Q1 2024 Banner Corp Earnings Call

Participants

Mark Grescovich; President, Chief Executive Officer, Director of the Banner Corporration and Banner Bank; Banner Corp

Rich Arnold; Investor Relations; Banner Corp

Jill Rice; Executive Vice President, Chief Credit Officer of the Banner Bank; Banner Corp

Rob Butterfield; Executive Vice President and Chief Financial Officer; Banner Corp

Andrew Liesch; Analyst; Piper Sandler Companies

Andrew Terrell; Analyst; Stephens Inc.

David Feaster; Analyst; Raymond James

Kelly Motta; Analyst; Keefe, Bruyette & Woods North America

Timothy Coffey; Analyst; Janney Montgomery Scott LLC

Presentation

Operator

Hello all and welcome to Banner Corporation's First Quarter 2024 conference call. My name is Lydia, and I will be your operator today. If you'd like to ask a question after the prepared remarks, you can do so by pressing star followed by one on your telephone. I'll now hand you over to Mark Grescovich, President and CEO. To begin, please go ahead.

Mark Grescovich

Yes. Thank you, Lydia, and good morning, everyone. I would also like to welcome you to the first quarter 2024 earnings call for Banner Corporation. And joining me on the call today is Rob Butterfield, Banner Corporation, 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 and Those statements include descriptions of management's plans, objectives or goals for future operations, products or services, forecast of financial or other performance measures and statements about Banner's general outlook for economic and other conditions. 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 and 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 date 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 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 2000 colleagues in our company for 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 $1.9 per diluted share for the quarter ended March 31, 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 data in more detail shortly to illustrate the core earnings power of banner, I would direct your attention to pretax 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, our core earnings were $53 million. Pentair'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 the 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 value 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, 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 in the digital banking provider. Q2 Holdings awarded banner there, 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 Rice

Joe. 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 31, 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 31, 2023. Changes in Banner's nonperforming assets were negligible quarter over quarter, continue to be centered in nonperforming loans and represent a modest 0.19% of total assets 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 totaled $151.1 million, providing 1.39% coverage of the portfolio from this compares to 1.38% coverage as of year end 2023 is equal to that reported as of March 31, 2023, and currently provide 513% coverage of our nonperforming 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, 7% decline in commercial construction reflects a large retail project in the Portland market 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 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. Residential construction exposure remains acceptable at 5% of the portfolio, flat with last quarter and remains split approximately 60%. For-sale housing and 40% are custom one-to-four family residential mortgage loan products 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 that 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 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 three 31 yield curve would be approximately 2.5%, roughly 50 basis points higher than the underwriting rate in place at origination. Multifamily real estate loans remains low at 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 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 six oh eight, which allows for annual rent increases of 7% plus the CTI. 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 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 from the.

Rob Butterfield

Great. Thank you, Joe. We reported $1.9 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 securities portfolio were used to fund loan growth and reduced borrowings. 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 share securities decreased $150 million, primarily due to the sale of $71 million of built for sale securities, Norm, 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 securities sales during the quarter will be dependent upon market conditions. Deposits increased $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 three 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 noninterest-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 nine 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 deposit trends we experienced in February and March continue.
Total noninterest 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 $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 noninterest expense increased $1 million from the prior quarter the increase reflected higher compensation expense due to typical higher first quarter payroll taxes and four one 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 invest 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, Joe 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

Again, please press star followed by the number one, if you'd like to ask a question and enjoy devices unmuted likely when it you would anticipate if you change your mind or your question has already been answered, you can withdraw and by pressing star followed by the number two.
Our first question comes from Andrew Liesch of Piper Sandler. Your line is open. Please go ahead.

Andrew Liesch

Thanks. Good morning, everyone. On that, just wanted 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 is the how do you think it's going to react in a higher for longer environment. You think that the bottom of the margin may not occur till late this year?

Rob Butterfield

Yes, I think thanks for the question. So you know, 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. That's helpful. And then just on the loan growth sounds like there was really $35 million. Our loans that were that left the balance sheet with a net growth of we've kind of put that back in maybe a mid single digit loan growth rate going forward. If you take out the mix, maybe one-time items, is that a good place to be here? As we look at where loans can come into the next few quarters?

Jill Rice

Yes, 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 then CapEx.

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

And good morning. Wondering if I could just stick on the margin briefly. 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 that 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

Yes, sure, Andrew. So yes, I think that 10 basis points per quarter is probably a pretty good number. It could 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 as 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 an equal amount, assuming you know, as those reprice down. But if we assume just a couple of rate cuts in the second half of the year, then that increase in the adjustable rate loans boom 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 as 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

Yes. Understood. Okay, Tom, I appreciate it. And then on the on the deposit front, just on the specifically the asset 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 noninterest-bearing into interest 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

Yes, that's 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 three 63. 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. We also are 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, Tom, 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 the 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 continue build from here? Just any kind of color on expense progression would be helpful.

Rob Butterfield

Sure. I think for the year, we had previously talked about if we look at '23 compared to '24 on it on a 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 41 K. expenses, which is typical the first quarter. But when you think about March, that's when we do our normal annual salary increases and so 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 for one k. expense.
And overall, I think the first quarter was probably a pretty good indication, but quarter to quarter 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 and

David Feaster

good morning, everybody.

Mark Grescovich

Good morning, David.

David Feaster

Are you looking at looking at the originations, you know, look, it looks like are in 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 meaning they are continuing to take down new starts to replace inventory because products 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 be for a capital purchase or a project, they're a little more on pause, so slower to pull through to a new line.

David Feaster

Okay. That makes sense.

Mark Grescovich

Yes, David, on that in the second part, this is Mark. I would just add that I think it's important to take a look at our concentrations is a relation 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.

David Feaster

Yes, no relief on those assets for sure on that, does that make sense and then you've taken an active and steady approach to managing securities over the past several quarters. Tom, I'm curious maybe that with perhaps less likelihood for rate cuts in the short run as your thoughts on the securities book changed, it looks like we used proceeds to pay down borrowings if you 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 on sale proceeds going forward? And how has your appetite for restructuring changed at all?

Rob Butterfield

Yes. Thanks for the question, David.
o if I think about specifically in Q2, we we are considering whether we're going to do another security sale in Q2 that that could look similar to what we did in Q1, as you know. And part of that, it's going to be driven based on market conditions where interest rates are at of what the level of loss would be on those securities sales. And then we're also paying attention to loan growth as well as as well as deposit flows and 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 and and QQ. three. So we're concerned 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 are 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, you talked about the expense side a bit, you know, and some of the pressures in the run rate. But I'm curious what are you seeing on the investment side, you know, what's your appetite for new hires today or even denovo 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 on the investment side and how technology could potentially be used to support efficiency improvement?

Rob Butterfield

Yes. I guess there's a couple of pieces to that. So so first of all, just on just on the on the people side, on the relationship managers, we have been adding there not not specifically in the first quarter, but if you look back to the second half of 2023, we were adding some relationship managers and commercial RMs in key markets there and we continue to make that that investment.
And then and then on the technology side, there are some technology investments that we're currently looking at or are 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 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 so yes, we are continuing to make investments we we're always taking a long-term approach to things. So we're trying 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

As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad to join the queue. Our next question comes from Kelly Motta of KBW. Please go ahead.

Kelly Motta

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

Jill Rice

Yes. Yes.mThank you, Kelly. So we regularly are stress testing our portfolio and so as it relates to specifically these property types, as you think about office, yes, we're regularly reaching out just for updated rent rolls information on trending information that our borrower may have about and 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 restructuring the portfolio to see what happens then same re-priced rate.

Kelly Motta

Got it. And Dave, thanks for the color. And then maybe turning to fees on pretty pretty strong this quarter on mortgage was up and what probably a seasonally weaker quarter. Just wondering, you know, 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 then where you're seeing the most potential for fee growth as we look through them the remainder?

Rob Butterfield

Yes, sure, Kelly. So I saw a couple of different components of that first on the deposit fee income, as I as I mentioned, we did see growth in interchange fee income and also in overdraft fees on the interchange fee income last quarter, we had some card replacement expenses that are not reoccurring 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 rates a bit higher than 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's 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, but 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 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. And 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 you know, early on the rates were a little bit lower that the rates have increased as we went through the quarter there. But absent of any changes in the interest rate environment, it'll 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.

Mark Grescovich

Thank you, Kelly.

Operator

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

Timothy Coffey

Thank you. Good morning, everybody. I'm wondering, Rob, a question for you 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 are as there been more of a fundamental lasting change?

Rob Butterfield

No, I think the way we're kind of thinking about that is, I think once the Fed starts to cut interest rates, then we will see some stabilization in the flows there. And even in the cost of deposits, I mean there's 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. Well, thank you. And then I'd say, Rob Morton, kind of quick question for you. How much in available for sale securities were sold this quarter?

Rob Butterfield

We sold that $71 million

Timothy Coffey

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

Jill Rice

It's 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 some surveys that might 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. And then, Mark, a question. I appreciate the color talking about the really 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 think 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 was certainly within a comfort zone. At the same time, we want to be very prudent in understanding what the dynamics are of the economy and 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 and the economy and geopolitical issues are going to do work, we continue to build capital. As I said, we increased our tangible common of 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.
Thank you for the questions.

Timothy Coffey

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

Mark Grescovich

Thanks, Ted.

Operator

We have no further questions in the K, so I'll turn the call back to the team. I ask for any closing remarks.

Mark Grescovich

Right. 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, and thank you for joining. You may now disconnect.