Banner Corporation Reports Increased Loan Demand, Strong

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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



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