BANNER CORP

Previous wording

Banner is a bank holding company incorporated in the State of Washington, which wholly owns one subsidiary bank, Banner Bank. The Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington and, as of March 31, 2024, it had 135 branch offices and 13 loan production offices located in Washington, Oregon, California, Idaho and Utah. Banner is subject to regulation by the Federal Reserve. The Bank is subject to regulation by the Washington DFI and the FDIC. As of March 31, 2024, we had total consolidated assets of $15.52 billion, total loans of $10.87 billion, total deposits of $13.16 billion and total shareholders’ equity of $1.66 billion.

Current wording

Banner is a bank holding company incorporated in the State of Washington, which wholly owns one subsidiary bank, Banner Bank. The Bank is a Washington-chartered commercial bank that conducts business from its main office in Walla Walla, Washington, and as of June 30, 2024, it had 135 branch offices and 13 loan production offices located in Washington, Oregon, California, Idaho and Utah. Banner is subject to regulation by the Federal Reserve. The Bank is subject to regulation by the Washington State Department of Financial Institutions-Division of Banks (the DFI) and the Federal Deposit Insurance Corporation (the FDIC). As of June 30, 2024, we had total consolidated assets of $15.82 billion, total loans of $11.14 billion, total deposits of $13.08 billion and total shareholders’ equity of $1.69 billion.

Previous wording

•Adjusted revenue* (the total of net interest income and total non-interest income adjusted for the net gain or loss on the sale of securities and the net change in valuation of financial instruments) was $150.4 million in the first quarter of 2024, compared to $157.1 million in the preceding quarter.

Current wording

•Adjusted revenue* (the total of net interest income and total non-interest income adjusted for the net gain or loss on the sale of securities and the net change in valuation of financial instruments) was $150.5 million in the second quarter of 2024, compared to $150.4 million in the preceding quarter.

Previous wording

•Return on average assets was 0.97%, compared to 1.09% in the preceding quarter.

Current wording

•Return on average assets was 1.02%, compared to 0.97% in the preceding quarter.

Previous wording

•Net loans receivable increased 1% to $10.72 billion at March 31, 2024, compared to $10.66 billion at December 31, 2023.

Current wording

•Net loans receivable increased 3% to $10.99 billion at June 30, 2024, compared to $10.72 billion at March 31, 2024.

Previous wording

•Non-performing assets were $29.9 million, or 0.19% of total assets, at March 31, 2024, compared to $30.1 million, or 0.19% of total assets at December 31, 2023.

Current wording

•Non-performing assets were $33.3 million, or 0.21% of total assets, at June 30, 2024, compared to $29.9 million, or 0.19% of total assets at March 31, 2024.

Previous wording

•The allowance for credit losses - loans was $151.1 million, or 1.39% of total loans receivable, as of March 31, 2024, compared to $149.6 million, or 1.38% of total loans receivable, at December 31, 2023.

Current wording

•The allowance for credit losses - loans was $152.8 million, or 1.37% of total loans receivable, as of June 30, 2024, compared to $151.1 million, or 1.39% of total loans receivable, at March 31, 2024.

Previous wording

•Total deposits increased to $13.16 billion at March 31, 2024, compared to $13.03 billion at December 31, 2023. Core deposits represented 89% of total deposits at March 31, 2024.

Current wording

•Total deposits decreased to $13.08 billion at June 30, 2024, compared to $13.16 billion at March 31, 2024. Core deposits represented 88% of total deposits at June 30, 2024.

Previous wording

•Available borrowing capacity was $5.05 billion at March 31, 2024, compared to $4.65 billion at December 31, 2023.

Current wording

•Available borrowing capacity was $4.73 billion at June 30, 2024, compared to $5.05 billion at March 31, 2024.

Previous wording

•On balance sheet liquidity was $2.77 billion at March 31, 2024, compared to $2.93 billion at December 31, 2023.

Current wording

•On balance sheet liquidity was $2.83 billion at June 30, 2024, compared to $2.77 billion at March 31, 2024.

Previous wording

•Common shareholders’ equity per share increased 1% to $48.39 at March 31, 2024, compared to $48.12 at the preceding quarter end.

Current wording

•Common shareholders’ equity per share increased 1% to $49.07 at June 30, 2024, compared to $48.39 at the preceding quarter end.

Previous wording

•Tangible common shareholders’ equity per share* increased 1% to $37.40 at March 31, 2024, compared to $37.09 at the preceding quarter end.

Current wording

•Tangible common shareholders’ equity per share* increased 2% to $38.12 at June 30, 2024, compared to $37.40 at the preceding quarter end.

Previous wording

Our critical accounting estimates are described in detail in the Critical Accounting Estimates section of the 2023 Form 10-K. The condensed consolidated financial statements are prepared in conformity with GAAP and follow general practices within the financial services industry in which the Company operates. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements. As this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes that the allowance for credit losses and fair value require significant judgements and assumptions which are susceptible to significant changes based on the current environment. There have been no significant changes in our application of critical accounting estimates since December 31, 2023.

Current wording

Our critical accounting estimates are described in detail in the Critical Accounting Estimates section of our 2023 Form 10-K. The condensed consolidated financial statements are prepared in conformity with GAAP and follow general practices within the financial services industry in which the Company operates. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements. As this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes that the allowance for credit losses and fair value require significant judgements and assumptions which are susceptible to significant changes based on the current environment. There have been no significant changes in our application of critical accounting estimates since December 31, 2023.

Previous wording

Loans and lending: Loans are our most significant and generally highest yielding earning assets. We attempt to maintain a total loans to total deposits ratio at a level designed to enhance our revenues, while adhering to sound underwriting practices and appropriate diversification guidelines in order to maintain a moderate risk profile. Our loan to deposit ratio at March 31, 2024 was 83%. We offer a wide range of loan products to meet the demands of our clients. Our lending activities are primarily directed toward the origination of real estate and commercial loans. Total loans receivable (gross loans less deferred fees and discounts and excluding loans held for sale) increased $58.6 million at March 31, 2024, compared to December 31, 2023, primarily reflecting increased one-to-four family residential loans, multifamily construction loans, and home equity revolving lines of credit, partially offset by decreased one-to-four family construction loans and total commercial real estate loans. At March 31, 2024, our loans receivable totaled $10.87 billion compared to $10.81 billion at December 31, 2023.

Current wording

Loans and lending: Loans are our most significant and generally highest yielding earning assets. We attempt to maintain a total loans to total deposits ratio at a level designed to enhance our revenues, while adhering to sound underwriting practices and appropriate diversification guidelines in order to maintain a moderate risk profile. Our loan to deposit ratio at June 30, 2024 was 85%. We offer a wide range of loan products to meet the demands of our clients. Our lending activities are primarily directed toward the origination of real estate and commercial loans. Total loans receivable (gross loans less deferred fees and discounts and excluding loans held for sale) increased $333.4 million at June 30, 2024, compared to December 31, 2023, primarily reflecting increased one-to-four family residential loans, multifamily construction loans, commercial business loans and home equity revolving lines of credit, partially offset by decreased one-to-four family construction loans. At June 30, 2024, our loans receivable totaled $11.14 billion compared to $10.81 billion at December 31, 2023.

Previous wording

Our commercial real estate loans totaled $3.61 billion, or 33% of our loan portfolio, at March 31, 2024. In addition, multifamily real estate loans totaled $809.1 million and comprised 7% of our loan portfolio at March 31, 2024. Commercial real estate loans decreased by $26.4 million during the first three months of 2024, while multifamily real estate loans decreased by $2.1 million.

Current wording

Commercial real estate loans totaled $3.72 billion, or 33% of our loan portfolio, and multifamily real estate loans totaled $717.1 million, or 6% of our loan portfolio, at June 30, 2024. Commercial real estate loans increased by $85.6 million during the first six months of 2024, while multifamily real estate loans decreased by $94.1 million, primarily due to certain affordable housing loans transferring to small balance commercial real estate.

Previous wording

Our construction, land and land development loans totaled $1.57 billion, or 14% of our loan portfolio at March 31, 2024, compared to $1.54 billion at December 31, 2023. The largest shifts in our construction, land and land development portfolio occurred in multifamily and one- to four-family construction loans. Multifamily construction loans increased $69.0 million, or 14%, to $573.0 million at March 31, 2024, compared to December 31, 2023. Multifamily construction loans represented approximately 5% of our total loan portfolio at March 31, 2024 and was comprised of affordable housing projects and, to a lesser extent, market rate multifamily projects across our footprint. One- to four-family construction loans decreased $30.5 million, or 6%, to $495.9 million at March 31, 2024, compared to $526.4 million at December 31, 2023. One- to four-family construction loans represented approximately 5% of our total loan portfolio at March 31, 2024, and included speculative construction loans, as well as “all-in-one” construction loans made to owner occupants that convert to permanent loans upon completion of the homes that, depending on market conditions, may be subsequently sold into the secondary market.

Current wording

Our construction, land and land development loans totaled $1.68 billion, or 15% of our loan portfolio, at June 30, 2024, compared to $1.54 billion at December 31, 2023. The largest shifts in our construction, land and land development portfolio occurred in multifamily and one- to four-family construction loans. Multifamily construction loans increased $160.0 million, or 32%, to $664.0 million at June 30, 2024, compared to December 31, 2023. Multifamily construction loans represented approximately 6% of our total loan portfolio at June 30, 2024 and was comprised of affordable housing projects and, to a lesser extent, market rate multifamily projects across our footprint. One- to four-family construction loans decreased $36.2 million, or 7%, to $490.2 million at June 30, 2024, compared to $526.4 million at December 31, 2023. One- to four-family construction loans represented approximately 4% of our total loan portfolio at June 30, 2024, and included speculative construction loans, as well as “all-in-one” construction loans made to owner occupants that convert to permanent loans upon completion of the homes that, depending on market conditions, may be subsequently sold into the secondary market.

Previous wording

Our commercial business lending is directed toward meeting the credit and related deposit needs of various small- to medium-sized business and agribusiness borrowers operating in our primary market areas. Our commercial and agricultural business loans were $2.61 billion at both March 31, 2024 and December 31, 2023. Commercial and agricultural business loans represented approximately 24% of our loan portfolio at March 31, 2024. Our commercial business lending also includes participation in certain syndicated loans, including shared national credits, which totaled $218.7 million, or 2% of our loan portfolio, at March 31, 2024, compared to $239.0 million, or 2% of our loan portfolio, at December 31, 2023.

Current wording

Our commercial business lending is directed toward meeting the credit and related deposit needs of various small- to medium-sized business and agribusiness borrowers operating in our primary market areas. Our commercial and agricultural business loans were $2.71 billion at June 30, 2024 and $2.61 billion at December 31, 2023. Commercial and agricultural business loans represented approximately 24% of our loan portfolio at June 30, 2024. Our commercial business lending also includes participation in certain syndicated loans, including shared national credits, which totaled $226.0 million, or 2% of our loan portfolio, at June 30, 2024, compared to $239.0 million, or 2% of our loan portfolio, at December 31, 2023.

Previous wording

We are active originators of one- to four-family residential loans in most communities where we have established offices in Washington, Oregon, California, Idaho and Utah. Most of the one- to four-family residential loans we originate in normal market conditions are sold in secondary markets with net gains on sales and loan servicing fees reflected in our revenues from mortgage banking operations. At March 31, 2024, one- to four-family residential loans retained in our portfolio increased $48.8 million, to $1.57 billion, compared to $1.52 billion at December 31, 2023. The increase in one- to four-family residential loans was primarily the result of a higher percentage of one- to four-family construction loans converting to one- to four-family residential loans. One- to four-family residential loans represented 14% of our loan portfolio at March 31, 2024.

Current wording

We are active originators of one- to four-family residential loans in most communities where we have established offices in Washington, Oregon, California, Idaho and Utah. Most of the one- to four-family residential loans we originate in normal market conditions are sold in secondary markets with net gains on sales and loan servicing fees reflected in our revenues from mortgage banking operations. At June 30, 2024, one- to four-family residential loans retained in our portfolio increased $85.2 million, to $1.60 billion, compared to $1.52 billion at December 31, 2023. The increase in one- to four-family residential loans was primarily the result of a higher percentage of one- to four-family construction loans converting to one- to four-family residential loans. One- to four-family residential loans represented 14% of our loan portfolio at June 30, 2024.

Previous wording

Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At March 31, 2024, consumer loans, including home equity revolving lines of credit, increased $4.2 million to $703.6 million, compared to $699.4 million at December 31, 2023.

Current wording

Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At June 30, 2024, consumer loans, including home equity revolving lines of credit, increased $15.9 million to $715.2 million, compared to $699.4 million at December 31, 2023.

Previous wording

The following table shows the commitment amount for loan origination (excluding loans held for sale) activity for the periods indicated (in thousands):

Current wording

The following table shows the commitment amount for loan origination activity (excluding loans held for sale) for the periods indicated (in thousands):

Previous wording

Loans held for sale decreased to $9.4 million at March 31, 2024, compared to $11.2 million at December 31, 2023, as sales exceeded originations of held-for-sale loans during the three months ended March 31, 2024. Originations of loans held for sale increased to $48.4 million for the three months ended March 31, 2024, compared to $39.6 million for the same period last year. The volume of one- to four-family residential mortgage loans sold was $65.9 million during the three months ended March 31, 2024, compared to $40.5 million in the same period a year ago.

Current wording

Loans held for sale increased to $13.4 million at June 30, 2024, compared to $11.2 million at December 31, 2023. Originations of loans held for sale decreased to $107.2 million for the six months ended June 30, 2024, compared to $110.4 million for the same period last year. The volume of one- to four-family residential mortgage loans sold was $140.9 million during the six months ended June 30, 2024, compared to $103.1 million in the same period a year ago.

Previous wording

Investment Securities: Total securities decreased $149.6 million to $3.28 billion at March 31, 2024, from $3.43 billion at December 31, 2023, primarily due to the securities sales, paydowns and maturities. Securities sales, paydowns and maturities exceeded purchases during the three-month period ended March 31, 2024. Purchases during the three months ended March 31, 2024, consisted primarily of state and local government obligations and agency commercial mortgage-backed securities. The average effective duration of the Company’s securities portfolio was 6.6 years at March 31, 2024, compared to 6.5 years at December 31, 2023. Fair value adjustments for securities designated as available-for-sale decreased $21.8 million for the three months ended March 31, 2024, which was included, net of the associated tax benefit of $5.2 million, as a component of other comprehensive income, and largely occurred as a result of increases in market interest rates during the three months ended March 31, 2024.

Current wording

Investment Securities: Total securities decreased $212.1 million to $3.22 billion at June 30, 2024, from $3.43 billion at December 31, 2023, primarily due to securities sales, paydowns and maturities. Securities sales, paydowns and maturities exceeded purchases during the six-month period ended June 30, 2024. Purchases during the six months ended June 30, 2024, consisted primarily of state and local government obligations and agency commercial mortgage-backed securities. The average effective duration of the Company’s securities portfolio was 6.5 years at both June 30, 2024 and December 31, 2023. Fair value adjustments for securities designated as available-for-sale decreased $24.1 million for the six months ended June 30, 2024, which was included, net of the associated tax benefit of $5.8 million, as a component of other comprehensive income, and largely occurred as a result of increases in market interest rates during the six months ended June 30, 2024.

Previous wording

Deposits: Deposits, client retail repurchase agreements and loan repayments are the major sources of our funds for lending and other investment purposes. We compete with other financial institutions and financial intermediaries in attracting deposits and we generally attract deposits within our primary market areas. Much of the focus of our branch strategy and marketing efforts over the last several years have been directed toward attracting additional deposit client relationships and balances. This effort has been particularly directed towards emphasizing core deposit activity in non-interest-bearing and other transaction and savings accounts. Despite rate sensitive deposits shifting out of non-interest bearing deposits during 2023 due to clients seeking higher yields on their deposits, our strategy of focusing on relationship banking remains intact.

Current wording

Deposits: Deposits, client retail repurchase agreements and loan repayments are the major sources of our funds for lending and other investment purposes. We compete with other financial institutions and financial intermediaries in attracting deposits and we generally attract deposits within our primary market areas. Much of the focus of our branch strategy and marketing efforts over the last several years have been directed toward attracting additional deposit client relationships and balances. This effort has been particularly directed towards emphasizing core deposit activity in non-interest-bearing and other transaction and savings accounts. Despite rate sensitive deposits shifting out of non-interest-bearing deposits due to clients seeking higher yields on their deposits, our strategy of focusing on relationship banking remains intact.

Previous wording

Total deposits increased $129.3 million at March 31, 2024, compared to December 31, 2023, with core deposits increasing $120.9 million and certificates of deposit increasing $8.4 million. The increase in core deposits was primarily due to increases in savings accounts. Certificates of deposit increased 1% at March 31, 2024, compared to December 31, 2023, reflecting higher rates attracting clients to these deposit types, partially offset by a $531,000 decrease in brokered deposits. We had $107.5 million of brokered deposits at March 31, 2024, compared to $108.1 million at December 31, 2023. Core deposits represented 89% of total deposits at both March 31, 2024 and December 31, 2023, respectively. Competition for deposits in our market areas remains strong.

Current wording

Total deposits increased $49.8 million at June 30, 2024, compared to December 31, 2023, with core deposits increasing $2.1 million and certificates of deposit increasing $47.7 million. The increase in certificates of deposit is a result of higher rates attracting clients to these deposit types. We had $105.3 million of brokered deposits at June 30, 2024, compared to $108.1 million at December 31, 2023. Core deposits represented 88% of total deposits at both June 30, 2024 and December 31, 2023. Competition for deposits in our market areas remains strong.

Previous wording

Borrowings: We had $52.0 million of FHLB advances at March 31, 2024, compared to $323.0 million at December 31, 2023, reflecting paydowns of the FHLB advances due to cash flows from the security portfolio and an increase in core deposits. At March 31, 2024, the Company’s off-balance sheet liquidity included additional borrowing capacity of $3.27 billion at the FHLB and $1.66 billion at the Federal Reserve as well as federal funds line of credit agreements with other financial institutions of $125.0 million. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, increased $464,000 to $183.3 million at March 31, 2024, compared to $182.9 million at December 31, 2023. Junior subordinated debentures totaled $66.6 million at March 31, 2024, compared to $66.4 million at December 31, 2023. Subordinated notes, net of issuance costs were $89.5 million at March 31, 2024, compared to $92.9 million at December 31, 2023. The decrease in subordinated notes was due to Banner Bank’s purchase of $3.5 million of Banner’s subordinated debt during the first quarter of 2024.

Current wording

Borrowings: We had $398.0 million of FHLB advances at June 30, 2024, compared to $323.0 million at December 31, 2023. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, decreased $16.9 million to $166.0 million at June 30, 2024, compared to $182.9 million at December 31, 2023. The increased borrowings were primarily used to fund loan growth. At June 30, 2024, the Company’s off-balance sheet liquidity included additional borrowing capacity of $3.02 billion at the FHLB and $1.59 billion at the Federal Reserve as well as federal funds line of credit agreements with other financial institutions of $125.0 million. Junior subordinated debentures totaled $66.8 million at June 30, 2024, compared to $66.4 million at December 31, 2023. Subordinated notes, net of issuance costs were $89.6 million at June 30, 2024, compared to $92.9 million at December 31, 2023.

Previous wording

Shareholders’ Equity: Total shareholders’ equity increased $11.8 million to $1.66 billion at March 31, 2024, as compared to $1.65 billion at December 31, 2023. The increase in shareholders’ equity was primarily due to a $20.8 million increase in retained earnings as a result of $37.6 million in net income, partially offset by the accrual of cash dividends during the three months ended March 31, 2024. In addition, accumulated other comprehensive loss increased by $10.3 million, primarily due to an increase in the unrealized losses on the security portfolio. There were no shares of common stock repurchased during the three months ended March 31, 2024. Tangible common shareholders’ equity, which excludes goodwill and other intangible assets and is a non-GAAP financial measure, increased $12.5 million to $1.29 billion, or 8.50% of tangible assets at March 31, 2024, compared to $1.27 billion, or 8.33% of tangible assets at December 31, 2023. A reconciliation of this non-GAAP financial measure to its comparable GAAP financial measure is presented above following First Quarter 2024 Highlights.

Current wording

Shareholders’ Equity: Total shareholders’ equity increased $38.1 million to $1.69 billion, or 10.69% of total assets, at June 30, 2024, compared to $1.65 billion, or 10.55% of total assets, at December 31, 2023. The increase in shareholders’ equity was primarily due to a $43.9 million increase in retained earnings as a result of $77.4 million in net income, partially offset by the accrual of cash dividends during the six months ended June 30, 2024. In addition, accumulated other comprehensive loss increased by $8.4 million, primarily due to an increase in the unrealized losses on the security portfolio. There were no shares of common stock repurchased during the six months ended June 30, 2024. Tangible common shareholders’ equity, which excludes goodwill and other intangible assets and is a non-GAAP financial measure, increased $39.5 million to $1.31 billion, or 8.51% of tangible assets, at June 30, 2024, compared to $1.27 billion, or 8.33% of tangible assets at December 31, 2023. A reconciliation of this non-GAAP financial measure to its comparable GAAP financial measure is presented above following “Second Quarter 2024 Financial Highlights.”

Previous wording

Comparison of Results of Operations for the Three Months Ended March 31, 2024, December 31, 2023 and March 31, 2023

Current wording

Comparison of Results of Operations for the Three Months Ended June 30, 2024, and March 31, 2024, and for the Six Months Ended June 30, 2024 and 2023

Previous wording

For the quarter ended March 31, 2024, net income was $37.6 million, or $1.09 per diluted share, compared to $42.6 million, or $1.24 per diluted share, for the preceding quarter and $55.6 million, or $1.61 per diluted share, for the three months ended March 31, 2023. The decrease in net income for the current quarter compared to the preceding quarter was due to decreased net interest income and non-interest income and increased non-interest expense, partially offset by a reduced provision for credit losses. The decrease in net interest income was a result of an increase in funding costs reflecting the high interest rate environment, partially offset by increased yields on loans due to new loans being originated at higher interest rates. The decrease in net income for the same period a year ago was primarily due to decreased net interest income, increased non-interest expenses and an increase in the provision for credit losses, partially offset by increased non-interest income.

Current wording

For the quarter ended June 30, 2024, net income was $39.8 million, or $1.15 per diluted share, compared to $37.6 million, or $1.09 per diluted share, for the preceding quarter. For the six months ended June 30, 2024, our net income was $77.4 million, or $2.24 per diluted share, compared to $95.1 million, or $2.76 per diluted share for the same period a year earlier. The increase in net income for the current quarter compared to the preceding quarter primarily was due to increased non-interest income, partially offset by an increase in the provision for credit losses. The increase in non-interest income was primarily the result of a decrease in the net loss recognized on the sale of securities and, to a lesser extent, a decrease in the net loss recognized for fair value adjustments on financial instruments carried at fair value. Our net income for the six months ended June 30, 2024, included a decrease in net interest income and an increase in non-interest expense, partially offset by an increase in non-interest income and a decrease in the provision for credit losses.

Previous wording

Net interest margin for the current quarter was impacted by an increase in funding costs due to the high interest rate environment and its effect on deposit costs, partially offset by increased yields on loans due to new loans being originated at higher interest rates. Total revenue for the quarter ended March 31, 2024, decreased compared to the preceding quarter due to increased funding costs, a decrease in mortgage banking operations income and an increase in the net loss for fair value adjustments on financial instruments carried at fair value, partially offset by increased interest income and deposit fees and other service charges. Total revenue decreased during the three months ended March 31, 2024, compared to the same period a year earlier due to increased funding costs, partially offset by increased interest income and a decrease in the net loss on the sale of securities recorded during the current period.

Current wording

Net interest margin for the current quarter was impacted by an increase in funding costs due to the high interest rate environment and its effect on deposit costs, partially offset by increased yields on loans due to new loans being originated at higher interest rates and adjustable rate loans repricing higher. Total revenue for the quarter ended June 30, 2024, increased compared to the preceding quarter primarily due to a decrease in the net loss recognized on the sale of securities. Total revenue decreased during the six months ended June 30, 2024, compared to the same period a year earlier due to increased funding costs, partially offset by increased interest income, a decrease in the net loss on the sale of securities recorded during the current period and a decrease in the net loss recognized for fair value adjustments on financial instruments carried at fair value.

Previous wording

We recorded a $520,000 provision for credit losses for the quarter ended March 31, 2024, compared to a $2.5 million provision for credit losses in the preceding quarter and a $524,000 recapture of provision for credit losses for the three months ended March 31, 2023. The provision for credit losses for the current quarter is primarily related to the loan growth in the construction and one- to four-family loan portfolios, partially offset by a reduction in unfunded loan commitments in the construction portfolio. The provision for credit losses for the preceding quarter primarily reflected increased loan balances, partially offset by an increase in the trading price of our investments in other banks’ subordinated debt.

Current wording

We recorded a $2.4 million provision for credit losses for the quarter ended June 30, 2024, compared to a $520,000 provision for credit losses in the preceding quarter. The provision for credit losses for the current quarter primarily reflected loan growth and an increase in the reserve for collateral dependent loans. The provision for credit losses for the preceding quarter was primarily related to the loan growth in the construction and one- to four-family loan portfolios, partially offset by a reduction in unfunded loan commitments in the construction portfolio. We recorded a $2.9 million provision for credit losses for the six months ended June 30, 2024, compared to a $6.2 million provision for credit losses for the same period a year ago.

Previous wording

Total non-interest income decreased in the quarter ended March 31, 2024, compared to the preceding quarter and increased compared to the same period a year ago. The decrease in non-interest income during the current quarter compared to the preceding quarter was primarily due to a decrease in mortgage banking operations revenue, primarily due to a $3.5 million fair value gain recorded on multifamily loans during the preceding quarter as a result of their transfer from held for sale to held for investment, with no similar transaction recorded in the current quarter, and a decrease in the fair value adjustments on financial instruments carried at fair value during the current quarter, partially offset by an increase in deposit fees and other service charges. The increase in non-interest income during the three months ended March 31, 2024, compared to the same period last year was primarily due to a reduction in the net loss recognized on the sale of securities.

Current wording

Total non-interest income increased for the quarter ended June 30, 2024, compared to the preceding quarter and increased during the six months ended June 30, 2024, compared to the same period a year ago. The increase in non-interest income during the current quarter compared to the preceding quarter was primarily due to decreases in the net loss recognized on the sale of securities and in the net loss recognized for fair value adjustments on financial instruments carried at fair value. The increase in non-interest income during the six months ended June 30, 2024, compared to the same period last year was also primarily due to a reduction in the net loss recognized on the sale of securities and a decrease in the net loss recognized for fair value adjustments on financial instruments carried at fair value.

Previous wording

Total non-interest expense increased in the quarter ended March 31, 2024, compared to the preceding quarter and the same period a year ago. The increase in non-interest expense for the current quarter compared to the preceding quarter primarily reflects increases in salary and employee benefits, partially offset by decreases in professional and legal expense and advertising and marketing expense. The increase in non-interest expense compared to the same period a year ago primarily reflects increases in salary and employee benefits, payment and card processing services expense and deposit insurance expense.

Current wording

Total non-interest expense increased for the quarter ended June 30, 2024, compared to the preceding quarter and increased during the six months ended June 30, 2024, compared to the same period a year ago. The increase in non-interest expense for the current quarter compared to the prior quarter reflects an increase in salary and employee benefits, primarily resulting from normal annual salary and wage increases and an increase in loan production related commission expense, partially offset by an increase in capitalized loan origination costs, also due to increased loan production. The increase in non-interest expense compared to the same period a year ago primarily reflects increases in salary and employee benefits, payment and card processing services expense and deposit insurance expense, partially offset by a decrease in professional and legal expenses.

Previous wording

Net interest margin on a tax equivalent basis decreased nine basis points to 3.74% for the first quarter of 2024, compared to 3.83% in the preceding quarter, and decreased 56 basis points from 4.30% in the same period a year ago. Net interest margin for the current quarter was affected by increased funding costs reflecting the persistent high interest rate environment, partially offset by increased yields on loans due to new loans being originated at higher interest rates as well as adjustable-rate loans repricing higher. The increase in the overall cost of funding liabilities was primarily due to the increase in rates across all deposits and most borrowing categories due to higher market rates generally, as well as a shift in the average balance of non-interest bearing deposits to higher costing savings accounts and certificates of deposit.

Current wording

Net interest margin on a tax equivalent basis decreased four basis points to 3.70% for the second quarter of 2024, compared to 3.74% in the preceding quarter. Net interest margin for the current quarter was impacted by increased funding costs reflecting the persistent high interest rate environment, partially offset by increased yields on loans due to new loans being originated at higher interest rates and adjustable rate loans repricing higher. The increase in the overall cost of funding liabilities was primarily due to the increase in rates across all deposits and most borrowing categories due to higher market rates generally, as well as a shift in the average balance of non-interest-bearing deposits to higher costing interest-bearing checking accounts and savings accounts.

Previous wording

Net Interest Income. Net interest income decreased by $5.5 million, or 4%, for the quarter ended March 31, 2024, compared to the preceding quarter. The decrease was primarily due to an increase in the cost of funding liabilities, partially offset by increases in the average yields on loans and investment securities. Net interest income decreased by $20.4 million, or 13%, to $133.0 million for the three months ended March 31, 2024, compared to $153.3 million for the same quarter a year ago, primarily due to increased funding costs, partially offset by an increase in the average yields on interest-earning assets. The higher funding costs and average yields on interest-earning assets compared to same period a year ago was primarily the result of higher interest rates.

Current wording

Net interest income decreased for the six months ended June 30, 2024, compared to the same period one year earlier, primarily due to increased funding costs, partially offset by an increase in the average yields on interest-earning assets. The higher funding costs and average yields on interest-earning assets compared to same period a year ago was primarily the result of higher interest rates. The higher funding costs was also impacted by a shift in the average balance of non-interest-bearing deposits to higher costing interest-bearing checking accounts, savings accounts and certificates of deposit. The net interest margin on a tax equivalent basis decreased to 3.72% for the six months ended June 30, 2024, compared to 4.15% for the same period in the prior year.

Previous wording

Interest Income. Interest income for the quarter ended March 31, 2024 was $184.7 million, compared to $183.7 million for the preceding quarter and $167.0 million for the same period in the prior year. The increase in interest income during the current quarter compared to the preceding quarter occurred primarily as a result of average yields on total interest-earning assets increasing 10 basis points. The increased yield on interest-earning assets primarily reflects increases in the average yields on loans. The increase in interest income during the current quarter compared to the same period a year ago primarily reflects an increase in the average yield on interest-earning assets, mostly due to rising interest rates during 2023, partially offset by the lower average balance of interest-earning assets.

Current wording

Interest Income. Interest income for the quarter ended June 30, 2024 was $189.1 million, compared to $184.7 million for the preceding quarter. The increase in interest income occurred primarily as a result of average yields on total interest-earning assets increasing nine basis points. The increased yield on interest-earning assets primarily reflects increases in both the average yields and average balances of loans.

Previous wording

Interest income on loans for the current quarter increased $1.9 million from the preceding quarter and increased $23.2 million from the same period in the prior year. The increased interest income on loans for the current quarter compared to the preceding quarter was due to the average loan yields increasing to 5.87% for the quarter ended March 31, 2024, from 5.77% in the preceding quarter, reflecting adjustable-rate loans repricing higher. The average balance of loans receivable for the quarter ended March 31, 2024 increased 1%, compared to the preceding quarter, and increased 7%, compared to the same period the prior year, primarily reflecting the increase in one- to four-family loans.

Current wording

The increased interest income on loans for the current quarter compared to the preceding quarter was due to the average loan yields increasing to 5.96% for the quarter ended June 30, 2024, from 5.87% in the preceding quarter, reflecting new loans being originated at higher interest rates and adjustable rate loans repricing higher. The average balance of loans receivable for the quarter ended June 30, 2024 increased compared to the preceding quarter, primarily reflecting increases in the average balances of multifamily construction and one- to four-family loans.

Previous wording

Interest and dividend income on total investment securities for the current quarter decreased $1.0 million from the preceding quarter and decreased $5.5 million from the same period in the prior year. The decrease was due to a decline in the average balance of total investment securities, partially offset by a higher average yield earned on total investment securities during the current quarter compared to the preceding quarter and the comparable quarter a year ago. The average balance of total investment securities decreased to $3.78 billion for the quarter ended March 31, 2024 (excluding the effect of fair value adjustments), compared to $3.90 billion for the preceding quarter and $4.57 billion for the same period in the prior year. The average yield on the combined portfolio increased to 3.11% for the quarter ended March 31, 2024, from 3.08% in the preceding quarter and 3.10% in the same period in the prior year.

Current wording

Interest and dividend income on total investment securities for the current quarter decreased from the preceding quarter due to a decrease in the average balance of total investment securities, partially offset by a higher average yield earned on total investment securities during the current quarter compared to the preceding quarter. The average balance of total investment securities decreased to $3.71 billion for the quarter ended June 30, 2024 (excluding the effect of fair value adjustments), compared to $3.78 billion for the preceding quarter. The average yield on the combined portfolio increased to 3.14% for the quarter ended June 30, 2024, from 3.11% in the preceding quarter.

Previous wording

Interest Expense. Interest expense for the quarter ended March 31, 2024 increased $6.4 million, or 14%, compared to the preceding quarter, and increased compared to the same period in the prior year. The increase compared to the preceding quarter occurred as a result of a 22 basis point increase in the average cost of all funding liabilities to 1.53%, partially offset by a decrease in the average balance of funding liabilities, during the current quarter. The average balance of funding liabilities decreased $48.2 million for the quarter ended March 31, 2024, compared to the preceding quarter, primarily due to a decrease in non-interest-bearing deposits, partially offset by higher average balances of certificates of deposit and interest-bearing transaction and savings accounts and FHLB advances. The increase in interest expense compared to the prior year occurred as a result of an increase in the average cost of all funding liabilities compared to the same period in the prior year, partially offset by a decrease in average balances of funding liabilities. The decrease in the average balance of funding liabilities reflects decreases in non-interest-bearing deposits and money market accounts, partially offset by higher average balances of interest-bearing transaction checking and savings accounts, certificates of deposit and FHLB advances.

Current wording

Interest expense for the six months ended June 30, 2024 was $108.3 million, compared to $42.9 million for the same period in the prior year. The increase occurred as a result of an increase in the average cost of all funding liabilities compared to the same period in the prior year, partially offset by a decrease in average balances of funding liabilities. The decrease in the average balance of funding liabilities reflects decreases in non-interest-bearing deposits and money market accounts, partially offset by higher average balances of interest-bearing transaction checking and savings accounts and certificates of deposit.

Previous wording

Deposit interest expense for the quarter ended March 31, 2024 increased $5.3 million, or 13%, compared to the preceding quarter, and increased $35.4 million compared to $9.2 million for the same period in the prior year. The increase compared to the prior quarter and the comparable quarter a year ago was primarily the result of a larger percentage of core deposits being in interest bearing accounts and an increase in the mix of higher cost certificates of deposit as well as an overall increase in the average rate paid on interest-bearing deposits. The cost of interest-bearing deposits increased to 2.15% for the quarter ended March 31, 2024, compared to 1.92% in the preceding quarter and 0.51% for the same period a year earlier. The increase in the average cost of interest-bearing deposits compared to the same period a year ago was primarily the result of an increase in the cost of certificates of deposit along with an increase in the average balance of certificates of deposit. The average rate paid on total deposits, which includes non-interest bearing deposits, was 1.37% for the quarter ended March 31, 2024, compared to 1.18% in the preceding quarter and 0.28% for the same period in the prior year. Average deposit balances decreased for the quarter ended March 31, 2024, from the preceding quarter and the same period a year earlier.

Current wording

Deposit interest expense for the quarter ended June 30, 2024 increased $4.2 million, or 9%, compared to the preceding quarter. The increase was the result of a larger percentage of core deposits being in interest-bearing accounts and an increase in higher cost certificates of deposit, as well as an overall increase in the average rate paid on interest-bearing deposits. The cost of interest-bearing deposits increased to 2.32% for the quarter ended June 30, 2024, compared to 2.15% in the preceding quarter. The increase in the average cost of interest-bearing deposits was primarily the result of an increase in the cost of certificates of deposit. The average rate paid on total deposits, which includes non-interest-bearing deposits, was 1.50% for the quarter ended June 30, 2024, compared to 1.37% in the preceding quarter. Average deposit balances increased to $13.10 billion for the quarter ended June 30, 2024, from $13.06 billion for the preceding quarter.

Previous wording

Interest expense on total borrowings for the quarter ended March 31, 2024 increased to $7.1 million from $6.0 million for the preceding quarter and increased from $4.4 million for the same period a year earlier due to an increase in both the average balance of and rate paid on total borrowings. The increase in average borrowings compared to the prior quarter was largely due to an increase in the average balance of FHLB advances. The increase compared to the same period a year ago was also primarily due to an increase in the average balance of FHLB advances, partially offset by a decrease in the average balance of other borrowings. The average rate paid on total borrowings for the quarter ended March 31, 2024 increased from the preceding quarter and from the same period a year earlier.

Current wording

Interest expense on total borrowings for the six months ended June 30, 2024 increased to $14.9 million from $13.2 million for the same period a year earlier due to an increase in the rate paid on total borrowings, partially offset by a decrease in the average balance of total borrowings. The average balance of total borrowings was $594.8 million for the six months ended June 30, 2024, compared to $645.9 million for the same period a year earlier. The decrease was due to a $12.9 million decrease in the average balance of FHLB advances and a $30.5 million decrease in the average balance of other borrowings. The average rate paid on total borrowings for the six months ended June 30, 2024 increased to 5.02% from 4.11% for the same period a year earlier.

Previous wording

Analysis of Net Interest Spread. The following table presents for the periods indicated our condensed average balance sheet information, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities with additional comparative data on our operating performance (dollars in thousands):

Current wording

Analysis of Net Interest Spread. The following table presents for the periods indicated our condensed average balance sheet information, together with interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities with additional comparative data on our operating performance (dollars in thousands). Average balances are computed using daily average balances.