Banner Corp
NASDAQ:BANR
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Banner Corp
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Good morning, ladies and gentlemen, and welcome to the Banner Corporation First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions [Operator Instructions]. Please note that this event is being recorded.
At this time, I would like to turn the conference over to Mark Grescovich, President and Chief Executive Officer.
Please go ahead, sir.
Thank you, Denise, and good morning, everyone. I would also like to welcome you to the first quarter 2019 earnings call for Banner Corporation. As is customary, joining me on the call today is Rick Barton, our Chief Credit Officer; Peter Conner, our Chief Financial Officer; and Albert Marshall, the Secretary of the Corporation. Albert, would you please read our forward-looking Safe Harbor statement?
Certainly. 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 recently filed Form 10-K for the year ended December 31, 2018. Forward-looking statements are effective only as of the date they are made and Banner assumes no obligation to update information concerning its expectations.
Thank you, Mark.
Thank you, Al. As announced, Banner Corporation reported a net profit available to common shareholders of $33.3 million or $0.95 per diluted share for the quarter ended March 31, 2019. This compared to a net profit to common shareholders of $0.89 per share for the first quarter of 2018 and $1.09 per share in the fourth quarter of 2018.
Excluding the impact of merger and acquisition expenses, gains and losses on the sale of securities, changes in fair value of financial instruments, and tax adjustments, earnings were $35 million for the first quarter of 2019, compared to $26.3 million in the first quarter of 2018, an increase of 33%.
Due to the hard work of our employees throughout the company, we are successfully executing on our strategies and priorities to deliver sustainable profitability and revenue growth to Banner.
Our core operating performance continued to reflect the success of our proven client acquisition strategies, which are producing strong core revenue and we are benefiting from the successful integration of our recent Skagit Bank acquisition.
Our first quarter 2019 performance demonstrates that our strategic plan continues to be effective and we are building shareholder value. First quarter 2019 revenue from core operations was $134.2 million, compared to $117.4 million in the first quarter of 2018. We benefited from a larger and improved earning asset mix, a solid net interest margin and good deposit fee revenue.
Overall, including the cost to integrate the Skagit operation, this resulted in a return on average assets of 1.15% for the first quarter of 2019.
Once again, our performance this quarter reflects continued execution on our super community bank strategy, that is, growing new client relationships, adding to our core funding position by growing core deposits and promoting client loyalty and advocacy through our responsive service model. To that point, our core deposits increased 9% compared to March 31, 2018.
Non-interest bearing deposits increased 8.7% from one year ago and represent a stable 39% of total deposits. Further, we continued our strong organic client generation of new relationships.
Reflective of this solid performance, coupled with our strong tangible common equity ratio of 10.05%, we increased our dividend to $0.41 per share in the quarter, a 17% increase from the first quarter of 2018, and we approved an authorization to repurchase up to 5% of our common stock.
In a few moments, Peter Connor will discuss our operating performance in more detail. While we have been effectively executing on our strategies to protect our net interest margin, grow client relationships, deliver sustainable profitability, and prudently invest our capital, we have also focused on maintaining the improved risk profile of Banner.
Again this quarter, our credit quality metrics reflects our moderate risk profile. At the end of the quarter, our ratio of allowance for loan and lease losses to total loans was 1.12% and our total non-performing assets totaled 0.19%.
In a moment, Rick Barton, our Chief Credit Officer will discuss the credit metrics of the company and provide some context around the loan portfolio and our success at maintaining a moderate credit risk profile.
In the quarter and throughout the preceding nine years, we continue to invest in our franchise. We have added talented commercial and retail banking personnel to our company and we have invested in further developing and integrating all our bankers in into Banner's proven credit and sales culture.
We also have made and are continuing to make significant investments in our risk management infrastructure and delivery platforms positioning the company for continued growth and scale. While these investments have increased our core operating expenses, they have resulted in core revenue growth, strong customer acquisition, year-over-year growth in the loan portfolio, and strong deposit fee income.
Further, as I've noted before, we have received marketplace recognition of our progress in our value proposition, as J.D. Power and Associates announced this morning that they've ranked Banner Bank the number one bank in the Northwest for client satisfaction. This is the fifth year we've won this award.
The Small Business Administration named Banner Bank, Community Lender of The Year for the Seattle and Spokane districts for two consecutive years, and this year, named Banner Bank, Regional Lender of the Year for the fourth consecutive year and Money Magazine named Banner Bank the Best Bank in the Pacific Region, again this year. Also, Banner was ranked in the Forbes 2019 Best Banks in America for the third consecutive year.
I'll now turn the call over to Rick Barton to discuss the trends in our loan portfolio, Rick?
Thanks Mark. Continuing the recent pattern, Banner's credit metrics were stable during the quarter, maintaining the moderate risk profile of the company's loan portfolio. We continue to be well positioned to deal with the next credit cycle, whatever form it might take and the portfolio impacts of macroeconomic factors such as tariffs and interest rates.
My specific remarks on our credit metrics this morning will be brief. Delinquent loans increased nine basis points from the linked-quarter to 0.54% of total loans. Delinquencies one year ago were 0.56%. The company's level of adversely classified assets decreased during the quarter and remained well below historic norms.
Non-performing assets increased $3 million to $22 million during the quarter and are 0.19% of total assets. This metric at March 31, 2018 was 0.23%.
Non-performing assets were split between non-performing loans of $19 million and REO and other assets of $3 million. The increase in non-performing loans was random, not systemic to any single portfolio. Not reflected in these totals are the remaining non-performing loans of $7 million acquired from Siuslaw, American West and Skagit Banks, which are not reportable under purchase accounting rules.
If we were to include the acquired non-performing loans in our non-performing asset totals, the ratio of non-performing assets-to-total assets would still be a modest 25 basis points.
For the quarter, the company recorded net loan charge-offs of $1.2 million. Gross charges offs for the quarter were $1.4 million. We still consider charges-offs at this level to be low, when compared to historic norms. Also to be noted is a further decline in the recovery of loans previously charged off.
After a first quarter provision of $2 million and net loan losses of $1.2 million, the allowance for loan and lease losses for the company totaled $97.3 million and is 1.12% of total loans, up one basis point from the linked-quarter. For the quarter ending March 31, 2018, this measure was 1.22%.
Coverage of non-performing loans remained very robust at 504%, but down from the coverage of 616%, last quarter. The remaining net accounting mark against acquired loans is $24 million, which provides an additional level of protection against loan losses.
During the first quarter of 2019, total loans receivable were flat when compared to the linked-quarter. When viewing this number, it is important to note the following: C&I growth occurred across our footprint at an annualized rate of 11%.
As expected, agricultural loans had its seasonal decline of $30 million. Certain aspects of the C&I portfolio, the seafood industry for example, also had normal seasonal declines. And the residential construction portfolio was down $20 million, reflecting the third and fourth quarter slowdown in West Coast housing markets.
Additionally, Banner's construction loan portfolio remains at acceptable concentration levels. Residential construction exposure including land loans is 8.1% of total loans. When both multi-family and commercial construction and land loans are added into this calculation, our total construction exposure is 12.6% of total loans. At December 31, 2018, these ratios were 8.3% and 12.8% respectively.
The pace of lease-up activity in multi-family construction loans has not changed in the last 90 days with these loans continuing to payoff in a timely manner. However, we are continuing to observe flattening growth in multi-family rents, but vacancy rates in the luxury apartment market appear to be stabilizing. Leasing incentives in the luxury segment also appear to be decreasing.
Finally, the markets in which we make residential construction loans are beginning to rebound from the slowdown in the third and fourth quarter of last year. The recent decline in interest rates lies behind the rebound.
Markets are now performing at core historic norms. They are undersupplied in terms of affordable housing and the imbalance in other market segments. However, the sales pace of expensive single family homes is being closely monitored, as our emerging market trends and changes aimed at making housing more affordable.
As I said at the outset of my remarks, the credit story at our company remained stable during the first quarter of 2019 further solidified the moderate risk profile of our loan portfolios and positions us well for the future.
With that said, I will pass the microphone to Peter Connor for his comments, Peter?
Thank you, Rick, and good morning everybody. As discussed previously and as announced in our earnings release, we reported net income of $33.3 million or $0.95 per diluted share for the first quarter, compared to $37.5 million or $1.09 per diluted share in the prior quarter.
The $0.14 decline in per share earnings from the prior quarter was due to the following items: net interest income declined $0.10 due to a decline in acquired loan accretion and increase in borrowing costs. Non-interest income declined $0.10 compared to the prior quarter due to a decline in mortgage and multi-family loan sale income, a decline in miscellaneous income related to a write-down on a former administration building and tax recoveries booked in the prior quarter.
Non-interest expense declined $0.22 per share, due primarily to lower acquisition costs and professional expense. Income tax expense increased $0.16 per share as a result of a credit to tax expense associated with the release of evaluation reserve on deferred tax assets posted in the prior quarter.
Turning to the balance sheet, total loans declined $117 million from the prior quarter end, as a result of a $150 million sale of multi-family loans. Portfolio loans were flat to the end of the fourth quarter, as seasonal declines in agricultural loan outstandings, slower construction in CRE production were offset by growth in C&I loans, which grew at an annualized pace of 11%.
Ending held-for-sale loans declined by $125 million as a result of a $150 million bulk sale of multi-family loans and lower new multi-family loan originations in the first quarter due to a combination of seasonal and competitive factors.
Ending core deposits increased $56 million in the first quarter. The growth in core deposit balances was diversified across deposit product types driven by solid net client account growth.
Time deposits decreased $157 million in the first quarter due to a decline in brokered CDs. FHLB borrowings also declined by $122 million in the first quarter, as a result of the sale of multi-family portfolio, an increase in core deposits, and modest run-off of the securities portfolio, which declined $48 million.
Turning to the income statement. Net interest income declined $1 million from the prior quarter due to a decline in acquired loan accretion income and an increase in funding costs. Loan yields decreased six basis points to 5.31% in the first quarter from 5.37% in the fourth quarter.
Acquired loan interest accretion accounted for nine basis points of a loan yield in the first quarter, down from 16 basis points in the fourth quarter. The pace of loan accretion is lumpy, influenced by loan prepayment activity and the vintage of the acquired portfolio.
Fourth quarter loan accretion was particularly high with robust income from all three acquisitions, Skagit, American West and Siuslaw.
Going forward, for the remainder of this year, we expect loan accretion to run between $1.5 million and $2 million per quarter. As we have noted in prior calls, the contractual loan yield in recent quarters has benefited from elevated levels of workout-related interest recoveries and commercial borrower prepayment penalties.
This quarter, we experienced a decline in the source of loan interest income activity, and as a result, the typical increase we have seen in contractual loan yields in the quarter following a Fed hike was lower than in previous quarters.
Excluding interest recoveries and prepayment penalties, the underlying average loan interest coupon rate, however, increased at the same quarterly pace we experienced throughout last year following a Fed hike. The cost of deposits in the fourth quarter was 37 basis points, up five basis points from the prior quarter. Brokered CDs accounted for seven basis points of total deposit costs, the same level as the last quarter.
The composition of non-interest bearing deposits-to-total deposits remained steady at 39% and the ratio of core deposits-to-total deposits was 88% in the first quarter. The net interest margin declined 10 basis points to 4.37%. The effects of purchase accounting-related loan accretion, declined to seven basis points from 12 basis points in the preceding quarter.
The decline in this quarter's contractual margin was attributable to the funding cost carry of the multifamily held-for-sale portfolio, which was sold toward the end of the first quarter in early March, coupled with the decline in the contractual loan yields for the reasons discussed earlier. The foundational elements of the company's net interest margin have not changed and remain the same.
Total non-interest income declined $2.9 million from the prior quarter. Core non-interest income, excluding losses on the sales of and changes in securities carried at fair value, declined $3.6 million. Total mortgage banking income declined $2.6 million due to a loss on a hedge on the multi-family held-for-sale portfolio and lower production in both residential mortgage and multi-family loan origination.
The decline in multi-family production stem from a pull-forward of loan production into the fourth quarter and competitive factors, including price and underwriting. The decline in residential mortgage was seasonal, further impacted by that particularly challenging weather our Pacific Northwest footprint experienced.
Residential mortgage gain on sale premiums declined 50 basis points, as a result of an increase in standard loan origination costs that have the effect of increasing the cost basis of the loan and reducing the reported gain on sale. The impact however is neutral to the income statement as the increase in deferred origination costs are deducted from non-interest expense by the same amount.
BOLI income increased due to the Skagit acquisition and a death benefit gain recorded this quarter. Miscellaneous fee income declined $1.3 million as a result of a $700,000 write-off of a bank building related to a two-for-one branch consolidation this quarter and an $800,000 refund of State of Washington sales taxes booked in the prior quarter.
Non-interest expense declined $5.4 million, due to a $2.1 million decline in acquisition expenses, a $4.2 million decrease in professional services expense as a result of a $4 million litigation accrual posted in the prior quarter, offset by an increase in personnel expense related to the Skagit acquisition, along with seasonal payroll tax and benefits increase.
Skagit core conversion and branch consolidations were completed in the first quarter and we anticipate recognizing all of the runrate expense synergies in the second quarter. We anticipate a small amount of remaining acquisition cost to trail into the second and third quarter.
Quarterly core expenses are expected to run in the mid-to-high '80's for the remainder of 2019, with a gradual build-off the second quarter baseline, driven by investment in the Bank's retail and commercial delivery platform and general inflation-driven cost increases.
This concludes my prepared remarks. Mark?
Thank you, Rick and Peter, for your comments. That concludes our prepared remarks and Denise, we'll now turn the call over to you and we welcome questions.
Thank you sir. [Operator Instructions] And the first question will be from Jeff Rulis of D.A. Davidson. Please go ahead.
Thanks. Good morning.
Good morning, Jeff.
Maybe just a quick follow-up, Peter, on that last comment on the expense. So, just to confirm the cost savings should all be captured by the second quarter, was that correct?
Yes, Jeff, that's correct. Actually, we expect to achieve all of the announced synergies and actually do a little bit better than what we announced in the pro forma and that will be all recognized in the second quarter.
Okay. And you mentioned a small tail of merger cost, but if we were just talking about the core run rate mid-to-high 80s is a - 85 to 90 is a big number. I don't know if we were just to back out the merger cost this quarter and assume maybe some incremental cost saves plus perhaps some investment, you are settling into the midpoint of that range, is that fair?
I think that's fair. What the dynamics are, we're going to see the drop in expenses associated with the integration and consolidation of the Skagit operations. However, some of that's offset with some merit and compensation increases that normally occur beginning in the second quarter. But on balance, we'll see a modest improvement and reduction in core expenses in the second quarter
Got you, okay. And maybe, Mark, just on the deposit side, given current what you had this last quarter and potentially more planned CD run-off kind of your deposit growth expectations for the year. How hard are you pressing on, I guess, on a net number versus more focusing on the core?
Jeff, I'll ask Peter to make some additional comments. I think, we haven't really changed the guidance we've said before in terms of core deposit growth and overall deposit growth.
Yes, Jeff we - yes, as Mark pointed out, we haven't changed our guidance. Mid-single-digit core deposit growth is what we've guided to and what we expect. I will note that the composition and growth in brokered CDs will slow down. So, we actually reduced our reliance on brokered CDs in the first quarter and we – I expect some additional reduction in brokered CD funding in the second quarter.
So, from a CD perspective, we'll see the CD totals decline, but that'll be principally due to continuing to roll-off brokered CDs as - but as you know, they come with a high cost. So, we expect some moderation in our deposit beta as a result. Obviously, rates aren't going up.
There is a little bit of lag in our deposit pricing in the retail side, but we expect that we'll see a slower pace of interest-bearing deposit betas rolling into the second quarter between the brokered CDs rollback and just a slowdown in the pace of retail deposit cost growth.
Good to hear. And maybe one last one for - maybe for Rick. Just - you mentioned the NPA lift was random. Could you provide any - little color, I mean it sounds like it's not systemic but just kind of poke around what were some of the sectors that you saw that modest lift in non-accruals?
Good morning, Jeff. It was spread in various aspects of the portfolio. Little bit of C&I. There was little bit of Ag. And beyond those two segments, the numbers were really quite small, so not worth mentioning any other portfolio segments.
Okay. That's it for me. Thanks.
Thank you, Jeff.
And the next question will be from Jackie Bohlen of KBW. Please go ahead.
Hi, good morning everyone.
Good morning Jackie.
I wanted to dig into mortgage banking operations a bit, both from the single-family and the multi-family purpose. Peter, you had mentioned a loss on a hedge on the multi-family portfolio. How much of an impact did that have on the quarter? And how does that compare to what you usually see on order?
Hi, Jackie. Yes, the hedge had about a $500,000 impact on net gain on sale for the quarter. And normally, we don't see that level of volatility in the pipeline hedge. However, we had an extended carry of the multi-family portfolio prior to sale, coupled with a pretty steep drop in the five-year treasury from the beginning of the fourth quarter into the first quarter. So that, that's an unusual amount of volatility in multi-family.
The other comment I'd make is, we had a slow start in the first quarter to multi-family production and we record income base on the fair value of what's produced not when it gets sold. And we did see a slowdown this quarter due to some price and structure, competitive reasons where we've elected not to chase the market down.
But that's done well for us because it preserves the liquidity we get in selling the loans down the road. But we do see the pipeline is filling back up in multi-family. So we expect a pickup in production going into the second quarter and beyond.
Okay. So has some of that competition abated then, that was impacting growth in the first quarter?
Yes, we don't see the elevated levels now that we saw in the fourth - in early first quarter.
Okay.
And then on the - and then on your comment about - the comment on the residential mortgage side, we did see a decline in production going into the first quarter. Some of that’s we do normally see a little bit a seasonal decline in mortgage production going into the first quarter, typically for weather-related reasons, and it was exacerbated somewhat this year by the tough winter we had up in the Pacific Northwest.
And the other component of residential mortgage is that, we increased the amount of loan origination costs that are netted against mortgage loan fee income. And so that had the optical effect of reducing the gain on sale.
However, that gets recorded as an increase to the credit to compensation expense. So it's a neutral impact to the P&L, but it has the optical effect of reducing gain on sale in mortgage. And there too in mortgage, we see our pipelines filling up very nicely in the second quarter.
Okay. So, overall the impact on multi-family from the – sorry, my mind just blanked - the hedging, that shouldn't repeat. So we can normalize for that and that brings income up a little bit. You'll get a little bit more volume in multi-family. So that brings it up a bit.
But from a single-family perspective, you'll get the benefit of added volume now that known everything is not a factor anymore. But the gain on sale, that will continue. Understanding it's a net neutral impact to overall income. But from a revenue perspective that will continue on. Is that a fair assessment?
That's right, Jackie. Yes.
Okay. So if I normalize and look to the gain, the second quarter of 2018, which was roughly $4.5 million, little bit above that. Is that a decent runrate that you would expect? Or does that gain on sale from single-family have more of an impact there?
I think that it will be somewhat less in that prior quarter. But we'll see it come up meaningfully from the first quarter. So, we can't give specific guidance. But we will see a meaningful improvement in fee income in those two line items going into the second quarter.
Okay. And then just one more from me and then I'll step back. In terms of advertising and marketing, I know that that line bounces around quite a bit. What's your expectation for seasonality as we move through the year?
Yes, we typically pickup our campaigns, both media and direct mail in the second quarter. So, I anticipate a pickup in that expense line item in the second quarter.
Okay. And any - between 2Q and 4Q, are there any quarters in particular where you think it might be a bit higher than in other quarters? I know it's earlier in the year.
Yes. Fourth quarter is always highest in the full year. So that's almost, like almost a certainty. We'll see the highest quarter the year for advertising and marketing is in the fourth quarter. The first quarter is kind of light and then Q2 and Q3 are in between those two high and low points.
Okay. So the typical seasonality expected this year then?
Yes.
Okay, thank you.
You're welcome, Jackie. There is no - no major shift in our advertising and promotion philosophy.
Okay.
Thank you.
The next question will be from Tim O'Brien of Sandler O'Neill & Partners. Please go ahead.
Thanks. Question on the BOLI. Could you give a little more color on the BOLI gains this quarter? I think, Peter, you said something about maybe something non-recurring there?
Yes, Tim, there is just a very modest death benefit gain. It was - I don't have the exact number. But it is between one and 200,000 in the BOLI line item. So, we don't typically see that level of jump. BOLI has been a bit volatile in the past.
We've actually were migrating to a new BOLI carrier that's going to normalize our BOLI reported income going forward. So, my expectation is going into the second and third and fourth quarters, we'll see a much more stable level of BOLI income than we have in the past, albeit it will be somewhat a bit less than we saw in the first quarter.
And the other - one other thing that I heard in the prepared remarks was, it sounded like your tone around construction business is positive. And heading into this year, do you happen to have - for context, do you happen to have unfunded commitments for construction or construction related loans at quarter-end and for comparison sake, could we get the year ago numbers? Do you have deeper commitments this year than last year, I guess, is what I'm getting at?
Well, Tim, this is Rick Barton. I don't have the exact numbers in terms of what the unfunded commitments are. But I can say that if we look at recent production in construction being down, that we would expect to see some shrinkage in that commitment overhang. If you want, I can get back to you with some more precise numbers.
I guess,. what I'm looking for, Rick, is just, if you saw an increase in commitments leading up to this point, kind of the start of the new year that affects your tone, your qualifying remarks about kind of the outlook for the year. So, any help you can provide on that that would be great.
I think probably, my tone is more driven by recent conversations we've had with our homebuilders up and down the West Coast who have seen an improvement in the market activities during the first quarter over the third and fourth quarter of last year.
Buyers are still being cautious and they are not buying at the same pace that they did in the overheated market of early 2018 and less late 2017. But it's migrated to a more normal pace of activity. And they are cautiously optimistic about what the balance of 2019 are going to hold for their sales and absorption of their inventories.
And last question, Peter, you mentioned that you expect brokered balances, CD balances to come down some more two - I guess it's a two-part question. One is, what were those balances at quarter end? And what were brokered – what was the average cost on brokered CDs for the quarter? If you happen to have that, I would appreciate it.
Yes, brokered CDs were about $240 million at quarter end. And the average rate on that group of CDs has been running in the low 200 basis points. So call it $220 million, $230 million.
And do you have an idea in mind of where you envision that number declining to, kind of given funding needs for the Bank?
Yes, I can't give you an exact number, Tim. But I would guide into the range of $75 million to another $100 million decline going into the next quarter.
Thanks a lot guys.
Thanks, Tim.
[Operator Instructions] Your next question will be from Matthew Clark of Piper Jaffray. Please go ahead.
Hey, good morning.
Good morning, Matthew.
First one, just on the loan growth outlook. I think you've mentioned you're looking still for mid-single digit deposit growth. Should we think loan growth would be something similar for the year?
Yes, Matthew, it's Peter. Yes, we are guiding to mid-single digits on held-for-investment loan growth. Obviously, the held-for-sale is going to bump up and down based on a cadence of origination sale in the multi-family portfolio. But, we're guiding to mid-single-digits on the held-for-investment portfolio.
Okay.
So, Matthew, this is Mark. Another way to look at it would say if you look at our year-over-year loan growth and back out the Skagit acquisition, it's running in the 6% to 7% range and we anticipate that we are going to be somewhere around that range.
Great. And then, on the expense run rate, excluding the noise. I think if I heard you correctly, you expect that $88 million - the second quarter runrate to be a little bit lighter than that. Can you remind us where those - that relief is coming from beyond the cost saves and also knowing that the, the advertising, marketing will be up this quarter?
Yes, the savings, so we had - for most of the quarter we had the Skagit operations pre-synergy running through the first quarter expense line item. So that would mean, salary and compensation, occupancy costs, some of the data processing costs of their systems. That's not in the M&A number or the M&A expense number, but it was in the runrate in the first quarter.
So we'll see those things drop down, now that we've completed all the core system conversions and consolidated all the branch locations along with a reduction in FTE that goes with those - that integration completion. So we'll see a decline from those sources.
We'll see a modest offset with an increase to salary and compensation. We go through our annual merit review and some salary increases beginning in the second quarter. So, we'll see somewhat of an offset. But on balance, we'll see a modest decline in the core runrate expense.
Okay. And then, I may have missed this in your prepared remarks, but are you still targeting the low 60's efficiency ratio by year-end and a low-to-mid 9% TCE ratio?
Yes, we haven't changed our guidance on efficiency ratio, low 60's is what we're guiding to. And as we've seen, we're at 10.05% tangible common equity ratio at the end of the first quarter. But we intend to continue to deploy the excess capital in the forms that we've done in the past and bring that number down into the mid-9% level by year end.
Okay. And then, just want to get your thoughts on kind of the core NIM with taking down brokered CDs, restoring core deposit growth. I assume there would be some relief in the near-term core NIM excluding the purchase accounting?
Yes, the other dynamic in addition to the reduction in brokered CDs is, we are going to have somewhat lower reliance on borrowings as well in the second quarter. So our deposit seasonality typically, we started a bit slow in the first quarter and it picks up – core deposits pick up in the second quarter on average and so that allows us to reduce the reliance on FHLB borrowings.
So between the reduction in borrowings and reduction in brokered CDs, I expect our margin will stay in that 4.30% range on a core basis, going into the second quarter.
Okay. And then, just, if you had it, the weighted-average rate on new production in the quarter?
Yes we are - if we look at the - and we look at it by loan type. But if we take the average rate on new loan production, it's been running in the mid-to-high 5%. So between 5.50% and 5.70%, and that was the average. The average was right in between those two points for the first quarter. So it's obviously higher than our current portfolio yields. So we are getting some upward benefit from that new production as it comes on.
I will note that it is impacted by the mix of loans. So, depending on the mix of construction loans and C&I loans or first-lien mortgage loans that that weighted average rate round a little bit based on the mix of production, but it's been running in the mid-to-high fives in the first quarter.
Great, thanks.
[Operator Instructions] And the next question will be follow-up question from Tim O'Brien of Sandler O'Neill & Partners. Please go ahead.
Sorry. Just a quick one, do you guys have remaining share repurchase authorization?
Yes. Tim, this is Mark. We just reauthorized an additional 5%. That was done in our past Board Meeting.
Great. Thanks a lot.
You are welcome.
And ladies and gentlemen, that will conclude our question-and-answer session. I would like to hand the conference back to Mark Grescovich for his closing remarks.
Thanks, Denise, and thank you everyone. As I stated, we are pleased with our solid first quarter 2019 core performance in a challenging interest rate environment and see it as evidence that we are making substantial and sustainable progress on our disciplined strategic plan to build shareholder value by executing on our super community bank model, by growing market share, strengthening our deposit franchise, improving our core operating performance, maintaining a moderate risk profile, and prudently deploying excess capital.
I'd like to thank all my colleagues who are driving the solid performance for our Company. 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.
Have a great day everyone.
Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.