reserve for the investment portfolio. As noted in the release, the provision for loan losses this quarter is driven by the growth in the construction and one-to-four family portfolios.

Loan losses in the quarter totaled $2.4 million and were fully offset by recoveries totaling $2.5 million. After the provision, the ACL reserve totals $151.1 million, providing 1.39% coverage of the portfolio. This compares to 1.38% coverage as of year-end 2023, is equal to that reported as of March 31st, 2023, and currently provides 513% coverage of our non-performing loans. Both loan originations and outstandings increased modestly compared to the linked quarter. As we anticipated, construction advances on previously committed multifamily projects led to 14% growth quarter-over-quarter within that business line and we continue to see growth in the one-to-four-family residential portfolio. The 7% decline in commercial construction reflects a large retail project in the Portland marketplace that was as expected refinanced off-balance sheet upon completion and stabilization. Similarly, the 6% decline in the one-to-four family construction portfolio reflects in part the transition of custom construction loans to the permanent portfolio, but also the continued strong sales of completed spec residential construction loans. Residential construction exposure remains acceptable at 5% of the portfolio, flat with last quarter and remains split approximately 60% for-sale housing and 40% our custom one-to-four family residential mortgage loan product. When you include multifamily, commercial construction and land, the total construction exposure continues at 14% of total loans, in line with that reported all of last year. The 4% decline in agricultural loans was expected due to the seasonal paydown of operating lines of credit.

C&I line utilization was flat in the quarter and overall commercial loan growth was modest, due in large part to the current economic and interest rate environment, but further impacted by the sale of a large business, resulting in a sizable payoff and a strategic decision to reduce our hold position in a long time shared national credit relationship. The change from these two relationships offset $35 million in other C&I loan growth.

Shifting to specific asset classes that have been top of mind. There has been no meaningful change in Banner’s office portfolio. Adversely classified loans secured by office properties are limited to $6.8 million and as I have reported previously, the portfolio is well diversified both in size and by geographic location. It remains balanced between investor CRE and owner-occupied, represents 6% of our loan book. The stratification of loans within the major metropolitan areas across our footprint has not changed and the portfolio is generally lowly leveraged enables to sustain value declines. Approximately 16% of the office book and roughly 18% of the total permanent CRE portfolio will have a rate reset within the next 24 months. As of March 31st, the average loan size for office-secured properties set to reprice in the next two years is under $1 million and the average rate increase using the 331-yield curve would be approximately 2.5%, roughly 50 basis points higher than the underwriting rate in place at origination.

Multifamily real estate loans remain split approximately 55% affordable housing and 45% middle-income market-rate housing and remain granular in size with balances spread across our footprint. Projects that are rent-restricted are limited to roughly 15% of the portfolio or $140 million. Of that, nearly 90% are located in California, with the majority operating under AB 1482, which limits rent increases to 5% plus the percent change in CPI every 12 months. In addition, there are a limited number operating under the LA Rent Stabilization Ordinance, which limits rent increases in 2024 to 4%, with additions allowed for other services provided and a small number of rent-restricted properties in Oregon that are operating under Senate Bill 608, which allows for annual rent increases of 7% plus the CPI. As we consider repricing risk in this portfolio, less than 10% of the multifamily portfolio is set to adjust within the next two years. The average loan size of those loans scheduled to have a rate reset is approximately $1 million and the average estimated rate increase based on the 331-yield curve would be 2.6%, with an average of approximately 70 basis points above the underwriting rate at the time of origination.

With that, I’ll circle back to my opening comments. Banner’s credit metrics continue to be strong. They are reflective of a strong credit culture that when coupled with a solid reserve for loan losses and a robust capital base, positions us well for the future.

With that, I’ll turn the microphone over to Rob for his comments. Rob?

Rob Butterfield

Great. Thank you, Jill. We reported $1.09 per diluted share for the first quarter compared to $1.24 per diluted share for the prior quarter. The $0.15 decrease in earnings per share was primarily due to lower net interest income, a fair value write-down on financial instruments carried at fair value in the prior quarter, including a $3.5 million fair value gain on multifamily loans moved from held for sale to held for investment.

From an overall balance sheet activity perspective, the increase in core deposits and cash flows from the security portfolio were used to fund loan growth and reduce borrowings. The loans increased $59 million during the quarter. The increase in total loans was primarily due to an increase in multifamily construction loans, primarily affordable housing projects, and an increase in one-to-four-family loans. These increases were partially offset by declines in one-to-four-family construction and commercial real estate loans.

Total securities decreased to $150 million, primarily due to the sale of $71 million of available-for-sale securities, normal portfolio cash flows, and a decrease in the fair value of available-for-sale securities due to an increase in interest rates during the quarter. Any additional security sales during the quarter will be dependent upon market conditions.

Deposits increased to $129 million during the quarter, primarily due to a $121 million increase in core deposits. Core deposits ended the quarter at 89% of total deposits. Total borrowings decreased $274 million during the quarter. Banner’s liquidity and capital profile continue to remain strong with a robust core funding base, a low reliance on wholesale borrowings, and significant off-balance sheet borrowing capacity. In addition, all of our capital ratios are in excess of regulatory well-capitalized levels.

Net interest income decreased $5.5 million from the prior quarter due to the increase in funding costs, outpacing the increase in the average loan balances and yields. Compared to the prior quarter, average loan balances increased $105 million and loan yields increased 10 basis points due to adjustable rate loans repricing higher as well as new production coming on at higher interest rates. The average rate on new production for the quarter was 8.47%, which is down slightly from the prior quarter. The decrease from the prior quarter was due to a larger percentage of our construction loan originations being associated with affordable housing projects.

Total average interest-bearing cash and investment balances declined $107 million from the prior quarter, while the yield on the combined cash and investment balances increased 3 basis points. Total funding cost increased 22 basis points to 153 basis points due to an increase in the cost of deposits and higher average borrowing balances. Funding costs for the month of March were the same as the quarter, 153 basis points. Total cost of deposits increased 19 basis points to 137 basis points, primarily due to an increase in the rates paid on interest-bearing deposits and to a lesser extent, a shift in the mix of deposits with a portion of non-interest-bearing moving into interest-bearing deposits. The cost of deposits for the month of March were 141 basis points. The pace of movement out of non-interest bearing deposits slowed during the quarter with the majority of the rotation occurring in the month of January. Non-interest-bearing deposits ended the quarter at 36% of total deposits.

On a tax equivalent basis, net interest margin decreased 9 basis points to 3.74%. The decrease was driven by the increase in funding cost on interest-bearing liabilities, outpacing the increase in yield on earning assets. We expect net interest margin will experience some additional compression in the second quarter, although at a slowing pace assuming the positive-to-positive trends we experienced in February and March continue.

Total non-interest income decreased $2.5 million from the prior quarter, primarily due to recording a $1 million fair value write-down on financial instruments carried at fair value in the current quarter and the prior quarter including a $3.5 million one-time fair value gain on multifamily loans transferred from held for sale to held for investment. The decrease was partially offset by a $1.5 million increase in deposits and service charges and a $700,000 increase in miscellaneous fee income. The increase in deposit fees was due to higher interchange and overdraft fees. The increase in miscellaneous income was due to higher gains on the sale of SBA loans and higher letter of credit fee income.

The current quarter included a $4.9 million loss on the sale of securities. The average payback on these trades was 2.5 years, which compares to a $4.8 million loss on the sale of securities in the prior quarter. Total non-interest expense increased $1 million from the prior quarter. The increase reflected a higher compensation expense due to typical higher first-quarter payroll taxes and 401(K) expense, as well as higher medical insurance expense partially offset by lower professional and marketing expenses. We are on track with the previous mentioned strategic investments in 2024, which include expanding our loan production capacity by adding talented relationship managers in key markets and investing in initiatives to grow our non-interest income.

This concludes my prepared comments, and now I will turn it back to Mark.

Mark Grescovich

Thank you, Jill and Rob, for your comments. That concludes our prepared remarks. And, Lydia, we will now open the call and welcome questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Andrew Liesch of Piper Sandler. Your line is open. Please go ahead.

Andrew Liesch

Thanks. Good morning, everyone. I just want to drill into the margin a little bit more here. It sounds like maybe the bottom — I mean, the bottom of it is going to be pushed out a quarter or two. How do you think it’s going to react in a higher for longer environment? Do you think the bottom of the margin may not occur till late this year?

Rob Butterfield

Yeah. Thanks for the question. So, I actually — I’m thinking we’re actually getting probably closer to a trough here. Specifically, what I’m looking at is the cost of funding for the month of March, which was the same as the cost — funding cost for the quarter and was actually lower by a couple of basis points compared to the month of February. I mean — but as I said in my comments, I’m not going to be surprised to see additional compression here in the second quarter. But I would expect it to be at a slowing pace, just due to the normal tax payments that we have in the second quarter. I am expecting some deposit outflows during the second quarter.

Andrew Liesch

Got it. All right. That’s helpful. And then just on the loan growth, it sounds like there was maybe $35 million of loans that were — that left the balance sheet weight on net growth. So if you kind of put that back in, maybe a mid-single-digit loan growth rate going forward, if you take out some of these may be one-time items, is that a good place to be here as we look at where loans can come in for the next few quarters?

Jill Rice

Yeah, Andrew, with the first quarter behind us, that’s exactly what I’m anticipating through the balance of 2024, is low single-digit growth rate.

Andrew Liesch

Okay. Got it. Thanks for taking the question and I’ll step back.

Mark Grescovich

Thank you, Andrew.

Operator

Our next question comes from Andrew Terrell of Stephens, Inc. Please go ahead. Your line is open.

Andrew Terrell

Hey, good morning.

Mark Grescovich

Good morning.

Andrew Terrell

If I could just stick on the margin briefly. It was really good to see the loan yield expansion this quarter. I think up about 10 basis points or so. I guess it does sound like the trends on the funding side. And Rob, appreciate your commentary on the kind of spot cost of funds. It seems like that’s improving a lot. I’m just curious, on the loan yield progression we should expect throughout the year, is 10 basis points a quarter kind of an elevated number, or how should we think about the loan repricing to expect throughout the year?

Rob Butterfield

Yeah, sure, Andrew. So yeah, I think that 10 basis points per quarter is probably a pretty good number. It could be plus or minus one or two basis points just due to quarter-to-quarter, but that’s as long as the Fed is on pause. If the Fed starts to actually cut rates at some point in the second half of the year, 26% of our portfolio is variable rate, and those will reprice down in equal amount, assuming as those reprice down. But if we assume just a couple rate cuts in the second half of the year, then that increase in the adjustable rate loans that we’ve been experiencing will kind of offset those cuts. So if Fed — with the Fed on pause, I think it’s 10 basis points. If the Fed starts to reduce at a slow pace then I would expect loan yields to kind of flatten out during that period.

Andrew Terrell

Yeah, understood. Okay, I appreciate it. And then on the deposit front, just on the — specifically the savings bucket, you’ve seen really nice growth there the past kind of couple of quarters now. I’m just curious one, are you seeing within that savings line just movement from non-interest bearing into savings or do you have any kind of promotional rates out there? I guess what’s just driving the strength within the savings deposits specifically?

Rob Butterfield

Yeah, that’s the product where we have our high-yield savings account currently in the top tier there is 4%. The average cost in that product is $363. We haven’t changed those rates since May of last year. But we are continuing to see some of the non-interest bearing and clients are moving the money back and forth, right? So they’re managing their balances non-interest bearing, so it can change day-to-day. And the other thing we’re seeing too is we’re seeing some movement out of our money market accounts where we’re not running the rate specials and moving them. So we’re seeing some movement from money market into that high-yield savings account as well.

Andrew Terrell

Okay, got it. I appreciate it. And then maybe last one for me, just on the expense front. Understanding that there’s usually some noise in the first quarter and maybe a slightly elevated expense run rate on seasonal items. Just curious, with that as a backdrop, kind of how we should think about expense progression throughout the year, could we see move lower from the 1Q run rate or kind of continued build from here? Just any kind of color on expense progression would be helpful.

Rob Butterfield

Sure. I think for the year we had pretty previously talked about, if we look at ’23 compared to ’24 on an annualized basis, that we would expect kind of normal inflationary increases of around 3% for the total year. It’s going to move around a little bit quarter-to-quarter. As I mentioned, this quarter did include payroll — higher payroll taxes and higher 401(K) expenses, which is typical to first quarter. But when you think about March, that’s when we do our normal annual salary increases in March. So the salary increases aren’t fully baked into the run rate in Q1, but that should offset with the lower payroll taxes, lower 401(K) expense. So overall, I think the first quarter was probably a pretty good indication. But quarter-to-quarter, it could move up or down a little bit.

Andrew Terrell

Okay, understood. Thank you for taking the questions.

Mark Grescovich

Thank you, Andrew.

Operator

The next question comes from David Feaster of Raymond James. Please go ahead.

David Feaster

Hey, good morning, everybody.

Mark Grescovich

Good morning, David.

David Feaster

Looking at the originations, it looks like originations increased a bit quarter-over-quarter predominantly driven by construction. I’m just curious, your appetite or comfort with construction here today. I’m guessing a lot of that’s going to be multifamily. And then just any thoughts on what you’re seeing on the demand front from clients more broadly? I’m curious, their willingness to invest here today, just there’s obviously a lot of uncertainty in the market, but curious kind of what you’re hearing from your clients.

Jill Rice

Thank you, David. So as it relates to construction, I still feel good about that product in all of the business lines that we’re seeing it. So, yes, it was driven by the affordable housing, but we are also continuing to see builders at a slower pace than historical but they are continuing to take down new starts to replace inventory because product continues to move there. In terms of overall opportunities, certainly, people are being a little more reserved. Pipelines are building slower than historical numbers, but they continue to refill. But the — I guess I would just say that there is concern as to what’s happening in the economy, and so they’re a little slower to take that opportunity whether it would be for capital purchase or a project. They’re a little more on cost, so slower to pull through to a new loan.

David Feaster

Okay. That makes sense.

Mark Grescovich

Yeah. David, this is Mark. I would just add that I think it’s important to take a look at our concentrations in relation to capital, and you’ll notice that we’re at the lowest level that this company has been in, I think, 15 years, as it relates to those concentrations.

David Feaster

For sure. That makes sense. And then you’ve taken an active and steady approach to managing securities over the past several quarters. I’m curious, maybe with perhaps less likelihood for rate cuts in the short run, has your thoughts on the securities book changed? It looks like we used proceeds to pay down borrowings. You’ve only got a modest amount of borrowings left, and broker deposits are pretty low, I’m just curious, how do you think about securities cash flows and sale proceeds going forward? And has your appetite for restructuring changed at all?

Rob Butterfield

Yeah. Thanks for the question, David. So if I think about specifically in Q2, we are considering whether we’re going to do another security sell in Q2, that could look similar to what we did in Q1. And part of that it’s going to be driven based on market conditions, where interest rates are at what the level of loss would be on those security sales. And then we’re also paying attention to loan growth as well as deposit flows to make a determination. If we think about the brokered CDs, so that $108 million of brokered we have, we have about half of that matures in June, and then the other half matures in Q3. So we’re considering that as well. Just normal security cash flows are about $60 million a quarter. So it really — there’s a lot of moving parts that we’re considering on whether we’re going to do something or not.

David Feaster

Okay. That’s good color. And then last one for me, we talked about the expense side a bit and some of the pressures and the runway. But I’m curious, what are you seeing on the investment side? What’s your appetite for new hires today or even de novo expansion? You guys are very forward-thinking, I think your investments in technology are probably underappreciated by a lot of folks. I’m curious, maybe, what are you prioritizing today on the investment side, and how technology could potentially be used to support efficiency improvement?

Rob Butterfield

Yeah, I guess there’s a couple pieces to that. So, first of all, just on the people side on the relationship managers, we have been adding there not specifically in the first quarter, but if you look back to the second half of 2023, we were adding some relationship managers, commercial RMs in key markets there and we continue to make that investment. And then on the technology side, there are some technology investments that we’re currently looking at or going to start to make specifically on the loan origination system and deposit gathering system. We’re moving to a new system that will almost be a single source within the institution that will allow us to have a more streamlined process, more efficient, and increase the — or decrease the amount of time it takes to open deposit accounts. And so yeah, we are continuing to make investments. We’re always taking a long-term approach to things, so we’re controlling expenses where we can, but we’re not going to sacrifice making investments in the organization for the long term.

David Feaster

That’s great. Thanks, everybody.

Mark Grescovich

Thank you, David.

Operator

[Operator Instructions] Our next question comes from Kelly Motta of KBW. Please go ahead.

Kelly Motta

Hi, good morning. Thanks for the question. Maybe turning to Jill, I really appreciate all the color on the CRE maturities that you included in the deck this quarter. Doesn’t look like there’s much coming up in repricing over the next year or so, but just wondering for the relationships that are wondering what the process has been working with those borrowers, if you’ve been like practically reaching out and any sort of color you can share as to what gives you comfort with these portfolios with all the credit metrics looking super strong still?

Jill Rice

Yeah. Thank you, Kelly. So we regularly are stress testing our portfolio and so as it relates to specifically these property types, think about office, yes, we’re regularly reaching out just for updated rent rolled information on trending information that our borrower may have about upcoming lease maturities, reduction in space, that sort of thing. If we get that kind of information, we’re applying that to the current operating statement and restressing the portfolio to see what happens then at the repriced rate.

Kelly Motta

Got it. Thanks for the color. And then maybe turning to fees, it was pretty strong this quarter. Mortgage was up in what is probably a seasonally weaker quarter. Just wondering if you could spend a moment maybe touching on the Banner Forward initiatives you’ve done with the fees and kind of your outlook. And where you’re seeing the most potential for fee growth as we look through the remainder of the year?

Rob Butterfield

Yeah. Sure, Kelly. So a couple of different components of that. First on the deposit fee income, as I mentioned, we did see growth in interchange fee income and also in overdraft fees. The interchange fee income, last quarter we had some card replacement expenses that are not re-occurring on a quarter-to-quarter basis necessarily. So I think Q4 was a little lower than the true run rate there. And then we did see a little bit of an increase in overdraft fees as well. I think on the deposit fees, I think probably the run rate there is a bit higher than what the street has right now. We did implement some account maintenance fees last year as well, related to business accounts and also consumer accounts as well. So I think the combination of all that, maybe the run rate’s a bit higher than the street has right now. The other component of it, we did see an increase in our SBA gain on loan sale income as well during the quarter, and that really was, the margin has returned to more normalized levels. Last year, the spread or the margin on those gain on loan sales wasn’t there. So we elected not to sell some of that product, and now the margins have come back, so now we’re selling some of it. We have hired some additional business development officers in that area. We’re not really seeing the fruits of that at this point. It takes a little bit of time for them to build their pipeline back up and to really get the benefit of those hires. But I think we’ll start to see some of that benefit in the second half of the year in even further expansion in our SBA gain on loan sale. And then on the mortgage banking side of it, we did see an increase there from the fourth quarter, and early on the rates were a little bit lower. The rates have increased as we went through the quarter there. But absent of any changes in the interest rate environment, it will just be driven by normal seasonality and normally Q2 and Q3 are better than Q1. So there could be a little bit of an increase there as well.

Kelly Motta

Thank you so much. I’ll step back.

Mark Grescovich

Thank you, Kelly.

Operator

And the next question comes from Timothy Coffey of Janney Montgomery Scott. Your line is open.

Timothy Coffey

Great. Thank you. Good morning, everybody.

Mark Grescovich

Good morning.

Timothy Coffey

Rob — good morning, guys. Rob, I have a question. Good morning, guys. Rob, I had a question about kind of the rate sensitivity of a Banner depositor. If the Fed does start to cut rates later this year, would you think that would slow the flow of deposits into those savings accounts? Or has it been more of a fundamental lasting change?

Rob Butterfield

No. The way we’re kind of thinking about that is, I think once the Fed starts to cut interest rates, and then we will see some stabilization in the flows there and even in the cost of deposits. I mean, there is going to be a little bit of a lag there just because of the overall liquidity in the market currently. But I do think it’s going to slow some as the Fed starts to cut.

Timothy Coffey

Okay, great. Thank you. And then — I’m sorry, Rob. One kind of quick question for you. How much available for sale securities were sold this quarter?

Rob Butterfield

We sold $71 million.

Timothy Coffey

Okay, great. Thanks. And then, Jill, I appreciate the color on the construction portfolio in total, but I was curious about the multifamily construction. You’ve seen good growth there in the last handful of quarters. I’m wondering, is it — would you be willing to grow up and able to grow that portfolio further, or is it bumping up against internal concentration limits?

Jill Rice

It is not up against internal concentration limits at this point, Tim. And as you think about those affordable housing construction, they’re bigger projects. They take longer, so they semi-fill that construction bucket, but then they pay down significantly when they move into permanent because of the tax credit. So it’s a larger construction loan with a longer tail. But no, we’re not at concentration limits.

Timothy Coffey

Okay, great. Thanks. And then, Mark, I have a question. Appreciate the color talking about the real, the kind of core earnings of the company’s last several quarters. What are your thoughts on increasing the dividend?

Mark Grescovich

Well, Tim, as you might — thank you for the question. As you might suspect that we are constantly looking at ways in which we can deploy capital effectively for all of the shareholders. And our dividend payout ratio right now is significantly below what our peers are and it looks certainly within a comfort zone. At the same time, we want to be very prudent in understanding what the dynamics are of the economy, what the clarity is on certain geopolitical issues, as well as the interest rate environment. Until we see some of that clarity, I don’t know that we’re going to do anything in the immediate term. But certainly, as we get some more perspective on what interest rates in the economy and geopolitical issues are going to do, we continue to build capital. As I said, we increased our tangible common 12% year-over-year. So we’ll continue to build capital. So we’re going to prudently look at other ways in which we can deploy that capital. And certainly, the core dividend is one of those. So thank you for the question.

Timothy Coffey

Thank you very much for the time. Those are my questions.

Mark Grescovich

Thanks, Tim.

Operator

We have no further questions in the queue, so I’ll turn the call back over to Mark Grescovich for any closing remarks.

Mark Grescovich

Great. Thank you. As I’ve stated, we’re very proud of the Banner team and our first quarter 2024 performance, given the very difficult operating environment. Thank you again for your interest in Banner and for joining our call today. We look forward to reporting our results to you again in the future. Thank you again, everyone, and have a wonderful day.

Operator

This concludes today’s call. Thank you for joining. You may now disconnect your line.