BANNER CORP 10-Q

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations Executive Overview Banner is a bank holding company incorporated in the State of Washington, which wholly owns one subsidiary bank, Banner Bank. The Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington, and as of March 31, 2025, it had 135 branch offices and 13 loan production offices located in Washington, Oregon, California, Idaho and Utah. Banner is subject to regulation by the Federal Reserve. The Bank is subject to regulation by the Washington State Department of Financial Institutions – Division of Banks (the DFI) and the Federal Deposit Insurance Corporation (the FDIC). As of March 31, 2025, we had total consolidated assets of $16.17 billion, total loans of $11.44 billion, total deposits of $13.59 billion and total shareholders’ equity of $1.83 billion. The Bank is a regional bank that offers a wide variety of commercial banking services and financial products to individuals, businesses and public sector entities in its primary market areas. The Bank’s primary business is that of traditional banking institutions, accepting deposits and originating loans in locations surrounding our offices in Washington, Oregon, California, Idaho and Utah. The Bank is also an active participant in secondary loan markets, engaging in mortgage banking operations through the origination and sale of one- to four-family residential loans. Lending activities include commercial business and commercial real estate loans, agriculture business loans, construction and land development loans, one- to four-family and multifamily residential loans, SBA loans and consumer loans. The Company’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. First Quarter 2025 Financial Highlights • Net interest margin, on a tax equivalent basis, was 3.92%, compared to 3.82% in the preceding quarter. • Revenue was $160.2 million for the first quarter of 2025, compared to $160.6 million in the preceding quarter. • Net interest income was $141.1 million in the first quarter of 2025, compared to $140.5 million in the preceding quarter. • Mortgage banking operations revenue was $3.1 million for the first quarter of 2025, compared to $3.7 million in the preceding quarter. • Return on average assets was 1.15% for both the current and preceding quarter. • Net loans receivable increased to $11.28 billion at March 31, 2025, compared to $11.20 billion at December 31, 2024. • Non-performing assets were $42.7 million, or 0.26% of total assets, at March 31, 2025, compared to $39.6 million, or 0.24% of total assets at December 31, 2024. • The allowance for credit losses - loans was $157.3 million, or 1.38% of total loans receivable, as of March 31, 2025, compared to $155.5 million, or 1.37% of total loans receivable, at December 31, 2024. • Total deposits increased to $13.59 billion at March 31, 2025, compared to $13.51 billion at December 31, 2024. • Core deposits represented 89% of total deposits at March 31, 2025. • Dividends paid to shareholders were $0.48 per share in the quarter ended March 31, 2025. • Common shareholders’ equity per share increased 3% to $53.16 at March 31, 2025, compared to $51.49 at December 31, 2024. • Tangible common shareholders’ equity per share* increased 4% to $42.27 at March 31, 2025, compared to $40.57 at December 31, 2024. *Non-GAAP Financial Measures: Management has presented non-GAAP financial measures in this discussion and analysis because it believes these measures 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. Adjusted revenue, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average equity and adjusted efficiency ratio are non-GAAP financial measures. To calculate these non-GAAP measures, 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 (dollars in thousands except per share data). Quarters Ended Mar 31, 2025 Dec 31, 2024 Mar 31, 2024 ADJUSTED REVENUE Net interest income (GAAP) $ 141,083 $ 140,536 $ 132,959 Non-interest income (GAAP) 19,108 20,035 11,591 Total revenue (GAAP) 160,191 160,571 144,550 Exclude: Net (gain) loss on sale of securities — (275) 4,903 Net change in valuation of financial instruments carried at fair value (315) (161) 992 Adjusted revenue (non-GAAP) $ 159,876 $ 160,135 $ 150,445 45 Table of Contents Quarters Ended Mar 31, 2025 Dec 31, 2024 Mar 31, 2024 ADJUSTED EARNINGS Net income (GAAP) $ 45,135 $ 46,391 $ 37,559 Exclude: Net (gain) loss on sale of securities — (275) 4,903 Net change in valuation of financial instruments carried at fair value (315) (161) 992 Related net tax expense (benefit) 76 105 (1,415) Total adjusted earnings (non-GAAP) $ 44,896 $ 46,060 $ 42,039 Diluted earnings per share (GAAP) $ 1.30 $ 1.34 $ 1.09 Adjusted diluted earnings per share (non-GAAP) $ 1.29 $ 1.33 $ 1.22 Return on average assets 1.15 % 1.15 % 0.97 % Adjusted return on average assets (1) 1.14 % 1.15 % 1.08 % Return on average equity 10.17 % 10.35 % 9.14 % Adjusted return on average equity (2) 10.12 % 10.28 % 10.24 % Quarters Ended Mar 31, 2025 Dec 31, 2024 Mar 31, 2024 ADJUSTED EFFICIENCY RATIO Non-interest expense (GAAP) $ 101,259 $ 99,478 $ 97,641 Exclude: CDI amortization (456) (589) (723) State and municipal tax expense (1,454) (1,518) (1,304) REO operations 61 (113) 220 Adjusted non-interest expense (non-GAAP) $ 99,410 $ 97,258 $ 95,834 Net interest income (GAAP) $ 141,083 $ 140,536 $ 132,959 Non-interest income (GAAP) 19,108 20,035 11,591 Total revenue (GAAP) 160,191 160,571 144,550 Exclude: Net (gain) loss on sale of securities — (275) 4,903 Net change in valuation of financial instruments carried at fair value (315) (161) 992 Adjusted revenue (non-GAAP) $ 159,876 $ 160,135 $ 150,445 Efficiency ratio (GAAP) 63.21 % 61.95 % 67.55 % Adjusted efficiency ratio (non-GAAP) (3) 62.18 % 60.74 % 63.70 % (1) Adjusted earnings (non-GAAP) divided by average assets. (2) Adjusted earnings (non-GAAP) divided by average equity. (3) Adjusted non-interest expense (non-GAAP) divided by adjusted revenue. 46 Table of Contents The ratio of tangible common shareholders’ equity to tangible assets is also a non-GAAP financial measure. We calculate tangible common equity by excluding goodwill and other intangible assets from shareholders’ equity. We calculate tangible assets by excluding the balance of goodwill and other intangible assets from total assets. We believe that this is consistent with the treatment by our bank regulatory agencies, which exclude goodwill and other intangible assets from the calculation of risk-based capital ratios. Management believes that this non-GAAP financial measure provides information to investors that is useful in understanding the basis of our capital position (dollars in thousands except share and per share data). TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS March 31, 2025 December 31, 2024 March 31, 2024 Shareholders’ equity (GAAP) $ 1,833,453 $ 1,774,326 $ 1,664,508 Exclude goodwill and other intangible assets, net 375,723 376,179 378,082 Tangible common shareholders’ equity (non-GAAP) $ 1,457,730 $ 1,398,147 $ 1,286,426 Total assets (GAAP) $ 16,170,812 $ 16,200,037 $ 15,518,279 Exclude goodwill and other intangible assets, net 375,723 376,179 378,082 Total tangible assets (non-GAAP) $ 15,795,089 $ 15,823,858 $ 15,140,197 Common shareholders’ equity to total assets (GAAP) 11.34 % 10.95 % 10.73 % Tangible common shareholders’ equity to tangible assets (non-GAAP) 9.23 % 8.84 % 8.50 % TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE March 31, 2025 December 31, 2024 March 31, 2024 Shareholders’ equity (GAAP) $ 1,833,453 $ 1,774,326 $ 1,664,508 Tangible common shareholders’ equity (non-GAAP) $ 1,457,730 $ 1,398,147 $ 1,286,426 Common shares outstanding at end of period 34,489,972 34,459,832 34,395,221 Common shareholders’ equity (book value) per share (GAAP) $ 53.16 $ 51.49 $ 48.39 Tangible common shareholders’ equity (tangible book value) per share (non-GAAP) $ 42.27 $ 40.57 $ 37.40 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 Selected Notes to the Consolidated Financial Statements contained in Item 1 of this Form 10-Q. Summary of Critical Accounting Estimates Our critical accounting estimates are described in detail in the Critical Accounting Estimates section of our 2024 Form 10-K. The condensed consolidated financial statements are prepared in conformity with GAAP and follow general practices within the financial services industry in which the Company operates. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements. As this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes that the allowance for credit losses and fair value measurements require significant judgements and assumptions which are susceptible to significant changes based on the current environment. There have been no significant changes in our application of critical accounting estimates since December 31, 2024. 47 Table of Contents Comparison of Financial Condition at March 31, 2025 and December 31, 2024 General : Total assets decreased $29.2 million to $16.17 billion at March 31, 2025, from $16.20 billion at December 31, 2024. The decrease compared to year end was primarily due to a decrease in securities and interest-bearing deposits, partially offset by loan growth. Loans and lending: Loans are our most significant and generally highest yielding earning assets. We attempt to maintain a total 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 March 31, 2025 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 real estate and commercial loans. Total loans receivable (gross loans less deferred fees and discounts and excluding loans held for sale) increased $84.1 million at March 31, 2025, compared to December 31, 2024, reflecting increased commercial construction, multifamily construction and land and land development loans, partially offset by decreased commercial real estate, multifamily, commercial business and one-to-four family construction loans. At March 31, 2025, loans receivable totaled $11.44 billion compared to $11.35 billion at December 31, 2024. The following table sets forth the composition of the Company’s loans receivable by type of loan as of the dates indicated (dollars in thousands): Percentage Change Mar 31, 2025 Dec 31, 2024 Mar 31, 2024 Year End Prior Year Qtr. End Commercial real estate: Owner-occupied $ 1,020,829 $ 1,027,426 $ 905,063 (1) % 13 % Investment properties 1,598,387 1,623,672 1,544,885 (2) 3 Small balance CRE 1,217,458 1,213,792 1,159,355 — 5 Total Commercial real estate 3,836,674 3,864,890 3,609,303 (1) 6 Multifamily real estate 877,716 894,425 809,101 (2) 8 Construction, land and land development: Commercial construction 146,467 122,362 158,011 20 (7) Multifamily construction 618,942 513,706 573,014 20 8 One- to four-family construction 504,265 514,220 495,931 (2) 2 Land and land development 396,009 369,663 344,563 7 15 Total Construction, land and land development 1,665,683 1,519,951 1,571,519 10 6 Commercial business: Commercial business 1,283,754 1,318,333 1,262,716 (3) 2 Small business scored 1,122,550 1,104,117 1,028,067 2 9 Total Commercial business 2,406,304 2,422,450 2,290,783 (1) 5 Agricultural business, including secured by farmland 334,899 340,280 317,958 (2) 5 One- to four-family residential 1,600,283 1,591,260 1,566,834 1 2 Consumer: Consumer—home equity revolving lines of credit 620,483 625,680 597,060 (1) 4 Consumer—other 96,754 95,720 106,538 1 (9) Total Consumer 717,237 721,400 703,598 (1) 2 Total loans receivable $ 11,438,796 $ 11,354,656 $ 10,869,096 1 % 5 % Commercial real estate loans totaled $3.84 billion, or 33% of our loan portfolio, and multifamily real estate loans totaled $877.7 million, or 8% of our loan portfolio, at March 31, 2025. Commercial real estate loans decreased by $28.2 million during the first three months of 2025, while multifamily real estate loans decreased by $16.7 million, primarily due to payoffs and paydowns exceeding new production. Our construction, land and land development loans totaled $1.67 billion, or 15% of our loan portfolio, at March 31, 2025, compared to $1.52 billion at December 31, 2024. Multifamily construction loans increased $105.2 million, or 20%, to $618.9 million at March 31, 2025, compared to December 31, 2024. Multifamily construction represented approximately 6% of our total loan portfolio at March 31, 2025. Multifamily construction loans were comprised primarily of affordable housing projects and, to a lesser extent, market rate multifamily projects across our footprint. Commercial construction loans increased $24.1 million, or 20%, to $146.5 million at March 31, 2025, compared to $122.4 million at December 31, 2024, due to advances and new loan production, partially offset by transfers to the permanent loan portfolio upon completion of the construction phase. Land and land development loans increased $26.3 million, or 7%, to $396.0 million at March 31, 2025, compared to December 31, 2024, primarily due to new loan production, partially offset by payoffs and paydowns. 48 Table of Contents 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. Our commercial and agricultural business loans were $2.74 billion at March 31, 2025 and $2.76 billion at December 31, 2024. Commercial and agricultural business loans represented approximately 24% of our loan portfolio at March 31, 2025. Our commercial business lending also includes participation in certain syndicated loans, including shared national credits, which totaled $223.6 million, or 2% of our loan portfolio, at March 31, 2025, compared to $227.4 million, or 2% of our loan portfolio, at December 31, 2024. We are active originators of one- to four-family residential loans in most communities where we have established offices in Washington, Oregon, California, Idaho and Utah. Most of the one- to four-family residential loans we originate in normal market conditions are sold in secondary markets with net gains on sales and loan servicing fees reflected in our revenues from mortgage banking operations. At March 31, 2025, one- to four-family residential loans retained in our portfolio increased $9.0 million, to $1.60 billion, compared to $1.59 billion at December 31, 2024. The increase in one- to four-family residential loans was primarily the result of a higher percentage of one- to four-family construction loans converting to permanent one- to four-family residential loans and new loan production. One- to four-family residential loans represented 14% of our loan portfolio at March 31, 2025. Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At March 31, 2025, consumer loans, including home equity revolving lines of credit, decreased $4.2 million to $717.2 million, compared to $721.4 million at December 31, 2024. The following table shows the commitment amount for loan origination activity (excluding loans held for sale) for the periods indicated (in thousands): Three Months Ended Mar 31, 2025 Dec 31, 2024 Mar 31, 2024 Commercial real estate $ 37,041 $ 124,554 $ 67,362 Multifamily real estate 9,555 3,120 385 Construction and land 287,565 303,345 437,273 Commercial business 103,739 250,515 154,715 Agricultural business 12,765 17,177 34,406 One-to four- family residential 5,139 29,531 17,568 Consumer 80,030 73,791 66,145 Total commitment amount for loan originations (excluding loans held for sale) $ 535,834 $ 802,033 $ 777,854 Loans held for sale decreased to $24.5 million at March 31, 2025, compared to $32.0 million at December 31, 2024. The decrease in loans held for sale compared to the preceding quarter was primarily the result of loan sales exceeding new originations of one- to four- family residential mortgage loans held for sale during the quarter. Originations of loans held for sale increased to $75.2 million for the three months ended March 31, 2025, compared to $48.4 million for the same period last year. The volume of one- to four-family residential mortgage loans sold was $108.1 million during the three months ended March 31, 2025, compared to $65.9 million in the same period a year ago. The following table presents loans by geographic concentration at the dates indicated (dollars in thousands): Mar 31, 2025 Dec 31, 2024 Mar 31, 2024 Percentage Change Amount Percentage Amount Amount Year End Prior Year Qtr. End Washington $ 5,260,906 46 % $ 5,245,886 $ 5,091,912 — % 3 % California 2,927,835 26 2,861,435 2,687,114 2 9 Oregon 2,122,953 18 2,113,229 2,013,453 — 5 Idaho 665,625 6 665,158 613,155 — 9 Utah 88,858 1 82,459 72,652 8 22 Other 372,619 3 386,489 390,810 (4) (5) Total loans receivable $ 11,438,796 100 % $ 11,354,656 $ 10,869,096 1 % 5 % Investment Securities: Total securities decreased $5.3 million to $3.10 billion at March 31, 2025, from $3.11 billion at December 31, 2024, primarily due to securities paydowns and maturities exceeding purchases during the three months ended March 31, 2025. Purchases during the three months ended March 31, 2025, consisted primarily of state and local government obligations. The average effective duration of the Company’s securities portfolio was 6.5 years at March 31, 2025, compared to 6.6 years at December 31, 2024. Fair value adjustments for securities designated as available-for-sale increased $38.3 million for the three months ended March 31, 2025, which was included, net of the associated tax expense of $9.2 million, as a component of other comprehensive income, and occurred as a result of decreases in market interest rates during the three months ended March 31, 2025. 49 Table of Contents Deposits: Deposits, client retail repurchase agreements and loan repayments are the major sources of our funds for lending and other investment purposes. 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 branch strategy and marketing efforts over the last several years have been directed toward attracting additional deposit client relationships and balances. This effort has been particularly directed towards emphasizing core deposit activity in non-interest-bearing and other transaction and savings accounts. Despite rate sensitive deposits shifting out of non-interest-bearing deposits due to clients seeking higher yields on their deposits, our strategy of focusing on relationship banking remains intact. The following table sets forth the Company’s deposits by type of deposit account as of the dates indicated (dollars in thousands): Percentage Change Mar 31, 2025 Dec 31, 2024 Mar 31, 2024 Year End Prior Year Qtr. End Non-interest-bearing $ 4,571,598 $ 4,591,543 $ 4,699,553 — % (3) % Interest-bearing checking 2,431,279 2,393,864 2,112,799 2 15 Regular savings accounts 3,542,005 3,478,423 3,171,933 2 12 Money market accounts 1,544,333 1,550,896 1,688,606 — (9) Interest-bearing transaction & savings accounts 7,517,617 7,423,183 6,973,338 1 8 Total core deposits 12,089,215 12,014,726 11,672,891 1 4 Interest-bearing certificates 1,504,050 1,499,672 1,485,880 — 1 Total deposits $ 13,593,265 $ 13,514,398 $ 13,158,771 1 % 3 % Total deposits increased $78.9 million at March 31, 2025, compared to December 31, 2024, with core deposits increasing $74.5 million and certificates of deposit increasing $4.4 million. The increase in core deposits primarily reflects increases in interest-bearing transaction and savings accounts. We had $75.3 million of brokered deposits at March 31, 2025, compared to $50.3 million at December 31, 2024. Core deposits represented 89% of total deposits at both March 31, 2025 and December 31, 2024. Competition for deposits in our market areas remains strong. The following table sets forth the number and average account balance of the Company’s deposit accounts as of the dates indicated (dollars in thousands): Mar 31, 2025 Dec 31, 2024 Mar 31, 2024 Number of deposit accounts 453,808 460,004 461,399 Average account balance per account $ 30 $ 30 $ 29 The following table presents deposits by geographic concentration at the dates indicated (dollars in thousands): Mar 31, 2025 Dec 31, 2024 Mar 31, 2024 Percentage Change Amount Percentage Amount Amount Year End Prior Year Qtr. End Washington $ 7,394,201 54 % $ 7,441,413 $ 7,258,785 (1) % 2 % Oregon 3,045,078 22 2,981,327 2,914,605 2 4 California 2,463,012 18 2,392,573 2,316,515 3 6 Idaho 690,974 5 699,085 668,866 (1) 3 Total deposits $ 13,593,265 100 % $ 13,514,398 $ 13,158,771 1 % 3 % Borrowings: We had $168.0 million of FHLB advances at March 31, 2025, compared to $290.0 million at December 31, 2024. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, increased $5.3 million to $130.6 million at March 31, 2025, compared to $125.3 million at December 31, 2024. The overall decrease in borrowings reflects the increased use of deposits to fund loan growth. At March 31, 2025, the Company’s off-balance sheet liquidity included additional borrowing capacity of $3.14 billion at the FHLB and $1.65 billion at the Federal Reserve, as well as federal funds line of credit agreements with other financial institutions of $125.0 million. Junior subordinated debentures totaled $67.7 million at March 31, 2025, compared to $67.5 million at December 31, 2024. Subordinated notes, net of issuance costs were $80.4 million at March 31, 2025, compared to $80.3 million at December 31, 2024. 50 Table of Contents Shareholders’ Equity: Total shareholders’ equity increased $59.1 million to $1.83 billion, or 11.34% of total assets, at March 31, 2025, compared to $1.77 billion, or 10.95% of total assets, at December 31, 2024. The increase in shareholders’ equity was primarily due to a $28.3 million increase in retained earnings as a result of $45.1 million in net income, partially offset by the accrual of cash dividends during the three months ended March 31, 2025. In addition, accumulated other comprehensive loss decreased by $29.3 million, primarily due to a decrease in the unrealized losses on the security portfolio. There were no shares of common stock repurchased during the three months ended March 31, 2025. Tangible common shareholders’ equity, which excludes goodwill and other intangible assets and is a non-GAAP financial measure, increased $59.6 million to $1.46 billion, or 9.23% of tangible assets, at March 31, 2025, compared to $1.40 billion, or 8.84% of tangible assets at December 31, 2024. A reconciliation of this non-GAAP financial measure to its comparable GAAP financial measure is presented above following “First Quarter 2025 Financial Highlights.” Comparison of Results of Operations for the Three Months Ended March 31, 2025 and December 31, 2024, and March 31, 2024 For the quarter ended March 31, 2025, net income was $45.1 million, or $1.30 per diluted share, compared to $46.4 million, or $1.34 per diluted share, for the preceding quarter and $37.6 million, or $1.09 per diluted share for three months ended March 31, 2024. The decrease in net income for the current quarter compared to the preceding quarter was primarily due to a decrease in non-interest income as well as an increase in non-interest expense, partially offset by an increase in net interest income. The increase in net income for the current quarter compared to the prior year quarter was primarily due to increases in net interest income and non-interest income, partially offset by increases in non-interest expense and the provision for credit losses. The increase in net interest income compared to the preceding quarter reflects an overall increase in the yield on interest-earning assets and a decrease in funding costs, partially offset by a decrease in the average balance of interest-earning assets. Net interest margin for the current quarter benefited from decreased funding costs, primarily due to decreases in market interest rates, and increased yields on loans, primarily due to new loans being originated at higher interest rates and adjustable rate loans repricing higher. In 2024, the Federal Open Market Committee (“FOMC”) of the Federal Reserve lowered the target range for the federal funds rate three times, resulting in a target range of 4.25% to 4.50% at March 31, 2025. The increase in net interest income compared to the prior year quarter reflects an increase in both the yield and average balance of interest-earning assets, partially offset by an increase in funding costs. We recorded a $3.1 million provision for credit losses for the quarter ended March 31, 2025, compared to a $3.0 million provision for credit losses in the preceding quarter and a $520,000 provision for credit losses for the three months ended March 31, 2024. The provision for credit losses for the current quarter primarily reflected loan growth in the construction portfolio and to a lesser extent risk rating migration and qualitative adjustments applied to address economic uncertainty. Total non-interest income decreased for the quarter ended March 31, 2025, compared to the preceding quarter and increased compared to the same period a year ago. The decrease in non-interest income during the current quarter compared to the preceding quarter was primarily due to decreases in mortgage banking operations revenue and miscellaneous income, partially offset by an increase in bank owned life insurance income. The increase in non-interest income during the current quarter compared to the prior year quarter was primarily due to a decrease in the net loss recognized on the sale of securities and an increase in the fair value adjustments on financial instruments carried at fair value during the current quarter. Total non-interest expense increased for the quarter ended March 31, 2025, compared to the preceding quarter and the same period a year ago. The increase in non-interest expense for the current quarter compared to the preceding quarter reflects an increase in salary and employee benefits, primarily resulting from increased medical premiums expense and payroll tax expense, and a decrease in capitalized loan costs, partially offset by a decrease in advertising and marketing expenses. The increase in non-interest expense for the current quarter compared to the same quarter a year ago primarily reflects increases in salary and employee benefits and professional and legal expenses. 51 Table of Contents OPERATING DATA: Quarters Ended (In thousands) March 31, 2025 December 31, 2024 March 31, 2024 Interest income $ 193,868 $ 196,436 $ 184,688 Interest expense 52,785 55,900 51,729 Net interest income 141,083 140,536 132,959 Provision for credit losses 3,139 3,000 520 Net interest income after provision for credit losses 137,944 137,536 132,439 Deposit fees and other service charges 10,769 11,018 11,022 Mortgage banking operations 3,103 3,686 2,335 Net gain (loss) on sale of securities — 275 (4,903) Net change in valuation of financial instruments carried at fair value 315 161 (992) All other non-interest income 4,921 4,895 4,129 Total non-interest income 19,108 20,035 11,591 Salary and employee benefits 64,857 62,523 62,369 All other non-interest expenses 36,402 36,955 35,272 Total non-interest expense 101,259 99,478 97,641 Income before provision for income tax expense 55,793 58,093 46,389 Provision for income tax expense 10,658 11,702 8,830 Net income $ 45,135 $ 46,391 $ 37,559 PER COMMON SHARE DATA: Quarters Ended March 31, 2025 December 31, 2024 March 31, 2024 Net income: Basic $ 1.31 $ 1.34 $ 1.09 Diluted 1.30 1.34 1.09 Net Interest Income. Net interest income increased for the quarter ended March 31, 2025, compared to the preceding quarter and the same period one year earlier. The increase in net interest income compared to both comparable periods reflects an overall increase in net interest margin for the current period. Net interest margin on a tax equivalent basis increased ten basis points to 3.92% for the first quarter of 2025, compared to 3.82% in the preceding quarter and increased 18 basis points compared to 3.74% for the same period in the prior year. Net interest margin for the current quarter, compared to the preceding quarter, benefited from decreased funding costs, primarily due to a decrease in market rates, partially offset 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, and higher yields on interest earning assets, primarily due to an increase in the average loan yield. Net interest margin for the current quarter, compared to the prior year quarter, benefited from an increase in both the yield and the average balance of interest-earning assets, partially offset by higher funding costs. Interest Income. Interest income for the quarter ended March 31, 2025 was $193.9 million, compared to $196.4 million for the preceding quarter and $184.7 million for the same period in the prior year. The decrease in interest income during the current quarter compared to the preceding quarter primarily reflects two fewer interest earning days in the current quarter and a decrease in the average balance of interest-earning assets due to a decrease in the average balance of investment securities. The increase in interest income during the current quarter compared to the prior period a year ago reflects an increase in interest income on loans due to an increase in the overall average loan yield, mostly due to the high interest rate environment. In addition, the increase reflects growth in the average balance of loans, partially offset by a decreases in both the yield and average balance of investment securities. The decreased interest income on loans for the current quarter compared to the preceding quarter was primarily driven by two fewer days in the quarter. The increase in interest income on loans for the current quarter compared to the same period in the prior year was due to an increase in both the average balance and yield on loans. Loan yields increased five basis points to 6.07% for the quarter ended March 31, 2025, from 6.02% in the preceding quarter and increased 20 basis points compared to 5.87% in the first quarter a year ago, due to new loans being originated at higher interest rates and adjustable rate loans repricing higher. The average balance of loans receivable for the quarter ended March 31, 2025 increased compared to both comparable periods, primarily reflecting increases in the average balances of mortgage loans, specifically commercial real estate and construction loans. 52 Table of Contents Interest and dividend income on total investment securities for the current quarter decreased from both the preceding and prior year quarters due to a lower average yield earned on total investment securities during the current quarter and a decrease in the average balance of total investment securities. The average balance of total investment securities decreased to $3.52 billion for the quarter ended March 31, 2025 (excluding the effect of fair value adjustments), compared to $3.61 billion for the preceding quarter and $3.78 billion for same period in the prior year. The average yield on the combined portfolio decreased to 3.02% for the quarter ended March 31, 2025, from 3.07% for the preceding quarter and 3.11% for the same period in the prior year. Interest Expense. Interest expense for the quarter ended March 31, 2025 decreased $3.1 million, or 6%, to $52.8 million compared to $55.9 million for the preceding quarter, and increased compared to $51.7 million for the same period in the prior year. The decrease compared to the preceding quarter occurred as a result of a five basis-point decrease in the average cost of all funding liabilities to 1.55% for the quarter ended March 31, 2025. The increase compared to the prior year occurred as a result of an increase in both the average cost and balance of total funding liabilities. Deposit interest expense for the quarter ended March 31, 2025 decreased $3.5 million, or 7%, to $48.7 million compared to $52.2 million for the preceding quarter, and increased compared to $44.6 million for the same period in the prior year. The decrease in deposit costs in the current quarter compared to the prior quarter was primarily due to the lagging effect of interest rate decreases in the prior quarter. The average cost of interest-bearing deposits decreased to 2.22% for the quarter ended March 31, 2025, compared to 2.33% in the preceding quarter and increased compared to 2.15% for the same period a year earlier. The decrease in the cost of interest-bearing deposits compared to the preceding quarter reflects the interest rate decreases implemented on our interest-bearing deposits in the prior quarter. The increase in the cost of interest-bearing deposits compared to the same period a year earlier was primarily the result of an overall increase in the average rate paid on interest-bearing deposits. The average rate paid on total deposits, which includes non-interest-bearing deposits, was 1.47% for the quarter ended March 31, 2025, compared to 1.53% in the preceding quarter and 1.37% for the same period in the prior year. Average deposit balances decreased to $13.45 billion for the quarter ended March 31, 2025, from $13.56 billion for the preceding quarter and increased from $13.06 billion for the same period a year earlier. Interest expense on total borrowings for the quarter ended March 31, 2025 increased 10%, to $4.0 million compared to $3.7 million for the prior quarter, primarily due to an increase in the average balance of total borrowings, and decreased from $7.1 million for the same period a year earlier, primarily due to decreases in both the rate paid and the average balance of total borrowings. The average balance of total borrowings increased to $379.7 million for the quarter ended March 31, 2025, compared to $320.3 million for the preceding quarter, primarily due to a $67.8 million increase in the average balance of FHLB advances, and decreased compared to $575.3 million for the same period a year earlier, primarily due to a $137.7 million decrease in the average balance of FHLB advances and $45.9 million decrease in the average balance of other borrowings. The average rate paid on total borrowings for the quarter ended March 31, 2025 decreased to 4.32% from 4.57% for the preceding quarter and 4.98% for the same period a year earlier. 53 Table of Contents Analysis of Net Interest Spread . The following table 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 with additional comparative data on our operating performance (dollars in thousands). Average balances are computed using daily average balances. ANALYSIS OF NET INTEREST SPREAD Quarters Ended (rates / ratios annualized) Mar 31, 2025 Dec 31, 2024 Mar 31, 2024 (dollars in thousands) 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 $ 22,457 $ 357 6.45 % $ 61,585 $ 1,049 6.78 % $ 9,939 $ 167 6.76 % Mortgage loans 9,366,213 137,724 5.96 % 9,267,076 136,831 5.87 % 8,892,561 125,284 5.67 % Commercial/agricultural loans 1,907,212 30,752 6.54 % 1,900,337 31,873 6.67 % 1,830,095 30,847 6.78 % Consumer and other loans 121,492 2,092 6.98 % 124,726 2,078 6.63 % 133,854 2,196 6.60 % Total loans (1) 11,417,374 170,925 6.07 % 11,353,724 171,831 6.02 % 10,866,449 158,494 5.87 % Mortgage-backed securities 2,542,983 15,895 2.53 % 2,576,908 16,228 2.51 % 2,728,640 17,076 2.52 % Other securities 902,732 9,687 4.35 % 919,742 10,281 4.45 % 984,639 11,501 4.70 % Interest-bearing deposits with banks 65,758 484 2.99 % 107,404 1,043 3.86 % 45,264 459 4.08 % FHLB stock 12,804 149 4.72 % 9,887 316 12.71 % 19,073 209 4.41 % Total investment securities 3,524,277 26,215 3.02 % 3,613,941 27,868 3.07 % 3,777,616 29,245 3.11 % Total interest-earning assets 14,941,651 197,140 5.35 % 14,967,665 199,699 5.31 % 14,644,065 187,739 5.16 % Non-interest-earning assets 1,006,497 1,016,366 943,725 Total assets $ 15,948,148 $ 15,984,031 $ 15,587,790 Deposits: Interest-bearing checking accounts $ 2,381,106 8,537 1.45 % $ 2,377,179 9,279 1.55 % $ 2,104,242 6,716 1.28 % Savings accounts 3,450,908 18,103 2.13 % 3,441,196 19,447 2.25 % 3,066,448 15,279 2.00 % Money market accounts 1,555,262 7,860 2.05 % 1,584,092 8,510 2.14 % 1,674,159 8,388 2.02 % Certificates of deposit 1,531,428 14,237 3.77 % 1,513,966 14,981 3.94 % 1,500,429 14,230 3.81 % Total interest-bearing deposits 8,918,704 48,737 2.22 % 8,916,433 52,217 2.33 % 8,345,278 44,613 2.15 % Non-interest-bearing deposits 4,526,596 — — % 4,640,557 — — % 4,711,922 — — % Total deposits 13,445,300 48,737 1.47 % 13,556,990 52,217 1.53 % 13,057,200 44,613 1.37 % Other interest-bearing liabilities: FHLB advances 75,300 860 4.63 % 7,522 85 4.50 % 212,989 2,972 5.61 % Other borrowings 134,761 694 2.09 % 143,097 817 2.27 % 180,692 1,175 2.62 % Junior subordinated debentures and subordinated notes 169,678 2,494 5.96 % 169,678 2,781 6.52 % 181,579 2,969 6.58 % Total borrowings 379,739 4,048 4.32 % 320,297 3,683 4.57 % 575,260 7,116 4.98 % Total funding liabilities 13,825,039 52,785 1.55 % 13,877,287 55,900 1.60 % 13,632,460 51,729 1.53 % Other non-interest-bearing liabilities (2) 324,031 324,447 303,412 Total liabilities 14,149,070 14,201,734 13,935,872 Shareholders’ equity 1,799,078 1,782,297 1,651,918 Total liabilities and shareholders’ equity $ 15,948,148 $ 15,984,031 $ 15,587,790 Net interest income/rate spread (tax equivalent) $ 144,355 3.80 % $ 143,799 3.71 % $ 136,010 3.63 % Net interest margin (tax equivalent) 3.92 % 3.82 % 3.74 % Reconciliation to reported net interest income: Adjustments for taxable equivalent basis (3,272) (3,263) (3,051) Net interest income and margin, as reported $ 141,083 3.83 % $ 140,536 3.74 % $ 132,959 3.65 % Additional Key Financial Ratios: Return on average assets 1.15 % 1.15 % 0.97 % Adjusted return on average assets (4) 1.14 % 1.15 % 1.08 % Return on average equity 10.17 % 10.35 % 9.14 % Adjusted return on average equity (4) 10.12 % 10.28 % 10.24 % Average equity/average assets 11.28 % 11.15 % 10.60 % Average interest-earning assets/average interest-bearing liabilities 160.69 % 162.05 % 164.16 % Average interest-earning assets/average funding liabilities 108.08 % 107.86 % 107.42 % Non-interest income/average assets 0.49 % 0.50 % 0.30 % Non-interest expense/average assets 2.57 % 2.48 % 2.52 % Efficiency ratio 63.21 % 61.95 % 67.55 % Adjusted efficiency ratio (4) 62.18 % 60.74 % 63.70 % (1) Average balances include loans accounted for on a nonaccrual basis and accruing 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 $2.2 million for both the quarters ended March 31, 2025 and December 31, 2024, and $2.0 million for the quarter ended March 31, 2024. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.0 million for the quarters ended March 31, 2025, December 31, 2024, and March 31, 2024. (4) Represents non-GAAP financial measures. See non-GAAP financial measure reconciliations presented above following First Quarter 2025 Highlights. 54 Table of Contents Provision and Allowance for Credit Losses . 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 loan based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio. These factors include, among others, changes in the size and composition of the loan portfolio, differences in underwriting standards, delinquency rates, actual loss experience and current economic conditions. The following table sets forth an analysis of our allowance for credit losses - loans for the periods indicated (dollars in thousands): Quarters Ended CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - LOANS Mar 31, 2025 Dec 31, 2024 Mar 31, 2024 Balance, beginning of period $ 155,521 $ 154,585 $ 149,643 Provision for credit losses – loans 4,549 3,219 1,424 Recoveries of loans previously charged off: Commercial real estate 57 1,215 1,389 One- to four-family residential 188 124 16 Commercial business 557 245 781 Agricultural business, including secured by farmland 10 2 106 Consumer 119 164 159 931 1,750 2,451 Loans charged off: Commercial real estate — (4) — Construction and land — (5) — One- to four-family residential (13) — — Commercial business (3,301) (3,595) (1,809) Consumer (364) (429) (569) (3,678) (4,033) (2,378) Net (charge-offs) recoveries (2,747) (2,283) 73 Balance, end of period $ 157,323 $ 155,521 $ 151,140 Net (charge-offs) recoveries / Average loans receivable (0.024) % (0.020) % 0.001 % Allowance for credit losses - loans as a percentage of total loans 1.38 % 1.37 % 1.39 % 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. During the quarter ended March 31, 2025, we recorded a provision for credit losses - loans of $4.5 million, compared to a provision for credit losses - loans of $3.2 million during the preceding quarter. The provision for credit losses for the current quarter primarily reflected loan growth in the construction portfolio and to a lesser extent risk rating migration and qualitative adjustments applied to address economic uncertainty. The provision for credit losses for the preceding quarter primarily reflected risk rating downgrades as well as growth in loan balances. Future provisions for credit losses will continue to be influenced by changes in the amount and composition of the loan portfolio, updates to the reasonable and supportable forecast of future economic conditions, revisions to qualitative factor assessments, and any necessary changes to the reversion period applied in estimating expected credit losses. The provision for credit losses - unfunded loan commitments reflects the amount required to maintain the allowance for credit losses - unfunded loan commitments at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves. The following table sets forth an analysis of our allowance for credit losses - unfunded loan commitments for the periods indicated (dollars in thousands): Quarters Ended CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS Mar 31, 2025 Dec 31, 2024 Mar 31, 2024 Balance, beginning of period $ 13,562 $ 13,765 $ 14,484 Recapture of provision for credit losses - unfunded loan commitments (1,400) (203) (887) Balance, end of period $ 12,162 $ 13,562 $ 13,597 The decrease in the allowance for credit losses - unfunded loan commitments for the current quarter primarily reflects a decrease in unfunded loan commitments in the construction portfolio. 55 Table of Contents Non-interest Income. The following table presents the key components of non-interest income for the periods indicated (dollars in thousands): Quarters Ended Mar 31, 2025 Dec 31, 2024 Change Amount Change Percent Mar 31, 2024 Change Amount Change Percent Deposit fees and other service charges $ 10,769 $ 11,018 $ (249) (2) % $ 11,022 $ (253) (2) % Mortgage banking operations 3,103 3,686 (583) (16) 2,335 768 33 Bank owned life insurance 2,575 2,144 431 20 2,237 338 15 Miscellaneous 2,346 2,751 (405) (15) 1,892 454 24 18,793 19,599 (806) (4) 17,486 1,307 7 Net gain (loss) on sale of securities — 275 (275) (100) (4,903) 4,903 (100) Net change in valuation of financial instruments carried at fair value 315 161 154 96 (992) 1,307 (132) Total non-interest income $ 19,108 $ 20,035 $ (927) (5) % $ 11,591 $ 7,517 65 % The decrease in non-interest income during the current quarter compared to the preceding quarter was primarily due to decreases in mortgage banking operations revenue and miscellaneous income, partially offset by an increase in bank owned life insurance income. The increase in non-interest income during the current quarter compared to the prior year quarter was primarily due to a decrease in the net loss recognized on the sale of securities and an increase in the fair value adjustments on financial instruments carried at fair value during the current quarter Revenue from mortgage banking operations decreased $583,000 for the quarter ended March 31, 2025, compared to the preceding quarter and increased $768,000 compared to the same period a year earlier. The volume of one- to four-family loans sold during the current quarter decreased compared to the preceding quarter and increased compared to the prior year quarter. While the volume of one- to four-family loans sold increased compared to the prior year quarter, overall volumes remained low due to reduced refinancing and purchase activity in the current interest rate environment. The decrease in mortgage banking operations revenue from the preceding quarter reflects a $508,000 gain related to the pooled loan sale of $34.8 million of one- to four-family loans during the fourth quarter of 2024 and a decrease in the market value of our hedge, partially offset by an increase in the pricing of one- to four-family loans sold during the current quarter. Gains on sales of one- to four-family loans totaled $2.1 million for the quarter ended March 31, 2025, compared to $2.6 million in the preceding quarter and $1.3 million for the three months ended March 31, 2024. Home purchase activity accounted for 84% of one- to four-family residential mortgage loan originations in the first quarter of 2025, compared to 79% in the preceding quarter. Bank owned life insurance income increased for the three months ended March 31, 2025, compared to the preceding and prior year quarters due to the receipt of death benefit proceeds during the current quarter. Miscellaneous income decreased for the three months ended March 31, 2025, compared to the prior quarter, primarily due to a gain recognized on the sale of a non-performing loan during the fourth quarter of 2024, and increased compared to same period a year earlier, primarily as a result of an increase in the gain on sale of SBA loans. The net loss on the sale of securities recognized for the three months ended March 31, 2024 reflected strategic sales of securities to minimize the impact of increasing rates on our securities portfolio. The net loss for fair value adjustments for changes in the valuation of financial instruments carried at fair value for the three months ended March 31, 2024 were due to declines in the current market valuation of limited partnership investments. 56 Table of Contents Non-interest Expense. The following table represents key elements of non-interest expense for the periods indicated (dollars in thousands): Quarters Ended Mar 31, 2025 Dec 31, 2024 Change Amount Change Percent. Mar 31, 2024 Change Amount Change Percent Salary and employee benefits $ 64,857 $ 62,523 $ 2,334 4 % $ 62,369 $ 2,488 4 % Less capitalized loan origination costs (3,330) (4,188) 858 (20) (3,676) 346 (9) Occupancy and equipment 12,097 12,141 (44) — 12,462 (365) (3) Information and computer data services 7,628 7,471 157 2 7,320 308 4 Payment and card processing services 5,750 5,771 (21) — 5,710 40 1 Professional and legal expenses 2,430 3,025 (595) (20) 1,530 900 59 Advertising and marketing 590 1,711 (1,121) (66) 1,079 (489) (45) Deposit insurance 2,797 2,857 (60) (2) 2,809 (12) — State and municipal business and use taxes 1,454 1,518 (64) (4) 1,304 150 12 Real estate operations, net (61) 113 (174) (154) (220) 159 (72) Amortization of core deposit intangibles 456 589 (133) (23) 723 (267) (37) Miscellaneous 6,591 5,947 644 11 6,231 360 6 Total non-interest expense $ 101,259 $ 99,478 $ 1,781 2 % $ 97,641 $ 3,618 4 % The increase in non-interest expense for the current quarter compared to the prior quarter reflects an increase in salary and employee benefits and a decrease in capitalized loan costs, partially offset by a decrease in advertising and marketing expenses. The increase in non-interest expense for the three months ended March 31, 2025, compared to the same period a year earlier primarily reflects increases in salary and employee benefits and professional and legal expenses. Salary and employee benefits increased compared to the prior quarter, primarily as a result of increased medical premiums expense, as well as payroll tax expense that typically increases in the first quarter due to the reset of payroll tax wage bases. The increase compared to the same period a year earlier was primarily the result of normal salary and wage increases. Advertising and marketing expense decreased for the quarter ended March 31, 2025, primarily due to decreases in printed media marketing and community development expenses. Professional and legal expense decreased for the three months ended March 31, 2025, compared to the preceding quarter primarily due to a decrease in consultant and audit expenses due to the timing of these engagements. The increase compared to the same period a year ago was primarily due to an increase in legal expenses as the prior period reflected a one-time true-up. Our efficiency ratio was 63.21% for the current quarter, compared to 61.95% in the preceding quarter. Our adjusted efficiency ratio, a non-GAAP financial measure, was 62.18% for the current quarter, compared to 60.74% in the preceding quarter. The efficiency ratio for the current quarter reflects a decrease in total revenues in addition to the increase in non-interest expenses. See non-GAAP financial measure reconciliations presented above under “First Quarter 2025 Financial Highlights.” Income Taxes. For the quarter ended March 31, 2025, we recognized $10.7 million in income tax expense for an effective tax rate of 19.1%, which reflects our blended statutory tax rate reduced by the effect of tax-exempt income, certain tax credits, and tax benefits related to restricted stock vesting. Our statutory income tax rate is 23.7%, representing a statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates. For the quarter ended December 31, 2024, we recognized $11.7 million in income tax expense for an effective tax rate of 20.1%. For the three months ended March 31, 2024, we recognized $8.8 million in income tax expense for an effective tax rate of 19.0%. 57 Table of Contents 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. We actively engage with our borrowers to resolve adversely classified loans and other problem assets. Non-Performing Assets: Non-performing assets totaled $42.7 million, or 0.26% of total assets, at March 31, 2025, compared to $39.6 million, or 0.24% of total assets, at December 31, 2024. Our allowance for credit losses - loans was $157.3 million, or 404% of non-performing loans, at March 31, 2025, compared to $155.5 million, or 421% of non-performing loans, at December 31, 2024. The following table sets forth information with respect to our non-performing assets at the dates indicated (dollars in thousands): March 31, 2025 December 31, 2024 March 31, 2024 Nonaccrual Loans: Secured by real estate: Commercial $ 2,182 $ 2,186 $ 2,753 Construction and land 4,359 3,963 5,029 One- to four-family 10,448 10,016 7,750 Commercial business 6,425 7,067 7,355 Agricultural business, including secured by farmland 10,301 8,485 2,496 Consumer 4,874 4,835 3,411 38,589 36,552 28,794 Loans more than 90 days delinquent, still on accrual: Secured by real estate: Construction and land — — 286 One- to four-family 9 369 409 Commercial business 206 — — Consumer 155 35 — 370 404 695 Total non-performing loans 38,959 36,956 29,489 REO, net 3,468 2,367 448 Other repossessed assets held for sale 300 300 — Total non-performing assets $ 42,727 $ 39,623 $ 29,937 Total non-performing assets to total assets 0.26 % 0.24 % 0.19 % Total nonaccrual loans to total loans receivable 0.34 % 0.32 % 0.26 % Loans 30-89 days past due and on accrual $ 37,339 $ 26,824 $ 19,649 For the three months ended March 31, 2025, interest income was reduced by $870,000 as a result of nonaccrual loan activity, which included the reversal of $263,000 of accrued interest as of the date the loan was placed on nonaccrual. There was no interest income recognized on nonaccrual loans for the three months ended March 31, 2025. The following table presents the Company’s portfolio of loans by risk grade at the dates indicated (in thousands): March 31, 2025 December 31, 2024 March 31, 2024 Pass $ 11,207,852 $ 11,118,744 $ 10,731,015 Special Mention 33,133 43,451 22,029 Substandard 197,811 192,461 116,052 Total $ 11,438,796 $ 11,354,656 $ 10,869,096 As of March 31, 2025, total substandard loans primarily consisted of loans within the commercial business, commercial real estate and agricultural loan segments. 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 payments on mortgage-backed and investment securities. While maturities and scheduled amortization of loans and 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. 58 Table of Contents Our primary investing activity is the origination of loans and, in certain periods, the purchase of securities or loans. During the three months ended March 31, 2025 and 2024, our loan originations, including originations of loans held for sale, exceeded our loan repayments by $186.2 million and $120.4 million, respectively. There were $10.8 million of loan purchases during the three months ended March 31, 2025, and $4.7 million loan purchases during the three months ended March 31, 2024. During the three months ended March 31, 2025 and 2024, we received proceeds of $120.7 million and $71.5 million, respectively, from the sale of loans. Securities purchased during the three months ended March 31, 2025 and 2024 totaled $9.8 million and $10.5 million, respectively, and securities repayments, maturities and sales in those periods were $52.9 million and $134.2 million, respectively. Our primary financing activity is gathering deposits. Total deposits increased by $78.9 million during the three months ended March 31, 2025, primarily due to an increase in core deposits. Core deposits were $12.09 billion at March 31, 2025, compared to $12.01 billion at December 31, 2024. 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 March 31, 2025, 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. While no assurance can be given as to future periods, historically, we have been able to retain a significant amount of our certificates of deposit as they mature. We had $168.0 million of FHLB advances at March 31, 2025, compared to $290.0 million at December 31, 2024. Other borrowings increased to $130.6 million at March 31, 2025 from $125.3 million at December 31, 2024. Subordinated notes, net of issuance costs decreased to $80.4 million at March 31, 2025, compared to $80.3 million at December 31, 2024. We must maintain an adequate level of liquidity to ensure the availability of sufficient funds to accommodate deposit withdrawals, to support loan growth, to satisfy financial commitments, and to take advantage of investment opportunities. During the three months ended March 31, 2025, we used our sources of funds primarily to fund loan growth. At March 31, 2025, we had outstanding loan commitments totaling $3.89 billion, 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. We generally maintain sufficient cash and readily marketable securities to meet short-term liquidity needs; however, our primary liquidity management practice to supplement deposits is to increase or decrease short-term borrowings, including FHLB advances and Federal Reserve Bank of San Francisco (FRBSF) borrowings. We maintain credit facilities with the FHLB, which provide for advances that in the aggregate would equal the lesser of 45% of the Bank’s assets or adjusted qualifying collateral (subject to a sufficient level of ownership of FHLB stock). At March 31, 2025, under these credit facilities based on pledged collateral, the Bank had $3.14 billion of available credit capacity. Advances under these credit facilities totaled $168.0 million at March 31, 2025. 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 $1.65 billion as of March 31, 2025, 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 March 31, 2025 or December 31, 2024. At March 31, 2025, 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 March 31, 2025 or December 31, 2024. 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. At March 31, 2025, Banner (on an unconsolidated basis) had liquid assets of $84.2 million. At March 31, 2025, Banner had an intercompany loan agreement with the Bank of $50.0 million. The note receivable from the Bank has a rolling one-year term, automatically renewed each quarter, and is eliminated 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 $16.6 million based on the number of outstanding shares at March 31, 2025. As noted below, Banner Corporation and its subsidiary bank continued to maintain capital levels in excess of the requirements to be categorized as “Well-Capitalized” under applicable regulatory standards. During the three months ended March 31, 2025, total shareholders’ equity increased $59.1 million, to $1.83 billion or 11.34% of total assets. At March 31, 2025, tangible common shareholders’ equity, which excludes goodwill and other intangible assets, was $1.46 billion, or 9.23% of tangible assets. Tangible common shareholders’ equity represents a non-GAAP financial measure. See, non-GAAP financial measure reconciliations presented above under “First Quarter 2025 Financial Highlights.” 59 Table of Contents 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 to 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 March 31, 2025, Banner and the Bank each exceeded all regulatory capital requirements to be “well capitalized.” The actual regulatory capital ratios calculated for Banner Corporation and Banner Bank as of March 31, 2025, along with the minimum capital amounts and ratios, were as follows (dollars in thousands): Actual Minimum to be Categorized as “Adequately Capitalized” Minimum to be Categorized as “Well-Capitalized” Amount Ratio Amount Ratio Amount Amount Banner Corporation—consolidated Total capital to risk-weighted assets $ 2,052,497 15.23 % $ 1,078,147 8.00 % $ 1,347,684 10.00 % Tier 1 capital to risk-weighted assets 1,784,020 13.24 % 808,610 6.00 % 808,610 6.00 % Tier 1 leverage capital to average assets 1,784,020 11.22 % 636,113 4.00 % n/a n/a Common equity tier 1 capital 1,697,520 12.60 % 606,458 4.50 % n/a n/a Banner Bank Total capital to risk-weighted assets $ 1,911,810 14.16 % $ 1,079,945 8.00 % $ 1,349,932 10.00 % Tier 1 capital to risk-weighted assets 1,743,056 12.91 % 809,959 6.00 % 1,079,945 8.00 % Tier 1 leverage capital to average assets 1,743,056 10.95 % 636,570 4.00 % 795,713 5.00 % Common equity tier 1 capital 1,743,056 12.91 % 607,469 4.50 % 877,456 6.50 %