BANNER CORP

Our primary sources of funds are deposits, borrowings, proceeds from loan principal and interest payments and sales of loans, and the maturity of and interest payments on mortgage-backed and investment securities. While maturities and scheduled amortization of loans and securities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, competition and our pricing strategies.

Our primary investing activity is the origination of loans and, in certain periods, the purchase of securities or loans. During the nine months ended September 30, 2024 and 2023, our loan originations, including originations of loans held for sale, exceeded our loan repayments by $744.9 million and $666.6 million, respectively. There were $4.7 million of loan purchases during the nine months ended September 30, 2024, and no loan purchases during the nine months ended September 30, 2023. During the nine months ended September 30, 2024 and 2023, we received proceeds of $276.8 million and $212.0 million, respectively, from the sale of loans. Securities purchased during the nine months ended September 30, 2024 and 2023 totaled $53.2 million and $54.2 million, respectively, and securities repayments, maturities and sales in those periods were $284.4 million and $508.7 million, respectively.

Our primary financing activity is gathering deposits. Total deposits increased by $508.7 million during the nine months ended September 30, 2024, primarily due to an increase in core deposits. Core deposits were $12.02 billion at September 30, 2024, compared to $11.55 billion at December 31, 2023. 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 September 30, 2024, certificates of deposit totaled $1.52 billion, or 11% of our total deposits, including $1.46 billion which were scheduled to mature within one year. The increase in certificates of deposit during 2024 was due to clients seeking higher yields moving excess non-interest-bearing funds to higher-yielding certificates of deposit. While no assurance can be given as to future periods, historically, we have been able to retain a significant amount of our certificates of deposit as they mature.

The Bank’s estimated uninsured deposits were $4.39 billion or 32% of total deposits at September 30, 2024, compared to $4.08 billion or 31% of total deposits at December 31, 2023. The estimated uninsured deposit calculation includes $318.0 million and $305.3 million of collateralized public deposits at September 30, 2024 and December 31, 2023, respectively. Estimated uninsured deposits also includes cash held by the Company of $69.2 million and $108.2 million at September 30, 2024 and December 31, 2023, respectively. Banner Bank’s estimated uninsured deposits, excluding collateralized public deposits and cash held at the holding company, were 29% of total deposits at September 30, 2024, compared to 28% of total deposits at December 31, 2023.

We had $230.0 million of FHLB advances at September 30, 2024, compared to $323.0 million at December 31, 2023. Other borrowings decreased to $154.5 million at September 30, 2024 from $182.9 million at December 31, 2023. Subordinated notes, net of issuance costs decreased to $80.2 million at September 30, 2024, compared to $92.9 million at December 31, 2023, due to Banner Bank’s purchase of $3.5 million and $9.5 million of Banner’s subordinated debt during the first and third quarters of 2024, respectively.

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 nine months ended September 30, 2024, we used our sources of funds primarily to fund loan growth. At September 30, 2024, we had outstanding loan commitments totaling $4.01 billion, relating to undisbursed loans in process and unused credit lines. While representing potential growth in the loan portfolio and lending activities, this level of commitments is proportionally consistent with our historical experience and does not represent a departure from normal operations.

We generally maintain sufficient cash and readily marketable securities to meet short-term liquidity needs; however, our primary liquidity management practice to supplement deposits is to increase or decrease short-term borrowings, including FHLB advances and Federal Reserve Bank of San Francisco (FRBSF) borrowings. We maintain credit facilities with the FHLB, which provide for advances that in the aggregate would equal the lesser of 45% of the Bank’s assets or adjusted qualifying collateral (subject to a sufficient level of ownership of FHLB stock). At September 30, 2024, under these credit facilities based on pledged collateral, the Bank had $3.23 billion of available credit capacity. Advances under these credit facilities totaled $230.0 million at September 30, 2024. In addition, the Bank has been approved for participation in the FRBSF’s Borrower-In-Custody program. Under this program, based on pledged collateral, the Bank had available lines of credit of approximately $1.53 billion as of September 30, 2024, subject to certain collateral requirements, namely the collateral type and risk rating of eligible pledged loans. We had no funds borrowed from the FRBSF at September 30, 2024 or December 31, 2023. At September 30, 2024, the Bank also had uncommitted federal funds line of credit agreements with other financial institutions totaling $125.0 million. No balances were outstanding under these agreements as of September 30, 2024 or December 31, 2023. Availability of lines is subject to federal funds balances available for loan and continued borrower eligibility. These lines are intended to support short-term liquidity needs and the agreements may restrict consecutive day usage. Management believes it has adequate resources and funding potential to meet our foreseeable liquidity requirements.

Banner is a separate legal entity from the Bank and, on a stand-alone level, must provide for its own liquidity, and pay its own operating expenses and cash dividends. At September 30, 2024, Banner (on an unconsolidated basis) had liquid assets of $69.5 million. During the quarter ended June 30, 2024, Banner and the Bank entered into an intercompany loan agreement for $50.0 million, which reduced Banner’s cash balance while maintaining liquidity with the note receivable from the Bank. The note has a term of one year, automatically renewable each quarter. The note eliminates upon consolidation.

Banner’s primary sources of funds consist of capital raised through dividends or capital distributions from the Bank, although there are regulatory restrictions on the ability of the Bank to pay dividends. We currently expect to continue our current practice of paying quarterly cash dividends on our common stock subject to our Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. Our current quarterly common stock dividend rate is $0.48 per share, as approved by our Board of Directors, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing and investing in the Bank, and returning a substantial portion of our cash to our shareholders. Assuming continued dividend payments during 2024 at this rate of $0.48 per share, our average total dividend paid each quarter would be approximately $16.5 million based on the number of outstanding shares at September 30, 2024.

As noted below, Banner Corporation and its subsidiary bank continued to maintain capital levels in excess of the requirements to be categorized as “Well-Capitalized” under applicable regulatory standards. During the nine months ended September 30, 2024, total shareholders’ equity increased $141.0 million, to $1.79 billion or 11.08% of total assets. At September 30, 2024, tangible common shareholders’ equity, which excludes goodwill and other intangible assets, was $1.42 billion, or 8.96% of tangible assets. Tangible common shareholders’ equity represents a non-GAAP financial measure. See, non-GAAP financial measure reconciliations presented above under “Third Quarter 2024 Financial Highlights.”