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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 June 30, 2026, it had 135 branch offices and 15 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 June 30, 2026, we had total consolidated assets of $16.59 billion, total loans of $11.99 billion, total deposits of $13.79 billion and total shareholders’ equity of $2.0 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.
Second Quarter 2026 Financial Highlights
•Net interest margin, on a tax equivalent basis, was 4.13% for current quarter, compared to 4.11% in the preceding quarter.
•Revenue was $172.0 million for the second quarter of 2026, compared to $169.3 million in the preceding quarter.
•Net interest income was $153.7 million in the second quarter of 2026, compared to $150.2 million in the preceding quarter.
•Mortgage banking operations revenue was $2.8 million for the second quarter of 2026, compared to $3.2 million in the preceding quarter.
•Return on average assets was 1.20%, compared to 1.37% in the preceding quarter.
•Net loans receivable were $11.83 billion at June 30, 2026, compared to $11.55 billion at March 31, 2026.
•Total deposits were $13.79 billion at June 30, 2026, compared to $13.84 billion at March 31, 2026.
•Core deposits represented 89% of total deposits at June 30, 2026.
•Non-performing assets were $60.5 million, or 0.36% of total assets, at June 30, 2026, compared to $51.7 million, or 0.32% of total assets at March 31, 2026.
•The allowance for credit losses - loans was $161.8 million, or 1.35% of total loans receivable, as of June 30, 2026, compared to $160.4 million, or 1.37% of total loans receivable, at March 31, 2026.
•Dividends paid to shareholders were $0.52 per share in the quarter ended June 30, 2026.
•Common shareholders’ equity per share increased to $58.83 at June 30, 2026, compared to $58.06 at March 31, 2026.
•Tangible common shareholders’ equity per share* increased to $47.82 at June 30, 2026, compared to $47.00 at March 31, 2026.
*Non-GAAP Financial Measures
Significant Recent Initiatives and Events
On April 30, 2026, Banner entered into a definitive merger agreement to acquire Pacific Financial Corporation (“Pacific Financial”), the holding company for Bank of the Pacific, in an all-stock transaction. Under the terms of the agreement, at the effective time of the merger, shareholders of Pacific Financial will receive 0.2633 shares of Banner common stock for each Pacific Financial common share they own. The transaction is expected to close in the third quarter of 2026 and is subject to closing conditions, including Pacific Financial shareholder and regulatory approvals. There can be no assurance that all closing conditions will be satisfied or that the transaction will be completed on the anticipated timetable, or at all.
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.
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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 Six Months Ended June 30,
Jun 30, 2026 Mar 31, 2026 Jun 30, 2025 2026 2025
ADJUSTED REVENUE
Net interest income (GAAP) $ 153,740 $ 150,169 $ 144,399 $ 303,909 $ 285,482
Non-interest income (GAAP) 18,222 19,161 17,751 37,383 36,859
Total revenue (GAAP) 171,962 169,330 162,150 341,292 322,341
Exclude: Net (gain) loss on sale of securities (8) 1,242 3 1,234 3
Net change in valuation of financial instruments carried at fair value 157 (1,662) (88) (1,505) (403)
Losses on building and lease exits — — 919 — 919
Adjusted revenue (non-GAAP) $ 172,111 $ 168,910 $ 162,984 $ 341,021 $ 322,860
Quarters Ended Six Months Ended June 30,
Jun 30, 2026 Mar 31, 2026 Jun 30, 2025 2026 2025
ADJUSTED EARNINGS
Net income (GAAP) $ 48,886 $ 54,716 $ 45,496 $ 103,602 $ 90,631
Exclude: Net (gain) loss on sale of securities (8) 1,242 3 1,234 3
Net change in valuation of financial instruments carried at fair value 157 (1,662) (88) (1,505) (403)
Merger and acquisition-related expenses 238 — — 238 —
Building and lease exit costs, net 47 9 1,753 56 1,753
Related net tax (benefit) expense (104) 99 (401) (5) (325)
Total adjusted earnings (non-GAAP) $ 49,216 $ 54,404 $ 46,763 $ 103,620 $ 91,659
Diluted earnings per share (GAAP) $ 1.43 $ 1.60 $ 1.31 $ 3.03 $ 2.61
Adjusted diluted earnings per share (non-GAAP) $ 1.44 $ 1.59 $ 1.35 $ 3.03 $ 2.64
Return on average assets 1.20 % 1.37 % 1.13 % 1.28 % 1.14 %
Adjusted return on average assets (1) 1.21 % 1.36 % 1.16 % 1.28 % 1.15 %
Return on average equity 9.91 % 11.29 % 9.92 % 10.59 % 10.04 %
Adjusted return on average equity (2) 9.98 % 11.23 % 10.20 % 10.60 % 10.16 %
Quarters Ended Six Months Ended June 30,
AVERAGE TANGIBLE COMMON EQUITY Jun 30, 2026 Mar 31, 2026 Jun 30, 2025 2026 2025
Net Income (GAAP) $ 48,886 $ 54,716 $ 45,496 $ 103,602 $ 90,631
Exclude: Amortization of intangibles, net of tax 202 202 360 404 720
Tangible net income available to common shareholders (non-GAAP) $ 49,088 $ 54,918 $ 45,856 $ 104,006 $ 91,351
Average common shareholder’s equity $ 1,978,560 $ 1,965,463 $ 1,839,683 $ 1,972,048 $ 1,819,493
Exclude: Average goodwill and other intangible assets, net 374,225 374,477 375,486 374,350 375,713
Average tangible common equity $ 1,604,335 $ 1,590,986 $ 1,464,197 $ 1,597,698 $ 1,443,780
Return on average equity 9.91 % 11.29 % 9.92 % 10.59 % 10.04 %
Return on average tangible common equity (3) 12.27 % 14.00 % 12.56 % 13.13 % 12.76 %
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Quarters Ended Six Months Ended June 30,
Jun 30, 2026 Mar 31, 2026 Jun 30, 2025 2026 2025
ADJUSTED EFFICIENCY RATIO
Non-interest expense (GAAP) $ 107,990 $ 102,608 $ 101,348 $ 210,598 $ 202,607
Exclude: CDI amortization (256) (256) (455) (512) (911)
State and municipal tax expense (1,773) (1,820) (1,416) (3,593) (2,870)
REO operations (165) (109) (392) (274) (331)
Merger and acquisition-related expenses (238) — — (238) —
Building and lease exit costs (47) (9) (834) (56) (834)
Adjusted non-interest expense (non-GAAP) $ 105,511 $ 100,414 $ 98,251 $ 205,925 $ 197,661
Net interest income (GAAP) $ 153,740 $ 150,169 $ 144,399 $ 303,909 $ 285,482
Non-interest income (GAAP) 18,222 19,161 17,751 37,383 36,859
Total revenue (GAAP) 171,962 169,330 162,150 341,292 322,341
Exclude: Net (gain) loss on sale of securities (8) 1,242 3 1,234 3
Net change in valuation of financial instruments carried at fair value 157 (1,662) (88) (1,505) (403)
Losses on building and lease exits — — 919 — 919
Adjusted revenue (non-GAAP) $ 172,111 $ 168,910 $ 162,984 $ 341,021 $ 322,860
Efficiency ratio (GAAP) 62.80 % 60.60 % 62.50 % 61.71 % 62.85 %
Adjusted efficiency ratio (non-GAAP) (4) 61.30 % 59.45 % 60.28 % 60.38 % 61.22 %
(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).
TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS
June 30, 2026 March 31, 2026 December 31, 2025 June 30, 2025
Shareholders’ equity (GAAP) $ 1,999,263 $ 1,966,634 $ 1,946,297 $ 1,865,664
Exclude goodwill and other intangible assets, net 374,100 374,356 374,612 375,268
Tangible common shareholders’ equity (non-GAAP) $ 1,625,163 $ 1,592,278 $ 1,571,685 $ 1,490,396
Total assets (GAAP) $ 16,593,547 $ 16,344,272 $ 16,354,488 $ 16,437,169
Exclude goodwill and other intangible assets, net 374,100 374,356 374,612 375,268
Total tangible assets (non-GAAP) $ 16,219,447 $ 15,969,916 $ 15,979,876 $ 16,061,901
Common shareholders’ equity to total assets (GAAP) 12.05 % 12.03 % 11.90 % 11.35 %
Tangible common shareholders’ equity to tangible assets (non-GAAP) 10.02 % 9.97 % 9.84 % 9.28 %
TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE
June 30, 2026 March 31, 2026 December 31, 2025 June 30, 2025
Shareholders’ equity (GAAP) $ 1,999,263 $ 1,966,634 $ 1,946,297 $ 1,865,664
Tangible common shareholders’ equity (non-GAAP) $ 1,625,163 $ 1,592,278 $ 1,571,685 $ 1,490,396
Common shares outstanding at end of period 33,984,909 33,875,098 34,097,856 34,583,994
Common shareholders’ equity (book value) per share (GAAP) $ 58.83 $ 58.06 $ 57.08 $ 53.95
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) $ 47.82 $ 47.00 $ 46.09 $ 43.09
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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 require significant judgments and assumptions which are susceptible to significant changes based on the current environment. There have been no significant changes in our application of critical accounting estimates since December 31, 2025.
Comparison of Financial Condition at June 30, 2026 and December 31, 2025
General: Total assets increased $239.1 million to $16.59 billion at June 30, 2026, from $16.35 billion at December 31, 2025, primarily due to growth in loans receivable, partially offset by a decrease in securities.
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 June 30, 2026 was 87%. 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 $272.7 million at June 30, 2026, compared to December 31, 2025. The increase primarily reflected growth in commercial business loans, commercial real estate loans, and consumer loans, partially offset by declines in construction, land and land development loans, agricultural business loans, and one- to four-family residential loans.
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
Jun 30, 2026 Dec 31, 2025 Jun 30, 2025 Year End Prior Year Qtr. End
Commercial real estate:
Owner-occupied $ 1,229,993 $ 1,138,298 $ 1,125,249 8 % 9 %
Investment properties 1,744,127 1,701,413 1,625,001 3 7
Small balance CRE 1,166,516 1,212,357 1,223,477 (4) (5)
Total Commercial real estate 4,140,636 4,052,068 3,973,727 2 4
Multifamily real estate 855,862 850,789 860,700 1 (1)
Construction, land and land development:
Commercial construction 181,843 156,021 159,222 17 14
Multifamily construction 503,058 514,330 568,058 (2) (11)
One- to four-family construction 631,183 607,447 551,806 4 14
Land and land development 378,172 433,678 417,474 (13) (9)
Total Construction, land and land development 1,694,256 1,711,476 1,696,560 (1) —
Commercial business:
Commercial business 1,286,818 1,225,108 1,318,483 5 (2)
Small business scored 1,295,861 1,187,360 1,152,531 9 12
Total Commercial business 2,582,679 2,412,468 2,471,014 7 5
Agricultural business, including secured by farmland 337,487 353,152 345,742 (4) (2)
One- to four-family residential 1,556,493 1,573,191 1,610,133 (1) (3)
Consumer:
Consumer—home equity revolving lines of credit 744,546 679,489 639,757 10 16
Consumer—other 82,451 89,054 92,740 (7) (11)
Total Consumer 826,997 768,543 732,497 8 13
Total loans receivable $ 11,994,410 $ 11,721,687 $ 11,690,373 2 % 3 %
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Commercial real estate loans totaled $4.14 billion, or 34% of our loan portfolio, and multifamily real estate loans totaled $855.9 million, or 7% of our loan portfolio, at June 30, 2026. Commercial real estate loans increased by $88.6 million during the first six months of 2026, primarily due to new production. Multifamily real estate loans increased by $5.1 million, primarily due 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 $1.69 billion, or 14% of our loan portfolio, at June 30, 2026, compared to $1.71 billion at December 31, 2025. Multifamily construction loans decreased $11.3 million, or 2%, to $503.1 million at June 30, 2026, compared to December 31, 2025. Multifamily construction represented 4% of our total loan portfolio at June 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 $25.8 million, or 17%, to $181.8 million at June 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 $55.5 million, or 13%, to $378.2 million at June 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 June 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 $2.58 billion at June 30, 2026 and $2.41 billion at December 31, 2025. Commercial business loans represented 22% of our loan portfolio at June 30, 2026. Our agricultural business loans were $337.5 million at June 30, 2026 and $353.2 million at December 31, 2025. Agricultural business loans represented 3% of our loan portfolio at June 30, 2026. Our commercial business lending also includes participation in certain syndicated loans, including shared national credits, which totaled $222.2 million, or 2% of our loan portfolio, at June 30, 2026, compared to $195.6 million, or 2% of our loan portfolio, at December 31, 2025.
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 June 30, 2026, one- to four-family residential loans retained in our portfolio decreased $16.7 million, to $1.56 billion, compared to $1.57 billion at December 31, 2025. The decrease was primarily the result of one- to four-family residential loan payoffs exceeding new loan originations and one- to four-family construction loans converting to permanent one- to four-family residential loans upon completion of construction. One- to four-family residential loans represented 13% of our loan portfolio at June 30, 2026.
Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At June 30, 2026, consumer loans, including home equity revolving lines of credit, increased $58.5 million to $827.0 million, compared to $768.5 million at December 31, 2025. The increase was primarily due to 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 Six Months Ended
Jun 30, 2026 Mar 31, 2026 Jun 30, 2025 Jun 30, 2026 Jun 30, 2025
Commercial real estate $ 163,031 $ 220,193 $ 216,189 $ 383,224 $ 253,230
Multifamily real estate 215 3,869 13,065 4,084 22,620
Construction, land and land development 561,290 323,941 411,210 885,231 698,775
Commercial business 312,028 168,324 203,656 480,352 307,395
Agricultural business 9,032 22,562 14,414 31,594 27,179
One-to four- family residential 37,998 13,416 5,491 51,414 10,630
Consumer 172,152 110,913 102,600 283,065 182,630
Total commitment amount for loan originations (excluding loans held for sale) $ 1,255,746 $ 863,218 $ 966,625 $ 2,118,964 $ 1,502,459
Loans held for sale decreased to $27.2 million at June 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 $198.4 million for the six months ended June 30, 2026, compared to $171.0 million for the same period last year. The volume of one- to four-family residential mortgage loans sold was $267.1 million during the six months ended June 30, 2026, compared to $212.7 million in the same period a year ago.
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The following table presents loans by geographic concentration at the dates indicated (dollars in thousands):
Jun 30, 2026 Dec 31, 2025 Jun 30, 2025 Percentage Change
Amount Percentage Amount Amount Year End Prior Year Qtr. End
Washington $ 5,359,130 45 % $ 5,371,200 $ 5,438,285 — % (1) %
California 3,275,124 27 3,105,405 3,010,678 5 9
Oregon 2,210,617 18 2,159,404 2,141,185 2 3
Idaho 732,830 6 667,343 671,217 10 9
Utah 78,216 1 82,594 70,474 (5) 11
Other 338,493 3 335,741 358,534 1 (6)
Total loans receivable $ 11,994,410 100 % $ 11,721,687 $ 11,690,373 2 % 3 %
Investment Securities: Total securities were $2.95 billion at June 30, 2026, decreased from $2.98 billion at December 31, 2025. Available-for-sale securities were flat at $2.02 billion at June 30, 2026, compared to December 31, 2025, while held-to-maturity securities decreased $31.9 million to $929.3 million, compared to $961.2 million at December 31, 2025, reflecting maturities and paydowns during the period. Purchases during the six months ended June 30, 2026, consisted of agency commercial mortgage‑backed securities, corporate securities and collateralized loan obligations. The average effective duration of the Company’s securities portfolio was 6.1 years at June 30, 2026, compared to 6.6 years at December 31, 2025. The fair value of securities designated as available-for-sale decreased $3.7 million for the six months ended June 30, 2026. This decrease, net of $900,000 in associated tax benefit, was recorded in other comprehensive income and reflected the impact of changes in market interest rates during the six months ended June 30, 2026.
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 have 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
Jun 30, 2026 Dec 31, 2025 Jun 30, 2025 Year End Prior Year Qtr. End
Non-interest-bearing $ 4,542,942 $ 4,489,839 $ 4,504,491 1 % 1 %
Interest-bearing checking 2,623,149 2,609,080 2,534,900 1 3
Regular savings accounts 3,853,612 3,723,922 3,538,372 3 9
Money market accounts 1,296,869 1,388,001 1,471,756 (7) (12)
Interest-bearing transaction & savings accounts 7,773,630 7,721,003 7,545,028 1 3
Total core deposits 12,316,572 12,210,842 12,049,519 1 2
Interest-bearing certificates 1,473,021 1,532,304 1,477,772 (4) —
Total deposits $ 13,789,593 $ 13,743,146 $ 13,527,291 — % 2 %
Total deposits increased $46.4 million at June 30, 2026, compared to December 31, 2025, with core deposits increasing $105.7 million, partially offset by certificates of deposit decreasing $59.3 million. The increase in core deposits primarily reflects increases in non-interest-bearing deposits and interest-bearing transaction and savings accounts. We had no brokered deposits at June 30, 2026, compared to $50.0 million at December 31, 2025. Core deposits represented 89% of total deposits at both June 30, 2026 and December 31, 2025. Competition for deposits in our market areas remains strong.
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):
Jun 30, 2026 Dec 31, 2025 Jun 30, 2025
Number of deposit accounts 441,808 445,989 451,185
Average account balance per account $ 32 $ 31 $ 30
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The following table presents deposits by geographic concentration at the dates indicated (dollars in thousands):
Jun 30, 2026 Dec 31, 2025 Jun 30, 2025 Percentage Change
Amount Percentage Amount Amount Year End Prior Year Qtr. End
Washington $ 7,268,041 53 % $ 7,500,215 $ 7,334,391 (3) % (1) %
Oregon 3,142,625 23 3,035,104 3,029,712 4 4
California 2,631,688 19 2,483,948 2,486,514 6 6
Idaho 747,239 5 723,879 676,674 3 10
Total deposits $ 13,789,593 100 % $ 13,743,146 $ 13,527,291 — % 2 %
Borrowings: We had $320.0 million FHLB advances at June 30, 2026, compared to $150.0 million at December 31, 2025, as FHLB advances were temporarily used to fund the second quarter loan growth. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, increased $6.8 million to $114.5 million at June 30, 2026, compared to $107.7 million at December 31, 2025. At June 30, 2026, the Company’s off-balance sheet liquidity included additional borrowing capacity of $3.45 billion at the FHLB, $1.64 billion at the Federal Reserve, and $125.0 million in federal funds lines of credit with other financial institutions. Junior subordinated debentures totaled $79.7 million at June 30, 2026, compared to $79.2 million at December 31, 2025.
Shareholders’ Equity: Total shareholders’ equity increased $53.0 million to $2.00 billion, or 12.05% of total assets, at June 30, 2026, compared to $1.95 billion, or 11.90% of total assets, at December 31, 2025. The increase was primarily due to a $68.4 million increase in retained earnings resulting from $103.6 million in net income, partially offset by the accrual of $35.2 million in cash dividends and the repurchase of 250,000 shares of Banner common stock in the first quarter of 2026 at an average price of $64.56 per share. In addition, accumulated other comprehensive loss increased by $1.5 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 $53.5 million to $1.63 billion, or 10.02% of tangible assets, at June 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 June 30, 2026 and March 31, 2026, and the Six Months Ended June 30, 2026 and 2025
For the quarter ended June 30, 2026, net income was $48.9 million, or $1.43 per diluted share, compared to $54.7 million, or $1.60 per diluted share, for the preceding quarter. For the six months ended June 30, 2026, our net income was $103.6 million, or $3.03 per diluted share, compared to $90.6 million, or $2.61 per diluted share for the same period a year earlier. The decrease in net income compared to the preceding quarter was primarily due to an increase in the provision for credit losses and higher non-interest expense, partially offset by an increase in net interest income. The increase in net income for the six months ended June 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 higher non-interest expense.
Net interest income was $153.7 million in the second quarter of 2026, compared to $150.2 million in the preceding quarter, and $303.9 million for the six months ended June 30, 2026, compared to $285.5 million for the comparable period a year ago. The increase in net interest income compared to the prior quarter primarily reflected one additional calendar day in the current quarter, net interest margin expansion and growth in average interest-earning assets, partially offset by higher funding costs associated with increased FHLB borrowings. The increase in net interest income for the six months ended June 30, 2026, compared to the same period a year ago primarily reflected lower funding costs and an increase in the average balance of interest-earning assets.
We recorded a $3.8 million provision for credit losses for the quarter ended June 30, 2026, compared to a $796,000 recapture of provision for credit losses in the preceding quarter. The provision for credit losses recorded in the second quarter of 2026 primarily reflected loan growth, partially offset by improvements in credit quality and changes in portfolio mix. We recorded a $3.0 million provision for credit losses for the six months ended June 30, 2026 and a $7.9 million provision for credit losses for the same period a year ago.
Total non-interest income decreased in the quarter ended June 30, 2026, compared to the preceding quarter and increased during the six months ended June 30, 2026, compared to the same period a year ago. The decrease in non-interest income from the previous quarter was driven primarily by an unfavorable shift in fair value adjustments on financial instruments. In addition, net losses on the sale of securities were recognized in the preceding quarter. The increase in non-interest income during the six months ended June 30, 2026, compared to the same period last year, primarily reflected higher deposit fees and other service charges and favorable fair value adjustments on financial instruments carried at fair value, partially offset by a net loss recognized on the sale of securities during the current period.
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Total non-interest expense increased in the quarter ended June 30, 2026, compared to the preceding quarter and increased during the six months ended June 30, 2026, compared to the same period a year ago. The increase from the previous quarter reflected an increase in salary and employee benefits, primarily reflecting increased loan commissions and normal salary and wage increases, an increase in information and computer data services, primarily due to increased computer software expenses, an increase in professional and legal expenses, primarily reflecting increased legal fees, and an increase in advertising and marketing expense, primarily reflecting the timing of direct mail marketing, printed media, and radio and television expenses. These increases were partially offset by higher capitalized loan origination costs associated with increased loan origination activity, primarily in the construction, land and land development, and one- to four-family residential loan categories. The increase in non-interest expense during the six months ended June 30, 2026, compared to the same period last year primarily reflects increases in salary and employee benefits and information and computer data services, partially offset by an increase in capitalized loan origination costs.
OPERATING DATA: Quarters Ended Six Months Ended
(In thousands) June 30, 2026 March 31, 2026 June 30, 2025 June 30, 2026 June 30, 2025
Interest income $ 202,686 $ 197,818 $ 200,259 $ 400,504 $ 394,127
Interest expense 48,946 47,649 55,860 96,595 108,645
Net interest income 153,740 150,169 144,399 303,909 285,482
Provision (recapture) for credit losses 3,818 (796) 4,795 3,022 7,934
Net interest income after provision (recapture) for credit losses 149,922 150,965 139,604 300,887 277,548
Deposit fees and other service charges 11,728 11,391 10,835 23,119 21,604
Mortgage banking operations 2,792 3,212 3,226 6,004 6,329
Net loss on sale of securities 8 (1,242) (3) (1,234) (3)
Net change in valuation of financial instruments carried at fair value (157) 1,662 88 1,505 403
All other non-interest income 3,851 4,138 3,605 7,989 8,526
Total non-interest income 18,222 19,161 17,751 37,383 36,859
Salary and employee benefits 69,388 67,732 65,486 137,120 130,343
All other non-interest expenses 38,602 34,876 35,862 73,478 72,264
Total non-interest expense 107,990 102,608 101,348 210,598 202,607
Income before provision for income tax expense 60,154 67,518 56,007 127,672 111,800
Provision for income tax expense 11,268 12,802 10,511 24,070 21,169
Net income $ 48,886 $ 54,716 $ 45,496 $ 103,602 $ 90,631
PER COMMON SHARE DATA: Quarters Ended Six Months Ended
June 30, 2026 March 31, 2026 June 30, 2025 June 30, 2026 June 30, 2025
Net income:
Basic $ 1.44 $ 1.61 $ 1.31 $ 3.04 $ 2.62
Diluted 1.43 1.60 1.31 3.03 2.61
KEY FINANCIAL RATIOS Quarters Ended Six Months Ended
June 30, 2026 March 31, 2026 June 30, 2025 June 30, 2026 June 30, 2025
Return on average assets 1.20 % 1.37 % 1.13 % 1.28 % 1.14 %
Adjusted return on average assets (1) 1.21 % 1.36 % 1.16 % 1.28 % 1.15 %
Return on average equity 9.91 % 11.29 % 9.92 % 10.59 % 10.04 %
Adjusted return on average equity (1) 9.98 % 11.23 % 10.20 % 10.60 % 10.16 %
Return on average tangible common equity (1) 12.27 % 14.00 % 12.56 % 13.13 % 12.76 %
Average equity/average assets 12.09 % 12.09 % 11.41 % 12.09 % 11.35 %
Average interest-earning assets/average interest-bearing liabilities 159.69 % 159.49 % 158.78 % 159.59 % 159.72 %
Average interest-earning assets/average funding liabilities 108.42 % 108.45 % 108.00 % 108.43 % 108.04 %
Non-interest income/average assets 0.45 % 0.48 % 0.44 % 0.46 % 0.46 %
Non-interest expense/average assets 2.65 % 2.56 % 2.52 % 2.60 % 2.55 %
Efficiency ratio 62.80 % 60.60 % 62.50 % 61.71 % 62.85 %
Adjusted efficiency ratio (1) 61.30 % 59.45 % 60.28 % 60.38 % 61.22 %
(1) Represents non-GAAP financial measures. See “Reconciliation of Non-GAAP Financial Measure” above.
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Net Interest Income. Net interest income increased $3.6 million during the quarter ended June 30, 2026, compared to the preceding quarter, due to an increase in interest income, primarily attributable to one additional calendar day in the current quarter, net interest margin expansion and growth in average interest-earning assets, partially offset by higher interest expense associated with increased FHLB borrowings.
Net interest margin on a tax equivalent basis was 4.13% for the second quarter of 2026, compared to 4.11% for the preceding quarter. The net interest margin for the current quarter benefited from loan growth, a slight increase in loan yields, and lower deposit costs, partially offset by the increased use of FHLB advances.
Net interest income increased by $18.4 million, or 6% for the six months ended June 30, 2026, compared to the same period one year earlier. The increase was primarily the result of a $6.4 million increase in interest income, primarily reflecting an increase in the average balance of loans, as well as a $12.1 million decrease in interest expense reflecting an 18 basis-point reduction in the average cost of funding liabilities to 1.39% from 1.57%. The net interest margin on a tax equivalent basis increased to 4.12% for the six months ended June 30, 2026, compared to 3.92% for the same period in the prior year.
Interest Income. Interest income for the quarter ended June 30, 2026 was $202.7 million, compared to $197.8 million for the preceding quarter. The increase for the current quarter, compared to the preceding quarter reflects growth in average loan balances and a slight increase in average loan yields.
The total average loan yield increased two basis points to 6.09% for the quarter ended June 30, 2026, from 6.07% 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 and commercial and agricultural business loans.
The total investment securities average balance decreased for the quarter ended June 30, 2026, compared to the preceding quarter, reflecting paydowns and maturities that were not fully replaced by new purchases during the period. The average yield on the combined portfolio increased to 3.03% for the quarter ended June 30, 2026, from 3.01% for the preceding quarter. Interest income on interest-bearing deposits with banks decreased for the current quarter, compared to the preceding quarter, reflecting decreases in both the average balance and yield of interest-bearing deposits. The average yield on interest-bearing deposits with banks decreased to 3.16%, compared to 3.34% in the prior quarter.
Interest income for the six months ended June 30, 2026 was $400.5 million, compared to $394.1 million for the same period in the prior year, an increase of $6.4 million, primarily reflecting growth in average loan balances.
Interest Expense. Interest expense increased for the quarter ended June 30, 2026, compared to the preceding quarter. Average funding liabilities increased by $122.0 million, primarily due to a $141.1 million increase in the average balance of FHLB advances, partially offset by a $23.6 million decrease in average deposit balances. The average cost of funding liabilities increased one basis point, to 1.39% for the quarter ended June 30, 2026. Interest expense for the six months ended June 30, 2026 was $96.6 million, compared to $108.6 million for the same period in the prior year. The decrease primarily resulted from an 18 basis-point decrease in the average cost of funds to 1.39% from 1.57%.
Deposit interest expense for the quarter ended June 30, 2026 decreased slightly to $45.6 million, compared to $45.7 million for the preceding quarter. The average rate paid on total deposits, including non-interest-bearing deposits, was 1.33% for the quarter ended June 30, 2026, compared to 1.35% for the preceding quarter. The average rate paid on interest-bearing deposits decreased to 1.98% for the quarter ended June 30, 2026, compared to 1.99% in the preceding quarter. The decrease in the average rate paid on interest-bearing deposits, compared to the preceding quarter is attributable to lower rates paid on certificates of deposit and money market accounts. The decrease in the average rate paid on interest-bearing deposits compared to the preceding quarter was also impacted by shifts in the deposit mix, primarily reflecting continued migration from higher-rate certificates of deposit into lower-cost deposit accounts. Total average deposit balances, including non-interest-bearing deposits, decreased to $13.74 billion for the quarter ended June 30, 2026, compared to $13.76 billion for the preceding quarter.
Deposit interest expense for the six months ended June 30, 2026 decreased $6.8 million to $91.2 million, compared to $98.1 million for the same period in the prior year. Average deposit balances increased to $13.75 billion for the six months ended June 30, 2026, from $13.43 billion for the same period a year earlier, while the average rate paid on deposits decreased to 1.34% for the six months ended June 30, 2026 from 1.47% for the same period in the prior year. The average cost of interest-bearing deposits decreased by 22 basis points to 1.99% for the six months ended June 30, 2026, compared to 2.21% 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, as well as a reduction in the total average balance of higher- rate certificates of deposit.
Interest expense on total borrowings for the quarter ended June 30, 2026 increased to $3.4 million from $2.0 million for the preceding quarter, due to an increase in the average balance on total borrowings, primarily reflecting a $141.1 million increase in the average balance of FHLB advances. Average total borrowings were $350.5 million for the quarter ended June 30, 2026, compared to $204.8 million for the preceding quarter. The average rate paid on total borrowings for the quarter ended June 30, 2026, decreased to 3.88%, from 3.90% for the preceding quarter.
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Interest expense on total borrowings for the six months ended June 30, 2026 decreased to $5.4 million from $10.6 million for the same period a year earlier due to a decrease in both the average balance of and rate paid on total borrowings, reflecting the pay-off of Banner’s subordinated debt in June 2025. Average total borrowings were $278.1 million for the six months ended June 30, 2026, compared to $484.3 million for the same period a year earlier. The decrease was primarily due to a $111.6 million decrease in the average balance of FHLB advances and an $80.1 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 six months ended June 30, 2026 decreased to 3.89% from 4.41% for the same period a year earlier.
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) Jun 30, 2026 Mar 31, 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 $ 33,242 $ 509 6.14 % $ 26,051 $ 381 5.93 %
Real estate secured loans 9,875,493 148,303 6.02 % 9,754,431 144,369 6.00 %
Commercial/agricultural loans 1,881,938 29,866 6.37 % 1,853,248 29,153 6.38 %
Consumer and other loans 117,727 2,015 6.87 % 116,147 2,040 7.12 %
Total loans (1) 11,908,400 180,693 6.09 % 11,749,877 175,943 6.07 %
Mortgage-backed securities 2,275,561 14,269 2.52 % 2,326,123 14,509 2.53 %
Other securities 938,205 9,915 4.24 % 878,650 9,040 4.17 %
Interest-bearing deposits with banks 139,672 1,102 3.16 % 184,204 1,518 3.34 %
FHLB stock 16,342 150 3.68 % 9,912 148 6.06 %
Total investment securities 3,369,780 25,436 3.03 % 3,398,889 25,215 3.01 %
Total interest-earning assets 15,278,180 206,129 5.41 % 15,148,766 201,158 5.39 %
Non-interest-earning assets 1,082,054 1,106,533
Total assets $ 16,360,234 $ 16,255,299
Deposits:
Interest-bearing checking accounts $ 2,606,252 9,433 1.45 % $ 2,631,917 9,273 1.43 %
Savings accounts 3,830,346 19,009 1.99 % 3,792,427 18,388 1.97 %
Money market accounts 1,314,496 5,790 1.77 % 1,387,870 6,151 1.80 %
Certificates of deposit 1,465,885 11,322 3.10 % 1,481,349 11,866 3.25 %
Total interest-bearing deposits 9,216,979 45,554 1.98 % 9,293,563 45,678 1.99 %
Non-interest-bearing deposits 4,523,594 — — % 4,470,629 — — %
Total deposits 13,740,573 45,554 1.33 % 13,764,192 45,678 1.35 %
Other interest-bearing liabilities:
FHLB advances 145,176 1,426 3.94 % 4,089 40 3.97 %
Other borrowings 116,146 732 2.53 % 111,569 697 2.53 %
Junior subordinated debentures and subordinated notes 89,178 1,234 5.55 % 89,178 1,234 5.61 %
Total borrowings 350,500 3,392 3.88 % 204,836 1,971 3.90 %
Total funding liabilities 14,091,073 48,946 1.39 % 13,969,028 47,649 1.38 %
Other non-interest-bearing liabilities (2) 290,601 320,808
Total liabilities 14,381,674 14,289,836
Shareholders’ equity 1,978,560 1,965,463
Total liabilities and shareholders’ equity $ 16,360,234 $ 16,255,299
Net interest income/rate spread (tax equivalent) $ 157,183 4.02 % $ 153,509 4.01 %
Net interest margin (tax equivalent) 4.13 % 4.11 %
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis (3,443) (3,340)
Net interest income and margin, as reported $ 153,740 4.04 % $ 150,169 4.02 %
(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 $2.3 million and $2.2 million for the quarters ended June 30, 2026 and March 31, 2026, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.1 million for both the quarters ended June 30, 2026 and March 31, 2026.
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ANALYSIS OF NET INTEREST SPREAD
(rates / ratios annualized) Six Months Ended June 30, 2026 Six Months Ended June 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 $ 29,666 $ 890 6.05 % $ 26,217 $ 860 6.61 %
Real estate secured loans 9,815,296 292,672 6.01 % 9,466,335 281,633 6.00 %
Commercial/agricultural loans 1,867,672 59,019 6.37 % 1,915,699 61,948 6.52 %
Consumer and other loans 116,942 4,055 6.99 % 121,316 4,179 6.95 %
Total loans (1) 11,829,576 356,636 6.08 % 11,529,567 348,620 6.10 %
Mortgage-backed securities 2,300,703 28,778 2.52 % 2,519,851 31,471 2.52 %
Other securities 908,592 18,955 4.21 % 897,870 19,248 4.32 %
Interest-bearing deposits with banks 161,815 2,620 3.27 % 70,675 1,061 3.03 %
FHLB stock 13,145 298 4.57 % 17,969 371 4.16 %
Total investment securities 3,384,255 50,651 3.02 % 3,506,365 52,151 3.00 %
Total interest-earning assets 15,213,831 407,287 5.40 % 15,035,932 400,771 5.38 %
Non-interest-earning assets 1,094,225 1,000,216
Total assets $ 16,308,056 $ 16,036,148
Deposits:
Interest-bearing checking accounts $ 2,619,014 18,706 1.44 % $ 2,423,292 17,999 1.50 %
Savings accounts 3,811,491 37,397 1.98 % 3,472,556 36,940 2.15 %
Money market accounts 1,350,980 11,941 1.78 % 1,523,571 15,589 2.06 %
Certificates of deposit 1,473,574 23,188 3.17 % 1,510,404 27,525 3.67 %
Total interest-bearing deposits 9,255,059 91,232 1.99 % 8,929,823 98,053 2.21 %
Non-interest-bearing deposits 4,497,258 — — % 4,503,461 — — %
Total deposits 13,752,317 91,232 1.34 % 13,433,284 98,053 1.47 %
Other interest-bearing liabilities:
FHLB advances 75,022 1,466 3.94 % 186,597 4,230 4.57 %
Other borrowings 113,870 1,429 2.53 % 128,459 1,369 2.15 %
Junior subordinated debentures and subordinated notes 89,178 2,468 5.58 % 169,233 4,993 5.95 %
Total borrowings 278,070 5,363 3.89 % 484,289 10,592 4.41 %
Total funding liabilities 14,030,387 96,595 1.39 % 13,917,573 108,645 1.57 %
Other non-interest-bearing liabilities (2) 305,621 299,082
Total liabilities 14,336,008 14,216,655
Shareholders’ equity 1,972,048 1,819,493
Total liabilities and shareholders’ equity $ 16,308,056 $ 16,036,148
Net interest income/rate spread (tax equivalent) $ 310,692 4.01 % $ 292,126 3.81 %
Net interest margin (tax equivalent) 4.12 % 3.92 %
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis (6,783) (6,644)
Net interest income and margin $ 303,909 4.03 % $ 285,482 3.83 %
(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 $4.5 million and $4.6 million for the six months ended June 30, 2026 and 2025, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.2 million and $2.1 million for the six months ended June 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 Six Months Ended
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES – LOANS Jun 30, 2026 Mar 31, 2026 Jun 30, 2025 Jun 30, 2026 Jun 30, 2025
Balance, beginning of period $ 160,352 $ 160,276 $ 157,323 $ 160,276 $ 155,521
Provision for credit losses – loans 1,598 1,292 4,201 2,890 8,750
Recoveries of loans previously charged off:
Commercial real estate 12 11 53 23 110
Construction and land 5 4 — 9 —
One- to four-family residential 12 13 58 25 246
Commercial business 171 81 361 252 918
Agricultural business, including secured by farmland 213 4 1 217 11
Consumer 63 140 168 203 287
Total recoveries 476 253 641 729 1,572
Loans charged off:
One- to four-family residential — — — — (13)
Commercial business (293) (863) (892) (1,156) (4,193)
Agricultural business, including secured by farmland (4) — (362) (4) (362)
Consumer (280) (606) (410) (886) (774)
Total charge-offs (577) (1,469) (1,664) (2,046) (5,342)
Net charge-offs (101) (1,216) (1,023) (1,317) (3,770)
Balance, end of period $ 161,849 $ 160,352 $ 160,501 $ 161,849 $ 160,501
Net charge-offs/average loans receivable (0.001) % (0.010) % (0.009) % (0.011) % (0.033) %
Allowance for credit losses - loans as a percentage of total loans 1.35 % 1.37 % 1.37 % 1.35 % 1.37 %
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. During the quarter ended June 30, 2026, we recorded a provision for credit losses - loans of $1.6 million, compared to a provision for credit losses - loans of $1.3 million during the preceding quarter. The provision for credit losses - loans recorded in the second quarter of 2026 primarily reflected loan growth, partially offset by improvements in credit quality and changes in portfolio mix. 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 Six Months Ended
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS Jun 30, 2026 Mar 31, 2026 Jun 30, 2025 Jun 30, 2026 Jun 30, 2025
Balance, beginning of period $ 12,903 $ 14,985 $ 12,162 $ 14,985 $ 13,562
Provision (recapture) for credit losses - unfunded loan commitments 2,222 (2,082) 588 140 (812)
Balance, end of period $ 15,125 $ 12,903 $ 12,750 $ 15,125 $ 12,750
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 Six Months Ended
Jun 30, 2026 Mar 31, 2026 Change Amount Change Percent Jun 30, 2026 Jun 30, 2025 Change Amount Change Percent
Deposit fees and other service charges $ 11,728 $ 11,391 $ 337 3 % $ 23,119 $ 21,604 $ 1,515 7 %
Mortgage banking operations 2,792 3,212 (420) (13) 6,004 6,329 (325) (5)
Bank owned life insurance 2,471 2,312 159 7 4,783 4,959 (176) (4)
Miscellaneous 1,380 1,826 (446) (24) 3,206 3,567 (361) (10)
18,371 18,741 (370) (2) 37,112 36,459 653 2
Net gain (loss) on sale of securities 8 (1,242) 1,250 (101) (1,234) (3) (1,231) nm
Net change in valuation of financial instruments carried at fair value (157) 1,662 (1,819) (109) 1,505 403 1,102 273
Total non-interest income $ 18,222 $ 19,161 $ (939) (5) % $ 37,383 $ 36,859 $ 524 1 %
nm = not meaningful
Non-interest income decreased $939,000 to $18.2 million for the quarter ended June 30, 2026, compared to $19.2 million for the quarter ended March 31, 2026. The decrease primarily reflected a $1.8 million unfavorable shift in fair value adjustments on financial instruments carried at fair value, which shifted from a net gain of $1.7 million in the quarter ended March 31, 2026, to a net loss of $157,000 in the quarter ended June 30, 2026. In addition, the current quarter included a slight gain on the sale of securities, compared to net losses of $1.2 million in the preceding quarter, partially offsetting the unfavorable change in fair value adjustments. Excluding changes in fair value adjustments and gains and losses on the sale of securities, recurring non-interest income remained relatively stable compared to the preceding quarter.
Non-interest income increased modestly for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The increase in non-interest income for the six months ended June 30, 2026, compared to the same period a year earlier primarily reflected a $1.5 million increase in deposit fees and other service charges and a $1.1 million favorable shift in fair value adjustments on financial instruments carried at fair value, partially offset by a net loss of $1.2 million recognized on the sale of securities during the current period.
Non-interest Expense. The following table represents key elements of non-interest expense for the periods indicated (dollars in thousands):
Quarters Ended Six Months Ended
Jun 30, 2026 Mar 31, 2026 Change Amount Change Percent Jun 30, 2026 Jun 30, 2025 Change Amount Change Percent
Salary and employee benefits $ 69,388 $ 67,732 $ 1,656 2 % $ 137,120 $ 130,343 $ 6,777 5 %
Less capitalized loan origination costs (5,283) (3,886) (1,397) 36 (9,169) (8,254) (915) 11
Occupancy and equipment 10,936 10,697 239 2 21,633 24,353 (2,720) (11)
Information and computer data services 10,322 8,313 2,009 24 18,635 15,827 2,808 18
Payment and card processing services 6,218 6,041 177 3 12,259 11,649 610 5
Professional and legal expenses 2,719 1,613 1,106 69 4,332 4,701 (369) (8)
Advertising and marketing 1,982 673 1,309 195 2,655 1,677 978 58
Deposit insurance 2,819 2,717 102 4 5,536 5,597 (61) (1)
State and municipal business and use taxes 1,773 1,820 (47) (3) 3,593 2,870 723 25
Real estate operations, net 165 109 56 51 274 331 (57) (17)
Amortization of core deposit intangibles 256 256 — — 512 911 (399) (44)
Miscellaneous 6,695 6,523 172 3 13,218 12,602 616 5
Total non-interest expense $ 107,990 $ 102,608 $ 5,382 5 % $ 210,598 $ 202,607 $ 7,991 4 %
The increase in non-interest expense from the previous quarter reflected a $1.7 million increase in salary and employee benefits, a $2.0 million increase in information and computer data services, a $1.1 million increase in professional and legal expenses, and a $1.3 million increase in advertising and marketing expense. In addition, the current quarter included $238,000 of merger related expenses. These increases were partially offset by a $1.4 million increase in capitalized loan origination costs, reflecting increased loan origination activity, primarily in the construction, land and land development, and one- to four-family residential loan categories. The increase in non-interest expense for the six months ended June 30, 2026, compared to the same period a year earlier, primarily reflected increases in salary and employee benefits, information and computer data services expense, and advertising and marketing expense, partially offset by a lower occupancy and equipment expense and higher capitalized loan origination costs.
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Salary and employee benefits increased for the current quarter, compared to the quarter ended March 31, 2026, primarily from increased loan commissions and normal salary and wage increases that were effective during the current quarter. Salary and employee benefits increased for the six months ended June 30, 2026, compared to the same period last year, primarily due to normal annual salary and wage increases and increased medical premiums.
Occupancy and equipment expenses decreased for the six months ended June 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 increased for the quarter ended June 30, 2026, compared to the quarter ended March 31, 2026, and increased for the six months ended June 30, 2026, compared to the same period last year, primarily due to an increase in computer software-related expenses, including $924,000 of expense related to the discontinuation of the use of our previous commercial loan origination software.
Professional and legal expense increased for the quarter ended June 30, 2026, compared to the quarter ended March 31, 2026. The increase compared to the preceding quarter primarily reflected increased legal fees.
Advertising and marketing expenses increased for the quarter ended June 30, 2026, compared to the quarter ended March 31, 2026, and increased for the six months ended June 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 the current quarter.
Our efficiency ratio was 62.80% for the current quarter, compared to 60.60% in the quarter ended March 31, 2026. Our adjusted efficiency ratio, a non-GAAP financial measure, was 61.30% for the current quarter, compared to 59.45% in the quarter ended March 31, 2026. The increase in the efficiency ratio reflects an increase in non-interest expense, partially offset by an increase in total revenues. The adjusted efficiency ratio reflects similar trends on an adjusted basis, with further detail provided in the non-GAAP reconciliation. See “Reconciliation of Non-GAAP Financial Measure” above.
Income Taxes. For the quarter ended June 30, 2026, we recognized $11.3 million in income tax expense for an effective tax rate of 18.7%, compared to income tax expense of $12.8 million and an effective tax rate of 19.0% for the quarter ended March 31, 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 six months ended June 30, 2026, we recognized $24.1 million in income tax expense for an effective tax rate of 18.9%.
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Asset Quality
Maintaining a moderate risk profile by employing 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 $60.5 million, or 0.36% of total assets, at June 30, 2026, compared to $51.2 million, or 0.31% of total assets, at December 31, 2025. Our allowance for credit losses - loans was $161.8 million, or 295% of non-performing loans, at June 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):
June 30, 2026 December 31, 2025 June 30, 2025
Nonaccrual Loans:
Secured by real estate:
Commercial $ 2,132 $ 525 $ 10
Construction and land 12,648 5,175 4,369
One- to four-family 23,398 19,855 15,480
Commercial business 6,968 6,751 6,647
Agricultural business, including secured by farmland 2,967 4,609 8,690
Consumer 4,784 4,610 4,802
52,897 41,525 39,998
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial 234 — —
Construction and land — 1,268 —
One- to four-family 1,427 2,698 2,896
Consumer 265 148 80
1,926 4,114 2,976
Total non-performing loans 54,823 45,639 42,974
REO, net 5,720 5,578 6,801
Other repossessed assets held for sale — 18 —
Total non-performing assets $ 60,543 $ 51,235 $ 49,775
Total non-performing assets to total assets 0.36 % 0.31 % 0.30 %
Total nonaccrual loans to total loans receivable 0.44 % 0.35 % 0.34 %
Loans 30-89 days past due and on accrual $ 17,686 $ 26,767 $ 10,786
For the six months ended June 30, 2026, interest income was reduced by $1.2 million as a result of nonaccrual loan activity, which included the reversal of $702,000 of accrued interest as of the date the loan was placed on nonaccrual. There was no interest income recognized on nonaccrual loans for the six months ended June 30, 2026.
The following table presents the Company’s portfolio of loans by risk grade at the dates indicated (in thousands):
June 30, 2026 December 31, 2025 June 30, 2025
Pass $ 11,754,475 $ 11,446,550 $ 11,432,456
Special Mention 21,509 82,060 68,372
Substandard 218,426 193,077 189,545
Total $ 11,994,410 $ 11,721,687 $ 11,690,373
The decrease in special mention loans during the six months ended June 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 six months ended June 30, 2026, was primarily due to loan risk rating downgrades, primarily in the commercial business loan segment. As of June 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 six months ended June 30, 2026 and 2025, loan originations, including originations of loans held for sale, exceeded loan repayments by $529.2 million and $565.7 million, respectively. There were no loan purchases during the six months ended June 30, 2026, and $10.8 million of loan purchases during the six months ended June 30, 2025. During the six months ended June 30, 2026 and 2025, we received proceeds of $277.5 million and $235.9 million, respectively, from the sale of loans. Securities purchased during the six months ended June 30, 2026 and 2025 totaled $164.6 million and $18.9 million, respectively, and securities repayments, maturities and sales in those periods were $192.0 million and $126.0 million, respectively.
Our primary financing activity is gathering deposits. Total deposits increased by $46.4 million during the six months ended June 30, 2026, primarily due to an increase in core deposits. Core deposits were $12.32 billion at June 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 June 30, 2026, certificates of deposit totaled $1.47 billion, or 11% of our total deposits, including $1.43 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 $320.0 million of FHLB advances at June 30, 2026, compared to $150.0 million at December 31, 2025, as FHLB advances were temporarily used to fund the second quarter loan growth. Other borrowings increased to $114.5 million at June 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 six months ended June 30, 2026, we used our sources of funds to support loan growth, investment activities and other liquidity needs. At June 30, 2026, we had outstanding loan commitments totaling $4.32 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 June 30, 2026, based on pledged collateral, the Bank had approximately $3.45 billion of available borrowing capacity under these facilities, and $320.0 million of outstanding FHLB advances. The Bank is also approved for participation in the FRBSF Borrower-in-Custody program. As of June 30, 2026, the Bank had approximately $1.64 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 June 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 June 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 June 30, 2026, Banner (on an unconsolidated basis) had liquid assets of $96.3 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 $17.7 million based on the number of outstanding shares at June 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 six months ended June 30, 2026, total shareholders’ equity increased $53.0 million, to $2.00 billion or 12.05% of total assets. At June 30, 2026, tangible common shareholders’ equity, which excludes goodwill and other intangible assets, was $1.63 billion, or 10.02% 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 June 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 June 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 $ 2,092,299 14.68 % $ 1,140,235 8.00 % $ 1,425,294 10.00 %
Tier 1 capital to risk-weighted assets 1,915,042 13.44 % 855,176 6.00 % 855,176 6.00 %
Tier 1 leverage capital to average assets 1,915,042 11.79 % 649,595 4.00 % n/a n/a
Common equity tier 1 capital 1,828,542 12.83 % 641,382 4.50 % n/a n/a
Banner Bank
Total capital to risk-weighted assets $ 1,987,693 13.95 % $ 1,139,703 8.00 % $ 1,424,629 10.00 %
Tier 1 capital to risk-weighted assets 1,810,436 12.71 % 854,777 6.00 % 1,139,703 8.00 %
Tier 1 leverage capital to average assets 1,810,436 11.15 % 649,364 4.00 % 811,705 5.00 %
Common equity tier 1 capital 1,810,436 12.71 % 641,083 4.50 % 926,009 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 June 30, 2026, our loans with interest rate floors totaled $5.96 billion and had a weighted average floor rate of 4.95%, compared to a current average note rate of 6.31%. Our loans with interest rates at their floors at June 30, 2026, totaled $1.26 billion and had a weighted average note rate of 5.11%. 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 June 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
June 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 $ 3,119 0.5 % $ 22,147 1.7 %
+200 6,208 1.0 32,586 2.5
+100 5,090 0.8 24,869 1.9
0 — — — —
-100 (6,004) (0.9) (30,738) (2.3)
-200 (10,860) (1.7) (58,114) (4.4)
-300 (14,652) (2.3) (83,357) (6.3)
(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
June 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 $ 2,585 0.4 % $ 42,177 3.2 % $ (474,277) (14.2) %
+200 13,572 2.1 54,518 4.2 (270,525) (8.1)
+100 12,386 1.9 39,903 3.0 (105,639) (3.2)
0 — — — — — —
-100 (14,470) (2.3) (48,156) (3.7) 20,071 0.6
-200 (25,648) (4.0) (93,452) (7.1) (27,875) (0.8)
-300 (35,677) (5.6) (137,109) (10.4) (140,809) (4.2)
(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 June 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 June 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 June 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 $3.22 billion, representing a one-year cumulative gap to total assets ratio of 19.38%. Both the interest rate risk indicators and interest sensitivity gaps as of June 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 $ 1,282,687 $ 64,575 $ 85,898 $ 10,935 $ 151 $ — $ 1,444,246
Fixed-rate mortgage loans 243,831 227,435 757,950 542,402 689,026 400,613 2,861,257
Adjustable-rate mortgage loans 1,446,587 540,292 1,413,080 1,168,744 379,463 11,219 4,959,385
Fixed-rate mortgage-backed securities 85,240 88,512 349,478 401,636 658,633 652,113 2,235,612
Adjustable-rate mortgage-backed securities 227,854 51 5,210 3,870 — — 236,985
Fixed-rate commercial/agricultural loans 109,481 80,575 255,295 130,243 121,033 6,270 702,897
Adjustable-rate commercial/agricultural loans 1,013,843 22,585 105,511 37,800 1,288 — 1,181,027
Consumer and other loans 652,846 65,375 59,301 16,518 14,271 38,651 846,962
Investment securities and interest-earning deposits 273,733 10,335 37,815 165,321 120,575 385,893 993,672
Total rate sensitive assets 5,336,102 1,099,735 3,069,538 2,477,469 1,984,440 1,494,759 15,462,043
Interest-bearing liabilities: (2)
Regular savings 466,520 177,021 610,948 483,290 824,633 1,291,199 3,853,611
Interest checking accounts 259,085 88,640 320,139 271,771 515,383 1,168,131 2,623,149
Money market deposit accounts 171,943 99,330 314,591 214,932 286,671 209,369 1,296,836
Certificates of deposit 993,928 439,381 35,596 3,741 408 — 1,473,054
FHLB advances 320,000 — — — — — 320,000
Junior subordinated debentures 89,178 — — — — — 89,178
Retail repurchase agreements 114,497 — — — — — 114,497
Total rate sensitive liabilities 2,415,151 804,372 1,281,274 973,734 1,627,095 2,668,699 9,770,325
Excess of interest-sensitive assets over interest-sensitive liabilities $ 2,920,951 $ 295,363 $ 1,788,264 $ 1,503,735 $ 357,345 $ (1,173,940) $ 5,691,718
Cumulative excess of interest-sensitive assets $ 2,920,951 $ 3,216,314 $ 5,004,578 $ 6,508,313 $ 6,865,658 $ 5,691,718 $ 5,691,718
Cumulative ratio of interest-earning assets to interest-bearing liabilities 220.94 % 199.90 % 211.19 % 218.88 % 196.68 % 158.26 % 158.26 %
Interest sensitivity gap to total assets 17.60 1.78 10.78 9.06 2.15 (7.07) 34.30
Ratio of cumulative gap to total assets 17.60 19.38 30.16 39.22 41.38 34.30 34.30
(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 $3.3 billion, or negative 19.86% of total assets, at June 30, 2026.