Good day and welcome to the Banner Corporation's Second Quarter 2021 Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mark Grescovich, President and CEO. Please go ahead..

Thank you, Riley and good morning everyone. I would also like to welcome you to the second quarter 2021 earnings call for Banner Corporation. As is customary, joining me on the call today is Peter Conner, our 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..

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, 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 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-Q for the quarter ended March 31st, 2021.

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?.

Thank you, Rich. First of all I hope you and your families are well as we all continue to battle the COVID virus, its variants, and its effects on our communities and the economy. Today we will cover four primary items with you. First, I will provide you high-level comments on Banner's second quarter 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 current status of our loan portfolio. And finally, Peter Conner will provide more detail on our operating performance for the quarter.

I want to begin by thanking all of my 2,000 colleagues in our company that are working extremely hard to assist our clients and communities during these difficult times. Banner has lived our core values, summed up as doing the right thing for 130 years.

It is critically important that we continue to do the right thing for our clients, our communities, our colleagues, our company, and our shareholders to provide a consistent and reliable source of commerce and capital through all economic cycles and change events. I am pleased to report that is exactly what we continue to do.

I am very proud of the entire Banner team that are living our core values. Now, let me turn to an overview of our second quarter performance. As announced Banner Corporation reported a net profit available to common shareholders of $54.4 million or $1.56 per diluted share for the quarter ended June 30th, 2021.

This compared to a net profit to common shareholders of $1.33 per share for the first quarter of 2021 and $0.67 per share for the second quarter of 2020.

This quarter's earnings were impacted by the allowance for credit losses recapture, a continued inflow of liquidity coupled with very low interest rates, our strategy to maintain a moderate risk profile, continued good mortgage banking revenue and production, and the acceleration of deferred loan fee income associated with the SBA loan forgiveness of Paycheck Protection loans.

Peter will discuss these items in more detail shortly.

Directing your attention to pretax pre-provision earnings and excluding the impact of merger and acquisition expenses, COVID expenses, gains and losses on the sale of securities, and changes in fair value of financial instruments, earnings were $57.3 million for the second quarter of 2021 compared to $48.6 million in the previous quarter, an increase of 18%.

This measure, I believe is helpful for illustrating the core earnings power of Banner. Second quarter 2021 revenue from core operations increased 6% to $149.8 million compared to $141.4 million in the first quarter of 2021.

We benefited from a larger earning asset mix, a good net interest margin, solid mortgage banking fee revenue, good expense control, and the previously mentioned acceleration of deferred loan fees associated with PPP loans.

Overall, this resulted in a return on average assets of 1.36% for the quarter, and a 6% increase in tangible common shareholders' equity per share compared to the second quarter of 2020.

Once again, our core performance this quarter reflects continued execution on our super community bank strategy, even with the challenges of a pandemic that is growing new client relationships, adding to our core funding position by growing core deposits, and promoting client loyalty and advocacy through our responsive service model.

To that point, our core deposits increased 16% compared to June 30, 2020, and represent 94% of total deposits. Further, we continued our strong organic generation of new client relationships.

Reflective of the solid performance, coupled with our strong tangible common equity ratio, we issued a dividend of $0.41 per share in the quarter, and repurchased 250,000 shares of our common stock.

Our branches are fully operational and we have begun phasing in our return to the workplace policies that provide a safe and flexible working environment for our employees and clients. To provide support for our clients through this crisis, we made available several assistance programs.

Banner has provided SBA payroll protection funds totaling nearly $1.6 billion for approximately 13,000 clients.

Also, we made an important $1.5 million commitment to support minority-owned businesses in our footprint, a $1 million equity investment in Broadway Federal Bank now City First Bank, the largest black-led depository financial institution in the United States; significant contributions to local and regional nonprofits; and have provided financial support for emergency and basic needs in our footprint.

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

Jill?.

Thank you, Mark, and good morning, everyone. As you read in our press release, Banner's credit metrics have remained stable as we continue to work through the economic impact of the pandemic.

While we acknowledge the potential for future COVID-related business interruption, due to the pace of spread related to the Delta variant as of June 30, I am happy to note that all of our markets are currently fully reopened and business sentiment is positive.

Banner's delinquent loans as of June 30 represent 0.24% of total loans, a decrease of 19 basis points from the prior quarter and compared to 0.35% as of June 30, 2020.

Non-performing assets are comprised of non-performing loans of $28.8 million, down $6.5 million for the quarter and REO and other assets of $780,000 and represent a nominal 0.20% of total assets. Adversely classified loans represent 2.83% of total loans as of June 30, down from 3.11% in the linked-quarter and compared to 3.45% as of June 30, 2020.

The improvement in adversely classified loans in the quarter reflects the continued success our Special Assets group has had in de-banking our classified relationships, as well as risk rating upgrades, as more of our borrowers have returned to more normalized operations.

Similar to last quarter, the upgrades were spread across commercial and small business relationships, as well as both owner and investor commercial real estate. As of June 30, our ACL reserve totaled $148 million or 1.53% of total loans, down from 1.57% reported as of March 31, and compared to 1.66% of total loans as of June 30, 2020.

Excluding loans held for sale and the Paycheck Protection loans our current ACL reserve continues to provide significant coverage at 1.68% of total loans or 181% coverage of nonperforming loans and 627% coverage of delinquent loans. Loan losses during the quarter were negligible at $538,000 and were fully offset by recoveries.

Based upon the continued improvement in asset quality, strong economic indicators and all of our markets finally reaching vaccination rates that provided for businesses to fully reopen, we released $8.1 million of our reserve for credit losses as of June 30 and an additional $2.2 million of our reserve for unfunded loan commitments.

This follows a combined release of $9.3 million as of the prior quarter, $8 million for credit losses and $1.3 million for unfunded commitments. As I have said before we built our reserve early in the pandemic due to proactively downgrading credits that were being impacted by the economic downturn.

Banner's reserve methodology remains consistent and conservative. Our future provisioning will be based upon a combination of the rate of loan growth, changes in the portfolio mix and risk ratings and current economic indicators.

While the pandemic-induced credit cycle is not over and we are monitoring the impact that variant strains may have on operating conditions across our footprint, in light of the current market conditions, as well as our loan portfolio's performance to date the reserve recapture is considered appropriate and the reserve for credit losses at 1.53% of total loans remains strong.

Looking at our loan book, portfolio loans net of the Paycheck Protection loans are down 3.6% year-over-year. However, I am pleased to report that as of June 30 Banner reversed the 5-quarter trend of declining portfolio loan balances, growing $198 million or 2.3% net of PPP in the quarter or 9.2% on an annualized basis.

This is in spite of the payoffs that continue within the residential and consumer real estate portfolios. Portfolio loan balances for investment -- portfolio loan balances held for investment are now flat when compared to year-end 2020 balances.

Looking at specific product lines and excluding the PPP loans, C&I loan totals in the quarter are up 2.6% or 10.3% on an annualized basis. In the quarter we did begin to see line utilization increase up 1% quarter-over-quarter and also saw increased loan closings across our footprint.

I will note however that commercial credit line utilization remains down 3% when compared to June of 2020. Residential mortgage loans outstanding continued to be impacted by the refinance market and are down 2.7% for the quarter and 22% year-over-year.

The refinance market has continued to reduce our home equity credit as well, down 1.5% for the quarter and 11.6% year-over-year. As discussed last quarter both the commercial construction and multifamily construction totals are down, 8.1% and 3.3% respectively for the quarter.

This decline continues to reflect the conversion of construction loans to permanent CRE pools upon the completion of construction with the balances now spread among the commercial real estate and multifamily buckets.

The residential ADC portfolios continue to show strong quarter-over-quarter growth as the housing market remains very strong in the markets we serve. Demand continues to outstrip the supply of available homes in almost all of the markets we serve.

Sales activity on completed homes is robust and single-family housing at affordable price points continues to be undersupplied. Our total residential construction exposure is now 6.3% of our portfolio and when we include multifamily commercial construction and land the total construction exposure is 14.2% of total loans.

The commercial and commercial real estate pipelines continue to build and we still anticipate that commercial investments will pick up in the second half of the year as borrowers begin to make delayed capital investments and build inventories.

However, we recognize that many of our borrowers continue to have a significant amount of excess liquidity on hand and we believe they will utilize much of that on balance sheet liquidity before utilizing their lines of credit and/or closing on new borrowings.

Briefly touching on asset quality, loans rated substandard declined 12.4% in the quarter or $38.8 million up from $28.7 million or 8.4% reported for the linked quarter.

Approximately 75% of the adversely classified assets continue to be associated with the at-risk segment with nearly 40% of the total adversely classified credits remaining within the hospitality industry. The next largest segment of adversely classified loans is recreation and leisure which accounts for 20% of the total.

5% are located in health care-related industries, down from 10%; restaurant and foodservice relationships account for 5%; and another 5% are located within the retail book. The balance of substandard credits are not located within an at-risk segment nor are they concentrated in any one business line. I will wrap up by stating what you've heard before.

Our credit metrics continue to be strong, reserves for credit losses remain robust and capital levels continue significantly in excess of regulatory requirements. Banner's loan portfolio continues to be reflective of our moderate risk profile and we are well positioned for the future.

And with that, I will hand the microphone over to Peter for his comments.

Peter?.

Thank you, Jill. As discussed previously and as announced in our earnings release, we reported net income of $54.4 million or $1.56 per diluted share for the second quarter compared to $46.9 million or $1.33 per diluted share in the prior quarter.

The $0.23 increase in per share earnings was a result of an increase in net interest income driven by PPP loan forgiveness, an increase in earning assets and a recapture of the loan loss provision.

Core revenue excluding gains and losses on securities and changes in fair value of financial instruments carried at fair value increased $8.4 million from the prior quarter, primarily as a result of an acceleration of PPP loan forgiveness activity and growth in average core deposits.

Core expenses which exclude M&A and COVID-related expense decreased $380,000 due primarily to lower compensation costs, partially offset by higher professional services expense. Turning to the balance sheet.

Total loans decreased $357 million from the prior quarter end as a result of a $492 million decline in SBA PPP loans and a $63 million decline in loans held for sale, partially offset by an increase in held for investment loans.

Excluding PPP loans and held-for-sale loans portfolio loans increased $198 million due to an increase in portfolio loan production, higher levels of line utilization and slower prepayments on fixed term loans.

Held for sale loans decreased due to an acceleration in the pace of multifamily bulk loan sales and fewer residential mortgage loans for sale carried over quarter end. Ending core deposits increased $122 million from prior quarter end due to a combination of growth in average deposit client balances and new client acquisition.

More significantly, average core deposits grew $713 million in the second quarter as much of the deposit growth occurred at the end of the first quarter. Time deposit balances declined by $24 million from the prior quarter end ending at $889 million, as higher cost CDs are rolling over at lower retention rates. Turning to the income statement.

Net interest income increased by $9.9 million due to a combination of higher loan yields from an increase in PPP loan forgiveness activity and a $675 million increase in average earning assets as a result of core deposit growth.

Compared to the prior quarter, loan yields increased 27 basis points due to the acceleration of unamortized loan processing fees on forgiven SBA PPP loans. Excluding the impact of loan forgiveness prepayment penalties, interest recoveries and acquired loan accretion, the average loan coupon declined 5 basis points from the prior quarter.

While the pace of core loan yield decline has slowed, modest headwinds continue as new fixed rate loans are originated at lower rates and adjustable rate loans with floors mature.

Total average interest-bearing cash and investment balances increased by $793 million over the prior quarter funded by deposit growth and PPP loan payoffs, while the average yield on the combined cash and investment balances declined 7 basis points due to a larger mix invested in overnight funds at low rates along with elevated prepayments on higher-yielding mortgage-backed securities.

Total cost of funds declined 4 basis points to 17 basis points as a result of lower deposit and borrowing costs. The total cost of deposits declined from 11 to 9 basis points in the second quarter due to declines in interest-bearing retail deposit rates and ongoing repricing of the CD book.

The ratio of core deposits to total deposits was 94% in the second quarter, a 1% increase from the prior quarter. The net interest margin increased 8 basis points to 3.52% on a tax equivalent basis.

The increase was driven by the acceleration in PPP loan forgiveness, partially offset by an increase in excess deposit liquidity invested in overnight and lower yielding securities. In the coming quarter, we anticipate a deceleration in the pace of PPP loan forgiveness and a commensurate decline in the net interest margin.

While we anticipate the core loan growth generated in the second quarter will continue in the second half and have a positive effect on earning asset yields, forward guidance on the margin will be a greater function of deposit liquidity outflows and changes in the yield curve.

In the near-term, we anticipate laddering the excess deposit liquidity into security -- into the securities portfolio at a measured pace, while remaining flexible to shifts in loan demand and market conditions. Total noninterest income declined $1.9 million from the prior quarter.

Core noninterest income excluding gains on the sales of securities and changes in securities carried at fair value declined $1.5 million. Deposit fees increased $819,000 due to an increase in card interchange income and higher service charges on deposit accounts.

Total mortgage banking income declined by $4 million due to lower spreads on residential mortgage loan sales. Within residential mortgage production the percentage of refinance volume declined to 34% of total production, down from 46% in the prior quarter. Multifamily loan gain on sale income remained even with the prior quarter.

Miscellaneous fee income increased $1.7 million primarily due to gains on sale of closed branch locations. Total noninterest expense declined $900,000 from the prior quarter. Excluding merger costs and pandemic specific operating costs, core noninterest expense declined $380,000.

Salary and benefit expense declined by $2.9 million primarily due to declines in severance expense, payroll taxes and deferred compensation. Merit-related increases to salary expense we normally experienced in the second quarter were offset by reductions in staff that were effective at the end of the first quarter.

The credit for capitalized loan origination costs decreased by $928,000 in the second quarter due to a significant reduction in SBA PPP loan production as the final phase of the program came to a close at the end of the first quarter.

Information services declined $600,000, primarily due to reductions in former Islanders Bank and SBA PPP loan related data processing and software expense. Professional legal expenses increased $1 million primarily due to a settlement of a recent litigation matter.

Miscellaneous expense increased by $647,000 due to increased loan expenses in portfolio loan production compared to the prior quarters. Merger costs declined $492,000 reflecting the completion of the Islanders Bank subsidiary merger into the Banner Bank subsidiary in the prior quarter.

In closing, the company is well-positioned for rising rates with a low-cost granular core deposit base with ample on-balance sheet liquidity to support renewed loan demand, while core operating expense declined as a result of prior branch consolidations and streamlining of administrative and support function costs.

As Mark noted, as part of our ongoing capital management the company repurchased 250000 shares during the quarter. This concludes my prepared remarks.

Mark?.

Thank you, Peter, and Jill for your comments and color on the company's performance for the second quarter. That concludes our prepared remarks. And Riley we will now open the call and welcome your questions..

We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Andrew Liesch with Piper Sandler..

Hi, everyone. Good morning..

Good morning Andrew..

Just one quick question on the loan growth, certainly encouraging this quarter. And I know your guidance had been for balances to be flat through year-end.

Is that still a good guidance to be using? And I guess what other things are you hearing from your clients? Anything specific to make you think that growth will come back or will continue to accelerate from this point?.

Good morning, Andrew, this is Jill.

Yes, we're still holding to the flat guidance for 2021 for the balance of the year, although given the uptick we saw in the line utilization that started this quarter and the positive business sentiment we have everybody being reopened, we do believe that we will have low single-digit growth for the balance of the year, which is what will get us to a flat landing for 2021 after the PPP paydown.

In terms of what we're hearing from our borrowers, it's very positive in our markets, because we finally just reopened. So everyone's feeling really good about that. That has to be countered a little bit with what we are seeing in terms of the Delta variant and discussions now about masking up inside and where does that take us.

But as we ended the quarter, things are feeling good in the markets we serve..

Got it.

And then on the -- in the presentation on the -- I believe it's Page 22 with the $23.7 million remaining of unamortized fees do you guys have any sense on the timing on how that's going to be realized? It will all be done this year, or is there going to be any spill over into 2022?.

Yes. This is Peter. I can address that. So yes, we -- it's really a function of the pace of remaining loan forgiveness on the balance of the $825 million that existed in the portfolio at the end of the quarter. Given what we did in the second quarter we forgave $558 million. So we had a big quarter of forgiveness.

That will slow down a bit going into the third quarter. And I would anticipate based on what we're seeing early in this quarter that we'll see 30% to 40% of that $825 million remaining balance forgiven in Q3, and then it will tail down and have a gradual soft landing to some core amount that won't get forgiven.

But I would anticipate that kind of gradual decline in the pace of forgiveness quarter-to-quarter as we go out through the rest of this year. And there'll be some small residual amount of the PPP portfolio that won't get forgiven and will ultimately term out at their five-year maturity. .

Okay. That's very helpful. Thanks for taking the question. I’ll go back..

Thank you, Andrew..

Our next question comes from Jeff Rulis with D.A. Davidson..

Thanks. Good morning..

Good morning, Jeff..

Just checking in on the expenses.

I don't think I've kind of checked it -- given the branch consolidation some of the administrative takeouts that you've had and I guess excluding kind of the comp adjustments, could you kind of get us to where you sit on expenses? And are there some detail that you could provide in terms of what -- I don't know if it's a want to hold to a run rate or kind of looking at the catalysts ahead of you some of those cost savings that you've had in the past has that been achieved? And now it's just we're back to hoping to moderate expense growth? Thanks..

Yes, Jeff, it's Peter. So yes, we -- as I noted in my prepared remarks, we had some elevation in our professional services line item this quarter principally due to settlement of some recent litigation that emerged late last year. And then we still had some what I'd call tail of severance and some restructuring costs related to some recent downsizing.

As we go into the second half of this year, we continue to mine some opportunities for reduced expenses both branch consolidations and staff-related costs that we've already effected, but we'll have some benefits to the run rate as we go out the rest of this year.

If we were to look at our $92.4 million expense number in this quarter, there's somewhere around $2 million to potentially $3 million out of that that would represent our core run rate. So I'd kind of use that as a benchmark.

But then there's always some volatility for the timing of professional services costs and some ongoing restructuring costs that get laid on top of that number. But that's how I'd characterize it. So we're getting through a lot of the benefits of what's been done.

There's still some additional reductions that are in the pipeline for the second half of this year that will continue to have a positive effect on the core operating expense. .

Okay.

And if I read you right, I mean, it sounds as if that can approach more of a $90 million kind of core kind of as you -- ?.

Yeah. Yeah. That's fair. And I think the other piece here is the capitalized loan origination cost. That obviously has a big effect on that number. And that's a function of loan production. And we – again, that's been volatile because of the PPP program we had a very big quarter of originations in Q1 in the PPP program. That's effectively ended.

We just had a very small amount of originations in this quarter. And so that's the other element to the expense basis. The pace of loan production going forward should it continue or increase, we'd see a bigger benefit from the capitalized loan origination costs on our core expense number..

Great. Thanks. And Mark, on the kind of the capital management front the buyback has continued. I want to just check in on the appetite going forward on that front as well as I think in recent months you've talked about M&A interest there – obviously there was a lot of activity in Northern California.

But just an update on how you feel about the buyback as well as M&A appetite for now? Thanks..

Yeah. Thank you for the question, Jeff. I think our view of capital deployment has not changed. If anything with the pullback in the market, it probably is more consistent than where it's been in recent history. So if you think about the authorization we have of 1.7 million shares, and we've repurchased 750,000 we have plenty of room there.

Obviously, the waterfall of capital deployment does include the core dividend itself, stock repurchase and/or special dividends. Obviously in this market, repurchase tends to favor any kind of special dividend, and continued investment in the franchise as well as M&A opportunities. On the M&A front, look conversations continue.

We – our style has been very consistent and that we do negotiated transactions. We don't do auction transactions.

So as we enter into the second half of the year and into 2022, it really comes down to who is the right partner and what's the right franchise combination that's going to help Banner continue to be successful over the course of the next three to five years.

So the conversation continues, but you know as well as I do those have to be opportunistic and timing is always in question as to when those can happen..

Great. Thank you..

Thank you, Jeff..

Our next question comes from Jackie Bohlen with KBW..

Hi. Good morning..

Good morning, Jackie..

Hi, Mark. I just wanted to start off with the improvement in criticized assets this quarter kind of look forward. If I understood correctly, it sounds like roughly 40% of that relates to hospitality. And I realize that, this is somewhat dependent on the geography of the hospitality loans.

But it sounds like anecdotally, we're off to a really good vacation season this summer.

And so I'm wondering, if that is in fact the case, what kind of migration trends you would expect from those risk grades? And how that might impact forward reserve necessity?.

Good morning, Jackie. Certainly, we are off to a great vacation season. And as I think I indicated last quarter, we were expecting to see our hospitality numbers pick up starting with spring break and run forward and we have.

So we are running now approximately, on whole at a 60% occupancy rate for the portfolio with – and this is as of I think May numbers, we would be down in the – on the low end you'd have people still running at 20%, and some fully occupied. And it really is a function of where they're located and from where they started in terms of the increase.

And we've kept that portfolio adversely classified, because of the impact of the primary repayment source. So do I think we're going to see it improve? Yes. Can I guide to where that's going to go? I'm not prepared to tell you how quickly those will roll off, but we are continuing to see improvement in the portfolio quarter-over-quarter.

As you look – as you think about that and the reserve, we don't give guidance as to where our reserve will be. But one could expect that with continued economic improvement, solid credit metrics and loan growth, you'd expect the reserve level to – as a percentage of total loans to trend downward over time..

Okay. That's good color. And are you – still are you seeing anything that would indicate or anything you're closely watching that would indicate just an uptick in charge-offs? I mean performance has just been tremendous throughout the entire pandemic..

No. I think if I had anything in my quiver towards charge-off, given how clean we were this quarter, you would have seen me take it because when we identify it, we take it. It's just our conserved methodology to act quickly on those problems..

Okay. Thank you. And then a bit of a – a little bit of a technical question. If I heard correctly, it sounds like there was a gain from a closed branch location in non-interest income this quarter. I was just wondering, if I could get that quantified..

Yes, Jackie, it was roughly around $1 million give or take. There were several that were part of that group. It was closed last year. They take a bit of time to sell and settle or gain..

Okay.

And then I realize these are unrelated but it sounds like that pretty much offset the excess litigation expense in the quarter?.

Yes, a little less I would say. But yes, that's true..

Okay. Thanks, Peter and thank you, everyone..

Thank you, Jackie..

[Operator Instructions] Our next question comes from Andrew Terrell with Stephens..

Hey, thanks, good morning..

Good morning, Andrew..

Jill maybe just to drill into kind of the growth guidance from a different perspective or an organic perspective.

If I assume the 30% to 40% kind of forgiveness on the remaining $850 million or so of PPP balances I guess that would imply kind of organic growth for the next two quarters steps up to a low kind of $300 million number about 13% annualized.

Does that sound right to you?.

You mean the – can you say that annualized again growth rate?.

Yes, it would be kind of a low teens type annualized growth rate. I'm just trying to make sure I'm thinking about this correctly..

Yes, I'd have to double check the math. But I'm – if you go back and think about what we did just even in the C&I this last quarter, the annualized growth rate was 10%. So in these segments, we are seeing some decent uptick as people – line utilization has room to grow. That was up 1%, when we think about it historically.

The average utilization rate as of June was 59%, compared to a 2019, average utilization rate of 64%. So when we start to see those actually come back to being drawn, residential construction up and commercial as well, again it will net out to low single-digit for the rest of the year. But I don't know if that answered your question..

Yes. No that was helpful. I appreciate it. And then Mark I was just curious, I wanted to get kind of an update on any attrition that you might have seen from the branch closures we saw late last year. I think when we spoke last it was less than 5% last quarter.

But have you seen any notable kind of change in customer attrition over the past three months?.

I'll let Peter comment on that. Let me just add on to Jill's comments on the loan portfolio and projected growth. Obviously, we caution everything with the new variants and whatever may happen in terms of its impact on the economy and the ability to continue to be reopened strong. So I just want to make sure we stay cautionary on that front.

Peter do you want to comment on the attrition rates?.

Yes. Yes. So, yes, as we've commented in the past, we do monitor and measure account attrition in the closed locations and track that pretty closely and have an expectation of what we think will happen and we continue to see very low rates of attrition and deposit balances.

So again, it's running about -- still running about 5% of those closed locations. And what we find is, some of the smaller balance clients do a trip, but a lot of the larger clients, especially the business clients with larger balances tend to stick with the remaining branch.

And so, we were pretty much through the attrition experience of what we closed last year at this point. It's really tailed off and we don't expect any more material attrition there. .

Understood. Thank you. And then, Peter, one last one.

Just, do you have the net kind of PPP revenue that was recognized through NI this quarter? And then, what the average balance of PPP loans was?.

Yes, I've got the -- so in terms of the -- just the second quarter impact of the PPP portfolio, including the coupon and the accelerated deferred interest income from the forgiveness was -- it was just under $18 million. It was $17.8 million for the second quarter. So the effective average yield on the portfolio, the PPP portfolio was 6.42%.

So we did benefit quite a bit from the forgiveness acceleration this quarter. And just, by way of reference, the first quarter number for the PPP program was $8 million. So we more than doubled the impact to interest income from Q1 to Q2..

Okay. Perfect. Thank you for taking my questions..

Thank you, Andrew..

This concludes our question-and-answer session. I'd like to turn the call back over to Mark Grescovich for any closing remarks..

Thank you, Eillie. As I've stated, we're very proud of the Banner team, as we continue to do the right thing as we battle the COVID virus and its variants and its impacts on our communities and the economy and one another. Thank you all 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..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..