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 its subsidiary bank, Banner Bank. The Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington, and as of September 30, 2025, it had 135 branch offices and 14 loan production offices located in Washington, Oregon, California, Idaho, Utah and Nevada. Banner is subject to regulation by the Federal Reserve. The Bank is subject to regulation by the Washington State Department of Financial Institutions – Division of Banks (the DFI) and the Federal Deposit Insurance Corporation (the FDIC). As of September 30, 2025, we had total consolidated assets of $16.56 billion, total loans of $11.70 billion, total deposits of $14.02 billion and total shareholders’ equity of $1.91 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.
Third Quarter 2025 Financial Highlights
• Net interest margin, on a tax equivalent basis, was 3.98% for current quarter, compared to 3.92% in the preceding quarter.
• Revenue was $170.7 million for the third quarter of 2025, compared to $162.2 million in the preceding quarter.
• Net interest income was $150.0 million in the third quarter of 2025, compared to $144.4 million in the preceding quarter.
• Mortgage banking operations revenue was $3.3 million for the third quarter of 2025, compared to $3.2 million in the preceding quarter.
• Return on average assets was 1.30%, compared to 1.13% in the preceding quarter.
• Net loans receivable were $11.54 billion at September 30, 2025, compared to $11.53 billion at June 30, 2025.
• Total deposits increased to $14.02 billion at September 30, 2025, compared to $13.53 billion at June 30, 2025.
• Core deposits represented 89% of total deposits at September 30, 2025.
• Non-performing assets were $45.3 million, or 0.27% of total assets, at September 30, 2025, compared to $49.8 million, or 0.30% of total assets at June 30, 2025.
• The allowance for credit losses - loans was $159.7 million, or 1.36% of total loans receivable, as of September 30, 2025, compared to $160.5 million, or 1.37% of total loans receivable, at June 30, 2025.
• Dividends paid to shareholders were $0.48 per share in the quarter ended September 30, 2025.
• Common shareholders’ equity per share increased 3% to $55.71 at September 30, 2025, compared to $53.95 at June 30, 2025.
• Tangible common shareholders’ equity per share* increased 4% to $44.79 at September 30, 2025, compared to $43.09 at June 30, 2025.
• Repurchased 250,000 shares of Banner common stock during the third quarter of 2025 at an average price of $63.11 per share.
*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 Nine Months Ended September 30,
Sep 30, 2025 Jun 30, 2025 Sep 30, 2024 2025 2024
ADJUSTED REVENUE
Net interest income (GAAP) $ 149,989 $ 144,399 $ 135,675 $ 435,471 $ 401,180
Non-interest income (GAAP) 20,730 17,751 18,063 57,589 46,853
Total revenue (GAAP) 170,719 162,150 153,738 493,060 448,033
Exclude: Net (gain) loss on sale of securities (377) 3 — (374) 5,465
Net change in valuation of financial instruments carried at fair value (223) (88) (39) (626) 1,143
(Gains) losses on building and lease exits (1,373) 919 — (454) —
Adjusted revenue (non-GAAP) $ 168,746 $ 162,984 $ 153,699 $ 491,606 $ 454,641
Quarters Ended Nine Months Ended September 30,
Sep 30, 2025 Jun 30, 2025 Sep 30, 2024 2025 2024
ADJUSTED EARNINGS
Net income (GAAP) $ 53,502 $ 45,496 $ 45,153 $ 144,133 $ 122,507
Exclude: Net (gain) loss on sale of securities (377) 3 — (374) 5,465
Net change in valuation of financial instruments carried at fair value (223) (88) (39) (626) 1,143
Building and lease exit costs, net (331) 1,753 — 1,422 —
Related net tax expense (benefit) 224 (401) 9 (101) (1,586)
Total adjusted earnings (non-GAAP) $ 52,795 $ 46,763 $ 45,123 $ 144,454 $ 127,529
Diluted earnings per share (GAAP) $ 1.54 $ 1.31 $ 1.30 $ 4.15 $ 3.54
Adjusted diluted earnings per share (non-GAAP) $ 1.52 $ 1.35 $ 1.30 $ 4.16 $ 3.69
Return on average assets 1.30 % 1.13 % 1.13 % 1.19 % 1.04 %
Adjusted return on average assets (1)
1.28 % 1.16 % 1.13 % 1.20 % 1.08 %
Return on average equity 11.33 % 9.92 % 10.39 % 10.49 % 9.76 %
Adjusted return on average equity (2)
11.18 % 10.20 % 10.39 % 10.51 % 10.16 %
Quarters Ended Nine Months Ended September 30,
Sep 30, 2025 Jun 30, 2025 Sep 30, 2024 2025 2024
ADJUSTED EFFICIENCY RATIO
Non-interest expense (GAAP) $ 102,022 $ 101,348 $ 96,291 $ 304,629 $ 292,060
Exclude: CDI amortization (341) (455) (590) (1,252) (2,037)
State and municipal tax expense (1,655) (1,416) (1,432) (4,525) (4,130)
REO operations (203) (392) (103) (534) (180)
Building and lease exit costs (1,042) (834) — (1,876) —
Adjusted non-interest expense (non-GAAP) $ 98,781 $ 98,251 $ 94,166 $ 296,442 $ 285,713
Net interest income (GAAP) $ 149,989 $ 144,399 $ 135,675 $ 435,471 $ 401,180
Non-interest income (GAAP) 20,730 17,751 18,063 57,589 46,853
Total revenue (GAAP) 170,719 162,150 153,738 493,060 448,033
Exclude: Net (gain) loss on sale of securities (377) 3 — (374) 5,465
Net change in valuation of financial instruments carried at fair value (223) (88) (39) (626) 1,143
(Gains) losses on building and lease exits (1,373) 919 — (454) —
Adjusted revenue (non-GAAP) $ 168,746 $ 162,984 $ 153,699 $ 491,606 $ 454,641
Efficiency ratio (GAAP) 59.76 % 62.50 % 62.63 % 61.78 % 65.19 %
Adjusted efficiency ratio (non-GAAP) (3)
58.54 % 60.28 % 61.27 % 60.30 % 62.84 %
(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
September 30, 2025 June 30, 2025 December 31, 2024 September 30, 2024
Shareholders’ equity (GAAP) $ 1,912,892 $ 1,865,664 $ 1,774,326 $ 1,793,721
Exclude goodwill and other intangible assets, net 374,927 375,268 376,179 376,768
Tangible common shareholders’ equity (non-GAAP) $ 1,537,965 $ 1,490,396 $ 1,398,147 $ 1,416,953
Total assets (GAAP) $ 16,563,081 $ 16,437,169 $ 16,200,037 $ 16,188,676
Exclude goodwill and other intangible assets, net 374,927 375,268 376,179 376,768
Total tangible assets (non-GAAP) $ 16,188,154 $ 16,061,901 $ 15,823,858 $ 15,811,908
Common shareholders’ equity to total assets (GAAP) 11.55 % 11.35 % 10.95 % 11.08 %
Tangible common shareholders’ equity to tangible assets (non-GAAP) 9.50 % 9.28 % 8.84 % 8.96 %
TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE
September 30, 2025 June 30, 2025 December 31, 2024 September 30, 2024
Shareholders’ equity (GAAP) $ 1,912,892 $ 1,865,664 $ 1,774,326 $ 1,793,721
Tangible common shareholders’ equity (non-GAAP) $ 1,537,965 $ 1,490,396 $ 1,398,147 $ 1,416,953
Common shares outstanding at end of period 34,335,297 34,583,994 34,459,832 34,456,688
Common shareholders’ equity (book value) per share (GAAP) $ 55.71 $ 53.95 $ 51.49 $ 52.06
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) $ 44.79 $ 43.09 $ 40.57 $ 41.12
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 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, 2024.
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Comparison of Financial Condition at September 30, 2025 and December 31, 2024
General : Total assets increased $363.0 million to $16.56 billion at September 30, 2025, from $16.20 billion at December 31, 2024. The increase compared to year end was primarily due to loan growth and an increase in cash, specifically our interest-bearing deposits in other banks, 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 September 30, 2025 was 84%. 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 $347.9 million at September 30, 2025, compared to December 31, 2024, reflecting increases across all loan categories except small balance CRE, multifamily real estate loans, commercial business loans, one- to four-family residential 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
Sep 30, 2025 Dec 31, 2024 Sep 30, 2024 Year End Prior Year Qtr. End
Commercial real estate:
Owner-occupied $ 1,134,559 $ 1,027,426 $ 990,516 10 % 15 %
Investment properties 1,652,141 1,623,672 1,583,863 2 4
Small balance CRE 1,210,357 1,213,792 1,218,822 — (1)
Total Commercial real estate 3,997,057 3,864,890 3,793,201 3 5
Multifamily real estate 860,650 894,425 889,866 (4) (3)
Construction, land and land development:
Commercial construction 144,125 122,362 124,051 18 16
Multifamily construction 586,104 513,706 524,108 14 12
One- to four-family construction 578,128 514,220 507,350 12 14
Land and land development 427,348 369,663 370,690 16 15
Total Construction, land and land development 1,735,705 1,519,951 1,526,199 14 14
Commercial business:
Commercial business 1,254,460 1,318,333 1,281,615 (5) (2)
Small business scored 1,176,889 1,104,117 1,087,714 7 8
Total Commercial business 2,431,349 2,422,450 2,369,329 — 3
Agricultural business, including secured by farmland 354,884 340,280 346,686 4 2
One- to four-family residential 1,582,605 1,591,260 1,575,164 (1) —
Consumer:
Consumer—home equity revolving lines of credit 649,188 625,680 622,615 4 4
Consumer—other 91,100 95,720 101,546 (5) (10)
Total Consumer 740,288 721,400 724,161 3 2
Total loans receivable $ 11,702,538 $ 11,354,656 $ 11,224,606 3 % 4 %
Commercial real estate loans totaled $4.00 billion, or 34% of our loan portfolio, and multifamily real estate loans totaled $860.7 million, or 7% of our loan portfolio, at September 30, 2025. Commercial real estate loans increased by $132.2 million during the first nine 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 $33.8 million, primarily due to payoffs and paydowns exceeding new production.
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Our construction, land and land development loans totaled $1.74 billion, or 15% of our loan portfolio, at September 30, 2025, compared to $1.52 billion at December 31, 2024. Multifamily construction loans increased $72.4 million, or 14%, to $586.1 million at September 30, 2025, compared to December 31, 2024. Multifamily construction represented 5% of our total loan portfolio at September 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 $21.8 million, or 18%, to $144.1 million at September 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 $57.7 million, or 16%, to $427.3 million at September 30, 2025, compared to December 31, 2024, primarily due to new loan production, partially offset by payoffs and paydowns.
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 $2.43 billion at September 30, 2025 and $2.42 billion at December 31, 2024. Commercial business loans represented 21% of our loan portfolio at September 30, 2025. Our agricultural business loans were $354.9 million at September 30, 2025 and $340.3 million at December 31, 2024. Agricultural business loans represented 3% of our loan portfolio at September 30, 2025. Our commercial business lending also includes participation in certain syndicated loans, including shared national credits, which totaled $215.1 million, or 2% of our loan portfolio, at September 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 September 30, 2025, one- to four-family residential loans retained in our portfolio decreased $8.7 million, to $1.58 billion, compared to $1.59 billion at December 31, 2024. The decrease was primarily the result of one- to four-family residential loan payoffs exceeding 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 September 30, 2025.
Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At September 30, 2025, consumer loans, including home equity revolving lines of credit, increased $18.9 million to $740.3 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 Nine Months Ended
Sep 30, 2025 Jun 30, 2025 Sep 30, 2024 Sep 30, 2025 Sep 30, 2024
Commercial real estate $ 118,354 $ 216,189 $ 114,372 $ 371,584 $ 283,992
Multifamily real estate 2,500 13,065 314 25,120 3,473
Construction and land 369,363 411,210 472,506 1,068,138 1,456,454
Commercial business 167,627 203,656 179,871 475,022 501,754
Agricultural business 7,681 14,414 5,877 34,860 62,538
One-to four- family residential 6,817 5,491 24,488 17,447 76,554
Consumer 122,193 102,600 96,137 304,823 282,752
Total commitment amount for loan originations (excluding loans held for sale) $ 794,535 $ 966,625 $ 893,565 $ 2,296,994 $ 2,667,517
Loans held for sale decreased to $20.3 million at September 30, 2025, compared to $32.0 million at December 31, 2024. 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 $265.0 million for the nine months ended September 30, 2025, compared to $197.7 million for the same period last year. The volume of one- to four-family residential mortgage loans sold was $349.6 million during the nine months ended September 30, 2025, compared to $255.7 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):
Sep 30, 2025 Dec 31, 2024 Sep 30, 2024 Percentage Change
Amount Percentage Amount Amount Year End Prior Year Qtr. End
Washington $ 5,407,327 46 % $ 5,245,886 $ 5,203,637 3 % 4 %
California 3,064,993 26 2,861,435 2,796,965 7 10
Oregon 2,137,422 18 2,113,229 2,108,229 1 1
Idaho 668,949 6 665,158 652,148 1 3
Utah 79,697 1 82,459 85,316 (3) (7)
Other 344,150 3 386,489 378,311 (11) (9)
Total loans receivable $ 11,702,538 100 % $ 11,354,656 $ 11,224,606 3 % 4 %
Investment Securities: Total securities decreased $115.9 million to $2.99 billion at September 30, 2025, from $3.11 billion at December 31, 2024, primarily due to securities paydowns and maturities exceeding purchases during the nine months ended September 30, 2025. Purchases during the nine months ended September 30, 2025, consisted primarily of state and local government obligations. The average effective duration of the Company’s securities portfolio was 6.4 years at both September 30, 2025 and December 31, 2024. The fair value of securities designated as available-for-sale increased $80.2 million for the nine months ended September 30, 2025. This increase, net of $19.3 million in associated tax expense, was recorded in other comprehensive income and reflected the impact of changes in market interest rates during the nine months ended September 30, 2025.
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
Sep 30, 2025 Dec 31, 2024 Sep 30, 2024 Year End Prior Year Qtr. End
Non-interest-bearing $ 4,572,338 $ 4,591,543 $ 4,688,244 — % (2) %
Interest-bearing checking 2,734,822 2,393,864 2,344,561 14 17
Regular savings accounts 3,705,823 3,478,423 3,339,859 7 11
Money market accounts 1,462,570 1,550,896 1,643,631 (6) (11)
Interest-bearing transaction & savings accounts 7,903,215 7,423,183 7,328,051 6 8
Total core deposits 12,475,553 12,014,726 12,016,295 4 4
Interest-bearing certificates 1,540,382 1,499,672 1,521,853 3 1
Total deposits $ 14,015,935 $ 13,514,398 $ 13,538,148 4 % 4 %
Total deposits increased $501.5 million at September 30, 2025, compared to December 31, 2024, with core deposits increasing $460.8 million and certificates of deposit increasing $40.7 million. The increase in core deposits primarily reflects increases in interest-bearing transaction and savings accounts, primarily from normal seasonal increases from agricultural clients. We had $50.0 million of brokered deposits at September 30, 2025, compared to $50.3 million at December 31, 2024. Core deposits represented 89% of total deposits at both September 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):
Sep 30, 2025 Dec 31, 2024 Sep 30, 2024
Number of deposit accounts 449,087 460,004 459,127
Average account balance per account $ 31 $ 30 $ 30
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The following table presents deposits by geographic concentration at the dates indicated (dollars in thousands):
Sep 30, 2025 Dec 31, 2024 Sep 30, 2024 Percentage Change
Amount Percentage Amount Amount Year End Prior Year Qtr. End
Washington $ 7,648,527 55 % $ 7,441,413 $ 7,413,414 3 % 3 %
Oregon 3,081,329 22 2,981,327 2,997,843 3 3
California 2,542,903 18 2,392,573 2,423,295 6 5
Idaho 743,176 5 699,085 703,596 6 6
Total deposits $ 14,015,935 100 % $ 13,514,398 $ 13,538,148 4 % 4 %
Borrowings: We had $100.0 million of FHLB advances at September 30, 2025, compared to $290.0 million at December 31, 2024 as deposits were used as the primary source of funding during the current period. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, decreased $4.7 million to $120.5 million at September 30, 2025, compared to $125.3 million at December 31, 2024. At September 30, 2025, the Company’s off-balance sheet liquidity included additional borrowing capacity of $3.25 billion at the FHLB, $1.63 billion at the Federal Reserve, and $125.0 million in federal funds lines of credit with other financial institutions. Junior subordinated debentures totaled $76.3 million at September 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.
Shareholders’ Equity: Total shareholders’ equity increased $138.6 million to $1.91 billion, or 11.55% of total assets, at September 30, 2025, compared to $1.77 billion, or 10.95% of total assets, at December 31, 2024. The increase was primarily due to a $93.7 million increase in retained earnings resulting from $144.1 million in net income, partially offset by the accrual of $50.4 million in cash dividends and the repurchase of 250,000 shares of Banner common stock in the third quarter of 2025 at an average price of $63.11 per share. In addition, accumulated other comprehensive loss decreased by $56.5 million, primarily due to a decrease 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 $139.8 million to $1.54 billion, or 9.50% of tangible assets, at September 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 “Third Quarter 2025 Financial Highlights.”
Comparison of Results of Operations for the Three Months Ended September 30, 2025 and June 30, 2025, and the Nine Months Ended September 30, 2025 and 2024
For the quarter ended September 30, 2025, net income was $53.5 million, or $1.54 per diluted share, compared to $45.5 million, or $1.31 per diluted share, for the preceding quarter. For the nine months ended September 30, 2025, our net income was $144.1 million, or $4.15 per diluted share, compared to $122.5 million, or $3.54 per diluted share, for the same period a year earlier. The increase in net income for the comparable periods was primarily due to increases in net interest income and non-interest income.
Net interest income was $150.0 million in the third quarter of 2025, compared to $144.4 million in the preceding quarter, and $435.5 million for the nine months ended September 30, 2025, compared to $401.2 million for the comparable period a year ago. The increases in net interest income for both periods reflect higher yields and an increase in the average balance of interest-earning assets. The increase in net interest income for the nine months ended September 30, 2025 compared to the same period a year ago also reflects a decrease in funding costs.
We recorded a $2.7 million provision for credit losses for the quarter ended September 30, 2025, compared to a $4.8 million provision for credit losses in the preceding quarter. The provision for credit losses in the current quarter was driven by changes in both portfolio mix and individually evaluated loans. We recorded a $10.6 million provision for credit losses for the nine months ended September 30, 2025, compared to a $4.6 million provision for credit losses for the same period a year ago.
Total non-interest income increased for the quarter ended September 30, 2025, compared to the preceding quarter, and increased during the nine months ended September 30, 2025, compared to the same period a year ago. The increase from the preceding quarter was primarily due to an increase in miscellaneous income, reflecting gains on the sale of assets during the current quarter, compared to losses on the disposal of assets related to building and lease exits during the prior quarter associated with Banner’s reduction of excess office space. The increase in non-interest income during the nine months ended September 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 positive fair value adjustments on financial instruments carried at fair value during the current period.
Total non-interest expense increased slightly for the quarter ended September 30, 2025, compared to the preceding quarter and increased for the nine months ended September 30, 2025, compared to the same period a year ago. Non-interest expense for the current quarter reflects increases in miscellaneous expenses and advertising and marketing expenses, partially offset by a decrease in salary and employee benefits. The increase in non-interest expense during the nine months ended September 30, 2025, compared to the same period last year primarily reflects increases in salary and employee benefits, information and computer data services expenses and professional and legal expenses.
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OPERATING DATA:
Quarters Ended Nine Months Ended
(In thousands) September 30, 2025 June 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024
Interest income $ 205,848 $ 200,259 $ 195,841 $ 599,975 $ 569,667
Interest expense 55,859 55,860 60,166 164,504 168,487
Net interest income 149,989 144,399 135,675 435,471 401,180
Provision for credit losses 2,670 4,795 1,692 10,604 4,581
Net interest income after provision for credit losses 147,319 139,604 133,983 424,867 396,599
Deposit fees and other service charges 10,955 10,835 10,741 32,559 32,353
Mortgage banking operations 3,298 3,226 3,180 9,627 8,521
Net gain (loss) on sale of securities 377 (3) — 374 (5,465)
Net change in valuation of financial instruments carried at fair value
223 88 39 626 (1,143)
All other non-interest income 5,877 3,605 4,103 14,403 12,587
Total non-interest income
20,730 17,751 18,063 57,589 46,853
Salary and employee benefits 64,935 65,486 61,832 195,278 188,032
All other non-interest expenses 37,087 35,862 34,459 109,351 104,028
Total non-interest expense
102,022 101,348 96,291 304,629 292,060
Income before provision for income tax expense
66,027 56,007 55,755 177,827 151,392
Provision for income tax expense 12,525 10,511 10,602 33,694 28,885
Net income $ 53,502 $ 45,496 $ 45,153 $ 144,133 $ 122,507
PER COMMON SHARE DATA: Quarters Ended Nine Months Ended
September 30, 2025 June 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024
Net income:
Basic $ 1.55 $ 1.31 $ 1.31 $ 4.17 $ 3.56
Diluted 1.54 1.31 1.30 4.15 3.54
Net Interest Income. Net interest income increased for the quarter ended September 30, 2025, compared to the preceding quarter. The $5.6 million increase was due to an increase in interest income, primarily attributable to a five basis point increase in the average loan yield to 6.17% and an increase in average loan balances, while interest expense was essentially flat for the quarter.
Net interest margin on a tax equivalent basis was 3.98% for the third quarter of 2025, compared to 3.92% for 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.
Net interest income increased by $34.3 million, or 9%, to $435.5 million for the nine months ended September 30, 2025, compared to $401.2 million for the same period one year earlier. The increase was primarily the result of a $30.3 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 $532.7 million increase in the average balance of loans. In addition, funding costs decreased by seven basis points for the nine months ended September 30, 2025 as compared to the same period in the prior year. The net interest margin on a tax equivalent basis increased to 3.94% for the nine months ended September 30, 2025, compared to 3.72% for the same period in the prior year.
Interest Income. Interest income for the quarter ended September 30, 2025 was $205.8 million, compared to $200.3 million for the preceding quarter. The increase was primarily due to higher average loan yields and balances, as well as increases in both the average balance and yield on interest-bearing deposits held at other banks. The total average loan yield increased five basis points to 6.17%, while the total average loan balance increased $32.9 million.
Loan yields increased five basis points to 6.17% for the quarter ended September 30, 2025, from 6.12% in the preceding quarter, due to new loans being originated at higher interest rates and adjustable rate loans repricing higher. The increase in average loan balances primarily reflected growth in real estate secured loans, particularly commercial real estate and construction loans, which together contributed the largest share of the quarterly increase in interest income.
The total investment securities average balance increased to $3.61 billion for the quarter ended September 30, 2025 (excluding the effect of fair value adjustments), compared to $3.49 billion for the preceding quarter. The average yield on the combined portfolio increased to 3.06% for the quarter ended September 30, 2025, from 2.98% for the preceding quarter. Interest income on interest-bearing deposits with banks also increased, reflecting both a higher average balance and an increase in yield to 4.16%, compared to 3.06% in the prior quarter.
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Interest income for the nine months ended September 30, 2025 was $600.0 million, compared to $569.7 million for the same period in the prior year, an increase of $30.3 million. This increase primarily reflected a 16 basis point increase in the average yield on interest-earning assets, to 5.40%, along with higher average balances. Loan growth was the primary contributor, with the average loan balances increasing $532.7 million compared to the prior year, supported by growth in the commercial real estate and residential mortgage portfolios.
Interest Expense. Interest expense was relatively flat for the quarter ended September 30, 2025 as compared to the preceding quarter. Average funding liabilities increased by $124.8 million, primarily due to a $370.2 million increase in average deposit balances, partially offset by a $163.3 million decrease in average balance of FHLB advances. The average cost of funding liabilities decreased three basis points, to 1.57% for the quarter ended September 30, 2025.
Interest expense for the nine months ended September 30, 2025 was $164.5 million, compared to $168.5 million for the same period in the prior year. The decrease resulted from a seven basis-point decrease in the average cost of funds to 1.57% from 1.64%, partially offset by a $268.0 million, or 2%, increase in average funding liabilities. 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, and total borrowings.
Deposit interest expense for the quarter ended September 30, 2025 increased 6% to $52.3 million, compared to $49.3 million for the preceding quarter. The increase was primarily due to increases in both the average balance and the average rate paid on interest-bearing deposits. The average rate paid on total deposits, including non-interest-bearing deposits, was 1.50% for the quarter ended September 30, 2025 and 1.47% for the preceding quarter. The average rate paid on interest-bearing deposits increased to 2.25% for the quarter ended September 30, 2025, compared to 2.21% in the preceding quarter. The increase in the rate paid on interest-bearing deposits reflects higher average rates paid across all interest-bearing deposit categories, except certificates of deposit, as well as shifts in the deposit mix. Total average deposit balances, including non-interest-bearing deposits, increased to $13.79 billion for the quarter ended September 30, 2025, from $13.42 billion for the preceding quarter.
Deposit interest expense for the nine months ended September 30, 2025 increased $3.1 million to $150.3 million, compared to $147.2 million for the same period in the prior year. Average deposit balances increased to $13.55 billion for the nine months ended September 30, 2025, from $13.16 billion for the same period a year earlier, while the average rate paid on interest-bearing deposits decreased by eight basis points to 2.23% for the nine months ended September 30, 2025, compared to 2.31% in the same period a year earlier. The decrease in the average rate paid on interest-bearing deposits was primarily the result of a 33 basis-point decrease in the cost of certificates of deposit.
Interest expense on total borrowings for the quarter ended September 30, 2025, decreased 45% to $3.6 million, compared to $6.5 million for the prior quarter, primarily due to decreases in both the average balance and the rate paid on total borrowings. The average balance of total borrowings decreased to $342.3 million for the quarter ended September 30, 2025, compared to $587.7 million for the preceding quarter, primarily due to a $163.3 million decrease in the average balance of FHLB advances. The average rate paid on total borrowings for the quarter ended September 30, 2025, decreased to 4.18% from 4.47% for the preceding quarter.
Interest expense on total borrowings for the nine months ended September 30, 2025 decreased to $14.2 million from $21.2 million for the same period a year earlier, due to decreases in both the average balance and rate paid on total borrowings. Average total borrowings were $436.4 million for the nine months ended September 30, 2025, compared to $562.9 million for the same period a year earlier. The decrease was primarily due to a $42.5 million decrease in the average balance of FHLB advances, a $46.3 million decrease in the average balance of other borrowings and a $37.7 million decrease in the average balance of junior subordinated debentures and subordinated notes. The average rate paid on total borrowings for the nine months ended September 30, 2025 decreased to 4.35% from 5.04% for the same period a year earlier.
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Analysis of Net Interest Spread . The following table presents for the periods indicated our condensed average balance sheet information, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities with additional comparative data on our operating performance (dollars in thousands). Average balances are computed using daily average balances.
ANALYSIS OF NET INTEREST SPREAD Quarters Ended
(rates / ratios annualized) Sep 30, 2025 Jun 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 $ 32,109 $ 531 6.56 % $ 29,936 $ 503 6.74 %
Real estate secured loans 9,651,895 147,682 6.07 % 9,565,357 143,909 6.03 %
Commercial/agricultural loans 1,869,782 31,124 6.60 % 1,924,092 31,196 6.50 %
Consumer and other loans 119,593 2,114 7.01 % 121,142 2,087 6.91 %
Total loans (1)
11,673,379 181,451 6.17 % 11,640,527 177,695 6.12 %
Mortgage-backed securities 2,445,497 15,269 2.48 % 2,496,972 15,576 2.50 %
Other securities 854,725 9,065 4.21 % 893,062 9,561 4.29 %
Interest-bearing deposits with banks 291,147 3,053 4.16 % 75,539 577 3.06 %
FHLB stock 15,729 463 11.68 % 23,077 222 3.86 %
Total investment securities 3,607,098 27,850 3.06 % 3,488,650 25,936 2.98 %
Total interest-earning assets 15,280,477 209,301 5.43 % 15,129,177 203,631 5.40 %
Non-interest-earning assets 1,022,905 994,003
Total assets $ 16,303,382 $ 16,123,180
Deposits:
Interest-bearing checking accounts $ 2,618,924 10,834 1.64 % $ 2,465,015 9,462 1.54 %
Savings accounts 3,616,728 20,170 2.21 % 3,493,965 18,837 2.16 %
Money market accounts 1,471,938 7,799 2.10 % 1,492,229 7,729 2.08 %
Certificates of deposit 1,510,966 13,448 3.53 % 1,489,611 13,288 3.58 %
Total interest-bearing deposits 9,218,556 52,251 2.25 % 8,940,820 49,316 2.21 %
Non-interest-bearing deposits 4,573,009 — — % 4,480,579 — — %
Total deposits 13,791,565 52,251 1.50 % 13,421,399 49,316 1.47 %
Other interest-bearing liabilities:
FHLB advances 133,380 1,527 4.54 % 296,671 3,370 4.56 %
Other borrowings 119,727 694 2.30 % 122,227 675 2.22 %
Junior subordinated debentures and subordinated notes 89,178 1,387 6.17 % 168,793 2,499 5.94 %
Total borrowings 342,285 3,608 4.18 % 587,691 6,544 4.47 %
Total funding liabilities 14,133,850 55,859 1.57 % 14,009,090 55,860 1.60 %
Other non-interest-bearing liabilities (2)
296,036 274,407
Total liabilities 14,429,886 14,283,497
Shareholders’ equity 1,873,496 1,839,683
Total liabilities and shareholders’ equity $ 16,303,382 $ 16,123,180
Net interest income/rate spread (tax equivalent) $ 153,442 3.86 % $ 147,771 3.80 %
Net interest margin (tax equivalent) 3.98 % 3.92 %
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis (3,453) (3,372)
Net interest income and margin, as reported $ 149,989 3.89 % $ 144,399 3.83 %
Additional Key Financial Ratios:
Return on average assets 1.30 % 1.13 %
Adjusted return on average assets (4)
1.28 % 1.16 %
Return on average equity 11.33 % 9.92 %
Adjusted return on average equity (4)
11.18 % 10.20 %
Average equity/average assets 11.49 % 11.41 %
Average interest-earning assets/average interest-bearing liabilities 159.82 % 158.78 %
Average interest-earning assets/average funding liabilities 108.11 % 108.00 %
Non-interest income/average assets 0.50 % 0.44 %
Non-interest expense/average assets 2.48 % 2.52 %
Efficiency ratio 59.76 % 62.50 %
Adjusted efficiency ratio (4)
58.54 % 60.28 %
(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 $2.4 million and $2.3 million for the quarters ended September 30, 2025 and June 30, 2025, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.1 million for both the quarters ended September 30, 2025 and June 30, 2025.
(4) Represents non-GAAP financial measures. See non-GAAP financial measure reconciliations presented above following Third Quarter 2025 Highlights.
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Nine Months Ended September 30, 2025 Nine Months Ended September 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 $ 28,203 $ 1,391 6.59 % $ 16,225 $ 826 6.80 %
Real estate secured loans 9,528,868 429,315 6.02 % 9,036,256 390,011 5.77 %
Commercial/agricultural loans 1,900,225 93,072 6.55 % 1,861,182 95,155 6.83 %
Consumer and other loans 120,735 6,293 6.97 % 131,676 6,506 6.60 %
Total loans (1)
11,578,031 530,071 6.12 % 11,045,339 492,498 5.96 %
Mortgage-backed securities 2,494,794 46,740 2.50 % 2,674,555 50,424 2.52 %
Other securities 883,330 28,313 4.29 % 962,183 33,802 4.69 %
Interest-bearing deposits with banks 144,974 4,114 3.79 % 51,630 1,530 3.96 %
FHLB stock 17,214 834 6.48 % 18,931 986 6.96 %
Total investment securities 3,540,312 80,001 3.02 % 3,707,299 86,742 3.13 %
Total interest-earning assets 15,118,343 610,072 5.40 % 14,752,638 579,240 5.24 %
Non-interest-earning assets 1,007,862 950,588
Total assets $ 16,126,205 $ 15,703,226
Deposits:
Interest-bearing checking accounts $ 2,489,219 28,833 1.55 % $ 2,185,796 23,834 1.46 %
Savings accounts 3,521,141 57,110 2.17 % 3,161,266 51,778 2.19 %
Money market accounts 1,506,171 23,388 2.08 % 1,648,208 26,696 2.16 %
Certificates of deposit 1,510,594 40,973 3.63 % 1,514,982 44,940 3.96 %
Total interest-bearing deposits 9,027,125 150,304 2.23 % 8,510,252 147,248 2.31 %
Non-interest-bearing deposits 4,526,898 — — % 4,649,297 — — %
Total deposits 13,554,023 150,304 1.48 % 13,159,549 147,248 1.49 %
Other interest-bearing liabilities:
FHLB advances 168,663 5,757 4.56 % 211,135 8,856 5.60 %
Other borrowings 125,517 2,063 2.20 % 171,838 3,482 2.71 %
Junior subordinated debentures and subordinated notes 142,255 6,380 6.00 % 179,941 8,901 6.61 %
Total borrowings 436,435 14,200 4.35 % 562,914 21,239 5.04 %
Total funding liabilities 13,990,458 164,504 1.57 % 13,722,463 168,487 1.64 %
Other non-interest-bearing liabilities (2)
298,056 303,367
Total liabilities 14,288,514 14,025,830
Shareholders’ equity 1,837,691 1,677,396
Total liabilities and shareholders’ equity $ 16,126,205 $ 15,703,226
Net interest income/rate spread (tax equivalent) $ 445,568 3.83 % $ 410,753 3.60 %
Net interest margin (tax equivalent) 3.94 % 3.72 %
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis (10,097) (9,573)
Net interest income and margin $ 435,471 3.85 % $ 401,180 3.63 %
Additional Key Financial Ratios:
Return on average assets 1.19 % 1.04 %
Adjusted return on average assets (4)
1.20 % 1.08 %
Return on average equity 10.49 % 9.76 %
Adjusted return on average equity (4)
10.51 % 10.16 %
Average equity/average assets 11.40 % 10.68 %
Average interest-earning assets/average interest-bearing liabilities 159.75 % 162.60 %
Average interest-earning assets/average funding liabilities 108.06 % 107.51 %
Non-interest income/average assets 0.48 % 0.40 %
Non-interest expense/average assets 2.53 % 2.48 %
Efficiency ratio 61.78 % 65.19 %
Adjusted efficiency ratio (4)
60.30 % 62.84 %
(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 $7.0 million and $6.5 million for the nine months ended September 30, 2025 and 2024, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.1 million for both the nine months ended September 30, 2025 and 2024.
(4) Represents non-GAAP financial measures. See non-GAAP financial measure reconciliations presented above following Third 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
Nine Months Ended
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES – LOANS Sep 30, 2025 Jun 30, 2025 Sep 30, 2024 Sep 30, 2025 Sep 30, 2024
Balance, beginning of period $ 160,501 $ 157,323 $ 152,848 $ 155,521 $ 149,643
Provision for credit losses – loans 1,384 4,201 1,967 10,134 5,344
Recoveries of loans previously charged off:
Commercial real estate 36 53 65 146 1,552
Construction and land 725 — — 725 —
One- to four-family residential 13 58 14 259 47
Commercial business 99 361 613 1,017 1,718
Agricultural business, including secured by farmland 99 1 1 110 302
Consumer 78 168 41 365 312
Total recoveries 1,050 641 734 2,622 3,931
Loans charged off:
Commercial real estate — — — — (347)
Construction and land (218) — (145) (218) (145)
One- to four-family residential — — — (13) —
Commercial business (518) (892) (414) (4,711) (2,360)
Agricultural business, including secured by farmland (2,054) (362) — (2,416) —
Consumer (438) (410) (405) (1,212) (1,481)
Total charge-offs (3,228) (1,664) (964) (8,570) (4,333)
Net charge-offs (2,178) (1,023) (230) (5,948) (402)
Balance, end of period $ 159,707 $ 160,501 $ 154,585 $ 159,707 $ 154,585
Net charge-offs / Average loans receivable (0.019) % (0.009) % (0.002) % (0.051) % (0.004) %
Allowance for credit losses - loans as a percentage of total loans 1.36 % 1.37 % 1.38 % 1.36 % 1.38 %
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 September 30, 2025, we recorded a provision for credit losses - loans of $1.4 million, compared to a provision for credit losses - loans of $4.2 million during the preceding quarter. The provision for credit losses in the quarter was driven by changes in both portfolio mix and individually evaluated loans. The provision for credit losses for the preceding quarter primarily reflected loan growth, as well as risk rating migration. 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
Nine Months Ended
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS Sep 30, 2025 Jun 30, 2025 Sep 30, 2024 Sep 30, 2025 Sep 30, 2024
Balance, beginning of period $ 12,750 $ 12,162 $ 14,027 $ 13,562 $ 14,484
Provision (recapture) for credit losses - unfunded loan commitments 1,290 588 (262) 478 (719)
Balance, end of period $ 14,040 $ 12,750 $ 13,765 $ 14,040 $ 13,765
The increase in the allowance for credit losses - unfunded loan commitments for the current quarter reflects an increase in unfunded loan commitments, 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 Nine Months Ended
Sep 30, 2025 Jun 30, 2025 Change Amount Change Percent Sep 30, 2025 Sep 30, 2024 Change Amount Change Percent
Deposit fees and other service charges $ 10,955 $ 10,835 $ 120 1 % $ 32,559 $ 32,353 $ 206 1 %
Mortgage banking operations 3,298 3,226 72 2 9,627 8,521 1,106 13
Bank owned life insurance 2,702 2,384 318 13 7,661 7,049 612 9
Miscellaneous 3,175 1,221 1,954 160 6,742 5,538 1,204 22
20,130 17,666 2,464 14 56,589 53,461 3,128 6
Net gain (loss) on sale of securities 377 (3) 380 nm 374 (5,465) 5,839 (107)
Net change in valuation of financial instruments carried at fair value 223 88 135 153 626 (1,143) 1,769 (155)
Total non-interest income $ 20,730 $ 17,751 $ 2,979 17 % $ 57,589 $ 46,853 $ 10,736 23 %
nm = not meaningful
The increase in non-interest income during the current quarter compared to the preceding quarter was primarily due to a $2.0 million increase in miscellaneous income, which included gains recognized on asset disposals as part of the building and lease exits during the current quarter of $1.4 million, compared to $919,000 of losses incurred on asset disposals related to building and lease exits during the second quarter of 2025.
The increase in non-interest income for the nine months ended September 30, 2025, compared to the same period a year earlier, was primarily due to a $5.8 million reduction in net losses on the sale of securities. A net gain of $374,000 was recognized in the current period, compared to $5.5 million in strategic losses recorded during the nine months ended September 30, 2024, which were taken to mitigate rising interest rate risk in the securities portfolio. In addition, the $626,000 improvement in the fair value of financial instruments during the first nine months of 2025, compared to a $1.1 million negative valuation change in the same period of 2024, contributed to the increase. These instruments primarily include limited partnership investments, which were positively impacted by current market valuations.
Revenue from mortgage banking operations increased $1.1 million for the nine months ended September 30, 2025, compared to the same period a year earlier. This increase was the result of higher volumes of one- to four-family loans sold, with gains on these loan sales totaling $6.5 million, compared to $5.4 million in the prior-year period.
Miscellaneous income increased $1.2 million for the nine months ended September 30, 2025, compared to the same period a year earlier, primarily due to an increase in the gain on sale of SBA loans and higher income from back-to-back swaps.
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Non-interest Expense. The following table represents key elements of non-interest expense for the periods indicated (dollars in thousands):
Quarters Ended Nine Months Ended
Sep 30, 2025 Jun 30, 2025 Change Amount Change Percent. Sep 30, 2025 Sep 30, 2024 Change Amount Change Percent
Salary and employee benefits $ 64,935 $ 65,486 $ (551) (1) % $ 195,278 $ 188,032 $ 7,246 4 %
Less capitalized loan origination costs (4,802) (4,924) 122 (2) (13,056) (12,669) (387) 3
Occupancy and equipment 12,518 12,256 262 2 36,871 36,630 241 1
Information and computer data services 8,199 8,199 — — 24,026 21,694 2,332 11
Payment and card processing services 6,060 5,899 161 3 17,709 16,747 962 6
Professional and legal expenses 2,190 2,271 (81) (4) 6,891 4,833 2,058 43
Advertising and marketing 1,395 1,087 308 28 3,072 3,438 (366) (11)
Deposit insurance 2,867 2,800 67 2 8,464 8,541 (77) (1)
State and municipal business and use taxes 1,655 1,416 239 17 4,525 4,130 395 10
Real estate operations, net 203 392 (189) (48) 534 180 354 197
Amortization of core deposit intangibles 341 455 (114) (25) 1,252 2,037 (785) (39)
Miscellaneous 6,461 6,011 450 7 19,063 18,467 596 3
Total non-interest expense $ 102,022 $ 101,348 $ 674 1 % $ 304,629 $ 292,060 $ 12,569 4 %
nm = not meaningful
The increase in non-interest expense for the current quarter reflects increases in miscellaneous expenses and advertising and marketing expenses, partially offset by a decrease in salary and employee benefits. In addition, the current quarter included $1.0 million of building and lease exit costs, compared to $834,000 of such costs in the previous quarter. The increase in non-interest expense for the nine months ended September 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 a decrease in the amortization of core deposit intangibles.
Salary and employee benefits decreased for the current quarter, compared to the quarter ended June 30, 2025, as a result of decreased medical premiums expense and payroll taxes, and increased for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily from increased loan production-related commission expense and normal salary and wage increases.
Information and computer data services for the nine months ended September 30, 2025 increased from the comparable period primarily due to increases in computer software expenses as the Company invested in technology enhancements.
Professional and legal expense increased for the nine months ended September 30, 2025, compared to the same period a year earlier, primarily due to one-time reductions in litigation settlement costs that occurred during the nine months ended September 30, 2024.
Advertising and marketing expenses increased in the current quarter compared to the prior quarter due to increases in direct mail marketing and community development expenses. However, these expenses decreased $366,000, or 11%, for the nine-month period due to lower spending compared to the prior year.
Miscellaneous expenses increased in the current quarter compared to the prior quarter due to an increase in talent acquisition and other employee-related expenses.
Our efficiency ratio was 59.76% for the current quarter, compared to 62.50% in the preceding quarter. Our adjusted efficiency ratio, a non-GAAP financial measure, was 58.54% for the current quarter, compared to 60.28% 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 “Third Quarter 2025 Financial Highlights.”
Income Taxes. For the quarter ended September 30, 2025, we recognized $12.5 million in income tax expense for an effective tax rate of 19.0%, 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 June 30, 2025, we recognized $10.5 million in income tax expense for an effective tax rate of 18.8%. For the nine months ended September 30, 2025, we recognized $33.7 million in income tax expense for an effective tax rate of 18.9%, compared to $28.9 million in income tax expense for an effective tax rate of 19.1% for the same period in the prior year.
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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 $45.3 million, or 0.27% of total assets, at September 30, 2025, compared to $39.6 million, or 0.24% of total assets, at December 31, 2024. Our allowance for credit losses - loans was $159.7 million, or 399% of non-performing loans, at September 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 $6.6 million increase in nonaccrual one- to four-family residential loans.
The following table sets forth information with respect to our non-performing assets at the dates indicated (dollars in thousands):
September 30, 2025 December 31, 2024 September 30, 2024
Nonaccrual Loans:
Secured by real estate:
Commercial $ 460 $ 2,186 $ 2,127
Construction and land 4,240 3,963 4,286
One- to four-family 16,576 10,016 9,592
Commercial business 6,824 7,067 10,705
Agricultural business, including secured by farmland 5,765 8,485 7,703
Consumer 4,877 4,835 4,636
38,742 36,552 39,049
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial 274 — 2,258
Construction and land — — 380
One- to four-family 834 369 961
Commercial business 166 — —
Consumer — 35 359
1,274 404 3,958
Total non-performing loans 40,016 36,956 43,007
REO, net 5,272 2,367 2,221
Other repossessed assets held for sale — 300 —
Total non-performing assets $ 45,288 $ 39,623 $ 45,228
Total non-performing assets to total assets 0.27 % 0.24 % 0.28 %
Total nonaccrual loans to total loans receivable 0.33 % 0.32 % 0.35 %
Loans 30-89 days past due and on accrual $ 14,674 $ 26,824 $ 13,030
For the nine months ended September 30, 2025, interest income was reduced by $1.9 million as a result of nonaccrual loan activity, which included the reversal of $563,000 of accrued interest as of the date the loan was placed on nonaccrual. There was no interest income recognized on nonaccrual loans for the nine months ended September 30, 2025.
The following table presents the Company’s portfolio of loans by risk grade at the dates indicated (in thousands):
September 30, 2025 December 31, 2024 September 30, 2024
Pass $ 11,491,485 $ 11,118,744 $ 11,022,014
Special Mention 37,013 43,451 52,497
Substandard 174,040 192,461 150,095
Total $ 11,702,538 $ 11,354,656 $ 11,224,606
As of September 30, 2025, total substandard loans primarily consisted of loans within the commercial business, commercial real estate and agricultural business loan segments.
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Liquidity and Capital Resources
Our primary sources of funds are deposits, borrowings, proceeds from loan principal and interest payments and sales of loans, and the maturity of and interest payments on mortgage-backed and investment securities. While maturities and scheduled amortization of loans and securities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, competition and our pricing strategies.
Our primary investing activity is the origination of loans and, in certain periods, the purchase of securities or loans. During the nine months ended September 30, 2025 and 2024, our loan originations, including originations of loans held for sale, exceeded our loan repayments by $703.9 million and $744.9 million, respectively. There were $10.8 million of loan purchases during the nine months ended September 30, 2025, and $4.7 million of loan purchases during the nine months ended September 30, 2024. During the nine months ended September 30, 2025 and 2024, we received proceeds of $381.5 million and $276.8 million, respectively, from the sale of loans. Securities purchased during the nine months ended September 30, 2025 and 2024 totaled $101.7 million and $53.2 million, respectively, and securities repayments, maturities and sales in those periods were $296.3 million and $284.4 million, respectively.
Our primary financing activity is gathering deposits. Total deposits increased by $501.5 million during the nine months ended September 30, 2025, primarily due to an increase in core deposits. Core deposits were $12.48 billion at September 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 September 30, 2025, certificates of deposit totaled $1.54 billion, or 11% of our total deposits, including $1.48 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 $100.0 million of FHLB advances at September 30, 2025, compared to $290.0 million at December 31, 2024 as deposits were used as the primary source of funds during the period. Other borrowings decreased to $120.5 million at September 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.
We must maintain an adequate level of liquidity to ensure the availability of sufficient funds to accommodate deposit withdrawals, to support loan growth, to satisfy financial commitments, and to take advantage of investment opportunities. During the nine months ended September 30, 2025, we used our sources of funds primarily to fund loan growth. At September 30, 2025, we had outstanding loan commitments totaling $3.91 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 September 30, 2025, under these credit facilities based on pledged collateral, the Bank had $3.25 billion of available credit capacity. Advances under these credit facilities totaled $100.0 million at September 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 $1.63 billion as of September 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 September 30, 2025 or December 31, 2024. At September 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 September 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 September 30, 2025, Banner (on an unconsolidated basis) had liquid assets of $60.2 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 increased to $0.50 per share, up from $0.48 per share, for the dividend paid to shareholders in November 2025, 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 going forward at this new rate of $0.50 per share, our average total dividend paid each quarter would be approximately $17.2 million based on the number of outstanding shares at September 30, 2025.
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As noted below, Banner Corporation and its subsidiary bank continued to maintain capital levels in excess of the requirements to be categorized as “Well-Capitalized” under applicable regulatory standards. During the nine months ended September 30, 2025, total shareholders’ equity increased $138.6 million, to $1.91 billion or 11.55% of total assets. At September 30, 2025, tangible common shareholders’ equity, which excludes goodwill and other intangible assets, was $1.54 billion, or 9.50% of tangible assets. Tangible common shareholders’ equity represents a non-GAAP financial measure. See, non-GAAP financial measure reconciliations presented above under “Third Quarter 2025 Financial Highlights.”
Capital Requirements
Banner is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. The Bank, as a state-chartered, federally insured commercial bank, is subject to the capital requirements established by the FDIC.
The capital adequacy requirements are quantitative measures established by regulation that require Banner and the Bank to maintain minimum amounts and ratios of capital. The Federal Reserve requires Banner to maintain capital adequacy that generally parallels the FDIC requirements. The FDIC requires the Bank to maintain minimum capital ratios of total capital, tier 1 capital, and common equity tier 1 capital to risk-weighted assets as well as tier 1 leverage capital to average assets. In addition to the minimum capital ratios, the Bank must maintain a capital conservation buffer consisting of additional common equity tier 1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. At September 30, 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 September 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 $ 2,009,954 14.66 % $ 1,096,832 8.00 % $ 1,371,040 10.00 %
Tier 1 capital to risk-weighted assets 1,838,541 13.41 % 822,624 6.00 % 822,624 6.00 %
Tier 1 leverage capital to average assets 1,838,541 11.33 % 649,161 4.00 % n/a n/a
Common equity tier 1 capital 1,752,041 12.78 % 616,968 4.50 % n/a n/a
Banner Bank
Total capital to risk-weighted assets $ 1,941,114 14.16 % $ 1,096,375 8.00 % $ 1,370,469 10.00 %
Tier 1 capital to risk-weighted assets 1,769,772 12.91 % 822,281 6.00 % 1,096,375 8.00 %
Tier 1 leverage capital to average assets 1,769,772 10.91 % 648,959 4.00 % 811,198 5.00 %
Common equity tier 1 capital 1,769,772 12.91 % 616,711 4.50 % 890,805 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.