BANNER CORP 10-Q

ITEM 1 - Financial Statements (unaudited) BANNER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) (In thousands, except shares and per share amounts) September 30, 2024 and December 31, 2023 ASSETS September 30, 2024 December 31, 2023 Cash and due from banks $ 226,568 $ 209,634 Interest-bearing deposits 252,227 44,830 Total cash and cash equivalents 478,795 254,464 Securities—available-for-sale, amortized cost $ 2,523,968 and $ 2,729,980 , respectively 2,237,939 2,373,783 Securities—held-to-maturity, net of allowance for credit losses of $ 307 and $ 332 , respectively 1,013,903 1,059,055 Total securities 3,251,842 3,432,838 Federal Home Loan Bank (FHLB) stock 19,751 24,028 Loans held for sale (includes $ 21,984 and $ 9,105 , at fair value, respectively) 78,841 11,170 Loans receivable 11,224,606 10,810,455 Allowance for credit losses – loans ( 154,585 ) ( 149,643 ) Net loans receivable 11,070,021 10,660,812 Accrued interest receivable 66,981 63,100 Property and equipment, net 125,256 132,231 Goodwill 373,121 373,121 Other intangibles, net 3,647 5,684 Bank-owned life insurance (BOLI) 310,400 304,366 Deferred tax assets, net 130,310 153,365 Operating lease right-of-use assets 38,192 43,731 Other assets 241,519 211,481 Total assets $ 16,188,676 $ 15,670,391 LIABILITIES Deposits: Non-interest-bearing $ 4,688,244 $ 4,792,369 Interest-bearing transaction and savings accounts 7,328,051 6,759,661 Interest-bearing certificates 1,521,853 1,477,467 Total deposits 13,538,148 13,029,497 Advances from FHLB 230,000 323,000 Other borrowings 154,533 182,877 Subordinated notes, net 80,170 92,851 Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities) 66,257 66,413 Operating lease liabilities 42,318 48,659 Accrued expenses and other liabilities 237,128 228,428 Deferred compensation 46,401 45,975 Total liabilities 14,394,955 14,017,700 COMMITMENTS AND CONTINGENCIES (Note 11) SHAREHOLDERS’ EQUITY Preferred stock - $ 0.01 par value per share, 500,000 shares authorized; no shares outstanding at September 30, 2024 and December 31, 2023 — — Common stock and paid in capital - $ 0.01 par value per share, 50,000,000 shares authorized; 34,456,688 shares issued and outstanding at September 30, 2024; 34,348,369 shares issued and outstanding at December 31, 2023 1,304,792 1,299,651 Common stock (non-voting) and paid in capital - $ 0.01 par value per share, 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2024; no shares issued and outstanding at December 31, 2023 — — Retained earnings 714,472 642,175 Carrying value of shares held in trust for stock-based compensation plans ( 6,195 ) ( 6,563 ) Liability for common stock issued to stock related compensation plans 6,195 6,563 Accumulated other comprehensive loss ( 225,543 ) ( 289,135 ) Total shareholders’ equity 1,793,721 1,652,691 Total liabilities and shareholders’ equity $ 16,188,676 $ 15,670,391 See Selected Notes to the Consolidated Financial Statements 4 Table of Contents BANNER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except shares and per share amounts) For the Three and Nine Months Ended September 30, 2024 and 2023 Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 INTEREST INCOME: Loans receivable $ 168,338 $ 149,254 $ 486,004 $ 423,359 Mortgage-backed securities 16,357 17,691 49,999 54,954 Securities and cash equivalents 11,146 12,119 33,664 39,521 Total interest income 195,841 179,064 569,667 517,834 INTEREST EXPENSE: Deposits 53,785 31,001 147,248 60,784 FHLB advances 2,263 2,233 8,856 8,654 Other borrowings 1,147 1,099 3,482 2,251 Subordinated debt 2,971 2,965 8,901 8,549 Total interest expense 60,166 37,298 168,487 80,238 Net interest income 135,675 141,766 401,180 437,596 PROVISION FOR CREDIT LOSSES 1,692 2,027 4,581 8,267 Net interest income after provision for credit losses 133,983 139,739 396,599 429,329 NON-INTEREST INCOME: Deposit fees and other service charges 10,741 10,916 32,353 32,078 Mortgage banking operations 3,180 2,049 8,521 6,426 BOLI 2,445 2,062 7,049 6,636 Miscellaneous 1,658 942 5,538 4,010 18,024 15,969 53,461 49,150 Net loss on sale of securities — ( 2,657 ) ( 5,465 ) ( 14,436 ) Net change in valuation of financial instruments carried at fair value 39 ( 654 ) ( 1,143 ) ( 4,357 ) Total non-interest income 18,063 12,658 46,853 30,357 NON-INTEREST EXPENSE: Salary and employee benefits 61,832 61,091 188,032 184,452 Less capitalized loan origination costs ( 4,354 ) ( 4,498 ) ( 12,669 ) ( 12,386 ) Occupancy and equipment 12,040 11,722 36,630 35,686 Information and computer data services 7,134 7,118 21,694 21,347 Payment and card processing services 5,346 5,172 16,747 14,459 Professional and legal expenses 2,102 3,042 4,833 7,563 Advertising and marketing 1,161 1,362 3,438 3,108 Deposit insurance 2,874 2,874 8,541 7,603 State and municipal business and use taxes 1,432 1,359 4,130 3,888 Real estate operations, net 103 ( 383 ) 180 ( 585 ) Amortization of core deposit intangibles 590 857 2,037 2,898 Miscellaneous 6,031 6,175 18,467 17,884 Total non-interest expense 96,291 95,891 292,060 285,917 Income before provision for income taxes 55,755 56,506 151,392 173,769 PROVISION FOR INCOME TAXES 10,602 10,652 28,885 32,769 NET INCOME $ 45,153 $ 45,854 $ 122,507 $ 141,000 Earnings per common share: Basic $ 1.31 $ 1.33 $ 3.56 $ 4.11 Diluted $ 1.30 $ 1.33 $ 3.54 $ 4.09 Cumulative dividends declared per common share $ 0.48 $ 0.48 $ 1.44 $ 1.44 Weighted average number of common shares outstanding: Basic 34,498,830 34,379,865 34,459,662 34,331,458 Diluted 34,650,322 34,429,726 34,575,498 34,439,214 See Selected Notes to the Consolidated Financial Statements 5 Table of Contents BANNER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (In thousands) For the Three and Nine Months Ended September 30, 2024 and 2023 Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 NET INCOME $ 45,153 $ 45,854 $ 122,507 $ 141,000 OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAXES: Unrealized holding gain (loss) on securities—available-for-sale arising during the period 88,822 ( 76,417 ) 64,703 ( 71,669 ) Income tax (expense) benefit related to securities—available-for-sale unrealized holding losses ( 21,318 ) 18,341 ( 15,529 ) 17,201 Reclassification for net loss on securities—available-for-sale realized in earnings — 2,657 5,465 14,436 Income tax benefit related to securities—available-for-sale realized in earnings — ( 638 ) ( 1,312 ) ( 3,465 ) Reclassification of (recapture of) provision for credit losses on securities—available-for-sale realized in earnings — ( 1,250 ) — 750 Income tax benefit (expense) related to the reclassification of (recapture) provision for credit losses on securities—available-for-sale realized in earnings — 300 — ( 180 ) Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity 603 617 1,717 1,773 Income tax expense related to amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity ( 145 ) ( 150 ) ( 412 ) ( 426 ) Net unrealized gain on interest rate swaps used in cash flow hedges 4,746 3,090 11,633 6,472 Income tax expense related to interest rate swaps used in cash flow hedges ( 1,139 ) ( 741 ) ( 2,792 ) ( 1,553 ) Changes in fair value of junior subordinated debentures related to instrument specific credit risk 574 953 156 8,573 Income tax expense related to junior subordinated debentures ( 137 ) ( 229 ) ( 37 ) ( 2,058 ) Other comprehensive income (loss) 72,006 ( 53,467 ) 63,592 ( 30,146 ) COMPREHENSIVE INCOME (LOSS) $ 117,159 $ ( 7,613 ) $ 186,099 $ 110,854 See Selected Notes to the Consolidated Financial Statements 6 Table of Contents BANNER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) (In thousands, except shares and per share amounts) For the Nine Months Ended September 30, 2024 and the Year Ended December 31, 2023 Common Stock and Paid in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Total Shareholders’ Equity Shares Amount Balance, January 1, 2023 34,194,018 $ 1,293,959 $ 525,242 $ ( 362,769 ) $ 1,456,432 Net income 55,555 55,555 Other comprehensive income, net of income tax 37,133 37,133 Accrual of dividends on common stock ($ 0.48 /share) ( 16,691 ) ( 16,691 ) Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 114,522 ( 734 ) ( 734 ) Balance, March 31, 2023 34,308,540 1,293,225 564,106 ( 325,636 ) 1,531,695 Net income 39,591 39,591 Other comprehensive loss, net of income tax ( 13,812 ) ( 13,812 ) Accrual of dividends on common stock ($ 0.48 /share) ( 16,670 ) ( 16,670 ) Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 36,087 1,709 1,709 Balance, June 30, 2023 34,344,627 1,294,934 587,027 ( 339,448 ) 1,542,513 Net income 45,854 45,854 Other comprehensive loss, net of income tax ( 53,467 ) ( 53,467 ) Accrual of dividends on common stock ($ 0.48 /share) ( 16,666 ) ( 16,666 ) Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 1,322 2,373 2,373 Balance, September 30, 2023 34,345,949 1,297,307 616,215 ( 392,915 ) 1,520,607 Net income 42,624 42,624 Other comprehensive income, net of income tax 103,780 103,780 Accrual of dividends on common stock ($ 0.48 /share) ( 16,664 ) ( 16,664 ) Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 2,420 2,344 2,344 Balance, December 31, 2023 34,348,369 $ 1,299,651 $ 642,175 $ ( 289,135 ) $ 1,652,691 Balance, January 1, 2024 34,348,369 $ 1,299,651 $ 642,175 $ ( 289,135 ) $ 1,652,691 Net income 37,559 37,559 Other comprehensive loss, net of income tax ( 10,347 ) ( 10,347 ) Accrual of dividends on common stock ($ 0.48 /share) ( 16,713 ) ( 16,713 ) Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 46,852 1,318 1,318 Balance, March 31, 2024 34,395,221 1,300,969 663,021 ( 299,482 ) 1,664,508 Net income 39,795 39,795 Other comprehensive income, net of income tax 1,933 1,933 Accrual of dividends on common stock ($ 0.48 /share) ( 16,737 ) ( 16,737 ) Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 60,531 1,267 1,267 Balance, June 30, 2024 34,455,752 $ 1,302,236 $ 686,079 $ ( 297,549 ) $ 1,690,766 Net income 45,153 45,153 Other comprehensive income, net of income tax 72,006 72,006 Accrual of dividends on common stock ($ 0.48 /share) ( 16,760 ) ( 16,760 ) Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 936 2,556 2,556 Balance, September 30, 2024 34,456,688 $ 1,304,792 $ 714,472 $ ( 225,543 ) $ 1,793,721 See Selected Notes to the Consolidated Financial Statements 7 Table of Contents BANNER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) For the Nine Months Ended September 30, 2024 and 2023 Nine Months Ended September 30, 2024 2023 OPERATING ACTIVITIES: Net income $ 122,507 $ 141,000 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation 13,615 13,314 Deferred income and expense, net of amortization ( 5,834 ) ( 2,490 ) Capitalized loan servicing rights, net of amortization 1,211 1,520 Amortization of core deposit intangibles 2,037 2,898 Loss on sale of securities, net 5,465 14,436 Net change in valuation of financial instruments carried at fair value 1,143 4,357 Decrease in deferred taxes 2,973 877 Increase (decrease) in current taxes payable/receivable, net 4,967 ( 3,370 ) Stock-based compensation 7,234 6,785 Net change in cash surrender value of BOLI ( 6,888 ) ( 6,357 ) Gain on sale of loans, excluding capitalized servicing rights ( 4,212 ) ( 2,277 ) Gain on disposal of real estate held for sale and property and equipment, net ( 319 ) ( 442 ) Provision for credit losses 4,581 8,267 Origination of loans held for sale ( 197,741 ) ( 187,077 ) Proceeds from sales of loans held for sale 260,192 200,525 Net change in: Other assets ( 14,137 ) ( 21,602 ) Other liabilities ( 2,887 ) 19,188 Net cash provided from operating activities 193,907 189,552 INVESTING ACTIVITIES: Purchases of securities—available-for-sale ( 53,170 ) ( 54,192 ) Principal repayments and maturities of securities—available-for-sale 168,360 138,402 Proceeds from sales of securities—available-for-sale 70,777 334,937 Principal repayments and maturities of securities—held-to-maturity 45,280 35,329 Loan originations, net of repayments ( 547,162 ) ( 479,482 ) Purchases of loans and participating interest in loans ( 4,666 ) — Proceeds from sales of other loans 16,622 11,519 Purchases of property and equipment ( 9,953 ) ( 11,626 ) Proceeds from sale of real estate held for sale and sale of other property 4,323 1,019 Proceeds from FHLB stock repurchase program 129,062 119,840 Purchase of FHLB stock ( 124,785 ) ( 123,440 ) Proceeds from maturity of securities purchased under agreements to resell — 300,000 Investment in bank-owned life insurance ( 41 ) ( 66 ) Other 732 419 Net cash (used by) provided from investing activities ( 304,621 ) 272,659 Continued on next page 8 Table of Contents BANNER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) (In thousands) For the Nine Months Ended September 30, 2024 and 2023 Nine Months Ended September 30, 2024 2023 FINANCING ACTIVITIES: Increase (decrease) in deposits, net $ 508,651 $ ( 445,507 ) (Repayment) advances of overnight and short term FHLB advances, net ( 93,000 ) 90,000 Decrease in other borrowings, net ( 28,344 ) ( 44,360 ) Cash dividends paid ( 50,169 ) ( 50,263 ) Taxes paid related to net share settlement of equity awards ( 2,093 ) ( 3,437 ) Net cash provided from (used by) financing activities 335,045 ( 453,567 ) NET CHANGE IN CASH AND CASH EQUIVALENTS 224,331 8,644 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 254,464 243,062 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 478,795 $ 251,706 Nine Months Ended September 30, 2024 2023 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid in cash $ 166,843 $ 66,461 Tax paid 13,376 29,931 NON-CASH INVESTING AND FINANCING TRANSACTIONS: Transfer of loans to real estate owned and other repossessed assets 2,386 205 Dividends accrued but not paid until after period end 1,125 921 Loans, held-for-sale, transferred from portfolio ( 125,909 ) ( 8,472 ) See Selected Notes to the Consolidated Financial Statements 9 Table of Contents BANNER CORPORATION AND SUBSIDIARIES SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements include the accounts of Banner Corporation (the Company or Banner), a bank holding company incorporated in the State of Washington and its wholly-owned subsidiary, Banner Bank (the Bank). These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (SEC). In preparing these financial statements, the Company has evaluated events and transactions subsequent to September 30, 2024, for potential recognition or disclosure. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and note disclosures have been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements. All significant intercompany transactions and balances have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. The information included in this Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Interim results are not necessarily indicative of results for a full year or any other interim period. Note 2: ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED Compensation—Stock Compensation (Topic 718) In March 2024, the Financial Accounting Standards Board (FASB) issued guidance within Accounting Standards Update (ASU) 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards . The amendments in the ASU apply to companies that provide employees and non-employees with profits interest and similar awards to align compensation with the company’s operating performance and provide those holders with the opportunity to participate in future profits and/or equity appreciation of the company. The purpose of the ASU is to clarify the application of the scope guidance in Accounting Standards Codification (ASC) paragraph 718-10-15-3 in determining if a profit interest award should be accounted for in accordance with Topic 718: Compensation—Stock Compensation. The amendment in ASC paragraph 718-10-15-3 is solely intended to improve the overall clarity and does not change the guidance. The ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. If the Company adopts the amendments in an interim period, it should adopt them as of the beginning of the annual period that includes the interim period. The amendments should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) on a prospective basis. The Company has evaluated this ASU and does not expect the adoption to have a material impact on the Company’s Consolidated Financial Statements, as the Company does not typically provide these types of awards. Income Taxes (Topic 740) In December 2023, the FASB issued guidance within ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amendments in the ASU are intended to provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The ASU requires disclosure in the rate reconciliation of specific categories as well as additional information for reconciling items that meet a quantitative threshold. The ASU requires disclosure of the following information about income taxes paid on an annual basis: • Income taxes paid (net of refunds received), disaggregated by federal and state taxes and by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received). • Income tax expense (or benefit) from continuing operations disaggregated by federal and state jurisdictions. The ASU is effective for annual periods beginning after December 15, 2024. The amendments should be applied on a prospective basis. The Company is evaluating the adoption of this ASU, as it will require additional disclosures in the notes to our Consolidated Financial Statements. 10 Table of Contents Segment Reporting (Topic 280) In November 2023, the FASB issued guidance within ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . This ASU requires that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU and all existing disclosures in Topic 280. The Company has determined that its current business and operations consist of a single business segment and a single reporting unit. The amendments in this ASU are intended to improve segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The key amendments included in this ASU: • Require disclosure on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and are included within each reported measure of segment profit and loss. • Require disclosure on an annual and interim basis, an amount for other segment items (defined in the ASU) and a description of its composition. • Clarify that if the CODM uses more than one measure of the segment’s profit or loss in assessing performance, one or more of those additional measures may be reported. • Require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing performance. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact on the Company’s Consolidated Financial Statements as the Company has a single reportable segment. Note 3: SECURITIES The amortized cost, gross unrealized gains and losses and estimated fair value of securities at September 30, 2024 and December 31, 2023 are summarized as follows (in thousands): September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-Sale: U.S. Government and agency obligations $ 8,897 $ — $ ( 412 ) $ 8,485 Municipal bonds 154,029 1,266 ( 25,159 ) 130,136 Corporate bonds 131,354 — ( 8,073 ) 123,281 Mortgage-backed or related securities 2,030,089 1,872 ( 255,764 ) 1,776,197 Asset-backed securities 199,599 242 ( 1 ) 199,840 $ 2,523,968 $ 3,380 $ ( 289,409 ) $ 2,237,939 September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Allowance for Credit Losses Held-to-Maturity: U.S. Government and agency obligations $ 304 $ 1 $ ( 4 ) $ 301 $ — Municipal bonds 443,074 126 ( 49,814 ) 393,238 ( 148 ) Corporate bonds 2,689 — ( 8 ) 2,522 ( 159 ) Mortgage-backed or related securities 568,143 — ( 84,926 ) 483,217 — $ 1,014,210 $ 127 $ ( 134,752 ) $ 879,278 $ ( 307 ) 11 Table of Contents December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-Sale: U.S. Government and agency obligations $ 34,929 $ — $ ( 740 ) $ 34,189 Municipal bonds 161,264 832 ( 29,191 ) 132,905 Corporate bonds 131,291 — ( 12,168 ) 119,123 Mortgage-backed or related securities 2,179,947 942 ( 314,175 ) 1,866,714 Asset-backed securities 222,549 300 ( 1,997 ) 220,852 $ 2,729,980 $ 2,074 $ ( 358,271 ) $ 2,373,783 December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Allowance for Credit Losses Held-to-Maturity: U.S. Government and agency obligations $ 307 $ — $ ( 5 ) $ 302 $ — Municipal bonds 466,032 687 ( 53,563 ) 412,999 ( 157 ) Corporate bonds 2,781 — ( 20 ) 2,586 ( 175 ) Mortgage-backed or related securities 590,267 — ( 98,640 ) 491,627 — $ 1,059,387 $ 687 $ ( 152,228 ) $ 907,514 $ ( 332 ) Accrued interest receivable on held-to-maturity debt securities was $ 3.8 million and $ 4.5 million at September 30, 2024 and December 31, 2023, and was $ 10.1 million and $ 10.8 million on available-for-sale debt securities at September 30, 2024 and December 31, 2023, respectively. Accrued interest receivable on securities is reported in accrued interest receivable on the Consolidated Statements of Financial Condition and is excluded from the calculation of the allowance for credit losses. At September 30, 2024 and December 31, 2023, the gross unrealized losses and the fair value for securities available-for-sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position were as follows (in thousands): September 30, 2024 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available-for-Sale: U.S. Government and agency obligations $ — $ — $ 8,485 $ ( 412 ) $ 8,485 $ ( 412 ) Municipal bonds — — 96,234 ( 25,159 ) 96,234 ( 25,159 ) Corporate bonds 12,227 ( 178 ) 111,053 ( 7,895 ) 123,280 ( 8,073 ) Mortgage-backed or related securities — — 1,647,906 ( 255,764 ) 1,647,906 ( 255,764 ) Asset-backed securities 20,000 ( 1 ) — — 20,000 ( 1 ) $ 32,227 $ ( 179 ) $ 1,863,678 $ ( 289,230 ) $ 1,895,905 $ ( 289,409 ) 12 Table of Contents December 31, 2023 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available-for-Sale: U.S. Government and agency obligations $ — $ — $ 34,189 $ ( 740 ) $ 34,189 $ ( 740 ) Municipal bonds 6,049 ( 7 ) 103,511 ( 29,184 ) 109,560 ( 29,191 ) Corporate bonds 15,720 ( 46 ) 106,852 ( 12,122 ) 122,572 ( 12,168 ) Mortgage-backed or related securities 71,150 ( 212 ) 1,712,125 ( 313,963 ) 1,783,275 ( 314,175 ) Asset-backed securities 115,162 ( 1,212 ) 85,840 ( 785 ) 201,002 ( 1,997 ) $ 208,081 $ ( 1,477 ) $ 2,042,517 $ ( 356,794 ) $ 2,250,598 $ ( 358,271 ) At September 30, 2024, there were 194 securities—available-for-sale with unrealized losses, compared to 224 at December 31, 2023. Management does not believe that any remaining individual unrealized loss as of September 30, 2024 or December 31, 2023 resulted from credit loss. The decline in fair market value of these securities was generally due to changes in interest rates and changes in market-desired spreads subsequent to their purchase. There were no securities—available-for-sale in a nonaccrual status at September 30, 2024 or December 31, 2023. The following table presents gross gains and losses on sales and partial calls of securities available-for-sale (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Available-for-Sale: Gross Gains $ — $ — $ 37 $ 377 Gross Losses — ( 2,657 ) ( 5,502 ) ( 14,813 ) Balance, end of the period $ — $ ( 2,657 ) $ ( 5,465 ) $ ( 14,436 ) The following table presents the amortized cost and estimated fair value of securities at September 30, 2024, by contractual maturity and does not reflect any required periodic payments (in thousands). Expected maturities will differ from contractual maturities because some securities may be called or prepaid with or without call or prepayment penalties. September 30, 2024 Available-for-Sale Held-to-Maturity Amortized Cost Fair Value Amortized Cost Fair Value Maturing within one year $ 6,144 $ 6,059 $ 5,511 $ 5,310 Maturing after one year through five years 124,382 120,485 15,271 15,186 Maturing after five years through ten years 437,813 405,679 29,559 28,651 Maturing after ten years 1,955,629 1,705,716 963,869 830,131 $ 2,523,968 $ 2,237,939 $ 1,014,210 $ 879,278 The following table presents, as of September 30, 2024, investment securities which were pledged to secure borrowings, public deposits or other obligations as permitted or required by law (in thousands): September 30, 2024 Carrying Value Amortized Cost Fair Value Purpose or beneficiary: State and local governments public deposits $ 276,380 $ 288,392 $ 252,146 Interest rate swap counterparties 962 962 827 Repurchase transaction accounts 218,747 218,747 184,864 Other 2,301 2,301 2,173 Total pledged securities $ 498,390 $ 510,402 $ 440,010 13 Table of Contents The Company monitors the credit quality of held-to-maturity debt securities through the use of credit ratings which are reviewed and updated quarterly. The Company’s non-rated held-to-maturity debt securities are primarily United States government sponsored enterprise debentures carrying minimal to no credit risk. The non-rated corporate bonds primarily consist of Community Reinvestment Act related bonds secured by loan instruments from low to moderate income borrowers. The remaining non-rated held-to-maturity debt securities balance is comprised of local municipal debt from within the Company’s geographic footprint and is monitored through quarterly or annual financial review. This municipal debt is predominately essential service or unlimited general obligation backed debt. The following tables summarize the amortized cost of held-to-maturity debt securities by credit rating at September 30, 2024 and December 31, 2023 (in thousands): September 30, 2024 U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total AAA/AA/A $ — $ 434,476 $ 500 $ 16,280 $ 451,256 Not Rated 304 8,598 2,189 551,863 562,954 $ 304 $ 443,074 $ 2,689 $ 568,143 $ 1,014,210 December 31, 2023 U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total AAA/AA/A $ — $ 456,999 $ 500 $ 16,459 $ 473,958 Not Rated 307 9,033 2,281 573,808 585,429 $ 307 $ 466,032 $ 2,781 $ 590,267 $ 1,059,387 We had no allowance for credit losses for securities available-for-sale during three and nine months ended September 30, 2024. The following tables present the activity in the allowance for credit losses for securities available-for-sale by major type for the three and nine months ended September 30, 2023 (in thousands). For the Three Months Ended September 30, 2023 U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total Allowance for credit losses – securities available-for-sale Beginning balance $ — $ — $ 2,000 $ — $ 2,000 Recapture of provision for credit losses — — (1,250) — (1,250) Ending balance $ — $ — $ 750 $ — $ 750 For the Nine Months Ended September 30, 2023 U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total Allowance for credit losses – securities available-for-sale Beginning balance $ — $ — $ — $ — $ — Provision for credit losses — — 750 — 750 Ending balance $ — $ — $ 750 $ — $ 750 14 Table of Contents Note 4: LOANS RECEIVABLE AND THE ALLOWANCE FOR CREDIT LOSSES - LOANS The following table presents the loans receivable at September 30, 2024 and December 31, 2023 by class (dollars in thousands). September 30, 2024 December 31, 2023 Amount Percent of Total Amount Percent of Total Commercial real estate: Owner-occupied $ 990,516 9 % $ 915,897 8 % Investment properties 1,583,863 14 1,541,344 14 Small balance CRE 1,218,822 11 1,178,500 11 Multifamily real estate 889,866 8 811,232 8 Construction, land and land development: Commercial construction 124,051 1 170,011 2 Multifamily construction 524,108 5 503,993 5 One- to four-family construction 507,350 5 526,432 5 Land and land development 370,690 3 336,639 3 Commercial business: Commercial business 1,281,615 11 1,255,734 12 Small business scored 1,087,714 10 1,022,154 9 Agricultural business, including secured by farmland 346,686 3 331,089 3 One- to four-family residential 1,575,164 14 1,518,046 14 Consumer: Consumer—home equity revolving lines of credit 622,615 5 588,703 5 Consumer—other 101,546 1 110,681 1 Total loans 11,224,606 100 % 10,810,455 100 % Less allowance for credit losses – loans ( 154,585 ) ( 149,643 ) Net loans $ 11,070,021 $ 10,660,812 Loan amounts are net of unearned loan fees in excess of unamortized costs of $ 15.0 million as of September 30, 2024, and $ 12.1 million as of December 31, 2023. Net loans include net discounts on acquired loans of $ 3.8 million and $ 4.6 million as of September 30, 2024 and December 31, 2023, respectively. Net loans does not include accrued interest receivable. Accrued interest receivable on loans was $ 53.1 million as of September 30, 2024, and $ 47.8 million as of December 31, 2023 and was reported in accrued interest receivable on the Consolidated Statements of Financial Condition. The Company had pledged $ 8.0 billion and $ 7.6 billion of loans as collateral for FHLB and other borrowings at September 30, 2024 and December 31, 2023, respectively. Purchased credit-deteriorated and purchased non-credit-deteriorated loans. Loans purchased or acquired in business combinations are recorded at their fair value at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-deteriorated (PCD) or purchased non-credit-deteriorated. There were no PCD loans acquired during the nine months ended September 30, 2024 or September 30, 2023. Troubled Loan Modifications. Occasionally, the Company offers modifications of loans to borrowers experiencing financial difficulty by providing principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions or any combination of these. When principal forgiveness is provided, the amount of the forgiveness is charged-off against the allowance for credit losses - loans. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses - loans is adjusted by the same amount. The allowance for credit losses on modified loans is measured using similar credit loss estimation methods used to determine the allowance for credit losses for all other loans held for investment. These methods incorporate the post-modification loan terms, as well as defaults and charge-offs associated with historical modified loans. 15 Table of Contents The following tables present the amortized cost basis and financial effect of loans at September 30, 2024 and September 30, 2023, that were both experiencing financial difficulty and modified during the nine months ended September 30, 2024 and September 30, 2023, respectively (in thousands): September 30, 2024 Payment Delay Total Commercial business $ 5,322 $ 5,322 Total $ 5,322 $ 5,322 September 30, 2023 Payment Delay Term Extension Total One- to four-family construction $ — $ 6,362 $ 6,362 Commercial business 121 — 121 Agricultural business, including secured by farmland 1,580 — 1,580 One- to four-family residential 1,060 — 1,060 Total 4352 $ 2,761 $ 6,362 $ 9,123 The Company had committed to lend additional amounts totaling $ 195,000 to the borrowers included in the previous table as of September 30, 2023 . The Company closely monitors the performance of loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. There were no loans modified in the previous 12 months that were past due at September 30, 2024. The follow ing table presents the performance at September 30, 2023 of loans that had been modified in the previous 12 months (in thousands). September 30, 2023 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Commercial business $ — $ — $ 121 $ 121 Agricultural business, including secured by farmland — — 1,580 1,580 One- to four-family residential — — 1,060 1,060 Total $ — $ — $ 2,761 $ 2,761 The following tables present the financial effect of the loan modifications presented above for borrowers experiencing financial difficulty for the nine months ended September 30, 2024 and September 30, 2023: Nine Months Ended September 30, 2024 Weighted Average Payment Delay Period (in months) Commercial business 3 Nine Months Ended September 30, 2023 Weighted Average Payment Delay Period (in months) Weighted-Average Term Extension (in months) One- to four-family construction n/a 11 Commercial business 8 n/a Agricultural business, including secured by farmland 8 n/a One- to four-family residential 8 n/a 16 Table of Contents Credit Quality Indicators : To appropriately and effectively manage the ongoing credit quality of the Company’s loan portfolio, management has implemented a risk-rating or loan grading system for its loans. The system is a tool to evaluate portfolio asset quality throughout each applicable loan’s life as an asset of the Company. Generally, loans are risk rated on an aggregate borrower/relationship basis with individual loans sharing similar ratings. There are some instances when specific situations relating to individual loans will provide the basis for different risk ratings within the aggregate relationship. Loans are graded on a scale of 1 to 9. A description of the general characteristics of these categories is shown below. Overall Risk Rating Definitions : Risk-ratings contain both qualitative and quantitative measurements and take into account the financial strength of a borrower and the structure of the loan. Consequently, the definitions are to be applied in the context of each lending transaction and judgment must also be used to determine the appropriate risk rating, as it is not unusual for a loan to exhibit characteristics of more than one risk-rating category. Consideration for the final rating is centered in the borrower’s ability to repay, in a timely fashion, both principal and interest. The Company’s risk-rating and loan grading policies are reviewed and approved annually. There were no material changes in the risk-rating or loan grading system for the periods presented. Risk Ratings 1-5: Pass Credits with risk ratings of 1 to 5 meet the definition of a pass risk rating. The strength of credits vary within the pass risk ratings, ranging from a risk rated 1 being an exceptional credit to a risk rated 5 being an acceptable credit that requires a more than normal level of supervision. Risk Rating 6: Special Mention A credit with potential weaknesses that deserves management’s close attention is risk rated a 6. If left uncorrected, these potential weaknesses will result in deterioration in the capacity to repay debt. A key distinction between Special Mention and Substandard is that in a Special Mention credit, there are identified weaknesses that pose potential risk(s) to the repayment sources, versus well defined weaknesses that pose risk(s) to the repayment sources. Assets in this category are expected to be in this category no more than 9-12 months as the potential weaknesses in the credit are resolved. Risk Rating 7: Substandard A credit with well-defined weaknesses that jeopardize the ability to repay in full is risk rated a 7. These credits are inadequately protected by either the sound net worth and payment capacity of the borrower or the value of pledged collateral. These are credits with a distinct possibility of loss. Loans headed for foreclosure and/or legal action due to deterioration are rated 7 or worse. Risk Rating 8: Doubtful A credit with an extremely high probability of loss is risk rated 8. These credits have all the same critical weaknesses that are found in a substandard loan; however, the weaknesses are elevated to the point that based upon current information, collection or liquidation in full is improbable. While some loss on doubtful credits is expected, pending events may make the amount and timing of any loss indeterminable. In these situations, taking the loss is inappropriate until the outcome of the pending event is clear. Risk Rating 9: Loss A credit that is considered to be currently uncollectible or of such little value that it is no longer a viable bank asset is risk rated 9. Losses should be taken in the accounting period in which the credit is determined to be uncollectible. Taking a loss does not mean that a credit has absolutely no recovery or salvage value but, rather, it is not practical or desirable to defer writing off the credit, even though partial recovery may occur in the future. 17 Table of Contents The following tables present the Company’s portfolio of risk-rated loans by class and by grade as of September 30, 2024 and December 31, 2023 (in thousands). In addition, the tables include the gross charge-offs for the nine months ended September 30, 2024. Revolving loans that are converted to term loans are treated as new originations in the table below and are presented by year of origination. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension. September 30, 2024 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2024 2023 2022 2021 2020 Prior Commercial real estate - owner occupied Risk Rating Pass $ 140,671 $ 178,466 $ 131,807 $ 152,213 $ 113,768 $ 185,325 $ 45,934 $ 948,184 Special Mention 2,456 — — — — — 2,803 5,259 Substandard — 294 16,512 212 4,619 15,436 — 37,073 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial real estate - owner occupied $ 143,127 $ 178,760 $ 148,319 $ 152,425 $ 118,387 $ 200,761 $ 48,737 $ 990,516 Current period gross charge-offs $ — $ — $ 347 $ — $ — $ — $ — $ 347 Commercial real estate - investment properties Risk Rating Pass $ 97,301 $ 135,910 $ 215,341 $ 270,559 $ 131,414 $ 677,951 $ 36,118 $ 1,564,594 Special Mention — — — — — 2,669 1,100 3,769 Substandard — 2,257 5,811 — — 7,432 — 15,500 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial real estate - investment properties $ 97,301 $ 138,167 $ 221,152 $ 270,559 $ 131,414 $ 688,052 $ 37,218 $ 1,583,863 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Multifamily real estate Risk Rating Pass $ 118,853 $ 89,808 $ 203,606 $ 205,400 $ 95,032 $ 172,061 $ 2,961 $ 887,721 Special Mention — — — — — — — — Substandard — — — — — 2,145 — 2,145 Doubtful — — — — — — — — Loss — — — — — — — — Total Multifamily real estate $ 118,853 $ 89,808 $ 203,606 $ 205,400 $ 95,032 $ 174,206 $ 2,961 $ 889,866 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — 18 Table of Contents September 30, 2024 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2024 2023 2022 2021 2020 Prior Commercial construction Risk Rating Pass $ 47,058 $ 54,404 $ 8,385 $ — $ 12,515 $ 935 $ — $ 123,297 Special Mention — — — — — — — — Substandard — — — 754 — — — 754 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial construction $ 47,058 $ 54,404 $ 8,385 $ 754 $ 12,515 $ 935 $ — $ 124,051 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Multifamily construction Risk Rating Pass $ 134,915 $ 197,811 $ 181,203 $ 1,249 $ — $ — $ 8,930 $ 524,108 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total Multifamily construction $ 134,915 $ 197,811 $ 181,203 $ 1,249 $ — $ — $ 8,930 $ 524,108 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — One- to four- family construction Risk Rating Pass $ 395,148 $ 96,245 $ 13,392 $ — $ — $ — $ 243 $ 505,028 Special Mention — — — — — — — — Substandard 380 1,834 108 — — — — 2,322 Doubtful — — — — — — — — Loss — — — — — — — — Total One- to four- family construction $ 395,528 $ 98,079 $ 13,500 $ — $ — $ — $ 243 $ 507,350 Current period gross charge-offs $ — $ — $ 145 $ — $ — $ — $ — $ 145 19 Table of Contents September 30, 2024 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2024 2023 2022 2021 2020 Prior Land and land development Risk Rating Pass $ 167,043 $ 114,203 $ 34,834 $ 25,275 $ 9,962 $ 15,545 $ 807 $ 367,669 Special Mention — — 639 — — — — 639 Substandard — 1,098 403 277 566 38 — 2,382 Doubtful — — — — — — — — Loss — — — — — — — — Total Land and land development $ 167,043 $ 115,301 $ 35,876 $ 25,552 $ 10,528 $ 15,583 $ 807 $ 370,690 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial business Risk Rating Pass $ 127,940 $ 131,274 $ 184,558 $ 105,516 $ 113,786 $ 201,698 $ 350,938 $ 1,215,710 Special Mention 246 — 79 26 — 40 29,777 30,168 Substandard 2,774 3,245 4,629 3,062 4,804 3,285 13,938 35,737 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial business $ 130,960 $ 134,519 $ 189,266 $ 108,604 $ 118,590 $ 205,023 $ 394,653 $ 1,281,615 Current period gross charge-offs $ — $ 418 $ — $ 1 $ — $ 54 $ 489 $ 962 Agricultural business, including secured by farmland Risk Rating Pass $ 21,144 $ 41,755 $ 27,892 $ 24,150 $ 13,400 $ 55,732 $ 128,214 $ 312,287 Special Mention 1,153 1,300 690 — 3,367 — 5,974 12,484 Substandard — 4,812 3,462 602 — 9,237 3,802 21,915 Doubtful — — — — — — — — Loss — — — — — — — — Total Agricultural business, including secured by farmland $ 22,297 $ 47,867 $ 32,044 $ 24,752 $ 16,767 $ 64,969 $ 137,990 $ 346,686 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — 20 Table of Contents December 31, 2023 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2023 2022 2021 2020 2019 Prior Commercial real estate - owner occupied Risk Rating Pass $ 170,577 $ 149,489 $ 161,647 $ 139,934 $ 65,424 $ 154,036 $ 36,209 $ 877,316 Special Mention — — — — — — 1 1 Substandard — 14,450 217 4,731 18,999 183 — 38,580 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial real estate - owner occupied $ 170,577 $ 163,939 $ 161,864 $ 144,665 $ 84,423 $ 154,219 $ 36,210 $ 915,897 Commercial real estate - investment properties Risk Rating Pass $ 154,128 $ 168,286 $ 281,324 $ 123,315 $ 156,174 $ 597,977 $ 47,936 $ 1,529,140 Special Mention — — — — — 2,714 1,198 3,912 Substandard — — — — — 8,292 — 8,292 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial real estate - investment properties $ 154,128 $ 168,286 $ 281,324 $ 123,315 $ 156,174 $ 608,983 $ 49,134 $ 1,541,344 Multifamily real estate Risk Rating Pass $ 96,865 $ 177,907 $ 215,220 $ 101,336 $ 46,886 $ 167,305 $ 3,285 $ 808,804 Special Mention — — — — — — — — Substandard — — — — — 2,428 — 2,428 Doubtful — — — — — — — — Loss — — — — — — — — Total Multifamily real estate $ 96,865 $ 177,907 $ 215,220 $ 101,336 $ 46,886 $ 169,733 $ 3,285 $ 811,232 21 Table of Contents December 31, 2023 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2023 2022 2021 2020 2019 Prior Commercial construction Risk Rating Pass $ 86,165 $ 62,302 $ 4,056 $ 12,705 $ — $ 1,015 $ — $ 166,243 Special Mention 3,010 — — — — — — 3,010 Substandard — — 758 — — — — 758 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial construction $ 89,175 $ 62,302 $ 4,814 $ 12,705 $ — $ 1,015 $ — $ 170,011 Multifamily construction Risk Rating Pass $ 176,729 $ 256,661 $ 70,189 $ 414 $ — $ — $ — $ 503,993 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total Multifamily construction $ 176,729 $ 256,661 $ 70,189 $ 414 $ — $ — $ — $ 503,993 One- to four- family construction Risk Rating Pass $ 447,818 $ 43,563 $ 25,229 $ — $ 329 $ — $ 381 $ 517,320 Special Mention — — — — — — — — Substandard 6,715 253 2,144 — — — — 9,112 Doubtful — — — — — — — — Loss — — — — — — — — Total One- to four- family construction $ 454,533 $ 43,816 $ 27,373 $ — $ 329 $ — $ 381 $ 526,432 22 Table of Contents December 31, 2023 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2023 2022 2021 2020 2019 Prior Land and land development Risk Rating Pass $ 188,134 $ 80,472 $ 34,146 $ 12,338 $ 8,409 $ 10,152 $ 2,136 $ 335,787 Special Mention — 852 — — — — — 852 Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total Land and land development $ 188,134 $ 81,324 $ 34,146 $ 12,338 $ 8,409 $ 10,152 $ 2,136 $ 336,639 Commercial business Risk Rating Pass $ 157,830 $ 223,582 $ 121,031 $ 134,066 $ 102,545 $ 126,175 $ 363,652 $ 1,228,881 Special Mention 199 — — — 43 — 2,548 2,790 Substandard 1,919 5,207 3,398 5,207 1,509 2,010 4,813 24,063 Doubtful — — — — — — — — Loss — — — — — — — — Total Commercial business $ 159,948 $ 228,789 $ 124,429 $ 139,273 $ 104,097 $ 128,185 $ 371,013 $ 1,255,734 Agricultural business, including secured by farmland Risk Rating Pass $ 48,620 $ 35,520 $ 24,659 $ 17,658 $ 23,885 $ 38,273 $ 123,158 $ 311,773 Special Mention 550 — 652 — — 301 308 1,811 Substandard 4,057 — 626 — 7,819 2,280 2,723 17,505 Doubtful — — — — — — — — Loss — — — — — — — — Total Agricultural business, including secured by farmland $ 53,227 $ 35,520 $ 25,937 $ 17,658 $ 31,704 $ 40,854 $ 126,189 $ 331,089 23 Table of Contents The following tables present the Company’s portfolio of non-risk-rated loans by class and delinquency status as of September 30, 2024 and December 31, 2023 (in thousands). In addition, the tables include the gross charge-offs for the nine months ended September 30, 2024. Revolving loans that are converted to term loans are treated as new originations in the table below and are presented by year of origination. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension. September 30, 2024 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2024 2023 2022 2021 2020 Prior Small balance CRE Past Due Category Current $ 38,295 $ 85,425 $ 194,676 $ 217,409 $ 170,819 $ 511,277 $ — $ 1,217,901 30-59 Days Past Due — — — — — 175 — 175 60-89 Days Past Due — — — — — 333 — 333 90 Days + Past Due — — — — 413 — — 413 Total Small balance CRE $ 38,295 $ 85,425 $ 194,676 $ 217,409 $ 171,232 $ 511,785 $ — $ 1,218,822 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Small business scored Past Due Category Current $ 159,428 $ 178,425 $ 248,503 $ 152,898 $ 73,114 $ 132,365 $ 138,166 $ 1,082,899 30-59 Days Past Due — 407 666 282 — 78 395 1,828 60-89 Days Past Due — 130 — 474 7 37 36 684 90 Days + Past Due — 265 871 383 — 784 — 2,303 Total Small business scored $ 159,428 $ 179,227 $ 250,040 $ 154,037 $ 73,121 $ 133,264 $ 138,597 $ 1,087,714 Current period gross charge-offs $ 82 $ 82 $ 430 $ 207 $ 47 $ 550 $ — $ 1,398 One- to four- family residential Past Due Category Current $ 142,408 $ 341,660 $ 557,965 $ 250,281 $ 53,013 $ 219,078 $ — $ 1,564,405 30-59 Days Past Due — — — — — 297 — 297 60-89 Days Past Due 157 — 903 236 — 522 — 1,818 90 Days + Past Due — 2,002 1,743 2,779 1,223 897 — 8,644 Total One- to four- family residential $ 142,565 $ 343,662 $ 560,611 $ 253,296 $ 54,236 $ 220,794 $ — $ 1,575,164 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — 24 Table of Contents September 30, 2024 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2024 2023 2022 2021 2020 Prior Consumer—home equity revolving lines of credit Past Due Category Current $ 5,046 $ 1,474 $ 5,212 $ 1,929 $ 1,448 $ 6,685 $ 591,675 $ 613,469 30-59 Days Past Due — — 802 — 70 268 2,827 3,967 60-89 Days Past Due — 396 710 25 — 71 — 1,202 90 Days + Past Due — 371 626 469 1,012 1,405 94 3,977 Total Consumer—home equity revolving lines of credit $ 5,046 $ 2,241 $ 7,350 $ 2,423 $ 2,530 $ 8,429 $ 594,596 $ 622,615 Current period gross charge-offs $ — $ — $ 58 $ — $ 11 $ — $ 110 $ 179 Consumer-other Past Due Category Current $ 7,119 $ 7,491 $ 26,794 $ 8,753 $ 5,578 $ 18,398 $ 26,803 $ 100,936 30-59 Days Past Due 9 5 120 — 122 99 155 510 60-89 Days Past Due — 2 12 — — 3 83 100 90 Days + Past Due — — — — — — — — Total Consumer-other $ 7,128 $ 7,498 $ 26,926 $ 8,753 $ 5,700 $ 18,500 $ 27,041 $ 101,546 Current period gross charge-offs $ — $ 48 $ 87 $ 63 $ 28 $ 168 $ 908 $ 1,302 25 Table of Contents December 31, 2023 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2023 2022 2021 2020 2019 Prior Small balance CRE Past Due Category Current $ 83,077 $ 194,213 $ 215,550 $ 163,689 $ 121,596 $ 399,025 $ 378 $ 1,177,528 30-59 Days Past Due — — — — 159 400 — 559 60-89 Days Past Due — — — — — — — — 90 Days + Past Due — — — 413 — — — 413 Total Small balance CRE $ 83,077 $ 194,213 $ 215,550 $ 164,102 $ 121,755 $ 399,425 $ 378 $ 1,178,500 Small business scored Past Due Category Current $ 197,138 $ 276,888 $ 172,286 $ 84,320 $ 61,613 $ 96,269 $ 129,998 $ 1,018,512 30-59 Days Past Due 16 171 1,048 52 169 287 307 2,050 60-89 Days Past Due 18 — — 60 79 393 83 633 90 Days + Past Due 24 69 148 — 460 257 1 959 Total Small business scored $ 197,196 $ 277,128 $ 173,482 $ 84,432 $ 62,321 $ 97,206 $ 130,389 $ 1,022,154 One- to four- family residential Past Due Category Current $ 360,797 $ 586,167 $ 262,414 $ 56,436 $ 31,275 $ 206,247 $ 209 $ 1,503,545 30-59 Days Past Due 846 3,087 979 511 — 1,441 — 6,864 60-89 Days Past Due — 540 510 388 151 790 — 2,379 90 Days + Past Due 1,060 700 1,582 192 633 1,091 — 5,258 Total One- to four- family residential $ 362,703 $ 590,494 $ 265,485 $ 57,527 $ 32,059 $ 209,569 $ 209 $ 1,518,046 26 Table of Contents December 31, 2023 Term Loans by Year of Origination Revolving Loans Total Loans By class: 2023 2022 2021 2020 2019 Prior Consumer—home equity revolving lines of credit Past Due Category Current $ 5,003 $ 2,594 $ 1,564 $ 1,200 $ 1,177 $ 4,678 $ 566,249 $ 582,465 30-59 Days Past Due — 51 93 66 175 324 2,063 2,772 60-89 Days Past Due — — 98 — 50 246 445 839 90 Days + Past Due — 365 178 1,043 19 966 56 2,627 Total Consumer—home equity revolving lines of credit $ 5,003 $ 3,010 $ 1,933 $ 2,309 $ 1,421 $ 6,214 $ 568,813 $ 588,703 Consumer-other Past Due Category Current $ 10,756 $ 31,836 $ 9,961 $ 6,906 $ 4,441 $ 17,920 $ 28,207 $ 110,027 30-59 Days Past Due 5 — 62 — — 81 269 417 60-89 Days Past Due 12 — 4 2 20 6 97 141 90 Days + Past Due — 58 — 28 10 — — 96 Total Consumer-other $ 10,773 $ 31,894 $ 10,027 $ 6,936 $ 4,471 $ 18,007 $ 28,573 $ 110,681 27 Table of Contents The following tables provide the amortized cost basis of collateral-dependent loans as of September 30, 2024 and December 31, 2023 (in thousands). Our collateral dependent loans presented in the tables below have no significant concentrations by property type or location. September 30, 2024 Real Estate Accounts Receivable Equipment Inventory Total Commercial real estate: Owner-occupied $ 1,044 $ — $ — $ — $ 1,044 Small balance CRE 581 — — — 581 Construction, land and land development: One- to four-family construction 1,834 — — — 1,834 Land and land development 1,624 — — — 1,624 Commercial business Commercial business — 1,156 5,590 550 7,296 Small business scored — — 93 — 93 Agricultural business, including secured by farmland 4,229 — 3,447 — 7,676 One- to four-family residential 5,386 — — — 5,386 Consumer—home equity revolving lines of credit 821 — — — 821 Total $ 15,519 $ 1,156 $ 9,130 $ 550 $ 26,355 December 31, 2023 Real Estate Accounts Receivable Equipment Inventory Total Commercial real estate: Owner-occupied $ 1,391 $ — $ — $ — $ 1,391 Small balance CRE 755 — — — 755 One- to four-family construction 8,859 — — — 8,859 Commercial business — 1,059 5,085 812 6,956 Agricultural business, including secured by farmland 2,576 — — — 2,576 One- to four-family residential 1,954 — — — 1,954 Consumer—home equity revolving lines of credit 821 — — — 821 Total $ 16,356 $ 1,059 $ 5,085 $ 812 $ 23,312 28 Table of Contents The following tables provide additional detail on the age analysis of the Company’s past due loans as of September 30, 2024 and December 31, 2023 (in thousands): September 30, 2024 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Non-accrual with no Allowance Total Non-accrual (1) Loans 90 Days or More Past Due and Accruing Commercial real estate: Owner-occupied $ 212 $ — $ 1,044 $ 1,256 $ 989,260 $ 990,516 $ 1,044 $ 1,094 $ — Investment properties — — 2,258 2,258 1,581,605 1,583,863 — — 2,258 Small balance CRE 175 333 413 921 1,217,901 1,218,822 581 1,033 — Multifamily real estate — — — — 889,866 889,866 — — — Construction, land and land development: Commercial construction — — — — 124,051 124,051 — — — Multifamily construction — — — — 524,108 524,108 — — — One- to four-family construction — — 1,225 1,225 506,125 507,350 1,834 1,942 380 Land and land development — 83 1,778 1,861 368,829 370,690 1,624 2,344 — Commercial business: Commercial business 865 1,500 1,565 3,930 1,277,685 1,281,615 123 7,777 — Small business scored 1,828 684 2,303 4,815 1,082,899 1,087,714 — 2,928 — Agricultural business, including secured by farmland 1,519 3,500 2,856 7,875 338,811 346,686 5,455 7,703 — One- to four-family residential 297 1,818 8,644 10,759 1,564,405 1,575,164 5,367 9,592 961 Consumer: Consumer—home equity revolving lines of credit 3,967 1,202 3,977 9,146 613,469 622,615 821 4,631 359 Consumer—other 510 100 — 610 100,936 101,546 — 5 — Total $ 9,373 $ 9,220 $ 26,063 $ 44,656 $ 11,179,950 $ 11,224,606 $ 16,849 $ 39,049 $ 3,958 (1) The Company did not recognize any interest income on non-accrual loans during the nine months ended September 30, 2024. 29 Table of Contents December 31, 2023 30-59 Days Past Due 60-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans Non-accrual with no Allowance Total Non-accrual (1) Loans 90 Days or More Past Due and Accruing Commercial real estate: Owner-occupied $ — $ — $ — $ — $ 915,897 $ 915,897 $ 1,391 $ 1,450 $ — Investment properties — — — — 1,541,344 1,541,344 — — — Small balance CRE 559 — 413 972 1,177,528 1,178,500 755 1,227 — Multifamily real estate — — — — 811,232 811,232 — — — Construction, land and land development: Commercial construction — — — — 170,011 170,011 — — — Multifamily construction — — — — 503,993 503,993 — — — One- to four-family construction 286 — 4,201 4,487 521,945 526,432 2,852 3,105 1,096 Land and land development 1,822 553 42 2,417 334,222 336,639 — — 42 Commercial business: Commercial business 1,166 5,735 1,181 8,082 1,247,652 1,255,734 789 7,346 — Small business scored 2,050 633 959 3,642 1,018,512 1,022,154 — 1,656 1 Agricultural business, including secured by farmland — — 2,171 2,171 328,918 331,089 3,167 3,167 — One-to four-family residential 6,864 2,379 5,258 14,501 1,503,545 1,518,046 1,939 5,702 1,205 Consumer: Consumer—home equity revolving lines of credit 2,772 839 2,627 6,238 582,465 588,703 821 3,110 391 Consumer—other 417 141 96 654 110,027 110,681 — 94 10 Total $ 15,936 $ 10,280 $ 16,948 $ 43,164 $ 10,767,291 $ 10,810,455 $ 11,714 $ 26,857 $ 2,745 (1) The Company did not recognize any interest income on non-accrual loans during the year ended December 31, 2023. 30 Table of Contents The following tables provide the activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2024 and 2023 (in thousands): For the Three Months Ended September 30, 2024 Commercial Real Estate Multifamily Real Estate Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Total Allowance for credit losses - loans: Beginning balance $ 39,064 $ 8,253 $ 31,597 $ 38,835 $ 4,045 $ 20,906 $ 10,148 $ 152,848 Provision/(recapture) for credit losses 911 1,980 ( 3,130 ) 745 1,294 ( 457 ) 624 1,967 Recoveries 65 — — 613 1 14 41 734 Charge-offs — — ( 145 ) ( 414 ) — — ( 405 ) ( 964 ) Ending balance $ 40,040 $ 10,233 $ 28,322 $ 39,779 $ 5,340 $ 20,463 $ 10,408 $ 154,585 For the Nine Months Ended September 30, 2024 Commercial Real Estate Multifamily Real Estate Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Total Allowance for credit losses - loans: Beginning balance $ 44,384 $ 9,326 $ 28,095 $ 35,464 $ 3,865 $ 19,271 $ 9,238 $ 149,643 (Recapture)/provision for credit losses ( 5,549 ) 907 372 4,957 1,173 1,145 2,339 5,344 Recoveries 1,552 — — 1,718 302 47 312 3,931 Charge-offs ( 347 ) — ( 145 ) ( 2,360 ) — — ( 1,481 ) ( 4,333 ) Ending balance $ 40,040 $ 10,233 $ 28,322 $ 39,779 $ 5,340 $ 20,463 $ 10,408 $ 154,585 31 Table of Contents For the Three Months Ended September 30, 2023 Commercial Real Estate Multifamily Real Estate Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Total Allowance for credit losses - loans: Beginning balance $ 43,636 $ 8,039 $ 29,844 $ 33,880 $ 3,573 $ 16,737 $ 8,971 $ 144,680 Provision/(recapture) for credit losses 210 765 ( 484 ) 398 690 1,129 235 2,943 Recoveries 170 — 29 403 19 59 126 806 Charge-offs — — — ( 616 ) ( 564 ) — ( 289 ) ( 1,469 ) Ending balance $ 44,016 $ 8,804 $ 29,389 $ 34,065 $ 3,718 $ 17,925 $ 9,043 $ 146,960 For the Nine Months Ended September 30, 2023 Commercial Real Estate Multifamily Real Estate Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Total Allowance for credit losses - loans: Beginning balance $ 44,086 $ 7,734 $ 29,171 $ 33,299 $ 3,475 $ 14,729 $ 8,971 $ 141,465 (Recapture)/provision for credit losses ( 498 ) 1,070 345 2,060 677 3,018 604 7,276 Recoveries 428 — 29 1,046 130 212 412 2,257 Charge-offs — — ( 156 ) ( 2,340 ) ( 564 ) ( 34 ) ( 944 ) ( 4,038 ) Ending balance $ 44,016 $ 8,804 $ 29,389 $ 34,065 $ 3,718 $ 17,925 $ 9,043 $ 146,960 32 Table of Contents Note 5: GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS Goodwill and Other Intangible Assets: At September 30, 2024, intangible assets are comprised of goodwill and core deposit intangibles (CDI) acquired in business combinations. Goodwill represents the excess of the purchase consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination, and is not amortized but is reviewed at least annually for impairment. The Company has identified one reporting unit for the purpose of evaluating goodwill for impairment. The Company completed an assessment of qualitative factors as of December 31, 2023 and concluded that no further analysis was required as it is more likely than not that the fair value of Banner Bank, the reporting unit, exceeds the carrying value. CDI represents the value of transaction-related deposits and the value of the client relationships associated with the deposits. The Company amortizes CDI assets over their estimated useful lives and reviews them at least annually for events or circumstances that could impair their value. The following table summarizes the changes in the Company’s goodwill and other intangibles for the year ended December 31, 2023 and the nine months ended September 30, 2024 (in thousands): Goodwill CDI Total Balance, December 31, 2022 $ 373,121 $ 9,440 $ 382,561 Amortization — ( 3,756 ) ( 3,756 ) Balance, December 31, 2023 373,121 5,684 378,805 Amortization — ( 2,037 ) ( 2,037 ) Balance, September 30, 2024 $ 373,121 $ 3,647 $ 376,768 The following table presents the estimated amortization expense with respect to CDI as of September 30, 2024, for the periods indicated (in thousands): Estimated Amortization Remainder of 2024 $ 589 2025 1,567 2026 904 2027 426 2028 126 Thereafter 35 $ 3,647 Mortgage Servicing Rights: Mortgage and SBA servicing rights are reported in other assets. SBA servicing rights are initially recorded and carried at fair value. Mortgage servicing rights are initially recognized at fair value and are amortized in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Mortgage servicing rights are subsequently evaluated for impairment based upon the fair value of the rights compared to the amortized cost (remaining unamortized initial fair value). If the fair value is less than the amortized cost, a valuation allowance is created through an impairment charge to servicing fee income. However, if the fair value is greater than the amortized cost, the amount above the amortized cost is not recognized in the carrying value. The unpaid principal balance of loans for which mortgage and SBA servicing rights have been recognized totaled $ 2.80 billion and $2.78 billion at September 30, 2024 and December 31, 2023, respectively. Custodial accounts maintained in connection with this servicing totaled $ 29.5 million and $ 11.6 million at September 30, 2024 and December 31, 2023, respectively. 33 Table of Contents An analysis of the mortgage and SBA servicing rights for the three and nine months ended September 30, 2024 and 2023 is presented below (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Balance, beginning of the period $ 14,010 $ 15,111 $ 14,649 $ 16,166 Additions—amounts capitalized 391 638 1,175 1,123 Additions—through purchase 56 98 165 222 Amortization (1) ( 827 ) ( 851 ) ( 2,430 ) ( 2,525 ) Fair value adjustments (2) ( 21 ) ( 128 ) 50 ( 118 ) Impairment valuation adjustments (3) ( 6 ) — ( 6 ) — Balance, end of the period $ 13,603 $ 14,868 $ 13,603 $ 14,868 (1) Amortization of mortgage servicing rights is recorded as a reduction of loan servicing income within mortgage banking operations and any unamortized balance is fully amortized if the loan repays in full. (2) Fair value adjustments relate to SBA servicing rights. These adjustments are estimated based on an independent dealer analysis by discounting estimated net future cash flows from servicing SBA loans. (3) Impairment valuation adjustments are recorded on mortgage servicing rights when the carrying value exceeded the fair value for a specific tranche within the mortgage servicing rights portfolio . Note 6: DEPOSITS Deposits consisted of the following at September 30, 2024 and December 31, 2023 (in thousands): September 30, 2024 December 31, 2023 Non-interest-bearing accounts $ 4,688,244 $ 4,792,369 Interest-bearing checking 2,344,561 2,098,526 Regular savings accounts 3,339,859 2,980,530 Money market accounts 1,643,631 1,680,605 Total interest-bearing transaction and savings accounts 7,328,051 6,759,661 Certificates of deposit: Certificates of deposit greater than or equal to $250,000 500,991 473,124 Certificates of deposit less than $250,000 1,020,862 1,004,343 Total certificates of deposit 1,521,853 1,477,467 Total deposits $ 13,538,148 $ 13,029,497 Included in total deposits: Public fund transaction and savings accounts $ 387,873 $ 356,615 Public fund interest-bearing certificates 28,144 52,048 Total public deposits $ 416,017 $ 408,663 Total brokered certificates of deposit $ 50,333 $ 108,058 Scheduled maturities and weighted average interest rates of certificates of deposit at September 30, 2024 are as follows (dollars in thousands): September 30, 2024 Amount Weighted Average Rate Maturing in one year or less $ 1,460,492 4.00 % Maturing after one year through two years 40,482 1.42 Maturing after two years through three years 13,393 0.97 Maturing after three years through four years 4,109 0.66 Maturing after four years through five years 2,631 0.86 Maturing after five years 746 0.71 Total certificates of deposit $ 1,521,853 3.89 % 34 Table of Contents Note 7: FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents estimated fair values of the Company’s financial instruments as of September 30, 2024 and December 31, 2023, whether or not recognized or recorded in the Consolidated Statements of Financial Condition (dollars in thousands): September 30, 2024 December 31, 2023 Level Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Assets: Cash and cash equivalents 1 $ 478,795 $ 478,795 $ 254,464 $ 254,464 Securities—available-for-sale 2 2,212,720 2,212,720 2,348,479 2,348,479 Securities—available-for-sale 3 25,219 25,219 25,304 25,304 Securities—held-to-maturity 2 1,007,122 872,530 1,052,028 900,522 Securities—held-to-maturity 3 6,781 6,748 7,027 6,992 Loans held for sale 2 78,841 80,097 11,170 11,219 Loans receivable, net 3 11,070,021 10,845,004 10,660,812 10,250,271 Equity securities 1 443 443 449 449 FHLB stock 3 19,751 19,751 24,028 24,028 Bank-owned life insurance 1 310,400 310,400 304,366 304,366 Mortgage servicing rights 3 12,813 35,069 13,909 35,794 SBA servicing rights 3 790 790 740 740 Investments in limited partnerships 3 13,582 13,582 13,475 13,475 Derivatives: Interest rate swaps 2 19,189 19,189 15,129 15,129 Interest rate lock and forward sales commitments 2,3 342 342 275 275 Liabilities: Demand, interest checking and money market accounts 2 8,676,436 8,676,436 8,571,500 8,571,500 Regular savings 2 3,339,859 3,339,859 2,980,530 2,980,530 Certificates of deposit 2 1,521,853 1,516,028 1,477,467 1,465,612 FHLB advances 2 230,000 230,000 323,000 323,000 Other borrowings 2 154,533 154,533 182,877 182,877 Subordinated notes, net 2 80,170 78,904 92,851 85,536 Junior subordinated debentures 3 66,257 66,257 66,413 66,413 Derivatives: Interest rate swaps 2 30,272 30,272 29,809 29,809 Interest rate lock and forward sales commitments 2,3 15 15 185 185 Risk participation agreement 2 28 28 42 42 The Company measures and discloses certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (that is, not a forced liquidation or distressed sale). When measuring fair value, management will maximize the use of observable inputs and minimize the use of unobservable inputs whenever possible. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s estimates for market assumptions. The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize at a future date. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values. 35 Table of Contents Items Measured at Fair Value on a Recurring Basis: The following tables present financial assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy of the fair value measurements for those assets and liabilities as of September 30, 2024 and December 31, 2023 (in thousands): September 30, 2024 Level 1 Level 2 Level 3 Total Assets: Securities—available-for-sale U.S. Government and agency obligations $ — $ 8,485 $ — $ 8,485 Municipal bonds — 130,136 — 130,136 Corporate bonds — 98,062 25,219 123,281 Mortgage-backed or related securities — 1,776,197 — 1,776,197 Asset-backed securities — 199,840 — 199,840 — 2,212,720 25,219 2,237,939 Loans held for sale (1) — 21,984 — 21,984 Equity securities 443 — — 443 SBA servicing rights — — 790 790 Investment in limited partnerships — — 13,582 13,582 Derivatives Interest rate swaps — 19,189 — 19,189 Interest rate lock and forward sales commitments — — 342 342 $ 443 $ 2,253,893 $ 39,933 $ 2,294,269 Liabilities: Junior subordinated debentures $ — $ — $ 66,257 $ 66,257 Derivatives Interest rate swaps — 30,272 — 30,272 Interest rate lock and forward sales commitments — 14 1 15 Risk participation agreement — 28 — 28 $ — $ 30,314 $ 66,258 $ 96,572 36 Table of Contents December 31, 2023 Level 1 Level 2 Level 3 Total Assets: Securities—available-for-sale U.S. Government and agency obligations $ — $ 34,189 $ — $ 34,189 Municipal bonds — 132,905 — 132,905 Corporate bonds — 93,819 25,304 119,123 Mortgage-backed or related securities — 1,866,714 — 1,866,714 Asset-backed securities — 220,852 — 220,852 — 2,348,479 25,304 2,373,783 Loans held for sale (1) — 9,105 — 9,105 Equity securities 449 — — 449 SBA servicing rights — — 740 740 Investment in limited partnerships — — 13,475 13,475 Derivatives Interest rate swaps — 15,129 — 15,129 Interest rate lock and forward sales commitments — — 275 275 $ 449 $ 2,372,713 $ 39,794 $ 2,412,956 Liabilities: Junior subordinated debentures $ — $ — $ 66,413 $ 66,413 Derivatives Interest rate swaps — 29,809 — 29,809 Interest rate lock and forward sales commitments — 161 24 185 Risk participation agreement — 42 — 42 $ — $ 30,012 $ 66,437 $ 96,449 (1) The unpaid principal balance of residential mortgage loans held for sale carried at fair value on a recurring basis was $ 21.3 million and $ 8.8 million at September 30, 2024 and December 31, 2023, respectively. The following methods were used to estimate the fair value of each class of financial instruments above: Securities: The estimated fair values of investment securities and mortgage-backed securities are priced using current active market quotes, if available, which are considered Level 1 measurements. For most of the portfolio, matrix pricing based on the securities’ relationship to other benchmark quoted prices is used to establish the fair value. These measurements are considered Level 2. Due to the continued limited activity in the trust preferred markets that have limited the observability of market spreads for some of the Company’s trust preferred securities (TPS), management has classified these securities, included in Corporate Bonds, as a Level 3 fair value measure. Management periodically reviews the pricing information received from third-party pricing services and tests those prices against other sources to validate the reported fair values. Loans Held for Sale: Fair values for residential mortgage loans held for sale are determined by comparing actual loan rates to current secondary market prices for similar loans. Equity Securities: Equity securities are invested in a publicly traded stock. The fair value of these securities is based on daily quoted market prices. SBA Servicing Rights: Fair values are estimated based on an independent dealer analysis by discounting estimated net future cash flows from servicing. The evaluation utilizes assumptions market participants would use in determining fair value including prepayment speeds, delinquency and foreclosure rates, the discount rate, servicing costs, and the timing of cash flows. The SBA servicing portfolio is stratified by loan type and fair value estimates are adjusted up or down based on the serviced loan interest rates versus current rates on new loan originations since the most recent independent analysis. Junior Subordinated Debentures: The fair value of junior subordinated debentures is estimated using an income approach technique. The significant inputs included in the estimation of fair value are the credit risk adjusted spread and three month SOFR (Secured Overnight Financing Rate). The credit risk adjusted spread represents the nonperformance risk of the liability. The Company utilizes an external valuation firm to validate the reasonableness of the credit risk adjusted spread used to determine the fair value. The junior subordinated debentures are carried at fair value which represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants. Due to inactivity in the trust preferred markets that have limited the observability of market spreads, management has classified this as a Level 3 fair value measurement. 37 Table of Contents Derivatives: Derivatives include interest rate swap agreements, interest rate lock commitments to originate loans held for sale, forward sales contracts to sell loans and securities related to mortgage banking activities and risk participation agreements. Fair values for these instruments, which generally change as a result of changes in the level of market interest rates, are estimated based on dealer quotes and secondary market sources. As the interest rate lock commitments use a pull-through rate that is considered an unobservable input, these derivatives are classified as a level 3 fair value measurement. Off-Balance Sheet Items: Off-balance sheet financial instruments include unfunded commitments to extend credit, including standby letters of credit, and commitments to purchase investment securities. The fair value of these instruments is not considered to be material. Limitations: The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2024 and December 31, 2023. The factors used in the fair value estimates are subject to change subsequent to the dates the fair value estimates are completed, therefore, current estimates of fair value may differ significantly from the amounts presented herein. Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3): The following table provides a description of the valuation technique, unobservable inputs, and quantitative and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and non-recurring basis at September 30, 2024 and December 31, 2023: Weighted Average Rate or Range Financial Instruments Valuation Technique Unobservable Inputs September 30, 2024 December 31, 2023 Corporate bonds (TPS) Discounted cash flows Discount rate 10.10 % 10.84 % Junior subordinated debentures Discounted cash flows Discount rate 10.10 % 10.84 % Loans individually evaluated Collateral valuations Discount to appraised value 0.00 % to 75.00 % 8.75 % to 25.00 % Interest rate lock commitments Pricing model Pull-through rate 91.02 % 88.24 % SBA servicing rights Discounted cash flows Constant prepayment rate 18.89 % 16.92 % Trust preferred securities : Management believes that the credit risk-adjusted spread used to develop the discount rate utilized in the fair value measurement of TPS is indicative of the risk premium a willing market participant would require under current market conditions for instruments with similar contractual rates and terms and conditions and issuers with similar credit risk profiles and with similar expected probability of default. Management attributes the change in fair value of these instruments, compared to their par value, primarily to perceived general market adjustments to the risk premiums for these types of assets subsequent to their issuance. Junior subordinated debentures : Similar to the TPS discussed above, management believes that the credit risk-adjusted spread utilized in the fair value measurement of the junior subordinated debentures is indicative of the risk premium a willing market participant would require under current market conditions for an issuer with Banner’s credit risk profile. Management attributes the change in fair value of the junior subordinated debentures, compared to their par value, primarily to perceived general market adjustments to the risk premiums for these types of liabilities subsequent to their issuance. Future contractions in the risk adjusted spread relative to the spread currently utilized to measure the Company’s junior subordinated debentures at fair value as of September 30, 2024, or the passage of time, will result in negative fair value adjustments. At September 30, 2024, the discount rate utilized was based on a credit spread of 551 basis points and three-month SOFR of 459 basis points. Interest rate lock commitments: The fair value of the interest rate lock commitments is based on secondary market sources adjusted for an estimated pull-through rate. The pull-through rate is based on historical loan closing rates for similar interest rate lock commitments. An increase or decrease in the pull-through rate would have a corresponding, positive or negative fair value adjustment. SBA servicing asset: The constant prepayment rate (CPR) is set based on industry data. An increase in the CPR would result in a negative fair value adjustment, where a decrease in CPR would result in a positive fair value adjustment. 38 Table of Contents The following tables provide a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine months ended September 30, 2024 and 2023 (in thousands): Three Months Ended September 30, 2024 Level 3 Fair Value Inputs TPS Securities Borrowings—Junior Subordinated Debentures Interest Rate Lock and Forward Sales Commitments Investments in Limited Partnerships SBA Servicing Asset Beginning balance $ 25,433 $ 66,831 $ 257 $ 13,417 $ 811 Net change recognized in earnings 66 — 84 ( 43 ) ( 21 ) Net change recognized in accumulated other comprehensive income (AOCI) ( 280 ) ( 574 ) — — — Purchases, issuances and settlements — — — 208 — Ending balance at September 30, 2024 $ 25,219 $ 66,257 $ 341 $ 13,582 $ 790 Nine Months Ended September 30, 2024 Level 3 Fair Value Inputs TPS Securities Borrowings—Junior Subordinated Debentures Interest Rate Lock and Forward Sales Commitments Investments in Limited Partnerships SBA Servicing Asset Beginning balance $ 25,304 $ 66,413 $ 251 $ 13,475 $ 740 Net change recognized in earnings 195 — 90 ( 1,137 ) 50 Net change recognized in AOCI (280) ( 156 ) — — — Purchases, issuances and settlements — — — 1,244 — Ending balance at September 30, 2024 $ 25,219 $ 66,257 $ 341 $ 13,582 $ 790 Three Months Ended September 30, 2023 Level 3 Fair Value Inputs TPS Borrowings—Junior Subordinated Debentures Interest Rate Lock and Forward Sales Commitments Investments in Limited Partnerships SBA Servicing Asset Beginning balance $ 25,659 $ 67,237 $ 268 $ 12,776 $ 845 Net change recognized in earnings ( 391 ) — ( 191 ) ( 268 ) ( 128 ) Net change recognized in AOCI — ( 953 ) — — — Purchases, issuances and settlements — — — 333 — Ending balance at September 30, 2023 $ 25,268 $ 66,284 $ 77 $ 12,841 $ 717 Nine Months Ended September 30, 2023 Level 3 Fair Value Inputs TPS Securities Borrowings—Junior Subordinated Debentures Interest Rate Lock and Forward Sales Commitments Investments in Limited Partnerships SBA Servicing Asset Beginning balance $ 28,694 $ 74,857 $ 39 $ 12,427 $ 835 Net change recognized in earnings ( 3,426 ) — 38 ( 930 ) ( 118 ) Net change recognized in AOCI — ( 8,573 ) — — — Purchases, issuances and settlements — — — 1,344 — Ending balance at September 30, 2023 $ 25,268 $ 66,284 $ 77 $ 12,841 $ 717 Interest income, dividends and amortization related to TPS are recorded as a component of interest income. Interest expense related to the junior subordinated debentures is measured based on contractual interest rates and reported in interest expense. The change in fair value of the junior subordinated debentures, which represents changes in instrument specific credit risk, and the change in fair value of TPS securities are recorded in other comprehensive income. The change in fair value of investments in limited partnerships and the SBA servicing asset are recorded as a component of non-interest income. The change in fair value of the interest rate lock and forward sales commitments are included in mortgage banking operations in non-interest income. 39 Table of Contents Items Measured at Fair Value on a Non-recurring Basis: The following tables present financial assets and liabilities measured at fair value on a non-recurring basis and the level within the fair value hierarchy of the fair value measurements for those assets as of September 30, 2024 and December 31, 2023 (in thousands): September 30, 2024 Level 1 Level 2 Level 3 Total Loans individually evaluated $ — $ — $ 5,346 $ 5,346 Real Estate Owned (REO) — — 2,221 2,221 December 31, 2023 Level 1 Level 2 Level 3 Total Loans individually evaluated $ — $ — $ 8,308 $ 8,308 REO — — 526 526 The following table presents the gains and losses resulting from non-recurring fair value adjustments for the three and nine months ended September 30, 2024 and September 30, 2023 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Loans individually evaluated $ — $ — $ ( 347 ) $ — Loans held for sale — ( 456 ) — ( 919 ) Total loss from non-recurring measurements $ — $ ( 456 ) $ ( 347 ) $ ( 919 ) Loans individually evaluated : Expected credit losses for loans evaluated individually are measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate or when the Bank determines that foreclosure is probable, the expected credit loss is measured based on the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. As a practical expedient, the Bank measures the expected credit loss for a loan using the fair value of the collateral, if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Bank’s assessment as of the reporting date. In both cases, if the fair value of the collateral is less than the amortized cost basis of the loan, the Bank will recognize an allowance as the difference between the fair value of the collateral, less costs to sell (if applicable) and the amortized cost basis of the loan. If the fair value of the collateral exceeds the amortized cost basis of the loan, any expected recovery added to the amortized cost basis will be limited to the amount previously charged-off. Subsequent changes in the expected credit losses for loans evaluated individually are included within the provision for credit losses in the same manner in which the expected credit loss initially was recognized or as a reduction in the provision that would otherwise be reported. REO : The Company records REO (acquired through a lending relationship) at fair value on a non-recurring basis. Fair value adjustments on REO are based on updated real estate appraisals which are based on current market conditions. All REO properties are recorded at the lower of the estimated fair value of the real estate, less expected selling costs, or the carrying amount of the defaulted loans. From time to time, non-recurring fair value adjustments to REO are recorded to reflect partial write-downs based on an observable market price or current appraised value of property. Banner considers any valuation inputs related to REO to be Level 3 inputs. The individual carrying values of these assets are reviewed for impairment at least annually and any additional impairment charges are expensed. Note 8: INCOME TAXES AND DEFERRED TAXES The Company files a consolidated income tax return including all of its wholly-owned subsidiaries on a calendar year basis. Income taxes are accounted for using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance is recognized as a reduction to deferred tax assets when management determines it is more likely than not that deferred tax assets will not be available to offset future income tax liabilities. Accounting standards for income taxes prescribe a recognition threshold and measurement process for financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return, and also provide guidance on the de-recognition of previously recorded benefits and their classification, as well as the proper recording of interest and penalties, accounting in interim periods, disclosures and transition. The Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment. 40 Table of Contents As of September 30, 2024, the Company has recognized $ 2.0 million of unrecognized tax benefits for uncertain tax positions. The Company does not anticipate that there are additional uncertain tax positions or that any uncertain tax position which has not been recognized would materially affect the effective tax rate if recognized. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense. The Company files consolidated income tax returns in the U.S. federal jurisdiction and in the Oregon, California, Utah, Idaho and Montana state jurisdictions. Tax credit investments: The Company invests in low income housing tax credit funds that are designed to generate a return primarily through the realization of federal tax credits. The Company accounts for these investments by amortizing the cost of tax credit investments over the life of the investment using a proportional amortization method and this tax credit investment amortization expense is a component of the provision for income taxes. The current balance of these tax credit investments is included in other assets, while the unfunded commitments are included in accrued expenses and other liabilities on the Consolidated Statements of Financial Condition. The following table presents the balances of the Company’s tax credit investments and related unfunded commitments at September 30, 2024 and December 31, 2023 (in thousands): September 30, 2024 December 31, 2023 Tax Credit Investments: Total commitments $ 135,876 $ 103,453 Unfunded commitments 89,321 62,594 The following table presents other information related to the Company’s tax credit investments for the three and nine months ended September 30, 2024 and 2023 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Tax credits and other tax benefits recognized $ 2,760 $ 2,134 $ 9,086 $ 6,403 Tax credit amortization expense included in provision for income taxes 2,559 1,887 7,577 5,331 Note 9: CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING FOR EARNINGS PER SHARE (EPS) The following table reconciles basic to diluted weighted average shares outstanding used to calculate earnings per share data for the three and nine months ended September 30, 2024 and 2023 (in thousands, except shares and per share data): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income $ 45,153 $ 45,854 $ 122,507 $ 141,000 Basic weighted average shares outstanding 34,498,830 34,379,865 34,459,662 34,331,458 Dilutive effect of unvested restricted stock 151,492 49,861 115,836 107,756 Diluted weighted shares outstanding 34,650,322 34,429,726 34,575,498 34,439,214 Earnings per common share Basic $ 1.31 $ 1.33 $ 3.56 $ 4.11 Diluted $ 1.30 $ 1.33 $ 3.54 $ 4.09 Anti-dilutive restricted stock excluded from the diluted average outstanding share calculation (1) 860 252,817 3,950 90,990 (1) Anti-dilution occurs when the unrecognized compensation cost per share of restricted stock exceeds the current market price of the Company’s stock. Note 10: STOCK-BASED COMPENSATION PLANS The Company operates the 2014 Omnibus Incentive Plan (the 2014 Plan), the 2018 Omnibus Incentive Plan (the 2018 Plan) and the 2023 Omnibus Incentive Plan (the 2023 Plan), all of which were approved by its shareholders. The purpose of these plans is to promote the success and enhance the value of the Company by providing a means for attracting and retaining highly skilled employees, officers and directors of the Company and linking their personal interests with those of the Company’s shareholders. Under these plans, the Company currently has outstanding awards of restricted stock shares and restricted stock units. 41 Table of Contents The Company reserved 900,000 shares of its common stock for issuance under the 2014 Plan in connection with the exercise of awards. As of September 30, 2024, 277,304 restricted stock shares and 597,714 restricted stock units have been granted under the 2014 Plan of which no restricted stock shares and 163,270 restricted stock units were unvested. No further awards will be granted under the 2014 Plan. The Company reserved 900,000 shares of common stock for issuance under the 2018 Plan in connection with the exercise of awards. As of September 30, 2024, 808,655 restricted stock units have been granted under the 2018 Plan of which 265,316 restricted stock units were unvested. The Company reserved 625,000 shares of common stock for issuance under the 2023 Plan in connection with the exercise of awards. As of September 30, 2024, 4,927 restricted stock shares and 9,798 restricted stock units have been granted under the 2023 Plan, all of which were unvested. The expense associated with all restricted stock grants (including restricted stock shares and restricted stock units) was $ 2.6 million and $ 7.2 million for the three and six month periods ended September 30, 2024, and was $2.4 million and $ 6.8 million for the three and six month periods ended September 30, 2023, respectively. Unrecognized compensation expense for these awards as of September 30, 2024, was $ 15.8 million and will be recognized over a weighted average period of 12 months. Note 11: COMMITMENTS AND CONTINGENCIES Financial Instruments with Off-Balance-Sheet Risk — The Company has financial instruments with off-balance-sheet risk generated in the normal course of business to meet the financing needs of our clients. These financial instruments include commitments to extend credit, commitments related to standby letters of credit, commitments to originate loans, commitments to sell loans, and commitments to buy or sell securities. These instruments involve, to varying degrees, elements of credit and interest rate risk similar to the risk involved in on-balance-sheet items. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument from commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as for on-balance-sheet instruments. Outstanding commitments consisted of the following at the dates indicated (in thousands): Contract or Notional Amount September 30, 2024 December 31, 2023 Commitments to extend credit $ 3,861,746 $ 3,887,423 Standby letters of credit and financial guarantees 32,203 29,312 Commitments to originate loans 26,904 27,487 Risk participation agreements 44,416 46,348 Commitments to originate loans held for sale 44,386 19,572 Commitments to sell loans secured by one- to four-family residential properties 73,730 8,437 Commitments to sell securities related to mortgage banking activities 36,952 17,000 In addition to the commitments disclosed in the table above, the Company is also committed to funding the unfunded portion of its tax credit investments, as well as the remaining unfunded portion of its investments in limited partnerships. As of September 30, 2024 and December 31, 2023, the remaining outstanding commitments related to the unfunded tax credit investments and limited partnership investments were as follows (in thousands): Unfunded commitment balance for: September 30, 2024 December 31, 2023 Tax credit investments $ 89,321 $ 62,594 Limited partnerships investments $ 15,217 $ 10,462 Commitments to extend credit are agreements to lend to a client, as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of the commitments may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. Each client’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the client. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties. The Company’s allowance for credit losses - unfunded loan commitments at September 30, 2024 and December 31, 2023 was $ 13.8 million and $ 14.5 million, respectively. Standby letters of credit are conditional commitments issued to guarantee a client’s performance or payment to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients. Under a risk participation agreement, the Bank guarantees the financial performance of a borrower on the participated portion of an interest rate swap on a loan. 42 Table of Contents Interest rates on residential one- to four-family mortgage loan applications are typically rate locked (committed) to clients during the application stage for periods ranging from 30 to 60 days, the most typical period being 45 days. Traditionally, these loan applications with rate lock commitments have the pricing for the sale of these loans locked with various qualified investors under a best-efforts delivery program at or near the time the interest rate is locked with the client. The Bank then attempts to deliver these loans before their rate locks expire. This arrangement generally requires delivery of the loans prior to the expiration of the rate lock. Delays in funding the loans may require a lock extension. The cost of a lock extension is sometimes covered by the client and other times by the Bank. These lock extension costs have not had a material impact to the Company’s operations. For mandatory delivery commitments the Company enters into forward commitments at specific prices and settlement dates to deliver either: (1) residential mortgage loans for purchase by secondary market investors (i.e., Freddie Mac or Fannie Mae), or (2) mortgage-backed securities to broker/dealers. The purpose of these forward commitments is to offset the movement in interest rates between the execution of its residential mortgage rate lock commitments with borrowers and the sale of those loans to the secondary market investor. There were no counterparty default losses on forward contracts during the three and nine months ended September 30, 2024 or September 30, 2023. Market risk with respect to forward contracts arises principally from changes in the value of contractual positions due to changes in interest rates. The Company limits its exposure to market risk by monitoring differences between commitments to clients and forward contracts with market investors and securities broker/dealers. In the event the Company has forward delivery contract commitments in excess of available mortgage loans, the transaction is completed by either paying or receiving a fee to or from the investor or broker/dealer equal to the increase or decrease in the market value of the forward contract. In the normal course of business, the Company and/or its subsidiaries have various legal proceedings and other contingent matters outstanding. These proceedings and the associated legal claims are often contested and the outcome of individual matters is not always predictable. These claims and counter-claims typically arise during the course of collection efforts on problem loans or with respect to action to enforce liens on properties in which the Bank holds a security interest. Based upon the information known to management, there were no legal proceedings that management believes would have a material adverse effect on the results of operations or consolidated financial position at September 30, 2024. In connection with certain asset sales, the Bank typically makes representations and warranties about the underlying assets conforming to specified guidelines. If the underlying assets do not conform to the specifications, the Bank may have an obligation to repurchase the assets or indemnify the purchaser against any loss. The Bank believes that the potential for material loss under these arrangements is remote. Accordingly, the fair value of such obligations is not material. Note 12: DERIVATIVES AND HEDGING Banner Bank is party to various derivative instruments that are used for asset and liability management and client financing needs. Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index, or other component. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the market value of the derivative contract. The Company’s derivative and hedging activities involve interest rate swaps related to certain term loans and forward sales contracts associated with mortgage banking activities. Generally, these instruments help the Company manage exposure to market risk and meet client financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors such as market-driven interest rates and prices or other economic factors. 43 Table of Contents As of September 30, 2024 and December 31, 2023, the notional values or contractual amounts and fair values of the Company’s derivatives were as follows (in thousands): Asset Derivatives Liability Derivatives September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023 Notional/ Contract Amount Fair Value Notional/ Contract Amount Fair Value Notional/ Contract Amount Fair Value Notional/ Contract Amount Fair Value Hedged interest rate swaps $ — $ — $ — $ — $ 400,000 $ 3,392 $ 400,000 $ 15,141 Interest rate swaps not designated in hedge relationships $ 386,724 $ 21,484 $ 416,711 $ 29,058 $ 386,724 $ 21,531 $ 416,711 $ 29,126 Master netting agreements ( 2,295 ) ( 13,929 ) ( 2,295 ) ( 13,929 ) Cash offset/(settlement) — — 7,644 ( 529 ) Net interest rate swaps 19,189 15,129 30,272 29,809 Risk participation agreements 875 — 1,050 — 43,541 28 45,298 42 Mortgage loan commitments 39,726 341 19,572 275 4,660 1 — — Forward sales contracts 16,872 1 5,406 — 36,952 14 17,966 185 Total $ 444,197 $ 19,531 $ 442,739 $ 15,404 $ 471,877 $ 30,315 $ 479,975 $ 30,036 The Company’s asset derivatives are included in other assets, while the liability derivatives are included in accrued expenses and other liabilities on the Consolidated Statements of Financial Condition. Interest Rate Swaps used in Cash Flow Hedges: The Company’s floating rate loans result in exposure to losses in value or net interest income as interest rates change. The risk management objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. During the fourth quarter of 2021, the Company entered into interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans. These hedge contracts involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making floating-rate payments over the life of the agreements without exchange of the underlying notional amount. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on the Company’s variable-rate assets. During the next 12 months, the Company estimates that an additional $ 2.3 million will be reclassified as a decrease to interest income. The following table presents the effect of cash flow hedge accounting on AOCI for the three and nine months ended September 30, 2024 and 2023 (in thousands): For the Three Months Ended September 30, 2024 Amount of Gain or (Loss) Recognized in AOCI on Derivative Amount of Gain or (Loss) Recognized in AOCI Included Component Amount of Gain or (Loss) Recognized in AOCI Excluded Component Location of Gain or (Loss) Recognized from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component Interest rate swaps $ 163 $ 163 $ — Interest Income $ ( 4,585 ) $ ( 4,585 ) $ — For the Nine Months Ended September 30, 2024 Amount of Gain or (Loss) Recognized in AOCI on Derivative Amount of Gain or (Loss) Recognized in AOCI Included Component Amount of Gain or (Loss) Recognized in AOCI Excluded Component Location of Gain or (Loss) Recognized from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component Interest rate swaps $ ( 2,110 ) $ ( 2,110 ) $ — Interest Income $ ( 13,743 ) $ ( 13,743 ) $ — 44 Table of Contents For the Three Months Ended September 30, 2023 Amount of Gain or (Loss) Recognized in AOCI on Derivative Amount of Gain or (Loss) Recognized in AOCI Included Component Amount of Gain or (Loss) Recognized in AOCI Excluded Component Location of Gain or (Loss) Recognized from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component Interest rate swaps $ ( 1,455 ) $ ( 1,455 ) $ — Interest Income $ ( 4,546 ) $ ( 4,546 ) $ — For the Nine Months Ended September 30, 2023 Amount of Gain or (Loss) Recognized in AOCI on Derivative Amount of Gain or (Loss) Recognized in AOCI Included Component Amount of Gain or (Loss) Recognized in AOCI Excluded Component Location of Gain or (Loss) Recognized from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component Interest rate swaps $ ( 5,845 ) $ ( 5,845 ) $ — Interest Income $ ( 12,317 ) $ ( 12,317 ) $ — At September 30, 2024 and December 31, 2023, we recorded total net unrealized losses on cash flow hedges in AOCI of $ 1.7 million and $ 10.6 million, respectively. Interest Rate Swaps: The Bank uses an interest rate swap program for commercial loan clients that provides the client with a variable-rate loan and enters into an interest rate swap in which the client receives a variable-rate payment in exchange for a fixed-rate payment. The Bank offsets its risk exposure by entering into an offsetting interest rate swap with a dealer counterparty for the same notional amount and length of term as the client interest rate swap providing the dealer counterparty with a fixed-rate payment in exchange for a variable-rate payment. These swaps do not qualify as designated hedges; therefore, each swap is accounted for as a freestanding derivative. Risk Participation Agreements: In conjunction with the purchase or sale of participating interests in loans, the Company also participates in related swaps through risk participation agreements. The existing credit derivatives resulting from these participations are not designated as hedges as they are not used to manage interest rate risk in the Company’s assets or liabilities and are not speculative. Mortgage Loan Commitments: The Company sells originated one- to four-family mortgage loans into the secondary mortgage loan markets. During the period of loan origination and prior to the sale of the loans into the secondary market, the Company has exposure to movements in interest rates associated with written interest rate lock commitments with potential borrowers to originate one- to four-family loans that are intended to be sold and for closed one- to four-family mortgage loans held for sale for which fair value accounting has been elected, that are awaiting sale and delivery into the secondary market. The Company economically hedges the risk of changing interest rates associated with these mortgage loan commitments by entering into forward sales contracts to sell one- to four-family mortgage loans or mortgage-backed securities to broker/dealers at specific prices and dates. Gains (losses) recognized in income within mortgage banking operations on non-designated hedging instruments for the three and nine months ended September 30, 2024 and 2023, were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Mortgage loan commitments $ 84 $ ( 165 ) $ 157 $ 65 Forward sales contracts ( 771 ) 522 ( 691 ) 601 $ ( 687 ) $ 357 $ ( 534 ) $ 666 The Company is exposed to credit-related losses in the event of nonperformance by the counterparty to these agreements. Credit risk of the financial contract is controlled through the credit approval, limits, and monitoring procedures and management does not expect the counterparties to fail their obligations. 45 Table of Contents In connection with the interest rate swaps between the Bank and the dealer counterparties, the agreements contain a provision where if the Bank fails to maintain its status as a well/adequately capitalized institution, then the counterparty could terminate the derivative positions and the Bank would be required to settle its obligations. Similarly, the Bank could be required to settle its obligations under certain of its agreements if specific regulatory events occur, such as a publicly issued prompt corrective action directive, cease and desist order, or a capital maintenance agreement that required the Bank to maintain a specific capital level. If the Bank had breached any of these provisions at September 30, 2024 or December 31, 2023, it could have been required to settle its obligations under the agreements at the termination value. As of September 30, 2024 and December 31, 2023, the Company had no obligations to dealer counterparties related to these agreements. The Company generally posts collateral against derivative liabilities in the form of cash, government agency-issued bonds, mortgage-backed securities, or commercial mortgage-backed securities. Collateral posted against derivative liabilities was $ 14.3 million and $ 15.0 million as of September 30, 2024 and December 31, 2023, respectively. The collateral posted included restricted cash of $ 13.4 million and $ 14.0 million as of September 30, 2024 and December 31, 2023, respectively. Derivative assets and liabilities are recorded at fair value on the balance sheet. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis and to offset net derivative positions with related collateral where applicable. In addition, some interest rate swap derivatives between the Company and the dealer counterparties are cleared through central clearing houses. These clearing houses characterize the variation margin payments as settlements of the derivative’s market exposure and not as collateral. The variation margin is treated as an adjustment to our cash collateral, as well as a corresponding adjustment to our derivative liability. The variation margin adjustment was a positive adjustment of $ 7.6 million and a negative adjustment of $ 529,000 as of September 30, 2024 and December 31, 2023, respectively. The following tables present additional information related to the Company’s derivative contracts, by type of financial instrument, as of September 30, 2024 and December 31, 2023 (in thousands): September 30, 2024 Gross Amounts of Financial Instruments Not Offset in the Consolidated Statement of Financial Condition Gross Amounts Recognized Amounts offset in the Statement of Financial Condition Net Amounts in the Statement of Financial Condition Netting Adjustment Per Applicable Master Netting Agreements Fair Value of Financial Collateral in the Statement of Financial Condition Net Amount Derivative assets Interest rate swaps $ 21,484 $ ( 2,295 ) $ 19,189 $ — $ — $ 19,189 $ 21,484 $ ( 2,295 ) $ 19,189 $ — $ — $ 19,189 Derivative liabilities Interest rate swaps $ 24,923 $ 5,349 $ 30,272 $ — $ ( 12,470 ) $ 17,802 $ 24,923 $ 5,349 $ 30,272 $ — $ ( 12,470 ) $ 17,802 December 31, 2023 Gross Amounts of Financial Instruments Not Offset in the Consolidated Statement of Financial Condition Gross Amounts Recognized Amounts offset in the Statement of Financial Condition Net Amounts in the Statement of Financial Condition Netting Adjustment Per Applicable Master Netting Agreements Fair Value of Financial Collateral in the Statement of Financial Condition Net Amount Derivative assets Interest rate swaps $ 29,058 $ ( 13,929 ) $ 15,129 $ — $ — $ 15,129 $ 29,058 $ ( 13,929 ) $ 15,129 $ — $ — $ 15,129 Derivative liabilities Interest rate swaps $ 44,267 $ ( 14,458 ) $ 29,809 $ — $ ( 13,124 ) $ 16,685 $ 44,267 $ ( 14,458 ) $ 29,809 $ — $ ( 13,124 ) $ 16,685 46 Table of Contents