BANNER CORP

Comparison of Results of Operations for the Three Months Ended September 30, 2026, and June 30, 2026, and the Nine Months Ended September 30, 2026 and 2025

For the quarter ended September 30, 2026, net income was $47.7 million, or $1.36 per diluted share, compared to $48.9 million, or $1.43 per diluted share, for the preceding quarter. For the nine months ended September 30, 2026, net income was $151.3 million, or $4.39 per diluted share, compared to $144.1 million, or $4.15 per diluted share for the same period a year earlier. The decrease in net income compared to the preceding quarter was primarily due to a decrease in non-interest income and an increase in non-interest expense, partially offset by higher net interest income and a lower provision for credit losses. The increase in net income for the nine months ended September 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 lower non-interest income and higher non-interest expense.

Net interest income was $161.9 million in the third quarter of 2026, compared to $153.7 million in the preceding quarter, and $465.8 million for the nine months ended September 30, 2026, compared to $435.5 million for the comparable period a year ago. The increase in net interest income compared to the prior quarter was primarily driven by an increase in average interest-earning assets resulting from the acquisition of Pacific Financial on September 1, 2026, and organic loan growth, as well as expansion in net interest margin reflecting higher yields on interest-earning assets. The increase in net interest income for the nine months ended September 30, 2026, compared to the same period a year ago primarily reflected an increase in the average balance of interest-earning assets and lower funding costs.

We recorded a $2.8 million provision for credit losses for the quarter ended September 30, 2026, compared to a $3.8 million provision for credit losses in the preceding quarter. The provision for credit losses primarily reflected loan growth, partially offset by improvements in credit quality. We recorded a $5.8 million provision for credit losses for the nine months ended September 30, 2026, and a $10.6 million provision for credit losses for the same period a year ago.

Total non-interest income decreased in the quarter ended September 30, 2026, compared to the preceding quarter and decreased for the nine months ended September 30, 2026, compared to the same period a year ago. The decrease in non-interest income from the previous quarter was driven primarily by a net loss on the sale of investment securities acquired from Pacific Financial and decreased miscellaneous income, partially offset by a favorable shift in fair value adjustments on financial instruments. The decrease in non-interest income for the nine months ended September 30, 2026, compared to the same period last year, primarily reflected a net loss on the sale of securities recognized during the current period, as well as decreases in miscellaneous income and mortgage banking income, partially offset by higher deposit fees and other service charges and favorable fair value adjustments on financial instruments carried at fair value.

Total non-interest expense increased in the quarter ended September 30, 2026, compared to the preceding quarter and increased for the nine months ended September 30, 2026, compared to the same period a year ago. The increase from the previous quarter reflected merger and acquisition-related expenses of $5.2 million, as well as one month of expenses from the Pacific Financial branch operations. The increase in non-interest expense for the nine months ended September 30, 2026, compared to the same period last year, primarily reflected merger and acquisition-related expenses recognized during the current period, as well as higher salary and employee benefits expense, information and computer data services expense, advertising and marketing expense, and payment and card processing expenses. These increases were partially offset by lower occupancy and equipment expense and higher 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 $8.2 million during the quarter ended September 30, 2026, compared to the preceding quarter, primarily due to higher interest income resulting from growth in average interest-earning assets, driven by the acquisition of Pacific Financial and organic loan growth, as well as an increase in the yield on interest-earning assets. These increases were partially offset by higher interest expense resulting from an increase in the average balance and cost of interest-bearing deposits.

Net interest margin on a tax equivalent basis was 4.14% for the third quarter of 2026, compared to 4.13% for the preceding quarter. The net interest margin for the current quarter benefited from a higher average yield on interest-earning assets, partially offset by higher funding costs.

Net interest income increased by $30.3 million, or 7%, for the nine months ended September 30, 2026, compared to the same period one year earlier. The increase was primarily due to a $15.1 million increase in interest income, primarily reflecting an increase in the average balance of loans, driven primarily by organic loan growth and, to a lesser extent, the acquisition of Pacific Financial, as well as a $15.2 million decrease in interest expense, reflecting a 17 basis-point reduction in the average cost of funding liabilities to 1.40% from 1.57%. The net interest margin on a tax equivalent basis increased to 4.13% for the nine months ended September 30, 2026, compared to 3.94% for the same period in the prior year.

Interest Income. Interest income for the quarter ended September 30, 2026, was $214.6 million, compared to $202.7 million for the preceding quarter. The increase for the current quarter, compared to the preceding quarter reflected growth in average interest-earning assets as well as an increase in the yield on interest-earning assets.

The total average loan yield increased three basis points to 6.12% for the quarter ended September 30, 2026, from 6.09% 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, primarily resulting from the acquisition of Pacific Financial and organic loan growth.

The total investment securities average balance increased for the quarter ended September 30, 2026, compared to the preceding quarter, primarily reflecting new purchases during the period. The average yield on the combined portfolio increased to 3.10% for the quarter ended September 30, 2026, from 3.03% for the preceding quarter. Interest income on interest-bearing deposits with banks increased for the current quarter, compared to the preceding quarter, reflecting an increase in the yield earned on interest-bearing deposits, partially offset by a decrease in average balance of interest-bearing deposits. The average yield on interest-bearing deposits with banks increased to 3.67%, compared to 3.16% in the prior quarter.

Interest income for the nine months ended September 30, 2026, was $615.1 million, compared to $600.0 million for the same period in the prior year, an increase of $15.1 million, primarily reflecting growth in average loan balances.

Interest Expense. Interest expense increased for the quarter ended September 30, 2026, compared to the preceding quarter. Average funding liabilities increased by $545.4 million, primarily due to a $631.3 million increase in average deposit balances, partially offset by an $80.0 million decrease in the average balance of FHLB advances. The average cost of funding liabilities increased four basis points, to 1.43% for the quarter ended September 30, 2026 compared to the preceding quarter. Interest expense for the nine months ended September 30, 2026, was $149.3 million, compared to $164.5 million for the same period in the prior year. The decrease primarily resulted from a 17 basis-point decrease in the average cost of funds to 1.40% from 1.57%, partially offset by an increase in average funding liabilities.

Deposit interest expense for the quarter ended September 30, 2026, increased to $50.0 million, compared to $45.6 million for the preceding quarter. The increase in deposit interest expense compared to the preceding quarter was primarily due to higher average balances of interest-bearing deposits, including deposits assumed in the Pacific Financial acquisition, and higher average rates paid across all interest-bearing deposit categories. The average rate paid on total deposits, including non-interest-bearing deposits, was 1.38% for the quarter ended September 30, 2026, compared to 1.33% for the preceding quarter. The average rate paid on interest-bearing deposits increased to 2.04% for the quarter ended September 30, 2026, compared to 1.98% in the preceding quarter. Total average deposit balances, including non-interest-bearing deposits, increased to $14.37 billion for the quarter ended September 30, 2026, compared to $13.74 billion in the preceding quarter.

Deposit interest expense for the nine months ended September 30, 2026, decreased $9.1 million to $141.3 million, compared to $150.3 million for the same period in the prior year, as the impact of lower rates paid on interest-bearing deposits more than offset higher average interest-bearing deposit balances. Average deposit balances increased to $13.96 billion for the nine months ended September 30, 2026, from $13.55 billion for the same period a year earlier, while the average rate paid on deposits decreased to 1.35% from 1.48%. The average cost of interest-bearing deposits decreased 22 basis points to 2.01% for the nine months ended September 30, 2026, compared to 2.23% 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, reflecting lower market rates paid on deposits.

Interest expense on total borrowings for the quarter ended September 30, 2026, decreased to $2.7 million from $3.4 million for the preceding quarter, due to a decrease in the average balance of total borrowings, primarily reflecting an $80.0 million decrease in the average balance of FHLB advances. Average total borrowings were $264.7 million for the quarter ended September 30, 2026, compared to $350.5 million for the preceding quarter. The average rate paid on total borrowings for the quarter ended September 30, 2026, increased to 3.99%, from 3.88% for the preceding quarter.

Interest expense on total borrowings for the nine months ended September 30, 2026, decreased to $8.0 million from $14.2 million for the same period a year earlier, primarily due to decreases in both the average balance of and rate paid on total borrowings. Average total borrowings were $273.6 million for the nine months ended September 30, 2026, compared to $436.4 million for the same period a year earlier. The decrease in average total borrowings was primarily due to a $97.0 million decrease in the average balance of FHLB advances and a $52.3 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 nine months ended September 30, 2026, decreased to 3.92% from 4.35% 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 $2.4 million and $2.3 million for the quarters ended September 30, 2026, and June 30, 2026, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.2 million and $1.1 million for the quarters ended September 30, 2026, and June 30, 2026, respectively.

(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 $6.9 million and $7.0 million for the nine months ended September 30, 2026, and 2025, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.4 million and $3.1 million for the nine months ended September 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. On September 1, 2026, we recorded an $8.6 million allowance for credit losses - loans related to the loans acquired from Pacific Financial. During the quarter ended September 30, 2026, we recorded a provision for credit losses - loans of $1.8 million, compared to a provision for credit losses - loans of $1.6 million during the preceding quarter. The provision for credit losses - loans recorded in the third quarter of 2026 primarily reflected loan growth, partially offset by improvements in credit quality. 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 $2.8 million to $15.4 million for the quarter ended September 30, 2026, compared to $18.2 million for the quarter ended June 30, 2026. The decrease primarily reflected a $2.1 million net loss on the sale of securities recognized during the current quarter, resulting from the sale of the investment portfolio acquired from Pacific Financial, compared to a nominal gain in the preceding quarter. In addition, the current quarter reflected a $630,000 decrease in miscellaneous income, primarily reflecting lower gains on SBA loan sales and fluctuations in other miscellaneous income items. This was partially offset by a $470,000 favorable shift in fair value adjustments on financial instruments carried at fair value, which improved from a net loss of $157,000 in the quarter ended June 30, 2026, to a net gain of $313,000 in the quarter ended September 30, 2026.

Non-interest income decreased $4.8 million to $52.8 million for the nine months ended September 30, 2026, compared to $57.6 million for the nine months ended September 30, 2025. The decrease primarily reflected a $3.3 million net loss on the sale of securities recognized during the current period, compared to a net gain of $374,000 in the same period a year earlier. The decrease also reflected a $2.8 million decrease in miscellaneous income, primarily due to lower gains on SBA loan sales and reduced commissions, and a $1.0 million decrease in mortgage banking income. These decreases were partially offset by a $2.1 million increase in deposit fees and other service charges and a $1.2 million favorable change in fair value adjustments on financial instruments carried at fair value.

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

Total non-interest expense was $115.7 million in the third quarter of 2026, compared to $108.0 million for the quarter ended June 30, 2026. Merger and acquisition-related expenses were $5.2 million in the third quarter of 2026, compared to $238,000 in the preceding quarter. Excluding merger related expenses, the increase from the previous quarter reflected a $2.0 million increase in salary and employee benefits and a $1.1 million increase in real estate operations expense, partially offset by a $1.4 million decrease in information and computer data services. The increase in non-interest expense for the nine months ended September 30, 2026, compared to the same period a year earlier, primarily reflected $5.4 million in merger and acquisition-related expenses recognized during the current period, a $13.3 million increase in salary and employee benefits, and a $3.5 million increase in information and computer data services expense. These increases were partially offset by a $4.3 million decrease in occupancy and equipment expense.

Merger and acquisition-related expenses during the current quarter and the nine months ended September 30, 2026, related to the Pacific Financial acquisition, which was effective September 1, 2026. The merger and acquisition-related expenses consist primarily of legal fees, investment banker fees, contract termination costs, and employee-related severance and retention expenses.

Salary and employee benefits increased for the current quarter compared to the quarter ended June 30, 2026, primarily due to one month of salaries and benefits for the Pacific Financial employees that joined Banner following the acquisition. Salary and employee benefits increased for the nine months ended September 30, 2026, compared to the same period last year, primarily due to normal annual salary and wage increases, increased medical premiums and higher commission and incentive based compensation.

Occupancy and equipment expenses decreased for the nine months ended September 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 decreased for the quarter ended September 30, 2026, compared to the quarter ended June 30, 2026, primarily due to $924,000 of expense related to the discontinuation of the use of our previous commercial loan origination software recorded in the prior quarter. Information and computer data services increased for the nine months ended September 30, 2026, compared to the same period last year, primarily due to an increase in computer software-related expenses, including the $924,000 of expense noted above.

Payment and card processing services increased for the nine months ended September 30, 2026, compared to the same period last year, primarily due to higher online banking costs.

Advertising and marketing expenses increased for the nine months ended September 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 2026.

Real estate operations expense increased for the quarter ended September 30, 2026, compared to the quarter ended June 30, 2026, and for the nine months ended September 30, 2026. The increase for both periods related to write-downs of foreclosed real estate.

Miscellaneous expense increased for the nine months ended September 30, 2026, compared to the same period last year, primarily due to an increase in loan production expenses.

Our efficiency ratio was 65.25% for the current quarter, compared to 62.80% in the quarter ended June 30, 2026. Our adjusted efficiency ratio, a non-GAAP financial measure, was 59.53% for the current quarter, compared to 61.30% in the quarter ended June 30, 2026. The increase in the efficiency ratio reflects an increase in non-interest expense, including $5.2 million of merger and acquisition-related expenses associated with the Pacific Financial acquisition, partially offset by an increase in total revenues. The improvement in the adjusted efficiency ratio reflects an increase in adjusted revenue that outpaced the increase in adjusted non-interest expense, which excludes merger and acquisition-related expenses and other items. See “Reconciliation of Non-GAAP Financial Measures” above.

Income Taxes. For the quarter ended September 30, 2026, we recognized $11.1 million in income tax expense for an effective tax rate of 18.8%, compared to income tax expense of $11.3 million and an effective tax rate of 18.7% for the quarter ended June 30, 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 nine months ended September 30, 2026, we recognized $35.1 million in income tax expense for an effective tax rate of 18.8%.