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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q 
(Mark One)

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2021
OR
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ to ______________
 Commission File Number 000-26584
BANNER CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-1691604
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
10 South First Avenue, Walla Walla, Washington 99362
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (509) 527-3636
Securities registered pursuant to Section 12(b) of the Act
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $.01 per share BANR The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
  Yes [x] No [  ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
  Yes [x] No [  ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [x] Accelerated filer    [ ] Non-accelerated filer   [  ] Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No [x]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title of class: As of July 31, 2021
Common Stock, $.01 par value per share
34,551,718 shares
 
1


BANNER CORPORATION AND SUBSIDIARIES

Table of Contents
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements.  The Unaudited Condensed Consolidated Financial Statements of Banner Corporation and Subsidiaries filed as a part of the report are as follows:
Consolidated Statements of Financial Condition as of June 30, 2021 and December 31, 2020
4
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020
5
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020
6
Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2021 and the Year Ended December 31, 2020
7
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020
Selected Notes to the Consolidated Financial Statements
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations  
Executive Overview
Comparison of Financial Condition at June 30, 2021 and December 31, 2020
Comparison of Results of Operations for the Three and Six Months Ended June 30, 2021 and 2020
Asset Quality
Liquidity and Capital Resources
Capital Requirements
Item 3 – Quantitative and Qualitative Disclosures About Market Risk  
Market Risk and Asset/Liability Management
Sensitivity Analysis
Item 4 – Controls and Procedures
PART II – OTHER INFORMATION  
Item 1 – Legal Proceedings
Item 1A – Risk Factors
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 – Defaults upon Senior Securities
Item 4 – Mine Safety Disclosures
Item 5 – Other Information
Item 6 – Exhibits
SIGNATURES
2


Special Note Regarding Forward-Looking Statements

Certain matters in this Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements relate to our financial condition, liquidity, results of operations, plans, objectives, future performance or business.  Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.”  Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future economic performance and projections of financial items.  These forward looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated or implied by our forward-looking statements. The novel coronavirus (COVID-19) pandemic, is adversely affecting us, our clients, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Deterioration in general business and economic conditions, including increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause actual results to differ materially from the results anticipated or projected include, but are not limited to, the following: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses and provisions for credit losses; the ability to manage loan delinquency rates; competitive pressures among financial services companies; changes in consumer spending or borrowing and spending habits; interest rate movements generally and the relative differences between short and long-term interest rates, loan and deposit interest rates, net interest margin and funding sources; uncertainty regarding the future of the London Interbank Offered Rate (LIBOR), and the potential transition away from LIBOR toward new interest rate benchmarks; the impact of repricing and competitors’ pricing initiatives on loan and deposit products; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values; the ability to adapt successfully to technological changes to meet clients’ needs and developments in the marketplace; the ability to access cost-effective funding; the ability to control operating costs and expenses; the use of estimates in determining fair value of certain assets and liabilities, which estimates may prove to be incorrect and result in significant changes in valuation; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect employees, and potential associated charges; disruptions, security breaches or other adverse events, failures or interruptions in, or attacks on, information technology systems or on the third-party vendors who perform critical processing functions; changes in financial markets; changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; secondary market conditions for loans and the ability to sell loans in the secondary market; the costs, effects and outcomes of litigation; legislation or regulatory changes or reforms, including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, results of safety and soundness and compliance examinations by the Board of Governors of the Federal Reserve System (the Federal Reserve), the Federal Deposit Insurance Corporation (the FDIC), the Washington State Department of Financial Institutions, Division of Banks, (the Washington DFI) or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require restitution or institute an informal or formal enforcement action which could require an increase in reserves for loan losses, write-downs of assets or changes in regulatory capital position, or affect the ability to borrow funds, or maintain or increase deposits, or impose additional requirements and restrictions, any of which could adversely affect liquidity and earnings; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; adverse changes in the securities markets; the inability of key third-party providers to perform their obligations; changes in accounting principles, policies or guidelines, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory and technological factors affecting operations, pricing, products and services; including the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the CARES Act) and the Consolidated Appropriations Act, 2021 the (CAA); future acquisitions by Banner of other depository institutions or lines of business; and future goodwill impairment due to changes in Banner’s business, changes in market conditions, including as a result of the COVID-19 pandemic, including recent vaccination efforts, or other factors; and other risks detailed from time to time in our filings with the U.S. Securities and Exchange Commission (SEC), including this report on Form 10-Q.  Any forward-looking statements are based upon management’s beliefs and assumptions at the time they are made.  We do not undertake and specifically disclaim any obligation to update any forward-looking statements included in this report or the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise.  These risks could cause our actual results to differ materially from those expressed in any forward-looking statements by, or on behalf of, us. Further, many of these risks and uncertainties are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the COVID-19 pandemic.  In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur, and you should not put undue reliance on any forward-looking statements.

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


3


BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited) (In thousands, except shares)
June 30, 2021 and December 31, 2020
ASSETS June 30,
2021
December 31,
2020
Cash and due from banks $ 329,359  $ 311,899 
Interest bearing deposits 1,138,572  922,284 
Total cash and cash equivalents 1,467,931  1,234,183 
Securities—trading 25,097  24,980 
Securities—available-for-sale, amortized cost $3,249,579 and $2,256,189, respectively
3,275,979  2,322,593 
Securities—held-to-maturity, net of allowance for credit losses of $110 and $94, respectively, fair value $479,977 and $448,681, respectively
455,256  421,713 
     Total securities 3,756,332  2,769,286 
Federal Home Loan Bank (FHLB) stock 14,001  16,358 
Securities purchased under agreements to resell 300,000  — 
Loans held for sale (includes $44,762 and $133,554, at fair value, respectively)
71,741  243,795 
Loans receivable 9,654,181  9,870,982 
Allowance for credit losses – loans (148,009) (167,279)
Net loans receivable
9,506,172  9,703,703 
Accrued interest receivable 46,979  46,617 
Real estate owned (REO), held for sale, net 763  816 
Property and equipment, net 156,063  164,556 
Goodwill 373,121  373,121 
Other intangibles, net 18,004  21,426 
Bank-owned life insurance (BOLI) 192,677  191,830 
Deferred tax assets, net 69,702  65,742 
Operating lease right-of-use assets 55,287  55,367 
Other assets 153,084  144,823 
Total assets
$ 16,181,857  $ 15,031,623 
LIABILITIES
Deposits:
Non-interest-bearing $ 6,090,063  $ 5,492,924 
Interest-bearing transaction and savings accounts 6,673,598  6,159,052 
Interest-bearing certificates 873,047  915,320 
Total deposits
13,636,708  12,567,296 
Advances from FHLB 100,000  150,000 
Other borrowings 237,736  184,785 
Subordinated notes, net 98,380  98,201 
Junior subordinated debentures at fair value (issued in connection with Trust Preferred Securities) 117,520  116,974 
Operating lease liabilities 59,117  59,343 
Accrued expenses and other liabilities 216,399  143,300 
Deferred compensation 46,786  45,460 
Total liabilities
14,512,646  13,365,359 
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS’ EQUITY
Preferred stock - $0.01 par value per share, 500,000 shares authorized; no shares outstanding at June 30, 2021 and December 31, 2020
—  — 
Common stock and paid in capital - $0.01 par value per share, 50,000,000 shares authorized; 34,550,888 shares issued and outstanding at June 30, 2021; 35,159,200 shares issued and outstanding at December 31, 2020
1,311,455  1,349,879 
Common stock (non-voting) and paid in capital - $0.01 par value per share, 5,000,000 shares authorized; no shares issued and outstanding at June 30, 2021; no shares issued and outstanding at December 31, 2020
—  — 
Retained earnings 319,505  247,316 
Carrying value of shares held in trust for stock-based compensation plans (7,374) (7,636)
Liability for common stock issued to stock related compensation plans 7,374  7,636 
Accumulated other comprehensive income 38,251  69,069 
Total shareholders’ equity 1,669,211  1,666,264 
Total liabilities and shareholders’ equity $ 16,181,857  $ 15,031,623 
See Selected Notes to the Consolidated Financial Statements
4


BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands, except shares and per share amounts)
For the Three and Six Months Ended June 30, 2021 and 2020
Three Months Ended
June 30,
Six Months Ended
June 30,
2021 2020 2021 2020
INTEREST INCOME:
Loans receivable $ 115,391  $ 115,173  $ 224,315  $ 234,099 
Mortgage-backed securities 11,437  7,983  20,808  17,120 
Securities and cash equivalents 6,737  5,591  12,963  9,193 
Total interest income
133,565  128,747  258,086  260,412 
INTEREST EXPENSE:
Deposits 3,028  6,694  6,637  15,444 
FHLB advances 655  984  1,589  3,048 
Other borrowings 124  238  233  354 
Subordinated debt 2,204  1,251  4,412  2,728 
Total interest expense
6,011  9,167  12,871  21,574 
Net interest income 127,554  119,580  245,215  238,838 
(RECAPTURE)/PROVISION FOR CREDIT LOSSES (10,256) 28,623  (19,507) 52,093 
Net interest income after (recapture)/provision for credit losses 137,810  90,957  264,722  186,745 
NON-INTEREST INCOME:
Deposit fees and other service charges 9,758  7,546  18,697  17,349 
Mortgage banking operations 7,478  14,138  18,918  24,329 
Bank-owned life insurance (BOLI) 1,245  2,317  2,552  3,367 
Miscellaneous 3,720  1,427  5,762  4,066 
22,201  25,428  45,929  49,111 
Net gain on sale of securities 77  93  562  171 
Net change in valuation of financial instruments carried at fair value 58  2,199  117  (2,397)
Total non-interest income
22,336  27,720  46,608  46,885 
NON-INTEREST EXPENSE:
Salary and employee benefits 61,935  63,415  126,754  123,323 
Less capitalized loan origination costs (8,768) (11,110) (18,464) (16,916)
Occupancy and equipment 12,823  12,985  25,812  26,092 
Information/computer data services 5,602  6,084  11,805  11,894 
Payment and card processing expenses 4,975  3,851  9,301  8,091 
Professional and legal expenses 4,371  2,163  7,699  4,082 
Advertising and marketing 1,181  652  2,444  2,479 
Deposit insurance expense 1,241  1,705  2,774  3,340 
State/municipal business and use taxes 1,083  1,104  2,148  2,088 
REO operations, net 118  (124) 104 
Amortization of core deposit intangibles 1,711  2,002  3,422  4,003 
Miscellaneous 6,156  5,199  11,665  11,556 
 
92,428  88,054  185,236  180,136 
COVID-19 expenses 117  2,152  265  2,391 
Merger and acquisition - related expenses 79  336  650  1,478 
Total non-interest expense
92,624  90,542  186,151  184,005 
Income before provision for income taxes 67,522  28,135  125,179  49,625 
PROVISION FOR INCOME TAXES 13,140  4,594  23,942  9,202 
NET INCOME $ 54,382  $ 23,541  $ 101,237  $ 40,423 
Earnings per common share:
Basic $ 1.57  $ 0.67  $ 2.90  $ 1.14 
Diluted $ 1.56  $ 0.67  $ 2.88  $ 1.14 
Cumulative dividends declared per common share $ 0.41  $ —  $ 0.82  $ 0.41 
Weighted average number of common shares outstanding:
Basic
34,736,639  35,189,260  34,854,357  35,326,401 
Diluted
34,933,714  35,283,690  35,149,986  35,545,086 
See Selected Notes to the Consolidated Financial Statements
5


BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (In thousands)
For the Three and Six Months Ended June 30, 2021 and 2020
Three Months Ended
June 30,
Six Months Ended
June 30,
2021 2020 2021 2020
NET INCOME $ 54,382  $ 23,541  $ 101,237  $ 40,423 
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES:
Unrealized holding gain (loss) on available-for-sale securities arising during the period 33,619  7,912  (39,488) 50,090 
Income tax (expense) benefit related to available-for-sale securities unrealized holding gain (loss) (8,069) (1,899) 9,477  (12,022)
Reclassification for net gain on available-for-sale securities realized in earnings (77) (93) (516) (171)
Income tax expense related to available-for-sale securities realized in earnings 19  22  124  41 
Changes in fair value of junior subordinated debentures related to instrument specific credit risk
(272) (9,818) (546) 9,691 
Income tax benefit (expense) related to junior subordinated debentures 65  2,356  131  (2,326)
Other comprehensive income (loss) 25,285  (1,520) (30,818) 45,303 
COMPREHENSIVE INCOME $ 79,667  $ 22,021  $ 70,419  $ 85,726 

See Selected Notes to the Consolidated Financial Statements
6


BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited) (In thousands, except shares)
For the Six Months Ended June 30, 2021 and the Year Ended December 31, 2020
Common Stock
and Paid in Capital
Retained Earnings Accumulated
Other Comprehensive Income
Shareholders’
Equity
Shares Amount
Balance, January 1, 2020 35,751,576  $ 1,373,940  $ 186,838  $ 33,256  $ 1,594,034 
New credit standard (Accounting Standards Codification (ASC) 326) - impact in year of adoption (11,215) (11,215)
Net income 16,882  16,882 
Other comprehensive income, net of income tax
46,823  46,823 
Accrual of dividends on common stock ($0.41/share)
(14,583) (14,583)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered
(24,337) 1,534  1,534 
Repurchase of common stock
(624,780) (31,775) (31,775)
Balance, March 31, 2020 35,102,459  $ 1,343,699  $ 177,922  $ 80,079  $ 1,601,700 

Common Stock
and Paid in Capital
Retained Earnings Accumulated
Other Comprehensive Income
Shareholders’
Equity
Shares Amount
Balance, April 1, 2020 35,102,459  $ 1,343,699  $ 177,922  $ 80,079  $ 1,601,700 
Net income 23,541  23,541 
Other comprehensive loss, net of income tax (1,520) (1,520)
Adjustment to previously accrued dividends (15) (15)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered
55,440  1,397  1,397 
Balance, June 30, 2020 35,157,899  $ 1,345,096  $ 201,448  $ 78,559  $ 1,625,103 

Continued on next page




7





Common Stock
and Paid in Capital
Retained Earnings Accumulated
Other Comprehensive Income
Shareholders’
Equity
Shares Amounts
Balance, July 1, 2020 35,157,899  $ 1,345,096  $ 201,448  $ 78,559  $ 1,625,103 
Net income 36,548  36,548 
Other comprehensive loss, net of income tax (2,601) (2,601)
Accrual of dividends on common stock ($0.41/share)
(15,037) (15,037)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered
669  2,516  2,516 
Balance, September 30, 2020 35,158,568  $ 1,347,612  $ 222,959  $ 75,958  $ 1,646,529 
Common Stock
and Paid in Capital
Retained Earnings Accumulated
Other Comprehensive Income
Shareholders’
Equity
Shares Amounts
Balance, October 1, 2020 35,158,568  $ 1,347,612  $ 222,959  $ 75,958  $ 1,646,529 
Net income 38,957  38,957 
Other comprehensive loss, net of income tax
(6,889) (6,889)
Accrual of dividends on common stock ($0.41/share)
(14,600) (14,600)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered
632  2,267  2,267 
Balance, December 31, 2020 35,159,200  $ 1,349,879  $ 247,316  $ 69,069  $ 1,666,264 

Continued on next page
8


Common Stock
and Paid in Capital
Retained Earnings Accumulated
Other Comprehensive Income
Shareholders’
Equity
Shares Amount
Balance, January 1, 2021 35,159,200  $ 1,349,879  $ 247,316  $ 69,069  $ 1,666,264 
Net income 46,855  46,855 
Other comprehensive loss, net of income tax (56,103) (56,103)
Accrual of dividends on common stock ($0.41/share)
(14,589) (14,589)
Amortization of stock-based compensation related to restricted stock grants, net of shares surrendered
76,143  1,714  1,714 
Repurchase of common stock
(500,000) (25,324) (25,324)
Balance, March 31, 2021 34,735,343  $ 1,326,269  $ 279,582  $ 12,966  $ 1,618,817 

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


See Selected Notes to the Consolidated Financial Statements
9


BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
For the Six Months Ended June 30, 2021 and 2020
Six Months Ended June 30,
2021 2020
OPERATING ACTIVITIES:
Net income $ 101,237  $ 40,423 
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation 8,709  9,147 
Deferred income/expense and capitalized servicing rights, net of amortization (21,421) (3,870)
Amortization of core deposit intangibles 3,422  4,003 
Gain on sale of securities, net (562) (171)
Net change in valuation of financial instruments carried at fair value (117) 2,397 
Reinvested dividends – equity securities —  (124)
(Increase) decrease in deferred taxes (3,960) 12,479 
Increase (decrease) in current taxes payable 365  (1,136)
Stock-based compensation 4,651  4,355 
Net change in cash surrender value of BOLI (2,247) (2,443)
Gain on sale of loans, excluding capitalized servicing rights (14,904) (20,594)
(Gain) loss on disposal of real estate held for sale and property and equipment, net (1,765) 214 
(Recapture) provision for credit losses (19,507) 52,093 
Origination of loans held for sale (504,319) (668,327)
Proceeds from sales of loans held for sale 691,277  640,668 
Net change in:
Other assets 9,357  (59,724)
Other liabilities 69,508  6,347 
Net cash provided from operating activities 319,724  15,737 
INVESTING ACTIVITIES:
Purchases of securities—available-for-sale (1,875,578) (348,416)
Principal repayments and maturities of securities—available-for-sale 826,609  187,596 
Proceeds from sales of securities—available-for-sale 51,495  50,935 
Purchases of securitiesheld-to-maturity
(52,440) (215,780)
Principal repayments and maturities of securities—held-to-maturity 17,142  9,409 
Purchases of equity securities (4,750) (339,928)
Proceeds from sales of equity securities 4,796  — 
Loan repayments (originations), net 209,844  (982,018)
Purchases of loans and participating interest in loans (33) (16)
Proceeds from sales of other loans 31,297  8,454 
Purchases of property and equipment (5,198) (6,790)
Proceeds from sale of real estate held for sale and sale of other property 7,255  2,154 
Proceeds from FHLB stock repurchase program 2,358  52,164 
Purchase of FHLB stock —  (40,185)
Purchase of securities purchased under agreements to resell (300,000) — 
Other 1,334  3,964 
Net cash used in investing activities (1,085,869) (1,618,457)
FINANCING ACTIVITIES:
Increase in deposits, net 1,069,412  1,967,639 
Repayment of long term FHLB advances (50,000) — 
Repayment of overnight and short term FHLB advances, net —  (300,000)
Increase in other borrowings, net 52,950  47,609 
Net proceeds from issuance of subordinated notes —  98,140 
Cash dividends paid (29,393) (65,230)
Taxes paid related to net share settlement of equity awards (3,197) (1,424)
Cash paid for the repurchase of common stock (39,879) (31,775)
Net cash provided from financing activities 999,893  1,714,959 
NET CHANGE IN CASH AND CASH EQUIVALENTS 233,748  112,239 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,234,183  307,735 
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,467,931  $ 419,974 
Continued on next page

10


BANNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited) (In thousands)
For the Six Months Ended June 30, 2021 and 2020
Six Months Ended June 30,
2021 2020
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash $ 13,339  $ 22,485 
Tax refunds received 15,975  10,466 
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Transfer of loans to real estate owned and other repossessed assets
423  1,588 
   Dividends accrued but not paid until after period end 1,011  568 

See Selected Notes to the Consolidated Financial Statements
11


BANNER CORPORATION AND SUBSIDIARIES
SELECTED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1:  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (SEC). In preparing these financial statements, the Company has evaluated events and transactions subsequent to June 30, 2021 for potential recognition or disclosure. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Certain information and note disclosures have been condensed or omitted pursuant to the rules and regulations of the SEC and the accounting standards for interim financial statements. Certain reclassifications have been made to the 2020 Consolidated Financial Statements and/or schedules to conform to the 2021 presentation. Prior to the first quarter of 2021, the (recapture) provision for credit losses - unfunded loan commitment was recorded as non-interest expense. Beginning in the first quarter of 2021 the (recapture) provision for credit losses - unfunded loan commitment is recorded as a component of the provision for credit losses. These reclassifications may have affected certain ratios for the prior periods. The effect of these reclassifications is considered immaterial. All significant intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, management has identified several accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are significant to an understanding of Banner’s financial statements. These policies relate to (i) the methodology for the recognition of interest income, (ii) determination of the provision and allowance for credit losses, (iii) the valuation of financial assets and liabilities recorded at fair value (iv) the valuation of intangibles, such as goodwill, core deposit intangibles (CDI) and mortgage servicing rights, (v) the valuation of real estate held for sale, (vi) the valuation of assets acquired and liabilities assumed in business combinations and subsequent recognition of related income and expense, and (vii) the valuation or recognition of deferred tax assets and liabilities. These policies and judgments, estimates and assumptions are described in greater detail in subsequent notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations (Critical Accounting Policies) in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC (2020 Form 10-K).  There have been no significant changes in our application of these accounting policies during the first six months of 2021.

The information included in this Form 10-Q should be read in conjunction with our 2020 Form 10-K.  Interim results are not necessarily indicative of results for a full year or any other interim period.
12


Note 2:  ACCOUNTING STANDARDS RECENTLY ISSUED OR ADOPTED

Reference Rate Reform (Topic 848)

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

The following optional expedients for applying the requirements of certain Topics or Industry Subtopics in the Codification are permitted for contracts that are modified because of reference rate reform and that meet certain scope guidance: 1) modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate; 2) modifications of contracts within the scope of Topic 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required under this Topic for modifications not accounted for as separate contracts; 3) modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Subtopic 815-15, Derivatives and Hedging- Embedded Derivatives; and 4) for other Topics or Industry Subtopics in the Codification, the amendments in this ASU also include a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. Upon adoption, an entity may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020.

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

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





13


Note 3:  SECURITIES

The amortized cost, gross unrealized gains and losses and estimated fair value of securities at June 30, 2021 and December 31, 2020 are summarized as follows (in thousands):
  June 30, 2021
  Amortized Cost Fair
Value
Trading:
Corporate bonds $ 27,203  $ 25,097 
$ 27,203  $ 25,097 
  June 30, 2021
  Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair
Value
Available-for-Sale:
U.S. Government and agency obligations $ 94,847  $ 1,039  $ (784) $ —  $ 95,102 
Municipal bonds 311,533  17,180  (47) —  328,666 
Corporate bonds 268,387  3,703  (14) —  272,076 
Mortgage-backed or related securities 2,496,181  33,492  (28,176) —  2,501,497 
Asset-backed securities 78,631  —  —  78,638 
  $ 3,249,579  $ 55,421  $ (29,021) $ —  $ 3,275,979 
  June 30, 2021
  Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair
Value
Allowance for Credit Losses
Held-to-Maturity:
U.S. Government and agency obligations $ 318  $ $ —  $ 321  $ — 
Municipal bonds 395,683  22,945  (803) 417,825  (64)
Corporate bonds 3,157  —  (7) 3,150  (46)
Mortgage-backed or related securities 56,208  2,473  —  58,681  — 
$ 455,366  $ 25,421  $ (810) $ 479,977  $ (110)

December 31, 2020
Amortized Cost Fair
Value
Trading:
Corporate bonds $ 27,203  $ 24,980 
$ 27,203  $ 24,980 

14


December 31, 2020
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value
Available-for-Sale:
U.S. Government and agency obligations $ 141,668  $ 1,002  $ (935) $ —  $ 141,735 
Municipal bonds 283,997  19,523  (2) —  303,518 
Corporate bonds 219,086  2,762  (79) —  221,769 
Mortgage-backed or related securities 1,602,033  45,179  (1,060) —  1,646,152 
Asset-backed securities 9,405  77  (63) —  9,419 
$ 2,256,189  $ 68,543  $ (2,139) $ —  $ 2,322,593 

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

Accrued interest receivable on held-to-maturity debt securities was $3.0 million at both June 30, 2021 and December 31, 2020, and was $8.8 million and $6.9 million on available-for-sale debt securities as of June 30, 2021 and December 31, 2020, respectively. Accrued interest receivable on securities is reported in accrued interest receivable on the Consolidated Statements of Financial Condition and is excluded from the calculation of the allowance for credit losses.

At June 30, 2021 and December 31, 2020, the gross unrealized losses and the fair value for securities available-for-sale aggregated by the length of time that individual securities have been in a continuous unrealized loss position were as follows (in thousands):
June 30, 2021
Less Than 12 Months 12 Months or More Total
Fair
Value
Unrealized Losses Fair
Value
Unrealized Losses Fair
Value
Unrealized Losses
Available-for-Sale:
U.S. Government and agency obligations
$ —  $ —  $ 70,401  $ (784) $ 70,401  $ (784)
Municipal bonds
5,024  (40) 2,716  (7) 7,740  (47)
Corporate bonds
—  —  2,986  (14) 2,986  (14)
Mortgage-backed or related securities
1,102,279  (24,266) 203,238  (3,910) 1,305,517  (28,176)
$ 1,107,303  $ (24,306) $ 279,341  $ (4,715) $ 1,386,644  $ (29,021)

15


December 31, 2020
Less Than 12 Months 12 Months or More Total
Fair
Value
Unrealized Losses Fair
Value
Unrealized Losses Fair
Value
Unrealized Losses
Available-for-Sale:
U.S. Government and agency obligations
$ 3,126  $ (8) $ 50,603  $ (927) $ 53,729  $ (935)
Municipal bonds
495  (2) —  —  495  (2)
Corporate bonds
3,586  (79) —  —  3,586  (79)
Mortgage-backed or related securities
181,871  (1,046) 2,337  (14) 184,208  (1,060)
Asset-backed securities
—  —  5,676  (63) 5,676  (63)
$ 189,078  $ (1,135) $ 58,616  $ (1,004) $ 247,694  $ (2,139)

At June 30, 2021, there were 62 securities—available-for-sale with unrealized losses, compared to 54 at December 31, 2020.  Management does not believe that any individual unrealized loss as of June 30, 2021 or December 31, 2020 resulted from credit loss.  The decline in fair market value of these securities was generally due to changes in interest rates and changes in market-desired spreads subsequent to their purchase.

There were no sales of securities—trading during the six months ended June 30, 2021 or 2020. There were no securities—trading in a nonaccrual status at June 30, 2021 or December 31, 2020.  Net unrealized holding gains of $117,000 were recognized during the six months ended June 30, 2021 compared to $2.4 million of net unrealized holding losses recognized during the six months ended June 30, 2020.

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

  Three Months Ended
June 30,
Six Months Ended
June 30,
  2021 2020 2021 2020
Available-for-Sale:
Gross Gains $ 77  $ 93  $ 626  $ 171 
Gross Losses —  —  (110) — 
Balance, end of the period $ 77  $ 93  $ 516  $ 171 

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

There were no sales of securities—held-to-maturity during the six months ended June 30, 2021 or 2020. There were no securities—held-to-maturity in a nonaccrual status or 30 days or more past due at June 30, 2021 or December 31, 2020.

During the six months ended June 30, 2021, we sold a $4.8 million equity security with a resulting net gain of $46,000. There were no sales of equity securities during the six months ended June 30, 2020.

The amortized cost and estimated fair value of securities at June 30, 2021, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because some securities may be called or prepaid with or without call or prepayment penalties.
  June 30, 2021
Trading Available-for-Sale Held-to-Maturity
  Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Maturing in one year or less $ —  $ —  $ 163,091  $ 163,421  $ 5,085  $ 5,125 
Maturing after one year through five years —  —  180,657  189,261  60,870  63,365 
Maturing after five years through ten years —  —  717,085  721,323  23,764  25,531 
Maturing after ten years through twenty years 27,203  25,097  398,925  414,207  167,344  173,728 
Maturing after twenty years —  —  1,789,821  1,787,767  198,303  212,228 
  $ 27,203  $ 25,097  $ 3,249,579  $ 3,275,979  $ 455,366  $ 479,977 

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The following table presents, as of June 30, 2021, investment securities which were pledged to secure borrowings, public deposits or other obligations as permitted or required by law (in thousands):
June 30, 2021
Carrying Value Amortized Cost Fair
Value
Purpose or beneficiary:
State and local governments public deposits $ 203,479  $ 202,652  $ 216,996 
Interest rate swap counterparties 27,056  26,296  27,209 
Repurchase agreements 282,227  286,539  282,227 
Other 2,569  2,569  2,625 
Total pledged securities $ 515,331  $ 518,056  $ 529,057 

The Company monitors the credit quality of held-to-maturity debt securities through the use of credit rating. Credit ratings are reviewed and updated quarterly. The Company's non-rated held-to-maturity debt securities are primarily United States government sponsored enterprise debentures carrying minimal to no credit risk. The balance is local municipal debt from within the Company's footprint and is monitored through quarterly or annual financial review. This municipal debt is predominately essential service or unlimited general obligation backed debt. The following table summarizes the amortized cost of held-to-maturity debt securities by credit rating at June 30, 2021 and December 31, 2020 (in thousands):
June 30, 2021
U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total
AAA/AA/A $ —  $ 361,917  $ 500  $ —  $ 362,417 
Not Rated 318  33,766  2,657  56,208  92,949 
$ 318  $ 395,683  $ 3,157  $ 56,208  $ 455,366 

December 31, 2020
U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total
AAA/AA/A $ —  $ 349,123  $ 500  $ —  $ 349,623 
Not Rated 340  21,875  2,722  47,247  72,184 
$ 340  $ 370,998  $ 3,222  $ 47,247  $ 421,807 

The following table presents the activity in the allowance for credit losses for held-to-maturity debt securities by major type for the three and six months ended June 30, 2021 and June 30, 2020 (in thousands):
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For the Three Months Ended June 30, 2021
U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total
Allowance for credit losses – securities
Beginning Balance $ —  $ 61  $ 37  $ —  $ 98 
Provision for credit losses —  —  12 
Ending Balance $ —  $ 64  $ 46  $ —  $ 110 
For the Six Months Ended June 30, 2021
U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total
Allowance for credit losses – securities
Beginning Balance $ —  $ 59  $ 35  $ —  $ 94 
Provision for credit losses —  11  —  16 
Ending Balance $ —  $ 64  $ 46  $ —  $ 110 

For the Three Months Ended June 30, 2020
U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total
Allowance for credit losses – securities
Beginning Balance $ —  $ 61  $ 37  $ —  $ 98 
Impact of adopting ASC 326 —  —  —  —  — 
Provision for credit losses —  —  — 
Ending Balance $ —  $ 61  $ 41  $ —  $ 102 
For the Six Months Ended June 30, 2020
U.S. Government and agency obligations Municipal bonds Corporate bonds Mortgage-backed or related securities Total
Allowance for credit losses – securities
Beginning Balance $ —  $ —  $ —  $ —  $ — 
Impact of adopting ASC 326 —  28  35  —  63 
Provision for credit losses —  33  —  39 
Ending Balance $ —  $ 61  $ 41  $ —  $ 102 
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Note 4: LOANS RECEIVABLE AND THE ALLOWANCE FOR CREDIT LOSSES - LOANS

The following table presents the loans receivable at June 30, 2021 and December 31, 2020 by class (dollars in thousands).
  June 30, 2021 December 31, 2020
  Amount Percent of Total Amount Percent of Total
Commercial real estate:        
Owner-occupied $ 1,066,237  11.0  % $ 1,076,467  10.9  %
Investment properties 1,950,211  20.2  1,955,684  19.8 
Small balance CRE 621,102  6.4  573,849  5.8 
Multifamily real estate 504,445  5.2  428,223  4.4 
Construction, land and land development:
Commercial construction 182,868  1.9  228,937  2.3 
Multifamily construction 295,661  3.1  305,527  3.1 
One- to four-family construction 603,895  6.3  507,810  5.1 
Land and land development 290,404  3.0  248,915  2.5 
Commercial business:
Commercial business (1)
1,931,531  20.0  2,178,461  22.1 
Small business scored 743,975  7.7  743,451  7.5 
Agricultural business, including secured by farmland (2)
265,429  2.7  299,949  3.0 
One- to four-family residential 637,701  6.6  717,939  7.3 
Consumer:
Consumer—home equity revolving lines of credit
458,915  4.8  491,812  5.0 
Consumer—other 101,807  1.1  113,958  1.2 
Total loans 9,654,181  100.0  % 9,870,982  100.0  %
Less allowance for credit losses – loans (148,009)   (167,279)  
Net loans $ 9,506,172    $ 9,703,703   

(1)    Includes $807.2 million and $1.04 billion of U.S. Small Business Administration (SBA) Paycheck Protection Program (PPP) loans as of June 30, 2021 and December 31, 2020, respectively.
(2)    Includes $18.0 million of PPP loans as of June 30, 2021 and none as of December 31, 2020.


Loan amounts are net of unearned loan fees in excess of unamortized costs of $25.9 million as of June 30, 2021 and $25.6 million as of December 31, 2020. Net loans include net discounts on acquired loans of $12.5 million and $16.1 million as of June 30, 2021 and December 31, 2020, respectively. Net loans does not include accrued interest receivable. Accrued interest receivable on loans was $35.1 million as of June 30, 2021 and $36.6 million as of December 31, 2020 and was reported in accrued interest receivable on the Consolidated Statements of Financial Condition.

Purchased credit-deteriorated and purchased non-credit-deteriorated loans. Loans acquired in business combinations are recorded at their fair value at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-deteriorated (PCD) or purchased non-credit-deteriorated. There were no PCD loans acquired for the six months ended June 30, 2021.
Troubled Debt Restructurings. Loans are reported as troubled debt restructures (TDRs) when the bank grants one or more concessions to a borrower experiencing financial difficulties that it would not otherwise consider.  Our TDRs have generally not involved forgiveness of amounts due, but almost always include a modification of multiple factors; the most common combination includes interest rate, payment amount and maturity date.

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As of June 30, 2021 and December 31, 2020, the Company had TDRs of $6.7 million and $7.9 million, respectively, and no commitments to advance additional funds related to TDRs.

There were no new TDRs that occurred during the six months ended June 30, 2021. The following table presents new TDRs that occurred during the three and six months ended June 30, 2020 (dollars in thousands):
  Three Months Ended June 30, 2020 Six months ended June 30, 2020
  Number of
Contracts
Pre-modification Outstanding
Recorded Investment
Post-modification Outstanding
Recorded Investment
Number of
Contracts
Pre-
modification Outstanding
Recorded
Investment
Post-
modification Outstanding
Recorded
Investment
Recorded Investment            
Commercial business:
Commercial business —  —  —  4,796  4,796 
Total —  $ —  $ —  $ 4,796  $ 4,796 

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

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

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

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

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

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

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

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

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The following tables present the Company’s portfolio of risk-rated loans by class and by grade as of June 30, 2021 and December 31, 2020 (in thousands). Revolving loans that are converted to term loans are treated as new originations in the table below and are presented by year of origination. Term loans that are renewed or extended for periods longer than 90 days are presented as a new origination in the year of the most recent renewal or extension.
June 30, 2021
Term Loans by Year of Origination Revolving Loans Total Loans
By class: 2021 2020 2019 2018 2017 Prior
Commercial real estate - owner occupied
Risk Rating
Pass $ 104,686  $ 236,587  $ 153,251  $ 138,024  $ 94,739  $ 243,441  $ 8,286  $ 979,014 
Special Mention 12,316  —  6,717  —  2,182  1,144  —  22,359 
Substandard 1,068  —  18,258  1,260  4,156  40,122  —  64,864 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total Commercial real estate - owner occupied $ 118,070  $ 236,587  $ 178,226  $ 139,284  $ 101,077  $ 284,707  $ 8,286  $ 1,066,237 
Commercial real estate - investment properties
Risk Rating
Pass $ 143,971  $ 221,245  $ 275,953  $ 287,156  $ 218,088  $ 652,175  $ 18,265  $ 1,816,853 
Special Mention —  —  125  —  —  14,662  —  14,787 
Substandard 800  16,940  7,634  17,332  35,914  39,665  286  118,571 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total Commercial real estate - investment properties $ 144,771  $ 238,185  $ 283,712  $ 304,488  $ 254,002  $ 706,502  $ 18,551  $ 1,950,211 
Multifamily real estate
Risk Rating
Pass $ 90,117  $ 75,865  $ 75,877  $ 37,459  $ 92,599  $ 125,035  $ 2,153  $ 499,105 
Special Mention —  —  —  —  —  —  —  — 
Substandard —  2,312  1,426  —  —  1,602  —  5,340 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total Multifamily real estate $ 90,117  $ 78,177  $ 77,303  $ 37,459  $ 92,599  $ 126,637  $ 2,153  $ 504,445 
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June 30, 2021
Term Loans by Year of Origination Revolving Loans Total Loans
By class: 2021 2020 2019 2018 2017 Prior
Commercial construction
Risk Rating
Pass $ 48,468  $ 55,231  $ 28,575  $ 30,774  $ 329  $ 525  $ —  $ 163,902 
Special Mention —  —  5,971  —  —  —  —  5,971 
Substandard 4,018  —  4,035  4,844  —  98  —  12,995 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total Commercial construction $ 52,486  $ 55,231  $ 38,581  $ 35,618  $ 329  $ 623  $ —  $ 182,868 
Multifamily construction
Risk Rating
Pass $ 50,447  $ 98,759  $ 112,679  $ 14,002  $ 14,866  $ —  $ —  $ 290,753 
Special Mention —  —  —  —  —  —  —  — 
Substandard —  4,908  —  —  —  —  —  4,908 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total Multifamily construction $ 50,447  $ 103,667  $ 112,679  $ 14,002  $ 14,866  $ —  $ —  $ 295,661 
One- to four- family construction
Risk Rating
Pass $ 371,572  $ 230,858  $ 384  $ —  $ —  $ —  $ 750  $ 603,564 
Special Mention —  —  —  —  —  —  —  — 
Substandard —  —  331  —  —  —  —  331 
Doubtful —  —  —  —  —  —  —  — 
Loss —  —  —  —  —  —  —  — 
Total One- to four- family construction $ 371,572  $ 230,858  $ 715  $ —  $ —  $ —  $ 750  $ 603,895 
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June 30, 2021
Term Loans by Year of Origination Revolving Loans Total Loans
By class: 2021 2020 2019 2018 2017 Prior
Land and land development
Risk Rating
Pass $ 96,120  $ 125,095  $ 36,982  $ 10,165  $ 4,648  $ 9,572  $ 4,349  $ 286,931 
Special Mention —  —  —  —  —  —  —  — 
Substandard<