BANNER CORP

Comparison of Results of Operations for the Three Months Ended June 30, 2026 and March 31, 2026, and the Six Months Ended June 30, 2026 and 2025

For the quarter ended June 30, 2026, net income was $48.9 million, or $1.43 per diluted share, compared to $54.7 million, or $1.60 per diluted share, for the preceding quarter. For the six months ended June 30, 2026, our net income was $103.6 million, or $3.03 per diluted share, compared to $90.6 million, or $2.61 per diluted share for the same period a year earlier. The decrease in net income compared to the preceding quarter was primarily due to an increase in the provision for credit losses and higher non-interest expense, partially offset by an increase in net interest income. The increase in net income for the six months ended June 30, 2026, compared to the same period a year ago was primarily due to higher net interest income and a lower provision for credit losses, partially offset by higher non-interest expense.

Net interest income was $153.7 million in the second quarter of 2026, compared to $150.2 million in the preceding quarter, and $303.9 million for the six months ended June 30, 2026, compared to $285.5 million for the comparable period a year ago. The increase in net interest income compared to the prior quarter primarily reflected one additional calendar day in the current quarter, net interest margin expansion and growth in average interest-earning assets, partially offset by higher funding costs associated with increased FHLB borrowings. The increase in net interest income for the six months ended June 30, 2026, compared to the same period a year ago primarily reflected lower funding costs and an increase in the average balance of interest-earning assets.

We recorded a $3.8 million provision for credit losses for the quarter ended June 30, 2026, compared to a $796,000 recapture of provision for credit losses in the preceding quarter. The provision for credit losses recorded in the second quarter of 2026 primarily reflected loan growth, partially offset by improvements in credit quality and changes in portfolio mix. We recorded a $3.0 million provision for credit losses for the six months ended June 30, 2026 and a $7.9 million provision for credit losses for the same period a year ago.

Total non-interest income decreased in the quarter ended June 30, 2026, compared to the preceding quarter and increased during the six months ended June 30, 2026, compared to the same period a year ago. The decrease in non-interest income from the previous quarter was driven primarily by an unfavorable shift in fair value adjustments on financial instruments. In addition, net losses on the sale of securities were recognized in the preceding quarter. The increase in non-interest income during the six months ended June 30, 2026, compared to the same period last year, primarily reflected higher deposit fees and other service charges and favorable fair value adjustments on financial instruments carried at fair value, partially offset by a net loss recognized on the sale of securities during the current period.

Total non-interest expense increased in the quarter ended June 30, 2026, compared to the preceding quarter and increased during the six months ended June 30, 2026, compared to the same period a year ago. The increase from the previous quarter reflected an increase in salary and employee benefits, primarily reflecting increased loan commissions and normal salary and wage increases, an increase in information and computer data services, primarily due to increased computer software expenses, an increase in professional and legal expenses, primarily reflecting increased legal fees, and an increase in advertising and marketing expense, primarily reflecting the timing of direct mail marketing, printed media, and radio and television expenses. These increases were partially offset by higher capitalized loan origination costs associated with increased loan origination activity, primarily in the construction, land and land development, and one- to four-family residential loan categories. The increase in non-interest expense during the six months ended June 30, 2026, compared to the same period last year primarily reflects increases in salary and employee benefits and information and computer data services, partially offset by an increase in capitalized loan origination costs.

(1) Represents non-GAAP financial measures. See “Reconciliation of Non-GAAP Financial Measure” above.

Net Interest Income. Net interest income increased $3.6 million during the quarter ended June 30, 2026, compared to the preceding quarter, due to an increase in interest income, primarily attributable to one additional calendar day in the current quarter, net interest margin expansion and growth in average interest-earning assets, partially offset by higher interest expense associated with increased FHLB borrowings.

Net interest margin on a tax equivalent basis was 4.13% for the second quarter of 2026, compared to 4.11% for the preceding quarter. The net interest margin for the current quarter benefited from loan growth, a slight increase in loan yields, and lower deposit costs, partially offset by the increased use of FHLB advances.

Net interest income increased by $18.4 million, or 6% for the six months ended June 30, 2026, compared to the same period one year earlier. The increase was primarily the result of a $6.4 million increase in interest income, primarily reflecting an increase in the average balance of loans, as well as a $12.1 million decrease in interest expense reflecting an 18 basis-point reduction in the average cost of funding liabilities to 1.39% from 1.57%. The net interest margin on a tax equivalent basis increased to 4.12% for the six months ended June 30, 2026, compared to 3.92% for the same period in the prior year.

Interest Income. Interest income for the quarter ended June 30, 2026 was $202.7 million, compared to $197.8 million for the preceding quarter. The increase for the current quarter, compared to the preceding quarter reflects growth in average loan balances and a slight increase in average loan yields.

The total average loan yield increased two basis points to 6.09% for the quarter ended June 30, 2026, from 6.07% in the preceding quarter. The increase in average loan balances for the current quarter, compared to the preceding quarter, primarily reflected growth in real estate secured loans and commercial and agricultural business loans.

The total investment securities average balance decreased for the quarter ended June 30, 2026, compared to the preceding quarter, reflecting paydowns and maturities that were not fully replaced by new purchases during the period. The average yield on the combined portfolio increased to 3.03% for the quarter ended June 30, 2026, from 3.01% for the preceding quarter. Interest income on interest-bearing deposits with banks decreased for the current quarter, compared to the preceding quarter, reflecting decreases in both the average balance and yield of interest-bearing deposits. The average yield on interest-bearing deposits with banks decreased to 3.16%, compared to 3.34% in the prior quarter.

Interest income for the six months ended June 30, 2026 was $400.5 million, compared to $394.1 million for the same period in the prior year, an increase of $6.4 million, primarily reflecting growth in average loan balances.

Interest Expense. Interest expense increased for the quarter ended June 30, 2026, compared to the preceding quarter. Average funding liabilities increased by $122.0 million, primarily due to a $141.1 million increase in the average balance of FHLB advances, partially offset by a $23.6 million decrease in average deposit balances. The average cost of funding liabilities increased one basis point, to 1.39% for the quarter ended June 30, 2026. Interest expense for the six months ended June 30, 2026 was $96.6 million, compared to $108.6 million for the same period in the prior year. The decrease primarily resulted from an 18 basis-point decrease in the average cost of funds to 1.39% from 1.57%.

Deposit interest expense for the quarter ended June 30, 2026 decreased slightly to $45.6 million, compared to $45.7 million for the preceding quarter. The average rate paid on total deposits, including non-interest-bearing deposits, was 1.33% for the quarter ended June 30, 2026, compared to 1.35% for the preceding quarter. The average rate paid on interest-bearing deposits decreased to 1.98% for the quarter ended June 30, 2026, compared to 1.99% in the preceding quarter. The decrease in the average rate paid on interest-bearing deposits, compared to the preceding quarter is attributable to lower rates paid on certificates of deposit and money market accounts. The decrease in the average rate paid on interest-bearing deposits compared to the preceding quarter was also impacted by shifts in the deposit mix, primarily reflecting continued migration from higher-rate certificates of deposit into lower-cost deposit accounts. Total average deposit balances, including non-interest-bearing deposits, decreased to $13.74 billion for the quarter ended June 30, 2026, compared to $13.76 billion for the preceding quarter.

Deposit interest expense for the six months ended June 30, 2026 decreased $6.8 million to $91.2 million, compared to $98.1 million for the same period in the prior year. Average deposit balances increased to $13.75 billion for the six months ended June 30, 2026, from $13.43 billion for the same period a year earlier, while the average rate paid on deposits decreased to 1.34% for the six months ended June 30, 2026 from 1.47% for the same period in the prior year. The average cost of interest-bearing deposits decreased by 22 basis points to 1.99% for the six months ended June 30, 2026, compared to 2.21% in the same period a year earlier. The decrease in the average cost of interest-bearing deposits primarily reflected lower rates paid across all categories of interest-bearing deposits, as well as a reduction in the total average balance of higher- rate certificates of deposit.

Interest expense on total borrowings for the quarter ended June 30, 2026 increased to $3.4 million from $2.0 million for the preceding quarter, due to an increase in the average balance on total borrowings, primarily reflecting a $141.1 million increase in the average balance of FHLB advances. Average total borrowings were $350.5 million for the quarter ended June 30, 2026, compared to $204.8 million for the preceding quarter. The average rate paid on total borrowings for the quarter ended June 30, 2026, decreased to 3.88%, from 3.90% for the preceding quarter.

Interest expense on total borrowings for the six months ended June 30, 2026 decreased to $5.4 million from $10.6 million for the same period a year earlier due to a decrease in both the average balance of and rate paid on total borrowings, reflecting the pay-off of Banner’s subordinated debt in June 2025. Average total borrowings were $278.1 million for the six months ended June 30, 2026, compared to $484.3 million for the same period a year earlier. The decrease was primarily due to a $111.6 million decrease in the average balance of FHLB advances and an $80.1 million decrease in the average balance of Junior subordinated debentures and subordinated notes, due to the pay-off of higher-rate subordinated debt during 2025. The average rate paid on total borrowings for the six months ended June 30, 2026 decreased to 3.89% from 4.41% for the same period a year earlier.

Analysis of Net Interest Spread. The following table presents for the periods indicated our condensed average balance sheet information, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities with additional comparative data on our operating performance (dollars in thousands). Average balances are computed using daily average balances.

(1)Average balances include loans accounted for on a nonaccrual basis and accruing loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.

(2)Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.

(3)Tax-exempt income is calculated on a tax equivalent basis, which Banner believes provides comparability of net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent with industry practice. The tax equivalent yield adjustment to interest earned on loans was $2.3 million and $2.2 million for the quarters ended June 30, 2026 and March 31, 2026, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.1 million for both the quarters ended June 30, 2026 and March 31, 2026.

(1)Average balances include loans accounted for on a nonaccrual basis and accruing loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.

(2)Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.

(3)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $4.5 million and $4.6 million for the six months ended June 30, 2026 and 2025, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.2 million and $2.1 million for the six months ended June 30, 2026 and 2025, respectively.

Provision and Allowance for Credit Losses. Management estimates the allowance for credit losses using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is maintained at a level sufficient to provide for expected credit losses over the life of the loan based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio. These factors include, among others, changes in the size and composition of the loan portfolio, differences in underwriting standards, delinquency rates, actual loss experience and current economic conditions. The following table sets forth an analysis of our allowance for credit losses - loans for the periods indicated (dollars in thousands):

The provision for credit losses - loans reflects the amount required to maintain the allowance for credit losses - loans at an appropriate level based upon Management’s evaluation of the adequacy of collective and individual loss reserves. During the quarter ended June 30, 2026, we recorded a provision for credit losses - loans of $1.6 million, compared to a provision for credit losses - loans of $1.3 million during the preceding quarter. The provision for credit losses - loans recorded in the second quarter of 2026 primarily reflected loan growth, partially offset by improvements in credit quality and changes in portfolio mix. Future provisions for credit losses will continue to be influenced by changes in the amount and composition of the loan portfolio, updates to the reasonable and supportable forecast of future economic conditions, revisions to qualitative factor assessments, and any necessary changes to the reversion period applied in estimating expected credit losses.

The provision for credit losses - unfunded loan commitments reflects the amount required to maintain the allowance for credit losses - unfunded loan commitments at an appropriate level based upon Management’s evaluation of the adequacy of collective and individual loss reserves related to our unfunded loan commitments. The following table sets forth an analysis of our allowance for credit losses - unfunded loan commitments for the periods indicated (dollars in thousands):

The increase in the allowance for credit losses - unfunded loan commitments for the current quarter was primarily driven by growth in unused loan commitments, mainly within the construction portfolio.

Non-interest Income. The following table presents the key components of non-interest income for the periods indicated (dollars in thousands):

Non-interest income decreased $939,000 to $18.2 million for the quarter ended June 30, 2026, compared to $19.2 million for the quarter ended March 31, 2026. The decrease primarily reflected a $1.8 million unfavorable shift in fair value adjustments on financial instruments carried at fair value, which shifted from a net gain of $1.7 million in the quarter ended March 31, 2026, to a net loss of $157,000 in the quarter ended June 30, 2026. In addition, the current quarter included a slight gain on the sale of securities, compared to net losses of $1.2 million in the preceding quarter, partially offsetting the unfavorable change in fair value adjustments. Excluding changes in fair value adjustments and gains and losses on the sale of securities, recurring non-interest income remained relatively stable compared to the preceding quarter.

Non-interest income increased modestly for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The increase in non-interest income for the six months ended June 30, 2026, compared to the same period a year earlier primarily reflected a $1.5 million increase in deposit fees and other service charges and a $1.1 million favorable shift in fair value adjustments on financial instruments carried at fair value, partially offset by a net loss of $1.2 million recognized on the sale of securities during the current period.

Non-interest Expense. The following table represents key elements of non-interest expense for the periods indicated (dollars in thousands):

The increase in non-interest expense from the previous quarter reflected a $1.7 million increase in salary and employee benefits, a $2.0 million increase in information and computer data services, a $1.1 million increase in professional and legal expenses, and a $1.3 million increase in advertising and marketing expense. In addition, the current quarter included $238,000 of merger related expenses. These increases were partially offset by a $1.4 million increase in capitalized loan origination costs, reflecting increased loan origination activity, primarily in the construction, land and land development, and one- to four-family residential loan categories. The increase in non-interest expense for the six months ended June 30, 2026, compared to the same period a year earlier, primarily reflected increases in salary and employee benefits, information and computer data services expense, and advertising and marketing expense, partially offset by a lower occupancy and equipment expense and higher capitalized loan origination costs.

Salary and employee benefits increased for the current quarter, compared to the quarter ended March 31, 2026, primarily from increased loan commissions and normal salary and wage increases that were effective during the current quarter. Salary and employee benefits increased for the six months ended June 30, 2026, compared to the same period last year, primarily due to normal annual salary and wage increases and increased medical premiums.

Occupancy and equipment expenses decreased for the six months ended June 30, 2026, compared to the same period last year, primarily due to lower rent expense resulting from strategic space reductions, as well as lower software amortization.

Information and computer data services increased for the quarter ended June 30, 2026, compared to the quarter ended March 31, 2026, and increased for the six months ended June 30, 2026, compared to the same period last year, primarily due to an increase in computer software-related expenses, including $924,000 of expense related to the discontinuation of the use of our previous commercial loan origination software.

Professional and legal expense increased for the quarter ended June 30, 2026, compared to the quarter ended March 31, 2026. The increase compared to the preceding quarter primarily reflected increased legal fees.

Advertising and marketing expenses increased for the quarter ended June 30, 2026, compared to the quarter ended March 31, 2026, and increased for the six months ended June 30, 2026, compared to the same period last year, primarily due to the timing of printed media, radio, television and direct mail marketing campaigns during the current quarter.

Our efficiency ratio was 62.80% for the current quarter, compared to 60.60% in the quarter ended March 31, 2026. Our adjusted efficiency ratio, a non-GAAP financial measure, was 61.30% for the current quarter, compared to 59.45% in the quarter ended March 31, 2026. The increase in the efficiency ratio reflects an increase in non-interest expense, partially offset by an increase in total revenues. The adjusted efficiency ratio reflects similar trends on an adjusted basis, with further detail provided in the non-GAAP reconciliation. See “Reconciliation of Non-GAAP Financial Measure” above.

Income Taxes. For the quarter ended June 30, 2026, we recognized $11.3 million in income tax expense for an effective tax rate of 18.7%, compared to income tax expense of $12.8 million and an effective tax rate of 19.0% for the quarter ended March 31, 2026. The effective tax rate for the current quarter reflects our blended statutory tax rate, which was reduced by the effects of tax-exempt income, certain tax credits, and tax benefits related to restricted stock vesting. Our statutory income tax rate was 24.0%, representing the 21.0% federal statutory income tax rate plus the apportioned effect of applicable state income taxes. For the six months ended June 30, 2026, we recognized $24.1 million in income tax expense for an effective tax rate of 18.9%.