UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, ~~2022~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ to ______________

Commission File Number 000-26584

BANNER CORPORATION

(Exact name of registrant as specified in its charter)


Washington			91-1691604
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

10 South First Avenue, Walla Walla, Washington 99362

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (509) 527-3636

Securities registered pursuant to Section 12(b) of the Act


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	BANR	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

~~[x]~~☒

~~[ ]~~☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

~~[x]~~☒

~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

~~[x]~~☒

Accelerated filer ~~[ ]~~☐

Non-accelerated filer ~~[ ]~~☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~[ ]~~☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

~~[x]~~☒

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of class:

As of April 30, ~~2022~~2023

Common Stock, $.01 par value per share

~~34,375,525~~34,334,590 shares

BANNER CORPORATION AND SUBSIDIARIES

Table of Contents


PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements. The Unaudited Condensed Consolidated Financial Statements of Banner Corporation and Subsidiaries filed as a part of the report are as follows:

Consolidated Statements of Financial Condition as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022			4

Consolidated Statements of Operations for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022			5

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022			6

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, ~~2022~~2023 and the Year Ended December 31, ~~2021~~2022			7

Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022			108

Selected Notes to the Consolidated Financial Statements			1210

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview			5045

Comparison of Financial Condition at March 31, ~~2022~~2023 and December 31, ~~2021~~2022			5747

Comparison of Results of Operations for the Three Months Ended March 31, ~~2022,~~2023 and December 31, ~~2021 and March 31, 2021~~2022			6051

Asset Quality			6757

Liquidity and Capital Resources			6858

Capital Requirements			6960

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Market Risk and Asset/Liability Management			7160

Sensitivity Analysis			7161

Item 4 – Controls and Procedures			7563

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings			7664

Item 1A – Risk Factors			7664

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			7664

Item 3 – Defaults upon Senior Securities			7765

Item 4 – Mine Safety Disclosures			7765

Item 5 – Other Information			7765

Item 6 – Exhibits			7866

SIGNATURES			8068

All references to “Banner” refer to Banner Corporation and those to the “Bank” refer to its wholly-owned subsidiary, Banner Bank. As used throughout this report, the terms “we,” “our,” “us,” or the “Company” refer to Banner Corporation and its consolidated subsidiaries, unless the context otherwise requires.

Special Note Regarding Forward-Looking Statements

Certain matters in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. ~~These~~Forward-looking statements ~~relate~~include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future economic performance and projections of financial items, including statements about our financial condition, liquidity and results of ~~operations, plans, objectives, future performance or business.~~operations. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future economic performance and projections of financial items. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results anticipated or implied by our ~~forward looking~~forward-looking statements, including, but not limited to:potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, ~~generally, resulting~~including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from ~~the ongoing novel coronavirus~~acts of ~~2019 (COVID-19)~~war including Russia’s invasion of Ukraine, as well as increasing prices and supply chain disruptions, and any governmental or societal responses ~~thereto;~~to the COVID-19 pandemic, including new COVID-19 variants; the uncertain impacts of quantitative tightening and current and future monetary policies of the Federal Reserve; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses and provisions for credit losses; the ability to manage loan delinquency rates; competitive pressures among financial services companies; changes in consumer spending or borrowing and spending habits; interest rate movements generally and the relative differences between short and long-term interest rates, loan and deposit interest rates, net interest margin and funding sources; ~~uncertainty regarding~~ the ~~future of~~transition away from the London Interbank Offered Rate (LIBOR)~~, and the transition away from LIBOR~~ toward new interest rate benchmarks; the impact of repricing and competitors’ pricing initiatives on loan and deposit products; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values; the ability to adapt successfully to technological changes to meet clients’ needs and developments in the marketplace; the ability to access cost-effective funding; the ability to control operating costs and ~~expenses;~~expenses, including the costs associated with our “Banner Forward” initiative; the use of estimates in determining fair value of certain assets and liabilities, which estimates may prove to be incorrect and result in significant changes in valuation; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect employees, and potential associated charges; disruptions, security breaches or other adverse events, failures or interruptions in, or attacks on, information technology systems or on the third-party vendors who perform critical processing functions; changes in financial markets; changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular, including the risk of inflation; secondary market conditions for loans and the ability to sell loans in the secondary market; the costs, effects and outcomes of litigation; legislation or regulatory changes, ~~or reforms,~~ including but not limited to changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, results of safety and soundness and compliance examinations by the Board of Governors of the Federal Reserve System (the Federal Reserve), the Federal Deposit Insurance Corporation (the FDIC), the Washington State Department of Financial Institutions, Division of Banks (the Washington DFI), or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require restitution or institute an informal or formal enforcement action which could require an increase in reserves for loan losses, write-downs of assets or changes in regulatory capital position, or affect the ability to borrow funds, or maintain or increase deposits, or impose additional requirements and restrictions, any of which could adversely affect liquidity and earnings; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; the quality and composition of our securities portfolio and the impact of adverse changes in the securities markets; the inability of key third-party providers to perform their obligations; changes in accounting principles, policies or guidelines, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the ~~economic impact~~effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or ~~any terrorist activities;~~terrorism, and other external events on our business; other economic, competitive, governmental, regulatory and technological factors affecting operations, pricing, products and services; future acquisitions by ~~Banner~~the Company of other depository institutions or lines of business; and future goodwill impairment due to changes in ~~Banner’s~~the Company’s business, changes in market ~~conditions,~~conditions; and other risks detailed from time to time in our ~~filings~~reports filed with or furnished to the U.S. Securities and Exchange Commission (SEC), including this report on Form 10-Q.

Any forward-looking statements are based upon management’s beliefs and assumptions at the time they are made. We do not undertake and specifically disclaim any obligation to update any forward-looking statements included in this report or the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. These risks could cause our actual results to differ materially from those expressed in any forward-looking statements by, or on behalf of, us. Further, many of these risks and uncertainties are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the COVID-19 pandemic. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements.

As used throughout this report, the terms “we,” “our,” “us,” or the “Company” refer to Banner Corporation and its consolidated subsidiaries, unless the context otherwise requires. All references to “Banner” refer to Banner Corporation and those to “the Bank” refer to its wholly-owned subsidiary, Banner Bank.

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited) (In thousands, except ~~shares)~~shares and per share amounts)

March 31, ~~2022~~2023 and December 31, ~~2021~~2022


ASSETS	ASSETS	March 31, 2022		December 31, 2021		ASSETS	March 31, 2023		December 31, 2022
Cash and due from banks	Cash and due from banks	$	414,780	$	358,461	Cash and due from banks	$	194,629	$	198,154
Interest bearing deposits	Interest bearing deposits	1,573,608		1,775,839		Interest bearing deposits	48,363		44,908
Total cash and cash equivalents	Total cash and cash equivalents	1,988,388		2,134,300		Total cash and cash equivalents	242,992		243,062
Securities—trading	Securities—trading	27,354		26,981		Securities—trading	28,591		28,694
Securities—available-for-sale, amortized cost $3,315,213 and $3,653,160, respectively		3,147,547		3,638,993
Securities—held-to-maturity, net of allowance for credit losses of $420 and $433, respectively, fair value $968,540 and $541,853, respectively		1,015,522		520,922
Securities—available-for-sale, amortized cost $3,040,211 and $3,218,777, respectively						Securities—available-for-sale, amortized cost $3,040,211 and $3,218,777, respectively	2,653,860		2,789,031
Securities—held-to-maturity, net of allowance for credit losses of $364 and $379, respectively						Securities—held-to-maturity, net of allowance for credit losses of $364 and $379, respectively	1,109,595		1,117,588
Total securities	Total securities	4,190,423		4,186,896		Total securities	3,792,046		3,935,313

Federal Home Loan Bank (FHLB) stock	Federal Home Loan Bank (FHLB) stock	10,000		12,000		Federal Home Loan Bank (FHLB) stock	16,800		12,000
Securities purchased under agreements to resell	Securities purchased under agreements to resell	300,000		300,000		Securities purchased under agreements to resell	150,000		300,000
Loans held for sale (includes $61,759 and $39,775, at fair value, respectively)		64,218		96,487
Loans held for sale (includes $48,439 and $51,779, at fair value, respectively)						Loans held for sale (includes $48,439 and $51,779, at fair value, respectively)	49,016		56,857
Loans receivable	Loans receivable	9,146,629		9,084,763		Loans receivable	10,160,684		10,146,724
Allowance for credit losses – loans	Allowance for credit losses – loans	(125,471)		(132,099)		Allowance for credit losses – loans	(141,457)		(141,465)
Net loans receivable	Net loans receivable	9,021,158		8,952,664		Net loans receivable	10,019,227		10,005,259
Accrued interest receivable	Accrued interest receivable	41,827		42,916		Accrued interest receivable	52,094		57,284
Real estate owned (REO), held for sale, net		429		852
Property and equipment, net	Property and equipment, net	142,594		148,759		Property and equipment, net	136,362		138,754
Goodwill	Goodwill	373,121		373,121		Goodwill	373,121		373,121
Other intangibles, net	Other intangibles, net	13,431		14,855		Other intangibles, net	8,390		9,440
Bank-owned life insurance (BOLI)	Bank-owned life insurance (BOLI)	294,556		244,156		Bank-owned life insurance (BOLI)	299,754		297,565
Deferred tax assets, net	Deferred tax assets, net	118,997		71,138		Deferred tax assets, net	165,247		178,131
Operating lease right-of-use assets	Operating lease right-of-use assets	52,792		55,257		Operating lease right-of-use assets	47,106		49,283
Other assets	Other assets	164,237		171,471		Other assets	181,448		177,362
Total assets	Total assets	$	16,776,171	$	16,804,872	Total assets	$	15,533,603	$	15,833,431
LIABILITIES	LIABILITIES					LIABILITIES
Deposits:	Deposits:					Deposits:
Non-interest-bearing	Non-interest-bearing	$	6,494,852	$	6,385,177	Non-interest-bearing	$	5,764,009	$	6,176,998
Interest-bearing transaction and savings accounts	Interest-bearing transaction and savings accounts	7,228,558		7,103,125		Interest-bearing transaction and savings accounts	6,440,261		6,719,531
Interest-bearing certificates	Interest-bearing certificates	800,364		838,631		Interest-bearing certificates	949,932		723,530
Total deposits	Total deposits	14,523,774		14,326,933		Total deposits	13,154,202		13,620,059
Advances from FHLB	Advances from FHLB	—		50,000		Advances from FHLB	170,000		50,000
Other borrowings	Other borrowings	266,778		264,490		Other borrowings	214,564		232,799
Subordinated notes, net	Subordinated notes, net	98,658		98,564		Subordinated notes, net	99,046		98,947
Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities)	Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities)	70,510		119,815		Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities)	74,703		74,857
Operating lease liabilities	Operating lease liabilities	57,343		59,756		Operating lease liabilities	52,772		55,205
Accrued expenses and other liabilities	Accrued expenses and other liabilities	148,689		148,303		Accrued expenses and other liabilities	191,326		200,839
Deferred compensation	Deferred compensation	46,639		46,684		Deferred compensation	45,295		44,293
Total liabilities	Total liabilities	15,212,391		15,114,545		Total liabilities	14,001,908		14,376,999
COMMITMENTS AND CONTINGENCIES (Note 12)	COMMITMENTS AND CONTINGENCIES (Note 12)	0		0		COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS’ EQUITY	SHAREHOLDERS’ EQUITY					SHAREHOLDERS’ EQUITY
Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at March 31, 2022 and December 31, 2021		—		—
Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,372,784 shares issued and outstanding at March 31, 2022; 34,252,632 shares issued and outstanding at December 31, 2021		1,298,212		1,299,381
Common stock (non-voting) and paid in capital - $0.01 par value per share, 5,000,000 shares authorized; no shares issued and outstanding at March 31, 2022; no shares issued and outstanding at December 31, 2021		—		—
Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at March 31, 2023 and December 31, 2022						Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at March 31, 2023 and December 31, 2022	—		—
Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,308,540 shares issued and outstanding at March 31, 2023; 34,194,018 shares issued and outstanding at December 31, 2022						Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,308,540 shares issued and outstanding at March 31, 2023; 34,194,018 shares issued and outstanding at December 31, 2022	1,293,225		1,293,959
Common stock (non-voting) and paid in capital - $0.01 par value per share, 5,000,000 shares authorized; no shares issued and outstanding at March 31, 2023; no shares issued and outstanding at December 31, 2022						Common stock (non-voting) and paid in capital - $0.01 par value per share, 5,000,000 shares authorized; no shares issued and outstanding at March 31, 2023; no shares issued and outstanding at December 31, 2022	—		—
Retained earnings	Retained earnings	419,659		390,762		Retained earnings	564,106		525,242
Carrying value of shares held in trust for stock-based compensation plans	Carrying value of shares held in trust for stock-based compensation plans	(7,338)		(7,435)		Carrying value of shares held in trust for stock-based compensation plans	(6,919)		(6,905)
Liability for common stock issued to stock related compensation plans	Liability for common stock issued to stock related compensation plans	7,338		7,435		Liability for common stock issued to stock related compensation plans	6,919		6,905
Accumulated other comprehensive (loss) income		(154,091)		184
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(325,636)		(362,769)

Total shareholders’ equity	Total shareholders’ equity	1,563,780		1,690,327		Total shareholders’ equity	1,531,695		1,456,432
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	16,776,171	$	16,804,872	Total liabilities and shareholders’ equity	$	15,533,603	$	15,833,431

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (In thousands, except shares and per share amounts)

For the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
INTEREST INCOME:	INTEREST INCOME:						INTEREST INCOME:
Loans receivable	Loans receivable	$	100,350	$	108,924		Loans receivable	$	133,257	$	100,350
Mortgage-backed securities	Mortgage-backed securities	14,109		9,371			Mortgage-backed securities	18,978		14,109
Securities and cash equivalents	Securities and cash equivalents	8,432		6,226			Securities and cash equivalents	14,726		8,432
Total interest income	Total interest income	122,891		124,521			Total interest income	166,961		122,891
INTEREST EXPENSE:	INTEREST EXPENSE:						INTEREST EXPENSE:
Deposits	Deposits	2,086		3,609			Deposits	9,244		2,086
FHLB advances	FHLB advances	291		934			FHLB advances	1,264		291
Other borrowings	Other borrowings	84		109			Other borrowings	381		84
Subordinated debt	Subordinated debt	1,776		2,208			Subordinated debt	2,760		1,776
Total interest expense	Total interest expense	4,237		6,860			Total interest expense	13,649		4,237
Net interest income	Net interest income	118,654		117,661			Net interest income	153,312		118,654
RECAPTURE OF PROVISION FOR CREDIT LOSSES	RECAPTURE OF PROVISION FOR CREDIT LOSSES	(6,961)		(9,251)			RECAPTURE OF PROVISION FOR CREDIT LOSSES	(524)		(6,961)
Net interest income after recapture of provision for credit losses	Net interest income after recapture of provision for credit losses	125,615		126,912			Net interest income after recapture of provision for credit losses	153,836		125,615
NON-INTEREST INCOME:	NON-INTEREST INCOME:						NON-INTEREST INCOME:
Deposit fees and other service charges	Deposit fees and other service charges	11,189		8,939			Deposit fees and other service charges	10,562		11,189
Mortgage banking operations	Mortgage banking operations	4,440		11,347			Mortgage banking operations	2,691		4,440
Bank-owned life insurance (BOLI)		1,631		1,307
BOLI							BOLI	2,188		1,631
Miscellaneous	Miscellaneous	1,683		2,135			Miscellaneous	1,640		1,683
		18,943		23,728				17,081		18,943
Net gain on sale of securities		435		485
Net (loss) gain on sale of securities							Net (loss) gain on sale of securities	(7,252)		435

Net change in valuation of financial instruments carried at fair value	Net change in valuation of financial instruments carried at fair value	49		59			Net change in valuation of financial instruments carried at fair value	(552)		49

Total non-interest income	Total non-interest income	19,427		24,272			Total non-interest income	9,277		19,427
NON-INTEREST EXPENSE:	NON-INTEREST EXPENSE:						NON-INTEREST EXPENSE:
Salary and employee benefits	Salary and employee benefits	59,486		64,819			Salary and employee benefits	61,389		59,486
Less capitalized loan origination costs	Less capitalized loan origination costs	(6,230)		(9,696)			Less capitalized loan origination costs	(3,431)		(6,230)
Occupancy and equipment	Occupancy and equipment	13,220		12,989			Occupancy and equipment	11,970		13,220
Information/computer data services		6,651		6,203
Payment and card processing expenses		4,896		4,326
Information and computer data services							Information and computer data services	7,147		6,651
Payment and card processing services							Payment and card processing services	4,618		4,896
Professional and legal expenses	Professional and legal expenses	2,180		3,328			Professional and legal expenses	2,121		2,180
Advertising and marketing	Advertising and marketing	461		1,263			Advertising and marketing	806		461
Deposit insurance	Deposit insurance	1,524		1,533			Deposit insurance	1,890		1,524
State/municipal business and use taxes		1,162		1,065
REO operations, net		(79)		(242)
State and municipal business and use taxes							State and municipal business and use taxes	1,300		1,162
Real estate operations, net							Real estate operations, net	(277)		(79)
Amortization of core deposit intangibles	Amortization of core deposit intangibles	1,424		1,711			Amortization of core deposit intangibles	1,050		1,424
Loss on extinguishment of debt	Loss on extinguishment of debt	793		—			Loss on extinguishment of debt	—		793
Miscellaneous	Miscellaneous	5,707		5,509			Miscellaneous	6,038		5,707
		91,195		92,808
COVID-19 expenses		—		148
Merger and acquisition - related expenses		—		571

Total non-interest expense	Total non-interest expense	91,195		93,527			Total non-interest expense	94,621		91,195
Income before provision for income taxes	Income before provision for income taxes	53,847		57,657			Income before provision for income taxes	68,492		53,847
PROVISION FOR INCOME TAXES	PROVISION FOR INCOME TAXES	9,884		10,802			PROVISION FOR INCOME TAXES	12,937		9,884
NET INCOME	NET INCOME	$	43,963	$	46,855		NET INCOME	$	55,555	$	43,963

Earnings per common share:	Earnings per common share:						Earnings per common share:
Basic	Basic	$	1.28	$	1.34		Basic	$	1.62	$	1.28
Diluted	Diluted	$	1.27	$	1.33		Diluted	$	1.61	$	1.27
Cumulative dividends declared per common share	Cumulative dividends declared per common share	$	0.44	$	0.41		Cumulative dividends declared per common share	$	0.48	$	0.44
Weighted average number of common shares outstanding:	Weighted average number of common shares outstanding:						Weighted average number of common shares outstanding:
Basic	Basic	34,300,742		34,973,383			Basic	34,239,533		34,300,742
Diluted	Diluted	34,598,436		35,303,483			Diluted	34,457,869		34,598,436

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited) (In thousands)

For the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022

Three Months Ended
March 31,
2022 2021
NET INCOME $ 43,963 $ 46,855
OTHER COMPREHENSIVE LOSS, NET OF INCOME TAXES:
Unrealized holding loss on securities—available-for-sale arising during the period (153,064) (73,107)
Income tax benefit related to securities—available-for-sale unrealized holding losses 36,736 17,546
Reclassification for net gain on securities—available-for-sale realized in earnings (435) (439)
Income tax expense related to securities—available-for-sale realized gains 104 105
Unrealized loss on securities transferred from available-for-sale to held-to-maturity (34,272) —
Income tax benefit related to securities transferred from available-for-sale to held-to-maturity 8,226 —
Net unrealized loss on interest rate swaps used in cash flow hedges (14,775) —
Income tax benefit related interest rate swaps used in cash flow hedges 3,546 —
Changes in fair value of junior subordinated debentures related to instrument specific credit risk (1,213) (274)
Income tax benefit related to junior subordinated debentures 291 66
Reclassification of fair value of junior subordinated debentures redeemed 765 —
Income tax expense related to junior subordinated debentures redeemed (184) —
Other comprehensive loss (154,275) (56,103)
COMPREHENSIVE LOSS $ (110,312) $ (9,248)


	Three Months Ended March 31,
	2023		2022
NET INCOME	$	55,555	$	43,963
OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAXES:
Unrealized holding gain (loss) on securities—available-for-sale arising during the period	36,143		(153,064)
Income tax (expense) benefit related to securities—available-for-sale unrealized holding losses	(8,675)		36,736
Reclassification for net loss (gain) on securities—available-for-sale realized in earnings	7,252		(435)
Income tax (benefit) expense related to securities—available-for-sale realized in earnings	(1,740)		104
Unrealized loss on securities transferred from available-for-sale to held-to-maturity	—		(34,596)
Income tax benefit related to securities transferred from available-for-sale to held-to-maturity	—		8,303
Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity	572		324
Income tax expense related to amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity	(137)		(77)
Net unrealized gain (loss) on interest rate swaps used in cash flow hedges	4,738		(14,775)
Income tax (expense) benefit related to interest rate swaps used in cash flow hedges	(1,137)		3,546
Changes in fair value of junior subordinated debentures related to instrument specific credit risk	154		(1,213)
Income tax (expense) benefit related to junior subordinated debentures	(37)		291
Reclassification of fair value of junior subordinated debentures redeemed	—		765
Income tax expense related to junior subordinated debentures redeemed	—		(184)
Other comprehensive income (loss)	37,133		(154,275)
COMPREHENSIVE INCOME (LOSS)	$	92,688	$	(110,312)

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited) (In thousands, except ~~shares)~~shares and per share amounts)

For the Three Months Ended March 31, ~~2022~~2023 and the Year Ended December 31, ~~2021~~2022


		Common Stock and Paid in Capital					Retained Earnings			Accumulated Other Comprehensive Income (Loss)				Shareholders’ Equity			Common Stock and Paid in Capital						Retained Earnings			Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity
				Shares				Amount											Shares			Amount			Retained Earnings			Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity
Balance, January 1, 2021			35,159,200		$	1,349,879		$	247,316		$	69,069			$	1,666,264

Balance, January 1, 2022																				Balance, January 1, 2022	34,252,632		$	1,299,381				$	390,762			$	184			$	1,690,327

Net income	Net income									46,855								46,855		Net income						43,963								43,963
Other comprehensive loss, net of income tax	Other comprehensive loss, net of income tax												(56,103)					(56,103)		Other comprehensive loss, net of income tax										(154,275)				(154,275)
Accrual of dividends on common stock ($0.41/share)										(14,589)								(14,589)
Accrual of dividends on common stock ($0.44/share)																				Accrual of dividends on common stock ($0.44/share)						(15,066)								(15,066)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered																				Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	120,152		(1,169)											(1,169)

Balance, March 31, 2022																				Balance, March 31, 2022	34,372,784		$	1,298,212		$	419,659			$	(154,091)			$	1,563,780
Net income																				Net income						47,965								47,965
Other comprehensive loss, net of income tax																				Other comprehensive loss, net of income tax										(101,824)				(101,824)
Accrual of dividends on common stock ($0.44/share)																				Accrual of dividends on common stock ($0.44/share)						(15,378)								(15,378)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered			76,143			1,714											1,714		Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	18,546		2,247											2,247
Repurchase of common stock	Repurchase of common stock			(500,000)			(25,324)											(25,324)		Repurchase of common stock	(200,000)		(10,960)											(10,960)
Balance, June 30, 2022																				Balance, June 30, 2022	34,191,330		$	1,289,499		$	452,246			$	(255,915)			$	1,485,830
Net income																				Net income						49,070								49,070
Other comprehensive loss, net of income tax																				Other comprehensive loss, net of income tax										(113,275)				(113,275)
Accrual of dividends on common stock ($0.44/share)																				Accrual of dividends on common stock ($0.44/share)						(15,208)								(15,208)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered																				Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	429		2,242											2,242

Balance, March 31, 2021			34,735,343		$	1,326,269		$	279,582		$	12,966			$	1,618,817
Balance, September 30, 2022																				Balance, September 30, 2022	34,191,759		$	1,291,741		$	486,108			$	(369,190)			$	1,408,659
Net income																				Net income						54,380								54,380
Other comprehensive income, net of income tax																				Other comprehensive income, net of income tax										6,421				6,421
Accrual of dividends on common stock ($0.44/share)																				Accrual of dividends on common stock ($0.44/share)						(15,246)								(15,246)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered																				Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	2,259		2,218											2,218

Balance, December 31, 2022																				Balance, December 31, 2022	34,194,018		$	1,293,959		$	525,242			$	(362,769)			$	1,456,432

Common Stock
and Paid in Capital Retained Earnings Accumulated
Other Comprehensive Income Shareholders’
Equity
Shares Amount
Balance, April 1, 2021 34,735,343 $ 1,326,269 $ 279,582 $ 12,966 $ 1,618,817
Net income 54,382 54,382
Other comprehensive income, net of income tax 25,285 25,285
Accrual of dividends on common stock ($0.41/share) (14,459) (14,459)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 65,545 (259) (259)
Repurchase of common stock (250,000) (14,555) (14,555)
Balance, June 30, 2021 34,550,888 $ 1,311,455 $ 319,505 $ 38,251 $ 1,669,211

~~Continued on next page~~

Common Stock
and Paid in Capital Retained Earnings Accumulated
Other Comprehensive Income (Loss) Shareholders’
Equity
Shares Amounts
Balance, July 1, 2021 34,550,888 $ 1,311,455 $ 319,505 $ 38,251 $ 1,669,211
Net income 49,884 49,884
Other comprehensive loss, net of income tax (23,312) (23,312)
Accrual of dividends on common stock ($0.41/share) (14,354) (14,354)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 1,103 2,339 2,339
Repurchase of common stock (300,000) (16,649) (16,649)
Balance, September 30, 2021 34,251,991 $ 1,297,145 $ 355,035 $ 14,939 $ 1,667,119

Common Stock
and Paid in Capital Retained Earnings Accumulated
Other Comprehensive Income (Loss) Shareholders’
Equity
Shares Amounts
Balance, October 1, 2021 34,251,991 $ 1,297,145 $ 355,035 $ 14,939 $ 1,667,119
Net income 49,927 49,927
Other comprehensive loss, net of income tax (14,755) (14,755)
Accrual of dividends on common stock ($0.41/share) (14,200) (14,200)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 641 2,236 2,236
Balance, December 31, 2021 34,252,632 $ 1,299,381 $ 390,762 $ 184 $ 1,690,327

~~Continued on next page~~

Common Stock
and Paid in Capital Retained Earnings Accumulated
Other Comprehensive Income (Loss) Shareholders’
Equity
Shares Amount
Balance, January 1, 2022 34,252,632 $ 1,299,381 $ 390,762 $ 184 $ 1,690,327
Net income 43,963 43,963
Other comprehensive loss, net of income tax (154,275) (154,275)
Accrual of dividends on common stock ($0.44/share) (15,066) (15,066)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered 120,152 (1,169) (1,169)
Balance, March 31, 2022 34,372,784 $ 1,298,212 $ 419,659 $ (154,091) $ 1,563,780




Balance, January 1, 2023	34,194,018	$	1,293,959	$	525,242	$	(362,769)	$	1,456,432


Net income				55,555				55,555
Other comprehensive income, net of income tax						37,133		37,133
Accrual of dividends on common stock ($0.48/share)				(16,691)				(16,691)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	114,522	(734)						(734)


Balance, March 31, 2023	34,308,540	$	1,293,225	$	564,106	$	(325,636)	$	1,531,695

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

For the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
OPERATING ACTIVITIES:	OPERATING ACTIVITIES:					OPERATING ACTIVITIES:
Net income	Net income	$	43,963	$	46,855	Net income	$	55,555	$	43,963
Adjustments to reconcile net income to net cash provided from operating activities:	Adjustments to reconcile net income to net cash provided from operating activities:					Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation	Depreciation	4,169		4,411		Depreciation	4,364		4,169
Deferred income/expense, net of amortization		(1,838)		(7,048)
Deferred income and expense, net of amortization						Deferred income and expense, net of amortization	(608)		(1,838)
Capitalized loan servicing rights, net of amortization	Capitalized loan servicing rights, net of amortization	(739)		(155)		Capitalized loan servicing rights, net of amortization	592		(739)
Amortization of core deposit intangibles	Amortization of core deposit intangibles	1,424		1,711		Amortization of core deposit intangibles	1,050		1,424
Gain on sale of securities, net		(435)		(485)
Loss (gain) on sale of securities, net						Loss (gain) on sale of securities, net	7,252		(435)

Net change in valuation of financial instruments carried at fair value	Net change in valuation of financial instruments carried at fair value	(49)		(59)		Net change in valuation of financial instruments carried at fair value	552		(49)

Increase in deferred taxes		860		281
Decrease in deferred taxes						Decrease in deferred taxes	1,158		860
Increase in current taxes payable	Increase in current taxes payable	7,595		9,506		Increase in current taxes payable	10,014		7,595
Stock-based compensation	Stock-based compensation	2,081		2,152		Stock-based compensation	2,053		2,081
Net change in cash surrender value of BOLI	Net change in cash surrender value of BOLI	(1,519)		(1,002)		Net change in cash surrender value of BOLI	(2,188)		(1,519)
Gain on sale of loans, excluding capitalized servicing rights	Gain on sale of loans, excluding capitalized servicing rights	(1,909)		(9,487)		Gain on sale of loans, excluding capitalized servicing rights	(1,445)		(1,909)
Loss (gain) on disposal of real estate held for sale and property and equipment, net		109		(298)
(Gain) loss on disposal of real estate held for sale and property and equipment, net						(Gain) loss on disposal of real estate held for sale and property and equipment, net	(331)		109
Recapture of provision for credit losses	Recapture of provision for credit losses	(6,961)		(9,251)		Recapture of provision for credit losses	(524)		(6,961)

Loss on extinguishment of debt	Loss on extinguishment of debt	765		—		Loss on extinguishment of debt	—		765
Origination of loans held for sale	Origination of loans held for sale	(208,270)		(301,393)		Origination of loans held for sale	(39,585)		(208,270)
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	226,074		419,412		Proceeds from sales of loans held for sale	48,871		226,074
Net change in:	Net change in:					Net change in:
Other assets	Other assets	(10,245)		2,602		Other assets	8,837		(10,245)
Other liabilities	Other liabilities	(4,421)		164,729		Other liabilities	(20,880)		(4,421)
Net cash provided from operating activities	Net cash provided from operating activities	50,654		322,481		Net cash provided from operating activities	74,737		50,654
INVESTING ACTIVITIES:	INVESTING ACTIVITIES:					INVESTING ACTIVITIES:
Purchases of securities—available-for-sale	Purchases of securities—available-for-sale	(281,353)		(1,225,723)		Purchases of securities—available-for-sale	(26,426)		(281,353)
Principal repayments and maturities of securities—available-for-sale	Principal repayments and maturities of securities—available-for-sale	106,937		434,651		Principal repayments and maturities of securities—available-for-sale	45,774		106,937
Proceeds from sales of securities—available-for-sale	Proceeds from sales of securities—available-for-sale	12,767		48,784		Proceeds from sales of securities—available-for-sale	150,170		12,767
Purchases of securities—held-to-maturity	Purchases of securities—held-to-maturity	(40,351)		(31,170)		Purchases of securities—held-to-maturity	—		(40,351)
Principal repayments and maturities of securities—held-to-maturity	Principal repayments and maturities of securities—held-to-maturity	7,573		9,982		Principal repayments and maturities of securities—held-to-maturity	7,937		7,573
Purchases of equity securities		—		(4,750)
Proceeds from sales of equity securities		—		4,796
Loan repayments (originations), net		31,355		(77,834)

Loan (originations) repayments, net						Loan (originations) repayments, net	(13,681)		31,355
Purchases of loans and participating interest in loans	Purchases of loans and participating interest in loans	(75,575)		—		Purchases of loans and participating interest in loans	—		(75,575)
Proceeds from sales of other loans	Proceeds from sales of other loans	5,034		8,367		Proceeds from sales of other loans	1,519		5,034

Purchases of property and equipment	Purchases of property and equipment	(3,306)		(2,334)		Purchases of property and equipment	(1,984)		(3,306)
Proceeds from sale of real estate held for sale and sale of other property	Proceeds from sale of real estate held for sale and sale of other property	5,616		1,999		Proceeds from sale of real estate held for sale and sale of other property	343		5,616
Proceeds from FHLB stock repurchase program	Proceeds from FHLB stock repurchase program	2,000		2,358		Proceeds from FHLB stock repurchase program	37,920		2,000
Purchase of FHLB stock						Purchase of FHLB stock	(42,720)		—

Proceeds from maturity of reverse repurchase agreements						Proceeds from maturity of reverse repurchase agreements	150,000		—
Investment in bank-owned life insurance	Investment in bank-owned life insurance	(50,040)		(3)		Investment in bank-owned life insurance	(2)		(50,040)
Other	Other	1,098		1,421		Other	(39)		1,098
Net cash used by investing activities		(278,245)		(829,456)
Net cash provided from (used by) investing activities						Net cash provided from (used by) investing activities	308,811		(278,245)

Continued on next page

108

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited) (In thousands)

For the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
FINANCING ACTIVITIES:	FINANCING ACTIVITIES:					FINANCING ACTIVITIES:
Increase in deposits, net		196,841		981,571
(Decrease) increase in deposits, net						(Decrease) increase in deposits, net	$	(465,857)	$	196,841

Repayment of long term FHLB advances	Repayment of long term FHLB advances	(50,000)		(50,000)		Repayment of long term FHLB advances	—		(50,000)

Increase in other borrowings, net		2,288		31,474
Advances of overnight and short term FHLB advances, net						Advances of overnight and short term FHLB advances, net	120,000		—
(Decrease) increase in other borrowings, net						(Decrease) increase in other borrowings, net	(18,235)		2,288

Repayment of junior subordinated debentures	Repayment of junior subordinated debentures	(50,518)		—		Repayment of junior subordinated debentures	—		(50,518)
Proceeds from redemption of trust securities related to junior subordinated debentures		1,518		—
Proceeds from redemption of trust preferred securities related to junior subordinated debentures						Proceeds from redemption of trust preferred securities related to junior subordinated debentures	—		1,518
Cash dividends paid	Cash dividends paid	(15,200)		(14,565)		Cash dividends paid	(16,739)		(15,200)
Cash paid for repurchase of common stock		—		(25,324)

Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	(3,250)		(437)		Taxes paid related to net share settlement of equity awards	(2,787)		(3,250)
Net cash provided from financing activities		81,679		922,719
Net cash (used by) provided from financing activities						Net cash (used by) provided from financing activities	(383,618)		81,679
NET CHANGE IN CASH AND CASH EQUIVALENTS	NET CHANGE IN CASH AND CASH EQUIVALENTS	(145,912)		415,744		NET CHANGE IN CASH AND CASH EQUIVALENTS	(70)		(145,912)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	2,134,300		1,234,183		CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	243,062		2,134,300
CASH AND CASH EQUIVALENTS, END OF PERIOD	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,988,388	$	1,649,927	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	242,992	$	1,988,388


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash	Interest paid in cash	$	3,526	$	5,829	Interest paid in cash	$	10,574	$	3,526
Tax paid	Tax paid	120		100		Tax paid	43		120
NON-CASH INVESTING AND FINANCING TRANSACTIONS:	NON-CASH INVESTING AND FINANCING TRANSACTIONS:					NON-CASH INVESTING AND FINANCING TRANSACTIONS:

Dividends accrued but not paid until after period end	Dividends accrued but not paid until after period end	1,204		1,381		Dividends accrued but not paid until after period end	1,110		1,204
Loans, held-for-sale, transferred to portfolio	Loans, held-for-sale, transferred to portfolio	13,420		—		Loans, held-for-sale, transferred to portfolio	—		13,420
Securities, available-for-sale, transferred to held-to-maturity	Securities, available-for-sale, transferred to held-to-maturity	462,159		—		Securities, available-for-sale, transferred to held-to-maturity	—		462,159

See Selected Notes to the Consolidated Financial Statements

119

BANNER CORPORATION AND SUBSIDIARIES

SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements include the accounts of Banner Corporation (the Company or Banner), a bank holding company incorporated in the State of Washington and its wholly-owned subsidiary, Banner Bank (the Bank).

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (SEC). In preparing these financial statements, the Company has evaluated events and transactions subsequent to March 31, ~~2022~~2023 for potential recognition or disclosure. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and note disclosures have been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements. Certain reclassifications have been made to the ~~2021~~2022 Consolidated Financial Statements and/or schedules to conform to the ~~2022~~2023 presentation. These reclassifications may have affected certain ratios for the prior periods. The effect of these reclassifications is considered immaterial. All significant intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, management has identified several accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of Banner’s consolidated financial statements. These policies relate to (i) the methodology for the recognition of interest income, (ii) determination of the provision and allowance for credit losses, (iii) the valuation of financial assets and liabilities recorded at fair value, (iv) the valuation of intangible assets, such as goodwill,core deposit intangibles (CDI) and loan servicing rights, (v) the valuation of real estate held for sale, (vi) the valuation or recognition of deferred tax assets and liabilities and (vii) the valuation of assets and liabilities acquired in business combinations and subsequent recognition of related income and expense. These policies and judgments, estimates and assumptions are described in greater detail in subsequent notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations (Critical Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC (2021 Form 10-K). There have been no significant changes in our application of these accounting policies during the first three months of 2022.

The information included in this Form 10-Q should be read in conjunction with our ~~2021~~Annual Report on Form ~~10-K.~~10-K for the fiscal year ended December 31, 2022. Interim results are not necessarily indicative of results for a full year or any other interim period.

Note 2: ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED

Financial Instruments – Credit Losses (Topic 326)

On January 1, 2023, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminated the troubled debt restructuring (TDR) recognition and measurement guidance and, instead, requires that a creditor evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The ASU also introduced new disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, the ASU requires vintage disclosures including current-period gross write-offs by year of origination for financing receivables. The Company applied the ASU prospectively and new disclosures have been added when applicable.

Reference Rate Reform (Topic 848)

In March 2020, the ~~Financial Accounting Standards Board (FASB)~~FASB issued guidance within ~~Accounting Standards Update (ASU)~~ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, in response to the scheduled discontinuation of LIBOR on December 31, 2021. The amendments in this ASU provide optional guidance designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, borrowings) necessitated by reference rate reform. Since the issuance of this guidance, the publication cessation of U.S. dollar LIBOR has been extended to June 30, 2023.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of Sunset Date of Topic 848. This ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. This deferral of the sunset date is in response to the extension of the publication cessation date. The amendments in this ASU are effective upon the issuance date of December 2022.

The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: 1) modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; 2) modifications of contracts within the scope of Topic 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required ~~under this Topic~~ for modifications not accounted for as separate contracts; 3) modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host ~~contract under Subtopic 815-15, Derivatives~~contract; and ~~Hedging- Embedded Derivatives; and~~ 4) ~~for other Topics or Industry Subtopics in the Codification,~~ the amendments in this ASU also include a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions ~~in Topic 848~~ to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

The amendments in ~~these~~this ASUs are effective upon the issuance date of March 12, 2020, and applies to contract modifications made and new hedging relationships entered into through December 31, 2022.

The Company has elected certain expedients related to individual hedge relationships. The Company will be able to use ~~other~~ expedients in ~~this~~the Reference Rate Reform guidance to manage through the transition ~~away~~ from LIBOR, specifically as they relate to loans, leases and hedging relationships. The adoption of this accounting guidance did not have a material impact on the Company’s Consolidated Financial Statements.

~~Financial Instruments – Credit Losses~~Fair Value Measurement (Topic ~~326)~~820)

In ~~March~~June 2022, the FASB issued guidance within ASU ~~2022-02,~~2022-03, ~~Financial Instruments – Credit Losses~~Fair Value Measurement (Topic ~~326)~~820): ~~Troubled Debt Restructurings and Vintage Disclosures~~Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU affects all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction. These amendments ~~in this ASU eliminate the current troubled debt restructuring (TDR) recognition and measurement guidance and, instead, require~~clarify that a ~~creditor evaluate (consistent with~~contractual restriction on the ~~accounting for other loan modifications) whether the modification represents a new loan or a continuation~~sale of an ~~existing loan. The amendments also introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.~~

These amendments require vintage disclosures including current-period gross write-offs by year of origination for financing receivables. Gross write-off information must be included in the vintage disclosures in accordance with ASC 326-20-50-6, which requires disclosureequity security is not considered part of the ~~amortized cost basis~~unit of ~~financing receivables by credit quality indicator~~account of the equity security and, ~~class of financing receivable by year of origination.~~therefore, is not considered in measuring fair value.

The ~~amendments in this~~ ASU ~~are~~is effective for fiscal years, beginning after December 15, ~~2022,~~2023, including interim periods within those fiscal years since the Company previously adopted the amendments in ASU 2016-13, which is commonly referred to as the current expected credit loss methodology, on January 1, 2020. These amendments should be applied prospectively, though for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

years. Early adoption is permitted ~~including adoption in an~~for both interim ~~period. If an entity elects to early adopt in an interim period, the guidance should be applied as of the beginning of the fiscal year~~and annual financial statements that ~~includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to the vintage disclosures.~~have not yet been issued or made available for issuance. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Financial Statements.

Note 3: SECURITIES

The amortized cost, gross unrealized gains and losses and estimated fair value of securities at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 are summarized as follows (in thousands):


		March 31, 2022		March 31, 2023
		Amortized Cost			Fair Value			Amortized Cost		Fair Value
Trading:	Trading:						Trading:

Corporate bonds	Corporate bonds	$	27,203		$	27,354	Corporate bonds	$	27,203	$	28,591

		$	27,203		$	27,354		$	27,203	$	28,591


		March 31, 2022											March 31, 2023
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-Sale:	Available-for-Sale:											Available-for-Sale:
U.S. Government and agency obligations	U.S. Government and agency obligations	$	194,774	$	176	$	(756)	$	—	$	194,194	U.S. Government and agency obligations	$	53,689	$	10	$	(1,111)	$	52,588
Municipal bonds	Municipal bonds	285,235		3,267		(16,238)		—		272,264		Municipal bonds	205,152		482		(31,913)		173,721
Corporate bonds	Corporate bonds	119,396		383		(2,196)		—		117,583		Corporate bonds	133,269		—		(15,865)		117,404
Mortgage-backed or related securities	Mortgage-backed or related securities	2,509,530		2,202		(153,899)		—		2,357,833		Mortgage-backed or related securities	2,425,602		1,647		(335,040)		2,092,209
Asset-backed securities	Asset-backed securities	206,278		111		(716)		—		205,673		Asset-backed securities	222,499		269		(4,830)		217,938

		$	3,315,213	$	6,139	$	(173,805)	$	—	$	3,147,547		$	3,040,211	$	2,408	$	(388,759)	$	2,653,860

March 31, 2022
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair
Value Allowance for Credit Losses
Held-to-Maturity:
U.S. Government and agency obligations $ 315 $ 2 $ (2) $ 315 $ —
Municipal bonds 442,328 2,304 (28,252) 416,380 (191)
Corporate bonds 3,059 — (18) 3,041 (229)
Mortgage-backed or related securities 570,240 139 (21,575) 548,804 —
$ 1,015,942 $ 2,445 $ (49,847) $ 968,540 $ (420)

December 31, 2021
Amortized Cost Fair
Value
Trading:
Corporate bonds $ 27,203 $ 26,981
$ 27,203 $ 26,981


	March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses
Held-to-Maturity:
U.S. Government and agency obligations	$	310	$	1	$	(5)	$	306	$	—
Municipal bonds	501,361		358		(59,063)		442,656		(173)
Corporate bonds	2,929		—		(19)		2,910		(191)
Mortgage-backed or related securities	605,359		—		(94,169)		511,190		—
	$	1,109,959	$	359	$	(153,256)	$	957,062	$	(364)

1411

December 31, 2021
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value
Available-for-Sale:
U.S. Government and agency obligations $ 201,101 $ 852 $ (621) $ — $ 201,332
Municipal bonds 293,761 15,171 (320) — 308,612
Corporate bonds 114,427 3,103 (183) — 117,347
Mortgage-backed or related securities 2,837,480 17,749 (49,961) — 2,805,268
Asset-backed securities 206,391 52 (9) — 206,434
$ 3,653,160 $ 36,927 $ (51,094) $ — $ 3,638,993


	December 31, 2022
	Amortized Cost		Fair Value
Trading:


Corporate bonds	$	27,203	$	28,694


	$	27,203	$	28,694


		December 31, 2021											December 31, 2022
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held-to-Maturity:
Available-for-Sale:												Available-for-Sale:
U.S. Government and agency obligations	U.S. Government and agency obligations	$	316	$	3	$	—	$	319	$	—	U.S. Government and agency obligations	$	56,344	$	8	$	(1,244)	$	55,108
Municipal bonds	Municipal bonds	420,555		20,743		(1,393)		439,905		(203)		Municipal bonds	301,449		530		(40,770)		261,209
Corporate bonds	Corporate bonds	3,092		—		(3)		3,089		(230)		Corporate bonds	133,334		—		(11,481)		121,853
Mortgage-backed or related securities	Mortgage-backed or related securities	97,392		1,171		(23)		98,540		—		Mortgage-backed or related securities	2,505,172		885		(366,721)		2,139,336
Asset-backed securities												Asset-backed securities	222,478		40		(10,993)		211,525
		$	521,355	$	21,917	$	(1,419)	$	541,853	$	(433)
													$	3,218,777	$	1,463	$	(431,209)	$	2,789,031


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses
Held-to-Maturity:
U.S. Government and agency obligations	$	312	$	—	$	(7)	$	305	$	—
Municipal bonds	503,117		109		(70,907)		432,319		(183)
Corporate bonds	2,961		—		(16)		2,945		(196)
Mortgage-backed or related securities	611,577		—		(104,966)		506,611		—
	$	1,117,967	$	109	$	(175,896)	$	942,180	$	(379)

Accrued interest receivable on held-to-maturity debt securities was ~~$3.8~~$4.4 million and ~~$3.3~~$4.8 million as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and was ~~$10.1~~$11.9 million and $12.4 million on available-for-sale debt securities at ~~both~~ March 31, ~~2022~~2023 and December 31, ~~2021.~~2022, respectively. Accrued interest receivable on securities is reported in accrued interest receivable on the Consolidated Statements of Financial Condition and is excluded from the calculation of the allowance for credit losses.

At March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the gross unrealized losses and the fair value for securities available-for-sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position were as follows (in thousands):


		March 31, 2022													March 31, 2023
		Less Than 12 Months				12 Months or More				Total					Less Than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-Sale:	Available-for-Sale:													Available-for-Sale:
U.S. Government and agency obligations	U.S. Government and agency obligations	$	101,620	$	(182)	$	26,851	$	(574)	$	128,471	$	(756)	U.S. Government and agency obligations	$	24,785	$	(216)	$	23,739	$	(895)	$	48,524	$	(1,111)

Municipal bonds	Municipal bonds	159,886		(16,238)		—		—		159,886		(16,238)		Municipal bonds	49,555		(1,218)		106,391		(30,695)		155,946		(31,913)
Corporate bonds	Corporate bonds	83,374		(2,196)		—		—		83,374		(2,196)		Corporate bonds	42,252		(4,953)		74,552		(10,912)		116,804		(15,865)

Mortgage-backed or related securities	Mortgage-backed or related securities	1,352,151		(88,005)		633,689		(65,894)		1,985,840		(153,899)		Mortgage-backed or related securities	403,356		(19,053)		1,558,227		(315,987)		1,961,583		(335,040)

Asset-backed securities	Asset-backed securities	109,187		(716)		—		—		109,187		(716)		Asset-backed securities	123,691		(2,118)		83,914		(2,712)		207,605		(4,830)

		$	1,806,218	$	(107,337)	$	660,540	$	(66,468)	$	2,466,758	$	(173,805)		$	643,639	$	(27,558)	$	1,846,823	$	(361,201)	$	2,490,462	$	(388,759)

1512


		December 31, 2021													December 31, 2022
		Less Than 12 Months				12 Months or More				Total					Less Than 12 Months				12 Months or More				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-Sale:	Available-for-Sale:													Available-for-Sale:
U.S. Government and agency obligations	U.S. Government and agency obligations	$	—	$	—	$	71,306	$	(621)	$	71,306	$	(621)	U.S. Government and agency obligations	$	33,407	$	(882)	$	16,732	$	(362)	$	50,139	$	(1,244)

Municipal bonds	Municipal bonds	40,397		(221)		8,541		(99)		48,938		(320)		Municipal bonds	188,920		(25,592)		33,907		(15,178)		222,827		(40,770)
Corporate bonds	Corporate bonds	8,009		(121)		9,938		(62)		17,947		(183)		Corporate bonds	108,187		(9,547)		13,066		(1,934)		121,253		(11,481)

Mortgage-backed or related securities	Mortgage-backed or related securities	1,307,411		(38,028)		721,454		(11,933)		2,028,865		(49,961)		Mortgage-backed or related securities	930,566		(90,537)		1,159,110		(276,184)		2,089,676		(366,721)

Asset-backed securities	Asset-backed securities	3,382		(9)		—		—		3,382		(9)		Asset-backed securities	201,437		(10,993)		—		—		201,437		(10,993)

		$	1,359,199	$	(38,379)	$	811,239	$	(12,715)	$	2,170,438	$	(51,094)		$	1,462,517	$	(137,551)	$	1,222,815	$	(293,658)	$	2,685,332	$	(431,209)

At March 31, ~~2022,~~2023, there were ~~219~~259 securities—available-for-sale with unrealized losses, compared to 97298 at December 31, ~~2021.~~2022. Management does not believe that any individual unrealized loss as of March 31, ~~2022~~2023 or December 31, ~~2021~~2022 resulted from credit loss. The decline in fair market value of these securities was generally due to changes in interest rates and changes in market-desired spreads subsequent to their purchase.

There were no sales of securities—trading during the three months ended March 31, ~~2022~~2023 or ~~2021.~~2022. There were no securities—trading in a nonaccrual status at March 31, ~~2022~~2023 or December 31, ~~2021.~~2022. Net unrealized holding ~~gains~~losses of ~~$373,000~~$103,000 were recognized during the three months ended March 31, ~~2022~~2023 compared to ~~$59,000~~$373,000 of net unrealized holding gains recognized during the three months ended March 31, ~~2021.~~2022.

The following table presents gross gains and losses on sales and partial calls of securities available-for-sale (in thousands):


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
Available-for-Sale:	Available-for-Sale:						Available-for-Sale:
Gross Gains	Gross Gains	$	436	$	595		Gross Gains	$	232	$	436
Gross Losses	Gross Losses	(1)		(110)			Gross Losses	(7,484)		(1)
Balance, end of the period	Balance, end of the period	$	435	$	485		Balance, end of the period	$	(7,252)	$	435

There were no securities—available-for-sale in a nonaccrual status at March 31, ~~2022~~2023 or December 31, ~~2021.~~

During the three months ended March 31, 2022, the Company sold no held-to-maturity securities. There were no sales of securities—held-to-maturity during the three months ended March 31, 2021. There were no securities—held-to-maturity in a nonaccrual status or 30 days or more past due at March 31, 2022 or December 31, 2021.

~~There were 0 sales of equity securities during the three months ended March 31,~~ 2022. ~~During the three months ended March 31, 2021, the Company sold a $4.8 million equity security with a resulting net gain of $46,000.~~

The following table presents the amortized cost and estimated fair value of securities at March 31, ~~2022,~~2023, by contractual maturity ~~are shown below.~~and does not reflect any required periodic payments (in thousands). Expected maturities will differ from contractual maturities because some securities may be called or prepaid with or without call or prepayment penalties. ~~(in thousands).~~


		March 31, 2022													March 31, 2023
		Trading				Available-for-Sale				Held-to-Maturity					Trading				Available-for-Sale				Held-to-Maturity
		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value			Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturing within one year	Maturing within one year	$	—	$	—	$	9,100	$	9,126	$	9,664	$	9,670	Maturing within one year	$	—	$	—	$	8,110	$	8,029	$	22,368	$	22,157
Maturing after one year through five years	Maturing after one year through five years	—		—		187,185		187,107		45,900		46,116		Maturing after one year through five years	—		—		207,623		192,942		22,945		22,417
Maturing after five years through ten years	Maturing after five years through ten years	—		—		799,161		771,687		26,908		27,091		Maturing after five years through ten years	—		—		471,431		422,224		25,643		24,866
Maturing after ten years	Maturing after ten years	27,203		27,354		2,319,767		2,179,627		933,470		885,663		Maturing after ten years	27,203		28,591		2,353,047		2,030,665		1,039,003		887,622

		$	27,203	$	27,354	$	3,315,213	$	3,147,547	$	1,015,942	$	968,540		$	27,203	$	28,591	$	3,040,211	$	2,653,860	$	1,109,959	$	957,062

1613

The following table presents, as of March 31, ~~2022,~~2023, investment securities which were pledged to secure borrowings, public deposits or other obligations as permitted or required by law (in thousands):


		March 31, 2022							March 31, 2023
		Carrying Value		Amortized Cost		Fair Value			Carrying Value		Amortized Cost		Fair Value
Purpose or beneficiary:	Purpose or beneficiary:							Purpose or beneficiary:
State and local governments public deposits	State and local governments public deposits	$	209,143	$	209,922	$	207,100	State and local governments public deposits	$	238,597	$	240,736	$	216,883
Federal Reserve								Federal Reserve	120,463		120,463		103,769
Interest rate swap counterparties	Interest rate swap counterparties	23,765		23,652		23,767		Interest rate swap counterparties	6,422		6,807		6,268
Repurchase transaction accounts	Repurchase transaction accounts	294,032		309,890		289,235		Repurchase transaction accounts	317,761		317,761		266,592
Other	Other	2,509		2,509		2,503		Other	2,435		2,435		2,413
Total pledged securities	Total pledged securities	$	529,449	$	545,973	$	522,605	Total pledged securities	$	685,678	$	688,202	$	595,925

The Company monitors the credit quality of held-to-maturity debt securities through the use of credit ratings which are reviewed and updated quarterly. The Company’s non-rated held-to-maturity debt securities are primarily United States government sponsored enterprise debentures carrying minimal to no credit risk. The non-rated corporate bonds primarily consist of Community Reinvestment Act related bonds secured by loan instruments from low to moderate income borrowers. The remaining non-rated held-to-maturity debt securities balance is comprised of local municipal debt from within the Company’s geographic footprint and is monitored through quarterly or annual financial review. This municipal debt is predominately essential service or unlimited general obligation backed debt. The following tables summarize the amortized cost of held-to-maturity debt securities by credit rating at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


		March 31, 2022											March 31, 2023
		U.S. Government and agency obligations		Municipal bonds		Corporate bonds		Mortgage-backed or related securities		Total			U.S. Government and agency obligations		Municipal bonds		Corporate bonds		Mortgage-backed or related securities		Total
AAA/AA/A	AAA/AA/A	$	—	$	429,085	$	500	$	16,826	$	446,411	AAA/AA/A	$	—	$	491,252	$	500	$	16,626	$	508,378

Not Rated	Not Rated	315		13,243		2,559		553,414		569,531		Not Rated	310		10,109		2,429		588,733		601,581

		$	315	$	442,328	$	3,059	$	570,240	$	1,015,942		$	310	$	501,361	$	2,929	$	605,359	$	1,109,959

December 31, 2021
U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total
AAA/AA/A $ — $ 406,363 $ 500 $ — $ 406,863
Not Rated 316 14,192 2,592 97,392 114,492
$ 316 $ 420,555 $ 3,092 $ 97,392 $ 521,355

The following tables present the activity in the allowance for credit losses for held-to-maturity debt securities by major type for the three months ended March 31, 2022 and March 31, 2021 (in thousands):

For the Three Months Ended March 31, 2022
U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total
Allowance for credit losses – securities
Beginning Balance $ — $ 203 $ 230 $ — $ 433
Recapture of provision for credit losses — (12) (1) — (13)
Ending Balance $ — $ 191 $ 229 $ — $ 420


	December 31, 2022
	U.S. Government and agency obligations		Municipal bonds		Corporate bonds		Mortgage-backed or related securities		Total
AAA/AA/A	$	—	$	492,105	$	500	$	16,681	$	509,286

Not Rated	312		11,012		2,461		594,896		608,681
	$	312	$	503,117	$	2,961	$	611,577	$	1,117,967

For the Three Months Ended March 31, 2021
U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total
Allowance for credit losses – securities
Beginning Balance $ — $ 59 $ 35 $ — $ 94
Provision for credit losses — 2 2 — 4
Ending Balance $ — $ 61 $ 37 $ — $ 98

1814

Note 4: LOANS RECEIVABLE AND THE ALLOWANCE FOR CREDIT LOSSES - LOANS

During the first quarter of 2022, the Company changed the segmentation of its Small Balance CRE loan category based on the common risk characteristics used to measure the allowance for credit losses. The presentation of loans receivable at December 31, 2021 has been updated to match the segmentation used in the current period presentation. The following table presents the loans receivable at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 by class (dollars in thousands).


		March 31, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Amount		Percent of Total		Amount		Percent of Total			Amount		Percent of Total		Amount		Percent of Total
Commercial real estate:	Commercial real estate:									Commercial real estate:
Owner-occupied	Owner-occupied	$	872,801	9.5	%	$	831,623	9.2	%	Owner-occupied	$	865,705	8.5	%	$	845,320	8.3	%
Investment properties	Investment properties	1,670,896		18.3		1,674,027		18.4		Investment properties	1,520,261		15.0		1,589,975		15.7
Small balance CRE	Small balance CRE	1,162,164		12.7		1,281,863		14.1		Small balance CRE	1,179,749		11.6		1,200,251		11.8
Multifamily real estate	Multifamily real estate	598,588		6.5		530,885		5.8		Multifamily real estate	696,864		6.8		645,071		6.4
Construction, land and land development:	Construction, land and land development:									Construction, land and land development:
Commercial construction	Commercial construction	179,796		2.0		167,998		1.8		Commercial construction	191,051		1.9		184,876		1.8
Multifamily construction	Multifamily construction	274,015		3.0		259,116		2.9		Multifamily construction	362,425		3.6		325,816		3.2
One- to four-family construction	One- to four-family construction	582,800		6.4		568,753		6.3		One- to four-family construction	584,655		5.8		647,329		6.4
Land and land development	Land and land development	317,560		3.5		313,454		3.5		Land and land development	329,438		3.2		328,475		3.2
Commercial business:	Commercial business:									Commercial business:
Commercial business (1)	Commercial business (1)	1,139,701		12.5		1,170,780		12.9		Commercial business (1)	1,266,047		12.5		1,283,407		12.7
Small business scored	Small business scored	817,065		8.8		792,310		8.7		Small business scored	960,650		9.4		947,092		9.3
Agricultural business, including secured by farmland (2)	Agricultural business, including secured by farmland (2)	245,288		2.7		280,578		3.1		Agricultural business, including secured by farmland (2)	272,707		2.7		295,077		2.9
One- to four-family residential	One- to four-family residential	718,403		7.9		657,474		7.2		One- to four-family residential	1,252,104		12.3		1,173,112		11.6
Consumer:	Consumer:									Consumer:
Consumer—home equity revolving lines of credit	Consumer—home equity revolving lines of credit	470,485		5.1		458,533		5.0		Consumer—home equity revolving lines of credit	564,334		5.6		566,291		5.6
Consumer—other	Consumer—other	97,067		1.1		97,369		1.1		Consumer—other	114,694		1.1		114,632		1.1
Total loans	Total loans	9,146,629		100.0	%	9,084,763		100.0	%	Total loans	10,160,684		100.0	%	10,146,724		100.0	%
Less allowance for credit losses – loans	Less allowance for credit losses – loans	(125,471)				(132,099)				Less allowance for credit losses – loans	(141,457)				(141,465)
Net loans	Net loans	$	9,021,158			$	8,952,664			Net loans	$	10,019,227			$	10,005,259

(1) Includes ~~$57.9~~$5.6 million and ~~$132.6~~$7.6 million of U.S. Small Business Administration (SBA) Paycheck Protection Program (PPP) loans as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

(2) Includes ~~$708,000~~$330,000 of SBA PPP loans as of March 31, ~~2022~~2023 and ~~$1.4 million~~$334,000 as of December 31, ~~2021.~~2022.

Loan amounts are net of unearned loan fees in excess of unamortized costs of $8.0 million as of March 31, ~~2022~~2023 and ~~$8.6~~$8.1 million as of December 31, ~~2021.~~2022. Net loans include net discounts on acquired loans of ~~$8.5~~$6.1 million and ~~$9.7~~$6.6 million as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Net loans does not include accrued interest receivable. Accrued interest receivable on loans was ~~$27.6~~$35.6 million as of March 31, ~~2022~~2023 and ~~$29.2~~$39.8 million as of December 31, ~~2021~~2022 and was reported in accrued interest receivable on the Consolidated Statements of Financial Condition.

The Company had pledged $6.5 billion of loans as collateral for FHLB and other borrowings at both March 31, 2023 and December 31, 2022.

Purchased credit-deteriorated and purchased non-credit-deteriorated loans. Loans acquired in business combinations are recorded at their fair value at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-deteriorated (PCD) or purchased non-credit-deteriorated. There were no PCD loans acquired during the three months ended March 31, 2023 or March 31, 2022.

Troubled ~~Debt Restructurings.~~Loan Modifications. ~~Loans are reported as troubled debt restructures (TDRs) when~~Occasionally, the ~~bank grants one or more concessions~~Company offers modifications of loans to ~~a borrower~~borrowers experiencing financial ~~difficulties that it would not otherwise consider. Our TDRs have generally not involved~~difficulty by providing principal forgiveness, ~~of amounts due, but almost always include a modification of multiple factors; the most common combination includes~~ interest rate reductions, other-than-insignificant payment delays, term extensions or any combination of these. When principal forgiveness is provided, the amount of the forgiveness is charged-off against the allowance for credit losses - loans. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and ~~maturity date.~~the allowance for credit losses - loans is adjusted by the same amount.

The following table presents the amortized cost basis of ~~both~~loans at March 31, ~~2022~~2023 that were both experiencing financial difficulty and ~~December~~modified during the quarter ended March 31, ~~2021, the Company had TDRs of $5.5 million and no commitments to advance additional funds related to TDRs.~~2023 (in thousands):



	March 31, 2023
	Term Extension		Total








One- to four-family construction	$	6,107	$	6,107









Total	$	6,107	$	6,107

~~There were no new TDRs~~The Company has committed to lend additional amounts totaling $436,000 to the borrowers included in the previous table. The Company closely monitors the performance of loans that ~~occurred during~~are modified for borrowers experiencing financial difficulty to understand the ~~three months ended March 31, 2022 or March 31, 2021.~~effectiveness of its modification efforts.

The following table presents the financial effect of the loan modifications presented above for borrowers experiencing financial difficulty for the three months ended March 31, 2023:

Three Months Ended March 31, 2023

Weighted-Average Term Extension
(in months)

One- to four-family construction

Total

There were no TDRs which incurred a payment default within twelve months of the restructure date during the three-month periods ended March 31, 2022 and 2021. A default on a TDR results in either a transfer to nonaccrual status or a partial charge-off, or both.

1916

Credit Quality Indicators: To appropriately and effectively manage the ongoing credit quality of the Company’s loan portfolio, management has implemented a risk-rating or loan grading system for its loans. The system is a tool to evaluate portfolio asset quality throughout each applicable loan’s life as an asset of the Company. Generally, loans are risk rated on an aggregate borrower/relationship basis with individual loans sharing similar ratings. There are some instances when specific situations relating to individual loans will provide the basis for different risk ratings within the aggregate relationship. Loans are graded on a scale of 1 to 9. A description of the general characteristics of these categories is shown below:

Overall Risk Rating Definitions: Risk-ratings contain both qualitative and quantitative measurements and take into account the financial strength of a borrower and the structure of the loan or lease. Consequently, the definitions are to be applied in the context of each lending transaction and judgment must also be used to determine the appropriate risk rating, as it is not unusual for a loan or lease to exhibit characteristics of more than one risk-rating category. Consideration for the final rating is centered in the borrower’s ability to repay, in a timely fashion, both principal and interest. The Company’s risk-rating and loan grading policies are reviewed and approved annually. There were no material changes in the risk-rating or loan grading system for the periods presented.

Risk Ratings 1-5: Pass

Credits with risk ratings of 1 to 5 meet the definition of a pass risk rating. The strength of credits vary within the pass risk ratings, ranging from a risk rated 1 being an exceptional credit to a risk rated 5 being an acceptable credit that requires a more than normal level of supervision.

Risk Rating 6: Special Mention

A credit with potential weaknesses that deserves management’s close attention is risk rated a 6. If left uncorrected, these potential weaknesses will result in deterioration in the capacity to repay debt. A key distinction between Special Mention and Substandard is that in a Special Mention credit, there are identified weaknesses that pose potential risk(s) to the repayment sources, versus well defined weaknesses that pose risk(s) to the repayment sources. Assets in this category are expected to be in this category no more than 9-12 months as the potential weaknesses in the credit are resolved.

Risk Rating 7: Substandard

A credit with well-defined weaknesses that jeopardize the ability to repay in full is risk rated a 7. These credits are inadequately protected by either the sound net worth and payment capacity of the borrower or the value of pledged collateral. These are credits with a distinct possibility of loss. Loans headed for foreclosure and/or legal action due to deterioration are rated 7 or worse.

Risk Rating 8: Doubtful

A credit with an extremely high probability of loss is risk rated 8. These credits have all the same critical weaknesses that are found in a substandard loan; however, the weaknesses are elevated to the point that based upon current information, collection or liquidation in full is improbable. While some loss on doubtful credits is expected, pending events may make the amount and timing of any loss indeterminable. In these situations taking the loss is inappropriate until the outcome of the pending event is clear.

Risk Rating 9: Loss

A credit that is considered to be currently uncollectible or of such little value that it is no longer a viable bank asset is risk rated 9. Losses should be taken in the accounting period in which the credit is determined to be uncollectible. Taking a loss does not mean that a credit has absolutely no recovery or salvage value but, rather, it is not practical or desirable to defer writing off the credit, even though partial recovery may occur in the future.

2017

The following tables present the Company’s portfolio of risk-rated loans by class and by grade as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands). Revolving loans that are converted to term loans are treated as new originations in the table below and are presented by year of origination. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension.


		March 31, 2022																				March 31, 2023
		Term Loans by Year of Origination												Revolving Loans					Total Loans			Term Loans by Year of Origination																			Revolving Loans			Total Loans
By class:	By class:	2022		2021		2020		2019		2018		Prior				By class:		2023					2022				2021			2020			2019			Prior

Commercial real estate - owner occupied	Commercial real estate - owner occupied																				Commercial real estate - owner occupied
Risk Rating	Risk Rating																				Risk Rating
Pass	Pass	$	30,954	$	216,269	$	178,308	$	104,389	$	69,563	$	188,981			$	14,383					$	802,847	Pass	$	33,565		$	160,079		$	190,447		$	141,823		$	72,672		$	200,153		$	25,434		$	824,173
Special Mention	Special Mention	—		—		—		—		—		70		301					371		Special Mention	—				—			—			—			—			41			—			41
Substandard	Substandard	10,316		3,273		—		15,939		16,602		23,453		—					69,583		Substandard	1,771				10,278			—			11,998			16,991			253			200			41,491
Doubtful	Doubtful	—		—		—		—		—		—		—					—		Doubtful	—				—			—			—			—			—			—			—
Loss	Loss	—		—		—		—		—		—		—					—		Loss	—				—			—			—			—			—			—			—
Total Commercial real estate - owner occupied	Total Commercial real estate - owner occupied	$	41,270	$	219,542	$	178,308	$	120,328	$	86,165	$	212,504	$	14,684				$	872,801	Total Commercial real estate - owner occupied	$	35,336			$	170,357		$	190,447		$	153,821		$	89,663		$	200,447		$	25,634		$	865,705

Current period gross charge-offs																					Current period gross charge-offs	$	—			$	—		$	—		$	—		$	—		$	—		$	—		$	—

Commercial real estate - investment properties	Commercial real estate - investment properties																				Commercial real estate - investment properties
Risk Rating	Risk Rating																				Risk Rating
Pass	Pass	$	38,630	$	341,707	$	174,541	$	214,218	$	180,247	$	658,506	$	12,031				$	1,619,880	Pass	$	33,547			$	181,326		$	296,106		$	127,945		$	180,315		$	673,599		$	23,147		$	1,515,985
Special Mention	Special Mention	—		—		—		—		—		—		240					240		Special Mention	—				—			—			—			—			—			—			—
Substandard	Substandard	—		28,362		—		3,340		—		17,698		1,376					50,776		Substandard	—				—			—			—			—			2,980			1,296			4,276
Doubtful	Doubtful	—		—		—		—		—		—		—					—		Doubtful	—				—			—			—			—			—			—			—
Loss	Loss	—		—		—		—		—		—		—					—		Loss	—				—			—			—			—			—			—			—
Total Commercial real estate - investment properties	Total Commercial real estate - investment properties	$	38,630	$	370,069	$	174,541	$	217,558	$	180,247	$	676,204	$	13,647				$	1,670,896	Total Commercial real estate - investment properties	$	33,547			$	181,326		$	296,106		$	127,945		$	180,315		$	676,579		$	24,443		$	1,520,261

Current period gross charge-offs																					Current period gross charge-offs	$	—			$	—		$	—		$	—		$	—		$	—		$	—		$	—

Multifamily real estate	Multifamily real estate																				Multifamily real estate
Risk Rating	Risk Rating																				Risk Rating
Pass	Pass	$	64,403	$	187,911	$	83,369	$	55,187	$	33,545	$	169,828	$	2,833				$	597,076	Pass	$	38,932			$	149,727		$	177,809		$	100,126		$	46,210		$	182,443		$	1,617		$	696,864
Special Mention	Special Mention	—		—		—		—		—		—		—					—		Special Mention	—				—			—			—			—			—			—			—
Substandard	Substandard	—		—		—		—		—		1,512		—					1,512		Substandard	—				—			—			—			—			—			—			—
Doubtful	Doubtful	—		—		—		—		—		—		—					—		Doubtful	—				—			—			—			—			—			—			—
Loss	Loss	—		—		—		—		—		—		—					—		Loss	—				—			—			—			—			—			—			—
Total Multifamily real estate	Total Multifamily real estate	$	64,403	$	187,911	$	83,369	$	55,187	$	33,545	$	171,340	$	2,833				$	598,588	Total Multifamily real estate	$	38,932			$	149,727		$	177,809		$	100,126		$	46,210		$	182,443		$	1,617		$	696,864

Current period gross charge-offs																					Current period gross charge-offs	$	—			$	—		$	—		$	—		$	—		$	—		$	—		$	—


	March 31, 2023
	Term Loans by Year of Origination												Revolving Loans		Total Loans
By class:	2023		2022		2021		2020		2019		Prior

Commercial construction
Risk Rating
Pass	$	43,742	$	83,325	$	38,168	$	12,890	$	4,229	$	1,077	$	—	$	183,431
Special Mention	—		—		—		—		—		—		—		—
Substandard	2,933		—		—		—		—		4,687		—		7,620
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Commercial construction	$	46,675	$	83,325	$	38,168	$	12,890	$	4,229	$	5,764	$	—	$	191,051

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multifamily construction
Risk Rating
Pass	$	28,035	$	155,074	$	165,128	$	12,770	$	1,418	$	—	$	—	$	362,425
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Multifamily construction	$	28,035	$	155,074	$	165,128	$	12,770	$	1,418	$	—	$	—	$	362,425

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

One- to four- family construction
Risk Rating
Pass	$	167,004	$	376,272	$	30,106	$	137	$	331	$	—	$	595	$	574,445
Special Mention	—		—		—		—		—		—		—		—
Substandard	6,240		—		3,970		—		—		—		—		10,210
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total One- to four- family construction	$	173,244	$	376,272	$	34,076	$	137	$	331	$	—	$	595	$	584,655

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	March 31, 2023
	Term Loans by Year of Origination												Revolving Loans		Total Loans
By class:	2023		2022		2021		2020		2019		Prior

Land and land development
Risk Rating
Pass	$	63,156	$	151,355	$	75,204	$	15,861	$	10,754	$	11,993	$	339	$	328,662
Special Mention	—		—		—		—		—		—		—		—
Substandard	604		—		—		—		—		172		—		776
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Land and land development	$	63,760	$	151,355	$	75,204	$	15,861	$	10,754	$	12,165	$	339	$	329,438

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial business
Risk Rating
Pass	$	49,403	$	249,239	$	141,427	$	153,697	$	121,717	$	160,236	$	354,670	$	1,230,389
Special Mention	—		64		—		3,372		—		—		—		3,436
Substandard	—		827		12,712		2,861		1,109		7,625		7,088		32,222
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Commercial business	$	49,403	$	250,130	$	154,139	$	159,930	$	122,826	$	167,861	$	361,758	$	1,266,047

Current period gross charge-offs	$	—	$	—	$	581	$	—	$	—	$	25	$	9	$	615

Agricultural business, including secured by farmland
Risk Rating
Pass	$	9,494	$	37,948	$	32,956	$	18,667	$	27,705	$	49,079	$	82,499	$	258,348
Special Mention	—		—		302		271		—		—		—		573
Substandard	1,554		2,010		970		—		6,565		2,588		99		13,786
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Agricultural business, including secured by farmland	$	11,048	$	39,958	$	34,228	$	18,938	$	34,270	$	51,667	$	82,598	$	272,707

Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	December 31, 2022
	Term Loans by Year of Origination												Revolving Loans		Total Loans
By class:	2022		2021		2020		2019		2018		Prior

Commercial real estate - owner occupied
Risk Rating
Pass	$	167,150	$	198,787	$	150,272	$	74,171	$	57,095	$	148,902	$	10,833	$	807,210
Special Mention	—		—		—		2,829		—		42		201		3,072
Substandard	13,756		—		7,211		13,564		—		307		200		35,038
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Commercial real estate - owner occupied	$	180,906	$	198,787	$	157,483	$	90,564	$	57,095	$	149,251	$	11,234	$	845,320



Commercial real estate - investment properties
Risk Rating
Pass	$	190,627	$	323,160	$	142,476	$	182,853	$	169,667	$	547,899	$	25,691	$	1,582,373
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		3,283		—		3,007		1,312		7,602
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Commercial real estate - investment properties	$	190,627	$	323,160	$	142,476	$	186,136	$	169,667	$	550,906	$	27,003	$	1,589,975



Multifamily real estate
Risk Rating
Pass	$	139,383	$	177,784	$	93,961	$	46,460	$	29,665	$	156,140	$	1,678	$	645,071
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Multifamily real estate	$	139,383	$	177,784	$	93,961	$	46,460	$	29,665	$	156,140	$	1,678	$	645,071


		March 31, 2022																				December 31, 2022
		Term Loans by Year of Origination												Revolving Loans					Total Loans			Term Loans by Year of Origination																			Revolving Loans			Total Loans
By class:	By class:	2022		2021		2020		2019		2018		Prior				By class:		2022					2021				2020			2019			2018			Prior

Commercial construction	Commercial construction																				Commercial construction
Risk Rating	Risk Rating																				Risk Rating
Pass	Pass	$	15,672	$	117,034	$	26,541	$	3,665	$	8,117	$	510			$	—					$	171,539	Pass	$	112,229		$	46,679		$	12,952		$	4,260		$	1,107		$	—		$	—		$	177,227
Special Mention	Special Mention	—		—		—		—		—		—		—					—		Special Mention	—				—			—			—			—			—			—			—
Substandard	Substandard	2,722		—		77		684		4,774		—		—					8,257		Substandard	2,931				1			—			—			4,717			—			—			7,649
Doubtful	Doubtful	—		—		—		—		—		—		—					—		Doubtful	—				—			—			—			—			—			—			—
Loss	Loss	—		—		—		—		—		—		—					—		Loss	—				—			—			—			—			—			—			—
Total Commercial construction	Total Commercial construction	$	18,394	$	117,034	$	26,618	$	4,349	$	12,891	$	510	$	—				$	179,796	Total Commercial construction	$	115,160			$	46,680		$	12,952		$	4,260		$	5,824		$	—		$	—		$	184,876

Multifamily construction	Multifamily construction																				Multifamily construction
Risk Rating	Risk Rating																				Risk Rating
Pass	Pass	$	48,366	$	104,749	$	73,217	$	47,683	$	—	$	—	$	—				$	274,015	Pass	$	142,680			$	161,066		$	20,622		$	1,448		$	—		$	—		$	—		$	325,816
Special Mention	Special Mention	—		—		—		—		—		—		—					—		Special Mention	—				—			—			—			—			—			—			—
Substandard	Substandard	—		—		—		—		—		—		—					—		Substandard	—				—			—			—			—			—			—			—
Doubtful	Doubtful	—		—		—		—		—		—		—					—		Doubtful	—				—			—			—			—			—			—			—
Loss	Loss	—		—		—		—		—		—		—					—		Loss	—				—			—			—			—			—			—			—
Total Multifamily construction	Total Multifamily construction	$	48,366	$	104,749	$	73,217	$	47,683	$	—	$	—	$	—				$	274,015	Total Multifamily construction	$	142,680			$	161,066		$	20,622		$	1,448		$	—		$	—		$	—		$	325,816

One- to four- family construction	One- to four- family construction																				One- to four- family construction
Risk Rating	Risk Rating																				Risk Rating
Pass	Pass	$	178,654	$	390,142	$	12,289	$	331	$	—	$	357	$	1,027				$	582,800	Pass	$	572,701			$	56,530		$	677		$	331		$	—		$	—		$	711		$	630,950
Special Mention	Special Mention	—		—		—		—		—		—		—					—		Special Mention	—				—			—			—			—			—			—			—
Substandard	Substandard	—		—		—		—		—		—		—					—		Substandard	13,473				2,906			—			—			—			—			—			16,379
Doubtful	Doubtful	—		—		—		—		—		—		—					—		Doubtful	—				—			—			—			—			—			—			—
Loss	Loss	—		—		—		—		—		—		—					—		Loss	—				—			—			—			—			—			—			—
Total One- to four- family construction	Total One- to four- family construction	$	178,654	$	390,142	$	12,289	$	331	$	—	$	357	$	1,027				$	582,800	Total One- to four- family construction	$	586,174			$	59,436		$	677		$	331		$	—		$	—		$	711		$	647,329

March 31, 2022
Term Loans by Year of Origination Revolving Loans Total Loans
By class: 2022 2021 2020 2019 2018 Prior
Land and land development
Risk Rating
Pass $ 57,278 $ 157,382 $ 66,516 $ 16,733 $ 7,899 $ 11,449 $ 147 $ 317,404
Special Mention — — — — — — — —
Substandard — — 14 23 — 119 — 156
Doubtful — — — — — — — —
Loss — — — — — — — —
Total Land and land development $ 57,278 $ 157,382 $ 66,530 $ 16,756 $ 7,899 $ 11,568 $ 147 $ 317,560
Commercial business
Risk Rating
Pass $ 53,141 $ 203,559 $ 196,442 $ 169,233 $ 111,154 $ 117,861 $ 268,428 $ 1,119,818
Special Mention — — 807 — — 22 2,878 3,707
Substandard 669 5,252 1,277 1,423 4,534 1,265 1,756 16,176
Doubtful — — — — — — — —
Loss — — — — — — — —
Total Commercial business $ 53,810 $ 208,811 $ 198,526 $ 170,656 $ 115,688 $ 119,148 $ 273,062 $ 1,139,701
Agricultural business including secured by farmland
Risk Rating
Pass $ 5,396 $ 35,729 $ 22,151 $ 46,631 $ 26,534 $ 40,566 $ 65,314 $ 242,321
Special Mention — — 145 — — — — 145
Substandard 1,581 — 42 594 493 70 42 2,822
Doubtful — — — — — — — —
Loss — — — — — — — —
Total Agricultural business including secured by farmland $ 6,977 $ 35,729 $ 22,338 $ 47,225 $ 27,027 $ 40,636 $ 65,356 $ 245,288


		December 31, 2021																				December 31, 2022
		Term Loans by Year of Origination												Revolving Loans					Total Loans			Term Loans by Year of Origination																			Revolving Loans			Total Loans
By class:	By class:	2020		2019		2018		2017		2016		Prior				By class:		2022					2021				2020			2019			2018			Prior

Commercial real estate - owner occupied
Land and land development																					Land and land development
Risk Rating	Risk Rating																				Risk Rating
Pass	Pass	$	212,407	$	172,968	$	100,077	$	83,124	$	43,371	$	153,472			$	11,782					$	777,201	Pass	$	199,339		$	88,066		$	16,278		$	11,866		$	6,242		$	6,164		$	339		$	328,294
Special Mention	Special Mention	—		—		2,185		—		—		74		—					2,259		Special Mention	—				—			—			—			—			—			—			—
Substandard	Substandard	13,597		—		13,770		—		1,056		23,740		—					52,163		Substandard	—				—			—			—			97			84			—			181
Doubtful	Doubtful	—		—		—		—		—		—		—					—		Doubtful	—				—			—			—			—			—			—			—
Loss	Loss	—		—		—		—		—		—		—					—		Loss	—				—			—			—			—			—			—			—
Total Commercial real estate - owner occupied		$	226,004	$	172,968	$	116,032	$	83,124	$	44,427	$	177,286	$	11,782				$	831,623
Total Land and land development																					Total Land and land development	$	199,339			$	88,066		$	16,278		$	11,866		$	6,339		$	6,248		$	339		$	328,475

Commercial real estate - investment properties

Commercial business																					Commercial business
Risk Rating	Risk Rating																				Risk Rating
Pass	Pass	$	337,170	$	165,174	$	231,021	$	183,787	$	201,738	$	467,821	$	18,471				$	1,605,182	Pass	$	249,609			$	149,140		$	161,494		$	126,416		$	86,712		$	85,386		$	391,852		$	1,250,609
Special Mention	Special Mention	—		—		240		4,131		—		—		—					4,371		Special Mention	74				26			3,467			—			—			—			200			3,767
Substandard	Substandard	28,926		—		3,343		—		4,305		27,900		—					64,474		Substandard	464				12,599			1,956			1,161			5,954			796			6,101			29,031
Doubtful	Doubtful	—		—		—		—		—		—		—					—		Doubtful	—				—			—			—			—			—			—			—
Loss	Loss	—		—		—		—		—		—		—					—		Loss	—				—			—			—			—			—			—			—
Total Commercial real estate - investment properties		$	366,096	$	165,174	$	234,604	$	187,918	$	206,043	$	495,721	$	18,471				$	1,674,027
Total Commercial business																					Total Commercial business	$	250,147			$	161,765		$	166,917		$	127,577		$	92,666		$	86,182		$	398,153		$	1,283,407

Multifamily real estate

Agricultural business, including secured by farmland																					Agricultural business, including secured by farmland
Risk Rating	Risk Rating																				Risk Rating
Pass	Pass	$	184,310	$	75,226	$	55,494	$	33,708	$	84,612	$	88,055	$	3,030				$	524,435	Pass	$	36,848			$	35,440		$	18,946		$	28,354		$	24,710		$	27,063		$	109,606		$	280,967
Special Mention	Special Mention	—		—		—		—		—		—		—					—		Special Mention	—				336			271			—			—			—			357			964
Substandard	Substandard	4,908		—		—		—		—		1,542		—					6,450		Substandard	2,015				970			—			6,565			—			2,599			997			13,146
Doubtful	Doubtful	—		—		—		—		—		—		—					—		Doubtful	—				—			—			—			—			—			—			—
Loss	Loss	—		—		—		—		—		—		—					—		Loss	—				—			—			—			—			—			—			—
Total Multifamily real estate		$	189,218	$	75,226	$	55,494	$	33,708	$	84,612	$	89,597	$	3,030				$	530,885
Total Agricultural business, including secured by farmland																					Total Agricultural business, including secured by farmland	$	38,863			$	36,746		$	19,217		$	34,919		$	24,710		$	29,662		$	110,960		$	295,077

December 31, 2021
Term Loans by Year of Origination Revolving Loans Total Loans
By class: 2020 2019 2018 2017 2016 Prior
Commercial construction
Risk Rating
Pass $ 103,352 $ 31,841 $ 7,259 $ 8,087 $ — $ — $ — $ 150,539
Special Mention — — — — — — — —
Substandard 11,782 85 688 4,806 — 98 — 17,459
Doubtful — — — — — — — —
Loss — — — — — — — —
Total Commercial construction $ 115,134 $ 31,926 $ 7,947 $ 12,893 $ — $ 98 $ — $ 167,998
Multifamily construction
Risk Rating
Pass $ 86,643 $ 118,114 $ 54,359 $ — $ — $ — $ — $ 259,116
Special Mention — — — — — — — —
Substandard — — — — — — — —
Doubtful — — — — — — — —
Loss — — — — — — — —
Total Multifamily construction $ 86,643 $ 118,114 $ 54,359 $ — $ — $ — $ — $ 259,116
One- to four- family construction
Risk Rating
Pass $ 526,153 $ 40,133 $ 331 $ — $ — $ 216 $ 1,920 $ 568,753
Special Mention — — — — — — — —
Substandard — — — — — — — —
Doubtful — — — — — — — —
Loss — — — — — — — —
Total One- to four- family construction $ 526,153 $ 40,133 $ 331 $ — $ — $ 216 $ 1,920 $ 568,753

December 31, 2021
Term Loans by Year of Origination Revolving Loans Total Loans
By class: 2020 2019 2018 2017 2016 Prior
Land and land development
Risk Rating
Pass $ 181,381 $ 89,895 $ 17,154 $ 8,141 $ 4,050 $ 7,870 $ 1,682 $ 310,173
Special Mention — — — — — — �� —
Substandard 2,876 14 263 — — 128 — 3,281
Doubtful — — — — — — — —
Loss — — — — — — — —
Total Land and land development $ 184,257 $ 89,909 $ 17,417 $ 8,141 $ 4,050 $ 7,998 $ 1,682 $ 313,454
Commercial business
Risk Rating
Pass $ 273,096 $ 214,166 $ 176,136 $ 121,211 $ 45,434 $ 78,049 $ 246,351 $ 1,154,443
Special Mention 65 77 — 241 19 8 2,430 2,840
Substandard 1,941 1,560 2,292 3,853 875 679 2,297 13,497
Doubtful — — — — — — — —
Loss — — — — — — — —
Total Commercial business $ 275,102 $ 215,803 $ 178,428 $ 125,305 $ 46,328 $ 78,736 $ 251,078 $ 1,170,780
Agricultural business including secured by farmland
Risk Rating
Pass $ 33,119 $ 25,338 $ 49,951 $ 27,401 $ 11,918 $ 30,042 $ 99,410 $ 277,179
Special Mention — — — — — — — —
Substandard — 474 2,231 493 129 72 — 3,399
Doubtful — — — — — — — —
Loss — — — — — — — —
Total Agricultural business including secured by farmland $ 33,119 $ 25,812 $ 52,182 $ 27,894 $ 12,047 $ 30,114 $ 99,410 $ 280,578

2623

The following tables present the Company’s portfolio of non-risk-rated loans by class and delinquency status as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands). Revolving loans that are converted to term loans are treated as new originations in the table below and are presented by year of origination. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension.


		March 31, 2022																				March 31, 2023
		Term Loans by Year of Origination												Revolving Loans					Total Loans			Term Loans by Year of Origination																			Revolving Loans			Total Loans
By class:	By class:	2022		2021		2020		2019		2018		Prior				By class:		2023					2022				2021			2020			2019			Prior

Small balance CRE	Small balance CRE																				Small balance CRE
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	36,824	$	201,375	$	177,615	$	141,065	$	159,917	$	442,307			$	522					$	1,159,625	Current	$	27,002		$	173,956		$	217,436		$	175,592		$	125,339		$	457,810		$	517		$	1,177,652
30-59 Days Past Due	30-59 Days Past Due	—		1,208		—		—		—		189		—					1,397		30-59 Days Past Due	—				—			—			445			169			1,481			—			2,095
60-89 Days Past Due	60-89 Days Past Due	—		—		—		—		—		1,140		—					1,140		60-89 Days Past Due	—				—			—			—			—			—			—			—
90 Days + Past Due	90 Days + Past Due	—		—		—		—		—		2		—					2		90 Days + Past Due	—				—			—			—			—			2			—			2
Total Small balance CRE	Total Small balance CRE	$	36,824	$	202,583	$	177,615	$	141,065	$	159,917	$	443,638	$	522				$	1,162,164	Total Small balance CRE	$	27,002			$	173,956		$	217,436		$	176,037		$	125,508		$	459,293		$	517		$	1,179,749

Current period gross charge-offs																					Current period gross charge-offs	$	—			$	—		$	—		$	—		$	—		$	—		$	—		$	—

Small business scored	Small business scored																				Small business scored
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	69,223	$	226,661	$	118,701	$	101,406	$	73,788	$	112,324	$	111,565				$	813,668	Current	$	49,647			$	298,194		$	192,903		$	95,064		$	75,968		$	124,084		$	120,923		$	956,783
30-59 Days Past Due	30-59 Days Past Due	—		36		655		685		259		275		168					2,078		30-59 Days Past Due	—				590			485			526			—			103			239			1,943
60-89 Days Past Due	60-89 Days Past Due	—		12		105		58		86		192		2					455		60-89 Days Past Due	—				—			22			—			37			17			239			315
90 Days + Past Due	90 Days + Past Due	—		—		69		—		166		589		40					864		90 Days + Past Due	—				—			177			93			676			497			166			1,609
Total Small business scored	Total Small business scored	$	69,223	$	226,709	$	119,530	$	102,149	$	74,299	$	113,380	$	111,775				$	817,065	Total Small business scored	$	49,647			$	298,784		$	193,587		$	95,683		$	76,681		$	124,701		$	121,567		$	960,650

Current period gross charge-offs																					Current period gross charge-offs	$	—			$	42		$	49		$	107		$	202		$	143		$	—		$	543

One- to four- family residential	One- to four- family residential																				One- to four- family residential
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	132,083	$	202,223	$	64,634	$	46,143	$	42,586	$	224,785	$	1,237				$	713,691	Current	$	83,243			$	568,763		$	272,265		$	59,437		$	32,785		$	223,049		$	643		$	1,240,185
30-59 Days Past Due	30-59 Days Past Due	—		27		204		193		700		792		—					1,916		30-59 Days Past Due	—				—			1,041			664			1,325			1,859			—			4,889
60-89 Days Past Due	60-89 Days Past Due	—		—		—		1,078		—		73		—					1,151		60-89 Days Past Due	1,060				240			—			—			—			436			—			1,736
90 Days + Past Due	90 Days + Past Due	—		—		—		—		159		1,486		—					1,645		90 Days + Past Due	—				—			1,816			759			711			2,008			—			5,294
Total One- to four- family residential	Total One- to four- family residential	$	132,083	$	202,250	$	64,838	$	47,414	$	43,445	$	227,136	$	1,237				$	718,403	Total One- to four- family residential	$	84,303			$	569,003		$	275,122		$	60,860		$	34,821		$	227,352		$	643		$	1,252,104

Current period gross charge-offs																					Current period gross charge-offs	$	—			$	—		$	—		$	—		$	—		$	30		$	—		$	30

2724


		March 31, 2022																				March 31, 2023
		Term Loans by Year of Origination												Revolving Loans					Total Loans			Term Loans by Year of Origination																			Revolving Loans			Total Loans
By class:	By class:	2022		2021		2020		2019		2018		Prior				By class:		2023					2022				2021			2020			2019			Prior

Consumer—home equity revolving lines of credit	Consumer—home equity revolving lines of credit																				Consumer—home equity revolving lines of credit
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	5,720	$	1,359	$	671	$	1,420	$	1,878	$	4,581			$	452,991					$	468,620	Current	$	5,065		$	2,216		$	1,534		$	1,186		$	1,434		$	5,484		$	543,138		$	560,057
30-59 Days Past Due	30-59 Days Past Due	—		—		—		101		152		36		379					668		30-59 Days Past Due	—				—			—			72			20			314			1,094			1,500
60-89 Days Past Due	60-89 Days Past Due	—		—		—		—		—		77		—					77		60-89 Days Past Due	—				—			151			—			—			396			126			673
90 Days + Past Due	90 Days + Past Due	—		—		—		110		127		784		99					1,120		90 Days + Past Due	—				—			50			1,115			532			407			—			2,104
Total Consumer—home equity revolving lines of credit	Total Consumer—home equity revolving lines of credit	$	5,720	$	1,359	$	671	$	1,631	$	2,157	$	5,478	$	453,469				$	470,485	Total Consumer—home equity revolving lines of credit	$	5,065			$	2,216		$	1,735		$	2,373		$	1,986		$	6,601		$	544,358		$	564,334

Current period gross charge-offs																					Current period gross charge-offs	$	—			$	—		$	13		$	—		$	—		$	15		$	—		$	28

Consumer-other	Consumer-other																				Consumer-other
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	4,842	$	16,817	$	11,831	$	8,079	$	7,252	$	21,096	$	26,709				$	96,626	Current	$	4,215			$	37,789		$	11,467		$	8,306		$	5,061		$	20,780		$	26,691		$	114,309
30-59 Days Past Due	30-59 Days Past Due	—		7		3		16		6		51		166					249		30-59 Days Past Due	—				43			2			44			12			78			107			286
60-89 Days Past Due	60-89 Days Past Due	—		75		6		—		9		3		29					122		60-89 Days Past Due	—				—			19			1			5			2			54			81
90 Days + Past Due	90 Days + Past Due	—		—		60		—		3		7		—					70		90 Days + Past Due	—				—			—			18			—			—			—			18
Total Consumer-other	Total Consumer-other	$	4,842	$	16,899	$	11,900	$	8,095	$	7,270	$	21,157	$	26,904				$	97,067	Total Consumer-other	$	4,215			$	37,832		$	11,488		$	8,369		$	5,078		$	20,860		$	26,852		$	114,694

Current period gross charge-offs																					Current period gross charge-offs	$	—			$	19		$	20		$	4		$	20		$	39		$	162		$	264

2825


		December 31, 2021																				December 31, 2022
		Term Loans by Year of Origination												Revolving Loans					Total Loans			Term Loans by Year of Origination																			Revolving Loans			Total Loans
By class:	By class:	2020		2019		2018		2017		2016		Prior				By class:		2022					2021				2020			2019			2018			Prior

Small balance CRE	Small balance CRE																				Small balance CRE
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	215,933	$	208,482	$	157,342	$	182,940	$	138,239	$	377,007			$	533					$	1,280,476	Current	$	177,605		$	215,801		$	172,286		$	134,552		$	142,592		$	354,924		$	630		$	1,198,390
30-59 Days Past Due	30-59 Days Past Due	40		—		—		—		49		—		—					89		30-59 Days Past Due	—				—			460			—			—			1,399			—			1,859
60-89 Days Past Due	60-89 Days Past Due	—		—		—		—		—		—		—					—		60-89 Days Past Due	—				—			—			—			—			—			—			—
90 Days + Past Due	90 Days + Past Due	—		—		—		—		1,186		112		—					1,298		90 Days + Past Due	—				—			—			—			—			2			—			2
Total Small balance CRE	Total Small balance CRE	$	215,973	$	208,482	$	157,342	$	182,940	$	139,474	$	377,119	$	533				$	1,281,863	Total Small balance CRE	$	177,605			$	215,801		$	172,746		$	134,552		$	142,592		$	356,325		$	630		$	1,200,251

Small business scored	Small business scored																				Small business scored
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	235,435	$	126,959	$	109,483	$	84,460	$	55,940	$	69,504	$	108,632				$	790,413	Current	$	307,109			$	201,628		$	99,867		$	81,603		$	56,420		$	78,025		$	119,281		$	943,933
30-59 Days Past Due	30-59 Days Past Due	260		268		—		133		74		4		185					924		30-59 Days Past Due	146				518			54			262			46			280			173			1,479
60-89 Days Past Due	60-89 Days Past Due	—		—		133		11		9		248		64					465		60-89 Days Past Due	—				54			—			275			149			7			176			661
90 Days + Past Due	90 Days + Past Due	—		69		—		62		306		7		64					508		90 Days + Past Due	—				—			26			157			70			305			461			1,019
Total Small business scored	Total Small business scored	$	235,695	$	127,296	$	109,616	$	84,666	$	56,329	$	69,763	$	108,945				$	792,310	Total Small business scored	$	307,255			$	202,200		$	99,947		$	82,297		$	56,685		$	78,617		$	120,091		$	947,092

One- to four- family residential	One- to four- family residential																				One- to four- family residential
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	225,020	$	77,873	$	53,854	$	48,299	$	51,654	$	195,479	$	1,425				$	653,604	Current	$	555,833			$	279,331		$	59,672		$	34,607		$	37,740		$	191,890		$	1,335		$	1,160,408
30-59 Days Past Due	30-59 Days Past Due	—		596		—		404		635		683		—					2,318		30-59 Days Past Due	2,030				846			755			—			116			1,462			78			5,287
60-89 Days Past Due	60-89 Days Past Due	—		—		2		295		—		30		—					327		60-89 Days Past Due	1,060				—			—			—			115			1,067			—			2,242
90 Days + Past Due	90 Days + Past Due	—		—		—		167		—		1,058		—					1,225		90 Days + Past Due	—				1,819			973			712			94			1,577			—			5,175
Total One- to four- family residential	Total One- to four- family residential	$	225,020	$	78,469	$	53,856	$	49,165	$	52,289	$	197,250	$	1,425				$	657,474	Total One- to four- family residential	$	558,923			$	281,996		$	61,400		$	35,319		$	38,065		$	195,996		$	1,413		$	1,173,112

2926


		December 31, 2021																				December 31, 2022
		Term Loans by Year of Origination												Revolving Loans					Total Loans			Term Loans by Year of Origination																			Revolving Loans			Total Loans
By class:	By class:	2020		2019		2018		2017		2016		Prior				By class:		2022					2021				2020			2019			2018			Prior

Consumer—home equity revolving lines of credit	Consumer—home equity revolving lines of credit																				Consumer—home equity revolving lines of credit
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	7,135	$	1,210	$	1,324	$	1,772	$	1,764	$	2,920			$	440,352					$	456,477	Current	$	7,442		$	1,089		$	329		$	1,355		$	1,611		$	3,788		$	547,068		$	562,682
30-59 Days Past Due	30-59 Days Past Due	147		—		—		23		37		568		210					985		30-59 Days Past Due	49				40			75			—			74			214			1,372			1,824
60-89 Days Past Due	60-89 Days Past Due	49		—		—		—		45		83		91					268		60-89 Days Past Due	—				50			—			—			49			45			59			203
90 Days + Past Due	90 Days + Past Due	—		—		109		191		156		188		159					803		90 Days + Past Due	—				14			73			476			64			675			280			1,582
Total Consumer—home equity revolving lines of credit	Total Consumer—home equity revolving lines of credit	$	7,331	$	1,210	$	1,433	$	1,986	$	2,002	$	3,759	$	440,812				$	458,533	Total Consumer—home equity revolving lines of credit	$	7,491			$	1,193		$	477		$	1,831		$	1,798		$	4,722		$	548,779		$	566,291

Consumer-other	Consumer-other																				Consumer-other
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	18,640	$	12,803	$	8,676	$	8,242	$	6,138	$	17,055	$	25,336				$	96,890	Current	$	39,740			$	12,138		$	9,334		$	5,695		$	5,384		$	16,675		$	25,219		$	114,185
30-59 Days Past Due	30-59 Days Past Due	—		114		13		150		22		29		60					388		30-59 Days Past Due	49				—			16			5			2			67			120			259
60-89 Days Past Due	60-89 Days Past Due	6		—		2		—		—		8		59					75		60-89 Days Past Due	41				9			29			24			—			13			62			178
90 Days + Past Due	90 Days + Past Due	—		—		10		6		—		—		—					16		90 Days + Past Due	—				10			—			—			—			—			—			10
Total Consumer-other	Total Consumer-other	$	18,646	$	12,917	$	8,701	$	8,398	$	6,160	$	17,092	$	25,455				$	97,369	Total Consumer-other	$	39,830			$	12,157		$	9,379		$	5,724		$	5,386		$	16,755		$	25,401		$	114,632

3027

The following tables provide the amortized cost basis of collateral-dependent loans as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands). Our collateral dependent loans presented in the tables below have no significant concentrations by property type or location.


		March 31, 2022				March 31, 2023
		Real Estate		Equipment			Total			Real Estate		Equipment		Inventory		Total
Commercial real estate:

Investment properties		$	5,953	$	—		$	5,953

Small balance CRE	Small balance CRE	3,974		—			3,974		Small balance CRE	$	2,167	$	—	$	—	$	2,167

Commercial business	Commercial business								Commercial business
Commercial business									Commercial business	316		4,543		9		4,868
Small business scored									Small business scored	—		243		—		243
Agricultural business, including secured by farmland									Agricultural business, including secured by farmland	3,242		93		145		3,480
One- to four-family residential									One- to four-family residential	2,679		—		—		2,679

Agricultural business, including secured by farmland		427		594			1,021

Consumer—home equity revolving lines of credit									Consumer—home equity revolving lines of credit	818		—		—		818

Total	Total	$	10,354	$	632		$	10,986	Total	$	9,222	$	4,879	$	154	$	14,255


		December 31, 2021				December 31, 2022
		Real Estate		Equipment			Total			Real Estate		Equipment		Total
Commercial real estate:
Owner-occupied		$	921	$	—		$	921
Investment properties		6,136		—			6,136

Small balance CRE	Small balance CRE	5,902		—			5,902		Small balance CRE	$	2,953	$	—	$	2,953

Commercial business	Commercial business								Commercial business
Commercial business	Commercial business	17		47			64		Commercial business	—		4,537		4,537
Small business scored									Small business scored	—		307		307

Agricultural business, including secured by farmland		427		594			1,021

One- to four-family residential									One- to four-family residential	1,622		—		1,622

Total	Total	$	13,403	$	641		$	14,044	Total	$	4,575	$	4,844	$	9,419

3128

The following tables provide additional detail on the age analysis of the Company’s past due loans as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


		March 31, 2022																March 31, 2023
		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Non-accrual with no Allowance		Total Non-accrual (1)			Loans 90 Days or More Past Due and Accruing			30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Non-accrual with no Allowance		Total Non-accrual (1)		Loans 90 Days or More Past Due and Accruing
Commercial real estate:	Commercial real estate:																				Commercial real estate:
Owner-occupied	Owner-occupied	$	—	$	221	$	—	$	221	$	872,580	$	872,801	$	—	$	301		$	—	Owner-occupied	$	—	$	—	$	—	$	—	$	865,705	$	865,705	$	—	$	100	$	—
Investment properties	Investment properties	1,504		2,071		—		3,575		1,667,321		1,670,896		3,565		5,953			—		Investment properties	—		—		—		—		1,520,261		1,520,261		—		—		—
Small balance CRE	Small balance CRE	1,397		1,140		2		2,539		1,159,625		1,162,164		3,956		4,364			—		Small balance CRE	2,095		—		2		2,097		1,177,652		1,179,749		2,138		2,715		—
Multifamily real estate	Multifamily real estate	—		—		—		—		598,588		598,588		—		—			—		Multifamily real estate	—		—		—		—		696,864		696,864		—		—		—
Construction, land and land development:	Construction, land and land development:																				Construction, land and land development:
Commercial construction	Commercial construction	—		—		—		—		179,796		179,796		—		—			—		Commercial construction	—		—		—		—		191,051		191,051		—		—		—
Multifamily construction	Multifamily construction	—		—		—		—		274,015		274,015		—		—			—		Multifamily construction	—		—		—		—		362,425		362,425		—		—		—
One- to four-family construction	One- to four-family construction	—		—		—		—		582,800		582,800		—		—			—		One- to four-family construction	1,756		—		—		1,756		582,899		584,655		—		—		—
Land and land development	Land and land development	106		—		—		106		317,454		317,560		—		119			—		Land and land development	682		—		96		778		328,660		329,438		—		172		—
Commercial business
Commercial business:																					Commercial business:
Commercial business	Commercial business	664		116		509		1,289		1,138,412		1,139,701		38		604			351		Commercial business	885		132		6,492		7,509		1,258,538		1,266,047		6,751		7,315		—
Small business scored	Small business scored	2,078		455		864		3,397		813,668		817,065		—		1,241			—		Small business scored	1,943		315		1,609		3,867		956,783		960,650		239		2,050		—
Agricultural business, including secured by farmland	Agricultural business, including secured by farmland	65		—		1,021		1,086		244,202		245,288		1,021		1,021			—		Agricultural business, including secured by farmland	2,173		1,648		842		4,663		268,044		272,707		4,074		4,074		—
One- to four-family residential	One- to four-family residential	1,916		1,151		1,645		4,712		713,691		718,403		—		2,199			210		One- to four-family residential	4,889		1,736		5,294		11,919		1,240,185		1,252,104		2,621		6,789		445
Consumer:	Consumer:																				Consumer:
Consumer—home equity revolving lines of credit	Consumer—home equity revolving lines of credit	668		77		1,120		1,865		468,620		470,485		—		2,056			114		Consumer—home equity revolving lines of credit	1,500		673		2,104		4,277		560,057		564,334		—		2,243		852
Consumer—other	Consumer—other	249		122		70		441		96,626		97,067		—		67			7		Consumer—other	286		81		18		385		114,309		114,694		—		4		13
Total	Total	$	8,647	$	5,353	$	5,231	$	19,231	$	9,127,398	$	9,146,629	$	8,580	$	17,925		$	682	Total	$	16,209	$	4,585	$	16,457	$	37,251	$	10,123,433	$	10,160,684	$	15,823	$	25,462	$	1,310

3229


		December 31, 2021																December 31, 2022
		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Non-accrual with no Allowance		Total Non-accrual (1)			Loans 90 Days or More Past Due and Accruing			30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Non-accrual with no Allowance		Total Non-accrual (1)		Loans 90 Days or More Past Due and Accruing
Commercial real estate:	Commercial real estate:																				Commercial real estate:
Owner-occupied	Owner-occupied	$	233	$	—	$	448	$	681	$	830,942	$	831,623	$	924	$	1,456		$	—	Owner-occupied	$	—	$	—	$	—	$	—	$	845,320	$	845,320	$	—	$	143	$	—
Investment properties	Investment properties	81		—		—		81		1,673,946		1,674,027		3,706		6,282			—		Investment properties	—		—		—		—		1,589,975		1,589,975		—		—		—
Small balance CRE	Small balance CRE	89		—		1,298		1,387		1,280,476		1,281,863		5,886		6,421			—		Small balance CRE	1,859		—		2		1,861		1,198,390		1,200,251		2,927		3,540		—
Multifamily real estate	Multifamily real estate	—		—		—		—		530,885		530,885		—		—			—		Multifamily real estate	—		—		—		—		645,071		645,071		—		—		—
Construction, land and land development:	Construction, land and land development:																				Construction, land and land development:
Commercial construction	Commercial construction	—		—		98		98		167,900		167,998		—		98			—		Commercial construction	—		—		—		—		184,876		184,876		—		—		—
Multifamily construction	Multifamily construction	—		—		—		—		259,116		259,116		—		—			—		Multifamily construction	—		—		—		—		325,816		325,816		—		—		—
One- to four-family construction	One- to four-family construction	162		—		—		162		568,591		568,753		—		—			—		One- to four-family construction	900		—		—		900		646,429		647,329		—		—		—
Land and land development	Land and land development	51		—		14		65		313,389		313,454		—		381			—		Land and land development	921		—		97		1,018		327,457		328,475		—		181		—
Commercial business
Commercial business:																					Commercial business:
Commercial business	Commercial business	5,157		1,007		588		6,752		1,164,028		1,170,780		228		1,144			2		Commercial business	2,100		4,145		649		6,894		1,276,513		1,283,407		6,998		7,356		—
Small business scored	Small business scored	924		465		508		1,897		790,413		792,310		—		1,012			—		Small business scored	1,479		661		1,019		3,159		943,933		947,092		303		2,530		—
Agricultural business, including secured by farmland	Agricultural business, including secured by farmland	139		—		1,021		1,160		279,418		280,578		1,021		1,022			—		Agricultural business, including secured by farmland	1,185		—		594		1,779		293,298		295,077		594		594		—
One-to four-family residential	One-to four-family residential	2,318		327		1,225		3,870		653,604		657,474		—		2,711			436		One-to four-family residential	5,287		2,242		5,175		12,704		1,160,408		1,173,112		1,569		5,236		1,023
Consumer:	Consumer:																				Consumer:
Consumer—home equity revolving lines of credit	Consumer—home equity revolving lines of credit	985		268		803		2,056		456,477		458,533		—		1,736			114		Consumer—home equity revolving lines of credit	1,824		203		1,582		3,609		562,682		566,291		—		2,124		254
Consumer—other	Consumer—other	388		75		16		479		96,890		97,369		—		18			3		Consumer—other	259		178		10		447		114,185		114,632		—		2		10
Total	Total	$	10,527	$	2,142	$	6,019	$	18,688	$	9,066,075	$	9,084,763	$	11,765	$	22,281		$	555	Total	$	15,814	$	7,429	$	9,128	$	32,371	$	10,114,353	$	10,146,724	$	12,391	$	21,706	$	1,287

(1) The Company did not recognize any interest income on non-accrual loans during the three months ended March 31, ~~2022~~2023 or the year ended December 31, ~~2021.~~2022.

3330

The following tables provide the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in thousands):


		For the Three Months Ended March 31, 2022														For the Three Months Ended March 31, 2023
		Commercial Real Estate		Multifamily Real Estate		Construction and Land		Commercial Business		Agricultural Business		One- to Four-Family Residential		Consumer			Total			Commercial Real Estate		Multifamily Real Estate		Construction and Land		Commercial Business		Agricultural Business		One- to Four-Family Residential		Consumer		Total
Allowance for credit losses:	Allowance for credit losses:																		Allowance for credit losses:
Beginning balance	Beginning balance	$	52,995	$	7,043	$	27,294	$	26,421	$	3,190	$	8,205	$	6,951		$	132,099	Beginning balance	$	44,086	$	7,734	$	29,171	$	33,299	$	3,475	$	14,729	$	8,971	$	141,465
(Recapture)/provision for credit losses	(Recapture)/provision for credit losses	(5,816)		140		(994)		167		(722)		(136)		(15)			(7,376)		(Recapture)/provision for credit losses	(1,295)		741		(738)		1,475		(490)		920		161		774
Recoveries	Recoveries	87		—		384		149		118		40		216			994		Recoveries	184		—		—		119		109		117		169		698
Charge-offs	Charge-offs	(2)		—		(5)		(82)		—		—		(157)			(246)		Charge-offs	—		—		—		(1,158)		—		(30)		(292)		(1,480)
Ending balance	Ending balance	$	47,264	$	7,183	$	26,679	$	26,655	$	2,586	$	8,109	$	6,995		$	125,471	Ending balance	$	42,975	$	8,475	$	28,433	$	33,735	$	3,094	$	15,736	$	9,009	$	141,457

The changes in the allowance for credit losses - loans during the three months ended March 31, 2022 were primarily the result of the $7.4 million recapture of provision for credit losses - loans recorded during the current quarter. The recapture of provision for credit losses - loans for the current quarter primarily reflects improvement in the forecasted economic indicators used to calculate the allowance for credit losses - loans and a decrease in adversely classified loans. The change in allowance for credit losses - loans during the three months ended March 31, 2022 was also impacted by net recoveries of $748,000 recognized during the period.


		For the Three Months Ended March 31, 2021														For the Three Months Ended March 31, 2022
		Commercial Real Estate		Multifamily Real Estate		Construction and Land		Commercial Business		Agricultural Business		One- to Four-Family Residential		Consumer			Total			Commercial Real Estate		Multifamily Real Estate		Construction and Land		Commercial Business		Agricultural Business		One- to Four-Family Residential		Consumer		Total
Allowance for credit losses:	Allowance for credit losses:																		Allowance for credit losses:
Beginning balance	Beginning balance	$	57,791	$	3,893	$	41,295	$	35,007	$	4,914	$	9,913	$	14,466		$	167,279	Beginning balance	$	52,995	$	7,043	$	27,294	$	26,421	$	3,190	$	8,205	$	6,951	$	132,099

Provision/(recapture) for credit losses		5,359		474		(4,955)		(3,786)		(297)		(2,038)		(2,792)			(8,035)
(Recapture)/provision for credit losses																			(Recapture)/provision for credit losses	(5,816)		140		(994)		167		(722)		(136)		(15)		(7,376)

Recoveries	Recoveries	24		—		100		979		—		113		296			1,512		Recoveries	87		—		384		149		118		40		216		994
Charge-offs	Charge-offs	(3,763)		—		—		(789)		—		—		(150)			(4,702)		Charge-offs	(2)		—		(5)		(82)		—		—		(157)		(246)
Ending balance	Ending balance	$	59,411	$	4,367	$	36,440	$	31,411	$	4,617	$	7,988	$	11,820		$	156,054	Ending balance	$	47,264	$	7,183	$	26,679	$	26,655	$	2,586	$	8,109	$	6,995	$	125,471

3431

~~Note 5: REAL ESTATE OWNED, NET~~

~~The following table presents the changes in REO for the three months ended March 31, 2022 and 2021 (in thousands):~~

Three Months Ended
March 31,
2022 2021
Balance, beginning of the period $ 852 $ 816
Proceeds from dispositions of REO (607) (783)
Gain on sale of REO 184 307
Balance, end of the period $ 429 $ 340

REO properties are recorded at the estimated fair value of the property, less expected selling costs, establishing a new cost basis. Subsequently, REO properties are carried at the lower of the new cost basis or updated fair market values, based on updated appraisals of the underlying properties, as received. Valuation allowances on the carrying value of REO may be recognized based on updated appraisals or on management’s authorization to reduce the selling price of a property. The Company had no foreclosed one- to four-family residential real estate properties held as REO at both March 31, 2022 and December 31, 2021. The Company had $609,000 of one- to four-family residential loans in the process of foreclosure at both March 31, 2022 and December 31, 2021.

Note 6:5: GOODWILL, OTHER INTANGIBLE ASSETS AND MORTGAGE SERVICING RIGHTS

Goodwill and Other Intangible Assets: At March 31, ~~2022,~~2023, intangible assets are comprised of goodwill and CDI acquired in business combinations. Goodwill represents the excess of the purchase consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination, and is not amortized but is reviewed at least annually for impairment. ~~Banner~~The Company has identified one reporting unit for ~~purposes~~the purpose of evaluating goodwill for impairment. The Company completed an assessment of qualitative factors as of December 31, ~~2021~~2022 and concluded that no further analysis was required as it is more likely than not that the fair value of Banner

Bank, the reporting unit, exceeds the carrying value.

CDI represents the value of transaction-related deposits and the value of the client relationships associated with the deposits. The Company amortizes CDI assets over their estimated useful lives and reviews them at least annually for events or circumstances that could impair their value.

The following table summarizes the changes in the Company’s goodwill and other intangibles for the three months ended March 31, ~~2022~~2023 and the year ended December 31, ~~2021~~2022 (in thousands):


		Goodwill		CDI		Total
Balance, December 31, 2020		$	373,121	$	21,426	$	394,547

Amortization		—		(6,571)		(6,571)

									Goodwill		CDI		Total
Balance, December 31, 2021	Balance, December 31, 2021	373,121		14,855		387,976		Balance, December 31, 2021	$	373,121	$	14,855	$	387,976

Amortization	Amortization	—		(1,424)		(1,424)		Amortization	—		(5,279)		(5,279)

Other changes(1)								Other changes(1)	—		(136)		(136)
Balance, December 31, 2022								Balance, December 31, 2022	373,121		9,440		382,561

Balance, March 31, 2022		$	373,121	$	13,431	$	386,552
Amortization								Amortization	—		(1,050)		(1,050)

Balance, March 31, 2023								Balance, March 31, 2023	$	373,121	$	8,390	$	381,511

(1) Acquired CDI was adjusted for the sale of branches in 2022.

The following table presents the estimated amortization expense with respect to CDI as of March 31, ~~2022~~2023 for the periods indicated (in thousands):


		Estimated Amortization			Estimated Amortization
Remainder of 2022		$	3,892
2023		3,814
Remainder of 2023				Remainder of 2023	$	2,706
2024	2024	2,659		2024	2,626
2025	2025	1,575		2025	1,567
2026	2026	904		2026	904
2027				2027	426
Thereafter	Thereafter	587		Thereafter	161
		$	13,431		$	8,390

Mortgage Servicing Rights: Mortgage and SBA servicing rights are reported in other assets. SBA servicing rights are initially recorded and carried at fair value. Mortgage servicing rights are initially recognized at fair value and are amortized in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Mortgage servicing rights are subsequently evaluated for

impairment based upon the fair value of the rights compared to the amortized cost (remaining unamortized initial fair value). If the fair value is less than the amortized cost, a valuation allowance is created through an impairment charge to servicing fee income. However, if the fair value is greater than the amortized cost, the amount above the amortized cost is not recognized in the carrying value. During the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, the Company did not record any impairment charges or recoveries against mortgage servicing rights. The unpaid principal balance of loans for which mortgage and SBA servicing rights have been recognized totaled ~~$2.84~~$2.74 billion and $2.77 billion at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Custodial accounts maintained in connection with this servicing totaled ~~$3.5~~$22.6 million and ~~$3.2~~$11.2 million at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

An analysis of the mortgage and SBA servicing rights for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 is presented below (in thousands):


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
Balance, beginning of the period	Balance, beginning of the period	$	17,206	$	15,223		Balance, beginning of the period	$	16,166	$	17,206
Additions—amounts capitalized	Additions—amounts capitalized	1,953		2,010			Additions—amounts capitalized	136		1,953
Additions—through purchase	Additions—through purchase	62		27			Additions—through purchase	39		62
Amortization (1)	Amortization (1)	(1,231)		(1,853)			Amortization (1)	(847)		(1,231)
Fair value adjustments(3)	Fair value adjustments(3)	18		—			Fair value adjustments(3)	119		18

Balance, end of the period (2)	Balance, end of the period (2)	$	18,008	$	15,407		Balance, end of the period (2)	$	15,613	$	18,008

(1) Amortization of mortgage servicing rights is recorded as a reduction of loan servicing income within mortgage banking operations and any unamortized balance is fully amortized if the loan repays in full.

(2) There was no valuation allowance on mortgage servicing rights as of both March 31, ~~2022~~2023 and ~~2021.~~2022.

(3) Fair value adjustments relate to SBA servicing rights. These adjustments are estimated based on an independent dealer analysis by discounting estimated net future cash flows from servicing SBA loans.

Note 7:6: DEPOSITS

Deposits consisted of the following at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


		March 31, 2022		December 31, 2021		March 31, 2023				December 31, 2022
Non-interest-bearing accounts	Non-interest-bearing accounts	$	6,494,852	$	6,385,177		Non-interest-bearing accounts	$	5,764,009		$	6,176,998
Interest-bearing checking	Interest-bearing checking	1,971,936		1,947,414			Interest-bearing checking	1,794,477			1,811,153
Regular savings accounts	Regular savings accounts	2,853,891		2,784,716			Regular savings accounts	2,502,084			2,710,090
Money market accounts	Money market accounts	2,402,731		2,370,995			Money market accounts	2,143,700			2,198,288
Total interest-bearing transaction and saving accounts	Total interest-bearing transaction and saving accounts	7,228,558		7,103,125			Total interest-bearing transaction and saving accounts	6,440,261			6,719,531
Certificates of deposit:	Certificates of deposit:						Certificates of deposit:
Certificates of deposit less than or equal to $250,000		623,336		657,615
Certificates of deposit greater than $250,000		177,028		181,016
Certificates of deposit greater than or equal to $250,000							Certificates of deposit greater than or equal to $250,000	314,506			178,324
Certificates of deposit less than $250,000							Certificates of deposit less than $250,000	635,426			545,206
Total certificates of deposit	Total certificates of deposit	800,364		838,631			Total certificates of deposit	949,932			723,530
Total deposits	Total deposits	$	14,523,774	$	14,326,933		Total deposits	$	13,154,202		$	13,620,059
Included in total deposits:	Included in total deposits:						Included in total deposits:
Public fund transaction and savings accounts	Public fund transaction and savings accounts	$	355,599	$	353,874		Public fund transaction and savings accounts	$	361,837		$	392,859
Public fund interest-bearing certificates	Public fund interest-bearing certificates	37,689		39,961			Public fund interest-bearing certificates	26,857			26,810
Total public deposits	Total public deposits	$	393,288	$	393,835		Total public deposits	$	388,694		$	419,669

~~At March 31, 2022 and December 31, 2021, the Company had certificates of deposit of $181.3 million and $184.5 million, respectively, that were equal to or greater than $250,000.~~

Scheduled maturities and weighted average interest rates of certificates of deposit at March 31, ~~2022~~2023 are as follows (dollars in thousands):


		March 31, 2022					March 31, 2023
		Amount		Weighted Average Rate			Amount		Weighted Average Rate
Maturing in one year or less	Maturing in one year or less	$	626,853	0.41	%	Maturing in one year or less	$	767,151	1.99	%
Maturing after one year through two years	Maturing after one year through two years	109,634		0.56		Maturing after one year through two years	143,143		2.21
Maturing after two years through three years	Maturing after two years through three years	44,831		0.73		Maturing after two years through three years	26,638		0.56
Maturing after three years through four years	Maturing after three years through four years	8,325		0.68		Maturing after three years through four years	7,165		0.37
Maturing after four years through five years	Maturing after four years through five years	9,328		0.37		Maturing after four years through five years	4,768		0.45
Maturing after five years	Maturing after five years	1,393		0.85		Maturing after five years	1,067		0.82
Total certificates of deposit	Total certificates of deposit	$	800,364	0.45	%	Total certificates of deposit	$	949,932	1.97	%

Note 8:7: FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents estimated fair values of the Company’s financial instruments as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, whether or not recognized or recorded in the Consolidated Statements of Financial Condition (dollars in thousands):


			March 31, 2022				December 31, 2021						March 31, 2023				December 31, 2022
		Level	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value			Level	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Assets:	Assets:										Assets:
Cash and cash equivalents	Cash and cash equivalents	1	$	1,988,388	$	1,988,388	$	2,134,300	$	2,134,300	Cash and cash equivalents	1	$	242,992	$	242,992	$	243,062	$	243,062
Securities—trading	Securities—trading	3	27,354		27,354		26,981		26,981		Securities—trading	3	28,591		28,591		28,694		28,694
Securities—available-for-sale	Securities—available-for-sale	2	3,147,547		3,147,547		3,638,993		3,638,993		Securities—available-for-sale	2	2,653,860		2,653,860		2,789,031		2,789,031
Securities—held-to-maturity	Securities—held-to-maturity	2	1,006,234		958,809		464,008		484,483		Securities—held-to-maturity	2	1,102,122		949,214		1,109,319		933,513
Securities—held-to-maturity	Securities—held-to-maturity	3	9,708		9,731		57,347		57,370		Securities—held-to-maturity	3	7,837		7,848		8,648		8,667
Securities purchased under agreements to resell	Securities purchased under agreements to resell	2	300,000		300,000		300,000		300,000		Securities purchased under agreements to resell	2	150,000		150,000		300,000		300,000
Loans held for sale	Loans held for sale	2	64,218		64,609		96,487		96,914		Loans held for sale	2	49,016		49,053		56,857		56,948
Loans receivable		3	9,146,629		9,003,682		9,084,763		9,100,516
Loans receivable, net											Loans receivable, net	3	10,019,227		9,724,399		10,005,259		9,810,965
Equity securities	Equity securities	1	893		893		1,000		1,298		Equity securities	1	624		624		553		553
FHLB stock	FHLB stock	3	10,000		10,000		12,000		12,000		FHLB stock	3	16,800		16,800		12,000		12,000
Bank-owned life insurance	Bank-owned life insurance	1	294,556		294,556		244,156		244,156		Bank-owned life insurance	1	299,754		299,754		297,565		297,565
Mortgage servicing rights	Mortgage servicing rights	3	16,846		32,415		16,045		24,393		Mortgage servicing rights	3	14,659		33,555		15,331		35,148
SBA servicing rights	SBA servicing rights	3	1,162		1,162		1,161		1,161		SBA servicing rights	3	954		954		835		835
Investments in limited partnerships	Investments in limited partnerships	3	10,982		10,982		10,257		10,257		Investments in limited partnerships	3	12,394		12,394		12,427		12,427
Derivatives:	Derivatives:										Derivatives:
Interest rate swaps	Interest rate swaps	2	14,685		14,685		20,826		20,826		Interest rate swaps	2	15,342		15,342		19,339		19,339
Interest rate lock and forward sales commitments	Interest rate lock and forward sales commitments	2,3	3,062		3,062		1,555		1,555		Interest rate lock and forward sales commitments	2,3	534		534		142		142
Liabilities:	Liabilities:										Liabilities:
Demand, interest checking and money market accounts	Demand, interest checking and money market accounts	2	10,869,519		10,869,519		10,703,586		10,703,586		Demand, interest checking and money market accounts	2	9,702,186		9,702,186		10,186,439		10,186,439
Regular savings	Regular savings	2	2,853,891		2,853,891		2,784,716		2,784,716		Regular savings	2	2,502,084		2,502,084		2,710,090		2,710,090
Certificates of deposit	Certificates of deposit	2	800,364		790,986		838,631		836,877		Certificates of deposit	2	949,932		929,724		723,530		702,581
FHLB advances	FHLB advances	2	—		—		50,000		50,287		FHLB advances	2	170,000		170,000		50,000		50,000
Other borrowings	Other borrowings	2	266,778		266,778		264,490		264,490		Other borrowings	2	214,564		214,564		232,799		232,799
Subordinated notes, net	Subordinated notes, net	2	98,658		100,614		98,564		105,241		Subordinated notes, net	2	99,046		95,470		98,947		96,718
Junior subordinated debentures	Junior subordinated debentures	3	70,510		70,510		119,815		119,815		Junior subordinated debentures	3	74,703		74,703		74,857		74,857
Derivatives:	Derivatives:										Derivatives:
Interest rate swaps	Interest rate swaps	2	18,574		18,574		11,336		11,336		Interest rate swaps	2	28,858		28,858		37,150		37,150
Interest rate swaps used in cash flow hedges		2	502		502		279		279

Interest rate lock and forward sales commitments	Interest rate lock and forward sales commitments	2,3	142		142		140		140		Interest rate lock and forward sales commitments	2,3	136		136		118		118
Risk participation agreement	Risk participation agreement	2	218		218		—		—		Risk participation agreement	2	85		85		67		67

The Company measures and discloses certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (that is, not a forced liquidation or distressed sale). ~~GAAP establishes a consistent framework for~~When measuring fair value, ~~and disclosure requirements about fair value measurements. Among other things, accounting standards require us to~~management will maximize the use of observable inputs and minimize the use of unobservable inputs ~~when measuring fair value.~~whenever possible. Observable inputs reflect market data obtained from independent sources, while

unobservable inputs reflect the Company’s estimates for market assumptions. ~~These two types of inputs create the following fair value hierarchy:~~

•~~Level 1~~ – Quoted prices in active markets for identical instruments. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

•~~Level 2~~ – Observable inputs other than Level 1 including quoted prices in active markets for similar instruments, quoted prices in less active markets for identical or similar instruments, or other observable inputs that can be corroborated by observable market data.

•~~Level 3~~ – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs from non-binding single dealer quotes not corroborated by observable market data. In developing Level 3 measurements, management incorporates whatever market data might be available and uses discounted cash flow models where appropriate. These calculations include projections of future cash flows, including appropriate default and loss assumptions, and market-based discount rates

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize at a future date. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values. ~~Transfers between levels of the fair value hierarchy are deemed to occur at the end of the reporting period.~~

3834

Items Measured at Fair Value on a Recurring Basis:

The following tables present financial assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy of the fair value measurements for those assets and liabilities as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


		March 31, 2022									March 31, 2023
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Securities—trading	Securities—trading									Securities—trading

Corporate bonds (Trust Preferred Securities)	Corporate bonds (Trust Preferred Securities)	$	—	$	—	$	27,354	$	27,354	Corporate bonds (Trust Preferred Securities)	$	—	$	—	$	28,591	$	28,591

Securities—available-for-sale	Securities—available-for-sale									Securities—available-for-sale
U.S. Government and agency obligations	U.S. Government and agency obligations	—		194,194		—		194,194		U.S. Government and agency obligations	—		52,588		—		52,588
Municipal bonds	Municipal bonds	—		272,264		—		272,264		Municipal bonds	—		173,721		—		173,721
Corporate bonds	Corporate bonds	—		117,583		—		117,583		Corporate bonds	—		117,404		—		117,404
Mortgage-backed or related securities	Mortgage-backed or related securities	—		2,357,833		—		2,357,833		Mortgage-backed or related securities	—		2,092,209		—		2,092,209
Asset-backed securities	Asset-backed securities	—		205,673		—		205,673		Asset-backed securities	—		217,938		—		217,938
		—		3,147,547		—		3,147,547			—		2,653,860		—		2,653,860

Loans held for sale(1)	Loans held for sale(1)	—		16,890		—		16,890		Loans held for sale(1)	—		5,485		—		5,485
Equity securities	Equity securities	893		—		—		893		Equity securities	624		—		—		624
SBA servicing rights	SBA servicing rights	—		—		1,162		1,162		SBA servicing rights	—		—		954		954
Investment in limited partnerships	Investment in limited partnerships	—		—		10,982		10,982		Investment in limited partnerships	—		—		12,394		12,394

Derivatives	Derivatives									Derivatives
Interest rate swaps	Interest rate swaps	—		14,685		—		14,685		Interest rate swaps	—		15,342		—		15,342
Interest rate lock and forward sales commitments	Interest rate lock and forward sales commitments	—		3,062		—		3,062		Interest rate lock and forward sales commitments	—		49		485		534
		$	893	$	3,182,184	$	39,498	$	3,222,575		$	624	$	2,674,736	$	42,424	$	2,717,784

Liabilities:	Liabilities:									Liabilities:

Junior subordinated debentures	Junior subordinated debentures	$	—	$	—	$	70,510	$	70,510	Junior subordinated debentures	$	—	$	—	$	74,703	$	74,703
Derivatives	Derivatives									Derivatives
Interest rate swaps	Interest rate swaps	—		18,574		—		18,574		Interest rate swaps	—		28,858		—		28,858
Interest rate swaps used in cash flow hedges		—		502		—		502

Interest rate lock and forward sales commitments	Interest rate lock and forward sales commitments	—		76		66		142		Interest rate lock and forward sales commitments	—		131		5		136
Risk participation agreement	Risk participation agreement	—		218		—		218		Risk participation agreement	—		85		—		85
		$	—	$	19,370	$	70,576	$	89,946		$	—	$	29,074	$	74,708	$	103,782

3935


		December 31, 2021									December 31, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Securities—trading	Securities—trading									Securities—trading

Corporate bonds (Trust Preferred Securities)	Corporate bonds (Trust Preferred Securities)	$	—	$	—	$	26,981	$	26,981	Corporate bonds (Trust Preferred Securities)	$	—	$	—	$	28,694	$	28,694

Securities—available-for-sale	Securities—available-for-sale									Securities—available-for-sale
U.S. Government and agency obligations	U.S. Government and agency obligations	—		201,332		—		201,332		U.S. Government and agency obligations	—		55,108		—		55,108
Municipal bonds	Municipal bonds	—		308,612		—		308,612		Municipal bonds	—		261,209		—		261,209
Corporate bonds	Corporate bonds	—		117,347		—		117,347		Corporate bonds	—		121,853		—		121,853
Mortgage-backed or related securities	Mortgage-backed or related securities	—		2,805,268		—		2,805,268		Mortgage-backed or related securities	—		2,139,336		—		2,139,336
Asset-backed securities	Asset-backed securities	—		206,434		—		206,434		Asset-backed securities	—		211,525		—		211,525

		—		3,638,993		—		3,638,993			—		2,789,031		—		2,789,031

Loans held for sale(1)	Loans held for sale(1)	—		39,775		—		39,775		Loans held for sale(1)	—		2,305		—		2,305

Equity securities										Equity securities	553		—		—		553
SBA servicing rights	SBA servicing rights	—		—		1,161		1,161		SBA servicing rights	—		—		835		835
Investment in limited partnerships	Investment in limited partnerships	—		—		10,257		10,257		Investment in limited partnerships	—		—		12,427		12,427

Derivatives	Derivatives									Derivatives
Interest rate swaps	Interest rate swaps	—		20,826		—		20,826		Interest rate swaps	—		19,339		—		19,339
Interest rate lock and forward sales commitments	Interest rate lock and forward sales commitments	—		88		1,467		1,555		Interest rate lock and forward sales commitments	—		61		81		142
		$	—	$	3,699,682	$	39,866	$	3,739,548		$	553	$	2,810,736	$	42,037	$	2,853,326

Liabilities:	Liabilities:									Liabilities:

Junior subordinated debentures	Junior subordinated debentures	$	—	$	—	$	119,815	$	119,815	Junior subordinated debentures	$	—	$	—	$	74,857	$	74,857
Derivatives	Derivatives									Derivatives
Interest rate swaps	Interest rate swaps	—		11,336		—		11,336		Interest rate swaps	—		37,150		—		37,150
Interest rate swaps used in cash flow hedges		—		279		—		279

Interest rate lock and forward sales commitments	Interest rate lock and forward sales commitments	—		140		—		140		Interest rate lock and forward sales commitments	—		76		42		118
Risk participation agreement										Risk participation agreement	—		67		—		67
		$	—	$	11,755	$	119,815	$	131,570		$	—	$	37,293	$	74,899	$	112,192

(1) The unpaid principal balance of residential mortgage loans held for sale carried at fair value on a recurring basis was ~~$17.2~~$5.3 million and ~~$38.6~~$2.2 million at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

The following methods were used to estimate the fair value of each class of financial instruments above:

Securities: The estimated fair values of investment securities and mortgaged-backed securities are priced using current active market quotes, if available, which are considered Level 1 measurements. For most of the portfolio, matrix pricing based on the securities’ relationship to other benchmark quoted prices is used to establish the fair value. These measurements are considered Level 2. Due to the continued limited activity in the trust preferred markets that have limited the observability of market spreads for some of the Company’s ~~TPS~~trust preferred securities (TPS), management has classified these securities as a Level 3 fair value measure. Management periodically reviews the pricing information received from third-party pricing services and tests those prices against other sources to validate the reported fair values.

Loans Held for Sale: Fair values for residential mortgage loans held for sale are determined by comparing actual loan rates to current secondary market prices for similar loans. Fair values for multifamily loans held for sale are calculated based on discounted cash flows using as a discount rate a combination of market spreads for similar loan types added to selected index rates.

Equity Securities: Equity securities ~~at March 31, 2022~~ are invested in a publicly traded stock. The fair value of these securities ~~are~~is based on daily quoted market prices.

~~Mortgage Servicing Rights:~~ Fair values are estimated based on an independent dealer analysis of discounted cash flows. The evaluation utilizes assumptions market participants would use in determining fair value including prepayment speeds, delinquency and foreclosure rates, the discount rate, servicing costs, and the timing of cash flows. The mortgage servicing portfolio is stratified by loan type and fair value estimates are adjusted up or down based on the serviced loan interest rates versus current rates on new loan originations since the most recent independent analysis.

SBA Servicing Rights: Fair values are estimated based on an independent dealer analysis by discounting estimated net future cash flows from servicing. The evaluation utilizes assumptions market participants would use in determining fair value including prepayment speeds,

delinquency and foreclosure rates, the discount rate, servicing costs, and the timing of cash flows. The SBA servicing portfolio is stratified by loan type and fair value estimates are adjusted up or down based on the serviced loan interest rates versus current rates on new loan originations since the most recent independent analysis.

Junior Subordinated Debentures: The fair value of junior subordinated debentures is estimated using an income approach technique. The significant inputs included in the estimation of fair value are the credit risk adjusted spread and three month LIBOR. The credit risk adjusted spread represents the nonperformance risk of the liability. The Company utilizes an external valuation firm to validate the reasonableness of the credit risk adjusted spread used to determine the fair value. The junior subordinated debentures are carried at fair value which represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants. Due to inactivity in the trust preferred markets that have limited the observability of market spreads, management has classified this as a Level 3 fair value ~~measure.~~measurement.

Derivatives: Derivatives include interest rate swap agreements, interest rate lock commitments to originate loans held for sale, ~~and~~ forward sales contracts to sell loans and securities related to mortgage banking ~~activities.~~activities and risk participation agreements. Fair values for these instruments, which generally change as a result of changes in the level of market interest rates, are estimated based on dealer quotes and secondary market sources. As the interest rate lock commitments use a pull-through rate that is considered an unobservable input, these derivatives are classified as a level 3 fair value measurement.

Off-Balance Sheet Items: Off-balance sheet financial instruments include unfunded commitments to extend credit, including standby letters of credit, and commitments to purchase investment securities. The fair value of these instruments is not considered to be material.

Limitations: The fair value estimates presented herein are based on pertinent information available to management as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022. The factors used in the fair value estimates are subject to change subsequent to the dates the fair value estimates are completed, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3):

The following table provides a description of the valuation technique, unobservable inputs, and quantitative and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and non-recurring basis at March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:

Weighted Average Rate / Range

Weighted Average Rate

Financial Instruments

Valuation Technique

Unobservable Inputs

March 31, 2022

December 31, 2021

Financial Instruments

Valuation Technique

Unobservable Inputs

March 31, 2023

December 31, 2022

Corporate bonds (TPS securities)

Discounted cash flows

Discount rate

4.46

3.71

Corporate bonds (TPS)

Discounted cash flows

Discount rate

8.79

8.27

Junior subordinated debentures

Discounted cash flows

Discount rate

4.46

3.71

Junior subordinated debentures

Discounted cash flows

Discount rate

8.79

8.27

Loans individually evaluated

Collateral valuations

Discount to appraised value

9.0% to 9.5%

8.5% to 20.0%

Loans individually evaluated

Collateral valuations

Discount to appraised value

n/a

REO

Appraisals

Discount to appraised value

71.19

60.91

REO

Appraisals

Discount to appraised value

68.35

Interest rate lock commitments

Pricing model

Pull-through rate

89.26

86.64

Interest rate lock commitments

Pricing model

Pull-through rate

86.60

78.65

Investments in limited partnerships

Net Asset Value

Infrequent transactions

n/a

Investments in limited partnerships

Net Asset Value

Infrequent transactions

n/a

SBA servicing rights

Discounted cash flows

Constant prepayment rate

8.76%

12.25%

SBA servicing rights

Discounted cash flows

Constant prepayment rate

14.22

14.10

~~TPS Securities~~Trust preferred securities: Management believes that the credit risk-adjusted spread used to develop the discount rate utilized in the fair value measurement of TPS ~~securities~~ is indicative of the risk premium a willing market participant would require under current market conditions for instruments with similar contractual rates and terms and conditions and issuers with similar credit risk profiles and with similar expected probability of default. Management attributes the change in fair value of these instruments, compared to their par value, primarily to perceived general market adjustments to the risk premiums for these types of assets subsequent to their issuance.

Junior subordinated debentures: Similar to the TPS ~~securities~~ discussed above, management believes that the credit risk-adjusted spread utilized in the fair value measurement of the junior subordinated debentures is indicative of the risk premium a willing market participant would require under current market conditions for an issuer with Banner’s credit risk profile. Management attributes the change in fair value of the junior subordinated debentures, compared to their par value, primarily to perceived general market adjustments to the risk premiums for these types of liabilities subsequent to their issuance. Future contractions in the risk adjusted spread relative to the spread currently utilized to measure the Company’s junior subordinated debentures at fair value as of March 31, ~~2022,~~2023, or the passage of time, will result in negative fair value adjustments. At March 31, ~~2022,~~2023, the discount rate utilized was based on a credit spread of ~~350~~360 basis points and three-month LIBOR of 965.19 basis points.

Interest rate lock commitments: The fair value of the interest rate lock commitments is based on secondary market sources adjusted for an estimated pull-through rate. The pull-through rate is based on historical loan closing rates for similar interest rate lock commitments. An increase or decrease in the pull-through rate would have a corresponding, positive or negative fair value adjustment.

SBA servicing asset: The constant prepayment rate (CPR) is set based on industry data. An increase in the CPR would result in a negative fair value adjustment, where a decrease in CPR would result in a positive fair value adjustment.

The following tables provide a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in thousands):


		Three Months Ended										Three Months Ended
		March 31, 2022										March 31, 2023
		Level 3 Fair Value Inputs										Level 3 Fair Value Inputs
		TPS Securities		Borrowings—Junior Subordinated Debentures		Interest Rate Lock and Forward Sales Commitments		Investments in Limited Partnerships		SBA Servicing Asset				TPS		Borrowings—Junior Subordinated Debentures		Interest Rate Lock and Forward Sales Commitments		Investments in Limited Partnerships		SBA Servicing Asset
Beginning balance	Beginning balance	$	26,981	$	119,815	$	1,467	$	10,257	$	1,161		Beginning balance	$	28,694	$	74,857	$	39	$	12,427	$	835
Net change recognized in earnings	Net change recognized in earnings	373		1,213		(1,533)		(217)		1			Net change recognized in earnings	(103)		—		441		(520)		119
Net change recognized in accumulated other comprehensive income (AOCI)													Net change recognized in accumulated other comprehensive income (AOCI)	—		(154)		—		—		—
Purchases, issuances and settlements	Purchases, issuances and settlements	—		(50,518)		—		942		—			Purchases, issuances and settlements	—		—		—		487		—

Ending balance at March 31, 2023													Ending balance at March 31, 2023	$	28,591	$	74,703	$	480	$	12,394	$	954

														Three Months Ended
														March 31, 2022
														Level 3 Fair Value Inputs
														TPS		Borrowings—Junior Subordinated Debentures		Interest Rate Lock and Forward Sales Commitments		Investments in Limited Partnerships		SBA Servicing Asset
Beginning balance													Beginning balance	$	26,981	$	119,815	$	1,467	$	10,257	$	1,161
Net change recognized in earnings													Net change recognized in earnings	373		—		(1,533)		(217)		1
Net change recognized in AOCI													Net change recognized in AOCI	—		1,213		—		—		—
Purchases, issuances and settlements													Purchases, issuances and settlements	—		—		—		942		—
Redemptions													Redemptions	—		(50,518)		—		—

Ending balance at March 31, 2022	Ending balance at March 31, 2022	$	27,354	$	70,510	$	(66)	$	10,982	$	1,162		Ending balance at March 31, 2022	$	27,354	$	70,510	$	(66)	$	10,982	$	1,162

		Three Months Ended
		March 31, 2021
		Level 3 Fair Value Inputs
		TPS Securities		Borrowings—Junior Subordinated Debentures		Interest Rate Lock and Forward Sales Commitments		Investments in Limited Partnerships		SBA Servicing Asset
Beginning balance		$	24,980	$	116,974	$	5,221	$	2,819	$	—
Net change recognized in earnings		59		274		4,430		1,384		—

Ending balance at March 31, 2021		$	25,039	$	117,248	$	9,651	$	4,203	$	—

Interest income and dividends from ~~the~~ TPS ~~securities~~ are recorded as a component of interest income. Interest expense related to the junior subordinated debentures is measured based on contractual interest rates and reported in interest expense. The change in fair value of the junior subordinated debentures, which represents changes in instrument specific credit risk, is recorded in other comprehensive income. The change in fair value of ~~the investment~~TPS securities, investments in limited partnerships and the SBA servicing asset are recorded as a component of non-interest income. The change in fair value of the interest rate lock and forward sales commitments are included in mortgage banking operations in non-interest income.

Items Measured at Fair Value on a Non-recurring Basis:

The following tables present financial assets and liabilities measured at fair value on a non-recurring basis and the level within the fair value hierarchy of the fair value measurements for those assets as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


		March 31, 2022									March 31, 2023
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Loans individually evaluated	Loans individually evaluated	$	—	$	—	$	2,388	$	2,388	Loans individually evaluated	$	—	$	—	$	—	$	—
REO	REO	—		—		429		429		REO	—		—		340		340

Loans held for sale	Loans held for sale	—		44,869		—		44,869		Loans held for sale	—		42,954		—		42,954

		December 31, 2021									December 31, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Loans individually evaluated	Loans individually evaluated	$	—	$	—	$	2,989	$	2,989	Loans individually evaluated	$	—	$	—	$	1,883	$	1,883
REO	REO	—		—		852		852		REO	—		—		340		340
Loans held for sale										Loans held for sale	—		49,474		—		49,474

4238

The following table presents the gains and losses resulting from non-recurring fair value adjustments for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021~~2022 (in thousands):


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
Loans individually evaluated	Loans individually evaluated	$	—	$	302		Loans individually evaluated	$	—	$	—
REO	REO	—		—			REO	—		—
Loans held for sale	Loans held for sale	603		—			Loans held for sale	295		(603)
Total loss from non-recurring measurements		$	603	$	302
Total gain (loss) from non-recurring measurements							Total gain (loss) from non-recurring measurements	$	295	$	(603)

Loans individually evaluated: Expected credit losses for loans evaluated individually are measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate or when the Bank determines that foreclosure is probable, the expected credit loss is measured based on the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. As a practical expedient, the Bank measures the expected credit loss for a loan using the fair value of the collateral, if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Bank’s assessment as of the reporting date. In both cases, if the fair value of the collateral is less than the amortized cost basis of the loan, the Bank will recognize an allowance as the difference between the fair value of the collateral, less costs to sell (if applicable) ~~at the reporting date~~ and the amortized cost basis of the loan. If the fair value of the collateral exceeds the amortized cost basis of the loan, any expected recovery added to the amortized cost basis will be limited to the amount previously ~~charged-off by the subsequent~~charged-off. Subsequent changes in the expected credit losses for loans evaluated individually are included within the provision for credit losses in the same manner in which the expected credit loss initially was recognized or as a reduction in the provision that would otherwise be reported.

REO: The Company records REO (acquired through a lending relationship) at fair value on a non-recurring basis. Fair value adjustments on REO are based on updated real estate appraisals which are based on current market conditions. All REO properties are recorded at the lower of the estimated fair value of the real estate, less expected selling costs, or the carrying amount of the defaulted loans. From time to time, non-recurring fair value adjustments to REO are recorded to reflect partial write-downs based on an observable market price or current appraised value of property. Banner considers any valuation inputs related to REO to be Level 3 inputs. The individual carrying values of these assets are reviewed for impairment at least annually and any additional impairment charges are ~~expensed to operations.~~expensed.

Loans held for sale: The multifamily held for sale loans are carried at the lower of cost or ~~market.~~market value. Lower of cost or market adjustments for multifamily loans held for sale are calculated based on discounted cash flows using a discount rate that is a combination of market spreads for similar loan types added to selected index rates. If the fair value of the multifamily held for sale loans is lower than the amortized cost basis of the loans, a net unrealized loss is recognized through the valuation allowance ~~by charges to~~as a charge against income.

Note 9:8: INCOME TAXES AND DEFERRED TAXES

The Company files a consolidated income tax return including all of its wholly-owned subsidiaries on a calendar year basis. Income taxes are accounted for using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance is recognized as a reduction to deferred tax assets when management determines it is more likely than not that deferred tax assets will not be available to offset future income tax liabilities.

Accounting standards for income taxes prescribe a recognition threshold and measurement process for financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return, and also provide guidance on the de-recognition of previously recorded benefits and their classification, as well as the proper recording of interest and penalties, accounting in interim periods, disclosures and transition. The Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment.

As of March 31, ~~2022,~~2023, the Company has recognized ~~$1.0~~$1.6 million of unrecognized tax benefits for uncertain tax positions. The Company does not anticipate that there are additional uncertain tax positions or that any uncertain tax position which has not been recognized would materially affect the effective tax rate if recognized. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in ~~the~~ income tax expense. The Company files consolidated income tax returns in the U.S. federal jurisdiction and in the Oregon, California, Utah, Idaho and Montana state jurisdictions.

Tax credit investments: The Company invests in low income housing tax credit funds that are designed to generate a return primarily through the realization of federal tax credits. The Company accounts for these investments by amortizing the cost of tax credit investments over the life of the investment using a proportional amortization method and tax credit investment amortization expense is a component of the provision for income taxes.

4339

The following table presents the balances of the Company’s tax credit investments and related unfunded commitments at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Tax credit investments	Tax credit investments	$	57,281	$	56,589	Tax credit investments	$	79,708	$	71,430
Unfunded commitments—tax credit investments	Unfunded commitments—tax credit investments	30,838		31,174		Unfunded commitments—tax credit investments	52,346		44,563

The following table presents other information related to the Company’s tax credit investments for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in thousands):


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
Tax credits and other tax benefits recognized	Tax credits and other tax benefits recognized	$	1,554	$	1,068		Tax credits and other tax benefits recognized	$	2,066	$	1,554
Tax credit amortization expense included in provision for income taxes	Tax credit amortization expense included in provision for income taxes	1,308		915			Tax credit amortization expense included in provision for income taxes	1,722		1,308

Note ~~10:~~9: CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING FOR EARNINGS PER SHARE (EPS)

The following table reconciles basic to diluted weighted average shares outstanding used to calculate earnings per share data for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (in thousands, except shares and per share data):


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
Net income	Net income	$	43,963	$	46,855		Net income	$	55,555	$	43,963

Basic weighted average shares outstanding	Basic weighted average shares outstanding	34,300,742		34,973,383			Basic weighted average shares outstanding	34,239,533		34,300,742
Dilutive effect of unvested restricted stock	Dilutive effect of unvested restricted stock	297,694		330,100			Dilutive effect of unvested restricted stock	218,336		297,694
Diluted weighted shares outstanding	Diluted weighted shares outstanding	34,598,436		35,303,483			Diluted weighted shares outstanding	34,457,869		34,598,436
Earnings per common share	Earnings per common share						Earnings per common share
Basic	Basic	$	1.28	$	1.34		Basic	$	1.62	$	1.28
Diluted	Diluted	$	1.27	$	1.33		Diluted	$	1.61	$	1.27

Note ~~11:~~10: STOCK-BASED COMPENSATION PLANS

The Company operates the ~~following stock-based compensation plans as approved by its shareholders:~~

•2014 Omnibus Incentive Plan (the 2014 Plan).

• and the 2018 Omnibus Incentive Plan (the 2018 Plan).

, both of which were approved by its shareholders. The purpose of these plans is to promote the success and enhance the value of the Company by providing a means for attracting and retaining highly skilled employees, officers and directors of ~~Banner Corporation and its affiliates~~the Company and linking their personal interests with those of the Company’s shareholders. Under these plans, the Company currently has outstanding awards of restricted stock ~~share grants~~shares and restricted stock ~~unit grants.~~units.

~~2014 Omnibus Incentive Plan~~

The 2014 Plan was approved by shareholders on April 22, 2014. The 2014 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, other stock-based awards and other cash awards, and provides for vesting requirements which may include time-based or performance-based conditions. The Company reserved 900,000 shares of its common stock for issuance under the 2014 Plan in connection with the exercise of awards. As of March 31, ~~2022, 302,254~~2023, 272,495 restricted stock shares and ~~409,728~~431,069 restricted stock units have been granted under the 2014 Plan of which ~~2,239~~1,552 restricted stock shares and ~~22,175~~23,431 restricted stock units ~~are~~were unvested.

~~2018 Omnibus Incentive Plan~~

The 2018 Plan was approved by shareholders on April 24, 2018. The 2018 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, other stock-based awards and other cash awards, and provides for vesting requirements which may include time-based or performance-based conditions. The Company reserved 900,000 shares of common stock for issuance under the 2018 Plan in connection with the exercise of awards. As of March 31, ~~2022, 614,806~~2023, 566,900 restricted stock units have been granted under the 2018 Plan of which ~~413,917~~206,186 restricted stock units ~~are~~were unvested.

The expense associated with all restricted stock grants (including restricted stock shares and restricted stock units) was $2.1 million ~~and $2.2 million~~ for both the three ~~month periods~~months ended March 31, ~~2022~~2023 and March 31, ~~2021, respectively.~~2022. Unrecognized compensation expense for these awards as of March 31, ~~2022~~2023 was ~~$17.5~~$8.7 million and will be ~~amortized~~recognized over ~~the next 36~~a weighted average period of 25 months.

Note ~~12:~~11: COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance-Sheet Risk — The Company has financial instruments with off-balance-sheet risk generated in the normal course of business to meet the financing needs of our clients. These financial instruments include commitments to extend credit, commitments related to standby letters of credit, commitments to originate loans, commitments to sell loans and commitments to buy ~~and~~or sell securities. These instruments involve, to varying degrees, elements of credit and interest rate risk similar to the risk involved in on-balance-sheet ~~items recognized in our Consolidated Statements of Financial Condition.~~items.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument from commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as for on-balance-sheet instruments.

Outstanding commitments for which no asset or liability for the notional amount has been recorded consisted of the following at the dates indicated (in thousands):


		Contract or Notional Amount					Contract or Notional Amount
		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Commitments to extend credit	Commitments to extend credit	$	3,822,276	$	3,527,143	Commitments to extend credit	$	3,946,366	$	4,031,954
Standby letters of credit and financial guarantees	Standby letters of credit and financial guarantees	25,917		21,830		Standby letters of credit and financial guarantees	39,312		26,119
Commitments to originate loans	Commitments to originate loans	203,163		106,609		Commitments to originate loans	74,719		53,266

Risk participation agreements	Risk participation agreements	52,729		40,064		Risk participation agreements	48,173		48,566

Derivatives also included in Note 13:	Derivatives also included in Note 13:					Derivatives also included in Note 13:
Commitments to originate loans held for sale	Commitments to originate loans held for sale	66,055		106,590		Commitments to originate loans held for sale	26,810		10,525
Commitments to sell loans secured by one- to four-family residential properties	Commitments to sell loans secured by one- to four-family residential properties	13,878		27,006		Commitments to sell loans secured by one- to four-family residential properties	3,842		12,568
Commitments to sell securities related to mortgage banking activities	Commitments to sell securities related to mortgage banking activities	123,500		127,580		Commitments to sell securities related to mortgage banking activities	24,332		7,000

In addition to the commitments disclosed in the table above, the Company is committed to funding its’ unfunded tax credit ~~investments (see Note 9, Income Taxes).~~investments. The Company has also entered into agreements to invest in several limited partnerships. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the funded balances and remaining outstanding commitments of these investments were as follows (in thousands):

March 31, 2022 December 31, 2021
Funded Balance Unfunded Balance Funded Balance Unfunded Balance
Limited partnerships investments $ 7,684 $ 11,816 $ 7,642 $ 9,858


	March 31, 2023				December 31, 2022
	Funded Balance		Unfunded Balance		Funded Balance		Unfunded Balance
Limited partnerships investments	$	10,759	$	11,741	$	10,272	$	12,228

Commitments to extend credit are agreements to lend to a client, as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of the commitments may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. Each client’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the client. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties. The Company’s allowance for credit losses - unfunded loan commitments at March 31, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~$12.9~~$13.4 million and ~~$12.4~~$14.7 million, respectively.

Standby letters of credit are conditional commitments issued to guarantee a client’s performance or payment to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients. Under a risk participation agreement, ~~Banner~~the Bank guarantees the financial performance of a borrower on the participated portion of an interest rate swap on a loan.

Interest rates on residential one- to four-family mortgage loan applications are typically rate locked (committed) to clients during the application stage for periods ranging from 30 to 60 days, the most typical period being 45 days. Traditionally, these loan applications with rate lock commitments had the pricing for the sale of these loans locked with various qualified investors under a best-efforts delivery program at or near the time the interest rate is locked with the client. ~~Banner~~The Bank then attempts to deliver these loans before their rate locks expired. This arrangement generally required delivery of the loans prior to the expiration of the rate lock. Delays in funding the loans would require a lock extension. The cost of a lock extension at times was borne by the client and at times by ~~Banner~~the Bank. These lock extension costs have not had a material impact to the Company’s operations. For mandatory delivery commitments the Company enters into forward

commitments at specific prices and settlement dates to deliver either: (1) residential mortgage loans for purchase by secondary market investors (i.e., Freddie Mac or Fannie Mae), or (2) mortgage-backed securities to broker/dealers. The purpose of these forward commitments is to offset the movement in interest rates between the execution of its residential mortgage rate lock commitments with borrowers and the sale of those loans to the secondary market investor. There were nocounterparty default losses on forward contracts during the three months ended March 31, ~~2022~~2023 or March 31, ~~2021.~~2022. Market risk with respect to forward contracts arises principally from changes in the value of contractual positions due to changes in interest rates. The Company limits its exposure to market risk by monitoring differences between commitments to clients and forward contracts with market investors and securities broker/dealers. In the event the Company has forward delivery contract commitments in excess of available mortgage loans, the transaction is completed by either paying or receiving a fee to or from the investor or broker/dealer equal to the increase or decrease in the market value of the forward contract.

In the normal course of business, the Company and/or its subsidiaries have various legal proceedings and other contingent matters outstanding. These proceedings and the associated legal claims are often contested and the outcome of individual matters is not always predictable. These claims and counter-claims typically arise during the course of collection efforts on problem loans or with respect to action to enforce liens on properties in which the Bank holds a security interest. Based upon the information known to management at this time, the Company ~~and the Bank~~has accrued $14.9 million related to outstanding legal proceedings. There are ~~not a party to any~~no other legal proceedings that management believes would have a material adverse effect on the results of operations or consolidated financial position at March 31, ~~2022.~~2023.

In connection with certain asset sales, the Bank typically makes representations and warranties about the underlying assets conforming to specified guidelines. If the underlying assets do not conform to the specifications, the Bank may have an obligation to repurchase the assets or indemnify the purchaser against any loss. The Bank believes that the potential for material loss under these arrangements is remote. Accordingly, the fair value of such obligations is not material.

~~NOTE 13:~~Note 12: DERIVATIVES AND HEDGING

~~The Company, through its~~ Banner Bank ~~subsidiary,~~ is party to various derivative instruments that are used for asset and liability management and client financing needs. Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index, or other component. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the market value of the derivative contract. ~~The Company obtains dealer quotations to value its derivative contracts.~~

The Company’s predominant derivative and hedging activities involve interest rate swaps related to certain term loans and forward sales contracts associated with mortgage banking activities. Generally, these instruments help the Company manage exposure to market risk and meet client financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors such as market-driven interest rates and prices or other economic factors.

~~Derivatives Designated~~As of March 31, 2023 and December 31, 2022, the notional values or contractual amounts and fair values of the Company’s derivatives were as follows (in thousands):


	Asset Derivatives								Liability Derivatives
	March 31, 2023				December 31, 2022				March 31, 2023				December 31, 2022
	Notional/ Contract Amount		Fair Value		Notional/ Contract Amount		Fair Value		Notional/ Contract Amount		Fair Value		Notional/ Contract Amount		Fair Value

Hedged interest rate swaps	$	—	$	—	$	—	$	—	$	400,000	$	21,747	$	400,000	$	26,485

Interest rate swaps not designated in hedge relationships	429,876		28,821		440,731		37,119		429,876		28,858		440,731		37,150
Less: Master netting agreements			(13,479)				(17,780)				(13,479)				(17,780)
Less: Cash settlements			—				—				(8,268)				(8,705)
Net interest rate swaps			15,342				19,339				28,858				37,150

Risk participation agreements	1,225		—		1,283		—		46,948		85		47,283		67
Mortgage loan commitments	31,296		485		15,920		81		—		—		12,367		42
Forward sales contracts	1,460		49		16,568		61		30,623		136		3,000		76

Total	$	463,857	$	15,876	$	474,502	$	19,481	$	507,447	$	29,079	$	503,381	$	37,335

The Company’s asset derivatives are included in ~~Hedge Relationships~~other assets, while the liability derivatives are included in accrued expenses and other liabilities on the Consolidated Statements of Financial Condition.

~~Interest Rate Swaps with Dealer Counterparties:~~ The Company’s fixed-rate loans result in exposure to losses in value or net interest income as interest rates change. The risk management objective for hedging fixed-rate loans is to effectively convert the fixed-rate received to a floating rate. The Company has hedged exposure to changes in the fair value of certain fixed-rate loans through the use of interest rate swaps. For a qualifying fair value hedge, changes in the value of the derivatives are recognized in current period earnings along with the corresponding changes in the fair value of the designated hedged item attributable to the risk being hedged.

Under a prior program, clients received fixed interest rate commercial loans and Banner Bank subsequently hedged that fixed-rate loan by entering into an interest rate swap with a dealer counterparty. Banner Bank receives fixed-rate payments from the clients on the loans and makes similar fixed-rate payments to the dealer counterparty on the swaps in exchange for variable-rate payments based on the one-month LIBOR index. Some of these interest rate swaps are designated as fair value hedges. Through application of the “short cut method of accounting,” there is an assumption that the hedges are effective. Banner Bank discontinued originating interest rate swaps under this program in 2008.

Interest Rate Swaps used in Cash Flow Hedges:

The Company’s floating rate loans result in exposure to losses in value or net interest income as interest rates change. The risk management objectives in using interest rate derivatives are to reduce volatility in net interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. During the fourth quarter of 2021, the Company entered into interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans. These hedge contracts involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making floating-rate payments over the life of the agreements without exchange of the underlying notional amount.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivative is recorded in ~~accumulated other comprehensive income (AOCI)~~AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on the ~~Corporation’s~~Company’s variable-rate assets. During the next ~~twelve~~12 months, the Company estimates that an additional ~~$3.5~~$15.0 million will be reclassified as ~~an increase~~a decrease to interest income.

As of March 31, 2022 and December 31, 2021, the notional values or contractual amounts and fair values of the Company’s derivatives designated in hedge relationships were as follows (in thousands):

~~(1)~~ ~~Included in Loans Receivable on the Consolidated Statements of Financial Condition.~~

~~(2)~~ ~~Included in Other Liabilities on the Consolidated Statements of Financial Condition.~~

The following table presents the effect of cash flow hedge accounting on AOCI for the three months ended March 31, 2023 and 2022 (in thousands):


	For the Three Months Ended March 31, 2023
	Amount of Gain or (Loss) Recognized in AOCI on Derivative		Amount of Gain or (Loss) Recognized in AOCI Included Component		Amount of Gain or (Loss) Recognized in AOCI Excluded Component		Location of Gain or (Loss) Recognized from AOCI into Income	Amount of Gain or (Loss) Reclassified from AOCI into Income		Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component		Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component
Interest rate swaps	$	1,125	$	1,125	$	—	Interest Income	$	(3,613)	$	(3,613)	$	—


	For the Three Months Ended March 31, 2022
	Amount of Gain or (Loss) Recognized in AOCI on Derivative		Amount of Gain or (Loss) Recognized in AOCI Included Component		Amount of Gain or (Loss) Recognized in AOCI Excluded Component		Location of Gain or (Loss) Recognized from AOCI into Income	Amount of Gain or (Loss) Reclassified from AOCI into Income		Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component		Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component
Interest rate swaps	$	(14,025)	$	(14,025)	$	—	Interest Income	$	751	$	751	$	—

~~Derivatives Not Designated~~At March 31, 2023 and December 31, 2022, we recorded total net unrealized losses on cash flow hedges in ~~Hedge Relationships~~AOCI of $16.5 million and $20.1 million, respectively.

Interest Rate Swaps: ~~Banner~~The Bank uses an interest rate swap program for commercial loan clients, that provides the client with a variable-rate loan and enters into an interest rate swap in which the client receives a variable-rate payment in exchange for a fixed-rate payment. The Bank offsets its risk exposure by entering into an offsetting interest rate swap with a dealer counterparty for the same notional amount and length of term as the client interest rate swap providing the dealer counterparty with a fixed-rate payment in exchange for a variable-rate payment. These swaps do not qualify as designated hedges; therefore, each swap is accounted for as a freestanding derivative.

Risk Participation Agreements: In conjunction with the purchase or sale of participating interests in loans, the Company also participates in related swaps through risk participation agreements. The existing credit derivatives resulting from these participations are not designated as hedges as they are not used to manage interest rate risk in the Company’s assets or liabilities and are not speculative.

Mortgage ~~Banking:~~Loan Commitments: The Company sells originated one- to four-family mortgage loans into the secondary mortgage loan markets. During the period of loan origination and prior to the sale of the loans in the secondary market, the Company has exposure to movements in interest rates associated with written interest rate lock commitments with potential borrowers to originate one- to four-family loans that are intended to be sold and for closed one- to four-family mortgage loans held for sale for which fair value accounting has been elected, that are awaiting sale and delivery into the secondary market. The Company economically hedges the risk of changing interest rates associated with these mortgage loan commitments by entering into forward sales contracts to sell one- to four-family mortgage loans or mortgage-backed securities to broker/dealers at specific prices and dates.

As of March 31, 2022 and December 31, 2021, the notional values or contractual amounts and fair values of the Company’s derivatives not designated in hedge relationships were as follows (in thousands):

Asset Derivatives Liability Derivatives
March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021
Notional/
Contract Amount
Fair
   Value (1)
Notional/
Contract Amount
Fair
   Value (1)
Notional/
Contract Amount
Fair
   Value (2)
Notional/
Contract Amount
Fair
   Value (2)
Interest rate swaps $ 472,640 $ 14,685 $ 551,606 $ 20,826 $ 472,640 $ 18,574 $ 551,606 $ 11,336
Risk participation agreements 1,458 — — — 52,729 218 — —
Mortgage loan commitments — — 87,986 1,467 71,233 142 26,329 66
Forward sales contracts 137,378 3,062 56,086 88 — — 98,500 74
$ 611,476 $ 17,747 $ 695,678 $ 22,381 $ 596,602 $ 18,934 $ 676,435 $ 11,476

~~(1)~~Included in Other assets on the Consolidated Statements of Financial Condition, with the exception of certain interest swaps and mortgage loan commitments (with a fair value of $3,000 at March 31, 2022 and $20,000 at December 31, 2021), which are included in Loans Receivable.

~~(2)Included in Other Liabilities on the Consolidated Statements of Financial Condition.~~

Gains (losses) recognized in income within Mortgage banking operations on non-designated hedging instruments for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022, were as follows (in thousands):


		Location on Consolidated Statements of Operations		Three Months Ended March 31,								Three Months Ended March 31,
			2022			2021							2023				2022

Mortgage loan commitments	Mortgage loan commitments		Mortgage banking operations			$	(1,532)			$	(2,284)					Mortgage loan commitments	$	440			$	(1,532)
Forward sales contracts	Forward sales contracts	Mortgage banking operations		2,212				3,011						Forward sales contracts	(142)				2,212

				$	680			$	727						$	298			$	680

The Company is exposed to credit-related losses in the event of nonperformance by the counterparty to these agreements. Credit risk of the financial contract is controlled through the credit approval, limits, and monitoring procedures and management does not expect the counterparties to fail their obligations.

In connection with the interest rate swaps between ~~Banner~~the Bank and the dealer counterparties, the agreements contain a provision where if ~~Banner~~the Bank fails to maintain its status as a well/adequately capitalized institution, then the counterparty could terminate the derivative positions and ~~Banner~~the Bank would be required to settle its obligations. Similarly, ~~Banner~~the Bank could be required to settle its obligations under certain of its agreements if specific regulatory events occur, such as a publicly issued prompt corrective action directive, cease and desist order, or a capital maintenance agreement that required ~~Banner~~the Bank to maintain a specific capital level. If ~~Banner~~the Bank had breached any of these provisions at March 31, ~~2022~~2023 or December 31, ~~2021,~~2022, it could have been required to settle its obligations under the agreements at the termination value. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the ~~termination value of derivatives in a net liability position~~Company had no obligations to dealer counterparties related to these ~~agreements was $676,000 and $24.9 million, respectively.~~agreements. The Company generally posts collateral against derivative liabilities in the form of cash, government agency-issued bonds, mortgage-backed securities, or commercial mortgage-backed securities. Collateral posted against derivative liabilities was ~~$40.4~~$20.7 million and ~~$45.8~~$22.2 million as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The collateral posted included restricted cash of $14.3 million and $15.9 million as of March 31, 2023 and 2022, respectively.

Derivative assets and liabilities are recorded at fair value on the balance sheet. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis and to offset net derivative positions with related collateral where applicable. In addition, some of interest rate swap derivatives between ~~Banner Bank~~the Company and the dealer counterparties are cleared through central clearing houses. These clearing houses characterize the variation margin payments as settlements of the derivative’s market exposure and not as collateral. The variation margin is treated as an adjustment to our cash collateral, as well as a corresponding adjustment to our derivative liability. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the variation margin adjustment was a negative adjustment of ~~$11.8~~$8.3 million and ~~$10.7~~$8.7 million, respectively.

The following tables present additional information related to the Company’s derivative contracts, by type of financial instrument, as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):

March 31, 2022
Gross Amounts of Financial Instruments Not Offset in the Consolidated Statements of Financial Condition
Gross Amounts Recognized Amounts offset
in the Statement
of Financial Condition Net Amounts
in the Statement
of Financial Condition Netting Adjustment Per Applicable Master Netting Agreements Fair Value
of Financial Collateral
in the Statement
of Financial Condition Net Amount
Derivative assets
Interest rate swaps $ 14,685 $ — $ 14,685 $ — $ — $ 14,685
$ 14,685 $ — $ 14,685 $ — $ — $ 14,685
Derivative liabilities
Interest rate swaps $ 19,076 $ — $ 19,076 $ — $ (676) $ 18,400
$ 19,076 $ — $ 19,076 $ — $ (676) $ 18,400
December 31, 2021
Gross Amounts of Financial Instruments Not Offset in the Consolidated Statements of Financial Condition
Gross Amounts Recognized Amounts offset
in the Statement
of Financial Condition Net Amounts
in the Statement
of Financial Condition Netting Adjustment Per Applicable Master Netting Agreements Fair Value
of Financial Collateral
in the Statement
of Financial Condition Net Amount
Derivative assets
Interest rate swaps $ 20,826 $ — $ 20,826 $ — $ — $ 20,826
$ 20,826 $ — $ 20,826 $ — $ — $ 20,826
Derivative liabilities
Interest rate swaps $ 11,615 $ — $ 11,615 $ — $ (9,669) $ 1,946
$ 11,615 $ — $ 11,615 $ — $ (9,669) $ 1,946

~~NOTE 14: REVENUE FROM CONTRACTS WITH CLIENTS~~

~~Disaggregation of Revenue:~~

~~Deposit fees and other service charges for the three months ended March 31, 2022 and 2021 are summarized as follows (in thousands):~~

Three Months Ended
March 31,
2022 2021
Deposit service charges $ 5,467 $ 4,113
Debit and credit card interchange fees 5,677 5,290
Debit and credit card expense (2,624) (2,520)
Merchant services income 3,536 3,142
Merchant services expense (2,898) (2,532)
Other service charges 2,031 1,446
Total deposit fees and other service charges $ 11,189 $ 8,939

~~Deposit fees and other service charges~~

Deposit fees and other service charges include transaction and non-transaction based deposit fees. Transaction based fees on deposit accounts are charged to deposit clients for specific services provided to the client. These fees include such items as wire fees, official check fees, and overdraft fees. These are contract specific to each individual transaction and do not extend beyond the individual transaction. The performance obligation is completed and the fees are recognized at the time the specific transactional service is provided to the client. Non-transactional deposit fees are typically monthly account maintenance fees charged on deposit accounts. These are day-to-day contracts that can be canceled by either party without notice. The performance obligation is satisfied and the fees are recognized on a monthly basis after the service period is completed.

~~Debit and credit card interchange income and expenses~~

Debit and credit card interchange income represent fees earned when a debit or credit card issued by the Bank is used to purchase goods or services at a merchant. The merchant’s bank pays the Bank a default interchange rate set by MasterCard on a transaction by transaction basis. The merchant acquiring bank can stop accepting the Bank’s cards at any time and the Bank can stop further use of cards issued by them at any time. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to the Bank’s cardholders’ card. Direct expenses associated with the credit and debit card are recorded as a net reduction against the interchange income.

~~Merchant services income~~

Merchant services income represents fees earned by the Bank for card payment services provided to its merchant clients. The Bank has a contract with a third party to provide card payment services to the Bank’s merchants that contract for those services. The third party provider has contracts with the Bank’s merchants to provide the card payment services. The Bank does not have a direct contractual relationship with its merchants for these services. The Bank sets the rates for the services provided by the third party. The third party provider passes the payments made by the Bank’s merchants through to the Bank. The Bank, in turn, pays the third party provider for the services it provides to the Bank’s merchants. These payments to the third party provider are recorded as expenses as a net reduction against fee income. In addition, a portion of the payment received by the Bank represents interchange fees which are passed through to the card issuing bank. Income is primarily earned based on the dollar volume and number of transactions processed. The performance obligation is satisfied and the related fee is earned when each payment is accepted by the processing network.


	March 31, 2023
							Gross Amounts of Financial Instruments Not Offset in the Consolidated Statements of Financial Condition
	Gross Amounts Recognized		Amounts offset in the Statement of Financial Condition		Net Amounts in the Statement of Financial Condition		Netting Adjustment Per Applicable Master Netting Agreements		Fair Value of Financial Collateral in the Statement of Financial Condition		Net Amount
Derivative assets
Interest rate swaps	$	28,821	$	(13,479)	$	15,342	$	—	$	—	$	15,342
	$	28,821	$	(13,479)	$	15,342	$	—	$	—	$	15,342

Derivative liabilities
Interest rate swaps	$	50,605	$	(21,747)	$	28,858	$	—	$	(13,435)	$	15,423
	$	50,605	$	(21,747)	$	28,858	$	—	$	(13,435)	$	15,423

	December 31, 2022
							Gross Amounts of Financial Instruments Not Offset in the Consolidated Statements of Financial Condition
	Gross Amounts Recognized		Amounts offset in the Statement of Financial Condition		Net Amounts in the Statement of Financial Condition		Netting Adjustment Per Applicable Master Netting Agreements		Fair Value of Financial Collateral in the Statement of Financial Condition		Net Amount
Derivative assets
Interest rate swaps	$	37,119	$	(17,780)	$	19,339	$	—	$	—	$	19,339
	$	37,119	$	(17,780)	$	19,339	$	—	$	—	$	19,339

Derivative liabilities
Interest rate swaps	$	63,634	$	(26,484)	$	37,150	$	—	$	(14,972)	$	22,178
	$	63,634	$	(26,484)	$	37,150	$	—	$	(14,972)	$	22,178

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

~~We are~~Banner is a bank holding company incorporated in the State of Washington, which wholly owns one subsidiary bank, Banner Bank. ~~Banner~~The Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington and, as of March 31, ~~2022,~~2023, it had ~~141 full service~~137 branch offices and 18 loan production offices located in Washington, Oregon, California, Idaho and Utah. Banner ~~Corporation~~ is subject to regulation by the Federal Reserve. ~~Banner~~The Bank is subject to regulation by the Washington DFI and the FDIC. As of March 31, ~~2022,~~2023, we had total consolidated assets of ~~$16.78~~$15.53 billion, total loans of ~~$9.15~~$10.16 billion, total deposits of ~~$14.52~~$13.15 billion and total shareholders’ equity of ~~$1.56~~$1.53 billion.

~~Banner~~The Bank is a regional bank which 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 ~~their~~our offices in Washington, Oregon, California, Idaho and ~~Idaho. Banner~~Utah. The Bank is also an active participant in secondary loan markets, engaging in mortgage banking operations largely through the origination and sale of one- to four-family and multifamily 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.

~~Banner Corporation’s~~Banner’s successful execution of ~~its~~a super community bank model and strategic initiatives have delivered solid core operating results and profitability over the last several years. Banner’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.

~~For~~Item 303 of Regulation S-K allows registrants to compare the results of the most recently completed quarter to the results of either the immediately preceding quarter or the corresponding quarter of the preceding year. Banner has elected to compare our results for the three months ended March 31, 2023 and December 31, 2022, ~~our net income was $44.0 million, or $1.27 per diluted share, compared to $49.9 million, or $1.44 per diluted share, for the preceding quarter~~where applicable, throughout this Management’s Discussion and compared to $46.9 million, or $1.33 per diluted share, for the quarter ended March 31, 2021. The current quarter was positively impacted by the recapture of provision for credit losses, decreased funding costs and decreased non-interest expense, offset by decreased mortgage banking income and reduced interest income due to lower yields on total interest earning assets and a decline in the acceleration of the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness compared to both the preceding and prior year quarters.Analysis.

Our adjusted earnings (a non-GAAP financial measure), which excludes net gain or loss on sales of securities, changes in the valuation of financial instruments carried at fair value, merger and acquisition-related expenses, COVID-19 expenses, Banner Forward expenses, loss on extinguishment of debt and related tax expenses or benefits, were $46.1 million, or $1.33 per diluted share, for the quarter ended March 31, 2022, comparedFirst Quarter 2023 Highlights

•Revenues decreased 6% to ~~$50.7 million, or $1.47 per diluted share, for the preceding quarter and compared to $47.7 million, or $1.35 per diluted share, for the quarter ended March 31, 2021.~~

During the third quarter of 2021 we began implementing Banner Forward, a bank-wide initiative to drive revenue growth and reduce operating expense. The remaining efficiency-related initiatives are anticipated to be implemented sequentially over the next two quarters with implementation of the revenue initiatives ramping up in the second half of the year. Full implementation is expected by 2023, with the goal of delivering sequential improvements in operating performance over the course of the next five quarters while staying true to our mission and values. Banner Forward is focused on accelerating growth in commercial banking, deepening relationships with retail clients, and advancing technology strategies to enhance our digital service channels, while streamlining underwriting and back office processes. During the first quarter of 2022, we incurred expenses of $2.5 million related to Banner Forward.

Our operating results depend primarily on our net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of loans and investment securities, and interest expense on interest-bearing liabilities, composed primarily of client deposits, FHLB advances, other borrowings, subordinated notes, and junior subordinated debentures. Net interest income is primarily a function of our interest rate spread, which is the difference between the yield earned on interest-earning assets and the rate paid on interest-bearing liabilities, as well as a function of the average balances of interest-earning assets, interest-bearing liabilities and non-interest-bearing funding sources including non-interest-bearing deposits. Our net interest income decreased $2.9 million, or 2% to $118.7$162.6 million, compared to ~~$121.5~~$172.1 million in the preceding ~~quarter and increased $1.0 million, or 1%, compared to $117.7 million for the same quarter one year earlier. The lower net~~quarter.

•Net interest income ~~during the quarter compared~~decreased 4% to the preceding quarter was primarily due to a decline in the acceleration of the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness and a decrease in average interest-earning assets, partially offset by decreases in the cost of funding liabilities. The increase in net interest income during the current quarter compared to the prior year quarter was primarily due to decreases in the cost of funding liabilities as well as an increase in the average balance of interest-earning assets, partially offset by a decline in the acceleration of the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness and lower yields on average interest-earning assets.

Our net income is also affected by the level of our non-interest income, including deposit fees and other service charges, results of mortgage banking operations, which includes gains and losses on the sale of loans and servicing fees, gains and losses on the sale of securities, as well as our non-interest expenses and provisions for credit losses and income taxes. In addition, our net income is affected by the net change in the value of certain financial instruments carried at fair value.

Our total revenues (net interest income plus total non-interest income) for the first quarter of 2022 decreased 5% to $138.1 million, compared to $146.0 million in the preceding quarter, and decreased $3.9 million, or 3%, compared to $141.9 million for the same period a year earlier, primarily due to a decline in the acceleration of the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness as well as lower income from mortgage banking operations. Our total non-interest income, which is a component of total revenue and includes the net gain on sale of securities and changes in the value of financial instruments carried at fair value, was $19.4 million for the quarter ended March 31, 2022, compared to $24.5 million in the preceding quarter and $24.3 million for the quarter ended March 31, 2021, primarily due to the decrease in mortgage banking income and the preceding quarter including some positive fair value gains, partially offset by an increase in deposit fees and other services charges. The decrease in mortgage banking income for the current quarter compared to both the preceding and prior year quarters was primarily due to a decrease in the gain on sale margin on one- to four-family held-for-sale loans as well as a reduction in the volume of one- to four-family sold. The lower mortgage banking revenue for the current quarter compared to both the preceding and prior year quarters is also due in part to a downward fair value adjustment recorded on multifamily held for sale loans at quarter end due to increases in market interest rates.

~~Non-interest expense was $91.2~~$153.3 million in the first quarter of ~~2022,~~2023, compared to ~~$91.8~~$159.1 million in the preceding ~~quarter and $93.5~~quarter.

•Net interest margin, on a tax equivalent basis, was 4.30%, compared to 4.23% in the preceding quarter.

•Mortgage banking revenues increased 16% to $2.7 million, compared to $2.3 million in the ~~first quarter of 2021. Our non-interest expense decreased~~preceding quarter.

•Return on average assets was 1.44%, compared to 1.34% in the ~~first quarter of 2022,~~preceding quarter.

•Net loans receivable increased to $10.02 billion at March 31, 2023, compared to ~~the preceding quarter largely as a result~~$10.01 billion at December 31, 2022.

•Non-performing assets increased to $27.1 million, or 0.17% of decreases in occupancy and equipment expenses, advertising and marketing expenses and loss on extinguishment of debt, partially offset by an increase in salary and employee benefits expenses primarily due to severance costs and typical higher payroll taxes in the first quarter of

~~a year partially offset by lower salary expense and a decrease in capitalized loan origination costs. The decrease in non-interest expense during the first quarter of 2022,~~total assets, at March 31, 2023, compared to ~~the same quarter a year ago was largely as a result~~$23.4 million, or 0.15% of decreases in salary and employee benefits expense, primarily due to a reduction in staffing, and professional and legal expenses, primarily due to a reduction in consultant expense, partially offset by a decrease in capitalized loan origination costs and the loss on extinguishment of debt.total assets at December 31, 2022.

•

We recorded a $7.0 million recapture of provision for credit losses in the quarter ended March 31, 2022, compared to a $5.2 million recapture of provision for credit losses in the prior quarter and a $9.3 million provision for credit losses for the quarter ended March 31, 2021. The recapture of provision for credit losses for the current and preceding quarters primarily reflects improvement in the level of adversely classified loans as well as in the economic indicators utilized to calculate credit losses. The allowance for credit losses - loans was $141.5 million, or 1.39% of total loans receivable, at both March 31, 2023 and December 31, 2022.

•Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) decreased to $12.20 billion at March 31, ~~2022 was $125.5 million, representing 674% of non-performing loans,~~2023, compared to ~~$132.1 million, or 578% of non-performing loans~~$12.90 billion at December 31, ~~2021. In addition to the allowance for credit losses - loans, Banner maintains an allowance for credit losses - unfunded loan commitments which was $12.9 million~~2022. Core deposits represented 93% of total deposits at March 31, ~~2022,~~2023.

•The Bank’s uninsured deposits were 33% of total deposits at March 31, 2023, compared to ~~$12.4 million~~35% at December 31, ~~2021. Non-performing loans~~2022.

•The Bank’s uninsured deposits excluding collateralized public deposits and affiliate deposits were ~~$18.6 million~~31% at March 31, ~~2022,~~2023, compared to ~~$22.8 million~~33% at December 31, ~~2021 and $36.6 million a year earlier. (See Note 4, Loans Receivable and~~2022.

•Available borrowing capacity was $4.25 billion at March 31, 2023, compared to $4.31 billion at December 31, 2022.

•On balance sheet liquidity was $3.40 billion at March 31, 2023, compared to $3.77 billion at December 31, 2022.

•Dividends paid to shareholders were $0.48 per share in the ~~Allowance for Credit Losses, as well as “Asset Quality” below~~quarter ended March 31, 2023, up from $0.44 per share in ~~this Form 10-Q.)~~the quarter ended December 31, 2022.

•Common shareholders’ equity per share increased 5% to $44.64 at March 31, 2023, compared to $42.59 at the preceding quarter end.

•Tangible common shareholders’ equity per share* increased 7% to $33.52 at March 31, 2023, compared to $31.41 at the preceding quarter end.

*Non-GAAP ~~financial measures:~~Financial Measures: Net income, revenues and other earnings and expense information excluding fair value adjustments, gains or losses on the sale of securities, merger and acquisition-related expenses, loss on extinguishment of debt, COVID-19 expenses, Banner Forward expenses, amortization of CDI, REO operations, state/municipal tax expense and the related tax benefit, are non-GAAP financial measures. Management has presented ~~these and other~~ 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. ~~See “Comparison of Results of Operations for the Three Months Ended March 31, 2022 and 2021” for more detailed information about our financial performance.~~

~~The following tables set forth reconciliations~~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 ~~discussed~~provide information to investors that is useful in ~~this report~~evaluating the operating performance and trends of financial services companies, including the Company (dollars in thousands except per share data):

Quarters Ended
Mar 31, 2022 Dec 31, 2021 Mar 31, 2021
ADJUSTED REVENUE
Net interest income (GAAP) $ 118,654 $ 121,530 $ 117,661
Total non-interest income 19,427 24,474 24,272
Total revenue (GAAP) 138,081 146,004 141,933
Exclude net (gain) loss on sale of securities (435) 136 (485)
Exclude change in valuation of financial instruments carried at fair value (49) (2,721) (59)
Adjusted Revenue (non-GAAP) $ 137,597 $ 143,419 $ 141,389

Quarters Ended
Mar 31, 2022 Dec 31, 2021 Mar 31, 2021
ADJUSTED EARNINGS
Net income (GAAP) $ 43,963 $ 49,927 $ 46,855
Exclude net (gain) loss on sale of securities (435) 136 (485)
Exclude net change in valuation of financial instruments carried at fair value (49) (2,721) (59)
Exclude merger and acquisition-related expenses — — 571
Exclude COVID-19 expenses — 127 148
Exclude Banner Forward expenses 2,465 1,157 950
Exclude loss on extinguishment of debt 793 2,284 —
Exclude related net tax benefit (666) (236) (270)
Total adjusted earnings (non-GAAP) $ 46,071 $ 50,674 $ 47,710
Diluted earnings per share (GAAP) $ 1.27 $ 1.44 $ 1.33
Diluted adjusted earnings per share (non-GAAP) $ 1.33 $ 1.47 $ 1.35
.

5245

Quarters Ended
Mar 31, 2022 Dec 31, 2021 Mar 31, 2021
ADJUSTED EFFICIENCY RATIO
Non-interest expense (GAAP) $ 91,195 $ 91,805 $ 93,527
Exclude merger and acquisition-related expenses — — (571)
Exclude COVID-19 expenses — (127) (148)
Exclude Banner Forward expenses (2,465) (1,157) (950)
Exclude CDI amortization (1,424) (1,574) (1,711)
Exclude state/municipal tax expense (1,162) (976) (1,065)
Exclude REO operations 79 (49) 242
Exclude loss on extinguishment of debt (793) (2,284) —
Adjusted non-interest expense (non-GAAP) $ 85,430 $ 85,638 $ 89,324
Net interest income (GAAP) $ 118,654 $ 121,530 $ 117,661
Non-interest income (GAAP) 19,427 24,474 24,272
Total revenue 138,081 146,004 141,933
Exclude net (gain) loss on sale of securities (435) 136 (485)
Exclude net change in valuation of financial instruments carried at fair value (49) (2,721) (59)
Adjusted revenue (non-GAAP) $ 137,597 $ 143,419 $ 141,389
Efficiency ratio (GAAP) 66.04 % 62.88 % 65.90 %
Adjusted efficiency ratio (non-GAAP) 62.09 % 59.71 % 63.18 %


	Quarters Ended
	Mar 31, 2023		Dec 31, 2022		Mar 31, 2022
ADJUSTED REVENUE
Net interest income (GAAP)	$	153,312	$	159,071	$	118,654
Non-interest income (GAAP)	9,277		13,070		19,427
Total revenue (GAAP)	162,589		172,141		138,081
Exclude: Net loss (gain) on sale of securities	7,252		3,721		(435)

Net change in valuation of financial instruments carried at fair value	552		(157)		(49)


Adjusted Revenue (non-GAAP)	$	170,393	$	175,705	$	137,597


	Quarters Ended
	Mar 31, 2023		Dec 31, 2022		Mar 31, 2022
ADJUSTED EARNINGS
Net income (GAAP)	$	55,555	$	54,380	$	43,963
Exclude: Net loss (gain) on sale of securities	7,252		3,721		(435)
Net change in valuation of financial instruments carried at fair value	552		(157)		(49)



Banner Forward expenses	143		838		2,465
Loss on extinguishment of debt	—		—		793
Related net tax benefit	(1,907)		(1,057)		(666)
Total adjusted earnings (non-GAAP)	$	61,595	$	57,725	$	46,071
Diluted earnings per share (GAAP)	$	1.61	$	1.58	$	1.27
Diluted adjusted earnings per share (non-GAAP)	$	1.79	$	1.68	$	1.33


	Quarters Ended
	Mar 31, 2023			Dec 31, 2022			Mar 31, 2022
ADJUSTED EFFICIENCY RATIO
Non-interest expense (GAAP)	$	94,621		$	99,013		$	91,195


Exclude: Banner Forward expenses	(143)			(838)			(2,465)
CDI amortization	(1,050)			(1,215)			(1,424)
State and municipal tax expense	(1,300)			(1,304)			(1,162)
REO operations	277			(28)			79
Loss on extinguishment of debt	—			—			(793)
Adjusted non-interest expense (non-GAAP)	$	92,405		$	95,628		$	85,430

Net interest income (GAAP)	$	153,312		$	159,071		$	118,654
Non-interest income (GAAP)	9,277			13,070			19,427
Total revenue (GAAP)	162,589			172,141			138,081
Exclude: Net loss (gain) on sale of securities	7,252			3,721			(435)
Net change in valuation of financial instruments carried at fair value	552			(157)			(49)

Adjusted revenue (non-GAAP)	$	170,393		$	175,705		$	137,597

Efficiency ratio (GAAP)	58.20		%	57.52		%	66.04		%
Adjusted efficiency ratio (non-GAAP)	54.23		%	54.43		%	62.09		%

5346

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 per share data).


TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS	TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS										TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS
		March 31, 2022			December 31, 2021			March 31, 2021
												March 31, 2023			December 31, 2022			March 31, 2022
Shareholders’ equity (GAAP)	Shareholders’ equity (GAAP)	$	1,563,780		$	1,690,327		$	1,618,817		Shareholders’ equity (GAAP)	$	1,531,695		$	1,456,432		$	1,563,780
Exclude goodwill and other intangible assets, net	Exclude goodwill and other intangible assets, net	386,552			387,976			392,836			Exclude goodwill and other intangible assets, net	381,511			382,561			386,552

Tangible common shareholders’ equity (non-GAAP)	Tangible common shareholders’ equity (non-GAAP)	$	1,177,228		$	1,302,351		$	1,225,981		Tangible common shareholders’ equity (non-GAAP)	$	1,150,184		$	1,073,871		$	1,177,228
Total assets (GAAP)	Total assets (GAAP)	$	16,776,171		$	16,804,872		$	16,119,792		Total assets (GAAP)	$	15,533,603		$	15,833,431		$	16,776,171
Exclude goodwill and other intangible assets, net	Exclude goodwill and other intangible assets, net	386,552			387,976			392,836			Exclude goodwill and other intangible assets, net	381,511			382,561			386,552
Total tangible assets (non-GAAP)	Total tangible assets (non-GAAP)	$	16,389,619		$	16,416,896		$	15,726,956		Total tangible assets (non-GAAP)	$	15,152,092		$	15,450,870		$	16,389,619
Common shareholders’ equity to total assets (GAAP)	Common shareholders’ equity to total assets (GAAP)	9.32		%	10.06		%	10.04		%	Common shareholders’ equity to total assets (GAAP)	9.86		%	9.20		%	9.32		%
Tangible common shareholders’ equity to tangible assets (non-GAAP)	Tangible common shareholders’ equity to tangible assets (non-GAAP)	7.18		%	7.93		%	7.80		%	Tangible common shareholders’ equity to tangible assets (non-GAAP)	7.59		%	6.95		%	7.18		%

TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE	TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE										TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE
Tangible common shareholders’ equity (non-GAAP)	Tangible common shareholders’ equity (non-GAAP)	$	1,177,228		$	1,302,351		$	1,225,981		Tangible common shareholders’ equity (non-GAAP)	$	1,150,184		$	1,073,871		$	1,177,228
Common shares outstanding at end of period	Common shares outstanding at end of period	34,372,784			34,252,632			34,735,343			Common shares outstanding at end of period	34,308,540			34,194,018			34,372,784
Common shareholders’ equity (book value) per share (GAAP)	Common shareholders’ equity (book value) per share (GAAP)	$	45.49		$	49.35		$	46.60		Common shareholders’ equity (book value) per share (GAAP)	$	44.64		$	42.59		$	45.49
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP)	Tangible common shareholders’ equity (tangible book value) per share (non-GAAP)	$	34.25		$	38.02		$	35.29		Tangible common shareholders’ equity (tangible book value) per share (non-GAAP)	$	33.52		$	31.41		$	34.25

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 ~~Policies and~~ Estimates

~~Various elements~~Our critical accounting estimates are described in detail in the Critical Accounting Estimates section of ~~our accounting policies, by their nature,~~the Form 10-K for the year ended December 31, 2022, filed with the SEC on February 21, 2023 (“2022 Form 10-K”). The condensed consolidated financial statements are ~~inherently subject~~prepared in conformity with GAAP and follow general practices within the financial services industry, in which the Company operates. This preparation requires management to ~~estimation techniques, valuation~~make estimates, assumptions, and ~~other subjective assessments. In particular, management has identified certain accounting policies~~judgments that ~~due to~~affect the ~~judgments, estimates and assumptions inherent in those policies, are critical to an understanding of our financial statements. Management believes the judgments, estimates and assumptions used~~amounts reported in the ~~preparation~~financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial ~~statements~~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, fair value, goodwill, income taxes and deferred tax assets and legal contingencies are ~~appropriate~~important to the portrayal of the Company’s financial condition and results of operations and requires significant judgements and assumptions which are susceptible to significant changes based on the factual circumstances at the time. However, given the sensitivity of the financial statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition. Further, subsequent changes in economic or market conditions could have a material impact on these estimates and our financial condition and operating results in future periods.current environment. There have been no significant changes in our application of critical accounting ~~policies~~estimates since December ~~31, 2021. For additional information concerning critical accounting policies, see the Selected Notes to the Consolidated Financial Statements and the following:~~

~~Provision and Allowance for Credit Losses - Loans:~~ (Note 4) The methodology for determining the allowance for credit losses - loans is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for credit losses. Among the material estimates required to establish the allowance for credit losses - loans are: a reasonable and supportable forecast; a reasonable and supportable forecast period and 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. All of these estimates are susceptible to significant change. The allowance for credit losses - loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. The Bank has elected to exclude accrued interest receivable from the amortized cost basis in their estimate of the allowance for credit losses. The provision for credit losses reflects the amount required to maintain the allowance for credit losses at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves. The Company has established systematic methodologies for the determination of the adequacy of the Company’s allowance for credit losses. The methodologies are set forth in a formal policy and take into consideration the need for a valuation allowance for loans evaluated on a collective (pool) basis which have similar risk characteristics as well as allowances that are tied to individual loans

that do not share risk characteristics. The Company increases its allowance for credit losses by charging provisions for credit losses on its Consolidated Statement of Operations. Losses related to specific assets are applied as a reduction of the carrying value of the assets and charged against the allowance for credit loss reserve when management believes the uncollectibility of a loan balance is confirmed. Recoveries on previously charged off loans are credited to the allowance for credit losses.

Management estimates the allowance for credit losses - loans using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses - loans is maintained at a level sufficient to provide for expected credit losses over the life of the loan based on evaluating historical credit loss experience and making adjustments to historical loss information for differences in the specific risk characteristics in the current loan portfolio. These factors include, among others, changes in the size and composition of the loan portfolio, differences in underwriting standards, delinquency rates, actual loss experience and current economic conditions.

The allowance for credit losses - loans is measured on a collective (pool) basis when similar risk characteristics exist. In estimating the component of the allowance for credit losses for loans that share common risk characteristics, loans are pooled based on loan type and areas of risk concentration. For loans evaluated collectively, the allowance for credit losses - loans is calculated using life of loan historical losses adjusted for economic forecasts and current conditions.

For commercial real estate, multifamily real estate, construction and land, commercial business and agricultural loans with risk rating segmentation, historical credit loss assumptions are estimated using a model that categorizes loan pools based on loan type and risk rating. For one- to four- family residential loans, consumer loans, home equity lines of credit, small business loans, and small balance commercial real estate loans, historical credit loss assumptions are estimated using a model that categorizes loan pools based on loan type and delinquency status. These models calculate an expected life-of-loan loss percentage for each loan category by calculating the probability of default, based on the migration of loans from performing to loss by risk rating or delinquency categories using historical life-of-loan analysis and the severity of loss, based on the aggregate net lifetime losses incurred for each loan pool. For credit cards, historical credit loss assumptions are estimated using a model that calculates an expected life-of-loan loss percentage for each loan category by considering the historical cumulative losses based on the aggregate net lifetime losses incurred for each loan pool. The model captures historical loss data commencing with the first quarter of 2008. For loans evaluated collectively, management uses economic indicators to adjust the historical loss rates so that they better reflect management’s expectations of future conditions over the remaining lives of the loans in the portfolio based on reasonable and supportable forecasts. These economic indicators are selected based on correlation to the Company’s historical credit loss experience and are evaluated for each loan category. The economic indicators evaluated include the unemployment rate, gross domestic product, real estate price indices and growth, industrial employment, corporate profits, the household consumer debt service ratio, the household mortgage debt service ratio, and single family median home price growth. Management considers various economic scenarios and forecasts when evaluating the economic indicators and probability weights the various scenarios to arrive at the forecast that most reflects management’s expectations of future conditions. The selection of a more optimistic or pessimistic economic forecast would result in a lower or higher allowance for credit losses. The use of a protracted slump economic forecast would have increased the allowance for credit losses - loans by approximately 6% as of March 31, 2022, where the use of a stronger near-term growth economic forecast would result in a negligible decrease in the allowance for credit losses - loans as of March 31, 2022. The allowance for credit losses - loans is then adjusted for the period in which those forecasts are considered to be reasonable and supportable. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made, the adjustments discontinue to be applied so that the model reverts back to the historical loss rates using a straight line reversion method. Management selected a reasonable and supportable forecast period of 12 months with a reversion period of 12 months. Both the reasonable and supportable forecast period and the reversion period are periodically reviewed by management.

Further, for loans evaluated collectively, management also considers qualitative and environmental (QE) factors for each loan category to adjust for differences between the historical periods used to calculate historical loss rates and expected conditions over the remaining lives of the loans in the portfolio. In determining the aggregate adjustment needed management considers the financial condition of the borrowers, the nature and volume of the loans, the remaining terms and the extent of prepayments on the loans, the volume and severity of past due and classified loans as well as the value of the underlying collateral on loans in which the collateral dependent practical expedient has not been used. Management also considers the Company’s lending policies, the quality of the Company’s credit review system, the quality of the Company’s management and lending staff, and the regulatory and economic environments in the areas in which the Company’s lending activities are concentrated. Management uses a scale to assign QE factor adjustments based on the level of estimated impact which requires a significant amount of judgment. Generally, adjustments to QE factors are made in five basis-point increments. Some QE factors impact all loan segments equally while others may impact some loan segments more or less than others. If management’s judgment were 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 3.6% as of March 31, 2022.

~~Fair Value Accounting and Measurement:~~ (Note 8) We use fair value measurements to record fair value adjustments to certain financial assets and liabilities. 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 $832,000 decrease or increase in the reported fair value as of March 31, 2022, with an offsetting adjustment to our non-interest income. A 25 basis-point increase or decrease in the discount rate used to calculate the fair value of our junior subordinated debentures would result in a $2.1 million decrease or increase in the reported fair value as of March 31, 2022, with an offsetting adjustment to our accumulated other comprehensive income.

~~Goodwill:~~ (Note 6) Goodwill represents the excess of the purchase consideration paid over the fair value of the assets acquired, net of the fair values of liabilities assumed in a business combination and is not amortized but is reviewed annually, or more frequently as current circumstances and conditions warrant, for impairment. An assessment of qualitative factors is completed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The qualitative assessment involves judgment by management on determining whether there have been any triggering events that have occurred which would indicate potential impairment. Such trigger events considered by management could include: a) macroeconomic conditions such as a deterioration in general economic conditions, limitations on accessing capital, or other developments in equity and credit markets; b) industry and market considerations such as a deterioration in the environment in which an entity operates, an increased competitive environment, a decline in market-dependent multiples or metrics (consider in both absolute terms and relative to peers), a change in the market for an entity’s products or services, or a regulatory or political development; c) cost factors such as increases in labor, or other costs that have a negative effect on earnings and cash flows; d) overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods; e) other relevant entity-specific events such as changes in management, key personnel, strategy, or clients; or litigation; f) events affecting a reporting unit such as a change in the composition or carrying amount of its net assets, a more-likely-than-not expectation of selling or disposing of all, or a portion, of a reporting unit, the testing for recoverability of a significant asset group within a reporting unit; g) if applicable, a sustained decrease in share price (consider in both absolute terms and relative to peers). If the qualitative analysis concludes that further analysis is required, then a quantitative impairment test would be completed. The quantitative goodwill impairment test is used to identify the existence of impairment and the amount of impairment loss and compares the reporting unit’s estimated fair values, including goodwill, to its carrying amount. If a quantitative goodwill impairment test is required, management would engage a third-party valuation firm to estimate the fair value of the reporting unit. Various valuation methodologies are considered when estimating the reporting unit’s fair value. These methodologies could include a comparable transaction approach, a control premium approach and a discounted cash flow approach, as well as others. The specific factors used in these various valuation methodologies that require judgment include the selection of comparable market transactions, discount rates, earnings capitalization rates and the future projected earnings of the reporting unit. Changes in these assumptions could result in changes to the estimated fair value of the reporting unit. If the fair value exceeds the carry amount, then goodwill is not considered impaired. If the carrying amount exceeds its fair value, an impairment loss would be recognized equal to the amount of excess, limited to the amount of total goodwill allocated to the reporting unit. The impairment loss would be recognized as a charge to earnings. The Company completed an assessment of qualitative factors and the potential triggering events noted above as of March 31, 2022 and concluded that no further analysis was required as it is more likely than not that the fair value of Banner Bank, the reporting unit, exceeds the carrying value.

~~Income Taxes and Deferred Taxes~~: (Note 9) The Company and its wholly-owned subsidiaries file consolidated U.S. federal income tax returns, as well as state income tax returns in Oregon, California, Utah, Idaho and Montana. Income taxes are accounted for using the asset and liability method. Under this method a deferred tax asset or liability is determined based on the enacted tax rates which are expected to be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A 1% change in tax rates would result in a $3.6 million increase or decrease in our net deferred tax asset as of March 31, 2022. We assess the appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent and other pertinent information and maintain tax accruals consistent with our evaluation. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations by the tax authorities and newly enacted statutory, judicial and regulatory guidance that could impact the relative merits of tax positions. These changes, when they occur, impact accrued taxes and can materially affect our operating results. A valuation allowance is required to be recognized if it is more likely than not that all or a portion of our deferred tax assets will not be realized. The evaluation pertaining to the tax expense and related deferred tax asset and liability balances involves a high degree of judgment and subjectivity around the measurement and resolution of these matters. This includes an evaluation of our ability to use our net operating loss carryforwards. The ultimate realization of the deferred tax assets is dependent upon the existence, or generation, of taxable income in the periods when those temporary differences and net operating loss and credit carryforwards are deductible.

~~Legal Contingencies:~~ In the normal course of our business, we have various legal proceedings and other contingent matters pending. We determine whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. We assess our potential liability by analyzing our litigation and regulatory matters using available information. We develop our views on estimated losses in consultation with outside counsel handling our defense in these matters, which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. The estimated losses often involve a level of subjectivity and usually are a range of reasonable losses and not an exact number, in those situations we accrue the best estimate within the range or the low end of the range if no estimate within the range is better than another.

Comparison of Financial Condition at March 31, ~~2022~~2023 and December 31, ~~2021~~2022

General: Total assets decreased ~~$28.7~~$299.8 million, to ~~$16.78~~$15.53 billion at March 31, ~~2022,~~2023, from ~~$16.80~~$15.83 billion at December 31, ~~2021.~~2022. The decrease was ~~largely~~primarily due to the ~~result~~sale of ~~a decrease in interest bearing deposits, partially offset by loan growth and an increase in bank-owned life insurance.~~$150.1 million of securities as well as $150.0 million of reverse repurchase agreements maturing during the current quarter.

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 typically ranges from 90% to 95%. Our loan to deposit ratio at March 31, ~~2022~~2023 was ~~63%, which reflects~~78%. During the most recent quarters, our loan to deposit ratio recently has begun to trend upward as the unprecedented level of market liquidity ~~and decrease in business activity due~~begins to ~~the impacts of the COVID-19 pandemic. We expect our loan to deposit ratio to remain below historical levels for the foreseeable future.~~reduce. 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 ~~$61.9~~$14.0 million ~~during the three months ended~~at March 31, 2023 compared to December 31, 2022, primarily reflecting increased ~~multifamily real estate, commercial construction, multifamily construction, one- to four-family construction, land and land development,~~ one-to-four family residential and ~~consumer~~multifamily real estate loan balances, partially offset by decreased commercial real estate, construction, land and land development, commercial business, ~~loan balances due to SBA PPP loan forgiveness repayments, as well as decreased~~ agricultural business and consumer loan balances. ~~Excluding SBA PPP loans, total loans receivable increased $137.2 million during the three months ended March 31, 2022.~~ At March 31, ~~2022,~~2023, our loans receivable totaled ~~$9.15~~$10.16 billion compared to ~~$9.08~~$10.15 billion at December 31, ~~2021 and $9.95 billion at March 31, 2021.~~2022.

During the first quarter of 2022, the Company changed the segmentation of its Small Balance CRE loan category based on the common risk characteristics used to measure the allowance for credit losses. The presentation of loans receivable at December 31, 2021 and March 31, 2021 has been revised to match the segmentation used in the current period presentation. 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											Percentage Change
		Mar 31, 2022		Dec 31, 2021		Mar 31, 2021		Prior Year End		Prior Year			Mar 31, 2023		Dec 31, 2022		Mar 31, 2022		Year End		Prior Year Qtr.
Commercial real estate:	Commercial real estate:											Commercial real estate:
Owner-occupied	Owner-occupied	$	872,801	$	831,623	$	759,490	5.0	%	14.9	%	Owner-occupied	$	865,705	$	845,320	$	872,801	2.4	%	(0.8)	%
Investment properties	Investment properties	1,670,896		1,674,027		1,616,795		(0.2)		3.3		Investment properties	1,520,261		1,589,975		1,670,896		(4.4)		(9.0)
Small balance CRE	Small balance CRE	1,162,164		1,281,863		1,315,435		(9.3)		(11.7)		Small balance CRE	1,179,749		1,200,251		1,162,164		(1.7)		1.5
Total Commercial real estate												Total Commercial real estate	3,565,715		3,635,546		3,705,861		(1.9)		(3.8)
Multifamily real estate	Multifamily real estate	598,588		530,885		394,787		12.8		51.6		Multifamily real estate	696,864		645,071		598,588		8.0		16.4
Construction, land and land development:	Construction, land and land development:											Construction, land and land development:
Commercial construction	Commercial construction	179,796		167,998		197,476		7.0		(9.0)		Commercial construction	191,051		184,876		179,796		3.3		6.3
Multifamily construction	Multifamily construction	274,015		259,116		305,694		5.7		(10.4)		Multifamily construction	362,425		325,816		274,015		11.2		32.3
One- to four-family construction	One- to four-family construction	582,800		568,753		542,840		2.5		7.4		One- to four-family construction	584,655		647,329		582,800		(9.7)		0.3
Land and land development	Land and land development	317,560		313,454		266,730		1.3		19.1		Land and land development	329,438		328,475		317,560		0.3		3.7
Total Construction, land and land development												Total Construction, land and land development	1,467,569		1,486,496		1,354,171		(1.3)		8.4
Commercial business:	Commercial business:											Commercial business:
Commercial business	Commercial business	1,081,847		1,038,206		1,094,952		4.2		(1.2)		Commercial business	1,266,047		1,283,407		1,139,701		(1.4)		11.1
SBA PPP		57,854		132,574		1,280,291		(56.4)		(95.5)
Small business scored	Small business scored	817,065		792,310		717,502		3.1		13.9		Small business scored	960,650		947,092		817,065		1.4		17.6
Agricultural business, including secured by farmland:
Total Commercial business												Total Commercial business	2,226,697		2,230,499		1,956,766		(0.2)		13.8

Agricultural business, including secured by farmland	Agricultural business, including secured by farmland	244,580		279,224		219,335		(12.4)		11.5		Agricultural business, including secured by farmland	272,707		295,077		245,288		(7.6)		11.2
SBA PPP		708		1,354		36,316		(47.7)		(98.1)

One- to four-family residential	One- to four-family residential	718,403		657,474		629,357		9.3		14.1		One- to four-family residential	1,252,104		1,173,112		718,403		6.7		74.3
Consumer:	Consumer:											Consumer:
Consumer—home equity revolving lines of credit	Consumer—home equity revolving lines of credit	470,485		458,533		466,132		2.6		0.9		Consumer—home equity revolving lines of credit	564,334		566,291		470,485		(0.3)		19.9
Consumer—other	Consumer—other	97,067		97,369		104,565		(0.3)		(7.2)		Consumer—other	114,694		114,632		97,067		0.1		18.2
Total Consumer												Total Consumer	679,028		680,923		567,552		(0.3)		19.6
Total loans receivable	Total loans receivable	$	9,146,629	$	9,084,763	$	9,947,697	0.7	%	(8.1)	%	Total loans receivable	$	10,160,684	$	10,146,724	$	9,146,629	0.1	%	11.1	%

Our commercial real estate loans for owner-occupied, investment properties and small balance CRE totaled ~~$3.71~~$3.57 billion, or ~~41%~~35% of our loan portfolio at March 31, ~~2022.~~2023. In addition, multifamily residential real estate loans totaled ~~$598.6~~$696.9 million and comprised 7% of our loan portfolio. Commercial real estate loans decreased by ~~$81.7~~$69.8 million during the first three months of ~~2022~~2023, while multifamily real estate loans increased by ~~$67.7~~$51.8 million.

~~We also originate~~Our commercial, multifamily, and one- to four-family construction, land and land development loans ~~which~~ totaled ~~$1.35~~$1.47 billion, or ~~15%~~14% of our loan portfolio at March 31, ~~2022,~~2023, compared to ~~$1.31~~$1.49 billion at ~~both~~ December 31, ~~2021 and March 31, 2021.~~2022. One- to

four-family construction balances ~~increased $14.0~~decreased $62.7 million, or 2%10%, to ~~$582.8~~$584.7 million at March 31, ~~2022~~2023 compared to ~~$568.8~~$647.3 million at December 31, ~~2021 and increased $40.0 million, or 7%, compared to $542.8 million at March 31, 2021.~~2022. One- to four-family construction loans represented approximately 6% of our total loan portfolio at March 31, ~~2022,~~2023, and ~~includes both~~included speculative construction ~~and one- to four-family all-in-one~~loans, as well as “all-in-one” construction loans made to owner occupants that convert to permanent loans upon completion of the homes ~~and are often~~that, depending on market conditions, may be subsequently sold into the secondary market.

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 decreased $26.2 million, or 1%, to $2.50 billion at March 31, 2023, compared to $2.53 billion at December 31, 2022. Commercial and agricultural business loans represented approximately 25% of our portfolio at March 31, 2023. Our commercial business lending, to a lesser extent, includes participation in certain syndicated loans, including shared national credits, which totaled ~~$190.1~~$252.1 million at March 31, ~~2022. Our commercial and agricultural business loans decreased $41.6 million to $2.20 billion at March 31, 2022,~~2023, compared to $2.24 billion at December 31, 2021, and decreased $1.15 billion, or 34%, compared to $3.35 billion at March 31, 2021. The decrease reflects SBA PPP loan repayments from SBA loan forgiveness during 2022. SBA PPP loans decreased 56% to $58.6 million at March 31, 2022, compared to $133.9$234.1 million at December 31, ~~2021, and decreased 96% when compared to $1.32 billion at March 31, 2021. Commercial and agricultural business loans represented approximately 24% of our portfolio at March 31,~~ 2022.

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 ~~Idaho.~~Utah. Most of the one- to four-family residential loans ~~that~~ 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. ~~Our~~Although our originations of loans held for sale have declined significantly, originations of portfolio one- to four-family residential ~~loan originations~~loans have ~~recently been~~remained relatively strong asdespite increases in interest rates ~~remained low during 2021, however, the volume of one- to four-family residential loan originations began to decline~~ during the ~~current quarter due to the shift to a rising rate environment.~~last year. At March 31, ~~2022, our outstanding balance of~~2023, one- to four-family residential loans retained in our portfolio increased ~~$60.9~~$79.0 million, to ~~$718.4 million,~~$1.25 billion, compared to ~~$657.5 million~~$1.17 billion at December 31, ~~2021,~~2022. The increase in one- to four-family residential loans was primarily the result of a higher percentage of new production and ~~increased $89.0 million, or 14%, compared~~one- to ~~$629.4 million at March 31, 2021.~~four-family construction loans converting to one- to four-family residential loans being held in portfolio. One- to four-family residential loans represented 8%12% of our loan portfolio at March 31, ~~2022.~~2023.

Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At March 31, ~~2022,~~2023, consumer loans, including home equity revolving lines of credit, ~~increased $11.7~~decreased $1.9 million to ~~$567.6~~$679.0 million, compared to ~~$555.9~~$680.9 million at December 31, ~~2021, and decreased $3.1 million compared to $570.7 million at March 31, 2021.~~2022.

The following table shows the commitment amount for loan origination (excluding loans held for sale) activity for the three months ended March 31, 2023, December 31, 2022 and March 31, ~~2021~~2022 (in thousands):


		Three Months Ended				Three Months Ended
		Mar 31, 2022		Mar 31, 2021				Mar 31, 2023		Dec 31, 2022		Mar 31, 2022
Commercial real estate	Commercial real estate	$	87,421	$	91,217		Commercial real estate	$	75,768	$	117,787	$	87,421
Multifamily real estate	Multifamily real estate	21,169		12,878			Multifamily real estate	35,520		8,881		21,169
Construction and land	Construction and land	545,475		447,369			Construction and land	247,842		301,804		545,475
Commercial business:
Commercial business	Commercial business	272,513		115,911			Commercial business	131,826		298,396		272,513
SBA PPP		—		428,180

Agricultural business	Agricultural business	28,676		27,167			Agricultural business	23,181		24,314		28,676
One-to four- family residential	One-to four- family residential	55,821		57,731			One-to four- family residential	34,265		83,491		55,821
Consumer	Consumer	121,959		87,322			Consumer	60,888		102,502		121,959
Total commitment amount for loan originations (excluding loans held for sale)	Total commitment amount for loan originations (excluding loans held for sale)	$	1,133,034	$	1,267,775		Total commitment amount for loan originations (excluding loans held for sale)	$	609,290	$	937,175	$	1,133,034

Loans held for sale decreased to ~~$64.2~~$49.0 million at March 31, ~~2022,~~2023, compared to ~~$96.5~~$56.9 million at December 31, ~~2021,~~2022, as ~~the~~ sales ~~of held-for-sale loans~~ exceeded originations of held-for-sale loans during the three months ended March 31, ~~2022. Loans held for sale were $135.3 million at March 31, 2021.~~2023. Originations of loans held for sale ~~increased~~decreased to ~~$208.3~~$39.6 million for the three months ended March 31, ~~2022~~2023, compared to ~~$190.2 million in the preceding quarter and decreased when compared to $301.4~~$208.3 million for the same period last year, primarily due to decreased refinance activity as well as an overall decrease in purchase activity for one- to four-family residential mortgage and multifamily loans due to the increase in interest rates during the current ~~quarter.~~year. The volume of one- to four-family residential mortgage loans sold was ~~$210.4~~$40.5 million during the three months ended March 31, ~~2022,~~2023, compared to ~~$245.9 million in the preceding quarter and $300.3~~$210.4 million in the same period a year ago. During the three months ended March 31, ~~2022,~~2023, we sold ~~$15.8~~$7.6 million inof multifamily loans, compared to ~~none in the preceding quarter and $107.7~~$15.8 million for the same period a year ago. Loans held for sale ~~at March 31, 2022~~ included ~~$44.9~~$43.0 million and $49.5 million of multifamily loans at March 31, 2023 and ~~$56.1 million of~~December 31, 2022, respectively, with the remaining balance in one- to four-family residential mortgage ~~loans compared to $54.5 million of multifamily loans and $80.8 million of one- to four-family residential mortgage loans at March 31, 2021.~~loans.

The following table presents loans by geographic concentration at March 31, ~~2022,~~2023, December 31, ~~2021~~2022 and March 31, ~~2021~~2022 (dollars in thousands):


		Mar 31, 2022				Dec 31, 2021		Mar 31, 2021		Percentage Change					Mar 31, 2023				Dec 31, 2022		Mar 31, 2022		Percentage Change
		Amount		Percentage		Amount		Amount		Prior Year End		Prior Year Qtr			Amount		Percentage		Amount		Amount		Year End		Prior Year Qtr.
Washington	Washington	$	4,254,748	46.6	%	$	4,264,590	$	4,683,600	(0.2)	%	(9.2)	%	Washington	$	4,808,821	47.3	%	$	4,777,546	$	4,254,748	0.7	%	13.0	%
California	California	2,195,904		24.0		2,138,340		2,320,384		2.7		(5.4)		California	2,490,666		24.5		2,484,980		2,195,904		0.2		13.4
Oregon	Oregon	1,629,281		17.8		1,652,364		1,801,104		(1.4)		(9.5)		Oregon	1,823,057		17.9		1,826,743		1,629,281		(0.2)		11.9
Idaho	Idaho	541,706		5.9		525,141		539,061		3.2		0.5		Idaho	565,335		5.6		565,586		541,706		—		4.4
Utah	Utah	84,720		0.9		74,913		92,399		13.1		(8.3)		Utah	67,085		0.7		75,967		84,720		(11.7)		(20.8)
Other	Other	440,270		4.8		429,415		511,149		2.5		(13.9)		Other	405,720		4.0		415,902		440,270		(2.4)		(7.8)
Total loans receivable	Total loans receivable	$	9,146,629	100.0	%	$	9,084,763	$	9,947,697	0.7	%	(8.1)	%	Total loans receivable	$	10,160,684	100.0	%	$	10,146,724	$	9,146,629	0.1	%	11.1	%

Investment Securities: ~~Our total investment in~~Total securities ~~increased $3.5~~decreased $143.3 million to ~~$4.19~~$3.79 billion at March 31, ~~2022~~2023 from $3.94 billion at December 31, ~~2021.~~2022, primarily due to the sale of $150.1 million of securities as well as normal portfolio cash flows. Securities ~~purchased exceeded~~ sales, paydowns and maturities exceeded purchases during the three-month period ended March 31, ~~2022, as we continued to deploy excess balance sheet liquidity at a measured pace.~~2023. Purchases ~~were~~during the three months ended March 31, 2023 consisted primarily inof mortgage-backed securities. The average effective duration of ~~Banner’s~~the Company’s securities portfolio was ~~approximately 6.2~~6.6 years at March 31, ~~2022. During the current quarter, $458.6 million of securities were transferred from available for sale~~2023, compared to ~~securities held to maturity to limit the impact that potential future interest rates changes would have on our AOCI.~~6.5 years at December 31, 2022. Net fair value adjustments to the portfolio of securities held for trading, which were included in net income, ~~were an increase of $373,000~~decreased $103,000 in the three months ended March 31, ~~2022.~~2023. In addition, fair value adjustments for securities designated as available-for-sale ~~reflected a decrease of $153.1~~increased $36.1 million for the three months ended March 31, ~~2022,~~2023, which was included, net of the associated tax ~~benefit~~expense of ~~$36.7~~$8.7 million, as a component of other comprehensive income, and largely occurred as a result of ~~increases~~decreases in market interest rates during the ~~quarter. (See Note 3 of the Selected Notes to the Consolidated Financial Statements in this Form 10-Q.)~~three months ended March 31, 2023. The Company held ~~$300.0~~$150.0 million of securities purchased under resell agreements at ~~both~~ March 31, ~~2022 and~~2023, compared to $300.0 million at December 31, ~~2021.~~2022. The decrease was due to $150.0 million of reverse repurchase agreements maturing during the first quarter of 2023.

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. Increasing core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) is a fundamental element of our business strategy. Much of the focus of our branch strategy and ~~current~~ 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. ~~The long-term success~~Despite rate sensitive deposits moving off balance sheet during the last couple of quarters, our ~~deposit gathering activities is reflected not only in the growth~~strategy of ~~core deposit balances, but also in the level of deposit fees, service charges and other payment processing revenues compared to prior periods.~~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											Percentage Change
		Mar 31, 2022		Dec 31, 2021		Mar 31, 2021		Prior Year End		Prior Year Quarter			Mar 31, 2023		Dec 31, 2022		Mar 31, 2022		Year End		Prior Year Qtr.
Non-interest-bearing	Non-interest-bearing	$	6,494,852	$	6,385,177	$	5,994,693	1.7	%	8.3	%	Non-interest-bearing	$	5,764,009	$	6,176,998	$	6,494,852	(6.7)	%	(11.3)	%
Interest-bearing checking	Interest-bearing checking	1,971,936		1,947,414		1,722,085		1.3		14.5		Interest-bearing checking	1,794,477		1,811,153		1,971,936		(0.9)		(9.0)
Regular savings accounts	Regular savings accounts	2,853,891		2,784,716		2,597,731		2.5		9.9		Regular savings accounts	2,502,084		2,710,090		2,853,891		(7.7)		(12.3)
Money market accounts	Money market accounts	2,402,731		2,370,995		2,327,380		1.3		3.2		Money market accounts	2,143,700		2,198,288		2,402,731		(2.5)		(10.8)
Interest-bearing transaction & savings accounts	Interest-bearing transaction & savings accounts	7,228,558		7,103,125		6,647,196		1.8		8.7		Interest-bearing transaction & savings accounts	6,440,261		6,719,531		7,228,558		(4.2)		(10.9)
Total core deposits	Total core deposits	13,723,410		13,488,302		12,641,889		1.7		8.6		Total core deposits	12,204,270		12,896,529		13,723,410		(5.4)		(11.1)
Interest-bearing certificates	Interest-bearing certificates	800,364		838,631		906,978		(4.6)		(11.8)		Interest-bearing certificates	949,932		723,530		800,364		31.3		18.7
Total deposits	Total deposits	$	14,523,774	$	14,326,933	$	13,548,867	1.4	%	7.2	%	Total deposits	$	13,154,202	$	13,620,059	$	14,523,774	(3.4)	%	(9.4)	%

Total deposits ~~were $14.52 billion at March 31, 2022, compared to $14.33 billion at December 31, 2021 and $13.55 billion a year ago. The $196.8~~decreased $465.9 million ~~increase in total deposits~~ compared to December 31, ~~2021 reflects a $235.1 million increase in~~2022, with core deposits decreasing $692.3 million, partially offset by a ~~decrease~~$226.4 million increase in certificates of deposit. The ~~increase~~decline in ~~total~~ deposits ~~from year end~~during the first three months of 2023 was primarily due ~~primarily~~ to an ~~increase~~overall reduction in ~~client deposit accounts due to reduced business investment and changes in consumer spending habits.~~market liquidity, as well as interest rate sensitive clients moving a portion of their non-operating deposits. Non-interest-bearing account balances ~~increased 2% to $6.49 billion~~decreased 7% at March 31, ~~2022,~~2023, compared to ~~$6.39 billion at~~ December 31, ~~2021, and increased 8% compared to $5.99 billion a year ago.~~2022. Interest-bearing transaction and savings accounts ~~increased 2% to $7.23 billion~~decreased 4% at March 31, ~~2022,~~2023, compared to ~~$7.10 billion at~~ December 31, ~~2021,~~

~~and increased 9% compared to $6.65 billion a year ago.~~2022. Certificates of deposit ~~decreased 5% to $800.4 million~~increased 31% at March 31, ~~2022,~~2023, compared to ~~$838.6 million at~~ December 31, ~~2021 and decreased 12% compared~~2022, reflecting increasing rates attracting customers to ~~$907.0 million a year ago.~~these deposit types. We had no brokered deposits at March 31, ~~2022~~2023 or December 31, ~~2021.~~2022. Core deposits represented ~~94%~~93% and 95% of total deposits at ~~both~~ March 31, ~~2022~~2023 and December 31, ~~2021.~~2022, respectively.

The Bank’s uninsured deposits were $4.42 billion or 33% of total deposits at March 31, 2023, compared to $4.84 billion or 35% of total deposits at December 31, 2022. The uninsured deposit calculation includes $277.7 million and $304.2 million of collateralized public deposits at March 31, 2023 and December 31, 2022, respectively. Uninsured deposits also includes cash held by the Company of $88.0 million and $77.2 million at March 31, 2023 and December 31, 2022, respectively. The Bank’s uninsured deposits, excluding collateralized public deposits and cash held at the holding company, were 31% of total deposits at March 31, 2023, compared to 33% of total deposits at December 31, 2022.

The following table presents deposits by geographic concentration at March 31, ~~2022,~~2023, December 31, ~~2021~~2022 and March 31, ~~2021~~2022 (dollars in thousands):


		Mar 31, 2022				Dec 31, 2021		Mar 31, 2021		Percentage Change					Mar 31, 2023				Dec 31, 2022		Mar 31, 2022		Percentage Change
		Amount		Percentage		Amount		Amount		Prior Year End		Prior Year Quarter			Amount		Percentage		Amount		Amount		Year End		Prior Year Qtr.
Washington	Washington	$	8,067,253	55.5	%	$	7,952,376	$	7,504,389	1.4	%	7.5	%	Washington	$	7,237,499	55.0	%	$	7,563,056	$	8,067,253	(4.3)	%	(10.3)	%
Oregon	Oregon	3,140,393		21.6		3,067,054		2,929,027		2.4		7.2		Oregon	2,911,788		22.1		2,998,572		3,140,393		(2.9)		(7.3)
California	California	2,520,655		17.4		2,524,296		2,401,299		(0.1)		5.0		California	2,309,174		17.6		2,331,524		2,520,655		(1.0)		(8.4)
Idaho	Idaho	795,473		5.5		783,207		714,152		1.6		11.4		Idaho	695,741		5.3		726,907		795,473		(4.3)		(12.5)

Total deposits	Total deposits	$	14,523,774	100.0	%	$	14,326,933	$	13,548,867	1.4	%	7.2	%	Total deposits	$	13,154,202	100.0	%	$	13,620,059	$	14,523,774	(3.4)	%	(9.4)	%

Borrowings: We had no$170.0 million FHLB advances at March 31, ~~2022,~~2023, compared to $50.0 million at December 31, ~~2021 as increased core deposits was a sufficient source of funding.~~2022. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, ~~increased $2.3~~decreased $18.2 million, or 1%8%, to ~~$266.8~~$214.6 million at March 31, ~~2022,~~2023, compared to ~~$264.5~~$232.8 million at December 31, ~~2021.~~2022. Junior subordinated debentures totaled ~~$70.5~~$74.7 million at March 31, ~~2022~~2023 compared to ~~$119.8~~$74.9 million at December 31, ~~2021, as Banner redeemed $50.5 million of junior subordinated debentures during the current quarter.~~2022. Subordinated notes, net of issuance costs were ~~$98.7~~$99.0 million at March 31, ~~2022~~2023 compared to ~~$98.6~~$98.9 million at December 31, ~~2021.~~2022.

Shareholders’ Equity: Total shareholders’ equity ~~decreased $126.5~~increased $75.3 million to ~~$1.56~~$1.53 billion at March 31, 2023, as compared to $1.46 billion at December 31, 2022. The ~~decrease~~increase in shareholders’ equity iswas primarily due to ~~the $154.3~~a $38.9 million ~~decrease~~increase in ~~AOCI, primarily representing the unrealized loss and related decrease~~retained earnings as a result of $55.6 million in ~~the fair value of securities available-for-sale,~~ net ~~of tax and the accrual of $15.1 million of cash dividends to common shareholders,~~income, partially offset by the ~~$44.0~~payment of cash dividends during the quarter and a $37.1 million increase in AOCI, primarily due to a decrease in the unrealized loss on the security portfolio. There were no shares of ~~year-to-date net income During~~common stock repurchased during the three months ended March 31, 2022, no shares of restricted stock were forfeited and no shares of our common stock were purchased other than 52,706 shares surrendered by employees to satisfy tax withholding obligations upon the vesting of restricted stock grants. (See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” in this Form 10-Q.)2023. Tangible common shareholders’ equity, which excludes goodwill and other intangible assets, ~~decreased $125.1~~increased $76.3 million to ~~$1.18~~$1.15 billion, or ~~7.18%~~7.59% of tangible assets at March 31, ~~2022,~~2023, compared to ~~$1.30~~$1.07 billion, or ~~7.93%~~6.95% of tangible assets at December 31, ~~2021.~~2022. The ~~decrease~~increase in tangible common shareholders’ equity as a percentage of tangible assets was primarily due to the ~~decrease in tangible common shareholders’ equity primarily due to the~~ previously mentioned ~~decrease~~increases in ~~accumulated other comprehensive income.~~retained earnings and AOCI.

Comparison of Results of Operations for the Three Months Ended March 31, ~~2022,~~2023 and December 31, ~~2021 and March 31, 2021~~2022

For the quarter ended March 31, ~~2022, our~~2023, net income was ~~$44.0~~$55.6 million, or ~~$1.27~~$1.61 per diluted share, compared to ~~$49.9~~$54.4 million, or ~~$1.44~~$1.58 per diluted share, for the preceding ~~quarter and $46.9 million, or $1.33 per diluted share, for the quarter ended March 31, 2021. Our~~quarter. The increase in net income ~~for the current quarter included~~was primarily due to increased interest income as a result of higher average yields on total interest-earning assets, a recapture of provision for credit losses ~~of $7.0 million as well as~~and decreased ~~funding costs,~~non-interest expenses, partially offset by increased funding costs as a result of higher average rates paid on interest bearing liabilities and decreased ~~mortgage banking~~non-interest income ~~and a decline in the acceleration of the recognition of deferred loan fee income~~primarily due to ~~loan repayments from SBA PPP loan forgiveness compared to both~~a net loss on the ~~preceding and prior year quarters. Our results for~~sale of securities during the quarter ended March 31, 2022 included no COVID-19 related expenses or acquisition-related expenses. This compares to $127,000 of COVID-19 related expenses and no acquisition-related expenses for the preceding quarter and $148,000 of COVID-19 related expenses and $571,000 of acquisition-related expenses for the quarter ended March 31, 2021.current quarter.

~~A decline~~Rising market interest rates during the quarter resulted in yields on loans and investment securities increasing at a faster pace than our funding costs. The increase in the ~~acceleration of deferred loan fee income due to SBA PPP loan repayments from SBA loan forgiveness coupled with fewer days in the current quarter,~~yields on loans and investment securities, partially offset by ~~decreased~~increased funding costs ~~produced decreased~~during the quarter improved our net interest ~~income~~margin for the quarter compared to the preceding quarter. ~~Growth in the balance of average interest-earning assets and decreased~~The increased funding costs ~~partially offset by a decline in~~and net loss on the ~~acceleration~~sale of ~~deferred loan fee income due to SBA PPP loan repayments from SBA loan forgiveness and~~securities recorded during the ~~decline in the average yield on interest-earning assets, produced increased net interest income for the~~current quarter ~~compared to the same period a year earlier. The decreases in net interest income and mortgage banking income~~ resulted in ~~revenues decreasing~~decreased total revenue for the quarter ended March 31, ~~2022,~~2023, compared to the preceding quarter. The increase in net interest income was offset by decreased mortgage banking income, resulting in revenues decreasing for the quarter ended March 31, 2022, compared to the same period a year earlier. Banner

We recorded a ~~$7.0 million~~$524,000 recapture of provision for credit losses for the quarter ended March 31, ~~2022,~~2023, compared to a ~~$5.2~~$6.7 million ~~recapture of~~ provision for credit losses in the prior ~~quarter and a $9.3 million recapture of provision for credit losses in the same quarter a year ago.~~quarter. The recapture of provision for credit losses for the current ~~and preceding quarters~~quarter primarily reflects ~~an improvement in economic conditions and~~ a decrease in ~~adversely classified loans.~~ unfunded construction loan commitments, which was partially offset by the provision for credit losses recorded on the funded loan balances. The provision for credit losses for the preceding quarter primarily reflects loan growth and, to a lesser extent, a deterioration in forecasted economic indicators utilized to estimate credit losses.

Non-interest expenses decreased in the quarter ended March 31, ~~2022~~2023 compared to the prior ~~quarter and same quarter a year ago.~~

quarter. The decrease in non-interest expense ~~for the current quarter compared to the prior quarter~~primarily reflects ~~decreases~~a $1.5 million decrease in occupancy and equipment expenses, ~~advertising~~reflecting increased building rent expense due to lease buyouts as well as elevated weather-related building maintenance expenses during the prior quarter, and ~~marketing~~a $4.2 million decrease in professional and legal expenses ~~and loss on extinguishment~~due to a $3.5 million accrual recorded during the prior quarter in relation to the potential settlement of ~~debt,~~a pending litigation matter, partially offset anby a $1.4 million decrease in capitalized loan origination costs due to decreased loan production and a $1.1 million increase in salary and employee benefits expenses primarily due to severance costs and typical higher payroll taxes in the first quarter of a year partially offset by lower salary expense and a decrease in capitalized loan origination costs. Banner recorded a $793,000 loss on extinguishment of debt as a result of the redemption of $50.5 million of junior subordinated debentures during the first quarter of 2022, compared to a $2.3 million loss as a result of the redemption of $8.2 million of junior subordinated debentures during the prior quarter. The year-over-year quarterly decrease in non-interestexpense.

6051

expense primarily reflects decreases in salary and employee benefits expense, primarily due to a reduction in staffing, and professional and legal expenses, primarily due to a reduction in consultant expense. The year-over-year quarterly decreases in non-interest expense were partially offset by a decrease in capitalized loan origination costs and the previously mentioned loss on extinguishment of debt.


OPERATING DATA:	OPERATING DATA:							OPERATING DATA:
		For the Quarters Ended							Quarters Ended
(In thousands)	(In thousands)	March 31, 2022		December 31, 2021		March 31, 2021		(In thousands)	March 31, 2023		December 31, 2022
Interest income	Interest income	$	122,891	$	126,546	$	124,521	Interest income	$	166,961	$	165,558
Interest expense	Interest expense	4,237		5,016		6,860		Interest expense	13,649		6,487
Net interest income	Net interest income	118,654		121,530		117,661		Net interest income	153,312		159,071
Recapture of provision for credit losses		(6,961)		(5,243)		(9,251)
Net interest income after provision for credit losses		125,615		126,773		126,912
(Recapture) provision for credit losses								(Recapture) provision for credit losses	(524)		6,704
Net interest income after (recapture) provision for credit losses								Net interest income after (recapture) provision for credit losses	153,836		152,367
Deposit fees and other service charges	Deposit fees and other service charges	11,189		10,341		8,939		Deposit fees and other service charges	10,562		10,821
Mortgage banking operations revenue		4,440		5,643		11,347
Mortgage banking operations								Mortgage banking operations	2,691		2,311
Net change in valuation of financial instruments carried at fair value	Net change in valuation of financial instruments carried at fair value	49		2,721		59		Net change in valuation of financial instruments carried at fair value	(552)		157
All other non-interest income	All other non-interest income	3,749		5,769		3,927		All other non-interest income	(3,424)		(219)
Total non-interest income	Total non-interest income	19,427		24,474		24,272		Total non-interest income	9,277		13,070

Salary and employee benefits	Salary and employee benefits	59,486		57,798		64,819		Salary and employee benefits	61,389		60,309
All other non-interest expenses	All other non-interest expenses	31,709		34,007		28,708		All other non-interest expenses	33,232		38,704
Total non-interest expense	Total non-interest expense	91,195		91,805		93,527		Total non-interest expense	94,621		99,013
Income before provision for income tax expense	Income before provision for income tax expense	53,847		59,442		57,657		Income before provision for income tax expense	68,492		66,424
Provision for income tax expense	Provision for income tax expense	9,884		9,515		10,802		Provision for income tax expense	12,937		12,044
Net income	Net income	$	43,963	$	49,927	$	46,855	Net income	$	55,555	$	54,380


PER COMMON SHARE DATA:	PER COMMON SHARE DATA:							PER COMMON SHARE DATA:
		For the Quarters Ended							Quarters Ended
		March 31, 2022		December 31, 2021		March 31, 2021			March 31, 2023		December 31, 2022
Net income:	Net income:							Net income:
Basic	Basic	$	1.28	$	1.46	$	1.34	Basic	$	1.62	$	1.59
Diluted	Diluted	1.27		1.44		1.33		Diluted	1.61		1.58

Net Interest Income. Net interest income decreased by ~~$2.9~~$5.8 million, or 2%4%, ~~to $118.7 million~~ for the quarter ended March 31, 2022, compared to $121.5 million for the preceding quarter, and increased by $1.0 million, or 1%, compared to $117.7 million for the same quarter one year earlier. The lower net interest income during the quarter2023, compared to the preceding ~~quarter~~quarter. The decrease in net interest income was primarily due to a decline in the acceleration of the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness and fewer days in the current quarter, partially offset by decreases in the cost of funding liabilities. The increase in net interest income during the current quarter compared to the prior year quarter was primarily due to decreasesincreases in the cost of funding liabilities, ~~as well as an increase of $1.28 billion~~partially offset by increases in the average ~~balance of interest-earning assets, partially offset by a decline in the acceleration of the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness and lower~~ yields on average interest-earning assets. The lower yields for the current quarter compared to the same quarter a year ago reflect the low interest rate environment during 2021. The lower yields year-over-year also reflect the growth in the average balance of interest-earning assets primarily being invested in short term investments including interest bearing depositsloans and ~~securities available for sale.~~investment securities.

The net interest margin on a tax equivalent basis ~~of 3.18%~~increased seven basis points to 4.30% for the quarter ended March 31, ~~2022 was enhanced by three basis points as a result of acquisition accounting adjustments. This compares~~2023, compared to a net interest margin on a tax equivalent basis of ~~3.17%~~4.23% for the preceding quarter, ~~and 3.44% for the quarter ended March 31, 2021. Both the previous and prior year quarters included five basis points from acquisition accounting adjustments. The~~reflecting a 28 basis-point increase in ~~net interest margin compared to~~ the ~~preceding~~average yields on interest-earning assets during the current quarter, ~~was primarily due to higher core deposit balances and lower borrowings, resulting in~~partially offset by a ~~decrease~~22 basis-point increase in the cost of funding liabilities. ~~This decrease was partially offset by lower~~The increase in average yields on interest-earning assets reflects the benefit of variable rate interest-earning assets repricing higher, as well as new loans being originated at higher interest ~~income during the quarter, primarily as a result of a decline in the acceleration of the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness. In~~rates. Since March 2022, in response to inflation, the Federal Open Market Committee (“FOMC”) of the Federal Reserve System ~~commenced increasing~~has increased the target range for the federal funds rate by ~~implementing a 25~~475 basis ~~point increase~~points, including 50 basis points during the first quarter of 2023, to a range of ~~0.25%~~4.75% to ~~0.50%~~5.00%. The ~~FOMC has indicated further increases are to be expected this year. This recent~~ increase however, had limited impact on the current quarter’s net interest margin as the change in rate occurred towards the end of the quarter. The decrease in net interest margin compared to a year earlier reflects lower yields on average interest-earning assets, due to declines in market rates during 2021, and a larger percentage of interest-earning assets being invested in short term investments, partially offset by decreases in the overall cost of funding ~~liabilities.~~liabilities compared to the previous quarter was largely due to the increase in the costs of deposits which was due to elevated competition for deposits, an increase in the mix of higher cost CDs and the lag effect of prior market rate increases on current period deposit costs.

Interest Income. Interest income for the quarter ended March 31, ~~2022~~2023 was ~~$122.9~~$167.0 million, compared to ~~$126.5~~$165.6 million for the preceding ~~quarter and $124.5 million for the same quarter in the prior year.~~quarter. The ~~decreases~~increase in interest income during the current quarter compared to ~~both~~ the ~~preceding and~~ prior ~~year quarters~~quarter occurred primarily as a result of ~~a decline in the acceleration of deferred loan fee income due to SBA PPP loan repayments from SBA loan forgiveness. Lower~~average yields on ~~average~~total interest-earning assets ~~also contributed to the decrease in interest income compared to the prior year,~~increasing 28 basis points, partially offset by ~~an increase in~~ the average balance of interest-earning ~~assets.~~assets decreasing $453.5 million. The ~~average balance of~~increased yield on interest-earning assets reflects increases in the average yields on loans and securities.

Interest income on loans increased by $3.8 million for the current quarter from the preceding quarter. The increased interest income on loans was ~~$15.42 billion~~due to the average loan yields increasing to 5.38% for the quarter ended March 31, ~~2022, compared to $15.53 billion for~~2023, from 5.14% in the preceding quarter, and $14.14 billion for the same quarter a year earlier. The average yield on total interest-earning assets was 3.29% for both the quarter ended March 31, 2022 and the preceding quarter, and was 3.64% for the same quarter one year earlier. The decrease in average yield between the current quarter and prior year quarter reflects a 13 basis-point decrease in the average yield on investment securities, as a larger percentage of interest earning assets were invested in low yielding short term investments, partially offset by a seven basis-point increase in the average yield on loans, reflecting the ~~acceleration~~impact of ~~the recognition of deferred loan fee income upon SBA repayment and forgiveness of low yielding SBA PPP loans.~~rising interest rates. Average loans receivable for the quarter ended March 31, ~~2022 decreased $63.7 million, or~~2023 increased 1%, ~~to $9.16 billion,~~ compared to ~~$9.23 billion for~~ the preceding quarter, ~~and decreased $921.4 million, or 9% compared to $10.08 billion for the same quarter in the prior year,~~primarily reflecting the ~~forgiveness of SBA PPP~~increase in one- to four-family loans. Interest income on loans decreased by $4.6 million to $100.4 million for the current quarter from $104.9 million for the preceding quarter and $8.6 million from $108.9 million for the quarter ended March 31, 2021, reflecting the impact of the previously mentioned decrease in the average balance of loans receivable and a decline in the acceleration of the recognition of deferred loan fee income due to loan repayments from SBA PPP loan forgiveness. The average yield on total loans decreased to 4.50% for the quarter ended March 31, 2022, from 4.57% in the preceding quarter and increased from 4.43% for the same quarter one year earlier. The decrease from the preceding quarter reflects the decrease in SBA PPP deferred loan fee income, while the increase compared to the year ago quarter reflects the lower yields on SBA PPP loans prior to the acceleration of deferred loan fee income as a result of SBA loan forgiveness. The acquisition accounting loan discount accretion and the related balance sheet impact added five basis points to the current quarter’s average loan yield, compared to eight basis points in the preceding quarter and seven basis points for the same quarter one year earlier.

The combined average balance of mortgage-backed securities, other investment securities, equity securities, interest-bearing deposits and FHLB stock (total investment securities or combined portfolio) decreased to ~~$6.26~~$4.57 billion for the quarter ended March 31, ~~2022~~2023 (excluding the effect of fair value adjustments), compared to ~~$6.30~~$5.07 billion for the preceding ~~quarter and increased compared to $4.05 billion for the quarter ended March 31, 2021.~~quarter. The interest and dividend income from those investments ~~increased~~decreased by ~~$924,000~~$2.4 million compared to the preceding ~~quarter and $6.9 million compared to the same quarter in the prior year.~~quarter. The average yield on the combined portfolio increased to ~~1.53%~~3.10% for the quarter ended March 31, ~~2022,~~2023, from ~~1.43%~~2.92% in the preceding ~~quarter and decreased from 1.66% for the same quarter one year earlier.~~quarter. The increase in the average yield for the current quarter compared to the preceding quarter reflects ~~an increase in~~ the ~~yield on mortgage-backed securities as well as a smaller percentage of~~rising interest earning assets being invested in interest-bearing deposits. The decrease in average yield for the current quarter compared to the prior year quarter reflects the overall decline in market interest rates during 2021 as well as the investment of excess liquidity in short term investments.rate environment.

Interest Expense. Interest expense for the quarter ended March 31, ~~2022 was $4.2~~2023 increased $7.2 million ~~compared to $5.0 million for the preceding quarter and compared to $6.9 million for the same quarter~~or 110%. The increase in ~~the prior year. The~~ interest expense ~~decrease between the current quarter and preceding quarter reflects the decrease in total borrowings and~~occurred as a ~~slight decrease in the average cost~~result of ~~total funding liabilities. The interest expense decrease between the current quarter and prior year quarter reflects~~ a ~~nine~~22 basis-point ~~decrease~~increase in the average cost of all funding liabilities to 0.40%, partially offset by ~~a $1.39 billion, or 10%, increase~~the average balance of funding liabilities decreasing $537.9 million. The decrease in the average balance of funding ~~liabilities.~~liabilities reflects decreases in non-interest-bearing deposits and interest-bearing transaction and savings accounts, primarily due to interest rate sensitive clients moving a portion of their non-operating deposit balances to higher yielding investments, partially offset by higher average balances of certificates of deposit and FHLB advances.

Deposit interest expense ~~decreased $298,000,~~increased $5.6 million, or ~~13%~~155%, ~~to $2.1 million~~ for the quarter ended March 31, ~~2022,~~2023, compared to ~~$2.4 million for~~ the preceding quarter, ~~and $1.5 million, or 42%, compared to $3.6 million for the same quarter in the prior year,~~ primarily as a result of ~~a decrease in the cost of deposits, partially offset by~~ an increase in the average ~~balances.~~rate paid on interest-bearing deposits. The cost of interest-bearing deposits increased by 32 basis points to 0.51% for the quarter ended March 31, 2023, compared to 0.19% in the preceding quarter. The average rate paid on total deposits ~~decreased to 0.06%~~was 0.28% in the first quarter of ~~2022 from 0.07% for the preceding quarter and from 0.11% for the quarter ended March 31, 2021. The decrease in costs~~2023, compared to the prior year also reflected an increase in the percentage of non-interest bearing deposits to total deposits. The cost of interest-bearing deposits decreased by one basis-point to 0.11% for the quarter ended March 31, 2022, compared to 0.12%0.10% in the preceding ~~quarter and by nine basis points compared to 0.20% in the same quarter a year earlier.~~quarter. Average deposit balances ~~increased~~decreased to ~~$14.41~~$13.33 billion for the quarter ended March 31, ~~2022,~~2023, from ~~$14.38~~$13.95 billion for the preceding ~~quarter and from $12.92 billion for the quarter ended March 31, 2021.~~

quarter. The ~~decrease~~increase in the average costs of deposits was due to elevated competition for deposits, an increase in the mix of higher cost ~~of interest-bearing deposits during 2021 reflects~~CDs and the lag effect of ~~the decreases in the target Fed Funds Rate during the first quarter of 2020 as well as a higher percentage of our interest-bearing deposits comprised of lower cost core deposits.~~prior market rate increases on current period deposit costs.

Interest expense on total borrowings ~~decreased~~increased to ~~$2.2~~$4.4 million for the quarter ended March 31, ~~2022~~2023 from ~~$2.6~~$2.9 million for the preceding quarter, ~~and from $3.3 million for the quarter ended March 31, 2021. The decrease was~~ primarily due to ~~decreases~~an increase in the average rate paid ~~on total borrowings~~ and ~~in the~~ average balance of ~~the junior subordinated debentures.~~total borrowings. The average rate paid on total borrowings for the quarter ended March 31, ~~2022 decreased~~2023 increased to ~~1.74%~~3.41% from ~~1.85%~~2.54% for the preceding ~~quarter and from 2.21% for the same quarter one year earlier.~~quarter. Average total borrowings were ~~$500.4~~$524.6 million for the quarter ended March 31, ~~2022,~~2023, compared to ~~$563.1~~$446.7 million for the preceding ~~quarter and $595.3~~quarter. The increase in average total borrowings was largely due to an $86.6 million ~~for~~increase in the ~~same quarter one year earlier.~~average balance of FHLB advances, partially offset by an $8.8 million decrease in the average balance of other borrowings.

Analysis of Net Interest Spread. The following tables present 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):

6253


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
ANALYSIS OF NET INTEREST SPREAD		Quarters Ended
		Mar 31, 2022						Dec 31, 2021						Mar 31, 2021
		Average Balance		Interest and Dividends		Yield / Cost(3)		Average Balance		Interest and Dividends		Yield / Cost(3)		Average Balance		Interest and Dividends		Yield / Cost(3)

ANALYSIS OF NET INTEREST SPREAD																				ANALYSIS OF NET INTEREST SPREAD	Quarters Ended
(rates / ratios annualized)																				(rates / ratios annualized)	Mar 31, 2023						Dec 31, 2022
(dollars in thousands)																				(dollars in thousands)	Average Balance		Interest and Dividends(3)		Yield / Cost(3)		Average Balance		Interest and Dividends(3)		Yield / Cost(3)
Interest-earning assets:	Interest-earning assets:																			Interest-earning assets:
Held for sale loans	Held for sale loans	$	130,221	$	1,115	3.47	%	$	73,101	$	601	3.26	%	$	119,341	$	925	3.14	%	Held for sale loans	$	52,657	$	671	5.17	%	$	45,654	$	527	4.58	%
Mortgage loans	Mortgage loans	7,347,662		81,032		4.47	%	7,362,363		83,059		4.48	%	7,144,770		80,580		4.57	%	Mortgage loans	8,267,386		106,900		5.24		8,175,281		103,478		5.02
Commercial/agricultural loans	Commercial/agricultural loans	1,479,216		15,011		4.12	%	1,460,486		14,966		4.07	%	1,519,062		15,919		4.25	%	Commercial/agricultural loans	1,702,553		25,176		6.00		1,742,517		24,727		5.63
SBA PPP loans	SBA PPP loans	88,720		2,784		12.73	%	209,776		5,845		11.05	%	1,172,492		10,792		3.73	%	SBA PPP loans	6,792		50		2.99		9,347		224		9.51
Consumer and other loans	Consumer and other loans	115,881		1,700		5.95	%	119,658		1,749		5.80	%	127,469		1,947		6.19	%	Consumer and other loans	137,096		2,115		6.26		140,801		2,125		5.99
Total loans(1)	Total loans(1)	9,161,700		101,642		4.50	%	9,225,384		106,220		4.57	%	10,083,134		110,163		4.43	%	Total loans(1)	10,166,484		134,912		5.38		10,113,600		131,081		5.14
Mortgage-backed securities	Mortgage-backed securities	2,975,263		14,235		1.94	%	2,838,759		13,344		1.86	%	1,953,820		9,472		1.97	%	Mortgage-backed securities	3,093,860		19,123		2.51		3,187,557		19,244		2.40
Other securities	Other securities	1,573,834		8,429		2.17	%	1,550,383		8,466		2.17	%	1,048,856		6,687		2.59	%	Other securities	1,404,355		15,095		4.36		1,628,553		15,945		3.88
Equity securities		—		—		—	%	—		—		—	%	1,742		—		—	%

Interest-bearing deposits with banks	Interest-bearing deposits with banks	1,697,545		820		0.20	%	1,901,165		731		0.15	%	1,032,138		262		0.10	%	Interest-bearing deposits with banks	53,584		608		4.60		245,538		2,126		3.44
FHLB stock	FHLB stock	11,756		106		3.66	%	12,000		135		4.46	%	15,952		161		4.09	%	FHLB stock	14,236		90		2.56		10,773		76		2.80
Total investment securities	Total investment securities	6,258,398		23,590		1.53	%	6,302,307		22,676		1.43	%	4,052,508		16,582		1.66	%	Total investment securities	4,566,035		34,916		3.10		5,072,421		37,391		2.92
Total interest-earning assets	Total interest-earning assets	15,420,098		125,232		3.29	%	15,527,691		128,896		3.29	%	14,135,642		126,745		3.64	%	Total interest-earning assets	14,732,519		169,828		4.68		15,186,021		168,472		4.40
Non-interest-earning assets	Non-interest-earning assets	1,372,182						1,306,437						1,237,281						Non-interest-earning assets	921,217						927,585
Total assets	Total assets	$	16,792,280					$	16,834,128					$	15,372,923					Total assets	$	15,653,736					$	16,113,606
Deposits:	Deposits:																			Deposits:
Interest-bearing checking accounts	Interest-bearing checking accounts	$	1,958,824	273		0.06	%	$	1,875,097	289		0.06	%	$	1,616,824	315		0.08	%	Interest-bearing checking accounts	$	1,779,664	906		0.21		$	1,818,907	566		0.12
Savings accounts	Savings accounts	2,816,774		354		0.05	%	2,773,597		400		0.06	%	2,486,820		521		0.08	%	Savings accounts	2,615,173		1,884		0.29		2,761,323		866		0.12
Money market accounts	Money market accounts	2,390,621		506		0.09	%	2,367,861		559		0.09	%	2,242,748		775		0.14	%	Money market accounts	2,167,138		3,799		0.71		2,256,867		1,337		0.24
Certificates of deposit	Certificates of deposit	825,028		953		0.47	%	840,920		1,136		0.54	%	913,053		1,998		0.89	%	Certificates of deposit	810,821		2,655		1.33		709,974		854		0.48
Total interest-bearing deposits	Total interest-bearing deposits	7,991,247		2,086		0.11	%	7,857,475		2,384		0.12	%	7,259,445		3,609		0.20	%	Total interest-bearing deposits	7,372,796		9,244		0.51		7,547,071		3,623		0.19
Non-interest-bearing deposits	Non-interest-bearing deposits	6,421,143		—		—	%	6,523,149		—		—	%	5,663,820		—		—	%	Non-interest-bearing deposits	5,960,791		—		—		6,402,297		—		—
Total deposits	Total deposits	14,412,390		2,086		0.06	%	14,380,624		2,384		0.07	%	12,923,265		3,609		0.11	%	Total deposits	13,333,587		9,244		0.28		13,949,368		3,623		0.10
Other interest-bearing liabilities:	Other interest-bearing liabilities:																			Other interest-bearing liabilities:
FHLB advances	FHLB advances	42,222		291		2.80	%	50,000		348		2.76	%	144,444		934		2.62	%	FHLB advances	105,984		1,264		4.84		19,337		198		4.06
Other borrowings	Other borrowings	266,148		84		0.13	%	266,559		109		0.16	%	202,930		109		0.22	%	Other borrowings	229,459		381		0.67		238,217		132		0.22
Junior subordinated debentures and subordinated notes	Junior subordinated debentures and subordinated notes	191,985		1,776		3.75	%	246,510		2,175		3.50	%	247,944		2,208		3.61	%	Junior subordinated debentures and subordinated notes	189,178		2,760		5.92		189,178		2,534		5.31
Total borrowings	Total borrowings	500,355		2,151		1.74	%	563,069		2,632		1.85	%	595,318		3,251		2.21	%	Total borrowings	524,621		4,405		3.41		446,732		2,864		2.54
Total funding liabilities	Total funding liabilities	14,912,745		4,237		0.12	%	14,943,693		5,016		0.13	%	13,518,583		6,860		0.21	%	Total funding liabilities	13,858,208		13,649		0.40		14,396,100		6,487		0.18
Other non-interest-bearing liabilities(2)	Other non-interest-bearing liabilities(2)	225,953						216,940						207,560						Other non-interest-bearing liabilities(2)	293,205						292,480
Total liabilities	Total liabilities	15,138,698						15,160,633						13,726,143						Total liabilities	14,151,413						14,688,580
Shareholders’ equity	Shareholders’ equity	1,653,582						1,673,495						1,646,780						Shareholders’ equity	1,502,323						1,425,026
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	16,792,280					$	16,834,128					$	15,372,923					Total liabilities and shareholders’ equity	$	15,653,736					$	16,113,606
Net interest income/rate spread (tax equivalent)	Net interest income/rate spread (tax equivalent)			$	120,995	3.17	%			$	123,880	3.16	%			$	119,885	3.43	%	Net interest income/rate spread (tax equivalent)			$	156,179	4.28	%			$	161,985	4.22	%
Net interest margin (tax equivalent)	Net interest margin (tax equivalent)					3.18	%					3.17	%					3.44	%	Net interest margin (tax equivalent)					4.30	%					4.23	%
Reconciliation to reported net interest income:	Reconciliation to reported net interest income:																			Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis	Adjustments for taxable equivalent basis			(2,341)						(2,350)						(2,224)				Adjustments for taxable equivalent basis			(2,867)						(2,914)
Net interest income and margin, as reported	Net interest income and margin, as reported			$	118,654	3.12	%			$	121,530	3.11	%			$	117,661	3.38	%	Net interest income and margin, as reported			$	153,312	4.22	%			$	159,071	4.16	%
Additional Key Financial Ratios:	Additional Key Financial Ratios:																			Additional Key Financial Ratios:
Return on average assets	Return on average assets					1.06	%					1.18	%					1.24	%	Return on average assets					1.44	%					1.34	%
Return on average equity	Return on average equity					10.78	%					11.84	%					11.54	%	Return on average equity					15.00						15.14
Average equity/average assets	Average equity/average assets					9.85	%					9.94	%					10.71	%	Average equity/average assets					9.60						8.84
Average interest-earning assets/average interest-bearing liabilities	Average interest-earning assets/average interest-bearing liabilities					181.59	%					184.40	%					179.96	%	Average interest-earning assets/average interest-bearing liabilities					186.55						189.97
Average interest-earning assets/average funding liabilities	Average interest-earning assets/average funding liabilities					103.40	%					103.91	%					104.56	%	Average interest-earning assets/average funding liabilities					106.31						105.49
Non-interest income/average assets	Non-interest income/average assets					0.47	%					0.58	%					0.64	%	Non-interest income/average assets					0.24						0.32
Non-interest expense/average assets	Non-interest expense/average assets					2.20	%					2.16	%					2.47	%	Non-interest expense/average assets					2.45						2.44
Efficiency ratio(4)	Efficiency ratio(4)					66.04	%					62.88	%					65.90	%	Efficiency ratio(4)					58.20						57.52
Adjusted efficiency ratio(5)	Adjusted efficiency ratio(5)					62.09	%					59.71	%					63.18	%	Adjusted efficiency ratio(5)					54.23						54.43

(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 ~~$1.3~~$1.7 million ~~for both the three months ended March 31, 2022~~ and ~~December 31, 2021 and $1.2~~$1.6 million for the three months ended March 31, ~~2021.~~2023 and December 31, 2022, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was ~~$1.0 million, $1.1~~$1.2 million and ~~$1.0~~$1.3 million for the three months ended March 31, ~~2022,~~2023 and December 31, ~~2021 and March 31, 2021,~~2022, respectively.

(4)Non-interest expense divided by the total of net interest income and non-interest income.

(5)Adjusted non-interest expense divided by adjusted revenue. ~~These represent~~Represent non-GAAP financial measures. See, ~~the discussion and reconciliation of~~ non-GAAP financial information in the Executive Overview section of Management’s Discussion and Analysis of Financial Condition and Results of Operation in this Form 10-Q for more detailed information with respect to the efficiency ratio.measure reconciliations presented above following First Quarter 2023 Highlights.

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):


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
		Quarters Ended
CHANGE IN THE		Mar 31, 2022			Dec 31, 2021			Mar 31, 2021
ALLOWANCE FOR CREDIT LOSSES - LOANS

												Quarters Ended
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - LOANS											CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - LOANS	Mar 31, 2023			Dec 31, 2022			Mar 31, 2022

Balance, beginning of period	Balance, beginning of period	$	132,099		$	139,915		$	167,279		Balance, beginning of period	$	141,465		$	135,918		$	132,099

Recapture of provision for credit losses – loans		(7,376)			(8,127)			(8,035)
Provision (recapture) for credit losses – loans											Provision (recapture) for credit losses – loans	774			6,043			(7,376)
Recoveries of loans previously charged off:	Recoveries of loans previously charged off:										Recoveries of loans previously charged off:
Commercial real estate	Commercial real estate	87			635			24			Commercial real estate	184			88			87

Construction and land	Construction and land	384			—			100			Construction and land	—			—			384
One- to four-family residential	One- to four-family residential	40			47			113			One- to four-family residential	117			18			40
Commercial business	Commercial business	149			267			979			Commercial business	119			616			149
Agricultural business, including secured by farmland	Agricultural business, including secured by farmland	118			5			—			Agricultural business, including secured by farmland	109			91			118
Consumer	Consumer	216			140			296			Consumer	169			153			216
		994			1,094			1,512				698			966			994
Loans charged off:	Loans charged off:										Loans charged off:
Commercial real estate	Commercial real estate	(2)			(1)			(3,763)			Commercial real estate	—			—			(2)
Multifamily real estate		—			(59)			—

Construction and land	Construction and land	(5)			—			—			Construction and land	—			—			(5)

One- to four-family residential											One- to four-family residential	(30)			—			—
Commercial business	Commercial business	(82)			(488)			(789)			Commercial business	(1,158)			(1,231)			(82)

Consumer	Consumer	(157)			(235)			(150)			Consumer	(292)			(231)			(157)
		(246)			(783)			(4,702)				(1,480)			(1,462)			(246)
Net recoveries (charge-offs)		748			311			(3,190)
Net (charge-offs) recoveries											Net (charge-offs) recoveries	(782)			(496)			748
Balance, end of period	Balance, end of period	$	125,471		$	132,099		$	156,054		Balance, end of period	$	141,457		$	141,465		$	125,471
Net recoveries (charge-offs) / Average loans receivable		0.008		%	0.003		%	(0.032)		%
Net (charge-offs) recoveries / Average loans receivable											Net (charge-offs) recoveries / Average loans receivable	(0.008)		%	(0.005)		%	0.008		%
Allowance for credit losses - loans as a percentage of total loans											Allowance for credit losses - loans as a percentage of total loans	1.39		%	1.39		%	1.37		%

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, ~~2022,~~2023, we recorded a ~~recapture of~~ provision for credit losses - loans of ~~$7.4 million,~~$774,000, compared to a ~~recapture of~~ provision for credit losses - loans of ~~$8.1~~$6.0 million during the prior ~~quarter and a recapture of provision for credit losses - loans of $8.0 million during the same quarter a year ago.~~quarter. The ~~recapture of~~ provision for credit losses - loans for the current quarter was recorded to offset the loan charge-offs during the first quarter of 2023 and ~~prior quarters~~to provide allowance for the nominal increase in loan balances. The provision for credit losses – loans for the preceding quarter primarily ~~reflects improvement~~reflected the increase in loan balances in the economic indicators and a decrease in adversely classified loans. In addition, management has updated its assessment of qualitative factors including assessing the current conditions within the specific markets we serve compared to the national economic indicators.preceding quarter. Future assessments of the expected credit losses will not only be impacted by changes in the composition of and amount of loans and 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. ~~No allowance for credit losses-loans was recorded on the $58.6 million balance of SBA PPP loans at March 31, 2022 as these loans are fully guaranteed by the SBA.~~

Net loan ~~recoveries~~charge-offs were ~~$748,000~~$782,000 for the quarter ended March 31, ~~2022~~2023 compared to ~~net recoveries of $311,000 in the preceding quarter and~~ net loan charge-offs of ~~$3.2 million for the same quarter~~$496,000 in the ~~prior year. The allowance for credit losses - loans was $125.5 million at March 31, 2022 compared to $132.1 million at December 31, 2021 and $156.1 million at March 31, 2021.~~preceding quarter. The allowance for credit losses - loans as a percentage of total loans (loans receivable excluding allowance for credit ~~losses)~~losses - loans) was 1.39% at both March 31, 2023 and December 31, 2022, and 1.37% at March 31, ~~2022 as compared to 1.45% at December 31, 2021 and 1.57% at March 31, 2021.~~2022. The ~~decrease~~increase in the allowance for credit losses - loans as a percentage of loans at March 31, ~~2022~~2023 compared to March 31, ~~2021~~2022 reflects ~~the recapture of provision for credit losses - loans recorded during 2022, primarily as the result of the improvement~~a deterioration in ~~the~~ forecasted economic indicators ~~as well as the decrease in adversely classified loans.~~utilized to estimate 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 Mar 31, 2022 Dec 31, 2021 Mar 31, 2021
ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS
Balance, beginning of period $ 12,432 $ 10,127 $ 13,297
Provision/(recapture) for credit losses - unfunded loan commitments 428 2,305 (1,220)
Balance, end of period $ 12,860 $ 12,432 $ 12,077


	Quarters Ended
CHANGE IN THE ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS	Mar 31, 2023		Dec 31, 2022

Balance, beginning of period	$	14,721	$	14,041

(Recapture) provision for credit losses - unfunded loan commitments	(1,278)		680

Balance, end of period	$	13,443	$	14,721

The allowance for credit losses - unfunded loan commitments was $12.9 million at March 31, 2022, compared to $12.4 million at December 31, 2021 and compared to $12.1 million at March 31, 2021. The increasedecrease in the allowance for credit losses - unfunded loan commitments reflects the recapture of provision for credit losses - unfunded loan commitments recorded during the current quarter. ~~During the quarter ended March 31, 2022, we recorded a~~The recapture of provision for credit losses - unfunded loan commitments was primarily the result of ~~$428,000, compared to~~ a ~~$2.3 million provision for loan losses -~~decrease in the balance of unfunded loan commitments during the preceding quarter and compared to a $1.2 million recapture of provision for loan losses - unfunded loan commitments during the comparable quarter a year ago. The provision for credit losses - unfunded loan commitments during the current and preceding quarters was primarily the result of increases in unfunded loan commitments.quarter.

Non-interest Income. The following table presents the key components of non-interest income for the three months ended March 31, ~~2022~~2023 and ~~2021~~December 31, 2022 (dollars in thousands):


		Quarters Ended						Change				Percentage Change				Quarters Ended
		Mar 31, 2022		Dec 31, 2021		Mar 31, 2021		Prior Quarter		Prior Yr Quarter		Prior Quarter		Prior Yr Quarter						Mar 31, 2023			Dec 31, 2022			Change Amount			Change Percent
Deposit fees and other service charges	Deposit fees and other service charges	$	11,189	$	10,341	$	8,939	$	848	$	2,250	8.2	%	25.2	%			Deposit fees and other service charges		$	10,562		$	10,821		$	(259)		(2.4)	%
Mortgage banking operations	Mortgage banking operations	4,440		5,643		11,347		(1,203)		(6,907)		(21.3)		(60.9)				Mortgage banking operations		2,691			2,311			380			16.4
Bank owned life insurance	Bank owned life insurance	1,631		1,203		1,307		428		324		35.6		24.8				Bank owned life insurance		2,188			2,120			68			3.2
Miscellaneous	Miscellaneous	1,683		4,702		2,135		(3,019)		(452)		(64.2)		(21.2)				Miscellaneous		1,640			1,382			258			18.7
		18,943		21,889		23,728		(2,946)		(4,785)		(13.5)		(20.2)						17,081			16,634			447			2.7
Net gain on sale of securities		435		(136)		485		571		(50)		(419.9)		(10.3)
Net (loss) gain on sale of securities																	Net (loss) gain on sale of securities		(7,252)			(3,721)			(3,531)			94.9
Net change in valuation of financial instruments carried at fair value																	Net change in valuation of financial instruments carried at fair value		(552)			157			(709)			(451.6)

Net change in valuation of financial instruments carried at fair value		49		2,721		59		(2,672)		(10)		(98.2)		(16.9)
Total non-interest income	Total non-interest income	$	19,427	$	24,474	$	24,272	$	(5,047)	$	(4,845)	(20.6)		(20.0)				Total non-interest income		$	9,277		$	13,070		$	(3,793)		(29.0)	%

Non-interest income was ~~$19.4~~$9.3 million for the quarter ended March 31, ~~2022,~~2023, compared to ~~$24.5~~$13.1 million for the preceding ~~quarter and compared~~quarter. The decrease in non-interest income was primarily due to ~~$24.3 million for the same quarter~~an increase in the prior year. Our non-interest income for the quarter ended March 31, 2022 included a $49,000 net gain for fair value adjustments and a net gain of $435,000 on sales of securities. For the quarter ended December 31, 2021, fair value adjustments resulted in a net gain of $2.7 million and we had a net loss ~~of $136,000~~recorded during the current quarter on the sale of securities. For the quarter ended March 31, 2021, fair value adjustments resulted in a net gain of $59,000 and we had a net gain of $485,000 on sale of securities. For a more detailed discussion of our fair value adjustments, please refer to Note 8 in the Selected Notes to the Consolidated Financial Statements in this Form 10-Q.

Deposit fees and other service charges ~~increased by $848,000,~~decreased $259,000, or 8%2%, for the quarter ended March 31, ~~2022,~~2023, compared to the preceding quarter and $2.3 million, or 25%, compared to the same quarter a year ago. The increase in deposit fees and other service charges from the first quarter a year ago is primarily a result of increased deposit transaction account activity.quarter. Mortgage banking operations, including gains on one- to four-family and multifamily loan sales and loan servicing fees, ~~decreased $1.2 million~~increased $380,000 for the quarter ended March 31, ~~2022,~~2023, compared to the preceding quarter and $6.9 million for the same quarter a year ago. Gains on sales of multifamily loans in the current quarter resulted in income of $340,000 for the quarter ended March 31, 2022, compared to none for the preceding quarter and compared to $1.7 million for the same period a year ago.quarter. Gains on sales of one- to four-family loans resulted in income of ~~$4.1~~$1.2 million for the quarter ended March 31, ~~2022,~~2023, compared to ~~$6.5 million~~$735,000 in the preceding ~~quarter and compared to $9.8 million in the same period a year ago.~~quarter. The ~~decrease~~increase in mortgage banking operations from the ~~prior~~preceding quarter ~~and from the first quarter of 2021~~ primarily reflects ~~a reduction~~an increase in the volume of ~~one- to four-family~~one-to four family loans sold, as well as a decrease in the gain on sale margin on one- to four-family held-for-sale loans. The reduction in volumes reflects a reduction in refinancing activity as interest rates increased during the current quarter.sold. Home purchase activity accounted for ~~64%~~88% of one- to four-family mortgage loan originations in ~~both~~ the first quarter of ~~2022 and~~2023, compared to 90% in the prior ~~quarter and was 54% in the first quarter of 2021. The lower mortgage~~quarter. Mortgage banking revenue ~~for the current quarter compared to the prior quarter is also due in part to~~included a ~~$603,000~~$295,000 lower of cost or market ~~downward~~upward adjustment ~~recorded~~ on multifamily held for sale loans for the quarter ended March 31, 2023 due to ~~increases~~decreases in market interest ~~rates. The decrease in miscellaneous non-interest income from~~rates during the ~~prior~~first quarter ~~is primarily~~of 2023 as well as $87,000 of gain recognized on the sale of multifamily loans. This compares to a ~~result~~$723,000 lower of cost or market upward adjustment recorded during the preceding quarter due to the transfer of multifamily held for sale loans to the held for investment portfolio, partially offset by a ~~valuation~~negative fair value adjustment on ~~the SBA servicing asset and higher gains recognized in the prior quarter related to both SBA loans sold and the disposition of closed branch locations.~~multifamily held for sale loans.

6556

Non-interest Expense. The following table represents key elements of non-interest expense for the three months ended March 31, ~~2022~~2023 and ~~2021~~December 31, 2022 (dollars in thousands):

Quarters Ended Change Percentage Change
Mar 31, 2022 Dec 31, 2021 Mar 31, 2021 Prior Quarter Prior Yr Quarter Prior Quarter Prior Yr Quarter
Salaries and employee benefits $ 59,486 $ 57,798 $ 64,819 $ 1,688 $ (5,333) 2.9 % (8.2) %
Less capitalized loan origination costs (6,230) (7,647) (9,696) 1,417 3,466 (18.5) (35.7)
Occupancy and equipment 13,220 13,885 12,989 (665) 231 (4.8) 1.8
Information/computer data services 6,651 6,441 6,203 210 448 3.3 7.2
Payment and card processing expenses 4,896 5,062 4,326 (166) 570 (3.3) 13.2
Professional and legal expenses 2,180 2,251 3,328 (71) (1,148) (3.2) (34.5)
Advertising and marketing 461 2,071 1,263 (1,610) (802) (77.7) (63.5)
Deposit insurance expense 1,524 1,340 1,533 184 (9) 13.7 (0.6)
State/municipal business and use taxes 1,162 976 1,065 186 97 19.1 9.1
REO operations (79) 49 (242) (128) 163 (261.2) (67.4)
Amortization of core deposit intangibles 1,424 1,574 1,711 (150) (287) (9.5) (16.8)
Loss on extinguishment of debt 793 2,284 — (1,491) 793 (65.3) nm
Miscellaneous 5,707 5,594 5,509 113 198 2.0 3.6
91,195 91,678 92,808 (483) (1,613) (0.5) (1.7)
COVID-19 expenses — 127 148 (127) (148) (100.0) (100.0)
Merger and acquisition-related expenses — — 571 — (571) nm (100.0)
Total non-interest expense $ 91,195 $ 91,805 $ 93,527 $ (610) $ (2,332) (0.7) % (2.5) %


	Quarters Ended
	Mar 31, 2023		Dec 31, 2022		Change Amount		Change Percent
Salary and employee benefits	$	61,389	$	60,309	$	1,080	1.8	%
Less capitalized loan origination costs	(3,431)		(4,877)		1,446		(29.6)
Occupancy and equipment	11,970		13,506		(1,536)		(11.4)
Information and computer data services	7,147		6,535		612		9.4
Payment and card processing services	4,618		5,109		(491)		(9.6)
Professional and legal expenses	2,121		6,328		(4,207)		(66.5)
Advertising and marketing	806		1,350		(544)		(40.3)
Deposit insurance	1,890		1,739		151		8.7
State and municipal business and use taxes	1,300		1,304		(4)		(0.3)
Real estate operations, net	(277)		28		(305)		nm
Amortization of core deposit intangibles	1,050		1,215		(165)		(13.6)

Miscellaneous	6,038		6,467		(429)		(6.6)



Total non-interest expense	$	94,621	$	99,013	$	(4,392)	(4.4)	%

Non-interest expenses were ~~$91.2~~$94.6 million for the quarter ended March 31, ~~2022,~~2023, compared to ~~$91.8~~$99.0 million for the preceding ~~quarter and $93.5 million for the quarter ended March 31, 2021.~~quarter. The current quarter non-interest expense includes decreases in occupancy and equipment expenses, advertising and marketing expenses and loss on extinguishment of debt, partially offset an increase in salary and employee benefits expenses. The year-over-year quarterly decrease in non-interest expense primarily reflects decreases in ~~salary~~occupancy and ~~employee benefits~~equipment expense and professional and legal expenses, partially offset by a decrease in capitalized loan origination costs and ~~the loss on extinguishment of debt. In addition, the quarter ended March 31, 2022 included no COVID-19 expenses, compared to $127,000 for the preceding quarter~~an increase in salary and ~~$148,000 for the quarter ended March 31, 2021.~~employee benefits expense.

Salary and employee benefits expenses increased ~~$1.7 million to $59.5 million~~ for the quarter ended March 31, ~~2022,~~2023, compared to ~~$57.8 million for~~ the preceding quarter, primarily due to ~~severance costs~~normal annual salary and ~~typical~~wage increases, as well as higher payroll taxes ~~in the first quarter of a year~~ partially offset by lower ~~salary expense, and~~incentive expense. Capitalized loan origination costs decreased ~~$5.3 million, compared to $64.8 million~~ for the quarter ended March 31, ~~2021, primarily reflecting a reduction in staffing. Capitalized~~2023, compared to the preceding quarter, due to decreased loan ~~origination costs decreased $1.4 million~~production. Information and computer data services expenses increased for the quarter ended March 31, ~~2022,~~2023 compared to the preceding quarter, primarily due to an increase in computer software expenses. Occupancy and ~~$3.5 million, compared to the same quarter in the prior year, primarily related to the origination of SBA PPP loans during the first quarter of 2021. Professional and legal~~equipment expenses decreased ~~$71,000~~ for the quarter ended March 31, ~~2022,~~2023 compared to the preceding quarter, ~~and $1.1 million compared~~reflecting increased building rent expense due to ~~the same quarter in~~lease buyouts as well as increased weather related building maintenance expense during the prior ~~year, primarily due to a decrease in consulting expense. Advertising~~quarter. Professional and ~~marketing~~legal expenses decreased ~~$1.6 million~~ for the quarter ended March 31, ~~2021,~~2023 compared to the preceding quarter, ~~and $802,000, compared to the same quarter in the prior year,~~ primarily due to a ~~reduction in direct mail marketing expenses. In addition, Banner~~$3.5 million accrual recorded a $793,000 loss on extinguishment of debt as a result of the redemption of $50.5 million of junior subordinated debentures during the first quarter of 2022, compared to a $2.3 million loss as a result of the redemption of $8.2 million of junior subordinated debentures during the prior ~~quarter.~~quarter in relation to the potential settlement of a pending litigation matter. Advertising and marketing expenses decreased for the quarter ended March 31, 2023, compared to the preceding quarter, due to a decrease in web-based advertising expenses.

~~Banner’s~~Our efficiency ratio was ~~66.04%~~58.20% for the current quarter, compared to ~~62.88%~~57.52% in the preceding ~~quarter and 65.90% in the year ago~~ quarter. ~~Banner’s~~Our adjusted efficiency ratio, a non-GAAP financial measure, was ~~62.09%~~54.23% for the current quarter, compared to ~~59.71%~~54.43% in the preceding ~~quarter and to 63.18% in the year ago~~ quarter. See, ~~the discussion and reconciliation of~~ non-GAAP financial information in the Executive Overview section of Management’s Discussion and Analysis of Financial Condition and Results of Operation in this Form 10-Q for more detailed information with respect to the efficiency ratio.measure reconciliations presented above following First Quarter 2023 Highlights.

Income Taxes. For the quarter ended March 31, ~~2022,~~2023, we recognized ~~$9.9~~$12.9 million in income tax expense for an effective tax rate of ~~18.4%~~18.9%, which reflects our ~~normal~~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 ~~23.6%~~23.5%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates. For the quarter ended December 31, ~~2021,~~2022, we recognized ~~$9.5~~$12.0 million in income tax expense for an effective tax rate of ~~16.0%~~18.1%. For the quarter ended March 31, 2021, we recognized $10.8 million in income tax expense for an effective tax rate of 18.7%. For more discussion on our income taxes, please refer to Note 9 in the Selected Notes to the Consolidated Financial Statements in this report on Form 10-Q.

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 classified loans and other problem assets and effectively manage REO as a result of foreclosures.

Non-Performing Assets: Non-performing assets ~~decreased~~increased to ~~$19.1~~$27.1 million, or ~~0.11%~~0.17% of total assets, at March 31, ~~2022,~~2023, from ~~$23.7~~$23.4 million, or ~~0.14%~~0.15% of total assets, at December 31, ~~2021, and from $37.0 million, or 0.23% of total assets, at March 31, 2021.~~2022. Our allowance for credit losses - loans was ~~$125.5~~$141.5 million, or ~~674%~~528% of non-performing loans at March 31, ~~2022~~2023, compared to ~~$132.1~~$141.5 million, or ~~578%~~615% of non-performing loans at December 31, 2021 and $156.1 million, or 426% of non-performing loans at March 31, 2021. In addition to the allowance for credit losses - loans, the Company maintains an allowance for credit losses - unfunded loan commitments which was $12.9 million at March 31, 2022, compared to $12.4 million at December 31, 2021 and $12.1 million at March 31, 2021. We believe our2022. The low level of non-performing loans and other assets ~~continues to be~~remains manageable at March 31, 2022. The primary components of the $19.1 million in non-performing assets were $17.9 million in nonaccrual loans, $682,000 in loans more than 90 days delinquent and still accruing interest, and $446,000 in REO and other repossessed assets.2023.

Loans are reported as TDRs when we grant concessions to a borrower experiencing financial difficulties that we would not otherwise consider. If any TDR loan becomes delinquent or other matters call into question the borrower’s ability to repay full interest and principal in accordance with the restructured terms, the TDR loan would be reclassified as nonaccrual. At March 31, 2022, we had $5.3 million of restructured loans performing under their restructured repayment terms.

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


		March 31, 2022			December 31, 2021			March 31, 2021				March 31, 2023			December 31, 2022			March 31, 2022
Nonaccrual Loans: ~~(1)~~	Nonaccrual Loans: ~~(1)~~										Nonaccrual Loans: ~~(1)~~
Secured by real estate:	Secured by real estate:										Secured by real estate:
Commercial	Commercial	$	10,618		$	14,159		$	21,615		Commercial	$	2,815		$	3,683		$	10,618

Construction and land	Construction and land	119			479			986			Construction and land	172			181			119
One- to four-family	One- to four-family	2,199			2,711			4,456			One- to four-family	6,789			5,236			2,199
Commercial business	Commercial business	1,845			2,156			4,194			Commercial business	9,365			9,886			1,845
Agricultural business, including secured by farmland	Agricultural business, including secured by farmland	1,021			1,022			1,536			Agricultural business, including secured by farmland	4,074			594			1,021
Consumer	Consumer	2,123			1,754			2,244			Consumer	2,247			2,126			2,123
		17,925			22,281			35,031				25,462			21,706			17,925
Loans more than 90 days delinquent, still on accrual:	Loans more than 90 days delinquent, still on accrual:										Loans more than 90 days delinquent, still on accrual:
Secured by real estate:	Secured by real estate:										Secured by real estate:

One- to four-family	One- to four-family	210			436			1,524			One- to four-family	445			1,023			210
Commercial business	Commercial business	351			2			37			Commercial business	—			—			351

Consumer	Consumer	121			117			—			Consumer	865			264			121
		682			555			1,561				1,310			1,287			682
Total non-performing loans	Total non-performing loans	18,607			22,836			36,592			Total non-performing loans	26,772			22,993			18,607

REO, net	REO, net	429			852			340			REO, net	340			340			429
Other repossessed assets held for sale	Other repossessed assets held for sale	17			17			37			Other repossessed assets held for sale	17			17			17
Total non-performing assets	Total non-performing assets	$	19,053		$	23,705		$	36,969		Total non-performing assets	$	27,129		$	23,350		$	19,053

Total non-performing assets to total assets	Total non-performing assets to total assets	0.11		%	0.14		%	0.23		%	Total non-performing assets to total assets	0.17		%	0.15		%	0.11		%
Total nonaccrual loans to loans before allowance for credit losses		0.20		%	0.25		%	0.35		%
Restructured loans performing under their restructured terms (2)		$	5,279		$	5,309		$	6,424
Total nonaccrual loans to loans before allowance for credit losses - loans											Total nonaccrual loans to loans before allowance for credit losses - loans	0.25		%	0.21		%	0.20		%

Loans 30-89 days past due and on accrual	Loans 30-89 days past due and on accrual	$	9,611		$	11,558		$	19,233		Loans 30-89 days past due and on accrual	$	14,037		$	17,186		$	9,611

~~(1)Includes $221,000 of nonaccrual TDR loans at March 31, 2022.~~ For the three months ended March 31, ~~2022, we recognized~~2023, interest income ~~of $68,000~~was reduced by $344,000 as a result of nonaccrual loan ~~recovery~~ activity, which includes the reversal of ~~$43,000~~$184,000 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, ~~2022.~~

~~(2)These loans were performing under their restructured repayment terms at the dates indicated.~~2023.

In addition to the non-performing loans as of March 31, ~~2022,~~2023, we had other classified loans with an aggregate outstanding balance of ~~$158.4~~$121.7 million that are not on nonaccrual status, with respect to which known information concerning possible credit problems with the borrowers or

the cash flows of the properties securing the respective loans has caused management to be concerned about the ability of the borrowers to comply with present loan repayment terms. This may result in the future inclusion of such loans in the nonaccrual loan category.

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):


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

Pass	Pass	$	8,961,358	$	8,874,468	$	9,584,429	Pass	$	10,008,385	$	10,000,493	$	8,961,358
Special Mention	Special Mention	6,908		11,932		51,692		Special Mention	4,251		9,081		6,908
Substandard	Substandard	178,363		198,363		311,576		Substandard	148,048		137,150		178,363

Total	Total	$	9,146,629	$	9,084,763	$	9,947,697	Total	$	10,160,684	$	10,146,724	$	9,146,629

The ~~decrease~~increase in substandard loans during the three months ended March 31, ~~2022~~2023 primarily reflects ~~the payoff of substandard loans as well as~~commercial real estate loan risk rating ~~upgrades.~~

~~REO:~~ ~~REO was $429,000 at March 31, 2022 compared to $852,000 at December 31, 2021. The following table shows REO activity for~~downgrades during the ~~three months ended March 31, 2022, December 31, 2021 and March 31, 2021 (in thousands):~~

Three Months Ended
Mar 31, 2022 Dec 31, 2021 Mar 31, 2021
Balance, beginning of period $ 852 $ 852 $ 816
Proceeds from dispositions of REO (607) — (783)
Gain on sale of REO 184 — 307
Balance, end of period $ 429 $ 852 $ 340

Non-recurring fair value adjustments to REO are recorded to reflect partial write-downs based on an observable market price or current appraised value of property. The individual carrying values of these assets are reviewed for impairment at least annually and any additional impairment charges are expensed to operations.quarter.

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 three months ended March 31, ~~2022~~2023 and March 31, ~~2021,~~2022, our loan originations, including originations of loans held for sale, exceeded our loan repayments by ~~$176.9~~$53.3 million and ~~$379.2~~$176.9 million, respectively. There were no loan purchases during the three months ended March 31, 2023 and $75.6 million of loan purchases during the three months ended March 31, ~~2022 and no loan purchases during the three months ended March 31, 2021.~~2022. This activity was funded primarily ~~by increased core deposits and the sale of loans in 2022.~~through borrowings. During the three months ended March 31, ~~2022~~2023 and March 31, ~~2021,~~2022, we received proceeds of ~~$231.1~~$50.4 million and ~~$427.8~~$231.1 million, respectively, from the sale of loans. Securities purchased during the three months ended March 31, ~~2022~~2023 and March 31, ~~2021~~2022 totaled ~~$321.7~~$26.4 million and ~~$1.26 billion,~~$321.7 million, respectively, and securities repayments, maturities and sales in those periods were ~~$127.3~~$203.9 million and ~~$493.4~~$127.3 million, respectively.

Our primary financing activity is gathering deposits. Total deposits ~~increased~~decreased by ~~$196.8~~$465.9 million during the first three months of ~~2022,~~2023, as the $692.3 million decrease in core deposits ~~increased by $235.1 million,~~was partially offset by ~~a $38.3~~the $226.4 million ~~decrease in~~increase certificates of ~~deposits.~~deposit. The ~~increase~~decline in ~~total~~ deposits during the first three months of ~~2022~~2023 was ~~due~~ primarily ~~to an increase in general client liquidity~~ due to ~~reduced business investment and consumer spending.~~interest rate sensitive clients moving a portion of their non-operating deposit balances to higher yielding investments. 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, ~~2022,~~2023, certificates of deposit totaled ~~$800.4~~$949.9 million, or 6%7% of our total deposits, including ~~$626.9~~$767.2 million which were scheduled to mature within one year. The increase in certificates of deposits during the first three months of 2023 was primarily due to clients seeking higher yields moving funds from core deposit accounts to higher yielding certificates of deposits. 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.

The Bank’s uninsured deposits were $4.42 billion or 33% of total deposits at March 31, 2023, compared to $4.84 billion or 35% of total deposits at December 31, 2022. The uninsured deposit calculation includes $277.7 million and $304.2 million of collateralized public deposits at March 31, 2023 and December 31, 2022, respectively. Uninsured deposits also include cash held by the Company of $88.0 million and $77.2 million at March 31, 2023 and December 31, 2022, respectively. Banner Bank’s uninsured deposits, excluding collateralized public deposits and cash held at the holding company, were 31% of total deposits at March 31, 2023, compared to 33% of total deposits at December 31, 2022.

We had no$170.0 million FHLB advances at March 31, ~~2022,~~2023, compared to $50.0 million at December 31, ~~2021.~~2022. Other borrowings ~~increased $2.3~~decreased $18.2 million to ~~$266.8~~$214.6 million at March 31, ~~2022~~2023 from ~~$264.5~~$232.8 million at December 31, ~~2021.~~2022.

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, ~~2022 and 2021,~~2023, we used our sources of funds primarily to fund loan ~~commitments and purchase securities.~~commitments. At March 31, ~~2022,~~2023, we had outstanding loan commitments totaling ~~$4.17~~$4.14 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.

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-Des Moines,~~FHLB, which provided for advances that in the aggregate would equal the lesser of 45% of ~~Banner~~the Bank’s assets or adjusted qualifying collateral (subject to a sufficient level of ownership of FHLB stock). At March 31, ~~2022,~~2023, under these credit facilities based on pledged collateral, ~~Banner~~the Bank had ~~$2.37~~$2.84 billion of available credit capacity. ~~We had no advances~~Advances under these credit facilities totaled $170.0 million at March 31, ~~2022.~~2023. In addition, ~~Banner~~the Bank has been approved for participation in the FRBSF’s Borrower-In-Custody ~~(BIC) program by the Federal Reserve Bank of San Francisco (FRBSF).~~program. Under this program, based on pledged collateral, ~~Banner~~the Bank had available lines of credit of approximately ~~$969.7 million~~$1.16 billion as of March 31, ~~2022.~~2023, subject to certain collateral requirements, namely the collateral type and risk rating of eligible pledged loans. The Bank also had $126.1 million of additional borrowing capacity through the FRBSF’s bank term funding program. We had no funds borrowed from the FRBSF at March 31, ~~2022~~2023 or December 31, ~~2021.~~2022. At March 31, ~~2022, Banner~~2023, 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, ~~2022~~2023 or December 31, ~~2021.~~2022. 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 ~~Corporation~~ 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. ~~Banner Corporation’s~~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 ~~$0.44~~$0.48 per share, as approved by our Board of Directors, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank, and returning a substantial portion of our cash to our shareholders. Assuming continued payment during 2022 at this rate of ~~$0.44~~$0.48 per share, our average total dividend paid each quarter would be approximately ~~$15.1~~$16.5 million based on the number of outstanding shares at March 31, ~~2022.~~2023. At March 31, ~~2022, the Company on~~2023, Banner (on an unconsolidated ~~basis~~basis) had liquid assets of ~~$64.3~~$88.3 million.

As noted below, Banner Corporation and its subsidiary bank continued to maintain capital levels significantly in excess of the requirements to be categorized as “Well-Capitalized” under applicable regulatory standards. During the three months ended March 31, ~~2022,~~2023, total shareholders’ equity ~~decreased $126.5~~increased $75.3 million, to ~~$1.56~~$1.53 billion. At March 31, ~~2022,~~2023, tangible common shareholders’ equity, which excludes goodwill and other intangible assets, was ~~$1.18~~$1.15 billion, or ~~7.18%~~7.59% of tangible assets. ~~See the discussion and reconciliation of~~Tangible common shareholders’ equity represents a non-GAAP financial information in the Executive Overview section of Management’s Discussion and Analysis of Financial Condition and Results of Operation in this Form 10-Q for more detailed information with respect to tangible common shareholders’ equity. Also, see the capital requirements discussion and table below with respect to our regulatory capital positions.measure. See, non-GAAP financial measure reconciliations presented above following First Quarter 2023 Highlights.

Capital Requirements

Banner ~~Corporation~~ 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, ~~(BHCA),~~ and the regulations of the Federal Reserve. ~~Banner~~The Bank, as 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 ~~Corporation~~ and the Bank to maintain minimum amounts and ratios of capital.�� The Federal Reserve requires Banner ~~Corporation~~ to maintain capital adequacy that generally parallels the FDIC requirements. The FDIC requires the Bank to maintain minimum ratios of Total Capital, Tier 1 Capital, and Common Equity Tier 1 Capital to risk-weighted assets as well as Tier 1 ~~Leverage Capital~~leverage capital to average assets. In addition to the minimum capital ratios, ~~both Banner Corporation and~~ the Bank ~~are required~~has to maintain a capital conservation buffer consisting of additional Common Equity Tier 1 Capital ~~of more~~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, ~~2022,~~2023, Banner ~~Corporation~~ and the Bank each exceeded all regulatory capital ~~requirements. (See Item 1, “Business–Regulation,” and Note 14 of the Notes~~requirements to ~~the Consolidated Financial Statements included in the 2021 Form 10-K for additional information regarding regulatory capital requirements for Banner Corporation and the Bank.)~~

be “well capitalized”.

The actual regulatory capital ratios calculated for Banner Corporation and Banner Bank as of March 31, ~~2022,~~2023, 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”					Actual				Minimum to be Categorized as “Adequately Capitalized”				Minimum to be Categorized as “Well-Capitalized”
		Amount		Ratio		Amount		Ratio		Amount		Amount			Amount		Ratio		Amount		Ratio		Amount		Amount
Banner Corporation—consolidated	Banner Corporation—consolidated													Banner Corporation—consolidated
Total capital to risk-weighted assets	Total capital to risk-weighted assets	$	1,635,268	14.04	%	$	931,972	8.00	%	$	1,164,964	10.00	%	Total capital to risk-weighted assets	$	1,805,467	14.45	%	$	999,704	8.00	%	$	1,249,630	10.00	%
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	1,411,733		12.12		698,979		6.00		698,979		6.00		Tier 1 capital to risk-weighted assets	1,560,998		12.49		749,778		6.00		749,778		6.00
Tier 1 leverage capital to average assets	Tier 1 leverage capital to average assets	1,411,733		8.58		658,314		4.00		n/a		n/a		Tier 1 leverage capital to average assets	1,560,998		9.96		626,769		4.00		n/a		n/a
Common equity tier 1 capital	Common equity tier 1 capital	1,325,233		11.38		524,234		4.50		n/a		n/a		Common equity tier 1 capital	1,474,498		11.80		562,334		4.50		n/a		n/a
Banner Bank	Banner Bank													Banner Bank
Total capital to risk-weighted assets	Total capital to risk-weighted assets	1,566,752		13.46		931,257		8.00		1,164,071		10.00		Total capital to risk-weighted assets	1,712,629		13.71		999,052		8.00		1,248,815		10.00
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	1,443,217		12.40		698,442		6.00		931,257		8.00		Tier 1 capital to risk-weighted assets	1,568,160		12.56		749,289		6.00		999,052		8.00
Tier 1 leverage capital to average assets	Tier 1 leverage capital to average assets	1,443,217		8.77		658,008		4.00		822,510		5.00		Tier 1 leverage capital to average assets	1,568,160		10.01		626,336		4.00		782,921		5.00
Common equity tier 1 capital	Common equity tier 1 capital	1,443,217		12.40		523,832		4.50		756,646		6.50		Common equity tier 1 capital	1,568,160		12.56		561,967		4.50		811,730		6.50

ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk

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.

Our activities, like all financial institutions, inherently involve the assumption of interest rate risk. Interest rate risk is the risk that changes in market interest rates will have an adverse impact on the institution’s earnings and underlying economic value. 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.

The greatest source of interest rate risk to us 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 March 31, ~~2022,~~2023, our loans with interest rate floors totaled ~~$3.65~~$4.32 billion and had a weighted average floor rate of ~~4.34%~~4.17% compared to a current average note rate of ~~4.12%~~6.06%. As of March 31, ~~2022,~~2023, our loans with interest rates at their floors totaled ~~$1.65~~$1.52 billion and had a weighted average note rate of ~~4.08% and our loans with interest rates below their floors totaled $358.8 million and had a weighted average note rate of 4.26%~~4.09%. The Company actively manages its exposure to interest rate risk through on-going 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 level of risk appropriate 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 ~~computer~~ 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.

The following table sets forth, as of March 31, ~~2022,~~2023, the estimated changes in our net interest income over one-year and two-year time horizons and the estimated changes in economic value of equity based on the indicated interest rate environments (dollars in thousands):


		Estimated Increase (Decrease) in													Estimated Increase (Decrease) in
Change (in Basis Points) in Interest Rates (1)	Change (in Basis Points) in Interest Rates (1)	Net Interest Income Next 12 Months				Net Interest Income Next 24 Months				Economic Value of Equity				Change (in Basis Points) in Interest Rates (1)	Net Interest Income Next 12 Months				Net Interest Income Next 24 Months				Economic Value of Equity
+400		$	83,016	16.5	%	$	177,171	17.4	%	$	(500,616)	(17.7)	%

+300	+300	75,509		15.0		165,178		16.3		(399,129)		(14.1)		+300	$	(9,581)	(1.6)	%	$	12,004	0.9	%	$	(360,361)	(11.6)	%
+200	+200	57,973		11.5		129,345		12.7		(289,769)		(10.3)		+200	4,000		0.7		30,253		2.4		(195,285)		(6.3)
+100	+100	35,839		7.1		81,934		8.1		(133,095)		(4.7)		+100	6,959		1.1		25,729		2.0		(80,301)		(2.6)
0	0	—		—		—		—		—		—		0	—		—		—		—		—		—
-25		(10,572)		(2.1)		(24,744)		(2.4)		7,638		0.3
-50		(16,905)		(3.4)		(41,878)		(4.1)		11,151		0.4

-100														-100	(23,440)		(3.8)		(62,036)		(4.8)		30,999		1.0
-200														-200	(48,966)		(7.9)		(130,930)		(10.2)		(48,825)		(1.6)
-300														-300	(80,307)		(13.0)		(216,712)		(16.9)		(240,899)		(7.7)

(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 ~~0.25%~~4.75% and ~~0.50%~~5.0% at March 31, ~~2022.~~2023.

Interest Rate Swaps: The Bank enters into interest rate swaps with certain qualifying commercial loan clients to meet their interest rate risk management needs. 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. These interest rate swaps are derivative financial instruments and the gross fair values are recorded in other assets and liabilities on the consolidated balance sheets, with changes in fair value during the period recorded in other non-interest expense on the consolidated statements of income.

Cash Flow Hedges of Interest Rate Risk: 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 primarily uses interest rate swaps as part of its interest rate risk management strategy. During the fourth quarter of 2021, the Bank entered into interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans. These hedge contracts involve the receipt of fixed-rate amounts from a counterparty in exchange for the Bank making floating-rate payments over the life of the agreements without exchange of the underlying notional amount.

Another (although less reliable) 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 adjustable-rate mortgage 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.

The following table presents our interest sensitivity gap between interest-earning assets and interest-bearing liabilities at March 31, ~~2022~~2023 (dollars in thousands). 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 March 31, ~~2022,~~2023, total interest-earning assets maturing or repricing within one year exceeded total interest-bearing liabilities maturing or repricing in the same time period by ~~$4.75~~$2.82 billion, representing a one-year cumulative gap to total assets ratio of ~~28.31%~~18.18%. ~~Management is aware of the sources of interest rate risk and in its opinion actively monitors and manages it to the extent possible.~~ The interest rate risk indicators and interest sensitivity gaps as of March 31, ~~2022~~2023 are within our internal policy guidelines and management considers that our current level of interest rate risk is reasonable.


		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				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)	Interest-earning assets: (1)																						Interest-earning assets: (1)
Construction loans	Construction loans	$	822,543		$	45,534		$	124,036		$	35,580		$	17,405		$	980		$	1,046,078		Construction loans	$	832,357		$	76,764		$	169,291		$	35,532		$	22,523		$	181		$	1,136,648
Fixed-rate mortgage loans	Fixed-rate mortgage loans	268,973			212,912			700,406			498,155			653,555			44,544			2,378,545			Fixed-rate mortgage loans	234,754			212,450			708,192			539,484			738,916			257,910			2,691,706
Adjustable-rate mortgage loans	Adjustable-rate mortgage loans	1,118,745			319,103			934,764			1,046,332			229,799			5,592			3,654,335			Adjustable-rate mortgage loans	1,074,869			327,602			1,189,527			992,194			319,397			61,821			3,965,410
Fixed-rate mortgage-backed securities	Fixed-rate mortgage-backed securities	117,317			104,145			438,210			426,637			905,775			946,683			2,938,767			Fixed-rate mortgage-backed securities	107,184			99,743			405,716			428,108			932,648			1,001,876			2,975,275
Adjustable-rate mortgage-backed securities	Adjustable-rate mortgage-backed securities	458,607			15,811			3,763			4,232			4,962			—			487,375			Adjustable-rate mortgage-backed securities	316,527			383			3,430			209			4,157			—			324,706
Fixed-rate commercial/agricultural loans	Fixed-rate commercial/agricultural loans	88,768			79,245			240,059			135,235			126,679			65,807			735,793			Fixed-rate commercial/agricultural loans	99,992			91,018			253,433			135,327			148,260			32,498			760,528
Adjustable-rate commercial/agricultural loans	Adjustable-rate commercial/agricultural loans	682,971			19,591			62,640			44,030			6,208			9			815,449			Adjustable-rate commercial/agricultural loans	790,036			20,099			69,471			51,643			8,171			—			939,420
Consumer and other loans	Consumer and other loans	447,510			25,333			37,027			14,300			17,178			36,991			578,339			Consumer and other loans	450,561			49,660			84,192			33,016			28,856			43,016			689,301
Investment securities and interest-earning deposits	Investment securities and interest-earning deposits	1,973,808			24,140			94,732			121,708			373,057			201,702			2,789,147			Investment securities and interest-earning deposits	246,922			47,510			105,268			72,830			179,638			433,613			1,085,781
Total rate sensitive assets	Total rate sensitive assets	5,979,242			845,814			2,635,637			2,326,209			2,334,618			1,302,308			15,423,828			Total rate sensitive assets	4,153,202			925,229			2,988,520			2,288,343			2,382,566			1,830,915			14,568,775
Interest-bearing liabilities: (2)	Interest-bearing liabilities: (2)																						Interest-bearing liabilities: (2)
Regular savings	Regular savings	277,402			171,282			575,599			434,237			678,690			716,680			2,853,890			Regular savings	242,387			156,319			520,995			387,918			594,596			599,868			2,502,083
Interest checking accounts	Interest checking accounts	173,067			79,163			282,269			234,629			429,165			773,643			1,971,936			Interest checking accounts	170,951			84,783			292,029			230,999			396,278			619,436			1,794,476
Money market deposit accounts	Money market deposit accounts	252,521			138,614			468,226			357,357			570,177			615,836			2,402,731			Money market deposit accounts	231,149			128,740			433,132			327,014			509,750			513,916			2,143,701
Certificates of deposit	Certificates of deposit	372,416			254,546			154,465			17,653			1,284			—			800,364			Certificates of deposit	285,254			481,722			169,782			11,932			1,065			177			949,932
FHLB advances	FHLB advances	—			—			—			—			—			—			—			FHLB advances	170,000			—			—			—			—			—			170,000
Subordinated notes	Subordinated notes	—			—			—			100,000			—			—			100,000			Subordinated notes	—			—			100,000			—			—			—			100,000
Junior subordinated debentures	Junior subordinated debentures	89,178			—			—			—			—			—			89,178			Junior subordinated debentures	89,178			—			—			—			—			—			89,178
Retail repurchase agreements	Retail repurchase agreements	266,778			—			—			—			—			—			266,778			Retail repurchase agreements	214,564			—			—			—			—			—			214,564
Total rate sensitive liabilities	Total rate sensitive liabilities	1,431,362			643,605			1,480,559			1,143,876			1,679,316			2,106,159			8,484,877			Total rate sensitive liabilities	1,403,483			851,564			1,515,938			957,863			1,501,689			1,733,397			7,963,934
Excess (deficiency) of interest-sensitive assets over interest-sensitive liabilities	Excess (deficiency) of interest-sensitive assets over interest-sensitive liabilities	$	4,547,880		$	202,209		$	1,155,078		$	1,182,333		$	655,302		$	(803,851)		$	6,938,951		Excess (deficiency) of interest-sensitive assets over interest-sensitive liabilities	$	2,749,719		$	73,665		$	1,472,582		$	1,330,480		$	880,877		$	97,518		$	6,604,841
Cumulative excess of interest-sensitive assets	Cumulative excess of interest-sensitive assets	$	4,547,880		$	4,750,089		$	5,905,167		$	7,087,500		$	7,742,802		$	6,938,951		$	6,938,951		Cumulative excess of interest-sensitive assets	$	2,749,719		$	2,823,384		$	4,295,966		$	5,626,446		$	6,507,323		$	6,604,841		$	6,604,841
Cumulative ratio of interest-earning assets to interest-bearing liabilities	Cumulative ratio of interest-earning assets to interest-bearing liabilities	417.73		%	328.92		%	266.08		%	250.82		%	221.38		%	181.78		%	181.78		%	Cumulative ratio of interest-earning assets to interest-bearing liabilities	295.92		%	225.20		%	213.92		%	218.98		%	204.44		%	182.93		%	182.93		%
Interest sensitivity gap to total assets	Interest sensitivity gap to total assets	27.11			1.21			6.89			7.05			3.91			(4.79)			41.36			Interest sensitivity gap to total assets	17.70			0.47			9.48			8.57			5.67			0.63			42.52
Ratio of cumulative gap to total assets	Ratio of cumulative gap to total assets	27.11			28.31			35.20			42.25			46.15			41.36			41.36			Ratio of cumulative gap to total assets	17.70			18.18			27.66			36.22			41.89			42.52			42.52

(Footnotes on following page)

7362

Footnotes for Table of Interest Sensitivity Gap

(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, 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 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 all of these accounts had been assumed to be short-term, the one-year cumulative gap of interest-sensitive assets would have been ~~$(1.4)~~$(2.6) billion, or ~~(8.26)~~(16.75)% of total assets at March 31, 2022. Interest-bearing liabilities for this table exclude certain non-interest-bearing deposits which are included in the average balance calculations in the table contained in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparison of Results of Operations for the Three Months Ended March 31, 2022 and 2021” of this report on Form 10-Q.2023.

ITEM 4 – Controls and Procedures

The management of Banner Corporation is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934 (Exchange Act). A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Also, because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. As a result of these inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

(a)Evaluation of Disclosure Controls and Procedures: An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) was carried out under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of our senior management as of the end of the period covered by this report. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, ~~2022,~~2023, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b)Changes in Internal Controls Over Financial Reporting: In the quarter ended March 31, ~~2022,~~2023, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

7563

PART II – OTHER INFORMATION

ITEM 1 – Legal Proceedings

In the normal course of our business, we have various legal proceedings and other contingent matters pending. These proceedings and the associated legal claims are often contested and the outcome of individual matters is not always predictable. Furthermore, in some matters, it is difficult to assess potential exposure because the legal proceeding is still in the pretrial stage. These claims and counter claims typically arise during the course of collection efforts on problem loans or with respect to actions to enforce liens on properties in which we hold a security interest, although we also are subject to claims related to employment matters. Claims related to employment matters may include, but are not limited to: claims by our employees of discrimination, harassment, violations of wage and hour requirements, or violations of other federal, state, or local laws and claims of misconduct or negligence on the part of our employees. Some or all of these claims may lead to litigation, including class action litigation, and these matters may cause us to incur negative publicity with respect to alleged claims. Our insurance may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our financial condition and results of operation for any period. At March 31, ~~2022,~~2023, we had accrued ~~$11.4~~$14.9 million related to these legal proceedings. The ultimate outcome of these legal proceedings could be more or less than what we have accrued. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, operations or cash flows, except as set forth below.

A class and collective action lawsuit, Bolding et al. v. Banner Bank,, US Dist. Ct., WD WA., was filed against Banner Bank on April 17, 2017. The plaintiffs are former and/or current mortgage loan officers of AmericanWest Bank and/or Banner Bank, who allege that the employer bank failed to pay all required regular and overtime wages that were due pursuant to the Fair Labor Standards Act ~~(“FLSA”)~~(FLSA) and related laws of the state respective to each individual plaintiff. The plaintiffs seek regular and overtime wages, plus certain penalty amounts and legal fees. On December 15, 2017, the ~~court~~Court granted the plaintiffs’ motion for conditional certification of a class with regard to the FLSA claims; following notice given to approximately 160 potential class members, 33 persons elected to “opt-in” as plaintiffs in the class. On October 10, 2018, the Court granted plaintiffs’ motion for certification of a different class of approximately 200 members, with regard to state law claims. Significant pre-trial motions were filed by both parties, including various motions by Banner Bank seeking to dismiss and/or limit the class claims. The ~~court~~Court granted in part and denied in part Banner Bank’s motions and has ultimately allowed the case to proceed. The Court ruled on the last of the pre-trial motions on September 13, 2021, increasing the likelihood of trial or settlement. IfThe parties participated in a mediation in December 2022. The parties have reached agreement in principle regarding fundamental settlement terms, which they are in the ~~case goes~~process of reducing to ~~trial~~a written settlement agreement for execution and presentation to the ~~Company is unsuccessful in defending the claims, damages could be higher than the amount the Company has accrued as a litigation contingency reserve~~Court for this case. We believe that there are substantial defenses to this lawsuit, and we have, and will continue to, defend this case vigorously. The ultimate outcome is unknown at this time. The trial for this case will be bifurcated between a liability phase and a damages phase. The liability phase of the trial is set to begin in September 2022.its preliminary approval.

ITEM 1A – Risk Factors

~~There have been no material changes~~The following risk factor supplements, and should be read in conjunction with, the Company’s risk factors previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Risks related to recent events impacting the banking industry could adversely affect our stock price, results of operations and financial condition

The banking industry has been negatively impacted by the failures of Silicon Valley Bank and Signature Bank in March 2023, and First Republic Bank on May 1, 2023. These failures have highlighted deposit-related risks to the banking industry, including in particular the speed at which deposits can be moved. These events have led to decreased investor and depositor confidence in regional banks as well as increased volatility in the stock trading prices of regional banks, to varying degrees. Despite differences in business models across the banking industry, further concerns related to these events could adversely impact our deposits, liquidity, results of operations and the trading price of our stock.

ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

(c) The following table provides information about repurchases of common stock by the Company during the quarter ended March 31, ~~2022:~~2023:

Period Total Number of Common Shares Purchased Average Price Paid per Common Share Total Number of Shares Purchased as Part of Publicly Announced authorization Maximum Number of Remaining Shares that May be Purchased as Part of Publicly Announced Authorization
January 1, 2022 - January 31, 2022 — $ — — 1,712,510
February 1, 2022 - February 28, 2022 983 60.79 — 1,712,510
March 1, 2022 - March 31, 2022 51,723 60.19 — 1,712,510
Total for quarter 52,706 60.21 —


Period	Total Number of Common Shares Purchased (1)	Average Price Paid per Common Share		Total Number of Shares Purchased as Part of Publicly Announced Authorization	Maximum Number of Remaining Shares that May be Purchased as Part of Publicly Announced Authorization
January 1, 2023 - January 31, 2023	38	$	62.91	—	—
February 1, 2023 - February 28, 2023	212	66.50		—	—
March 1, 2023 - March 31, 2023	48,504	57.12		—	—
Total for quarter	48,754	$	57.16	—

~~Employees~~(1) Includes 48,754 shares surrendered ~~52,706 shares~~by employees to satisfy tax withholding obligations upon the vesting of restricted stock grants during the three months ended March 31, ~~2022.~~

2023.

On December 22, 2021, the Company announced that its Board of Directors had renewed its authorization to repurchase up to 5% of the Company’s common stock, or 1,712,510 of the Company’s outstanding shares. Under the authorization, shares may be repurchased by the Company in open market purchases. The extent to which the Company repurchases its shares and the timing of such repurchases will depend

upon market conditions and other corporate considerations. During the quarter ended March 31, 2022, the Company repurchased no shares under the repurchase authorization, leaving 1,712,510 available for future repurchase.

ITEM 3 – Defaults upon Senior Securities

Not Applicable.

ITEM 4 – Mine Safety Disclosures

Not Applicable.

ITEM 5 – Other Information

Not Applicable.

7765

ITEM 6 – Exhibits


Exhibit			Index of Exhibits

3{a}			~~Amended and~~ Restated Articles of Incorporation of ~~Registrant~~Banner Corporation [incorporated by reference to Exhibit 3.1 (b) to the Registrant’s Current Report on Form 8-K filed on ~~April 29, 2010~~May 24, 2022 (File No. 000-26584)].

3{b}			~~Articles of Amendment of Registrant (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 1, 2011 (File No. 000-26584)).~~

~~3{c}~~			Articles of Amendment to Amended and Restated Articles of Incorporation of Registrant for non-voting common stock [incorporated by reference to the Registrant’s Current Report on Form 8-K filed on March 18, 2015 (File No. 000-26584)]

~~3{d}~~			Amended and Restated Bylaws of ~~Registrant~~Banner Corporation [incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on ~~October 29, 2020~~May 24, 2022 (File No. 000-26584)].

10{a}			Amended and Restated Employment Agreement, with Mark J. Grescovich [incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 4, 2013 (File No. 000-26584].

10{b}			Form of Supplemental Executive Retirement Program Agreement with Gary Sirmon, Michael K. Larsen, Lloyd W. Baker, Cynthia D. Purcell and Richard B. Barton [incorporated by reference to exhibits filed with the Annual Report on Form 10-K for the year ended December 31, 2001 and the exhibits filed with the Form 8-K on May 6, 2008 (File No. 000-26584)].

10{c}			Form of Employment Contract entered into with Peter J. Conner, Cynthia D. Purcell and Judith A. Steiner [incorporated by reference to exhibits filed with the Form 8-K on June 25, 2014 (File No. 000-26584)].

10{d}			2005 Executive Officer and Director Stock Account Deferred Compensation Plan [incorporated by reference to exhibits filed with the Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 000-26584)].

10{e}			Entry into an Indemnification Agreement with each of the Registrant’s Directors [incorporated by reference to exhibits filed with the Form 8-K on January 29, 2010 (File No. 000-26584)].

10{f}			2014 Omnibus Incentive Plan [incorporated by reference as Appendix C to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 24, 2014 (File No. 000-26584)] and amendments [incorporated by reference to the Form 8-K filed on March 25, 2015 (File No. 000-26584)].

10{g}			Forms of Equity-Based Award Agreements: Incentive Stock Option Award Agreement, Non-Qualified Stock Option Award Agreement, Restricted Stock Award Agreement, Restricted Stock Unit Award Agreement, Stock Appreciation Right Award Agreement, and Performance Unit Award Agreement [incorporated by reference to Exhibits 10.2 - 10.7 included in the Registration Statement on Form S-8 dated May 9, 2014 (File No. 333-195835)].

10{h}			2018 Omnibus Incentive Plan [incorporated by reference as Appendix D to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 23, 2018 (File No. 000-26584)]

10{i}			Forms of Equity-Based Award Agreements: Incentive Stock Option Award Agreement, Non-Qualified Stock Option Award Agreement under the Banner Corporation 2018 Omnibus Incentive Plan; Director Restricted Stock Award Agreement; Director Restricted Stock Unit Award Agreement; Employee Time-based Restricted Stock Unit Award Agreement; Employee performance-based Restricted Stock Unit Award Agreement; Stock Appreciation Right Award Agreement; and Performance Unit Award Agreement [incorporated by reference to Exhibits 10.2 - 10.9 included in the Registration Statement on Form S-8 dated May 4, 2018 (File No. 333-224693)]



10{j}			Amended and Restated Executive Severance and Change in Control Plan and Summary Plan Description (Amended and Restated effective as of October 1, 2021) [incorporated by reference to exhibit 10{j} included in the Form 10-Q dated September 30, 2021 (File No. 000-26584)]

31.1			Certification of Chief Executive Officer pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Chief Financial Officer pursuant to the Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32			Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS			Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the XBRL document


~~Exhibit~~			~~Index of Exhibits~~

101.SCH			Inline XBRL Taxonomy Extension Schema Document

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document


Exhibit			Index of Exhibits
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document

104			The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2021,~~March 31, 2023, formatted in Inline XBRL (included in Exhibit 101)

7967

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			Banner Corporation

May ~~9, 2022~~4, 2023			/s/ Mark J. Grescovich
			Mark J. Grescovich
			President and Chief Executive Officer (Principal Executive Officer)

May ~~9, 2022~~4, 2023			/s/ Peter J. Conner
			Peter J. Conner
			Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)

8068


	Common Stock and Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income		Shareholders’ Equity
	Shares	Amount
Balance, April 1, 2021	34,735,343	$	1,326,269	$	279,582	$	12,966	$	1,618,817

Net income				54,382				54,382
Other comprehensive income, net of income tax						25,285		25,285
Accrual of dividends on common stock ($0.41/share)				(14,459)				(14,459)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	65,545	(259)						(259)
Repurchase of common stock	(250,000)	(14,555)						(14,555)

Balance, June 30, 2021	34,550,888	$	1,311,455	$	319,505	$	38,251	$	1,669,211


Period	Total Number of Common Shares Purchased	Average Price Paid per Common Share		Total Number of Shares Purchased as Part of Publicly Announced authorization	Maximum Number of Remaining Shares that May be Purchased as Part of Publicly Announced Authorization
January 1, 2022 - January 31, 2022	—	$	—	—	1,712,510
February 1, 2022 - February 28, 2022	983	60.79		—	1,712,510
March 1, 2022 - March 31, 2022	51,723	60.19		—	1,712,510
Total for quarter	52,706	60.21		—