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Hello, everyone, and welcome to the Banner Corporation's First Quarter 2025 Conference Call and Webcast. My name is Nadia, and I will be coordinating the call today. [Operator Instructions].

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. I would also like to welcome you to the first quarter earnings call for Banner Corporation. Joining me on the call today is Rob Butterfield, Banner Corporation's Chief Financial Officer; Jill Rice, our Chief Credit Officer; and Rich Arnold, our Head of Investor Relations.

Rich, would you please read our forward-looking safe harbor statement?

Sure, Mark. Good morning. Our presentation today discusses Banner's business outlook and will include forward-looking statements. These statements include descriptions of management's plans, objectives or goals for future operations, products or services, forecast of financial or other performance measures and statements about 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-K for the year ended December 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. Mark?

Thank you, Rich. As is customary, Today, we will cover 4 primary items with you. First, I will provide you high-level comments on Banner's first quarter performance. Second, the actions Banner continues to take to support all of our stakeholders, including our Banner team, our clients, our communities and our shareholders. Third, Jill Rice will provide comments on the current status of our loan portfolio and the potential impact due to the trade tariffs. And finally, Rob Butterfield will provide more detail on our operating performance for the quarter as well as comments on our balance sheet.

Before I get started, I wanted to thank all of our 2,000 colleagues in our company who are working extremely hard to assist our clients and communities. Banner has lived our core values, summed up as doing the right thing for the past 135 years. Our overarching goal continues to be to do the right thing for our clients, our communities, our colleagues, our company and our shareholders and to provide a consistent and reliable source of commerce and capital through all economic cycles and change events.

I am pleased to report again to you that is exactly what we continue to do. I am very proud of the entire Banner team that are living our core values.

Now let me turn to an overview of our performance. As announced, Banner Corporation reported a net profit available to common shareholders of $45.1 million or $1.30 per diluted share for the quarter ended March 31, 2025. 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.

Our strategy to maintain a moderate risk profile and the investments we have made and continue to make in order to improve operating performance have positioned the company well for the future. The strength of our balance sheet coupled with our strong reputation we maintain in our markets, will allow us to manage through the current market volatility. Rob will discuss these items in more detail shortly.

To illustrate the core earnings power of Banner, I would direct your attention to pretax pre-provision earnings, excluding gains and losses on the sale of securities and changes in fair value of financial instruments. Our first quarter 2025 core earnings were $59 million compared to $53 million for the first quarter of 2024. Banner's first quarter 2025 revenue from core operations was $160 million compared to $150 million for the first 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 1.15% for the first quarter of 2025. Once again, our core performance reflects continued execution on our super community bank strategy, that is growing new client relationships, maintaining our core funding position, promoting client loyalty and advocacy through our responsive service model and demonstrating our safety and soundness through all economic cycles and change events. To that point, our core deposits continue to represent 89% of total deposits.

Further, we continued our solid organic growth with loans increasing 5% and core deposits increasing 3% over the same period last year. Reflective of this performance, coupled with our strong regulatory capital ratios and the fact that we increased our tangible common equity per share by 13% from the same period last year, we announced a core dividend of $0.48 per common share.

Finally, I'm pleased to say that we continue to 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 one of the most trustworthy companies in America and the world again this year. and just recently named Banner one of the best regional banks in the country. J.D. Power & 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.

Additionally, the Kroll Bond Rating Agency affirmed all of Banner's investment-grade debt and deposit ratings. And as we've noted previously, Banner Bank received an outstanding CRA rating.

Let me now turn the call over to Jill to discuss the trends in our loan portfolio and her comments on Banner's credit quality. Jill?

Thank you, Mark, and good morning, everyone. As reflected in our earnings release, delinquent loans increased again this quarter and now represent 0.63% of total loans. This compares to 0.49% as of year-end and 0.36% as of March 2024. Year-over-year, the increase is the result of the higher interest rate environment and the impact on all segments. Still, in terms of total dollars and as a percentage of total loans, delinquencies remain manageable. Adversely classified loans increased a modest $5 million in the quarter and represent 1.73% of total loans, compared to 1.69% of the linked quarter and 1.07% as of March 31, 2024.

As with the increase in delinquencies, increase in adversely classified assets year-over-year reflects the impact of the current economic cycle with higher operating costs and increased interest expense affecting borrowers. I is worth noting that by borrower, the adversely classified relationships are very granular with an average commitment of less than $1 million. And as I have stated in prior calls, adversely classified loans are not centered in 1 business line or industry.

Nonperforming assets also increased in the quarter, up $3 million and represents 0.26% of total assets, consisting of $39 million in nonperforming loans, $3.5 million in REO and $300,000 in other repossessed assets. Despite the modest deterioration, Standard'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 and proactive portfolio management. Loan losses in the quarter totaled $3.7 million and were offset in part by recoveries totaling $900,000.

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. The provision was driven in large part by quantitative factors, including growth in the construction portfolio, risk rating migration and charge-offs and to a lesser extent, qualitative adjustments that were applied to address economic uncertainty. The reserve for credit losses provides coverage of 1.38% of total loans and compares to 1.37% as of the linked quarter and 1.39% as of March 31, 2024.

Loan originations were down 33% when compared to the linked quarter with the largest decline seen in the commercial and commercial real estate portfolios. These declines are in large part a reflection of heightened client uncertainty slowing prospective transactions. It is worth noting, however, that both commercial and commercial real estate pipelines continue to grow, reflecting a desire to proceed with capital investments when the economy stabilizes. Loan outstandings grew by $84 million in the quarter or 3% on an annualized basis and are up 5% year-over-year, in line with our first quarter expectations.

The primary drivers of the growth were within the construction and development book with multifamily construction up $105 million, land development up $26 million and commercial construction up $24 million. The increases quarter-over-quarter are largely due to draws on previously committed projects and were offset in part by expected payoffs and paydowns within the permanent commercial real estate and multifamily portfolios.

On a combined basis, commercial and small business loan totals declined by $16 million quarter-over-quarter, driven primarily by meaningful paydowns on a handful of larger commercial lines of credit. Total C&I utilization is up 1% in the quarter in spite of those paydowns.

The residential construction portfolio at 4% of total loans is continuing to perform well. We did see a seasonal slowdown in the activity in the quarter. Still, the for-sale product continues to be bolstered by a limited supply of resale inventory and our level of completed and unsold starts remains below historical norms.

Looking at the entire construction portfolio, including residential, commercial and multifamily construction, along with land and land development, the total construction exposure remains acceptable at 15% of total loans. As expected, agricultural loans continue their seasonal decline with balances down $5 million or 2% in comparison to the linked quarter. The consumer mortgage portfolio increased modestly $9 million and consumer loans centered in home equity lines of credit declined $4 million in the quarter.

Before I wrap up, I want to touch on the current operating environment in this time of economic uncertainty. While it is too early to see the impact recent immigration enforcement activities across our footprint have heightened both business and community concerned, especially within our agricultural and border communities.

The significant reduction in Canadian border crossings is negatively impacting businesses in our Northwestern Washington market and if continued, is anticipated to have a meaningful impact to the larger summer tourism industry as well. And more broadly, while the final level and duration of the recently enacted tariffs remains uncertain and the impact is yet to be felt. Tariffs will have a negative impact to West Coast businesses and the local economies.

Given our diverse and granular loan portfolio, we expect the biggest impact to be felt by the small business community, who will be less able to absorb the increased cost, face supply chain issues, reduced demand and the overall general market disruption that the [ cycle has solved ] and of course, the consumer who will ultimately bear the burden of increased prices.

While we wait for clarity regarding the level and duration of the tariffs and begin to see the impact to the general economy from the recent policy changes, we will continue our practice of robust quarterly portfolio reviews and maintain close contact with our borrowers to better understand the longer-term implication to their businesses.

Our moderate risk profile with a diverse and granular loan portfolio the majority of which is supported by strong sponsors, personal guarantees and properly margined cloud support will serve us well as we navigate these uncertain economic headwinds.

I will follow my prepared remarks by reiterating what you have heard from me before. Banner has a strong balance sheet, our reserve for loan losses remains robust, and our capital base is well in excess of regulatory requirements, all of which are designed to sustain us through all business cycles.

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

Great. Thank you, Jill. We reported $1.30 per diluted share for the first quarter compared to $1.34 per diluted share for the prior quarter. The $0.04 decrease in earnings per share was primarily due to 2 fewer interest earning days in the current quarter and higher expenses in the first quarter.

In addition, the prior quarter benefited from some nonrecurring gain on loan sales. Total loans increased $77 million during the quarter with portfolio loans increasing $84 million. partially offset by held-for-sale loans decreasing $7 million. The loan-to-deposit ratio ended the quarter at 84%. Total securities decreased $5 million as normal portfolio cash flows were largely offset by an increase in fair value. Deposits increased $79 million during the quarter due to core deposits increasing $74 million.

Time deposits increased $4 million as a $21 million decline in retail time deposits was offset by a $25 million increase in brokered deposits. Core deposits ended the quarter at 89% of total deposits, same as the prior quarter.

Total borrowings decreased to $116 million during the quarter due to a decrease in FHLB advances. Banner's liquidity and capital profile continue to remain strong, with a robust core funding base and low reliance on wholesale borrowing and significant off-balance sheet borrowing capacity. In addition, all of our capital ratios are in excess of regulatory well-capitalized levels.

Net interest income increased $500,000 from the prior quarter due to tax equivalent net interest margin increasing 10 basis points to 3.92% partially offset by a decline in average earning assets and 2 less interest earning days in the quarter. The 10 basis point increase in net interest margin, was driven by an increase in the yield on earning assets and a decrease in funding costs. The 4 basis point increase in earning asset yields was due to loan yields increasing 5 basis points as adjustable rate loans continue to reprice higher and new loans are being originated at rates higher than the average yield on the loan portfolio.

The average rate on new production for the quarter was 8.01%. Funding costs decreased 5 basis points as a result of deposit costs decreasing 6 basis points. Noninterest-bearing deposits ended the quarter at 34% of total deposits. The decrease in average earning assets was due to a $90 million decline in average interest-bearing cash and investment balances, partially offset by average loan balances increasing $64 million. The earning asset yield continues to benefit from a remixing out of securities and into loans.

Total noninterest income decreased $900,000 from the prior quarter primarily due to the prior quarter, including a gain of $735,000 on the sale of a nonperforming loan and a gain of $508,000 on a pooled loan sale, partially offset by the current quarter having a $300,000 gain on a fully claim.

Total noninterest expense increased $1.8 million from the prior quarter. The increase reflected higher in salary benefit expense, primarily due to typical higher first quarter payroll taxes and higher medical insurance expense. The increase in salary and benefits was partially offset by lower marketing and professional expenses.

Despite the recent market volatility, we believe our capital and liquidity levels position us well to service our clients and to take advantage of any disruptions in the markets we serve. This concludes my prepared comments.

Now I will turn it back to Mark.

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

[Operator Instructions]. Our first question goes to Jeff Rulis of D.A. Davidson. Jeff.

Question on the margin. It seems like that's a little -- maybe a little better than expected. And I guess the components of that, are you more maybe that surprises a strong word. But I guess if you think about the earning asset yield increase versus funding costs coming down, is there any component there that you think you're that can continue? Or do you feel like both are in play, at least in the short run, and I guess, ultimately leading to kind of margin expectations.

Yes. So what I would say there, Jeff, is that on the funding side, the funding cost for the quarter was pretty much flat for the entire quarter. So the same for the same for January, February and March. And whereas we did see on the yield side, we saw throughout the quarter that the yield did improve as we move throughout the quarter.

And the other thing, just -- and I know you know this, but the day count in February always benefits the first quarter and makes the yields look a little bit better just because of the 28 day count and you get 30 days on a lot of the loans from an interest perspective. But if we think about going forward here, so we use Moody's for interest rate forecasting, they're currently showing 325 basis point cuts in '25, the first one starting in July. And assuming that's correct, I would expect some NIM expansion in Q2, and that really is assuming that funding costs essentially stay flat and we see some additional expansion in our loan yields as adjustable rate loans continue to reprice up and no loans continue to come on at higher yields.

The model is currently showing that we would see about a 5 basis point increase in loan yields while the Fed is on pause. If I think about the second half of the year, under that Moody's forecast where there would be those rate cuts in the second half of the year. I would essentially expect that earning asset yields to be flat during that period of time while the Fed is decreasing rates, but we would see some benefit on the funding cost side where we would see funding costs come down a couple of basis points a quarter during the second half, assuming that scenario.

That's great, Rob. Maybe hop 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 ag side. You had mentioned some prior caution on commodity prices, and there was a small increase in nonperformers in the quarter. Checking back in there, do you feel like you've -- that is just a continued area of watch? Or just how is the trends on the ag side going?

Yes. Well, the ag side definitely is a continued area of watch, especially as we think about the tariff implications to that segment, Jeff. 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 input costs continue to rise. So the ag industry, I think, will continue to show signs of strain over this next period of months to we just have to kind of wait and see how long it plays out, but that is one of our primary areas of concern as it relates to the tariffs.

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

Okay. So I'm going to go back and I'm going to close out my ag comment with the reiteration as to the size of the portfolio. Before we go on to your current question there, Jeff, just for everyone's benefit, the ag represents 3% of the loan book and it is almost half of which the 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.

In commercial line utilization is in the mid-30% range, I believe, and ticked up modestly. So overall, we're running in that average utilization. Entire book, 75% utilized historical averages are 76%. And C&I up construction up a down in the quarter. So they kind of cross each other out, I guess, if you look at it that way. to loan growth expectations. We're still targeting mid-single digit for 2025 when we went into the year, we were looking at a back half is where we would get more of that growth. And still consider that as a possibility.

We recognize that the consumer business confidence has been negatively impacted by these policy changes, and we can't tell exactly what's going to happen with that level of uncertainty. We offset that, however, with the commercial pipelines that have been continuing to rebuild nicely. We had a good pull-through rate in the first quarter, even with that high level of uncertainty. And when we hit our Q1 expectations, even with the uncertainty, we don't have enough to actually change our thoughts as to what's going to happen for the 2025 plan at this time.

The next question goes to David Feaster of Raymond James.

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

So I'll start at the end there and the opportunities for growth. My answer to that is no different than it's been historically. They range up and down our footprint in this -- across the industries. Pipelines have continued to grow. Closings have continued. So we're pulling them through and rebuilding. I think the slow part of Q1, yes, the trade wars have not started, but there was a level of just uncertainty that had everybody's taking a step back to see what was coming.

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. So I feel feel 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.

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

So the approach to managing it is 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. if you step back into the heart of your question, what am I looking at and thinking about outside of ag, the tariffs are going to impact a bunch of things across the West Coast in our trade partners.

Technology sector, we're not heavy into it, but it's going to affect our economy. Agriculture, we've talked about, West Coast port that's going to affect our economy. Auto dealers, retailers, Boeing and other manufacturers, we don't lend to Boeing, but certainly, we have some manufacturing in our portfolio, and those costs will run the gamut there as well. So I step back and I look at the portfolio and then I size it, what do we have in manufacturing? Manufacturing would represent approximately 3% of our loan book. Average loan size within all of those manufacturing [ NAC ] codes would be under $1 million.

So in terms of individual risk 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 loan sizes to auto dealers in our book $5 million. I look at the transportation industry, 1% of our loan book. We look at the retail exposure, it's bigger, it's 12% of the loan book, but it's diversified geography. It's diversified by service and product and 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 3 segments I named, each 1 of them would have less than 1% or have an average loan size of $1 million or less. So I'm looking, we're watching. We're talking to our clients and then we're just scoping the overall exposure. And we'll continue to do that as we see where do these tariffs land and who are they hitting the hardest.

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.

That's great color. I appreciate that. And then just last 1 for me, maybe touching on the funding cost side. You've done a great job continuing to drive core deposit growth, reducing deposit costs even in a seasonally weaker quarter I was hoping you could maybe touch on the competitive landscape for deposits. Your strategy continued to drive core deposit growth and -- how you think about opportunities to further optimize funding costs and fund loan growth going forward?

Yes. So thanks, David. It's Rob. So yes, I guess a couple of things there. I mean, I think there's limited opportunities as long as the Fed is on pause to see additional reductions in funding costs. And -- but what we've been successful at is as we're adding new clients from the lending side, we've been successful at also bringing across the deposits. So I think we're seeing the benefit of that.

Q1 also did have some seasonality into it. We usually see some increase in our deposits as tax refunds start to come in as well. And I mean, I think from -- if we're thinking about competitors right now in the marketplace, from the CD side is where you're seeing, we're still seeing REIT specials out there. I would say most of the REIT specials are in that 3- to 7-month tenor right now, although we do still see some REIT specials out there in that 12- to 13-month range and see it in even some of the 4%, but I mean, we just have a very granular deposit base. It's diversified from both metro versus rural and it's also a diversified geography wise. And it's a very granular deposit base, average deposit size in that range. So I think all that just helps us from being able to kind of control our deposit costs and our funding costs over time.

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

Yes. I think on the -- so if we think about the security side, 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. 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.

But I will say we're also -- David, we're also we're not currently planning on any larger security sale or any kind of loss sale at this point in time. We continue to look at that will be flexible if market conditions change or if we think there's an opportunity there, but that's not a strategy we're looking at currently.

The next question is from Andrew Liesch of Piper Sandler.

Really helpful information here on the tariffs really appreciate it. Capital continues to be a strength for Banner. I guess, how should we look at capital going forward? Is there an appetite to buy back stock with the stock down here? Do you want to retain it for uncertainty? Mark, can you just update your thoughts on your capital plans.

Thanks, Andrew. It's Rob. So yes, I mean, our -- we always talk about our #1 priority is the core dividend and maintaining that core dividend, which continues to be at a conservative payout ratio. And over time as EPS continues to increase, we'd look at kind of increasing the core dividend at some point in time as well. We do have that share authorization, which you just mentioned there in place right now. We haven't executed on that. It is something that we continue to consider, and certainly, with the stock price being down just due to overall market volatility, it makes it more attractive, certainly.

I would say the other thing that's out there right now that's probably one of the top things on our radar right now is we do have that $100 million of sub debt out there right now. And it moves from a fixed rate to a variable rate on July 1. And so we're currently considering whether we repay that or whether we look at replacing that. So that's probably one of our top capital priorities right now.

Got it. And then any sort of change in M&A conversations over the last couple of months?

I would say -- thank you, Andrew. It's Mark. Let me just follow up on Rob's comment. Our philosophy has always been to try and have this fortress type of balance sheet, and I feel like we're there. And there'll be an opportunity to deploy excess capital as we see more clarity and market conditions.

I think the conversations as they exist with M&A, they continue to occur. But obviously, the current volatility has caused everybody to take a step back and decide how do we proceed going forward? What does the credit metrics look like? What are the capital positions look like? -- there is favorability on the regulatory side, which I'm encouraged by. But I think just given the pullback in valuations in the current market, I think we're going to have to ride that out and see where it lands.

The next question goes to Andrew Terrell of Stephens.

If I could just trickle back to the margin, just to maybe summarize some of the discussion on the margin. I mean, it sounds like in an environment where the Fed is not cutting rates. You've got pretty decent loan repricing opportunity. And then maybe that if we do get rate cuts, that stalls out, but then you've obviously got room to further cut deposit costs. It sounds like no matter either of those outcomes, the progression throughout the year on the margin should be higher from here, correct?

Yes. I think as long as it's either Fed on pause or Fed gradually decreasing rates, that would be correct. I think the one scenario where we would see some margin compression is if the Fed got very aggressive on reducing rates.

Yes. Okay. Got it. So only negative, just a more material rate cut. Okay. And then I'll just ask you, we talked about this a while back, but just line of sight to 4% margin when I asked you that question previously, I think we were 30 basis points or so away, but you've closed that gap pretty quickly. I guess thinking of those kind of ranges of outcomes on the margin, does it feel feasible you can kind of pass 4% on the NIM in 2025.

Yes. I don't -- I guess I'm not prepared to give a time line on when we're going to cross the 4% level. But I mean, clearly, if you look at historically, we have been above 4%. And I think under the right market conditions, we can get back there again. And if we continue to see the favorable market conditions that would allow that and we see that expansion each quarter then eventually, I think we would get there, yes.

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

Yes. I mean expenses always move around a bit quarter-to-quarter. So it's not usual to see a swing of a couple of 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.

The next question goes to Kelly Motta of KBW.

Most of it have been asked and answered at this point. Just wondering, is this last quarter a good indication of the tax rate for the year? And are there any upcoming tax cut in investments or anything of that nature that we should factor in the model?

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

Got it. That's helpful. Last one for me. I know part of Banner Forward initiative were developing some source of fee revenue. Just wondering if you could provide an update on your outlook for fees. It looks like maybe the deposit fees 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.

Sure. Yes, I think if you look at Q1 and you just back out the BOLI claim that we have there, that's probably a decent run rate for for 2025. And if you think about mortgage rates, the -- when mortgage rates the 30 year dipped down to 6.5%, we saw some pickup in activity there. But then now that it's back over 7%, we've seen some slowdown there. So mortgage banking is really going to be driven by the rates ultimately there. And so it will be at the headwinds of whatever the rate environment is.

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

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

[Operator Instructions]. The next question goes to Tim Coffey of Janney.

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

I do think that if we continue on the progress that we're making right now on -- as you know, the self-inflicted wound on tariffs, I think there's quite a bit of uncertainty in the economy right now. And I'm a little bit more pessimistic than most that I think we're going to continue to see a slowdown, which is why over 2024, we build our balance sheet into a fortress-style balance sheet.

The positive for us is there's a lot of market disruption that occurs in our footprint with some of the banks that have combined or are still struggling or are over lent and it's providing us a good opportunity to take market share. So I do anticipate that the economy is going to slow here. but I feel very positive that we're in a great position to take market share.

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

I think that's an excellent question, Tim. Jill, do you want to talk about some of the investment that's being made in the sub base.

Yes. I think subbase Banner Puget Sound and San Diego shipyard, I think Tim, you hit it, those are going to be areas that are continuing to support and bolster those communities. We also have Hanford and Eastern Washington that could have some negative implications in terms of those cuts. So it really is going to be community by community specific as to the lift 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.

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

Okay. I appreciate that. And then just kind of marks about any thoughts on a special dividend and just kind of what you think about it just holistically, to unrelated to the previous 2 questions, but just how you think about a special year-end cash dividend?

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

Okay. I appreciate that, Rob. And then, Jill, I know you've been asked and answered a couple of questions on tariffs, but I've got 2 more for you. The first one is as you're collecting financials from C&I borrowers, are you seeing anything in those financials that give you pause?

That's a pretty broad question when you think about C&I borrowers. I mean, -- so hit and miss, certainly, there are things that give us pause. You're seeing take health care, I guess, as one example where you're seeing increased costs that are not being offset by the top line revenue in some cases, especially in that not-for-profit health care side of the equation. So certainly kind of hard to answer there, Tim, on a specific case -- it's case by case. But yes, there are things that make us step back and go, okay, how are they going to counter that. What's the solution to that, whether it's expense control or demand and revenue slipping?

Right. My apologies, I could have made it a little bit more general. Are you seeing anything any changes year-over-year that indicate a slowdown in your footprint?

No.

Okay.

It's still early.

Yes. All right. And given kind of the overall outlook right now, Jill, have you increased any kind of oversight on the retail CRE book.

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

And we have a follow-up from David Feaster of Raymond James. David,.

Just one quick follow-up on California. When I look at -- you've had a lot of success there over the past several quarters on both loans and deposits. 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.

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

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

Thank you. As I've stated, we are very proud of the Banner team in the first quarter of 2025 performance that we had. It's a great way to kick off the year. Even though there's quite a bit of uncertainty out there, we feel very confident in our position to continue to grow the bank and the strength of our balance sheet and our core earnings power.

So thank you for your interest and for joining the call today. We look forward to reporting our results to you in the future. Thank you, everyone, and have a wonderful day.

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