Banner Corp. 2026 Q3 Earnings Call

Mark, please go ahead. Thank you, Trevor, and good morning everyone.

I would also like to welcome you to the third quarter 2026 earnings call for Banner Corporation. Joining me on the call today is Rob 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?

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, forecasts 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 June 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 expectations.

Mark? Thank you, Rich. As is customary, today we will cover four primary items with you.

First, I will provide you 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. Finally, Rob 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 communities. Banner has lived our core values, summed up as doing the right thing, for the past 135 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 are 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 September 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.

Rob 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 in order to improve our operating performance have positioned the company well for the future. The strength of our balance sheet, coupled with the 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 pre-tax, 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 $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 one of America's 100 best banks, as well as one of the best banks in the world by Forbes.

Newsweek named Banner one of the most trustworthy companies, both in America and the world again this year, and just recently again named Banner one 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 more than $10 billion in assets. The Kroll Bond Rating Agency affirmed all of Banner's investment-grade debt and deposit ratings. 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? 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 standalone 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 markets. 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 segments. The construction portfolio remains well-balanced, with one to four family construction continuing to represent 5% of total loans and the overall construction portfolio representing 14% of total loans.