Banner Corporation Reports Net Income of $23.5 Million, or $0.67 Per Diluted Share, in Second Quarter 2020; Declares Quarterly Cash Dividend of $0.41 Per Share; Provides Update to Pandemic Relief and Community Support Actions

  • Oops!
    Something went wrong.
    Please try again later.
·43 min read
  • Oops!
    Something went wrong.
    Please try again later.

WALLA WALLA, Wash., July 22, 2020 (GLOBE NEWSWIRE) -- Banner Corporation (NASDAQ GSM: BANR) ("Banner"), the parent company of Banner Bank and Islanders Bank, today reported net income of $23.5 million, or $0.67 per diluted share, for the second quarter 2020, compared to $16.9 million, or $0.47 per diluted share, in the preceding quarter and $39.7 million, or $1.14 per diluted share, in the second quarter of 2019. Banner's second quarter earnings reflect the continuing impact of the COVID-19 pandemic in all the western states that Banner operates. Second quarter of 2020 results also include $336,000 of acquisition-related expenses, compared to $1.1 million of acquisition-related expenses in the preceding quarter and $301,000 in the second quarter of 2019. In the first six months of 2020, net income was $40.4 million, or $1.14 per diluted share, compared to $73.0 million, or $2.09 per diluted share, in the first six months a year ago. The results for the first six months of 2020 include $1.5 million of acquisition-related expenses, compared to $2.4 million of acquisition-related expenses in the first six months of 2019.

Banner also announced that its Board of Directors declared a regular quarterly cash dividend of $0.41 per share. The dividend will be payable August 13, 2020, to common shareholders of record on August 4, 2020.

With strong loan and deposit growth, Banners core operating performance generated solid revenue growth with increases in both net interest income and non-interest income compared to both the preceding quarter and the same quarter last year. However; second quarter earnings were impacted by a number of items, including the anticipated impact of the COVID-19 pandemic on the economy, and subsequently, the increase in our allowance for credit losses, said Mark Grescovich, President and CEO. To provide support for our clients, we have made available several assistance programs. Banner has provided SBA paycheck protection funds totaling nearly $1.12 billion for 8,655 businesses and provided deferred payments or waived interest on 3,314 loans totaling $1.1 billion as of June 30, 2020. We will continue to do the right thing for our clients, our communities, our colleagues, our company and our shareholders while providing a consistent and reliable source of commerce and capital through all economic cycles and changing events. I am very proud of our more than 2,100 colleagues that are working extremely hard to assist our clients and communities during these difficult times."

We have proactively downgraded certain modified loans and other loans we consider at risk due to the COVID-19 induced economic slowdown. As a result, along with recent further deterioration in economic conditions, we increased the allowance for credit losses to $156.4 million with the addition of $29.5 million in credit loss provisions during the quarter ended June 30, 2020, Grescovich added. "This provision compares to a $21.7 million provision for credit losses during the preceding quarter and a $2.0 million provision for loan losses in the second quarter a year ago. The allowance for credit losses - loans was 1.52% of total loans and 418% of non-performing loans at the end of the second quarter of 2020."

At June 30, 2020, Banner Corporation had $14.41 billion in assets, $10.13 billion in net loans and $12.02 billion in deposits. Banner operates 176 branch offices, including branches located in eight of the top 20 largest western Metropolitan Statistical Areas by population.

COVID-19 Pandemic Update

  • SBA Paycheck Protection Program.  The U.S. Small Business Administration (SBA) provides assistance to small businesses impacted by COVID-19 through the Paycheck Protection Program (PPP), which was designed to provide near-term relief to help small businesses sustain operations. As of June 30, 2020, Banner had funded 8,655 applications totaling $1.12 billion of loans in its service area through the PPP program. The deadline for PPP loan applications to the SBA has been extended to August 8, 2020. Banner is continuing to accept new PPP applications based on this extended deadline and is assisting small businesses with other borrowing options as they become available, including the Main Street Lending Program and other government sponsored lending programs, as appropriate.

  • Loan Accommodations. Banner is continuing to offer payment and financial relief programs for borrowers impacted by COVID-19. These programs include initial loan payment deferrals or interest-only payments for up to 90 days, waived late fees, and, on a more limited basis, waived interest and temporarily suspended foreclosure proceedings. Deferred loans are re-evaluated at the end of the initial deferral period and will either return to the original loan terms or could be eligible for an additional deferral period for up to 90 days. In addition, Banner has entered into payment forbearance agreements with other customers for periods of up to six months. Banner had deferred payment or waived interest on 3,314 loans totaling $1.1 billion through June 30, 2020. 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 through June 30, 2020 pursuant to applicable accounting and regulatory guidance. As of June 30, 2020, the deferral period had ended for approximately 62% of these loans.

  • Allowance for Credit Losses - Loans.  Banner recorded a provision for credit losses of $29.5 million for the second quarter of 2020, compared to a $21.7 million provision in the preceding quarter and a $2.0 million provision in the second quarter a year ago. The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the conditions and economic outlook that existed as of June 30, 2020 and March 31, 2020, respectively.

  • Branch Operations, IT Changes and One-Time Expenses. Banner has taken various steps to help protect customers and staff by limiting branch activities to appointment only and use of drive-up facilities, and by encouraging the use of digital and electronic banking channels. In select markets on a test basis, Banner has begun taking steps to resume more normal branch activities with specific guidelines in place to ensure the safety of our clients and our personnel. To further the well-being of staff and customers, Banner implemented measures to allow employees to work from home to the extent practicable. To facilitate this approach, Banner allocated additional computer equipment to staff and enhanced Banner's network capabilities with several upgrades. These expenses plus other expenses incurred in response to the COVID-19 pandemic resulted in $2.2 million of related costs during the second quarter of 2020, compared to $239,000 of related costs in the first quarter of 2020.

  • Capital Management.  At June 30, 2020, the tangible common shareholders' equity to tangible assets* ratio was 8.76% and Banners capital was well in excess of all regulatory requirements. On June 30, 2020, Banner issued and sold in an underwritten offering $100.0 million aggregate principal amount of 5.000% Fixed-to-Floating Rate Subordinated Notes due 2030 (Notes) at a public offering price equal to 100% of the aggregate principal amount of the Notes, resulting in net proceeds, after underwriting discounts and estimated offering expenses, of approximately $98.1 million. During the preceding quarter, prior to the COVID-19 pandemic outbreak, Banner repurchased 624,780 shares of its common stock. To preserve capital, Banner has discontinued any additional repurchase of shares under its stock repurchase program until further notice and will closely monitor capital levels going forward.

Second Quarter 2020 Highlights

  • Revenues increased to $147.3 million, compared to $138.4 million in the preceding quarter, and increased 6% when compared to $139.4 million in the second quarter a year ago.

  • Net interest income, before the provision for credit losses, was $119.5 million in the second quarter of 2020, compared to $119.3 million in the preceding quarter and $116.7 million in the second quarter a year ago.

  • Net interest margin as reported was 3.84%, compared to 4.19% in the preceding quarter and 4.38% in the second quarter a year ago.

  • Net interest margin on a tax equivalent basis was 3.90%, compared to 4.25% in the preceding quarter and 4.44% in the second quarter a year ago.

  • Mortgage banking revenues increased 39% to $14.1 million, compared to $10.2 million in the preceding quarter, and increased 138% compared to $5.9 million in the second quarter a year ago, reflecting strong refinance demand and higher margins due to decreasing market interest rates.

  • Return on average assets was 0.68%, compared to 0.54% in the preceding quarter and 1.36% in the second quarter a year ago.

  • Net loans receivable increased to $10.13 billion at June 30, 2020, compared to $9.16 billion at March 31, 2020, and increased 17% when compared to $8.65 billion at June 30, 2019.

  • Non-performing assets decreased to $39.9 million, or 0.28% of total assets, at June 30, 2020, compared to $46.1 million, or 0.36% of total assets in the preceding quarter, and increased from $21.0 million, or 0.18% of total assets, at June 30, 2019.

  • Provision for credit losses - loans was $29.5 million, and the allowance for credit losses - loans was $156.4 million, or 1.52% of total loans receivable, as of June 30, 2020, compared to $130.5 million, or 1.41% of total loans receivable as of March 31, 2020 and $98.3 million or 1.12% of total loans receivable as of June 30, 2019.

  • A $905,000 recapture of provision for credit losses - unfunded loan commitments was recorded and the allowance for credit losses - unfunded loan commitments was $10.6 million as of June 30, 2020, compared to $11.5 million as of March 31, 2020.

  • Core deposits increased 18% to $10.97 billion at June 30, 2020, compared to $9.28 billion at March 31, 2020, and increased 34% compared to $8.22 billion a year ago. Core deposits represented 91% of total deposits at June 30, 2020.

  • Common shareholders equity per share increased 1% to $46.22 at June 30, 2020, compared to $45.63 at the preceding quarter end, and increased 5% from $43.99 a year ago.

  • Tangible common shareholders' equity per share* increased 2% to $34.89 at June 30, 2020, compared to $34.23 at the preceding quarter end, and increased 5% from $33.36 a year ago.

*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 before provision for loan losses and non-interest income) and the adjusted efficiency ratio (which excludes acquisition-related expenses, COVID-19 expenses, amortization of core deposit intangibles, real estate owned gain (loss), Federal Home Loan Bank (FHLB) prepayment penalties 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.

Significant Recent Initiatives and Events

On June 30, 2020, Banner issued and sold in an underwritten offering the Notes, resulting in net proceeds, after underwriting discounts and estimated offering expenses, of approximately $98.1 million. Banner intends to use the net proceeds of the offering for general corporate purposes, which may include providing capital to support its growth organically or through strategic acquisitions, repayment or redemption of outstanding indebtedness, the payment of dividends, financing investments and capital expenditures, repurchasing shares of its common stock, and for investments in the Banks as regulatory capital.

On November 1, 2019, Banner completed the acquisition of AltaPacific Bancorp (AltaPacific) and its wholly-owned subsidiary, AltaPacific Bank, of Santa Rosa, California. At closing, AltaPacific Bank had six branch locations, including one in Northern California and five in Southern California. Pursuant to the previously announced terms, AltaPacific shareholders received 0.2712 shares of Banner common stock in exchange for each share of AltaPacific common stock, plus cash in lieu of any fractional shares and cash to buyout AltaPacific stock options for a total consideration paid of $87.6 million.

The AltaPacific merger was accounted for using the acquisition method of accounting. Accordingly, the assets (including identifiable intangible assets) and the liabilities of AltaPacific were measured at their respective estimated fair values as of the merger date. The excess of the purchase price over the fair value of the net assets acquired was attributed to goodwill. The fair value on the merger date represents management's best estimates based on available information and facts and circumstances in existence on the merger date. The acquisition accounting is subject to adjustment within a measurement period of one year from the acquisition date. The acquisition provided $425.7 million of assets, $332.4 million of loans, and $313.4 million of deposits to Banner. During the first quarter of 2020, Banner completed the integration of AltaPacific systems into Banner's core systems and closure of overlapping branches.

Adoption of New Accounting Standard

In June 2016, Financial Accounting Standards Board issued Accounting Standard Update No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13). GAAP prior to ASU 2016-13 required an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 became effective for Banner on January 1, 2020. The adoption of ASU No. 2016-13 resulted in a $7.8 million increase to its allowance for credit losses - loans and a $7.0 million increase to its allowance for credit losses - unfunded loan commitments. The combined increases were recorded net of tax as an $11.2 million reduction to retained earnings as of the adoption date.

Income Statement Review

Net interest income, before the provision for credit losses, was $119.5 million in the second quarter of 2020, compared to $119.3 million in the preceding quarter and $116.7 million in the second quarter a year ago.

Banner's net interest margin on a tax equivalent basis was 3.90% for the second quarter of 2020, a 35 basis-point decrease compared to 4.25% in the preceding quarter and a 54 basis-point decrease compared to 4.44% in the second quarter a year ago. As expected, the 150 basis-point decrease in the fed funds target rate that occurred in March 2020, the full effect of the lower interest rate environment combined with the impact of the low loan yields of the SBA PPP loan portfolio, and growth in core deposit liquidity impacted our net interest margin during the quarter, added Grescovich. Acquisition accounting adjustments added seven basis points to the net interest margin in the current quarter compared to ten 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 $20.2 million at June 30, 2020, compared to $22.2 million at March 31, 2020, and $22.6 million at June 30, 2019. In the first six months of the year, Banners net interest margin on a tax equivalent basis was 4.07% compared to 4.43% in the first six months of 2019.

Average interest-earning asset yields decreased 50 basis points to 4.19% in the second quarter compared to 4.69% for the preceding quarter and decreased 78 basis points compared to 4.97% in the second quarter a year ago. Average loan yields decreased 51 basis points to 4.57% compared to 5.08% in the preceding quarter and decreased 82 basis points compared to 5.39% in the second quarter a year ago. Loan discount accretion added eight basis points to loan yields in the second quarter of 2020, compared to 12 basis points in the preceding quarter and nine basis points in the second quarter a year ago. Deposit costs were 0.23% in the second quarter of 2020, a 12 basis-point decrease compared to the preceding quarter and a 16 basis-point decrease compared to the second quarter a year ago. The decrease in deposit costs during the current quarter compared to the preceding quarter was the result of recent decreases in market interest rates; however, changes in the average rate paid on interest-bearing deposits tend to lag changes in market interest rates. The total cost of funds was 0.31% during the second quarter of 2020, a 15 basis-point decrease compared to the preceding quarter and a 25 basis-point decrease compared to the second quarter a year ago.

Banner recorded a $29.5 million provision for credit losses in the current quarter, compared to $21.7 million in the prior quarter and $2.0 million in the same quarter a year ago as calculated under the prior incurred loss methodology. The provisions for the current and preceding quarters reflect expected lifetime credit losses based upon the current 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 and March 31, 2020, respectively.

Total non-interest income was $27.8 million in the second quarter of 2020, compared to $19.2 million in the preceding quarter and $22.7 million in the second quarter a year ago. Deposit fees and other service charges were $7.5 million in the second quarter of 2020, compared to $9.8 million in the preceding quarter and $14.0 million in the second quarter a year ago. The decrease in deposit fees and other service charges from the second quarter a year ago is primarily a result of Banner becoming subject to the Durbin Amendment on July 1, 2019, as well as pandemic related fee waivers and reduced transaction deposit account activity since the start of the COVID-19 pandemic. Mortgage banking revenues, including gains on one- to four-family and multifamily loan sales and loan servicing fees, increased to $14.1 million in the second quarter, compared to $10.2 million in the preceding quarter and $5.9 million in the second quarter of 2019. The higher mortgage banking revenue quarter-over-quarter primarily reflects an increase in the gain on sale spread on one- to four-family held for sale loans. The increases compared to the second quarter of 2019 were primarily due to increased production of one- to four-family held-for-sale loans primarily due to increased refinance activity. Home purchase activity accounted for 42% of one- to four-family mortgage loan originations in the second quarter of 2020, compared to 54% in the prior quarter and 77% in the second quarter of 2019. In the first six months of 2020, total non-interest income increased 15% to $47.0 million, compared to $40.8 million in the first six months of 2019.

Banners second quarter 2020 results included a $2.2 million 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 as a result of the tightening of market spreads during the quarter, and a $93,000 net gain on the sale of securities. In the preceding quarter, results included a $4.6 million net loss for fair value adjustments and a $78,000 net gain on the sale of securities. In the second quarter a year ago, results included an $114,000 net loss for fair value adjustments and a $28,000 net loss on the sale of securities.

Banner's total revenue increased 6% to $147.3 million for the second quarter of 2020, compared to $138.4 million in the preceding quarter, and increased 6% compared to $139.4 million in the second quarter a year ago. Year-to-date, total revenues increased 4% to $285.7 million compared to $273.6 million for the same period one year earlier. Adjusted revenue* (the total of net interest income before provision for credit losses and total non-interest income excluding the net gain and loss on the sale of securities and the net change in valuation of financial instruments) was $145.0 million in the second quarter of 2020, compared to $142.9 million in the preceding quarter and $139.5 million in the second quarter of 2019. In the first six months of the year, adjusted revenue* was $287.9 million, compared to $273.7 million in the first six months of 2019.

Total non-interest expense was $89.6 million in the second quarter of 2020, compared to $95.2 million in the preceding quarter and $86.7 million in the second quarter of 2019. The decrease in non-interest expense during the second quarter of 2020 reflects an increase in capitalized loan origination costs, primarily related to the origination of PPP loans during the current quarter. A reduction in acquisition-related expenses also contributed to the decrease compared to the prior quarter as acquisition-related expenses were $336,000 for the second quarter of 2020, compared to $1.1 million for the preceding quarter and $301,000 in the second quarter a year ago. The current quarter includes a $905,000 recapture of provision for credit losses - unfunded loan commitments compared to a $1.7 million provision for the prior quarter and no provision for the year ago quarter. The previously mentioned increase in COVID-19 expenses during the current quarter partially offset these decreases. Year-to-date, total non-interest expense was $184.8 million, compared to $176.7 million in the same period a year earlier. Banners efficiency ratio was 60.85% for the current quarter, compared to 68.76% in the preceding quarter and 62.22% in the year ago quarter. Banners adjusted efficiency ratio* was 57.95% for the current quarter, compared to 63.47% in the preceding quarter and 59.56% in the year ago quarter.

For the second quarter of 2020, Banner had $4.6 million in state and federal income tax expense for an effective tax rate of 16.3%, reflecting the benefits from tax exempt income. Banners statutory income tax rate is 23.5%, 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 13% to $14.41 billion at June 30, 2020, compared to $12.78 billion at March 31, 2020, and increased 22% when compared to $11.85 billion at June 30, 2019. The total of securities and interest-bearing deposits held at other banks was $2.30 billion at June 30, 2020, compared to $2.15 billion at March 31, 2020 and $1.85 billion at June 30, 2019. The average effective duration of Banner's securities portfolio was approximately 4.0 years at June 30, 2020, compared to 2.6 years at June 30, 2019.

Net loans receivable increased 11% to $10.13 billion at June 30, 2020, compared to $9.16 billion at March 31, 2020, and increased 17% when compared to $8.65 billion at June 30, 2019. The increase in net loans compared to the prior quarter primarily reflects the origination of SBA PPP loans during the current quarter, which totaled $1.12 billion outstanding as of June 30, 2020. The year-over-year increase in net loans included $332.4 million of portfolio loans acquired in the AltaPacific acquisition during the fourth quarter of 2019. Commercial real estate and multifamily real estate loans increased to $4.11 billion at June 30, 2020, compared to $4.02 billion at March 31, 2020, and increased 13% compared to $3.62 billion a year ago. Commercial business loans increased 46% to $3.15 billion at June 30, 2020, compared to $2.17 billion at March 31, 2020, and increased 56% compared to $2.02 billion a year ago. Agricultural business loans decreased to $328.1 million at June 30, 2020, compared to $330.3 million three months earlier and $345.8 million a year ago. Total construction, land and land development loans were $1.24 billion at June 30, 2020, a small increase from $1.22 billion at March 31, 2020, and a 9% increase compared to $1.14 billion a year earlier. Consumer loans decreased to $642.4 million at June 30, 2020, compared to $661.8 million at March 31, 2020, and $698.3 million a year ago. One- to four-family loans decreased to $817.8 million at June 30, 2020, compared to $881.4 million at March 31, 2020, and $918.2 million a year ago.

Loans held for sale were $258.7 million at June 30, 2020, compared to $182.4 million at March 31, 2020, and $170.7 million at June 30, 2019. The volume of one- to four- family residential mortgage loans sold was $292.4 million in the current quarter, compared to $204.0 million in the preceding quarter and $139.0 million in the second quarter a year ago. During the second quarter of 2020, Banner sold $3.1 million in multifamily loans compared to $119.7 million in the preceding quarter and none in the second quarter a year ago. The current quarter reflects a temporary disruption in the secondary market for multifamily loans as a results of the COVID-19 pandemic.

Total deposits increased 15% to $12.02 billion at June 30, 2020, compared to $10.45 billion at March 31, 2020, and increased 29% when compared to $9.29 billion a year ago. The increase in total deposits from the preceding quarter was due primarily to SBA PPP loan funds deposited into customer accounts and an increase in customer deposits accounts due changes in spending habits during the COVID-19 pandemic. The year-over-year increase in deposits included $313.4 million in deposits acquired in the AltaPacific acquisition during the fourth quarter of 2019. Non-interest-bearing account balances increased 29% to $5.28 billion at June 30, 2020, compared to $4.11 billion at March 31, 2020, and increased 44% compared to $3.67 billion a year ago. Core deposits (non-interest-bearing and interest-bearing transaction and savings accounts) increased 18% from the prior quarter and increased 34% compared to a year ago and represented 91% of total deposits at June 30, 2020. Certificates of deposit decreased 11% to $1.04 billion at June 30, 2020, compared to $1.17 billion at March 31, 2020, and decreased slightly compared to $1.07 billion a year earlier. The decrease in certificates of deposit during the second quarter of 2020 primarily reflects the decrease in brokered deposits to $119.4 million at June 30, 2020, compared to $251.0 million at March 31, 2020 and $138.4 million a year ago. FHLB borrowings totaled $150.0 million at June 30, 2020, compared to $247.0 million at March 31, 2020, and $606.0 million a year earlier.

At June 30, 2020, total common shareholders' equity was $1.63 billion, or 11.28% of assets, compared to $1.60 billion or 12.53% of assets at March 31, 2020, and $1.52 billion or 12.84% of assets a year ago. At June 30, 2020, tangible common shareholders' equity*, which excludes goodwill and other intangible assets, net, was $1.23 billion, or 8.76% of tangible assets*, compared to $1.20 billion, or 9.70% of tangible assets, at March 31, 2020, and $1.15 billion, or 10.05% of tangible assets, a year ago. Banner's tangible book value per share* increased to $34.89 at June 30, 2020, compared to $33.36 per share a year ago.

Banner and its subsidiary banks continue to maintain capital levels in excess of the requirements to be categorized as well-capitalized. At June 30, 2020, Banner's common equity Tier 1 capital ratio was 10.66%, its Tier 1 leverage capital to average assets ratio was 9.83%, and its total capital to risk-weighted assets ratio was 14.14%.

Credit Quality

The allowance for credit losses - loans was $156.4 million at June 30, 2020, or 1.52% of total loans receivable outstanding and 418% of non-performing loans, compared to $130.5 million at March 31, 2020, or 1.41% of total loans receivable outstanding and 299% of non-performing loans, and $98.3 million at June 30, 2019, or 1.12% of total loans receivable outstanding and 534% 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 $10.6 million at June 30, 2020, compared to $11.5 million at March 31, 2020 and $2.6 million at June 30, 2019. Net loan charge-offs totaled $3.7 million in the second quarter of 2020, compared to net loan recoveries of $404,000 in the preceding quarter and $1.1 million of net charge-offs in the second quarter a year ago. Banner recorded a $29.5 million provision for credit losses in the current quarter, compared to $21.7 million in the prior quarter and $2.0 million in the year ago quarter primarily due to the further deterioration in economic variables, as a result of the COVID-19 pandemic, utilized to forecast credit losses. Non-performing loans were $37.4 million at June 30, 2020, compared to $43.7 million at March 31, 2020, and $18.4 million a year ago. Real estate owned and other repossessed assets were $2.4 million at June 30, 2020, compared to $2.4 million at March 31, 2020, and $2.6 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 are included in the determination of fair value, and as a result, no allowance for credit losses is recorded for acquired loans at the acquisition date. At June 30, 2020, the total purchase discount for acquired loans was $20.2 million.

Banner's total non-performing assets were $39.9 million, or 0.28% of total assets, at June 30, 2020, compared to $46.1 million, or 0.36% of total assets, at March 31, 2020, and $21.0 million, or 0.18% of total assets, a year ago.

Conference Call

Banner will host a conference call on Thursday, July 23, 2020, 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 10145372, or at www.bannerbank.com .

About the Company

Banner Corporation is a $14.41 billion bank holding company operating two commercial banks 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 customers, 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. Continued deterioration in general business and economic conditions, including further 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 further 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 customer 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 customers' 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, 2020

 

Mar 31, 2020

 

Jun 30, 2019

 

Jun 30, 2020

 

Jun 30, 2019

 

 

 

 

 

 

 

 

 

 

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

Loans receivable

 

$

115,173

 

 

$

118,926

 

 

$

117,007

 

 

$

234,099

 

 

$

232,462

 

Mortgage-backed securities

 

7,983

 

 

9,137

 

 

9,794

 

 

17,120

 

 

20,301

 

Securities and cash equivalents

 

5,468

 

 

3,602

 

 

4,037

 

 

9,070

 

 

8,071

 

 

 

128,624

 

 

131,665

 

 

130,838

 

 

260,289

 

 

260,834

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

Deposits

 

6,694

 

 

8,750

 

 

9,023

 

 

15,444

 

 

17,666

 

Federal Home Loan Bank advances

 

984

 

 

2,064

 

 

3,370

 

 

3,048

 

 

6,846

 

Other borrowings

 

238

 

 

116

 

 

67

 

 

354

 

 

127

 

Junior subordinated debentures and subordinated notes

 

1,251

 

 

1,477

 

 

1,683

 

 

2,728

 

 

3,396

 

 

 

9,167

 

 

12,407

 

 

14,143

 

 

21,574

 

 

28,035

 

Net interest income before provision for credit losses

 

119,457

 

 

119,258

 

 

116,695

 

 

238,715

 

 

232,799

 

PROVISION FOR CREDIT LOSSES

 

29,528

 

 

21,748

 

 

2,000

 

 

51,276

 

 

4,000

 

Net interest income

 

89,929

 

 

97,510

 

 

114,695

 

 

187,439

 

 

228,799

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

Deposit fees and other service charges

 

7,546

 

 

9,803

 

 

14,046

 

 

17,349

 

 

26,664

 

Mortgage banking operations

 

14,138

 

 

10,191

 

 

5,936

 

 

24,329

 

 

9,351

 

Bank-owned life insurance

 

2,317

 

 

1,050

 

 

1,123

 

 

3,367

 

 

2,399

 

Miscellaneous

 

1,550

 

 

2,639

 

 

1,713

 

 

4,189

 

 

2,517

 

 

 

25,551

 

 

23,683

 

 

22,818

 

 

49,234

 

 

40,931

 

Net gain (loss) on sale of securities

 

93

 

 

78

 

 

(28

)

 

171

 

 

(27

)

Net change in valuation of financial instruments carried at fair value

 

2,199

 

 

(4,596

)

 

(114

)

 

(2,397

)

 

(103

)

Total non-interest income

 

27,843

 

 

19,165

 

 

22,676

 

 

47,008

 

 

40,801

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

Salary and employee benefits

 

63,415

 

 

59,908

 

 

55,629

 

 

123,323

 

 

110,269

 

Less capitalized loan origination costs

 

(11,110

)

 

(5,806

)

 

(7,399

)

 

(16,916

)

 

(12,248

)

Occupancy and equipment

 

12,985

 

 

13,107

 

 

12,681

 

 

26,092

 

 

26,447

 

Information / computer data services

 

6,084

 

 

5,810

 

 

5,273

 

 

11,894

 

 

10,599

 

Payment and card processing services

 

3,851

 

 

4,240

 

 

4,041

 

 

8,091

 

 

8,025

 

Professional and legal expenses

 

2,163

 

 

1,919

 

 

2,336

 

 

4,082

 

 

4,770

 

Advertising and marketing

 

652

 

 

1,827

 

 

2,065

 

 

2,479

 

 

3,594

 

Deposit insurance expense

 

1,705

 

 

1,635

 

 

1,418

 

 

3,340

 

 

2,836

 

State/municipal business and use taxes

 

1,104

 

 

984

 

 

1,007

 

 

2,088

 

 

1,952

 

Real estate operations

 

4

 

 

100

 

 

260

 

 

104

 

 

137

 

Amortization of core deposit intangibles

 

2,002

 

 

2,001

 

 

2,053

 

 

4,003

 

 

4,105

 

(Recapture) / provision for credit losses - unfunded loan commitments

 

(905

)

 

1,722

 

 

 

 

817

 

 

 

Miscellaneous

 

5,199

 

 

6,357

 

 

7,051

 

 

11,556

 

 

13,795

 

 

 

87,149

 

 

93,804

 

 

86,415

 

 

180,953

 

 

174,281

 

COVID-19 expenses

 

2,152

 

 

239

 

 

 

 

2,391

 

 

 

Acquisition-related expenses

 

336

 

 

1,142

 

 

301

 

 

1,478

 

 

2,449

 

Total non-interest expense

 

89,637

 

 

95,185

 

 

86,716

 

 

184,822

 

 

176,730

 

Income before provision for income taxes

 

28,135

 

 

21,490

 

 

50,655

 

 

49,625

 

 

92,870

 

PROVISION FOR INCOME TAXES

 

4,594

 

 

4,608

 

 

10,955

 

 

9,202

 

 

19,824

 

NET INCOME

 

$

23,541

 

 

$

16,882

 

 

$

39,700

 

 

$

40,423

 

 

$

73,046

 

Earnings per share available to common shareholders:

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.67

 

 

$

0.48

 

 

$

1.14

 

 

$

1.14

 

 

$

2.09

 

Diluted

 

$

0.67

 

 

$

0.47

 

 

$

1.14

 

 

$

1.14

 

 

$

2.09

 

Cumulative dividends declared per common share

 

$

 

 

$

0.41

 

 

$

0.41

 

 

$

0.41

 

 

$

0.82

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

Basic

 

35,189,260

 

 

35,463,541

 

 

34,831,047

 

 

35,326,401

 

 

34,940,106

 

Diluted

 

35,283,690

 

 

35,640,463

 

 

34,882,359

 

 

35,545,086

 

 

35,028,881

 

Increase (decrease) in common shares outstanding

 

55,440

 

 

(649,117

)

 

(579,103

)

 

(593,677

)

 

(609,129

)



FINANCIAL CONDITION

 

 

 

 

 

 

 

 

Percentage Change

(in thousands except shares and per share data)

Jun 30, 2020

 

Mar 31, 2020

 

Dec 31, 2019

 

Jun 30, 2019

 

Prior
Qtr

 

Prior
Yr Qtr

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

$

291,036

 

 

$

211,013

 

 

$

234,359

 

 

$

187,043

 

 

37.9

%

 

55.6

%

Interest-bearing deposits

128,938

 

 

83,988

 

 

73,376

 

 

59,753

 

 

53.5

%

 

115.8

%

Total cash and cash equivalents

419,974

 

 

295,001

 

 

307,735

 

 

246,796

 

 

42.4

%

 

70.2

%

Securities - trading

23,239

 

 

21,040

 

 

25,636

 

 

25,741

 

 

10.5

%

 

(9.7

)%

Securities - available for sale

1,706,781

 

 

1,608,224

 

 

1,551,557

 

 

1,561,009

 

 

6.1

%

 

9.3

%

Securities - held to maturity

441,075

 

 

437,846

 

 

236,094

 

 

203,222

 

 

0.7

%

 

117.0

%

Total securities

2,171,095

 

 

2,067,110

 

 

1,813,287

 

 

1,789,972

 

 

5.0

%

 

21.3

%

Equity securities

340,052

 

 

 

 

 

 

 

 

nm

 

nm

Federal Home Loan Bank stock

16,363

 

 

20,247

 

 

28,342

 

 

34,583

 

 

(19.2

)%

 

(52.7

)%

Loans held for sale

258,700

 

 

182,428

 

 

210,447

 

 

170,744

 

 

41.8

%

 

51.5

%

Loans receivable

10,283,999

 

 

9,285,744

 

 

9,305,357

 

 

8,746,550

 

 

10.8

%

 

17.6

%

Allowance for credit losses - loans

(156,352

)

 

(130,488

)

 

(100,559

)

 

(98,254

)

 

19.8

%

 

59.1

%

Net loans receivable

10,127,647

 

 

9,155,256

 

 

9,204,798

 

 

8,648,296

 

 

10.6

%

 

17.1

%

Accrued interest receivable

48,806

 

 

40,732

 

 

37,962

 

 

40,238

 

 

19.8

%

 

21.3

%

Real estate owned held for sale, net

2,400

 

 

2,402

 

 

814

 

 

2,513

 

 

(0.1

)%

 

(4.5

)%

Property and equipment, net

173,360

 

 

175,235

 

 

178,008

 

 

171,233

 

 

(1.1

)%

 

1.2

%

Goodwill

373,121

 

 

373,121

 

 

373,121

 

 

339,154

 

 

%

 

10.0

%

Other intangibles, net

25,155

 

 

27,157

 

 

29,158

 

 

28,595

 

 

(7.4

)%

 

(12.0

)%

Bank-owned life insurance

190,468

 

 

193,140

 

 

192,088

 

 

178,922

 

 

(1.4

)%

 

6.5

%

Other assets

258,466

 

 

249,121

 

 

228,271

 

 

196,328

 

 

3.8

%

 

31.7

%

Total assets

$

14,405,607

 

 

$

12,780,950

 

 

$

12,604,031

 

 

$

11,847,374

 

 

12.7

%

 

21.6

%

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing

$

5,281,559

 

 

$

4,107,262

 

 

$

3,945,000

 

 

$

3,671,995

 

 

28.6

%

 

43.8

%

Interest-bearing transaction and savings accounts

5,692,715

 

 

5,175,969

 

 

4,983,238

 

 

4,546,202

 

 

10.0

%

 

25.2

%

Interest-bearing certificates

1,042,006

 

 

1,166,306

 

 

1,120,403

 

 

1,070,770

 

 

(10.7

)%

 

(2.7

)%

Total deposits

12,016,280

 

 

10,449,537

 

 

10,048,641

 

 

9,288,967

 

 

15.0

%

 

29.4

%

Advances from Federal Home Loan Bank

150,000

 

 

247,000

 

 

450,000

 

 

606,000

 

 

(39.3

)%

 

(75.2

)%

Customer repurchase agreements and other borrowings

166,084

 

 

128,764

 

 

118,474

 

 

118,370

 

 

29.0

%

 

40.3

%

Subordinated notes, net

98,140

 

 

 

 

 

 

 

 

nm

 

nm

Junior subordinated debentures at fair value

109,613

 

 

99,795

 

 

119,304

 

 

113,621

 

 

9.8

%

 

(3.5

)%

Accrued expenses and other liabilities

194,964

 

 

208,753

 

 

227,889

 

 

159,131

 

 

(6.6

)%

 

22.5

%

Deferred compensation

45,423

 

 

45,401

 

 

45,689

 

 

40,230

 

 

%

 

12.9

%

Total liabilities

12,780,504

 

 

11,179,250

 

 

11,009,997

 

 

10,326,319

 

 

14.3

%

 

23.8

%

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

Common stock

1,345,096

 

 

1,343,699

 

 

1,373,940

 

 

1,306,888

 

 

0.1

%

 

2.9

%

Retained earnings

201,448

 

 

177,922

 

 

186,838

 

 

178,257

 

 

13.2

%

 

13.0

%

Other components of shareholders' equity

78,559

 

 

80,079

 

 

33,256

 

 

35,910

 

 

(1.9

)%

 

118.8

%

Total shareholders' equity

1,625,103

 

 

1,601,700

 

 

1,594,034

 

 

1,521,055

 

 

1.5

%

 

6.8

%

Total liabilities and shareholders' equity

$

14,405,607

 

 

$

12,780,950

 

 

$

12,604,031

 

 

$

11,847,374

 

 

12.7

%

 

21.6

%

Common Shares Issued:

 

 

 

 

 

 

 

 

 

 

 

Shares outstanding at end of period

35,157,899

 

 

35,102,459

 

 

35,751,576

 

 

34,573,643

 

 

 

 

 

Common shareholders' equity per share (1)

$

46.22

 

 

$

45.63

 

 

$

44.59

 

 

$

43.99

 

 

 

 

 

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

$

34.89

 

 

$

34.23

 

 

$

33.33

 

 

$

33.36

 

 

 

 

 

Common shareholders' tangible equity to tangible assets (2)

8.76

%

 

9.70

%

 

9.77

%

 

10.05

%

 

 

 

 

Consolidated Tier 1 leverage capital ratio

9.83

%

 

10.45

%

 

10.71

%

 

10.83

%

 

 

 

 


(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, 2020

 

Mar 31, 2020

 

Dec 31, 2019

 

Jun 30, 2019

 

Prior
Qtr

 

Prior
Yr Qtr

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

Owner-occupied

$

1,027,399

 

 

$

1,024,089

 

 

$

980,021

 

 

$

854,812

 

 

0.3

%

 

20.2

%

Investment properties

2,017,789

 

 

2,007,537

 

 

2,024,988

 

 

1,832,054

 

 

0.5

%

 

10.1

%

Small balance CRE

624,726

 

 

591,783

 

 

613,484

 

 

619,695

 

 

5.6

%

 

0.8

%

Multifamily real estate

437,201

 

 

400,206

 

 

388,388

 

 

316,274

 

 

9.2

%

 

38.2

%

Construction, land and land development:

 

 

 

 

 

 

 

 

 

 

 

Commercial construction

215,860

 

 

205,476

 

 

210,668

 

 

172,931

 

 

5.1

%

 

24.8

%

Multifamily construction

256,335

 

 

250,410

 

 

233,610

 

 

189,160

 

 

2.4

%

 

35.5

%

One- to four-family construction

528,966

 

 

534,956

 

 

544,308

 

 

502,897

 

 

(1.1

)%

 

5.2

%

Land and land development

235,602

 

 

232,506

 

 

245,530

 

 

273,546

 

 

1.3

%

 

(13.9

)%

Commercial business:

 

 

 

 

 

 

 

 

 

 

 

Commercial business

2,372,216

 

 

1,357,817

 

 

1,364,650

 

 

1,253,137

 

 

74.7

%

 

89.3

%

Small business scored

779,678

 

 

807,539

 

 

772,657

 

 

769,702

 

 

(3.5

)%

 

1.3

%

Agricultural business, including secured by farmland

328,077

 

 

330,257

 

 

337,271

 

 

345,817

 

 

(0.7

)%

 

(5.1

)%

One- to four-family residential

817,787

 

 

881,387

 

 

925,531

 

 

918,212

 

 

(7.2

)%

 

(10.9

)%

Consumer:

 

 

 

 

 

 

 

 

 

 

 

Consumerhome equity revolving lines of credit

515,603

 

 

521,618

 

 

519,336

 

 

542,968

 

 

(1.2

)%

 

(5.0

)%

Consumerother

126,760

 

 

140,163

 

 

144,915

 

 

155,345

 

 

(9.6

)%

 

(18.4

)%

Total loans receivable

$

10,283,999

 

 

$

9,285,744

 

 

$

9,305,357

 

 

$

8,746,550

 

 

10.8

%

 

17.6

%

Restructured loans performing under their restructured terms

$

6,391

 

 

$

6,423

 

 

$

6,466

 

 

$

6,594

 

 

 

 

 

Loans 30 - 89 days past due and on accrual

$

20,807

 

 

$

39,974

 

 

$

20,178

 

 

$

17,923

 

 

 

 

 

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

$

36,269

 

 

$

61,101

 

 

$

38,322

 

 

$

34,749

 

 

 

 

 

Total delinquent loans / Total loans receivable

0.35

%

 

0.66

%

 

0.41

%

 

0.40

%

 

 

 

 


LOANS BY GEOGRAPHIC LOCATION

 

 

 

 

 

 

 

 

 

 

Percentage Change

 

Jun 30, 2020

 

Mar 31, 2020

 

Dec 31, 2019

 

Jun 30, 2019

 

Prior
Qtr

 

Prior
Yr Qtr

 

Amount

 

Percentage

 

Amount

 

Amount

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Washington

$

4,787,550

 

 

46.5%

 

$

4,350,273

 

 

$

4,364,764

 

 

$

4,293,854

 

 

10.1

%

 

11.5

%

California

2,359,703

 

 

22.9%

 

2,140,895

 

 

2,129,789

 

 

1,659,326

 

 

10.2

%

 

42.2

%

Oregon

1,899,933

 

 

18.5%

 

1,664,652

 

 

1,650,704

 

 

1,628,102

 

 

14.1

%

 

16.7

%

Idaho

592,515

 

 

5.8%

 

524,663

 

 

530,016

 

 

548,189

 

 

12.9

%

 

8.1

%

Utah

67,929

 

 

0.7%

 

52,747

 

 

60,958

 

 

62,944

 

 

28.8

%

 

7.9

%

Other

576,369

 

 

5.6%

 

552,514

 

 

569,126

 

 

554,135

 

 

4.3

%

 

4.0

%

Total loans receivable

$

10,283,999

 

 

100.0%

 

$

9,285,744

 

 

$

9,305,357

 

 

$

8,746,550

 

 

10.8

%

 

17.6

%


ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)

The following table shows loan originations (excluding loans held for sale) activity for the quarters ending June 30, 2020, March 31, 2020, and June 30, 2019.

LOAN ORIGINATIONS

Quarters Ended

 

Jun 30, 2020

 

Mar 31, 2020

 

Jun 30, 2019

Commercial real estate

$

111,765

 

 

$

76,359

 

 

$

64,999

 

Multifamily real estate

6,384

 

 

10,171

 

 

19,834

 

Construction and land

290,955

 

 

369,613

 

 

368,224

 

Commercial business

1,318,438

 

 

199,873

 

 

266,768

 

Agricultural business

16,293

 

 

31,261

 

 

18,194

 

One-to four-family residential

24,537

 

 

31,041

 

 

23,363

 

Consumer

126,653

 

 

67,357

 

 

117,869

 

Total loan originations (excluding loans held for sale)

$

1,895,025

 

 

$

785,675

 

 

$

879,251

 


ADDITIONAL FINANCIAL INFORMATION

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

Quarters Ended

CHANGE IN THE

 

Jun 30, 2020

 

Mar 31, 2020

 

Jun 30, 2019

ALLOWANCE FOR CREDIT LOSSES - LOANS

 

 

 

 

 

 

Balance, beginning of period

 

$

130,488

 

 

$

100,559

 

 

$

97,308

 

Beginning balance adjustment for adoption of ASC 326

 

 

 

7,812

 

 

 

Provision for credit losses - loans

 

29,524

 

 

21,713

 

 

2,000

 

Recoveries of loans previously charged off:

 

 

 

 

 

 

Commercial real estate

 

54

 

 

167

 

 

149

 

Construction and land

 

105

 

 

 

 

30

 

One- to four-family real estate

 

31

 

 

148

 

 

230

 

Commercial business

 

370

 

 

205

 

 

215

 

Agricultural business, including secured by farmland

 

22

 

 

1,750

 

 

35

 

Consumer

 

60

 

 

96

 

 

223

 

 

 

642

 

 

2,366

 

 

882

 

Loans charged off:

 

 

 

 

 

 

Commercial real estate

 

 

 

(100

)

 

(393

)

Multifamily real estate

 

 

 

(66

)

 

 

Construction and land

 

(100

)

 

 

 

 

One- to four-family real estate

 

 

 

(64

)

 

 

Commercial business

 

(3,553

)

 

(1,384

)

 

(802

)

Agricultural business, including secured by farmland

 

(62

)

 

 

 

(162

)

Consumer

 

(587

)

 

(348

)

 

(579

)

 

 

(4,302

)

 

(1,962

)

 

(1,936

)

Net (charge-offs)/recoveries

 

(3,660

)

 

404

 

 

(1,054

)

Balance, end of period

 

$

156,352

 

 

$

130,488

 

 

$

98,254

 

Net (charge-offs)/recoveries / Average loans receivable

 

(0.036

)%

 

0.004

%

 

(0.012

)%


ALLOCATION OF

 

 

 

 

 

 

ALLOWANCE FOR CREDIT LOSSES - LOANS

 

Jun 30, 2020

 

Mar 31, 2020

 

Jun 30, 2019

Specific or allocated credit loss allowance:

 

 

 

 

 

 

Commercial real estate

 

$

53,166

 

 

$

29,339

 

 

$

26,730

 

Multifamily real estate

 

3,504

 

 

2,805

 

 

4,344

 

Construction and land

 

36,916

 

 

34,217

 

 

23,554

 

One- to four-family real estate

 

12,746

 

 

11,884

 

 

4,701

 

Commercial business

 

33,870

 

 

31,648

 

 

19,557

 

Agricultural business, including secured by farmland

 

4,517

 

 

4,513

 

 

3,691

 

Consumer

 

11,633

 

 

16,082

 

 

8,452

 

Total allocated

 

156,352

 

 

130,488

 

 

91,029

 

Unallocated

 

 

 

 

 

7,225

 

Total allowance for credit losses - loans

 

$

156,352

 

 

$

130,488

 

 

$

98,254

 

Allowance for credit losses - loans / Total loans receivable

 

1.52

%

 

1.41

%

 

1.12

%

Allowance for credit losses - loans / Non-performing loans

 

418

%

 

299

%

 

534

%


 

 

Quarters Ended

CHANGE IN THE

 

Jun 30, 2020

 

Mar 31, 2020

 

Jun 30, 2019

ALLOWANCE FOR CREDIT LOSSES - UNFUNDED LOAN COMMITMENTS

 

 

 

 

 

 

Balance, beginning of period

 

$

11,460

 

 

$

2,716

 

 

$

2,599

 

Beginning balance adjustment for adoption of ASC 326

 

 

 

7,022

 

 

 

(Recapture) / provision for credit losses - unfunded loan commitments

 

(905

)

 

1,722

 

 

 

Balance, end of period

 

$

10,555

 

 

$

11,460

 

 

$

2,599

 



ADDITIONAL FINANCIAL INFORMATION

 

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

 

Jun 30, 2020

 

Mar 31, 2020

 

Dec 31, 2019

 

Jun 30, 2019

NON-PERFORMING ASSETS

 

 

 

 

 

 

 

Loans on non-accrual status:

 

 

 

 

 

 

 

Secured by real estate:

 

 

 

 

 

 

 

Commercial

$

10,845

 

 

$

8,512

 

 

$

5,952

 

 

$

4,603

 

Multifamily

 

 

 

 

85

 

 

 

Construction and land

732

 

 

1,393

 

 

1,905

 

 

2,214

 

One- to four-family

2,942

 

 

3,045

 

 

3,410

 

 

2,665

 

Commercial business

18,486

 

 

25,027

 

 

23,015

 

 

2,983

 

Agricultural business, including secured by farmland

433

 

 

495

 

 

661

 

 

1,359

 

Consumer

2,412

 

 

1,812

 

 

2,473

 

 

3,230

 

 

35,850

 

 

40,284

 

 

37,501

 

 

17,054

 

Loans more than 90 days delinquent, still on accrual:

 

 

 

 

 

 

 

Secured by real estate:

 

 

 

 

 

 

 

Commercial

 

24 89 — Construction and land— 1,407 332 262 One- to four-family472 1,089 877 995 Commercial business1 77 401 1 Agricultural business, including secured by farmland1,061 461 — — Consumer36 320 398 97 1,570 3,378 2,097 1,355 Total non-performing loans37,420 43,662 39,598 18,409 Real estate owned (REO)2,400 2,402 814 2,513 Other repossessed assets47 47 122 112 Total non-performing assets$39,867 $46,111 $40,534 $21,034 Total non-performing assets to total assets0.28% 0.36% 0.32% 0.18%


Quarters Ended

Six Months Ended

REAL ESTATE OWNED

Jun 30, 2020

Mar 31, 2020

Jun 30, 2019

Jun 30, 2020

Jun 30, 2019

Balance, beginning of period

$

2,402

$

814

$

2,611

$

814

$

2,611

Additions from loan foreclosures

1,588

61

1,588

61

Proceeds from dispositions of REO

(98

)

(150

)

(98

)

(150

)

Gain (loss) on sale of REO

96

(9

)

96

(9

)

Balance, end of period

$

2,400

$

2,402

$

2,513

$

2,400

$

2,513



ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

DEPOSIT COMPOSITION

Percentage Change

Jun 30, 2020

Mar 31, 2020

Dec 31, 2019

Jun 30, 2019

Prior
Qtr

Prior
Yr Qtr

Non-interest-bearing

$

5,281,559

$

4,107,262

$

3,945,000

$

3,671,995

28.6

%

43.8

%

Interest-bearing checking

1,399,593

1,331,860

1,280,003

1,187,035

5.1

%

17.9

%

Regular savings accounts

2,197,790

1,997,265

1,934,041

1,848,048

10.0

%

18.9

%

Money market accounts

2,095,332

1,846,844

1,769,194

1,511,119

13.5

%

38.7

%

Total interest-bearing transaction and savings accounts

5,692,715

5,175,969

4,983,238

4,546,202

10.0

%

25.2

%

Total core deposits

10,974,274

9,283,231

8,928,238

8,218,197

18.2

%

33.5

%

Interest-bearing certificates

1,042,006

1,166,306

1,120,403

1,070,770

(10.7

)%

(2.7

)%

Total deposits

$

12,016,280

$

10,449,537

$

10,048,641

$

9,288,967

15.0

%

29.4

%


GEOGRAPHIC CONCENTRATION OF DEPOSITS

Jun 30, 2020

Mar 31, 2020

Dec 31, 2019

Jun 30, 2019

Percentage Change

Amount

Percentage

Amount

Amount

Amount

Prior
Qtr

Prior
Yr Qtr

Washington

$

6,765,186

56.3

%

$

6,037,864

$

5,861,809

$

5,503,280

12.0

%

22.9

%

Oregon

2,440,617

20.3

%

2,093,738

2,006,163

1,919,051

16.6

%

27.2

%

California

2,224,477

18.5

%

1,828,064

1,698,289

1,399,137

21.7

%

59.0

%

Idaho

586,000

4.9

%

489,871

482,380

467,499

19.6

%

25.3

%

Total deposits

$

12,016,280

100.0

%

$

10,449,537

$

10,048,641

$

9,288,967

15.0

%

29.4

%


INCLUDED IN TOTAL DEPOSITS

Jun 30, 2020

Mar 31, 2020

Dec 31, 2019

Jun 30, 2019

Public non-interest-bearing accounts

$

139,133

$

115,354

$

111,015

$

102,348

Public interest-bearing transaction & savings accounts

136,039

130,958

133,403

121,262

Public interest-bearing certificates

56,609

48,232

35,184

28,656

Total public deposits

$

331,781

$

294,544

$

279,602

$

252,266

Total brokered deposits

$

119,399

$

250,977

$

202,884

$

138,395


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, 2020

Amount

Ratio

Amount

Ratio

Amount

Ratio

Banner Corporation-consolidated:

Total capital to risk-weighted assets

$

1,544,473

14.14

%

$

873,623

8.00

%

$

1,092,028

10.00

%

Tier 1 capital to risk-weighted assets

1,307,925

11.98

%

655,217

6.00

%

655,217

6.00

%

Tier 1 leverage capital to average assets

1,307,925

9.83

%

531,965

4.00

%

n/a

n/a

Common equity tier 1 capital to risk-weighted assets

1,164,425

10.66

%

491,413

4.50

%

n/a

n/a

Banner Bank:

Total capital to risk-weighted assets

1,366,305

12.73

%

858,690

8.00

%

1,073,363

10.00

%

Tier 1 capital to risk-weighted assets

1,232,095

11.48

%

644,018

6.00

%

858,690

8.00

%

Tier 1 leverage capital to average assets

1,232,095

9.47

%

520,183

4.00

%

650,229

5.00

%

Common equity tier 1 capital to risk-weighted assets

1,232,095

11.48

%

483,013

4.50

%

697,686

6.50

%

Islanders Bank:

Total capital to risk-weighted assets

28,579

15.08

%

15,164

8.00

%

18,955

10.00

%

Tier 1 capital to risk-weighted assets

26,207

13.83

%

11,373

6.00

%

15,164

8.00

%

Tier 1 leverage capital to average assets

26,207

8.62

%

12,160

4.00

%

15,200

5.00

%

Common equity tier 1 capital to risk-weighted assets

26,207

13.83

%

8,530

4.50

%

12,321

6.50

%




ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

(rates / ratios annualized)

ANALYSIS OF NET INTEREST SPREAD

Quarters Ended

June 30, 2020

March 31, 2020

June 30, 2019

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

$

152,636

$

1,451

3.82

%

$

152,627

$

1,520

4.01

%

$

47,663

$

567

4.77

%

Mortgage loans

7,314,125

87,172

4.79

%

7,310,115

93,061

5.12

%

6,800,802

90,258

5.32

%

Commercial/agricultural loans

2,599,878

25,200

3.90

%

1,884,006

22,959

4.90

%

1,769,603

24,466

5.55

%

Consumer and other loans

152,438

2,361

6.23

%

163,098

2,595

6.40

%

179,693

2,834

6.33

%

Total loans(1)(3)

10,219,077

116,184

4.57

%

9,509,846

120,135

5.08

%

8,797,761

118,125

5.39

%

Mortgage-backed securities

1,286,223

8,083

2.53

%

1,354,585

9,236

2.74

%

1,354,048

9,794

2.90

%

Other securities

787,957

5,859

2.99

%

458,116

3,310

2.91

%

448,721

3,663

3.27

%

Interest-bearing deposits with banks

212,502

172

0.33

%

92,659

393

1.71

%

53,955

340

2.53

%

FHLB stock

16,620

300

7.26

%

26,522

322

4.88

%

30,902

387

5.02

%

Total investment securities (3)

2,303,302

14,414

2.52

%

1,931,882

13,261

2.76

%

1,887,626

14,184

3.01

%

Total interest-earning assets

12,522,379

130,598

4.19

%

11,441,728

133,396

4.69

%

10,685,387

132,309

4.97

%

Non-interest-earning assets

1,359,975

1,193,256

1,048,811

Total assets

$

13,882,354

$

12,634,984

$

11,734,198

Deposits:

Interest-bearing checking accounts

$

1,376,710

374

0.11

%

$

1,266,647

469

0.15

%

$

1,177,534

564

0.19

%

Savings accounts

2,108,896

998

0.19

%

2,039,857

1,755

0.35

%

1,851,913

2,119

0.46

%

Money market accounts

1,979,419

1,565

0.32

%

1,743,118

2,439

0.56

%

1,497,717

2,656

0.71

%

Certificates of deposit

1,117,547

3,757

1.35

%

1,124,994

4,087

1.46

%

1,105,844

3,684

1.34

%

Total interest-bearing deposits

6,582,572

6,694

0.41

%

6,174,616

8,750

0.57

%

5,633,008

9,023

0.64

%

Non-interest-bearing deposits

4,902,992

%

3,965,380

%

3,652,096

%

Total deposits

11,485,564

6,694

0.23

%

10,139,996

8,750

0.35

%

9,285,104

9,023

0.39

%

Other interest-bearing liabilities:

FHLB advances

156,374

984

2.53

%

405,429

2,064

2.05

%

514,703

3,370

2.63

%

Other borrowings

285,735

238

0.34

%

124,771

116

0.37

%

122,455

67

0.22

%

Junior subordinated debentures and subordinated notes

149,043

1,251

3.38

%

147,944

1,477

4.02

%

140,212

1,683

4.81

%

Total borrowings

591,152

2,473

1.68

%

678,144

3,657

2.17

%

777,370

5,120

2.64

%

Total funding liabilities

12,076,716

9,167

0.31

%

10,818,140

12,407

0.46

%

10,062,474

14,143

0.56

%

Other non-interest-bearing liabilities(2)

188,369

212,162

151,436

Total liabilities

12,265,085

11,030,302

10,213,910

Shareholders' equity

1,617,269

1,604,682

1,520,288

Total liabilities and shareholders' equity

$

13,882,354

$

12,634,984

$

11,734,198

Net interest income/rate spread (tax equivalent)

$

121,431

3.88

%

$

120,989

4.23

%

$

118,166

4.41

%

Net interest margin (tax equivalent)

3.90

%

4.25

%

4.44

%

Reconciliation to reported net interest income:

Adjustments for taxable equivalent basis

(1,974

)

(1,731

)

(1,471

)

Net interest income and margin, as reported

$

119,457

3.84

%

$

119,258

4.19

%

$

116,695

4.38

%

Additional Key Financial Ratios:

Return on average assets

0.68

%

0.54

%

1.36

%

Return on average equity

5.85

%

4.23

%

10.47

%

Average equity/average assets

11.65

%

12.70

%

12.96

%

Average interest-earning assets/average interest-bearing liabilities

174.56

%

166.97

%

166.69

%

Average interest-earning assets/average funding liabilities

103.69

%

105.76

%

106.19

%

Non-interest income/average assets

0.81

%

0.61

%

0.78

%

Non-interest expense/average assets

2.60

%

3.03

%

2.96

%

Efficiency ratio(4)

60.85

%

68.76

%

62.22

%

Adjusted efficiency ratio(5)

57.95

%

63.47

%

59.56

%

(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 $1.0 million, $1.2 million, and $1.1 million for the three months ended June 30, 2020, March 31, 2020, and June 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $963,000, $522,000, and $353,000 for the three months ended June 30, 2020, March 31, 2020, and June 30, 2019, respectively.
(4) Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5) Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP reconciliation tables above under "Executive Overview—Non-GAAP Financial Measures."


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)

(rates / ratios annualized)

ANALYSIS OF NET INTEREST SPREAD

Six Months Ended

June 30, 2020

June 30, 2019

Average
Balance

Interest and
Dividends

Yield/Cost(3)

Average
Balance

Interest and
Dividends

Yield/Cost(3)

Interest-earning assets:

Held for sale loans

$

152,631

$

2,971

3.91

%

$

72,694

$

1,688

4.68

%

Mortgage loans

7,312,120

180,233

4.96

%

6,817,276

179,320

5.30

%

Commercial/agricultural loans

2,241,942

48,159

4.32

%

1,736,735

47,767

5.55

%

Consumer and other loans

157,768

4,956

6.32

%

181,562

5,754

6.39

%

Total loans(1)(3)

9,864,461

236,319

4.82

%

8,808,267

234,529

5.37

%

Mortgage-backed securities

1,320,404

17,319

2.64

%

1,372,978

20,301

2.98

%

Other securities

623,036

9,169

2.96

%

466,330

7,516

3.25

%

Interest-bearing deposits with banks

152,581

565

0.74

%

49,382

629

2.57

%

FHLB stock

21,571

622

5.80

%

31,329

653

4.20

%

Total investment securities(3)

2,117,592

27,675

2.63

%

1,920,019

29,099

3.06

%

Total interest-earning assets

11,982,053

263,994

4.43

%

10,728,286

263,628

4.96

%

Non-interest-earning assets

1,276,615

1,040,248

Total assets

$

13,258,668

$

11,768,534

Deposits:

Interest-bearing checking accounts

$

1,321,679

843

0.13

%

$

1,165,807

1,039

0.18

%

Savings accounts

2,074,377

2,753

0.27

%

1,853,012

4,039

0.44

%

Money market accounts

1,861,268

4,004

0.43

%

1,494,042

4,907

0.66

%

Certificates of deposit

1,121,270

7,844

1.41

%

1,179,320

7,681

1.31

%

Total interest-bearing deposits

6,378,594

15,444

0.49

%

5,692,181

17,666

0.63

%

Non-interest-bearing deposits

4,434,186

%

3,629,136

%

Total deposits

10,812,780

15,444

0.29

%

9,321,317

17,666

0.38

%

Other interest-bearing liabilities:

FHLB advances

280,901

3,048

2.18

%

524,417

6,846

2.63

%

Other borrowings

205,253

354

0.35

%

120,243

127

0.21

%

Junior subordinated debentures and subordinated notes

148,494

2,728

3.69

%

140,212

3,396

4.88

%

Total borrowings

634,648

6,130

1.94

%

784,872

10,369

2.66

%

Total funding liabilities

11,447,428

21,574

0.38

%

10,106,189

28,035

0.56

%

Other non-interest-bearing liabilities(2)

200,265

151,685

Total liabilities

11,647,693

10,257,874

Shareholders' equity

1,610,975

1,510,660

Total liabilities and shareholders' equity

$

13,258,668

$

11,768,534

Net interest income/rate spread (tax equivalent)

$

242,420

4.05

%

$

235,593

4.40

%

Net interest margin (tax equivalent)

4.07

%

4.43

%

Reconciliation to reported net interest income:

Adjustments for taxable equivalent basis

(3,705

)

(2,794

)

Net interest income and margin, as reported

$

238,715

4.01

%

$

232,799

4.38

%

Additional Key Financial Ratios:

Return on average assets

0.61

%

1.25

%

Return on average equity

5.05

%

9.75

%

Average equity/average assets

12.15

%

12.84

%

Average interest-earning assets/average interest-bearing liabilities

`

170.85

%

165.64

%

Average interest-earning assets/average funding liabilities

104.67

%

106.16

%

Non-interest income/average assets

0.71

%

0.70

%

Non-interest expense/average assets

2.80

%

3.03

%

Efficiency ratio(4)

64.69

%

64.59

%

Adjusted efficiency ratio(5)

60.69

%

61.41

%

(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 $2.2 million and $2.1 million for the six months ended June 30, 2020 and June 30, 2019, respectively. The tax equivalent yield adjustment to interest earned on tax exempt securities was $1.5 million and $727,000 for the six months ended June 30, 2020 and June 30, 2019, respectively.
(4) Non-interest expense divided by the total of net interest income (before provision for loan losses) and non-interest income.
(5) Adjusted non-interest expense divided by adjusted revenue. These represent non-GAAP financial measures. See the non-GAAP reconciliation tables above under "Executive Overview—Non-GAAP Financial Measures."


ADDITIONAL FINANCIAL INFORMATION

(dollars in thousands)