Good morning, and welcome to the Banner Corporation's First Quarter 2018 Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Mark Grescovich, President and CEO. Please go ahead.

Thank you, Rachelle, and good morning, everyone. I would also like to welcome you to the first quarter 2018 earnings call for Banner Corporation. As is customary, joining me on the call today is Rick Barton, our Chief Credit Officer; Peter Conner, our Chief Financial Officer of Banner Bank; Albert Marshall, the Secretary of the Corporation; and in his final earnings call, Lloyd Baker, our Chief Financial Officer of the Corporation. Albert, would you please read our forward-looking safe harbor statement?

Certainly. 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, 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 a recently filed Form 10-K for the year-ended December 31, 2017. Forward-looking statements are effective only as of the date they are made, and Banner assumes no obligation to update information concerning its expectations. Thank you.

Thank you, Al. As announced, Banner Corporation reported a net profit available to common shareholders of $28.8 million or $0.89 per diluted share for the quarter ended March 31, 2018. This compared to a net profit to common shareholders of $0.72 per share for the first quarter of 2017 and a loss of $0.41 per share in the fourth quarter of 2017. Excluding the impact of merger and acquisition expenses, gains and losses on the sale of securities and changes in fair value of financial instruments, earnings were $26.3 million for the first quarter 2018 compared to $24.2 million in the first quarter of 2017, an increase of 9%. Due to the hard work of our employees throughout the company, we are successfully executing on our strategies and priorities to deliver sustainable profitability and revenue growth to Banner. Our core operating performance continued to reflect the success of our proven client acquisition strategies, which are producing strong core revenue, and we are benefiting from the successful integration of our recent acquisitions, which have had a dramatic impact on the scale and reach of the company and are providing a great opportunity for revenue growth. Our first quarter 2018 performance clearly demonstrates that our strategic plan continues to be effective, and we are building shareholder value. First quarter 2018 core revenue was $117.4 million compared to $114.6 million in the first quarter of 2017. We benefited from a larger and improved earning asset mix, a net interest margin that remained above 4% and good deposit fee revenue. Overall, this resulted in a return on average assets of 1.16% for the first quarter of 2018. Once again, our performance this quarter reflects continued execution on our super community bank strategy that is, growing new client relationships, adding to our core funding position…

Thanks, Mark. Maintenance have stabled as well-positioned credit metrics at Banner continued during the first quarter of 2018. My brief remarks this morning will highlight the continuing moderate risk profile of the company's loan portfolio. Before commenting on some of our credit metrics, I again will make my usual statement that Banner's metrics are not likely to improve further as we move toward the next credit cycle. Delinquent loans decreased 10 basis points from the linked quarter to 0.56% of total loans and compares to delinquencies of 0.51% 1 year ago. This pattern of change in delinquent loans is normal when total delinquent loans are at their current low level. The company's level of adversely classified assets, again, decreased modestly 4% during the quarter, reflecting both positive economic activity in our footprint and continuing good borrower performance. Nonperforming assets decreased 5 basis points from the linked quarter to 0.23% of total assets and are comparable to the year-ago level of 0.21%. Nonperforming assets were split between nonperforming loans of $23 million and REO and other assets of $1 million. Not reflected in these totals are the remaining nonperforming loans of $5 million acquired from Siuslaw and AmericanWest banks, which are not reportable under purchase accounting rules. If we were to include the acquired nonperforming loans in our nonperforming asset totals, the ratio of nonperforming assets to total assets would still be a modest 29 basis points. Performing troubled debt restructures decreased by $1.9 million during the quarter. For the quarter, the company recorded net loan recoveries of $1.2 million after loan charge-offs of $900,000. We consider first quarter charge-offs to be abnormally low when compared to recent quarters and historical norms. After a fourth quarter provision of $2 million and net loan recoveries of $1.2 million, the allowance for loan…

Thank you, Rick. And good morning, everyone. As Rick and Mark have noted, this will be the last time I participate in a Banner Corporation earnings call. I did not recall when the first earnings call was, but I do know that our Chairman, Gary Sirmon, who was then the CEO, was the first speaker that day. And then as I stared at the speakerphone in the middle of the table, I developed a deep sense of respect for radio announcers who talk for hours not knowing who, if anyone is listening. I also recall that before I finish speaking, Gary had addressed every single point that I had intended to talk about. At which time he was asked me to provide my comments and I was struck dumb. Of course, Gary was just the first CEO that I joined on these calls and was followed by 8 years of cause with Mike Jones, who often provided me with surprises as well. And for the last 8 years with cause with Mark Grescovich. The good news now is that I always know exactly what Mark is going to say. So because this is my last call, I'm going to leave the financial details for the quarter to Peter and instead relate a few more general observations on the state of the company and its prospects for continued success. Prospects that I believe are very good. For a number of quarters, in fact, years, we have used and some would say overused words like continued trends, solid revenue generation and consistent earnings momentum to describe Banner's performance. As noted in our press release and in Mark's opening comments, the first quarter of 2018 presented no exception to this type of description and reflects the strong underlying fundamentals that have positioned the…

Thank you, Lloyd. It's been an honor working with you. As discussed previously and as announced in our earnings release, we reported net income of $28.8 million or $0.89 per share for the first quarter, up from a loss of $13.5 million or $0.41 per share in the prior quarter. The $1.30 per share increase from the prior quarter was due to the following items, net interest income increased $0.06 despite a modest $66 million decline in average earning assets due to a 17 basis point increase in the net interest margin. Noninterest income declined $0.19 due to the gain on sale of the Utah operations in the prior quarter, partially offset by the gain in securities carried at fair value in the current quarter. Core noninterest income, including deposit fees and mortgage banking income remained stable. Noninterest expense decreased $0.01 as a result of decreased marketing and professional services expense, partially offset by higher employee benefits and payroll taxes in the current quarter and higher REO expense due to gains on sales taken in the prior quarter. Income tax expense decreased $1.42 in the current quarter due to the write-down of the company's deferred tax assets in the prior quarter and the lower effective tax rate in the current quarter. Turning to the balance sheet. Ending assets increased $554 million from the end of the fourth quarter to $10.3 billion at the end of the first quarter as a result of deposit growth and releveraging the investment portfolio after staying under the $10 billion threshold at year-end. The investment portfolio, including interest-bearing deposits, increased $500 million from year-end, reflecting the purchase of new securities during the quarter. Total loans increased $58 million from the prior quarter. And as a result of growth in the held-for-sale balances of multifamily loans,…

Thank you, Rick, Lloyd and Peter for your comments. That concludes our prepared remarks. And Rachelle will now open the call and welcome your questions.

[Operator Instructions]. The first question comes from Jackie Bohlen with KBW.

I just wanted to dig into loan yields just to start off with, given the strength that you had in the quarter. How much of the factor was mix in that?

Jackie, it's Peter. So there was some modest impact to mix. So we saw an increase in construction loan balances in the quarter and construction loans carry higher average yields in the rest of the portfolio. So we had some benefit of that, although it characterized most of the increase and the core contractual rate was due to the effects of the fed tightening, both in December and to a much lesser extent at the end of March. 30% of our loans are tied to prime and LIBOR, and we price as soon as those rates move up.

So is it fair to assume then that we'd see another -- depending on the construction mix, of course, another good side pump up in 2Q as well?

Well, I'd characterize it this way. We will see some benefit from the said hike from mid-March that will carry into the second quarter. However, we also continue to see pressure on pricing of new loans that create some headwinds to the otherwise increase with CNO's floating rate loans. I think the contractual increase we saw in the first quarter would be a reasonable guide, assuming the mix stayed the same in the second quarter.

Okay. And where was new loan pricing in the first quarter versus the portfolio?

It was up somewhat compared to the average portfolio yield that we recall that we not only guide increases in the fed funds and LIBOR rates, but we also saw a 20 to 30 basis point increase in the 5 and 10 year part of the curve where we price CRE term loans. So I don't have an exact number for you. But I'd characterize the new loan yields are coming on at slightly higher rates than our existing portfolio yields.

Okay. That's helpful. And what about the securities that were purchased in the quarter? What rate were those at?

9] So we're averaging about 2.80 to 2.85 on the security portfolio and our repurchase at that rate. We contend to continue to manage a similar mix of securities, so we're not taking any additional duration over our historical averages and rebuilding the portfolio. But on average, those securities are coming in at about 2.80.

Okay. And are you pretty much done with the releveraging, or is there still more to go?

We are done. We were done at the end of March. I will note, however, we built throughout the quarter. And so the average balance of securities going into the second quarter will be higher than the average balance that we saw in the first quarter. And as I noted in my prepared remarks that will create some headwinds in our margin because the composition of securities and the earning asset mix will be higher in the second quarter than it was in the first quarter relative to loan outstanding. So we'll have some headwinds on the total earning asset yield in the second quarter. And then that coupled with increasing funding costs, which will be some likely modest increase to our deposit costs as we go into the second quarter, but also influenced by the amount of wholesale funding that we'll use to fund the earning assets, which are going up at so much faster rates given the wholesale market. And the second quarter will create some pressure on our margin relative to the first quarter.

Do you expect a big increase in wholesale -- I guess, do you expect much of an increase in wholesale funding in the second quarter?

Well, it's not so much the increase from where we ended March. But you can think of where we ended. We rely on the FHLB, which tends to correlate highly with short-term LIBOR rates in terms of our wholesale borrowing costs. But the bigger driver of our funding cost increase will be the fact that we typically have a slow -- a bit of a slowdown in deposit growth in the second quarter were tax payments. So more of our funding mix will be made up of wholesale borrowings in the second quarter than it was in the first quarter. So the mix of funding will have some pressure on simply due to the fact that more of the funding will come from wholesale sources in the second quarter than it did in the first.

Okay. That's very helpful. And then just one last one and I'll step back. In terms of deposit costs, given the very limited movement that we saw in the first quarter and then the comments about pressure going forward. Are you seeing an increase in volume of calls coming in after the March increase, or are there any changes that you're making as a result of that?

We have a calibrated approach to evaluating our deposit pricing across all of the regional markets we're in. And we are seeing the beginnings of some pressure on the higher tier money market balances, savings balances and some of the CD tenures channels. And we've made some calibrated adjustments in those products. Some of those, you saw the effect in Q1. You'll see some of the effect of what the changes we made in the first quarter continued to carry into the second quarter in the form of additional increases. We continue to see a fair amount of requests for exception pricing. And those also bubbled through as some increases the overall deposit costs. Although, so far they're fairly modest.

The next question comes from Jeff Rulis with D.A. Davidson.

Comment on the deposit success that you had in the quarter on the growth side. You mentioned, obviously, some timing and this is typical in Q1, but it seemed a little more pronounced. Anything that's overly effective, or you could point to on the deposit side. It really was kind of seasonal in nature and you've already seen some outflows or something in 2Q?

Jeff, it's Peter. Yes. So they're two elements that made the first quarter somewhat unusual and the amount of deposit growth that we saw. The first is we repatriated about $80 million of deposits that we had moved off balance sheet as part of our deleveraging strategy in the fourth quarter. So we brought those back on the balance sheet. We also saw an unusually large amount of commercial client deposit inflows related to business sales in the first quarter. And first two elements are not typically what we see in the first quarter. That being said, we have seen generally very good and robust account growth in deposit -- balance increase across our entire deposit portfolio, but I would characterize a portion of that growth to the deleveraging activity we did at the end of the year, along with some unusually large inflows related to a few large commercial clients.

Great. That's helpful. And then just on the expenses. I don't know if there's any more to say, looked pretty clean. Really anything at one time or the balance of the year, I guess, if you had a little higher payroll this quarter and lower on advertising that sort of normalized. But, I guess, if you could comment on potential growth rate of expenses from this phase, so that's a pretty solid core number?

The first quarter expense base was a bit low for the following reasons, one, we had a low quarter of advertising and marketing. And it is typically down a bit, but it was lower even than we normally see in a first quarter. And so that line item will continue to -- that'll go back up to a normal pace of advertising and marketing as we go into the second and third quarters. The other line item, the miscellaneous expense line item, in particular, we had a couple of credits or refunds from our core service provider from a prior year that were recorded in the first quarter. So our miscellaneous expense was a bit lower than normal. And then we also had a low quarter of loan expenses, which is really tied to the fact that we -- loan production was lighter in the first quarter, so that expense line item is tied directly to the amount of production we had and that was down a bit. Employee expenses were also down a bit in the first quarter simply due to seasonality and the pace of travel and conferences we do within the company. And then lastly, we also -- our information services line was also positively affected by some -- a couple of rebates. And so as we look into the second quarter, a couple of things are going to happen. One is, we're going to see a full quarter of our normal merit promotional increases, given to employees at the end of the first quarter carry into the second quarter. So we'll see some impact of compensation of salaries, specifically going up in the second quarter, along with those other line items returning to -- they're more normal pace and run rate expense in the second quarter. So all that means is, we'll see some increase in our expense overall going into the second quarter from what we recorded in the first quarter.

Okay. And maybe one last one for Mark. Just checking in on the M&A front latest discussions and kind of your thoughts lately on what you're seeing on M&A?

Yes. Thanks, Jeff. I would characterize the M&A conversations as not dissimilar to where they were 12 months ago. I think there are still folks that are trying to understand the impact of the Tax Reform Act, how their company is positioned, how to take advantage of the strong markets in which we operate. And for us, as we've alluded to before, any type of M&A discussions we have, have to be negotiated transactions. We're not in a position to just overprice for an auctioned franchise. So there really is nothing new to the M&A conversations that are occurring today.

The next question comes from Tyler Stafford with Stephens.

I know you talked about the 2Q deposit growth expectations, but as we kind of just step back and think about the year. Can you talk about how do you think about balance sheet growth, both loan and deposit growth for the entirety of 2018?

Tyler, it's Peter. Yes. We're consistent in our guidance around annual growth in both loans and deposits being in the mid-single digits, mid- to high single digits for both core deposit growth and loan outstandings. And so that has not changed. And we don't anticipate any meaningful change from that trajectory.

Tyler, this is Mark. I think the only thing I'd add is, if -- inside of Peter's comment, what you heard is, if you were to normalize our loan growth for the sale of Utah, you would see us at just over 5% growth. We think with some of the strength of the economy, you would characterize our loan growth this year is something similar.

Okay. And then secondly, can you talk about the hiring or the client acquisition opportunities within the markets that you're saying just given some of the dynamics from competitors closing branches and whatnot?

Right. This is Mark, Tyler. I think that's a good question. I think there's 2 components here. One, you alluded to which is talent acquisition that continues to be one of the top priorities of our company, is retention as well as talent acquisition. And we are benefiting from the fact that a number of banks have decided to either contract or exit markets. We are now through what you would characterize as the bonus season. And we're seeing quite a bit of opportunity on client acquisition -- on talent acquisition. Peter also alluded to in his comments, our retention rate or turnover rate has been very low. So obviously, we've done a very good job of retaining talent in our organization. In terms of client acquisition, it's still a little early to tell. I mean, customer acquisition, still little early to tell. But we're optimistic that some market disruption is going to prevent -- present some very good opportunities for us for continuing our client growth. In the first quarter, on an annualized basis, we grew net households by about 6%, just under 6%. And we would hope that, that would begin to accelerate a little bit given the market disruption.

Okay. And then I may have missed it, but what's the merit increases on the comp line in March? How much was that total?

So we'll have about a 3% all-in merit increase on average for the company. We put that through at the very end of March, so we really didn't see much of an impact in the first quarter around the merit increase but that will carry into the second quarter.

The next question comes from Louis Feldman with Wells Capital Management.

Rick, can you give a little more color on the CRE in terms of -- is there still interest in this or are people starting to sell at what might be a cyclical high? Is their demand for CRE loans or -- and can you give a little more color on that?

Sure, Lou. Well, let's address the activity that occurred in the first quarter. As I mentioned in my comments, some customers were able to sell properties at very, very significant gains and that gets to your point of activity in the marketplace. And also, they were moving towards some of the lower institutional rates to lock in rates for the longer term. Having said that, we're seeing comparable pipelines building for CRE loans as we go into the second quarter. So I think that there are still robust lending opportunities available in that area.

Okay. And then Mark, you haven't touched on Islanders in a while, could you give us a 30-second update, not that anything really ever happens out there?

Thanks, Lou. For those on the call, our Islanders Bank affiliate is one of the subsidiaries of the holding company. And it's currently 3 branches in the San Juan Island, and it has performed very well. And it continues to be a top performing bank. We're going to continue to run it as the Islanders Bank. It has a very good niche in its marketplace, and it's doing quite well. I would characterize its performance as stable to slightly improving.

Okay. Mr. Baker, what a long strange trip it's been for FWWB?

Yes, it has and it will.

Remembering that meeting back in the 1099 building, with you and Gary back in 1998 and the days when it was just Bradshaw and myself.

Yes. It's being left in awfully good condition here. So Mark and Peter are going to have nice conversations with you all for quite some time, I think.

The next question comes from Tim O'Brien with Sandler O'Neill.

First question, last quarter, you talked a little bit about professional service charges or costs coming down. There was a nice decline this quarter. Is that fully captured? What you guys think of that line item is going to run at here going forward or, I think, it was $4.4 million for the quarter versus $5.3 million last quarter. Where is that heading from here do you think?

Tim, it's Peter. Yes, so the $4.4 million we recorded in the first quarter, what we're going to see is -- within that line going forward is we'll continue to have some risk management-related spend in the second quarter, albeit it continues to decline as we begin to wrap up some of the major projects around the risk infrastructure the company is focused on for the last 2 years. However, there are some other -- we continue to invest in the overall franchise in the form of our delivery platform, optimizing our branch network, focusing on our digital banking, delivery channels, all of which run through the professional services line as we engage outside professional help to facilitate those enhancements. So I characterize the March number as a reasonably good run rate for the next quarter, albeit, it's lumpy because it includes things like audit expense and legal expense, which tend to have some seasonality and some of their own ebbs and flows. Going into the third quarter, we'd anticipate a bit more of a decline in that line item and then the modest increase in the fourth quarter principally related to some of the audit work that ramps up at year-end.

And then a couple of follow-ups. The prior year credit -- credits you guys reclaimed that hit miscellaneous, do you have the dollar amount of those ballpark, in total?

Yes. They were between 500 and -- $500,000 and $1 million in aggregate.

$700 and $1 million.

$500 and $1 million.

$500 and $1 million.

I don't have the exact number but...

That's okay.

$500 and $1 million.

And then the deposit proceeds from business sales by clients, do you happen to know what that was in aggregate?

I don't have an exact number for you, Tim. It was several -- yes, several clients. Although, I would put it as, it was relatively small component of the overall increase, although it was present. It's a minority of the percentage increase we saw in the first quarter.

And by any chance would you happen to know the kind of the first quarter seasonal costs that hit salary and benefit like payroll or workmens comp. or things like that where there -- can you carve that out for us, is that possible?

Tim, the majority of the increase in the comp line in the first quarter, it was actually not related to direct salary increases, but principally, it came from medical claims expense, 401(k) costs, payroll taxes which have a seasonal high in the first quarter as people haven't maxed out their FICA limits just yet. So most of that increase was in the form of benefits and payroll tax. It was a bit of an impact on salary, but the majority of the increase was benefit and payroll tax related.

And that's sort of onetime in nature, right? Like that won't recur, I mean, it will come -- it's a seasonal -- those are seasonal accruals?

Yes. There's some seasonality. There's some seasonality to the payroll tax component and a bit to the benefits, albeit some of that will continue on into the second quarter. So I would not want you to characterize the entire increase as seasonal and onetime. So a portion of that benefits growth and payroll tax will continue into the second quarter, but not at the level we saw in the first quarter.

And then switching gears, mortgage banking revenue was pretty nice this quarter, pretty good for what's often a seasonally -- well, it's a shorter quarter and a seasonally slower quarter. Is that -- can you give a little color kind of forward look is it -- are you optimistic about the market? And what that's going to bring for you as far as that line, that unit of business that you have?

Yes. Tim, this is Peter. So just to give you some color. So the purchase refi mix in the first quarter with 72% of our production was purchase -- purchase money and 28% was refinance related. And those levels have remained fairly stable. We've actually seen a very robust and consistent level of purchase-related mortgage originations and that's a function of the fact that we're in broad geography, not just in metro markets and then we also have, what we call it, custom construction product, construction to prem product for residential mortgage clients that's very popular as the diminished supply of existing homes has created some pressure. That's been a nice relief valve and keeping our purchase origination volume up in the mortgage world. We did about $170 million in mortgage production in the first quarter. And the first quarter tends to be one of the lowest quarter seasonally for us, given the weather in our markets up here, and we typically expect that fraction to increase in the second and third quarter, the highest quarters of the year.

That's great color. And then switching gears one more time, you guys repurchased shares. Is there remaining authorization under that program? Or what's the status of additional share repurchases going forward? And can you just give us an update on capital levels and needs there, given the nice quarterly dividend you guys are paying out? What -- are you comfortable with that TC, where it is? Or is there a little bit more room for share repurchases?

Tim, this is Mark. As we indicated, we purchased roughly 270,000 shares under the previous authorization that we had in the first quarter. We did announce also in the first quarter that we had a reauthorization of up to 5% repurchased. We will continue to evaluate the use of capital -- proven use of capital going forward under the same format that we've done before, which is reinvestment in the franchise first, establishment of the core dividend, which we increased the dividend 40% the first quarter. And we'd look for other utilization of capital, whether that be M&A, stock repurchase or special dividends.

So Mark, you're saying -- so the 5% that new program hasn't been cashed?

That's correct. The 270,000 that was repurchased was under the old authorization.

Next question comes from Tim Coffey with FIG Partners.

Mark, I was wondering if you can provide any color or outlook on how the California operation is going?

Well, we view our footprint as being robust in all of the markets. So it's not just California. It's all of our markets. But I would characterize California as getting significant traction. We're very pleased to date of our operation and what we're accomplishing down there. The backlogs continue to be strong as well as client acquisition continues to be quite strong. So the business model that we're putting forward as a super community bank is resonating in our markets in California, and we're very pleased with the progress we're making.

Is the client acquisition in that market, is it better or worse than the overall business?

Well, you have to look at it two different ways. It has a lower base. So having a lower base, the percentages are much higher. So the percentage growth that we're seeing in California is significantly better only because it's a lower base. In absolute dollars, I would characterize it is on par with some of our other metro markets.

Okay. And then Lloyd, last question for you. Given that this is your final conference call, have you changed your outlook on net interest margin on where it's going?

It's nice to see that market rates are going up right at the moment. But I think, Tim, you know me well. I will remain cautiously optimistic on the margin. How's that? No. I mean, as I noted in my comments, look, it's something that we work hard to manage and maintain. It's something that I think is clearly a strength of the company. And I don't see any real reasons for that to change and significantly supporting that margin has been the really strong growth in core deposits and noninterest-bearing deposit that the company has enjoyed for a number of years now. So I said, it's a franchise that is very much self-sustaining in terms of franchise value.

[Operator Instructions]. The next question comes from Matthew Clark with Piper Jaffray.

Your outlook on the efficiency ratio, I think, your longer-term goal is 52% to 65%. Do you sense that you may be able to achieve kind of the high end of that range by the end of this year, I think, that's fair?

Yes. Matthew, it's Peter. Yes. So the improvement in the efficiency ratio is going to be a function of our operating leverage in the next 3 quarters. And as we continue to grow the loan outstandings, we will get some benefit from higher investment portfolio balance going to the second quarter, and thus higher levels of net interest income going into the next few quarters. We'll see some just natural structural benefit and reduction to the efficiency ratio going into the next several quarters. We've talked previously about the investments we made in the risk management infrastructure. Those are coming to an end. So we're not going to see the pace of expense growth we saw in '17 as we build out those areas of the company. And we'll be back to a more normal pace of expense growth, really just tied to the production -- production growth of the company and the balance sheet growth.

Okay. Great. And then on the margin, you talked about the mix change in earning assets, going forward and a little more reliance on wholesale funding in the short term. Do you think those headwinds -- they're headwinds, but it doesn't seem like they're enough to kind of outweigh the loan yield expansion and muted deposit costs going forward. Do you think you can actually still show a little bit of margin expansion here at least in the short term?

Well, in the second quarter, I anticipate some modest margin compression because of that mix shift and the funding cost increases. As we go into the third and fourth quarters and our core deposit balances resumed at normal pace of growth after a bit of pullback in the second quarter that we normally experience. We'll see some stability in the margin. The $64 question, as it is this year's deposit data. So how our market and our competitors going to respond deposit costs. That number has the biggest single component of where the margin is going to go over the second half of the year. So I characterize our first quarter as very strong, but not representative of our run rates going into the second quarter. I'd be delighted if we could hold that number in the second quarter, but the reality is structurally, it's going to have some compression in it going into Q2.

Okay. And then just on the increase in multifamily loans held for sale. Do you plan on selling down those balances here in the second quarter and at what kind of margin do think you might take a gain on?

Yes. As we've talked previously, multifamily, our operation is one of origination and sale on a bulk basis. And the typical origination-to-sales cycle is 90 to 120 days. Most of our multifamily production in the first quarter happened in February and March, and so they had not seasoned to that 90- to 120-day point just yet. And so we do anticipate sales in the second quarter to bring that held-for-sale balance down, but that's just typical -- somewhat lumpy multifamily business for us. But there's nothing unusual about seeing that balance creep up over the quarter and the way it did.

And your 1% margin reasonable assumption in terms of gain....

In the multi -- yes, it's, I would characterize that 1% net of all the fees would be a reasonable assumption.

This concludes our question-and-answer session. I would like to turn the conference back over to Mark Grescovich for any closing remarks.

Thank you, Rochelle. As I stated and the executive team here stated, we're pleased with our solid performance in the first quarter of 2018 and see it as evidence that we're making substantial and sustainable progress on our disciplined, strategic plan to build shareholder value by executing on our super community bank model by growing market share, strengthening our deposit franchise, improving our core operating performance, maintaining a moderate risk profile and prudently deploying excess capital. I would like to thank all of my colleagues, especially Mr. Baker here for driving this solid performance for our company over the years. Thank you 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 great day, everyone.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.