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 March 31, 2026, it had 135 branch offices and 15 loan production offices located in Washington, Oregon, California, Idaho, Utah and Nevada. Banner is subject to regulation by the Federal Reserve. The Bank is subject to regulation by the Washington State Department of Financial Institutions – Division of Banks (the DFI) and the Federal Deposit Insurance Corporation (the FDIC). As of March 31, 2026, we had total consolidated assets of $16.34 billion, total loans of $11.71 billion, total deposits of $13.84 billion and total shareholders’ equity of $1.97 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.
First Quarter 2026 Financial Highlights
• Net interest margin, on a tax equivalent basis, was 4.11% for current quarter, compared to 4.03% in the preceding quarter.
• Revenue was $169.3 million for the first quarter of 2026, compared to $167.7 million in the preceding quarter.
• Net interest income was $150.2 million in the first quarter of 2026, compared to $152.4 million in the preceding quarter.
• Mortgage banking operations revenue was $3.2 million for the first quarter of 2026, compared to $3.6 million in the preceding quarter.
• Return on average assets was 1.37%, compared to 1.24% in the preceding quarter.
• Net loans receivable were $11.55 billion at March 31, 2026, compared to $11.56 billion at December 31, 2025.
• Total deposits increased to $13.84 billion at March 31, 2026, compared to $13.74 billion at December 31, 2025.
• Core deposits represented 89% of total deposits at March 31, 2026.
• Non-performing assets were $51.7 million, or 0.32% of total assets, at March 31, 2026, compared to $51.2 million, or 0.31% of total assets at December 31, 2025.
• The allowance for credit losses - loans was $160.4 million, or 1.37% of total loans receivable, as of March 31, 2026, compared to $160.3 million, or 1.37% of total loans receivable, at December 31, 2025.
• Dividends paid to shareholders were $0.50 per share in the quarter ended March 31, 2026.
• Common shareholders’ equity per share increased 2% to $58.06 at March 31, 2026, compared to $57.08 at December 31, 2025.
• Tangible common shareholders’ equity per share* increased 2% to $47.00 at March 31, 2026, compared to $46.09 at December 31, 2025.
• Repurchased 250,000 shares of Banner common stock during the first quarter of 2026 at an average price of $64.56 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.
Adjusted revenue, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average equity, return on average tangible common equity, and adjusted efficiency ratio are non-GAAP financial measures. To calculate these non-GAAP measures, we make adjustments to our GAAP revenues and expenses as reported on our Consolidated Statements of Operations. Management believes that these non-GAAP financial measures provide information to investors that is useful in evaluating the operating performance and trends of financial services companies, including the Company (dollars in thousands except per share data).
Quarters Ended
Mar 31, 2026 Dec 31, 2025 Mar 31, 2025
ADJUSTED REVENUE
Net interest income (GAAP) $ 150,169 $ 152,448 $ 141,083
Non-interest income (GAAP) 19,161 15,225 19,108
Total revenue (GAAP) 169,330 167,673 160,191
Exclude: Net loss on sale of securities 1,242 — —
Net change in valuation of financial instruments carried at fair value (1,662) 2,010 (315)
Losses on building and lease exits — 169 —
Adjusted revenue (non-GAAP) $ 168,910 $ 169,852 $ 159,876
45
Table of Contents
Quarters Ended
Mar 31, 2026 Dec 31, 2025 Mar 31, 2025
ADJUSTED EARNINGS
Net income (GAAP) $ 54,716 $ 51,249 $ 45,135
Exclude: Net loss on sale of securities 1,242 — —
Net change in valuation of financial instruments carried at fair value (1,662) 2,010 (315)
Building and lease exit costs, net 9 603 —
Related net tax expense (benefit) 99 (627) 76
Total adjusted earnings (non-GAAP) $ 54,404 $ 53,235 $ 44,896
Diluted earnings per share (GAAP) $ 1.60 $ 1.49 $ 1.30
Adjusted diluted earnings per share (non-GAAP) $ 1.59 $ 1.55 $ 1.29
Return on average assets 1.37 % 1.24 % 1.15 %
Adjusted return on average assets (1)
1.36 % 1.29 % 1.14 %
Return on average equity 11.29 % 10.56 % 10.17 %
Adjusted return on average equity (2)
11.23 % 10.97 % 10.12 %
AVERAGE TANGIBLE COMMON EQUITY Quarters Ended
Mar 31, 2026 Dec 31, 2025 Mar 31, 2025
Net Income (GAAP) $ 54,716 $ 51,249 $ 45,135
Exclude: Amortization of intangibles, net of tax 202 249 360
Tangible net income available to common shareholders (non-GAAP) $ 54,918 $ 51,498 $ 45,495
Average common shareholder’s equity $ 1,965,463 $ 1,925,529 $ 1,799,078
Exclude: Average goodwill and other intangible assets, net 374,477 374,764 375,943
Average tangible common equity $ 1,590,986 $ 1,550,765 $ 1,423,135
Return on average equity 11.29 % 10.56 % 10.17 %
Return on average tangible common equity (3)
14.00 % 13.17 % 12.96 %
Quarters Ended
Mar 31, 2026 Dec 31, 2025 Mar 31, 2025
ADJUSTED EFFICIENCY RATIO
Non-interest expense (GAAP) $ 102,608 $ 104,145 $ 101,259
Exclude: CDI amortization (256) (315) (456)
State and municipal tax expense (1,820) (1,751) (1,454)
REO operations (109) 43 61
Building and lease exit costs (9) (434) —
Adjusted non-interest expense (non-GAAP) $ 100,414 $ 101,688 $ 99,410
Net interest income (GAAP) $ 150,169 $ 152,448 $ 141,083
Non-interest income (GAAP) 19,161 15,225 19,108
Total revenue (GAAP) 169,330 167,673 160,191
Exclude: Net loss on sale of securities 1,242 — —
Net change in valuation of financial instruments carried at fair value (1,662) 2,010 (315)
Losses on building and lease exits — 169 —
Adjusted revenue (non-GAAP) $ 168,910 $ 169,852 $ 159,876
Efficiency ratio (GAAP) 60.60 % 62.11 % 63.21 %
Adjusted efficiency ratio (non-GAAP) (4)
59.45 % 59.87 % 62.18 %
(1) Adjusted earnings (non-GAAP) divided by average assets.
(2) Adjusted earnings (non-GAAP) divided by average equity.
(3) Tangible net income (non-GAAP) divided by average tangible common equity (non-GAAP).
(4) Adjusted non-interest expense (non-GAAP) divided by adjusted revenue (non-GAAP).
46
Table of Contents
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
March 31, 2026 December 31, 2025 March 31, 2025
Shareholders’ equity (GAAP) $ 1,966,634 $ 1,946,297 $ 1,833,453
Exclude goodwill and other intangible assets, net 374,356 374,612 375,723
Tangible common shareholders’ equity (non-GAAP) $ 1,592,278 $ 1,571,685 $ 1,457,730
Total assets (GAAP) $ 16,344,272 $ 16,354,488 $ 16,170,812
Exclude goodwill and other intangible assets, net 374,356 374,612 375,723
Total tangible assets (non-GAAP) $ 15,969,916 $ 15,979,876 $ 15,795,089
Common shareholders’ equity to total assets (GAAP) 12.03 % 11.90 % 11.34 %
Tangible common shareholders’ equity to tangible assets (non-GAAP) 9.97 % 9.84 % 9.23 %
TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE
March 31, 2026 December 31, 2025 March 31, 2025
Shareholders’ equity (GAAP) $ 1,966,634 $ 1,946,297 $ 1,833,453
Tangible common shareholders’ equity (non-GAAP) $ 1,592,278 $ 1,571,685 $ 1,457,730
Common shares outstanding at end of period 33,875,098 34,097,856 34,489,972
Common shareholders’ equity (book value) per share (GAAP) $ 58.06 $ 57.08 $ 53.16
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) $ 47.00 $ 46.09 $ 42.27
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 2025 Form 10-K. The condensed consolidated financial statements are prepared in conformity with GAAP and follow general practices within the financial services industry in which the Company operates. This preparation requires Management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements. As this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes that the allowance for credit losses and fair value measurements require significant judgments and assumptions which are susceptible to significant changes based on the current environment. There have been no significant changes in our application of critical accounting estimates since December 31, 2025.
47
Table of Contents
Comparison of Financial Condition at March 31, 2026 and December 31, 2025
General : Total assets decreased $10.2 million to $16.34 billion at March 31, 2026, from $16.35 billion at December 31, 2025, primarily due to decreases in both loans held for sale and loans receivable and a reduction in FHLB stock resulting from the repayment of FHLB advances, partially offset by growth in interest-bearing deposits held at other banks.
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 March 31, 2026 was 85%. We offer a wide range of loan products to meet the demands of our clients. Our lending activities are primarily directed toward the origination of real estate and commercial loans. Total loans receivable (gross loans less deferred fees and discounts and excluding loans held for sale) decreased $14.1 million at March 31, 2026, compared to December 31, 2025. The net decrease was driven primarily by payoffs and paydowns in multifamily real estate, land and land development, and agricultural business loans, partially offset by new production in commercial real estate and commercial business 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
Mar 31, 2026 Dec 31, 2025 Mar 31, 2025 Year End Prior Year Qtr. End
Commercial real estate:
Owner-occupied $ 1,176,035 $ 1,138,298 $ 1,020,829 3 % 15 %
Investment properties 1,719,220 1,701,413 1,598,387 1 8
Small balance CRE 1,218,388 1,212,357 1,217,458 — —
Total Commercial real estate 4,113,643 4,052,068 3,836,674 2 7
Multifamily real estate 798,230 850,789 877,716 (6) (9)
Construction, land and land development:
Commercial construction 174,761 156,021 146,467 12 19
Multifamily construction 502,166 514,330 618,942 (2) (19)
One- to four-family construction 617,233 607,447 504,265 2 22
Land and land development 400,959 433,678 396,009 (8) 1
Total Construction, land and land development 1,695,119 1,711,476 1,665,683 (1) 2
Commercial business:
Commercial business 1,231,154 1,225,108 1,283,754 — (4)
Small business scored 1,199,913 1,187,360 1,122,550 1 7
Total Commercial business 2,431,067 2,412,468 2,406,304 1 1
Agricultural business, including secured by farmland 332,440 353,152 334,899 (6) (1)
One- to four-family residential 1,563,088 1,573,191 1,600,283 (1) (2)
Consumer:
Consumer—home equity revolving lines of credit 682,692 679,489 620,483 — 10
Consumer—other 91,347 89,054 96,754 3 (6)
Total Consumer 774,039 768,543 717,237 1 8
Total loans receivable $ 11,707,626 $ 11,721,687 $ 11,438,796 — % 2 %
Commercial real estate loans totaled $4.11 billion, or 35% of our loan portfolio, and multifamily real estate loans totaled $798.2 million, or 7% of our loan portfolio, at March 31, 2026. Commercial real estate loans increased by $61.6 million during the first three months of 2026, primarily due to new production and transfers to the permanent loan portfolio upon completion of the construction phase, while multifamily real estate loans decreased by $52.6 million, primarily due to payoffs and paydowns.
48
Table of Contents
Our construction, land and land development loans totaled $1.70 billion, or 14% of our loan portfolio, at March 31, 2026, compared to $1.71 billion at December 31, 2025. Multifamily construction loans decreased $12.2 million, or 2%, to $502.2 million at March 31, 2026, compared to December 31, 2025. Multifamily construction represented 4% of our total loan portfolio at March 31, 2026. Multifamily construction loans were comprised primarily of affordable housing projects and, to a lesser extent, market rate multifamily projects across our footprint. Commercial construction loans increased $18.7 million, or 12%, to $174.8 million at March 31, 2026, compared to $156.0 million at December 31, 2025, primarily due to advances, partially offset by transfers to the permanent loan portfolio upon completion of the construction phase. Land and land development loans decreased $32.7 million, or 8%, to $401.0 million at March 31, 2026, compared to December 31, 2025, primarily due to payoffs and paydowns, partially offset by new loan production. Construction loans across our footprint are concentrated primarily in Washington, California and Oregon, with the majority of multifamily construction projects expected to convert to permanent loans within the next 12 to 24 months as construction phases are completed.
Our commercial business lending is directed toward meeting the credit and related deposit needs of various small- to medium-sized business and agribusiness borrowers operating in our primary market areas. Our commercial business loans were $2.43 billion at March 31, 2026 and $2.41 billion at December 31, 2025. Commercial business loans represented 21% of our loan portfolio at March 31, 2026. Our agricultural business loans were $332.4 million at March 31, 2026 and $353.2 million at December 31, 2025. Agricultural business loans represented 3% of our loan portfolio at March 31, 2026. Our commercial business lending also includes participation in certain syndicated loans, including shared national credits, which totaled $168.1 million, or 1% of our loan portfolio, at March 31, 2026, compared to $195.6 million, or 2% of our loan portfolio, at December 31, 2025.
We are active originators of one- to four-family residential loans in most communities where we have established offices in Washington, Oregon, California, Idaho and Utah. Most of the one- to four-family residential loans we originate in normal market conditions are sold in secondary markets with net gains on sales and loan servicing fees reflected in our revenues from mortgage banking operations. At March 31, 2026, one- to four-family residential loans retained in our portfolio decreased $10.1 million, to $1.56 billion, compared to $1.57 billion at December 31, 2025. The decrease was primarily the result of one- to four-family residential loan payoffs exceeding 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 13% of our loan portfolio at March 31, 2026.
Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At March 31, 2026, consumer loans, including home equity revolving lines of credit, increased $5.5 million to $774.0 million, compared to $768.5 million at December 31, 2025.
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
Mar 31, 2026 Dec 31, 2025 Mar 31, 2025
Commercial real estate $ 220,193 $ 136,604 $ 37,041
Multifamily real estate 3,869 4,300 9,555
Construction and land 323,941 362,199 287,565
Commercial business 168,324 219,592 103,739
Agricultural business 22,562 28,815 12,765
One-to four- family residential 13,416 7,219 5,139
Consumer 110,913 108,578 80,030
Total commitment amount for loan originations (excluding loans held for sale) $ 863,218 $ 867,307 $ 535,834
Loans held for sale decreased to $33.8 million at March 31, 2026, compared to $42.9 million at December 31, 2025. The decrease was primarily the result of increased sales of one- to four- family residential mortgage loans held for sale, with loan sales outpacing originations during the period. Originations of loans held for sale increased to $91.7 million for the three months ended March 31, 2026, compared to $75.2 million for the same period last year. The volume of one- to four-family residential mortgage loans sold was $132.6 million during the three months ended March 31, 2026, compared to $108.1 million in the same period a year ago.
49
Table of Contents
The following table presents loans by geographic concentration at the dates indicated (dollars in thousands):
Mar 31, 2026 Dec 31, 2025 Mar 31, 2025 Percentage Change
Amount Percentage Amount Amount Year End Prior Year Qtr. End
Washington $ 5,313,022 45 % $ 5,371,200 $ 5,260,906 (1) % 1 %
California 3,159,842 27 3,105,405 2,927,835 2 8
Oregon 2,166,750 18 2,159,404 2,122,953 — 2
Idaho 690,608 6 667,343 665,625 3 4
Utah 77,046 1 82,594 88,858 (7) (13)
Other 300,358 3 335,741 372,619 (11) (19)
Total loans receivable $ 11,707,626 100 % $ 11,721,687 $ 11,438,796 — % 2 %
Investment Securities: Total securities were $2.98 billion at March 31, 2026, essentially unchanged from December 31, 2025. Available-for-sale securities increased $18.8 million to $2.04 billion at March 31, 2026, compared to $2.02 billion at December 31, 2025, while held-to-maturity securities decreased $17.5 million to $943.7 million, compared to $961.2 million at December 31, 2025, reflecting maturities and paydowns during the period. Purchases during the three months ended March 31, 2026, consisted of agency commercial mortgage‑backed securities, corporate securities and collateralized loan obligations. The average effective duration of the Company’s securities portfolio was 6.1 years at March 31, 2026, compared to 6.6 years at December 31, 2025. The fair value of securities designated as available-for-sale decreased $5.2 million for the three months ended March 31, 2026. This decrease, net of $1.3 million in associated tax benefit, was recorded in other comprehensive income and reflected the impact of changes in market interest rates during the three months ended March 31, 2026.
Deposits: Deposits, client retail repurchase agreements and loan repayments are the major sources of our funds for lending and other investment purposes. We compete with other financial institutions and financial intermediaries in attracting deposits and we generally attract deposits within our primary market areas. Much of the focus of our branch strategy and marketing efforts over the last several years have been directed toward attracting additional deposit client relationships and balances. This effort has been particularly directed towards emphasizing core deposit activity in non-interest-bearing and other transaction and savings accounts.
The following table sets forth the Company’s deposits by type of deposit account as of the dates indicated (dollars in thousands):
Percentage Change
Mar 31, 2026 Dec 31, 2025 Mar 31, 2025 Year End Prior Year Qtr. End
Non-interest-bearing $ 4,532,639 $ 4,489,839 $ 4,571,598 1 % (1) %
Interest-bearing checking 2,628,731 2,609,080 2,431,279 1 8
Regular savings accounts 3,859,530 3,723,922 3,542,005 4 9
Money market accounts 1,354,650 1,388,001 1,544,333 (2) (12)
Interest-bearing transaction & savings accounts 7,842,911 7,721,003 7,517,617 2 4
Total core deposits 12,375,550 12,210,842 12,089,215 1 2
Interest-bearing certificates 1,464,814 1,532,304 1,504,050 (4) (3)
Total deposits $ 13,840,364 $ 13,743,146 $ 13,593,265 1 % 2 %
Total deposits increased $97.2 million at March 31, 2026, compared to December 31, 2025, with core deposits increasing $164.7 million, partially offset by certificates of deposit decreasing $67.5 million. The increase in core deposits primarily reflects increases in non-interest-bearing deposits and interest-bearing transaction and savings accounts. We had no brokered deposits at March 31, 2026, compared to $50.0 million at December 31, 2025. Core deposits represented 89% of total deposits at both March 31, 2026 and December 31, 2025. Competition for deposits in our market areas remains strong.
The following table sets forth the number and average account balance of the Company’s deposit accounts as of the dates indicated (dollars in thousands):
Mar 31, 2026 Dec 31, 2025 Mar 31, 2025
Number of deposit accounts 444,250 445,989 453,808
Average account balance per account $ 32 $ 31 $ 30
50
Table of Contents
The following table presents deposits by geographic concentration at the dates indicated (dollars in thousands):
Mar 31, 2026 Dec 31, 2025 Mar 31, 2025 Percentage Change
Amount Percentage Amount Amount Year End Prior Year Qtr. End
Washington $ 7,429,406 54 % $ 7,500,215 $ 7,394,201 (1) % — %
Oregon 3,125,040 23 3,035,104 3,045,078 3 3
California 2,558,466 18 2,483,948 2,463,012 3 4
Idaho 727,452 5 723,879 690,974 — 5
Total deposits $ 13,840,364 100 % $ 13,743,146 $ 13,593,265 1 % 2 %
Borrowings: We had no FHLB advances at March 31, 2026, compared to $150.0 million at December 31, 2025, as the increase in core deposits was used to pay off FHLB advances during the current quarter. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, increased $8.0 million to $115.7 million at March 31, 2026, compared to $107.7 million at December 31, 2025. At March 31, 2026, the Company’s off-balance sheet liquidity included additional borrowing capacity of $3.76 billion at the FHLB, $1.74 billion at the Federal Reserve, and $125.0 million in federal funds lines of credit with other financial institutions. Junior subordinated debentures totaled $79.5 million at March 31, 2026, compared to $79.2 million at December 31, 2025.
Shareholders’ Equity: Total shareholders’ equity increased $20.3 million to $1.97 billion, or 12.03% of total assets, at March 31, 2026, compared to $1.95 billion, or 11.90% of total assets, at December 31, 2025. The increase was primarily due to a $37.4 million increase in retained earnings resulting from $54.7 million in net income, partially offset by the accrual of $17.3 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 $64.56 per share. In addition, accumulated other comprehensive loss increased by $2.9 million, primarily due to an increase in unrealized losses on the available for sale securities portfolio.
Tangible common shareholders’ equity, which excludes goodwill and other intangible assets and is a non-GAAP financial measure, increased $20.6 million to $1.59 billion, or 9.97% of tangible assets, at March 31, 2026, compared to $1.57 billion, or 9.84% of tangible assets at December 31, 2025. A reconciliation of this non-GAAP financial measure to its comparable GAAP financial measure is presented above following “First Quarter 2026 Financial Highlights.”
Comparison of Results of Operations for the Three Months Ended March 31, 2026 and December 31, 2025, and the Three Months Ended March 31, 2026 and 2025
For the quarter ended March 31, 2026, net income was $54.7 million, or $1.60 per diluted share, compared to $51.2 million, or $1.49 per diluted share, for the preceding quarter and $45.1 million, or $1.30 per diluted share, for the three months ended March 31, 2025. The increase in net income compared to the preceding quarter was primarily due to an increase in non-interest income, a decrease in non-interest expense and a recapture of provision for credit losses, partially offset by a decrease in net interest income. When compared to the same period a year ago, the increase in net income was primarily attributable to higher net interest income and the recapture of provision for credit losses, partially offset by increased non-interest expense.
Net interest income was $150.2 million in the first quarter of 2026, compared to $152.4 million in the preceding quarter, and $141.1 million for the comparable period a year ago. The decrease in net interest income compared to the prior quarter primarily reflects two fewer calendar days in the current quarter as well as a decrease in the average balance of interest-earning assets. This was partially offset by a reduction in overall funding costs and an improvement in net interest margin. The increase in net interest income for the three months ended March 31, 2026 compared to the same period a year ago primarily reflects a decrease in overall funding costs and an increase in the average balance of interest-earning assets.
We recorded a $796,000 recapture of provision for credit losses for the quarter ended March 31, 2026, compared to a $2.4 million provision for credit losses in the preceding quarter and a $3.1 million provision for credit losses for the same period a year ago. The recapture of provision for credit losses in the current quarter was primarily driven by a reduction in unused commitments, mainly within the construction portfolio, reducing the reserve for unfunded commitments. This was partially offset by a provision for credit losses – loans to capture the impact of risk rating migration, changes in portfolio mix and adjustments to qualitative factor assessments to reflect modestly elevated economic uncertainty.
Total non-interest income increased for the quarter ended March 31, 2026, compared to the preceding quarter, and increased slightly compared to the same period a year ago. The increase from the preceding quarter was primarily due to an increase in miscellaneous income, primarily due to losses incurred on the disposition of assets recognized during the prior quarter. In addition, fair value adjustments on financial instruments carried at fair value improved during the quarter, partially offset by a net loss recognized on the sale of securities during the current quarter. The increase in non-interest income during the three months ended March 31, 2026, compared to the same period last year, was primarily attributable to the increase in fair value adjustments on financial instruments carried at fair value, partially offset by the net loss recognized on the sale of securities during the current quarter.
51
Table of Contents
Total non-interest expense decreased for the quarter ended March 31, 2026, compared to the preceding quarter, and increased compared to the same period a year ago. The decrease from the previous quarter reflected a decrease in occupancy and equipment costs, primarily due to lower rent expense as well as lower building repair and maintenance expenses, a decrease in professional and legal expenses, primarily due to expenses recognized on a pending legal settlement during the prior quarter, and a decrease in advertising and marketing expense, primarily due to decreases in direct mail marketing and community development expenses. This was partially offset by an increase in salary and employee benefits, resulting from increased medical premiums and payroll tax expenses. The increase in non-interest expense during the three months ended March 31, 2026, compared to the same period last year primarily reflects increases in salary and employee benefits, partially offset by a decrease in occupancy and equipment costs.
OPERATING DATA:
Quarters Ended
(In thousands) March 31, 2026 December 31, 2025 March 31, 2025
Interest income $ 197,818 $ 204,980 $ 193,868
Interest expense 47,649 52,532 52,785
Net interest income 150,169 152,448 141,083
(Recapture) provision for credit losses (796) 2,441 3,139
Net interest income after (recapture) provision for credit losses 150,965 150,007 137,944
Deposit fees and other service charges 11,391 10,681 10,769
Mortgage banking operations 3,212 3,617 3,103
Net loss on sale of securities (1,242) — —
Net change in valuation of financial instruments carried at fair value
1,662 (2,010) 315
All other non-interest income 4,138 2,937 4,921
Total non-interest income
19,161 15,225 19,108
Salary and employee benefits 67,732 65,428 64,857
All other non-interest expenses 34,876 38,717 36,402
Total non-interest expense
102,608 104,145 101,259
Income before provision for income tax expense
67,518 61,087 55,793
Provision for income tax expense 12,802 9,838 10,658
Net income $ 54,716 $ 51,249 $ 45,135
PER COMMON SHARE DATA: Quarters Ended
March 31, 2026 December 31, 2025 March 31, 2025
Net income:
Basic $ 1.61 $ 1.50 $ 1.31
Diluted 1.60 1.49 1.30
Net Interest Income. Net interest income decreased $2.3 million during the quarter ended March 31, 2026, compared to the preceding quarter, due to a decrease in interest income, primarily attributable to two fewer calendar days in the current quarter, and a slight decrease in average earning assets. This was partially offset by an improvement in net interest margin.
Net interest margin on a tax equivalent basis was 4.11% for the first quarter of 2026, compared to 4.03% for the preceding quarter and 3.92% for the same period in the prior year. The net interest margin for the current quarter benefited from lower funding costs when compared to both the preceding quarter and the same period in the prior year.
Net interest income increased by $9.1 million, or 6% for the three months ended March 31, 2026, compared to the same period one year earlier. The increase was primarily the result of a $4.0 million increase in interest income, primarily reflecting an increase in the average balance of loans, as well as a $5.1 million decrease in interest expense reflecting a 17 basis-point reduction in the average cost of funding liabilities to 1.38% from 1.55%.
Interest Income. Interest income for the quarter ended March 31, 2026 was $197.8 million, compared to $205.0 million for the preceding quarter and $193.9 million for the same period in the prior year. The decrease for the current quarter, compared to the preceding quarter, was primarily attributable to two fewer calendar days in the current quarter and a decrease in average loan yields and balances.
The total average loan yield decreased three basis points to 6.07% for the quarter ended March 31, 2026, from 6.10% in the preceding quarter and was consistent compared to 6.07% in the same period in the prior year. The decrease in average loan balances for the current quarter, compared to the preceding quarter, primarily reflected a decrease in commercial and agricultural business loans.
52
Table of Contents
The total investment securities average balance decreased for the quarter ended March 31, 2026 (excluding the effect of fair value adjustments), compared to the preceding quarter and the same period in the prior year, reflecting paydowns and maturities that were not fully replaced by new purchases during the period. The average yield on the combined portfolio decreased to 3.01% for the quarter ended March 31, 2026, from 3.03% for the preceding quarter and 3.02% for the same period in the prior year. Interest income on interest-bearing deposits with banks decreased for the current quarter, compared to the preceding quarter, reflecting decreases in both the average balance and yield of interest-bearing deposits, and increased compared to the same period a year ago, reflecting increases in both the average balance and yield of interest-bearing deposits. The average yield on interest-bearing deposits with banks decreased to 3.34%, compared to 3.77% in the prior quarter, and increased compared to 2.99% in the same period in the prior year.
Interest Expense. Interest expense decreased for the quarter ended March 31, 2026 as compared to the preceding quarter. Average funding liabilities decreased by $202.5 million, primarily due to a $201.8 million decrease in average deposit balances. The average cost of funding liabilities decreased nine basis points, to 1.38% for the quarter ended March 31, 2026. Interest expense for the three months ended March 31, 2026 was $47.6 million, compared to $52.8 million for the same period in the prior year. The decrease resulted from a 17 basis-point decrease in the average cost of funds to 1.38% from 1.55%.
Deposit interest expense for the quarter ended March 31, 2026 decreased 10% to $45.7 million, compared to $50.5 million for the preceding quarter and $48.7 million for the same period in the prior year. The decrease compared to the prior quarter was primarily due to decreases in both the average balance and the average rate paid on interest-bearing deposits. The decrease compared to the prior year period was primarily due to a decrease in the average rate paid on interest-bearing deposits, partially offset by an increase in the average balance of interest-bearing deposits. The average rate paid on total deposits, including non-interest-bearing deposits, was 1.35% for the quarter ended March 31, 2026, compared to 1.43% for the preceding quarter and 1.47% for the same period a year earlier. The average rate paid on interest-bearing deposits decreased to 1.99% for the quarter ended March 31, 2026, compared to 2.14% in the preceding quarter and 2.22% in the same period a year earlier. The decrease in the average rate paid on interest-bearing deposits, compared to both the preceding quarter and the same period a year ago, is attributable to lower rates paid across all categories of interest-bearing deposits. The decrease in the average rate paid on interest-bearing deposits compared to the preceding quarter was also impacted by shifts in the deposit mix, primarily reflecting continued migration from higher-rate certificates of deposit into savings and checking accounts. Total average deposit balances, including non-interest-bearing deposits, decreased to $13.76 billion for the quarter ended March 31, 2026, compared to $13.97 billion for the preceding quarter and increased compared to $13.45 billion for the same period a year earlier.
Interest expense on total borrowings was $2.0 million for both the quarter ended March 31, 2026 and the preceding quarter and was $4.0 million for the same period a year earlier, due to decreases in both the average balance and rate paid on total borrowings, primarily reflecting the repayment of $150.0 million in FHLB advances and the maturity of higher-rate subordinated debt during 2025. The average rate paid on total borrowings for the quarter ended March 31, 2026, decreased to 3.90%, from 3.93% for the preceding quarter, and decreased from 4.32% for the same period a year earlier.
53
Table of Contents
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) Mar 31, 2026 Dec 31, 2025 Mar 31, 2025
(dollars in thousands) Average Balance Interest and Dividends Yield / Cost (3)
Average Balance Interest and Dividends Yield / Cost (3)
Average Balance Interest and Dividends Yield / Cost (3)
Interest-earning assets:
Held for sale loans $ 26,051 $ 381 5.93 % $ 31,892 $ 487 6.06 % $ 22,457 $ 357 6.45 %
Real estate secured loans 9,754,431 144,369 6.00 % 9,759,170 148,310 6.03 % 9,366,213 137,724 5.96 %
Commercial/agricultural loans 1,853,248 29,153 6.38 % 1,877,966 30,430 6.43 % 1,907,212 30,752 6.54 %
Consumer and other loans 116,147 2,040 7.12 % 119,212 2,076 6.91 % 121,492 2,092 6.98 %
Total loans (1)
11,749,877 175,943 6.07 % 11,788,240 181,303 6.10 % 11,417,374 170,925 6.07 %
Mortgage-backed securities 2,326,123 14,509 2.53 % 2,379,784 14,943 2.49 % 2,542,983 15,895 2.53 %
Other securities 878,650 9,040 4.17 % 869,066 9,141 4.17 % 902,732 9,687 4.35 %
Interest-bearing deposits with banks 184,204 1,518 3.34 % 293,188 2,786 3.77 % 65,758 484 2.99 %
FHLB stock 9,912 148 6.06 % 9,849 300 12.08 % 12,804 149 4.72 %
Total investment securities 3,398,889 25,215 3.01 % 3,551,887 27,170 3.03 % 3,524,277 26,215 3.02 %
Total interest-earning assets 15,148,766 201,158 5.39 % 15,340,127 208,473 5.39 % 14,941,651 197,140 5.35 %
Non-interest-earning assets 1,106,533 1,081,392 1,006,497
Total assets $ 16,255,299 $ 16,421,519 $ 15,948,148
Deposits:
Interest-bearing checking accounts $ 2,631,917 9,273 1.43 % $ 2,671,378 10,550 1.57 % $ 2,381,106 8,537 1.45 %
Savings accounts 3,792,427 18,388 1.97 % 3,739,496 19,623 2.08 % 3,450,908 18,103 2.13 %
Money market accounts 1,387,870 6,151 1.80 % 1,430,674 6,926 1.92 % 1,555,262 7,860 2.05 %
Certificates of deposit 1,481,349 11,866 3.25 % 1,539,845 13,395 3.45 % 1,531,428 14,237 3.77 %
Total interest-bearing deposits 9,293,563 45,678 1.99 % 9,381,393 50,494 2.14 % 8,918,704 48,737 2.22 %
Non-interest-bearing deposits 4,470,629 — — % 4,584,612 — — % 4,526,596 — — %
Total deposits 13,764,192 45,678 1.35 % 13,966,005 50,494 1.43 % 13,445,300 48,737 1.47 %
Other interest-bearing liabilities:
FHLB advances 4,089 40 3.97 % 1,630 17 4.14 % 75,300 860 4.63 %
Other borrowings 111,569 697 2.53 % 114,685 693 2.40 % 134,761 694 2.09 %
Junior subordinated debentures and subordinated notes 89,178 1,234 5.61 % 89,178 1,328 5.91 % 169,678 2,494 5.96 %
Total borrowings 204,836 1,971 3.90 % 205,493 2,038 3.93 % 379,739 4,048 4.32 %
Total funding liabilities 13,969,028 47,649 1.38 % 14,171,498 52,532 1.47 % 13,825,039 52,785 1.55 %
Other non-interest-bearing liabilities (2)
320,808 324,492 324,031
Total liabilities 14,289,836 14,495,990 14,149,070
Shareholders’ equity 1,965,463 1,925,529 1,799,078
Total liabilities and shareholders’ equity $ 16,255,299 $ 16,421,519 $ 15,948,148
Net interest income/rate spread (tax equivalent) $ 153,509 4.01 % $ 155,941 3.92 % $ 144,355 3.80 %
Net interest margin (tax equivalent) 4.11 % 4.03 % 3.92 %
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis (3,340) (3,493) (3,272)
Net interest income and margin, as reported $ 150,169 4.02 % $ 152,448 3.94 % $ 141,083 3.83 %
Additional Key Financial Ratios:
Return on average assets 1.37 % 1.24 % 1.15 %
Adjusted return on average assets (4)
1.36 % 1.29 % 1.14 %
Return on average equity 11.29 % 10.56 % 10.17 %
Adjusted return on average equity (4)
11.23 % 10.97 % 10.12 %
Return on average tangible common equity (4)
14.00 % 13.17 % 12.96 %
Average equity/average assets 12.09 % 11.73 % 11.28 %
Average interest-earning assets/average interest-bearing liabilities 159.49 % 160.01 % 160.69 %
Average interest-earning assets/average funding liabilities 108.45 % 108.25 % 108.08 %
Non-interest income/average assets 0.48 % 0.37 % 0.49 %
Non-interest expense/average assets 2.56 % 2.52 % 2.57 %
Efficiency ratio 60.60 % 62.11 % 63.21 %
Adjusted efficiency ratio (4)
59.45 % 59.87 % 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, which Banner believes provides comparability of net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent with industry practice. The tax equivalent yield adjustment to interest earned on loans was $2.2 million and $2.4 million and $2.2 million for the quarters ended March 31, 2026, December 31, 2025 and March 31, 2025, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.1 million for both the quarters ended March 31, 2026 and December 31, 2025 and $1.0 million for the quarter ended March 31, 2025.
(4) Represents non-GAAP financial measures. See non-GAAP financial measure reconciliations presented above following First Quarter 2026 Highlights.
54
Table of Contents
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
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES – LOANS Mar 31, 2026 Dec 31, 2025 Mar 31, 2025
Balance, beginning of period $ 160,276 $ 159,707 $ 155,521
Provision for credit losses – loans 1,292 1,503 4,549
Recoveries of loans previously charged off:
Commercial real estate 11 48 57
Construction and land 4 4 —
One- to four-family residential 13 14 188
Commercial business 81 93 557
Agricultural business, including secured by farmland 4 68 10
Consumer 140 83 119
Total recoveries 253 310 931
Loans charged off:
One- to four-family residential — — (13)
Commercial business (863) (837) (3,301)
Consumer (606) (407) (364)
Total charge-offs (1,469) (1,244) (3,678)
Net charge-offs (1,216) (934) (2,747)
Balance, end of period $ 160,352 $ 160,276 $ 157,323
Net charge-offs/average loans receivable (0.010) % (0.008) % (0.024) %
Allowance for credit losses - loans as a percentage of total loans 1.37 % 1.37 % 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 March 31, 2026, we recorded a provision for credit losses - loans of $1.3 million, compared to a provision for credit losses - loans of $1.5 million during the preceding quarter. The provision for credit losses in the quarter was driven by risk rating migration, changes in portfolio mix and adjustments to qualitative factor assessments to reflect modestly elevated economic uncertainty. The provision for credit losses for the preceding quarter primarily reflected risk rating migration which impacted the overall estimated reserve requirements. 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
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS Mar 31, 2026 Dec 31, 2025 Mar 31, 2025
Balance, beginning of period $ 14,985 $ 14,040 $ 13,562
(Recapture) provision for credit losses - unfunded loan commitments (2,082) 945 (1,400)
Balance, end of period $ 12,903 $ 14,985 $ 12,162
The decrease in the allowance for credit losses - unfunded loan commitments for the current quarter was primarily driven by a reduction in unused commitments, mainly within the construction portfolio.
55
Table of Contents
Non-interest Income. The following table presents the key components of non-interest income for the periods indicated (dollars in thousands):
Quarters Ended Quarter Ended
Mar 31, 2026 Dec 31, 2025 Change Amount Change Percent Mar 31, 2025 Change Amount Change Percent
Deposit fees and other service charges $ 11,391 $ 10,681 $ 710 7 % $ 10,769 $ 622 6 %
Mortgage banking operations 3,212 3,617 (405) (11) 3,103 109 4
Bank owned life insurance 2,312 2,491 (179) (7) 2,575 (263) (10)
Miscellaneous 1,826 446 1,380 309 2,346 (520) (22)
18,741 17,235 1,506 9 18,793 (52) —
Net loss on sale of securities (1,242) — (1,242) nm — (1,242) nm
Net change in valuation of financial instruments carried at fair value 1,662 (2,010) 3,672 (183) 315 1,347 428
Total non-interest income $ 19,161 $ 15,225 $ 3,936 26 % $ 19,108 $ 53 — %
nm = not meaningful
Non-interest income increased $3.9 million to $19.2 million for the three months ended March 31, 2026, compared to $15.2 million for the three months ended December 31, 2025. The increase primarily reflected a $3.7 million improvement in the fair value of financial instruments carried at fair value, which shifted from a net loss of $2.0 million in the three months ended December 31, 2025 to a net gain of $1.7 million in the three months ended March 31, 2026. Miscellaneous income also increased $1.4 million, primarily reflecting asset disposition losses recorded in the three months ended December 31, 2025 that did not recur. Deposit fees and other service charges increased $710,000, or 7%, reflecting seasonal patterns and increased account activity. These increases were partially offset by a net loss of $1.2 million on the sale of securities in the three months ended March 31, 2026, compared to no securities sold in the prior quarter.
Non-interest income increased slightly for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase was primarily attributable to an increase in the fair value of financial instruments carried at fair value and an increase in deposit fees and other service charges. These increases were partially offset by a net loss on the sale of securities in the three months ended March 31, 2026.
Non-interest Expense. The following table represents key elements of non-interest expense for the periods indicated (dollars in thousands):
Quarters Ended Quarter Ended
Mar 31, 2026 Dec 31, 2025 Change Amount Change Percent. Mar 31, 2025 Change Amount Change Percent
Salary and employee benefits $ 67,732 $ 65,428 $ 2,304 4 % $ 64,857 $ 2,875 4 %
Less capitalized loan origination costs (3,886) (4,163) 277 (7) (3,330) (556) 17
Occupancy and equipment 10,697 11,852 (1,155) (10) 12,097 (1,400) (12)
Information and computer data services 8,313 9,041 (728) (8) 7,628 685 9
Payment and card processing services 6,041 6,239 (198) (3) 5,750 291 5
Professional and legal expenses 1,613 2,601 (988) (38) 2,430 (817) (34)
Advertising and marketing 673 1,676 (1,003) (60) 590 83 14
Deposit insurance 2,717 2,850 (133) (5) 2,797 (80) (3)
State and municipal business and use taxes 1,820 1,751 69 4 1,454 366 25
Real estate operations, net 109 (43) 152 nm (61) 170 nm
Amortization of core deposit intangibles 256 315 (59) (19) 456 (200) (44)
Miscellaneous 6,523 6,598 (75) (1) 6,591 (68) (1)
Total non-interest expense $ 102,608 $ 104,145 $ (1,537) (1) % $ 101,259 $ 1,349 1 %
nm = not meaningful
The decrease in non-interest expense for the current quarter reflects decreases in occupancy and equipment expenses, professional and legal expenses, information and computer data services expenses and advertising and marketing expenses, partially offset by an increase in salary and employee benefits. In addition, the current quarter included no building and lease exit costs, compared to $434,000 of such costs in the quarter ended December 31, 2025, which are included in occupancy and equipment expenses above. The increase in non-interest expense for the three months ended March 31, 2026, compared to the same period a year earlier, primarily reflects increases in salary and employee benefits and information and computer data services expenses, partially offset by a decrease in occupancy and equipment expenses.
56
Table of Contents
Salary and employee benefits increased for the current quarter, compared to the quarter ended December 31, 2025, as a result of increased medical premiums and payroll tax expenses, and increased compared to the quarter ended March 31, 2025, primarily from increased medical premiums, increased loan production-related commission expense, and normal salary and wage increases.
Occupancy and equipment expenses decreased in the current quarter, compared to both the preceding quarter and the same period a year ago, primarily due to lower rent expense as well as reduced building repair and maintenance costs. The decrease from the same period a year ago also reflected lower software amortization.
Information and computer data services decreased for the quarter ended March 31, 2026 compared to the quarter ended December 31, 2025, primarily due to decreases in computer software expenses, and increased compared to the quarter ended March 31, 2025, primarily due to an increase in software expenses related to additional software service contracts and the implementation of a new loan and deposit origination system during 2025.
Professional and legal expense decreased in the current quarter, compared to both the preceding quarter and the same period a year ago. The decrease compared to the preceding quarter was primarily due to expenses recognized on a pending legal settlement during the prior quarter and lower audit and regulatory exam expenses. The decrease compared to the same period a year ago was primarily due to decreases in consultant and other professional services expenses.
Advertising and marketing expenses decreased in the current quarter compared to the quarter ended December 31, 2025, due to decreases in direct mail marketing and community development expenses.
Our efficiency ratio was 60.60% for the current quarter, compared to 62.11% in the quarter ended December 31, 2025. Our adjusted efficiency ratio, a non-GAAP financial measure, was 59.45% for the current quarter, compared to 59.87% in the quarter ended December 31, 2025. The improvement in the efficiency ratio reflects an increase in total revenues and a decrease in non-interest expense. The improvement in the adjusted efficiency ratio reflects similar trends on an adjusted basis, with further detail provided in the non-GAAP reconciliation. See non-GAAP financial measure reconciliations presented above under “First Quarter 2026 Financial Highlights.”
Income Taxes. For the quarter ended March 31, 2026, we recognized $12.8 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 December 31, 2025, we recognized $9.8 million in income tax expense for an effective tax rate of 16.1%. For the three months ended March 31, 2025, we recognized $10.7 million in income tax expense for an effective tax rate of 19.1%.
57
Table of Contents
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 $51.7 million, or 0.32% of total assets, at March 31, 2026, compared to $51.2 million, or 0.31% of total assets, at December 31, 2025. Our allowance for credit losses - loans was $160.4 million, or 353% of non-performing loans, at March 31, 2026, compared to $160.3 million, or 351% of non-performing loans, at December 31, 2025.
The following table sets forth information with respect to our non-performing assets at the dates indicated (dollars in thousands):
March 31, 2026 December 31, 2025 March 31, 2025
Nonaccrual Loans:
Secured by real estate:
Commercial $ 2,027 $ 525 $ 2,182
Construction and land 4,321 5,175 4,359
One- to four-family 20,945 19,855 10,448
Commercial business 6,988 6,751 6,425
Agricultural business, including secured by farmland 5,511 4,609 10,301
Consumer 4,214 4,610 4,874
44,006 41,525 38,589
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Construction and land — 1,268 —
One- to four-family 636 2,698 9
Commercial business — — 206
Consumer 795 148 155
1,431 4,114 370
Total non-performing loans 45,437 45,639 38,959
REO, net 6,248 5,578 3,468
Other repossessed assets held for sale — 18 300
Total non-performing assets $ 51,685 $ 51,235 $ 42,727
Total non-performing assets to total assets 0.32 % 0.31 % 0.26 %
Total nonaccrual loans to total loans receivable 0.38 % 0.35 % 0.34 %
Loans 30-89 days past due and on accrual $ 30,177 $ 26,767 $ 37,339
For the three months ended March 31, 2026, interest income was reduced by $725,000 as a result of nonaccrual loan activity, which included the reversal of $210,000 of accrued interest as of the date the loan was placed on nonaccrual. There was no interest income recognized on nonaccrual loans for the three months ended March 31, 2026.
The following table presents the Company’s portfolio of loans by risk grade at the dates indicated (in thousands):
March 31, 2026 December 31, 2025 March 31, 2025
Pass $ 11,416,687 $ 11,446,550 $ 11,207,852
Special Mention 55,981 82,060 33,133
Substandard 234,958 193,077 197,811
Total $ 11,707,626 $ 11,721,687 $ 11,438,796
The decrease in special mention loans during the three months ended March 31, 2026, was due to loan risk rating downgrades from special mention to substandard. The increase in substandard loans during the three months ended March 31, 2026, was primarily due to loan risk rating downgrades, primarily in the commercial business loan segment. As of March 31, 2026, total substandard loans primarily consisted of loans within the commercial business, commercial real estate and agricultural business loan segments.
58
Table of Contents
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 three months ended March 31, 2026 and 2025, our loan originations, including originations of loans held for sale, exceeded our loan repayments by $112.0 million and $186.2 million, respectively. There were no loan purchases during the three months ended March 31, 2026, and $10.8 million of loan purchases during the three months ended March 31, 2025. During the three months ended March 31, 2026 and 2025, we received proceeds of $137.4 million and $120.7 million, respectively, from the sale of loans. Securities purchased during the three months ended March 31, 2026 and 2025 totaled $104.4 million and $9.8 million, respectively, and securities repayments, maturities and sales in those periods were $97.4 million and $52.9 million, respectively.
Our primary financing activity is gathering deposits. Total deposits increased by $97.2 million during the three months ended March 31, 2026, primarily due to an increase in core deposits. Core deposits were $12.38 billion at March 31, 2026, compared to $12.21 billion at December 31, 2025. Certificates of deposit are generally more vulnerable to competition and more price sensitive than other retail deposits and our pricing of those deposits varies significantly based upon our liquidity management strategies at any point in time. At March 31, 2026, certificates of deposit totaled $1.46 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 no FHLB advances at March 31, 2026, compared to $150.0 million at December 31, 2025, as the increase in core deposits was used to pay off FHLB advances during the period. Other borrowings increased to $115.7 million at March 31, 2026, from $107.7 million at December 31, 2025.
We must maintain an adequate level of liquidity to ensure the availability of sufficient funds to accommodate deposit withdrawals, to support loan growth, to satisfy financial commitments, and to take advantage of investment opportunities. During the three months ended March 31, 2026, we used our sources of funds to pay off higher costing FHLB advances. At March 31, 2026, we had outstanding loan commitments totaling $4.10 billion, relating to undisbursed loans in process and unused credit lines. While representing potential growth in the loan portfolio and lending activities, this level of commitments is proportionally consistent with our historical experience and does not represent a departure from normal operations.
We generally maintain sufficient cash and readily marketable securities to meet short-term liquidity needs; however, our primary liquidity management practice is to supplement deposits through short-term borrowings, including FHLB advances and Federal Reserve Bank of San Francisco (FRBSF) borrowings. We maintain credit facilities with the FHLB, which provide for advances secured by eligible collateral and subject to applicable borrowing capacity limitations, including required ownership of FHLB stock. At March 31, 2026, based on pledged collateral, the Bank had approximately $3.76 billion of available borrowing capacity under these facilities, and no outstanding advances. The Bank is also approved for participation in the FRBSF Borrower-in-Custody program. As of March 31, 2026, the Bank had approximately $1.74 billion of available borrowing capacity under this program, subject to eligible collateral requirements, including the type and risk rating of pledged loans. No borrowings were outstanding under this facility at March 31, 2026 or December 31, 2025. In addition, the Bank maintains uncommitted federal funds lines of credit with other financial institutions totaling $125.0 million, subject to availability of federal funds balances and continued counterparty eligibility. These lines are intended to support short-term liquidity needs and may restrict consecutive-day usage. No amounts were outstanding under these arrangements at March 31, 2026 or December 31, 2025. Management believes the Bank maintains adequate liquidity resources and borrowing capacity to meet its current and foreseeable funding requirements.
Banner is a separate legal entity from the Bank and, on a stand-alone level, must provide for its own liquidity, and pay its own operating expenses and cash dividends. At March 31, 2026, Banner (on an unconsolidated basis) had liquid assets of $88.6 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 $0.52 per share, up from $0.50 per share, for the dividend paid to shareholders in May 2026, as approved by our Board of Directors. Our quarterly common stock dividend enables us to balance our multiple objectives of managing and investing in the Bank and returning a substantial portion of our cash to our shareholders. Assuming continued dividend payments going forward at this new rate of $0.52 per share, our average total dividend paid each quarter would be approximately $17.6 million based on the number of outstanding shares at March 31, 2026.
As noted below, Banner Corporation and its subsidiary bank continued to maintain capital levels in excess of the requirements to be categorized as “Well-Capitalized” under applicable regulatory standards. During the three months ended March 31, 2026, total shareholders’ equity increased $20.3 million, to $1.97 billion or 12.03% of total assets. At March 31, 2026, tangible common shareholders’ equity, which excludes goodwill and other intangible assets, was $1.59 billion, or 9.97% of tangible assets. Tangible common shareholders’ equity represents a non-GAAP financial measure. See, non-GAAP financial measure reconciliations presented above under “First Quarter 2026 Financial Highlights.”
59
Table of Contents
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 March 31, 2026, Banner and the Bank each exceeded all regulatory capital requirements to be “well capitalized.”
The actual regulatory capital ratios calculated for Banner Corporation and Banner Bank as of March 31, 2026, along with the minimum capital amounts and ratios, were as follows (dollars in thousands):
Actual Minimum to be Categorized as “Adequately Capitalized” Minimum to be Categorized as “Well-Capitalized”
Amount Ratio Amount Ratio Amount Amount
Banner Corporation—consolidated
Total capital to risk-weighted assets $ 2,055,876 14.85 % $ 1,107,753 8.00 % $ 1,384,692 10.00 %
Tier 1 capital to risk-weighted assets 1,882,784 13.60 % 830,815 6.00 % 830,815 6.00 %
Tier 1 leverage capital to average assets 1,882,784 11.68 % 644,575 4.00 % n/a n/a
Common equity tier 1 capital 1,796,284 12.97 % 623,111 4.50 % n/a n/a
Banner Bank
Total capital to risk-weighted assets $ 1,959,652 14.16 % $ 1,107,375 8.00 % $ 1,384,219 10.00 %
Tier 1 capital to risk-weighted assets 1,786,618 12.91 % 830,531 6.00 % 1,107,375 8.00 %
Tier 1 leverage capital to average assets 1,786,618 11.09 % 644,332 4.00 % 805,415 5.00 %
Common equity tier 1 capital 1,786,618 12.91 % 622,898 4.50 % 899,742 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.