Banner Corporation (NASDAQ:BANR) Q1 2018 Earnings Conference Call - Preliminary Transcript

Apr 24, 2018 • 11:00 am ET

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Banner Corporation (NASDAQ:BANR) Q1 2018 Earnings Conference Call - Preliminary Transcript

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Q & A
Operator
Operator

(Operator Instructions). The first question comes from Jackie Bohlen with KBW.

Analyst
Jacquelynne Bohlen

(inaudible)

Executive
Unidentified Speaker

Hi, Jackie. I

Analyst
Jacquelynne Bohlen

Just wanted to dig into loan yields just to start off with, given the strength that you had in the quarter. How much of the factor was mix in that?

Executive
Peter Conner

Hi, Jackie, it's Peter. So there was some modest impact to mix. So we saw an increase in construction loan balances in the quarter and construction loans carry higher average yields in the rest of the portfolio. So we had some benefit of that, although it characterized most of the increase and the core contractual rate was due to the effects of the fed tightening, both in December and to a much lesser extent at the end of March. 30% of our loans are tied to prime and LIBOR, and we price as soon as those rates move up.

Analyst
Jacquelynne Bohlen

So is it fair to assume then that we'd see another -- depending on the construction mix, of course, another good side pump up in 2Q as well?

Executive
Peter Conner

Well, I'd characterize it this way. We will see some benefit from the said hike from mid-March that will carry into the second quarter. However, we also continue to see pressure on pricing of new loans that create some headwinds to the otherwise increase with CNO's floating rate loans. I think the contractual increase we saw in the first quarter would be a reasonable guide, assuming the mix stayed the same in the second quarter.

Analyst
Jacquelynne Bohlen

Okay. And where was new loan pricing in the first quarter versus the portfolio?

Executive
Peter Conner

It was up somewhat compared to the average portfolio yield that we recall that we not only guide increases in the fed funds and LIBOR rates, but we also saw a 20 to 30 basis point increase in the 5 and 10 year part of the curve where we price CRE term loans. So I don't have an exact number for you. But I'd characterize the new loan yields are coming on at slightly higher rates than our existing portfolio yields.

Analyst
Jacquelynne Bohlen

Okay. That's helpful. And what about the securities that were purchased in the quarter? What rate were those at?

Executive
Peter Conner

So we're averaging about 2.80 to 2.85 on the security portfolio and our repurchase at that rate. We contend to continue to manage a similar mix of securities, so we're not taking any additional duration over our historical averages and rebuilding the portfolio. But on average, those securities are coming in at about 2.80.

Analyst
Jacquelynne Bohlen

Okay. And are you pretty much done with the releveraging, or is there still more to go?

Executive
Peter Conner

We are done. We were done at the end of March. I will note, however, we built throughout the quarter. And so the average balance of securities going into the second quarter will be higher than the average balance that we saw in the first quarter. And as I noted in my prepared remarks that will create some headwinds in our margin because the composition of securities and the