Q1 2025 Banner Corp Earnings Call
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Speaker Change: Hello everyone and welcome to the Banner Corporation's first quarter, 2025's Conference Call and Webcast.
Nadia: My name is Nadia and I'll be coordinating the call today.
Speaker Change: If you would like to ask a question, please press staff, fill it by one on the 11 keypad. I will now hand over to your host, Mark Grescovich, president and CEO of Banner Corporation to begin. Mark, please go ahead.
Thank you Nadia, and good morning everyone.
Speaker Change: I would also like to welcome you to the first quarter earnings call for Banner Corporation.
Speaker Change: 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?
Rich Arnold: Sure, Mark. Good morning. A presentation today discusses Banner's business outlook and will include forward looking statements.
Speaker Change: These 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.
Speaker Change: We also may make other forward-looking statements in the question and answer period while we're in management's discussion.
Speaker Change: These forward-looking statements are subject to a number of risks and uncertainties and actual results made different materially from those discussed today.
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 10k for the year ended December 31st, 2024.
Speaker Change: Forward-looking statements are effective only as of the date they are made and Banner assumes no obligation to update information concerning its expectations.
Mark
Thank you, Rich.
Rich Arnold: As is customary, today we will cover four primary items with you.
Speaker Change: First, I will provide you high-level comments on Banner's first quarter 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.
Speaker Change: Third, Jill Rice will provide comments on the current status of our Lone Portfolio.
Speaker Change: and finally, Rob Butterfield will provide more detail on our operating performance for the quarter, as well as comments on our balance sheet.
Speaker Change: Before I get started, I wanted to thank all of our 2,000 colleagues in our company who are working extremely hard to assist our clients and communities.
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.
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
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 $45.1 million or $1.30 per diluted share for the quarter-ended March 31st, 2025.
Speaker Change: This compares to a net profit to common shareholders of $1.09 per share for the first quarter of 2024 and $1.34 per share for the fourth quarter of 2024.
Speaker Change: Our strategy to maintain a moderate risk profile and the investments we have made and continue to make in order to improve operating performance have positioned the company well for the future.
Speaker Change: The strength of our balance sheet, coupled with our strong reputation we maintain in our markets, will allow us to manage through the current market volatility.
Robble discuss these items in more detail shortly.
Speaker Change: To illustrate the core earnings power at 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.
Speaker Change: Our first quarter of 2025 quarter earnings were $59 million compared to $53 million for the first quarter of 2024.
Speaker Change: Banner's first quarter, 2025, revenue from core operations, was $160 million, compared to $150 million for the first quarter of 2024.
Speaker Change: We continue to benefit from a strong core deposit base that is proof to be resilient and loyal to Banner.
A very good net interest margin and core expense control.
Speaker Change: Overall, this reached-solid in a return on average assets of 1.15% for the first quarter of 2025.
Speaker Change: Once again, our Corporate Performance Reflex continued execution on our Supercommunity Bank strategy.
Speaker Change: That is, growing new client relationships, maintaining our core funding position.
Speaker Change: Promoting client loyalty and advocacy through our responsive service model and demonstrating our safety and soundness through all economic cycles and change events.
Speaker Change: To that point, our core deposits continue to represent 89% of total deposits.
Speaker Change: Further, we continued our solid organic growth with loans increasing 5% and core deposits that's increasing 3% over the same period last year.
Speaker Change: Reflective of this performance, coupled with our strong regulatory capital ratios, and the fact that we increased our tangible common equity per share by 13% from the same period last year, we announced the core dividend of 48 cents per common share.
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.
Speaker Change: Banner again was 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 and the world again this year. And just recently named Banner one of the best regional banks in the country.
Speaker Change: JD Power and Associates named Banner Bank the best bank in the Northwest for retail, client satisfaction, and 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: Additionally, the cruel bond rating agency affirmed all of Banner's investment grade debt and deposit ratings.
Speaker Change: and as we've noted previously, Banner Bank received an outstanding CRA rating.
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 Rice: Thank you, Mark, and good morning, everyone. As reflected in our earnings release, the link with loans increased again this quarter and now represents 0.63% of total loans.
Jill Rice: This compares to 0.49% as of your end and 0.36% as of March 2024.
Jill Rice: You're over here to increase the results of the higher interest rate environment and the impact on all segments.
Jill Rice: Still, in terms of total dollars and as a percentage of total loans, the link with these remain manageable.
Jill Rice: Adversity class side loans increased to modest 5 million in the quarter and represent 1.73% of total loan.
Jill Rice: compared to 1.69% as of the linked quarter and 1.07% as of March 31st, 2024.
Jill Rice: It is worth noting that by borrower, the adversely classified relationships are very granular with an average commitment of less than one million.
Jill Rice: And, as I have stated in prior calls, adversely classified loans are not centered in one business line or industry.
Jill Rice: Non-performing assets also increased in the quarter, up 3 million, and represent 0.26% of total assets.
Jill Rice: consisting of $39 million in non-performing loan, $3.5 million in RIO, and $300,000 in other
Jill Rice: Despite the modest deterioration, Banner's credit metrics remain manageable when considered in light of our loan loss reserve and capital positions, and are indicative of Banner's culture of early improbative portfolio management.
Jill Rice: Loan losses in the quarter total 3.7 million and were offset in part by recovery totaling 900,000.
Jill Rice: The net provision for credit losses for the quarter was 3.1 million, including a 4.5 million provision for loan losses and a release of 1.4 million related to unfunded loan commitments.
Jill Rice: The provision was driven in large part by quantitative factors including growth in the construction portfolio, risk-grading migration, and charge-offs, and to a lesser extent qualitative adjustments that were applied to address economic uncertainty.
Jill Rice: The Reserve for Credit Losses provides coverage of 1.38% of total loans and compares to 1.37% as of the linked quarter and 1.39% as of March 31, 2024.
Jill Rice: Lone Originations were down 33% when compared to the length quarter with the largest decline seen in the commercial and commercial real estate portfolios.
Jill Rice: These declines are in large part a reflection of heightened client uncertainty slowing prospective transactions.
Jill Rice: It is worth noting, however, that both commercial and commercial real estate pipelines continue to grow, reflecting a desire to proceed with capital investments when the economy stabilizes.
Jill Rice: Lone Outstanding Screw by 84 million in a quarter, or 3% on an annualized basis, and are about 5% year-over-year in line with our first quarter expectation.
Jill Rice: The primary drivers of the growth were within the construction and development book, with multi-family construction up 105 million, land development up 26 million, and commercial construction up 24 million.
Jill Rice: The increases quarter-over-quarter are largely due to draws on previously committed projects and were offset in part by expected pay-offs and pay-downs within the permanent commercial real estate and multi-family portfolios.
Jill Rice: On a combined basis, commercial and small business phone totals declined by 16 million quarter over quarter, driven primarily by meaningful paydowns on a handful of larger commercial lines of credit.
Jill Rice: Total CNI utilization is at 1% and a quarter in spite of those paydowns.
Jill Rice: The Residential Construction portfolio at 4% of total loan is continuing to perform well.
Jill Rice: We did see a slow, a seasonal slowdown in the activity in the quarter. Still, the 4-cyl product continues to be bolstered by a limited supply of resale inventory, and our level of completed and unfold starts remains below historical norms.
Jill Rice: Looking at the entire construction portfolio, including residential, commercial, and multi-family construction, along with land and land development, the total construction exposure remains acceptable at 15% of total loan.
Jill Rice: Add expected agricultural loans continue their seasonal decline with balances down 5 million or 2% in comparison to the linked quarter.
Jill Rice: DeConsumer Mortgage Portfolio, Increased Modestly, 9 Million, and Consumer Lones, Centres in the Home Equity Lines of Credits, Declined 4 Million in the Quarter.
Jill Rice: Before I wrap up, I want to touch on the current operating environment in this time of economic uncertainty.
Jill Rice: While it is too early to see the impact, recent immigration enforcement activities across our footprint have heightened both business and community concern, especially within our agricultural and border communities.
Jill Rice: The significant reduction in Canadian border crossings is negatively impacting businesses in our northwestern Washington markets and it continued is anticipated to have a meaningful impact to the larger summer tourism industry as well.
Jill Rice: and more broadly, while the final level and duration of the recently enacted tariffs remains uncertain and the impact is yet to be felt, tariffs will have a negative impact to West Coast businesses and the local economies.
Jill Rice: Given our diverse and granular loan portfolio, we expect the biggest impact to be felt by the small business community.
Jill Rice: who will be less able to absorb increased costs, pay supply chain issues, reduced demand, and the overall general market disruption that is like asphalt.
Jill Rice: and of course, the consumer, who will ultimately bear the burden of increased prices.
Jill Rice: While we wait for clarity regarding the level and duration of the tariffs and begin to see the impact to the general economy from the recent policy changes, we will continue our practice of our best quarterly portfolio reviews and maintain close contact with our borrowers to better understand the longer term implication to their businesses.
Jill Rice: Our moderate-risk profile, with a diverse and granular loan portfolio, the majority of which is supported by strong sponsors, personal guarantees, and properly margins cloud of support will serve as well as we navigate these uncertain economic headsets.
Jill Rice: I will follow my prepared remarks by reiterating what you have heard from me before.
Jill Rice: Banner has a strong balance sheet. Our reserve for low-mosses remains robust in our capital base as well in excess of regulatory requirements, all of which are designed to sustain us through all business cycles.
Jill Rice: With that, I'll turn the call over to Rob for his comments. Rob? Great, thank you, Jill. We've reported $1.30 per diluted chair for the first quarter, compared to $1.34 per diluted chair for the prior quarter.
Jill Rice: The 4% decrease in Ernest Persher was primarily due to two fewer interest earning days in the current quarter and higher expenses in the first quarter.
Speaker Change: In addition, the prior quarter benefit from some non-reoccurring gain alone cell.
Speaker Change: Total loans increased 77 million during the quarter with portfolio loans increasing 84 million.
Barsley Offset by Help for Cell Lones
Decreasing 7 million.
The loans to deposit ratio into the quarter at 84%.
Speaker Change: Total security decreased $5 million, as normal portfolio cash flows, were largely offset by an increase in fair value.
Speaker Change: Deposit to increase $79 million during the quarter due to court deposits increase from $74 million.
Speaker Change: Pined deposits increase 4 million as a $21 million decline in retail time deposits was offset by a $25 million increase in broker deposits. Core deposits in the quarter at 89% of total deposits, same as the prior quarter.
Speaker Change: Total borrowing decreased 116 million during the quarter due to a decrease in FHLB advances.
Speaker Change: Fander's liquidity and capital profile continue to remain strong with the robust corp funding base in low reliance on wholesale borrowing and significant off-balance
Speaker Change: In addition, all of our capital ratios are in excess of regulatory well-capitalized levels.
Speaker Change: Net interest income increased 500,000 from the prior quarter due to tax equivalent net interest margin increasing ten basis points to 3.92%.
Speaker Change: partially offset by a decline in average earning assets and two less interest earning days in the quarter.
Speaker Change: The 10 basis point increase in net interest margin was driven by an increase in the yield on earning assets in a decrease in funding costs.
Speaker Change: The four basis point increase in earning asset yields was due to loan yield increasing five basis points.
Speaker Change: As the just flow rate loans continue to reprise higher and new loans are being originated at rates higher than the average yields on the loan portfolio.
Speaker Change: The average rate on new production for the quarter was 8.01%. Funding cost decreased five at best points as a result of deposit cost decrease in six basis points.
Speaker Change: Non-interferring deposits into the quarter at 34% of total deposits.
Speaker Change: The decrease in average during assets was due to a 90 million decline in average in transferring cash and investment balances, partially offset by average loan balances is increasing 64 million.
Speaker Change: They're in an asset yield, continues to benefit from a remixing out of securities and into loans.
Total non-interest income decreased 900,000 from the prior quarter
Speaker Change: Primarily due to the prior quarter, including a gain of 735,000 on the sale of a non-performing loan and a gain of 580,000 on a pooled loan sale.
Speaker Change: Full non-interest expense increased 1.8 million from the prior quarter. The increased reflected higher in salary benefit expense.
Speaker Change: primarily due to typical higher first quarter payroll taxes and higher medical insurance expense.
Speaker Change: The increase in salary and benefits was partially offset by lower marketing and professional expenses.
Speaker Change: Despite the recent market volatility, we believe our capital and liquidity levels position as well to service our clients and to take advantage of many disruptions in the markets we serve. This concludes my prepared comments, and I will turn it back to Mark.
Thank you Rob and Jill for your comments.
Speaker Change: That concludes our prepared remarks, and Nadio, we will open the call and welcome questions.
Nadia: Thank you if you would like to ask a question, please press staff, fill it by one on a telephone keypad. If you would like to remove your question, please press staff, fill it by two. I'm apparent to ask your question, please enter your phone as a new to locally.
Speaker Change: Our first question is who Jeff Rulis of D8 Davidson, Jeff Gohead.
Thanks. Good morning.
Good morning, Jeff.
Speaker Change: Maybe the surprise is a strong word, but I guess if you think about...
Speaker Change: The Burning Asset Yield Increase versus Funding Costs Coming Down. Is there any component there that you think you're...
Speaker Change: that can continue or do you feel like both are in play, at least in the short run, and I guess ultimately leading to kind of margin expectations.
Speaker Change: Yeah, so what I would say there Jeff is that on the on the funding side the funding cost for the quarter was pretty much flat for the entire quarter so the same for the same for January and February and March.
Speaker Change: and whereas we did see on the yield side we saw throughout the quarter that the yield did improve as we move throughout the quarter.
Speaker Change: And the other thing just to, and I know you know this, but you know the day count in February always benefits the first quarter and makes the yields look a little bit better just because of the 28 day count and you get 30 days on a lot of loans from an interest perspective.
Speaker Change: But if we think about going forward here, so we use Moody's for interest rate forecasting.
Speaker Change: They're currently showing 325 bases point cuts in 25, the first one starting in July .
Speaker Change: and assuming that's correct, I would expect some of them expansion in Q2.
Speaker Change: and that really is assuming that funding costs essentially stay flat and we see some additional expansion in our loan yields as adjustable rate loans continue to reprise up and good loans continue to come on at higher yields.
Speaker Change: The model is currently showing that we would see about a five basis point increase in loan yields.
while the Fed is on pause.
Speaker Change: If I think about the second half of the year under that Moody's Forecast where there would be those rate cuts in the second half of the year, I would essentially expect that earning asset yields to be flat during that period of time while the feds.
Speaker Change: Decreasing rates, but we would see some benefit on the funding cost side where we would see funding costs come down a couple days point to quarter during the second half assuming that scenario.
That's great, Rob. Thank you.
Andrew Liesch, Mark Grescovich,
Jill Rice: Maybe hot to the credit, I think Jill you mentioned, really no real industry specific stress pretty granular but just wanted to check back in on the on the ag side, you mentioned some.
Jill Rice: and some prior caution on commodity prices, and there was a small increase in non-performers in a quarter. Check it back in there to feel like that is just a continued area of watch.
Just how is the trends on the on the ag side going?
Jill Rice: Well, the eggside definitely is a continued area of watch, especially as we think about the tariff implications to that segment Jeff.
Jill Rice: Most of the crops are sold domestically. However, with the increased tariffs I would expect an increase in domestic supply, which will impact the pricing on that end as well, while the impact costs continue to rise. So...
Speaker Change: The egg industry I think will continue to show signs of strain over this next period of month.
Speaker Change: You know, we just have to kind of wait to see how long it plays out, but that is one of our primary areas of concern as it relates to terror.
Rich Arnold: Okay. And just Jill, you mentioned line utilization on CNI was down, I guess first part would be what is that number currently? And then Jill, if you could kind of...
Rich Arnold: and Stabilize us on growth for the full year. Do you feel like some of this uncertainty versus where we were entering the year? Any thoughts on the full year expectations would be helpful.
Rich Arnold: Okay, so I'm going to go back and I'm going to close out my egg comment with a reiteration to the sign of the portfolio before we go on to your current questions.
Rich Arnold: for everyone's benefit. The egg represents 3% of the loan book.
Rich Arnold: and it is almost half of which real estate secured average loan size of 1.2 million. So just to put that into perspective as we continue to watch the risk in that portfolio.
Rich Arnold: commercial line utilization is in the mid 30% range, I believe, and you know kicked out modestly. So overall, you know, we're running in that average utilization.
Rich Arnold: You know, entire books, 75% utilize historical averages or 76%, C&I construction of add down in the quarter, so you know they kind of...
Andrew Liesch, Mark Grescovich,
Crossed each other out, I guess, if he would.
if you look at it that way. Um.
to loan growth expectations.
Rich Arnold: We're still targeting mid-single digits for 2025, when we went into the year we were looking at a back half as where we would get more of that growth and still
Rich Arnold: We offset that, however, with the commercial pipelines that have been continuing to rebuild nicely. We had a good pull-through rate to first quarter, even with that high level of uncertainty, and when we hit our Q1 expectations
Rich Arnold: Even with the uncertainty, we don't have enough to actually change our thoughts as to what's going to happen for the 2025 plan at this time.
That's great. Thank you for the detail. Appreciate it.
Thank you, Jeff.
Speaker Change: The next question goes to David Feaster of Raymond James. David, please go ahead.
Hey, good morning everybody.
Good morning, David.
Speaker Change: Um, I kind of want to just follow up a little bit on that line of questioning a bit. You know what I mean, obviously you talked about
Speaker Change: You know, the pipe lines and, you know, originations did decline court of record and it sounds like it's primarily a function of weaker demand.
even a head of trade wars [inaudible]
Speaker Change: I'm hoping you could touch on any other competitive dynamics that you're seeing and just
You know, how is client demand and
Speaker Change: The pipeline looking today, have you started to see anything falling out of that, just kind of the complexion of the pipeline, if it's where you're seeing opportunities for growth today?
Robert Grescovich, Rich Arnold, Robert Butterfield, Jill Rice
Speaker Change: So, I'll start at the end there and the opportunities for growth that you know my answer to that is no different than it's been historically they range up and down our footprint and in this you know across the industry.
Speaker Change: Pipelines have continued to grow, closings have continued, so we're pulling them through and rebuilding.
Speaker Change: I think the slow part of Q1, yeah, the trade wars had not started, but there was a level of just uncertainty that had everybody's taking a step back to see what was coming.
Speaker Change: and then as it hit even more uncertainty as opposed to clarity. But we still have people who want to move forward once they can understand where we are going to land.
Speaker Change: So I feel so decent about where we're going to end this year. David, because of that, they want to do business, they just need some of this noise to settle down.
the tariffs and trade wars.
Speaker Change: I mean, where do you see like as you as you look at the book, where do you see the most risk and? [inaudible]
Speaker Change: and where are you like watching more closely if this does become more protract? I mean, we've already touched on that which is obviously a small portion of book.
Speaker Change: But just, you know, you're thinking about construction, right? And multi, you know, you've had a lot of success especially with the multifamily.
Speaker Change: You know, how do you think about managing, you know, just with potential rising construction costs and some of those kinds of things curious how you're approached to this where you're, you know, where you're watching more closely and you're approached and managing it in just in this kind of uncertain market.
Speaker Change: So the approach to managing it is kind of what we do on a day to day always in terms of staying close to our clients and asking them what they're seeing, what they're feeling, and what the impact is to their bottom line.
Speaker Change: If you step back into the heart of your questions, what am I looking at and thinking about outside of egg?
Get it!
The Terrells are going to impact, you know...
Speaker Change: That's a bunch of things across the West Coast and our trade partners. Technology sector, we're not heavy into it, but it's going to affect our economy.
Speaker Change: Agriculture we talked about, West Coast Port, that's going to affect our economy. Autoveilers, retailers, Boeing and other manufacturers, we don't lend to Boeing but certainly we have some manufacturing in our portfolio and those cost will, you know, run the gamut there as well.
Speaker Change: I step back and I look at the portfolio and then I size it. What do we have in manufacturing? You know, manufacturing would represent approximately 3% of our loan book.
Speaker Change: Average loan size within all of those manufacturing NAICS codes would be under a million dollars, so in terms of individual risk.
Speaker Change: Limited in terms of aggregate risk in the portfolio, again pretty small from the manufacturing sector. We don't have a lot of exposure to auto dealers, largest blown signs to auto dealers in our book five million.
Speaker Change: I look at the transportation industry 1% of our loan book.
Speaker Change: Look at the retail exposure. It's bigger. It's 12% of the long book, but it's diversified geography. It's diversified by service and product and you know.
Speaker Change: Industry 93% of the retail exposure is real estate secured so that reduces some risk there as well and when you look at those last three segments names each one of them would have less than 1% or have an average loan size of
One million or less, so...
I'm looking, we're watching, we're talking to our clients.
Speaker Change: and then we're just scoping the overall exposure and we'll continue to do that as we see where do these tariff land and who are they hitting the hardest. And I'll come back to what I said in my prepared remarks. I think the biggest impact is going to be the small business sector and the consumer who's going to bear the brunt of it.
Culler: Okay, that's a great color. I appreciate that. And then just last one for me, maybe you touched on the funding cost side. You've done a great job continuing to drive quarter-posit growth, reducing deposit costs, even an excuse-ling weaker quarter.
Culler: I hope you could maybe touch on the competitive landscape for deposits, your strategy continue to drive core deposit growth and how you think about opportunities to further optimize funding costs and fund loan growth going forward.
Culler: Yeah, so thanks David, it's Rob. So yeah, I guess a couple things there, I mean...
Culler: I think there's limited opportunities as long as the Fed is on pause to see additional reductions in funding cost.
Culler: and what we've been successful as is as we're adding new clients from the lending side we've been successful at also bringing it across to deposits so I think we're seeing the benefit of that.
Culler: Q1 also did have some seasonality into it. We usually see some increase in our deposits as tax-free funds start to come in as well. And, you know, I mean, I think if we're looking to think about competitors right now in the marketplace.
Thank you.
Culler: from the CD side is where you're seeing, we're still seeing rate specials out there. I would say most of the rate specials are in that three to seven month tenor right now, although we do still see some rate specials out there in that 12 or 13 month range and see it in even some of the 4%.
Culler: But, you know, I mean, we just have a very granular deposit base, it's...
Culler: It's diversified from both Metro versus Rural, and it's also diversified geography-wise, and it's a very granular deposit-based average deposit size, you know, in that $29,000 range. So I think all that just helps us from...
Culler: being able to kind of control our deposit cost and our funding cost over time.
Speaker Change: Okay, that's helpful. So would you kind of expect maybe some continued optimization and loan growth be funded with some securities cash flows or do you see the balance sheet continue to grow?
Speaker Change: Yeah, I think on the, so if we think about the security side, we're seeing around $60 million of cash flows off that quarter right now, and we're not redeploying that back into the security portfolio. The only thing we're purchasing from security portfolios for CRA purposes.
Speaker Change: and so the expectation is that we would see kind of a continued rotation out of the security portfolio and use those funds to help drive the loan growth and fund the loan growth.
Speaker Change: But I will say we're also, David Rulisch, we're not currently planning on any larger security sale or any kind of loss sale at this point in time. We continue to look at that. We'll be flexible of market conditions change or if we think there's an opportunity there but that's not a strategy we're looking at currently.
Thank you everybody.
Thank you, David.
Speaker Change: Thank you. The next question goes to you, Andrew Liesch of Piper Sandler. Andrew, please go ahead.
Andrew Leash: Thanks. Good morning. Really helpful information here on the tariff. I really appreciate it. You know, Capitol continues to be a strength for Banner.
Speaker Change: I guess how should we look at a capital going forward? Is there an appetite to buy back stock with the stock down here? Do you want to retain it for uncertainty? Mark, you just update your thoughts on your capital plans. [inaudible]
Speaker Change: Thanks, Andrew. It's Rob. So, yeah, I mean, we always talk about our number one priority is the core dividend and maintaining that core dividend, which continues to be at a conservative payout ratio.
Speaker Change: Over time, as EPS continues to increase, we would look at kind of increasing the core dividend at some point in time as well.
Speaker Change: We do have that share authorization, which you just mentioned there in place right now. We have an executed on that. It is something that we continue to consider.
Speaker Change: and certainly with the stock price being down just to, you know, overall market volatility and makes it more attractive, certainly. I would say the other thing that's out there right now that's probably one of the top things on a radar right now is we do have that $100 million of the subgett out there right now.
Speaker Change: and it moves from a fixed rate to a variable rate on July 1st, and so we're currently considering whether we repay that or whether we look at replacing that, so that's probably one of our top capital priorities right now.
Speaker Change: Got it. And then any sort of change in M&A conversations over the last couple months?
Speaker Change: I would say, take you, Andrew, it's Mark. Let me just follow up on Rob's comment. Our philosophy has always been to...
Speaker Change: I'm trying to have this fortress type of balance sheet and I feel like we're there and there'll be an opportunity to deploy excess capital as we see more clarity in market conditions.
I think the conversations, as they exist with M&A,
Speaker Change: They continue to occur, but obviously the current volatility has caused everybody to take a step back and decide.
Speaker Change: You know, how do we proceed going forward? What does a credit metrics look like? What do the capital positions look like?
Speaker Change: There is favorability on the regulatory side, which I'm encouraged by, but I think just given the pullback in valuations.
Speaker Change: in the current market. I think we're going to have to ride that out to see where it lands.
Speaker Change: Got it. Very helpful. I always appreciate your insights. I will step back. Thanks.
Thank you, Andrew.
Speaker Change: Thank you the next question. Go to your Andrew Terrell of Stevens, Andrew Pete, go ahead.
A. Good morning.
Speaker Change: Good morning, Andrew. Good morning. If I could just go back to the margin, just to maybe, you know, summarize some of the discussion around the margin. I mean, it sounds like, you know, in a...
Speaker Change: In an environment where the Fed is not cutting rates, you've got pretty decent, loan repricing opportunity, and then maybe that if we do get rate cuts that that falls out but then you've obviously got
Speaker Change: Room to further cut deposit costs. It sounds like no matter either of those outcomes, the progression throughout the year on the margin should be higher from here, correct?
Speaker Change: Yeah, I think as long as it's either Fed on pause or Fed gradually decreasing rates, that would be correct. I think the one scenario where we would see some margin compression is if the Fed got very aggressive on reducing rates.
Yeah, okay.
Speaker Change: Got it, so not only negative, just a more material rate got, okay, and then I'll just ask you, we talked about this a while back, but just, you know, line of sight to a 4% margin when I when I asked you that question previously, I think we were. [inaudible]
Speaker Change: 30 basis points or so away, but you close that gap pretty quickly. I guess, you know, thinking of those kind of ranges of outcomes on the margin to the feel feasible, you can kind of pass 4% on the NIMM in 2025.
Speaker Change: Yeah, I don't, I guess I'm not, I'm not prepared to give a timeline on when we're going to cross the 4% level but...
Speaker Change: I mean, clearly, if you look at it historically, we have been about 4% and I think under the right market conditions we can get back there again.
Speaker Change: and we continue to see the fairable market conditions that would allow that and we see that expansion each quarter, then eventually I think we would get there, yeah.
Okay.
Speaker Change: Like last quarter, we talked about 100 million or so run rate being a good base to build off of in 2025 with normal inflationary growth. Just wanted to check in any thoughts, change on expenses. How should we think about quarterly progression as we move throughout the year on the expense base?
Andrew Liesch, Mark Grescovich
Speaker Change: Yeah, I mean expense has always moved around a bit quarter to quarter so it's not unusual to see a swing of a couple million dollars up or down. But if I just think about the run rate we saw in the first quarter, I think that's probably a decent run rate that we would expect if you annualize that for 2025.
Speaker Change: Perfect. Thank you for taking the questions in the next quarter.
Thank you, Andrew.
Speaker Change: Thank you the next question goes to Kelly Motta of KBW Kelly P's go ahead.
Kelly Mota: Hey, good morning. Thanks for the question. Most might have been asked and answered at this point.
Kelly Mota: I just wonder if this last quarter were a good indication of the tax rate for the year and are there any upcoming tax-cutting investments or anything at nature that we should factor into the model.
Speaker Change: Kelly, it's Rob. So yeah, I think the current quarter tax rate is probably a pretty good judge on what we would see for the year at this point.
Speaker Change: I got it, helpful. Last one for me, I know part of Banner Forward Initiative were...
Speaker Change: Developing some sorts of key revenue just wondering if you could provide now an update on your outlook for fees. It looks like maybe.
Speaker Change: The P.S. and Service Charge line was down a bit. I'm assuming that was activity based, but if you could provide some color around that, that would also be helpful. Thank you.
Speaker Change: Sure, I think if you look at Q1 and you just back out the bully claim that we have there, that's probably a decent run rate for...
Speaker Change: for 2025. And, you know, if you think about mortgage rates...
Speaker Change: You know, when Morty Drates, the third year dipped down to six and a half percent, we saw some pickup and activity there, but then now that's back over seven percent, we see some slow down there so.
Speaker Change: Mourage Banking is really going to be driven by the race ultimately there and...
Speaker Change: So it will be at the headwinds of what are the rate environment is.
Speaker Change: The one item that we have been building out of our time has been that SBA gain-on-lone cell business line that we have.
Speaker Change: and we have seen some pick up there so in Q1 the gain on loan sale from SBA was around 800,000 and the run rate for last year was around 400,000.
Speaker Change: So we would expect that if we continue to see that business line grow that we would continue to get some benefit from building that out.
Speaker Change: Got it. That's helpful. Thanks again for the questions. Really nice quarter off of that.
Thank you, Kelly.
Speaker Change: Thank you and as a reminder, if you would like to ask a question, please press staff, flip by one on a telephone keypad.
Speaker Change: The next question, go to Kim Coffey of Janey. Kim, please go ahead.
Kim Coffey: Thank you. More on everybody and thank you for the opportunity to ask a question or two.
Mark, I can start with you.
Kim Coffey: What is your outlook for the economy right now? Is it just anything more severe than just a potential growth slowdown?
Kim Coffey: I do think that if we continue on the progress that we're making right now on the...
Kim Coffey: As you know, the self-inflicted wound on tariffs, I think there's quite a bit of uncertainty in the economy right now [inaudible]
Kim Coffey: and I'm a little bit more pessimistic than most, that I think we're going to continue to see a slowdown, which is why over 2024 we build our balance sheet into a fortress-style balance sheet.
Kim Coffey: The positive for us is there's a lot of market disruption that occurs in our footprint.
with some of the banks that have combined or...
Kim Coffey: are still struggling or over-lent, and it's providing us good opportunity to take market
Kim Coffey: I'm going to slow here, but I feel very positive that we're in a great position to take market share.
Okay.
Speaker Change: And just a question about the defense spending in your footprint, right? I mean, there's a lot, it's hard to make those cuts to support facilities for nuclear submarines and aircraft carriers, and that's big in the Puget Sound Area and San Diego. Do you think that embedded levels will help those economies and the markets that you're in there, more than others? [inaudible]
Jill Rice: I think that's an excellent question to him, Jill, if you want to talk about some of the investments that's being made.
in the sub-base.
Thank you.
Speaker Change: Yeah, you know, I think Sub-Based Banger, Puget Sound Mable Shipyard, the San Diego Shipyard, I think him you hit it, those are going to be areas that are continuing.
to support and bolster those communities.
Thank you.
Speaker Change: Negative implications in terms of those cuts. So, you know, it really is going to be...
community-like community-specific as to the lift.
Speaker Change: to the economy supported by the federal government as the way I would respond to that. I don't know Mark if you would add anything else to that. I think I think you're I think you hit it right on the head, right? But you know it's right now they are going to have to continue to support it the fleet.
Speaker Change: and as there's more geopolitical issues that occur throughout the world, they're going to have to continue to support this lead. So I think there'll be some additional investment into a lot of these areas that support it, right?
Speaker Change: So, that's a positive. I think it's more insulated than we think.
Speaker Change: Okay, I appreciate that. And then this kind of marks about, can you think about it on a special dividend and just kind of what you think about it, just holistically, totally unrelated to the previous two questions. But how do you think about a special year in cash dividend?
Speaker Change: Hey, Jim, it's Rob. So, yeah, I mean, as you know, we have done special dividends in the past and so it's certainly a tool and a toolkit that we might use to manage capital levels.
Speaker Change: I would say it's probably lower on our priority right now as far as using a special dividend. You know, I think there's probably some other opportunities we have that would be a better way to play capital currently, but it's not something we're really now either.
Speaker Change: I appreciate that Rob, thank you. And then Jill, I know you've asked to answer a couple of questions on Terrace, but I've got two more for you. The first one is, as you're collecting financials from CNI borrowers, are you seeing anything in those financials that give you pause?
Speaker Change: That's a pretty broad question, when you think about the B&I borrowers, I mean...
Speaker Change: So hitting this certainly there are things that give us pause. You're seeing take health care, I guess, as one example where you're seeing.
Speaker Change: and increased costs that are not being offset by the top-line revenue in some cases, especially in that not-for-profit healthcare side of the equation.
Speaker Change: So the kind of hard to answer their specific case by case, but yeah there are things that make a step back and go okay, how are they going to...
Speaker Change: to counter that. What's the solution to that, whether it's expense control or demand and revenues slipping?
Speaker Change: Michael Haldon, I should have made it a little more general. Are you seeing anything changes year over year that indicate a slowdown in your footprint?
No.
Okay, all right. It's still early on, it's still early.
Andrew Liesch, Mark Grescovich.
Speaker Change: Yeah, I, of course, it is, all right. And it's given kind of the overall outlook right now. Jill, have you increased any kind of oversight on the retail of theory book?
Speaker Change: No, we haven't changed the way we managed the portfolio, but I would suggest that we have been pretty hands on.
Speaker Change: from the get-go through all business cycles. We have this process that is pretty deep and thorough, full-ed review on a quarterly basis to just make sure we're all on the same page as to what's happening across B.
General Footprint.
Yeah.
All right, those are my questions. Thank you very much
Thanks, Tim.
Speaker Change: Thank you, we have a follow up from David Feaster of Raymond James. David, please go ahead.
David Feaster: Hey, thank you everybody. Just one quick follow up on California. You've got a lot of success there with the past several quarters on both.
David Feaster: Loans into pods. I'm just kind of curious what you're seeing in that market. I think it's somewhat underappreciated, but curious where you're having success and your thoughts on California and what's driving that growth. Thank you very much.
David Feaster: and Lone Van the Palsies. So we feel really good about that market and what they have been doing and would expect us to continue to grow.
David Feaster: Certainly, you're seeing some growth in the affordable housing construction that's been booked previously and funding up as well, but
The short answer is, good talent added to the team.
Okay, all right, thank you.
Thank you, David.
Speaker Change: Thank you. We have no further questions. I'll hand the call back over to Mark for any closing comments.
Mark Grescovich: Thank you. As I stated, we're very proud of the Banner team and the first quarter of 2025 performance that we had.
It's a great way to kick off the year.
Mark Grescovich: Even though there's quite a bit of uncertainty out there, we feel very confident.
Our position to continue to grow the bank
Mark Grescovich: and the strength of our balance sheet and our core earnings power. So thank you for your interest in for joining the call today. We look forward to reporting our results to you in the future. Thank you everyone and have a wonderful day.
Andrew Liesch, Mark Grescovich, David Feaster,
Mark Grescovich: Thank you, this now concludes today's call. Thank you for joining, you may now disconnect your lines.
Speaker Change: Andrew Liesch, Mark Grescovich, David Feaster, Kelly Motta