What changed in this filing

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Item 1A. Risk Factors

2022-02-24 compared with 2021-02-23 · 96 added, 89 removed, 378 unchanged (33% of the section changed)

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The COVID-19 pandemic has adversely affected our ability to conduct business and our financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The worldwide COVID-19 pandemic has caused major economic disruption and volatility in the financial markets both in the United States and globally and has negatively affected our operations and the banking and financial services we provide, primarily to businesses and individuals in the states of Washington, Oregon, California and Idaho where all of our branches are located.

In our service areas, stay-at-home orders, social distancing and travel restrictions, and similar orders imposed across the United States to restrict the spread of COVID-19, resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and significant layoffs and furloughs.

While the stay-at-home orders have terminated or been phased-out along with reopening of businesses in certain markets, many localities in the western states in which we operate have resumed such orders and still apply capacity restrictions and health and safety recommendations that encourage continued social distancing and working remotely, limiting the ability of businesses to return to pre-pandemic levels of activity.

In response to the COVID-19 pandemic, we took various steps to help protect clients and staff by limiting branch activities to appointment only and use of drive-up facilities, and by encouraging the use of digital and electronic banking channels, all the while adjusting for evolving State and Federal stay-at-home guidelines.

In some of our markets, we have begun taking steps to resume more normal branch activities with specific guidelines in place to provide for the safety of our clients and personnel.

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

Despite these efforts, if the COVID-19 pandemic worsens it could limit, or disrupt, our ability to provide banking and financial services to our clients.

Currently approximately half of our employees are working remotely to enable us to continue to provide banking services to our clients.

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

Heightened cybersecurity, information security and operational risks may, however, result from these work from-home arrangements.

We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of the COVID-19 pandemic.

Further, we also rely upon our third-party vendors to conduct business and to process, record, and monitor transactions.

If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our clients.

We have business continuity plans and other safeguards in place, however, there is no assurance that such plans and safeguards will be effective.

To date, the COVID-19 pandemic has resulted in declines in loan demand and loan originations other than through government sponsored programs such as the PPP, and market interest rates and negatively impacted many of our business and consumer borrowers’ ability to make their loan payments.

Because the length of the pandemic and the efficacy of the extraordinary measures being put in place to address the economic consequences are unknown, including reductions in the targeted federal funds rate, until the pandemic subsides, we expect our net interest income and net interest margin will continue to be adversely affected in the near term, if not longer.

The impact of the pandemic is expected to continue to adversely affect us during 2021 as the ability of many of our borrowers to make loan payments has been significantly affected.

Many of our borrowers have become unemployed or may face unemployment, and certain businesses are at risk of insolvency as revenues declined precipitously, especially in businesses related to travel, hospitality, leisure, and physical personal services.

Businesses may ultimately not reopen as there is a significant level of uncertainty regarding the level of economic activity that will return to our service areas over time, the impact of governmental assistance, the speed of economic recovery, the resurgence of COVID-19 in subsequent seasons and changes to demographic and social norms that will take place.

Consistent with guidance provided by banking regulators we have modified loans by providing various loan payment deferral options to our borrowers affected by the COVID-19 pandemic.

Notwithstanding these modifications, these borrowers may not be able to resume making full payments on their loans once the COVID-19 pandemic is resolved.

If COVID-19 continues to spread or the responses to contain it are unsuccessful, it may result in increased loan delinquencies, adversely classified loans and loan charge-offs.

As a result, our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio, which would cause our results of operations, liquidity and financial condition to be adversely affected.

The ultimate impact of the COVID-19 pandemic on our business, results of operations and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic, including recent vaccination efforts.

Even after the COVID-19 pandemic subsides, the U.S.

economy may experience a recession, and we anticipate our business would be

materially and adversely affected by a prolonged recession.

To the extent the COVID-19 pandemic adversely affects our business, financial condition, liquidity or results of operations.

The COVID-19 pandemic continues to negatively impact economic and commercial activity and financial markets, both globally and within the United States.

In our market areas, stay-at-home orders, travel restrictions and closure of non-essential businesses and similar orders imposed across the United States to restrict the spread of COVID-19 in 2020 resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and significant layoffs and furloughs.

Although local jurisdictions have subsequently lifted stay-at-home orders and moved to the opening of businesses, worker shortages, vaccine and testing requirements, new variants of COVID-19 and other health and safety recommendations have impacted the ability of businesses to return to pre-pandemic levels of activity and employment.

While the overall economy has improved, disruptions to supply chains continue and significant inflation has been seen in the market.

If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in our Form 10-K could be exacerbated, including the following risks of COVID-19, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations of the Company:

• effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating our financial reporting and internal controls;

• declines in demand for loans and other banking services and products, as well as a decline in the credit quality of our loan portfolio, owing to the effects of COVID-19 in the markets served by us;

• if the economy is unable to remain open in an efficient manner, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

• collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

• our allowance for credit losses may increase if borrowers experience financial difficulties, which will adversely affect net income;

• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments;

• as long as the Federal Reserve Board’s target federal funds rate remains near 0%, the yield on assets may decline to a greater extent than the decline in cost of interest-bearing liabilities, reducing net interest margin and spread and reducing net income

• higher operating costs, increased cybersecurity risks and potential loss of productivity as the result of an increase in the number of employees working remotely;

• increasing or protracted volatility in the price of the Company’s common stock, which may also impair our goodwill;

• risks to the capital markets that may impact the performance of our investment securities portfolio, as well as limit our access to capital markets and other funding sources.

Because there have been no comparable recent global pandemics that resulted in similar global impact, we do not yet know the full extent of COVID-19’s effects on our business, operations, or the global economy as a whole.

Any future development will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic, possible future virus variants, the effectiveness of our work-from-home arrangements, third party providers’ ability to support our operations, and any actions taken by governmental authorities and other third parties in response to the pandemic.

The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

Our business may be adversely affected by downturns in the national economy and the regional economies on which we depend.

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Further, as a result of a high concentration of our client base in the Puget Sound area and eastern Washington state regions, the deterioration of businesses in these areas, or one or more businesses with a large employee base in these areas, could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.

Weakness in the global economy has adversely affected many businesses operating in our markets that are dependent upon international trade and it is not known how changes in tariffs being imposed on international trade may also affect these businesses.

Weakness in the global economy has adversely affected many businesses operating in our markets that are

dependent upon international trade and it is not known how changes in tariffs being imposed on international trade may also affect these businesses.

In addition, adverse weather conditions as well as decreases in market prices for agricultural products grown in our primary markets can adversely affect agricultural businesses in our markets.

As we expand our presence in areas such as San Diego and Sacramento, and throughout California, we will be exposed to concentration risks in those areas as well.

A deterioration in economic conditions in the markets we serve, in particular the Puget Sound area of Washington State, the Portland, Oregon metropolitan area, Spokane, Washington, Boise, Idaho, Eugene and southwest Oregon, San Diego and Sacramento, California and the agricultural regions of the Columbia Basin, could result in the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations:

A deterioration in economic conditions in the markets we serve as a result of COVID-19 or other factors, in particular the Puget Sound area of Washington State, the Portland, Oregon metropolitan area, Spokane, Washington, Boise, Idaho, Eugene and southwest Oregon, San Diego and Sacramento, California and the agricultural regions of the Columbia Basin, could result in the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations:

• demand for our products and services may decline;

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Many of the loans in our portfolio are secured by real estate.

Deterioration in the real estate markets where collateral for a mortgage loan is located could negatively affect the borrower’s ability to repay the loan and the value of the collateral securing the loan.

Deterioration in the real estate markets where collateral for a loan is real property could negatively affect the borrower’s ability to repay the loan and the value of the collateral securing the loan.

Real estate values are affected by various other factors, including changes in general or regional economic conditions, governmental rules or policies and natural disasters such as earthquakes, flooding and tornadoes.

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Adverse changes in the regional and general economy could reduce our growth rate, impair our ability to collect loans and generally have a negative effect on our financial condition and results of operations.

External economic factors, such as changes in monetary policy and inflation and deflation, may have an adverse effect on our business, financial condition and results of operations.

Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the Board of Governors of the Federal Reserve System, or the Federal Reserve.

Actions by monetary and fiscal authorities, including the Federal Reserve, could lead to inflation, deflation, or other economic phenomena that could adversely affect our financial performance.

The primary impact of inflation on our operations most likely will be reflected in increased operating costs.

Conversely, deflation generally will tend to erode collateral values and diminish loan quality.

Virtually all of our assets and liabilities are monetary in nature.

As a result, interest rates have a more significant impact on our performance than general levels of inflation or deflation.

Interest rates do not necessarily move in the same direction or by the same magnitude as the prices of goods and services.

Risks Related to Credit and Lending

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In addition to first-lien one- to four -family residential real estate lending, we originate construction and land loans, commercial and multifamily mortgage loans, commercial business loans, agricultural mortgage loans and agricultural loans, and consumer loans, primarily within our market areas.

We had $8.11 billion outstanding in these types of higher risk loans, excluding PPP loans, at December 31, 2020, compared to $8.38 billion at December 31, 2019.

We had $8.27 billion outstanding in these types of higher risk loans, excluding SBA PPP loans, at December 31, 2021, compared to $8.11 billion at December 31, 2020.

These loans typically present different risks to us for a number of reasons, including those discussed below:

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A downturn in housing, or the real estate market, could increase delinquencies, defaults and foreclosures, and significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure.

Some of the builders we deal with have more than one loan outstanding with us.

Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater

risk of loss.

In addition, during the term of some of our construction loans, no payment from the borrower is required since the accumulated interest is added to the principal of the loan through an interest reserve.

Increases in market rates of interest may have a more pronounced effect on construction loans by rapidly increasing the end-purchaser’s borrowing costs, thereby possibly reducing the homeowner’s ability to finance the home upon completion or the overall demand for the project.

Many of the builders we deal with have more than one loan outstanding with us.

Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss.

In addition, during the term of some of our construction loans, no payment from the borrower is required since the

accumulated interest is added to the principal of the loan through an interest reserve.

Increases in market rates of interest may have a more pronounced effect on construction loans by rapidly depleting the interest reserves prior to completion and/or increasing the end-purchaser’s borrowing costs, thereby possibly reducing the homeowner’s ability to finance the home upon completion or the overall demand for the project.

Properties under construction are often difficult to sell and typically must be completed in order to be successfully sold which also complicates the process of managing our problem construction loans.

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Speculative construction loans to a builder pose a greater potential risk to us than construction loans to individuals on their personal residences.

We attempt to mitigate this risk by actively monitoring the number of unsold homes in our construction loan portfolio and local housing markets to attempt to maintain an appropriate balance between home sales and new loan originations.

We attempt to mitigate this risk by actively monitoring the number of unsold homes in our construction loan portfolio and local housing markets in an attempt to maintain an appropriate balance between home sales and new loan originations.

In addition, the maximum number of speculative construction loans (loans that are not pre-sold) approved for each builder is based on a combination of factors, including the financial capacity of the builder, the market demand for the finished product and the ratio of sold to unsold inventory the builder maintains.

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• Commercial Business Loans.

At December 31, 2020, commercial business loans, excluding PPP loans, were $1.88 billion, or 19% of our total loan portfolio.

At December 31, 2021, commercial business loans, excluding SBA PPP loans, were $1.83 billion, or 20% of our total loan portfolio.

Our commercial business loans are primarily made based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower.

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At December 31, 2021, agricultural loans were $285.8 million, or 3% of our total loan portfolio.

Agricultural lending involves a greater degree of risk and typically involves higher principal amounts than other types of loans.

Agricultural lending involves a greater degree of risk.

Repayment is dependent upon the successful operation of the business, which is greatly dependent on many things outside the control of either us or the borrowers.

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If the cash flow from a farming operation is diminished, the borrower’s ability to repay the loan may be impaired.

Consequently, agricultural loans may involve a greater degree of risk than other types of

loans, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets such as farm equipment (some of which is highly specialized with a limited or no market for resale), or assets such as livestock or crops.

Consequently, agricultural loans may involve a greater degree of risk than other types of loans, particularly in the case of loans that are unsecured or secured by

rapidly depreciating assets such as farm equipment (some of which is highly specialized with a limited or no market for resale), or assets such as livestock or crops.

In such cases, any repossessed collateral for a defaulted agricultural operating loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation or because the assessed value of the collateral exceeds the eventual realization value.

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Our business may be adversely affected by credit risk associated with residential property and declining property values.

At December 31, 2020, first-lien one- to four-family real estate loans were $717.9 million or 7% of our total loan portfolio.

Our first-lien one- to four-family real estate loans are primarily made based on the repayment ability of the borrower and the collateral securing these loans.

At December 31, 2021, first-lien one- to four-family residential loans were $683.3 million or 8% of our total loan portfolio.

Our first-lien one- to four-family residential loans are primarily made based on the repayment ability of the borrower and the collateral securing these loans.

Foreclosure on the loans requires that the value of the property be sufficient to cover the repayment of the loan, as well as the costs associated with foreclosure.

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The amount of this allowance is determined by our management through periodic reviews and consideration of several factors, including, but not limited to:

• our collective loss reserve, for loans evaluated on a pool basis which have similar risk characteristics and is based on our life of loan historical default and loss experience, certain macroeconomic factors, reasonable and supportable forecasts, regulatory requirements, management’s expectations of future events and qualitative factors;

• our individual loss reserve, based on our evaluation of individual loans that do not share similar risk characteristics.

The individual evaluation is based on the present value of the expected future cash flows or the fair value of the underlying collateral.

• our collective loss reserve, for loans evaluated on a pool basis which have similar risk characteristics based on our life of loan historical default and loss experience, certain macroeconomic factors, reasonable and supportable forecasts, regulatory requirements, management’s expectations of future events and qualitative factors;

• our individual loss reserve, based on our evaluation of individual loans that do not share similar risk characteristics and the present value of the expected future cash flows or the fair value of the underlying collateral.

The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes.

If our estimates are incorrect, the allowance for credit losses may not be sufficient to cover the expected losses in our loan portfolio, resulting in the need for increases in our allowance for credit losses through the provision for credit losses which is recorded as charged against income.

Management also recognizes that significant new growth in loan portfolios, new loan products and the refinancing of existing loans can result in portfolios comprised of unseasoned loans that may not perform in a historical or projected manner and will increase the risk that our allowance may be insufficient to absorb losses without significant additional provisions.

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If current conditions in the housing and real estate markets weaken, we expect we will experience increased delinquencies and credit losses.

The FASB has adopted a new accounting standard referred to as Current Expected Credit Loss (CECL) which requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses.

This accounting pronouncement became applicable to us on January 1, 2020.

We recognized a one-time cumulative-effect adjustment to the allowance for credit losses of $14.9 million as of the date of adoption.

For additional information on CECL and the one-time cumulative-effect adjustment see Note 2, Accounting Standards Recently Issued or Adopted, of the Notes to the Consolidated Financial Statements.

In addition, bank regulatory agencies periodically review our allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management.

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Loans originated under the SBA Paycheck Protection Program subject us to forgiveness and guarantee risk.

As of December 31, 2020, we hold and service a portfolio of 8,680 loans originated under the PPP with a balance of $1.04 billion.

In January 2021, Banner began accepting and processing loan applications under the second PPP program enacted in December 2020.

The PPP loans are subject to the provisions of the Coronavirus Aid, Relief, and Economic Security Act of 2020 and to complex and evolving rules and guidance issued by the SBA and other government agencies.

We expect that the great majority of our PPP borrowers will seek full or partial forgiveness of their loan obligations.

We could face additional risks in our administrative capabilities to service our PPP loans, and risk with respect to the determination of loan forgiveness, depending on the final procedures for determining loan forgiveness.

In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which we originated, funded or serviced a PPP loan, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if the SBA has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

As of December 31, 2021, we hold and service a portfolio of 1,106 loans originated under the SBA PPP with a balance of $133.9 million.

The SBA PPP loans are subject to the provisions of the CARES Act and CAA 2021 and to complex and evolving rules and guidance issued by the SBA and other government agencies.

Most of our SBA PPP borrowers have already qualified for or will seek full or partial forgiveness of their loan obligations, however, if an SBA PPP borrower fails to qualify for loan forgiveness, we face a heightened risk of holding these loans at unfavorable interest rates for an extended period of time.

We could face additional risks in our administrative capabilities to service our SBA PPP loans, and risk with respect to the determination of loan forgiveness.

In the event of a loss resulting from a default on an SBA PPP loan and a determination by the SBA that there was a deficiency in the manner in which we originated, funded or serviced an SBA PPP loan, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if the SBA has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

If our investments in real estate are not properly valued or sufficiently reserved to cover actual losses, or if we are required to increase our valuation reserves, our earnings could be reduced.

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In addition, once integrated, acquired operations may not achieve levels of profitability comparable to those achieved by Banner’s existing operations, or otherwise perform as expected.

Further, transaction-

related expenses may adversely affect our earnings.

Further, transaction-related expenses may adversely affect our earnings.

These adverse effects on our earnings and results of operations may have a negative impact on the value of Banner’s stock.

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We perform a goodwill evaluation at least annually to test for goodwill impairment.

As part of our testing, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If we determine the fair value of a reporting unit is less than its carrying amount using these qualitative factors, we then compare the fair value of goodwill with its carrying amount and measure impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill.

If adverse economic conditions or the decrease in our stock price and market capitalization as a result of the pandemic were to worsen, it may significantly affect the fair value of our goodwill and may trigger impairment charges.

Any impairment charge could have a material adverse effect on our results of operations and financial condition.

Our test of goodwill for potential impairment is based on a qualitative assessment by management that takes into consideration macroeconomic conditions, industry and market conditions, cost or margin factors, financial performance and share price.

Our evaluation of the fair value of goodwill involves a substantial amount of judgment.

If our judgment was incorrect, or if events or circumstances change, and an impairment of goodwill was deemed to exist, we would be required to write down our goodwill resulting in a charge against operations, which could adversely affect our results of operations and financial condition, perhaps materially;

however, it would have no impact on our liquidity, operations, or regulatory capital.

Risks Related to Market and Interest Rate Changes

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Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve.

In response to the COVID-19 pandemic the Federal Reserve reduced the targeted Fed Funds rate 150 basis points to a range of 0.00% to 0.25%.

The reduction in the targeted Fed Funds rate has resulted in a decline in overall interest rates which has negatively impacted our net interest income.

If the Federal Reserve continues to hold the targeted federal funds rates at the current level, overall interest rates will likely decline, which may additionally negatively impact our net interest income.

If the Federal Reserve increases the targeted federal funds rates, overall interest rates could rise, which will positively impact our net interest income but may negatively impact both the housing market by reducing refinancing activity and new home purchases and the U.S.

In March 2020, in response to the COVID-19 pandemic, the Federal Open Market Committee (“FOMC”) of the Federal Reserve System lowered the target range for the federal funds rate 150 basis points to a range of 0.00% to 0.25%.

The reduction in the targeted federal funds rate has resulted in a decline in overall interest rates which has negatively impacted our net interest income.

However, the FOMC has recently indicated it expects to increase rates starting in 2022.

If the FOMC increases the targeted federal funds rate, overall interest rates are expected to rise, which will positively impact our net interest income but may negatively impact both the housing market by reducing refinancing activity and new home purchases and the U.S.

We principally manage interest rate risk by managing our volume and mix of our earning assets and funding liabilities.

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We increase or decrease our shareholders’ equity by the amount of change in the estimated fair value of the available-for-sale securities, net of taxes.

There can be no assurance that the declines

in market value will not result in expected credit losses, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

There can be no assurance that the declines in market value will not result in expected credit losses, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

An increase in interest rates, change in the programs offered by secondary market purchasers or our ability to qualify for their programs may reduce our mortgage banking revenues, which would negatively impact our non-interest income.

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The one- to four-family mortgage loans are sold pursuant to programs currently offered by Fannie Mae, Freddie Mac, Ginnie Mae and non-Government Sponsored Enterprise (GSE) investors.

These entities account for a substantial portion of the secondary market in residential one- to four-family mortgage loans.

entities account for a substantial portion of the secondary market in residential one- to four-family mortgage loans.

Multifamily mortgage loans are sold primarily to non-GSE investors.

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Our security measures may not protect us from system failures or interruptions.

While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be

adequately addressed if they do.

While we have established policies and procedures to prevent or limit the impact of systems failures and interruptions, there can be no assurance that such events will not occur or that they will be adequately addressed if they do.

In addition, we outsource certain aspects of our data processing and other operational functions to certain third-party providers.

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We cannot assure you that such breaches, failures or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third parties on which we rely.

We may not be insured against all types of losses as a result of third party failures and insurance coverage may be inadequate to cover all losses resulting from breaches, system failures or other disruptions.

We may not be insured against all types of losses as a result of third party failures and insurance

coverage may be inadequate to cover all losses resulting from breaches, system failures or other disruptions.

If any of our third-party service providers experience financial, operational or technological difficulties, or if there is any other disruption in our relationships with them, we may be required to identify alternative sources of such services, and we cannot assure you that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all.

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Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.

The Banks are susceptible to fraudulent activity that may be committed against us or our clients which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client’s information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation.

The Bank is susceptible to fraudulent activity that may be committed against us or our clients which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client’s information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation.

Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts.

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Risks related to our Business and Industry Generally

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR may adversely affect our results of operations.

We will be required to transition from the use of the London Interbank Offered Rate (“LIBOR”) in the future.

We have certain FHLB advances, loans, investment securities, subordinated debentures and trust preferred securities indexed to LIBOR to calculate the interest rate.

The continued availability of the LIBOR index is not guaranteed after 2021.

The continued availability of the LIBOR index is not guaranteed after 2021 and by June 2023, LIBOR is scheduled to be eliminated entirely.

We cannot predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted.

At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR (with the exception of overnight repurchase agreements, which are expected to be based on the Secured Overnight Financing Rate, or SOFR) and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable rate loans, subordinated debentures, or other securities or financial arrangements, given LIBOR's role in determining market interest rates globally.

SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members.

Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR).

SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions.

Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question and the future of LIBOR remains uncertain at this time.

Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans, and to a lesser extent securities in our portfolio, and may impact the availability and cost of hedging instruments and borrowings, including the rates we pay on our subordinated debentures and trust preferred securities.

If LIBOR rates are no longer available, and we are required to implement substitute indices for the calculation of interest rates under our loan agreements with our borrowers or our existing borrowings, we may incur significant expenses in effecting the transition, and may be subject to disputes or litigation with clients and creditors over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our results of operations.

The language in our LIBOR-based contracts and financial instruments has developed over time and may have various events that trigger when a successor rate to the designated rate would be selected.

If a trigger is satisfied, contracts and financial instruments may give the calculation agent discretion over the substitute index or indices for the calculation of interest rates to be selected.

The implementation of a substitute index or indices for the calculation of interest rates under our loan agreements with our borrowers or our existing borrowings may result in our incurring significant expenses in effecting the transition, may result in reduced loan balances if borrowers do not accept the substitute index or indices, and may result in disputes or litigation with clients and creditors over the appropriateness or comparability to LIBOR of the substitute index or indices, which could have an adverse effect on our results of operations.

Ineffective liquidity management could adversely affect our financial results and condition.

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Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable could be impaired by factors that affect us specifically or the financial services industry or economy in general, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry or deterioration in credit markets.

Additional factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our deposits and loans are concentrated, negative operating results, or adverse regulatory action against us.

Additional factors that could detrimentally impact our access to liquidity

sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our deposits and loans are concentrated, negative operating results, or adverse regulatory action against us.

Any decline in available funding in amounts adequate to finance our activities or on terms which are acceptable could adversely impact our ability to originate loans, invest in securities, meet our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could, in turn, have a material adverse effect on our business, financial condition and results of operations.

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The occurrence of any of these events in the future could have a material adverse effect on our business, financial condition or results of operations.

Climate change may materially adversely affect the Company’s business and results of operations.

Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts.

Consumers and businesses also may change their behavior on their own as a result of these concerns.

We and our clients will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns.

We and our clients may face cost increases, asset value reductions and operating process changes.

The impact on our clients will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities.

Among the impacts to us could be a drop in demand for our products and services, particularly in certain industry sectors.

In addition, we could face reductions in creditworthiness on the part of some clients or in the value of assets securing loans.

Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.

Benefits of Banner Forward and other strategic initiatives may not be realized.

Banner’s ability to compete depends on a number of factors, including, among others, its ability to develop and successfully execute strategic plans and initiatives.

Banner Forward is focused on accelerating growth in commercial banking, deepening relationships with retail clients, and advancing technology strategies to enhance our digital service channels, while streamlining underwriting and back office processes.

We may not be successful in achieving some or all of these objectives.

The expected cost savings and revenue growth from Banner Forward may not be realized.

The costs to implement Banner Forward may be greater than anticipated.

Changes in economic conditions beyond our control, including changes in interest rates, may affect our ability to achieve our objectives.

Our inability to execute on or achieve the anticipated outcomes of Banner Forward may affect how the market perceives us and could impede our growth and profitability.

Development of new products and services may impose additional costs on us and may expose us to increased operational risk.

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We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.

Competition for qualified employees and personnel in the banking industry is intense and there are a limited number of qualified persons with knowledge of, and experience in, the community banking industry where the Banks conduct their business.

The process of recruiting personnel with the combination of skills and attributes required to carry out our strategies is often lengthy.

Our success depends to a significant degree upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing and technical personnel and upon the continued contributions of our management and personnel.

Our success depends to a significant degree

upon our ability to attract and retain qualified management, loan origination, finance, administrative, marketing and technical personnel and upon the continued contributions of our management and personnel.

In particular, our success has been and continues to be highly dependent upon the abilities of key executives, including our President, and certain other employees.

1 unchanged sentence

Our success also depends on the experience of our banking facilities’ managers and bankers and on their relationships with the clients and communities they serve.

In addition, our success has been and continues to be highly dependent upon the services of our directors, some of whom are at or nearing retirement age, and we may not

be able to identify and attract suitable candidates to replace such directors.

In addition, our success has been and continues to be highly dependent upon the services of our directors, some of whom are at or nearing retirement age, and we may not be able to identify and attract suitable candidates to replace such directors.

The loss of these key persons could negatively impact the affected banking operations.

35 unchanged sentences

These provisions, among others, include:

a prohibition on voting shares of our common stock beneficially owned in excess of 10.0% of total shares outstanding;

restrictions on voting shares of our common stock beneficially owned in excess of 10.0% of total shares outstanding;

advance notice requirements for nominations for election to our Board of Directors and for proposing matters that shareholders may act on at shareholder meetings;

7 unchanged sentences

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 1A. Risk Factors