What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-02-21 compared with 2022-02-24 · 394 added, 530 removed, 1948 unchanged (32% of the section changed)

ITEM 9A – Controls and Procedures

The management of Banner Corporation is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (Exchange Act).

The management of Banner is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (Exchange Act).

A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met.

8 unchanged sentences

(b) Changes in Internal Controls Over Financial Reporting:

For the year ended December 31, 2021, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There was no change in our internal control over financial reporting during the fourth quarter of the period covered by this Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting:

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we included a report of management’s assessment of the effectiveness of its internal controls as part of this Annual Report on Form 10-K for the year ended December 31, 2021.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we included a report of management’s assessment of the effectiveness of its internal controls beginning on page 79 of this Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 9B – Other Information

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The information regarding our Audit Committee and Financial Expert included under the sections captioned “Meetings and Committees of the Board of Directors” and “Audit Committee Matters” in the Proxy Statement for the Annual Meeting of Shareholders, which will be filed with the SEC no later than 120 days after the end of our fiscal year, is incorporated herein by reference.

Reference is made to the cover page of this Annual Report and the section captioned “Section 16(a) Beneficial Ownership Reporting Compliance” of the Proxy Statement for the Annual Meeting of the Shareholders, which will be filed with the SEC no later than 120 days after the end of our fiscal year, regarding compliance with Section 16(a) of the Securities Exchange Act of 1934.

There have been no material changes to the procedures by which stockholders may recommend nominees to our board of directors since last disclosed to stockholders.

Code of Ethics

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Box 907, Walla Walla, WA 99362.

The Code is also available on Banner’s website at www.bannerbank.com.

Whistleblower Program and Protections

The Code is also available on the Company’s website at www.bannerbank.com .

We subscribe to the Ethicspoint reporting system and encourage employees, clients, and vendors to call the Ethicspoint hotline at 1-866-ETHICSP (384-4277) or visit its website at www.Ethicspoint.com to report any concerns regarding financial statement disclosures, accounting, internal controls, or auditing matters.

2 unchanged sentences

ITEM 11 – Executive Compensation

Information required by this item regarding management compensation and employment contracts, director compensation, and Compensation Committee interlocks and insider participation in compensation decisions is incorporated by reference to the sections captioned “Executive Compensation,” “Directors’ Compensation,” and “Compensation Discussion and Analysis,” respectively, in the Proxy Statement for the Annual Meeting of Shareholders, which will be filed with the SEC no later than 120 days after the end of our fiscal year.

Information required by this item regarding management compensation and employment contracts, director compensation, and compensation committee interlocks and insider participation is incorporated by reference to the sections captioned “Executive Compensation,” “Directors’ Compensation,” and “Compensation Discussion and Analysis - Compensation and Human Capital Committee Interlocks and Insider Participation,” respectively, in the Proxy Statement for the Annual Meeting of Shareholders, which will be filed with the SEC no later than 120 days after the end of our fiscal year.

ITEM 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

4 unchanged sentences

Banner Corporation is not aware of any arrangements, including any pledge by any person of securities of Banner Corporation, the operation of which may at a subsequent date result in a change in control of Banner Corporation.

Banner is not aware of any arrangements, including any pledge by any person of securities of Banner, the operation of which may at a subsequent date result in a change in control of Banner.

(d) Equity Compensation Plan Information

The following table sets forth information about equity compensation plans that provide for the award of securities or the grant of options to purchase securities to employees and directors of Banner Corporation and its subsidiaries that were in effect at December 31, 2021:

Plan category Number of securities to be issued upon exercise of outstanding options or vesting of outstanding restricted stock and unit grants Weighted average exercise price of outstanding options and rights Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (A)

Equity compensation plans approved by security holders

2012 Restricted Stock and Incentive Bonus Plan — n/a 30,189

2014 Omnibus Incentive Plan 98,828 n/a 183,030

2018 Omnibus Incentive Plan 377,394 n/a 432,396

476,222 645,615

The following table sets forth information about equity compensation plans that were in effect at December 31, 2022:

Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)

Weighted average exercise price of outstanding options, warrants and rights (1)

Number of securities remaining available for future issuance under equity compensation plans (2)

Equity compensation plans approved by security holders 382,727 N/A 541,524

Equity compensation plans not approved by security holders — — —

Total 382,727 541,524

(1) Represents shares that are issuable pursuant to awards of restricted stock units for which there is no applicable exercise price.

(2) All of the securities remaining available for future issuance under the equity compensation plans approved by security holders are available for issuance as stock awards.

ITEM 13 – Certain Relationships and Related Transactions, and Director Independence

19 unchanged sentences

President and Chief Executive Officer;

Director Executive Vice President and Chief Financial Officer

Director Executive Vice President, Treasurer and Chief Financial Officer

(Principal Executive Officer) (Principal Financial and Accounting Officer)

1 unchanged sentence

February 21, 2023

Layman /s/ David I.

Layman David I.

Layman /s/ Paul J.

Layman Paul J.

Director Director

2 unchanged sentences

/s/ Connie R.

Collingsworth /s/ Merline Saintil

Collingsworth Merline Saintil

Collingsworth /s/ Ellen R.M.

Collingsworth Ellen R.M.

Director Director

1 unchanged sentence

February 21, 2023

Orrico /s/ David A.

Orrico David A.

Chairman of the Board Director

/s/ Margot J.

Copeland /s/ David A.

Copeland David A.

Director Director

February 21, 2023 Date:

6 unchanged sentences

/s/ Roberto R.

Herencia /s/ Ellen R.M.

Herencia Ellen R.M.

Director Director

Herencia /s/ John Pedersen

Herencia John Pedersen

Chairman of the Board Director

February 21, 2023 Date:

February 21, 2023

/s/ John Pedersen

John Pedersen

February 24, 2022

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022.

This assessment was based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control -

Integrated Framework (2013) .

This assessment was based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013) .

Based on this assessment and those criteria, management believes that, as of December 31, 2022, the Company maintained effective internal control over financial reporting.

9 unchanged sentences

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Change in Accounting Principle

On January 1, 2020, the Company adopted ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” applicable to financial assets measured at amortized cost including loan receivables and held to maturity debt securities.

Basis for Opinions

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to

the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

1 unchanged sentence

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans held for investments to present the net carrying value at the amount expected to be collected on such financial assets.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets.

The measurement of expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts.

The allowance for credit losses – loans is maintained at a level sufficient to provide for expected credit losses over the life of the loan based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio.

These factors include, among others, changes in the size and composition of the loan portfolio, differences in underwriting standards, delinquency rates, actual loss experience and current economic conditions.

Management uses economic indicators to adjust the historical loss rates so that they better reflect management’s expectations of future conditions over the remaining lives of the loans in the portfolio based on reasonable and supportable forecasts.

These economic indicators are selected based on correlation to the Company’s historical credit loss experience and are evaluated for each loan category.

Management also considers qualitative and environmental factors for each loan category to adjust for differences between the historical periods used to calculate historical loss rates and expected conditions over the remaining lives of the loans in the portfolio.

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The economic forecast component of the allowance for credit losses – loans is used to compare the conditions that existed during the historical period to current conditions and future expectations, and to make adjustments to the historical data accordingly.

Auditing management’s judgments regarding the estimation of forecasted economic conditions and the method by which management applied these forecasts to the allowance for credit losses - loans involved a high degree of subjectivity.

Auditing the estimation of forecasted economic conditions and the method by which management applied these forecasts to the allowance for credit losses – loans involved especially challenging and subjective auditor judgment when performing audit procedures and evaluating the results of those procedures.

The primary procedures we performed to address this critical audit matter included:

• Testing the design, implementation, and operating effectiveness of controls relating to management’s calculation of the allowance for credit losses, including controls over the selection and implementation of the forecasted economic conditions used.

• Testing the design, implementation, and operating effectiveness of controls relating to management’s calculation of the allowance for credit losses – loans, including controls over the selection and implementation of the forecasted economic conditions used.

• Obtaining management’s analysis and supporting documentation related to the forecasted economic conditions, and testing whether the forecasts used in the calculation of the allowance for credit losses are reasonable and supportable based on the analysis provided by management.

• Testing the appropriateness of the methodology and assumptions used in the calculation of the allowance for credit losses, and testing completeness and accuracy of the data used in the calculation, application of the forecasted economic conditions determined by management and used in the calculation, and recalculation of the impact of the forecast on the allowance for credit losses balance.

• Testing the appropriateness of the methodology and assumptions used in the calculation of the allowance for credit losses, testing completeness and accuracy of the data used in the calculation, testing application of the forecasted economic conditions determined by management and used in the calculation, and recalculating the impact of the forecast on the allowance for credit losses – loans balance.

We identified the estimation of qualitative and environmental factors used in the allowance for credit losses – loans as a critical audit matter.

The qualitative and environmental factors are used to estimate credit losses related to matters that are not captured in the historical loss rates, and are based on management’s evaluation of available internal and external data.

Auditing management’s judgments regarding the qualitative and environmental factors applied to the allowance for credit losses - loans involved a high degree of subjectivity.

Auditing management’s judgments regarding the qualitative and environmental factors applied to the allowance for credit losses - loans involved especially challenging and subjective auditor judgment when performing audit procedures and evaluating the results of those procedures.

The primary procedures we performed to address this critical audit matter included:

• Testing the design, implementation, and operating effectiveness of controls relating to management’s calculation of the allowance for credit losses, including controls over the determination of the qualitative and environmental factors used.

• Obtaining management’s analysis and supporting documentation related to the qualitative and environmental factors, and testing whether the environmental and qualitative factors used in the calculation of the allowance for credit losses are supported by the analysis provided by management.

• Testing the appropriateness of the methodology and assumptions used in the calculation of the allowance for credit losses, and testing completeness and accuracy of the data used in the calculation, application of the environmental and qualitative factors determined by management and used in the calculation, and recalculation of the allowance for credit losses balance.

• Obtaining management’s analysis and supporting documentation related to the qualitative and environmental factors, and testing whether the environmental and qualitative factors used in the calculation of the allowance for credit losses – loans are supported by the analysis provided by management.

• Testing the appropriateness of the methodology and assumptions used in the calculation of the allowance for credit losses, testing completeness and accuracy of the data used in the calculation, testing application of the environmental and qualitative factors determined by management and used in the calculation, and recalculating the allowance for credit losses balance.

We identified management’s risk ratings of loans which are used in the allowance for credit losses – loans as a critical audit matter.

The Company uses internally determined risk ratings as credit indicators to classify loans into pools and to estimate expected loss rates for each of the loan pools.

Those loan pools are then included in the calculation of the allowance for credit losses.

Auditing management’s judgments regarding risk ratings of loans involved a high degree of subjectivity.

Those loan pools are then included in the calculation of the allowance for credit losses – loans.

Auditing management’s judgments regarding risk ratings of loans involved especially challenging and subjective auditor judgment when performing audit procedures and evaluating the results of those procedures.

The primary procedures we performed to address this critical audit matter included:

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• Testing a risk-based, targeted selection of loans to gain substantive evidence that the Company is appropriately rating these loans in accordance with its policies, and that the risk ratings for the loans are reasonable.

• Testing the completeness and accuracy of the loan data used in the allowance for credit losses calculation, including application of the loan risk ratings determined by management and used in the calculation, and recalculation of the allowance for credit losses balance.

/s/ Moss Adams LLP

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2,789,031 3,638,993

Securities—held-to-maturity, net of allowance for credit losses of $ 433 and $ 94 , respectively, fair value $ 541,853 and $ 448,681 , respectively

Securities—held-to-maturity, net of allowance for credit losses of $ 379 and $ 433 , respectively

1,117,588 520,922

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Liability for common stock issued to stock related compensation plans 6,905 7,435

Accumulated other comprehensive income 184 69,069

Accumulated other comprehensive (loss) income ( 362,769 ) 184

Total shareholders’ equity 1,456,432 1,690,327

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Net interest income 553,179 496,891 481,301

(RECAPTURE)/PROVISION FOR CREDIT LOSSES ( 33,388 ) 67,875 10,000

Net interest income after (recapture)/provision for credit losses 530,279 413,426 458,919

PROVISION (RECAPTURE) FOR CREDIT LOSSES 10,364 ( 33,388 ) 67,875

Net interest income after provision (recapture) for credit losses 542,815 530,279 413,426

NON-INTEREST INCOME

4 unchanged sentences

69,892 91,318 98,260

Net gain on sale of securities 482 1,012 33

Net (loss) gain on sale of securities ( 3,248 ) 482 1,012

Net change in valuation of financial instruments carried at fair value 807 4,616 ( 656 )

Gain on sale of branches, including related deposits 7,804 — —

Total non-interest income

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Occupancy and equipment 52,018 52,850 53,362

Information/computer data services 24,356 24,386 22,458

Payment and card processing expenses 20,544 16,095 16,993

Information and computer data services 25,986 24,356 24,386

Payment and card processing services 21,195 20,544 16,095

Professional and legal expenses 14,005 22,274 12,093

1 unchanged sentence

Deposit insurance 6,649 5,583 6,516

State/municipal business and use taxes 4,343 4,355 3,880

REO operations ( 22 ) ( 190 ) 303

State and municipal business and use taxes 4,693 4,343 4,355

Real estate operations, net ( 104 ) ( 22 ) ( 190 )

Amortization of core deposit intangibles 5,279 6,571 7,732

23 unchanged sentences

NET INCOME $ 195,378 $ 201,048 $ 115,928

OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES:

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAXES:

Unrealized holding (loss) gain on securities—available-for-sale arising during the period ( 418,827 ) ( 80,073 ) 45,247

Income tax benefit (expense) related to securities—available-for-sale unrealized holding losses 100,518 19,217 ( 10,860 )

Reclassification for net gain on securities—available-for-sale realized in earnings ( 498 ) ( 454 ) ( 34 )

Income tax expense related to securities—available-for-sale realized gains 120 109 8

Reclassification for net loss (gain) on securities—available-for-sale realized in earnings 3,248 ( 498 ) ( 454 )

Income tax (benefit) expense related to securities—available-for-sale realized gains ( 780 ) 120 109

Unrealized loss on securities transferred from available-for-sale to held-to-maturity ( 34,596 ) — —

Income tax benefit related to securities transferred from available-for-sale to held-to-maturity 8,303 — —

Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity 2,625 — —

Income tax benefit related to amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity ( 630 ) — —

Net unrealized loss on interest rate swaps used in cash flow hedges ( 25,223 ) ( 1,261 ) —

Income tax benefit related interest rate swaps used in cash flow hedges 302 — —

Income tax benefit related to interest rate swaps used in cash flow hedges 6,054 302 —

Changes in fair value of junior subordinated debentures related to instrument specific credit risk ( 5,560 ) ( 10,419 ) 2,330

( 10,419 ) 2,330 601

Income tax benefit (expense) related to junior subordinated debentures 1,334 2,501 ( 559 )

2 unchanged sentences

Other comprehensive (loss) income ( 362,953 ) ( 68,885 ) 35,813

COMPREHENSIVE INCOME $ 132,163 $ 151,741 $ 172,430

COMPREHENSIVE (LOSS) INCOME $ ( 167,575 ) $ 132,163 $ 151,741

See notes to the consolidated financial statements

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For the Years Ended December 31, 2022, 2021 and 2020

and Paid in Capital Retained Earnings Accumulated Other Comprehensive

(Loss) Income Shareholders’ Equity

Common Stock and Paid in Capital Retained Earnings Accumulated Other Comprehensive Income Total Shareholders’ Equity

Shares Amount

Balance, January 1, 2020 35,751,576 $ 1,373,940 $ 186,838 $ 33,256 $ 1,594,034

New credit standard (ASC 326) - impact in year of adoption, net of tax ( 11,215 ) ( 11,215 )

Net income 115,928 115,928

Other comprehensive loss

26,152 26,152

Other comprehensive income, net of income tax 35,813 35,813

Accrual of dividends on common stock ($ 1.23 /share-cumulative)

4 unchanged sentences

32,404 7,714 7,714

Issuance of shares for acquisition

1,578,351 85,200 85,200

Balance, December 31, 2020 35,159,200 $ 1,349,879 $ 247,316 $ 69,069 $ 1,666,264

Balance, January 1, 2021 35,159,200 $ 1,349,879 $ 247,316 $ 69,069 $ 1,666,264

New credit standard (ASC 326) - impact in year of adoption, net of tax ( 11,215 ) ( 11,215 )

Net income 201,048 201,048

Other comprehensive income

35,813 35,813

Other comprehensive loss, net of income tax ( 68,885 ) ( 68,885 )

Accrual of dividends on common stock ($ 1.64 /share-cumulative)

5 unchanged sentences

Balance, December 31, 2021 34,252,632 $ 1,299,381 $ 390,762 $ 184 $ 1,690,327

(Continued on next page)

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(continued) (in thousands, except shares)

For the Years Ended December 31, 2021, 2020 and 2019

and Paid in Capital Retained Earnings Accumulated Other Comprehensive

Income Shareholders’ Equity

Shares Amount

Balance, January 1, 2022 34,252,632 $ 1,299,381 $ 390,762 $ 184 $ 1,690,327

Net income 195,378 195,378

Other comprehensive loss ( 68,885 ) ( 68,885 )

Other comprehensive loss, net of income tax ( 362,953 ) ( 362,953 )

Accrual of dividends on common stock ($ 1.76 /share-cumulative)

15 unchanged sentences

Depreciation 16,933 17,345 18,130

Deferred income/expense, net of amortization ( 38,786 ) ( 15,040 ) ( 1,543 )

Deferred income and expense, net of amortization ( 3,757 ) ( 38,786 ) ( 15,040 )

Capitalized loan servicing rights, net of amortization 1,326 ( 1,805 ) ( 894 )

Amortization of core deposit intangibles 5,279 6,571 7,732

Gain on sale of securities, net ( 482 ) ( 1,012 ) ( 33 )

Loss (gain) on sale of securities, net 3,248 ( 482 ) ( 1,012 )

Net change in valuation of financial instruments carried at fair value ( 807 ) ( 4,616 ) 656

Reinvested dividends – equity securities — — ( 353 )

Gain on sale of branches, including related deposits ( 7,804 ) — —

Decrease (increase) in deferred taxes 7,624 16,357 ( 13,963 )

(Decrease) increase in current taxes payable ( 3,643 ) ( 2,193 ) 607

Increase (decrease) in current taxes payable 8,250 ( 3,643 ) ( 2,193 )

Stock-based compensation 8,870 9,258 9,168

1 unchanged sentence

Gain on sale of loans, excluding capitalized servicing rights ( 4,556 ) ( 26,140 ) ( 43,304 )

(Gain) loss on disposal of real estate held for sale and property and equipment, net ( 2,305 ) 859 1,075

(Recapture) provision for credit losses ( 33,388 ) 67,875 10,000

Loss (gain) on disposal of real estate held for sale and property and equipment, net 102 ( 2,305 ) 859

Provision (recapture) for credit losses 10,364 ( 33,388 ) 67,875

Provision for losses on real estate held for sale — — 45

10 unchanged sentences

Proceeds from sales of securities—available-for-sale 214,335 83,663 150,374

83,663 150,374 86,083

Purchases of securities—held-to-maturity ( 190,645 ) ( 135,615 ) ( 222,094 )

( 135,615 ) ( 222,094 ) ( 54,850 )

Principal repayments and maturities of securities—held-to-maturity 56,056 32,487 33,848

32,487 33,848 50,962

Purchases of equity securities — ( 4,750 ) ( 1,060,000 )

Proceeds from sales of equity securities — 4,796 1,060,695

Loan repayments (originations), net 795,892 ( 561,338 ) ( 304,191 )

Loan (originations) repayments, net ( 897,505 ) 795,892 ( 561,338 )

Purchases of loans and participating interest in loans ( 126,556 ) ( 5,086 ) ( 2,510 )

Proceeds from sales of other loans 14,034 46,028 19,469

Net cash received related to branch divestitures — — 26,944

Net cash paid related to branch divestiture ( 168,137 ) — —

Purchases of property and equipment ( 14,724 ) ( 10,493 ) ( 12,803 )

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FINANCING ACTIVITIES:

Increase in deposits, net 1,759,638 2,518,654 272,625

Proceeds from FHLB advances — — 450,000

(Decrease) increase in deposits, net ( 528,672 ) 1,759,638 2,518,654

Repayment of long term FHLB borrowing ( 50,000 ) ( 100,000 ) —

Repayments of overnight and short-term FHLB borrowings, net — ( 300,000 ) ( 300,000 )

Increase (decrease) in other borrowings, net 79,704 66,311 ( 520 )

Advances (repayments) of overnight and short-term FHLB borrowings, net 50,000 — ( 300,000 )

(Decrease) increase in other borrowings, net ( 31,690 ) 79,704 66,311

Net proceeds from issuance of subordinated notes — — 98,027

4 unchanged sentences

Taxes paid related to net share settlement for equity awards ( 3,332 ) ( 3,228 ) ( 1,453 )

Net cash provided from financing activities 1,613,965 2,255,686 29,044

Net cash (used by) provided from financing activities ( 684,732 ) 1,613,965 2,255,686

NET CHANGE IN CASH AND CASH EQUIVALENTS ( 1,891,238 ) 900,117 926,448

4 unchanged sentences

Interest paid in cash $ 18,583 $ 24,278 $ 40,942

Taxes paid in cash 29,017 39,672 27,329

Taxes paid 24,885 29,017 39,672

NON-CASH INVESTING AND FINANCING TRANSACTIONS:

1 unchanged sentence

Dividends accrued but not paid until after period end 1,158 1,338 1,357

ACQUISITIONS (DISPOSITIONS):

Assets acquired — — 426,609

Liabilities assumed — — 373,016

Loans, held-for-sale, transferred to portfolio 35,466 — —

Securities, available-for-sale, transferred to held-to-maturity 462,159 — —

DISPOSITIONS:

Assets divested ( 1,539 ) — —

Liabilities divested ( 178,209 ) — —

See notes to consolidated financial statements

4 unchanged sentences

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

The Company is primarily engaged in the business of planning, directing and coordinating the business activities of its wholly-owned subsidiary, Banner Bank.

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

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

Banner Corporation is subject to regulation by the Board of Governors of the Federal Reserve System (Federal Reserve Board).

Banner Bank (the Bank) is subject to regulation by the Washington State Department of Financial Institutions, Division of Banks (DFI) and the Federal Deposit Insurance Corporation (the FDIC).

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

Net income also is affected by the level of the Company’s non-interest income, including deposit fees and other service charges, gains and losses on the sale of securities, results of mortgage banking operations, which includes loan origination and servicing fees and gains and losses on the sale of loans, as well as non-interest expense, provisions for loan losses and income tax provisions.

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

The Company is primarily engaged in the business of planning, directing and coordinating the business activities of its wholly-owned subsidiary, Banner Bank (the Bank).

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

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

Banner is subject to regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve Board).

The Bank is subject to regulation by the Washington State Department of Financial Institutions, Division of Banks (the DFI) and the Federal Deposit Insurance Corporation (the FDIC).

Basis of Presentation and Principles of Consolidation:

3 unchanged sentences

Securities and Exchange Commission (the SEC).

At December 31, 2021, the Company had nine wholly-owned subsidiary grantor trusts (the Trusts), each of which issued trust preferred securities (TPS) and common securities.

The Trusts are not included in the Company’s consolidated financial statements.

At December 31, 2022, the Company had five wholly-owned subsidiary grantor trusts (the Trusts), each of which issued trust preferred securities (TPS) and common securities.

The Trusts are not consolidated in the Company’s consolidated financial statements.

Subsequent Events:

The Company has evaluated events and transactions subsequent to December 31, 2021 for potential recognition or disclosure.

On February 18, 2022 , Banner Bank entered into a purchase and assumption agreement to sell four Banner Bank branches, 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.

The Company has evaluated events and transactions subsequent to December 31, 2022 through the date that the consolidated financial statements were issued for potential recognition or disclosure.

Cash and Cash Equivalents:

7 unchanged sentences

Changes in deferred tax asset valuation allowances related to acquired tax uncertainties are recognized in net income after the measurement period.

A transaction between common controlled entities is not considered a business combination and the receiving entity records the net assets received in the transaction at their historical carrying amounts, as reflected in the parent’s financial statements.

Use of Estimates:

3 unchanged sentences

In particular, management has identified several accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of Banner’s consolidated financial statements.

These policies relate to (i) the methodology for the recognition of interest income, (ii) determination of the provision and allowance for credit losses, (iii) the valuation of financial assets and liabilities recorded at fair value, (iv) the valuation of intangible assets, such as goodwill, core deposit intangibles (CDI) and loan servicing rights, (v) the valuation of real estate held for sale, (vi) the valuation or recognition of deferred tax assets and liabilities and (vii) the valuation of assets and liabilities acquired in business combinations and subsequent recognition of related income and expense.

These policies and judgments, estimates and assumptions are described in greater detail in subsequent Notes to the Consolidated Financial Statements.

These policies relate to (i) determination of the provision and allowance for credit losses, (ii) the valuation of financial assets and liabilities recorded at fair value, (iii) the valuation of intangible assets, such as goodwill, (iv) the valuation or recognition of deferred tax assets and liabilities and (v) the determination of estimated losses from legal proceedings and other contingent matters pending.

Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate based on the factual circumstances at the time.

However, given the sensitivity of the consolidated financial statements to these critical accounting policies, the use of other judgments, estimates and

assumptions could result in material differences in the Company’s results of operations or financial condition.

However, given the sensitivity of the Consolidated Financial Statements to these critical accounting estimates, the use of other judgments, estimates and assumptions could result in material differences in the Company’s results of operations or financial condition.

Further, subsequent changes in economic or market conditions could have a material impact on these estimates and the Company’s financial condition and operating results in future periods.

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Unrealized holding gains and losses on securities classified as trading are included in earnings.

(See Note 16 for a more complete discussion of accounting for the fair value of financial instruments.) Realized gains and losses on sale are computed on the specific identification method and are included in earnings on the trade date sold.

Realized gains and losses on sale are computed on the specific identification method and are included in earnings on the trade date sold.

Equity securities are measured at fair value with changes in the fair value recognized through net income.

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The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to AOCI.

Changes in the allowance for credit losses are recorded as provision for (or recapture of) credit loss expense.

Losses are charged against the allowance when management believes the non-collectability of an available-for-sale or held-to-maturity security is confirmed or when either of the criteria regarding intent of requirement to sell is met.

Changes in the allowance for credit losses are recorded as provision for (or recapture of) credit losses.

Investment in FHLB Stock:

At December 31, 2021, the Bank had $ 12.0 million in FHLB of Des Moines stock (FHLB stock), compared to $ 16.4 million at December 31, 2020.

FHLB stock does not have a readily determinable fair value.

The Bank’s investments in FHLB stock is carried at cost or par value ($ 100 per share) and evaluated for impairment based on the Bank’s expectations of the ultimate recoverability of the stock’s par value.

The Bank’s investment in FHLB stock is carried at cost or par value ($ 100 per share) and evaluated for impairment based on the Bank’s expectations of the ultimate recoverability of the stock’s par value.

Ownership of FHLB stock is restricted to the FHLB and member institutions and can only be purchased and redeemed at par, therefore there has been no observable changes in market prices.

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The Bank also originates construction and land development, commercial real estate, commercial business, agricultural and consumer loans for portfolio investment.

Loans receivable not designated as held for sale are recorded at amortized cost, net

of the allowance for credit losses.

Loans receivable not designated as held for sale are recorded at amortized cost, net of the allowance for credit losses.

Amortized cost is the principal amount outstanding, net of deferred fees, discounts and premiums.

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Fair values for residential mortgage loans held for sale are determined by comparing actual loan rates to current secondary market prices for similar loans.

The multifamily held for sale loans originated prior to April 1, 2020 are carried at fair value in order to match changes in the value of the loans with the value of the related economic hedges on the loans.

The multifamily held for sale loans originated prior to April 1, 2020 were carried at fair value in order to match changes in the value of the loans with the value of the related economic hedges on the loans.

Fair values for multifamily loans held for sale are calculated based on discounted cash flows using a discount rate that is a combination of market spreads for similar loan types added to selected index rates.

The multifamily held for sale loans originated subsequent to March 31, 2020 are carried at the lower of cost or market.

Net unrealized losses on loans held for sale that are carried at lower of cost or market are recognized through the valuation allowance by charges to income.

Net unrealized losses on loans held for sale that are carried at lower of cost or market are recognized through the valuation allowance as charges to income.

Non-refundable fees and direct loan origination costs related to loans held for sale carried at the lower of cost or market are recognized as part of the cost basis of the loan.

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While credit discounts are included in the determination of the fair value for non-credit-deteriorated loans, since these discounts are expected to be accreted over the life of the loans, they cannot be used to offset the allowance for credit losses that must be recorded at the acquisition date.

As a result, an allowance for credit losses is determined at the acquisition date using the same methodology as other loans held for investment and is recognized as a provision for credit losses in the Consolidated Statement of Operations.

As a result, an allowance for credit losses is determined at the acquisition date using the same methodology as other loans held for investment and is recognized as a provision for credit losses.

Any subsequent deterioration (improvement) in credit quality is recognized by recording (recapturing) a provision for credit losses.

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Provision and Allowance for Credit Losses - Loans :

The methodology for determining the allowance for credit losses - loans is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for credit losses.

The methodology for determining the allowance for credit losses - loans is considered a critical accounting estimate by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for credit losses - loans.

Among the material estimates required to establish the allowance for credit losses - loans are:

a reasonable and supportable forecast;

a reasonable and supportable forecast period and the reversion period;

a reasonable and supportable forecast period and reversion period;

value of collateral;

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The allowance for credit losses - loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans.

The Bank has elected to exclude accrued interest receivable from the amortized cost basis in their estimate of the allowance for credit losses.

The provision for credit losses reflects the amount required to maintain the allowance for credit losses at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves.

The Company has established systematic methodologies for the determination of the adequacy of the Company’s allowance for credit losses.

The Bank has elected to exclude accrued interest receivable from the amortized cost basis in their estimate of the allowance for credit losses - loans.

The provision for credit losses reflects the amount required to maintain the allowance for credit losses - loans at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves.

The Company has established systematic methodologies for the determination of the adequacy of the Company’s allowance for credit losses - loans.

The methodologies are set forth in a formal policy and take into consideration the need for a valuation allowance for loans evaluated on a collective (pool) basis which have similar risk characteristics as well as allowances that are tied to individual loans that do not share risk characteristics.

The Company increases its allowance for credit losses by charging provisions for credit losses on its Consolidated Statement of Operations.

Losses related to specific assets are applied as a reduction of the carrying value of the assets and charged against the

allowance for credit loss reserve when management believes the uncollectibility of a loan balance is confirmed.

Recoveries on previously charged off loans are credited to the allowance for credit losses.

The Company increases its allowance for credit losses - loans by charging the provision for credit losses.

Losses related to specific assets are applied as a reduction of the carrying value of the assets and charged against the allowance for credit loss reserve when management believes the uncollectibility of a loan balance is confirmed.

Recoveries on previously charged off loans are credited to the allowance for credit losses - loans.

Management estimates the allowance for credit losses - loans using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The allowance for credit losses is maintained at a level sufficient to provide for expected credit losses over the life of the loan based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio.

The allowance for credit losses - loans 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.

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For credit cards, historical credit loss assumptions are estimated using a model that calculates an expected life-of-loan loss percentage for each loan category by considering the historical cumulative losses based on the aggregate net lifetime losses incurred for each loan pool.

The model captures historical loss data commencing with the first quarter of 2008.

For loans evaluated collectively, management uses economic indicators to adjust the historical loss rates so that they better reflect management’s expectations of future conditions over the remaining lives of the loans in the portfolio based on reasonable and supportable forecasts.

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The economic indicators evaluated include the unemployment rate, gross domestic product, real estate price indices and growth, industrial employment, corporate profits, the household consumer debt service ratio, the household mortgage debt service ratio, and single family median home price growth.

Management considers various economic scenarios and forecasts when evaluating the economic indicators and probability weights the various scenarios to arrive at the forecast that most reflects management’s expectations of future conditions.

Management considers various economic scenarios and forecasts when evaluating the economic indicators and weighs the probability of various scenarios to arrive at the forecast that most reflects management’s expectations of future conditions.

The allowance for credit losses is then adjusted for the period in which those forecasts are considered to be reasonable and supportable.

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Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

The contractual term excludes expected extensions, renewals, and modifications unless either management has a reasonable expectation at the

reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Bank.

The contractual term excludes expected extensions, renewals, and modifications unless either management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Bank.

Some of the Bank’s loans are reported as troubled debt restructures (TDRs).

Loans are reported as TDRs when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider.

Loans are reported as TDRs when the Bank grants a concession to a borrower experiencing financial difficulties that it would not otherwise consider.

Examples of such concessions include forgiveness of principal or accrued interest, extending the maturity date(s) or providing a lower interest rate than would be normally available for a transaction of similar risk.

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When the value of a concession is measured using the discounted cash flow method the allowance for credit losses is determined by discounting the expected future cash flows at the original interest rate of the loan.

The Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) and the Consolidated Appropriations Act, 2021 (CAA) provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs.

This includes short-term (e.g.

six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

Borrowers are considered current under the CARES Act and regulatory guidance if they are less than 30 days past due on their contractual payments at the time a modification program is implemented.

The CAA extends relief offered under the CARES Act related to TDRs as a result of COVID-19 through January 1, 2022.

Loan Origination and Commitment Fees:

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Changes in the allowance for credit losses - unfunded loan commitments are recognized as provision for (or recapture of) credit loss expense and added to the allowance for credit losses - unfunded loan commitments, which is included in other liabilities in the Consolidated Statements of Financial Condition.

Real Estate Owned, Held for Sale:

Real Estate Owned:

Property acquired by foreclosure or deed in lieu of foreclosure is recorded at the estimated fair value of the property, less expected selling costs.

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The amounts the Bank will ultimately recover from real estate held for sale may differ substantially from the carrying value of the assets because of market factors beyond the Bank’s control or because of changes in the Bank’s strategies for recovering the investment.

Property is classified as held for sale when the Company commits to a plan to sell the property and is actively marketing the property for sale.

Held for sale property is recorded at the lower of the estimated fair value of the property, less expected selling costs, or the book value at the date the property is transferred to held for sale.

Depreciation is not recorded on held for sale property.

Property and Equipment:

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If identified, an impairment loss is recognized through a charge to earnings based on the fair value of the property.

Right of Use Lease Asset & Lease Liability:

Property is classified as held for sale when the Company commits to a plan to sell the property and is actively marketing the property for sale.

Held for sale property is recorded at the lower of the estimated fair value of the property, less expected selling costs, or the book value at the date the property is transferred to held for sale.

Depreciation is not recorded on held for sale property.

The Company leases retail space, office space, storage space, and equipment under operating leases.

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We record an operating lease right of use (ROU) asset and an operating lease liability (lease liability) for operating leases with a lease term greater than 12 months.

The ROU asset and lease liability are recorded in the Consolidated Statement of Financial Condition.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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To the extent other identifiable intangible assets are deemed unrecoverable, impairment losses are recorded in other non-interest expense to reduce the carrying amount of the assets.

Mortgage and SBA Servicing Rights:

Mortgage and Small Business Administration (SBA) Servicing Rights:

Servicing assets are recognized as separate assets when rights are acquired through purchase or sale of loans.

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The amortization of mortgage servicing rights is netted against loan servicing fee income.

Bank-Owned Life Insurance (BOLI):

Bank-Owned Life Insurance:

The Bank has purchased, or acquired through mergers, life insurance policies in connection with the implementation of certain executive supplemental income, salary continuation and deferred compensation retirement plans.

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however, there may be an income tax impact if the Bank chooses to surrender certain policies.

Although the lives of individual current or former management-level employees are insured, the Bank is the respective owner and sole or partial beneficiaries.

Although the lives of individual current or former management-level employees are insured, the Bank is the respective owner and sole or partial beneficiary.

BOLI is carried at the cash surrender value (CSV) of the underlying insurance contract.

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Derivatives include “off-balance-sheet” financial products, the value of which is dependent on the value of underlying financial assets, such as stock, bonds, foreign currency, or a reference rate or index.

Such derivatives include “forwards,” “futures,” “options” or “swaps.” Banner Bank uses an interest rate swap program which involves the receipt of fixed-rate amounts from a counterparty in exchange for variable-rate payments over the life of the agreements without exchange of the underlying notional amount.

Such derivatives include “forwards,” “futures,” “options” or “swaps.” The Bank uses an interest rate swap program which involves the receipt of fixed-rate amounts from a counterparty in exchange for variable-rate payments over the life of the agreements without exchange of the underlying notional amount.

Such derivatives are used to hedge the variable cash flows associated with existing variable-rate assets.

These interest rate swaps qualify as cash flow hedging instruments so gains and losses are recorded in AOCI to the extent the hedge is effective.

Gains and losses on the interest

rate swaps are reclassified from AOCI to earnings in the period the hedged transaction affects earnings and are included in interest income.

Gains and losses on the interest rate swaps are reclassified from AOCI to earnings in the period the hedged transaction affects earnings and are included in interest income.

Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are received on the Company’s variable-rate assets.

Banner Bank is a party to $ 400.0 million in notional amounts of these types of interest rate swaps at December 31, 2021.

In addition, Banner Bank uses an interest rate swap program for commercial loan clients that provides the client with a variable rate loan and enters into an interest rate swap allowing them to effectively fix their loan interest rates.

The Bank is a party to $ 400.0 million in notional amounts of these types of interest rate swaps at December 31, 2022.

In addition, the Bank uses an interest rate swap program for commercial loan clients that provides the client with a variable rate loan and enters into an interest rate swap allowing them to effectively fix their loan interest rates.

These client swaps are matched with third party swaps with qualified broker/dealer or banks to offset the risk.

At December 31, 2021, Banner Bank had $ 551.6 million in notional amounts of these client interest rate swaps outstanding, with an equal amount of offsetting third party swaps also in place.

At December 31, 2022, the Bank had $ 440.7 million in notional amounts of these client interest rate swaps outstanding, with an equal amount of offsetting third party swaps also in place.

The fair value adjustments for these swaps are reflected in other assets or other liabilities as appropriate.

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The fair values for these instruments, which generally change as a result of changes in the level of market interest rates, are estimated based on dealer quotes and secondary market sources.

Assumptions used include rate assumptions based on historical information, current mortgage interest rates, the stage of completion of the underlying application and underwriting process, the time remaining until the expiration of the derivative loan commitment, and the expected net future cash flows related to the associated servicing of the loan (see Note 21 for a more complete discussion of derivatives and hedging).

Transfers of Financial Assets:

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Basic earnings per common share is computed by dividing net earnings allocated to common shareholders by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities.

Diluted earnings per common share

is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock compensation using the treasury stock method.

Comprehensive Income:

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The performance of the Bank is reviewed by the Company’s executive management and Board of Directors on a monthly basis.

All of the executive officers of the Company are members of Banner Bank’s management team.

Generally Accepted Accounting Principles establish standards to report information about operating segments in annual financial statements and require reporting of selected information about operating segments in interim reports to shareholders.

All of the executive officers of the Company are members of the Bank’s management team.

The Company has determined that its current business and operations consist of a single business segment and a single reporting unit.

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Certain reclassifications have been made to the prior years’ consolidated financial statements and/or schedules to conform to the current year’s presentation.

These reclassifications may have affected certain reported amounts and ratios for the prior periods.

These reclassifications may have an impact on certain reported amounts and ratios for the prior periods.

These reclassifications had no effect on retained earnings or net income as previously presented and the effect of these reclassifications is considered immaterial.

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dollar LIBOR has been extended to June 30, 2023.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of Sunset Date of Topic 848 .

This ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

This deferral of the sunset date is in response to the extension of the publication cessation date to June 30, 2023 noted above which was beyond the current sunset date of December 31, 2022.

The amendments in this ASU are effective upon the issuance date of December 2022.

The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance:

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The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

The amendments in these ASUs are effective upon the issuance date of March 12, 2020 and applies to contract modifications made and new hedging relationships entered into through December 31, 2022.

The amendments in this ASUs are effective upon the issuance date of March 12, 2020, and applies to contract modifications made and new hedging relationships entered into through December 31, 2022.

The Company has elected certain expedients related to individual hedge relationships.

The Company will be able to use other expedients in this guidance to manage through the transition away from LIBOR, specifically as they relate to loans, leases and hedging relationships.

The Company will be able to use other expedients in the Reference Rate Reform guidance to manage through the transition from LIBOR, specifically as they relate to loans, leases and hedging relationships.

The adoption of this accounting guidance did not have a material impact on the Company’s Consolidated Financial Statements.

Financial Instruments – Credit Losses (Topic 326)

In March 2022, the FASB issued guidance within ASU 2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures .

The amendments in this ASU eliminate the current troubled debt restructuring (TDR) recognition and measurement guidance and, instead, require that a creditor evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.

The amendments also introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

These amendments require vintage disclosures including current-period gross write-offs by year of origination for financing receivables.

Gross write-off information must be included in the vintage disclosures in accordance with ASC 326-20-50-6, which requires disclosure of the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, as the Company previously adopted the amendments in ASU 2016-13, which is commonly referred to as the current expected credit loss methodology, on January 1, 2020.

These amendments should be applied prospectively, though for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.

Fair Value Measurement (Topic 820)

In June 2022, the FASB issued guidance within ASU 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions .

The amendments in this ASU affect all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction.

These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The amendments in this ASU are effective for fiscal years, beginning after December 15, 2023, including interim periods within those fiscal years.

Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance.

The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.

The amortized cost, gross unrealized gains and losses, and estimated fair value of securities at December 31, 2022 and December 31, 2021 are summarized as follows (in thousands):

December 31, 2022

Amortized Cost Fair

Amortized Cost Fair Value

Corporate bonds $ 27,203 $ 28,694

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December 31, 2022

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value

Available-for-Sale:

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December 31, 2022

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair

Value Allowance for Credit Losses

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Allowance for Credit Losses

Held-to-Maturity:

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December 31, 2021

Amortized Cost Fair

Amortized Cost Fair Value

Corporate bonds $ 27,203 $ 26,981

1 unchanged sentence

December 31, 2021

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value

Available-for-Sale:

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December 31, 2021

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair

Value Allowance for Credit Losses

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Allowance for Credit Losses

Held-to-Maturity:

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$ 521,355 $ 21,917 $ ( 1,419 ) $ 541,853 $ ( 433 )

Accrued interest receivable on held-to-maturity debt securities was $ 3.3 million and $ 3.0 million as of December 31, 2021 and December 31, 2020, respectively, and was $ 10.1 million and $ 6.9 million on available-for-sale debt securities as of December 31, 2021 and December 31, 2020, respectively.

Accrued interest receivable on held-to-maturity debt securities was $ 4.8 million and $ 3.3 million as of December 31, 2022 and December 31, 2021, and was $ 12.4 million and $ 10.1 million on available-for-sale debt securities at December 31, 2022 and December 31, 2021, respectively.

Accrued interest receivable on securities is reported in accrued interest receivable on the Consolidated Statements of Financial Condition and is excluded from the calculation of the allowance for credit losses.

At December 31, 2021, the gross unrealized losses and the fair value for securities available-for-sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position were as follows (in thousands):

At December 31, 2022 and December 31, 2021 , the gross unrealized losses and the fair value for securities available-for-sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position were as follows (in thousands):

December 31, 2022

Less Than 12 Months 12 Months or More Total

Fair Value Unrealized

Losses Fair Value Unrealized

Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses

Available-for-Sale:

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$ 1,462,517 $ ( 137,551 ) $ 1,222,815 $ ( 293,658 ) $ 2,685,332 $ ( 431,209 )

At December 31, 2020, the gross unrealized losses and the fair value for securities available-for-sale and held-to-maturity aggregated by the length of time that individual securities have been in a continuous unrealized loss position were as follows (in thousands):

December 31, 2021

Less Than 12 Months 12 Months or More Total

Fair Value Unrealized

Losses Fair Value Unrealized

Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses

Available-for-Sale:

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There were no securities—trading in a nonaccrual status at December 31, 2022 or December 31, 2021.

Net unrealized holding gains of $ 2.0 million were recognized in 2021 and net unrealized holding losses of $ 656,000 were recognized 2020.

Net unrealized holding gains of $ 1.7 million were recognized in 2022 and net unrealized holding gains of $ 2.0 million were recognized 2021.

The following table presents gross gains and losses on sales and partial calls of securities available-for-sale (in thousands):

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There were no securities—available-for-sale in a nonaccrual status at December 31, 2022 and 2021.

During the year ended December 31, 2021, the Company sold one held-to-maturity security with a resulting net gain of $ 3,000 and had partial calls of securities that resulted in a net loss of $ 65,000 .

There were no sales of securities—held-to-maturity during the years ended December 31, 2020 or 2019, although there were partial calls of securities that resulted in a net gain of $ 216,000 for the year ended December 31, 2020 and a net loss of $ 1,000 for the year ended December 31, 2019.

The Company sold no held-to-maturity securities and had no partial calls of securities during the year ended December 31, 2022 and sold one held-to-maturity security with a resulting net gain of $ 3,000 and had partial calls of securities that resulted in a net loss of $ 65,000 during the year ended December 31, 2021.

There were no sales of securities—held-to-maturity during the year ended December 31, 2020, although there were partial calls of securities that resulted in a net loss of $ 216,000 for the year ended December 31, 2020.

There were no securities—held-to-maturity in a nonaccrual status at December 31, 2022 and 2021.

During the year ended December 31, 2021, the Company sold a $ 4.8 million equity security with a resulting net gain of $ 46,000 .

There were two sales of equity securities totaling $ 1.06 billion for the year ended December 31, 2020 with a resulting net loss of $ 177,000 and no sales of equity securities during the year ended December 31, 2019.

During the year ended December 31, 2022, the Company sold no equity securities, compared to a $ 4.8 million equity security with a resulting net gain of $ 46,000 during the year ended December 31, 2021, and two equity securities totaling $ 1.06 billion for the year ended December 31, 2020 with a resulting net loss of $ 177,000 .

During the year ended December 31, 2020, the Company also sold Visa Class B stock with a net gain of $ 519,000 .

The stock was previously carried at a zero-cost basis due to transfer restrictions and uncertainty of litigation.

The amortized cost and estimated fair value of securities at December 31, 2021, by contractual maturity, are shown below (in thousands).

The following table presents the amortized cost and estimated fair value of securities at December 31, 2022, by contractual maturity and does not reflect any required periodic payments (in thousands).

Expected maturities will differ from contractual maturities because some securities may be called or prepaid with or without call or prepayment penalties.

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The following table presents, as of December 31, 2022, investment securities which were pledged to secure borrowings, public deposits or other obligations as permitted or required by law (in thousands):

December 31, 2022

Carrying Value Amortized Cost Fair Value

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Total pledged securities $ 601,440 $ 613,085 $ 517,392

The Company monitors the credit quality of held-to-maturity debt securities through the use of credit rating.

Credit ratings are reviewed and updated quarterly.

The Company monitors the credit quality of held-to-maturity debt securities through the use of credit ratings which are reviewed and updated quarterly.

The Company’s non-rated held-to-maturity debt securities are primarily United States government sponsored enterprise debentures carrying minimal to no credit risk.

The remaining non-rated held-to-maturity debt securities balance is local municipal debt from within the Company’s geographic footprint and is monitored through quarterly or annual financial review.

The non-rated corporate bonds primarily consist of Community Reinvestment Act related bonds secured by loan instruments from low to moderate income borrowers.

The remaining non-rated held-to-maturity debt securities balance is comprised of local municipal debt from within the Company’s geographic footprint and is monitored through quarterly or annual financial review.

This municipal debt is predominately essential service or unlimited general obligation backed debt.

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Beginning Balance $ — $ 203 $ 230 $ — $ 433

Recapture of provision for credit losses — ( 20 ) ( 63 ) — ( 83 )

Securities charged-off — — — — —

Recoveries — — 29 — 29

Ending Balance $ — $ 183 $ 196 $ — $ 379

For the Year Ended December 31, 2021

Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total

Allowance for credit losses – securities

Beginning Balance $ — $ 59 $ 35 $ — $ 94

Provision for credit losses — 144 445 — 589

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LOANS RECEIVABLE AND THE ALLOWANCE FOR CREDIT LOSSES

During the first quarter of 2022, the Company changed the segmentation of its Small Balance CRE loan category based on the common risk characteristics used to measure the allowance for credit losses - loans.

The presentation of loans receivable at December 31, 2021 has been updated to match the segmentation used in the current period presentation.

The following table presents the loans receivable at December 31, 2022 and 2021 by class (dollars in thousands).

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Net loans $ 10,005,259 $ 8,952,664

(1) Includes $ 132.6 million and $ 1.04 billion of SBA PPP loans as of December 31, 2021 and December 31, 2020, respectively.

(2) Includes $ 1.4 million of SBA PPP loans as of December 31, 2021 and none as of December 31, 2020.

(1) Includes $ 7.6 million and $ 132.6 million of SBA Paycheck Protection Program (PPP) loans as of December 31, 2022 and December 31, 2021, respectively.

(2) Includes $ 334,000 of SBA PPP loans as of December 31, 2022 and $1.4 million as of December 31, 2021.

Loan amounts are net of unearned loan fees in excess of unamortized costs of $ 8.1 million as of December 31, 2022 and $ 8.6 million as of December 31, 2021.

2 unchanged sentences

Accrued interest receivable on loans was $ 39.8 million as of December 31, 2022 and $ 29.2 million as of December 31, 2021 and was reported in accrued interest receivable on the Consolidated Statements of Financial Condition.

At December 31, 2022 and 2021, the Company had pledged $ 6.5 billion and $ 5.4 billion of loans as collateral for FHLB and other borrowings, respectively.

The Company’s loans to directors, executive officers and related entities are on substantially the same terms and underwriting as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectability.

Such loans had balances of $ 700,000 and $ 1.5 million at December 31, 2021 and 2020, respectively.

Such loans had balances of $ 683,000 and $ 700,000 at December 31, 2022 and 2021, respectively.

Purchased credit-deteriorated and purchased non-credit-deteriorated loans.

1 unchanged sentence

Acquired loans are evaluated upon acquisition and classified as either purchased credit-deteriorated (PCD) or purchased non-credit-deteriorated.

There were no PCD loans acquired during the years ended December 31, 2021 and 2020.

There were no PCD loans at December 31, 2022 or 2021.

Troubled Debt Restructurings.

4 unchanged sentences

The Company had no commitments to advance additional funds related to TDRs as of both December 31, 2022 and 2021.

There were no new TDRs that occurred during the year ended December 31, 2021.

The following tables present new TDRs that occurred during the years ended December 31, 2020 and 2019 (dollars in thousands):

Contracts Pre-modification Outstanding Recorded Investment Post-modification Outstanding Recorded Investment

Year Ended December 31, 2020

Recorded Investment (1) (2)

Commercial business 3 $ 5,532 $ 5,532

Agricultural business/farmland 1 $ 169 $ 169

Total 4 $ 5,701 $ 5,701

Year Ended December 31, 2019

Recorded Investment (1) (2)

Commercial real estate:

Investment properties 1 $ 1,090 $ 1,090

Commercial business 1 $ 160 $ 160

Agricultural business/farmland 1 $ 596 $ 596

Total 3 $ 1,846 $ 1,846

(1) Since most loans were already considered classified and/or on non-accrual status prior to restructuring, the modifications did not have a material effect on the Company’s determination of the allowance for credit losses.

(2) Generally, these modifications do not fit into one separate type, such as rate, term, amount, interest-only or payment, but instead are a combination of multiple types of modifications;

therefore, they are disclosed in aggregate.

There were no new TDRs that occurred during the years ended December 31, 2022 or December 31, 2021.

There were no TDRs which incurred a payment default within the years ended December 31, 2022 and 2021, for which the payment default occurred within twelve months of the restructure date.

A default on a restructured loan results in a transfer to nonaccrual status, a charge-off or a combination of both.

A default on a TDR results in either a transfer to nonaccrual status or a partial charge-off, or both

Credit Quality Indicators :

8 unchanged sentences

Consequently, the definitions are to be applied in the context of each lending transaction and judgment must also be used to determine the appropriate risk rating, as it is not unusual for a loan or lease to exhibit characteristics of more than one risk-rating category.

Consideration for the final rating is centered in the borrower’s ability to repay, in a timely fashion, both principal and interest.

Consideration for the final rating is centered on the borrower’s ability to repay, in a timely fashion, both principal and interest.

The Company’s risk-rating and loan grading policies are reviewed and approved annually.

259 unchanged sentences

December 31, 2022

Real Estate Accounts Receivable Equipment Total

Real Estate Equipment Total

Commercial real estate:

Owner-occupied $ 3,806 $ — $ — $ 3,806

Investment properties 7,322 — — 7,322

Small balance CRE $ 2,953 $ — $ 2,953

Commercial business:

Agricultural business, including secured by farmland

427 — 594 1,021

Commercial business — 4,537 4,537

Small business scored — 307 307

One- to four-family residential 1,622 — 1,622

Total $ 4,575 $ 4,844 $ 9,419

December 31, 2021

Real Estate Accounts Receivable Equipment Total

Real Estate Equipment Total

Commercial real estate:

2 unchanged sentences

Small balance CRE 5,902 — 5,902

Land and land development 302 — — 302

Commercial business 17 47 64

Commercial business 557 — — 557

Small business scored 44 — 47 91

Agricultural business, including secured by farmland

427 594 1,021

One- to four-family residential 196 — — 196

Total $ 13,403 $ 641 $ 14,044

The following tables provide additional detail on the age analysis of Banner’s past due loans as of December 31, 2021 and 2020 (in thousands):

The following tables provide additional detail on the age analysis of the Company’s past due loans as of December 31, 2022 and 2021 (in thousands):

December 31, 2022

Past Due 60-89 Days

Past Due 90 Days or More

Past Due Total

Past Due Current Total Loans Non-accrual with no Allowance Total Non-accrual (1)

30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Non-accrual with no Allowance Total Non-accrual (1)

Loans 90 Days or More Past Due and Accruing

19 unchanged sentences

December 31, 2021

Past Due 60-89 Days

Past Due 90 Days or More

Past Due Total

Past Due Current Total Loans Non-accrual with no Allowance Total Non-accrual (1)

30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Non-accrual with no Allowance Total Non-accrual (1)

Loans 90 Days or More Past Due and Accruing

19 unchanged sentences

(1) The Company did not recognize any interest income on non-accrual loans during both the years ended December 31, 2022 and 2021.

The following tables provide the activity in the allowance for credit losses by portfolio segment for the years ended December 31, 2021 and 2020 (in thousands):

The following tables provide the activity in the allowance for credit losses - loans by portfolio segment for the years ended December 31, 2022, 2021 and 2020 (in thousands):

For the Year Ended December 31, 2022

Real Estate Multifamily

Real Estate Construction and Land Commercial

Business Agricultural

Business One- to Four-Family Residential Consumer Unallocated Total

Commercial Real Estate Multifamily Real Estate Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Unallocated Total

Allowance for credit losses:

Beginning balance $ 52,995 $ 7,043 $ 27,294 $ 26,421 $ 3,190 $ 8,205 $ 6,951 $ — $ 132,099

Provision/(recapture) for credit losses ( 2,758 ) 3,209 ( 14,101 ) ( 8,621 ) ( 1,573 ) ( 1,907 ) ( 7,361 ) — ( 33,112 )

(Recapture)/provision for credit losses ( 9,299 ) 691 1,523 6,654 ( 148 ) 6,343 2,394 — 8,158

Recoveries 392 — 384 1,923 475 181 566 — 3,921

1 unchanged sentence

Ending balance $ 44,086 $ 7,734 $ 29,171 $ 33,299 $ 3,475 $ 14,729 $ 8,971 $ — $ 141,465

Net loan charge-offs as a percent of average outstanding loans during the period ( 0.02 ) % — % — % — % — % — % — % n/a ( 0.02 ) %

Net loan recoveries as a percent of average outstanding loans during the period — % — % — % — % — % — % — % n/a 0.01 %

For the Year Ended December 31, 2021

Real Estate Multifamily

Real Estate Construction and Land Commercial

Business Agricultural

Business One- to Four-Family Residential Consumer Unallocated Total

Allowance for loan losses:

Commercial Real Estate Multifamily Real Estate Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Unallocated Total

Allowance for credit losses:

Beginning balance $ 57,791 $ 3,893 $ 41,295 $ 35,007 $ 4,914 $ 9,913 $ 14,466 $ — $ 167,279

Impact of Adopting ASC 326 ( 2,864 ) ( 2,204 ) 2,515 3,010 ( 351 ) 7,125 2,973 ( 2,392 ) 7,812

Provision/(recapture) for credit losses 31,643 1,409 15,781 12,615 ( 87 ) ( 1,679 ) 4,603 — 64,285

(Recapture)/provision for credit losses ( 2,758 ) 3,209 ( 14,101 ) ( 8,621 ) ( 1,573 ) ( 1,907 ) ( 7,361 ) — ( 33,112 )

Recoveries 1,729 — 100 1,797 30 199 760 — 4,615

1 unchanged sentence

Ending balance $ 52,995 $ 7,043 $ 27,294 $ 26,421 $ 3,190 $ 8,205 $ 6,951 $ — $ 132,099

Net loan (charge-offs) recoveries as a percent of average outstanding loans during the period ( 0.02 ) % — % — % ( 0.04 ) % 0.01 % — % ( 0.01 ) % n/a ( 0.05 ) %

The following table provides additional information on the allowance for loan losses for the year ended December 31, 2019 (in thousands):

Net loan charge-offs as a percent of average outstanding loans during the period ( 0.02 ) % — % — % — % — % — % — % n/a ( 0.02 ) %

For the Year Ended December 31, 2020

Real Estate Multifamily

Real Estate Construction

and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Unallocated Total

Allowance for loan losses:

Commercial Real Estate Multifamily Real Estate Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Unallocated Total

Allowance for credit losses:

Beginning balance $ 30,591 $ 4,754 $ 22,994 $ 23,370 $ 4,120 $ 4,136 $ 8,202 $ 2,392 $ 100,559

Impact of Adopting ASC 326 ( 2,864 ) ( 2,204 ) 2,515 3,010 ( 351 ) 7,125 2,973 ( 2,392 ) 7,812

Provision/(recapture) for loan losses 31,643 1,409 15,781 12,615 ( 87 ) ( 1,679 ) 4,603 — 64,285

9 unchanged sentences

Additions from loan foreclosures — 512 1,588

Additions from acquisitions — — 650

Proceeds from dispositions of REO ( 864 ) ( 783 ) ( 2,360 )

3 unchanged sentences

The Company had no foreclosed residential real estate properties held as REO at both December 31, 2022 and December 31, 2021.

The recorded investment in one- to four-family residential loans in the process of foreclosure was $ 609,000 at both December 31, 2021 and December 31, 2020.

The recorded investment in one- to four-family residential loans in the process of foreclosure was $ 1.1 million and $ 609,000 at December 31, 2022 and December 31, 2021, respectively.

PROPERTY AND EQUIPMENT, NET

16 unchanged sentences

Certificates of deposit:

Certificates of deposit less than or equal to $250,000

657,615 718,256

Certificates of deposit greater than $250,000

181,016 197,064

Certificates of deposit greater than or equal to $250,000 178,324 184,515

Certificates of deposit less than $250,000 545,206 654,116

Total certificates of deposit 723,530 838,631

838,631 915,320

Total deposits $ 13,620,059 $ 14,326,933

3 unchanged sentences

Total public deposits $ 419,669 $ 393,835

(1 ) Certificates of deposit included no acquisition discounts at December 31, 2021 and $ 58,000 of acquisition discounts at December 31, 2020.

Deposits at December 31, 2022 and 2021 included deposits from the Company’s directors, executive officers and related entities totaling $ 9.7 million and $ 13.1 million, respectively.

At December 31, 2021 and 2020, the Company had certificates of deposit of $ 184.5 million and $ 203.6 million, respectively, that were equal to or greater than $250,000.

Scheduled maturities and weighted average interest rates of certificates of deposits at December 31, 2022 are as follows (dollars in thousands):

December 31, 2022

Amount Weighted

Amount Weighted Average Rate

Maturing in one year or less $ 531,643 0.48 %

7 unchanged sentences

Utilizing a blanket pledge, qualifying loans receivable at December 31, 2022 and 2021, were pledged as security for FHLB borrowings and there were no securities pledged as collateral as of December 31, 2022 or 2021.

At December 31, 2021 and 2020, FHLB advances were scheduled to mature as follows (in thousands):

At December 31, 2022 and 2021, FHLB advances were scheduled to mature as follows (dollars in thousands):

At or for the Years Ended December 31

8 unchanged sentences

The average contractual interest rate on the FHLB advances for the years ended December 31, 2022 and 2021 was 3.20 % and 2.65 %, respectively.

As of December 31, 2021, Banner Bank has established a borrowing line with the FHLB to borrow up to 45 % of its total assets, contingent on having sufficient qualifying collateral and ownership of FHLB stock.

At December 31, 2021, under these credit facilities based on pledged collateral, Banner Bank had $ 2.38 billion of available credit capacity.

As of December 31, 2022, the Bank has established a borrowing line with the FHLB to borrow up to 45 % of its total assets, contingent on having sufficient qualifying collateral and ownership of FHLB stock.

At December 31, 2022, under these credit facilities based on pledged collateral, the Bank had $ 2.99 billion of available credit capacity.

OTHER BORROWINGS

3 unchanged sentences

These repurchase agreements are secured by the pledge of certain mortgage-backed and agency securities with a carrying value of $ 330.7 million.

Banner Bank has the right to pledge or sell these securities, but it must replace them with substantially the same securities.

Banner Bank had no borrowings under wholesale repurchase agreements at December 31, 2021 or December 31, 2020.

Federal Reserve Bank of San Francisco and Other Borrowings:

Banner Bank periodically borrows funds on an overnight basis from the Federal Reserve Bank through the Borrower-In-Custody program.

The Bank has the right to pledge or sell these securities, but it must replace them with substantially the same securities.

The Bank had no borrowings under wholesale repurchase agreements at December 31, 2022 or December 31, 2021.

Federal Reserve Bank of San Francisco and fed fund lines:

The Bank periodically borrows funds on an overnight basis from the Federal Reserve Bank through the Borrower-In-Custody program.

Such borrowings are secured by a pledge of eligible loans.

At December 31, 2021, based upon available unencumbered collateral, Banner Bank was eligible to borrow $ 782.3 million from the Federal Reserve Bank, although, at that date, as well as at December 31, 2020, Banner Bank had no funds borrowed under this or other borrowing arrangements.

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

At December 31, 2022, based upon available unencumbered collateral, the Bank was eligible to borrow $ 1.19 billion from the Federal Reserve Bank, although, at that date, as well as at December 31, 2021, the Bank had no funds borrowed under this arrangement.

At December 31, 2022, the Bank had uncommitted federal funds lines of credit agreements with other financial institutions totaling $ 125.0 million.

No balances were outstanding under these agreements as of December 31, 2022 and 2021.

3 unchanged sentences

At or for the Years Ended December 31

Amount Weighted

Average Rate Amount Weighted

Amount Weighted Average Rate Amount Weighted Average Rate

Repurchase agreements:

6 unchanged sentences

SUBORDINATED DEBT AND MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES

At December 31, 2021, the Company had nine wholly-owned subsidiary grantor trusts (the Trusts), which had issued $ 135.5 million of TPS to third parties, as well as $ 4.2 million of common capital securities, carried among other assets, which were issued to the Company.

At December 31, 2022, the Company had five wholly-owned subsidiary grantor trusts (the Trusts), which had issued $ 86.5 million of Trust Preferred Securities (TPS) to third parties, as well as $ 2.7 million of common capital securities, carried as other assets, which were issued to the Company.

TPS and common capital securities accrue and pay distributions periodically at specified annual rates as provided in the indentures.

4 unchanged sentences

The Company has the right to redeem the Debentures in whole on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date.

For the year ended December 31, 2021, the Company redeemed $ 8.0 million in trust preferred securities and $ 248,000 in related common capital securities resulting in a loss of $ 2.3 million.

There were no redemptions for the year ended December 31, 2020.

Subsequent to December 31, 2021, the Company fully redeemed the debentures issued by four of the Trusts, totaling $50.5 million.

All of the TPS issued by the Trusts qualified as Tier 1 capital as of December 31, 2021.

At December 31, 2021, the Trusts comprised $ 135.5 million, or 8.1 % of the Company’s total risk-based capital.

The following table is a summary of trust preferred securities at December 31, 2021 (dollars in thousands):

Name of Trust Aggregate Liquidation Amount of Trust Preferred Securities Aggregate Liquidation Amount of Common Capital Securities Aggregate Principal Amount of Junior Subordinated Debentures Stated

During the year ended December 31, 2022, the Company fully redeemed the debentures issued by four of the Trusts, totaling $ 50.5 million, resulting in a loss of $ 793,000 .

The Company redeemed $ 8.0 million in TPS and $ 248,000 in related common capital securities resulting in a loss of $ 2.3 million during the year ended December 31, 2021.

At December 31, 2022, the remaining Trusts comprised $ 86.5 million, or 4.9 % of the Company’s total risk-based capital.

The following table is a summary of TPS at December 31, 2022 (dollars in thousands):

Name of Trust Aggregate Liquidation Amount of Trust Preferred Securities Aggregate Liquidation Amount of Common Capital Securities Aggregate Principal Amount of Junior Subordinated Debentures Stated Maturity (1)

Current Interest Rate Reset Period Interest Rate Spread

Banner Capital Trust II (3)

$ 15,000 $ 464 $ 15,464 2033 3.47 % Quarterly Three-month LIBOR + 3.35 %

Banner Capital Trust III (3)

15,000 465 15,465 2033 3.02 Quarterly Three-month LIBOR + 2.90 %

Banner Capital Trust IV (3)

15,000 465 15,465 2034 2.97 Quarterly Three-month LIBOR + 2.85 %

Banner Capital Trust V $ 25,000 $ 774 $ 25,774 2035 6.26 Quarterly Three-month LIBOR + 1.57 %

1 unchanged sentence

Banner Capital Trust VII 25,000 774 25,774 2037 5.12 Quarterly Three-month LIBOR + 1.38 %

Greater Sacramento Bancorp Statutory Trust I (3)

4,000 124 4,124 2033 3.47 Quarterly Three-month LIBOR + 3.35 %

Greater Sacramento Bancorp Statutory Trust II 4,000 124 4,124 2035 6.45 Quarterly Three-month LIBOR + 1.68 %

3 unchanged sentences

Total TPS liability at fair value (2)

(1) All of the Company’s trust preferred securities are eligible for redemption.

(1) All of the Company’s TPS are eligible for redemption.

(2) The Company has elected to use fair value accounting on its TPS.

(3) Fully redeemed subsequent to December 31, 2021.

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 (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 estimated offering expenses, of approximately $ 98.1 million.

3 unchanged sentences

The Notes are unsecured obligations and are subordinated in right of payment to all existing and future indebtedness, deposits and other liabilities of the Company’s current and future subsidiaries, including the Bank’s deposits as well as the Company’s subsidiaries’ liabilities to general creditors and liabilities arising during the ordinary course of business.

The Notes may be included in Tier 2 capital for the Company under current regulatory guidelines and interpretations.

The Notes are included in Tier 2 capital for the Company under current regulatory guidelines and interpretations.

The following table presents the components of the provision for income taxes included in the Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020 (in thousands):

17 unchanged sentences

Tax credits ( 1.9 ) ( 1.5 ) ( 2.6 )

Merger and acquisition costs — — 0.1

State audits and amended returns — — ( 0.5 )

Low income housing partnerships, net of amortization 1.3 1.1 1.6

10 unchanged sentences

Lease liability 12,997 14,136

Unrealized loss on securities - available-for-sale, net 114,708 91

Other 4,782 5,091

5 unchanged sentences

Right of use asset ( 11,603 ) ( 13,071 )

Unrealized loss (gain) on securities - available-for-sale 91 ( 21,662 )

Financial instruments accounted for under fair value accounting ( 1,176 ) ( 878 )

5 unchanged sentences

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment.

At December 31, 2021, the Company has federal net operating loss carryforwards of approximately $ 96.0 million.

At December 31, 2022, the Company had federal net operating loss carryforwards of $ 73.7 million.

The Company also has $ 64.6 million of state net operating loss carryforwards, against which the Company has established a $ 184,000 valuation reserve.

The federal and state net operating losses will expire, if unused, by the end of 2034.

The Company has federal general business credit carryforwards at December 31, 2021 of $ 3.3 million, which will expire, if unused, by the end of 2031.

The Company has federal general business credit carryforwards at December 31, 2022 of $ 219,000 , which will expire, if unused, by the end of 2031.

The Company also has federal alternative minimum tax credit carryforwards of $ 1.2 million, which are available to reduce future federal regular income taxes, if any, over an indefinite period.

1 unchanged sentence

At that same date, the Company also had federal alternative minimum tax credit carryforwards of approximately $ 4.2 million.

The Company had $ 100,000 of state credits at both December 31, 2022 and 2021, which are waiting for state funding before they can be utilized.

As a consequence of the Company’s 2015 acquisition of Starbuck Bancshares, Inc., the Company experienced a change in control within the meaning of Section 382 of the Code.

8 unchanged sentences

Based on its analysis, the Company believes it is more likely than not that the June 2010 change in control will not impact its ability to utilize all of the related available net operating loss carryforwards, general business credits, and recognized built-in-losses.

As of December 31, 2022, the Company had utilized all federal net operating losses and credits limited due to the June 2010 change in control.

Certain state net operating losses subject to the change of control limitations are still outstanding.

As a consequence of the Company’s 2019 acquisition of AltaPacific and AltaPacific Bank, the Company did not experience a change in control within the meaning of Section 382 of the Code.

46 unchanged sentences

In connection with its acquisitions, the Company also assumed liability for certain deferred compensation plans for key employees, retired employees and directors.

In order to fund the plans’ future obligations, the Company has purchased life insurance policies or other investments, including Banner Corporation common stock, which in certain instances are held in irrevocable trusts commonly referred to as “Rabbi Trusts.” As the Company is the owner of the investments and the beneficiary of the insurance policies, and in order to reflect the Company’s policy to pay benefits equal to the accumulations, the assets and liabilities are reflected in the Consolidated Statements of Financial Condition.

Banner Corporation common stock held for such plans is reported as a contra-equity account and was recorded at an original cost of $ 7.4 million at December 31, 2021 and $ 7.6 million at December 31, 2020.

In order to fund the plans’ future obligations, the Company has purchased life insurance policies or other investments, including Banner common stock, which in certain instances are held in irrevocable trusts commonly referred to as “Rabbi Trusts.” As the Company is the owner of the investments and the beneficiary of the insurance policies, and in order to reflect the Company’s policy to pay benefits equal to the accumulations, the assets and liabilities are reflected in the Consolidated Statements of Financial Condition.

Banner common stock held for such plans is reported as a contra-equity account and was recorded at an original cost of $ 6.9 million at December 31, 2022 and $ 7.4 million at December 31, 2021.

At December 31, 2022 and 2021, liabilities recorded in connection with deferred compensation plan benefits totaled $ 14.5 million ($ 6.9 million in contra-equity) and $ 15.0 million ($ 7.4 million in contra-equity), respectively, and are recorded in deferred compensation or equity as appropriate.

6 unchanged sentences

The Bank is exposed to credit risk to the extent an insurance company is unable to fulfill its financial obligations under a policy.

In order to mitigate this risk, the Bank uses a variety of insurance companies and regularly monitor their financial condition.

In order to mitigate this risk, the Bank uses a variety of insurance companies and regularly monitors their financial condition.

STOCK-BASED COMPENSATION PLANS

2 unchanged sentences

• 2018 Omnibus Incentive Plan (the 2018 Plan).

The purpose of these plans is to promote the success and enhance the value of the Company by providing a means for attracting and retaining highly skilled employees, officers and directors of Banner Corporation and its affiliates and linking their personal interests with those of the Company’s shareholders.

The purpose of these plans is to promote the success and enhance the value of the Company by providing a means for attracting and retaining highly skilled employees, officers and directors of Banner and its affiliates and linking their personal interests with those of the Company’s shareholders.

Under these plans the Company currently has outstanding restricted stock share grants and restricted stock unit grants.

2 unchanged sentences

The 2014 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, other stock-based awards and other cash awards, and provides for vesting requirements which may include time-based or performance-based conditions.

The Company has reserved 900,000 shares of its common stock for issuance under the 2014 Plan in connection with the exercise of awards.

The Company reserved 900,000 shares of its common stock for issuance under the 2014 Plan in connection with the exercise of awards.

As of December 31, 2022, 272,495 restricted stock shares and 429,982 restricted stock units have been granted under the 2014 Plan of which 1,552 restricted stock shares and 23,170 restricted stock units are unvested.

5 unchanged sentences

The expense associated with all restricted stock and unit grants was $ 8.9 million, $ 9.3 million and $ 9.2 million respectively, for the years ended December 31, 2022, 2021 and 2020.

Unrecognized compensation expense for these awards as of December 31, 2021 was $ 10.9 million and will be amortized over the next 35 months.

Unrecognized compensation expense for these awards as of December 31, 2022 was $ 10.9 million and will be recognized over a weighted average period of 24 months.

A summary of the Company’s Restricted Stock/Unit award activity during the years ended December 31, 2022, 2021 and 2020 follows:

Shares/Units Weighted Average

Shares/Units Weighted Average Grant-Date Fair Value

Unvested at January 1, 2020 382,872 $ 54.39

13 unchanged sentences

REGULATORY CAPITAL REQUIREMENTS

Banner Corporation is a bank holding company registered with the Federal Reserve.

Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended (BHCA), and the regulations of the Federal Reserve.

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

Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve.

Banner Bank, as a state-chartered federally insured commercial bank, is subject to the capital requirements established by the FDIC.

The Federal Reserve requires Banner to maintain capital adequacy that generally parallels the FDIC requirements.

On February 5, 2021, Islanders Bank, a subsidiary of Banner Corporation and a Washington-chartered commercial bank, was merged into Banner Bank.

Banner Bank and Islanders Bank (the Banks), as a state-chartered federally insured commercial banks, were both subject to the capital requirements established by the FDIC at December 31, 2020.

The following table shows the regulatory capital ratios of the Company and the Bank and the minimum regulatory requirements (dollars in thousands):

2 unchanged sentences

December 31, 2022:

The Company—consolidated:

Banner Corporation—consolidated:

Total capital to risk-weighted assets $ 1,769,064 14.04 % $ 1,008,232 8.00 % $ 1,260,290 10.00 %

7 unchanged sentences

December 31, 2021:

The Company—consolidated:

Banner Corporation—consolidated:

Total capital to risk-weighted assets $ 1,663,943 14.71 % $ 904,633 8.00 % $ 1,130,791 10.00 %

6 unchanged sentences

Tier 1 common equity to risk-weighted assets 1,428,955 12.64 508,589 4.50 734,629 6.50

Islanders Bank:

Total capital to risk- weighted assets 29,333 15.65 14,997 8.00 18,747 10.00

Tier 1 capital to risk- weighted assets 26,983 14.39 11,248 6.00 14,997 8.00

Tier 1 capital to average leverage assets 26,983 7.87 13,720 4.00 17,150 5.00

Tier 1 common equity to risk-weighted assets 26,983 14.39 8,436 4.50 12,185 6.50

At December 31, 2021, Banner Corporation and the Bank each exceeded the requirements to be “well capitalized” and the fully phased-in capital conservation buffer requirement.

At December 31, 2022, Banner and the Bank each exceeded the requirements to be “well capitalized” and the fully phased-in capital conservation buffer requirement.

There have been no conditions or events since December 31, 2022 that have materially adversely changed the Tier 1 or Tier 2 capital of the Company or the Bank.

1 unchanged sentence

The Company may not declare or pay cash dividends on, or repurchase, any of its shares of common stock if the effect thereof would cause equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration and payment would otherwise violate regulatory requirements.

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

Under capital regulations, the minimum capital ratios are:

(1) a CET1 capital ratio of 4.5% of risk-weighted assets;

(2) a Tier 1 capital ratio of 6.0% of risk-weighted assets;

(3) a total risk-based capital ratio of 8.0% of risk-weighted assets;

and (4) a leverage ratio (the ratio of Tier 1 capital to average total consolidated assets) of 4.0%.

CET1 generally consists of common stock;

retained earnings;

accumulated other comprehensive income (“AOCI”) unless an institution elects to exclude AOCI from regulatory capital;

and certain minority interests;

all subject to applicable regulatory adjustments and deductions.

Tier 1 capital generally consists of CET1 and noncumulative perpetual preferred stock.

Tier 2 capital generally consists of other preferred stock and subordinated debt meeting certain conditions plus an amount of the allowance for credit losses up to 1.25% of assets.

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

For purposes of determining risk-based capital, assets and certain off-balance sheet items are risk-weighted from 0% to 1,250%, depending on the risk characteristics of the asset or item.

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

GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS

3 unchanged sentences

Banner has identified one reporting unit for purposes of evaluating goodwill for impairment.

At December 31, 2021, the Company completed an assessment of qualitative factors and concluded that no further analysis was required as it is more likely than not that the fair value of Banner Bank, the reporting unit, exceeds the carrying value.

At December 31, 2022, the Company completed an assessment of qualitative factors and concluded that no further analysis was required as it is more likely than not that the fair value of the Bank, the reporting unit, exceeds the carrying value.

CDI represents the value of transaction-related deposits and the value of the client relationships associated with the deposits.

At December 31, 2018 intangible assets also included favorable leasehold intangibles (LHI).

LHI represented the value ascribed to leases assumed in an acquisition in which the lease terms are favorable compared to a market lease at the date of acquisition.

LHI was reclassified to the right of use lease asset in connection with the adoption of Lease Topic 842 on January 1, 2019.

The Company amortizes CDI assets over their estimated useful lives and reviews them at least annually for events or circumstances that could impair their value.

2 unchanged sentences

The CDI assets are not estimated to have a significant residual value.

The following table summarizes the changes in the Company’s goodwill, CDI and LHI for the years ended December 31, 2021, 2020 and 2019 (in thousands):

Goodwill CDI LHI Total

The following table summarizes the changes in the Company’s goodwill and other intangibles for the years ended December 31, 2022, 2021 and 2020 (in thousands):

Goodwill CDI Total

Balance, January 1, 2020 $ 373,121 $ 29,158 $ 402,279

Additions through acquisition (1)

33,967 4,610 — 38,577

Amortization — ( 7,732 ) ( 7,732 )

Adjustments (2)

— — ( 225 ) ( 225 )

Balance, December 31, 2020 373,121 21,426 394,547

2 unchanged sentences

Amortization — ( 5,279 ) ( 5,279 )

Other Changes (1)

— ( 136 ) ( 136 )

Balance, December 31, 2022 $ 373,121 $ 9,440 $ 382,561

(1) The additions to Goodwill and CDI in 2019 relate to the acquisition of AltaPacific.

(2) The adjustment to LHI represents a reclassification to the right-of-use lease asset in connection with the implementation of Lease Topic 842.

Estimated amortization expense in future years with respect to CDI as of December 31, 2021 (in thousands):

(1) Acquired CDI was adjusted for the sale of branches in 2022.

Estimated amortization expense with respect to CDI as of December 31, 2022 for the periods indicated (in thousands):

Estimated Amortization

1 unchanged sentence

Net carrying amount $ 9,440

Mortgage Servicing Rights:

Mortgage and SBA servicing rights are reported in other assets.

5 unchanged sentences

In 2022 , 2021 and 2020, the Company did not record any impairment charges or recoveries against mortgage servicing rights.

Unpaid principal balance of loans for which mortgage and SBA servicing rights have been recognized totaled $ 2.77 billion and $ 2.64 billion at December 31, 2021 and 2020, respectively.

Unpaid principal balance of loans for which mortgage and SBA servicing rights have been recognized totaled $ 2.77 billion at both December 31, 2022 and 2021.

Custodial accounts maintained in connection with this servicing totaled $ 11.2 million and $ 3.2 million at December 31, 2022 and 2021, respectively.

3 unchanged sentences

Balance, beginning of the year $ 17,206 $ 15,223 $ 14,148

Amounts capitalized 7,260 8,572 4,392

Additions—amounts capitalized 3,200 7,260 8,572

Additions—through purchase 285 159 175

2 unchanged sentences

Fair value adjustments (3)

( 309 ) 1,144 —

Balance, end of the year (2)

$ 16,166 $ 17,206 $ 15,223

(1) Amortization of mortgage servicing rights is recorded as a reduction of loan servicing income.

Any unamortized balance is fully written off if the loan repays in full.

(1) Amortization of mortgage servicing rights is recorded as a reduction of loan servicing income within mortgage banking operations and any unamortized balance is fully amortized if the loan repays in full.

(2) There was no valuation allowance on mortgage servicing rights as of both December 31, 2022 and 2021.

(3) Fair value adjustments relate to SBA servicing rights.

These adjustments are estimated based on an independent dealer analysis by discounting estimated net future cash flows from servicing SBA loans.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents estimated fair values of the Company’s financial instruments as of December 31, 2022 and 2021, whether or not recognized or recorded in the Consolidated Statements of Financial Condition (in thousands):

December 31, 2022 December 31, 2021

Level Carrying

Value Estimated

Fair Value Carrying

Value Estimated

Level Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value

Cash and cash equivalents 1 $ 243,062 $ 243,062 $ 2,134,300 $ 2,134,300

5 unchanged sentences

Loans held for sale 2 56,857 56,948 96,487 96,914

Loans receivable 3 9,084,763 9,100,516 9,870,982 9,810,293

Loans receivable, net 3 10,005,259 9,810,965 8,952,664 9,100,516

Equity securities 1 553 553 1,000 1,298

FHLB stock 3 12,000 12,000 12,000 12,000

13 unchanged sentences

Interest rate swaps 2 37,150 37,150 11,615 11,615

Interest rate swaps used in cash flow hedges 2 279 279 — —

Interest rate lock and forward sales commitments 2,3 118 118 140 140

Risk participation agreement 2 67 67 — —

The Company measures and discloses certain assets and liabilities at fair value.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (that is, not a forced liquidation or distressed sale).

GAAP establishes a consistent framework for measuring fair value and disclosure requirements about fair value measurements.

Among other things, the standard requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

When measuring fair value, management will maximize the use of observable inputs and minimize the use of unobservable inputs whenever possible.

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s estimates for market assumptions.

These two types of inputs create the following fair value hierarchy:

• Level 1 – Quoted prices in active markets for identical instruments.

An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

• Level 2 – Observable inputs other than Level 1 including quoted prices in active markets for similar instruments, quoted prices in less active markets for identical or similar instruments, or other observable inputs that can be corroborated by observable market data.

• Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation;

also includes observable inputs from non-binding single dealer quotes not corroborated by observable market data.

In developing Level 3 measurements, management incorporates whatever market data might be available and uses discounted cash flow models where appropriate.

These calculations include projections of future cash flows, including appropriate default and loss assumptions, and market based discount rates.

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies.

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This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

Transfers between levels of the fair value hierarchy are deemed to occur at the end of the reporting period.

Items Measured at Fair Value on a Recurring Basis:

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Securities—available-for-sale

Government and agency — 201,332 — 201,332

Government and agency obligations — 55,108 — 55,108

Municipal bonds — 261,209 — 261,209

5 unchanged sentences

— 2,305 — 2,305

Equity securities 553 — — 553

SBA servicing rights — — 835 835

5 unchanged sentences

Interest rate swaps — 37,150 — 37,150

Interest rate swaps used in cash flow hedges — 279 — 279

Interest rate lock and forward sales commitments — 76 42 118

Risk participation agreement — 67 — 67

$ — $ 37,293 $ 74,899 $ 112,192

4 unchanged sentences

Securities—available-for-sale

Government and agency — 141,735 — 141,735

Government and agency obligations — 201,332 — 201,332

Municipal bonds — 308,612 — 308,612

5 unchanged sentences

— 39,775 — 39,775

SBA servicing rights — — 1,161 1,161

Investment in limited partnerships — — 10,257 10,257

6 unchanged sentences

$ — $ 11,755 $ 119,815 $ 131,570

(1) The unpaid principal balance of loans held for sale carried at fair value was $38.6 million and $128.1 million at December 31, 2021 and 2020.

(1) The unpaid principal balance of residential mortgage loans held for sale carried at fair value on a recurring basis was $ 2.2 million and $ 38.6 million at December 31, 2022 and 2021, respectively.

The following methods were used to estimate the fair value of each class of financial instruments above:

6 unchanged sentences

Fair values for residential mortgage loans held for sale are determined by comparing actual loan rates to current secondary market prices for similar loans.

Fair values for multifamily loans held for sale are calculated based on discounted cash flows using as a discount rate a combination of market spreads for similar loan types added to selected index rates.

Mortgage Servicing Rights:

Fair values are estimated based on an independent dealer analysis of discounted cash flows.

The evaluation utilizes assumptions market participants would use in determining fair value including prepayment speeds, delinquency and foreclosure rates, the discount rate, servicing costs, and the timing of cash flows.

The mortgage servicing portfolio is stratified by loan type and fair value estimates are adjusted up or down based on the serviced loan interest rates versus current rates on new loan originations since the most recent independent analysis.

Equity Securities:

Equity securities are invested in a publicly traded stock.

The fair value of these securities are based on daily quoted market prices.

SBA Servicing Rights:

2 unchanged sentences

The SBA servicing portfolio is stratified by loan type and fair value estimates are adjusted up or down based on the serviced loan interest rates versus current rates on new loan originations since the most recent independent analysis.

Investments in Limited Partnerships:

Fair values are estimated using the practical expedient method based on our ownership interest in partners’ capital to which a proportionate share of net assets is attributed, for each limited partnership.

Junior Subordinated Debentures:

4 unchanged sentences

The junior subordinated debentures are carried at fair value which represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants.

Due to inactivity in the trust preferred markets that have limited the observability of market spreads, management has classified this as a Level 3 fair value measure.

Derivatives include interest rate swap agreements, interest rate lock commitments to originate loans held for sale and forward sales contracts to sell loans and securities related to mortgage banking activities.

Due to inactivity in the trust preferred markets that have limited the observability of market spreads, management has classified this as a Level 3 fair value measurement.

Derivatives include interest rate swap agreements, interest rate lock commitments to originate loans held for sale, forward sales contracts to sell loans and securities related to mortgage banking activities and risk participation agreements.

Fair values for these instruments, which generally change as a result of changes in the level of market interest rates, are estimated based on dealer quotes and secondary market sources.

As the interest rate lock commitments use a pull-through rate that is considered an unobservable input, these derivatives are classified as a level 3 fair value measurement.

Off-Balance Sheet Items:

4 unchanged sentences

Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3):

The following table provides a description of the valuation technique, unobservable inputs, quantitative and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and nonrecurring basis at December 31, 2021 and 2020:

The following table provides a description of the valuation technique, unobservable inputs and quantitative and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and non-recurring basis at December 31, 2022 and 2021:

Financial Instruments Valuation Technique Unobservable Inputs Weighted Average Rate Weighted Average Rate

1 unchanged sentence

Junior subordinated debentures Discounted cash flows Discount rate 8.27 % 3.71 %

Loans individually evaluated Collateral valuations Discount to appraised value 8.5 % to 20 %

0.0 % to 20.0 %

Loans individually evaluated Collateral valuations Discount to appraised value n/a 8.5 % to 20.0 %

REO Appraisals Discount to appraised value 68.35 % 60.91 %

1 unchanged sentence

Investments in limited partnerships Net Asset Value Infrequent transactions n/a n/a

SBA servicing rights Discounted cash flows Constant prepayment rate 12 % n/a

SBA servicing rights Discounted cash flows Constant prepayment rate 14.10 % 12.25 %

TPS Securities :

15 unchanged sentences

Level 3 Fair Value Inputs

TPS Securities Borrowings—

Junior Subordinated

Debentures Interest Rate Lock and Forward sales Commitments Investments in Limited Partnerships SBA Servicing Asset

TPS Securities Borrowings— Junior Subordinated Debentures Interest Rate Lock and Forward Sales Commitments Investments in Limited Partnerships SBA Servicing Asset

Balance, January 1, 2021 $ 24,980 $ 116,974 $ 5,221 $ 2,819 $ —

Total gains or losses recognized

Assets (losses) gains ( 656 ) — 4,430 — —

Liabilities losses — ( 2,330 ) — — —

Net change recognized in earnings 2,001 — ( 3,754 ) 2,615 1,161

Net change recognized in AOCI — 11,089 — — —

Purchases, issuances and settlements — — — 4,823 —

Balance, December 31, 2020 24,980 116,974 5,221 2,819 —

Total gains or losses recognized

Assets gains (losses) 2,001 — ( 3,754 ) 2,615 1,161

Liabilities losses — 11,089 — — —

Redemptions — ( 8,248 ) — — —

Balance, December 31, 2021 26,981 119,815 1,467 10,257 1,161

Net change recognized in earnings 1,713 — ( 1,428 ) ( 460 ) ( 326 )

Net change recognized in AOCI — 5,560 — — —

Purchases, issuances and settlements — — — 2,630 —

Redemptions — ( 50,518 ) — — —

Balance, December 31, 2022 $ 28,694 $ 74,857 $ 39 $ 12,427 $ 835

9 unchanged sentences

REO — — 340 340

Loans held for sale — 49,474 — 49,474

December 31, 2021

7 unchanged sentences

REO — — ( 45 )

Total loss from nonrecurring measurements $ ( 303 ) $ ( 3,527 ) $ ( 425 )

Loans held for sale ( 2,538 ) — —

Total loss from non-recurring measurements $ (3,164) $ (303) $ (3,527)

Loans individually evaluated :

9 unchanged sentences

The individual carrying values of these assets are reviewed for impairment at least annually and any additional impairment charges are expensed to operations.

Loans held for sale :

The multifamily held for sale loans are carried at the lower of cost or market value.

Lower of cost or market adjustments for multifamily loans held for sale are calculated based on discounted cash flows using a discount rate that is a combination of market spreads for similar loan types added to selected index rates.

If the fair value of the multifamily held for sale loans is lower than the amortized cost basis of the loans, a net unrealized loss is recognized through the valuation allowance by charges to income.

BANNER CORPORATION (PARENT COMPANY ONLY)

32 unchanged sentences

Equity in undistributed income of subsidiaries ( 104,391 ) ( 112,814 ) ( 36,401 )

Decrease in deferred taxes ( 571 ) 1,438 6,969

(Decrease) increase in deferred taxes ( 43 ) ( 571 ) 1,438

Net change in valuation of financial instruments carried at fair value ( 56 ) 55 —

7 unchanged sentences

( 1,549 ) ( 228 ) ( 38 )

Acquisitions — — 442

Net cash (used by) provided from investing activities ( 228 ) ( 38 ) 410

Reduction in investment in subsidiaries ( 3,072 ) — —

Net cash used by investing activities ( 4,621 ) ( 228 ) ( 38 )

FINANCING ACTIVITIES:

12 unchanged sentences

Under the authorization, shares could be repurchased by the Company in open market purchases.

During the year ended December 31, 2019, the Company repurchased 1,000,000 common shares at an average price of $ 53.90 per share.

All repurchases of shares in 2019 occurred subsequent to March 27, 2019 and are accounted for under the 2019 authorization leaving 757,637 shares available for future repurchase.

In addition to the shares repurchased under the authorization, there were 33,777 shares surrendered during 2019 by employees to satisfy tax withholding obligations upon vesting of restricted stock grants.

There were 624,780 shares repurchased in the first quarter of 2020 under the 2019 authorization at an average price of $ 50.84 per share.

This authorization expired in March 2020.

On December 21, 2020, the Company announced that its Board of Directors had authorized the repurchase up to 1,757,781 of the Company’s common stock (which was equivalent to 5 % of the Company’s common stock).

Under the authorization, shares may be repurchased by the Company in open market purchases.

The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations.

During the year ending December 31, 2020 no shares were repurchased under the 2020 authorization.

On December 21, 2020, the Company announced that its Board of Directors had authorized the repurchase up to 1,757,781 shares, or approximately 5 % of the Company’s outstanding common stock.

Under the authorization, shares could be repurchased by the Company in open market purchases.

During 2020, no shares were repurchased under the 2020 authorization.

In addition to the shares repurchased under the 2019 authorization, there were 41,507 shares surrendered during 2020 by employees to satisfy tax withholding obligations upon vesting of restricted stock.

There were 1,050,000 shares repurchased during the year ending December 31, 2021 under the 2020 authorization at an average price of $ 53.84 per share.

There were 1,050,000 shares repurchased during 2021, under the 2020 authorization at an average price of $ 53.84 per share.

This authorization expired in December 2021.

On December 22, 2021, the Company announced that its Board of Directors had authorized the repurchase of up to 1,712,510 of the Company’s common stock (which was equivalent to 5 % of the Company’s common stock).

Under the authorization, shares may be repurchased by the Company in open market purchases.

On December 22, 2021, the Company announced that its Board of Directors had authorized the repurchase of up to 1,712,510 shares, or approximately 5 %, of the Company’s outstanding common stock.

Under the authorization, shares could be repurchased by the Company in open market purchases.

The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations.

During the year ended December 31, 2021, no shares were repurchased under the 2021 authorization.

Additionally, there were 59,730 shares surrendered during 2021 by employees to satisfy tax withholding obligations upon vesting of restricted stock and settlement of restricted stock units.

There were 59,730 shares surrendered during 2021 by employees to satisfy tax withholding obligations upon vesting of restricted stock and settlement of restricted stock units.

There were 200,000 shares repurchased during 2022, under the 2021 authorization at an average price of $ 54.77 per share, leaving 1,512,510 available for future repurchase.

In addition to the shares repurchased under the 2021 authorization, there were 55,228 shares surrendered during 2022 by employees to satisfy tax withholding obligations upon vesting of restricted stock.

This authorization expired in December 2022.

CALCULATION OF EARNINGS PER COMMON SHARE

The following tables show the calculation of earnings per common share (in thousands, except per share data):

The following table reconciles basic to diluted weighted average shares outstanding used to calculate earnings per share data (dollars in thousands, except per share data):

Years Ended December 31

1 unchanged sentence

Net income $ 195,378 $ 201,048 $ 115,928

Weighted average number of common shares outstanding

Basic 34,610,056 35,264,252 34,868,434

Diluted 34,919,188 35,528,848 34,967,684

Basic weighted average shares outstanding 34,264,322 34,610,056 35,264,252

Dilutive effect of unvested restricted stock 195,600 309,132 264,596

Diluted weighted shares outstanding 34,459,922 34,919,188 35,528,848

Earnings per common share

1 unchanged sentence

Diluted $ 5.67 $ 5.76 $ 3.26

At December 31, 2021, 2020 and 2019 there were 476,222 , 578,136 , and 367,230 , respectively, of issued but unvested restricted stock shares and units that were included in the computation of diluted earnings per share.

COMMITMENTS AND CONTINGENCIES

10 unchanged sentences

Commitments to originate loans 53,266 106,609

Risk participation agreement 40,064 40,949

Risk participation agreements 48,566 40,064

Derivatives also included in Note 21:

2 unchanged sentences

Commitments to sell securities related to mortgage banking activities 7,000 127,580

In addition to the commitments disclosed in the table above, the Company is committed to funding its unfunded tax credit investments (see Note 11, Income Taxes).

In addition to the commitments disclosed in the table above, the Company is committed to funding its unfunded tax credit investments, as discussed previously in Note 11, Income Taxes.

The Company has also entered into agreements to invest in several limited partnerships.

13 unchanged sentences

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients.

Under a risk participation agreement, Banner Bank guarantees the financial performance of a borrower on the participated portion of an interest rate swap on a loan.

Under a risk participation agreement, the Bank guarantees the financial performance of a borrower on the participated portion of an interest rate swap on a loan.

Interest rates on residential one- to four-family mortgage loan applications are typically rate locked (committed) to clients during the application stage for periods ranging from 30 to 60 days, the most typical period being 45 days.

Traditionally, these loan applications with rate lock commitments had the pricing for the sale of these loans locked with various qualified investors under a best-efforts delivery program at or near the time the interest rate is locked with the client.

Banner Bank then attempts to deliver these loans before their rate locks expired.

The Bank then attempts to deliver these loans before their rate locks expired.

This arrangement generally required delivery of the loans prior to the expiration of the rate lock.

Delays in funding the loans would require a lock extension.

The cost of a lock extension at times was borne by the client and at times by the Banner Bank.

These lock extension costs have not had a material impact to our operations.

The cost of a lock extension at times was borne by the client and at times by the Bank.

These lock extension costs have not had a material impact to the Company’s operations.

For mandatory delivery commitments the Company enters into forward commitments at specific prices and settlement dates to deliver either:

5 unchanged sentences

In the event the Company has forward delivery contract commitments in excess of available mortgage loans, the transaction is completed by either paying or receiving a fee to or from the investor or broker/dealer equal to the increase or decrease in the market value of the forward contract.

Changes in the value of rate lock commitments are recorded as assets and liabilities as explained in Note 1:

“Derivative Instruments.”

Changes in the value of rate lock commitments are recorded as assets and liabilities.

In the normal course of business, the Company and/or its subsidiaries have various legal proceedings and other contingent matters outstanding.

1 unchanged sentence

These claims and counter-claims typically arise during the course of collection efforts on problem loans or with respect to action to enforce liens on properties in which the Bank holds a security interest.

Based upon the information known to management at this time, the Company and the Bank are not a party to any legal proceedings that management believes would have a material adverse effect on the results of operations or consolidated financial position at December 31, 2021.

Based upon the information known to management at this time, the Company has accrued $ 14.8 million related to outstanding legal proceedings.

There are no other legal proceedings that management believes would have a material adverse effect on the results of operations or consolidated financial position at December 31, 2022.

In connection with certain asset sales, the Bank typically makes representations and warranties about the underlying assets conforming to specified guidelines.

8 unchanged sentences

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.

The Company obtains dealer quotations to value its derivative contracts.

The Company’s predominant derivative and hedging activities involve interest rate swaps related to certain term loans and forward sales contracts associated with mortgage banking activities.

1 unchanged sentence

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.

As of December 31, 2022 and December 31, 2021, the notional values or contractual amounts and fair values of the Company’s derivatives were as follows (in thousands):

Asset Derivatives Liability Derivatives

December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021

Notional/ Contract Amount Fair Value (1)

Notional/ Contract Amount Fair Value (2)

Hedged interest rate swaps $ — $ — $ — $ — $ 400,000 $ 26,485 $ 400,000 $ 279

Interest rate swaps not designated in hedge relationships 440,731 37,119 551,606 20,826 440,731 37,150 551,606 11,336

Master netting agreements ( 17,780 ) ( 17,780 )

Cash settlements — ( 8,705 )

Net interest rate swaps 19,339 37,150

Risk participation agreements 1,283 — — — 47,283 67 — —

Mortgage loan commitments 15,920 81 87,986 1,467 12,367 42 26,329 66

Forward sales contracts 16,568 61 56,086 88 3,000 76 98,500 74

Total $ 474,502 $ 19,481 $ 695,678 $ 22,381 $ 503,381 $ 37,335 $ 676,435 $ 11,476

(1) Included in Other assets on the Consolidated Statements of Financial Condition.

(2) Included in Accrued expenses and other liabilities on the Consolidated Statements of Financial Condition.

Derivatives Designated in Hedge Relationships

Interest Rate Swaps with Dealer Counterparties:

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

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

The Company has hedged exposure to changes in the fair value of certain fixed-rate loans through the use of interest rate swaps.

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

Under a prior program, clients received fixed interest rate commercial loans and Banner Bank subsequently hedged that fixed-rate loan by entering into an interest rate swap with a dealer counterparty.

Banner Bank receives fixed-rate payments from the clients on the loans and makes similar fixed-rate payments to the dealer counterparty on the swaps in exchange for variable-rate payments based on the one-month LIBOR index.

Some of these interest rate swaps are designated as fair value hedges.

Through application of the “short cut method of accounting,” there is an assumption that the hedges are effective.

Banner Bank discontinued originating interest rate swaps under this program in 2008.

Interest Rate Swaps used in Cash Flow Hedges:

5 unchanged sentences

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings.

Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on the Corporation’s variable-rate assets.

During the next twelve months, the Corporation estimates that an additional $ 1.8 million will be reclassified as an increase to interest income.

As of December 31, 2021 and December 31, 2020, the notional values or contractual amounts and fair values of the Company’s derivatives designated in hedge relationships were as follows (in thousands):

Asset Derivatives Liability Derivatives

December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020

Contract Amount Fair

Interest Rate Swaps with Dealer Counterparties $ — $ — $ 338 $ 9 $ — $ — $ 338 $ 9

Interest Rate Swaps used in Cash Flow Hedges

$ — $ — $ — $ — $ 400,000 $ 279 $ — $ —

Total $ — $ — $ 338 $ 9 $ 400,000 $ 279 $ 338 $ 9

(1) Included in Loans Receivable on the Consolidated Statements of Financial Condition.

(2) Included in Other Liabilities on the Consolidated Statements of Financial Condition.

The following table presents the effect of cash flow hedge accounting on AOCI for the year ended December 31, 2021 (in thousands):

Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on the Company’s variable-rate assets.

During the next twelve months, the Company estimates that an additional $ 15.7 million will be reclassified as a decrease to interest income.

The following table presents the effect of cash flow hedge accounting on AOCI for the years ended December 31, 2022 and December 31, 2021 (in thousands):

For the Year Ended December 31, 2022

1 unchanged sentence

Interest rate swaps $ ( 28,418 ) $ ( 28,418 ) $ — Interest Income $ ( 3,195 ) $ ( 3,195 ) $ —

For the Year Ended December 31, 2021

Amount of Gain or (Loss) Recognized in AOCI on Derivative Amount of Gain or (Loss) Recognized in AOCI Included Component Amount of Gain or (Loss) Recognized in AOCI Excluded Component Location of Gain or (Loss) Recognized from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component

Interest rate swaps $ ( 920 ) $ ( 920 ) $ — Interest Income $ 340 $ 340 $ —

At December 31, 2022 and December 31, 2021, we had recorded total net unrealized losses on cash flow hedges in AOCI, net of taxes of $ 20.1 million and $ 958,000 , respectively.

Derivatives Not Designated in Hedge Relationships

Interest Rate Swaps:

Banner Bank uses an interest rate swap program for commercial loan clients, that provides the client with a variable-rate loan and enters into an interest rate swap in which the client receives a variable-rate payment in exchange for a fixed-rate payment.

The Bank uses an interest rate swap program for commercial loan clients, that provides the client with a variable-rate loan and enters into an interest rate swap in which the client receives a variable-rate payment in exchange for a fixed-rate payment.

The Bank offsets its 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.

1 unchanged sentence

therefore, each swap is accounted for as a freestanding derivative.

Mortgage Banking:

The Company sells originated one- to four-family loans into the secondary mortgage loan markets.

During the period of loan origination and prior to the sale of the loans in the secondary market, the Company has exposure to movements in interest rates associated with written interest rate lock commitments with potential borrowers to originate one- to four-family loans that are intended to be sold and for closed one- to four-family loans held for sale for which fair value accounting has been elected, 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.

As of December 31, 2021 and December 31, 2020, the notional values or contractual amounts and fair values of the Company’s derivatives not designated in hedge relationships were as follows (in thousands):

Asset Derivatives Liability Derivatives

December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020

Contract Amount Fair

Interest rate swaps $ 551,606 $ 20,826 $ 451,760 $ 39,057 $ 551,606 $ 11,336 $ 451,760 $ 22,327

Risk Participation Agreements:

In conjunction with the purchase or sale of participating interests in loans, the Company also participates in related swaps through risk participation agreements.

The existing credit derivatives resulting from these participations are not designated as hedges as they are not used to manage interest rate risk in the Company’s assets or liabilities and are not speculative.

Mortgage Loan Commitments:

Forward sales contracts 56,086 88 79,414 420 98,500 74 204,000 1,556

$ 695,678 $ 22,381 $ 671,564 $ 44,698 $ 676,435 $ 11,476 $ 728,271 $ 24,082

(1) Included in Other assets on the Consolidated Statements of Financial Condition, with the exception of certain interest swaps and mortgage loan commitments (with a fair value of $ 20,000 at December 31, 2021 and $ 231,000 at December 31, 2020), which are included in Loans Receivable.

(2) Included in Other Liabilities on the Consolidated Statements of Financial Condition.

Gains (losses) recognized in income on non-designated hedging instruments for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands):

The Company sells originated one- to four-family mortgage loans into the secondary mortgage loan markets.

During the period of loan origination and prior to the sale of the loans in the secondary market, the Company has exposure to movements in interest rates associated with written interest rate lock commitments with potential borrowers to originate one- to four-family loans that are intended to be sold and for closed one- to four-family mortgage loans held for sale for which fair value accounting has been elected, 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 mortgage loans or mortgage-backed securities to broker/dealers at specific prices and dates.

Gains (losses) recognized in income within Mortgage banking operations on non-designated hedging instruments for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

For the Years Ended December 31

Location on Income Statement 2021 2020 2019

Mortgage loan commitments Mortgage banking operations $ ( 3,754 ) $ 4,430 $ 518

Forward sales contracts Mortgage banking operations 1,243 ( 1,334 ) ( 693 )

2022 2021 2020

Mortgage loan commitments $ (1,427) $ (3,754) $ 4,430

Forward sales contracts 84 1,243 (1,334)

$ ( 1,343 ) $ ( 2,511 ) $ 3,096

The Company is exposed to credit-related losses in the event of nonperformance by the counterparty to these agreements.

Credit risk of the financial contract is controlled through the credit approval, limits, and monitoring procedures and management does not expect the counterparties to fail their obligations.

In connection with the interest rate swaps between Banner Bank and the dealer counterparties, the agreements contain a provision where 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, Banner Bank could be required to settle its obligations under certain of its 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 Banner Bank had breached any of these provisions at December 31, 2021 or December 31, 2020, it could have been required to settle its obligations under the agreements at the termination value.

As of December 31, 2021 and 2020, the termination value of derivatives in a net liability position related to these agreements was $ 24.9 million and $ 48.6 million, respectively.

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

Similarly, the Bank could be required to settle its obligations under certain of its 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 the Bank to maintain a specific capital level.

If the Bank had breached any of these provisions at December 31, 2022 or December 31, 2021, it could have been required to settle its obligations under the agreements at the termination value.

As of December 31, 2022, the Company had no obligations to dealer counterparties related to these agreements.

As of December 31, 2021, the termination value of derivatives in a net liability position related to these agreements was $ 24.9 million.

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

Collateral posted against derivative liabilities was $ 22.2 million and $ 45.8 million as of December 31, 2022 and 2021, respectively.

The collateral posted included restricted cash of $15.9 million and $21.6 million as of December 31, 2022 and 2021, respectively.

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

Master netting agreements allow the Company 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 of interest rate swap derivatives between Banner Bank and the dealer counterparties are cleared through central clearing houses.

In addition, some of interest rate swap derivatives between the 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.

1 unchanged sentence

As of December 31, 2022 and December 31, 2021, the variation margin adjustment was a negative adjustment of $ 8.7 million and $ 10.7 million, respectively.

The following presents additional information related to the Company’s derivative contracts, by type of financial instrument, as of December 31, 2021 and December 31, 2020 (in thousands):

The following presents additional information related to the Company’s interest rate swaps, both designated and non-designated as hedged, as of December 31, 2022 and December 31, 2021 (in thousands):

December 31, 2022

Gross Amounts of Financial Instruments Not Offset in the Statement of Financial Condition

Gross Amounts Recognized Amounts offset in the Statement

of Financial Condition Net Amounts

in the Statement

of Financial Condition Derivative Amount Fair Value

of Financial Collateral

in the Statement

of Financial Condition Net Amount

Gross Amounts of Financial Instruments Not Offset in the Consolidated Statement of Financial Condition

Gross Amounts Recognized Amounts offset in the Statement of Financial Condition Net Amounts in the Statement of Financial Condition Netting Adjustment Per Applicable Master Netting Agreements Fair Value of Financial Collateral in the Statement of Financial Condition Net Amount

Derivative assets

5 unchanged sentences

December 31, 2021

Gross Amounts of Financial Instruments Not Offset in the Statement of Financial Condition

Gross Amounts Recognized Amounts offset in the Statement

of Financial Condition Net Amounts

in the Statement

of Financial Condition Derivative Amount Fair Value

of Financial Collateral

in the Statement

of Financial Condition Net Amount

Gross Amounts of Financial Instruments Not Offset in the Consolidated Statement of Financial Condition

Derivative assets

7 unchanged sentences

Deposit fees and other service charges for the years ended December 31, 2022, 2021 and 2020 are summarized as follows (in thousands):

Years Ended December 31

2022 2021 2020

Deposit service charges 23,710 19,162 16,428

Debit and credit interchange fees 23,271 20,052 27,752

Debit and credit card interchange fees 23,766 23,271 20,052

Debit and credit card expense ( 11,487 ) ( 10,636 ) ( 9,098 )

Merchant services income 15,551 14,973 12,554

Merchant services expenses ( 12,084 ) ( 10,042 ) ( 10,512 )

Merchant services expense ( 12,754 ) ( 12,084 ) ( 10,042 )

Other service charges 5,673 4,809 4,490

13 unchanged sentences

The merchant acquiring bank can stop accepting the Bank’s cards at any time and the Bank can stop further use of cards issued by them at any time.

The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the Bank cardholders’ card.

The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the Bank’s cardholders’ card.

Direct expenses associated with the credit and debit card are recorded as a net reduction against the interchange income.

14 unchanged sentences

Substantially all of the leases provide the Company with the option to extend the lease term one or more times following expiration of the initial term.

Lease Position

The table below presents the lease right-of-use assets and lease liabilities recorded on the balance sheet at December 31, 2022 and December 31, 2021 (dollars in thousands):

Classification on the Balance Sheet December 31, 2021 December 31, 2020

Operating right-of-use lease assets Other assets $ 55,257 $ 55,367

Operating lease liabilities Accrued expenses and other liabilities $ 59,756 $ 59,343

December 31, 2022 December 31, 2021

Operating right-of-use lease assets $ 49,283 $ 55,257

Operating lease liabilities $ 55,205 $ 59,756

Weighted-average remaining lease term

2 unchanged sentences

Operating leases 3.0 % 2.8 %

The table below presents certain information related to the lease costs for operating leases for the year ended December 31, 2021 and December 31, 2020 (in thousands):

The table below presents certain information related to the lease costs for operating leases for the years ended December 31, 2022, 2021 and 2020 (in thousands):

Year Ended December 31,

2022 2021 2020

Operating lease cost $ 16,647 $ 17,541 $ 17,337

$ 17,541 $ 17,337 $ 15,388

Short-term lease cost 125 100 97

Variable lease cost 2,189 2,584 2,778

2,584 2,778 2,396

Less sublease income ( 1,126 ) ( 904 ) ( 946 )

( 904 ) ( 946 ) ( 925 )

Total lease cost (1)

$ 17,835 $ 19,321 $ 19,266

(1) Lease expenses and sublease income are classified within occupancy and equipment expense on the Consolidated Statements of Operations.

Supplemental Cash Flow Information

Operating cash flows paid for operating lease amounts included in the measurement of lease liabilities were $ 15.4 million for the year ended December 31, 2022 and $ 18.0 million for the year ended December 31, 2021.

The Company recorded $ 9.3 million of right-of-use lease assets in exchange for operating lease liabilities for the year ended December 31, 2022 and $ 16.7 million for the year ended December 31, 2021.

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years beginning with 2023 and the total of the remaining years to the operating lease liabilities recorded on the Consolidated Statements of Financial Position (in thousands):

5 unchanged sentences

Lease obligations

As of December 31, 2021, the Company had $ 353,000 undiscounted lease payments under an operating lease that had not yet commenced.

The Company had no undiscounted lease payments under an operating lease that had not yet commenced at December 31, 2020.

As of December 31, 2022, the Company had no undiscounted lease payments under an operating lease that had not yet commenced, compared to $ 353,000 undiscounted lease payments under an operating lease that had not yet commenced at December 31, 2021.

BANNER CORPORATION

Exhibit Index of Exhibits

3{a} Amended and Restated Articles of Incorporation of Registrant [incorporated by reference to the Registrant ’ s Current Report on Form 8-K filed on April 29, 2010 (File No.

3{b} Articles of Amendment of Registrant (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 1,2011 (File No.

3{c} Articles of Amendment to Amended and Restated Articles of Incorporation of Registrant for nonvoting common stock (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on March 18, 2015 (File No.

3{d} Amended and Restated Bylaws of Registrant [incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on October 29, 2020 (File No.

3{a} Restated Articles of Incorporation of Banner Corporation [incorporated by reference to Exhibit 3.1 (b) to the Registrant’s Current Report on Form 8-K filed on May 2 4 , 20 22 (File No.

3{b} Amended and Restated Bylaws of Banner Corporation [incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 24, 2022 (File No.

4.2 Description of Capital Stock

7 unchanged sentences

Barton [incorporated by reference to exhibits filed with the Annual Report on Form 10-K for the year ended December 31, 2001 and the exhibits filed with the Form 8-K on May 6, 2008 (File No.

10{c} Form of Employment Contract entered into with Lloyd W.

Baker, Cynthia D.

Purcell and Richard B.

Barton [incorporated by reference to exhibits filed with the Form 8-K on June 25, 2014 (File No.

10{c} Form of Employment Contract entered into with Peter J.

Conner , Cynthia D.

Purcell and Judith A.

Steiner [incorporated by reference to exhibits filed with the Form 8-K on June 25, 2014 (File No.

10{d} 2005 Executive Officer and Director Stock Account Deferred Compensation Plan [incorporated by reference to exhibits filed with the Annual Report on Form 10-K for the year ended December 31, 2008 (File No.

10{e} Entry into an Indemnification Agreement with each of the Registrant’s Directors [incorporated by reference to exhibits filed with the Form 8-K on January 29, 2010 (File No.

10{f} 2012 Restricted Stock and Incentive Bonus Plan [incorporated by reference to Appendix B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 19, 2013 (File No.

10{g} Amended and Restated Executive Severance and Change in Control Plan and Summary Plan Description (Amended and Restated effective as of October 1, 2021) [incorporated by reference to exhibit 10{j} included in the Form 10-Q dated September 30, 2021 (File No.

10{h} 2014 Omnibus Incentive Plan [incorporated by reference as Appendix C to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 24, 2014 (File No.

10{f} Amended and Restated Executive Severance and Change in Control Plan and Summary Plan Description (Amended and Restated effective as of October 1, 2021) [incorporated by reference to exhibit 10{j} included in the Form 10-Q dated September 30, 2021 (File No.

10{g} 2014 Omnibus Incentive Plan [incorporated by reference as Appendix C to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 24, 2014 (File No.

000-26584)] and amendments [incorporated by reference to the Form 8-K filed on March 25, 2015 (File No.

10{i} Forms of Equity-Based Award Agreements:

10{h} Forms of Equity-Based Award Agreements:

Incentive Stock Option Award Agreement, Non-Qualified Stock Option Award Agreement, Restricted Stock Award Agreement, Restricted Stock Unit Award Agreement, Stock Appreciation Right Award Agreement, and Performance Unit Award Agreement [incorporated by reference to Exhibits 10.2 - 10.7 included in the Registration Statement on Form S-8 dated May 9, 2014 (File No.

333-195835)].

10{j} 2018 Omnibus Incentive Plan [incorporated by reference as Appendix D to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 23, 2018 (File No.

10{k} Forms of Equity-Based Award Agreements:

10{i} 2018 Omnibus Incentive Plan [incorporated by reference as Appendix D to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 23, 2018 (File No.

10{j} Forms of Equity-Based Award Agreements:

Incentive Stock Option Award Agreement, Non-Qualified Stock Option Award Agreement under the Banner Corporation 2018 Omnibus Incentive Plan;

20 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 9A. Controls and Procedures