Banner Corporation Reports Increased Loan Demand, Strong Deposit Growth and Net Income of $54.4 Million, or $1.56 Per Diluted Share, for Second Quarter 2021; Declares Quarterly Cash Dividend of $0.41 Per Share

0
15


WALLA WALLA, Wash., July 21, 2021 (GLOBE NEWSWIRE) — Banner Corporation (NASDAQ GSM: BANR) (“Banner”), the parent company of Banner Bank, today reported net income of $54.4 million, or $1.56 per diluted share, for the second quarter of 2021, a 16% increase compared to $46.9 million, or $1.33 per diluted share, for the preceding quarter and a 131% increase compared to $23.5 million, or $0.67 per diluted share, for the second quarter of 2020. Banner’s second quarter 2021 results include $10.3 million in recapture of provision for credit losses, compared to $28.6 million in provision for credit losses in the second quarter of 2020. The second quarter 2020 provision for credit losses was primarily the result of the impact of the COVID-19 pandemic. In the first six months of 2021, net income was $101.2 million, or $2.88 per diluted share, compared to net income of $40.4 million, or $1.14 per diluted share for the same period a year earlier. Banner’s first six months of 2021 results include $19.5 million in recapture of provision for credit losses, compared to $52.1 million in provision for credit losses in the first six months of 2020.

Banner announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share. The dividend will be payable August 13, 2021, to common shareholders of record on August 3, 2021.

“Banner’s second quarter 2021 performance continues to demonstrate the success of our super community bank model, even with the challenges of the COVID-19 pandemic,” said Mark Grescovich, President and CEO. “We benefited from continued core deposit growth and an acceleration of PPP loan fee income as a result of SBA PPP loan forgiveness. The unprecedented level of market liquidity along with proceeds from new PPP loan originations, and our continued focus on building client relationships contributed to our core deposits increasing 16% compared to June 30, 2020.”

“Due to the ongoing improvement in forecasted economic conditions in our markets, coupled with continued reductions in our adversely classified loans, we recorded a $10.3 million recapture to our provision for credit losses during the current quarter. This compares to a $9.3 million recapture to our provision for credit losses during the preceding quarter and a $28.6 million provision for credit losses in the second quarter a year ago. Our allowance for credit losses – loans remains strong at 1.53% of total loans and 481% of non-performing loans at June 30, 2021, compared to 1.57% of total loans and 426% of non-performing loans at March 31, 2021,” said Grescovich. “Banner has provided PPP loans totaling nearly $1.61 billion to 13,922 businesses as of June 30, 2021, and as of quarter end, we had received SBA forgiveness for 6,707 PPP loans totaling $822.3 million. Our essential onsite employees, such as those working in our branches, continue to serve clients in person. In addition, as a result of the accelerated distribution of the COVID-19 vaccine over the past several months and the progress made toward fully reopening businesses in the states we serve, we began to normalize our operations by returning additional groups of employees back to Bank worksites in July 2021.”

At June 30, 2021, Banner Corporation had $16.18 billion in assets, $9.51 billion in net loans and $13.64 billion in deposits. Banner operates 155 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

Second Quarter 2021 Highlights

  • Revenues increased 6% to $149.9 million, compared to $141.9 million in the preceding quarter, and increased 2% when compared to $147.3 million in the second quarter a year ago.

  • Net interest income, before the recapture of provision for credit losses, increased to $127.6 million in the second quarter of 2021, compared to $117.7 million in the preceding quarter and $119.6 million in the second quarter a year ago.

  • Net interest margin on a tax equivalent basis was 3.52%, compared to 3.44% in the preceding quarter and 3.87% in the second quarter a year ago.

  • Mortgage banking revenues decreased 35% to $7.5 million, compared to $11.4 million in the preceding quarter, and decreased 47% compared to $14.1 million in the second quarter a year ago.

  • Return on average assets was 1.36%, compared to 1.24% in the preceding quarter and 0.68% in the second quarter a year ago.

  • Net loans receivable decreased to $9.51 billion at June 30, 2021, compared to $9.79 billion at March 31, 2021, and decreased 6% when compared to $10.13 billion at June 30, 2020.

  • Non-performing assets decreased to $31.5 million, or 0.19% of total assets, at June 30, 2021, compared to $37.0 million, or 0.23% of total assets in the preceding quarter, and decreased from $39.9 million, or 0.28% of total assets, at June 30, 2020.

  • The allowance for credit losses – loans was $148.0 million, or 1.53% of total loans receivable, as of June 30, 2021, compared to $156.1 million, or 1.57% of total loans receivable as of March 31, 2021 and $156.4 million or 1.52% of total loans receivable as of June 30, 2020.

  • Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 1% to $12.76 billion at June 30, 2021, compared to $12.64 billion at March 31, 2021, and increased 16% compared to $10.97 billion a year ago. Core deposits represented 94% of total deposits at June 30, 2021.

  • Dividends to shareholders were $0.41 per share in the quarter ended June 30, 2021.

  • Common shareholders’ equity per share increased 4% to $48.31 at June 30, 2021, compared to $46.60 at the preceding quarter end, and increased 5% from $46.22 a year ago.

  • Tangible common shareholders’ equity per share* increased 5% to $36.99 at June 30, 2021, compared to $35.29 at the preceding quarter end, and increased 6% from $34.89 a year ago.

  • Banner repurchased 250,000 shares of its common stock during the quarter at an average cost of $58.22 per share.

*Tangible common shareholders’ equity per share and the ratio of tangible common equity to tangible assets (both of which exclude goodwill and other intangible assets, net), and references to adjusted revenue (which excludes fair value adjustments and net gain (loss) on the sale of securities from the total of net interest income and non-interest income) and the adjusted efficiency ratio (which excludes merger and acquisition-related expenses, COVID-19 expenses, amortization of core deposit intangibles, real estate owned operations and state/municipal taxes from non-interest expense divided by adjusted revenue) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. Where applicable, comparable earnings information using GAAP financial measures is also presented. See also Non-GAAP Financial Measures reconciliation tables on the last two pages of this press release.

Income Statement Review

Net interest income, before the recapture of provision for credit losses, was $127.6 million in the second quarter of 2021, compared to $117.7 million in the preceding quarter and $119.6 million in the second quarter a year ago.

Banner’s net interest margin on a tax equivalent basis was 3.52% for the second quarter of 2021, an eight basis-point increase compared to 3.44% in the preceding quarter and a 35 basis-point decrease compared to 3.87% in the second quarter a year ago.

“Interest income was higher, primarily as a result of the decline in low yielding PPP loans and a corresponding acceleration of deferred loan fee income due to loan repayments from SBA loan forgiveness, which positively affected our net interest margin during the quarter. Net interest margin was also impacted by the growth in core deposit balances, resulting in our deploying excess liquidity into low yielding short term investments,” said Grescovich. “Additionally, the on-going low interest rate environment continues to put downward pressure on loan yields.” Acquisition accounting adjustments added three basis points to the net interest margin in the current quarter, five basis points in the preceding quarter and seven basis points in the second quarter a year ago. The total purchase discount for acquired loans was $12.5 million at June 30, 2021, compared to $13.9 million at March 31, 2021, and $20.2 million at June 30, 2020. In the first six months of 2021, Banner’s net interest margin on a tax equivalent basis was 3.48% compared to 4.05% in the first six months of 2020.

Average interest-earning asset yields increased four basis points to 3.68% in the second quarter compared to 3.64% for the preceding quarter and decreased 48 basis points compared to 4.16% in the second quarter a year ago. Average loan yields increased 27 basis points to 4.70% compared to 4.43% in the preceding quarter and increased 13 basis points compared to 4.57% in the second quarter a year ago. The increase in average loan yields during the current quarter compared to the preceding quarter was primarily the result of the decline in low yielding SBA PPP loans due to loan repayments from SBA loan forgiveness during the quarter, partially offset by lower rates on new originations and adjustable-rate loans resetting to lower current market rates. Loan discount accretion added five basis points to average loan yields in the second quarter of 2021, seven basis points in the preceding quarter and eight basis points in the second quarter a year ago. Deposit costs were 0.09% in the second quarter of 2021, a two basis-point decrease compared to the preceding quarter and a 14 basis-point decrease compared to the second quarter a year ago. The year-over-year decrease in quarterly deposit costs was primarily the result of decreases in market interest rates during 2020. The total cost of funds was 0.17% during the second quarter of 2021, a four basis-point decrease compared to the preceding quarter and a 14 basis-point decrease compared to the second quarter a year ago.

Banner recorded a $10.3 million recapture of provision for credit losses in the current quarter (comprised of an $8.1 million recapture credit losses – loans and a $2.2 million recapture unfunded loan commitments). This recapture compares to a $9.3 million recapture of provision for credit losses in the prior quarter (comprised of an $8.0 million recapture credit losses – loans and $1.2 million recapture unfunded loan commitments) and a $28.6 million provision for credit losses in the second quarter a year ago (comprised of a $29.5 million provision for credit losses – loans and a $905,000 recapture unfunded loan commitments). The recapture of provision for credit losses for the current quarter primarily reflects improvement in forecasted economic indicators and a decrease in adversely classified loans since the preceding quarter end, while the recapture of the provision for credit losses recorded in the preceding quarter primarily reflected a decrease in loan balances, excluding PPP loans, as well as improvement in the forecasted economic indicators. The provision for credit losses recorded in the second quarter a year ago primarily reflected expected lifetime credit losses based upon the economic conditions and the potential effects from forecasted deterioration of economic metrics due to the COVID-19 pandemic based on the outlook as of June 30, 2020.

Total non-interest income was $22.3 million in the second quarter of 2021, compared to $24.3 million in the preceding quarter and $27.7 million in the second quarter a year ago. Deposit fees and other service charges were $9.8 million in the second quarter of 2021, compared to $8.9 million in the preceding quarter and $7.5 million in the second quarter a year ago. The increase in deposit fees and other service charges from the second quarter a year ago is primarily a result of increased transaction deposit account activity. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, decreased to $7.5 million in the second quarter, compared to $11.4 million in the preceding quarter and $14.1 million in the second quarter of 2020. The lower mortgage banking revenue quarter-over-quarter primarily reflects a decrease in the gain on sale margin on one- to four-family held-for-sale loans and a reduction in the volume of one- to four-family loans sold reflecting a decrease in refinance activity. The decrease compared to the second quarter of 2020 was primarily due to a decrease in the gain on sale margin on one- to four-family held-for-sale loans, partially offset by higher gains on the sale of multifamily held-for-sale loans. Home purchase activity accounted for 66% of one- to four-family mortgage loan originations in the second quarter of 2021, compared to 54% in the prior quarter and 42% in the second quarter of 2020. In the first six months of 2021, total non-interest income decreased 1% to $46.6 million, compared to $46.9 million in the first six months of 2020.

Banner’s second quarter 2021 results included a $58,000 net gain for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value, principally comprised of certain investment securities held for trading, and a $77,000 net gain on the sale of securities. In the preceding quarter, results included a $59,000 net gain for fair value adjustments and a $485,000 net gain on the sale of securities. In the second quarter a year ago, results included a $2.2 million net gain for fair value adjustments and a $93,000 net gain on the sale of securities.

Total revenue increased 6% to $149.9 million for the second quarter of 2021, compared to $141.9 million in the preceding quarter, and increased 2% compared to $147.3 million in the second quarter a year ago. Year-to-date, total revenues increased 2% to $291.8 million compared to $285.7 million for the same period one year earlier. Adjusted revenue* (the total of net interest income and total non-interest income excluding the net gain or loss on the sale of securities and the net change in valuation of financial instruments) was $149.8 million in the second quarter of 2021, compared to $141.4 million in the preceding quarter and $145.0 million in the second quarter of 2020. In the first six months of the year, adjusted revenue* was $291.1 million, compared to $287.9 million in the first six months of 2020.

Total non-interest expense was $92.6 million in the second quarter of 2021, compared to $93.5 million in the preceding quarter and $90.5 million in the second quarter of 2020. The decrease in non-interest expense for the current quarter compared to the prior quarter primarily reflects a $2.9 million decrease in salary and employee benefits expense as the prior quarter included $1.3 million of severance expense related to a reduction in staffing and a $1.2 million adjustment recorded to increase the liability related to deferred compensation plans. These decreases in salary and employee benefits expense for the current quarter were partially offset by a $1.0 million increase in professional and legal expenses. The year-over-year quarterly increase in non-interest expense also reflects decreased capitalized loan origination costs, primarily related to the decline in the origination of PPP loans during the current quarter compared to the same quarter a year ago as well as increases in professional and legal expenses and miscellaneous non-interest expense. The year-over-year quarterly increases in non-interest expense were partially offset by decreases in salary and employee benefits and COVID-19 expenses. Merger and acquisition-related expenses were $79,000 for the second quarter of 2021, compared to $571,000 for the preceding quarter and $336,000 in the second quarter a year ago. COVID-19 expenses were $117,000 for the second quarter of 2021, compared to $148,000 for the preceding quarter and $2.2 million in the second quarter a year ago. Year-to-date, total non-interest expense was $186.2 million, compared to $184.0 million in the same period a year earlier. Banner’s efficiency ratio was 61.79% for the current quarter, compared to 65.90% in the preceding quarter and 61.47% in the year ago quarter. Banner’s adjusted efficiency ratio* was 59.77% for the current quarter, compared to 63.85% in the preceding quarter and 58.58% in the year ago quarter.

For the second quarter of 2021, Banner had $13.1 million in state and federal income tax expense for an effective tax rate of 19.5%, reflecting the benefits from tax exempt income. Banner’s statutory income tax rate is 23.7%, representing a blend of the statutory federal income tax rate of 21.0% and apportioned effects of the state income tax rates.

Balance Sheet Review

Total assets increased to $16.18 billion at June 30, 2021, compared to $16.12 billion at March 31, 2021, and increased 12% when compared to $14.41 billion at June 30, 2020. The total of securities and interest-bearing deposits held at other banks was $5.19 billion at June 30, 2021, compared to $4.81 billion at March 31, 2021 and $2.30 billion at June 30, 2020. The average effective duration of Banner’s securities portfolio was approximately 4.6 years at June 30, 2021, compared to 4.0 years at June 30, 2020.

Net loans receivable decreased 3% to $9.51 billion at June 30, 2021, compared to $9.79 billion at March 31, 2021, and decreased 6% when compared to $10.13 billion at June 30, 2020. The decrease in net loans compared to the prior quarter primarily reflects the forgiveness of SBA PPP loans, partially offset by increases in commercial real estate, multifamily real estate and construction loans. Commercial real estate and multifamily real estate loans increased 2% to $4.14 billion at June 30, 2021, compared to $4.05 billion at March 31, 2021, and increased 1% compared to $4.11 billion a year ago. Commercial business loans decreased 14% to $2.68 billion at June 30, 2021 compared to $3.09 billion at March 31, 2021, and decreased 15% compared to $3.15 billion a year ago, primarily due to PPP loans forgiven. Agricultural business loans increased to $265.4 million at June 30, 2021, compared to $262.4 million three months earlier and decreased from $328.1 million a year ago. Total construction, land and land development loans were $1.37 billion at June 30, 2021, a 4% increase from $1.31 billion at March 31, 2021, and an 11% increase compared to $1.24 billion a year earlier. Consumer loans decreased to $560.7 million at June 30, 2021, compared to $570.7 million at March 31, 2021, and $642.4 million a year ago. One- to four-family loans decreased to $637.7 million at June 30, 2021, primarily reflecting held for investment loans being refinanced and sold as held for sale loans, compared to $655.6 million at March 31, 2021, and $817.8 million a year ago.

Loans held for sale were $71.7 million at June 30, 2021, compared to $135.3 million at March 31, 2021, and $258.7 million at June 30, 2020. The volume of one- to four- family residential mortgage loans sold was $266.7 million in the current quarter, compared to $300.3 million in the preceding quarter and $292.4 million in the second quarter a year ago. During the second quarter of 2021, Banner sold $83.9 million in multifamily loans, compared to $107.7 million in the preceding quarter and $3.1 million in the second quarter a year ago.

Total deposits increased 1% to $13.64 billion at June 30, 2021, compared to $13.55 billion at March 31, 2021, and increased 13% when compared to $12.02 billion a year ago. The year-over-year increase in total deposits was due primarily to SBA PPP loan funds deposited into client accounts and an increase in general client liquidity due to reduced business investment and consumer spending during the COVID-19 pandemic. Non-interest-bearing account balances increased 2% to $6.09 billion at June 30, 2021, compared to $5.99 billion at March 31, 2021, and increased 15% compared to $5.28 billion a year ago. Core deposits increased 1% to 94% of total deposits at June 30, 2021, compared to 93% of total deposits at March 31, 2021 and increased 16% compared to a year ago. Certificates of deposit decreased to $873.0 million at June 30, 2021, compared to $907.0 million at March 31, 2021, and decreased 16% compared to $1.04 billion a year earlier. Banner had no brokered deposits at June 30, 2021 or March 31, 2021, compared to $119.4 million a year ago. FHLB borrowings totaled $100.0 million at both June 30, 2021 and March 31, 2021, compared to $150.0 million a year ago.

At June 30, 2021, total common shareholders’ equity was $1.67 billion, or 10.32% of assets, compared to $1.62 billion or 10.04% of assets at March 31, 2021, and $1.63 billion or 11.28% of assets a year ago. At June 30, 2021, tangible common shareholders’ equity*, which excludes goodwill and other intangible assets, net, was $1.28 billion, or 8.09% of tangible assets*, compared to $1.23 billion, or 7.80% of tangible assets, at March 31, 2021, and $1.23 billion, or 8.76% of tangible assets, a year ago. Banner’s tangible book value per share* increased to $36.99 at June 30, 2021, compared to $34.89 per share a year ago.

Banner and its subsidiary bank continue to maintain capital levels in excess of the requirements to be categorized as “well-capitalized.” At June 30, 2021, Banner’s common equity Tier 1 capital ratio was 11.21%, its Tier 1 leverage capital to average assets ratio was 8.86%, and its total capital to risk-weighted assets ratio was 14.62%.

Credit Quality

The allowance for credit losses – loans was $148.0 million at June 30, 2021, or 1.53% of total loans receivable outstanding and 481% of non-performing loans, compared to $156.1 million at March 31, 2021, or 1.57% of total loans receivable outstanding and 426% of non-performing loans, and $156.4 million at June 30, 2020, or 1.52% of total loans receivable outstanding and 418% of non-performing loans. In addition to the allowance for credit losses – loans, Banner maintains an allowance for credit losses – unfunded loan commitments, which was $9.9 million at June 30, 2021, compared to $12.1 million at March 31, 2021 and $10.6 million at June 30, 2020. Net loan recoveries totaled $55,000 in the second quarter of 2021, compared to net loan charge-offs of $3.2 million in the preceding quarter and $3.7 million of net loan charge-offs in the second quarter a year ago. Banner recorded a $10.3 million recapture of provision for credit losses in the current quarter, compared to a $9.3 million recapture of provision for credit losses in the prior quarter and a $28.6 million provision for loan losses in the year ago quarter. The recapture of provision for credit losses for the current quarter primarily reflects an improvement in the forecasted economic indicators and a decrease in adversely classified loans, while the recapture of the provision for credit losses recorded in the preceding quarter primarily reflected the decrease in loan balances, excluding the increase in PPP loans, as well as improvement in the forecasted economic indicators. The provision for credit losses recorded in the second quarter a year ago reflected deterioration as a result of the COVID-19 pandemic in the economic indicators utilized to forecast credit losses. Non-performing loans were $30.8 million at June 30, 2021, compared to $36.6 million at March 31, 2021, and $37.4 million a year ago. Real estate owned and other repossessed assets were $780,000 at June 30, 2021, compared to $377,000 at March 31, 2021, and $2.4 million a year ago.

In accordance with acquisition accounting, loans acquired from acquisitions were recorded at their estimated fair value, which resulted in a net purchase discount to the loans’ contractual amounts, a portion of which reflects a discount for possible credit losses. Credit discounts were included in the determination of fair value, and as a result, no allowance for credit losses was recorded for loans acquired from acquisitions prior to January 1, 2020. At June 30, 2021, the total purchase discount for acquired loans was $12.5 million.

Banner’s total substandard loans were $272.8 million at June 30, 2021, compared to $311.6 million at March 31, 2021, and $359.8 million a year ago. The quarter over quarter decrease reflects the payoff of substandard loans as well as risk rating upgrades as certain industries impacted by the COVID-19 pandemic have begun to stabilize.

Banner’s total non-performing assets were $31.5 million, or 0.19% of total assets, at June 30, 2021, compared to $37.0 million, or 0.23% of total assets, at March 31, 2021, and $39.9 million, or 0.28% of total assets, a year ago.

At June 30, 2021, Banner had 71 loans totaling $28.5 million remaining on loan payment deferral due to COVID-19 including 62 mortgage loans totaling $20.2 million operating under forbearance agreements. Since these loans were performing loans that were current on their payments prior to the COVID-19 pandemic, these modifications are not considered to be troubled debt restructurings pursuant to applicable accounting and regulatory guidance.

Conference Call

Banner will host a conference call on Thursday, July 22, 2021, at 8:00 a.m. PDT, to discuss its second quarter results. To listen to the call on-line, go to www.bannerbank.com. Investment professionals are invited to dial (866) 235-9915 to participate in the call. A replay will be available for one week at (877) 344-7529 using access code 10157551, or at www.bannerbank.com.

About the Company

Banner Corporation is a $16.18 billion bank holding company operating one commercial bank in four Western states through a network of branches offering a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

Forward-Looking Statements

When used in this press release and in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”), in press releases or other public stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “may,” “believe,” “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “potential,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date such statements are made and based only on information then actually known to Banner. Banner does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These statements may relate to future financial performance, strategic plans or objectives, revenues or earnings projections, or other financial information. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements and could negatively affect Banner’s operating and stock price performance.

The 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: (1) the credit risks of lending activities, including changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses, which could necessitate additional provisions for credit losses, resulting both from loans originated and loans acquired from other financial institutions; (2) results of examinations by regulatory authorities, including the possibility that any such regulatory authority may, among other things, require increases in the allowance for credit losses or writing down of assets or impose restrictions or penalties with respect to Banner’s activities; (3) competitive pressures among depository institutions; (4) interest rate movements and their impact on client behavior and net interest margin; (5) the impact of repricing and competitors’ pricing initiatives on loan and deposit products; (6) fluctuations in real estate values; (7) the ability to adapt successfully to technological changes to meet clients’ needs and developments in the market place; (8) the ability to access cost-effective funding; (9) changes in financial markets; (10) changes in economic conditions in general and in Washington, Idaho, Oregon and California in particular; (11) the costs, effects and outcomes of litigation; (12) legislation or regulatory changes, including but not limited to the impact of the Dodd-Frank Act and regulations adopted thereunder, changes in regulatory capital requirements pursuant to the implementation of the Basel III capital standards, other governmental initiatives affecting the financial services industry and changes in federal and/or state tax laws or interpretations thereof by taxing authorities; (13) changes in accounting principles, policies or guidelines; (14) future acquisitions by Banner of other depository institutions or lines of business; (15) future goodwill impairment due to changes in Banner’s business, changes in market conditions, including as a result of the COVID-19 pandemic or other factors; and (16) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed from time to time in our filings with the Securities and Exchange Commission including our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K.

RESULTS OF OPERATIONS

Quarters Ended

Six Months Ended

(in thousands except shares and per share data)

Jun 30, 2021

Mar 31, 2021

Jun 30, 2020

Jun 30, 2021

Jun 30, 2020

INTEREST INCOME:

Loans receivable

$

115,391

$

108,924

$

115,173

$

224,315

$

234,099

Mortgage-backed securities

11,437

9,371

7,983

20,808

17,120

Securities and cash equivalents

6,737

6,226

5,591

12,963

9,193

133,565

124,521

128,747

258,086

260,412

INTEREST EXPENSE:

Deposits

3,028

3,609

6,694

6,637

15,444

Federal Home Loan Bank advances

655

934

984

1,589

3,048

Other borrowings

124

109

238

233

354

Junior subordinated debentures and subordinated notes

2,204

2,208

1,251

4,412

2,728

6,011

6,860

9,167

12,871

21,574

Net interest income

127,554

117,661

119,580

245,215

238,838

(RECAPTURE)/PROVISION FOR CREDIT LOSSES

(10,256

)

(9,251

)

28,623

(19,507

)

52,093

Net interest income after (recapture)/provision for credit losses

137,810

126,912

90,957

264,722

186,745

NON-INTEREST INCOME:

Deposit fees and other service charges

9,758

8,939

7,546

18,697

17,349

Mortgage banking operations

7,478

11,440

14,138

18,918

24,329

Bank-owned life insurance

1,245

1,307

2,317

2,552

3,367

Miscellaneous

3,720

2,042

1,427

5,762

4,066

22,201

23,728

25,428

45,929

49,111

Net gain on sale of securities

77

485

93

562

171

Net change in valuation of financial instruments carried at fair value

58

59

2,199

117

(2,397

)

Total non-interest income

22,336

24,272

27,720

46,608

46,885

NON-INTEREST EXPENSE:

Salary and employee benefits

61,935

64,819

63,415

126,754

123,323

Less capitalized loan origination costs

(8,768

)

(9,696

)

(11,110

)

(18,464

)

(16,916

)

Occupancy and equipment

12,823

12,989

12,985

25,812

26,092

Information / computer data services

5,602

6,203

6,084

11,805

11,894

Payment and card processing services

4,975

4,326

3,851

9,301

8,091

Professional and legal expenses

4,371

3,328

2,163

7,699

4,082

Advertising and marketing

1,181

1,263

652

2,444

2,479

Deposit insurance expense

1,241

1,533

1,705

2,774

3,340

State/municipal business and use taxes

1,083

1,065

1,104

2,148

2,088

Real estate operations

118

(242

)

4

(124

)

104

Amortization of core deposit intangibles

1,711

1,711

2,002

3,422

4,003

Miscellaneous

6,156

5,509

5,199

11,665

11,556

92,428

92,808

88,054

185,236

180,136

COVID-19 expenses

117

148

2,152

265

2,391

Merger and acquisition-related expenses

79

571

336

650

1,478

Total non-interest expense

92,624

93,527

90,542

186,151

184,005

Income before provision for income taxes

67,522

57,657

28,135

125,179

49,625

PROVISION FOR INCOME TAXES

13,140

10,802

4,594

23,942

9,202

NET INCOME

$

54,382

$

46,855

$

23,541

$

101,237

$

40,423

Earnings per share available to common shareholders:

Basic

$

1.57

$

1.34

$

0.67

$

2.90

$

1.14

Diluted

$

1.56

$

1.33

$

0.67

$

2.88

$

1.14

Cumulative dividends declared per common share

$

0.41

$

0.41

$

$

0.82

$

0.41

Weighted average common shares outstanding:

Basic

34,736,639

34,973,383

35,189,260

34,854,357

35,326,401

Diluted

34,933,714

35,303,483

35,283,690

35,149,986

35,545,086

(Decrease) increase in common shares outstanding

(184,455

)

(423,857

)

55,440

(608,312

)

(593,677

)

FINANCIAL CONDITION

Percentage Change

(in thousands except shares and per share data)

Jun 30, 2021

Mar 31, 2021

Dec 31, 2020

Jun 30, 2020

Prior Qtr

Prior Yr Qtr

ASSETS

Cash and due from banks

$

329,359

$

296,184

$

311,899

$

291,036

11.2

%

13.2

%

Interest-bearing deposits

1,138,572

1,353,743

922,284

128,938

(15.9

)

%

783.0

%

Total cash and cash equivalents

1,467,931

1,649,927

1,234,183

419,974

(11.0

)

%

249.5

%

Securities – trading

25,097

25,039

24,980

23,239

0.2

%

8.0

%

Securities – available for sale

3,275,979

2,989,760

2,322,593

1,706,781

9.6

%

91.9

%

Securities – held to maturity

455,256

441,857

421,713

441,075

3.0

%

3.2

%

Total securities

3,756,332

3,456,656

2,769,286

2,171,095

8.7

%

73.0

%

Equity securities

340,052

nm

(100.0

)

%

Federal Home Loan Bank stock

14,001

14,001

16,358

16,363

%

(14.4

)

%

Securities purchased under agreements to resell

300,000

nm

nm

Loans held for sale

71,741

135,263

243,795

258,700

(47.0

)

%

(72.3

)

%

Loans receivable

9,654,181

9,947,697

9,870,982

10,283,999

(3.0

)

%

(6.1

)

%

Allowance for credit losses – loans

(148,009

)

(156,054

)

(167,279

)

(156,352

)

(5.2

)

%

(5.3

)

%

Net loans receivable

9,506,172

9,791,643

9,703,703

10,127,647

(2.9

)

%

(6.1

)

%

Accrued interest receivable

46,979

49,214

46,617

48,806

(4.5

)

%

(3.7

)

%

Real estate owned (REO) held for sale, net

763

340

816

2,400

124.4

%

(68.2

)

%

Property and equipment, net

156,063

161,268

164,556

173,360

(3.2

)

%

(10.0

)

%

Goodwill

373,121

373,121

373,121

373,121

%

%

Other intangibles, net

18,004

19,715

21,426

25,155

(8.7

)

%

(28.4

)

%

Bank-owned life insurance

192,677

191,388

191,830

190,468

0.7

%

1.2

%

Operating lease right-of-use assets

55,287

56,217

55,367

57,667

(1.7

)

%

(4.1

)

%

Other assets

222,786

221,039

210,565

200,799

0.8

%

10.9

%

Total assets

$

16,181,857

$

16,119,792

$

15,031,623

$

14,405,607

0.4

%

12.3

%

LIABILITIES

Deposits:

Non-interest-bearing

$

6,090,063

$

5,994,693

$

5,492,924

$

5,281,559

1.6

%

15.3

%

Interest-bearing transaction and savings accounts

6,673,598

6,647,196

6,159,052

5,692,715

0.4

%

17.2

%

Interest-bearing certificates

873,047

906,978

915,320

1,042,006

(3.7

)

%

(16.2

)

%

Total deposits

13,636,708

13,548,867

12,567,296

12,016,280

0.6

%

13.5

%

Advances from Federal Home Loan Bank

100,000

100,000

150,000

150,000

%

(33.3

)

%

Customer repurchase agreements and other borrowings

237,736

216,260

184,785

166,084

9.9

%

43.1

%

Subordinated notes, net

98,380

98,290

98,201

98,140

0.1

%

0.2

%

Junior subordinated debentures at fair value

117,520

117,248

116,974

109,613

0.2

%

7.2

%

Operating lease liabilities

59,117

59,884

59,343

61,390

(1.3

)

%

(3.7

)

%

Accrued expenses and other liabilities

216,399

313,801

143,300

133,574

(31.0

)

%

62.0

%

Deferred compensation

46,786

46,625

45,460

45,423

0.3

%

3.0

%

Total liabilities

14,512,646

14,500,975

13,365,359

12,780,504

0.1

%

13.6

%

SHAREHOLDERS’ EQUITY

Common stock

1,311,455

1,326,269

1,349,879

1,345,096

(1.1

)

%

(2.5

)

%

Retained earnings

319,505

279,582

247,316

201,448

14.3

%

58.6

%

Other components of shareholders’ equity

38,251

12,966

69,069

78,559

195.0

%

(51.3

)

%

Total shareholders’ equity

1,669,211

1,618,817

1,666,264

1,625,103

3.1

%

2.7

%

Total liabilities and shareholders’ equity

$

16,181,857

$

16,119,792

$

15,031,623

$

14,405,607

0.4

%

12.3

%

Common Shares Issued:

Shares outstanding at end of period

34,550,888

34,735,343

35,159,200

35,157,899

Common shareholders’ equity per share (1)

$

48.31

$

46.60

$

47.39

$

46.22

Common shareholders’ tangible equity per share (1) (2)

$

36.99

$

35.29

$

36.17

$

34.89

Common shareholders’ tangible equity to tangible assets (2)

8.09

%

7.80

%

8.69

%

8.76

%

Consolidated Tier 1 leverage capital ratio

8.86

%

9.10

%

9.50

%

9.83

%

(1)

Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding.

(2)

Common shareholders’ tangible equity excludes goodwill and other intangible assets. Tangible assets exclude goodwill and other intangible assets. These ratios represent non-GAAP financial measures. See also Non-GAAP Financial Measures reconciliation tables on the final two pages of the press release tables.

ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

Percentage Change

LOANS

Jun 30, 2021

Mar 31, 2021

Dec 31, 2020

Jun 30, 2020

Prior Qtr

Prior Yr Qtr

Commercial real estate:

Owner-occupied

$

1,066,237

$

1,045,656

$

1,076,467

$

1,027,399

2.0

%

3.8

%

Investment properties

1,950,211

1,931,805

1,955,684

2,017,789

1.0

%

(3.3

)

%

Small balance CRE

621,102

639,330

573,849

624,726

(2.9

)

%

(0.6

)

%

Multifamily real estate

504,445

433,775

428,223

437,201

16.3

%

15.4

%

Construction, land and land development:

Commercial construction

182,868

199,037

228,937

215,860

(8.1

)

%

(15.3

)

%

Multifamily construction

295,661

305,694

305,527

256,335

(3.3

)

%

15.3

%

One- to four-family construction

603,895

542,840

507,810

528,966

11.2

%

14.2

%

Land and land development

290,404

266,730

248,915

235,602

8.9

%

23.3

%

Commercial business:

Commercial business

1,124,359

1,096,303

1,133,989

1,250,288

2.6

%

(10.1

)

%

PPP

807,172

1,280,291

1,044,472

1,121,928

(37.0

)

%

(28.1

)

%

Small business scored

743,975

717,502

743,451

779,678

3.7

%

(4.6

)

%

Agricultural business, including secured by farmland:

Agricultural business, including secured by farmland

247,467

226,094

299,949

328,077

9.5

%

(24.6

)

%

PPP

17,962

36,316

(50.5

)

%

nm

One- to four-family residential

637,701

655,627

717,939

817,787

(2.7

)

%

(22.0

)

%

Consumer:

Consumer—home equity revolving lines of credit

458,915

466,132

491,812

515,603

(1.5

)

%

(11.0

)

%

Consumer—other

101,807

104,565

113,958

126,760

(2.6

)

%

(19.7

)

%

Total loans receivable

$

9,654,181

$

9,947,697

$

9,870,982

$

10,283,999

(3.0

)

%

(6.1

)

%

Restructured loans performing under their restructured terms

$

5,472

$

6,424

$

6,673

$

6,391

Loans 30 – 89 days past due and on accrual

$

5,656

$

19,233

$

12,291

$

20,807

Total delinquent loans (including loans on non-accrual), net

$

23,582

$

42,444

$

36,131

$

36,269

Total delinquent loans / Total loans receivable

0.24

%

0.43

%

0.37

%

0.35

%

LOANS BY GEOGRAPHIC LOCATION

Percentage Change

Jun 30, 2021

Mar 31, 2021

Dec 31, 2020

Jun 30, 2020

Prior Qtr

Prior Yr Qtr

Amount

Percentage

Amount

Amount

Amount

Washington

$

4,541,792

47.0

%

$

4,683,600

$

4,647,553

$

4,787,550

(3.0

)

%

(5.1

)

%

California

2,246,580

23.3

%

2,320,384

2,279,749

2,359,703

(3.2

)

%

(4.8

)

%

Oregon

1,753,285

18.2

%

1,801,104

1,792,156

1,899,933

(2.7

)

%

(7.7

)

%

Idaho

525,610

5.4

%

539,061

537,996

592,515

(2.5

)

%

(11.3

)

%

Utah

92,103

1.0

%

92,399

80,704

67,929

(0.3

)

%

35.6

%

Other

494,811

5.1

%

511,149

532,824

576,369

(3.2

)

%

(14.2

)

%

Total loans receivable

$

9,654,181

100.0

%

$

9,947,697

$

9,870,982

$

10,283,999

(3.0

)

%

(6.1

)

%

ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

LOAN ORIGINATIONS

Quarters Ended

Jun 30, 2021

Mar 31, 2021

Jun 30, 2020

Commercial real estate

$

103,415

$

91,217

$

111,765

Multifamily real estate

45,674

12,878

6,384

Construction and land

509,828

447,369

290,955

Commercial business:

Commercial business

181,996

115,911

167,268

SBA PPP

55,990

428,180

1,151,170

Agricultural business

12,546

27,167

16,293

One-to four-family residential

47,086

57,731

24,537

Consumer

131,424

87,322

126,653

Total loan originations (excluding loans held for sale)

$

1,087,959

$

1,267,775

$

1,895,025

ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

Quarters Ended

CHANGE IN THE

Jun 30, 2021

Mar 31, 2021

Jun 30, 2020

ALLOWANCE FOR CREDIT LOSSES – LOANS

Balance, beginning of period

$

156,054

$

167,279

$

130,488

(Recapture)/provision for credit losses – loans

(8,100

)

(8,035

)

29,524

Recoveries of loans previously charged off:

Commercial real estate

147

24

54

Construction and land

100

105

One- to four-family real estate

20

113

31

Commercial business

321

979

370

Agricultural business, including secured by farmland

8

22

Consumer

97

296

60

593

1,512

642

Loans charged off:

Commercial real estate

(3

)

(3,763

)

Construction and land

(100

)

Commercial business

(123

)

(789

)

(3,553

)

Agricultural business, including secured by farmland

(2

)

(62

)

Consumer

(410

)

(150

)

(587

)

(538

)

(4,702

)

(4,302

)

Net recoveries (charge-offs)

55

(3,190

)

(3,660

)

Balance, end of period

$

148,009

$

156,054

$

156,352

Net recoveries (charge-offs) / Average loans receivable

0.001

%

(0.032

)

%

(0.036

)

%

ALLOCATION OF

ALLOWANCE FOR CREDIT LOSSES – LOANS

Jun 30, 2021

Mar 31, 2021

Jun 30, 2020

Specific or allocated credit loss allowance:

Commercial real estate

$

60,349

$

59,411

$

53,166

Multifamily real estate

5,807

4,367

3,504

Construction and land

30,899

36,440

36,916

One- to four-family real estate

9,800

7,988

12,746

Commercial business

30,830

31,411

33,870

Agricultural business, including secured by farmland

3,256

4,617

4,517

Consumer

7,068

11,820

11,633

Total allowance for credit losses – loans

$

148,009

$

156,054

$

156,352

Allowance for credit losses – loans / Total loans receivable

1.53

%

1.57

%

1.52

%

Allowance for credit losses – loans / Non-performing loans

481

%

426

%

418

%

Quarters Ended

CHANGE IN THE

Jun 30, 2021

Mar 31, 2021

Jun 30, 2020

ALLOWANCE FOR CREDIT LOSSES – UNFUNDED LOAN COMMITMENTS

Balance, beginning of period

$

12,077

$

13,297

$

11,460

Recapture for credit losses – unfunded loan commitments

(2,168

)

(1,220

)

(905

)

Balance, end of period

$

9,909

$

12,077

$

10,555

ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

Jun 30, 2021

Mar 31, 2021

Dec 31, 2020

Jun 30, 2020

NON-PERFORMING ASSETS

Loans on non-accrual status:

Secured by real estate:

Commercial

$

17,427

$

21,615

$

18,199

$

10,845

Construction and land

541

986

936

732

One- to four-family

4,007

4,456

3,556

2,942

Commercial business

3,673

4,194

5,407

18,486

Agricultural business, including secured by farmland

1,200

1,536

1,743

433

Consumer

1,799

2,244

2,719

2,412

28,647

35,031

32,560

35,850

Loans more than 90 days delinquent, still on accrual:

Secured by real estate:

Commercial

911

One- to four-family

579

1,524

1,899

472

Commercial business

495

37

1,025

1

Agricultural business, including secured by farmland

1,061

Consumer

131

130

36

2,116

1,561

3,054

1,570

Total non-performing loans

30,763

36,592

35,614

37,420

REO

763

340

816

2,400

Other repossessed assets

17

37

51

47

Total non-performing assets

$

31,543

$

36,969

$

36,481

$

39,867

Total non-performing assets to total assets

0.19

%

0.23

%

0.24

%

0.28

%

Jun 30, 2021

Mar 31, 2021

Dec 31, 2020

Jun 30, 2020

LOANS BY CREDIT RISK RATING

Pass

$

9,315,264

$

9,584,429

$

9,494,147

$

9,869,917

Special Mention

66,103

51,692

36,598

54,291

Substandard

272,814

311,576

340,237

359,791

Total

$

9,654,181

$

9,947,697

$

9,870,982

$

10,283,999

Quarters Ended

Six Months Ended

REAL ESTATE OWNED

Jun 30, 2021

Mar 31, 2021

Jun 30, 2020

Jun 30, 2021

Jun 30, 2020

Balance, beginning of period

$

340

$

816

$

2,402

$

816

$

814

Additions from loan foreclosures

423

423

1,588

Proceeds from dispositions of REO

(783

)

(98

)

(783

)

(98

)

Gain on sale of REO

307

96

307

96

Balance, end of period

$

763

$

340

$

2,400

$

763

$

2,400

ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

DEPOSIT COMPOSITION

Percentage Change

Jun 30, 2021

Mar 31, 2021

Dec 31, 2020

Jun 30, 2020

Prior Qtr

Prior Yr Qtr

Non-interest-bearing

$

6,090,063

$

5,994,693

$

5,492,924

$

5,281,559

1.6

%

15.3

%

Interest-bearing checking

1,736,696

1,722,085

1,569,435

1,399,593

0.8

%

24.1

%

Regular savings accounts

2,646,302

2,597,731

2,398,482

2,197,790

1.9

%

20.4

%

Money market accounts

2,290,600

2,327,380

2,191,135

2,095,332

(1.6

)

%

9.3

%

Total interest-bearing transaction and savings accounts

6,673,598

6,647,196

6,159,052

5,692,715

0.4

%

17.2

%

Total core deposits

12,763,661

12,641,889

11,651,976

10,974,274

1.0

%

16.3

%

Interest-bearing certificates

873,047

906,978

915,320

1,042,006

(3.7

)

%

(16.2

)

%

Total deposits

$

13,636,708

$

13,548,867

$

12,567,296

$

12,016,280

0.6

%

13.5

%

GEOGRAPHIC CONCENTRATION OF DEPOSITS

Jun 30, 2021

Mar 31, 2021

Dec 31, 2020

Jun 30, 2020

Percentage Change

Amount

Percentage

Amount

Amount

Amount

Prior Qtr

Prior Yr Qtr

Washington

$

7,547,591

55.3

%

$

7,504,389

$

7,058,404

$

6,765,186

0.6

%

11.6

%

Oregon

2,939,667

21.6

%

2,929,027

2,604,908

2,440,617

0.4

%

20.4

%

California

2,417,387

17.7

%

2,401,299

2,237,949

2,224,477

0.7

%

8.7

%

Idaho

732,063

5.4

%

714,152

666,035

586,000

2.5

%

24.9

%

Total deposits

$

13,636,708

100.0

%

$

13,548,867

$

12,567,296

$

12,016,280

0.6

%

13.5

%

INCLUDED IN TOTAL DEPOSITS

Jun 30, 2021

Mar 31, 2021

Dec 31, 2020

Jun 30, 2020

Public non-interest-bearing accounts

$

187,702

$

151,850

$

175,352

$

139,133

Public interest-bearing transaction & savings accounts

156,987

169,192

127,523

136,039

Public interest-bearing certificates

41,444

51,021

59,127

56,609

Total public deposits

$

386,133

$

372,063

$

362,002

$

331,781

Total brokered deposits

$

$

$

$

119,399

ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

Actual

Minimum to be categorized as “Adequately Capitalized”

Minimum to be
categorized as
“Well Capitalized”

REGULATORY CAPITAL RATIOS AS OF JUNE 30, 2021

Amount

Ratio

Amount

Ratio

Amount

Ratio

Banner Corporation-consolidated:

Total capital to risk-weighted assets

$

1,618,512

14.62

%

$

885,723

8.00

%

$

1,107,154

10.00

%

Tier 1 capital to risk-weighted assets

1,385,143

12.51

%

664,292

6.00

%

664,292

6.00

%

Tier 1 leverage capital to average assets

1,385,143

8.86

%

625,458

4.00

%

n/a

n/a

Common equity tier 1 capital to risk-weighted assets

1,241,643

11.21

%

498,219

4.50

%

n/a

n/a

Banner Bank:

Total capital to risk-weighted assets

1,505,250

13.60

%

885,354

8.00

%

1,106,693

10.00

%

Tier 1 capital to risk-weighted assets

1,371,881

12.40

%

664,016

6.00

%

885,354

8.00

%

Tier 1 leverage capital to average assets

1,371,881

8.78

%

625,305

4.00

%

781,632

5.00

%

Common equity tier 1 capital to risk-weighted assets

1,371,881

12.40

%

498,012

4.50

%

719,350

6.50

%

ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

(rates / ratios annualized)

ANALYSIS OF NET INTEREST SPREAD

Quarters Ended

Jun 30, 2021

Mar 31, 2021

Jun 30, 2020

Average Balance

Interest and Dividends

Yield / Cost(3)

Average Balance

Interest and Dividends

Yield / Cost(3)

Average Balance

Interest and Dividends

Yield / Cost(3)

Interest-earning assets:

Held for sale loans

$

69,908

$

544

3.12

%

$

119,341

$

925

3.14

%

$

152,636

$

1,451

3.82

%

Mortgage loans

7,147,733

80,673

4.53

%

7,144,770

80,580

4.57

%

7,314,125

87,172

4.79

%

Commercial/agricultural loans

2,625,149

33,614

5.14

%

2,691,554

26,711

4.02

%

2,599,878

25,200

3.90

%

Consumer and other loans

122,951

1,828

5.96

%

127,469

1,947

6.19

%

152,438

2,361

6.23

%

Total loans(1)(3)

9,965,741

116,659

4.70

%

10,083,134

110,163

4.43

%

10,219,077

116,184

4.57

%

Mortgage-backed securities

2,440,913

11,563

1.90

%

1,953,820

9,472

1.97

%

1,286,223

8,083

2.53

%

Other securities

1,250,417

7,088

2.27

%

1,048,856

6,687

2.59

%

787,957

5,859

2.99

%

Equity securities

%

1,742

%

114,349

123

0.43

%

Interest-bearing deposits with banks

1,139,749

376

0.13

%

1,032,138

262

0.10

%

212,502

172

0.33

%

FHLB stock

14,001

161

4.61

%

15,952

161

4.09

%

16,620

300

7.26

%

Total investment securities (3)

4,845,080

19,188

1.59

%

4,052,508

16,582

1.66

%

2,417,651

14,537

2.42

%

Total interest-earning assets

14,810,821

135,847

3.68

%

14,135,642

126,745

3.64

%

12,636,728

130,721

4.16

%

Non-interest-earning assets

1,227,167

1,237,281

1,245,626

Total assets

$

16,037,988

$

15,372,923

$

13,882,354

Deposits:

Interest-bearing checking accounts

$

1,754,363

302

0.07

%

$

1,616,824

315

0.08

%

$

1,376,710

374

0.11

%

Savings accounts

2,622,716

454

0.07

%

2,486,820

521

0.08

%

2,108,896

998

0.19

%

Money market accounts

2,288,638

668

0.12

%

2,242,748

775

0.14

%

1,979,419

1,565

0.32

%

Certificates of deposit

889,020

1,604

0.72

%

913,053

1,998

0.89

%

1,117,547

3,757

1.35

%

Total interest-bearing deposits

7,554,737

3,028

0.16

%

7,259,445

3,609

0.20

%

6,582,572

6,694

0.41

%

Non-interest-bearing deposits

6,057,884

%

5,663,820

%

4,902,992

%

Total deposits

13,612,621

3,028

0.09

%

12,923,265

3,609

0.11

%

11,485,564

6,694

0.23

%

Other interest-bearing liabilities:

FHLB advances

100,000

655

2.63

%

144,444

934

2.62

%

156,374

984

2.53

%

Other borrowings

240,229

124

0.21

%

202,930

109

0.22

%

285,735

238

0.34

%

Junior subordinated debentures and subordinated notes

247,944

2,204

3.57

%

247,944

2,208

3.61

%

149,043

1,251

3.38

%

Total borrowings

588,173

2,983

2.03

%

595,318

3,251

2.21

%

591,152

2,473

1.68

%

Total funding liabilities

14,200,794

6,011

0.17

%

13,518,583

6,860

0.21

%

12,076,716

9,167

0.31

%

Other non-interest-bearing liabilities(2)

199,619

207,560

188,369

Total liabilities

14,400,413

13,726,143

12,265,085

Shareholders’ equity

1,637,575

1,646,780

1,617,269

Total liabilities and shareholders’ equity

$

16,037,988

$

15,372,923

$

13,882,354

Net interest income/rate spread (tax equivalent)

$

129,836

3.51

%

$

119,885

3.43

%

$

121,554

3.85

%

Net interest margin (tax equivalent)

3.52

%

3.44

%

3.87

%

Reconciliation to reported net interest income:

Adjustments for taxable equivalent basis

(2,282

)

(2,224

)

(1,974

)

Net interest income and margin, as reported

$

127,554

3.45

%

$

117,661

3.38

%

$

119,580

3.81

%

Additional Key Financial Ratios:

Return on average assets

1.36

%

1.24

%

0.68

%

Return on average equity

13.32

%

11.54

%

5.85

%

Average equity/average assets

10.21

%

10.71

%

11.65

%

Average interest-earning assets/average interest-bearing liabilities

181.89

%

179.96

%

176.15

%

Average interest-earning assets/average funding liabilities

104.30

%

104.56

%

104.64

%

Non-interest income/average assets

0.56

%

0.64

%

0.80

%

Non-interest expense/average assets

2.32

%

2.47

%

2.62

%

Efficiency ratio(4)

61.79

%

65.90

%

61.47

%

Adjusted efficiency ratio(5)

59.77

%

63.85

%

58.58

%

(1)

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

(2)

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

(3)

Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $1.3 million, $1.2 million, and $1.0 million for the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.0 million for both the three months ended June 30, 2021 and March 31, 2021, compared to $963,000 for the three months ended June 30, 2020.

(4)

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

(5)

Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP Financial Measures on the final two pages of the press release tables.

ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

(rates / ratios annualized)

ANALYSIS OF NET INTEREST SPREAD

Six Months Ended

Jun 30, 2021

Jun 30, 2020

Average Balance

Interest and Dividends

Yield/Cost(3)

Average Balance

Interest and Dividends

Yield/Cost(3)

Interest-earning assets:

Held for sale loans

$

94,488

$

1,469

3.14

%

$

152,631

$

2,971

3.91

%

Mortgage loans

7,146,260

161,253

4.55

%

7,312,120

180,233

4.96

%

Commercial/agricultural loans

2,658,168

60,325

4.58

%

2,241,942

48,159

4.32

%

Consumer and other loans

125,197

3,775

6.08

%

157,768

4,956

6.32

%

Total loans(1)(3)

10,024,113

226,822

4.56

%

9,864,461

236,319

4.82

%

Mortgage-backed securities

2,198,712

21,035

1.93

%

1,320,404

17,319

2.64

%

Other securities

1,150,193

13,775

2.42

%

623,036

9,169

2.96

%

Equity securities

866

%

57,175

123

0.43

%

Interest-bearing deposits with banks

1,086,241

638

0.12

%

152,581

565

0.74

%

FHLB stock

14,971

322

4.34

%

21,571

622

5.80

%

Total investment securities(3)

4,450,983

35,770

1.62

%

2,174,767

27,798

2.57

%

Total interest-earning assets

14,475,096

262,592

3.66

%

12,039,228

264,117

4.41

%

Non-interest-earning assets

1,232,196

1,219,440

Total assets

$

15,707,292

$

13,258,668

Deposits:

Interest-bearing checking accounts

$

1,685,973

617

0.07

%

$

1,321,679

843

0.13

%

Savings accounts

2,555,144

975

0.08

%

2,074,377

2,753

0.27

%

Money market accounts

2,265,819

1,443

0.13

%

1,861,268

4,004

0.43

%

Certificates of deposit

900,970

3,602

0.81

%

1,121,270

7,844

1.41

%

Total interest-bearing deposits

7,407,906

6,637

0.18

%

6,378,594

15,444

0.49

%

Non-interest-bearing deposits

5,861,941

%

4,434,186

%

Total deposits

13,269,847

6,637

0.10

%

10,812,780

15,444

0.29

%

Other interest-bearing liabilities:

FHLB advances

122,100

1,589

2.62

%

280,901

3,048

2.18

%

Other borrowings

221,682

233

0.21

%

205,253

354

0.35

%

Junior subordinated debentures and subordinated notes

247,944

4,412

3.59

%

148,494

2,728

3.69

%

Total borrowings

591,726

6,234

2.12

%

634,648

6,130

1.94

%

Total funding liabilities

13,861,573

12,871

0.19

%

11,447,428

21,574

0.38

%

Other non-interest-bearing liabilities(2)

203,567

200,265

Total liabilities

14,065,140

11,647,693

Shareholders’ equity

1,642,152

1,610,975

Total liabilities and shareholders’ equity

$

15,707,292

$

13,258,668

Net interest income/rate spread (tax equivalent)

$

249,721

3.47

%

$

242,543

4.03

%

Net interest margin (tax equivalent)

3.48

%

4.05

%

Reconciliation to reported net interest income:

Adjustments for taxable equivalent basis

(4,506

)

(3,705

)

Net interest income and margin, as reported

$

245,215

3.42

%

$

238,838

3.99

%

Additional Key Financial Ratios:

Return on average assets

1.30

%

0.61

%

Return on average equity

12.43

%

5.05

%

Average equity/average assets

10.45

%

12.15

%

Average interest-earning assets/average interest-bearing liabilities

`

180.95

%

171.66

%

Average interest-earning assets/average funding liabilities

104.43

%

105.17

%

Non-interest income/average assets

0.60

%

0.71

%

Non-interest expense/average assets

2.39

%

2.79

%

Efficiency ratio(4)

63.79

%

64.40

%

Adjusted efficiency ratio(5)

61.75

%

60.41

%

(1)

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

(2)

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

(3)

Tax-exempt income is calculated on a tax equivalent basis. The tax equivalent yield adjustment to interest earned on loans was $2.5 million and $2.2 million for the six months ended June 30, 2021 and June 30, 2020, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $2.0 million and $1.5 million for the six months ended June 30, 2021 and June 30, 2020, respectively.

(4)

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

(5)

Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP Financial Measures on the final two pages of the press release tables.

ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

* Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in Banner’s core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:

ADJUSTED REVENUE

Quarters Ended

Six Months Ended

Jun 30, 2021

Mar 31, 2021

Jun 30, 2020

Jun 30, 2021

Jun 30, 2020

Net interest income

$

127,554

$

117,661

$

119,580

$

245,215

$

238,838

Total non-interest income

22,336

24,272

27,720

46,608

46,885

Total revenue (GAAP)

149,890

141,933

147,300

291,823

285,723

Exclude net gain on sale of securities

(77

)

(485

)

(93

)

(562

)

(171

)

Exclude net change in valuation of financial instruments carried at fair value

(58

)

(59

)

(2,199

)

(117

)

2,397

Adjusted revenue (non-GAAP)

$

149,755

$

141,389

$

145,008

$

291,144

$

287,949

ADJUSTED EARNINGS

Quarters Ended

Six Months Ended

Jun 30, 2021

Mar 31, 2021

Jun 30, 2020

Jun 30, 2021

Jun 30, 2020

Net income (GAAP)

$

54,382

$

46,855

$

23,541

$

101,237

$

40,423

Exclude net gain on sale of securities

(77

)

(485

)

(93

)

(562

)

(171

)

Exclude net change in valuation of financial instruments carried at fair value

(58

)

(59

)

(2,199

)

(117

)

2,397

Exclude merger and acquisition-related expenses

79

571

336

650

1,478

Exclude COVID-19 expenses

117

148

2,152

265

2,391

Exclude related net tax benefit

(15

)

(42

)

(47

)

(57

)

(1,452

)

Total adjusted earnings (non-GAAP)

$

54,428

$

46,988

$

23,690

$

101,416

$

45,066

Diluted earnings per share (GAAP)

$

1.56

$

1.33

$

0.67

$

2.88

$

1.14

Diluted adjusted earnings per share (non-GAAP)

$

1.56

$

1.33

$

0.67

$

2.89

$

1.27

ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

ADJUSTED EFFICIENCY RATIO

Quarters Ended

Six Months Ended

Jun 30, 2021

Mar 31, 2021

Jun 30, 2020

Jun 30, 2021

Jun 30, 2020

Non-interest expense (GAAP)

$

92,624

$

93,527

$

90,542

$

186,151

$

184,005

Exclude merger and acquisition-related expenses

(79

)

(571

)

(336

)

(650

)

(1,478

)

Exclude COVID-19 expenses

(117

)

(148

)

(2,152

)

(265

)

(2,391

)

Exclude CDI amortization

(1,711

)

(1,711

)

(2,002

)

(3,422

)

(4,003

)

Exclude state/municipal tax expense

(1,083

)

(1,065

)

(1,104

)

(2,148

)

(2,088

)

Exclude REO operations

(118

)

242

(4

)

124

(104

)

Adjusted non-interest expense (non-GAAP)

$

89,516

$

90,274

$

84,944

$

179,790

$

173,941

Net interest income (GAAP)

$

127,554

$

117,661

$

119,580

$

245,215

$

238,838

Non-interest income (GAAP)

22,336

24,272

27,720

46,608

46,885

Total revenue

149,890

141,933

147,300

291,823

285,723

Exclude net gain on sale of securities

(77

)

(485

)

(93

)

(562

)

(171

)

Exclude net change in valuation of financial instruments carried at fair value

(58

)

(59

)

(2,199

)

(117

)

2,397

Adjusted revenue (non-GAAP)

$

149,755

$

141,389

$

145,008

$

291,144

$

287,949

Efficiency ratio (GAAP)

61.79

%

65.90

%

61.47

%

63.79

%

64.40

%

Adjusted efficiency ratio (non-GAAP)

59.77

%

63.85

%

58.58

%

61.75

%

60.41

%

TANGIBLE COMMON SHAREHOLDERS’ EQUITY TO TANGIBLE ASSETS

Jun 30, 2021

Mar 31, 2021

Dec 31, 2020

Jun 30, 2020

Shareholders’ equity (GAAP)

$

1,669,211

$

1,618,817

$

1,666,264

$

1,625,103

Exclude goodwill and other intangible assets, net

391,125

392,836

394,547

398,276

Tangible common shareholders’ equity (non-GAAP)

$

1,278,086

$

1,225,981

$

1,271,717

$

1,226,827

Total assets (GAAP)

$

16,181,857

$

16,119,792

$

15,031,623

$

14,405,607

Exclude goodwill and other intangible assets, net

391,125

392,836

394,547

398,276

Total tangible assets (non-GAAP)

$

15,790,732

$

15,726,956

$

14,637,076

$

14,007,331

Common shareholders’ equity to total assets (GAAP)

10.32

%

10.04

%

11.09

%

11.28

%

Tangible common shareholders’ equity to tangible assets (non-GAAP)

8.09

%

7.80

%

8.69

%

8.76

%

TANGIBLE COMMON SHAREHOLDERS’ EQUITY PER SHARE

Tangible common shareholders’ equity (non-GAAP)

$

1,278,086

$

1,225,981

$

1,271,717

$

1,226,827

Common shares outstanding at end of period

34,550,888

34,735,343

35,159,200

35,157,899

Common shareholders’ equity (book value) per share (GAAP)

$

48.31

$

46.60

$

47.39

$

46.22

Tangible common shareholders’ equity (tangible book value) per share (non-GAAP)

$

36.99

$

35.29

$

36.17

$

34.89

CONTACT:

MARK J. GRESCOVICH,
PRESIDENT & CEO
PETER J. CONNER, CFO
(509) 527-3636



Source link

LEAVE A REPLY

Please enter your comment!
Please enter your name here