What Banner (BANR) Said on Its Q3 Earnings Call

Key Points

• Q3 earnings declined year over year: Net income available to common shareholders was $47.7 million, or $1.36 per diluted share, versus $1.54 a year earlier, partly reflecting Pacific Financial acquisition costs. Core pre-tax, pre-provision earnings rose to $68.6 million, while core operating revenue increased 6% to $179 million.
• The Pacific Financial acquisition drove significant balance-sheet growth: Loans increased $1 billion and deposits rose $1.6 billion, including $766 million and $1 billion, respectively, from the acquisition. Banner expects mid-single-digit loan growth through the end of 2026 and into 2027.
• Integration and margin trends are central to the outlook: Banner expects modest net interest margin expansion in Q4 and has achieved about 10% of its targeted cost synergies, with the full 40% expected by mid-2027. Credit quality remained broadly stable, though tangible equity declined to 9.48% following the acquisition and securities-market losses.

Banner NASDAQ: BANR reported third-quarter 2026 net profit available to common shareholders of $47.7 million, or $1.36 per diluted share, as the company closed its previously announced Pacific Financial acquisition and recorded related expenses.

The result compared with $1.54 per share in the third quarter of 2025 and $1.43 per share in the prior quarter. President and Chief Executive Officer Mark Grescovich said the acquisition affected the quarter’s reported performance, while the company’s core operations continued to benefit from its deposit base, net interest margin and expense controls.

Banner reported core pre-tax, pre-provision earnings of $68.6 million, excluding securities-sale gains and losses, fair-value changes, merger-and-acquisition expenses, and building and lease exit costs. That compared with $67.8 million a year earlier. Core operating revenue rose 6% year over year to $179 million.

The company reported a 1.11% return on average assets and said core deposits represented 90% of total deposits. Banner also announced a quarterly dividend of $0.52 per share.

Acquisition, Loan Growth and Deposits

Chief Credit Officer Jill Rice said total loans rose $1 billion during the quarter, or 8% from the prior quarter. Of the increase, $766 million came from the Pacific Financial acquisition and $235 million reflected organic growth. On a legacy Banner basis, the organic increase equated to an annualized growth rate of about 8%.

Commercial real estate was the principal contributor to loan growth. Construction loans rose $108 million, including $79 million in organic growth, while owner-occupied real estate loans increased $100 million. Commercial and industrial balances rose $72 million, and small-business balances increased $79 million through organic growth.

Rice said Banner’s construction portfolio remained balanced, with one-to-four-family construction representing 5% of total loans and total construction representing 14%. The company continues to monitor completed and unsold inventory in its one-to-four-family construction portfolio, though Rice said current levels remained within historical norms and builders were cautious about new starts.

Banner expects mid-single-digit loan growth through the end of 2026 and into 2027, Rice said. She noted that some clients have paused expansion plans amid the rising-rate environment, but commercial and commercial real estate pipelines remain healthy, while unfunded construction projects outside the residential portfolio could support future growth.

Total deposits increased $1.6 billion, including $1 billion acquired in the Pacific Financial transaction. Excluding acquired deposits, organic deposit growth was $463 million, or 13% on an annualized basis. Chief Financial Officer Rob Butterfield said a portion of the organic growth was seasonal, particularly related to agricultural cash flows, and that roughly $100 million could leave early in the fourth quarter as customers pay down operating lines. He added that year-end client balance-sheet positioning has historically helped offset some of that outflow.

Banner repaid all outstanding Federal Home Loan Bank advances during the quarter. Its loan-to-deposit ratio ended the period at 84%, while total shareholder equity increased $135 million to $2.13 billion.

Margin Outlook and Expense Integration

Net interest income increased $8.2 million from the prior quarter, supported by higher average earning assets and a modest expansion in the tax-equivalent net interest margin to 4.14% from 4.13%. Average loan yields rose 3 basis points, investment-security yields increased 7 basis points, and the average rate on new loan production was 6.55%.

Funding costs also increased, with total deposit costs rising 5 basis points to 1.38%. Noninterest-bearing deposits were 32% of total deposits at quarter-end.

Butterfield said Banner expects some net interest margin expansion in the fourth quarter. About 25% of the loan portfolio was expected to reprice following the September increase in the federal funds rate, while the Pacific Financial transaction was expected to add “a couple of basis points” to loan yields. Higher deposit costs are also expected as competitors raise deposit pricing.

Beyond the fourth quarter, Butterfield said the margin outlook will depend largely on Federal Reserve policy and deposit-rate competition. Banner considers itself slightly asset-sensitive, meaning additional rate increases could support margin expansion, while rate cuts could result in a flat-to-moderately compressed margin.

Noninterest income declined $2.8 million from the prior quarter, primarily due to a $2.1 million loss on the sale of securities acquired from Pacific Financial. Higher debit-card transaction expenses, lower mortgage and SBA loan-sale gains, and lower swap-related income also weighed on results.

Noninterest expense increased $7.7 million, led by $4.9 million in merger-and-acquisition expenses, a $1.1 million increase in write-downs of foreclosed real estate holdings, and one month of operating expenses from the acquired business.

Butterfield said Bank of the Pacific’s quarterly expenses had been about $10 million and that Banner had achieved roughly 10% of anticipated cost synergies. The company expects to realize another 20% of planned synergies at the beginning of 2027 and the final 10% by mid-2027, reaching its targeted 40% total cost savings.

Credit Quality and Capital

Banner’s credit metrics remained stable, according to Rice. Delinquent loans were 0.56% of total loans, up 5 basis points from the prior quarter and from 0.39% a year earlier. Adversely classified assets declined $9 million to 1.61% of total loans.

Nonperforming assets increased $2.4 million and included $59 million of nonperforming loans and $4 million of real estate owned. Net charge-offs were modest, with loan losses of $1.2 million partly offset by $528,000 in recoveries.

The provision for credit losses was $2.8 million, including $1.8 million for loan losses and $1 million for unfunded commitments. Banner also added $8.6 million to establish the initial reserve for the acquired loan portfolio. Its allowance for credit losses was 1.32% of total loans.

Rice said the company is closely monitoring consumer, SBA and commercial real estate exposures, including the office portfolio. She said that issues of size have been idiosyncratic rather than broadly tied to interest rates.

Banner’s tangible equity-to-assets ratio was 9.48%, down from 10% at the end of the second quarter. Butterfield said the acquisition reduced the ratio by about 20 basis points, while increased unrealized losses in the securities portfolio accounted for another roughly 30 basis points. He said the company remains at the upper end of its targeted range and could consider additional share repurchases while preserving flexibility for future acquisition opportunities.

About Banner (NASDAQ:BANR)

Banner Corporation NASDAQ: BANR is a bank holding company headquartered in Walla Walla, Washington. Through its principal subsidiary, Banner Bank, the company provides banking and financial services to individuals, families, businesses and communities in the Pacific Northwest.

Banner Bank offers deposit products, residential and commercial real estate lending, construction and land development loans, commercial and industrial financing, agricultural loans, consumer loans and home equity products.

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