Banner completes $187M Pacific Financial acquisition
Banner’s equity statement records 2,655,118 common shares issued for the acquisition.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Form Type
10-Q
Banner Corporation completed its acquisition of Pacific Financial Corporation on September 1, 2026. Pacific Financial shareholders received 0.2633 Banner common shares for each Pacific Financial share, plus cash for fractional shares. At acquisition, the deal added $1.29 billion in assets, including $1.14 billion in deposits and $756.9 million in net loans receivable at fair value. Banner identified expansion in Western Washington and Western Oregon as the acquisition’s primary purpose.
For the third quarter, net interest income was $161.9 million, versus $150.0 million a year earlier, while net income was $47.7 million versus $53.5 million and diluted earnings per share were $1.36 versus $1.54. Merger and acquisition-related expenses were $5.2 million for the quarter. Total assets were $18.08 billion and deposits were $15.39 billion at September 30, 2026.
Other comprehensive loss was $69.7 million, and comprehensive income was a $22.0 million loss versus $77.2 million income a year earlier. Available-for-sale securities had a $98.3 million pre-tax unrealized holding loss for the quarter.
2 points · 0 major0 major · 2 points
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointPacific Financial acquisition added $1.29 billion in assets at closing.
- Moderate pointThird-quarter net interest income was $161.9 million, versus $150.0 million a year earlier.
Negative
- Moderate pointThird-quarter net income was $47.7 million, versus $53.5 million a year earlier.
- Moderate pointThird-quarter comprehensive results were a $22.0 million loss versus $77.2 million income.
Filing Explained
For acquired loans, the initial expected-credit-loss estimate is added to loan basis rather than charged to earnings immediately.
This unaudited quarterly report records the
Banner adopted acquired-loan accounting guidance on
Acquisition-date fair values for acquired assets and assumed liabilities remain preliminary and may be refined for up to one year after the acquisition; the filing identifies loans, property and equipment, or deferred taxes as the most likely areas for adjustments.
Key Figures
Third-quarter net income: $47.709 million; $53.502 million
Third-quarter net interest income: $161.893 million; $149.989 million
Diluted earnings per common share: $1.36; $1.54
+5 more
8 metrics
Third-quarter net income
$47.709 million; $53.502 million
Three months ended September 30, 2026; comparison period ended September 30, 2025
Third-quarter net interest income
$161.893 million; $149.989 million
Three months ended September 30, 2026; comparison period ended September 30, 2025
Diluted earnings per common share
$1.36; $1.54
Three months ended September 30, 2026; comparison period ended September 30, 2025
Assets acquired
$1.292152 billion
Pacific Financial acquisition completed September 1, 2026
Deposits acquired
$1.140283 billion
Pacific Financial acquisition date, September 1, 2026
Total assets
$18.083437 billion
September 30, 2026
Total acquisition consideration
$186.846 million
Pacific Financial acquisition
Common shares issued for acquisition
2,655,118 shares
Banner Corporation shareholders’ equity statement
Key Terms
Purchased seasoned loans, Gross-up adjustment, Core Deposit Intangible, Accumulated other comprehensive loss
4 terms
Purchased seasoned loans financial
"classified as purchased seasoned loans"
Purchased seasoned loans are existing loans that an investor buys after they have been outstanding for some time and have a track record of payments. Like buying a used car with a known service history, these loans give buyers clearer information about how likely borrowers are to keep paying, which helps investors estimate future cash flow, potential losses, and the returns they can expect.
Gross-up adjustment financial
"recorded through a gross-up adjustment to the loan’s amortized cost basis"
Core Deposit Intangible financial
"recognition of a Core Deposit Intangible (CDI) asset"
Core deposit intangible is an accounting asset that represents the value of customer deposits a bank gains, usually through an acquisition, because those deposits provide a stable, low-cost source of funding. Think of it like paying for a loyal customer list that will save the bank money over time; it is written down over several years and affects reported earnings and the apparent cost of acquiring new funds, so investors watch it to understand future profitability and capital impact.
Accumulated other comprehensive loss financial
"Accumulated other comprehensive loss"
Accumulated other comprehensive loss is the running negative total of certain gains and losses that companies record outside their regular profit-and-loss statement, such as changes in the value of some investments, pension adjustments, or currency translation effects. It matters to investors because it reduces shareholders’ equity and reveals economic swings that haven’t affected reported net income yet — like a side ledger showing pending ups and downs that could influence future cash flow or balance-sheet strength.
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What were BANR’s third-quarter 2026 earnings?
BANR reported third-quarter 2026 net income of $47.709 million, compared with $53.502 million in 2025, and diluted earnings per share of $1.36 versus $1.54. Net interest income was $161.893 million, compared with $149.989 million.
How much consideration did BANR pay for Pacific Financial?
The total consideration was $186.846 million, consisting of $185.864 million fair value of common shares issued and $982,000 in cash paid to Pacific Financial equity holders. Pacific Financial shareholders received 0.2633 Banner common shares for each Pacific Financial common share, plus cash in lieu of fractional shares.
AI-generated analysis. How Rhea-AI works. Not financial advice.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
OR
Commission File Number 000-26584
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | ||||
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (509 ) 527-3636
Securities registered pursuant to Section 12(b) of the Act
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ☒ | No | ☐ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ☒ | No | ☐ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | Yes | No | ☒ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| APPLICABLE ONLY TO CORPORATE ISSUERS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Title of class: | As of October 31, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock, $.01 par value per share | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1
BANNER CORPORATION AND SUBSIDIARIES
Table of Contents
PART I – FINANCIAL INFORMATION | |||||
Item 1 – Financial Statements (unaudited). The Unaudited Condensed Consolidated Financial Statements of Banner Corporation and Subsidiaries filed as a part of the report are as follows: | |||||
Consolidated Statements of Financial Condition | 5 | ||||
Consolidated Statements of Operations | 6 | ||||
Consolidated Statements of Comprehensive Income | 7 | ||||
Consolidated Statements of Changes in Shareholders’ Equity | 8 | ||||
Consolidated Statements of Cash Flows | 9 | ||||
Selected Notes to the Consolidated Financial Statements | 11 | ||||
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Executive Overview | 48 | ||||
Comparison of Financial Condition | 51 | ||||
Comparison of Results of Operations | 55 | ||||
Asset Quality | 64 | ||||
Liquidity and Capital Resources | 65 | ||||
Capital Requirements | 66 | ||||
Item 3 – Quantitative and Qualitative Disclosures About Market Risk | |||||
Market Risk and Asset/Liability Management | 66 | ||||
Sensitivity Analysis | 67 | ||||
Item 4 – Controls and Procedures | 70 | ||||
PART II – OTHER INFORMATION | |||||
Item 1 – Legal Proceedings | 71 | ||||
Item 1A – Risk Factors | 71 | ||||
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds | 72 | ||||
Item 3 – Defaults upon Senior Securities | 72 | ||||
Item 4 – Mine Safety Disclosures | 72 | ||||
Item 5 – Other Information | 72 | ||||
Item 6 – Exhibits | 73 | ||||
SIGNATURES | 75 | ||||
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All references to “Banner” refer to Banner Corporation and those to the “Bank” refer to its wholly-owned subsidiary, Banner Bank. As used throughout this report, the terms “we,” “our,” “us,” or the “Company” refer to Banner Corporation and its consolidated subsidiaries, unless the context otherwise requires.
Special Note Regarding Forward-Looking Statements
Certain matters in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future economic performance and projections of financial items, including statements about our financial condition, liquidity and results of operations. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions, or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements are inherently subject to numerous risks and uncertainties, including ongoing market volatility and evolving global conditions, which may cause actual results to differ materially from those expressed or implied. These factors include, but are not limited to:
•Adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of labor shortages, elevated inflation, recessionary pressures, or slowing economic growth;
•Changes in interest rate levels and volatility, and the timing and pace of such changes, including actions by the Federal Reserve, which could materially affect our net interest margin, funding costs, asset values, access to capital and liquidity;
•The impact of inflation and related monetary and fiscal policy responses, and their impact on consumer and business behavior;
•Geopolitical developments and international conflicts, or the imposition of new or increased tariffs and trade restrictions, which may disrupt financial markets, global supply chains, commodity prices, or economic activity in specific industry sectors, including, but not limited to, agriculture-based lending;
•The effects of a federal government shutdown, a debt ceiling standoff, or other fiscal policy uncertainty;
•The impact of bank failures or adverse developments at other banks and related negative publicity about the banking industry on investor and depositor sentiment;
•Expectations regarding our key growth initiatives and strategic priorities;
•Credit risks from lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting from both loans originated and loans acquired from other financial institutions;
•Results of examinations by regulatory authorities, which could result in the imposition of penalties, required changes to our business practices, or additional reserves;
•Competitive pressures among depository and non-depository institutions that may contribute to industry disintermediation or adversely affect pricing, market share, deposit flows or product offerings;
•Fluctuations in real estate values;
•The ability to adapt to rapid technological changes, including advancements in artificial intelligence, digital banking platforms, and cybersecurity;
•Ability to access cost-effective funding and to control operating costs and expenses;
•Vulnerabilities in information systems or third-party service providers, including disruptions, breaches, or attacks;
•Market volatility or deterioration in capital markets affecting liquidity, valuations, or investor confidence;
•The costs, effects and outcomes of litigation or other legal proceedings involving the Company;
•Legislation or regulatory changes, including but not limited to shifts in capital requirements, banking regulation, tax laws, or consumer protection laws;
•Changes in accounting principles, policies or guidelines;
•The impact of completed and future acquisitions or business combinations, including related goodwill impairment risks and integration challenges;
•The effects of critical accounting policies and judgments, including the use of estimates in determining fair value of certain of our assets and liabilities, which estimates may prove to be inaccurate;
•Effects on loan collateral, operations, or compliance obligations from climate change, severe weather, natural disasters, pandemics, public health crises, acts of war or terrorism, civil unrest and other external events;
•Other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and
•Other risks detailed in our Form 10-K for the year ended December 31, 2025 (“2025 Form 10-K”), or in our reports filed with or furnished to the U.S. Securities and Exchange Commission (SEC), including this Form 10-Q.
3
Table of Contents
Further, statements about the effects of Banner’s acquisition of Pacific Financial Corporation (“Pacific Financial”), completed on September 1, 2026, on Banner’s business, financial results, and condition may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in the forward-looking statements due to factors and future developments which are uncertain, unpredictable and in many cases beyond Banner’s control, including, but not limited to the risk that: (1) the business of Pacific Financial may not be integrated with Banner’s business successfully, including the planned systems conversions, or such integration may be more difficult, time-consuming or costly than expected; (2) the anticipated benefits of the merger, including anticipated cost savings and earnings accretion, may not be realized or may not be realized within the expected time period; (3) customer and employee relationships and business operations may be disrupted by the merger, and Banner may be challenged in retaining key customers and employees following its completion; (4) merger-related and integration expenses may be greater than expected; (5) preliminary estimates of the fair value of acquired assets and assumed liabilities may change during the measurement period, and acquired loans may experience higher credit losses than anticipated; (6) Management’s attention may be diverted from ongoing business operations and opportunities due to integration activities; and (7) other factors detailed in Banner’s filings with the SEC.
Any forward-looking statements are based upon Management’s beliefs and assumptions at the time they are made. We do not undertake and specifically disclaim any obligation to update any forward-looking statements included in this report or the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements.
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Table of Contents
PART I – FINANCIAL INFORMATION
ITEM 1 - Financial Statements (unaudited)
BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited) (In thousands, except shares and per share amounts)
September 30, 2026 and December 31, 2025
| ASSETS | September 30, 2026 | December 31, 2025 | |||||||||
| Cash and due from banks | $ | $ | |||||||||
| Interest-bearing deposits | |||||||||||
| Total cash and cash equivalents | |||||||||||
Securities—available-for-sale, amortized cost $ | |||||||||||
Securities—held-to-maturity, net of allowance for credit losses of $ | |||||||||||
| Total securities | |||||||||||
| Federal Home Loan Bank (FHLB) stock | |||||||||||
Loans held for sale (includes $ | |||||||||||
| Loans receivable | |||||||||||
| Allowance for credit losses – loans | ( | ( | |||||||||
Net loans receivable | |||||||||||
| Accrued interest receivable | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Other intangibles, net | |||||||||||
| Bank-owned life insurance (BOLI) | |||||||||||
| Deferred tax assets, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES | |||||||||||
| Deposits: | |||||||||||
| Non-interest-bearing | $ | $ | |||||||||
| Interest-bearing transaction and savings accounts | |||||||||||
| Interest-bearing certificates | |||||||||||
| Total deposits | |||||||||||
| Advances from FHLB | |||||||||||
| Other borrowings | |||||||||||
| Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities) | |||||||||||
| Operating lease liabilities | |||||||||||
| Accrued expenses and other liabilities | |||||||||||
| Deferred compensation | |||||||||||
Total liabilities | |||||||||||
COMMITMENTS AND CONTINGENCIES (Note 12) | |||||||||||
| SHAREHOLDERS’ EQUITY | |||||||||||
Preferred stock - $ | |||||||||||
Common stock and paid in capital - $ | |||||||||||
Common stock (non-voting) and paid in capital - $ | |||||||||||
| Retained earnings | |||||||||||
| Carrying value of shares held in trust for stock-based compensation plans | ( | ( | |||||||||
| Liability for common stock issued to stock related compensation plans | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
See Selected Notes to the Consolidated Financial Statements
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BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except shares and per share amounts)
For the Three and Nine Months Ended September 30, 2026 and 2025
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| INTEREST INCOME: | |||||||||||||||||||||||
| Loans receivable | $ | $ | $ | $ | |||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||
| Securities and cash equivalents | |||||||||||||||||||||||
Total interest income | |||||||||||||||||||||||
| INTEREST EXPENSE: | |||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||
| FHLB advances | |||||||||||||||||||||||
| Other borrowings | |||||||||||||||||||||||
| Subordinated debt | |||||||||||||||||||||||
Total interest expense | |||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||
| PROVISION FOR CREDIT LOSSES | |||||||||||||||||||||||
| Net interest income after provision for credit losses | |||||||||||||||||||||||
| NON-INTEREST INCOME: | |||||||||||||||||||||||
| Deposit fees and other service charges | |||||||||||||||||||||||
| Mortgage banking operations | |||||||||||||||||||||||
| BOLI | |||||||||||||||||||||||
| Miscellaneous | |||||||||||||||||||||||
| Net (loss) gain on sale of securities | ( | ( | |||||||||||||||||||||
| Net change in valuation of financial instruments carried at fair value | |||||||||||||||||||||||
Total non-interest income | |||||||||||||||||||||||
| NON-INTEREST EXPENSE: | |||||||||||||||||||||||
| Salary and employee benefits | |||||||||||||||||||||||
| Less capitalized loan origination costs | ( | ( | ( | ( | |||||||||||||||||||
| Occupancy and equipment | |||||||||||||||||||||||
| Information and computer data services | |||||||||||||||||||||||
| Payment and card processing services | |||||||||||||||||||||||
| Professional and legal expenses | |||||||||||||||||||||||
| Advertising and marketing | |||||||||||||||||||||||
| Deposit insurance | |||||||||||||||||||||||
| State and municipal business and use taxes | |||||||||||||||||||||||
| Real estate operations, net | |||||||||||||||||||||||
| Amortization of core deposit intangibles | |||||||||||||||||||||||
| Miscellaneous | |||||||||||||||||||||||
| Merger and acquisition-related expenses | |||||||||||||||||||||||
| Total non-interest expense | |||||||||||||||||||||||
| Income before provision for income taxes | |||||||||||||||||||||||
| PROVISION FOR INCOME TAXES | |||||||||||||||||||||||
| NET INCOME | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Cumulative dividends declared per common share | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of common shares outstanding: | |||||||||||||||||||||||
Basic | |||||||||||||||||||||||
Diluted | |||||||||||||||||||||||
See Selected Notes to the Consolidated Financial Statements
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BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited) (In thousands)
For the Three and Nine Months Ended September 30, 2026 and 2025
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| NET INCOME | $ | $ | $ | $ | |||||||||||||||||||
| OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAXES: | |||||||||||||||||||||||
| Unrealized holding (loss) gain on securities—available-for-sale arising during the period | ( | ( | |||||||||||||||||||||
| Income tax benefit (expense) related to securities—available-for-sale unrealized holding losses | ( | ( | |||||||||||||||||||||
| Reclassification for net loss on securities—available-for-sale realized in earnings | |||||||||||||||||||||||
| Income tax benefit related to securities—available-for-sale realized in earnings | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity | |||||||||||||||||||||||
| Income tax expense related to amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity | ( | ( | ( | ( | |||||||||||||||||||
| Changes in fair value of junior subordinated debentures related to instrument specific credit risk | ( | ( | |||||||||||||||||||||
| Income tax (expense) benefit related to junior subordinated debentures | ( | ( | |||||||||||||||||||||
| Other comprehensive (loss) income | ( | ( | |||||||||||||||||||||
| COMPREHENSIVE (LOSS) INCOME | $ | ( | $ | $ | $ | ||||||||||||||||||
See Selected Notes to the Consolidated Financial Statements
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BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited) (In thousands, except shares and per share amounts)
| Common Stock and Paid in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||
| Balance, January 1, 2025 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income, net of income tax | ||||||||||||||||||||||||||||||||
Accrual of dividends on common stock ($ | ( | ( | ||||||||||||||||||||||||||||||
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | ||||||||||||||||||||||||||||||||
| Balance, March 31, 2025 | ( | |||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income, net of income tax | ||||||||||||||||||||||||||||||||
Accrual of dividends on common stock ($ | ( | ( | ||||||||||||||||||||||||||||||
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2025 | ( | |||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income, net of income tax | ||||||||||||||||||||||||||||||||
Accrual of dividends on common stock ($ | ( | ( | ||||||||||||||||||||||||||||||
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | ||||||||||||||||||||||||||||||||
Repurchase of common stock | ( | ( | ( | |||||||||||||||||||||||||||||
| Balance, September 30, 2025 | ( | |||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income, net of income tax | ||||||||||||||||||||||||||||||||
Accrual of dividends on common stock ($ | ( | ( | ||||||||||||||||||||||||||||||
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | ||||||||||||||||||||||||||||||||
Repurchase of common stock | ( | ( | ( | |||||||||||||||||||||||||||||
| Balance, December 31, 2025 | ( | |||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of income tax | ( | ( | ||||||||||||||||||||||||||||||
Accrual of dividends on common stock ($ | ( | ( | ||||||||||||||||||||||||||||||
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | ||||||||||||||||||||||||||||||||
Repurchase of common stock | ( | ( | ( | |||||||||||||||||||||||||||||
| Balance, March 31, 2026 | ( | |||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive income, net of income tax | ||||||||||||||||||||||||||||||||
Accrual of dividends on common stock ($ | ( | ( | ||||||||||||||||||||||||||||||
| Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2026 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of income tax | ( | ( | ||||||||||||||||||||||||||||||
Accrual of dividends on common stock ($ | ( | ( | ||||||||||||||||||||||||||||||
| Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered | ||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | ( | |||||||||||||||||||||||||||||
| Issuance of shares for acquisition | ||||||||||||||||||||||||||||||||
| Balance, September 30, 2026 | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
See Selected Notes to the Consolidated Financial Statements
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BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
For the Nine Months Ended September 30, 2026 and 2025
| Nine Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided from operating activities: | |||||||||||
| Depreciation | |||||||||||
| Deferred income and expense, net of amortization | ( | ( | |||||||||
| Capitalized loan servicing rights, net of amortization | |||||||||||
| Amortization of core deposit intangibles | |||||||||||
| Loss on sale of securities, net | ( | ||||||||||
| Net change in valuation of financial instruments carried at fair value | ( | ( | |||||||||
| Decrease in deferred taxes | |||||||||||
| Increase in current taxes payable/receivable, net | ( | ( | |||||||||
| Stock-based compensation | |||||||||||
| Net change in cash surrender value of BOLI | ( | ( | |||||||||
| Gain on sale of loans, excluding capitalized servicing rights | ( | ( | |||||||||
| Loss (gain) on disposal of real estate held for sale and property and equipment, net | ( | ||||||||||
| Provision for credit losses | |||||||||||
| Provision for losses on real estate owned (REO) | |||||||||||
| Origination of loans held for sale | ( | ( | |||||||||
| Proceeds from sales of loans held for sale | |||||||||||
| Net change in: | |||||||||||
| Other assets | ( | ( | |||||||||
| Other liabilities | ( | ||||||||||
| Net cash provided from operating activities | |||||||||||
| INVESTING ACTIVITIES: | |||||||||||
| Purchases of securities—available-for-sale | ( | ( | |||||||||
| Principal repayments and maturities of securities—available-for-sale | |||||||||||
| Proceeds from sales of securities—available-for-sale | |||||||||||
| Principal repayments and maturities of securities—held-to-maturity | |||||||||||
| Loan originations, net of repayments | ( | ( | |||||||||
| Purchases of loans and participating interest in loans | ( | ( | |||||||||
| Proceeds from sales of other loans | |||||||||||
| Net cash received from acquisitions | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from sale of real estate held for sale and sale of other property | |||||||||||
| Proceeds from FHLB stock repurchase program | |||||||||||
| Purchase of FHLB stock | ( | ( | |||||||||
| Investment in BOLI | ( | ( | |||||||||
| Other | |||||||||||
| Net cash used by investing activities | ( | ( | |||||||||
Continued on next page
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BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited) (In thousands)
For the Nine Months Ended September 30, 2026 and 2025
| Nine Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| FINANCING ACTIVITIES: | |||||||||||
| Increase in deposits, net | $ | $ | |||||||||
| Repayment of overnight and short term FHLB borrowings, net | ( | ( | |||||||||
| Decrease in other borrowings, net | ( | ( | |||||||||
| Repayment of subordinated notes | ( | ||||||||||
| Cash dividends paid | ( | ( | |||||||||
| Cash paid to repurchase common stock | ( | ( | |||||||||
| Taxes paid related to net share settlement of equity awards | ( | ( | |||||||||
| Net cash provided by financing activities | |||||||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | |||||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | |||||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | $ | |||||||||
| Nine Months Ended September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||||||
| Interest paid in cash | $ | $ | |||||||||
| Tax paid | |||||||||||
| NON-CASH INVESTING AND FINANCING TRANSACTIONS: | |||||||||||
| Transfer of loans to real estate owned and other repossessed assets | |||||||||||
| Loans, held-for-sale, transferred from portfolio | ( | ( | |||||||||
| ACQUISITIONS: | |||||||||||
| Assets acquired | |||||||||||
| Liabilities assumed | |||||||||||
See Selected Notes to the Consolidated Financial Statements
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BANNER CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements include the accounts of Banner Corporation (the Company or Banner), a bank holding company incorporated in the State of Washington and its wholly-owned subsidiary, Banner Bank (the Bank).
These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (SEC). In preparing these financial statements, the Company has evaluated events and transactions subsequent to September 30, 2026, for potential recognition or disclosure. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and note disclosures have been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements. All significant intercompany transactions and balances have been eliminated.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.
The information included in this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Interim results are not necessarily indicative of results for a full year or any other interim period.
Note 2: ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED
Financial Instruments—Credit Losses: Purchased Loans
In November 2025, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2025-08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans. The amendments in this ASU are intended to simplify and improve the accounting for acquired loans by expanding the use of the gross‑up approach, previously limited to purchased credit‑deteriorated (PCD) assets, to a new category of purchased seasoned loans (PSLs), which encompasses acquired non‑PCD loans. Under this approach, entities recognize an allowance for expected credit losses at the acquisition date with a corresponding increase to the asset’s amortized cost basis, eliminating day 1 credit loss expense and improving comparability across acquired loan portfolios.
This ASU is effective for annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods. Early adoption is permitted in an interim or annual reporting period if financial statements have not yet been issued or made available for issuance. The Company adopted this ASU on July 1, 2026.
This new guidance makes significant changes to the accounting for certain acquired seasoned loans subject to the current expected credit loss model (CECL). Under the ASU, the initial allowance for credit losses recorded upon the acquisition of loans in scope is recognized as an adjustment to the amortized cost basis of the loan - similar to the model for purchased credit deteriorated assets. For these loans, the "day-one" credit loss estimate does not impact earnings immediately. Subsequent changes in the allowance for credit losses are reported in earnings within provision for credit losses.
The following significant accounting policies have been updated or added since the Company's 2025 Annual Report on Form 10-K to reflect the adoption of ASU 2025-08.
Acquired loans - Purchased Credit Deteriorated
Loans acquired in a business combination are recognized on the acquisition date at their estimated fair value based on expected future cash flows discounted at a market-based rate of interest and inclusive of adjustments for credit risk, interest rate risk, liquidity, and other factors. Acquired loans that have experienced more-than-insignificant deterioration in credit quality since origination are classified as PCD loans. An allowance for credit losses is established for the initial estimate of expected credit losses on PCD loans as of the acquisition date and recorded through a gross-up adjustment to the loan’s amortized cost basis.
Acquired loans - Purchased Seasoned Loans
Non-PCD loans acquired in a business combination are classified as purchased seasoned loans with an allowance for credit losses established for the initial estimate of expected credit losses as of the acquisition date and recorded through a gross-up adjustment to the loans’ amortized cost basis. See Note 3 “Business Combinations” for additional information on loans acquired in a business combination.
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Interim Reporting: Narrow-Scope Improvements
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The amendments in this ASU clarify the applicability of Topic 270, enhance the navigability of interim reporting requirements, and consolidate existing interim disclosure guidance. The amendments specify the form and content of interim financial statements, provide a comprehensive list of required interim disclosures, and introduce a disclosure principle requiring entities to disclose events occurring after the most recent annual reporting period that have a material impact on the entity. The ASU does not change the fundamental nature or scope of interim reporting requirements.
This ASU is effective for all entities for interim periods within annual periods beginning after December 15, 2027, with early adoption permitted. The amendments may be applied either prospectively or retrospectively to any periods presented in the financial statements. The Company is currently evaluating this ASU but does not expect its adoption to have a material impact on the Company’s consolidated financial statements.
Derivatives and Hedging: Hedge Accounting Improvements
In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements. The amendments in this ASU are intended to clarify certain aspects of the guidance on hedge accounting and to address several incremental hedge accounting issues arising from the global reference rate reform initiative. The update clarifies and expands guidance in several areas, including allowing groups of forecasted transactions to be hedged based on “similar” rather than “shared” risk exposure, offering greater flexibility in applying cash flow hedges. Overall, the amendments are intended to enable entities to achieve and maintain hedge accounting for a greater number of highly effective economic hedging relationships.
This ASU is effective for public business entities for annual reporting periods beginning after December 31, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted on any date on or after the issuance of this ASU. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.
Intangibles—Goodwill and Other—Internal-Use Software
In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The amendments in this ASU are intended to modernize the guidance for accounting for software costs under Subtopic 350-40 and remove all references to prescriptive and sequential software development stages. This increases the operability of the cost recognition guidance by considering different methods of software development. The ASU requires that an entity begin capitalizing software costs when both of the following conditions have been met: management has authorized and committed to funding the software project; and it is probable that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete recognition threshold”). In addition, this ASU clarifies disclosure requirements for Internal-Use Software.
This ASU is effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. The amendments may be applied using the prospective method, the modified transition approach, or retrospectively. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.
Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in the ASU require public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. Specifically, they will be required to:
•Disclose the amounts of (a) purchases of inventory; (b) employee compensation; (c) depreciation; (d) intangible asset amortization; and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption.
•Include certain amounts that are already required to be disclosed under GAAP in the same disclosure as the other disaggregation requirements.
•Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively.
•Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.
This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. The amendments should be applied prospectively. The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements except for some additional disclosures as required by the ASU.
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Note 3: BUSINESS COMBINATIONS
Acquisition of Pacific Financial Corporation
On September 1, 2026 , the Company completed the acquisition of 100 % of the outstanding common shares of Pacific Financial Corporation (Pacific Financial), the holding company for Bank of the Pacific, a Washington state-chartered commercial bank. Pacific Financial was merged into Banner and Bank of the Pacific was merged into Banner Bank. Pursuant to the previously announced terms of the acquisition, Pacific Financial shareholders received 0.2633 shares of Banner common stock in exchange for each share of Pacific Financial common stock, plus cash in lieu of any fractional shares. In addition, outstanding in-the-money Pacific Financial stock options were cancelled in exchange for cash. The primary reason for the acquisition was to expand our presence in Western Washington and Western Oregon markets while offering Bank of the Pacific customers broader product offerings and technology tools, increased commercial lending limits, and an expanded branch network. The acquisition added $1.29 billion in assets, $1.14 billion in deposits and $756.9 million in net loans receivable, at fair value, to Banner as of the acquisition date.
The following table presents a summary of the consideration paid and the estimated fair values as of the acquisition date for each major class of assets acquired and liabilities assumed (in thousands):
| Pacific Financial Corporation | |||||||||||
| Consideration to Pacific Financial equity holders: | |||||||||||
| Cash paid | $ | ||||||||||
| Fair value of common shares issued | |||||||||||
| Total consideration | |||||||||||
| Fair value of assets acquired: | |||||||||||
| Cash and cash equivalents | |||||||||||
| Securities | |||||||||||
| Federal Home Loan Bank stock | |||||||||||
| Loans receivable | |||||||||||
| Property and equipment | |||||||||||
| Core deposit intangible | |||||||||||
| Bank-owned life insurance | |||||||||||
| Deferred tax asset | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other assets | |||||||||||
| Total assets acquired | |||||||||||
| Fair value of liabilities assumed: | |||||||||||
| Deposits | |||||||||||
| Junior subordinated debentures | |||||||||||
| Deferred compensation | |||||||||||
| Operating lease liabilities | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities assumed | |||||||||||
| Net assets acquired | |||||||||||
| Goodwill | $ | ||||||||||
The estimation of the fair value of the assets acquired and the liabilities assumed resulted in recognition of a Core Deposit Intangible (CDI) asset of $28.6 million and goodwill of $61.2 million. The CDI has been determined to have an estimated useful life of approximately ten years and will be amortized on an accelerated basis. Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired and reflects the expected benefits of the acquisition, including growth in the Company’s customer base, expanded presence in existing markets, and expected cost savings. Goodwill is not amortized but is evaluated for impairment at least annually, or more frequently if events or changes in circumstances indicate that it may be impaired. Goodwill is not deductible for income tax purposes because the acquisition was structured as a tax-free reorganization.
The fair values of the assets acquired and liabilities assumed are preliminary and subject to refinement for up to one year after the acquisition date as additional information about facts and circumstances that existed as of the acquisition date becomes available. Adjustments to the acquisition accounting, if any, would most likely relate to loans, property and equipment, or deferred taxes.
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The Company adopted ASU 2025-08, effective July 1, 2026. Accordingly, the initial estimate of expected credit losses recognized in the allowance for credit losses (ACL) included both PCD loans and non-PCD loans classified as PSLs. The following table includes the principal balance and the fair value of the loans acquired from Pacific Financial (dollars in thousands):
| Principal Balance Acquired | Non-Credit Premium/ (Discount) | Credit (Discount) ACL | Fair Value of Net Loans | ||||||||||||||||||||
| Purchased credit deteriorated loans | $ | $ | ( | $ | ( | $ | |||||||||||||||||
| Purchased seasoned loans | ( | ( | |||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | $ | |||||||||||||||||
The financial results of the Company include the revenues and expenses produced by the acquired assets and assumed liabilities of Pacific Financial since September 1, 2026. The acquisition of Pacific Financial was determined not to be significant and the disclosure of Pacific Financial’s revenues and net income separately from the Company’s Consolidated Statements of Operations was considered impracticable to be reported due to systems integrations. In addition, the pro forma impact of the acquisition to the historical financial results was determined to not be significant.
Acquisition-related costs of $5.2 million and $5.4 million are included in merger and acquisition-related expenses in the accompanying consolidated statements of income for the three and nine months ended September 30, 2026, respectively.
Note 4: SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair value of securities at September 30, 2026 and December 31, 2025 are summarized as follows (in thousands):
| September 30, 2026 | |||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||
| Available-for-Sale: | |||||||||||||||||||||||||||||
| U.S. Government and agency obligations | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Municipal bonds | ( | ||||||||||||||||||||||||||||
| Corporate bonds | ( | ||||||||||||||||||||||||||||
| Mortgage-backed or related securities | ( | ||||||||||||||||||||||||||||
| Asset-backed securities | ( | ||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||||||||
| September 30, 2026 | |||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Allowance for Credit Losses | |||||||||||||||||||||||||
| Held-to-Maturity: | |||||||||||||||||||||||||||||
| U.S. Government and agency obligations | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Municipal bonds | ( | ( | |||||||||||||||||||||||||||
| Corporate bonds | ( | ( | |||||||||||||||||||||||||||
| Mortgage-backed or related securities | ( | ||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||
| Available-for-Sale: | |||||||||||||||||||||||||||||
| U.S. Government and agency obligations | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Municipal bonds | ( | ||||||||||||||||||||||||||||
| Corporate bonds | ( | ||||||||||||||||||||||||||||
| Mortgage-backed or related securities | ( | ||||||||||||||||||||||||||||
| Asset-backed securities | ( | ||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||||||||
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| December 31, 2025 | |||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Allowance for Credit Losses | |||||||||||||||||||||||||
| Held-to-Maturity: | |||||||||||||||||||||||||||||
| U.S. Government and agency obligations | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Municipal bonds | ( | ( | |||||||||||||||||||||||||||
| Corporate bonds | ( | ||||||||||||||||||||||||||||
| Mortgage-backed or related securities | ( | ||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
Accrued interest receivable on held-to-maturity debt securities was $3.4 million and $4.1 million at September 30, 2026, and December 31, 2025, and $10.9 million and $8.3 million on available-for-sale debt securities at September 30, 2026, and December 31, 2025, respectively. Accrued interest receivable on securities is reported in accrued interest receivable on the Consolidated Statements of Financial Condition and is excluded from the calculation of the allowance for credit losses.
At September 30, 2026, and December 31, 2025, gross unrealized losses and the fair value for securities available-for-sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position were as follows (in thousands):
| September 30, 2026 | |||||||||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| Available-for-Sale: | |||||||||||||||||||||||||||||||||||
U.S. Government and agency obligations | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
Municipal bonds | ( | ( | ( | ||||||||||||||||||||||||||||||||
Corporate bonds | ( | ( | ( | ||||||||||||||||||||||||||||||||
Mortgage-backed or related securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
Asset-backed securities | ( | ( | |||||||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| Available-for-Sale: | |||||||||||||||||||||||||||||||||||
U.S. Government and agency obligations | $ | $ | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
Municipal bonds | ( | ( | |||||||||||||||||||||||||||||||||
Corporate bonds | ( | ( | ( | ||||||||||||||||||||||||||||||||
Mortgage-backed or related securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
Asset-backed securities | ( | ( | |||||||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||
At September 30, 2026, there were 229 securities—available-for-sale with unrealized losses, compared to 175 at December 31, 2025. Management does not believe that any remaining individual unrealized loss as of September 30, 2026, or December 31, 2025, resulted from credit loss. The decline in fair market value of these securities was generally due to changes in interest rates and changes in market-desired spreads subsequent to their purchase. There were no
The following table presents gross gains and losses on sales of securities available-for-sale (in thousands):
| Three months ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Available-for-Sale: | |||||||||||||||||||||||
| Gross Gains | $ | $ | $ | $ | |||||||||||||||||||
| Gross Losses | ( | ( | ( | ( | |||||||||||||||||||
| Balance, end of the period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
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The following table presents the amortized cost and estimated fair value of securities at September 30, 2026, by contractual maturity and does not reflect any required periodic payments (in thousands). Expected maturities will differ from contractual maturities because some securities may be called or prepaid with or without call or prepayment penalties.
| September 30, 2026 | |||||||||||||||||||||||||||||||||||
| Available-for-Sale | Held-to-Maturity | ||||||||||||||||||||||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||||||||||||||
| Maturing within one year | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Maturing after one year through five years | |||||||||||||||||||||||||||||||||||
| Maturing after five years through ten years | |||||||||||||||||||||||||||||||||||
| Maturing after ten years | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
The following table presents, as of September 30, 2026, investment securities which were pledged to secure borrowings, public deposits or other obligations as permitted or required by law (in thousands):
| September 30, 2026 | |||||||||||||||||
| Carrying Value | Amortized Cost | Fair Value | |||||||||||||||
| Purpose or beneficiary: | |||||||||||||||||
| State and local governments public deposits | $ | $ | $ | ||||||||||||||
| Interest rate swap counterparties | |||||||||||||||||
| Repurchase transaction accounts | |||||||||||||||||
| Other | |||||||||||||||||
| Total pledged securities | $ | $ | $ | ||||||||||||||
The Company monitors the credit quality of held-to-maturity debt securities through the use of credit ratings, which are reviewed and updated quarterly. The Company’s non-rated held-to-maturity debt securities are primarily United States government sponsored enterprise debentures carrying minimal to no credit risk. The non-rated corporate bonds primarily consist of Community Reinvestment Act related bonds secured by loan instruments from low to moderate income borrowers. The remaining non-rated held-to-maturity debt securities balance is comprised of local municipal debt from within the Company’s geographic footprint and is monitored through quarterly or annual financial review. This municipal debt is predominately essential service or unlimited general obligation backed debt. The following tables summarize the amortized cost of held-to-maturity debt securities by credit rating at September 30, 2026 and December 31, 2025 (in thousands):
| September 30, 2026 | |||||||||||||||||||||||||||||
| U.S. Government and agency obligations | Municipal bonds | Corporate bonds | Mortgage-backed or related securities | Total | |||||||||||||||||||||||||
| AAA/AA/A | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Not Rated | |||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||
| U.S. Government and agency obligations | Municipal bonds | Corporate bonds | Mortgage-backed or related securities | Total | |||||||||||||||||||||||||
| AAA/AA/A | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Not Rated | |||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | |||||||||||||||||||||||||
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Note 5: LOANS RECEIVABLE AND THE ALLOWANCE FOR CREDIT LOSSES - LOANS
The following table presents the loans receivable at September 30, 2026 and December 31, 2025 by class (dollars in thousands).
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Amount | Percent of Total | Amount | Percent of Total | ||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||
| Owner-occupied | $ | % | $ | % | |||||||||||||||||||
| Investment properties | |||||||||||||||||||||||
| Small balance CRE | |||||||||||||||||||||||
| Multifamily real estate | |||||||||||||||||||||||
| Construction, land and land development: | |||||||||||||||||||||||
| Commercial construction | |||||||||||||||||||||||
| Multifamily construction | |||||||||||||||||||||||
| One- to four-family construction | |||||||||||||||||||||||
| Land and land development | |||||||||||||||||||||||
| Commercial business: | |||||||||||||||||||||||
Commercial business | |||||||||||||||||||||||
| Small business scored | |||||||||||||||||||||||
| Agricultural business, including secured by farmland | |||||||||||||||||||||||
| One- to four-family residential | |||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||
Consumer—home equity revolving lines of credit | |||||||||||||||||||||||
| Consumer—other | |||||||||||||||||||||||
| Total loans | % | % | |||||||||||||||||||||
| Less allowance for credit losses – loans | ( | ( | |||||||||||||||||||||
| Net loans | $ | $ | |||||||||||||||||||||
Loan amounts are net of unearned loan fees in excess of unamortized costs of $18.4 million as of September 30, 2026, and $16.5 million as of December 31, 2025. Net loans include net discounts on acquired loans of $8.5 million and $2.4 million as of September 30, 2026, and December 31, 2025, respectively. Net loans does not include accrued interest receivable. Accrued interest receivable on loans was $58.0 million as of September 30, 2026, and $48.2 million as of December 31, 2025, and was reported in accrued interest receivable on the Consolidated Statements of Financial Condition.
The Company had pledged $8.2 billion of loans as collateral for FHLB and other borrowings at both September 30, 2026, and December 31, 2025.
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Troubled Loan Modifications. Occasionally, the Company offers modifications of loans to borrowers experiencing financial difficulty by providing principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, or any combination of these modifications. The following table presents the amortized cost basis and financial effect of loans at September 30, 2026 and September 30, 2025, that were both experiencing financial difficulty and modified during the nine months ended September 30, 2026 and September 30, 2025, respectively (in thousands).
September 30, 2026 | ||||||||||||||||||||||||||||||||||||||||||||
| Payment Delay | Term Extension | Total | ||||||||||||||||||||||||||||||||||||||||||
| One- to four-family construction | $ | |||||||||||||||||||||||||||||||||||||||||||
| Land and land development | — | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||
| Term Extension | Total | ||||||||||||||||||||||||||||||||||
| Multifamily construction | $ | $ | |||||||||||||||||||||||||||||||||
| One- to four-family construction | |||||||||||||||||||||||||||||||||||
Agricultural business, including secured by farmland | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||||||||||||||
The Company had committed to lend $20,000 of additional amounts to the borrowers included in the previous tables as of September 30, 2026, compared to commitments of $2.5 million at September 30, 2025. The Company closely monitors the performance of loans modified for borrowers experiencing financial difficulty to assess the effectiveness of its modification efforts.
We had no loans that had been modified in the previous 12 months that were past due or on nonaccrual status at September 30, 2026. The following table presents the performance at September 30, 2025 of loans that had been modified in the previous 12 months (in thousands):
| September 30, 2025 | |||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Nonaccrual | Total | |||||||||||||||||||||||||
| Commercial business | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Loans are considered to be in payment default when they are 90 days or more past due. There were no loans that, within twelve months of the modification date, experienced a subsequent default during the nine months ended September 30, 2026. The following tables present the amortized cost basis of modified loans that, within twelve months of the modification date, experienced a subsequent default during the nine months ended September 30, 2025:
| September 30, 2025 | |||||||||||||||||||||||||||||||||||
| Term Extension | Total | ||||||||||||||||||||||||||||||||||
| Commercial business | $ | $ | |||||||||||||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||||||||||||||
The following table presents the financial effect of the loan modifications presented above for borrowers experiencing financial difficulty for the nine months ended September 30, 2026 and September 30, 2025:
| Nine Months Ended September 30, 2026 | |||||||||||||||||||||||
| Weighted Average Payment Delay Period (in months) | Weighted-Average Term Extension (in months) | ||||||||||||||||||||||
| One- to four-family construction | n/a | ||||||||||||||||||||||
| Land and land development | n/a | ||||||||||||||||||||||
| Nine Months Ended September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted-Average Term Extension (in months) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| One- to four-family construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agricultural business, including secured by farmland | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Table of Contents
Credit Quality Indicators: To appropriately and effectively manage the ongoing credit quality of the Company’s loan portfolio, Management has implemented a risk-rating or loan grading system for its loans. The system is a tool to evaluate portfolio asset quality throughout each applicable loan’s life as an asset of the Company. Generally, loans are risk rated on an aggregate borrower/relationship basis with individual loans sharing similar ratings. There are some instances when specific situations relating to individual loans will provide the basis for different risk ratings within the aggregate relationship. Loans are graded on a scale of 1 to 9. A description of the general characteristics of these categories is shown below.
Overall Risk Rating Definitions: Risk-ratings contain both qualitative and quantitative measurements and take into account the financial strength of a borrower and the structure of the loan. Consequently, the definitions are to be applied in the context of each lending transaction and judgment must also be used to determine the appropriate risk rating, as it is not unusual for a loan to exhibit characteristics of more than one risk-rating category. Consideration for the final rating is centered on the borrower’s ability to repay, in a timely fashion, both principal and interest. The Company’s risk-rating and loan grading policies are reviewed and approved annually. There were no material changes in the risk-rating or loan grading system for the periods presented.
Risk Ratings 1-5: Pass
Credits with risk ratings of 1 to 5 meet the definition of a pass risk rating. The strength of credits varies within the pass risk ratings, ranging from a risk rated 1 being an exceptional credit to a risk rated 5 being an acceptable credit that requires a more than normal level of supervision.
Risk Rating 6: Special Mention
A credit with potential weaknesses that deserves Management’s close attention is risk rated a 6. If left uncorrected, these potential weaknesses will result in deterioration in the capacity to repay debt. A key distinction between Special Mention and Substandard is that in a Special Mention credit, there are identified weaknesses that pose potential risk(s) to the repayment sources, versus well defined weaknesses that pose risk(s) to the repayment sources. Assets in this category are expected to be in this category no more than 9-12 months as the potential weaknesses in the credit are resolved.
Risk Rating 7: Substandard
A credit with well-defined weaknesses that jeopardize the ability to repay in full is risk rated a 7. These credits are inadequately protected by either the sound net worth and payment capacity of the borrower or the value of pledged collateral. These are credits with a distinct possibility of loss. Loans headed for foreclosure and/or legal action due to deterioration are rated 7 or worse.
Risk Rating 8: Doubtful
A credit with an extremely high probability of loss is risk rated 8. These credits have all the same critical weaknesses that are found in a substandard loan; however, the weaknesses are elevated to the point that based upon current information, collection or liquidation in full is improbable. While some loss on doubtful credits is expected, pending events may make the amount and timing of any loss indeterminable. In these situations, taking the loss is inappropriate until the outcome of the pending event is clear.
Risk Rating 9: Loss
A credit that is considered to be currently uncollectible or of such little value that it is no longer a viable bank asset is risk rated 9. Losses should be taken in the accounting period in which the credit is determined to be uncollectible. Taking a loss does not mean that a credit has absolutely no recovery or salvage value but, rather, it is not practical or desirable to defer writing off the credit, even though partial recovery may occur in the future.
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Table of Contents
The following tables present the Company’s portfolio of risk-rated loans by class and by grade as of September 30, 2026 and December 31, 2025 (in thousands). In addition, the tables include the gross charge-offs for the nine months ended September 30, 2026 and for the year ended December 31, 2025. Revolving loans that are converted to term loans are treated as new originations in the tables below and are presented by year of origination. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension.
| September 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | Revolving Loans | Total Loans | |||||||||||||||||||||||||||||||||||||||||||||
| By class: | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | |||||||||||||||||||||||||||||||||||||||||
| Commercial real estate - owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial real estate - owner occupied | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Commercial real estate - investment properties | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial real estate - investment properties | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Multifamily real estate | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Multifamily real estate | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
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Table of Contents
| September 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | Revolving Loans | Total Loans | |||||||||||||||||||||||||||||||||||||||||||||
| By class: | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | |||||||||||||||||||||||||||||||||||||||||
| Commercial construction | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial construction | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Multifamily construction | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Multifamily construction | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| One- to four- family construction | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total One- to four- family construction | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
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Table of Contents
| September 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | Revolving Loans | Total Loans | |||||||||||||||||||||||||||||||||||||||||||||
| By class: | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | |||||||||||||||||||||||||||||||||||||||||
| Land and land development | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Land and land development | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Commercial business | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial business | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Agricultural business, including secured by farmland | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Agricultural business, including secured by farmland | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
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Table of Contents
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | Revolving Loans | Total Loans | |||||||||||||||||||||||||||||||||||||||||||||
| By class: | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | |||||||||||||||||||||||||||||||||||||||||
| Commercial real estate - owner occupied | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial real estate - owner occupied | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Commercial real estate - investment properties | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial real estate - investment properties | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Multifamily real estate | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Multifamily real estate | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
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Table of Contents
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | Revolving Loans | Total Loans | |||||||||||||||||||||||||||||||||||||||||||||
| By class: | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | |||||||||||||||||||||||||||||||||||||||||
| Commercial construction | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial construction | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Multifamily construction | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Multifamily construction | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| One- to four- family construction | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total One- to four- family construction | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
24
Table of Contents
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | Revolving Loans | Total Loans | |||||||||||||||||||||||||||||||||||||||||||||
| By class: | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | |||||||||||||||||||||||||||||||||||||||||
| Land and land development | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Land and land development | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Commercial business | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Commercial business | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Agricultural business, including secured by farmland | |||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | |||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||||||||||||||
| Loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Agricultural business, including secured by farmland | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
25
Table of Contents
The following tables present the Company’s portfolio of non-risk-rated loans by class and delinquency status as of September 30, 2026 and December 31, 2025 (in thousands). In addition, the tables include the gross charge-offs for the nine months ended September 30, 2026 and for the year ended December 31, 2025. Revolving loans that are converted to term loans are treated as new originations in the tables below and are presented by year of origination. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension.
| September 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | Revolving Loans | Total Loans | |||||||||||||||||||||||||||||||||||||||||||||
| By class: | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | |||||||||||||||||||||||||||||||||||||||||
| Small balance CRE | |||||||||||||||||||||||||||||||||||||||||||||||
| Past Due Category | |||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 60-89 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 90 Days + Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Small balance CRE | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Small business scored | |||||||||||||||||||||||||||||||||||||||||||||||
| Past Due Category | |||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 60-89 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 90 Days + Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Small business scored | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| One- to four- family residential | |||||||||||||||||||||||||||||||||||||||||||||||
| Past Due Category | |||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 60-89 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 90 Days + Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| Total One- to four- family residential | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
26
Table of Contents
| September 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | Revolving Loans | Total Loans | |||||||||||||||||||||||||||||||||||||||||||||
| By class: | 2026 | 2025 | 2024 | 2023 | 2022 | Prior | |||||||||||||||||||||||||||||||||||||||||
Consumer—home equity revolving lines of credit | |||||||||||||||||||||||||||||||||||||||||||||||
| Past Due Category | |||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 60-89 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 90 Days + Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Consumer—home equity revolving lines of credit | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Consumer-other | |||||||||||||||||||||||||||||||||||||||||||||||
| Past Due Category | |||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 60-89 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 90 Days + Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Consumer-other | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
27
Table of Contents
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | Revolving Loans | Total Loans | |||||||||||||||||||||||||||||||||||||||||||||
| By class: | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | |||||||||||||||||||||||||||||||||||||||||
| Small balance CRE | |||||||||||||||||||||||||||||||||||||||||||||||
| Past Due Category | |||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 60-89 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 90 Days + Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Small balance CRE | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Small business scored | |||||||||||||||||||||||||||||||||||||||||||||||
| Past Due Category | |||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 60-89 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 90 Days + Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Small business scored | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| One- to four- family residential | |||||||||||||||||||||||||||||||||||||||||||||||
| Past Due Category | |||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 60-89 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 90 Days + Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| Total One- to four- family residential | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
28
Table of Contents
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans by Year of Origination | Revolving Loans | Total Loans | |||||||||||||||||||||||||||||||||||||||||||||
| By class: | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | |||||||||||||||||||||||||||||||||||||||||
Consumer—home equity revolving lines of credit | |||||||||||||||||||||||||||||||||||||||||||||||
| Past Due Category | |||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 60-89 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 90 Days + Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Consumer—home equity revolving lines of credit | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Consumer-other | |||||||||||||||||||||||||||||||||||||||||||||||
| Past Due Category | |||||||||||||||||||||||||||||||||||||||||||||||
| Current | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 60-89 Days Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| 90 Days + Past Due | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Consumer-other | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Gross charge-offs for the year ended December 31, 2025 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
29
Table of Contents
The following tables provide the amortized cost basis of collateral-dependent loans as of September 30, 2026 and December 31, 2025 (in thousands). One- to four-family residential real estate collateral comprised approximately 49% of the Company’s collateral-dependent loan population at September 30, 2026. These loans are secured by properties located in multiple geographic markets, predominantly within Washington state, with remaining balances distributed across Oregon and California. Given the geographic dispersion of the underlying collateral and the relatively limited size of the collateral-dependent loan portfolio in relation to total loans, management does not believe this exposure constitutes a significant concentration of credit risk.
| September 30, 2026 | |||||||||||||||||||||||||||||
| Real Estate | Equipment | Inventory | Total | ||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||
| Owner-occupied | $ | $ | $ | $ | |||||||||||||||||||||||||
| Small balance CRE | |||||||||||||||||||||||||||||
| Construction, land and land development: | |||||||||||||||||||||||||||||
| Multifamily construction | — | ||||||||||||||||||||||||||||
| One- to four-family construction | |||||||||||||||||||||||||||||
| Commercial business | |||||||||||||||||||||||||||||
| Small business scored | |||||||||||||||||||||||||||||
Agricultural business, including secured by farmland | |||||||||||||||||||||||||||||
| One- to four-family residential | |||||||||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||
| Consumer—home equity revolving lines of credit | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||
| Real Estate | Equipment | Inventory | Total | ||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||
| Small balance CRE | $ | $ | $ | $ | |||||||||||||||||||||||||
| Construction, land and land development: | |||||||||||||||||||||||||||||
| One- to four-family construction | |||||||||||||||||||||||||||||
| Land and land development | |||||||||||||||||||||||||||||
| Commercial business | |||||||||||||||||||||||||||||
| Commercial business | |||||||||||||||||||||||||||||
| Small business scored | |||||||||||||||||||||||||||||
Agricultural business, including secured by farmland | |||||||||||||||||||||||||||||
| One- to four-family residential | |||||||||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||
| Consumer—home equity revolving lines of credit | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
30
Table of Contents
The following tables provide additional detail on the age analysis of the Company’s past due loans as of September 30, 2026 and December 31, 2025 (in thousands):
| September 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total Loans | Non-accrual with no Allowance | Total Non-accrual (1) | Loans 90 Days or More Past Due and Accruing | |||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Owner-occupied | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Investment properties | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Small balance CRE | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily real estate | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction, land and land development: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| One- to four-family construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and land development | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial business: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial business | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Small business scored | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Agricultural business, including secured by farmland | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| One- to four-family residential | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer—home equity revolving lines of credit | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer—other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
(1) The Company did not recognize any interest income on non-accrual loans during the nine months ended September 30, 2026.
31
Table of Contents
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total Loans | Non-accrual with no Allowance | Total Non-accrual (1) | Loans 90 Days or More Past Due and Accruing | |||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Owner-occupied | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Investment properties | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Small balance CRE | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily real estate | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Construction, land and land development: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| One- to four-family construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and land development | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial business: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial business | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Small business scored | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Agricultural business, including secured by farmland | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| One-to four-family residential | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer—home equity revolving lines of credit | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer—other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
(1) The Company did not recognize any interest income on non-accrual loans during the year ended December 31, 2025.
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The following tables provide the activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2026 and 2025 (in thousands):
| For the Three Months Ended September 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | Multifamily Real Estate | Construction and Land | Commercial Business | Agricultural Business | One- to Four-Family Residential | Consumer | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses - loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Initial allowance on purchased seasoned loans at acquisition | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Initial allowance on loans purchased with credit deterioration at acquisition | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision/(recapture) for credit losses | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | Multifamily Real Estate | Construction and Land | Commercial Business | Agricultural Business | One- to Four-Family Residential | Consumer | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses - loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Initial allowance on purchased seasoned loans at acquisition | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Initial allowance on loans purchased with credit deterioration at acquisition | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision/(recapture) for credit losses | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
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| For the Three Months Ended September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | Multifamily Real Estate | Construction and Land | Commercial Business | Agricultural Business | One- to Four-Family Residential | Consumer | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses - loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Provision/(recapture) for credit losses | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | Multifamily Real Estate | Construction and Land | Commercial Business | Agricultural Business | One- to Four-Family Residential | Consumer | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses - loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Provision/(recapture) for credit losses | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
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Note 6: GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS
Goodwill and Other Intangible Assets: At September 30, 2026, intangible assets are comprised of goodwill and core deposit intangibles (CDI) acquired in business combinations. Goodwill represents the excess of the purchase consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination, and is not amortized but is reviewed at least annually for impairment. The Company has identified one reporting unit for the purpose of evaluating goodwill for impairment. The Company completed an assessment of qualitative factors as of December 31, 2025 and concluded that no further analysis was required as it was more likely than not that the fair value of the reporting unit exceeded the carrying value. CDI represents the value of transaction-related deposits and the value of the client relationships associated with the deposits. The Company amortizes CDI assets over their estimated useful lives and reviews them at least annually for events or circumstances that could impair their value.
At September 1, 2026, the Company recorded $61.2 million in goodwill and $28.6 million in CDI assets related to the acquisition of Pacific Financial. Additional information on the acquisition and purchase price allocations is provided in Note 3 - Business Combinations.
The following table summarizes the changes in the Company’s goodwill and other intangibles for the year ended December 31, 2025 and the nine months ended September 30, 2026 (in thousands):
| Goodwill | CDI | Total | |||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | ||||||||||||||
| Amortization | — | ( | ( | ||||||||||||||
| Balance, December 31, 2025 | |||||||||||||||||
| Amortization | — | ( | ( | ||||||||||||||
Additions through acquisition(1) | |||||||||||||||||
| Balance, September 30, 2026 | $ | $ | $ | ||||||||||||||
(1) The additions to Goodwill and CDI in 2026 relate to the acquisition of Pacific Financial.
The following table presents the estimated amortization expense with respect to CDI as of September 30, 2026, for the periods indicated (in thousands):
| Estimated Amortization | ||||||||
| Remainder of 2026 | $ | |||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| Thereafter | ||||||||
| $ | ||||||||
Mortgage Servicing Rights: Mortgage and Small Business Administration (SBA) servicing rights are reported in other assets. SBA servicing rights are initially recorded and carried at fair value. Mortgage servicing rights are initially recognized at fair value and are amortized in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Mortgage servicing rights are subsequently evaluated for impairment based upon the fair value of the rights compared to the amortized cost (remaining unamortized initial fair value). If the fair value is less than the amortized cost, a valuation allowance is created through an impairment charge to servicing fee income. However, if the fair value is greater than the amortized cost, the amount above the amortized cost is not recognized in the carrying value. The unpaid principal balance of loans for which mortgage and SBA servicing rights have been recognized totaled $2.73 billion and $2.77 billion at September 30, 2026, and December 31, 2025, respectively. Custodial accounts maintained in connection with this servicing totaled $31.9 million and $13.1 million at September 30, 2026, and December 31, 2025, respectively.
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An analysis of the mortgage and SBA servicing rights for the three and nine months ended September 30, 2026 and 2025 is presented below (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Balance, beginning of the period | $ | $ | $ | $ | |||||||||||||||||||
| Additions—amounts capitalized | |||||||||||||||||||||||
| Additions—through purchase | |||||||||||||||||||||||
Amortization (1) | ( | ( | ( | ( | |||||||||||||||||||
Fair value adjustments (2) | ( | ( | |||||||||||||||||||||
| Balance, end of the period | $ | $ | $ | $ | |||||||||||||||||||
(1) Amortization of mortgage servicing rights is recorded as a reduction of loan servicing income within mortgage banking operations and any unamortized balance is fully amortized if the loan repays in full.
(2) Fair value adjustments relate to SBA servicing rights. These adjustments are estimated based on an independent dealer analysis by discounting estimated net future cash flows from servicing SBA loans
Note 7: DEPOSITS
Deposits consisted of the following at September 30, 2026 and December 31, 2025 (in thousands):
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Non-interest-bearing accounts | $ | $ | |||||||||||||||||||||
| Interest-bearing checking | |||||||||||||||||||||||
| Regular savings accounts | |||||||||||||||||||||||
| Money market accounts | |||||||||||||||||||||||
| Total interest-bearing transaction and savings accounts | |||||||||||||||||||||||
| Certificates of deposit: | |||||||||||||||||||||||
| Certificates of deposit greater than or equal to $250,000 | |||||||||||||||||||||||
| Certificates of deposit less than $250,000 | |||||||||||||||||||||||
| Total certificates of deposit | |||||||||||||||||||||||
| Total deposits | $ | $ | |||||||||||||||||||||
| Included in total deposits: | |||||||||||||||||||||||
| Public fund transaction and savings accounts | $ | $ | |||||||||||||||||||||
| Public fund interest-bearing certificates | |||||||||||||||||||||||
| Total public deposits | $ | $ | |||||||||||||||||||||
| Total brokered certificates of deposit | $ | $ | |||||||||||||||||||||
Scheduled maturities and weighted average interest rates of certificates of deposit at September 30, 2026, are as follows (dollars in thousands):
| September 30, 2026 | |||||||||||
| Amount | Weighted Average Rate | ||||||||||
| Maturing in one year or less | $ | % | |||||||||
| Maturing after one year through two years | |||||||||||
| Maturing after two years through three years | |||||||||||
| Maturing after three years through four years | |||||||||||
| Maturing after four years through five years | |||||||||||
| Maturing after five years | |||||||||||
| Total certificates of deposit | $ | % | |||||||||
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Note 8: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents estimated fair values of the Company’s financial instruments as of September 30, 2026 and December 31, 2025, whether or not recognized or recorded in the Consolidated Statements of Financial Condition (dollars in thousands):
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||||||||
| Level | Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | 1 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Securities—available-for-sale | 2 | ||||||||||||||||||||||||||||
| Securities—available-for-sale | 3 | ||||||||||||||||||||||||||||
| Securities—held-to-maturity | 2 | ||||||||||||||||||||||||||||
| Securities—held-to-maturity | 3 | ||||||||||||||||||||||||||||
| Loans held for sale | 2 | ||||||||||||||||||||||||||||
| Loans receivable, net | 3 | ||||||||||||||||||||||||||||
| Equity securities | 1 | ||||||||||||||||||||||||||||
| FHLB stock | 3 | ||||||||||||||||||||||||||||
| Bank-owned life insurance | 1 | ||||||||||||||||||||||||||||
| Mortgage servicing rights | 3 | ||||||||||||||||||||||||||||
| SBA servicing rights | 3 | ||||||||||||||||||||||||||||
| Investments in limited partnerships | 3 | ||||||||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||||||||
Interest rate swaps | 2 | ||||||||||||||||||||||||||||
Interest rate lock and forward sales commitments | 2,3 | ||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Demand, interest checking and money market accounts | 2 | ||||||||||||||||||||||||||||
| Regular savings | 2 | ||||||||||||||||||||||||||||
| Certificates of deposit | 2 | ||||||||||||||||||||||||||||
| FHLB advances | 2 | ||||||||||||||||||||||||||||
| Other borrowings | 2 | ||||||||||||||||||||||||||||
| Junior subordinated debentures | 3 | ||||||||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||||||||
Interest rate swaps | 2 | ||||||||||||||||||||||||||||
Interest rate lock and forward sales commitments | 2,3 | ||||||||||||||||||||||||||||
| Risk participation agreement | 2 | ||||||||||||||||||||||||||||
The Company measures and discloses certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (that is, not a forced liquidation or distressed sale). When measuring fair value, Management will maximize the use of observable inputs and minimize the use of unobservable inputs whenever possible. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s estimates for market assumptions.
The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret available data and develop fair value estimates. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize at a future date. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values. In addition, reasonable comparability between financial institutions may be limited due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.
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Items Measured at Fair Value on a Recurring Basis:
The following tables present financial assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy of the fair value measurements for those assets and liabilities as of September 30, 2026 and December 31, 2025 (in thousands):
| September 30, 2026 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Securities—available-for-sale | |||||||||||||||||||||||
| U.S. Government and agency obligations | $ | $ | $ | $ | |||||||||||||||||||
| Municipal bonds | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Mortgage-backed or related securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
Loans held for sale(1) | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||
| SBA servicing rights | |||||||||||||||||||||||
| Investment in limited partnerships | |||||||||||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| Interest rate lock and forward sales commitments | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
Junior subordinated debentures | $ | $ | $ | $ | |||||||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| Interest rate lock and forward sales commitments | |||||||||||||||||||||||
| Risk participation agreement | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
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| December 31, 2025 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Securities—available-for-sale | |||||||||||||||||||||||
| U.S. Government and agency obligations | $ | $ | $ | $ | |||||||||||||||||||
| Municipal bonds | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Mortgage-backed or related securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
Loans held for sale(1) | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||
| SBA servicing rights | |||||||||||||||||||||||
| Investment in limited partnerships | |||||||||||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| Interest rate lock and forward sales commitments | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Junior subordinated debentures | $ | $ | $ | $ | |||||||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| Interest rate lock and forward sales commitments | |||||||||||||||||||||||
| Risk participation agreement | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
(1) The unpaid principal balance of residential mortgage loans held for sale carried at fair value on a recurring basis was $20.9 million and $33.6 million at September 30, 2026 and December 31, 2025, respectively.
The following methods were used to estimate the fair value of each class of financial instruments above:
Securities: The estimated fair values of investment securities and mortgage-backed securities are based on current active market quotes, when available, which are considered Level 1 measurements. For most of the portfolio, matrix pricing based on the securities’ relationship to other benchmark quoted prices is used, which is considered Level 2. Due to limited activity in the trust preferred securities (TPS) markets, which reduces the observability of market spreads for certain TPS securities included in Corporate Bonds, Management has classified these securities as Level 3. Management periodically reviews pricing information from third-party pricing services and validates the reported fair values against other sources.
Loans Held for Sale: Fair values for residential mortgage loans held for sale are determined by comparing actual loan rates to current secondary market prices for similar loans.
Equity Securities: Equity securities are invested in a publicly traded stock. Fair values are based on daily quoted market prices.
SBA Servicing Rights: Fair values are estimated based on an independent dealer analysis that discounts estimated net future cash flows from servicing. Key assumptions include prepayment speeds, delinquency and foreclosure rates, discount rates, servicing costs, and timing of cash flows. The SBA servicing portfolio is stratified by loan type, and fair value estimates are adjusted based on the serviced loan interest rates versus current rates on new originations since the most recent independent analysis.
Investments in Limited Partnerships: Fair values are estimated using the practical expedient method, based on the Company’s ownership interest in partners’ capital with a proportionate share of net assets attributed to the Company for each limited partnership.
Junior Subordinated Debentures: Fair values are estimated using an income approach. Significant inputs include a credit risk adjusted spread and the three-month SOFR (Secured Overnight Financing Rate). The credit-risk-adjusted spread reflects the nonperformance risk of the liability. The Company uses an external valuation firm to validate the reasonableness of this spread. The junior subordinated debentures are carried at fair value, representing the estimated amount that would be paid to transfer these liabilities in an orderly transaction among market participants. Due to limited activity in the TPS markets, which reduces the observability of market spreads, these instruments are classified as Level 3 measurements.
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Derivatives: Derivatives include interest rate swap agreements, interest rate lock commitments to originate loans held for sale, forward sales contracts to sell loans and securities related to mortgage banking activities and risk participation agreements. Fair values are generally based on dealer quotes and secondary market sources. Because interest rate lock commitments use a pull-through rate that is considered an unobservable input, these derivatives are classified as Level 3 measurements.
Off-Balance Sheet Items: Off-balance sheet financial instruments include unfunded commitments to extend credit, including standby letters of credit, and commitments to purchase investment securities. The fair value of these instruments is not considered to be material.
Limitations: The fair value estimates presented are based on information available to Management as of September 30, 2026, and December 31, 2025. The factors used in these estimates are subject to change after the measurement date, therefore, current fair value estimates may differ materially from the amounts presented.
Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3):
The following table provides a description of the valuation techniques, unobservable inputs, and quantitative and qualitative information about the unobservable inputs used in the fair value measurements of the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and non-recurring basis at September 30, 2026 and December 31, 2025:
| Weighted Average Rate or Range | ||||||||||||||||||||||||||
| Financial Instruments | Valuation Technique | Unobservable Inputs | September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Corporate bonds (TPS) | Discounted cash flows | Discount rate | % | % | ||||||||||||||||||||||
| Junior subordinated debentures | Discounted cash flows | Discount rate | % | % | ||||||||||||||||||||||
| Loans individually evaluated | Collateral valuations | Discount to appraised value | ||||||||||||||||||||||||
| Interest rate lock commitments | Pricing model | Pull-through rate | % | % | ||||||||||||||||||||||
| SBA servicing rights | Discounted cash flows | Constant prepayment rate | % | % | ||||||||||||||||||||||
Trust preferred securities: Management believes that the credit -risk-adjusted spread used to develop the discount rate utilized in the fair value measurement of TPS is indicative of the risk premium a willing market participant would require under current market conditions for instruments with similar contractual rates, terms, conditions, credit risk profiles and expected probabilities of default. Management attributes the change in fair value of these instruments, compared to their par value, primarily to general market adjustments to the risk premiums for these types of assets subsequent to their issuance.
Junior subordinated debentures: Similar to the TPS discussed above, Management believes that the credit-risk-adjusted spread utilized in the fair value measurement of the junior subordinated debentures is indicative of the risk premium a willing market participant would require under current market conditions for an issuer with Banner’s credit risk profile. Management attributes the change in fair value of the junior subordinated debentures compared to their par value primarily to general market adjustments to the risk premiums for these types of liabilities subsequent to their issuance. Future contractions in the risk-adjusted spread relative to the spread currently used to estimate the fair value of the Company’s junior subordinated debentures at fair value as of September 30, 2026, or the passage of time, will result in negative fair value adjustments. At September 30, 2026, the discount rate utilized was based on a credit spread of 401 basis points and three-month SOFR of 408 basis points.
Interest rate lock commitments: The fair value of the interest rate lock commitments is based on secondary market sources adjusted for an estimated pull-through rate. The pull-through rate is based on historical loan closing rates for similar interest rate lock commitments. An increase or decrease in the pull-through rate would have a corresponding, positive or negative fair value adjustment.
SBA servicing asset: The constant prepayment rate (CPR) is set based on industry data. An increase in the CPR would result in a negative fair value adjustment, while a decrease in CPR would result in a positive fair value adjustment.
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The following tables provide a reconciliation of the assets and liabilities measured for which fair value is measured using significant unobservable inputs (Level 3) on a recurring basis during the three and nine months ended September 30, 2026 and 2025 (in thousands):
| Three Months Ended September 30, 2026 | |||||||||||||||||||||||||||||
| Level 3 Fair Value Inputs | |||||||||||||||||||||||||||||
| TPS Securities | Borrowings—Junior Subordinated Debentures | Interest Rate Lock and Forward Sales Commitments | Investments in Limited Partnerships | SBA Servicing Asset | |||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Net change recognized in earnings | ( | ( | |||||||||||||||||||||||||||
| Net change recognized in accumulated other comprehensive income (AOCI) | ( | ( | — | — | — | ||||||||||||||||||||||||
| Purchases, issuances and settlements, including acquisitions | — | — | — | ||||||||||||||||||||||||||
| Ending balance at September 30, 2026 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Nine Months Ended September 30, 2026 | |||||||||||||||||||||||||||||
| Level 3 Fair Value Inputs | |||||||||||||||||||||||||||||
| TPS Securities | Borrowings—Junior Subordinated Debentures | Interest Rate Lock and Forward Sales Commitments | Investments in Limited Partnerships | SBA Servicing Asset | |||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Net change recognized in earnings | ( | ( | ( | ||||||||||||||||||||||||||
| Net change recognized in AOCI | ( | ( | — | — | — | ||||||||||||||||||||||||
| Purchases, issuances and settlements, including acquisitions | — | — | — | ||||||||||||||||||||||||||
| Ending balance at September 30, 2026 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Three Months Ended September 30, 2025 | |||||||||||||||||||||||||||||
| Level 3 Fair Value Inputs | |||||||||||||||||||||||||||||
| TPS | Borrowings—Junior Subordinated Debentures | Interest Rate Lock and Forward Sales Commitments | Investments in Limited Partnerships | SBA Servicing Asset | |||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Net change recognized in earnings | ( | ||||||||||||||||||||||||||||
| Net change recognized in AOCI | — | — | — | ||||||||||||||||||||||||||
| Purchases, issuances and settlements | — | — | — | ||||||||||||||||||||||||||
| Ending balance at September 30, 2025 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Nine Months Ended September 30, 2025 | |||||||||||||||||||||||||||||
| Level 3 Fair Value Inputs | |||||||||||||||||||||||||||||
| TPS Securities | Borrowings—Junior Subordinated Debentures | Interest Rate Lock and Forward Sales Commitments | Investments in Limited Partnerships | SBA Servicing Asset | |||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Net change recognized in earnings | |||||||||||||||||||||||||||||
| Net change recognized in AOCI | — | — | — | ||||||||||||||||||||||||||
| Purchases, issuances and settlements | — | — | — | ||||||||||||||||||||||||||
| Ending balance at September 30, 2025 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Interest income, dividends and amortization related to TPS are recorded as a component of interest income. Interest expense related to the junior subordinated debentures is measured based on contractual interest rates and reported in interest expense. The change in fair value of the junior subordinated debentures, which represents changes in instrument specific credit risk of the liability, and the change in fair value of TPS securities are recorded in other comprehensive income. Changes in the estimated fair value of investments in limited partnerships and the SBA servicing asset are recorded as a component of non-interest income. Changes in the estimated fair value of interest rate lock and forward sales commitments are included in mortgage banking operations in non-interest income.
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Items Measured at Fair Value on a Non-recurring Basis:
The following tables present financial assets and liabilities for which fair value is measured on a non-recurring basis and the level within the fair value hierarchy of the related fair value measurements for those assets as of September 30, 2026 and December 31, 2025 (in thousands):
| September 30, 2026 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Loans individually evaluated | $ | $ | $ | $ | |||||||||||||||||||
| Real estate owned (REO) | |||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Loans individually evaluated | $ | $ | $ | $ | |||||||||||||||||||
| REO | |||||||||||||||||||||||
Loans individually evaluated: Expected credit losses for loans evaluated individually are measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate. When the Bank determines that foreclosure is probable, the expected credit loss is measured based on the estimated fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. As a practical expedient, the Bank measures the expected credit loss for a loan using the estimated fair value of the collateral, if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Bank’s assessment as of the reporting date. In both cases, if the estimated fair value of the collateral is less than the amortized cost basis of the loan, the Bank will recognize an allowance as the difference between the estimated fair value of the collateral, less costs to sell (if applicable) and the amortized cost basis of the loan. If the estimated fair value of the collateral exceeds the amortized cost basis of the loan, any expected recovery added to the amortized cost basis will be limited to the amount previously charged-off. Subsequent changes in the expected credit losses for loans evaluated individually are included within the provision for credit losses in the same manner in which the expected credit loss initially was recognized or as a reduction in the provision that would otherwise be reported.
REO: The Company records REO (acquired through a lending relationship) at estimated fair value on a non-recurring basis. Fair value adjustments on REO are based on updated real estate appraisals which are based on current market conditions. All REO properties are recorded at the lower of the estimated fair value of the real estate, less expected selling costs, or the carrying amount of the defaulted loans. From time to time, non-recurring fair value adjustments to REO are recorded to reflect partial write-downs based on an observable market price or current appraised value of property. Banner considers any valuation inputs related to REO to be Level 3 inputs. The individual carrying values of these assets are reviewed for impairment at least annually and any additional impairment charges are expensed.
Note 9: INCOME TAXES, DEFERRED TAXES, AND TAX CREDIT INVESTMENTS
As of September 30, 2026, the Company had a net deferred tax asset of $149.4 million, compared to $127.6 million at December 31, 2025. In addition, the Company has estimated $2.0 million of unrecognized tax benefits related to uncertain tax positions.
The Company recorded income tax expense of $35.1 million and $33.7 million for the nine months ended September 30, 2026, and 2025, respectively, representing an effective tax rate of 18.8 % and 18.9 %, respectively. The effective tax rates differed from the statutory rate principally due to the effects of tax-exempt income, certain tax credits, and tax benefits related to restricted stock vesting.
Tax credit investments: The Company invests in low income housing tax credit funds that are designed to generate a return primarily through the realization of federal tax credits. The Company accounts for these investments by amortizing the cost of these tax credit investments over the life of the investment using a proportional amortization method and this tax credit investment amortization expense is a component of the provision for income taxes. The current balance of these tax credit investments is included in other assets, while the unfunded commitments are included in accrued expenses and other liabilities on the Consolidated Statements of Financial Condition.
The following table presents the balances of the Company’s tax credit investments and related unfunded commitments at September 30, 2026 and December 31, 2025 (in thousands):
| September 30, 2026 | December 31, 2025 | ||||||||||
| Tax Credit Investments: | |||||||||||
| Total commitments | $ | $ | |||||||||
| Unfunded commitments | |||||||||||
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The following table presents other information related to the Company’s tax credit investments for the three and nine months ended September 30, 2026 and 2025 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Tax credits and other tax benefits recognized | $ | $ | $ | $ | |||||||||||||||||||
| Tax credit amortization expense included in provision for income taxes | |||||||||||||||||||||||
Note 10: CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING FOR EARNINGS PER SHARE (EPS)
The following table reconciles basic to diluted weighted average shares outstanding used to calculate earnings per share data for the three and nine months ended September 30, 2026 and 2025 (in thousands, except shares and per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Basic weighted average shares outstanding | |||||||||||||||||||||||
| Dilutive effect of unvested restricted stock | |||||||||||||||||||||||
| Diluted weighted average shares outstanding | |||||||||||||||||||||||
| Earnings per common share | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Anti-dilutive restricted stock excluded from the diluted weighted average shares outstanding calculation | |||||||||||||||||||||||
Note 11: STOCK-BASED COMPENSATION PLANS
The Company operates the 2014 Omnibus Incentive Plan (the 2014 Plan), the 2018 Omnibus Incentive Plan (the 2018 Plan) and the 2023 Omnibus Incentive Plan (the 2023 Plan), all of which were approved by its shareholders. The purpose of these plans is to promote the success and enhance the value of the Company by providing a means for attracting and retaining highly skilled employees, officers and directors of the Company and linking their personal interests with those of the Company’s shareholders. Under these plans, the Company currently has outstanding awards of restricted stock shares and restricted stock units.
The Company reserved 900,000 shares of its common stock for issuance under the 2014 Plan in connection with the settlement of awards. As of September 30, 2026, 579,707 restricted stock units have been granted under the 2014 Plan of which 42,787 were unvested. No further awards will be granted under the 2014 Plan.
The Company reserved 900,000 shares of common stock for issuance under the 2018 Plan in connection with the settlement of awards. As of September 30, 2026, 893,361 restricted stock units have been granted under the 2018 Plan of which 121,348 were unvested.
The Company reserved 625,000 shares of common stock for issuance under the 2023 Plan in connection with the settlement of awards. As of September 30, 2026, 13,743 restricted stock shares and 315,437 restricted stock units have been granted under the 2023 Plan of which 7,720 shares and 261,921 units were unvested, respectively.
The expense associated with all restricted stock grants (including restricted stock awards and restricted stock units) was $3.0 million and $8.6 million for the three and nine months ended September 30, 2026, and $2.7 million and $7.6 million for the three and nine months ended September 30, 2025, respectively. Unrecognized compensation expense for these awards as of September 30, 2026, was $17.2 million and is expected to be recognized over a weighted average period of 12 months.
Note 12: COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk - The Company has financial instruments with off-balance-sheet risk generated in the normal course of business to meet the financing needs of its clients. These financial instruments include commitments to extend credit, commitments related to standby letters of credit, commitments to originate loans, commitments to sell loans, and commitments to buy or sell securities. These instruments involve, to varying degrees, elements of credit and interest rate risk similar to the risk involved in on-balance sheet items.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument from commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. We apply the same credit policies to these commitments and conditional obligations as we do to our on-balance sheet financial instruments.
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Outstanding commitments consisted of the following at the dates indicated (in thousands):
| Contract or Notional Amount | |||||||||||
| September 30, 2026 | December 31, 2025 | ||||||||||
| Commitments to extend credit | $ | $ | |||||||||
| Standby letters of credit and financial guarantees | |||||||||||
| Risk participation agreements | |||||||||||
| Commitments to originate loans held for sale | |||||||||||
| Commitments to sell loans secured by one- to four-family residential properties | |||||||||||
| Commitments to sell securities related to mortgage banking activities | |||||||||||
In addition to the commitments disclosed in the table above, the Company is also committed to funding the unfunded portion of its tax credit investments, as well as the remaining unfunded portion of its investments in limited partnerships. As of September 30, 2026, and December 31, 2025, the remaining outstanding commitments related to the unfunded tax credit investments and limited partnership investments were as follows (in thousands):
| Unfunded commitment balance for: | September 30, 2026 | December 31, 2025 | |||||||||||||||||||||
| Tax credit investments | $ | $ | |||||||||||||||||||||
| Limited partnerships investments | $ | $ | |||||||||||||||||||||
Commitments to extend credit are agreements to lend to a client, as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of the commitments may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. Each client’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on Management’s credit evaluation of the client. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties. The Company’s allowance for credit losses - unfunded loan commitments at September 30, 2026, and December 31, 2025, was $16.2 million and $15.0 million, respectively.
Standby letters of credit are conditional commitments issued to guarantee a client’s performance or payment to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients. Under a risk participation agreement, the Bank guarantees the financial performance of a borrower on the participated portion of an interest rate swap on a loan.
Interest rates on one- to four-family residential loan applications are typically rate locked (committed) to clients during the application stage for periods ranging from 30 to 60 days, the most typical period being 45 days. Traditionally, these loan applications with rate lock commitments have the pricing for the sale of these loans locked with various qualified investors under a best-efforts delivery program at or near the time the interest rate is locked with the client. The Bank then attempts to deliver these loans before their rate locks expire. This arrangement generally requires delivery of the loans prior to the expiration of the rate lock. Delays in funding the loans may require a lock extension. The cost of a lock extension is sometimes covered by the client and other times by the Bank. These lock extension costs have not had a material impact to the Company’s operations. For mandatory delivery commitments the Company enters into forward commitments at specific prices and settlement dates to deliver either: (1) residential mortgage loans for purchase by secondary market investors (i.e., Freddie Mac or Fannie Mae), or (2) mortgage-backed securities to broker/dealers. The purpose of these forward commitments is to offset the movement in interest rates between the execution of its residential mortgage rate lock commitments with borrowers and the sale of those loans to the secondary market investor. There were no
In the normal course of business, the Company and/or its subsidiaries have various legal proceedings and other contingent matters outstanding. These proceedings and the associated legal claims are often contested and the outcome of individual matters is not always predictable. These claims and counterclaims typically arise during the course of collection efforts on problem loans or with respect to action to enforce liens on properties in which the Bank holds a security interest, but also include other claims arising in the ordinary course of business, including employment-related matters. Based upon the information known to Management, there were no legal proceedings, pending or threatened, that Management believes would reasonably be expected to have a material adverse effect on the results of operations or consolidated financial position at September 30, 2026.
In connection with certain asset sales, the Bank typically makes representations and warranties about the underlying assets conforming to specified guidelines. If the underlying assets do not conform to the specifications, the Bank may have an obligation to repurchase the assets or indemnify the purchaser against any loss. The Bank believes that the potential for material loss under these arrangements is remote. Accordingly, the fair value of such obligations is not material.
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Note 13: DERIVATIVES AND HEDGING
The Company is party to various derivative instruments that are used for asset and liability management and client financing needs. Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index, or other component. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the market value of the derivative contract.
The Company’s predominant derivative and hedging activities involve interest rate swaps related to certain term loans and forward sales contracts associated with mortgage banking activities. Generally, these instruments help the Company manage exposure to market risk and meet client financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors such as market-driven interest rates and prices or other economic factors.
As of September 30, 2026, and December 31, 2025, the notional values or contractual amounts and fair values of the Company’s derivatives were as follows (in thousands):
| Asset Derivatives | Liability Derivatives | ||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2026 | December 31, 2025 | September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| Notional/ Contract Amount | Fair Value | Notional/ Contract Amount | Fair Value | Notional/ Contract Amount | Fair Value | Notional/ Contract Amount | Fair Value | ||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Master netting agreements | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net interest rate swaps | 12,952 | 9,978 | 26,484 | 19,207 | |||||||||||||||||||||||||||||||||||||||||||
| Risk participation agreements | |||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage loan commitments | |||||||||||||||||||||||||||||||||||||||||||||||
| Forward sales contracts | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
The Company’s asset derivatives are included in other assets, while the liability derivatives are included in accrued expenses and other liabilities on the Consolidated Statements of Financial Condition.
Interest Rate Swaps: The Bank offers an interest rate swap program for commercial loan clients under which a client with a variable-rate loan enters into an interest rate swap to receive a variable-rate payment in exchange for paying a fixed-rate payment. To offset its risk exposure, the Bank enters into an offsetting interest rate swap with a dealer counterparty for the same notional amount and term, under which the dealer counterparty receives a fixed-rate payment in exchange for a variable-rate payment. These swaps do not qualify as designated hedges; therefore, each swap is accounted for as a freestanding derivative.
Risk Participation Agreements: In conjunction with the purchase or sale of participating interests in loans, the Company also participates in related swaps through risk participation agreements. The existing credit derivatives resulting from these participations are not designated as hedges as they are not used to manage interest rate risk in the Company’s assets or liabilities and are not speculative.
Mortgage Loan Commitments: The Company sells originated one- to four-family residential loans into the secondary mortgage loan markets. During the period of loan origination and prior to the sale of the loans in the secondary market, the Company has exposure to movements in interest rates associated with written interest rate lock commitments with potential borrowers to originate one- to four-family residential loans that are intended to be sold and for closed one- to four-family residential loans held for sale for which fair value accounting has been elected, that are awaiting sale and delivery into the secondary market. The Company economically hedges the risk of changing interest rates associated with these one- to four-family residential loan commitments by entering into forward sales contracts to sell these loans or mortgage-backed securities to broker/dealers at specific prices and dates.
Gains (losses) recognized in income within mortgage banking operations on non-designated hedging instruments for the three and nine months ended September 30, 2026 and 2025, were as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Mortgage loan commitments | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
| Forward sales contracts | ( | ( | |||||||||||||||||||||
| $ | $ | ( | $ | $ | ( | ||||||||||||||||||
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The Company is exposed to credit-related losses in the event of nonperformance by the counterparty to these agreements. Credit risk of the financial contract is controlled through the credit approval, limits, and monitoring procedures and Management does not expect the counterparties to fail their obligations.
In connection with the interest rate swaps between the Bank and the dealer counterparties, the agreements contain a provision where if the Bank fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Bank would be required to settle its obligations. Similarly, the Bank could be required to settle its obligations under certain of its agreements if specific regulatory events occur, such as a publicly issued prompt corrective action directive, cease and desist order, or a capital maintenance agreement that required the Bank to maintain a specific capital level. If the Bank had breached any of these provisions at September 30, 2026, or December 31, 2025, it could have been required to settle its obligations under the agreements at the termination value. As of September 30, 2026, and December 31, 2025, the Company had no obligations to dealer counterparties related to these agreements. The Company generally posts collateral against derivative liabilities in the form of cash, government agency-issued bonds, mortgage-backed securities, or commercial mortgage-backed securities. Collateral posted against derivative liabilities was $23.9 million and $17.4 million as of September 30, 2026, and December 31, 2025, respectively. The collateral posted included restricted cash of $22.9 million and $16.4 million as of September 30, 2026, and December 31, 2025, respectively.
Derivative assets and liabilities are recorded at fair value on the balance sheet. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis and to offset net derivative positions with related collateral where applicable. In addition, some interest rate swap derivatives between the Company and the dealer counterparties are cleared through central clearing houses. These clearing houses characterize the variation margin payments as settlements of the derivative’s market exposure and not as collateral. The variation margin is treated as an adjustment to our cash collateral, as well as a corresponding adjustment to our derivative asset or liability. The variation margin adjustment was a positive adjustment of $13.5 million and $9.2 million as of September 30, 2026, and December 31, 2025, respectively.
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The following tables present additional information related to the Company’s derivative contracts, by type of financial instrument, as of September 30, 2026 and December 31, 2025 (in thousands):
| September 30, 2026 | |||||||||||||||||||||||||||||||||||
| Gross Amounts of Financial Instruments Not Offset in the Consolidated Statement of Financial Condition | |||||||||||||||||||||||||||||||||||
| Gross Amounts Recognized | Amounts offset in the Statement of Financial Condition | Net Amounts in the Statement of Financial Condition | Netting Adjustment Per Applicable Master Netting Agreements | Fair Value of Financial Collateral in the Statement of Financial Condition | Net Amount | ||||||||||||||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||||||||||||||
| Interest rate swaps | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Derivative liabilities | |||||||||||||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||||||||
| Gross Amounts of Financial Instruments Not Offset in the Consolidated Statement of Financial Condition | |||||||||||||||||||||||||||||||||||
| Gross Amounts Recognized | Amounts offset in the Statement of Financial Condition | Net Amounts in the Statement of Financial Condition | Netting Adjustment Per Applicable Master Netting Agreements | Fair Value of Financial Collateral in the Statement of Financial Condition | Net Amount | ||||||||||||||||||||||||||||||
| Derivative assets | |||||||||||||||||||||||||||||||||||
| Interest rate swaps | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Derivative liabilities | |||||||||||||||||||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
Note 14: SEGMENT DISCLOSURES
Banner’s Chief Executive Officer is considered the Chief Operating Decision Maker (CODM). The CODM assesses performance based on net income that is reported on our Consolidated Statements of Operations. The measure of segment assets is reported on our Consolidated Statement of Financial Condition as total assets. The CODM uses consolidated net income as the primary measure to evaluate resource allocations. The CODM is regularly provided with our consolidated financial statements, specifically the statement of operations and the statement of cash flows, as well as expense and budget data.
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ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Selected Notes to the Consolidated Financial Statements contained in Item 1 of this Form 10-Q.
Executive Overview
Banner is a bank holding company incorporated in the State of Washington, which wholly owns its subsidiary bank, Banner Bank. The Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington, and as of September 30, 2026, it had 153 branch offices and 19 loan production offices located in Washington, Oregon, California, Idaho, Utah and Nevada. Banner is subject to regulation by the Federal Reserve. The Bank is subject to regulation by the Washington State Department of Financial Institutions – Division of Banks (the DFI) and the Federal Deposit Insurance Corporation (the FDIC). As of September 30, 2026, we had total consolidated assets of $18.08 billion, total loans of $13.00 billion, total deposits of $15.39 billion and total shareholders’ equity of $2.13 billion.
The Bank is a regional bank that offers a wide variety of commercial banking services and financial products to individuals, businesses and public sector entities in its primary market areas. The Bank’s primary business is that of traditional banking institutions, accepting deposits and originating loans in locations surrounding our offices. The Bank is also an active participant in secondary loan markets, engaging in mortgage banking operations through the origination and sale of one- to four-family residential loans. Lending activities include commercial business and commercial real estate loans, agriculture business loans, construction and land development loans, one- to four-family and multifamily residential loans, SBA loans and consumer loans.
The Company’s successful execution of its super community bank model and strategic initiatives has delivered solid core operating results and profitability over the last several years. The Company’s longer term strategic initiatives continue to focus on originating high quality assets and client acquisition, which we believe will continue to generate strong revenue while maintaining the Company’s moderate risk profile.
Significant Recent Events
On September 1, 2026, Banner completed the acquisition of Pacific Financial, the holding company for Bank of the Pacific. At closing, Bank of the Pacific had 18 branch locations, including 15 in Washington and three in Oregon. Shareholders of Pacific Financial received 0.2633 shares of Banner common stock for each share of Pacific Financial common stock they owned, plus cash in lieu of any fractional shares, for total consideration paid of $186.8 million.
The Pacific Financial transaction was accounted for using the acquisition method of accounting. Accordingly, the assets (including identifiable intangible assets) and the liabilities of Pacific Financial were measured at their respective estimated fair values as of the merger date. The excess of the purchase price over the fair value of the net assets acquired was attributed to goodwill. The fair value on the merger date represents management's best estimates based on available information and facts and circumstances in existence on the merger date. The acquisition accounting is subject to adjustment within a measurement period of no longer than one year from the acquisition date. The acquisition brought $1.29 billion of assets, including $756.9 million of net loans receivable, and $1.14 billion of deposits to Banner.
Third Quarter 2026 Financial Highlights
•Net interest margin, on a tax equivalent basis, was 4.14% for current quarter, compared to 4.13% in the preceding quarter.
•Revenue was $177.3 million for the third quarter of 2026, compared to $172.0 million in the preceding quarter.
•Net interest income was $161.9 million in the third quarter of 2026, compared to $153.7 million in the preceding quarter.
•Return on average assets was 1.11% for the current quarter, compared to 1.20% in the preceding quarter.
•Net loans receivable were $12.82 billion at September 30, 2026, compared to $11.83 billion at June 30, 2026.
•Total deposits were $15.39 billion at September 30, 2026, compared to $13.79 billion at June 30, 2026.
•Core deposits represented 90% of total deposits at September 30, 2026.
•Non-performing assets were $63.0 million, or 0.35% of total assets, at September 30, 2026, compared to $60.5 million, or 0.36% of total assets at June 30, 2026.
•The allowance for credit losses - loans was $171.6 million, or 1.32% of total loans receivable, as of September 30, 2026, compared to $161.8 million, or 1.35% of total loans receivable, at June 30, 2026.
•Dividends paid to shareholders were $0.52 per share in the quarter ended September 30, 2026.
•Common shareholders’ equity per share decreased to $58.56 at September 30, 2026, compared to $58.83 at June 30, 2026.
•Tangible common shareholders’ equity per share* decreased to $45.84 at September 30, 2026, compared to $47.82 at June 30, 2026.
•Repurchased 200,000 shares of Banner common stock during the third quarter of 2026 at an average price of $71.03 per share.
*Non-GAAP Financial Measures.
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Reconciliation of Non-GAAP Financial Measures
Management has presented non-GAAP financial measures in this discussion and analysis because it believes these measures provide useful and comparative information to assess trends in our core operations and to facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, we have also presented comparable earnings information using GAAP financial measures. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies.
Adjusted revenue, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average equity, return on average tangible common equity, and adjusted efficiency ratio are non-GAAP financial measures. To calculate these non-GAAP measures, we make adjustments to our GAAP revenues and expenses as reported on our Consolidated Statements of Operations. Management believes that these non-GAAP financial measures provide information to investors that is useful in evaluating the operating performance and trends of financial services companies, including the Company (dollars in thousands except per share data).
| Quarters Ended | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| Sep 30, 2026 | Jun 30, 2026 | Sep 30, 2025 | 2026 | 2025 | |||||||||||||||||||||||||
| ADJUSTED REVENUE | |||||||||||||||||||||||||||||
| Net interest income (GAAP) | $ | 161,893 | $ | 153,740 | $ | 149,989 | $ | 465,802 | $ | 435,471 | |||||||||||||||||||
| Non-interest income (GAAP) | 15,386 | 18,222 | 20,730 | 52,769 | 57,589 | ||||||||||||||||||||||||
| Total revenue (GAAP) | 177,279 | 171,962 | 170,719 | 518,571 | 493,060 | ||||||||||||||||||||||||
| Exclude: Net loss (gain) on sale of securities | 2,102 | (8) | (377) | 3,336 | (374) | ||||||||||||||||||||||||
| Net change in valuation of financial instruments carried at fair value | (313) | 157 | (223) | (1,818) | (626) | ||||||||||||||||||||||||
| Losses on building and lease exits | — | — | (1,373) | — | (454) | ||||||||||||||||||||||||
| Adjusted revenue (non-GAAP) | $ | 179,068 | $ | 172,111 | $ | 168,746 | $ | 520,089 | $ | 491,606 | |||||||||||||||||||
| Quarters Ended | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| Sep 30, 2026 | Jun 30, 2026 | Sep 30, 2025 | 2026 | 2025 | |||||||||||||||||||||||||
| ADJUSTED EARNINGS | |||||||||||||||||||||||||||||
| Net income (GAAP) | $ | 47,709 | $ | 48,886 | $ | 53,502 | $ | 151,311 | $ | 144,133 | |||||||||||||||||||
| Exclude: Net loss (gain) on sale of securities | 2,102 | (8) | (377) | 3,336 | (374) | ||||||||||||||||||||||||
| Net change in valuation of financial instruments carried at fair value | (313) | 157 | (223) | (1,818) | (626) | ||||||||||||||||||||||||
| Merger and acquisition-related expenses | 5,177 | 238 | — | 5,415 | — | ||||||||||||||||||||||||
| Building and lease exit costs, net | 63 | 47 | (331) | 119 | 1,422 | ||||||||||||||||||||||||
| Related net tax (benefit) expense | (1,688) | (104) | 224 | (1,693) | (101) | ||||||||||||||||||||||||
| Total adjusted earnings (non-GAAP) | $ | 53,050 | $ | 49,216 | $ | 52,795 | $ | 156,670 | $ | 144,454 | |||||||||||||||||||
| Diluted earnings per share (GAAP) | $ | 1.36 | $ | 1.43 | $ | 1.54 | $ | 4.39 | $ | 4.15 | |||||||||||||||||||
| Adjusted diluted earnings per share (non-GAAP) | $ | 1.51 | $ | 1.44 | $ | 1.52 | $ | 4.54 | $ | 4.16 | |||||||||||||||||||
| Return on average assets | 1.11 | % | 1.20 | % | 1.30 | % | 1.22 | % | 1.19 | % | |||||||||||||||||||
Adjusted return on average assets (1) | 1.24 | % | 1.21 | % | 1.28 | % | 1.27 | % | 1.20 | % | |||||||||||||||||||
| Return on average equity | 9.19 | % | 9.91 | % | 11.33 | % | 10.11 | % | 10.49 | % | |||||||||||||||||||
Adjusted return on average equity (2) | 10.22 | % | 9.98 | % | 11.18 | % | 10.47 | % | 10.51 | % | |||||||||||||||||||
| Quarters Ended | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| Sep 30, 2026 | Jun 30, 2026 | Sep 30, 2025 | 2026 | 2025 | |||||||||||||||||||||||||
| AVERAGE TANGIBLE COMMON EQUITY | |||||||||||||||||||||||||||||
| Net Income (GAAP) | $ | 47,709 | $ | 48,886 | $ | 53,502 | $ | 151,311 | $ | 144,133 | |||||||||||||||||||
| Exclude: Amortization of intangibles, net of tax | 524 | 202 | 269 | 928 | 989 | ||||||||||||||||||||||||
| Tangible net income available to common shareholders (non-GAAP) | $ | 48,233 | $ | 49,088 | $ | 53,771 | $ | 152,239 | $ | 145,122 | |||||||||||||||||||
| Average common shareholder’s equity | $ | 2,058,691 | $ | 1,978,560 | $ | 1,873,496 | $ | 2,001,247 | $ | 1,837,691 | |||||||||||||||||||
| Exclude: Average goodwill and other intangible assets, net | 405,947 | 374,225 | 375,093 | 384,999 | 375,504 | ||||||||||||||||||||||||
| Average tangible common equity | $ | 1,652,744 | $ | 1,604,335 | $ | 1,498,403 | $ | 1,616,248 | $ | 1,462,187 | |||||||||||||||||||
| Return on average equity | 9.19 | % | 9.91 | % | 11.33 | % | 10.11 | % | 10.49 | % | |||||||||||||||||||
Return on average tangible common equity (3) | 11.58 | % | 12.27 | % | 14.24 | % | 12.59 | % | 13.27 | % | |||||||||||||||||||
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| Quarters Ended | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| Sep 30, 2026 | Jun 30, 2026 | Sep 30, 2025 | 2026 | 2025 | |||||||||||||||||||||||||
| ADJUSTED EFFICIENCY RATIO | |||||||||||||||||||||||||||||
| Non-interest expense (GAAP) | $ | 115,676 | $ | 107,990 | $ | 102,022 | $ | 326,274 | $ | 304,629 | |||||||||||||||||||
| Exclude: CDI amortization | (663) | (256) | (341) | (1,175) | (1,252) | ||||||||||||||||||||||||
| State and municipal tax expense | (1,919) | (1,773) | (1,655) | (5,512) | (4,525) | ||||||||||||||||||||||||
| REO operations | (1,261) | (165) | (203) | (1,535) | (534) | ||||||||||||||||||||||||
| Merger and acquisition-related expenses | (5,177) | (238) | — | (5,415) | — | ||||||||||||||||||||||||
| Building and lease exit costs | (63) | (47) | (1,042) | (119) | (1,876) | ||||||||||||||||||||||||
| Adjusted non-interest expense (non-GAAP) | $ | 106,593 | $ | 105,511 | $ | 98,781 | $ | 312,518 | $ | 296,442 | |||||||||||||||||||
| Net interest income (GAAP) | $ | 161,893 | $ | 153,740 | $ | 149,989 | $ | 465,802 | $ | 435,471 | |||||||||||||||||||
| Non-interest income (GAAP) | 15,386 | 18,222 | 20,730 | 52,769 | 57,589 | ||||||||||||||||||||||||
| Total revenue (GAAP) | 177,279 | 171,962 | 170,719 | 518,571 | 493,060 | ||||||||||||||||||||||||
| Exclude: Net loss (gain) on sale of securities | 2,102 | (8) | (377) | 3,336 | (374) | ||||||||||||||||||||||||
| Net change in valuation of financial instruments carried at fair value | (313) | 157 | (223) | (1,818) | (626) | ||||||||||||||||||||||||
| Losses on building and lease exits | — | — | (1,373) | — | (454) | ||||||||||||||||||||||||
| Adjusted revenue (non-GAAP) | $ | 179,068 | $ | 172,111 | $ | 168,746 | $ | 520,089 | $ | 491,606 | |||||||||||||||||||
| Efficiency ratio (GAAP) | 65.25 | % | 62.80 | % | 59.76 | % | 62.92 | % | 61.78 | % | |||||||||||||||||||
Adjusted efficiency ratio (non-GAAP) (4) | 59.53 | % | 61.30 | % | 58.54 | % | 60.09 | % | 60.30 | % | |||||||||||||||||||
(1)Adjusted earnings (non-GAAP) divided by average assets.
(2)Adjusted earnings (non-GAAP) divided by average equity.
(3)Tangible net income (non-GAAP) divided by average tangible common equity (non-GAAP).
(4)Adjusted non-interest expense (non-GAAP) divided by adjusted revenue (non-GAAP).
The ratio of tangible common shareholders’ equity to tangible assets is also a non-GAAP financial measure. We calculate tangible common equity by excluding goodwill and other intangible assets from shareholders’ equity. We calculate tangible assets by excluding the balance of goodwill and other intangible assets from total assets. We believe that this is consistent with the treatment by our bank regulatory agencies, which exclude goodwill and other intangible assets from the calculation of risk-based capital ratios. Management believes that this non-GAAP financial measure provides information to investors that is useful in understanding the basis of our capital position (dollars in thousands except share and per share data).
| September 30, 2026 | June 30, 2026 | December 31, 2025 | September 30, 2025 | ||||||||||||||||||||
| TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS | |||||||||||||||||||||||
| Shareholders’ equity (GAAP) | $ | 2,133,903 | $ | 1,999,263 | $ | 1,946,297 | $ | 1,912,892 | |||||||||||||||
| Exclude goodwill and other intangible assets, net | 463,231 | 374,100 | 374,612 | 374,927 | |||||||||||||||||||
| Tangible common shareholders’ equity (non-GAAP) | $ | 1,670,672 | $ | 1,625,163 | $ | 1,571,685 | $ | 1,537,965 | |||||||||||||||
| Total assets (GAAP) | $ | 18,083,437 | $ | 16,593,547 | $ | 16,354,488 | $ | 16,563,081 | |||||||||||||||
| Exclude goodwill and other intangible assets, net | 463,231 | 374,100 | 374,612 | 374,927 | |||||||||||||||||||
| Total tangible assets (non-GAAP) | $ | 17,620,206 | $ | 16,219,447 | $ | 15,979,876 | $ | 16,188,154 | |||||||||||||||
| Common shareholders’ equity to total assets (GAAP) | 11.80 | % | 12.05 | % | 11.90 | % | 11.55 | % | |||||||||||||||
| Tangible common shareholders’ equity to tangible assets (non-GAAP) | 9.48 | % | 10.02 | % | 9.84 | % | 9.50 | % | |||||||||||||||
| September 30, 2026 | June 30, 2026 | December 31, 2025 | September 30, 2025 | ||||||||||||||||||||
| TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE | |||||||||||||||||||||||
| Shareholders’ equity (GAAP) | $ | 2,133,903 | $ | 1,999,263 | $ | 1,946,297 | $ | 1,912,892 | |||||||||||||||
| Tangible common shareholders’ equity (non-GAAP) | $ | 1,670,672 | $ | 1,625,163 | $ | 1,571,685 | $ | 1,537,965 | |||||||||||||||
| Common shares outstanding at end of period | 36,442,062 | 33,984,909 | 34,097,856 | 34,335,297 | |||||||||||||||||||
| Common shareholders’ equity (book value) per share (GAAP) | $ | 58.56 | $ | 58.83 | $ | 57.08 | $ | 55.71 | |||||||||||||||
| Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) | $ | 45.84 | $ | 47.82 | $ | 46.09 | $ | 44.79 | |||||||||||||||
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Summary of Critical Accounting Estimates
Our critical accounting estimates are described in detail in the Critical Accounting Estimates section of our 2025 Form 10-K. The condensed consolidated financial statements are prepared in conformity with GAAP and follow general practices within the financial services industry in which the Company operates. This preparation requires Management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements. As this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes that the allowance for credit losses and fair value measurements, which were identified as critical accounting estimates in our 2025 Form 10-K, require significant judgments and assumptions which are susceptible to significant changes based on the current environment. In addition to the critical accounting estimates of the allowance for credit losses and fair value measurements at December 31, 2025, Management believes business combination accounting and goodwill is also a critical accounting estimate this quarter as we completed the Pacific Financial acquisition on September 1, 2026.
Business Combinations and Goodwill. Business combinations are accounted for using the acquisition method, under which assets acquired and liabilities assumed are recorded at their estimated fair values as of the acquisition date. Goodwill represents the excess of the consideration transferred over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination, and is not amortized but is evaluated for impairment at least annually, or more frequently if events or changes in circumstances indicate that it may be impaired. Various significant assumptions and judgments are used to determine the fair values of the assets acquired and liabilities assumed, particularly for acquired loans, where key assumptions include expected credit losses, prepayment speeds and discount rates, and for the core deposit intangible, where key assumptions include deposit attrition rates, the alternative cost of funds and discount rates. Because goodwill is the residual of these measurements, it depends directly on these estimates.
In connection with the Pacific Financial acquisition, the Company recorded a core deposit intangible of $28.6 million and goodwill of $61.2 million. These fair values are preliminary and may be adjusted for up to one year after the acquisition date as additional information about facts and circumstances that existed as of the acquisition date becomes available. The Company’s most recent annual goodwill impairment assessment, performed as of December 31, 2025, indicated no impairment. As of September 30, 2026, Management did not identify any events or circumstances indicating that it is more likely than not that the fair value of the Company’s reporting unit is below its carrying amount.
Comparison of Financial Condition at September 30, 2026 and December 31, 2025
General: Total assets increased $1.73 billion to $18.08 billion at September 30, 2026, from $16.35 billion at December 31, 2025, primarily due to assets acquired from the Pacific Financial acquisition and organic loan growth. The Pacific Financial acquisition increased total assets by $1.29 billion on September 1, 2026.
Loans and lending: Loans are our most significant and generally highest yielding earning assets. We attempt to maintain a total loans to total deposits ratio at a level designed to enhance our revenues, while adhering to sound underwriting practices and appropriate diversification guidelines in order to maintain a moderate risk profile. Our loan to deposit ratio at September 30, 2026, was 85%. We offer a wide range of loan products to meet the demands of our clients. Our lending activities are primarily directed toward the origination of real estate and commercial loans. Total loans receivable (gross loans less deferred fees and discounts and excluding loans held for sale) increased $1.27 billion at September 30, 2026, compared to December 31, 2025. The increase in loans was primarily the result of loans acquired from the Pacific Financial acquisition, which increased total loans $765.5 million on September 1, 2026, and organic loan growth. Organic loan growth was primarily driven by increases in commercial business loans, commercial real estate loans, consumer loans, and commercial construction loans.
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The following table sets forth the composition of the Company’s loans receivable by type of loan as of the dates indicated (dollars in thousands):
| Percentage Change | |||||||||||||||||||||||||||||
| Sep 30, 2026 | Dec 31, 2025 | Sep 30, 2025 | Year End | Prior Year Qtr. End | |||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||
| Owner-occupied | $ | 1,330,460 | $ | 1,138,298 | $ | 1,134,559 | 17 | % | 17 | % | |||||||||||||||||||
| Investment properties | 1,804,740 | 1,701,413 | 1,652,141 | 6 | 9 | ||||||||||||||||||||||||
| Small balance CRE | 1,471,499 | 1,212,357 | 1,210,357 | 21 | 22 | ||||||||||||||||||||||||
| Total Commercial real estate | 4,606,699 | 4,052,068 | 3,997,057 | 14 | 15 | ||||||||||||||||||||||||
| Multifamily real estate | 913,324 | 850,789 | 860,650 | 7 | 6 | ||||||||||||||||||||||||
| Construction, land and land development: | |||||||||||||||||||||||||||||
| Commercial construction | 220,048 | 156,021 | 144,125 | 41 | 53 | ||||||||||||||||||||||||
| Multifamily construction | 520,521 | 514,330 | 586,104 | 1 | (11) | ||||||||||||||||||||||||
| One- to four-family construction | 645,694 | 607,447 | 578,128 | 6 | 12 | ||||||||||||||||||||||||
| Land and land development | 416,397 | 433,678 | 427,348 | (4) | (3) | ||||||||||||||||||||||||
| Total Construction, land and land development | 1,802,660 | 1,711,476 | 1,735,705 | 5 | 4 | ||||||||||||||||||||||||
| Commercial business: | |||||||||||||||||||||||||||||
| Commercial business | 1,358,990 | 1,225,108 | 1,254,460 | 11 | 8 | ||||||||||||||||||||||||
| Small business scored | 1,374,527 | 1,187,360 | 1,176,889 | 16 | 17 | ||||||||||||||||||||||||
| Total Commercial business | 2,733,517 | 2,412,468 | 2,431,349 | 13 | 12 | ||||||||||||||||||||||||
| Agricultural business, including secured by farmland | 389,220 | 353,152 | 354,884 | 10 | 10 | ||||||||||||||||||||||||
| One- to four-family residential | 1,620,111 | 1,573,191 | 1,582,605 | 3 | 2 | ||||||||||||||||||||||||
| Consumer: | |||||||||||||||||||||||||||||
| Consumer—home equity revolving lines of credit | 802,440 | 679,489 | 649,188 | 18 | 24 | ||||||||||||||||||||||||
| Consumer—other | 127,370 | 89,054 | 91,100 | 43 | 40 | ||||||||||||||||||||||||
| Total Consumer | 929,810 | 768,543 | 740,288 | 21 | 26 | ||||||||||||||||||||||||
| Total loans receivable | $ | 12,995,341 | $ | 11,721,687 | $ | 11,702,538 | 11 | % | 11 | % | |||||||||||||||||||
Commercial real estate loans totaled $4.61 billion, or 35% of our loan portfolio, and multifamily real estate loans totaled $913.3 million, or 7% of our loan portfolio, at September 30, 2026. Commercial real estate loans increased by $554.6 million during the first nine months of 2026, primarily due to loans acquired from Pacific Financial and new loan production. Multifamily real estate loans increased by $62.5 million, primarily due to loans acquired from Pacific Financial and transfers to the permanent loan portfolio upon completion of the construction phase, partially offset by loan payoffs.
Our construction, land and land development loans totaled $1.80 billion, or 14% of our loan portfolio, at September 30, 2026, compared to $1.71 billion at December 31, 2025. Multifamily construction represented 4% of our total loan portfolio at September 30, 2026. Multifamily construction loans were comprised primarily of affordable housing projects and, to a lesser extent, market rate multifamily projects across our footprint. Commercial construction loans increased $64.0 million, or 41%, to $220.0 million at September 30, 2026, compared to $156.0 million at December 31, 2025, primarily due to new production and advances, partially offset by transfers to the permanent loan portfolio upon completion of the construction phase and loan payoffs. Land and land development loans decreased $17.3 million, or 4%, to $416.4 million at September 30, 2026, compared to December 31, 2025, primarily due to payoffs and paydowns, partially offset by new loan originations. Construction loans across our footprint were concentrated primarily in Washington, California and Oregon at September 30, 2026, with the majority of multifamily construction projects expected to convert to permanent loans within the next 12 to 24 months as construction phases are completed.
Our commercial business lending is directed toward meeting the credit and related deposit needs of various small- to medium-sized business and agribusiness borrowers operating in our primary market areas. Our commercial business loans were $2.73 billion at September 30, 2026, and $2.41 billion at December 31, 2025, an increase of $321.0 million. Commercial business loans represented 21% of our loan portfolio at September 30, 2026. Our agricultural business loans were $389.2 million at September 30, 2026, and $353.2 million at December 31, 2025. Agricultural business loans represented 3% of our loan portfolio at September 30, 2026. Our commercial business lending also includes participation in certain syndicated loans, including shared national credits, which totaled $223.4 million, or 2% of our loan portfolio, at September 30, 2026, compared to $195.6 million, or 2% of our loan portfolio, at December 31, 2025.
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We are active originators of one- to four-family residential loans in most communities where we have established offices in Washington, Oregon, California, Idaho and Utah. Most of the one- to four-family residential loans we originate in normal market conditions are sold in secondary markets with net gains on sales and loan servicing fees reflected in our revenues from mortgage banking operations. At September 30, 2026, one- to four-family residential loans retained in our portfolio increased $46.9 million, to $1.62 billion, compared to $1.57 billion at December 31, 2025. The increase was primarily the result of loans acquired from Pacific Financial, new loan originations, and one- to four-family construction loans converting to permanent one- to four-family residential loans upon completion of construction, partially offset by one- to four-family residential loan payoffs. One- to four-family residential loans represented 13% of our loan portfolio at September 30, 2026.
Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At September 30, 2026, consumer loans, including home equity revolving lines of credit, increased $161.3 million to $929.8 million, compared to $768.5 million at December 31, 2025. The increase was primarily due loans acquired from Pacific Financial and growth in home equity revolving lines of credit.
The following table shows the commitment amount for loan origination activity (excluding loans held for sale) for the periods indicated (in thousands):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| Sep 30, 2026 | Jun 30, 2026 | Sep 30, 2025 | Sep 30, 2026 | Sep 30, 2025 | |||||||||||||||||||||||||
| Commercial real estate | $ | 203,374 | $ | 163,031 | $ | 118,354 | $ | 586,598 | $ | 371,584 | |||||||||||||||||||
| Multifamily real estate | 28,351 | 215 | 2,500 | 32,435 | 25,120 | ||||||||||||||||||||||||
| Construction, land and land development | 594,168 | 561,290 | 369,363 | 1,479,399 | 1,068,138 | ||||||||||||||||||||||||
| Commercial business | 251,592 | 312,028 | 167,627 | 731,944 | 475,022 | ||||||||||||||||||||||||
| Agricultural business | 4,890 | 9,032 | 7,681 | 36,484 | 34,860 | ||||||||||||||||||||||||
| One-to four- family residential | 35,337 | 37,998 | 6,817 | 86,751 | 17,447 | ||||||||||||||||||||||||
| Consumer | 165,021 | 172,152 | 122,193 | 448,086 | 304,823 | ||||||||||||||||||||||||
| Total commitment amount for loan originations (excluding loans held for sale) | $ | 1,282,733 | $ | 1,255,746 | $ | 794,535 | $ | 3,401,697 | $ | 2,296,994 | |||||||||||||||||||
Loans held for sale decreased to $32.7 million at September 30, 2026, compared to $42.9 million at December 31, 2025. The decrease was primarily the result of increased sales of one- to four- family residential mortgage loans held for sale, with loan sales outpacing originations during the period. Originations of loans held for sale increased to $285.8 million for the nine months ended September 30, 2026, compared to $265.0 million for the same period last year. The volume of one- to four-family residential mortgage loans sold was $370.4 million during the nine months ended September 30, 2026, compared to $349.6 million in the same period a year ago.
The following table presents loans by geographic concentration at the dates indicated (dollars in thousands):
| Sep 30, 2026 | Dec 31, 2025 | Sep 30, 2025 | Percentage Change | ||||||||||||||||||||||||||||||||
| Amount | Percentage | Amount | Amount | Year End | Prior Year Qtr. End | ||||||||||||||||||||||||||||||
| Washington | $ | 5,947,312 | 46 | % | $ | 5,371,200 | $ | 5,407,327 | 11 | % | 10 | % | |||||||||||||||||||||||
| California | 3,422,524 | 26 | 3,105,405 | 3,064,993 | 10 | 12 | |||||||||||||||||||||||||||||
| Oregon | 2,495,998 | 19 | 2,159,404 | 2,137,422 | 16 | 17 | |||||||||||||||||||||||||||||
| Idaho | 736,557 | 6 | 667,343 | 668,949 | 10 | 10 | |||||||||||||||||||||||||||||
| Utah | 88,784 | 1 | 82,594 | 79,697 | 7 | 11 | |||||||||||||||||||||||||||||
| Other | 304,166 | 2 | 335,741 | 344,150 | (9) | (12) | |||||||||||||||||||||||||||||
| Total loans receivable | $ | 12,995,341 | 100 | % | $ | 11,721,687 | $ | 11,702,538 | 11 | % | 11 | % | |||||||||||||||||||||||
Investment Securities: Total securities were $3.10 billion at September 30, 2026, an increase from $2.98 billion at December 31, 2025. Available-for-sale securities increased $168.0 million to $2.18 billion at September 30, 2026, compared to $2.02 billion at December 31, 2025. In connection with the Pacific Financial acquisition, the Company acquired $322.9 million of investment securities, which were sold throughout the month of September to reposition the acquired portfolio consistent with the Company’s investment strategy and interest rate risk, resulting in a $2.1 million loss on sale. The Company purchased $505.5 million of securities during the nine months ended September 30, 2026, consisting of agency residential mortgage-backed securities, agency commercial mortgage-backed securities, corporate securities and collateralized loan obligations. Held-to-maturity securities decreased $42.3 million to $918.9 million, compared to $961.2 million at December 31, 2025, reflecting maturities and paydowns during the period. The average effective duration of the Company’s securities portfolio was 6.0 years at September 30, 2026, compared to 6.6 years at December 31, 2025, primarily reflecting purchases of shorter-duration and floating-rate securities. Net unrealized losses on available-for-sale securities increased $102.1 million during the nine months ended September 30, 2026, reflecting higher market interest rates. The change, net of the associated $24.5 million tax benefit, was recorded in other comprehensive income.
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Deposits: Deposits, client retail repurchase agreements and loan repayments are the major sources of our funds for lending and other investment purposes. We compete with other financial institutions and financial intermediaries in attracting deposits and we generally attract deposits within our primary market areas. Much of the focus of our branch strategy and marketing efforts over the last several years has been directed toward attracting additional deposit client relationships and balances. This effort has been particularly directed towards emphasizing core deposit activity in non-interest-bearing and other transaction and savings accounts.
The following table sets forth the Company’s deposits by type of deposit account as of the dates indicated (dollars in thousands):
| Percentage Change | |||||||||||||||||||||||||||||
| Sep 30, 2026 | Dec 31, 2025 | Sep 30, 2025 | Year End | Prior Year Qtr. End | |||||||||||||||||||||||||
| Non-interest-bearing | $ | 4,970,392 | $ | 4,489,839 | $ | 4,572,338 | 11 | % | 9 | % | |||||||||||||||||||
| Interest-bearing checking | 3,088,085 | 2,609,080 | 2,734,822 | 18 | 13 | ||||||||||||||||||||||||
| Regular savings accounts | 4,099,252 | 3,723,922 | 3,705,823 | 10 | 11 | ||||||||||||||||||||||||
| Money market accounts | 1,620,582 | 1,388,001 | 1,462,570 | 17 | 11 | ||||||||||||||||||||||||
| Interest-bearing transaction & savings accounts | 8,807,919 | 7,721,003 | 7,903,215 | 14 | 11 | ||||||||||||||||||||||||
| Total core deposits | 13,778,311 | 12,210,842 | 12,475,553 | 13 | 10 | ||||||||||||||||||||||||
| Interest-bearing certificates | 1,615,158 | 1,532,304 | 1,540,382 | 5 | 5 | ||||||||||||||||||||||||
| Total deposits | $ | 15,393,469 | $ | 13,743,146 | $ | 14,015,935 | 12 | % | 10 | % | |||||||||||||||||||
Total deposits increased $1.65 billion at September 30, 2026, compared to December 31, 2025, with core deposits increasing $1.57 billion and certificates of deposit increasing $82.9 million. The increase in deposits was primarily the result of the Pacific Financial acquisition, which added total deposits of $1.14 billion on September 1, 2026, consisting of non-interest-bearing accounts of $410.3 million and interest-bearing transaction and savings accounts of $586.8 million. The increase in core deposits reflected the core deposit base acquired from Pacific Financial. The increase in interest-bearing transaction and savings accounts also reflected organic growth. Core deposits represented 90% and 89% of total deposits at September 30, 2026, and December 31, 2025, respectively. Competition for deposits in our market areas remains strong. The increase in interest-bearing certificates of deposits was due to the Pacific Financial acquisition. We had no brokered deposits at September 30, 2026, compared to $50.0 million at December 31, 2025.
The following table sets forth the number and average account balance of the Company’s deposit accounts as of the dates indicated (dollars in thousands):
| Sep 30, 2026 | Dec 31, 2025 | Sep 30, 2025 | ||||||||||||||||||
| Number of deposit accounts | 474,642 | 445,989 | 449,087 | |||||||||||||||||
| Average account balance per account | $ | 33 | $ | 31 | $ | 31 | ||||||||||||||
The following table presents deposits by geographic concentration at the dates indicated (dollars in thousands):
| Sep 30, 2026 | Dec 31, 2025 | Sep 30, 2025 | Percentage Change | ||||||||||||||||||||||||||||||||
| Amount | Percentage | Amount | Amount | Year End | Prior Year Qtr. End | ||||||||||||||||||||||||||||||
| Washington | $ | 8,562,173 | 56 | % | $ | 7,500,215 | $ | 7,648,527 | 14 | % | 12 | % | |||||||||||||||||||||||
| Oregon | 3,275,006 | 21 | 3,035,104 | 3,081,329 | 8 | 6 | |||||||||||||||||||||||||||||
| California | 2,783,673 | 18 | 2,483,948 | 2,542,903 | 12 | 9 | |||||||||||||||||||||||||||||
| Idaho | 772,617 | 5 | 723,879 | 743,176 | 7 | 4 | |||||||||||||||||||||||||||||
| Total deposits | $ | 15,393,469 | 100 | % | $ | 13,743,146 | $ | 14,015,935 | 12 | % | 10 | % | |||||||||||||||||||||||
Borrowings: There were no FHLB advances at September 30, 2026, compared to $150.0 million at December 31, 2025. All outstanding advances were repaid during the third quarter as deposits continued to serve as the Company’s primary source of funds. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, decreased $2.5 million to $105.2 million at September 30, 2026, compared to $107.7 million at December 31, 2025. At September 30, 2026, the Company’s off-balance sheet liquidity included additional borrowing capacity of $3.82 billion at the FHLB, $1.56 billion at the Federal Reserve, and $125.0 million in federal funds lines of credit with other financial institutions. Junior subordinated debentures totaled $87.1 million at September 30, 2026, compared to $79.2 million at December 31, 2025, which increased due to the two additional junior subordinated debentures assumed from Pacific Financial.
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Shareholders’ Equity: Total shareholders’ equity increased $187.6 million to $2.13 billion, or 11.80% of total assets, at September 30, 2026, compared to $1.95 billion, or 11.90% of total assets, at December 31, 2025. The increase was primarily due to the stock compensation of $185.9 million in the Pacific Financial acquisition, a $98.2 million increase in retained earnings resulting from $151.3 million in net income, partially offset by the accrual of $53.1 million in cash dividends and the repurchase of 450,000 shares of Banner common stock during the nine months ended September 30, 2026, at an average price of $67.44 per share. In addition, accumulated other comprehensive loss increased by $71.2 million, primarily due to an increase in unrealized losses on the available for sale securities portfolio.
Tangible common shareholders’ equity, which excludes goodwill and other intangible assets and is a non-GAAP financial measure, increased $99.0 million to $1.67 billion, or 9.48% of tangible assets, at September 30, 2026, compared to $1.57 billion, or 9.84% of tangible assets at December 31, 2025. A reconciliation of this non-GAAP financial measure to its comparable GAAP financial measure is presented above under the heading “Reconciliation of Non-GAAP Financial Measures.”
Comparison of Results of Operations for the Three Months Ended September 30, 2026, and June 30, 2026, and the Nine Months Ended September 30, 2026 and 2025
For the quarter ended September 30, 2026, net income was $47.7 million, or $1.36 per diluted share, compared to $48.9 million, or $1.43 per diluted share, for the preceding quarter. For the nine months ended September 30, 2026, net income was $151.3 million, or $4.39 per diluted share, compared to $144.1 million, or $4.15 per diluted share for the same period a year earlier. The decrease in net income compared to the preceding quarter was primarily due to a decrease in non-interest income and an increase in non-interest expense, partially offset by higher net interest income and a lower provision for credit losses. The increase in net income for the nine months ended September 30, 2026, compared to the same period a year ago was primarily due to higher net interest income and a lower provision for credit losses, partially offset by lower non-interest income and higher non-interest expense.
Net interest income was $161.9 million in the third quarter of 2026, compared to $153.7 million in the preceding quarter, and $465.8 million for the nine months ended September 30, 2026, compared to $435.5 million for the comparable period a year ago. The increase in net interest income compared to the prior quarter was primarily driven by an increase in average interest-earning assets resulting from the acquisition of Pacific Financial on September 1, 2026, and organic loan growth, as well as expansion in net interest margin reflecting higher yields on interest-earning assets. The increase in net interest income for the nine months ended September 30, 2026, compared to the same period a year ago primarily reflected an increase in the average balance of interest-earning assets and lower funding costs.
We recorded a $2.8 million provision for credit losses for the quarter ended September 30, 2026, compared to a $3.8 million provision for credit losses in the preceding quarter. The provision for credit losses primarily reflected loan growth, partially offset by improvements in credit quality. We recorded a $5.8 million provision for credit losses for the nine months ended September 30, 2026, and a $10.6 million provision for credit losses for the same period a year ago.
Total non-interest income decreased in the quarter ended September 30, 2026, compared to the preceding quarter and decreased for the nine months ended September 30, 2026, compared to the same period a year ago. The decrease in non-interest income from the previous quarter was driven primarily by a net loss on the sale of investment securities acquired from Pacific Financial and decreased miscellaneous income, partially offset by a favorable shift in fair value adjustments on financial instruments. The decrease in non-interest income for the nine months ended September 30, 2026, compared to the same period last year, primarily reflected a net loss on the sale of securities recognized during the current period, as well as decreases in miscellaneous income and mortgage banking income, partially offset by higher deposit fees and other service charges and favorable fair value adjustments on financial instruments carried at fair value.
Total non-interest expense increased in the quarter ended September 30, 2026, compared to the preceding quarter and increased for the nine months ended September 30, 2026, compared to the same period a year ago. The increase from the previous quarter reflected merger and acquisition-related expenses of $5.2 million, as well as one month of expenses from the Pacific Financial branch operations. The increase in non-interest expense for the nine months ended September 30, 2026, compared to the same period last year, primarily reflected merger and acquisition-related expenses recognized during the current period, as well as higher salary and employee benefits expense, information and computer data services expense, advertising and marketing expense, and payment and card processing expenses. These increases were partially offset by lower occupancy and equipment expense and higher capitalized loan origination costs.
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| OPERATING DATA: | Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||
| (In thousands) | September 30, 2026 | June 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | ||||||||||||||||||||||||
| Interest income | $ | 214,580 | $ | 202,686 | $ | 205,848 | $ | 615,084 | $ | 599,975 | |||||||||||||||||||
| Interest expense | 52,687 | 48,946 | 55,859 | 149,282 | 164,504 | ||||||||||||||||||||||||
| Net interest income | 161,893 | 153,740 | 149,989 | 465,802 | 435,471 | ||||||||||||||||||||||||
| Provision for credit losses | 2,824 | 3,818 | 2,670 | 5,846 | 10,604 | ||||||||||||||||||||||||
| Net interest income after provision for credit losses | 159,069 | 149,922 | 147,319 | 459,956 | 424,867 | ||||||||||||||||||||||||
| Deposit fees and other service charges | 11,496 | 11,728 | 10,955 | 34,615 | 32,559 | ||||||||||||||||||||||||
| Mortgage banking operations | 2,575 | 2,792 | 3,298 | 8,579 | 9,627 | ||||||||||||||||||||||||
| Net (loss) gain on sale of securities | (2,102) | 8 | 377 | (3,336) | 374 | ||||||||||||||||||||||||
Net change in valuation of financial instruments carried at fair value | 313 | (157) | 223 | 1,818 | 626 | ||||||||||||||||||||||||
| All other non-interest income | 3,104 | 3,851 | 5,877 | 11,093 | 14,403 | ||||||||||||||||||||||||
Total non-interest income | 15,386 | 18,222 | 20,730 | 52,769 | 57,589 | ||||||||||||||||||||||||
| Salary and employee benefits | 71,410 | 69,388 | 64,935 | 208,530 | 195,278 | ||||||||||||||||||||||||
| All other non-interest expenses | 44,266 | 38,602 | 37,087 | 117,744 | 109,351 | ||||||||||||||||||||||||
Total non-interest expense | 115,676 | 107,990 | 102,022 | 326,274 | 304,629 | ||||||||||||||||||||||||
Income before provision for income tax expense | 58,779 | 60,154 | 66,027 | 186,451 | 177,827 | ||||||||||||||||||||||||
| Provision for income tax expense | 11,070 | 11,268 | 12,525 | 35,140 | 33,694 | ||||||||||||||||||||||||
| Net income | $ | 47,709 | $ | 48,886 | $ | 53,502 | $ | 151,311 | $ | 144,133 | |||||||||||||||||||
| PER COMMON SHARE DATA: | Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||
| September 30, 2026 | June 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | |||||||||||||||||||||||||
| Net income: | |||||||||||||||||||||||||||||
| Basic | $ | 1.37 | $ | 1.44 | $ | 1.55 | $ | 4.41 | $ | 4.17 | |||||||||||||||||||
| Diluted | 1.36 | 1.43 | 1.54 | 4.39 | 4.15 | ||||||||||||||||||||||||
| KEY FINANCIAL RATIOS | Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||
| September 30, 2026 | June 30, 2026 | September 30, 2025 | September 30, 2026 | September 30, 2025 | |||||||||||||||||||||||||
| Return on average assets | 1.11 | % | 1.20 | % | 1.30 | % | 1.22 | % | 1.19 | % | |||||||||||||||||||
Adjusted return on average assets (1) | 1.24 | % | 1.21 | % | 1.28 | % | 1.27 | % | 1.20 | % | |||||||||||||||||||
| Return on average equity | 9.19 | % | 9.91 | % | 11.33 | % | 10.11 | % | 10.49 | % | |||||||||||||||||||
Adjusted return on average equity (1) | 10.22 | % | 9.98 | % | 11.18 | % | 10.47 | % | 10.51 | % | |||||||||||||||||||
Return on average tangible common equity (1) | 11.58 | % | 12.27 | % | 14.24 | % | 12.59 | % | 13.27 | % | |||||||||||||||||||
| Average equity/average assets | 12.10 | % | 12.09 | % | 11.49 | % | 12.10 | % | 11.40 | % | |||||||||||||||||||
| Average interest-earning assets/average interest-bearing liabilities | 158.87 | % | 159.69 | % | 159.82 | % | 159.34 | % | 159.75 | % | |||||||||||||||||||
| Average interest-earning assets/average funding liabilities | 108.34 | % | 108.42 | % | 108.11 | % | 108.40 | % | 108.06 | % | |||||||||||||||||||
| Non-interest income/average assets | 0.36 | % | 0.45 | % | 0.50 | % | 0.43 | % | 0.48 | % | |||||||||||||||||||
| Non-interest expense/average assets | 2.70 | % | 2.65 | % | 2.48 | % | 2.64 | % | 2.53 | % | |||||||||||||||||||
| Efficiency ratio | 65.25 | % | 62.80 | % | 59.76 | % | 62.92 | % | 61.78 | % | |||||||||||||||||||
Adjusted efficiency ratio (1) | 59.53 | % | 61.30 | % | 58.54 | % | 60.09 | % | 60.30 | % | |||||||||||||||||||
(1) Represents non-GAAP financial measures. See “Reconciliation of Non-GAAP Financial Measure” above.
Net Interest Income. Net interest income increased $8.2 million during the quarter ended September 30, 2026, compared to the preceding quarter, primarily due to higher interest income resulting from growth in average interest-earning assets, driven by the acquisition of Pacific Financial and organic loan growth, as well as an increase in the yield on interest-earning assets. These increases were partially offset by higher interest expense resulting from an increase in the average balance and cost of interest-bearing deposits.
Net interest margin on a tax equivalent basis was 4.14% for the third quarter of 2026, compared to 4.13% for the preceding quarter. The net interest margin for the current quarter benefited from a higher average yield on interest-earning assets, partially offset by higher funding costs.
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Net interest income increased by $30.3 million, or 7%, for the nine months ended September 30, 2026, compared to the same period one year earlier. The increase was primarily due to a $15.1 million increase in interest income, primarily reflecting an increase in the average balance of loans, driven primarily by organic loan growth and, to a lesser extent, the acquisition of Pacific Financial, as well as a $15.2 million decrease in interest expense, reflecting a 17 basis-point reduction in the average cost of funding liabilities to 1.40% from 1.57%. The net interest margin on a tax equivalent basis increased to 4.13% for the nine months ended September 30, 2026, compared to 3.94% for the same period in the prior year.
Interest Income. Interest income for the quarter ended September 30, 2026, was $214.6 million, compared to $202.7 million for the preceding quarter. The increase for the current quarter, compared to the preceding quarter reflected growth in average interest-earning assets as well as an increase in the yield on interest-earning assets.
The total average loan yield increased three basis points to 6.12% for the quarter ended September 30, 2026, from 6.09% in the preceding quarter. The increase in average loan balances for the current quarter, compared to the preceding quarter, primarily reflected growth in real estate secured loans, primarily resulting from the acquisition of Pacific Financial and organic loan growth.
The total investment securities average balance increased for the quarter ended September 30, 2026, compared to the preceding quarter, primarily reflecting new purchases during the period. The average yield on the combined portfolio increased to 3.10% for the quarter ended September 30, 2026, from 3.03% for the preceding quarter. Interest income on interest-bearing deposits with banks increased for the current quarter, compared to the preceding quarter, reflecting an increase in the yield earned on interest-bearing deposits, partially offset by a decrease in average balance of interest-bearing deposits. The average yield on interest-bearing deposits with banks increased to 3.67%, compared to 3.16% in the prior quarter.
Interest income for the nine months ended September 30, 2026, was $615.1 million, compared to $600.0 million for the same period in the prior year, an increase of $15.1 million, primarily reflecting growth in average loan balances.
Interest Expense. Interest expense increased for the quarter ended September 30, 2026, compared to the preceding quarter. Average funding liabilities increased by $545.4 million, primarily due to a $631.3 million increase in average deposit balances, partially offset by an $80.0 million decrease in the average balance of FHLB advances. The average cost of funding liabilities increased four basis points, to 1.43% for the quarter ended September 30, 2026 compared to the preceding quarter. Interest expense for the nine months ended September 30, 2026, was $149.3 million, compared to $164.5 million for the same period in the prior year. The decrease primarily resulted from a 17 basis-point decrease in the average cost of funds to 1.40% from 1.57%, partially offset by an increase in average funding liabilities.
Deposit interest expense for the quarter ended September 30, 2026, increased to $50.0 million, compared to $45.6 million for the preceding quarter. The increase in deposit interest expense compared to the preceding quarter was primarily due to higher average balances of interest-bearing deposits, including deposits assumed in the Pacific Financial acquisition, and higher average rates paid across all interest-bearing deposit categories. The average rate paid on total deposits, including non-interest-bearing deposits, was 1.38% for the quarter ended September 30, 2026, compared to 1.33% for the preceding quarter. The average rate paid on interest-bearing deposits increased to 2.04% for the quarter ended September 30, 2026, compared to 1.98% in the preceding quarter. Total average deposit balances, including non-interest-bearing deposits, increased to $14.37 billion for the quarter ended September 30, 2026, compared to $13.74 billion in the preceding quarter.
Deposit interest expense for the nine months ended September 30, 2026, decreased $9.1 million to $141.3 million, compared to $150.3 million for the same period in the prior year, as the impact of lower rates paid on interest-bearing deposits more than offset higher average interest-bearing deposit balances. Average deposit balances increased to $13.96 billion for the nine months ended September 30, 2026, from $13.55 billion for the same period a year earlier, while the average rate paid on deposits decreased to 1.35% from 1.48%. The average cost of interest-bearing deposits decreased 22 basis points to 2.01% for the nine months ended September 30, 2026, compared to 2.23% in the same period a year earlier. The decrease in the average cost of interest-bearing deposits primarily reflected lower rates paid across all categories of interest-bearing deposits, reflecting lower market rates paid on deposits.
Interest expense on total borrowings for the quarter ended September 30, 2026, decreased to $2.7 million from $3.4 million for the preceding quarter, due to a decrease in the average balance of total borrowings, primarily reflecting an $80.0 million decrease in the average balance of FHLB advances. Average total borrowings were $264.7 million for the quarter ended September 30, 2026, compared to $350.5 million for the preceding quarter. The average rate paid on total borrowings for the quarter ended September 30, 2026, increased to 3.99%, from 3.88% for the preceding quarter.
Interest expense on total borrowings for the nine months ended September 30, 2026, decreased to $8.0 million from $14.2 million for the same period a year earlier, primarily due to decreases in both the average balance of and rate paid on total borrowings. Average total borrowings were $273.6 million for the nine months ended September 30, 2026, compared to $436.4 million for the same period a year earlier. The decrease in average total borrowings was primarily due to a $97.0 million decrease in the average balance of FHLB advances and a $52.3 million decrease in the average balance of junior subordinated debentures and subordinated notes, due to the pay-off of higher-rate subordinated debt during 2025. The average rate paid on total borrowings for the nine months ended September 30, 2026, decreased to 3.92% from 4.35% for the same period a year earlier.
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Analysis of Net Interest Spread. The following table presents for the periods indicated our condensed average balance sheet information, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities with additional comparative data on our operating performance (dollars in thousands). Average balances are computed using daily average balances.
| ANALYSIS OF NET INTEREST SPREAD | Quarters Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (rates / ratios annualized) | Sep 30, 2026 | Jun 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Average Balance | Interest and Dividends | Yield / Cost (3) | Average Balance | Interest and Dividends | Yield / Cost (3) | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Held for sale loans | $ | 28,484 | $ | 435 | 6.06 | % | $ | 33,242 | $ | 509 | 6.14 | % | |||||||||||||||||||||||||||||||||||||||||
| Real estate secured loans | 10,336,321 | 157,949 | 6.06 | % | 9,875,493 | 148,303 | 6.02 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Commercial/agricultural loans | 1,892,754 | 30,243 | 6.34 | % | 1,881,938 | 29,866 | 6.37 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other loans | 128,400 | 2,332 | 7.21 | % | 117,727 | 2,015 | 6.87 | % | |||||||||||||||||||||||||||||||||||||||||||||
Total loans (1) | 12,385,959 | 190,959 | 6.12 | % | 11,908,400 | 180,693 | 6.09 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | 2,358,520 | 15,220 | 2.56 | % | 2,275,561 | 14,269 | 2.52 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Other securities | 964,707 | 10,346 | 4.25 | % | 938,205 | 9,915 | 4.24 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing deposits with banks | 135,744 | 1,256 | 3.67 | % | 139,672 | 1,102 | 3.16 | % | |||||||||||||||||||||||||||||||||||||||||||||
| FHLB stock | 12,815 | 329 | 10.19 | % | 16,342 | 150 | 3.68 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total investment securities | 3,471,786 | 27,151 | 3.10 | % | 3,369,780 | 25,436 | 3.03 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total interest-earning assets | 15,857,745 | 218,110 | 5.46 | % | 15,278,180 | 206,129 | 5.41 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Non-interest-earning assets | 1,155,000 | 1,082,054 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 17,012,745 | $ | 16,360,234 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing checking accounts | $ | 2,819,736 | 11,215 | 1.58 | % | $ | 2,606,252 | 9,433 | 1.45 | % | |||||||||||||||||||||||||||||||||||||||||||
| Savings accounts | 3,963,030 | 20,276 | 2.03 | % | 3,830,346 | 19,009 | 1.99 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Money market accounts | 1,414,605 | 6,485 | 1.82 | % | 1,314,496 | 5,790 | 1.77 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Certificates of deposit | 1,519,253 | 12,046 | 3.15 | % | 1,465,885 | 11,322 | 3.10 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing deposits | 9,716,624 | 50,022 | 2.04 | % | 9,216,979 | 45,554 | 1.98 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Non-interest-bearing deposits | 4,655,219 | — | — | % | 4,523,594 | — | — | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total deposits | 14,371,843 | 50,022 | 1.38 | % | 13,740,573 | 45,554 | 1.33 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Other interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| FHLB advances | 65,141 | 653 | 3.98 | % | 145,176 | 1,426 | 3.94 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Other borrowings | 108,036 | 695 | 2.55 | % | 116,146 | 732 | 2.53 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Junior subordinated debentures and subordinated notes | 91,491 | 1,317 | 5.71 | % | 89,178 | 1,234 | 5.55 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total borrowings | 264,668 | 2,665 | 3.99 | % | 350,500 | 3,392 | 3.88 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Total funding liabilities | 14,636,511 | 52,687 | 1.43 | % | 14,091,073 | 48,946 | 1.39 | % | |||||||||||||||||||||||||||||||||||||||||||||
Other non-interest-bearing liabilities (2) | 317,543 | 290,601 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | 14,954,054 | 14,381,674 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ equity | 2,058,691 | 1,978,560 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 17,012,745 | $ | 16,360,234 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income/rate spread (tax equivalent) | $ | 165,423 | 4.03 | % | $ | 157,183 | 4.02 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Net interest margin (tax equivalent) | 4.14 | % | 4.13 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation to reported net interest income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments for taxable equivalent basis | (3,530) | (3,443) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income and margin, as reported | $ | 161,893 | 4.05 | % | $ | 153,740 | 4.04 | % | |||||||||||||||||||||||||||||||||||||||||||||
(1)Average balances include loans accounted for on a nonaccrual basis and accruing loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2)Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3)Tax-exempt income is calculated on a tax equivalent basis, which Banner believes provides comparability of net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent with industry practice. The tax equivalent yield adjustment to interest earned on loans was $2.4 million and $2.3 million for the quarters ended September 30, 2026, and June 30, 2026, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.2 million and $1.1 million for the quarters ended September 30, 2026, and June 30, 2026, respectively.
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| ANALYSIS OF NET INTEREST SPREAD | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| (rates / ratios annualized) | September 30, 2026 | September 30, 2025 | |||||||||||||||||||||||||||||||||
| (dollars in thousands) | Average Balance | Interest and Dividends | Yield / Cost (3) | Average Balance | Interest and Dividends | Yield / Cost (3) | |||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||
| Held for sale loans | $ | 29,268 | $ | 1,325 | 6.05 | % | $ | 28,203 | $ | 1,391 | 6.59 | % | |||||||||||||||||||||||
| Real estate secured loans | 9,990,880 | 450,621 | 6.03 | % | 9,528,868 | 429,315 | 6.02 | % | |||||||||||||||||||||||||||
| Commercial/agricultural loans | 1,876,124 | 89,262 | 6.36 | % | 1,900,225 | 93,072 | 6.55 | % | |||||||||||||||||||||||||||
| Consumer and other loans | 120,803 | 6,387 | 7.07 | % | 120,735 | 6,293 | 6.97 | % | |||||||||||||||||||||||||||
Total loans (1) | 12,017,075 | 547,595 | 6.09 | % | 11,578,031 | 530,071 | 6.12 | % | |||||||||||||||||||||||||||
| Mortgage-backed securities | 2,320,187 | 43,998 | 2.54 | % | 2,494,794 | 46,740 | 2.50 | % | |||||||||||||||||||||||||||
| Other securities | 927,502 | 29,301 | 4.22 | % | 883,330 | 28,313 | 4.29 | % | |||||||||||||||||||||||||||
| Interest-bearing deposits with banks | 153,029 | 3,876 | 3.39 | % | 144,974 | 4,114 | 3.79 | % | |||||||||||||||||||||||||||
| FHLB stock | 13,034 | 627 | 6.43 | % | 17,214 | 834 | 6.48 | % | |||||||||||||||||||||||||||
| Total investment securities | 3,413,752 | 77,802 | 3.05 | % | 3,540,312 | 80,001 | 3.02 | % | |||||||||||||||||||||||||||
| Total interest-earning assets | 15,430,827 | 625,397 | 5.42 | % | 15,118,343 | 610,072 | 5.40 | % | |||||||||||||||||||||||||||
| Non-interest-earning assets | 1,114,707 | 1,007,862 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 16,545,534 | $ | 16,126,205 | |||||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||
| Interest-bearing checking accounts | $ | 2,686,656 | 29,921 | 1.49 | % | $ | 2,489,219 | 28,833 | 1.55 | % | |||||||||||||||||||||||||
| Savings accounts | 3,862,559 | 57,673 | 2.00 | % | 3,521,141 | 57,110 | 2.17 | % | |||||||||||||||||||||||||||
| Money market accounts | 1,372,422 | 18,426 | 1.80 | % | 1,506,171 | 23,388 | 2.08 | % | |||||||||||||||||||||||||||
| Certificates of deposit | 1,488,968 | 35,234 | 3.16 | % | 1,510,594 | 40,973 | 3.63 | % | |||||||||||||||||||||||||||
| Total interest-bearing deposits | 9,410,605 | 141,254 | 2.01 | % | 9,027,125 | 150,304 | 2.23 | % | |||||||||||||||||||||||||||
| Non-interest-bearing deposits | 4,550,490 | — | — | % | 4,526,898 | — | — | % | |||||||||||||||||||||||||||
| Total deposits | 13,961,095 | 141,254 | 1.35 | % | 13,554,023 | 150,304 | 1.48 | % | |||||||||||||||||||||||||||
| Other interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| FHLB advances | 71,692 | 2,119 | 3.95 | % | 168,663 | 5,757 | 4.56 | % | |||||||||||||||||||||||||||
| Other borrowings | 111,904 | 2,124 | 2.54 | % | 125,517 | 2,063 | 2.20 | % | |||||||||||||||||||||||||||
| Junior subordinated debentures and subordinated notes | 89,958 | 3,785 | 5.63 | % | 142,255 | 6,380 | 6.00 | % | |||||||||||||||||||||||||||
| Total borrowings | 273,554 | 8,028 | 3.92 | % | 436,435 | 14,200 | 4.35 | % | |||||||||||||||||||||||||||
| Total funding liabilities | 14,234,649 | 149,282 | 1.40 | % | 13,990,458 | 164,504 | 1.57 | % | |||||||||||||||||||||||||||
Other non-interest-bearing liabilities (2) | 309,638 | 298,056 | |||||||||||||||||||||||||||||||||
| Total liabilities | 14,544,287 | 14,288,514 | |||||||||||||||||||||||||||||||||
| Shareholders’ equity | 2,001,247 | 1,837,691 | |||||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 16,545,534 | $ | 16,126,205 | |||||||||||||||||||||||||||||||
| Net interest income/rate spread (tax equivalent) | $ | 476,115 | 4.02 | % | $ | 445,568 | 3.83 | % | |||||||||||||||||||||||||||
| Net interest margin (tax equivalent) | 4.13 | % | 3.94 | % | |||||||||||||||||||||||||||||||
| Reconciliation to reported net interest income: | |||||||||||||||||||||||||||||||||||
| Adjustments for taxable equivalent basis | (10,313) | (10,097) | |||||||||||||||||||||||||||||||||
| Net interest income and margin | $ | 465,802 | 4.04 | % | $ | 435,471 | 3.85 | % | |||||||||||||||||||||||||||
(1)Average balances include loans accounted for on a nonaccrual basis and accruing loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.
(2)Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.
(3)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $6.9 million and $7.0 million for the nine months ended September 30, 2026, and 2025, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.4 million and $3.1 million for the nine months ended September 30, 2026 and 2025, respectively.
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Provision and Allowance for Credit Losses. Management estimates the allowance for credit losses using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is maintained at a level sufficient to provide for expected credit losses over the life of the loan based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio. These factors include, among others, changes in the size and composition of the loan portfolio, differences in underwriting standards, delinquency rates, actual loss experience and current economic conditions. The following table sets forth an analysis of our allowance for credit losses - loans for the periods indicated (dollars in thousands):
Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES – LOANS | Sep 30, 2026 | Jun 30, 2026 | Sep 30, 2025 | Sep 30, 2026 | Sep 30, 2025 | |||||||||||||||||||||||||||
| Balance, beginning of period | $ | 161,849 | $ | 160,352 | $ | 160,501 | $ | 160,276 | $ | 155,521 | ||||||||||||||||||||||
| Initial allowance for credit loss at acquisition | 8,624 | — | — | 8,624 | — | |||||||||||||||||||||||||||
| Provision for credit losses – loans | 1,794 | 1,598 | 1,384 | 4,684 | 10,134 | |||||||||||||||||||||||||||
| Recoveries of loans previously charged off: | ||||||||||||||||||||||||||||||||
| Commercial real estate | 10 | 12 | 36 | 33 | 146 | |||||||||||||||||||||||||||
| Construction and land | — | 5 | 725 | 9 | 725 | |||||||||||||||||||||||||||
| One- to four-family residential | 12 | 12 | 13 | 37 | 259 | |||||||||||||||||||||||||||
| Commercial business | 433 | 171 | 99 | 685 | 1,017 | |||||||||||||||||||||||||||
| Agricultural business, including secured by farmland | 5 | 213 | 99 | 222 | 110 | |||||||||||||||||||||||||||
| Consumer | 68 | 63 | 78 | 271 | 365 | |||||||||||||||||||||||||||
| Total recoveries | 528 | 476 | 1,050 | 1,257 | 2,622 | |||||||||||||||||||||||||||
| Loans charged off: | ||||||||||||||||||||||||||||||||
| Construction and land | — | — | (218) | — | (218) | |||||||||||||||||||||||||||
| One- to four-family residential | (207) | — | — | (207) | (13) | |||||||||||||||||||||||||||
| Commercial business | (500) | (293) | (518) | (1,656) | (4,711) | |||||||||||||||||||||||||||
| Agricultural business, including secured by farmland | — | (4) | (2,054) | (4) | (2,416) | |||||||||||||||||||||||||||
| Consumer | (525) | (280) | (438) | (1,411) | (1,212) | |||||||||||||||||||||||||||
| Total charge-offs | (1,232) | (577) | (3,228) | (3,278) | (8,570) | |||||||||||||||||||||||||||
| Net charge-offs | (704) | (101) | (2,178) | (2,021) | (5,948) | |||||||||||||||||||||||||||
| Balance, end of period | $ | 171,563 | $ | 161,849 | $ | 159,707 | $ | 171,563 | $ | 159,707 | ||||||||||||||||||||||
| Net charge-offs/average loans receivable | (0.006) | % | (0.001) | % | (0.019) | % | (0.017) | % | (0.051) | % | ||||||||||||||||||||||
| Allowance for credit losses - loans as a percentage of total loans | 1.32 | % | 1.35 | % | 1.36 | % | 1.32 | % | 1.36 | % | ||||||||||||||||||||||
The provision for credit losses - loans reflects the amount required to maintain the allowance for credit losses - loans at an appropriate level based upon Management’s evaluation of the adequacy of collective and individual loss reserves. On September 1, 2026, we recorded an $8.6 million allowance for credit losses - loans related to the loans acquired from Pacific Financial. During the quarter ended September 30, 2026, we recorded a provision for credit losses - loans of $1.8 million, compared to a provision for credit losses - loans of $1.6 million during the preceding quarter. The provision for credit losses - loans recorded in the third quarter of 2026 primarily reflected loan growth, partially offset by improvements in credit quality. Future provisions for credit losses will continue to be influenced by changes in the amount and composition of the loan portfolio, updates to the reasonable and supportable forecast of future economic conditions, revisions to qualitative factor assessments, and any necessary changes to the reversion period applied in estimating expected credit losses.
The provision for credit losses - unfunded loan commitments reflects the amount required to maintain the allowance for credit losses - unfunded loan commitments at an appropriate level based upon Management’s evaluation of the adequacy of collective and individual loss reserves related to our unfunded loan commitments. The following table sets forth an analysis of our allowance for credit losses - unfunded loan commitments for the periods indicated (dollars in thousands):
Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS | Sep 30, 2026 | Jun 30, 2026 | Sep 30, 2025 | Sep 30, 2026 | Sep 30, 2025 | |||||||||||||||||||||||||||
| Balance, beginning of period | $ | 15,125 | $ | 12,903 | $ | 12,750 | $ | 14,985 | $ | 13,562 | ||||||||||||||||||||||
| Provision for credit losses - unfunded loan commitments | 1,029 | 2,222 | 1,290 | 1,169 | 478 | |||||||||||||||||||||||||||
| Balance, end of period | $ | 16,154 | $ | 15,125 | $ | 14,040 | $ | 16,154 | $ | 14,040 | ||||||||||||||||||||||
The increase in the allowance for credit losses - unfunded loan commitments for the current quarter was primarily driven by growth in unused loan commitments, mainly within the construction portfolio.
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Non-interest Income. The following table presents the key components of non-interest income for the periods indicated (dollars in thousands):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| Sep 30, 2026 | Jun 30, 2026 | Change Amount | Change Percent | Sep 30, 2026 | Sep 30, 2025 | Change Amount | Change Percent | ||||||||||||||||||||||||||||||||||||||||
| Deposit fees and other service charges | $ | 11,496 | $ | 11,728 | $ | (232) | (2) | % | $ | 34,615 | $ | 32,559 | $ | 2,056 | 6 | % | |||||||||||||||||||||||||||||||
| Mortgage banking operations | 2,575 | 2,792 | (217) | (8) | 8,579 | 9,627 | (1,048) | (11) | |||||||||||||||||||||||||||||||||||||||
| Bank owned life insurance | 2,354 | 2,471 | (117) | (5) | 7,137 | 7,661 | (524) | (7) | |||||||||||||||||||||||||||||||||||||||
| Miscellaneous | 750 | 1,380 | (630) | (46) | 3,956 | 6,742 | (2,786) | (41) | |||||||||||||||||||||||||||||||||||||||
| 17,175 | 18,371 | (1,196) | (7) | 54,287 | 56,589 | (2,302) | (4) | ||||||||||||||||||||||||||||||||||||||||
| Net (loss) gain on sale of securities | (2,102) | 8 | (2,110) | nm | (3,336) | 374 | (3,710) | nm | |||||||||||||||||||||||||||||||||||||||
| Net change in valuation of financial instruments carried at fair value | 313 | (157) | 470 | (299) | 1,818 | 626 | 1,192 | 190 | |||||||||||||||||||||||||||||||||||||||
| Total non-interest income | $ | 15,386 | $ | 18,222 | $ | (2,836) | (16) | % | $ | 52,769 | $ | 57,589 | $ | (4,820) | (8) | % | |||||||||||||||||||||||||||||||
| nm = not meaningful | |||||||||||||||||||||||||||||||||||||||||||||||
Non-interest income decreased $2.8 million to $15.4 million for the quarter ended September 30, 2026, compared to $18.2 million for the quarter ended June 30, 2026. The decrease primarily reflected a $2.1 million net loss on the sale of securities recognized during the current quarter, resulting from the sale of the investment portfolio acquired from Pacific Financial, compared to a nominal gain in the preceding quarter. In addition, the current quarter reflected a $630,000 decrease in miscellaneous income, primarily reflecting lower gains on SBA loan sales and fluctuations in other miscellaneous income items. This was partially offset by a $470,000 favorable shift in fair value adjustments on financial instruments carried at fair value, which improved from a net loss of $157,000 in the quarter ended June 30, 2026, to a net gain of $313,000 in the quarter ended September 30, 2026.
Non-interest income decreased $4.8 million to $52.8 million for the nine months ended September 30, 2026, compared to $57.6 million for the nine months ended September 30, 2025. The decrease primarily reflected a $3.3 million net loss on the sale of securities recognized during the current period, compared to a net gain of $374,000 in the same period a year earlier. The decrease also reflected a $2.8 million decrease in miscellaneous income, primarily due to lower gains on SBA loan sales and reduced commissions, and a $1.0 million decrease in mortgage banking income. These decreases were partially offset by a $2.1 million increase in deposit fees and other service charges and a $1.2 million favorable change in fair value adjustments on financial instruments carried at fair value.
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Non-interest Expense. The following table represents key elements of non-interest expense for the periods indicated (dollars in thousands):
| Quarters Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| Sep 30, 2026 | Jun 30, 2026 | Change Amount | Change Percent | Sep 30, 2026 | Sep 30, 2025 | Change Amount | Change Percent | ||||||||||||||||||||||||||||||||||||||||
| Salary and employee benefits | $ | 71,410 | $ | 69,388 | $ | 2,022 | 3 | % | $ | 208,530 | $ | 195,278 | $ | 13,252 | 7 | % | |||||||||||||||||||||||||||||||
| Less capitalized loan origination costs | (4,917) | (5,283) | 366 | (7) | (14,086) | (13,056) | (1,030) | 8 | |||||||||||||||||||||||||||||||||||||||
| Occupancy and equipment | 10,965 | 10,936 | 29 | — | 32,598 | 36,871 | (4,273) | (12) | |||||||||||||||||||||||||||||||||||||||
| Information and computer data services | 8,882 | 10,321 | (1,439) | (14) | 27,516 | 24,026 | 3,490 | 15 | |||||||||||||||||||||||||||||||||||||||
| Payment and card processing services | 6,821 | 6,218 | 603 | 10 | 19,080 | 17,709 | 1,371 | 8 | |||||||||||||||||||||||||||||||||||||||
| Professional and legal expenses | 2,225 | 2,519 | (294) | (12) | 6,357 | 6,891 | (534) | (8) | |||||||||||||||||||||||||||||||||||||||
| Advertising and marketing | 1,766 | 1,980 | (214) | (11) | 4,419 | 3,072 | 1,347 | 44 | |||||||||||||||||||||||||||||||||||||||
| Deposit insurance | 2,615 | 2,819 | (204) | (7) | 8,151 | 8,464 | (313) | (4) | |||||||||||||||||||||||||||||||||||||||
| State and municipal business and use taxes | 1,919 | 1,773 | 146 | 8 | 5,512 | 4,525 | 987 | 22 | |||||||||||||||||||||||||||||||||||||||
| Real estate operations, net | 1,261 | 165 | 1,096 | nm | 1,535 | 534 | 1,001 | 187 | |||||||||||||||||||||||||||||||||||||||
| Amortization of core deposit intangibles | 663 | 256 | 407 | 159 | 1,175 | 1,252 | (77) | (6) | |||||||||||||||||||||||||||||||||||||||
| Miscellaneous | 6,889 | 6,660 | 229 | 3 | 20,072 | 19,063 | 1,009 | 5 | |||||||||||||||||||||||||||||||||||||||
| 110,499 | 107,752 | 2,747 | 3 | 320,859 | 304,629 | 16,230 | 5 | ||||||||||||||||||||||||||||||||||||||||
| Merger and acquisition-related expenses | 5,177 | 238 | 4,939 | nm | 5,415 | — | 5,415 | nm | |||||||||||||||||||||||||||||||||||||||
| Total non-interest expense | $ | 115,676 | $ | 107,990 | $ | 7,686 | 7 | % | $ | 326,274 | $ | 304,629 | $ | 21,645 | 7 | % | |||||||||||||||||||||||||||||||
nm = not meaningful | |||||||||||||||||||||||||||||||||||||||||||||||
Total non-interest expense was $115.7 million in the third quarter of 2026, compared to $108.0 million for the quarter ended June 30, 2026. Merger and acquisition-related expenses were $5.2 million in the third quarter of 2026, compared to $238,000 in the preceding quarter. Excluding merger related expenses, the increase from the previous quarter reflected a $2.0 million increase in salary and employee benefits and a $1.1 million increase in real estate operations expense, partially offset by a $1.4 million decrease in information and computer data services. The increase in non-interest expense for the nine months ended September 30, 2026, compared to the same period a year earlier, primarily reflected $5.4 million in merger and acquisition-related expenses recognized during the current period, a $13.3 million increase in salary and employee benefits, and a $3.5 million increase in information and computer data services expense. These increases were partially offset by a $4.3 million decrease in occupancy and equipment expense.
Merger and acquisition-related expenses during the current quarter and the nine months ended September 30, 2026, related to the Pacific Financial acquisition, which was effective September 1, 2026. The merger and acquisition-related expenses consist primarily of legal fees, investment banker fees, contract termination costs, and employee-related severance and retention expenses.
Salary and employee benefits increased for the current quarter compared to the quarter ended June 30, 2026, primarily due to one month of salaries and benefits for the Pacific Financial employees that joined Banner following the acquisition. Salary and employee benefits increased for the nine months ended September 30, 2026, compared to the same period last year, primarily due to normal annual salary and wage increases, increased medical premiums and higher commission and incentive based compensation.
Occupancy and equipment expenses decreased for the nine months ended September 30, 2026, compared to the same period last year, primarily due to lower rent expense resulting from strategic space reductions, as well as lower software amortization.
Information and computer data services decreased for the quarter ended September 30, 2026, compared to the quarter ended June 30, 2026, primarily due to $924,000 of expense related to the discontinuation of the use of our previous commercial loan origination software recorded in the prior quarter. Information and computer data services increased for the nine months ended September 30, 2026, compared to the same period last year, primarily due to an increase in computer software-related expenses, including the $924,000 of expense noted above.
Payment and card processing services increased for the nine months ended September 30, 2026, compared to the same period last year, primarily due to higher online banking costs.
Advertising and marketing expenses increased for the nine months ended September 30, 2026, compared to the same period last year, primarily due to the timing of printed media, radio, television and direct mail marketing campaigns during 2026.
Real estate operations expense increased for the quarter ended September 30, 2026, compared to the quarter ended June 30, 2026, and for the nine months ended September 30, 2026. The increase for both periods related to write-downs of foreclosed real estate.
Miscellaneous expense increased for the nine months ended September 30, 2026, compared to the same period last year, primarily due to an increase in loan production expenses.
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Our efficiency ratio was 65.25% for the current quarter, compared to 62.80% in the quarter ended June 30, 2026. Our adjusted efficiency ratio, a non-GAAP financial measure, was 59.53% for the current quarter, compared to 61.30% in the quarter ended June 30, 2026. The increase in the efficiency ratio reflects an increase in non-interest expense, including $5.2 million of merger and acquisition-related expenses associated with the Pacific Financial acquisition, partially offset by an increase in total revenues. The improvement in the adjusted efficiency ratio reflects an increase in adjusted revenue that outpaced the increase in adjusted non-interest expense, which excludes merger and acquisition-related expenses and other items. See “Reconciliation of Non-GAAP Financial Measures” above.
Income Taxes. For the quarter ended September 30, 2026, we recognized $11.1 million in income tax expense for an effective tax rate of 18.8%, compared to income tax expense of $11.3 million and an effective tax rate of 18.7% for the quarter ended June 30, 2026. The effective tax rate for the current quarter reflects our blended statutory tax rate, which was reduced by the effects of tax-exempt income, certain tax credits, and tax benefits related to restricted stock vesting. Our statutory income tax rate was 24.0%, representing the 21.0% federal statutory income tax rate plus the apportioned effect of applicable state income taxes. For the nine months ended September 30, 2026, we recognized $35.1 million in income tax expense for an effective tax rate of 18.8%.
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Asset Quality
Maintaining a moderate risk profile by adhering to appropriate underwriting standards, avoiding excessive asset concentrations and aggressively managing troubled assets has been and will continue to be a primary focus for us. We actively engage with our borrowers to resolve adversely classified loans and other problem assets.
Non-Performing Assets: Non-performing assets totaled $63.0 million, or 0.35% of total assets, at September 30, 2026, compared to $51.2 million, or 0.31% of total assets, at December 31, 2025. Our allowance for credit losses - loans was $171.6 million, or 290% of non-performing loans, at September 30, 2026, compared to $160.3 million, or 351% of non-performing loans, at December 31, 2025.
The following table sets forth information with respect to our non-performing assets at the dates indicated (dollars in thousands):
| September 30, 2026 | December 31, 2025 | September 30, 2025 | |||||||||||||||
| Nonaccrual Loans: | |||||||||||||||||
| Secured by real estate: | |||||||||||||||||
| Commercial | $ | 5,376 | $ | 525 | $ | 460 | |||||||||||
| Multifamily | 167 | — | — | ||||||||||||||
| Construction and land | 12,200 | 5,175 | 4,240 | ||||||||||||||
| One- to four-family | 25,624 | 19,855 | 16,576 | ||||||||||||||
| Commercial business | 5,229 | 6,751 | 6,824 | ||||||||||||||
| Agricultural business, including secured by farmland | 3,021 | 4,609 | 5,765 | ||||||||||||||
| Consumer | 4,790 | 4,610 | 4,877 | ||||||||||||||
| 56,407 | 41,525 | 38,742 | |||||||||||||||
| Loans more than 90 days delinquent, still on accrual: | |||||||||||||||||
| Secured by real estate: | |||||||||||||||||
| Commercial | — | — | 274 | ||||||||||||||
| Construction and land | — | 1,268 | — | ||||||||||||||
| One- to four-family | 2,491 | 2,698 | 834 | ||||||||||||||
| Commercial business | — | — | 166 | ||||||||||||||
| Consumer | 199 | 148 | — | ||||||||||||||
| 2,690 | 4,114 | 1,274 | |||||||||||||||
| Total non-performing loans | 59,097 | 45,639 | 40,016 | ||||||||||||||
| REO, net | 3,860 | 5,578 | 5,272 | ||||||||||||||
| Other repossessed assets held for sale | — | 18 | — | ||||||||||||||
| Total non-performing assets | $ | 62,957 | $ | 51,235 | $ | 45,288 | |||||||||||
| Total non-performing assets to total assets | 0.35 | % | 0.31 | % | 0.27 | % | |||||||||||
| Total nonaccrual loans to total loans receivable | 0.43 | % | 0.35 | % | 0.33 | % | |||||||||||
| Loans 30-89 days past due and on accrual | $ | 24,287 | $ | 26,767 | $ | 14,674 | |||||||||||
For the nine months ended September 30, 2026, interest income was reduced by $2.0 million as a result of nonaccrual loan activity, which included the reversal of $829,000 of accrued interest as of the date the loan was placed on nonaccrual. There was no interest income recognized on nonaccrual loans for the nine months ended September 30, 2026.
The following table presents the Company’s portfolio of loans by risk grade at the dates indicated (in thousands):
| September 30, 2026 | December 31, 2025 | September 30, 2025 | |||||||||||||||
| Pass | $ | 12,751,020 | $ | 11,446,550 | $ | 11,491,485 | |||||||||||
| Special Mention | 34,665 | 82,060 | 37,013 | ||||||||||||||
| Substandard | 209,656 | 193,077 | 174,040 | ||||||||||||||
| Total | $ | 12,995,341 | $ | 11,721,687 | $ | 11,702,538 | |||||||||||
The decrease in special mention loans during the nine months ended September 30, 2026, was primarily due to risk rating upgrades to pass, loan payoffs and, to a lesser extent, downgrades to substandard. The increase in substandard loans during the nine months ended September 30, 2026, was primarily due to loan risk rating downgrades, primarily in the commercial real estate and commercial business loan segments. As of September 30, 2026, total substandard loans primarily consisted of loans within the commercial business and commercial real estate loan segments.
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Liquidity and Capital Resources
Our primary sources of funds are deposits, borrowings, proceeds from loan principal and interest payments and sales of loans, and the maturity of and interest payments on mortgage-backed and investment securities. While maturities and scheduled amortization of loans and securities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, competition and our pricing strategies.
Our primary investing activity is the origination of loans and, in certain periods, the purchase of securities or loans. During the nine months ended September 30, 2026 and 2025, loan originations, including originations of loans held for sale, exceeded loan repayments by $872.6 million and $703.9 million, respectively. There were no loan purchases during the nine months ended September 30, 2026, and $10.8 million of loan purchases during the nine months ended September 30, 2025. During the nine months ended September 30, 2026 and 2025, we received proceeds of $383.6 million and $381.5 million, respectively, from the sale of loans. Securities purchased during the nine months ended September 30, 2026 and 2025 totaled $505.5 million and $101.7 million, respectively, and securities repayments, maturities and sales in those periods were $598.9 million and $296.3 million, respectively.
Our primary financing activity is gathering deposits. Total deposits increased by $1.65 billion during the nine months ended September 30, 2026, primarily the result of the Pacific Financial acquisition, which added total deposits of $1.14 billion on September 1, 2026. Core deposits were $13.78 billion at September 30, 2026, compared to $12.21 billion at December 31, 2025. Certificates of deposit are generally more vulnerable to competition and more price sensitive than other retail deposits and our pricing of those deposits varies significantly based upon our liquidity management strategies at any point in time. At September 30, 2026, certificates of deposit totaled $1.62 billion, or 10% of our total deposits, including $1.57 billion which were scheduled to mature within one year. While no assurance can be given as to future periods, historically, we have been able to retain a significant amount of our certificates of deposit as they mature.
We had no FHLB advances outstanding at September 30, 2026, compared to $150.0 million at December 31, 2025, as deposits were used as the primary source of funds. Other borrowings decreased to $105.2 million at September 30, 2026, from $107.7 million at December 31, 2025.
We must maintain an adequate level of liquidity to ensure the availability of sufficient funds to accommodate deposit withdrawals, to support loan growth, to satisfy financial commitments, and to take advantage of investment opportunities. During the nine months ended September 30, 2026, we used our sources of funds to support loan growth, investment activities and other liquidity needs. At September 30, 2026, we had outstanding loan commitments totaling $4.77 billion, relating to undisbursed loans in process and unused credit lines. While representing potential growth in the loan portfolio and lending activities, this level of commitments is proportionally consistent with our historical experience and does not represent a departure from normal operations.
We generally maintain sufficient cash and readily marketable securities to meet short-term liquidity needs; however, our primary liquidity management practice is to supplement deposits through short-term borrowings, including FHLB advances and Federal Reserve Bank of San Francisco (FRBSF) borrowings. We maintain credit facilities with the FHLB, which provide for advances secured by eligible collateral and subject to applicable borrowing capacity limitations, including required ownership of FHLB stock. At September 30, 2026, based on pledged collateral, the Bank had approximately $3.82 billion of available borrowing capacity under these facilities, and no outstanding FHLB advances. The Bank is also approved for participation in the FRBSF Borrower-in-Custody program. As of September 30, 2026, the Bank had approximately $1.56 billion of available borrowing capacity under this program, subject to eligible collateral requirements, including the type and risk rating of pledged loans. No borrowings were outstanding under this facility at September 30, 2026, or December 31, 2025. In addition, the Bank maintains uncommitted federal funds lines of credit with other financial institutions totaling $125.0 million, subject to availability of federal funds balances and continued counterparty eligibility. These lines are intended to support short-term liquidity needs and may restrict consecutive-day usage. No amounts were outstanding under these arrangements at September 30, 2026, or December 31, 2025. Management believes the Bank maintains adequate liquidity resources and borrowing capacity to meet its current and foreseeable funding requirements.
Banner is a separate legal entity from the Bank and, on a stand-alone level, must provide for its own liquidity, and pay its own operating expenses and cash dividends. At September 30, 2026, Banner (on an unconsolidated basis) had liquid assets of $90.5 million.
Banner’s primary sources of funds consist of capital raised through dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. We currently expect to continue our current practice of paying quarterly cash dividends on our common stock subject to our Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. Our current quarterly common stock dividend rate is $0.52 per share. Our quarterly common stock dividend enables us to balance our multiple objectives of managing and investing in the Bank and returning a substantial portion of our cash to our shareholders. Assuming continued dividend payments going forward at the current rate of $0.52 per share, our average total dividends paid each quarter would be approximately $18.9 million based on the number of outstanding shares at September 30, 2026.
As noted below, Banner Corporation and its subsidiary bank continued to maintain capital levels in excess of the requirements to be categorized as “Well-Capitalized” under applicable regulatory standards. During the nine months ended September 30, 2026, total shareholders’ equity increased $187.6 million, to $2.13 billion or 11.80% of total assets. At September 30, 2026, tangible common shareholders’ equity, which excludes goodwill and other intangible assets, was $1.67 billion, or 9.48% of tangible assets. Tangible common shareholders’ equity represents a non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measure” above.
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Capital Requirements
Banner is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. The Bank, as a state-chartered, federally insured commercial bank, is subject to the capital requirements established by the FDIC.
The capital adequacy requirements are quantitative measures established by regulation that require Banner and the Bank to maintain minimum amounts and ratios of capital. The Federal Reserve requires Banner to maintain capital adequacy that generally parallels the FDIC requirements. The FDIC requires the Bank to maintain minimum capital ratios of total capital, tier 1 capital, and common equity tier 1 capital to risk-weighted assets as well as tier 1 leverage capital to average assets. In addition to the minimum capital ratios, the Bank must maintain a capital conservation buffer consisting of additional common equity tier 1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. At September 30, 2026, Banner and the Bank each exceeded all regulatory capital requirements to be “well capitalized.”
The actual regulatory capital ratios calculated for Banner Corporation and Banner Bank as of September 30, 2026, along with the minimum capital amounts and ratios, were as follows (dollars in thousands):
| Actual | Minimum to be Categorized as “Adequately Capitalized” | Minimum to be Categorized as “Well-Capitalized” | ||||||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Amount | |||||||||||||||||||||||||||||||||
| Banner Corporation—consolidated | ||||||||||||||||||||||||||||||||||||||
| Total capital to risk-weighted assets | $ | 2,229,892 | 14.37 | % | $ | 1,241,499 | 8.00 | % | $ | 1,551,873 | 10.00 | % | ||||||||||||||||||||||||||
| Tier 1 capital to risk-weighted assets | 1,950,818 | 12.57 | % | 931,124 | 6.00 | % | 931,124 | 6.00 | % | |||||||||||||||||||||||||||||
| Tier 1 leverage capital to average assets | 1,950,818 | 11.59 | % | 673,198 | 4.00 | % | n/a | n/a | ||||||||||||||||||||||||||||||
| Common equity tier 1 capital | 1,950,818 | 12.57 | % | 698,343 | 4.50 | % | n/a | n/a | ||||||||||||||||||||||||||||||
| Banner Bank | ||||||||||||||||||||||||||||||||||||||
| Total capital to risk-weighted assets | $ | 2,130,886 | 13.74 | % | $ | 1,241,112 | 8.00 | % | $ | 1,551,390 | 10.00 | % | ||||||||||||||||||||||||||
| Tier 1 capital to risk-weighted assets | 1,951,312 | 12.58 | % | 930,834 | 6.00 | % | 1,241,112 | 8.00 | % | |||||||||||||||||||||||||||||
| Tier 1 leverage capital to average assets | 1,951,312 | 11.60 | % | 672,922 | 4.00 | % | 841,153 | 5.00 | % | |||||||||||||||||||||||||||||
| Common equity tier 1 capital | 1,951,312 | 12.58 | % | 698,126 | 4.50 | % | 1,008,404 | 6.50 | % | |||||||||||||||||||||||||||||
ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk
Market Risk and Asset/Liability Management
Our financial condition and operations are influenced significantly by general economic conditions, including the absolute level of interest rates as well as changes in interest rates and the slope of the yield curve. Our profitability is dependent, to a large extent, on our net interest income, which is the difference between the interest received from our interest-earning assets and the interest expense incurred on our interest-bearing liabilities.
Our activities, like all financial institutions, inherently involve the assumption of interest rate risk. Interest rate risk is the risk that changes in market interest rates will have an adverse impact on the institution’s earnings and underlying economic value. Interest rate risk is determined by the maturity and repricing characteristics of an institution’s assets, liabilities and off-balance-sheet contracts. Interest rate risk is measured by the variability of financial performance and economic value resulting from changes in interest rates. Interest rate risk is the primary market risk affecting our financial performance.
For the Company, the greatest source of interest rate risk results from the mismatch of maturities or repricing intervals for rate sensitive assets, liabilities and off-balance-sheet contracts. This mismatch, or gap, is generally characterized by a substantially shorter maturity structure for interest-bearing liabilities than interest-earning assets, although our floating-rate assets tend to be more immediately responsive to changes in market rates than most deposit liabilities. Additional interest rate risk results from mismatched repricing indices and formula (basis risk and yield curve risk), and product caps and floors and early repayment or withdrawal provisions (option risk), which may be contractual or market driven, that are generally more favorable to clients than to us. An exception to this generalization is the beneficial effect of interest rate floors on a portion of our performing floating-rate loans, which help us maintain higher loan yields in periods when market interest rates decline significantly. However, in a declining interest rate environment, as loans with floors are repaid they generally are replaced with new loans which have lower interest rate floors. As of September 30, 2026, our loans with interest rate floors totaled $6.57 billion and had a weighted average floor rate of 4.92%, compared to a current average note rate of 6.42%. Our loans with interest rates at their floors at September 30, 2026, totaled $1.10 billion and had a weighted average note rate of 5.05%. The Company actively manages its exposure to interest rate risk through on-going adjustments to the mix of interest-earning assets and funding sources that affect the repricing speeds of loans, investments, interest-bearing deposits and borrowings.
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The principal objectives of asset/liability management are to evaluate the interest rate risk exposure; to determine the appropriate level of risk given our operating environment, business plan strategies, performance objectives, capital and liquidity constraints, and asset and liability allocation alternatives; and to manage our interest rate risk consistent with regulatory guidelines and policies approved by the Board of Directors. Through such management, we seek to reduce the vulnerability of our earnings and capital position to changes in the level of interest rates. Our actions in this regard are taken under the guidance of the Asset/Liability Management Committee, which is comprised of members of our senior management. The Committee closely monitors our interest sensitivity exposure, asset and liability allocation decisions, liquidity and capital positions, and local and national economic conditions and attempts to structure the loan and investment portfolios and funding sources to maximize earnings within acceptable risk tolerances.
Sensitivity Analysis
Our primary monitoring tool for assessing interest rate risk is asset/liability simulation modeling, which is designed to capture the dynamics of balance sheet, interest rate and spread movements and to quantify variations in net interest income resulting from those movements under different rate environments. The sensitivity of net interest income to changes in the modeled interest rate environments provides a measurement of interest rate risk. We also utilize economic value analysis, which addresses changes in estimated net economic value of equity arising from changes in the level of interest rates. The net economic value of equity is estimated by separately valuing our assets and liabilities under varying interest rate environments. The extent to which assets gain or lose value in relation to the gains or losses of liability values under the various interest rate assumptions determines the sensitivity of net economic value to changes in interest rates and provides an additional measure of interest rate risk.
We perform an interest rate sensitivity analysis that incorporates beginning-of-the-period rate, balance and maturity data, using various levels of aggregation of that data, as well as certain assumptions concerning the maturity, repricing, amortization and prepayment characteristics of loans and other interest-earning assets and the repricing and withdrawal of deposits and other interest-bearing liabilities into an asset/liability simulation model. The interest rate sensitivity analysis includes a rate ramp sensitivity scenario, which assumes a gradual change in market interest rates at all maturities during the first year, as well as a rate shock interest rate sensitivity scenario, which assumes an instantaneous and sustained uniform change in market interest rates at all maturities. We update and prepare simulation modeling at least quarterly for review by senior management and oversight by the Board of Directors. We believe the data and assumptions are realistic representations of our portfolio and possible outcomes under the various interest rate scenarios. Nonetheless, the interest rate sensitivity of our net interest income and net economic value of equity could vary substantially if different assumptions were used or if actual experience differs from the assumptions used.
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The following tables set forth, as of September 30, 2026, the estimated changes in our net interest income over one-year and two-year time horizons for our rate ramp and rate shock interest rate sensitivity scenarios, and the estimated changes in economic value of equity for our rate shock interest rate sensitivity scenario based on the indicated interest rate environments (dollars in thousands):
Interest Rate Risk Indicators - Rate Ramp
| September 30, 2026 | ||||||||||||||||||||||||||
| Estimated Increase (Decrease) in | ||||||||||||||||||||||||||
Change (in Basis Points) in Interest Rates (1) | Net Interest Income Next 12 Months | Net Interest Income Next 24 Months | ||||||||||||||||||||||||
| +300 | $ | 1,728 | 0.2 | % | $ | 20,757 | 1.4 | % | ||||||||||||||||||
| +200 | 5,303 | 0.7 | 32,215 | 2.2 | ||||||||||||||||||||||
| +100 | 5,011 | 0.7 | 25,737 | 1.7 | ||||||||||||||||||||||
| 0 | — | — | — | — | ||||||||||||||||||||||
| -100 | (6,976) | (1.0) | (33,656) | (2.3) | ||||||||||||||||||||||
| -200 | (13,593) | (1.9) | (68,131) | (4.6) | ||||||||||||||||||||||
| -300 | (18,633) | (2.6) | (96,914) | (6.6) | ||||||||||||||||||||||
(1)Assumes a gradual change in market interest rates at all maturities during the first year; however, no rates are allowed to go below zero.
Interest Rate Risk Indicators - Rate Shock
| September 30, 2026 | ||||||||||||||||||||||||||||||||||||||
| Estimated Increase (Decrease) in | ||||||||||||||||||||||||||||||||||||||
Change (in Basis Points) in Interest Rates (1) | Net Interest Income Next 12 Months | Net Interest Income Next 24 Months | Economic Value of Equity | |||||||||||||||||||||||||||||||||||
| +300 | $ | 5,455 | 0.8 | % | $ | 49,183 | 3.3 | % | $ | (495,288) | (12.8) | % | ||||||||||||||||||||||||||
| +200 | 15,954 | 2.2 | 59,968 | 4.1 | (274,932) | (7.1) | ||||||||||||||||||||||||||||||||
| +100 | 14,282 | 2.0 | 43,991 | 3.0 | (103,872) | (2.7) | ||||||||||||||||||||||||||||||||
| 0 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| -100 | (18,134) | (2.5) | (54,982) | (3.7) | 16,291 | 0.4 | ||||||||||||||||||||||||||||||||
| -200 | (34,106) | (4.7) | (111,008) | (7.5) | (45,750) | (1.2) | ||||||||||||||||||||||||||||||||
| -300 | (46,542) | (6.5) | (159,845) | (10.8) | (182,111) | (4.7) | ||||||||||||||||||||||||||||||||
(1)Assumes an instantaneous and sustained uniform change in market interest rates at all maturities; however, no rates are allowed to go below zero.
At September 30, 2026, the Company’s interest rate risk profile reflected a moderately asset-sensitive position in the near term, with net interest income projected to increase under rising rate scenarios and decrease under falling rate scenarios. In contrast, the estimated long-term economic value of the balance sheet was more sensitive to interest rate changes, declining under rising rate scenarios and changing less under falling rate scenarios. Overall, the results indicate that near-term earnings are expected to benefit from higher interest rates, while the long-term economic value of equity is more sensitive to market rate movements.
Another monitoring tool for assessing interest rate risk is gap analysis. The matching of the repricing characteristics of assets and liabilities may be analyzed by examining the extent to which assets and liabilities are interest sensitive and by monitoring an institution’s interest sensitivity gap. An asset or liability is said to be interest sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets anticipated, based upon certain assumptions, to mature or reprice within a specific time period and the amount of interest-bearing liabilities anticipated to mature or reprice, based upon certain assumptions, within that same time period. A gap is considered positive when the amount of interest-sensitive assets exceeds the amount of interest-sensitive liabilities. A gap is considered negative when the amount of interest-sensitive liabilities exceeds the amount of interest-sensitive assets. Generally, during a period of rising rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income.
Certain shortcomings are inherent in gap analysis. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of some borrowers to service their debt may decrease in the event of a severe change in market rates.
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The following table presents our interest sensitivity gap between interest-earning assets and interest-bearing liabilities at September 30, 2026 (dollars in thousands), based on the amounts of interest-earning assets and interest-bearing liabilities which are anticipated by us, based upon certain assumptions, to reprice or mature in each of the future periods shown. At September 30, 2026, total interest-earning assets maturing or repricing within one year exceeded total interest-bearing liabilities maturing or repricing in the same time period by $3.51 billion, representing a one-year cumulative gap to total assets ratio of 19.42%. Both the interest rate risk indicators and interest sensitivity gaps as of September 30, 2026, were within our internal policy guidelines, and Management believes the current level of interest rate risk to be reasonable.
| Within 6 Months | After 6 Months Within 1 Year | After 1 Year Within 3 Years | After 3 Years Within 5 Years | After 5 Years Within 10 Years | Over 10 Years | Total | |||||||||||||||||||||||||||||||||||
Interest-earning assets: (1) | |||||||||||||||||||||||||||||||||||||||||
| Construction loans | $ | 1,342,584 | $ | 62,302 | $ | 108,371 | $ | 21,394 | $ | 290 | $ | — | $ | 1,534,941 | |||||||||||||||||||||||||||
| Fixed-rate mortgage loans | 298,881 | 204,814 | 793,831 | 645,386 | 685,602 | 430,356 | 3,058,870 | ||||||||||||||||||||||||||||||||||
| Adjustable-rate mortgage loans | 1,551,858 | 471,655 | 1,549,890 | 1,473,438 | 432,447 | 13,547 | 5,492,835 | ||||||||||||||||||||||||||||||||||
| Fixed-rate mortgage-backed securities | 77,100 | 85,850 | 341,556 | 402,100 | 721,988 | 697,000 | 2,325,594 | ||||||||||||||||||||||||||||||||||
| Adjustable-rate mortgage-backed securities | 211,950 | 10,326 | 52,406 | 80,424 | 36,568 | — | 391,674 | ||||||||||||||||||||||||||||||||||
| Fixed-rate commercial/agricultural loans | 125,570 | 76,859 | 251,532 | 123,256 | 149,198 | 7,094 | 733,509 | ||||||||||||||||||||||||||||||||||
| Adjustable-rate commercial/agricultural loans | 1,048,245 | 28,336 | 96,592 | 51,776 | 1,256 | — | 1,226,205 | ||||||||||||||||||||||||||||||||||
| Consumer and other loans | 677,317 | 70,975 | 77,953 | 15,902 | 15,046 | 90,126 | 947,319 | ||||||||||||||||||||||||||||||||||
Investment securities and interest-earning deposits | 372,928 | 10,885 | 8,030 | 104,632 | 77,865 | 522,101 | 1,096,441 | ||||||||||||||||||||||||||||||||||
| Total rate sensitive assets | 5,706,433 | 1,022,002 | 3,280,161 | 2,918,308 | 2,120,260 | 1,760,224 | 16,807,388 | ||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: (2) | |||||||||||||||||||||||||||||||||||||||||
Regular savings | 495,029 | 189,293 | 652,736 | 515,627 | 877,938 | 1,368,630 | 4,099,253 | ||||||||||||||||||||||||||||||||||
| Interest checking accounts | 311,981 | 102,157 | 369,556 | 314,569 | 599,340 | 1,390,483 | 3,088,086 | ||||||||||||||||||||||||||||||||||
| Money market deposit accounts | 214,179 | 120,893 | 383,911 | 263,673 | 355,695 | 282,230 | 1,620,581 | ||||||||||||||||||||||||||||||||||
| Certificates of deposit | 1,070,721 | 504,165 | 35,603 | 4,568 | 388 | 155 | 1,615,600 | ||||||||||||||||||||||||||||||||||
| FHLB advances | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Junior subordinated debentures | 102,581 | — | — | — | — | — | 102,581 | ||||||||||||||||||||||||||||||||||
| Retail repurchase agreements | 105,248 | — | — | — | — | — | 105,248 | ||||||||||||||||||||||||||||||||||
| Total rate sensitive liabilities | 2,299,739 | 916,508 | 1,441,806 | 1,098,437 | 1,833,361 | 3,041,498 | 10,631,349 | ||||||||||||||||||||||||||||||||||
| Excess of interest-sensitive assets over interest-sensitive liabilities | $ | 3,406,694 | $ | 105,494 | $ | 1,838,355 | $ | 1,819,871 | $ | 286,899 | $ | (1,281,274) | $ | 6,176,039 | |||||||||||||||||||||||||||
Cumulative excess of interest-sensitive assets | $ | 3,406,694 | $ | 3,512,188 | $ | 5,350,543 | $ | 7,170,414 | $ | 7,457,313 | $ | 6,176,039 | $ | 6,176,039 | |||||||||||||||||||||||||||
Cumulative ratio of interest-earning assets to interest-bearing liabilities | 248.13 | % | 209.20 | % | 214.87 | % | 224.56 | % | 198.25 | % | 158.09 | % | 158.09 | % | |||||||||||||||||||||||||||
Interest sensitivity gap to total assets | 18.84 | 0.58 | 10.17 | 10.06 | 1.59 | (7.09) | 34.15 | ||||||||||||||||||||||||||||||||||
Ratio of cumulative gap to total assets | 18.84 | 19.42 | 29.59 | 39.65 | 41.24 | 34.15 | 34.15 | ||||||||||||||||||||||||||||||||||
(Footnotes on following page)
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Footnotes for Table of Interest Sensitivity Gap
(1)Adjustable-rate assets are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due to mature, and fixed-rate assets are included in the period in which they are scheduled to be repaid based upon scheduled amortization, in each case adjusted to take into account estimated prepayments. Mortgage loans and other loans are not reduced for allowances for credit losses and non-performing loans. Mortgage loans, mortgage-backed securities, other loans and investment securities are not adjusted for deferred fees or unamortized acquisition premiums and discounts.
(2)Adjustable-rate liabilities are included in the period in which interest rates are next scheduled to adjust rather than in the period they are due to mature. Although regular savings, demand, interest checking, and money market deposit accounts are subject to immediate withdrawal, based on historical experience Management considers a substantial amount of such accounts to be core deposits having significantly longer maturities. For the purpose of the gap analysis, these accounts have been assigned decay rates to reflect their longer effective maturities. If all of these accounts had been assumed to be short-term, the one-year cumulative gap of interest-sensitive assets would have been a negative $3.9 billion, or negative 21.36% of total assets, at September 30, 2026.
ITEM 4 – Controls and Procedures
Management of Banner Corporation is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended (Exchange Act). A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Also, because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Additionally, in designing disclosure controls and procedures, our Management necessarily applies judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. As a result of these inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
(a)Evaluation of Disclosure Controls and Procedures: An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) was carried out under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and other members of our senior management as of the end of the period covered by this report. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2026, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to Management (including our Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
(b)Changes in Internal Controls Over Financial Reporting: In the quarter ended September 30, 2026, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1 – Legal Proceedings
In the normal course of business, we have various legal proceedings and other contingent matters pending. These proceedings and the associated legal claims are often contested, and the outcome of individual matters is not always predictable. Furthermore, in some matters, it may be difficult to assess potential exposure, particularly for matters that are in relatively early stages. These claims and counterclaims typically arise during the course of collection efforts on problem loans or with respect to actions to enforce liens on properties in which we hold a security interest. We also are subject to claims related to other matters, including employment matters such as claims by our employees of discrimination, harassment, violations of wage and hour requirements, or violations of other federal, state, or local laws and claims of misconduct or negligence on the part of our employees. Some or all of these claims may lead to litigation, including class action litigation, and these matters may cause us to incur negative publicity with respect to alleged claims. Our insurance may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our financial condition and results of operations for any period. The ultimate outcome of these legal proceedings could be more or less than what we have accrued. Based upon the information known to Management, we are not a party to any pending legal proceedings that we believe would reasonably be expected to have a material adverse effect on our financial condition, results of operations or cash flows.
ITEM 1A – Risk Factors
There have been no material changes in the risk factors previously disclosed in Part I, Item 1A of our 2025 Form 10-K, other than as set forth below.
On September 1, 2026, Banner completed its acquisition of Pacific Financial Corporation, the holding company of Bank of the Pacific. The anticipated benefits of the acquisition may not be realized to the extent or within the timeframe expected, and the integration of Pacific Financial's business, including the conversion of Bank of the Pacific’s operating systems scheduled for November 2026, may be more difficult, costly or time-consuming than anticipated, and could result in the loss of customers, deposits or key employees. Failure to successfully integrate the acquired business could adversely affect Banner's business, financial condition and results of operations.
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ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) The following table provides information about repurchases of common stock by the Company during the quarter ended September 30, 2026:
| Period | Total Number of Common Shares Purchased (1) | Average Price Paid per Common Share | Total Number of Shares Purchased as Part of Publicly Announced Authorization | Maximum Number of Remaining Shares that May be Purchased as Part of Publicly Announced Authorization | ||||||||||||||||||||||
| July 1, 2026 - July 31, 2026 | — | $ | — | — | 979,224 | |||||||||||||||||||||
| August 1, 2026 - August 31, 2026 | 798 | $ | 69.87 | — | 1,700,000 | |||||||||||||||||||||
| September 1, 2026 - September 30, 2026 | 200,000 | $ | 71.06 | 200,000 | 1,500,000 | |||||||||||||||||||||
| Total for quarter | 200,798 | $ | 71.06 | 200,000 | ||||||||||||||||||||||
(1) Includes 798 shares surrendered by employees to satisfy tax withholding obligations upon the vesting of restricted stock grants during the quarter ended September 30, 2026.
On July 24, 2025, the Company announced that its Board of Directors had approved a share repurchase program authorizing the repurchase of up to 1,729,199 shares of the Company’s common stock, representing approximately 5% of the Company’s then-outstanding shares, over the subsequent 12 months. The Company repurchased 749,975 shares under this program. This repurchase authorization expired on July 24, 2026, with 979,224 shares remaining unpurchased.
On August 3, 2026, the Company announced that its Board of Directors had approved a new share repurchase program authorizing the repurchase of up to 1,700,000 shares of the Company’s common stock, representing approximately 5% of the Company’s then-outstanding shares, over the subsequent 12 months, expiring on August 3, 2027. Repurchases under the new program may be made from time to time in open market transactions. The timing and amount of any repurchases will depend on market conditions, regulatory requirements, and other corporate considerations.
ITEM 3 – Defaults upon Senior Securities
Not Applicable.
ITEM 4 – Mine Safety Disclosures
Not Applicable.
ITEM 5 – Other Information
(a) None
(b) None
(c) During the quarter ended September 30, 2026, there were no Rule 10b5‑1 trading arrangements (as defined in Item 408(a) of Regulation S-K) or non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K) adopted or terminated by any director or officer (as defined in Rule 16a‑1(f) under the Exchange Act) of the Company.
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ITEM 6 – Exhibits
| Exhibit | Index of Exhibits | ||||
| 3{a} | Restated Articles of Incorporation of Banner Corporation [incorporated by reference to Exhibit 3.1 (b) to the Registrant’s Current Report on Form 8-K filed with the SEC on May 24, 2022 (File No. 000-26584)]. | ||||
| 3{b} | Amended and Restated Bylaws of Banner Corporation [incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on May 24, 2022 (File No. 000-26584)]. | ||||
| 10{a}* | Amended and Restated Employment Agreement, with Mark J. Grescovich [incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 4, 2013 (File No. 000-26584]. | ||||
| 10{b}* | Form of Supplemental Executive Retirement Program Agreement with Gary Sirmon, Michael K. Larsen, Lloyd W. Baker, Cynthia D. Purcell and Richard B. Barton [incorporated by reference to exhibits filed with the Annual Report on Form 10-K for the year ended December 31, 2001 and the exhibits filed with the Form 8-K on May 6, 2008 (File No. 000-26584)]. | ||||
| 10{c}* | Form of Employment Contract entered into with Peter J. Conner, Cynthia D. Purcell and Judith A. Steiner [incorporated by reference to exhibits filed with the Form 8-K on June 25, 2014 (File No. 000-26584)]. | ||||
| 10{d}* | 2005 Executive Officer and Director Stock Account Deferred Compensation Plan [incorporated by reference to exhibits filed with the Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 000-26584)]. | ||||
| 10{e}* | Entry into an Indemnification Agreement with each of the Registrant’s Directors [incorporated by reference to exhibits filed with the Form 8-K on January 29, 2010 (File No. 000-26584)]. | ||||
| 10{f}* | 2014 Omnibus Incentive Plan [incorporated by reference as Appendix C to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 24, 2014 (File No. 000-26584)] and amendments [incorporated by reference to the Form 8-K filed on March 25, 2015 (File No. 000-26584)]. | ||||
| 10{g}* | Forms of Equity-Based Award Agreements: Incentive Stock Option Award Agreement, Non-Qualified Stock Option Award Agreement, Restricted Stock Award Agreement, Restricted Stock Unit Award Agreement, Stock Appreciation Right Award Agreement, and Performance Unit Award Agreement [incorporated by reference to Exhibits 10.2 - 10.7 included in the Registration Statement on Form S-8 dated May 9, 2014 (File No. 333-195835)]. | ||||
| 10{h}* | 2018 Omnibus Incentive Plan [incorporated by reference to Exhibit 10.1 included in the Registration Statement on Form S-8 dated May 4, 2018 (File No. 333-224693)]. | ||||
| 10{i}* | Amended and Restated Executive Severance and Change in Control Plan and Summary Plan Description (Amended and Restated effective as of July 1, 2023) [incorporated by reference to exhibit 10{j} included in the Form 10-Q dated June 30, 2023 (File No. 000-26584)] | ||||
| 10{j}* | 2023 Omnibus Incentive Plan [incorporated by reference to Exhibit 10.1 included in the Registration Statement on Form S-8 dated August 30, 2023 (File No. 333-274273)]. | ||||
| 10{k}* | Form of Director Restricted Stock Award Agreement under the Banner Corporation 2023 Omnibus Incentive Plan [incorporated by reference to Exhibit 10.2 included in the Registration Statement on Form S-8 dated August 30, 2023 (File No. 333-274273)]. | ||||
| 10{l}* | Form of Director Restricted Stock Unit Award Agreement under the Banner Corporation 2023 Omnibus Incentive Plan [incorporated by reference to Exhibit 10.3 included in the Registration Statement on Form S-8 dated August 30, 2023 (File No. 333-274273)]. | ||||
| 10{m}* | Form of Employee Restricted Stock Unit Award Agreement under the Banner Corporation 2023 Omnibus Incentive Plan [incorporated by reference to Exhibit 10.4 included in the Registration Statement on Form S-8 dated August 30, 2023 (File No. 333-274273)]. | ||||
| 10{n}* | Form of Executive Restricted Stock Unit Performance Award Agreement under the Banner Corporation 2023 Omnibus Incentive Plan [incorporated by reference to Exhibit 10.5 included in the Registration Statement on Form S-8 dated August 30, 2023 (File No. 333-274273)]. | ||||
| 10{o}* | 2020 Banner Corporation Amended and Restated Deferred Compensation Plan [incorporated by reference to exhibit 10{o} filed with the Annual Report on Form 10-K for the year ended December 31, 2023 (File No. 000-26584)]. | ||||
| 10{p}* | 2025 Employee Stock Purchase Plan [incorporated by reference to Exhibit 10.1 included in the Registration Statement on Form S-8 dated November 5, 2025 (File No. 333-274273)]. | ||||
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| Exhibit | Index of Exhibits | ||||
| 31.1 | Certification of Chief Executive Officer pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||
| 31.2 | Certification of Chief Financial Officer pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||
| 32 | Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||
| 101.INS | Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the XBRL document. | ||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | ||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | ||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||||
| 104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2026, formatted in Inline XBRL (included in Exhibit 101). | ||||
* Compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Banner Corporation | ||||||||
| November 3, 2026 | /s/ Mark J. Grescovich | |||||||
| Mark J. Grescovich | ||||||||
| President and Chief Executive Officer (Principal Executive Officer) | ||||||||
| November 3, 2026 | /s/ Robert G. Butterfield | |||||||
| Robert G. Butterfield | ||||||||
| Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) | ||||||||
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