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. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the call over to Mark Grescovich, President and CEO of Banner. 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 30th, 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 30th, 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.
As discussed in prior calls, we continue to closely monitor the completed and unsold inventory levels within the one to four 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 one to four 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 30th, 2025. Adversely classified assets declined by $9 million in the quarter and now represent 1.61% of total loans. Non-performing assets increased by $2.4 million in the quarter and are comprised of non-performing 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 $528,000. 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 remains strong and compares to 1.35% as of the linked quarter and 1.36% as of September 30th, 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 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 microphone over to Rob for his comments. Rob?
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 pre-tax, 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 $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 into 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 non-interest 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 will turn it back to Mark.
Thank you, Jill and Rob, for your comments. That concludes our prepared remarks. Trevor, we will now open the call and welcome questions.
Thank you, Mark. We will now begin the question -and -answer session. Please, if you would like to ask a question, press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If 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.
Good morning. This is Ryan Payne on for Jeff Rulis.
Morning, Ryan.
Starting off bigger picture on the margin. Some moving pieces with the FHLB advances runoff and the securities sale. Where do you see the NIM trajectory from here?
Sure, Ryan. This is Rob. 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. In addition, the closing of the Pacific Financial deal would also add a couple of basis points to the loan yield as well. I would expect the portfolio also to see an increase in yield in that 6-7 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. 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 1-2 increases in 2027, in addition to the increase that they are pricing in in December. I will say Moody's forecast is showing something different, and we usually follow Moody's. They are actually showing two 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. If the market is right and we see some increase in the fourth quarter and 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 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 is either flat to a moderate compression.
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?
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, 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. 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.
Okay. Thank you. Just last from me, trying to gauge a run rate on fee income. In stripping out that loss on securities, is that where we should think the run rate is, or where would you set expectations on fees?
For sure, Ryan. It's Rob. Non-interest 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 of the Pacific activity. We saw one month of that in the third quarter, so you'd need to add two 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 you always see fees move up and down quarter -over -quarter.
I think there's probably some normalization above that after you add in Bank of the Pacific of maybe a $500,000 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.
I got it. Very helpful. Thanks, guys.
Thanks, Ryan.
Our next question comes from the line of Matthew Clark with Piper Sandler. Matthew, your line is open.
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?
Sure, Matthew. Spot cost of deposits for the month of September was $1.40 compared to $1.38 for the quarter. We were seeing some additional pressure in the month of September there. 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. 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, 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.
We are hoping some of that was front-end loaded. I would expect some carryover from the Fed actions in the fourth quarter.
Got it. 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 those balances are sustainable?
Yeah. The third quarter is always the best quarter from us for a deposit growth standpoint. There is some seasonality to that, but the majority of sticking around, typically what we see, and it's mostly on the ag side, is we see cash coming in from crop harvests and other things. It builds as you go through the third quarter. 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. 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 end the fourth quarter. 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.
Got it. And then last one from me, from Mark on M&A. I know you are 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?
Yeah. 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 and 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.
Understood. Thank you.
Our next question comes from the line of Kelly Motta with KBW. Kelly, your line is open.
Hi. This is Megan Lynch on for Kelly Motta. Thanks for taking my question. 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. 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?
Yeah. Thanks, Megan. This is Rob again. What we did there is we did reposition their security portfolio in the month of September. We left 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.
Okay. Thank you. That was very helpful. Then, you touched on how much Pacific is adding to fees and that run rate. But how should we think about their expense contribution and sort of a clearer run rate on that Pacific contribution and expenses?
Sure. To get you 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 also back out that write-down on REO properties that we took of around $1 million. From there, you would 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 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 another 20% of the 40% would be realized starting at the beginning of the year.
Call that January 1st of 2027, and the last 10% of cost synergies would be realized by mid next year, call it July 1st, to get to that total of 40% cost synergies that we expected. If you are trying to get to a 2027 run rate, you would need to add normal inflationary increase in expenses plus a little bit on top of that for continued investments into the organization.
Okay, perfect. Thank you. Very helpful. That is it for me.
Thank you, Megan.
Our next question comes from the line of Andrew Terrell with Stephens. Andrew, your line is open.
Hey, good morning.
Morning, Andrew.
Hey. 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 was maybe fizzling out a little bit, but we've had a pretty tremendous back-up in the curve here. Just your views on fixed repricing and the contribution to the margin going forward?
Sure, Andrew. Thanks for the question. We certainly think there will be a little bit of pick-up there. I think it is going to 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 even though rates had increased, we had commitments out there prior to the rates increasing.
You did not really realize the full increase in the market interest rate. We think there is some benefit just as new loans are coming on and existing loans are paying off. We are still trying to get our full handle around what the benefit is of the fixed asset repricing. We are running a couple basis points. It almost came down to zero.
I think as we start through the process here, it will probably be a couple basis points a quarter. As we get a clearer trajectory on where rates are going to stay going forward here, then we will probably get a better sense on what the full impact will be.
Yep. Got it. Okay. I appreciate it. Looking at capital, you guys leveraged capital just a little bit with the strong growth and the deal sequentially. Just interested 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?
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, we did repurchase 200,000 shares in September after the Pacific Financial deal closed. We think share repurchases are very attractive where we are currently trading at. We will evaluate further share repurchases in the fourth quarter. I think even with the share repurchases, we are probably keeping capital at about the current level or maybe it goes down a little bit. I think that still provides us with opportunity to consider the right M&A opportunity that could come along.
Got it. It is like 12.6% CET 1. Is 12.5% CET 1 kind of how you think about capital targets, if you think long term, or is it a different level than that?
I think it would be something below that. We have 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 that 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, 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 peer median. If you look at our proxy peers, we were about 30 basis points above where they were at previously. I think there is additional room to bring down the TCE ratio some.
Okay, great. Thanks for taking my questions.
Thank you, Andrew.
Our next question comes from the line of David Feaster with Raymond James. David, your line is open.
Hi. Good morning, everybody.
Morning, David.
Morning, David.
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? Sounds like there's some construction tailwinds, but are there any markets you're seeing more strength or segments? And just maybe as you touch 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. Just kind of curious on the growth front and the competitive landscape on the loan side.
Sure, David. Competition continues to be fierce with the clientele that we bank 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. 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.
Some of the combinations that have occurred or shifts in where decisions are made have caused people to rethink where they want to do banking. All of that together, you're seeing it, I'm seeing it, I should say, in the originations. And so those originations are front runners to dollars that are advancing on the books, whether it's closings and funding up of those closings over time. And again, the construction portfolio is. There's a lot there as well to pull through.
Okay, that's helpful. 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? We got small business, SBA or consumer. 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?
So, what are we watching? You hit on all of them, right? We are looking at the consumer. We're looking at SBA. We're watching what the higher rate environment is doing to them. In terms of segments within CRE, we continue to stress the office portfolio and continually look at that as if it had repriced instead of 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 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.
Okay, that's helpful. Mark, maybe just a high level one for you. As we talked about, there's a lot of tailwinds for your business, right? You got the back book, the pricing story, margin expansion of 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?
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 a combination of other financial institutions, which creates uncertainty in clients' minds in our footprint. We're in a great footprint for business. I'm very excited about our opportunity to grow organically. 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, 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. I'm very excited about how the organization is positioned and what we can do going forward and continue to improve returns.
That's terrific. Thanks, everybody.
Thank you, David.
There are no further questions at this time. I will now turn the call back to Mark for closing remarks. Please go ahead.
Great. Thank you, Trevor. As I've stated, we're 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.
This concludes today's call. Thank you for attending. You may now disconnect.