What changed in this filing

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Item 1. Business

2022-02-24 compared with 2021-02-23 · 281 added, 283 removed, 663 unchanged (46% of the section changed)

Item 1 – Business General

Banner Corporation (the Company) is a bank holding company incorporated in the State of Washington.

We are primarily engaged in the business of planning, directing and coordinating the business activities of our wholly-owned subsidiaries, Banner Bank and Islanders Bank.

On February 5, 2021, Islanders Bank was merged into Banner Bank.

Banner Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington and, as of December 31, 2020, its 152 branch offices located in Washington, Oregon, California and Idaho.

Banner Bank also has 18 loan production offices located in Washington, Oregon, California, Idaho and Utah.

Islanders Bank is also a Washington-chartered commercial bank that, as of December 31, 2020, conducted business from three branch offices in San Juan County, Washington.

Banner Corporation is a bank holding company incorporated in the State of Washington which wholly owns one subsidiary bank, Banner Bank.

Banner Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington and, as of December 31, 2021, its 150 branch offices and 18 loan production offices located in Washington, Oregon, California, Idaho and Utah.

Banner Corporation is subject to regulation by the Federal Reserve.

Banner Bank and Islanders Bank (the Banks) are subject to regulation by the Washington DFI and the FDIC.

Banner Bank is subject to regulation by the Washington DFI and the FDIC.

As of December 31, 2021, we had total consolidated assets of $16.80 billion, net loans of $8.95 billion, total deposits of $14.33 billion and total shareholders’ equity of $1.69 billion.

Our voting common stock is traded on the NASDAQ Global Select Market under the ticker symbol “BANR.”

Our common stock is traded on the NASDAQ Global Select Market under the ticker symbol “BANR.”

Banner Bank is a regional bank which offers a wide variety of commercial banking services and financial products to individuals, businesses and public sector entities in its primary market areas.

Islanders Bank is a community bank which offers similar banking services to individuals, businesses and public entities located primarily in the San Juan Islands.

The Banks’ primary business is that of traditional banking institutions, accepting deposits and originating loans in locations surrounding our offices in portions of Washington, Oregon, California and Idaho.

Banner Bank is also an active participant in the secondary market, engaging in mortgage banking operations largely through the origination and sale of one- to four-family and multifamily 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, small business administration (SBA) loans and consumer loans.

The Bank’s primary business is that of traditional banking institutions, accepting deposits and originating loans in locations surrounding our offices in Washington, Oregon, California and Idaho.

Banner Bank is also an active participant in secondary loan markets, engaging in mortgage banking operations largely through the origination and sale of one- to four-family and multifamily residential loans.

Small Business Administration (SBA) loans and consumer loans.

We continue to invest in our delivery platform across the franchise with a primary emphasis on strengthening our presence in the higher growth regions of our markets.

In 2019 we acquired AltaPacific, the holding company for AltaPacific Bank, which expanded the Company’s presence by adding density within our existing California geographic footprint.

The acquisition of AltaPacific, which closed on November 1, 2019, included six branches and approximately $425.7 million in assets, $332.4 million in loans and $313.4 million in deposits.

In addition to our expansion efforts, we continue to improve the efficiency of our branch delivery channel with on-going branch consolidations and investments in streamlining the origination of new loan and deposit accounts while simultaneously enhancing in our digital service and account origination capabilities.

During last four months of 2020, Banner Bank completed the consolidation of 21 branches.

As a result, we recorded expenses associated with these branch consolidations of $2.1 million, during the year ended December 31, 2020.

Client adoption of mobile and digital banking accelerated beginning in the second quarter of 2020 and has continued since, while physical branch transaction volume declined.

Banner anticipates this shift in client service delivery channel preference will continue after the COVID-19 pandemic social distancing related restrictions have ended.

In addition to bank acquisitions, relocations and consolidations, prior to 2020 we also focused on expanding our product offerings and invested heavily in marketing campaigns designed to significantly increase the brand awareness for Banner Bank.

During 2020, as a result of the COVID-19 pandemic some of our marketing campaigns were cut back.

These investments have been significant elements in our strategy to grow client relationships and increase our market presence, while allowing us to better serve existing and future clients.

We believe our branch network, broad product line and heightened brand awareness have created a franchise that is well positioned for growth and to successfully execute on our super community bank model.

Our strategy is focused on delivering clients, including middle market and small businesses, business owners, their families and employees, a compelling value proposition by providing the financial sophistication and breadth of products of a regional bank while retaining the appeal, responsiveness, and superior service level of a community bank.

In addition, we continue to improve the efficiency of our branch delivery channel with on-going branch consolidations and investments in streamlining the origination of new loan and deposit accounts while simultaneously enhancing our digital service and account origination capabilities.

During the past year, client adoption of mobile and digital banking accelerated, while physical branch transaction volume declined.

Banner anticipates this shift in client service delivery channel preference will continue after the COVID-19 pandemic related restrictions have ended.

In addition to complementary bank acquisitions and our branch relocations and consolidations, we also focus on expanding our product offerings and investing heavily in marketing campaigns designed to significantly increase the brand awareness for Banner Bank.

During 2021, however, as a result of the COVID-19 pandemic some of our marketing campaigns were curtailed.

These marketing investments are a significant element in our strategy to grow client relationships and increase our market presence, while allowing us to better serve existing and future clients.

We believe our branch network, broad product line and heightened brand awareness have created a franchise that is well positioned for growth and successful execution of our super community bank model.

Our overall strategy is focused on delivering clients, including middle market and small businesses, business owners, their families and employees, a compelling value proposition by providing the financial sophistication and breadth of products of a regional bank while retaining the appeal, responsiveness, and superior service level of a community bank.

During 2021, we implemented Banner Forward, a Bank-wide initiative to accelerate revenue growth and reduce operating expense.

Implementation of this plan commenced during the third quarter of 2021 with full implementation expected by 2023, with the goal of producing meaningful results in the near term while staying true to our mission and value proposition of being connected, knowledgeable and responsive to our clients, communities and employees.

The focus of Banner Forward is to accelerate growth in commercial banking, deepen relationships with retail clients, advance technology strategies to enhance our digital service channels, while streamlining underwriting and back office processes.

As part of Banner Forward, we have identified potential additional opportunities to rationalize our physical footprint.

We incurred expenses of $11.6 million related to Banner Forward during the year ended December 31, 2021.

Banner Corporation’s successful execution of its super community bank model and strategic initiatives have delivered solid core operating results and profitability over the last several years.

Despite the impact of the COVID-19 pandemic during 2020, Banner’s longer term strategic initiatives continue to focus on originating high quality assets and client acquisition, which resulted in and we believe will continue to result in increased core deposit balances and strong revenue generation while maintaining the Company’s moderate risk profile.

Banner’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.

For the year ended December 31, 2021, our net income was $201.0 million, or $5.76 earnings per diluted share, compared to $115.9 million, or $3.26 earnings per diluted share, for the prior year.

Our financial results for the year ended December 31, 2020 reflect the impact of the COVID-19 pandemic which resulted in a substantial reduction in business activity in all the states in which Banner operates.

The current year results include an increase in the provision for credit losses due to the economic impacts of the COVID-19 pandemic as well as a decrease in the yield on earnings-assets as a result of the decline in market interest rates.

Both the current year and prior year results were positively impacted by growth in interest-earnings assets, partially offset by increases in salary and employee benefits expense as well as merger and acquisition-related expenses of $2.1 million in 2020 and $7.5 million in 2019.

Banner is continuing to offer payment and financial relief programs for borrowers impacted by COVID-19.

These programs include initial loan payment deferrals or interest-only payments for up to 90 days, waived late fees, and, on a more limited basis, waived interest and temporarily suspended foreclosure proceedings.

Deferred loans are re-evaluated at the end of the initial deferral period and will either return to the original loan terms or may be eligible for an additional deferral period for up to 90 days.

In addition, Banner Bank has entered into payment forbearance agreements with other clients for periods of up to six months.

At December 31, 2020, Banner Bank had 158 loans totaling $75.4 million still on deferral.

Of the loans still on deferral, 26 loans totaling $33.9 million have received a second deferral.

these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings through December 31, 2020 pursuant to applicable accounting and regulatory guidance.

On December 27, 2020, the CAA was signed into law.

Among other purposes, this Act provides additional coronavirus emergency response and relief, including extending relief offered under the CARES Act related to troubled debt restructuring as a result of COVID-19 through January 1, 2022 or 60 days after the end of the national emergency declared by the President, whichever is earlier.

In addition, the U.S.

Small Business Administration (SBA) provides assistance to small businesses impacted by COVID-19 through the Paycheck Protection Program (PPP), which was designed to provide near-term relief to help small businesses sustain operations.

The deadline for PPP loan applications to the SBA was August 8, 2020.

Under this program the Company funded 9,103 applications totaling $1.15 billion of loans in its service area and began processing applications for loan forgiveness in the fourth quarter of 2020.

As of December 31, 2020, 595 of these PPP loans had been granted forgiveness totaling $112.3 million resulting in a remaining PPP loan balance of $1.04 billion.

The CAA also renewed and extended the PPP until March 31, 2021 by authorizing an additional $284.5 billion for the program.

As a result in January 2021, Banner Bank began accepting and processing loan applications under this second PPP program.

We have begun taking steps to resume more normal branch activities with specific guidelines in place to help safeguard the safety of its clients and personnel.

To further the well-being of staff and clients, we implemented measures to allow employees to work from home to the extent practicable.

To facilitate this approach, we allocated additional computer equipment to staff and enhanced our network capabilities with several upgrades.

These expenses, plus other expenses incurred in response to the COVID-19 pandemic, resulted in $3.5 million of related costs during the year ended December 31, 2020.

Our operating results depend primarily on our net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of loans and investment securities, and interest expense on interest-bearing liabilities, composed primarily of client deposits, FHLB advances, other borrowings, subordinated notes, and junior subordinated debentures.

Our financial results for the year ended December 31, 2021 reflect the low interest rate environment, the unprecedented level of market liquidity and the reduction in business activity in some of our markets due to the lingering impacts of the COVID-19 pandemic.

The current year results include a recapture of our provision for credit losses, primarily due to the improvement in the level of adversely classified loans and forecasted economic indicators utilized to calculate credit losses as well as increased net interest income, partially offset by a decrease in mortgage banking income, increased non-interest expense, a decrease in the yield on earnings-assets as a result of the decline in market interest rates and excess liquidity being invested in relatively low yielding short term investments.

Both the current year and prior year results were positively influenced by growth in interest-earnings assets and decreased funding costs.

At December 31, 2021, Banner Bank had 21 mortgage loans totaling $6.4 million operating under forbearance agreements due to COVID-19.

Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings pursuant to applicable accounting and regulatory guidance through January 1, 2022

The CARES Act amended the SBA’s loan program, in which the Bank participates, to create a guaranteed, unsecured loan program, the Paycheck Protection Program (SBA PPP), to fund payroll and operational costs of eligible businesses, organizations and self-employed persons during COVID-19.

During the last two years the Bank participated in the SBA’s PPP in accordance with the CARES Act and CAA.

The SBA PPP ended on May 31, 2021.

Prior to the program end Banner had funded over 13,000 SBA PPP loans totaling approximately $1.61 billion and, as of December 31, 2021, received SBA forgiveness for SBA PPP loans totaling $1.48 billion.

Our operating results depend primarily on our net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of loans and investment securities, and interest expense on interest-bearing liabilities, composed primarily of client deposits, Federal Home Loan Bank of Des Moines (FHLB) advances, other borrowings, subordinated notes, and junior subordinated debentures.

Net interest income is primarily a function of our interest rate spread, which is the difference between the yield earned on interest-earning assets and the rate paid on interest-bearing liabilities, as well as a function of the average balances of interest-earning assets, interest-bearing liabilities and non-interest-bearing funding sources including non-interest-bearing deposits.

Our net interest income before provision for credit losses increased 3% to $481.3 million for the year ended December 31, 2020, compared to $468.9 million for the year ended December 31, 2019.

The increase in net interest income in 2020 is a result of growth in total loans receivable and core deposits, partially offset by lower yields on interest-earning assets.

The growth in total loans receivable and core deposits was largely as the result of the origination of the PPP loans during the second and third quarters of 2020, as well as, an increase in general client liquidity due to reduced business investment and consumer spending.

Our net income also is affected by the level of our non-interest income, including deposit fees and service charges, results of mortgage banking operations, which includes loan origination and servicing fees and gains and losses on the sale of one- to four-family and multifamily loans, and gains and losses on the sale of securities, as well as our non-interest expenses, provisions for credit losses and income tax provisions.

In addition, net income is affected by the net change in the value of certain financial instruments carried at fair value.

Our total revenues (net interest income before the provision for credit losses plus non-interest income) for 2020 increased $29.1 million, or 5%, to $579.9 million, compared to $550.9 million for 2019.

Our net interest income increased 3% to $496.9 million for the year ended December 31, 2021, compared to $481.3 million for the year ended December 31, 2020.

The increase in net interest income in 2021 is primarily a result of growth in total interest-earning assets and core deposits as well as the acceleration of deferred loan fees due to the repayment of SBA PPP loans from SBA loan forgiveness, partially offset by lower yields on interest-earning assets.

The growth in total interest-earning assets and core deposits was largely the result of SBA PPP loan funds deposited into client deposit accounts, fiscal stimulus payments and an increase in general client liquidity due to reduced business investment and consumer spending during the COVID-19 pandemic.

Our net income is also affected by the level of our non-interest income, including deposit fees and other service charges, results of mortgage banking operations, which includes gains and losses on the sale of loans and servicing fees, and gains and losses on the sale of securities, as well as our non-interest expenses and provisions for credit losses and income taxes.

In addition, our net income is affected by the net change in the value of certain financial instruments carried at fair value.

Our total revenues (net interest income plus non-interest income) for 2021 increased $13.4 million, or 2%, to $593.3 million, compared to $579.9 million for 2020.

Our total non-interest income, which is a component of total revenue, was $96.4 million for the year ended December 31, 2021, compared to $98.6 million for the year ended December 31, 2020.

The increase in non-interest income during 2020 is primarily the result of increased mortgage banking income due to increased production of one- to four-family held for sale loans related to refinance activity as well as an increase in the gain on sale spreads on one- to four-family held for sale loans, partially offset by lower gains on the sale of multifamily held for sale loans.

The increase in mortgage banking income was partially offset by lower deposit fees and service charges due to a combination of fee waivers and reduced transaction volume as a result of the COVID-19 pandemic and reduced interchange fee income from the first full year impacts of the fee limitations of the Durbin Amendment.

We recorded a $64.3 million provision for credit losses - loans in the year ended December 31, 2020, primarily reflecting an increase in the expected lifetime credit losses due to the COVID-19 pandemic based upon the financial conditions and economic outlook that existed as of December 31, 2020, compared to a $10.0 million provision recorded in 2019.

The decrease in non-interest income during 2021 is primarily the result of decreased mortgage banking income due to a reduction in the volume of one- to four-family loans sold as well as a decrease in the gain on sale margin on one- to four-family held-for-sale loans, partially offset by higher gains on the sale of multifamily held for sale loans.

The decrease in mortgage banking income was partially offset by an increase in deposit fees and other service charges, primarily due to increased transaction deposit account activity and higher fees on certain transactions and miscellaneous non-interest income as well as a net gain recognized for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value.

We recorded a $33.4 million recapture of provision for credit losses in the year ended December 31, 2021, primarily reflecting an improvement in the forecasted economic indicators and a decrease in adversely classified loans during the year ended December 31, 2021, compared to a $67.9 million provision recorded in 2020.

The allowance for credit losses - loans at December 31, 2021 was $132.1 million, representing 578% of non-performing loans compared to $167.3 million, or 470% of non-performing loans at December 31, 2020.

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Our non-interest expense increased 3% to $380.1 million for the year ended December 31, 2021, compared to $369.6 million for the year ended December 31, 2020.

The year-over-year increase in non-interest expense was largely attributable to increased salary and employee benefits expense principally related to the operations acquired in the November 2019 acquisition of AltaPacific Bank which was partially offset by increased capitalized loan origination costs, primarily related to PPP loan originations.

The year-over-year increase in non-interest expense was largely attributable to increases in payment and card processing services expense and professional services expense, primarily due to an increase in consulting expenses related to the Banner Forward initiative, as well as a $2.3 million loss on extinguishment of debt as a result of the redemption of $8.2 million of junior subordinated debentures during the current year ended December 31, 2021.

The year-over-year increase was partially offset by decreases in COVID-19 expenses and merger and acquisition-related expenses.

Recent Developments and Significant Events

Merger of Islanders Bank into Banner Bank

On July 22, 2020, Banner announced plans to merge Islanders Bank into Banner Bank.

Regulatory approvals for the merger were received in October 2020, and the merger was completed on February 5, 2021.

On February 5, 2021, Banner completed the merger of Islanders Bank into Banner Bank.

Since both banks were wholly owned subsidiaries of Banner, there was no change in the consolidated assets or liabilities of Banner.

Acquisition of AltaPacific Bancorp

Effective November 1, 2019, the Company acquired 100% of the outstanding common shares of AltaPacific and its wholly-owned subsidiary, AltaPacific Bank, a California State chartered bank headquartered in Santa Rosa, California, with six branches within California.

On that date, AltaPacific merged with and into Banner.

Pursuant to the previously announced terms of the merger, the equity holders of AltaPacific received an aggregate of 1.6 million shares of Banner voting common stock, plus cash in lieu of fractional shares for a total consideration paid of $87.6 million.

The acquisition provided $425.7 million of assets, $332.4 million of loans, and $313.4 million of deposits.

See Note 3 of the Notes to the Consolidated Financial Statements for additional information.

Sale of four branches

On February 18, 2022, Banner Bank entered into a purchase and assumption agreement with Spokane Teachers Credit Union, Spokane, Washington (“STCU”) with respect to the sale to STCU of four Banner Bank branches located in Hayden, Idaho, and in Chewelah, Colville, and Kettle Falls, Washington, subject to certain regulatory approvals and customary closing conditions.

The sale includes deposit accounts with an approximate balance of $212 million.

Banner Bank will receive a 5.0% premium in relation to the core deposits.

The sale also includes all related branch premises and equipment.

Banner anticipates that these sale transactions will help to further shape the Bank’s service footprint, which should in turn add to Banner’s capital, reduce excess liquidity, and improve its operating efficiency.

The transactions are intended to support the Banner Forward initiative by improving focus on key operations and markets, and providing capital to reinvest in profitability enhancement initiatives.

The Company’s goal is that the combined impact of these sales and Banner Forward initiatives will be positive to future annual operating earnings.

Lending Activities

All of our lending activities are conducted through Banner Bank, its subsidiary, Community Financial Corporation, a residential construction lender located in Portland, Oregon, and Islanders Bank.

All of our lending activities are conducted through Banner Bank and its subsidiary, Community Financial Corporation, a residential construction lender located in Portland, Oregon.

We offer a wide range of loan products to meet the demands of our clients and our loan portfolio is very diversified by product type, borrower and geographic location within our market area.

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Prior to 2020, reflecting the expanding economy of the western United States, demand for commercial business loans had strengthened and our production levels had increased from prior periods.

As a result of COVID-19, commercial business loan originations declined in 2020, however, the decline was more than offset by the origination of PPP loans.

As a result of COVID-19, commercial business loan originations declined in 2020, however, the decline was more than offset by the origination of SBA PPP loans.

The demand for commercial business loans strengthened in 2021 and our production levels increased compared to 2020, although still below production levels prior to the COVID-19 pandemic.

Our residential mortgage loan originations have been very strong in recent years, as sustained periods of low interest rates have supported demand for loans to refinance existing debt as well as loans to finance home purchases.

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One- to Four-Family Residential Real Estate Lending:

At both Banner Bank and Islanders Bank, we originate loans secured by first mortgages on one- to four-family residences in the markets we serve.

We originate loans secured by first mortgages on one- to four-family residences in the markets we serve.

Through our mortgage banking activities, we sell residential loans on either a servicing-retained or servicing-released basis.

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For a small portion of the portfolio, where the initial period exceeds one year, the first interest rate change may exceed the annual limitation on subsequent adjustments.

Our ARM products most frequently adjust based upon the average yield on Treasury securities adjusted to a constant maturity

of one year or certain London Interbank Offered Rate (LIBOR) indices plus a margin or spread above the index.

Our ARM products most frequently adjust based upon the average yield on Treasury securities adjusted to a constant maturity of one year or certain London Interbank Offered Rate (LIBOR) indices plus a margin or spread above the index.

ARM loans held in our portfolio may allow for interest-only payments for an initial period up to five years but do not provide for negative amortization of principal and carry no prepayment restrictions.

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For ARM loans, our standard practice provides for underwriting based upon fully indexed interest rates and payments.

Generally, we will lend up to 95% of the lesser of the appraised value or purchase price of the property on conventional loans, although higher loan-to-value ratios are available on secondary market programs.

Generally, we will lend up to

95% of the lesser of the appraised value or purchase price of the property on conventional loans, although higher loan-to-value ratios are available on secondary market programs.

We require private mortgage insurance on conventional residential loans with a loan-to-value ratio at origination exceeding 80%.

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On a more limited basis, we also make land loans to developers, builders and individuals to finance the acquisition and/or development of improved lots or unimproved land.

In making land loans, we follow more conservative underwriting policies than those for construction loans but maintain disbursement and monitoring procedures that are similar.

In making land loans, we follow more conservative underwriting policies than those for construction loans but maintain similar disbursement and monitoring procedures.

The initial term on land loans is typically one to three years with interest only payments, payable monthly, and provisions for principal reduction as lots are sold and released from the lien of the mortgage.

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Commercial real estate loans are made for both owner-occupied and investor-owned properties.

At December 31, 2020, our loan portfolio included $1.96 billion in non-owner-occupied commercial real estate loans, $1.08 billion in owner-occupied commercial real estate loans, $573.8 million of small balance CRE loans and $428.2 million in multifamily loans which in aggregate comprised 41% of our total loans.

At December 31, 2021, our loan portfolio included $1.99 billion in non-owner-occupied commercial real estate loans, $1.13 billion in owner-occupied commercial real estate loans, $598.2 million of small balance commercial real estate or CRE loans (CRE loans up to $1 million) and $564.1 million in multifamily loans which in aggregate comprised 47% of our total loans.

Multifamily and commercial real estate lending affords us an opportunity to receive interest at rates higher than those generally available from one- to four-family residential lending.

In originating multifamily and commercial real estate loans, we consider the location, marketability and overall attractiveness of the properties.

Our underwriting guidelines for multifamily and commercial real estate loans require an appraisal from a qualified independent appraiser and an economic analysis of each property with regard to the annual revenue and expenses, debt service coverage and fair value to determine the maximum loan amount.

Our underwriting guidelines for multifamily and commercial real estate loans require an appraisal from a qualified independent appraiser, as well as an environmental risk assessment and an economic analysis of each property with regard to the annual revenue and expenses, debt service coverage and fair value to determine the maximum loan amount.

In the approval process we assess the borrower’s willingness and ability to manage the property and repay the loan and the adequacy of the collateral in relation to the loan amount.

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Our commercial real estate portfolio consists of loans on a variety of property types with no large concentrations by property type, location or borrower.

At December 31, 2020, the average size of our commercial real estate loans was $869,000 and the largest commercial real estate loan, in terms of an outstanding balance, in our portfolio was approximately $18.4 million.

At December 31, 2021, the average size of our commercial real estate loans was $949,000 and the largest commercial real estate loan, in terms of an outstanding balance, in our portfolio was $19.9 million.

Commercial Business Lending:

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Our commercial bankers are focused on local markets and devote a great deal of effort to developing client relationships and providing these types of borrowers with a full array of products and services delivered in a thorough and responsive manner.

Our experienced commercial bankers and senior credit staff help us

meet our commitment to small business lending while also focusing on corporate lending opportunities for borrowers with credit needs generally in a $3 million to $25 million range.

Our experienced commercial bankers and senior credit staff help us meet our commitment to small business lending while also focusing on corporate lending opportunities for borrowers with credit needs generally in a $3 million to $25 million range.

In addition to providing earning assets, commercial business lending has helped us increase our deposit base.

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Quick Step business loans are available up to $1.0 million, business lines of credit are available up to $500,000 and owner-occupied real estate loans are available up to $1.0 million.

Beginning in the second quarter of 2020, we began to offer PPP loans which are fully guaranteed by the SBA, to existing and new clients as a result of the COVID-19 pandemic.

The SBA guarantees 100% of the PPP loans made to eligible borrowers.

The entire principal amount of the borrower's PPP loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA if the borrower meets the PPP conditions.

We expect that the great majority of our PPP loans will ultimately be forgiven by the SBA in accordance with the terms of the program.

We earn 1% interest on PPP loans as well as a fee from the SBA to cover processing costs, which is amortized over the life of the loan.

The maturity date of the PPP loan is either two or five years from the date of loan origination.

The balance of unamortized net deferred fees on PPP loans was $24.1 million at December 31, 2020.

Commercial business loans, other than PPP loans, may entail greater risk than other types of loans.

As a result of the COVID-19 pandemic, the CARES Act was enacted and authorized the SBA to temporarily guarantee loans under a new loan program called the Paycheck Protection Program.

The CAA, which was signed into law on December 27, 2020 renewed and extended the SBA PPP until May 31, 2021, the final expiration date for SBA PPP lending.

As a qualified SBA lender, beginning in the second quarter

of 2020, we began to offer SBA PPP loans which are fully guaranteed by the SBA, to existing and new clients.

The SBA guarantees 100% of the SBA PPP loans made to eligible borrowers.

The entire principal amount of the borrower’s SBA PPP loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA if the borrower meets the SBA PPP conditions.

The great majority of our SBA PPP loans have been forgiven by the SBA in accordance with the terms of the program.

We earn 1% interest on SBA PPP loans as well as a fee from the SBA to cover processing costs, which is amortized over the life of the loan and recognized fully at payoff or forgiveness.

The maturity date of the SBA PPP loan is either two or five years from the date of loan origination.

At December 31, 2021 and 2020, our total SBA PPP loan balance was $133.9 million and $1.04 billion, respectively.

The balance of unamortized net deferred fees on SBA PPP loans was $4.5 million at December 31, 2021, compared to $24.1 million at December 31, 2020.

Commercial business loans, other than SBA PPP loans, may entail greater risk than other types of loans.

Conventional commercial business loans generally provide higher yields or related revenue opportunities than many other types of loans but also require more administrative and management attention.

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Adjustable- or floating-rate loans are primarily tied to various prime rate or LIBOR indices.

At December 31, 2020, commercial business loans totaled $2.18 billion, or 22% of our total loans receivable, including $1.04 billion of PPP loans and $122.2 million of shared national credits.

At December 31, 2021, commercial business loans totaled $1.17 billion, or 13% of our total loans receivable, including $132.6 million of SBA PPP loans and $173.9 million of shared national credits.

Agricultural Lending:

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The repayment is also subject to other economic and weather conditions as well as market prices for agricultural products, which can be highly volatile.

At December 31, 2020, agricultural business loans, including collateral secured loans to purchase farm land and equipment, totaled $299.9 million, or 3% of our loan portfolio.

At December 31, 2021, agricultural business loans, including collateral secured loans to purchase farm land and equipment and $1.4 million of SBA PPP loans, totaled $285.8 million, or 3% of our loan portfolio.

Agricultural operating loans generally are made as a percentage of the borrower’s anticipated income to support budgeted operating expenses.

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On occasion, we also originate agricultural real estate loans secured primarily by first liens on farmland and improvements thereon located in our market areas, although generally only to service the needs of our existing clients.

Loans are written in amounts ranging from 50% to 75% of the tax assessed or appraised value of the property for terms of five to 20 years.

These loans generally have interest rates that adjust at least every five years based upon a Treasury index or FHLB advance rate plus a negotiated margin.

Loans are generally written in amounts ranging from 50% to 75% of the tax assessed or appraised value of the property for terms of five to 20 years.

These loans will typically have interest rates that adjust at least every five years based upon a Treasury index or FHLB advance rate plus a negotiated margin.

Fixed-rate loans are granted on terms usually not to exceed five years.

In originating agricultural real estate loans, we consider the debt service coverage of the borrower’s cash flow, the appraised value of the underlying property, the experience and knowledge of the borrower, and the borrower’s past

performance with us and/or the market area.

These loans normally are not made to start-up businesses and are reserved for existing clients with substantial equity and a proven history.

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Normally, required beginning and projected operating margins provide for reasonable reserves to offset unexpected yield and price deficiencies.

In addition to these risks, we also consider management succession, life insurance and business continuation plans when evaluating agricultural loans.

In addition to these risks, we also consider management succession, life insurance and business continuation plans when evaluating agricultural

For additional information concerning the risks associated with agricultural lending, see Item 1A., “Risk Factors—Our loan portfolio includes loans with a higher risk of loss.”

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Loan Solicitation and Processing:

We originate real estate loans in our market areas by direct solicitation of real estate brokers, builders, developers, depositors, walk-in clients and visitors to our Internet website.

We originate real estate loans in our market areas by direct solicitation of builders, developers, depositors, walk-in clients, real estate brokers and visitors to our Internet website.

One- to four-family residential loan applications are taken by our mortgage loan officers or through our Internet website and are processed in branch or regional locations.

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In addition to commercial real estate loans, our commercial bankers solicit commercial and agricultural business loans through call programs focused on local businesses and farmers.

While commercial bankers are delegated reasonable commitment authority based upon their qualifications, credit decisions on significant commercial and agricultural loans are made by senior loan officers or in certain instances by the Board of Directors of Banner Bank or Islanders Bank, as applicable.

While commercial bankers are delegated reasonable lending authority based upon their qualifications, credit decisions on significant commercial and agricultural loans are made by senior credit officers based on their lending authority or if required, by the Board of Directors of Banner Bank.

We originate consumer loans and small business (including Quick Step) commercial business loans through various marketing efforts directed primarily toward our existing deposit and loan clients.

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While we originate a variety of loans, our ability to originate each type of loan is dependent upon the relative client demand and competition in each market we serve.

For the years ended December 31, 2020 and 2019, we originated loans, net of repayments, including our participation in syndicated loans and loans held for sale of $2.02 billion and $1.40 billion, respectively.

For the years ended December 31, 2021 and 2020, we originated loans, net of repayments, including our participation in syndicated loans and loans held for sale of $306.8 million and $2.02 billion, respectively.

The year ended December 31, 2021 included net repayments of SBA PPP loans of $910.5 million, compared to net originations of SBA PPP loans of $1.04 billion for the year ended December 31, 2020.

For additional information concerning origination of portfolio loans by type, see Item 7 in this report, “Management’s Discussion and Analysis of Financial Condition—Comparison of Financial Condition at December 31, 2021 and 2020—Loans and Lending,” and Table 3 contained therein.

We sell many of our newly originated one- to four-family residential mortgage loans and multifamily loans to secondary market purchasers as part of our interest rate risk management strategy.

Originations of loans for sale increased to $1.46 billion for the year ended December 31, 2020 from $1.09 billion during 2019.

Originations of loans for sale decreased to $1.10 billion for the year ended December 31, 2021 from $1.46 billion during 2020.

Originations of loans for sale included $225.0 million and $234.0 million of multifamily held for sale loan production for the years ended December 31, 2021 and December 31, 2020, respectively.

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We sell one- to four-family mortgage loans on both a servicing-retained and a servicing-released basis.

All loans are sold without recourse but subject to standard representations and warranties.

All loans are sold without recourse however, subject to the standard representations and warranties contained in the loan sale agreement.

The decision to hold or sell loans is based on asset liability management goals, strategies and policies and on market conditions.

In addition, we generally sell the guaranteed portion of SBA loans.

For additional information, see “Loan Servicing.”

We periodically purchase whole loans and loan participation interests or participate in syndicates originating new loans, including shared national credits, primarily during periods of reduced loan demand in our primary market area and at times to support our Community Reinvestment Act lending activities.

We periodically purchase whole loans and loan participation interests or participate in syndicates, including shared national credits.

These purchases are made during periods of reduced loan demand in our primary market area as well as to support our Community Reinvestment Act lending activities.

Any such purchases or loan participations are generally made on terms consistent with our underwriting standards;

however, the loans may be located outside of our normal lending area.

During the years ended December 31, 2020 and 2019, we purchased $2.5 million and $9.8 million, respectively, of loans and loan participation interests, principally commercial real estate loans.

Loan Servicing

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In addition to earning fee income, we retain certain amounts in escrow for the benefit of the lender for which we incur no interest expense but are able to invest the funds into earning assets.

Mortgage Servicing Rights:

We record mortgage servicing rights (MSRs) with respect to loans we originate and sell in the secondary market on a servicing-retained basis.

Mortgage and SBA Servicing Rights:

We record mortgage servicing rights (MSRs) with respect to loans we originate and sell in the secondary market on a servicing-retained basis and SBA servicing rights with respect to the guaranteed portion of SBA loans we sell.

The value of MSRs is capitalized and amortized in proportion to, and over the period of, the estimated future net servicing income.

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Impairment is recognized through a valuation allowance, to the extent that fair value is less than the capitalized carrying amount.

At December 31, 2020, our MSRs were carried at a value of $15.2 million, net of amortization.

SBA servicing rights are initially recorded and carried at fair value.

Any change in the fair value of SBA servicing rights is recorded in non-interest income.

At December 31, 2021, our MSRs and SBA servicing rights were carried at an aggregate value of $17.2 million, net of amortization.

For additional information see Note 15, Goodwill, Other Intangible Assets and Mortgage Servicing Rights, of the Notes to the Consolidated Financial Statements.

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Classified Assets:

State and federal regulations require that the Banks review and classify their problem assets on a regular basis.

State and federal regulations require that the Bank reviews and classify its problem assets on a regular basis.

In addition, in connection with examinations of insured institutions, state and federal examiners have authority to identify problem assets and, if appropriate, require them to be classified.

Historically, we have not had any meaningful differences of opinion with the examiners with respect to asset classification.

Banner Bank’s Credit Policy Division reviews detailed information with respect to the composition and performance of the loan portfolios, including information on risk concentrations, delinquencies and classified assets for both Banner Bank and Islanders Bank.

The Credit Policy Division approves all recommendations for new classified loans or, in the case of smaller-balance homogeneous loans including residential real estate and consumer loans, it has approved policies governing such classifications, or changes in classifications, and develops and monitors action plans to resolve the problems associated with the assets.

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Significant problem loans are transferred to Banner Bank’s Special Assets Department for resolution or collection activities.

The Banks’ and Banner Corporation’s Boards of Directors are given a detailed report on classified assets and asset quality at least quarterly.

Both Banner Bank’s and Banner Corporation’s Boards of Directors review asset quality at least quarterly.

For additional information regarding asset quality and non-performing loans, see Item 7 of this report, “Management’s Discussion and Analysis of Financial Condition—Comparison of Financial Condition at December 31, 2021 and 2020—Asset Quality,” and Tables 12 and 13 contained therein.

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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 and forecasted economic conditions.

In June 2016, Financial Accounting Standards Board issued ASU No.

2016-13, Measurement of Credit Losses on Financial Instruments, referred to as Current Expected Credit Loss, or CECL, which became effective for Banner on January 1, 2020.

For additional information on CECL see Note 2, Accounting Standards Recently Issued or Adopted, of the Notes to the Consolidated Financial Statements.

For additional information concerning our allowance for credit losses, see Item 7 of this report, “Management’s Discussion and Analysis of Financial Condition—Comparison of Results of Operations for the Years Ended December 31, 2021 and 2020—Provision and Allowance for Credit Losses,” and Tables 17 and 18 contained therein.

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The amounts we will ultimately recover from REO may differ substantially from the carrying value of the assets because of market factors beyond our control or because of changes in our strategies for recovering the investment.

For additional information on REO, see Item 7 of this report, “Management’s Discussion and Analysis of Financial Condition—Comparison of Financial Condition at December 31, 2020 and 2019—Asset Quality” and Table 14 contained therein and Note 6, Real Estate Owned, Held for Sale, Net, of the Notes to the Consolidated Financial Statements.

For additional information on REO, see Item 7 of this report and Note 5, Real Estate Owned, Held for Sale, Net, of the Notes to the Consolidated Financial Statements.

Investment Activities

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Investment in mortgage-backed securities may include those issued or guaranteed by Freddie Mac, Fannie Mae, Government National Mortgage Association (Ginnie Mae or GNMA) and investment grade privately-issued mortgage-backed securities, as well as collateralized mortgage obligations (CMOs).

All of our investment securities, including those that have high credit ratings, are subject to market risk in so far as a change in market rates of interest or other conditions may cause a change in an investment’s earnings performance and/or market value.

At December 31, 2020, our consolidated investment portfolio totaled $2.77 billion and consisted principally of U.S.

Government agency obligations, mortgage-backed securities, municipal bonds, corporate debt obligations, and asset-backed securities.

All of our investment securities, including those with a credit rating, are subject to market risk in so far as a change in market rates of interest or other conditions may cause a change in an investment’s earnings performance and/or market value.

At December 31, 2021, our consolidated investment portfolio totaled $4.19 billion and consisted principally of mortgage-backed securities and municipal bonds and to a lesser extent U.S.

Government agency obligations, corporate debt obligations, and asset-backed securities.

Investment levels may be increased or decreased in order to manage balance sheet liquidity, interest rate risk, market risk and provide appropriate risk adjusted returns.

Securities purchases exceeded sales, paydowns and maturities during the year ended December 31, 2020 as we deployed excess balance sheet liquidity and market spreads for certain securities widened.

Securities purchases exceeded sales, paydowns and maturities during the year ended December 31, 2021 as we deployed excess balance sheet liquidity amid widening market spreads for certain security types.

For detailed information on our investment securities, see Item 7, “Management’s Discussion and Analysis of Financial Condition—Comparison of Financial Condition at December 31, 2021 and 2020—Investments,” and Tables 1 and 2 contained therein.

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Mortgage Banking:

In the normal course of business, the Company sells originated one- to four-family and multifamily mortgage loans into the secondary mortgage loan markets.

During the period of loan origination and prior to the sale of the loans in the secondary market, the Company has exposure to movements in interest rates associated with written interest rate lock commitments with potential borrowers to originate one- to four-family loans that are intended to be sold and for closed one- to four-family and multifamily mortgage loans held for sale that are awaiting sale and delivery into the secondary market.

The Company economically hedges the risk of changing interest rates associated with these mortgage loan commitments by entering into forward sales contracts to sell one- to four-family and multifamily mortgage loans or mortgage-backed securities to broker/dealers at specific prices and dates.

In the normal course of business, the Company sells originated one- to four-family loans and multifamily loans into the secondary mortgage loan markets.

For one- to four-family loans during the period of loan origination and prior to the sale of the loans in the secondary market, the Company has exposure to movements in interest rates associated with written interest rate lock commitments with potential borrowers to originate one- to four-family loans that are intended to be sold and for closed one- to four-family loans held for sale that are awaiting sale and delivery into the secondary market.

The Company economically hedges the risk of changing interest rates associated with these mortgage loan commitments by entering into forward sales contracts to sell one- to four-family loans or mortgage-backed securities to broker/dealers at specific prices and dates.

We are exposed to credit-related losses in the event of nonperformance by the counterparty to these agreements.

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In connection with the interest rate swaps between Banner Bank and the dealer counterparties, the agreements contain a provision such that if Banner Bank fails to maintain its status as a well/adequately capitalized institution, then the counterparty could terminate the derivative positions and Banner Bank would be required to settle its obligations.

a capital maintenance agreement that required Banner Bank to maintain a specific capital level.

Similarly, we could be required to settle our obligations under certain of these agreements if specific regulatory events occur, such as a publicly issued prompt corrective action directive, cease and desist order, or a capital maintenance agreement that required Banner Bank to maintain a specific capital level.

If we had breached any of these provisions at December 31, 2021 or 2020, we could have been required to settle our obligations under the agreements at the termination value.

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Derivatives Designated in Hedge Relationships

Our fixed-rate loans result in exposure to losses in value or net interest income as interest rates change.

The risk management objective for hedging fixed-rate loans is to effectively convert the fixed rate received to a floating rate.

Under a prior program that is now discontinued we hedged our exposure to changes in the fair value of certain fixed-rate loans through the use of interest rate swaps.

As of December 31, 2020, Banner Bank was a party to $338,000 in notional amounts of interest rate swaps designated in a hedge relationship.

For a qualifying fair value hedge, changes in the value of the derivatives are recognized in current period earnings along with the corresponding changes in the fair value of the designated hedged item attributable to the risk being hedged.

The Company’s floating rate loans result in exposure to losses in value or net interest income as interest rates change.

Our risk management objectives are to reduce volatility in net interest income and to manage our exposure to interest rate movements.

To accomplish this objective, the Company uses interest rate derivatives, primarily interest rate swaps as part of its interest rate risk management strategy.

During the fourth quarter of 2021, the Company entered into interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans.

These hedge contracts involve the receipt of fixed-rate amounts from a counterparty in

exchange for the Company making floating-rate payments over the life of the agreements without exchange of the underlying notional amount.

As of December 31, 2021, Banner Bank was a party to $400.0 million in notional amounts of interest rate swaps designated in a hedge relationship under this program.

Deposit Activities and Other Sources of Funds

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Core deposits (non-interest-bearing checking and interest-bearing transaction and savings accounts) are a fundamental element of our business strategy.

Core deposits were 93% of total deposits at December 31, 2020 compared to 89% a year earlier and 86% two years ago.

Core deposits were 94% of total deposits at December 31, 2021 compared to 93% a year earlier.

Deposit Accounts:

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The FHLB serves as our primary borrowing source.

The FHLB provides credit for member financial institutions such as Banner Bank and Islanders Bank.

As members, the Banks are required to own capital stock in the FHLB and are authorized to apply for advances on the security of that stock and certain of their mortgage loans and securities, provided that certain credit worthiness standards have been met.

The FHLB provides credit for member financial institutions such as Banner Bank.

As a member, the Bank is required to own capital stock in the FHLB and is authorized to apply for advances on the security of that stock and certain of its mortgage loans and securities, provided that certain credit worthiness standards have been met.

Limitations on the amount of advances are based on the financial condition of the member institution, the adequacy of collateral pledged to secure the credit, and FHLB stock ownership requirements.

At December 31, 2021, we had $50.0 million of borrowings from the FHLB.

At that date, based on pledged collateral, Banner Bank had $2.28 billion of available credit capacity and Islanders Bank had $32.5 million of available credit capacity with the FHLB.

At that date, based on pledged collateral, Banner Bank had $2.38 billion of available credit capacity with the FHLB.

The Federal Reserve Bank serves as an additional source of borrowing capacity.

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At December 31, 2021, based upon our available unencumbered collateral, Banner Bank was eligible to borrow $782.3 million from the Federal Reserve Bank, although at that date we had no funds borrowed under this arrangement.

Although eligible to participate, Islanders Bank has not applied for approval to borrow from the Federal Reserve Bank.

Additionally, the Federal Reserve recently established the Paycheck Protection Program Liquidity Facility (PPPLF) to bolster the effectiveness of the PPP.

Banner Bank may utilize the PPPLF, pursuant to which it will pledge PPP loans at face value as collateral to obtain FRB non-recourse advances.

Although Banner Bank utilized and repaid outstanding advances from the PPPLF during the current year, there were no borrowings outstanding under this program at December 31, 2020.

For additional information concerning our borrowings, see Item 7 in this report, “Management’s Discussion and

Analysis of Financial Condition—Comparison of Financial Condition at December 31, 2020 and 2019—Borrowings,” and Table 11 contained therein, as well as Note 9, Advances from Federal Home Loan Bank of Des Moines and Note 10, Other Borrowings of the Notes to the Consolidated Financial Statements.

At December 31, 2020, Banner Bank had uncommitted federal funds line of credit agreements with other financial institutions totaling $125.0 million, while Islanders Bank had an uncommitted federal funds line of credit agreement with another financial institution totaling $5.0 million.

No balances were outstanding under these agreements as of December 31, 2020.

For additional information concerning our borrowings, see Item 7 in this report, “Management’s Discussion and Analysis of Financial Condition—Comparison of Financial Condition at December 31, 2021 and 2020—Borrowings,”, as well as Note 8, Advances from Federal Home Loan Bank of Des Moines and Note 9, Other Borrowings of the Notes to the Consolidated Financial Statements.

At December 31, 2021, Banner Bank had uncommitted federal funds line of credit agreements with other financial institutions totaling $125.0 million.

There were no balances outstanding under these agreements as of December 31, 2021.

Availability of lines is subject to federal funds balances available for loan and continued borrower eligibility.

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We have also issued $120.0 million of junior subordinated debentures in connection with the sale of trust preferred securities (TPS) issued from 2002 through 2007 by special purpose business trusts formed by Banner Corporation and sold in private offerings to pooled investment vehicles.

We invested substantially all of the proceeds from the issuance of these TPS as additional paid in capital at Banner Bank.

In addition, Banner has $15.5 million of junior subordinated debentures that were acquired through acquisitions, for a total of $135.5 million in debentures at December 31, 2021.

The junior subordinated debentures associated with the TPS have been recorded as liabilities and are reported at fair value on our Consolidated Statements of Financial Condition.

As of December 31, 2020 the fair value of the junior subordinate debentures was $117.0 million.

As of December 31, 2021 the fair value of the junior

subordinate debentures was $119.8 million.

Banner redeemed $8.2 million of junior subordinated debentures during the fourth quarter of 2021 and subsequent to December 31, 2021 redeemed an additional $50.5 million of junior subordinated debentures.

All of the debentures issued to the trusts, measured at their fair value, less the common stock of the trusts, qualified as Tier I capital as of December 31, 2021.

We invested substantially all of the proceeds from the issuance of the TPS as additional paid in capital at Banner Bank.

See Note 10, Junior Subordinated Debentures and Mandatorily Redeemable Trust Preferred Securities, of the Notes to the Consolidated Financial Statements.

On June 30, 2020, Banner also issued and sold in an underwritten offering $100.0 million aggregate principal amount of 5.000% Fixed-to-Floating Rate Subordinated Notes due 2030 (Subordinated Notes) at a public offering price equal to 100% of the aggregate principal amount of the Notes, resulting in net proceeds, after underwriting discounts and offering expenses, of approximately $98.1 million.

As of December 31, 2020 the Subordinated Notes, qualified as Tier II regulatory capital.

On June 30, 2020, Banner issued and sold in an underwritten offering $100.0 million aggregate principal amount of 5.000% Fixed-to-Floating Rate Subordinated Notes due 2030 (Subordinated Notes) at a public offering price equal to 100% of the aggregate principal amount of the Notes, resulting in net proceeds, after underwriting discounts and offering expenses, of approximately $98.1 million.

The subordinated notes qualify as Tier 2 capital for regulatory capital purposes.

Human Capital

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Our employees contribute to our commitment to social responsibility through personal volunteerism and active engagement in the communities in which they live and work.

As our business grows and evolves, the demand for qualified candidates continues to grow.

As our business grows and evolves, the demand for qualified candidates continues to increase.

Meanwhile, the pool of experienced candidates continues to tighten across the financial industry, making it increasingly challenging to compete for top candidates.

To address this challenge, we have developed and continue to enhance a robust and comprehensive company-wide talent management program.

The program spans from talent acquisition and selection to performance coaching, career development and retention of our top talent and ultimately to succession planning.

Diversity and Inclusion (D&I).

The program spans from talent acquisition and selection to performance coaching, career development and retention of our top talent and ultimately to succession planning, always with a focus on diversity, equity and inclusion.

Diversity, Equity and Inclusion (DEI).

Our commitment to diversity starts with our Board of Directors, which oversees our culture and holds management accountable to build and maintain a diverse and inclusive environment.

Within this scope, our Board and its committees:

oversee our human capital management strategies, programs and practices, including the progress on our diversity and inclusion goals;

Our Board and its Compensation and Human Capital Committee in partnership with Banner’s Executive team including its Chief Human Resources and Diversity Officer oversee our human capital management strategies, programs and practices, including our diversity and inclusion initiatives;

oversee our establishment, maintenance and administration of appropriately designed compensation programs and plans;

and review our employee engagement and exit survey results.

Banner Bank’s Board of Directors formally recognized the importance of these initiatives with the appointment of the Bank’s Executive Vice President, Human Resources, as Chief Diversity Officer of Banner Bank.

We established a cross-functional, employee-led DEI council in 2021 to provide leadership and serve as a catalyst for inclusion and diversity initiatives across our organization.

The DEI council is intended to help Banner develop effective strategies to encourage diversity, equity and inclusion in our workplace as well as to attract, develop and retain diverse talent.

Approximately 24% of our workforce self-identifies as diverse talent as of December 31, 2021.

We aim to maintain a work environment where every employee is treated with dignity and respect, is free from discrimination and harassment and is allowed to devote their full attention and best efforts to performing their job to the best of their ability.

Employing the best talent — including individuals who possess a broad range of experiences, backgrounds and skills — enables us to anticipate and meet the needs of our business and those of our clients.

Two of our six named executive officers for 2020 were women (33%) and currently, five of our broader team of 16 executive officers are women (31%).

We have a strong team of men and women who are collectively capable of professionally operating the business and fulfilling our vision.

The following table illustrates our employees’ gender diversity by level as of December 31, 2020:

Level Female % Male %

The following table illustrates our employees’ gender diversity by position level as of December 31, 2021:

Position Level Female % Male %

Individual Contributor 72 % 28 %

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During 2021, we hired 416 employees.

Talent Engagement.

Employee Engagement.

We utilize anonymous employee surveys to seek valuable feedback on key initiatives and leverage the results to improve current programs as well as develop new programs.

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Additionally, senior leadership analyzes areas of progress or opportunities for improvement and prioritizes responsive actions and activities.

We have in the past conducted a traditional employee engagement survey, but during the COVID-19 pandemic – particularly in the first year of the pandemic – we shifted our approach to use “pulse surveys,” which enable more frequent engagement with employees and allowed us to focus on discrete areas of employee well-being or other topics of particular interest.

Our management and cross-functional teams also work in close coordination to evaluate human capital management issues such as retention, training, workplace safety, harassment and bullying, as well as to implement measures to mitigate these risks.

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We grant long-term incentive awards in the form of restricted stock and performance-based stock to a select group of senior leaders who we believe will play critical roles in the Company’s future.

We offer comprehensive health insurance coverage, including telehealth services, to employees working an average of 20 hours or more each week and includes coverage for domestic partners.

We offer comprehensive health insurance coverage, including telehealth services, to employees working an average of 20 hours or more each week.

Coverage is also available to eligible employees’ family members including domestic partners.

We provide up to 12 days of accrued paid sick time based on hours worked annually;

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In addition to our traditional health insurance coverage, we offer employees a suite of mental health-related programs and benefits, including text-based and telehealth services.

These include Talkspace, 98point6, Doctor on Demand, a 24-hour nurse line and an employee assistance program.

Moreover, in 2020 we implemented Care@Work, providing employees with subsidized child, adult or senior care planning services.

This benefit includes up to 10 days of subsidized backup care services each year.

We offer virtual physical therapy benefits as well as virtual support for hypertension and diabetes.

We also offer Care@Work, which provides employees with subsidized child, adult or senior care planning services.

This benefit includes up to ten days of subsidized backup care services each year.

Health, Safety and Well-being.

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Finally, we offer choices and options, when possible, to enable employees to customize benefits to meet their own needs and the needs of their families.

COVID-19 Pandemic Response.

We have taken many broad-ranging steps to support workplace safety and employee well-being during the COVID-19 pandemic.

We transitioned approximately 48% of our employees to a remote work environment, which accounts for nearly all employees whose duties could be performed remotely.

This remote work environment continued throughout 2021.

To improve safety conditions for our on-site essential employees, we also provided personal protective equipment and supplies such as face coverings and hand sanitizer, conducted enhanced cleanings in our facilities, and installed numerous protective shields and signage related to social distancing and face mask guidelines.

We have expanded our employee benefits to include virtual general medicine, behavioral and mental health benefits, and child and eldercare resources.

To support our on-site essential employees, we provided additional compensation during the original transition period to aid with unexpected and unusual conditions faced by these individual as we responded to the in-person service needs of our clients and communities.

In addition, we provided additional paid time off to support quarantine, recovery and vaccination time.

Encouraging Volunteerism.

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We invest significant resources developing the talent needed to be an employer of choice.

We deliver a variety of training opportunities, use leading-edge methodologies to manage performance and provide frequent performance and development feedback rather than relying solely on annual reviews.

We deliver a variety of training opportunities, use leading-edge methodologies to manage performance and provide frequent performance and development feedback rather than relying on annual reviews.

Our talent development programs provide employees with the resources they need to help achieve their career goals, build management skills and lead their teams.

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and formal education.

We leverage best-in-class industry associations such as the

American Bankers Association, Washington Bankers Association and the Pacific Coast Banking School to provide continuing education courses relevant to the banking industry and job functions.

We leverage best-in-class industry associations such as the American Bankers Association, Washington Bankers Association and the Pacific Coast Banking School to provide continuing education courses relevant to the banking industry and job functions.

To encourage advancement and growth within our organization, we provide information and guides so individuals can design their own career paths.

In fact, in 2020 we filled 25.8% of all open positions with internal candidates.

With this strong focus on internal talent development, we filled 29% of all open positions with internal candidates in 2021.

Internal mobility is a particular focus for our DEI council as part of our strategy to increase diverse representation at more senior levels of the organization.

Succession Planning.

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Human Capital Metrics.

We capture critical metrics regarding human capital management and report them to the Board on an annual basis.

As of December 31, 2020, we employed 2,116 full- and part-time employees across our four-state footprint, which equates to 2,061 full-time equivalent employees.

All Banner Corporation employees are also employees of the Company’s subsidiaries, including the Banks.

We capture critical metrics regarding human capital management and report them to the Compensation and Human Capital Committee of the Board of Directors on a quarterly basis.

The Human Capital Management Dashboard includes a mixture of trending and point-in-time metrics designed to provide information and analysis of workforce demographics;

talent acquisition;

workforce stability (retention, turnover, etc.);

employee engagement;

learning and development;

and total rewards.

As of December 31, 2021, we employed 1,935 full- and part-time employees across our four-state footprint, which equates to 1,891 full-time equivalent employees (based on scheduled hours).

All Banner Corporation employees are also employees of the Company’s subsidiaries, including the Bank.

Our employees are not represented by a collective bargaining agreement.

As of December 31, 2020, 62% of our employees reside in Washington State.

We also have employees in Oregon (19%), California (13%) and other states (6%).

As of December 31, 2020, five generations of employees were represented in our workplace with Millennials being our largest generation (35%), followed by Gen X (34%) and Boomers (26%).

Our overall turnover rate has declined for four consecutive years and in 2020 our voluntary turnover rate was 14.2%.

As of December 31, 2021, 61% of our employees work in Washington State.

We also have employees working in Oregon (18%), California (14%) and other states (7%).

As of December 31, 2021, five generations of employees were represented in our workplace with Millennials being our largest generation (36%), followed by Gen X (31%), Boomers (26%) and Gen Z (7%).

Our overall turnover rate increased in 2021, principally due to the talent crisis brought on by the pandemic.

Our voluntary turnover rate in 2021 was 22.6%.

Tax-Sharing Agreement

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We compete for loans primarily by offering competitive rates and fees and providing timely decisions and excellent service to borrowers.

Banner Bank and Islanders Bank

As state-chartered, federally insured commercial banks, Banner Bank and Islanders Bank (the Banks) are subject to extensive regulation and must comply with various statutory and regulatory requirements, including prescribed minimum capital standards.

The Banks are regularly examined by the FDIC and the Washington DFI and file periodic reports concerning their activities and financial condition with these banking regulators.

The Banks’ relationship with depositors and borrowers also is regulated to a great extent by both federal and state law, especially in such matters as the ownership of deposit accounts and the form and content of mortgage and other loan documents.

Federal and state banking laws and regulations govern all areas of the operation of the Banks, including reserves, loans, investments, deposits, capital, issuance of securities, payment of dividends and establishment of branches.

As a state-chartered, federally insured commercial bank, Banner Bank is subject to extensive regulation and must comply with various statutory and regulatory requirements, including prescribed minimum capital standards.

The Bank is regularly examined by the FDIC and the Washington DFI and files periodic reports concerning its activities and financial condition with these banking regulators.

The Bank’s relationship with depositors and borrowers also is regulated to a great extent by both federal and state law, especially in such matters as the ownership of deposit accounts and the form and content of mortgage and other loan documents.

Federal and state banking laws and regulations govern all areas of the operation of the Bank, including reserves, loans, investments, deposits, capital, issuance of securities, payment of dividends and establishment of branches.

Federal and state bank regulatory agencies also have the general authority to limit the dividends paid by insured banks and bank holding companies if such payments should be deemed to constitute an unsafe and unsound practice and in other circumstances.

The Federal Reserve and FDIC, as the respective primary federal regulators of Banner Corporation and each of Banner Bank and Islanders Bank, have authority to impose penalties, initiate civil and administrative actions and take other steps intended to prevent banks from engaging in unsafe or unsound practices.

The Federal Reserve and FDIC, as the respective primary federal regulators of Banner Corporation and of Banner Bank, have authority to impose penalties, initiate civil and administrative actions and take other steps intended to prevent banks from engaging in unsafe or unsound practices.

The Consumer Financial Protection Bureau (CFPB) is an independent bureau of the Federal Reserve.

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For additional information, see Item 1A., “Risk Factors—We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations that are expected to increase our costs of operation.”

The following is a summary discussion of certain laws and regulations applicable to Banner and the Banks which is qualified in its entirety by reference to the actual laws and regulations.

The following is a summary discussion of certain laws and regulations applicable to Banner and the Bank which is qualified in its entirety by reference to the actual laws and regulations.

State Regulation and Supervision :

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These state laws and regulations govern Banner Bank’s ability to take deposits and pay interest thereon, to make loans on or invest in residential and other real estate, to make consumer loans, to invest in securities, to offer various banking services to its clients and to establish branch offices.

In a similar fashion, Washington state laws and regulations for state-chartered commercial banks also apply to Islanders Bank.

Deposit Insurance :

The Deposit Insurance Fund of the FDIC insures deposit accounts of each of the Banks up to $250,000 per separately insured deposit relationship category.

The Deposit Insurance Fund of the FDIC insures deposit accounts of the Bank up to $250,000 per separately insured deposit relationship category.

As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions.

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No institution may pay a dividend if it is in default on its federal deposit insurance assessment.

The FDIC conducts examinations of and requires reporting by state non-member banks, such as the Banks.

The FDIC conducts examinations of and requires reporting by state non-member banks, such as the Bank.

The FDIC also may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious risk to the deposit insurance fund.

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If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC.

Management is not aware of any existing circumstances which would result in termination of the deposit insurance of either Banner Bank or Islanders Bank.

Management is not aware of any existing circumstances which would result in termination of the deposit insurance of Banner Bank.

Standards for Safety and Soundness:

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Capital Requirements:

Bank holding companies, such as Banner Corporation, and federally insured financial institutions, such as Banner Bank and Islanders Bank, are required to maintain a minimum level of regulatory capital.

Banner Corporation and the Banks are subject to minimum required ratios for Common Equity Tier 1 (“CET1”) capital, Tier 1 capital, total capital and the leverage ratio and a required capital conservation buffer over the required capital ratios.

Bank holding companies, such as Banner Corporation, and federally insured financial institutions, such as Banner Bank, are required to maintain a minimum level of regulatory capital.

Banner Corporation and the Bank are subject to minimum required ratios for Common Equity Tier 1 (“CET1”) capital, Tier 1 capital, total capital and the leverage ratio and a required capital conservation buffer over the required capital ratios.

Under the capital regulations, the minimum capital ratios are:

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Total capital is the sum of Tier 1 and Tier 2 capital.

Trust preferred securities issued by a company, such as the Company, with total consolidated assets of less than $15 billion before May 19, 2010 and treated as regulatory capital are grandfathered, but any such securities issued later are not eligible as regulatory capital.

Trust preferred securities issued by a bank holding company, such as the Company, with total consolidated assets of less than $15 billion before May 19, 2010 and treated as regulatory capital are grandfathered, but any such securities issued later are not eligible to be treated as regulatory capital.

If an institution grows above $15 billion as a result of an acquisition, the trust preferred securities are excluded from Tier 1 capital and instead included in Tier 2 capital.

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and a 250% risk weight (up from 100%) for mortgage servicing and deferred tax assets that are not deducted from capital.

In addition to the minimum CET1, Tier 1, leverage ratio and total capital ratios, Banner and each of the Banks must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum risk-based capital levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.

In addition to the minimum CET1, Tier 1, leverage ratio and total capital ratios, Banner and the Bank must maintain a capital conservation buffer consisting of additional CET1 capital greater than 2.5% of risk-weighted assets above the required minimum risk-based capital levels in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.

To be considered “well capitalized,” a bank holding company must have, on a consolidated basis, a total risk-based capital ratio of 10.0% or greater and a Tier 1 risk-based capital ratio of 6.0% or greater and must not be subject to an individual order, directive or agreement under which the FRB requires it to maintain a specific capital level.

To be considered “well capitalized,” a depository institution must have a Tier 1 risk-based capital ratio of at least 8.0%, a total risk-based capital ratio of at least 10.0%, a CET1 capital ratio of at least 6.5% and a leverage ratio of at least 5.0% and not be subject to an individualized order, directive or agreement under which its primary federal banking regulator requires it to maintain a specific capital level.

The FASB issued a new accounting standard the Bank adopted on January 1, 2020.

This standard, referred to as CECL, requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets.

Upon adoption of CECL, a banking organization must record a one-time adjustment to its credit loss allowances as of the beginning of

the fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowances under the prior methodology and the amount required under CECL.

Concurrent with enactment of the CARES Act, federal banking agencies issued an interim final rule that delays the estimated impact on regulatory capital resulting from the adoption of CECL.

The interim final rule provides banking organizations that implement CECL before the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay.

The changes in the final rule apply only to those banking organizations that elect the CECL transition relief provided under the rule.

Banner and the Bank elected this option.

Prompt Corrective Action:

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An institution’s category depends upon where its capital levels are in relation to relevant capital measures.

The well-capitalized category is

described above.

The well-capitalized category is described above.

An institution that is not well capitalized is subject to certain restrictions on brokered deposits, including restrictions on the rates it can offer on its deposits generally.

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Undercapitalized institutions are subject to certain prompt corrective action requirements, regulatory controls and restrictions which become more extensive as an institution becomes more severely undercapitalized.

Failure by either Banner Bank and Islanders Bank to comply with applicable capital requirements would, if unremedied, result in progressively more severe restrictions on its activities and lead to enforcement actions, including, but not limited to, the issuance of a capital directive to ensure the maintenance of required capital levels and, ultimately, the appointment of the FDIC as receiver or conservator.

Failure by Banner Bank to comply with applicable capital requirements would, if unremedied, result in progressively more severe restrictions on its activities and lead to enforcement actions, including, but not limited to, the issuance of a capital directive to ensure the maintenance of required capital levels and, ultimately, the appointment of the FDIC as receiver or conservator.

Banking regulators will take prompt corrective action with respect to depository institutions that do not meet minimum capital requirements.

Additionally, approval of any regulatory application filed for their review may be dependent on compliance with capital requirements.

As of December 31, 2020, Banner Corporation and each of the Banks met the requirements to be “well capitalized” and the fully phased-in capital conservation buffer requirement.

As of December 31, 2021, Banner Corporation and the Bank met the requirements to be “well capitalized” and the capital conservation buffer requirement.

For additional information, see Note 14, Regulatory Capital Requirements, of the Notes to the Consolidated Financial Statements.

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• Total reported loans for construction, land development and other land represent 100% or more of the bank’s total regulatory capital;

• Total commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total regulatory capital or the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.

• Total commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total regulatory capital and the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.

The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy.

As of December 31, 2020, Banner Bank’s and Islanders Bank’s aggregate recorded loan balances for construction, land development and land loans were 91% and 27% of total regulatory capital, respectively.

In addition, at December 31, 2020, Banner Bank’s and Islanders Bank’s loans on commercial real estate were 294% and 213% of total regulatory capital, respectively.

As of December 31, 2021, Banner Bank’s aggregate recorded loan balances for construction, land development and land loans were 86% of total regulatory capital.

In addition, at December 31, 2021, Banner Bank’s loans secured by commercial real estate represent 280% of total regulatory capital.

Activities and Investments of Insured State-Chartered Financial Institutions:

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Since the enactment of the CERCLA, this “secured creditor exemption” has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan.

To the extent that legal uncertainty exists in this area, all creditors, including Banner Bank and Islanders Bank, that have made loans secured by properties with potential hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which costs often substantially exceed the value of the collateral property.

To the extent that legal uncertainty exists in this area, all creditors, including Banner Bank, that have made loans secured by properties with potential hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs, which costs often substantially exceed the value of the collateral property.

Federal Reserve System:

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Affiliate Transactions:

Banner Corporation, Banner Bank and Islanders Bank are separate and distinct legal entities.

Each Bank is an affiliate of the other and Banner Corporation (and any non-bank subsidiary of Banner Corporation) is an affiliate of both Banks.

Banner Corporation and Banner Bank are separate and distinct legal entities.

Banner Corporation (and any non-bank subsidiary of Banner Corporation) is an affiliate of the Bank.

Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates.

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Community Reinvestment Act:

Banner Bank and Islanders Bank are subject to the provisions of the Community Reinvestment Act of 1977 (CRA), which requires the appropriate federal bank regulatory agency to assess a bank’s performance under the CRA in meeting the credit needs of the community serviced by the bank, including low and moderate income neighborhoods.

Banner Bank is subject to the provisions of the Community Reinvestment Act of 1977 (CRA), which requires the appropriate federal bank regulatory agency to assess a bank’s performance under the CRA in meeting the credit needs of the community serviced by the bank, including low and moderate income neighborhoods.

The regulatory agency’s assessment of the bank’s record is made available to the public.

Further, a bank’s CRA performance rating must be considered in connection with a bank’s application to, among other things, establish a new branch office that will accept deposits, relocate an existing office or merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution.

Both Banner Bank and Islanders Bank received a “satisfactory” rating during their most recently completed CRA examinations.

The amount of dividends payable by the Banks to the Company depends upon their earnings and capital position, and is limited by federal and state laws, regulations and policies, including the capital conservation buffer requirement.

Banner Bank received an “outstanding” rating during its most recently completed CRA examinations.

The amount of dividends payable by the Bank to the Company depends upon its earnings and capital position, and is limited by federal and state laws, regulations and policies, including the capital conservation buffer requirement.

Federal law further provides that no insured depository institution may make any capital distribution (which includes a cash dividend) if, after making the distribution, the institution would be “undercapitalized,” as defined in the prompt corrective action regulations.

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The Washington DFI also has the power to require any bank to suspend the payment of any and all dividends.

Privacy Standards:

Privacy Standards and Cybersecurity:

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (GLBA) modernized the financial services industry by establishing a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers.

Banner Bank and Islanders Bank are subject to FDIC regulations implementing the privacy protection provisions of the GLBA.

These regulations require the Banks to disclose their privacy policy, including informing consumers of their information sharing practices and informing consumers of their rights to opt out of certain practices.

Federal banking agencies, including the FDIC, have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of the board of directors.

These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial services.

These regulations require the Bank to disclose its privacy policy, including informing consumers of its information sharing practices and informing consumers of their rights to opt out of certain practices.

In addition, other state cybersecurity and data privacy laws and regulations may expose Banner Bank to risk and result in certain risk management costs.

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Although Banner Bank may enjoy several fairly broad exemptions from the CCPA’s privacy requirements, those exemptions do not extend to the private right of action for a data security breach.

The CCPA, including any amendments thereto or final regulations implemented thereunder, as well as other similar state data privacy laws and regulations, may require the establishment by Banner Bank of certain regulatory compliance and risk management controls.

In November 2020, voters in the State of California approved the California Privacy Rights Act (CPRA), a ballot measure that amends and supplements the substantive requirements of the CCPA, as well as providing certain mechanisms for administration and enforcement of the statute by creating the California Privacy Protection Agency, a watchdog privacy agency.

The CCPA, the CPRA as well as other similar state data privacy laws and regulations, may require the establishment by Banner Bank of certain regulatory compliance and risk management controls.

Non-compliance with the CCPA, the CPRA or similar state privacy laws and regulations could lead to substantial regulatory imposed fines and penalties, damages from private causes of action and/or reputational harm.

In addition, Congress and federal regulatory agencies are considering similar laws or regulations that could create new individual privacy rights and impose increased obligations on companies handling personal data.

On November 18, 2021, the federal banking agencies announced the issuance of a new rule, effective April 1, 2022,

providing for new notification requirements for banking organizations and their service providers for significant cybersecurity incidents.

Specifically, the new rule requires banking organizations to notify their primary federal regulator as soon as possible, and not later than 36 hours after, the discovery of a computer-security incident that rises to the level of a notification incident within the meaning attributed to those terms by the rule.

Notification is required for incidents that have materially affected or are reasonably likely to materially affect the viability of a banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector.

Service providers are required under the rule to notify any affected bank client it provides services as soon as possible when it determines it has experienced a computer-security incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, covered services provided by that entity to the Bank for four or more hours.

Anti-Money Laundering and Client Identification:

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Bank regulators are directed to consider an institution’s effectiveness in combating money laundering when ruling on Bank Holding Company Act and Bank Merger Act applications.

Banner Bank’s and Islanders Bank’s policies and procedures are designed to comply with the requirements of the USA Patriot Act.

Banner Bank’s policies and procedures are designed to comply with the requirements of the USA Patriot Act.

Other Consumer Protection Laws and Regulations:

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Effective the second quarter of 2019 Banner Bank and its affiliates and subsidiaries became subject to CFPB supervisory and enforcement authority.

The Banks are subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of their business relationships with consumers.

The Bank is subject to a broad array of federal and state consumer protection laws and regulations that govern almost every aspect of its business relationships with consumers.

While the list set forth below is not exhaustive, these include the Truth-in-Lending Act, the Truth in Savings Act, the Electronic Fund Transfers Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Right to Financial Privacy Act, the Home Ownership and Equity Protection Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale of insurance, federal and state laws prohibiting unfair and deceptive business practices, and various regulations that implement some or all of the foregoing.

These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with clients when taking deposits, making loans, collecting loans, and providing other services.

Failure to comply with these laws and regulations can subject the Banks to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages, and the loss of certain contractual rights.

CARES Act and CAA.

In response to the COVID-19 pandemic, Congress, through the enactment of the CARES Act, and the federal banking agencies, though rulemaking, interpretive guidance and modifications to agency policies and procedures, have taken a series of actions to provide national emergency economic relief measures including, among others, the following:

• The CARES Act allows banks to elect to suspend requirements under GAAP for loan modifications related to the COVID-19 pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that would otherwise be categorized as a TDR, including impairment for accounting purposes, until the earlier of 60 days after the termination date of the national emergency or December 31, 2020.

The CAA extended the relief offered under the CARES Act related to TDRs as a result of COVID-19 through January 1, 2022 or 60 days after the end of the national emergency declared by the President, whichever is earlier.

The suspension of GAAP is applicable for the entire term of the modification.

The federal banking agencies also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 by providing that short-term modifications made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification is implemented is not a TDR.

We are applying this guidance to qualifying COVID-19 related loan modifications.

For additional information concerning our COVID-19 related loan modifications, see Item 7 of this report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Comparison of Financial Condition at December 31, 2020 and 2019-Asset Quality”.

• The CARES Act amended the SBA’s loan program, in which Banner Bank participates, to create a guaranteed, unsecured loan program, the PPP, to fund payroll and operational costs of eligible businesses, organizations and self-employed persons during COVID-19.

The loans are provided through participating financial institutions, such as Banner Bank, that process loan applications and service the loans and are eligible for SBA repayment and loan forgiveness if the borrower meets the PPP conditions.

The application period for a PPP loan closed on August 8, 2020.

The SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders on October 2, 2020.

The CAA which was signed into law on December 27, 2020, renews and extends the PPP until March 31, 2021.

As a participating lender, Banner Bank began originating PPP loans again in January 2021 and will continue to monitor legislative, regulatory, and supervisory developments related to the PPP.

• Concurrent with enactment of the CARES Act, federal banking agencies issued an interim final rule that delays the estimated impact on regulatory capital resulting from the adoption of CECL.

The changes in the final rule apply only to those banking organizations that elect the CECL transition relief provided under the rule.

Banner elected this option.

As the on-going COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19.

In addition, it is possible that Congress will enact supplementary COVID-19 response legislation.

We will continue to assess the impact of the CARES Act, CAA and other statues, regulations and supervisory guidance related to the COVID-19 pandemic.

Failure to comply with these laws and regulations can subject the Bank to various penalties, including but not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages, and the loss of certain contractual rights.

COVID-19 Legislation:

In response to the COVID-19 pandemic, Congress, through the enactment of the CARES Act and CAA, and the federal banking agencies, though rulemaking, interpretive guidance and modifications to agency policies and procedures, have taken a series of actions to provide national emergency economic relief measures including, among others, the CARES Act and CAA.

As the on-going COVID-19 pandemic evolves, federal and state regulatory authorities continue to issue additional guidance with respect to COVID-19.

In addition, it is possible that Congress will enact additional COVID-19 response legislation.

We will continue to assess the impact of the CARES Act, CAA and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.

Banner Corporation

Banner Corporation, as sole shareholder of Banner Bank and Islanders Bank, is a bank holding company registered with the Federal Reserve.

Banner Corporation, as sole shareholder of Banner Bank, is a bank holding company registered with the Federal Reserve.

Bank holding companies are subject to comprehensive regulation by the Federal Reserve under the Bank Holding Company Act of 1956, as amended, or the BHCA, and the regulations of the Federal Reserve.

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Under the BHCA, Banner Corporation is supervised by the Federal Reserve.

The Federal Reserve has a policy that a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not

conduct its operations in an unsafe or unsound manner.

The Federal Reserve has a policy that a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner.

In addition, the Dodd-Frank Act provides that a bank holding company must serve as a source of financial strength to its subsidiary banks.

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No regulations have yet been proposed by the Federal Reserve to implement the source of strength provisions of the Dodd-Frank Act.

Banner Corporation and any subsidiaries that it may control are considered “affiliates” of the Banks within the meaning of the Federal Reserve Act, and transactions between Banner Bank and affiliates are subject to numerous restrictions.

Banner Corporation and any subsidiaries that it may control are considered “affiliates” of the Bank within the meaning of the Federal Reserve Act, and transactions between Banner Bank and affiliates are subject to numerous restrictions.

With some exceptions, Banner Corporation and its subsidiaries are prohibited from tying the provision of various services, such as extensions of credit, to other services offered by Banner Corporation or by its affiliates.

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The Dodd-Frank Act:

The Dodd-Frank Act imposes various restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions, and implements certain capital regulations applicable to Banner Corporation and the Banks that are discussed above under the section entitled “Capital Requirements.”

The Dodd-Frank Act imposes various restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions, and implements certain capital regulations applicable to Banner Corporation and the Bank that are discussed above under the section entitled “Capital Requirements.”

In addition, among other changes, the Dodd-Frank Act requires public companies, like Banner Corporation, to (i) provide their shareholders with a non-binding vote (a) at least once every three years on the compensation paid to executive officers and (b) at least once every six years on whether they should have a “say on pay” vote every one, two or three years;

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The Federal Reserve policy statement also indicates that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends.

As described above under “Capital

Requirements,” the capital conversion buffer requirement can also restrict Banner Corporation’s and the Banks’ ability to pay dividends.

As described above under “Capital Requirements,” the capital conversion buffer requirement can also restrict Banner Corporation’s and the Bank’s ability to pay dividends.

Further, under Washington law, Banner Corporation is prohibited from paying a dividend if, after making such dividend payment, it would be unable to pay its debts as they become due in the usual course of business, or if its total liabilities, plus the amount that would be needed in the event Banner Corporation were to be dissolved at the time of the dividend payment, to satisfy preferential rights on dissolution of holders of preferred stock ranking senior in right of payment to the capital stock on which the applicable distribution is to be made, exceed our total assets.

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Chief Financial Officer

Costa 53 Executive Vice President,

Chief Risk Officer

Garcia 62 Executive Vice President,

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Mortgage Banking

McLean 56 Executive Vice President,

Commercial Real Estate Lending Division

Craig Miller 69 Executive Vice President

Sherrey Luetjen 50 Executive Vice President

General Counsel, Ethics Officer

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General Counsel, Secretary

McLean 57 Executive Vice President,

Commercial Real Estate Lending Division

Purcell 64 Executive Vice President,

Retail Banking and Administration

Chief Strategy and Administration Officer*

Executive Vice President,

Kirk Quillin 59 Executive Vice President,

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Chief Credit Officer

Rust 73 Executive Vice President,

Chief Information Officer**

Steiner 58 Executive Vice President

Chief Risk Officer

Wagers 61 Executive Vice President,

Retail Products and Services**

Western*** 65 Executive Vice President,

Commercial Banking South

Kohler was appointed as Chief Diversity Officer of Banner Bank in January 2021

Rust is transitioning his responsibilities to Ms.

Brown, who joined Banner Bank in December 2020

Western retired as of December 31, 2020

Purcell’s Banner Bank title was changed from Executive Vice President, Retail Banking and Administration in January 2022.

Wagers began his retirement transition in October 2021 and is no longer a member of the Banner Bank Executive Management Committee.

Biographical Information

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Grescovich is President and Chief Executive Officer, and a director, of Banner Corporation and Banner Bank.

Grescovich joined Banner Bank in April 2010 and became Chief Executive Officer in August 2010 following an extensive banking career specializing in

finance, credit administration and risk management.

Grescovich joined Banner Bank in April 2010 and became Chief Executive Officer in August 2010 following an extensive banking career specializing in finance, credit administration and risk management.

Under his leadership, Banner has grown from $4.7 billion in assets in 2010 to more than $16 billion today through organic growth as well as selective acquisition.

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Conner joined Banner Bank in 2015 upon the acquisition of AmericanWest Bank (AmericanWest).

He is Executive Vice President and Chief Financial Officer of Banner Corporation and Banner Bank.

Prior to joining the Company, Mr.

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in Quantitative Economics from the University of California at San Diego and a Master’s of Business degree from the Haas School of Business at U.C.

Conner’s community involvement includes having served as chairman of the board of directors for Spokane Habitat for Humanity.

Costa joined Banner Bank in October 2021 as Executive Vice President and Chief Risk Officer.

He brings nearly 30 years of banking experience to his position.

Prior to joining Banner, Mr.

Costa served at Mann Lake Group in Minneapolis as the Chief Executive Officer and Founder from October 2020 where he provided advice to banks, trade associations and fintech firms on credit strategy, capital allocation, risk program design, regulatory relations, and compliance risk management.

From 2013 through October 2020, he served as an executive officer of TCF Financial Corporation (“TCF”) in Wayzata, MN, including as Executive Vice President and Chief Risk Officer and Chief Credit Officer from August 2019, as Chief Risk Officer and Chief Credit Officer from January 2017, and as Chief Risk Officer since August 2013.

TCF was a $49 billion regional bank holding company with operations in USA, Canada and Asia.

Prior to that, Mr.

Costa was Executive Vice President and Head of Credit Strategy for Wachovia in Charlotte, NC, and PNC Financial Corp.

in Pittsburgh, PA.

Air Force veteran, Mr.

Costa earned his bachelor’s degree from Ohio State University and conducted his doctorate studies in Economics with the University of Minnesota.

He is an active community volunteer with a local Habitat for Humanity and Humane Society, as well as with the University of Minnesota Center for Children’s Cancer Research.

Costa is also an advisory board member for the Midsize Bank Coalition of America.

Garcia is the Chief Audit Executive responsible for proactively identifying and mitigating risks as well as providing internal audit services in the areas of financial compliance, IT Governance, and operations.

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Garcia earned his bachelor’s degree in management from St.

Marys’ College of California and is a graduate of the School of Mortgage Banking.

Mary’s College of California and is a graduate of the School of Mortgage Banking.

He is a Certified Bank Auditor (CBA), holds a Certification in Risk Management Assurance (CRMA) and is a Certified Information Systems Auditor (CISA).

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Prior to joining Skagit Bank in Burlington, WA in 2015, Mr.

Johnson held various executive positions with Chemical Financial Corporation, including production oversight of commercial, mortgage, consumer and deposit generation.

In addition, while at Chemical, he served nine years as Executive Vice President, Director of Bank Operations, responsible for nine business units including the branch system, information technology, corporate marketing, loan operations, deposit operations, electronic banking, facilities/purchasing, card services, and client care centers.

Johnson held various executive positions with Chemical Financial Corporation, including production oversight of commercial, consumer and deposit generation.

In addition, while at Chemical, he served nine years as Executive Vice President, Director of Bank Operations, responsible for

nine business units including the branch system, information technology, corporate marketing, loan operations, deposit operations, electronic banking, facilities/purchasing, card services, and client care centers.

Prior to Chemical, he held leadership roles in retail banking and operations at Shoreline Bank and as Vice President, Zone Manager for Michigan National Bank.

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He is also a graduate of Stonier Graduate School of Banking.

Johnson’s community involvement includes serving on the board of United Way of Skagit County and is a past president of the Burlington Rotary Club.

Kohler joined Banner Bank in 2016 as Executive Vice President of Human Resources and, in January 2021, was also appointed as the Bank’s Chief Diversity Officer.

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Kohler served 20 years in progressive human resource leadership roles for Plum Creek Timber Company, now Weyerhaeuser, in Seattle, WA.

She holds bachelors’ degrees in Marketing as well as Business Management from Northwest Missouri State University and a master’s in Organizational Management from the University of Phoenix.

She holds bachelors’ degrees in Marketing as well as Business Management from Northwest Missouri State University and a master’s degree in Organizational Management from the University of Phoenix.

Through continuing education, she maintains her certifications as a Senior Professional in Human Resources (SPHR) and a Society of Human Resources Management Senior Certified Professional or (SHRM-SCP).

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Larsen began his career at Action Mortgage/Sterling Savings, later moving to Peoples Bank of Lynden where he managed the mortgage banking operation.

Larsen also served as the 90th President of the

Seattle Mortgage Bankers Association.

Larsen also served as the 90th President of the Seattle Mortgage Bankers Association.

Formerly he was the Chairman of the Washington Mortgage Bankers Association and currently serves as a commissioner on the Washington State Housing Finance Commission.

He was promoted to Executive Vice President in 2015.

McLean joined Banner Bank in November 2010 and is Executive Vice President of the Commercial Real Estate Lending Division, leading teams within the Multifamily Lending Group, Commercial Real Estate Specialty Unit, Affordable Housing, Residential Construction and Income Property Divisions, as well as the loan administration functions related to this division .

McLean has 30 years of real estate finance experience at large national commercial banks as well as community banks.

This experience includes ten years in executive leadership roles and as a principal of a mid-sized regional commercial real estate development firm.

Sherrey Luetjen is Executive Vice President, General Counsel and Secretary for Banner Corporation and Banner Bank, as well as Ethics Officer for Banner Corporation.

She joined Banner as Senior Vice President and Assistant General Counsel in May 2019 and was promoted to her current position in August 2021.

Luetjen is responsible for directing and overseeing the company’s legal functions.

Luetjen has more than 20 years of legal experience including more than 15 years as in-house counsel in the financial services industry.

From 2010 through 2018, Ms.

Luetjen was a Managing Director of Legal and Compliance at BlackRock, Inc.

in Seattle, where she had served as a Director of Legal and Compliance from 2007 through 2010.

Prior to BlackRock, Ms.

Luetjen served as Associate General Counsel at a privately held investment advisory firm.

Luetjen earned concurrent JD and MBA degrees from the University of Washington and earned her bachelor’s degree from Seattle University.

Luetjen’s community involvement includes nine years of service on the board of directors of The Arboretum Foundation, including two years as board chair.

McLean joined Banner Bank in November 2010 and is Executive Vice President, Commercial Real Estate Lending, leading teams including the Multifamily Lending Group, Commercial Real Estate Specialty Unit, Affordable Housing and LIHTC Investments, Community Financial Corporation, Residential Construction and Income Property Divisions, as well as loan administration functions related to this division .

McLean has 30 years of real estate finance experience at large national commercial banks, regional and community banks.

This experience includes fifteen years in executive leadership roles and as a principal of a mid-sized regional commercial real estate development firm.

McLean earned his bachelor’s degree from the University of Washington.

His community volunteering is focused on organizations that serve local youth, including the Boy Scouts of America, Lake Washington School District and numerous coaching positions.

Craig Miller is the Executive Vice President and General Counsel for Banner Corporation and Banner Bank.

He joined Banner in 2016 and is responsible for overseeing the Company’s legal functions, and he also serves as Corporate Secretary and Ethics Officer for the company.

Miller had previously served as senior litigation partner at Davis Wright Tremaine LLP in Seattle, WA.

Miller earned his B.A.

degree from Grinnell College and his J.D.

degree from the University of Southern California Law School.

His community involvement has included board service with the YMCA of Greater Seattle, Childhaven (past board president), King County Sexual Assault Resource Center, and the Meany Center for the Performing Arts (past board president).

Purcell is Banner Bank’s Executive Vice President for Retail Banking and Administration.

Purcell is responsible for leading the Retail Banking business line including Branch Banking, Mortgage Banking, Business Banking and Digital delivery channels, as well as oversight of administrative and support functions for Banner Bank.

Purcell is Banner Bank’s Executive Vice President and Chief Strategy and Administration Officer, having previously served as Banner Bank’s Executive Vice President of Retail Banking and Administration.

Purcell is responsible for leading the execution of the Bank’s long-term corporate strategic objectives in addition to leading the community banking residential lending, digital strategy & delivery channels as well as a number of operational and administrative functions for Banner Bank.

She was formerly the Chief Financial Officer of Inland Empire Bank (now Banner Bank), which she joined in 1981.

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Today, as Executive Vice President, Commercial Banking, Mr.

Reed leads the teams that focus on commercial banking relationship management and business development.

Reed leads the teams that focus on commercial banking relationship management, portfolio management, and business development.

Reed earned his bachelor’s degree from the University of Washington and is a graduate of Pacific Coast Banking School.

Reed’s community involvement includes serving on the Association of Washington Businesses Executive Board as well as a member of the University of Washington Bothell Advisory Board.

community involvement includes serving on the Association of Washington Businesses Executive Board as well as a member of the University of Washington Bothell Advisory Board.

Rice joined Banner Bank in 2002 as a Regional Credit Risk Manager, later promoted to Senior Credit Officer overseeing the commercial banking credit function in 2008, and promoted to Chief Credit Officer in 2020.

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Rice has been actively engaging with LifeWire, a domestic violence prevention organization, including serving seven years on the board of directors, two of which she was the board president.

Rust joined Banner Bank in October 2005 as Senior Vice President and Chief Information Officer and was named as Executive Vice President and Chief Information Officer in September 2007.

Rust is transitioning his responsibilities to Ms.

Brown, who joined Banner Bank in December 2020.

Rust has more than 40 years of relevant industry experience and was founder and President of InfoSoft Technology, through which he worked for nine years as a technology consultant and interim Chief Information Officer for banks and insurance companies.

He also worked 19 years with US Bank/West One Bancorp as Senior Vice President & Manager of Information Systems.

Steiner joined Banner Bank in 2016 as Executive Vice President and Chief Risk Officer.

In this role, Ms.

Steiner is responsible for overseeing the Company’s risk and compliance functions as well as Banner Bank’s interactions with industry regulators.

Prior to joining Banner, Ms.

Steiner spent 25 years with FirstMerit Corporation in Akron, OH in executive leadership positions including Executive Vice President & Chief Risk Officer, Secretary, and General Counsel.

Steiner earned her bachelor’s degree from the University of Akron and her Juris Doctor degree (JD) from the Case Western Reserve University School of Law.

Rice currently serves on the board of directors for the Alzheimer’s Association Washington State Chapter Board.

Wagers joined Banner Bank as Senior Vice President, Consumer Lending Administration in 2002 and was named to his current position as Executive Vice President, Retail Products and Services in January 2008.

Wagers began a transition to retirement in the fourth quarter of 2021.

Wagers began his banking career in 1982 at Idaho First National Bank.

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He is also a graduate of the ABA’s Stonier School of Banking.

Western was Executive Vice President, Commercial Banking South for Banner Bank, until his retirement on December 31, 2020.

Western joined Banner upon the merger of AmericanWest and Banner Bank.

Prior to the merger, Mr.

Western was President of Northwest Banking for AmericanWest since 2011.

Western has 42 years of banking experience across multiple markets including the western, eastern and mid-western United States and Canada.

The bulk of Mr.

Western’s career was with Bank of America (approximately 15 years) and Citibank (approximately 12 years) in a variety of assignments including asset based lending, commercial and business banking, and credit risk management.

Corporate Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business