班纳公司 (BANR) 2026年第三季度业绩电话会议：贷款增长与净息差展望lg...

核心要点

• Banner Corporation公布2026年第三季度归属于普通股股东的净利润为4770万美元，即摊薄后每股1.36美元，而上年同期为每股1.54美元（2025年第三季度）。
• 核心税前拨备前利润升至6860万美元，高于上年同期的6780万美元。核心营业收入同比增长6%至1.79亿美元。
• 总贷款环比增长10亿美元，即8%。收购Pacific Financial贡献了7.66亿美元，而内生贷款增长为2.35亿美元，相当于Banner原有业务的年化增长率约为8%。
• 存款增加16亿美元，其中包括10亿美元来自收购Pacific Financial及4.63亿美元的内生增长。核心存款占90%的总存款比例，期末贷存比为84%。
• 税额等值净息差环比上升1个基点至4.14%。管理层预计2026年第四季度净息差将进一步扩大，但2027年的走势将取决于美联储政策及存款定价竞争。
• 信贷指标总体保持稳定。逾期贷款占总贷款的0.56%，不良分类资产降至贷款总额的1.61%，信贷损失准备占总贷款的1.32%。

核心财务数据

业务与经营 业绩

商业房地产是贷款增长的主要来源。 自用型商业房地产增加 1亿美元，其中包括 收购获得的7400万美元和2600万美元的内生增长。投资型 商业房地产增加 6100万美元，因为收购获得的7700万美元 余额被现有资产组合的还款部分抵消。

多家庭住宅贷款增加 5700万美元，而 建筑贷款余额增加 1.08亿美元，包括 7900万美元的内生增长。建筑贷款占 总贷款的14%，其中单户至四户住宅 建筑贷款占比为5%。

工商业贷款增加了7200万美元，其中约45%与收购相关。小微企业贷款增加了7900万美元，且全部为内生增长。消费贷款余额增加了1.03亿美元，其中包括主要通过房屋净值贷款额度发放的4000万美元新贷款。

新发放贷款额环比增长2%，同比增长61%，尽管受到了典型的季节性放缓影响。管理层将其对持续增长的信心归因于良好的商业贷款与商业地产（CRE）项目储备、建筑贷款承诺、新客户关系建立以及涉及其他金融机构的市场动荡。

净利息收入环比增加820万美元，受平均生息资产规模扩大和净息差适度扩张支撑。平均贷款收益率上升3个基点，投资证券收益率上升7个基点，新发放贷款的平均利率为6.55%，高于二季度的6.53%。

存款成本上升5个基点至1.38%，反映出市场利率上升以及增长集中在付息账户。无息存款占总存款的32%。Banner在本季度偿还了所有未偿还的联邦住房贷款银行（FHLB）预付款。

非利息收入环比下降280万美元，主要是因为210万美元的损失，该损失来自于出售从Pacific Financial收购的证券。抵押贷款业务、SBA贷款出售及互换相关收入减少也拖累了手续费收入。

非利息费用增加了770万美元，主要受490万美元的并购相关费用以及110万美元的减记（针对止赎地产）。本季度包含了被收购业务一个月的运营费用。

信贷质量

逾期贷款环比上升5个基点至总贷款的0.56%，而上年同期为0.39%。不良分类资产减少了900万美元，占总贷款的1.61%。

不良资产增加了240万美元，其中包括5900万美元的不良贷款和400万美元的收回不动产。总贷款损失为120万美元，部分被52.8万美元的回收款所抵消。

信贷损失准备金为280万美元，其中包括180万美元的贷款损失准备金和100万美元的未动用承诺准备金。Banner还另外计提了860万美元，用于为收购的贷款组合建立初始准备金。

管理层表示，收购的 Pacific Financial 资产组合符合 Banner 的承销标准和中等风险特征。公司继续就利率重置对办公楼及其他商业地产（CRE）风险敞口进行压力测试。管理层指出，重大信用问题仍属于特例，而非广泛与利率上升相关。

管理层业绩指引

管理层预计2026年第四季度净息差将扩大。随着联邦基金利率在9月上调，预计贷款组合中约有25%将重新定价，而 Pacific Financial 交易可能会使贷款收益率提高几个基点。证券组合收益率预计将上升约六至七个基点。

展望2027年，管理层表示净息差前景取决于利率政策。由于 Banner 呈轻度资产敏感型，进一步加息将支撑净息差扩大。暂停加息仍可能带来适度扩大，具体取决于存款竞争状况；而降息可能导致净息差持平或适度收窄。

Banner 预计贷款增长率将处于中单数字水平直至2026年底，并表明目前预计2027年也将维持这一增速。

关于费用收入，管理层表示第四季度的年化运行率应包含约80万美元（来自 Bank of the Pacific 额外两个月的运营），加上大约50万美元的潜在常态化调整，假设抵押贷款银行业务和 SBA 活动保持疲软。

Bank of the Pacific 的季度支出基数约为1000万美元（产生协同效应前）。Banner 表示已实现约10%的目标节省，预计另有20%将在2027年1月1日前后生效，最后的10%将在大约7月1日前生效，从而实现其总计40%的成本协同效应目标。

风险及关注事项

• 较高的利率已导致少数借款人暂停扩张计划，并可能对初始贷款需求构成阻力。
• 随着竞争对手调整定价，预计存款成本将进一步上升，管理层测算的计息存款贝塔系数在28%至40%之间。
• 在高利率环境下，抵押贷款银行业务和 SBA 贷款销售活动均有所放缓。
• Banner 继续监控消费者、小企业、SBA 贷款、办公楼及其他商业地产（CRE）领域因借贷成本上升而面临的压力。
• 对商业客户的竞争依然激烈，尤其是在定价方面。管理层还提及来自二级市场参与者和保险公司的竞争，这些机构提供的承销条件通常是 Banner 所无法匹配的。
• 随着客户偿还营运额度，第四季度初可能会流失高达约1亿美元的季节性农业存款，不过管理层通常预计年底的其他资金流入将抵消这一波动。

分析师问答要点

分析师密切关注息差敏感度。管理层表示，第四季度贷款和证券收益率的上升应能抵消近期的存款成本压力，但强调2027年的结果仍存在不确定性，因为市场利率预期与 Banner 通常采用的预测存在差异。

在资本分配方面，Banner 表示核心股息仍是其首要任务。公司于9月回购了20万股股票（在完成 Pacific Financial 交易后），并将评估在第四季度进行额外回购。管理层还认为当前的资本水平为潜在的并购保留了灵活性。

关于 Pacific Financial，Banner 对收购的证券组合进行了重组，同时保持其短久期。公司计划将现金流通过内生方式重新配置到贷款中，而不是立即采取进一步的资产负债表重整。

管理层对进一步的收购持开放态度，但表示其近期优先事项是完成 Pacific Financial 的整合、支持内生增长并最大限度地减少整合带来的干扰。

业绩电话会完整文字记录

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完整财报电话会议逐字稿

管理层陈述

Operator

Hello, everyone. Thank you for joining us, and welcome to the Banner Corporation Third Quarter 2026 Conference Call and Webcast. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions]

I will now hand the call over to Mark Grescovich, President and CEO of Banner. Mark? Please go ahead.

Mark J. Grescovich

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? .

Rich Arnold

Sure, Mark. Good morning. Our presentation today to us of 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 actual results may differ materially from those discussed today. Information on the risk factors that could cause the actual results to differ are available from the earnings press release that was released yesterday and the most recently filed Form 10-Q for the quarter ended June 30, 2026. Forward-looking statements are effective only as of the date they are made, and Banner assumes no obligation to update information concerning its expectations. Mark?

Mark J. Grescovich

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. And 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'm 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 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 $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 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'm 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. In 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 accrual 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 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 segment.

The construction portfolio remains well balanced with 1:4 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 1:4 family for-sale construction portfolio. Current levels remain well within historical norms and builders remain cautious regarding Neustar.

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 1-4 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 via 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 and compared to 0.39% as of September 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 recovery totaling $528,000. 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 remained strong and compares to 1.35% as of the linked quarter and 1.36% as of September 30, 2020. 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 diversified 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 mic over to Rob for his comments. Rob?

Robert 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 was primarily due to merger and acquisition 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. As Jill previously mentioned, total loans increased $1 billion during the quarter, 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. Tangible equity to asset ratio was 9.48%, and total shareholder equity increased to $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 costs, 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%. Noninterest-bearing deposits ended the quarter at 32% of total deposits. Total noninterest 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 from the prior quarter. The primary driver was a $4.9 million increase in merger and acquisition 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 one 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'll turn it back to Mark.

Mark J. Grescovich

Thank you, Jill and Rob for your comments. That concludes our prepared remarks, and Trevor, we will now open the call and welcome questions.

Operator

[Operator Instructions] Our first question comes from the line of Jeff Rulis with D.A. Davidson.

分析师问答

Ryan Payne

This is Ryan Pan on for Jeff Rulis. Bigger picture on the margin, some moving pieces with the FHLB advances runoff, I mean, security sale. So where do you see the NIM trajectory from here?

Robert Butterfield

Sure, Ryan. This is Rob. So if we think about the fourth quarter and the asset side of it, I would expect some expansion in loan yields has 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 the Pacific Financial deal would also add a couple of 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're looking out further, 2027 would really be dependent on Fed actions. I've seen the market pricing in anywhere from 1 to 2 increases in '27 in addition to the increase that they're pricing in December. I will say Moody's forecast is showing something different, and we usually follow Moody's they're actually showing two rate decreases in 2027. So I would say there's a bit of lack of clarity out there around the interest rate trajectory right now. the market is 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 were on pause for some reason, I think we'd also see some moderate expansion during 2027, really just dependent 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's 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're hearing from customers midst of 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 loan growth side?

Jill Rice

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

Commercial and commercial real estate pipelines remain healthy. We're 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. And just last for me, trying to gauge a run rate on fee income. And stripping out that loss on securities, is that kind of where we can think of where we should think the run rate is? Or where would you set expectations on fees? .

Robert Butterfield

Sure, Ryan. It's Rob. 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 need to add a full quarter of Bank Pacific activity. We saw one month of that in the third quarter. So you need to add to more months in there. They're running about $400,000 a month. So that would be an additional $800,000 on top of what we saw in the third quarter.

And I think there's just a number of areas where we just -- you always see fees move up and down quarter-over-quarter. So I think there's probably some normalization above that after you added Bank of Pacific maybe $0.5 million 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.

Operator

Our next question comes from the line of Matthew Clark with Piper Sandler.

Matthew Clark

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 Butterfield

Sure, Matthew. So spot cost of deposits for the month of September was $140 million compared to $138 million 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're seeing on the upside. Modeling-wise, we're modeling something higher. We're modeling $40 million. So I would say it would end up somewhere between 28% and 40%.

But that tends to be very lagged as what we've experienced in the past. Oftentimes, I think we've seen some front-running of that. If you think about that deposit cost increased 5 basis points during the third quarter. And typically, we would expect that to be relatively flat without the kind of pressure on market index rates that we saw during the third quarter. So we're hoping some of that it was front-end loaded, but I would expect some carryover from the Fed actions in the fourth quarter.

Matthew Clark

Got it. 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 wouldn't attribute to being seasonality and where it's coming from and whether or not there's anything -- whether or not those balances are sustainable.

Robert Butterfield

Yes. So we -- I mean the third quarter is always the best quarter for a deposit growth standpoint. There is some seasonality to that, but the majority have been sticking around typically what we see, and it's mostly on the ag side as we see 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 if you think about $463 million, there could be $100 million of that, 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 fourth quarter. So that usually ends up balancing out. And typically, we would see some increase in deposits in the fourth quarter when you balance those two out.

Matthew Clark

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

Mark J. Grescovich

Yes. Thank you, Matthew, for the question. Our philosophy hasn't changed. We continue to have dialogue with folks that we think would be great partners with Banner and we're very excited about the Bank of the Pacific combination, Pacific financial closure, and we do have an integration that's going to occur mid-month. So we're focused on that. But to the extent that opportunities arise, we are prepared to move forward. But like I said, we're focused on the current disruption, our organic growth and making sure that the Pacific Financial integration goes extremely well.

Operator

Our next question comes from the line of Kelly Motta with KBW.

Meghan Lynch

This is Megan Lynch on for Kelly Mode. So just sort of on specific a bit more? I know they enhanced balance sheet flexibility given their low loan to deposit and their great funding. I was just sort of wondering that now that you're 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 Butterfield

Yes. Thanks, Megan. This is Rob again. So what we did there is we did reposition their security portfolio in the month of September. And we let the balances there, but we intentionally left the duration short on that security portfolio and where we repositioned it to. But the thought process being that as the cash flows come off of that acquired security portfolio, we're able to redeploy those back into the loan portfolio. But that's going to happen organically.

We're not looking at doing any type of balance sheet repositioning or anything like that from the security side or from a loan portfolio perspective but we just intentionally left the duration short so we can redeploy those cash flows over time into the loan book.

Meghan Lynch

Okay. That was very helpful. And then so you sort of gave -- you touched on 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 clearer run rate on that Pacific's contribution and expenses?

Robert Butterfield

Sure. So to get to a run rate from an expense standpoint, 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 need to add in two months of expense for Bank of the Pacific operations. Their quarterly expenses have been running around $10 million at this point. We've 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 another 20% of the 40% would be realized starting at the beginning of the year, so call that January 1 of '27. 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. And then if you're trying to get to a 2027 run rate, you would need to abnormal inflationary increase in expenses, plus a little bit on top of that for continued investments into the organization.

Operator

Our next question comes from the line of Andrew Terrell with Stephens.

Unknown Analyst

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

Robert Butterfield

Sure, Andrew. Thanks for the question. Yes. I mean we certainly think there will be a little bit of pick up there. I think it's going to come from a couple of different pieces. It's not only the fixed asset repricing, but it's 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's just because even though rates had increased, we had commitments out there prior to the rates increasing. So you had some you didn't really realize the full increase in the market interest rate.

So we think there's some benefit just as new loans are coming on and existing loans are paying off. We're still trying to get our full handle around what the benefit of the fixed asset repricing. We're running a couple of basis points, it almost came down to zero. So I think as we start through the process here, it will probably be a couple of basis points a quarter. And as we get a clear trajectory on where rates are going to stay going forward here, then we'll probably get a better sense on what the full impact would be.

Unknown Analyst

Yes. Got it. Okay. I appreciate it. And then capital, you guys leveraged capital just a little bit with the strong growth in the deal sequentially. Just interest in buyback continuing from here versus maybe holding capital or building capital in anticipation of future M&A? I guess, do you have a preference?

Robert Butterfield

The way we're thinking about that right now, Andrew, core dividend is the first thing that we're focused on. If we're looking at something beyond that, I mean we did repurchase 200,000 shares in September after the Pacific Financial deal closed. We think share repurchases are very attractive where we're currently trading that. And so we will evaluate further share repurchases in the fourth quarter. And I think even with the share repurchases, we're probably keeping capital at about the current level or maybe it goes down a little bit. So I think that still provides us with opportunity to consider the right M&A opportunity that could come along.

Unknown Analyst

Got it. And I think it's 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 Butterfield

I think it would be something below that. We've 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're at 9.48% right now. Bank of the Pacific reduced at about 20 basis points. The increase in the unrealized loss in the security portfolio was the other, call it, 30 basis points of that. our target range to the upper end of our target range is 9.5%. So we're setting at the upper end of our target range right now. And we're above peer median. And if you look at our proxy peers, we were about 30 basis points above where they were at previously. So I think there's additional room to bring down the TCE ratio.

Operator

Our next question comes from the line of David Feaster with Raymond James. .

David Feaster

I wanted to follow up on maybe Jill, your commentary about maintaining a mid-single-digit pace of growth next year. I'm just curious, what gives you confidence in that? What's driving growth? It sounds like there's some construction tailwinds. But are there any markets you're seeing more strength or segments? And just maybe as you touched on the competitive side.

Obviously, it's been tough, especially on the pricing front, but curious if you're seeing that abate at all or whether competition is maybe shifting more towards looser underwriting as well. So just kind of 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 think on a day in and day out basis. and pricing, it continues to be one of the levers that are pulled. There isn't a ton within the banking industry that's pushing out in terms of underwriting standards, certainly, secondary market, insurance companies. And that sort of competition gives underwriting that we don't generally match. So we have some of that, that we're competing with. But the confidence really comes from the good work that our team has been doing over the past year in terms of who they're calling on growing existing client relationships, bringing in new clients as well.

New team members have been really successful existing bankers have been successful as well in terms of expansion. We benefit from the market disruption as well. So some of the combinations that have occurred or shifts in where decisions are made and cause people to rethink where they want to do banking. So all of that together, just you're seeing it. I'm seeing it, I should say, in the originations. And so those originations are frontrunners to dollars that are advancing on the books, whether it's closings, but and funding up of those closings over time. And again, the construction portfolio is -- there's a lot there as well to pull through.

David Feaster

Okay. That's helpful. And then, Jill, maybe just staying with you, touching on the credit side. Obviously, you guys are phenomenal on the credit front and very conservative. I'm curious as you think about higher rates and you stress the book, are there any segments that you're watching more closely? I mean we got small business consumer. And then just high level, how do you think about the health of the CRE book and the markets across your footprint? Just kind of curious what you're seeing and what you're hearing from borrowers broadly.

Jill Rice

So what are we watching you hit on all of them, right? I mean, we are looking at the consumer, we're looking at SBA. We're watching what the higher rate environment is doing in terms of segments within CRE, we continue to stress the office portfolio and continually look at that as it will -- as if it had repriced in when is it going to reprice, just to kind of watch what is going to be happening or potentially happening based on their most current operating statements.

To date, we don't have very many that would look like they won't work at a current rate reset. I think that speaks to the underwriting we're doing as we're going in, in terms of the required debt service coverages that we expect for various different types of properties coupled with the significant equity that borrowers have in their properties going in recourse that is on 99% of the loan book as well. And global cash flows that can backstop issues with any particular property. So we're monitoring I would say, most of the book on a very regular basis in terms of 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's helpful. And then Mark, maybe just a high-level one for you. I mean, as we talked about, there's a lot of tailwinds for your business, right? You got the back book of pricing story, margin expansion, a strong core deposit base, strong credit loan growth excess capital. There's 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'm excited about, right? We have an opportunity on some growth avenues organically, there's quite a bit of market disruption that's occurring with the combination of other financial institutions, which creates uncertainty in clients' minds in our footprint. We're in a great footprint for business. So I'm 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 Rob 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've made in our operations, then the investments we've made to improve our efficiency will also create some scalable efficiencies and generate positive operating leverage as we go into 2027. So I'm very excited about the how the organization is positioned and what we can do going forward and continue to improve returns.

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

Right. Thank you, Trevor. As I stated, we're very proud of the Banner team 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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