Q2 2024 Banner Corp Earnings Call

Hello all and welcome to Banner Corporation's second quarter 2024 conference call and webcast. My name is Lydia and I'll be your operator today.

Lydia: My name is Lydia, and I'll be your operator today. After the speakers are prepared for Mark, there will be a question-and-answer session. If you'd like to ask a question during the Q&A, you can do so by pressing star followed by one on your telephone keypad.

After the speaker's prepared remarks, there will be a question and answer session. If you'd like to ask a question during the Q&A, you can do so by pressing star followed by 1 on your telephone keypad. I'll now hand you over to your host, Mark Grescovich, to begin. Please go ahead.

Mark Grescovich: On now, hand you over to your host, Mark Grescovich, to begin. Please go ahead.

Mark Grescovich: Thank you, Lydia, and good morning, everyone. I would also like to welcome you to the second quarter of 2024 earnings call for Banner Corporation.

Unknown Executive: Thank you, Lydia, and good morning, everyone. I would also like to welcome you to the second quarter 2024 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.

Mark J. Grescovich: Thank you, Lydia, and good morning, everyone. I would also like to welcome you to the second quarter 2024 earnings call for Banner Corporation.

Mark Grescovich: 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.

Mark J. Grescovich: Joining me on the call today is Rob Butterfield, Banner Corporation's Chief Financial Officer.

Mark J. Grescovich: Jill Rice, our Chief Credit Officer.

Rich Arnold: Rich, would you please read our forward-looking state harbor statement? Sure, Mark. Good morning.

Mark J. Grescovich: and Rich Arnold, our Head of Investor Relations.

Speaker Change: Rich, would you please read our forward-looking Safe Harbor Statement?

Rich Arnold: Sure, Mark. Good morning. Our presentation today discusses Banner's business outlook, and I want to 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.

Rich Arnold: Our presentation today discusses Banner's business outlook. I want to include forward-looking statements. Those statements include descriptions of management's plans, objectives, or goals for future operations, products, or services, forecast a 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 in the earnings press release that was released yesterday and a recently filed Form 10-Q for the quarter ended March 31, 2024.

Rich Arnold: 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.

Speaker Change: Products or Services, Forecasts of Financial or Other Performance Measures, and Statements about Banner's General Outlook for Economic and Other Conditions.

Speaker Change: We also may make other forward-looking statements in the question-and-answer period following management's discussion.

Speaker Change: These forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from those discussed today.

Rich Arnold: Information on the risk factors that could cause actual results to differ is available in the earnings press release that was released yesterday and a recently filed Form 10-Q for the quarter ended March 31, 2024. Forward-looking statements are effective only as of the date they are made, and Banner assumes no obligation to update information concerning its expectations.

Speaker Change: Information on the risk factors that could cause actual results to differ are available in the earnings press release that was released yesterday and a recently filed Form 10-Q for the quarter ended March 31st, 2024.

Rich Arnold: Forward-looking statements are effective only as of the date they are made, and Banner sums no obligation to update information concerning its expectation.

Mark J. Grescovich: 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.

Mark Grescovich: 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 second quarter 2024 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.

Mark J. Grescovich: As is customary, today we'll cover four primary items. First, I will provide you with high-level comments on Banner's second quarter 2024 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 status of our loan portfolio.

Speaker Change: Thank you, Rich. As is customary, today we'll cover four primary items with you.

Speaker Change: First, I will provide you high-level comments on Banner's second quarter 2024 performance.

Speaker Change: Second, the actions Banner continues to take to support all of our stakeholders, including our Banner team, our clients, our communities, and our shareholders.

Mark Grescovich: Third, Joe Rice will provide comments on the status of our loan portfolio, 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 want to again thank all of my 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 133 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.

Speaker Change: Third, Jill Rice will provide comments on the status of our loan portfolio. And finally, Rob Butterfield will provide more detail on our operating performance for the quarter, as well as comments on our balance sheet.

Mark J. Grescovich: And finally, Rob Butterfield will provide more detail on our operating performance for the quarter, as well as comments on our balance sheet. But before I get started, I wanted to again thank all of my 2,000 colleagues in our company who are working extremely hard to assist our clients and community. Banner has lived our core values, summed up as doing the right thing, for the past 133 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 changes. 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 is living our core values.

Speaker Change: Before I get started, I wanted to again thank all of my 2,000 colleagues in our company who are working extremely hard to assist our clients and communities.

Speaker Change: Banner has lived our core values, summed up as doing the right thing, for the past 133 years.

Speaker Change: 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.

Mark Grescovich: I am pleased to report again to you that it's exactly what we continue to do. I am very proud of the entire Banner team that are living our core values.

Speaker Change: I am pleased to report again to you that is exactly what we continue to do.

Speaker Change: I am very proud of the entire Banner team that are living our core values.

Mark Grescovich: Now, let me turn to an overview of our performance. As announced, Banner Corporation reported a net profit available to common shareholders of $39.8 million, or $1.15 per diluted share for the quarter ended June 30, 2024. This compares to a net profit to common shareholders of $1.9 per share for the first quarter of 2024. Earnings continue to be impacted by the rapid increase in interest rates in 2023, resulting in increased funding costs. This quarter, the earnings comparison is primarily impacted by the prior quarter security losses, and the current quarter having a higher provision for credit losses due to solid long growth.

Mark J. Grescovich: Now, let me turn to an overview of our performance. As announced, Banner Corp. reported a net profit available to common shareholders of $39.8 million, or $1.15 per diluted share, for the quarter ended June 30, 2024. This compares to a net profit to common shareholders of $1.09 per share for the first quarter of 2020. Earnings will continue to be impacted by the rapid increase in interest rates in 2023, resulting in increased funding

Speaker Change: Now let me turn to an overview of our performance.

Speaker Change: As announced, Banner Corporation reported a net profit available to common shareholders of $39.8 million, or $1.15 per diluted share, for the quarter ended June 30, 2024.

Speaker Change: This compares to a net profit to common shareholders of $1.09 per share for the first quarter of 2024.

Speaker Change: Earnings continue to be impacted by the rapid increase in interest rates in 2023, resulting in increased funding costs.

Mark J. Grescovich: This quarter, the earnings comparison is primarily impacted by the prior-quarter security loss and the current quarter having a higher provision for credit losses due to solid loan growth. Our strategy to maintain a moderate risk profile and the investments we have made and continue to make to improve operating performance have positioned the company well to weather recent market headwinds. Rob will discuss these items in more detail shortly.

Speaker Change: This quarter, the earnings comparison is primarily impacted by the prior quarter security losses and the current quarter having a higher provision for credit losses due to solid loan growth.

Mark Grescovich: Our strategy to maintain a moderate risk profile and the investments we have made and continue to make to improve operating performance have positioned the company well to weather recent market headwinds.

Speaker Change: Our strategy to maintain a moderate risk profile and the investments we have made and continue to make to improve operating performance have positioned the company well to weather recent market headwinds.

Mark Grescovich: Rob will discuss these items in more detail shortly. To illustrate the core earnings power of Banner, I would direct your attention to pre-tax, pre-prevision earnings, excluding gains and losses on the sale of securities and changes in fair value of financial instruments. Our second quarter of 2024 core earnings were $52.4 million. Banner's first quarter of 2024 revenue from core operations was approximately $150 million, the same as the first quarter of 2024. We continue to have a strong core deposit base that is proved to be resilient and loyal to Banner in the wake of a highly competitive environment and a very good net interest margin.

Mark J. Grescovich: To illustrate the core earnings power of Banner, I would direct your attention to pre-tax, pre-provision earnings, excluding gains and losses on the sale of securities and changes in fair value of financial instruments. For the second quarter of 2024, our core earnings were $52.4 million. Banner's first quarter 2024 revenue from core operations was approximately $150 million, the same as the first quarter of 2024. We continue to have a strong core deposit base that has proved to be resilient and loyal to Banner in the wake of a highly competitive environment and a very good net interest market. Overall, this resulted in a core return on average assets of 1.02% for the second quarter of 2024.

Speaker Change: Rob will discuss these items in more detail shortly.

Rob Butterfield: To illustrate the core earnings power of Banner, I would direct your attention to pre-tax, pre-provision earnings, excluding gains and losses on the sale of securities, and changes in fair value of financial instruments.

Rob Butterfield: Our second quarter 2024 core earnings were $52.4 million.

Rob Butterfield: Banner's first quarter 2024 revenue from core operations was approximately $150 million, the same as the first quarter of 2024.

Rob Butterfield: We continue to have a strong core deposit base that has proved to be resilient and loyal to Banner in the wake of a highly competitive environment and a very good net interest margin.

Mark Grescovich: Overall, this resulted in a core return on average assets of 1.02 percent for the second quarter of 2024. Although we are in a very difficult operating environment for commercial banks, 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 in the 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 represent 88 percent of total deposits. Further, we continue our organic generation of new relationships, and our loans increased 6 percent over the same period last year.

Rob Butterfield: Overall, this resulted in a core return on average assets of 1.02% for the second quarter of 2024.

Mark J. Grescovich: Although we are in a very difficult operating environment for commercial banks, our core performance reflects continued execution on our super community bank strategy. That is, growing new client relationships and 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 represent 88% of total deposits. In addition, we continue our organic generation of new relationships, and our loans increased 6% over the same period last year, reflective of the solid performance. This solid 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. Earlier this month, we released our 2023 Environmental, Social, and Governance report, which reflects the continued maturation of our approach to ESG.

Rob Butterfield: Although we are in a very difficult operating environment for commercial banks,

Rob Butterfield: Our core performance reflects continued execution on our super community bank strategy.

Rob Butterfield: That is, growing new client relationships, maintaining our core funding position.

Rob Butterfield: Promoting client loyalty and advocacy through our responsive service model and demonstrating our safety and soundness through all economic cycles and change events.

Rob Butterfield: To that point, our core deposits represent 88% of total deposits.

Rob Butterfield: Further, we continue our organic generation of new relationships, and our loans increased 6% over the same period last year.

Mark Grescovich: Reflective of the solid performance, coupled with our strong regulatory capital ratios, and the fact that we increased our tangible common equity per share by 13 percent from the same period last year, we announced the core dividend of 48 cents per common share.

Rob Butterfield: Reflective of the solid 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.

Mark Grescovich: Earlier this month, we released our 2023 Environmental, Social, and Governance Report, which reflects the continued maturation of our approach to ESG. Banner has always been committed to doing the right thing in support of our clients, the many communities that we serve, and our colleagues. The accomplishments highlighted in this report are meant to reflect the deep connection that we have with all of our stakeholders and our commitment to creating positive change in the communities we serve.

Rob Butterfield: Earlier this month we released our 2023 Environmental, Social, and Governance Report, which reflects the continued maturation of our approach to ESG.

Mark J. Grescovich: Banner has always been committed to doing the right thing in support of our clients, the many communities that we serve, and our colleagues. The accomplishments highlighted in this report are meant to reflect the deep connection that we have with all of our stakeholders and our commitment to creating positive change in the communities we serve. Finally, I'm pleased to say that we continue to receive marketplace recognition and validation of our business model and our value proposition.

Rob Butterfield: Banner has always been committed to doing the right thing in support of our clients, the many communities that we serve, and our colleagues.

Speaker Change: The accomplishments highlighted in this report are meant to reflect the deep connection that we have with all of our stakeholders and our commitment to creating positive change in the communities we serve.

Mark Grescovich: Finally, I'm pleased to say that we continue to receive marketplace recognition and validation of our business model and our value property. Banner was, again, 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 again this year. And just recently, named Banner one of the best regional banks in the country. S&P Global Market Intelligence ranked Banner's financial performance among the top 50 public banks with more than $10 billion in assets. And the digital banking provider Q2 Holdings awarded Banner their Bank of the Year for excellence.

Speaker Change: Finally, I'm pleased to say that we continue to receive marketplace recognition and validation of our business model and our value proposition.

Mark J. Grescovich: Banner was again 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 again this year, and just recently named it one of the best regional banks in the country. S&P Global Market Intelligence ranked Banner's financial performance among the top 50 public banks with more than $10 billion in assets, and the digital banking provider Q2 Holdings awarded Banner its Bank of the Year for Excellence.

Speaker Change: Banner was again named one of America's 100 best banks and one of the best banks in the world by Forbes.

Speaker Change: Newsweek named Banner one of the most trustworthy companies in America again this year.

Speaker Change: and just recently named Banner one of the best regional banks in the country.

Speaker Change: S&P Global Market Intelligence ranked Banner's financial performance among the top 50 public banks with more than $10 billion in assets.

Speaker Change: and the digital banking provider Q2 Holdings awarded Banner their Bank of the Year for Excellence.

Mark Grescovich: Additionally, the Crowell Bond Rating Agency affirmed all of Banner's investment-grade debt and deposit ratings. And as we have noted previously, Banner Bank received an outstanding CRA rating in our most recent CRA examination.

Mark J. Grescovich: Additionally, the Kroll Bond Rating Agency affirmed all of Banner's investment grade debt and deposit ratings. And, as we have noted previously, Banner Bank received an outstanding CRA rating in our most recent CRA examination. 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?

Speaker Change: Additionally, the Kroll Bond Rating Agency affirmed all of Banner's investment grade debt and deposit ratings.

Speaker Change: And as we have noted previously, Banner Bank received an outstanding CRA rating in our most recent CRA examination.

Mark Grescovich: Let me now turn the caller to Jill to discuss the trends in our loan portfolio and her comments on Banner's credit quality. Jill.

Speaker Change: 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?

Jill M. Rice: Thank you, Mark, and good morning, everyone. Banner's credit metrics continue to hold up well, and with negligible change in the composition and performance of the portfolio, my comments today will be relatively brief. Delinquent loans ended the quarter at 0.29%, down from 0.36% as of the linked quarter and compared to 0.28% as of June 30, 2023. Adversely classified loans increased by $6 million in a quarter and represent 1.09% of total loans, up two basis points when compared to March 31.

Jill Rice: Thank you, Mark, and good morning, everyone. Banner's credit metrics continued to hold up well, and with negligible change in the composition and performance of the portfolio, my comments today will be relatively brief. The length loans ended the quarter at 0.29%, down from 0.36% as of the length quarter and compared to 0.28% as of June 30th, 2023. Adversely classified loans increased by 6 million in a quarter and represent 1.09% of total loans up to basis points when compared to March 31st. Non-performing assets increased by 3 million in a quarter, representing 0.21% of total assets and consist of 30.7 million in non-performing loans and 2.6 million in RIO.

Jill M. Rice: Thank you, Mark, and good morning, everyone. Banner's credit metrics continue to hold up well, and with negligible change in the composition and performance of the portfolio, my comments today will be relatively brief.

Jill M. Rice: Delinquent loans ended the quarter at 0.29%, down from 0.36% as of the linked quarter and compared to 0.28% as of June 30, 2023.

Jill M. Rice: Adversely classified loans increased by $6 million in the quarter and represent 1.09% of total loans, up two basis points when compared to March 31st.

Jill M. Rice: Non-performing assets increased by $3 million in the quarter, representing 0.21% of total assets and consisting of $30.7 million in non-performing loans and $2.6 million in REO. The $2.1 million increase in REO is one undeveloped residential real estate parcel in the San Francisco market obtained via foreclosure.

Jill M. Rice: Non-performing assets increased by $3 million in the quarter, representing 0.21% of total assets and consist of $30.7 million in non-performing loans and $2.6 million in REO.

Jill Rice: The 2.1 million increase in RIO is one undeveloped residential real estate parcel in the San Francisco market obtained via foreclosure. The net provision for credit losses for the quarter was 2.4 million and included $2 million provision for loan losses and a $430,000 provision for unfunded loan commitment. Loan losses in the quarter were a modest $991,000 and were partially offset by recoveries totaling $746,000. After the provision, the reserve for credit losses loan totaled $152.8 million and provided 1.37% coverage of the portfolio and 498% coverage of our non-performing loans. By way of comparison, the reserve for loan losses provided 1.39% coverage of the loan portfolio as of the length quarter and 1.38% coverage as of June 2023.

Jill M. Rice: The $2.1 million increase in REL is one undeveloped residential real estate parcel in the San Francisco market obtained via foreclosure.

Jill M. Rice: The net provision for credit losses for the quarter was $2.4 million and included a $2 million provision for loan losses and a $430,000 provision for unfunded loan commitments. Loan losses in the quarter were a modest $991,000 and were partially offset by recoveries totaling $746,000. After the provision, the Reserve for Credit Losses loans totaled $152.8 million and provided 1.37% coverage of the portfolio and 498% coverage of our non-performing loans. By way of comparison, the Reserve for Loan Losses provided 1.39% coverage of the loan portfolio as of the linked quarter and 1.38% coverage as of June 2023. Both loan originations and outstandings rebounded in the second quarter, with portfolio loan balances up $275 million, or 3% year-to-date and a healthy 6% when annualized.

Jill M. Rice: The net provision for credit losses for the quarter was $2.4 million and includes a $2 million provision for loan losses and a $430,000 provision for unfunded loan commitments.

Jill M. Rice: Loan losses in the quarter were a modest $991,000 and were partially offset by recoveries totaling $746,000.

Jill M. Rice: After the provision, the Reserve for Credit Losses Loans totals $152.8 million and provides 1.37% coverage of the portfolio and 498% coverage of our non-performing loans.

Jill M. Rice: By way of comparison, the Reserve for Loan Losses provided 1.39% coverage of the loan portfolio as of the linked quarter and 1.38% coverage as of June 2023.

Jill Rice: Both loan originations and outstanding rebounded in the second quarter with portfolio loan balances of $275 million, or 3% year to date, and a healthy 6% when annualized. As we have seen in prior quarters, construction advances on previously committed multi-family projects continue to fuel growth. This quarter, we also benefited from solid commercial, small business, and owner-occupied real estate loan growth, which was in part due to clients deciding to move forward on previously delayed capital investment projects. Additionally, we ran a very successful small business campaign in the quarter, adding both new clients and loan totals. In aggregate, CNI utilization increased 1% quarter over quarter.

Jill M. Rice: Both loan originations and outstandings rebounded in the second quarter, with portfolio loan balances up $275 million, or 3% year-to-date and a healthy 6% when annualized.

Jill M. Rice: As we have seen in prior quarters, construction advances on previously committed multifamily projects continue to fuel growth. This quarter, we also benefited from solid commercial, small business, and owner-occupied real estate loan growth, which was in part due to clients deciding to move forward on previously delayed capital investment projects. Additionally, we ran a very successful small business campaign in the quarter, adding both new clients and loan totals. In aggregate, C&I utilization increased 1% quarter over quarter.

Jill M. Rice: As we have seen in prior quarters, construction advances on previously committed multifamily projects continue to fuel growth.

Jill M. Rice: This quarter, we also benefited from solid commercial, small business, and owner-occupied real estate loan growth, which was in part due to clients deciding to move forward on previously delayed capital investment projects. Additionally, we ran a very successful small business campaign in the quarter, adding both new clients and loan totals.

Jill M. Rice: In aggregate, C&I utilization increased 1% quarter over quarter.

Jill Rice: Residential construction exposure remains moderate at 4% of the portfolio, down 1% from the length quarter, and its split approximately 65% for sale housing, and 35% for family custom construction residential mortgage loans. The residential markets in which we are providing speculative for sale housing, like most of the nation, remain undersupplied in terms of available inventory. This has enabled timely absorption of the spec inventories despite the higher interest rate environment. When we include multifamily, commercial construction, and land, the total construction exposure is 15%, up 1% from the prior quarter, the result of the continued sending of affordable and, to a lesser extent, middle income multifamily projects.

Jill M. Rice: Residential construction exposure remains moderate at 4% of the portfolio, down 1% from the linked quarter, and is split approximately 65% for sale housing and 35% 1-4 family custom construction residential mortgage loans. The residential markets in which we are providing speculative for-sale housing, like most of the nation, remain undersupplied in terms of available inventory. This has enabled timely absorption of the spec inventories despite the higher interest rate environment. When we include multifamily, commercial construction, and land, the total construction exposure is 15%, up 1% from the prior quarter, the result of the continued funding of affordable and, to a lesser extent, middle-income multifamily projects.

Jill M. Rice: Residential construction exposure remains moderate at 4% of the portfolio, down 1% from the linked quarter, and is split approximately 65% for sale housing and 35% 1-4 family custom construction residential mortgage loans.

Jill M. Rice: The residential markets in which we are providing speculative for-sale housing, like most of the nation, remain undersupplied in terms of available inventory. This has enabled timely absorption of the spec inventories despite the higher interest rate environment.

Jill M. Rice: When we include multifamily, commercial construction, and land, the total construction exposure is 15%, up 1% from the prior quarter, the result of the continued funding of affordable, and to a lesser extent, middle income, multifamily projects.

Jill Rice: The 5% increase in agricultural loans reflects an increase in the size of operating lines necessary to cover the growing season, with utilization rates in line with that reported as of March 31st and as of June 30th, 2023. The 11% decline reflected in the multifamily real estate portfolio is almost entirely a segmentation shift related to the small balance affordable loans, loans with a balance of under 2 million, being reassigned to the small balance CRE segment. As noted earlier, our overall credit metrics remain solid. That remains true when isolated to both the office and multifamily segments of the commercial real estate book, areas that continue to be watched closely for adverse trends.

Jill M. Rice: The 5% increase in agricultural loans reflects an increase in the size of operating lines necessary to cover the growing season, with utilization rates in line with that reported as of March 31st and as of June 30th, 2023.

Jill M. Rice: The 5% increase in agricultural loans reflects an increase in the size of operating lines necessary to cover the growing season, with utilization rates in line with that reported as of March 31 and as of June 30, 2023.

Jill M. Rice: And the 11% decline reflected in the multifamily real estate portfolio is almost entirely a segmentation shift related to the small balance affordable loans, loans with balances under $2 million, being reassigned to the small balance CRE segment. As noted earlier, our overall credit metrics remain solid. That remains true when isolated to both the office and multifamily segments of the commercial real estate book, areas that continue to be watched closely for adverse trends.

Jill M. Rice: And the 11% decline reflected in the multifamily real estate portfolio is almost entirely a segmentation shift related to the small balance affordable loans, loans with balances under $2 million, being reassigned to the small balance CRE segment.

Jill M. Rice: As noted earlier, our overall credit metrics remain solid. That remains true when isolated to both the office and multifamily segments of the commercial real estate book, areas that continue to be watched closely for adverse trends.

Jill M. Rice: As reflected on pages 21 and 22 of our investor presentation, there has been no material change in any of the highlighted segments. Adverse classifications within each of the segments are modest, delinquency is negligible, and the portfolios are diversified both in size and by geographic location. Additionally, the real estate secured loans are generally lowly leveraged.

Jill Rice: As reflected on pages 21 and 22 of our investor presentation, there has been no material change in any of the highlighted segments. Adverse classifications within each of the segments are modest, the linkancies negligible, and the portfolios are diversified both in size and by geographic location. Additionally, the real estate secured loans are generally lowly leveraged. The reprising risk within the office and multifamily book continues to be closely monitored; less than 15% of each are set to reprice within the next two years, and current revenue streams appear adequate to sustain the effects of an increase in their interest rate in almost all cases.

Jill M. Rice: As reflected on pages 21 and 22 of our investor presentation, there has been no material change in any of the highlighted segments.

Jill M. Rice: Adverse classifications within each of the segments are modest, delinquency is negligible and the portfolios are diversified both in size and by geographic location. Additionally, the real estate secured loans are generally lowly leveraged.

Jill M. Rice: The repricing risk within the Office and Multifamily book continues to be closely monitored; less than 15% of each is set to reprice within the next two years, and current revenue streams appear adequate to sustain the effects of an increase in their interest rates in almost all cases. Lastly, I will note that our credit underwriting criteria have not changed materially over the course of the last decade, which is to say that the vast majority of our loan book has solid sponsorship, personal guarantees, and properly margined collateral support.

Jill M. Rice: The repricing risk within the Office and Multifamily book continues to be closely monitored, less than 15% of each are set to reprice within the next two years, and current revenue streams appear adequate to sustain the effects of an increase in their interest rate in almost all cases.

Jill Rice: Lastly, I will note that our credit underwriting criteria has not changed materially over the course of the last decade, which is to say that the vast majority of our loan book has solid sponsorship, personal guarantees, and properly margined collateral support.

Jill M. Rice: Lastly, I will note that our credit underwriting criteria has not changed materially over the course of the last decade, which is to say that the vast majority of our loan book has solid sponsorship, personal guarantees, and properly margined collateral support.

Jill Rice: With that, I will wrap up as I have the last several quarters reiterating that banners' credit metrics continue to be strong, our reserve for loan offices remains solid, and our capital base continues to be robust. We will not be immune to isolated credit issues. However, we remain well positioned for the future.

Jill M. Rice: With that, I will wrap up as I have the last several quarters reiterating that Banner's credit metrics continue to be strong, our reserve for loan losses remains solid, and our capital base continues to be robust. We will not be immune to isolated credit issues. However, we remain well positioned for the future. With that, I'll turn the microphone over to Rob for his comments. Rob? Great.

Jill M. Rice: With that I will wrap up as I have the last several quarters reiterating that Banner's credit metrics continue to be strong, our reserve for loan losses remain solid, and our capital base continues to be robust.

Rob Butterfield: We will not be immune to isolated credit issues. However, we remain well positioned for the future. With that, I'll turn the microphone over to Rob for his comments. Rob? Great. Great. Thank you, Jill. We reported $1.15 per diluted share for the second quarter.

Rob Butterfield: With that, I'll turn the microphone over to Rob for his comments. Rob?

Rob Butterfield: Thank you, Jill. We report $1.15 per diluted share for the second quarter compared to $1.09 per diluted share for the prior. The six cents increase in earnings per share was primarily due to the prior quarter, including a $4.9 million loss on the sale of security, partially offset by a higher provision for credit losses in the current quarters due to higher growth in loan balance. Total loans increased $279 million during the quarter, with growth in several categories, multifamily construction, primarily due to affordable housing projects, owner-occupied CRE, C&I, and small business credit. Total securities decreased $63 million, primarily due to normal portfolio cash flow.

Unknown Executive: Great. Great

Rob Butterfield: Great. Thank you, Jill.

Rob Butterfield: We reported $1.15 per diluted share for the second quarter, compared to $1.90 per diluted share for the prior quarter. The six cents increase in earnings per share was primarily due to the prior quarter, including a $4.9 million dollar loss on the sale of securities. Archley offset by a higher provision for credit losses in the current quarter due to higher growth in loan balances. Total loans increased $279 million during the quarter, with growth in several categories. Multi-family construction primarily due to affordable housing projects, owner occupied CRE, CNI, and small business score. Total securities decreased $63 million, primarily due to normal portfolio Ashwoods.

Rob Butterfield: compared to $1.09 per diluted share for the prior quarter.

Rob Butterfield: The $0.06 increase in earnings per share was primarily due to the prior quarter including a $4.9 million loss on the sale of securities, partially offset by a higher provision for credit losses in the current quarter due to higher growth in loan balances.

Rob Butterfield: Total loans increased $279 million during the quarter with growth in several categories. Multifamily construction, primarily due to affordable housing projects, owner-occupied CRE, C&I, and small business score. Total securities decreased $63 million.

Rob Butterfield: Deposits decreased by 80 million during the quarter, as $119 million decrease in core deposits was partially offset by a $39 million increase in time deposits. The decrease in core deposits during the quarter was primarily due to normal seasonal outflows related to client tax payments. Core deposits into the quarter at 8% of total deposits. Total long growth and the seasonal decline in deposit balances.

Rob Butterfield: Deposits decreased by $80 million during the quarter, as the $119 million decrease in core deposits was partially offset by a $39 million increase in time deposits. The decrease in core deposits during the quarter was primarily due to normal seasonal outflows related to client tax. Core deposits into the quarter at 88% of total deposits. Total borrowings increased $329 million during the quarter as FHLB advances were partially used to fund loan growth and the seasonal decline in deposit values. Banner's liquidity and capital profile continue to remain strong, with a robust core funding base, a low reliance on wholesale borrowings, and significant off-balance sheet borrowing capacity.

Rob Butterfield: primarily due to normal portfolio cash flows.

Rob Butterfield: Deposits decreased by $80 million during the quarter, as the $119 million decrease in core deposits was partially offset by a $39 million increase in time deposits.

Rob Butterfield: The decrease in core deposits during the quarter was primarily due to normal seasonal outflows related to client tax payments.

Rob Butterfield: Core deposits into the quarter at 88% of total deposits.

Rob Butterfield: Total borrowings increased $329 million during the quarter as FHLB advances were partially used to fund loan growth and the seasonal decline in deposit balances.

Rob Butterfield: Banner's liquidity and capital profile continued to remain strong, with a robust core funding base, a low reliance on wholesale borrowings, and significant off-balance sheet borrowing capacity. In addition, all of our capital ratios are in excess of the regulatory well-capitalized levels. Net interest margin decreased 413,000 from the prior quarter, as a reduction in net interest margin was mostly offset by growth and earning assets. Compared to the prior quarter, average loan balances increased 159 million, and loan yields increased nine basis points due to adjustable rate loan through pricing higher, as well as new production coming on at higher interest rates.

Rob Butterfield: Banner's liquidity and capital profile continue to remain strong, with a robust core funding base, a low reliance on wholesale borrowings, and significant off-balance sheet borrowing capacity. In addition, all of our capital ratios are in excess of the regulatory well-capitalized levels.

Rob Butterfield: In addition, all of our capital ratios are in excess of the regulatory well-capitalized level. Net interest margin decreased $413,000 from the prior quarter as the reduction in net interest margin was mostly offset by growth in earning assets. Compared to the prior quarter, average loan balances increased $159 million, and loan yields increased nine basis points due to adjustable rate loans repricing higher, as well as new production coming on at higher interest rates. The average rate on new production for the quarter was 8.47%, identical to the prior quarter.

Rob Butterfield: Net interest margin decreased $413,000 from the prior quarter as the reduction in net interest margin was mostly offset by growth in earning assets.

Rob Butterfield: Compared to the prior quarter, average loan balances increased $159 million and loan yields increased 9 basis points due to adjustable rate loans repricing higher, as well as new production coming on at higher interest rates.

Rob Butterfield: The average rate on new production for the quarter was 8.47%, identical to the prior quarter. Total average interest bearing cash and investment balances declined by 68 million from the prior quarter, while the average yield on the combined cash and investment balances increased three basis points. Total funding cost increased by 13 basis points to 1.66, 166 basis points, rather due to an increase in the cost of deposits and higher average borrowing balances. The cost of the deposits increased 13 basis points to 150 basis points, primarily due to an increase in rates on interest-bearing deposits, and also due to a shift into deposits, with a portion of non-interest-bearing deposits moving into interest-bearing deposits.

Rob Butterfield: The average rate on new production for the quarter was 8.47%, identical to the prior quarter. Total average interest-bearing cash and investment balances declined by $68 million from the prior quarter, while the average yield on the combined cash and investment balances increased three basis points.

Rob Butterfield: Total average interest-bearing cash and investment balances declined by $68 million from the prior quarter, while the average yield on the combined cash and investment balances increased three basis points. Total funding costs increased by 13 basis points to $1.66 million. 166 basis points, rather due to an increase in the cost of deposits and a higher average borrowing balance. The cost of deposits increased 13 basis points to 150 basis points, primarily due to an increase in rates on interest-bearing deposits and also due to a shift in deposits with a portion of non-interest bearing deposits moving into interest-bearing deposits. The cost of deposits for the month of June was $154,000.

Rob Butterfield: Total funding cost increased by 13 basis points to 1.66.

Speaker Change: The cost of deposits increased 13 basis points to 150 basis points, primarily due to an increase in rates on interest bearing deposits, and also due to a shift in deposits with a portion of non-interest bearing deposits moving into interest bearing deposits. The cost of deposits for the month of June were 154 basis points.

Rob Butterfield: The cost of deposits to the month of June were 154 basis points, non-interest bearing deposits into the quarter at 35% of total deposits. On a tax-equivalent basis, net interest margin decreased 4 basis points to 3.70%, as the pace in decline in net interest margin slowed compared to the prior quarter. The decrease was driven by the increase in funding, cost, and interest bearing liabilities, outpacing the increase in yields on earning assets by a few basis points. Based on the current trends, that appears net interest margin is nearing the trough; ultimately, this will be dependent on deposit flows in the third quarter.

Rob Butterfield: Non-interest-bearing deposits into the quarter at 35% of total deposits. On a tax-equivalent basis, the net interest margin decreased four basis points to 3.70% as the pace and decline of net interest margins slowed compared to the prior quarter. The decrease was driven by the increase in funding costs and interest-bearing liabilities, outpacing the increase in yields on earning assets by a few basis points. Based on the current trends, it appears that the net interest margin is nearing the trough. Ultimately, this will be dependent on deposit flows in the third quarter.

Speaker Change: Non-interest bearing deposits into the quarter at 35% of total deposits.

Speaker Change: On a tax-equivalent basis, net interest margin decreased 4 basis points to 3.70% as the pace and decline of net interest margins slowed compared to the prior quarter.

Speaker Change: The decrease was driven by the increase in funding costs and interest-bearing liabilities outpacing the increase in yields on earning assets by a few basis points.

Speaker Change: Based on the current trends, it appears net interest margin is nearing the trough. Ultimately, this will be dependent on deposit flows in the third quarter.

Rob Butterfield: Total non-interest income increased by 0.6 million from the prior quarter, primarily due to the prior quarter, including a $4.9 million loss on the sale of securities. The current quarter also benefited from having lower fair value write-downs on financial instruments carried at fair value. The $671,000 increase in income from mortgage banking operations also contributed to the increase in non-interest income. During the quarter, we sold 20 million of 1 to 4 family portfolio loans at a gain of 284,000. Total non-interest expense increased 487,000 from the prior quarter. The increase reflected higher compensation expense due to normal annual salary increases completed at the end Corp.

Rob Butterfield: Total non-interest income increased $5.6 million from the prior quarter, primarily due to the prior quarter including a $4.9 million loss on the sale of securities. The current quarter also benefited from having lower fair value write-downs on financial instruments carried at fair value. The $671,000 increase in income from mortgage banking operations also contributed to the increase in non-interest income. Additionally, during the quarter, we sold 20 million of 1 to 4 family portfolio loans at a gain of $284,000.

Speaker Change: Total non-interest income increased $5.6 million from the prior quarter, primarily due to the prior quarter including a $4.9 million loss on the sale of securities. The current quarter also benefited from having lower fair value write-downs on financial instruments carried at fair value.

Speaker Change: The $671,000 increase in income from mortgage banking operations also contributed to the increase in non-interest income.

Speaker Change: During the quarter, we sold $20 million of 1-4 family portfolio loans at a gain of $284,000.

Rob Butterfield: Total non-interest expense increased $487,000 from the prior quarter. The increase reflected higher compensation expense due to normal annual salary increases completed at the end of the first quarter. Higher REO expense also contributed an increase as the prior quarter included a gain on the sale of an REO property. These increases were partially offset by higher capitalized loan origination costs, lower occupancy, and equipment. Spence, and Lower Professional. Legal expense for the quarter benefited from an $874,000 reversal of expense related to finalizing two legal matters.

Speaker Change: Total non-interest expense increased $487,000 from the prior quarter. The increase reflected higher compensation expense due to normal annual salary increases completed at the end of the first quarter.

Rob Butterfield: Higher REO expense also contributed to an increase, as the prior quarter included a gain on the sale of an REO property. These increases were partially offset by higher capitalized loan origination costs, lower occupancy and equipment expense, and lower professional expense. Legal expense for the quarter benefited from an $874,000 reversal of expense related to finalizing two legal matters. We would expect non-interest expense to gradually trend up through the remainder of the year.

Speaker Change: Higher REO expense also contributed an increase as the prior quarter included a

Speaker Change: gain on the sale of an REO property. These increases were partially offset by higher capitalized loan origination costs, lower occupancy and equipment.

Speaker Change: expense, and lower professional expense.

Speaker Change: Legal expense for the quarter benefited from an $874,000 reversal of expense related to finalizing two legal matters.

Rob Butterfield: We would expect non-interest expense to gradually trend up through the remainder of the year. In closing, despite the market headwinds, our strong balance sheet continues to provide us with the capacity to further support our current clients, as well as to continue to add new clients in the many markets we serve. This concludes my prepared comments. Now I will turn it back to Mark.

Speaker Change: We would expect non-interest expense to gradually trend up through the remainder of the year.

Mark Grescovich: In closing, despite the market headwinds, our strong balance sheet continues to provide us with the capacity to further support our current clients, as well as to continue to add new clients in the many markets we serve. This concludes my prepared comments.

Speaker Change: In closing, despite the market headwinds, our strong balance sheet continues to provide us with the capacity to further support our current clients, as well as to continue to add new clients in the many markets we serve. This concludes my prepared comments. Now I will turn it back to Mark.

Mark Grescovich: Now I will turn it back to Mark. Thank you, Jill and Rob, for your comments.

Mark J. Grescovich: Thank you, Jill and Rob, for your comments. That concludes our prepared remarks, and Lydia, we will now open the call and welcome questions.

Lydia: That concludes our prepared remarks, and Lydia, we will now open the call and welcome questions.

Mark J. Grescovich: Thank you, Jill and Rob, for your comments. That concludes our prepared remarks. And Lydia, we will now open the call and welcome questions.

Lydia: Thank you. Please press star followed by the number one if you'd like to ask a question, and ensure your device is unmuted locally when it's your centre seat.

Operator: Please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak. Our first question today comes from David Feaster with Raymond James. Please go ahead, your line is open.

Lydia: Thank you. Please press star followed by the number 1 if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak.

David Feaster: Our first question today comes from David Feaster with Raymond Jane. Please go ahead. Your line is open.

Speaker Change: Our first question today comes from David Feaster with Raymond James. Please go ahead, your line is open.

Rob Butterfield: Hey, good morning everybody. Good morning, David. Maybe just starting on the deposit side. I'm curious some of the trends you saw in the quarter. I know there's seasonality from tax payments, and you know we've got some CNI borrowers; the leveraging that we're hearing about.

David Pipkin Feaster: Hey, good morning, everybody. Good morning, David.

David Pipkin Feaster: Hey, good morning, everybody.

David Pipkin Feaster: Maybe just starting on the deposit side, I'm curious about some of the trends you saw in the quarter. I know there's seasonality from tax payments and, you know, we've got some C&I borrowers who are due for leveraging that we're hearing about. You actually saw utilization increase in C&I, but I'm curious, you know, especially on the NIB side, how the trends were throughout the quarter, especially in June and into early July, and just kind of how you think about the NIB, you know, growing in NIB and what you're seeing on that.

Speaker Change: Good morning, David.

David Pipkin Feaster: Maybe just starting on the deposit side, I'm curious some of the trends you saw in the quarter. I know there's seasonality from tax payments.

Rob Butterfield: You actually saw utilization increase in CNI, but I'm curious, especially on the NIB side, how have trends been throughout the quarter, especially in June and in the early July, and just kind of how you think about the NIB growing NIB and what you're seeing on that front. Yeah, David, it's Rob. Thanks for the question. So yeah, if you think about the quarter, the way I would describe it early in the quarter, we actually saw balances increasing. I think that was partially client screening some balances that were off balance sheet on balance sheet to make client payments.

Speaker Change: And, you know, we've got some C&I borrowers deleveraging that we're hearing about, you know, you actually saw utilization increase in C&I. But I'm curious, you know, especially on the NIB side, how have trends been throughout the quarter?

Speaker Change: Especially in June and into early July and just kind of how you think about the NIB, you know, growing NIB and what you're seeing on that front.

Rob Butterfield: Yeah, David, it's Rob. Thanks for the question. So, so yeah, if you think about the quarter, the way I would describe it early in the quarter, we actually saw balances increasing. I think that was partially clients bringing some balances that were off balance sheet on balance sheet to make client tax payments. But then we saw that normal seasonal outflow that we would expect in the second half of April and even going into May.

Speaker Change: Yeah, David, it's Rob. Thanks for the question.

Rob Butterfield: So yeah, if you think about the quarter, the way I would describe it, early in the quarter we actually saw balances increasing. I think that was partially clients bringing some balances that were off balance sheet on balance sheet to make client pay, tax payments.

Rob Butterfield: But then we saw that normal seasonal flow that we would expect in the second half of April and then even going into May. I would say there was stabilization in May and a little bit of decline in June. And if we look forward, I mean this is the third quarter, is typically a good deposit quarter for us. What we see there is we see our ag clients primarily as crops come in and cash flows come in from those crops. That's when we see our balances bill. So I think that's really going to be the telling story: is whether we see that normal seasonal increase in deposits from our ag clients in the third quarter.

Speaker Change: But then we saw that normal seasonal outflow that we would expect in the second half of April .

Speaker Change: and then even going into May, I would say there was stabilization in May and a little bit of decline in June .

Rob Butterfield: I would say there was stabilization in May and a little bit of decline in June. And if we look forward, I mean, this is typically a good deposit quarter for us. What we see there is that we see our ag clients primarily as crops come in and cash flows come in from those crops. That's when we see our balances build. So I think that's really going to be the telling story, whether we see that normal seasonal increase in deposits from our ag clients in the third quarter. And I think that'll tell us a lot going forward.

Speaker Change: And if we look forward, I mean, this is the third quarter is typically a good deposit quarter for us. What we see there is we see our our ag clients primarily, as crops come in and cash flows come in from those crops, that's when we see our balances build. So I think that's really going to be the telling story is whether we see that

Rob Butterfield: And I think that'll tell us a lot going forward.

Speaker Change: that normal seasonal increase in deposits from our ag clients in the third quarter. And I think that'll tell us a lot going forward.

Rob Butterfield: Okay, that's awful.

Rob Butterfield: Okay, that's helpful. And then, you know, switching to the loan growth side, loan growth was trending better than expected, one of the strongest quarters of origination in the past two years. You know, I'm curious about some of the commentary on what you think drove that. Is it primarily the small business campaign that you mentioned? Are you seeing any changes in demand or market share gains in just how do you think about the loan growth outlook as we look forward?

David Feaster: And then you know, switching to the loan growth side, loan growth was turning better than expected. One of the strongest quarters of originations in the past two years. You know, I'm curious some of the commentary on what do you think drove that. Is it primarily the small business campaign that you mentioned? Are you seeing any changes in demand or market share games and just. I think about the loan growth outlook as we look forward.

Speaker Change: Okay, that's helpful.

Speaker Change: And then, you know, switching to the loan growth side, loan growth was trending better than expected. One of the strongest quarters of origination in the past two years. You know, I'm curious some of the commentary on what do you think drove that? Is it primarily the small business campaign that you mentioned? Are you seeing any changes in demand or market share gains and just...

Rob Butterfield: Thanks, David. So I'll start with the last part of that first and say that loan growth outlook, as I look forward, hasn't really changed that if you know for the year I think we're going to be low to mid single digits. This quarter certainly was strong. It you know is a function yes of the small business campaign, but it's also a function of the muted demand and growth we had in the first quarter and some of that pulling in. It was an expansion of our existing relationships more so than market share gain, but we've had that as well.

Rob Butterfield: Thanks, David. So I'll start with the last part of that first and say that loan growth outlook, as I look forward, hasn't really changed. If you know for the year, I think we're going to be low to mid single digits. This quarter certainly was strong. It, you know, is a function, yes, of the small business campaign, but it's also a function of the muted demand and growth we had in the first quarter and some of that pulling into Q2.

Speaker Change: How do you think about the loan growth outlook as we look forward?

Speaker Change: Thanks, David. So I'll start with the last part of that first and say that loan growth outlook, as I look forward, hasn't really changed. For the year, I think we're going to be low to mid-single digits.

Speaker Change: This quarter certainly was strong. It is a function, yes, of the small business campaign, but it's also a function of the muted demand and growth we had in the first quarter and some of that pulling into Q2.

Rob Butterfield: It was, you know, an expansion of our existing relationships, more so than market share gain, but we've had that as well. So, you know, that's why I looked at it as year-to-date growth, as opposed to the quarter. 10% growth isn't sustainable. And again, I think we'll be at a low to mid single-digit growth rate for the year.

Speaker Change: It was, you know, an expansion of our existing relationships more so than market share gain, but we've had that as well. So, you know, it is a mix, and, you know, that's why I looked at it as year-to-date growth as opposed to the quarter. Ten percent growth isn't sustainable, and again, I think we'll be at the...

Rob Butterfield: So, you know, it is a mix, and that's why I looked at it as year-to-date growth as opposed to the quarter. 10% growth isn't sustainable. And again, I think we'll be at the low to mid single-digit growth rate for the year.

David Feaster: Okay, terrific.

David Pipkin Feaster: Okay, terrific.

Speaker Change: Low to mid-single-digit growth rate for the year.

David Feaster: And then I just wanted to dig into maybe a little bit on the margin side. You know, I was hoping you could give a little color on the repricing dynamics and the loan and the securities portfolio just to help think about the margin trajectory. I know you talked about. You know, the, you know, we're nearing the trough and that deposit flows and the third goal are going to be key to that, you know, and just kind of commentary on helping us think through the margin trajectory and some of the key drivers in that. Sure.

Rob Butterfield: And then I just wanted to dig into maybe a little bit on the margin side. I was hoping you could give a little color on the repricing dynamics of the loan and the securities portfolio just to help think about the margin trajectory. I know you talked about... you know, we're nearing the trough and that deposit flows in the third quarter are gonna be key to that, you know, and just kind of commentary on helping us think through the margin trajectory and, you know, some of the key drivers in Sure.

Speaker Change: Okay, terrific. And then I just wanted to dig into maybe a little bit on on the margin side, you know, I was hoping you could give a little color on the repricing dynamics in the loan and the securities portfolio just to help think about the margin trajectory. I know you talked about

Speaker Change: You know, the, you know, we're nearing the trough and that deposit flows in the third quarter are going to be key to that, you know, and just kind of Commentary on helping us think through the margin trajectory and and you know some of the key drivers in that

Rob Butterfield: Sure. So, David, it's Rob.

Rob Butterfield: So, so David Robb. So, the margin depression, as I noted, was limited at the four basis points, which was expected. Are we expected that just due to that normal seasonal outflow and deposits we experience. But if you think about knowing forward, you know, our loans have been repricing, I think 10 basis points for the prior two or two quarters ago and the 9 basis points this quarter. So, we would expect that as long as the Fed is on pause, we would expect that we would continue to see kind of that eight to 10 basis points of a loan yield increase quarter or quarter.

Rob Butterfield: Sure, so David, it's Rob. So the margin impression, as I noted, was limited at the four basis points, which was expected, we expected that just due to that normal seasonal outflow and deposits we experienced.

Rob Butterfield: So the margin depression, as I noted, was limited at four basis points, which was expected on our, we expected that just due to that normal seasonal outflow and deposits we experienced. But if you think about going forward, you know, our loans have been repricing 10 basis points for the prior two quarters ago, and then nine basis points this quarter.

Rob Butterfield: But if you think about going forward, you know, our loans have been repricing.

Speaker Change: Bye. Money.

Speaker Change: 10 basis points for the prior two quarters ago, and then nine basis points this quarter. So we would expect that as long as the Fed is on pause, we would expect that we continue to see kind of that eight to 10 basis points of low yield increase.

Rob Butterfield: So we would expect that as long as the Fed is on pause, we would expect that we'd continue to see kind of that eight to 10 basis points of low yield increase quarter over quarter. Of course, as the Fed starts to cut, everybody's crystal ball is their own on that one, but assuming one rate cut a quarter or something like that, then we would expect that our floating rate loans, and variable rate loans, which are 26 to 27% of our portfolio, those would reprice down.

Rob Butterfield: Of course, as the Fed starts to cut, you know, everybody's crystal ball is their own on that one, but assuming, you know, one rate cut a quarter or something like that, then we would expect that our floating rate loans, variable rate loans that those, which is 26 to 27% of our portfolio, those would repriced down. But then we think for a while, we would continue to see that offset of the just call rate loans that still have a reprise to the cycle reprise up.

Speaker Change: corner over corner.

Speaker Change: Of course, as the Fed starts to cut, you know, everybody's crystal ball is.

Speaker Change: It's their own on that one, but...

Speaker Change: Assuming, you know, one rate cut a quarter or something like that, then we would expect that.

Speaker Change: are floating rate loans, variable rate loans that those, which is 26 to 27 percent of our portfolio, that those would reprice down.

Rob Butterfield: But then we think for a while we would continue to see that offset by adjustable-rate loans that still haven't repriced through the cycle. So I think once the Fed starts to cut, if it's kind of a gradual cut, I think we'll see loan yields flatten out at that time. On the deposit side, the retail CD book, it's really nearing its peak average rate on that book because the CDs that are rolling off in the third quarter and in the fourth quarter, the average rate on those CDs rolling off is essentially equivalent to what we're seeing average CD rates come on.

Speaker Change: But then we think for a while we would continue to see that offset of adjustable rate loans that still haven't repriced through the cycle, reprice up. So I think once the Fed starts to cut, if it's kind of a gradual cut, I think we'll see loan yields flatten out at that time.

Rob Butterfield: So, I think as once the Fed starts to cut, if it's kind of a gradual cut, I think we'll see loan yields flat. Now, at that time, on the deposit side, the retail CD book is really nearing its peak average rate on that book because the CDs that are rolling off in the third quarter and in the fourth quarter. The average rate on those CDs rolling off is essentially equivalent to what we're seeing average CD rates come on. So, I think we're near the peak on the repricing of the CD book at this point. So, beyond that, it would just be exception repricing requests, which I would say are tapering off, which suggests that most of our rate sensitive clients have been repriced at this standpoint.

Speaker Change: On the deposit side, the retail CD book, it's really nearing its peak average rate on that book.

Speaker Change: because the CDs that are rolling off in the third quarter and in the fourth quarter.

Speaker Change: The average rate on those CDs rolling off is essentially equivalent to what we're seeing average CD rates come on. So I think we're near the peak on the repricing of the CD book at this point.

Rob Butterfield: So I think we're near the peak on the repricing of the CD book at this point. So beyond that, it would just be exception repricing requests, which I would say are tapering off, which suggests that most of our rate-sensitive clients have been repriced at this point, and then any other changes in deposit costs would be tied to the movement between deposit products. Of course, we think once the Fed starts to cut, I think we'll see that stabilization in our deposit rates at that point in time, but there's going to be some lag, I think, before deposit costs begin to come down after that.

Speaker Change: So beyond that, it would just be exception repricing requests, which I would say are tapering off, which suggests that most of our rate sensitive clients have been repriced at this standpoint. And then any other changes in deposit costs would be tied to the movement between deposit products.

Rob Butterfield: And then any other changes in deposit costs would be tied to the movement between deposit products. Of course, I think once the Fed starts to cut, I think we'll see that stabilization in our deposit rates at that point in time.

Speaker Change: Of course, we think once the Fed starts to cut, I think we'll see that stabilization in our deposit rates at that point in time. But there's going to be some lag, I think, before deposit costs begin to come down after that.

Rob Butterfield: But there's going to be some lag, I think, before deposit costs begin to come down after that.

Unknown Executive: That's helpful. Thanks, everybody.

Speaker Change: That's helpful. Thanks, everybody.

Andrew Brian Liesch: Our next question comes from Andrew Liesch with Piper Sandler. Please go ahead, your line is open.

David Pipkin Feaster: Thank you, David.

Speaker Change: Our next question comes from Andrew Liesch with Piper Sandler. Please go ahead, your line is open.

Andrew Liesch: Good morning everyone. Mark, you know it's been a while since you guys have completed an acquisition, but certainly with bank stock valuations, where they are over the last couple of weeks, makes deals pencil. How is there a hundred conversations with prospective targets been over the last few months, and is Eminase something that you might be pursuing in the near term? Well, thank you for the question, Andrew. Clearly, we are embarking on two core strategies. The first is an organic growth strategy, right? Taking advantage of the market disruption, taking advantage of the footprint in which we operate, and our strong commercial banking and consumer banking teams. We roll out our small business initiative, which is really helping to drive some organic growth.

Andrew Brian Liesch: Thank you. Hey, good morning, everyone.

Andrew Brian Liesch: Thank you. Hey, good morning, everyone. Mark, you know, it's been a while since you guys have completed an acquisition, but and certainly with bank stock valuations.

Mark J. Grescovich: Mark, you know, it's been a while since you guys completed an acquisition, but certainly, bank stock valuations, where they are over the last couple weeks, make deals pencil. How have your conversations with prospective targets been over the last few months? And is M&A something that you might be pursuing in the near term?

Andrew Brian Liesch: where they are over the last couple of weeks, makes deals pencil. How's your, how have your conversations with prospective targets been over the last, last few months? And is, is M&A something that you might be pursuing in the near term?

Mark J. Grescovich: Thank you for the question, Andrew. Clearly, we are embarking on two core strategies. The first is our organic growth strategy, right? Taking advantage of the market disruption, taking advantage of the footprint in which we operate, and our strong commercial banking and consumer banking We've rolled out our small business initiative, which is really helping to drive some organic growth.

Andrew Brian Liesch: Well, thank you for the question, Andrew. Clearly, that is.

Speaker Change: We are embarking on two core strategies. The first is our organic growth strategy, right, taking advantage of the market disruption.

Speaker Change: for taking advantage of the footprint in which we operate and our strong commercial banking and consumer banking teams. And we've rolled out our small business initiative, which is really helping to drive some organic growth.

Mark J. Grescovich: On the M&A front, that's the second piece, which would be inorganic growth for the company, and we have a number of folks that we think would be great partners with Banner, and we continue to have that dialogue. Clearly, as valuations begin to move up, it becomes economically more feasible to do something and put something together, and I would characterize the conversations as being much more realistic in terms of having an opportunity to do something that's additive. I think it's more important to talk about things we're not interested in doing, which is that there's nothing outside.

Mark Grescovich: On the M&A front, that's the second piece which would be inorganic growth for the company, and we have a number of folks, and we think would be great partners with Banner, and we continue to have that dialogue. Clearly, as valuations begin to move up, it becomes economically more feasible to do something and put something together, and I would characterize the conversations as being much more realistic in terms of having an opportunity to do something that's added to it.

Speaker Change: On the M&A front, that's the second piece, which would be inorganic growth for the company. And we have a number of folks that we think would be great partners with Banner, and we continue to have that dialogue. Clearly, as valuations begin to move up,

Speaker Change: It becomes economically more feasible to do something and put something together. And I would characterize the conversations as being much more realistic.

Mark Grescovich: I think it's more important to talk about things we're not interested in doing, which is there's nothing outside; we don't want to go outside of our current wheelhouse, right, and we know we have a good value proposition that's a strong franchise. There's no reason for us to reach in the geographies we don't understand; there's no reason for us to reach in the modeling businesses that have a nationwide footprint. So we have the number of institutions on the West Coast that we continue to have dialogue, and as you know, M&A comes down to timing. All of the transactions that we've accomplished have been opportunistic and have been a very good fit, so I just would view M&A as being the same as it's been in the past, which is when things begin to loosen up, valuations return to normalization, the credit marks and the interest rate marks become much more palatable to take. I think you'll see some combinations occur.

Speaker Change: in terms of having an opportunity to do something that's additive.

Speaker Change: I think it's more important to talk about things we're not interested in doing, which is, there's nothing outside, we don't want to go outside of our current wheelhouse.

Mark J. Grescovich: We don't want to go outside of our current wheelhouse. We know we have a good value proposition, and a strong franchise. There's no reason for us to reach into geographies we don't understand. There's no reason for us to reach into monoline businesses that have a nationwide footprint.

Speaker Change: Right, we know we have a good value proposition, a strong franchise.

Speaker Change: There's no reason for us to reach into geographies we don't understand.

Speaker Change: There's no reason for us to reach into monoline businesses that have a nationwide footprint. So we have a number of institutions on the West Coast that we continue to have dialogue and as you know M&A comes down to timing.

Mark J. Grescovich: We have a number of institutions on the West Coast with which we continue to have dialogue. As you know, M&A comes down to timing. All of the transactions that we've accomplished have been opportunistic and have been a very good fit. I just would view M&A as being the same as it's been in the past. When things begin to loosen up, valuations return to normalization, and the credit marks and the interest rate marks become much more palatable to take. I think you'll see some combination.

Speaker Change: All of the transactions that we've accomplished have been opportunistic and have been a very good fit. So I just would view M&A as being the same as it's been in the past, which is...

Speaker Change: When things begin to loosen up, valuations return to normalization, the credit marks and the interest rate marks become much more palatable to take. I think you'll see some combinations occur.

Rob Butterfield: Got it. That's very helpful. Grub, just do your commentary on expenses kind of gradually trend upward from here. I guess how much is inflation still driving that, or is it investments in the franchise, or maybe is normalization of the legal fee? Just curious what might be driving some of this gradual increase. Yeah, I think I think it's all three of those. Yeah, normalization of legal expense. I mentioned in the comments that we had the legal recovery related to two matters, and that was expensive. We previously had over the last probably three or four quarters, and we were able to recapture it, but you know we're not going to recapture legal expenses every quarter, so that's certainly part of it.

Andrew Brian Liesch: Got it. That's a that's very helpful.

Rob Butterfield: Rob, just your commentary on expenses kind of gradually trends upward from here. I guess, how much is inflation still driving that, or is it investments in the franchise or maybe normalization of the legal fees? Just curious what might be driving some of this gradual inflation.

Speaker Change: Got it. That's very helpful.

Speaker Change: Rob, just your commentary on expenses kind of gradually trend upward from here.

Speaker Change: I guess, how much is inflation still driving that? Or is it investments in the franchise or maybe normalization of the legal fees? Just curious what might be driving some of this gradual increase.

Rob Butterfield: Yeah, I think it's, Andrew, I think it's all three of those. Yeah, normalization legal expense. You know, I mentioned in the comments that we had legal recovery related to two matters, and that was an expense that we had previously had over the last probably three or four quarters, and we were able to recapture it. But, you know, we're not gonna recapture legal expenses every quarter, so that's certainly part of it. Normal inflationary stuff as well.

Speaker Change: Yeah, I think I think it's Andrew, I think it's all three of those. Yeah, normalizational legal expense, you know, I mentioned on the comments that we had the legal recovery related to two matters and

Speaker Change: That was expense that we previously had over the last probably three or four quarters and we were able to recapture it.

Speaker Change: But, you know, we're not going to recapture legal expenses every quarter, so.

Rob Butterfield: Normal inflationary stuff as well, I mean we did have a normal wage increase that we had at the end of the first quarter, so that's built into the second overall ready, so that run raise probably there. But we are seeing that just vendors that we have as contracts come up, we are seeing pressure on those contracts because if it was a four-year contract that we locked in four years ago and was coming up for renewal, those vendors are wanting to price in the inflation that they've seen over the last three or four years. So I think we're seeing pressure on that.

Rob Butterfield: I mean, we did have our normal wage increase that we had at the end of the first quarter, so that's built into the second quarter already. So that run rate's probably there. But we are seeing that just the vendors that we have, as contracts come up, we are seeing pressure on those contracts because if it was, you know, if it was a four-year contract that we locked in four years ago and it's coming up for renewal, those vendors are wanting to price in the inflation that they've seen over the last three or four years, so I think we're seeing pressure on that.

Speaker Change: That's certainly part of it. Normal inflationary stuff as well, I mean, we did have our normal wage increase that we had at the end of the first quarter, so that's built into the second quarter already, so that run rate's probably there.

Speaker Change: But we are seeing that just vendors that we have as contracts come up.

Speaker Change: We are seeing pressure on those contracts because if it was, you know, if it was a four-year contract that we locked in four years ago and it's coming up for renewal, those vendors are wanting to price in the inflation that they've seen over the last three or four years. So I think we're seeing pressure on that.

Rob Butterfield: And quite frankly, I mean fraud losses are a never-ending battle right now. Fraud losses have been higher than our credit loss was probably through the last three or four years, maybe longer now, and you got to stay ahead of the fraudsters on that stuff. So we're continuing to invest in different fraud technology in order to combat that, and then we've also are making investments, other investments in technology. to really make the company more efficient. So, as we go into the future, we don't have to add as many expenses into the future. So, it's really a combination of things there.

Rob Butterfield: And quite frankly, I mean, fraud losses are a never-ending battle right now. Fraud losses have been higher than our credit losses probably for the last three or four years, maybe longer now, and you gotta stay ahead of the fraudsters on that stuff, so we're continuing to invest in different fraud technology in order to combat that. And then we're also making other investments in technology to really make the company more efficient. So as we grow into the future, we won't have to add as many expenses in the future. So it's really a combination of things there. Got it.

Speaker Change: And quite frankly, I mean, fraud losses are a never-ending battle right now. Fraud losses have been higher than our credit losses probably for the last three or four years, maybe longer now, and you've got to stay ahead of the fraudsters on that stuff so we're continuing to invest.

Speaker Change: in different fraud technology in order to combat that.

Speaker Change: and and then we've also are making investments of other investments in technology to really make the company more efficient so as we grow into the future we don't have to add as many expenses into the future so it's really a combination of things there.

Andrew Liesch: Got it. That's very helpful as well. Thanks for taking the questions here. I'll step back.

Andrew Brian Liesch: Got it. That's very helpful as well.

Speaker Change: Got it. That's very helpful as well. Thanks for taking the questions here, I'll step back.

Andrew Terrell: Thank you, Andrew. Our next question comes from Andrew Terrell with Steven.

Andrew Brian Liesch: Thanks for taking the questions here. I'll step back. Thank you, Andrew.

Operator: Our next question comes from Andrew Terrell, with Stephen, your line.

Andrew Brian Liesch: Thank you, Andrew.

Andrew Terrell: Your line is open. Hey, good morning. Good morning, Andrew.

Speaker Change: Our next question comes from Andrew Terrell with Stephen. Your line is open.

Robert Andrew Terrell: Morning, Andrew. Just maybe if I could follow back on expenses. Robert, appreciate all your all your commentary there. I think last quarter of the quarter before we were talking about kind of a 3% year on year expense growth rate in 2024, and apologies if I missed this, but any changes with some of the commentary there about the percentage rate of expense growth you would expect this year?

Robert Andrew Terrell: Hey, good morning.

Andrew Terrell: Just maybe if I could follow back up on expenses, Robert. I appreciate all your commentary there. I think last quarter of the quarter before, we were talking about kind of a 3% year-on-year expense growth rate in 2024.

Andrew Brian Liesch: Good morning, Andrew.

Robert Andrew Terrell: Just maybe if I could follow back up on expenses, Rob, appreciate all your all your commentary there. I think last quarter, the quarter before we were talking about kind of a 3% year on year.

Rob Butterfield: And apologies if I missed this, but any changes kind of with some of the commentary there about the percentage rate of expense growth you expect us here? Yeah, I think it'll probably be a bit higher than that. I don't have the exact percentage here, but it could be in that 3.5 range or maybe even a little bit higher. I think the run rate at this point is probably in that 99 range for quarter right now for expenses. So, whatever that is from a percentage standpoint. Yeah. Okay.

Robert Andrew Terrell: Expense growth rate in 2024, and apologies if I missed this, but any changes kind of with some of the commentary there about the percentage rate of expense growth you would expect this year?

Rob Butterfield: Yeah, I think I think it'll probably be a bit higher than that. I don't have the exact percentage here, but it could be in that 3.5 range or maybe even a little bit higher. I think the run rate at this point is probably in that 99 range per quarter right now for expenses. So, whatever that is from a percentage standpoint.

Rob Butterfield: Yeah, I think I think it'll probably be a bit higher than that.

Rob Butterfield: I don't have the exact percentage here, but it could be in that 3.5 range or maybe even a little bit higher. I think the run rate at this point is probably in that 99 range per quarter right now for expenses. So, whatever that is from a percentage standpoint.

Robert Andrew Terrell: Yeah, okay. It's understood.

Andrew Terrell: Understood. And then I had a question around some of the loan repricing dynamics. I appreciate that some of the kind of adjustable repricing tailwinds or fixed rate kind of repricing tailwinds or what's contributing to that kind of 8 to 10 basis points a quarter at now, barring any Fed moves. But it feels like with floating rate loans, it just call it 27, 28% of total. If you put a 25 basis point cut against that, you still should see kind of positive progression from a loan yield standpoint, even including maybe a couple of moves lower with the Fed.

Robert Andrew Terrell: And then I had a question around some of the loan repricing dynamics. I appreciate that some of the kind of adjustable rate repricing tailwinds or the fixed rate kind of repricing tailwinds or what's contributing to that kind of eight to 10 basis points a quarter now, barring any Fed moves. But it feels like with floating rate loans that just call it 27, 28% of total, if you put a 25 basis point cut against that, you should still see kind of positive progression from a loan yield standpoint, even including maybe a couple of moves lower with the Fed. I wanted to see if you agreed with that. And then curious to get thoughts on just how long that kind of repricing dynamic from the adjustable or fixed rate book can play out.

Speaker Change: Yeah. Okay. Um, understood.

Speaker Change: And then I had a question around some of the loan repricing dynamics.

Speaker Change: I appreciate that some of the kind of adjustable rate repricing tailwinds or fixed rate kind of repricing tailwinds or what's contributing to that kind of 8 to 10 basis points a quarter at now barring any Fed moves. But it feels like with floating rate loans that just call it 27, 28% of total.

Speaker Change: If you put a 25 basis point cut against that, you still should see kind of positive progression.

Speaker Change: from a loan yield standpoint, even including maybe a couple of moves lower with the Fed. I wanted to see if you agreed with that and then curious to get thoughts on just how long that kind of repricing dynamic from the adjustable or fixed rate book can play out.

Andrew Terrell: I wanted to see if you agreed with that.

Rob Butterfield: And then curious to get thoughts on just how long that kind of repricing dynamic from the adjustable or fixed rate book can play out? Yeah. So a couple of things. You know, I mean, it's pretty easy to do the math on the variable rate stuff. I mean, I think that'll impact about seven basis points. So, you know, let's pretend there was a rate cut of 25 basis points in September. Then that would mean that those would see seven basis points of a decline in loan yield related to that decrease in the fourth quarter. And if we get an 8 to 10 basis point increase, and then maybe you're up a basis point or two in the fourth quarter under that scenario.

Rob Butterfield: Yeah, so a couple things, right? You know, I mean, pretty easy to do the math on the variable rate stuff. I mean, I think that'll impact us by about seven basis points. So if let's pretend there was a rate cut of 25 basis points in September, then that would mean that we'd see seven basis points of a decline in loan yield related to that decrease in the fourth quarter. And if we get an 8 to 10 basis point increase, then maybe you're up a basis point or two in the fourth quarter under that scenario.

Speaker Change: Yeah, so a couple things. You know, I mean, it's pretty easy to do the math on the on the variable rate stuff. I mean, I think that'll impact us.

Speaker Change: and about seven basis points, so if, you know.

Speaker Change: Let's pretend there was a rate cut of 25 basis points in September .

Speaker Change: then that would mean that.

Speaker Change: Those would be seven basis points of a decline in loan yield related to that decrease in the fourth quarter.

Speaker Change: And if we get an 8 to 10 basis point increase, and then maybe you're up a basis point or two.

Rob Butterfield: And keep in mind, I'm not suggesting that's what's going to happen to the Fed, but I'm just trying to give you an example. So I think that I think we'll, you know, right now I think in our modeling, if the Fed was on pause, we continue to see that 8 to 10 basis points. And I think it starts to go down. You know, it's not 10. Maybe it's over the next four quarters. You know, we were 10 for two quarters in a row. We were 9 last quarter. It suggests it's just kind of coming down a little bit.

Speaker Change: in the fourth quarter under that scenario. And keep in mind, I'm not suggesting that's what's going to happen from the Fed, but just trying to give you an example. And so I think that I think we'll, you know, right now, I think in our modeling, if the Fed was on pause, we'd continue to see that eight

Rob Butterfield: Keep in mind, I'm not suggesting that's what's going to happen from the Fed, but just trying to give you an example. Right now, I think in our modeling, if the Fed was on pause, we'd continue to see that 8 to 10 basis points, and I think it starts to go down, over the next four quarters. You know, we were 10 for two quarters in a row. We were nine last quarter, which suggests it's just kind of coming down a little bit. So, but I don't think it necessarily goes to zero, but I think over time, what happens is maybe it moves from nine to eight and then to seven, so forth, assuming the Fed's on pause.

Mark J. Grescovich: and Mark Grescovich.

Mark J. Grescovich: over the next four quarters.

Mark J. Grescovich: You know, we were 10 for two quarters in a row, we were nine last quarter, which suggests it's just kind of coming down a little bit. So, but I don't, it doesn't go to zero necessarily. But I think I think over time, what happens is maybe it moves from nine to eight, and then to seven, and so forth, assuming the feds on pause.

Rob Butterfield: So, but I don't, it doesn't go to zero necessarily, but I think I think over time what happens is maybe it moves from 9 to 8 and then to 7 and so forth, assuming the Fed's on pause.

Andrew Terrell: Okay, that's very helpful. I appreciate it.

Robert Andrew Terrell: Okay, that's very helpful. I appreciate it.

Robert Andrew Terrell: And then last one, I think we talked about last quarter. Maybe the option for some further security sales and two queues similar in size to one queue, and obviously rates are what they are. It didn't seem like you guys did too much for the securities book this quarter, just with rates backing off a little bit so far to start the third quarter. Any increased appetite or interest in further bond book repositioning in the third quarter?

Andrew Terrell: And then last one, I think we talked about last quarter. Maybe the option for some further security sales in two cues similar to, similar in size to one cue, and obviously rates are what they are. Didn't feel like you guys did too much of the securities book this quarter, just with rates backing off a little bit so far to start the third quarter.

Speaker Change: Okay, that's very helpful. I appreciate it.

Speaker Change: Maybe the option for some further security sales and two queues similar to similar in size to one queue and obviously rates are what they are.

Speaker Change: It didn't seem like you guys did too much with the securities book this quarter. Just with rates backing off a little bit so far to start the third quarter, any increased appetite or interest in further...

Rob Butterfield: Any, any increased appetite or interest in further bond book repositioning in the third quarter? Yeah, I mean, really, if you, the second quarter, we didn't; we were considering something there. Ultimately, we didn't do anything. You know, we’ve always used kind of a three-year payback as our benchmark on whether we were willing to do something or not. And there's becoming less and less in the portfolio that that would qualify for. And we really didn't do any security sales during the quarter. We had that $600,000 loss, but that was really related to a bond that was called early, so there were really no security sales during the quarter.

Rob Butterfield: Yeah, I mean, really, in the second quarter, we didn't, we were considering something there, but ultimately, we didn't do anything. You know, we've always used kind of a three-year payback as our benchmark on whether we were willing to do something or not.

Speaker Change: bond book repositioning in the third quarter.

Speaker Change: Yeah, I mean, really, if you the second quarter, we didn't, we were considering something there. Ultimately, we didn't do anything.

Speaker Change: We always use kind of a three-year payback as our benchmark on whether we were willing to do something or not.

Rob Butterfield: And there's becoming less and less in the portfolio that that would qualify for. And we really didn't do any security sales during the quarter. We had that $600,000 loss, but that was really related to a bond that was called early. So, there were really no security sales during the quarter. And I would say at this point, I mean, we're not currently considering any further security sales, but I'm going to preface that by saying that we remain flexible. So we continue to monitor the market conditions, and if the market conditions are right, we might do another security sale. But it's currently not something we're planning on, but we'll continue to monitor it.

Speaker Change: and there's becoming less and less in the portfolio that that that would qualify for. And we really didn't do any security sales during the quarter. We had that $600,000 loss, but that was really related to a bond that was called early. So so there were really no security sales during the quarter.

Rob Butterfield: And I would say at this point, I mean, we're not currently considering any further security sales, but I’m going to preface that by saying that we remain flexible. So we continue to monitor the market conditions, and if the market conditions are right, we might do it another security sale. But it's currently not something we're planning on. Both will continue to monitor it. Okay, understood.

Speaker Change: I would say at this point, I mean, we're not currently considering any further security sales, but I'm going to preface that by saying that we remain flexible, so we continue to monitor the market conditions, and if the market conditions are right, we might do another security sale.

Speaker Change: But it's currently not something we're planning on, but we'll continue to monitor it.

Robert Andrew Terrell: Okay, understood. Thank you for taking the questions.

Andrew Liesch: Thank you for I think any questions.

Lydia: Thank you, Andrew. As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad.

Speaker Change: Okay, understood. Thank you for taking the questions.

Andrew: Thank you, Andrew.

Speaker Change: As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad.

Kelly Motta: Our next question is from Kelly Motta with KVW. Please go ahead. Your line is open.

Kelly Ann Motta: Our next question is from Kelly Motta with KPW. Please go ahead, your line is open.

Speaker Change: Our next question is from Kelly Motta with KPW. Please go ahead, your line is open.

Kelly Ann Motta: Hi, good morning. Thanks for the question. Um, maybe I would, I was hoping to close the loop on the M&A discussion. I appreciate your comments, Mark, about wanting to stay with businesses that are, you know, in your footprint and whatnot. I'm just wondering if you could refresh us on the size of potential targets you're interested in and if, potentially, they could go up to, say, an MOE, for instance.

Kelly Motta: Hi, good morning. Thanks for the question. Maybe I would, I was hoping to close the loop on the M&A discussion. I appreciate your comments, Mark, about wanting to stay with businesses, you know, with that, you know, in your footprint and whatnot. I'm just wondering if you could refresh us on the size of potential targets you're interested in and if potentially they could go up to say an MOE, for instance. Yeah, I think, Kelly, thank you for the question, and good morning. I would view it this way. We do not believe at this point, given our operational trajectory and the some of the market conditions, will allow us to continue to take market share that we don't need to do anything transformational.

Kelly Ann Motta: Hi, good morning. Thanks for the question. I appreciate your comments, Mark,

Kelly Ann Motta: I'm just wondering if you could refresh us on the size of potential targets you're interested in and if potentially they could go up to, say, an MOE, for instance.

Mark J. Grescovich: Yeah, I think Kelly, thank you for the question and good morning. Then I would view it this way. We do not believe at this point, given our operational trajectory and some of the market conditions which will allow us to continue to take market share, that we don't need to do anything transformational. So I would characterize any kind of M&A philosophy as being something that would be of decent size, additive to density in our current footprint. That would be the goal.

Kelly Ann Motta: Yeah, I think, Kelly, thank you for the for the question. And good morning. I would view it this way. We do not believe at this point, given our operational trajectory in the

Speaker Change: Some of the market conditions which will allow us to continue to take market share that we don't need to do anything transformational.

Mark Grescovich: So I would characterize any kind of M&A philosophy as being something that would be a decent size, additive to density in our current footprint; that would be the goal. I don't tend to quantify that based on asset size, but you can probably, you know, detect that it's somewhere between a billion and three billion. and for us to do anything that would be considered close to an MOE, it would have to be incredibly strategic and would really have to be additive, not only in the short term but the long term. But I don't know that we need to reach for anything transformational, given our current operating model.

Speaker Change: So, I would characterize any kind of M&A philosophy

Speaker Change: as being something

Speaker Change: that would be a decent size additive to density in our current footprint, that would be the goal. I don't tend to quantify that based on asset size, but you can probably detect that it's somewhere between a billion and three billion.

Mark J. Grescovich: I don't tend to quantify that based on asset size, but you can probably detect that it's somewhere between a billion and three billion. For us to do anything that would be considered close to an MOE, it would have to be incredibly strategic and would really have to be additive, not only in the short term but in the long term. But I don't know that we need to reach for anything transformational, given our current operating environment.

Speaker Change: For us to do anything that had would be considered close to an MOE

Speaker Change: It would have to be incredibly strategic and would really have to be additive not only in the short term but the long term. But I don't know that we need to reach for anything transformational given our current operating model.

Kelly Motta: Got it. That's super helpful, and I apologize if you covered this. I was having some technical difficulties earlier in the call, but I think you mentioned that most of your rate-sensitive customers have, you get the sense that they've already moved, which is an encouraging sign for stabilization. Did you cover the non-intersparing outflows this quarter? Was that partly seasonal, and would you expect a moderation or stabilization in that provided, you know, we don't get any movement in rights here? Yeah, Kelly. So just briefly on that, so yeah, the degree in Q2 was primarily due to normal seasonal tax payments that we see every year, so that was expected.

Kelly Ann Motta: Got it. That's super helpful.

Speaker Change: Got it. That's super helpful. And I apologize if you covered this. I was having some technical difficulties earlier in the call, but I think you mentioned that most of your rate-sensitive customers have

Rob Butterfield: And I apologize if you covered this; I was having some technical difficulties earlier in the call. But I think you mentioned that most of your rate sensitive customers have You get the sense that they've already moved, which is an encouraging sign for stabilization. Did you cover the non-interest bearing outflows this quarter? Was that partly seasonal, and would you expect a moderation or stabilization in that, provided you don't get any movement in rights here?

Speaker Change: You get the sense that they've already moved, which is an encouraging sign for stabilization. Did you cover the non-interest bearing outflows this quarter? Was that partly seasonal and would you expect a moderation or stabilization in that provided?

Speaker Change: You know.

Rob Butterfield: Yeah, Kelly, just, yeah, just briefly on that. So yeah, the decrease in Q2 was primarily due to normal seasonal tax payments that we see every year. So, that was expected. As we look at Q3, Q3 is a good quarter for us, typically for deposits, really, as our ag clients' crops come in, and cash comes in on that. So I think that'll be the test of whether we're nearing a bottom in our non-interest bearing, and what it looks like in Q3.

Speaker Change: We don't get any movement in rates here.

Speaker Change: Yeah, Kelly, so just, yeah, just.

Kelly Motta: As we look at Q3, Q3, is it good? Quarter four, typically four deposits really as our ad clients, crops come in and cash comes in on that. So I think that will be the test on whether we're nearing at bottom in our non-intersparing what it looks like in Q3. Got it. Thank you. Thanks for that.

Kelly Ann Motta: That was expected. As we look at Q3, Q3 is a good quarter for us typically for deposits really as our ag clients' crops come in and cash comes in on that. So I think that'll be the test on whether we're nearing a bottom in our non-interest bearing, what it looks like in Q3.

Kelly Ann Motta: Got it. Thank you. Thanks for that. Last question for me. For Jill, if you could just refresh us on what the average LTVs are on various loan portfolios and how those, that, and debt service coverage is holding up at this stage.

Jill Rice: Last question for me for Jill. If you could just refresh us, what average LTVs are on various loan portfolios and how those that in debt service coverage is holding up at this stage? So it varies based on portfolio, certainly, but our average, our weighted average loan to value in the CRE book at this stage and, you know, keep in mind that we're using at origination appraisals, 99% of the time, but the weighted average loan to value would be less than 65%, and you know, depending on the type of product would go lower than that. And then the weighted average debt service coverage north of 125 in almost, well, in all books, and again, gets stronger depending on the quote-unquote riskier type of property.

Kelly Ann Motta: Got it. Thank you. Thanks for that. Last question for me, for Jill, if you could just refresh us what...

Speaker Change: Average LTVs are on various loan portfolios and how that and debt service coverage is holding up at this stage.

Jill M. Rice: So it varies based on portfolio, certainly, but our weighted average loan-to-value in the CRE book at this stage, and keep in mind that we use origination appraisals 99% of the time, but the weighted average loan-to-value would be less than 65% and, depending on the type of product, would go lower than that. And then the weighted average debt service coverage is north of 125 in almost, well, all books, and again, gets stronger depending on the quote-unquote riskier type of property. I got it. Thank you so much.

Speaker Change: So it varies based on portfolio, certainly, but our weighted average loan-to-value in the CRE book at this stage, and keep in mind that we're using at-origination appraisals.

Speaker Change: percent of the time, but the weighted average loan-to-value would be less than 65 percent.

Speaker Change: depending on the type of product would go lower than that. And then the weighted average debt service coverage north of 125 in almost, well, in all books, and again, gets stronger depending on the quote unquote riskier type of property.

Kelly Motta: Got it.

Kelly Ann Motta: Got it. Thank you so much for the call. I'll step back.

Kelly Motta: Thank you so much for the color.

Kelly Motta: I'll step back.

Kelly Motta: Thanks, Kelly. Thank you.

Speaker Change: Got it. Thank you so much for the call. I'll step back.

Operator: Thank you. We have no further questions in the queue, so I'll turn the call back over to Mark for any closing comments.

Kelly Ann Motta: Thanks, Kelly.

Mark Grescovich: We have no further questions in the queue, so I'll turn the call back over to Mark for any closing comments. Thank you, Lydia, and thank you for your questions. As I stated, we're very proud of the banner team in our second quarter of 2024 performance. Given the current difficult operating environment that we're facing, thank you again for your interesting banner and joining our call today. We look forward to reporting our results to you again in the future.

Speaker Change: Thank you. We have no further questions in the queue, so I'll turn the call back over to Mark for any closing comments.

Mark J. Grescovich: Thank you, Lydia. And thank you for your questions.

Mark J. Grescovich: As I've stated, we're very proud of the Banner team and our second quarter 2024 performance, given the current difficult operating environment that we're facing. Thank you again for your interest in Banner and joining our call today. We look forward to reporting our results to you again in the future. Have a wonderful day, everybody. Thank you for participating.

Mark J. Grescovich: Thank you, Lydia, and thank you for your questions. As I've stated, we're very proud of the Banner team and our second quarter 2024 performance, given the current difficult operating environment that we're facing.

Mark J. Grescovich: Thank you again for your interest in Banner and joining our call today. We look forward to reporting our results to you again in the future. Have a wonderful day, everybody. Thank you for participating.

Mark Grescovich: Have a wonderful day, everybody. Thank you for participating.

Lydia: This concludes today's call. Thank you for joining. You may now disconnect your line. Thank you for watching.

Operator: This concludes today's call. Thank you for joining us. You may now disconnect your line.

Speaker Change: This concludes today's call. Thank you for joining. You may now disconnect your line.