Item 2. Management’s Discussion and Analysis
ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
Banner is a bank holding company incorporated in the State of Washington, which wholly owns one 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, 2025, it had 135 branch offices and 13 loan production offices located in Washington, Oregon, California, Idaho and Utah. 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, 2025, we had total consolidated assets of $16.44 billion, total loans of $11.69 billion, total deposits of $13.53 billion and total shareholders’ equity of $1.87 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 in Washington, Oregon, California, Idaho and Utah. 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 2025 Financial Highlights
• Net interest margin, on a tax equivalent basis, was 3.92% for both the current and preceding quarters.
• Revenue was $162.2 million for the second quarter of 2025, compared to $160.2 million in the preceding quarter.
• Net interest income was $144.4 million in the second quarter of 2025, compared to $141.1 million in the preceding quarter.
• Mortgage banking operations revenue was $3.2 million for the second quarter of 2025, compared to $3.1 million in the preceding quarter.
• Return on average assets was 1.13%, compared to 1.15% in the preceding quarter.
• Net loans receivable increased 2% to $11.53 billion at June 30, 2025, compared to $11.28 billion at March 31, 2025.
• Non-performing assets were $49.8 million, or 0.30% of total assets, at June 30, 2025, compared to $42.7 million, or 0.26% of total assets at March 31, 2025.
• The allowance for credit losses - loans was $160.5 million, or 1.37% of total loans receivable, as of June 30, 2025, compared to $157.3 million, or 1.38% of total loans receivable, at March 31, 2025.
• Total deposits decreased to $13.53 billion at June 30, 2025, compared to $13.59 billion at March 31, 2025.
• Core deposits represented 89% of total deposits at June 30, 2025.
• Dividends paid to shareholders were $0.48 per share in the quarter ended June 30, 2025.
• Common shareholders’ equity per share increased 1% to $53.95 at June 30, 2025, compared to $53.16 at March 31, 2025.
• Tangible common shareholders’ equity per share* increased 2% to $43.09 at June 30, 2025, compared to $42.27 at March 31, 2025.
*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. For a reconciliation of these non-GAAP financial measures, see the tables below. 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 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, 2025 Mar 31, 2025 Jun 30, 2024 2025 2024
ADJUSTED REVENUE
Net interest income (GAAP) $ 144,399 $ 141,083 $ 132,546 $ 285,482 $ 265,505
Non-interest income (GAAP) 17,751 19,108 17,199 36,859 28,790
Total revenue (GAAP) 162,150 160,191 149,745 322,341 294,295
Exclude: Net loss on sale of securities 3 — 562 3 5,465
Net change in valuation of financial instruments carried at fair value (88) (315) 190 (403) 1,182
Losses incurred on building and lease exits 919 — — 919 —
Adjusted revenue (non-GAAP) $ 162,984 $ 159,876 $ 150,497 $ 322,860 $ 300,942
Quarters Ended Six Months Ended June 30,
Jun 30, 2025 Mar 31, 2025 Jun 30, 2024 2025 2024
ADJUSTED EARNINGS
Net income (GAAP) $ 45,496 $ 45,135 $ 39,795 $ 90,631 $ 77,354
Exclude: Net loss on sale of securities 3 — 562 3 5,465
Net change in valuation of financial instruments carried at fair value (88) (315) 190 (403) 1,182
Building and lease exit costs 1,753 — — 1,753 —
Related net tax (benefit) expense (401) 76 (180) (325) (1,595)
Total adjusted earnings (non-GAAP) $ 46,763 $ 44,896 $ 40,367 $ 91,659 $ 82,406
Diluted earnings per share (GAAP) $ 1.31 $ 1.30 $ 1.15 $ 2.61 $ 2.24
Adjusted diluted earnings per share (non-GAAP) $ 1.35 $ 1.29 $ 1.17 $ 2.64 $ 2.39
Return on average assets 1.13 % 1.15 % 1.02 % 1.14 % 1.00 %
Adjusted return on average assets (1)
1.16 % 1.14 % 1.04 % 1.15 % 1.06 %
Return on average equity 9.92 % 10.17 % 9.69 % 10.04 % 9.42 %
Adjusted return on average equity (2)
10.20 % 10.12 % 9.83 % 10.16 % 10.03 %
Quarters Ended Six Months Ended June 30,
Jun 30, 2025 Mar 31, 2025 Jun 30, 2024 2025 2024
ADJUSTED EFFICIENCY RATIO
Non-interest expense (GAAP) $ 101,348 $ 101,259 $ 98,128 $ 202,607 $ 195,769
Exclude: CDI amortization (455) (456) (724) (911) (1,447)
State and municipal tax expense (1,416) (1,454) (1,394) (2,870) (2,698)
REO operations (392) 61 (297) (331) (77)
Building and lease exit costs (834) — — (834) —
Adjusted non-interest expense (non-GAAP) $ 98,251 $ 99,410 $ 95,713 $ 197,661 $ 191,547
Net interest income (GAAP) $ 144,399 $ 141,083 $ 132,546 $ 285,482 $ 265,505
Non-interest income (GAAP) 17,751 19,108 17,199 36,859 28,790
Total revenue (GAAP) 162,150 160,191 149,745 322,341 294,295
Exclude: Net loss on sale of securities 3 — 562 3 5,465
Net change in valuation of financial instruments carried at fair value (88) (315) 190 (403) 1,182
Losses incurred on building and lease exits 919 — — 919 —
Adjusted revenue (non-GAAP) $ 162,984 $ 159,876 $ 150,497 $ 322,860 $ 300,942
Efficiency ratio (GAAP) 62.50 % 63.21 % 65.53 % 62.85 % 66.52 %
Adjusted efficiency ratio (non-GAAP) (3)
60.28 % 62.18 % 63.60 % 61.22 % 63.65 %
(1) Adjusted earnings (non-GAAP) divided by average assets.
(2) Adjusted earnings (non-GAAP) divided by average equity.
(3) Adjusted non-interest expense (non-GAAP) divided by adjusted revenue (non-GAAP).
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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, 2025 March 31, 2025 December 31, 2024 June 30, 2024
Shareholders’ equity (GAAP) $ 1,865,664 $ 1,833,453 $ 1,774,326 $ 1,690,766
Exclude goodwill and other intangible assets, net 375,268 375,723 376,179 377,358
Tangible common shareholders’ equity (non-GAAP) $ 1,490,396 $ 1,457,730 $ 1,398,147 $ 1,313,408
Total assets (GAAP) $ 16,437,169 $ 16,170,812 $ 16,200,037 $ 15,816,194
Exclude goodwill and other intangible assets, net 375,268 375,723 376,179 377,358
Total tangible assets (non-GAAP) $ 16,061,901 $ 15,795,089 $ 15,823,858 $ 15,438,836
Common shareholders’ equity to total assets (GAAP) 11.35 % 11.34 % 10.95 % 10.69 %
Tangible common shareholders’ equity to tangible assets (non-GAAP) 9.28 % 9.23 % 8.84 % 8.51 %
TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE
June 30, 2025 March 31, 2025 December 31, 2024 June 30, 2024
Shareholders’ equity (GAAP) $ 1,865,664 $ 1,833,453 $ 1,774,326 $ 1,690,766
Tangible common shareholders’ equity (non-GAAP) $ 1,490,396 $ 1,457,730 $ 1,398,147 $ 1,313,408
Common shares outstanding at end of period 34,583,994 34,489,972 34,459,832 34,455,752
Common shareholders’ equity (book value) per share (GAAP) $ 53.95 $ 53.16 $ 51.49 $ 49.07
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) $ 43.09 $ 42.27 $ 40.57 $ 38.12
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.
Summary of Critical Accounting Estimates
Our critical accounting estimates are described in detail in the Critical Accounting Estimates section of our 2024 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 judgements 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, 2024.
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Comparison of Financial Condition at June 30, 2025 and December 31, 2024
General : Total assets increased $237.1 million to $16.44 billion at June 30, 2025, from $16.20 billion at December 31, 2024. The increase compared to year end was primarily due to loan growth, partially offset by a decrease in securities and interest-bearing deposits.
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, 2025 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 $335.7 million at June 30, 2025, compared to December 31, 2024, reflecting increases across all loan categories except multifamily real estate loans and other consumer 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, 2025 Dec 31, 2024 Jun 30, 2024 Year End Prior Year Qtr. End
Commercial real estate:
Owner-occupied $ 1,125,249 $ 1,027,426 $ 950,922 10 % 18 %
Investment properties 1,625,001 1,623,672 1,536,142 — 6
Small balance CRE 1,223,477 1,213,792 1,234,302 1 (1)
Total Commercial real estate 3,973,727 3,864,890 3,721,366 3 7
Multifamily real estate 860,700 894,425 717,089 (4) 20
Construction, land and land development:
Commercial construction 159,222 122,362 173,296 30 (8)
Multifamily construction 568,058 513,706 663,989 11 (14)
One- to four-family construction 551,806 514,220 490,237 7 13
Land and land development 417,474 369,663 352,184 13 19
Total Construction, land and land development 1,696,560 1,519,951 1,679,706 12 1
Commercial business:
Commercial business 1,318,483 1,318,333 1,298,134 — 2
Small business scored 1,152,531 1,104,117 1,074,465 4 7
Total Commercial business 2,471,014 2,422,450 2,372,599 2 4
Agricultural business, including secured by farmland 345,742 340,280 334,583 2 3
One- to four-family residential 1,610,133 1,591,260 1,603,266 1 —
Consumer:
Consumer—home equity revolving lines of credit 639,757 625,680 611,739 2 5
Consumer—other 92,740 95,720 103,500 (3) (10)
Total Consumer 732,497 721,400 715,239 2 2
Total loans receivable $ 11,690,373 $ 11,354,656 $ 11,143,848 3 % 5 %
Commercial real estate loans totaled $3.97 billion, or 34% of our loan portfolio, and multifamily real estate loans totaled $860.7 million, or 7% of our loan portfolio, at June 30, 2025. Commercial real estate loans increased by $108.8 million during the first six months of 2025, primarily due to new production and transfers to the permanent loan portfolio upon completion of the construction phase, partially offset by payoffs and paydowns, while multifamily real estate loans decreased by $33.7 million, primarily due to payoffs and paydowns exceeding new production.
Our construction, land and land development loans totaled $1.70 billion, or 15% of our loan portfolio, at June 30, 2025, compared to $1.52 billion at December 31, 2024. Multifamily construction loans increased $54.4 million, or 11%, to $568.1 million at June 30, 2025, compared to December 31, 2024. Multifamily construction represented 5% of our total loan portfolio at June 30, 2025. 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 $36.9 million, or 30%, to $159.2 million at June 30, 2025, compared to $122.4 million at December 31, 2024, due to advances and new loan production, partially offset by transfers to the permanent loan portfolio upon completion of the construction phase. Land and land development loans increased $47.8 million, or 13%, to $417.5 million at June 30, 2025, compared to December 31, 2024, primarily due to new loan production, partially offset by payoffs and paydowns.
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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 and agricultural business loans were $2.82 billion at June 30, 2025 and $2.76 billion at December 31, 2024. Commercial and agricultural business loans represented 24% of our loan portfolio at June 30, 2025. Our commercial business lending also includes participation in certain syndicated loans, including shared national credits, which totaled $226.8 million, or 2% of our loan portfolio, at June 30, 2025, compared to $227.4 million, or 2% of our loan portfolio, at December 31, 2024.
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, 2025, one- to four-family residential loans retained in our portfolio increased $18.9 million, to $1.61 billion, compared to $1.59 billion at December 31, 2024. The increase in one- to four-family residential loans was primarily the result of one- to four-family construction loans converting to permanent one- to four-family residential loans upon completion of construction and new loan originations. One- to four-family residential loans represented 14% of our loan portfolio at June 30, 2025.
Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At June 30, 2025, consumer loans, including home equity revolving lines of credit, increased $11.1 million to $732.5 million, compared to $721.4 million at December 31, 2024.
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, 2025 Mar 31, 2025 Jun 30, 2024 Jun 30, 2025 Jun 30, 2024
Commercial real estate $ 216,189 $ 37,041 $ 102,258 $ 253,230 $ 169,620
Multifamily real estate 13,065 9,555 2,774 22,620 3,159
Construction and land 411,210 287,565 546,675 698,775 983,948
Commercial business 203,656 103,739 167,168 307,395 321,883
Agricultural business 14,414 12,765 22,255 27,179 56,661
One-to four- family residential 5,491 5,139 34,498 10,630 52,066
Consumer 102,600 80,030 120,470 182,630 186,615
Total commitment amount for loan originations (excluding loans held for sale) $ 966,625 $ 535,834 $ 996,098 $ 1,502,459 $ 1,773,952
Loans held for sale increased to $37.7 million at June 30, 2025, compared to $32.0 million at December 31, 2024. The increase was primarily the result of originations of one- to four- family residential mortgage loans held for sale outpacing loan sales during the period. Originations of loans held for sale increased to $171.0 million for the six months ended June 30, 2025, compared to $107.2 million for the same period last year. The volume of one- to four-family residential mortgage loans sold was $212.7 million during the six months ended June 30, 2025, compared to $160.7 million in the same period a year ago, which included a pooled loan sale of $19.8 million of one- to four-family residential mortgage loans.
The following table presents loans by geographic concentration at the dates indicated (dollars in thousands):
Jun 30, 2025 Dec 31, 2024 Jun 30, 2024 Percentage Change
Amount Percentage Amount Amount Year End Prior Year Qtr. End
Washington $ 5,438,285 47 % $ 5,245,886 $ 5,182,378 4 % 5 %
California 3,010,678 26 2,861,435 2,787,190 5 8
Oregon 2,141,185 17 2,113,229 2,072,153 1 3
Idaho 671,217 6 665,158 641,209 1 5
Utah 70,474 1 82,459 80,295 (15) (12)
Other 358,534 3 386,489 380,623 (7) (6)
Total loans receivable $ 11,690,373 100 % $ 11,354,656 $ 11,143,848 3 % 5 %
Investment Securities: Total securities decreased $60.2 million to $3.05 billion at June 30, 2025, from $3.11 billion at December 31, 2024, primarily due to securities paydowns and maturities exceeding purchases during the six months ended June 30, 2025. Purchases during the six months ended June 30, 2025, consisted primarily of state and local government obligations. The average effective duration of the Company’s securities portfolio was 6.6 years at both June 30, 2025 and December 31, 2024. Fair value adjustments for securities designated as available-for-sale increased $48.0 million for the six months ended June 30, 2025. This increase, net of $11.5 million in associated tax expense, was recorded in other comprehensive income and reflected the impact of changes in market interest rates during the six months ended June 30, 2025.
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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 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. Despite rate sensitive deposits shifting out of non-interest-bearing deposits due to clients seeking higher yields on their deposits, our strategy of focusing on relationship banking remains intact.
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, 2025 Dec 31, 2024 Jun 30, 2024 Year End Prior Year Qtr. End
Non-interest-bearing $ 4,504,491 $ 4,591,543 $ 4,537,803 (2) % (1) %
Interest-bearing checking 2,534,900 2,393,864 2,208,742 6 15
Regular savings accounts 3,538,372 3,478,423 3,192,036 2 11
Money market accounts 1,471,756 1,550,896 1,615,549 (5) (9)
Interest-bearing transaction & savings accounts 7,545,028 7,423,183 7,016,327 2 8
Total core deposits 12,049,519 12,014,726 11,554,130 — 4
Interest-bearing certificates 1,477,772 1,499,672 1,525,133 (1) (3)
Total deposits $ 13,527,291 $ 13,514,398 $ 13,079,263 — % 3 %
Total deposits increased $12.9 million at June 30, 2025, compared to December 31, 2024, with core deposits increasing $34.8 million and certificates of deposit decreasing $21.9 million. The increase in core deposits primarily reflects increases in interest-bearing transaction and savings accounts. We had $50.0 million of brokered deposits at June 30, 2025, compared to $50.3 million at December 31, 2024. Core deposits represented 89% of total deposits at both June 30, 2025 and December 31, 2024. 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, 2025 Dec 31, 2024 Jun 30, 2024
Number of deposit accounts 451,185 460,004 460,107
Average account balance per account $ 30 $ 30 $ 29
The following table presents deposits by geographic concentration at the dates indicated (dollars in thousands):
Jun 30, 2025 Dec 31, 2024 Jun 30, 2024 Percentage Change
Amount Percentage Amount Amount Year End Prior Year Qtr. End
Washington $ 7,334,391 55 % $ 7,441,413 $ 7,171,699 (1) % 2 %
Oregon 3,029,712 22 2,981,327 2,909,838 2 4
California 2,486,514 18 2,392,573 2,331,793 4 7
Idaho 676,674 5 699,085 665,933 (3) 2
Total deposits $ 13,527,291 100 % $ 13,514,398 $ 13,079,263 — % 3 %
Borrowings: We had $565.0 million of FHLB advances at June 30, 2025, compared to $290.0 million at December 31, 2024. The increase was primarily used to fund loan growth. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, decreased $8.1 million to $117.1 million at June 30, 2025, compared to $125.3 million at December 31, 2024. At June 30, 2025, the Company’s off-balance sheet liquidity included additional borrowing capacity of $2.74 billion at the FHLB, $1.62 billion at the Federal Reserve, and $125.0 million in federal funds lines of credit with other financial institutions. Junior subordinated debentures totaled $73.4 million at June 30, 2025, compared to $67.5 million at December 31, 2024. The outstanding balance of the Company’s subordinated notes was fully repaid during the second quarter of 2025. Subordinated notes, net of issuance costs, were $80.3 million at December 31, 2024.
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Shareholders’ Equity: Total shareholders’ equity increased $91.3 million to $1.87 billion, or 11.35% of total assets, at June 30, 2025, compared to $1.77 billion, or 10.95% of total assets, at December 31, 2024. The increase was primarily due to a $57.0 million increase in retained earnings resulting from $90.6 million in net income, partially offset by the accrual of $33.6 million in cash dividends during the six months ended June 30, 2025. In addition, accumulated other comprehensive loss decreased by $32.9 million, primarily due to a decrease in unrealized losses on the available for sale securities portfolio. There were no shares of common stock repurchased during the six months ended June 30, 2025.
Tangible common shareholders’ equity, which excludes goodwill and other intangible assets and is a non-GAAP financial measure, increased $92.2 million to $1.49 billion, or 9.28% of tangible assets, at June 30, 2025, compared to $1.40 billion, or 8.84% of tangible assets at December 31, 2024. A reconciliation of this non-GAAP financial measure to its comparable GAAP financial measure is presented above following “Second Quarter 2025 Financial Highlights.”
Comparison of Results of Operations for the Three Months Ended June 30, 2025 and March 31, 2025, and the Six Months Ended June 30, 2025 and 2024
For the quarter ended June 30, 2025, net income was $45.5 million, or $1.31 per diluted share, compared to $45.1 million, or $1.30 per diluted share, for the preceding quarter. For the six months ended June 30, 2025, our net income was $90.6 million, or $2.61 per diluted share, compared to $77.4 million, or $2.24 per diluted share for the same period a year earlier. The increase in net income for the current quarter compared to the preceding quarter was primarily due to an increase in net interest income, partially offset by a decrease in non-interest income as well as increases in non-interest expense and the provision for credit losses. The increase in net income for the six months ended June 30, 2025 compared to the same period a year ago was primarily due to increases in net interest income and non-interest income, partially offset by increases in non-interest expense and the provision for credit losses.
The increase in net interest income compared to the preceding quarter reflects an increase in both the yield and average balance of interest-earning assets, partially offset by an increase in funding costs. The increase in net interest income for the six months ended June 30, 2025 compared to the same period a year ago reflects an increase in both the yield and average balance of interest-earning assets.
We recorded a $4.8 million provision for credit losses for the quarter ended June 30, 2025, compared to a $3.1 million provision for credit losses in the preceding quarter. The provision for credit losses recorded in the current quarter primarily reflected loan growth, as well as risk rating migration which increased the overall estimated reserve requirements. We recorded a $7.9 million provision for credit losses for the six months ended June 30, 2025, compared to a $2.9 million provision for credit losses for the same period a year ago.
Total non-interest income decreased for the quarter ended June 30, 2025, compared to the preceding quarter and increased during the six months ended June 30, 2025, compared to the same period a year ago. The decrease in non-interest income during the current quarter compared to the preceding quarter was primarily due to a decrease in miscellaneous income, primarily due to losses incurred on building and lease exits during the current quarter as the Company executed on an initiative to reduce excess facilities. The increase in non-interest income during the six months ended June 30, 2025, compared to the same period last year was primarily due to a decrease in the net loss recognized on the sale of securities and an increase in the fair value adjustments on financial instruments carried at fair value during the current quarter.
Total non-interest expense increased slightly for the quarter ended June 30, 2025, compared to the preceding quarter and increased during the six months ended June 30, 2025, compared to the same period a year ago. Non-interest expense for the current quarter reflects increases in salary and employee benefits, information and computer data services, and advertising and marketing expenses, offset by an increase in capitalized loan origination costs. The increase in non-interest expense during the six months ended June 30, 2025, compared to the same period last year primarily reflects increases in salary and employee benefits, information and computer data services, and professional and legal expenses.
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OPERATING DATA:
Quarters Ended Six Months Ended
(In thousands) June 30, 2025 March 31, 2025 June 30, 2024 June 30, 2025 June 30, 2024
Interest income $ 200,259 $ 193,868 $ 189,138 $ 394,127 $ 373,826
Interest expense 55,860 52,785 56,592 108,645 108,321
Net interest income 144,399 141,083 132,546 285,482 265,505
Provision for credit losses 4,795 3,139 2,369 7,934 2,889
Net interest income after provision for credit losses 139,604 137,944 130,177 277,548 262,616
Deposit fees and other service charges 10,835 10,769 10,590 21,604 21,612
Mortgage banking operations 3,226 3,103 3,006 6,329 5,341
Net loss on sale of securities (3) — (562) (3) (5,465)
Net change in valuation of financial instruments carried at fair value
88 315 (190) 403 (1,182)
All other non-interest income 3,605 4,921 4,355 8,526 8,484
Total non-interest income
17,751 19,108 17,199 36,859 28,790
Salary and employee benefits 65,486 64,857 63,831 130,343 126,200
All other non-interest expenses 35,862 36,402 34,297 72,264 69,569
Total non-interest expense
101,348 101,259 98,128 202,607 195,769
Income before provision for income tax expense
56,007 55,793 49,248 111,800 95,637
Provision for income tax expense 10,511 10,658 9,453 21,169 18,283
Net income $ 45,496 $ 45,135 $ 39,795 $ 90,631 $ 77,354
PER COMMON SHARE DATA: Quarters Ended Six Months Ended
June 30, 2025 March 31, 2025 June 30, 2024 June 30, 2025 June 30, 2024
Net income:
Basic $ 1.31 $ 1.31 $ 1.15 $ 2.62 $ 2.25
Diluted 1.31 1.30 1.15 2.61 2.24
Net Interest Income. Net interest income increased for the quarter ended June 30, 2025, compared to the preceding quarter. The $3.3 million increase was due to a $6.4 million increase in interest income, primarily attributable to a five basis point increase in average loan yields to 6.12% and an increase in average loan balances, partially offset by a $3.1 million increase in interest expense, reflecting a $221.4 million increase in the average balance of FHLB advances, with higher rates than core deposits.
Net interest margin on a tax equivalent basis was 3.92% for both the second quarter of 2025 and the preceding quarter. Net interest margin for the current quarter, compared to the preceding quarter, benefited from higher yields on interest earning assets, primarily due to an increase in the average loan yield. Despite higher funding costs, the Company maintained a stable net interest margin of 3.92%, reflecting the benefit of improved asset yields and favorable loan mix.
Net interest income increased by $20.0 million, or 8%, to $285.5 million for the six months ended June 30, 2025, compared to $265.5 million for the same period one year earlier, primarily due to an increase in the average yields on interest-earning assets and an increase in the balance of average earning assets. The increase was primarily the result of a $20.3 million increase in interest income, reflecting both adjustable-rate loans repricing higher and new loans being originated at rates higher than the overall loan portfolio and a $583.7 million increase in the average balance of loans. The net interest margin on a tax equivalent basis increased to 3.92% for the six months ended June 30, 2025, compared to 3.72% for the same period in the prior year.
Interest Income. Interest income for the quarter ended June 30, 2025 was $200.3 million, compared to $193.9 million for the preceding quarter. The increase was primarily due to higher average loan yields and balances. Average loan yields increased five basis points to 6.12%, while the average loan balance increased $223.2 million. These increases were partially offset by a decline in interest income from investment securities, due to both lower average balances and yields.
Loan yields increased five basis points to 6.12% for the quarter ended June 30, 2025, from 6.07% in the preceding quarter, due to new loans being originated at higher interest rates and adjustable rate loans repricing higher. The average balance of loans receivable for the quarter ended June 30, 2025 increased compared to the preceding quarter, primarily reflecting increases in the average balances of mortgage loans, specifically commercial real estate and construction loans.
The average balance of total investment securities decreased to $3.49 billion for the quarter ended June 30, 2025 (excluding the effect of fair value adjustments), compared to $3.52 billion for the preceding quarter. The average yield on the combined portfolio decreased to 2.98% for the quarter ended June 30, 2025, from 3.02% for the preceding quarter.
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Interest income for the six months ended June 30, 2025 was $394.1 million, compared to $373.8 million for the same period in the prior year, an increase of $20.3 million. This increase reflects both an 18 basis point increase in the average yield on interest-earning assets, to 5.38%, primarily due to adjustable-rate loans repricing higher and new loans being originated at rates higher than the overall loan portfolio, and a $346.2 million increase in the average balance of those assets. Loan growth was the primary contributor, with average balances up $583.7 million, from the prior year.
Interest Expense. Interest expense for the quarter ended June 30, 2025 increased $3.1 million, or 6%, to $55.9 million compared to $52.8 million for the preceding quarter. The increase was largely driven by a $184.1 million increase in average funding liabilities, primarily due to a $221.4 million increase in FHLB advances. The average cost of funding liabilities also rose five basis points, to 1.60% for the quarter ended June 30, 2025.
Interest expense for the six months ended June 30, 2025 was $108.6 million, compared to $108.3 million for the same period in the prior year. The increase in interest expense occurred as a result of a $243.5 million, or 2%, increase in average funding liabilities, which was mostly offset by a two basis-point decrease in the average cost of funds to 1.57% for the six months ended June 30, 2025, compared to 1.59% for the same period in the prior year. The increase in the average balance of funding liabilities reflects increases in interest-bearing transaction and savings accounts, partially offset by decreases in non-interest-bearing deposits, money market accounts, FHLB advances and other borrowings.
Deposit interest expense for the quarter ended June 30, 2025 increased 1% to $49.3 million compared to $48.7 million for the preceding quarter. The increase in deposit costs in the current quarter compared to the prior quarter was due to an increase in the average balance of interest-bearing deposits. The average rate paid on total deposits, which includes non-interest-bearing deposits, was 1.47% for both the quarter ended June 30, 2025 and the preceding quarter. The average rate paid on interest-bearing deposits decreased to 2.21% for the quarter ended June 30, 2025, compared to 2.22% in the preceding quarter. The decrease in the rate paid on interest-bearing deposits compared to the preceding quarter reflects a decrease in the interest rate on certificates of deposit and shifts in the deposit mix. Total average deposit balances, including non-interest-bearing deposits, decreased to $13.42 billion for the quarter ended June 30, 2025, from $13.45 billion for the preceding quarter.
Deposit interest expense for the six months ended June 30, 2025 increased $4.6 million to $98.1 million, compared to $93.5 million for the same period in the prior year. Average deposit balances increased to $13.43 billion for the six months ended June 30, 2025, from $13.08 billion for the same period a year earlier and the average rate paid on deposits increased to 1.47% for the six months ended June 30, 2025 from 1.44% for the same period in the prior year. The average rate paid on interest-bearing deposits decreased by three basis points to 2.21% for the six months ended June 30, 2025, compared to 2.24% in the same period a year earlier. The decrease in the average rate paid on interest-bearing deposits was primarily the result of a 23 basis-point decrease in the cost of certificates of deposit.
Interest expense on total borrowings for the quarter ended June 30, 2025 increased 62%, to $6.5 million compared to $4.0 million for the prior quarter, primarily due to an increase in the average balance of total borrowings. The average balance of total borrowings increased to $587.7 million for the quarter ended June 30, 2025, compared to $379.7 million for the preceding quarter, primarily due to a $221.4 million increase in the average balance of FHLB advances. The average rate paid on total borrowings for the quarter ended June 30, 2025 increased to 4.47% from 4.32% for the preceding quarter, primarily due to the increase in the average balance of FHLB advances.
Interest expense on total borrowings for the six months ended June 30, 2025 decreased to $10.6 million from $14.9 million for the same period a year earlier due to a decrease in both the average balance of and rate paid on total borrowings. Average total borrowings were $484.3 million for the six months ended June 30, 2025, compared to $594.8 million for the same period a year earlier. The decrease was primarily due to a $49.7 million decrease in the average balance of FHLB advances and a $49.6 million decrease in the average balance of other borrowings. The average rate paid on total borrowings for the six months ended June 30, 2025 decreased to 4.41% from 5.02% 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) Jun 30, 2025 Mar 31, 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 $ 29,936 $ 503 6.74 % $ 22,457 $ 357 6.45 %
Mortgage loans 9,565,357 143,909 6.03 % 9,366,213 137,724 5.96 %
Commercial/agricultural loans 1,924,092 31,196 6.50 % 1,907,212 30,752 6.54 %
Consumer and other loans 121,142 2,087 6.91 % 121,492 2,092 6.98 %
Total loans (1)
11,640,527 177,695 6.12 % 11,417,374 170,925 6.07 %
Mortgage-backed securities 2,496,972 15,576 2.50 % 2,542,983 15,895 2.53 %
Other securities 893,062 9,561 4.29 % 902,732 9,687 4.35 %
Interest-bearing deposits with banks 75,539 577 3.06 % 65,758 484 2.99 %
FHLB stock 23,077 222 3.86 % 12,804 149 4.72 %
Total investment securities 3,488,650 25,936 2.98 % 3,524,277 26,215 3.02 %
Total interest-earning assets 15,129,177 203,631 5.40 % 14,941,651 197,140 5.35 %
Non-interest-earning assets 994,003 1,006,497
Total assets $ 16,123,180 $ 15,948,148
Deposits:
Interest-bearing checking accounts $ 2,465,015 9,462 1.54 % $ 2,381,106 8,537 1.45 %
Savings accounts 3,493,965 18,837 2.16 % 3,450,908 18,103 2.13 %
Money market accounts 1,492,229 7,729 2.08 % 1,555,262 7,860 2.05 %
Certificates of deposit 1,489,611 13,288 3.58 % 1,531,428 14,237 3.77 %
Total interest-bearing deposits 8,940,820 49,316 2.21 % 8,918,704 48,737 2.22 %
Non-interest-bearing deposits 4,480,579 — — % 4,526,596 — — %
Total deposits 13,421,399 49,316 1.47 % 13,445,300 48,737 1.47 %
Other interest-bearing liabilities:
FHLB advances 296,671 3,370 4.56 % 75,300 860 4.63 %
Other borrowings 122,227 675 2.22 % 134,761 694 2.09 %
Junior subordinated debentures and subordinated notes 168,793 2,499 5.94 % 169,678 2,494 5.96 %
Total borrowings 587,691 6,544 4.47 % 379,739 4,048 4.32 %
Total funding liabilities 14,009,090 55,860 1.60 % 13,825,039 52,785 1.55 %
Other non-interest-bearing liabilities (2)
274,407 324,031
Total liabilities 14,283,497 14,149,070
Shareholders’ equity 1,839,683 1,799,078
Total liabilities and shareholders’ equity $ 16,123,180 $ 15,948,148
Net interest income/rate spread (tax equivalent) $ 147,771 3.80 % $ 144,355 3.80 %
Net interest margin (tax equivalent) 3.92 % 3.92 %
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis (3,372) (3,272)
Net interest income and margin, as reported $ 144,399 3.83 % $ 141,083 3.83 %
Additional Key Financial Ratios:
Return on average assets 1.13 % 1.15 %
Adjusted return on average assets (4)
1.16 % 1.14 %
Return on average equity 9.92 % 10.17 %
Adjusted return on average equity (4)
10.20 % 10.12 %
Average equity/average assets 11.41 % 11.28 %
Average interest-earning assets/average interest-bearing liabilities 158.78 % 160.69 %
Average interest-earning assets/average funding liabilities 108.00 % 108.08 %
Non-interest income/average assets 0.44 % 0.49 %
Non-interest expense/average assets 2.52 % 2.57 %
Efficiency ratio 62.50 % 63.21 %
Adjusted efficiency ratio (4)
60.28 % 62.18 %
(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 $2.3 million and $2.2 million for the quarters ended June 30, 2025 and March 31, 2025, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.1 million and $1.0 million for the quarters ended June 30, 2025 and March 31, 2025, respectively.
(4) Represents non-GAAP financial measures. See non-GAAP financial measure reconciliations presented above following Second Quarter 2025 Highlights.
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Six Months Ended June 30, 2025 Six Months Ended June 30, 2024
Average Balance Interest and Dividends Yield / Cost (3)
Average Balance Interest and Dividends Yield / Cost (3)
Interest-earning assets:
Held for sale loans $ 26,217 $ 860 6.61 % $ 10,802 $ 373 6.94 %
Mortgage loans 9,466,335 281,633 6.00 % 8,949,709 254,514 5.72 %
Commercial/agricultural loans 1,915,699 61,948 6.52 % 1,852,067 62,608 6.80 %
Consumer and other loans 121,316 4,179 6.95 % 133,258 4,352 6.57 %
Total loans (1)
11,529,567 348,620 6.10 % 10,945,836 321,847 5.91 %
Mortgage-backed securities 2,519,851 31,471 2.52 % 2,700,413 33,926 2.53 %
Other securities 897,870 19,248 4.32 % 971,724 22,682 4.69 %
Interest-bearing deposits with banks 70,675 1,061 3.03 % 51,643 1,037 4.04 %
FHLB stock 17,969 371 4.16 % 20,077 574 5.75 %
Total investment securities 3,506,365 52,151 3.00 % 3,743,857 58,219 3.13 %
Total interest-earning assets 15,035,932 400,771 5.38 % 14,689,693 380,066 5.20 %
Non-interest-earning assets 1,000,216 935,068
Total assets $ 16,036,148 $ 15,624,761
Deposits:
Interest-bearing checking accounts $ 2,423,292 17,999 1.50 % $ 2,130,228 14,337 1.35 %
Savings accounts 3,472,556 36,940 2.15 % 3,106,985 32,479 2.10 %
Money market accounts 1,523,571 15,589 2.06 % 1,666,743 17,512 2.11 %
Certificates of deposit 1,510,404 27,525 3.67 % 1,502,013 29,135 3.90 %
Total interest-bearing deposits 8,929,823 98,053 2.21 % 8,405,969 93,463 2.24 %
Non-interest-bearing deposits 4,503,461 — — % 4,673,330 — — %
Total deposits 13,433,284 98,053 1.47 % 13,079,299 93,463 1.44 %
Other interest-bearing liabilities:
FHLB advances 186,597 4,230 4.57 % 236,269 6,593 5.61 %
Other borrowings 128,459 1,369 2.15 % 178,105 2,335 2.64 %
Junior subordinated debentures and subordinated notes 169,233 4,993 5.95 % 180,379 5,930 6.61 %
Total borrowings 484,289 10,592 4.41 % 594,753 14,858 5.02 %
Total funding liabilities 13,917,573 108,645 1.57 % 13,674,052 108,321 1.59 %
Other non-interest-bearing liabilities (2)
299,082 299,103
Total liabilities 14,216,655 13,973,155
Shareholders’ equity 1,819,493 1,651,606
Total liabilities and shareholders’ equity $ 16,036,148 $ 15,624,761
Net interest income/rate spread (tax equivalent) $ 292,126 3.81 % $ 271,745 3.61 %
Net interest margin (tax equivalent) 3.92 % 3.72 %
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis (6,644) (6,240)
Net interest income and margin $ 285,482 3.83 % $ 265,505 3.63 %
Additional Key Financial Ratios:
Return on average assets 1.14 % 1.00 %
Adjusted return on average assets (4)
1.15 % 1.06 %
Return on average equity 10.04 % 9.42 %
Adjusted return on average equity (4)
10.16 % 10.03 %
Average equity/average assets 11.35 % 10.57 %
Average interest-earning assets/average interest-bearing liabilities 159.72 % 163.21 %
Average interest-earning assets/average funding liabilities 108.04 % 107.43 %
Non-interest income/average assets 0.46 % 0.37 %
Non-interest expense/average assets 2.55 % 2.52 %
Efficiency ratio 62.85 % 66.52 %
Adjusted efficiency ratio (4)
61.22 % 63.65 %
(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 $4.6 million and $4.2 million for the six months ended June 30, 2025 and 2024, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.1 million for both the six months ended June 30, 2025 and 2024.
(4) Represents non-GAAP financial measures. See non-GAAP financial measure reconciliations presented above following Second Quarter 2025 Highlights.
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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, 2025 Mar 31, 2025 Jun 30, 2024 Jun 30, 2025 Jun 30, 2024
Balance, beginning of period $ 157,323 $ 155,521 $ 151,140 $ 155,521 $ 149,643
Provision for credit losses – loans 4,201 4,549 1,953 8,750 3,377
Recoveries of loans previously charged off:
Commercial real estate 53 57 98 110 1,487
One- to four-family residential 58 188 17 246 33
Commercial business 361 557 324 918 1,105
Agricultural business, including secured by farmland 1 10 195 11 301
Consumer 168 119 112 287 271
641 931 746 1,572 3,197
Loans charged off:
Commercial real estate — — (347) — (347)
One- to four-family residential — (13) — (13) —
Commercial business (892) (3,301) (137) (4,193) (1,946)
Agricultural business, including secured by farmland (362) — — (362) —
Consumer (410) (364) (507) (774) (1,076)
(1,664) (3,678) (991) (5,342) (3,369)
Net charge-offs (1,023) (2,747) (245) (3,770) (172)
Balance, end of period $ 160,501 $ 157,323 $ 152,848 $ 160,501 $ 152,848
Net charge-offs / Average loans receivable (0.009) % (0.024) % (0.002) % (0.033) % (0.002) %
Allowance for credit losses - loans as a percentage of total loans 1.37 % 1.38 % 1.37 % 1.37 % 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, 2025, we recorded a provision for credit losses - loans of $4.2 million, compared to a provision for credit losses - loans of $4.5 million during the preceding quarter. The provision for credit losses recorded in the current quarter primarily reflected loan growth, as well as risk rating migration. The provision for credit losses for the preceding quarter primarily reflected loan growth in the construction portfolio and to a lesser extent risk rating migration and qualitative adjustments applied to address economic uncertainty. 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. 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, 2025 Mar 31, 2025 Jun 30, 2024 Jun 30, 2025 Jun 30, 2024
Balance, beginning of period $ 12,162 $ 13,562 $ 13,597 $ 13,562 $ 14,484
Provision (recapture) for credit losses - unfunded loan commitments 588 (1,400) 430 (812) (457)
Balance, end of period $ 12,750 $ 12,162 $ 14,027 $ 12,750 $ 14,027
The increase in the allowance for credit losses - unfunded loan commitments for the current quarter reflects an increase in unfunded loan commitments and risk rating migration primarily in 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, 2025 Mar 31, 2025 Change Amount Change Percent Jun 30, 2025 Jun 30, 2024 Change Amount Change Percent
Deposit fees and other service charges $ 10,835 $ 10,769 $ 66 1 % $ 21,604 $ 21,612 $ (8) — %
Mortgage banking operations 3,226 3,103 123 4 6,329 5,341 988 18
Bank owned life insurance 2,384 2,575 (191) (7) 4,959 4,604 355 8
Miscellaneous 1,221 2,346 (1,125) (48) 3,567 3,880 (313) (8)
17,666 18,793 (1,127) (6) 36,459 35,437 1,022 3
Net loss on sale of securities (3) — (3) nm (3) (5,465) 5,462 (100)
Net change in valuation of financial instruments carried at fair value 88 315 (227) (72) 403 (1,182) 1,585 (134)
Total non-interest income $ 17,751 $ 19,108 $ (1,357) (7) % $ 36,859 $ 28,790 $ 8,069 28 %
nm = not meaningful
The decrease in non-interest income during the current quarter compared to the preceding quarter was primarily due to a $1.1 million, or 48%, decrease in miscellaneous income, which included $919,000 of losses incurred on building and lease exits during the second quarter.
The increase in non-interest income for the six months ended June 30, 2025, compared to the same period a year earlier was primarily due to a $5.5 million reduction in net losses on the sale of securities, as no material losses were recognized in the current period, compared to $5.5 million in strategic losses recorded during the first half of 2024 to mitigate rising interest rate risk in the securities portfolio. In addition, the $1.6 million improvement in the fair value of financial instruments during the first six months of 2025, compared to a $1.2 million negative valuation change in the same period of 2024, contributed significantly to the increase. These instruments primarily include limited partnership investments, which were positively impacted by current market valuations.
Revenue from mortgage banking operations increased $1.0 million for the six months ended June 30, 2025, compared to the same period a year earlier. The volume of one- to four-family loans sold increased for the six months ended June 30, 2025, compared to the same period a year earlier. Gains on sales of one- to four-family loans resulted in income of $4.3 million for the six months ended June 30, 2025, respectively, compared to $3.3 million for the six months ended June 30, 2024. The increase for the six months ended June 30, 2025, compared to the same period a year earlier, was primarily due to a higher volume of one- to four-family loans sold.
Deposit fees and other service charges remained relatively unchanged, totaling $21.6 million for both six-month periods.
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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 Six Months Ended
Jun 30, 2025 Mar 31, 2025 Change Amount Change Percent. Jun 30, 2025 Jun 30, 2024 Change Amount Change Percent
Salary and employee benefits $ 65,486 $ 64,857 $ 629 1 % $ 130,343 $ 126,200 $ 4,143 3 %
Less capitalized loan origination costs (4,924) (3,330) (1,594) 48 (8,254) (8,315) 61 (1)
Occupancy and equipment 12,256 12,097 159 1 24,353 24,590 (237) (1)
Information and computer data services 8,199 7,628 571 7 15,827 14,560 1,267 9
Payment and card processing services 5,899 5,750 149 3 11,649 11,401 248 2
Professional and legal expenses 2,271 2,430 (159) (7) 4,701 2,731 1,970 72
Advertising and marketing 1,087 590 497 84 1,677 2,277 (600) (26)
Deposit insurance 2,800 2,797 3 — 5,597 5,667 (70) (1)
State and municipal business and use taxes 1,416 1,454 (38) (3) 2,870 2,698 172 6
Real estate operations, net 392 (61) 453 nm 331 77 254 330
Amortization of core deposit intangibles 455 456 (1) — 911 1,447 (536) (37)
Miscellaneous 6,011 6,591 (580) (9) 12,602 12,436 166 1
Total non-interest expense $ 101,348 $ 101,259 $ 89 — % $ 202,607 $ 195,769 $ 6,838 3 %
nm = not meaningful
Non-interest expense was flat for the current quarter compared to the previous quarter. Non-interest expense for the current quarter reflects increases in salary and employee benefits, information and computer data services, and advertising and marketing expenses, offset by an increase in capitalized loan origination costs. In addition, the current quarter included $834,000 of building and lease exit costs. The increase in non-interest expense for the six months ended June 30, 2025, compared to the same period a year earlier primarily reflects increases in salary and employee benefits, information and computer data services, and professional and legal expenses, partially offset by decreases in advertising and marketing expenses and amortization of core deposit intangibles.
Salary and employee benefits for the current quarter and the six months ended June 30, 2025 increased compared to the quarter ended March 31, 2025 and the six months ended June 30, 2024, primarily resulting from increased loan production-related commission expense and normal salary and wage increases. In addition, capitalized loan origination costs increased $1.6 million, or 48%, compared to the prior quarter, and were relatively flat for the six months ended June 30, 2025 compared to the same period in 2024.
Information and computer data services for the current quarter and the six months ended June 30, 2025 increased from the comparable periods primarily due to increases in computer software expenses as the Company continued to invest in technology enhancements.
Professional and legal expense increased for the six months ended June 30, 2025, compared to the same period a year earlier, primarily due to one-time litigation settlement costs that occurred during the six months ended June 30, 2024.
Advertising and marketing expenses increased in the current quarter compared to the prior quarter due to the timing of campaign spending. However, these expenses decreased $600,000, or 26%, for the six-month period due to lower spending compared to the prior year.
Our efficiency ratio was 62.50% for the current quarter, compared to 63.21% in the preceding quarter. Our adjusted efficiency ratio, a non-GAAP financial measure, was 60.28% for the current quarter, compared to 62.18% in the preceding quarter. The improvement in the efficiency ratio and adjusted efficiency ratio for the current quarter reflects an increase in total revenues and adjusted revenues, respectively. See non-GAAP financial measure reconciliations presented above under “Second Quarter 2025 Financial Highlights.”
Income Taxes. For the quarter ended June 30, 2025, we recognized $10.5 million in income tax expense for an effective tax rate of 18.8%, which reflects our blended statutory tax rate reduced by the effect of tax-exempt income, certain tax credits, and tax benefits related to restricted stock vesting. Our statutory income tax rate is 24.0%, representing a statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates. For the quarter ended March 31, 2025, we recognized $10.7 million in income tax expense for an effective tax rate of 19.1%. For the six months ended June 30, 2025, we recognized $21.2 million in income tax expense for an effective tax rate of 18.9%, compared to $18.3 million in income tax expense for an effective tax rate of 19.1% for the same period in the prior year.
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.
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Non-Performing Assets: Non-performing assets totaled $49.8 million, or 0.30% of total assets, at June 30, 2025, compared to $39.6 million, or 0.24% of total assets, at December 31, 2024. Our allowance for credit losses - loans was $160.5 million, or 373% of non-performing loans, at June 30, 2025, compared to $155.5 million, or 421% of non-performing loans, at December 31, 2024.
The increase in non-performing assets was primarily due to a $5.5 million increase in nonaccrual one- to four-family residential loans. In addition, loans more than 90 days past due and still on accrual increased to $2.5 million at June 30, 2025, primarily due to an increase in one- to four-family residential loans in this category.
The following table sets forth information with respect to our non-performing assets at the dates indicated (dollars in thousands):
June 30, 2025 December 31, 2024 June 30, 2024
Nonaccrual Loans:
Secured by real estate:
Commercial $ 10 $ 2,186 $ 2,326
Construction and land 4,369 3,963 3,999
One- to four-family 15,480 10,016 8,184
Commercial business 6,647 7,067 8,694
Agricultural business, including secured by farmland 8,690 8,485 1,586
Consumer 4,802 4,835 3,380
39,998 36,552 28,169
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
One- to four-family 2,896 369 1,861
Consumer 80 35 692
2,976 404 2,553
Total non-performing loans 42,974 36,956 30,722
REO, net 6,801 2,367 2,564
Other repossessed assets held for sale — 300 —
Total non-performing assets $ 49,775 $ 39,623 $ 33,286
Total non-performing assets to total assets 0.30 % 0.24 % 0.21 %
Total nonaccrual loans to total loans receivable 0.34 % 0.32 % 0.25 %
Loans 30-89 days past due and on accrual $ 10,786 $ 26,824 $ 11,850
For the six months ended June 30, 2025, interest income was reduced by $870,000 as a result of nonaccrual loan activity, which included the reversal of $263,000 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, 2025.
The following table presents the Company’s portfolio of loans by risk grade at the dates indicated (in thousands):
June 30, 2025 December 31, 2024 June 30, 2024
Pass $ 11,432,456 $ 11,118,744 $ 10,971,850
Special Mention 68,372 43,451 50,027
Substandard 189,545 192,461 121,971
Total $ 11,690,373 $ 11,354,656 $ 11,143,848
As of June 30, 2025, total substandard loans primarily consisted of loans within the commercial business, commercial real estate and agricultural loan segments.
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.
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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, 2025 and 2024, our loan originations, including originations of loans held for sale, exceeded our loan repayments by $565.7 million and $501.2 million, respectively. There were $10.8 million of loan purchases during the six months ended June 30, 2025, and $4.7 million of loan purchases during the six months ended June 30, 2024. During the six months ended June 30, 2025 and 2024, we received proceeds of $235.9 million and $175.0 million, respectively, from the sale of loans. Securities purchased during the six months ended June 30, 2025 and 2024 totaled $18.9 million and $19.3 million, respectively, and securities repayments, maturities and sales in those periods were $126.0 million and $202.7 million, respectively.
Our primary financing activity is gathering deposits. Total deposits increased by $12.9 million during the six months ended June 30, 2025, primarily due to an increase in core deposits. Core deposits were $12.05 billion at June 30, 2025, compared to $12.01 billion at December 31, 2024. 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, 2025, certificates of deposit totaled $1.48 billion, or 11% of our total deposits, including $1.42 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 $565.0 million of FHLB advances at June 30, 2025, compared to $290.0 million at December 31, 2024. The increase in FHLB advances were primarily used to fund loan growth. Other borrowings decreased to $117.1 million at June 30, 2025 from $125.3 million at December 31, 2024. The balance of our outstanding subordinated notes was paid off during the second quarter of 2025. Subordinated notes, net of issuance costs, were $80.3 million at December 31, 2024.
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, 2025, we used our sources of funds primarily to fund loan growth. At June 30, 2025, we had outstanding loan commitments totaling $3.86 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 to supplement deposits is to increase or decrease 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 that in the aggregate would equal the lesser of 45% of the Bank’s assets or adjusted qualifying collateral (subject to a sufficient level of ownership of FHLB stock). At June 30, 2025, under these credit facilities based on pledged collateral, the Bank had $2.74 billion of available credit capacity. Advances under these credit facilities totaled $565.0 million at June 30, 2025. In addition, the Bank has been approved for participation in the FRBSF’s Borrower-In-Custody program. Under this program, based on pledged collateral, the Bank had available lines of credit of approximately $1.62 billion as of June 30, 2025, subject to certain collateral requirements, namely the collateral type and risk rating of eligible pledged loans. We had no funds borrowed from the FRBSF at June 30, 2025 or December 31, 2024. At June 30, 2025, the Bank also had uncommitted federal funds line of credit agreements with other financial institutions totaling $125.0 million. No balances were outstanding under these agreements as of June 30, 2025 or December 31, 2024. Availability of lines is subject to federal funds balances available for loan and continued borrower eligibility. These lines are intended to support short-term liquidity needs and the agreements may restrict consecutive day usage. Management believes it has adequate resources and funding potential to meet our foreseeable liquidity 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, 2025, Banner (on an unconsolidated basis) had liquid assets of $66.9 million. During 2024, Banner and the Bank entered into an intercompany loan agreement for $50.0 million. This note was paid off during the second quarter of 2025.
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 $0.48 per share, as approved by our Board of Directors, which we believe is a dividend rate per share which 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 during 2025 at this rate of $0.48 per share, our average total dividend paid each quarter would be approximately $16.6 million based on the number of outstanding shares at June 30, 2025.
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, 2025, total shareholders’ equity increased $91.3 million, to $1.87 billion or 11.35% of total assets. At June 30, 2025, tangible common shareholders’ equity, which excludes goodwill and other intangible assets, was $1.49 billion, or 9.28% of tangible assets. Tangible common shareholders’ equity represents a non-GAAP financial measure. See, non-GAAP financial measure reconciliations presented above under “Second Quarter 2025 Financial Highlights.”
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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, 2025, 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, 2025, 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 $ 1,984,862 14.51 % $ 1,094,505 8.00 % $ 1,368,131 10.00 %
Tier 1 capital to risk-weighted assets 1,813,814 13.26 % 820,879 6.00 % 820,879 6.00 %
Tier 1 leverage capital to average assets 1,813,814 11.29 % 642,519 4.00 % n/a n/a
Common equity tier 1 capital 1,727,314 12.63 % 615,659 4.50 % n/a n/a
Banner Bank
Total capital to risk-weighted assets $ 1,909,529 13.96 % $ 1,094,267 8.00 % $ 1,367,834 10.00 %
Tier 1 capital to risk-weighted assets 1,738,518 12.71 % 820,700 6.00 % 1,094,267 8.00 %
Tier 1 leverage capital to average assets 1,738,518 10.81 % 643,174 4.00 % 803,968 5.00 %
Common equity tier 1 capital 1,738,518 12.71 % 615,525 4.50 % 889,092 6.50 %
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.