BANNER CORP 10-K

ITEM 9A – Controls and Procedures 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. Also, because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. As a result of these inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. (a) Evaluation of Disclosure Controls and Procedures: An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) was carried out under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of our senior management as of the end of the period covered by this report. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2022, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. (b) Changes in Internal Controls 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 beginning on page 79 of this Annual Report on Form 10-K for the year ended December 31, 2022. ITEM 9B – Other Information None. ITEM 9C-Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable 71 PART III ITEM 10 – Directors, Executive Officers and Corporate Governance The information required by this item contained under the section captioned “Proposal 1– Election of Directors,” “Meetings and Committees of the Board of Directors” and “Shareholder Proposals” 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. Information regarding the executive officers of the Registrant is provided herein in Part I, Item 1 hereof. 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. 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 The Board of Directors has adopted a Code of Ethics and Business Conduct for our directors, officers (including its senior financial officers), and employees. The Code of Ethics and Business Conduct was most recently approved by the Board of Directors on July 28, 2021; and the Code of Ethics and Business Conduct is reviewed by the Board on an annual basis. The Code of Ethics and Business Conduct requires our officers, directors, and employees to maintain the highest standards of professional conduct. A copy of the Code of Ethics and Business Conduct in substantially its current form was filed as an exhibit with Form 8-K on August 11, 2021 and is available without charge, upon request to Investor Relations, Banner Corporation, P.O. Box 907, Walla Walla, WA 99362. 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. We will not retaliate against any of our officers or employees who raise legitimate concerns or questions about an ethics matter or a suspected accounting, internal control, financial reporting, or auditing discrepancy or otherwise assists in investigations regarding conduct that the employee reasonably believes to be a violation of Federal Securities Laws or any rule or regulation of the SEC, federal securities laws relating to fraud against shareholders or violations of applicable banking laws. Non-retaliation against employees is fundamental to our Code of Ethics and there are strong legal protections for those who, in good faith, raise an ethical concern or a complaint about their employer. ITEM 11 – Executive Compensation 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 (a) Security Ownership of Certain Beneficial Owners and Management Information required by this item is incorporated herein by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management” in the proxy statement for the Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days after the end of our fiscal year. (b) Security Ownership of Management Information required by this item is incorporated herein by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management” in the proxy statement for the Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days after the end of our fiscal year. (c) Change in Control 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. 72 (d) Equity Compensation Plan Information The following table sets forth information about equity compensation plans that were in effect at December 31, 2022: (A) (B) (C) 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 The information required by this item contained under the sections captioned “Related Party Transactions” and “Director Independence” 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. ITEM 14 – Principal Accounting Fees and Services The information required by this item contained under the section captioned “Proposal 4– Ratification of Selection of Independent Registered Public Accounting Firm” 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. 73 PART IV ITEM 15 – Exhibits and Financial Statement Schedules (a) (1) Financial Statements See Index to Consolidated Financial Statements on page 77 . (2) Financial Statement Schedules All financial statement schedules are omitted because they are not applicable or not required, or because the required information is included in the Consolidated Financial Statements or the Notes thereto or in Part 1, Item 1. (3) Exhibits See Index of Exhibits on page 144 . (b) Exhibits See Index of Exhibits on page 144 . 74 Item 16 - Form 10-K Summary. None. 75 S ignatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Banner Corporation Date: February 21, 2023 /s/ Mark J. Grescovich Mark J. Grescovich President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Mark J. Grescovich /s/ Peter J. Conner Mark J. Grescovich Peter J. Conner President and Chief Executive Officer; Director Executive Vice President, Treasurer and Chief Financial Officer (Principal Executive Officer) (Principal Financial and Accounting Officer) Date: February 21, 2023 Date: February 21, 2023 /s/ John R. Layman /s/ Paul J. Walsh John R. Layman Paul J. Walsh Director Director Date: February 21, 2023 Date: February 21, 2023 /s/ Connie R. Collingsworth /s/ Ellen R.M. Boyer Connie R. Collingsworth Ellen R.M. Boyer Director Director Date: February 21, 2023 Date: February 21, 2023 /s/ Margot J. Copeland /s/ David A. Klaue Margot J. Copeland David A. Klaue Director Director Date: February 21, 2023 Date: February 21, 2023 /s/ Terry Schwakopf /s/ Kevin F. Riordan Terry Schwakopf Kevin F. Riordan Director Director Date: February 21, 2023 Date: February 21, 2023 /s/ Roberto R. Herencia /s/ John Pedersen Roberto R. Herencia John Pedersen Chairman of the Board Director Date: February 21, 2023 Date: February 21, 2023 76 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS BANNER CORPORATION AND SUBSIDIARIES (Item 8 and Item 15(a)(1)) Page Report of Management 78 Management Report on Internal Control Over Financial Reporting 79 Report of Independent Registered Public Accounting Firm ( Moss Adams LLP , Spokane, Washington , PCAOB ID: 659 ) 80 Consolidated Statements of Financial Condition as of December 31, 2022 and 2021 83 Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020 84 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022, 2021 and 2020 85 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2022, 2021 and 2020 86 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020 87 Notes to the Consolidated Financial Statements 89 77 February 21, 2023 Report of Management To the Shareholders: The management of Banner Corporation (the Company) is responsible for the preparation, integrity, and fair presentation of its published financial statements and all other information presented in this annual report. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, as such, include amounts based on informed judgments and estimates made by management. In the opinion of management, the financial statements and other information herein present fairly the financial condition and operations of the Company at the dates indicated in conformity with accounting principles generally accepted in the United States of America. Management is responsible for establishing and maintaining an effective system of internal control over financial reporting. The internal control system is augmented by written policies and procedures and by audits performed by an internal audit staff (assisted in certain instances by contracted external audit resources other than the independent registered public accounting firm), which reports to the Audit Committee of the Board of Directors. Internal auditors monitor the operation of the internal and external control system and report findings to management and the Audit Committee. When appropriate, corrective actions are taken to address identified control deficiencies and other opportunities for improving the system. The Audit Committee provides oversight to the financial reporting process. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of an internal control system may vary over time. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of the Company’s management. The Audit Committee is responsible for the selection of the independent auditors. It meets periodically with management, the independent auditors and the internal auditors to ensure that they are carrying out their responsibilities. The Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting, and auditing procedures of the Company in addition to reviewing the Company’s financial reports. The independent auditors and the internal auditors have full and free access to the Audit Committee, with or without the presence of management, to discuss the adequacy of the internal control structure for financial reporting and any other matters which they believe should be brought to the attention of the Committee. Mark J. Grescovich, Chief Executive Officer Peter J. Conner, Chief Financial Officer 78 Management Report on Internal Control over Financial Reporting February 21, 2023 The management of Banner Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that: Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with the authorizations of management and directors of the Company; and Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, including the possibility of human error and circumvention or overriding of controls, internal control over financial reporting may not prevent or detect misstatements. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 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) . Based on this assessment and those criteria, management believes that, as of December 31, 2022, the Company maintained effective internal control over financial reporting. The Company’s independent registered public accounting firm has audited the Company’s Consolidated Financial Statements that are included in this annual report and the effectiveness of our internal control over financial reporting as of December 31, 2022 and issued their Report of Independent Registered Public Accounting Firm, appearing under Item 8. The audit report expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. 79 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Banner Corporation and Subsidiaries Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated statements of financial condition of Banner Corporation and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. 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. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 80 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. As described in Notes 1 and 4 to the consolidated financial statements, the balance of the Company’s consolidated allowance for credit losses – loans was $141.5 million at December 31, 2022. 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, 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. We identified the estimation and application of forecasted economic conditions used in the allowance for credit losses – loans as a critical audit matter. 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 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 – 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, 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 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 – 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 – 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. 81 The primary procedures we performed to address this critical audit matter included: • Testing the design, implementation, and operating effectiveness of controls over the accuracy of risk ratings of loans. • 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 recalculating the allowance for credit losses – loans balance. /s/ Moss Adams LLP Spokane, Washington February 21, 2023 We have served as the Company’s auditor since 2004. 82 BANNER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands, except shares) December 31, 2022 and 2021 ASSETS December 31, 2022 December 31, 2021 Cash and due from banks $ 198,154 $ 358,461 Interest-bearing deposits 44,908 1,775,839 Total cash and cash equivalents 243,062 2,134,300 Securities—trading 28,694 26,981 Securities—available-for-sale, amortized cost $ 3,218,777 and $ 3,653,160 , respectively 2,789,031 3,638,993 Securities—held-to-maturity, net of allowance for credit losses of $ 379 and $ 433 , respectively 1,117,588 520,922 Total securities 3,935,313 4,186,896 Federal Home Loan Bank (FHLB) stock 12,000 12,000 Securities purchased under agreements to resell 300,000 300,000 Loans held for sale (includes $ 51,779 and $ 39,775 , at fair value, respectively) 56,857 96,487 Loans receivable 10,146,724 9,084,763 Allowance for credit losses – loans ( 141,465 ) ( 132,099 ) Net loans receivable 10,005,259 8,952,664 Accrued interest receivable 57,284 42,916 Real estate owned (REO), held for sale, net 340 852 Property and equipment, net 138,754 148,759 Goodwill 373,121 373,121 Other intangibles, net 9,440 14,855 Bank-owned life insurance (BOLI) 297,565 244,156 Deferred tax assets, net 178,131 71,138 Operating lease right-of-use assets 49,283 55,257 Other assets 177,022 171,471 Total assets $ 15,833,431 $ 16,804,872 LIABILITIES Deposits: Non-interest-bearing $ 6,176,998 $ 6,385,177 Interest-bearing transaction and savings accounts 6,719,531 7,103,125 Interest-bearing certificates 723,530 838,631 Total deposits 13,620,059 14,326,933 Advances from FHLB 50,000 50,000 Other borrowings 232,799 264,490 Subordinated notes, net 98,947 98,564 Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities) 74,857 119,815 Operating lease liabilities 55,205 59,756 Accrued expenses and other liabilities 200,839 148,303 Deferred compensation 44,293 46,684 Total liabilities 14,376,999 15,114,545 COMMITMENTS AND CONTINGENCIES (Note 20) SHAREHOLDERS’ EQUITY Preferred stock - $ 0.01 par value per share, 500,000 shares authorized; no shares outstanding at December 31, 2022 and December 31, 2021 — — Common stock and paid in capital - $ 0.01 par value per share, 50,000,000 shares authorized; 34,194,018 shares issued and outstanding at December 31, 2022; 34,252,632 shares issued and outstanding at December 31, 2021 1,293,959 1,299,381 Common stock (non-voting) and paid in capital - $ 0.01 par value per share, 5,000,000 shares authorized; no shares issued and outstanding at December 31, 2022; no shares issued and outstanding at December 31, 2021 — — Retained earnings 525,242 390,762 Carrying value of shares held in trust for stock-based compensation plans ( 6,905 ) ( 7,435 ) Liability for common stock issued to stock related compensation plans 6,905 7,435 Accumulated other comprehensive (loss) income ( 362,769 ) 184 Total shareholders’ equity 1,456,432 1,690,327 Total liabilities and shareholders’ equity $ 15,833,431 $ 16,804,872 See notes to consolidated financial statements 83 BANNER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except for per share amounts) For the Years Ended December 31, 2022, 2021 and 2020 2022 2021 2020 INTEREST INCOME: Loans receivable $ 450,916 $ 445,731 $ 466,360 Mortgage-backed securities 67,585 45,723 31,792 Securities and cash equivalents 54,068 29,046 20,994 Total interest income 572,569 520,500 519,146 INTEREST EXPENSE: Deposits 10,124 11,770 25,015 FHLB advances 489 2,592 5,023 Other borrowings 377 467 603 Subordinated debt 8,400 8,780 7,204 Total interest expense 19,390 23,609 37,845 Net interest income 553,179 496,891 481,301 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 Deposit fees and other service charges 44,459 39,495 34,384 Mortgage banking operations 10,834 33,948 51,083 BOLI 7,794 5,000 5,972 Miscellaneous 6,805 12,875 6,821 69,892 91,318 98,260 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 75,255 96,416 98,616 NON-INTEREST EXPENSE: Salary and employee benefits 242,266 244,351 245,400 Less capitalized loan origination costs ( 24,313 ) ( 34,401 ) ( 34,848 ) Occupancy and equipment 52,018 52,850 53,362 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 Advertising and marketing 3,959 6,036 6,412 Deposit insurance 6,649 5,583 6,516 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 Loss on extinguishment of debt 793 2,284 — Miscellaneous 24,869 24,236 22,712 377,295 379,005 364,025 COVID-19 expenses — 436 3,502 Merger and acquisition - related expenses — 660 2,062 Total non-interest expense 377,295 380,101 369,589 Income before provision for income taxes 240,775 246,594 142,453 PROVISION FOR INCOME TAXES 45,397 45,546 26,525 NET INCOME $ 195,378 $ 201,048 $ 115,928 Earnings per common share: Basic $ 5.70 $ 5.81 $ 3.29 Diluted $ 5.67 $ 5.76 $ 3.26 Cumulative dividends declared per common share $ 1.76 $ 1.64 $ 1.23 Weighted average number of common shares outstanding: Basic 34,264,322 34,610,056 35,264,252 Diluted 34,459,922 34,919,188 35,528,848 See notes to the consolidated financial statements 84 BANNER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) For the Years Ended December 31, 2022, 2021 and 2020 2022 2021 2020 NET INCOME $ 195,378 $ 201,048 $ 115,928 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 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 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 Income tax benefit (expense) related to junior subordinated debentures 1,334 2,501 ( 559 ) Reclassification of fair value of junior subordinated debentures redeemed 765 1,613 — Income tax expense related to junior subordinated debentures redeemed ( 184 ) ( 387 ) — Other comprehensive (loss) income ( 362,953 ) ( 68,885 ) 35,813 COMPREHENSIVE (LOSS) INCOME $ ( 167,575 ) $ 132,163 $ 151,741 See notes to the consolidated financial statements 85 BANNER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (in thousands, except shares) For the Years Ended December 31, 2022, 2021 and 2020 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 income, net of income tax 35,813 35,813 Accrual of dividends on common stock ($ 1.23 /share-cumulative) ( 44,235 ) ( 44,235 ) Repurchase of common stock ( 624,780 ) ( 31,775 ) ( 31,775 ) Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 32,404 7,714 7,714 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 Net income 201,048 201,048 Other comprehensive loss, net of income tax ( 68,885 ) ( 68,885 ) Accrual of dividends on common stock ($ 1.64 /share-cumulative) ( 57,602 ) ( 57,602 ) Repurchase of common stock ( 1,050,000 ) ( 56,528 ) ( 56,528 ) Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 143,432 6,030 6,030 Balance, December 31, 2021 34,252,632 $ 1,299,381 $ 390,762 $ 184 $ 1,690,327 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, net of income tax ( 362,953 ) ( 362,953 ) Accrual of dividends on common stock ($ 1.76 /share-cumulative) ( 60,898 ) ( 60,898 ) Repurchase of common stock ( 200,000 ) ( 10,960 ) ( 10,960 ) Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 141,386 5,538 5,538 Balance, December 31, 2022 34,194,018 $ 1,293,959 $ 525,242 $ ( 362,769 ) $ 1,456,432 See notes to the consolidated financial statements 86 BANNER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Years Ended December 31, 2022, 2021 and 2020 2022 2021 2020 OPERATING ACTIVITIES: Net income $ 195,378 $ 201,048 $ 115,928 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation 16,933 17,345 18,130 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 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 ) Increase (decrease) in current taxes payable 8,250 ( 3,643 ) ( 2,193 ) Stock-based compensation 8,870 9,258 9,168 Net change in cash surrender value of BOLI ( 7,100 ) ( 4,685 ) ( 5,030 ) Gain on sale of loans, excluding capitalized servicing rights ( 4,556 ) ( 26,140 ) ( 43,304 ) 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 Loss on extinguishment of debt 765 2,284 — Origination of loans held for sale ( 406,915 ) ( 1,102,663 ) ( 1,461,872 ) Proceeds from sales of loans held for sale 415,635 1,276,111 1,471,828 Net change in: Other assets ( 39,028 ) 2,200 ( 27,559 ) Other liabilities 34,244 ( 11,083 ) 4,385 Net cash provided from operating activities 238,051 301,578 125,386 INVESTING ACTIVITIES: Purchases of securities—available-for-sale ( 659,905 ) ( 2,805,251 ) ( 1,361,132 ) Principal repayments and maturities of securities—available-for-sale 368,996 1,314,484 474,876 Proceeds from sales of securities—available-for-sale 214,335 83,663 150,374 Purchases of securities—held-to-maturity ( 190,645 ) ( 135,615 ) ( 222,094 ) Principal repayments and maturities of securities—held-to-maturity 56,056 32,487 33,848 Purchases of equity securities — ( 4,750 ) ( 1,060,000 ) Proceeds from sales of equity securities — 4,796 1,060,695 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 paid related to branch divestiture ( 168,137 ) — — Purchases of property and equipment ( 14,724 ) ( 10,493 ) ( 12,803 ) Proceeds from sale of real estate held for sale and sale of other property 6,088 11,759 8,893 Proceeds from FHLB stock repurchase program 15,080 4,358 52,169 Purchase of FHLB stock ( 15,080 ) — ( 40,185 ) Purchase of securities purchased under agreements to resell — ( 300,000 ) — Investment in bank-owned life insurance ( 50,053 ) ( 50,053 ) ( 83 ) Other 3,459 2,355 5,197 Net cash used by investing activities ( 1,444,557 ) ( 1,015,426 ) ( 1,454,624 ) (Continued on next page) 87 BANNER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands) For the Years Ended December 31, 2022, 2021 and 2020 2022 2021 2020 FINANCING ACTIVITIES: (Decrease) increase in deposits, net ( 528,672 ) 1,759,638 2,518,654 Repayment of long term FHLB borrowing ( 50,000 ) ( 100,000 ) — 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 Repayment of junior subordinated debentures ( 50,518 ) ( 8,248 ) — Proceeds from redemption of trust securities related to junior subordinated debentures 1,518 248 — Cash dividends paid ( 61,078 ) ( 57,621 ) ( 94,078 ) Cash paid for repurchase of common stock ( 10,960 ) ( 56,528 ) ( 31,775 ) Taxes paid related to net share settlement for equity awards ( 3,332 ) ( 3,228 ) ( 1,453 ) 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 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,134,300 1,234,183 307,735 CASH AND CASH EQUIVALENTS, END OF YEAR $ 243,062 $ 2,134,300 $ 1,234,183 2022 2021 2020 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid in cash $ 18,583 $ 24,278 $ 40,942 Taxes paid 24,885 29,017 39,672 NON-CASH INVESTING AND FINANCING TRANSACTIONS: Transfer of loans to real estate owned and other repossessed assets — 512 1,602 Dividends accrued but not paid until after period end 1,158 1,338 1,357 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 88 BANNER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business: 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 (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: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All material intercompany transactions, profits and balances have been eliminated. The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and under the rules and regulations of the U.S. Securities and Exchange Commission (the SEC). 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, 2022 through the date that the consolidated financial statements were issued for potential recognition or disclosure. Cash and Cash Equivalents: Cash and cash equivalents include cash and due from banks and temporary investments which are federal funds sold and interest bearing balances due from other banks. Cash and cash equivalents generally have maturities of three months or less at the date of purchase. Business Combinations: Business combinations are accounted for using the acquisition method of accounting and, accordingly, assets acquired and liabilities assumed, both tangible and intangible, and consideration exchanged are recorded at acquisition date fair values. The excess purchase consideration over fair value of net assets acquired is recorded as goodwill. In the event that the fair value of net assets acquired exceeds the purchase price, including fair value of liabilities assumed, a bargain purchase gain is recorded on that acquisition. Expenses incurred in connection with a business combination are expensed as incurred, except for those items permitted to be capitalized. Changes in deferred tax asset valuation allowances related to acquired tax uncertainties are recognized in net income after the measurement period. Use of Estimates: In the opinion of management, the accompanying Consolidated Statements of Financial Condition and related Consolidated Statements of Operations, Comprehensive Income, Changes in Shareholders’ Equity and Cash Flows reflect all adjustments (which include reclassification and normal recurring adjustments) that are necessary for a fair presentation in conformity with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. 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) 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 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. Securities: Debt securities are classified as held-to-maturity when the Company has the ability and positive intent to hold them to maturity. Debt securities classified as available-for-sale are available for future liquidity requirements and may be sold prior to maturity. Debt securities classified as trading are also available for future liquidity requirements and may be sold prior to maturity. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Debt securities classified as held-to-maturity are carried at cost, net of the allowance for credit losses - securities, adjusted for amortization of premiums to the earliest callable date and accretion of discounts to maturity. Debt securities classified as available-for-sale are measured at fair value. Unrealized holding gains and losses on debt securities classified as available-for-sale are excluded from earnings and are reported net of tax as accumulated other comprehensive income (AOCI), a component of shareholders’ equity, until realized. Debt securities classified as trading are also measured at fair value. Unrealized holding gains and losses on securities classified as trading are included in earnings. 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. 89 Allowance for Credit Losses - Securities: Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. The Company’s held-to maturity portfolio contains mortgage-backed securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The Company’s held-to-maturity portfolio also contains municipal bonds that are typically rated by major rating agencies as Aa or better. The Company has never incurred a loss on a municipal bond, therefore the expectation of credit losses on these securities is insignificant. The Company uses industry historical credit loss information adjusted for current conditions to establish the allowance for credit losses on the municipal bond portfolio. Less than 2% of the Company’s held-to-maturity portfolio are community development bonds; approximately half represent pools of one- to four-family loans while the other half are not collateralized. The expected credit losses on these bonds is similar to Banner’s commercial business loan portfolio. Therefore, the Company uses the commercial business loan portfolio loss rates to establish the allowance for credit losses on the collateralized bonds and its own loss history to establish a loss rate on bonds that are not collateralized. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings. If the Company does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized costs, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. Projected cash flows are discounted by the current effective interest rate. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. 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 losses. 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 or requirement to sell is met. Investment in FHLB Stock: FHLB stock does not have a readily determinable fair 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. As a member of the FHLB system, the Bank is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its outstanding FHLB advances. Management periodically evaluates FHLB stock for impairment. Management’s determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of any decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, (3) the impact of legislative and regulatory changes on institutions and, accordingly, the client base of the FHLB, and (4) the liquidity position of the FHLB. The Company has determined there is no impairment on the FHLB stock investment as of December 31, 2022 and 2021. Loans Receivable : The Bank originates residential one- to four-family and multifamily mortgage loans for both portfolio investment and sale in the secondary market. 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. Amortized cost is the principal amount outstanding, net of deferred fees, discounts and premiums. Accrued interest on loans is reported in accrued interest receivable on the Consolidated Statements of Financial Condition. Premiums, discounts and deferred loan fees are amortized to maturity using the level-yield methodology. Loans Held for Sale: Residential one- to four-family and multifamily mortgage loans originated with the intent to be sold in the secondary market are considered held for sale. Residential one- to four-family loans under best effort delivery commitments are carried at the lower of aggregate cost or estimated market value. Residential one- to four-family loans expected to be delivered under mandatory commitments 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. 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 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 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. Gains and losses on sales of loans held for sale are determined using the aggregate method and are recorded in the mortgage banking operations component of non-interest income. For the years ended December 31, 2022 and 2021, we recorded net gains on loans sold of $ 7.8 million and $ 34.5 million, respectively. 90 Loans Acquired in Business Combinations : Loans acquired in business combinations are recorded at their fair value at the acquisition date. Establishing the fair value of acquired loans involves a significant amount of judgment, including determining the credit discount based upon historical data adjusted for current economic conditions and other factors. If any of these assumptions are inaccurate actual credit losses could vary significantly from the credit discount used to calculate the fair value of the acquired loans. Acquired loans are evaluated upon acquisition and classified as either purchased credit-deteriorated or purchased non-credit-deteriorated. Purchased credit-deteriorated (PCD) loans have experienced more than insignificant credit deterioration since origination. For PCD loans, an allowance for credit losses is determined at the acquisition date using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The loan’s fair value is grossed up for the allowance for credit losses and becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through a provision for credit losses. For purchased non-credit-deteriorated loans, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loan. 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. Any subsequent deterioration (improvement) in credit quality is recognized by recording (recapturing) a provision for credit losses. Income Recognition on Nonaccrual Loans and Securities : Interest on loans and securities is accrued as earned unless management doubts the collectability of the asset or the unpaid interest. Interest accruals on loans are generally discontinued when loans become 90 days past due for payment of interest or principal and the loans are then placed on nonaccrual status. All previously accrued but uncollected interest is deducted from interest income upon transfer to nonaccrual status. For any future payments collected, interest income is recognized only upon management’s assessment that there is a strong likelihood that the full amount of a loan will be repaid or recovered. Management’s assessment of the likelihood of full repayment involves judgment including determining the fair value of the underlying collateral which can be impacted by the economic environment. A loan may be put on nonaccrual status sooner than this policy would dictate if, in management’s judgment, the amounts owed, principal or interest may be uncollectable. While less common, similar interest reversal and nonaccrual treatment is applied to investment securities if their ultimate collectability becomes questionable. Loans modified due to the COVID-19 pandemic are considered current if they are less than 30 days past due on the contractual payments at the time the loan modification program was put in place and therefore continue to accrue interest unless the interest is being waived. Provision and Allowance for Credit Losses - Loans : 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 reversion period; value of collateral; strength of guarantors; the amount and timing of future cash flows for loans individually evaluated; and determination of the qualitative loss factors. All of these estimates are susceptible to significant change. 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 - 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 - 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 - 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. The allowance for credit losses - loans is measured on a collective (pool) basis when similar risk characteristics exist. In estimating the component of the allowance for credit losses for loans that share common risk characteristics, loans are pooled based on loan type and areas of risk concentration. For loans evaluated collectively, the allowance for credit losses is calculated using life of loan historical losses adjusted for economic forecasts and current conditions. 91 For commercial real estate, multifamily real estate, construction and land, commercial business and agricultural loans with risk rating segmentation, historical credit loss assumptions are estimated using a model that categorizes loan pools based on loan type and risk rating. For one- to four- family residential loans, consumer loans, home equity lines of credit, small business loans, and small balance commercial real estate loans, historical credit loss assumptions are estimated using a model that categorizes loan pools based on loan type and delinquency status. These models calculate an expected life-of-loan loss percentage for each loan category by calculating the probability of default, based on the migration of loans from performing to loss by risk rating or delinquency categories using historical life-of-loan analysis and the severity of loss, based on the aggregate net lifetime losses incurred for each loan pool. 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. 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. These economic indicators are selected based on correlation to the Company’s historical credit loss experience and are evaluated for each loan category. 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 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. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made, the adjustments discontinue to be applied so that the model reverts back to the historical loss rates using a straight line reversion method. Management selected a reasonable and supportable forecast period of 12 months with a reversion period of 12 months. Both the reasonable and supportable forecast period and the reversion period are periodically reviewed by management. Further, for loans evaluated collectively, 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. In determining the aggregate adjustment needed, management considers the financial condition of the borrowers, the nature and volume of the loans, the remaining terms and the extent of prepayments on the loans, the volume and severity of past due and classified loans as well as the value of the underlying collateral on loans in which the collateral dependent practical expedient has not been used. Management also considers the Company’s lending policies, the quality of the Company’s credit review system, the quality of the Company’s management and lending staff, and the regulatory and economic environments in the areas in which the Company’s lending activities are concentrated. Loans that do not share risk characteristics with other loans in the portfolio are individually evaluated for impairment and are not included in the collective evaluation. Factors involved in determining whether a loan should be individually evaluated include, but are not limited to, the financial condition of the borrower and the value of the underlying collateral. Expected credit losses for loans evaluated individually are measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate or when the Bank determines that foreclosure is probable, the expected credit loss is measured based on the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. As a practical expedient, the Bank measures the expected credit loss for a loan using the fair value of the collateral, if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Bank’s assessment as of the reporting date. In both cases, if the fair value of the collateral is less than the amortized cost basis of the loan, the Bank will recognize an allowance as the difference between the fair value of the collateral, less costs to sell (if applicable) at the reporting date and the amortized cost basis of the loan. If the fair value of the collateral exceeds the amortized cost basis of the loan, any expected recovery added to the amortized cost basis will be limited to the amount previously charged-off. Subsequent changes in the expected credit losses for loans evaluated individually are included within the provision for credit losses in the same manner in which the expected credit loss initially was recognized or as a reduction in the provision that would otherwise be reported. 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. Some of the Bank’s loans are reported as troubled debt restructures (TDRs). 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. The allowance for credit losses on a TDR is determined using the same method as all other loans held for investment, except when the value of the concession cannot be measured using a method other than the discounted cash flow method. 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. 92 Loan Origination and Commitment Fees: Loan origination fees, net of certain specifically defined direct loan origination costs, are deferred and recognized as an adjustment of the loans’ interest yield using the level-yield method over the contractual term of each loan adjusted for actual loan prepayment experience. Loan commitment fees are deferred until the expiration of the commitment period unless management believes there is a remote likelihood that the underlying commitment will be exercised, in which case the fees are amortized to fee income using the straight-line method over the commitment period. If a loan commitment is exercised, the deferred commitment fee is accounted for in the same manner as a loan origination fee. Deferred commitment fees associated with expired commitments are recognized as fee income. Allowance for Credit Losses - unfunded loan commitments: An allowance for credit losses - unfunded loan commitments is maintained at a level that, in the opinion of management, is adequate to absorb expected credit losses associated with the contractual life of the Bank’s commitments to lend funds under existing agreements such as letters or lines of credit. The Bank uses a methodology for determining the allowance for credit losses - unfunded loan commitments that applies the same segmentation and loss rate to each pool as the funded exposure adjusted for probability of funding. Draws on unfunded loan commitments that are considered uncollectible at the time funds are advanced are charged to the allowance for credit losses on off-balance sheet exposures. 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: Property acquired by foreclosure or deed in lieu of foreclosure is recorded at the estimated fair value of the property, less expected selling costs. Development and improvement costs relating to the property may be capitalized, while other holding costs are expensed. The carrying value of the property is periodically evaluated by management and, if necessary, allowances are established to reduce the carrying value to net realizable value. Gains or losses at the time the property is sold are charged or credited to operations in the period in which they are realized. 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 and Equipment: Property and equipment is carried at cost less accumulated depreciation. Depreciation is based upon the straight-line method applied to individual assets and groups of assets acquired in the same year over the lesser of their estimated useful lives or the related lease terms of the assets: Buildings and leased improvements 10 – 39 years Furniture and equipment 3 – 10 years Routine maintenance, repairs and replacement costs are expensed as incurred. Expenditures which significantly increase values or extend useful lives are capitalized. The Company reviews buildings, leasehold improvements and equipment for impairment whenever events or changes in circumstances indicate that the undiscounted cash flows for the property are less than its carrying value. If identified, an impairment loss is recognized through a charge to earnings based on the fair value of the property. 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. Leases: The Company leases retail space, office space, storage space, and equipment under operating leases. Most leases require the Company to pay real estate taxes, maintenance, insurance and other similar costs in addition to the base rent. Certain leases also contain lease incentives, such as tenant improvement allowances and rent abatement. Variable lease payments are recognized as lease expense as they are incurred. 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. 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. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Accordingly, ROU assets are reduced by tenant improvement allowances from landlords plus any prepaid rent. We do not separate lease and non-lease components of contracts. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. Many of our leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule, which are factored into our determination of lease payments when appropriate. 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. The ROU asset and lease liability terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. 93 Goodwill: Goodwill represents the excess of the purchase consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination and is not amortized but is reviewed annually, or more frequently as current circumstances and conditions warrant, for impairment. The Company completes its annual review of goodwill as of December 31. An assessment of qualitative factors is completed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The qualitative assessment involves judgment by management on determining whether there have been any triggering events that have occurred which would indicate potential impairment. If the qualitative analysis concludes that further analysis is required, then a quantitative impairment test would be completed. The quantitative goodwill impairment test is used to identify the existence of impairment and the amount of impairment loss and compares the reporting unit’s estimated fair values, including goodwill, to its carrying amount. If the fair value exceeds the carrying amount then goodwill is not considered impaired. If the carrying amount exceeds its fair value, an impairment loss would be recognized equal to the amount of excess, limited to the amount of total goodwill allocated to the reporting unit. The impairment loss would be recognized as a charge to earnings. The disposal of a portion of a reporting unit that meets the definition of a business requires goodwill to be allocated for purposes of determining the gain or loss on disposal . Other Intangible Assets: Other intangible assets consist primarily of core deposit intangibles (CDI), which are amounts recorded in business combinations or deposit purchase transactions related to the value of transaction-related deposits and the value of the client relationships associated with the deposits. CDI is being amortized on an accelerated basis over a weighted average estimated useful life of eight years to ten years . These assets are reviewed at least annually for events or circumstances that could impact their recoverability. These events could include loss of the underlying core deposits, increased competition or adverse changes in the economy. 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 Small Business Administration (SBA) Servicing Rights: Servicing assets are recognized as separate assets when rights are acquired through purchase or sale of loans. Generally, purchased servicing rights are capitalized at the cost to acquire the rights. For sales of mortgage and SBA loans, the fair value of the servicing right is estimated and capitalized. Fair values are estimated based on an independent dealer analysis of discounted cash flows. Capitalized mortgage servicing rights are reported in other assets and are amortized into mortgage banking operations in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Capitalized SBA servicing rights are reported in other assets and are carried at fair value. Changes in the fair value of SBA servicing rights are recognized into miscellaneous non-interest income. Mortgage servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights into tranches based on predominant risk characteristics for the underlying loans, such as interest rate, balance outstanding, loan type, age and remaining term, and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the capitalized amount for the tranche. If the Company later determines that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the allowance may be recorded as an increase to income. Servicing fee income is recorded for fees earned for servicing loans. Servicing fee income is reflected in mortgage banking operations for mortgage servicing rights and in miscellaneous non-interest income for SBA servicing rights on the Consolidated Statements of Operations. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. 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. These policies provide protection against the adverse financial effects that could result from the death of a key employee and provide tax-exempt income to offset expenses associated with the plans. It is the Bank’s intent to hold these policies as a long-term investment; 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 beneficiary. BOLI is carried at the cash surrender value (CSV) of the underlying insurance contract. Changes in the CSV and any death benefits received in excess of the CSV are recognized as non-interest income. Derivative Instruments: 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.” 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. 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. 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, 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. 94 Further, as a part of its mortgage banking activities, the Company issues “rate lock” commitments to one- to four-family loan borrowers and obtains offsetting “best efforts” delivery commitments from purchasers of loans. The Company uses forward contracts for the sale of mortgage-backed securities and mandatory delivery commitments for the sale of loans to hedge one- to four-family loan “rate lock” commitments and one- to four-family loans held for sale. The commitments to originate mortgage loans held for sale and the related delivery contracts are considered derivatives. The Company recognizes all derivatives as either assets or liabilities in the balance sheet and requires measurement of those instruments at fair value through adjustments to current earnings. None of these residential mortgage loan related derivatives are designated as hedging instruments for accounting purposes. Rather, they are accounted for as free-standing derivatives, or economic hedges, and the Company reports changes in fair values of its derivatives in current period net income. 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. Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee has the right to pledge or exchange the transferred assets beyond a trivial benefit, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Advertising Expenses: Advertising costs are expensed as incurred. Costs related to production of advertising are considered incurred when the advertising is first used. Income Taxes: The Company files a consolidated income tax return including all of its wholly-owned subsidiaries on a calendar year basis. Income taxes are accounted for using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates which are expected to be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance is recognized as a reduction to deferred tax assets when management determines it is more likely than not that deferred tax assets will not be available to offset future income tax liabilities. Accounting standards for income taxes prescribe a recognition threshold and measurement process for financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return, and also provides guidance on the de-recognition of previously recorded benefits and their classification, as well as the proper recording of interest and penalties, accounting in interim periods, disclosures and transition. The Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment. Stock-Based Compensation: The Company maintains a number of stock-based incentive plans, which are discussed in more detail in Note 13, Stock-Based Compensation Plans. Under these plans, the Company compensates employees and directors with time-based restricted stock and restricted stock unit grants. Some restricted stock awards include performance-based and market-based goals that impact the number of shares that ultimately vest based on the level of goal achievement. The Company measures the cost of employee or director services received in exchange for an award of equity instruments based on the fair value of the award, which is the intrinsic value on the grant date. This cost is recognized as expense in the Consolidated Statements of Operations ratably over the vesting period of the award. Any tax benefit or deficiency is recorded as income tax benefit or expense in the period the shares vest. Excess tax benefits are classified along with other income tax cash flows as an operating activity. The Company issues restricted stock and restricted stock unit awards which vest over a one or three year period during which time the employee or director accrues or receives dividends and may have full voting rights depending on the terms of the grant. Earnings Per Share: Earnings per common share is computed under the two-class method. Pursuant to the two-class method, non-vested stock-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and are included in the computation of EPS. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Application of the two-class method resulted in the equivalent earnings per share to the treasury method. 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. Comprehensive Income: Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. In addition, certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, unrealized gains and losses on interest rate swaps used in cash flow hedges and changes in fair value of junior subordinated debentures related to instrument specific credit risk, are reported as a separate component of the equity section of the Consolidated Statements of Financial Condition, and such items, along with net income, are components of comprehensive income which is reported in the Consolidated Statements of Comprehensive Income. 95 Business Segments: The Company is managed by legal entity and not by lines of business. The Bank is a community oriented commercial bank chartered in the State of Washington. The Bank’s primary business is that of a traditional banking institution, gathering deposits and originating loans for portfolio in its respective primary market areas. The Bank offers a wide variety of deposit products to its consumer and commercial clients. Lending activities include the origination of real estate, commercial/agriculture business and consumer loans. The Bank is also an active participant in the secondary market, originating residential loans for sale on both a servicing released and servicing retained basis. In addition to interest income on loans and investment securities, the Bank receives other income from deposit service charges, loan servicing fees and from the sale of loans and investments. 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 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. Reclassification: 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 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. Note 2: ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED Reference Rate Reform (Topic 848) In March 2020, the Financial Accounting Standards Board (FASB) issued guidance within Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting , in response to the scheduled discontinuation of LIBOR on December 31, 2021. The amendments in this ASU provide optional guidance designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform. Since the issuance of this guidance, the publication cessation of U.S. 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: 1) modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; 2) modifications of contracts within the scope of Topic 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required under this Topic for modifications not accounted for as separate contracts; 3) modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15, Derivatives and Hedging- Embedded Derivatives; and 4) for other Topics or Industry Subtopics in the Codification, the amendments in this ASU also include a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope . This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. 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 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 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. 96 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. 97 Note 3: SECURITIES 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 Value Trading: Corporate bonds $ 27,203 $ 28,694 $ 27,203 $ 28,694 December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value Available-for-Sale: U.S. Government and agency obligations $ 56,344 $ 8 $ ( 1,244 ) $ — $ 55,108 Municipal bonds 301,449 530 ( 40,770 ) — 261,209 Corporate bonds 133,334 — ( 11,481 ) — 121,853 Mortgage-backed or related securities 2,505,172 885 ( 366,721 ) — 2,139,336 Asset-backed securities 222,478 40 ( 10,993 ) — 211,525 $ 3,218,777 $ 1,463 $ ( 431,209 ) $ — $ 2,789,031 December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Allowance for Credit Losses Held-to-Maturity: U.S. Government and agency obligations $ 312 $ — $ ( 7 ) $ 305 $ — Municipal bonds 503,117 109 ( 70,907 ) 432,319 ( 183 ) Corporate bonds 2,961 — ( 16 ) 2,945 ( 196 ) Mortgage-backed or related securities 611,577 — ( 104,966 ) 506,611 — $ 1,117,967 $ 109 $ ( 175,896 ) $ 942,180 $ ( 379 ) December 31, 2021 Amortized Cost Fair Value Trading: Corporate bonds $ 27,203 $ 26,981 $ 27,203 $ 26,981 December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value Available-for-Sale: U.S. Government and agency obligations $ 201,101 $ 852 $ ( 621 ) $ — $ 201,332 Municipal bonds 293,761 15,171 ( 320 ) — 308,612 Corporate bonds 114,427 3,103 ( 183 ) — 117,347 Mortgage-backed or related securities 2,837,480 17,749 ( 49,961 ) — 2,805,268 Asset-backed securities 206,391 52 ( 9 ) — 206,434 $ 3,653,160 $ 36,927 $ ( 51,094 ) $ — $ 3,638,993 98 December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Allowance for Credit Losses Held-to-Maturity: U.S. Government and agency obligations $ 316 $ 3 $ — $ 319 $ — Municipal bonds 420,555 20,743 ( 1,393 ) 439,905 ( 203 ) Corporate bonds 3,092 — ( 3 ) 3,089 ( 230 ) Mortgage-backed or related securities 97,392 1,171 ( 23 ) 98,540 — $ 521,355 $ 21,917 $ ( 1,419 ) $ 541,853 $ ( 433 ) 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, 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 Losses Fair Value Unrealized Losses Available-for-Sale: U.S. Government and agency obligations $ 33,407 $ ( 882 ) $ 16,732 $ ( 362 ) $ 50,139 $ ( 1,244 ) Municipal bonds 188,920 ( 25,592 ) 33,907 ( 15,178 ) 222,827 ( 40,770 ) Corporate bonds 108,187 ( 9,547 ) 13,066 ( 1,934 ) 121,253 ( 11,481 ) Mortgage-backed or related securities 930,566 ( 90,537 ) 1,159,110 ( 276,184 ) 2,089,676 ( 366,721 ) Asset-backed securities 201,437 ( 10,993 ) — — 201,437 ( 10,993 ) $ 1,462,517 $ ( 137,551 ) $ 1,222,815 $ ( 293,658 ) $ 2,685,332 $ ( 431,209 ) December 31, 2021 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available-for-Sale: U.S. Government and agency obligations $ — $ — $ 71,306 $ ( 621 ) $ 71,306 $ ( 621 ) Municipal bonds 40,397 ( 221 ) 8,541 ( 99 ) 48,938 ( 320 ) Corporate bonds 8,009 ( 121 ) 9,938 ( 62 ) 17,947 ( 183 ) Mortgage-backed or related securities 1,307,411 ( 38,028 ) 721,454 ( 11,933 ) 2,028,865 ( 49,961 ) Asset-backed securities 3,382 ( 9 ) — — 3,382 ( 9 ) $ 1,359,199 $ ( 38,379 ) $ 811,239 $ ( 12,715 ) $ 2,170,438 $ ( 51,094 ) At December 31, 2022, there were 298 securities—available-for-sale with unrealized losses, compared to 97 at December 31, 2021. Management does not believe that any individual unrealized loss as of December 31, 2022 or December 31, 2021 resulted from credit loss. The decline in fair market value of these securities was generally due to changes in interest rates and changes in market-desired spreads subsequent to their purchase. There were no sales of securities—trading for the years ended December 31, 2022, 2021 or 2020. There were no securities—trading in a nonaccrual status at December 31, 2022 or December 31, 2021. Net unrealized holding gains of $ 1.7 million were recognized in 2022 and net unrealized holding gains of $ 2.0 million were recognized 2021. 99 The following table presents gross gains and losses on sales and partial calls of securities available-for-sale (in thousands): For the Year Ended December 31, 2022 2021 2020 Available-for-Sale: Gross Gains $ 522 $ 993 $ 899 Gross Losses ( 3,770 ) ( 495 ) ( 445 ) Balance, end of the period $ ( 3,248 ) $ 498 $ 454 There were no securities—available-for-sale in a nonaccrual status at December 31, 2022 and 2021. 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, 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 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. December 31, 2022 Trading Available-for-Sale Held-to-Maturity Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Maturing within one year $ — $ — $ 3,624 $ 3,587 $ 19,371 $ 19,161 Maturing after one year through five years — — 243,507 227,123 26,852 26,090 Maturing after five years through ten years — — 526,454 472,026 21,832 20,756 Maturing after ten years 27,203 28,694 2,445,192 2,086,295 1,049,912 876,173 $ 27,203 $ 28,694 $ 3,218,777 $ 2,789,031 $ 1,117,967 $ 942,180 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 Purpose or beneficiary: State and local governments public deposits $ 261,878 $ 264,582 $ 231,405 Interest rate swap counterparties 6,384 6,826 6,202 Repurchase transaction accounts 330,728 339,227 277,369 Other 2,450 2,450 2,416 Total pledged securities $ 601,440 $ 613,085 $ 517,392 100 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 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. The following tables summarize the amortized cost of held-to-maturity debt securities by credit rating at December 31, 2022 and December 31, 2021 (in thousands): December 31, 2022 U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total AAA/AA/A $ — $ 492,105 $ 500 $ 16,681 $ 509,286 Not Rated 312 11,012 2,461 594,896 608,681 $ 312 $ 503,117 $ 2,961 $ 611,577 $ 1,117,967 December 31, 2021 U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total AAA/AA/A $ — $ 406,363 $ 500 $ — $ 406,863 Not Rated 316 14,192 2,592 97,392 114,492 $ 316 $ 420,555 $ 3,092 $ 97,392 $ 521,355 The following tables present the activity in the allowance for credit losses for held-to-maturity debt securities by major type for the year ended December 31, 2022 and December 31, 2021 (in thousands): For the Year Ended December 31, 2022 U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total Allowance for credit losses – securities 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 U.S. 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 Securities charged-off — — ( 250 ) — ( 250 ) Ending Balance $ — $ 203 $ 230 $ — $ 433 For the Year Ended December 31, 2020 U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total Allowance for credit losses – securities Beginning Balance $ — $ — $ — $ — $ — Impact of adopting ASC 326 — 28 35 — 63 Provision for credit losses — 31 — — 31 Ending Balance $ — $ 59 $ 35 $ — $ 94 101 Note 4: 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). December 31, 2022 December 31, 2021 Amount Percent of Total Amount Percent of Total Commercial real estate: Owner-occupied $ 845,320 8.3 % $ 831,623 9.2 % Investment properties 1,589,975 15.7 1,674,027 18.4 Small balance CRE 1,200,251 11.8 1,281,863 14.1 Multifamily real estate 645,071 6.4 530,885 5.8 Construction, land and land development: Commercial construction 184,876 1.8 167,998 1.8 Multifamily construction 325,816 3.2 259,116 2.9 One- to four-family construction 647,329 6.4 568,753 6.3 Land and land development 328,475 3.2 313,454 3.5 Commercial business: Commercial business (1) 1,283,407 12.7 1,170,780 12.9 Small business scored 947,092 9.3 792,310 8.7 Agricultural business, including secured by farmland (2) 295,077 2.9 280,578 3.1 One- to four-family residential 1,173,112 11.6 657,474 7.2 Consumer: Consumer—home equity revolving lines of credit 566,291 5.6 458,533 5.0 Consumer—other 114,632 1.1 97,369 1.1 Total loans 10,146,724 100.0 % 9,084,763 100.0 % Less allowance for credit losses - loans ( 141,465 ) ( 132,099 ) Net loans $ 10,005,259 $ 8,952,664 (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. Net loans include net discounts on acquired loans of $ 6.6 million and $ 9.7 million as of December 31, 2022 and 2021, respectively. Net loans does not include accrued interest receivable. 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 $ 683,000 and $ 700,000 at December 31, 2022 and 2021, respectively. Purchased credit-deteriorated and purchased non-credit-deteriorated loans. Loans acquired in business combinations are recorded at their fair value at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-deteriorated (PCD) or purchased non-credit-deteriorated. There were no PCD loans at December 31, 2022 or 2021. Troubled Debt Restructurings. Loans are reported as TDRs when the Bank grants one or more concessions to a borrower experiencing financial difficulties that it would not otherwise consider. The Company’s TDRs have generally not involved forgiveness of amounts due, but almost always include a modification of multiple factors; the most common combination includes interest rate, payment amount and maturity date. 102 As of December 31, 2022 and 2021, the Company had TDRs of $ 4.3 million and $ 5.5 million, respectively. 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 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 TDR results in either a transfer to nonaccrual status or a partial charge-off, or both Credit Quality Indicators : To appropriately and effectively manage the ongoing credit quality of the Company’s loan portfolio, management has implemented a risk-rating or loan grading system for its loans. The system is a tool to evaluate portfolio asset quality throughout each applicable loan’s life as an asset of the Company. Generally, loans are risk rated on an aggregate borrower/relationship basis with individual loans sharing similar ratings. There are some instances when specific situations relating to individual loans will provide the basis for different risk ratings within the aggregate relationship. Loans are graded on a scale of 1 to 9. A description of the general characteristics of these categories is shown below: Overall Risk Rating Definitions : Risk-ratings contain both qualitative and quantitative measurements and take into account the financial strength of a borrower and the structure of the loan or lease. 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 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. There were no material changes in the risk-rating or loan grading system for the periods presented. Risk Ratings 1-5: Pass Credits with risk ratings of 1 to 5 meet the definition of a pass risk rating. The strength of credits vary within the pass risk ratings, ranging from a risk rated 1 being an exceptional credit to a risk rated 5 being an acceptable credit that requires a more than normal level of supervision. Risk Rating 6: Special Mention A credit with potential weaknesses that deserves management’s close attention is risk rated a 6. If left uncorrected, these potential weaknesses will result in deterioration in the capacity to repay debt. A key distinction between Special Mention and Substandard is that in a Special Mention credit, there are identified weaknesses that pose potential risk(s) to the repayment sources, versus well defined weaknesses that pose risk(s) to the repayment sources. Assets in this category are expected to be in this category no more than 9-12 months as the potential weaknesses in the credit are resolved. Risk Rating 7: Substandard A credit with well-defined weaknesses that jeopardize the ability to repay in full is risk rated a 7. These credits are inadequately protected by either the sound net worth and payment capacity of the borrower or the value of pledged collateral. These are credits with a distinct possibility of loss. Loans headed for foreclosure and/or legal action due to deterioration are rated 7 or worse. Risk Rating 8: Doubtful A credit with an extremely high probability of loss is risk rated 8. These credits have all the same critical weaknesses that are found in a substandard loan; however, the weaknesses are elevated to the point that based upon current information, collection or liquidation in full is improbable. While some loss on doubtful credits is expected, pending events may make the amount and timing of any loss indeterminable. In these situations taking the loss is inappropriate until the outcome of the pending event is clear. Risk Rating 9: Loss A credit that is considered to be currently uncollectible or of such little value that it is no longer a viable bank asset is risk rated 9. Losses should be taken in the accounting period in which the credit is determined to be uncollectible. Taking a loss does not mean that a credit has absolutely no recovery or salvage value but, rather, it is not practical or desirable to defer writing off the credit, even though partial recovery may occur in the future. 103 The following tables present the Company’s portfolio of risk-rated loans by class and by grade as of December 31, 2022 and December 31, 2021 (in thousands). Revolving loans that are converted to term loans are treated as new originations in the table below and are presented by year of origination. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension. December 31, 2022 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2022 2021 2020 2019 2018 Prior Commercial real estate - owner occupied Risk Rating Pass $ 167,150 $ 198,787 $ 150,272 $ 74,171 $ 57,095 $ 148,902 $ 10,833 $ 807,210 Special Mention — — — 2,829 — 42 201 3,072 Substandard 13,756 — 7,211 13,564 — 307 200 35,038 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial real estate - owner occupied $ 180,906 $ 198,787 $ 157,483 $ 90,564 $ 57,095 $ 149,251 $ 11,234 $ 845,320 Commercial real estate - investment properties Risk Rating Pass $ 190,627 $ 323,160 $ 142,476 $ 182,853 $ 169,667 $ 547,899 $ 25,691 $ 1,582,373 Special Mention — — — — — — — — Substandard — — — 3,283 — 3,007 1,312 7,602 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial real estate - investment properties $ 190,627 $ 323,160 $ 142,476 $ 186,136 $ 169,667 $ 550,906 $ 27,003 $ 1,589,975 Multifamily real estate Risk Rating Pass $ 139,383 $ 177,784 $ 93,961 $ 46,460 $ 29,665 $ 156,140 $ 1,678 $ 645,071 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total Multifamily real estate $ 139,383 $ 177,784 $ 93,961 $ 46,460 $ 29,665 $ 156,140 $ 1,678 $ 645,071 104 December 31, 2022 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2022 2021 2020 2019 2018 Prior Commercial construction Risk Rating Pass $ 112,229 $ 46,679 $ 12,952 $ 4,260 $ 1,107 $ — $ — $ 177,227 Special Mention — — — — — — — — Substandard 2,931 1 — — 4,717 — — 7,649 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial construction $ 115,160 $ 46,680 $ 12,952 $ 4,260 $ 5,824 $ — $ — $ 184,876 Multifamily construction Risk Rating Pass $ 142,680 $ 161,066 $ 20,622 $ 1,448 $ — $ — $ — $ 325,816 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total Multifamily construction $ 142,680 $ 161,066 $ 20,622 $ 1,448 $ — $ — $ — $ 325,816 One- to four- family construction Risk Rating Pass $ 572,701 $ 56,530 $ 677 $ 331 $ — $ — $ 711 $ 630,950 Special Mention — — — — — — — — Substandard 13,473 2,906 — — — — — 16,379 Doubtful — — — — — — — — Loss — — — — — — — — Total One- to four- family construction $ 586,174 $ 59,436 $ 677 $ 331 $ — $ — $ 711 $ 647,329 105 December 31, 2022 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2022 2021 2020 2019 2018 Prior Land and land development Risk Rating Pass $ 199,339 $ 88,066 $ 16,278 $ 11,866 $ 6,242 $ 6,164 $ 339 $ 328,294 Special Mention — — — — — — — — Substandard — — — — 97 84 — 181 Doubtful — — — — — — — — Loss — — — — — — — — Total Land and land development $ 199,339 $ 88,066 $ 16,278 $ 11,866 $ 6,339 $ 6,248 $ 339 $ 328,475 Commercial business Risk Rating Pass $ 249,609 $ 149,140 $ 161,494 $ 126,416 $ 86,712 $ 85,386 $ 391,852 $ 1,250,609 Special Mention 74 26 3,467 — — — 200 3,767 Substandard 464 12,599 1,956 1,161 5,954 796 6,101 29,031 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial business $ 250,147 $ 161,765 $ 166,917 $ 127,577 $ 92,666 $ 86,182 $ 398,153 $ 1,283,407 Agricultural business, including secured by farmland Risk Rating Pass $ 36,848 $ 35,440 $ 18,946 $ 28,354 $ 24,710 $ 27,063 $ 109,606 $ 280,967 Special Mention — 336 271 — — — 357 964 Substandard 2,015 970 — 6,565 — 2,599 997 13,146 Doubtful — — — — — — — — Loss — — — — — — — — Total Agricultural business, including secured by farmland $ 38,863 $ 36,746 $ 19,217 $ 34,919 $ 24,710 $ 29,662 $ 110,960 $ 295,077 106 December 31, 2021 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2021 2020 2019 2018 2017 Prior Commercial real estate - owner occupied Risk Rating Pass $ 212,407 $ 172,968 $ 100,077 $ 83,124 $ 43,371 $ 153,472 $ 11,782 $ 777,201 Special Mention — — 2,185 — — 74 — 2,259 Substandard 13,597 — 13,770 — 1,056 23,740 — 52,163 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial real estate - owner occupied $ 226,004 $ 172,968 $ 116,032 $ 83,124 $ 44,427 $ 177,286 $ 11,782 $ 831,623 Commercial real estate - investment properties Risk Rating Pass $ 337,170 $ 165,174 $ 231,021 $ 183,787 $ 201,738 $ 467,821 $ 18,471 $ 1,605,182 Special Mention — — 240 4,131 — — — 4,371 Substandard 28,926 — 3,343 — 4,305 27,900 — 64,474 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial real estate - investment properties $ 366,096 $ 165,174 $ 234,604 $ 187,918 $ 206,043 $ 495,721 $ 18,471 $ 1,674,027 Multifamily real estate Risk Rating Pass $ 184,310 $ 75,226 $ 55,494 $ 33,708 $ 84,612 $ 88,055 $ 3,030 $ 524,435 Special Mention — — — — — — — — Substandard 4,908 — — — — 1,542 — 6,450 Doubtful — — — — — — — — Loss — — — — — — — — Total Multifamily real estate $ 189,218 $ 75,226 $ 55,494 $ 33,708 $ 84,612 $ 89,597 $ 3,030 $ 530,885 107 December 31, 2021 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2021 2020 2019 2018 2017 Prior Commercial construction Risk Rating Pass $ 103,352 $ 31,841 $ 7,259 $ 8,087 $ — $ — $ — $ 150,539 Special Mention — — — — — — — — Substandard 11,782 85 688 4,806 — 98 — 17,459 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial construction $ 115,134 $ 31,926 $ 7,947 $ 12,893 $ — $ 98 $ — $ 167,998 Multifamily construction Risk Rating Pass $ 86,643 $ 118,114 $ 54,359 $ — $ — $ — $ — $ 259,116 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total Multifamily construction $ 86,643 $ 118,114 $ 54,359 $ — $ — $ — $ — $ 259,116 One- to four- family construction Risk Rating Pass $ 526,153 $ 40,133 $ 331 $ — $ — $ 216 $ 1,920 $ 568,753 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total One- to four- family construction $ 526,153 $ 40,133 $ 331 $ — $ — $ 216 $ 1,920 $ 568,753 108 December 31, 2021 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2021 2020 2019 2018 2017 Prior Land and land development Risk Rating Pass $ 181,381 $ 89,895 $ 17,154 $ 8,141 $ 4,050 $ 7,870 $ 1,682 $ 310,173 Special Mention — — — — — — — — Substandard 2,876 14 263 — — 128 — 3,281 Doubtful — — — — — — — — Loss — — — — — — — — Total Land and land development $ 184,257 $ 89,909 $ 17,417 $ 8,141 $ 4,050 $ 7,998 $ 1,682 $ 313,454 Commercial business Risk Rating Pass $ 273,096 $ 214,166 $ 176,136 $ 121,211 $ 45,434 $ 78,049 $ 246,351 $ 1,154,443 Special Mention 65 77 — 241 19 8 2,430 2,840 Substandard 1,941 1,560 2,292 3,853 875 679 2,297 13,497 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial business $ 275,102 $ 215,803 $ 178,428 $ 125,305 $ 46,328 $ 78,736 $ 251,078 $ 1,170,780 Agricultural business, including secured by farmland Risk Rating Pass $ 33,119 $ 25,338 $ 49,951 $ 27,401 $ 11,918 $ 30,042 $ 99,410 $ 277,179 Special Mention — — — — — — — — Substandard — 474 2,231 493 129 72 — 3,399 Doubtful — — — — — — — — Loss — — — — — — — — Total Agricultural business, including secured by farmland $ 33,119 $ 25,812 $ 52,182 $ 27,894 $ 12,047 $ 30,114 $ 99,410 $ 280,578 109 The following tables present the Company’s portfolio of non-risk-rated loans by class and delinquency status as of December 31, 2022 and December 31, 2021 (in thousands). Revolving loans that are converted to term loans are treated as new originations in the table below and are presented by year of origination. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension. December 31, 2022 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2022 2021 2020 2019 2018 Prior Small balance CRE Past Due Category Current $ 177,605 $ 215,801 $ 172,286 $ 134,552 $ 142,592 $ 354,924 $ 630 $ 1,198,390 30-59 Days Past Due — — 460 — — 1,399 — 1,859 60-89 Days Past Due — — — — — — — — 90 Days + Past Due — — — — — 2 — 2 Total Small balance CRE $ 177,605 $ 215,801 $ 172,746 $ 134,552 $ 142,592 $ 356,325 $ 630 $ 1,200,251 Small business scored Past Due Category Current $ 307,109 $ 201,628 $ 99,867 $ 81,603 $ 56,420 $ 78,025 $ 119,281 $ 943,933 30-59 Days Past Due 146 518 54 262 46 280 173 1,479 60-89 Days Past Due — 54 — 275 149 7 176 661 90 Days + Past Due — — 26 157 70 305 461 1,019 Total Small business scored $ 307,255 $ 202,200 $ 99,947 $ 82,297 $ 56,685 $ 78,617 $ 120,091 $ 947,092 One- to four- family residential Past Due Category Current $ 555,833 $ 279,331 $ 59,672 $ 34,607 $ 37,740 $ 191,890 $ 1,335 $ 1,160,408 30-59 Days Past Due 2,030 846 755 — 116 1,462 78 5,287 60-89 Days Past Due 1,060 — — — 115 1,067 — 2,242 90 Days + Past Due — 1,819 973 712 94 1,577 — 5,175 Total One- to four- family residential $ 558,923 $ 281,996 $ 61,400 $ 35,319 $ 38,065 $ 195,996 $ 1,413 $ 1,173,112 110 December 31, 2022 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2022 2021 2020 2019 2018 Prior Consumer—home equity revolving lines of credit Past Due Category Current $ 7,442 $ 1,089 $ 329 $ 1,355 $ 1,611 $ 3,788 $ 547,068 $ 562,682 30-59 Days Past Due 49 40 75 — 74 214 1,372 1,824 60-89 Days Past Due — 50 — — 49 45 59 203 90 Days + Past Due — 14 73 476 64 675 280 1,582 Total Consumer—home equity revolving lines of credit $ 7,491 $ 1,193 $ 477 $ 1,831 $ 1,798 $ 4,722 $ 548,779 $ 566,291 Consumer-other Past Due Category Current $ 39,740 $ 12,138 $ 9,334 $ 5,695 $ 5,384 $ 16,675 $ 25,219 $ 114,185 30-59 Days Past Due 49 — 16 5 2 67 120 259 60-89 Days Past Due 41 9 29 24 — 13 62 178 90 Days + Past Due — 10 — — — — — 10 Total Consumer-other $ 39,830 $ 12,157 $ 9,379 $ 5,724 $ 5,386 $ 16,755 $ 25,401 $ 114,632 111 December 31, 2021 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2021 2020 2019 2018 2017 Prior Small balance CRE Past Due Category Current $ 215,933 $ 208,482 $ 157,342 $ 182,940 $ 138,239 $ 377,007 $ 533 $ 1,280,476 30-59 Days Past Due 40 — — — 49 — — 89 60-89 Days Past Due — — — — — — — — 90 Days + Past Due — — — — 1,186 112 — 1,298 Total Small balance CRE $ 215,973 $ 208,482 $ 157,342 $ 182,940 $ 139,474 $ 377,119 $ 533 $ 1,281,863 Small business scored Past Due Category Current $ 235,435 $ 126,959 $ 109,483 $ 84,460 $ 55,940 $ 69,504 $ 108,632 $ 790,413 30-59 Days Past Due 260 268 — 133 74 4 185 924 60-89 Days Past Due — — 133 11 9 248 64 465 90 Days + Past Due — 69 — 62 306 7 64 508 Total Small business scored $ 235,695 $ 127,296 $ 109,616 $ 84,666 $ 56,329 $ 69,763 $ 108,945 $ 792,310 One- to four- family residential Past Due Category Current $ 225,020 $ 77,873 $ 53,854 $ 48,299 $ 51,654 $ 195,479 $ 1,425 $ 653,604 30-59 Days Past Due — 596 — 404 635 683 — 2,318 60-89 Days Past Due — — 2 295 — 30 — 327 90 Days + Past Due — — — 167 — 1,058 — 1,225 Total One- to four- family residential $ 225,020 $ 78,469 $ 53,856 $ 49,165 $ 52,289 $ 197,250 $ 1,425 $ 657,474 112 December 31, 2021 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2021 2020 2019 2018 2017 Prior Consumer—home equity revolving lines of credit Past Due Category Current $ 7,135 $ 1,210 $ 1,324 $ 1,772 $ 1,764 $ 2,920 $ 440,352 $ 456,477 30-59 Days Past Due 147 — — 23 37 568 210 985 60-89 Days Past Due 49 — — — 45 83 91 268 90 Days + Past Due — — 109 191 156 188 159 803 Total Consumer—home equity revolving lines of credit $ 7,331 $ 1,210 $ 1,433 $ 1,986 $ 2,002 $ 3,759 $ 440,812 $ 458,533 Consumer-other Past Due Category Current $ 18,640 $ 12,803 $ 8,676 $ 8,242 $ 6,138 $ 17,055 $ 25,336 $ 96,890 30-59 Days Past Due — 114 13 150 22 29 60 388 60-89 Days Past Due 6 — 2 — — 8 59 75 90 Days + Past Due — — 10 6 — — — 16 Total Consumer-other $ 18,646 $ 12,917 $ 8,701 $ 8,398 $ 6,160 $ 17,092 $ 25,455 $ 97,369 113 The following tables provide the amortized cost basis of collateral-dependent loans as of December 31, 2022 and December 31, 2021 (in thousands). Our collateral dependent loans presented in the tables below have no significant concentrations by property type or location. December 31, 2022 Real Estate Equipment Total Commercial real estate: Small balance CRE $ 2,953 $ — $ 2,953 Commercial business: 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 Equipment Total Commercial real estate: Owner-occupied $ 921 $ — $ 921 Investment properties 6,136 — 6,136 Small balance CRE 5,902 — 5,902 Commercial business 17 47 64 Agricultural business, including secured by farmland 427 594 1,021 Total $ 13,403 $ 641 $ 14,044 114 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 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 Commercial real estate: Owner-occupied $ — $ — $ — $ — $ 845,320 $ 845,320 $ — $ 143 $ — Investment properties — — — — 1,589,975 1,589,975 — — — Small balance CRE 1,859 — 2 1,861 1,198,390 1,200,251 2,927 3,540 — Multifamily real estate — — — — 645,071 645,071 — — — Construction, land and land development: Commercial construction — — — — 184,876 184,876 — — — Multifamily construction — — — — 325,816 325,816 — — — One- to four-family construction 900 — — 900 646,429 647,329 — — — Land and land development 921 — 97 1,018 327,457 328,475 — 181 — Commercial business: Commercial business 2,100 4,145 649 6,894 1,276,513 1,283,407 6,998 7,356 — Small business scored 1,479 661 1,019 3,159 943,933 947,092 303 2,530 — Agricultural business, including secured by farmland 1,185 — 594 1,779 293,298 295,077 594 594 — One- to four-family residential 5,287 2,242 5,175 12,704 1,160,408 1,173,112 1,569 5,236 1,023 Consumer: Consumer—home equity revolving lines of credit 1,824 203 1,582 3,609 562,682 566,291 — 2,124 254 Consumer—other 259 178 10 447 114,185 114,632 — 2 10 Total $ 15,814 $ 7,429 $ 9,128 $ 32,371 $ 10,114,353 $ 10,146,724 $ 12,391 $ 21,706 $ 1,287 115 December 31, 2021 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 Commercial real estate: Owner-occupied $ 233 $ — $ 448 $ 681 $ 830,942 $ 831,623 $ 924 $ 1,456 $ — Investment properties 81 — — 81 1,673,946 1,674,027 3,706 6,282 — Small balance CRE 89 — 1,298 1,387 1,280,476 1,281,863 5,886 6,421 — Multifamily real estate — — — — 530,885 530,885 — — — Construction, land and land development: Commercial construction — — 98 98 167,900 167,998 — 98 — Multifamily construction — — — — 259,116 259,116 — — — One- to four-family construction 162 — — 162 568,591 568,753 — — — Land and land development 51 — 14 65 313,389 313,454 — 381 — Commercial business: Commercial business 5,157 1,007 588 6,752 1,164,028 1,170,780 228 1,144 2 Small business scored 924 465 508 1,897 790,413 792,310 — 1,012 — Agricultural business, including secured by farmland 139 — 1,021 1,160 279,418 280,578 1,021 1,022 — One- to four-family residential 2,318 327 1,225 3,870 653,604 657,474 — 2,711 436 Consumer: Consumer—home equity revolving lines of credit 985 268 803 2,056 456,477 458,533 — 1,736 114 Consumer—other 388 75 16 479 96,890 97,369 — 18 3 Total $ 10,527 $ 2,142 $ 6,019 $ 18,688 $ 9,066,075 $ 9,084,763 $ 11,765 $ 22,281 $ 555 (1) The Company did not recognize any interest income on non-accrual loans during both the years ended December 31, 2022 and 2021. 116 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 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 (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 Charge-offs ( 2 ) — ( 30 ) ( 1,699 ) ( 42 ) — ( 940 ) — ( 2,713 ) Ending balance $ 44,086 $ 7,734 $ 29,171 $ 33,299 $ 3,475 $ 14,729 $ 8,971 $ — $ 141,465 Net loan recoveries as a percent of average outstanding loans during the period — % — % — % — % — % — % — % n/a 0.01 % For the Year Ended December 31, 2021 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 (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 Charge-offs ( 3,767 ) ( 59 ) — ( 1,762 ) ( 181 ) — ( 914 ) — ( 6,683 ) Ending balance $ 52,995 $ 7,043 $ 27,294 $ 26,421 $ 3,190 $ 8,205 $ 6,951 $ — $ 132,099 Net loan charge-offs as a percent of average outstanding loans during the period ( 0.02 ) % — % — % — % — % — % — % n/a ( 0.02 ) % 117 For the Year Ended December 31, 2020 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 Recoveries 275 — 105 3,265 1,823 467 328 — 6,263 Charge-offs ( 1,854 ) ( 66 ) ( 100 ) ( 7,253 ) ( 591 ) ( 136 ) ( 1,640 ) — ( 11,640 ) Ending balance $ 57,791 $ 3,893 $ 41,295 $ 35,007 $ 4,914 $ 9,913 $ 14,466 $ — $ 167,279 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 ) % 118 Note 5: REAL ESTATE OWNED, HELD FOR SALE, NET The following table presents the changes in REO, net of valuation allowance, for the years ended December 31, 2022, 2021 and 2020 (in thousands): Years Ended December 31 2022 2021 2020 Balance, beginning of period $ 852 $ 816 $ 814 Additions from loan foreclosures — 512 1,588 Proceeds from dispositions of REO ( 864 ) ( 783 ) ( 2,360 ) Gain on sale of REO 352 307 819 Valuation adjustments in the period — — ( 45 ) Balance, end of period $ 340 $ 852 $ 816 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 $ 1.1 million and $ 609,000 at December 31, 2022 and December 31, 2021, respectively. Note 6: PROPERTY AND EQUIPMENT, NET Land, buildings and equipment owned by the Company and its subsidiaries at December 31, 2022 and 2021 are summarized as follows (in thousands): December 31 2022 2021 Land (1) $ 27,064 $ 29,387 Buildings and leasehold improvements (1) 145,128 150,238 Furniture and equipment 129,451 121,637 301,643 301,262 Less accumulated depreciation ( 162,889 ) ( 152,503 ) Property and equipment, net $ 138,754 $ 148,759 (1) The Company had $ 4.5 million and $ 3.3 million of properties held for sale that were included in land and buildings at December 31, 2022 and 2021, respectively. The Company’s depreciation expense related to property and equipment was $ 16.9 million, $ 17.3 million, and $ 18.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. 119 Note 7: DEPOSITS Deposits consist of the following at December 31, 2022 and 2021 (in thousands): December 31 2022 2021 Non-interest-bearing checking $ 6,176,998 $ 6,385,177 Interest-bearing checking 1,811,153 1,947,414 Regular savings accounts 2,710,090 2,784,716 Money market accounts 2,198,288 2,370,995 Total interest-bearing transaction and savings accounts 6,719,531 7,103,125 Certificates of deposit: 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 Total deposits $ 13,620,059 $ 14,326,933 Included in total deposits: Public fund transaction accounts $ 392,859 $ 353,874 Public fund interest-bearing certificates 26,810 39,961 Total public deposits $ 419,669 $ 393,835 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. 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 Average Rate Maturing in one year or less $ 531,643 0.48 % Maturing after one year through two years 142,993 1.91 Maturing after two years through three years 33,779 0.54 Maturing after three years through four years 8,638 0.39 Maturing after four years through five years 5,098 0.35 Maturing after five years 1,379 0.78 Total certificates of deposit $ 723,530 0.76 % Note 8: ADVANCES FROM FEDERAL HOME LOAN BANK OF DES MOINES 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, 2022 and 2021, FHLB advances were scheduled to mature as follows (dollars in thousands): At or for the Years Ended December 31 2022 2021 Amount Weighted Average Rate Amount Weighted Average Rate Maturing in one year or less $ 50,000 4.60 % $ 50,000 2.72 % Maturing after one year through three years — — — — Maturing after three years through five years — — — — Maturing after five years — — — — Total FHLB advances $ 50,000 4.60 % $ 50,000 2.72 % 120 The maximum amount outstanding from the FHLB advances at any month end for the years ended December 31, 2022 and 2021 was $ 75.0 million and $ 150.0 million, respectively. The average FHLB advances balance outstanding for the years ended December 31, 2022 and 2021 was $ 15.3 million and $ 97.9 million, respectively. 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, 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. Note 9: OTHER BORROWINGS Other borrowings consist of retail and wholesale repurchase agreements, other term borrowings and Federal Reserve Bank borrowings. Repurchase Agreements: At December 31, 2022, retail repurchase agreements carry interest rates ranging from 0.05 % to 2.50 %. These repurchase agreements are secured by the pledge of certain mortgage-backed and agency securities with a carrying value of $ 330.7 million. 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, 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. Availability of lines is subject to federal funds balances available for loan and continued borrower eligibility. These lines are intended to support short-term liquidity needs and the agreements may restrict consecutive day usage. A summary of all other borrowings at December 31, 2022 and 2021 by the period remaining to maturity is as follows (dollars in thousands): At or for the Years Ended December 31 2022 2021 Amount Weighted Average Rate Amount Weighted Average Rate Repurchase agreements: Maturing in one year or less $ 232,799 0.35 % $ 264,490 0.13 % Maturing after one year through two years — — — — Maturing after two years — — — — Total year-end outstanding $ 232,799 0.35 % $ 264,490 0.13 % Average outstanding $ 249,681 0.15 % $ 240,817 0.19 % Maximum outstanding at any month-end $ 266,776 n/a $ 258,779 n/a 121 Note 10: SUBORDINATED DEBT AND MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES 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. The Trusts used the proceeds from the offerings to purchase a like amount of junior subordinated debentures (the Debentures) of the Company. The Debentures are the sole assets of the Trusts. The Company’s obligations under the debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the Trusts. The TPS are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. 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. 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 V $ 25,000 $ 774 $ 25,774 2035 6.26 Quarterly Three-month LIBOR + 1.57 % Banner Capital Trust VI 25,000 774 25,774 2037 6.38 Quarterly Three-month LIBOR + 1.62 % Banner Capital Trust VII 25,000 774 25,774 2037 5.12 Quarterly Three-month LIBOR + 1.38 % Greater Sacramento Bancorp Statutory Trust II 4,000 124 4,124 2035 6.45 Quarterly Three-month LIBOR + 1.68 % Mission Oaks Statutory Trust I 7,500 232 7,732 2036 6.42 Quarterly Three-month LIBOR + 1.65 % Total TPS liability at par $ 86,500 $ 2,678 89,178 5.99 % Fair value adjustment (2) ( 14,321 ) Total TPS liability at fair value (2) $ 74,857 (1) All of the Company’s TPS are eligible for redemption. (2) The Company has elected to use fair value accounting on its TPS. 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. The interest rate on the Notes remains fixed equal to 5.000% for the first 5 years, after 5 years the interest rate changes to a floating interest rate tied to a benchmark rate, which is expected to be Three-Month Term SOFR, plus a spread of 489 basis points. The Notes will mature on June 30, 2030. On or after June 30, 2025, the Company may redeem the Notes, in whole or in part. 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 are included in Tier 2 capital for the Company under current regulatory guidelines and interpretations. 122 Note 11: INCOME TAXES 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): Years Ended December 31 2022 2021 2020 Current Federal $ 26,653 $ 20,461 $ 30,325 State 5,882 4,359 6,964 Total Current 32,535 24,820 37,289 Deferred Federal 11,595 18,278 ( 8,134 ) State 1,267 2,448 ( 2,630 ) Total Deferred 12,862 20,726 ( 10,764 ) Provision for income taxes $ 45,397 $ 45,546 $ 26,525 The following table presents the reconciliation of the federal statutory rate to the actual effective rate for the years ended December 31, 2022, 2021 and 2020: Years Ended December 31 2022 2021 2020 Federal income tax statutory rate 21.0 % 21.0 % 21.0 % Increase (decrease) in tax rate due to: Tax-exempt interest ( 3.6 ) ( 3.0 ) ( 4.4 ) Investment in life insurance ( 0.7 ) ( 0.4 ) ( 0.9 ) State income taxes, net of federal tax offset 2.3 2.2 2.5 Tax credits ( 1.9 ) ( 1.5 ) ( 2.6 ) Low income housing partnerships, net of amortization 1.3 1.1 1.6 Other 0.5 ( 0.9 ) 1.4 Effective income tax rate 18.9 % 18.5 % 18.6 % 123 The following table reflects the effect of temporary differences that gave rise to the components of the net deferred tax asset as of December 31, 2022 and 2021 (in thousands): December 31 2022 2021 Deferred tax assets: Loan loss and REO $ 37,615 $ 34,753 Deferred compensation 22,033 21,193 Net operating loss carryforward 15,470 20,159 Federal and state tax credits 1,545 7,631 State net operating losses 4,558 5,179 Loan discount 1,104 1,830 Lease liability 12,997 14,136 Unrealized loss on securities - available-for-sale, net 114,708 91 Other 4,782 5,091 Total deferred tax assets 214,812 110,063 Deferred tax liabilities: Depreciation ( 6,458 ) ( 7,119 ) Deferred loan fees, servicing rights and loan origination costs ( 13,331 ) ( 12,696 ) Intangibles ( 3,929 ) ( 4,977 ) Right of use asset ( 11,603 ) ( 13,071 ) Financial instruments accounted for under fair value accounting ( 1,176 ) ( 878 ) Total deferred tax liabilities ( 36,497 ) ( 38,741 ) Deferred income tax asset 178,315 71,322 Valuation allowance ( 184 ) ( 184 ) Deferred tax asset, net $ 178,131 $ 71,138 Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recognized or settled. 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, 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, 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. At December 31, 2021, the Company had federal and state net operating loss carryforwards of approximately $ 96.0 million and $ 72.5 million, respectively, and federal general business credits carryforwards of $ 3.3 million. 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. In addition, the underlying Section 382 limitations at Starbuck Bancshares, Inc.’s level continue to apply to the Company. Section 382 limits the ability of a corporate taxpayer to use net operating loss carryforwards, general business credits, and recognized built-in-losses, on an annual basis, incurred prior to the change in control against income earned after the change in control. As a result of the Section 382 limitations, the Company is limited to utilizing $ 21.5 million on an annual basis (after the application of the Section 382 limitations carried over from Starbuck Bancshares, Inc.) of federal net operating loss carryforwards, general business credits, and recognized built-in losses. The applicable state Section 382 limitations range from $ 525,000 to $ 21.5 million. In 2017, the Company established a $ 184,000 valuation reserve against the portion of its various state net operating loss carryforwards and tax credits that it believed it is more likely than not that it would not realize the benefit because the application of the Section 382 limitations at the state level is based on future apportionment rates. For non-Section 382 limited alternative minimum tax credits, the credits expired in 2019 due to the passage of the CARES Act in 2020. As a consequence of Banner’s capital raise in June 2010, the Company experienced a change in control within the meaning of Section 382 of the Code. As a result of the Section 382 limitations, the Company is limited to utilizing $ 6.9 million of net operating loss carryforwards which existed prior to the acquisition of Starbuck Bancshares, Inc., on an annual basis. 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. 124 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. However, the underlying Section 382 limitations at AltaPacific and AltaPacific Bank’s continue to apply to the Company. As a result of the Section 382 limitations, the Company is limited to utilizing $ 110,000 of the federal net operating loss carryovers and general business credits acquired from AltaPacific and AltaPacific Bank based on underlying limits carried over. Based on its analysis, the Company believes it is more likely than not that the Section 382 limitations will not impact its ability to utilize all of the related available net operating loss carryforwards and general business credits. Retained earnings at December 31, 2022 and 2021 included approximately $ 5.4 million in tax basis bad debt reserves for which no income tax liability has been recorded. In the future, if this tax bad debt reserve is used for purposes other than to absorb bad debts or the Company no longer qualifies as a bank or is completely liquidated, the Company will incur a federal tax liability at the then-prevailing corporate tax rate, established as $ 1.1 million at December 31, 2022. A reconciliation of the beginning and ending amount of total unrecognized state tax benefits for the years ended December 31, 2022 and 2021 is as follows (in thousands): Years Ended December 31 2022 2021 Balance, beginning of year $ 1,000 $ 450 Changes related to prior year tax positions 415 365 Changes related to current year tax positions 185 185 Balance, end of year $ 1,600 $ 1,000 None of the unrecognized tax benefits, if recognized, would materially affect the effective tax rate. The Company does not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease in the next twelve months. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense. The amount of interest and penalties accrued for the years ended December 31, 2022, 2021 and 2020 is immaterial. The Company files consolidated income tax returns in Oregon, California, Utah, Montana and Idaho and for federal purposes. The Company is no longer subject to tax examination for tax years before 2019. Tax credit investments: The Company invests in low income housing tax credit funds that are designed to generate a return primarily through the realization of federal tax credits. The Company accounts for these investments by amortizing the cost of tax credit investments over the life of the investment using a proportional amortization method and tax credit investment amortization expense is a component of the provision for income taxes. The following table presents the balances of the Company’s tax credit investments and related unfunded commitments at December 31, 2022 and 2021 (in thousands): December 31, 2022 December 31, 2021 Tax credit investments $ 71,430 $ 56,589 Unfunded commitments—tax credit investments 44,563 31,174 The following table presents other information related to the Company’s tax credit investments for the years ended December 31, 2022, 2021 and 2020 (in thousands): For the years ended December 31, 2022 2021 2020 Tax credits and other tax benefits recognized $ 5,621 $ 4,390 $ 3,842 Tax credit amortization expense included in provision for income taxes 4,638 3,816 2,992 Note 12: EMPLOYEE BENEFIT PLANS Employee Retirement Plans: Substantially all of the Company’s and the Bank’s employees are eligible to participate in its 401(k)/Profit Sharing Plan, a defined contribution and profit sharing plan sponsored by the Company. Employees may elect to have a portion of their salary contributed to the plan in conformity with Section 401(k) of the Internal Revenue Code. At the discretion of the Company’s Board of Directors, the Company may elect to make matching and/or profit sharing contributions for the employees’ benefit. For the years ended December 31, 2022, 2021 and 2020 , $ 6.9 million, $ 6.5 million and $ 6.7 million, respectively, was expensed for 401(k) contributions. During 2022, the Board of Directors elected to make a 4 % of eligible compensation matching contribution. 125 Supplemental Retirement and Salary Continuation Plans: Through the Bank, the Company is obligated under various non-qualified deferred compensation plans to help supplement the retirement income of certain executives, including certain retired executives, selected by resolution of the Bank’s Boards of Directors or in certain cases by the former directors of acquired banks. These plans are unfunded, include both defined benefit and defined contribution plans, and provide for payments after the executive’s retirement. In the event of a participant employee’s death prior to or during retirement, the Company is obligated to pay to the designated beneficiary the benefits set forth under the plan. For the years ended December 31, 2022, 2021 and 2020, expense recorded for supplemental retirement and salary continuation plan benefits totaled $ 2.0 million, $ 3.3 million, and $ 2.1 million, respectively. At December 31, 2022 and 2021, liabilities recorded for the various supplemental retirement and salary continuation plan benefits totaled $ 37.1 million and $ 39.4 million, respectively, and are recorded in a deferred compensation liability account. Deferred Compensation Plans and Rabbi Trusts: The Company and the Bank also offer non-qualified deferred compensation plans to members of their Boards of Directors and certain employees. The plans permit each participant to defer a portion of director fees, non-qualified retirement contributions, salary or bonuses for future receipt. Compensation is charged to expense in the period earned. 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 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. The Bank has purchased, or acquired through mergers, life insurance policies in connection with the implementation of certain executive supplemental retirement, salary continuation and deferred compensation retirement plans, as well as additional policies not related to any specific plan. These policies provide protection against the adverse financial effects that could result from the death of a key employee and provide tax-exempt income to offset expenses associated with the plans. It is the Bank’s intent to hold these policies as a long-term investment. However, there will 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 owner and sole or partial beneficiary. At December 31, 2022 and 2021, the cash surrender value of these policies was $ 297.6 million and $ 244.2 million, respectively. 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 monitors their financial condition. Note 13: STOCK-BASED COMPENSATION PLANS The Company operates the following stock-based compensation plans as approved by its shareholders: • 2014 Omnibus Incentive Plan (the 2014 Plan). • 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 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. 2014 Omnibus Incentive Plan The 2014 Plan was approved by shareholders on April 22, 2014. 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 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. 2018 Omnibus Incentive Plan The 2018 Plan was approved by shareholders on April 24, 2018. The 2018 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 reserved 900,000 shares of common stock for issuance under the 2018 Plan in connection with the exercise of awards. As of December 31, 2022, 556,269 restricted stock units have been granted under the 2018 Plan of which 358,005 restricted stock units are unvested. 126 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, 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 Grant-Date Fair Value Unvested at January 1, 2020 382,872 $ 54.39 Granted (380,004 non-voting) 384,807 33.49 Vested ( 146,919 ) 55.18 Forfeited ( 42,624 ) 47.90 Unvested at December 31, 2020 578,136 40.76 Granted (181,309 non-voting) 183,548 55.52 Vested ( 232,267 ) 45.37 Forfeited ( 53,195 ) 45.95 Unvested at December 31, 2021 476,222 43.62 Granted (138,022 non-voting) 139,574 58.87 Vested ( 193,082 ) 45.30 Forfeited ( 39,987 ) 47.63 Unvested at December 31, 2022 382,727 49.98 127 Note 14: REGULATORY CAPITAL REQUIREMENTS 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. The following table shows the regulatory capital ratios of the Company and the Bank and the minimum regulatory requirements (dollars in thousands): Actual Minimum for Capital Adequacy Purposes Minimum to be Categorized as “Well-Capitalized” Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio December 31, 2022: Banner Corporation—consolidated: Total capital to risk-weighted assets $ 1,769,064 14.04 % $ 1,008,232 8.00 % $ 1,260,290 10.00 % Tier 1 capital to risk-weighted assets 1,528,694 12.13 756,174 6.00 756,174 6.00 Tier 1 capital to average leverage assets 1,528,694 9.45 647,345 4.00 n/a n/a Tier 1 common equity to risk-weighted assets 1,442,194 11.44 567,130 4.50 n/a n/a Banner Bank: Total capital to risk- weighted assets 1,684,766 13.38 1,007,325 8.00 1,259,156 10.00 Tier 1 capital to risk- weighted assets 1,544,396 12.27 755,494 6.00 1,007,325 8.00 Tier 1 capital to average leverage assets 1,544,396 9.55 646,935 4.00 808,668 5.00 Tier 1 common equity to risk-weighted assets 1,544,396 12.27 566,620 4.50 818,452 6.50 December 31, 2021: Banner Corporation—consolidated: Total capital to risk-weighted assets $ 1,663,943 14.71 % $ 904,633 8.00 % $ 1,130,791 10.00 % Tier 1 capital to risk-weighted assets 1,440,694 12.74 678,474 6.00 678,474 6.00 Tier 1 capital to average leverage assets 1,440,694 8.76 658,091 4.00 n/a n/a Tier 1 common equity to risk-weighted assets 1,305,194 11.54 508,856 4.50 n/a n/a Banner Bank: Total capital to risk- weighted assets 1,552,204 13.73 904,159 8.00 1,130,199 10.00 Tier 1 capital to risk- weighted assets 1,428,955 12.64 678,119 6.00 904,159 8.00 Tier 1 capital to average leverage assets 1,428,955 8.69 657,882 4.00 822,353 5.00 Tier 1 common equity to risk-weighted assets 1,428,955 12.64 508,589 4.50 734,629 6.50 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. However, events beyond the control of the Bank, such as weak or depressed economic conditions in areas where the Bank has most of its loans, could adversely affect future earnings and, consequently, the ability of the Bank to meet its respective capital requirements. 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. Note 15: GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS Goodwill and Other Intangible Assets: At December 31, 2022, intangible assets are comprised of goodwill and CDI acquired in business combinations. Goodwill represents the excess of the purchase consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination, and is not amortized but is reviewed at least annually for impairment. Banner has identified one reporting unit for purposes of evaluating goodwill for impairment. 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. 128 CDI represents the value of transaction-related deposits and the value of the client relationships associated with the deposits. 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. The CDI assets shown in the table below represent the value ascribed to the long-term deposit relationships acquired in various bank acquisitions. These intangible assets are being amortized using an accelerated method over estimated useful lives of eight years to ten years . The CDI assets are not estimated to have a significant residual value. 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 Amortization — ( 7,732 ) ( 7,732 ) Balance, December 31, 2020 373,121 21,426 394,547 Amortization — ( 6,571 ) ( 6,571 ) Balance, December 31, 2021 373,121 14,855 387,976 Amortization — ( 5,279 ) ( 5,279 ) Other Changes (1) — ( 136 ) ( 136 ) Balance, December 31, 2022 $ 373,121 $ 9,440 $ 382,561 (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): Year ended: Estimated Amortization 2023 $ 3,756 2024 2,626 2025 1,567 2026 904 2026 426 Thereafter 161 Net carrying amount $ 9,440 Mortgage Servicing Rights: Mortgage and SBA servicing rights are reported in other assets. SBA servicing rights are initially recorded and carried at fair value. Mortgage servicing rights are initially recognized at fair value and are amortized in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Mortgage servicing rights are subsequently evaluated for impairment based upon the fair value of the rights compared to the amortized cost (remaining unamortized initial fair value). If the fair value is less than the amortized cost, a valuation allowance is created through an impairment charge to servicing fee income. However, if the fair value is greater than the amortized cost, the amount above the amortized cost is not recognized in the carrying value. 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 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. An analysis of the mortgage and SBA servicing rights for the years ended December 31, 2022, 2021 and 2020 is presented below (in thousands): Years Ended December 31 2022 2021 2020 Balance, beginning of the year $ 17,206 $ 15,223 $ 14,148 Additions—amounts capitalized 3,200 7,260 8,572 Additions—through purchase 285 159 175 Amortization (1) ( 4,216 ) ( 6,580 ) ( 7,672 ) 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 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. 129 Note 16: 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 Fair Value Assets: Cash and cash equivalents 1 $ 243,062 $ 243,062 $ 2,134,300 $ 2,134,300 Securities—trading 3 28,694 28,694 26,981 26,981 Securities—available-for-sale 2 2,789,031 2,789,031 3,638,993 3,638,993 Securities—held-to-maturity 2 1,109,319 933,513 464,008 484,483 Securities—held-to-maturity 3 8,648 8,667 57,347 57,370 Securities purchased under agreements to resell 2 300,000 300,000 300,000 300,000 Loans held for sale 2 56,857 56,948 96,487 96,914 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 Bank-owned life insurance 1 297,565 297,565 244,156 244,156 Mortgage servicing rights 3 15,331 35,148 16,045 24,393 SBA servicing rights 3 835 835 1,161 1,161 Investments in limited partnerships 3 12,427 12,427 10,257 10,257 Derivatives: Interest rate swaps 2 19,339 19,339 20,826 20,826 Interest rate lock and forward sales commitments 2,3 142 142 1,555 1,555 Liabilities: Demand, interest checking and money market accounts 2 10,186,439 10,186,439 10,703,586 10,703,586 Regular savings 2 2,710,090 2,710,090 2,784,716 2,784,716 Certificates of deposit 2 723,530 702,581 838,631 836,877 FHLB advances 2 50,000 50,000 50,000 50,287 Other borrowings 2 232,799 232,799 264,490 264,490 Subordinated notes, net 2 98,947 96,718 98,564 105,241 Junior subordinated debentures 3 74,857 74,857 119,815 119,815 Derivatives: Interest rate swaps 2 37,150 37,150 11,615 11,615 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). 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. The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize at a future date. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values. 130 Items Measured at Fair Value on a Recurring Basis: The following tables present financial assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy of the fair value measurements for those assets and liabilities as of December 31, 2022 and 2021 (in thousands): December 31, 2022 Level 1 Level 2 Level 3 Total Assets: Securities—trading Corporate bonds (TPS securities) $ — $ — $ 28,694 $ 28,694 Securities—available-for-sale U.S. Government and agency obligations — 55,108 — 55,108 Municipal bonds — 261,209 — 261,209 Corporate bonds — 121,853 — 121,853 Mortgage-backed or related securities — 2,139,336 — 2,139,336 Asset-backed securities — 211,525 — 211,525 — 2,789,031 — 2,789,031 Loans held for sale (1) — 2,305 — 2,305 Equity securities 553 — — 553 SBA servicing rights — — 835 835 Investment in limited partnerships — — 12,427 12,427 Derivatives Interest rate swaps — 19,339 — 19,339 Interest rate lock and forward sales commitments — 61 81 142 $ 553 $ 2,810,736 $ 42,037 $ 2,853,326 Liabilities: Junior subordinated debentures $ — $ — $ 74,857 $ 74,857 Derivatives Interest rate swaps — 37,150 — 37,150 Interest rate lock and forward sales commitments — 76 42 118 Risk participation agreement — 67 — 67 $ — $ 37,293 $ 74,899 $ 112,192 131 December 31, 2021 Level 1 Level 2 Level 3 Total Assets: Securities—trading Corporate bonds (TPS securities) $ — $ — $ 26,981 $ 26,981 Securities—available-for-sale U.S. Government and agency obligations — 201,332 — 201,332 Municipal bonds — 308,612 — 308,612 Corporate bonds — 117,347 — 117,347 Mortgage-backed or related securities — 2,805,268 — 2,805,268 Asset-backed securities — 206,434 — 206,434 — 3,638,993 — 3,638,993 Loans held for sale (1) — 39,775 — 39,775 SBA servicing rights — — 1,161 1,161 Investment in limited partnerships — — 10,257 10,257 Derivatives Interest rate swaps — 20,826 — 20,826 Interest rate lock and forward sales commitments — 88 1,467 1,555 $ — $ 3,699,682 $ 39,866 $ 3,739,548 Liabilities Junior subordinated debentures $ — $ — $ 119,815 $ 119,815 Derivatives Interest rate swaps — 11,615 — 11,615 Interest rate lock and forward sales commitments — 140 — 140 $ — $ 11,755 $ 119,815 $ 131,570 (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: Securities: The estimated fair values of investment securities and mortgaged-backed securities are priced using current active market quotes, if available, which are considered Level 1 measurements. For most of the portfolio, matrix pricing based on the securities’ relationship to other benchmark quoted prices is used to establish the fair value. These measurements are considered Level 2. Due to the continued limited activity in the trust preferred markets that have limited the observability of market spreads for some of the Company’s TPS securities, management has classified these securities as a Level 3 fair value measure. Management periodically reviews the pricing information received from third-party pricing services and tests those prices against other sources to validate the reported fair values. Loans Held for Sale: Fair values for residential mortgage loans held for sale are determined by comparing actual loan rates to current secondary market prices for similar loans. 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: Fair values are estimated based on an independent dealer analysis by discounting estimated net future cash flows from servicing. 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 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. 132 Junior Subordinated Debentures: The fair value of junior subordinated debentures is estimated using an income approach technique. The significant inputs included in the estimation of fair value are the credit risk adjusted spread and three month LIBOR. The credit risk adjusted spread represents the nonperformance risk of the liability. The Company utilizes an external valuation firm to validate the reasonableness of the credit risk adjusted spread used to determine the fair value. 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 measurement. Derivatives: 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: Off-balance sheet financial instruments include unfunded commitments to extend credit, including standby letters of credit, and commitments to purchase investment securities. The fair value of these instruments is not considered to be material. Limitations: The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2022 and 2021. The factors used in the fair value estimates are subject to change subsequent to the dates the fair value estimates are completed, therefore, current estimates of fair value may differ significantly from the amounts presented herein. 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 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: December 31 2022 2021 Financial Instruments Valuation Technique Unobservable Inputs Weighted Average Rate Weighted Average Rate Corporate bonds (TPS securities) Discounted cash flows Discount rate 8.27 % 3.71 % Junior subordinated debentures Discounted cash flows Discount rate 8.27 % 3.71 % 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 % Interest rate lock commitments Pricing model Pull-through rate 78.65 % 86.64 % Investments in limited partnerships Net Asset Value Infrequent transactions n/a n/a SBA servicing rights Discounted cash flows Constant prepayment rate 14.10 % 12.25 % TPS Securities : Management believes that the credit risk-adjusted spread used to develop the discount rate utilized in the fair value measurement of TPS securities is indicative of the risk premium a willing market participant would require under current market conditions for instruments with similar contractual rates and terms and conditions and issuers with similar credit risk profiles and with similar expected probability of default. Management attributes the change in fair value of these instruments, compared to their par value, primarily to perceived general market adjustments to the risk premiums for these types of assets subsequent to their issuance. Junior subordinated debentures : Similar to the TPS securities discussed above, management believes that the credit risk-adjusted spread utilized in the fair value measurement of the junior subordinated debentures is indicative of the risk premium a willing market participant would require under current market conditions for an issuer with Banner’s credit risk profile. Management attributes the change in fair value of the junior subordinated debentures, compared to their par value, primarily to perceived general market adjustments to the risk premiums for these types of liabilities subsequent to their issuance. Future contractions in the risk adjusted spread relative to the spread currently utilized to measure the Company’s junior subordinated debentures at fair value as of December 31, 2022, or the passage of time, will result in negative fair value adjustments. At December 31, 2022, the discount rate utilized was based on a credit spread of 350 basis points and three month LIBOR of 477 basis points. Interest rate lock commitments: The fair value of the interest rate lock commitments is based on secondary market sources adjusted for an estimated pull-through rate. The pull-through rate is based on historical loan closing rates for similar interest rate lock commitments. An increase or decrease in the pull-through rate would have a corresponding, positive or negative fair value adjustment. SBA servicing asset: The constant prepayment rate (CPR) is set based on industry data. An increase in the CPR would result in a negative fair value adjustment, where a decrease in CPR would result in a positive fair value adjustment. 133 The following table provides a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the years ended December 31, 2022 and 2021 (in thousands): 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 Balance, January 1, 2021 $ 24,980 $ 116,974 $ 5,221 $ 2,819 $ — 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 — 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 Interest income and dividends from the TPS securities are recorded as a component of interest income. Interest expense related to the junior subordinated debentures is measured based on contractual interest rates and reported in interest expense. The change in fair value of the junior subordinated debentures, which represents changes in instrument specific credit risk, is recorded in other comprehensive income. The change in fair value of the investment in limited partnerships and the SBA servicing asset are recorded as a component of non-interest income. Items Measured at Fair Value on a Non-recurring Basis The following tables present financial assets and liabilities measured at fair value on a non-recurring basis and the level within the fair value hierarchy of the fair value measurements for those assets at December 31, 2022 and 2021 (in thousands): December 31, 2022 Level 1 Level 2 Level 3 Total Loans individually evaluated $ — $ — $ 1,883 $ 1,883 REO — — 340 340 Loans held for sale — 49,474 — 49,474 December 31, 2021 Level 1 Level 2 Level 3 Total Loans individually evaluated $ — $ — $ 2,989 $ 2,989 REO — — 852 852 The following table presents the losses resulting from non-recurring fair value adjustments for the years ended December 31, 2022 , 2021 and 2020 (in thousands): For the years ended December 31, 2022 2021 2020 Loans individually evaluated $ ( 626 ) $ ( 303 ) $ ( 3,482 ) REO — — ( 45 ) Loans held for sale ( 2,538 ) — — Total loss from non-recurring measurements $ (3,164) $ (303) $ (3,527) 134 Loans individually evaluated : Expected credit losses for loans evaluated individually are measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate or when the Bank determines that foreclosure is probable, the expected credit loss is measured based on the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. As a practical expedient, the Bank measures the expected credit loss for a loan using the fair value of the collateral, if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Bank’s assessment as of the reporting date. In both cases, if the fair value of the collateral is less than the amortized cost basis of the loan, the Bank will recognize an allowance as the difference between the fair value of the collateral, less costs to sell (if applicable) at the reporting date and the amortized cost basis of the loan. If the fair value of the collateral exceeds the amortized cost basis of the loan, any expected recovery added to the amortized cost basis will be limited to the amount previously charged-off by the subsequent changes in the expected credit losses for loans evaluated individually are included within the provision for credit losses in the same manner in which the expected credit loss initially was recognized or as a reduction in the provision that would otherwise be reported. REO: The Company records REO (acquired through a lending relationship) at fair value on a non-recurring basis. Fair value adjustments on REO are based on updated real estate appraisals which are based on current market conditions. All REO properties are recorded at the lower of the estimated fair value of the real estate, less expected selling costs, or the carrying amount of the defaulted loans. From time to time, non-recurring fair value adjustments to REO are recorded to reflect partial write-downs based on an observable market price or current appraised value of property. Banner considers any valuation inputs related to REO to be Level 3 inputs. 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. Note 17: BANNER CORPORATION (PARENT COMPANY ONLY) Summary financial information is as follows (in thousands): Statements of Financial Condition December 31 2022 2021 ASSETS Cash $ 77,457 $ 106,329 Investment in trust equities 2,678 4,196 Investment in subsidiaries 1,549,918 1,801,764 Other assets 11,651 5,877 Total assets $ 1,641,704 $ 1,918,166 LIABILITIES AND SHAREHOLDERS’ EQUITY Miscellaneous liabilities $ 8,925 $ 5,723 Deferred tax liability, net 2,543 3,737 Subordinated notes, net 98,947 98,564 Junior subordinated debentures at fair value 74,857 119,815 Shareholders’ equity 1,456,432 1,690,327 Total liabilities and shareholders’ equity $ 1,641,704 $ 1,918,166 Statements of Operations Years Ended December 31 2022 2021 2020 INTEREST INCOME: Interest-bearing deposits $ 80 $ 97 $ 112 OTHER INCOME (EXPENSE): Dividend income from subsidiaries 101,931 99,788 87,748 Equity in undistributed income of subsidiaries 104,391 112,814 36,401 Other income 96 146 62 Interest on other borrowings ( 8,400 ) ( 8,780 ) ( 7,204 ) Other expenses ( 6,092 ) ( 7,391 ) ( 3,530 ) Net income before taxes 192,006 196,674 113,589 BENEFIT FROM INCOME TAXES ( 3,372 ) ( 4,374 ) ( 2,339 ) NET INCOME $ 195,378 $ 201,048 $ 115,928 135 Statements of Cash Flows Years Ended December 31 2022 2021 2020 OPERATING ACTIVITIES: Net income $ 195,378 $ 201,048 $ 115,928 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiaries ( 104,391 ) ( 112,814 ) ( 36,401 ) (Decrease) increase in deferred taxes ( 43 ) ( 571 ) 1,438 Net change in valuation of financial instruments carried at fair value ( 56 ) 55 — Share-based compensation 8,870 9,258 9,168 Loss on extinguishment of debt 765 2,284 — Net change in other assets ( 4,169 ) ( 2,970 ) 16,756 Net change in other liabilities 3,765 4,050 ( 235 ) Net cash provided from operating activities 100,119 100,340 106,654 INVESTING ACTIVITIES: Other investing activities ( 1,549 ) ( 228 ) ( 38 ) Reduction in investment in subsidiaries ( 3,072 ) — — Net cash used by investing activities ( 4,621 ) ( 228 ) ( 38 ) FINANCING ACTIVITIES: Net proceeds from issuance of subordinated notes — — 98,027 Repayment of junior subordinated debentures ( 50,518 ) ( 8,248 ) — Proceeds from redemption of trust securities related to junior subordinated debentures 1,518 248 — Taxes paid related to net share settlement for equity awards ( 3,332 ) ( 3,228 ) ( 1,453 ) Repurchase of common stock ( 10,960 ) ( 56,528 ) ( 31,775 ) Cash dividends paid ( 61,078 ) ( 57,621 ) ( 94,078 ) Net cash used by financing activities ( 124,370 ) ( 125,377 ) ( 29,279 ) NET CHANGE IN CASH ( 28,872 ) ( 25,265 ) 77,337 CASH, BEGINNING OF PERIOD 106,329 131,594 54,257 CASH, END OF PERIOD $ 77,457 $ 106,329 $ 131,594 Note 18: STOCK REPURCHASES On March 27, 2019 the Company announced that its Board of Directors had authorized the repurchase up to 5 % of the Company’s common stock, or 1,757,637 of the Company’s outstanding shares. Under the authorization, shares could be repurchased by the Company in open market purchases. 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 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 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 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. 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. 136 Note 19: CALCULATION OF EARNINGS PER COMMON SHARE 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 2022 2021 2020 Net income $ 195,378 $ 201,048 $ 115,928 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 Basic $ 5.70 $ 5.81 $ 3.29 Diluted $ 5.67 $ 5.76 $ 3.26 Note 20: COMMITMENTS AND CONTINGENCIES Financial Instruments with Off-Balance Sheet Risk - The Company has financial instruments with off-balance-sheet risk generated in the normal course of business to meet the financing needs of its clients. These financial instruments include commitments to extend credit, commitments related to standby letters of credit, commitments to originate loans, commitments to sell loans, and commitments to buy or sell securities. These instruments involve, to varying degrees, elements of credit and interest rate risk similar to the risk involved in on-balance sheet items recognized in our Consolidated Statements of Financial Condition. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument from commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as for on-balance sheet instruments. Outstanding commitments for which no asset or liability for the notional amount has been recorded consisted of the following at the dates indicated (in thousands): Contract or Notional Amount December 31, 2022 December 31, 2021 Commitments to extend credit $ 4,031,954 $ 3,527,143 Standby letters of credit and financial guarantees 26,119 21,830 Commitments to originate loans 53,266 106,609 Risk participation agreements 48,566 40,064 Derivatives also included in Note 21: Commitments to originate loans held for sale 10,525 106,590 Commitments to sell loans secured by one- to four-family residential properties 12,568 27,006 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, as discussed previously in Note 11, Income Taxes. The Company has also entered into agreements to invest in several limited partnerships. As of December 31, 2022 and December 31, 2021, the funded balances and remaining outstanding commitments of these investments were as follows (in thousands): December 31, 2022 December 31, 2021 Funded Balance Unfunded Balance Funded Balance Unfunded Balance Limited partnerships investments $ 10,272 $ 12,228 $ 7,642 $ 9,858 Commitments to extend credit are agreements to lend to a client, as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of the commitments may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. Each client’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the client. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties. The Company’s allowance for credit losses - unfunded loan commitments was $ 14.7 million and $ 12.4 million, at December 31, 2022 and 2021, respectively. 137 Standby letters of credit are conditional commitments issued to guarantee a client’s performance or payment to a third party. 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, 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. 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 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: (1) residential mortgage loans for purchase by secondary market investors (i.e., Freddie Mac or Fannie Mae), or (2) mortgage-backed securities to broker/dealers. The purpose of these forward commitments is to offset the movement in interest rates between the execution of its residential mortgage rate lock commitments with borrowers and the sale of those loans to the secondary market investor. There were no counterparty default losses on forward contracts during 2022 or 2021. Market risk with respect to forward contracts arises principally from changes in the value of contractual positions due to changes in interest rates. The Company limits its exposure to market risk by monitoring differences between commitments to clients and forward contracts with market investors and securities broker/dealers. 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. In the normal course of business, the Company and/or its subsidiaries have various legal proceedings and other contingent matters outstanding. These proceedings and the associated legal claims are often contested and the outcome of individual matters is not always predictable. 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 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. If the underlying assets do not conform to the specifications, the Bank may have an obligation to repurchase the assets or indemnify the purchaser against any loss. The Bank believes that the potential for material loss under these arrangements is remote. Accordingly, the fair value of such obligations is not material. Note 21: DERIVATIVES AND HEDGING The Company, through its Banner Bank subsidiary, is party to various derivative instruments that are used for asset and liability management and client financing needs. Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index, or other component. 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’s predominant derivative and hedging activities involve interest rate swaps related to certain term loans and forward sales contracts associated with mortgage banking activities. Generally, these instruments help the Company manage exposure to market risk and meet client financing needs. 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. 138 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 (1) Notional/ Contract Amount Fair Value (2) 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 Less: Master netting agreements ( 17,780 ) ( 17,780 ) Less: 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 used in Cash Flow Hedges: The Company’s floating rate loans result in exposure to losses in value or net interest income as interest rates change. The risk management objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. During the fourth quarter of 2021, the Company entered into interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans. These hedge contracts involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making floating-rate payments over the life of the agreements without exchange of the underlying notional amount. 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 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 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 $ ( 28,418 ) $ ( 28,418 ) $ — Interest Income $ ( 3,195 ) $ ( 3,195 ) $ — 139 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: 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. These swaps do not qualify as designated hedges; therefore, each swap is accounted for as a freestanding derivative. 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: 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 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 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. 140 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 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. The variation margin is treated as an adjustment to our cash collateral, as well as a corresponding adjustment to our derivative liability. 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 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 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 Interest rate swaps $ 37,119 $ ( 17,780 ) $ 19,339 $ — $ — $ 19,339 $ 37,119 $ ( 17,780 ) $ 19,339 $ — $ — $ 19,339 Derivative liabilities Interest rate swaps $ 63,634 $ ( 26,484 ) $ 37,150 $ — $ ( 14,972 ) $ 22,178 $ 63,634 $ ( 26,484 ) $ 37,150 $ — $ ( 14,972 ) $ 22,178 December 31, 2021 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 Interest rate swaps $ 20,826 $ — $ 20,826 $ — $ — $ 20,826 $ 20,826 $ — $ 20,826 $ — $ — $ 20,826 Derivative liabilities Interest rate swaps $ 11,615 $ — $ 11,615 $ — $ ( 9,669 ) $ 1,946 $ 11,615 $ — $ 11,615 $ — $ ( 9,669 ) $ 1,946 141 Note 22: REVENUE FROM CONTRACTS WITH CLIENTS Disaggregation of Revenue: 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 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 expense ( 12,754 ) ( 12,084 ) ( 10,042 ) Other service charges 5,673 4,809 4,490 Total deposit fees and other service charges 44,459 39,495 34,384 Deposit fees and other service charges Deposit fees and other service charges include transaction and non-transaction based deposit fees. Transaction based fees on deposit accounts are charged to deposit clients for specific services provided to the client. These fees include such items as wire fees, official check fees, and overdraft fees. These are contract specific to each individual transaction and do not extend beyond the individual transaction. The performance obligation is completed and the fees are recognized at the time the specific transactional service is provided to the client. Non-transactional deposit fees are typically monthly account maintenance fees charged on deposit accounts. These are day-to-day contracts that can be canceled by either party without notice. The performance obligation is satisfied and the fees are recognized on a monthly basis after the service period is completed. Debit and credit card interchange income and expenses Debit and credit card interchange income represent fees earned when a credit or debit card issued by the Bank is used to purchase goods or services at a merchant. The merchant’s bank pays the Bank a default interchange rate set by MasterCard on a transaction by transaction basis. 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’s cardholders’ card. Direct expenses associated with the credit and debit card are recorded as a net reduction against the interchange income. Merchant services income Merchant services income represents fees earned by the Bank for card payment services provided to its merchant clients. The Bank has a contract with a third party to provide card payment services to the Bank’s merchants that contract for those services. The third party provider has contracts with the Bank’s merchants to provide the card payment services. The Bank does not have a direct contractual relationship with its merchants for these services. The Bank sets the rates for the services provided by the third party. The third party provider passes the payments made by the Bank’s merchants through to the Bank. The Bank, in turn, pays the third party provider for the services it provides to the Bank’s merchants. These payments to the third party provider are recorded as expenses as a net reduction against fee income. In addition, a portion of the payment received by the Bank represents interchange fees which are passed through to the card issuing bank. Income is primarily earned based on the dollar volume and number of transactions processed. The performance obligation is satisfied and the related fee is earned when each payment is accepted by the processing network. 142 Note 23: LEASES The Company leases 95 buildings and offices under non-cancelable operating leases. The leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule. 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. 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): December 31, 2022 December 31, 2021 Assets Operating right-of-use lease assets $ 49,283 $ 55,257 Liabilities Operating lease liabilities $ 55,205 $ 59,756 Weighted-average remaining lease term Operating leases 5.1 years 5.5 years Weighted-average discount rate Operating leases 3.0 % 2.8 % 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 Short-term lease cost 125 100 97 Variable lease cost 2,189 2,584 2,778 Less sublease income ( 1,126 ) ( 904 ) ( 946 ) 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. 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. 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): Operating Leases 2023 $ 14,366 2024 13,116 2025 11,203 2026 9,317 2027 6,038 Thereafter 5,568 Total minimum lease payments 59,608 Less: amount of lease payments representing interest ( 4,403 ) Lease obligations $ 55,205 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. 143 BANNER CORPORATION Exhibit Index of Exhibits 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. 000-26584)]. 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. 000-26584)] 4.2 Description of Capital Stock 4.3 Issuance of base indenture, first supplemental indenture and subordinated note [incorporated by reference to the exhibits filed with Form 8-K on June 30, 2020 (File No. 000-26584)] 10{a} Amended and Restated Employment Agreement, with Mark J. Grescovich [incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 4, 2013 (File No. 000-26584]. 10{b} Form of Supplemental Executive Retirement Program Agreement with Gary Sirmon, Michael K. Larsen, Lloyd W. Baker, Cynthia D. Purcell and Richard B. 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. 000-26584)]. 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. 000-26584)]. 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. 000-26584)]. 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. 000-26584)]. 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. 000-26584)] 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. 000-26534)]. 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{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. 000-26584)] 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; Director Restricted Stock Award Agreement; Director Restricted Stock Unit Award Agreement; Employee Time-based Restricted Stock Unit Award Agreement; Employee performance-based Restricted Stock Unit Award Agreement; Stock Appreciation Right Award Agreement; and Performance Unit Award Agreement [incorporated by reference to Exhibits 10.2 - 10.9 included in the Registration Statement on Form S-8 dated May 4, 2018 (File No. 333-224693)] 14 Code of Ethics [Registrant elects to satisfy Regulation S-K §229.406(c) by posting its Code of Ethics on its website at www.bannerbank.com in the section titled Corporate Overview: Governance Document 21 Subsidiaries of the Registrant. 23.1 Consent of Registered Independent Public Accounting Firm – Moss Adams LLP. 31.1 Certification of Chief Executive Officer pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 144 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL (included in Exhibit 101) 145