Banner (BANR) Q3 2026 Earnings Call Transcript

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DATE

Oct. 22, 2026

CALL PARTICIPANTS

• President and CEO - Mark J. Grescovich
• Chief Financial Officer - Robert G. Butterfield
• Chief Credit Officer - Jill Rice
• Head of Investor Relations - Rich Arnold

TAKEAWAYS

• Net Profit -- $47.7 million, or $1.36 per diluted share, representing a decrease from $53.5 million, or $1.54 per share, in the third quarter of 2025 due to merger and acquisition-related expenses.
• Net Interest Income -- $161.9 million, growing 8% compared to the prior year quarter as average interest-earning assets increased due to the acquisition of Pacific Financial Corporation.
• Net Interest Margin -- 4.14% on a tax-equivalent basis, increasing 16 basis points from the third quarter of 2025 driven by higher yields on earning assets and a higher proportion of loans in the asset mix.
• Core Revenue -- $179 million, representing a 6% increase compared to the prior year quarter driven by core deposit resilience and expense control.
• Total Assets -- $18.08 billion, increasing 9% from the linked quarter primarily due to $1.29 billion in assets acquired in the Pacific Financial acquisition.
• Total Deposits -- $15.39 billion, reflecting the addition of $1.14 billion in deposits from the Pacific Financial merger and organic growth of $463 million.
• Net Loans Receivable -- $12.82 billion, increasing 8% from the linked quarter through a combination of $766 million in acquired loans and $235 million in organic growth.
• Loan Originations -- $1.28 billion, increasing 61% compared to the third quarter of 2025 and 2% from the linked quarter in contrast to typical seasonal patterns.
• Core Deposits -- $13.78 billion, representing 90% of total deposits and reflecting a resilient funding base loyal to the super community bank model.
• Commercial Real Estate Loans -- $4.61 billion, increasing 11% from the linked quarter driven by both organic production and acquired balances.
• Construction and Land Loans -- $1.80 billion, representing 14% of the total loan portfolio with one-family to four-family construction accounting for 5% of total loans.
• Agricultural Loans -- $389.2 million, increasing 15% from the linked quarter primarily due to acquired balances and seasonal harvest activity.
• Consumer Loans -- $929.8 million, growing 12% from the linked quarter reflecting the acquisition and production in home equity lines of credit.
• Non-performing Assets -- $63.0 million, or 0.35% of total assets, compared to $60.5 million, or 0.36% of total assets, at June 30, 2026.
• Allowance for Credit Losses -- 1.32% of total loans, or $171.6 million, remaining strong compared to 290% coverage of non-performing loans.
• Provision for Credit Losses -- $2.8 million, including $1.8 million for loan losses and $1 million for unfunded loan commitments, primarily reflecting loan growth.
• Net Charge-offs -- $704,000, representing a modest annualized rate relative to average loans receivable.
• CET1 Capital Ratio -- 12.57% on an estimated basis, remaining well in excess of regulatory requirements for well-capitalized status.
• Tangible Common Equity Ratio -- 9.48%, sitting at the upper end of the company's target range of 9.5%.
• Quarterly Dividend -- $0.52 per share, declared for the third quarter and payable on Nov. 13, 2026.
• Share Repurchases -- 200,000 shares, repurchased during the quarter at an average price of $71.03 per share following the merger closure.
• Acquisition Consideration -- $186.8 million, an all-stock transaction involving the issuance of 0.2633 Banner shares for each Pacific Financial common share.
• Deposit Costs -- 1.38%, representing a 5 basis point increase from the linked quarter as market rates rose and deposit competition intensified in September.
• Loan Yields -- 6.12%, increasing 3 basis points from the linked quarter reflecting higher rates on new production and the repricing of variable-rate assets.
• Loan Growth Guidance -- Mid-single digits for the remainder of 2026 and through 2027, supported by healthy commercial and commercial real estate pipelines.

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RISKS

• Jill Rice stated, "the increasing rate environment that we are moving into is gonna be an initial headwind," noting potential impacts on loan demand as some clients pause expansion plans.
• Jill Rice warned that builders remain cautious regarding new starts within the one-family to four-family for sale construction portfolio, reflecting sensitivity to market conditions.
• Robert G. Butterfield reported that the cost of deposits increased 5 basis points during the quarter as competitors increased pricing following Federal Reserve interest rate hikes.

SUMMARY

Banner Corporation (NASDAQ:BANR) reported that the completion of the Pacific Financial Corporation acquisition on Sept. 1, 2026, expanded its branch density across Western Washington and Western Oregon. Management stated that the merger contributed $1.29 billion in assets and $1.14 billion in deposits, reinforcing the bank's core funding position. The company indicated that organic loan growth remained healthy at an 8% annualized rate, supported by production in commercial real estate and small business segments. Management reported that the net interest margin expanded slightly to 4.14% as higher asset yields offset rising deposit costs. The bank continues to maintain a moderate risk profile with strong capital ratios and a tangible common equity ratio at the upper end of its target range.

• Robert G. Butterfield stated that 25% of the loan portfolio repriced upward in September, which management expects will lead to further net interest margin expansion in the fourth quarter.
• The company targeted 40% total cost synergies from the Pacific Financial acquisition, with 20% realization expected by Jan. 1, 2027, and the final 10% by July 1, 2027.
• Management reported the full repayment of Federal Home Loan Bank advances during the quarter, reflecting the strength of the core deposit base and liquidity position.
• Jill Rice noted that non-performing assets remained stable at 0.35% of total assets, stating that most credit issues of size are idiosyncratic rather than related to the interest rate environment.
• Mark J. Grescovich highlighted that the bank's efficiency initiatives and investments in operating performance are intended to generate positive operating leverage as integration continues into 2027.
• The company announced a system integration for the Bank of the Pacific team scheduled for mid-October to finalize the operational merger process.

INDUSTRY GLOSSARY

• CRA Rating: Community Reinvestment Act rating, a measure of how well a bank meets the credit needs of its entire community, including low-income and moderate-income neighborhoods.
• CET1 Capital Ratio: Common Equity Tier 1 capital ratio, a key regulatory measure of a bank's core equity capital compared to its total risk-weighted assets.
• CRE: Commercial Real Estate, referring to loans secured by income-producing properties such as offices, retail spaces, and multifamily buildings.
• FHLB: Federal Home Loan Bank, a government-sponsored enterprise that provides liquidity and funding to member financial institutions.
• NIM: Net Interest Margin, the difference between the interest income generated by a bank and the amount of interest paid out to its lenders and depositors.
• REO: Real Estate Owned, a class of property owned by a lender after an unsuccessful sale at a foreclosure auction.
• SBA: Small Business Administration, referring to loans guaranteed by the U.S. Small Business Administration to support small business growth and recovery.
• TCE Ratio: Tangible Common Equity ratio, a measure of a bank's physical capital as a percentage of its tangible assets, used to assess its ability to absorb losses.
• Core Deposits: Deposits that are stable, long-term, and typically less sensitive to interest rate changes, including checking, savings, and money market accounts.

Full Conference Call Transcript

Operator: Press star 1 to raise your hand. I will now hand the call over to Mark J. Grescovich, President and CEO of Banner. Mark? Please go ahead.

Mark J. Grescovich: Thank you, Trevor, and good morning, everyone. Would also like to welcome you to the third quarter 2026 earnings call for Banner Corporation. Joining me on the call today is Robert G. Butterfield, Banner Corporation's Chief financial officer. Jill Rice, our Chief Credit Officer; and Rich Arnold, our Head of investor relations. Rich, would you please read our forward-looking Safe Harbor statement?

Rich Arnold: Sure, Mark. Good morning. Our presentation today discusses Banner's business outlook and will include forward-looking statements. These statements include descriptions of management's plans objectives or goals for future operations, products or services, forecast of financial or other performance measures, and statements about Banner's general outlook for economic and other conditions. We also may make other forward-looking statements in the question and answer period following management's discussion. These forward-looking statements are subject to a number of risks and uncertainties, and the actual results may differ materially from those discussed today.

Information on the risk factors that could cause actual results to differ are available from the earnings press release that was released yesterday and most recently filed Form 10 Q for the quarter ended 06/30/2026. Forward-looking statements are effective only as of the day they are made, and Banner assumes no obligation to update information concerning its expectation. Mark?

Mark J. Grescovich: Thank you, Rich. As is customary, today, I will cover 4 primary items with you. First, I will provide you with high-level comments on Banner's third quarter 2026 performance. Second, the actions Banner continues to take to support all of our stakeholders. Including our Banner team, our clients, our communities, and our shareholders. Third, Jill Rice will provide comments on the current status of our loan portfolio and finally, Robert G. Butterfield will provide more detail on our operating performance for the quarter as well as comments on our balance sheet. Before I get started, I want to welcome our new colleagues from the Bank of the Pacific team to Banner.

And thank all of my 2,000 colleagues in our company who are working extremely hard to assist our clients and Banner has lived by our core values, summed up as doing the right thing, for the past 1 hundred and 35 years. Our overarching goal continues to be to do the right thing for our clients our communities, our colleagues, our company, and our shareholders and to provide a consistent and reliable source of commerce and capital through all economic cycles and change events. I am pleased to report again to you that is exactly what we continue to do. I am very proud of the entire Banner team that is living our core values.

Now let me turn to an overview of our performance. As announced, Banner Corporation reported a net profit available to common shareholders of $47.7 million or $1.36 per diluted share for the quarter ended 09/30/2026. This compares to a net profit to common shareholders of $1.54 per share for the third quarter of 2025. The third quarter 2026 performance was impacted by the closure of the previously announced Pacific Financial acquisition. Robert will discuss this in more detail shortly. Also, our strategy to maintain a moderate risk profile and the investments we have made and continue to make to improve our operating performance have positioned the company well for the future.

The strength of our balance sheet coupled with a strong reputation we maintain in our markets, will allow us to manage through the current market uncertainty. To illustrate the core earnings power of Banner, I would direct your attention to pretax, pre provision earnings excluding gains and losses on the sale of securities, changes in fair value of financial instruments, merger and acquisition related expenses, and building and lease exit costs. Our third quarter 2026 core earnings were $68.6 million compared to $67.8 million for the third quarter of 2025. Banner's third quarter 2026 revenue from core operations was $179 million compared to a $169 million for the third quarter of 2025 an increase of 6%.

We continue to benefit from a strong core deposit base that has proved to be resilient and loyal to Banner. A very good net interest margin, and core expense control. Overall, this resulted in a return on average assets of 1.11% for the third quarter of 2026. Once again, our core performance reflects continued execution on our super community bank strategy. That is growing new client relationships, maintaining our core funding position, promoting client loyalty and advocacy through our responsive service model, and demonstrating our safety and soundness through all economic cycles, and change events. To that point, our core deposits represent 90% of total deposits.

Reflective of this performance, coupled with our strong regulatory capital ratios and our strong tangible common equity per share we announced a core dividend of $0.52 per share. In the quarter, we also released our 2025 corporate responsibility report. Banner has always been committed to doing the right thing in support of our clients the many communities that we serve, and our colleagues. The accomplishments highlighted in this report are meant to reflect the deep connection we have with all of our stakeholders and our commitment to creating positive change in the communities we serve. Finally, I am pleased to say that we continue to receive marketplace recognition and validation of our business model and our value proposition.

Banner was again named 1 of America's 100 best banks as well as 1 of the best banks in the world by Forbes. And Newsweek named Banner, 1 of the most trustworthy companies both in America and the world again this year, and just recently again named Banner 1 of the best regional banks in the country. Additionally, our company was certified by Great Place to Work, S&P Global Market Intelligence ranked Banner's financial performance among the top 50 public banks with $10 billion in assets, the Kroll Bond Rating Agency affirmed all of Banner's investment grade debt and deposit ratings. And as we have noted previously, Banner Bank again received an outstanding CRA rating.

Let me now turn the call over to Jill to discuss trends in our loan portfolio and her comments on Banner's credit quality. Jill?

Jill Rice: Thank you, Mark, and good morning, everyone. As noted, we completed the acquisition of Pacific Financial this month adding to our portfolio growth while maintaining strong credit metrics. A testament to the credit culture at both organizations. Loan originations exceeded expectations, increasing 2% from the linked quarter in contrast to the typical seasonal slowdown and increasing 61% when compared to the third quarter of 2025. Importantly, Banner's credit metrics remain stable. Loan outstandings grew by $1 billion in the quarter or 8% from the linked quarter. Of that amount, $766 million was attributable to the acquisition while the additional $235 million resulted from organic loan growth.

On a stand alone basis, $235 million equates to an annualized growth rate of approximately 8% for the legacy Banner portfolio. Commercial real estate was the primary driver of loan growth during the quarter. Owner occupied real estate grew by $100 million including $74 million of acquisition related growth and $26 million of organic growth. Investor CRE grew by $61 million, reflecting acquired balances of $77 million that were partially offset by payoffs within the legacy portfolio. Growth within the small balance real estate portfolio was entirely acquisition related.

Multifamily real estate grew by $57 million including $37 million of acquisition related growth with the remainder driven by transfers from construction and new originations partially offset by continued refinancing activity into the secondary market. The construction portfolio increased $108 million including $29 million of acquisition related growth and $79 million of organic growth. The majority of this increase occurred within the land and land development and commercial construction segment. The construction portfolio remains well balanced with 1- to 4-family construction continuing to represent 5% of total loans and the overall construction portfolio representing 14% of total loans.

As discussed in prior calls, we continue to closely monitor the completed and unsold inventory levels within the 1- to 4-family for sale construction portfolio. Current levels remain well within historical norms, and builders remain cautious regarding new starts. C&I loan balances increased by $72 million approximately 45% of which was acquisition related while the small business portfolio grew by $79 million entirely through organic growth. Looking at the ag portfolio, the $52 million increase primarily reflects acquired balances. The 1- to 4-family portfolio increased by $64 million including $46 million of acquisition related growth with the balance reflecting custom construction conversions upon completion net of payoffs.

Finally, consumer balances increased by $103 million including $63 million of acquisition related growth and $40 million in new originations primarily in home equity lines of credit. Turning to our credit metrics. Delinquent loans at 0.56% of total loans increased 5 basis points from the linked quarter compared to 0.39% as of 09/30/2025. Adversely classified assets declined by $9 million in the quarter and now represent 1.61% of total loans. Nonperforming assets increased by $2.4 million in the quarter and are comprised of nonperforming loans of $59 million and REO balances of $4 million. Net charge offs were modest during the quarter. Loan losses totaled $1.2 million and were partially offset by recoveries totaling $528 thousand.

The provision for credit losses in the quarter was $2.8 million, consisting of a $1.8 million provision for loan losses and a $1 million provision for unfunded loan commitments. Additionally, the allowance for credit losses increased by $8.6 million to establish the initial reserve associated with the acquired loan portfolio. At 1.32% of total loans, the reserve remains strong and compares to 1.35% as of the linked quarter and 1.36% as of 09/30/2025. I will close by noting that our credit metrics remain strong and reflective of our moderate risk profile. The addition of the Pacific Financial portfolio aligns well with Banner's underwriting standards and the credit culture is highly consistent with our own further reinforcing our risk profile.

We remain well positioned to navigate this economic cycle with a granular and diverse loan portfolio that is supported by a strong balance sheet. A robust reserve for credit losses, and capital levels well in excess of regulatory requirements. With that, I will hand the microphone over to Robert for his comments. Robert?

Robert G. Butterfield: Great. Thank you, Jill. We reported $1.36 per diluted share for the third quarter. Compared to $1.43 per diluted share in the prior quarter. The decrease in earnings per share compared to the prior quarter primarily due to M&A-related expenses and a loss on the sale of securities acquired in the Pacific Financial merger. Partially offset by stronger net interest income and a lower provision for credit losses. Core pretax pre provision income increased $4.2 million or 7% compared to the prior quarter.

Jill Rice: As Jill previously mentioned, total loans increased $1 billion during the quarter.

Robert G. Butterfield: which included $766 million of loans acquired from Pacific Financial Corporation and $235 million of organic loan growth. The loan to deposit ratio ended the quarter at 84%. Total security balances increased $158 million during the quarter primarily reflecting securities acquired in the Pacific Financial transaction after repositioning the acquired portfolio. Partially offset by an increase in unrealized loss in the security portfolio due to an increase in interest rates. Deposits increased $1.6 billion during the quarter as part of the Pacific Financial acquisition. We acquired $1 billion in deposits. Excluding acquisition related organic deposit growth, organic deposit growth was $463 million during the quarter or 13% on an annualized basis.

Demonstrating the strength of our balance sheet and our deposit franchise and our client relationships. Core deposits increased $1.46 billion and represent 90% of total deposits at the end of the quarter. Certificates of deposits increased $142 million during the quarter. Due to the CDs acquired from Pacific Financial. Total borrowings declined during the quarter as we repaid all outstanding FHLB advances. Reflecting the strength of our deposit funding base. The tangible equity-to-asset ratio was 9.48%, and total shareholder equity increased $135 million during the quarter to $2.13 billion Net interest income increased $8.2 million from the prior quarter due to a combination of net interest margin expansion and growth in average earning assets.

Including the impact of the Pacific Financial acquisition and organic loan growth. The tax equivalent net interest margin was 4.14% compared to 4.13% in the prior quarter. The increase in net interest margin was driven by higher yields on earning assets, as average loan yields increased 3 basis points and the yield on investment securities increased by 7 basis points. The average rate on new loan production for the current quarter was 6.55% compared to 6.53% from the prior quarter. The increase in asset yields was partially offset by higher funding cost. Primarily reflecting an increase in the cost of deposits.

Due to a combination of an increase in market interest rates and the majority of the growth in deposits being in interest bearing accounts. Total deposit cost increased 5 basis points to 1.38%. Non interest bearing deposits ended the quarter at 32% of total deposits. Total non interest income decreased $2.8 million from the prior quarter. The decrease was primarily driven by a $2.1 million loss on the sale of securities acquired from Pacific Financial. As market interest rates increased during September prior to the sale being completed. Higher debit card transaction expenses lower gains on the sale of mortgage and SBA loans, and lower income from swap related activities, also contributed to the decrease.

These decreases were partially offset by favorable changes in the valuation of financial instruments carried at fair value. Total noninterest expense increased $7.7 million the prior quarter. The primary driver was a $4.9 million increase in M&A expenses associated with the closing of the Pacific Financial transaction. And a $1.1 million increase in write-downs of foreclosed real estate holdings. The current quarter also included 1 month of expense associated with the operations acquired from Pacific Financial. Our capital liquidity and credit quality metrics continue to position us well to support our clients, communities, and future growth opportunities while maintaining a disciplined risk profile. This concludes my prepared comments. Now I will turn it back to Mark.

Mark J. Grescovich: Thank you, Jill and Robert, for your comments. That concludes our prepared remarks. And Trevor, we will now open the call to and welcome questions.

Operator: Thank you, Mark. We will now begin the question and answer session. Please if you would like to ask a question, press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. You are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeff Rulis with D.A. Davidson. Jeff, your line is open.

Ryan Payne: Morning. This is Ryan Payne on for Jeff Rulis. Starting off bigger picture, or starting off bigger picture on the margin. Some moving pieces with the FHLB advances runoff and security sale. So where do you see the NIM trajectory from here?

Robert G. Butterfield: Sure, Ryan. This is this is Robert. So if we think about the fourth quarter and the asset side of it, I would expect some expansion in loan yields as about 25% of our loan portfolio would have repriced up with the increase in Fed funds rate in September. And then in addition, the closing of Pacific Financial deal would also add a couple basis points to the loan yield as well. And then I would expect the portfolio also to see an increase in yield in that 6 to 7 basis point range.

On the funding side, I would expect some increase in the cost of deposits as we have seen competitors increase deposit pricing after the Fed increased the Fed funds rate. So on a net basis, I would expect some expansion in NIM in the fourth quarter. If we are looking out further, 2027 would really be dependent on Fed actions. I have seen the market pricing in anywhere from 1 to 2 increases in 2027 in addition to the increase that they are pricing in December. I will say, Moody's forecast is showing something different, and we usually follow Moody's. They are actually showing 2 rate decreases in 2027.

So I would say there is a bit of lack of clarity out there around the interest rate trajectory right now. The market's right, and we see some increase in the fourth quarter and then also a few increases in 2027, then I would expect some expansion of our net interest margin as we are slightly asset sensitive. If the Fed was on pause for some reason, I think we would also see some moderate expansion during 2027 really just depending on the level of deposit rate competition. And a gradual decline or if the FED decides to decrease some interest rates in 2027, then I think it is either flat to a moderate compression.

Ryan Payne: Understood. Very helpful. On the loan side of things, strong organic loan growth this quarter. If you could talk to what you are hearing from customers amidst a rising rate environment, I know, Jill, you mentioned that builders might be cautious. But if that could impact demand, and any expectations as we head into 2027 on the loan growth side?

Jill Rice: Sure, Ryan. it is a bit early to really peg what is going to happen in terms of loan demand with the rate environment. We have had a I will call it a handful of clients who hit the pause button and are stepping back and looking at some of their expansion plans. But you know, it. Again, it is too soon to really know. The strong loan growth was fantastic this quarter. I do think the increasing rate environment that we are moving into is gonna be an initial headwind. But that said, we have meaningful unfunded construction projects in process. Outside of, you know, the residential portfolio that Yes, they are being cautious with new starts.

Commercial and commercial real estate pipelines remain healthy. We are still anticipating a mid-single-digit loan growth as we close out 2026 and I would position that to be the same loan growth rate we will expect into 2027.

Ryan Payne: Okay. Thank you. And just last for me, trying to gauge the run rate on fee income. In stripping out that loss on securities, is that kind of where we can think of where the run rate is, or where would you set expectations on fees?

Robert G. Butterfield: Sure, Ryan. it is Robert. So noninterest income in the third quarter, I think, was lower than our typical run rate. We have seen lower mortgage banking activity and also SBA gain on loan sale as higher interest rates have slowed activity in these areas. If I think about the fourth quarter, and you wanted to get to a run rate, you would you would need to add the full a full quarter of Bank of Pacific activity. You know, we saw 1 month of that in the in the third quarter, so you need to add 2 more months in there.

They are running about $400 thousand a month, so that would be an additional $800 thousand on top of what we saw in the third quarter. And I think there is just a number of areas where we just know, you always see fees move up and down quarter over quarter. So I think there is probably some normalization of above that after you add in Bank of the Pacific of maybe a $500 thousand or something in that range. And I think that gets you probably close to a run rate as long as we see that slowdown in mortgage banking and SBA.

Ryan Payne: I got it. Very helpful. Thanks, guys.

Mark J. Grescovich: Thanks, Ryan.

Operator: Our next question comes from the line of Matthew Clark with Piper Sandler. Matthew? Your line is open.

Matthew Clark: Thanks. Good morning. Thanks for the questions. Just a couple more on the margin. If you had the spot rate on deposits at the end of September and then your expectations around the interest bearing deposit beta, I think it was 28%, on the way down. Just curious what you think you might achieve on the way up?

Robert G. Butterfield: Sure, Matthew. So spot cost of deposits the month of September was 1.40%. Compared to 1.38% for the quarter, so we were seeing some additional pressure in the month of September there. And then as far as the deposit beta on the interest bearing deposits, as you said, 28 basis points is what we are seeing on the upside Modeling wise, we are modeling something higher. We are modeling 40%. So I would say it would end up somewhere between 28 and 40, but that tends to be very lagged is what we have experienced in the past. Oftentimes, you know, I think we have seen some front running of that.

If you think about that deposit cost increase 5 basis points, during the third quarter, and, typically, we would have expected that to be relatively flat without the kind of pressure on market index rates that we saw during the third quarter. So we are hoping some of that, it was front-end loaded, but, you know, I would I would expect some carryover from the Fed actions. in the fourth quarter. Got it.

Matthew Clark: And then just on deposits on the organic side, really strong. I think some of that was seasonal, but maybe speak to the portion that you know, you would not attribute to being seasonality and where it is coming from and whether or not there is anything you know, whether or not those balances are sustainable?

Robert G. Butterfield: Yeah. So we mean, the third quarter is always the best quarter for us from a deposit growth standpoint. There is some seasonality to that. But the majority have been sticking around. Typically, what we see in it, it is mostly on the ag side. Is we see you know, cash coming in from crop harvest and other things, and it builds as you get into the go through the third quarter. And, typically, what happens at the beginning of the fourth quarter we would normally expect that those clients would use that cash flow to pay down operating lines of credit and do other things with that cash.

So, you know, if you think about 463 million there could be a $100 million of that would come back out in early fourth quarter. But then, typically, what happens as you move into the end of the year, we see other clients that start to position their balance sheet for the end of the year, and oftentimes, they will put additional cash on their balance sheet as we end the fourth quarter. So that usually ends up balancing out, and, typically, we would we would see some increase in deposits in the fourth quarter when you balance those 2 out. Got it.

Matthew Clark: And then last 1, for me, for Mark on M&A. I know you were in the midst of integrating the latest deal, but any comments around you know, whether or not conversations have picked up at all in your appetite to consider another deal?

Mark J. Grescovich: Yeah. Thank you, Matthew, for the question. You know, our philosophy has not changed. We continue to have dialogue with folks we think would be great partners with Banner. And we are very excited about the Bank of the Pacific combination and Pacific Financial closure, and we do have an integration that is gonna occur mid month. So, we are focused on that. But to the extent that opportunities arise, we are. We are prepared to move forward. But, like I said, we are focused on the current disruption, our organic growth and making sure that the Pacific Financial integration goes extremely well. Understood.

Matthew Clark: Thank you.

Operator: Our next question comes from the line of Kelly Motta with KBW. Kelly, your line is open.

Meghan Lynch: Hi. This is Meghan Lynch on for Kelly Motta. Thanks for taking my question. So just sort of on Pacific a bit more, I know they enhanced balance sheet flexibility given their low loan to deposit and their great funding. So I was just sort of wondering now that you are closed, is there any incremental repositioning of the balance sheet or any sort of opportunities that you guys are seeing or taking advantage of?

Robert G. Butterfield: Yeah. Thanks. Thanks, Meghan. This is this is Robert again. So what we did there is we did reposition their security portfolio in the month of September, and left the balances there, but we intentionally left the duration short on that security portfolio on where we repositioned it to. But the thought process being that as the cash flows come off of that acquired security portfolio, we are able to redeploy those back into the loan portfolio. But that is gonna happen organically. We are not looking at doing any type of balance sheet repositioning or anything like that from the security side or from a loan portfolio perspective.

We just intentionally left the duration short so we can redeploy those cash flows over time into the loan book.

Meghan Lynch: Okay. Thank you. That was very helpful and then. So you sort of gave. You touched on the how much Pacific is adding to fees and sort of that run rate, but how should we think about like, their expense contribution and sort of a clearer run rate on that Pacific contributes to expenses?

Robert G. Butterfield: Sure. So to get to a run rate from an expense standpoint, if you if you start with the total expenses for the third quarter, you would need to back out the M&A expense of $5 million and then also back out that write down on REO properties that we took of around $1 million. And then from there, you would need to add in 2 months of expense for Bank of the Pacific operations. You know, their quarterly expenses have been running around $10 million at this point. We have probably achieved about 10% synergies. So 10% off the 10 million gets you to kind of a monthly run rate right now.

What we expected was to get a total of 40% cost synergies there. I think the other. Another 20% of the 40% would be realized starting at the beginning of the year. So call that 01/01/2027. And then the last 10% of cost synergies would be realized by mid next year, call it July 1, to get to that total of 40% cost synergies that we expected. Then, you know, if you are trying to get to a 2027 run rate, you would need to add normal inflationary increase in expenses plus you know, a little bit on top of that for continued investments into their organization.

Meghan Lynch: Okay. Perfect. Thank you. Very helpful. that is it for me.

Mark J. Grescovich: Thank you, Meghan.

Operator: Our next question comes from the line of Andrew Terrell with Stephens. Andrew, your line is open.

Andrew Terrell: Hey, good morning.

Mark J. Grescovich: Morning, Andrew.

Andrew Terrell: Hey.

Robert G. Butterfield: Robert, I wanted to ask about just the fixed asset repricing dynamics on the margin. I think if I recall, I think it was last quarter, it sounded like, you know, it is maybe fizzling out a little bit. We have had pretty tremendous backup in the curve here. Just your views on fixed rate and the contribution of the margin going forward?

Andrew Terrell: Sure, Andrew.

Robert G. Butterfield: Thanks for the question. Yeah. I mean, we certainly think there will be a little bit of pickup there. I think it is gonna come from a couple different pieces. it is not only the fixed asset repricing, but it is also the yields on new loans coming on. If you look at the yields in the third quarter, it was up slightly from the second quarter, but not much. And that is just because you know, even though rates had increased, we had commitments out there prior to the rates increase. So you had some that did not really realize the full increase in the market interest rate.

So we think there is some benefit just as new loans are coming on and existing loans are paying off. You know, we are still trying to get our full handle around what the benefit is of the fixed asset repricing. You know, we have. We are we are running a couple basis points. It almost came down to zero. So I think as we start through the process here, it will probably be a couple basis points a quarter. And you know, as we get a clearer trajectory on where rates are gonna stay going forward here, then we will probably get a better sense on what the full impact would be. Yep. Got it. Okay. I appreciate it.

Andrew Terrell: And then looking at capital, you guys leverage capital just a little bit with the strong growth and the deal sequentially. Just interest in buyback continuing from here versus you know, maybe holding capital or building capital anticipation of future M&A?

Robert G. Butterfield: I guess, you have a preference You know, the way we are thinking about that right now, Andrew, of course, core dividend is the first thing that we are focused If we are looking at something beyond that, I mean, we did repurchase 200 thousand shares in September after the Pacific Financial deal closed. We think share repurchases are very attractive. We are currently trading at. And so we will evaluate further share repurchase in the fourth quarter. And, you know, think even with the share repurchases, we are probably keeping capital at about the current level or maybe it goes down a little bit.

So I think that still provides with opportunity to consider, you know, the right M&A opportunity that would. That could come along.

Andrew Terrell: Got it and is this. I think it is like 12.6% CET1. Is 12.5% CET1 kind of how you think about capital targets if you think long term or is it a different level than that?

Robert G. Butterfield: Think it is. It would be something below that. You know, we are also been focused on the TCE ratio. If you think about the TCE ratio, we were at 10% at the end of the second quarter. We are at 9.48% right now. Bank of the Pacific reduced it about 20 basis points. The increase in the unrealized loss in security portfolio was the other call it 30 basis points of that. Our target range. The upper end of our target range is 9.5%. So we are sitting at the upper end of our target range right now.

And we are above the peer median if you look at our proxy peers, we were, you know, we were about 30 basis points above where they were at. Previously. So think there is additional room to bring down the TCE ratios. Okay.

Andrew Terrell: Great. Thanks for taking my questions.

Mark J. Grescovich: Thank you, Andrew.

Operator: Our next question comes from the line of Feaster with Raymond James. David? Your line is open.

David Feaster: Good morning, everybody.

Mark J. Grescovich: Morning, David.

Robert G. Butterfield: Morning, David.

David Feaster: I wanted to follow up on maybe, Jill, your commentary about, you maintaining a mid single digit pace of growth next year. You know, I am just curious, what gives you confidence in that? what is driving growth? Sounds like there is some construction tailwinds. But are there any markets you are seeing more strength or segments? And just, you know, maybe as you touch on the competitive side, obviously, it is been tough pricing front, but curious if you are seeing that abate at all or whether competition is maybe more towards looser underwriting as well? Just kinda curious on the growth front and the competitive landscape on the loan side.

Jill Rice: Sure, David. So competition continues to be fierce. With the clientele that we bank on a day in and day out basis. And pricing, you know, it continues to be 1 of the levers that are pulled. You know, there is not a ton within the banking industry that is pushing out in terms of underwriting standards. Certainly secondary market, you know, insurance companies, and that sort of, you know, competition gives underwriting that we do not generally match. So we have some of that we are competing with.

But the confidence really comes from the you know, good work that our team has been doing over the past year in terms of who they are calling on, growing existing client relationships, bringing in new clients as well. New team members, have been really successful. Existing bankers have, you know, been successful as well in terms of, you know, expansion. We benefit from the market disruption as well. So, you know, some of the you know, combinations that have occurred or shifts in, you know, where decisions are made caused people to rethink where they want to do banking.

So all of that together just you are seeing it I am seeing it, I should say, in, you know, the originations. And so those originations are front runners to dollars that are advancing on the books, whether it is closings that, you know, and funding up of those closings over time. And, again, the construction portfolio is there. there is a lot there as well to pull through. Okay. that is helpful.

David Feaster: And then, Jill, maybe just staying with you, touching on the credit side. Obviously, you guys have done. You guys are phenomenal on the credit front, and very conservative. I am curious as you think about higher rates and you stress the book, are there any segments that you are watching more closely? I mean, we got small business, you know, SBA or a consumer? Yeah. And then just high level, how do you think about the health of the CRE book and the markets across your footprint? Just kinda curious what you are seeing and what you are hearing from borrowers.

Jill Rice: Probably. So what are we watching? You know, you hit on all of them? Rich? I mean, we are looking at the consumer. We are looking at FDA. We are watching what a higher rate environment is doing to them in terms of segments within CRE we continue to stress the office portfolio and, you know, continually look at that as it will, you know, as if it had re priced instead of, you know, when is it gonna re price just to kind of watch what is gonna be happening or potentially happening based on their, you know, most current operating statements.

To date, we do not have very many that would, you know, look like they will not work at a current rate reset. You know? I think that speaks to the underwriting we are doing as we are going in terms of the debt service coverages that we expect for various different, you know, types of properties. Coupled with the significant equity that borrowers have in their properties going in recourse that is on, you know, 99% of the loan book as well. And, you know, global cash flows that can backstop issues with any particular property.

So we are monitoring you know, I would say most of the book on a very regular basis in terms of, you know, what can happen in this rising rate environment. But right now, any issues of size have been idiosyncratic and not really related to the interest rate environment.

David Feaster: Okay. that is helpful. And then, Mark, maybe just a high level 1 for you. I mean, we talked about, there is a lot of tailwinds for your business. Rich? You got the back book of pricing story, margin expansion, a strong core deposit base. Strong credit, loan growth, excess capital. There. there is a lot to like here. Just given your competitive positioning and kind of the tailwinds for the bank in this market, what are you excited about right now? And where are you investing today that can help maybe take the bank to the next level over the next several years?

Mark J. Grescovich: Thank you for the question, David. I think you hit a number of the things I am excited about. We have an opportunity on some growth avenues organically, there is quite a bit of market disruption that is occurring with a combination of other financial institutions, which creates uncertainty in clients' minds in our footprint. We are in a great footprint for business. So I am very excited about our opportunity to grow organically. And at the same time, the company is extremely well positioned as you already said, from a balance sheet strength standpoint, a moderate risk profile, Our capital posture that Robert talked about is extremely strong.

So it presents quite a bit of flexibility for our company going forward. I would also say that, given the improvements that we have made in our operations, than the investments we have made to improve our efficiency will also create, some scalable efficiencies and generate positive operating leverage as we go into 2027. So I am very excited about the how the organization is positioned and what we can do going forward and continue to improve returns.

David Feaster: that is terrific. Thanks, everybody.

Mark J. Grescovich: Thank you, David.

Operator: There are no further questions at this time. I will now turn the call back to Mark for closing remarks. Please go ahead.

Mark J. Grescovich: Great. Thank you, Trevor. As I have stated, we are very proud of the Banner team and our solid third quarter 2026 performance. Thank you all for your interest in Banner and for joining our call today. We look forward to reporting our results to you again in the future. Have a great day, everyone.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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