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,~~September 30, 2021

☐ 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,~~October 31, 2021

Common Stock, $.01 par value per share

~~34,797,764~~34,252,367 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,~~September 30, 2021 and December 31, 2020			4

Consolidated Statements of Operations for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020			5

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020			6

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and the Year Ended December 31, 2020			7

Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2021 and 2020			1011

Selected Notes to the Consolidated Financial Statements			1213

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

Executive Overview			4751

Comparison of Financial Condition at ~~March 31,~~September 30, 2021 and December 31, 2020			5660

Comparison of Results of Operations for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020			5963

Asset Quality			6571

Liquidity and Capital Resources			6673

Capital Requirements			6774

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Market Risk and Asset/Liability Management			6976

Sensitivity Analysis			6976

Item 4 – Controls and Procedures			7380

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings			7481

Item 1A – Risk Factors			7481

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			7481

Item 3 – Defaults upon Senior Securities			7482

Item 4 – Mine Safety Disclosures			7482

Item 5 – Other Information			7482

Item 6 – Exhibits			7583

SIGNATURES			7785

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 statements relate to our financial condition, liquidity, results of operations, plans, objectives, future performance or business. 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 actual results to differ materially from the results anticipated or implied by our forward-looking statements. The novel coronavirus (COVID-19) pandemic, is adversely affecting us, our clients, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Deterioration in general business and economic conditions, including increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: 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 the London Interbank Offered Rate (LIBOR), and the potential 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; 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 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; 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 of war or any terrorist activities; other economic, competitive, governmental, regulatory and technological factors affecting operations, pricing, products and services; including the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the CARES Act) and the Consolidated Appropriations Act, 2021 the (CAA); future acquisitions by Banner of other depository institutions or lines of business; and future goodwill impairment due to changes in Banner’s business, changes in market conditions, including as a result of the COVID-19 pandemic, including recent vaccination efforts, or other factors; and other risks detailed from time to time in our filings with 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)

~~March 31,~~September 30, 2021 and December 31, 2020


ASSETS	ASSETS	March 31, 2021		December 31, 2020		ASSETS	September 30, 2021		December 31, 2020
Cash and due from banks	Cash and due from banks	$	296,184	$	311,899	Cash and due from banks	$	392,035	$	311,899
Interest bearing deposits	Interest bearing deposits	1,353,743		922,284		Interest bearing deposits	1,808,547		922,284
Total cash and cash equivalents	Total cash and cash equivalents	1,649,927		1,234,183		Total cash and cash equivalents	2,200,582		1,234,183
Securities—trading	Securities—trading	25,039		24,980		Securities—trading	26,875		24,980
Securities—available-for-sale, amortized cost $2,996,902 and $2,256,189, respectively		2,989,760		2,322,593
Securities—held-to-maturity, net of allowance for credit losses of $98 and $94, respectively, fair value $459,595 and $448,681, respectively		441,857		421,713
Securities—available-for-sale, amortized cost $3,443,516 and $2,256,189, respectively						Securities—available-for-sale, amortized cost $3,443,516 and $2,256,189, respectively	3,446,575		2,322,593
Securities—held-to-maturity, net of allowance for credit losses of $104 and $94, respectively, fair value $466,002 and $448,681, respectively						Securities—held-to-maturity, net of allowance for credit losses of $104 and $94, respectively, fair value $466,002 and $448,681, respectively	447,708		421,713
Total securities	Total securities	3,456,656		2,769,286		Total securities	3,921,158		2,769,286

Federal Home Loan Bank (FHLB) stock	Federal Home Loan Bank (FHLB) stock	14,001		16,358		Federal Home Loan Bank (FHLB) stock	12,000		16,358
Loans held for sale (includes $60.0 million and $133.6 million, at fair value, respectively)		135,263		243,795
Securities purchased under agreements to resell						Securities purchased under agreements to resell	300,000		—
Loans held for sale (includes $41,480 and $133,554, at fair value, respectively)						Loans held for sale (includes $41,480 and $133,554, at fair value, respectively)	63,678		243,795
Loans receivable	Loans receivable	9,947,697		9,870,982		Loans receivable	9,218,384		9,870,982
Allowance for credit losses - loans		(156,054)		(167,279)
Allowance for credit losses – loans						Allowance for credit losses – loans	(139,915)		(167,279)
Net loans receivable	Net loans receivable	9,791,643		9,703,703		Net loans receivable	9,078,469		9,703,703
Accrued interest receivable	Accrued interest receivable	49,214		46,617		Accrued interest receivable	43,644		46,617
Real estate owned (REO), held for sale, net	Real estate owned (REO), held for sale, net	340		816		Real estate owned (REO), held for sale, net	852		816
Property and equipment, net	Property and equipment, net	161,268		164,556		Property and equipment, net	151,503		164,556
Goodwill	Goodwill	373,121		373,121		Goodwill	373,121		373,121
Other intangibles, net	Other intangibles, net	19,715		21,426		Other intangibles, net	16,429		21,426
Bank-owned life insurance (BOLI)	Bank-owned life insurance (BOLI)	191,388		191,830		Bank-owned life insurance (BOLI)	192,950		191,830
Deferred tax assets, net	Deferred tax assets, net	83,178		65,742		Deferred tax assets, net	70,130		65,742
Operating lease right-of-use assets	Operating lease right-of-use assets	56,217		55,367		Operating lease right-of-use assets	58,523		55,367
Other assets	Other assets	137,861		144,823		Other assets	154,840		144,823
Total assets	Total assets	$	16,119,792	$	15,031,623	Total assets	$	16,637,879	$	15,031,623
LIABILITIES	LIABILITIES					LIABILITIES
Deposits:	Deposits:					Deposits:
Non-interest-bearing	Non-interest-bearing	$	5,994,693	$	5,492,924	Non-interest-bearing	$	6,400,864	$	5,492,924
Interest-bearing transaction and savings accounts	Interest-bearing transaction and savings accounts	6,647,196		6,159,052		Interest-bearing transaction and savings accounts	6,912,759		6,159,052
Interest-bearing certificates	Interest-bearing certificates	906,978		915,320		Interest-bearing certificates	851,054		915,320
Total deposits	Total deposits	13,548,867		12,567,296		Total deposits	14,164,677		12,567,296
Advances from FHLB	Advances from FHLB	100,000		150,000		Advances from FHLB	50,000		150,000
Other borrowings	Other borrowings	216,260		184,785		Other borrowings	247,358		184,785
Subordinated notes, net	Subordinated notes, net	98,290		98,201		Subordinated notes, net	98,472		98,201
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)	117,248		116,974		Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities)	124,853		116,974
Operating lease liabilities	Operating lease liabilities	59,884		59,343		Operating lease liabilities	62,946		59,343
Accrued expenses and other liabilities	Accrued expenses and other liabilities	313,801		143,300		Accrued expenses and other liabilities	175,960		143,300
Deferred compensation	Deferred compensation	46,625		45,460		Deferred compensation	46,494		45,460
Total liabilities	Total liabilities	14,500,975		13,365,359		Total liabilities	14,970,760		13,365,359
COMMITMENTS AND CONTINGENCIES (Note 12)	COMMITMENTS AND CONTINGENCIES (Note 12)	0		0		COMMITMENTS AND CONTINGENCIES (Note 12)	0		0
SHAREHOLDERS’ EQUITY	SHAREHOLDERS’ EQUITY					SHAREHOLDERS’ EQUITY
Preferred stock - $0.01 par value per share, 500,000 shares authorized; 0 shares outstanding at March 31, 2021 and December 31, 2020		0		0
Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,735,343 shares issued and outstanding at March 31, 2021; 35,159,200 shares issued and outstanding at December 31, 2020		1,326,269		1,349,879
Common stock (non-voting) and paid in capital - $0.01 par value per share, 5,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2021; 0 shares issued and outstanding at December 31, 2020		0		0
Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at September 30, 2021 and December 31, 2020						Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at September 30, 2021 and December 31, 2020	—		—
Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,251,991 shares issued and outstanding at September 30, 2021; 35,159,200 shares issued and outstanding at December 31, 2020						Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,251,991 shares issued and outstanding at September 30, 2021; 35,159,200 shares issued and outstanding at December 31, 2020	1,297,145		1,349,879
Common stock (non-voting) and paid in capital - $0.01 par value per share, 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2021; no shares issued and outstanding at December 31, 2020						Common stock (non-voting) and paid in capital - $0.01 par value per share, 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2021; no shares issued and outstanding at December 31, 2020	—		—
Retained earnings	Retained earnings	279,582		247,316		Retained earnings	355,035		247,316
Carrying value of shares held in trust for stock-based compensation plans	Carrying value of shares held in trust for stock-based compensation plans	(7,614)		(7,636)		Carrying value of shares held in trust for stock-based compensation plans	(7,421)		(7,636)
Liability for common stock issued to stock related compensation plans	Liability for common stock issued to stock related compensation plans	7,614		7,636		Liability for common stock issued to stock related compensation plans	7,421		7,636
Accumulated other comprehensive income	Accumulated other comprehensive income	12,966		69,069		Accumulated other comprehensive income	14,939		69,069

Total shareholders’ equity	Total shareholders’ equity	1,618,817		1,666,264		Total shareholders’ equity	1,667,119		1,666,264
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	16,119,792	$	15,031,623	Total liabilities and shareholders’ equity	$	16,637,879	$	15,031,623

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 and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020				2021		2020		2021		2020
INTEREST INCOME:	INTEREST INCOME:						INTEREST INCOME:
Loans receivable	Loans receivable	$	108,924	$	118,926		Loans receivable	$	116,487	$	116,716	$	340,802	$	350,815
Mortgage-backed securities	Mortgage-backed securities	9,371		9,137			Mortgage-backed securities	11,695		7,234		32,503		24,354
Securities and cash equivalents	Securities and cash equivalents	6,226		3,602			Securities and cash equivalents	7,686		5,631		20,649		14,824
Total interest income	Total interest income	124,521		131,665			Total interest income	135,868		129,581		393,954		389,993
INTEREST EXPENSE:	INTEREST EXPENSE:						INTEREST EXPENSE:
Deposits	Deposits	3,609		8,750			Deposits	2,749		5,179		9,386		20,623
FHLB advances	FHLB advances	934		2,064			FHLB advances	655		988		2,244		4,036
Other borrowings	Other borrowings	109		116			Other borrowings	125		128		358		482
Subordinated debt	Subordinated debt	2,208		1,477			Subordinated debt	2,193		2,260		6,605		4,988
Total interest expense	Total interest expense	6,860		12,407			Total interest expense	5,722		8,555		18,593		30,129
Net interest income	Net interest income	117,661		119,258			Net interest income	130,146		121,026		375,361		359,864
(RECAPTURE)/PROVISION FOR CREDIT LOSSES	(RECAPTURE)/PROVISION FOR CREDIT LOSSES	(9,251)		23,470			(RECAPTURE)/PROVISION FOR CREDIT LOSSES	(8,638)		15,180		(28,145)		67,273
Net interest income after (recapture)/provision for credit losses	Net interest income after (recapture)/provision for credit losses	126,912		95,788			Net interest income after (recapture)/provision for credit losses	138,784		105,846		403,506		292,591
NON-INTEREST INCOME:	NON-INTEREST INCOME:						NON-INTEREST INCOME:
Deposit fees and other service charges	Deposit fees and other service charges	8,939		9,803			Deposit fees and other service charges	10,457		8,742		29,154		26,091
Mortgage banking operations	Mortgage banking operations	11,440		10,191			Mortgage banking operations	9,752		16,562		28,670		40,891
Bank-owned life insurance (BOLI)	Bank-owned life insurance (BOLI)	1,307		1,050			Bank-owned life insurance (BOLI)	1,245		1,286		3,797		4,653
Miscellaneous	Miscellaneous	2,042		2,639			Miscellaneous	2,046		951		7,808		5,017
		23,728		23,683				23,500		27,541		69,429		76,652
Net gain on sale of securities	Net gain on sale of securities	485		78			Net gain on sale of securities	56		644		618		815

Net change in valuation of financial instruments carried at fair value	Net change in valuation of financial instruments carried at fair value	59		(4,596)			Net change in valuation of financial instruments carried at fair value	1,778		37		1,895		(2,360)

Total non-interest income	Total non-interest income	24,272		19,165			Total non-interest income	25,334		28,222		71,942		75,107
NON-INTEREST EXPENSE:	NON-INTEREST EXPENSE:						NON-INTEREST EXPENSE:
Salary and employee benefits	Salary and employee benefits	64,819		59,908			Salary and employee benefits	59,799		61,171		186,553		184,494
Less capitalized loan origination costs	Less capitalized loan origination costs	(9,696)		(5,806)			Less capitalized loan origination costs	(8,290)		(8,517)		(26,754)		(25,433)
Occupancy and equipment	Occupancy and equipment	12,989		13,107			Occupancy and equipment	13,153		13,022		38,965		39,114
Information/computer data services	Information/computer data services	6,203		5,810			Information/computer data services	6,110		6,090		17,915		17,984
Payment and card processing expenses	Payment and card processing expenses	4,326		4,240			Payment and card processing expenses	6,181		4,044		15,482		12,135
Professional and legal expenses	Professional and legal expenses	3,328		1,919			Professional and legal expenses	12,324		2,368		20,023		6,450
Advertising and marketing	Advertising and marketing	1,263		1,827			Advertising and marketing	1,521		1,105		3,965		3,584
Deposit insurance expense	Deposit insurance expense	1,533		1,635			Deposit insurance expense	1,469		1,628		4,243		4,968
State/municipal business and use taxes	State/municipal business and use taxes	1,065		984			State/municipal business and use taxes	1,219		1,196		3,367		3,284
REO operations, net	REO operations, net	(242)		100			REO operations, net	53		(11)		(71)		93
Amortization of core deposit intangibles	Amortization of core deposit intangibles	1,711		2,001			Amortization of core deposit intangibles	1,575		1,864		4,997		5,867
Miscellaneous	Miscellaneous	5,509		6,357			Miscellaneous	6,977		5,285		18,642		16,841
		92,808		92,082				102,091		89,245		287,327		269,381
COVID-19 expenses	COVID-19 expenses	148		239			COVID-19 expenses	44		778		309		3,169
Merger and acquisition related expenses		571		1,142
Merger and acquisition - related expenses							Merger and acquisition - related expenses	10		5		660		1,483
Total non-interest expense	Total non-interest expense	93,527		93,463			Total non-interest expense	102,145		90,028		288,296		274,033
Income before provision for income taxes	Income before provision for income taxes	57,657		21,490			Income before provision for income taxes	61,973		44,040		187,152		93,665
PROVISION FOR INCOME TAXES	PROVISION FOR INCOME TAXES	10,802		4,608			PROVISION FOR INCOME TAXES	12,089		7,492		36,031		16,694
NET INCOME	NET INCOME	$	46,855	$	16,882		NET INCOME	$	49,884	$	36,548	$	151,121	$	76,971

Earnings per common share:	Earnings per common share:						Earnings per common share:
Basic	Basic	$	1.34	$	0.48		Basic	$	1.45	$	1.04	$	4.35	$	2.18
Diluted	Diluted	$	1.33	$	0.47		Diluted	$	1.44	$	1.03	$	4.32	$	2.17
Cumulative dividends declared per common share	Cumulative dividends declared per common share	$	0.41	$	0.41		Cumulative dividends declared per common share	$	0.41	$	0.41	$	1.23	$	0.82
Weighted average number of common shares outstanding:	Weighted average number of common shares outstanding:						Weighted average number of common shares outstanding:
Basic	Basic	34,973,383		35,463,541			Basic	34,446,510		35,193,109		34,716,914		35,285,567
Diluted	Diluted	35,303,483		35,640,463			Diluted	34,669,492		35,316,679		35,012,228		35,524,771

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)

For the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020				2021		2020		2021		2020
NET INCOME	NET INCOME	$	46,855	$	16,882		NET INCOME	$	49,884	$	36,548	$	151,121	$	76,971
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES:	OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES:						OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES:
Unrealized holding (loss) gain on available-for-sale securities arising during the period	Unrealized holding (loss) gain on available-for-sale securities arising during the period	(73,107)		42,178			Unrealized holding (loss) gain on available-for-sale securities arising during the period	(23,223)		(3,090)		(62,711)		47,000
Income tax benefit (expense) related to available-for-sale securities unrealized holding (loss) gain	Income tax benefit (expense) related to available-for-sale securities unrealized holding (loss) gain	17,546		(10,123)			Income tax benefit (expense) related to available-for-sale securities unrealized holding (loss) gain	5,574		742		15,051		(11,280)
Reclassification for net gain on available-for-sale securities realized in earnings	Reclassification for net gain on available-for-sale securities realized in earnings	(439)		(78)			Reclassification for net gain on available-for-sale securities realized in earnings	(118)		(125)		(634)		(296)
Income tax expense related to available-for-sale securities realized in earnings	Income tax expense related to available-for-sale securities realized in earnings	105		19			Income tax expense related to available-for-sale securities realized in earnings	28		30		152		71
Changes in fair value of junior subordinated debentures related to instrument specific credit risk	Changes in fair value of junior subordinated debentures related to instrument specific credit risk	(274)		19,509			Changes in fair value of junior subordinated debentures related to instrument specific credit risk	(7,333)		(208)		(7,879)		9,483
Income tax benefit (expense) related to junior subordinated debentures	Income tax benefit (expense) related to junior subordinated debentures	66		(4,682)			Income tax benefit (expense) related to junior subordinated debentures	1,760		50		1,891		(2,276)
Other comprehensive (loss) income	Other comprehensive (loss) income	(56,103)		46,823			Other comprehensive (loss) income	(23,312)		(2,601)		(54,130)		42,702
COMPREHENSIVE (LOSS) INCOME		$	(9,248)	$	63,705
COMPREHENSIVE INCOME							COMPREHENSIVE INCOME	$	26,572	$	33,947	$	96,991	$	119,673

See Selected Notes to the Consolidated Financial Statements

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited) (In thousands, except shares)

For the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2021 and the Year Ended December 31, 2020


	Common Stock and Paid in Capital					Retained Earnings			Accumulated Other Comprehensive Income				Shareholders’ Equity
			Shares				Amount
Balance, January 1, 2020		35,751,576		$	1,373,940		$	186,838		$	33,256			$	1,594,034

New credit standard (Accounting Standards Codification (ASC) 326) - impact in year of adoption									(11,215)							(11,215)
Net income									16,882							16,882
Other comprehensive income, net of income tax												46,823				46,823
Accrual of dividends on common stock ($0.41/share)									(14,583)							(14,583)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered			(24,337)			1,534										1,534
Repurchase of common stock			(624,780)			(31,775)										(31,775)

Balance, March 31, 2020		35,102,459		$	1,343,699		$	177,922		$	80,079			$	1,601,700


	Common Stock and Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income		Shareholders’ Equity
	Shares	Amount
Balance, April 1, 2020	35,102,459	$	1,343,699	$	177,922	$	80,079	$	1,601,700

Net income				23,541				23,541
Other comprehensive loss, net of income tax						(1,520)		(1,520)
Adjustment to previously accrued dividends				(15)				(15)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	55,440	1,397						1,397


Balance, June 30, 2020	35,157,899	$	1,345,096	$	201,448	$	78,559	$	1,625,103

Continued on next page


	Common Stock and Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income		Shareholders’ Equity
	Shares	Amounts
Balance, July 1, 2020	35,157,899	$	1,345,096	$	201,448	$	78,559	$	1,625,103

Net income				36,548				36,548
Other comprehensive loss, net of income tax						(2,601)		(2,601)
Accrual of dividends on common stock ($0.41/share)				(15,037)				(15,037)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	669	2,516						2,516


Balance, September 30, 2020	35,158,568	$	1,347,612	$	222,959	$	75,958	$	1,646,529


	Common Stock and Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income		Shareholders’ Equity
	Shares	Amounts
Balance, October 1, 2020	35,158,568	$	1,347,612	$	222,959	$	75,958	$	1,646,529

Net income				38,957				38,957
Other comprehensive loss, net of income tax						(6,889)		(6,889)
Accrual of dividends on common stock ($0.41/share)				(14,600)				(14,600)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered	632	2,267						2,267



Balance, December 31, 2020	35,159,200	$	1,349,879	$	247,316	$	69,069	$	1,666,264

Continued on next page


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


Net income						46,855					46,855
Other comprehensive loss, net of income tax								(56,103)			(56,103)
Accrual of dividends on common stock ($0.41/share)						(14,589)					(14,589)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered		76,143	1,714								1,714
Repurchase of common stock		(500,000)	(25,324)								(25,324)

Balance, March 31, 2021		34,735,343	$	1,326,269		$	279,582	$	12,966		$	1,618,817


	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


	Common Stock and Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income		Shareholders’ Equity
	Shares	Amount
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

See Selected Notes to the Consolidated Financial Statements

910

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

For the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2021 and 2020


		Three Months Ended March 31,					Nine Months Ended September 30,
		2021		2020			2021		2020
OPERATING ACTIVITIES:	OPERATING ACTIVITIES:					OPERATING ACTIVITIES:
Net income	Net income	$	46,855	$	16,882	Net income	$	151,121	$	76,971
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	4,411		4,614		Depreciation	13,071		13,677
Deferred income/expense and capitalized servicing rights, net of amortization	Deferred income/expense and capitalized servicing rights, net of amortization	(7,203)		(1,129)		Deferred income/expense and capitalized servicing rights, net of amortization	(34,389)		(8,503)
Amortization of core deposit intangibles	Amortization of core deposit intangibles	1,711		2,001		Amortization of core deposit intangibles	4,997		5,867
Gain on sale of securities, net	Gain on sale of securities, net	(485)		(78)		Gain on sale of securities, net	(618)		(815)

Net change in valuation of financial instruments carried at fair value	Net change in valuation of financial instruments carried at fair value	(59)		4,596		Net change in valuation of financial instruments carried at fair value	(1,895)		2,360
Reinvested dividends – equity securities						Reinvested dividends – equity securities	—		(255)

(Increase) decrease in deferred taxes		(17,436)		16,507
Increase in deferred taxes						Increase in deferred taxes	(4,388)		(1,279)
Increase in current taxes payable	Increase in current taxes payable	9,506		2,067		Increase in current taxes payable	499		1,426
Stock-based compensation	Stock-based compensation	2,152		1,872		Stock-based compensation	7,012		6,893
Net change in cash surrender value of BOLI	Net change in cash surrender value of BOLI	(1,002)		(1,041)		Net change in cash surrender value of BOLI	(3,482)		(3,721)
Gain on sale of loans, excluding capitalized servicing rights	Gain on sale of loans, excluding capitalized servicing rights	(9,487)		(8,363)		Gain on sale of loans, excluding capitalized servicing rights	(22,623)		(34,951)
(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	(298)		444		(Gain) loss on disposal of real estate held for sale and property and equipment, net	(1,452)		496
(Recapture) provision for credit losses	(Recapture) provision for credit losses	(9,251)		23,470		(Recapture) provision for credit losses	(28,145)		67,273

Provision for losses on real estate held for sale						Provision for losses on real estate held for sale	—		18
Origination of loans held for sale	Origination of loans held for sale	(301,393)		(296,712)		Origination of loans held for sale	(912,467)		(1,032,523)
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	419,412		333,094		Proceeds from sales of loans held for sale	1,115,207		1,091,984
Net change in:	Net change in:					Net change in:
Other assets	Other assets	20,319		(51,061)		Other assets	23,630		(51,796)
Other liabilities	Other liabilities	164,729		5,400		Other liabilities	23,645		5,040
Net cash provided from operating activities	Net cash provided from operating activities	322,481		52,563		Net cash provided from operating activities	329,723		138,162
INVESTING ACTIVITIES:	INVESTING ACTIVITIES:					INVESTING ACTIVITIES:
Purchases of securities—available-for-sale	Purchases of securities—available-for-sale	(1,225,723)		(143,973)		Purchases of securities—available-for-sale	(2,390,756)		(608,192)
Principal repayments and maturities of securities—available-for-sale	Principal repayments and maturities of securities—available-for-sale	434,651		82,760		Principal repayments and maturities of securities—available-for-sale	1,136,965		311,781
Proceeds from sales of securities—available-for-sale	Proceeds from sales of securities—available-for-sale	48,784		44,509		Proceeds from sales of securities—available-for-sale	59,591		128,939
Purchases of securities—held-to-maturity	Purchases of securities—held-to-maturity	(31,170)		(206,155)		Purchases of securities—held-to-maturity	(52,440)		(215,780)
Principal repayments and maturities of securities—held-to-maturity	Principal repayments and maturities of securities—held-to-maturity	9,982		3,786		Principal repayments and maturities of securities—held-to-maturity	23,842		20,691
Purchases of equity securities	Purchases of equity securities	(4,750)		0		Purchases of equity securities	(4,750)		(1,060,000)
Proceeds from sales of equity securities	Proceeds from sales of equity securities	4,796		0		Proceeds from sales of equity securities	4,796		610,519
Loan originations, net of principal repayments		(77,834)		16,646

Loan repayments (originations), net						Loan repayments (originations), net	660,016		(855,936)
Purchases of loans and participating interest in loans						Purchases of loans and participating interest in loans	(4,258)		(18)
Proceeds from sales of other loans	Proceeds from sales of other loans	8,367		5,751		Proceeds from sales of other loans	38,386		8,454

Purchases of property and equipment	Purchases of property and equipment	(2,334)		(3,086)		Purchases of property and equipment	(6,355)		(9,936)
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	1,999		877		Proceeds from sale of real estate held for sale and sale of other property	8,299		2,869
Proceeds from FHLB stock repurchase program	Proceeds from FHLB stock repurchase program	2,358		47,840		Proceeds from FHLB stock repurchase program	4,358		52,164
Purchase of FHLB stock	Purchase of FHLB stock	0		(39,745)		Purchase of FHLB stock	—		(40,185)
Purchase of securities purchased under agreements to resell						Purchase of securities purchased under agreements to resell	(300,000)		—
Other	Other	1,418		(72)		Other	2,343		3,913
Net cash used in investing activities	Net cash used in investing activities	(829,456)		(190,862)		Net cash used in investing activities	(819,963)		(1,650,717)
FINANCING ACTIVITIES:	FINANCING ACTIVITIES:					FINANCING ACTIVITIES:
Increase in deposits, net	Increase in deposits, net	981,571		400,895		Increase in deposits, net	1,597,381		2,166,700

Repayment of long term FHLB advances	Repayment of long term FHLB advances	(50,000)		0		Repayment of long term FHLB advances	(100,000)		—
Repayment of overnight and short term FHLB advances, net	Repayment of overnight and short term FHLB advances, net	0		(203,000)		Repayment of overnight and short term FHLB advances, net	—		(300,000)
Increase in other borrowings, net	Increase in other borrowings, net	31,474		10,289		Increase in other borrowings, net	62,572		58,508

Net proceeds from issuance of subordinated notes						Net proceeds from issuance of subordinated notes	—		98,027
Cash dividends paid	Cash dividends paid	(14,565)		(50,505)		Cash dividends paid	(43,568)		(79,655)
Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	(437)		(339)		Taxes paid related to net share settlement of equity awards	(3,218)		(1,447)
Cash paid for the repurchase of common stock	Cash paid for the repurchase of common stock	(25,324)		(31,775)		Cash paid for the repurchase of common stock	(56,528)		(31,775)
Net cash provided from financing activities	Net cash provided from financing activities	922,719		125,565		Net cash provided from financing activities	1,456,639		1,910,358
NET CHANGE IN CASH AND CASH EQUIVALENTS	NET CHANGE IN CASH AND CASH EQUIVALENTS	415,744		(12,734)		NET CHANGE IN CASH AND CASH EQUIVALENTS	966,399		397,803
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,234,183		307,735		CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,234,183		307,735
CASH AND CASH EQUIVALENTS, END OF PERIOD	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,649,927	$	295,001	CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2,200,582	$	705,538

Continued on next page

1011

BANNER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited) (In thousands)

For the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2021 and 2020


		Three Months Ended March 31,					Nine Months Ended September 30,
		2021		2020			2021		2020
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	$	5,829	$	13,014	Interest paid in cash	$	17,927	$	31,817
Tax refunds received (paid)		100		(29)
Tax paid (refunds received)						Tax paid (refunds received)	20,081		(27,515)
NON-CASH INVESTING AND FINANCING TRANSACTIONS:	NON-CASH INVESTING AND FINANCING TRANSACTIONS:					NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Loans, net of discounts, specific loss allowances and unearned income, transferred to real estate owned and other repossessed assets		0		1,588
Transfer of loans to real estate owned and other repossessed assets						Transfer of loans to real estate owned and other repossessed assets	512		1,588
Dividends accrued but not paid until after period end	Dividends accrued but not paid until after period end	1,381		15,277		Dividends accrued but not paid until after period end	1,191		1,179

See Selected Notes to the Consolidated Financial Statements

1112

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,~~September 30, 2021 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 2020 Consolidated Financial Statements and/or schedules to conform to the 2021 presentation. Prior to the first quarter of 2021, the (recapture) provision for credit losses - unfunded loan commitment was recorded as non-interest ~~expense, beginning~~expense. Beginning in the first quarter of 2021 the (recapture) provision for credit losses - unfunded loan commitment is recorded as a component of the provision for credit losses. 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 significant to an understanding of Banner’s 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 intangibles, such as goodwill, core deposit intangibles (CDI) and mortgage servicing rights, (v) the valuation of real estate held for sale, (vi) the valuation of assets acquired and liabilities assumed in business combinations and subsequent recognition of related income and expense, and (vii) the valuation or recognition of deferred tax assets and liabilities. 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, 2020 filed with the SEC (2020 Form 10-K). There have been no significant changes in our application of these accounting policies during the first ~~three~~nine months of 2021.

The information included in this Form 10-Q should be read in conjunction with our 2020 Form 10-K. Interim results are not necessarily indicative of results for a full year or any other interim period.

1213

Note 2: ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED

Reference Rate Reform (Topic 848)

In March 2020, the Financial Accounting Standards Board (FASB) issued guidance within Accounting Standards Update (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.

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 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. Upon adoption, an entity may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020.

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 ASUs are effective upon the issuance date of March 12, 2020 and once adopted will apply to contract modifications made and new hedging relationships entered into through December 31, 2022. The Company will be able to use the expedients in this guidance to manage through the transition away from LIBOR, specifically as they relate to loans and leases. The adoption of this accounting guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

1314

Note 3: SECURITIES

The amortized cost, gross unrealized gains and losses and estimated fair value of securities at ~~March 31,~~September 30, 2021 and December 31, 2020 are summarized as follows (in thousands):


		March 31, 2021		September 30, 2021
		Amortized Cost			Fair Value			Amortized Cost		Fair Value
Trading:	Trading:						Trading:

Corporate bonds	Corporate bonds	$	27,203		$	25,039	Corporate bonds	$	27,203	$	26,875

		$	27,203		$	25,039		$	27,203	$	26,875


		March 31, 2021											September 30, 2021
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
Available-for-Sale:	Available-for-Sale:											Available-for-Sale:
U.S. Government and agency obligations	U.S. Government and agency obligations	$	62,922	$	740	$	(816)	$	0	$	62,846	U.S. Government and agency obligations	$	180,585	$	1,067	$	(600)	$	—	$	181,052
Municipal bonds	Municipal bonds	287,685		14,378		(1,328)		0		300,735		Municipal bonds	296,784		14,395		(788)		—		310,391
Corporate bonds	Corporate bonds	243,428		2,290		(290)		0		245,428		Corporate bonds	160,404		3,903		(63)		—		164,244
Mortgage-backed or related securities	Mortgage-backed or related securities	2,399,117		28,710		(50,824)		0		2,377,003		Mortgage-backed or related securities	2,599,229		25,918		(40,883)		—		2,584,264
Asset-backed securities	Asset-backed securities	3,750		0		(2)		0		3,748		Asset-backed securities	206,514		110		—		—		206,624

		$	2,996,902	$	46,118	$	(53,260)	$	0	$	2,989,760		$	3,443,516	$	45,393	$	(42,334)	$	—	$	3,446,575


		March 31, 2021											September 30, 2021
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses
Held-to-Maturity:	Held-to-Maturity:											Held-to-Maturity:
U.S. Government and agency obligations	U.S. Government and agency obligations	$	339	$	6	$	0	$	345	$	0	U.S. Government and agency obligations	$	317	$	6	$	—	$	323	$	—
Municipal bonds	Municipal bonds	381,136		17,740		(1,481)		397,395		(61)		Municipal bonds	391,583		18,716		(2,188)		408,111		(63)
Corporate bonds	Corporate bonds	3,190		0		(7)		3,183		(37)		Corporate bonds	3,124		—		(2)		3,122		(41)
Mortgage-backed or related securities	Mortgage-backed or related securities	57,290		1,668		(286)		58,672		0		Mortgage-backed or related securities	52,788		1,668		(10)		54,446		—
		$	441,955	$	19,414	$	(1,774)	$	459,595	$	(98)		$	447,812	$	20,390	$	(2,200)	$	466,002	$	(104)


	December 31, 2020
	Amortized Cost		Fair Value
Trading:


Corporate bonds	$	27,203	$	24,980


	$	27,203	$	24,980

1415


		December 31, 2020											December 31, 2020
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
Available-for-Sale:	Available-for-Sale:											Available-for-Sale:
U.S. Government and agency obligations	U.S. Government and agency obligations	$	141,668	$	1,002	$	(935)	$	0	$	141,735	U.S. Government and agency obligations	$	141,668	$	1,002	$	(935)	$	—	$	141,735
Municipal bonds	Municipal bonds	283,997		19,523		(2)		0		303,518		Municipal bonds	283,997		19,523		(2)		—		303,518
Corporate bonds	Corporate bonds	219,086		2,762		(79)		0		221,769		Corporate bonds	219,086		2,762		(79)		—		221,769
Mortgage-backed or related securities	Mortgage-backed or related securities	1,602,033		45,179		(1,060)		0		1,646,152		Mortgage-backed or related securities	1,602,033		45,179		(1,060)		—		1,646,152
Asset-backed securities	Asset-backed securities	9,405		77		(63)		0		9,419		Asset-backed securities	9,405		77		(63)		—		9,419

		$	2,256,189	$	68,543	$	(2,139)	$	0	$	2,322,593		$	2,256,189	$	68,543	$	(2,139)	$	—	$	2,322,593


		December 31, 2020											December 31, 2020
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses
Held-to-Maturity:	Held-to-Maturity:											Held-to-Maturity:
U.S. Government and agency obligations	U.S. Government and agency obligations	$	340	$	7	$	0	$	347	$	0	U.S. Government and agency obligations	$	340	$	7	$	—	$	347	$	—
Municipal bonds	Municipal bonds	370,998		24,130		(94)		395,034		(59)		Municipal bonds	370,998		24,130		(94)		395,034		(59)
Corporate bonds	Corporate bonds	3,222		0		(12)		3,210		(35)		Corporate bonds	3,222		—		(12)		3,210		(35)
Mortgage-backed or related securities	Mortgage-backed or related securities	47,247		2,843		0		50,090		0		Mortgage-backed or related securities	47,247		2,843		—		50,090		—
		$	421,807	$	26,980	$	(106)	$	448,681	$	(94)		$	421,807	$	26,980	$	(106)	$	448,681	$	(94)

Accrued interest receivable on held-to-maturity debt securities was $2.7 million and $3.0 million as of ~~March 31,~~September 30, 2021 and December 31, 2020, respectively, and was ~~$8.2~~$9.3 million and $6.9 million on available-for-sale debt securities as of ~~March 31,~~September 30, 2021 and December 31, 2020, 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,~~September 30, 2021 and December 31, 2020, 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, 2021													September 30, 2021
		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	$	3,090	$	(10)	$	43,952	$	(806)	$	47,042	$	(816)	U.S. Government and agency obligations	$	40,115	$	(39)	$	33,447	$	(561)	$	73,562	$	(600)

Municipal bonds	Municipal bonds	50,710		(1,232)		8,403		(96)		59,113		(1,328)		Municipal bonds	60,522		(788)		—		—		60,522		(788)
Corporate bonds	Corporate bonds	24,406		(286)		996		(4)		25,402		(290)		Corporate bonds	7,937		(63)		—		—		7,937		(63)

Mortgage-backed or related securities	Mortgage-backed or related securities	863,848		(34,608)		501,048		(16,216)		1,364,896		(50,824)		Mortgage-backed or related securities	1,503,114		(39,701)		54,570		(1,182)		1,557,684		(40,883)

Asset-backed securities		3,748		(2)		0		0		3,748		(2)

		$	945,802	$	(36,138)	$	554,399	$	(17,122)	$	1,500,201	$	(53,260)
															$	1,611,688	$	(40,591)	$	88,017	$	(1,743)	$	1,699,705	$	(42,334)

1516


		December 31, 2020													December 31, 2020
		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	$	3,126	$	(8)	$	50,603	$	(927)	$	53,729	$	(935)	U.S. Government and agency obligations	$	3,126	$	(8)	$	50,603	$	(927)	$	53,729	$	(935)

Municipal bonds	Municipal bonds	495		(2)		0		0		495		(2)		Municipal bonds	495		(2)		—		—		495		(2)
Corporate bonds	Corporate bonds	3,586		(79)		0		0		3,586		(79)		Corporate bonds	3,586		(79)		—		—		3,586		(79)

Mortgage-backed or related securities	Mortgage-backed or related securities	181,871		(1,046)		2,337		(14)		184,208		(1,060)		Mortgage-backed or related securities	181,871		(1,046)		2,337		(14)		184,208		(1,060)

Asset-backed securities	Asset-backed securities	0		0		5,676		(63)		5,676		(63)		Asset-backed securities	—		—		5,676		(63)		5,676		(63)

		$	189,078	$	(1,135)	$	58,616	$	(1,004)	$	247,694	$	(2,139)		$	189,078	$	(1,135)	$	58,616	$	(1,004)	$	247,694	$	(2,139)

At ~~March 31,~~September 30, 2021, there were 8184 securities—available-for-sale with unrealized losses, compared to 54 at December 31, 2020. Management does not believe that any individual unrealized loss as of ~~March 31,~~September 30, 2021 or December 31, 2020 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 0no sales of securities—trading during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 or 2020. There were 0no securities—trading in a nonaccrual status at ~~March 31,~~September 30, 2021 or December 31, 2020. Net unrealized holding gains of ~~$59,000~~$1.9 million were recognized during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 compared to ~~$4.6~~$2.4 million of net unrealized holding losses recognized during the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

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


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020				2021		2020		2021		2020
Available-for-Sale:	Available-for-Sale:						Available-for-Sale:
Gross Gains	Gross Gains	$	595	$	78		Gross Gains	$	140	$	557	$	766	$	729
Gross Losses	Gross Losses	(110)		0			Gross Losses	(22)		(432)		(132)		(433)
Balance, end of the period	Balance, end of the period	$	485	$	78		Balance, end of the period	$	118	$	125	$	634	$	296

There were 0no securities—available-for-sale in a nonaccrual status at ~~March 31,~~September 30, 2021 or December 31, 2020.

During the nine months ended September 30, 2021, we sold 1 held-to-maturity security with a resulting net gain of $3,000 and had partial calls of securities that resulted in a net loss of $65,000. There were 0no sales of securities—held-to-maturity during the ~~three~~nine months ended ~~March 31, 2021 or~~September 30, 2020. There were 0no securities—held-to-maturity in a nonaccrual status or 30 days or more past due at ~~March 31,~~September 30, 2021 or December 31, 2020.

~~There was one sale of equity securities totaling~~During the nine months ended September 30, 2021, we sold a $4.8 million ~~during the three months ended March 31, 2021~~equity security with a resulting net gain of ~~$46,000 and~~$46,000. There were no sales of equity securities during the ~~three~~nine months ended ~~March 31,~~September 30, 2020. During the nine months ended September 30, 2020, the Company sold Visa Class B stock with a net gain of $519,000. The stock was previously carried at a zero-cost basis due to transfer restrictions and uncertainty of litigation.

The amortized cost and estimated fair value of securities at ~~March 31,~~September 30, 2021, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because some securities may be called or prepaid with or without call or prepayment penalties.


		March 31, 2021													September 30, 2021
		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 in one year or less	Maturing in one year or less	$	0	$	0	$	158,605	$	158,816	$	5,609	$	5,671	Maturing in one year or less	$	—	$	—	$	59,150	$	59,360	$	5,444	$	5,471
Maturing after one year through five years	Maturing after one year through five years	0		0		178,983		187,427		54,888		57,069		Maturing after one year through five years	—		—		173,666		181,152		59,705		62,039
Maturing after five years through ten years	Maturing after five years through ten years	0		0		680,138		675,201		33,435		35,387		Maturing after five years through ten years	—		—		845,638		847,708		21,961		23,312
Maturing after ten years through twenty years	Maturing after ten years through twenty years	27,203		25,039		276,682		285,450		152,353		155,651		Maturing after ten years through twenty years	27,203		26,875		502,832		514,271		164,303		168,315
Maturing after twenty years	Maturing after twenty years	0		0		1,702,494		1,682,866		195,670		205,817		Maturing after twenty years	—		—		1,862,230		1,844,084		196,399		206,865

		$	27,203	$	25,039	$	2,996,902	$	2,989,760	$	441,955	$	459,595		$	27,203	$	26,875	$	3,443,516	$	3,446,575	$	447,812	$	466,002

The following table presents, as of ~~March 31,~~September 30, 2021, investment securities which were pledged to secure borrowings, public deposits or other obligations as permitted or required by law (in thousands):


		March 31, 2021							September 30, 2021
		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	$	206,699	$	205,752	$	218,842	State and local governments public deposits	$	202,085	$	201,456	$	213,687
Interest rate swap counterparties	Interest rate swap counterparties	28,385		27,749		28,550		Interest rate swap counterparties	27,275		26,642		27,402
Repurchase agreements	Repurchase agreements	245,018		250,440		245,018		Repurchase agreements	278,087		285,068		278,087
Other	Other	2,588		2,588		2,648		Other	2,549		2,549		2,597
Total pledged securities	Total pledged securities	$	482,690	$	486,529	$	495,058	Total pledged securities	$	509,996	$	515,715	$	521,773

The Company monitors the credit quality of held-to-maturity debt securities through the use of credit rating. Credit ratings 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 balance is 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 table summarizes the amortized cost of held-to-maturity debt securities by credit rating at ~~March 31,~~September 30, 2021 and December 31, 2020 (in thousands):


		March 31, 2021											September 30, 2021
		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	$	0	$	349,687	$	500	$	0	$	350,187	AAA/AA/A	$	—	$	375,865	$	500	$	—	$	376,365

Not Rated	Not Rated	339		31,449		2,690		57,290		91,768		Not Rated	317		15,718		2,624		52,788		71,447

		$	339	$	381,136	$	3,190	$	57,290	$	441,955		$	317	$	391,583	$	3,124	$	52,788	$	447,812


		December 31, 2020											December 31, 2020
		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	$	0	$	349,123	$	500	$	0	$	349,623	AAA/AA/A	$	—	$	349,123	$	500	$	—	$	349,623

Not Rated	Not Rated	340		21,875		2,722		47,247		72,184		Not Rated	340		21,875		2,722		47,247		72,184
		$	340	$	370,998	$	3,222	$	47,247	$	421,807		$	340	$	370,998	$	3,222	$	47,247	$	421,807

The following table presents the activity in the allowance for credit losses for held-to-maturity debt securities by major type for the three and nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020 (in thousands):

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 $ 0 $ 59 $ 35 $ 0 $ 94
Provision for credit losses 0 2 2 0 4
Ending Balance $ 0 $ 61 $ 37 $ 0 $ 98


	For the Three Months Ended September 30, 2021
	U.S. Government and agency obligations		Municipal bonds		Corporate bonds		Mortgage-backed or related securities		Total
Allowance for credit losses – securities
Beginning Balance	$	—	$	64	$	46	$	—	$	110

Recapture of provision for credit losses	—		(1)		(5)		—		(6)



Ending Balance	$	—	$	63	$	41	$	—	$	104

	For the Nine Months Ended September 30, 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	—		4		6		—		10



Ending Balance	$	—	$	63	$	41	$	—	$	104


		For the Three Months Ended March 31, 2020											For the Three Months Ended September 30, 2020
		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
Allowance for credit losses - securities
Allowance for credit losses – securities												Allowance for credit losses – securities
Beginning Balance												Beginning Balance	$	—	$	61	$	41	$	—	$	102
Impact of adopting ASC 326												Impact of adopting ASC 326	—		—		—		—		—
(Recapture)/provision for credit losses												(Recapture)/provision for credit losses	—		(1)		1		—		—

Ending Balance												Ending Balance	$	—	$	60	$	42	$	—	$	102

													For the Nine Months Ended September 30, 2020
													U.S. Government and agency obligations		Municipal bonds		Corporate bonds		Mortgage-backed or related securities		Total
Allowance for credit losses – securities												Allowance for credit losses – securities
Beginning Balance	Beginning Balance	$	0	$	0	$	0	$	0	$	0	Beginning Balance	$	—	$	—	$	—	$	—	$	—
Impact of adopting ASC 326	Impact of adopting ASC 326	0		28		35		0		63		Impact of adopting ASC 326	—		28		35		—		63
Provision for credit losses	Provision for credit losses	0		33		2		0		35		Provision for credit losses	—		32		7		—		39

Ending Balance	Ending Balance	$	0	$	61	$	37	$	0	$	98	Ending Balance	$	—	$	60	$	42	$	—	$	102

1719

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

The following table presents the loans receivable at ~~March 31,~~September 30, 2021 and December 31, 2020 by class (dollars in thousands).


		March 31, 2021				December 31, 2020					September 30, 2021				December 31, 2020
		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	$	1,045,656	10.5	%	$	1,076,467	10.9	%	Owner-occupied	$	1,122,275	12.2	%	$	1,076,467	10.9	%
Investment properties	Investment properties	1,931,805		19.4		1,955,684		19.8		Investment properties	1,980,284		21.5		1,955,684		19.8
Small balance CRE	Small balance CRE	639,330		6.4		573,849		5.8		Small balance CRE	601,751		6.5		573,849		5.8
Multifamily real estate	Multifamily real estate	433,775		4.3		428,223		4.4		Multifamily real estate	532,760		5.8		428,223		4.4
Construction, land and land development:	Construction, land and land development:									Construction, land and land development:
Commercial construction	Commercial construction	199,037		2.0		228,937		2.3		Commercial construction	170,205		1.8		228,937		2.3
Multifamily construction	Multifamily construction	305,694		3.1		305,527		3.1		Multifamily construction	278,184		3.0		305,527		3.1
One- to four-family construction	One- to four-family construction	542,840		5.5		507,810		5.1		One- to four-family construction	571,431		6.2		507,810		5.1
Land and land development	Land and land development	266,730		2.7		248,915		2.5		Land and land development	308,164		3.4		248,915		2.5
Commercial business:	Commercial business:									Commercial business:
Commercial business (1)	Commercial business (1)	2,376,594		23.9		2,178,461		22.1		Commercial business (1)	1,346,707		14.6		2,178,461		22.1
Small business scored	Small business scored	717,502		7.2		743,451		7.5		Small business scored	775,554		8.4		743,451		7.5
Agricultural business, including secured by farmland (2)	Agricultural business, including secured by farmland (2)	262,410		2.6		299,949		3.0		Agricultural business, including secured by farmland (2)	287,469		3.1		299,949		3.0
One- to four-family residential	One- to four-family residential	655,627		6.6		717,939		7.3		One- to four-family residential	682,368		7.4		717,939		7.3
Consumer:	Consumer:									Consumer:
Consumer—home equity revolving lines of credit	Consumer—home equity revolving lines of credit	466,132		4.7		491,812		5.0		Consumer—home equity revolving lines of credit	462,819		5.0		491,812		5.0
Consumer—other	Consumer—other	104,565		1.1		113,958		1.2		Consumer—other	98,413		1.1		113,958		1.2
Total loans	Total loans	9,947,697		100.0	%	9,870,982		100.0	%	Total loans	9,218,384		100.0	%	9,870,982		100.0	%
Less allowance for credit losses - loans		(156,054)				(167,279)
Less allowance for credit losses – loans										Less allowance for credit losses – loans	(139,915)				(167,279)
Net loans	Net loans	$	9,791,643			$	9,703,703			Net loans	$	9,078,469			$	9,703,703

(1) Includes ~~$1.28 billion~~$307.0 million and $1.04 billion of U.S. Small Business Administration (SBA) Paycheck Protection Program (PPP) loans as of ~~March 31,~~September 30, 2021 and December 31, 2020, respectively.

(2) Includes ~~$36.3~~$3.2 million of SBA PPP loans as of ~~March 31,~~September 30, 2021 and ~~none~~NaN as of December 31, 2020.

Loan amounts are net of unearned loan fees in excess of unamortized costs of ~~$35.5~~$12.2 million as of ~~March 31,~~September 30, 2021 and $25.6 million as of December 31, 2020. Net loans include net discounts on acquired loans of ~~$13.9~~$11.5 million and $16.1 million as of ~~March 31,~~September 30, 2021 and December 31, 2020, respectively. Net loans does not include accrued interest receivable. Accrued interest receivable on loans was ~~$38.2~~$31.5 million as of ~~March 31,~~September 30, 2021 and $36.6 million as of December 31, 2020 and was reported in accrued interest receivable on the Consolidated Statements of Financial Condition.

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 ~~for~~during the ~~three~~nine months ended ~~March 31,~~September 30, 2021.

Troubled Debt Restructurings. Loans are reported as ~~TDRs~~troubled debt restructures (TDRs) when the bank grants one or more concessions to a borrower experiencing financial difficulties that it would not otherwise consider. Our TDRs have generally not involved forgiveness of amounts due, but almost always include a modification of multiple factors; the most common combination includes interest rate, payment amount and maturity date.

1820

As of ~~March 31,~~September 30, 2021 and December 31, 2020, the Company had TDRs of ~~$7.6~~$5.6 million and $7.9 million, respectively, and 0no commitments to advance additional funds related to TDRs.

There were no new TDRs that occurred during the ~~three~~nine months ended ~~March 31,~~September 30, 2021. The following table presents new TDRs that occurred during the three and nine months ended ~~March 31,~~September 30, 2020 (dollars in thousands):


		Three months ended March 31, 2020		Three Months Ended September 30, 2020							Nine months ended September 30, 2020
			Number of Contracts		Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment			Number of Contracts	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment		Number of Contracts	Pre- modification Outstanding Recorded Investment		Post- modification Outstanding Recorded Investment
Recorded Investment	Recorded Investment								Recorded Investment

Commercial business:	Commercial business:								Commercial business:
Commercial business	Commercial business		2		4,796		4,796		Commercial business	—	—		—		2	4,796		4,796

Total	Total		2		$	4,796	$	4,796	Total	—	$	—	$	—	2	$	4,796	$	4,796

There were 0no TDRs which incurred a payment default within twelve months of the restructure date during the ~~three-month~~three and nine-month periods ended ~~March 31,~~September 30, 2021 and 2020. A default on a TDR results in either a transfer to nonaccrual status or a partial charge-off, or both.

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.

1921

The following tables present the Company’s portfolio of risk-rated loans by class and by grade as of ~~March 31,~~September 30, 2021 and December 31, 2020 (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, 2021
Term Loans by Year of Origination Revolving Loans Total Loans
By class: 2021 2020 2019 2018 2017 Prior
Commercial real estate - owner occupied
Risk Rating
Pass $ 39,192 $ 236,836 $ 158,294 $ 147,397 $ 98,352 $ 266,316 $ 5,455 $ 951,842
Special Mention 0 0 16,835 0 2,217 87 0 19,139
Substandard 45 7,096 24,526 2,329 2,311 38,368 0 74,675
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Commercial real estate - owner occupied $ 39,237 $ 243,932 $ 199,655 $ 149,726 $ 102,880 $ 304,771 $ 5,455 $ 1,045,656
Commercial real estate - investment properties
Risk Rating
Pass $ 41,181 $ 238,095 $ 260,934 $ 284,975 $ 226,762 $ 711,557 $ 20,001 $ 1,783,505
Special Mention 0 0 0 0 0 11,079 0 11,079
Substandard 422 28,529 11,383 20,864 36,212 39,811 0 137,221
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Commercial real estate - investment properties $ 41,603 $ 266,624 $ 272,317 $ 305,839 $ 262,974 $ 762,447 $ 20,001 $ 1,931,805
Multifamily real estate
Risk Rating
Pass $ 16,005 $ 76,245 $ 71,073 $ 37,683 $ 93,037 $ 133,912 $ 2,080 $ 430,035
Special Mention 0 0 0 0 0 0 0 0
Substandard 0 2,312 1,428 0 0 0 0 3,740
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Multifamily real estate $ 16,005 $ 78,557 $ 72,501 $ 37,683 $ 93,037 $ 133,912 $ 2,080 $ 433,775

March 31, 2021
Term Loans by Year of Origination Revolving Loans Total Loans
By class: 2021 2020 2019 2018 2017 Prior
Commercial construction
Risk Rating
Pass $ 4,182 $ 94,483 $ 42,572 $ 38,566 $ 332 $ 527 $ 0 $ 180,662
Special Mention 0 0 5,967 0 0 0 0 5,967
Substandard 3,507 0 3,938 4,865 0 98 0 12,408
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Commercial construction $ 7,689 $ 94,483 $ 52,477 $ 43,431 $ 332 $ 625 $ 0 $ 199,037
Multifamily construction
Risk Rating
Pass $ 26,801 $ 84,144 $ 128,336 $ 51,514 $ 14,899 $ 0 $ 0 $ 305,694
Special Mention 0 0 0 0 0 0 0 0
Substandard 0 0 0 0 0 0 0 0
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Multifamily construction $ 26,801 $ 84,144 $ 128,336 $ 51,514 $ 14,899 $ 0 $ 0 $ 305,694
One- to four- family construction
Risk Rating
Pass $ 204,174 $ 324,068 $ 10,374 $ 0 $ 0 $ 0 $ 3,537 $ 542,153
Special Mention 0 0 0 0 0 0 0 0
Substandard 356 0 331 0 0 0 0 687
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total One- to four- family construction $ 204,530 $ 324,068 $ 10,705 $ 0 $ 0 $ 0 $ 3,537 $ 542,840

March 31, 2021
Term Loans by Year of Origination Revolving Loans Total Loans
By class: 2021 2020 2019 2018 2017 Prior
Land and land development
Risk Rating
Pass $ 50,665 $ 141,075 $ 26,180 $ 12,004 $ 6,567 $ 10,249 $ 16,751 $ 263,491
Special Mention 0 0 0 0 0 0 0 0
Substandard 2,869 14 28 141 187 0 0 3,239
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Land and land development $ 53,534 $ 141,089 $ 26,208 $ 12,145 $ 6,754 $ 10,249 $ 16,751 $ 266,730
Commercial business
Risk Rating
Pass $ 440,419 $ 1,103,935 $ 211,237 $ 191,647 $ 62,188 $ 100,296 $ 211,777 $ 2,321,499
Special Mention 75 96 3,184 0 752 104 10,487 14,698
Substandard 2,235 3,620 4,912 18,140 4,860 1,583 5,047 40,397
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Commercial business $ 442,729 $ 1,107,651 $ 219,333 $ 209,787 $ 67,800 $ 101,983 $ 227,311 $ 2,376,594
Agricultural business including secured by farmland
Risk Rating
Pass $ 12,322 $ 31,316 $ 55,503 $ 29,215 $ 20,206 $ 44,027 $ 61,005 $ 253,594
Special Mention 0 0 0 0 810 0 0 810
Substandard 0 445 2,548 803 144 2,175 1,891 8,006
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Agricultural business including secured by farmland $ 12,322 $ 31,761 $ 58,051 $ 30,018 $ 21,160 $ 46,202 $ 62,896 $ 262,410


	September 30, 2021
	Term Loans by Year of Origination												Revolving Loans		Total Loans
By class:	2021		2020		2019		2018		2017		Prior

Commercial real estate - owner occupied
Risk Rating
Pass	$	202,187	$	227,782	$	154,951	$	126,339	$	92,197	$	232,653	$	11,457	$	1,047,566
Special Mention	12,309		—		2,201		—		2,147		3,384		—		20,041
Substandard	1,968		—		13,770		—		3,058		35,872		—		54,668
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Commercial real estate - owner occupied	$	216,464	$	227,782	$	170,922	$	126,339	$	97,402	$	271,909	$	11,457	$	1,122,275

Commercial real estate - investment properties
Risk Rating
Pass	$	286,605	$	227,093	$	266,240	$	246,056	$	227,915	$	612,438	$	19,726	$	1,886,073
Special Mention	—		—		—		4,167		—		—		—		4,167
Substandard	2,162		9,651		5,292		17,197		10,368		45,374		—		90,044
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Commercial real estate - investment properties	$	288,767	$	236,744	$	271,532	$	267,420	$	238,283	$	657,812	$	19,726	$	1,980,284

Multifamily real estate
Risk Rating
Pass	$	134,404	$	79,418	$	71,346	$	37,285	$	92,151	$	109,993	$	2,517	$	527,114
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		2,312		1,420		—		—		1,914		—		5,646
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Multifamily real estate	$	134,404	$	81,730	$	72,766	$	37,285	$	92,151	$	111,907	$	2,517	$	532,760

December 31, 2020
Term Loans by Year of Origination Revolving Loans Total Loans
By class: 2020 2019 2018 2017 2016 Prior
Commercial real estate - owner occupied
Risk Rating
Pass $ 243,100 $ 156,838 $ 156,817 $ 122,484 $ 92,312 $ 212,792 $ 3,379 $ 987,722
Special Mention 0 4,560 0 2,251 0 1,869 149 8,829
Substandard 7,923 26,914 3,040 2,516 11,731 27,792 0 79,916
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Commercial real estate - owner occupied $ 251,023 $ 188,312 $ 159,857 $ 127,251 $ 104,043 $ 242,453 $ 3,528 $ 1,076,467
Commercial real estate - investment properties
Risk Rating
Pass $ 237,553 $ 262,543 $ 299,452 $ 218,018 $ 278,348 $ 502,914 $ 20,062 $ 1,818,890
Special Mention 0 2,712 0 0 2,730 1,856 0 7,298
Substandard 19,812 11,418 20,352 36,310 23,027 18,577 0 129,496
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Commercial real estate - investment properties $ 257,365 $ 276,673 $ 319,804 $ 254,328 $ 304,105 $ 523,347 $ 20,062 $ 1,955,684
Multifamily real estate
Risk Rating
Pass $ 78,632 $ 69,825 $ 39,343 $ 93,442 $ 44,395 $ 96,863 $ 1,983 $ 424,483
Special Mention 0 0 0 0 0 0 0 0
Substandard 2,312 1,428 0 0 0 0 0 3,740
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Multifamily real estate $ 80,944 $ 71,253 $ 39,343 $ 93,442 $ 44,395 $ 96,863 $ 1,983 $ 428,223


	September 30, 2021
	Term Loans by Year of Origination												Revolving Loans		Total Loans
By class:	2021		2020		2019		2018		2017		Prior

Commercial construction
Risk Rating
Pass	$	48,100	$	52,593	$	24,682	$	31,084	$	—	$	521	$	—	$	156,980
Special Mention	—		—		—		—		—		—		—		—
Substandard	4,272		—		4,035		4,820		—		98		—		13,225
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Commercial construction	$	52,372	$	52,593	$	28,717	$	35,904	$	—	$	619	$	—	$	170,205

Multifamily construction
Risk Rating
Pass	$	59,818	$	112,147	$	86,493	$	14,840	$	—	$	—	$	—	$	273,298
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		4,886		—		—		—		—		—		4,886
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Multifamily construction	$	59,818	$	117,033	$	86,493	$	14,840	$	—	$	—	$	—	$	278,184

One- to four- family construction
Risk Rating
Pass	$	466,258	$	103,197	$	331	$	—	$	—	$	85	$	1,560	$	571,431
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total One- to four- family construction	$	466,258	$	103,197	$	331	$	—	$	—	$	85	$	1,560	$	571,431

December 31, 2020
Term Loans by Year of Origination Revolving Loans Total Loans
By class: 2020 2019 2018 2017 2016 Prior
Commercial construction
Risk Rating
Pass $ 83,506 $ 67,152 $ 41,299 $ 6,038 $ 2,158 $ 1,129 $ 0 $ 201,282
Special Mention 0 5,963 0 0 0 0 0 5,963
Substandard 12,913 3,808 4,873 0 98 0 0 21,692
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Commercial construction $ 96,419 $ 76,923 $ 46,172 $ 6,038 $ 2,256 $ 1,129 $ 0 $ 228,937
Multifamily construction
Risk Rating
Pass $ 79,710 $ 151,141 $ 59,744 $ 14,932 $ 0 $ 0 $ 0 $ 305,527
Special Mention 0 0 0 0 0 0 0 0
Substandard 0 0 0 0 0 0 0 0
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total Multifamily construction $ 79,710 $ 151,141 $ 59,744 $ 14,932 $ 0 $ 0 $ 0 $ 305,527
One- to four- family construction
Risk Rating
Pass $ 461,294 $ 35,910 $ 0 $ 0 $ 0 $ 0 $ 7,581 $ 504,785
Special Mention 1,563 0 0 0 0 0 630 2,193
Substandard 501 331 0 0 0 0 0 832
Doubtful 0 0 0 0 0 0 0 0
Loss 0 0 0 0 0 0 0 0
Total One- to four- family construction $ 463,358 $ 36,241 $ 0 $ 0 $ 0 $ 0 $ 8,211 $ 507,810


	September 30, 2021
	Term Loans by Year of Origination												Revolving Loans		Total Loans
By class:	2021		2020		2019		2018		2017		Prior

Land and land development
Risk Rating
Pass	$	149,447	$	112,761	$	18,967	$	9,189	$	4,218	$	8,174	$	2,118	$	304,874
Special Mention	—		—		—		—		—		—		—		—
Substandard	2,874		14		267		—		—		135		—		3,290
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Land and land development	$	152,321	$	112,775	$	19,234	$	9,189	$	4,218	$	8,309	$	2,118	$	308,164

Commercial business
Risk Rating
Pass	$	348,123	$	274,487	$	197,462	$	127,281	$	48,760	$	83,084	$	231,186	$	1,310,383
Special Mention	68		86		271		—		690		11		10,667		11,793
Substandard	2,277		2,422		1,090		10,019		3,318		892		4,513		24,531
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Commercial business	$	350,468	$	276,995	$	198,823	$	137,300	$	52,768	$	83,987	$	246,366	$	1,346,707

Agricultural business including secured by farmland
Risk Rating
Pass	$	26,643	$	27,645	$	51,961	$	28,073	$	15,698	$	37,116	$	93,390	$	280,526
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		446		2,206		510		144		1,891		1,746		6,943
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Agricultural business including secured by farmland	$	26,643	$	28,091	$	54,167	$	28,583	$	15,842	$	39,007	$	95,136	$	287,469


		December 31, 2020																				December 31, 2020
		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:		2020					2019				2018			2017			2016			Prior

Land and land development
Commercial real estate - owner occupied																					Commercial real estate - owner occupied
Risk Rating	Risk Rating																				Risk Rating
Pass	Pass	$	156,450	$	37,397	$	16,560	$	6,801	$	6,264	$	4,840			$	17,020					$	245,332	Pass	$	243,100		$	156,838		$	156,817		$	122,484		$	92,312		$	212,792		$	3,379		$	987,722
Special Mention	Special Mention	0		0		0		0		0		0		0					0		Special Mention	—				4,560			—			2,251			—			1,869			149			8,829
Substandard	Substandard	14		30		3,047		190		0		302		0					3,583		Substandard	7,923				26,914			3,040			2,516			11,731			27,792			—			79,916
Doubtful	Doubtful	0		0		0		0		0		0		0					0		Doubtful	—				—			—			—			—			—			—			—
Loss	Loss	0		0		0		0		0		0		0					0		Loss	—				—			—			—			—			—			—			—
Total Land and land development		$	156,464	$	37,427	$	19,607	$	6,991	$	6,264	$	5,142	$	17,020				$	248,915
Total Commercial real estate - owner occupied																					Total Commercial real estate - owner occupied	$	251,023			$	188,312		$	159,857		$	127,251		$	104,043		$	242,453		$	3,528		$	1,076,467

Commercial business
Commercial real estate - investment properties																					Commercial real estate - investment properties
Risk Rating	Risk Rating																				Risk Rating
Pass	Pass	$	1,243,276	$	230,845	$	203,051	$	65,524	$	38,757	$	66,206	$	264,741				$	2,112,400	Pass	$	237,553			$	262,543		$	299,452		$	218,018		$	278,348		$	502,914		$	20,062		$	1,818,890
Special Mention	Special Mention	103		412		0		829		0		115		9,507					10,966		Special Mention	—				2,712			—			—			2,730			1,856			—			7,298
Substandard	Substandard	6,624		14,413		18,569		5,224		1,320		453		8,492					55,095		Substandard	19,812				11,418			20,352			36,310			23,027			18,577			—			129,496
Doubtful	Doubtful	0		0		0		0		0		0		0					0		Doubtful	—				—			—			—			—			—			—			—
Loss	Loss	0		0		0		0		0		0		0					0		Loss	—				—			—			—			—			—			—			—
Total Commercial business		$	1,250,003	$	245,670	$	221,620	$	71,577	$	40,077	$	66,774	$	282,740				$	2,178,461
Total Commercial real estate - investment properties																					Total Commercial real estate - investment properties	$	257,365			$	276,673		$	319,804		$	254,328		$	304,105		$	523,347		$	20,062		$	1,955,684

Agricultural business including secured by farmland
Multifamily real estate																					Multifamily real estate
Risk Rating	Risk Rating																				Risk Rating
Pass	Pass	$	32,032	$	62,058	$	31,381	$	22,635	$	22,394	$	24,950	$	91,660				$	287,110	Pass	$	78,632			$	69,825		$	39,343		$	93,442		$	44,395		$	96,863		$	1,983		$	424,483
Special Mention	Special Mention	0		0		0		810		0		537		0					1,347		Special Mention	—				—			—			—			—			—			—			—
Substandard	Substandard	1,542		2,652		1,076		163		675		3,049		2,335					11,492		Substandard	2,312				1,428			—			—			—			—			—			3,740
Doubtful	Doubtful	0		0		0		0		0		0		0					0		Doubtful	—				—			—			—			—			—			—			—
Loss	Loss	0		0		0		0		0		0		0					0		Loss	—				—			—			—			—			—			—			—
Total Agricultural business including secured by farmland		$	33,574	$	64,710	$	32,457	$	23,608	$	23,069	$	28,536	$	93,995				$	299,949
Total Multifamily real estate																					Total Multifamily real estate	$	80,944			$	71,253		$	39,343		$	93,442		$	44,395		$	96,863		$	1,983		$	428,223


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

Commercial construction
Risk Rating
Pass	$	83,506	$	67,152	$	41,299	$	6,038	$	2,158	$	1,129	$	—	$	201,282
Special Mention	—		5,963		—		—		—		—		—		5,963
Substandard	12,913		3,808		4,873		—		98		—		—		21,692
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Commercial construction	$	96,419	$	76,923	$	46,172	$	6,038	$	2,256	$	1,129	$	—	$	228,937

Multifamily construction
Risk Rating
Pass	$	79,710	$	151,141	$	59,744	$	14,932	$	—	$	—	$	—	$	305,527
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Multifamily construction	$	79,710	$	151,141	$	59,744	$	14,932	$	—	$	—	$	—	$	305,527

One- to four- family construction
Risk Rating
Pass	$	461,294	$	35,910	$	—	$	—	$	—	$	—	$	7,581	$	504,785
Special Mention	1,563		—		—		—		—		—		630		2,193
Substandard	501		331		—		—		—		—		—		832
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total One- to four- family construction	$	463,358	$	36,241	$	—	$	—	$	—	$	—	$	8,211	$	507,810


	December 31, 2020
	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	$	156,450	$	37,397	$	16,560	$	6,801	$	6,264	$	4,840	$	17,020	$	245,332
Special Mention	—		—		—		—		—		—		—		—
Substandard	14		30		3,047		190		—		302		—		3,583
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Land and land development	$	156,464	$	37,427	$	19,607	$	6,991	$	6,264	$	5,142	$	17,020	$	248,915

Commercial business
Risk Rating
Pass	$	1,243,276	$	230,845	$	203,051	$	65,524	$	38,757	$	66,206	$	264,741	$	2,112,400
Special Mention	103		412		—		829		—		115		9,507		10,966
Substandard	6,624		14,413		18,569		5,224		1,320		453		8,492		55,095
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Commercial business	$	1,250,003	$	245,670	$	221,620	$	71,577	$	40,077	$	66,774	$	282,740	$	2,178,461

Agricultural business including secured by farmland
Risk Rating
Pass	$	32,032	$	62,058	$	31,381	$	22,635	$	22,394	$	24,950	$	91,660	$	287,110
Special Mention	—		—		—		810		—		537		—		1,347
Substandard	1,542		2,652		1,076		163		675		3,049		2,335		11,492
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total Agricultural business including secured by farmland	$	33,574	$	64,710	$	32,457	$	23,608	$	23,069	$	28,536	$	93,995	$	299,949

The following tables present the Company’s portfolio of non-risk-rated loans by class and delinquency status as of ~~March 31,~~September 30, 2021 and December 31, 2020 (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, 2021																				September 30, 2021
		Term Loans by Year of Origination												Revolving Loans					Total Loans			Term Loans by Year of Origination																			Revolving Loans			Total Loans
By class:	By class:	2021		2020		2019		2018		2017		Prior				By class:		2021					2020				2019			2018			2017			Prior

Small balance CRE	Small balance CRE																				Small balance CRE
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	16,636	$	86,223	$	83,030	$	89,631	$	83,972	$	275,125			$	1,059					$	635,676	Current	$	48,385		$	80,778		$	74,482		$	85,597		$	73,371		$	238,549		$	544		$	601,706
30-59 Days Past Due	30-59 Days Past Due	0		0		0		0		0		895		0					895		30-59 Days Past Due	—				—			—			—			—			2			—			2
60-89 Days Past Due	60-89 Days Past Due	0		0		0		0		0		1,978		0					1,978		60-89 Days Past Due	43				—			—			—			—			—			—			43
90 Days + Past Due	90 Days + Past Due	0		0		0		0		558		223		0					781		90 Days + Past Due	—				—			—			—			—			—			—			—
Total small balance CRE	Total small balance CRE	$	16,636	$	86,223	$	83,030	$	89,631	$	84,530	$	278,221	$	1,059				$	639,330	Total small balance CRE	$	48,428			$	80,778		$	74,482		$	85,597		$	73,371		$	238,551		$	544		$	601,751

Small business scored	Small business scored																				Small business scored
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	36,376	$	148,553	$	134,717	$	114,934	$	78,944	$	99,736	$	100,192				$	713,452	Current	$	176,262			$	134,418		$	119,587		$	92,657		$	63,168		$	79,568		$	108,154		$	773,814
30-59 Days Past Due	30-59 Days Past Due	50		17		139		694		82		357		121					1,460		30-59 Days Past Due	—				132			10			128			14			50			172			506
60-89 Days Past Due	60-89 Days Past Due	0		755		54		89		47		0		3					948		60-89 Days Past Due	—				—			—			142			26			—			160			328
90 Days + Past Due	90 Days + Past Due	0		130		18		280		617		597		0					1,642		90 Days + Past Due	—				8			139			120			335			243			61			906
Total small business scored	Total small business scored	$	36,426	$	149,455	$	134,928	$	115,997	$	79,690	$	100,690	$	100,316				$	717,502	Total small business scored	$	176,262			$	134,558		$	119,736		$	93,047		$	63,543		$	79,861		$	108,547		$	775,554

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	$	16,134	$	113,853	$	80,610	$	79,090	$	82,592	$	276,047	$	2,740				$	651,066	Current	$	157,577			$	109,535		$	65,469		$	58,832		$	64,017		$	223,601		$	1,751		$	680,782
30-59 Days Past Due	30-59 Days Past Due	0		277		0		247		369		94		0					987		30-59 Days Past Due	—				—			—			—			—			107			—			107
60-89 Days Past Due	60-89 Days Past Due	0		0		0		19		0		2		0					21		60-89 Days Past Due	—				—			—			—			—			109			—			109
90 Days + Past Due	90 Days + Past Due	41		0		972		174		0		2,366		0					3,553		90 Days + Past Due	—				276			—			169			—			925			—			1,370
Total One- to four- family residential	Total One- to four- family residential	$	16,175	$	114,130	$	81,582	$	79,530	$	82,961	$	278,509	$	2,740				$	655,627	Total One- to four- family residential	$	157,577			$	109,811		$	65,469		$	59,001		$	64,017		$	224,742		$	1,751		$	682,368

2628


		March 31, 2021																				September 30, 2021
		Term Loans by Year of Origination												Revolving Loans					Total Loans			Term Loans by Year of Origination																			Revolving Loans			Total Loans
By class:	By class:	2021		2020		2019		2018		2017		Prior				By class:		2021					2020				2019			2018			2017			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	$	8,652	$	1,216	$	3,046	$	3,089	$	2,484	$	2,888			$	442,660					$	464,035	Current	$	7,044		$	1,125		$	1,711		$	1,772		$	2,089		$	3,007		$	444,348		$	461,096
30-59 Days Past Due	30-59 Days Past Due	0		0		64		0		0		193		207					464		30-59 Days Past Due	—				65			110			—			100			385			180			840
60-89 Days Past Due	60-89 Days Past Due	0		0		0		0		109		0		0					109		60-89 Days Past Due	—				—			—			—			71			91			2			164
90 Days + Past Due	90 Days + Past Due	0		0		413		196		127		556		232					1,524		90 Days + Past Due	—				—			197			193			108			31			190			719
Total Consumer—home equity revolving lines of credit	Total Consumer—home equity revolving lines of credit	$	8,652	$	1,216	$	3,523	$	3,285	$	2,720	$	3,637	$	443,099				$	466,132	Total Consumer—home equity revolving lines of credit	$	7,044			$	1,190		$	2,018		$	1,965		$	2,368		$	3,514		$	444,720		$	462,819

Consumer-other	Consumer-other																				Consumer-other
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	2,738	$	19,754	$	11,549	$	12,375	$	9,931	$	24,136	$	23,893				$	104,376	Current	$	13,921			$	15,239		$	9,426		$	9,524		$	6,917		$	18,640		$	24,394		$	98,061
30-59 Days Past Due	30-59 Days Past Due	0		0		0		13		2		56		60					131		30-59 Days Past Due	5				118			17			79			20			26			49			314
60-89 Days Past Due	60-89 Days Past Due	0		0		27		4		0		10		17					58		60-89 Days Past Due	1				—			—			3			7			6			17			34
90 Days + Past Due	90 Days + Past Due	0		0		0		0		0		0		0					0		90 Days + Past Due	—				4			—			—			—			—			—			4
Total Consumer-other	Total Consumer-other	$	2,738	$	19,754	$	11,576	$	12,392	$	9,933	$	24,202	$	23,970				$	104,565	Total Consumer-other	$	13,927			$	15,361		$	9,443		$	9,606		$	6,944		$	18,672		$	24,460		$	98,413

2729


		December 31, 2020																				December 31, 2020
		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:		2020					2019				2018			2017			2016			Prior

Small balance CRE	Small balance CRE																				Small balance CRE
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	56,544	$	80,090	$	84,749	$	77,637	$	68,791	$	202,653			$	2,550					$	573,014	Current	$	56,544		$	80,090		$	84,749		$	77,637		$	68,791		$	202,653		$	2,550		$	573,014
30-59 Days Past Due	30-59 Days Past Due	0		0		0		0		0		0		0					0		30-59 Days Past Due	—				—			—			—			—			—			—			—
60-89 Days Past Due	60-89 Days Past Due	0		0		0		45		0		0		0					45		60-89 Days Past Due	—				—			—			45			—			—			—			45
90 Days + Past Due	90 Days + Past Due	0		0		0		567		0		223		0					790		90 Days + Past Due	—				—			—			567			—			223			—			790
Total small balance CRE	Total small balance CRE	$	56,544	$	80,090	$	84,749	$	78,249	$	68,791	$	202,876	$	2,550				$	573,849	Total small balance CRE	$	56,544			$	80,090		$	84,749		$	78,249		$	68,791		$	202,876		$	2,550		$	573,849

Small business scored	Small business scored																				Small business scored
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	157,161	$	145,037	$	126,578	$	89,734	$	47,909	$	63,347	$	109,287				$	739,053	Current	$	157,161			$	145,037		$	126,578		$	89,734		$	47,909		$	63,347		$	109,287		$	739,053
30-59 Days Past Due	30-59 Days Past Due	129		62		310		723		4		1		230					1,459		30-59 Days Past Due	129				62			310			723			4			1			230			1,459
60-89 Days Past Due	60-89 Days Past Due	98		147		3		140		0		352		151					891		60-89 Days Past Due	98				147			3			140			—			352			151			891
90 Days + Past Due	90 Days + Past Due	73		228		800		484		169		248		46					2,048		90 Days + Past Due	73				228			800			484			169			248			46			2,048
Total small business scored	Total small business scored	$	157,461	$	145,474	$	127,691	$	91,081	$	48,082	$	63,948	$	109,714				$	743,451	Total small business scored	$	157,461			$	145,474		$	127,691		$	91,081		$	48,082		$	63,948		$	109,714		$	743,451

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	$	105,411	$	90,425	$	92,232	$	101,491	$	60,738	$	254,850	$	3,164				$	708,311	Current	$	105,411			$	90,425		$	92,232		$	101,491		$	60,738		$	254,850		$	3,164		$	708,311
30-59 Days Past Due	30-59 Days Past Due	1,051		0		1,302		829		0		1,438		0					4,620		30-59 Days Past Due	1,051				—			1,302			829			—			1,438			—			4,620
60-89 Days Past Due	60-89 Days Past Due	0		0		19		0		0		936		0					955		60-89 Days Past Due	—				—			19			—			—			936			—			955
90 Days + Past Due	90 Days + Past Due	0		114		1,185		456		169		2,129		0					4,053		90 Days + Past Due	—				114			1,185			456			169			2,129			—			4,053
Total One- to four- family residential	Total One- to four- family residential	$	106,462	$	90,539	$	94,738	$	102,776	$	60,907	$	259,353	$	3,164				$	717,939	Total One- to four- family residential	$	106,462			$	90,539		$	94,738		$	102,776		$	60,907		$	259,353		$	3,164		$	717,939

2830


		December 31, 2020																				December 31, 2020
		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:		2020					2019				2018			2017			2016			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	$	10,522	$	2,617	$	2,553	$	3,359	$	1,372	$	2,154			$	466,490					$	489,067	Current	$	10,522		$	2,617		$	2,553		$	3,359		$	1,372		$	2,154		$	466,490		$	489,067
30-59 Days Past Due	30-59 Days Past Due	0		0		0		0		0		50		409					459		30-59 Days Past Due	—				—			—			—			—			50			409			459
60-89 Days Past Due	60-89 Days Past Due	0		202		0		0		0		237		0					439		60-89 Days Past Due	—				202			—			—			—			237			—			439
90 Days + Past Due	90 Days + Past Due	0		312		198		564		286		255		232					1,847		90 Days + Past Due	—				312			198			564			286			255			232			1,847
Total Consumer—home equity revolving lines of credit	Total Consumer—home equity revolving lines of credit	$	10,522	$	3,131	$	2,751	$	3,923	$	1,658	$	2,696	$	467,131				$	491,812	Total Consumer—home equity revolving lines of credit	$	10,522			$	3,131		$	2,751		$	3,923		$	1,658		$	2,696		$	467,131		$	491,812

Consumer-other	Consumer-other																				Consumer-other
Past Due Category	Past Due Category																				Past Due Category
Current	Current	$	21,811	$	13,377	$	13,936	$	11,433	$	8,575	$	18,802	$	25,460				$	113,394	Current	$	21,811			$	13,377		$	13,936		$	11,433		$	8,575		$	18,802		$	25,460		$	113,394
30-59 Days Past Due	30-59 Days Past Due	48		35		15		22		46		26		44					236		30-59 Days Past Due	48				35			15			22			46			26			44			236
60-89 Days Past Due	60-89 Days Past Due	242		0		0		33		21		14		18					328		60-89 Days Past Due	242				—			—			33			21			14			18			328
90 Days + Past Due	90 Days + Past Due	0		0		0		0		0		0		0					0		90 Days + Past Due	—				—			—			—			—			—			—			—
Total Consumer-other	Total Consumer-other	$	22,101	$	13,412	$	13,951	$	11,488	$	8,642	$	18,842	$	25,522				$	113,958	Total Consumer-other	$	22,101			$	13,412		$	13,951		$	11,488		$	8,642		$	18,842		$	25,522		$	113,958

2931

The following tables provide the amortized cost basis of collateral-dependent loans as of ~~March 31,~~September 30, 2021 and December 31, 2020 (in thousands). Our collateral dependent loans presented in the tables below have no significant concentrations by property type or location.


		March 31, 2021										September 30, 2021
		Real Estate		Accounts Receivable		Equipment		Inventory		Total				Real Estate		Accounts Receivable		Equipment		Total
Commercial real estate:	Commercial real estate:												Commercial real estate:
Owner-occupied	Owner-occupied	$	4,684	$	0	$	0	$	0	$	4,684		Owner-occupied	$	3,949	$	—	$	—	$	3,949
Investment properties	Investment properties	12,568		0		0		0		12,568			Investment properties	7,468		—		—		7,468
Small balance CRE	Small balance CRE	3,090		0		0		0		3,090			Small balance CRE	2,452		—		—		2,452

Commercial business	Commercial business												Commercial business
Commercial business	Commercial business	557		0		73		0		630			Commercial business	107		659		56		822
Small business scored	Small business scored	43		0		47		0		90			Small business scored	41		—		44		85
Agricultural business, including secured by farmland	Agricultural business, including secured by farmland	427		0		930		0		1,357			Agricultural business, including secured by farmland	427		—		594		1,021

Total	Total	$	21,369	$	0	$	1,050	$	0	$	22,419		Total	$	14,444	$	659	$	694	$	15,797


		December 31, 2020											December 31, 2020
		Real Estate		Accounts Receivable		Equipment		Inventory		Total			Real Estate		Accounts Receivable		Equipment		Total
Commercial real estate:	Commercial real estate:											Commercial real estate:
Owner-occupied	Owner-occupied	$	7,506	$	0	$	0	$	0	$	7,506	Owner-occupied	$	7,506	$	—	$	—	$	7,506
Investment properties	Investment properties	8,979		0		0		0		8,979		Investment properties	8,979		—		—		8,979
Small balance CRE	Small balance CRE	567		0		0		0		567		Small balance CRE	567		—		—		567

Land and land development	Land and land development	302		0		0		0		302		Land and land development	302		—		—		302
Commercial business	Commercial business											Commercial business
Commercial business	Commercial business	557		0		0		0		557		Commercial business	557		—		—		557
Small business scored	Small business scored	44		0		47		0		91		Small business scored	44		—		47		91
Agricultural business, including secured by farmland	Agricultural business, including secured by farmland	427		0		984		0		1,411		Agricultural business, including secured by farmland	427		—		984		1,411
One- to four-family residential	One- to four-family residential	196		0		0		0		196		One- to four-family residential	196		—		—		196

Total	Total	$	18,578	$	0	$	1,031	$	0	$	19,609	Total	$	18,578	$	—	$	1,031	$	19,609

3032

The following tables provide additional detail on the age analysis of the Company’s past due loans as of ~~March 31,~~September 30, 2021 and December 31, 2020 (in thousands):


		March 31, 2021																September 30, 2021
		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	$	14,824	$	4,687	$	587	$	20,098	$	1,025,558	$	1,045,656	$	4,687	$	5,416		$	0	Owner-occupied	$	—	$	—	$	495	$	495	$	1,121,780	$	1,122,275	$	3,952	$	4,535	$	—
Investment properties	Investment properties	1		1,322		3,709		5,032		1,926,773		1,931,805		12,568		12,568			0		Investment properties	—		—		5,185		5,185		1,975,099		1,980,284		7,468		7,620		3,955
Small balance CRE	Small balance CRE	895		1,978		781		3,654		635,676		639,330		3,086		3,631			0		Small balance CRE	2		43		—		45		601,706		601,751		2,440		2,776		—
Multifamily real estate	Multifamily real estate	0		0		0		0		433,775		433,775		0		0			0		Multifamily real estate	—		342		—		342		532,418		532,760		—		—		—
Construction, land and land development:	Construction, land and land development:																				Construction, land and land development:
Commercial construction	Commercial construction	0		0		98		98		198,939		199,037		0		98			0		Commercial construction	—		—		98		98		170,107		170,205		—		98		—
Multifamily construction	Multifamily construction	0		0		—		0		305,694		305,694		0		0			0		Multifamily construction	4,886		—		—		4,886		273,298		278,184		—		—		—
One- to four-family construction	One- to four-family construction	170		0		0		170		542,670		542,840		0		687			0		One- to four-family construction	—		—		—		—		571,431		571,431		—		—		—
Land and land development	Land and land development	0		0		14		14		266,716		266,730		0		201			0		Land and land development	—		—		14		14		308,150		308,164		—		256		—
Commercial business	Commercial business																				Commercial business
Commercial business	Commercial business	159		558		228		945		2,375,649		2,376,594		628		1,266			0		Commercial business	117		167		847		1,131		1,345,576		1,346,707		820		1,326		—
Small business scored	Small business scored	1,460		948		1,642		4,050		713,452		717,502		90		2,928			37		Small business scored	506		328		906		1,740		773,814		775,554		83		1,374		61
Agricultural business, including secured by farmland	Agricultural business, including secured by farmland	0		0		1,536		1,536		260,874		262,410		1,357		1,536			0		Agricultural business, including secured by farmland	—		—		1,022		1,022		286,447		287,469		1,021		1,022		—
One- to four-family residential	One- to four-family residential	987		21		3,553		4,561		651,066		655,627		0		4,456			1,524		One- to four-family residential	107		109		1,370		1,586		680,782		682,368		—		3,182		772
Consumer:	Consumer:																				Consumer:
Consumer—home equity revolving lines of credit	Consumer—home equity revolving lines of credit	464		109		1,524		2,097		464,035		466,132		0		2,234			0		Consumer—home equity revolving lines of credit	840		164		719		1,723		461,096		462,819		—		1,831		30
Consumer—other	Consumer—other	131		58		0		189		104,376		104,565		0		10			0		Consumer—other	314		34		4		352		98,061		98,413		—		19		4
Total	Total	$	19,091	$	9,681	$	13,672	$	42,444	$	9,905,253	$	9,947,697	$	22,416	$	35,031		$	1,561	Total	$	6,772	$	1,187	$	10,660	$	18,619	$	9,199,765	$	9,218,384	$	15,784	$	24,039	$	4,822

3133


		December 31, 2020																December 31, 2020
		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	$	0	$	182	$	1,447	$	1,629	$	1,074,838	$	1,076,467	$	7,509	$	8,429		$	0	Owner-occupied	$	—	$	182	$	1,447	$	1,629	$	1,074,838	$	1,076,467	$	7,509	$	8,429	$	—
Investment properties	Investment properties	0		0		7,981		7,981		1,947,703		1,955,684		8,979		8,979			0		Investment properties	—		—		7,981		7,981		1,947,703		1,955,684		8,979		8,979		—
Small balance CRE	Small balance CRE	0		45		790		835		573,014		573,849		567		791			0		Small balance CRE	—		45		790		835		573,014		573,849		567		791		—
Multifamily real estate	Multifamily real estate	0		0		0		0		428,223		428,223		0		0			0		Multifamily real estate	—		—		—		—		428,223		428,223		—		—		—
Construction, land and land development:	Construction, land and land development:																				Construction, land and land development:
Commercial construction	Commercial construction	0		0		98		98		228,839		228,937		0		98			0		Commercial construction	—		—		98		98		228,839		228,937		—		98		—
Multifamily construction	Multifamily construction	0		0		0		0		305,527		305,527		0		0			0		Multifamily construction	—		—		—		—		305,527		305,527		—		—		—
One- to four-family construction	One- to four-family construction	356		0		331		687		507,123		507,810		0		331			0		One- to four-family construction	356		—		331		687		507,123		507,810		—		331		—
Land and land development	Land and land development	0		0		317		317		248,598		248,915		302		507			0		Land and land development	—		—		317		317		248,598		248,915		302		507		—
Commercial business	Commercial business																				Commercial business
Commercial business	Commercial business	3,247		31		2,088		5,366		2,173,095		2,178,461		555		1,988			889		Commercial business	3,247		31		2,088		5,366		2,173,095		2,178,461		555		1,988		889
Small business scored	Small business scored	1,459		891		2,048		4,398		739,053		743,451		91		3,419			136		Small business scored	1,459		891		2,048		4,398		739,053		743,451		91		3,419		136
Agricultural business, including secured by farmland	Agricultural business, including secured by farmland	298		37		1,548		1,883		298,066		299,949		1,412		1,743			0		Agricultural business, including secured by farmland	298		37		1,548		1,883		298,066		299,949		1,412		1,743		—
One-to four-family residential	One-to four-family residential	4,620		955		4,053		9,628		708,311		717,939		171		3,556			1,899		One-to four-family residential	4,620		955		4,053		9,628		708,311		717,939		171		3,556		1,899
Consumer:	Consumer:																				Consumer:
Consumer secured by one- to four-family	Consumer secured by one- to four-family	459		439		1,847		2,745		489,067		491,812		0		2,697			130		Consumer secured by one- to four-family	459		439		1,847		2,745		489,067		491,812		—		2,697		130
Consumer—other	Consumer—other	236		328		0		564		113,394		113,958		0		22			0		Consumer—other	236		328		—		564		113,394		113,958		—		22		—
Total	Total	$	10,675	$	2,908	$	22,548	$	36,131	$	9,834,851	$	9,870,982	$	19,586	$	32,560		$	3,054	Total	$	10,675	$	2,908	$	22,548	$	36,131	$	9,834,851	$	9,870,982	$	19,586	$	32,560	$	3,054

(1) The Company did not recognize any interest income on non-accrual loans during ~~both~~ the three or nine months ended ~~March 31,~~September 30, 2021 ~~and~~or the year ended December 31, 2020.

3234

The following tables provide the activity in the allowance for credit losses by portfolio segment for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 (in thousands):


		For the Three Months Ended March 31, 2021																				For the Three Months Ended September 30, 2021
		Commercial Real Estate			Multifamily Real Estate		Construction and Land		Commercial Business		Agricultural Business		One- to Four-Family Residential		Consumer		Unallocated		Total			Commercial Real Estate		Multifamily Real Estate		Construction and Land		Commercial Business		Agricultural Business		One- to Four-Family Residential		Consumer		Unallocated		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	$	0	$	167,279	Beginning balance	$	60,349	$	5,807	$	30,899	$	30,830	$	3,256	$	9,800	$	7,068	$	—	$	148,009

Provision/(recapture) for credit losses		5,359			474		(4,955)		(3,786)		(297)		(2,038)		(2,792)		0		(8,035)

(Recapture)/provision for credit losses																					(Recapture)/provision for credit losses	(4,057)		850		(1,557)		(3,825)		83		(359)		15		—		(8,850)
Recoveries	Recoveries	24			0		100		979		0		113		296		0		1,512		Recoveries	923		—		—		230		17		19		227		—		1,416
Charge-offs	Charge-offs	(3,763)			0		0		(789)		0		0		(150)		0		(4,702)		Charge-offs	—		—		—		(362)		(179)		—		(119)		—		(660)
Ending balance	Ending balance	$	59,411		$	4,367	$	36,440	$	31,411	$	4,617	$	7,988	$	11,820	$	0	$	156,054	Ending balance	$	57,215	$	6,657	$	29,342	$	26,873	$	3,177	$	9,460	$	7,191	$	—	$	139,915

				For the Nine Months Ended September 30, 2021
																						Commercial Real Estate		Multifamily Real Estate		Construction and Land		Commercial Business		Agricultural Business		One- to Four-Family Residential		Consumer		Unallocated		Total

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
Provision/(recapture) for credit losses																					Provision/(recapture) for credit losses	2,096		2,764		(12,053)		(8,390)		(1,581)		(605)		(7,216)		—		(24,985)
Recoveries																					Recoveries	1,094		—		100		1,530		25		152		620		—		3,521
Charge-offs																					Charge-offs	(3,766)		—		—		(1,274)		(181)		—		(679)		—		(5,900)
Ending balance																					Ending balance	$	57,215	$	6,657	$	29,342	$	26,873	$	3,177	$	9,460	$	7,191	$	—	$	139,915

The changes in the allowance for credit losses - loans during the three and nine months ended ~~March 31,~~September 30, 2021 were primarily the result of the ~~$8.0~~$8.9 million recapture of provision for credit losses - loans recorded ~~as well as~~during the current quarter and the $25.0 million recapture of provision recorded during the nine months ended September 30, 2021. The change in allowance for credit losses - loans during the nine months ended September 30, 2021 was also impacted by net charge offs of ~~$3.2~~$2.4 million recognized during the ~~current quarter.~~period. The recapture of provision for credit losses - loans for the current quarter and the nine months ended September 30, 2021 primarily reflects ~~the decrease in loan balances, excluding the increase in PPP loans, as well as~~ improvement in the forecasted economic ~~indicators.~~indicators used to calculate the allowance for credit losses - loans and a decrease in adversely classified loans.

For the Three Months Ended March 31, 2020
Commercial
Real Estate Multifamily
Real Estate Construction and Land Commercial Business Agricultural Business One- to Four-Family Residential Consumer Unallocated Total
Allowance for credit losses:
Beginning balance $ 30,591 $ 4,754 $ 22,994 $ 23,370 $ 4,120 $ 4,136 $ 8,202 $ 2,392 $ 100,559
Impact of Adopting ASC 326 (2,864) (2,204) 2,515 3,010 (351) 7,125 2,973 (2,392) 7,812
Provision/(recapture) for credit losses 1,545 321 8,708 6,447 (1,006) 539 5,159 0 21,713
Recoveries 167 0 0 205 1,750 148 96 0 2,366
Charge-offs (100) (66) 0 (1,384) 0 (64) (348) 0 (1,962)
Ending balance $ 29,339 $ 2,805 $ 34,217 $ 31,648 $ 4,513 $ 11,884 $ 16,082 $ 0 $ 130,488


	For the Three Months Ended September 30, 2020
	Commercial Real Estate		Multifamily Real Estate		Construction and Land		Commercial Business		Agricultural Business		One- to Four-Family Residential		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	53,166	$	3,504	$	36,916	$	33,870	$	4,517	$	12,746	$	11,633	$	—	$	156,352

Provision/(recapture) for credit losses	6,895		(248)		2,561		2,550		1,026		100		757		—		13,641

Recoveries	23		—		—		246		—		94		82		—		445
Charge-offs	(379)		—		—		(1,297)		(492)		(72)		(233)		—		(2,473)
Ending balance	$	59,705	$	3,256	$	39,477	$	35,369	$	5,051	$	12,868	$	12,239	$	—	$	167,965

	For the Nine Months Ended September 30, 2020
	Commercial Real Estate		Multifamily Real Estate		Construction and Land		Commercial Business		Agricultural Business		One- to Four-Family Residential		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	30,591	$	4,754	$	22,994	$	23,370	$	4,120	$	4,136	$	8,202	$	2,392	$	100,559
Impact of Adopting ASC 326	(2,864)		(2,204)		2,515		3,010		(351)		7,125		2,973		(2,392)		7,812
Provision/(recapture) for loan losses	32,213		772		13,963		14,402		64		1,470		1,994		—		64,878
Recoveries	244		—		105		821		1,772		273		238		—		3,453
Charge-offs	(479)		(66)		(100)		(6,234)		(554)		(136)		(1,168)		—		(8,737)
Ending balance	$	59,705	$	3,256	$	39,477	$	35,369	$	5,051	$	12,868	$	12,239	$	—	$	167,965

3336

Note 5: REAL ESTATE OWNED, NET

The following table presents the changes in REO for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 (in thousands):


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020				2021		2020		2021		2020
Balance, beginning of the period	Balance, beginning of the period	$	816	$	814		Balance, beginning of the period	$	763	$	2,400	$	816	$	814
Additions from loan foreclosures	Additions from loan foreclosures	0		1,588			Additions from loan foreclosures	89		—		512		1,588

Proceeds from dispositions of REO	Proceeds from dispositions of REO	(783)		0			Proceeds from dispositions of REO	—		(707)		(783)		(805)
Gain on sale of REO	Gain on sale of REO	307		0			Gain on sale of REO	—		120		307		216

Valuation adjustments in the period							Valuation adjustments in the period	—		(18)		—		(18)
Balance, end of the period	Balance, end of the period	$	340	$	2,402		Balance, end of the period	$	852	$	1,795	$	852	$	1,795

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 0no foreclosed one- to four-family residential real estate properties held as REO at ~~March 31,~~both September 30, 2021 orand December 31, 2020. The Company had $609,000 of one- to four-family residential loans in the process of foreclosure at both ~~March 31,~~September 30, 2021 and December 31, 2020.

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

Goodwill and Other Intangible Assets: At ~~March 31,~~September 30, 2021, 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 has identified one reporting unit for purposes of evaluating goodwill for impairment. The Company completed an assessment of qualitative factors as of December 31, 2020 and as a result of the economic impact of the COVID-19 pandemic concluded further analysis was required. The Company completed a quantitative goodwill impairment test and concluded the fair value of Banner Bank, the reporting unit, exceeded the carrying value of the reporting unit including goodwill and therefore no impairment existed as of December 31, 2020.

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~~nine months ended ~~March 31,~~September 30, 2021 and the year ended December 31, 2020 (in thousands):


		Goodwill		CDI		Total			Goodwill		CDI		Total
Balance, December 31, 2019	Balance, December 31, 2019	$	373,121	$	29,158	$	402,279	Balance, December 31, 2019	$	373,121	$	29,158	$	402,279

Amortization	Amortization	—		(7,732)		(7,732)		Amortization	—		(7,732)		(7,732)

Balance, December 31, 2020	Balance, December 31, 2020	373,121		21,426		394,547		Balance, December 31, 2020	373,121		21,426		394,547

Amortization	Amortization	—		(1,711)		(1,711)		Amortization	—		(4,997)		(4,997)

Balance, March 31, 2021		$	373,121	$	19,715	$	392,836
Balance, September 30, 2021								Balance, September 30, 2021	$	373,121	$	16,429	$	389,550

The following table presents the estimated amortization expense with respect to CDI as of ~~March 31,~~September 30, 2021 for the periods indicated (in thousands):

Estimated Amortization
Remainder of 2021 $ 4,860
2022 5,317
2023 3,814
2024 2,659
2025 1,575
Thereafter 1,490
$ 19,715


	Estimated Amortization
Remainder of 2021	$	1,574
2022	5,317
2023	3,814
2024	2,659
2025	1,575
Thereafter	1,490
	$	16,429

3437

Mortgage Servicing Rights: Mortgage servicing rights are reported in other assets. Mortgage servicing rights are initially recorded 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, which is recognized in servicing fee income within mortgage banking operations on the Consolidated Statement of Operations. 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 and nine months ended ~~March 31,~~September 30, 2021 and 2020, the Company did not record any impairment charges or recoveries against mortgage servicing rights. The unpaid principal balance for loans which mortgage servicing rights have been recorded totaled ~~$2.65~~$2.68 billion and $2.64 billion at ~~March 31,~~September 30, 2021 and December 31, 2020, respectively. Custodial accounts maintained in connection with this servicing totaled ~~$3.7~~$3.1 million and $3.8 million at ~~March 31,~~September 30, 2021 and December 31, 2020, respectively.

An analysis of our mortgage servicing rights for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 is presented below (in thousands):


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020				2021		2020		2021		2020
Balance, beginning of the period	Balance, beginning of the period	$	15,223	$	14,148		Balance, beginning of the period	$	15,612	$	14,424	$	15,223	$	14,148
Additions—amounts capitalized	Additions—amounts capitalized	2,010		1,420			Additions—amounts capitalized	1,621		2,426		5,418		6,030
Additions—through purchase	Additions—through purchase	27		63			Additions—through purchase	53		40		121		141
Amortization (1)	Amortization (1)	(1,853)		(1,354)			Amortization (1)	(1,533)		(2,075)		(5,009)		(5,504)

Balance, end of the period (2)	Balance, end of the period (2)	$	15,407	$	14,277		Balance, end of the period (2)	$	15,753	$	14,815	$	15,753	$	14,815

(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 0no valuation allowance as of both ~~March 31,~~September 30, 2021 and 2020.

Note 7: DEPOSITS

Deposits consisted of the following at ~~March 31,~~September 30, 2021 and December 31, 2020 (in thousands):


		March 31, 2021		December 31, 2020		September 30, 2021				December 31, 2020
Non-interest-bearing accounts	Non-interest-bearing accounts	$	5,994,693	$	5,492,924		Non-interest-bearing accounts	$	6,400,864		$	5,492,924
Interest-bearing checking	Interest-bearing checking	1,722,085		1,569,435			Interest-bearing checking	1,799,657			1,569,435
Regular savings accounts	Regular savings accounts	2,597,731		2,398,482			Regular savings accounts	2,773,995			2,398,482
Money market accounts	Money market accounts	2,327,380		2,191,135			Money market accounts	2,339,107			2,191,135
Total interest-bearing transaction and saving accounts	Total interest-bearing transaction and saving accounts	6,647,196		6,159,052			Total interest-bearing transaction and saving accounts	6,912,759			6,159,052
Certificates of deposit:	Certificates of deposit:						Certificates of deposit:
Certificates of deposit less than or equal to $250,000	Certificates of deposit less than or equal to $250,000	711,424		718,256			Certificates of deposit less than or equal to $250,000	663,592			718,256
Certificates of deposit greater than $250,000	Certificates of deposit greater than $250,000	195,554		197,064			Certificates of deposit greater than $250,000	187,462			197,064
Total certificates of deposit(1)	Total certificates of deposit(1)	906,978		915,320			Total certificates of deposit(1)	851,054			915,320
Total deposits	Total deposits	$	13,548,867	$	12,567,296		Total deposits	$	14,164,677		$	12,567,296
Included in total deposits:	Included in total deposits:						Included in total deposits:
Public fund transaction and savings accounts	Public fund transaction and savings accounts	$	321,042	$	302,875		Public fund transaction and savings accounts	$	354,821		$	302,875
Public fund interest-bearing certificates	Public fund interest-bearing certificates	51,021		59,127			Public fund interest-bearing certificates	40,851			59,127
Total public deposits	Total public deposits	$	372,063	$	362,002		Total public deposits	$	395,672		$	362,002
Total brokered deposits		$	0	$	0

(1) Certificates of deposit include ~~$34,000~~$2,000 and $58,000 of acquisition ~~premiums~~discounts at ~~March 31,~~September 30, 2021 and December 31, 2020, respectively.

3538

At ~~March 31,~~September 30, 2021 and December 31, 2020, the Company had certificates of deposit of ~~$200.8~~$191.5 million and $203.6 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,~~September 30, 2021 are as follows (dollars in thousands):


		March 31, 2021					September 30, 2021
		Amount		Weighted Average Rate			Amount		Weighted Average Rate
Maturing in one year or less	Maturing in one year or less	$	705,004	0.71	%	Maturing in one year or less	$	644,909	0.49	%
Maturing after one year through two years	Maturing after one year through two years	116,565		1.29		Maturing after one year through two years	130,384		0.80
Maturing after two years through three years	Maturing after two years through three years	61,618		0.81		Maturing after two years through three years	52,948		0.78
Maturing after three years through four years	Maturing after three years through four years	13,244		1.89		Maturing after three years through four years	11,044		1.27
Maturing after four years through five years	Maturing after four years through five years	8,684		0.72		Maturing after four years through five years	10,261		0.42
Maturing after five years	Maturing after five years	1,863		0.95		Maturing after five years	1,508		0.88
Total certificates of deposit	Total certificates of deposit	$	906,978	0.81	%	Total certificates of deposit	$	851,054	0.57	%

Note 8: FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents estimated fair values of the Company’s financial instruments as of ~~March 31,~~September 30, 2021 and December 31, 2020, whether or not measured at fair value in the Consolidated Statements of Financial Condition (dollars in thousands):


			March 31, 2021				December 31, 2020						September 30, 2021				December 31, 2020
		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	$	1,649,927	$	1,649,927	$	1,234,183	$	1,234,183	Cash and cash equivalents	1	$	2,200,582	$	2,200,582	$	1,234,183	$	1,234,183
Securities—trading	Securities—trading	3	25,039		25,039		24,980		24,980		Securities—trading	3	26,875		26,875		24,980		24,980
Securities—available-for-sale	Securities—available-for-sale	2	2,989,760		2,989,760		2,322,593		2,322,593		Securities—available-for-sale	2	3,446,575		3,446,575		2,322,593		2,322,593
Securities—held-to-maturity	Securities—held-to-maturity	2	418,871		436,484		410,038		436,882		Securities—held-to-maturity	2	445,499		463,913		410,038		436,882
Securities—held-to-maturity	Securities—held-to-maturity	3	23,084		23,111		11,769		11,799		Securities—held-to-maturity	3	2,313		2,089		11,769		11,799
Securities purchased under agreements to resell											Securities purchased under agreements to resell	2	300,000		300,000		—		—
Loans held for sale	Loans held for sale	2	135,263		136,873		243,795		245,667		Loans held for sale	2	63,678		64,245		243,795		245,667
Loans receivable	Loans receivable	3	9,947,697		9,967,242		9,870,982		9,810,293		Loans receivable	3	9,218,384		9,271,840		9,870,982		9,810,293

FHLB stock	FHLB stock	3	14,001		14,001		16,358		16,358		FHLB stock	3	12,000		12,000		16,358		16,358
Bank-owned life insurance	Bank-owned life insurance	1	191,388		191,388		191,830		191,830		Bank-owned life insurance	1	192,950		192,950		191,830		191,830
Mortgage servicing rights	Mortgage servicing rights	3	15,407		21,176		15,223		18,084		Mortgage servicing rights	3	15,753		22,814		15,223		18,084
Derivatives:	Derivatives:										Derivatives:
Interest rate swaps	Interest rate swaps	2	25,246		25,246		39,066		39,066		Interest rate swaps	2	25,627		25,627		39,066		39,066
Interest rate lock and forward sales commitments	Interest rate lock and forward sales commitments	2,3	6,186		6,186		5,641		5,641		Interest rate lock and forward sales commitments	2,3	2,309		2,309		5,641		5,641
Liabilities:	Liabilities:										Liabilities:
Demand, interest checking and money market accounts	Demand, interest checking and money market accounts	2	10,044,158		10,044,158		9,253,494		9,253,494		Demand, interest checking and money market accounts	2	10,539,628		10,539,628		9,253,494		9,253,494
Regular savings	Regular savings	2	2,597,731		2,597,731		2,398,482		2,398,482		Regular savings	2	2,773,995		2,773,995		2,398,482		2,398,482
Certificates of deposit	Certificates of deposit	2	906,978		910,069		915,320		919,920		Certificates of deposit	2	851,054		851,780		915,320		919,920
FHLB advances	FHLB advances	2	100,000		101,908		150,000		152,779		FHLB advances	2	50,000		50,629		150,000		152,779
Other borrowings	Other borrowings	2	216,260		216,260		184,785		184,785		Other borrowings	2	247,358		247,358		184,785		184,785
Subordinated notes, net	Subordinated notes, net	3	98,290		98,290		98,201		98,201		Subordinated notes, net	2	98,472		105,875		98,201		98,201
Junior subordinated debentures	Junior subordinated debentures	3	117,248		117,248		116,974		116,974		Junior subordinated debentures	3	124,853		124,853		116,974		116,974
Derivatives:	Derivatives:										Derivatives:
Interest rate swaps	Interest rate swaps	2	17,923		17,923		22,336		22,336		Interest rate swaps	2	15,550		15,550		22,336		22,336
Interest rate lock and forward sales commitments	Interest rate lock and forward sales commitments	2	85		85		1,755		1,755		Interest rate lock and forward sales commitments	2	136		136		1,755		1,755

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 measuring fair value and disclosure requirements about fair value measurements. Among other things, the accounting standard requires the reporting entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. 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.

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,~~September 30, 2021 and December 31, 2020 (in thousands):


		March 31, 2021									September 30, 2021
		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)	$	0	$	0	$	25,039	$	25,039	Corporate bonds (Trust Preferred Securities)	$	—	$	—	$	26,875	$	26,875

Securities—available-for-sale	Securities—available-for-sale									Securities—available-for-sale
U.S. Government and agency obligations	U.S. Government and agency obligations	0		62,846		0		62,846		U.S. Government and agency obligations	—		181,052		—		181,052
Municipal bonds	Municipal bonds	0		300,735		0		300,735		Municipal bonds	—		310,391		—		310,391
Corporate bonds	Corporate bonds	0		245,428		0		245,428		Corporate bonds	—		164,244		—		164,244
Mortgage-backed or related securities	Mortgage-backed or related securities	0		2,377,003		0		2,377,003		Mortgage-backed or related securities	—		2,584,264		—		2,584,264
Asset-backed securities	Asset-backed securities	0		3,748		0		3,748		Asset-backed securities	—		206,624		—		206,624
		0		2,989,760		0		2,989,760			—		3,446,575		—		3,446,575

Loans held for sale	Loans held for sale	0		59,993		0		59,993		Loans held for sale	—		41,480		—		41,480

Derivatives	Derivatives									Derivatives
Interest rate swaps	Interest rate swaps	0		25,246		0		25,246		Interest rate swaps	—		25,627		—		25,627
Interest rate lock and forward sales commitments	Interest rate lock and forward sales commitments	0		3,249		2,937		6,186		Interest rate lock and forward sales commitments	—		914		1,395		2,309
		$	0	$	3,078,248	$	27,976	$	3,106,224		$	—	$	3,514,596	$	28,270	$	3,542,866

Liabilities:	Liabilities:									Liabilities:

Junior subordinated debentures	Junior subordinated debentures	$	0	$	0	$	117,248	$	117,248	Junior subordinated debentures	$	—	$	—	$	124,853	$	124,853
Derivatives	Derivatives									Derivatives
Interest rate swaps	Interest rate swaps	0		17,923		0		17,923		Interest rate swaps	—		15,550		—		15,550
Interest rate lock and forward sales commitments	Interest rate lock and forward sales commitments	0		85		0		85		Interest rate lock and forward sales commitments	—		136		—		136
		$	0	$	18,008	$	117,248	$	135,256		$	—	$	15,686	$	124,853	$	140,539

3741


		December 31, 2020									December 31, 2020
		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)	$	0	$	0	$	24,980	$	24,980	Corporate bonds (Trust Preferred Securities)	$	—	$	—	$	24,980	$	24,980

Securities—available-for-sale	Securities—available-for-sale									Securities—available-for-sale
U.S. Government and agency obligations	U.S. Government and agency obligations	0		141,735		0		141,735		U.S. Government and agency obligations	—		141,735		—		141,735
Municipal bonds	Municipal bonds	0		303,518		0		303,518		Municipal bonds	—		303,518		—		303,518
Corporate bonds	Corporate bonds	0		221,769		0		221,769		Corporate bonds	—		221,769		—		221,769
Mortgage-backed securities	Mortgage-backed securities	0		1,646,152		0		1,646,152		Mortgage-backed securities	—		1,646,152		—		1,646,152
Asset-backed securities	Asset-backed securities	0		9,419		0		9,419		Asset-backed securities	—		9,419		—		9,419

		0		2,322,593		0		2,322,593			—		2,322,593		—		2,322,593

Loans held for sale	Loans held for sale	0		133,554		0		133,554		Loans held for sale	—		133,554		—		133,554

Derivatives	Derivatives									Derivatives
Interest rate swaps	Interest rate swaps	0		39,066		0		39,066		Interest rate swaps	—		39,066		—		39,066
Interest rate lock and forward sales commitments	Interest rate lock and forward sales commitments	0		420		5,221		5,641		Interest rate lock and forward sales commitments	—		420		5,221		5,641
		$	0	$	2,495,633	$	30,201	$	2,525,834		$	—	$	2,495,633	$	30,201	$	2,525,834

Liabilities:	Liabilities:									Liabilities:

Junior subordinated debentures, net of unamortized deferred issuance costs	Junior subordinated debentures, net of unamortized deferred issuance costs	$	0	$	0	$	116,974	$	116,974	Junior subordinated debentures, net of unamortized deferred issuance costs	$	—	$	—	$	116,974	$	116,974
Derivatives	Derivatives									Derivatives
Interest rate swaps	Interest rate swaps	0		22,336		0		22,336		Interest rate swaps	—		22,336		—		22,336
Interest rate lock and forward sales commitments	Interest rate lock and forward sales commitments	0		1,755		0		1,755		Interest rate lock and forward sales commitments	—		1,755		—		1,755
		$	0	$	24,091	$	116,974	$	141,065		$	—	$	24,091	$	116,974	$	141,065

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 securities, 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.

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.

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.

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. 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.

3842

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,~~September 30, 2021 and December 31, 2020. The factors used in the fair values 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 qualitative information about the unobservable inputs for certain of 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,~~September 30, 2021 and December 31, 2020:

Weighted Average Rate / Range

Financial Instruments

Valuation Techniques

Unobservable Inputs

March 31, 2021

December 31, 2020

Financial Instruments

Valuation Techniques

Unobservable Inputs

September 30, 2021

December 31, 2020

Corporate bonds (TPS securities)

Discounted cash flows

Discount rate

4.19

4.24

Corporate bonds (TPS securities)

Discounted cash flows

Discount rate

3.63

4.24

Junior subordinated debentures

Discounted cash flows

Discount rate

4.19

4.24

Junior subordinated debentures

Discounted cash flows

Discount rate

3.63

4.24

Loans individually evaluated

Collateral valuations

Discount to appraised value

8.5% to 20.0%

0.0% to 20.0%

Loans individually evaluated

Collateral valuations

Discount to appraised value

8.5% to 20.0%

0.0% to 20.0%

REO

Appraisals

Discount to appraised value

68.35

51.86

REO

Appraisals

Discount to appraised value

60.91

51.86

Interest rate lock commitments

Pricing model

Pull-through rate

89.15

86.35

Interest rate lock commitments

Pricing model

Pull-through rate

86.43

86.35

TPS 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,~~September 30, 2021, or the passage of time, will result in negative fair value adjustments. At ~~March 31,~~September 30, 2021, the discount rate utilized was based on a credit spread of ~~400~~350 basis points and three-month LIBOR of 1913 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.

3943

The following tables provide a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 (in thousands):


		Three Months Ended						Three Months Ended				Nine Months Ended
		March 31, 2021						September 30, 2021				September 30, 2021
		Level 3 Fair Value Inputs						Level 3 Fair Value Inputs				Level 3 Fair Value Inputs
		TPS Securities		Borrowings—Junior Subordinated Debentures		Interest Rate Lock Commitments				TPS Securities		Borrowings—Junior Subordinated Debentures		Interest Rate Lock Commitments		TPS Securities		Borrowings— Junior Subordinated Debentures		Interest rate lock and forward sales commitments
Beginning balance	Beginning balance	$	24,980	$	116,974	$	5,221		Beginning balance	$	25,097	$	117,520	$	2,574	$	24,980	$	116,974	$	5,221
Total gains or losses recognized	Total gains or losses recognized								Total gains or losses recognized
Assets gains (losses)	Assets gains (losses)	59		—		(2,284)			Assets gains (losses)	1,778		—		(1,179)		1,895		—		(3,826)
Liabilities losses	Liabilities losses	—		274		—			Liabilities losses	—		7,333		—				7,879		—

Ending balance at March 31, 2021		$	25,039	$	117,248	$	2,937
Ending balance at September 30, 2021									Ending balance at September 30, 2021	$	26,875	$	124,853	$	1,395	$	26,875	$	124,853	$	1,395

		Three Months Ended						Three Months Ended				Nine Months Ended
		March 31, 2020						September 30, 2020				September 30, 2020
		Level 3 Fair Value Inputs						Level 3 Fair Value Inputs				Level 3 Fair Value Inputs
		TPS Securities		Borrowings—Junior Subordinated Debentures		Interest Rate Lock Commitments				TPS Securities		Borrowings—Junior Subordinated Debentures		Interest Rate Lock Commitments		TPS Securities		Borrowings— Junior Subordinated Debentures		Interest rate lock and forward sales commitments
Beginning balance	Beginning balance	$	25,636	$	119,304	$	791		Beginning balance	$	23,239	$	109,613	$	5,816	$	25,636	$	119,304	$	791
Total gains or losses recognized	Total gains or losses recognized								Total gains or losses recognized
Assets (losses) gains	Assets (losses) gains	(4,596)		—		1,726			Assets (losses) gains	37		—		2,638		(2,360)		—		7,663
Liabilities gains	Liabilities gains	—		(19,509)		—			Liabilities gains	—		208		—		—		(9,483)		—

Ending balance at March 31, 2020		$	21,040	$	99,795	$	2,517
Ending balance at September 30, 2020									Ending balance at September 30, 2020	$	23,276	$	109,821	$	8,454	$	23,276	$	109,821	$	8,454

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. See Note 13, Derivatives and Hedging, for detail on gains and losses on Level 3 interest rate lock commitments.

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

The following tables present financial assets 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,~~September 30, 2021 and December 31, 2020 (in thousands):


		March 31, 2021									September 30, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Loans individually evaluated	Loans individually evaluated	$	0	$	0	$	627	$	627	Loans individually evaluated	$	—	$	—	$	3,054	$	3,054
REO	REO	0		0		340		340		REO	—		—		852		852

		December 31, 2020									December 31, 2020
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Loans individually evaluated	Loans individually evaluated	$	0	$	0	$	3,482	$	3,482	Loans individually evaluated	$	—	$	—	$	3,482	$	3,482
REO	REO	0		0		816		816		REO	—		—		816		816

4044

The following table presents the losses resulting from non-recurring fair value adjustments for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 (in thousands):


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020				2021		2020		2021		2020
Loans individually evaluated	Loans individually evaluated	$	302	$	0		Loans individually evaluated	$	—	$	(492)	$	(303)	$	(2,492)
REO	REO	0		0			REO	—		—		—		—
Total loss from non-recurring measurements	Total loss from non-recurring measurements	$	302	$	0		Total loss from non-recurring measurements	$	—	$	(492)	$	(303)	$	(2,492)

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 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.

Note 9: 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,~~September 30, 2021, the Company has recognized $450,000 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.

4145

The following table presents the balances of the Company’s tax credit investments and related unfunded commitments at ~~March 31,~~September 30, 2021 and December 31, 2020 (in thousands):


		March 31, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Tax credit investments	Tax credit investments	$	32,613	$	33,528	Tax credit investments	$	47,783	$	33,528
Unfunded commitments—tax credit investments	Unfunded commitments—tax credit investments	15,383		18,306		Unfunded commitments—tax credit investments	22,915		18,306

The following table presents other information related to the Company’s tax credit investments for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 (in thousands):


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020				2021		2020		2021		2020
Tax credits and other tax benefits recognized	Tax credits and other tax benefits recognized	$	1,068	$	1,007		Tax credits and other tax benefits recognized	$	1,114	$	981	$	3,341	$	2,943
Tax credit amortization expense included in provision for income taxes	Tax credit amortization expense included in provision for income taxes	915		809			Tax credit amortization expense included in provision for income taxes	915		849		2,745		2,507

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

The following table reconciles basic to diluted weighted average shares outstanding used to calculate earnings per share data for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 (in thousands, except shares and per share data):


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020				2021		2020		2021		2020
Net income	Net income	$	46,855	$	16,882		Net income	$	49,884	$	36,548	$	151,121	$	76,971

Basic weighted average shares outstanding	Basic weighted average shares outstanding	34,973,383		35,463,541			Basic weighted average shares outstanding	34,446,510		35,193,109		34,716,914		35,285,567
Dilutive effect of unvested restricted stock	Dilutive effect of unvested restricted stock	330,100		176,922			Dilutive effect of unvested restricted stock	222,982		123,570		295,314		239,204
Diluted weighted shares outstanding	Diluted weighted shares outstanding	35,303,483		35,640,463			Diluted weighted shares outstanding	34,669,492		35,316,679		35,012,228		35,524,771
Earnings per common share	Earnings per common share						Earnings per common share
Basic	Basic	$	1.34	$	0.48		Basic	$	1.45	$	1.04	$	4.35	$	2.18
Diluted	Diluted	$	1.33	$	0.47		Diluted	$	1.44	$	1.03	$	4.32	$	2.17

Note 11: 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).

•2018 Omnibus Incentive Plan (the 2018 Plan).

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 and linking their personal interests with those of the Company’s shareholders. Under these plans the Company currently has outstanding restricted stock share grants and restricted stock unit grants.

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,~~September 30, 2021, ~~300,015~~302,167 restricted stock shares and ~~403,440~~406,689 restricted stock units have been granted under the 2014 Plan of which ~~3,884~~2,152 restricted stock shares and ~~148,093~~113,906 restricted stock units are 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,~~

September 30, 2021, ~~503,955~~481,361 restricted stock units have been granted under the 2018 Plan of which ~~417,555~~394,416 restricted stock units are unvested.

The expense associated with all restricted stock grants (including restricted stock shares and restricted stock units) was ~~$2.2~~$2.4 million and ~~$1.9~~$7.0 million for the three and nine month periods ended ~~March 31,~~September 30, 2021 and ~~March 31,~~was $2.5 million and $6.9 million for the three and nine month periods ended September 30, 2020, respectively. Unrecognized compensation expense for these awards as of ~~March 31,~~September 30, 2021 was ~~$18.5~~$13.3 million and will be amortized over the next 3631 months.

Note 12: 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, commitments to buy and 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.

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, 2021		December 31, 2020			September 30, 2021		December 31, 2020
Commitments to extend credit	Commitments to extend credit	$	3,357,135	$	3,207,072	Commitments to extend credit	$	3,443,004	$	3,207,072
Standby letters of credit and financial guarantees	Standby letters of credit and financial guarantees	21,493		18,415		Standby letters of credit and financial guarantees	20,987		18,415
Commitments to originate loans	Commitments to originate loans	134,759		101,426		Commitments to originate loans	106,989		101,426

Risk participation agreement	Risk participation agreement	40,789		40,949		Risk participation agreement	40,325		40,949

Derivatives also included in Note 14:
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	165,236		169,653		Commitments to originate loans held for sale	139,578		169,653
Commitments to sell loans secured by one- to four-family residential properties	Commitments to sell loans secured by one- to four-family residential properties	82,963		79,414		Commitments to sell loans secured by one- to four-family residential properties	55,641		79,414
Commitments to sell securities related to mortgage banking activities	Commitments to sell securities related to mortgage banking activities	199,500		204,000		Commitments to sell securities related to mortgage banking activities	142,500		204,000

In addition to the commitments disclosed in the table above, the Company is committed to funding its’ unfunded tax credit investments (see Note ~~10,~~9, Income Taxes). During 2019, the Company entered into an agreement to invest $10 million in a limited partnership. The Company had funded ~~$4.2~~$5.5 million of the commitment, with ~~$5.8~~$4.5 million of the commitment remaining to be funded at ~~March 31,~~September 30, 2021, compared to $2.8 million of the commitment funded, with $7.2 million to be funded at December 31, 2020. During the first quarter of 2021, the Company entered into an agreement to invest $4.5 million in another limited partnership. At ~~March 31,~~September 30, 2021 the Company had ~~not invested any funds pursuant~~funded $555,000 of the commitment, with $3.9 million of the commitment remaining to ~~this commitment.~~be funded. During the third quarter of 2021, the Company entered into an agreement to invest $3.0 million in an additional limited partnership. At September 30, 2021 the Company had funded $900,000 of the commitment with $2.1 million of the commitment remaining to be funded.

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. The type of 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,~~September 30, 2021 and December 31, 2020 was ~~$12.1~~$10.1 million and $13.3 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. Banner Bank has a risk participation agreement under which Banner 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 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 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 0no counterparty default losses on forward contracts during the three and nine months

ended ~~March 31,~~September 30, 2021 or ~~March 31,~~September 30, 2020. 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 are not a party to any legal proceedings that management believes would have a material adverse effect on the results of operations or consolidated financial position at ~~March 31,~~September 30, 2021.

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: 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 in Hedge Relationships

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.

As of ~~March 31,~~September 30, 2021 and December 31, 2020, the notional values or contractual amounts and fair values of the Company’s derivatives designated in hedge relationships were as follows (in thousands):

Asset Derivatives Liability Derivatives
March 31, 2021 December 31, 2020 March 31, 2021 December 31, 2020
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 $ 248 $ 5 $ 338 $ 9 $ 248 $ 5 $ 338 $ 9


	Asset Derivatives								Liability Derivatives
	September 30, 2021				December 31, 2020				September 30, 2021				December 31, 2020
	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	$	63	$	1	$	338	$	9	$	63	$	1	$	338	$	9

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

(2) Included in Accrued expenses and other liabilities on the Consolidated Statements of Financial Condition.

Derivatives Not Designated in Hedge Relationships

Interest Rate Swaps: Banner 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 free standing derivative.

Mortgage Banking: 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,~~September 30, 2021 and December 31, 2020, 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									Asset Derivatives								Liability Derivatives
		March 31, 2021				December 31, 2020				March 31, 2021				December 31, 2020					September 30, 2021				December 31, 2020				September 30, 2021				December 31, 2020
		Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (1)		Notional/ Contract Amount		Fair Value (2)		Notional/ Contract Amount		Fair Value (2)			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	Interest rate swaps	$	458,118	$	25,241	$	451,760	$	39,057	$	458,118	$	17,918	$	451,760	$	22,327	Interest rate swaps	$	481,637	$	25,626	$	451,760	$	39,057	$	481,637	$	15,549	$	451,760	$	22,327

Mortgage loan commitments	Mortgage loan commitments	139,668		2,937		140,390		5,221		62,267		85		72,511		199		Mortgage loan commitments	109,986		1,395		140,390		5,221		50,496		49		72,511		199
Forward sales contracts	Forward sales contracts	282,463		3,249		79,414		420		0		0		204,000		1,556		Forward sales contracts	174,141		914		79,414		420		24,000		87		204,000		1,556
		$	880,249	$	31,427	$	671,564	$	44,698	$	520,385	$	18,003	$	728,271	$	24,082		$	765,764	$	27,935	$	671,564	$	44,698	$	556,133	$	15,685	$	728,271	$	24,082

(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 ~~$246,000~~$177,000 at ~~March 31,~~September 30, 2021 and $231,000 at December 31, 2020), which are included in Loans receivable.

(2)Included in Accrued expenses and other liabilities on the Consolidated Statements of Financial Condition.

Gains (losses) recognized in income on derivatives not designated in hedge relationships for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 were as follows (in thousands):


		Location on Consolidated Statements of Operations		Three Months Ended March 31,								Location on Consolidated Statements of Operations		Three Months Ended September 30,									Nine Months Ended September 30,
			2021			2020							Location on Consolidated Statements of Operations				2021				2020					2021					2020

Mortgage loan commitments	Mortgage loan commitments		Mortgage banking operations			$	(2,284)			$	1,726				Mortgage loan commitments		Mortgage banking operations				$	(1,179)				$	2,639				$	(3,826)				$	7,664
Forward sales contracts	Forward sales contracts	Mortgage banking operations		3,011				(3,068)						Forward sales contracts		Mortgage banking operations				865					258					2,004					(779)

				$	727			$	(1,342)									$	(314)				$	2,897				$	(1,822)				$	6,885

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 Bank and the dealer counterparties, the agreements contain a provision where if Banner Bank fails to maintain its status as a well/adequately capitalized institution, then the counterparty could terminate the derivative positions and Banner Bank would be required to settle its obligations. Similarly, Banner 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 Bank to maintain a specific capital level. If Banner Bank had breached any of these provisions at ~~March 31,~~September 30, 2021 or December 31, 2020, it could have been required to settle its obligations under the agreements at the termination value. As of ~~March 31,~~September 30, 2021 and December 31, 2020, the termination value of derivatives in a net liability position related to these agreements was ~~$24.1~~$29.2 million and $48.6 million, respectively. 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 ~~$55.7~~$50.8 million and $47.1 million as of ~~March 31,~~September 30, 2021 and December 31, 2020, 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 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,~~September 30, 2021 and December 31, 2020, the variation margin adjustment was a negative adjustment of ~~$6.0~~$10.3 million and $16.9 million, respectively.

The following tables present additional information related to the Company’s derivative contracts, by type of financial instrument, as of ~~March 31,~~September 30, 2021 and December 31, 2020 (in thousands):


		March 31, 2021													September 30, 2021
								Gross Amounts of Financial Instruments Not Offset in the Consolidated Statements of Financial Condition													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			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	Derivative assets													Derivative assets
Interest rate swaps	Interest rate swaps	$	25,246	$	0	$	25,246	$	0	$	0	$	25,246	Interest rate swaps	$	25,627	$	—	$	25,627	$	—	$	—	$	25,627
		$	25,246	$	0	$	25,246	$	0	$	0	$	25,246		$	25,627	$	—	$	25,627	$	—	$	—	$	25,627

Derivative liabilities	Derivative liabilities													Derivative liabilities
Interest rate swaps	Interest rate swaps	$	23,877	$	(5,954)	$	17,923	$	0	$	(12,881)	$	5,042	Interest rate swaps	$	15,550	$	—	$	15,550	$	—	$	(12,446)	$	3,104
		$	23,877	$	(5,954)	$	17,923	$	0	$	(12,881)	$	5,042		$	15,550	$	—	$	15,550	$	—	$	(12,446)	$	3,104

		December 31, 2020													December 31, 2020
								Gross Amounts of Financial Instruments Not Offset in the Consolidated Statements of Financial Condition													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			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	Derivative assets													Derivative assets
Interest rate swaps	Interest rate swaps	$	39,066	$	0	$	39,066	$	0	$	0	$	39,066	Interest rate swaps	$	39,066	$	—	$	39,066	$	—	$	—	$	39,066
		$	39,066	$	0	$	39,066	$	0	$	0	$	39,066		$	39,066	$	—	$	39,066	$	—	$	—	$	39,066

Derivative liabilities	Derivative liabilities													Derivative liabilities
Interest rate swaps	Interest rate swaps	$	39,204	$	(16,868)	$	22,336	$	0	$	(22,220)	$	116	Interest rate swaps	$	22,336	$	—	$	22,336	$	—	$	(22,220)	$	116
		$	39,204	$	(16,868)	$	22,336	$	0	$	(22,220)	$	116		$	22,336	$	—	$	22,336	$	—	$	(22,220)	$	116

4650

NOTE 14: REVENUE FROM CONTRACTS WITH CLIENTS

Disaggregation of Revenue:

Deposit fees and other service charges for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 are summarized as follows (in thousands):


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020				2021		2020		2021		2020
Deposit service charges	Deposit service charges	$	4,113	$	4,832		Deposit service charges	$	5,128	$	3,904	$	13,735	$	12,269
Debit and credit card interchange fees	Debit and credit card interchange fees	5,290		4,884			Debit and credit card interchange fees	6,032		5,207		17,265		14,762
Debit and credit card expense	Debit and credit card expense	(2,520)		(1,932)			Debit and credit card expense	(2,655)		(2,134)		(7,819)		(6,272)
Merchant services income	Merchant services income	3,142		3,002			Merchant services income	4,239		3,584		11,136		9,252
Merchant services expense	Merchant services expense	(2,532)		(2,436)			Merchant services expense	(3,439)		(2,839)		(8,964)		(7,378)
Other service charges	Other service charges	1,446		1,453			Other service charges	1,152		1,020		3,801		3,458
Total deposit fees and other service charges	Total deposit fees and other service charges	$	8,939	$	9,803		Total deposit fees and other service charges	$	10,457	$	8,742	$	29,154	$	26,091

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.

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

Executive Overview

We are a bank holding company incorporated in the State of Washington which owns one subsidiary bank, Banner Bank. Banner Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington and, as of ~~March 31,~~September 30, 2021, it had ~~155~~150 branch offices and 18 loan production offices located in Washington, Oregon, California, Idaho and Utah. Banner Corporation is subject to regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve Board). Banner Bank (the Bank) is subject to regulation by the Washington State Department of Financial Institutions, Division of Banks and the Federal Deposit Insurance Corporation (the FDIC). As of ~~March 31,~~September 30, 2021, we had total consolidated assets of ~~$16.12~~$16.64 billion, total loans of ~~$9.95~~$9.22 billion, total deposits of ~~$13.55~~$14.16 billion and total shareholders’ equity of ~~$1.62~~$1.67 billion.

Banner 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 offices in Washington, Oregon, California and Idaho. Banner 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, U.S. Small Business Administration (SBA) loans and consumer loans.

Banner Corporation’s successful execution of its super community bank model and strategic initiatives have delivered solid core operating results and profitability over the last several years. ~~Despite the impact of the COVID-19 pandemic,~~ 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~~Company’s moderate risk profile.

Our financial results for the quarter ended ~~March 31,~~September 30, 2021 reflect the low interest rate environment, the unprecedented level of market liquidity and the reduction in business activity in ~~many~~some of our markets due the ~~continuing~~lingering impacts of the COVID-19 pandemic. While we are continuing to offer payment and financial relief programs for borrowers impacted by COVID-19, the number of loans deferred under these programs have decreased significantly since the start of the COVID-19 pandemic. At ~~March 31,~~September 30, 2021, we had 9141 mortgage loans totaling ~~$33.9~~$12.4 million ~~still on deferral. Of the loans still on deferral, 79 loans totaling $25.7 million are mortgage loans~~ operating under forbearance ~~agreements.~~agreements due to COVID-19. Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings pursuant to applicable accounting and regulatory guidance. In addition, the SBA ~~provides~~provided assistance to small businesses impacted by COVID-19 through the Paycheck Protection Program (PPP), which was designed to provide near-term relief to help small businesses sustain operations. Under the initial PPP program, Banner funded 9,103 applications totaling $1.15 billion of loans in its service area. In January 2021, Banner began accepting and processing loan applications under the second PPP program enacted in December 2020. As of ~~March 31,~~September 30, 2021, Banner had ~~funded 4,107 applications~~provided 13,293 SBA PPP loans totaling ~~$410.8 million of loans under the second PPP program. As of March 31, 2021, Banner had~~nearly $1.61 billion and received SBA forgiveness for ~~1,255~~10,548 SBA PPP loans totaling ~~$259.9 million.~~

Banner has been taking steps to resume more normal branch activities with specific guidelines in place to help protect the safety of our clients and personnel. To further the well-being of staff and clients, Banner implemented measures to allow employees to work from home to the extent practicable. To facilitate this approach, Banner allocated additional computer equipment to staff and enhanced Banner’s network capabilities with several upgrades. These expenses plus other expenses incurred in response to the COVID-19 pandemic resulted in $148,000 of related costs during the first quarter of 2021, compared to $239,000 of related costs in the first quarter a year ago.$1.23 billion.

For the quarter ended ~~March 31,~~September 30, 2021, our net income was ~~$46.9~~$49.9 million, or ~~$1.33~~$1.44 per diluted share, compared to net income of ~~$16.9~~$36.5 million, or ~~$0.47~~$1.03 per diluted share, for the quarter ended ~~March 31,~~September 30, 2020. The current quarter was positively impacted by increased ~~production of one- to four-family held-for-sale loans,~~interest income, decreased funding costs and the recapture of provision for credit losses, ~~and increased capitalized loan origination costs primarily related to the origination of PPP loans during the current quarter,~~ partially offset by a decrease in mortgage banking income and increased ~~salary~~non-interest expense.

After a comprehensive review of our business, we implemented Banner Forward, a bank-wide initiative to accelerate revenue growth and ~~employee benefits expense~~reduce operating expense. Implementation of this plan commenced during the third quarter of 2021 with full implementation expected by 2023, with the goal of producing meaningful results in the near term while staying true to our mission and ~~lower net interest margin.~~value proposition of being connected, knowledgeable and responsive to our clients, communities and employees. The ~~year-over-year increase~~focus of Banner Forward is to accelerate growth in ~~salary~~commercial banking, deepen relationships with retail customers, advance technology strategies to enhance our digital service channels, while streamlining underwriting and ~~employee benefits expense includes $1.3~~back office processes. As part of Banner Forward, we have identified potential additional opportunities to rationalize our physical footprint. During the third quarter of 2021, we incurred expenses of $7.6 million ~~of severance expense~~ related to a reduction in staffing and a $1.2 million adjustment recorded in the current quarter to increase the liability related to deferred compensation plans. The recapture of provision for credit losses for the current quarter primarily reflects the decrease in loan balances, excluding the increase in PPP loans, as well as improvement in the forecasted economic indicators utilized to calculate the allowance for credit losses.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 $1.6~~increased $9.1 million, or 1%8%, to ~~$117.7~~$130.1 million for the quarter ended ~~March 31,~~September 30, 2021, compared to ~~$119.3~~$121.0 million for the same quarter one year earlier. This ~~decrease~~increase in net interest income is primarily a result of ~~lower yields on~~an acceleration of deferred loan fee income due to SBA PPP loan forgiveness payments from the SBA, growth in both our interest-earning assets ~~due to declines in market interest rates~~and core deposits as well as ~~a higher percentage of our earnings assets being invested in low yielding short term investments partially offset by~~ decreases in the cost of funding ~~liabilities.~~liabilities, partially offset by lower yields on total interest-earning assets due declines in market rates. The growth in core deposits was largely the result of SBA PPP loan funds deposited into client accounts and an increase in general client liquidity due to reduced business investment and consumer spending during the COVID-19 pandemic.

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~~third quarter of 2021 increased ~~$3.5~~$6.2 million, or 3%4%, to ~~$141.9~~$155.5 million, compared to ~~$138.4~~$149.2 million for the same period a year earlier, largely as a result of an increase in ~~non-interest~~net interest income, partially offset by a decrease in ~~net interest~~non-interest income. 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 ~~$24.3~~$25.3 million for the quarter ended ~~March 31,~~September 30, 2021, compared to ~~$19.2~~$28.2 million for the quarter ended ~~March 31,~~September 30, 2020, primarily due to ~~recording~~the decrease in mortgage banking income, partially offset by an increase in deposit fees and other services charges. The year-over-year decrease in mortgage banking income was primarily due to a ~~$4.6 million~~decrease in the gain on sale margin on one- to four-family held-for-sale loans, partially offset by higher gains on the sale of multifamily held-for-sale loans as well as a reduction in the ~~fair value~~volume of ~~financial instruments carried at fair value during the year ago quarter.~~one- to four-family sold.

Our non-interest expense ~~decreased~~increased in the ~~first~~third quarter of 2021, compared to a year earlier largely as a result of increases in professional and legal expense, primarily due to increased ~~capitalized loan origination costs, primarily~~consultant expense, which included $5.8 million of expense related to the ~~origination of PPP loans~~Banner Forward initiative, as well as $4.0 million recorded related to litigation and legal matters during the current quarter, and increased payment and card processing services expense, partially offset by ~~increased~~decreased salary and employee

benefits expense compared to the same quarter a year ago. Non-interest expense was ~~$93.5~~$102.1 million for ~~both~~ the quarter ended ~~March 31,~~September 30, 2021 and $90.0 million for the same quarter a year earlier.

We recorded an ~~$8.0~~$8.6 million recapture of provision for credit losses ~~- loans~~ in the quarter ended ~~March 31,~~September 30, 2021, compared to a ~~$21.7~~$15.2 million provision for credit losses ~~- loans~~ for the quarter ended ~~March 31,~~September 30, 2020. The recapture of provision for credit losses for the current quarter primarily reflects ~~the decrease in loan balances, excluding the increase in PPP loans, as well as~~ improvement in the forecasted economic ~~indicators.~~indicators and a decrease in adversely classified loans. The provision for credit losses recorded in the ~~first~~third quarter a year ago reflected the deterioration in forecasted economic indicators ~~and the economic outlook~~as well as risk rating downgrades on loans that ~~existed~~were considered at ~~March 31, 2020 as a result of~~risk due to the COVID-19 pandemic. The allowance for credit losses - loans at ~~March 31,~~September 30, 2021 was ~~$156.1~~$139.9 million, representing ~~426%~~485% of non-performing loans compared to $167.3 million, or 470% of non-performing loans at December 31, 2020. In addition to the allowance for credit losses - loans, Banner maintains an allowance for credit losses - unfunded loan commitments which was ~~$12.1~~$10.1 million at ~~March 31,~~September 30, 2021 compared to $13.3 million at December 31, 2020. We recorded a $1.2 million recapture of provision for credits losses – unfunded commitments in the first quarter of 2021 compared to a $1.7 million provision for credit losses – unfunded commitments during the year ago quarter. Non-performing loans were ~~$36.6~~$28.9 million at ~~March 31,~~September 30, 2021, compared to $35.6 million at December 31, 2020 and ~~$43.7~~$34.8 million a year earlier. (See Note 4, Loans Receivable and the Allowance for Credit Losses, as well as “Asset Quality” below in this Form 10-Q.)

*Non-GAAP 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, 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 and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020” for more detailed information about our financial performance.

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


		For the Three Months Ended March 31,				For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2021		2020				2021		2020		2021		2020
ADJUSTED REVENUE	ADJUSTED REVENUE						ADJUSTED REVENUE
Net interest income (GAAP)	Net interest income (GAAP)	$	117,661	$	119,258		Net interest income (GAAP)	$	130,146	$	121,026	$	375,361	$	359,864
Total non-interest income	Total non-interest income	24,272		19,165			Total non-interest income	25,334		28,222		71,942		75,107
Total GAAP revenue	Total GAAP revenue	141,933		138,423			Total GAAP revenue	155,480		149,248		447,303		434,971
Exclude net gain on sale of securities	Exclude net gain on sale of securities	(485)		(78)			Exclude net gain on sale of securities	(56)		(644)		(618)		(815)

Exclude change in valuation of financial instruments carried at fair value	Exclude change in valuation of financial instruments carried at fair value	(59)		4,596			Exclude change in valuation of financial instruments carried at fair value	(1,778)		(37)		(1,895)		2,360

Adjusted Revenue (non-GAAP)	Adjusted Revenue (non-GAAP)	$	141,389	$	142,941		Adjusted Revenue (non-GAAP)	$	153,646	$	148,567	$	444,790	$	436,516


		For the Three Months Ended March 31,				For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2021		2020				2021		2020		2021		2020
ADJUSTED EARNINGS	ADJUSTED EARNINGS						ADJUSTED EARNINGS
Net income (GAAP)	Net income (GAAP)	$	46,855	$	16,882		Net income (GAAP)	$	49,884	$	36,548	$	151,121	$	76,971
Exclude net gain on sale of securities	Exclude net gain on sale of securities	(485)		(78)			Exclude net gain on sale of securities	(56)		(644)		(618)		(815)

Exclude change in valuation of financial instruments carried at fair value	Exclude change in valuation of financial instruments carried at fair value	(59)		4,596			Exclude change in valuation of financial instruments carried at fair value	(1,778)		(37)		(1,895)		2,360

Exclude merger and acquisition-related costs	Exclude merger and acquisition-related costs	571		1,142			Exclude merger and acquisition-related costs	10		5		660		1,483
Exclude COVID-19 expenses	Exclude COVID-19 expenses	148		239			Exclude COVID-19 expenses	44		778		309		3,169
Exclude related tax benefit		(42)		(1,405)
Exclude Banner Forward expenses							Exclude Banner Forward expenses	7,592		—		10,447		—
Exclude related tax (benefit) expense							Exclude related tax (benefit) expense	(1,395)		(24)		(2,137)		(1,476)
Total adjusted earnings (non-GAAP)	Total adjusted earnings (non-GAAP)	$	46,988	$	21,376		Total adjusted earnings (non-GAAP)	$	54,301	$	36,626	$	157,887	$	81,692
Diluted earnings per share (GAAP)	Diluted earnings per share (GAAP)	$	1.33	$	0.47		Diluted earnings per share (GAAP)	$	1.44	$	1.03	$	4.32	$	2.17
Diluted adjusted earnings per share (non-GAAP)	Diluted adjusted earnings per share (non-GAAP)	$	1.33	$	0.60		Diluted adjusted earnings per share (non-GAAP)	$	1.57	$	1.04	$	4.51	$	2.30

4953


		For the Three Months Ended March 31,						For the Three Months Ended September 30,					For the Nine Months Ended September 30,
		2021			2020					2021			2020			2021			2020
ADJUSTED EFFICIENCY RATIO	ADJUSTED EFFICIENCY RATIO								ADJUSTED EFFICIENCY RATIO
Non-interest expense (GAAP)	Non-interest expense (GAAP)	$	93,527		$	93,463			Non-interest expense (GAAP)	$	102,145		$	90,028		$	288,296		$	274,033
Exclude merger and acquisition-related costs	Exclude merger and acquisition-related costs	(571)			(1,142)				Exclude merger and acquisition-related costs	(10)			(5)			(660)			(1,483)
Exclude COVID-19 expenses	Exclude COVID-19 expenses	(148)			(239)				Exclude COVID-19 expenses	(44)			(778)			(309)			(3,169)
Exclude Banner forward expenses									Exclude Banner forward expenses	(7,592)			—			(10,447)			—
Exclude CDI amortization	Exclude CDI amortization	(1,711)			(2,001)				Exclude CDI amortization	(1,575)			(1,864)			(4,997)			(5,867)
Exclude state/municipal tax expense	Exclude state/municipal tax expense	(1,065)			(984)				Exclude state/municipal tax expense	(1,219)			(1,196)			(3,367)			(3,284)
Exclude REO operations	Exclude REO operations	242			(100)				Exclude REO operations	(53)			11			71			(93)
Adjusted non-interest expense (non-GAAP)	Adjusted non-interest expense (non-GAAP)	$	90,274		$	88,997			Adjusted non-interest expense (non-GAAP)	$	91,652		$	86,196		$	268,587		$	260,137

Net interest income (GAAP)	Net interest income (GAAP)	$	117,661		$	119,258			Net interest income (GAAP)	$	130,146		$	121,026		$	375,361		$	359,864
Non-interest income (GAAP)	Non-interest income (GAAP)	24,272			19,165				Non-interest income (GAAP)	25,334			28,222			71,942			75,107
Total revenue	Total revenue	141,933			138,423				Total revenue	155,480			149,248			447,303			434,971
Exclude net gain on sale of securities	Exclude net gain on sale of securities	(485)			(78)				Exclude net gain on sale of securities	(56)			(644)			(618)			(815)
Exclude net change in valuation of financial instruments carried at fair value	Exclude net change in valuation of financial instruments carried at fair value	(59)			4,596				Exclude net change in valuation of financial instruments carried at fair value	(1,778)			(37)			(1,895)			2,360
Adjusted revenue (non-GAAP)	Adjusted revenue (non-GAAP)	$	141,389		$	142,941			Adjusted revenue (non-GAAP)	$	153,646		$	148,567		$	444,790		$	436,516

Efficiency ratio (GAAP)	Efficiency ratio (GAAP)	65.90		%	67.52		%		Efficiency ratio (GAAP)	65.70		%	60.32		%	64.45		%	63.00		%
Adjusted efficiency ratio (non-GAAP)	Adjusted efficiency ratio (non-GAAP)	63.85		%	62.26		%		Adjusted efficiency ratio (non-GAAP)	59.65		%	58.02		%	60.39		%	59.59		%

5054

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)~~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, 2021			December 31, 2020			March 31, 2020				September 30, 2021			December 31, 2020			September 30, 2020
Shareholders’ equity (GAAP)	Shareholders’ equity (GAAP)	$	1,618,817		$	1,666,264		$	1,601,700		Shareholders’ equity (GAAP)	$	1,667,119		$	1,666,264		$	1,646,529
Exclude goodwill and other intangible assets, net	Exclude goodwill and other intangible assets, net	392,836			394,547			400,278			Exclude goodwill and other intangible assets, net	389,550			394,547			396,412

Tangible common shareholders’ equity (non-GAAP)	Tangible common shareholders’ equity (non-GAAP)	$	1,225,981		$	1,271,717		$	1,201,422		Tangible common shareholders’ equity (non-GAAP)	$	1,277,569		$	1,271,717		$	1,250,117
Total assets (GAAP)	Total assets (GAAP)	$	16,119,792		$	15,031,623		$	12,780,950		Total assets (GAAP)	$	16,637,879		$	15,031,623		$	14,642,075
Exclude goodwill and other intangible assets, net	Exclude goodwill and other intangible assets, net	392,836			394,547			400,278			Exclude goodwill and other intangible assets, net	389,550			394,547			396,412
Total tangible assets (non-GAAP)	Total tangible assets (non-GAAP)	$	15,726,956		$	14,637,076		$	12,380,672		Total tangible assets (non-GAAP)	$	16,248,329		$	14,637,076		$	14,245,663
Common shareholders’ equity to total assets (GAAP)	Common shareholders’ equity to total assets (GAAP)	10.04		%	11.09		%	12.53		%	Common shareholders’ equity to total assets (GAAP)	10.02		%	11.09		%	11.25		%
Tangible common shareholders’ equity to tangible assets (non-GAAP)	Tangible common shareholders’ equity to tangible assets (non-GAAP)	7.80		%	8.69		%	9.70		%	Tangible common shareholders’ equity to tangible assets (non-GAAP)	7.86		%	8.69		%	8.78		%

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)	$	1,225,981		$	1,271,717		$	1,201,422		Tangible common shareholders’ equity (non-GAAP)	$	1,277,569		$	1,271,717		$	1,250,117
Common shares outstanding at end of period	Common shares outstanding at end of period	34,735,343			35,159,200			35,102,459			Common shares outstanding at end of period	34,251,991			35,159,200			35,158,568
Common shareholders’ equity (book value) per share (GAAP)	Common shareholders’ equity (book value) per share (GAAP)	$	46.60		$	47.39		$	45.63		Common shareholders’ equity (book value) per share (GAAP)	$	48.67		$	47.39		$	46.83
Tangible common shareholders’ equity (tangible book value) per share (non-GAAP)	Tangible common shareholders’ equity (tangible book value) per share (non-GAAP)	$	35.29		$	36.17		$	34.23		Tangible common shareholders’ equity (tangible book value) per share (non-GAAP)	$	37.30		$	36.17		$	35.56

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

In the opinion of management, the accompanying Consolidated Statements of Financial Condition and related Consolidated Statements of Operations, Comprehensive Income, Changes in Shareholders’ Equity and Cash Flows reflect all adjustments (which include reclassification and normal recurring adjustments) that are necessary for a fair presentation in conformity with GAAP. 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 our 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 our 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 intangibles, such as goodwill, core deposit intangibles and mortgage servicing rights, (v) the valuation of real estate held for sale, (vi) the valuation of assets and liabilities acquired in business combinations and subsequent recognition of related income and expense, and (vii) the valuation of or recognition of deferred tax assets and liabilities. These policies and judgments, estimates and assumptions are described in greater detail below. Management believes the judgments, estimates and assumptions used in the preparation of the financial statements are appropriate 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. There have been no significant changes in our application of accounting policies since December 31, 2020. For additional information concerning critical accounting policies, see the Selected Notes to the Consolidated Financial Statements and the following:

Interest Income: (Notes 3 and 4) Interest on loans and securities is accrued as earned unless management doubts the collectability of the asset or the unpaid interest. Interest accruals on loans are generally discontinued when loans become 90 days past due for payment of interest and

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the loans are then placed on nonaccrual status. All previously accrued but uncollected interest is deducted from interest income upon transfer to nonaccrual status. For any future payments collected, interest income is recognized only upon management’s assessment that there is a strong likelihood that the full amount of a loan will be repaid or recovered. Management’s assessment of the likelihood of full repayment involves judgment including determining the fair value of the underlying collateral which can be impacted by the economic environment. A loan may be put on nonaccrual status sooner than this policy would dictate if, in management’s judgment, the amounts owed, principal or interest, may be uncollectable. While less common, similar interest reversal and nonaccrual treatment is applied to investment securities if their ultimate collectability becomes questionable. Loans modified due to the COVID-19 pandemic are considered current if they are less than 30 days past due on the contractual payments at the time the loan modification program was put in place and therefore continue to accrue interest unless the interest is being waived.

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 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 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 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 ~~commercial real estate, commercial business, and consumer loans without risk rating segmentation,~~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 back to 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, ~~yield curve spreads, treasury yields,~~industrial employment, corporate profits, the ~~corporate yield,~~household consumer debt service ratio, the ~~market volatility index, the Dow Jones index, the consumer confidence index,~~household mortgage debt service ratio, and ~~the prime rate.~~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 allowance for credit losses 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 an initial 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 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

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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.

Loans that do not share risk characteristics with other loans in the portfolio are individually evaluated for impairment and are not included in the collective evaluation. Factors involved in determining whether a loan should be individually evaluated include, but are not limited to, the financial condition of the borrower and the value of the underlying collateral. 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. 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.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Bank.

Some of the Bank’s loans are reported as troubled debt restructures (TDRs). Loans are reported as TDRs when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it would not otherwise consider. Examples of such concessions include forgiveness of principal or accrued interest, extending the maturity date(s) or providing a lower interest rate than would be normally available for a transaction of similar risk. The allowance for credit losses on a TDR is determined using the same method as all other loans held for investment, except when the value of the concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method the allowance for credit losses is determined by discounting the expected future cash flows at the original interest rate of the loan. The Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) and the Consolidated Appropriations Act, 2021 (CAA) provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act and regulatory guidance if they are less than 30 days past due on their contractual payments at the time a modification program is implemented. The CAA extends relief offered under the CARES Act related to TDRs as a result of COVID-19 through January 1, 2022 or 60 days after the end of the national emergency declared by the President, whichever is earlier.

Fair Value Accounting and Measurement: (Note 8) We use fair value measurements to record fair value adjustments to certain financial assets and liabilities and to determine fair value disclosures. We include in the Notes to the Consolidated Financial Statements information about the extent to which fair value is used to measure financial assets and liabilities, the valuation methodologies used and the impact on our results of operations and financial condition. Additionally, for financial instruments not recorded at fair value we disclose, where required, our estimate of their fair value.

Loans Acquired in Business Combinations: (Notes 2 and 4) Loans acquired in business combinations are recorded at their fair value at the acquisition date. Establishing the fair value of acquired loans involves a significant amount of judgment, including determining the credit discount based upon historical data adjusted for current economic conditions and other factors. If any of these assumptions are inaccurate actual credit losses could vary significantly from the credit discount used to calculate the fair value of the acquired loans. Acquired loans are evaluated upon acquisition and classified as either purchased credit-deteriorated or purchased non-credit-deteriorated. Purchased credit-deteriorated (PCD) loans have experienced more than insignificant credit deterioration since origination. For PCD loans, an allowance for credit losses is determined at the acquisition date using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The loan’s fair value grossed up for the allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through a provision for credit losses.

For purchased non-credit-deteriorated loans, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loans. While credit discounts are included in the determination of the fair value for non-credit-deteriorated loans, since these discounts are expected to be accreted over the life of the loans, they cannot be used to offset the allowance for credit losses that must be recorded at the acquisition date. As a result, an allowance for credit losses is determined at

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the acquisition date using the same methodology as other loans held for investment and is recognized as a provision for credit losses. Any subsequent deterioration (improvement) in credit quality is recognized by recording (recapturing) a provision for credit losses.

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. 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 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 as of December 31, 2020 and as a result of the economic impact of the COVID-19 pandemic concluded further analysis was required. The Company completed a quantitative goodwill impairment test and concluded the fair value of the reporting unit, Banner Bank, exceeded the carrying value of the reporting unit including goodwill and therefore no impairment existed as of December 31, 2020. Changes in the economic environment, operations of the reporting unit or other adverse events could result in future impairment charges which could have a material adverse impact on the Company’s operating results.

Other Intangible Assets: (Note 6) Other intangible assets consists primarily of core deposit intangibles (CDI), which are amounts recorded in business combinations or deposit purchase transactions related to the value of transaction-related deposits and the value of the client relationships associated with the deposits. Core deposit intangibles are being amortized on an accelerated basis over a weighted average estimated useful life of eight years. The determination of the estimated useful life of the core deposit intangible involves judgment by management. The actual life of the core deposit intangible could vary significantly from the estimated life. These assets are reviewed at least annually for events or circumstances that could impact their recoverability. These events could include loss of the underlying core deposits, increased competition or adverse changes in the economy. To the extent other identifiable intangible assets are deemed unrecoverable, impairment losses are recorded in other non-interest expense to reduce the carrying amount of the assets.

Mortgage Servicing Rights: (Note 6) Mortgage servicing rights (MSRs) are recognized as separate assets when rights are acquired through purchase or through sale of loans. Generally, purchased MSRs are capitalized at the cost to acquire the rights. For sales of mortgage loans, the value of the MSR is estimated and capitalized. Fair value is based on market prices for comparable mortgage servicing contracts. The fair value of the MSRs includes an estimate of the life of the underlying loans which is affected by estimated prepayment speeds. The estimate of prepayment speeds is based on current market conditions. Actual market conditions could vary significantly from current conditions which could result in the estimated life of the underlying loans being different which would change the fair value of the MSR. Capitalized MSRs are reported in other assets and are amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.

Real Estate Owned Held for Sale: (Note 5) Property acquired by foreclosure or deed in lieu of foreclosure is recorded at the estimated fair value of the property, less expected selling costs. Development and improvement costs relating to the property may be capitalized, while other holding costs are expensed. The carrying value of the property is periodically evaluated by management. Property values are influenced by current economic and market conditions, changes in economic conditions could result in a decline in property value. To the extent that property values decline, allowances are established to reduce the carrying value to net realizable value. Gains or losses at the time the property is sold are charged or credited to operations in the period in which they are realized. The amounts the Bank will ultimately recover from real estate held for sale may differ substantially from the carrying value of the assets because of market factors beyond the Bank’s control or because of changes in the Bank’s strategies for recovering the investment.

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. 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. 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

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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.

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Comparison of Financial Condition at ~~March 31,~~September 30, 2021 and December 31, 2020

General: Total assets increased ~~$1.09~~$1.61 billion, to ~~$16.12~~$16.64 billion at ~~March 31,~~September 30, 2021, from $15.03 billion at December 31, 2020. The increase was largely the result of ~~an increase~~excess liquidity from increases in retail deposits being invested in short term investments, including interest bearing deposits and securities, partially offset by a decrease in total loans receivable due to SBA PPP loan forgiveness during the first ~~quarter~~nine months of ~~2021, as well as the origination of PPP loans.~~2021.

Loans and lending: Loans are our most significant and generally highest yielding earning assets. ~~Under normal economic conditions, we~~We attempt to maintain a portfolio of loans into total deposits ratio at a ~~range of 90% to 95% of total deposits~~level designed to enhance our revenues, while adhering to sound underwriting practices and appropriate diversification guidelines in order to maintain a moderate risk profile. Our loan to deposit ratio at ~~March 31, 2020~~September 30, 2021 was ~~74%~~66%, which reflects the unprecedented level of market liquidity and decrease in business activity due to the impacts of the COVID-19 ~~pandemic.~~pandemic and is below our historical range of 90% to 95%. We expect the loan to deposit ratio to remain below historical levels for the foreseeable future We offer a wide range of loan products to meet the demands of our clients. Our lending activities are primarily directed toward the origination of real estate and commercial loans. Total loans receivable ~~increased $76.7~~decreased $652.6 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2021, primarily reflecting ~~increased~~decreased commercial business loan balances due to SBA PPP loan ~~originations and, to a lesser extent, increased~~forgiveness repayments, as well as decreased commercial ~~real estate,~~construction, multifamily ~~real estate, multifamily construction loan, one-to-four family construction, and land and land development balances, partially offset by decreased commercial~~ construction, one-to-four family residential, consumer, and agricultural business loan balances, ~~due~~partially offset by increased commercial real estate, multifamily real estate, one- to ~~lower demand for certain~~four-family construction, and land and land development loan ~~types as a result of the COVID-19 pandemic as well seasonal and other market factors.~~balances. Excluding SBA PPP loans, total loans receivable ~~decreased $195.4~~increased $81.7 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2021. At ~~March 31,~~September 30, 2021, our loans receivable totaled ~~$9.95~~$9.22 billion compared to $9.87 billion at December 31, 2020 and ~~$9.29~~$10.16 billion at ~~March 31,~~September 30, 2020.

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, 2021		Dec 31, 2020		Mar 31, 2020		Prior Year End		Prior Year			Sep 30, 2021		Dec 31, 2020		Sep 30, 2020		Prior Year End		Prior Year
Commercial real estate:	Commercial real estate:											Commercial real estate:
Owner-occupied	Owner-occupied	$	1,045,656	$	1,076,467	$	1,024,089	(2.9)	%	2.1	%	Owner-occupied	$	1,122,275	$	1,076,467	$	1,049,877	4.3	%	6.9	%
Investment properties	Investment properties	1,931,805		1,955,684		2,007,537		(1.2)		(3.8)		Investment properties	1,980,284		1,955,684		1,991,258		1.3		(0.6)
Small balance CRE	Small balance CRE	639,330		573,849		591,783		11.4		8.0		Small balance CRE	601,751		573,849		597,971		4.9		0.6
Multifamily real estate	Multifamily real estate	433,775		428,223		400,206		1.3		8.4		Multifamily real estate	532,760		428,223		426,659		24.4		24.9
Construction, land and land development:	Construction, land and land development:											Construction, land and land development:
Commercial construction	Commercial construction	199,037		228,937		205,476		(13.1)		(3.1)		Commercial construction	170,205		228,937		220,285		(25.7)		(22.7)
Multifamily construction	Multifamily construction	305,694		305,527		250,410		0.1		22.1		Multifamily construction	278,184		305,527		291,105		(8.9)		(4.4)
One- to four-family construction	One- to four-family construction	542,840		507,810		534,956		6.9		1.5		One- to four-family construction	571,431		507,810		518,085		12.5		10.3
Land and land development	Land and land development	266,730		248,915		232,506		7.2		14.7		Land and land development	308,164		248,915		240,803		23.8		28.0
Commercial business:	Commercial business:											Commercial business:
Commercial business	Commercial business	1,096,303		1,133,989		1,357,817		(3.3)		(19.3)		Commercial business	1,039,731		1,133,989		1,193,651		(8.3)		(12.9)
PPP		1,280,291		1,044,472		—		22.6		—
SBA PPP												SBA PPP	306,976		1,044,472		1,149,968		(70.6)		(73.3)
Small business scored	Small business scored	717,502		743,451		807,539		(3.5)		(11.1)		Small business scored	775,554		743,451		763,824		4.3		1.5
Agricultural business, including secured by farmland:	Agricultural business, including secured by farmland:											Agricultural business, including secured by farmland:
Agricultural business, including secured by farmland	Agricultural business, including secured by farmland	226,094		299,949		330,257		(24.6)		(31.5)		Agricultural business, including secured by farmland	284,255		299,949		326,169		(5.2)		(12.9)
PPP		36,316		—		—		nm		nm
SBA PPP												SBA PPP	3,214		—		—		nm		nm
One- to four-family residential	One- to four-family residential	655,627		717,939		881,387		(8.7)		(25.6)		One- to four-family residential	682,368		717,939		771,431		(5.0)		(11.5)
Consumer:	Consumer:											Consumer:
Consumer—home equity revolving lines of credit	Consumer—home equity revolving lines of credit	466,132		491,812		521,618		(5.2)		(10.6)		Consumer—home equity revolving lines of credit	462,819		491,812		504,523		(5.9)		(8.3)
Consumer—other	Consumer—other	104,565		113,958		140,163		(8.2)		(25.4)		Consumer—other	98,413		113,958		118,308		(13.6)		(16.8)
Total loans receivable	Total loans receivable	$	9,947,697	$	9,870,982	$	9,285,744	0.8	%	7.1	%	Total loans receivable	$	9,218,384	$	9,870,982	$	10,163,917	(6.6)	%	(9.3)	%

Our commercial real estate loans for owner-occupied, investment properties, and small balance CRE totaled ~~$3.62~~$3.70 billion, or ~~36%~~40% of our loan portfolio at ~~March 31,~~September 30, 2021. In addition, multifamily residential real estate loans totaled ~~$433.8~~$532.8 million and comprised 4%6% of our loan portfolio. Commercial real estate loans increased by ~~$10.8~~$98.3 million during the first ~~three~~nine months of 2021 while multifamily real estate loans increased by ~~$5.6~~$104.5 million.

We also originate commercial, multifamily, and ~~residential~~one- to four-family construction, land and land development loans, which totaled ~~$1.31~~$1.33 billion, or ~~13%~~14% of our loan portfolio at ~~March 31,~~September 30, 2021, compared to $1.29 billion at December 31, 2020 and ~~$1.22~~$1.27 billion at ~~March 31,~~

September 30, 2020. ~~Residential~~One- to four-family construction balances increased ~~$35.0~~$63.6 million, or 7%13%, to ~~$542.8~~$571.4 million at ~~March 31,~~September 30, 2021 compared to $507.8 million at December 31, 2020 and increased ~~$7.9~~$53.3 million, or 1%10%, compared to ~~$535.0~~$518.1 million at ~~March 31,~~September 30, 2020. We also originate ~~residential~~one- to four-family construction loans for owner occupants, although construction balances for these loans are modest as the loans convert to one- to four-family

residential loans upon completion of the homes and are often sold in the secondary market. ~~Residential~~One- to four-family construction loans represented approximately 5%6% of our total loan portfolio at ~~March 31,~~September 30, 2021.

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 business lending, to a lesser extent, includes participation in certain syndicated loans, including shared national credits, which totaled ~~$116.9~~$152.6 million at ~~March 31,~~September 30, 2021. Our commercial and agricultural business loans ~~increased $134.6~~decreased $812.1 million to ~~$3.36~~$2.41 billion at ~~March 31,~~September 30, 2021, compared to $3.22 billion at December 31, 2020, and ~~increased $860.9 million,~~decreased $1.02 billion, or ~~34%~~30%, compared to ~~$2.50~~$3.43 billion at ~~March 31,~~September 30, 2020. The ~~increase~~decrease reflects ~~growth in~~ SBA PPP ~~loans~~loan repayments from SBA loan forgiveness during the first ~~three~~nine months of 2021 and ~~the second quarter of 2020, offset partially by declines in commercial~~to a lesser extent lower line of credit ~~utilization, a decline in new loan production~~usage due to decreased business activity and seasonal decreases in agricultural loan balances. SBA PPP loans decreased 70% to $310.2 million at September 30, 2021, compared to $1.04 billion at December 31, 2020, and decreased 73% when compared to $1.15 billion at September 30, 2020. Commercial and agricultural business loans represented approximately ~~34%~~26% of our portfolio at ~~March 31,~~September 30, 2021.

Our one- to four-family residential loan originations have been strong, as interest rates have declined during the last year. We are active originators of one- to four-family residential loans in most communities where we have established offices in Washington, Oregon, California and Idaho. Most of the one- to four-family residential loans that we originate are sold in secondary markets with net gains on sales and loan servicing fees reflected in our revenues from mortgage banking. At ~~March 31,~~September 30, 2021, our outstanding balance of one- to four-family residential loans retained in our portfolio decreased ~~$62.3~~$35.6 million, to ~~$655.6~~$682.4 million, compared to $717.9 million at December 31, 2020, and decreased ~~$225.8~~$89.1 million, or ~~26%~~12%, compared to ~~$881.4~~$771.4 million at ~~March 31,~~September 30, 2020. The decrease in one-to-four family ~~real estate~~residential loans since ~~March 31,~~September 30, 2020 primarily reflects portfolio loans being refinanced and sold as held for sale loans. One- to four-family residential loans represented 7% of our loan portfolio at ~~March 31,~~September 30, 2021.

Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At ~~March 31,~~September 30, 2021, consumer loans, including home equity revolving lines of credit, decreased ~~$35.1~~$44.5 million to ~~$570.7~~$561.2 million, compared to $605.8 million at December 31, 2020, and decreased ~~$91.1~~$61.6 million compared to ~~$661.8~~$622.8 million at ~~March 31,~~September 30, 2020.

The following table shows the commitment amount for loan origination (excluding loans held for sale) activity for the three and nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020 (in thousands):


		Three Months Ended				Three Months Ended				Nine months ended
		Mar 31, 2021		Mar 31, 2020				Sep 30, 2021		Sep 30, 2020		Sep 30, 2021		Sep 30, 2020
Commercial real estate	Commercial real estate	$	91,217	$	76,359		Commercial real estate	$	174,827	$	74,400	$	369,459	$	262,524
Multifamily real estate	Multifamily real estate	12,878		10,171			Multifamily real estate	26,155		2,664		84,707		19,219
Construction and land	Construction and land	447,369		369,613			Construction and land	496,386		412,463		1,453,583		1,073,031
Commercial business:	Commercial business:						Commercial business:
Commercial business	Commercial business	115,911		199,873			Commercial business	229,859		128,729		527,766		495,869
PPP		428,180		—
SBA PPP							SBA PPP	907		24,848		485,077		1,176,018
Agricultural business	Agricultural business	27,167		31,261			Agricultural business	9,223		16,990		48,936		64,544
One-to four- family residential	One-to four- family residential	57,731		31,041			One-to four- family residential	49,594		32,733		154,411		88,311
Consumer	Consumer	87,322		67,357			Consumer	145,102		132,100		363,848		326,110
Total loan originations (excluding loans held for sale)		$	1,267,775	$	785,675
Total commitment amount for loan originations (excluding loans held for sale)							Total commitment amount for loan originations (excluding loans held for sale)	$	1,132,053	$	824,927	$	3,487,787	$	3,505,626

The origination table above includes loan participations and loan purchases. There were no$4.3 million of loan purchases during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 ~~or March 31,~~and $18,000 of loan purchases during the nine months ended September 30, 2020.

Loans held for sale decreased to ~~$135.3~~$63.7 million at ~~March 31,~~September 30, 2021, compared to $243.8 million at December 31, 2020, as the sales of held-for-sale loans exceeded originations of held-for-sale loans during the ~~three~~nine months ended ~~March 31,~~September 30, 2021. Loans held for sale were ~~$182.4~~$185.9 million at ~~March 31,~~September 30, 2020. Originations of loans held for sale ~~increased~~decreased to ~~$301.4~~$912.5 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 compared to ~~$296.7 million~~$1.03 billion for the same period last year, primarily due to ~~increased~~decreased refinance activity for one- to four-family residential mortgage ~~loans, partially offset by lower originations of multifamily held for sale~~ loans. The volume of one- to four-family residential mortgage loans sold was ~~$300.3~~$799.3 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2021, compared to ~~$204.0~~$824.0 million in the same period a year ago. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, we sold ~~$107.7~~$287.7 million in multifamily loans compared to ~~$119.7~~$231.4 million for the same period last year. Loans held for sale at ~~March 31,~~September 30, 2021 included ~~$54.5~~$9.7 million of multifamily loans and ~~$80.8~~$54.0 million of one- to four-family residential mortgage loans compared to ~~$105.4~~$60.8 million of multifamily loans and ~~$77.1~~$125.2 million of one- to four-family residential mortgage loans at ~~March 31,~~September 30, 2020.

5761

The following table presents loans by geographic concentration at ~~March 31,~~September 30, 2021, December 31, 2020 and ~~March 31,~~September 30, 2020 (dollars in thousands):


		Mar 31, 2021				Dec 31, 2020		Mar 31, 2020		Percentage Change					Sep 30, 2021				Dec 31, 2020		Sep 30, 2020		Percentage Change
		Amount		Percentage		Amount		Amount		Prior Year End		Prior Year Qtr			Amount		Percentage		Amount		Amount		Prior Year End		Prior Year Qtr
Washington	Washington	$	4,683,600	47.1	%	$	4,647,553	$	4,350,273	0.8	%	7.7	%	Washington	$	4,319,008	46.9	%	$	4,647,553	$	4,767,113	(7.1)	%	(9.4)	%
California	California	2,320,384		23.3		2,279,749		2,140,895		1.8		8.4		California	2,160,280		23.4		2,279,749		2,316,739		(5.2)		(6.8)
Oregon	Oregon	1,801,104		18.1		1,792,156		1,664,652		0.5		8.2		Oregon	1,679,452		18.2		1,792,156		1,858,465		(6.3)		(9.6)
Idaho	Idaho	539,061		5.4		537,996		524,663		0.2		2.7		Idaho	536,128		5.8		537,996		576,983		(0.3)		(7.1)
Utah	Utah	92,399		0.9		80,704		52,747		14.5		75.2		Utah	89,620		1.0		80,704		76,314		11.0		17.4
Other	Other	511,149		5.2		532,824		552,514		(4.1)		(7.5)		Other	433,896		4.7		532,824		568,303		(18.6)		(23.7)
Total loans receivable	Total loans receivable	$	9,947,697	100.0	%	$	9,870,982	$	9,285,744	0.8	%	7.1	%	Total loans receivable	$	9,218,384	100.0	%	$	9,870,982	$	10,163,917	(6.6)	%	(9.3)	%

Investment Securities: Our total investment in securities increased ~~$687.4 million~~$1.15 billion to ~~$3.46~~$3.92 billion at ~~March 31,~~September 30, 2021 from December 31, 2020. Securities purchased increased during the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2021, as we deployed excess balance sheet liquidity. Purchases were primarily in securities issued by government-sponsored entities. The average effective duration of Banner’s securities portfolio was approximately ~~5.2~~4.4 years at ~~March 31,~~September 30, 2021. Net fair value adjustments to the portfolio of securities held for trading, which were included in net income, were an increase of ~~$59,000~~$1.9 million in the ~~three~~nine months ended ~~March 31,~~September 30, 2021. In addition, fair value adjustments for securities designated as available-for-sale reflected a decrease of ~~$73.1~~$62.7 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2021, which was included net of the associated tax ~~expense~~benefit of ~~$17.5~~$15.1 million as a component of other comprehensive income, and largely occurred as a result of ~~increased~~decreased market yields and spreads on certain types of securities. (See Note 3 of the Selected Notes to the Consolidated Financial Statements in this Form 10-Q.) The Company held ~~no equity~~$300.0 million of securities purchased under resell agreements at ~~March 31,~~September 30, 2021 compared to none at December ~~31, 2020 and March~~ 31, 2020.

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

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, 2021		Dec 31, 2020		Mar 31, 2020		Prior Year End		Prior Year Quarter			Sep 30, 2021		Dec 31, 2020		Sep 30, 2020		Prior Year End		Prior Year Quarter
Non-interest-bearing	Non-interest-bearing	$	5,994,693	$	5,492,924	$	4,107,262	9.1	%	46.0	%	Non-interest-bearing	$	6,400,864	$	5,492,924	$	5,412,570	16.5	%	18.3	%
Interest-bearing checking	Interest-bearing checking	1,722,085		1,569,435		1,331,860		9.7		29.3		Interest-bearing checking	1,799,657		1,569,435		1,434,224		14.7		25.5
Regular savings accounts	Regular savings accounts	2,597,731		2,398,482		1,997,265		8.3		30.1		Regular savings accounts	2,773,995		2,398,482		2,332,287		15.7		18.9
Money market accounts	Money market accounts	2,327,380		2,191,135		1,846,844		6.2		26.0		Money market accounts	2,339,107		2,191,135		2,120,908		6.8		10.3
Interest-bearing transaction & savings accounts	Interest-bearing transaction & savings accounts	6,647,196		6,159,052		5,175,969		7.9		28.4		Interest-bearing transaction & savings accounts	6,912,759		6,159,052		5,887,419		12.2		17.4
Total core deposits	Total core deposits	12,641,889		11,651,976		9,283,231		8.5		36.2		Total core deposits	13,313,623		11,651,976		11,299,989		14.3		17.8
Interest-bearing certificates	Interest-bearing certificates	906,978		915,320		1,166,306		(0.9)		(22.2)		Interest-bearing certificates	851,054		915,320		915,352		(7.0)		(7.0)
Total deposits	Total deposits	$	13,548,867	$	12,567,296	$	10,449,537	7.8	%	29.7	%	Total deposits	$	14,164,677	$	12,567,296	$	12,215,341	12.7	%	16.0	%

Total deposits were ~~$13.55~~$14.16 billion at ~~March 31,~~September 30, 2021, compared to $12.57 billion at December 31, 2020 and ~~$10.45~~$12.22 billion a year ago. The ~~$981.6 million~~$1.60 billion increase in total deposits compared to December 31, 2020 ~~primarily~~ reflects a ~~$989.9 million~~$1.66 billion increase in core deposits. The increase in total deposits from year end was due primarily to SBA PPP loan funds deposited into client accounts, fiscal stimulus payments, and an increase in client deposit accounts due to reduced business investment and changes in consumer spending habits during the COVID-19 pandemic. Non-interest-bearing account balances increased 9%17% to ~~$5.99~~$6.40 billion at ~~March 31,~~September 30, 2021, compared to $5.49 billion at December 31, 2020, and increased ~~46%~~18% compared to ~~$4.11~~$5.41 billion a year ago. Interest-bearing transaction and savings accounts increased 8%12% to ~~$6.65~~$6.91 billion at ~~March 31,~~September 30, 2021, compared to $6.16 billion at December 31, 2020, and increased ~~28%~~17% compared to ~~$5.18~~$5.89 billion a

year ago. Certificates of deposit decreased 1%7% to ~~$907.0~~$851.1 million at ~~March 31,~~September 30, 2021, compared to $915.3 million at December 31, 2020 and decreased ~~22%~~7% compared to ~~$1.17 billion~~$915.4 million a

year ago. We had no brokered deposits at ~~March 31,~~September 30, 2021, or December 31, 2020, ~~compared to $251.0 million at March 31,~~or September 30, 2020. Core deposits represented ~~93%~~94% of total deposits at ~~both March 31,~~September 30, 2021, ~~and~~compared to 93% at December 31, 2020.

The following table presents deposits by geographic concentration at ~~March 31,~~September 30, 2021, December 31, 2020 and ~~March 31,~~September 30, 2020 (dollars in thousands):

Mar 31, 2021 Dec 31, 2020 Mar 31, 2020 Percentage Change
Amount Percentage Amount Amount Prior Year End Prior Year Quarter
Washington(1)
$ 7,504,389 55.4 % $ 7,058,404 $ 6,037,864 6.3 % 24.3 %
Oregon 2,929,027 21.6 2,604,908 2,093,738 12.4 39.9
California 2,401,299 17.7 2,237,949 1,828,064 7.3 31.4
Idaho 714,152 5.3 666,035 489,871 7.2 45.8
Total deposits $ 13,548,867 100.0 % $ 12,567,296 $ 10,449,537 7.8 % 29.7 %

~~(1)Includes brokered deposits.~~


	Sep 30, 2021				Dec 31, 2020		Sep 30, 2020		Percentage Change
	Amount		Percentage		Amount		Amount		Prior Year End		Prior Year Quarter
Washington	$	7,877,919	55.6	%	$	7,058,404	$	6,820,329	11.6	%	15.5	%
Oregon	3,030,109		21.4		2,604,908		2,486,760		16.3		21.8
California	2,501,521		17.7		2,237,949		2,254,681		11.8		10.9
Idaho	755,128		5.3		666,035		653,571		13.4		15.5

Total deposits	$	14,164,677	100.0	%	$	12,567,296	$	12,215,341	12.7	%	16.0	%

Borrowings: FHLB advances decreased to ~~$100.0~~$50.0 million at ~~March 31,~~September 30, 2021 from $150.0 million at December 31, 2020 as increased core deposits were ~~used~~sufficient to fund our asset growth, primarily growth in ~~loans and~~ the securities ~~portfolios.~~portfolio. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, increased ~~$31.5~~$62.6 million, or ~~17%~~34%, to ~~$216.3~~$247.4 million at ~~March 31,~~September 30, 2021, compared to $184.8 million at December 31, 2020. On June 30, 2020, Banner issued and sold in an underwritten offer ~~the Subordinated Notes,~~subordinated notes, resulting in net proceeds, after underwriting discounts and offering expenses, of $98.1 million. No additional junior subordinated debentures were issued or matured during the ~~three~~nine months ended ~~March 31,~~September 30, 2021; however, the estimated fair value of these instruments increased by ~~$274,000,~~$7.9 million, reflecting tighter market spreads. Junior subordinated debentures totaled ~~$117.2~~$124.9 million at ~~March 31,~~September 30, 2021 compared to $117.0 million at December 31, 2020.

Shareholders’ Equity: Total shareholders’ equity ~~decreased $47.4 million to $1.62 billion at March 31, 2021 compared~~increased $855,000 to $1.67 billion at ~~December 31, 2020.~~September 30, 2021. The ~~decrease~~increase in shareholders’ equity is primarily due to the ~~accrual of $14.6~~$151.1 million of ~~cash dividends to common shareholders,~~year-to-date net income, partially offset by the ~~repurchase of 500,000 shares of common stock at a total cost of $25.3 million and the $56.1~~$54.1 million decrease in accumulated other comprehensive income, primarily representing the decrease in the fair value of securities available-for-sale, net of tax, ~~reflects~~the accrual of $43.4 million of cash dividends to common shareholders and the ~~increase in the fair value~~repurchase of ~~junior subordinated debentures. These decreases were partially offset by $46.9 million~~1,050,000 shares of ~~year-to-date net income.~~common stock at a total cost of $56.5 million. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, no shares of restricted stock were forfeited and ~~49,003~~59,550 shares were 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.) Tangible common shareholders’ equity, which excludes goodwill and other intangible assets, ~~decreased $45.7~~increased $5.9 million to ~~$1.23~~$1.28 billion, or ~~7.80%~~7.86% of tangible assets at ~~March 31,~~September 30, 2021, compared to $1.27 billion, or 8.69% of tangible assets at December 31, 2020. The decrease in tangible common shareholders’ equity as a percentage of tangible assets was primarily due to the increase in tangible assets, ~~including~~due to an increase in excess liquidity primarily in the ~~PPP loans,~~form of interest bearing deposits and securities. ~~The decrease in shareholders’ equity also contributed to the decline.~~

Comparison of Results of Operations for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020

For the quarter ended ~~March 31,~~September 30, 2021, our net income was ~~$46.9~~$49.9 million, or ~~$1.33~~$1.44 per diluted share, compared to ~~$16.9~~$36.5 million, or ~~$0.47~~$1.03 per diluted share, for the quarter ended ~~March 31,~~September 30, 2020. For the nine months ended September 30, 2021 our net income was $151.1 million, or $4.32 per diluted share, compared to net income of $77.0 million, or $2.17 per diluted share for the same period a year earlier. Our net income for the current quarter ~~ended March 31, 2021~~ was positively impacted by increased ~~mortgage banking~~net interest income ~~decreased funding costs,~~ and decreased non-interest expense, which included $148,000 of COVID-19 related expenses and $571,000 of acquisition-related expenses. The results for the quarter ended March 31, 2021 were also positively impacted by an $9.3 milliona recapture of provision for credit losses, ~~during the current quarter due to an improvement in forecasted economic conditions and~~partially offset by a decrease in ~~loan balances, excluding~~mortgage banking income and increased non-interest expense. Our net income for the ~~increase in PPP loans. These changes were~~nine months ended September 30, 2021 included a recapture of provision for credit losses of $28.1 million and decreased funding costs, partially offset by decreased mortgage banking income and reduced interest income due to lower yields on total interest earning assets. Our results for the nine months ended September 30, 2021 included $309,000 of COVID-19 related expenses and $660,000 of acquisition-related expenses. This compares to $3.2 million of COVID-19 related expenses and $1.5 million of acquisition-related expenses for the nine months ended September 30, 2020.

~~The decline~~An acceleration of deferred loan fee income due to SBA PPP loan repayments from SBA loan forgiveness coupled with growth in the ~~yield on interest-earning assets, partially offset by growth in~~balance of average interest-earning assets and decreased funding costs, partially offset by the decline in the average yield on interest-earning assets, produced ~~decreased~~increased net interest ~~income. This decrease was offset by increased mortgage banking~~ income ~~and a $4.7 million improvement in fair value adjustments resulting in non-interest income increasing~~ for the quarter and nine months ended ~~March 31,~~September 30, 2021 compared to the same ~~period~~periods a year earlier. The increase in net interest income, partially offset by decreased mortgage banking income, resulted in revenues increasing for the quarter and nine months ended September 30, 2021, compared to the same periods a year earlier. Banner recorded an ~~$9.3~~$8.6 million recapture of provision for credit losses for the quarter ended ~~March 31,~~September 30, 2021, compared to a ~~$23.5~~$15.2 million provision for credit losses in the same quarter a year ago. The recapture of provision for credit losses for the current quarter primarily reflects ~~the~~an improvement in forecasted economic conditions and a decrease in ~~loan balances, excluding the increase in PPP loans, as well as improvement in the forecasted economic indicators.~~adversely classified loans. Non-interest expenses ~~decreased~~increased in the quarter and nine months ended ~~March 31,~~September 30, 2021 compared to the same ~~period~~periods a year ~~ago, reflecting~~ago. The increase in non-interest expense for the quarter and nine months ended September 30, 2021, compared to the same periods a year earlier was primarily due to increases in professional and legal expenses, primarily due to increased ~~capitalized loan origination costs, primarily~~consultant expense related to ~~the origination of PPP loans during the current quarter, partially offset by~~Banner Forward, expenses for litigation matters as well as increased ~~salary~~payment and ~~employee benefits~~card processing services expense.

Our adjusted earnings, 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 and related tax expenses or benefits, were ~~$47.0~~$54.3 million, or ~~$1.33~~$1.57 per diluted share, for the quarter ended ~~March 31,~~September 30, 2021, compared to ~~$21.4~~$36.6 million, or ~~$0.60~~$1.04 per diluted share, for the quarter ended ~~March 31,~~September 30, 2020. For the nine months ended September 30, 2021, our adjusted earnings were $157.9 million, or $4.51 per diluted share, compared with $81.7 million, or $2.30 per diluted share, for the same period a year earlier.

Net Interest Income. Net interest income ~~decreased~~increased by ~~$1.6~~$9.1 million, or 1%8%, to ~~$117.7~~$130.1 million for the quarter ended ~~March 31,~~September 30, 2021, compared to ~~$119.3~~$121.0 million for the same quarter one year earlier, due to ~~lower~~an acceleration of deferred loan fee income due to SBA PPP loan repayments from SBA loan forgiveness resulting in an increase in average loan yields, ~~on average interest-earning assets, partially offset by~~ decreases in the cost of funding liabilities and an increase of ~~$2.69~~$1.93 billion in the average balance of interest-earning assets, partially offset by lower yields on other average interest-earning assets. The lower yields reflect the growth in the average balance of interest-earning assets ~~reflects the origination of PPP loans as well as increases~~primarily being invested in short term investments including interest bearing deposits and securities available for sale. The net interest margin on a tax equivalent basis of ~~3.44%~~3.47% for the quarter ended ~~March 31,~~September 30, 2021 was enhanced by ~~five~~three basis points as a result of acquisition accounting adjustments. This compares to a net interest margin on a tax equivalent basis of ~~4.25%~~3.72% for the quarter ended ~~March 31,~~September 30, 2020, which included ~~ten~~seven basis points from acquisition accounting adjustments. The decrease in net interest margin compared to a year earlier primarily reflects lower yields on average interest-earning assets and a larger percentage of interest-earnings assets being invested in short term investments, partially offset by decreases in the cost of funding liabilities. The lower yields on average interest-earning assets compared to a year earlier were largely due to the impact of decreases to the targeted Fed Funds Rate during the first quarter of 2020, resulting in a prolonged low rate environment which resulted in the yields on adjustable rate loan repricing lower and the yields on new ~~origination~~loan originations and security purchases being lower than the existing ~~loan portfolio.~~portfolios as well as a higher percentage of assets being invested in low yielding short term investments. The decrease in interest-earnings asset yields were partially offset by decreases in the costs of funding liabilities compared to a year earlier which were also largely due to the ~~impact~~prolonged low rate environment.

Net interest income for the nine months ended September 30, 2021 increased by $15.5 million, or 4%, to $375.4 million compared to $359.9 million for the same period one year earlier, as a result of a $2.27 billion increase in average interest-earning assets and the decreases in the cost of funding liabilities. The net interest margin on a tax equivalent basis decreased to 3.48% for the ~~targeted Fed Funds Rate.~~nine months ended September 30, 2021 compared to 3.93% for the same period in the prior year, as a result of lower yields on interest-earning assets. The net interest margin included three basis points of accretion acquisition accounting adjustments for the nine months ended September 30, 2021 and eight basis points of accretion acquisition accounting adjustments for the nine months ended September 30, 2020.

Interest Income. Interest income for the quarter ended ~~March 31,~~September 30, 2021 was ~~$124.5~~$135.9 million, compared to ~~$131.7~~$129.6 million for the same quarter in the prior year, ~~a decrease~~an increase of ~~$7.1~~$6.3 million, or 5%. The ~~decrease~~increase in interest income occurred as a result of an acceleration of deferred loan fee income due to SBA PPP loan repayments from SBA loan forgiveness, increases in the average balances of investment securities, partially offset by the decrease in the yield on total interest-earning ~~assets, partially offset by increases in the average balances of both loans and investment securities.~~assets. The average balance of interest-earning assets was ~~$14.14~~$15.13 billion for the quarter ended ~~March 31,~~September 30, 2021, compared to ~~$11.44~~$13.21 billion for the same period a year earlier. The average yield on total interest-earning assets was ~~3.64%~~3.62% for the quarter ended ~~March 31,~~September 30, 2021, compared to ~~4.69%~~3.98% for the same quarter one year earlier. ~~The~~This decrease in average yield between periods reflects a ~~65 basis-point decrease in the average yield on loans and a 110~~58 basis-point decrease in the average yield on investment ~~securities.~~securities, as a larger percentage of interest earning assets were invested in low yielding short term investments partially offset by a 41 basis-point increase in the average yield on loans due to the previously mentioned acceleration of deferred loan fee income. Average loans receivable for the quarter ended ~~March 31,~~September 30, 2021 ~~increased $573.3~~decreased $920.8 million, or 6%9%, to ~~$10.08~~$9.58 billion, compared to ~~$9.51~~$10.50 billion for the same quarter in the prior ~~year.~~year reflecting the forgiveness of SBA PPP loans. Interest income on loans decreased by ~~$10.0 million, or 8%,~~$229,000 to ~~$108.9~~$116.5 million for the current quarter from ~~$118.9~~$116.7 million for the quarter ended ~~March 31,~~September 30, 2020, reflecting the impact of the previously mentioned decrease in ~~loan yields.~~the average balance of loans receivable. The ~~decrease~~increase in average loan yields reflects the ~~impact of lower interest rates as well as the impact of the low loan yields~~yield on SBA PPP loans increasing to 10.80% for the quarter ended September 30, 2021, compared to 2.73% for the same quarter in the prior year, as a result of an acceleration of deferred loan fee income due to SBA PPP loan ~~portfolio.~~repayments from SBA loan forgiveness during the current quarter. The acquisition accounting loan discount accretion and the related balance sheet impact added ~~seven~~five basis points to the current ~~quarter~~quarter’s average loan yield, compared to 12nine basis points for the same quarter one year earlier.

The combined average balance of mortgage-backed securities, other investment securities, equity securities, ~~daily~~ interest-bearing deposits and FHLB stock (total investment securities or combined portfolio) increased to ~~$4.05~~$5.55 billion for the quarter ended ~~March 31,~~September 30, 2021 (excluding the effect of fair value adjustments), compared to ~~$1.93~~$2.70 billion for the quarter ended ~~March 31,~~September 30, 2020; and the interest and dividend income from those investments increased by ~~$2.9~~$6.5 million compared to the same quarter in the prior year. The average yield on the combined portfolio decreased to ~~1.66%~~1.46% for the quarter ended ~~March 31,~~September 30, 2021, from ~~2.76%~~2.04% for the same quarter one year earlier. The decrease in average yield reflects the overall decline in market interest rates as well as the investment of excess liquidity in short term investments.

Interest income for the nine months ended September 30, 2021 was $394.0 million, compared to $390.0 million for the same period in the prior year, an increase of $4.0 million. The nine months results primarily reflect increases in the average balances of investment securities, partially offset by a decrease in the average yield on interest-earning assets.

Interest Expense. Interest expense for the quarter ended ~~March 31,~~September 30, 2021 was ~~$6.9~~$5.7 million, compared to ~~$12.4~~$8.6 million for the same quarter in the prior year. The interest expense decrease between periods reflects ~~a 25~~an 11 basis-point decrease in the average cost of all funding liabilities, partially offset by a ~~$2.70~~$1.91 billion, or ~~25%~~15%, increase in the average balance of funding liabilities.

Interest expense for the nine months ended September 30, 2021 was $18.6 million, compared to $30.1 million for the same period in the prior year. As with the quarterly results, the nine month results reflect a 16 basis-point decrease in the average cost of all funding liabilities, partially offset by a $2.25 billion or 19%, increase in the average balance of funding liabilities.

Deposit interest expense decreased ~~$5.1~~$2.4 million, or ~~59%~~47%, to ~~$3.6~~$2.7 million for the quarter ended ~~March 31,~~September 30, 2021, compared to ~~$8.8~~$5.2 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. The average rate paid on total deposits decreased to ~~0.11%~~0.08% in the ~~first~~third quarter of 2021 from ~~0.35%~~0.17% for the quarter ended ~~March 31,~~September 30, 2020, primarily reflecting decreases in the costs of interest-bearing checking, money market, savings, and certificates of deposit accounts, as well as an increase in the percentage of ~~core~~non-interest bearing deposits. The cost of interest-bearing deposits decreased by 3717 basis points to ~~0.20%~~0.14% for the quarter ended ~~March 31,~~September 30, 2021 compared to ~~0.57%~~0.31% in the same quarter a year earlier. Average deposit balances increased to ~~$12.92~~$13.95 billion for the quarter ended ~~March 31,~~September 30, 2021, from ~~$10.14~~$12.07 billion for the quarter ended ~~March 31,~~September 30, 2020.

Deposit interest expense decreased $11.2 million or 54%, to $9.4 million for the nine months ended September 30, 2021, compared to $20.6 million for the same period in the prior year. Average deposit balances increased to $13.50 billion for the nine months ended September 30, 2021, from $11.23 billion for the same period a year earlier, while the average rate paid on deposits decreased to 0.09% in the nine months ended September 30, 2021 from 0.25% in the nine months ended September 30, 2020. The cost of interest-bearing deposits decreased by 25 basis points to 0.17% for the nine months ended September 30, 2021 compared to 0.42% in the same period a year earlier.

The decrease in the cost of interest-bearing deposits between the periods was driven by market and competitive factors ~~as a result of~~in response to the decreases in the target Fed Funds Rate ~~over~~last year as changes in market yields typically lag changes in the ~~last year.~~Fed Funds Rate.

~~Average~~Interest expense on total borrowings ~~were $595.3~~decreased to $3.0 million for the quarter ended ~~March 31,~~September 30, 2021 from $3.4 million for the quarter ended September 30, 2020. The decrease was primarily due to decreases in the average rate paid on total borrowings and in the average balance of FHLB advances. The average rate paid on total borrowings for the quarter ended September 30, 2021 decreased to 1.97% from 2.33% for the same quarter one year earlier. Average total borrowings were $599.0 million for the quarter ended September 30, 2021, compared to ~~$678.1~~$575.6 million for the same quarter one year earlier.

Interest expense on total borrowings decreased to $9.2 million for the nine months ended September 30, 2021 from $9.5 million for the nine months ended September 30, 2020. Average total borrowings were $594.2 million for the nine months ended September 30, 2021, compared to $614.8 million for the same period a year earlier and the average rate paid on total borrowings was 2.07% for both the ~~quarter~~nine months ended ~~March 31,~~September 30, 2021 increased to 2.21% from 2.17% for the same quarter one year earlier. The decrease in average total borrowings for the quarter ended March 31, 2021 from the same period a year earlier was primarily due to a $261.0 million decrease in average FHLB advances. The decrease in average FHLB advances was partially offset by the issuance of the subordinated notes in the second quarter of 2020 and an increase in average other borrowings due to increases in retail repurchase agreements primarily related to client cash management accounts. Interest expense on total borrowings decreased to $3.3 million for the quarter ended March 31, 2021 from $3.7 million for the quarter ended March 31,September 30, 2020.

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):

6065


		Three Months Ended March 31, 2021						Three Months Ended March 31, 2020							Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
		Average Balance		Interest and Dividends		Yield/ Cost (3)		Average Balance		Interest and Dividends		Yield/ Cost (3)			Average Balance		Interest and Dividends		Yield/ Cost (3)		Average Balance		Interest and Dividends		Yield/ Cost (3)
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Held for sale loans	Held for sale loans	$	119,341	$	925	3.14	%	$	152,627	$	1,520	4.01	%	Held for sale loans	$	114,938	$	996	3.44	%	$	161,385	$	1,535	3.78	%
Mortgage loans	Mortgage loans	7,144,770		80,580		4.57		7,310,115		93,061		5.12		Mortgage loans	7,245,962		83,803		4.59		7,339,181		88,011		4.77
Commercial/agricultural loans	Commercial/agricultural loans	2,691,554		26,711		4.02		1,884,006		22,959		4.90		Commercial/agricultural loans	1,534,978		15,776		4.08		1,721,186		18,553		4.29
SBA PPP loans														SBA PPP loans	566,515		15,421		10.80		1,141,105		7,843		2.73
Consumer and other loans	Consumer and other loans	127,469		1,947		6.19		163,098		2,595		6.40		Consumer and other loans	120,112		1,774		5.86		140,493		2,195		6.22
Total loans(1)(3)	Total loans(1)(3)	10,083,134		110,163		4.43		9,509,846		120,135		5.08		Total loans(1)(3)	9,582,505		117,770		4.88		10,503,350		118,137		4.47
Mortgage-backed securities	Mortgage-backed securities	1,953,820		9,472		1.97		1,354,585		9,236		2.74		Mortgage-backed securities	2,560,027		11,820		1.83		1,250,759		7,333		2.33
Other securities	Other securities	1,048,856		6,687		2.59		458,116		3,310		2.91		Other securities	1,491,035		7,873		2.09		884,916		6,036		2.71
Equity securities	Equity securities	1,742		—		—		—		—		—		Equity securities	—		—		—		379,483		186		0.19
Interest-bearing deposits with banks	Interest-bearing deposits with banks	1,032,138		262		0.10		92,659		393		1.71		Interest-bearing deposits with banks	1,486,839		586		0.16		171,894		123		0.28
FHLB stock	FHLB stock	15,952		161		4.09		26,522		322		4.88		FHLB stock	13,957		135		3.84		16,363		163		3.96
Total investment securities (3)	Total investment securities (3)	4,052,508		16,582		1.66		1,931,882		13,261		2.76		Total investment securities (3)	5,551,858		20,414		1.46		2,703,415		13,841		2.04
Total interest-earning assets	Total interest-earning assets	14,135,642		126,745		3.64		11,441,728		133,396		4.69		Total interest-earning assets	15,134,363		138,184		3.62		13,206,765		131,978		3.98
Non-interest-earning assets	Non-interest-earning assets	1,237,281						1,193,256						Non-interest-earning assets	1,301,383						1,259,816
Total assets	Total assets	$	15,372,923					$	12,634,984					Total assets	$	16,435,746					$	14,466,581
Deposits:	Deposits:													Deposits:
Interest-bearing checking accounts	Interest-bearing checking accounts	$	1,616,824	315		0.08		$	1,266,647	469		0.15		Interest-bearing checking accounts	$	1,771,869	282		0.06		$	1,413,085	321		0.09
Savings accounts	Savings accounts	2,486,820		521		0.08		2,039,857		1,755		0.35		Savings accounts	2,721,028		458		0.07		2,251,294		813		0.14
Money market accounts	Money market accounts	2,242,748		775		0.14		1,743,118		2,439		0.56		Money market accounts	2,322,453		668		0.11		2,096,037		1,224		0.23
Certificates of deposit	Certificates of deposit	913,053		1,998		0.89		1,124,994		4,087		1.46		Certificates of deposit	863,971		1,341		0.62		966,028		2,821		1.16
Total interest-bearing deposits	Total interest-bearing deposits	7,259,445		3,609		0.20		6,174,616		8,750		0.57		Total interest-bearing deposits	7,679,321		2,749		0.14		6,726,444		5,179		0.31
Non-interest-bearing deposits	Non-interest-bearing deposits	5,663,820		—		—		3,965,380		—		—		Non-interest-bearing deposits	6,275,634		—		—		5,340,688		—		—
Total deposits	Total deposits	12,923,265		3,609		0.11		10,139,996		8,750		0.35		Total deposits	13,954,955		2,749		0.08		12,067,132		5,179		0.17
Other interest-bearing liabilities:	Other interest-bearing liabilities:													Other interest-bearing liabilities:
FHLB advances	FHLB advances	144,444		934		2.62		405,429		2,064		2.05		FHLB advances	98,370		655		2.64		150,000		988		2.62
Other borrowings	Other borrowings	202,930		109		0.22		124,771		116		0.37		Other borrowings	252,720		125		0.20		177,628		128		0.29
Subordinated debt	Subordinated debt	247,944		2,208		3.61		147,944		1,477		4.02		Subordinated debt	247,944		2,193		3.51		247,944		2,260		3.63
Total borrowings	Total borrowings	595,318		3,251		2.21		678,144		3,657		2.17		Total borrowings	599,034		2,973		1.97		575,572		3,376		2.33
Total funding liabilities	Total funding liabilities	13,518,583		6,860		0.21		10,818,140		12,407		0.46		Total funding liabilities	14,553,989		5,722		0.16		12,642,704		8,555		0.27
Other non-interest-bearing liabilities (2)	Other non-interest-bearing liabilities (2)	207,560						212,162						Other non-interest-bearing liabilities (2)	202,918						193,256
Total liabilities	Total liabilities	13,726,143						11,030,302						Total liabilities	14,756,907						12,835,960
Shareholders’ equity	Shareholders’ equity	1,646,780						1,604,682						Shareholders’ equity	1,678,839						1,630,621
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	15,372,923					$	12,634,984					Total liabilities and shareholders’ equity	$	16,435,746					$	14,466,581
Net interest income/rate spread (tax equivalent)	Net interest income/rate spread (tax equivalent)			$	119,885	3.43	%			$	120,989	4.23	%	Net interest income/rate spread (tax equivalent)			$	132,462	3.46	%			$	123,423	3.71	%
Net interest margin (tax equivalent)	Net interest margin (tax equivalent)					3.44	%					4.25	%	Net interest margin (tax equivalent)					3.47	%					3.72	%
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			(2,224)						(1,731)				Adjustments for taxable equivalent basis			(2,316)						(2,397)
Net interest income and margin	Net interest income and margin			$	117,661	3.38	%			$	119,258	4.19	%	Net interest income and margin			$	130,146	3.41	%			$	121,026	3.65	%
Additional Key Financial Ratios:	Additional Key Financial Ratios:													Additional Key Financial Ratios:
Return on average assets	Return on average assets					1.24	%					0.54	%	Return on average assets					1.20	%					1.01	%
Return on average equity	Return on average equity					11.54						4.23		Return on average equity					11.79						8.92
Average equity / average assets	Average equity / average assets					10.71						12.70		Average equity / average assets					10.21						11.27
Average interest-earning assets / average interest-bearing liabilities	Average interest-earning assets / average interest-bearing liabilities					179.96						166.97		Average interest-earning assets / average interest-bearing liabilities					182.82						180.86
Average interest-earning assets / average funding liabilities	Average interest-earning assets / average funding liabilities					104.56						105.76		Average interest-earning assets / average funding liabilities					103.99						104.46
Non-interest income / average assets	Non-interest income / average assets					0.64						0.61		Non-interest income / average assets					0.61						0.78
Non-interest expense / average assets	Non-interest expense / average assets					2.47						2.98		Non-interest expense / average assets					2.47						2.48
Efficiency ratio (4)	Efficiency ratio (4)					65.90						67.52		Efficiency ratio (4)					65.70						60.32
Adjusted efficiency ratio (5)	Adjusted efficiency ratio (5)					63.85						62.26		Adjusted efficiency ratio (5)					59.65						58.02

(1)Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.

(2)Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.

(3)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was ~~$1.2~~$1.3 million for ~~both~~ the three months ended ~~March 31,~~September 30, 2021 and ~~March 31, 2020, respectively.~~$1.4 million for the three months ended September 30, 2020. The tax equivalent yield adjustment to interest earned on tax exempt securities was ~~$985,000~~$1.0 million and ~~$522,000~~$976,000 for the three months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020, 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 non-GAAP financial measures. See the non-GAAP reconciliation tables above under “Executive Overview—Non-GAAP Financial Measures.”

6166


	Nine months ended September 30, 2021						Nine months ended September 30, 2020
	Average Balance		Interest and Dividends		Yield/ Cost (3)		Average Balance		Interest and Dividends		Yield/ Cost (3)
Interest-earning assets:
Held for sale loans	$	101,380	$	2,465	3.25	%	$	155,571	$	4,506	3.87	%
Mortgage loans	7,179,859		245,056		4.56		7,321,206		268,244		4.89
Commercial/agricultural loans	1,511,723		47,513		4.20		1,811,854		61,424		4.53
SBA PPP loans	958,848		44,009		6.14		638,380		13,131		2.75
Consumer and other loans	123,483		5,549		6.01		151,968		7,151		6.29
Total loans(1)(3)	9,875,293		344,592		4.67		10,078,979		354,456		4.70
Mortgage-backed securities	2,320,474		32,855		1.89		1,297,020		24,652		2.54
Other securities	1,265,056		21,648		2.29		710,967		15,205		2.86
Equity securities	574		—		—		165,395		309		0.25
Interest-bearing deposits with banks	1,221,241		1,224		0.13		159,065		688		0.58
FHLB stock	14,629		457		4.18		19,822		785		5.29
Total investment securities (3)	4,821,974		56,184		1.56		2,352,269		41,639		2.36
Total interest-earning assets	14,697,267		400,776		3.65		12,431,248		396,095		4.26
Non-interest-earning assets	1,255,512						1,232,997
Total assets	$	15,952,779					$	13,664,245
Deposits:
Interest-bearing checking accounts	$	1,714,920	899		0.07		$	1,352,369	1,164		0.11
Savings accounts	2,611,046		1,433		0.07		2,133,780		3,566		0.22
Money market accounts	2,284,904		2,111		0.12		1,940,096		5,228		0.36
Certificates of deposit	888,502		4,943		0.74		1,069,145		10,665		1.33
Total interest-bearing deposits	7,499,372		9,386		0.17		6,495,390		20,623		0.42
Non-interest-bearing deposits	6,001,354		—		—		4,738,559		—		—
Total deposits	13,500,726		9,386		0.09		11,233,949		20,623		0.25
Other interest-bearing liabilities:
FHLB advances	114,103		2,244		2.63		236,949		4,036		2.28
Other borrowings	232,142		358		0.21		195,977		482		0.33
Junior subordinated debentures and subordinated notes	247,944		6,605		3.56		181,886		4,988		3.66
Total borrowings	594,189		9,207		2.07		614,812		9,506		2.07
Total funding liabilities	14,094,915		18,593		0.18		11,848,761		30,129		0.34
Other non-interest-bearing liabilities (2)	203,349						197,912
Total liabilities	14,298,264						12,046,673
Shareholders’ equity	1,654,515						1,617,572
Total liabilities and shareholders’ equity	$	15,952,779					$	13,664,245
Net interest income/rate spread (tax equivalent)			$	382,183	3.47	%			$	365,966	3.92	%
Net interest margin (tax equivalent)					3.48	%					3.93	%
Reconciliation to reported net interest income:
Adjustments for taxable equivalent basis			(6,822)						(6,102)
Net interest income and margin			$	375,361	3.41	%			$	359,864	3.87	%
Additional Key Financial Ratios:
Return on average assets					1.27	%					0.75	%
Return on average equity					12.21						6.36
Average equity / average assets					10.37						11.84
Average interest-earning assets / average interest-bearing liabilities					181.59						174.84
Average interest-earning assets / average funding liabilities					104.27						104.92
Non-interest income / average assets					0.60						0.73
Non-interest expense / average assets					2.42						2.68
Efficiency ratio (4)					64.45						63.00
Adjusted efficiency ratio (5)					60.39						59.59

(1)Average balances include loans accounted for on a nonaccrual basis and loans 90 days or more past due. Amortization of net deferred loan fees/costs is included with interest on loans.

(2)Average other non-interest-bearing liabilities include fair value adjustments related to junior subordinated debentures.

(3)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $3.8 million for the nine months ended September 30, 2021 and $3.6 million for the nine months ended September 30, 2020. The tax equivalent yield adjustment to interest earned on tax exempt securities was $3.0 million and $2.5 million for the nine months ended September 30, 2021 and September 30, 2020, respectively.

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

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	ADDITIONAL FINANCIAL INFORMATION											ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)	(dollars in thousands)											(dollars in thousands)
		Quarters Ended									Quarters Ended
CHANGE IN THE	CHANGE IN THE	Mar 31, 2021			December 31, 2020			Mar 31, 2020				CHANGE IN THE	Sep 30, 2021			June 30, 2021			Sep 30, 2020
ALLOWANCE FOR CREDIT LOSSES - LOANS	ALLOWANCE FOR CREDIT LOSSES - LOANS											ALLOWANCE FOR CREDIT LOSSES - LOANS
Balance, beginning of period	Balance, beginning of period	$	167,279		$	167,965		$	100,559			Balance, beginning of period	$	148,009		$	156,054		$	156,352
Beginning balance adjustment for adoption of ASC 326		—			—			7,812
(Recapture)/provision for credit losses - loans		(8,035)			(593)			21,713

(Recapture)/provision for credit losses – loans												(Recapture)/provision for credit losses – loans	(8,850)			(8,100)			13,641
Recoveries of loans previously charged off:	Recoveries of loans previously charged off:											Recoveries of loans previously charged off:
Commercial real estate	Commercial real estate	24			31			167				Commercial real estate	923			147			23

Construction and land		100			—			—

One- to four-family residential	One- to four-family residential	113			194			148				One- to four-family residential	19			20			94
Commercial business	Commercial business	979			2,444			205				Commercial business	230			321			246
Agricultural business, including secured by farmland	Agricultural business, including secured by farmland	—			51			1,750				Agricultural business, including secured by farmland	17			8			—
Consumer	Consumer	296			90			96				Consumer	227			97			82
		1,512			2,810			2,366					1,416			593			445
Loans charged off:	Loans charged off:											Loans charged off:
Commercial real estate	Commercial real estate	(3,763)			(1,375)			(100)				Commercial real estate	—			(3)			(379)
Multifamily real estate		—			—			(66)

One- to four-family residential	One- to four-family residential	—			—			(64)				One- to four-family residential	—			—			(72)
Commercial business	Commercial business	(789)			(1,019)			(1,384)				Commercial business	(362)			(123)			(1,297)
Agricultural business, including secured by farmland	Agricultural business, including secured by farmland	—			(37)			—				Agricultural business, including secured by farmland	(179)			(2)			(492)
Consumer	Consumer	(150)			(472)			(348)				Consumer	(119)			(410)			(233)
		(4,702)			(2,903)			(1,962)					(660)			(538)			(2,473)
Net (charge-offs)/recoveries		(3,190)			(93)			404
Net recoveries (charge-offs)												Net recoveries (charge-offs)	756			55			(2,028)
Balance, end of period	Balance, end of period	$	156,054		$	167,279		$	130,488			Balance, end of period	$	139,915		$	148,009		$	167,965
Net charge-offs / Average loans receivable		(0.032)		%	(0.001)		%	0.004		%
Net recoveries (charge-offs) / Average loans receivable												Net recoveries (charge-offs) / Average loans receivable	0.008		%	0.001		%	(0.019)		%

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 three months ended ~~March 31,~~September 30, 2021, we recorded a recapture of provision for credit losses - loans of ~~$8.0~~$8.9 million, compared to a recapture of provision for credit losses - loans of ~~$593,000~~$8.1 million during the prior quarter and a provision for credit losses - loans of ~~$21.7~~$13.6 million during the quarter a year ago. The recapture of provision for credit losses - loans for the current quarter and prior quarter primarily reflects ~~the decrease in loan balances, excluding the increase in PPP loans, as well as~~ improvement in the forecasted economic indicators ~~including unemployment, gross domestic product, residential real estate prices~~ and ~~consumer confidence, while the recapture of the provision for credit losses recorded in the preceding quarter primarily reflected the~~a decrease in ~~loan balances.~~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 nationally forecasted economic indicators. The provision for credit losses recorded in the ~~first~~third quarter a year ago reflected the deterioration in forecasted economic indicators, including higher forecasted unemployment rates and ~~the economic outlook that existed at March 31, 2020~~lower gross domestic product as a result of the COVID-19 pandemic as well as risk rating downgrades on loans that were considered at heightened risk due to the COVID-19 pandemic. Future assessments of the expected credit losses will not only be impacted by changes to the reasonable and supportable forecast, but will also include an updated assessment of qualitative factors, as well as consideration of any required changes in the reasonable and supportable forecast reversion period. No allowance for credit losses-loans was recorded on the ~~$1.32 billion~~$310.2 million balance of SBA PPP loans at ~~March 31,~~September 30, 2021 as these loans are fully guaranteed by the SBA.

Net loan ~~charge-offs~~recoveries were ~~$3.2 million~~$756,000 for the quarter ended ~~March 31,~~September 30, 2021 compared to net loan ~~recoveries~~charge-offs of ~~$404,000~~$2.0 million for the same quarter in the prior year. The allowance for credit losses - loans was ~~$156.1~~$139.9 million at ~~March 31,~~September 30, 2021 compared to ~~$167.3~~$148.0 million at ~~December 31, 2020~~June 30, 2021 and ~~$130.5~~$168.0 million at ~~March 31,~~September 30, 2020. The allowance for credit losses - loans as a percentage of total loans (loans receivable excluding allowance for credit losses) was ~~1.57%~~1.52% at ~~March 31,~~September 30, 2021 as compared to ~~1.69%~~1.53% at ~~December 31, 2020~~June 30, 2021 and ~~1.41%~~1.65% at ~~March 31,~~September 30, 2020. The decrease in the allowance for credit losses - loans as a percentage of loans at September 30, 2021 compared to September 30, 2020 reflects the recapture of provision for credit losses - loans recorded during ~~the current and prior quarters,~~2021, primarily as the result of the improvement in the forecasted economic indicators as well as the decrease in ~~loan balances, excluding PPP~~adversely classified loans.

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, 2021 Mar 31, 2020
ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS
Balance, beginning of period $ 13,297 $ 2,716
Beginning balance adjustment for adoption of ASC 326 — 7,022
(Recapture)/provision for credit losses - unfunded loan commitments (1,220) 1,722
Balance, end of period $ 12,077 $ 11,460


	Quarters Ended		Nine Months Ended
CHANGE IN THE	Sep 30, 2021		Sep 30, 2020		Sep 30, 2021		Sep 30, 2020
ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS
Balance, beginning of period	$	9,909	$	10,555	$	13,297	$	2,716
Beginning balance adjustment for adoption of ASC 326	—		—		—		7,022
Provision/(recapture) for credit losses - unfunded loan commitments	218		1,539		(3,170)		2,356

Balance, end of period	$	10,127	$	12,094	$	10,127	$	12,094

The allowance for credit losses - unfunded loan commitments was $10.1 million at September 30, 2021 compared to $12.1 million at ~~March 31, 2021 compared to $11.5 million at March 31,~~September 30, 2020. The decrease in the allowance for credit losses - unfunded loan commitments reflects the recapture of provision for credit losses - unfunded loan commitments recorded during the ~~quarter.~~nine months ended September 30, 2021. During the quarter ended ~~March 31,~~September 30, 2021, we recorded a provision for credit losses - unfunded loan commitments of $218,000, compared to a $1.5 million provision for loan losses - unfunded loan commitments during the comparable quarter a year ago. During the nine months ended September 30, 2021, we recorded a recapture of provision for credit losses - unfunded loan commitments of ~~$1.2~~$3.2 million, compared to a ~~$1.7~~provision for loan losses - unfunded loan commitments of $2.4 million ~~provision~~ during the ~~quarter~~same period a year ~~ago.~~earlier. The recapture of provision for credit losses - unfunded loan commitments for the ~~current quarter~~nine months ended September 30, 2021 was primarily the result of an improvement in the forecasted economic indicators.

Non-interest Income. The following table presents the key components of non-interest income for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 (dollars in thousands):


		Three months ended March 31,								Three months ended September 30,				Nine months ended September 30,
		2021		2020		Change Amount		Change Percent				2021		2020		Change Amount		Change Percent		2021		2020		Change Amount		Change Percent
Deposit fees and other service charges	Deposit fees and other service charges	$	8,939	$	9,803	$	(864)	(8.8)	%		Deposit fees and other service charges	$	10,457	$	8,742	$	1,715	19.6	%	$	29,154	$	26,091	$	3,063	11.7	%
Mortgage banking operations	Mortgage banking operations	11,440		10,191		1,249		12.3			Mortgage banking operations	9,752		16,562		(6,810)		(41.1)		28,670		40,891		(12,221)		(29.9)
Bank owned life insurance	Bank owned life insurance	1,307		1,050		257		24.5			Bank owned life insurance	1,245		1,286		(41)		(3.2)		3,797		4,653		(856)		(18.4)
Miscellaneous	Miscellaneous	2,042		2,639		(597)		(22.6)			Miscellaneous	2,046		951		1,095		115.1		7,808		5,017		2,791		55.6
		23,728		23,683		45		0.2				23,500		27,541		(4,041)		(14.7)		69,429		76,652		(7,223)		(9.4)
Net gain on sale of securities	Net gain on sale of securities	485		78		407		nm			Net gain on sale of securities	56		644		(588)		(91.3)		618		815		(197)		(24.2)

Net change in valuation of financial instruments carried at fair value	Net change in valuation of financial instruments carried at fair value	59		(4,596)		4,655		(101.3)			Net change in valuation of financial instruments carried at fair value	1,778		37		1,741		nm		1,895		(2,360)		4,255		(180.3)
Total non-interest income	Total non-interest income	$	24,272	$	19,165	$	5,107	26.6			Total non-interest income	$	25,334	$	28,222	$	(2,888)	(10.2)		$	71,942	$	75,107	$	(3,165)	(4.2)

Non-interest income was ~~$24.3~~$25.3 million for the quarter ended ~~March 31,~~September 30, 2021, compared to ~~$19.2~~$28.2 million for the same quarter in the prior year and $71.9 million for the nine months ended September 30, 2021, compared to $75.1 million for the same period in the prior year. Our non-interest income for the quarter ended ~~March 31,~~September 30, 2021 included a ~~$59,000~~$1.8 million net gain for fair value adjustments and a net gain of ~~$485,000~~$56,000 on sales of securities. For the quarter ended ~~March 31,~~September 30, 2020, fair value adjustments resulted in a net gain of $37,000 and we had a net gain of $644,000 on sale of securities. Our non-interest income for the nine months ended September 30, 2021 included a net gain of $1.9 million for fair value adjustments and a $618,000 net gain on sale of securities. During the nine months ended September 30, 2020, fair value adjustments resulted in a net loss of ~~$4.6~~$2.4 million and we had a $815,000 net gain ~~of $78,000~~ 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 ~~decreased~~increased by ~~$864,000,~~$1.7 million, or 9%20%, for the quarter ended ~~March 31,~~September 30, 2021 and increased $3.1 million, or 12%, for the nine months ended September 30, 2021, compared to the same ~~period~~periods a year ago. The ~~decrease~~increase in deposit fees and other service charges ~~was~~for the quarter and nine months ended September 30, 2021 compared to the same periods a year ago is primarily a result of ~~reduced~~increased transaction deposit account activity ~~since the start of the COVID-19 pandemic.~~and higher fees on certain transactions. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, ~~increased $1.2~~decreased $6.8 million for the quarter ended ~~March 31,~~September 30, 2021 and $12.2 million for the nine months ended September 30, 2021, compared to the same ~~period~~periods a year ago. Gains on sales of multifamily loans in the current quarter resulted in income of ~~$1.7~~$2.4 million for the quarter ended ~~March 31,~~September 30, 2021, compared to ~~$189,000~~$1.1 million for the same period a year ago, and $5.8 million for the nine months ended September 30, 2021, compared to $1.4 million for the same period a year ago. Gains on sales of one- to four-family loans in the current quarter resulted in income of ~~$9.8~~$6.9 million for the quarter ended ~~March 31,~~September 30, 2021, compared to ~~$9.6~~$15.7 million in the same period a year ago, and $22.3 million for the nine months ended September 30, 2021, compared to $39.6 million for the same period a year ago. The ~~higher~~lower mortgage banking revenue reflected ~~an increase~~a decrease in the gain on sale margin on one- to four-family ~~held for~~held-for-sale loans, as well as a reduction in the volume of one- to four-family loans sold, reflecting a decrease in refinance activity, partially offset by higher gains on the sale ~~loans during the quarter compared to the same period a year ago.~~of multifamily held-for-sale loans. Home purchase activity accounted for ~~54%~~68% of one- to four-family mortgage banking loan originations during ~~both~~ the ~~quarters~~quarter ended ~~March 31,~~September 30, 2021, ~~and March 31,~~compared to 56% during the quarter ended September 30, 2020. The ~~increase~~decrease in bank owned life insurance income for quarter and nine months ended ~~March 31,~~September 30, 2021 compared to the same ~~period~~periods a year ago was due to death benefit proceeds ~~received.~~

received in the second quarter of 2020. The increase in miscellaneous income for the quarter and nine months ended September 30, 2021 compared to the same periods a year ago was a result of higher gains on sales of

6369

SBA loans during the current quarter. The increase in miscellaneous income for the nine months ended September 30, 2021 was also impacted by higher gains related to the disposition of closed branch locations.

Non-interest Expense. The following table represents key elements of non-interest expense for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020 (dollars in thousands):


		Three months ended March 31,								Three months ended September 30,				Nine months ended September 30,
		2021		2020		Change Amount		Change Percent				2021		2020		Change Amount		Change Percent		2021		2020		Change Amount		Change Percent
Salaries and employee benefits	Salaries and employee benefits	$	64,819	$	59,908	$	4,911	8.2	%		Salaries and employee benefits	$	59,799	$	61,171	$	(1,372)	(2.2)	%	$	186,553	$	184,494	$	2,059	1.1	%
Less capitalized loan origination costs	Less capitalized loan origination costs	(9,696)		(5,806)		(3,890)		67.0			Less capitalized loan origination costs	(8,290)		(8,517)		227		(2.7)		(26,754)		(25,433)		(1,321)		5.2
Occupancy and equipment	Occupancy and equipment	12,989		13,107		(118)		(0.9)			Occupancy and equipment	13,153		13,022		131		1.0		38,965		39,114		(149)		(0.4)
Information/computer data services	Information/computer data services	6,203		5,810		393		6.8			Information/computer data services	6,110		6,090		20		0.3		17,915		17,984		(69)		(0.4)
Payment and card processing expenses	Payment and card processing expenses	4,326		4,240		86		2.0			Payment and card processing expenses	6,181		4,044		2,137		52.8		15,482		12,135		3,347		27.6
Professional and legal expenses	Professional and legal expenses	3,328		1,919		1,409		73.4			Professional and legal expenses	12,324		2,368		9,956		420.4		20,023		6,450		13,573		210.4
Advertising and marketing	Advertising and marketing	1,263		1,827		(564)		(30.9)			Advertising and marketing	1,521		1,105		416		37.6		3,965		3,584		381		10.6
Deposit insurance expense	Deposit insurance expense	1,533		1,635		(102)		(6.2)			Deposit insurance expense	1,469		1,628		(159)		(9.8)		4,243		4,968		(725)		(14.6)
State/municipal business and use taxes	State/municipal business and use taxes	1,065		984		81		8.2			State/municipal business and use taxes	1,219		1,196		23		1.9		3,367		3,284		83		2.5
REO operations	REO operations	(242)		100		(342)		(342.0)			REO operations	53		(11)		64		(581.8)		(71)		93		(164)		(176.3)
Amortization of core deposit intangibles	Amortization of core deposit intangibles	1,711		2,001		(290)		(14.5)			Amortization of core deposit intangibles	1,575		1,864		(289)		(15.5)		4,997		5,867		(870)		(14.8)
Miscellaneous	Miscellaneous	5,509		6,357		(848)		(13.3)			Miscellaneous	6,977		5,285		1,692		32.0		18,642		16,841		1,801		10.7
		92,808		92,082		726		0.8				102,091		89,245		12,846		14.4		287,327		269,381		17,946		6.7
COVID-19 expenses	COVID-19 expenses	148		239		(91)		(38.1)			COVID-19 expenses	44		778		(734)		(94.3)		309		3,169		(2,860)		(90.2)
Merger and acquisition-related expenses	Merger and acquisition-related expenses	571		1,142		(571)		(50.0)			Merger and acquisition-related expenses	10		5		5		100.0		660		1,483		(823)		(55.5)
Total non-interest expense	Total non-interest expense	$	93,527	$	93,463	$	64	0.1	%		Total non-interest expense	$	102,145	$	90,028	$	12,117	13.5	%	$	288,296	$	274,033	$	14,263	5.2	%

Non-interest expenses were ~~$93.5~~$102.1 million for the ~~both~~quarter ended September 30, 2021, compared to $90.0 million for the quarter ended ~~March 31,~~September 30, 2020. For the nine months ended September 30, 2021, ~~and~~non-interest expense increased by $14.3 million, to $288.3 million, compared to $274.0 million for the ~~quarter ended March 31, 2020.~~same period last year. The current quarter non-interest expense includes increased ~~capitalized loan origination costs,~~professional and legal expenses, payment and card processing services expenses, and miscellaneous non-interest expenses, partially offset by ~~increases in~~decreased salary and employee ~~benefits and professional and legal expenses.~~benefits. In addition, the quarter ended ~~March 31,~~September 30, 2021 included ~~$148,000~~$44,000 of COVID-19 expenses, compared to ~~$239,000~~$778,000 for the quarter ~~a year ago. We expect to see~~ended September 30, 2020. The increase in non-interest expenses for the nine months ended September 30, 2021 reflects increases in professional and legal expenses, payment and card processing services expenses, salary and employee benefits expenses, and miscellaneous expenses, partially offset by increased capitalized loan origination costs. The nine months ended September 30, 2021 included $309,000 of COVID-19 expenses, ~~continue in~~compared to $3.2 million for the ~~following quarters depending on the duration of the current pandemic.~~same period last year.

Salary and employee benefits expenses ~~increased $4.9~~decreased $1.4 million to ~~$64.8~~$59.8 million for the quarter ended ~~March 31,~~September 30, 2021, compared to ~~$59.9~~$61.2 million for the quarter ended ~~March 31,~~September 30, 2020, primarily reflecting a reduction in staffing. Salary and employee benefits expenses increased to $186.6 million for the nine months ended September 30, 2021, compared to $184.5 million for the nine months ended September 30, 2020, primarily reflecting $1.3 million of severance expense related to a reduction in staffing as well as a $1.2 million adjustment recorded in the ~~current~~first quarter of 2021 to increase the liability related to deferred compensation plans and normal salary and wage adjustments. Capitalized loan origination costs increased ~~$3.9~~$1.3 million for the ~~quarter~~nine months ended ~~March 31,~~September 30, 2021, compared to the same period in the prior year, primarily related to the origination of SBA PPP loans during the ~~current quarter. Information data services~~first quarter of 2021. Professional and legal expenses increased ~~$393,000~~$10.0 million for the quarter ended ~~March 31,~~September 30, 2021 and $13.6 million for the nine months ended September 30, 2021, compared to the same period in the prior year, reflecting incremental costs as the Company continued to grow. Professional and legal expenses increased $1.4 million for the quarter ended March 31, 2021, compared to the same periodperiods in the prior year, primarily due to an increase in consulting ~~expenses. Advertising and marketing~~ expenses, ~~decreased $564,000~~which included $5.8 million of expense related to Banner Forward for the quarter ended ~~March 31,~~September 30, 2021 and $8.3 million of expense related to the Banner Forward initiative for the nine months ended September 30, 2021, as well as a $4.0 million accrual recorded related to pending litigation during the current quarter. Miscellaneous expenses increased $1.7 million for the quarter ended September 30, 2021 and $1.8 million for the nine months ended September 30, 2021, compared to the same ~~period~~periods in the prior year, primarily reflecting a curtailment of direct mail and marketing campaigns in response to the COVID-19 pandemic. Miscellaneous expenses decreased $848,000 for the quarter ended March 31, 2021, compared to the same period in the prior year, reflecting a reduction in employee travel, conferences and trainingincreased loan related expenses.

Banner’s efficiency ratio was ~~65.90%~~65.70% for the current quarter, compared to ~~67.52%~~60.32% in the year ago quarter. Banner’s adjusted efficiency ratio was ~~63.85%~~59.65% for the current quarter, compared to ~~62.26%~~58.02% 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.

Income Taxes. For the quarter ended ~~March 31,~~September 30, 2021, we recognized ~~$10.8~~$12.1 million in income tax expense for an effective tax rate of ~~18.7%~~19.5%, which reflects our normal 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 ~~23.5%~~23.7%, 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 ~~March 31,~~September 30, 2020, we recognized ~~$4.6~~$7.5 million in income tax expense for an effective tax rate of ~~21.4%~~17.0%. For the nine months ended September 30, 2021, we recognized $36.0 million in income tax expense for an effective tax rate of 19.3%, compared to $16.7 million in income tax expense for an effective tax rate of 17.8% for the nine months ended September 30, 2020. 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. ~~Our allowance for credit losses reflects current market conditions as well as forecasted future economic conditions.~~ We actively engage our borrowers to resolve classified loans, problem assets and effectively manage REO as a result of foreclosures.

Non-Performing Assets: Non-performing assets ~~increased slightly~~decreased to ~~$37.0~~$29.7 million, or ~~0.23%~~0.18% of total assets, at ~~March 31,~~September 30, 2021, from $36.5 million, or 0.24% of total assets, at December 31, 2020, and decreased compared to ~~$46.1~~$36.7 million, or ~~0.36%~~0.25% of total assets, at March 31, 2020. The decrease in non-performing loans year-over-year was largely due to the payoff of one commercial banking relationship in the fourth quarter of 2020. This relationship had an outstanding balance of $14.7 million at March 31,September 30, 2020. Our allowance for credit losses - loans was ~~$156.1~~$139.9 million, or ~~426%~~485% of non-performing loans at ~~March 31,~~September 30, 2021 ~~and our allowance for credit losses was~~compared to $167.3 million, or 470% of non-performing loans at December 31, 2020 and ~~$130.5~~$168.0 million, or ~~299%~~482% of non-performing loans at ~~March 31,~~September 30, 2020. In addition to the allowance for credit losses - loans, the Company maintains an allowance for credit losses - unfunded loan commitments which was ~~$12.1~~$10.1 million at ~~March 31,~~September 30, 2021, compared to $13.3 million at December 31, 2020 and ~~$11.5~~$12.1 million at ~~March 31,~~September 30, 2020. We believe our level of non-performing loans and assets continues to be manageable at ~~March 31,~~September 30, 2021. The primary components of the ~~$37.0~~$29.7 million in non-performing assets were ~~$35.0~~$24.0 million in nonaccrual loans, ~~$1.6~~$4.8 million in loans more than 90 days delinquent and still accruing interest, and ~~$377,000~~$869,000 in REO and other repossessed assets.

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,~~September 30, 2021, we had ~~$6.4~~$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, 2021 December 31, 2020 March 31, 2020
Nonaccrual Loans: (1)

Secured by real estate:
Commercial $ 21,615 $ 18,199 $ 8,512
Construction and land 986 936 1,393
One- to four-family 4,456 3,556 3,045
Commercial business 4,194 5,407 25,027
Agricultural business, including secured by farmland 1,536 1,743 495
Consumer 2,244 2,719 1,812
35,031 32,560 40,284
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial — — 24
Construction and land — — 1,407
One- to four-family 1,524 1,899 1,089
Commercial business 37 1,025 77
Agricultural business, including secured by farmland — — 461
Consumer — 130 320
1,561 3,054 3,378
Total non-performing loans 36,592 35,614 43,662
REO, net (2)
340 816 2,402
Other repossessed assets held for sale 37 51 47
Total non-performing assets $ 36,969 $ 36,481 $ 46,111
Total non-performing loans to loans before allowance for credit losses 0.37 % 0.36 % 0.47 %
Total non-performing loans to total assets 0.23 % 0.24 % 0.34 %
Total non-performing assets to total assets 0.23 % 0.24 % 0.36 %
Total nonaccrual loans to loans before allowance for credit losses 0.35 % 0.33 % 0.43 %
Restructured loans performing under their restructured terms (3)
$ 6,424 $ 6,673 $ 6,423
Loans 30-89 days past due and on accrual $ 19,233 $ 12,291 $ 39,974


	September 30, 2021			December 31, 2020			September 30, 2020
Nonaccrual Loans: (1)
Secured by real estate:
Commercial	$	14,931		$	18,199		$	7,824

Construction and land	354			936			937
One- to four-family	3,182			3,556			2,978
Commercial business	2,700			5,407			14,867
Agricultural business, including secured by farmland	1,022			1,743			2,066
Consumer	1,850			2,719			2,896
	24,039			32,560			31,568
Loans more than 90 days delinquent, still on accrual:
Secured by real estate:
Commercial	3,955			—			—


One- to four-family	772			1,899			2,649
Commercial business	61			1,025			425

Consumer	34			130			181
	4,822			3,054			3,255
Total non-performing loans	28,861			35,614			34,823

REO, net (2)	852			816			1,795
Other repossessed assets held for sale	17			51			37
Total non-performing assets	$	29,730		$	36,481		$	36,655

Total non-performing loans to loans before allowance for credit losses	0.31		%	0.36		%	0.34		%
Total non-performing loans to total assets	0.17		%	0.24		%	0.24		%
Total non-performing assets to total assets	0.18		%	0.24		%	0.25		%
Total nonaccrual loans to loans before allowance for credit losses	0.26		%	0.33		%	0.31		%
Restructured loans performing under their restructured terms (3)	$	5,273		$	6,673		$	5,790

Loans 30-89 days past due and on accrual	$	6,911		$	12,291		$	18,158

(1)Includes ~~$1.2 million~~$355,000 of nonaccrual TDR loans at ~~March 31,~~September 30, 2021. For the ~~three~~nine months ended ~~March 31,~~September 30, 2021, interest income was reduced by ~~$432,000~~$740,000 as a result of nonaccrual loan activity, which includes the reversal of ~~$68,000~~$116,000 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~~nine months ended ~~March 31,~~September 30, 2021.

(2)Real estate acquired by us as a result of foreclosure or by deed-in-lieu of foreclosure is classified as REO until it is sold. When property is acquired, it is recorded at the estimated fair value of the property, less expected selling costs. Subsequent to foreclosure, the property is carried at the lower of the foreclosed amount or net realizable value. Upon receipt of a new appraisal and market analysis, the carrying value is written down through the establishment of a specific reserve to the anticipated sales price, less selling and holding costs.

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

In addition to the non-performing loans as of ~~March 31,~~September 30, 2021, we had other classified loans with an aggregate outstanding balance of ~~$275.6~~$197.4 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, 2021		December 31, 2020		March 31, 2020			September 30, 2021		December 31, 2020		September 30, 2020

Pass	Pass	$	9,584,429	$	9,494,147	$	9,095,264	Pass	$	8,956,604	$	9,494,147	$	9,699,098
Special Mention	Special Mention	51,692		36,598		64,406		Special Mention	36,001		36,598		41,575
Substandard	Substandard	311,576		340,237		126,074		Substandard	225,779		340,237		423,244

Total	Total	$	9,947,697	$	9,870,982	$	9,285,744	Total	$	9,218,384	$	9,870,982	$	10,163,917

The decrease in substandard loans during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 primarily reflects the payoff of substandard loans as well as risk rating upgrades as certain industries impacted by the COVID-19 pandemic have begun to stabilize.

REO: REO was ~~$340,000~~$852,000 at ~~March 31,~~September 30, 2021 compared to $816,000 at December 31, 2020. The following table shows REO activity for the three and nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020 (in thousands):


		Three Months Ended				Three Months Ended				Nine months ended
		Mar 31, 2021		Mar 31, 2020				Sep 30, 2021		Sep 30, 2020		Sep 30, 2021		Sep 30, 2020
Balance, beginning of period	Balance, beginning of period	$	816	$	814		Balance, beginning of period	$	763	$	2,400	$	816	$	814
Additions from loan foreclosures	Additions from loan foreclosures	—		1,588			Additions from loan foreclosures	89		—		512		1,588

Proceeds from dispositions of REO	Proceeds from dispositions of REO	(783)		—			Proceeds from dispositions of REO	—		(707)		(783)		(805)
Gain (loss) on sale of REO		307		—

Gain on sale of REO							Gain on sale of REO	—		120		307		216
Valuation adjustments in the period							Valuation adjustments in the period	—		(18)		—		(18)
Balance, end of period	Balance, end of period	$	340	$	2,402		Balance, end of period	$	852	$	1,795	$	852	$	1,795

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.

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 ~~and purchase~~ of loans and, in certain periods, the purchase of ~~securities.~~securities or loans. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020, our loan originations, including originations of loans held for sale, exceeded our loan repayments by ~~$379.2~~$252.5 million and ~~$280.1 million,~~$1.89 billion, respectively. There were no$4.3 million of loan purchases during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 ~~or March 31,~~and $18,000 of loan purchases during the nine months ended September 30, 2020. This activity was funded primarily by increased core deposits and the sale of loans in 2021. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020, we received proceeds of ~~$427.8 million~~$1.15 billion and ~~$338.8 million,~~$1.10 billion, respectively, from the sale of loans. Securities purchased during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020 totaled ~~$1.26~~$2.44 billion and ~~$350.1~~$824.0 million, respectively, and securities repayments, maturities and sales in those periods were ~~$493.4 million~~$1.22 billion and ~~$131.1~~$461.4 million, respectively.

Our primary financing activity is gathering deposits. Total deposits increased by ~~$981.6 million~~$1.60 billion during the first ~~three~~nine months of 2021, as core deposits increased by ~~$989.9~~$1.66 billion, partially offset by a $64.3 million ~~and~~decrease in certificates of ~~deposits decreased by $8.3 million.~~deposits. The increase in total deposits during the first ~~three~~nine months of 2021 was due primarily to SBA PPP loan funds deposited into client accounts, fiscal stimulus payments, and an increase in average deposit account balances due to client’s maintaining a higher level of liquidity during the COVID-19 pandemic. 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,~~September 30, 2021, certificates of deposit ~~amounted to $907.0~~totaled $851.1 million, or 7%6% of our total deposits, including ~~$705.0~~$644.9 million which were scheduled to mature within one year. While no assurance can be given as to future periods, historically, we have been able to retain a significant amount of our certificates of deposit as they mature.

FHLB advances decreased ~~$50.0 million to~~ $100.0 million during the first ~~three~~nine months of 2021 to $50.0 million at September 30, 2021. Other borrowings increased ~~$31.5~~$62.6 million to ~~$216.3~~$247.4 million at ~~March 31,~~September 30, 2021 from $184.8 million at December 31, 2020.

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~~nine months ended ~~March 31,~~

September 30, 2021 and 2020, we used our sources of funds primarily to fund loan commitments and purchase securities. At ~~March 31,~~September 30, 2021, we had outstanding loan commitments totaling ~~$3.72~~$3.75 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. We maintain credit facilities with the FHLB-Des Moines, which provided for advances that in the aggregate would equal the lesser of 45% of Banner Bank’s assets or adjusted qualifying collateral (subject to a sufficient level of ownership of FHLB stock). At ~~March 31,~~September 30, 2021, under these credit facilities based on pledged collateral, Banner Bank had ~~$2.28~~$2.24 billion of available credit capacity. Advances under these credit facilities totaled ~~$100.0~~$50.0 million at ~~March 31,~~September 30, 2021. In addition, Banner Bank has been approved for participation in the Borrower-In-Custody (BIC) program by the Federal Reserve Bank of San Francisco (FRBSF). Under this program, based on pledged collateral, Banner Bank had available lines of credit of approximately ~~$1.01 billion~~$813.2 million as of ~~March 31,~~September 30, 2021. We had no funds borrowed from the FRBSF at ~~March 31,~~September 30, 2021 or December 31, 2020. Additionally, the Federal Reserve recently established the Paycheck Protection Program Liquidity Facility (PPPLF) to bolster the effectiveness of the PPP. As of March 31, 2021, Banner Bank was approved to utilize the PPPLF. Banner Bank may utilize the PPPLF pursuant to which it will pledge PPP loans at face value as collateral to obtain FRB non-recourse advances. There were no borrowings outstanding under this program during the quarter ended March 31, 2021.

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 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. At ~~March 31,~~September 30, 2021, the Company on an unconsolidated basis had liquid assets of ~~$113.2~~$103.8 million. On June 30, 2020, Banner issued and sold in an underwritten offer of ~~the Subordinated Notes,~~subordinated notes, resulting in net proceeds, after underwriting discounts and offering expenses, of $98.1 million. The ~~Subordinated Notes~~subordinated notes qualify as Tier 2 capital for regulatory capital purposes.

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~~nine months ended ~~March 31,~~September 30, 2021, total shareholders’ equity ~~decreased $47.4 million,~~increased $855,000, to ~~$1.62~~$1.67 billion. At ~~March 31,~~September 30, 2021, tangible common shareholders’ equity, which excludes goodwill and other intangible assets, was ~~$1.23~~$1.28 billion, or ~~7.80%~~7.86% of tangible assets. 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 tangible common shareholders’ equity. Also, see the capital requirements discussion and table below with respect to our regulatory capital positions.

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 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 to average assets. In addition to the minimum capital ratios, both Banner Corporation and the Bank are required to maintain a capital conservation buffer consisting of additional Common Equity Tier 1 Capital of more 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,~~September 30, 2021, Banner Corporation and the Bank each exceeded all regulatory capital requirements. (See Item 1, “Business–Regulation,” and Note 15 of the Notes to the Consolidated Financial Statements included in the 2020 Form 10-K for additional information regarding regulatory capital requirements for Banner Corporation and the Bank.)

6774

The actual regulatory capital ratios calculated for Banner Corporation and Banner Bank as of ~~March 31,~~September 30, 2021, 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	$	1,594,230	14.74	%	$	865,281	8.00	%	$	1,081,602	10.00	%	Total capital to risk-weighted assets	$	1,635,458	14.71	%	$	889,533	8.00	%	$	1,111,916	10.00	%
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	1,358,958		12.56		648,961		6.00		648,961		6.00		Tier 1 capital to risk-weighted assets	1,407,993		12.66		667,149		6.00		667,149		6.00
Tier 1 leverage capital to average assets	Tier 1 leverage capital to average assets	1,358,958		9.10		597,434		4.00		n/a		n/a		Tier 1 leverage capital to average assets	1,407,993		8.79		640,528		4.00		n/a		n/a
Common equity tier 1 capital	Common equity tier 1 capital	1,215,458		11.24		486,721		4.50		n/a		n/a		Common equity tier 1 capital	1,264,493		11.37		500,362		4.50		n/a		n/a
Banner Bank	Banner Bank													Banner Bank
Total capital to risk-weighted assets	Total capital to risk-weighted assets	1,473,846		13.63		865,096		8.00		1,081,370		10.00		Total capital to risk-weighted assets	1,524,897		13.72		889,034		8.00		1,111,292		10.00
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	1,338,602		12.38		648,822		6.00		865,096		8.00		Tier 1 capital to risk-weighted assets	1,397,432		12.57		666,775		6.00		889,034		8.00
Tier 1 leverage capital to average assets	Tier 1 leverage capital to average assets	1,338,602		8.95		598,565		4.00		748,207		5.00		Tier 1 leverage capital to average assets	1,397,432		8.73		640,385		4.00		800,482		5.00
Common equity tier 1 capital	Common equity tier 1 capital	1,338,602		12.38		486,616		4.50		702,890		6.50		Common equity tier 1 capital	1,397,432		12.57		500,081		4.50		722,340		6.50

6875

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. 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.

6976

The following table sets forth, as of ~~March 31,~~September 30, 2021, 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	+400	$	51,831	10.5	%	$	129,166	13.2	%	$	(291,408)	(12.6)	%	+400	$	87,175	18.7	%	$	204,162	22.1	%	$	(256,477)	(10.7)	%
+300	+300	48,312		9.8		119,868		12.2		(203,914)		(8.8)		+300	75,127		16.1		176,495		19.1		(173,602)		(7.2)
+200	+200	37,752		7.6		94,295		9.6		(100,335)		(4.3)		+200	56,016		12.0		132,671		14.3		(80,481)		(3.4)
+100	+100	20,885		4.2		52,980		5.4		(19,709)		(0.9)		+100	30,740		6.6		73,833		8.0		4,991		0.2
0	0	—		—		—		—		—		—		0	—		—		—		—		—		—
-25	-25	(2,060)		(0.4)		(7,300)		(0.7)		(12,206)		(0.5)		-25	(5,892)		(1.3)		(14,677)		(1.6)		(30,725)		(1.3)

(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 0.00% and 0.25% at ~~March 31,~~September 30, 2021.

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,~~September 30, 2021 (dollars in thousands). The 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,~~September 30, 2021, total interest-earning assets maturing or repricing within one year exceeded total interest-bearing liabilities maturing or repricing in the same time period by ~~$4.55~~$5.38 billion, representing a one-year cumulative gap to total assets ratio of ~~28.20%~~32.34%. 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,~~September 30, 2021 are within our internal policy guidelines and management considers that our current level of interest rate risk is reasonable.

7077


		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	$	794,985		$	89,071		$	103,536		$	21,281		$	11,998		$	718		$	1,021,589		Construction loans	$	784,648		$	59,360		$	114,830		$	28,353		$	13,380		$	1,003		$	1,001,574
Fixed-rate mortgage loans	Fixed-rate mortgage loans	390,518			261,396			776,632			431,115			364,640			15,334			2,239,635			Fixed-rate mortgage loans	375,542			270,857			789,520			446,125			400,857			19,207			2,302,108
Adjustable-rate mortgage loans	Adjustable-rate mortgage loans	1,112,111			389,004			1,074,535			719,440			163,631			182			3,458,903			Adjustable-rate mortgage loans	1,184,707			363,898			1,078,868			817,080			172,314			1,830			3,618,697
Fixed-rate mortgage-backed securities	Fixed-rate mortgage-backed securities	119,386			99,994			410,403			360,504			768,826			468,854			2,227,967			Fixed-rate mortgage-backed securities	192,802			173,608			538,576			404,216			749,163			374,014			2,432,379
Adjustable-rate mortgage-backed securities	Adjustable-rate mortgage-backed securities	192,991			3,001			27,933			5,736			7,336			—			236,997			Adjustable-rate mortgage-backed securities	398,775			66,051			21,698			2,607			7,136			—			496,267
Fixed-rate commercial/agricultural loans	Fixed-rate commercial/agricultural loans	307,941			309,141			936,976			330,188			99,550			35,429			2,019,225			Fixed-rate commercial/agricultural loans	125,785			158,801			334,445			209,729			117,345			38,641			984,746
Adjustable-rate commercial/agricultural loans	Adjustable-rate commercial/agricultural loans	640,971			23,432			78,848			36,278			10,443			—			789,972			Adjustable-rate commercial/agricultural loans	649,515			32,818			73,414			35,628			9,625			—			801,000
Consumer and other loans	Consumer and other loans	448,533			21,821			50,397			16,894			14,923			30,679			583,247			Consumer and other loans	442,104			29,499			40,083			14,827			16,236			33,268			576,017
Investment securities and interest-earning deposits	Investment securities and interest-earning deposits	1,569,623			19,193			74,506			133,395			341,243			165,539			2,303,499			Investment securities and interest-earning deposits	2,258,787			17,995			91,235			143,224			377,641			153,921			3,042,803
Total rate sensitive assets	Total rate sensitive assets	5,577,059			1,216,053			3,533,766			2,054,831			1,782,590			716,735			14,881,034			Total rate sensitive assets	6,412,665			1,172,887			3,082,669			2,101,789			1,863,697			621,884			15,255,591
Interest-bearing liabilities: (2)	Interest-bearing liabilities: (2)																						Interest-bearing liabilities: (2)
Regular savings	Regular savings	252,634			164,092			546,284			405,862			619,281			609,578			2,597,731			Regular savings	272,979			175,140			582,937			432,955			660,351			649,633			2,773,995
Interest checking accounts	Interest checking accounts	172,057			69,612			243,778			199,789			365,304			671,546			1,722,086			Interest checking accounts	178,653			72,695			254,751			208,930			382,201			702,427			1,799,657
Money market deposit accounts	Money market deposit accounts	278,941			140,971			468,803			350,681			544,560			543,425			2,327,381			Money market deposit accounts	272,734			141,936			473,504			354,977			551,040			544,915			2,339,106
Certificates of deposit	Certificates of deposit	437,646			267,377			178,151			21,935			1,863			40			907,012			Certificates of deposit	387,542			257,369			183,333			21,305			1,508			—			851,057
FHLB advances	FHLB advances	50,000			50,000			—			—			—			—			100,000			FHLB advances	50,000			—			—			—			—			—			50,000
Subordinated notes	Subordinated notes	—			—			—			100,000			—			—			100,000			Subordinated notes	—			—			—			100,000			—			—			100,000
Junior subordinated debentures	Junior subordinated debentures	147,944			—			—			—			—			—			147,944			Junior subordinated debentures	147,944			—			—			—			—			—			147,944
Retail repurchase agreements	Retail repurchase agreements	216,260			—			—			—			—			—			216,260			Retail repurchase agreements	247,358			—			—			—			—			—			247,358
Total rate sensitive liabilities	Total rate sensitive liabilities	1,555,482			692,052			1,437,016			1,078,267			1,531,008			1,824,589			8,118,414			Total rate sensitive liabilities	1,557,210			647,140			1,494,525			1,118,167			1,595,100			1,896,975			8,309,117
Excess (deficiency) of interest-sensitive assets over interest-sensitive liabilities	Excess (deficiency) of interest-sensitive assets over interest-sensitive liabilities	$	4,021,577		$	524,001		$	2,096,750		$	976,564		$	251,582		$	(1,107,854)		$	6,762,620		Excess (deficiency) of interest-sensitive assets over interest-sensitive liabilities	$	4,855,455		$	525,747		$	1,588,144		$	983,622		$	268,597		$	(1,275,091)		$	6,946,474
Cumulative excess of interest-sensitive assets	Cumulative excess of interest-sensitive assets	$	4,021,577		$	4,545,578		$	6,642,328		$	7,618,892		$	7,870,474		$	6,762,620		$	6,762,620		Cumulative excess of interest-sensitive assets	$	4,855,455		$	5,381,202		$	6,969,346		$	7,952,968		$	8,221,565		$	6,946,474		$	6,946,474
Cumulative ratio of interest-earning assets to interest-bearing liabilities	Cumulative ratio of interest-earning assets to interest-bearing liabilities	358.54		%	302.25		%	280.28		%	259.97		%	225.05		%	183.30		%	183.30		%	Cumulative ratio of interest-earning assets to interest-bearing liabilities	411.80		%	344.12		%	288.42		%	265.10		%	228.22		%	183.60		%	183.60		%
Interest sensitivity gap to total assets	Interest sensitivity gap to total assets	24.95			3.25			13.01			6.06			1.56			(6.87)			41.95			Interest sensitivity gap to total assets	29.18			3.16			9.55			5.91			1.61			(7.66)			41.75
Ratio of cumulative gap to total assets	Ratio of cumulative gap to total assets	24.95			28.20			41.21			47.26			48.82			41.95			41.95			Ratio of cumulative gap to total assets	29.18			32.34			41.89			47.80			49.41			41.75			41.75

(Footnotes on following page)

7178

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 ~~$(1.02) billion,~~$(417.4) million, or ~~(6.35)~~(2.51)% of total assets at ~~March 31,~~September 30, 2021. 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 and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020” of this report on Form 10-Q.

7279

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,~~September 30, 2021, 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,~~September 30, 2021, 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.

7380

PART II – OTHER INFORMATION

ITEM 1 – Legal Proceedings

In the normal course of our business, we have various legal proceedings and other contingent matters ~~outstanding.~~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 ~~periodically~~ 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 September 30, 2021, we had accrued $12.1 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 ~~management believes~~we believe would have a material adverse effect on our financial condition, operations or cash ~~flows.~~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”) 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 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 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. If the case goes to trial and the Company is unsuccessful in defending the claims, damages could be higher than the amount the Company has accrued as a litigation contingency reserve 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.

ITEM 1A – Risk Factors

There have been no material changes in the risk factors previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.

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,~~September 30, 2021:

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, 2021 - January 31, 2021 537 $ 45.30 — 1,757,781
February 1, 2021 - February 28, 2021 369,315 49.69 361,516 1,396,265
March 1, 2021 - March 31, 2021 179,151 53.67 138,484 1,257,781
Total for quarter 549,003 50.99 500,000 1,257,781


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
July 1, 2021 - July 31, 2021	407	$	52.53	—	1,007,781
August 1, 2021 - August 31, 2021	300,000	55.50		300,000	707,781
September 1, 2021 - September 30, 2021	—	—		—	707,781
Total for quarter	300,407	55.49		300,000	707,781

Employees surrendered ~~49,003~~407 shares to satisfy tax withholding obligations upon the vesting of restricted stock grants during the three months ended ~~March 31,~~September 30, 2021.

On December 21, 2020, the Company announced that its Board of Directors had renewed its authorization to repurchase up to 5% of the Company’s common stock, or 1,757,781 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,~~September 30, 2021, the Company repurchased ~~500,000~~300,000 shares under the repurchase authorization, leaving ~~1,257,781~~707,781 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.

7482

ITEM 6 – Exhibits


Exhibit			Index of Exhibits

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

3{b}			Articles of Amendment of Registrant (incorporated herein by reference to Exhibit 3.1 to the ~~Registrant~~’sRegistrant’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~~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 [incorporated by reference to Exhibit 3.2 to the ~~Registrant~~’sRegistrant’s Current Report on Form 8-K filed on ~~December 20, 2016~~October 29, 2020 (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~~Michael K. Larsen, Lloyd W. Ba ~~ker,~~Baker, Cynthia D. Purcell and Richard B. Barton ~~[incorporated~~[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 ~~Pet~~erPeter J. Conner, Cynthia D. P ~~urcell~~Purcell and Judith A. Steiner ~~[incorporated~~[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~~’sRegistrant’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~~’sRegistrant’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~~’sRegistrant’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)

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

~~101.SCH~~			~~Inline XBRL Taxonomy Extension Schema Document~~

7583


Exhibit			Index of Exhibits
101.SCH			Inline XBRL Taxonomy Extension Schema Document

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document

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 ~~March 31,~~September 30, 2021, formatted in Inline XBRL (included in Exhibit 101)

7684

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 5,~~November 4, 2021			/s/ Mark J. Grescovich
			Mark J. Grescovich
			President and Chief Executive Officer (Principal Executive Officer)

~~May 5,~~November 4, 2021			/s/ Peter J. Conner
			Peter J. Conner
			Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer)

7785


	Estimated Amortization
Remainder of 2021	$	4,860
2022	5,317
2023	3,814
2024	2,659
2025	1,575
Thereafter	1,490
	$	19,715