BANR - NASDAQ

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. [Operator Instructions] I will now hand over to Mark Grescovich, President and CEO of Banner Corporation to begin. Please go ahead.

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?

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 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?

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. 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 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. 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 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 $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. 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 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 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. 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 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 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 -- in 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. 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. And 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?

Thank you, Mark, and good morning, everyone. As reported, our overall credit metrics remained strong. Delinquent loans improved slightly and now represents 0.39% of total loans, down 2 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 nonperforming 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. 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. And 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 C&I payoffs. Still, portfolio loan balances, while basically flat when compared to the linked quarter, remained up 4% year-over-year. 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. And while days on market has 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 C&I is driven in part by reduced [ line 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. And 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?

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, 2024. As core pretax 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. 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. 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 $5.6 million from the prior quarter due to a 6 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-bearing cash and investment balance is increasing $118 million. Tax equivalent net interest margin was 3.98% for the quarter compared to 3.92% for the prior quarter. Earning asset yields increased 3 basis points due to a 5 basis point increase in loan yields as adjustable loans continue to reprice higher and new loans are being originated at rates higher than the average yield on the loan portfolio. Average rate on new loan production for the quarter was 7.35% compared to 7.27% for the prior quarter. Funding costs decreased by 3 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 3 basis points higher than the prior quarter, as the deposit growth during the quarter was mostly in interest-bearing accounts and noninterest-bearing deposits ended the quarter at 33% of total deposits. Total noninterest 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 noninterest expense was $674,000 higher than the prior quarter with increases in marketing, employee-related expense, occupancy expense and business and use tax. And partially offset by 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. Our strong capital and liquidity levels position us well to continue to execute on our super community bank business model. This concludes my prepared comments. Now I will turn it back to Mark. Mark?

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

[Operator Instructions] We have our first question from Jeff Rulis from D.A. Davidson.

I wanted to check in on the margin. I guess kind of 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 tale of benefit that came later in the quarter in terms of the go-forward margin? And then maybe just checking in on Rob, maybe the impact of rate sensitivity as you see the cut we had and the expected cuts ahead?

Sure, Jeff. So on the first part of it, we started to see the deposits come in fairly early in the quarter. So I would say probably FHLB advances were paid down to their ending level, I would say, probably halfway through the quarter. So there could be a little bit of additional benefit there from just an overall funding cost standpoint. If I think about kind of the impact of the Fed rate cuts on our margin overall, I think the story is kind of the same that we've been talking about. Essentially, in a quarter where the Fed -- 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 pay down borrowings, we would expect funding cost to be relatively flat. If the Fed does 1 rate cut in the 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 2, but relatively flat overall. And 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 forecast is forecasting another cut at the end of October here and then the third cut in the middle of December. And under that scenario where we have essentially multiple rate cuts in 1 quarter, then we would expect some margin compression in that quarter. So 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. So 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. And we will just get some improvement in funding cost, 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.

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

Margin was pretty -- it was pretty flat. So I would say September margin is really close to what we saw in the quarter.

Got it. Okay. And Mark, I guess just checking in on capital on several fronts, you're pretty active with the dividend and the buyback. I guess 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. So checking in on buyback activity or appetite versus also the ongoing question on the M&A side, if you care to opine on your interest there.

Yes. 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 the current pricing structure would suggest that we would be confident 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. And 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 our -- 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. But 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.

Our next question comes from Kelly Motta from KBW.

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. So just wondering how we should be thinking through greater activity on that versus keeping dry powder ahead.

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

Sure, Mark. So yes, Kelly, I mean, we're always looking at the different alternatives for capital deployment. You saw at the end of the second quarter, 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 then also announced the increase in our core dividend by 4%. And 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 earn-back makes sense. I think could extend a bit above where that's at right now. I think 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. We do have the share repurchase authorization in place right now that would allow us to continue to do that. But 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.

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 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?

Yes. So a couple of things. I mean 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 ad clients. So 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, so 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 and a reduction of the advertised CD rates. And then we also reduced our high-yield savings account, the different tiers there as well. And that probably, let's say, that range from 5 to 20 basis points depending on what the tier was. And then we also looked at our exception price clients and took some reduction there as well.

Got it. Last question for me, if I can just sneak it in related. Your cash -- 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.

Yes. We were holding throughout the quarter. 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, when 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.

Our next question comes from David Feaster from Raymond James.

I wanted to maybe touch on the competitive landscape a bit. I mean originations declined a bit quarter-over-quarter. Obviously, there's some noise. But I'm curious what in your mind drove the decrease in originations. Is that just -- is that weaker demand or slower pull through the pipelines or just -- is there more competition? 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. Obviously, we iterated 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?

Sure, David. So I think I'm pretty consistent in the message that the competitive landscape is it's 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, 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. So 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 is the next one coming, expecting a little bit more. So I think as we start to see that, it will pull some of the fourth quarter pipeline through a little bit faster. And again, fourth quarter is generally a strong quarter for us. I feel like I missed one piece of your question there, David. So it was competition, it was pipeline and did I get it? Or is there something else?

Yes, that was pretty much it. And I guess maybe just following up on that, like sort of the competitive landscape, maybe touching on -- you've got two sides of it. We hear mostly the competition has been on the pricing side. Is that -- I guess where are you seeing new origination yields and spreads? And then have you started to see that stretch the competitive landscape, maybe stretch more into underwriting and structures and standards? Or has that held up pretty well from your standpoint?

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 P&I amortizing loan structure. So there's that ask, and I think some of the banks are more inclined to give longer terms than we would be. But generally, the underwriting is holding up.

Yes. Okay. And then maybe just last one for me. In your prepared remarks, 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 are you 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?

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

Sure. Sure, Mark. So David, yes, 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 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. And the way we're thinking about that is that it will provide the organization with additional scalability, allowing us to grow loans and deposits into the future with adding less expenses into it. So we think the payoff for that is a longer-term payoff. Initially, any time you implement a new system, of course, your expenses are typically going to go up temporarily related to it. And then over time, you'll get those efficiencies and be able to have that scalability. Other areas that we continue to invest in is fraud-related technology, which, I mean, we've talked about multiple times that our fraud costs outpace our credit losses. So fraud is something you're continuing to look at. And then, I mean, we -- like everyone, AI is on top of mind on everyone. As our part of our moderate risk profile, we spent probably at the beginning of it taking -- doing a lot of governance-related activities, making sure that we were not taking any additional risk for the organization if we're 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. And then we're also working on kind of a longer-term strategic AI road map right now as well. But when we think about AI, we don't think about it as immediate cost reductions. We think about AI as being a longer-term investment that will give the scalability to the organization. So Jill, anything on the talent side?

Yes. The talent story is, David, the same as before and that we continue to add talent in the commercial and commercial real estate teams up and down the West Coast primarily this quarter, but we've added team leaders, RMs, commercial real estate lenders as well. And 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, they just resonate with our current operating model.

Our next question comes from Andrew Terrell from Stephens.

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 basis points from the Fed. I'm curious from a magnitude perspective, how you're approaching the rate cuts this time versus the 100 basis points we got late last year. Are -- you're 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 to this go around to the first 100 basis points? Or do you feel like client behavior has changed or gotten more sensitive at all?

Rob, are you there?

Sorry. Sorry, Mark. Yes. So Andrew, I guess what I'd start with is from a modeling perspective, we're modeling a 28% deposit beta. But 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. And that deposit beta has always lagged. We've taken 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 additional rate reductions related to that. So it's generally a lag impact. And then the other piece of it, of course, is your CD book. The CD book doesn't reprice right away. So even though we've reduced our advertised specials by 25 basis points, it takes some time for that to flow through. Probably about 2/3 of our CD book typically matures within a 6-month period of time. So it will take a little bit for us to see the impact on the CD side of things.

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

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. I mean, 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. So 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. So I think they're sophisticated enough to understand that as rates come down, the rate that they're earning on the deposits, all market deposit rates are going to come down. So we haven't seen any unusual sensitivity at this point.

Yes. Okay. Great. I appreciate it. And then just sticking kind of overall on the margin, I heard your comments about just expectations in a static quarter versus a quarter where the Fed cuts. But 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 time frame. Just when I look at the next 12 months, I think consensus margin is up only 6 basis points over the next 12 months. And then historically, you've been able to operate in that 4.25% to 4.5% margin range. So 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? And then just over the medium term, do you feel like a 4.25% to 4.50% kind of margin range is still achievable?

Yes. So Andrew, I guess, in general, what I'd say is, I mean, ultimately, it's going to be dependent on how aggressive the Fed gets and how they approach any kind of reductions. And so it's a bit hard to predict what they're going to do if you're going out longer term. At 3.98% right now, I mean, 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 is expecting, I mean, I think that's a more reasonable number certainly than getting up to 4.25% or 4.30%.

Our next question comes from Tim Coffey from Janney.

I had 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?

Sure, Tim. So 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 kind of use that as a basis to test where we think we are, recognizing that the originating on the values that we go into are generally much lower than some of the other lending institutions out there. And so we've got room for some valuation drop, certainly where things still continue to work. We also are continually contemplating what might happen to top line and revenue changes. So we're stressing in the income side we're stressing the cap rates and that sort of thing to look at the collateral. 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 add significant secondary sources of repayment to backstop losses. Did I get all of your questions?

Yes, that's great. Sorry. Yes, it was. Yes. And I just want to clarify, I wasn't so much asking about the -- how often you reprice collateral. It's more of how are you ensuring that the borrowers are doing what they told you they were going to do, right? So the personal guarantees does that, monitoring the collateral for sure, actually does that as well. So yes, but that...

Sorry, I was covenant testing financial statement, we require ongoing reporting from our borrowers. So -- 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.

Okay. great. That's helpful. And then my question for you, Jill. So 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? And did you see -- do you have any line of sight to that loan deposit ratio being higher than 90?

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

Okay. And then for Rob, I had a question about kind of the overall deposit pipeline. So 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?

So Tim, overall, what I'd say is, I mean, 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. So 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. So we haven't necessarily seen more movement in clients. And we have been successful in adding new clients and bringing those relationships in. And part of that is our focus on small business, which tends to bring in more deposits and loan balances. So, I still think it's a lot of hard work by our relationship folks to bring in those quality new clients. And I wouldn't say it's changed as far as us seeing clients moving from bank to bank in a shorter cycle.

Okay. Okay. Well, the core deposit growth year-over-year has been very strong at Banner. So good job. And then, Mark, if I can ask a question about a special dividend. Now I understand your capital priorities. I understand your comments about M&A. But I also see kind of 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 discussion this time next year?

Well thanks 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, and 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. But 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.

We have a follow-up question from Jeff Rulis from D.A. Davidson.

Jeff, are you there?

Hello. Mark, can you hear me?

I can hear you now, Jeff.

Okay. Sorry, just a follow-up. On the consolidating of office space, I want to kind of see if we're at the sort of the tail end of that in terms of some of the lease termination costs and the gains and losses on that. Is that at the tail end of that or kind of continue to nibble away at those as it comes up?

Thanks, Jeff, it's Rob. So yes, we'll see a couple more quarters of those back-office consolidation lease termination costs come through. So I would say we're going to see a potentially through the middle of '26. So maybe over the next 3 quarters, just depending on how quickly we can get through the space that we're exiting. So we'll see a few more quarters of it.

[Operator Instructions] We currently have no further questions. So I will hand back to Mark for any closing remarks.

Right. 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, but in particular, Banner, we're very proud of our performance and how we are viewing the future of performance for Banner. So 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.