Good morning, everyone, and welcome to the Banner Corporation Fourth Quarter 2023 Conference Call and Webcast. All lines have been muted during the presentation portion of the call, with an opportunity for questions at the end. I would now like to turn the call over to our host, Mark Grescovich, President and CEO of Banner Corporation. Please proceed.

Thank you, Candace, and good morning and happy New Year, everyone. I would also like to welcome you to the fourth quarter and full year 2023 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. Those statements include descriptions of management's plans, objectives, or goals for future operations, products, or services, forecasts of financial or other performance measures, and statements about Banner's general outlook for economic and other conditions. We also may make other forward-looking statements in the question-and-answer period following management's discussion. These forward-looking statements are subject to a number of risks and uncertainties, and actual results may differ materially from those discussed today. Information on the risk factors that could cause actual results to differ are available in the earnings press release that was released yesterday and the recently filed Form 10-Q for the quarter ended September 30, 2023. 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 fourth quarter and full year 2023 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 want to again 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 133 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 $42.6 million or $1.24 per diluted share for the quarter ended December 31, 2023. This compares to a net profit to common shareholders of $1.58 per share for the fourth quarter of 2022 and $1.33 per share for the third quarter of 2023. For the full year ended December 31, 2023, Banner reported net income to common shareholders of $183.6 million compared to $195.4 million for the full year 2022. The earnings comparison is primarily impacted by the provision for credit losses and the increase in funding costs. Our strategy to maintain a moderate risk profile and the investments we made during our Banner Forward program to improve operating performance and position the company well to weather recent market headwinds. 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, Banner forward expenses, gains on the sale of branches, loss on the extinguishment of debt and changes in the fair value of financial instruments. Our full year 2023 core earnings were $262.7 million compared to $251.9 million for the full year 2022. Banner's fourth quarter 2023 revenue from core operations was $157.1 million compared to $157.7 million for the third quarter of 2023. For the full year 2023, revenue from core operations increased 3% to $643.9 million when compared to the full year of 2022. We continue to benefit from a strong core deposit base that has proved to be resilient and loyal to Banner in the wake of a highly competitive environment, a very good net interest margin and core expense control. Overall, this resulted in a return on average assets of 1.09% for the fourth quarter of 2023. 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 represent 89% of total deposits. Further, we continued our strong organic generation of new relationships and our loans increased 7% over the same period last year. Reflective of the solid performance, coupled with our strong regulatory capital ratios, and the fact that we increased our tangible common equity per share by 18% from the same period last year, we announced a core dividend of $0.48 per common share. As I mentioned on previous calls, Banner published our environmental, social, and governance highlights report last December and published our inaugural ESG report earlier this summer. Both of these documents reflect the many ways in which we continually strive to do the right thing in support of our clients, our communities, and our colleagues and provide an outline of the level of commitment Banner has to the many communities it serves. Finally, I'm pleased to say that we continue to receive marketplace recognition and validation of our business model and our value proposition. Banner was again 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 just recently named Banner one of the best regional banks in the country. S&P Global Market Intelligence ranked Banner's financial performance among the top 50 public banks with more than $10 billion in assets and the digital banking provider Q2 Holdings awarded Banner their Bank of the Year of excellence. Additionally, as we have noted previously, Banner Bank received an outstanding CRA rating in our most recent CRA examination. 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 release, Banner's credit metrics continue to remain solid. Delinquent loans ended the quarter at 0.40% and compared to 0.27% as of the linked quarter and 0.32% as of year-end 2022. The adversely classified loans remained relatively flat at 1.16% of total loans and are down from 1.35% as of December 31, 2022. Banner's nonperforming assets increased to $3 million in the quarter, which continued to be centered in nonperforming loans and now total $30 million, representing a modest 0.19% of total assets. The net provision for credit losses for the quarter was $2.5 million, which included a $3.8 million provision for loan losses, offset in part by a release of $526,000 in the reserve for unfunded loan commitments, as well as the release of $750,000 of the provision recorded in the second quarter related to financial institution subordinated debt held within the investment portfolio. Loan losses in the quarter totaled $1.7 million and were offset in part by recoveries of $531,000, with net losses for the year totaling a nominal 3 basis points of average total loans. The provision for loan losses this quarter provided for continued loan growth, after which our ACL reserve totals $149.6 million or 1.38% of total loans as of December 31. This coverage level is identical to that reported in the linked quarter compares to 1.39% coverage as of December 31, 2022, and currently provides 506% coverage of our nonperforming loans. As anticipated, loan originations declined modestly again this quarter. Still, loan outstandings grew by $199 million or 2% for the quarter and grew by 7% year-over-year. While C&I line utilization was up 1% in the quarter, balances were down modestly and were down 2.2% year-over-year. Small business originations offset these paydowns such that year-over-year on a combined basis, commercial and small business scored loans are up 2.1%. Owner-occupied commercial real estate production was also positive up 8.3% year-over-year, all of which reflects the success of our super community relationship banking business model. As we anticipated, growth in the investor CRE portfolio, excluding multifamily, was muted in the quarter and reflects a modest decline in balances year-over-year. Given the expectation of the increased rate environment holding in the near term, we continue to anticipate muted commercial real estate loan growth over the next few quarters. Repeating what I have said before, our office portfolio remains well diversified, both in size and in geographic locations and overall credit performance has been solid to date. It remains balanced between investor CRE and owner-occupied represents 6% of our loan book, and there has been no meaningful change in the portfolio of loans secured by our office properties within the major metropolitan areas across our geographic footprint. We downgraded two small office secured loans this quarter. Adversely classified loans secured by office properties are currently limited to four loans totaling $7.2 million with only two loans totaling approximately $500,000 currently past due. Multifamily real estate loans were up $45 million or 6% in the quarter, almost exclusively related to converting the balance of multifamily loans that were originated for sale into the portfolio after eliminating that business line in Q3. This portfolio has grown 26% year-over-year and remained split approximately 55% affordable housing and 45% middle-income market rate housing and remains granular in size with balances spread across our footprint. Growth in the construction and development loan balances during the quarter was found almost entirely in the multifamily construction portfolio, up $51 million or 11% in the quarter. This portfolio grew by 55% year-over-year, primarily due to our continued emphasis on financing affordable housing projects throughout our footprint. Commercial construction outstandings increased a modest 1% in the quarter and ended the year 8% lower than that reported as of December 31, 2022, as there has been less demand for new projects in this higher rate environment. Residential construction exposure remains acceptable at 5% of the portfolio, flat with last quarter and is now split approximately 60% for sale housing and 40% are custom 1-to-4 family residential mortgage loan product. Outstanding balances continued their declining trend again this quarter, down 2% and are down 19% year-over-year. As I have discussed throughout the year, sales of completed starts continued to outpace new takedowns with builders remaining cautious in relation to their unsold inventory. Additionally, production of new custom construction 1-to-4 family mortgage originations has declined with commitments down 33% year-over-year. In total, construction and land development loan balances increased 3% year-over-year, driven primarily by the growth in the multifamily construction portfolio. When you include multifamily commercial construction and land, the total construction exposure remains at an acceptable 14% of total loans. As expected, agricultural loan balances began their seasonal decline with balances down 1% from the linked quarter. When compared to December 2022, balances increased 12% as we both expanded existing and added new relationships during the last growing season. And lastly, we again reported growth in the consumer mortgage portfolio, up 6% in the quarter and 29% year-over-year, continuing the trend of retaining completed all-in-one custom construction loans on balance sheet. I will close in the same way I started, noting that Banner's credit metrics continue to be strong and are reflective of a credit culture that is designed for success through all business cycles. Our consistent underwriting remains a source of strength, as does our solid reserve for loan losses and robust capital base. Given the continued economic uncertainty, I will again note that our credit quality metrics should not be expected to improve. Still, we remain well positioned to navigate the balance of this economic cycle. With that, I'll turn the microphone over to Rob for his comments. Rob?

Great. Thank you, Jill. We reported $1.24 per diluted share for the fourth quarter compared to $1.33 per diluted share for the prior quarter. The $0.09 decrease in earnings per share was primarily due to lower net interest income and higher losses on the sale of securities, partially offset by a gain recorded on multifamily loans moved from held for sale to held for investment. Core revenue, excluding loss on sales of securities and changes in investments carried at fair value, decreased $607,000 from the prior quarter, primarily due to higher funding costs, leading to a decline in net interest income. Total loans increased $156 million during the quarter, with an increase of $199 million in held for investment loans, partially offset by a decrease of $43 million in held-for-sale loans. As $43 million of multifamily loans previously held for sale were transferred to held for investment. The increase in total loans was primarily due to 1-to-4 family real estate loans increasing $79 million, and multifamily construction loans increasing $51 million due to advances on affordable housing projects. Total securities increased $37 million. The recent decline in interest rates led to an increase in the fair value of available for sale securities, which was partially offset by the sale of $34 million of available for sale securities and normal portfolio cash flows. Any additional security sales during the first quarter will be dependent upon market conditions. Deposits decreased by $145 million during the quarter due to a $90 million decrease in retail deposits and a $55 million decline in brokered CDs. Core deposits ended the quarter at 89% of total deposits. 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 borrowings with all capital ratios being in excess of well-capitalized levels. Net interest income decreased $3.4 million from the prior quarter due to the increase in funding costs offsetting the increase in earning asset balances and yields. Compared to the prior quarter, average loan balances increased $142 million and loan yields increased 12 basis points due to adjustable rate loans repricing, as well as new production coming on at higher interest rates. The average rate paid on new production for the quarter was 8.59%. Total interest-bearing cash and investment balances declined $100 million from the prior quarter, while the average yield on the combined cash and investment balances increased 1 basis point. The total cost of funds increased 23 basis points to 131 basis points due to increases in the rates paid on deposits and borrowings. The total cost of deposits increased 24 basis points to 118 basis points reflecting both increases in the rates paid on interest-bearing deposits as well as the shift in the mix of deposits with a portion of noninterest-bearing deposits moving into interest-bearing deposits. The decline in noninterest-bearing deposits during the quarter was largely concentrated in the month of November, where we saw some client event-driven activity. Noninterest-bearing deposits ended the quarter at 37% of total deposits. On a tax-equivalent basis, net interest margin decreased 10 basis points to 3.83%. The decrease was driven by increases in funding costs on interest-bearing liabilities, outpacing the increase in yields on earning assets. We expect net interest margin will experience some additional moderate compression during the first quarter, depending on Fed actions and market conditions. Total noninterest income increased $1.4 million from the prior quarter, primarily due to higher mortgage banking income, partially offset by higher losses on the sale of securities. The current quarter included a $4.8 million loss on the sale of securities. The average payback on these trades was under three years. Core noninterest income, excluding the loss on the sale of securities and the changes in investments carried at fair value increased $2.8 million due to a $3.5 million gain recorded on the multifamily loans moved from held for sale to held for investment, as well as increased income from bank-owned life insurance, partially offset by lower deposit fees. Deposit fees and other service charges decreased $1.4 million due to higher costs on debit card transactions and card replacement related expenses. Income from residential mortgage operations declined $568,000 due to normal seasonality. Total noninterest expense increased $730,000 from the prior quarter. The increase reflected higher payment and card processing expense due to higher fraud losses. Higher occupancy and equipment expense due to seasonal building maintenance, and lower capitalized loan costs. These increases were partially offset by lower compensation expense due to lower severance costs and lower legal expense. Despite the continued economic uncertainty, we remain focused on the long term. In 2024, Banner will be making strategic investments to expand its loan production capacity by adding talented relationship managers in key markets and investing in initiatives to grow its noninterest income. This concludes my prepared comments. Now I'll turn it back over to Mark.

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

Thank you, Mark. So our first question comes from Jeff Rulis of D. A. Davidson. Your line is now open, please go ahead.

Thanks. Good morning. Following up on Rob's comments regarding noninterest-bearing balances, Mark mentioned in the release that customers are still requesting higher rates, and that noninterest-bearing balance as a percentage of deposits has decreased to 37%. Could you provide insight into what the internal discussions are regarding where you believe that balance will stabilize or reach its lowest point? Any thoughts on that?

Good morning, Jeff. Thanks for the question. I'll turn it over to Rob.

Okay, Jeff. Yes, as you mentioned, our noninterest-bearing deposits are a bit different now, with 39% being the figure before COVID, but the interest rate situation was also entirely different then. Currently, the 37% holds up well compared to peer banks. It's challenging to determine where the lowest point might be. We believe we will perform better than most in this area, but pinpointing the exact low is tricky. We anticipate some further movement out during the first quarter. For now, we're approaching this on a quarterly basis, waiting to see when we notice a consistent decline in the amount leaving each quarter. Once we can observe that trend stabilizing, we'll have better clarity. There could be some relief in the second half of the year if the Fed begins to lower rates, which might ease some pressure. For the moment, we're focusing on one quarter at a time.

I should have mentioned that mid-30s is a relatively high figure compared to our peers. Regarding margins, Rob, you indicated there would be further compression. The decline in the fourth quarter is actually greater than that of the previous quarter, so I'm trying to understand the scale of this change. For the first quarter, it seems like the conversation is about moderating compression. Additionally, I believe you still have an asset-sensitive profile. What do you think would happen if there were three rate cuts this year compared to six? Can you provide any insight on where you expect margins to go from here?

Certainly, Jeff. Looking at the loan side, the asset portion appears to be somewhat more predictable right now. If the Federal Reserve maintains its current stance, we anticipate that loan yields will continue to rise, similar to what we observed this quarter, roughly in the 10 basis point range. This is mainly due to a significant number of adjustable-rate loans that have yet to reprice in this cycle. Additionally, as fixed-rate loans mature, they are being replaced with loans at much higher interest rates. Unless additional factors arise throughout the year, we expect a yield increase of about 10 basis points each quarter. However, when the Fed begins to lower rates, the floating rate loans, which comprise about 26% of our portfolio, will readjust immediately in response to any cut in Fed funds. If those cuts occur gradually, say two cuts this year with one cut per quarter, we believe that the adjustments in the rates will balance out any decline from the floating rate loans. The situation becomes more complicated if the Fed takes a more aggressive approach. In such cases, we don’t expect the 10 basis point quarterly adjustment from the adjustable rates to counteract a larger reduction of, say, 75 basis points in a single quarter. Regarding deposits, the outlook is less clear, but we expect to see continued increases in deposit and funding costs likely through the first half of the year. Following the Fed's actions, we might experience some stabilization or even flattening in funding deposit costs. Ultimately, once rate cuts begin, we should start to see some relief in deposit costs, although there may be a lag due to the current state of market liquidity.

Okay. So Rob, any moves you're making to kind of make the bank more rate neutral? Or I don't know about hedges. I guess you kind of have a natural revenue hedge with the mortgage unit, we get aggressive cuts that kick in. But any management of the balance sheet or trying to get a little more neutral? Or at this point, any kind of adjustments.

Yes, I agree. The residential mortgage business serves as a natural hedge in this situation. That operation is still active, and if the interest rate environment changes, we will be able to quickly take advantage of that within that unit. We also have implemented floors on a significant portion of our loans, which will provide support in that environment. However, artificially hedging the portfolio isn't feasible due to the floors we have in place, as hedges aren't compatible with floor provisions on the loans.

Okay. Thank you. I’ll step back.

Thanks, Jeff.

Thank you. Our next question comes from the line of Eric Specter of Raymond James. Your line is now open, please go ahead.

Hey, good morning, everybody. This is Eric on the line for David Feaster. Thanks for taking the questions. Starting on the credit front, just given the uncertain backdrop, I know you're very conservative on the credit front, but just curious how maybe you're stressing the book and how you're approaching upcoming maturities and the process for modifications now that TDR rules have changed.

Yes, Eric. Thanks for the question. We are regularly stress testing our portfolio. So we take a look at reviewing income and debt service coverage. We stress vacancy levels concerning the real estate loans and their impact on the net operating income, debt serviceability look at changes in cap rates based on the interest rate and what that does to the collateral coverages. When you think about our commercial real estate portfolio, that has about 15% of that will have a rate reset over the next 24 months. And our most recent review reflects no significant concerns with regards to the repayment ability based on the current yield curve and their current most recent operating statements. Additionally, because the portfolio is still lowly leveraged on an average basis, where the properties are generally well positioned to sustain those changes in asset values. So we have not seen to date any issues with people who need to refinance, whether it's off-balance sheet or in our portfolio.

Okay. That's helpful. And then maybe just outside of the margin, I'm just curious how you think about the impact of declining rates on the balance sheet and income statement. Would you expect to see additional loan growth potentially from that? And at what level would you expect to see and what segments do you think you'd see it first? And just curious how you think about your ability to reprice deposits and drive additional core deposit flows if rates begin coming down.

So I'll take a stab at our loan growth and then let Rob talk about the deposit side of the equation. But going into 2024, we are expecting a low to mid-single-digit growth rate. As the rates come down, we would expect activity to pick up, both in commercial real estate and I would say construction as well, we'll just get more activity that has been on pause. Some of that will be offset by what I would anticipate to be a higher refinance on the residential mortgage book as they refinanced down. So those combined together, even in a shifting rate environment is what leads me to say a low to mid-single-digit growth rate.

Yes. And on the deposit side, I guess what I'd say there is that clearly, in the current environment with the rate environment right now, it doesn't really pay to try to go after deposits right now, other than through full relationship. So I think as part of that loan growth that Jill is talking about there as rates start to come down, we're focusing that loan growth either on existing clients or clients that are bringing in a full relationship with them, meaning that they're bringing their primary deposit accounts with them as well. So there certainly could be some opportunities there as rates start to come down.

Okay. That's helpful. And then just maybe just touching on capital. It was great to see there on TCE given lower rates. Just curious your thoughts on capital just more broadly and capital priorities are at this point, what the capital returns in the cards at all? Just curious your ideal methods of capital deployment today.

Sure, sure. So I mean, just a reminder, kind of our capital priorities. First and foremost is the core dividend, which we kept at $0.48 for the quarter as we have been paying. And then beyond that, historically, we have done share repurchases and occasionally, some type of special dividend. And beyond that, I mean, of course, we're always interested in M&A activity if it's the right opportunity at the right price. And the capital has continued to build. So we haven't repurchased shares for all of last year at this point. So capital levels continue to build. And we think in this current environment with a bit of economic uncertainty, it makes sense to be building that capital currently. And so, I wouldn't expect in the near term that we would change any of our priorities or change the capital actions that you've seen really over the last year, once we get into maybe the second half of the year, maybe there's better economic certainty out there, and then we can look at changes in our capital actions at that point in time.

Okay. Thanks for taking my question. And I’ll step back.

Thanks, Eric.

Thank you. Our next question comes from the line of Andrew Liesch of Piper Sandler. Your line is now open, please go ahead.

Thanks. Hi, good morning, everyone. Just a question on some of the last prepared comments. You mentioned expanding loan production capacity by adding new bankers and then investing in initiatives to grow fee income. Any more details you can provide on that? What sort of hiring plans you may have? What locations? And what some of these initiatives may be?

Sure, Andrew, this is Jill. I'll take that one. as we have discussed throughout the year, we have been adding new bankers and it has included not just commercial and commercial real estate lenders, but we've added business bankers, treasury management officers, and other back-office personnel as well. It's been across the footprint really. And as to relationship managers more up and down the West Coast I5 corridor, but not limited to that. And we expect to see that continue into 2024. We're still having good conversations. We kind of hit a slight pause, I would say, right here in the first quarter until people get their annual or quarterly bonuses, but the conversations are still going on, and we would expect to continue to add. And I would throw in that these new team members are not just bringing new client relationships, but they bring a level of enthusiasm about what Banner is able to serve that kind of lifts the whole boat. So we anticipate more client disruption and more new bankers.

Got it. And I think in the past, you've mentioned these are coming from larger banks? Is that still the case?

It is. By and large.

Great. I just have a quick question regarding fee income. Are the deposit fees and other service charge lines expected to return to the previous run rate? Additionally, is the current bank-owned life insurance amount what we should expect moving forward?

Yes. So first, on the deposit and fee side. So I would say the run rate is probably somewhere in between Q4 and Q3 is what I would say at the run rate. And then on the bank-owned life insurance, there was a death claim in that area. So the current quarter was a bit higher than the run rate.

Got you. All right. That’s helpful. Thanks for taking the question. I’ll step back.

Thank you, Andrew.

Thank you. Our next question comes from the line of Andrew Terrell of Stephen. Your line is now open, please go ahead.

Hi. Good morning.

Good morning, Andrew.

I wanted to first kind of follow up on some of the commentary on the hiring and just maybe first acknowledge you guys have done a really good job in managing the expense base with some of the Banner Forward initiatives. But just as we look into 2024, it sounds like the pipeline for hiring still is solid today. Just want to maybe marry that with how you're thinking about just expense growth and the rate of expense growth in 2024.

Yes, Andrew, it's Rob. We have been making those strategic investments because we are focused on the long term. If there’s an opportunity to take advantage of the current market disruption by bringing in the right talent, we are prepared to make those investments. Regarding expenses for 2024, we anticipate a typical inflationary increase. Comparing annual 2023 to annual 2024, we're currently considering something around 3%. For a quarterly perspective, the first quarter tends to be a bit higher due to the reset of payroll taxes, so we expect Q1 to be the highest of the year, resulting in a figure that is somewhat elevated compared to the actual run rate for the first quarter.

Okay. That's helpful. I appreciate it. If I could ask on the margin. Rob, do you have the spot cost of either interest-bearing or total deposits in the month of December?

I don't have that in front of me here. But what I'd say, Andrew, is the cost of deposits for Q4 was essentially in line with probably just November cost of deposits. And so, if you take the starting point, endpoint and the trajectory, I would think that December, you can probably kind of interpolate where December would have been out. But November and the cost of deposits average for the quarter were about the same and December is higher than that.

Got it. Okay. That makes sense. And I guess, just overall on the margin kind of going into the first quarter, just given the noninterest-bearing decline and maybe a higher starting point on the deposit cost side, I mean, is it fair to think that the margin could see more compression than the 10 basis points you saw in 4Q as we go into the first quarter?

Yes. I mean, we hasn't put a number on it just because of there's a lot of cloudiness out there at this point in time. But I think we're looking at the trends. So Q3 was 7 basis points, Q4 is 10%, it certainly could be in that 10% or 10 basis points decline there, compression in the first quarter. But what I would say, too, is that historically, Q1 has been a better deposit quarter for us compared to Q4. And then Q3 usually, the two best deposit quarters for us are actually Q3 and Q1. And Q3 behaved a lot better than Q4. So I think, while we could be a bit higher than 10 basis points, we certainly could be a bit lower than that as well.

Okay. And maybe last one for me, just on the savings deposits, they were up really nicely this quarter. Just wanted to get a sense of, I think it was up $230 million or so quarter-on-quarter for that deposit growth that you saw in the savings bucket, specifically, do you have kind of what the incremental rate paid was for the new growth? And what I'm trying to get a sense of is just whether there's kind of money coming on from like a new high-yield savings offering? Or just is it more kind of in line with the average deposit costs? Any color there would be helpful.

Yes, of course. We haven't changed our stated deposit specials since May. Due to our strong liquidity position and solid core funding base, we haven't needed to chase the market aggressively. Currently, the top tier rate on our savings accounts is 4%, which is tiered. However, we are open to offering exception pricing for our best clients in that product, potentially reaching up to the 5% range. On average, the cost of our high-yield savings account is around 3.61%.

Got it. Okay. Those are all the questions I had. I appreciate you guys taking time for me there.

Thank you, Andrew.

Thank you. Our next question comes from the line of Kelly Motta of KBW. Your line is now open, please go ahead.

Hi, good morning. Thank you for the question. I would like to follow up on the topic.

Good morning, Kelly.

Good morning. I wanted to follow up on the deposit side. I think, Rob, you made a comment in the Q&A that it doesn't necessarily make sense to chase deposits here. Just wondering, I saw in 4Q with deposits down, you kind of backfilled funding with FHLB. Just how we should be thinking about the funding of growth and the use of wholesale funding as we look ahead with kind of that low to mid-single-digit loan growth anticipated?

Yes, Kelly. We did notice an increase in our FHLB advances, but it's important to highlight that our dependence on wholesale funding is quite minimal. We experienced a decline of about $90 million in retail deposits, which was somewhat event-driven and not something we expect to see persist. Additionally, we allowed $55 million of brokered CDs to mature. I attribute part of the increase in FHLB advances to covering those maturing brokered CDs. Currently, our brokered CDs are fairly small at $108 million. If retail deposit activity doesn't rebound, we may need to rely on FHLB advances for coverage. The benefit of FHLB advances is that they are short-term, essentially overnight, allowing us to pay them down as deposit activity improves. If interest rates decrease later in the year, it will enable us to reduce those advances quickly. Regarding loan growth, we're focusing on cash flows from our securities portfolio, which should yield about $60 million. We may also consider additional security sales, as we continue to evaluate our options in the current rate environment. Ultimately, the FHLB advances would be among the last resources we tap into.

I’d like to revisit the margin in relation to loan yields and how we might handle the pressure from one or two rate cuts. If we follow the forward curve, the impact could be more severe. Should we expect that modest rate cuts might provide some relief to our margins, but initially, we might also see greater downward pressure if rates align with the forward curve? I’m trying to align our expectations with what the market is pricing in compared to our internal rate expectations at KBW.

I believe we are well positioned for a gradual decline in interest rates. The adjustable rate loans that haven't yet repriced to the current cycle are likely to benefit if we see rates decrease by 25 basis points at a time. If there are two or three cuts in the latter half of the year, the impact on the adjustable rates should be manageable. However, if the Fed acts more aggressively, we might experience a temporary negative effect on margin. Over time, the adjustable rate loans will continue to reprice upwards unless there is a rapid decline in rates.

Super helpful. Maybe last question for me, maybe for Jill. It looks like there was, obviously, in a very small base, but a little bit of an uptick on early delinquencies. Just wondering if there's anything you're seeing there to just normal kind of later payments around the holiday season. Just wondering if you could provide any color on that.

Yes, Kelly, that's exactly what it is, is year-end holidays and just normal delinquencies. I think what I would emphasize is that, when the credit metrics are as clean as they have been, any little change moves the dial, so 0.4% delinquency is still very strong.

Absolutely. Thank you so much. I’ll step back.

Thank you. Our last question comes from the line of Timothy Coffey of Janney. Your line is now open, please go ahead.

Great. Thank you. Good morning, everybody. I guess for Mark and Rob. As you kind of look at the type of depositors that are still chasing rate, are you seeing a difference between your urban customers and your more rural depositors?

Hi, Tim, it's Rob. Thanks for the question. Yes, I think we are observing some different behaviors. Generally speaking, our true clients are likely leaning more towards consumer-type deposits, although there are several commercial clients as well. On average, Metro seems to have a higher proportion of business deposits. Instead of focusing on rural versus urban, I would characterize it as consumer versus commercial. It appears that consumers are even more sensitive to rates than some of our commercial clients, leading to more movement in that segment. Commercial clients are currently managing their balance sheets and shifting funds, but they also need to maintain a certain balance in their noninterest-bearing checking accounts for regular operations. This activity probably took place some time ago, but we are still observing sensitivity among consumer clients.

Okay, that’s helpful. Thank you. Now a question for Jill. As the credit metrics begin to normalize towards pre-COVID levels, what is your outlook for the economy within Banner's footprint? Are you anticipating a soft landing or something more severe?

Well, Tim, I wish I had a crystal ball. I'm leaning to a soft landing, and it's really because of the markets that we're serving. I feel really good about the West Coast and how strong it has held up. But at the end of the day, we're well positioned to deal with whatever is thrown our way, and we're just going to keep on doing what we do.

All right. Thank you. Those are my questions.

Thanks, Tim.

Thank you. Our last question comes from the line of Jeff Rulis of D.A. Davidson. Your line is now open, please go ahead.

Thanks. I have a quick question regarding credit, specifically about the increase in commercial and industrial nonaccruals compared to the previous quarter. Overall, the nonperforming assets to assets ratio is under 20 basis points, which is a small figure. I'm looking for insight into what caused the rise in commercial nonaccruals, particularly if there were specific segments contributing to it.

It was granular, Jeff. I mean, actually, we've had a little bit of movement out and movement in, but it's not industry-specific or anything that points to a larger concern.

Fair enough, I will check. One last question is about the mortgage side. I’m trying to understand the benefit from the move within the multifamily investment. There seems to be a slight increase in the mortgage banking line. How do you see this evolving in 2024 compared to 2023? Do you anticipate a slightly better year for mortgage banking overall when looking at year-over-year performance?

Yes. It's Rob. So yes, yes, I think it's obviously heavily interest rate environment driven. But we have seen a bit of a pullback in rates. So that should help the activity if we continue to see rates come down. Our expectation is that 2024 would look better than 2023. Still could be a challenging year for the industry, obviously, but we do think that we would see some pickup in residential mortgage banking operations during 2024 compared to 2023.

Rob, do you expect any additional multifamily actions that could benefit that line item, or was it primarily significant in Q4?

Yes, it was primarily a Q4 item. We have been writing down the fair value of multifamily loans as interest rates have increased. Throughout the first nine months of the year, we wrote down $800,000. The gain we recorded in Q4 was largely a recovery of some of those losses from earlier in the year, along with some losses from prior years. Now, we have moved all multifamily loans out of held for sale, so we don't anticipate seeing that benefit again. On the flip side, we have discussed making strategic investments in other areas, including our SBA operations. In Q4, we hired several new business officers to help grow our SBA business and increase gains from SBA loan sales, which we hope will offset the gains we would have normally seen from multifamily loans in a typical environment. While I can't provide specific expectations for our SBA business in 2024, we do anticipate a gradual increase in loan sale gains throughout the year in that segment.

Great. Thank you for the color there. That’s it from me. Thanks.

Thank you, Jeff.

Thank you. As there are no additional questions waiting at this time. I'd like to hand the conference call back over to Banner Corporation's President and CEO, Mark Grescovich for closing remarks.

Thank you, Candace, and thank you all for your questions and your attention today. As I stated, we're very proud of the Banner team and our 2023 performance in the wake of what is a very challenging environment for our industry. So thank you again for your interest in Banner and for joining our call today. We look forward to reporting our results to you again in the future. Have a wonderful day, everyone. And again, Happy New Year and a kick-off to 2024.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines.