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 September 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 September 30, 2024, we had total consolidated assets of $16.19 billion, total loans of $11.22 billion, total deposits of $13.54 billion and total shareholders’ equity of $1.79 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 March 31, 2025, it had 135 branch offices and 13 loan production offices located in Washington, Oregon, California, Idaho and Utah. Banner is subject to regulation by the Federal Reserve. The Bank is subject to regulation by the Washington State Department of Financial Institutions – Division of Banks (the DFI) and the Federal Deposit Insurance Corporation (the FDIC). As of March 31, 2025, we had total consolidated assets of $16.17 billion, total loans of $11.44 billion, total deposits of $13.59 billion and total shareholders’ equity of $1.83 billion.

Previous wording

•Return on average assets was 1.13%, compared to 1.02% in the preceding quarter.

Current wording

•Return on average assets was 1.15% for both the current and preceding quarter.

Previous wording

•Net loans receivable increased 1% to $11.07 billion at September 30, 2024, compared to $10.99 billion at June 30, 2024.

Current wording

•Net loans receivable increased to $11.28 billion at March 31, 2025, compared to $11.20 billion at December 31, 2024.

Previous wording

•The allowance for credit losses - loans was $154.6 million, or 1.38% of total loans receivable, as of September 30, 2024, compared to $152.8 million, or 1.37% of total loans receivable, at June 30, 2024.

Current wording

•The allowance for credit losses - loans was $157.3 million, or 1.38% of total loans receivable, as of March 31, 2025, compared to $155.5 million, or 1.37% of total loans receivable, at December 31, 2024.

Previous wording

•Common shareholders’ equity per share increased 6% to $52.06 at September 30, 2024, compared to $49.07 at the preceding quarter end.

Current wording

•Common shareholders’ equity per share increased 3% to $53.16 at March 31, 2025, compared to $51.49 at December 31, 2024.

Previous wording

•Tangible common shareholders’ equity per share* increased 8% to $41.12 at September 30, 2024, compared to $38.12 at the preceding quarter end.

Current wording

•Tangible common shareholders’ equity per share* increased 4% to $42.27 at March 31, 2025, compared to $40.57 at December 31, 2024.

Previous wording

(2)Adjusted earnings (non-GAAP) divided by average assets.

Current wording

(1)Adjusted earnings (non-GAAP) divided by average assets.

Previous wording

(3)Adjusted earnings (non-GAAP) divided by average equity.

Current wording

(2)Adjusted earnings (non-GAAP) divided by average equity.

Previous wording

(4)Adjusted non-interest expense (non-GAAP) divided by adjusted revenue.

Current wording

(3)Adjusted non-interest expense (non-GAAP) divided by adjusted revenue.

Previous 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.

Current wording

Our critical accounting estimates are described in detail in the Critical Accounting Estimates section of our 2024 Form 10-K. The condensed consolidated financial statements are prepared in conformity with GAAP and follow general practices within the financial services industry in which the Company operates. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements. As this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes that the allowance for credit losses and fair value measurements require significant judgements and assumptions which are susceptible to significant changes based on the current environment. There have been no significant changes in our application of critical accounting estimates since December 31, 2024.

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 September 30, 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 $414.2 million at September 30, 2024, compared to December 31, 2023, reflecting increased commercial real estate loans, multifamily loans, one-to-four family residential loans, land and land development loans and commercial business loans, partially offset by decreased commercial construction and one-to-four family construction loans. At September 30, 2024, loans receivable totaled $11.22 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 March 31, 2025 was 84%. We offer a wide range of loan products to meet the demands of our clients. Our lending activities are primarily directed toward the origination of real estate and commercial loans. Total loans receivable (gross loans less deferred fees and discounts and excluding loans held for sale) increased $84.1 million at March 31, 2025, compared to December 31, 2024, reflecting increased commercial construction, multifamily construction and land and land development loans, partially offset by decreased commercial real estate, multifamily, commercial business and one-to-four family construction loans. At March 31, 2025, loans receivable totaled $11.44 billion compared to $11.35 billion at December 31, 2024.

Previous wording

Commercial real estate loans totaled $3.79 billion, or 34% of our loan portfolio, and multifamily real estate loans totaled $889.9 million, or 8% of our loan portfolio, at September 30, 2024. Commercial real estate loans increased by $157.5 million during the first nine months of 2024, while multifamily real estate loans increased by $78.6 million, primarily due to the conversion of construction loans to the permanent loans upon the completion of the construction phase.

Current wording

Commercial real estate loans totaled $3.84 billion, or 33% of our loan portfolio, and multifamily real estate loans totaled $877.7 million, or 8% of our loan portfolio, at March 31, 2025. Commercial real estate loans decreased by $28.2 million during the first three months of 2025, while multifamily real estate loans decreased by $16.7 million, primarily due to payoffs and paydowns exceeding new production.

Previous wording

Our construction, land and land development loans totaled $1.53 billion, or 14% of our loan portfolio, at September 30, 2024, compared to $1.54 billion at December 31, 2023. Multifamily construction loans increased $20.1 million, or 4%, to $524.1 million at September 30, 2024, compared to December 31, 2023. Multifamily construction and one- to four-family construction loans each represented approximately 5% of our total loan portfolio at September 30, 2024. Multifamily construction loans were comprised primarily of affordable housing projects and, to a lesser extent, market rate multifamily projects across our footprint. Commercial construction loans decreased $46.0 million, or 27%, to $124.1 million at September 30, 2024, compared to $170.0 million at December 31, 2023, due to the completion of the construction phase. Land and land development loans increased $34.1 million, or 10%, to $370.7 million at September 30, 2024, compared to December 31, 2023.

Current wording

Our construction, land and land development loans totaled $1.67 billion, or 15% of our loan portfolio, at March 31, 2025, compared to $1.52 billion at December 31, 2024. Multifamily construction loans increased $105.2 million, or 20%, to $618.9 million at March 31, 2025, compared to December 31, 2024. Multifamily construction represented approximately 6% of our total loan portfolio at March 31, 2025. Multifamily construction loans were comprised primarily of affordable housing projects and, to a lesser extent, market rate multifamily projects across our footprint. Commercial construction loans increased $24.1 million, or 20%, to $146.5 million at March 31, 2025, compared to $122.4 million at December 31, 2024, due to advances and new loan production, partially offset by transfers to the permanent loan portfolio upon completion of the construction phase. Land and land development loans increased $26.3 million, or 7%, to $396.0 million at March 31, 2025, compared to December 31, 2024, primarily due to new loan production, partially offset by payoffs and paydowns.

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 $2.72 billion at September 30, 2024 and $2.60 billion at December 31, 2023. Commercial and agricultural business loans represented approximately 24% of our loan portfolio at September 30, 2024. Our commercial business lending also includes participation in certain syndicated loans, including shared national credits, which totaled $226.2 million, or 2% of our loan portfolio, at September 30, 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 $2.74 billion at March 31, 2025 and $2.76 billion at December 31, 2024. Commercial and agricultural business loans represented approximately 24% of our loan portfolio at March 31, 2025. Our commercial business lending also includes participation in certain syndicated loans, including shared national credits, which totaled $223.6 million, or 2% of our loan portfolio, at March 31, 2025, compared to $227.4 million, or 2% of our loan portfolio, at December 31, 2024.

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 September 30, 2024, one- to four-family residential loans retained in our portfolio increased $57.1 million, to $1.58 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, offset by the transfer of certain pools of one- to four-family residential loans to held for sale. One- to four-family residential loans represented 14% of our loan portfolio at September 30, 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 March 31, 2025, one- to four-family residential loans retained in our portfolio increased $9.0 million, to $1.60 billion, compared to $1.59 billion at December 31, 2024. The increase in one- to four-family residential loans was primarily the result of a higher percentage of one- to four-family construction loans converting to permanent one- to four-family residential loans and new loan production. One- to four-family residential loans represented 14% of our loan portfolio at March 31, 2025.

Previous wording

Our consumer loan activity is primarily directed at meeting demand from our existing deposit clients. At September 30, 2024, consumer loans, including home equity revolving lines of credit, increased $24.8 million to $724.2 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 March 31, 2025, consumer loans, including home equity revolving lines of credit, decreased $4.2 million to $717.2 million, compared to $721.4 million at December 31, 2024.

Previous wording

Loans held for sale increased to $78.8 million at September 30, 2024, compared to $11.2 million at December 31, 2023. The increase in loans held for sale was primarily the result of the transfer of $47.5 million of one- to four-family residential loans from portfolio to held for sale during the third quarter of 2024. Originations of loans held for sale increased to $197.7 million for the nine months ended September 30, 2024, compared to $187.1 million for the same period last year. The volume of one- to four-family residential mortgage loans sold was $255.7 million during the nine months ended September 30, 2024, compared to $190.4 million in the same period a year ago.

Current wording

Loans held for sale decreased to $24.5 million at March 31, 2025, compared to $32.0 million at December 31, 2024. The decrease in loans held for sale compared to the preceding quarter was primarily the result of loan sales exceeding new originations of one- to four- family residential mortgage loans held for sale during the quarter. Originations of loans held for sale increased to $75.2 million for the three months ended March 31, 2025, compared to $48.4 million for the same period last year. The volume of one- to four-family residential mortgage loans sold was $108.1 million during the three months ended March 31, 2025, compared to $65.9 million in the same period a year ago.

Previous wording

Investment Securities: Total securities decreased $181.0 million to $3.25 billion at September 30, 2024, from $3.43 billion at December 31, 2023, primarily due to securities sales, paydowns and maturities exceeding purchases during the nine-month period ended September 30, 2024. Purchases during the nine months ended September 30, 2024, consisted primarily of state and local government obligations. The average effective duration of the Company’s securities portfolio was 6.3 years at September 30, 2024, compared to 6.5 years at December 31, 2023. Fair value adjustments for securities designated as available-for-sale increased $64.7 million for the nine months ended September 30, 2024, which was included, net of the associated tax expense of $15.5 million, as a component of other comprehensive income, and occurred as a result of decreases in market interest rates during the nine months ended September 30, 2024.

Current wording

Investment Securities: Total securities decreased $5.3 million to $3.10 billion at March 31, 2025, from $3.11 billion at December 31, 2024, primarily due to securities paydowns and maturities exceeding purchases during the three months ended March 31, 2025. Purchases during the three months ended March 31, 2025, consisted primarily of state and local government obligations. The average effective duration of the Company’s securities portfolio was 6.5 years at March 31, 2025, compared to 6.6 years at December 31, 2024. Fair value adjustments for securities designated as available-for-sale increased $38.3 million for the three months ended March 31, 2025, which was included, net of the associated tax expense of $9.2 million, as a component of other comprehensive income, and occurred as a result of decreases in market interest rates during the three months ended March 31, 2025.

Previous wording

Total deposits increased $508.7 million at September 30, 2024, compared to December 31, 2023, with core deposits increasing $464.3 million and certificates of deposit increasing $44.4 million. The increase in core deposits primarily reflects an increase in third-party insured sweep accounts and normal seasonal increases primarily from agricultural clients. The increase in certificates of deposit is a result of higher rates attracting clients to these deposit types. We had $50.3 million of brokered deposits at September 30, 2024, compared to $108.1 million at December 31, 2023. Core deposits represented 89% of total deposits at both September 30, 2024 and December 31, 2023. Competition for deposits in our market areas remains strong.

Current wording

Total deposits increased $78.9 million at March 31, 2025, compared to December 31, 2024, with core deposits increasing $74.5 million and certificates of deposit increasing $4.4 million. The increase in core deposits primarily reflects increases in interest-bearing transaction and savings accounts. We had $75.3 million of brokered deposits at March 31, 2025, compared to $50.3 million at December 31, 2024. Core deposits represented 89% of total deposits at both March 31, 2025 and December 31, 2024. Competition for deposits in our market areas remains strong.

Previous wording

Borrowings: We had $230.0 million of FHLB advances at September 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 $28.3 million to $154.5 million at September 30, 2024, compared to $182.9 million at December 31, 2023. The decrease in borrowings reflects the increased use of deposits to fund loan growth. At September 30, 2024, the Company’s off-balance sheet liquidity included additional borrowing capacity of $3.23 billion at the FHLB and $1.53 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 $66.3 million at September 30, 2024, compared to $66.4 million at December 31, 2023. Subordinated notes, net of issuance costs were $80.2 million at September 30, 2024, compared to $92.9 million at December 31, 2023. The decrease was due to Banner Bank’s purchase of $13.0 million of Banner’s subordinated debt during the nine months ended September 30, 2024.

Current wording

Borrowings: We had $168.0 million of FHLB advances at March 31, 2025, compared to $290.0 million at December 31, 2024. Other borrowings, consisting of retail repurchase agreements primarily related to client cash management accounts, increased $5.3 million to $130.6 million at March 31, 2025, compared to $125.3 million at December 31, 2024. The overall decrease in borrowings reflects the increased use of deposits to fund loan growth. At March 31, 2025, the Company’s off-balance sheet liquidity included additional borrowing capacity of $3.14 billion at the FHLB and $1.65 billion at the Federal Reserve, as well as federal funds line of credit agreements with other financial institutions of $125.0 million. Junior subordinated debentures totaled $67.7 million at March 31, 2025, compared to $67.5 million at December 31, 2024. Subordinated notes, net of issuance costs were $80.4 million at March 31, 2025, compared to $80.3 million at December 31, 2024.

Previous wording

Shareholders’ Equity: Total shareholders’ equity increased $141.0 million to $1.79 billion, or 11.08% of total assets, at September 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 $72.3 million increase in retained earnings as a result of $122.5 million in net income, partially offset by the accrual of cash dividends during the nine months ended September 30, 2024. In addition, accumulated other comprehensive loss decreased by $63.6 million, primarily due to a decrease in the unrealized losses on the security portfolio. There were no shares of common stock repurchased during the nine months ended September 30, 2024. Tangible common shareholders’ equity, which excludes goodwill and other intangible assets and is a non-GAAP financial measure, increased $143.1 million to $1.42 billion, or 8.96% of tangible assets, at September 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 “Third Quarter 2024 Financial Highlights.”

Current wording

Shareholders’ Equity: Total shareholders’ equity increased $59.1 million to $1.83 billion, or 11.34% of total assets, at March 31, 2025, compared to $1.77 billion, or 10.95% of total assets, at December 31, 2024. The increase in shareholders’ equity was primarily due to a $28.3 million increase in retained earnings as a result of $45.1 million in net income, partially offset by the accrual of cash dividends during the three months ended March 31, 2025. In addition, accumulated other comprehensive loss decreased by $29.3 million, primarily due to a decrease in the unrealized losses on the security portfolio. There were no shares of common stock repurchased during the three months ended March 31, 2025. Tangible common shareholders’ equity, which excludes goodwill and other intangible assets and is a non-GAAP financial measure, increased $59.6 million to $1.46 billion, or 9.23% of tangible assets, at March 31, 2025, compared to $1.40 billion, or 8.84% of tangible assets at December 31, 2024. A reconciliation of this non-GAAP financial measure to its comparable GAAP financial measure is presented above following “First Quarter 2025 Financial Highlights.”

Previous wording

Comparison of Results of Operations for the Three Months Ended September 30, 2024 and June 30, 2024, and for the Nine Months Ended September 30, 2024 and 2023

Current wording

Comparison of Results of Operations for the Three Months Ended March 31, 2025 and December 31, 2024, and March 31, 2024

Previous wording

For the quarter ended September 30, 2024, net income was $45.2 million, or $1.30 per diluted share, compared to $39.8 million, or $1.15 per diluted share, for the preceding quarter. For the nine months ended September 30, 2024, net income was $122.5 million, or $3.54 per diluted share, compared to $141.0 million, or $4.09 per diluted share for the same period a year earlier. The increase in net income for the current quarter compared to the preceding quarter was primarily due to an increase in revenue with increases in both net interest income and non-interest income as well as decreases in non-interest expense and the provision for credit losses. Net income for the nine months ended September 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.

Current wording

For the quarter ended March 31, 2025, net income was $45.1 million, or $1.30 per diluted share, compared to $46.4 million, or $1.34 per diluted share, for the preceding quarter and $37.6 million, or $1.09 per diluted share for three months ended March 31, 2024. The decrease in net income for the current quarter compared to the preceding quarter was primarily due to a decrease in non-interest income as well as an increase in non-interest expense, partially offset by an increase in net interest income. The increase in net income for the current quarter compared to the prior year quarter was primarily due to increases in net interest income and non-interest income, partially offset by increases in non-interest expense and the provision for credit losses.

Previous wording

The increase in net interest income compared to the preceding quarter reflects an increase in interest-earning assets and net interest margin. Net interest margin for the current quarter benefited from increased yields on loans due to new loans being originated at higher interest rates and adjustable rate loans repricing higher, partially offset by increased funding costs. On September 18, 2024, the Federal Open Market Committee of the Federal Reserve System decreased the target range for the federal funds rate by 50 basis points, and as the change occurred late in the third quarter of 2024, it had minimal impact on our current quarter net interest margin.

Current wording

The increase in net interest income compared to the preceding quarter reflects an overall increase in the yield on interest-earning assets and a decrease in funding costs, partially offset by a decrease in the average balance of interest-earning assets. Net interest margin for the current quarter benefited from decreased funding costs, primarily due to decreases in market interest rates, and increased yields on loans, primarily due to new loans being originated at higher interest rates and adjustable rate loans repricing higher. In 2024, the Federal Open Market Committee (“FOMC”) of the Federal Reserve lowered the target range for the federal funds rate three times, resulting in a target range of 4.25% to 4.50% at March 31, 2025. The increase in net interest income compared to the prior year quarter reflects an increase in both the yield and average balance of interest-earning assets, partially offset by an increase in funding costs.

Previous wording

We recorded a $1.7 million provision for credit losses for the quarter ended September 30, 2024, compared to a $2.4 million provision for credit losses in the preceding quarter. The provision for credit losses for the current quarter primarily reflected an increase in the reserve for collateral dependent loans. The provision for credit losses for the preceding quarter primarily reflected loan growth and an increase in the reserve for collateral dependent loans. We recorded a $4.6 million provision for credit losses for the nine months ended September 30, 2024, compared to an $8.3 million provision for credit losses for the same period a year ago.

Current wording

We recorded a $3.1 million provision for credit losses for the quarter ended March 31, 2025, compared to a $3.0 million provision for credit losses in the preceding quarter and a $520,000 provision for credit losses for the three months ended March 31, 2024. The provision for credit losses for the current quarter primarily reflected loan growth in the construction portfolio and to a lesser extent risk rating migration and qualitative adjustments applied to address economic uncertainty.

Previous wording

Total non-interest income increased for the quarter ended September 30, 2024, compared to the preceding quarter and increased during the nine months ended September 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 nine months ended September 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 as well as an increase in mortgage banking operations revenues.

Current wording

Total non-interest income decreased for the quarter ended March 31, 2025, compared to the preceding quarter and increased compared to the same period a year ago. The decrease in non-interest income during the current quarter compared to the preceding quarter was primarily due to decreases in mortgage banking operations revenue and miscellaneous income, partially offset by an increase in bank owned life insurance income. The increase in non-interest income during the current quarter compared to the prior year quarter was primarily due to a decrease in the net loss recognized on the sale of securities and an increase in the fair value adjustments on financial instruments carried at fair value during the current quarter.

Previous wording

Total non-interest expense decreased for the quarter ended September 30, 2024, compared to the preceding quarter and increased during the nine months ended September 30, 2024, compared to the same period a year ago. The decrease in non-interest expense for the current quarter compared to the prior quarter reflects a decrease in salary and employee benefits, primarily resulting from decreased medical premiums expense and unemployment and workers compensation expense. The increase in non-interest expense compared to the same period a year ago primarily reflects increases in salary and employee benefits, occupancy and equipment expense, payment and card processing services expense and deposit insurance expense, partially offset by a decrease in professional and legal expenses.

Current wording

Total non-interest expense increased for the quarter ended March 31, 2025, compared to the preceding quarter and the same period a year ago. The increase in non-interest expense for the current quarter compared to the preceding quarter reflects an increase in salary and employee benefits, primarily resulting from increased medical premiums expense and payroll tax expense, and a decrease in capitalized loan costs, partially offset by a decrease in advertising and marketing expenses. The increase in non-interest expense for the current quarter compared to the same quarter a year ago primarily reflects increases in salary and employee benefits and professional and legal expenses.

Previous wording

Net interest income decreased for the nine months ended September 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 nine months ended September 30, 2024, compared to 4.07% for the same period in the prior year.

Current wording

Net interest margin on a tax equivalent basis increased ten basis points to 3.92% for the first quarter of 2025, compared to 3.82% in the preceding quarter and increased 18 basis points compared to 3.74% for the same period in the prior year. Net interest margin for the current quarter, compared to the preceding quarter, benefited from decreased funding costs, primarily due to a decrease in market rates, partially offset by a shift in the average balance of non-interest-bearing deposits to higher costing interest-bearing checking accounts, savings accounts and certificates of deposit, and higher yields on interest earning assets, primarily due to an increase in the average loan yield. Net interest margin for the current quarter, compared to the prior year quarter, benefited from an increase in both the yield and the average balance of interest-earning assets, partially offset by higher funding costs.

Previous 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 6.04% for the quarter ended September 30, 2024, from 5.96% in the preceding quarter, as the loan portfolio continued to reprice to higher interest rates for the majority of the quarter. The average balance of loans receivable for the quarter ended September 30, 2024 increased compared to the preceding quarter, primarily reflecting increases in the average balances of mortgage loans, specifically commercial real estate and multifamily loans.

Current wording

The decreased interest income on loans for the current quarter compared to the preceding quarter was primarily driven by two fewer days in the quarter. The increase in interest income on loans for the current quarter compared to the same period in the prior year was due to an increase in both the average balance and yield on loans. Loan yields increased five basis points to 6.07% for the quarter ended March 31, 2025, from 6.02% in the preceding quarter and increased 20 basis points compared to 5.87% in the first quarter a year ago, due to new loans being originated at higher interest rates and adjustable rate loans repricing higher. The average balance of loans receivable for the quarter ended March 31, 2025 increased compared to both comparable periods, primarily reflecting increases in the average balances of mortgage loans, specifically commercial real estate and construction loans.

Previous wording

Interest and dividend income on total investment securities for the current quarter decreased from the preceding quarter due to a lower average yield earned on total investment securities during the current quarter compared to the preceding quarter and a decrease in the average balance of total investment securities. The average balance of total investment securities decreased to $3.63 billion for the quarter ended September 30, 2024 (excluding the effect of fair value adjustments), compared to $3.71 billion for the preceding quarter. The average yield on the combined portfolio decreased to 3.12% for the quarter ended September 30, 2024, from 3.14% in the preceding quarter.

Current wording

Interest and dividend income on total investment securities for the current quarter decreased from both the preceding and prior year quarters due to a lower average yield earned on total investment securities during the current quarter and a decrease in the average balance of total investment securities. The average balance of total investment securities decreased to $3.52 billion for the quarter ended March 31, 2025 (excluding the effect of fair value adjustments), compared to $3.61 billion for the preceding quarter and $3.78 billion for same period in the prior year. The average yield on the combined portfolio decreased to 3.02% for the quarter ended March 31, 2025, from 3.07% for the preceding quarter and 3.11% for the same period in the prior year.

Previous wording

Interest expense on total borrowings for the nine months ended September 30, 2024 increased to $21.2 million from $19.5 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 $562.9 million for the nine months ended September 30, 2024, compared to $610.4 million for the same period a year earlier. The decrease was primarily due to a $32.1 million decrease in the average balance of other borrowings. The average rate paid on total borrowings for the nine months ended September 30, 2024 increased to 5.04% from 4.26% for the same period a year earlier.

Current wording

Interest expense on total borrowings for the quarter ended March 31, 2025 increased 10%, to $4.0 million compared to $3.7 million for the prior quarter, primarily due to an increase in the average balance of total borrowings, and decreased from $7.1 million for the same period a year earlier, primarily due to decreases in both the rate paid and the average balance of total borrowings. The average balance of total borrowings increased to $379.7 million for the quarter ended March 31, 2025, compared to $320.3 million for the preceding quarter, primarily due to a $67.8 million increase in the average balance of FHLB advances, and decreased compared to $575.3 million for the same period a year earlier, primarily due to a $137.7 million decrease in the average balance of FHLB advances and $45.9 million decrease in the average balance of other borrowings. The average rate paid on total borrowings for the quarter ended March 31, 2025 decreased to 4.32% from 4.57% for the preceding quarter and 4.98% for the same period a year earlier.

Previous wording

(3)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $2.3 million and $2.2 million for the quarters ended September 30, 2024 and June 30, 2024, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.0 million for both the quarter ended September 30, 2024 and June 30, 2024.

Current wording

(3)Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $2.2 million for both the quarters ended March 31, 2025 and December 31, 2024, and $2.0 million for the quarter ended March 31, 2024. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.0 million for the quarters ended March 31, 2025, December 31, 2024, and March 31, 2024.

Previous wording

(4)Represents non-GAAP financial measures. See non-GAAP financial measure reconciliations presented above following Third Quarter 2024 Highlights.

Current wording

(4)Represents non-GAAP financial measures. See non-GAAP financial measure reconciliations presented above following First Quarter 2025 Highlights.

Previous wording

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 both the quarter ended September 30, 2024 and the preceding quarter, we recorded a provision for credit losses - loans of $2.0 million. The provision for credit losses - loans for the current quarter primarily reflects an increase in the reserve for collateral dependent loans. The provision for credit losses - loans for the preceding quarter primarily reflected loan growth and an increase in the reserve for collateral dependent loans. Future assessments of the expected credit losses will not only be impacted by changes in both the composition and amount of loans, and to the reasonable and supportable forecast, but will also include an updated assessment of qualitative factors, as well as consideration of any required changes in the reasonable and supportable forecast reversion period.

Current wording

The provision for credit losses - loans reflects the amount required to maintain the allowance for credit losses - loans at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves. During the quarter ended March 31, 2025, we recorded a provision for credit losses - loans of $4.5 million, compared to a provision for credit losses - loans of $3.2 million during the preceding quarter. The provision for credit losses for the current quarter primarily reflected loan growth in the construction portfolio and to a lesser extent risk rating migration and qualitative adjustments applied to address economic uncertainty. The provision for credit losses for the preceding quarter primarily reflected risk rating downgrades as well as growth in loan balances. Future provisions for credit losses will continue to be influenced by changes in the amount and composition of the loan portfolio, updates to the reasonable and supportable forecast of future economic conditions, revisions to qualitative factor assessments, and any necessary changes to the reversion period applied in estimating expected credit losses.

Previous wording

The decrease in the allowance for credit losses - unfunded loan commitments for the current quarter primarily reflects a decrease in unfunded loan commitments in the one- to four-family construction, construction, land and land development, and agricultural loan portfolios.

Current wording

The decrease in the allowance for credit losses - unfunded loan commitments for the current quarter primarily reflects a decrease in unfunded loan commitments in the construction portfolio.

Previous wording

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 the net loss recognized on the valuation of financial instruments carried at fair value, partially offset by a decrease in miscellaneous income. The increase in non-interest income for the nine months ended September 30, 2024, compared to the same period a year earlier was primarily due to decreases in the net loss recognized on the sale of securities and the net loss recognized on the valuation of financial instruments carried at fair value, as well as increases in revenue from mortgage banking operations and miscellaneous income.

Current wording

The decrease in non-interest income during the current quarter compared to the preceding quarter was primarily due to decreases in mortgage banking operations revenue and miscellaneous income, partially offset by an increase in bank owned life insurance income. The increase in non-interest income during the current quarter compared to the prior year quarter was primarily due to a decrease in the net loss recognized on the sale of securities and an increase in the fair value adjustments on financial instruments carried at fair value during the current quarter

Previous wording

Revenue from mortgage banking operations increased $174,000 for the quarter ended September 30, 2024, compared to the preceding quarter and increased $2.1 million for the nine months ended September 30, 2024, compared to the same period a year earlier. The volume of one- to four-family loans sold during the current quarter and the nine months ended September 30, 2024 increased relative to the comparable periods, although overall volumes remained low due to reduced refinancing and purchase activity in the current rate environment. The increase was also impacted by increases in the pricing on the one- to four-family loans sold during the current period. The current year also benefited from a $284,000 gain related to the sale of $19.8 million of one- to four-family portfolio loans during the second quarter of 2024. In addition, the prior year period reflected a downward lower of cost or market adjustment on multifamily loans held for sale. In 2023, the Bank discontinued the origination of multifamily loans for sale into the secondary market. All of the multifamily loans held for sale were transferred to the held for investment loan portfolio and the related lower of cost or market adjustment was reversed in the fourth quarter of 2023. Gains on sales of one- to four-family loans resulted in income of $2.1 million and $5.4 million for the quarter and nine months ended September 30, 2024, respectively, compared to $2.0 million in the preceding quarter, and $4.2 million for the nine months ended September 30, 2023. Home purchase activity accounted for 88% of one- to four-family mortgage loan originations in the third quarter of 2024, compared to 89% in the preceding quarter.

Current wording

Revenue from mortgage banking operations decreased $583,000 for the quarter ended March 31, 2025, compared to the preceding quarter and increased $768,000 compared to the same period a year earlier. The volume of one- to four-family loans sold during the current quarter decreased compared to the preceding quarter and increased compared to the prior year quarter. While the volume of one- to four-family loans sold increased compared to the prior year quarter, overall volumes remained low due to reduced refinancing and purchase activity in the current interest rate environment. The decrease in mortgage banking operations revenue from the preceding quarter reflects a $508,000 gain related to the pooled loan sale of $34.8 million of one- to four-family loans during the fourth quarter of 2024 and a decrease in the market value of our hedge, partially offset by an increase in the pricing of one- to four-family loans sold during the current quarter. Gains on sales of one- to four-family loans totaled $2.1 million for the quarter ended March 31, 2025, compared to $2.6 million in the preceding quarter and $1.3 million for the three months ended March 31, 2024. Home purchase activity accounted for 84% of one- to four-family residential mortgage loan originations in the first quarter of 2025, compared to 79% in the preceding quarter.

Previous wording

Miscellaneous income increased for the nine months ended September 30, 2024, compared to the same period a year earlier, primarily as a result of an increase in the gain on sale of SBA loans.

Current wording

Miscellaneous income decreased for the three months ended March 31, 2025, compared to the prior quarter, primarily due to a gain recognized on the sale of a non-performing loan during the fourth quarter of 2024, and increased compared to same period a year earlier, primarily as a result of an increase in the gain on sale of SBA loans.

Previous wording

There were no sales of securities during the current quarter and the net loss on the sale of securities recognized for the prior periods reflected strategic sales of securities to minimize the impact of increasing rates on our securities portfolio. The net loss for fair value adjustments for changes in the valuation of financial instruments carried at fair value for the prior quarter and the nine months ended September 30, 2023 were due to declines in the current market valuation of limited partnership investments. The net loss for fair value adjustments for changes in the valuation of financial instruments carried at fair value for the nine months ended September 30, 2023 was also impacted by declines in the market valuation of investment securities held for trading.

Current wording

The net loss on the sale of securities recognized for the three months ended March 31, 2024 reflected strategic sales of securities to minimize the impact of increasing rates on our securities portfolio. The net loss for fair value adjustments for changes in the valuation of financial instruments carried at fair value for the three months ended March 31, 2024 were due to declines in the current market valuation of limited partnership investments.

Previous wording

The decrease in non-interest expense for the current quarter compared to the prior quarter reflects a decrease in salary and employee benefits. The increase in non-interest expense for the nine months ended September 30, 2024, compared to the same period a year earlier primarily reflects increases in salary and employee benefits as well as payment and card processing services expense, partially offset by a decrease in professional and legal expenses. Salary and employee benefits increased for the nine months ended September 30, 2023, primarily as a result of normal annual salary and wage increases and an increase in loan production related commission expense.

Current wording

The increase in non-interest expense for the current quarter compared to the prior quarter reflects an increase in salary and employee benefits and a decrease in capitalized loan costs, partially offset by a decrease in advertising and marketing expenses. The increase in non-interest expense for the three months ended March 31, 2025, compared to the same period a year earlier primarily reflects increases in salary and employee benefits and professional and legal expenses.