Banner (NASDAQ:BANR) reported higher year-over-year earnings and revenue from core operations in the second quarter of 2026, while management said loan demand remained broad-based and credit metrics were largely stable despite an increase in non-performing assets tied to one condo construction project.
The Walla Walla, Washington-based banking company reported net income available to common shareholders of $48.9 million, or $1.43 per diluted share, for the quarter ended June 30, 2026. That compared with $1.31 per diluted share in the second quarter of 2025. Earnings per share declined from $1.60 in the first quarter of 2026, which Chief Financial Officer Rob Butterfield attributed primarily to a higher provision for credit losses, lower non-interest income and higher non-interest expense, partly offset by stronger net interest income.
Revenue from core operations totaled $172 million, up nearly 6% from $163 million in the second quarter of 2025. Banner reported a return on average assets of 1.20% for the quarter and a return on average tangible common equity of 12.27%.
Net Interest Income Rises as Loan Growth Offsets Funding Costs
Butterfield said net interest income increased $3.6 million from the prior quarter, reflecting a two-basis-point increase in the tax-equivalent net interest margin and a $129 million rise in average earning assets. The tax-equivalent net interest margin was 4.13%, compared with 4.11% in the first quarter.
The increase in margin was driven by higher earning-asset yields, including a two-basis-point rise in loan yields, and an improved earning-asset mix. The average rate on new loan production was 6.53%, down from 6.69% in the prior quarter. Butterfield said loan yields should continue to rise modestly through year-end, but at a slower pace, estimating one to two basis points of quarterly improvement.
Funding costs partly offset the benefit from earning assets, as Banner used Federal Home Loan Bank advances to temporarily fund loan growth and seasonal deposit outflows. Deposit costs decreased two basis points from the prior quarter due to repricing in the certificate of deposit book. Butterfield said the CD book has “pretty much fully repriced” and that, absent Federal Reserve rate action, deposit costs are expected to remain relatively flat.
Total deposits declined $51 million during the quarter, which management described as normal seasonal activity as clients used balances for tax payments. Core deposits fell $59 million and represented 89% of total deposits at quarter-end. Non-interest-bearing deposits were 33% of total deposits, unchanged from the previous quarter. Total borrowings rose $319 million, reflecting the temporary use of FHLB advances.
Loan Growth Broad-Based Across Business Lines
Chief Credit Officer Jill Rice said loan originations were strong in the quarter and increased 45% from the linked quarter. Commercial originations rose 85%, construction originations increased 73% and consumer originations rose 55%.
Loan balances grew by $287 million during the quarter, or nearly 10% on an annualized basis, despite continued commercial real estate payoffs and some elevated commercial-and-industrial payoffs. The main contributors to growth were:
- Commercial and industrial loans: up $152 million.
- Consumer loans: up $62 million, driven largely by new home equity lines of credit following a marketing campaign.
- Owner-occupied real estate: up $54 million.
Rice said growth in C&I lending and owner-occupied real estate reflected a mix of new and expanded small business relationships as well as new middle-market commercial relationships across Banner’s footprint. She said non-owner-occupied balances also reflected new and deepened middle-market relationships, although growth was tempered by real estate sales and refinancing into the secondary market.
Management said pipelines remain strong, particularly in commercial and commercial real estate lending. Rice said third-quarter originations and loan growth may decline from the second quarter based on historical patterns, but Banner still expects to finish the year with mid-single-digit loan growth.
Credit Metrics Stable, With Condo Project Moving to Non-Accrual
Rice said Banner’s credit metrics remained stable overall. Delinquent loans declined five basis points from the linked quarter to 0.51% of total loans, compared with 0.41% at June 30, 2025. Adversely classified assets declined $16.5 million from the prior quarter and represented 1.82% of total loans, down 19 basis points from March 31.
Non-performing assets increased $8.9 million, which Rice said was the result of a single condo construction project moving to non-accrual. Even with the increase, non-performing assets represented 0.36% of total assets. Non-performing loans totaled $54.8 million, with the majority in one-to-four-family or other consumer-related credits that often involve lengthy resolution timelines.
Rice said the condo project was a small California-market project that had experienced significant delays from the outset, and she said she does not expect it to remain in non-performing status for very long. She said she is watching the consumer segment most closely, including mortgages and home equity loans, given the strain from the higher-rate environment.
The net provision for credit losses was $3.8 million, including $1.6 million for loans and $2.2 million for unfunded loan commitments. Loan losses totaled $577,000 and were partly offset by $476,000 in recoveries. The allowance for credit losses stood at 1.35% of total loans, compared with 1.37% in both the linked quarter and the year-earlier quarter.
Expenses Rise on Software, Marketing and Legal Costs
Non-interest income decreased $939,000 from the prior quarter. Butterfield said the decrease was mainly due to a prior-quarter $1.7 million increase in the valuation of financial instruments carried at fair value and lower gain-on-loan-sale income in the current quarter, partly offset by higher service fee income and the absence of a prior-quarter securities-sale loss.
Non-interest expense increased $5.4 million from the first quarter. Butterfield said first-quarter expenses were lower than typical because some costs were delayed until the second quarter. Software expense rose $1.8 million, including a $924,000 non-recurring write-off of the company’s previous commercial loan origination system, which was recently replaced. Marketing expense increased $1.3 million, salary expense rose $800,000 due to annual salary increases, and legal expenses were up $764,000. The quarter also included $238,000 of merger-and-acquisition expense related to the pending Bank of the Pacific acquisition.
Management said the new loan origination system is intended to streamline processes across consumer, small business and commercial lending and improve the speed at which loans move through the pipeline.
Capital, Dividend and Bank of the Pacific Deal
Banner’s tangible common equity-to-assets ratio increased to 10.02%, and total shareholders’ equity rose $33 million during the quarter to about $2 billion. The company declared a core dividend of $0.52 per common share.
Butterfield said Banner has paused capital actions outside of its core dividend until the Bank of the Pacific transaction closes. He said that does not necessarily change the total number of shares the company may repurchase for the year, but it pushes out the timing. Management said the acquisition remains on track to close in the third quarter.
Grescovich said Bank of the Pacific brings a strong core deposit base and that the transaction would not prevent Banner from pursuing additional acquisitions. He said the company will remain opportunistic, citing its capital levels and core earnings power.
About Banner (NASDAQ:BANR)
Banner Corporation, through its principal subsidiary Banner Bank, operates as a regional commercial bank headquartered in Walla Walla, Washington. Founded in 2000 as a bank holding company, Banner traces its origins to community banking roots in Eastern Washington dating back to the late 19th century. Over the past two decades, the company has grown through both organic expansion and strategic acquisitions, establishing a strong presence throughout the Pacific Northwest.
The company offers a comprehensive suite of financial products and services for individual and business clients.
