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

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 ORIGINATIONSQuarters Ended
 Jun 30, 2021 Mar 31, 2021 Jun 30, 2020
Commercial real estate$103,415  $91,217  $111,765 
Multifamily real estate45,674  12,878  6,384 
Construction and land509,828  447,369  290,955 
Commercial business:     
Commercial business181,996  115,911  167,268 
SBA PPP55,990  428,180  1,151,170 
Agricultural business12,546  27,167  16,293 
One-to four-family residential47,086  57,731  24,537 
Consumer131,424  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 land541  986  936  732 
One- to four-family4,007  4,456  3,556  2,942 
Commercial business3,673  4,194  5,407  18,486 
Agricultural business, including secured by farmland1,200  1,536  1,743  433 
Consumer1,799  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:       
Commercial911       
One- to four-family579  1,524  1,899  472 
Commercial business495  37  1,025  1 
Agricultural business, including secured by farmland      1,061 
Consumer131    130  36 
 2,116  1,561  3,054  1,570 
Total non-performing loans30,763  36,592  35,614  37,420 
REO763  340  816  2,400 
Other repossessed assets17  37  51  47 
Total non-performing assets$31,543  $36,969  $36,481  $39,867 
Total non-performing assets to total assets0.19% 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 Mention66,103  51,692  36,598  54,291 
Substandard272,814  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 OWNEDJun 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 foreclosures423        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 SPREADQuarters 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 loans7,147,733  80,673  4.53% 7,144,770  80,580  4.57% 7,314,125  87,172  4.79%
Commercial/agricultural loans2,625,149  33,614  5.14% 2,691,554  26,711  4.02% 2,599,878  25,200  3.90%
Consumer and other loans122,951  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 securities2,440,913  11,563  1.90% 1,953,820  9,472  1.97% 1,286,223  8,083  2.53%
Other securities1,250,417  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 banks1,139,749  376  0.13% 1,032,138  262  0.10% 212,502  172  0.33%
FHLB stock14,001  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 assets14,810,821  135,847  3.68% 14,135,642  126,745  3.64% 12,636,728  130,721  4.16%
Non-interest-earning assets1,227,167      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 accounts2,622,716  454  0.07% 2,486,820  521  0.08% 2,108,896  998  0.19%
Money market accounts2,288,638  668  0.12% 2,242,748  775  0.14% 1,979,419  1,565  0.32%
Certificates of deposit889,020  1,604  0.72% 913,053  1,998  0.89% 1,117,547  3,757  1.35%
Total interest-bearing deposits7,554,737  3,028  0.16% 7,259,445  3,609  0.20% 6,582,572  6,694  0.41%
Non-interest-bearing deposits6,057,884    % 5,663,820    % 4,902,992    %
Total deposits13,612,621  3,028  0.09% 12,923,265  3,609  0.11% 11,485,564  6,694  0.23%
Other interest-bearing liabilities:                 
FHLB advances100,000  655  2.63% 144,444  934  2.62% 156,374  984  2.53%
Other borrowings240,229  124  0.21% 202,930  109  0.22% 285,735  238  0.34%
Junior subordinated debentures and subordinated notes247,944  2,204  3.57% 247,944  2,208  3.61% 149,043  1,251  3.38%
Total borrowings588,173  2,983  2.03% 595,318  3,251  2.21% 591,152  2,473  1.68%
Total funding liabilities14,200,794  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 liabilities14,400,413      13,726,143      12,265,085     
Shareholders’ equity1,637,575      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 SPREADSix 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 loans7,146,260  161,253  4.55% 7,312,120  180,233  4.96%
Commercial/agricultural loans2,658,168  60,325  4.58% 2,241,942  48,159  4.32%
Consumer and other loans125,197  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 securities2,198,712  21,035  1.93% 1,320,404  17,319  2.64%
Other securities1,150,193  13,775  2.42% 623,036  9,169  2.96%
Equity securities866    % 57,175  123  0.43%
Interest-bearing deposits with banks1,086,241  638  0.12% 152,581  565  0.74%
FHLB stock14,971  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 assets14,475,096  262,592  3.66% 12,039,228  264,117  4.41%
Non-interest-earning assets1,232,196      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 accounts2,555,144  975  0.08% 2,074,377  2,753  0.27%
Money market accounts2,265,819  1,443  0.13% 1,861,268  4,004  0.43%
Certificates of deposit900,970  3,602  0.81% 1,121,270  7,844  1.41%
Total interest-bearing deposits7,407,906  6,637  0.18% 6,378,594  15,444  0.49%
Non-interest-bearing deposits5,861,941    % 4,434,186    %
Total deposits13,269,847  6,637  0.10% 10,812,780  15,444  0.29%
Other interest-bearing liabilities:           
FHLB advances122,100  1,589  2.62% 280,901  3,048  2.18%
Other borrowings221,682  233  0.21% 205,253  354  0.35%
Junior subordinated debentures and subordinated notes247,944  4,412  3.59% 148,494  2,728  3.69%
Total borrowings591,726  6,234  2.12% 634,648  6,130  1.94%
Total funding liabilities13,861,573  12,871  0.19% 11,447,428  21,574  0.38%
Other non-interest-bearing liabilities(2)203,567      200,265     
Total liabilities14,065,140      11,647,693     
Shareholders’ equity1,642,152      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 REVENUEQuarters 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 income22,336   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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