Banner (BANR) Q1 2026 Earnings Call Transcript

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DATE

Thursday, April 23, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Mark J. Grescovich
• Chief Financial Officer — Robert G. Butterfield
• Chief Credit Officer — Jill M. Rice
• Head of Investor Relations — Rich Arnold

TAKEAWAYS

• Net Profit Available to Common Shareholders -- $54.7 million, or $1.60 per diluted share, up from $1.49 per share in the prior quarter and $1.30 per share last year.
• Core Pretax, Pre-provision Earnings -- $66.3 million, up from $58.6 million last year, reflecting a near 13% increase versus the comparable prior period.
• Total Revenue from Core Operations -- $169 million, increasing approximately 6% from $160 million last year.
• Return on Average Assets -- 1.37% for the period.
• Return on Tangible Common Equity -- 14% for the period.
• Tangible Common Equity Ratio -- Increased from 9.84% to 9.97% sequentially.
• Dividend Increase -- Quarterly core dividend raised by 4% to $0.52 per share; payout target remains 35%-40% of earnings.
• Share Repurchases -- 250,000 shares repurchased during the period, marking the third consecutive quarter of buybacks.
• Core Deposits -- Increased by $165 million in the quarter, now 89% of total deposits; overall deposits rose $97 million, offset by a $67 million decline in time deposits (including $50 million maturing brokered CDs).
• Average Cost of Deposits -- 1.35% for the quarter; spot rate unchanged at March-end.
• Noninterest-Bearing Deposits -- Constitute 33% of total deposits.
• Net Interest Margin -- Tax-equivalent basis of 4.11%, up eight basis points from 4.03% in the prior quarter.
• Loan-to-Deposit Ratio -- Ended the quarter at 85%.
• Loans Outstanding -- Portfolio loans decreased $14 million sequentially; year-over-year loan growth modest at 2.4%.
• Commercial Real Estate (CRE) Production -- Owner-occupied CRE up 3% sequentially, 15% year over year; investor CRE up 1% sequentially, nearly 8% year over year; multifamily CRE down 6% sequentially and 9% year over year due to paydowns.
• Commercial Construction Loans -- Increased 12% quarter over quarter due to continued funding of previously approved projects.
• Land Development Balances -- Decreased 7.5% in the quarter due to two large project payoffs.
• Agricultural Loan Balances -- Down 6% sequentially, reflecting crop proceeds and payoffs.
• C&I Line Utilization -- Increased 2% during the period after a 3% decline in the previous quarter.
• Credit Metrics -- Delinquent loans at 0.56% of total loans, down from 0.63% last year; adversely classified loans rose $42 million to 2% of total loans; total non-performing assets at $51.7 million, or 0.32% of total assets.
• Allowance for Credit Losses -- $160.4 million, representing 1.37% of total loans, consistent with prior quarters.
• Net Loan Losses -- $1.5 million for the period, partially offset by $253,000 in recoveries.
• Net Provision Recapture -- $796,000, driven by a $1.3 million provision for credit losses (loans) offset by a $2.1 million reserve release for unfunded commitments.
• Securities Balances -- Largely unchanged as normal cash flows were offset by purchases.
• Total Borrowings -- Decreased $142 million, ending with zero outstanding FHLB advances.
• Net Interest Income -- Decreased $2.3 million sequentially due to lower earning assets and two fewer interest-earning days, partially offset by a higher net interest margin.
• Funding Costs -- Down nine basis points driven by an eight basis point decrease in deposit costs.
• Loan Production Yield -- Average rate of 6.69% for new production, down from 6.88% prior quarter.
• Noninterest Income -- Rose $3.9 million sequentially, with prior quarter including asset disposal and fair value losses, current quarter reflecting a $1.7 million fair value gain and a $1.2 million loss on securities sales.
• Noninterest Expenses -- Down $1.5 million sequentially due to lower occupancy, equipment, marketing, and legal expenses, partially offset by higher salaries and benefits; prior quarter included a $1 million legal settlement charge.
• Recognition -- Named among Forbes’ America’s 100 Best Banks, Newsweek’s most trustworthy companies, and the best bank in the Northwest by J.D. Power for 2025.
• Technology Investments -- Ongoing adoption of AI features within current software, recent implementation of new loan and deposit origination systems, internal fintech council established to evaluate new technology and payment channels.
• Guidance -- Management expects net interest margin to be relatively flat in the second quarter with potential for expansion in the second half, and confirmed mid–single-digit loan growth target for 2026.

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RISKS

• Adversely classified loans increased by $42 million in the quarter, now representing 2% of total loans, largely due to three relationships in operating and manufacturing, residential construction, and wholesale agricultural supplies.
• Management cited ongoing economic uncertainty tied to "persistent inflation, the higher-for-longer interest rate environment, and increasing geopolitical issues" as factors impacting the 2026 outlook.
• Deposit pricing is under pressure as "some competitors are starting to increase their promotional specials on deposits," which could force Banner Corporation to respond, potentially impacting funding costs.

SUMMARY

Banner Corporation (NASDAQ:BANR) reported sequential and year-over-year growth in core profitability, aided by strong core deposit growth, a higher net interest margin, and disciplined expense management. Management is reaffirming its mid–single-digit loan growth outlook and expects net interest margin to remain steady in the near term, with possible expansion later in 2026 amid seasonal funding shifts. Despite a modest decline in outstanding loan balances due to elevated commercial real estate and land development paydowns, loan origination pipelines remain robust and are expected to drive future growth. The company increased its quarterly dividend for the second time in three quarters and continued share repurchases, emphasizing capital return as a strategic priority.

• Executives highlighted continued investments in technology, including internal adoption of AI, with a stated focus on data integrity and client security.
• Labor market disruptions have facilitated targeted talent acquisitions across geographies, allowing the company to strengthen core business lines without reliance on broad-based hiring initiatives.
• Board-level capital deployment remains selective, with management reiterating that M&A will occur only for "opportunistic" targets that strengthen deposit franchises, while organic growth remains the main focus.
• Credit quality indicators remain stable overall, though management acknowledges increases in adversely classified loans and ongoing vigilance through robust quarterly portfolio reviews.

INDUSTRY GLOSSARY

• Core Deposits: Bank funding sourced primarily from relationship-based, low-cost accounts such as checking and savings, viewed as stable compared to time or brokered deposits.
• Adversely Classified Loans: Credits that regulators or management have identified as carrying heightened risk of loss, commonly including "substandard," "doubtful," or "loss" risk ratings.
• Loan-to-Deposit Ratio: The ratio of total loans outstanding to total deposits, indicating a bank’s utilization of deposit-based funding for lending activities.
• FHLB Advances: Borrowings from the Federal Home Loan Bank system, used by banks as a supplemental funding source.
• Net Provision Recapture: When reserve releases for unfunded lending commitments exceed required provisions for expected credit losses on funded loans, resulting in a net benefit to earnings.
• Noninterest-Bearing Deposits: Customer deposits on which the bank pays no interest, often forming a stable and low-cost funding base.
• C&I Line Utilization: The proportion of approved commercial and industrial lines of credit that have been drawn by borrowers.

Full Conference Call Transcript

Mark J. Grescovich: Thank you, Tiffany, and good morning, everyone. I would also like to welcome you to the first quarter 2026 earnings call for Banner Corporation. Joining me on the call today are Robert G. Butterfield, Banner Corporation’s chief financial officer; Jill M. 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: Good morning. Our presentation today discusses Banner Corporation’s business outlook and will include forward-looking statements. These statements include descriptions of management’s plans, objectives, or goals for future operations, products and services, forecasts of financial or other performance measures, and statements about Banner Corporation’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; actual results may differ materially from those discussed today.

Information on the risk factors that could cause actual results to differ is available in the earnings press release that was released yesterday and a recently filed Form 10-K for the year ended 12/31/2025. Forward-looking statements are effective only as of the date they are made. Banner Corporation assumes no obligation to update information concerning its expectations.

Mark J. Grescovich: Thank you, Rich. As is customary, today we will cover four primary items with you. First, I will provide high-level comments on Banner Corporation’s first quarter 2026 performance. Second, the actions Banner Corporation continues to take to support all of our stakeholders, including our Banner team, our clients, our communities, and our shareholders. Third, Jill M. Rice will provide comments on the current status of our loan portfolio. And finally, Robert G. Butterfield will provide more detail on our operating performance for the quarter as well as comments on our balance sheet. Before I get started, I want to thank all of my 2,000 colleagues in our company who are working extremely hard to assist our clients and our communities.

Banner Corporation 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 for living our core values. Now let me turn to an overview of our performance.

As announced, Banner Corporation reported net profit available to common shareholders of $54.7 million, or $1.60 per diluted share, for the quarter ended 03/31/2026. This compares to net profit to common shareholders of $1.30 per share for 2025 and $1.49 per share for 2025. 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. Robert will discuss these items in more detail shortly. 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.

To illustrate the core earnings power of Banner Corporation, I would direct your attention to pretax, 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 first quarter 2026 core earnings were $66.3 million compared to $58.6 million for 2025. Banner Corporation’s first quarter 2026 revenue from core operations was $169 million compared to $160 million for 2025, an increase of nearly 6%. We continue to benefit from a strong core deposit base that has proved to be resilient and loyal to Banner Corporation, a very good net interest margin, and core expense control.

Overall, this resulted in a return on average assets of 1.37% for 2026. 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. Reflective of this performance, coupled with our strong regulatory capital ratios, and the fact that we increased our tangible common equity per share by 11% from the same period last year, we announced a core dividend increase of 4% to $0.52 per common share.

Finally, I am pleased to say that we continue to receive marketplace recognition and validation of our business model and our value proposition. Banner Corporation was again named one of America’s 100 Best Banks as well as one of the Best Banks in the World by Forbes. Newsweek named Banner Bank one of the most trustworthy companies, both in America and the world, again this year, and just recently named Banner one of the best regional banks in the country. Additionally, J.D. Power named Banner Bank the best bank in the Northwest for retail client satisfaction for 2025.

Our company was certified by Great Place to Work, S&P Global Market Intelligence ranked Banner Corporation’s financial performance among the top 50 public banks with more than $10 billion in assets, and, as we have noted previously, Banner Bank again 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?

Jill M. Rice: Thank you, Mark, and good morning, everyone. As detailed in our press release, we again had a strong quarter of loan originations, in line with that reported in the fourth quarter and 61% higher than that reported in 2025. Still, significant commercial real estate payoffs, coupled with expected paydowns within the ag portfolio, offset production such that portfolio loans decreased $14 million when compared to 12/31/2025. Year-over-year loan growth was modest at 2.4%. Production within the commercial real estate portfolio continued to be strong, with owner-occupied CRE up 3% in the quarter and 15% year-over-year, and investor real estate up 1% in the quarter and nearly 8% year-over-year.

Those increases, however, were almost entirely offset by the significant commercial real estate paydowns within the multifamily portfolio, down 6% in the quarter and 9% year-over-year, as stabilized properties moved into the secondary market. Within the construction portfolios, the 12% increase quarter-over-quarter in commercial construction reflects the continued funding of previously approved projects. In addition to the multifamily payoffs noted previously, we had two large land development projects payoff, which resulted in a 7.5% decrease in balances this quarter. We are continuing to see an elongation of the days on market within the for-sale one-to-four family construction portfolio given the elevated interest rate environment and general economic uncertainty.

Still, the level of completed and unsold inventory remains within historical norms, and the builders continue to have strong balance sheets and profit margins to work with. In total, the one-to-four family construction portfolio continues to represent a modest 5% of the loan portfolio, and the total construction portfolio, including land and land development, continues to be acceptable at 14% of the loan book. After declining 3% last quarter, C&I line utilization moved closer to normal, increasing 2% this quarter. In total, commercial loans were up a modest 1% both in quarter and year-over-year.

Agricultural balances, as expected, were down 6% in the quarter as crop proceeds reduced line balances, and the decline reported year-over-year reflects the collection and payoff of multiple class ag balances. Shifting to credit quality, our credit metrics remain strong. Delinquent loans increased two basis points and now represent 0.56% of total loans, which compares to 0.63% reported as of 03/31/2025. Adversely classified loans increased by $42 million in the quarter, representing 2% of total loans, and total non-performing assets at $51.7 million represent a modest 0.32% of total assets. The increase in adversely classified assets is centered in three relationships: operating and manufacturing, residential construction, and wholesale agricultural supplies.

As of March 31, the allowance for credit losses totaled $160.4 million, providing 1.37% coverage of total loans, consistent with prior quarters. Loan losses in the quarter totaled $1.5 million and were offset in part by recoveries totaling $253,000. The risk rating migration discussed previously, coupled with the net charge-offs, resulted in a provision of $1.3 million to the reserve for credit losses—loans. This was offset by a release from the reserve for unfunded commitments of $2.1 million, for a net provision recapture of $796,000. The 2026 outlook continues to be impacted by economic uncertainty given persistent inflation, the higher-for-longer interest rate environment, and increasing geopolitical issues.

Through this, we have maintained consistent underwriting standards, which include a focus on strong sponsors, properly margined collateral, seasoned repayment sources, and, in the vast majority of cases, personal guarantees. We continue our practice of robust quarterly portfolio reviews in order to identify any emerging issues early. We remain well positioned to weather the uncertain economic environment ahead. With that, I will hand the microphone over to Rob for his comments. Rob?

Robert G. Butterfield: Thank you, Jill. We reported $1.60 per diluted share for the fourth quarter compared to $1.49 per diluted share for the prior quarter. The increase in earnings per share compared to the prior quarter was primarily due to the current quarter having lower expenses and a recapture of provision for credit losses. In addition, the prior quarter included a decrease in the valuation of financial instruments carried at fair value and a loss on the disposal of assets. Core pretax, pre-provision income for the current quarter increased 13%, or $7.7 million, compared to the quarter ending 03/31/2025.

Our performance metrics remain solid as we reported a return on tangible common equity for the current quarter of 14% and return on average assets of 1.37%. As Jill previously mentioned, loan balances were essentially flat during the quarter as good loan production was offset by an increase in payoffs. The loan-to-deposit ratio ended the quarter at 85%, giving us ample capacity to continue to support existing clients and to add new clients. Total securities balances were relatively flat as normal portfolio cash flows were mostly offset by security purchases. Deposits increased by $97 million during the quarter due to core deposits increasing $165 million, or 5.5% on an annualized basis.

The increase in core deposits was partially offset by time deposits decreasing $67 million, mostly due to $50 million of brokered CDs maturing during the quarter, ending the quarter with no brokered deposits. Core deposits ended the quarter at 89% of total deposits. Total borrowings decreased $142 million during the quarter, ending the quarter with no outstanding FHLB advances. The tangible common equity ratio increased from 9.84% to 9.97%. As a reflection of our robust capital and strong liquidity positions, Banner Corporation repurchased 250,000 shares during the quarter and declared an increase in the quarterly dividend to $0.52 per share.

Net interest income decreased $2.3 million from the prior quarter due to a combination of lower earning assets and two fewer interest-earning days in the current quarter, partially offset by an eight basis point increase in net interest margin. The decrease in average earning assets was primarily due to average interest-bearing cash and securities balances decreasing $153 million. Tax-equivalent net interest margin was 4.11% for the current quarter compared to 4.03% for the prior quarter. Funding costs decreased nine basis points due to deposit costs decreasing eight basis points. Deposit costs benefited from a full quarter of the deposit pricing reductions implemented in the fourth quarter of last year.

We also benefited from an improved earning asset mix as lower-yielding cash and securities balances were a smaller percentage of earning assets. The improved earning asset mix offset the three basis point decline in loan yields. The average rate on new loan production for the current quarter was 6.69% compared to 6.88% for the prior quarter. Noninterest-bearing deposits ended the quarter at 33% of total deposits.

Total noninterest income increased $3.9 million from the prior quarter primarily due to the prior quarter including a loss of $1.4 million on the disposal of assets and a fair value decrease of $2 million on financial instruments carried at fair value, while the current quarter had a $1.7 million fair value increase on financial instruments carried at fair value, partially offset by a loss of $1.2 million on the sale of securities. Total noninterest expense was $1.5 million lower than the prior quarter, with decreases in occupancy and equipment, marketing, and legal expense being partially offset by an increase in salary and benefits.

Our strong capital and liquidity levels continue to position us well to support our existing clients and to add new clients. This concludes my prepared comments. Now I will turn it back to Mark.

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

Operator: At this time, if you would like to ask a question, press star then the number one on your telephone keypad. To withdraw your question, simply press star 1 again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Jeff Rulis with D.A. Davidson. Please go ahead.

Analyst: Good morning. This is Ryan Payne on for Jeff Rulis. Just starting on the margin: some deposit fluctuations and lower CD balances this quarter benefiting the NIM, but trying to gauge your thoughts on expectations for the margin ahead.

Robert G. Butterfield: Yes, sure. We typically see an increase in funding costs during the second quarter as clients start to use deposit balances to make tax payments early in the quarter, and we supplement that temporary decline in deposit balances with some FHLB advances. We think that this should be mostly offset by an increase in loan yields, as adjustable-rate loans continue to reprice up and the new loans coming on are still coming on at higher yields than the overall portfolio average, which suggests that NIM would be relatively flat in the second quarter. That is similar to what we saw last year where the second quarter NIM was flat compared to the first quarter.

We could see some expansion in NIM in the third quarter due to funding costs coming back down as FHLB advances are replaced by deposit increases in the typical seasonality we see in the third quarter. In addition, we would expect that loan yields would increase in the third quarter as well, as long as the Fed remains on pause. So we would expect some net interest margin expansion in the second half of the year.

Analyst: Helpful, thank you. With the loan production impacted by payoffs this quarter, where do you see payoffs trending from here and maybe your overall expectations for growth?

Jill M. Rice: Sure, Ryan. We had anticipated that the headwinds of commercial real estate payoffs would potentially offset growth into 2026. I expect that they will slow. I am not prepared to tell you that they are done coming in, but I think that the rate of payoffs will slow down. Still, the loan production volumes were solid and indicative of future loan growth. The strong backlog of construction funding we have is meaningful, and our pipelines are strong. So we are still sticking with the mid–single-digit growth rate for 2026.

Analyst: Got it, thanks. Last for me, capital priorities: you had a dividend increase and buyback. Your appetite for continued buybacks here, and where would you see M&A on the list of priorities?

Robert G. Butterfield: As you know, we did increase the core dividend by 4% this quarter. That was the second increase we have done in the last three quarters. Our goal from a dividend perspective is to pay out 35% to 40% of earnings as a core dividend. In addition, we did share repurchases again in the first quarter; that is the third quarter in a row that we have done that.

As we think about capital priorities, we always look at different opportunities we have there, which certainly include additional share repurchases that we could consider in the second quarter, but ultimately it depends on market conditions, where the stock price is trading, and other factors as we evaluate the best use of our capital. And, as always, we continue to look at different ways we can deploy capital.

Mark J. Grescovich: As far as M&A, our position has not changed. We look to partner with organizations that would be a great fit for Banner Corporation, add additional density to our markets, and be very good core deposit franchises. It has to be opportunistic; we are very selective on the M&A front. We feel very good about our organic opportunities to continue to grow the bank and improve profitability, but if an opportunity exists in which we can add additional density with a good core deposit franchise and a strong bank, we certainly would look to do that.

Operator: Your next question comes from the line of Matthew Clark with Piper Sandler. Please go ahead.

Matthew Clark: Good morning. On the funding side of the equation for the margin outlook, on the deposit side, what was the spot rate on deposits at March-end, and how are you thinking about deposit pricing going forward? With the Fed on hold, do you think you will just manage as best you can to hold that level, or do you feel like there are opportunities to trim exception-based pricing and CD rates?

Robert G. Butterfield: Thanks, Matthew. The spot cost of deposits for March was the same as the quarter—pretty much across the board at 135 basis points. Early in the quarter, in January, we made some additional rate reductions in response to the December Fed rate cut, and we did that in early January, so the whole quarter benefited from that. As we think about going forward, while the Fed is on pause, I do not think you will see much change in our pricing for our core deposit products.

Where we might get a little bit of benefit is on the CD pricing side because we would expect the cost of the CD book to continue to trend down for the next few quarters as the lag effect of the rate cuts that we saw the Fed do in the fourth quarter flows through. The average rate of the new CDs coming on is around 3% right now; the CDs rolling off are around 3.30%. Approximately 40% of our CD book matures in the second quarter, so we would expect some benefit there.

However, now that the expectation is that the Fed will be on pause through the remainder of the year, maybe with a rate cut late in the year, we are seeing some additional pressure on deposit pricing right now where some competitors are starting to increase their promotional specials on deposits. So we will have to respond to what the market is doing.

Matthew Clark: On the service charges and fees line this quarter, it was up nicely in the quarter with two fewer days. Did you change your product pricing there at all, or what can you attribute that to, and is that sustainable?

Robert G. Butterfield: We did not change any of our pricing there. We renegotiated our Mastercard contract, so we are seeing a little bit of benefit from that beginning in the first quarter. Otherwise, I think the first quarter is a pretty good trend indicator for that line.

Matthew Clark: And then on the noninterest expense run rate, it was down nicely and pretty broad-based outside of the seasonal increase in comp. Anything unusual there? Is that partly a seasonal decline relative to the fourth quarter? I am trying to get a sense for the run rate going forward.

Robert G. Butterfield: There certainly is some seasonality. Typically, the first quarter has lower advertising and marketing expense, and then the campaigns we run throughout the year start to ramp up. The fourth quarter also had a legal settlement charge of around $1 million that did not carry forward into the first quarter. For the remainder of the year, we have talked about expecting normal inflationary increases in 2026 compared to 2025, and if you look at the full year, that is still my expectation. Second quarter will be higher from a salary and benefits standpoint because we do our annual salary increases in mid-March, so you did not really see that impact in the first quarter.

I would expect expenses to be a bit higher as we move throughout the year.

Matthew Clark: Thank you. Last one for me, back to M&A. Have you seen or heard of an increase among sellers—maybe more being willing to talk—relative to last quarter?

Mark J. Grescovich: Thank you for the question, Matthew. I do not think there has been a change in behavior. I think there are a number of institutions trying to figure out the best next step strategically. As you might suspect, given my earlier comments about who would be a good partner for Banner Corporation, the universe is still fairly limited on the West Coast. We know the partners that would make sense for Banner Corporation. I would not suggest that there has been an increase in conversations, but I would not be surprised if, as institutions deliver on their first quarter strategic plans, they are evaluating what the best path forward is for their organizations.

Operator: Your next question comes from the line of David Feaster with Raymond James. Please go ahead.

David Feaster: Hi. Good morning, everybody. I wanted to touch on two things. On the loan growth side, originations have held up pretty well. How is demand? Has the macro uncertainty impacted demand and pipelines from your standpoint? And then could you give some color on the payoffs and paydowns you are seeing—what is driving that? Is it deleveraging, asset sales, competition and losing some deals?

Jill M. Rice: In terms of pipelines, David, everybody is telling me that they are busy. They are having good conversations and moving things forward, whether it is early in discussions or my credit team working through deals. Demand is out there. The level of economic uncertainty can give some pause, but there is still demand. As we move through them, we certainly see pricing being pushed and multiple banks going for the same deals. It is tough out there in terms of getting to the close, but I feel good about what we have been pulling through in originations and what that means for our future growth.

As to what is driving the payoffs, many of these loans we ultimately expected to pay off, and we expected them to pay off 18 months ago. They waited for what was expected to be a lower-rate environment in those mini-perm loans we offer at the end of construction, or as they were stabilizing and getting stronger. So it is delayed payoff, not losing because we do not want them or due to competition, but to the secondary market that offers terms—long-term interest-only, nonrecourse—that most regional banks do not offer. They are expected, but they are lumpy because of the delay from 18 months ago.

David Feaster: That is helpful. There has been a lot of disruption across your footprint over the past 12 to 18 months. How have you been capitalizing on that, and what is your appetite for new hires coming out of some of those deals—or just hires in general? What markets or segments might you be interested in adding talent to?

Jill M. Rice: If you think back to the last several quarters, we have talked about the personnel we have added because of the disruption across the footprint. When we find strong bankers in our markets, we want to add them. This last quarter, we added a commercial banking center manager, multiple portfolio managers, and some treasury management personnel. It is not about one business line or one market; when we find the right people, we add them to improve our talent.

Mark J. Grescovich: I would add that it has been across our geography, not specific to any one area. We have done a very good job of adding talent into the organization, and, as you have heard me say before, we tend to do this as a rifle shot, not a shotgun. We know who the good bankers are, we court them over time, and when the timing is right—because there is disruption—we are a good destination for them to join our organization.

David Feaster: And, Mark, maybe just a higher-level one. How are you and your team thinking about technology? There are a lot of conversations around AI and stablecoin or digital deposits in general. What are some of the things you are working on, and how do you see this playing out for Banner?

Mark J. Grescovich: Thank you for the question, David. I am going to ask Rob to answer that because we have made a series of investments, and we have set up a governance structure that will help guide us as AI and related technology evolves.

Robert G. Butterfield: As Mark mentioned, we have a fintech council internally that evaluates new AI-type technology and other technology products being offered by fintechs. We try to stay on top of the current pulse. We have started to adopt some AI technology—at this point, more by turning on AI within existing software platforms. We have also made significant investments in new loan and deposit origination systems that went fully live last year. We also have a lot of conversations around tokenized deposits and stablecoin. As part of our annual strategic planning process, we bring in experts in those fields to talk to our executive committee to make sure we understand what is out there.

While we do not have plans to roll out those types of products in the short term, we are staying on top of evolving payment channels and keeping our pulse on them.

Mark J. Grescovich: To follow up, when you think about AI, regional banks like us need to be very cautious to protect the data integrity of our clients. Examples of AI applications would be in BSA/AML, where you can really utilize some of the tools, and in the call center, which can allow you to be more responsive to your client base over a 24/7 period. Those are the kinds of AI investments you should expect from regional banks.

Operator: Your next question comes from the line of Andrew Terrell with Stephens Inc. Please go ahead.

Andrew Terrell: Good morning. Most of mine were addressed already, but on the margin, you have consistently been outperforming the margin expectations you lay out. In the past, we have talked about no rate cuts being better for the near-to-medium-term margin trajectory. It seems like that is the backdrop we are getting now, but it still sounds like relatively flattish in 2Q and maybe some back-half expansion opportunities. Why not be more constructive on the margin, and can you walk us through the puts and takes, specifically the limiting factors for the margin near term?

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