BANNER CORP 10-K

Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the Consolidated Financial Statements and accompanying Notes to the Consolidated Financial Statements contained in Item IV of this Form 10-K. Executive Overview Banner’s successful execution of its super community bank model and strategic initiatives has delivered solid core operating results and profitability over the last several years. The Company’s longer term strategic initiatives continue to focus on originating high-quality assets and client acquisition, which we believe will continue to generate strong revenue while maintaining the Company’s moderate risk profile. We strive to uphold our core values, which are to do the right thing for our clients, communities, colleagues, company and shareholders; and to provide consistent and reliable strength through all economic cycles and change events. 2024 Financial Highlights • Revenues were $608.6 million for the year ended December 31, 2024, compared to $620.4 million for the prior year. • Adjusted revenue* (the total of net interest income and total non-interest income adjusted for the net gain or loss on the sale of securities and the net change in valuation of financial instruments) was $614.8 million or the year ended December 31, 2024, compared to $643.9 million for the prior year. • Net income of $168.9 million, or $4.88 per diluted share, for the year ended December 31, 2024, compared to net income of $183.6 million, or $5.33 per diluted share for the prior year. • Net interest income was $541.7 million for the year ended December 31, 2024, compared to $576.0 million for the prior year. • Net interest margin, on a tax equivalent basis, was 3.75% compared to 4.01% in the prior year. • Mortgage banking revenue was $12.2 million for the year ended December 31, 2024, compared to $11.8 million in the prior year. • Income from deposit fees and other service charges was $43.4 million for the year ended December 31, 2024, compared to $41.6 million for the prior year. • Non-interest expense was $391.5 million for the year ended December 31, 2024, compared to $382.5 million for the prior year. • Return on average assets was 1.07% for year ended December 31, 2024, compared to 1.18% for the prior year. • Efficiency ratio was 64.33%, compared to 61.66% in the prior year. • Net loans receivable increased 5% to $11.20 billion at December 31, 2024, compared to $10.66 billion a year ago. • Non-performing assets were $39.6 million, or 0.24% of total assets, at December 31, 2024, compared to $30.1 million, or 0.19% of total assets, a year ago. • The allowance for credit losses - loans was $155.5 million, or 1.37% of total loans receivable, at December 31, 2024, compared to $149.6 million, or 1.38% of total loans receivable a year ago. • Total deposits were $13.51 billion at December 31, 2024, compared to $13.03 billion a year ago. • Core deposits represented 89% of total deposits at December 31, 2024. • Cash dividends paid to shareholders were $1.92 per share, consistent with the prior year. • Common shareholders’ equity per share increased to $51.49 at December 31, 2024, compared to $48.12 a year ago. • Tangible common shareholders’ equity per share* decreased 1% to $40.57 at December 31, 2024, compared to $37.09 a year ago. * Represents a non-GAAP financial measure. For a reconciliation of the non-GAAP financial measure to the most directly comparable GAAP financial measure, see “Non-GAAP Financial Measures” below. 34 T able of C onten ts Selected Financial Data: The following condensed consolidated statements of financial condition and operations and selected performance ratios as of December 31, 2024, 2023 and 2022, and for the years then ended have been derived from our audited consolidated financial statements. FINANCIAL CONDITION DATA: December 31 (In thousands, except shares) 2024 2023 2022 Total assets $ 16,200,037 $ 15,670,391 $ 15,833,431 Cash and securities (1) 3,607,933 3,687,302 4,178,375 Loans receivable, net 11,199,135 10,660,812 10,005,259 Deposits 13,514,398 13,029,497 13,620,059 Borrowings 563,012 665,141 456,603 Total shareholders’ equity 1,774,326 1,652,691 1,456,432 Shares outstanding 34,459,832 34,348,369 34,194,018 OPERATING DATA: For the Year Ended December 31 (In thousands) 2024 2023 2022 Interest income $ 766,103 $ 701,572 $ 572,569 Interest expense 224,387 125,567 19,390 Net interest income 541,716 576,005 553,179 Provision for credit losses 7,581 10,789 10,364 Net interest income after provision for credit losses 534,135 565,216 542,815 Deposit fees and other service charges 43,371 41,638 44,459 Mortgage banking operations revenue 12,207 11,817 10,834 Net loss on sale of securities (5,190) (19,242) (3,248) Net change in valuation of financial instruments carried at fair value (982) (4,218) 807 All other non-interest income 17,482 14,414 22,403 Total non-interest income 66,888 44,409 75,255 Salary and employee benefits 250,555 244,563 242,266 All other non-interest expenses 140,983 137,975 135,029 Total non-interest expense 391,538 382,538 377,295 Income before provision for income tax expense 209,485 227,087 240,775 Provision for income tax expense 40,587 43,463 45,397 Net income $ 168,898 $ 183,624 $ 195,378 PER COMMON SHARE DATA: At or For the Years Ended December 31 2024 2023 2022 Net income: Basic $ 4.90 $ 5.35 $ 5.70 Diluted 4.88 5.33 5.67 Diluted adjusted earnings per share (10) 5.01 5.88 5.69 Common shareholders’ equity per share (2) 51.49 48.12 42.59 Common shareholders’ tangible equity per share (2)(10) 40.57 37.09 31.41 Cash dividends 1.92 1.92 1.76 Dividend payout ratio (basic) 39.18 % 35.89 % 30.88 % Dividend payout ratio (diluted) 39.34 % 36.02 % 31.04 % 35 T able of C onten ts OTHER DATA: As of December 31, 2024 2023 2022 Full-time equivalent employees 1,956 1,966 1,931 Number of branches 135 135 137 KEY FINANCIAL RATIOS: At or For the Years Ended December 31 2024 2023 2022 Performance Ratios: Return on average assets (3) 1.07 % 1.18 % 1.18 % Adjusted return on average assets (4) (10) 1.10 1.30 1.19 Return on average common equity (5) 9.91 11.94 12.79 Adjusted return on average equity (6) (10) 10.19 13.17 12.83 Average common equity to average assets 10.80 9.88 9.26 Net interest margin (tax equivalent) (7) 3.75 4.01 3.68 Non-interest income to average assets 0.42 0.29 0.46 Non-interest expense to average assets 2.48 2.46 2.29 Efficiency ratio (8) 64.33 61.66 60.04 Adjusted efficiency ratio (10) 62.29 57.89 57.99 Average interest-earning assets to funding liabilities 107.60 106.67 104.16 Loans to deposits ratio 84.26 83.05 74.92 Selected Financial Ratios: Allowance for credit losses - loans as a percent of total loans at end of period 1.37 1.38 1.39 Net (charge-offs)/recoveries as a percent of average outstanding loans during the period (0.02) (0.03) 0.01 Non-performing assets as a percent of total assets 0.24 0.19 0.15 Allowance for credit losses - loans as a percent of non-performing loans (9) 420.83 505.52 615.25 Common shareholders’ equity to total assets 10.95 10.55 9.20 Common shareholders’ tangible equity to tangible assets (10) 8.84 8.33 6.95 Consolidated Capital Ratios: Total capital to risk-weighted assets 15.04 14.58 14.04 Tier 1 capital to risk-weighted assets 13.08 12.64 12.13 Tier 1 capital to average leverage assets 11.05 10.56 9.45 Common equity tier I capital to risk-weighted assets 12.44 11.97 11.44 (1) Includes available-for-sale and held-to-maturity securities. (2) Calculated using shares outstanding. (3) Net income divided by average assets. (4) Adjusted earnings (non-GAAP) divided by average assets. (5) Net income divided by average common equity. (6) Adjusted earnings (non-GAAP) divided by average equity. (7) Net interest income as a percent of average interest-earning assets on a tax equivalent basis. (8) Non-interest expenses divided by the total of net interest income and non-interest income. (9) Non-performing loans consist of nonaccrual and 90 days past due loans still accruing interest. (10) Represents a non-GAAP financial measure. For a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measure, see, “Non-GAAP Financial Measures” below. Non-GAAP Financial Measures Management has presented non-GAAP financial measures in this discussion and analysis because it believes that they provide useful and comparative information to assess trends in our core operations and to facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, we have also presented comparable earnings information using GAAP financial measures. For a reconciliation of these non-GAAP financial measures, see the tables below. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. 36 T able of C onten ts Adjusted revenue, diluted adjusted earnings per share and adjusted efficiency ratio are non-GAAP financial measures. To calculate the adjusted revenue, diluted adjusted earnings per share and adjusted efficiency ratio, we make adjustments to our GAAP revenues and expenses as reported on our Consolidated Statements of Operations. Management believes that these non-GAAP financial measures provide information to investors that is useful in evaluating the operating performance and trends of financial services companies, including the Company. The following tables set forth reconciliations of these non-GAAP financial measures (dollars in thousands, except share and per share data): For the Years Ended December 31 2024 2023 2022 ADJUSTED REVENUE: Net interest income (GAAP) $ 541,716 $ 576,005 $ 553,179 Non-interest income (GAAP) 66,888 44,409 75,255 Total revenue (GAAP) 608,604 620,414 628,434 Exclude: Net loss on sale of securities 5,190 19,242 3,248 Net change in valuation of financial instruments carried at fair value 982 4,218 (807) Gain on sale of branches — — (7,804) Adjusted revenue (non-GAAP) $ 614,776 $ 643,874 $ 623,071 ADJUSTED EARNINGS: Net income (GAAP) $ 168,898 $ 183,624 $ 195,378 Exclude: Net loss on sale of securities 5,190 19,242 3,248 Net change in valuation of financial instruments carried at fair value 982 4,218 (807) Gain on sale of branches — — (7,804) Banner Forward expenses (1) — 1,334 5,293 Loss on extinguishment of debt — — 793 Related tax benefit (1,481) (5,951) (174) Total adjusted earnings (non-GAAP) $ 173,589 $ 202,467 $ 195,927 Diluted earnings per share (GAAP) $ 4.88 $ 5.33 $ 5.67 Diluted adjusted earnings per share (non-GAAP) $ 5.01 $ 5.88 $ 5.69 For the Years Ended December 31 ADJUSTED EFFICIENCY RATIO: 2024 2023 2022 Non-interest expense (GAAP) $ 391,538 $ 382,538 $ 377,295 Exclude: Banner Forward expenses (1) — (1,334) (5,293) CDI amortization (2,626) (3,756) (5,279) State/municipal tax expense (5,648) (5,260) (4,693) REO operations (293) 538 104 Loss on extinguishment of debt — — (793) Adjusted non-interest expense (non-GAAP) $ 382,971 $ 372,726 $ 361,341 Net interest income (GAAP) $ 541,716 $ 576,005 $ 553,179 Non-interest income (GAAP) 66,888 44,409 75,255 Total revenue (GAAP) 608,604 620,414 628,434 Exclude: Net loss on sale of securities 5,190 19,242 3,248 Net change in valuation of financial instruments carried at fair value 982 4,218 (807) Gain on sale of branches — — (7,804) Adjusted revenue (non-GAAP) $ 614,776 $ 643,874 $ 623,071 Efficiency ratio (GAAP) 64.33 % 61.66 % 60.04 % Adjusted efficiency ratio (non-GAAP) 62.29 % 57.89 % 57.99 % (1) Included in miscellaneous expenses in the Consolidated Statement of Operations. 37 T able of C onten ts The ratio of tangible common shareholders’ equity to tangible assets is a non-GAAP financial measure. We calculate tangible common equity by excluding goodwill and other intangible assets from shareholders’ equity. We calculate tangible assets by excluding the balance of goodwill and other intangible assets from total assets. We believe this is consistent with the treatment by our bank regulatory agencies, which exclude goodwill and other intangible assets from the calculation of risk-based capital ratios. The following table sets forth the reconciliation of tangible equity and tangible assets (dollars in thousands, except share and per share data). December 31 2024 2023 2022 Shareholders’ equity (GAAP) $ 1,774,326 $ 1,652,691 $ 1,456,432 Exclude goodwill and other intangible assets, net 376,179 378,805 382,561 Common shareholders’ tangible equity (non-GAAP) $ 1,398,147 $ 1,273,886 $ 1,073,871 Total assets (GAAP) $ 16,200,037 $ 15,670,391 $ 15,833,431 Exclude goodwill and other intangible assets, net 376,179 378,805 382,561 Total tangible assets (non-GAAP) $ 15,823,858 $ 15,291,586 $ 15,450,870 Common shareholders’ equity to total assets (GAAP) 10.95 % 10.55 % 9.20 % Common shareholders’ tangible equity to tangible assets (non-GAAP) 8.84 % 8.33 % 6.95 % Common shares outstanding 34,459,832 34,348,369 34,194,018 Common shareholders’ equity (book value) per share (GAAP) $ 51.49 $ 48.12 $ 42.59 Common shareholders’ tangible equity (tangible book value) per share (non-GAAP) $ 40.57 $ 37.09 $ 31.41 Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires Management to make estimates, assumptions and judgments that affect amounts reported in the consolidated financial statements. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Management believes the following estimates require difficult, subjective or complex judgments and, therefore, Management considers the following to be critical accounting estimates. Allowance for Credit Losses: The allowance for credit losses reflects Management’s evaluation of our loans and their estimated loss potential, as well as the risk inherent in various components of the portfolio. Significant judgment and assumptions are applied in estimating the allowance for credit losses. These judgments, assumptions and estimates are susceptible to significant changes based on the current environment. Among the material estimates required to establish the allowance for credit losses are a reasonable and supportable forecast; a reasonable and supportable forecast period and the reversion period; value of collateral; strength of guarantors; the amount and timing of future cash flows for loans individually evaluated; and determination of the qualitative loss factors. Management estimates the allowance for credit losses using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is maintained at a level sufficient to provide for expected credit losses over the life of the asset based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current portfolio. These factors include, among others, changes in the size and composition of the portfolio, differences in underwriting standards, delinquency rates, actual loss experience and current economic conditions. Management considers various economic scenarios and forecasts to arrive at the estimate that most reflects Management’s expectations of future conditions. As of December 31, 2024, Management used a baseline forecast to estimate the allowance for credit losses. The selection of a more optimistic or pessimistic economic forecast would result in a lower or higher allowance for credit losses. While there are multiple economic forecast scenarios available, the use of a protracted slump economic forecast would have increased the allowance for credit losses - loans by approximately 11% as of December 31, 2024, where the use of a stronger near-term growth economic forecast would have resulted in a negligible decrease in the allowance for credit losses - loans as of December 31, 2024. Management uses a scale to assign qualitative and environmental (QE) factor adjustments based on the level of estimated impact which requires a significant amount of judgment. Some QE factors impact all loan segments equally while others may impact some loan segments more or less than others. If Management’s judgment was different for a QE factor that impacts all loan segments equally, a five basis-point change in this QE factor would increase or decrease the allowance for credit losses by 3.7% as of December 31, 2024. 38 T able of C onten ts Fair Value Accounting and Measurement: We use fair value measurements to record certain financial assets and liabilities at their estimated fair value. A hierarchical disclosure framework associated with the level of pricing observability is utilized in measuring financial instruments at fair value. The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have little or no pricing observability and a higher degree of judgment utilized in measuring fair value. Determining the fair value of financial instruments with unobservable inputs requires a significant amount of judgment. This includes the discount rate used to fair value our trust preferred securities and junior subordinated debentures. A 25 basis-point increase or decrease in the discount rate used to calculate the fair value of our trust preferred securities would result in a $514,000 decrease or increase in the reported fair value as of December 31, 2024, with an offsetting adjustment to our accumulated other comprehensive income. A 25 basis-point increase or decrease in the discount rate used to calculate the fair value of our junior subordinated debentures would result in a $1.3 million decrease or increase in the reported fair value as of December 31, 2024, with an offsetting adjustment to our accumulated other comprehensive income. C omparison of Financial Condition at December 31, 2024 and 2023 General. Total assets increased to $16.20 billion at December 31, 2024, compared to $15.67 billion at December 31, 2023. The increase in assets was primarily due to loan growth and an increase in interest-bearing deposits, partially offset by the decrease in the securities portfolio in 2024. Total loans receivable (gross loans less deferred fees and discounts and excluding loans held for sale) increased $544.2 million, or 5%, to $11.35 billion at December 31, 2024, from $10.81 billion at December 31, 2023. The increase in total loans receivable primarily reflects growth in multifamily real estate, commercial business, commercial real estate and one- to four-family residential loan balances. The aggregate of securities and interest-bearing deposits decreased $73.1 million, or 2%, to $3.40 billion at December 31, 2024, compared to $3.48 billion a year earlier, primarily due to a decrease in securities, partially offset by an increase in interest-bearing deposits. Securities decreased to $3.11 billion at December 31, 2024, from $3.43 billion at December 31, 2023, primarily due to normal security portfolio cash flows. Fair value adjustments for securities designated as available-for-sale reflected a decrease of $5.0 million for the year ended December 31, 2024, which was included net of the associated tax benefit as a component of other comprehensive income. The average effective duration of our securities portfolio was approximately 6.6 years at December 31, 2024, compared to 6.5 years at December 31, 2023. Deposits increased $484.9 million, or 4%, to $13.51 billion at December 31, 2024, from $13.03 billion at December 31, 2023, with core deposits increasing $462.7 million and certificates of deposit increasing $22.2 million. The increase in core deposits reflects increases in interest-bearing transaction and savings accounts. Core deposits were 89% of total deposits at both December 31, 2024 and 2023. Non-interest-bearing deposits decreased by $200.8 million, or 4%, to $4.59 billion from $4.79 billion at December 31, 2023, while interest-bearing transaction and savings accounts increased by $663.5 million, or 10%, to $7.42 billion at December 31, 2024, from $6.76 billion at December 31, 2023. Certificates of deposit increased $22.2 million, or 2%, to $1.50 billion at December 31, 2024, from $1.48 billion at December 31, 2023, primarily due to clients moving funds from core deposit accounts to higher yielding certificates of deposit, partially offset by a $57.7 million decrease in brokered deposits. We had $50.3 million of brokered deposits at December 31, 2024, compared to $108.1 million at December 31, 2023. We had $290.0 million and $323.0 million of FHLB advances at December 31, 2024 and 2023, respectively. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, decreased $57.6 million to $125.3 million at December 31, 2024, compared to $182.9 million at December 31, 2023. Junior subordinated debentures totaled $67.5 million at December 31, 2024, compared to $66.4 million at December 31, 2023. Subordinated notes, net of issuance costs, were $80.3 million at December 31, 2024, compared to $92.9 million at December 31, 2023. The decrease was due to the Bank’s purchase of $13.0 million of Banner’s outstanding subordinated debt during 2024. Total shareholders’ equity increased $121.6 million, to $1.77 billion at December 31, 2024, compared to $1.65 billion at December 31, 2023. The increase in shareholders’ equity primarily reflects $168.9 million of net income and an $11.9 million increase in AOCI. This increase was partially offset by $67.0 million of cash dividends paid or accrued to common shareholders. There were no shares of common stock repurchased during the year ended December 31, 2024. Common shareholder’s equity to total assets was 10.95% and 10.55% at December 31, 2024 and 2023, respectively. Tangible common shareholders’ equity (a non-GAAP financial measure), which excludes goodwill and other intangible assets was $1.40 billion, or 8.84% of tangible assets at December 31, 2024, compared to $1.27 billion, or 8.33% at December 31, 2023. The increase in tangible common shareholders’ equity as a percentage of tangible assets was primarily due to the previously mentioned increase in AOCI and an increase in retained earnings. The Company’s book value per share was $51.49 at December 31, 2024, compared to $48.12 per share a year ago, and its tangible book value per share (a non-GAAP financial measure) was $40.57 at December 31, 2024, compared to $37.09 per share a year ago. See, “Executive Overview - Non-GAAP Financial Measures” above for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures. 39 T able of C onten ts Investments. At December 31, 2024, our securities portfolio totaled $3.11 billion, consisting principally of mortgage-backed and mortgage-related securities. Our investment levels may be increased or decreased depending upon Management’s projections as to the demand for funds to be used in our loan origination, deposit and other activities, and upon yields available on investment alternatives. During the year ended December 31, 2024, our aggregate investment in securities decreased $326.8 million, primarily due to normal security portfolio cash flows and the sale of securities. Mortgage-backed securities decreased $219.4 million and U.S. Government and agency obligations decreased $26.3 million, while municipal bonds decreased $6.8 million, corporate debt obligations decreased $23.1 million and asset-backed securities decreased $50.1 million. U.S. Government and Agency Obligations: Our portfolio of U.S. Government and agency obligations had a carrying value of $8.2 million (with an amortized cost of $8.8 million) at December 31, 2024, a weighted average contractual maturity of 13 years and a weighted average coupon rate of 4.11%. Many of the U.S. Government and agency obligations we own include call features which allow the issuing agency the right to call the securities at various dates prior to the final maturity. Mortgage-Backed Obligations: At December 31, 2024, our mortgage-backed and mortgage-related securities had a carrying value of $2.24 billion ($2.56 billion at amortized cost, with a net unrealized loss adjustment of $319.0 million). The weighted average coupon rate of these securities was 2.60% and the weighted average contractual maturity was 26 years, although we receive principal payments on these securities each month resulting in a much shorter expected average life. As of December 31, 2024, 97% of the mortgage-backed and mortgage-related securities pay interest at a fixed rate. Municipal Bonds: The carrying value of our tax-exempt bonds at December 31, 2024 was $493.5 million ($512.3 million at amortized cost), comprised of general obligation bonds (i.e., backed by the general credit of the issuer) and, to a lesser extent, revenue bonds (i.e., backed by revenues from the specific project being financed) issued by cities and counties and various housing authorities, and hospital, school, water and sanitation districts. We also had taxable bonds in our municipal bond portfolio, which at December 31, 2024 had a carrying value of $68.5 million ($79.9 million at amortized cost). Many of our qualifying municipal bonds are not rated by a nationally recognized credit rating agency due to the smaller size of the total issuance and a portion of these bonds have been acquired through direct private placement by the issuers. We have not experienced any defaults or payment deferrals on our current portfolio of municipal bonds. Our combined municipal bond portfolio is geographically diverse, with the majority within the states of Washington, Oregon, Texas and California. At December 31, 2024, our municipal bond portfolio, including taxable and tax-exempt, had a weighted average maturity of approximately 22 years and a weighted average coupon rate of 3.13%. Corporate Bonds: Our corporate bond portfolio had a carrying value of $127.5 million ($134.0 million at amortized cost) at December 31, 2024. At December 31, 2024, the portfolio had a weighted average maturity of 11.0 years and a weighted average coupon rate of 4.82%. Asset-Backed Securities: At December 31, 2024, our asset-backed securities portfolio had a carrying value of $170.8 million (with an amortized cost of $170.6 million), and was comprised of collateralized loan obligations. The weighted average coupon rate of these securities was 6.51% and the weighted average contractual maturity was 14 years. At December 31, 2024, 100% of these securities had adjustable interest rates tied to three-month SOFR. 40 T able of C onten ts The following tables set forth certain information regarding carrying values and percentage of total carrying values of our portfolio of securities—trading and securities—available-for-sale, both carried at estimated fair market value, and securities—held-to-maturity, carried at amortized cost, net of the allowance for credit losses - securities, as of December 31, 2024, 2023 and 2022 (dollars in thousands): Table 1: Securities December 31 2024 2023 2022 Carrying Value Percent of Total Carrying Value Percent of Total Carrying Value Percent of Total Trading Corporate bonds (1) $ — n/a $ — n/a $ 28,694 100 % Total securities—trading $ — n/a $ — n/a $ 28,694 100 % Available-for-Sale U.S. Government and agency obligations $ 7,933 — % $ 34,189 1 % $ 55,108 2 % Municipal bonds 123,982 6 132,905 6 261,209 9 Corporate bonds 124,990 6 119,123 5 121,853 4 Mortgage-backed or related securities 1,676,848 80 1,866,714 79 2,139,336 77 Asset-backed securities 170,758 8 220,852 9 211,525 8 Total securities—available-for-sale $ 2,104,511 100 % $ 2,373,783 100 % $ 2,789,031 100 % Held-to-Maturity U.S. Government and agency obligations $ 302 — % $ 307 — % $ 312 — % Municipal bonds 438,053 44 465,875 44 503,117 45 Corporate bonds 2,504 — 2,606 — 2,961 — Mortgage-backed or related securities 560,705 56 590,267 56 611,577 55 Total securities—held-to-maturity $ 1,001,564 100 % $ 1,059,055 100 % $ 1,117,967 100 % Estimated market value $ 825,528 $ 907,514 $ 942,180 (1) In the fourth quarter of 2023, our corporate bonds classified as trading were transferred to available-for-sale. 41 T able of C onten ts The following table shows the maturity or period to repricing of our available-for-sale and held-to-maturity securities as of December 31, 2024 (dollars in thousands): Table 2: Securities Available-for-Sale and Held-to-Maturity—Maturity/Repricing and Rates December 31, 2024 One Year or Less After One to Five Years After Five to Ten Years After Ten Years Total Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield U.S. Government and agency obligations $ 372 2.70 % $ 1,666 5.81 % $ 2,653 2.32 % $ 3,544 2.85 % $ 8,235 3.27 % Municipal bonds: Taxable 2,558 4.15 % 7,232 3.88 % 2,893 2.18 % 55,858 2.81 % 68,541 2.95 % Tax exempt (1) 842 4.89 % 5,553 2.87 % 29,397 3.67 % 457,702 3.57 % 493,494 3.57 % 3,400 4.34 % 12,785 3.44 % 32,290 3.53 % 513,560 3.49 % 562,035 3.49 % Corporate bonds 5,813 4.40 % 20,411 4.53 % 74,477 3.81 % 26,793 9.77 % 127,494 5.21 % Mortgage-backed or related securities 17,197 3.46 % 112,564 3.24 % 171,943 2.23 % 1,935,849 2.65 % 2,237,553 2.65 % Asset-backed securities — — % — — % 141,258 6.71 % 29,500 6.74 % 170,758 6.71 % Total securities—available-for-sale and held-to-maturity - carrying value $ 26,782 3.77 % $ 147,426 3.46 % $ 422,621 4.11 % $ 2,509,246 2.94 % $ 3,106,075 3.13 % Total securities—available-for-sale and held-to-maturity - estimated market value $ 26,777 $ 146,905 $ 420,152 $ 2,336,205 $ 2,930,039 (1) Tax-exempt weighted average yield is calculated on a tax equivalent basis using a federal tax rate of 21% and a tax disallowance of 10%. 42 T able of C onten ts Loans and Lending. Loans are our most significant and generally highest yielding earning assets. We attempt to maintain a portfolio of loans to total deposits ratio at a level designed to enhance our revenues, while adhering to sound underwriting practices and appropriate diversification guidelines in order to maintain a moderate risk profile. Our loan-to-deposit ratio at December 31, 2024, was 84%. We offer a wide range of loan products to meet the demands of our clients. Our lending activities are primarily directed toward the origination of commercial real estate and business loans. While we originate a variety of loans, our ability to originate each type of loan depends upon the relative client demand and competition in each market we serve. We continue to implement strategies designed to capture more market share and achieve increases in targeted loans. New loan originations and portfolio balances will continue to be significantly affected by economic activity and changes in interest rates. The following table shows loan origination activity (excluding loans held for sale) for the years ended December 31, 2024, 2023 and 2022 (in thousands): Table 3: Loan Originations Years Ended Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Commercial real estate $ 408,546 $ 309,022 $ 418,635 Multifamily real estate 6,593 57,046 37,612 Construction, land and land development 1,759,799 1,541,383 1,935,476 Commercial business 752,269 585,047 1,034,950 Agricultural business 79,715 84,072 89,655 One- to four-family residential 106,085 167,951 358,976 Consumer 356,543 300,913 545,254 Total loan originations (excluding loans held for sale) $ 3,469,550 $ 3,045,434 $ 4,420,558 One- to Four-Family Residential Lending: At December 31, 2024, $1.59 billion, or 14% of our loan portfolio, consisted of permanent loans on one- to four-family residences. We are active originators of one- to four-family residential loans in the communities we serve. Our balance of loans for one- to four-family residences increased by $73.2 million in 2024, compared to the prior year. The increase in one- to four-family residential loans during 2024 was primarily the result of a higher percentage of one- to four-family construction loans converting to one- to four-family residential loans and a larger percentage of new production being held in portfolio. Construction, Land and Land Development Lending: Our construction loan originations have been relatively strong in recent years as builders have expanded production and experienced strong home sales in many markets where we operate. At December 31, 2024, construction, land and land development loans totaled $1.52 billion, or 14% of total loans. The largest shifts in this portfolio occurred in commercial construction and land and land development loans. Commercial construction loans decreased $47.6 million, or 28%, to $122.4 million at December 31, 2024, primarily due to the conversion of commercial construction loans to the commercial real estate portfolio upon the completion of the construction phase, partially offset by new loan production. Commercial construction loans represented approximately 1% of our total loan portfolio at December 31, 2024, comprised primarily of retail property construction projects. Land and land development loans increased $33.0 million , or 10% , to $369.7 million at December 31, 2024. Land and land development loans represented approximately 3% of our total loan portfolio at December 31, 2024 and was comprised of residential properties for personal use and development. Multifamily construction loans increased $9.7 million, or 2%, to $513.7 million at December 31, 2024. Multifamily construction loans represented approximately 5% of our total loan portfolio at December 31, 2024 and was comprised of affordable housing projects and, to a lesser extent, market rate multifamily projects across our footprint. One- to four-family construction loans decreased $12.2 million, or 2%, to $514.2 million at December 31, 2024. One- to four-family construction loans represented approximately 5% of our total loan portfolio at December 31, 2024, and included speculative construction loans, as well as “all-in-one” construction loans made to owner occupants that convert to permanent loans upon completion of the homes that, depending on market conditions, may be subsequently sold into the secondary market. Commercial and Multifamily Real Estate Lending: We originate loans secured by commercial and multifamily real estate. These loans include both fixed- and adjustable-rate loans with intermediate terms of generally five to 10 years. At December 31, 2024, our loan portfolio included $3.86 billion of commercial real estate loans, or 34% of the total loan portfolio, and $894.4 million of multifamily real estate loans, or 8% of the total loan portfolio. The increase in commercial real estate loans was primarily the result of new loan production and the conversion of commercial construction loans to commercial real estate loans upon the completion of the construction phase. Our commercial real estate portfolio consists of loans on a variety of property types with no significant concentrations by property type, borrowers or locations. Approximately 12% of our commercial real estate portfolio was secured by retail property at December 31, 2024. Within this portfolio, we have limited exposure to the office sector, with only 6% of total loans secured by office properties, nearly 55% of which are owner-occupied. The increase in multifamily real estate loans was the result of the conversion of multifamily construction loans to multifamily real estate loans upon the completion of the construction phase. 43 T able of C onten ts Commercial Business Lending: Our commercial business lending is directed toward meeting the credit and related deposit needs of various small-to-medium-sized business and agribusiness borrowers operating in our primary market areas. In addition to providing earning assets, this type of lending has helped increase our deposit base. At December 31, 2024, commercial business loans, including small business scored, totaled $2.42 billion, or 21% of total loans. Our commercial business loan portfolio at December 31, 2024 reflects an increase of 6% from December 31, 2023. Our commercial business lending, to a lesser extent, includes participation in certain syndicated loans, including shared national credits which totaled $227.4 million, or 2% of our loan portfolio, at December 31, 2024. Agricultural Lending: Agriculture is a major industry in our footprint. While agricultural loans are not a large part of our portfolio, we routinely make agricultural loans to borrowers with a strong capital base, sufficient management depth, proven ability to operate through agricultural cycles, reliable cash flows and adequate financial reporting. Payments on agricultural loans depend, to a large degree, on the results of operation of the related farm entity. The repayment is also subject to other economic and weather conditions as well as market prices for agricultural products, which can be highly volatile at times. At December 31, 2024, agricultural loans totaled $340.3 million, or 3% of the loan portfolio. Consumer and Other Lending: Consumer lending has traditionally been a modest part of our business with loans made primarily to accommodate our existing client base. At December 31, 2024, our consumer loans increased $22.0 million to $721.4 million, or 6% of our loan portfolio, compared to December 31, 2023. As of December 31, 2024, 87% of our consumer loans were secured by one- to four-family residences through home equity lines of credit. Credit card balances totaled $45.2 million at December 31, 2024. Loan Servicing Portfolio: At December 31, 2024, we were servicing $3.18 billion of loans for others and held $12.7 million in escrow for our portfolio of loans serviced for others. The loan servicing portfolio at December 31, 2024 was comprised of $1.36 billion of Freddie Mac residential mortgage loans, $1.00 billion of Fannie Mae residential mortgage loans, $430.7 million of Oregon Housing residential mortgage loans, $65.5 million of SBA loans and $314.5 million of other loans serviced for a variety of investors. The portfolio included loans secured by property located primarily in the states of Washington, Oregon, Idaho and California. For the years ended December 31, 2024 and 2023, we recognized $8.2 million and $7.8 million of loan servicing income in our results of operations, respectively. 44 T able of C onten ts The following table sets forth the composition of the Company’s loan portfolio, net of discounts and deferred fees and costs, by type of loan as of the dates indicated (dollars in thousands): Table 4: Loan Portfolio Analysis December 31, 2024 December 31, 2023 December 31, 2022 Amount Percent of Total Amount Percent of Total Amount Percent of Total Commercial real estate: Owner-occupied $ 1,027,426 9 % $ 915,897 8 % $ 845,320 8 % Investment properties 1,623,672 14 1,541,344 14 1,589,975 16 Small balance CRE 1,213,792 11 1,178,500 11 1,200,251 12 Total commercial real estate 3,864,890 34 3,635,741 33 3,635,546 36 Multifamily real estate 894,425 8 811,232 8 645,071 6 Construction, land and land development: Commercial construction 122,362 1 170,011 2 184,876 2 Multifamily construction 513,706 5 503,993 5 325,816 3 One- to four-family construction 514,220 5 526,432 5 647,329 6 Land and land development 369,663 3 336,639 3 328,475 3 Total construction, land and land development 1,519,951 14 1,537,075 15 1,486,496 14 Commercial business: Commercial business 1,316,321 11 1,252,088 12 1,275,813 13 SBA PPP 2,012 — 3,646 — 7,594 — Small business scored 1,104,117 10 1,022,154 9 947,092 9 Total commercial business 2,422,450 21 2,277,888 21 2,230,499 22 Agricultural business, including secured by farmland: Agricultural business, including secured by farmland 340,280 3 331,089 3 294,743 3 SBA PPP — — — — 334 — Total agricultural business, including secured by farmland 340,280 3 331,089 3 295,077 3 One- to four-family residential 1,591,260 14 1,518,046 14 1,173,112 12 Consumer: Consumer—home equity revolving lines of credit 625,680 5 588,703 5 566,291 6 Consumer—other 95,720 1 110,681 1 114,632 1 Total consumer 721,400 6 699,384 6 680,923 7 Total loans 11,354,656 100 % 10,810,455 100 % 10,146,724 100 % Less allowance for credit losses – loans (155,521) (149,643) (141,465) Net loans $ 11,199,135 $ 10,660,812 $ 10,005,259 45 T able of C onten ts The following table sets forth the Company’s loans by geographic concentration at December 31, 2024, 2023 and 2022 (dollars in thousands): Table 5: Loans by Geographic Concentration December 31, 2024 December 31, 2023 December 31, 2022 Amount Percent Amount Percent Amount Percent Washington $ 5,245,886 46 % $ 5,095,602 47 % $ 4,777,546 47 % California 2,861,435 25 2,670,923 25 2,484,980 25 Oregon 2,113,229 19 1,974,001 18 1,826,743 18 Idaho 665,158 6 610,064 5 565,586 5 Utah 82,459 1 68,931 1 75,967 1 Other 386,489 3 390,934 4 415,902 4 Total $ 11,354,656 100 % $ 10,810,455 100 % $ 10,146,724 100 % The geographic concentration of our commercial real estate portfolio, as of December 31, 2024, was 48% in Washington and 26% in California. The following table sets forth certain information at December 31, 2024 regarding the dollar amount of loans maturing in our portfolio based on their contractual terms to maturity, but does not include scheduled payments or potential prepayments. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. Loan balances are net of unamortized premiums and discounts and exclude loans held for sale (in thousands): Table 6: Loans by Maturity Maturing in One Year or Less Maturing After One to Five Years Maturing After Five to Fifteen Years Maturing After Fifteen Years Total Commercial real estate: Owner-occupied $ 69,859 $ 176,780 $ 755,526 $ 25,261 $ 1,027,426 Investment properties 105,984 536,474 807,897 173,317 1,623,672 Small balance CRE 78,392 389,344 675,611 70,445 1,213,792 Total commercial real estate 254,235 1,102,598 2,239,034 269,023 3,864,890 Multifamily real estate 144,129 158,174 314,610 277,512 894,425 Construction, land and land development: Commercial construction 89,666 27,585 5,111 — 122,362 Multifamily construction 343,050 159,017 — 11,639 513,706 One- to four-family construction 441,956 72,264 — — 514,220 Land and land development 119,963 93,845 153,110 2,745 369,663 Total construction, land and land development 994,635 352,711 158,221 14,384 1,519,951 Commercial business: Commercial business 475,066 271,265 463,989 108,013 1,318,333 Small business scored 72,670 211,566 320,235 499,646 1,104,117 Total commercial business 547,736 482,831 784,224 607,659 2,422,450 Agricultural business, including secured by farmland 120,217 90,006 128,857 1,200 340,280 One- to four-family residential 3,865 17,402 69,225 1,500,768 1,591,260 Consumer: Consumer—home equity revolving lines of credit 5,836 10,995 3,045 605,804 625,680 Consumer—other 31,195 10,936 27,854 25,735 95,720 Total consumer 37,031 21,931 30,899 631,539 721,400 Total loans $ 2,101,848 $ 2,225,653 $ 3,725,070 $ 3,302,085 $ 11,354,656 Contractual maturities of loans do not necessarily reflect the actual life of such assets. The average life of loans typically is substantially less than their contractual maturities because of principal repayments and prepayments. In addition, due-on-sale clauses on certain mortgage loans generally give us the right to declare loans immediately due and payable in the event that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase, however, when current mortgage loan market rates are substantially higher than rates on existing mortgage loans and, conversely, decreases when rates on existing mortgage loans are substantially higher than current mortgage loan market rates. 46 T able of C onten ts The following table sets forth the dollar amount of all loans maturing after December 31, 2025 which have fixed interest rates and floating or adjustable interest rates (in thousands): Table 7: Loans Maturing after One Year Fixed Rates Floating or Adjustable Rates Total Commercial real estate: Owner-occupied $ 252,143 $ 705,424 $ 957,567 Investment properties 403,802 1,113,886 1,517,688 Small balance CRE 277,791 857,609 1,135,400 Total commercial real estate 933,736 2,676,919 3,610,655 Multifamily real estate 485,892 264,404 750,296 Construction, land and land development: Commercial construction 16,834 15,862 32,696 Multifamily construction 47,792 122,864 170,656 One- to four-family construction 1,492 70,772 72,264 Land and land development 72,820 176,880 249,700 Total construction, land and land development 138,938 386,378 525,316 Commercial business: Commercial business 573,054 270,213 843,267 Small business scored 160,694 870,753 1,031,447 Total commercial business 733,748 1,140,966 1,874,714 Agricultural business, including secured by farmland 66,357 153,706 220,063 One- to four-family residential 1,094,636 492,759 1,587,395 Consumer: Consumer—home equity revolving lines of credit 286 619,558 619,844 Consumer—other 62,054 2,471 64,525 Total consumer 62,340 622,029 684,369 Total loans maturing after one year $ 3,515,647 $ 5,737,161 $ 9,252,808 Deposits. We compete with other financial institutions and financial intermediaries in attracting deposits and we generally attract deposits within our primary market areas. Much of the focus of our expansion and current marketing efforts have been directed toward attracting additional deposit client relationships and balances. One of our key strategies is to strengthen our franchise by emphasizing core deposit activity in non-interest-bearing and other transaction and savings accounts with less reliance on higher cost certificates of deposit. This strategy is intended to help control our cost of funds and increase the opportunity for deposit fee revenues, while stabilizing our funding base. Total deposits increased $484.9 million, or 4%, to $13.51 billion at December 31, 2024 from $13.03 billion at December 31, 2023. The increase in deposits during the year ended December 31, 2024 was due to an increase in core deposits, primarily interest-bearing transaction and savings accounts. Core deposits were 89% of total deposits at both December 31, 2024 and 2023. 47 T able of C onten ts The following table sets forth the balances of deposits in the various types of accounts offered by the Bank at the dates indicated (dollars in thousands): Table 8: Deposits December 31 2024 2023 2022 Amount Percent of Total Increase (Decrease) Amount Percent of Total Increase (Decrease) Amount Percent of Total Non-interest-bearing checking $ 4,591,543 34 % $ (200,826) $ 4,792,369 37 % $ (1,384,629) $ 6,176,998 45 % Interest-bearing checking 2,393,864 18 295,338 2,098,526 16 287,373 1,811,153 14 Regular savings 3,478,423 26 497,893 2,980,530 23 270,440 2,710,090 20 Money market 1,550,896 11 (129,709) 1,680,605 13 (517,683) 2,198,288 16 Total interest-bearing transaction and savings accounts 7,423,183 55 663,522 6,759,661 52 40,130 6,719,531 50 Certificates maturing: Within one year 1,448,449 11 48,576 1,399,873 11 868,230 531,643 4 After one year, but within two years 31,053 — (18,526) 49,579 — (93,414) 142,993 1 After two years, but within five years 19,571 — (7,749) 27,320 — (20,195) 47,515 — After five years 599 — (96) 695 — (684) 1,379 — Total certificate accounts 1,499,672 11 22,205 1,477,467 11 753,937 723,530 5 Total deposits $ 13,514,398 100 % $ 484,901 $ 13,029,497 100 % $ (590,562) $ 13,620,059 100 % Included in Total Deposits: Public transaction accounts $ 414,413 3 % $ 57,798 $ 356,615 3 % $ (36,244) $ 392,859 3 % Public interest-bearing certificates 25,423 — (26,625) 52,048 — 25,238 26,810 — Total public deposits $ 439,836 3 % $ 31,173 $ 408,663 3 % $ (11,006) $ 419,669 3 % Total deposits in excess of the FDIC insurance limit $ 4,379,488 32 % $ 296,273 $ 4,083,215 31 % $ (761,482) $ 4,844,697 36 % 48 T able of C onten ts The following table indicates the amount of the Bank’s certificates of deposit with balances in excess of the FDIC insurance limit by time remaining until maturity as of December 31, 2024 (in thousands): Table 9: Maturity Period—Certificates of Deposit in excess of the FDIC insurance limit Certificates of Deposit in Excess of FDIC Insurance Limit Maturing in three months or less $ 177,912 Maturing after three months through six months 199,954 Maturing after six months through 12 months 81,596 Maturing after 12 months 6,552 Total $ 466,014 The following table provides additional detail on geographic concentrations of our deposits at December 31, 2024, 2023 and 2022 (in thousands): Table 10: Geographic Concentration of Deposits December 31, 2024 December 31, 2023 December 31, 2022 Amount Percent Amount Percent Amount Percent Washington $ 7,441,413 55 % $ 7,247,392 56 % $ 7,563,056 56 % Oregon 2,981,327 22 2,852,677 22 2,998,572 22 California 2,392,573 18 2,269,557 17 2,331,524 17 Idaho 699,085 5 659,871 5 726,907 5 Total deposits $ 13,514,398 100 % $ 13,029,497 100 % $ 13,620,059 100 % Borrowings. We had $290.0 million in FHLB advances at December 31, 2024. At that date, based on pledged collateral, the Bank had $2.95 billion of available credit capacity with the FHLB. At December 31, 2024, based upon our available unencumbered collateral, the Bank was eligible to borrow $1.52 billion from the Federal Reserve Bank, however, at that date we had no funds borrowed under this arrangement. Other borrowings, consisting of retail repurchase agreements, which are primarily associated with client sweep account arrangements, decreased $57.6 million to $125.3 million at December 31, 2024 from $182.9 million at December 31, 2023. At December 31, 2024, retail repurchase agreements had a weighted average rate of 1.98% and were secured by pledges of certain mortgage-backed securities and agency securities. We had no borrowings under wholesale repurchase agreements at December 31, 2024. At December 31, 2024, we had an aggregate of $86.5 million of junior subordinated debentures. This includes $75.0 million issued by us and $11.5 million acquired in our bank acquisitions. The junior subordinated debentures are carried at their estimated fair value of $67.5 million at December 31, 2024. At December 31, 2024, the junior subordinated debentures had a weighted average rate of 6.32%. Subordinated notes, net of issuance costs, were $80.3 million at December 31, 2024, compared to $92.9 million at December 31, 2023, and a weighted average interest rate of 5.00%. The decrease was due to the Bank’s purchase of $13.0 million of Banner’s outstanding subordinated debt from third parties during the year ended December 31, 2024. Asset Quality. Maintaining a moderate risk profile by employing appropriate underwriting standards, avoiding excessive asset concentrations and aggressively managing troubled assets has been and will continue to be a primary focus for us. Non-performing assets increased to $39.6 million, or 0.24% of total assets, at December 31, 2024, from $30.1 million, or 0.19% of total assets, at December 31, 2023. At December 31, 2024, our allowance for credit losses - loans was $155.5 million, or 421% of non-performing loans, compared to $149.6 million, or 506% of non-performing loans, at December 31, 2023. 49 T able of C onten ts The following table sets forth information with respect to our non-performing assets at the dates indicated (dollars in thousands): Table 11: Non-Performing Assets December 31 2024 2023 2022 Nonaccrual loans: Secured by real estate: Commercial $ 2,186 $ 2,677 $ 3,683 Construction/land 3,963 3,105 181 One- to four-family 10,016 5,702 5,236 Commercial business 7,067 9,002 9,886 Agricultural business, including secured by farmland 8,485 3,167 594 Consumer 4,835 3,204 2,126 36,552 26,857 21,706 Loans more than 90 days delinquent, still on accrual: Secured by real estate: Construction/land — 1,138 — One- to four-family 369 1,205 1,023 Commercial business — 1 — Consumer 35 401 264 404 2,745 1,287 Total non-performing loans 36,956 29,602 22,993 REO assets held for sale, net 2,367 526 340 Other repossessed assets held for sale, net 300 — 17 Total non-performing assets $ 39,623 $ 30,128 $ 23,350 Total non-performing assets to total assets 0.24 % 0.19 % 0.15 % Total nonaccrual loans to net loans before allowance for credit losses 0.32 % 0.25 % 0.21 % Loans 30-89 days past due and on accrual $ 26,824 $ 19,744 $ 17,186 The increase in total non-performing loans was primarily due to increases in nonaccrual loans in the one- to four-family and agricultural business loan categories consisting of various borrowers with no meaningful concentrations. The increases in these categories reflect loans transferred to nonaccrual, partially offset by payoffs of nonaccrual loans during 2024. For the year ended December 31, 2024, interest income was reduced by $2.0 million as a result of nonaccrual loan activity, which includes the reversal of $826,000 of accrued interest as of the date the loans were placed on nonaccrual. For the year ended December 31, 2023, interest income was reduced by $1.6 million as a result of nonaccrual loan activity, which includes the reversal of $569,000 of accrued interest as of the date the loans were placed on nonaccrual. For the year ended December 31, 2022, interest income was reduced by $725,000 as a result of nonaccrual loan activity, which includes the reversal of $322,000 of accrued interest as of the date the loan was placed on nonaccrual. There was no interest income recognized on nonaccrual loans during the years ended December 31, 2024, 2023 and 2022. The following table presents the Company’s portfolio of risk-rated loans and non-risk-rated loans by grade at the dates indicated (in thousands): Table 12: Loans by Grade December 31 2024 2023 2022 Pass $ 11,118,744 $ 10,671,281 $ 10,000,493 Special Mention 43,451 13,732 9,081 Substandard 192,461 125,442 137,150 Total $ 11,354,656 $ 10,810,455 $ 10,146,724 The increase in substandard loans during the year ended December 31, 2024 was primarily due to increases in adversely classified loans, primarily in the commercial business and agricultural loan segments, partially offset by payoffs and paydowns. As of December 31, 2024, total substandard loans primarily consisted of loans within the commercial business, owner-occupied commercial real estate and agricultural loan segments. 50 T able of C onten ts Comparison of Results of Operations for the Years Ended December 31, 2024 and 2023 General. For the year ended December 31, 2024, net income was $168.9 million, or $4.88 per diluted share, compared to net income of $183.6 million, or $5.33 per diluted share for the year ended December 31, 2023. Current year results included a decrease in net interest income and an increase in non-interest expense, partially offset by an increase in non-interest income and a decrease in the provision for credit losses. Our operating results depend largely on net interest income which decreased $34.3 million to $541.7 million for the year ended December 31, 2024, compared to the prior year, primarily reflecting increased funding costs, partially offset by increased yields on loans due to new loans being originated at higher interest rates and adjustable rate loans repricing higher, as well as higher average loan balances. Revenues (net interest income and non-interest income) decreased $11.8 million, or 2%, to $608.6 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to increased funding costs, partially offset by increased interest income on loans and a decrease in the net loss on the sale of securities during the year ended December 31, 2024. We recorded a $7.6 million provision for credit losses for the year ended December 31, 2024, compared to a $10.8 million provision for credit losses for the year ended December 31, 2023. The provision for credit losses for the year ended December 31, 2024, reflects risk rating downgrades, as well as growth in loan balances. Total non-interest income for the year ended December 31, 2024 increased to $66.9 million compared to $44.4 million for the year ended December 31, 2023, primarily due to a decrease in the net loss on the sale of securities. Total non-interest expense increased to $391.5 million for the year ended December 31, 2024, compared to $382.5 million for the year ended December 31, 2023, largely as a result of increases in salary and employee benefits and payment and card processing services expense, partially offset by decreases in professional and legal expense and the amortization of core deposit intangibles. Net Interest Income. Net interest income decreased $34.3 million, or 6%, to $541.7 million for the year ended December 31, 2024, compared to $576.0 million for the year ended December 31, 2023, primarily reflecting increased funding costs, partially offset by increased yields on loans due to new loans being originated at higher interest rates and adjustable rate loans repricing higher, as well as higher average loan balances. The higher average yield on interest-earning assets, compared to the same period in the prior year, reflects the overall higher interest rate environment during 2024, despite the Federal Reserve reducing rates in late 2024. While interest rate cuts during the year led to lower funding costs and yields on interest-earning assets in the fourth quarter, the overall results for the year were largely shaped by the elevated interest rates during most of 2024. The net interest margin on a tax equivalent basis of 3.75% for the year ended December 31, 2024, was 26 basis points lower than the prior year. The decrease in net interest margin reflects a 72 basis-point increase in the cost of funding liabilities, partially offset by a 39 basis-point increase in yields on average interest-earning assets. The increase in the overall cost of funding liabilities was primarily due to the increase in rates across all deposit and borrowing categories due to higher market rates. The higher funding costs was also impacted by a shift in the average balance of non-interest-bearing deposits to higher costing interest-bearing checking accounts, savings accounts and certificates of deposit. The increase in average yields on interest-earning assets during the current year reflects the benefit of variable rate interest-earning assets repricing higher due to rising interest rates, as well as new loans being originated at higher interest rates. Interest Income. Interest income for the year ended December 31, 2024 was $766.1 million, compared to $701.6 million for the prior year, an increase of $64.5 million. This increase was a result of yields on interest-earning assets increasing 39 basis points to 5.26%, as well as the average balance of interest-earning assets increasing $157.8 million to $14.81 billion. The increased yield on interest-earning assets primarily reflects increases in the average yields on loans. Interest income on loans increased $77.7 million from the prior year to $655.6 million for the year ended December 31, 2024. The increase was primarily due to the average loan yields increasing 39 basis points to 5.97%, reflecting the impact of higher interest rates. Average loans receivable increased $639.9 million to $11.12 billion, primarily reflecting increases in the average balances of one- to four-family residential, construction, land and land development, and multifamily real estate loans. Interest and dividend income on investment securities decreased $13.5 million for the year ended December 31, 2024 due to a decline in the average balance of the investment securities portfolio. The combined average balance of total investment securities decreased $482.2 million to $3.68 billion (excluding the effect of fair value adjustments). The average yield on the combined portfolio increased to 3.11%, reflecting a three basis-point increase in the average yield on mortgage-backed securities and a 19 basis-point increase in the yield on other securities. Interest Expense. Interest expense for the year ended December 31, 2024 was $224.4 million, compared to $125.6 million for the prior year, an increase of $98.8 million, or 79%. The increase occurred as a result of a 72 basis-point increase in the average cost of all funding liabilities to 1.63% as well as the average balance of funding liabilities increasing $27.9 million to $13.76 billion. The increase in the average cost of our funding liabilities increased due to increases in the rates paid on our interest rate deposits to remain competitive in the elevated interest rate environment. The increase in the average balance of funding liabilities reflects increases in interest-bearing transaction and savings accounts and certificates of deposit, partially offset by lower average balances of money market accounts and non-interest bearing deposits. 51 T able of C onten ts Deposit interest expense increased $99.3 million to $199.5 million for the year ended December 31, 2024, compared to the prior year, as a result of the average cost of total deposits increasing 74 basis points to 1.50% and the average balance of interest-bearing deposits increasing by $897.8 million. The increase in the average cost of deposits between the periods was primarily due to the average cost of interest-bearing deposits increasing 102 basis points to 2.32% for the year ended December 31, 2024, compared to 1.30% in the prior year. The increase in the average cost of interest-bearing deposits was primarily the result of a 79 basis-point increase in the cost of interest-bearing checking accounts, a 116 basis-point increase in the cost of savings accounts, a 90 basis-point increase in the cost money market accounts and a 107 basis-point increase in the cost of certificates of deposit. The increase in the average balance of total interest-bearing deposits was primarily due to increases in the average balances of interest-bearing transaction and savings accounts and certificates of deposit, partially offset by lower average balances of money market accounts. The average rate paid on total borrowings increased 60 basis points to 4.97%, reflecting a 24 basis-point increase in the average cost of FHLB advances, 92 basis-point increase in the average cost of other borrowings, and 38 basis-point increase in the average cost of our subordinated debt. The decrease in the average balance of total borrowings was largely due to a $36.9 million decrease in the average balance of FHLB advances and a $34.7 million decrease in the average balance of other borrowings. Table 13, Analysis of Net Interest Spread , presents, for the periods indicated, our condensed average balance sheet information, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities. Average balances are computed using daily average balances. 52 T able of C onten ts The following table provides an analysis of our net interest spread for the last three years (dollars in thousands): Table 13: Analysis of Net Interest Spread Year Ended December 31, 2024 Year Ended December 31, 2023 Year Ended December 31, 2022 Average Balance Interest and Dividends Yield/ Cost (3) Average Balance Interest and Dividends Yield/ Cost (3) Average Balance Interest and Dividends Yield/ Cost (3) Interest-earning assets: Held for sale loans $ 27,627 $ 1,875 6.79 % $ 49,106 $ 2,621 5.34 % $ 82,030 $ 2,973 3.62 % Mortgage loans 9,094,276 526,842 5.79 % 8,513,487 460,664 5.41 % 7,731,195 364,499 4.71 % Commercial/agricultural loans 1,871,024 127,028 6.79 % 1,782,141 113,250 6.35 % 1,658,358 81,986 4.94 % Consumer and other loans 129,929 8,584 6.61 % 138,196 8,715 6.31 % 123,667 7,332 5.93 % Total loans (1) 11,122,856 664,329 5.97 % 10,482,930 585,250 5.58 % 9,595,250 456,790 4.76 % Mortgage-backed securities 2,650,010 66,652 2.52 % 2,927,650 72,927 2.49 % 3,130,124 68,148 2.18 % Other securities 951,515 44,083 4.63 % 1,173,637 52,148 4.44 % 1,625,250 48,278 2.97 % Interest-bearing deposits with banks 65,650 2,573 3.92 % 46,815 2,200 4.70 % 969,952 9,633 0.99 % FHLB stock 16,658 1,302 7.82 % 17,903 847 4.73 % 10,628 357 3.36 % Total investment securities 3,683,833 114,610 3.11 % 4,166,005 128,122 3.08 % 5,735,954 126,416 2.20 % Total interest-earning assets 14,806,689 778,939 5.26 % 14,648,935 713,372 4.87 % 15,331,204 583,206 3.80 % Non-interest-earning assets 967,122 917,018 1,169,271 Total assets $ 15,773,811 $ 15,565,953 $ 16,500,475 Deposits: Interest-bearing checking accounts $ 2,233,902 $ 33,113 1.48 % $ 1,921,326 $ 13,334 0.69 % $ 1,890,917 $ 1,557 0.08 % Savings accounts 3,231,631 71,225 2.20 % 2,674,936 27,739 1.04 % 2,810,264 2,053 0.07 % Money market accounts 1,632,092 35,206 2.16 % 1,908,983 24,089 1.26 % 2,364,122 3,143 0.13 % Certificates of deposit 1,514,726 59,921 3.96 % 1,209,261 34,964 2.89 % 764,255 3,371 0.44 % Total interest-bearing deposits 8,612,351 199,465 2.32 % 7,714,506 100,126 1.30 % 7,829,558 10,124 0.13 % Non-interest-bearing deposits 4,647,100 — — % 5,436,953 — — % 6,434,670 — — % Total deposits 13,259,451 199,465 1.50 % 13,151,459 100,126 0.76 % 14,264,228 10,124 0.07 % Other interest-bearing liabilities: FHLB advances 159,954 8,941 5.59 % 196,819 10,524 5.35 % 15,285 489 3.20 % Other borrowings 164,613 4,299 2.61 % 199,291 3,376 1.69 % 249,681 377 0.15 % Subordinated debt 177,361 11,682 6.59 % 185,883 11,541 6.21 % 189,870 8,400 4.42 % Total borrowings 501,928 24,922 4.97 % 581,993 25,441 4.37 % 454,836 9,266 2.04 % Total funding liabilities 13,761,379 224,387 1.63 % 13,733,452 125,567 0.91 % 14,719,064 19,390 0.13 % Other non-interest-bearing liabilities (2) 308,667 295,098 253,983 Total liabilities 14,070,046 14,028,550 14,973,047 Shareholders’ equity 1,703,765 1,537,403 1,527,428 Total liabilities and shareholders’ equity $ 15,773,811 $ 15,565,953 $ 16,500,475 Net interest income/rate spread (tax equivalent) $ 554,552 3.63 % $ 587,805 3.96 % $ 563,816 3.67 % Net interest margin (tax equivalent) 3.75 % 4.01 % 3.68 % Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (12,836) (11,800) (10,637) Net interest income and margin, as reported $ 541,716 3.66 % $ 576,005 3.93 % $ 553,179 3.61 % Average interest-earning assets / average interest-bearing liabilities 162.46 % 176.57 % 185.06 % Average interest-earning assets / average funding liabilities 107.60 % 106.67 % 104.16 % (footnotes follow) 53 T able of C onten ts (1) Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans. (2) Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures. (3) Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $8.7 million, $7.4 million and $5.9 million for the years ended December 31, 2024, 2023 and 2022, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $4.1 million, $4.4 million and $4.8 million for the years ended December 31, 2024, 2023 and 2022, respectively. The following table sets forth the effects of changing rates and volumes on our net interest income during the periods shown (in thousands). Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Effects on interest income attributable to changes in rate and volume (changes in rate multiplied by changes in volume) have been allocated between changes in rate and changes in volume (in thousands): Table 14: Rate/Volume Analysis Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Increase (Decrease) in Income/Expense Due to Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Increase (Decrease) in Income/Expense Due to Rate Volume Net Rate Volume Net Interest-earning assets: Held for sale loans $ 592 $ (1,338) $ (746) $ 1,100 $ (1,452) $ (352) Mortgage loans 33,661 32,517 66,178 57,068 39,097 96,165 Commercial/agricultural loans 7,967 5,811 13,778 24,782 6,482 31,264 Consumer and other loans 404 (535) (131) 486 897 1,383 Total loans 42,624 36,455 79,079 83,436 45,024 128,460 Mortgage-backed securities 702 (6,977) (6,275) 9,384 (4,605) 4,779 Other securities 2,148 (10,213) (8,065) 19,674 (15,804) 3,870 Interest-bearing deposits with banks (408) 781 373 8,688 (16,121) (7,433) FHLB stock 518 (63) 455 183 307 490 Total investment securities 2,960 (16,472) (13,512) 37,929 (36,223) 1,706 Total net change in interest income on interest-earning assets 45,584 19,983 65,567 121,365 8,801 130,166 Interest-bearing liabilities: Interest-bearing checking accounts 17,301 2,478 19,779 11,752 25 11,777 Savings accounts 36,699 6,787 43,486 25,790 (104) 25,686 Money market accounts 15,032 (3,915) 11,117 21,665 (719) 20,946 Certificates of deposit 14,802 10,155 24,957 28,596 2,997 31,593 Total interest-bearing deposits 83,834 15,505 99,339 87,803 2,199 90,002 FHLB advances 460 (2,043) (1,583) 537 9,498 10,035 Other borrowings 1,588 (665) 923 3,090 (91) 2,999 Subordinated debt 684 (543) 141 3,321 (180) 3,141 Total borrowings 2,732 (3,251) (519) 6,948 9,227 16,175 Total net change in interest expense on interest-bearing liabilities 86,566 12,254 98,820 94,751 11,426 106,177 Net change in net interest income (tax equivalent) $ (40,982) $ 7,729 $ (33,253) $ 26,614 $ (2,625) $ 23,989 Provision and Allowance for Credit Losses . We recorded an $8.6 million provision for credit losses - loans in the year ended December 31, 2024, compared to an $11.1 million provision for credit losses - loans in 2023. The provision for credit losses - loans reflects the amount required to maintain the allowance for credit losses - loans at an appropriate level based upon Management’s evaluation of the adequacy of collective and individual loss reserves. The provision for credit losses - loans for the current year reflects an increase in our substandard loans in addition to growth in the loan portfolio. The prior year provision for credit losses - loans primarily reflected loan growth and a deterioration in forecasted economic conditions and indicators utilized to estimate credit losses, as well as increased charge-offs for the prior year. Future assessments of the expected credit losses will not only be impacted by changes to the reasonable and supportable forecast, but will also include an updated assessment of qualitative factors, as well as consideration of any required changes in the reasonable and supportable forecast reversion period. 54 T able of C onten ts The following table sets forth an analysis of our allowance for credit losses - loans for the periods indicated (dollars in thousands): Table 15: Changes in Allowance for Credit Losses - Loans Years Ended December 31 2024 2023 2022 Balance, beginning of period $ 149,643 $ 141,465 $ 132,099 Provision for credit losses – loans 8,563 11,097 8,158 Recoveries of loans previously charged off: Commercial real estate 2,767 557 392 Construction and land — 29 384 One- to four-family residential 171 230 181 Commercial business 1,963 1,283 1,923 Agricultural business, including secured by farmland 304 146 475 Consumer 476 543 566 Total recoveries 5,681 2,788 3,921 Loans charged off: Commercial real estate (351) — (2) Construction and land (150) (1,089) (30) One- to four-family residential — (42) — Commercial business (5,955) (2,650) (1,699) Agricultural business, including secured by farmland — (564) (42) Consumer (1,910) (1,362) (940) Total charge-offs (8,366) (5,707) (2,713) Net (charge-offs) recoveries (2,685) (2,919) 1,208 Balance, end of period $ 155,521 $ 149,643 $ 141,465 Total loans $ 11,354,656 $ 10,810,455 $ 10,146,724 Average outstanding loans $ 11,095,229 $ 10,433,824 $ 9,513,220 Total nonaccrual loans $ 36,552 $ 26,857 $ 21,706 Allowance for credit losses - loans as a percent of total loans 1.37 % 1.38 % 1.39 % Allowance for credit losses - loans as a percent of nonaccrual loans 425 % 557 % 652 % 55 T able of C onten ts The following table sets forth the breakdown of the allowance for credit losses - loans by loan category at the dates indicated (dollars in thousands): Table 16: Allocation of Allowance for Credit Losses - Loans December 31 2024 2023 2022 Amount Percent of Loans in Each Category to Total Loans Percent of Allowance to Loans in Each Category Amount Percent of Loans in Each Category to Total Loans Percent of Allowance to Loans in Each Category Amount Percent of Loans in Each Category to Total Loans Percent of Allowance to Loans in Each Category Allowance for credit losses - loans: Commercial real estate $ 40,830 34 % 1.06 % $ 44,384 34 % 1.22 % $ 44,086 36 % 1.21 % Multifamily real estate 10,308 8 1.15 9,326 8 1.15 7,734 6 1.20 Construction and land 29,038 14 1.91 28,095 14 1.83 29,171 14 1.96 One- to four-family real estate 20,807 14 1.31 19,271 14 1.27 14,729 12 1.26 Commercial business 38,611 21 1.59 35,464 21 1.56 33,299 22 1.49 Agricultural business, including secured by farmland 5,727 3 1.68 3,865 3 1.17 3,475 3 1.18 Consumer 10,200 6 1.41 9,238 6 1.32 8,971 7 1.32 Total allowance for credit losses - loans $ 155,521 100 % 1.37 % $ 149,643 100 % 1.38 % $ 141,465 100 % 1.39 % The allowance for credit losses - unfunded loan commitments was $13.6 million at December 31, 2024 compared to $14.5 million at December 31, 2023. The decrease in the allowance for credit losses - unfunded loan commitments reflects a decrease in unfunded loan commitments. The following table sets forth an analysis of our allowance for credit losses - unfunded loan commitments for the periods indicated (dollars in thousands): Table 17: Changes in Allowance for Credit Losses - Unfunded Loan Commitments Years Ended, December 31, 2024 2023 2022 Balance, beginning of period $ 14,484 $ 14,721 $ 12,432 (Recapture) provision for credit losses - unfunded loan commitments (922) (237) 2,289 Balance, end of period $ 13,562 $ 14,484 $ 14,721 56 T able of C onten ts Non-interest Income. The following table presents the key components of non-interest income for the years ended December 31, 2024, 2023 and 2022 (dollars in thousands): Table 18: Non-interest Income 2024 compared to 2023 2023 compared to 2022 2024 2023 Change Amount Change Percent 2023 2022 Change Amount Change Percent Deposit fees and other service charges $ 43,371 $ 41,638 $ 1,733 4 % $ 41,638 $ 44,459 $ (2,821) (6) % Mortgage banking operations 12,207 11,817 390 3 % 11,817 10,834 983 9 % Bank-owned life insurance 9,193 9,245 (52) (1) % 9,245 7,794 1,451 19 % Miscellaneous 8,289 5,169 3,120 60 % 5,169 6,805 (1,636) (24) % 73,060 67,869 5,191 8 % 67,869 69,892 (2,023) (3) % Net (loss) gain on sale of securities (5,190) (19,242) 14,052 (73) % (19,242) (3,248) (15,994) 492 % Net change in valuation of financial instruments carried at fair value (982) (4,218) 3,236 (77) % (4,218) 807 (5,025) (623) % Gain on sale of branches, including related deposits — — — — % — 7,804 (7,804) (100) % Total non-interest income $ 66,888 $ 44,409 $ 22,479 51 % $ 44,409 $ 75,255 $ (30,846) (41) % Non-interest income increased for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase was primarily due to decreases in the net loss recognized on the sale of securities and the net loss recognized on the valuation of financial instruments carried at fair value, as well as increases in miscellaneous income and deposit fees and other service charges. Income from deposit fees and other service charges increased primarily as a result of an increase in fees related to overdrafts during the current year. Revenue from mortgage banking operations, including gains from one- to four-family and multifamily loan sales and loan servicing fees, increased for the year ended December 31, 2024, compared to the prior year. The volume of one- to four-family loans sold during the year ended December 31, 2024 increased compared to the prior year, although overall volumes remained low due to reduced refinancing and purchase activity in the current rate environment. We sold $408.9 million of one- to four-family loans held for sale for the year ended December 31, 2024, compared to $256.0 million for the year ended December 31, 2023. The increase was also impacted by increases in the pricing on the one- to four-family loans sold during the current year. Sales of one- to four-family loans held for sale for the year ended December 31, 2024, resulted in gains of $8.0 million, compared to $5.1 million for the year ended December 31, 2023. The prior year period also reflected a downward lower of cost or market adjustment on multifamily loans held for sale. In 2023, the Bank discontinued the origination of multifamily loans for sale into the secondary market. All of the multifamily loans held for sale were transferred to the held for investment loan portfolio and the related lower of cost or market adjustment was reversed in the fourth quarter of 2023. Miscellaneous income increased for the year ended December 31, 2024, compared to the year ended December 31, 2023 primarily as a result of an increase in the gain on sale of SBA loans and a gain recognized on the sale of a non-performing loan during the fourth quarter of 2024. The net loss on sale of securities during the year ended December 31, 2024, reflects strategic sales of securities, mostly in the first quarter of 2024, to minimize the impact of increasing rates on our securities portfolio. The net loss on the valuation of financial instruments carried at fair value were due to declines during 2024 in the market valuation of investment securities carried at fair value. 57 T able of C onten ts Non-interest Expense. The following table represents key elements of non-interest expense for the years ended December 31, 2024, 2023 and 2022 (dollars in thousands). Table 19: Non-interest Expense 2024 compared to 2023 2023 compared to 2022 2024 2023 Change Amount Change Percent 2023 2022 Change Amount Change Percent Salary and employee benefits $ 250,555 $ 244,563 $ 5,992 2 % $ 244,563 $ 242,266 $ 2,297 1 % Less capitalized loan origination costs (16,857) (16,257) (600) 4 % (16,257) (24,313) 8,056 (33) % Occupancy and equipment 48,771 47,886 885 2 % 47,886 52,018 (4,132) (8) % Information and computer data services 29,165 28,445 720 3 % 28,445 25,986 2,459 9 % Payment and card processing services 22,518 20,547 1,971 10 % 20,547 21,195 (648) (3) % Professional and legal expenses 7,858 9,830 (1,972) (20) % 9,830 14,005 (4,175) (30) % Advertising and marketing 5,149 4,794 355 7 % 4,794 3,959 835 21 % Deposit insurance 11,398 10,529 869 8 % 10,529 6,649 3,880 58 % State and municipal business and use taxes 5,648 5,260 388 7 % 5,260 4,693 567 12 % Real estate operations, net 293 (538) 831 (154) % (538) (104) (434) 417 % Amortization of core deposit intangibles 2,626 3,756 (1,130) (30) % 3,756 5,279 (1,523) (29) % Loss on extinguishment of debt — — — — % — 793 (793) (100) % Miscellaneous 24,414 23,723 691 3 % 23,723 24,869 (1,146) (5) % Total non-interest expense $ 391,538 $ 382,538 $ 9,000 2 % $ 382,538 $ 377,295 $ 5,243 1 % Non-interest expense for the year ended December 31, 2024, increased compared to the same period in 2023. The increase was primarily due to increases in salary and employee benefits and payment and card processing services, partially offset by a decrease in professional and legal expenses. Salary and employee benefits increased for the year ended December 31, 2024, compared to the prior year, primarily as a result of normal annual salary and wage increases and an increase in loan production related commission expense, partially offset by lower medical expenses. Payment and card processing services increased for the year ended December 31, 2024, compared to the prior year, primarily reflecting an increase in online banking costs and fraud losses. Professional and legal expenses decreased for the year ended December 31, 2024, from the year ended December 31, 2023, primarily due to a reduction in legal and consulting expenses as well as a one-time reduction in litigation settlement costs. Income Taxes. For the year ended December 31, 2024, we recognized $40.6 million in income tax expense for an effective rate of 19.4%, which reflects our statutory tax rate reduced by the effect of tax-exempt income, certain tax credits, and tax benefits related to restricted stock vesting. Our blended federal and state statutory income tax rate is 23.7%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state and local jurisdictions where we do business. For the year ended December 31, 2023, we recognized $43.5 million in income tax expense for an effective tax rate of 19.1%. Comparison of Results of Operations for the Years Ended December 31, 2023 and 2022 See Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023, previously filed with the SEC. Market Risk and Asset/Liability Management Our financial condition and operations are influenced significantly by general economic conditions, including the absolute level of interest rates as well as changes in interest rates and the slope of the yield curve. Our profitability is dependent, to a large extent, on our net interest income, which is the difference between the interest received from our interest-earning assets and the interest expense incurred on our interest-bearing liabilities. 58 T able of C onten ts Our activities, like those of all financial institutions, inherently involve the assumption of interest rate risk. Interest rate risk is the risk that fluctuations in market interest rates will have an adverse impact on the institution’s earnings and underlying economic value. Interest rate risk is determined by the maturity and repricing characteristics of an institution’s assets, liabilities and off-balance-sheet contracts. Interest rate risk is measured by the variability of financial performance and economic value, resulting from changes in interest rates. Interest rate risk is the primary market risk affecting our financial performance. Our greatest source of interest rate risk results from the mismatch of maturities or repricing intervals for rate sensitive assets, liabilities and off-balance-sheet contracts. This mismatch or gap is generally characterized by a substantially shorter maturity structure for interest-bearing liabilities than interest-earning assets, although our floating-rate assets tend to be more immediately responsive to changes in market rates than most deposit liabilities. Additional interest rate risk results from mismatched repricing indices and formula (basis risk and yield curve risk), and product caps and floors and early repayment or withdrawal provisions (option risk), which may be contractual or market driven, that are generally more favorable to clients than to us. An exception to this generalization is the beneficial effect of interest rate floors on a portion of our performing floating-rate loans, which help us maintain higher loan yields in periods when market interest rates decline significantly. However, in a declining interest rate environment as loans with floors are repaid, they generally are replaced with new loans which have lower interest rate floors. As of December 31, 2024, our loans with interest rate floors totaled $5.19 billion and had a weighted average floor rate of 4.77% compared to a current average note rate of 6.45%. As of December 31, 2024, our loans with interest rates at their floors totaled $1.34 billion and had a weighted average note rate of 4.48%. The Company actively manages its exposure to interest rate risk through ongoing adjustments to the mix of interest-earning assets and funding sources that affect the repricing speeds of loans, investments, interest-bearing deposits and borrowings. The principal objectives of asset/liability management are: to evaluate the interest rate risk exposure; to determine the appropriate level of risk given our operating environment, business plan strategies, performance objectives, capital and liquidity constraints, and asset and liability allocation alternatives; and to manage our interest rate risk consistent with regulatory guidelines and policies approved by the Board of Directors. Through such management, we seek to reduce the vulnerability of our earnings and capital position to changes in the level of interest rates. Our actions in this regard are taken under the guidance of the Asset/Liability Management Committee, which is comprised of members of our senior management. The Committee closely monitors our interest sensitivity exposure, asset and liability allocation decisions, liquidity and capital positions, and local and national economic conditions, and attempts to structure the loan and investment portfolios and funding sources to maximize earnings within acceptable risk tolerances. Sensitivity Analysis Our primary monitoring tool for assessing interest rate risk is asset/liability simulation modeling, which is designed to capture the dynamics of balance sheet, interest rate and spread movements, and to quantify variations in net interest income resulting from those movements under different rate environments. The sensitivity of net interest income to changes in the modeled interest rate environments provides a measurement of interest rate risk. We also utilize economic value analysis, which addresses changes in estimated net economic value of equity arising from changes in the level of interest rates. The net economic value of equity is estimated by separately valuing our assets and liabilities under varying interest rate environments. The extent to which assets gain or lose value in relation to the gains or losses of liability values under the various interest rate assumptions determines the sensitivity of net economic value to changes in interest rates and provides an additional measure of interest rate risk. The interest rate sensitivity analysis performed by us incorporates beginning-of-the-period rate, balance and maturity data, using various levels of aggregation of that data, as well as certain assumptions concerning the maturity, repricing, amortization and prepayment characteristics of loans and other interest-earning assets and the repricing and withdrawal of deposits and other interest-bearing liabilities into an asset/liability simulation model. We update and prepare simulation modeling at least quarterly for review by senior management and oversight by the directors. We believe the data and assumptions are realistic representations of our portfolio and possible outcomes under the various interest rate scenarios. Nonetheless, the interest rate sensitivity of our net interest income and net economic value of equity could vary substantially if different assumptions were used or if actual experience differs from the assumptions used. 59 T able of C onten ts The following tables set forth, as of December 31, 2024, the estimated changes in our net interest income over one-year and two-year time horizons for our rate ramp and rate shock interest rate sensitivity scenarios, and the estimated changes in economic value of equity for our rate shock interest rate sensitivity scenario based on the indicated interest rate environments (dollars in thousands): Table 20: Interest Rate Risk Indicators - Rate Ramp December 31, 2024 Estimated Increase (Decrease) in Change (in Basis Points) in Interest Rates (1) Net Interest Income Next 12 Months Net Interest Income Next 24 Months +300 $ (1) — % $ 12,773 1.0 % +200 3,330 0.6 23,088 1.9 +100 3,850 0.7 19,828 1.6 0 — — — — -100 (8,730) (1.5) (36,698) (3.0) -200 (16,597) (2.8) (72,787) (5.9) -300 (23,556) (4.0) (105,400) (8.5) (1) Assumes a gradual change in market interest rates at all maturities during the first year; however, no rates are allowed to go below zero. The targeted Federal Funds Rate was between 4.25% and 4.50% at December 31, 2024. Table 21: Interest Rate Risk Indicators - Rate Shock December 31, 2024 Estimated Increase (Decrease) in Change (in Basis Points) in Interest Rates (1) Net Interest Income Next 12 Months Net Interest Income Next 24 Months Economic Value of Equity +300 $ (7,265) (1.2) % $ 21,097 1.7 % $ (439,565) (16.0) % +200 5,472 0.9 36,395 3.0 (259,123) (9.5) +100 7,847 1.3 29,027 2.4 (107,181) (3.9) 0 — — — — — — -100 (20,771) (3.5) (55,988) (4.5) 54,480 2.0 -200 (39,748) (6.7) (111,825) (9.1) 71,903 2.6 -300 (57,153) (9.6) (166,993) (13.5) 30,183 1.1 (1) Assumes an instantaneous and sustained uniform change in market interest rates at all maturities; however, no rates are allowed to go below zero. The targeted Federal Funds Rate was between 4.25% and 4.50% at December 31, 2024. Another monitoring tool for assessing interest rate risk is gap analysis. The matching of the repricing characteristics of assets and liabilities may be analyzed by examining the extent to which assets and liabilities are interest sensitive and by monitoring an institution’s interest sensitivity gap. An asset or liability is said to be interest sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets anticipated, based upon certain assumptions, to mature or reprice within a specific time period and the amount of interest-bearing liabilities anticipated to mature or reprice, based upon certain assumptions, within that same time period. A gap is considered positive when the amount of interest-sensitive assets exceeds the amount of interest-sensitive liabilities. A gap is considered negative when the amount of interest-sensitive liabilities exceeds the amount of interest-sensitive assets. Generally, during a period of rising rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to adversely affect net interest income. Certain shortcomings are inherent in gap analysis. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as ARM loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of some borrowers to service their debt may decrease in the event of a severe change in market rates. 60 T able of C onten ts Table 22, Interest Sensitivity Gap , presents our interest sensitivity gap between interest-earning assets and interest-bearing liabilities at December 31, 2024. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities which are anticipated by us, based upon certain assumptions, to reprice or mature in each of the future periods shown. At December 31, 2024, total interest-earning assets maturing or repricing within one year exceeded total interest-bearing liabilities maturing or repricing in the same time period by $2.17 billion, representing a one-year cumulative gap to total assets ratio of 13.37%. The interest rate risk indicators and interest sensitivity gaps as of December 31, 2024, are within our internal policy guidelines and Management considers that our current level of interest rate risk is reasonable. 61 T able of C onten ts The following table provides a GAP analysis as of December 31, 2024 (dollars in thousands): Table 22: Interest Sensitivity Gap December 31, 2024 Within 6 Months After 6 Months Within 1 Year After 1 Year Within 3 Years After 3 Years Within 5 Years After 5 Years Within 10 Years Over 10 Years Total Interest-earning assets: (1) Construction loans $ 1,071,788 $ 137,984 $ 89,189 $ 7,672 $ 1,226 $ 2,411 $ 1,310,270 Fixed-rate mortgage loans 267,770 220,285 660,265 582,171 768,817 425,161 2,924,469 Adjustable-rate mortgage loans 1,175,977 396,089 1,623,455 860,468 445,501 1,565 4,503,055 Fixed-rate mortgage-backed securities 88,259 104,631 345,187 390,372 810,355 788,035 2,526,839 Adjustable-rate mortgage-backed securities 211,551 — — — — — 211,551 Fixed-rate commercial/agricultural loans 113,581 89,249 252,820 133,312 146,002 21,751 756,715 Adjustable-rate commercial/agricultural loans 982,382 33,540 91,438 52,418 1,129 — 1,160,907 Consumer and other loans 560,320 35,465 54,742 18,695 20,136 39,323 728,681 Investment securities and interest-earning deposits 353,056 20,552 19,770 44,410 95,093 528,689 1,061,570 Total rate sensitive assets 4,824,684 1,037,795 3,136,866 2,089,518 2,288,259 1,806,935 15,184,057 Interest-bearing liabilities: (2) Interest-bearing checking accounts 687,978 138,174 472,656 369,652 626,421 1,183,542 3,478,423 Regular savings 412,000 118,291 401,766 309,020 501,271 651,516 2,393,864 Money market deposit accounts 196,305 109,863 355,438 251,539 354,030 283,702 1,550,877 Certificates of deposit 1,184,775 263,693 44,275 6,349 599 — 1,499,691 FHLB advances 290,000 — — — — — 290,000 Subordinated notes 80,500 — — — — — 80,500 Junior subordinated debentures 89,178 — — — — — 89,178 Retail repurchase agreements 125,257 — — — — — 125,257 Total rate sensitive liabilities 3,065,993 630,021 1,274,135 936,560 1,482,321 2,118,760 9,507,790 Excess (deficiency) of interest-sensitive assets over interest-sensitive liabilities $ 1,758,691 $ 407,774 $ 1,862,731 $ 1,152,958 $ 805,938 $ (311,825) $ 5,676,267 Cumulative excess of interest-sensitive assets $ 1,758,691 $ 2,166,465 $ 4,029,196 $ 5,182,154 $ 5,988,092 $ 5,676,267 $ 5,676,267 Cumulative ratio of interest-earning assets to interest-bearing liabilities 157.36 % 158.62 % 181.07 % 187.73 % 181.04 % 159.70 % 159.70 % Interest sensitivity gap to total assets 10.86 % 2.52 % 11.50 % 7.12 % 4.97 % (1.92) % 35.04 % Ratio of cumulative gap to total assets 10.86 % 13.37 % 24.87 % 31.99 % 36.96 % 35.04 % 35.04 % (footnotes follow) 62 T able of C onten ts (1) Adjustable-rate assets are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due to mature, and fixed-rate assets are included in the period in which they are scheduled to be repaid based upon scheduled amortization, in each case adjusted to take into account estimated prepayments. Mortgage loans and other loans are not reduced for allowances for credit losses and non-performing loans. Mortgage loans, mortgage-backed securities, other loans and investment securities are not adjusted for deferred fees and unamortized acquisition premiums and discounts. (2) Adjustable-rate liabilities are included in the period in which interest rates are next scheduled to adjust rather than in the period they are due to mature. Although regular savings, demand, interest-bearing checking, and money market deposit accounts are subject to immediate withdrawal, based on historical experience, Management considers a substantial amount of such accounts to be core deposits having significantly longer maturities. For the purpose of the gap analysis, these accounts have been assigned decay rates to reflect their longer effective maturities. If these accounts had been assumed to be short-term, the one-year cumulative gap of interest-sensitive assets would have been a negative $3.59 billion, or negative 22.19% of total assets at December 31, 2024. Interest-bearing liabilities for this table exclude certain non-interest-bearing deposits that are included in the average balance calculations. Management is aware of the sources of interest rate risk and actively monitors and manages it to the extent possible. The Bank’s objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Bank uses interest rate swaps as part of its interest rate risk management strategy. The Bank enters into interest rate swaps with certain qualifying commercial loan clients. The Bank simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the client pays a fixed rate of interest and the Bank receives a floating rate. Based on our analysis of the interest rate risk scenarios and our strategies for managing our risk, Management believes our current level of interest rate risk is reasonable. Liquidity and Capital Resources Our primary sources of funds are deposits, borrowings, proceeds from loan principal and interest payments and sales of loans, and the maturity of and interest income on mortgage-backed and investment securities. While maturities and scheduled amortization of loans and mortgage-backed securities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, competition and our pricing strategies. Our primary investing activity is the origination of loans and, in certain periods, the purchase of securities or loans. During the years ended December 31, 2024 and 2023, our loan originations, including originations of loans held for sale, exceeded our loan repayments by $984.7 million and $886.8 million, respectively. There were $4.7 million of loans purchased during the year ended December 31, 2024, and no loans purchased during the year ended December 31, 2023. During the years ended December 31, 2024 and 2023, we received proceeds of $435.3 million and $280.6 million, respectively, from the sale of loans. Securities purchased during the years ended December 31, 2024 and 2023 totaled $63.2 million and $58.2 million, respectively, and securities repayments, maturities and sales in those same periods were $369.9 million and $600.4 million, respectively. Our primary funding source is deposits. Total deposits increased by $484.9 million during the year ended December 31, 2024, with core deposits increasing $462.7 million and certificates of deposit increasing $22.2 million. At December 31, 2024, core deposits totaled $12.01 billion, or 89%, of total deposits, compared with $11.55 billion, or 89% of total deposits at December 31, 2023. The increase in core deposits compared to the prior year quarter primarily reflects increases in interest-bearing transaction and savings accounts. Certificates of deposit are generally more vulnerable to competition and more price sensitive than other retail deposits and our pricing of those deposits varies significantly based upon our liquidity management strategies at any point in time. At December 31, 2024, certificates of deposit totaled $1.50 billion, or 11% of our total deposits, including $1.45 billion which were scheduled to mature within one year. Certificates of deposit totaled 11% of our total deposits at December 31, 2023. We had $290.0 million of FHLB advances at December 31, 2024, compared to $323.0 million at December 31, 2023. Other borrowings at December 31, 2024 decreased $57.6 million to $125.3 million from December 31, 2023. Both the FHLB advances and other borrowings outstanding at December 31, 2024 mature during 2025. We must maintain an adequate level of liquidity to ensure the availability of sufficient funds to accommodate deposit withdrawals, support loan growth, satisfy financial commitments and take advantage of investment opportunities. We use our sources of funds primarily to fund loan growth and deposit outflows. At December 31, 2024, we had outstanding loan commitments totaling $3.97 billion, primarily relating to undisbursed loans in process and unused credit lines. While representing potential growth in the loan portfolio and lending activities, this level of commitments is proportionally consistent with our historical experience and does not represent a departure from normal operations. For the year ending December 31, 2025, we have $18.9 million of purchase obligations under contracts with our key vendors to provide services, mainly information technology related contracts. In addition, at December 31, 2024, we had $14.1 million of commitments under operating lease agreements. 63 T able of C onten ts We generally maintain sufficient cash and readily marketable securities to meet short-term liquidity needs; however, our primary liquidity management practice to supplement deposits is to increase or decrease short-term borrowings, including FHLB advances and Federal Reserve Bank of San Francisco (FRBSF) borrowings. We maintain credit facilities with the FHLB, subject to collateral requirements and a sufficient level of ownership of FHLB stock. At December 31, 2024, under these credit facilities based on pledged collateral, the Bank had $2.95 billion of available credit capacity. Advances under these credit facilities totaled $290.0 million at December 31, 2024. In addition, the Bank has been approved for participation in the FRBSF’s Borrower-In-Custody program. Under this program, based on pledged collateral, the Bank had available lines of credit of approximately $1.52 billion as of December 31, 2024, subject to certain collateral requirements, namely the collateral type and risk rating of eligible pledged loans. We had no funds borrowed from the FRBSF at December 31, 2024 or 2023. At December 31, 2024, the Bank also had uncommitted federal funds line of credit agreements with other financial institutions totaling $125.0 million. No balances were outstanding under these agreements as of December 31, 2024 or 2023. Availability of lines is subject to federal funds balances available for loan and continued borrower eligibility. These lines are intended to support short-term liquidity needs and the agreements may restrict consecutive day usage. Management believes it has adequate resources and funding potential to meet our foreseeable liquidity requirements. Banner is a separate legal entity from the Bank and, on a stand-alone level, must provide for its own liquidity and pay its own operating expenses and cash dividends. During 2024, Banner and the Bank entered into an intercompany loan agreement for $50.0 million, which reduced Banner’s cash balance while maintaining liquidity with the note receivable from the Bank. The note has a term of one year, automatically renewable each quarter. The note eliminates upon consolidation. Banner’s primary sources of funds consist of capital raised through dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. We currently expect to continue our current practice of paying quarterly cash dividends on our common stock, subject to our Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. Our current quarterly common stock dividend rate is $0.48 per share, as approved by our Board of Directors, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank, and returning a substantial portion of our cash to our shareholders. Assuming continued dividend payments during 2025 at this rate of $0.48 per share, our average total dividend paid each quarter would be approximately $16.5 million based on the number of outstanding shares at December 31, 2024. At December 31, 2024, Banner (on an unconsolidated basis) had liquid assets of $75.7 million. During the year ended December 31, 2024, total shareholders’ equity increased $121.6 million to $1.77 billion. At December 31, 2024, tangible common shareholders’ equity, a non-GAAP financial measure which excludes goodwill and other intangible assets, was $1.40 billion, or 8.84% of tangible assets. See “Executive Overview - Non-GAAP Financial Measures” above for a reconciliation of total shareholders’ equity to tangible common shareholders’ equity. Capital Requirements Banner is a bank holding company registered with the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. The Bank, as a state-chartered, federally insured commercial bank, is subject to the capital requirements established by the FDIC. The capital adequacy requirements are quantitative measures established by regulation that require Banner and the Bank to maintain minimum amounts and ratios of capital. The Federal Reserve requires Banner to maintain capital adequacy that generally parallels the FDIC requirements. The FDIC requires the Bank to maintain minimum capital ratios of total capital, tier 1 capital, and common equity tier 1 capital to risk-weighted assets as well as tier 1 leverage capital to average assets. In addition to the minimum capital ratios, the Bank must maintain a capital conservation buffer consisting of additional common equity tier 1 capital greater than 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. At December 31, 2024, Banner and the Bank each exceeded all current regulatory capital requirements to be “well capitalized” and the fully phased-in capital conservation buffer requirement. The following table shows the regulatory capital ratios for Banner and the Bank as of December 31, 2024. Table 23: Regulatory Capital Ratios Capital Ratios Banner Corporation Banner Bank Total capital to risk-weighted assets 15.04 % 14.03 % Tier 1 capital to risk-weighted assets 13.08 12.82 Tier 1 capital to average leverage assets 11.05 10.83 Tier 1 common equity to risk-weighted assets 12.44 12.82 ITEM 7A – Quantitative and Qualitative Disclosures about Market Risk See pages 58 – 63 of Management’s Discussion and Analysis of Financial Condition and Results of Operations. 64 T able of C onten ts ITEM 8 – Financial Statements and Supplementary Data For financial statements, see index on page 72 . ITEM 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.