Banner Corporation Price & Performance (BANR)

Thank you, Nadia, and good morning, everyone. I would also like to welcome you to the first quarter earnings call for Banner. Corporation. Joining me on the call today is Rob Butterfield, Banner Corporation's 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 will include forward looking statements. These 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 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 on the earnings press release that was released yesterday and the recently filed Form 10 ks for the year ended 12/31/2024. Forward looking statements are effective only as of the date they are made Banner assumes no obligation to update information concerning its expectations.

Mark? 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 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, Joe Rice will provide comments on the current status of our loan portfolio and the potential impact due to the trade tariffs 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 thank all of our 2,000 colleagues in our company who are 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 one hundred and thirty five years. Our overarching goal continues to be to 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 share shareholders of $45,100,000 or $1.3 per diluted share for the quarter ended 03/31/2025. This compares to a net profit to common shareholders of $1.09 per share, for the first quarter of twenty twenty four. And $1.34 per share for the fourth quarter of twenty twenty four. Our strategy to maintain a moderate risk profile and the investments we have made and continue to make in order to improve operating performance have positioned the company well for the future. The strength of our balance sheet coupled with our strong reputation we maintain in our markets, will allow us to manage through the current market volatility. Rob will discuss these items 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 the sale of securities and changes in fair value of financial instruments. Our first quarter twenty twenty five core earnings were $59,000,000 compared to $53,000,000 for the first quarter of twenty twenty four.

Banner's first quarter twenty twenty five revenue from core operations was $160,000,000 compared to $150,000,000 for the first quarter of twenty twenty four. We continue to benefit from a strong core deposit base that has proved to be resilient and loyal to Banner. A very good net interest margin and core expense control. Overall, this resulted in a return on average assets of 1.15% for the first quarter of twenty twenty five. Once again, 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 continue to represent 89% of total deposits. Further, we continued our solid organic growth with loans increasing 5% and core deposits increasing 3% over the same period last year. Reflective of this performance, coupled with our strong regulatory capital ratios, and the fact that we increased our tangible common equity per share by 13% from the same period last year we announced a core dividend of $0.48 per common share. Finally, I'm pleased to say that we continue to marketplace recognition and validation of our business model and our value proposition.

Banner again was 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 and the world again this year. And just recently named Banner one of the best regional banks in the country. J. D. Power and Associates named Banner Bank the best bank in the Northwest for retail client satisfaction and S and P Global Market Intelligence ranked Banner's financial performance among the top 50 public banks with more than $10,000,000,000 in assets. Additionally, the Kroll Bond Rating Agency affirmed all of Banner's investment grade debt and deposit ratings. And as we've noted previously, Banner Bank received an outstanding CRA rating. Let me now turn the call over to Jill to discuss the trends in our loan portfolio and her comments on Banner's credit quality. Jill?

Thank you, Mark, and good morning, everyone.

As reflected in our earnings release, delinquent loans increased again this quarter and now represent 0.63% of total loans.

This compares to 0.49% as of year end and 0.36% as of March 2024. Year over year, the increase is the result of the higher interest rate environment and the impact on all segments. Still, in terms of total dollars and as a percentage of total loans, delinquencies remain manageable. Adversely classified loans increased a modest $5,000,000 in the quarter, and represent 1.73% of total loans. Compared to 1.69% as of the linked quarter and 1.07% as of 03/31/2024. As with the increase in delinquencies, increase in adversely classified assets year over year reflects the impact of current economic cycle with higher operating costs and increased interest expense affecting borrowers. It is worth noting that by borrower, the adversely classified relationships are very granular with an average commitment of less than $1,000,000 And as I have stated in prior calls, adversely classified loans are not centered in one business line or industry. Non performing assets also increased in the quarter, up 3,000,000 and represent 0.26% of total assets consisting of $39,000,000 in non performing loans dollars 3,500,000.0 in REO $300,000 in other repossessed assets. Despite the modest deterioration, Banner's credit metrics remain manageable when considered in light of our loan loss reserve and capital position.

And are indicative of Banner's culture of early and proactive portfolio management. Loan losses in the quarter totaled 3,700,000.0 and were offset in part by recoveries totaling $900,000 dollars The net provision for credit losses for the quarter was $3,100,000 including a $4,500,000 provision for loan losses and a release of $1,400,000 related to unfunded loan commitments.

The provision was driven in large part by quantitative factors, including growth in the construction portfolio, risk rating migration, and charge off and to a lesser extent qualitative adjustments that were applied to address economic uncertainty. The reserve for credit losses provides coverage of 1.38% of total loans and compares to 1.37% as of the linked quarter and 1.39% as of 03/31/2024. Loan originations were down 3% when compared to the linked quarter with the largest decline seen in the commercial commercial real estate portfolios. These declines are in large part a reflection of heightened client uncertainty slowing prospective transactions. It is worth noting, however, that both commercial and commercial real estate pipelines continue to grow, reflecting a desire to proceed with capital investments when the economy stabilized. Loan outstandings grew by $84,000,000 in the quarter, or 3% on an annualized basis and are up 5% year over year. In line with our first quarter expectations. Primary drivers of the growth were within the construction and development book, with multifamily construction up 105,000,000 land development up $26,000,000 and commercial construction up 24,000,000 The increases quarter over quarter are largely due to draws on previously committed projects and were offset in part by expected payoffs and paydowns within the permanent commercial real estate and multifamily portfolios.

On a combined basis, commercial and small business loan totaled declined by $16,000,000 quarter over quarter driven primarily by meaningful pay downs on a handful of larger commercial lines of credit. Total C and I utilization is up 1% in the quarter in spite of those pay downs. The residential construction portfolio at 4% of total loans is continuing to perform well. We did see a seasonal slowdown in the activity in the quarter, Still, the for sale product continues to be bolstered by limited supply of resale inventory and our level of completed and unsold starts remains below historical norms. Looking at the entire construction portfolio, including residential, commercial and multifamily construction, along with land and land development The total construction exposure remains acceptable at 15% of total loans. As expected, agricultural loans continue their seasonal decline with balances down $5,000,000 or 2% in comparison to the linked quarter consumer mortgage portfolio increased modestly 9,000,000 and consumer loans centered in home equity lines of credit declined $4,000,000 in the quarter. Before I wrap up, I want to touch on the current operating environment in this time of economic uncertainty. While it is too early to see the impact, recent immigration enforcement activities across our footprint have heightened both business and community concerns.

Especially within our agricultural and border communities. The significant reduction in Canadian border crossing is negatively impacting businesses in our Northwestern Washington markets and if continued is anticipated to have a meaningful impact to the larger summer tourism industry as well. And more broadly, while the final level and duration of the recently enacted tariffs remains uncertain, and the impact is yet to be felt. Tariffs will have a negative impact to West Coast businesses and the local economies. Given our diverse and granular loan portfolio, we expect the biggest impact to be felt by the small business community, who will be less able to absorb the increased cost face supply chain issues, reduce demand and the overall general market disruption that is likely to evolve. And of course, the consumer who will ultimately bear the burden of increased price. While we wait for clarity regarding the level and duration of the tariffs and begin to see the impact to the general economy, from the recent policy changes, we will continue our practice of robust quarterly portfolio reviews and maintain close contact with our borrowers to better understand the longer term implications to their businesses. Our moderate risk profile a diverse and granular loan portfolio the majority of which is supported by strong sponsors, personal guarantees and properly margin collateral support will serve us well as we navigate these uncertain economic headwinds.

I will close my prepared remarks by reiterating what you have heard from me before. Banner has a strong balance sheet, Our reserve for loan losses remains robust our capital base is well in excess of regulatory requirements, all of which are designed to sustain us through all business cycles. With that, I'll turn the call over to Rob for his comments. Rob? Great. Thank you, Jill. We reported $1.3 per diluted share for the first quarter. Compared to $1.34 per diluted share for the prior quarter. The $04 decrease in earnings per share was primarily due to two fewer interest earning days in the current quarter and higher expenses in the first quarter. In addition, the prior quarter benefited from some nonrecurring gain on loan sale. Total loans increased $77,000,000 during the quarter with portfolio loans increasing $84,000,000 partially offset by held for sale loans decreasing $7,000,000 The loan to deposit ratio ended the quarter at 84%. Total securities decreased 5,000,000 as normal portfolio cash flows were largely offset by increase in fair value. Deposits increased $79,000,000 during the quarter due to core deposits increasing CAD74 million. Time deposits increased CAD4 million as a $21,000,000 decline in retail time deposits was offset by a $25,000,000 increase in broker deposits.

Core deposits ended the quarter at 89% of total deposits. Same as the prior quarter. Total borrowings decreased $116,000,000 during the quarter due to a decrease in FHLB advances Banner's liquidity and capital profile continue to remain strong with a robust core funding base a low reliance on wholesale borrowing 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 increased $500,000 from the prior quarter due to tax equivalent net interest margin increasing 10 basis points to 3.92%. Partially offset by a decline in average earning assets and two less interest earning days in the quarter.

The 10 basis point increase in net interest margin was driven by an increase in the yield on earning assets and a decrease in funding costs. The four basis point increase in earning asset yields was due to loan yields increasing five basis points. As adjustable rate loans continue to reprice higher, and new loans are being originated at rates higher than the average yield on the loan portfolio. The average rate on new production for the quarter was 8.01%. Funding cost decreased five basis points as a result of deposit cost decreasing six basis points. Non interest bearing deposits ended the quarter at 34% of total deposits. Decrease in average earning assets was due to a $90,000,000 decline in average interest bearing cash and investment balances. Partially offset by average loan balances increasing $64,000,000 The earning asset yield continues to benefit from a remixing out of securities and into loans. Total non interest income decreased $900,000 from the prior quarter primarily due to the prior quarter including a of 735,000 the sale of a non performing loan and a gain of 508,000 on a pooled loan sale. Partially offset by the current quarter having a 300,000 gain on a fully claim.

Total non interest expense increased $1,800,000 from the prior quarter. The increase reflected higher in salary benefit expense. Primarily due to typical higher first quarter payroll taxes and higher medical insurance expense.

The increase in salary and benefits was partially offset by lower marketing and professional expenses. Despite the recent market volatility, we believe our capital and liquidity position us well to service our clients and to take advantage of any disruptions in the markets we serve. This concludes my prepared comments. Now I will turn it back to Mark. Thank you, Rob and Jill for your comments. That concludes our prepared remarks. And Nadia, we will now open the call and welcome questions.

Thank you. Our first question goes to Geoff Rulis of D. A. Davidson. Geoff, go ahead.

Thanks. Good morning. Morning, Jeff. Question on the margin. It seems like that's a little maybe a little better than [indiscernible] I guess the components of that, are you are you more maybe that surprise is a strong word, but I guess if you think about [indiscernible] earning asset yield increase versus funding costs coming down, is there any component there that you think you're that can continue? Or do you feel like both are in play at least in the short run and I guess ultimately leading to kind of margin expectations Yes. So what I would say there, Jeff, is that on the on the funding side, the funding cost for the quarter was pretty much flat. For the entire quarter. So the same for January, February, and March. And whereas we did see on the yield side, we saw throughout the quarter that the yield did improve as we move throughout the quarter. And the other thing just to and I know you know this, but the day count in February always benefits the first quarter and makes the yields look a little bit better just because of the twenty eight day count and you get thirty days on a lot of loans from an interest perspective.

But if if we think about going forward here so we use Moody's for interest rate [indiscernible] They're currently showing 3.25 basis point cuts in '25, the first one starting in July. And assuming that's correct, I would expect some NIM expansion in Q2. And that really is assuming that funding costs essentially stay flat. And we see some additional expansion in our loan yields as adjustable rate loans continue to reprice up. And good loans continue to come on at higher yields. The model is currently showing that we would see about a five basis point increase in loan yields while the Fed is on pause. If I think about the second half of the year, under that Moody's forecast, where there would be those rate cuts in the second half of the year, I would essentially expect that earning asset yields to be flat during that period of time while the Fed's decreasing rates. We would see some benefit on the funding cost side where we would see funding costs come down a couple of basis points a quarter during the second half assuming that scenario. That's great, Rob. Thank you. [indiscernible] hop to the credit. I think, Joe, you mentioned really no real industry specific stress, granular.

But just wanted to check back in on the ag side. Had mentioned some some prior caution on commodity prices and there was a small increase in in non performers in the quarter. Checking back in there, you feel like you've that is just a continued area of watch? Or just how is the trends on the ag side going?

Yes. Well, the ag side definitely is a continued area of watch, especially as we think about tariff implications to that segment, Jeff. Most of the crops are sold domestically. However, with the increased tariffs, would expect an increase in domestic supply, which will impact the pricing on that end as well. While the input costs continue to rise. So the ag industry, I think, will continue to show signs of strain. Over this next period of month. [indiscernible] You know, we just have to kinda wait and see how long it plays out, but that is one of our primary areas of concern as it relates to tariffs.

Okay. And just Joe, I'll add it. Mentioned line utilization on C and I was down. I guess first part would be what is that number currently? And then Jill, if you could kind of kind of stabilize us on growth for the full year. Do you feel like some of this uncertainty versus where we were entering the year Any thoughts on the full year expectations would be helpful.

Okay. So I'm going to go back and I'm going to close out my egg comment with reiteration as to the size of the portfolio before we go on to your current questions there, Jeff, just for everyone's benefit, the ag represents 3% of the loan book and it is almost half of which real estate secured average loan size of $1,200,000 So just to put that into perspective as we continue to watch the risk in that portfolio. Commercial line utilization is in the mid 30% range, believe, and you know, ticked up modestly. So, overall, you know, we're running in that average utilization you know, entire book 75% utilized Historical averages are 7076%, C and I up, ag down in the quarter. So they kind of crossed each other out, I guess, if you would if you look at it that way. To loan growth expectations, we're still targeting mid single digit for 2025 when we went into the year we were looking at a back half as where we would get more of that growth and still consider that as a possibility. We recognize that the consumer business confidence has been negatively impacted by these policy changes.

And we can't, you know, tell exactly what's gonna happen with that level of uncertainty. We offset that, however, with the commercial pipeline. That have been continuing to rebuild nicely. We had a good pull through rate first quarter even with that high level of uncertainty. And when we hit our Q1 expectations, even with the uncertainty, we don't have enough to actually change thoughts as to what's going to happen for the 2025 plan at this time.

That's great. Thank you for the detail.

Appreciate it.

Thanks, Jeff.

The next question goes to David Feaster of Raymond James. David, please go ahead.

Hey, good morning, everybody. Good morning, David. I kind of want to just a little bit on that line of a bit. You know, I mean, obviously, you talked about you know, the pipelines and and but, you know, originations did decline quarter over quarter. And it sounds like it's primarily a function of weaker demand even ahead of trade wars. I was hoping you could could touch on maybe any other competitive dynamics that you're seeing and just how is client demand and the pipeline looking today? Have you started to see anything falling out? Of that and just kind of the complexion of the pipeline and just where you're seeing opportunities for growth today?

So I'll start at the end there and the opportunities for growth that, you know, My answer to that is no different than it's been historically. They range up and down our footprint and in in this know, across the industries. Pipelines have continued to grow. Closings have so we're pulling them through and rebuilding I I think the slow part of q one you know yeah. The trade wars had not started. But there was a level of just uncertainty that had everybody's taking a step back to see what was coming. Then as it hit, even more uncertainty as opposed to clarity. But we still have people who want to, you know, move forward once they can understand where we are going to land. So I you know, I I feel so decent about where we're gonna end this year. David, because of that. You know? They want to do business. They just need some of this noise to settle down. Okay. Okay.

That's helpful. And then maybe following up on just the potential impacts from the tariffs and trade wars. I mean, where do you see like as you look at the book, where do you see the most risk and and where are you like watching more closely if this does become more protracted? I mean, we've already touched on Ag, which obviously a small portion of the book. But just about construction. Right? And and multi you know, as you've had a lot of success, especially within multi multifamily. You know, how do you think about managing just with potential rising construction costs and some of those kinds of things? Curious your approach to this where you're watching more closely in your approach to managing it in this kind of uncertain market?

So the approach to managing it is you know, kind of what we do on a day to day always in terms of staying close to our clients and asking them what they're seeing, what they're feeling, what the impact is to their bottom line.

If you step back into the heart of your question, say, what am I looking at and thinking about outside of ag. It is the tariffs are going to impact [indiscernible] bunch of things across the West Coast and our trade partners. Technology sector, we're not heavy into it, but it's going to affect our economy. Agriculture, we've talked about. West Coast ports, that's going to affect our economy. Auto dealers, retailers, Boeing and other manufacturers, we don't lend to Boeing, but certainly we have some manufacturing in our portfolio. And those costs will run the gamut there as well.

So I step back and I look at the portfolio and then I size it. What do we have in manufacturing? Manufacturing would represent approximately 3% of our loan book.

Average loan size within all of those manufacturing NAICS codes would be under $1,000,000 So in terms of individual risk, limited in terms of aggregate risk in the portfolio, again, small for the manufacturing sector. We don't have a lot of exposure to auto dealers. Largest loan size to auto dealers in our books $5,000,000 I look at the transportation industry, 1% of our loan book.

Look at the retail exposure, it's bigger, it's 12% of the loan book, but it's diversified geography, it's diversified by service and product and [indiscernible] 93% of the, retail exposure is real estate secured. So that reduces some risk there as well. And when you look at those last three segments I named, each one of them would have less than 1% or have an average loan size of $1,000,000 or less. So I'm looking, we're watching, we're talking to our clients, and then we're just scoping the overall exposure. And we'll continue to do that as we see where do these tariffs land and who are they hitting the hardest. I'll come back to what I said in my prepared remarks, think the biggest impact is going to be the small business sector and the consumer who's going to bear the brunt of it.

Okay.

That's great color. I appreciate that. And then just last one for me, maybe touching on the funding cost side. You you've You've done a great job continuing to drive core deposit growth.

Reducing deposit costs even in a seasonally weaker quarter I was hoping you could maybe touch on the competitive landscape for deposits, your strategy continue to drive core deposit growth And how you think about opportunities to further optimize funding costs and fund loan growth going forward?

Yes. So thanks, David. It's Rob. So So yeah, I guess a couple a couple of things there. I mean, I think there's limited opportunities as long as the Fed is on pause to see additional reductions in funding cost. And but what we've been successful as is add we're adding new clients from the lending side, we've been successful at also bringing across the deposits So I think I think we're seeing the benefit of that. Q1 also did have some seasonality into it. Usually see some increase in our deposits as tax free funds start to come in as well. And I mean I think from if we're looking about competitors right now in the marketplace, from the CD side is where you're seeing we're still seeing rate specials out there. I would say most of the rate specials are in that three to seven month tenure right now. Although we do see you'll see some rate specials out there in that twelve or thirteen month range and see if and even some of the 4%. But I mean, we just have a very granular deposit base It's diversified from both metro versus rural, and it's also diversified geography wise, and it's a very granular deposit base.

Average deposit size in that $29,000 range. So I think all that just helps helps us from being able to kind of control our deposit cost and our funding cost over time.

Okay.

That's helpful. So would you kind of expect maybe some continued optimization? And loan growth be funded with some securities cash flows? Or do you see the balance sheet continuing to grow?

Yes. I think on the so if we think about the security side, seeing around $60,000,000 of cash flows off that. A quarter right now. And we're not redeploying that back into the security portfolio. The only thing we're purchasing from security portfolios for CRA purposes. And so the expectation is that we would see kind of a continued rotation out of the security portfolio and use those funds to help help drive the loan growth and and fund the loan growth. But but I I will say we're we're also David, we're also we're not currently planning on any larger security sale or any kind of loss sale at this point in time. We continue to look at that. We've We'll be flexible if market conditions change or if we think there's an there, but that's not a strategy we're looking at currently.

Got it.

Thanks, everybody.

Thank you, David.

You. The next question goes to Andrew Liesch of Piper Sandler. Andrew, please go ahead.

Thanks. Good morning. Really helpful information here on tariffs. Really appreciate it.

Capital continues to be a strength for Banner.

I guess how should we look at capital going forward? Is there an appetite to buy back stock with the stock down here? Want to retain it for uncertainty?

Mark, can you just update your thoughts on your capital plans?

Thanks, Andrew. It's Rob. So yes, I mean, we always talk about our number one priority is the core dividend and and maintaining that core dividend, continues to be at a conservative payout ratio. And over time, as EPS continues to increase, we would look at kind of increasing the core dividend at some point in time as well. We do have that share authorization, which you just there in place right now. We haven't executed on that. It is something that we continue to to consider. And and certainly with the stock price being down just to overall market volatility, it makes it more attractive certainly. I would say the other thing that's out there right now that's probably one of the top things on our radar right now is we do have that hundred million dollars of sub debt out there right now. And it moves from a fixed rate to a variable rate on July 1. And so we're currently considering whether we repay that or whether we look at replacing that So that's probably one of our top capital priorities right now.

Got it.

And then any sort of change in M and A conversations over the last couple of months?

I would say thank you. Andrew, it's Mark. Let me just on Rob's comment Our philosophy has always been to try and have this fortress type of balance sheet and I feel like we're there And there'll be an opportunity to deploy excess capital as we see more clarity in market conditions. I think the conversations as they exist with M and A they continue to occur, but obviously the current volatility is caused everybody to take a step back and and decide how do we proceed going forward. What is the credit metrics look like are the capital positions look like? There is favorability on the regulatory side. Which I'm encouraged by.

I think just given the pullback in valuations in the current market I think we're going to have to ride that out and see where it lands.

Got it. Very helpful. Always appreciate your insights. I will step back. Thanks.

Thank you, Andrew.

Thank you. The next question goes to Andrew Terrell of Stephens. Andrew, please go ahead.

Good morning.

Good morning, Andrew.

Morning. If I could just circle back to the margin Rob, just to maybe summarize some of the discussion around the margin. Mean, it sounds like in an environment where the Fed is not cutting rates, you've got pretty decent loan repricing opportunity. And then maybe that if we do get rate cuts that that stalls out, but then you've obviously got room to further cut deposit costs. It sounds like no matter either of those outcomes, the progression throughout the year on the should be higher from here, correct? Yes. I think as long as it's either fed on pause or Fed gradually decreasing rates that would be correct. I think the one scenario where we would see some margin compression is if the Fed got very aggressive on reducing rates.

Yeah.

Okay.

Got it. So only negative, just a a more material rate cut.

Okay.

Yes. And then I'll I'll just ask you. We we we talked about this a while back, but just, you know, line of sight to 4% margin. When I asked you that question previously, I think we were 30 basis points or so away, but you've closed that gap pretty quickly. I guess, thinking of those kind of ranges of outcomes on the margin, does it feel you can kind of pass 4% on the NIM in 2025? [indiscernible] guess I'm not prepared to give a time line on when we're going to cross the 4% level. But I mean, clearly, you look at historically, we have been above 4%. And I think under the right market conditions, can get back there again. And you know, if we continue to see you know, the the favorable market conditions that would allow that, we see that expansion each quarter, then eventually, I think we would get there. Yeah.

Okay.

And if I could just lastly check-in on expenses. I think last quarter we talked about $100,000,000 or so run rate being a good base to build off of in 2025 with kind of normal inflationary growth. Just wanted to check-in, any thoughts changed on expenses How should we think about kind of quarterly progression as we move throughout the year on the expense base?

I mean, expenses always move around a bit quarter to quarter. So it's not in unusual to see us swing up a couple million dollars up or down. But if I just think about the run rate we saw in the first quarter, think that's probably a decent run rate that we would expect if you annualize that for for 2025.

Perfect. Thank you for taking the questions and nice quarter.

Thank you, Andrew.

Thank you. The next question goes to Kelly Moter of KBW. Kelly, please go ahead. Hey, good morning. Thanks for the question. Most of mine have been asked and answered at this point. I just just wondering is is this last quarter a good indication of the tax rate for the year? And are there any upcoming tax cut and investments or anything of that nature that we should factor into the model.

Kelly, it's Rob. So yes, I think the current quarter tax rate is probably a pretty good judge on what we would what we would see for the year. At this point.

Got it. That's helpful. Last one for me. I know part of Banner Forward initiative were developing some source of of fee revenue. Just wondering if you could provide now an update on your outlook for fees. It looks like maybe the deposit fees and service charge line was was down a bit. I'm assuming that was activity based. But, if you could provide some color around that, that would also be helpful.

Thank you.

Sure. Yes, I think if you look at Q1 and you just back out the BOLI claim that we have there, that's probably a decent run rate for 2025.

And if you think about mortgage rates, you know, they when mortgage rates, the thirty year dip down to 6.5%, we saw some pickup in activity there. But then now that it's back over 7%, we've seen some slowdown there. So mortgage banking is really going to be driven by the rates ultimately there. And so it will be at the headwinds of whatever the rate environment is. One item that we have been building out over time has been that SBA gain on loan sale business line that we have.

And we have seen some pickup there. So in Q1, the gain on loan sale from SBA was around $800,000 and the run rate for last year was around 400,000 So we would expect that if we can continue to see that business line grow that we would continue to get some benefit from building that out.

Got it. That's helpful. Thanks again for the questions.

Really nice quarter. I'll step back.

Thank you, Kelly.

Thank you.

The next question goes to Tim Coffey of Janney. Tim, please go ahead.

Thank you. Good morning, everybody, and thank you for the opportunity to ask a question or two.

Mark, if I can start with you, what is your outlook for the economy right now? Is it is it just anything more severe than just a potential growth slowdown?

I do think that if we continue on the progress that we're making right now on the as you know, the self inflicted wound on tariffs, I think there's quite a bit of uncertainty in the economy right now. And I'm a little bit more pessimistic than most. That I think we're going to continue to see a slowdown which is why over 2024, we build our balance sheet into a fortress style balance sheet. The positive for us is 's a lot of market disruption that occurs in our footprint. With some of the banks that have combined or still struggling. Or are over lent And it's providing us good opportunity to take market share. So I do anticipate that the economy is going to going to slow here. But I feel very positive that we're in a great position to take market share.

Okay.

And just a question about the defense spending in your footprint. Right? I mean, there's a lot it's hard to make dose cuts to support facilities for nuclear submarines and aircraft carriers. And that's big in the Puget Sound area and San Diego. Do you think that embedded level of spending will help those economies and the markets that you're in there more than others?

I think that's an excellent question, Tim. Joe, do you want talk about some of the investment that's being made? In the sub base Yeah.

No. I think sub base Bangor, Puget Sound, Naval Shipyard, the San Diego Shipyard, think Tim you hit it. Those are going to be areas that are continuing to support and and bolster those communities. We also have Hanford in Eastern Washington that could have some you know, negative implications in terms of those cuts. So, you know, it really is gonna be community by community specific as to the lift to the economy supported by the federal government is the way I would respond to that. I don't know, Mark, you would add anything else to that. No. I think I think you're I think you hit it right on the head.

Right? But it's right now they are going to have to continue to support the fleet. And as there's more geopolitical issues, that occur throughout the world, they're going to have to continue to support the fleet. So I think there'll be some additional investment into a lot of these areas that that support it, right? So that's a positive I think it's more insulated than we than we think.

Yes. Okay.

I appreciate that. And then this kind of marks about kind of your thoughts on a special dividend and just kind of what you think about it [indiscernible] totally unrelated to the previous two questions, but just how you think about a special year in cash dividend?

Hi, Tim. It's Rob. So yes, I mean, as you know, we have done special dividends in the past. And so it's certainly a tool in the toolkit that we might use to manage capital levels. I would say it's probably lower on our priority right now. As far as using the special dividend. It's I I think there's probably some other opportunities we have that would be [indiscernible] way to deploy capital currently. But it's not something we're ruling out either.

Okay.

I appreciate that, Rob. Thank you. And then, Jill, I know you've asked [indiscernible] And asked and answered a couple of questions on tariffs, but I've got I've got two more for you.

The first one is as you're collecting financials from C and I borrowers, are you seeing anything in those financials that give you pause?

Well, that's a pretty broad question when you think about DNI borrowers. I mean, so hit and miss, certainly, there are things that give us pause.

You know, you're seeing take health care, I guess, as one example where you're seeing increased costs that are not being offset by, you know, the top line revenue in some cases, especially in that not for profit health care side of the equation.

So it's really kinda hard to answer their payment on a specific case. You know, it's case by case. But, yeah, there are things that make us step back and go, okay. How are they going to counter that? You know, what's the solution to that? Whether it's expense control or demand and revenue slipping.

Right. My apologies. I should've made it a little more general. Are you seeing anything any changes year over year that indicate a slowdown in your footprint?

No.

Okay.

Alright.

It's still it's still early. Tim, it's still early.

Yeah. I I of course, it is. Alright. And it's given kind of the overall outlook right now, Jill, have you increased any kind of oversight on the retail CRE book?

No. We haven't changed the way we manage the portfolio but I would suggest that we have been pretty hands on from the get go through all business cycles know, we have this process that is a, you know, pretty deep and thorough portfolio review on a quarterly basis to just make sure we're all on the same page as to what's you know, happening across the general footprint.

Okay. Alright. Well, those are my questions. Thank you very much. Thanks, Tim.

Thank you. We have a follow-up from David Feaster of Raymond James. David, please go ahead.

Hi, thanks everybody. Just one quick follow-up on California. When I look at you you've had a lot of success there over the past several quarters on on both loans and deposits. I'm just kind of curious what you're seeing in that market. Think it's somewhat underappreciated. But curious where you're having success and and and your thoughts on California and what's driving that growth?

I would say what's driving that growth is the additional talent that we have brought into the market, both in Northern And Southern California and the success they are having in moving over clients and bringing on new you know, loans and deposits. So we we feel really good about that market and what they have been doing and would in continue you know, expect that to continue to grow. Certainly, you're seeing some growth in the affordable housing construction that's been booked previously and funding up as well. But, the short answer is good talent added to the team. Okay. Thank you. Thank you, David.

Thank you. We have no further questions. I'll hand the call back over to Mark for any closing comments.

Thank you.

As I've stated, we are very proud of the Banner team in the first quarter of twenty twenty five performance that we had. It's a great way to kick off the year. Even though there's quite a bit of uncertainty out there, feel very very confident in our position to continue to grow the bank. And the strength of our balance sheet and our core earnings power. Thank you for your interest and for joining the call today. We look forward to reporting our results to you in the future. Thank you everyone and have a wonderful day.

Thank you. This now concludes today's call. Thank you for joining. You may now disconnect your lines.