What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-21 · 232 added, 216 removed, 861 unchanged (34% of the section changed)

6 unchanged sentences

2023 Financial Highlights

• Revenues increased 6%, to $628.4 million, compared to $593.3 million for the prior year.

• Net income decreased to $195.4 million, or $5.67 per diluted share, compared to net income of $201.0 million, or $5.76 per diluted share for the prior year.

• Net interest income increased 11% to $553.2 million, compared to $496.9 million for the prior year.

• Revenues were $620.4 million for the year ended December 31, 2023, compared to $628.4 million for the prior year.

• Net income of $183.6 million, or $5.33 per diluted share, for the year ended December 31, 2023, compared to net income of $195.4 million, or $5.67 per diluted share for the prior year.

• Net interest income was $576.0 million for the year ended December 31, 2023, compared to $553.2 million for the prior year.

• Net interest margin, on a tax equivalent basis, was 4.01% compared to 3.68% in the prior year.

• Non-interest income decreased to $75.3 million, compared to $96.4 million for the prior year.

• Non-interest expense decreased to $377.3 million, compared to $380.1 million for the prior year.

• Return on average assets was 1.18%, compared to 1.24% in the prior year.

• Mortgage banking revenue was $11.8 million for the year ended December 31, 2023, compared to $10.8 million in the prior year.

• Income from deposit fees and other service charges was $41.6 million for the year ended December 31, 2023, compared to $44.5 million for the prior year.

• Non-interest expense was $382.5 million for the year ended December 31, 2023, compared to $377.3 million for the prior year.

• Return on average assets was 1.18% for both 2023 and 2022.

• Efficiency ratio was 61.66%, compared to 60.04% in the prior year.

• Net loans receivable increased 7% to $10.66 billion at December 31, 2023, compared to $10.01 billion a year ago.

• Non-performing assets decreased to $23.4 million, or 0.15% of total assets, at December 31, 2022, compared to $23.7 million, or 0.14% of total assets, a year ago.

• Non-performing assets were $30.1 million, or 0.19% of total assets, at December 31, 2023, compared to $23.4 million, or 0.15% of total assets, a year ago.

• The allowance for credit losses - loans was $149.6 million, or 1.38% of total loans receivable, at December 31, 2023, compared to $141.5 million, or 1.39% of total loans receivable a year ago.

• Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) decreased to $12.90 billion at December 31, 2022, compared to $13.49 billion a year ago.

• Total deposits were $13.03 billion at December 31, 2023, compared to $13.62 billion a year ago.

• Core deposits represented 89% of total deposits at December 31, 2023.

• Banner Bank’s estimated uninsured deposits were approximately 31% of total deposits at December 31, 2023.

• Banner Bank’s estimated uninsured deposits, excluding collateralized public deposits and affiliate deposits, were approximately 28% of total deposits at December 31, 2023.

• Available borrowing capacity was $4.65 billion at December 31, 2023.

• On-balance sheet liquidity was $2.93 billion at December 31, 2023.

• Cash dividends paid to shareholders were $1.92 per share, compared to $1.76 for the prior year.

• Common shareholders’ equity per share decreased to $42.59 at December 31, 2022, compared to $49.35 a year ago.

• Common shareholders’ equity per share increased to $48.12 at December 31, 2023, compared to $42.59 a year ago.

• Tangible common shareholders’ equity per share* increased 12% to $37.09 at December 31, 2023, compared to $31.41 a year ago.

* Represents a non-GAAP financial measure.

For a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure, see “Non-GAAP Financial Measures” below.

Selected Financial Data:

1 unchanged sentence

FINANCIAL CONDITION DATA:

(In thousands) 2022 2021 2020

(In thousands, except shares) 2023 2022 2021

Total assets $ 15,670,391 $ 15,833,431 $ 16,804,872

17 unchanged sentences

Mortgage banking operations revenue 11,817 10,834 33,948

Net (loss) gain on sale of securities (19,242) (3,248) 482

Net change in valuation of financial instruments carried at fair value

50 unchanged sentences

Allowance for credit losses - loans as a percent of total loans at end of period 1.38 1.39 1.45

Net recoveries (charge-offs) as a percent of average outstanding loans during the period 0.01 (0.02) (0.05)

Net (charge-offs)/recoveries as a percent of average outstanding loans during the period (0.03) 0.01 (0.02)

Non-performing assets as a percent of total assets 0.19 0.15 0.14

13 unchanged sentences

(4) Net income divided by average common equity.

(5) Net interest income as a percent of average interest-earning assets.

(5) Net interest income as a percent of average interest-earning assets on a tax equivalent basis.

(6) Non-interest expenses divided by the total of net interest income and non-interest income.

(7) Non-performing loans consist of nonaccrual and 90 days past due loans still accruing interest.

(8) Represent non-GAAP financial measures.*

(8) Represents a non-GAAP financial measure.

For a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measure, see, “Non-GAAP Financial Measures” below.

Non-GAAP Financial Measures

To calculate the adjusted revenue, the diluted adjusted earnings per share and the adjusted efficiency ratio, we make adjustments to our GAAP revenues and expenses as reported on our Consolidated Statements of Operations, which results in non-GAAP financial measures.

To calculate tangible equity per share and the ratio of tangible common shareholders’ equity to tangible assets, we make adjustments to our GAAP assets and shareholders’ equity as reported on our Consolidated Statements of Financial Condition, which results in non-GAAP financial measures.

Management has presented non-GAAP financial measures in this discussion and analysis because it believes that they provide useful and comparative information to assess trends in our core operations and to facilitate the comparison of our performance with the performance of our peers.

3 unchanged sentences

Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies.

The following tables set forth reconciliations of non-GAAP financial measures discussed in this report (dollars in thousands, except share and per share data):

Adjusted revenue, diluted adjusted earnings per share and adjusted efficiency ratio are non-GAAP financial measures.

To calculate the adjusted revenue, diluted adjusted earnings per share and adjusted efficiency ratio, we make adjustments to our GAAP revenues and expenses as reported on our Consolidated Statements of Operations.

Management believes that these non-GAAP financial measures provide information to investors that is useful in evaluating the operating performance and trends of financial services companies, including the Company.

The following tables set forth reconciliations of these non-GAAP financial measures (dollars in thousands, except share and per share data):

For the Years Ended December 31

6 unchanged sentences

Net change in valuation of financial instruments carried at fair value 4,218 (807) (4,616)

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

Gain on sale of branches — (7,804) —

Adjusted revenue (non-GAAP) $ 643,874 $ 623,071 $ 588,209

$ 623,071 $ 588,209 $ 579,561

ADJUSTED EARNINGS:

Net income (GAAP) $ 183,624 $ 195,378 $ 201,048

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

Net loss (gain) on sale of securities 19,242 3,248 (482)

Net change in valuation of financial instruments carried at fair value 4,218 (807) (4,616)

1 unchanged sentence

COVID-19 expenses — — 436

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

Gain on sale of branches — (7,804) —

Banner Forward expenses (1)

1,334 5,293 11,604

Loss on extinguishment of debt — 793 2,284

6 unchanged sentences

$ 5.88 $ 5.69 $ 5.97

For the Years Ended December 31

ADJUSTED EFFICIENCY RATIO:

4 unchanged sentences

Banner Forward expenses (1)

(1,334) (5,293) (11,604)

CDI amortization (3,756) (5,279) (6,571)

8 unchanged sentences

Net change in valuation of financial instruments carried at fair value 4,218 (807) (4,616)

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

Gain on sale of branches — (7,804) —

Adjusted revenue (non-GAAP) $ 643,874 $ 623,071 $ 588,209

1 unchanged sentence

Adjusted efficiency ratio (non-GAAP) 57.89 % 57.99 % 60.22 %

(1) Included in miscellaneous expenses in the Consolidated Statement of Operations.

The ratio of tangible common shareholders’ equity to tangible assets is a non-GAAP financial measure.

We calculate tangible common equity by excluding goodwill and other intangible assets from shareholders’ equity.

We calculate tangible assets by excluding the balance of goodwill and other intangible assets from total assets.

We believe that this is consistent with the treatment by our bank regulatory agencies, which exclude goodwill and other intangible assets from the calculation of risk-based capital ratios.

Management believes that this non-GAAP financial measure provides information to investors that is useful in understanding the basis of our capital position (dollars in thousands).

We believe this is consistent with the treatment by our bank regulatory agencies, which exclude goodwill and other intangible assets from the calculation of risk-based capital ratios.

The following table sets forth the reconciliation of tangible equity and tangible assets (dollars in thousands, except share and per share data).

2023 2022 2021

32 unchanged sentences

The selection of a more optimistic or pessimistic economic forecast would result in a lower or higher allowance for credit losses.

The use of a protracted slump economic forecast would have increased the allowance for credit losses - loans by approximately 28% as of December 31, 2022, where the use of a stronger near-term growth economic forecast would result in a negligible decrease in the allowance for credit losses - loans as of December 31, 2022.

The use of a protracted slump economic forecast would have increased the allowance for credit losses - loans by approximately 22% as of December 31, 2023, where the use of a stronger near-term growth economic forecast would have resulted in a negligible decrease in the allowance for credit losses - loans as of December 31, 2023.

Management uses a scale to assign qualitative and environmental (QE) factor adjustments based on the level of estimated impact which requires a significant amount of judgment.

9 unchanged sentences

This includes the discount rate used to fair value our trust preferred securities and junior subordinated debentures.

A 25 basis-point increase or decrease in the discount rate used to calculate the fair value of our trust preferred securities would result in a $643,000 decrease or increase in the reported fair value as of December 31, 2022, with an offsetting adjustment to our non-interest income.

A 25 basis-point increase or decrease in the discount rate used to calculate the fair value of our trust preferred securities would result in a $491,000 decrease or increase in the reported fair value as of December 31, 2023, with an offsetting adjustment to our accumulated other comprehensive income.

A 25 basis-point increase or decrease in the discount rate used to calculate the fair value of our junior subordinated debentures would result in a $1.3 million decrease or increase in the reported fair value as of December 31, 2023, with an offsetting adjustment to our accumulated other comprehensive income.

23 unchanged sentences

Total assets decreased to $15.67 billion at December 31, 2023, compared to $15.83 billion at December 31, 2022.

The decrease in assets in 2022 was largely the result of a decrease in cash held and interest-bearing deposits, partially offset by loan growth.

Total loans receivable (gross loans less deferred fees and discounts and excluding loans held for sale) increased $1.06 billion, or 12%, to $10.15 billion at December 31, 2022, from $9.08 billion at December 31, 2021.

The increase in total loans receivable primarily reflects increased one-to-four family residential, multifamily real estate, commercial business, construction, land and land development, and consumer loan balances, partially offset by decreased commercial real estate loan balances.

Excluding SBA PPP loans, total loans receivable increased $1.19 billion during the year ended December 31, 2022.

Loans held for sale decreased to $56.9 million at December 31, 2022, compared to $96.5 million at December 31, 2021, principally as a result of a decrease in one- to four-family held for sale loan originations and the transfer of $54.0 million of multifamily held for sale loans to held for investment during the fourth quarter of 2022.

Loans held for sale at December 31, 2022 included $49.5 million of multifamily loans and $7.4 million of one- to four-family loans, compared to $49.9 million of multifamily loans and $46.6 million of one- to four-family loans at December 31, 2021.

The aggregate of securities and interest-bearing deposits decreased $1.98 billion, or 32%, to $4.28 billion at December 31, 2022, compared to $6.26 billion a year earlier, primarily due to a decrease in interest-bearing deposits.

Securities decreased to $3.94 billion at December 31, 2022, from $4.19 billion at December 31, 2021, as the fair value of securities available-for-sale declined as a result of an increase in interest rates during 2022.

Fair value adjustments for securities designated as available-for-sale reflected a decrease of $418.8 million for the year ended December 31, 2022, which was included net of the associated tax benefit as a component of other comprehensive income, and largely occurred as a result of increases in market interest rates during 2022.

Securities which are designated as held-to-maturity increased by $596.7 million from the prior year-end balance.

This increase was primarily due to the transfer of $462.2 million of securities from available for sale to held to maturity during the first quarter of 2022 to limit the impact that potential future interest rates changes would have on AOCI.

The average effective duration of our securities portfolio was approximately 6.5 years at December 31, 2022, compared to 4.6 years at December 31, 2021.

The decrease in assets was primarily due to $300.0 million of reverse repurchase agreements maturing, as well as the sale of securities during 2023, partially offset by loan growth.

Total loans receivable (gross loans less deferred fees and discounts and excluding loans held for sale) increased $663.7 million, or 7%, to $10.81 billion at December 31, 2023, from $10.15 billion at December 31, 2022.

The increase in total loans receivable primarily reflects growth in one- to four-family residential, multifamily real estate and multifamily construction loan balances.

Loans held for sale decreased to $11.2 million at December 31, 2023, compared to $56.9 million at December 31, 2022, as a result of the transfer of $43.5 million of multifamily loans held for sale to held for investment during the fourth quarter of 2023.

Loans held for sale at December 31, 2023, included no multifamily loans and $11.2 million of one- to four-family loans, compared to $49.5 million of multifamily loans and $7.4 million of one- to four-family loans at December 31, 2022.

The aggregate of securities and interest-bearing deposits decreased $802.6 million, or 19%, to $3.48 billion at December 31, 2023, compared to $4.28 billion a year earlier, primarily due to a decrease in securities.

Securities decreased to $3.43 billion at December 31, 2023, from $3.94 billion at December 31, 2022, primarily due to $300.0 million of reverse repurchase agreements maturing during 2023, as well as the sale of securities and normal security portfolio cash flows.

Fair value adjustments for securities designated as available-for-sale reflected an increase of $54.3 million for the year ended December 31, 2023, which was included net of the associated tax expense as a component of other comprehensive income.

Securities which are designated as trading decreased by $27.2 million from the prior year-end balance due to the transfer of TPS from trading to available-for-sale during the fourth quarter of 2023.

The average effective duration of our securities portfolio was approximately 6.5 years at both December 31, 2023 and December 31, 2022.

Deposits decreased $590.6 million, or 4%, to $13.03 billion at December 31, 2023, from $13.62 billion at December 31, 2022.

The decrease in deposits reflects the sale of four branches, which included the transfer of $178.2 million of related deposits, as well as an overall decline in market liquidity.

The decline in deposits during the year ended 2023 was primarily due to interest rate-sensitive clients moving a portion of their non-operating deposit balances to higher yielding investments.

Core deposits were 89% of total deposits at December 31, 2023, compared to 95% of total deposits one year earlier.

Non-interest-bearing deposits decreased by $208.2 million, or 3%, to $6.18 billion from $6.39 billion at December 31, 2021;

interest-bearing transaction and savings accounts decreased by $383.6 million or 5%, to $6.72 billion at December 31, 2022 from $7.10 billion at December 31, 2021;

and certificates of deposit decreased $115.1 million, or 14%, to $723.5 million at December 31, 2022 from $838.6 million at December 31, 2021.

We had $50.0 million of FHLB advances at both December 31, 2022 and December 31, 2021, as core deposits were a sufficient source of funding.

Non-interest-bearing deposits decreased by $1.38 billion, or 22%, to $4.79 billion from $6.18 billion at December 31, 2022, while interest-bearing transaction and savings accounts increased by $40.1 million, or 1%, to $6.76 billion at December 31, 2023, from $6.72 billion at December 31, 2022.

Certificates of deposit increased $753.9 million, or 104%, to $1.48 billion at December 31, 2023, from $723.5 million at December 31, 2022, reflecting higher rates attracting customers to these deposit types and a $108.1 million increase in brokered deposits.

We had $108.1 million of brokered deposits at December 31, 2023, compared to none at December 31, 2022.

We had $323.0 million and $50.0 million of FHLB advances at December 31, 2023 and December 31, 2022, respectively.

Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, decreased $49.9 million to $182.9 million at December 31, 2023, compared to $232.8 million at December 31, 2022.

Junior subordinated debentures totaled $74.9 million at December 31, 2022 compared to $119.8 million at December 31, 2021, as we redeemed $50.5 million of junior subordinated debentures during the first quarter of 2022.

Junior subordinated debentures totaled $66.4 million at December 31, 2023, compared to $74.9 million at December 31, 2022.

Subordinated notes, net of issuance costs, were $92.9 million at December 31, 2023, compared to $98.9 million at December 31, 2022.

Total shareholders’ equity decreased $233.9 million, to $1.46 billion at December 31, 2022, compared to $1.69 billion at December 31, 2021.

The decrease in shareholders’ equity is primarily due to the $363.0 million decrease in AOCI, primarily due to an increase in the unrealized loss and related decrease in the fair value of securities available-for-sale, net of tax, as a result of an increase in interest rates during 2022, the accrual of $60.9 million of cash dividends to common shareholders, and the repurchase of 200,000 shares of common stock at a total cost of $11.0 million, partially offset by the $195.4 million of year-to-date net income.

Total shareholders’ equity increased $196.3 million, to $1.65 billion at December 31, 2023, compared to $1.46 billion at December 31, 2022.

The increase in shareholders’ equity primarily reflects $183.6 million of year-to-date net income and a $73.6 million decrease in AOCI, primarily due to an increase in the fair value of the security portfolio.

This increase was partially offset by the accrual of $66.7 million of cash dividends to common shareholders.

There were no shares of common stock repurchased during the year ended December 31, 2023.

Common shareholder’s equity to total assets was 10.55% and 9.20% at December 31, 2023 and 2022, respectively.

Tangible common shareholders’ equity (a non-GAAP financial measure), which excludes goodwill and other intangible assets was $1.27 billion, or 8.33% of tangible assets at December 31, 2023, compared to $1.07 billion, or 6.95% at December 31, 2022.

The decrease in tangible common shareholders’ equity as a percentage of tangible assets was primarily due to the previously mentioned decrease in AOCI.

The increase in tangible common shareholders’ equity as a percentage of tangible assets was primarily due to the previously mentioned decrease in AOCI and an increase in retained earnings.

The Company’s book value per share was $48.12 at December 31, 2023, compared to $42.59 per share a year ago, and its tangible book value per share (a non-GAAP financial measure) was $37.09 at December 31, 2023, compared to $31.41 per share a year ago.

See, “Executive Overview” above for a reconciliation of these non-GAAP financial measures.

At December 31, 2022, our consolidated investment securities portfolio totaled $3.94 billion and consisted principally of mortgage-backed and mortgage-related securities and municipal bonds and to a lesser extent U.S.

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

See, “Executive Overview - Non-GAAP Financial Measures” above for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures.

At December 31, 2023, our securities portfolio totaled $3.43 billion and consisted principally of mortgage-backed and mortgage-related securities.

Our investment levels may be increased or decreased depending upon Management’s projections as to the demand for funds to be used in our loan origination, deposit and other activities, and upon yields available on investment alternatives.

During the year ended December 31, 2022, our aggregate investment in securities decreased $251.6 million primarily due to a decrease in the fair value of securities available-for-sale as a result of an increase in interest rates during 2022.

Holdings of mortgage-backed securities decreased $151.7 million and U.S.

Government and agency obligations decreased $146.2 million, while municipal bonds increased $35.2 million, corporate debt obligations increased $8.1 million and asset-backed securities increased $5.1 million.

During the year ended December 31, 2023, our aggregate investment in securities decreased $502.5 million, primarily due to $300.0 million of reverse repurchase agreements maturing as well as the sale of securities and normal security portfolio cash flows.

Mortgage-backed securities decreased $293.9 million and U.S.

Government and agency obligations decreased $20.9 million, while municipal bonds decreased $165.5 million, corporate debt obligations decreased $30.1 million and asset-backed securities increased $9.3 million.

Government and Agency Obligations:

4 unchanged sentences

Mortgage-Backed Obligations:

At December 31, 2022, our mortgage-backed and mortgage-related securities had a carrying value of $2.75 billion ($3.12 billion at amortized cost, with a net fair value adjustment of $365.8 million).

At December 31, 2023, our mortgage-backed and mortgage-related securities had a carrying value of $2.46 billion ($2.77 billion at amortized cost, with a net unrealized loss adjustment of $313.2 million).

The weighted average coupon rate of these securities was 2.60% and the weighted average contractual maturity was 26.2 years, although we receive principal payments on these securities each month resulting in a much shorter expected average life.

8 unchanged sentences

Corporate Bonds:

Our corporate bond portfolio had a carrying value of $153.5 million ($163.5 million at amortized cost, with a net fair value adjustment of $10.0 million) at December 31, 2022.

Our corporate bond portfolio had a carrying value of $121.7 million ($134.1 million at amortized cost) at December 31, 2023.

At December 31, 2023, the portfolio had a weighted average maturity of 11.0 years and a weighted average coupon rate of 4.91%.

2 unchanged sentences

The weighted average coupon rate of these securities was 7.36% and the weighted average contractual maturity was 12.9 years.

At December 31, 2022, 100% of these securities had adjustable interest rates tied to three-month LIBOR.

The following tables set forth certain information regarding carrying values and percentage of total carrying values of our portfolio of securities—trading and securities—available-for-sale, both carried at estimated fair market value, and securities—held-to-maturity, carried at amortized cost as of December 31, 2022, 2021 and 2020 (dollars in thousands):

At December 31, 2023, 100% of these securities had adjustable interest rates tied to three-month SOFR.

The following tables set forth certain information regarding carrying values and percentage of total carrying values of our portfolio of securities—trading and securities—available-for-sale, both carried at estimated fair market value, and securities—held-to-maturity, carried at amortized cost, net of the allowance for credit losses - securities as of December 31, 2023, 2022 and 2021 (dollars in thousands):

2023 2022 2021

1 unchanged sentence

Corporate bonds (1)

Total securities—trading $ 28,694 100.0 % $ 26,981 100.0 % $ 24,980 100.0 %

$ — n/a $ 28,694 100 % $ 26,981 100 %

Total securities—trading $ — n/a $ 28,694 100 % $ 26,981 100 %

Available-for-Sale

12 unchanged sentences

Estimated market value $ 907,514 $ 942,180 $ 541,853

The following table shows the maturity or period to repricing of our consolidated portfolio of available-for-sale and held-to-maturity securities as of December 31, 2022 (dollars in thousands):

(1) In the fourth quarter of 2023, our corporate bonds classified as trading were transferred to available-for-sale.

The following table shows the maturity or period to repricing of our available-for-sale and held-to-maturity securities as of December 31, 2023 (dollars in thousands):

Securities Available-for-Sale and Held-to-Maturity —Maturity/Repricing and Rates

17 unchanged sentences

We attempt to maintain a portfolio of loans to total deposits ratio at a level designed to enhance our revenues, while adhering to sound underwriting practices and appropriate diversification guidelines in order to maintain a moderate risk profile.

Our loan to deposit ratio typically ranges from 90% to 95%.

Our loan-to-deposit ratio at December 31, 2023, was 83%.

During the most recent quarters our loan to deposit ratio has begun to trend upward as the unprecedented level of market liquidity begins to contract.

We offer a wide range of loan products to meet the demands of our clients.

Our lending activities are primarily directed toward the origination of real estate and commercial loans.

Total loans receivable increased $1.06 billion, or 12%, to $10.15 billion at December 31, 2022, from $9.08 billion at December 31, 2021.

The increase in total loans receivable for the year ended December 31, 2022 primarily reflects increased one-to-four family residential, multifamily real estate, commercial business, construction, land and land development, and consumer loan balances, partially offset by decreased commercial real estate loan balances.

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

Our lending activities are primarily directed toward the origination of commercial real estate and business loans.

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

We continue to implement strategies designed to capture more market share and achieve increases in targeted loans.

New loan originations and portfolio balances will continue to be significantly affected by economic activity and changes in interest rates.

The following table shows loan originations (excluding loans held for sale) activity for the years ended December 31, 2022, 2021, and 2020 (in thousands):

The following table shows loan origination activity (excluding loans held for sale) for the years ended December 31, 2023, 2022 and 2021 (in thousands):

Loan Originations

13 unchanged sentences

We are active originators of one- to four-family residential loans in most communities where we have established offices in Washington, Oregon, California and Idaho.

Originations of portfolio one- to four-family residential loans have recently been relatively strong, despite increases in interest rates during the current year.

Our balance of loans for one- to four-family residences increased by $344.9 million in 2023, compared to the prior year.

The increase in one-to-four family real estate loans during 2022 was primarily the result of one- to four-family construction loans converting to one- to four-family residential portfolio loans and a higher percentage of new production originated as held for investment during the year due to the higher interest rate environment.

The increase in one- to four-family real estate loans during 2023 was primarily the result of a higher percentage of one- to four-family construction loans converting to one- to four-family residential loans and a larger percentage of new production being held in portfolio.

Construction and Land Lending:

Our construction loan originations have been relatively strong in recent years as builders have expanded production and experienced strong home sales in many markets where we operate.

At December 31, 2022, construction, land and land development loans totaled $1.49 billion, or 15% of total loans, compared to $1.31 billion, or 14%, at December 31, 2021.

One-to four-family construction loans increased by $78.6 million in 2022, as builders have expanded production and experienced strong home sales during the year.

During the year ended December 31, 2022, land and land development loans (both residential and commercial) increased by $15.0 million, primarily reflecting increased residential land and land development loans also due to the strong housing market.

At December 31, 2023, construction, land and land development loans totaled $1.54 billion, or 14% of total loans.

The largest shifts in our construction, land and land development portfolio occurred in multifamily and one- to four-family construction loans.

Multifamily construction loans increased $178.2 million, or 55%, to $504.0 million at December 31, 2023.

Multifamily construction loans represented approximately 5% of our total loan portfolio at December 31, 2023 and is comprised of affordable housing projects and, to a lesser extent, market rate multifamily projects across our footprint.

One- to four-family construction loans decreased $120.9 million, or 19%, to $526.4 million at December 31, 2023.

One- to four-family construction loans represented approximately 5% of our total loan portfolio at December 31, 2023, and included speculative construction loans, as well as “all-in-one” construction loans made to owner occupants that convert to permanent loans upon completion of the homes that, depending on market conditions, may be subsequently sold into the secondary market.

Commercial and Multifamily Real Estate Lending:

We also originate loans secured by commercial and multifamily real estate.

Commercial and multifamily real estate loans originated by us include both fixed- and adjustable-rate loans with intermediate terms of generally five to ten years.

We originate loans secured by commercial and multifamily real estate.

Commercial and multifamily real estate loans originated by us include both fixed- and adjustable-rate loans with intermediate terms of generally five to 10 years.

Our commercial real estate portfolio consists of loans on a variety of property types with no significant concentrations by property type, borrowers or locations.

At December 31, 2022, our loan portfolio included $3.64 billion of commercial real estate loans, or 36% of the total loan portfolio, and $645.1 million of multifamily real estate loans, or 6% of the total loan portfolio, compared to $3.79 billion, or 42%, and $530.9 million, or 6%, at December 31, 2021, respectively.

At December 31, 2023, our loan portfolio included $3.64 billion of commercial real estate loans, or 34% of the total loan portfolio, and $811.2 million of multifamily real estate loans, or 8% of the total loan portfolio.

The increase in multifamily loans was the result of the transfer of $43.5 million of multifamily loans held for sale to the held for investment loan portfolio in the fourth quarter of 2023 and the conversion of affordable housing construction loans to the multifamily portfolio upon the completion of the construction phase.

Commercial Business Lending:

1 unchanged sentence

In addition to providing earning assets, this type of lending has helped increase our deposit base.

At December 31, 2022, commercial business loans totaled $1.28 billion, or 13% of total loans, compared to $1.17 billion, or 13%, at December 31, 2021.

SBA PPP loans decreased 94% to $7.9 million at December 31, 2022, compared to $133.9 million at December 31, 2021.

Our commercial business lending, to a lesser extent, includes participation in certain syndicated loans, including shared national credits that totaled $234.1 million at December 31, 2022.

At December 31, 2023, commercial business loans, including small business scored, totaled $2.28 billion, or 21% of total loans.

Our commercial business lending, to a lesser extent, includes participation in certain syndicated loans, including shared national credits which totaled $239.0 million, or 2% of our loan portfolio, at December 31, 2023.

Agricultural Lending:

3 unchanged sentences

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

At December 31, 2022, agricultural loans totaled $295.1 million, or 3% of the loan portfolio, compared to $280.6 million, or 3%, at December 31, 2021.

At December 31, 2023, agricultural loans totaled $331.1 million, or 3% of the loan portfolio.

Consumer and Other Lending:

Consumer lending has traditionally been a modest part of our business with loans made primarily to accommodate our existing client base.

At December 31, 2022, our consumer loans increased $125.0 million to $680.9 million, or 7% of our loan portfolio, compared to $555.9 million, or 6%, at December 31, 2021.

The increase from December 31, 2021 was primarily due to a home equity loan marketing campaign during the second and third quarters of 2022.

At December 31, 2023, our consumer loans increased $18.5 million to $699.4 million, or 6% of our loan portfolio, compared to December 31, 2022.

As of December 31, 2023, 84% of our consumer loans were secured by one- to four-family residences, including home equity lines of credit.

Credit card balances totaled $42.9 million at December 31, 2022 compared to $37.8 million a year earlier.

Credit card balances totaled $47.4 million at December 31, 2023.

Loan Servicing Portfolio:

2 unchanged sentences

The portfolio included loans secured by property located primarily in the states of Washington, Oregon, Idaho and California.

For the years ended December 31, 2022 and 2021, we recognized $7.5 million and $7.7 million of loan servicing income in our results of operations, respectively.

For the years ended December 31, 2022 and 2021, we recognized $4.2 million and $6.6 million of amortization for MSRs and SBA servicing rights, respectively.

For the years ended December 31, 2023 and 2022, we recognized $7.8 million of loan servicing income in our results of operations.

The following table sets forth the composition of the Company’s loan portfolio, net of discounts and deferred fees and costs, by type of loan as of the dates indicated (dollars in thousands):

1 unchanged sentence

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.

The following table presents the loans receivable at December 31, 2022, 2021 and 2020 by class (dollars in thousands).

The presentation of loans receivable at December 31, 2021 and 2020 has been revised to match the segmentation used in the current period presentation.

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

December 31, 2023 December 31, 2022 December 31, 2021

63 unchanged sentences

Agricultural business, including secured by farmland 89,401 85,279 154,765 1,644 331,089

Agricultural business, including secured by farmland 84,445 72,289 136,200 1,809 294,743

SBA PPP — 334 — — 334

Total Agricultural business, including secured by farmland 84,445 72,623 136,200 1,809 295,077

One- to four-family residential 3,745 10,891 60,545 1,442,865 1,518,046

29 unchanged sentences

Agricultural business, including secured by farmland 71,499 170,189 241,688

Agricultural business, including secured by farmland 74,415 135,883 210,298

SBA PPP 334 — 334

Total Agricultural business, including secured by farmland 74,749 135,883 210,632

One- to four-family residential 1,083,593 430,708 1,514,301

6 unchanged sentences

Much of the focus of our expansion and current marketing efforts have been directed toward attracting additional deposit client relationships and balances.

The long-term success of our deposit gathering activities is reflected not only in the growth of core deposit balances, but also in the level of deposit fees, service charges and other payment processing revenues compared to prior periods.

Increasing core deposits is a fundamental element of our business strategy.

This strategy continues to help control our cost of funds and increase the opportunity for deposit fee revenues, while stabilizing our funding base.

One of our key strategies is to strengthen our franchise by emphasizing core deposit activity in non-interest-bearing and other transaction and savings accounts with less reliance on higher cost certificates of deposit, which has been challenging over the last couple of years due to intense competition for deposits.

This strategy is intended to help control our cost of funds and increase the opportunity for deposit fee revenues, while stabilizing our funding base.

Total deposits decreased $590.6 million, or 4%, to $13.03 billion at December 31, 2023 from $13.62 billion at December 31, 2022.

The decrease in total deposits from the prior year end reflects the sale of four branches during 2022, which included the transfer of $178.2 million of related deposits as well as an overall decrease in market liquidity.

Non-interest-bearing deposits decreased by $208.2 million, or 3%, to $6.18 billion at year end from $6.39 billion at December 31, 2021.

Interest-bearing transaction and savings accounts decreased by $383.6 million, or 5%, to $6.72 billion at December 31, 2022 compared to $7.10 billion a year earlier.

Certificates of deposit decreased $115.1 million, or 14%, to $723.5 million at December 31, 2022 from $838.6 million at December 31, 2021.

The decline in deposits during the year ended December 31, 2023 was primarily due to interest rate-sensitive clients moving a portion of their non-operating deposit balances to higher yielding investments.

Core deposits were 89% of total deposits at December 31, 2023, compared to 95% a year earlier.

The Bank’s estimated uninsured deposits were $4.08 billion or 31% of total deposits at December 31, 2023, compared to $4.84 billion or 35% of total deposits at December 31, 2022.

The estimated uninsured deposit calculation includes $305.3 million and $304.2 million of collateralized public deposits at December 31, 2023 and 2022, respectively.

Estimated uninsured deposits also include cash held by Banner of $108.2 million and $77.2 million at December 31, 2023 and December 31, 2022, respectively.

The Bank’s estimated uninsured deposits, excluding collateralized public deposits and cash held at the holding company, were 28% of total deposits at December 31, 2023, compared to 33% of total deposits at December 31, 2022.

The following table sets forth the balances of deposits in the various types of accounts offered by the Bank at the dates indicated (dollars in thousands):

23 unchanged sentences

Maturing after three months through six months 86,991

Maturing after six months through twelve months 48,543

Maturing after twelve months 48,870

Maturing after six months through 12 months 95,777

Maturing after 12 months 9,329

Total $ 435,875

8 unchanged sentences

Total deposits $ 13,029,497 100 % $ 13,620,059 100 % $ 14,326,933 100 %

We had $50.0 million FHLB advances at both December 31, 2022 and December 31, 2021, as core deposits were a sufficient source of funding.

We had $323.0 million in FHLB advances at December 31, 2023.

At that date, based on pledged collateral, the Bank had $2.97 billion of available credit capacity with the FHLB.

At December 31, 2023, based upon our available unencumbered collateral, the Bank was eligible to borrow $1.44 billion from the Federal Reserve Bank, however, at that date we had no funds borrowed under this arrangement.

At December 31, 2022, retail repurchase agreements totaled $232.8 million, had a weighted average rate of 0.35%, and were secured by pledges of certain mortgage-backed securities and agency securities.

Retail repurchase agreement balances, which are primarily associated with client sweep account arrangements, decreased $31.7 million, from the 2021 year-end balance.

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

Retail repurchase agreements, which are primarily associated with client sweep account arrangements, decreased $49.9 million to $182.9 million at December 31, 2023 from $232.8 million at December 31, 2022.

At December 31, 2023 retail repurchase agreements had a weighted average rate of 2.48% and were secured by pledges of certain mortgage-backed securities and agency securities.

We had no borrowings under wholesale repurchase agreements at December 31, 2023.

At December 31, 2023, we had an aggregate of $86.5 million of TPS.

1 unchanged sentence

The junior subordinated debentures are carried at their estimated fair value of $66.4 million at December 31, 2023.

Banner redeemed $50.5 million of junior subordinated debentures during the first quarter of 2022 and redeemed $8.2 million of junior subordinated debentures during the fourth quarter of 2021.

At December 31, 2023, the TPS had a weighted average rate of 7.19%.

At December 31, 2022, subordinated notes, net of issuance costs were $98.9 million and had a weighted average interest rate of 5.00%.

Subordinated notes, net of issuance costs were $92.9 million at December 31, 2023, compared to $98.9 million at December 31, 2022, and a weighted average interest rate of 5.00%.

The decrease in subordinated notes was due to the Bank’s purchase of $6.5 million of Banner’s subordinated debt during the second quarter of 2023.

Asset Quality.

Maintaining a moderate risk profile by employing appropriate underwriting standards, avoiding excessive asset concentrations and aggressively managing troubled assets has been and will continue to be a primary focus for us.

Non-performing assets decreased to $23.4 million, or 0.15% of total assets, at December 31, 2022, from $23.7 million, or 0.14% of total assets, at December 31, 2021.

Non-performing assets increased to $30.1 million, or 0.19% of total assets, at December 31, 2023, from $23.4 million, or 0.15% of total assets, at December 31, 2022.

At December 31, 2023, our allowance for credit losses - loans was $149.6 million, or 506% of non-performing loans, compared to $141.5 million, or 615% of non-performing loans, at December 31, 2022.

The following table sets forth information with respect to our non-performing assets and restructured loans, at the dates indicated (dollars in thousands):

The following table sets forth information with respect to our non-performing assets at the dates indicated (dollars in thousands):

Non-Performing Assets

10 unchanged sentences

Loans more than 90 days delinquent, still on accrual:

Secured by real estate:

Construction/land 1,138 — —

One- to four-family 1,205 1,023 436

8 unchanged sentences

Total nonaccrual loans to net loans before allowance for credit losses 0.25 % 0.21 % 0.25 %

Restructured loans performing under their restructured terms (2)

$ 4,241 $ 5,309 $ 6,673

Loans 30-89 days past due and on accrual $ 19,744 $ 17,186 $ 11,558

(1) Includes $44,000 of nonaccrual TDR loans as of December 31, 2022.

For the year ended December 31, 2022, interest income was reduced by $725,000 as a result of nonaccrual loan activity, which includes the reversal of $322,000 of accrued interest as of the date the loan was placed on nonaccrual.

For the year ended December 31, 2023, interest income was reduced by $1.6 million as a result of nonaccrual loan activity, which includes the reversal of $569,000 of accrued interest as of the date the loans were placed on nonaccrual.

There was no interest income recognized on nonaccrual loans during the year ended December 31, 2023.

(2) These loans were performing under their restructured repayment terms at the dates indicated.

The following table presents the Company’s portfolio of risk-rated loans and non-risk-rated loans by grade at the dates indicated (in thousands):

5 unchanged sentences

Substandard 125,442 137,150 198,363

Doubtful — — —

Total $ 10,810,455 $ 10,146,724 $ 9,084,763

1 unchanged sentence

Comparison of Results of Operations for the Years Ended December 31, 2023 and 2022

For the year ended December 31, 2022, our net income was $195.4 million, or $5.67 per diluted share, compared to net income of $201.0 million, or $5.76 per diluted share for the year ended December 31, 2021.

Current year results were positively impacted by increased interest income, decreased funding costs and a $7.8 million gain recognized on the branch sale completed during the second quarter of 2022, partially offset by a $23.1 million decrease in mortgage banking income and a provision for credit losses of $10.4 million.

Our operating results depend largely on our net interest income which increased $56.3 million to $553.2 million, primarily reflecting increased yields on loans and investment securities due to rising interest rates during the year as well as an increase in average interest-earning assets, particularly growth in investment securities balances.

Revenues (net interest income and non-interest income) increased $35.1 million, or 6%, to $628.4 million for the year ended December 31, 2022, compared to $593.3 million for the year ended December 31, 2021, which also reflected a $21.2 million decrease in non-interest income primarily as a result of lower income from mortgage banking operations, partially offset by the gain recognized on the branch sale.

The decrease in mortgage banking income reflects a reduction in the volume and a decrease in the gain on sale margin for one- to four-family loans sold during the year along with a negative fair market adjustment on multifamily held for sale loans.

Non-interest expense decreased to $377.3 million for the year ended December 31, 2022 compared with $380.1 million for the year ended December 31, 2021, largely as a result of a decrease in professional and legal expenses, a decrease in salary and employee benefits expense, and a decrease in advertising and marketing expense, partially offset by a decrease in capitalized loan origination costs.

For the year ended December 31, 2023, net income was $183.6 million, or $5.33 per diluted share, compared to net income of $195.4 million, or $5.67 per diluted share for the year ended December 31, 2022.

Current year results included a decrease in non-interest income, primarily due to the loss on the sale of securities, and increases in the provision for credit losses and non-interest expense, partially offset by increased net interest income.

Our operating results depend largely on net interest income which increased $22.8 million to $576.0 million for the year ended December 31, 2023, compared to the prior year, primarily reflecting increased yields on loans and investment securities due to rising interest rates during the year, as well as higher average loan balances, partially offset by increased funding costs during the period.

Revenues (net interest income and non-interest income) decreased $8.0 million, or 1%, to $620.4 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to increased funding costs, an increase in the net loss on the sale of securities and a net loss on financial instruments carried at fair value during the year ended December 31, 2023.

We recorded a $10.8 million provision for credit losses for the year ended December 31, 2023, compared to a $10.4 million provision for credit losses for the year ended December 31, 2022.

The provision for credit losses for the year ended December 31, 2023, reflects growth in loan balances and a deterioration in forecasted economic conditions.

Total non-interest income for the year ended December 31, 2023 decreased to $44.4 million compared to $75.3 million for the year ended December 31, 2022, primarily due to an increase in the net loss on the sale of securities and a net loss relating to the fair value adjustments on financial instruments.

The decrease was also impacted by the $7.8 million gain on the sale of branches, including related deposits, during the prior year.

Total non-interest expense increased to $382.5 million for the year ended December 31, 2023, compared to $377.3 million for the year ended December 31, 2022, largely as a result of a decrease in capitalized loan origination costs and, to a lesser extent, increases in salary and employee benefits, information and computer data services and deposit insurance expense, partially offset by decreases in occupancy and equipment expense and professional and legal expense.

Net Interest Income.

Net interest income increased by $56.3 million, or 11%, to $553.2 million for the year ended December 31, 2022, compared to $496.9 million for the year ended December 31, 2021, primarily due to an increase in the average balance of interest-earning assets, increased yields on average interest-earning assets and decreased funding costs, partially offset by a decline in the recognition of deferred loan fee income due to SBA PPP loan repayments from SBA loan forgiveness.

Net interest income increased $22.8 million, or 4%, to $576.0 million for the year ended December 31, 2023, compared to $553.2 million for the year ended December 31, 2022, primarily due to increases in the average yields on and, to a lesser extent, the average balance of interest-earning assets, partially offset by increased funding costs.

The higher average yield on interest-earning assets compared to same prior year period reflects rising market interest rates during the year ended December 31, 2023.

The net interest margin on a tax equivalent basis of 4.01% for the year ended December 31, 2023, was 33 basis points higher than the prior year.

The increase in net interest margin compared to a year earlier primarily reflects a 25 basis-point increase in yields on average interest-earning assets and a three basis-point decrease in the cost of funding liabilities.

The increase in average yields on interest-earning assets during the current year reflects the benefit of variable rate interest-earning assets repricing higher due to rising interest rates, as well as new loans being originated at higher interest rates, partially offset by a higher percentage of assets being invested in low yielding short term investments and interest-bearing deposits.

Since March 2022, in response to inflation, the FOMC of the Federal Reserve System has increased the target range for the federal funds rate by 425 basis points, including 125 basis points during the fourth quarter of 2022, to a range of 4.25% to 4.50%.

The decrease in the overall cost of funding liabilities compared to a year earlier was largely due to an increase in the average balance of low-cost core deposits, including non-interest-bearing transaction and savings accounts

The increase in net interest margin reflects a 107 basis-point increase in yields on average interest-earning assets, offset by a 78 basis-point increase in the cost of funding liabilities.

The increase in the overall cost of funding liabilities was primarily due to the increase in rates across all deposit and borrowing categories due to higher market rates generally, as well as a shift in the average balance of deposits to higher costing certificates of deposit.

Interest Income.

Interest income for the year ended December 31, 2023 was $701.6 million, compared to $572.6 million for the prior year, an increase of $129.0 million.

The increase in interest income occurred as a result of the yields on interest-earnings assets increasing the 25 basis points to 3.80% and the average balance of interest-earning assets increasing $424.6 million to $15.33 billion.

The increased yield on interest-earning assets reflects increases in the average yields on loans and securities.

Interest income on loans increased by $5.2 million to $450.9 million for the year ended December 31, 2022, from the prior year.

The increased interest income on loans is primarily due to the average loan yields increasing 12 basis points to 4.76%, reflecting the impact of rising interest rates.

The acquisition accounting loan discount accretion and related balance sheet impact added four basis points to the loan yield for the year ended December 31, 2022, compared to seven basis points for the year ended December 31, 2021.

Average loans receivable decreased $116.2 million to $9.60 billion, principally as a result of the forgiveness of SBA PPP loans.

The combined average balance of mortgage-backed securities, other investment securities, equity securities, daily interest-bearing deposits and FHLB stock increased $540.9 million to $5.74 billion (excluding the effect of fair value adjustments), contributing to the $47.6 million increase in interest and dividend income compared to the prior year.

The increase in interest income occurred as a result of the yields on interest-earnings assets increasing 107 basis points to 4.87%, partially offset by the average balance of interest-earning assets decreasing $682.3 million to $14.65 billion.

The increased yield on interest-earning assets primarily reflects increases in the average yields on loans.

Interest income on loans increased from the prior year $127.0 million to $577.9 million for the year ended December 31, 2023.

The increase was primarily due to the average loan yields increasing 82 basis points to 5.58%, reflecting the impact of rising interest rates.

Average loans receivable increased $887.7 million to $10.48 billion, primarily reflecting an increase in one- to four-family loans.

Interest and dividend income on investment securities increased $1.7 million for the year ended December 31, 2023.

The average yield on the combined portfolio increased 88 basis points to 3.08%, reflecting a 31 basis-point increase in the average yield on mortgage-backed securities and a 147 basis-point increase in the yield on other securities.

The combined average balance of total investment securities decreased $1.57 billion to $4.17 billion (excluding the effect of fair value adjustments).

Interest Expense.

Interest expense for the year ended December 31, 2022 was $19.4 million, compared to $23.6 million for the prior year, a decrease of $4.2 million, or 18%.

The decrease in interest expense occurred as a result of a three basis-point decrease in the average cost of all funding liabilities to 0.13%, partially offset by the average balance of funding liabilities increasing $410.2 million to $14.40 billion.

The increase in average balance of funding liabilities reflects increases in low-cost core deposits, including non-interest-bearing deposits and interest-bearing transaction and savings accounts, partially offset by lower average balances of certificates of deposit, FHLB advances and subordinated debt.

Deposit interest expense decreased $1.6 million, or 14%, to $10.1 million for the year ended December 31, 2022 compared to $11.8 million for the prior year as a result of the average cost of deposits, including non-interest bearing deposits, decreasing two basis points to 0.07%, partially offset by the average balance of interest-bearing deposits increasing $239.9 million to $7.83 billion.

The decrease in the average cost of deposits between the periods was primarily due to a $301.8 million increase in the average balance of non-interest-bearing accounts, a higher percentage of our interest-bearing deposits being lower-cost core deposits and a 25 basis-point decrease in the average rate paid on certificates of deposit.

The average rate paid on total borrowings increased two basis points to 2.04%, reflecting the 87 basis-point increase in the average cost of our subordinated debt and the 55 basis-point increase in the average cost of FHLB advances, partially offset by the $131.5 million decrease in average balance of total borrowings.

The decrease in average total borrowings was largely due to a $82.7 million decrease in average balance of FHLB advances and a $57.7 million decrease in the average balance of subordinated debt.

The decrease in average total borrowings was the primary reason for the $2.6 million decrease in the related interest expense to $9.3 million for the year ended December 31, 2022, from $11.8 million in the prior year.

Interest expense for the year ended December 31, 2023 was $125.6 million, compared to $19.4 million for the prior year, an increase of $106.2 million, or 548%.

The increase occurred as a result of a 78 basis-point increase in the average cost of all funding liabilities to 0.91%, partially offset by the average balance of funding liabilities decreasing $985.6 million to $13.73 billion.

The decrease in the average balance of funding liabilities reflects decreases in non-interest-bearing deposits and interest-bearing transaction and savings accounts, partially offset by higher average balances of certificates of deposit and FHLB advances.

Deposit interest expense increased $90.0 million to $100.1 million for the year ended December 31, 2023, compared to the prior year as a result of the average cost of total deposits increasing 69 basis points to 0.76%, partially offset by the average balance of interest-bearing deposits decreasing by $115.1 million.

The increase in the average cost of deposits between the periods was primarily due to the average cost of interest-bearing deposits increasing 117 basis points to 1.30% for the year ended December 31, 2023, compared to 0.13% in the prior year.

The increase in the average cost of interest-bearing deposits was primarily the result of a 245 basis-point increase in the cost of certificates of deposit along with a $445.0 million increase in the average balance of certificates of deposit.

The average rate paid on total borrowings increased 233 basis points to 4.37%, reflecting the 215 basis-point increase in the average cost of FHLB advances, the 154 basis-point increase in the average cost of other borrowings, and the 179 basis-point increase in the average cost of our subordinated debt.

The increase in average total borrowings was largely due to a $181.5 million increase in average balance of FHLB advances, partially offset by a $50.4 million decrease in the average balance of other borrowings.

Table 13, Analysis of Net Interest Spread , presents, for the periods indicated, our condensed average balance sheet information, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities.

16 unchanged sentences

Other securities 1,173,637 52,148 4.44 1,625,250 48,278 2.97 % 1,337,403 30,114 2.25 %

Equity securities — — — 429 — — 182,846 373 0.20

Interest-bearing deposits with banks 46,815 2,200 4.70 969,952 9,633 0.99 % 1,392,619 1,955 0.14 %

56 unchanged sentences

Other securities 19,674 (15,804) 3,870 10,836 7,328 18,164

Equity securities — — — (183) (190) (373)

Interest-bearing deposits with banks

18 unchanged sentences

Provision and Allowance for Credit Losses .

We recorded an $8.2 million provision for credit losses - loans in the year ended December 31, 2022, compared to a $33.1 million recapture of provision for credit losses - loans recorded in 2021.

The provision and allowance for credit losses is one of the most critical accounting estimates included in our Consolidated Financial Statements.

We recorded an $11.1 million provision for credit losses - loans in the year ended December 31, 2023, compared to an $8.2 million provision for credit losses - loans in 2022.

The provision for credit losses - loans 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 provision for credit losses - loans for the current year primarily reflects loan growth and, to a lesser extent, a deterioration in forecasted economic conditions and indicators utilized to estimate credit losses, partially offset by an improvement in the level of adversely classified loans.

The prior year recapture of provision for credit losses - loans primarily reflected an improvement in forecasted economic indicators and a decrease in adversely classified loans.

The provision for credit losses - loans for the current year primarily reflects loan growth and a deterioration in forecasted economic conditions and indicators utilized to estimate credit losses, as well as increased charge-offs for the year.

The prior year provision for credit losses - loans primarily reflected loan growth and, to a lesser extent, a deterioration in forecasted economic conditions and indicators utilized to estimate credit losses, partially offset by an improvement in the level of adversely classified loans.

Future assessments of the expected credit losses will not only be impacted by changes to the reasonable and supportable forecast, but will also include an updated assessment of qualitative factors, as well as consideration of any required changes in the reasonable and supportable forecast reversion period.

We recorded net recoveries of $1.2 million for the year ended December 31, 2022, compared to net charge-offs of $2.1 million for the prior year.

The reduction in net charge-offs in 2022 reflects the improvement in overall loan portfolio performance during 2022.

A comparison of the allowance for credit losses - loans at December 31, 2022 and 2021 reflects an increase of $9.4 million, or 7%, to $141.5 million at December 31, 2022, from $132.1 million at December 31, 2021.

The allowance for credit losses - loans as a percentage of total loans (loans receivable excluding allowance for credit losses) decreased to 1.39% at December 31, 2022, compared to 1.45% at December 31, 2021.

The decrease in the allowance for credit losses - loans as a percentage of loans reflects an improvement in the level of adversely classified loans during 2022.

The following table sets forth an analysis of our allowance for credit losses - loans for the periods indicated (dollars in thousands):

3 unchanged sentences

Balance, beginning of period $ 141,465 $ 132,099 $ 167,279

Beginning balance adjustment for adoption of ASC 326 — — 7,812

Provision (recapture) for credit losses – loans 11,097 8,158 (33,112)

16 unchanged sentences

Total charge-offs (5,707) (2,713) (6,683)

Net recoveries (charge-offs) 1,208 (2,068) (5,377)

Net (charge-offs) recoveries (2,919) 1,208 (2,068)

Balance, end of period $ 149,643 $ 141,465 $ 132,099

3 unchanged sentences

Allowance for credit losses - loans as a percent of total loans 1.38 % 1.39 % 1.45 %

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

As a percent of average outstanding loans during the period:

Net loan (charge-offs) recoveries (0.03) % 0.01 % (0.02) %

Commercial real estate 0.01 % — % (0.02) %

Multifamily real estate — % — % — %

Construction and land (0.01) % — % — %

One- to four-family residential — % — % — %

Commercial business (0.01) % — % — %

Agricultural business, including secured by farmland — % — % — %

Consumer (0.01) % — % — %

Allowance for credit losses - loans as a percent of nonaccrual loans 557 % 652 % 593 %

14 unchanged sentences

The allowance for credit losses - unfunded loan commitments was $14.5 million at December 31, 2023 compared to $14.7 million at December 31, 2022.

The increase in the allowance for credit losses - unfunded loan commitments reflects the provision for credit losses - unfunded loan commitments recorded during year ended December 31, 2022, primarily the result of an increase in unfunded loan commitments.

During the year ended December 31, 2022, we recorded a provision for credit losses - unfunded loan commitments of $2.3 million, compared to an $865,000 recapture of provision for credit losses - unfunded loan commitments during the prior year.

The decrease in the allowance for credit losses - unfunded loan commitments reflects a decrease in unfunded loan commitments.

The following table sets forth an analysis of our allowance for credit losses - unfunded loan commitments for the periods indicated (dollars in thousands):

3 unchanged sentences

Balance, beginning of period $ 14,721 $ 12,432 $ 13,297

Beginning balance adjustment for adoption of ASC 326 — — 7,022

Provision/ (recapture) for credit losses - unfunded loan commitments 2,289 (865) 3,559

(Recapture) provision for credit losses - unfunded loan commitments (237) 2,289 (865)

Balance, end of period $ 14,484 $ 14,721 $ 12,432

2 unchanged sentences

Non-interest Income

2022 compared to 2021 2021 compared to 2020

2023 compared to 2022

2022 compared to 2021

2023 2022 Change Amount Change Percent 2022 2021 Change Amount Change Percent

9 unchanged sentences

Non-interest income decreased for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The decrease from the prior year primarily reflects lower income from mortgage banking operations, partially offset by the gain recognized on the branch sale and increased deposit fees and other service charges.

Income from deposit fees and other service charges increased for the year ended December 31, 2022, compared to the prior year, primarily as a result of increased transaction deposit account activity and the benefits from implementing Banner Forward initiatives.

Mortgage banking income, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased for the year ended December 31, 2022, compared to the prior year.

The decrease was primarily due to the net loss recorded during the current period on the sale of securities, the recognition of a net loss for fair value adjustments on financial instruments carried at fair value, a decrease in deposit fees and other service charges and a gain on sale of branches recognized during the year ended December 31, 2022, with no similar gain recognized in 2023.

Income from deposit fees and other service charges decreased primarily as a result of decreased deposit transaction activity and the discontinuation of certain deposit fees related to overdrafts during the current year.

Revenue from mortgage banking operations, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased for the year ended December 31, 2023, compared to the prior year.

The higher mortgage banking revenue primarily reflected a $2.5 million lower of cost or market upward adjustment on multifamily loans held for sale, attributed to the transfer of $43.5 million of multifamily loans from held for sale to portfolio during the fourth quarter of 2023, compared to a $2.5 million lower of cost or market downward adjustment for the year ended December 31, 2022.

Sales of one- to four-family loans held for sale for the year ended December 31, 2023, resulted in gains of $5.1 million, compared to $9.9 million for the year ended December 31, 2022.

In addition, for the year ended December 31, 2022, mortgage banking income included $2.1 million of gains on the sale of multifamily loans, compared to $5.8 million for the year ended December 31, 2021.

The lower mortgage banking revenue reflected a reduction in the volume and a decrease in the gain on sale margin on one- to four-family loans sold along with a negative fair market adjustment on multifamily held for sale loans.

The reduction in one- to four-family loans sold primarily reflects a reduction in refinancing activity, as well as decreased purchase activity as interest rates increased during 2023.

The increase in bank owned life insurance income for year ended December 31, 2022 compared to the prior year was due to new bank-owned life insurance investments made at the end of 2021 and early in 2022.

The $6.1 million decrease in miscellaneous income was primarily driven by a valuation adjustment on the SBA servicing asset recognized during the prior year as well as lower gains on the sale of SBA loans and higher gains related to the disposition of assets from closed branch locations recognized during the prior year.

The net loss on sale of securities during the year ended December 31, 2023, reflects strategic sales of securities to minimize the impact of increasing rates on our securities portfolio.

The net loss on the valuation of financial instruments carried at fair value were due to declines during 2023 in the market valuation of investment securities carried at fair value.

Non-interest Expense.

1 unchanged sentence

Non-interest Expense

2022 compared to 2021 2021 compared to 2020

2023 compared to 2022

2022 compared to 2021

2023 2022 Change Amount Change Percent 2022 2021 Change Amount Change Percent

10 unchanged sentences

Amortization of core deposit intangibles 3,756 5,279 (1,523) (29) % 5,279 6,571 (1,292) (20) %

Loss on extinguishment of debt 793 2,284 (1,491) (65.3) % 2,284 — 2,284 nm

Loss on extinguishment of debt — 793 (793) (100) % 793 2,284 (1,491) (65) %

Miscellaneous 23,723 24,869 (1,146) (5) % 24,869 24,236 633 3 %

$ 382,538 $ 377,295 $ 5,243 1 % $ 377,295 $ 379,005 $ (1,710) — %

COVID-19 expenses — 436 (436) (100.0) % 436 3,502 (3,066) (87.5) %

Merger and acquisition-related expenses — 660 (660) (100.0) % 660 2,062 (1,402) (68.0) %

COVID-19 expenses — — — nm — 436 (436) (100) %

Merger and acquisition-related expenses — — — nm — 660 (660) (100) %

Total non-interest expense $ 382,538 $ 377,295 $ 5,243 1 % $ 377,295 $ 380,101 $ (2,806) (1) %

Non-interest expense for the year ended December 31, 2022 decreased as compared to the same period in 2021.

The decrease was primarily due to a decrease in professional and legal expenses, a decrease in salary and employee benefits expense, and a decrease in advertising and marketing expense, partially offset by a decrease in capitalized loan origination costs.

Salary and employee benefits expenses decreased for the year ended December 31, 2022, compared to the prior year, primarily reflecting a reduction in staffing, partially offset by increases in salaries.

Capitalized loan origination costs decreased for the year ended December 31, 2022, compared to the prior year, primarily due to decreases in production of one- to four-family residential and construction loans and the origination of SBA PPP loans during 2021.

Information and computer data services expenses increased for the year ended December 31, 2022, compared to 2021, primarily due to an increase in computer software expenses.

Professional and legal expense decreased for the year ended December 31, 2022 from the year ended December 31, 2021, primarily due to a decrease in consulting expense.

Advertising and marketing expenses decreased for the year ended December 31, 2022 from the year ended December 31, 2021, primarily due to a reduction in direct mail marketing expenses.

Deposit insurance expense increased for the year ended December 31, 2022, compared to the same period in 2021, due to an increase in our assessment rate during the second quarter of 2022.

For the year ended December 31, 2022, the Company recognized a $793,000 loss on extinguishment of debt as a result of the redemption of $50.5 million of junior subordinated debentures during the year, compared to a $2.3 million loss on extinguishment of debt as a result of the redemption of $8.2 million of junior subordinated debentures during the year ended December 31, 2021.

Non-interest expense for the year ended December 31, 2023, increased as compared to the same period in 2022.

The increase was primarily due to an increase in salary and employee benefits, a decrease in capitalized loan origination costs, and increases in information and computer data services and deposit insurance, partially offset by decreases in occupancy and equipment, professional and legal expenses, and amortization of core deposit intangibles.

Salary and employee benefits increased for the year ended December 31, 2023, compared to the prior year, primarily reflecting normal annual salary and wage increases, partially offset by decreases in loan production related commission expense.

Capitalized loan origination costs decreased primarily due to decreased loan production.

Information and computer data services increased primarily due to an increase in computer software expenses.

Deposit insurance expense increased due to an increase in the FDIC assessment rate in 2023.

Occupancy and equipment decreased for the year ended December 31, 2023, compared to the prior year, primarily due to a reduction in building rent expense during the current year as a result of the consolidation of back-office space.

Professional and legal expense decreased for the year ended December 31, 2023, from the year ended December 31, 2022, primarily due to a $3.5 million accrual recorded in the prior year related to a potential settlement of a pending litigation matter.

Income Taxes.

6 unchanged sentences

Our financial condition and operations are influenced significantly by general economic conditions, including the absolute level of interest rates as well as changes in interest rates and the slope of the yield curve.

Our profitability is dependent to a large extent on our net interest income, which is the difference between the interest received from our interest-earning assets and the interest expense incurred on our interest-bearing liabilities.

Our activities, like all financial institutions, inherently involve the assumption of interest rate risk.

Interest rate risk is the risk that changes in market interest rates will have an adverse impact on the institution’s earnings and underlying economic value.

Our profitability depends, to a large extent, on our net interest income, which is the difference between the interest received from our interest-earning assets and the interest expense incurred on our interest-bearing liabilities.

Our activities, like those of all financial institutions, inherently involve the assumption of interest rate risk.

Interest rate risk is the risk that fluctuations in market interest rates will have an adverse impact on the institution’s earnings and underlying economic value.

Interest rate risk is determined by the maturity and repricing characteristics of an institution’s assets, liabilities and off-balance-sheet contracts.

3 unchanged sentences

This mismatch or gap is generally characterized by a substantially shorter maturity structure for interest-bearing liabilities than interest-earning assets, although our floating-rate assets tend to be more immediately responsive to changes in market rates than most deposit liabilities.

Additional interest rate risk results from mismatched repricing indices and formula (basis risk and yield curve risk), and product caps and floors and early repayment or withdrawal provisions (option risk), which may be contractual or market driven, that are generally more favorable to clients than to us.

Additional interest rate risk results from mismatched repricing indices (basis risk and yield curve risk), and product caps and floors and early repayment or withdrawal provisions (option risk), which may be contractual or market driven, that are generally more favorable to clients than to us.

An exception to this generalization is the beneficial effect of interest rate floors on a portion of our performing floating-rate loans, which help us maintain higher loan yields in periods when market interest rates decline significantly.

5 unchanged sentences

to evaluate the interest rate risk exposure;

to determine the level of risk appropriate given our operating environment, business plan strategies, performance objectives, capital and liquidity constraints, and asset and liability allocation alternatives;

to determine the appropriate level of risk given our operating environment, business plan strategies, performance objectives, capital and liquidity constraints, and asset and liability allocation alternatives;

and to manage our interest rate risk consistent with regulatory guidelines and policies approved by the Board of Directors.

12 unchanged sentences

Nonetheless, the interest rate sensitivity of our net interest income and net economic value of equity could vary substantially if different assumptions were used or if actual experience differs from the assumptions used.

The following table sets forth as of December 31, 2022, the estimated changes in our net interest income over one-year and two-year time horizons and the estimated changes in economic value of equity based on the indicated interest rate environments (dollars in thousands):

Interest Rate Risk Indicators

The following tables set forth, as of December 31, 2023, the estimated changes in our net interest income over one-year and two-year time horizons for our rate ramp and rate shock interest rate sensitivity scenarios and the estimated changes in economic value of equity for our rate shock interest rate sensitivity scenario based on the indicated interest rate environments (dollars in thousands):

Interest Rate Risk Indicators - Rate Ramp

December 31, 2023

1 unchanged sentence

Change (in Basis Points) in Interest Rates (1)

Net Interest Income Next 12 Months Net Interest Income Next 24 Months

+300 $ (9,183) (1.6) % $ (24,249) (2.0) %

+200 (2,847) (0.5) (437) —

+100 219 — 7,683 0.6

-100 (7,791) (1.4) (37,550) (3.1)

-200 (15,662) (2.8) (78,302) (6.6)

-300 (23,933) (4.2) (123,593) (10.3)

(1) Assumes a gradual change in market interest rates at all maturities during the first year;

however, no rates are allowed to go below zero.

The targeted Federal Funds Rate was between 5.25% and 5.50% at December 31, 2023.

Interest Rate Risk Indicators - Rate Shock

December 31, 2023

Estimated Increase (Decrease) in

Change (in Basis Points) in Interest Rates (1)

Net Interest Income Next 12 Months Net Interest Income Next 24 Months Economic Value of Equity

5 unchanged sentences

-200 (41,167) (7.3) (119,813) (10.0) (35,179) (1.3)

-300 (65,228) (11.5) (192,740) (16.1) (184,604) (7.1)

(1) Assumes an instantaneous and sustained uniform change in market interest rates at all maturities;

1 unchanged sentence

The targeted Federal Funds Rate was between 5.25% and 5.50% at December 31, 2023.

Another (although less reliable) monitoring tool for assessing interest rate risk is gap analysis.

Another monitoring tool for assessing interest rate risk is gap analysis.

The matching of the repricing characteristics of assets and liabilities may be analyzed by examining the extent to which assets and liabilities are interest sensitive and by monitoring an institution’s interest sensitivity gap.

14 unchanged sentences

At December 31, 2023, total interest-earning assets maturing or repricing within one year exceeded total interest-bearing liabilities maturing or repricing in the same time period by $2.10 billion, representing a one-year cumulative gap to total assets ratio of 13.40%.

The interest rate risk indicators and interest sensitivity gaps as of December 31, 2023, are within our internal policy guidelines and Management considers that our current level of interest rate risk is reasonable.

The following table provides a GAP analysis as of December 31, 2023 (dollars in thousands):

40 unchanged sentences

For the purpose of the gap analysis, these accounts have been assigned decay rates to reflect their longer effective maturities.

If all of these accounts had been assumed to be short-term, the one-year cumulative gap of interest-sensitive assets would have been $(2.54) billion, or (16.04)% of total assets at December 31, 2022.

Interest-bearing liabilities for this table exclude certain non-interest-bearing deposits that are included in the average balance calculations reflected in Table 13, Analysis of Net Interest Spread.

Management is aware of the sources of interest rate risk and in its opinion actively monitors and manages it to the extent possible.

If these accounts had been assumed to be short-term, the one-year cumulative gap of interest-sensitive assets would have been a negative $3.54 billion, or a negative 22.59% of total assets at December 31, 2023.

Interest-bearing liabilities for this table exclude certain non-interest-bearing deposits that are included in the average balance calculations.

Management is aware of the sources of interest rate risk and actively monitors and manages it to the extent possible.

The Bank’s objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements.

3 unchanged sentences

The net result of these interest rate swaps is that the client pays a fixed rate of interest and the Bank receives a floating rate.

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

The Bank also has 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 Bank making floating-rate payments over the life of the agreements without exchange of the underlying notional amount.

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

Based on our analysis of the interest rate risk scenarios and our strategies for managing our risk, management believes that our current level of interest rate risk is reasonable.

The Bank is a party to $400.0 million in notional value of these types of interest rate swaps at December 31, 2023.

Based on our analysis of the interest rate risk scenarios and our strategies for managing our risk, Management believes our current level of interest rate risk is reasonable.

Liquidity and Capital Resources

2 unchanged sentences

Our primary investing activity is the origination of loans and, in certain periods, the purchase of securities or loans.

During the years ended December 31, 2022 and 2021, our loan originations, including originations of loans held for sale, exceeded our loan repayments by $1.30 billion and $306.8 million, respectively.

During those same periods we purchased loans of $126.6 million and $5.1 million, respectively.

This activity was funded primarily by the reduction in the balance of cash held as interest-bearing deposits.

During the years ended December 31, 2022 and 2021, we received proceeds of $429.7 million and $1.32 billion, respectively, from the sale of loans.

Securities purchased during the years ended December 31, 2022 and 2021 totaled $850.6 million and $2.94 billion, respectively, and securities repayments, maturities and sales in those same periods were $639.4 million and $1.43 billion, respectively.

Our primary financing activity is gathering deposits.

Total deposits decreased by $706.9 million during the year ended December 31, 2022, as core deposits decreased by $591.8 million and certificates of deposit decreased by $115.1 million.

The decrease in total deposits during 2022 reflects the sale of four branches, which included the transfer of $178.2 million of related deposits, as well as an overall decline in market liquidity.

During the years ended December 31, 2023 and 2022, our loan originations, including originations of loans held for sale, exceeded our loan repayments by $886.8 million and $1.30 billion, respectively.

There were no loan purchases during the year ended December 31, 2023, and $126.6 million of loans purchased during the year ended December 31, 2022.

During the years ended December 31, 2023 and 2022, we received proceeds of $280.6 million and $429.7 million, respectively, from the sale of loans.

Securities purchased during the years ended December 31, 2023 and 2022 totaled $58.2 million and $850.6 million, respectively, and securities repayments, maturities and sales in those same periods were $600.4 million and $639.4 million, respectively.

Our primary funding source is deposits.

Total deposits decreased by $590.6 million during the year ended December 31, 2023, with core deposits decreasing $1.34 billion and certificates of deposit increasing $753.9 million.

At December 31, 2023, core deposits totaled $11.55 billion, or 89% of total deposits, compared with $12.90 billion, or 95% of total deposits at December 31, 2022.

Certificates of deposit are generally more vulnerable to competition and more price sensitive than other retail deposits and our pricing of those deposits varies significantly based upon our liquidity management strategies at any point in time.

At December 31, 2022, certificates of deposit totaled $723.5 million, or 5% of our total deposits, including $531.6 million which were scheduled to mature within one year.

Certificates of deposit decreased from 6% of our total deposits at December 31, 2021.

While no assurance can be given as to future periods, historically, we have been able to retain a significant amount of our certificates of deposit as they mature.

We had $50.0 million of FHLB advances at both December 31, 2022 and December 31, 2021.

Other borrowings at December 31, 2022 decreased $31.7 million to $232.8 million following an increase of $79.7 million in 2021.

At December 31, 2023, certificates of deposit totaled $1.48 billion, or 11% of our total deposits, including $1.40 billion which were scheduled to mature within one year.

Certificates of deposit increased from 5% of our total deposits at December 31, 2022 to 11% of our total deposits at December 31, 2023.

The increase in certificates of deposit during 2023 was due to clients seeking higher yields moving funds from core deposit accounts to higher yielding certificates of deposit, as well as a $108.1 million increase in brokered deposits.

We had $323.0 million of FHLB advances at December 31, 2023, compared to $50.0 million at December 31, 2022.

Other borrowings at December 31, 2023 decreased $49.9 million to $182.9 million from $232.8 million at December 31, 2022.

Both the FHLB advances and other borrowings outstanding at December 31, 2023 mature during 2024.

We must maintain an adequate level of liquidity to ensure the availability of sufficient funds to accommodate deposit withdrawals, to support loan growth, to satisfy financial commitments and to take advantage of investment opportunities.

During the years ended December 31, 2022 and 2021, we used our sources of funds primarily to fund loan commitments and purchase securities.

We must maintain an adequate level of liquidity to ensure the availability of sufficient funds to accommodate deposit withdrawals.

This is to support loan growth, satisfy financial commitments and take advantage of investment opportunities.

We use our sources of funds primarily to fund loan growth and deposit outflows.

At December 31, 2023, we had outstanding loan commitments totaling $4.01 billion, primarily relating to undisbursed loans in process and unused credit lines.

While representing potential growth in the loan portfolio and lending activities, this level of commitments is proportionally consistent with our historical experience and does not represent a departure from normal operations.

For the year ended December 31, 2023, we have $20.6 million of purchase obligations under contracts with our key vendors to provide services, mainly information technology related contracts.

In addition, for the year ended December 31, 2023, we have $14.4 million of commitments under operating lease agreements.

For the year ending December 31, 2024, we have $17.9 million of purchase obligations under contracts with our key vendors to provide services, mainly information technology related contracts.

In addition, at December 31, 2023, we had $14.6 million of commitments under operating lease agreements.

We generally maintain sufficient cash and readily marketable securities to meet short-term liquidity needs;

however, our primary liquidity management practice to supplement deposits is to increase or decrease short-term borrowings, including FHLB advances and Federal Reserve Bank of San Francisco (FRBSF) borrowings.

We maintain credit facilities with the FHLB, which provided for advances that in the aggregate would equal the lesser of 45% of the Bank’s assets or adjusted qualifying collateral (subject to a sufficient level of ownership of FHLB stock).

We maintain credit facilities with the FHLB, subject to collateral requirements and a sufficient level of ownership of FHLB stock.

At December 31, 2023, under these credit facilities based on pledged collateral, the Bank had $2.97 billion of available credit capacity.

2 unchanged sentences

Under this program, based on pledged collateral, the Bank had available lines of credit of approximately $1.44 billion as of December 31, 2023, subject to certain collateral requirements, namely the collateral type and risk rating of eligible pledged loans.

The Bank also had $120.4 million of additional borrowing capacity through the FRBSF’s bank term funding program.

We had no funds borrowed from the FRBSF at December 31, 2023 or 2022.

8 unchanged sentences

Our current quarterly common stock dividend rate is $0.48 per share, as approved by our Board of Directors, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank, and returning a substantial portion of our cash to our shareholders.

Assuming continued payment during 2023 at this rate of $0.48 per share, our average total dividend paid each quarter would be approximately $16.4 million based on the number of outstanding shares at December 31, 2022.

Assuming continued dividend payments during 2024 at this rate of $0.48 per share, our average total dividend paid each quarter would be approximately $16.5 million based on the number of outstanding shares at December 31, 2023.

At December 31, 2023, Banner (on an unconsolidated basis) had liquid assets of $108.5 million.

During the year ended December 31, 2022, total shareholders’ equity decreased $233.9 million to $1.46 billion.

At December 31, 2022, tangible common shareholders’ equity, which excludes goodwill and other intangible assets, was $1.07 billion, or 6.95% of tangible assets.

See “Executive Overview” above for a reconciliation of total shareholders’ equity to tangible common shareholders’ equity, which is a non-GAAP financial measure.

During the year ended December 31, 2023, total shareholders’ equity increased $196.3 million to $1.65 billion.

At December 31, 2023, tangible common shareholders’ equity, a non-GAAP financial measure which excludes goodwill and other intangible assets, was $1.27 billion, or 8.33% of tangible assets.

See “Executive Overview - Non-GAAP Financial Measures” above for a reconciliation of total shareholders’ equity to tangible common shareholders’ equity.

Capital Requirements

1 unchanged sentence

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.

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

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

The capital adequacy requirements are quantitative measures established by regulation that require Banner and the Bank to maintain minimum amounts and ratios of capital.

17 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis