Banner Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
October 16, 2025

Key Takeaways

  • Positive Sentiment: Banner reported strong Q3 results with net income of $53.5 million ($1.54 EPS), core pre-tax, pre-provision earnings of $67.8 million, a 4% increase in the core dividend, and a $250k share repurchase.
  • Positive Sentiment: The balance sheet strengthened as deposits rose $489 million (core deposits now 89% of total), borrowings were cut by $459 million, and the loan-to-deposit ratio stood at 84%, leaving ample capacity to fund growth.
  • Positive Sentiment: Credit metrics remain healthy: delinquent loans 0.39%, adversely classified loans 1.49%, NPAs 0.27% of assets, and an allowance of $159.7 million (1.36% of loans); management still expects mid-single-digit loan growth for the year.
  • Negative Sentiment: Margin risk noted — NIM was 3.98% this quarter but management warns multiple Fed cuts could cause moderate NIM compression because ~29% of loans are adjustable and modeled deposit beta is ~28%.
  • Negative Sentiment: Execution headwinds from back-office consolidation continue, with lease termination and related occupancy costs recurring over the next few quarters (management expects these costs through mid-2026), pressuring non-interest expense in the near term.
AI Generated. May Contain Errors.
Earnings Conference Call
Banner Q3 2025
00:00 / 00:00

There are 10 speakers on the call.

Speaker 1

Hello everyone, and thank you for joining the Banner Corporation Third Quarter 2025 Conference Call and Webcast. My name is Claire, and I will be coordinating your call today. During the presentation, you can register a question by pressing * followed by 1 on your telephone keypad. If you change your mind, please press * followed by 2 on your telephone keypad. I will now hand over to Mark Grescovich, President and CEO of Banner Corporation, to begin. Please go ahead.

Speaker 5

Thank you, Claire, and good morning, everyone. I would also like to welcome you to the Third Quarter Earnings Call for Banner Corporation. Joining me on the call today is Rob Butterfield, Banner Corporation's Chief Financial Officer, Jill Rice, our Chief Credit Officer, and Rich Arnold, our Head of Investor Relations. Rich, would you please read our forward-looking safe harbor statement?

Speaker 8

Sure, Mark. Good morning. Our presentation today discusses Banner's business outlook and will include forward-looking statements. 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. 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 is available from the earnings press release that was released yesterday and the most recently filed Form 10-Q for the quarter ended June 30, 2025. 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.

Speaker 5

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 third quarter performance. Second, the actions Banner continues to take to support all of our stakeholders, including our Banner team, our clients, our communities, and our shareholders. Third, Jill Rice will provide comments on the current status of our loan portfolio. Finally, Rob Butterfield will provide more detail on our operating performance for the quarter, as well as comments on our balance sheet. Before I get started, I wanted to thank all of 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 135 years.

Speaker 5

Our overarching goal continues to be to do the right thing for our clients, our communities, our colleagues, our company, and our shareholders, and to provide a consistent and reliable source of commerce and capital through all economic cycles and change events. I am pleased to report again to you that is exactly what we continue to do. I'm very proud of the entire Banner team that is living our core values. Now, let me turn to an overview of our performance. As announced, Banner Corporation reported a net profit available to common shareholders of $53.5 million or $1.54 per diluted share for the quarter ended September 30, 2025. This compares to a net profit to common shareholders of $1.30 per share for the third quarter of 2024 and $1.31 per share for the second quarter of 2025.

Speaker 5

Our strategy to maintain a moderate risk profile and the investments we have made and continue to make in order to improve operating performance have positioned the company well for the future. The strength of our balance sheet, coupled with the strong reputation we maintain in our markets, will allow us to manage through the current market uncertainty. 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-provision earnings, excluding gains and losses on the sale of securities, changes in fair value of financial instruments, and building and lease exit costs. Our third quarter 2025 core earnings were $67.8 million, compared to $62.5 million in the prior quarter, and $57.4 million in the third quarter of 2024.

Speaker 5

Banner's third quarter 2025 revenue from core operations was $169 million, compared to $163 million for the prior quarter and $154 million for the third quarter of 2024. We continue to benefit from a strong core deposit base that has proved to be resilient and loyal to Banner, a very good net interest margin, and core expense control. Overall, this resulted in a return on average assets of 1.3% for the third quarter of 2025. Once again, our core performance reflects continued execution on our supercommunity bank strategy, that is, growing new client relationships, maintaining our core funding position, promoting client loyalty and advocacy through our responsive service model, and demonstrating our safety and soundness through all economic cycles and change events. To that point, our core deposits continue to represent 89% of total deposits.

Speaker 5

Further, we continued our solid organic growth with loans and core deposits both increasing 4% over the same period last year. Reflective of this solid performance, coupled with our strong regulatory capital ratios and the fact that we increased our tangible common equity per share by 9% from the same period last year, we announced an increase of 4% in the core dividend to $0.50 per common share. Finally, I'm pleased to say that we continue to receive marketplace recognition and validation of our business model and our value proposition. Banner, again, was named one of America's 100 best banks and one of the best banks in the world by Forbes. Newsweek named Banner Bank one of the most trustworthy companies in America and the world again this year, and just recently named Banner one of the best regional banks in the country. J.D.

Speaker 5

Power and Associates named Banner Bank the best bank in the Northwest for retail client satisfaction. Our company was also recently certified by Great Place to Work, and S&P Global Market Intelligence ranked Banner's financial performance among the top 50 public banks with more than $10 billion in assets. Additionally, the Kroll Bond Rating Agency affirmed all of Banner's investment-grade debt and deposit ratings. As we've noted before, Banner Bank received an outstanding CRA rating. Let me now turn the call over to Jill to discuss trends in our loan portfolio and her comments on Banner's credit quality. Jill?

Speaker 1

Thank you, Mark, and good morning, everyone. As reported, our overall credit metrics remain strong. Delinquent loans improved slightly and now represent 0.39% of total loans, down two basis points from the linked quarter and compared to 0.40% reported as of September 30, 2024. Adversely classified loans declined by $16 million quarter over quarter and now represent 1.49% of total loans, down 13 basis points from June 30, and our total non-performing assets, down $4.5 million, represent a modest 0.27% of total assets. Loan losses in the quarter totaled $3.2 million and were offset in part by recoveries totaling $1 million. The net provision for credit losses for the quarter was $2.7 million, including a $1.4 million provision for loan losses and a $1.3 million provision related to unfunded loan commitments.

Speaker 1

After the provision, the allowance for credit losses totaled $159.7 million and provide coverage of 1.36% of total loans, which compares to 1.37% as of the linked quarter and 1.38% as of September 2024. After recording very strong second quarter loan growth, I indicated that we expected a pullback this quarter. As anticipated, loan originations were $172 million lower than that reported for the quarter ending June 30. Additionally, new production was offset by material payoffs and paydowns on adversely classified relationships, as well as reduced commercial line utilization and a small handful of anticipated commercial real estate and CNI payoffs. Still, portfolio loan balances, while basically flat when compared to the linked quarter, remain up 4% year over year.

Speaker 1

The decline in the commercial construction portfolio reflects the net effect of additional construction advances offset by the transition of both completed owner-occupied and investor real estate projects to the permanent portfolio. The residential construction portfolio, at 5% of total loans, continues to be diversified across markets and product mix. While days on market have increased again slightly this quarter, the level of completed and unsold inventory continues to remain below historical norms. Consistent with prior quarters, the total construction portfolio remains balanced at 15% of total loans when you aggregate all business lines. The decline reflected in CNI is driven in part by reduced loan utilization, down 2% quarter over quarter, as well as the previously mentioned exiting of adversely classified relationships. The decline was offset in part by continued growth in the small business segment, up 8% year over year.

Speaker 1

As expected, agricultural balances increased again this quarter due to line utilization, up 3% compared to last quarter and up 2% year over year. Lastly, I will just note that commercial pipelines remain solid. Fourth quarter loan growth is typically strong, and we expect the same to be true this year. As such, we still anticipate reporting a mid-single-digit growth rate for the full year. Banner's moderate risk profile, with stable and strong credit metrics, remains a significant source of strength. With that, I will hand the microphone over to Rob for his comments. Rob?

Speaker 2

Great. Thank you, Jill. We reported $1.54 per diluted share for the third quarter, compared to $1.31 per diluted share for the prior quarter. The $0.23 increase in earnings per share was primarily due to an increase in net interest income, a lower provision for credit losses, as well as the current quarter including a gain of $1.4 million on the disposal of assets, while the prior quarter included a loss of $919,000 on the disposal of assets. We experienced strong positive operating leverage during the quarter compared to both the prior quarter and the quarter ended September 30, 2023, as core pre-tax, pre-provision income increased 8.5% or $5.3 million compared to the prior quarter and increased 18% or $10.4 million compared to the year-ago quarter.

Speaker 2

Held for investment loan balances increased $12 million from the prior quarter as pipelines rebuilt after the strong pull-through we experienced in the second quarter. In addition, we saw higher prepayments in the third quarter. The loan-to-deposit ratio ended the quarter at 84%, giving us ample capacity to continue to add new clients. Total securities decreased $56 million due to a combination of normal portfolio cash flows and some securities being called early. Deposits increased by $489 million during the quarter, primarily due to core deposits increasing $426 million, as well as time deposits increasing $63 million during the quarter. Core deposits ended the quarter at 89% of total deposits. Total borrowings decreased $459 million during the quarter, as the growth in deposits was used to pay off short-term FHLB advances.

Speaker 2

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. As a reflection of our robust capital and strong liquidity positions, Banner repurchased 250,000 shares during the quarter and announced a 4% increase in its declared dividend to common shareholders. Net interest income increased by $0.6 million from the prior quarter due to a six basis point increase in net interest margin, as well as average earning assets increasing $151 million and one more interest-earning day in the current quarter. The increase in average earning assets was due to average loan balances increasing $33 million and total average interest-earning cash and investment balances increasing $118 million. Ex-equivalent net interest margin was 3.98% for the quarter compared to 3.92% for the prior quarter.

Speaker 2

Earning asset yields increased three basis points due to a five-basis point increase in loan yields, as adjustable rate loans continue to reprice higher and new loans are being originated at rates higher than the average yield on the loan portfolio. The average rate on new loan production for the quarter was 7.35% compared to 7.27% for the prior quarter. Funding costs decreased by three basis points as a result of using the increase in deposit balances to reduce higher costing borrowings. Deposit costs were 1.50% for the quarter, which was three basis points higher than the prior quarter, as the deposit growth during the quarter was mostly in interest-bearing accounts. Non-interest-bearing deposits ended the quarter at 33% of total deposits.

Speaker 2

Total non-interest income increased $3 million from the prior quarter, primarily due to the current quarter including a gain of $1.4 million on the disposal of assets, while the prior quarter included a loss of $919,000 on the disposal of assets. Both of these related to back-office consolidation. In addition, the current quarter had a net gain of $377,000 on security sales and a positive fair value adjustment of $223,000 on financial instruments carried at fair value. Total non-interest expense was $674,000 higher than the prior quarter, with increases in marketing and pool A related expense, occupancy expense, and business and use tax, being partially offset by a lower salary and benefit expense. The current quarter occupancy expense included $1 million of lease termination costs associated with the back-office space consolidation, compared to $834,000 in the prior quarter.

Speaker 2

Our strong capital and liquidity levels position us well to continue to execute on our supercommunity bank business model. This concludes my prepared comments. Now I will turn it back to Mark.

Speaker 5

Thank you, Jill and Rob, for your comments. That concludes our prepared remarks. Claire, we will now open the call and welcome questions.

Speaker 1

Thank you. To ask a question, please press * followed by 1 on your telephone keypad now. If you change your mind, please press * followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. We have our first question from Jeff Rulis from DA Davidson. Jeff, your line is now open. Please go ahead.

Speaker 1

Thanks. Good morning. We wanted to check in on the margin. I guess kind of a two-part question is the first, kind of the timing of those FHLB payoffs. I mean, I guess I'm kind of centering on, is there a tail of benefit that came later in the quarter in terms of the go-forward margin? Maybe just checking in on, Rob, maybe the impact of rate sensitivity as you see the cut we had and the expected cuts ahead.

Speaker 8

Sure, Jeff. On the first part of it, we started to see the deposits come in fairly early in the quarter. I would say probably FHLB advances were paid down to their ending level about halfway through the quarter. There could be a little bit of additional benefit there from just an overall funding cost standpoint. If I think about the impact of the Fed rate cuts on our margin overall, the story is kind of the same that we've been talking about. Essentially, in a quarter where there's no Fed actions at all, we would expect margin to expand like we saw in the second or the third quarter here as those adjustable rate loans continue to reprice up. In general, absent what we saw as far as the paydown of borrowings, we would expect funding costs to be relatively flat.

Speaker 8

If the Fed does one rate cut in a quarter, then we're expecting that our margin would be relatively flat. It doesn't mean it can't be plus or minus a basis point or two, but relatively flat overall. If you think about the fourth quarter here, we have the rate cut in September. The market and Moody's, who we use for interest rate forecasts, is forecasting another cut at the end of October and then a third cut in the middle of December. Under that scenario, where we have essentially multiple rate cuts in one quarter, we would expect some margin compression in that quarter. Moderate in nature, but we would expect because we will have those adjustable rate loans that are 29% of our portfolio. Those will essentially reprice down.

Speaker 8

As soon as the Fed cuts and we want that second rate cut, we won't have necessarily the benefit of the adjustable rate loans repricing up because that's already offsetting the first rate cut. We will get some improvement in funding costs, obviously, because we will take some additional deposit rate reductions, but it won't be enough to offset the full impact of the variable floating rates repricing down.

Speaker 8

Appreciate it. Thanks, Rob. Did you have a September average for the margin?

Speaker 8

The margin was pretty flat. I would say September margin was really close to what we saw for the quarter.

Speaker 8

Got it. Okay. Mark, I guess just checking in on capital on several fronts. You're pretty active with the dividend and the buyback. The first question is sort of the sensitivity on price. I mean, I think you're just below where you were on average, the buybacks in the third quarter. Checking in on buyback activity or appetite versus also the ongoing question on the M&A side, if you'd care to opine on your interest there. Thanks.

Speaker 5

Thank you, Jeff. Look, I think it's pretty evident that we thought we were confident in repurchasing shares at an average rate of $63.50, that the current pricing structure would suggest that we would be confident in continuing to repurchase shares. We continue to build capital. Our TCE ratio at 9.5%. We're continuing to build capital. The company's earnings momentum is very strong. Obviously, there's some momentum with M&A. I would think that if an opportunity presented itself, we would certainly be in a position to combine and do some additional fill-in acquisitions. Again, my philosophy on this is I don't think we need to do anything. I think the earnings performance that we've demonstrated this quarter and will continue to demonstrate suggests we don't need to do an acquisition to have improved earnings power.

Speaker 5

To the extent that there's an opportunity that presents itself, I think it would be a great combination, and we have ample capital to accomplish that.

Speaker 5

Got it. Thanks, Mark. I'll step back.

Speaker 8

Thanks, Jeff.

Speaker 1

Thank you. Our next question comes from Kelly Motta from KBW. Kelly, your line is now open. Please go ahead.

Speaker 1

Hi. Thank you so much for the question. I might just follow up in terms of how you guys are thinking about the buyback. Notably, this was one of the first quarters you guys have repurchased shares in quite a while. Wondering if you can remind us any sort of like what you look at in terms of valuation, how you guys are viewing the buyback. It seems like the door to M&A is open. Just wondering how we should be thinking through greater activity on that versus keeping dry powder ahead. Thanks.

Speaker 5

Thank you, Kelly. Rob, would you like to address that?

Speaker 8

Sure, Mark. Yeah, Kelly, I mean, we're always looking at the different alternatives for capital deployment. You saw at the end of the second quarter where we essentially paid off the $100 million of sub debt out there, and then the current quarter where we had the repurchase of the 250,000 shares and also announced the increase in our core dividend by 4%. I think the range that you saw in this current quarter as far as share repurchases, certainly that's a price where we think it's attractive and beneficial to shareholders, and the tangible book value earned back makes sense. I think we could extend a bit above where that's at right now. As we look at the fourth quarter, we'll look at all the different alternatives for capital deployment, which clearly the share repurchases is on the table.

Speaker 8

We do have the share repurchase authorization in place right now that would allow us to continue to do that. Ultimately, it's going to be based on an assessment of the market conditions and what's going on in the market at the time. Right now, we are in a blackout period, so we wouldn't consider that until after we're out of our blackout period.

Speaker 8

Got it. That's helpful. Maybe turning to the balance sheet, your deposit growth was really strong, and you were able to pay down some of that FHLB advances that you backfilled last quarter in the prior quarter. Just wondering if you could let us know if there was any, what was the drivers of that, if you were running any specials, and how you guys are thinking through deposit pricing here after the Fed's cut in September.

Speaker 8

Yeah. A couple of things. If you look back even last year, Q3 is our strongest growth from a deposit standpoint, from a seasonality standpoint. That is when the crops come in and the cash comes in from our ag clients. It is a strong quarter for us. We weren't running any particular promotions or specials, just the standard hard work that all of our teams do in going out and trying to get existing clients to bring additional deposits on balance sheet and continuing to prospect for new clients. On the pricing side of things, post-Fed rate cut, we did reduce our advertised CD specials, which, as you know, are generally below market already, but we pretty much took the full 25 basis points in a reduction of the advertised CD rates. We also reduced our high-yield savings account, the different tiers there as well.

Speaker 8

That probably ranged from 5 to 20 basis points depending on what the tier was. We also looked at our exception price clients and took some reduction there as well.

Speaker 8

Got it. Last question for me, if I can just sneak it in related. Your average cash balances were elevated in part in light of the great deposit growth you had. Just wondering how we should be thinking about the liquidity position on balance sheet and just kind of optimizing that. Thanks.

Speaker 8

We were holding throughout the quarter, the majority of the quarter, we were holding more cash on average than we typically would. The way we're thinking about that is, and I'll let Jill talk about loan growth in the fourth quarter here, but in general, we look at that as kind of dry powder we have right now where we can use that cash to fund loan growth in the fourth quarter instead of using any kind of wholesale borrowings.

Speaker 8

Great, thank you. I'll step back.

Speaker 1

Thank you. Our next question comes from David Feaster from Raymond James. David, your line is now open. Please go ahead.

Speaker 1

Hey, good morning, everybody.

Speaker 5

Good morning, David.

Speaker 5

I wanted to maybe touch on the competitive landscape a bit. You know, originations declined a bit quarter over quarter. Obviously, there's some noise. I'm curious, you know, what in your mind drove the decrease in originations? Is that just weaker demand or slower pull-through in the pipelines, or is there more competition? You know, we're hearing more competition from especially the larger banks that are moving down market a bit, and that's leading to some pricing competition. Just kind of curious what you're seeing on the demand side. You know, obviously, reiterated the mid-single-digit loan growth guidance, but just hoping you could touch on again what you're seeing on the demand, originations, and the competitive landscape.

Speaker 3

Sure, David. I think I'm pretty consistent in the message that the competitive landscape is not really unchanged. We're competing all the time for all of the deals that we book. Certainly, there are players who are coming back in, offering some maybe different terms than we would, but by and large, the competitive landscape is the same. I would suggest that the decline in originations this quarter was multifaceted, right? We had that really strong pull-through in the second quarter. Our pipelines have built and are continuing to build. They're really strong going into the fourth quarter. The reaction to the 25-basis-point rate cut was really rather muted on the credit side, where people were saying, "Great, but when's the next one coming?" expecting a little bit more. I think as we start to see that, it will pull some of the fourth-quarter pipeline through a little bit faster.

Speaker 3

The fourth quarter is generally a strong quarter for us. I feel like I missed one piece of your question there, David. It was competition, it was pipeline, and did I get it, or is there something else?

Speaker 3

Yeah, that was pretty much it. I guess maybe just following up on that, like the competitive landscape, maybe touching on, you know, you got two sides of it. We're here, mostly the competition has been on the pricing side. Is that, I guess, where are you seeing new origination yields and spreads? Have you started to see that stretch the competitive landscape, maybe stretch more into underwriting and the structures and standards, or has that held up pretty well from your standpoint?

Speaker 3

Mostly held up well. I mean, we are seeing a little bit more stretching in terms of ask for longer interest-only periods while people wait for rate cuts to come down and take that term, you know, P&I, amortizing loan structure. There is that ask, and I think some of the banks are more inclined to give longer terms than we would be. Generally, you know, the underwriting is holding up.

Speaker 3

Okay. Maybe just last one for me. When you prepared to, Mark, you talked about, and even some of the commentary at the beginning of the call, you talked about the strategic investments that you guys have been making, paying off, and generating some pretty meaningful returns. I'm curious if you could touch on maybe where you're seeing the most benefit from those investments, where you're investing currently, whether it be technology, is it new talent? There's obviously been a lot of disruption around you, expansion plans or investment into other business lines. Just kind of curious where your strategic investments have, you're starting to see some of the fruits pay off, and then where are you investing currently, and what are you excited about on the horizon?

Speaker 5

Rob, I'd like to address some of our investment, and then Jill, if you want to talk about some of the talent we've added.

Speaker 8

Sure. Sure, Mark. David, we've talked about some of the investments we're making. I would say the largest investments we're making is on the technology side. We've talked about the new deposit and loan origination system, which went live with the initial modules earlier this year, and we expect the rest of the modules to go live here in the fourth quarter. The way we're thinking about that is that it'll provide the organization with additional scalability, allowing us to grow loans and deposits into the future with adding less expenses into it. We think the payoff for that is a longer-term payoff. Initially, anytime you implement a new system, of course, your expenses are typically going to go up temporarily related to it. Over time, you'll get those efficiencies and be able to have that scalability.

Speaker 8

Other areas that we continue to invest in is fraud-related technology, which, you know, we've talked about multiple times that our fraud costs outpace our credit losses. Fraud is something you're continuing to look at. You know, like everyone, AI is on top of mind on everyone as part of our moderate risk profile. We spent probably the beginning of it doing a lot of governance-related activities, making sure that we were not taking any additional risk for the organization if we were going to implement different types of AI. As we've been heading down that path, we've started to implement or turn on different AI features on existing software and technology that we have right now. We're also working on kind of a longer-term strategic AI roadmap right now as well. When we think about AI, we don't think about it as immediate cost reductions.

Speaker 8

We think about AI as being a longer-term investment that will give the scalability to the organization. Jill, anything on the talent side?

Speaker 3

Yeah. The talent story is, David, the same as before in that we continue to add talent in the commercial and commercial real estate teams up and down the West Coast primarily this quarter. We've added team leaders, RMs, commercial real estate lenders as well. They're coming from different organizations that are experiencing, whether it's changes in the management structure and/or just an overall feel that the way Banner is operating open for business, you know, that they just resonate with our current operating model.

Speaker 3

Got it. That's helpful. Thanks, everybody.

Speaker 1

Thank you. Our next question comes from Andrew Terrell from Stephens. Andrew, your line is now open. Please go ahead.

Speaker 1

Hey, good morning.

Speaker 5

Morning, Andrew.

Speaker 5

Morning. Rob, if I could start, just maybe a question on deposit costs. I'd love to hear maybe some color on just your approach. I heard moving some of the promotional rates down, some of the exception pricing down following the 25 bps from the Fed. I'm curious from a magnitude perspective how you're approaching the rate cuts this time versus the 100 bps we got late last year. Are you approaching the cuts magnitude-wise similarly to last year and trying to get at, ultimately, from a beta perspective on interest-bearing deposits, would you expect something similar this go around to the first 100 bps, or do you feel like client behavior has changed or gotten more sensitive at all?

Speaker 5

Rob, are you there?

Speaker 8

Sorry, Mark. Yeah. So Andrew, I guess what I'd start with is from a modeling perspective, we're modeling a 28% deposit beta. From an overall, what we're expecting on this set of rate cuts compared to last time, right now, our expectation is that we would get a similar deposit beta that we got last time on it. That deposit beta is always lagged. We take an initial cut at it and reduction, and then we evaluate what we're seeing in the marketplace and determine if we can layer in some of the additional rate reductions related to that. It's generally a lag impact. The other piece of it, of course, is your CD book. The CD book doesn't reprice right away. Even though we've reduced our advertised specials by 25 basis points, it takes some time for that to flow through.

Speaker 8

Probably about two-thirds of our CD book usually typically matures within a six-month period of time. It'll take a little bit for us to see the impact on the CD side of things.

Speaker 8

Understood. I appreciate it. Just on the kind of customer sensitivity, do you feel like that's changed much relative to prior experiences?

Speaker 8

We haven't seen that at this point. I mean, we implemented the reduction in rates shortly after the Fed made their move in September, and we haven't received any kind of feedback from clients necessarily as far as their sensitivity to that deposit cut. Keep in mind, a lot of our largest depositors are commercial depositors, and those same clients saw a reduction in some of their loans at the same time. They're seeing kind of a benefit on one side of it, even if they're getting a reduction on what we're paying them. I think they're sophisticated enough to understand that as rates come down, the rate that they're earning on their deposits, all market deposit rates are going to come down. We haven't seen any unusual sensitivity at this point.

Speaker 8

Okay. Great. I appreciate it. Just thinking kind of overall on the margin, I heard your comments about expectations in a static quarter versus a quarter where the Fed cuts. If I look back over the past year, your margin is up. I think it's right at 25 basis points relative to 3Q of last year. We digested 100 basis points of rate cuts over that timeframe. When I look at the next 12 months, I think consensus margin is up only 6 basis points over the next 12 months. Historically, you've been able to operate in that 4.25% to 4.5% margin range. I guess my two questions are, one, do you feel like the 6 basis points is kind of conservative on the NIM forecasting over the next 12 months? Over the medium term, do you feel like a 4.25% to 4.5% kind of margin range is still achievable?

Speaker 8

Yeah. Andrew, I guess in general, what I'd say is, ultimately, it's going to be dependent on how aggressive the Fed gets and how they approach any kind of reductions. It's a bit hard to predict what they're going to do if you're going at it longer term. At 3.98% right now, I think we're happy to see us approaching 4%. I haven't necessarily considered the idea of getting back to 4.25% or 4.30%. It's going to depend on the Fed actions, but I don't see that as being something. I think if you're saying 6 basis points is what the market's expecting, I think that's a more reasonable number, certainly, than getting up to 4.25% or 4.30%.

Speaker 8

Fair enough. I hope your ankle is doing okay. Thanks for the time. I appreciate it.

Speaker 8

Appreciate it. Thank you.

Speaker 1

Thank you.

Speaker 5

Thanks, David.

Speaker 1

Our next question comes from Tim Coffey from Janney. Your line is now open. Please go ahead.

Speaker 1

Great. Thank you. Good morning, everybody. I had a couple of questions. I want to start with.

Speaker 8

Morning, Mark.

Speaker 8

Hi, Mark. A couple of questions I want to start with Jill. Jill, can you kind of give us maybe a thumbnail sketch or a high-level overview of how the company incorporates monitoring personal guarantees, appraising collateral on an ongoing basis as a way to maintain the solid credit quality you have and have shown over the recent past?

Speaker 8

Sure, Tim. As to reappraising properties, that is not an ongoing annual updated type of action. What we do as we're going into these credits and then through the life of the loan is consider changes to the environment, contemplate changes to cap rates using original appraisals and current operating income, and use that as a basis to test where we think we are, recognizing that the originating loan to values that we go into are generally much lower than some of the other lending institutions out there. We have room for some valuation drops, certainly, where things still continue to work. We also are continually contemplating what might happen to top line and revenue changes. We're stressing the income side. We're stressing the cap rates and that sort of thing to look at the collateral.

Speaker 8

When you go back to guarantees, I would suggest to you that the vast majority, and I'm talking north of 95% of our loans, have personal or corporate guarantees that have significant secondary sources of repayment to backstop losses. Did I get all of your questions?

Speaker 8

That's great. Sorry. I just wanted to clarify, I wasn't so much asking about how often you reappraise the collateral. It's more of how are you ensuring that the borrowers are doing what they told you they were going to do, right? The personal guarantees do that. Monitoring the collateral, for sure, absolutely does that as well. Those are my questions on the topic.

Speaker 3

Sorry.

Speaker 3

Go ahead, Mark.

Speaker 3

I was going to say covenant testing, financial statement. We require ongoing reporting from our borrowers, and then testing covenants is the key there to what are they doing and are they maintaining their properties, annual site inspections, that sort of thing.

Speaker 3

Okay. That's great. That's helpful. My second question for you, Jill, was, when we look at the loan-to-deposit ratio, solidly mid-80s, which is a good number to be at. Is there any thought to taking it higher? Could you see, do you have any line of sight to that loan-to-deposit ratio being higher than 90%?

Speaker 3

We have in the past certainly been higher than that. I would say that, you know, if we were to approach 95%, we'd be okay. I don't think we'd go above that.

Speaker 3

Okay. For Rob, I had a question about kind of the overall deposit pipeline. In parts of the western region, Bay Area specifically, we started to see clients move around, and you started to see deposits start to change. Banks, are you seeing any change in the sales cycle to bring in new deposits? Is it getting shorter? Are you seeing any kind of momentum with long-time bank customers now looking for a new place to deposit their funds?

Speaker 8

Tim, overall, what I'd say is we have a lot of clients that are very loyal to Banner. Our deposit base is one where half of it is what I would call rural in nature, and then half of it is more metro. We have a sticky client base that tends not to want to move around, that values the value of the relationship and the long-term value that we provide. We haven't necessarily seen more movement in clients. We have been successful in adding new clients and bringing those relationships in. Part of that's our focus on small business, which tends to bring in more deposits and loan balances. I still think it's a lot of hard work by our relationship folks to bring in those quality new clients. I wouldn't say it's changed as far as us seeing clients moving from bank to bank in a shorter cycle.

Speaker 8

Okay. The core deposit growth year-over-year has been very strong at Banner. Good job. Mark, I can ask a question about a special dividend. I understand your capital priorities. I understand your comments about M&A. I also see the anticipated capital growth on your income statement over the next, say, 12 months or so. Is it possible that a special dividend could be on the table of discussion this time next year?

Speaker 5

Thank you for the question, Tim. I don't think we rule out any options on capital deployment. We've done special dividends in the past. I would suggest to you that the reason you do a special dividend is to do a blunt force reduction in your capital position. You can do it very quickly and with little execution risk. I don't suspect that is our top priority to do a special dividend. I think our core focus is making sure that we focus on the core dividend itself. We'll continue to deploy capital through share repurchases as appropriate and certainly M&A. We've done special dividends in the past. It's less likely that we will do one going forward unless we really need to reduce capital for some reason.

Speaker 5

Okay. That's great perspective. Thanks, Mark. Those are my questions. Thank you, everybody.

Speaker 5

Thanks, Tim.

Speaker 1

Thank you. We have a follow-up question from Jeff Rulis from D.A. Davidson. Your line is now open. Please go ahead. Jeff, your line is now open. Please go ahead.

Speaker 5

Hello? Hey, Jeff. Mark, can you hear me? I can hear you now, Jeff. Oh, okay. Sorry. Just a follow-up. On the consolidating of office space, I want to kind of see if we're at the tail end of that in terms of, you know, some of the lease termination costs and the gains and losses on that. Is that we're at the tail end of that or kind of continue to nibble away at those as it comes up?

Speaker 8

Yeah. Thanks, Jeff. It's Rob. We'll see a couple more quarters of those back-office consolidation lease termination costs come through. I would say we're going to see it potentially through the middle of 2026, so maybe over the next three quarters, just depending on how quickly we can get through the space that we're exiting. We'll see a few more quarters of it.

Speaker 5

Okay, that was it. Thank you.

Speaker 8

Yep.

Speaker 1

Thank you.

Speaker 5

Thanks, Jeff.

Speaker 1

As a reminder, to ask a question, please press star followed by one on your telephone keypad now. We currently have no further questions, so I will hand back to Mark for any closing remarks.

Speaker 5

Great. Thank you, Claire. As I stated, we're very proud of the Banner team and our third-quarter 2025 performance, even though it doesn't appear that the market is reflecting the value of Banner or some of the other bank stocks, in particular, Banner. We're very proud of our performance and how we are viewing the future of performance for Banner. Thank you for your interest in our company and joining the call today. We look forward to reporting our results to you again in the future. Have a great day, everyone.

Speaker 1

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

Powered by Quartr