BANNER CORP (BANR)

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial condition and results of operations.  The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Selected Notes to the Consolidated Financial Statements contained in Item 1 of this Form 10-Q.

Executive Overview

Banner is a bank holding company incorporated in the State of Washington, which wholly owns its subsidiary bank, Banner Bank. The Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington, and as of June 30, 2026, it had 135 branch offices and 15 loan production offices located in Washington, Oregon, California, Idaho, Utah and Nevada.  Banner is subject to regulation by the Federal Reserve.  The Bank is subject to regulation by the Washington State Department of Financial Institutions – Division of Banks (the DFI) and the Federal Deposit Insurance Corporation (the FDIC).  As of June 30, 2026, we had total consolidated assets of $16.59 billion, total loans of $11.99 billion, total deposits of $13.79 billion and total shareholders’ equity of $2.0 billion.

The Bank is a regional bank that offers a wide variety of commercial banking services and financial products to individuals, businesses and public sector entities in its primary market areas.  The Bank’s primary business is that of traditional banking institutions, accepting deposits and originating loans in locations surrounding our offices.  The Bank is also an active participant in secondary loan markets, engaging in mortgage banking operations through the origination and sale of one- to four-family residential loans.  Lending activities include commercial business and commercial real estate loans, agriculture business loans, construction and land development loans, one- to four-family and multifamily residential loans, SBA loans and consumer loans.

The Company’s successful execution of its super community bank model and strategic initiatives has delivered solid core operating results and profitability over the last several years. The Company’s longer term strategic initiatives continue to focus on originating high quality assets and client acquisition, which we believe will continue to generate strong revenue while maintaining the Company’s moderate risk profile.

Second Quarter 2026 Financial Highlights

•Net interest margin, on a tax equivalent basis, was 4.13% for current quarter, compared to 4.11% in the preceding quarter.

•Revenue was $172.0 million for the second quarter of 2026, compared to $169.3 million in the preceding quarter.

•Net interest income was $153.7 million in the second quarter of 2026, compared to $150.2 million in the preceding quarter.

•Mortgage banking operations revenue was $2.8 million for the second quarter of 2026, compared to $3.2 million in the preceding quarter.

•Return on average assets was 1.20%, compared to 1.37% in the preceding quarter.

•Net loans receivable were $11.83 billion at June 30, 2026, compared to $11.55 billion at March 31, 2026.

•Total deposits were $13.79 billion at June 30, 2026, compared to $13.84 billion at March 31, 2026.

•Core deposits represented 89% of total deposits at June 30, 2026.

•Non-performing assets were $60.5 million, or 0.36% of total assets, at June 30, 2026, compared to $51.7 million, or 0.32% of total assets at March 31, 2026.

•The allowance for credit losses - loans was $161.8 million, or 1.35% of total loans receivable, as of June 30, 2026, compared to $160.4 million, or 1.37% of total loans receivable, at March 31, 2026.

•Dividends paid to shareholders were $0.52 per share in the quarter ended June 30, 2026.

•Common shareholders’ equity per share increased to $58.83 at June 30, 2026, compared to $58.06 at March 31, 2026.

•Tangible common shareholders’ equity per share* increased to $47.82 at June 30, 2026, compared to $47.00 at March 31, 2026.

*Non-GAAP Financial Measures

Significant Recent Initiatives and Events

On April 30, 2026, Banner entered into a definitive merger agreement to acquire Pacific Financial Corporation (“Pacific Financial”), the holding company for Bank of the Pacific, in an all-stock transaction. Under the terms of the agreement, at the effective time of the merger, shareholders of Pacific Financial will receive 0.2633 shares of Banner common stock for each Pacific Financial common share they own. The transaction is expected to close in the third quarter of 2026 and is subject to closing conditions, including Pacific Financial shareholder and regulatory approvals. There can be no assurance that all closing conditions will be satisfied or that the transaction will be completed on the anticipated timetable, or at all.

Reconciliation of Non-GAAP Financial Measures

Management has presented non-GAAP financial measures in this discussion and analysis because it believes these measures provide useful and comparative information to assess trends in our core operations and to facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, we have also presented comparable earnings information using GAAP financial measures. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies.

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Adjusted revenue, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average equity, return on average tangible common equity, and adjusted efficiency ratio are non-GAAP financial measures. To calculate these non-GAAP measures, we make adjustments to our GAAP revenues and expenses as reported on our Consolidated Statements of Operations. Management believes that these non-GAAP financial measures provide information to investors that is useful in evaluating the operating performance and trends of financial services companies, including the Company (dollars in thousands except per share data).

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Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Notes to the Consolidated Financial Statements contained in this Form 10-K.

Executive Overview

Banner’s successful execution of its super community bank model and strategic initiatives has delivered solid core operating results and profitability over the last several years. The Company’s longer term strategic initiatives continue to focus on originating high-quality assets and client acquisition, which we believe will continue to generate strong revenue while maintaining the Company’s moderate risk profile.

2025 Financial Highlights

•Net interest margin, on a tax equivalent basis, was 3.96% compared to 3.75% in the prior year.

•Revenues were $660.7 million for the year ended December 31, 2025, compared to $608.6 million for the prior year.

•Adjusted revenue* (the total of net interest income and total non-interest income adjusted for the net gain or loss on the sale of securities, the net change in valuation of financial instruments, and gains or losses incurred on building and lease exits) was $661.5 million for the year ended December 31, 2025, compared to $614.8 million for the prior year.

•Net interest income was $587.9 million for the year ended December 31, 2025, compared to $541.7 million for the prior year.

•Mortgage banking revenue was $13.2 million for the year ended December 31, 2025, compared to $12.2 million in the prior year.

•Income from deposit fees and other service charges was $43.2 million for the year ended December 31, 2025, compared to $43.4 million for the prior year.

•Return on average assets was 1.21% for year ended December 31, 2025, compared to 1.07% for the prior year.

•Net loans receivable increased 3% to $11.56 billion at December 31, 2025, compared to $11.20 billion a year ago.

•Total deposits were $13.74 billion at December 31, 2025, compared to $13.51 billion a year ago.

•Core deposits represented 89% of total deposits at December 31, 2025.

•Non-performing assets were $51.2 million, or 0.31% of total assets, at December 31, 2025, compared to $39.6 million, or 0.24% of total assets, a year ago.

•The allowance for credit losses - loans was $160.3 million, or 1.37% of total loans receivable, at December 31, 2025, compared to $155.5 million, or 1.37% of total loans receivable a year ago.

•Cash dividends paid to shareholders were $1.94 per share, up from $1.92 per share paid in the prior year.

•Common shareholders’ equity per share increased to $57.08 at December 31, 2025, compared to $51.49 a year ago.

•Tangible common shareholders’ equity per share* increased 14% to $46.09 at December 31, 2025, compared to $40.57 a year ago.

* Represents a non-GAAP financial measure. For a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure, see “Non-GAAP Financial Measures” below.

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Selected Financial Data: The following condensed consolidated statements of financial condition and operations and selected performance ratios as of December 31, 2025, 2024 and 2023, and for the years then ended have been derived from our audited consolidated financial statements.

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(1)Includes available-for-sale and held-to-maturity securities.

(2)Calculated using common shares outstanding at the end of the period.

(3)Net income divided by average assets.

(4)Adjusted earnings (non-GAAP) divided by average assets.

(5)Net income divided by average common equity.

(6)Adjusted earnings (non-GAAP) divided by average equity.

(7)Net income divided by average tangible common equity.

(8)Net interest income as a percent of average interest-earning assets on a tax equivalent basis.

(9)Non-interest expenses divided by the total of net interest income and non-interest income.

(10)Non-performing loans consist of nonaccrual loans and loans 90 days or more past due and still accruing interest. Non-performing assets consist of non-performing loans and REO.

(11)Represents a non-GAAP financial measure. For a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measure, see, “Non-GAAP Financial Measures” below.

Non-GAAP Financial Measures

Management has presented non-GAAP financial measures in this discussion and analysis because it believes that they provide useful information to assess trends in our core operations and to facilitate the comparison of our performance with our peers. However, these non-GAAP financial measures are supplemental to, and not a substitute for, any analysis based on GAAP. The most directly comparable GAAP financial measures are presented with equal or greater prominence. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, see the tables below. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies.

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Adjusted revenue, diluted adjusted earnings per share and adjusted efficiency ratio are non-GAAP financial measures. To calculate adjusted revenue, diluted adjusted earnings per share and adjusted efficiency ratio, we make adjustments to our GAAP revenues and expenses as reported on our Consolidated Statements of Operations. Management believes that these non-GAAP financial measures provide information to investors that is useful in evaluating the operating performance and trends of financial services companies, including the Company, by excluding certain items that Management considers not reflective of core operating performance. The following tables set forth reconciliations of these non-GAAP financial measures (dollars in thousands, except share and per share data):

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