What changed in this filing

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Item 1. Business

2023-02-21 compared with 2022-02-24 · 217 added, 366 removed, 578 unchanged (50% of the section changed)

Item 1 – Business General

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

Item 1 – Business

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

The Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington and, as of December 31, 2022, its 137 branch offices and 18 loan production offices located in Washington, Oregon, California, Idaho and Utah.

Banner is subject to regulation by the Federal Reserve.

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

As of December 31, 2022, we had total consolidated assets of $15.83 billion, net loans of $10.01 billion, total deposits of $13.62 billion and total shareholders’ equity of $1.46 billion.

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.

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

The 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.

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.

The 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.

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, U.S.

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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.

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

Banner anticipates this shift in client service delivery channel preference will continue.

We also focus on expanding our product offerings and investing heavily in marketing campaigns designed to significantly increase the brand awareness for the Bank.

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.

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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.

In late 2021, we began implementing Banner Forward, a bank-wide initiative to enhance revenue growth and reduce operating expense.

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.

The implementation of the revenue initiatives benefited the second half of 2022 and are expected to continue this trend in 2023.

The efficiency-related initiatives associated with Banner Forward have largely been completed.

Our successful execution of a super community bank model and strategic initiatives have delivered solid core operating results and profitability over the last several years.

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, 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 total revenues (net interest income plus non-interest income) for 2022 increased $35.1 million, or 6%, to $628.4 million, compared to $593.3 million for 2021.

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 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.

Net interest income is a function of our interest rate spread, which is the difference between the yield earned on interest-earning assets and the average 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 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, 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 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.

In addition to the allowance for credit losses - loans, Banner maintains an allowance for credit losses - unfunded loan commitments, which was $12.4 million at December 31, 2021 compared to $13.3 million at December 31, 2020.

Non-performing loans were $22.8 million at December 31, 2021, compared to $35.6 million at December 31, 2020.

Net charge-offs decreased to $2.1 million for the year ended December 31, 2021, compared to net charge-offs of $5.4 million for the prior year.

(See Note 4, Loans Receivable and the Allowance for Credit Losses, of the Notes to the Consolidated Financial Statements as well as “Asset Quality” below.)

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 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 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.

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.

On June 24, 2022, the Bank completed the sale of four branches located in Hayden, Idaho, and in Chewelah, Colville, and Kettle Falls, Washington, generating a gain of $7.8 million.

The branch sale included deposit accounts with an approximate balance of $178.2 million.

The Bank received a 5.0% premium in relation to the core deposits.

The sale also included all related branch premises and equipment.

Consistent with the Banner Forward initiative of improving management’s focus on key operations and markets, the sale of these branches improves the Bank’s service footprint, contributes to our capital and improves operating efficiency.

The combined impact of these branch sales and Banner Forward initiatives is expected to enhance future annual operating earnings.

Lending Activities

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

All of our lending activities are conducted through the 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.

We originate loans for our own loan portfolio and for sale in the secondary market.

We originate loans for our portfolio and for sale in the secondary market.

Management’s strategy has been to maintain a well-diversified portfolio with a significant percentage of assets in the loan portfolio having more frequent interest rate repricing terms or shorter maturities than traditional long-term fixed-rate mortgage loans.

As part of this effort, we offer a variety of floating or adjustable interest rate products that correlate more closely with our cost of interest-bearing funds, particularly loans for commercial business and real estate, agricultural business, and construction and development purposes.

However, in response to client demand, we continue to originate fixed-rate loans, including fixed interest rate mortgage loans with terms of up to 30 years.

In response to client demand, we also originate fixed-rate loans, including fixed interest rate mortgage loans with terms of up to 30 years.

The relative amount of fixed-rate loans and adjustable-rate loans that can be originated at any time is largely determined by the demand for each in a competitive environment.

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Commercial real estate loans include owner-occupied, investment properties and multifamily residential real estate.

Our level of activity and investment in commercial real estate loans has been relatively stable for many years.

Our level of activity and investment in commercial real estate loans was relatively stable prior to 2020, when COVID-19 caused a temporary slowdown followed by recovery in 2021 and 2022.

We also originate construction, land and land development loans, a significant component of which is our residential one- to four-family construction loans.

Originations of one- to four-family construction loans have increased in recent years as builders have expanded production and experienced strong sales in many of the markets we serve.

Our origination of construction and development loans has been significant during recent years and balances in this portion of the portfolio have increased in recent periods but not at the same pace of originations as brisk sales of new homes have produced rapid turnover through repayments.

Our origination of construction, land and development loans has been significant during recent years and balances in this portion of the portfolio have increased in recent periods but not at the same pace of originations as brisk sales of new homes have produced rapid turnover through repayments.

Our commercial business lending is directed toward meeting the credit and related deposit and treasury management needs of various small- to medium-sized business and agribusiness borrowers operating in our primary market areas.

In recent years, our commercial business lending has also included participation in certain national syndicated loans.

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 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.

To a lesser extent, our commercial business lending has also included participation in certain national syndicated loans.

The demand for commercial business loans strengthened in 2021 and even further in 2022 as our production levels for 2022 exceeded 2021.

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.

Most of the one- to four-family loans that we originate are sold in the secondary markets with net gains on sales and loan servicing fees reflected in our revenues from mortgage banking.

Demand for residential mortgage loans slowed during 2022 as the rise in interest rates reduced refinance originations.

Typically, most of the one- to four-family loans that we originate are sold in the secondary markets with net gains on sales and loan servicing fees reflected in our revenues from mortgage banking.

During 2022, due to the rising interest rates, a larger percentage of our one- to four-family production was held for investment.

Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients.

For additional information concerning our loan portfolio, 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, 2021 and 2020—Loans and Lending” including Tables 4 and 5, which sets forth the composition and geographic concentration of our loan portfolio, and Tables 6 and 7, which contain information regarding the loans maturing in our portfolio.

One- to Four-Family Residential Real Estate Lending:

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In recent years, we have generally sold a significant portion of our conventional residential mortgage originations and nearly all of our government insured loans in the secondary market.

At December 31, 2021, $683.3 million, or 8% of our loan portfolio, consisted of permanent loans on one- to four-family residences.

At December 31, 2022, $1.17 billion, or 12% of our loan portfolio, consisted of permanent loans on one- to four-family residences.

We offer fixed- and adjustable-rate mortgages (ARMs) at rates and terms competitive with market conditions, primarily with the intent of selling these loans into the secondary market.

Fixed-rate loans generally are offered on a fully amortizing basis for terms ranging from ten to 30 years at interest rates and fees that reflect current secondary market pricing.

Most ARM products offered adjust annually after an initial period ranging from one to five years, subject to a limitation on the annual adjustment and a lifetime rate cap.

Most ARM products offered by us adjust annually after an initial period ranging from one to five years, subject to a limitation on the annual adjustment and a lifetime rate cap.

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 other 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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Our residential loans are generally underwritten and documented in accordance with the guidelines established by the Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC) and the Federal National Mortgage Association (Fannie Mae or FNMA).

Government insured loans are underwritten and documented in accordance with the guidelines established by the Department of Housing and Urban Development (HUD) and the Department of Veterans Affairs (VA).

Government insured loans are underwritten and documented in accordance with the guidelines established by the Department of Housing and Urban Development and the Department of Veterans Affairs.

In the loan approval process, we assess the borrower’s ability to repay the loan, the adequacy of the proposed security, the employment stability of the borrower and the creditworthiness of the borrower.

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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Our land loans are typically on improved or entitled land, versus raw land.

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 similar disbursement and monitoring procedures.

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

We also make construction loans to qualified owner occupants, which upon completion of the construction phase convert to long-term amortizing one- to four-family residential loans that are eligible for sale in the secondary market.

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Although well diversified with respect to sub-markets, price ranges and borrowers, our construction, land and land development loans are significantly concentrated in the greater Puget Sound region of Washington State and the Portland, Oregon market area.

At December 31, 2021, construction, land and land development loans totaled $1.31 billion, or 14% of total loans;

At December 31, 2022, our construction, land and land development loans totaled $1.49 billion, or 15% of total loans;

44% of the balance was comprised of one- to four-family construction and residential land and land development loans, with the remaining balance comprised of commercial and multifamily real estate construction loans and commercial land and land development loans.

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We attempt to address these risks by adhering to strict underwriting policies, disbursement procedures and monitoring practices.

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

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 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.

Commercial and Multifamily Real Estate Lending:

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

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.

At December 31, 2022, our loan portfolio included $1.59 billion in non-owner-occupied commercial real estate loans, $845.3 million in owner-occupied commercial real estate loans, $1.20 billion of small balance commercial real estate or CRE loans (CRE loans up to $2 million) and $645.1 million in multifamily loans which in aggregate comprised 42% 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.

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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.

While a portion of our multifamily loan originations are held for investment, the majority of multifamily loan originations are sold with the gain recognized as mortgage banking income.

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

While a portion of our multifamily loan originations are held for investment, typically the majority of multifamily loan originations are sold with the gain recognized as mortgage banking income.

Multifamily and commercial real estate loans originated by us are both fixed- and adjustable-rate loans with intermediate terms of generally five to ten years.

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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, 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.

At December 31, 2022, the average size of our commercial real estate loans was $1.0 million and the largest commercial real estate loan, in terms of an outstanding balance, in our portfolio was $19.7 million.

Commercial Business Lending:

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We also originate smaller balance business loans principally through our retail branch network, using our Quick Step business loan program, which is closely aligned with our consumer lending operations and relies on centralized underwriting procedures.

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.

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.

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

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 (PPP).

As a qualified SBA lender, beginning in the second quarter of 2020, we began to offer SBA PPP loans to existing and new clients.

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

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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.

At December 31, 2022 and 2021, our total SBA PPP loan balance was $7.9 million and $133.90 million, respectively.

The balance of unamortized net deferred fees on SBA PPP loans was $261,000 at December 31, 2022, compared to $4.5 million at December 31, 2021.

The PPP ended on May 31, 2021.

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

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Loan terms, including the fixed or adjustable interest rate, the loan maturity and the collateral considerations, vary significantly and are negotiated on an individual loan basis.

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

We underwrite our conventional commercial business loans on the basis of the borrower’s cash flow and ability to service the debt from earnings rather than on the basis of the underlying collateral value.

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Commercial business lines of credit are typically made for the purpose of providing working capital and are usually approved with a term of one year.

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

Adjustable- or floating-rate loans are primarily tied to prime and Secured Overnight Financing Rate (SOFR) indices.

At December 31, 2022, commercial business loans totaled $1.28 billion, or 13% of our total loans receivable, including $7.6 million of SBA PPP loans and $234.1 million of shared national credits.

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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, 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.

At December 31, 2022, agricultural business loans, including collateral secured loans to purchase farm land and equipment, totaled $295.1 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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In the case of crops, consideration is given to projected yields and prices from each commodity.

The interest rate is normally floating based on the prime rate or a LIBOR index plus a negotiated margin.

The interest rate is normally floating based on the prime rate or another index plus a negotiated margin.

Because these loans are made to finance a farm’s or ranch’s annual operations, they are usually written on a one-year review and renewable basis.

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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.

These loans 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.

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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

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.”

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

Consumer and Other Lending:

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At December 31, 2022, we had $680.9 million, or 7% of our loan portfolio, in consumer related loans, including $566.3 million, or 6% of our loan portfolio, in consumer loans secured by one- to four-family residences.

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

Loan Solicitation and Processing:

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.

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 website.

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

In addition, we have specialized loan origination units, focused on construction and land development, commercial real estate and multifamily loans.

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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 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.

Consumer loans and Quick Step commercial business loan applications are primarily underwritten and documented by centralized administrative personnel.

Consumer and small business commercial business loan applications are primarily underwritten and documented by centralized administrative personnel.

Loan Originations, Sales and Purchases

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, 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.

For the years ended December 31, 2022 and 2021, we originated loans, net of repayments, including our participation in syndicated loans and loans held for sale of $1.30 billion and $306.8 million, respectively.

The year ended December 31, 2022 included repayments of SBA PPP loans of $126.0 million, compared to repayments net of originations of SBA PPP loans of $910.5 million for the year ended December 31, 2021.

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

Originations of loans for sale decreased to $406.9 million for the year ended December 31, 2022 from $1.10 billion during 2021.

Originations of loans for sale included $122.2 million and $225.0 million of multifamily held for sale loan production for the years ended December 31, 2022 and December 31, 2021, respectively.

Sales of loans generally are beneficial to us because these sales may generate income at the time of sale, provide funds for additional lending and other investments, increase liquidity or reduce interest rate risk.

During the year ended December 31, 2021, we received proceeds of $1.28 billion from the sale of loans held for sale compared to $1.47 billion for the year ended December 31, 2020.

During the year ended December 31, 2022, we received proceeds of $415.6 million from the sale of loans held for sale compared to $1.28 billion for the year ended December 31, 2021.

The held for sale loans sold in 2022 and 2021 included $26.3 million and $287.7 million, respectively, of multifamily loans held for sale.

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

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

All loans are sold without recourse but 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, including shared national credits.

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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.

At December 31, 2022, our MSRs were carried at a value of $15.3 million, net of amortization, and SBA servicing rights were carried at a value of $835,000.

Asset Quality

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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 Banner Bank.

The 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 the 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.

The Credit Policy Division also approves recommendations for establishing the appropriate level of the allowance for credit losses.

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

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.

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

Both the Bank’s and Banner’s Boards of Directors, or their respective committees, review asset quality at least quarterly.

Allowance for Credit Losses:

In originating loans, we recognize that losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the security for the loan.

As a result, we maintain an allowance for credit losses consistent with U.S.

generally accepted accounting principles (GAAP) guidelines.

We increase our allowance for credit losses by charging provision for credit losses against our income.

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.

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.

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 specific risk characteristics in the current loan portfolio and forecasted economic conditions, as well as historical credit loss experience.

We increase our allowance for credit losses by charging a provision for credit losses against income.

Real Estate Owned:

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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 and Note 5, Real Estate Owned, Held for Sale, Net, of the Notes to the Consolidated Financial Statements.

Investment Activities

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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, 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.

The Company, through its Banner Bank subsidiary, is party to various derivative instruments that are used for asset and liability management and client financing needs.

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The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the market value of the derivative contract.

We obtain dealer quotations to value our interest rate swap derivative contracts.

Our predominant derivative and hedging activities involve interest rate swaps related to certain term loans, interest rate lock commitments to borrowers, and forward sales contracts associated with mortgage banking activities.

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Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors such as market-driven interest rates and prices or other economic factors.

Derivatives Not Designated in Hedge Relationships

Interest Rate Swaps:

Banner Bank uses an interest rate swap program for commercial loan clients, in which we provide the client with a variable rate loan and enter into an interest rate swap in which the client receives a fixed rate payment in exchange for a variable rate payment.

We offset our risk exposure by entering into an offsetting interest rate swap with a dealer counterparty for the same notional amount and length of term as the client interest rate swap providing the dealer counterparty with a fixed rate payment in exchange for a variable rate payment.

At December 31, 2021, Banner Bank had $551.6 million in notional amounts of these client interest rate swaps outstanding that were not designated in hedge relationships, with an equal amount of offsetting third party swaps also in place.

These swaps do not qualify as designated hedges;

therefore, each swap is accounted for as a free standing derivative.

Mortgage Banking:

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.

Credit risk of the financial contract is mitigated through the credit approval, limits, and monitoring procedures.

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.

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.

We generally post collateral against derivative liabilities in the form of cash, government agency-issued bonds, mortgage-backed securities, or commercial mortgage-backed securities.

Derivative assets and liabilities are recorded at fair value on the balance sheet.

Master netting agreements allow us to settle all derivative contracts held with a single counterparty on a net basis and to offset net derivative positions with related collateral where applicable.

In addition, some interest rate swap derivatives between Banner Bank and the dealer counterparties are cleared through central clearing houses.

These clearing houses characterize the variation margin payments as settlements of the derivative’s market exposure and not as collateral.

Derivatives Designated in Hedge Relationships

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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There is strong competition for transaction balances and savings deposits from commercial banks, credit unions and non-bank corporations, such as securities brokerage companies, mutual funds and other diversified companies, some of which have nationwide networks of offices.

Much of the focus of our acquisitions, branch relocations and renovation and advertising and marketing campaigns has been directed toward attracting additional deposit client relationships and balances.

In addition, our electronic and digital banking activities including debit card and automated teller machine (ATM) programs, on-line Internet banking services and client remote deposit and mobile banking capabilities are all directed at providing products and services that enhance client relationships and result in growing deposit balances as well as fee income.

Much of the focus of our acquisitions, branch relocations and renovations, and advertising and marketing campaigns has been directed toward attracting additional deposit client relationships and balances.

In addition, our electronic and digital banking activities including debit card and automated teller machine (ATM) programs, Internet banking services and client remote deposit and mobile banking capabilities are all directed at providing products and services that enhance client relationships and result in growing deposit balances as well as fee income.

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

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In determining the terms of deposit accounts, we consider current market interest rates, profitability to us, matching deposit and loan products and client preferences and concerns.

At December 31, 2021, we had $14.33 billion of deposits.

For additional information concerning our deposit accounts, see Item 7 in this report, “Management’s Discussion and Analysis of Financial Condition—Comparison of Financial Condition at December 31, 2021 and 2020—Deposit Accounts,” including Table 8 contained therein, which sets forth the balances of deposits in the various types of accounts, and Table 9, which sets forth the amount of our certificates of deposit in excess of the FDIC insurance limit by time remaining until maturity as of December 31, 2021.

In addition, see Note 7, Deposits of the Notes to the Consolidated Financial Statements.

While deposits are the primary source of funds for our lending and investment activities and for general business purposes, we also use borrowings to supplement our supply of lendable funds, to meet deposit withdrawal requirements and to more efficiently leverage our capital position.

The FHLB serves as our primary borrowing source.

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

The FHLB provides credit for member financial institutions such as the 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 $2.38 billion of available credit capacity with the FHLB.

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

The Federal Reserve Bank provides credit based upon acceptable loan collateral, which includes certain loan types not eligible for pledging to the FHLB.

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.

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.

In addition, the Bank has federal funds line of credit agreements with other financial institutions.

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

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We issue retail repurchase agreements, generally due within 90 days, as an additional source of funds, primarily in connection with treasury management services provided to our larger deposit clients.

At December 31, 2021, we had issued retail repurchase agreements totaling $264.5 million.

We also may borrow funds through the use of secured wholesale repurchase agreements with securities brokers.

at December 31, 2021, we had no borrowings outstanding under wholesale repurchase agreements.

The retail repurchase borrowings were secured by pledges of certain U.S.

Government and agency notes and mortgage-backed securities with a market value of $292.7 million at December 31, 2021.

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, 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.

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 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.

We issued junior subordinated debentures in connection with the sale of trust preferred securities (TPS) from 2002 through 2007 by special purpose business trusts formed by Banner 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 the Bank.

In addition, Banner has acquired through acquisitions additional junior subordinated debentures.

During 2020, we also issued and sold 5.0% fixed-to-floating subordinated notes due in 2030.

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 increase.

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

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

Meanwhile, the pool of experienced candidates continues to tighten across the financial services 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.

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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.

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.

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.

Our Board, through its Compensation and Human Capital Committee and in partnership with the Bank’s executive team, including its Chief Human Resources and Diversity Officer, oversees our human capital management strategies, programs and practices, including our diversity and inclusion initiatives;

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

and reviews our employee engagement and exit survey trends.

Our cross-functional, employee-led DEI council provides leadership and serves as a catalyst for inclusion and diversity initiatives across our organization.

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

Additionally, our CEO, Mark Grescovich, has signed the CEO Action for Diversity & Inclusion Pledge to demonstrate our commitment to fostering a diverse and inclusive workplace.

With this commitment, among other things, we provide unconscious bias training to all of our employees to help them recognize their blind spots.

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.

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 position level as of December 31, 2021:

Position Level Female % Male %

we maintain a Respectful Workplace Policy in alignment with this commitment.

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 our clients.

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

The following tables illustrate our employees’ gender and racial diversity by level as of December 31, 2022:

Employee Position Level Female Male

Individual Contributor 70 % 30 %

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Executive 38 % 62 %

Total 69 % 31 %

Talent Acquisition.

Total workforce 68 % 32 %

* Refers to director-level employees, not Board of Directors

Employee Position Level Persons of Color White

Individual Contributor 29 % 71 %

Manager 20 % 80 %

Director* 14 % 86 %

Executive — % 100 %

Total workforce 27 % 73 %

* Refers to director-level employees, not Board of Directors

Talent Acquisition and Attrition.

The competition for qualified talent continues to increase and we have implemented a number of actions to support recruitment and retention.

To cultivate and recruit hard-to-fill positions, we partner closely with several colleges and universities with well-known programs relevant to our business.

We also utilize talent assessment tools to identify candidates who we believe would thrive in our culture and be well-suited to a particular opportunity.

Our employment application and hiring processes do not solicit compensation information from candidates during our hiring process.

In 2022, we formally launched a Flexible Workplace Program designed to support hiring talent from a more diverse group of candidates, improve the work experience for our employees, enhance retention and strengthen our leadership pipeline.

Additionally, we remain highly focused on retention of female and diverse talent where competitive pressures continue to escalate.

Our voluntary turnover rate in 2022 decreased to 21% as compared to 23% in 2021.

Our employment application and hiring processes do not solicit prior compensation information from candidates.

This helps ensure our new hire compensation is based on individual qualifications and roles, rather than how a candidate may have been previously compensated.

During 2022, we hired 571 employees.

As of December 31, 2022, we had approximately 37% of our workforce working remotely with women representing 67% and people of color representing 19% of our remote employees.

Employee Engagement.

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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.

In 2022, we focused on employee well-being by adding a pulse survey to address employee burnout.

Total Rewards (Compensation and Benefits).

We provide robust compensation and benefits programs, in addition to base pay, to help meet the needs of our employees.

These programs include, subject to eligibility policies, annual incentives, stock awards, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family care resources, flexible work schedules, employee assistance programs and tuition assistance, among many others.

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 provide robust compensation and benefits programs to help meet the needs of our employees.

These programs include, subject to eligibility policies, variable pay tied to performance for all employees, a 401(k) plan (including an employer match up to 4% of eligible earnings), healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family care resources, flexible work schedules, employee assistance programs and tuition assistance, among many others.

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

Pay equity is a core tenet of our compensation philosophy and is central to our values.

Banner began conducting periodic, rigorous pay equity studies in 2017 with the assistance of outside experts to examine groups of employees in similar roles, accounting for factors that appropriately explain differences in pay, such as job location and experience.

We intend to continue our pay equity analysis on a periodic basis to support our ongoing commitment in this area.

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;

employees are permitted to use sick time for themselves or family members in need of care.

Newly hired employees are automatically enrolled in our 401(k) plan, which includes an employer match up to 4% of eligible earnings.

As of December 31, 2021, over 92% of employees were participating in our 401(k) plan.

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.

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.

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, a 24-hour nurse line and an employee assistance program.

Additionally, we offer virtual physical therapy benefits, virtual support for hypertension and diabetes, and subsidized child, adult or senior care planning services.

At the beginning of 2022, we launched our parental leave program which provides eight weeks of leave for both birth and non-birth parents, as well as adoption or surrogacy.

In addition to traditional sick leave of up to ten days per year, in 2022 we added (i) 12 weeks of short-term disability coverage, and (ii) a new paid company holiday – Juneteenth – a historically important day that aligns with our diversity and inclusion efforts.

We also offer up to 16 paid hours that employees can take during the year to celebrate an individual day of significance, such as a religious holiday or a day of cultural significance, or for other personal reasons.

Health, Safety and Well-being.

The success of our business is fundamentally connected to the well-being of our employees.

We provide employees and their families with access to a variety of innovative, flexible and convenient health and well-being programs.

Also offered are benefits that support their physical and mental health by providing tools and resources to help employees improve or maintain their health status and encourage healthy behaviors.

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.

We provide employees and their families with access to a variety of programs to support their physical and mental health.

In 2022, we were pleased to add a wellness coach benefit (which can also be shared with up to five non-family members) that provides unlimited free one-on-one personal coaching in several different categories such as fitness, nutrition, life coaching, and financial coaching, as well as a range of tools to improve sleep quality.

Volunteerism.

We strive to be a good corporate citizen by encouraging employees to be engaged in the communities where they live and work.

To help remove roadblocks to volunteering, we offer Community Connections, a program that offers employees paid time off to volunteer at non-profit organizations of their choice (16 hours for full-time and 8 hours for part time).

To help remove roadblocks to volunteering, we offer Community Connections, a program that offers employees up to 16 hours of paid time off to volunteer at non-profit organizations of their choice.

We also encourage employees to serve in leadership roles in these organizations as part of their professional development.

We are proud to support many local community organizations through financial contributions and employee-driven volunteerism, including Junior Achievement, United Way and hundreds of other organizations.

Incentive Compensation Risk Management.

We strive to align incentives with the risk and performance frameworks of the Company.

The Company’s “pay for performance” philosophy connects individual, operating unit and Company results to compensation, providing employees with opportunities to share in the Company’s overall growth and success.

We develop, execute and govern all incentive compensation plans that discourage imprudent or excessive risk-taking and balance financial reward in a manner that supports our clients, employees and Company.

Talent Development.

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 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.

We believe in a multi-dimensional approach to learning and development, specifically the 70-20-10 development framework that encompasses on-the-job development or experiential learning;

social learning through relationships, networks and mentoring;

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.

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

We deliver a variety of training opportunities, and our talent development programs provide employees with resources to help achieve their career goals, build management skills and lead their teams.

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

With this strong focus on internal talent development, we filled 20% of all open positions with internal candidates in 2022.

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.

We require all employees to complete a wide range of online training courses on an annual basis, including job-specific courses as well as general courses covering regulatory compliance, cybersecurity, fraud prevention, workplace standards and ethics, among others.

We also encourage employees to enroll in outside education programs to broaden their knowledge and enhance job performance.

We provide tuition assistance for external education to help employees hone existing skills and acquire new competencies in areas that align with business goals.

Succession Planning.

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The Board annually reviews our succession plans for senior leadership roles, with the goal of ensuring we will continue to have the right leadership talent in place to execute the organization’s long-term strategic plans.

During these reviews, the Board discusses:

Our succession process and pipeline, including diversity, inclusion and goals for building future senior leaders;

Potential successors to the CEO in the event of an emergency or retirement;

The CEO’s recommendations for potential successors for top executive roles, along with a review of any development plans for these individuals.

Through its Compensation and Human Capital Committee, our Board of Directors provides oversight of our talent development and succession planning for senior leadership roles, including reviewing the metrics we track on the gender and ethnic diversity of high-potential employees.

Human Capital Metrics.

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As of December 31, 2022, we employed 1,977 full- and part-time employees across our four-state footprint, which equates to 1,931 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.

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We also have employees working in Oregon (19%), California (15%) 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%.

As of December 31, 2022, five generations of employees were represented in our workplace with Millennials being our largest generation (37%), followed by Gen Xers (35%), Boomers (20%) and Gen Zers (8%).

Incentive Compensation Risk Management.

We strive to align incentives with the risk and performance frameworks of the Company.

We develop, execute and govern all incentive compensation plans to discourage imprudent or excessive risk-taking and balance financial reward in a manner that supports our clients, employees and Company.

Tax-Sharing Agreement

Banner Corporation files its federal and state income tax returns on a consolidated basis under a tax-sharing agreement between the Company and each bank subsidiary.

The Company prepares each subsidiary’s minimum income tax which would be required if the individual subsidiary were to file federal and state income tax returns as a separate entity.

Banner files its federal and state income tax returns on a consolidated basis under a tax-sharing agreement between the Company and the Bank, including the Bank’s subsidiaries.

Each company of the consolidated group has calculated a minimum income tax which would be required if the individual subsidiary were to file federal and state income tax returns as a separate entity.

Each subsidiary pays to the Company an amount equal to the estimated income tax due if it were to file as a separate entity.

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We are subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the reserve for bad debts.

See Note 11, Income Taxes, of the Notes to the Consolidated Financial Statements for additional information concerning the income taxes payable by us.

State Taxation

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We also experience competition from securities firms, insurance companies, money market and mutual funds, and other investment vehicles.

We expect continued strong competition from such financial institutions and investment vehicles in the foreseeable future, including competition from on-line Internet banking competitors and “FinTech” companies that rely on technology to provide financial services.

We expect continued strong competition from such financial institutions and investment vehicles in the foreseeable future, including competition from on-line banking competitors and “FinTech” companies that rely on technology to provide financial services.

Our ability to attract and retain deposits depends on our ability to provide transaction services and investment opportunities that satisfy the requirements of depositors.

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

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.

As a state-chartered, federally insured commercial bank, the 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.

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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 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.

The Federal Reserve and FDIC, as the respective primary federal regulators of Banner and of the 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 within the Federal Reserve System.

The CFPB is responsible for the implementation of the federal financial consumer protection and fair lending laws and regulations and has authority to impose new requirements.

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We cannot predict the nature or the extent of the effects on our business and earnings that any fiscal or monetary policies or new federal or state legislation may have in the future.

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 Bank which is qualified in its entirety by reference to the actual laws and regulations.

State Regulation and Supervision :

As a Washington state-chartered commercial bank with branches in the States of Washington, Oregon, Idaho and California, Banner Bank is subject not only to the applicable provisions of Washington law and regulations, but is also subject to Oregon, Idaho and California law and regulations.

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.

As a Washington state-chartered commercial bank with branches in the States of Washington, Oregon, Idaho and California, the Bank is subject not only to the applicable provisions of Washington law and regulations, but is also subject to Oregon, Idaho and California law and regulations.

These state laws and regulations govern the 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.

Deposit Insurance :

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Under the FDIC’s rules the assessment base for a bank is equal to its total average consolidated assets less average tangible capital.

As of December 31, 2021, assessment rates ranged from three basis points to 30 basis points for all institutions, subject to adjustments for unsecured debt issued by the institution, unsecured debt issued by other FDIC-insured institutions, and brokered deposits held by the institution.

Under the current rules, when the reserve ratio for the prior assessment period reaches, or is greater than 2.0% and less than 2.5%, assessment rates will range from two basis points to 28 basis points and when the reserve ratio for the prior assessment period is greater than 2.5%, assessment rates will range from one basis-point to 25 basis points (in each case subject to adjustments as described above for current rates).

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

As of December 31, 2022, assessment rates ranged from three basis points to 30 basis points for all institutions, subject to adjustments for unsecured debt issued by the institution, unsecured debt issued by other FDIC-insured institutions, and brokered deposits held by the institution.

Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the Deposit Insurance Fund (DIF) reserve ratio to decline below the statutory minimum of 1.35 percent as of June 30, 2020.

In September 2020, the FDIC Board of Directors adopted a Restoration Plan to restore the reserve ratio to at least 1.35 percent within eight years, absent extraordinary circumstances, as required by the Federal Deposit Insurance Act.

The Restoration Plan maintained the assessment rate schedules in place at the time and required the FDIC to update its analysis and projections for the DIF balance and reserve ratio at least semiannually.

In the semiannual update for the Restoration Plan in June 2022, the FDIC projected that the reserve ratio was at risk of not reaching the statutory minimum of 1.35 percent by September 30, 2028, the statutory deadline to restore the reserve ratio.

Based on this update, the FDIC Board approved an Amended Restoration Plan, and concurrently proposed an increase in initial base deposit insurance assessment rate schedules uniformly by 2 basis points, applicable to all insured depository institutions.

In October 2022, the FDIC Board finalized the increase with an effective date of January 1, 2023, applicable to the first quarterly assessment period of 2023.

The revised assessment rate schedules are intended to increase the likelihood that the reserve ratio of the DIF reaches the statutory minimum level of 1.35 percent by September 30, 2028.

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

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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 Banner Bank.

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

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

Banner 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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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.

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 delayed 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.

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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 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.

Failure by the 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, 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.

As of December 31, 2022, Banner and the Bank met the requirements to be “well capitalized” and the capital conservation buffer requirements.

Commercial Real Estate Lending Concentrations:

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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, 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.

As of December 31, 2022, the Bank’s aggregate recorded loan balances for construction, land development and land loans were 88% of total regulatory capital.

In addition, at December 31, 2022, the Bank’s loans secured by commercial real estate represent 268% 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, 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 the 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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Interest-bearing checking accounts and other types of accounts that permit payments or transfers to third parties fall within the definition of transaction accounts and are subject to Regulation D reserve requirements, as are any non-personal time deposits at a bank.

In response to the COVID-19 pandemic, the Federal Reserve reduced requirements to zero percent effective on March 26, 2020, to support lending to households and businesses.

In response to COVID-19, the Federal Reserve reduced requirements to zero percent effective on March 26, 2020, to support lending to households and businesses.

Currently, the Federal Reserve has stated it has no plans to re-impose reserve requirements.

However, the Federal Reserve may adjust reserve requirement ratios in the future if conditions warrant.

Affiliate Transactions:

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.

Banner and the Bank are separate and distinct legal entities.

Banner (and any non-bank subsidiary of Banner) 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 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 Bank is subject to the provisions of the Community Reinvestment Act of 1977 (CRA), which requires the appropriate federal banking 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.

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

The Bank received an “outstanding” rating during its most recently completed CRA examination.

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.

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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.

Notably, the California Consumer Privacy Act of 2018 (the CCPA), which became effective on January 1, 2020, gives California residents the right to request disclosure of information collected about them, and whether that information has been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions), the right to opt out of the sale of personal information, and the right not to be discriminated against for exercising these rights.

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

The California Consumer Privacy Act of 2018 (the CCPA), which became effective on January 1, 2020, gives California residents the right to request disclosure of information collected about them, and whether that information has been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions), the right to opt out of the sale of personal information, and the right not to be discriminated against for exercising these rights.

The CCPA also created a private right of action with statutory damages for data security breaches, thereby increasing potential liability associated with a data breach, which has triggered a number of class actions against other companies since January 1, 2020.

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.

Although the 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.

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.

The CCPA, the CPRA as well as other similar state data privacy laws and regulations, may require the establishment by the 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.

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.

Service providers are required under the rule to notify any affected bank to which 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 policies and procedures are designed to comply with the requirements of the USA Patriot Act.

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

Other Consumer Protection Laws and Regulations:

The CFPB is empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws.

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

The Bank and its affiliates and subsidiaries are subject to CFPB supervisory and enforcement authority.

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.

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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, is a bank holding company registered with the Federal Reserve.

Banner, as sole shareholder of the 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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In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices.

Banner Corporation is also required to file certain reports with, and otherwise comply with the rules and regulations of the SEC.

Banner is also required to file certain reports with, and otherwise comply with the rules and regulations of the SEC.

The Bank Holding Company Act:

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

Under the BHCA, Banner 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.

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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 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.

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

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

Acquisitions:

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Federal Securities Laws:

Banner Corporation’s common stock is registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, as amended.

Banner’s common stock is registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, as amended.

We are subject to information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934 (the Exchange Act).

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 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;

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 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, 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;

(ii) have a separate, non-binding shareholder vote regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the parachute payments;

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The regulations to implement the provisions of Section 619 of the Dodd-Frank Act, commonly referred to as the Volcker Rule, contain prohibitions and restrictions on the ability of financial institutions holding companies and their affiliates to engage in proprietary trading and to hold certain interests in, or to have certain relationships with, various types of investment funds, including hedge funds and private equity funds.

Banner Corporation is continuously reviewing its investment portfolio to determine if changes in its investment strategies are in compliance with the various provisions of the Volcker Rule regulations.

Banner is continuously reviewing its investment portfolio to determine if changes in its investment strategies are in compliance with the various provisions of the Volcker Rule regulations.

Interstate Banking and Branching:

The Federal Reserve must approve an application of a bank holding company to acquire control of, or acquire all or substantially all of the assets of, a bank located in a state other than the holding company’s home state, without regard to whether the transaction is prohibited by the laws of any state.

The Federal Reserve must approve an application of a bank holding company to acquire control, or acquire all or substantially all of the assets, of a bank located in a state other than the holding company’s home state, without regard to whether the transaction is prohibited by the laws of any state.

The Federal Reserve may not approve the acquisition of a bank that has not been in existence for the minimum time period (not exceeding five years) specified by the statutory law of the host state.

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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 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.

The capital conversion buffer requirement can also restrict Banner’s and the Bank’s ability to pay dividends.

Further, under Washington law, Banner 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 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.

Stock Repurchases:

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The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order or any condition imposed by, or written agreement with, the Federal Reserve.

During the year ended December 31, 2021, Banner Corporation repurchased 1,050,000 shares of its common stock at an average price of $53.84 per share.

For additional information regarding share repurchases and authorizations, see Item 5 of this report, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

Management Personnel

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Name Age Position with Banner Corporation Position with Banner Bank

Grescovich 57 President, Chief Executive Officer,

Director President, Chief Executive Officer, Director

Brown 54 Executive Vice President,

Chief Information Officer

Conner 56 Executive Vice President

Chief Financial Officer

Executive Vice President,

Chief Financial Officer

Costa 53 Executive Vice President,

Chief Risk Officer

Garcia 62 Executive Vice President,

Chief Audit Executive

Johnson 59 Executive Vice President

Kohler 49 Executive Vice President

Human Resources

Chief Diversity Officer*

Larsen 52 Executive Vice President,

Mortgage Banking

Sherrey Luetjen 50 Executive Vice President

General Counsel, Ethics Officer

Secretary Executive Vice President

General Counsel, Secretary

McLean 57 Executive Vice President,

Commercial Real Estate Lending Division

Purcell 64 Executive Vice President,

Chief Strategy and Administration Officer*

Executive Vice President,

Kirk Quillin 59 Executive Vice President,

Chief Commercial Executive

59 Executive Vice President,

Commercial Banking North

Rice 56 Executive Vice President,

Chief Credit Officer

Wagers 61 Executive Vice President,

Retail Products and Services**

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.

Grescovich 58 President, Chief Executive Officer, Director President, Chief Executive Officer, Director

Brown 55 Executive Vice President, Chief Information Officer

Conner 57 Executive Vice President, Chief Financial Officer, Treasurer Executive Vice President, Chief Financial Officer

Costa 54 Executive Vice President, Chief Risk Officer

Garcia 63 Executive Vice President, Chief Audit Executive

Kohler 50 Executive Vice President, Human Resources, Chief Diversity Officer

Larsen 53 Executive Vice President, Mortgage Banking

Sherrey Luetjen 51 Executive Vice President, General Counsel, Ethics Officer, Secretary Executive Vice President, General Counsel, Secretary

McLean 58 Executive Vice President, Commercial Real Estate Lending Division

Purcell 65 Executive Vice President, Chief Strategy and Administration Officer

Kirk Quillin 60 Executive Vice President, Chief Commercial Executive

60 Executive Vice President, Commercial Banking

Rice 57 Executive Vice President, Chief Credit Officer

Biographical Information

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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.

Under his leadership, Banner has grown from $4.7 billion in assets in 2010 to more than $15 billion through organic growth as well as selective acquisitions.

During that time, Mr.

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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.

Costa earned his bachelor’s degree from The 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.

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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.

He has more than 42 years of experience in the financial services in dustry.

He has more than 40 years of experience in the financial services industry.

Prior to joining the Company in 2017, Mr.

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

Johnson has over 36 years of banking experience.

He joined Banner Bank as Executive Vice President, Operations, in connection with Banner’s merger with Skagit Bank in November 2018.

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, 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.

Johnson holds a Bachelor of Arts Degree in Business Administration from Michigan State University.

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.

Garcia is an active member in the Institute of Internal Audit, the Information Systems Audit and Control Association, and Mid-Sized Bank Coalition of America.

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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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).

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 (SHRM-SCP).

Larsen joined Banner Bank in 2005 as the Real Estate Administration Manager and was promoted to Mortgage Banking Director in 2010.

Larsen is responsible for Banner Bank’s mortgage banking activities from origination, administration, secondary marketing, through loan servicing.

Larsen has had a 31-year career in mortgage banking, including holding positions in all facets of operations and management.

Larsen has had a 30-plus year career in mortgage banking, including holding positions in all facets of operations and management.

A graduate of Eastern Washington University, he earned a Bachelor of Arts in Education with a degree in Social Science and earned certificates from the Pacific Coast Banking School and the School of Mortgage Banking.

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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 has more than 30 years of real estate finance experience.

His experience includes roles at large national commercial banks and at regional and community banks, as well as 15 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.

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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.

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

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.

Reed’s community involvement includes serving on the Association of Washington Businesses Executive Board as well as having served on 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 earned her bachelor’s degree from Western Washington University, is a graduate of the Pacific Coast Banking School, and has held the RMA Credit Risk Certification since 2009.

For more than 12 years Ms.

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.

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.

Prior to joining Banner Bank, his career included senior management positions in retail lending and branch banking operations with West One Bank and US Bank.

Wagers earned his bachelor’s degree from Whitman College and his Master’s of Business degree from the University of Oregon.

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

For more than a decade, Ms.

Rice’s community involvement includes having served on the board of directors for the Alzheimer’s Association Washington State Chapter, and volunteering with both the Snoqualmie Valley and Tahoma School Districts.

Additionally, for more than a decade, she has engaged with LifeWire, a domestic violence prevention organization, including serving seven years on the board of directors, two of which she was the board president.

Corporate Information

5 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 1. Business