v3.26.1
FAIR VALUE OF FINANCIAL INSTRUMENTS
 6 Months Ended
Jun. 30, 2026
Fair Value Disclosures [Abstract]  
FAIR VALUE ACCOUNTING AND MEASUREMENT
The following table presents estimated fair values of the Company’s financial instruments as of June 30, 2026 and December 31, 2025, whether or not recognized or recorded in the Consolidated Statements of Financial Condition (dollars in thousands):
June 30, 2026December 31, 2025
LevelCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
Assets:
Cash and cash equivalents1$435,452 $435,452 $422,640 $422,640 
Securities—available-for-sale21,985,530 1,985,530 1,985,990 1,985,990 
Securities—available-for-sale330,361 30,361 30,271 30,271 
Securities—held-to-maturity2924,293 783,000 955,459 808,965 
Securities—held-to-maturity35,016 4,987 5,737 5,703 
Loans held for sale227,160 27,203 42,902 43,062 
Loans receivable, net311,832,561 11,827,479 11,561,411 11,497,137 
Equity securities1678 678 406 406 
FHLB stock324,209 24,209 16,476 16,476 
Bank-owned life insurance1324,164 324,164 319,347 319,347 
Mortgage servicing rights311,316 37,538 11,498 34,862 
SBA servicing rights31,078 1,078 1,104 1,104 
Investments in limited partnerships316,105 16,105 15,566 15,566 
Derivatives:
Interest rate swaps
28,531 8,531 9,978 9,978 
Interest rate lock and forward sales commitments
2,3301 301 333 333 
Liabilities:
Demand, interest checking and money market accounts28,462,960 8,462,960 8,486,920 8,486,920 
Regular savings23,853,612 3,853,612 3,723,922 3,723,922 
Certificates of deposit21,473,021 1,466,034 1,532,304 1,527,803 
FHLB advances2320,000 320,000 150,000 150,000 
Other borrowings2114,497 114,497 107,715 107,715 
Junior subordinated debentures379,652 79,652 79,151 79,151 
Derivatives:
Interest rate swaps
219,007 19,007 19,207 19,207 
Interest rate lock and forward sales commitments
2,3180 180 151 151 
Risk participation agreement22 2 5 5 

The Company measures and discloses certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (that is, not a forced liquidation or distressed sale). When measuring fair value, Management will maximize the use of observable inputs and minimize the use of unobservable inputs whenever possible. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s estimates for market assumptions.

The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies.  However, considerable judgment is required to interpret available data and develop fair value estimates.  Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize at a future date.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values.  In addition, reasonable comparability between financial institutions may be limited due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments.  This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.
Items Measured at Fair Value on a Recurring Basis:

The following tables present financial assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy of the fair value measurements for those assets and liabilities as of June 30, 2026 and December 31, 2025 (in thousands):
June 30, 2026
Level 1Level 2Level 3Total
Assets:
Securities—available-for-sale
U.S. Government and agency obligations$— $8,690 $— $8,690 
Municipal bonds— 155,267 — 155,267 
Corporate bonds— 100,867 30,361 131,228 
Mortgage-backed or related securities— 1,519,567 — 1,519,567 
Asset-backed securities— 201,139 — 201,139 
— 1,985,530 30,361 2,015,891 
Loans held for sale(1)
— 17,139 — 17,139 
Equity securities678 — — 678 
SBA servicing rights— — 1,078 1,078 
Investment in limited partnerships— — 14,625 14,625 
Derivatives
Interest rate swaps— 8,531 — 8,531 
Interest rate lock and forward sales commitments— — 301 301 
$678 $2,011,200 $46,365 $2,058,243 
Liabilities:
Junior subordinated debentures
$— $— $79,652 $79,652 
Derivatives
Interest rate swaps— 19,007 — 19,007 
Interest rate lock and forward sales commitments— 91 89 180 
Risk participation agreement— 2 — 2 
$— $19,100 $79,741 $98,841 
December 31, 2025
Level 1Level 2Level 3Total
Assets:
Securities—available-for-sale
U.S. Government and agency obligations$— $6,143 $— $6,143 
Municipal bonds— 143,457 — 143,457 
Corporate bonds— 87,518 30,271 117,789 
Mortgage-backed or related securities— 1,596,332 — 1,596,332 
Asset-backed securities— 152,540 — 152,540 
— 1,985,990 30,271 2,016,261 
Loans held for sale(1)
— 34,586 — 34,586 
Equity securities406 — — 406 
SBA servicing rights— — 1,104 1,104 
Investment in limited partnerships— — 14,545 14,545 
Derivatives
Interest rate swaps— 9,978 — 9,978 
Interest rate lock and forward sales commitments— — 333 333 
$406 $2,030,554 $46,253 $2,077,213 
Liabilities:
Junior subordinated debentures$— $— $79,151 $79,151 
Derivatives
Interest rate swaps— 19,207 — 19,207 
Interest rate lock and forward sales commitments— 83 68 151 
Risk participation agreement— 5 — 5 
$— $19,295 $79,219 $98,514 

(1)    The unpaid principal balance of residential mortgage loans held for sale carried at fair value on a recurring basis was $16.7 million and $33.6 million at June 30, 2026 and December 31, 2025, respectively.

The following methods were used to estimate the fair value of each class of financial instruments above:

Securities:  The estimated fair values of investment securities and mortgage-backed securities are based on current active market quotes, when available, which are considered Level 1 measurements.  For most of the portfolio, matrix pricing based on the securities’ relationship to other benchmark quoted prices is used, which is considered Level 2.  Due to limited activity in the trust preferred securities (TPS) markets, which reduces the observability of market spreads for certain TPS securities included in Corporate Bonds, Management has classified these securities as Level 3. Management periodically reviews pricing information from third-party pricing services and validates the reported fair values against other sources.

Loans Held for Sale: Fair values for residential mortgage loans held for sale are determined by comparing actual loan rates to current secondary market prices for similar loans.

Equity Securities: Equity securities are invested in a publicly traded stock. Fair values are based on daily quoted market prices.

SBA Servicing Rights: Fair values are estimated based on an independent dealer analysis that discounts estimated net future cash flows from servicing. Key assumptions include prepayment speeds, delinquency and foreclosure rates, discount rates, servicing costs, and timing of cash flows.  The SBA servicing portfolio is stratified by loan type, and fair value estimates are adjusted based on the serviced loan interest rates versus current rates on new originations since the most recent independent analysis.

Investments in Limited Partnerships: Fair values are estimated using the practical expedient method, based on the Company’s ownership interest in partners’ capital with a proportionate share of net assets attributed to the Company for each limited partnership.

Junior Subordinated Debentures:  Fair values are estimated using an income approach. Significant inputs include a credit risk adjusted spread and the three-month SOFR (Secured Overnight Financing Rate). The credit-risk-adjusted spread reflects the nonperformance risk of the liability. The Company uses an external valuation firm to validate the reasonableness of this spread. The junior subordinated debentures are carried at fair value, representing the estimated amount that would be paid to transfer these liabilities in an orderly transaction among market participants. Due to limited activity in the TPS markets, which reduces the observability of market spreads, these instruments are classified as Level 3 measurements.
Derivatives: Derivatives include interest rate swap agreements, interest rate lock commitments to originate loans held for sale, forward sales contracts to sell loans and securities related to mortgage banking activities and risk participation agreements. Fair values are generally based on dealer quotes and secondary market sources. Because interest rate lock commitments use a pull-through rate that is considered an unobservable input, these derivatives are classified as Level 3 measurements.

Off-Balance Sheet Items: Off-balance sheet financial instruments include unfunded commitments to extend credit, including standby letters of credit, and commitments to purchase investment securities. The fair value of these instruments is not considered to be material.

Limitations: The fair value estimates presented are based on information available to Management as of June 30, 2026 and December 31, 2025.  The factors used in these estimates are subject to change after the measurement date, therefore, current fair value estimates may differ materially from the amounts presented.

Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3):

The following table provides a description of the valuation techniques, unobservable inputs, and quantitative and qualitative information about the unobservable inputs used in the fair value measurements of the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and non-recurring basis at June 30, 2026 and December 31, 2025:
Weighted Average Rate or Range
Financial InstrumentsValuation TechniqueUnobservable InputsJune 30, 2026December 31, 2025
Corporate bonds (TPS)Discounted cash flowsDiscount rate7.00 %6.91 %
Junior subordinated debenturesDiscounted cash flowsDiscount rate7.00 %6.91 %
Loans individually evaluatedCollateral valuationsDiscount to appraised value
   8.75% to 10.00%
         0% to 8.75%
Interest rate lock commitmentsPricing modelPull-through rate89.06 %88.86 %
SBA servicing rightsDiscounted cash flowsConstant prepayment rate18.12 %18.14 %

Trust preferred securities: Management believes that the credit -risk-adjusted spread used to develop the discount rate utilized in the fair value measurement of TPS is indicative of the risk premium a willing market participant would require under current market conditions for instruments with similar contractual rates, terms, conditions, credit risk profiles and expected probabilities of default. Management attributes the change in fair value of these instruments, compared to their par value, primarily to general market adjustments to the risk premiums for these types of assets subsequent to their issuance.

Junior subordinated debentures: Similar to the TPS discussed above, Management believes that the credit-risk-adjusted spread utilized in the fair value measurement of the junior subordinated debentures is indicative of the risk premium a willing market participant would require under current market conditions for an issuer with Banner’s credit risk profile. Management attributes the change in fair value of the junior subordinated debentures compared to their par value primarily to general market adjustments to the risk premiums for these types of liabilities subsequent to their issuance. Future contractions in the risk-adjusted spread relative to the spread currently used to estimate the fair value of the Company’s junior subordinated debentures at fair value as of June 30, 2026, or the passage of time, will result in negative fair value adjustments. At June 30, 2026, the discount rate utilized was based on a credit spread of 326 basis points and three-month SOFR of 373 basis points.

Interest rate lock commitments: The fair value of the interest rate lock commitments is based on secondary market sources adjusted for an estimated pull-through rate. The pull-through rate is based on historical loan closing rates for similar interest rate lock commitments. An increase or decrease in the pull-through rate would have a corresponding, positive or negative fair value adjustment.

SBA servicing asset: The constant prepayment rate (CPR) is set based on industry data. An increase in the CPR would result in a negative fair value adjustment, while a decrease in CPR would result in a positive fair value adjustment.
The following tables provide a reconciliation of the assets and liabilities measured for which fair value is measured using significant unobservable inputs (Level 3) on a recurring basis during the three and six months ended June 30, 2026 and 2025 (in thousands):
Three Months Ended June 30, 2026
Level 3 Fair Value Inputs
TPS SecuritiesBorrowings—Junior Subordinated DebenturesInterest Rate Lock and Forward Sales CommitmentsInvestments in Limited PartnershipsSBA Servicing Asset
Beginning balance$30,314 $79,472 $(55)$14,860 $1,091 
Net change recognized in earnings91 — 267 (325)(13)
Net change recognized in accumulated other comprehensive income (AOCI)(44)180 — — — 
Purchases, issuances and settlements— — — 90 — 
Ending balance at June 30, 2026$30,361 $79,652 $212 $14,625 $1,078 
Six Months Ended June 30, 2026
Level 3 Fair Value Inputs
TPS SecuritiesBorrowings—Junior Subordinated DebenturesInterest Rate Lock and Forward Sales CommitmentsInvestments in Limited PartnershipsSBA Servicing Asset
Beginning balance$30,271 $79,151 $265 $14,545 $1,104 
Net change recognized in earnings178 — (53)(209)(26)
Net change recognized in AOCI(88)501 — — — 
Purchases, issuances and settlements— — — 289 — 
Ending balance at June 30, 2026$30,361 $79,652 $212 $14,625 $1,078 
Three Months Ended June 30, 2025
Level 3 Fair Value Inputs
TPSBorrowings—Junior Subordinated DebenturesInterest Rate Lock and Forward Sales CommitmentsInvestments in Limited PartnershipsSBA Servicing Asset
Beginning balance$25,756 $67,711 $305 $15,025 $954 
Net change recognized in earnings79 — 186 92 84 
Net change recognized in AOCI2,109 5,655 — — — 
Purchases, issuances and settlements— — — 443 — 
Ending balance at June 30, 2025$27,944 $73,366 $491 $15,560 $1,038 
Six Months Ended June 30, 2025
Level 3 Fair Value Inputs
TPS SecuritiesBorrowings—Junior Subordinated DebenturesInterest Rate Lock and Forward Sales CommitmentsInvestments in Limited PartnershipsSBA Servicing Asset
Beginning balance$25,685 $67,477 $108 $13,955 $869 
Net change recognized in earnings153 — 383 372 169 
Net change recognized in AOCI2,106 5,889 — — — 
Purchases, issuances and settlements— — — 1,233 — 
Ending balance at June 30, 2025$27,944 $73,366 $491 $15,560 $1,038 

Interest income, dividends and amortization related to TPS are recorded as a component of interest income. Interest expense related to the junior subordinated debentures is measured based on contractual interest rates and reported in interest expense. The change in fair value of the junior subordinated debentures, which represents changes in instrument specific credit risk of the liability, and the change in fair value of TPS securities are recorded in other comprehensive income. Changes in the estimated fair value of investments in limited partnerships and the SBA servicing asset are recorded as a component of non-interest income. Changes in the estimated fair value of interest rate lock and forward sales commitments are included in mortgage banking operations in non-interest income.
Items Measured at Fair Value on a Non-recurring Basis:

The following tables present financial assets and liabilities for which fair value is measured on a non-recurring basis and the level within the fair value hierarchy of the related fair value measurements for those assets as of June 30, 2026 and December 31, 2025 (in thousands):
June 30, 2026
Level 1Level 2Level 3Total
Loans individually evaluated$— $— $4,727 $4,727 
Real estate owned (REO)— — 5,720 5,720 
December 31, 2025
Level 1Level 2Level 3Total
Loans individually evaluated$— $— $5,607 $5,607 
REO— — 5,578 5,578 
Loans individually evaluated: Expected credit losses for loans evaluated individually are measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate. When the Bank determines that foreclosure is probable, the expected credit loss is measured based on the estimated fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. As a practical expedient, the Bank measures the expected credit loss for a loan using the estimated fair value of the collateral, if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Bank’s assessment as of the reporting date. In both cases, if the estimated fair value of the collateral is less than the amortized cost basis of the loan, the Bank will recognize an allowance as the difference between the estimated fair value of the collateral, less costs to sell (if applicable) and the amortized cost basis of the loan. If the estimated fair value of the collateral exceeds the amortized cost basis of the loan, any expected recovery added to the amortized cost basis will be limited to the amount previously charged-off. Subsequent changes in the expected credit losses for loans evaluated individually are included within the provision for credit losses in the same manner in which the expected credit loss initially was recognized or as a reduction in the provision that would otherwise be reported.
REO: The Company records REO (acquired through a lending relationship) at estimated fair value on a non-recurring basis. Fair value adjustments on REO are based on updated real estate appraisals which are based on current market conditions. All REO properties are recorded at the lower of the estimated fair value of the real estate, less expected selling costs, or the carrying amount of the defaulted loans. From time to time, non-recurring fair value adjustments to REO are recorded to reflect partial write-downs based on an observable market price or current appraised value of property. Banner considers any valuation inputs related to REO to be Level 3 inputs. The individual carrying values of these assets are reviewed for impairment at least annually and any additional impairment charges are expensed.