I think over the course of the year, we’ve talked previously about second quarter. We have a lot lower repricing of CDs, and then it’ll build back into the third quarter and into the fourth quarter. Now, when it builds into the third and the fourth quarter, those are on at rates that are, I’ll call them, higher than they are today. And so all things being equal, we should have a nice reduction from where they’re currently at to where they would renew and continue to move forward. So hopefully that answers your question.
Ben Gerlinger: Yes, that was a helpful color. And then I saw pages five to six about broadening the presence across the Phoenix, Denver, Salt Lake, Vegas, all the major kind of West Coast cities that you don’t have a huge presence. Is that more of just kind of – not to use the term aspirational, but that’s not like the next 12 months to really kind of dig in. Will there just be the next target cities to think about? I’m just trying to know how to frame it relative to today?
Clint Stein: We’re in all of those cities. All the dots you see on the map, we’re there. We’ve been there. We put our first retail location in the Utah market last fall. We’ve had teams in Colorado. We actually have — the next phase of that is to support those teams with retail banking capabilities and deposit-taking capabilities. And we have projects in flight to do that in Colorado. Actually, this quarter, we will open two retail locations in the Phoenix Metro market. It’s really — I think how to think about those markets is it’s full banking services, but it’s really leading with commercial banking. And so it’s a branch light type model. It’s different than what we have in our legacy markets here in the Northwest where we’ve been for 70 years and where we’ve built our market share by acquiring a lot of banks.
So in this instance, we’re able to specify exactly which locations, which communities we want to be in, which ones are conducive to our strategy and our business model. Some of the work that we’re doing on the expense front is really to — it’s just a reallocation of resources. It’s how do we free up resources so that we’re not an outlier on an expense standpoint, but that we’re able to also drive future shareholder value and franchise value by having the appropriate presence in these very, very robust, desirable Western markets.
Tory Nixon: Hey, Ben, this is Tory. I just want to add something to Clint’s comment, which I think are just spot on. This idea of expansion into markets like Utah and Colorado and Arizona are very comparable to what I think both banks have done over the course of time, just find a really good commercial team and put them in market and then have a supporting cast around them, which eventually is a retail presence and some deposit taking capabilities to support it. It’s interesting. We’ve been in these markets, all of them, for about 18 months or less, maybe a couple of years at the very, very most, and all three are operating in the black and are very successful. So it’s a great strategy. I think it’s minimal investment out of the gate and then we just build on it from there.
So I think we’re all really happy with the way those things are working out. And then I think Clint kind of alluded to Southern California is just a place where we’ve done that over the course of the years and have been very, very successful. And there’s just so much opportunity with the density of number of customers or companies that exist down in Southern California. That’s just a logical further continued investment for us.
Operator: Thank you. One moment for our next question and our next question comes from Timur Braziler of Wells Fargo. Your line is open.
Timur Braziler: Hi, good afternoon. Good afternoon. Looking again at the margin, I just want to see the $3.55 margin for the month of March. Is that fully baking in the price reductions on the wholesale and promotional fundings? Or does that actually trend higher maybe as that effect fully kicks in and then you get some of the more moderate pricing pressures off of that base?
Ron Farnsworth: This is Ron. It makes a good chunk of it just given the majority of that. Those adjustments were in February. So when you look at the month of March itself, there were still reductions throughout the month, but the majority occurred prior to.
Timur Braziler: Okay, got it. And then on the inside, it looks like just the one-off items mentioned in the appendix, and that’s a core expense of $276. Ron, you had mentioned that normalizes at $286, but it kind of cut off as you mentioned what that driver was. Just what’s the tieback from the $276 that looks to be core versus the $286 normalized we should be using?
Ron Farnsworth: Yes, $286 is definitely the number to be using. It’s just a handful of one-off items that happen to be credits. So just various credit entries, whereas in the fourth quarter, they were mostly debit entries.
Timur Braziler: Okay, got it. And then just last for me, the migration of credit on the SBA specifically. We saw another competitor today talk to similar trends. I know you guys are a big SBA lender in your geography. Can you just remind us the size of that portfolio and maybe some nuances about it, what portion of that is guaranteed, and maybe some other characteristics of that portfolio?
Frank Namdar: This is Frank. It’s about $600 million, and they’ve historically done a lot of business acquisition type financing, and that’s really where the losses have been centered is in that specific space. And obviously, business acquisition, smaller borrowers, those are the ones in a rates-up environment and a higher rate environment are going to be adversely impacted, and that’s what you’re seeing. I mean, it’s in no way indicative of more of a spread than that. And the guarantees on those credit obligations can run anywhere from 50% to 90%. So the escalation that you saw in the NPLs attributable to SBAs, I mean, should they go to loss, they will generally be guaranteed by some portion. On average, it’s about 75%. And the balance of the increase, Timur, is really centered in a single credit in the CNI space of which we are well collateralized, and there is significant interest in this particular property, and I expect this one will probably be gone within the next quarter or two at the latest.
Tory Nixon: Timur, this is Torrey. I think it would be good just to kind of highlight a strategic shift in our SBA businesses. We had historically been a more, I think, full-fledged nationwide lender looking for gain on sale, and it kind of restructured through a strategic initiative to have it focus, the SBA group to focus exclusively on referrals from retail banking and commercial banking and customers of the bank, and just kind of changing the business model a bit, which I think will bring us in footprint and have us focus quite nicely like we do everywhere else in the company where it’s about full relationship banking and it’s about our existing customers or new prospects that we bring into the company. So, a shift for us, but I think a really good shift.
Operator: Thank you. One moment for our next question. And our next question comes from Brandon King of Truist. Your line is open.
Brandon King: Hey. I’m with the SBA. Could you please characterize the deposit, non-interest bearing deposit outflows you’re still seeing? I believe some of the commentary is around inflationary pressures, but I’m wondering if some of that is also attributed to the mix shift.
Ron Farnsworth: Hey, Brandon. This is Ron. I think here early in the second quarter, it’s going to be mostly tax-related seasonally. We’re both banks have seen that combined. In the first quarter, again, it was a continuation of the trends from Q4 into the month of January, but then initiatives underway helped in February and March. Those balances were flat, which was great to see.
Chris Merrywell: Yes, and this is Chris. I’ll add to that. Yes, the mix, it continues to have some shifting in it. Higher for longer is going to continue that customers are going to continue to look at that, continue to make choices and decisions. We follow it on, does the money actually leave our balance sheet. We’re seeing it either be spent or we’re seeing it shift into higher earning products.
Brandon King: Okay. What would you attribute, I guess, the portions of the higher earning products versus being spent?
Chris Merrywell: Brandon, I have it on just on the commercial side of the house, which is a little bit, which talks about it’s really closer to three quarters of what exits non-interest bearing just gets re-priced into a interest bearing account, whether money market or whatever. Then the balance of that at this point over the last couple quarters has been spent on either distributions, taxes, dividends, et cetera. That’s a rough ballpark of what we’ve seen.
Brandon King: Okay. Okay. Very helpful. Then with the changes in how you’re pricing certain deposits, could you talk about the retention of those same deposit categories? Has that been affected at all? I guess the goal is to whatever you lose from a retention standpoint to make up with these new initiatives?
Chris Merrywell: Yes. Most of that comes in, Brandon, in the CD portfolio. We track that to where pretty much on a given month we renew approximately 87, 88% of our CDs, either renew, move into a different term, or they auto renew. That number has been very consistent over time. It can vary based on what our rates are at the time, but we can lay that out over the next 13 months and really have a good idea of all things being equal where we want to be. We can control a bit of that renewal activity. That’s a pretty solid number for what rolls over each and every month.
Operator: Thank you. [Operator instructions] One moment for our next question. Our next question comes from Andrew Terrell of Stevens. Your line is open.
Andrew Terrell: Hey. Good afternoon. Step it in. Clint, just quickly on the, I think I heard in your prepared remarks, discussion around kind of the TCE ratio and targeting 8% there versus I think you’re at 6.6% today. We’ve talked about kind of this total risk-based capital target of 12% for a few quarters now. I guess I just am curious what kind of drove the kind of change in the line of thinking and maybe more of a focus on the TCE ratio now just given we’ve talked about the total risk-based for a while?
Clint Stein: No, it’s a good clarifying question. You know, I don’t know. It’s been probably 15 years since Columbia kind of set its long-term target capital ratios. And what we always said was 12% total risk-based or 8% TCE. Now, where we’ve been focused on are those regulatory ratios. They’re not really out of alignment. If you look at, I think we’re roughly 11.7 is what we expect to be total risk-based at the bank level. Parent company, as I mentioned, is 12%. You know, next quarter, quarter and a half, the bank should move to that 12% level. At the same time, that’s going to push TCE up. And then if you just look at where we’re at with AOCI and you add that back in, you’re pretty much in the ballpark of an 8% TCE ratio. So I don’t think it’s too far off, but I just think that it’s something that we do monitor.
We have monitored for a long period of time. I think it’s artificially lowered because of the capital impact of the rate marks with purchase accounting and then just where we’re at right now with current rate levels. That doesn’t mean that that’s a hard floor. That doesn’t mean that we won’t look opportunistically. I personally believe the market has our valuation wrong and has for the last couple of years. And so that doesn’t mean that when there’s volatility and there’s opportunities that we won’t take strategic advantage of when we feel like that that’s gotten even outsized from where it should be. But just broadly want to get that out there that anything that’s very major or meaningful in terms of shifting numbers and calculations probably won’t occur until we’re within eyesight of that 8% TCE level.
Andrew Terrell: Yes. Understood. Okay. I appreciate the clarification there. And then maybe just one. A lot of mine were asked and addressed already. The $14 million commercial loan that was charged off this quarter, was that previously sitting in non-accruals?
